Hinchcliffe & Anor v Smith & Ors

On 10 May 2012 the court dismissed a renewed application for permission to appeal from the order dated 14 December 2011 made by HHJ Hazel Marshall QC awarding damages of £1.4m for conspiracy. As indicated at the hearing we give our reasons in writing.

The application for permission was refused on the papers on 30 March 2012 by Lewison LJ, who gave directions that, on a renewed application, notice should be given to the proposed respondents, who should submit a skeleton argument.

The history of the dispute, the issues arising on the assessment of damages, the conduct of the assessment hearing, the evidence (including expert accounting evidence from Mr Blakemore for the claimants), the law, the heads of loss and the conclusions are set out in detail in the approved judgment. We refer only to those facts and matters necessary to explain our reasons for refusing permission on the ground that the proposed appeal has no real prospect of success.

It was accepted by the applicants through Mr Anthony Elleray QC, who did not appear at the trial, that the judge had not acted on a wrong legal principle in her assessment of damages. In order to persuade this court that there should be another hearing by a different judge with further expert evidence in order to re-assess the damages, Mr Elleray had to persuade us that the judge’s estimate was so high as to be plainly wrong.

The detailed grounds of appeal are conveniently summarised in paragraph 12 of Mr Elleray’s skeleton argument. He did not pursue the contention that the judge had wrongly exercised her case management discretion by refusing the defendants’ application for an adjournment of the damages hearing so that the defendants could obtain expert forensic accounting evidence of their own and be represented by counsel rather than by their solicitor. The defendants had had an opportunity to obtain expert evidence in the period of nearly 2 years following judgment on liability.

The basic facts established at the hearings on liability and remedy were that Mozaic Industries Ltd (Mozaic), a shell company, was used by the claimants as a vehicle for the purchase of shares in Hoyland Fox Ltd (HF) for £1.4m in June 2007; that the purchase was financed principally by a loan from HF; that the claimant brothers, Shaun and Alexander Smith, became directors of Mozaic and of HF, as well as being the directors and controlling shareholders of Alexander Seven Marketing Co Ltd (ASM), a business rival of HF; that ASM owned as its principal tangible asset a property called Promotion House; that their father, Mr Keith Smith, had a consultancy agreement with HF; that on 28 February 2008 the defendant, Mrs Marjorie Hinchcliffe, used the 1 share in Mozaic, which she held on a constructive trust for the two brothers, to appoint three new directors, who then ousted the brothers as directors of Mozaic and HF; that the actions of the defendant, Mrs Hinchcliffe were in breach of trust; that her husband, the defendant. Mr Hinchcliffe, acted in breach of his duties as an agent for ASM and the brothers in relation to the acquisition of HF by Mozaic; that the Hinchcliffes conspired together with intent to injure the claimants by the removal of the two brothers as directors of HF and the termination of Mr Keith Smith’s consultancy agreement with HF; and that in quick succession HF and ASM went into administration in March 2008 and November 2008 respectively and later in 2009 went into creditors’ voluntary liquidation; and that Mozaic was also wound up.

The brothers and their father Keith claimed substantial damages for the Hinchcliffe conspiracy. Mr Elleray QC accepted that the correct date for the assessment of damages was 28 February 2008.

The overarching submissions in support of the application for permission were that (a) there was no evidence on which the judge could safely conclude that the claimants had established that they had suffered recoverable loss in the amount awarded, in particular (i) that the shares in Mozaic and ASM had real value or were worth the sum of £1.2m on 28 February 2008, or (ii) that there were grounds for finding that the claimed loss of earnings were recoverable; (b) the judge had accepted the views of Mr Blakemore, as expert witness for the claimants, and his methodology without sufficient critical analysis; (c) the judge failed to take account of concessions made by that expert that might affect his conclusions; and (d) the judge had given too much weight to certain evidence and no weight, or insufficient weight, to other evidence.

The detailed points in the skeleton argument were developed at the hearing by reference to documents in the bundles. There was no transcript of the evidence, which would have shown that Mr Blakemore was cross examined by the defendants’ solicitor for nearly 2 days. The expert evidence given by Mr Blakemore was challenged and tested, but the defendants were not in a position to contradict it by other expert evidence.

The judge treated Mr Blakemore overall as a reliable witness. In his evidence he had noted various bases of valuation: the earnings basis, the discounted cash flow basis and the asset realisation basis. He excluded the inter-company loans when calculating the combined value of the two businesses, the loan in question being an asset of HF and a liability of Mozaic. His opinion was that the potential investor was likely to value the combined entity on an asset valuation basis, which he valued at between £900,000 and £1.35m. The judge largely accepted Mr Blakemore’s expert evidence and valued the net assets at £1.25m, excluding the inter-company loan. On that figure she based her valuation of the shares in Mozaic and ASM. She then added an amount for loss of opportunity for the businesses to grow and made some reductions for other items. She also calculated the loss of earnings claimed by the brothers (2 years) and by their father (for the period he planned to work for the two businesses.)

Mr Elleray QC pointed to various matters, which he submitted the judge should have taken into account in assessing the loss: the fact that Mozaic was insolvent, as it owed HF almost £1.4m on the outstanding loan on the purchase of the shares in HF and therefore had no value, unless the purchase of HF was at an undervalue, as to which there was no evidence; the value of HF was not in excess of £1.4m, as evidenced by a statement of affairs made by the brothers just before 28 February 2008 showing net assets worth £835,238, and net current liabilities indicating that it was balance sheet insolvent; there was no professional valuation supporting the value ascribed by the judge to Promotion House; and that there was an element of double counting in the award to the brothers of damages for capital loss and damages for loss of future earnings, which would not flow from the sold companies.

In our judgment, the points made by Mr Elleray QC against the judge’s conclusions and reasoning came nowhere near satisfying the court that there was a real prospect of overturning the judge’s assessment of damages, either as unsupported by evidence or as being so high as to be plainly wrong.

In deciding the question of damages the judge had to form judgments on matters of fact and degree that were not capable of precise calculation. Her task was not eased by the absence of any expert accounting evidence from the defendants. The only expert evidence before the judge was that of Mr Blakemore. Though impressed by that evidence, the judge did not accept all of it or treat it uncritically.

In our view, it was open to the judge to arrive at the figures that she did in assessing the damages for conspiracy. She started by considering the purchase price of the assets of HF, but was fully aware that that was only a starting point and that the object of the exercise was to assess the total loss suffered by the claimants in consequence of the defendants’ conspiracy to injure them, both as regards assets and loss of future earnings. She took relevant factors into account and she left irrelevant factors out of account. There are no reasonably arguable grounds for overturning her order.

On the direction of the court the claimants submitted a skeleton argument and appeared on the hearing of the renewed application by counsel, Mr Matthew Smith. In the event it was not necessary to call upon him. When the court stated that the application was dismissed, he made an application for costs to be summarily assessed according to a statement showing how the total of £5,190 was calculated. Mr Elleray QC had no instructions to consent to a costs order or to a summary assessment. In our judgment, those costs were properly incurred by the claimants in complying with the court’s directions and should be paid by the defendants, who renewed their application for permission to appeal unsuccessfully. We assess the costs summarily in the amount appearing in the statement of costs.

I agree.