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Parker & Anor v SJ Berwin & Co & Anor

[2008] EWHC 3017 (QB)

Neutral Citation Number: [2008] EWHC 3017 (QB)
Case No: HQ06X01996
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 17/12/2008

Before :

THE HON. MR JUSTICE HAMBLEN

Between :

(1) ROY WILLIAM PARKER

(2) GILBERT KENNETH KINCH

Claimants

- and -

(1) SJ BERWIN & CO

JONATHAN ALEXANDER METLISS

Defendants

Jeremy Stuart-Smith QC and Clive Wolman (instructed by Freeth Cartwright LLP) for the Claimants

Bernard Livesey QC (instructed by Reynolds Porter Chamberlain) for the Defendants

Hearing dates: 1/12/2008 – 3/12/2008

Judgment

MR JUSTICE HAMBLEN :

Introduction

1

The Claimants are businessmen with a love of football and of Leicester City Football Club [“the Club”] in particular. In 2000, after boardroom differences at the Club that had seen them forced to resign as directors at the end of 1999, they determined that they would attempt to take over the PLC that ran the Club. To that end they were introduced to the Second Defendant, Mr Metliss, who was a partner in the well-known London firm of SJ Berwin & Co.

2

The Claimants’ case is that Mr Metliss assured them that he could and would obtain the necessary funding for a bid as well as providing necessary legal work to support it; that he and his firm accepted the Claimants’ retainer; that in the event they took no effective steps to progress the necessary funding or to progress the bid in the period to the end of 2000, and that they did not at any stage advise the Claimants of the lack of progress.

3

By the beginning of December 2000 the Claimants say that they were disillusioned with the service that was being provided. The First Claimant, Mr Parker, ended his participation in the retainer but the second Claimant, persevered with SJ Berwin. At that stage, although the Claimants had been jointly pursuing their intention to make a bid for the Club, no bid had been made. Mr Parker continued the attempt to put together a bid package with the assistance of Linklaters, to be funded by Barclays. He got as far as commencing due diligence; but the bid ran out of time when the Club committed to rebuilding its stadium on financial terms that were unacceptable to Barclays. Mr Kinch, still using SJ Berwin, thought that he had obtained a source of funding from an organization called Tolmie, but when the time came in April 2002 to draw down the funds, it became clear that there were none and that Mr Kinch had been the victim of a fraud. The Tolmie transaction is the subject of a separate action brought by Mr Kinch against The Rosling Partnership, the firm of solicitors who acted for Tolmie on the transaction.

4

The Claimants’ case against the Defendants is that they committed themselves to substantial expenditure with a view to taking over the Club, but that their expenditure was wasted as a consequence of their failure to comply with their obligations.

5

The Claimants also make various claims arising out of Mr Metliss’s involvement in three different disputes involving the press.

6

The present proceedings were issued shortly before the limitation period expired and have proceeded in a dilatory and fragmented fashion, largely due to the failings of the Claimants’ solicitor, Mr Ewin of Freeth Cartwright. In particular:

a.

Proceedings were commenced on 11 July 2006, right at the end of the limitation period, and service of them was then delayed until 9 November 2006, the end of the period for service;

b.

The Claim Form was served on 8th March 2007 – without the Particulars of Claim.

c.

Since then there have been various interlocutory orders made against the Claimants in respect of the clarification and progression of the claim but the upshot is that nearly two and a half years since the issue of the proceedings they are still at the pleadings stage.

7

Mr Ewin has now been replaced by Mr Balen of Freeth Cartwright who states that Freeth Cartwright were subsequently notified that Mr Ewin was receiving medical treatment and has left the firm.

8

This procedural history of the case to date is regrettable and the Defendants pray it in aid in relation to the exercise of the Court’s discretion in respect of the applications presently before the Court. Those applications are as follows:

a.

The Claimants’ application to amend their Particulars of Claim and the Claim Form; and

b.

The Defendants’ application to strike out parts of the Particulars of Claim.

The relevant principles

9

Where an application is made to amend it is necessary for the applicant to demonstrate that it is appropriate for the court to exercise its discretion to permit the amendment.

10

In considering the exercise of its discretion the court should have regard to the overriding objective in CPR 1 and in particular the prejudice that will be caused to the parties (a) if the amendment is allowed and (b) if it is refused.

11

As stated by Peter Gibson LJ in Cobbold v Greenwich LBC in a passage cited in the notes to the Supreme Court Practice at 17.3.5:

“The overriding objective [of the CPR ] is that the court should deal with cases justly. That includes, so far as practicable, ensuring that each case is dealt with not only expeditiously but also fairly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party or parties caused by the amendment can be compensated for in costs, and the public interest in the efficient administration of justice is not significantly harmed.”

12

Provided that there is a statement of truth verifying the amendment it is not a necessary requirement that a factual amendment be supported by evidence, and I reject the Defendants’ contention to the contrary.

13

Where the merits of a proposed amendment are in issue it is necessary to show that it has some prospects of success. This is likely to turn on whether it has a real prospect of success, the same standard as under Part 24 – see the Notes to CPR 17.3 at 17.3.6 and the cases there referred to. If the Court concludes that an amended claim or defence has no real prospect of success no purpose would be served in allowing the amendment to be made.

14

Where the amendment involves the addition of a new cause of action after the expiry of the limitation period the requirements of s. 35 of the Limitation Act and CPR 17.4 must be satisfied and it is necessary to show that the new cause of action arises out of “the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings” (CPR 17.4(2)).

15

Useful guidance as to whether a claim gives rise to a new cause of action and, if so, whether it arises out of the same or substantially the same facts is to be found in the decisions of the Court of Appeal in Smith v Henniker-Major [2003] Ch 182; [2002] EWCA Civ 762 and Blackburne J in Finlan v Eyton Morris Winfield [2007] EWHC 914 (Ch).

16

In the Henniker-Major case Robert Walker LJ explored the meaning of “a new cause of action” and held that “in identifying a new cause of action the bare minimum of essential facts abstracted from the original pleadings is to be compared with the minimum as it would be constituted under the amended pleading” [at para. 96].

17

By contrast, in considering whether the new cause of action arises out of “the same facts or substantially the same factshe held that “the court is concerned on a much less abstract level with all the evidence likely to be adduced at trial: see Goode v Martin [2002] 1WLR 1828 , 1838 approving Hobhouse LJ's observation in Lloyds Bank plc v Rogers The Times, 24 March 1997; Court of Appeal (Civil Division) Transcript No 1904 of 1996: ‘the policy of the section is that, if factual issues are in any event going to be litigated between the parties, the parties should be able to rely upon any cause of action which substantially arises from those facts [at para. 96].

18

As stated by Blackburne J in the Finlan case, this means that the court should not confine itself to a comparison of the new cause of action with the existing cause of action at the highest level of abstraction — ie, at those facts, and no more, which the claimant must prove to entitle himself to relief — but rather at the whole range of facts which are likely to be adduced at the trial even though many of them may not be essential to the establishment of the claimant's cause of action[para. 57].

19

On the application to strike under CPR 3.4(2)(a) and CPR 24 the burden is on the Defendants to prove either that the statement of case discloses no reasonable grounds for bringing the claim (CPR 3.4(2)(a)) or that there is no real prospect of succeeding on the claim or issue (CPR 24).

20

CPR 3.4(2)(a) gives rise to an examination of the pleadings on the assumption that the pleaded facts will be established. CPR 24 allows for a wider enquiry but does not always do so in practice: see Independents’ Advantage Insurance Co v Cook [2003] EWCA Civ 1103 at paras. 6 to 8.

21

In considering such applications it is relevant to have regard to what the Court of Appeal said in Independents’ Advantage Insurance Co v Cook at para. 14:

“The power of the court to strike out a statement of case under CPR 3.4(2)(a) — and the related power to give summary judgment under CPR 24.2 — has an important place in the disposal of claims in accordance with the Civil Procedural Rules. As Lord Woolf M.R. pointed out in Swain v Hillman and another [2001] 1 All E.R. 91, 94 b–c, the exercise of those powers, in an appropriate case, gives effect to the overriding objective set out in CPR Part 1:

“… It saves expense; it achieves expedition; it avoids the court's resources being used up on cases where this serves no useful purpose; and I would add, generally, that it is in the interests of justice. If a claimant has a case which is bound to fail, then it is in the claimant's interests to know as soon as possible that that is the position ….””

The Applications

(1)

The substitution of the First Defendant

22

The Claimants apply to substitute the firm of SJ Berwin for SJ Berwin LLP. This application is not formally opposed by the Defendants, subject to costs.

23

I am satisfied that this is an amendment which should be allowed. The important question is whether there was doubt as to the identity of the intended Defendant – see Adelson v Associated Newspapers Ltd [2008] 1 WLR 585 and The Sardinia Sulcis [1991] 1 Lloyds Rep 201. In the present case there can have been no real doubt. There is a specific description of the right person to have sued, both in the Claim form and in the original Particulars of Claim, namely the firm that accepted and acted in pursuant to the Claimants’ retainer. Further, the mistake in naming the LLP in place of the firm was immediately appreciated by the Defendants who drew it to Freeth Cartwright’s attention.

24

Given that the issue of the correct identity of the First Defendant was clearly raised by the Defendants as long ago as 28 March 2007 I accept the Defendants’ contention that the costs order should specifically cover not merely the costs of and occasioned by the amendment but also any costs thrown away as a result of the amendment. I accordingly give permission for the amendment on these terms.

(2)

The amended assignment

25

The Second Claimant, Mr Kinch, was adjudged bankrupt on 15th April 2003. After discharge from bankruptcy 12 months later, he took an assignment from his Trustee by deed dated 24th May 2004 of a right of action against the Defendants for “breach of confidence”.

26

The claims made against the Defendants include claims other than for breach of confidence and in particular claims for breach of duty of care. It is acknowledged that these claims fall outside the terms of the assignment.

27

The Second Claimant contends in July 2008 the assignment was validly amended so as to cover “any right of action of the Assignee against SJ Berwin & Co” and seeks to amend the Particulars of Claim to rely on that assignment.

28

The Defendants’ principal objection to this amendment was that there was no sufficient or satisfactory evidence of a valid amendment of the deed of assignment. In that connection they questioned in particular whether the amendment had in fact been signed by or on behalf of the Trustee. However, at the hearing the Claimants produced emails of 4 July 2008 which showed that the amendment had been agreed on behalf of the Trustee at that time, and a further email of 28 November 2008 explaining where the requisite signature was to be found. In the light of this further evidence the Defendants accepted that the assignment had been varied as alleged.

29

The Defendants did not dispute that, if the claim brought pursuant to the amended deed of variation was a new cause of action, it arose out of “the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings” and therefore came within CPR 17.4(2). As stated in the Finlan case at para. 65:

Of the very large number of factual issues which concern the circumstances in which Queenswood came to contract for and complete its acquisition of the Group, the only difference between the existing claims and the proposed new claims is the need to plead and rely upon the deed of assignment as giving to Mr Finlan the right to bring the claims in Queenswood’s stead. Important though that single fact is to the ability of Mr Finlan to bring his claims, the deed is otherwise entirely extraneous to the other facts which must be proved. … Its only function is to explain why it is Mr Finlan and not Queenswood that brings the claims.”

30

The position is the same here. The claim which Mr Kinch had been asserting previously is the same as the claim now asserted, the only change being the pleading of the necessary fact of the assignment.

31

The Defendants nevertheless contend that as a matter of discretion permission to amend should be refused.

32

They point out that the Defendants identified as early as 23 March 2007 that the entitlement of Mr Kinch to bring the action was being questioned; that the Claimant’s solicitors clearly had the assignment or a copy of it in their possession at the beginning of 2007 and ought to have produced it there and then; that instead, the document has been retained and there had “dissembling” about it. In particular, despite the fact that the Claimants’ solicitors had a copy of the assignment, they made statements to a contrary effect, as shown by Mr Ewin’s witness statement of 25 May 2007 (para. 12) and his letter of 2 July 2007.

33

Whilst these statements made by Mr Ewin are unsatisfactory and unexplained, I am not satisfied that they were deliberately misleading as opposed to being mistaken. Even if they had been, I would not regard that as sufficient reason to refuse the application to amend, bearing in mind in particular that:

a)

the failure to plead the assignment is not the responsibility of the Second Claimant personally but that of his lawyers;

b)

The Defendants knew before the original Particulars of Claim were served that there was said to have been an assignment of all relevant causes of action to the Second Claimant;

c)

The failure to plead the assignment or to provide it before January 2008 has not caused any detriment to the Defendants;

d)

The effect of disallowing the amendment to plead the assignment would be to preclude the Second Claimant from bringing most of his claims and would be disproportionate.

I accordingly give permission for this amendment to be made.

(3)

The Restitution claim

34

It is the Claimants’ case that the agreement made with Defendants was that they would not charge fees for their involvement in preparing the bid, but that they would obtain work with the Claimant’s corporate vehicle and the Club in the event that the bid was successful. Later, when things had gone sour at the end of 2000, the Defendants submitted bills for their work in relation to the bid. The Claimants made payments but contend that they should not have done so because the Defendants were not entitled to charge as they did. In those circumstances, the Claimants contend that sums paid by them should be repaid.

35

In the original pleading these payments were said to be made “ex gratia” and they formed part of the damages claimed by the Claimants. It was also alleged that the consideration for the charges made had wholly or substantially failed, although there was no specific claim in restitution.

36

The Claimants now wish to advance a claim in restitution as an alternative to their claim in damages on the basis that the payments were made in the mistaken “belief that they might be entitled to some form of remuneration for their purported services”. The Defendants object to the amendment on the grounds that it is a new cause of action relying on different and additional facts.

37

Assuming that it is a new cause of action, I am nevertheless satisfied that it arises out of “the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings”. The circumstances in which the payments were made and the effect of the payments are already in issue. A claim for the return of the payments is already being made. The only additional fact relied upon is the belief of the Claimants at the time that the payments were made. This may not arise out of the same facts but, looking at “the whole range of facts which are likely to be adduced at trial”, it does arise out of substantially the same facts as a claim already made. I therefore give permission for this amendment.

(4)

The Tolmie claim

38

The Second Claimant seeks to introduce a claim on his behalf alone relating to the period of time after the joint retainer had been terminated in late November/early December 2000. Thereafter the Second Claimant continued to instruct the Defendants and he contends that they failed properly to advise him in relation to the funding agreement made with Tolmie. It is said that on completion of the agreement with Tolmie, the Defendants should have required the money which was to cover the bid costs to be placed in an escrow account or otherwise secured”. If this had been done it is claimed that either the money to cover the Second Claimant’s outlay would have been shown to be forthcoming or (on the basis that the Tolmie transaction was a sham) he would have realized in March 2001 that alternative sources of funding were required and would have set about finding them immediately rather than in April 2002 when he tried to draw down on Tolmie Funds. In either event he claims that he would have been able to cover his expenditure or draw back from incurring further exposure.

39

No loss is pleaded as flowing from this alleged breach and therefore the claim is a contingent one. The reason for this is that the Second Claimant is pursuing a separate action against The Rosling Partnership for the losses which he has suffered as a direct consequence of the Tolmie transaction. He has obtained judgment against and interim payment from Mr David Rosling and damages are to be assessed in early 2009. Only if there is a shortfall from that action would the Second Claimant wish to pursue a claim for a quantified loss arising from this breach.

40

The Defendants object to the amendment on the grounds that it raises a new cause of action and that it does not arise out of “the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.”

41

They point out that the only retainer pleaded in the proceedings is the joint retainer and the only breaches so far alleged have been breaches of the joint retainer; that the Tolmie allegation relates to a period after the determination of the joint retainer in late November/early December 2000 and that it can relate only to the separate retainer by the Second Claimant, a retainer whose existence and terms have not yet been pleaded. In this regard it is to be noted that the Claim Form involves a claim for damages “in connection with the retainer by the Claimants (a retainer which lasted from in or about July/August 2000 to in or about December 2000)”.

42

I have no doubt that the Tolmie claim does raise a new cause of action arising out of the separate retainer made with the Second Claimant alone. I also have no doubt that it raises substantial new factual matters. It gives rise to a potentially wide ranging enquiry into the Tolmie transaction, a transaction that it is the subject of separate litigation. Substantial further disclosure and witness evidence would be required to deal with the new matters raised, even if one ignores quantum issues, which are not even pleaded yet. I am therefore satisfied that this is a new cause of action which does not arise out of “the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings and that permission to amended must accordingly be refused.

(5)

The claim in respect of the Second Claimant’s unpaid bills

43

The Defendants originally objected to claims being made by the Claimants in respect of invoices charged to their corporate vehicles but that objection was not maintained at the hearing. However, they maintain their objection to an amendment made to include in the claim fees of £60,412.27 due from the Second Claimant to Actons which were unpaid. They argue that when the Second Claimant was discharged as a bankrupt his liability to Actons was discharged so that any payment made to them now would be as a volunteer and therefore irrecoverable in damages.

44

I reject this contention. The discharge of the Second Claimant does not affect Actons’ ability to prove its claim in the bankruptcy. Actons’ underlying cause of action remains – see s. 281(1) of the Insolvency Act 1986 and The Law Society v Dixit Shah [2007] All ER 488 at paras. 31 to 34. If so, the Trustee’s cause of action in damages against the Defendants in respect of the liability to pay those costs equally remains. It is that cause of action which the Second Claimant is asserting by virtue of the assignment and it is unaffected by his discharge in the bankruptcy.

(6)

The shareholding claim

45

This is an entirely new head of claim. The case put is: (1) that the First Claimant would have sold his shareholding in late 2000 if he had not entered into a retainer with the Defendants and no other professional adviser and financier had come forward to support the making of a bid; (2) in reliance upon the Defendants’ performance of the retainer he did not sell his shares at that time; (3) had the shares been sold at that time they would have realised £1,280,798; (4) in the event the First Claimant hung on to his shares but he is entitled to claim damages on the basis of the value he would have got for them had he sold them at the end of 2001 after his second bid for the club failed, namely £880,180, resulting in a damages claim of £380,618. There are a number of obvious difficulties facing this new claim.

46

First, the initial premise of the claim that the First Claimant would have sold his shares in late 2000 depends on there being no other professional adviser and financier coming forward to support the bid in place of the Defendants. However, there is no averment that this would not have happened. The First Claimant was obviously keen to mount a bid if at all possible, as shown by his continuing efforts to do so after the termination of the joint retainer. To do so he found alternative professional advisers and financiers and there is no reason to believe that he would not equally have done so in late 2000 had the Defendants not been acting for him at that time. If so, then on the First Claimants’ own case the shares would have been retained anyway.

47

Secondly, the claim is not based on any actual loss. Instead a notional sale in late 2001 is relied upon to establish the difference in value claimed. The reason given for this is that it is acknowledged that the decision to hold on to the shares thereafter was the First Claimant’ choice and independent of any alleged breach of duty by the Defendants. However, the same could be said of the First Claimants’ decision to hold on the shares after the retainer with the Defendants was terminated (and to do so for many months). That too was a matter of his choice. In any event it is not clear upon what principled basis a purely notional loss of this kind could be claimed.

48

Thirdly, it would be both novel and surprising if the scope of the duty of care owed by the Defendants arising out of the retainer extended to protecting one of the claimants from suffering a diminution in the market value of his shareholding in these or any circumstances. Further, no such duty is alleged in the proposed amendments, nor are any special facts pleaded which would support an assumption of responsibility in this regard.

49

As emphasised in South Australian Asset Management Corporation v York Montgue Ltd [1997] AC 191, it is important to consider the kind of loss in respect of which a duty is owed. As Lord Hoffman stated at p212:

“The contractual duty to provide a valuation and the known purpose of that valuation compel the conclusion that the contract includes a duty of care. The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that which the law regards as best giving effect to the express obligations assumed by the valuer: neither cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor extending them so as to impose on the valuer a liability greater than he could reasonably have thought he was undertaking.”

50

The Defendants contend that this equally applies to the duty undertaken by a solicitor pursuant to a retainer and that to impose on him a liability for the fall in market value of the First Claimant’s shareholding would clearly be imposing “a liability greater than he could reasonably have thought he was undertaking”.

51

The First Claimant seeks to distinguish the SAAMCO case on the grounds that it was concerned with a duty to provide information for the purpose of the other party deciding upon a course of action rather than a duty to advise as to what course of action to take. However, it is not alleged, nor could it be, that the Defendants ever assumed a duty to advise in relation to when the First Claimant should sell his shares.

52

Finally, this new claim is inconsistent with the Claimants’ primary case and it is therefore difficult to see how it can be pursued in tandem with it. The Claimants’ primary case is that they are entitled to their wasted expenditure because that expenditure would have been recouped when the bid succeeded. It is therefore predicated on a successful bid. The shareholding claim, however, assumes that there was no retainer with the Defendants and no bid. A claim premised on there being no retainer is inconsistent with a primary claim premised, as here, on the retainer being properly performed.

53

For all these reasons I conclude that there is no real prospect of this new claim succeeding and that permission to amend should accordingly be refused.

(7)

The claim for the First Claimants costs alone

54

The original Particulars of Claim included a claim for wasted expenditure advanced on behalf of the First Claimant alone. The body of the pleading did not, however, explain on what basis such a claim could be or was being advanced.

55

By amending paragraph 17(xxviii) to refer to the First rather than the Second Claimant, and by introducing a new sub-paragraph (xxix), the First Claimant has sought to remedy this deficiency.

56

The case that is now put is that the failure of the First Claimant’s second bid was caused by the delay which had resulted from the retainer of the Defendants. It is said that the second bid failed because of the Club’s acceptance of a bond issue through the Teachers’ Fund to finance the redevelopment of the stadium, since the terms of that financing were unacceptable to the First Claimant’s financiers. It is then averred that: “in view of the lack of time, the First Claimant (and Platinum) were not in a position to prevent the Teacher’s Fund offer being accepted by the Club and its indicative offer subsequently lapsed. Had the First Claimant’s offer been made earlier this problem would not have arisen”. The case therefore appears to be that had there not been delay during the Defendant’s retainer the First Claimant’s second bid would have been accepted before the acceptance of the Teachers’ Fund offer and he would therefore have been in a position to prevent that occurring. In those circumstances it is said that the First Claimant should be entitled to recover as damages the expenses involved in making his second bid. This is a remarkably far reaching case.

57

The First Claimant’s retainer with the Defendants terminated at the end of November/beginning of December 2000. Thereafter he decided that he would pursue a further bid with the aid of different legal advisers, namely Linklaters. He did so in conjunction not with the Second Claimant (who was now pursuing his own separate bid), but with two other individuals, Messrs Sharp and Smeaton, and they together formed Platinum Incorporated Ltd for this purpose. It appears that Linklaters started acting for the First Claimant, his new associates and their company in March 2001 and that from that time on expenses were incurred in relation to Linklaters and others (Grant Thornton, Hawkpoint and Barclay’s Bank) in relation to the further bid. Those expenses were never recouped as the bid failed.

58

The Defendants clearly owed no duty to the First Claimant (or his associates or their company) in respect of his second bid. They were not retained in respect of it and their retainer with him had terminated months before. Nevertheless, it is claimed that they should be held responsible for its failure.

59

The circumstances surrounding the putting together and ultimate failure of the First Claimant’s second bid are obviously very remote both in time and fact from the retainer of the Defendants. In particular, it is difficult to see how the First Claimant’s decision, in full knowledge of what had happened during the Defendants’ retainer, the delays involved, and the Defendants’ alleged breaches of duty, can be anything other than an intervening cause or novus actus. Notwithstanding the alleged unsatisfactory performance and outcome of the Defendants’ retainer, the First Claimant decided to go ahead with a further bid, with different partners, and different advisers. He did this with his “eyes open” in knowledge of the Defendants’ alleged failures. That was his choice and his risk.

60

Further, it is not explained why or how the critical delay must be attributed to the Defendants. The First Claimant’s retainer with the Defendants had been terminated by the beginning of December 2000. The First Claimant’s second bid does not appear to have got seriously under way until March 2001. In so far as delay was the cause of the failure of the second bid, it is not clear how or why the relevant delay (which itself is unspecified) is that during the retainer rather than that after the retainer terminated.

61

Yet further, although it is not expressly pleaded, the case necessarily assumes that the second bid would otherwise have been successful since otherwise the First Claimant would not have been in a position to ensure that the Teacher’s Fund offer was not accepted. The case therefore requires the First Claimant to prove that the second offer would otherwise have succeeded, but this is not alleged. Moreover, if it was to be alleged, it would again raise the difficulty that the First Claimant would be pursuing inconsistent claims; namely, a claim based on the initial bid being successful as well as a claim based on the second bid being successful (and therefore, necessarily, the first bid failing). It is not clear how he could properly do so.

62

I therefore conclude that this claim also has no real prospect of success. In so far as the amendments seek (for the first time) to justify this claim, permission to amend is refused and the claim for such wasted expenses should be struck out.

(8)

The Amended Wasted Expenditure claim

63

The claim as originally pleaded alleged that as a result of the Defendants’ breaches of duty the Claimants lost the substantial opportunity that each Claimant would otherwise have had to acquire the Club”. The Claimants’ expenditure on their bid was claimed as damages on the basis that once the takeover had gone through their outlay would have been recovered”.

64

The Claimants’ case was accordingly that they were entitled to recover their wasted expenditure on the basis that had the takeover gone through that expenditure would have been recovered and they had lost the opportunity of a successful takeover. Such a case would involve evaluation of the chance of a successful outcome being achieved in accordance with the principles in Allied Maples Group plc v Simmons & Simmons [1995] 1 WLR 1602.

65

By their proposed amendment the Claimants seek to sidestep the Allied Maples approach and to claim the entirety of their wasted expenditure without the need to prove that there was a real and substantial chance of their bid succeeding and, if so, of what the percentage chances of success were and what proportion of the expenditure incurred should accordingly be recovered.

66

In reliance on the principle set out in CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] 1 QB 16 they contend that there is a “legal presumptionthat they would not have wasted the expenditure if the Defendant had not been in breach of duty, the burden being on the Defendants to rebut that presumption by proving that regardless of their breaches of duty the expenditure would not have been or may not have been recovered.

67

The CCC Films case concerned a licence to exploit, distribute and exhibit three films in various countries for which US$12,000 was paid. The tapes of the films were sent uninsured by ordinary post and were lost, with the consequence that the claimants were unable to make use of their licence. They claimed as damages the US$12,000 they had spent on the licence but adduced no evidence that they would have made sufficient earnings if the tapes had been received to recoup that expenditure. Equally the defendants adduced no evidence that they would not have done so. Hutchison J held that the claim succeeded in full.

68

He held that a claimant claiming damages for breach of contract has a choice whether to claim loss of profits or wasted expenditure, and that where a defendant’s breach of contract prevented the claimant from putting to the test the question of whether that expenditure would have been recouped, the defendant bore the burden of showing, on the balance of probabilities, that the expenditure would not have been recouped. It was therefore for the defendant to prove that the expenditure would not have been recouped rather than for the claimant to show that it would have been.

69

In reaching his decision Hutchison J relied on the English law cases which establish that a claimant in a breach of contract claim has a choice whether to claim loss of profits or wasted expenditure - See Cullinane v British Rema Manufacturing Co [1954] 1 QB 292, 303; Anglia Television v Reed [1972] 1 QB 60, 63H-64A; Filobake Ltd v Rondo Ltd [2005] EWCA Civ 563, [58]-[62].

70

In relation to the “crucial question of where the onus of proof lies in relation to whether or not the exploitation of the subject matter of the contract would or would not have recouped the expenditure” Hutchison J relied on Canadian and American cases, notably the judgment of Berger J. in Bowlay Logging Ltd. v. Domtar Ltd. [1978] 4 W.W.R. 105 , and the earlier American cases of L. Albert & Son v. Armstrong Rubber Co. (1949) 178 F. 2d 182 and Dade County v. Palmer & Baker Engineers Inc. (1965) 339 F. 2d 208. In particular he cited and relied upon the following passage from the judgment of Learned Hand C.J. in the L. Albert & Son v. Armstrong Rubber Co. case:

"In cases where the venture would have proved profitable to the promisee there is no reason why he should not recover his expenses. On the other hand, on those occasions in which the performance would not have covered the promisee's outlay, such a result imposes the risk of the promisee's contract upon the promisor. We cannot agree that the promisor's default in performance should under this guise make him an insurer of the promisee's venture; yet it does not follow that the breach should not throw upon him the duty of showing that the value of the performance would in fact have been less than the promisee's outlay. It is often very hard to learn what the value of the performance would have been; and it is a common expedient, and a just one, in such situations to put the peril of the answer upon that party who by his wrong has made the issue relevant to the rights of the other. On principle, therefore, the proper solution would seem to be that the promisee may recover his outlay in preparation for the performance, subject to the privilege of the promisor to reduce it by as much as he can show that the promisee would have lost, if the contract had been performed."

71

The Defendants do not dispute the correctness of the decision made in the CCC Films case in relation to onus of proof (“the CCC Films principle”), but they dispute its applicability to claims for breach of a duty of care in professional relationships, such as that made in the present case. They point out that there is no professional duty case in which the CCC Films principle has been applied, and that it is inconsistent with the Allied Maples loss of a chance approach to damages.

72

In the CCC Films case itself Hutchison J explained that it would be fair to impose the onus of proof on the defendant at least in the following cases:

“… where the plaintiff's decision to base his claim on abortive expenditure was dictated by the practical impossibility of proving loss of profit rather than by unfettered choice, any other rule would largely, if not entirely, defeat the object of allowing this alternative method of formulating the claim. This is because, notwithstanding the distinction to which I have drawn attention between proving a loss of net profit and proving in general terms the probability of sufficient returns to cover expenditure, in the majority of contested cases impossibility of proof of the first would probably involve like impossibility in the case of the second. It appears to me to be eminently fair that in such cases where the plaintiff has by the defendant's breach been prevented from exploiting the chattel or the right contracted for and, therefore, putting to the test the question of whether he would have recouped his expenditure, the general rule as to the onus of proof of damage should be modified in this manner”.

73

This suggests that an important consideration in determining whether the CCC Films principle applies is whether proof of loss of profit is a practical impossibility rather than a matter of choice. If so, it could be said that that is not this case. In the first place, it is the Claimants’ own pleaded case that “the joint takeover bid would have been highly likely to succeed” and success of the bid is all that would need to be established for recovery of the expenditure since repayment of that outlay would be part of any financing of the bid; it would not depend on any need to show profitability thereafter. Secondly, the availability of the Allied Maples loss of a chance approach means that damages can be recovered provided it could be established that there was a real and substantial chance of the bid succeeding and the expenditure thereby being recouped, and that is by no means a practical impossibility.

74

The other consideration of importance identified by Hutchison J is whether “the plaintiff has by the defendant's breach been prevented from exploiting the chattel or the right contracted for and, therefore, putting to the test the question of whether he would have recouped his expenditure. The Defendants contend that the CCC Films principle only applies where the plaintiff has been deprived of the contracted for subject matter of the contract, whether it be a chattel or a warranted performance or outcome. It does not apply where the duty in question, whether tortious or contractual, is simply to use reasonable care.

75

In this connection the Defendants refer to and rely upon para. 2.7 of Professional Negligence and Liability in which it is stated as follows:

“…in the field of professional negligence there tends to be no significant difference between the measure of damages in contract and the measure in tort or between the two alternative measures in contract. This is because the professional is not warranting a result, not guaranteeing an expectation. His duty…is simply to use reasonable care; this is the relevant obligation and it is imposed on him by his contract or by tort. A claimant’s loss is likely to be the same whether looked at as arising from expectation defeated or reliance thwarted through failure to exercise due care. We are far away from the idea of the benefit of a bargain which is much more in evidence in, and much more relevant for, the commercial field, particularly in the law of sale, be the sale one of land, or chattels, ships or shares”.

76

In my judgment there is force in the contention that the CCC Films principle is essentially directed at loss of bargain cases. It is well established that wasted expenditure cannot be recovered where the claimant has made a bad bargain and would not have recovered the expenditure incurred – see McGregor on Damages (17th ed.) at paras. 2.034-5. In considering whether the claimant or defendant should bear the burden of proving whether the bargain would or would not cover the expenditure incurred it is generally fair and principled to impose that burden on the defendant contract breaker. However, in a professional negligence claim such as that made in the present case there is no such “bargain”. The solicitor is not agreeing or warranting that any particular result will be achieved. He is simply contracting to exercise reasonable care in carrying out the services contracted for.

77

The Claimants contend that the CCC Films principle should be applied because the Defendants’ breaches of duty prevented them from putting to the test whether or not they would have recouped their expenditure. However, the underlying reason for putting the onus of proof on the defendant is one of fairness and in a case such as the present there is no particular unfairness in being deprived of that opportunity given the availability of damages on the basis of the Allied Maples approach and their own case as to what would “very likely” have happened.

78

Furthermore, there would be practical difficulty and indeed unfairness in imposing the burden on the Defendants in this case. The crucial issue in relation to whether or not a successful joint bid could have been made is likely to be the availability of finance. If the Claimants identify what sources of finance they say would have been available then the Defendants have a tangible case to meet. If there is no onus on them to do so then the Defendants are left with the unenviable task of proving a negative and seeking to show that there were no viable sources of finance anywhere or anyhow.

79

The Claimants’ case also involves the novel proposition that there should be a reverse loss of a chance approach to damages. They say that it is open to the Defendants to show the wasted expenditure would not or may not have been recovered”. By may notthe Claimants mean that if the Defendants cannot establish on the balance of probabilities that the wasted expenditure would not have been recovered, it is nevertheless open to them to show that there was a real and substantial chance of it not being recovered and for the damages to be reduced accordingly. This is to turn the normal approach to damages in cases such as the present on its head.

80

The Claimants also wish to keep open the possibility of contending at the trial that if they are wrong as a matter of law in their reliance on the CCC Films “presumption” they should nevertheless be allowed to claim that the Defendants’ breaches of duty deprived them of the chance of recovering such expenditure. As they acknowledge, this would be “difficult” and is a recipe for confusion and uncertainty at the trial .

81

I am satisfied that in the interests of efficient case management it is important that this issue is grappled with now, rather than being left over for the trial. It raises a matter of law and it is important for the parties to know now what case each of them will have to make on this important issue.

82

My conclusion, for the reasons outlined above, is that it is not open to the Claimants to rely on the CCC Films principle in the present case. There is no presumption that their wasted expenditure is recoverable in full. To recover any of that expenditure they must establish that there was a real and substantial chance of the expenditure being recovered, as would be usual in cases of this nature, and as they themselves initially acknowledged and pleaded. I therefore refuse permission for this amendment.

(9)

The Defamation claims

83

The Claimants have always made claims for damages against the Defendants in connection with the costs incurred in respect of three defamation actions. The Defendants apply to strike those claims out.

The first defamation action

84

In late autumn 1999, at the time of the boardroom dispute at the Club involving the Claimants, an article appeared in the Leicester Mercury which the Claimants alleged was defamatory. In this they were supported by advice from leading counsel. No proceedings were, however, taken until the Defendants allegedly advised them to do so as a strategic weapon to discourage adverse press coverage. Shortly thereafter an offer was apparently made by the Leicester Mercury to settle the claim for £5,000 plus costs. This offer was rejected on the advice of the Defendants and allegedly contrary to the advice of the Defendants’ libel lawyers. Eventually, the proceedings were settled on payment to the Leicester Mercury of £45,000 on account of costs. In addition the Claimants had to bear their own legal costs. The Claimants allege that the advice to refuse the earlier settlement offer was negligent and that they are entitled to damages representing the financial difference between that offer and the eventual outcome.

85

The Defendants’ main attack on this claim related to any allegation that it was negligent to advise the Claimants to bring defamation proceedings for strategic reasons. They contended that this was a matter of judgment, and in any event was a justifiable judgment. However, at the hearing it was made clear that the Claimants’ case rested not on this advice, but rather on the advice to refuse the early settlement offer. It was alleged that it was negligent of the Defendants should not have given this “overbearing” advice, and that they should have advised that they were not competent so to advise and that the Claimants should heed the advice of their libel lawyers.

86

The Defendants contended that this advice too was a matter of judgment rather than of negligence, that it would have been obvious that the Defendants were not experts in the libel field, and that any decision to follow that advice was voluntarily taken. In my judgment, these are all fact sensitive questions and it cannot be said here and now that the Claimants have no real prospect of success on these issues. This will depend on the evidence.

The second defamation action

87

In October 2000 articles appeared in the Daily Express which were allegedly defamatory of the Claimants. The Claimants’ case is that the Defendants again advised the Claimants to sue for libel and they duly did so; that it later it transpired that the Second Defendants was himself the source of the story provided, and that the Claimants were accordingly compelled to settle the claim on the best terms available, which were a limited retraction and a payment of less than £6,000. The Claimants claim all unrecovered costs incurred in respect of the proceedings as damages. They contend that the Defendants were in breach of their obligations of confidentiality in speaking to the press, and in further breach of duty in not disclosing at the outset that they had done so.

88

The Defendants contend that although the Second Defendant may have spoken to the press about the Claimants’ proposed bid for the Club and that this may have prompted the article to be written, they did not cause any defamatory words to be used. That was the journalist’s doing, not theirs. Their breach of confidence may have provided the occasion for the defamation, but it did not cause it – see Galoo v Bright Grahame Murray [1994] 1 WLR 1360.

89

In my judgment, this too is a fact sensitive issue. Given the background of allegedly defamatory articles having been written in late 1999 there were clear risks involved in reviving press interest in these matters. Further, given the Defendants’ own advice to seek to avoid adverse publicity, the courting of publicity through speaking to the press ran directly contrary to their own counsel and was inviting problems. The Claimants clearly have a well arguable case of breach of confidentiality in relation to the Defendants’ actions and I do not consider that it is possible at this stage to determine or demarcate what are the consequences of such breaches of duty, or to exclude the damages currently claimed.

The third defamation action

90

This raises similar issues to the second defamation action. In February 2001 there was a further article in the Sunday Mirror which was allegedly defamatory. Again, it is alleged that the source of the published information was the Second Defendant. It is further alleged that the information provided included an untrue statement of the Claimants’ intentions with regard to the then Club manager, Peter Taylor.

91

Libel proceedings were brought in respect of this article and almost reached the trial stage. However, the Claimants allege that they then had to settle the action on the best terms available when the Second Defendant’s denial that he was the source of the information provided was shown to be untenable. The settlement was on a “drop hands” basis.

92

The Defendants’ main criticism of this claim was directed at any contention that the libel damages claimed could somehow be recovered from the Defendants. However, it was made clear at the hearing that this was not the claim, and that the sole damages claimed related to the unrecovered costs incurred in the libel proceedings.

93

The Defendants again contended that at most they provided the occasion for the defamation rather than causing it. They further contended that since the Claimants did not have the stated intent with regard to Peter Taylor there could be no breach of confidence involved, and that given that the Claimants’ involvement in a bid for the Club was already in the public domain there could be no breach of confidence in that regard either.

94

As with the second defamation action, and for similar reasons, in my judgment the Claimants’ claim is too fact sensitive for it to be possible to rule that it has no real prospect of success. The Claimants clearly have a well arguable case that the Defendants should not have been talking to the press at all about the Claimants’ intentions, correctly or otherwise. Moreover, the article related to the Claimants’ current intentions, not their intentions in October 2000.

95

In relation to all three defamation claims I accordingly reject the Defendants’ application to strike them out and give permission to the amendments sought to be made in relation to those claims.

Conclusion

96

My rulings on those parts of the applications which remain contentious are as set out above. I shall hear counsel as the appropriate orders to be made in consequence.

Parker & Anor v SJ Berwin & Co & Anor

[2008] EWHC 3017 (QB)

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