Whiteleys (A Firm) v Trafalgar Consultancy Ltd [2006] EWCA Civ 503

Case No B2/2005/1149[2006] EWCA Civ 503
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ALDERSHOT AND FARNHAM COUNTY COURT
MR RECORDER MAWHINNEY
AF204631
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Friday, 5th May 2006
Before
THE RT HON. LORD JUSTICE WARDTHE RT HON. LORD JUSTICE LLOYDTHE RT HON. LORD JUSTICE WILSON
Between
Whiteleys (A Firm)Claimant/Trafalgar Consultancy LimitedDefendant/
(Transcript of the Handed Down Judgment ofSmith Bernal WordWave Limited190 Fleet Street, London EC4A 2AGTel No: 020 7421 4040 Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Paul McCormick (instructed by Messrs Clereys) for appellantCatherine Callaghan (instructed by Addleshaw Goddard) for respondent
Judgment

Introduction

[1]The appellant carries on business as a supplier of security guards and security and investigative services. One of its clients is Siemens Plc (“Siemens”). In the summer of 2001 Siemens invited tenders from the appellant, among others, for the provision of security guards at seven sites owned or controlled by Siemens. The appellant wished to tender for that work but needed help to price their tender.[2]The respondent is a firm of chartered accountants and the appellant engaged it to provide at least part of the information which had to be submitted in the tender. It was common ground that the respondent was not instructed to draft the tender.[3]This dispute arises because the appellant contends that the respondent negligently calculated the amounts that the appellant should charge Siemens, that as a result the tender price was lower than it should have been and, having been accepted by Siemens, the appellant has suffered loss accordingly. This contention was raised in a counterclaim brought in response to the respondent’s claim for unpaid fees. In his judgment under appeal, Mr Recorder Mawhinney, sitting at the Aldershot and Farnham County Court on 12th May 2005 awarded the appellant £80,943 plus interest on its counterclaim, the appellant now contending that greater loss was suffered by it.[4]In his judgment the Recorder explained the way the counterclaim arose saying:
“45. In a nutshell … security guards employed by the [appellant] are paid double rate on bank holidays. The tender, which was submitted to Siemens, and which was accepted by Siemens and which was the basis for the contract between the [appellant] and Siemens did not take account of the [appellant] paying its guards double time on bank holidays. Because the [appellant] has to pay double time on bank holidays, its profit margin is less than it would have been if it had been tendered at a higher sum on the double time basis for bank holidays, and that increased value tender had been accepted by Siemens.”
[5]Later he defined the parties’ cases in this way: “55. There is a dispute as to the extent of responsibility assumed by Mr Whiteley [the partner in the respondent firm dealing with this matter] for the figures in the spreadsheets which he prepared. The central issue of fact turns on what Mr Cole [the appellant’s managing director] said about bank holiday provision:(a) did Mr Cole expressly ask that all calculations should be prepared on a notional 53 week basis to reflect the fact that the security guards had to be paid double time for working bank holidays and that the number of bank holidays were 8 days per year and that this was to be catered for in the spreadsheet by adding a notional 53rd week each year? In other words did Mr Cole draw attention to the need to factor in the bank holiday factor and even mention one method of doing so?(b) did Mr Cole mention the working hours for bank holidays, but say he had already included them into the working hours figure to be provided for each site? 56. It is common ground that the spreadsheets prepared by Mr Whiteley did not include provision for the increased bank holiday rate. The defendant says the mistake was made despite Mr Cole telling Mr Whiteley that security guards were to be paid double on bank holidays. It says such a failure amounted to a breach of duty. In the alternative, the defendant’s case is that Mr Whiteley ought to have known or ought to have discovered that the guards are paid double on bank holidays or that the figures had not made such provision and was under a duty to make sure that those double rates were factored into the calculation. Either way, they say, as the result of this breach of duty, they have suffered damage. … 58. The [respondent’s] case was that initially no mention at all had been made in the meeting, or at any time, of the fact that security guards were paid double on bank holidays or the need to incorporate such a factor into the calculation. In his fourth witness statement … Mr Whiteley said for the first time, that Mr Cole had indeed at the meeting mentioned working hours of the bank holidays: however Mr Whiteley said Mr Cole said he, Mr Cole, had already included them into the working hours figure to be provided for each site. Accordingly, it became the claimant’s case that the defendant had actually worked this factor into the figures he had provided so that there was no need for the claimant to take further account of this factor. In other words, says the [respondent], the responsibility for including this factor was the [appellant’s].” (a) did Mr Cole expressly ask that all calculations should be prepared on a notional 53 week basis to reflect the fact that the security guards had to be paid double time for working bank holidays and that the number of bank holidays were 8 days per year and that this was to be catered for in the spreadsheet by adding a notional 53rd week each year? In other words did Mr Cole draw attention to the need to factor in the bank holiday factor and even mention one method of doing so? (b) did Mr Cole mention the working hours for bank holidays, but say he had already included them into the working hours figure to be provided for each site?

The Recorder made these findings:

“62. On the central issue of what was said about bank holidays I prefer the evidence of Mr Cole. It would be very surprising for Mr Cole to say to Mr Whiteley that he had already factored in bank holidays when clearly the figures do not in fact have any bank holiday factor worked into them: not only would it be nonsensical, but obviously contrary to the [appellant’s] interest. … 64. I find that express notice of the need to factor into the calculations the fact that the guards were paid double time over bank holidays was given by Mr Cole to Mr Whiteley and that the claimant was therefore responsible for providing properly for that factor in the calculation. 65. The defendant’s duty is to exercise skill and care of a reasonably competent accountant. Since he was on express notice of the need to incorporate those findings, his failure to do so drives me to the conclusion that such a failure amounted to a breach of duty.”
[7]So far as the appellants’ alternative case is concerned, the Recorder decided that in the light of his findings it was strictly unnecessary to decide it but concluded that if he had to come to a conclusion about it then he would find that there was no breach of duty on the part of Mr Whiteley.[8]The next question the Recorder addressed was whether the appellant would have secured the Siemens contract in any event and he held in paragraph 71 that:
“even if the [appellant’s] bid for the Siemens’ contract had been £100,000 more than the actual bid figure, nonetheless, they still would have secured the contract with Siemens.”

The Recorder directed himself as to the measure of damage in these terms:

“77. The proper measure of damage is such damages as will put the [appellant] in the position it would have been if the [respondent] had not been negligent. The first step is an enquiry as to at what figure the [appellant] would have tendered if it had taken account of being responsible for the additional bank holiday payments. The measure of damage is the difference between that figure (on the assumption such figure would have been accepted by Siemens) and the amount Siemens agreed to pay the [appellant] under the contract.”
[10]As the Recorder observed, the parties’ approaches to the way in which any loss was sustained as a result of the breach alleged were significantly different. There have been many computations, invariably complicated, and I shall endeavour to abstract from this abstruse material a summary of the rival contentions.[11]The appellant eventually proffered three methods for determining “how much extra could and would have been charged by the [appellant] for providing coverage for the bank holidays”. It is common ground that where figures included a charge for security guards at Solihull, that amount should be deducted because, as I understand it, Solihull security was not part of the tender and the judge held that no breach of duty had been established in relation to the Solihull site: see paragraph 79 of his judgment. The three methods were these:(1) “Method 1A” proceeded on the basis that there are “roughly seven bank holidays per year.” To cater for the double rates that had to be paid to the security men working on those bank holidays, one could then simply then add an extra seven-day week to the normal fifty-two weeks of each year and so use a multiplier of fifty-three to the weekly cost for each year. That would have created a loss of £90,933.(2) “Method 1B” was a more precise method of calculating the loss. Recognising that there are normally eight bank holidays a year, not seven, the appropriate multiplier would be 53.14. There is a further complication in that in 2002, to celebrate the Queen’s Jubilee, there was a ninth bank holiday, so that the multiplier for that year would be 53.29. On this basis the loss would have amounted to £106, 339.(3) “Method 2” involves a site by site calculation based on the actual number of bank holidays for the five year period of the contract. Various calculations were made on this basis and the final figure put forward was £109,420.[12]The respondent used an even finer toothcomb in its analysis of the tender documents and the resulting contractual documents which led to the submission that the appellants were actually better off as a result of the mistake made by the failure to include the extra bank holidays. It seems that in some instances the defendants tendered a price, which was accepted, on the basis that many more hours would be chargeable than were in fact actually provided. The respondent’s case is that the appellant was better off to the tune of some £16,924 than it would have been if the contract had been properly costed. On another basis, too complicated to explain, the loss suffered by the appellant as calculated by Mr Whiteley and confirmed by the expert, was £80,943, a figure accepted by the Recorder. As I have indicated, it was for that sum plus interest that he entered judgment for the appellant.

The grounds of appeal

[13]By its appellant’s notice the appellant seeks to vary the Recorder’s order and to increase the amount of judgment on the counterclaim to £109,420 plus interest (or such other sum as the Court of Appeal may determine). In other words, the appellant is seeking to assert “method 2” set out in paragraph 11 above.[14]Two grounds were put forward for this variation. The first is that the Recorder erred in assessing damages on the counterclaim by wrongly rejecting the single joint expert accountant’s evidence as to the proper basis and method of computation and instead acting on:
“an unreliable, biased and non-expert source, namely the proprietor of the claimant firm whose factual evidence was rejected by the Recorder on key points in the case and who was found to have been professionally negligent.”
The second ground of appeal was:
“The basis of assessment of damages used by the Recorder was internally inconsistent, illogical and arbitrary and/or was wrongly applied, and further failed to reflect the actual number of bank holidays in the five-year contract.”
[15]Permission to appeal was granted by Moore-Bick L.J. but limited to ground two, the reason given being that:
“It appears that the Recorder may have overlooked the fact that the claimant’s calculation of the loss which he accepted was based on there being only seven bank holidays a year when it was common ground that allowance should have been made for eight.”

The appellant’s case as presented to us

[16]Mr Paul McCormick filed three skeleton arguments and also addressed us at length. I confess I found it difficult to follow every nuance of his submissions but I hope a fair distillation of his argument amounts to this. The effect of the Recorder’s finding in paragraph 64 of his judgment, set out in paragraph 6 above, was that the Recorder found the respondent’s duty to be to provide “properly” for the need to factor into the calculations the fact that guards are paid double time over bank holidays. The duty was, therefore, to incorporate the actual number of bank holidays to be worked over the five-year period at each of the sites – the method 2 calculation.[17]He submits that since the judge accepted Mr Cole’s evidence he also accepted what he said in this passage of his cross-examination:
“Miss Callaghan: And what did you say about 53 weeks? A. We explained, well, I explained that the 53rd week, a notional 53rd week was my way of trying to demonstrate it or trying to explain it. The Recorder: I explained the notional 53rd week was my way of …? A. A simplistic way of explaining it. Miss Callaghan: And what did you say about 53 weeks? A. I explained that that was my way of showing the bank holidays or including bank holidays. Q. But what do you mean? Did you just say 53 weeks? What did you actually say about 53 weeks? A. I said we had to make sure that we paid the guards for double time and as there were only 52 weeks in the year, our way, a simplistic way of doing it, was to say that you had to add on a 53rd week, but in any event what I went on to say was he needed to include double time payments for all bank holidays that would occur throughout the period of the contract and it was essential.” (Emphasis added by me.)

Miss Callaghan: And what did you say about 53 weeks?

[18]Relying on that evidence, Mr McCormick advances the case that:(1) adding on a fifty-third week was only “a simplistic way of doing it”, or, as the judge put it in paragraph 55 (a) of his judgment merely a “mention [of] one method of doing [it]”; but(2) the instructions were to allow for all holidays;(3) as a fifty-three week calculation did not properly provide for all holidays, that would not do the job properly;(4) therefore the judge was wrong to apply a multiplier of 53 and(5) he was even more wrong to discount the figures as the respondent did.[19]Miss Callaghan who appears for the respondent has a short but devastating answer to the main thrust of Mr McCormick’s argument. To quote from paragraph 12 of her skeleton argument:
“The reason the Recorder assessed the damages payable to the appellant on the basis of seven bank holidays a year, rather than eight, is that this is what the appellant had asked the court to do. The appellant’s case, as contained in its pleadings and witness evidence, was that the respondent was negligent because it had failed to follow the appellant’s express instructions to prepare calculations on the basis of a notional 53rd week. Accordingly, as the Recorder made a finding that the respondent had been negligent in the manner alleged, he was bound to apply the correct measure of damages by putting the appellant back in the position it would have been in if the respondent had not been negligent and had instead done what the appellant instructed it to do, namely to prepare calculations by adding a fifty-third week i.e. seven days. In other words, the loss could only be the difference between what the respondent was instructed to do, and what it in fact did.”

Discussion

[20]The counterclaim was pleaded in these terms: “16. At the meeting the said Richard Cole instructed the said Paul Whiteley: … (d) to prepare all calculations on a notional 53 week year basis to reflect the fact that the security guards or supervisors had to be paid ‘double time’ (i.e. twice the basic rate per actual hour of work) for working bank holidays and the number of bank holidays were eight per year. This was to be catered for in the same document by adding a notional 53rd week to each year. … 22. In breach of the defendant’s said express instruction and/or in breach of the said contractual terms … the claimant and the said Paul Whiteley made their calculations on a 52 week year instead of a 53 week year …” … (d) to prepare all calculations on a notional 53 week year basis to reflect the fact that the security guards or supervisors had to be paid ‘double time’ (i.e. twice the basic rate per actual hour of work) for working bank holidays and the number of bank holidays were eight per year. This was to be catered for in the same document by adding a notional 53rd week to each year. …[21]In a reply to the defence to the counterclaim the appellant pleaded:
“… It is averred that the claimant was instructed to pay all costs on a notional 53 week basis. …”
[22]Mr Cole’s second witness statement made on 4th June 2004, asserts:
“12. At this meeting I agreed with Paul Whiteley and accordingly orally instructed him to do the following:- (d) to prepare all calculations on a notional 53 week basis to reflect the fact that the security guards or supervisors had to be paid ‘double time’ (i.e. twice the basic rate per actual hour of work) for working on bank holidays and the number of bank holidays and the number of bank holidays were eight per year. This was to be catered for in the said document by adding a notional 53rd week to each year. … 41. What Paul Whiteley seems to have overlooked or forgotten is that I specifically instructed him that the payment of costs for personnel was to be on a notional 53 week basis.”
[23]Mr Philip Olive (the appellant’s contract manager), was present at the crucial meeting, stated in his witness statement that:
“Apart from the importance of ensuring that the figures were correct, the next most important and most emphasised instruction given by Richard [Cole] to Mr Whiteley was to ensure that the spreadsheets made provision for payment of wages for time worked during bank holidays at double time, which is known as the 53rd week in the year. The way I personally explain this concept is that 51 weeks of the year are charged at single time and the 52nd week is charged at double time.”
[24]Miss Callaghan also relies on some passages in the cross-examination which follow those I have already quoted. She asked:
“Q. A fifty-three week year assumes an extra seven days to the fifty-two week year does it not? A. It does. Q. And if you are using that to explain the extra bank holidays, it assumes there is going to be seven bank holidays, does it not? A. It does. Q. And that would be inaccurate because there are in fact eight bank holidays in a year. A. That is correct but I did explain that obviously this was the most important payment and how he came by the calculation or how he worked out that calculation was simply down to Mr Whiteley. Q. Did you say that or did you think that? A. He had his own way, I believe, of trying to work that out and obviously rebuked my version of how it should be done but it was left that double time had to be included and we didn’t go into any other workings of how it should be worked out.”

Q. Did you say that or did you think that?

[25]It seems to me that in the light of those pleadings and that evidence the only conclusion to which the Recorder could come once he accepted the evidence of Mr Cole was that, as the central issue was posed in paragraph 55 of his judgment, Mr Cole expressly asked that all the calculations should be prepared on a notional fifty-three week basis and that the actual number of bank holidays was “to be catered for in this spreadsheet by adding a notional fifty-third week to each year”. Mr McCormick is now seeking to advance a case which was not pleaded and a case which is at odds with the Recorder’s findings. He cannot in my judgment support a claim to damages calculated in accordance with “Method 1(b)” or “Method 2”. If the duty was to do the calculations on a 53 week year and the breach of the duty was wrongly to calculate on the basis of a fifty-two week year, then the correct measure of damages correctly identified by the Recorder – and repeated by Miss Callaghan in her skeleton argument – is such sum as would put the appellant in the position in which it would have been if the respondent had not been negligent, or, as Miss Callaghan puts it, the difference between what the respondent was instructed to do and what it in fact did.[26]On that the evidence was all one way. The spreadsheet worked out the weekly total that needed to be covered in the tender, including the profit element and then multiplied that figure by52. The correct approach would have been to multiply by53. The loss established by “Method 1(a)” is £90,933 and that is the sum for which judgment ought to have been entered on the counterclaim.[27]Although Mr McCormick’s primary case must fail, buried in the depths of his other more abstruse argument is another point which can be brought within ground 2 of the grounds of appeal. This is that the Recorder fell into error when he accepted the case advanced on the respondent’s behalf. Its case was that the appellant should not be better off as a result of the mistake in failing to include bank holidays. The respondent had discovered that the appellant had fortuitously priced the contract on the basis that more hours were to be charged than the contract required or, putting it another way, that if the tender had been priced to provide for security guards to be on duty only when the contract stipulated, then a 53 week calculation would have been exclusive. That is as may be. The Recorder had accepted in paragraph 71 of his judgment that even if the appellant’s bid for the Siemens contract had been £100,000 more than the actual bid figure, nevertheless, they would still have secured the contract with Siemens. It must follow from those findings that if Mr Whiteley had done what he should have done and multiplied his weekly rate by 53, not 52, then the appellant would have been paid an extra £90,933 because that was within Siemens’ budget. The appellant may have made a windfall which was thoroughly undeserved in the sense that their contractual obligations would not have entitled them to that money, but that is not the point. They have lost the chance to earn £90,933 and in my judgment the Recorder was wrong to take the respondent’s figure of £80,943 as the correct measure of damages.[28]Although this point only arose late in the argument, the appeal must be allowed to correct the mistake and I would therefore allow the appeal to the extent that judgment be entered on the counterclaim for £90,933 plus interest. I would ask counsel to agree the figure for interest so that an agreed order can be placed before the court when this judgment is handed down.[29]I agree. I have a good deal of sympathy with the judge in respect of the task which faced him in this case. The hearing of the claim and counterclaim seems originally to have been estimated for 5 days, and 4 consecutive days were allowed starting on 30 November 2004, with the previous day perhaps allowed as a reading day. It could not be concluded in that time. The judge records that, even before he heard closing submissions, the hearing had extended to 11 days, spread over 3 months. As he says at paragraph 72 of the judgment, the Defendant started with a very uninformative schedule of loss on its Part 20 Claim, but this developed several times in the course of the hearing. On the fifth day (22 December 2004) the Defendant served a further explanatory document, and yet another on the ninth day (1 February 2005). These were followed up by a skeleton argument on damages, in preparation for closing submissions, on 23 February 2005.[30]What the Defendant never sought to alter was its allegation of what the instructions were that had been given to Mr Whiteley, failure to fulfil which was the whole basis of the Part 20 Claim. That remained, as it had always been, as set out in paragraph 16(d) of the Defence and Part 20 Claim, despite two successive amendments, the latter on the first day of the trial. Ward LJ sets this out at paragraph 20 of his judgment, and at paragraph 22 he quotes from Mr Cole’s second witness statement, made on 4 June 2004 in support of the Part 20 Claim, where the evidence precisely matches the allegation in the statement of case.[31]So formulated, and denied by Mr Whiteley, it was and remained the central factual issue as regards liability on the Part 20 Claim. The Defendant did not allege, in more general terms, that Mr Cole had instructed Mr Whiteley to allow for bank holidays, and had left it up to him to consider how best to do so as a matter of his professional judgment and competence. Nor did it allege that Mr Cole had given Mr Whiteley instructions along those lines and had mentioned a 53rd week as one possible way of doing so, requiring Mr Whiteley to exercise his judgment as to whether this was or was not an appropriate method, and more generally as to what was the most appropriate method.[32]Mr Cole made a third witness statement, the date of which seems to be 22 December 2004, in which he said this at paragraph 8:
“I understand Mr Whiteley’s point that there are 8 bank holidays in the year and that there are 7 days a week. I had instructed him to incorporate bank holiday provision at double time into the spreadsheets. How he did that was a matter for him. He was the professional. It was up to him to work it out if he did not already know how to do it. I merely mentioned 53rd week as a suggestion as to how it could be done. If that was not the correct or accurate way to do it then he should have told me and done it in the correct way. I had passed over the whole spreadsheet issue and specifically the bank holidays to him so it was for him to count up how many bank holidays there were in each year. If there were 8 bank holidays in a year then he had a special 8 day 53rd week or find some other way to do it. If I knew all the answers I would not have given him the job. I was relying on him to know how to do the job properly.”
[33]That is plainly different from what Mr Cole had said in his second witness statement, and what had been alleged in paragraph 16(d) of the Defence and Part 20 Claim. It could have been the basis for an amendment of the statement of case as to the instructions given, and thus as to the duty on the part of Mr Whiteley resulting from the instructions. Instead Mr McCormick focussed on the reformulation of the case as to damages, but not the case as to duty.[34]In line with the evidence in that passage, Mr Cole gave the evidence under cross-examination (on 21 January 2005) which Ward LJ has set out at paragraph 17. By then Mr Whiteley had already given evidence. The appeal bundle, commendably, does not include all the vast amount of documentation that must have come into being for the purposes of the trial. In particular we have only some short extracts of the transcripts of cross-examination. That which we have of Mr Whiteley’s evidence (given on 3 December 2004) does not include any passage in which anything along the lines of Mr Cole’s paragraph 8 quoted at paragraph 32 above was put to him. It seems safe to conclude that this case was not put to him since, if it had been, its relevance to the appeal would have been so obvious that it must have been among the passages selected for inclusion in the bundle.[35]It seems to me that, the allegation as to the instructions given being that set out in paragraph 16(d) of the Defence and Part 20 Claim, the first question which the judge had to consider in respect of liability on the Part 20 Claim was whether or not Mr Cole had given those instructions. He did not have before him an alternative case advanced by the Defendant alleging that he had given different instructions. The factual issue was probably obscured by the evidence given by Mr Cole in his third witness statement and in cross-examination, but in my judgment it was not open to the Defendant to allege any other instructions, not having amended the Defence and Part 20 Claim on this point. The development of the case on damages by the successive documents to which the judge refers in paragraph 72 of his judgment was irrelevant to the identification of the issue between the parties as to the duty incumbent on the Claimant, which depended on the instructions given.[36]The judge stated the rival contentions on the factual issue as to what the instructions had been in paragraph 55 of his judgment, quoted in paragraph 5 of Ward LJ’s judgment. It seems to me that the first sentence of his paragraph 55(a) is correct. It follows closely paragraph 16(d) of the Defendant’s statement of case. The second sentence of paragraph 55(a) is not simply a rewording of the first, despite its opening words “in other words”, and it seems to me to be open to the criticism that it allows for an alternative formulation of the instructions, along the lines of paragraph 8 in Mr Cole’s third witness statement, which it was not open to the Defendant to advance.[37]The judge expressed his resolution of the factual issue, in favour of the Defendant, in paragraph 63 of his judgment. He believed Mr Cole who said that the question of bank holidays had been discussed, rather than Mr Whiteley who said otherwise. Mr McCormick argued that what the judge said in paragraph 63 amounted to an acceptance of Mr Cole’s evidence as to a wider basis of instruction to Mr Whiteley, as set out in paragraph 8 of his third witness statement and in his cross-examination. But even if that is correct, it is of no avail to the Defendant since the duty alleged by the Defendant is that which results from the giving of the instructions alleged in paragraph 16(d) of the Defence and Part 20 Claim. The judge’s acceptance of the evidence cannot change the allegation made, any more than to advance the evidence, as in the third witness statement, did so, unaccompanied by any amendment of the statement of case.[38]Accordingly, I agree with Ward LJ that the question before the judge was what loss the Defendant had suffered by reason of Mr Whiteley not having carried out the instructions alleged, namely to price the tender on the basis of 53 weeks in each year. On that basis the judge’s conclusion as to the loss suffered is correct, subject to the substitution of the figure of £90,933 in place of £80,943. I agree that the appeal should be allowed to that extent and no further.[39]I agree with both judgments.