Newcastle International Airport Ltd v Eversheds LLP

This appeal, by the claimant, Newcastle International Airport Limited (‘NIAL’), is against the order made on 25 October 2012 by Proudman J in the Chancery Division, after a 13-day trial, dismissing with costs NIAL’s claim for damages for alleged negligence against Eversheds LLP, solicitors.

NIAL owns and operates Newcastle airport. At the material times, it had two executive directors (‘the executives’): John Parkin, the chief executive officer; and Lars Friis, the finance director and company secretary. NIAL retained Eversheds to draft new service contracts between NIAL and the executives by way of variations of their existing contracts. Eversheds did so, taking their instructions from Mr Parkin. NIAL and the executives signed the contracts so drafted, which had the effect of: (i) upon completion of the refinancing of NIAL’s debt, entitling the executives to bonuses totalling some £8m, and (ii) releasing the executives from restrictive covenants restraining them from working at or for Leeds/Bradford airport, one of Newcastle airport’s competitors. Neither NIAL’s board nor its remuneration committee (‘RC’) understood that the contracts had such effects when NIAL signed them.

Various local authorities in the North East of England (‘LA7’) have a majority holding in NIAL; and the subsequent realisation of, in particular, effect (i) above – described in the Newcastle press as a ‘bonanza’ – caused considerable consternation. A major factor resulting in NIAL’s signing of the contracts was the incompetence displayed in relation to the consideration of their terms by the chairman of the RC, Rosemary Radcliffe CBE, although it must also be said that she appears otherwise to enjoy universal plaudits for her general ability. In this case, however, she deployed little of it and things went badly wrong.

The claim against Eversheds was, the judge said, ‘the product of NIAL casting around to find someone responsible for the shortfall after settlement of proceedings against the executive directors’. The judge found against NIAL. She found that Eversheds had not breached their duty of care to NIAL; and, if wrong on that, she found against NIAL on causation and mitigation.

Mr Davidson QC and Mr Wood, for NIAL, who both appeared below, submitted that the judge was wrong on all issues. They said that she should have held that: (i) Eversheds had no authority from NIAL to draft the contracts in the terms they did, and/or (ii) drafted them without reasonable skill and care, and/or (iii) failed, as they should have done, to provide Ms Radcliffe with a summary written explanation of the revisions they had made to the existing contracts. They said the judge was also wrong on causation and mitigation. Mr Patten QC and Mr Allen, for Eversheds, who also appeared below, submitted that in all respects the judge’s decision should be upheld.

I must first tell the story. In doing so, I have gratefully drawn on the judge’s judgment, although I have supplemented it by a fuller account of some of the documents.

LA7 hold 51% of the shares in NIAL. The other 49% was owned by CPH Newcastle Limited (‘CPH’), at the material times a subsidiary of Kobenhavns Lufthavne A/S (‘Copenhagen’), a Danish commercial airport company. CPH had acquired its shareholding from LA7 in May 2001. On 26 January 2006, (as it happened, the day the executives signed the contracts) the Macquarie Banking Group (‘Macquarie’) obtained control of Copenhagen, but Copenhagen retained its 49% shareholding in NIAL via CPH.

Mr Parkin is a British citizen; Mr Friis, who died on 11 December 2006, was a Danish citizen. Before the relevant events, each had service contracts dated 15 May and 18 September 2002 respectively. They had both been drafted by Eversheds, who had acted for NIAL since May 2001.

NIAL also had five non-executive directors: Ms Radcliffe, who chaired NIAL’s board, its audit committee and the RC; Councillors Malcolm and Ross (who also died before the trial), who were LA7 appointees and also members of the RC; and Mr Binger and Mr Boserup, who were Copenhagen appointees and also members of the RC. Neither Mr Parkin nor Mr Friis was on the RC.

The function of the RC was to determine NIAL’s policy on behalf of the board in respect of senior executive remuneration. There was to be an annual review of individual remuneration arrangements by reference to various factors, including comparisons with similar businesses. The RC was supposed to ensure that the executives were provided with appropriate incentives to encourage enhanced performance and, in a fair and responsible manner, to reward them for their contributions to NIAL’s success.

Mr Parkin’s 2002 contract included a bonus scheme and a Long Term Incentive Plan (‘LTIP’). The former entitled him to a bonus each year of up to 50% of his salary if his annual performance targets were met. The LTIP entitled him to a bonus of £250,000 if NIAL’s EBITDA (earnings before interest, tax, depreciation and amortisation) for the period ending 31 December 2005 equalled or exceeded £30.7m. Mr Friis’s 2002 contract included a like annual bonus provision but did not include an LTIP until 2004, when an amendment granted him one of £55,000 on like terms as Mr Parkin’s. From January 2004, there was no relevant difference between the two executives’ contracts save that Mr Parkin’s bonuses were larger.

Both executives’ 2002 contracts included restrictive covenants, including a 12-month post-termination provision on being ‘engaged, concerned or interested in, or provid[ing] technical, commercial or professional advice, to any of’ the businesses carried on at ten named airports in England and Scotland, including Leeds/Bradford. The services of some of the ten, including Leeds/Bradford, competed with those of Newcastle airport.

Mr Parkin and Mr Friis were successful executives but their 2002 contracts provided for no LTIP after 2005. Their contracts were therefore due for review and NIAL was keen to retain and incentivise both executives. The relevant events in relation to the review took place in 2005 and 2006.

During 2004 and 2005 the two executives had discussed the possibility of re-financing NIAL’s short term loan notes. They had in mind an arrangement under which the new finance might exceed the existing finance and so enable a return of cash to NIAL’s shareholders. They were aware of an incentive bonus having been awarded to the chief executive at Bristol airport in relation to re-financing he had arranged and they believed they should receive a like one. The bonuses they eventually received upon the refinancing that happened at NIAL were, however, much larger than his.

On 22 November 2005, Mr Friis, acting on behalf of Ms Radcliffe, obtained a report from remuneration consultants, the Monks Partnership (‘Monks’), a trading name of PricewaterhouseCoopers LLP. The report was prepared by Ms Rayner and was directed at providing guidance as to the bases upon which the executives might be rewarded under their new contracts. It opened by describing itself as ‘providing base salary and total earnings market guidelines’ for the executives. Monks’ understanding of NIAL’s operation had been derived from discussions with, and information provided by, the executives and Ms Radcliffe. Paragraph 1.3 referred to the impending end to the existing LTIP arrangement in December 2005 and that ‘there is therefore seen to be an urgent need to provide a fresh set of incentives to retain and motivate the key board members’. Paragraph 1.4 referred to Monks’ understanding that the executives had been very successful over the previous three years and ‘that it is considered critical to the continued success of the business that they remain motivated over the next stage of business development’. The report included market practice guidelines derived from a comparator group of listed parent companies, said to be intended to form ‘a framework of best practice for listed companies to follow’, and it said that the RC was therefore likely to have regard to such practice in setting the remuneration packages. The report continued:

In section 4, the report discussed different types of LTIPs and expressed the view that, for posts comparable to those covered by the review, the most common forms of LTIPs used in parent companies of a size similar to NIAL were share option grants, which were most easily understood and straightforward to operate. The report added that as an LTIP of this type was not currently possible for NIAL, ‘it will be necessary for the [RC] to consider some form of cash-based long-term incentive or a banked annual bonus plan’. In section 5, the report set out some of the issues that the RC might consider in reviewing and developing NIAL’s annual and long-term incentive strategy; and set out some preliminary proposals and observations both in regard to any annual bonus and to LTIPs for the executives. There is no need to detail these, beyond quoting the following passage:

Monks’ report did not deal either with a refinancing bonus or any release of the restrictive covenants: they had not been instructed to report on such matters. Ms Radcliffe sent Mr Parkin a copy of the report on 25 November and asked for his observations. He replied by email on 29 November, raising the subject of a refinancing bonus. He wrote:

Ms Radcliffe did not ask Mr Parkin for clarification of what he was so imprecisely asking for (‘fair share of the proceeds of its work … a simple percentage of value realised’), nor did she forward his email to the other members of the RC. She simply forwarded it to Ms Rayner of Monks on 30 November without comment. Monks produced a summary report on 1 December and sent it to Ms Radcliffe. It did not deal with refinancing bonuses and Ms Radcliffe did not query its omission to do so.

On 1 December, Ms Radcliffe prepared a paper (‘the Principles Paper’) for consideration by the RC. She opened it by recording that the RC was to meet by way of a conference call on 7 December, adding that as neither of the Copenhagen members would be able to participate in the call, they were to provide written comments in advance. The issues to be addressed were (i) the need ‘formally to agree the incentive payments for this year for [the executives]’ and (ii) because the current LTIPs ran out at the end of 2005, ‘to decide what arrangements to put in place for the future’. She summarised the current LTIP arrangements for each executive and recommended approval of the payments due under them.

Ms Radcliffe also considered in her paper new arrangements from January 2006. She referred to the Monks report, of which she attached a copy, and summarised what she regarded as its key findings in a table she set out. In light of them, Ms Radcliffe outlined ‘suggested principles to reflect a market-based approach to our [executives’] remuneration arrangements from 1 January 2006’. They were as follows:

Ms Radcliffe then added a sixth bullet point, the latter half of which (italicised by me below) was by way of what the judge said was apparently a postscript, as it had not been raised with Monks. It read as follows:

Having prepared the Principles Paper, Ms Radcliffe sent it on the same day, 1 December, to Ms Rayner of Monks, who responded on the same day, saying that the ‘revisions are fine’. Ms Radcliffe then circulated that endorsement, with copies of the Monks report, to the RC and Mr Parkin.

The judge, in paragraph 24, found that at the conclusion of the oral evidence it was unclear what the RC members understood by the bullet point quoted in [21] above. Mr Malcolm had relied simply on Ms Radcliffe’s executive summary rather than the Monks report itself. No one gave any thought to what kind of ‘distorting events’ might occur on the refinancing (although it is not clear to me that such events related to the refinancing: paragraph 5.15 of the Monks report was not so directed: see [16] above). The judge also found that no-one gave any thought to:

On 6 December, Mr Malcolm and Mr Ross (the LA7 non-executives) were briefed by Mr Slater (of South Tyneside Council) and Mr Scott (the solicitor advising LA7). The judge said:

The conference call meeting was, as arranged, held on 7 December. It was attended by Ms Radcliffe, Messrs Malcolm and Ross and by Mr Christiansen on behalf of the Copenhagen members, who were unable to participate. The minutes, so far as relevant, recorded the following:

The story moves to 2006. On 6 January, Mr Parkin instructed Eversheds to draft the revised contracts for the executives. On 10 January, there was what the judge called a crucial meeting between Ms Radcliffe and the executives to discuss the revisions. There are no minutes of it, but Mr Friis took notes, which reflected an aide-mémoire Mr Parkin had prepared and recorded in relation to a re-financing bonus: ‘Minimum percentage (floor) 1% 1/3 FD, 2% 2/3 CEO’. The aide-mémoire included the line: ‘Contract variations – amend or withdraw “restricted businesses” clause’. The judge found that the notes corroborated that there was discussion about the restrictive covenants: they said: ‘Protection against change of ownership →compensation? Change contracts terminated? Competition clause? Teeside? √’.

Following that meeting, Mr Friis sent an email to Mr Parkin on 11 January, forwarding his notes of the meeting ‘in relation to contractual issues’. He added four points:

Also on 11 January, Mr Friis sent an email to Monks. He referred to their earlier report, to there having been a meeting of the RC and to his meeting with Ms Radcliffe and Mr Parkin on 10 January. He said he had been asked to request Monks to provide the information he then described. In summary, he asked for market median guidelines as to the basic pay for the executives, confirmation that the proposed annual bonus was in line with best practice, and rules and guidelines for an LTIP with the ‘specifics’ he explained. Importantly, he sought no advice as to the proposed refinancing bonuses.

On the same day, 11 January, Mr Parkin sent an email to Simon Loy of Eversheds. He forwarded the email and attachment Mr Friis had that day sent him, and also attached Ms Radcliffe’s Principles Paper. He wrote:

On the following day, 12 January, Mr Parkin emailed his paper to Ms Radcliffe, amending it (immaterially) only by removing the ‘5.15’ (a Monks paragraph reference: see [16] above) from the passage just quoted and saying: ‘Rosemary, as requested, here is the draft paper for your consideration reflecting the points discussed at our recent meeting’.

On 12 January, Monks emailed to Mr Friis, with copies to Mr Parkin and Ms Radcliffe, a letter in reply to Mr Friis’s request of the day before, commenting that the proposed annual bonus and LTIP were in line with current pay-market practices. They had not been asked to, nor did, comment on whether the refinancing bonuses were in accordance with current market practice.

There was a meeting between the executives and Mr Loy on 13 January. The executives told Mr Loy that Ms Radcliffe had authorised them to instruct him to draft the new contracts, which she wanted produced as soon as possible; that the notes sent to Mr Loy reflected an agreement reached at the meeting of 10 January; that Ms Radcliffe wanted the restrictive covenants narrowed to just three airports, Durham Tees Valley, Edinburgh and Carlisle; that she wanted the contracts to make clear that the executives were to be entitled to all aspects of their remuneration, including the refinancing bonus in the event of a change of control of NIAL; and that such bonuses were to be paid ‘net of existing debt i.e. of the new value created’ and to be payable upon the completion of any refinancing. Mr Loy passed the drafting exercise on to Eversheds’ Leeds employment team (Paul Cotton, Matthew Gorringe and Louise Lightfoot) and told Mr Parkin that the drafts would be produced by the end of the week. It was Mr Gorringe who did most of the work.

On 17 January, Ms Radcliffe amended the draft paper Mr Parkin had sent her, including minor amendments to the bullet point dealing with the refinancing bonuses. Her amended version (involving no change of substance) read:

A sequence of emails followed in which Mr Parkin gave detailed instructions to Mr Gorringe and Ms Lightfoot as to the new contracts. Various drafts were produced but were not in final form by 20 January. Mr Parkin told Eversheds he had decided not to send the intermediate drafts to Ms Radcliffe. He was only going to provide her with the final versions.

On 20 January, Mr Malcolm and Mr Ross emailed Ms Radcliffe their approval of the Proposals Paper and the recommendations in it. On 23 January, Mr Christiansen (for Messrs Boserup and Binger) emailed her, saying that subject to one matter relating to the annual bonus, ‘we fully support that new contracts can be drawn up’. Ms Radcliffe gave instructions, via Mr Parkin, to deal in the draft contracts with the point raised by Mr Christiansen, as it was. Mr Christiansen had said nothing to the effect that Messrs Boserup and Binger wished to discuss further the refinancing bonus percentages, although their evidence was that they had wanted to do so.

On 23 January, Ms Lightfoot sent Mr Parkin the final form of the draft contracts. They were in a form ready for signature and in which, therefore, all italics and square brackets had been removed. It followed that the changes in them from the terms of the executives’ existing service contracts were not apparent on the face of the drafts and a reader’s eyes were not led straight to their location. The drafts were unaccompanied by any written summary explanation from Eversheds as to the nature and effect of the changes. Ms Lightfoot accepted in evidence that the provision of such a summary would not have been difficult, but she had not been asked either by her Eversheds superiors or by Mr Parkin to provide one and so she did not. She made the point that the prior drafts had been provided to Mr Parkin, who represented NIAL in the matter of their drafting. Mr Gorringe agreed that the provision of such a summary would not have been difficult, but said it was not his duty to produce one and that it was unnecessary.

Mr Parkin forwarded the drafts to Ms Radcliffe. She replied on 25 January, saying she had reviewed them and believed them to be fully in accord with the principles agreed by the RC. She promptly signed both contracts on behalf of NIAL and posted them to the executives, who signed their respective contracts the following day, 26 January. None of the other members of the RC saw the draft contracts before Ms Radcliffe signed them. Although her evidence was that she had read the drafts, she had, the judge found, materially misunderstood them. The inference is that she assumed they said what she expected them to say, although it is apparent that she had never given proper consideration as to what that was, at least as regards the refinancing bonuses. The judge found that, as a matter of deliberate choice, Ms Radcliffe had left all contact between NIAL and Eversheds to the executives: she did not regard it as any part of her role to have direct contact with Eversheds.

Following the signing, Ms Lightfoot provided a summary of the changes made by the contracts. This was done at Ms Radcliffe’s request, communicated to Eversheds via Mr Parkin. The summary included the following:

The next meeting of the RC was on 16 February. Ms Radcliffe’s evidence was that copies of Ms Lightfoot’s summary were available but no-one asked to see them. However, no-one else remembered their being available. The judge made no finding as to whether Ms Radcliffe was correct in her recollection, but did find that she did not draw attention to any of the changes and was unaware of the terms of the important ones. No-one complained that Ms Radcliffe had signed the contracts. All that was discussed was the issue of base pay figures.

The evidence of Messrs Binger, Boserup and Christiansen was, however, that in earlier agreeing to have the contracts drawn up, they had not also intended to consent to their signature: they had intended to have further discussions about the refinancing bonus percentages in the Proposals Paper, and Mr Christiansen’s evidence was that the ones he had in mind were 0.1% and 0.2% respectively. They also said that, by 16 February, they considered it too late to make a fuss over what had been done. The judge said that Mr Binger’s then understanding was that the ‘refinancing proceeds’ referred to in the Proposals Paper meant the difference between the old and the new debt; that, in general terms, the Copenhagen non-executives thought that the executives’ bonuses would be applied to the amount of the return to shareholders, which they expected to be about £100m; and that they recognised that the percentages in the Proposals Paper would therefore yield very large bonuses. What they did not realise was that under the contracts as signed, the percentages were to be applied to the gross amount of the refinancing and so would yield massively larger bonuses. The judge found it clear that the RC had never discussed what was meant by ‘refinancing proceeds’, or therefore the sum to which the percentages were to be applied. There was no evidence as to what the late Mr Ross thought about this, but the judge said it was fair to assume that, like Mr Malcolm, he had also not applied his mind to it.

Whilst the judge did not find that, at this meeting, the Copenhagen directors were aware of the true nature of the refinancing bonus provisions in the contracts, she was unimpressed by their expressed reasons for remaining silent about the fact that the contracts had been signed. If they had wanted the RC to re-consider the size of the percentages, this was the time to raise it. If they considered that Ms Radcliffe had had no authority to sign the contracts, that might have provided a basis for re-opening the consideration of their terms; and, so far, no detailed proposals for a refinancing had been made. The judge had little doubt that the principal reason for their combined silence was that they did not want to prejudice the possibility of a refinancing. Copenhagen’s commercial interests were different from those of LA7; and they feared that if it became apparent to Messrs Malcolm and/or Ross that a refinancing would result in huge bonuses being paid to the executives, LA7 would block it. They were therefore, on the judge’s finding, subordinating the consideration of NIAL’s best interests to what they regarded as Copenhagen’s best interests.

NIAL committed itself to a refinancing on 12 October. Mr Friis died on 11 December. On the same day, (i) Eversheds, on Mr Parkin’s instructions, instructed Mr Goudie QC to advise whether Mr Friis’s right to a refinancing bonus survived his death; and (ii) Mr Parkin emailed Ms Radcliffe saying he would be forwarding a note setting out ‘how the refinancing numbers are constructed to meet the formula in the Exec contracts’. Ms Radcliffe was at that stage primarily concerned to resolve the question of Mr Friis’s bonus entitlement. Mr Loy spoke to her on 12 December, asking for information that Eversheds required for the finalisation of their report and Mr Goudie’s Opinion. Eversheds’ report explained that Mr Friis should receive a minimum of 1% of the proceeds of any refinancing, payable on completion.

Mr Goudie finalised his Opinion. It made it clear that, under the refinancing, LA7 would receive back some £80m and that the bonuses would be some £5.5m (Mr Parkin) and £2.5m (Mr Friis): a total of some £8m. The relevant percentages applied to the gross amount of the refinancing (£282m), with the total amount returned to the shareholders being £163m. Mr Crossman of Eversheds sent Ms Radcliffe a copy of their final report on the entitlement of Mr Friis’s estate to the bonus. His report summarised Mr Goudie’s Opinion and attached a copy. He also sent her copies of the service agreements, draft minutes for a forthcoming RC meeting and a note from Mr Parkin setting out the calculations of the bonuses.

Ms Radcliffe did not open, let alone read, any of the material Mr Crossman sent her. Her priority was, she said, to secure the payment of the bonus to Mr Friis’s estate. As she chose to read nothing that would have informed her of the size of the bonuses, the penny had yet to drop with her as to what it would be.

On 15 December, Ms Radcliffe forwarded copies of the executives’ contracts to the other members of the RC. Macquarie, Copenhagen’s parent, promptly became aware of, and unhappy about, the level of the bonuses, as reflected in an email from Mr Stent to Mr Boserup. A meeting of the RC took place on 18 December at which Mr Binger asked questions about the refinancing payment. On the same day, Mr Christiansen sent an email to Ms Radcliffe, asking her: (i) how the definition of ‘refinancing proceeds’ had been agreed, (ii) whether Monks had advised specifically on market testing of the refinancing bonus, and (iii) how the bonuses would be disclosed by NIAL, including in its accounts.

Eversheds produced a note of how the percentages came to be included in the contracts, which Ms Radcliffe circulated to the RC on 19 December. Her covering email was defensive but also asserted that the other members of the RC ought to have known all about the bonus figures. She said:

That was an odd email, because Ms Radcliffe’s evidence was that at this stage, December 2006, she still believed, as she had always believed, that the amount of the refinancing bonus was entirely discretionary. On an ordinary reading of the relevant part of the Proposals Paper – which she had read and to which she had made a pointless amendment - her understanding was wrong. The Proposals Paper provided for the executives to have refinancing bonuses of a minimum of 1% and 2% of the ‘refinancing proceeds’. Ms Radcliffe accepted in evidence that, contrary to her belief, it was clear that the discretionary element was only in respect of levels of bonus above the guaranteed minima.

An RC meeting was fixed for 21 December, following which the completion of the refinancing was to take place. On its eve, Ms Radcliffe emailed the RC members, saying that the percentages had been ‘entirely adequately dealt with’. Mr Malcolm’s evidence was that he read Mr Goudie’s Opinion on the train journey to the meeting, when for the first time he realised what the judge called the ‘enormity’ of the situation; and he said he ‘nearly had a fit’. There were heated exchanges at the meeting. Mr Malcolm said he was unclear as to the figures to which the percentages were to be applied, and said the issues could and should have been dealt with months earlier. Ms Radcliffe’s stance was that the issues had been dealt with in January when the service agreements were finalised. Her evidence was that, at that stage, she did not believe the bonuses would exceed £1m. She was out in her estimate by about £7m. The judge found her to be speaking the truth but it was truth that demonstrated how vague her thinking was.

Immediately before the refinancing, Mr Parkin was asked, but refused, to accept a bonus calculated as a percentage of the £163m returned to the shareholders (so giving him £3.26m as compared with £5.64m). Mr Malcolm did not want to complete the refinancing, but following Eversheds’ advice the refinancing went ahead.

The story moves to 2007. There was an RC meeting on 27 February, attended by Mr Stent (for Copenhagen), who raised questions as to who had proposed the refinancing percentages in the first place, why they were presented to the RC as apparently approved by Monks when they were not, why their total value was not specifically raised with the RC when the contracts were approved; and, perhaps most obviously, why Mr Parkin had been responsible for instructing Eversheds upon the drafting of his own service contract with NIAL. Ms Radcliffe gave defensive answers to the effect that the RC had approved the Principles and Proposals Papers and could have asked any questions about them they had wanted to.

More trouble emerged on 6 March, when Mr Christiansen noticed the relaxation in the executives’ contracts of the restrictive covenants in their 2002 contracts. He emailed Ms Radcliffe about it on the following day, and she replied the same day, saying that she was ‘a little nervous’ about such clauses and understood that they were often argued to be unenforceable as being in unreasonable restraint of trade. Ms Radcliffe did not respond that Mr Parkin had dishonestly slipped the relaxation into the revised contracts without prior discussion with her, although that became her stance in evidence. Eversheds were asked to report on how the change came about, and they said, correctly, that the executives had so instructed them on the basis that Ms Radcliffe had agreed it. The point about the restrictive covenants took a further turn, when it emerged that Mr Parkin had been assisting a company to acquire Leeds/Bradford International Airport – one of the airports removed from the ‘no-go’ area covered by the restrictive covenants in the 2002 contracts. The judge said Mr Parkin was unable to provide a satisfactory account of how his developing involvement with this company was consistent with his obligations to NIAL.

Ms Radcliffe resigned from NIAL on 26 September 2007, on terms exonerating her from any claims by NIAL for anything done (or, I presume, not done) by her in her various chairwoman capacities. NIAL also agreed to reward her for her time devoted to assisting it in suing those whom it did sue.

Mr Parkin resigned from NIAL in 2007 in what the judge called dudgeon, and NIAL sued both him and Mr Friis’s estate. The proceedings were settled on confidential terms although the judge said it was ‘evident that there is a considerable shortfall in recovery as the parties have had to reveal the sums recovered in order to address the claims for loss [against Eversheds]’.

And of course NIAL sued Eversheds. Eversheds are not bound by the settlement with the executives and they joined Mr Parkin as a Part 20 defendant, although too late to enable their claim against him to be tried with NIAL’s claim against them. The judge made an order on 25 January 2012 for the Part 20 claim to be stayed (presumably until after the disposal of the claim against Eversheds) and providing that no finding of fact in NIAL’s claim against Eversheds should be binding in such Part 20 proceedings or against any other additional parties. By then, Mr Parkin had either already joined, or proposed to join, some ten additional parties, including NIAL directors. At the trial of NIAL’s claim, Eversheds called Mr Parkin as, in Mr Patten’s words to us, an unwilling witness; and, unusually, Mr Parkin had his own solicitors and counsel in attendance when he gave evidence.

The primary basis of NIAL’s claim was that the executives had no actual or apparent authority to instruct Eversheds to re-draft the contracts. The judge made these findings of fact about the instructions given to Eversheds:

NIAL’s case was that there was not merely an exceeding of the executives’ actual authority; the executives had no apparent authority to instruct Eversheds to produce the draft contracts. That was because there were matters that required clarification in the giving of such instructions (for example, the meaning of ‘refinancing proceeds’) and it was not for the executives to provide it. NIAL’s case was that there could not be apparent authority in circumstances in which, as Eversheds knew, the RC had been set up for the purpose of providing independent analysis of the position of the executives: Eversheds’ advice therefore had to be given to Ms Radcliffe, not to the executives.

The judge’s conclusion was that the executives had apparent authority to instruct Eversheds in relation to the drafting of the contracts. Ms Radcliffe had (as Eversheds accepted) actual authority to give such instructions; she authorised the executives to give the instructions, so that they had actual authority to do so; she had held them out to Eversheds as having such authority; and Eversheds were induced by such holding out to take their instructions from them. The judge added that Eversheds’ evidence was also to the effect that it was common practice for remuneration committees to instruct solicitors through the companies’ executives, even as to matters relating to the executives’ own contracts, so that there was nothing unusual in this case about the executives giving instructions to Eversheds.

The judge held further that, as the executives had such authority, Eversheds owed no duty of care to NIAL to give separate advice to Ms Radcliffe at the end of the drafting process as to the meaning and effect of the revisions to the contracts. That was because the provision of advice to the agents (the executives) discharged the obligation to ensure that the principal understood what had been done. Moreover, the final approval of the draft contracts was not left to the executives. The drafts were sent to Ms Radcliffe for her approval and signature and she approved and signed them.

The judge said there was still an issue as to whether Eversheds were put on notice that one or more of their instructions did not have NIAL’s authority. She rejected that too. The executives had actual authority to instruct Eversheds in the drafting of their contracts; the evidence was that the giving of such authority to executives was commonplace; and there was nothing secretive about what was being proposed and done, since the draft contracts were to be, and were, provided to Ms Radcliffe and the RC and could not be executed without their agreement. As to the point that any issue that required clarification in the course of the drafting process revealed a lack of authority in relation to that particular matter, its logical flaw was that Eversheds were entitled to think that the executives’ authority extended to such clarification.

If wrong on those matters, the judge turned to causation. The RC approved the principle of a refinancing bonus at the 7 December 2005 meeting, but did not consider its details. If Messrs Malcolm and Ross had raised the questions set out in the briefing note provided to them by Messrs Slater and Scott, there would have been a proper discussion about the refinancing bonus but they did not. The proposed bonus was raised in the Proposals Paper, which Ms Radcliffe saw and amended, and the other members of the RC approved it. She did not provide them with Mr Parkin’s email of 29 November in which he had raised the bonus question ([17] above), nor did she tell them that the percentages of 2% and 1% had been proposed by the executives. She implied that Monks had approved the refinancing bonus proposal, but she had not read Appendix A to Monks’ letter of 12 January 2006, which showed that Monks had offered no advice on it. The judge said the comfort from Monks was a crucial factor for the LA7 non-executives, and that it was clear that if they had realised this they would have wanted advice from Monks on the bonus proposal and that ‘it is inconceivable’ that the contracts would have been completed as they were. In addition, the LA7 members of the RC did not read the Proposals Paper carefully. That made it clear that the minimum bonuses were a total of 3% and no expertise was required to understand that. The RC members could only properly consider the position by asking (i) to what base figure the percentages were to be applied, and (ii) the likely size of the refinancing, but they did neither.

The judge accepted Mr Slater’s evidence that, had he known of the likely scale of the refinancing, he would have been concerned at the reputational impact upon the LA7 and would have communicated his concerns to Messrs Malcolm and Ross. She also accepted his evidence that, had he seen Mr Parkin’s email of 29 November 2005, he would have instructed Messrs Malcolm and Ross to clarify what was meant by refinancing. As to Ms Radcliffe’s role in the debacle, the judge said:

The judge found that even after the contracts were signed, it was not too late to avoid the loss. Ms Radcliffe had the schedule of changes provided to her by Ms Lightfoot but did not discuss it with the RC at the meeting on 16 February 2006. Mr Malcolm said that if such a schedule had been available at the meeting, he would have read it; and Messrs Slater and Scott said that they would also have considered it, and investigated the bonus matter in depth. The judge had found that Messrs Binger and Boserup had remained deliberately silent at that meeting about bonus levels, since they did not want to upset a refinancing applecart that would be favourable to Copenhagen. But their evidence was also that they would have read the Lightfoot summary, which would have alerted them to the relaxation of the restrictive covenants. The judge said that LA7 would inevitably have found out about the extent of the refinancing bonus, and that it was plain that no refinancing would have been progressed until the matter had been sorted out.

NIAL’s further case before the judge was that Eversheds had an independent duty to advise Ms Radcliffe about the changes to the draft contracts before they were executed, either in the terms of a summary attached to the particulars of claim or along the lines of a letter that Mr Davidson proffered during the argument. The judge rejected the case that Eversheds were under any such duty: they discharged their duty owed to NIAL by giving the relevant advice as to the changes in the draft contracts to Mr Parkin. The judge held that if Eversheds were under a duty to advise Ms Radcliffe, it only extended ‘to any clause in the contracts which were unusual or required explanation’.

Whilst Ms Radcliffe asserted that she would have read such a document, the judge cautioned herself as to the reliability of such self-serving evidence, given in relation to hypothetical facts. The judge’s finding was that Ms Radcliffe would not have read it. She said this:

I infer that what the judge meant by that last paragraph was that had Messrs Binger and Boserup raised at the meeting of 16 February 2006 the potential size of the bonuses, no refinancing would have been proceeded with unless and until the bonuses had been re-negotiated. At the end of her judgment, the judge summarised her conclusions as follows:

Preliminary considerations

Mr Davidson, for NIAL, recognised that this was a case in which there was fault on the part of all the principal NIAL actors, meaning all members of the RC. In that respect, NIAL’s case differed from what it had been before the judge, where its stance was that Ms Radcliffe had done a thoroughly reasonable job. The judge, however, made findings as to the comprehensive shortcomings in the performance of all members of the RC, in particular that of Ms Radcliffe, and Mr Davidson accepts that NIAL must live with that.

NIAL’s case remains that it was Eversheds’ duty to produce suitable draft contracts whereas they produced unsuitable ones. The thrust of Mr Davidson’s submission was that Eversheds’ only client was NIAL. Yet they took instructions as to the drafting of NIAL’s proposed contracts from the persons who were the counterparties. They thereby stared a conflict of interest in the face. It is said that they should have dealt with it either by contacting Ms Radcliffe at the outset (they had her email address and knew she was the chairman of the RC) and seeking their instructions from her; alternatively, at the conclusion of the drafting process, by ensuring that she was provided with a clear written summary as to the nature of the changes made in the drafts so that she and the RC had a comprehensive understanding of them before deciding whether they wished to commit NIAL to them. Had either of these things happened, Mr Davidson said the contracts would not have been signed in the form they were and NIAL would not have suffered the loss it did.

The fact that Eversheds were prepared to, and did, take their instructions from the executives, primarily Mr Parkin, came as a surprise to me. Eversheds knew their client was NIAL and that they were not acting for either executive. Yet the matter in which they were retained was the re-drafting of service agreements between NIAL and the executives. There was an obvious conflict of interest between the parties to each contract.

Eversheds’ position on that is that they are a large and experienced firm, whose employment law practice includes the negotiation of executives’ service agreements, including in cases of companies with remuneration committees. Although their client will normally be the company alone, their experience, as explained by Mr Gorringe, is that their instructions in relation to the drafting of such contracts invariably come from the executive directors, with the resultant draft then being reviewed by the remuneration committee and signed off by someone with appropriate authority. Ms Lightfoot gave like evidence.

I do not question that that is Eversheds’ experience and practice, or that it may be the experience and practice of other firms. The feature of the practice that causes me particular surprise, however, is that it appears that the only advice given in relation to the drafting of the service agreement is that given to the executive who has provided the instructions for it. The practice, however, also recognises that the draft will be separately reviewed by the company’s remuneration committee. But no advice, whether oral or written, is separately provided by the solicitors to that reviewing body as to the nature, terms and effect of the draft agreement that the solicitors have created. The theory of the practice seems, therefore, to be that advice given to the executive can be treated as advice given also to the reviewing body. The theory might work if the advice so given were comprehensive written advice for express onward transmission to such body. But that did not happen in this case, nor did the evidence suggest that it is the normal practice. Oral advice given to the executive in the course of taking the instructions from him cannot, in my view, sensibly be regarded as advice given also to the reviewing body.

The problem with the practice as described by Eversheds is therefore that it is necessarily dependent upon the reviewing body being equal to carrying out an unaided review of the solicitor’s work without the benefit of either (i) an oral explanation of the nature and effect of the document that, in this case, NIAL was being invited to sign; or (ii) a written summary of such nature and effect composed in user-friendly language. The practice ignores the basic consideration that non-lawyers do not always find legal documents easy to understand. Unless they are told what to look for in such documents that is of particular importance to the transaction in point, they may well miss it, or misunderstand it. It is fundamental that a solicitor owes a duty under his retainer from his client to give the client a proper explanation of documents that require his signature, although the manner in which the solicitor will do so will vary according to the experience, sophistication and needs of the client.

Eversheds’ evidence was to the effect that they had never provided any such explanation of their drafting work to the company, meaning in this context, its remuneration committee, nor had they been asked to. It was also that, before this case, no problem had ever arisen. As to that, my instinct is that they may have been fortunate. The end result of Eversheds’ handling of their instructions in the present case was that whilst they could be confident that Mr Parkin understood and agreed with their drafts, they went to no lengths to ensure that representatives of NIAL acting exclusively in NIAL’s interests – meaning the RC, in particular Ms Radcliffe – had a like understanding; and, as it turned out, she did not. I shall return to the implications of this.

Did the executives have authority to instruct Eversheds?

The first basis of the challenge mounted by NIAL to the judge’s conclusion is that it is said she was wrong to conclude that Eversheds had NIAL’s authority to perform the drafting exercise. That submission started, perhaps unpromisingly, from Mr Davidson’s acknowledgment that there was no doubt that NIAL gave the executives actualauthority to instruct Eversheds to draft the contracts. But, it was said, such authority was limited by the fact that they had no actual authority to give instructions in relation to the relaxation of the restrictive covenants or the definition of refinancing proceeds; and therefore to the extent that Eversheds’ drafting related to these matters, Eversheds cannot rely on the executives’ actual authority.

Assuming that to be right, I consider that the judge was nevertheless correct to find that the executives anyway had apparent authority to give instructions to Eversheds in relation to the revised contracts, which I consider must necessarily have included the authority to give instructions as to drafting matters on which Eversheds required clarification, as they did. If it did not include this latter element, it would have left Eversheds in an impossible position. The contrary argument is that if there arose any question as to the drafting exercise that was not already clearly answered by a document manifestly endorsed by NIAL, Eversheds were not entitled to treat Mr Parkin as authorised to answer it, but had to obtain the answer from the RC.

In my view, that cannot have been what the RC intended in authorising the executives to instruct Eversheds in the drafting work, nor can Eversheds reasonably have understood the executives’ authority to have been so limited. Indeed, clause 3 of their terms of engagement with NIAL entitled them ‘to act on the instructions of any of your apparently authorised employees or agents and to rely on any information provided to us by such employees and agents’. There is no doubt that NIAL, via the RC, instructed the executives to give instructions to Eversheds in relation to the drafting exercise; the executives explained that to Eversheds; and on 18 January 2006 Mr Parkin also forwarded to Eversheds Ms Radcliffe’s own email of the previous day in which her postscript made it clear that the executives had NIAL’s authority so to instruct Eversheds. Ms Radcliffe had no intention of herself instructing Eversheds in the matter, nor of asking anyone else to do so. Yet NIAL, for whom Ms Radcliffe had full authority to act in relation to the drafting of the executives’ service agreements, now says that the executives had either no, or only limited, authority to instruct Eversheds to carry out such drafting.

I do not accept that submission. Moreover, since (a) the limit of Eversheds’ task was merely to produce draft contracts and (b) once that task was done, Eversheds were entitled to assume NIAL would not execute the contracts without first satisfying itself as to their content, the proposition that Eversheds were not entitled to proceed on the basis that the executives had authority to give them full instructions in relation to the drafting process is particularly unreal. In my judgment, the judge was correct to reject NIAL’s assertion that the executives did not have the relevant authority.

Did Eversheds breach their duty of care to NIAL?

This case is not about authority. It is about, and only about, what, in the particular circumstances in which they were placed, was Eversheds’ duty towards their client, NIAL; whether they breached it; and whether any breach caused damage to NIAL. The duty question arises because of the conflict of interest between NIAL and the executives in relation to the giving of instructions for the revised contracts, a conflict of which Eversheds were or ought to have been aware.

Whatever may be the current practice, I regard it as less than ideal that Eversheds should have taken their instructions in such a matter from the executives. I would not, however, go to the lengths of suggesting that they should not have done so. They were only being retained to draft the revised contracts. It was not a case in which, once drafted, Eversheds were being authorised to execute the contracts on behalf of NIAL. As follows from that, nothing in the process was in itself injurious to the interests of NIAL. That is because when the process was complete, NIAL (acting by the RC) would, as Eversheds knew, have the opportunity to consider the finished drafts and make up its own mind as to whether it was satisfied with them. If it was, it could sign up. If it was not, it could seek variations.

The critical question is whether, at the conclusion of the drafting process, Eversheds’ duty of care to NIAL required them to give express, separate advice to Ms Radcliffe, as chairwoman of the RC, as to the nature and effect of the changes made in the draft contracts. The judge’s view was that as NIAL had authorised the executives to instruct Eversheds in relation to the drafting, so that the executives were acting as NIAL’s agents, Eversheds’ advice to the executives as to the effect of their drafts was the equivalent of advice to NIAL itself and so there was no need for Eversheds to do more to ensure that the RC understood the effect of the drafts. Mr Patten submitted that in so holding the judge was correct.

I respectfully disagree with both the judge and Mr Patten. I readily accept that in a conventional case in which a company authorises one of its executives to instruct a solicitor in relation to a company matter, being one in which the executive has no personal interest conflicting with that of the company but can simply be regarded as a human organ of the company, there will ordinarily be no need for the solicitors to give advice as to the matter the subject of their instruction to anyone other than the executive. Advice to him will stand as advice to the company.

That, however, was manifestly not this case. Eversheds were instructed, under considerable time pressure (imposed by Ms Radcliffe for reasons I do not understand), to produce draft contracts for their client, NIAL, but were being so instructed exclusively by the proposed counterparties, principally Mr Parkin. The executives’ personal interests in the drafting exercise were clear. The exercise was also not one that Eversheds could perform by simply translating into legal form a set of unambiguous terms bearing the imprimatur of the RC. It was more complicated than that, principally in relation to the meaning of ‘refinancing’ and the ‘proceeds of the refinancing’; and as to that, Mr Gorringe needed express additional input, which he sought from Mr Parkin by an email of 18 January 2006 (timed at 22.17). For reasons given, I consider that he was entitled so to seek such input, since Mr Parkin was NIAL’s authorised channel of communication. The following day, at 12.42, Mr Parkin emailed Mr Gorringe saying that he would call him, but that in the meantime the refinancing definition was ‘the total value of any refinancing of the company minus the value of any pre-existing bank bond or loan notes debt’.

There followed, at 1.15 pm, a telephone call between Mr Gorringe and Mr Parkin, of which we have the former’s attendance note. It covers several matters and reflects aspects of the drafting upon which Mr Gorringe sought, and obtained, clarification. Mr Davidson submitted that one inference from its languagewas that Mr Parkin was giving instructions as to what he personally wanted rather than what NIAL had agreed or wanted. That is a possible inference, but not the only one. The more significant point, however, is that this was an instance in which Mr Gorringe had to obtain clarifying instructions in relation to the measure of the executives’ refinancing bonuses from one of the two executives in line for such a bonus. Since NIAL, and not Mr Parkin, was the client, that ought to have rung cautionary bells with Mr Gorringe.

I accept that Mr Gorringe was entitled to regard Mr Parkin as authorised to provide the instructions he needed. But since Eversheds’ task was to produce drafts for separate review by Ms Radcliffe and the RC – that is, by reviewers looking at them exclusively with NIAL’s interests in mind - I also regard it as plain that the proper discharge of Eversheds’ duty of care to NIAL required them at the conclusion of the drafting process to take reasonable steps to ensure that such reviewers properly understood the effect the drafts created on Mr Parkin’s instructions. That is because advice to Mr Parkin in the course of the drafting exercise could not, in the particular circumstances, be regarded as equivalent to advice to NIAL itself; and Eversheds’ duty was to ensure that NIAL itself was properly advised.

I therefore agree with Mr Davidson that, in the special circumstances of this case, part of Eversheds’ duty to NIAL was, at the conclusion of the drafting process, to ensure that the finished drafts provided to Ms Radcliffe, as the chairwoman of the RC, were accompanied by a memorandum explaining in user-friendly language a summary of the scheme and workings of each material change to the executives’ original contracts and identifying where in the drafts the changes could be found. For the purposes of the trial, NIAL prepared the type of memorandum that Eversheds might have provided, and Ms Lightfoot agreed that such a memorandum could have been provided, although she did not agree it should have been. The draft is a four-page, double-spaced document and I shall quote part of it, dealing with aspects of the re-financing bonus and the variation of the restrictive covenants:

If such a memorandum had been provided, and had been carefully read, understood and considered by Ms Radcliffe in conjunction with a consideration of the draft contracts themselves, it is likely, if she had responded to it with proper responsibility, that she would then have convened a meeting of the RC to consider the way forward and there would have been re-negotiation of the terms reflected in the drafts. In fact, Eversheds provided no such memorandum. I consider that in failing to do so they breached the duty of care owed to NIAL under their retainer.

Did such breach cause damage to NIAL?

That conclusion raises the next, critical, question. Would Ms Radcliffe in fact have read and understood any such memorandum so provided? That question is necessarily posed by reference to hypothetical facts, although in ordinary circumstances one might think the answer to it would be a fairly obvious ‘of course’. Ms Radcliffe was a professional woman, holding an important and responsible office with NIAL, and presented with important draft documents for her and the RC’s consideration, being documents accompanied by an explanatory memorandum from NIAL’s solicitors as to the effect of the drafts. How could anyone in her position not take the trouble to read and understand the memorandum?

The answer to that question might seem obvious, and would have seemed as obvious to the judge as to me. This, however, was no ordinary case; and Ms Radcliffe was no ordinary professional woman. The judge observed her under cross-examination over three days and was well able to assess her unusual approach to the performance of her duties. This was the judge’s assessment of Ms Radcliffe:

Returning to the question posed in [86] above, the substance of the judge’s answer to it (in [128] to [130], quoted at [64] above) was that, for the reasons she gave, it was unlikely that Ms Radcliffe would have read an Eversheds document she had not requested; and that anyway, even if she had, she would have misread the parts dealing with the refinancing bonus as doing no more than reflecting her own misconception of the bonus arrangements, although she would have picked up that the provision in the drafts relating to the relaxation of the restrictive covenants was not what she wanted. In the judge’s assessment, this might have resulted in a change to that aspect of the drafts, but not to a change in relation to the refinancing bonuses; and that the contracts would, in relation to such bonuses, have been signed as drafted.

Whilst properly recognising the judge’s findings as to Ms Radcliffe’s unusual method of working, Mr Davidson advanced an eloquent address to us as to why, in answer to the question posed by this hypothetical situation, we should draw a different inference as to Ms Radcliffe’s likely response to such a memorandum, namely that she would have welcomed, read and understood it. It appeared to me that perhaps the most telling point in support of that submission was Ms Radcliffe’s annoyance, expressed in paragraph 312 of her 183-page witness statement, as to the fact that she had ‘been sent an entire contract when all I believed that I needed to look at was the material giving effect to the remuneration provisions’. The statement is itself an odd one: why did she not expect to be sent ‘an entire contract’, since it was such a document that she had asked for and was proposing to sign? But reading between her imprecisely expressed lines, a possible inference is that she might have welcomed a short accompanying executive summary of the key provisions of the entire contract, since it would have provided her with a short cut to the performance of the task required of her; and, as Mr Davidson rightly submitted, Ms Radcliffe was much in favour of short cuts to the resolution of anything with which she was faced. There of course remains the question as to whether she would have read it correctly; and Ms Radcliffe’s problem is that, to the extent that she did read documents, she tended to read them incorrectly.

Mr Davidson accepted that, if NIAL is to succeed on this appeal, it is necessary for this court to hold that, had such an explanatory memorandum been provided to Ms Radcliffe, she would, contrary to the judge’s view, have read and understood it and, in consequence, so reacted to it as not to sign the contracts before her, but to conclude that they called for further consideration, including as regards the refinancing bonuses. If, however, the judge was right in her finding in this respect, Eversheds’ breach of duty would not itself have been causative of any substantial loss. That is because their breach made no difference to the course of events that actually happened: NIAL would have suffered the same consequences that it did because of Ms Radcliffe’s own dereliction of duty. Such dereliction would have broken the chain of causation that (subject to mitigation) would otherwise enable the loss to be laid at Eversheds’ door.

The judge’s finding might be said to have been a bold one. It was, however, made after she had been exposed to the minutiae of a quite complicated course of events in a trial lasting 13 days, three days of which were devoted to a cross-examination of Ms Radcliffe. Ms Radcliffe’s role in the history of this debacle was central and the judge had a comprehensive exposure to her apparent reluctance to read documents that were material to the tasks she faced and a surprising inability to understand them. Mr Patten rightly emphasised that it is not for us to consider whether we would have come to the same conclusion as did the judge. The question is whether the judge was wrong to come to the conclusion that she did on the evidence before her; and the judge had all the usual advantages as compared with this court in making the judgment she did.

In supporting the judge’s conclusion, Mr Patten referred us to two particular examples of Ms Radcliffe’s incompetent approach to documents. On 12 January 2006, at 17.32, Monks emailed to Mr Friis, with copies to Mr Parkin and Ms Radcliffe, their ‘updated comments’ that Mr Friis had on 11 January requested in relation to two matters, of which the second was the ‘New Annual Bonus and Long-Term Incentive Proposals’. The advice given by Monks was as to whether the proposals for these matters, as summarised in Appendix A to their letter, were in accordance with their understanding of current remuneration market practice. Appendix A dealt with the LTIP but not the proposed refinancing bonus; and in advising, as they did, that the LTIP was in accordance with current pay-market practice, Monks were not giving any advice in relation to the refinancing bonus.

Later the same day, at 19.07, Mr Parkin emailed to Ms Radcliffe a copy of the Proposals Paper, saying that the ‘information we required from [Monks] has been included and their letter is shown as appendix three’. The letter was described at the foot of the second page of the Proposals Paper as ‘[Monks] LTIPS Scheme illustration’.

On 17 January, Ms Radcliffe sent an email to the other RC members. It reminded them of the meeting of 7 December, and continued:

That might suggest that Ms Radcliffe was conveying that Monks’ letter of 12 January had also advised that the proposed refinancing bonuses, part of the proposals, were approved by Monks as compliant with ‘best practice’. That is, in fact, exactly what Ms Radcliffe believed it conveyed and what she intended it to convey.

Ms Radcliffe’s cross-examination on this was revealing. She said she had ‘certainly read’ Monks’ letter, although had not gone ‘in depth into the annexes’; and had read it ‘to make sure that it covered the things we wanted to cover’. She explained that she was not going to put any proposal to the RC that had not been approved by Monks, meaning that she understood Monks to have approved the refinancing bonus. She had not read Appendix A to Monks’ letter. She said their letter contained ‘the headings that I was expecting it to contain, and the advice that I was expecting it to cover …’; and that her reason for not reading Appendix A was because ‘I assumed … it would simply be the proposals that we had been discussing on 10 January’, which included the refinancing bonus. She said that, with the benefit of hindsight, she regretted not reading Appendix A, although she declined to accept that it would have been sensible to have read it at the time. As she had assumed that Appendix A included the refinancing bonus arrangements, she had assumed that Monks’ endorsement in their letter of 12 January extended to those arrangements. She said that, if she had read Appendix A, she would have asked the executives why the refinancing bonus ‘did not appear’ to be mentioned in Appendix A.

It would have been the work of but a few minutes for Ms Radcliffe to read Monks’ three-page letter in full and (perhaps) realise that it offered no advice on the refinancing bonus. It is also perhaps surprising that she did not even have the curiosity to see on what basis, so she had assumed, Monks did endorse the refinancing bonus arrangements.

That was a good working example of the judge’s finding as to Ms Radcliffe’s inadequate approach to the consideration and understanding of documents; and the Monks letter was, in Ms Radcliffe’s view, an important document. Given the modesty of the demands required by a reading of Monks’ letter, Ms Radcliffe’s approach to it almost defies belief. She chose not to read the most material part, preferring instead to make an unjustified assumption as to what it said. That was carelessness of an unusual degree.

In other cases, even when she did read documents, she misunderstood them. Other examples to which Mr Patten referred us were Ms Radcliffe’s failure to read properly, or understand, the documents provided to her following Mr Friis’s death in relation to his estate’s entitlement to his minimum 1% refinancing bonus. If she had read them with care, she would have understood what they were saying, yet claimed that she continued to believe, as she always had, that the bonus entitlement was discretionary. Her problem is, as she said in cross-examination, that her practice was to ‘quickly read to see whether there is anything that merits more detailed attention’. It was a technique that badly let her, and NIAL, down. The judge’s finding, in [128], was that ‘[Ms Radcliffe] consistently misread, missed or misunderstood contents which were inconsistent with her preconceived understanding of their meaning and effect’. The judge made that finding after a careful consideration of the evidence. Nothing submitted to us causes me to doubt it was one she was entitled to make.

In my judgment, therefore, even if Eversheds had provided the type of explanatory memorandum that I consider they should have provided, there is no basis upon which this court can or should conclude that the judge was wrong in holding that, even if it had led to Ms Radcliffe picking up the position in relation to the restrictive covenants and achieving a change of that provision, contracts would still have been signed containing the same refinancing bonus entitlements. NIAL’s case therefore failed on causation grounds.

We also heard arguments on issues of mitigation of loss. I find it unnecessary to express any view on them.

I have taken a different view from the judge as to the extent of Eversheds’ duty of care, and would hold that, by failing to provide any explanatory memorandum to Ms Radcliffe, they breached their retainer. For reasons given, however, I agree with the judge that such breach was not causative of substantial loss. Formally, I consider that the correct course would be to allow NIAL’s appeal, set aside paragraph 1 of the judge’s order by which she dismissed NIAL’s claim and substitute for it an order that Eversheds must pay NIAL nominal damages of £2 for breach of retainer.

I agree.

I also agree.