D Morgan Plc v Mace & Jones (a firm) & Anor

In this action, the claimants are pursuing a claim for in excess of £60 million by way of damages, arising out of what they say was negligent advice given by the defendants on various planning issues concerning Bold Heath Quarry in St. Helens. The claimants have failed to comply with an order made by Ramsey J requiring them to serve a forensic accountants’ report by 26^th February 2010. They seek retrospectively to extend time for the service of such a report until 8^th May 2010. The defendants seek an unless order that the report be provided within 14 days.

The subject matter of these proceedings is of some antiquity, going back as far as 1992, and dealing with a whole series of events relating to the Quarry over the next 10 years. The claim was originally issued in the Chester District Registry on 1^st April 2003 but, at the claimants’ request, it was repeatedly stayed. On 29^th February 2008 the claimants were ordered to provide a Schedule of Loss.

The Schedule was served on 23^rd May 2008. There were (and remain) three parts to the claim: Part 1 is a claim for losses actually incurred, of about £1.5 million; Part 2 is a claim for additional costs of compliance with planning conditions, then also put in the sum of about £1.5 million; and Part 3 is a claim for the loss of profit which the claimants say they would have earned between the date on which it is said planning permission would have been granted (but for the negligence), and the date on which planning permission actually was granted. This final part of the Schedule was originally pleaded in the sum of £26 million. The Schedule acknowledged that the claims at Parts 2 and 3 were only rough estimates and that indeed the £26 million was a turnover figure, not a figure for loss of profit.

On 1^st October 2008, the matter was transferred to the RCJ in London. On 14^th February 2009 Master Rose made a number of orders, including requiring the claimants to serve a further Schedule of Loss and to file a forensic accountant’s report by 29^th July 2009. That report was to be provided to the defendants in advance of any reports that the defendants may wish to serve in reply. The claimants did not comply with either part of that order. The date for the provision of the Schedule was extended to 13^th September by agreement. Again the date was not met. A revised Schedule was eventually served on 26^th October 2009. Unhappily, no forensic accountant’s report was forthcoming.

The revised Schedule increased the Part 2 claim to just over £2 million. It increased the Part 3 claim to the huge sum of £52 million, but again the revised Schedule accepted that neither of those figures were properly particularised, and again it was admitted that the £52 million figure was in respect of turnover not profit. The first defendant issued a request for further information in November 2009.

Ramsey J transferred the matter to the TCC on 12^th January 2010. He ordered that the request for further information be answered by 9^th February 2010. He concluded that the burden in respect of the claim for loss of profit (Part 3 of the Schedule) remained fairly and squarely upon the claimants because he required them, just as Master Rose had done, to serve their forensic accountant’s report in advance of any similar reports from the defendants. He ordered that the report be provided by 26^th February 2010. He then made consequential directions for the formulation and agreement of issues, for experts’ meetings and for the service of the defendants’ reports on the remaining matters in issue, in order to lead up to the trial date which he fixed for 4^th October 2010.

The answers to the request for further information were not provided until 2^nd March 2010. There was also a new Schedule of Loss provided on 5^th March 2010. That new Schedule does not significantly improve the pleading of the claimants’ case on causation and quantum in relation to the claim for loss of profit. In relation to Part 3 which, at £57 million, is by far the largest single item of claim, the new Schedule accepts that it “does not show the net profits lost by the claimant either pre- or post-tax. This matter will be dealt with in the evidence of forensic accountants”. It is, of course, that evidence which has not been provided and in respect of which the defendants now seek an unless order.

Before looking at the merits or otherwise of making an unless order in this case, I should stress that, in my judgment, the proper pleading of the claimants’ loss of profit claim has gone completely awry, as a result of the numerous delays for which the claimants are responsible. It is not appropriate for a pleading to be advanced solely by reference to an expert’s report, which may or may not be provided in the future. Any claim for loss of profit, particularly a claim for loss of profit as large as this one, needs to be properly set out in pleading form so that it can be understood and answered by the defendants. It is not appropriate to identify the basics of a pleaded case by reference to a non-existent expert’s report. Ordinarily, the pleading ought to have come first; given the present state of affairs, a proper pleading must at least be simultaneous with the service of the expert’s report.

As to the making of an unless order in these circumstances, I have had regard to the following principles:

In support of their application for a 14-day unless order, each of the defendants submit that:

The claimants resist the making of an unless order and seek an extension of time for the service of the forensic accountant’s report until 8^th May. They attempt to justify the delay in this way. First, they say that it was only on 29^th September 2009 that their appeal against the original planning refusal was allowed and that, until that determination, it was impossible for any real progress to be made on the quantification of loss.

Secondly, they say that Mr. Denis Morgan, one of the directors of the claimant company, was taken ill at the very end of October 2009 and was essentially not back at work until mid to late February 2010. It is said that he was the central figure and, since he could not sign the terms of the engagement of the forensic accountants until 16^th February 2010, his illness inevitably meant that the report would be delayed.

As to the extent of the delay, I note that the accountants in question, BDO, said in a letter dated 19^th February 2010 that they could complete the finalised version of their report by 21st April 2010. It appears that the further period between 21^st April and 8^th May is required by the claimants to allow the finalised version of the report to be considered (in what seems to me to be a leisurely fashion) by Mr. Morgan and his legal team.

On analysis, I have concluded that the central reliance placed by the claimants on Mr. Morgan’s illness, to justify this latest failure to comply with the order of the court, does not in truth carry the claimants very far. First, he was not ill when the original order for the forensic accountant’s report was made by Master Rose; nor was he ill when the date for service ordered by Master Rose expired without compliance. On the face of it, that order was simply ignored by the claimants. True it is that they subsequently said that they could not advance matters until after the planning appeal had been allowed in late September 2009. But that argument was only advanced retrospectively, in a statement signed by the claimants’ solicitor, Mr. Ives, on 2^nd November 2009.

Secondly, of course, there was nothing to prevent the instruction of the forensic expert accountants, even on the claimants’ case, once planning permission had been granted at the end of September 2010. At this point Mr. Morgan was not ill and was capable of giving the necessary instructions. In Mr. Ives’ statement of 2^nd November 2009, the delay in the provision of the accountant’s report was next blamed on the need to finalise the mineral surveying expert evidence. However, the mineral surveying evidence was also completed by the end of September 2009, and so again could not be the reason for the failure to instruct the forensic accountants at that date. Furthermore, as I pointed out during argument, Mr. Ives’ statement of 2^nd November indicated that the forensic accountants had been instructed and were working on, but had not yet completed, their task. In fact it is now apparent that they had not been instructed to start work, and I am afraid that I regard the statement as seriously misleading as a result.

Thirdly, Mr. Morgan was ill at the time that Ramsey J made his order, so if that illness meant that the claimants could not comply with the date of 26^th February 2010 that would, or certainly should, have been apparent at the hearing on 12^th January, and should have been raised with the court. In fact, no indication was given on that occasion that the date of 26^th February would prove difficult and no mention was made of Mr. Morgan’s illness.

Fourthly, even though it must have been apparent to the claimants and their solicitors in late January or early February that the 26^th February date was not going to be met, no notification of any potential problem was given either to the defendants or the court. Matters proceeded at a desultory pace. In fact, the first notification that the defendants received of any problem with the report was the draft application to extend time, which was provided to them on 25^th February 2010. The 25^th February was the last day before this report had to be served. That was, on any view, a last-minute application by the claimants which must inevitably create an adverse impression in the eyes of the court. Notification ought to have been given to the defendants far in advance of this date if, as is now alleged, Mr. Morgan’s illness had delayed the work of the expert accountant.

Finally, and perhaps most important of all, there is no substantive evidence which supports the suggestion that Mr. Morgan personally was a vital link to the forensic accountants, and that without him the expert was wholly incapable of undertaking any sensible work. Indeed, as I see it, there is no rational explanation for how or why Mr. Morgan had to be back at work full time before the accountant expert could even be instructed. Mr. Morgan is, after all, only one of a number of directors of the claimant company, and there is no explanation that I have seen which supports the suggestion that he and he alone could give the necessary instructions.

As I indicated to Ms. Lieven during the course of submissions, I am also troubled about the possibility of extensive interference by Mr Morgan in the accountant’s work. The independent forensic accountant’s report should be exactly that: an independent report untrammelled (at least as far as possible) by information provided orally to the expert by the client. The loss of profit claim ought to be a function of the contemporaneous documents, comparing what actually happened with the notional position that would have existed if planning permission had been granted earlier. I am not persuaded that, as things presently stand, Mr. Morgan personally is or should be a unique source of vital information for this claim, much less that he had to be personally involved before the forensic accountants could even begin their task.

Thus, it seems to me that the claimants are in significant difficulties. They are in breach of the order of Ramsey J and have not, in my judgment, advanced a proper explanation for that failure. In addition, of course, that failure has to be considered against the backdrop of previous failures to comply with the orders of the court, such as the failure to comply with the order of Master Rose. In all those circumstances it seems clear to me that only the making of an unless order will impress upon the claimants the importance of complying with orders of the court generally, and this one in particular. On all the evidence, I conclude that only an unless order will motivate the claimants into complying with the court’s direction as to the service of this vital expert’s report, and only an unless order will provide proper protection to the defendants, who are being prejudiced by this ongoing failure, both in relation to their own time for responding to the report, and because of the reduction in the time available in which an effective settlement of this action might be possible.

For all these reasons, therefore, it seems to me that, not only is an unless order an appropriate sanction, it is the only proper order that I can make in all the circumstances of this case.

The only other issue is the time that I should allow the experts to provide their report. The defendants seek a period of 14 days which would take us to the 6^th April. That takes no account of Easter. Nor does it take into account the timetable outlined in the BDO letter of 19^th February, with its estimated date for the report of 21^st April 2010. It seems to me to be an important principle of case management that a court should only make an unless order with which the party in question has a reasonable prospect of complying.

Thus I have concluded that I should allow the claimants until 4 p.m. on 21^st April 2010 to serve the report. That is the date on which the expert has promised to complete the report. I consider that it is the appropriate date in all the circumstances. It is, however, the absolute maximum that I can grant: it is not appropriate to grant still further time for consideration of the report by others. If the report is not provided by that date the claim at Part 3 of the Schedule will automatically be struck out.

Further, in order to reflect the pleading point to which I have previously referred, also by 4 p.m. on 21^st April 2010, I require that the claimants serve a properly pleaded claim in relation to the loss of profit claim. That can then be incorporated into the subsequent version of the Schedule of Loss. It seems to me to be important that a properly pleaded loss of profit claim, particularly for a figure as large as this one, be provided at the same time as the expert’s report.

I ought to add this, in the hope of heading off any potential further disputes or, at the very least, to avoid misunderstanding. This expert accountant’s report is a vital document which, for the reasons outlined, will have been provided very late in the litigation process. Thus, it is important to warn the claimants that the mere provision of a document described as ‘an expert forensic accountant’s report’ will not automatically be sufficient to meet the terms of this order. The report will need to be a full and proper exposition of the loss of profit claim (if any), to the extent that such a claim is properly supported by the expert, but not further. The report cannot hide behind phrases such as “awaiting information” or “to be confirmed”. It cannot be seen as ‘a foot in the door’ by the claimants or the expert, with the real work on the loss of profit claim coming later in the year. This is a potentially huge claim for loss of profit. It has been around in an inchoate form for a long time, and the moment has now arrived for that claim to be properly set out and supported, or put out of its misery.

That therefore is the order: that unless by 4.00 p.m. on 21^st April 2010 the forensic accountant’s report is served, then the claim for loss of profit in Part 3 of the Schedule is struck out. By the same date, a fully pleaded claim for loss of profit must also be served.