Reaffirmation of Counterfactual Test and Valuation Principles in Unlawful Means Conspiracy Claims

Introduction

This judgment arises from Robert Gordon Kidd’s reclaiming motion against Lime Rock Management LLP and others, heard by the Scottish Court of Session, Inner House ([2025] CSIH 11). Mr Kidd—owner of ITS Tubular Services (Holdings) Ltd—alleged that Lime Rock, a private-equity house, conspired with solicitors (Paull & Williamsons LLP and later Ledingham Chalmers LLP) by allowing a conflict-ridden solicitor to advise both sides, thereby inducing him into a disadvantageous share sale and investment agreement. The commercial judge dismissed the conspiracy and causation arguments, finding no loss beyond Mr Kidd’s recovery from earlier litigation. This appeal tests the law of unlawful-means conspiracy, fraudulent concealment, causation by counterfactual analysis and valuation of tainted assets.

Summary of the Judgment

The Inner House rejected all grounds of appeal. It held that:

No unlawful-means conspiracy was proved: neither an express or tacit agreement to injure nor dishonest concealment by any defender was established.
On causation, the correct counterfactual was a world without wrongdoing, in which the same deal would have proceeded.
Post-transaction damages must reflect known commercial realities (Bwllfa principle): ITS’s eventual collapse was not caused by the alleged conspiracy.
Even on the most claimant-favourable assumptions, any loss on Mr Kidd’s residual shares was already compensated by his settlement with Paull & Williamsons.

Analysis

Precedents Cited

OBG v Allan [2008] 1 AC 1 – defines unlawful-means conspiracy and requires a common intention to injure.
Marine & Offshore (Scotland) Ltd v Hill 2018 SLT 239 – fraud as false pretence with prejudice, supported by Erskine’s Institutes.
Ivey v Genting Casinos (UK) Ltd [2018] AC 391 – sets the two-stage test for dishonesty (subjective knowledge + objective standard).
Bwllfa and Merthyr Dare Steam Collieries v Pontypridd Waterworks Co [1903] AC 426 & The Golden Victory [2007] 2 AC 353 – eyes need not be shut to known facts in damage assessment.
Primeo Fund v Bank of Bermuda (Cayman) Ltd [2024] AC 727 – establishes that the correct “but for” counterfactual removes the wrongdoing entirely.
Smith New Court Securities v Citibank NA [1997] AC 254 – measure of damages for fraud, but no relaxation of causation principles.

Legal Reasoning

Unlawful-means conspiracy: The court required proof of (a) a combination of two or more persons, (b) using unlawful means knowing them to be such, with (c) intention to injure the pursuer and (d) actual injury. No defender shared such a common intention; all acted in honest—and at most negligent—breach of professional duty without intent to harm Mr Kidd.
Fraudulent concealment: Even if Mr Gordon’s conflict of interest breached fiduciary duties, the court found no dishonest concealment. On his own admission, Mr Gordon believed he was facilitating both sides. Objective standards of decency under Ivey allow consideration of motive, and here culpability stopped short of dishonesty.
Causation and counterfactual: Causation depends on what would have happened “but for” the wrongdoing. Primeo Fund confirmed that one must assume the wrongdoing never occurred—not that it occurred but was discovered. ITS needed equity finance regardless; Lime Rock remained the only viable investor, so the deal would have closed anyway.
Damages and known facts: Under the Bwllfa line, the judge could consider ITS’s post-deal performance and administration in assessing loss. ITS’s collapse stemmed from over-leverage and market pressures, not the terms of the investment agreement. Alternatively, even valuing shares at completion, Mr Kidd’s £20 million recovery from his solicitors matched or exceeded any conceivable shortfall in share value.

Impact

This decision clarifies several key points for future commercial litigation:

Economic torts such as unlawful-means conspiracy demand clear proof of common intention to injure, not mere breach of duty or professional conflict.
Causation in fraud-based claims adheres to a strict “no-wrongdoing” counterfactual, preventing hypothetical discovery scenarios from sustaining a claim.
The Bwllfa principle and its Scottish application permit the use of post-transaction developments to assess real loss, avoiding windfall awards.
Valuation of tainted assets must reflect commercial reality: even misconduct-tainted shares may retain substantial value if wrongdoing did not alter deal terms.

Complex Concepts Simplified

Unlawful-means conspiracy: Two or more parties agree to use illegal or wrongful acts to harm someone. They need not each commit a crime—but must knowingly join in wrongful conduct aimed at injury.
Counterfactual (“But for”) analysis: To prove causation, ask “What would have happened if the wrongdoing never occurred?” You remove the wrongful conduct entirely, not assume it happened but was unmasked.
Reflective loss: A shareholder’s claim for devaluation of shares caused by damage to the company’s overall value. Often barred to avoid double recovery by both company and shareholder.
Floor value (cost approach): The minimum share value based on net asset value (assets minus liabilities), serving as a baseline for valuation even if shares are hard to sell.
Fraudulent concealment: Deliberately hiding a fact one has a duty to disclose, causing another to act on a false impression. Dishonesty requires knowing the act is wrongful.

Conclusion

The Inner House’s decision in Kidd v Lime Rock reaffirms that economic tort claims must clear high hurdles on intent, causation and loss. Alleged conspiracies require proof of deliberate design to injure, not mere conflicts of duty or negligent professional failures. Causation adheres to a counterfactual world without wrongdoing, and damages assessments may incorporate subsequent business realities. This judgment underscores the Scottish courts’ caution against expanding liability in commercial disputes in a way that would punish losing investments rather than genuine wrongful injury.