Pegasus v Ernst & Young

This is an appeal from a decision of Master Bowles delivered on 18^th November 2011 in which he ruled on the extent to which various claims made in this action are or are not now sustainable. He did so on what were applications to strike out and amendment applications. 4 issues were originally before me (including one not before the Master) but in the light of various clarifications of the way in which the parties plead the case in relation to the claims of the second claimant (Mr Bradbury) only one of the issues was live by the end of the hearing. The other matters have been adjourned to the trial judge, with permission to restore in the meanwhile if necessary.

The overall description of this claim is that it is a negligence claim against well-known accountants (“EY”). Part of it has been the subject of an application to strike out which was heard by Lewison J and the Court of Appeal. A detailed background to, and summary of, the case appears in the judgment of Lewison J reported at [2008] EWHC 2720, to which reference should be made for a fuller account than appears here. What follows is a more limited account which suffices for the purposes of the present appeal.

Mr Bradbury sold an asset in the mid-90s and wished to invest the proceeds in such a way as would protect him from an immediate charge to capital gains tax (“CGT”). He sought advice from EY. As a result he put his money into the first claimant (“Pegasus”) with a view to obtaining rollover relief through buying qualifying businesses. His claim had two parts. In the first part of the claim, he complained that EY should have advised him to incorporate other companies, owned by Pegasus, in which to acquire assets. He did not do that. As a result Pegasus itself acquired assets in one purchase and shares in companies owning business assets in others. Where shares were purchased, the assets were hived up into Pegasus, which was necessary in order to attract the rollover relief. This method of purchasing, without creating separate new companies to hold the assets, was said to be the result of negligent advice, with adverse CGT consequences but I do not need to go into because that part of the claim has been struck out on limitation grounds.

In 2002 the problem revealed itself. The technique of buying companies and hiving up the assets gave a base cost for CGT which left the value of goodwill out of account, and so was lower than would otherwise have been the case. This had the potential to increase the chargeable gain on any further disposals very significantly, sometimes even in circumstances in which Pegasus sold the business for less than it paid for it. In the parlance of this case that feature has been described as the Adverse Consequence. It could have been avoided if assets, rather than companies, had been purchased in the first place, and could also have been avoided if EY had advised in time that the assets should be hived back down into newly incorporated subsidiaries, whose shares could be sold without triggering a liability for corporation tax on the gains.

The claim based on the Adverse Consequence that is now still live is a claim that EY did not spell out more clearly their advice as to base costs in the period between 2000 and 2002. Two businesses have now been sold, creating a chargeable gain. The extra tax payable as a result, any extra tax payable in the group, and the cost of mitigating that tax liability in terms of using up tax losses elsewhere in the group, is the bulk of the loss said to be recoverable. Because of the ability to use other losses to offset the gain, and because some of the proceeds have been rolled over into another asset, extra tax has not yet been paid, but, unless there is some further tax mitigation in the future, it is said that additional CGT of £1.3m is likely to be payable, and £1.3m of capital losses have been used up and will not be available for offsetting against future gains. Further corporation tax will be payable on the sale of the asset into which proceeds have been rolled over. The important point about all this, for the purposes of the present action, is that the amount of extra tax which is said to arise from the Adverse Consequence is not yet apparent. It is, and always was, possible that some or all of that tax will be reduced by further tax-saving measures in the future. Over the years since the alleged negligence the potential extra tax has been reduced from some £15m to less than £3m. The final figure will not be known for some time, and is unlikely to be known definitively at the trial. The claim is also put on the basis of the loss of a chance to take steps, including negotiating with the Revenue, to avoid the Adverse Consequence. If damages are ordered at the trial, they will have to include damages which value the contingency of the potential tax liabilities in the circumstances as they appear at the trial. This is an important point because it lies at the heart of much of the submissions of Mr Salzedo QC, who appeared for EY.

That is the main head of damages. There is also a lesser head. In order to reduce the effect of the Adverse Consequence Pegasus incurred professional fees of some £390,000 in bringing about a hive-down of assets into subsidiaries which it is to be hoped will avoid the Adverse Consequence in relation to those assets. The claimants claim these sums either as actual sums, or on the basis of the loss of a chance of avoiding having to pay them.

The claim was brought by Pegasus as the person to whom the relevant duties of care are said to be owed, and by Mr Bradbury as sole shareholder insofar as any relevant duties were owed to him and not to Pegasus. At the hearing before me it was established that EY accepted that if any duty was owed it was owed to Pegasus, removing any possibility of any relevant duty being owed to Mr Bradbury alone. In those circumstances Pegasus is the only relevant claimant, and I can consider the rest of this judgment on the footing that that is the case, ignoring the personal position of Mr Bradbury. Proceedings were commenced in 2005.

As a result of amendments proposed by the claimants, in November 2010 it transpired that in February 2010 Pegasus (which is a Luxembourg company) had gone into liquidation and had transferred substantially all its assets to Inhealth UK Holdings Ltd (“IHUK”). These assets included the shares in the companies into which the assets had been hived down, and the cause of action on which this action is based (which was transferred for a nominal consideration). The asset transfer was a voluntary transfer as part of a reorganisation of the business. It was not a commercial arms-length deal.

The claimants’ proposed amendments which included, inter alia, the substitution of IHUK for Pegasus as claimant. It is in the context of that application that the issue before me has been made to arise. The amendment is resisted by EY on the footing that the result of the transfer to IHUK means that Pegasus can no longer show any loss from the original (alleged) negligence, and since IHUK could only sue for Pegasus’s (not its own) losses, the action was therefore no longer sustainable. Whether that is right or not is the issue before me on this appeal.

The Master decided it was not right. On the basis of the arguments advanced before him, and re-advanced before me, he held that EY’s point failed. The assignments and transfers by Pegasus did not have the effect that Pegasus could no longer be said to have suffered losses. Were it otherwise the losses which had previously existed (on the assumption that there were some, which was the assumption behind the application before him) would have disappeared into a “black hole”, which the authorities held was not an acceptable result. He found the case to be parallel to cases cited by counsel for the claimant (identified below) which gave the claimant a remedy, and EY therefore failed. The Master gave permission to appeal.

It therefore follows that the issue I have to resolve is as follows: Can IHUK maintain a claim for loss in circumstances in which Pegasus has assigned its cause of action and assigned all its assets to IHUK? This becomes a question of whether it can be said that Pegasus can still be said to have suffered a loss which can now be claimed by IHUK pursuant to the assignment of the cause of action.

The debate in this case all turned on the losses arising from having to pay extra tax. Losses from professional fees were not treated separately, apart from one point made by Mr McCaughran for the purposes of analysing the nature of loss. Since the tax-related losses are the meat of this action, it will be convenient to put on one side for the moment the professional fees and imagine the action as not involving them. I will revert to the professional fees towards the end of the judgment.

Mr Salzedo’s argument in summary has the following elements:

Mr John McCaughran QC appeared for the claimants and met that argument in summary as follows:

The case of the defendants has a two-pronged logic about it. First, they say that since Pegasus no longer has the asset in which its loss is reflected, or borne, it can longer be said to be sustaining the loss. Second, they apply what they say is the logic of the basic damages test. Pegasus would be entitled to be put in the same position as it would have been in had the negligence not occurred. Prior to the assignment one would look to see what the tax position was (or was likely to be), and compare that with what the position would have been if the negligence had not occurred. Distilling the case to its simplest, one would look to see what the likely extra tax burden is or will be. That would be the sum recoverable as being the sum necessary to put Pegasus (on this scenario) in the position it would have been in had the negligence not occurred. However, once the transfer of assets has taken place, and on the footing that the transfer had taken place irrespective of the negligence, the position is different. On this footing, had the negligence not occurred Pegasus would have nothing (no assets, whether devalued or not). In the events which have actually happened, Pegasus has nothing. So there is no difference between those two situations; so Pegasus has not suffered loss. This is not a case in which Pegasus has assigned its assets for a value which is less than would have been the case had the negligence not occurred. In that case there would have been a loss to Pegasus. The gift, not dependent on the act of negligence, is what makes the difference.

I do not find this approach appealing. The calculation in damages is a practical exercise in which the courts try to find the real loss in the real world, without resorting to metaphysics. The starting point is the classic statement in Livingstone v Raywards (1880) LR 5 App Cas 25 at p 39 (per Lord Blackburn):

“where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation.”

Over the decades since then the courts have not slavishly applied that as if it answered every question. It has been applied with an appropriate degree of realism and fairness, to the real world. As Lord Haldane LC said in British Westinghouse v Underground Electric Railways [1912] AC 673:

“The quantum of damages is a question of fact, and the only guidance the law can give is to lay down general principles which afford at times but scanty assistance.”

It is only on a slavish application of remorseless logic combined with a certain degree of metaphysics that Mr Salzedo can get home on the first of his prongs. That is not an appropriate approach. The second applies remorseless logic alone, which again is not appropriate. It also appears contrary to a reasonable perception of justice. If one assumes for the moment that loss was caused to Pegasus, its disposal of its assets did not avoid that loss; nor did it make it good. It suffered a loss because its assets were less than they ought to have been. Why does that loss not still exist after it has disposed of the assets that were not worth as much as they ought to have been? I accept that that way of looking at the matter means that the focus has switched from the test to the concept of loss, but loss lies at the heart of a damages claim.

Fortunately this matter is not left in the realms of metaphysics or abstract logic. There is authority on the point, and each side relied on it. It will be helpful to start with the authorities relied on by the claimants.

GUS Property Management Limited v Littlewoods Mail Order Stores Limited [1982] SC (HL) 157 is a case in which a gratuitous assignment of damaged property, followed by an assignment of a chose in action relating to that damage, did not destroy the value of the cause of action. A building owned by one subsidiary of GUS was damaged, allegedly as a result of the default of the defendants. Thereafter the building in its damaged state was transferred to another subsidiary in the group at a price which was fixed for accounting purposes rather than reflecting its real value, whether damaged or not. Thereafter the cause of action against the defendants was assigned. The point was taken that once the property had been assigned, there was no valuable cause of action in the assignor, and therefore the assigned cause of action was valueless. Lord Keith considered this point at pages 177-178.

“Where specific property has been damaged by delict, it is a general rule that the owner of the property does not, by parting with it to another, lose his title and interest to pursue a claim for damages against the wrongdoer: Gordon v Davidson [1864] 2M 758…Where the property is disposed of in an arm’s length transaction for the price which it is fairly worth in its damaged condition, the difference between that price and the price which it would have fetched in an undamaged condition is likely to be the best measure of the loss and damage suffered. But it may happen that the owner of the property disposes of it otherwise than by such a transaction. He may, for example, alienate it gratuitously…It is absurd to suggest that in such circumstances the claim to damages would disappear, as the Lord Ordinary put it, into some legal black hole, so that the wrongdoer escaped scot-free. There would be no agreed market price available to form an element in the computation of the loss, and so some other means of measuring it would have to be applied, such as an estimate of the depreciation in value or of the cost of repair.

…

I would therefore hold that [the assignor’s] transfer to the pursuers of the [relevant property] did not destroy the former’s right of action against the defenders…The pursuers, as [the assignor’s] assignees are suing to recover, not their loss, but the loss suffered by [the assignor]…There is no doubt that the pursuer’s pleadings are not drawn with that degree of accuracy which counsel might normally hope to achieve. The draftsman does not appear to have had in the forefront of his mind a sound grasp of the true legal position, namely that the pursuers are not suing for their own loss, but for that suffered by [the assignor].”

Those statements seem clearly to favour the claimant in this case. There was damage to property; that property was transferred for a consideration which can be treated for these purposes as nominal; and the transfer of the property was followed by an assignment of the cause of action. Lord Keith clearly holds that those facts do not destroy the accrued cause of action by removing loss from the equation. Mr Salzedo’s answer to that point is that the case demonstrates a different situation applying to direct damage (not consequential and/or uncertain loss) accruing to real property. He bases this on authority to which I shall come. For the moment, however, it seems a promising starting point for Mr McCaughran’s case.

Next is Linden Gardens Trust Limited v Lenesta Sludge Disposals Limited, in the Court of Appeal, reported at (1992) 57 BLR 57. This case went to the House of Lords where the decision of the Court of Appeal on the assignability of a cause of action was overturned. This meant that the House of Lords did not have to deal with the sort of points that I am about to refer to. However, it is plain from the later Court of Appeal decision in Offer-Hoar v Larkstore Limited [2006] 1WLR 2926 that the statements of the Court of Appeal on the point were treated as authoritative in that later case, and I shall do the same. In the Lenesta case building contractors had failed, in breach of contract, to remove asbestos from a building. The site owner (actually a lessee) assigned its interests to the claimant. Having done that, it then issued a writ seeking damages for negligence and breach of contract, and 18 months later assigned that cause of action to the claimant, so that it caught up with the ownership of the property. The sale of the leasehold interest was at a value which was appropriate on the footing that the building was in fact sound.

Staughton LJ embarked on a consideration of whether or not an assignment of the building for full value had the effect of bringing about a situation in which the assignor had suffered no loss. If that were the case, then the assignee could not recover loss either (because it was asserting the assignor’s cause of action). He determined that Lord Keith in GUS had not expressed an opinion that that event destroyed the claim that loss had been caused and went on (at page 91) to consider whether there was:

“any general principle which determines when a plaintiff can recover substantial damages although his loss has been made good by somebody else, and secondly whether in the particular case of damage to a building which is later sold for its sound market value the original owner’s claim is confined to nominal damages.

As to the first question I find it difficult to suggest a comprehensive definition of the circumstances in which compensation derived from some third party is irrelevant. Besides the proceeds of insurance, or of Government grants, or benevolence, there have been cases of good fortune, res inter alios acta, circumstances peculiar to the plaintiff. Plainly there are categories where such compensation is disregarded. It may be that one has to fall back on what Viscount Haldane LC said in the British Westinghouse case…

In the particular case of damage to a building which is later sold, in my judgement there is no rule of law that the damages must necessarily be nominal.”

He concluded at page 92:

“In my opinion [the assignor] acquired a right to substantial damages for those breaches of contract, and did not lose it when they disposed of the rest of their interest in the building for its sound market value, on 12 December 1986. After the assignment on 14 January 1987 Linden Gardens Trust as assignees became entitled to enforce [the assignor’s] claim. It is immaterial that Linden Gardens Trust subsequently incurred the expense of remedial work and suffered loss of rent while it was carried out, although the cost and loss may assist them in establishing the damages which would, but for the assignment and the transfer of property, have been recoverable by [the assignor].”

Mr McCaughran relies on these passages as demonstrating that the original assignor, and therefore the assignee, can maintain a claim for loss notwithstanding the transfer of the underlying property, whether for full value or not. I agree that they certainly indicate that. Furthermore, Staughton LJ was unable to define any overall principle which might be applied so as to produce that result, or a clear result in any given case. It is therefore quite consistent with that (and particularly so bearing in mind the citation from GUS in Staughton LJ’s judgment) to hold that a gratuitous transfer of the underlying asset does not remove the loss in the hands of the assignor.

It is apparent that Sir Michael Kerr also considered that there could be recovery. At pages 97-98 he made it clear that the assignee could recover what the assignor could have recovered, and that the only limitation was that the assignee could not recover for its loss, and could recover no more than the assignor could have recovered:

“The next point is then that an assignee can recover damages from the debtor to the same extent as his assignor could have done, but he cannot enforce any claims, let alone under new heads of damage, which would not have been available to the assignor…

There is therefore no problem about Linden Gardens’ right to recover the £22,205.02 which [the assignor] had spent in remedying the original breach…But in my view Linden Gardens are also prima facie entitled to recover the £236,000-odd which they themselves expended in remedying the other breaches by these contractors and the further breaches by Ashwell, all of which had also been committed prior to [the assignor’s] assignment to Linden Gardens. Both are claims for damages which had vested in Stock Conversion and which were validly assigned to Linden Gardens. The fact that, at the time of the assignment [the assignor was] aware of the full extent of the breaches, and therefore of the extent of their claims for damages, does not appear to me to make any difference to the validity and effect of the assignment to Linden Gardens. The only limitation upon Linden Gardens’ right of recovery is the extent to which the defendants may be able to show that Linden Gardens’ claims exceed what would have been recoverable by [the assignor] if there had been an assignment. But that is merely a question which goes to quantum, like the discussion in the speech of Lord Keith in GUS as to what would be the appropriate measure of damages in the circumstances.”

Mr McCaughran relies on these statements as demonstrating that the assignee can recover what the assignor would have been able to recover. There is no suggestion here, he says, that accrued and calculable damages (the £22,000 sum) were recoverable while the other damages (which had not been quantified by the date of the assignment – the £236,000 figure) were not. They were both measures of the loss sustained by the assignor, and as such could be recovered by the assignee. I agree that that is what that passage seems to show.

As I have observed above, these passages were referred to with approval by the Court of Appeal in Offer-Hoar. In that case a negligent site survey had been obtained by a person who ultimately sold the land. The site survey was passed on to a purchaser, and after the purchase there was a landslip which caused loss. The site survey was said to be negligent. The land had been sold with the benefit of all consents and all soil investigations. The purchaser relied on the survey. After the landslip the purchaser began proceedings for damages against the provider of the survey, and subsequent to that the original vendor assigned its rights under the soil inspection report to the purchaser. The defendant argued that the purchaser, as assignee, did not have a claim for the loss arising out of the landslip because the vendor would not have had such a claim. As at the date of the assignment no loss had occurred, so the vendor had no more than a claim for nominal damages. The assignee could not claim more than the vendor could have claimed, and so the assignee, too, was confined to nominal damages.

The Court of Appeal rejected this argument.

“41.

As I see it, that is not the true legal position. What was assigned by Starglade to Larkstore was a cause of action for breach of contract against Technotrade and legal remedies for it. It was not an assignment of “a loss” as Mr Freedman described it in his attempt to persuade the court that the amount of loss recoverable by Larkstore was limited to what loss had been suffered by Starglade, in this case nil. The assignment included the remedy in damages for the cause of action. The remedy in damages for breach of contract is not, in principle, limited to the loss suffered as at the date of the accrual of the cause of action or as at any particular point of time thereafter.

The principle invoked by Technotrade that the assignee cannot recover more than the assignor does not assist it on the facts of this case. The purpose of the principle is to protect the contract-breaker/debtor from being prejudiced by the assignment in having, for example, to pay damages to the assignee which he would not have had to pay to the assignor, had the assignment never taken place. The principle is not intended to enable the contract-breaker/debtor to rely on the fact of the assignment in order to escape all legal liability for breach of contract.

44…[if the defendant were right] by a legal conjuring trick worthy of Houdini the assignment would free Technotrade from the fetters of contractual liability. The position would be that the contract-breaker would be liable to no-one for the substantial loss suffered in consequence of the breach. As a matter of legal principle and good sense, this cannot possibly be the law, and fortunately the authorities cited in argument and discussed below do not compel the court to reach such a result.

…

46.

In my judgement, these arguments amount to no more than an ingenious attempt to deny what has been correctly conceded, namely that the report and the causes of action in respect of it were assignable by Starglade.”

Mummery LJ went on to consider various cases, including GUS and Linden Gardens. He approved the judgment of Staughton LJ in the latter case and observed:

“54…It completely disposes of the argument raised in the defence of Technotrade that Larkstore is not entitled to claim substantial damages from Technotrade, because its assignor, Starglade, had suffered no loss, having parted with the site before the landslip occurred and before the assignment of its cause of action to Larkstore.”

Rix LJ referred to various cases and observed:

“67.

The authorities in this area demonstrate the courts’ striving to ensure that wrongdoers do not escape from their liabilities, by reference to the general principle that a person can only recover for his own loss, because of the happenstance that a cause of action lies in the hands of someone other than the person who has suffered the loss. The courts are concerned to see that justice is done between the parties. The general problem has arisen in a number of different ways.”

He then referred to GUS and observed:

“70.

That was a comparatively simple case because, upon proper analysis, cause of action and loss had both been suffered by the assignor, prior to the assignment. It demonstrates, however, the defendant’s intent to manipulate legal principles to split cause of action and loss between assignor and assignee. The House of Lords would have none of it.”

Having then considered Linden Gardens he commented on the difference between the case before him and the preceding cases:

“77.

… in those cases the damage caused by the breaches of contract or negligence had already occurred by the time of the assignments, albeit it had not been experienced as a financial loss until quantified by remedial works instituted by the assignees, and the assignees' loss of rent, in the present case, although the breach of contract had already occurred before the assignment, the loss arising from the breach had not been caused until the development work was actually undertaken, by which time the development had been sold to Larkstore and the loss had not been experienced, even in an unquantified form, by the assignor Starglade. However, for the reasons given by Mummery LJ, I agree that this difference is not crucial. Damage arising from a breach of contract is often slow in materialising. The delay in this case may give rise hereafter to arguments about causation or remoteness: I say nothing about those problems. However, it was Starglade who had experienced the breach of contract and owned the cause of action, and, subject to issues of causation and remoteness, it would have been Starglade who, subject to such issues, would have been entitled to have recovered for the financial consequences of that breach if it had not sold the development to Larkstore.

78.

Thus the fact that the damages had only been nominal at the time of the sale of the property, or that the substantial loss only occurred after the sale, or that Larkstore suffered that loss before it had acquired, under the assignment, the right of action to go along with the loss, do not in my judgment prevent recovery by Larkstore … However, to hold that Larkstore's claim as assignee of Starglade's cause of action for breach of contract against Technotrade simply failed in limine would be to consign it to that black hole about which Lord Keith was concerned in the GUS Property Management Ltd case and which has been repeatedly alluded to in successive cases which have raised analogous problems.

….

84 While McAlpine [2001] 1 AC 518 and the cases which have followed do not directly apply to the present case, as was common ground before the judge, since here there is no question of Starglade claiming in respect of Larkstore's loss, nevertheless they illustrate the possibilities that, in order to prevent the loss caused by a defendant's breach disappearing into the proverbial black hole, the courts are nowadays willing to go far to create a working, and developing, analysis which will accommodate a claim for substantial damages. Those cases also demonstrate, in my judgment, that if substantial damages may be claimed by the assignor in such circumstances, then there can be no objection to a claim brought by an assignee of a valid assignment, in whom both cause of action and loss unite in the same party.

85 Underlying all these cases can be heard the drumbeat of a constant theme, which could possibly be described as ubi ius ibi remedium, the maxim that where there is a right there is a remedy; but it could also be said that the courts are anxious to see, if possible, that where a real loss has been caused by a real breach of contract, then there should if at all possible be a real remedy which directs recovery from the defendant towards the party which has suffered the loss. In the case of property development, where it is readily contemplated that a party which prepares the development will transfer the fruits of his work to one or more partners or successors, there is a particular need for some such solution.”

These extensive citations demonstrate the following:

I agree with Mr McCaughran that the application of those cases and what can be extracted from them demonstrates that, subject to Mr Salzedo’s attempt to distinguish or limit them, the loss which Pegasus could have claimed immediately before the transfer of the property did not disappear on, and as a result of, the transfer. However, Mr Salzedo did indeed seek to distinguish those cases on the basis of principle.

Mr Salzedo’s first appeal was to the principle that the damages have to be assessed in what he called the real world. He relied on the dicta appearing in Kennedy v van Emden (1997) 74 P&CR 19:

“The overriding rule governing the awards of damages is that the party who has been injured should be awarded by the court a sum of money which, insofar as money can do this, will, when it is paid, fairly compensate him for the wrong which the defendant has inflicted upon him. That will often involve looking at what happened or might have happened shortly after the defendant’s breach of duty, what has happened between breach and trial, and what is likely to happen in the future…The court, when making its award, will look at all factors known to it at the time of the judgment.

In the present cases all the relevant facts were known by the date of the trial. By contrast, in many cases judgment will be before the wrongful act ceases to have a deleterious effect on the plaintiff. In those cases, the court has to look into the future and award a figure which includes the value as at the time of judgment of best estimates of future loss or damage…Even in such cases, no-one suggests that the court should add to the uncertainties by putting itself notionally into the position it would have been in had it tried the case the day after the wrongful act started to inflict damage.

“…

In the circumstances of the present cases, the task of the judge on the date of judgment was to award to each plaintiff the sum of money which would on that date put him as near as a money award could do so into the position he would have been in on that date had there been no negligence on the part of the solicitor.” (page 28-9).

This meant, he said, that one looked at Pegasus’s position at the date of the trial and when looked at that it was plain that, without the property, it will have suffered no loss. This is, I fear, an example of the application of logic to an unjustifiable end. It all depends on what the law views as loss, and the correct comparison. I do not consider that the courts would have expressed themselves in the manner which they did in the trio of cases cited by Mr McCaughran if this logic was as rigorously applied as Mr Salzedo requires. What that case is in fact doing is dealing with the question of how one deals with facts which are capable of affecting loss and which occur after the breach. It is not going further and imposing some sort of test which deals with transfers of property, and assignments of causes of action, and thereby overriding the points emerging from the three principal cases.

Next Mr Salzedo relied on Burdis v Livesey [2003] QB 36. Mr Salzedo said that this demonstrated an important distinction between loss which can be seen to have accrued immediately and loss which would be suffered subsequently.

“87.

The distinction between an immediate and direct loss on the one hand and a potential future loss on the other is of importance for present purposes because it leads to different treatment of benefits derived from a third party after the commission of the tort. In every case a claimant’s recoverable loss is limited to the loss which he has actually suffered – damages in the tort of negligence are, after all, ‘purely compensatory’… - but the process of determining, in the light of subsequent events, what loss the claimant has actually suffered differs according to whether the loss was suffered when the tort was committed (direct loss) or whether it was suffered subsequently (consequential loss)…

In the case of potential future losses, on the other hand, the general rule is that to the extent that such a loss is in fact avoided, for whatever reason, it is a loss which is never suffered and which is accordingly irrecoverable for that reason.” (per Aldous LJ)

Mr Salzedo says that the diminution in the value of the shares depends ultimately on how CGT ultimately falls, which will not be known for some time. In those circumstances the loss falls into the category of subsequent loss which falls to be determined in the light of events post-dating the breach. On the reasoning previously advanced, since Pegasus has parted with the assets, it no longer suffers loss because it does not own devalued assets. Mr Salzedo also relied on Golden Straits Corporation v Nippon Yusen Kubishika Kaisha [2007] 2AC 353 as demonstrating the importance of assessing loss as at the date of the trial. To compensate Pegasus now, despite its having parted with the assets, would be to overcompensate it and as at the date of the trial, and in the light of intervening events, would leave it in a better position than it would have been in but for the breach of duty. Had there been no breach of duty, it would have parted with the assets and had no money. If it receives compensation for loss in value of the assets it will have parted with the shares and will still have money. That, therefore, was an overcompensation. Mr Salzedo criticises the Master’s reasoning (that the gift is res inter alios acta) as being an abdication of responsibility for deciding the correct date. It expresses a conclusion without any intervening reasoning.

Mr Salzedo seeks to tie this in with the three cases relied on by Mr McCaughran. He points out that they all involved damage to real property, and that the damage can be viewed as falling within the first category of damage referred to in Burdis. Thus the damage to the property had occurred, and was suable for in a quantifiable sum, as at the date of the transfer of the property. He accepts that such loss has already accrued and can still be sued for by the transferor (and by the assignee after the assignment of the cause of action). Linden Gardens was also a case where the damage had already occurred to the building - the asbestos was left in it. All that was left was the quantification of that already accrued loss. Damage to a building is a direct loss.Contrast the loss in the present case, which he says is indirect loss which is not yet quantified or quantifiable - it might never be suffered if future tax planning manages to remove it. Offer-Hoar was a case in which the transferor of the property, exceptionally, was allowed to recover the transferees’ loss, like Linden Gardens in the House of Lords, and so does not assist Mr McCaughran, or at least that is said to be the basis of Rix LJ’s decision. That is not the present case, where it is the transferor’s loss which is sought to be recovered.

Mr Salzedo goes on to say that this case falls within the general rule that denies a party the right to recover a loss if a third party makes good the loss, which rule he says is made out by the authorities. The transfer of the property was analogous to the act of the third party. No exception to that rule applied. Therefore the loss became irrecoverable when the assets were disposed of because it ceased to exist.

In my view all these points fail. His main point, based on Burdis, does not reflect what the statements in Burdis are all about. They are statements about what one takes into account in assessing damages at the trial. If events show that the loss has not in fact eventuated, then the court holds that there is none. It does not deal with which events do and do not lead to the conclusion that the loss has been avoided or removed. It does not, for example, mean that an insurance payment means that loss is not established at the trial, because it is well established that such moneys do not lead to the conclusion that loss has not been suffered. So it leaves intact the point in the present case which is whether or not the disposal of the assets, and the loss of all interest in them, means that the loss which has to be taken as having been sustained immediately before the disposal should in fact be taken as having ceased to exist.

That latter question is answered in the cases referred to. Mr Salzedo’s attempts to distinguish them do not work. It is true that in GUS the damage was to land, and immediately sustained, and there does not seem to have been a question-mark as to whether and to what degree there would be loss post-breach of duty. However, those seem to be immaterial distinctions. The subject matter of the wrong (land) cannot by itself alter the principles which apply to determining whether loss still exists. The answer ought to be same whether the property is land, chattels, shares or anything else. Nor does it seem to me that the distinction between direct loss and subsequent, or consequential, loss should affect answer to the question. In each case the owner has property which has been damaged. In each case the property is then disposed of. He suffered loss in each case. The full extent of loss in the latter case cannot be ascertained, but there is loss, and that loss is no more removed by the disposal than is the direct, readily ascertainable, loss. The “black hole” avoidance analysis is equally applicable to both sorts of loss, and it is plain to me that Lord Keith would have applied it to both if he had been called upon to decide the point. Nor is there any suggestion in Linden that the two sorts of losses should be treated differently. As to Offer-Hoar, it is a misreading of Rix LJ’s judgment to say that he treated it as the exceptional case relied on. In paragraph 84 he actually distinguishes such cases, and says:

“ … there is no question of Starglade [the assignor] claiming in respect of Larkstore’s [the assignee’s] loss …”

Offer-Hoar indicates that the courts will not allow technical arguments to the effect that losses disappear on assignments to triumph, because it would be unjust and contrary to common sense to all them to do so. That applies in the present case.

Mr Salzedo’s last point also fails. There is no reason in legal principle why the law should treat the transfer of affected property as the same as the loss being removed by a third party. The situations are not analogous, and Mr McCaughran’s trio of authorities demonstrates that the law does not so treat it.

In the circumstances Mr Salzedo’s attempts to argue that Pegasus’s principal loss has gone all fail. I would observe that in any event, even if he were right, the professional fees would still be a loss which has accrued and which would not be covered by his submission, but that does not matter in the light of my main conclusion.

That means that the appeal from the Master should be dismissed and the amendment to substitute IHUK should be allowed. No other reason for challenging it has been advanced. On the basis of the approach adopted by Mr Salzedo, it also means that the point that I have decided above effectively binds the parties at the trial. Mr Salzedo accepted that no other facts would emerge at the trial which would affect the debate, and effectively invited me to decide the point, win or lose. If Mr McCaughran’s clients had lost, the point would have been decided finally against him. Mr Salzedo accepts that the point having gone the other way, it must now bind him. The point has effectively been argued as a preliminary issue. No doubt the effect of that can be encapsulated in an appropriately worded order.