Berntsen & Anor v Tait & Anor

The application which is before me is made by an application notice dated 17th February 2014. It is an application by the Respondents, Mr Tait and Ms Rayment. By that application the Respondents seek various orders from the court. The first order is that the Applicants’ proceedings be struck out, in whole or in part, or, in the alternative, that summary judgment be given for the Respondents. Consistently with that order, the court is then asked to order that the Applicants’ claim be dismissed.

In the alternative, there is a further application for an order that the Applicants’ claim be summarily dismissed and certain draft pleadings be struck out, in so far as they comprise (a) claims which have already been dismissed and/or claims that the Hotel was sold at an under value and/or an application for an examination of conduct under paragraph 75 of Schedule B1 of the Insolvency Act 1986 on the basis that those claims have no real prospect of success and/or the Members have been in breach of the orders and rules of the court and/or the claims constitute an abuse of process.

Coniston Hotel (Kent) LLP is a limited liability partnership, which is now in liquidation. It had two Members, the Applicants in these proceedings, Mr Berntsen and Mr Richardson. The LLP owned an Hotel, the Coniston Hotel, in Sittingbourne, Kent. Over a period of years, the LLP had carried out works of refurbishment to that Hotel. By early June 2010, the works to the Hotel were nearing completion, but they were not complete and the Hotel was not open for business. The LLP needed to obtain further funds to enable it to complete the works to the Hotel and to open for business. The source of these funds was suggested to be LLP's Bank, National Westminster Bank PLC. The LLP had already borrowed substantial funds from that Bank. By early June 2010, the Bank's position was that it was not prepared to advance further funds or, at any rate, was not prepared to advance further funds without personal guarantees from one or both Members and these the Members were not prepared to give.

On 22nd June 2010, the Members caused the LLP to be placed in administration by an out-of-court appointment. The Respondents to the present proceedings, Mr Tait and Ms Rayment, two insolvency practitioners from BDO, were appointed as Administrators. The business of the LLP was not rescued in the course of the administration. The Administrators took steps to sell the LLP's principal asset, the Hotel in Sittingbourne, Kent. In due course, the Hotel was sold. It was sold to West Register Limited, which is an associated company of the Bank.

These proceedings have had a long, it might be said too long, procedural history. I am going to draw on the judgment of Norris J given in this case on 1st February 2013 for some, at least, of the procedural history, certainly the procedural history up to the date of that judgment.

At paragraph 27, Norris J explained that, on 1st August 2011, the Members, acting in person, commenced insolvency proceedings against the Joint Administrators seeking an order that they should forthwith cease to act as Joint Administrators of the LLP, that the administration be "discharged" and that the costs of the administration should be borne by the Joint Administrators personally. Norris J commented that the evidence in support of that application accused Mr Tait, in particular, of helping the Bank to achieve a hidden policy of acquiring the Hotel, of deliberately misconstruing figures, of making fraudulent misrepresentations, and of participating in wrongdoing by facilitating the Bank in disposing of the Hotel.

Norris J went on, at paragraph 28 of his judgment, to recount that the Administrators caused the LLP to petition the court to wind up the LLP on various grounds. One of the grounds was that the objectives of the administration - that is achieving a better result for the creditors as a whole than would have been likely if there had been an immediate winding up; and realising property in order to make a distribution to secured creditors - had been achieved; and, secondly, that the LLP was insolvent and unable to pay its debts as and when they fell due.

Vos J made a winding-up order in respect of the LLP on 12th December 2011. Vos J was then asked to deal with the position under the present proceedings, which had, of course, been commenced prior to the winding-up order. Vos J discharged the Joint Administrators from certain heads of the liability, but he carved out of the discharge a provision that the discharge did not operate in respect of this present application.

At paragraph 56 of his judgment, Norris J recorded that, on 4th July 2012, the Administrators applied to have the proceedings summarily dismissed, either by striking out the application and the supporting pleadings or by entering summary judgment in favour of the Joint Administrators, on the grounds that, on the evidence, the Members had no real prospect of succeeding on the claim.

Before Norris J went on to deal with the matters argued before him, he said the following at paragraphs 57 and 58, which remarks are of some significance in view of the later course taken in these proceedings. I quote from his judgment.

Norris J then addressed the case as it appeared at that stage on the pleadings, which had been served up to that point. The learned Judge went a very long way with the Administrators' application, both as regards the interpretation of paragraphs 74 and 75 of Schedule B1 to the 1986 Act and as regards the requirements for a properly pleaded case under those paragraphs. At paragraph 61 of his judgment, he accepted the submission that the Members' pleadings up to that point were not adequate, but he held that it would be disproportionate or unjust to strike out or dismiss the entire claim "if by pruning and definition the Members' case can be put in a form that the Joint Administrators can address".

At paragraph 65 of his judgment, Norris J distinguished, giving detailed reasons for this distinction, between allegations of wrongdoing by Mr Tait and Ms Rayment, as insolvency practitioners and advisors, prior to the commencement of the administration, and a claim that Mr Tait and Ms Rayment, as Administrators, on and following appointment, had been guilty of misfeasance or wrongdoing of some relevant kind. So far as the period prior to the commencement of administration is concerned, Norris J pointed out in detail, which I will not at present repeat, in paragraph 65 of his judgment, why it was that it was not appropriate, either in the present proceedings, or, possibly, at all, for the Members to bring a claim based upon alleged wrongdoing or negligence prior to the commencement of the administration.

In paragraph 65(a), on the other hand, the learned Judge identified the kind of complaint relating to the period on and after the commencement of administration, which could be brought within the relevant paragraphs of Schedule B1 to the 1986 Act. The Judge did what he could to summarise the case, which he was able to find here and there in the pleadings and in the witness statements, which could come within those paragraphs of Schedule B1. Having made those distinctions, at paragraph 66 of his judgment, he held that the present proceedings should be confined to the Members' claims as creditors or Members under paragraphs 74 and 75 of Schedule B1; that is to say, as he had explained, in relation to matters on and after the commencement of the administration.

Norris J made a detailed order on 1st February 2013. By his order he struck out complaints made by the Members in relation to alleged wrongful acts or omissions prior to the date of their appointment as Administrators. He also made an order that all allegations made by the Members in their Statements of Case of fraud by the former Administrators be struck out. As he had explained in his judgment, that, in fact, involved a very substantial part of the witness statements, which had been served by the Members. In paragraph 3 of his order, Norris J directed the Members to amend their Points of Claim and the order spelt out, in really quite considerable detail, the matters which had to be pleaded if the case was to go forward. At paragraph 9 of his order, he directed that the matter be listed for a case management conference at a future date and, at paragraph 10, he ordered the Members to pay the Former Administrators 85 per cent of their costs of and occasioned by the application with which he had dealt.

The matter took its course and eventually it came before Arnold J, on 14th June 2013, for a case management conference. At the case management conference, Arnold J raised the point that in an amended pleading served by the Members there was an allegation of dishonesty. He raised with counsel, Mr Miah, acting for the Members, the basis on which that allegation was put forward. I have a transcript of the hearing before Arnold J on 14th June 2013. Arnold J said this:

Arnold J made an order on 14th June 2013, following the case management conference. At paragraph of his order, he ordered that the reference to honesty or dishonesty in various pleadings be struck out. He also ordered disclosure and inspection and service of witness statements. He said there should be a further case management conference on dates which he specified in January 2014. He also ordered, at paragraph 6, that any application, including any application by the Respondents to strike out and/or seek summary judgment in respect of the Applicants' claim, should be issued and served in good time before the case management conference.

I refer to that fact because it was submitted repeatedly at the various hearings which have taken place before me that Norris J had held, finally, and in a binding way, that this case is fit for a trial and that the court should not entertain further applications to strike out the claim or give summary judgment. It is clear to me from Arnold J's order of 14th June 2013 that that was not the view taken by that Judge at the case management conference. Further, it is not the view that I have formed at any of the hearings before me. Norris J was dealing with the matter at a comparatively early stage, in that he directed that there be a detailed pleading meeting certain standards following the hearing before him. He did not intend to, and did not, rule out the possibility that there would be objection taken to those pleadings served by the Members, either on the ground that they disclosed no reasonable cause of action or that they in some other way should not survive and should not lead to a trial on any allegation whatsoever which the Members, rightly or wrongly, chose to put forward.

The matter came before me on a case management conference as directed by Arnold J, as I have described. In advance of that case management conference, the Respondents issued an application notice dated 6th January 2014 and in that application notice they sought an order that the Applicants be prohibited from making or relying upon any allegation that is inconsistent with matters which have already been conclusively determined in these proceedings and other proceedings and/or that such parts of their claim be struck out and/or that such parts of their claim be summarily dismissed, and grounds were given for that application. As will be seen from what happened at the hearing of that application on 30th January 2014, that application was considered to be dealing with an allegation made by the Members that the Administrators were guilty of wrongdoing in that they had not rescued the business of the LLP. It was said that they could have and should have rescued the business of the LLP by borrowing the necessary funds from the Bank, which was contractually obliged to continue funding. It was said that that case could not survive the fact that a claim against the Bank brought by the Members had been summarily dismissed in the Queen's Bench Division.

Following the hearing on 30th January 2014, I gave a judgment, a transcript of which is available. I set out the history of the matter up to that date. I tried to describe the claim as having three parts. I based that upon how the matter was put by Mr Miah, of counsel, who then appeared on behalf of the Members. The first part of the claim related to the allegation that the Administrators had failed to rescue the LLP. The second part of the claim was called the "Undervalue Claim" and that involved an allegation that the Hotel in 2010 and 2011 was worth in excess of £7 million and had been sold for £4.25 million, which was an undervalue. I discussed the Undervalue Claim and my reaction to the pleading between paragraphs 17 and 20 of the judgment, which I gave on 30th January 2014. I will not repeat what I said then. It should be taken as read. Anyone who needs to follow the reasons I give today will have available the judgment I gave on the earlier occasion. It is not necessary to say it a second time.

What I ended up doing in relation to the Undervalue Claim is described at paragraph 25 of the judgment I then gave. I described the pleading in relation to the Undervalue Claim as wholly unsatisfactory. I indicated that there was a case for striking out that pleading without more ado. I then noted that counsel acting for the Administrators had not pressed the court to strike out the claim that there was a sale at an undervalue, but was prepared to permit the court or encourage the court, indeed, to give the Members a further opportunity to put forward a draft pleading which showed an arguable case that there had been a sale at an undervalue.

Finally, in that judgment, I identified a third way in which the case was put. That related to the costs involved in the administration. The Administrators, I understood, had been paid fees, perhaps, as much as £130,000. The Members were critical of the way that the Administrators had conducted the administration and they would say that their conduct was so bad that they should not be paid for the work they did and the £130,000 should be returned to the LLP for distribution to whoever was entitled to receive it, whether secured creditors, unsecured creditors or Members.

Following the hearing on 30th January 2014, I made a detailed order. I gave summary judgment for the Administrators in relation to the allegation that they could have and should have rescued the LLP. I then dealt with the state of the pleadings and I directed the service of a draft pleading which faithfully followed through the decision that the Rescue Claim had been dismissed and then - and I quote from the order - "Properly plead and particularise the Applicants' claim (if and in so far as it is to be pursued) that the Respondent sold the LLP's Hotel development ('the Hotel') at an undervalue". The order went on to identify some fairly obvious things that such a pleading ought to identify. The matter was then adjourned to a further case management conference, expected to be in February 2014.

The matter did come back before me on 19th February 2014. Just before that hearing, the Administrators served the application of 17th February 2014, which remains to be dealt with and which I am dealing with in this present judgment.

At the hearing on 19th February 2014, I gave a judgment and a transcript of that judgment is available. Again, I will not read out substantial parts of the judgment. The judgment will be available to anyone who wishes to follow the reasoning in today's judgment. However, I do need to summarise the position that was reached in the judgment given on 19th February 2014. I referred to the earlier order of 30th January 2014 dealing with a possible pleading of a claim to an undervalue. I recorded some of the things that I had said on the earlier occasion. I referred to the fact that the Members had, indeed, served a revised pleading prior to the hearing on 19th February 2014. I said at paragraph 17 that the revised pleading did not comply with the order made on 30th January. It did not identify the steps taken or the omission to take steps, which caused the Hotel to be sold at a price less than the market value. I then commented on the suggestion that the Administrators had "relied on" an earlier valuation. I said in paragraph 18 of the judgment that the argument for dismissing the Undervalue Claim became "very powerful indeed". I then summarised what Mr Miah, of counsel, had said to me at the hearing as to what the Members really wanted to plead about the wrongdoing in relation to the sale of the Hotel. That is summarised in paragraph 18 of the judgment. The Members have now carried forward those allegations into a pleading, so I need not repeat how Mr Miah put it on that occasion. I did say in paragraph 19 of my earlier judgment that one possible reaction was that the allegation had no basis in reality and that I had not been shown anything which could support that allegation. I stated that, in advance of hearing argument as to whether that case should be allowed to go to trial, I found it inherently improbable that something of that kind had incurred. I described the strategy of pleading such a claim as "high risk". Nonetheless, I did permit the Members to put forward such a case if having taken advice from counsel they were advised that the case could properly be put forward. In a moment I will refer to the order which I made.

I am going to refer later in this judgment to a report, which was written by a Mr Lawrence Tomlinson, who describes himself as an "Entrepreneur in Residence at the Department for Business Innovation and Skills". The heading of the report is "Banks' Lending Practices: Treatment of Businesses in distress". That is a most disturbing report. I have read it thoroughly before giving this judgment, but I refer to it at this point, because it was shown to me in the course of the argument on 19th February 2014. Being a disturbing report, I was disturbed by it. It seemed to me that before I closed the door finally on the Members arguing that there had been serious wrongdoing in relation to the sale of the Hotel, I should give them the opportunity to take proper legal advice, to consider whether such a case could be pleaded and to bring together the supporting material which would show to the court that such a case had some possible basis in reality and was not merely fanciful.

The order I made on 19th February 2014 was that the Members should have an opportunity to serve a further pleading of their case that the Hotel was sold at an undervalue. The order set out in some detail what would have to be pleaded, particularly given that the case, it seemed, would be a case of dishonesty, and serious dishonesty at that, involving a number of participants. I ordered that, unless the Members complied with these requirements as to a proper pleading, then the Undervalue Claim should be struck out without further order. I also directed that the Members must serve evidence dealing with two things: first, to support their proposed pleading of the Undervalue Claim and, secondly, to meet the Administrators' application for a strike out or summary judgment of any such Undervalue Claim.

Since the hearing on 19th February 2014, I have been provided with a draft pleading by the Members, I have also been provided with a sixth witness statement of Mr Richardson, and that is answered by an eighth witness statement of Mr Oulton, who is a solicitor acting for the Administrators.

I have previously in this judgment called this the "Undervalue Claim". However, the claim as now presented in the draft pleading is not an Undervalue Claim of a conventional kind. The Members' criticisms are not about professional negligence by the Administrators or by the valuers whom they instructed or by the agents whom they instructed to sell the Hotel, nor are there criticisms about the mode of sale, nor the handling and outcome of the negotiations for the sale. Instead the Members have pleaded a very different kind of challenge to the sale. They do not seem able to point to anything in the marketing and sale process itself. Therefore, they go prior in time to the marketing and sale process and say that the marketing process was a sham. They do not identify the respects in which it was a sham, but they say it was a sham. They say it was a pretence and they say that it was pursuant to a conspiracy to defraud. The victims of this conspiracy were to be, and turned out to be, the LLP and, therefore, the Members, indirectly. The parties to the conspiracy are not identified by name, but it is clear enough who must have been involved in the conspiracy if there ever were a conspiracy. Several representatives of the Bank were involved, it must be said, the valuer at Knight Frank who valued the Hotel for the purpose of the intended sale, must have been involved, the agents at Knight Frank who handled the sale must have been involved and, of course, the two Administrators, who are now sued, were guilty of not simply incompetence or something of that sort but a deliberate conspiracy to defraud the LLP. What is said is that at a very early point, really from the first time that Mr Tait and Ms Rayment became involved, before they were Administrators, around about 3rd June 2010, they conspired with representatives of the Bank and with representatives of Knight Frank to carry out a fraud. All the conspirators knew, so it is alleged, that the Hotel was worth £7 million. It is quite clear that the Bank's duty and the Administrators' duty would have been to get the open market value for the Hotel and to achieve the market value. However, so it is alleged, the Bank was not prepared to see the Hotel sold for its full value and the debt owed to the Bank paid. What the Bank wanted instead was that the Hotel should be sold at around 50 per cent of its true value and not sold in the open market to a fortunate purchaser, but sold to an associated company of the Bank, West Register Limited. In order to carry this fraud to fruition, it was necessary to have Knight Frank place a value on the Hotel, which was about 50 per cent of what Knight Frank fully appreciated was the true value, about 50 per cent of £7 million. Armed with that fraudulent valuation from Knight Frank, the conspirators would then pretend to market the hotel, there would be a sham marketing process and the Hotel would be sold to the predetermined purchaser, West Register. I suppose one can see what was in it for West Register. They would acquire something at half its true value. It is less obvious what was in it for the Bank, because their debt, which exceeded the sale price that came about, would not be paid in full, but, perhaps, the Bank would be content that its associate had profited in that way. It is difficult to see what Knight Frank's motive for this very serious act of dishonesty and wrongdoing would have been. It is submitted to me that they had motive enough: they wanted to please the Bank. It is also difficult to see what the Administrators' motive would have been for participation in this fraud. This fraud is of the gravest and most serious character. However, it is submitted to me that I should see the force of the point, that the Administrators simply wanted to please the Bank. So that is the case that is now put forward in a draft pleading and which the Members say should go to trial, be examined at a trial and only then can a just result be achieved.

The Administrators say that this allegation is wholly fanciful. They say it is not supported by anything. They say that the Members should not be permitted to file their draft pleading, the claim should be struck out or judgment entered under Part 24 of the Civil Procedure Rules.

Before dealing further with the conspiracy to defraud claim, I need to mention the last claim which is made in the Members' application. As I indicated earlier, when referring to an earlier judgment, the Members are highly critical of the way in which the Administrators conducted the administration. They say that what was done must be examined by the court under paragraph 75 of Schedule B1 to the 1986 Act. What the Administrators say in response is that the Members have not pleaded a cause of action, that they have not pleaded that any breach of duty by the Administrators caused any loss to the LLP and, finally, they say that, as a matter of law, the Members do not have standing to seek this examination under paragraph 75 unless they can show they have a monetary interest in the possible result of such a claim. Having identified those matters in relation to the examination claim, I will postpone further treatment of it until I have dealt with the claim that there was in this case a conspiracy to defraud.

The Administrators ask me not to allow the Members to amend their pleading to plead the alleged conspiracy to defraud. They say that, if the draft pleading does not raise any properly pleadable cause of action, then I ought not to give permission to amend. I agree that, if the draft pleading does not raise a properly pleadable cause of action, then it will not go forward as a pleading of a case to be tried. I am also asked to strike out the undervalue or, as I now call it, conspiracy to defraud claim under Rule 3.4 of the Civil Procedure Rules. Rule 3.4, sub-rule (2) provides that the court may strike out a statement of case if it appears to the court that the statement of case discloses no reasonable grounds for bringing or defending the claim or that the statement of case is an abuse of the court's process or is otherwise likely to obstruct the just disposal of the proceedings or that there has been a failure to comply with a rule, practice direction or court order. I am also asked to enter judgment for the Administrators under Part 24 of the Civil Procedure Rules. Rule 24.2 provides that the court may give summary judgment against, among others, a claimant on the whole of the claim or on a particular issue if the court considers that the claimant has no real prospect of succeeding on the claim or issue and there is no other compelling reason why the case or issue should be disposed of at a trial.

The court's approach to an application for a summary judgment is well known. The principles which apply, particularly in relation to a claim by a defendant or by a respondent, as here, were summarised by Mr Justice Lewison in the case of Easyair Limited -v- Opal Telecom Limited [2009] EWHC 339 (Ch) at paragraph 15. The passage reads:

I also take the view that it is a strong thing for a judge to strike out a case or give summary judgment, particularly in a case where there is an allegation of serious wrongdoing. Conversely, it would be wrong to allow such an allegation to go forward to a trial when there is no proper basis for it. Although the case was not cited to me, I think that I ought to take note of what was said by Lord Hope of Craighead in Three Rivers District Council -v- The Bank of England No. 3 [2003] 2 AC 1. The passages in the judgment of Lord Hope on which I particularly rely are paragraphs 94 and 95 and paragraph 106. I will not read those reasonably long passages into this judgment, but the warnings given by Lord Hope about judges being over confident that they know the rights and wrongs of the case I take fully into account. However, it remains the case that, when it is clear that the case is fanciful, when it is clear that there is no real prospect of success, then it is the responsibility of the judge to prevent the case going forward, subjecting the opposite party to costs, possibly unrecoverable costs, and taking up time with a trial that should never have happened at all.

In the course of dealing with the legal principles, I do need to, in view of certain remarks I will make, deal with the Rules of Professional Conduct, which apply to legal representatives pleading allegations of dishonesty or fraud or similar allegations.

I was taken to the Code of Conduct for the Bar, in particular Rule C9. In conducting litigation, in particular, counsel must "act with honesty and integrity". That obligation includes, amongst many other things, the following: that any allegation of fraud must not be pleaded unless counsel has clear instructions to allege fraud and has reasonably credible material which establishes an arguable case of fraud. The current Code of Conduct reflects the approach of the House of Lords in Medcalf -v- Mardell and others [2003] 1 AC 120. That decision considered in detail an earlier formulation in the Code of Conduct. At the time of the case the Code of Conduct had a relevant passage, paragraph 606, which referred to counsel not making an allegation of fraud unless he has clear instructions to make it and has before him reasonably credible material, which, as it stands, establishes a prima facie case of fraud. The reference to a "prima facie case of fraud" has now been altered to be "an arguable case of fraud". At paragraph 22 in his judgment, Lord Bingham of Cornhill said something which I will read out because of its importance in the present case. He said this:

With that long introduction, I can now go to the factual matters, which are material to the outcome of the present application. As it happens, the facts are not particularly complex or lengthy, nor are they, as it happens, open to very much objective dispute. The Administrators were appointed by the LLP on 22nd June 2010. Before the appointment, the persons who became the Administrators had been in contact with the Bank. The difficulty for the LLP was funding and the suggested funder was the Bank. There was nothing in itself inappropriate in the Administrators speaking to the Bank. I use the phrase "speaking to the Bank" based upon a statement in Mr Richardson's own witness statement. The Administrators, therefore, were aware that before their appointment the Bank had instructed Knight Frank to value the Hotel. The instructions to Knight Frank appear to have been sent to Mr Ian Elliott of that firm on 8th June 2010. It seems that the fee payable to Knight Frank was going to be paid by the Bank, although I was asked to accept - and I think it likely - that the fee would be added to the indebtedness due from the LLP to the Bank. The Bank told Mr Elliott that they were interested in four (what they called) "key numbers" and the reference to "market value" in certain circumstances. The circumstances depended on the length of time to sell the property and also depended on whether the property was sold as it was or whether it was sold following an opening for business.

Disclosure has provided the Members with a note made by a colleague of the present Respondents on 17th June 2010. There was said to be a conference call and various persons were able to participate in the conference call. The principal material communicated was from Mr Elliott of Knight Frank. I will not read out what he said, but he made a number of not very encouraging comments about the sale of the Hotel in the then current market.

Knight Frank, through Mr Elliott, in due course prepared a full valuation report. That valuation report is available in the papers before the court. It is marked "draft", although it can be seen from other documents emanating from Knight Frank that this appeared to be Mr Elliott's view. The report runs to 54 pages and then a number of appendices. It is not necessary to look at the detail of the report. As I indicated earlier, this is not one of those cases where there is an allegation of professional negligence in relation to carrying out a valuation. What is being said is that Mr Elliott, when he prepared this report, said things which he knew to be untrue, he placed a value on the Hotel of something less than 50 per cent, or something slightly above 50 per cent, of what he and everyone knew was the true value of the Hotel. I will not read out all of the opinions expressed by Mr Elliott, suffice to say that, in the Executive Summary part of the report, he identifies values on various bases. I think that the lowest figure is £2.5 million and the highest figure is £5.5 million, but there is considerable discussion of other figures on other assumed bases in between those polar positions. The valuation is dated June 2010. The valuation date is given as 15th June 2010. It is not completely clear when this was made available, but, at any rate, other matters took place and the dates of those other matters are clear.

On the same day as the Administrators were appointed, 22nd June 2010, Mr Tait wrote to Mr Elliott. He recorded that he and Ms Rayment were Administrators for the LLP and that they wished to have Mr Elliott's recommendations on the strategy for marketing the Hotel on an immediate as is basis and also if the Hotel was complete so that it was able to open for business. Other matters were sought as to the subject matter of the advice and Mr Elliott was asked, indeed required, to give his advice promptly by 24th June 2010.

The next day Mr Tait sent an email to an agent at Knight Frank, Andrew Theobald, and Mr Tait asked Mr Theobald to give advice as to how the Hotel should be marketed and sold. On the following day, 24th June 2010, Mr Tait sent very similar instructions to another firm of agents, Edwards Symmons, seeking advice on the marketing strategy for the Hotel before and after completion. It seems from what ensued that Mr Tait must also have asked a third firm, Christie and Co, because they did make a marketing proposal to which I will refer in a moment.

On 30th June, Andrew Theobald MRICS and Henry Jackson MRICS, of Knight Frank, reported to the Administrators as they had been asked to do. The report is detailed and it sets out detailed reasoning for the strategy recommended. One of the things the agents had to do was to settle on appropriate pricing for the Hotel and the agents identified four guide prices, having regard to different circumstances in which the Hotel was brought to the market. The lowest guide price is £3.5 million, the highest guide price is £3.95 million. Edward Symmons, as I have said, were also asked to prepare a marketing report. They did so on 30th June 2010. Again, they gave detailed reasons for their assessment of market forces and the attractiveness of the Hotel. They also identified guide prices. They were "offers in excess of" figures and the figures were from £3.25 to £4 million. Edward Symmons identified what they anticipated would be the realisation and the lowest realisation was £3.5 million and the highest was £4 million. It is not said that Edwards Symmons were a party to the conspiracy to engage in a sham marketing process. Christie and Co also prepared a marketing proposal dated 30th June 2010. Again, they set out in detail their assessment of the market and of the attractiveness of the Hotel. They dealt with their recommendations as to pricing. They said that the pricing was absolutely critical when dealing with assets in turnaround or recovery situations. If the pricing were too high, insufficient interest would be generated to create competitive tension between buyers in order to drive up the price through the bidding process. They recommended an asking price of offers in excess of £3 million for the freehold property as it stood. It is not suggested that Christie and Co were party to the conspiracy to defraud by carrying out a sham marketing process.

The Administrators instructed the agents at Knight Frank to market the Hotel. There was detailed marketing and I think that I can take a summary of the situation from Knight Frank's report of 23rd September 2010. Again, I will not read into this judgment the entirety of that report, although the entirety of it is highly material. The agents referred to the preparation of a brochure. They sent the brochure to 460 parties registered with the firm as having a relevant hotel requirement. They followed that up by posting the brochure. They advertised in the Estate's Gazette and they also prepared a website or put the property on their website. There were 51 viewings of the website, ten independent parties were shown around the property over a five-week period and three of those ten went on a second or subsequent occasion to look at the property. The agents then said that very few fresh enquiries were received. The agents began to be concerned that the matter was running into the autumn when the marketing would be less straightforward. A new advertisement was placed in the Caterer andHotel Keeper trade magazine. There were then further proposals from interested parties and, again, concern is expressed about the seasonal changes. Knight Frank prepared a table of interested parties. The highest bid after the parties were put to making best bids came from West Register at £4.25 million. Leaf Hotels' best bid was £3.9 million. There were other bids in the range above £3 million but not above £4 million. So a marketing process that has not been criticised, other than by reference to the allegation that it was all a total sham, threw up those responses from the market. The Administrators wished to see whether they could obtain the same figure, £4.25 million, from a bidder other than West Register. There are emails passing between the Administrators' office and Knight Frank on that question. Andrew Theobald of Knight Frank spoke with Leaf Hotels, but could not persuade Leaf Hotels to improve their offer above £3.9 million. Mr Tait asked Knight Frank for further advice as to whether re-marketing would be appropriate. Mr Theobald gave further advice on 26th January 2011. He said there was no significant further interest, the market had not improved, he did not believe a fresh marketing initiative would yield any offer in excess of the current offer level, he remained of the opinion that the offer from West Register should be regarded as the best offer in the current market, which Knight Frank recommended for acceptance. In due course that offer was accepted and the sale took place to West Register for £4.25 million.

I repeat something that I have said already, that it is not said that there was negligence involved in the advice given or the marketing process or the handling of negotiations. What is said is far, far more serious. It is said that it was all a complete fraud. It is said that the marketing was a sham, but there is no particular given of any respect in which the marketing could have been done differently from the way it was done. I regard the allegation that the marketing was a sham as utterly fanciful. It is an allegation put forward by someone (the Members) who simply refuse to face up to the reality of what has happened here.

Before coming to my conclusion, I need to address what the Members say supports their case that there was a conspiracy to defraud to which a number of professional people were parties. The Members rely heavily on a draft valuation from Savills. There is no doubting the reputation of the firm of Savills. They had prepared a draft valuation dated 10th February 2010. The valuation was prepared by Mr Marsh, who was a director of Savills. Savills had previously valued the Hotel, they had done so in 2006 and 2008. Their report is a short one, although that is not a criticism, certainly not at this stage of the proceedings. They, effectively, explained that they were not setting it all out again, because they had set it out earlier in their reports, as I read it. They considered trading predictions, they thought that the clients' (the LLP) trading predictions were over optimistic, they revised those predictions towards what they would say was greater realism and they expressed some measure of concern as to achievability of their own predictions,. Their report refers to an attached summary of current hotel market conditions, which I have not been able to locate in the bundles. What Savills said was that the freehold interest in the Hotel with vacant possession on completion of the development, including all trade fixtures and fittings, was £7.7 million. That figure plainly is radically different from the advice given by Knight Frank in their valuation report and contrary to the recommendations of the three marketing agents to which I have referred. It has been drawn to my attention that Savills have told solicitors for the Administrators that the Savills valuation "was not finalised". That appears in an email of 9th January 2014. I do not place too much weight on the fact that it was not finalised. It may be that finalising it would have involved adding detail or, perhaps, revising the valuation to a modest extent. The fact remains that Savills put forward that figure in January 2010 and, when the Hotel was marketed later in 2010 and sold in April 2011, the market did not bear out the predictions made by Savills. It must be remembered that a valuation is a prediction of what will happen in a particular market. Comparing a prediction of what will happen in a market with what actually has happened in a market will show that the events in the market are superior to anyone's prediction as to what they might be. I repeat that this Hotel was marketed, it was marketed in a way that the Members have been wholly unable, despite being given ample opportunity over a number of years, to criticise and they have not been able to identify anything defective in the marketing. They content themselves with the firm statement of belief that the marketing was a sham, but that is a statement of belief that I find has no foundation. So I have a prediction as to market forces and I have the operation of market forces. I do not regard the prediction from Savills as undermining the performance of the marketing in this case.

The Members told me, at the hearing on 19th February 2014, that they did not intend to call expert evidence. I do not recall whether they indicated that they would serve a witness summons on Mr Marsh of Savills and ask him to attend. I have been told that Mr Marsh "stands by” his report but he does not wish to get involved. It may, therefore, be the case that Mr Marsh will be subpoenaed if there were to be a trial and would come to court. However, I have not seen any statement as to what Mr Marsh makes of the marketing that happened and the result that was obtained in the market. It is a matter of complete speculation as to what Mr Marsh's views might be on that subject. Although I was told on 19th February 2014 that the Members would not call expert evidence as to the value of the property when it was sold in April 2011, I was told in the course of the hearing yesterday that they have now decided that it would be appropriate to call an expert witness. They have given me a name of an expert, a Mr Hossack, and I have no reason to doubt that Mr Hossack is an able, independent expert, but there has been no indication of what Mr Hossack's views might be. Mr Hossack is not yet able to express a view as to the marketing process and the price achieved in the market. It is a matter of complete speculation what Mr Hossack will say.

In another case where one was proceeding to consider an application for summary judgment, one might say that, well, this all has to wait until we see what happens. However, we are at a late stage in preparation for a trial in this case. The trial has been fixed for a period of five to ten days in June of this year. The Members were given a last chance - it was probably a second or third version of a last chance - to put forward a viable case that the property was sold at an undervalue and it is simply not good enough that they say that they have now changed their mind, they will call an expert, but they cannot produce to the court any statement of opinion from that expert. That is the position as regards rival opinions as to value.

The second thing, which the Members say, is that they rely on the fact of communications between Mr Tait and Ms Rayment and the Bank between 3rd June 2010, when they became involved, and their appointment as Administrators on 22nd June 2010. Indeed, in the course of argument yesterday, Mr Miah really put these communications at the centre of his case. What was submitted was that these communications were wholly improper. It is said that Mr Tait and Ms Rayment fed the Bank information undermining the position of the LLP, explaining the financial difficulties of the LLP; it is said that Mr Tait and Ms Rayment were inherently disloyal and they committed the most flagrant and serious breach of their fiduciary duty in making these communications. I have read the communications more than once. I was taken through them in detail by counsel for the Administrators and then by counsel for the Members. It is not appropriate, in view of the conclusion that I have reached, for me to rehearse each and every part of those communications.

Before coming to my conclusion about these communications, I should say that there is to some extent, although it may be a relatively minor extent, a dispute of fact as to the circumstances in which these communications were made. Ms Rayment, in her witness statement dated 2nd November 2011, in other words a very long time ago in the course of these proceedings, had dealt with the fact that she had communicated matters to the Bank in this period. In paragraph 9 of her witness statement, she referred to a meeting with Mr Richardson on 3rd June. She said that prior to the meeting she spoke to a Mr James Beatton of Vertex Law. Mr Beatton was a solicitor advising the Members on the difficulties in which the LLP found itself. She says that, with James Beatton's consent on behalf of the Members, Ms Rayment contacted Mr Baggley within GRG, a sub-division of the Bank, to see if she could find out any more information, as a result of which she was sent an email on 3rd June 2010. There is no contradictory statement from Mr Beatton, even though that evidence was given in writing in November 2011. Ms Rayment also says in her witness statement at paragraph 14 that in the course of the meeting on 3rd June 2010 she made it clear to Mr Richardson that BDO had a strong relationship with the Bank and that BDO would not want to get into a position of conflict with the Bank in which BDO could not disclose matters to the Bank. She says that Mr Richardson did not have a problem with this and was, in fact, keen that BDO used its relationship to open up lines of communication with the Bank to work out what the Bank's requirements were to try to resolve matters. She says that, having obtained Mr Richardson's agreement to report to the Bank, "I spoke to Mr Baggley in GRG and sent an email of 4th June", which was at the centre of Mr Miah's submissions about breach of fiduciary duty.

As it happens, that statement by Mr Rayment is not altogether denied by Mr Richardson. What he says is "Whilst we gave her authority to speak to the Bank on our behalf, it did not extend to such a horrendous inept and incompetent transfer of information about the confidential discussion we had with her". There is, therefore, a dispute of fact, which cannot be resolved at this hearing, as to what Mr Richardson and Ms Rayment discussed and agreed as to the communication of matters to the Bank. Mr Richardson will continue to say, no doubt, that the communications went far beyond anything that he believed he was permitting and his allegation of serious infidelity remains. However, if that matter of fact were to be investigated at a future hearing, the court would also bear in mind another document which does appear to show the matter in a very different light from that contended for by Mr Richardson. That is that, on 11th June 2010, BDO sent to the Members, on behalf of the LLP, a letter of instruction from the LLP. The BDO letter is really very clear indeed as to the tripartite relationship between BDO, the LLP and the Bank. I refer to paragraph 2.4 and paragraph 7.1. I will not read the entirety although I rely on the entirety. In the first place, BDO said that the primary duty of care would be to the Bank and, at paragraph 7.1, they reserve the right to restrict disclosure of their work to the Bank alone and they were not obliged to consult the partnership before doing so. That letter is signed by both Members of the LLP. Norris J was told that at the time they signed it they were in receipt of legal advice. That is an undeniable acceptance by the Members of a particular role to be performed by BDO. It is not suggested that there was any protest or concern at that role and it gives very considerable support to Ms Rayment's evidence as to what was said on the earlier occasion. However, I draw back from making any finding. It would plainly be wrong to make a finding of fact which is disputed at this hearing. I have instead to decide, not whether BDO, Mr Tait and Ms Rayment acted inappropriately in breach of fiduciary duty, but whether there was a conspiracy to defraud of the character which is alleged. It will be remembered that the alleged conspiracy involved Knight Frank, as well as Mr Tait and Ms Rayment. There is not a scrap of material in the documents relied upon by the Members or anywhere else to provide any basis for an allegation that Knight Frank were guilty of such a serious fraud as is alleged. Further, there is a similar complete lack of material to indicate that Mr Tait and Ms Rayment were guilty of this very serious fraud. The documents which are referred to were not window dressing to be put before the Members. The Members' criticism is that they were never expected to see them, but now they have seen them on disclosure, they are wholly inconsistent with a fraud, they are consistent with the Administrators seeking in due course to obtain market value for the principal asset of the LLP. Given that there is no supporting material for the allegation of fraud and given, further, that the allegation of fraud is high up on the scale of improbability, I have reached the clear conclusion that counsel acting for the Members should never have pleaded the allegation of conspiracy to defraud. Counsel did not have reasonably credible material which established an arguable case of fraud. I have no doubt Mr Miah had his clients’ instructions but his professional duty was to decline to plead the allegation which he did plead, alternatively, to withdraw from the case. I will not permit the Members to amend their pleading to include these improper allegations of fraud.

Turning to Part 24 of the Civil Procedure Rules, in my judgment, there is a complete lack of reality about the allegations of conspiracy to defraud. Apart from these allegations, as has been pointed out on earlier occasions, there is no case of mismanagement of the sale of the Hotel. Accordingly, so far as Part 24 refers to the question of a real prospect of success, I am quite clear in my mind that this case has no prospect of success. Mr Miah, nonetheless, says that the case should go to a public trial; that it would be in the public interest to expose the wrongdoing of the Bank. He draws attention to the Tomlinson report, which I have already described as disturbing. I have already explained that I was sufficiently disturbed by it to give the Members a chance to take legal advice as to whether they had a properly pleadable case of sale at an undervalue. They have not been able to identify a properly pleadable case at an undervalue. Their case is not viable. I do not see how it is in anyone's interest for this non-viable case to go to a trial to shine a spotlight on alleged wrongdoing by banks, generally, or this Bank in particular. First of all, the Bank is not a party to these proceedings; secondly, the Members did sue the Bank but did not allege conspiracy to defraud in the claim that they brought against the Bank. In any event, the present claim has no prospect of success. The court exists to deal with viable claims. It does not exist to conduct a public inquiry when a judge finds that there may be a matter of public interest which might arise in other cases, but not in this case. Accordingly, addressing the other wording of rule 24.2, I do not think that there is any compelling reason why this matter should be disposed of at a trial rather than disposed of today.

Mr Miah submits that there would be no harm to the Administrators in having a trial. He says that, if it turns out there is no case against them, then they will succeed. They will have nothing to lose as their costs will be borne by insurers. At other points in his submissions, he said the opposite, that their costs would not be borne by insurers, because the claim against them was one of fraud and not of professional negligence. I can see no merit whatever in the approach urged by Mr Miah. Someone on the Respondents' side will have to bear the costs of a trial. The costs will be significant. The Members have served evidence to the effect that they will not be able to pay the Respondents' costs. There is, therefore, every reason to avoid a trial of a claim that is simply not viable. I will dismiss the conspiracy to defraud or, alternatively, the undervalue, claim.

I now return to the claim that there should be an examination under paragraph 75 of Schedule B1 of the way in which the Administrators conducted the administration. I have been taken in the course of argument to paragraphs 12 and 15 of the draft amended pleading. Most of the allegations there have now fallen away. The allegation that the Administrators failed to rescue the business has fallen away. It has been dismissed. I will dismiss the other allegations as to undervalue and conspiracy to defraud. But it is said that the Administrators handled the administration badly. It is not, I think, identified in the pleading that any of their mishandling of the administration gave rise to other heads of loss, apart from the failure to rescue and the undervalue claim with which I have dealt. It might be said, I suppose, that the Administrators, if they had handled the matter better, might have generated smaller sums by way of fees. Conversely, if they had handled the matter differently, the fees might have been higher. The examination claim was brought under paragraph 75 of Schedule B1 to the 1986 Act. That paragraph was analysed by Norris J in his judgment to which I have referred. It is accepted before me that his analysis is correct. I accept the submissions made on behalf of the Administrators that for there to be a claim within paragraph 75 there must have been a breach of a relevant duty and it must be shown that the breach has caused loss. The authority for those propositions is the decision of the Court of Appeal in Re Simmon Box (Diamonds) Ltd [2002] BCC 82. I also accept the submission on behalf of the Administrators that in order for the Members in this case to bring the claim, whether in the capacity of Members or as creditors, they must show they have a sufficient interest in the relief which is sought. That proposition is directly supported by the decision of the House of Lords inCavendish Bentinck –v- Thomas Fenn (1887) 7 App Cas 652. I refer to the way that it is put by Lord Herschell at pages 664 and 665, by Lord Watson at pages 666 to 667 and by Lord Macnaghten at page 669. I will read one passage from Lord Watson. He says this:

The relief sought in this case is an order that the Administrators pay a sum of money to the LLP. I suppose it might be said that they should pay back some or all of their fees, some £130,000. The fees would then be available to be distributed, first to the secured creditors. The principal secured and as yet unpaid creditor is the Bank. It is owed in excess of £1 million. Accordingly, any recovery by the LLP under paragraph 75 will be for the exclusive benefit of the secured creditor. Nothing will be paid to unsecured creditors. Nothing will be paid to Members. The Members do not have a pecuniary interest in the relief sought. They do not, in law, have an interest in the relief sought. They may, of course, be very "interested" (using that word in a wider sense) in seeing the Administrators subjected to a trial. That does not give them standing to bring this examination claim. Accordingly, on the grounds that they do not have that standing, I will dismiss the claim under paragraph 75.

Mr Miah suggested that I should not dismiss a claim under paragraph 75, I should allow that claim to go forward and both sides to incur further costs and then at the end of that process, if the court took a very dim view of the Administrators' conduct, it could then withhold from the Administrators some of the costs they had incurred in having that matter investigated. With respect to Mr Miah, that is total nonsense. If they do not have standing to bring the claim, then the claim should not proceed. I see no merit in generating costs in order to decide who will pay the further costs which are generated.

The result is that I will accede to the application which is made. I will dismiss what remains of the claim. It is agreed that all consequential matters will be dealt with at a further hearing.

I do wish to say one thing about the possibility of an appeal. If I am asked to give permission to appeal today, I will deal with the application. If I am not asked, I will not deal with it, but I will not extend time for an appeal. That is not to be difficult to anyone. I do that because the matter has been placed in the trial list for a hearing in June and, if there is to be an appeal, it would be imperative that the appellant got on with the matter so that there is less disruption to the future conduct of this case, if there is to be any future conduct. Furthermore, I am told that the Members are seeking an oral hearing of an application for permission to appeal in relation to an earlier judgment I gave, that hearing is to take place in May, it would be undesirable to have an appeal in May or an application for permission in May and then another application very much later, so I do not extend the time for appealing beyond the ordinary time permitted.