Commodities Research Unit International (Holdings) Ltd & Ors v QSP Residual Recoveries LLP

These are cross-applications for permission to appeal from the order dated 8 April 2016 of Dingemans J (“the Order”) which he made after handing down his reserved judgment (“the Judgment”) on 5 April 2016 in the trial of a professional negligence claim which he had heard over five days in February 2016. The neutral citation reference of the Judgment is [2016] EWHC 727 (QB).

I will refer to the claimants collectively as “CRU”, and to the defendant (formerly known as SJ Berwin LLP) as “the Firm”. The claim was for damages for allegedly negligent conduct and advice by the Firm when retained by CRU in connection with the termination of the employment of a former Chief Executive Officer (“CEO”) of CRU by an agreement dated 15 August 2008 (“the Termination Agreement”). Although no order for anonymity has been sought or made, nothing turns on the identity of the former CEO and he did not give evidence at or participate in the trial. I am therefore content to accede to the parties’ joint request that I should not name him, and I will refer to him (as did the judge in the Judgment) as “the former CEO”.

There has been no determination on paper of the permission applications, as Patten LJ on 5 August 2016 adjourned them to an oral hearing with a provisional time estimate of one and a half hours. That hearing took place before me on 13 July 2017, when I had the benefit of concise and helpful oral submissions from Nicholas Davidson QC for CRU, and from Michael Pooles QC (leading Nigel Porter) for the Firm. At the end of the hearing, I reserved my decision.

I will not repeat or summarise the background to the case, which is clearly set out in the Judgment and which I will take as read. By the Order, the judge ordered the Firm to pay CRU damages of £118,125 together with interest of £6,092.34, and to pay 40% of CRU’s costs on the standard basis, with a payment on account of £125,000 to be made by 29 April 2016. The judge refused each side permission to appeal, for reasons which he gave in the standard form lodged with the civil appeals office.

With this introduction, I will begin by considering CRU’s grounds of appeal.

I find it convenient to take ground 2 first, which challenges the judge’s conclusion that at the meeting on 4 September 2007 the Firm did not advise that the former CEO’s benefits under the long term incentive programme (“LTIP”) would survive the termination of his employment: see the Judgment at [40] to [55]. CRU recognises that this was a finding of fact, which the judge made after hearing evidence from the three persons present at the meeting (Mr Perlman, Ms Kerr and Mr Fisher). CRU nevertheless submits that the judge’s finding was wrong, in particular because he erred in his analysis of Ms Kerr’s contemporary attendance note and should have found that the word “enforceable”, in the part of note referring to the LTIP, was a record of her advice that the former CEO’s rights under the LTIP were legally binding and would be enforceable by him on the termination of his employment.

In my view, this ground has no realistic prospect of success. Absent a demonstrable error, an appellate court will not interfere with a finding of fact made by the trial judge unless the conclusion is plainly wrong, in the sense that it is one that no reasonable judge could have reached: see, for example, Henderson v Foxworth Investments Ltd [2014] UKSC 41, [2014] 1 WLR 2600, at [62] and [67] per Lord Reed JSC. The judge gave ample reasons to justify his findings about what had occurred at the meeting, and I cannot detect any error in either his approach or his reasoning. In particular, the judge was fully entitled to accept Ms Kerr’s own evidence that the word “enforceable” was not an expression of her own view, because she had only been provided with the documents that morning and had not been given any instructions before the meeting. Consistently with this, the reference to “long term incentive”, in square brackets and with a question mark, on the following page of the attendance note naturally suggests that no concluded advice on this subject was given by her. Questions of this sort are quintessentially ones for the trial judge to decide.

As a prelude to consideration of ground 1, it is also important to note the judge’s clear finding that Mr Perlman and Mr Fisher formed a commercial view at the meeting not to seek detailed advice about the LTIP, because CRU was making losses and it seemed unlikely that the threshold to trigger benefits under the LTIP would be crossed: see the Judgment at [50] and [54].

Ground 1 challenges the judge’s conclusion that the Firm was not in breach of duty in omitting to take steps (other than the specific step of obtaining the General Conditions) to satisfy itself as to the contents of the bargain between CRU and the former CEO. The main thrust of the challenge, as I understand it, is that if the Firm had asked (as it allegedly should have done) for the whole of CRU’s file in relation to the former CEO, this would have uncovered the October 2004 emails which apparently showed an acknowledgement by him when he joined the group in 2004 that he would have no entitlement under the LTIP if he left the group before his rights were triggered by a sale of the group for at least £11 million. In support of its case on this issue, CRU places particular reliance upon the unchallenged expert evidence of Julian Roskill, which it complains the judge failed to address in detail.

The question needs to be considered both in the context of the September 2007 meeting, and again in 2008 in the run up to the Termination Agreement. So far as concerns 2007, the contention seems to me barely arguable. The Firm was instructed at very short notice, Ms Kerr only received the papers put together by CRU on the morning of the meeting, and there was no prior indication of any precise topics on which her advice was sought. Since the outcome of the meeting, as I have noted, was that the question of the LTIP was put to one side, there was no reason for Ms Kerr to advise at that stage that further steps needed to be taken to investigate the full terms of the former CEO’s employment in so far as they might impinge on that issue. Furthermore, without a specific focus on that issue, it seems to me speculative to assert that a general request by the Firm for production of the former CEO’s file would have uncovered the October 2004 emails, particularly given the judge’s finding at [31] that “they were not readily accessible during discussions on remuneration”.

In relation to 2008, it is important to note that Mr Fisher and Mr Perlman had already agreed that the former CEO’s rights under the LTIP would continue after the termination of his employment before Mr Perlman on 21 July 2008 sought advice from Ms Kerr about the termination of his employment. At this point, the statement of terms of the former CEO’s employment, and the addendum thereto which related to the LTIP, were sent through to the Firm, but since the future enforceability of the LTIP was a point on which Mr Fisher and Mr Perlman had already agreed, this was not a subject on which they either needed or sought advice, and again there was no reason for the Firm to advise that a search be made for further documents which might relate to the LTIP. Furthermore, in the absence of a specific focus on the LTIP, it seems to me no more probable in July 2008 than it was in September 2007 that a request for the former CEO’s file would have elicited the October 2004 emails. The judge was in my view entitled to conclude, as he did, that the “failure to discover the October 2004 emails was a failure on the part of CRU Group which had filed them in October 2004 and forgotten about them by September 2007”: see the Judgment at [86].

Nor am I much impressed by the argument that the judge failed to take proper account of the evidence of Mr Roskill. He plainly had that evidence in mind, because he refers to it in [16]. Of the two questions on which Mr Roskill was asked to give his opinion, only the first is relevant to the present issue; and his evidence was necessarily pitched at a high level of generality. I am sure the judge had it well in mind, and gave it appropriate weight; but it did not preclude him from addressing the question of breach by reference to “what was required in this particular case to discharge the duties on the solicitors” (see the Judgment at [86]).

I would accept that CRU’s case in relation to ground 1 is somewhat stronger in 2008 than 2007, but taking everything into account I nevertheless remain unpersuaded that an appeal on ground 1 would have a reasonable prospect of success.

Ground 3 attacks the judge’s conclusion on the quantum of damages, on the basis of the breach which he found to have been established, namely that the Firm should have asked for the general terms of the former CEO’s contract of employment, which would in turn have led to the discovery of the PILON clause. With the benefit of this knowledge, as the judge found at [92], CRU would have been able to terminate the former CEO’s contract without notice and without any breach of contract, with the consequence that his restrictive covenants would in principle have been enforceable against him (because there would have been no repudiatory breach of the contract of employment) and there would also have been scope for argument whether, on the true construction of the LTIP provisions, he would have been entitled to receive the value of the remaining 25% which was due to accrue during the period of notice. As to the quantum of damages, it is common ground that the judge directed himself correctly by reference to Allied Maples v Simmons & Simmons [1995] 1 WLR 1602 (CA), and (having found that, with the benefit of correct advice about the PILON, Mr Perlman would not have given the final 25% of the LTIP to the former CEO as a starting point in the negotiations), the judge then had to assess whether CRU had a real and substantial chance of achieving a better outcome so as to avoid the vesting of the final 25%. The judge discussed this question at [98] to [101], finding that CRU would have had a 35% chance of avoiding the vesting of the final 25%.

Ground 3 asserts that this assessment was too low, because it should have reflected the “very strong factors” that, in such hypothetical circumstances, put shortly: (a) CRU could have determined the employment forthwith, subject to pay in lieu of notice; (b) there would have been no jeopardy to the post-employment covenants; (c) the employment would have ended before any further LTIP accrual date; and (d) there would have been no risk of a claim for damages for wrongful dismissal.

In my view, however, assessment of the bargaining strength of CRU, and the weight to be attached to the factors which I have summarised, were matters for the judge with which this court would not interfere in the absence of any error of law or principle. No specific error of that nature is alleged, and it cannot be said that the judge’s conclusion was one that no reasonable judge could have reached. Furthermore, the judge clearly had in mind the consequences of a valid PILON clause: see [92]. Accordingly, I do not consider that this ground offers any realistic prospect of success. The judge considered the matter carefully, and his assessment is in my view unassailable.

Finally, ground 4 asserts that the judge’s decision on costs was wrong and he should have awarded CRU, as the successful party, either the whole or a substantial proportion of its costs. Mr Davidson submits that the Firm had treated the case as a “try on”, had maintained an unrealistic denial of liability in the face of Ms Kerr’s own evidence, had used an ambush strategy, and had required extravagant disclosure which served only to increase costs.

Again, however, I see no realistic prospect of this ground succeeding. The trial judge had a wide discretion on costs, and as the person who had conducted the trial he was far better placed than this court could be to decide on an order which would best reflect the justice of the case. He directed himself, correctly, that CRU was the winner in the action, but he thought it would be “plainly wrong” to award CRU the whole of its costs, because its primary case (seeking £2.2 million) had entirely failed, and the amount finally recovered was only a very small proportion of that sum (in fact, not much more than 5%). In those circumstances, the judge was fully entitled to make a percentage costs order, and in the absence of any specific misdirection or error of principle it is impossible to say that 40% was a figure so low as to be clearly erroneous.

For these reasons, I would refuse CRU permission to appeal. I now turn to the Firm’s cross-appeal.

Paragraphs 2 and 3 of the Firm’s grounds of appeal allege that the judge erred in law when he ruled, at [8] to [12], that CRU’s secondary case was adequately pleaded, or (if not) that it would be appropriate to give permission to amend so as to plead it. In the event, it was only the secondary claim which succeeded at trial, so if the pleading point had been upheld by the judge, the claim would have been dismissed.

As a preliminary observation, I think it would be unfortunate if the outcome of this case turned on a pleading point which emerged for the first time during Mr Davidson’s closing submissions, and when the judge’s own understanding, as recorded at [10], had throughout been that there was a secondary case being advanced on behalf of CRU. The potential significance of the presence, or absence, of a PILON had been referred to in CRU’s opening skeleton argument, evidence had been led and witnesses had been cross-examined on the point without objection, and Mr Roskill had dealt with it in his expert report: see paragraphs 31 to 34. Furthermore, the judge’s rejection of the pleading point, coupled with his indication that he would if necessary have granted permission to amend, is a question of trial management of a kind with which this court would be reluctant to interfere, unless a clear case of injustice were made out.

With those considerations in mind, I am not persuaded that there is any substance to the objection. It seems to me reasonably clear, from the passages of the particulars of claim to which I was referred, that the potential significance of a PILON in the former CEO’s contract of employment was pleaded, as was the Firm’s allegedly negligent failure to discover its existence in the general conditions, and the impact which this might have had on the compensation or damages payable to the former CEO on his departure. Furthermore, I accept Mr Davidson’s submission that paragraph 48 of the particulars of claim set out the two stages of the analysis of loss required by Allied Maples, and although the loss of a chance was said to be 100%, that could not reasonably have been understood as precluding arguments for a smaller percentage based upon whatever breach was found to be established. If the Firm had been in any real doubt about the nature of the case alleged, it could have sought clarification of the pleading, but it did not do so.

I therefore see no error of principle in the way the judge dealt with the issue in the Judgment at [11] and [12].

The remaining grounds of appeal relate to the judge’s assessment of CRU’s loss. The Firm argues that CRU’s loss was in fact zero, or alternatively too insignificant to be capable of compensation in damages. Specifically, it is said that the loss should have been assessed as at the date of breach in 2008, when the LTIP was believed to be of little value; that the judge was wrong to take the settlement figure of £1.35 million with the former CEO as a proxy for the value of the LTIP, bearing in mind the clear evidence of Mr Glick QC that the settlement figure was mainly based on an assessment of the strength of the estoppel by convention argument relied upon by the former CEO; that the former CEO’s legal costs at the time of the settlement should have been removed from the calculation; and that the judge should have applied sequential discounts to represent (a) the chance that 75% vesting of the LTIP would have been agreed, and (b) the chance that CRU would have been able to agree a lesser sum in settlement of the former CEO’s claim than £1.35 million.

In my view, these arguments face essentially the same difficulties as CRU’s third ground of appeal. Assessment of the value of the lost chance caused by the Firm’s negligence was a matter for the judge. He explained his thinking in the Judgment at [102] to [109]. Given the evident significance of the PILON clause, it seems to me fanciful to argue that the value of the lost chance was either nil or negligible. Once it is accepted that the lost chance had a substantial value, there are no fixed rules about how that value should be ascertained. The approach adopted by the judge was in my view a tenable one, even if other judges might have approached the question differently. He clearly had in mind Mr Glick’s evidence (see [104]), and he dealt with the former CEO’s costs in [107]. In all the circumstances, I do not think there is any realistic prospect of this court interfering with the judge’s assessment.

It follows that I would also refuse the Firm permission to appeal.

For the reasons which I have given, both applications for permission to appeal will be dismissed.