Baker Tilly (A Firm) v Makar

Miss Makar was the defendant to an action brought by the claimant firm of accountants for fees. She had engaged the accountants to provide forensic accounting services for her. On any view there was a contract to provide an expert report and, if necessary, expert evidence for a claim she was making in the Employment Tribunal (“ET”). She settled the ET claim with her opponents. The question in this present litigation was what if any contractual obligation the parties had undertaken other than the provision of a report for the ET; on that depended whether the accountants were entitled to the fees they claimed. The judge held that they were. Miss Makar appeals.

Miss Makar, who is herself an accountant, was immersed in a dispute with a public company called Triad Group PLC (“Triad”). By the time the claimant firm, Baker Tilly, came into the picture the dispute was well advanced. So far as litigation went, it took the form of her claim for unfair dismissal and associated relief made to the ET. It was not, however, a conventional unfair dismissal claim and Miss Makar had been far more than a simple employee. She had been chief executive officer, executive deputy chairman and finance director of Triad, and she was a substantial shareholder with, so it appears, some 29.9% of the issued share capital. In her evidence at the trial she made it clear that she regarded herself as having been the effective creator of Triad, although if so she was certainly no longer in control of it. There was a major boardroom dispute between herself and other directors. It arose because she asserted (and believed) that there had been serious financial irregularities in the company, to the extent of some £5m. She asserted that the result was that the company had gone from showing a profit to showing a loss, and that there had been breaches of fiduciary duty by officers of the company which prejudiced the shareholders, including herself. She had made public her concerns, speaking to the company’s brokers - without it would seem the agreement of the Board – and indeed had unilaterally instructed private enquiry agents to investigate some of the company’s affairs. She had been first suspended from her position as CEO, and eventually, on 8 December 2005, removed, as both CEO and director. Her claim to the ET included the claim that she had been victimised as a “whistleblower” and that the disclosures were, for the purposes of the relevant law, protected. It ought to be recorded that in due course it was accepted by the company that she had reasonable grounds for her anxiety and that the circumstances in which she was dismissed were unfortunate, although not that there had in fact been any impropriety, nor that the fall in the company’s share price was attributable to fault.

The claim to the ET was launched on 6 March 2006, three months after her dismissal. The first contact with Baker Tilly was an exploratory telephone enquiry made on her behalf by her brother on 24 August 2006, and the first and only time she herself met them prior to the ET hearing was a long meeting on 7 September. By then the ET claim was well advanced and a hearing was expected in the Autumn. Soon afterwards, on 19 September, it was fixed to start on Monday 6 November. The potential dimensions of the issues raised by Miss Makar can perhaps be gauged by the fact that the ET set it down for no less than 34 days, or seven weeks. Before there was any contact with Baker Tilly there had been three case management hearings. At the third, on 1 August, the ET had given leave for expert evidence to be adduced and had issued directions for service of reports by 13 October.

Miss Makar’s instruction of Baker Tilly was to act for her as forensic accountants in this dispute. A large measure of the disagreement at trial was exactly what it was the parties agreed that Baker Tilly should do. It was common ground that they agreed to provide an expert report for the purpose of the ET proceedings, and to give evidence if necessary before the Tribunal. Miss Makar’s case was that her aims had not been limited to the ET proceedings. It is and was clear that from her point of view that was so. The judge accepted that she harboured additional potential purposes to which she wished to put any report obtained, and indeed the principal witness from Baker Tilly, Mr White, conceded as much. It is plain that she was determined to prove that she was right and the company wrong, although exactly what her wider aims consisted of was a good deal less clear. Her evidence suggested a somewhat scatter-gun approach, but the linking factors were, plainly, a desire to vindicate her reputation on the national commercial stage and a wish, as she put it at the trial, “to restore Triad to its previous glory”. Amongst her targets were the existing directors of Triad, and its audit committee. But en route to her general objectives, she also proposed an attempt to demonstrate what she believed were serious shortcomings in the professional behaviour of both the company auditors and the company solicitors. She seems to have contemplated making a case to a number of different regulators and/or professional bodies, including (but not limited to) the Financial Services Authority, the Law Society, the Institute of Chartered Accountants and the DTI. Her case throughout was that she had reached a concluded agreement with Baker Tilly for them to provide the necessary report for these additional purposes as well as for the ET proceedings. Whether this was so or not was the dispute which lay at the heart of the trial before HH Judge Seymour QC in the High Court. It mattered, because as things turned out the ET proceedings were settled late at night on 3 November 2006, 48 hours before they were due to begin, after a day-long mediation meeting which did not involve the accountants. The occasion for providing a report to the tribunal accordingly disappeared.

The Judge heard a good deal of evidence, including that of Miss Makar and her brother, and those at Baker Tilly who had dealings with her. He also had a number of documents, which included in some instances the contemporaneous notes made by Mr White, of Baker Tilly, who was the principal point of contact for the Makars. In due course the judge held that the contractual position had to be analysed into three parts:

Baker Tilly’s claim was calculated as follows:

In finding the contractual position to be as I have set out above, the judge rejected the evidence of Miss Makar and her brother where it was in conflict with that of the representatives of the claimant accountants. He described their evidence as ‘constructed on an opportunistic basis’ and as characterised by ‘essentially just making things up in answer to questions put’. Specifically he rejected Miss Makar’s contention that there had been a single contract, formed as early as 7 November, for the preparation of a single report which would serve the different purposes of standing as an expert report in the ET proceedings and also supporting any of the various further campaigns or applications which she wished to consider. The assessment of witnesses is a task which the trial judge must perform and which it is perilous for this court, which does not see them, to attempt. I say only that the transcript amply justifies the judge’s description of the evidence of Miss Makar and her brother.

There had been a number of other issues raised by Miss Makar in the trial, which are not now before us. She had contended that the accountants were in breach of contract in failing to supply a particular partner as her expert witness. The contention that that had ever been the agreement was rejected on the facts, and there is no appeal. She had also contended that the accountants should never have acted for her at all because there was a conflict of interest. That turned out to be groundless on the facts, because Triad had never been a client of the accountants and no confidential information had ever been provided to them, but even if there had been a conflict, it would not have been a breach of duty to Miss Makar to act, but rather a breach of duty to Triad. Thirdly she had contended that the accountants had failed to provide their report in time for her mediation negotiations when the ET claim was settled. That failed for a number of reasons, not least that she had never told them that such a meeting was taking place, but again it is not before us. Lastly, Miss Makar had counterclaimed for damages of several million pounds, including for the reduced value of her shares, contending that if the report had been provided, the board of Triad would have fallen, the company would have flourished again, and her shares would have increased substantially in value. That rather speculative assertion inevitably failed, and there is no appeal against that part of the judge’s decision.

That these additional contentions made by Miss Makar were unsubstantiated, and indeed incapable of being substantiated, does not of course mean that her defence to the accountants’ claim is equally groundless. That had to be assessed on its merits. The judge did assess it on its merits, entirely independently of his conclusions on these ancillary contentions, and in some considerable detail.

In this appeal, Miss Makar’s principal point, which embraces her grounds 1-3, is a subtle but significant variation of her original case. We are grateful to Miss Smith who has appeared on her behalf pro bono. She now presents this appeal on the basis that there is no challenge to the judge’s conclusion that the principal, or second-stage, contract was formed as he found on or about 17 October. She has contended, however, that this was not a contract limited to providing a report for the ET. It was, she says, a contract for a report as required by the solicitors’ letter of instruction, to be provided whether or not the ET proceedings remained extant. With that contention goes the submission that the contract was not brought to an end by the telephone call on 4 November which notified settlement. That message, it is said, was no more than a polite indication to the accountants that the work did not now need to be done over the weekend. It was a pause rather than a termination, the obligation to provide the report continued, and the pause was lifted by Mr Britton’s telephone call on Monday 6^th.

Miss Smith supports this argument by the submission that this was an entire contract. It follows, she says, that there was no room for an implied term, such as the judge found, that the client could terminate it if the litigation settled. An entire contract is one for a lump sum under which no payment can be required for merely part performance, except in case of frustration or unlawful prevention of performance by one party, neither of which applies here.

I do not think that this variation of the defendant’s argument can succeed any more than her original contention, pursued at trial, that there was a single agreement made in early September for a report covering all purposes. This was clearly not a contract to produce an all-purpose report. But nor was it even a contract to provide a report covering the matters set out in the solicitors’ letter of instruction whether the litigation proceeded or not. It was, as the letter of instruction explicitly said, a contract:

“…to prepare a written independent expert opinion addressed to and for production to the Tribunal and, if required, to give evidence at the hearing in this matter.”

There may well have been some overlap between the issues which had to be addressed in a report for the ET and those which would have to have been addressed to satisfy Miss Makar’s wider purposes. For example, some aspects of market compliance and corporate governance would, I think, have arisen in the ET. Other areas relating to the wider purposes were, however, completely outside the scope of any report to the ET. Those included, but were not limited to, the professional conduct of the auditors and the solicitors, and many of the potential regulatory complaints. The limited area of overlap, however, did not mean that the accountants had contracted to provide a report whether the ET proceedings vanished or not. Even assuming overlap of topics, the terms of a report for a court or tribunal would not be the same as those of a report to the client personally, which she might wish to use in all manner of different fora. The manner of presentation would be different. Critically also, the legal position of the reporting accountants would not be the same, as was common ground before us. In the context of a litigation report, the accountants would enjoy absolute privilege. So, contrary to the contention of Miss Makar, a report dealing with her other concerns, legitimate or otherwise as they may have been, would have been a very different animal from the one contracted for. Mr White explained this to the judge, and the judge was not only entitled to accept it, but in my view could not have done otherwise. As Mr White frankly said, he would have been pleased to be asked to do the extra work, which would have been a very substantial exercise, but it was not the same report as was commissioned for the purposes of the ET. That was plainly correct.

For the same reason, it is not possible to impeach the judge’s conclusion that the crucial second-stage contract was terminated by the telephone call on 4 November giving notice of settlement. The only basis on which the contract between the parties could survive the settlement was if it was not simply a contract for an ET report, but a contract for a report which was to be rendered irrespective of the tribunal proceedings.

It is true that the judge said at one point that he was “inclined” to accept the submission of counsel then appearing for Miss Makar that this contract was an entire one. His critical holding, however, is his conclusion that the contract contained the implied term, representing the common unexpressed understanding of the parties, that the client commissioning the report could terminate the engagement at any time, on the basis that she would be liable for reasonable fees incurred up to that point. He reached that conclusion on the basis that it is well known that settlement is always a possibility, indeed a very common one, in any litigation. As Mr White himself said in evidence, if you are an expert witness and the instructing solicitor telephones you to say that the action has settled, you do not continue to work and expect to be paid for it. Yet if Miss Smith is correct, and this was an entire contract, these experts and any others in a similar contract would be entitled to insist on carrying on expensive work, and to be paid for it in full, even if told the day after the contract was made that the case had settled and there was no court to report to.

Miss Smith is of course correct that this critical holding of the judge’s cannot stand with the existence of an entire contract. This, I am quite satisfied, was not an entire contract. A contract to provide an expert report for litigation very rarely will be, precisely because it is not the contemplation of the parties that the consequence which I have just set out should follow. In the present case, this was not even a lump sum contract. It was a contract for reasonable fees, subject to a cap, which is a very different thing.

The position is a little more complex after the settlement. Communications between the parties did not come to an end. On the next working day (Monday 6 November) Miss Makar's solicitor, Mr Britton, spoke on the telephone to Mr White. He told Mr White that Miss Makar still wanted a report. Indeed he said she wanted it by Wednesday, and within the budget cap of £30,000. Mr White responded that this would be “a different ball game”, having stood his team down. The reference to a different ball game does not appear to have been, as it might have been, to the difference in the type of report which might now be needed, but Mr White communicated his doubt, and it was quite unclear exactly what Miss Makar was after. Moreover, Mr White parted with the conversation saying that he would be in touch. That seems to me clearly to mean that he was not agreeing to a contract, made there and then, to provide whatever it was that Miss Makar wanted. What she had in mind was discussed between Mr White and herself in two telephone conversations on 15^th and 16^th November. There she reiterated that she wanted a report. She spoke of it being based on what the accountants had got, but since she spoke about vindication of her reputation it is clear that she had in mind something well beyond the report which would have been needed for the ET. Although Mr White did not, it seems, specifically tell her that any further work would have to be charged on a fresh basis, neither did he agree to write any report. Instead, he agreed to meet Miss Makar, with the Baker Tilly team, on 20 November.

In advance of that meeting, Baker Tilly prepared some questions for Miss Makar to answer, geared to discovering what her objectives now were. She answered them in some discursive written detail. She made it clear that she wanted to re-establish her reputation, and she wrote that this could only be done:

“when there is some form of public censure and some blood letting. It is more likely to be effective if [the solicitors] and [the auditors] are criticised, since the directors have lost market credibility.”

The meeting itself confirmed this stance. It is apparent from the notes of the meeting, as well as from the evidence of the accountant participants, that they did not share Miss Makar’s enthusiasm for her cause at this stage. They made it clear to her that in their view her reputation had already been vindicated by the published terms of the settlement, which did accept that she had had “a reasonable basis for concerns on a number of financial issues” as well as incorporating the company's publicly expressed regret at the “unfortunate” events leading to her dismissal. The accountants also addressed her fundamental complaint, namely that there was serious financial irregularity in Triad. It was the fact that the auditors had, in July 2005, warned the directors that the accounts would be likely to be qualified. However, when the time had come in September 2005 to issue the annual accounts, they were not qualified. Subsequently these auditors had resigned, but they had done so saying formally that there was no matter which needed to be drawn to the attention of shareholders. The Baker Tilly accountants, particularly those with auditing expertise, told Miss Makar at this meeting on 20 November that (a) the unqualified accounts almost certainly meant that there was nothing seriously wrong and (b) that the resignation of the auditors could not be read as suggesting that they thought there was; it was likely that Triad simply did not suit their portfolio. At that time Triad’s next set of figures were due in December. There were different auditors now. The Baker Tilly accountants told Miss Makar, in graphic terms, that if these new auditors' figures did not show up what was described as a ‘black hole’ in the accounts, then it had to be accepted that there was not one there.

The judge found as a fact that the outcome of this meeting on 20 November was that nothing further should be done pending sight of the new figures, after which Miss Makar would consider what if any further instructions she wished to give.

In this court Miss Smith submits that this conclusion of fact should be reversed. A fair reading of Mr White's notes of the meeting, she says, is that Miss Makar was calling for the report to be provided. She does not now contend, as was contended at trial, that the report should have been an all-purpose one. Rather, she argues that the notes lead to the conclusion that Miss Makar was calling for a document limited to the issues on which Baker Tilly had been due to report to the ET. The only difference, she says, is that the report was now required not for the ET but for Miss Makar personally.

I agree that there are some points in the notes of the meeting which give limited support to this construction. A brief exchange about “the narrow way” is a good example. But this process involves selecting snippets from the notes and, importantly, ignoring the oral evidence of the people who were there. The judge found that this note, whilst it was made contemporaneously, did not purport to be an exhaustive record of everything said. He heard the oral evidence of the Baker Tilly partners present that the outcome of the meeting was to await the new figures and further instructions. He accepted that evidence, preferring it to that of Miss Makar. That is a conclusion of primary fact depending on the assessment of witnesses, which this court should be very slow to reverse: see paragraph 7 above.

Far from being sure that the judge was wrong, I find his conclusions entirely unsurprising. Miss Makar's evidence before him was that she had expected this meeting to consist of a line by line review of a tabled draft report. It is hardly surprising that that evidence was rejected. The note simply could not have failed to record her protest at the absence of a draft report if that had truly been what she was expecting. The conversations which the note records are simply inconsistent with that evidence.

Moreover, Miss Makar's case has been from the outset that her agreement with Baker Tilly was for an all-purpose report. She was asserting that throughout the trial. It follows that she must also have been talking at the meeting of 20 November of her wish for an all-purpose report. That is borne out by other parts of the note, which are unequivocally about her complaints against the auditors and solicitors and which show a wide-ranging discussion encompassing also various possible regulatory complaints. That that must have been what Miss Makar was talking about at this meeting is a further reason why it is impossible for this court to substitute a finding that agreement was reached for the provision of a limited report.

Next, even if, contrary to the weight of the evidence, there had been a request at this meeting for a limited report, it is perfectly plain that Baker Tilly did not agree to provide it. They explained that their position would be different in reporting to Miss Makar for general use, as distinct from reporting to a court. Miss Makar plainly understood this, because she gave evidence at the trial that the report she now wanted would be a “very very high risk report”. Even a limited report would not, for the reasons already given, be the same obligation that they had agreed on or about 17 October to undertake.

That the accountants did not agree to provide any report is also consistent with the distinctly less than enthusiastic tone of their oral advice to Miss Makar on 20 November. Of course, if there was a plain agreement to provide a report, the fact that its contents might have been unwelcome to Miss Makar would not relieve the accountants of the contractual duty to provide it. But the fact that they were less than obviously persuaded that she was right in her wider aims is wholly consistent with her agreeing to wait to see if the new figures gave support to her case, rather than calling for a report at that stage. It is common ground that in fact she did nothing further until she was chased by the accountants' credit control department in March for non-payment of a bill rendered in December.

It is also very difficult to reconcile Miss Makar’s assertion that she had been expecting a report after the December figures with the fact that she had done nothing to chase it. Her evidence about this was, I am afraid, very unsatisfactory: She was asked what she herself had made of the December figures, which had not revealed any black hole. She said that she had not really looked at them with any degree of interest. She had been on holiday and catching up with lost sleep. Given that she was an accountant with, on her evidence, a mission to prove financial default at Triad and thus her own justification, this can only be described as extremely improbable evidence. It strongly suggests that she did not in fact believe that there was a report due and that once the figures failed to provide any support she elected not to ask for one from experts who had frankly told her what their views were likely, in that event, to be.

On the basis of his findings of primary fact, the judge's analysis of the contractual position after the meeting of 20 November is not completely clear. He seems to have concluded that the accountants, by having the meeting, had accepted the solicitor’s request on 6 November for a report. If so, he has found that there was not simply a further contract to give advice, and to see what further assistance the accountants could provide which Miss Makar wished to ask for, but also to provide a report. That last part of his conclusion is challenged by the claimants by way of their Respondents' Notice.

It seems to me that Mr Semken’s submissions on behalf of the accountants are on this point correct. By going to the meeting on 20 November, Mr White and thus Baker Tilly clearly agreed to advise Miss Makar at that meeting, in particular as to the extent of any further work that they might be able to do, and thus they agreed to do further post-settlement work. But that is not the same as agreeing to provide any report. Whilst Mr White is, I think, open to criticism for not saying in terms to Miss Makar that fees of some £27,000 had already been incurred, and for not reminding her that any further work would have to be charged for, I am unable to see how, objectively judged, he ever agreed to provide a report. The work already done was nearly up to the cap. He was prepared, within the budget, to meet her. If she had given instructions for a further report both must have known that he would have had to negotiate fees for it, dependent, no doubt, on the ground that she wanted it to cover. But there was no likelihood that he would agree to such a large-scale exercise with no investigation of what headroom was left in the budget cap (and in fact with very little left). Simply attending this meeting does not seem to me, for the several reasons given, capable of bearing the objective inference that he did.

That means that it is unnecessary to consider whether it is possible to spell out of two letters written by Miss Makar much later in March and April an instruction to provide a report. There had never been, I am quite satisfied, any agreement that the accountants would provide any report beyond the ET report commissioned in October by the solicitors' letter of instruction. An obligation to do so could only be created by a fresh agreement between the parties, not by unilateral instruction from Miss Makar.

The remaining question is whether the judge was right to conclude that there was a third-stage contract at all. I have considered whether the correct view might be that there was, objectively judged, no meeting of minds at all after the settlement. But it seems to me plain that Miss Makar, as an experienced businesswoman and an accountant herself, must when she sought further assistance from professional accountants after the ET litigation was over, have done so on the basis that she would pay their reasonable fees for it, at the very least up to the cap. That was, it seems to me, inevitably the common understanding of the parties. That Baker Tilly have, in effect by concession, limited their claim to the originally agreed cap for the first and second stages of their instruction does not seem to me to alter that fact, sensible as the concession was in all the circumstances.

For those reasons, although my reasoning is, in part, slightly different from that of Judge Seymour, this appeal must, in my view, be dismissed.

I agree.

I also agree.