Factual and Procedural Background
This reclaiming motion arises from the negligence of the Defendant, a firm of solicitors, in failing properly to advise the Plaintiff regarding the requirements for lodging caution in proceedings brought by the Plaintiff against the joint liquidators of a company of which it was the sole shareholder. This failure resulted in the court refusing a claim by the Plaintiff for payment of £22.325 million under section 212(3) of the Insolvency Act 1986. The Defendant admitted negligence but denied that the Plaintiff sustained any loss. The Defendant sought a wholesale review of the decision of the commercial judge, who found them liable to pay damages of almost £10 million plus interest. The Plaintiff cross-appealed regarding the quantification of damages.
The background involves a drinks and entertainment company ("the Company") previously part of a multinational group ("Company B"). The Company ceased trading after selling its drinks business but retained substantial assets and liabilities, including long-term leases of office premises in London. The landlord was a third party ("Landlord"). Following financial difficulties, the parent group sought to rid itself of lease liabilities but was unsuccessful in surrendering the leases or finding new tenants.
A restructuring scheme was implemented involving the sale of the Company's shares within the group and ultimately to the Plaintiff, funded by borrowing from the Company itself. The legality of this financial assistance was questionable due to procedural defects in declarations required under company law. The Company went into liquidation in 2005.
The Landlord submitted a large claim in the liquidation, which was compromised at £28 million without an anti-embarrassment clause to mitigate losses upon sale or re-letting. The joint liquidators were subsequently sued for misfeasance and breach of fiduciary duty by the Plaintiff under section 212 of the Insolvency Act 1986, seeking contribution to the Company's assets.
The Defendant solicitors acted for the Plaintiff in the section 212 proceedings but failed to lodge caution as ordered, resulting in refusal of the claim. This action concerns damages claimed by the Plaintiff against the Defendant for that failure.
Legal Issues Presented
- Whether the Plaintiff's claim under section 212(3) of the Insolvency Act 1986 had prescribed prior to commencement of proceedings.
- Whether the Plaintiff could have secured funding or self-funded the section 212 proceedings to conclusion.
- Whether the Plaintiff had a real and substantial chance of establishing breach of duty by the joint liquidators.
- Whether the Plaintiff had reasonable prospects of establishing that the joint liquidators would have limited the Landlord's claim to less than £28 million.
- Whether there would have been a surplus available to the Plaintiff after payment of the Company's creditors.
- Whether the court would have exercised discretion to refuse to make a compensatory order against the joint liquidators.
- How to assess the percentage loss of chance and quantify damages accordingly.
- Issues relating to the quantification of damages, including the application of interest and loss of chance percentages to costs and expenses.
Arguments of the Parties
Defendant's Arguments
- The commercial judge erred in holding that the claim had not prescribed; the creditor was the Plaintiff, not the Company, and the claim should have been time-barred.
- There was no real prospect of the Plaintiff securing funding for the litigation; evidence of funding was speculative and did not consider adverse background facts.
- The Plaintiff could not have self-funded the litigation after preliminary proof on prescription.
- The prospects of limiting the Landlord's claim to less than £6.67 million were negligible due to lack of evidence and uncertainties about the Landlord's actions.
- It was virtually certain that any reduction in the Landlord's claim would have led to a correspondingly lower settlement by Company B, leaving no surplus for the Plaintiff.
- The court should have exercised discretion to refuse compensation to the Plaintiff due to its own blameworthy conduct and receipt of benefits.
- The commercial judge erred in assessing the loss of chance percentage by not mathematically multiplying the chances of each contingency; the overall loss of chance was nil or negligible.
- The award of interest on taxed expenses was incorrect as the Plaintiff had not yet paid those sums.
Plaintiff's Arguments
- The commercial judge was correct that the claim had not prescribed because the creditor was the Company, not the Plaintiff, and the Company's awareness was the relevant factor.
- The Plaintiff would have secured funding with virtual certainty, as evidenced by the testimony of a litigation funder.
- The Plaintiff could have self-funded the litigation if necessary.
- The Plaintiff had reasonable prospects of limiting the Landlord's claim and establishing breach of duty by the joint liquidators.
- There would have been a surplus available to the Plaintiff after payment of creditors, as the joint liquidators owed duties to contributories as well as creditors.
- The court would not have exercised discretion to refuse an order against the joint liquidators given the circumstances.
- The commercial judge correctly applied a broad brush assessment of a 65% chance of success rather than a rigid mathematical approach to loss of chance.
- The interest on taxed expenses was properly awarded from the date of citation as the Plaintiff was liable to pay those sums.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Julien v Evolving Technologies and Enterprise Development [2018] BCC 376 (PC) |
Attribution of knowledge to a company for prescription purposes |
Supported the principle that knowledge of a liquidator's wrongdoing is not attributed to the company while the liquidator remains in control. |
| Dryburgh v Scotts Media Tax Ltd 2014 SC 651 |
Creditor for prescription purposes is the company, not the shareholder |
Followed in holding that the Company was the creditor relevant to prescription, not the Plaintiff shareholder. |
| Stone & Rolls v Moore Stephens [2009] 1 AC 1391 |
Nature of section 212 proceedings as procedural, not substantive |
Distinguished section 212 proceedings from derivative actions, clarifying the procedural nature of the claim. |
| Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 (PC) |
Special rules of attribution of knowledge to companies |
Rejected Defendant's contention for a special rule of attribution of Plaintiff's knowledge to the Company in this context. |
| Mount v Barker Austin [1998] PNLR 493 |
Difficulty in defending negligence claims by arguing litigation would not have succeeded |
Discussed in relation to the Defendant's argument on prospects of success in underlying litigation. |
| Woodhouse v Lochs and Glens (Transport) Ltd 2020 SLT 1203 |
Standard for appellate interference with findings of fact |
Applied in assessing whether the commercial judge's factual findings on funding were plainly wrong. |
| Revenue & Customs Commissioners v Holland [2011] Bus LR 111 (UKSC) |
Discretion under section 212(3) of Insolvency Act 1986 |
Confirmed the court's discretion is to do what is just but not to decline to make any order where breach established. |
| In re Mercantile Trading Company (Stringer's Case) (1868-69) LR 4 Ch App 475 |
Purpose and scope of section 212(3) power |
Explained the historical and wide power of the court to compel repayment or compensation in winding up. |
| Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 |
Principles of loss of chance in damages assessment |
Applied in determining how to assess loss of chance in litigation claims. |
| Perry v Raleys Solicitors [2020] AC 352 |
Distinction between proof on balance of probabilities and loss of chance evaluation |
Endorsed approach to loss of chance damages adopted by the commercial judge. |
| Kyle v P&J Stormonth Darling WS 1993 SC 57 |
Recognition of damages for loss of a chance in litigation |
Supported the principle that lost rights to proceed with litigation can be compensated. |
| Harrison v Bloom Camillin [2001] PNLR 7 |
Mathematical approach to loss of chance percentages |
Discussed but the court declined to apply a strict mathematical approach in the present case. |
| Joyce v Bowman Law Ltd [2010] PNLR 413 |
Application of multiple contingencies in loss of chance assessment |
Considered in context; court accepted broad brush assessment instead of multiplication of chances. |
| Hanif v Middleweeks [2000] Lloyd's Rep PN 920 |
Rejection of mathematical multiplication of chances where contingencies are not independent |
Supported court's approach to treat contingencies as facets of the same issue. |
Court's Reasoning and Analysis
The court conducted a detailed analysis of the multiple legal and factual issues raised. On prescription, the court agreed with the commercial judge that the creditor for limitation purposes was the Company, not the Plaintiff shareholder, and that the Company's awareness was the relevant measure. The court rejected the Defendant's argument that the Plaintiff's knowledge should be attributed to the Company, relying on established principles of separate corporate personality and the control of the liquidators over the Company.
Regarding funding, the court upheld the commercial judge's finding that the Plaintiff would have obtained litigation funding with virtual certainty, based on credible evidence from a funder. The court rejected the Defendant's challenges to this finding, noting that the commercial judge had considered all evidence, including cross-examination, and had not been plainly wrong. The court also found on balance that the Plaintiff could have self-funded the litigation if funding had not been available.
On breach of duty, the Defendant accepted there was a real and substantial chance the Plaintiff would establish breach, so the court focused on the other contingencies. The court found that the Plaintiff had reasonable prospects of establishing that the joint liquidators would have limited the Landlord's claim to less than £28 million, based on reasonable inferences and the absence of evidence to the contrary. The court rejected the Defendant's contention that the absence of an anti-embarrassment clause was speculative.
Regarding the availability of a surplus, the court accepted the commercial judge's conclusion that there was a reasonable prospect of a surplus being available to the Plaintiff after payment of creditors, rejecting the Defendant's argument that any reduction in the Landlord's claim would have resulted in a correspondingly lower settlement by Company B. The court emphasized the liquidators' duties to both creditors and contributories and the absence of evidence that Vivendi would have refused to settle at a lower amount.
The court agreed that the discretion under section 212(3) to refuse an order was not likely to have been exercised in the Defendant's favour given the circumstances. The Plaintiff's conduct was not found blameworthy enough to justify refusal of compensation.
On assessing loss of chance, the court endorsed the commercial judge's broad brush 65% figure rather than a strict mathematical multiplication of contingencies, noting that the contingencies were facets of the same question of success on the merits. The court found no error in this approach and accepted the use of contemporaneous legal advice as a cross-check.
On quantification, the court upheld most of the commercial judge's calculations, including the deduction of statutory interest owed to creditors before calculating the sum due to the Plaintiff and the application of interest at 4%. However, the court found error in applying the loss of chance percentage to costs and expenses awarded against the Plaintiff in appeal proceedings and held that these sums should be awarded in full without reduction.
Holding and Implications
The reclaiming motion by the Defendant is REFUSED. The commercial judge's decision finding the Defendant liable to pay damages to the Plaintiff in the sum of approximately £9.12 million plus interest is upheld.
The Plaintiff's cross appeal is ALLOWED in part, with the court ordering the Defendant to pay the Plaintiff the full sums of £228,435.31 and £174,158.47 for expenses awarded against the Plaintiff in prior proceedings, without reduction by the loss of chance percentage, together with interest as specified by the commercial judge. In all other respects, the cross appeal is refused.
The decision directly affects the parties by affirming the Defendant's liability for damages arising from professional negligence in failing to lodge caution, and refining the quantification of recoverable expenses. No new precedent is established beyond the application of existing principles to the facts of this case.