Floyd & Ors v John Fairhurst & Co

Issues (i), (ii), (iv) and (vi) involve appeals against the judge’s findings of fact, but the latter are findings of different kinds. Issue (i) ultimately required the judge to form a view as to what Mr Floyd would have done in the hypothetical situation that he had received appropriate advice on CPO relief. Issue (ii) (to the extent that it raises issues of fact) is similar. Issue (iv), on the other hand, required the judge to determine whether the Floyds had made a particular decision, that is, a decision, not made in writing, to pay themselves remuneration in the form of a dividend. This requires an evaluation by the judge of what had actually happened. Issue (vi) required the judge to decide what services Fairhursts had provided which were not for the purposes of the Revenue investigation. The determination of this issue was necessarily likely to be greatly influenced by the contemporaneous documentation.

In those circumstances, I start with some general observations about this court’s approach to findings of fact by a trial judge.

CPR 52.10 and 52.11 provide:

“52.10(1) In relation to an appeal the appeal court has all the powers of the lower court ...

52.11(1) Every appeal will be limited to a review of the decision of the lower court unless ...

(2)

Unless it orders otherwise, the appeal court will not receive

(a)

oral evidence; or

(b)

evidence which was not before the lower court.

(3)

The appeal court will allow an appeal where the decision of the lower court was

(a)

wrong; or

(b)

...

(4)

The appeal court may draw any inference of fact which it considers justified on the evidence.”

The CPR does not, therefore, purport to set out the circumstances in which an appellate court can set aside findings of fact made by a trial judge. However, the CPR equips the appellate court with all the powers to enable it to do so, and to substitute its own findings, in an appropriate case.

The leading authority on the question when an appellate court can set aside findings of fact made in a lower court is Benmax v AustinMotor Co Ltd [1955] AC 370. The House of Lords drew a distinction between findings of specific fact and findings of fact which are really inferences from specific facts. (Specific facts of this kind are now often called “primary facts”.) The House of Lords held that, in the case of inferences from specific facts, the appellate tribunal will more readily form an independent opinion than in the case of findings of specific facts, particularly when the finding of the specific fact was based on the witness’s credibility. Lord Reid said (at page 376):

“... in cases where there is no question of the credibility or reliability of any witness, and in cases where the point in dispute is the proper inference to be drawn from proved facts, an appeal court is generally in as good a position to evaluate the evidence as the trial judge, and ought not to shrink from that task, though it ought, of course, to give weight to his opinion.”

Lord Somervell pointed out that, even where the finding turned on a witness’s credibility, it was impossible to lay down an absolute rule because it might be clear from the judge’s judgment that he had failed to take into account some answer or document which plainly affected the accuracy of a witness or the judge’s general conclusion (page 377).

Benmax v Austin thus draws a sharp distinction between two types of finding, namely those of specific fact and those which are really inferences from specific facts. As the recent decisions of this court show, the situation is more complex than that. Findings of fact range over a spectrum, with findings of fact based exclusively on advantages which the trial judge alone had, at one end, and other findings of fact, including inferences of fact, at the other end.

In Assicurazioni Generali SPA v Arab Insurance Group [2003] 1 WLR 577, Clarke LJ held:-

“14.

The approach of the court to any particular case will depend upon the nature of the issues kind of case determined by the judge. This has been recognised recently in, for example, Todd v Adams & Chope (Trading as Trelawney Fishing Co) [2002] 2 Lloyd’s Rep 293, and Bessant v South Cone Incorporated [2002] EWCA Civ 763. In some cases the trial judge will have reached conclusions of primary fact based almost entirely upon the view which he formed of the oral evidence of the witnesses. In most cases, however, the position is more complex. In many such cases the judge will have reached his conclusions of primary fact as a result partly of the view he formed of the oral evidence and partly from an analysis of the documents. In other such cases, the judge will have made findings of primary fact based entirely or almost entirely on the documents. Some findings of primary fact will be the result of direct evidence, whereas others will depend upon inference from direct evidence of such facts.

15.

In appeals against conclusions of primary fact the approach of an appellate court will depend upon the weight to be attached to the findings of the judge and that weight will depend upon the extent to which, as the trial judge, the judge has an advantage over the appellate court; the greater that advantage the more reluctant the appellate court should be to interfere. As I see it, that was the approach of the Court of Appeal on a “rehearing” under the RSC and should be its approach on a “review” under the CPR. 1998.

16.

Some conclusions of fact are, however, not conclusions of primary fact of the kind to which I have just referred. They involve an assessment of a number of different factors which have to be weighed against each other. This is sometimes called an evaluation of the facts and is often a matter of degree upon which different judges can legitimately differ. Such cases may be closely analogous to the exercise of a discretion and, in my opinion, appellate courts should approach them in a similar way.

17.

In Todd v Adams, where the question was whether a contract of service existed, Mance LJ drew a distinction between challenges to conclusions of primary fact or inferences from those facts and an evaluation of those facts, as follows, at p 319-320, paragraph 129:

“With regard to an appeal to this court (which would never have involved a complete rehearing in that sense), the language of ‘review’ may be said to fit most easily into the context of an appeal against the exercise of a discretion, or an appeal where the court of appeal is essentially concerned with the correctness of an exercise of evaluation or judgment – such as a decision by a lower court whether, weighing all relevant factors, a contract of service existed. However, the references in rule 52.11 (3) and (4) to the power of an appellate court to allow an appeal where the decision below was ‘wrong’ and to ‘draw any inference of fact which it considers justified on the evidence’ indicate that there are other contexts in which the court of appeal must, as previously, make up its own mind as to the correctness or otherwise of a decision, even on matters of fact, by a lower court. Where the correctness of a finding of primary fact or of inference is in issue, it cannot be a matter of simple discretion how an appellate court approaches the matter. Once the appellant has shown a real prospect (justifying permission to appeal) that a finding or inference is wrong, the role of an appellate court is to determine whether or not this is so, giving full weight of course to the advantages enjoyed by any judge of first instance who has heard oral evidence. In the present case, therefore, I consider that (a) it is for us if necessary to make up our own mind about the correctness or otherwise of any findings of primary fact or inferences from primary fact that the judge made or drew and the claimants challenge, while (b) reminding ourselves that, so far as the appeal raises issues of judgment on unchallenged primary findings and inferences, this court ought not to interfere unless it is satisfied that the judge’s conclusion lay outside the bounds within which reasonable disagreement is possible. In relation to (a) we must, as stated, bear in mind the important and well-recognised reluctance of this court to interfere with a trial judge on any finding of primary fact based on the credibility or reliability of oral evidence. In the present case, however, while there was oral evidence, its content was largely uncontentious.”

In the same case Neuberger J stressed (at paragraphs 61 to 64) that the question whether there was a contract of service on the facts involved the weighing up of a series of factors. Thorpe LJ agreed with both judgments.”

Mr Bartley Jones seeks to drive a wedge between the judgment of Clarke LJ cited above and the passage which Clarke LJ cites from the judgment of Mance LJ in Todd’s case. He characterises the latter as evidence of a more “activist” approach to intervention by an appellate court in a trial judge’s findings of fact. The purpose for which the passage is cited by Clarke LJ is that it recognises that there is a subset of findings of fact where the appellate court is reluctant to interfere. Those are cases where the findings of fact are based on the reliability or credibility of oral evidence. Both judgments are in accord on that point.

Cases where an appellate court needs to exercise caution before interfering with a trial judge’s factual findings are not confined to those where the factual finding turned on the credibility or reliability of oral evidence. As Lord Hoffmann said in Biogen v Medeva plc [1997] RPC 1, 45:

“The need for appellate caution in reversing the judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance (as Renan said, la vérité est dans une nuance), of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation. It would in my view be wrong to treat Benmax as authorising or requiring an appellate court to undertake a de novo evaluation of the facts in all cases in which no question of the credibility of witnesses is involved. Where the application of a legal standard such as negligence or obviousness involves no question of principle but is simply a matter of degree, an appellate court should be very cautious in differing from the judge’s evaluation.”

Therefore, in determining whether a factual finding is of a type which an appellate court should only set aside with reluctance, it is relevant to ascertain whether the finding was based on the judge’s findings as to the credibility or reliability of a witness’s oral evidence and also whether the finding is in truth a complex evaluation of a number of factors which the judge would have made based on his perception of the case over the course of the trial and necessarily not fully expressed in his reasons for the finding in his judgment. I would add that in many cases the identification of factual findings of this subtle type is almost an instinctive process to the appellate court, and it finds its expression in the commonplace formula that the trial judge was, or was not, entitled to reach a particular conclusion.

The above discussion leads to the question of the standard of review to be applied to the trial judge’s factual findings. As Mance LJ points out in Todd’s case, the basic standard is the correctness standard. The appellate court is bound to reach a view as to whether the decision of the lower court is “wrong” (CPR 52.11(3)(a)). However, the correctness standard cannot apply simpliciter where the factual finding is based on the credibility or reliability of oral evidence or involves the more complex evaluation to which Lord Hoffmann refers in Biogen v Medeva plc. Furthermore, findings of that type are likely also to be on a spectrum ranging from findings based exclusively on the judge’s determination of a conflict of oral evidence at one end to findings involving an evaluation which the appellate court can sensibly review at the other end. Hoffmann LJ gave valuable guidance on this problem in Re Grayan Ltd [1995] Ch.241, 254-255:

“Once one is clear about the precise nature of the decision which the judge has to make, it is easier to decide how an appellate tribunal should approach an appeal against his decision. The judge is deciding a question of mixed fact and law in that he is applying the standard laid down by the courts (conduct appropriate to a person fit to be a director) to the facts of the case. It is in principle no different from the decision as to whether someone has been negligent or whether a patented invention was obvious: see Benmax v Austin Motor Co Ltd [1955] AC 370. On the other hand, the standards applied by the law in different contexts vary a great deal in precision and generally speaking, the vaguer the standard and the greater the number of factors which the court has to weigh up in deciding whether or not the standards have been met, the more reluctant an appellate court will be to interfere with the trial judge’s decision. So in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 Lord Bridge of Harwich was considering the application of the test of ‘fair and reasonable’ in the Unfair Contract Terms Act 1977. He said at pages 815 to 816:

‘It would not be accurate to describe such a decision as an exercise of discretion. But [such] a decision under any of the provisions referred to will have this in common with the exercise of a discretion that, in having regard to the various matters to which ... section 11 of the Act of 1977 direct[s] attention, the court must entertain a whole range of considerations, put them in the scales on the one side or the other, and decide at the end of the day on which side the balance comes down. There will sometimes be room for a legitimate difference of judicial opinion as to what the answer should be, where it will be impossible to say that one view is demonstrably wrong and the other demonstrably right. It must follow, in my view, that, when asked to review such a decision on appeal, the appellate court should treat the original decision with the utmost respect and refrain from interference with it unless satisfied that it proceeded upon some erroneous principle or was plainly and obviously wrong.’

Similar comments were made in this court in In re Coventry, decd. [1980] Ch. 461 about a decision as to whether a testator had made ‘reasonable financial provision’ for a dependant for the purposes of the Inheritance (Provision for Family and Dependants) Act 1975. Buckley LJ, at pages 495 to 496, described such a decision as a ‘value judgment’ which should not be disturbed unless the judge had made an error of principle.

These cases are at one end of a spectrum and decisions such as whether a motorist has driven with due care and attention are probably somewhere near the other end. Where lies the decision that a director’s conduct fell below the appropriate standards? In my view, near to the negligence end than that represented by Finney Lock or Coventry ...”

In Bessant’s case, Robert Walker LJ summarised the matter in this way at paragraph 26:-

“How reluctant should an appellate court be to interfere with the trial judge’s evaluation of, and conclusion on, the primary facts? As Hoffmann LJ made clear in the Grayan case [1995] Ch.241 there is no single standard which is appropriate to every case. The most important variables include the nature of the evaluation required, the standing and experience of the fact-finding judge or tribunal, and the extent to which the judge or tribunal had to assess the oral evidence.”

In some cases, therefore, the appropriate standard to be applied is that indicated by Clarke LJ in paragraph 16 of his judgment in the Assicurazioni case, namely did the judge’s finding go beyond the margin within which judges can legitimately differ? In the same case, Ward LJ borrowing a concept used by the European Court of Human Rights, referred to the trial judge’s “margin of appreciation”.

I now turn to the various factual findings of the judge challenged in this case. They are instructive as they show some of the variety of different findings of fact which an appellate court can be called on to consider. The question whether the Floyds made a decision before the end of the company’s financial year, to pay remuneration to themselves out of the company’s 1989 profits in the form of a dividend rather than bonuses, and communicated that decision to Fairhursts (issue (iv)), is at the end of the spectrum of factual findings where the trial judge must be accorded a “margin of appreciation” (per Ward LJ). This question turned largely on the oral evidence of Mr Floyd, whom the judge did not consider to be a satisfactory witness for the reasons he gave. It would not, therefore, be right for this court to interfere unless the appellant can show that the judge was plainly wrong. The same approach can in my view be taken to the question whether the judge should have found that the appellants were liable for the sum of £12,943 in respect of Fairhursts’ fees (issue (vi)). The judge had documentary evidence which supported his conclusion. To that extent this issue differs from that concerning the decision to pay a dividend. But we have not seen and were not invited to consider that documentation and the appellants made no challenge to the respondents’ submission that the documentation would have provided assurance to the judge in his conclusion. The contentious issue was whether the judge could make his factual finding on the basis of oral and other indirect evidence alone, and seen from that perspective, it seems to me that the standard of review for this finding must be similar to that applied to issue (iv).

The more complex situation is the factual finding in issue (i). To reach his conclusion on that hypothetical matter, the judge had to build up a model of Mr Floyd, identifying his individual characteristics: his strengths and weaknesses, knowledge, experience, proclivities, temperament and so on. The judge then had to ask what, hypothetically, a person, with all those characteristics, would have done if given advice that he could, by reinvesting the compensation he received appropriately, defer a tax bill of £156,560. This is a complicated question as it involves keeping in mind the particular characteristics of Mr Floyd, and all the other relevant considerations, such as other options open to him, the prospects for reinvestment, the extent of the advantage offered to a man in his financial position of deferring tax on this basis, any risk attached to this sort of investment of which he would have been aware and so on. In my judgment, there are a number of factors in this case which push this situation into that sphere where the appellate court should exercise reluctance to intervene. First, the evaluation had fundamentally to be based, in this case, on the judge’s evaluation of Mr Floyd’s oral evidence as there were no contemporaneous documents indicating what he would have done. Second, the standard is not that of a hypothetical person with no special characteristics, but that of a hypothetical person with Mr Floyd’s characteristics. Third, the choice between PPR relief and CPO relief was a finely balanced one. The choice Mr Floyd would have made would depend between them on the extent to which he personally would give their advantages and disadvantages priority. The subjective elements in this complex evaluation mean that the trial judge had an advantage by hearing the oral evidence in this case which this court does not have. Accordingly, in my judgment, we should be reluctant to intervene. Nonetheless, we have an obligation to intervene if we are satisfied that the judge is plainly wrong or if it is clear that the reasons he gave are materially deficient or if he failed to take account of a significant and relevant factor.

Issue (ii) is a mixed question of fact and law. The judge had to decide how likely it was that the liability to pay the tax deferred by taking CPO relief would crystallise. The judge had to ask himself, having heard the evidence, how likely it was that Mr Floyd would decide in the future to cease to be invested in property (other than his own dwelling house). Again, that determination would largely turn on the complex picture of Mr Floyd which the judge would have built up over the full course of the trial, and this court should thus exercise restraint in differing from him.

With that introduction, I turn to the individual issues which arise on this appeal.

The company owned 1.06 acres of the site compulsorily purchased, and Mr Floyd 0.9 acres. The compensation paid by Salford for the land was apportioned as to £127,200 to the company and as to £108,000 to Mr Floyd. However, the overall compensation package favoured Mr Floyd, and this was the result of a change in the arrangements made at a late stage in the negotiations. By letter dated 11 February 1991, Mr King of Dunlop Heywood, the surveyors acting on behalf of Mr Floyd and the company in the negotiations with Salford, informed Ridgway Greenall & Co, the appellants’ solicitors, that it had been agreed that the company would receive £512,000 and Mr Floyd £388,000. The ultimate apportionment, however, was £341,692.50 to the company and £558,307.50 to Mr Floyd. The appellants provided no explanation for this apportionment and in evidence Mr Floyd accepted that he had not told Mr King, the surveyor acting for him in the negotiations with Salford, that the company could shelter the gain on disposal.

In my judgment, the judge approached issue (i) in a logical and methodical way. He took the evidence of Mr Floyd as his starting point and then tested it by reference to various objective factors which could be expected to throw light on the reliability of his evidence. He took into account the merits and demerits of a decision to take CPO relief. There were three main factors which led the judge to his conclusion on this issue: Mr Floyd’s failure to follow up the initial advice and his allowing the compensation negotiations to place the larger gains with himself ([A]), the failure to change course in October 1993 and to seek an extension of time for claiming CPO relief ([B]), and his preference for flexibility ([C]). The judge, however, looked at the matter in the round because he says at the start of his conclusion: “Taking the evidence as a whole ...”. Although the judge does not refer to it, the evidence of Mr Smethurst, Fairhursts’ tax partner, was that when he gave advice to Mr Floyd prior to the acquisition of Westage Farm, his impression was that Mr Floyd was not interested in rollover relief, and had other plans for investing the compensation money.

Mr Bartley Jones challenges each of the main supports for the judge’s conclusion. On the first point, it is, in my judgment, obscure how the compensation came to be allocated as it was. The judge did not say more than that Mr Floyd allowed the compensation to be apportioned in a particular way. Given that Mr Floyd did not advise his surveyor, Mr King, that the company could obtain CPO relief, there must be some force in the judge’s point that for Mr Floyd to allow the compensation proceeds to be apportioned without raising this point, if it was of concern to him, is an indication that it was not really a concern to him. Moreover, there is no good explanation for Mr Floyd’s failure to consider changing course in October 1993. It was undoubtedly open to him to seek an extension of time. He would have to have sold Westage Farm, but he was going to do that in any event. The only difference would be that he could not claim PPR relief on the proceeds, and then seek to claim CPO relief by investing them in other property. In all the circumstances it was, in my judgment, open to the judge to conclude that Mr Floyd’s preference would have been for a tax-free gain yielding proceeds which he was free to invest as he saw fit. I do not consider that Mr Bartley Jones has been able to show that the judge’s conclusion was plainly wrong or that he omitted to take into account some significant and relevant matter.

There is a sub-issue as to whether Mr Floyd could, in fact, have found a suitable property in which to reinvest for the purposes of CPO relief. Mr Floyd’s evidence at trial was that he would only have considered a substitute property within a radius of 10 to 14 miles from Warrington. There was no evidence that any such property was available. The appellants’ original expert evidence did not deal with this question. Prior to the trial, the appellants had sought leave to adduce further expert evidence which they considered was directed to this issue, but leave was opposed by the respondents and refused by District Judge Beattie. The appellants appealed this ruling but at the end of a lengthy hearing before HHJ McGonigal they withdrew their appeal. The appellants took the view that the respondents would not take any point on the availability of substitute properties. Miss Lonsdale denies that she made any such concession. Having considered the transcript of the hearing before HHJ McGonigal in full, what appears to have taken place was this. The judge suggested that the trial judge could infer the availability of a substitute property from relevant property indices already in evidence (supplemented by evidence as to their compilation). Miss Lonsdale accepted that this was a possible outcome if the only issue was whether Mr Floyd could have bought a substitute property somewhere in the UK. However, Miss Lonsdale clearly laid down a marker that there was a complete gap in Mr Floyd’s evidence at that stage as to what he would actually have done if advised as to the possibility of CPO relief, and that the property indices in evidence would not fill that gap in the evidence if the issue turned out to be whether he would have purchased a property only within a particular area. HHJ McGonigal understandably did not envisage this possibility as there was no evidence at all on this point from Mr Floyd at this stage. In those circumstances, I am satisfied that the respondents were fully entitled to take the point at the trial that there was no evidence as to the availability of substitute properties. Accordingly, I reject Mr Bartley Jones’ submission that by reason of the stance taken by Miss Lonsdale at the hearing before HHJ McGonigal the appellants were prevented from adducing evidence on this issue. The question would then have arisen whether the availability of substitute property in the relevant area could be inferred from other evidence. As this issue does not, in my judgment, arise, I need not deal with it. However, there is considerable force in Mr Bartley Jones’ point that the judge proceeded to determine the damages payable in case he was wrong on issue (i), and that in so doing the judge by implication accepted that there were suitable substitute properties available for purchase.

In view of my judgment on issue (i), this point does not arise for decision. The judge applied the discount “having regard to all the factors, on the facts of this case”. It would have been helpful if the judge had spelt out those factors which he regarded as material, but no point has been taken on that. The size of the discount would be conditioned by such matters as to whether Mr Floyd would want to invest the money in another business which would not qualify for CPO relief. None of the points made by Mr Bartley Jones leads to the conclusion that the 25% discount was not one which the judge could reasonably decide on.

Again, this issue does not arise for decision but, as it has been argued, I will deal with it.

Mr Floyd can have no complaint that the judge failed to hold that he should make any award of damages to compensate for the loss of capital appreciation and income stream on the property that he could have purchased in order to take CPO relief. The appellants accepted at trial that these matters could be adequately compensated for by an award of interest.

In my judgment, the judge was correct to require the tax savings made both on Westgate Farm and The Farthings to be brought into account. Mr Floyd could not have made those tax savings if he had elected for CPO relief, and hence he would recover more than his loss if those tax savings were not brought into account. I am not persuaded that The Farthings should be left out of account because it was vested in a discretionary trust. Mr and Mrs Floyd disposed of it voluntarily, and moreover did so on the basis that the capital could be returned to them. They can be added as beneficiaries at any time. That might result in a breach of trust, but even that is not wholly clear. Nor is it clear that anyone could complain about it.

Mr Bartley Jones made submissions about interest, but in the circumstances it is not necessary for me to deal with them.

I have already expressed the view that an appellate court should be reluctant to interfere with a finding of this nature. Nothing that has been suggested shows that it is plainly wrong. On the contrary, it is supported by the Floyds’ approval of, and signature to, the 1989 accounts of the company. I would, therefore, dismiss the appeal on this issue.

This point does not now arise, but, as it involves an important point of law and has been fully argued, I will deal with it.

The judge netted the loss to the two shareholders against the gain to the company resulting from the payment of the directors’ remuneration of £70,000 as bonuses rather than as dividend. As the decision to pay this sum was taken by all three appellants (the Floyds being the sole directors of the company), and the Floyds stand to gain by the company’s gain, the judge’s conclusion accords with common sense and fairness.

Mr Bartley Jones’ submission is that the judge’s approach offends fundamental principles of company law. The company is a separate entity in law, and therefore the claim of the two individual appellants should not be affected by the gain the company happened to make. For my part, I do not consider that the judge’s approach is offensive to such basic principles.

It is now well established that a shareholder may not bring proceedings to recover loss which is merely reflective of loss suffered by his company. This is so even if he can establish that he has a cause of action separate from the company: see Johnson v Gore Wood [2002] 2 AC 1. An obvious example of reflective loss arises where a professional adviser gives negligent advice to a company and a shareholder, as a result of which both suffer loss. If the shareholder’s loss takes the form of dividends he would otherwise have expected to receive from the company, that is reflective loss which he cannot recover from the professional adviser. This principle applies where the shareholder is effectively the sole shareholder of the company: Humberclyde Finance Group Ltd v Hicks [2002] AER (D) 202. It may not apply in other cases.

The judge’s approach is really an application of the principle of reflective loss by analogy. Just as a shareholder cannot recover for loss he suffers which merely reflects loss which the company also suffers, so too he must give credit for a gain which the company achieved as a result of the negligence on which he sues.

One of the reasons for the principle of reflective loss is to ensure that the wrongdoer is not made liable twice for the same damage. The application of the principle of reflective loss by analogy in this case is likewise to ensure that the wrongdoer is not made liable for more than the loss he has actually caused. It is sufficient for the purposes of this case to proceed on the basis that the principle applies only where the shareholder is effectively the sole shareholder of the company in question, as the Floyds are here. But, if the principle extends more widely, other shareholders of the company would not be prejudiced as the company retains the gain it has made. For the same reason, creditors of the company are not prejudiced.

Again, the question of the amount for which the appellants were liable to Fairhursts for their fees was a question of fact for the judge. He did not have Fairhursts’ time sheets but he had other evidence as to the services supplied. In my judgment, his decision to accept the apportionment which Fairhursts had made before the time sheets were lost cannot be said to have been plainly wrong. Accordingly, I would dismiss the appeal on this point

Mr Bartley Jones has not given any reason for his submission that the date fixed by the judge for the accrual of interest was wrong or that the rate was excessive, and accordingly, I see no reason to interfere with the judge’s decision on these points.

To succeed on this aspect of the appeal, Mr Bartley Jones must show that, in the exercise of his discretion as to costs, the judge erred in principle in making Mrs Floyd jointly and severally liable with Mr Floyd and the company for the costs of the action. Mrs Floyd’s claim was, as Mr Bartley Jones points out, limited to the loss in consequence of the alleged failure of Fairhursts to cause the company to pay a dividend. The judge did not give reasons for his decision to make an order against Mrs Floyd. However, in her submissions on costs, Miss Lonsdale made the following points: that the respondents would not know until they sought to enforce any costs order whether or not Mr and Mrs Floyd held their assets in joint names, that Mrs Floyd was a director of the company “so it is all family money really” and that, “if this claim had succeeded, Mrs Floyd would have benefited through the company and through Mr Floyd.”

The final submission of Miss Lonsdale summarised above follows from evidence which Mr Floyd gave in the course of the trial. He told the judge that he and his wife owned all their assets jointly, including their bank accounts and their homes. In essence, therefore, the claimants’ case was that there was an identity between the financial interests of Mr and Mrs Floyd. In addition, there was evidence that Mr and Mrs Floyd, as trustees of the discretionary trust, had made a loan of £100,000 for the purpose of funding the legal costs of this litigation.

In my judgment, while Mrs Floyd’s claims did not overlap with those of Mr Floyd save in the minor respect mentioned above, she stood to benefit from success on all the issues in the action, as Miss Lonsdale submits. It cannot be said that her role in assisting in the provision of finance for the litigation was simply that of a disinterested observer. She had participated in funding the litigation as a person who stood to benefit substantially therefrom. In those circumstances, I consider that the judge was entitled to take the view that she should be jointly and severally liable with Mr Floyd and the company for the costs of the action.

It is a separate point whether, if no order had been made against Mrs Floyd, this would leave open the possibility that Mr Floyd might transfer assets to Mrs Floyd and avoid payment of the costs ordered to be paid to the respondents. In my view this factor would not of itself be enough to justify an order against Mrs Floyd. If the respondents were unable to recover their costs for this reason, there would be other remedies open to them, including section 423 of the Insolvency Act 1986 (transactions defrauding creditors). However, the real reason, as it seems to me, why the judge made an order against Mrs Floyd was the final submission Miss Lonsdale made. On Mr Floyd’s evidence, Mrs Floyd stood to benefit from 50% of any damages awarded in the action. In addition, she stood to benefit as a 50% shareholder in the company.

Accordingly, I would dismiss the appeal on this point.

In my judgment, the judge was entitled to reach the conclusion that it was not shown that the appellants could not have paid their tax on time. The onus was on the appellants to prove their loss, i.e. that, because they were not properly advised, they failed to submit their accounts to the Revenue and pay their tax on time, and so incurred interest and penalties. They discharged the evidential burden on them by producing an analysis of their funds in bank accounts which showed that the tax due on each date between 1 January 1985 and 1 January 1991 could have been paid out of the appellants’ bank balances on that date. The respondents sought to adjust figures for further liabilities, principally tax liabilities, but some of those liabilities do not appear to have been liabilities which were payable by virtue of the terms of the Revenue settlement. In my view, these were correctly left out of account (see cross-appeal issue (b)). The respondents also pointed out that the bank balances would have been needed for other purposes: the amounts, however, involved were not quantified, and the table did not deal with the loans and other facilities on which the appellants could draw. The company, for instance, had the benefit of a business development loan of £100,000. The respondents also referred to the fact that the appellants had obtained the sum of £100,000 for which there was no explanation. However, this did not result in any tax liability. There was no evidence that the £100,000 represented a liability. Moreover, there was no cash flow statement: bank balances were simply shown on given dates. Not all the respondents’ criticisms of the appellants’ table were put to the appellants’ expert witness who produced it. In all the circumstances, the judge was, in my judgment, entitled to decide that the respondents’ challenge failed and that the appellants had discharged the onus on them.

It is highly regrettable that Mr Floyd told an untruth to the Revenue about his liability for Mr Leech’s share of the partnership tax, but there is no principled basis for giving the respondents the benefit of his misdeed in this respect. The respondents were held liable to Mr Floyd for one-half of the interest and penalties he incurred to the Revenue because tax was paid late. The amount on which interest is calculated does not include any amount in respect of which Mr Floyd was not himself taxed. In my judgment, the proper impact of Mr Floyd not being liable in respect of Mr Leech’s share of partnership tax and having saved tax in respect of the storage charges was, so far as the respondents are concerned, to reduce the amount on which interest is calculated. The judge went further in relation to the storage charges by bringing into account the gain which Mr Floyd made through having the money he ought to have paid to the Revenue longer than he would have had if he had paid his tax on time. The line which the judge was drawing was a fine one, but in my judgment, his treatment of storage charges was not inconsistent. To have required the £12,807 to be brought into account, the judge would have to have held that a further sum was due, even though the Revenue had decided it was not due. In my judgment, it would have been unjust to Mr Floyd so to have held. But, as respects the timing of the tax liabilities, the judge could see that Mr Floyd (perhaps through the negotiating skill of his advisers) had obtained a benefit which he could fairly be required to be brought into account.

For the reasons given above, I would dismiss the appeal and the cross-appeal.