Hicks v Russell Jones & Walker (a firm)

This is a professional negligence action in which the claimant Michael Peter Hicks (“Mr Hicks”) is suing the defendant solicitors Russell Jones & Walker (“RJW”) who acted for him and his former wife Christine Anne Spence (“Mrs Spence”) on an appeal to the Court of Appeal which was heard in May 1998.

The appeal, to which Mr Hicks and Mrs Spence were joined as respondents, was against an order made by Mr Justice Chadwick in June 1997 whereby he had directed the liquidator of a company called Hinckley Island Hotel Ltd (“HIHL”), which owned the hotel of that name in Leicestershire, to assign three actions, including in particular a conspiracy action (“the Conspiracy Action”), to Mr Hicks and Mrs Spence on terms that they would pay to the liquidator 40% of any damages recovered by them. Mr Hicks and Mrs Spence were the shareholders and former directors of HIHL. The defendants to the Conspiracy Action were four companies in the Humberclyde Group (“Humberclyde”), which had provided finance to HIHL, and Robson Rhodes, who were HIHL’s former accountants and auditors.

The assignment of the actions was opposed by Humberclyde, which appealed the Judge’s order. Following the hearing of the appeal in May 1998, the Court of Appeal allowed the appeal and directed the liquidator to settle the actions on the terms offered by Humberclyde.

In the present action it is alleged that RJW were negligent in their preparation of the appeal on behalf of Mr Hicks and Mrs Spence, and that if they had performed their duty properly the appeal would have been dismissed, leaving Mr Hicks and Mrs Spence free to pursue the Conspiracy Action themselves. Damages are therefore claimed for the loss of the opportunity to pursue the Conspiracy Action.

The original claimants in the present action were Mr Hicks and Mrs Spence. However, Mrs Spence has assigned her rights in the action to Mr Hicks and discontinued her claim as a result of that assignment. Her unchallenged evidence is that she took this step because she has suffered serious bouts of ill-health over the last ten years, and that if it were not for her health problems she would have continued as a claimant and whole-heartedly supported Mr Hicks’ position. Although Mr Hicks is now the sole claimant, I shall where appropriate refer to him and Mrs Spence as “the Claimants”.

An order for a split trial of the present action was made by Master Bowles on 25 April 2006, and five issues relating to liability and causation were directed to be heard first. The trial before me has been the trial of those issues. I have not been concerned with any issues of quantum, which remain to be determined at a second trial if Mr Hicks succeeds on liability and causation.

Mr Hicks has been represented before me by Mr Jonathan Crystal of counsel and Stock Fraser Cukier, who replaced counsel and solicitors previously instructed on his behalf in early February 2007, some six weeks before the start of the trial. Notice of change and notice of funding of Mr Hicks’ case by a conditional fee agreement were filed by Stock Fraser Cukier on 12 February. I have not been informed of the circumstances which led to this very late change in representation.

RJW have been represented before me by Mr Bernard Livesey QC and Mr Matthew Parker of counsel, instructed by Barlow Lyde & Gilbert.

I shall begin by giving a brief outline of the facts, based on that helpfully provided by counsel for RJW in their written opening submissions.

As I have already said, the Claimants were the shareholders and directors of HIHL, which owned the Hinckley Island Hotel in Leicestershire (“the Hotel”). Between January 1990 and July 1991, HIHL borrowed substantial sums of money from Humberclyde, which took various forms of security for that borrowing. In September 1991, Humberclyde took possession of the Hotel on the basis that HIHL was in default of its payment obligations.

The Claimants took the view that the downfall and repossession of the Hotel had been brought about by an unlawful conspiracy between Humberclyde and Robson Rhodes. They therefore started the Conspiracy Action in October 1993. HIHL had also brought two other actions against Humberclyde, which became known as the “Window Payment Action” and the “Redemption Action”, both of which it commenced in October 1991. The three claims became known collectively as “the Company’s Actions”.

On 11 November 1993 Mr David Neuberger QC, sitting as a deputy high court judge of the Chancery Division, ordered that HIHL be wound up. In due course the Claimants invited HIHL’s liquidator to assign the Company’s Actions to them. On 23 May 1996, the liquidator gave notice of his intention to do so. However, Humberclyde objected to the assignment and offered to compromise the claims, and eventually the liquidator applied to the court for directions.

That application was heard by Mr Justice Chadwick on 10 and 11 June 1997. The Claimants did not have legal aid for that hearing and appeared in person. On 20 June 1997, the Judge ordered the liquidator to assign the Company’s Actions to the Claimants.

As I have already said, Humberclyde then appealed. The Claimants obtained legal aid for the appeal, and in January 1998 retained RJW to represent them. Barry Samuels of RJW had day to day conduct of the matter on their behalf, under the supervision of a partner, Mr Barton Taylor. Mr Michael Brindle QC and Mr Paul Marshall were instructed to appear for the Claimants on the hearing of the appeal.

The appeal was heard on 19 May 1998. In a reserved judgment handed down on 18 June 1998, the Court of Appeal concluded that the hearing before Mr Justice Chadwick had been procedurally fair, despite the exclusion of Humberclyde from part of it, but that after setting off the maximum recoverable in the Company’s Actions against the sums due to Humberclyde, which it took to be £14.5 million, the Company’s Actions were of no value. The Court of Appeal therefore allowed Humberclyde’s appeal and directed the liquidator to accept the terms of compromise of the Company’s Actions put forward by Humberclyde.

An important part of the Court of Appeal’s analysis, in concluding that the Company’s Actions were of no value, was a finding that the Hotel was worth only £10 million in September 1991 (the date when Humberclyde took possession), as opposed to a value of between £18 and £20 million at that date relied upon by Mr Justice Chadwick. The Court of Appeal’s conclusion on this point was based on a valuation of £10 million prepared by Christie & Co in August 1991 (“the August 1991 Valuation”), which had not been taken into account by the Judge but which had notionally been in evidence before him because it was referred to in, and was an appendix to, a later 1994 valuation by Christie & Co which was in evidence before him, although the appendix had been omitted.

In the present action, Mr Hicks claims that RJW were negligent in failing to ensure that appropriate evidence was adduced before the Court of Appeal to demonstrate that the Hotel was at least arguably worth £18 to £20 million in September 1991. In addition to ten identified items of factual evidence, Mr Hicks claims that RJW should have obtained an expert report from an independent valuer and sought permission to put it in evidence before the Court of Appeal. Such a report has now been obtained for the purposes of the present action from BDO Hospitality Consulting in June 1999 (“the BDO Valuation”), which values the Hotel retrospectively at £20.3 million in September 1991. Mr Hicks alleges that such a report could and should have been obtained for the hearing in the Court of Appeal.

The present action was begun as long ago as 28 September 1998, by a writ of summons issued in the Chancery Division of the High Court. At that stage Mr Samuels was joined as a separate defendant, but the claim against him personally was subsequently discontinued by Mr Hicks. The main explanation for the very long delay in bringing this action to trial seems to be that applications were made by the defendants at an early stage for the proceedings to be stayed until final determination of a claim and counterclaim between Humberclyde and Mr Hicks in separate proceedings, which raised substantially the same issues as the Conspiracy Action.

Before I come on to describe the facts in more detail, I will record who gave evidence before me.

For the Claimant I heard oral evidence from Mr Hicks himself and from Mrs Spence. In general, I am satisfied that they were both honest witnesses who did their best to assist the court. Mr Hicks’ answers to questions in cross-examination were often discursive and unfocused, as he himself recognised on more than one occasion. However, I do not attribute this to evasiveness, but rather to a natural wish on his part to explain the full background as he saw it, and to put his answers into what he perceived to be the relevant context. The story is a long and complex one, and he was understandably anxious that the court should not lose sight of the wider picture. The other side of this coin is that it was often difficult to make Mr Hicks focus on the specific questions being put to him, or to obtain simple and direct answers from him. This made Mr Livesey’s task in cross-examining him at times a frustrating one. I would add that, although I am not directly concerned with the merits of the Conspiracy Action in this hearing, I could not avoid the impression that it has become something of an obsession with Mr Hicks, and that his whole outlook on the case and the history of events has been coloured, and at times distorted, by his conviction that HIHL was wrongfully brought to its knees by a conspiracy between Humberclyde and Robson Rhodes.

Mr Hicks also relies on a witness statement signed by Mr Victor Solari, who was employed by HIHL between May 1989 and June 1991 and held the position of Group Accountant, the most senior position not to be held by a director. The date of Mr Solari’s witness statement was 27 May 1999. He has subsequently died, and a Civil Evidence Act notice in respect of his statement was duly served on 19 January 2007.

For RJW, I heard oral evidence from Mr Samuels, Mr Brindle QC and Mr Marshall. I found all three of them to be honest, careful and reliable witnesses, who did their best to recollect what happened in a clear and dispassionate manner.

I have already referred to the BDO Valuation which Mr Hicks obtained, through his then solicitors Tasselli & Co, in June 1999. It was prepared by Trevor Ward and Clare Yabsley of BDO Hospitality Consulting and takes the form of a proof of expert evidence. In 1999 Mr Ward was joint managing director of BDO Hospitality Consulting, with 25 years experience of working in the hotel and leisure industry. He specialised in hotel and tourism project appraisal and valuation. He was assisted by Ms Yabsley, who had been an Associate of the Royal Institution of Chartered Surveyors since 1993 and had wide experience of the valuation of hotels and leisure property both in the UK and abroad.

In response to the BDO Valuation, RJW rely on two witness statements from Mr Andrew Hugh McArthur dated 18 January 2007 and 5 February 2007. Mr McArthur qualified as a chartered surveyor in 1975. After working as a principal valuer with the Valuation Office Agency, he joined Christie & Co in 1987 and was based in turn at their Nottingham, Leeds and then their Birmingham offices. He has extensive experience of preparing valuation and investment reports in relation to hotels, licensed premises, restaurants and other commercial properties. He became a director of Christie & Co in 1994. It was Mr McArthur who prepared the August 1991 Valuation for Christie & Co. He was also the author of various other valuations of the Hotel between 1989 and 1994 to which I will refer in due course.

The parties sensibly agreed that it would not be necessary for Mr Ward, Ms Yabsley or Mr McArthur to give oral evidence at the trial before me. Subject to two qualifications, this agreement was made, as I understand it, on the basis that their evidence could have been place before the Court of Appeal at the hearing in May 1998, and the Court would have evaluated it without hearing oral evidence. The first qualification is that the necessary preconditions would have been fulfilled both for obtaining the valuation in the first place (such as advice from counsel that it was necessary, and funding from the Legal Aid Board) and then for its admission in evidence by the Court of Appeal, which would have required permission since it was not in evidence before Mr Justice Chadwick. The second qualification is that RJW do not accept the validity and correctness of the BDO Valuation: see Barlow Lyde & Gilbert’s letter of 31 January 2007 to Mr Hicks’ then solicitors at paragraph 6.

I shall now set out the relevant background facts in more detail. They are unavoidably complex, but except where I indicate the contrary are not controversial. I should again acknowledge my indebtedness for much of what follows to the very full summary in the written opening submissions for RJW.

Mr Hicks and Mrs Spence: The origins and early development of the business.

Mr Hicks was born and spent much of his childhood in Burbage, Leicestershire. His grandmother owned a transport café on the outskirts of Burbage on the A5. At the age of fourteen he left school and joined her in running the café. At the age of seventeen his grandmother made him an equal partner, and he took over full operational control of the business. Later on she retired, and at the age of 23 Mr Hicks became the sole proprietor.

In the early 1970s Mr Hicks built a new cafeteria on the site, having prepared a business plan and obtained funding from the Midland Bank. In 1974 he employed Mrs Spence to help him with the financial side of the business. She was then 22 years old and had previously worked as secretary to the chairman and managing director of a local hosiery firm. The new cafeteria was a very successful venture, and in due course became a partnership between Mr Hicks and Mrs Spence. They also married and had three children.

Later in the 1970s the M69 motorway was under construction, and Mr Hicks realised that when it was completed much of the existing passing trade would disappear and use the motorways instead of the A5 trunk road. The business would therefore have to adapt in line with the trade which could be expected in the future. Further plans were drawn up, initially for transformation of the café into a restaurant, and then for the provision of accommodation and the construction of a hotel on the site. The building work for the hotel was undertaken on a gradual basis between 1980 and 1985. As initially constructed, it had about 60 bedrooms, a public house and a large function room in addition to the existing restaurant. Mr Hicks was the general manager of the Hotel and also the main building contractor. The Hotel traded successfully, and was ripe for further expansion.

In or about 1985, Mr Hicks decided to concentrate his efforts on the supervision and control of the expanding business. He therefore appointed a separate general manager for the Hotel, and Mrs Spence took up the position of financial controller. They realised that they needed the services of a firm of accountants with in-depth knowledge of the hotel industry, and were introduced to Mr Houston of the Leicester branch of Robson Rhodes. From then onwards he acted as their financial adviser. On his advice, the business was incorporated as HIHL and Robson Rhodes were appointed as auditors and financial advisers to the company. Over the next two years Robson Rhodes produced a business plan, funding was obtained, and the Hotel’s bedroom accommodation grew from 61 to 131 rooms. The business continued to flourish, with bookings substantially in excess of the available accommodation. In June 1988 Christie & Co valued the Hotel in its existing use and condition, and trading on a fully operational basis, at £6.75 million. This valuation was obtained by Mr Hicks, in his capacity as a director of HIHL, for re-financing purposes. However, no re-financing took place at this stage, and in the following year a more ambitious plan began to take shape.

The new plan was for a very substantial expansion of the Hotel. It would involve the construction of a new reception area, conference facilities and three new 84-room blocks, which would eventually give the Hotel a total of 383 rooms. It was intended that the development work would be carried out by a subsidiary of HIHL called Island Development and Property Services Ltd (“IDPS”). The estimated costs for the entire development were £8.41 million, and Mr Hicks began to investigate various possible sources of finance.

The Financing Arrangements with Humberclyde

In late 1989 Mr Hicks started negotiations with Humberclyde to re-finance HIHL’s existing borrowing and raise the further finance needed for the development works. For the purpose of these negotiations Mr Hicks set up a working party consisting of Mrs Spence, Mr Solari and Mr Houston. This working party dealt with the main negotiations, and reported back to Mr Hicks. Legal advice was also obtained from HIHL’s solicitors, Messrs Harvey Ingram & Stone. An initial site meeting took place on 20 November 1989, and on 8 December Humberclyde wrote to Mr Hicks enclosing an offer of finance.

The proposed structure for the finance was not a conventional loan secured by a mortgage over the Hotel, but a form of finance leasing whereby HIHL would grant Humberclyde a 125 year lease over the Hotel, and Humberclyde would grant HIHL a 25 year sub-lease with options to extend that term. This structure had favourable tax consequences for Humberclyde, which would be able to claim capital allowances for its expenditure on the leasehold interest in the Hotel, and as a result the monthly repayments to be made by HIHL were lower than they would have been under a loan agreement.

Prior to the negotiations with Humberclyde, but with a view to the re-financing of the development, Mr Hicks had instructed Christie & Co in late October 1989 to provide a series of projected open market valuations of the Hotel when each stage of the proposed development had been completed and it was trading as a fully equipped and operational hotel. Christie & Co’s report and valuation (“the 1989 Valuation”) was prepared by Mr McArthur, who inspected the premises on two occasions and also met Mr Hicks and Mrs Spence who provided him with relevant information. Among the material supplied by Mr Hicks were copies of trading projections for each stage of the development prepared by Robson Rhodes, together with a detailed commentary on the assumptions behind the projections. Christie & Co did not themselves review or comment on the projections, but recommended that their report be read in conjunction with that of Robson Rhodes. They also made it clear, at the end of paragraph 13 of the report, that:

“In formulating our opinions of value we have relied upon the trading projections as supplied … and have assumed that the optimum level of profit projected at each stage is achieved. Should this not prove to be the case then we reserve the right to amend our valuations accordingly.”

Christie & Co also cautioned in paragraph 15 of their report that their valuations “should be seen as initial figures only”, and that recent increases in interest rates might well have “a dampening effect” both on the level of activity in the hotel market and on the values achieved.

On the above basis, Christie & Co valued the Hotel following the completion of phase 3 of the development at £22 million, and at the completion of phase 4 of the development at £22.5 million. Each valuation assumed not only that the relevant phase had been completed, but also that the Hotel was fully trading with the benefit of the newly completed works. Phase 3 involved the construction of the second new 84 bedroom block, and phase 4 involved the further construction of a new rotunda restaurant and conference facilities. Phase 5 involved the construction of a new night club, and phase 6 construction of the third of the new bedroom blocks.

The Robson Rhodes projections and report used by Christie & Co were dated 2 November 1989. The stated purpose of the report was “to comment on the assumptions underlying the financial projections which have been compiled for the purpose of obtaining finance for the building programme”. Robson Rhodes emphasised that the forecasts and assumptions were the responsibility of the directors of HIHL, and made it clear that they did not comment on the likelihood of the forecasts being achieved. The forecasts were evidently based on material provided by Mr Solari and the Claimants. In paragraph 4.2 of the report Robson Rhodes commented that:

“The forecasts have been prepared in the context of a generally optimistic outlook being taken towards the Hotel’s main business and is based upon the high level of turn away business that is currently experienced.”

Furthermore, paragraph 13.1 stated that the forecasts had been prepared in accordance with various assumptions set out in appendix 4, which included the following:

“1.

The series of forecasts have been prepared on the assumption that each phase has been completed and is completely ready for use on the first day of the period …

2.

The trading forecasts assume that the general economic outlook over the foreseeable future does not deteriorate to a significant level.”

To summarise, it is in my judgment reasonably clear that the Robson Rhodes projections and report were based on relatively optimistic figures produced by the Claimants and Mr Solari, that they were not the subject of any independent verification or audit by Robson Rhodes, and that they also proceeded on the assumption that the general economic outlook would remain substantially unchanged. These favourable assumptions were then carried over into the 1989 Valuation by Christie & Co, and formed the foundation of the projected valuations given for the open market value of the Hotel at the completion of each phase of the works. In fact, however, experience was to show that the projections were grossly over-optimistic, not least because the economic recession of the early 1990s was just around the corner.

I now revert to the negotiations between HIHL and Humberclyde. The negotiations culminated in a revised offer by Humberclyde, set out in a letter dated 19 December 1989, which could only be accepted as a whole. The offer was accepted, and the transactions were completed on 20 January 1990. For present purposes, I do not need to describe the transactions in detail. The main features, at the risk of some over-simplification, were as follows:

On 22 January 1990, HIHL executed a debenture creating a floating charge over its assets in respect of its obligations to HCI under the under-lease, the put option and the Development Agreement. On the same day, Mr Hicks executed a personal guarantee in respect of HIHL’s obligations to HCI, limited to £2 million. By a signed letter dated 19 December 1989, HCI agreed to postpone its debenture in favour of a clearing bank to enable HIHL to obtain overdraft facilities for working capital up to a maximum of £500,000.

During the progress of the development works, Christie & Co provided two further reports dated 25 July 1990 and 16 April 1991 respectively. The purpose of these further reports was to update and confirm the projected valuations in the 1989 Valuation. They did not purport to be current open market valuations of the Hotel, and the April 1991 valuation stated explicitly that it was subject to the same terms and conditions as the 1989 Valuation, and that the projected valuations were provided “on the basis that the optimum levels of profit projected in [Robson Rhodes’ report of November 1989] are achieved”. I find it surprising that Christie & Co should have been willing to issue these valuations in July 1990 and April 1991, given the impact of the recession and the absence of any verification of the projected trading figures provided by Robson Rhodes in November 1989. In those circumstances the updated valuations were almost bound to produce a figure that bore no relation to reality. This is recognised, at least to some extent, by Mr McArthur in his first witness statement, where he says that with the benefit of hindsight the July 1990 and April 1991 valuations, which he had produced,

“should have been more explicit about there being a substantial change in the market and that all physical and trading projections were assumed to have been achieved.”

As he said, the hotel market had been at its peak prior to the recession in November 1989, and since that date the recession had had a large impact on the market and hotel trading performance, and values across the country had dropped significantly as a result.

On 10 December 1990, HIHL entered into equipment leasing arrangements with another company in the Humberclyde group, Humberclyde Industrial Finance Ltd (“HIF”). A master equipment lease agreement was concluded, which was later supplemented by two schedules. Under the terms of the equipment lease, rent was payable quarterly in arrears, with the first sum of £58,483.34 plus VAT falling due on 22 June 1991.

In around January 1991, Mr Hicks asked Robson Rhodes to prepare a business plan to assist in raising finance to build a new conference centre on an adjacent site to the Hotel, and also with a view to possibly re-financing HIHL’s existing facilities with Humberclyde. These instructions were confirmed in a letter dated 25 January 1991 from Mr Houston to Mr Hicks. By this stage relations between Humberclyde and HIHL had become strained, particularly as Humberclyde refused to provide further finance for completion of the development. Robson Rhodes prepared their business plan in April 1991, and it was sent to Mr Hicks on 10 May 1991. It was optimistic about HIHL’s future prospects. Although HIHL had made losses in the two years to 30 August 1990, the business plan forecast that turnover would grow from nearly £6 million in 1990/91 (with profits of £620,000) to over £10 million in 1992/93 (with profits of over £1 million). These projections were again based on material provided by the management of the Hotel, including Mr Solari. Mr Houston’s own view of the reliability of the projections can be gauged from a letter of his dated 13 March 1991, enclosing a copy of the draft business plan, in which he said that the projections in it were very much “finger in the air”, since they related to facilities which had not yet been constructed and would not be open for a period of between one and three years. He doubted whether Robson Rhodes had the detailed expertise in house to comment on the projections on an expert basis. He also said that they had reservations about the present quality of HIHL’s accounting staff, and Robson Rhodes were undertaking a consultancy assignment to improve the information systems at the Hotel.

In short, I am satisfied that the Robson Rhodes report of April 1991 painted an unrealistically rosy picture, and it is notable that within the space of a few months Robson Rhodes themselves were attempting to disown it. On 11 July 1991 Mr Feetum of Robson Rhodes (Leicester) wrote to Mr Hicks in response to a request by Mr Hicks to be provided with further copies of the business plan. Mr Feetum said he was concerned that circumstances had moved on significantly even in the short period since the document had first been issued in April. He continued:

“I would suggest that the document has been rather overtaken by events, if not potentially misleading as to the exact financial position of the company at this time, and therefore I feel I must advise you against its further issue. Without a thorough review of its contents in the light of current circumstances I do not believe that we can accept any responsibility for the document and I would like to stress the importance of not holding us out in this regard.”

Despite those warning words, however, Mr Feetum agreed to send Mr Hicks a further ten copies of the business plan.

The Cash-flow Crisis

By early 1991, the effects of the recession were such that HIHL was experiencing severe cash-flow difficulties. As Mr Hicks explained in his oral evidence, HIHL was caught in a classic squeeze between increasingly reluctant, or insolvent, debtors on the one hand, and increasingly exigent creditors on the other hand. Thus although the business was in one sense flourishing, because the Hotel was busy and occupancy rates were as high as ever, nevertheless in cash-flow terms it was in an increasingly perilous situation. The point was vividly expressed by Mr Hicks in a letter to Humberclyde dated 1 May 1991 where he said this:

“Due to the present cash-flow constraints which invariably apply that much pressure to the trading operation of the Hinckley Island Hotel that, hand on heart, I cannot guarantee that Hinckley Island are going to be able to beat the current recession over the next few weeks and months that lie ahead.

Due to our limited cash-flow liquidity we are totally at the mercy of the financial elements, one unforeseen wave could invariably wipe away all our efforts, this week, next week or in a months time.”

The letter went on to refer to two further factors which had exacerbated the problem. The first factor was HIHL’s inability to obtain overdraft facilities in excess of £200,000 because clearing banks were unwilling to accept HIHL’s reversionary interest in the Hotel under the financial arrangements with Humberclyde as acceptable security. The second factor was that the building costs had considerably overrun the estimated figure provided for in the Development Agreement and, on top of that, inflation had been running at nearly double the rate of 7.5% allowed for in clause 14 of the Development Agreement. As Mr Hicks said in the letter, the excess building costs had to be found by HIHL and its directors. He went on to seek Humberclyde’s permission to find a purchaser for the freehold of the Hotel, on the basis that a purchaser would buy out the existing lease and lease-back arrangements.

In cross-examination Mr Hicks described this as a “soft letter”, designed to obtain a favourable response from Humberclyde, and said that HIHL were in fact in dispute with Humberclyde about the financing of the building works, which he said Humberclyde had orally agreed to pay for in full despite the clear terms of the Development Agreement. I am in no position to make findings of fact as to whether there were in fact any agreed variations of the original arrangements, and (if so) what form they took. It is enough to say that the correspondence I have seen refers only to a variation apparently agreed in March 1990, which involved a relaxation of the timetable for payments and an additional financial commitment by Humberclyde of the order of £500,000. If there had been a further and more extensive relaxation of the original terms, it is hard to understand how Mr Hicks could have expressed himself as he did, even in the context of a “soft letter”, when he wrote to Humberclyde on 1 May 1991.

On 7 May 1991 Humberclyde replied to Mr Hicks, saying that in their view HIHL’s request to buy back the lease on the Hotel was not viable, both for tax reasons and because it was not the best time for the Hotel to be put on the market. They considered that no sale should take place until all the bedrooms had been completed and the Hotel had been fully operational for at least six months thereafter. Humberclyde did, however, say that they might be prepared to agree to a sale of the business as a whole, including HIHL itself and all its trading assets.

Further correspondence then ensued, with Mr Hicks again giving graphic expression to the cash-flow difficulties being experienced by HIHL, and on 31 May 1991 HIHL’s solicitors wrote a lengthy letter to the directors of Humberclyde explaining that HIHL had “an aggregate funding shortfall of just under £2 million”. Various proposals for further assistance were put forward, on the footing that it would be in Humberclyde’s best commercial interests not to force HIHL into immediate insolvency. In particular, Humberclyde was asked to reconsider its funding commitment to HIHL, to take no unilateral steps to forfeit the under-lease or enforce the debenture, and to grant a moratorium on the rent currently due at the rate of £60,000 per month.

Humberclyde was in principle prepared to consider providing additional finance to HIHL, but before doing so it required a detailed investigation to be carried out into the financial situation of HIHL and IDPS. Humberclyde arranged for Mr Andrew Menzies of Robson Rhodes in Birmingham to carry out this investigation. On 25 May Mr Hicks wrote to Robson Rhodes authorising the investigation.

Robson Rhodes (Birmingham) produced a draft report on 31 May, and a final report on 10 June 1991 which incorporated certain comments made by the directors on the draft report. This report was notably less sanguine than the business plan prepared by Robson Rhodes (Leicester) in April of the same year. It noted that according to the draft accounts HIHL had made a loss of £65,000 in the year to 30 August 1990, and a loss of £69,000 in the seven months to 30 April 1991. In addition, the report drew attention to the poor state of the underlying financial information provided by HIHL, and said that Mr Solari as Group Accountant had provided inadequate supervision of the accounting function “such that the financial records are in a poor state and not maintained up to date”. The report was also unimpressed by Christie & Co’s April 1991 update of the 1989 Valuation in the figure of £22 million, and stated that having sought advice on a confidential basis within the hotel industry of current valuations:

“We are of the opinion that £60,000 per bedroom would be a reasonable expectation on a going concern basis. At the current level of 250 bedrooms that provides an estimated realisation of £15 million before costs. ”

In the final section of the report headed “Conclusions and recommendations” Robson Rhodes (Birmingham) stated their view that both HIHL and IDPS were insolvent, and unable to discharge their liabilities as and when they fell due. The directors were expressly advised to have regard to the wrongful trading legislation, and warned that without considerable additional finance both companies would within a short period be subject to winding up proceedings. There was a further funding requirement of at least £500,000 over the next three months, and in view of the precarious situation of HIHL and IDPS the only possible immediate sources of finance were either Humberclyde or the directors through a sale of assets.

In the light of that report Humberclyde was prepared to advance additional money to allow HIHL to continue to trade, but it imposed a condition that HIHL should appoint a “company doctor” to supervise its financial affairs. Mr Hicks insisted that Robson Rhodes be appointed, and on 13 June 1991 Mr Frank Rounthwaite of Robson Rhodes (Birmingham) arrived at the Hotel. On 18 June HIHL signed a facility letter whereby Humberclyde Finance Group Ltd (“HFG”) agreed to lend HIHL a further £767,500. About half of the sum was to be used to repay Humberclyde’s existing loan to HIHL, and the balance was to be used for the provision of working capital. The loan was repayable at call, and was to be guaranteed jointly and severally by Mr Hicks and IDPS. In addition, the loan was to be secured by a debenture. Pursuant to these requirements, on 28 June 1991 Mr Hicks executed a second (unlimited) guarantee in respect of HIHL’s liabilities to HFG, and on 3 July HIHL executed a debenture in similar terms to the debenture securing its indebtedness to HCI.

Experience soon showed that yet further funding was required, and on or about 24 July 1991 HIHL signed a second facility letter under which HFG agreed to advance a further sum of £450,000. On the same day, HIHL executed a further debenture in favour of HFG in similar terms to the previous debenture.

Humberclyde take possession of the Hotel

In Robson Rhodes’ report of 10 June 1991 they had identified one of the options open to Humberclyde, in the event that the directors of HIHL were unable to secure further finance from sources other than Humberclyde, as being (either in the event of default or at the request of the directors) to forfeit the under-lease and enter into possession of the Hotel, although since the Hotel was producing an operating profit Robson Rhodes advised that in such an event “Humberclyde should consider continuing trading with a view to sale”: see paragraph 8.5 of the report. It appears that sometime during August Humberclyde eventually decided to take that course, and various preparatory steps were taken. These steps included obtaining a report on the operating position of HIHL from Mr Rounthwaite, which he provided and sent to Humberclyde on 27 August. In this report he reviewed the current trading position, and said that in June and July the Hotel had made an aggregate loss, after finance costs but before exceptional items, of £105,000. These results fell well below the forecast profits of £72,000 for the same period. Mr Rounthwaite said that the forecast revenue levels were too optimistic, “probably best described as the “Solari” factor”. He went on to examine the forecast trading position for the next six months, and prepared what he described as “a downgraded trading forecast on realistic (if not slightly pessimistic) assumptions”. On this basis he forecast that in the next six months HIHL would make a loss of £235,000, after taking account of Humberclyde’s costs: see the figures in Appendix III. However, Mr Rounthwaite also made it clear that his figures were only approximations, in view of the short time available for the exercise. He also said that his forecast “should fall well towards the bottom end of the spectrum of performance that can be expected from HIHL”. Unsurprisingly, Mr Hicks was not happy with the forecast, although he does not seem to have disputed the actual figures for June and July, and on 28 August Mrs Spence responded to the report in a letter (“the Rebuttal Letter”). In the Rebuttal Letter she set out various problems which had adversely affected trading over the previous year, and she produced her own forecast for the next six months which showed an increase in turnover of £607,000 an increase in gross profit of £530,000, and a reduction in operating expenses of £56,700.

In addition to obtaining the report from Mr Rounthwaite, Humberclyde also instructed Mr McArthur of Christie & Co to provide a further valuation of the Hotel. In this valuation, the August 1991 Valuation, Mr McArthur valued the Hotel at £10 million. The valuation was expressed to be a current open market valuation of the freehold interest of the fully equipped and operational Hotel, as at 19 August 1991. It followed an inspection of the premises on 19 August, and a meeting with Mr Rounthwaite who had provided Mr McArthur with various comments and information upon which Mr McArthur relied. The financial information provided by Mr Rounthwaite led Mr McArthur to comment as follows:

“We comment that the Hotel has shown growth in turnover over the last three years as a result of the development of the Hotel but more recent trading periods have reflected the downturn in room occupancy and average room rates referred to earlier and there has been a relative decline in trading profit as wage costs have increased in relation to turnover. Mr Rounthwaite provided us with management accounts for May and June 1991 which indicate that payroll costs are currently around 32%, substantially in excess of industry norms for an hotel of this nature.”

Mr McArthur then stated his conclusion as follows:

“Hinckley Island Hotel is a property and business in a transitional state which has yet to achieve full trading based on current facilities and, in common with much of the hotel industry, is suffering from the current recession.

We further comment that although the current income mix is in line with hotel industry norms, nevertheless the addition of a further 83 letting bedrooms in Bedroom Block C may result in an imbalance in the facilities in the Hotel and further depress room occupancy statistics.

Finally, as a result of the current recession we are observing few major capital decisions being taken and scarce evidence of sales in all market sectors, including hotels. Against this background, we have substantial doubts about the saleability of the Hotel and we consider that in the present market over 12 months would be required to negotiate a sale. ”

I observe at this point that it was this valuation that formed the basis of the Court of Appeal’s decision which is the subject of the present action.

Matters were finally brought to a head on 9 September 2001, when a series of demands were served on HIHL by companies in the Humberclyde Group. They included:

Having taken possession, Humberclyde continued to run the Hotel business through a subsidiary which it had established for the purpose some time in advance called Hinckley Island Hotel Management Ltd (“HIHM”). In September solicitors for Humberclyde wrote to HIHL’s solicitors confirming that there were no plans to dispose of the Hotel in the short term, and that trading would have to continue “for a very significant period pending an upturn in the economic climate” before any disposal could take place. That is indeed what happened. Humberclyde eventually completed the development work at the Hotel, and it was sold on 28 August 1996 for £17.5 million. Meanwhile, Christie & Co had provided two further valuations. On 21 December 1994 they valued the Hotel at £11 million (“the 1994 Valuation”). At this date the available accommodation was much the same as it had been in August 1991, and the third bedroom block was still incomplete although no further major structural works were needed. In the summary of their conclusions, Christie & Co said that the Hotel had benefited from a period of stability and had achieved good growth in sales since the August 1991 Valuation. After mentioning various specific points, they then continued as follows:

“The effects of the recession have been substantial in the property markets, having a marked effect on both the level of activity in the hotel property market and values achieved.

More recently, there have been some signs of stability in the markets, and our own statistics for sales of hotels have shown a slight rise in values as between 1992 and 1993, albeit that in real terms values are still well below those achieved at the height of the market in 1989.”

The second further valuation was on 3 July 1996, when Christie & Co valued the Hotel at £14.5 million. This was in effect an update of the 1994 Valuation, and was produced on the basis that there had been no material changes to the Hotel since that date other than refurbishment of 120 of the existing bedrooms.

Litigation between Mr Hicks, HIHL and Humberclyde

I have already referred briefly to the three actions begun by HIHL against Humberclyde in 1991 and 1993. The first two actions, which were started in October 1991, became known as the “Redemption Action” and the “Window Payment Action” respectively.

In the Redemption Action (1991 H No 11261) HIHL sought a declaration against HCI that the lease and lease-back arrangements entered into in January 1990 were in substance a mortgage which was redeemable upon payment of the outstanding principal and all accrued interest. HIHL also sought a declaration that the premium demanded for the grant of the further under -lease on exercise of the put option on 9 September 1991 (which including VAT amounted to approximately £18.8 million) was a penalty and, as such, irrecoverable. A Defence was served in January 1992, which denied that the relevant transactions constituted a mortgage and also denied that the consideration payable by HIHL for the further lease of the Hotel upon exercise of the put option was a penalty. On 2 March 1992, Morritt J declined to strike out the claim in the Redemption Action, on the basis that he was satisfied it disclosed an arguable case.

In the Window Payment Action (1991 H No 11262) the Defendant was again HCI, and HIHL claimed that HCI had breached the Development Agreement by failing to pay the additional sum payable under clause 14.2 (c) thereof, such payment having been requested by an invoice dated 4 July 1991. Again, a Defence was served in January 1992 which pleaded, in effect, that HCI had already paid sums well in excess of those stipulated in clause 14 of the Development Agreement as a result of an oral variation agreed in March 1990.

The most important of the three actions, for present purposes, is the Conspiracy Action (1993 T No 6832) which was begun on 23 October 1993 against HCF, HCI, HIF, HIHM and Robson Rhodes as Defendants. It alleged, in short, that the Defendants had conspired together to injure HIHL by depriving it of possession or ownership of the Hotel and business. The Statement of Claim was settled by Counsel, and runs to 39 pages. I will not attempt to summarise it in detail, but the allegations included the following:

In paragraph 24 of the Statement of Claim, particulars of the loss and damage alleged to be suffered by HIHL were pleaded as follows:

“The object and/or effect of the Defendants’ actions was to place [HIHL] in default or apparent default of obligations… thereby entitling or purportedly entitling [HFG] to deprive [HIHL] of possession of the Hotel and the business and the profits to be derived therefrom. But for the Defendants’ actions, [HIHL] would have been able to fulfil and would have fulfilled its proper financial obligations to [HFG, HCI and HIF] and would have remained in possession and control of the Hotel and the business. In the events which have happened, [HIHL] has been wrongfully deprived of the difference between the value to [HIHL] of the Hotel and the business had [HIHL] retained possession and control thereof … and the value to [HIHL] of the Hotel and the business in the possession and control of [HFG and/orHIHM] … ”

No Defence was ever served in the Conspiracy Action, because HIHL was wound up within a few weeks of its commencement.

Apart from the three actions referred to above, HFG brought proceedings against Mr Hicks under his guarantee dated 21 June 1991. This became known as “the Personal Guarantee Action”. By his Amended Defence and Counterclaim, Mr Hicks claimed, among other matters, damages for an alleged conspiracy between Humberclyde and Robson Rhodes in terms very similar to those pleaded in the Conspiracy Action. On 9 September 1997, Mr Hicks also started a personal action against Mr Powell and Mr Rounthwaite (among others) (the “Personal Conspiracy Action”), which again included allegations which were in substance the same as those in the Conspiracy Action.

It is because the underlying allegations of fact in the Counterclaim to the Personal Guarantee Action and in the Personal Conspiracy Action were in substance the same as those in the Conspiracy Action that the present action was stayed for many years. Clearly, if Mr Hicks had succeeded in those actions it would have ceased to matter whether he had been wrongfully deprived of the opportunity to prosecute the Conspiracy Action. However, in 2004 it became clear that the Personal Guarantee Action had eventually been compromised on confidential terms which, according to Mr Hicks, have no bearing on the present claim, and also that there was also no prospect of the Personal Conspiracy Action being pursued.

It is easy to assume that a conspiracy claim brought against a bank and other professionals by a debtor who has been forced into insolvency is almost bound to lack merit. No doubt in most cases such an assumption will be correct. As I have already said, I am not directly concerned with the merits of the Conspiracy Action, or of the factual allegations which underlie it, in the present hearing. However, in fairness to Mr Hicks I should record that he and Mrs Spence obtained favourable advice from both junior and leading counsel on the merits of the conspiracy allegations, albeit at an early stage. In February 1993 junior counsel, Mr Christopher Russell, wrote a lengthy Opinion advising on Mr Hicks’ prospects of successfully defending the Personal Guarantee Action. In paragraph 43 of that Opinion he summarised his conclusion as follows:

“The circumstances of this case give rise to complex questions of law and fact, and to very serious allegations against a comparatively well known bank and a very well known firm of accountants. It is likely that a very serious wrong has been inflicted on Mr Hicks, Mrs Spence, and HIHL, which ought to be ventilated in proceedings. In those circumstances, in my view, leading counsel undoubtedly ought to be instructed at this stage.”

I should add that it was Mr Russell who settled the Statement of Claim in the Conspiracy Action later in the same year.

In accordance with Mr Russell’s recommendation, leading counsel (Mr Charles Purle QC) was instructed and in an Opinion dated 10 November 1993 he agreed with Mr Russell’s advice that there was a reasonable prospect of defending the Personal Guarantee Action on the ground that the guarantee was obtained by economic duress. He also examined the broader context in which the guarantee had been given, and concluded as follows:

“I have no doubt that the claims are properly arguable with reasonable prospects of success, for the reasons carefully set out in Mr Russell’s Opinion. The conduct of both Humberclyde and Robson Rhodes, particularly as regards the use of HIHL’s own monies for draw down purposes, requires considerable explanation. I therefore advise that the defence and counterclaim should proceed, against both HFG and Robson Rhodes.”

The Winding Up Proceedings and Subsequent Steps in the Company’s Actions

On 5 March 1993, HIF petitioned for HIHL to be wound up, and on 11 November 1993 a winding-up order was made by Mr David Neuberger QC (as he then was) sitting as a deputy judge of the Chancery Division. On the hearing of the petition, HIHL argued by leading counsel (Mr Alan Steinfeld QC) that Humberclyde had unlawfully caused HIHL to be in breach of its obligations to HIF. This argument involved many of the allegations that formed part of the claim in the Conspiracy Action. In a reserved judgment delivered on 11 November, Mr Neuberger QC dismissed those arguments.

In his judgment Mr Neuberger QC described himself as “not particularly impressed” by the arguments advanced by Mr Steinfeld relating to the alleged conspiracy. In reviewing those arguments, he said this:

“Furthermore, although it appears likely that steps were taken during August and September 1991 with a view to taking possession of the Hotel and of the equipment, it does not seem to me that the facts relied on by [HIHL] support the allegation of any sort of improper motive or bad faith on the part of HFG or Robson Rhodes. Given the contents of the Robson Rhodes report, I do not think it unreasonable for protective steps to have been taken by HFG in advance of 9 [September] 1991. After all, as the Robson Rhodes report made clear, the Hotel enterprise was profitable, and it would have been commercially unwise to take possession, and in particular to take over the running of the Hotel, without making sensible preparations in anticipation. …

Indeed, it is difficult to see anything other than a desire on the part of HFG to keep [HIHL] going during June and July 1991… the important factor to my mind is that during June and July 1991, there is no evidence to suggest that any company in the Humberclyde Group was doing anything other than supporting [HIHL].

Indeed, [HIHL’s] case seems almost self-contradictory. Following the Robson Rhodes report, if HCI or HIF had wished to take possession of the Hotel and of the chattels, it is unlikely in the extreme that another company in the same group of companies, namely HFG, would have provided substantial facility in June, and a further substantial facility in July, to the company: HFG would simply have taken advantage of the breach of the terms of the under lease and of the debenture, and could have taken possession of the Hotel and of the chattels, and HIF could have repossessed the chattels under the terms of the [relevant agreement]. ”

HIHL appealed against that decision, and HIF applied for security for its costs of the appeal. That application was heard by Mr Registrar Adams, who gave a detailed judgment on 17 July 1995. On that application, HIHL was again represented by leading counsel, and raised the arguments that formed the subject of the Conspiracy Action, but again they were dismissed. On page 18 of his full and careful judgment, the learned Registrar said this in relation to the Conspiracy Action:

“As far as the Conspiracy Action is concerned, it seems to me to be one which is most unlikely to succeed. In my view the Conspiracy Action is based upon a premise which is not credible. There was no need for the alleged conspiracy. If, as Mr Hicks maintains, the Humberclyde companies wanted to obtain the hotel, there was no need for them to hatch an elaborate plot involving misrepresentations by Robson Rhodes, advances of further funds by HFG, subjecting Mr Hicks to duress to inveigle him into signing the June facility letter, HFG or Robson Rhodes acting as de facto directors, misrepresentations designed to induce him to accept the July facility and underhand movement of funds through the [twonew bank accounts]. All that [Humberclyde] needed to do was to cease to provide financial support. That would inevitably have led to [HIHL] being unable to pay the rent under the sub-lease, to fund the extension, and to pay its other debts as they fell due. [HIHL] failed to pay the rent due under a sub-lease at the end of January 1991 and at Mr Hicks’ request HCI allowed that sum to be deducted from the amount which [HIHL] was drawing down under the Development Agreement … Failure to pay the rent under the sub-lease would have enabled HCI to obtain the Hotel by forfeiting the sub-lease and to crystallise its charges under debenture.

Thus, if it had wished to do so, [Humberclyde] could have brought [HIHL] to its knees well before June 1991 and obtained the Hotel and its other assets under the terms of the transactions entered into on 22 January 1990… Instead [Humberclyde] continued to support [HIHL] until the summer of 1991. It is reasonable to infer from the evidence that, by May 1991, Mr Powell had doubts about Mr Hicks’ ability to manage the Hotel properly (especially after he received the Robson Rhodes report) and by August he had decided that enough was enough.”

To complete the story of the winding up proceedings, HIHL failed to provide the security ordered by the Registrar and its appeal therefore did not proceed.

In view of the dismissive comments of Mr Neuberger QC and Mr Registrar Adams about the merits of the Conspiracy Action, further advice was sought on Mr Hicks’ behalf from Mr Purle QC and Mr Russell. This they provided in a further Joint Opinion dated 9 January 1995. It is fair to say that they acknowledged there was considerable force in the views expressed by Mr Neuberger QC and Mr Registrar Adams, although they also drew attention to some countervailing considerations. In paragraph 7 they summarised their conclusion as follows:

“The question, in essence, is whether the activities of Humberclyde, as described by Mr Hicks, went beyond what may be described as hard-nosed or even sharp business practice, and passed into the realms of fraud or illegal conduct. For our part, we remain of the feeling that an injustice has very probably been perpetrated by Humberclyde against Mr Hicks, Mrs Spence and HIHL, and there would be reasonable prospects of success in the conspiracy claim; however, we acknowledge that the judicial reaction so far has been flatly against Mr Hicks’ claims … In our view, whilst there are reasonable prospects, we would have to say that the odds were, at best, even. ”

Mr Hicks and Mrs Spence were evidently disappointed with the revised advice of Mr Purle QC and Mr Russell, and in the autumn of 1995 they instructed fresh solicitors, Messrs Neil Myerson. The partner with responsibility for handling their affairs was Mr David Harris. At that time, Mr Samuels was an employee of Neil Myerson, but he did not start to become involved in the Claimants’ litigation until around April 1996. Meanwhile, Mr Harris secured continuation of their legal aid, and obtained authority to instruct fresh leading counsel. Instructions were sent to Mr Brindle QC on 8 March 1996, and he advised in consultation on 22 March. His Instructions were accompanied by a witness statement prepared by Mr Hicks and Mrs Spence, together with nine lever arch files of exhibits. This witness statement and its exhibits, which as time went on were revised and modified, came to be known as the “Proof of Evidence Files”. Mr Brindle was asked to advise on the issues arising from the Company’s Actions, the Personal Guarantee Action and other claims that the Claimants wished to pursue.

Mr Harris’ note of consultation records Mr Brindle’s view as being that the Claimants “did have an action which had at least a 50% chance of success”, and that they should try and get the Conspiracy Action assigned to them. In his witness statement in the present action, Mr Brindle commented that this was only a preliminary view on his part, and must have been based on the assumption that the allegations made in the Proof of Evidence Files could be made good.

Shortly afterwards, Humberclyde applied for security for costs in each of the Company’s Actions. Orders were made as follows:

Mr Hicks and Mrs Spence seek assignment of the Company’s Actions

HIHL’s creditors were not prepared to provide the security ordered, and in accordance with Mr Brindle’s advice Mr Hicks and Mrs Spence invited the liquidator to assign the Company’s Actions to them. On 23 May 1996, the liquidator gave notice of his intention to do so. Humberclyde objected to the proposed assignment, and on 10 June 1996 applied for an injunction to prevent the liquidator from assigning the actions.

Mr Hicks and Mrs Spence then applied to be joined as respondents to that application, but their application was dismissed by District Judge Hargreaves on 26 November 1996 on the ground that they had not established they were creditors of HIHL, and therefore had no locus standi to object. By this stage Mr Samuels was working on the case, under the supervision of Mr Harris, and he had prepared draft affidavit evidence in the names of Mr Hicks and Mr Solari for use at the hearing. In his judgment, the District Judge held that certain assertions made by Mr Hicks and Mr Solari in their evidence were “patently and demonstrably untrue”. In a later affidavit, which he swore in April 1998, Mr Samuels accepted responsibility for those mistakes, which he said were “entirely my fault”. It is fair to say, however, that the draft affidavits had been approved by both Mr Hicks and Mr Solari.

Mr Hicks and Mrs Spence appealed against the decision of the District Judge, and their appeal first came before Mr Justice Chadwick on 14 February 1997. They were represented on that occasion by Mr Marshall, who had been instructed at very short notice on the previous evening. The learned Judge dismissed the appeal, holding that they had no locus standi in the insolvency proceedings, and their only interest in the matter was as prospective assignees of the Company’s Actions. However, he also directed the liquidator to make an application to the court for directions whether he should assign the Company’s Actions to them, or whether he should instead accept an offer which Humberclyde had made to compromise the Company’s Actions for £100,000. In his order Mr Justice Chadwick directed the liquidator to take various steps to ascertain the views of HIHL’s creditors as to which option they preferred. He also directed that Mr Hicks and Mrs Spence should be entitled to apply to be heard at the hearing for the purpose of placing before the Court such facts and arguments as were not already covered by evidence and submissions of the liquidator, in relation to the prospects of success in the Company’s Actions and their prospects of obtaining legal aid to prosecute them. Mr Justice Chadwick also directed that the case should be transferred to the Birmingham District Registry of the High Court, and that it should be listed before him.

The liquidator’s application for directions was heard by Mr Justice Chadwick on 10 and 11 June 1997. Because Mr Hicks and Mrs Spence were not parties to the application, they were unable to obtain legal aid for the hearing and therefore appeared in person. Humberclyde were represented by leading and junior counsel, Mr Gabriel Moss QC and Mr Stephen Atherton, and the liquidator also appeared by counsel, Mr Richard Ritchie.

At the hearing, Humberclyde argued that the Company’s Actions were assets of HIHL which were charged to Humberclyde under the terms of the various debentures, with the consequence that there was nothing for the liquidator to assign, there being no value in the equity of redemption of the actions. Alternatively, Humberclyde argued that Mr Hicks and Mrs Spence had no reasonable prospect of being granted legal aid to pursue the actions, or of setting aside the existing orders for security for costs. Finally, Humberclyde argued that in two reasoned judgments Mr Neuberger QC and Mr Registrar Adams had cast considerable doubt upon the merits of the Conspiracy Action. In a lengthy skeleton argument, the only direct reference to the potential value of the actions was in paragraph 49 where it was pointed out that “There is no evidence as to any recoverable quantum if the Actions succeeded”.

When the time came for Mr Hicks and Mrs Spence to address the Court, Mrs Spence spoke on behalf of them both. She used a written aide-memoire which she had prepared with the assistance of a friend who was a former barrister. It soon became clear that she wished to refer to some of the Opinions they had previously obtained in relation to the merits of the Company’s Actions. These Opinions were, of course, privileged. The learned Judge accordingly directed Humberclyde and their representatives to leave the court room while reference was made to this material. In taking this step the Judge was applying by analogy the well-known Chancery procedure used where a judge is asked to sanction the use of trust funds to bring an action against a beneficiary: see in particular In re Moritz [1960] Ch 251.

When Humberclyde and their representatives returned to the court the Judge put to Mr Moss various points which he described as “arising partly out of what Mrs Spence has been telling me and partly out of my own thoughts”. Having done this, he concluded by saying to Mr Moss:

“I think those are the points that I wanted you to address me on, although if there is anything you want to add you should do so.”

Mr Moss had nothing to add. The learned Judge then heard further submissions from Mr Ritchie, and at the end of the hearing expressly gave a further opportunity to all present to add anything else they might wish to say. As he said:

“This is a matter which plainly is of very considerable importance to a number of people.”

He then reserved his judgment.

The judgment was delivered orally in Birmingham on 20 June 1997. In summary, Mr Justice Chadwick held:

I must now describe in more detail how the learned Judge dealt with the possible value of the Conspiracy Action. He did so in the context of the submission for Humberclyde that on a true analysis there was nothing for the liquidator to assign. Having referred to the Redemption Action, which could now only be given effect as a matter of accounting in respect of the proceeds of sale of the Hotel (the Hotel by now having been sold), and to the claim in the Window Payment Action for a sum of £660,000 plus interest, he said that against those claims HCI had claims which it put at a figure in excess of £12 million. He then continued:

“If the matter stood there it would be plain that no balance in favour of [HIHL] would ever arise. However, the company has its claims against HCI, HIF and HFG in the Conspiracy Action. Those claims have not, so far, been quantified. Some indication of the value that might be put upon them can be seen from the figures in [the 1989 Valuation]. [It] puts projected value on the hotel as a going concern at the completion of phase 4, which is the point at which the development is said to have reached by September 1991, of £22.5 million. It is necessary of course to bear in mind that that was a valuation made in 1989 and circumstances dramatically [changed] in the market between 1989 and the middle of 1991. But even discounting for that, it is still clear that the valuation at the completion of phase 4 is likely to be in the order of £18 million to £20 million. As at that date the amount due to the Humberclyde companies was approximately £13.5 million. It follows that if – and if is the word which must be emphasised - the allegations in the Conspiracy Action can be made good, the company was deprived of an asset worth some £18 million to £20 million by the action of Humberclyde and Robson Rhodes, whose secured claims over that asset amounted to some £13.5 million. A difference of £5 to £7 million. Whether those figures can be made good – and whether the allegations can be made good – is not a matter which I can decide today. It would not be appropriate to attempt to form any view. I mention the figures only to show that it is by no means self-evident that the claim in the Conspiracy Action will be nominal. On the basis of those figures the claim, after set-off, is likely to be between £5 million and £7 million with interest.”

He then went on to reject a submission for Humberclyde that the possible value of the Conspiracy Action should be contrasted with the amount owed to Humberclyde at the date of the hearing before him (which was said to be in excess of £29 million), and held that the true comparison was with the amount of the debt in September 1991. He concluded this part of his judgment by saying:

“I reject, therefore, the submission that there is nothing to assign. What, if anything, the balance may be cannot be determined until after the company’s claims against the defendants in the Conspiracy Action have been determined and quantified. As things stand at the moment it seems to me that there may well be some birds in the bush which are both plump and succulent, if they can be captured.”

In relation to the submission that the Conspiracy Action was bound to fail, he accepted that the allegations were “likely to be very difficult to establish”, not least for the reasons given by Mr Neuberger QC and Mr Registrar Adams. However, he said that he had also taken account of the Opinions of counsel which had been obtained by HIHL or Mr Hicks, and said he was satisfied from what he had seen that there were matters which required investigation, and it was not possible to say, at that stage, that the claim in conspiracy would be bound to fail. He pointed out that the position after a full trial, following discovery and oral evidence, might look rather different from the position as it appeared on the hearing of the winding up petition, or the application for security for costs.

Before moving on, I would make the following comments about Mr Justice Chadwick’s approach to the possible value of the Conspiracy Action:

At the hearing on 20 June 1997, when the judgment was delivered, junior counsel for Humberclyde informed the Court that Humberclyde had already executed transfers of the Company’s Actions to themselves acting under a power of attorney granted in the debentures. The transfers had been executed conditionally upon the Court making the order which it did, namely for the assignment of the Company’s Actions to Mr Hicks and Mrs Spence. Chadwick J, understandably in my view, took a dim view of this manoeuvre, although it was submitted to him that the assignment dealt only with the legal title to the actions. He said it was just how he would have expected Humberclyde to behave, and he relied on it as one of his reasons for refusing permission to appeal.

On 27 June 1997, the Court of Appeal (Mummery and Ward, LJJ) granted Humberclyde leave to appeal and directed that Mr Hicks and Mrs Spence be joined as co-respondents to the appeal. At one stage in the hearing of the application for leave, Mummery LJ referred to Mr Justice Chadwick’s view that the Conspiracy Action was worth between £5 million and £7 million, to which Mr Moss replied:

“This assumption was based on the material he saw in our absence which we never had an opportunity to deal with. If we had been allowed to make submissions we would have shown that it was a complete fantasy. You must remember that this was an insolvent company in 1991. ”

In their Notice of Appeal dated 27 June 1997, Humberclyde raised some thirty separate grounds of appeal. The main focus of the grounds was on Humberclyde’s legal arguments that the Company’s Actions were charged to Humberclyde, arguments in relation to security for costs and legal aid, and their criticisms of the procedure adopted by Mr Justice Chadwick. In only one paragraph was there any reference to the quantum of the Conspiracy Action, namely in paragraph 4(7), which I should reproduce in full:

“4.

In directing that the Official Receiver should assign the Conspiracy Action … the Learned Judge erred and/or misdirected himself, in that:

In considering the merits of the Actions [he] wrongly concluded that it was not self-evident that the quantum of the alleged loss recoverable in the Conspiracy Action was at best nominal, alternatively could not possibly exceed the sums due to [Humberclyde], particularly bearing in mind that at the time of the alleged conspiracy [HIHL] was insolvent and unable to pay its debts as they fell due or at all without the assistance of loans and/or credit from [Humberclyde] and was loss making rather than profitable. The Learned Judge ought to have concluded that there was no credible evidence of any substantial quantum, let alone £5 - £7 million and no credible evidence of the net value (if any) of the Hotel as a going concern in September 1991, let alone in the sum of £18 - £20 million. Alternatively, if there was such alleged evidence, the Learned Judge erred in failing to allow [Humberclyde] to deal with it, in breach of the audi alteram partem rule.”

The grounds of appeal were also prefaced with notice of an application for leave to adduce further evidence, in the following terms:

“The Appellants will seek leave to adduce further evidence upon the hearing of the appeal in relation to the conduct of the hearing below by the Learned Judge and in relation to the transfers of the Actions pursuant to the security held by [HFG and HCI] which transfers took effect upon the judgment below being pronounced.”

It will be noted that this application was expressly confined to two matters only, namely the conduct of the hearing below by the Judge and the transfers of the Company’s Actions. There was no suggestion that the further evidence might be relevant to the ground of appeal concerning the quantum of the Conspiracy Action in paragraph 4(7).

In support of the application for leave to appeal, Humberclyde also relied on the sixth affidavit of Mr Allan David Reason sworn on 27 June 1997. The main purpose of this affidavit was to set out in some detail what had transpired at the hearing before Mr Justice Chadwick, during the part of the hearing from which Humberclyde had not been excluded. Mr Reason was the partner in Humberclyde’s solicitors with conduct of the matter. Mr Reason did, however, also deal in paragraphs 27 to 32 of his affidavit with the debt due to Humberclyde from HIHL and the value of the Hotel, in the context of describing the questions that the Judge had put to Mr Moss when Humberclyde and their representatives were readmitted to the hearing. In paragraph 30 Mr Reason referred to the 1994 Valuation, and pointed out that it had been in evidence before Mr Justice Chadwick. He did not, however, refer to the August 1991 Valuation.

Now that Mr Hicks and Mrs Spence were parties to the appeal, Neil Myerson were able to obtain legal aid for them, although it was limited at this stage to obtaining leading counsel’s opinion. They instructed Mr Brindle QC, who advised in writing on 25 September 1997. Mr Brindle’s Instructions were prepared by Mr Samuels. In them he brought counsel up to date with the developments since he had last advised in consultation, and sought his advice in particular on the question whether Mr Hicks and Mrs Spence should be represented on the hearing of the appeal. The Legal Aid Board had voiced doubts whether such representation would be appropriate, given that the liquidator would be represented and his standpoint would be neutral. The Instructions also canvassed the main arguments raised in Humberclyde’s notice of appeal. Neil Myerson did not at this stage have a transcript of the hearing before Mr Justice Chadwick, but they were able to supply Mr Brindle with a note of the hearing made by Mrs Spence.

In his Advice dated 25 September 1997, Mr Brindle dealt with the question whether Mr Hicks and Mrs Spence should be represented on the appeal, with the benefit of legal aid, and the prospects of success in defeating the appeal. He concluded that it was “overwhelmingly desirable” that they should be represented, given the neutral stance that the liquidator was likely to adopt, and that while the appeal did “touch on some difficult areas” it was on balance more likely to fail than to succeed, although Mr Brindle went on to say that he had “not fully delved into each and every point which will have to be researched before the hearing”. On the basis of the material before him, he assessed the prospects of defeating the appeal as being in legal aid category C, i.e. between 50 and 60%.

Although Mr Brindle was not asked to advise on the merits of the Company’s Actions, and although he said in paragraph 11 of his Advice that he did not have adequate material to give considered advice on the merits of the Conspiracy Action, he did nevertheless make certain observations before turning to the merits of the appeal. In particular, he said this in paragraph 12:

“Having practised for many years in the banking field, I am familiar with conspiracy allegations by disappointed borrowers and sureties against banks. Most such allegations are without substance, and one can become cynical when one sees yet another such contention. However, there is in the present case a distinct feeling that all may not be quite so straightforward. I advised my clients in March last year, primarily in relation to their personal position, and in the course of that acquired extensive material on the issues in the Conspiracy Action. Whilst the conspiracy claims are far from straightforward, it was clear to me that they were not frivolous and that the behaviour of Humberclyde and of Robson Rhodes was unusual (to say the least), highly aggressive and deserving of further investigation.”

Mr Brindle went on to say that he agreed with the general approach to the merits of the Conspiracy Action taken by Mr Justice Chadwick. I observe that by this stage Mr Brindle had evidently been provided with a copy of the transcript, because he quotes from it in paragraph 13 of his Advice. In paragraph 14 he acknowledged that Humberclyde would seek to persuade the Court of Appeal that the conspiracy claim was indeed hopeless, but he went on to say:

“I should be very surprised, however, if the Court of Appeal were to take the view that Mr Justice Chadwick was not entitled to proceed on the assumption that there might be merit in the Conspiracy Action, and the other actions, even if the Court of Appeal does not look at the opinions of counsel and other material which seems to have influenced Mr Justice Chadwick.”

In late 1997, Humberclyde made a further attempt to have the Claimants’ legal aid certificates withdrawn. Humberclyde’s solicitors, Pinsent Curtis, wrote to the Legal Aid Board to that end on 9 October 1997. The Board issued a notice to show cause, and a hearing took place on 3 November 1997. In the event, the Board allowed legal aid for the appeal, but indicated that no legal aid would be available in respect of any of the Company’s Actions until after the appeal had been determined. Undeterred, however, Pinsent Curtis wrote further letters between 12 and 14 November 1997 in which they sought the discharge of the Claimants’ legal aid for the appeal, for the Personal Guarantee Action and for the Personal Conspiracy Action. In general, it is fair to say that not only were Humberclyde pursuing the appeal vigorously, but they were also engaged in a parallel war of attrition on the legal aid front which required a great deal of time and effort to counter.

A further important development in late 1997 was the departure of both Mr Samuels and his supervising partner Mr Harris from Neil Myerson. Mr Hicks and Mrs Spence had become dissatisfied with the service being provided by Mr Harris, but they told Mr Samuels that they were very satisfied with his work and would like him to take over the conduct of their litigation. Mr Hicks had at an earlier stage spoken to Mr Taylor of RJW in the hope of instructing them, but at that stage the Legal Aid Board had refused to approve this. What now happened was that arrangements were made for Mr Samuels to move from his new firm to take up employment with RJW and to work on the case under the supervision of Mr Taylor. The Legal Aid Board agreed to transfer the legal aid certificates on this footing, and Mr Samuels agreed to join RJW on 19 January 1998. Meanwhile, on 6 January 1998 Mr Taylor wrote to Mr Hicks and Mrs Spence to confirm that Mr Samuels would be starting work at RJW on 19 January, and that RJW’s retainer would commence on that date. The letter made it clear that RJW’s retainer was restricted to work which was covered by the legal aid certificates. He concluded his letter by saying:

“I can assure you that when Barry Samuels alights at 324 Grays Inn Road on 19 January 1998, he will hit the ground running at such pace as the case demands and the fuel provided by the legal aid board permits.”

Events after RJW were instructed down to the hearing of the appeal

The first major matter that needed to be dealt with after RJW were instructed was a directions hearing in the Court of Appeal fixed for 27 January 1998. The main purposes of the hearing were to determine Humberclyde’s application for leave to adduce fresh evidence, and to decide whether Humberclyde should be provided with a transcript of the hearing before Mr Justice Chadwick for the period during which they had been excluded from the courtroom. Prior to the directions hearing, Mr Reason had sworn a further affidavit (his seventh) on 15 January. Since swearing his sixth affidavit, Mr Reason had had the opportunity to consider the transcript of the hearing before Mr Justice Chadwick, and his seventh affidavit was mainly devoted to commenting on the transcript and amplifying the points made in his previous affidavit.

In a lengthy section of his seventh affidavit, headed “Humberclyde’s debt from the Company and the value of the Hotel” and extending over some nine and a half pages, Mr Reason subjected Mr Justice Chadwick’s estimates of the level of HIHL’s indebtedness and the value of the Hotel in September 1991 to a fairly detailed critique. He dealt with the valuation of the Hotel in paragraphs 36 to 44, and began by making a number of points about the 1989 Valuation. He pointed out, among other matters, the assumptions on which Robson Rhodes’ 1989 projections had been based, and the fact that in September 1991 phase 4 of the development was far from complete. He then referred in paragraph 43 to the August 1991 Valuation, and exhibited it as “ADR 34”. He quoted from it the conclusion that the open market value of the Hotel as at 19 August 1991 was in the region of £10 million, and then referred to the 1994 Valuation in the sum of £11 million.

Mr Marshall was briefed by RJW to appear at the directions hearing on behalf of the Claimants. In his skeleton argument dated 26 January, Mr Marshall submitted that Mr Reason’s sixth and seventh affidavits should not be admitted, because it was not clear why his evidence, so far as it went, had not been made available at the hearing below, and because the valuation of the Hotel was in any event only one element relevant to the calculation of the potential value of the conspiracy claims. For their part, counsel for Humberclyde (who were again Mr Moss QC and Mr Atherton) dealt fairly briefly with the question of fresh evidence in paragraphs 5 to 10 of their skeleton argument. They said that the fresh evidence related, in essence, to matters which occurred during and after the hearing before Mr Justice Chadwick. As to Mr Reason’s sixth affidavit, they said that in part it contained evidence relating to the background of the dispute, in a form not materially different from that which was before the Learned Judge, and if need be that part of the affidavit could be disregarded; the remainder of the affidavit dealt with the events that occurred during the course of the hearing. As to Mr Reason’s seventh affidavit, they said that this too contained evidence as to what occurred at the hearing, and also evidence of certain events thereafter which would “form the basis of certain submissions to be made by Counsel for Humberclyde at the substantive appeal”. The footnote to this paragraph makes it clear that the submissions contemplated did not relate to the part of the judgment in which Mr Justice Chadwick had dealt with questions of valuation, but rather went to the assignment after the hearing of legal title to the Company’s Actions. The same point may be made about the further submission in paragraph 10 of the skeleton argument.

The directions hearing took place on 27 January before Morritt and Waller LJJ. The result of the hearing was that the Court of Appeal declined to rule on the application to adduce fresh evidence, but adjourned the application to the hearing of the appeal and also directed that any application by the Claimants to adduce evidence in response be similarly adjourned. According to Mr Samuels’ attendance note of the hearing, Morritt LJ at one point expressed the view that “the affidavits did not take the appeal any further”.

As the parties were leaving court after the hearing, Mr Moss QC asked when any evidence in response to Mr Reason’s sixth and seventh affidavits might be expected. Mr Marshall told him that any evidence in reply would be provided to Humberclyde in plenty of time to allow for a response before the hearing of the appeal. Mr Marshall then walked back to his chambers with Mr Samuels and the clients in order to discuss the hearing and the forthcoming appeal. Mr Marshall was not clear whether the evidence in Mr Reason’s additional affidavits took matters much further or would assist the court. His initial reaction was that it would be much better if the evidence could be kept out, so that the appeal could be fought on the basis of the reasoning adopted by Mr Justice Chadwick. He then says in his witness statement:

“It was however a difficult judgment to make whether we should attempt to adduce evidence in reply. On the one hand, it is obvious that, subject to issues of materiality, there is plainly a risk in leaving evidence unanswered where the sole obstacle to reliance upon such evidence is the exercise of a discretion by the court; on the other hand, the production of such evidence in response can lead the mind of the court to concentrate on the issues to which the new evidence is directed and weaken some of the ground of objecting to it.”

Mr Marshall goes on to say that, if he had not known already that leading counsel was instructed, he would have advised that advice should be sought from leading counsel. However, he knew that Mr Brindle had been retained to deal with the case on appeal, and it was also not clear to him that he was to be instructed with Mr Brindle. He continues:

“There were in the circumstances two points which were clear in my mind. First, it was important that Mr Hicks and Mrs Spence obtain advice and it was obvious that they should get it from leading counsel on the appeal. Second, if it was necessary to respond to the sixth and seventh affidavits this should be done well in time for the appeal. I advised Mr Samuels accordingly.”

The position regarding Mr Brindle’s availability was that Mr Samuels had spoken to Mr Brindle’s clerk about a week before the directions hearing and been informed that, although Mr Brindle could deal with the appeal itself, he could not deal with the directions hearing as he was unavailable until 23 March 1998. At about the same time Mr Samuels reviewed the clients’ legal aid certificates and their status. He realised that the certificates for the appeal were still limited to obtaining leading counsel’s advice on the merits of the appeal, which had been provided by Mr Brindle on 25 September 1997, and that no application had been made by Neil Myerson to extend the certificates to cover the actual defence of the appeal, including further advice from leading counsel in consultation. Mr Samuels was unsure at this stage (still before the directions hearing) whether he would in fact need further advice from leading counsel before the hearing of the appeal, but he considered that it would be better to have the cover and not to need it than vice versa. Accordingly on 21 January he wrote to Mr Dix seeking the requisite authority, including authority to instruct leading and junior counsel to advise in conference and in writing.

After the directions hearing Pinsent Curtis wrote to RJW on 28 January saying that they would object to any evidence being served in reply less than 28 days before the date of the hearing. Mr Samuels replied on the following day, noting their position.

Meanwhile, Mr Samuels also took further steps to establish Mr Brindle’s availability. On 28 January, Mr Samuels wrote to Mr Brindle himself summarising the developments since he had last advised and asking whether he would be willing to be involved in the appeal. Mr Brindle then spoke to Mr Samuels on 5 February, confirming that he would be happy to do the case subject only to his availability, which was limited due to his involvement in one arbitration and at least one large piece of litigation. Mr Brindle confirmed the position in a letter to Mr Samuels dated 11 February.

On 12 February Mr Samuels wrote to the Claimants, confirming advice which he had given over the telephone to Mrs Spence. He said that he did not want to bombard Mr Brindle with superfluous documentation, but proposed to send him a copy of the bundle for the directions hearing. In his instructions to Mr Brindle, he would say that in his view the merits of the Company’s Actions were not relevant to the issues before the Court of Appeal. However, he would ask Mr Brindle to advise whether or not they ought to have a plan “B” to the effect that the three actions did have substantial merit. He then said:

“Plan B would entail our producing affidavit evidence to support our view that the three actions have merit. My concern about this approach is that any affidavit in support of the proposition would be colossal. However, if Mr Brindle was of the view that such an affidavit would be appropriate then obviously we would need to prepare it. I just do not want to prepare any such affidavit unless Mr Brindle thinks that we need to because I want to avoid unnecessary expense.”

Most unfortunately, the proposed consultation with Mr Brindle did not in the event take place until 13 May 1998, less than a week before the date fixed for the hearing of the appeal. The main reason for this delay seems to have been a muddle over the legal aid position. On 26 January 1998, the Legal Aid Board issued Mr Hicks and Mrs Spence with new certificates covering their representation on the appeal. However, the authority granted did not in terms cover expenditure incurred on the instruction of leading counsel. The Board’s letter of 26 January merely referred to “costs in relation to expenditure incurred on instruction of counsel”. Mr Samuels was concerned about this for two reasons. First, the certificates needed to be correct if RJW were to be able to recover their fees on any legal aid taxation and were not to find themselves liable for Mr Brindle’s fees. Secondly, Mr Samuels knew that Pinsent Curtis would seek to take advantage of any discrepancies, however minor, in the legal aid position in their continuing attempts to have legal aid for the appeal withdrawn. He therefore raised these issues with Mr Dix in a telephone call on 28 January, and set them out in a letter later that day.

Mr Dix replied on 3 February, confirming that he certainly thought he was granting cover for both leading and junior counsel, and stating that he would do this again. Mr Samuels wrote back on 6 February, reiterating that he had applied for prior authority to instruct leading and junior counsel to advise in conference and in writing. With regard to briefing Mr Brindle for the hearing of the appeal itself, he said:

“I anticipate that you would prefer me to defer making the appropriate application until after Mr Brindle has advised further and has confirmed his view that representation for Mr Hicks and Mrs Spence would be appropriate. Ordinarily, I would be happy to defer the application. However, Mr Brindle’s diary is fairly full for the next few months, therefore it is highly likely that we will have to have a conference with him only about a week or two before the hearing of the appeal itself. Therefore, there may not be time to obtain prior authority to brief him after he has advised in favour of Peter and Christine being represented at the hearing.”

I note from this letter that even at this early date Mr Samuels clearly contemplated that a conference with Mr Brindle might not take place until shortly before the hearing of the appeal. There is no indication that Mr Samuels regarded obtaining Mr Brindle’s advice as a matter of any particular urgency.

On 24 February Mr Dix replied, saying:

“I see no reason why you should not seek the authority to which you refer but I think this should really await your comments on the other side’s representations and/or the advice of Mr Brindle.”

The reference to “the other side’s representations” was a reference to Pinsent Curtis’ letters of 12 to 14 November 1997 seeking the discharge of the Claimants’ legal aid for the appeal. Mr Dix subsequently confirmed this in a telephone conversation with Mr Samuels on 3 March. On 13 March, Mr Samuels sent a long letter to Mr Dix dealing with Pinsent Curtis’ representations.

On 20 March 1998, Mr Samuels telephoned Mr Dix, who confirmed that he was satisfied that the appeal justified the retention of leading counsel and said he was happy for Mr Samuels to proceed to instruct Mr Brindle to advise. Mr Samuels discussed this with Mr Taylor, who authorised him to start work on preparing instructions to Mr Brindle on the strength of Mr Dix’s assurance, but told Mr Samuels not to deliver them until RJW had obtained official authority from the Legal Aid Board, because otherwise there would be a risk of RJW’s being liable for Mr Brindle’s fees. Mr Samuels therefore wrote to Mr Dix on 25 March seeking formal confirmation that RJW were actually covered to instruct Mr Brindle to advise in conference.

Mr Dix replied on 27 March. Although this letter referred to the material to be sent to Mr Brindle, and asked Mr Samuels to let Mr Dix have “leading counsel’s opinion in writing too”, RJW appear to have taken the view that it was still insufficiently explicit as authority for their purposes. Mr Samuels therefore chased Mr Dix again by telephone on 1 and 2 April, and wrote again on 14 April. Finally, on 15 April, Mr Samuels received unambiguous confirmation from the Legal Aid Board confirming that RJW were covered to instruct leading counsel to advise in conference, and (should the advice be favourable) to brief leading counsel for the appeal.

By this stage, Mr Samuels had also established that Mr Brindle would not generally be available to advise between Friday, 17 April and 12 May 1998. Despite this, however, Mr Samuels had written to Pinsent Curtis as long ago as 12 March 1998 confirming that it was RJW’s present intention to serve any affidavit evidence, if at all, no later than Friday, 17 April. The letter continued:

“You will appreciate, however, that we cannot guarantee this but we infer from your letter [of 9 March] that if we do serve affidavit evidence any later then you will raise an objection at the Court of Appeal hearing. That is obviously a matter for you.”

Mr Samuels said in evidence that the reason why he used the words “any” and “if at all” in this letter was because his own view was that no affidavits in response were necessary, but he intended to obtain Mr Brindle’s advice on the point.

On 20 April Mr Samuels sent written instructions to Mr Brindle. The instructions were extensive, and enclosed Mr Reason’s sixth and seventh affidavits. They dealt with many matters, including Humberclyde’s legal arguments and the procedure that had been adopted before Mr Justice Chadwick. In relation to the question of evidence in reply, Mr Samuels set out his personal view that no such evidence was required because:

On 23 April Mr Samuels and Mr Brindle spoke on the telephone. Their conversation covered a number of matters, and it was arranged that Mr Marshall should be instructed to assist Mr Brindle, particularly in settling the skeleton argument. During their conversation, Mr Brindle confirmed that the skeleton argument would argue against each of the matters raised in the Notice of Appeal. Mr Brindle also agreed with Mr Samuels’ concerns about the way in which Mr Justice Chadwick had conducted the hearing during Humberclyde’s absence and when they returned to the courtroom.

Mr Brindle met Mr Marshall on the evening of 30 April, and again over the bank holiday weekend of 2 to 4 May 1998, for the purpose of preparing the skeleton argument. Mr Brindle had not been able to consider every aspect of the Instructions and the enclosures, but in his view Humberclyde’s key argument was that because of the terms of the debentures the liquidator had nothing to assign. Mr Brindle regarded this argument as a highly complex one which embraced various sub-issues which required careful and detailed thought. With regard to further evidence, his initial reaction was that he was fully in agreement with Mr Samuels’ observations in his Instructions. He also took the view that it was almost certainly too late to put in any evidence in reply, a point which both he and Mr Marshall said in their oral evidence that they remembered having discussed and agreed on over the bank holiday weekend.

Skeleton arguments for the appeal were exchanged on 6 May. Humberclyde’s skeleton, which was 32 pages long, was signed by Mr Moss and Mr Atherton. The section of it dealing with the application to adduce further evidence repeated the submissions previously made in their skeleton argument for the directions hearing, and again gave no indication that the fresh evidence was thought to be relevant in any way to the issue of valuation: see paragraphs 39 to 45. However, in a later section dealing with the hearing before Mr Justice Chadwick an explicit link was made between the further evidence and the Judge’s assessment of the value of the Hotel and the quantum of the claim in the Conspiracy Action: see paragraph 64(5), which included this statement:

“If [Humberclyde’s] further evidence is admitted it can be shown that the Learned Judge’s speculations as to the possible value of the Conspiracy Action cannot be supported on the facts.”

For their part, Mr Brindle and Mr Marshall decided to adopt a minimalist approach to the question of new evidence, and merely said this in the final paragraph of their skeleton argument:

“Humberclyde have put forward no adequate basis for the introduction of any new evidence at the appellate stage of this matter.”

The long-delayed consultation with Mr Brindle finally took place on 13 May 1998. It lasted around three hours, and Mr Brindle advised in relation to the main issues on the appeal. Towards the end of the consultation, the question of Mr Reason’s sixth and seventh affidavits arose. According to Mr Samuels’ very full and careful note of the consultation, Mr Brindle advised that “The chances are that Reason’s affidavits will not be allowed into evidence”. However, although it was recognised that it was probably much too late to adduce any evidence in reply, Mr Brindle did suggest that Mr Hicks and Mrs Spence should set out their comments on the seventh affidavit so that he could take a final view on whether evidence in reply should be prepared.

Mr Samuels’ note of the consultation records that:

“It was conceded by Mr Samuels … that he had not prepared [an affidavit in response to Mr Reason’s seventh affidavit] even though he could have done because legal aid would always have covered him to prepare one although it would not have covered counsel’s advice upon it until 16 April.”

I should add that Mr Samuels’ note was signed by Mr Brindle, with almost no alterations, on 18 May 1998.

In his witness statement Mr Brindle sought to summarise the advice which he gave on 13 May in relation to the sixth and seventh affidavits of Mr Reason as follows:

“(i)

The chances were that the sixth and seventh affidavits would not be admitted into evidence. In this regard, I was reassured by the remarks made by Lord Justice Morritt during the directions hearing on 27 January 1998;

(ii)

The best line of argument for Mr Hicks and Mrs Spence was that Mr Justice Chadwick was doing no more than addressing the theoretical value and merit of the Conspiracy Action, that is, he was not assessing its merits;

(iii)

If the Court of Appeal was interested in the merits, it might then wish to consider Humberclyde’s argument that the Company’s Actions could not exceed Humberclyde’s debt and whether the hearing before Mr Justice Chadwick had been procedurally unfair. As to this, I considered that there was a fair argument that Humberclyde had not been given a proper chance to put their case forward. If the Court of Appeal adopted this stance, it would increase the chances of the seventh affidavit being admitted. ”

With regard to his advice that Mr Hicks and Mrs Spence should consider the seventh affidavit and provide their comments on it, Mr Brindle said that their comments might possibly be useful in reinforcing the argument that the seventh affidavit should not be admitted, and depending on the cogency of the comments it might be appropriate for one or other of them to swear an affidavit in response if, and only if, the Court of Appeal permitted new evidence to be adduced by Humberclyde. However, it was necessary to be realistic and to accept that, in view of the lateness of any affidavit evidence in response, the Court of Appeal would not let it in. Alternatively, it might be appropriate to seek an adjournment if the Court of Appeal allowed in Mr Reason’s affidavits on the basis of the difficulties that RJW had encountered in obtaining legal aid. Mr Brindle therefore asked Mr Samuels to prepare a summary of those difficulties.

On the following day, 14 May, Mr Hicks and Mrs Spence duly provided their comments, which they faxed directly to Mr Brindle and copied to Mr Samuels. Their comments on the August 1991 Valuation contained cross-references to different sections of the Proof of Evidence Files, and included reference to the ten items of factual evidence which Mr Hicks now claims should have been put in evidence before the Court of Appeal. However, Mr Brindle’s view was that, although the comments were of some use, they certainly did not provide an obvious refutation of each and every point made by Mr Reason in his affidavits. He goes on to say in paragraph 30 of his witness statement:

“They also struck me as points which individually and cumulatively lacked the sort of impact that would influence the outcome of the judgments that the Court of Appeal was going to have to make.”

Accordingly, no steps were taken to prepare any further affidavit evidence.

The hearing of the appeal finally took place on 19 May 1998 before Hirst, Morritt and Brooke LJJ. It provides an object-lesson in the unpredictability of litigation, particularly in an appellate court. The appeal had been listed with a time-estimate of three days, as both Mr Brindle and Mr Marshall confirmed in their oral evidence. There were two bundles of authorities, and there can be little doubt that everybody expected the hearing to be mainly concerned with the difficult questions of law relating to the question whether the liquidator had anything to assign, and to a lesser extent with the procedural question whether Mr Justice Chadwick had treated Humberclyde fairly. In the event, however, the hearing was over by 3 pm on the first day.

The court began by raising a jurisdictional point with Humberclyde. Morritt LJ asked Mr Moss why the appeal was not a hypothetical one which the court would not entertain, given the assignment of the Company’s Actions after the hearing below. Mr Moss then sought to explain that the assignment made no difference, because Humberclyde in any event owned the beneficial interest in the actions (subject to HIHL’s equity of redemption, if any) and the purpose of the assignment had merely been to prevent any misuse of the bare legal title to the actions. Eventually, this point was dealt with by Mr Moss offering an undertaking on behalf of Humberclyde not to rely in any way on the assignments, whatever the outcome of the appeal. The court then put Mr Moss on terms that he should finish his argument on the first day, bearing in mind the need to complete the hearing within the three day time limit.

Once these matters had been dealt with, and before Mr Moss was able to open his case, the question of further evidence arose. Hirst LJ asked, “Do you need further evidence any longer?”, to which Mr Moss replied “Yes, we do …. There are one or two points in the further evidence which are potentially quite critical.” Morritt LJ then commented that both Mr Reason’s affidavits were duplicating what was already known, and asked “How much of either affidavit is actually still germane to anything that is to be argued?”, to which Mr Moss replied:

“I can tell your Lordships that because I have done an analysis of the two affidavits. Perhaps the easiest one, by way of illustration, is the value of the Hotel at the time of the alleged conspiracy around August or September 1991. ”

To the question how that complied with the rules relating to the admission of new evidence in Ladd v Marshall [1954] 1WLR 1489, Mr Moss put forward two alternative submissions: either the usual conditions for admitting fresh evidence did not apply, because there had been no hearing on the merits below, or (if Ladd v Marshall did apply) Humberclyde could not reasonably have been expected to put in evidence about the value of the Hotel in September 1991, because that had not been raised as an issue prior to the hearing. He went on to say that there was some evidence before the Judge from which one could work out approximately the value of the Hotel, but if the court declined to look at the further evidence it would not have the benefit of a valuation which was directly in point. He then said, referring to the August 1991 Valuation:

“That valuation should have been there, because it is meant to be an appendix to the 1994 Valuation that was there. Unfortunately, for some reason, the appendix was not there in the copies that the Learned Judge had.”

Mr Moss then briefly explained how Mr Justice Chadwick had dealt with the question of the value of the Hotel and performed his own discount, even though he could have referred to the 1994 Valuation which was in evidence before him. Since the 1994 Valuation was £11 million, and since it referred to a slight rise in values between 1992 and 1993, Mr Moss submitted that the Judge should have concluded the 1991 value was less than £11 million, and therefore considerably less than the amount of the debt due to Humberclyde. Morritt LJ then picked up the point that the August 1991 Valuation had been appended to the 1994 Valuation, and Mr Moss repeated that it should have been there in the bundle, but for some unexplained reason had been omitted. Brooke LJ pointed out that anybody reading the latter valuation would have seen the reference in it to the August 1991 Valuation, to which Mr Moss replied:

“Precisely. That is my exact point about the new evidence. The new evidence is the August 1991 valuation, which your Lordships will not be surprised to hear shows a lesser value than the 1994 valuation.”

The court then asked Mr Brindle whether he had any objection to the August 1991 Valuation going in, on the basis that, as Hirst LJ put it, “It is an exhibit which ought to be there.” Mr Brindle replied:

“I will make the point in due course that there was no reason why they could not refer it to the Judge, but I will not keep it away from you.”

Following further discussion, the Court of Appeal also allowed into evidence a document that Mrs Spence had shown to Mr Justice Chadwick, while Humberclyde were excluded from the hearing, and which was thought (probably wrongly) to have emanated from Robson Rhodes. It is referred to in the transcript as “the Robson Rhodes document”. Again, the basis for admitting it was that it had been produced before the Judge, and was therefore not really new evidence at all.

With the exception of the August 1991 Valuation, no other part of Mr Reason’s sixth and seventh affidavits was admitted by the Court of Appeal. The court then asked Mr Moss to deal with the procedural issue, i.e. the circumstances surrounding the hearing in private before the Judge. As Morritt LJ said, the point logically came first because, if well-founded, the result would probably be a new trial, “in which event we do not need to go through anything else”. Mr Moss then made his submissions on the procedural issue, submitting in summary that Humberclyde should not have been excluded at all, and that in any event they were not given a proper opportunity to deal with the points that arose in their absence. The court then invited submissions from Mr Brindle and Mr Ritchie on the procedural issue, and Mr Moss replied. The court then conferred for a short period, and invited Mr Moss to address it on the merits, that is to say the question of valuation. Mr Moss accepted the invitation with alacrity, and repeated his points about the August 1991 Valuation. He also submitted that there was no evidence to support the Judge’s finding that the amount owed to Humberclyde by HIHL was as little as £13.5 million. In summary, Mr Moss submitted that, if Mr Justice Chadwick had appreciated the true figures, he would never have directed the assignment. He described it as “a very short, simple point”, which in itself was sufficient to dispose of the whole matter on the merits.

Having heard Mr Moss, the court invited Mr Brindle to respond on the question of quantum. Unsurprisingly, the court taxed Mr Brindle with the August 1991 Valuation. Mr Brindle did his best, but there was little he could say to detract from its obvious force and relevance. He did, however, point out that Christie & Co had obtained their instructions for the August 1991 Valuation from two of the alleged prime conspirators, namely Mr Powell and Mr Rounthwaite. He submitted that it would be very unfair to rely on a valuation coming from such a tainted source. Mr Brindle also submitted that the court should only conclude that the liquidator had nothing of any value to assign if the evidence showed absolutely clearly, and without doubt, that the balance of debt was in Humberclyde’s favour.

In the course of his submissions, Mr Brindle sought leave to introduce the Rebuttal Letter prepared by Mrs Spence on 28 August 1991, but the court refused leave on the basis that it was too late, particularly in view of the correspondence in which RJW had confirmed that any evidence in reply would be served in good time.

The court then heard brief submissions from Mr Ritchie for the liquidator, and submissions in reply from Mr Moss. After retiring briefly, they decided that they did not need to hear any further argument and reserved judgment.

Judgment was handed down on 18 June 1998. The leading judgment was delivered by Morritt LJ, with whom Brooke and Hirst LJJ agreed. In his judgment, Morritt LJ began by considering, and rejecting, Humberclyde’s procedural objections to the hearing before Mr Justice Chadwick. He then turned to the issue of where the balance of debt lay. He cited the relevant part of the judgment of Mr Justice Chadwick, pointed out that the evidence before him included the 1994 Valuation, and recorded that the Court of Appeal had given leave for the August 1991 Valuation to be adduced in evidence. He then quoted extensively from the August 1991 Valuation, and went on to say that its admission in evidence had given rise to two applications by Mr Hicks and Mrs Spence. The first application was the one made at the hearing by Mr Brindle on their behalf, to admit the Rebuttal Letter of 28 August 1991 in evidence. Morritt LJ recorded that leave to adduce it had been refused, because the application “was made far too late”. The second application was made in a letter from Mr Hicks and Mrs Spence dated 20 May, the day after the hearing, informing the court that they had dismissed their solicitors and counsel and seeking leave as litigants in person to adduce further evidence and to reopen the hearing. With regard to this application, Morritt LJ said he had no doubt that the court had the power to accede to their request, but equally he had no doubt that in the circumstances it should not do so. As he said,

“The Directors have had ample time in which to prepare and seek leave to adduce any further evidence they wished. During that time they have been legally represented and, as the correspondence demonstrates, the question whether to do so has been under active consideration. The reason why the opportunity was not taken and whether, as the Directors claim, it was due to incompetence on the part of some or all of their advisers are not matters for this court. Both applications were far too late and would have necessitated adjournments for which it is unlikely, given that they are in receipt of legal aid, that the Directors could have compensated the other parties for the consequential costs which would be wasted. ”

Having rejected these two applications, Morritt LJ went on to consider the evidence in relation to the balance of debt and said he was driven to the conclusion that the Conspiracy Action

“could not yield a money judgment sufficient to extinguish, let alone overtop, the debt due by [HIHL] to [Humberclyde]. Accordingly, assuming the application of Insolvency Rule 4.90, there can be no cause of action susceptible of assignment to the Directors. Thus the foundation to the Judge’s conclusion is shown by [the August 1991 Valuation] not to exist and, in my view, the appeal of Humberclyde should be allowed.”

In reaching his conclusion Morritt LJ expressly rejected the submission that the August 1991 Valuation was unreliable because it was based on information supplied by two of the alleged conspirators. He said there was no suggestion that Christie & Co were themselves party to the alleged conspiracy, and pointed out that the August 1991 Valuation was consistent both with the 1989 Valuation, given the condition of the Hotel at the former date, and with the 1994 Valuation, given the change in market conditions which was noted in it. He also said that there seemed to be “little doubt” that the debt of HIHL in September 1991 was £14.5 million rather than £13.5 million.

The first two issues directed to be tried by the Master raise the question of the scope and extent of the duty of care owed by RJW to Mr Hicks.

There is no disagreement between the parties about the basic legal principles which apply. They may in my judgment be summarised in the following propositions:

In paragraph 45 of the Re-re-amended Particulars of Claim various particular matters are pleaded which are said to have formed part of RJW’s duty to Mr Hicks. However, I do not find it helpful to consider these matters in isolation from the allegations of breach which then follow, and neither Counsel invited me to do so. If a general formulation of the content of the duty is required, beyond the general principles which I have referred to above, I would accept in general terms the description of the extent of the duty put forward by Mr Crystal in his written closing submissions, viz that it was incumbent on RJW to inform themselves of the issues raised on the appeal, to develop and implement a case plan for the appeal, to advise their clients in relation to the issues on the appeal, and to prepare their response or defence to the issues raised in the appeal.

The third issue is stated to be whether RJW were negligent and/or in breach of contract as alleged in paragraph 58 of the Re-re-amended Particulars of Claim.

The particulars given under paragraph 58 are as follows:

“(a)

[RJW] failed to take instruction on Mr Reason’s sixth and seventh affidavits and in particular the August 1991 valuation … until 13 May 1998 that is to say six actual days and three working days before the Court of Appeal hearing;

(b)

failed to file evidence in opposition to the application to admit new evidence in the appeal;

(c)

failed to take instructions (until on or after 13 May 1998) on the August 1991 valuation and on the information provided to the valuer by Robson Rhodes one of the alleged conspirators;

(d)

failed to instruct an expert … to consider the August 1991 valuation …;

(e)

failed to obtain Legal Aid Board authority to instruct an expert … to fully and properly consider the value of the Hotel immediately before Humberclyde took possession;

(f)

told Humberclyde’s solicitors that any new evidence to be relied upon by the Claimant in the Court of Appeal would be served by 17 April 1998, but failed to take any steps before that date to obtain new evidence and/or file rebuttal evidence dealing with the inconsistencies between the August 1991 valuation and earlier valuations carried out by Christie & Co;

(g)

failed as requested by the Claimant since at least late January 1998 to arrange an early conference with counsel …;

(h)

failed to obtain junior or leading counsel’s advice on evidence until 13 May 1998;

(i)

failed to equip counsel instructed in the appeal with any or any sufficient material to enable counsel adequately to contradict or to qualify the August 1991 valuation;

(j)

[Mr Samuels] by his letter dated 30 May 1998 advised the Legal Aid Board to withdraw all the Claimant’s legal aid certificates, knowing that this would further damage the Claimant’s situation when he clearly knew that allegations of negligence had already been raised against him.”

On behalf of RJW Mr Livesey QC submitted that Mr Hicks’ case is a classic example of the inappropriate use of hindsight to judge the actions of solicitors in the context of complex litigation and developing circumstances. It is quite plain, he submits, that nobody foresaw that the Court of Appeal would decide the appeal in the manner which it did. In the circumstances as they appeared at the time, RJW’s decision not to prepare any evidence in response to Mr Reason’s affidavits was reasonable, even if another solicitor might have exercised his or her professional judgment differently.

Mr Livesey elaborated these submissions both orally and in writing, and reminded me several times of the dangers of hindsight. However, I remain unpersuaded. It seems to me all but self-evident that something went badly wrong with the preparation of the appeal on behalf of Mr Hicks and Mrs Spence, given that no advice was sought from counsel on the question of a response to Mr Reason’s affidavits until the consultation on 13 May 1998, by when it was on any reasonable view already far too late to prepare and serve evidence in answer. The question of how to deal with Mr Reason’s two affidavits was a difficult one, which in my view cried out for advice from leading counsel who would be briefed at the hearing of the appeal. That leading counsel was Mr Brindle, who had already advised in writing in September 1997, and whom RJW were anxious to retain for the hearing. If the case had been properly prepared by a reasonably competent solicitor, the need to obtain such advice would have been identified at an early stage, and certainly no later than the directions hearing before the Court of Appeal on 27 January 1998. At that stage a date for the substantive hearing of the appeal had still not been fixed, and Humberclyde’s request for an expedited hearing had been turned down. There was still ample time to sort out the legal aid position and to obtain advice from Mr Brindle well in advance of the hearing, even though it was known that he was unlikely to be available until late in March.

It is important to emphasise that the primary breach, as I see it, lay in the failure to obtain advice on evidence from Mr Brindle in good time. The question was not one that RJW could sensibly decide for themselves, without consulting him. It was undoubtedly a possible view – and, as we shall see, it was in fact Mr Brindle’s own view – that no evidence in reply to Mr Reason’s affidavits should be served, for a combination of legal and tactical reasons. But as I have already said the question was a difficult one, which required the judgment of leading counsel who was going to conduct the appeal. The question could not safely be left on one side until shortly before the hearing of the appeal, given the obvious potential for damage to the Claimants’ case posed by the August 1991 Valuation and the existence of a specific ground of appeal which referred to the net value of the Hotel in September 1991. At a very simple level, if the discounted value for the Hotel of £18 to £20 million taken by Mr Justice Chadwick is replaced with the figure of £10 million yielded by the August 1991 Valuation, the balance of debt in September 1991 changes from being substantially in the Claimants’ favour to being some £3.5 million in Humberclyde’s favour, even if the Judge’s very low figure for the debt owed by HIHL to Humberclyde is left unaltered. This point is in my judgment one that a reasonably competent solicitor reviewing the case would have noticed, and its potential for harm should have been immediately apparent. As against this, he would also have noted that the August 1991 Valuation had apparently not been in evidence before Mr Justice Chadwick, and Humberclyde were proceeding on the footing that it was new evidence which they would need to obtain leave to put in. He would also have noted the statement at the beginning of the grounds of appeal indicating the areas in which new evidence was said to be relevant, which did not include any question of valuation. He might, therefore, have concluded that the wiser course tactically would be to leave the evidence unanswered, in view of the unlikelihood that Humberclyde would obtain leave to admit it, and the risk that responding to it might only draw attention to its potential significance. On any view, however, the question was a difficult one. In my judgment it was not reasonably open to RJW to foreclose it by simply deciding, then and there, that no evidence in reply should be prepared. Furthermore, once the point had been identified, I have no doubt that it was then incumbent on them to discuss it with, and seek instructions from, the Claimants, as well as seeking advice at the earliest opportunity from leading counsel.

I am fortified in reaching this conclusion by the fact that it substantially coincides with the advice given by junior counsel, Mr Marshall, to Mr Samuels immediately after the directions hearing. As he rightly said, two things were important: first, that the Claimants should obtain advice on the question from leading counsel on the appeal; and secondly, if it was necessary to respond to Mr Reason’s affidavits, that this should be done in good time. Mr Samuels intended to act on this advice, but then unfortunately allowed himself to become bogged down in correspondence with the Legal Aid Board and lost sight of the need for urgency in obtaining Mr Brindle’s advice. In my view the muddle with the Legal Aid Board should have been sorted out much more quickly, especially as Mr Dix was apparently at all stages entirely happy with the choice of Mr Brindle as leading counsel. If it had been clearly explained to him that Mr Brindle’s advice on evidence was needed at an early stage, I cannot believe that Mr Dix would still have insisted on Mr Samuels first providing him with a detailed response to the lengthy objections raised by Pinsent Curtis in the previous November. If Mr Samuels found that he was making no headway, in my view he could and should have referred the matter to the partner in RJW with responsibility for the firm’s legal aid franchise, Janice Powell. In his letter of 6 January 1998, Mr Taylor had expressly informed the Claimants that she would handle the legal aid aspects of the case.

What actually happened, in effect, was that RJW painted themselves into a corner, and did not seek advice on the question from Mr Brindle until, as both he and Mr Marshall realistically recognised, it was too late to do anything about it, even if they formed the view that further evidence should be obtained and served. The position had been made still worse by Mr Samuels agreeing to a timetable for evidence which he was in no position to meet.

In reaching this conclusion, I do not wish to be unduly critical of Mr Samuels. He was a young and still relatively inexperienced lawyer, with many excellent qualities. He was faced with a very difficult assignment, and demanding clients. It is not surprising that, as he frankly admitted, he felt overwhelmed at times. What he needed was effective and supportive supervision, but on the evidence I have heard this seems to have been signally lacking. His supervising partner, Mr Taylor, was not himself a specialist in commercial litigation or insolvency: I was told that his main area of expertise was defamation. Although Mr Samuels consulted him on a number of occasions, I can find no indication that he got a personal grip on the case or that he provided the necessary leadership in the areas of “strategy, tactics, economics and merits” for which he said he would be responsible in his letter of 6 January 1998 to the clients. Mr Taylor did not give evidence before me. There was no suggestion that he was for any reason unable to do so, and I think it is reasonable for me to infer that it was not considered his evidence would assist RJW’s case.

For these reasons, I decide the issue of liability in favour of Mr Hicks. In essence, it seems to me that the pleaded particulars in sub-paragraphs 58 (a), (c), (f), (g) and (h) of the Re-re-amended Particulars of Claim are made good. However, whether RJW were also negligent in actually failing to file evidence in opposition to Mr Reason’s affidavits, or in failing to obtain expert evidence about the value of the Hotel, must depend in my view on the advice which Mr Brindle would have given had he been instructed to advise on evidence in good time, and accordingly that is the question to which I now turn.

Mr Brindle deals with this question directly in the final paragraph of his witness statement, where he says he has been asked “what my advice would have been on this issue, if I had advised at a time when it was not too late to prepare and serve evidence in reply”. He continues:

“I cannot say now what exactly my advice would have been, however, it seems to me that this would have removed only one of my reasons for not serving such evidence (the fact that it was too late to do so) but that my other reasons and concerns, including:

(a)

the Ladd v Marshall point;

(b)

a concern that we should not draw attention to areas where Mr Hicks’ and Mrs Spence’s position on the appeal was weak; and

(c)

the lack of “impact” that I felt that the evidential material had on the issues,

The implication of this evidence, which was not directly challenged in cross-examination, is that Mr Brindle’s advice, if he had been asked to advise on evidence in good time, say towards the end of March 1998, would have been that no evidence in reply to Mr Reason’s affidavits should be prepared and served. In other words, his advice would in substance have been the same as the advice which he gave at and after the consultation on 13 May.

Further light is thrown on Mr Brindle’s thinking on the question by paragraphs 22 to 24 of his witness statement, where he is dealing with his assessment of the position when he discussed it with Mr Marshall between 30 April and 4 May 1998. As I have already pointed out, his initial reaction was that he was “fully in agreement with Mr Samuels’ observations in his Instructions”, and his preliminary view was that Mr Samuels’ judgment that no attempt should be made to adduce evidence in response was absolutely correct. Apart from the fact that it was probably too late to do so, he considered that it would be tactically unwise to highlight and provide additional details about the rival factual accounts on each side as to the merits and value of the Conspiracy Action, and the amount of the debt owed by HIHL to Humberclyde.

Mr Brindle’s statement continues as follows:

“23.

In reaching this preliminary view, I had considered (with Mr Marshall’s assistance) the following:

(a)

it was advisable to seek to uphold Mr Justice Chadwick’s reasoning as to whether there might be merit in the Conspiracy Action and that it was theoretically possible that the value of the Conspiracy Action would exceed the debt owed by [HIHL] to Humberclyde as at September 1991. This would be on the basis that the Judge was doing no more than expressing a view as to the theoretical yield of the Conspiracy Action if all Mr Hicks’ and Mrs Spence’s contentions were upheld;

(b)

concentrating on additional factual disputes as to the background to the Conspiracy Action would tend to undermine the above approach;

(c)

equally, as a major reason for the sixth and seventh affidavits (according to Humberclyde) was to remedy the procedural unfairness of the hearing before Mr Justice Chadwick, putting in evidence to rebut those affidavits would only serve to highlight and potentially strengthen Humberclyde’s argument that Mr Justice Chadwick had conducted the hearing in a procedurally unfair way;

(d)

the Court of Appeal at the directions hearing on 27 January 1998 had expressed the view that the affidavits were not of assistance to the appeal;

(e)

serving evidence in response would strengthen Humberclyde’s arguments that the affidavits should be admitted into evidence, whereas the Court of Appeal had expressed concern as to the basis on which fresh evidence could be adduced at the appeal.

24.

Apart from this I was also well aware that there is a heavy burden on any appellant who seeks to adduce further evidence before the Court of Appeal, to secure compliance with the criteria specified in Ladd v Marshall. Whether those criteria applied to the general procedural complaints in the bulk of the sixth and seventh affidavits may be open to question. They would however, in my view, unquestionably apply to the admission, as fresh evidence, of the August 1991 valuation.”

Mr Brindle was cross-examined by Mr Crystal with a view to eliciting that, if he had been able to advise in good time, he might have advised that evidence should be obtained to neutralise the August 1991 Valuation, either from the material already available or by obtaining a further valuation. However, Mr Brindle did not agree with either suggestion, and in my judgment his evidence remained essentially unshaken. With regard to the existing material, he said his view was that there was nothing in it which would be capable of neutralising the August 1991 Valuation, and he did not know what else could have been put in to change the Court of Appeal’s perception of it as a “killer blow”. He criticised the Court of Appeal for having adopted that approach to the evidence, but said in effect that once they had decided to approach the question of valuation as they did, there was no available material which could have persuaded them to take a different view. With regard to the suggestion of obtaining a fresh valuation, such as the BDO Valuation, he was equally unenthusiastic. As he said (transcript, day 5, page 59 at line 3):

“I am not sure what value, a valuation done ten years after the event would have been in neutralising a contemporaneous report by a wholly neutral and impartial valuer.”

It is important to emphasise that neither Mr Brindle nor Mr Marshall foresaw the way in which the Court of Appeal actually decided the case. Everybody, on each side, seems to have approached the hearing on the footing that the August 1991 Valuation was indeed fresh evidence, which it would be necessary to obtain the leave of the court to introduce. Even Mr Moss referred to it as “new evidence” in his opening submissions. It was only the interventions by the court which brought home for the first time the critical point that the August 1991 Valuation had notionally been in evidence before Mr Justice Chadwick, and therefore did not have to satisfy the usual tests for admission of fresh evidence on appeal. In my judgment it was the failure to appreciate this “killer point”, combined with the strong impression given by the Notice of Appeal and much of Mr Reason’s evidence that Humberclyde only wished to rely on the August 1991 Valuation in relation to the procedural issues, that coloured Mr Brindle’s assessment of the position and the advice which he gave. With hindsight, it can be seen that his advice was arguably mistaken. However, I do not consider that he or Mr Marshall, or indeed anybody else, can be reasonably criticised for having failed to spot the “killer point” upon which the Court of Appeal fastened; and indeed Mr Crystal went out of his way, more than once, to emphasise that he did not seek in any way to criticise the conduct of the case by Mr Brindle and Mr Marshall in the circumstances in which they found themselves. As he said, they made the best of a bad job.

Accordingly, for the reasons I have given, I conclude that even if Mr Brindle had been consulted in good time, his advice would still have been not to prepare or seek to adduce fresh evidence in answer to Mr Reason’s affidavits, and not to obtain a further retrospective valuation of the Hotel. Such advice would not have been negligent, even if with the benefit of hindsight it may appear to have been mistaken, and RJW could not have been criticised for following it. I am therefore unable to see any basis for saying that RJW were themselves in breach of duty by failing to prepare such evidence in reply, or failing to obtain a further valuation.

The fourth issue is framed by reference to paragraphs 59 to 61 of the Re-re-amended Particulars of Claim, but in essence it raises the issue of causation: had RJW not been in breach of their duty, would the appeal have been decided in the Claimants’ favour, or would the Court of Appeal nevertheless have allowed Humberclyde’s appeal?

In view of the limited nature of the breach which I have found to be established, I can deal with this question very shortly. If the appeal had been competently prepared by RJW, advice on evidence would have been sought from Mr Brindle in good time before the hearing. However, his advice would have been not to file any further evidence, and not to obtain a further valuation. RJW could not be criticised for having followed such advice. Accordingly, the position when the appeal came on for hearing would have been exactly the same as it actually was, and there is no reason to suppose that the hearing would have followed any different course. Accordingly, the appeal would still have been allowed, and the lethal effect of the August 1991 Valuation would have been unchanged. In other words, Mr Hicks is unable to establish that he has suffered any loss as a result of RJW’s breach of duty, and in my judgment it must follow that he is entitled to no more than nominal damages for breach of contract.

This conclusion makes it unnecessary for me to consider the further argument advanced by RJW, to the effect that even if further evidence had been adduced, and if that evidence had made it impossible for the Court of Appeal to decide the case on the balance of debt point, they would nevertheless have allowed Humberclyde’s appeal on the strength of Humberclyde’s legal arguments that the liquidator had nothing to assign. In his oral evidence Mr Brindle described these legal questions as difficult ones, which involved “three House of Lords points of an insolvency nature”. Undaunted by this, junior counsel for RJW, who argued this part of the case, sought to persuade me that the points were in fact relatively simple ones, and that they would indeed have led to the Court of Appeal allowing Humberclyde’s appeal. Mr Parker advanced these submissions lucidly and cogently, but in my judgment I should resist the temptation to say anything about them. I say this for two reasons in particular. First, I heard no opposing argument on the questions from Mr Crystal, who was content merely to adopt the submissions in the skeleton argument of Mr Brindle and Mr Marshall for the Court of Appeal hearing. Secondly, and in any event, it would be an invidious task for a first-instance judge to have to decide how a particularly-constituted Court of Appeal would have decided these difficult questions of law nearly nine years ago. I would not have shirked the task if it were necessary to my decision, but since it is not, and since anything I said on the subject would be obiter, I think it is much better to say nothing.

To summarise my conclusions, I consider that liability is established, to the limited extent which I have indicated, but that RJW’s breach of duty has not caused Mr Hicks or Mrs Spence any loss. In a nutshell, the case succeeds in part on liability, but fails on causation.