Ahmad & Ors v Bank of Scotland Plc & Ors

Mr Amir Ahmad and Mr Atif Ahmad are brothers. They and their wives traded in partnership under the name Zanrose Developments. Through the medium of the partnership they owned a number of residential properties at 30/40 Bollo Bridge Road in Acton (“the Bollo Properties”). The partnership had borrowing from the Bank of Scotland plc (“the Bank”), which was secured by a charge dated 3 April 2003 over the Bollo Properties. The charge was an “all monies due” charge.

The Ahmads were also shareholders in a number of companies: Zanrose Developments Ltd (“ZDL”) and Zanrose Textiles Ltd (“ZTL”). ZDL was a property holding company. It had borrowing from the Bank which was secured by a debenture dated 24 February 2005, and by a legal charge dated 3 March 2005 over a property owned by ZDL at 86 Cleveland Road in Ealing (“Cleveland Road”). ZTL carried on business selling floor carpets and tiles. It had borrowed money from Birmingham Midshires (which was then a part of Halifax Plc) to fund the acquisition of a large warehouse in Perivale known as “Zanrose House”. As security for that borrowing ZTL had granted Birmingham Midshires a debenture, and a separate legal charge over Zanrose House, both dated 3 April 2003.

On 1 March 2005 the Ahmads in their personal capacities gave the Bank a joint and several personal guarantee in respect of ZDL’s debts (“the Personal Guarantee”). The liability of the Ahmads under the Personal Guarantee was limited to a capital sum of £1,250,000. Clause 14 of the Personal Guarantee provided:

“All payments falling to be made by me/us shall be made to the Bank without any set-off or counterclaim and free from any deduction or withholding for or on account of any taxes.”

On 1 May 2007 ZDL and ZTL gave guarantees to the Bank in respect of each other’s liabilities (“the Corporate Guarantee”).

Following the merger of the Bank and Halifax the Bank became entitled to the benefit of all the secured debts in addition to those which it already had.

On 8 September and 9 September 2008 the Bank made demands for:

The sums identified at (i), (ii) and (iii) above total £5,241,854.12. Under the Personal Guarantee the Ahmads were liable for the corporate borrowing up to the principal sum of £1,250,000, plus interest and costs.

On 9 September 2008 the Bank appointed Messrs Jervis and Birchall (“the PWC receivers”) as fixed charge receivers of the Bollo Properties and Cleveland Road. It also appointed them as administrative receivers of the assets and undertaking of ZTL.

On 9 January 2009 the PWC receivers were, for regulatory reasons, replaced by Mr Morgan and Ms Goode (“the Grimley receivers”) as fixed charge receivers of the Bollo Properties and Cleveland Road. This was a fresh appointment of receivers.

The PWC receivers (who remained in place as administrative receivers of ZTL) and the Grimley receivers (as fixed charge receivers of the Bollo Properties and Cleveland Road) proceeded to realise the value of the various assets over which they had been appointed. The Bollo Properties, Cleveland Road and Zanrose House were all sold, and an insurance claim vested in ZTL (resulting from a fire that had occurred at Zanrose House in May 2005, and referred to by the parties as the “NIG Claim”) was compromised.

The realisations from the Bollo Properties were sufficient to discharge the direct borrowing of the Ahmads on the partnership account, but the sale of the assets of ZDL and ZTL did not raise enough to discharge all of the corporate borrowing. By letters dated 12 March 2012 the Bank demanded from the Ahmads payment of the sum of £906,323.01, which was alleged to be due from them under the Personal Guarantee.

The Ahmads failed to make payment and the Bank issued proceedings against them. Those proceedings were issued out of the Chancery Division of the Leeds District Registry (“the Leeds Action”). The Ahmads originally filed a Defence and Counterclaim but DJ Jordan took the view that the defence disclosed no real prospect of successfully defending the claim and that the counterclaim had no real prospect of success. By his order of 4 September 2012 he gave judgment for the Bank and dismissed the counterclaim. An appeal came before HH Judge Kaye QC. By that time Mr Hartman (who then as now represented the Ahmads) had drafted an amended Defence and Counterclaim and the appeal was heard on the basis that the allegations contained in that document would, if an amendment were to be permitted, form the basis of the Ahmads’ defence to the claim and their counterclaim against the Bank. The Ahmads’ application for permission to amend the Defence and Counterclaim was referred to in the judge’s eventual order as “the Second Application”.

The main defence for present purposes (and the foundation of the counterclaim) was an allegation that the Ahmads and the Bank had reached an agreement, the terms of which were contained in a letter from the Bank (and countersigned by the Ahmads) dated 27 May 2008. The effect of the agreement was said to be that:

The draft pleading went on to assert that the Ahmads had placed the Bollo Properties on the market; and that the appointment of receivers on 9 September 2008 was a breach of that agreement. The pleading then asserted that the Ahmads lost the opportunity to control and realise or retain the fair market value of the assets of the Zanrose businesses, and that the Bollo Properties, Cleveland Road and Zanrose House would each have realised more than they in fact did. The Ahmads counterclaimed damages for that loss. Neither ZDL nor ZTL was a party to the action (or was proposed as a party to the counterclaim).

There was lively argument before HH Judge Kaye about the meaning of the alleged agreement. However, what is critical for present purposes, is what he said in his judgment at [43] and [44]:

“[43] Any loss caused to the companies by the precipitate appointment of receivers is, of course a matter for the companies, not the defendants, who are solely defending the claim based on the Personal Guarantee.

[44] Accordingly, even if the appointment of receivers over the Bollo [Properties] was made by the Bank precipitately, i.e. within the margin of a reasonable time for the sale implied by the letter and terms of May 2008, I am not persuaded that it has resulted in any reasonably arguable claim or any real prospect of success by the defendants that their position would have been any better had time run its full course.”

In consequence he dismissed the application to amend; and also dismissed the appeal against DJ Jordan’s order. The Ahmads applied to the Court of Appeal for permission to appeal. Following a refusal on the papers, the renewed application was dismissed by Arden LJ. The effect of that dismissal is that HH Judge Kaye’s order stands. That in turn means that DJ Jordan’s order dismissing the counterclaim also stands. However, in the course of her extempore judgment (at a hearing at which the Bank was not represented) Arden LJ said at [35]:

“When the judge reached the conclusion that there was no answer to the guarantees and gave judgment, then, in my judgment, it followed that he was right to refuse permission to bring in the cross-claims by way of counterclaim. The right course would be for those claims to be made the subject of a fresh claim by the guarantors as against the Bank.”

Not surprisingly, the Ahmads (now joined by ZDL and ZTL) have done just that; and they have also sued the PWC receivers and the Grimley receivers for good measure. The issue on this appeal is whether, on the basis of the pleaded case, the Ahmads ZDL and ZTL have a case that is fit for trial, or whether it should be summarily dismissed. HH Judge Purle QC considered that it should be summarily dismissed. His decision is at [2014] EWHC 4611 (Ch). This appeal against his decision is brought with the permission of Briggs LJ.

The draft Amended Particulars of Claim once again plead the agreement of 27 May 2008; assert that the appointment of the receivers was a breach of that agreement; and claim that the consequence of the Bank’s breach of contract was to prevent the Ahmads from realising the full value of (among other things) the Bollo Properties. The only relief sought is an award of damages. There are many other additional allegations, to which I will return.

However, the threshold question as regards the Bollo Properties is whether the Ahmads are entitled to make the allegation at all against the Bank in the light of HH Judge Kaye’s order. HH Judge Purle QC held that they were not. The essence of HH Judge Kaye’s reasoning was that he was not persuaded that there was an arguable case that the Ahmads had suffered loss even if there had been a breach of contract. Plainly there would have been little point in allowing the amendment if all that it could lead to was an award of nominal damages. On the face of it, in my judgment the Ahmads are proposing to raise against the Bank exactly the same claim in relation to the Bollo Properties as they sought to raise before HH Judge Kaye and for which he refused permission to amend on the ground that there was no arguable claim. Mr Hartman did not suggest that the claim against the Bank in relation to the Bollo Properties raised in these proceedings was a different case to that which HH Judge Kaye had considered.

Mr Hartman argued that HH Judge Kaye’s decision on the merits of the counterclaim was irrelevant to his decision, because it had no bearing on the outcome of the Ahmads’ appeal or application. I agree that it had no bearing on the defence to the claim. If and in so far as the defence to the Bank’s claim sought to rely on the matters raised by way of counterclaim, then clause 14 of the Personal Guarantee was an insuperable obstacle. But it does not follow that if a cross-claim cannot be deployed by way of set-off it cannot be deployed at all. HH Judge Kaye’s decision was a decision to refuse permission to bring the counterclaim at all because of its perceived lack of merit. Moreover DJ Jordan’s order dismissed the counterclaim.

Mr Hartman also argued that the decision of HH Judge Kaye gave rise to no estoppel because it was an interlocutory decision. He relied on Electra Private Equity Partners v KPMG Peat Marwick [2000] BCC 368 for that proposition. That case needs a little explaining. There were two appeals before the court: one from Carnwath J striking out a claim in professional negligence against a firm of auditors, which was one of two defendants to an action. The action proceeded against the other defendant and in the course of disclosure the claimant came across information which enabled it to plead a new case against the auditors against whom the claim had been struck out. The claimant then applied for permission to amend its claim to bring that defendant back in. Judge Hegarty QC refused to permit the amendment on the ground (among others) that the original striking out order made by Carnwath J created a res judicata. This court held, first, that Carnwath J had been wrong to strike out the claim. Since his order striking out the claim was set aside, it is plain that there could have been no res judicata in this court. Second, the court considered whether the restrictions on adducing fresh evidence on appeal (under the principles in Ladd v Marshall) applied with their full rigour to decisions which were not hearings on the merits. In the course of that discussion the court accepted that a hearing resulting in summary judgment was a hearing on the merits: see p 390. Third, the court went on to consider the appeal from HH Judge Hegarty. As Auld LJ said at the start of his discussion, since the court decided to set aside Carnwath J’s order, the issues about cause of action estoppel and issue estoppel fell away. But more importantly for present purposes, the court held that the cause of action raised in the amended pleading before HH Judge Hegarty was not the same cause of action as that which Carnwath J had considered. Once the factual background to that case has been appreciated, it is clear that it does not support the proposition that Mr Hartman advanced, and it has no bearing on our case.

In addition, whether a decision is interlocutory depends on what you mean by an interlocutory decision. It is true that the decision was made on an application made in the course of ongoing proceedings; but the judge’s decision to refuse permission to amend was final, because without that permission the counterclaim could not be raised at all. So I agree with HH Judge Purle that for the purposes of the rules relating to res judicata HH Judge Kaye’s decision was final, subject only to the possibility of an appeal. It is true that in the course of her judgment refusing permission to appeal Arden LJ referred to the possibility of the claims being made in a fresh action. However, she does not appear to have considered the effect of leaving DJ Jordan’s order and HH Judge’s Kaye’s order undisturbed. The formal order that she made was simply to refuse permission to appeal. In my judgment, therefore, the estoppel created by DJ Jordan’s order and HH Judge Kaye’s order continues in force. Mr Hartman sought to outflank the effect of Arden LJ’s refusal of permission to appeal. He submitted that if a party has attempted to appeal on reasonable grounds, and is unable to appeal for technical reasons, then the court can allow that party to relitigate the issue a second time, if satisfied that the circumstances are exceptional. The “technical rule” in play is CPR Part 52.3 (6) which provides that a court will only give permission to appeal where the court considers that the appeal would have a real prospect of success. The consequence of this argument would be that if an appeal court takes the view that an appeal has no real prospect of success, the would-be appellant is entitled to re-run a case that has failed at trial, and does not have sufficient merit to warrant an appeal. That consequence only has to be stated in order to see that the argument is without foundation.

The form of estoppel in question in our case is, in my judgment, a “cause of action estoppel”; that is to say a decision that a cause of action does or does not exist. The dismissal of the counterclaim means that there was no valid counterclaim as set out in the pleading then before the court. Cause of action estoppel is an absolute estoppel in relation to all points decided, which admits of exceptions only in cases of fraud and collusion: Arnold v National Westminster Bank plc [1991] 2 AC 93, 104; Virgin Atlantic Airways plc v Zodiac Seats UK Ltd [2013] UKSC 46, [2014] AC 160 at [22].

I therefore agree with HH Judge Purle that the dismissal of the Ahmads’ application for permission to amend to bring the counterclaim precludes them from raising against the Bank the same claim in relation to the Bollo Properties in the current proceedings.

Neither ZDL nor ZTL was party to the Leeds Action, and so there is no question of any res judicata against them. It is argued on their behalf that the agreement made on 27 May 2008 bound the Bank not to appoint receivers over their assets. It is therefore necessary to enter the question whether the terms of the agreement went that far. Before setting out the terms of the letter, it is necessary to make a few points about the pleaded case. First, this is the fourth attempt to plead the case. There have been different drafts at each stage: one before DJ Jordan, one before HH Judge Kaye, one before HH Judge Purle and then proposed amendments before HH Judge Purle which he also considered. Second, in the latest iteration of the pleaded case it is not alleged that any agreement was partly oral and partly in writing. Oral exchanges are only relied on for the purpose of interpreting the agreement. Third, there is no outstanding application to re-amend the pleading. This is of some importance because Mr Hartman’s skeleton argument proceeds erroneously on the basis that the alleged agreement was partly oral and partly written. That is not how the case is put; and there has been no application to re-amend.

Mr Hartman argued that the letter of 27 May 2008, interpreted in its proper context, had the effect that the Bank agreed not to appoint receivers pending the sale of the Bollo Properties by the Ahmads within a reasonable time. The relevant context, he said, was pleaded in paragraph 21 of the Particulars of Claim as follows:

“Further and in or about mid-May 2008, Michael Stacey telephoned the First Claimant during which, and to the clear recollection of the First Claimant, the following was stated:

(i)

Mr Stacey began by saying 'I have good news from the Bank' and

(ii)

then said 'In view of the fact that you cannot refinance the whole debt, the Bank would like the four partners to sell the Bollo Houses and that this money will be used to reduce the Bank debt'.

(iii)

Mr Stacey further said: 'in return the Bank will not appoint any Receivers’.

(iv)

Mr Stacey proceeded to ask whether; 'all of you, [being the First to Fourth Claimants], will agree to sell the Bollo houses'.

(v)

The First Claimant replied saying, 'If we can carry on trading and develop our businesses, I cannot see a problem with all four of us agreeing to sell the Bollo houses'.

(vi)

Mr Stacey replied explaining the terms of the proposed arrangement, being that the Claimants shall:

i.

by the end of June 2008, raise sufficient funds to clear and replace all proper sums due on all accounts and clear all sums outstanding on the mortgage with Birmingham Midshires BS, being the total debt; or

ii themselves, market and sell the Bollo Properties and pay the proceeds of each such sale to the First Defendant so as to reduce or extinguish the total debt of all of the Claimants.

(vii)

Mr Stacey further said, 'I will send a letter and it is important that you all sign and return it to me before the end of May to avoid us appointing Receivers'.

(viii)

Mr Stacey then reminded the First Claimant that 'If you fail to obtain agreement from all of you, the Bank will be entitled to appoint Receivers'.

(ix)

The First Claimant replied, 'That is not going to be necessary. I am sure all the partners will sign the letter”.

It is clear from this paragraph that the conversation is not said to have resulted in an actual agreement. Mr Hartman characterised it as an offer capable of acceptance, contingent on the signature and return of the contemplated letter. The Particulars of Claim continue in paragraph 23:

“On 27 May 2008 the First Defendant by letter expressly confirmed that its authorised officers had confirmed the offer aforesaid, expressly set out the terms agreed or to be agreed between the parties, and required the First to Fourth Claimants to acknowledge and agree to the said express terms in writing.”

The letter of 27 May 2008 was addressed to the Ahmads at their home address. It was not addressed to either of the companies. It reads as follows:

“RE ZANROSE CONNECTION

As discussed recently with Amir, I am pleased to confirm that the Bank has agreed to one final term extension to allow time for the various forms of Bank refinance to take place.

This period will expire at the end of June 2008 and by this time we expect that the debt in the names of Zanrose Textiles Ltd, Zanrose Developments Ltd and Zanrose Developments be fully repaid.

This agreed extension is subject to your all agreeing that should the above scheduled repayment not be completed by expiry that you all undertake to place on the market for sale the Bollo Bridge Rd properties whose sale proceeds would then be used in debt reduction across the above mentioned legal entities.

Should this agreement not be forthcoming, we will appoint an LPA Receiver for this property to achieve the same outcome of overall debt reduction from the net sale proceeds in the short term.

To indicate your acceptance of these terms, please all sign and return the second copy of this letter by way of your confirming your undertaking that you will act as above should the expiry date be missed.

Kind regards”

The letter was signed by Mr Stacey on behalf of the bank, and countersigned by the Ahmads.

It is clear, in my judgment, that the pleaded case alleges that the agreement was contained in the letter alone. As pleaded, the letter “expressly set out the terms agreed or to be agreed”. There is no allegation of any other agreed terms. The reference back to “the offer aforesaid” only makes sense if it refers to what had been alleged in paragraph 21 (vi) namely Mr Stacey’s explanation of the “proposed arrangement”. That explanation does not differ in any material respect from what was said in the letter. The Bank’s requirement was that the Ahmads should agree “the said express terms”. There was no requirement that they should agree any other terms.

I do not accept Mr Hartman’s interpretation of the letter. The first point to make is that it begins by saying that the Bank had agreed “one final term extension”. That term would expire at the end of June 2008. That the extension was a “term” extension, and a “final” one at that, clearly meant that the debts would become due in full immediately after the end of June. It is impossible to interpret the letter as agreeing to any further postponement of liability to pay. Second, the Bank was only prepared to grant that final term extension on condition that the Ahmads agreed that at the end of June, if the debts had not been repaid, they would “place on the market for sale the Bollo Bridge Rd properties”. The letter says nothing about who would have the conduct of the sale, once the Bollo Properties had been placed on the market. It says nothing about any marketing period. Nor does it say anything which would prevent the Bank from exercising whatever remedies were available to it under the security documents once the final term had expired. HH Judge Kaye thought that it was implicit that the Ahmads would have a reasonable time in which to market the properties. But I agree with Mr Barker, on behalf of the Bank, that Judge Kaye seems to have been under the misapprehension that the loan would continue to be suspended during that marketing period. That, to my mind, is an impossible and wholly uncommercial interpretation, and directly contradicts the description of the term extension as “final”. Moreover if the letter is to be interpreted as meaning that the Ahmads were to be given a reasonable time, one must then go on to ask: a reasonable time for what? There are at least two alternatives. One is that conduct of the sale should remain in the hands of the Ahmads for a reasonable time before the Bank took over. The other is that the Ahmads would have a reasonable time in which to achieve completion of the sale of all the Bollo Properties. It is only if the latter alternative is the correct interpretation that it could plausibly be argued that the Bank moved too soon. However, for the reasons I have given I do not accept that the letter gave the Ahmads any further time after the end of June 2008.

From the perspective of the Bank, what it got in return for the extension was the promise of immediately putting the properties on the market, rather than having to go through the process of appointing receivers to do that (a process which might take and indeed did take several months). It was what Mr Pilbrow, for the PWC receivers, called a head start.

Judge Purle said at [17]:

“In my judgment, if a Bank is going to give up or suspend its security rights, which were clearly exercisable in this case so long as the debt was due, then that must be done explicitly, or by necessary implication. Merely surrendering or suspending voluntarily their right to intervene until the end of June and then requiring an undertaking that the Claimants should put the properties on the market does not appear to me without more to prevent the Bank from intervening, in suitable circumstances, thereafter, e.g. when the debt is subsequently demanded and not repaid.”

I agree. In my judgment the correct interpretation of the agreement is that it did no more than to postpone the Bank’s exercise of its rights as secured lender until the end of June. It follows therefore that the PWC receivers and the Grimley receivers were validly appointed.

In addition the description of the counter-signatories simply gives their names. They do not purport to countersign in any capacity other than their personal capacities. It is, in my judgment, quite impossible to interpret this agreement as making any kind of promise to either of the two companies neither of which was party to the agreement, particularly when neither of those companies made any promise of its own about how to deal with its own assets (which everyone recognised would be needed in order to repay the debts in full). It follows that any claim by ZDL or ZTL based on an alleged breach of this agreement is bound to fail for that reason too.

I agree also with HH Judge Purle that it is impossible to interpret this agreement as saying anything about the appointment of receivers over any property other than the Bollo Properties, or anything about the appointment of administrative receivers, and it is impossible to fill that silence by the implication of terms.

That leaves the claims against the PWC receivers (as administrative receivers of ZTL) and the Grimley receivers (as fixed charge receivers of the Bollo Properties and Cleveland Road). One of the claims against both sets of receivers is that they were guilty of the tort of trespass or wrongful interference with goods or wrongful interference with contractual relations. These allegations were premised on the assumption that the receivers had not been validly appointed. Since I have concluded that they were validly appointed, these claims must fail and it is not necessary to say any more about them. The remaining claims against the PWC receivers and the Grimley receivers concern the manner in which they performed or purported to perform their functions.

It is necessary before embarking on this part of the case to set out briefly what duties the PWC receivers and the Grimley receivers owed each of the claimants. Mr Pilbrow set out the relevant principles in an Appendix to his skeleton argument, and Mr Hartman accepted them as accurate. They are:

Mr Hartman took the Grimley receivers first, and I will do the same. The essential allegation on the facts is that the Grimley receivers sold the Bollo Properties for less than the Ahmads themselves could have done. This is, of course, the same allegation that HH Judge Kaye rejected, but since it is levelled at the Grimley receivers rather than the Bank, the res judicata does not apply. Similar allegations are made in relation to Cleveland Road and, against the PWC receivers, in relation to the sale of Zanrose House and the settlement of the NIG claim. The claim against both the Grimley receivers and the PWC receivers is very tersely pleaded in paragraph 55 of the pleading as follows:

“Further or alternatively if … the Receiver Defendants were validly appointed those Defendants and each of them in breach of their equitable duty and/or duty of care towards the Claimants thereafter failed, as particularised below, to realise a true and/or proper market value for each or any said property and/or assets in the said receiverships.”

Despite the promise of particulars there are none, apart from the bare assertions that the prices achieved were less than the Ahmads could have achieved.

In support of the allegation that the prices achieved for the properties were less than the Ahmads themselves could have achieved, the Ahmads rely on two reports by Mr Jonathan Hope MRICS: one relating to the Bollo Properties and the other relating to Cleveland Road. Mr Hope’s reports use publicly available data and indices of property values to consider what the sale prices for the properties might have been. He considers that information at a very high level of generality. So far as the Bollo Properties are concerned, what is striking about Mr Hope’s report is that it contains no word of criticism about what the Grimley receivers actually did, the advice that they relied on or the marketing that was actually carried out. Since this part of the case depends on an allegation that the Grimley receivers were in breach of duty, it is incumbent on the Ahmads to explain why they are said to have been in breach. Neither the pleading nor the evidence does that. Mr Hartman argued that at this stage in the case, it was not necessary to do more than to adduce prima facie evidence that the prices achieved were lower than those which Mr Hope had calculated; and that this discrepancy was in itself prima facie evidence of breach of duty by the Grimley receivers. I disagree. The evidence filed on the Grimley receivers’ behalf explains in detail how they went about marketing the Bollo Properties, what valuation advice they received, and what offers they received. It is also noteworthy that the Grimley receivers instructed the same estate agents as the Ahmads themselves had selected when they complied with their promise to put the Bollo Properties on the market at the end of June 2008. They also took advice from Edward Symmons who produced a comprehensive written report. As well as dealing with general market conditions, that report also made a number of relevant points specific to the Bollo Properties themselves:

Mr Hope does not engage with these detailed points at all. Unless it is alleged that something went seriously wrong with the Grimley receivers’ marketing process or the advice that they received, Mr Hope’s report does not begin to make out the case against them, even if it is taken at face value. This report therefore takes the case no further. Mr Hartman submitted in the course of his reply that the housing market was depressed and that performance of the Grimley receivers’ equitable obligations might require them to postpone a sale until the market improved. That submission is contradicted by the well-established principle (which in opening the appeal Mr Hartman accepted as correct) that a receiver is free to sell an asset or property in the condition it is in and as he finds it; he is not under a duty or obligation to await any increase in value. It is a submission that is bound to fail.

As far as Cleveland Road is concerned Mr Hope concludes that the price achieved by selling the site in 2009 exceeded what could reasonably have been expected at that time without the benefit of planning permission. The pleaded complaint is that Cleveland Road would have been developed and sold with planning permission. However, that plea is also met by the legal principle that a receiver has no duty or obligation to await or effect any increase in value or improvement in the property. Again, Mr Hope’s report on Cleveland Road takes the case no further.

In relation to Zanrose House the Ahmads rely on the report of Mr Timothy Hitchcock MRICS. He considers that it is not possible to conclude that the site was not properly marketed; and he also considers that the price achieved “represented fair value for the site in all the circumstances”. His only point is that if it had been developed it would have fetched more. But that, too, falls foul of the principle that a receiver has no duty or obligation to await or effect any increase in value or improvement in the property. Like Mr Hope’s reports, Mr Hitchcock’s report carries the case no further.

The remaining claims are those against the PWC receivers. The principal head of claim against them is that they agreed a settlement of the NIG Claim at too low a figure. I should set out some more of the narrative in relation to that claim. ZTL’s warehouse and its contents were severely damaged by fire on 18 May 2005. ZTL made claims under various policies of insurance it had with NIG. NIG claimed to be entitled to avoid the policies on a number of different grounds: including misrepresentation, non-disclosure, breach of warranty and fraudulent devices. ZTL had issued proceedings before the PWC receivers were appointed, and the PWC receivers continued those proceedings. They retained the same solicitors and leading and junior counsel (Mr Stephen Hofmeyr QC and Ms Sarah Cowey) that ZTL had retained. The PWC receivers had written advice from both leading and junior counsel on both liability and quantum. They rated the chances of success on liability at no more than 50 per cent. If the claim were to be wholly successful the “best case” recovery would be of the order of £5 million. But recovery was dependent on the factual case being accepted, and even if it was they considered that it was likely that the recovery would be less than the “best case”. However, if the case were to be lost, then ZTL would have to bear both its own costs and those of NIG. Those costs were likely to be about £500,000 each side. Following directions given by Teare J a mediation was arranged, and it took place on 11 May 2009. Both sides prepared position papers for the purposes of the mediation. The claim was valued by ZTL at £4.795 million. However, NIG’s position was that even on ZTL’s figures the claim was worth no more than £3.5 million; and that on its own figures the claim was worth £2.23 million. All these figures presupposed full success on liability (which Mr Hofmeyr had advised was no more than a 50 per cent prospect).

In paragraph 44.11 of her witness statement Ms Howard, on behalf of the PWC receivers, says that the mediation was attended by Mr Birchall (one of the PWC receivers), Mr Hofmeyr, Dundas & Wilson (the PWC receivers’ solicitors), the two Ahmad brothers and their solicitors. She continues in paragraph 44.12:

“NIG offered to pay … the sum of £1,550,000 inclusive of costs. The acceptance of this offer was recommended to the [PWC receivers] by counsel and solicitors… This offer was accepted and the litigation was settled.”

Mr Amir Ahmad has also given some evidence about the mediation. He did so in reply to Ms Howard. What he said was this:

“The final settlement was decided in the absence of any solicitors, Mr Hofmeyr, me and Atif Ahmad and no professional advisers had been present at all. I was so upset by the process and the negligent result that I walked out of the mediation offices in Fleet Street.”

Clearly this conflict of evidence about whether counsel and solicitors positively recommended acceptance of the offer cannot be summarily resolved, and I will assume that Mr Ahmad’s account is accurate. However, although Mr Ahmad takes issue with a number of identified paragraphs in Ms Howard’s statement, he does not take issue with paragraph 44.11. We may take it therefore that it is common ground that Mr Birchall, Mr Hofmeyr, Dundas & Wilson, the two Ahmad brothers and their solicitors all attended the mediation, even if they were not present at the final agreement. Nor does Mr Ahmad say that either counsel or solicitors recommended rejecting the offer.

The Ahmads primarily rely on a report by Mr Dowlen, which sets out his own view of the merits of the case; and reconstructs a hypothetical scenario which he thinks would have happened if the Ahmads themselves, rather than the PWC receivers, had been conducting the mediation. Some of the views that he expresses differ from those expressed by Mr Hofmeyr, but in the course of his oral address Mr Hartman said in terms that Mr Hofmeyr’s views were right. Somewhat remarkably Mr Dowlen’s reconstruction of the hypothetical scenario envisages that at the close of the mediation (occupying one full day) NIG would have made an offer of £1.5 million to £1.75 million. In fact that is more or less what happened. So the Ahmads’ vigorous fighting of their corner would not, on the basis of Mr Dowlen’s report, have made any significant difference to the outcome of the mediation itself. But Mr Dowlen then hypothesises that the offer would not have been accepted. Instead, he continues at paragraph 6.6.20:

“My supposition is that the following day NIG might have had an internal review and conference. They may then have contacted the Ahmads and their solicitor and suggested £2.5 million. They would have looked again at the weight of the Claimant’s QC opinion and Advice which was compelling.”

Mr Dowlen’s theory thus seems to be that NIG would have been persuaded by Mr Hofmeyr’s opinion to increase their offer. But there is no evidence that Mr Hofmeyr’s opinion, written for the benefit of the PWC receivers and subject to legal professional privilege, was ever shown to NIG. Nor does Mr Dowlen explain why he thinks that the PWC receivers (or for that matter the Ahmads) would have disclosed that opinion. Accordingly the foundation of the theory is built on sand.

I also agree with Mr Pilbrow that Mr Dowlen’s report does not address the relevant question. The relevant question is whether the PWC receivers were in breach of their equitable duty to take reasonable care to achieve the best settlement reasonably available. Subject to one point Mr Dowlen does not criticise explicitly any of the advice that the PWC receivers obtained, or indeed any of the steps they took, except to say that the Ahmads would have fought their corner harder in the mediation than the PWC receivers did. The only point of possible criticism that he makes is that before the mediation took place it should have been prefaced by a “reality check” and that there should have been further advice from an expert about tactics and on figures in dispute on which to concentrate. He goes on to say that “it is not apparent that the receivers either sought or took such specific insurance related advice immediately prior to the mediation.” In so saying, however, Mr Dowlen has overlooked the report of 23 June 2009 by the PWC receivers to the Bank in which they said in terms that before the mediation they had a conference with counsel “to better understand the likely barriers to settlement due to the complexity of this matter thereby maximising the chances of a successful mediation.” Mr Dowlen has also overlooked the presence at the mediation of both Mr Hofmeyr and Dundas & Wilson. It is plain, therefore, that Mr Dowlen’s supposition is wrong.

Although it is only an analogy, the question whether advice on settlement given by a lawyer is a breach of the common law duty of skill and care is of some relevance. In Moy v Pettman Smith [2005] UKHL 5, [2005] 1 WLR 581 at [59] Lord Carswell quoted with approval the following passage from the judgment of Anderson J in Karpenko v Paroian, Courey, Cohen & Houston (1981) 117 DLR (3d) 383:

“What is relevant and material to the public interest is that an industrious and competent practitioner should not be unduly inhibited in making a decision to settle a case by the apprehension that some Judge, viewing the matter subsequently, with all the acuity of vision given by hindsight, and from the calm security of the Bench, may tell him that he should have done otherwise. To the decision to settle a lawyer brings all his talents and experience both recollected and existing somewhere below the level of the conscious mind, all his knowledge of the law and its processes. Not least he brings to it his hard-earned knowledge that the trial of a law-suit is costly, time-consuming and taxing for everyone involved and attended by a host of contingencies, foreseen and unforeseen. Upon all of this he must decide whether he should take what is available by way of settlement, or press on. I can think of few areas where the difficult question of what constitutes negligence, which gives rise to liability, and what at worst constitutes an error of judgment, which does not, is harder to answer. In my view it would be only in the case of some egregious error … that negligence would be found.”

In my judgment the same approach applies to the settlement of a claim by administrative receivers, whose equitable duties closely parallel the common law duty of care. In our case neither the Particulars of Claim nor the evidence advanced on ZTL’s behalf identity any “egregious error”. I do not consider that there is a real prospect that the Ahmads will successfully impugn the settlement figure.

The Particulars of Claim also contain a complaint that stock was sold at an undervalue. However, this did not feature in the grounds of appeal or in Mr Hartman’s oral argument; so I need say no more about it.

In short, I agree with HH Judge Purle that the claim has no real prospect of success. I would dismiss the appeal.

I agree.