BARROWFEN PROPERTIES LIMITED v GIRISH DAHYABHAI PATEL & Ors [2022] EWHC 1601 (Ch)

“B2.2.2.1 In a basic residual valuation, finance is assumed at 100 per cent of both land and building costs. B2.2.2.2 The development property/land value finance costs are included by reference to the residual value being discounted by the borrowing costs over the development period. B2.2.2.3 There are three ways to determine the amount of interest paid on the cost of borrowing the building related costs: • The first is to set out the costs as a cash flow and determine the total interest payments. These are then included as a cost to be deducted from the development proceeds. Some residual valuation proprietary software adopts this approach. In that form, it represents a cash flow model assuming 100 per cent borrowings on land and building/ ancillary costs and a fixed profit based on a per cent of GDV or costs. • Second, interest on construction-based borrowings can be more crudely approximated by assuming that interest accumulates on half the development costs excluding land and profit at the cost of borrowing over the whole construction period. • Third, it can be approximated by assuming that the whole of those costs is borrowed over half the construction period. B2.2.2.4 Where the residual does not adopt a cash flow format, interest does play a role in giving the development appraisal some time frame to it with the interest payments crudely representing discounting of all values within the development time frame back to the present-day to form a current value for the land. B2.2.2.5 It is normal for interest to be treated as a development cost up to the assumed letting date of the last unit, unless a forward sale agreement dictates otherwise. B2.2.2.6 In the case of residential developments, the sales of individual units may occur at various stages during the development and the drawdown assumptions can be amended to compensate. As with any phasing of sales and lettings, this requires the cash flow format to replace the basic residual approach to identify the total interest payments that can then be deducted within the basic residual model. B2.2.2.7 If an assumption is made that the completed development is held beyond the date of completion, first the attendant costs of holding that building should be added. These may include such items as insurance, security, cleaning and fuel. A proportion of the service charge on partially let properties may have to be included together with any potential liability for empty property taxes. Interest can then be accumulated in two parts; in the construction period and then in the post-construction period where the full costs of development can be included in the interest calculations. B2.2.2.8 Where the client requires an appraisal considering particular financial arrangements, this can only be carried out within a cash flow appraisal.”

“However, it should be noted that this methodology reflects an assumption that the development will be sold upon completion and letting, whereas it is the Claimant’s stated intention to hold the Property as an income producing investment. Therefore, additional finance costs will be incurred to re-finance the Property on completion and subsequent interest costs should be off-set against in any calculations of loss of rent.”

“16. The equity element of the construction costs was paid out of Barrowfen’s own funds. These funds in turn were raised by Barrowfen initially as debt from its parent company, Asian Agri Investments Ltd (“Asian Agri”) pursuant to a subordinated debt agreement. This debt was converted into equity through the issue of 2,672,500 shares at £4 each in December 2019 and 150,000 shares at £4.50 each in December 2020 (i.e. a total of £11,365,000). The amount raised was more than the £6.1 million needed for the construction costs of the Tooting Property, as Barrowfen also needed funds to cover the costs of these proceedings and other professional fees. Part of the sum raised was also used to provide security to Barclays as I explain below. 17. I can confirm that Barrowfen intends to use the profits generated from the Tooting Property to pay a dividend to its shareholders. The dividend will be paid from available retained earnings once Barrowfen’s audit is completed every year.”

“Further, the lower equity commitment required for the Amended Original Development Scheme as compared to the Revised Development Scheme would have freed up funds for other investments. Given the relatively low cost of Barrowfen’s debt compared with the investment return available, it would not have made financial sense for Barrowfen to use any surplus funds to pay down debt. I can confirm that in April 2019 I was presented with a couple of other development opportunities which were available for investment, either through Barrowfen or another family-owned company. The Poppin Centre site was over our budget with an estimated site cost of over £40,000,000. The Beresford site, however, had an estimated site cost of only £7,000,000 to £7,500,000. Had we been able to build the Amended Original Scheme (as found in the Judgment), we would have had sufficient funds available (together with a bank loan) to acquire the Beresford site.”

“Contingent Liability £1m Stand By Letter Credit Fee – 1.75%”

“Q. And you've got this email from looking at her file; all of that's correct? A. I've -- I mean, I have completely forgotten that I'd handwritten this stuff, but when it was discovered -- because we uploaded all her emails and mine, when it was discovered and I can see my handwritten notes, that's when my memory has been jolted that, yes, I was always telling her: put the fee in. Q. So just to be clear, this is a process of reconstruction caused by looking at the printed-out email of the zip file from April 2020? A. If you look at my sixth witness statement, I put in there -- and this is before I had seen this or it jolted my memory -- that I had always intended to put the fee in. It was always at the back of my mind that I needed to charge this because one entity should not basically entity gain, right, from the other, it needs to be always arm's length basis. Q. Right. Now, if we --A. I mean, there's no reason why one entity should not -- I should not put the charge through on one to the other. Q. Sorry? A. I was saying that there's absolutely no reason why I should not put the charge from one entity to the other. They're all related, but still I've always included the charge of one gains and the other is -- needs to pay for it. MR JUSTICE LEECH: Apart from this being in the back of your mind as you said, the only action you took was just to effectively write it on a piece of paper and give it to your in-house accountant. There's no formal decision by either company. A. No, I mean, look, it's -- as a family entity it's always going to be informal, but it's me controlling the company and driving it. I keep Suresh up to date with everything, but it's actually me that's driving the entire operations. MR JUSTICE LEECH: I fully understand that, but I'm just trying to establish in practice, insofar as there's a contract between Asian Agri and Barrowfen, it's taking place in your head. A. Yes, it's -- you know, myself thinking that, okay, what's -- what needs to happen on an arm's length basis, and then after I'm putting it through, but because it's family-based, my instructions are sometimes, as you see, handwritten and I expected my accountant to do it -- I mean, she's been with me for ten years now. MR JUSTICE LEECH: But all she would have done is just put an entry in the accounts? A. As a journal entry, yes, a journal entry and also I made a liability note because that needs to go into the notes of the accounts. MR JUSTICE LEECH: That may have been more important, in fact, because you needed to record the potential liability on the SLC. A. Yes, but it's just not happened, unfortunately.”

“A. So let me explain that. Right, so Suresh and I are directors of Barrowfen, we're also the directors of Asian Agri, right, so I mean there's no formal calling for funds as such because same person, you know, managing both -- different companies. We are looking at the ultimate outcome that if we develop this site, if we get the money across to develop this site, then we can, you know, start earning a rent out of this and a return out of this. Now, the way -- how Asian Agri was developed was that it was made the holding company of Aumkar Plantations and then we brought Barrowfen into the holding structure as well. Asian Agri had no money. It was seeded with a £10 million dividend from Aumkar Plantations to Asian Agri. So that became its seed funds. Those funds were invested into the money markets, right, so the US Dow, Nasdaq, whatever, and every time we needed money for Barrowfen and I think the court has seen now that there was injections of funds as and when invoices became due, right. So how we did it was in Asian Agri took a loan against the portfolio and then sent the money across. So Asian Agri has a debt at the moment it's incurring to supply equity to its -- to the subsidiaries below it. I mean, to answer your question, as soon as we believed that we need some money, I would utilise the facility in Asian Agri to drag a loan out of it, and then supply the funds.”

“MR JUSTICE LEECH: Can I just ask you, you mentioned a moment or two ago that money would have sat in Asian Agri rather than Barrowfen and you mentioned that Asian Agri put money on deposit. Is that right? It's effectively an investment vehicle for the family's wealth, presumably? A. It's got a portfolio with the Bank of Singapore and the funds are invested into corporate bonds, into equities, into managed funds, and so it just -- it's got a portfolio of diversified investment. MR JUSTICE LEECH: And what's the average return? A. Well, you can't look at the last two years because of Covid, but zero. I think we did 1% in 2020, and last year it was about 3% or a bit less than that. MR JUSTICE LEECH: Less than 3%? A. Yes, in 1s, 2s or 3s. MR JUSTICE LEECH: 1s, 2s or 3s. A. Yes, but that's net of the loan interest, because over the last two years Asian Agri drew a loan against its own portfolio. MR JUSTICE LEECH: Just explain to me how that works. A. Okay, so how it works is that we've got £10 million of funds invested in the money markets. MR JUSTICE LEECH: Is this a way of gearing up the 10 million? A. It is gearing. So if I want some extra cash, right, all I have to do is ask Barclays -- Bank of Singapore for a loan, and they will supply me, let's say, a million, and all that happens is that it's basically geared against their portfolio, and so they've got a limit of 65%, and so you can't borrow more than 65% of the portfolio. Now, typically what investors do is that they borrow and then they re-invest into the money markets and that becomes more collateral security, but in our case we're not doing that. In our case, we are pulling the funds out, out of the company.”

“MR JUSTICE LEECH: It's not the equity point. Since the point has been raised I might as well ask you the questions. It's really about interest, so I'm trying to establish if Barrowfen actually had funds coming in on a regular basis since 2016, which is the rental income, would that have -- that would have passed through presumably to Asian Agri and then that just would have formed part of Asian Agri's investments; is that right? A. So that would have -- MR JUSTICE LEECH: Or would it have kept the money? You presumably would have had a sinking fund of some kind. A. Yes, so we would have done a dividend back to Asian Agri of a certain percentage of profits, right, so that we can still maintain a healthy cash flow in Barrowfen, right, to pay off all our expenses, but the liability is still sitting in Asian Agri, and so I do need to get funds back to Asian Agri so that it can pay down the -- MR JUSTICE LEECH: I'm really looking at the average rate of return that you could have expected over the last five or seven years. It's only in very rough terms for the purposes of assessing interest, so you said 1 to 3% over the last two years? A. That's Covid-related. MR JUSTICE LEECH: And the three years before -- well, it's only existed for three years. A. It didn't establish before then, right. This is the first time that we've actually invested into a portfolio. MR JUSTICE LEECH: So there's no real track record to describe how you would have -- what you would have done with the money or how -- what kind of rate of return you would have got. A. Well, the track record is affected -- because we're raising so much debt, right, the debt would have been paid off, so I wouldn't have incurred the cost of debt. MR JUSTICE LEECH: So you would have reduced the borrowings to Barclays. A. Yes, so I'm paying a couple of percent on interest, right, on pounds and what not, and so if I reduce the loan, then I save the interest cost. MR JUSTICE LEECH: And that's what you would have done with income coming through from -- if you'd had it since 2016? A. Yes, so I mean as -- MR JUSTICE LEECH: The Barclays loan or maybe Investec or RBS would have been converted into an investment loan by that stage. A. Yes, that's right, but that loan is obviously -- so I would have maximised the loan I possibly can, according to the value of the property, and then the rest of it would have been slowly dividend back into Asian Agri so that it could pay off its loans, because it's incurring interest, right, at the moment. But that's obviously to a percentage of -- I need to leave working capital, right, in Barrowfen. We're a property development company in the UK. As soon as I see a site, I send money back across, and if Asian Agri has more equity headroom in there, so that 65% loan margin -- loan that I took against the portfolio is now paid down 17 to 35. I've got that money sitting there where I can say let's send it back again, right, for the next investment opportunity, but everything is via the UK companies, it just -- it makes it -- we don't want to have a foreign entity investing in UK properties, we want a UK company. MR JUSTICE LEECH: That I understand. So just to be absolutely certain, your priority would have been paying down the debt before then dividending back up to Asian Agri; is that right? A. The priority would have been paying the equity debt off, so to speak.”

“MR STEWART: I think probably in those circumstances I'll just ask this: if you go to the next paragraph of what we were looking at, paragraph 3.3 on page 514, your calculations in relation to a fair investment appraisal are assuming holding the investment for 25 years; correct? A. That is correct. Q. And just to be clear what that therefore means is this: you are looking at two different investments, let us say. You're assuming you hold them for 25 years, but it's obviously the case that you can sell either one of them certainly when the development has been completed. Do you agree? A. Yes, you could sell it when development is completed, you could sell it part way through, you could sell it any time, really. Q. Now, just in relation to selling it, market economics dictates, does it not, that if you have an asset and you think that you can obtain a greater profitability on that investment elsewhere, you can sell it and buy what you think is going to be more profitable elsewhere? A. You certainly can, yes. Q. And what your figures are essentially doing is saying that over the course of a 25 year lifespan, one theoretical development might have been more profitable than a development which we've heard is just coming to a conclusion; yes? A. I think if I understand the question correctly, I think that's right. I am trying to assess two different projects over a 25-year period taking into account the financing costs to see whether one would generate more profit in current value terms than the other.”

“21. In the UK accounts may be prepared in accordance with one of a number of different accounting standards. Larger and listed businesses must use International Financial Reporting Standards (IFRSs). Smaller businesses can use UK Financial Reporting Standards (FRS100, FRS101 or FRS102). The accounting for, and disclosure of loan guarantees under each of these standards differs. 22. Smaller unquoted family or owner managed businesses will tend to opt for an accounting regime which has minimum strictures (FRS100 or FRS101) and as a consequence may not be required to book or disclose a charge for a loan guarantee. 23. As disclosed in the Barrowfen Properties Limited accounts, they account in accordance with FRS102 and are required to book a charge for a loan guarantee. If such a charge was not booked in the 2020 accounts this should be corrected in the 2021 accounts and, if material, noted as a prior year adjustment.”

“Q. Now, let's go to the section of Mr Powell's report you're dealing with. So that's the previous tab. And the paragraph reference in question is 28 to 31. So that's section 5 of Mr Powell's report headed "Measuring investment return". A. Yes. Q. As it says in the joint report, you agree with Mr Powell's mathematical calculations. A. Yes. Q. So you agree with the numbers in table A. Yes.” “Q. But fundamentally you agree with the proposition, I think, that if you put more money in you normally expect to get more money out. A. Yes. Q. And therefore at least, given the larger investment of Barrowfen in the revised scheme, at least part of a reason that the resultant profit is larger is that more money went in. A. Yes. Q. And you haven't done any calculations to figure out what proportion of the profits coming out could be attributed to the more money which went in. A. Well, one can do it very simply because one can simply say that if a scheme costs £27 million and it delivers a profit of £12 million, you can work out for every 1 pound you put in what profit; and if you said of that 27 million, 10 million was extra investment, you can simply say, well, okay, if every pound delivered 7p of profit, which I think is excluding the land value where one ends up, you say, well, for every pound of the 10 million extra you put in you get 7p back. Q. So I think you're effectively agreeing with Mr Powell's calculations. A. I have always agreed with the -- his arithmetic, yes. Q. Okay, thank you. Now if we turn back to your report -- so that's what Mr Powell is saying in section 5, if we turn back to your report, page 490, where you've been asked to comment on this section and see what you say, if you just paraphrase it, at paragraphs 2.1.2 to 2.1.4, you say that developer's profit should include a cost of financing. A. Yes. Q. 2.1.5 you reproduce Mr Alford's numbers as used in the judgments. A. Yes. Q. And you show how he calculated developer's profit, and at 2.1.7 you say it's never appropriate to include the cost of equity in the calculation of developer's profits. A. In accounts, yes.” “Q. So you could have just answered section 2.1, which asks you to comment on section 5 of Mr Powell's report, by saying that you agree that the revised scheme does have a lower equity and lower cost of equity -- sorry, and lower return on equity and lower return on capital than the amended scheme. A. Yes, I agree that. Q. Right. And you could have said that you agree that the reason it produces a higher level of developer's profit is that more money went into it. A. Yes, I agree with both those statements.”

“MR DAWID: Sorry, could I just ...I was going to say if what -- if the exercise which was conducted by the surveyors before his Lordship last year produced a gross development value which didn't include a net present value of future finance costs, do you agree it would be appropriate to put those back in? A. No, because it seems to me that -- let us assume, if one might, that actually the surveyors have used the approach whereby they use comparables, and they said there was a scheme that was almost identical to this scheme, and that causes us to value it at £40 million. Nevertheless, however they came to that number, valuation theory says that the number, however you've reached it, should be the best approximation you can get to the net present value of all the future income streams and costs associated with that development, be they finance, be they rent, be they voids, because a buyer buying the scheme, or indeed a seller deciding whether to keep it or sell it, will either by gut feeling or with a spreadsheet say: well, if I buy this scheme and I'm going to keep it for 25 years, what is it going to generate for me net net net, if I can call it that, "after tax, after finance, after risk, and that should be the price, value.”

“Q. If I go to Mr Powell's supplemental, tab 9, page 521 -- A. Yes. Q. -- paragraph 21, Mr Powell makes a point that, you know, larger companies, as you say, use -- A. We agree, yes. Q. -- IFRS. Smaller companies can use FRS100 or 102. A. They invariably do use. Q. He makes the point then at 22 that: "Smaller unquoted family or ... managed businesses will tend to opt for ... [a] regime which has minimum structures (FRS100 or FRS101) and as a consequence may not be required to book or disclose a charge for a loan guarantee." Then he says at 23: "As disclosed in the Barrowfen ... accounts they [apply] ... FRS102 and are required to book a charge for a loan guarantee." You don't disagree with that statement, do you? A. No, I agree with that statement. Q. So if they were required to book a loan guarantee -- sorry, a charge for the loan guarantee. A. Sorry, are required to book a charge. Q. Yes. A. So they are required, as I understand it, to recognise a liability if they are charged. Q. I'm sure you always have to recognise a liability if it's charged. You can't prepare a set of accounts and miss your liabilities. A. Sorry, a liability for the charge. So you have to disclose -- in the books of Barrowfen, Barrowfen has received the benefit of the Atlip being its guarantor. My understanding is that if that benefit was provided by Atlip free of charge there would be no need to recognise any liability because there wouldn't be a liability for a cost for that charge.”

“3.1 RI agrees with the arithmetic of NP's calculations, specifically; the measurements of investment return, the net present value of the debt finance and the net present value of the equity finance. 3.2 RI and NP further agree that Gross Development Value is an investor agnostic valuation not calculated with regards to a specific investor's costs of capital and therefore to a specific investor's finance costs. 3.3 NP considers that his calculations of finance cost contribute to a fair investment appraisal, in line with generally accepted practice, of both schemes assuming a hold period of 25 years and taking into account Barrowfen's specific weighted cost of capital i.e. their cost of debt finance (interest) and a notional cost of equity. 3.4 RI agrees that NP's approach is one that would be appropriate for the purposes of investment appraisals, particularly in relation to the comparison of different theoretical investment opportunities.”

“4.3.1 NP and RI agreed that, had a charge been raised by Atlip House Limited (AHL) on Barrowfen Properties Limited (BPL) the amount of this should have been disclosed in the related parties note to the statutory accounts of both companies. No such disclosure had been made. The related party note of BPL disclosed that a guarantee was in place and AHL's accounts referred to the charge in its commitments and contingencies note. 4.3.2 NP understands that an invoice was raised for the charge in October 2021. 4.3.3 NP and RI differ in their view as to the practice of making such cross charges. NP considers that where one party gives a guarantee in favour of another, lnternational Financial Reporting Standard no.9 (and replicated in Financial Reporting Standard 102) dictates that a charge should be calculated. However for companies consolidated within the same UK group this is often erroneously overlooked and no charge is recorded. 4.3.4 RI has never seen a charge made by any of the unquoted family or owner-managed businesses, akin to Barrowfen, of which he has experience.”

“So how would Mr Patel then go about calculating for himself what the net -- you know, the actual value to him based on his blend of equity and debt would be? A. He would do a cash flow forecast with the rent and the tax and the finance costs built into it to see whether -- and work out what discount rate, although I've never seen a business -- I mean, very few business people ever really do this in practice, what discount rate he thought appropriate and would see whether the net present value was greater than the amount he could get on the open market, and that would determine whether or not, if he were taking a commercial decision, he would keep or sell. MR JUSTICE LEECH: And in doing that exercise, he would build in both his -- the finance costs, cost to him of financing the purchase and as well the costs of his own money that he was putting into it. A. Well, there are two ways that one can do that. One can either apply a notional cost of equity, one does that to see whether it exceeds -- one only does that if one says well I'm only going to invest in projects which deliver me more than 15% per year or whatever one's hurdle rate may be, and then you assess the outcome of your calculation against the yardstick of zero. An equally sensible way of doing the calculation is to ignore that and say well if the outcome is 15% or more I'll do it and if it isn't, I won't. So whether you put it in as a notional cost and then see if you set the hurdle at zero or whether you just say I want to achieve a return of 15% or whatever it is that you think is reasonable comes out at the same -- MR JUSTICE LEECH: So you would be doing an exercise that calculating the cost to you or the profitability -- A. You would look at the profitability and then you would say; is that acceptable?”

“11. The general rule is that loss which has been avoided is not recoverable as damages, although expense reasonably incurred in avoiding it may be recoverable as costs of mitigation. To this there is an exception for collateral payments (res inter alios acta), which the law treats as not making good the claimant's loss. It is difficult to identify a single principle underlying every case. In spite of what the Latin tag might lead one to expect, the critical factor is not the source of the benefit in a third party but its character. Broadly speaking, collateral benefits are those whose receipt arose independently of the circumstances giving rise to the loss. Thus a gift received by the claimant, even if occasioned by his loss, is regarded as independent of the loss because its gratuitous character means that there is no causal relationship between them. The same is true of a benefit received by right from a third party in respect of the loss, but for which the claimant has given a consideration independent of the legal relationship with the defendant from which the loss arose. Classic cases include loss payments under an indemnity insurance: Bradburn v Great Western Railway Co (1874) LR 10 Ex 1. Or disability pensions under a contributory scheme: Parry v Cleaver [1970] AC 1. In cases such as these, as between the claimant and the wrongdoer, the law treats the receipt of the benefit as tantamount to the claimant making good the loss from his own resources, because they are attributable to his premiums, his contributions or his work. The position may be different if the benefits are not collateral because they are derived from a contract (say, an insurance policy) made for the benefit of the wrongdoer: Arab Bank plc v John D Wood Commercial Ltd [2000] 1 WLR 857, paras 92–93 (Mance LJ). Or because the benefit is derived from steps taken by the claimant in consequence of the breach, which mitigated his loss: British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, 689, 691 (Viscount Haldane LC). These principles represent a coherent approach to avoided loss. In Parry v Cleaver [1970] AC 1, 13, Lord Reid derived them from considerations of “justice, reasonableness and public policy”

“Further, I do not consider that the reasoning in Parry v Cleaver [1970]AC 1 assists Swynson's first argument. In Parry's case, the House of Lords addressed the question whether a plaintiff was bound to bring into account insurance payments, charitable payments, pension payments and the like, which were payable owing to the injury suffered as a result of the defendant's tort, when assessing the damages which could be recovered from the defendant. Lord Reid stated at [1970] AC 1, 13 that the answer should depend on “justice, reasonableness and public policy”; however, this should not be treated by judges as a green light for doing whatever seems fair on the facts of the particular case. Ignoring cases of mitigation, and while it would be wrong to pretend that there could never be any exceptions, it seems to me that the effect of the reasoning in Parry's case is that the types of payments to a claimant which are not to be taken into account when assessing damages, are either those which are effectively paid out of his own pocket (such as insurance which he has taken out, whether through his employer, an insurance company or the government), or which are the result of benevolence (whether from the government, a charity, or family and friends), all of which can be characterised as essentially collateral in nature.”

“30. As found by the judge, the 2006 loan was made by Swynson in reliance on the advice of HMT. That advice was negligent. Swynson would never have made the 2006 loan (or, it may be, the 2007 loan) but for that negligent advice. In such circumstances, and in accordance with ordinary compensatory principles, I would expect the measure of Swynson's damages accruing by reason of such negligence to be assessed by reference to the amount of the capital advanced, perhaps with any outstanding interest, less the amount of any repayments made by the borrower. 31. On that approach – in my view, the correct approach – it is evident that, in the circumstances of this case, Swynson has suffered no loss. The entire amount of the 2006 loan (and 2007 loan) was paid off in 2008 by EMSL, the borrower. It was paid off by utilisation of the funds injected into EMSL by Mr Hunt under the Loan Agreement of 31 December 2008 . EMSL's obligations to pay Swynson under the 2006 and 2007 Loan Agreements were thereby discharged; and Swynson's rights of repayment under those Agreements were satisfied in full. In my view, in a nutshell, that is dispositive of the matter. 32. That Mr Hunt never appreciated – to the extent that he thought about it – that his cash injection into EMSL for this purpose might have the consequence of nullifying an effective claim on the part of Swynson against HMT seems to me to be neither here nor there. In fact, it seems to me to be neither here nor there whether or not it was even appreciated by December 2008 that HMT may have been negligent. 33. This case is not about mitigation as such. Rather, it is about avoidance of loss. I simply do not see, in the circumstances of this case, the availability of an argument that what happened here was res inter alios acta and that HMT should not be permitted to benefit from the financing supplied by Mr Hunt. The essential fact remains that this was a refinancing of EMSL whereby the 2006 and 2007 loans were repaid by EMSL to Swynson in full. 34. That this is not to be regarded as res inter alios acta or some kind of collateral transaction is, in my view, demonstrated by the structure of the repayment. Swynson was not repaid by some third party, whether or not acting “benevolently”

“So if what happens is that as a result of an adviser's breach you lose money, and to make up for that loss you go out and raise more money, that's not a benefit for which you have to give credit. That's collateral. If what happens is if someone comes in and actually makes good the loss itself, that's different, but all you're doing is raising money to make up for the consequence of the breach, that's not collateral, or rather that is collateral, we say that's analogous to the situation here because what happened here is that S&B's breaches and Girish's breaches left Barrowfen in a position where in order to develop the Tooting property at all it had to proceed with the Revised Scheme, but that in turn left a £10 million gap in the finances. To fill that gap, Barrowfen went out and raised the capital. It got debts and it got equity, but that capital is not a benefit which Barrowfen received in consequence of the breach. Another way of looking at it is the mitigation way of looking at it. You can ask the question can it be said that the act of raising the additional capital was itself an act of mitigation. I say no, that can't be right, because that implies that any time a wrongdoer causes loss to a company with the result that the company -- say the company has made a bad investment based on bad investment advice and that wipes out the company's capital, and it goes and it needs capital so it raises that money from the shareholders or from its bankers it would not be open to the adviser to say, well, hang on a minute, you haven't made any loss, because you've got it all back from your shareholders. That's not the law, and it's not good accounting, we say, and one of the reasons it's not good accounting, as I went through with Mr Isaacs, is that equity goes in -- you know, capital and equity go into the balance sheet, they don't operate as a deduction against your loss, it doesn't make good a loss for money to come in from a shareholder.”

“The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. In the words of James L.J. in Dunkirk Colliery Co. v. Lever, “The person who has broken the contract is not to be exposed to additional cost by reason of the plaintiffs not doing what they ought to have done as reasonable men, and the plaintiffs not being under any obligation to do anything otherwise than in the ordinary course of business.”

“These cases also, in my view, show that invocations of the “adventitious” or “fortunate” nature of the means of repayment of the original loan cannot necessarily carry the day (cf. the observations of Staughton LJ in the Court of Appeal in Linden Gardens Limited v Lenesta Sludge Disposals Limited (1992) 30 Con LR 1). Suppose, for example, that a loan is made to an individual borrower in reliance on negligent valuation advice without which the loan would never have been made. Suppose, too, that the security, negligently valued, is worthless and that the individual borrower is otherwise without assets. The negligent valuer, in the ordinary way, thus faces liability for the full amount of the loan. But then suppose that the borrower receives an unexpected inheritance from a distant relative or a win on the lottery, by means of which he is able to repay, and does repay, the lender in full. As I see it, the negligent valuer then has no substantive liability in damages: just because the lender has, in the event, suffered no loss. That the lender has suffered no loss is by reason of purely adventitious circumstances: but that, in such a context, makes no difference. So here, in my opinion.”

“The one situation where a lender might properly claim interest at the rate at which they had contracted with their borrower is where they can show that, had they been properly advised by the surveyor or valuer, they would indeed not have lent to that particular borrower but would have been able to find a substitute borrower to whom they could have lent on the same terms. Lord Lowry in effect recognised some such possibility when he awarded his 12 per cent interest: “… in the absence of any evidence as to how the lenders financed the loan or evidence showing how the money, if not lent to the borrowers, could have been profitably employed.”

“MR STEWART: It's complete nonsense, and the reason it's complete nonsense is 46. The constructor's cost used in the calculation, and just pausing there, only represents those costs up until the completion of the development phase, but does not take into account that the future rental stream comes within associated future costs being the finance costs. And that's the nonsense of this, because what he then does is he looks at the net present value of the debt finance and assumes -- and this is most clear from actually the joint accountancy report which I took him to at 514, 3.3: "NP considers that his calculation of finance costs contribute to a fair investment appraisal in line with generally accepted practice of both schemes assuming a whole period of 25 years and taking into account Barrowfen's specific weighted average cost of capital." Well, that's just nonsense. It is complete nonsense. If they want to sell this and use this money for something else, they can do it now, and what they are trying to do is have their cake and eat it. They want to have a fabulous large scheme in Tooting which Mr Patel has no intention of selling because he thinks it's far more valuable to him and he is going to do it. He also wants to have the hypothetical extra cost of making an investment, which he would never have been able to make on his original investment, because he wouldn't have had the extra space and so forth, and he wants us to pay for it. And it is really magic money. It really is a magic money tree, and I don't mean this in any -- it is not, in my submission, difficult to see that it is fundamentally wrong in principle.” “MR STEWART: Well, the big points are here: interest is already -- well, return on capital, whether interest or on equity, is baked into these valuations for the period of delay for which you're giving credit. I'm going to come on to the SLC and the guarantee in a minute, but that is a notional cost of finance which is baked into these matters. What Mr Powell's exercise is doing is looking, as he says, perfectly fairly, and as the experts agree on the basis of a 25-year locked-in period which just doesn't represent reality, and the difference, and so on, is, as your Lordship says, down to that assumption, and it's not one, in my submission, that can or should be made. One assesses damages at a particular point because then the claimant can do what it wants with its money.”

“These two fees (together, the “Security Costs”), which together total £460,249.99 (again, as at 1 November 2021), represent an additional financial cost resulting from the change from the AODS to the RDS. Again, Barrowfen does not claim these additional costs as a loss in their own right, but asks only that they be taken into account when assessing the amount of credit to be applied against its loss in respect of the additional profit generated by the RDS. Given that, on Mr Powell’s calculations, the cost of the additional capital deployed by Barrowfen is itself enough to eliminate this credit, it is only if the Court determines that the cost of capital is not to be taken into account (or that only some of it should be) that the Security Costs will make any difference to the quantum of damages awarded to Barrowfen.”

“Is a particular element of the harm for which the claimant seeks damages irrecoverable because it is too remote, or because there is a different effective cause (including novus actus interveniens) in relation to it or because the claimant has mitigated his or her loss or has failed to avoid loss which he or she could reasonably have been expected to avoid? (the legal responsibility question).”

“The loss of a chance doctrine is primarily directed to issues of causation and needs to be distinguished from the evaluation of factors which go only to quantum.”

“We have found that Mr Hartle lost the chance of selling his property before the market slumped. We have decided that he had a real chance of selling for £375,000, that being our valuation of the price which would have been agreed between a willing vendor - Mr Hartle - and a willing purchaser in the market conditions of the day. Had such a sale taken place, only the net proceeds would have enured for his benefit and so the agent's and solicitors' costs fall to be deducted. Making some estimate of those and perhaps rounding down, I assess the net proceeds of the lost sale to be £360,000. That is my starting point. The parties are at liberty to calculate a more precise figure, but I do not encourage it. Mr Hartle did not lose £360,000. He lost the chance of making it. Given all the imponderables and uncertainties, the chance of achieving such a sale could not be rated at more than 60%. The damages for the loss of that chance appeared to me at first sight to be £216,000. That sum would of course have to be reduced because, although he lost that chance of a sale he did not lose the property. It was still there to sell. Credit, it appeared to me, would have to be given for the proceeds of the actual sale. We now know he received £70,000 on 5 February 1993 and £80,000 on 27 January 1994. Costs were inevitably incurred in connection with those sales but it would not be right to deduct them for the purpose of these calculations. Having reduced the notional sale proceeds to the net figure, it would be a wrongful duplication to discount the actual proceeds of sale. When I put my tentative views to the parties, I said, without giving it much thought at all, that credit against the damages of £216,000 should be given for the £150,000 actually received. That would mean judgment for £66,000. But is that the right approach? Prompted by Mr Davidson once again so fairly sowing seeds of doubt about the correctness of that approach, I have wrestled with the mathematics. If 'a' is the lost sale proceeds and 'b' the actual proceeds, are the damages properly to be awarded (a x 60%) - b or are they (a - b) x 60%. That can be further reduced to either 0.6a - b or 0.6a - 0.6b. On the figures, is it £216,000 - £150,000 ie. £ 66,000 or is it 60% of the difference between £360,000 and £150,000 ie. £126,000. Reducing the formulae to appropriate language, is the measure of damages the difference between the value of the opportunity to sell before 18 November 1988 and the value of the opportunity to sell after that date or is it the difference between the price he lost the chance of achieving and the actual selling price, that difference being reduced by 40% to reflect the value of the chance? I confess I have not found it easy to decide. I have come to the conclusion that the latter approach is the correct one. Take slightly different facts. Assume just for the sake of the argument that Berkeleys were in Mr Wyllys' office with banker's draft for £375,000 in one hand and pen poised in the other to sign contract and conveyance when the Sloggets telephoned to say they had registered their charge, so the deal was lost. One might well then say that Mr Hartle had lost a certain sale, or one as certain as certain can be. His damages would be a - b with no discount because the chance is assessed at 100%. If the chance were 99%, one would make the 1% reduction. On the facts we have found a - b is to be reduced by 40%. The unfairness of the former solution can be tested in this way. Assume we had found an 80% chance of a sale. 80% of £375,000 is £300,000. Assume the property was sold 12 months later for £300,000. It cannot be right that the loss of such a high chance does not sound in damages. If the 0.6a -0.6b formula is adopted, then the loss of the chance always has a value. Look at it another way. When Miss Chaplin lost the opportunity to participate in Mr Hicks' beauty contest, there was nothing left for her. She had lost the only chance she would ever have of winning the prize. Having lost the chance, she was left with nothing. Mr Hartle did not lose everything when he lost this sale. He lost the chance of the sale but he did not lose the property itself. He retained the chance to sell it at some indeterminate time for some indeterminate price. He lost the chance of getting the excess of a over b but his chance of getting a - b was only 60% and so he should only recover 60% of it. In my judgment Mr Hartle is entitled to damages of £126,000 under this head of his claim.”

“At first sight Mr. Pannick's example, and the reasoning put forward to support it, appears to be attractive and was certainly attractively put. However it is, in my judgment, clearly flawed. As Mr. Langstaff submitted, Mr. Pannick's equation, and his example, focus solely on the amount that the applicant would have earned in the armed forces instead of focusing on the entire picture which is the amount she would have earned in the armed forces and the lesser amount that she has or would have earned in civilian life and deducting one from the other. Thus it is clearly wrong to take, for example, 60 per cent. of the salary that she would have earned in the armed forces and deduct from that 60 per cent., 100 per cent. of the sums earned in civilian life. The same discount must be applied to both sides of the equation to obtain a fair and just result and an accurate calculation as to the amount that the claimant has actually lost. (Accordingly to reach that result you take 60 per cent. of the potential earnings, and 60 per cent. of the actual earnings and deduct one from the other.)” “To illustrate his proposition Mr. Langstaff takes the example of a woman who is employed at the rate of £8,000 per annum. She had the opportunity of being promoted to a job earning £12,000 per annum but is wrongfully deprived of the opportunity of doing so. The court finds that her chances of promotion to £12,000 per year were 50 per cent. According to Mr. Pannick's formula the loss would be £6,000 (half of £12,000)—£8,000 (current earnings), meaning that not only had she suffered no loss but was better off. The proper equation is to say that her loss was £12,000 less £8,000, namely £4,000, and then apply the 50 per cent. discount resulting in a loss of £2,000 per annum. Mr. Langstaff submits that that example illustrates the importance of not focusing solely on the proposed income which has been lost but on the totality of the picture.”

“5. The second point raised by Miss Start relates to the deduction of £15,000 to take into account Touche Ross's claim for the costs of the Report. I deducted it (by apportioning the liability for it equally between the two claimants) when assessing what damages the claimants would recover from Touche Ross. The damages at the first stage were assessed on the basis of what I thought the claimants would have recovered against Touche Ross, but were then discounted at the second stage to take into account uncertainty. The discount was applied to the £15,000 as well. Miss Start contended that I should not have deducted the £15,000 at the first stage, but should have deducted it at the second stage, namely after the deductions of 35% and 20%, which I have just been discussing, had been made. 6. In other words, Miss Start contended that, having arrived at £15,000 as the figure which Touche Ross was entitled to recover from the claimants in respect of the Report, that was not a figure which should have been discounted in the way I have just described, because there was no uncertainty about Touche Ross's ability to recover that sum, once it had been assessed. For the reasons discussed in my judgment, it is clear that the claimants would have no defence, save on the question of quantum, to a counter claim by Touche Ross for the cost of the Report. Despite Mr Salter's argument to the contrary, I see no escape from Miss Start's argument on this point.”

“He lost the chance of getting the excess of a over b but his chance of getting a - b was only 60% and so he should only recover 60% of it.”

“Mr. Pannick submits that, as a matter of plain logic, if there are a series of contingencies, the possibility of the second factor occurring is a percentage of the first factor. The first question that must be asked is what is the percentage chance that the applicant would return to the forces on the first day that she could after the birth of her child. The second question is the percentage chance that she would have remained in the forces for five years. The next question is whether she would have remained after the period of five years. That question can only be answered logically as a further percentage chance of the percentage chance on day 1. In my judgment, Mr. Pannick is correct in submitting and the appeal tribunal were correct in concluding that the percentage chances must be applied cumulatively.”

“61. Moreover, a 60% chance that the AOS would have started by January 2015 does not mean there was a 40% chance that the AOS would have proceeded after January 2015 but before April 2016. The 40% chance includes all scenarios in which the AOS did not start in January 2015, including scenarios in which the AOS would not have started at all (such as that Girish Patel would not have ‘fallen into line’ and supported the development, or that Prashant Patel would have sold the site having obtained control of Barrowfen).”

“MR STEWART: Taking up just one of them, which is relevant so far as I am concerned, whether Girish would have taken up and followed advice, paragraph 591, and you say in your judgment in relation to the 60% that's the most difficult question. Well, there are a whole series of possibilities in relation to that. Girish plainly would have still felt very strongly about other aspects of the family dispute, and the idea that Girish would, as it were, have simply said, "Well, that's fine, you go ahead, I'm not going to do anything", your Lordship might regard as being pretty unlikely. So what might he have done? Well, he might have said, "Right, it's in interest to sever everything, we're buying off, we'll have some separation", and there would have been a glorious family settlement and there wouldn't have been private prosecutions and alterations of wills and everything else. But I mean that is one possibility. The other is that there would have continued to be various forms of harassing action of different forms, court actions, different things, all sorts of other matters going on. The important point for present purposes in my submission is that you cannot be certain at all that encompassed within the 40% which is the chances of, as it were, that and a whole series of other things not occurring is that everything else would have proceeded in the same way to the start of the administration. That is just unrealistic on what your Lordship knows about this dispute and indeed what your Lordship's findings are as set out in appendix 2.”

“Further or alternatively, the breaches of duty by Girish, Stevens & Bolton and Barrowfen II have caused Barrowfen to suffer the loss of a chance of avoiding the losses (and receiving the corresponding rental income) pleaded in paragraphs 116 and 117 above in that there is a real and substantial chance that but for their breaches of duty Prashant and Suresh would have taken control of Barrowfen earlier than 1 December 2015 and/or that Barrowfen would have completed the development of the Tooting Property earlier than December 2020, for the reasons set out in paragraphs 113 to 115 above.”

“Barrowfen claims that it has lost a virtual 100% chance, alternatively such lesser chance as the Court determines.”

“288. For this issue (only), the breaches of Girish and S&B need to be considered separately. 289. In relation to Girish, his breaches of his directors’ duties in improperly removing Bedford from the register of members (and causing Barrowfen to rely upon this), improperly writing up the register of members, forging Suresh’s resignation as a director and forging the resignations of Suresh and Yashwant as trustees of the Mrs PD Trust and appointing himself as trustee of the Mrs PD Trust clearly prevented Prashant and Suresh from taking control. But for Girish’s conduct, Prashant would have been appointed as a director at the EGM on 8 May 2014, and Prashant and Suresh would have taken control of the board of directors at that time. 291. As explained in paragraph 272 above, the issue of what each of Girish and Bedford would have done if S&B had complied with its duties is to be determined on the basis of loss of a chance, rather than balance of probabilities (although, for the avoidance of doubt, Barrowfen says it satisfies either test). 292. If S&B had acted in accordance with its duties, Prashant and Suresh would have taken control of Barrowfen at the EGM on 8 May 2014, alternatively some time thereafter: (1) If S&B had provided Barrowfen (acting by Girish) with advice that did not prefer the interests of Girish personally over those of Barrowfen, and Girish (acting as director of Barrowfen) was told, for example, that Bedford’s membership of the company should be reflected on the register of members, the likelihood is that Girish would have followed that advice. See Girish’s letter to Mr King dated 3 March 2014, which stated [F1/252/1651]: “In light of the above can you kindly advise if Barrowfen and the writer can refuse to recognise [Bedford] call for a meeting. Are there any alternatives for the writer!”

“230. Barrowfen claims that but for the breaches of duty by Girish and S&B, Prashant and Suresh would have taken operational control of Barrowfen on 8 May 2014, which was the date of the EGM called by Bedford, alternatively some time thereafter: paragraph 113 Re-Re Amended Particulars of Claim [A/2/55]; Response 43 to RFI [A/8/254]. 231. For the reasons explained in paragraphs 270 and 272 of Barrowfen’s Skeleton, this issue of causation is to be assessed on the basis of loss of a chance. For the avoidance of doubt, Barrowfen says it comfortably passes the balance of probabilities test, if the Court considers that this test is to be applied. 232. In relation to Girish, it could hardly be clearer that his breaches of his directors’ duties in (i) improperly removing Bedford from the register of members (and causing Barrowfen to rely upon this) and/or preventing or delaying reinstating Bedford on the register of members, (ii) improperly writing up the register of members, (iii) forging Suresh’s resignation as a director and (iv) forging the resignations of Suresh and Yashwant as trustees of the Mrs PD Trust, prevented Prashant and Suresh from taking operational control at the EGM on 8 May 2014 or alternatively some time thereafter. Bedford requisitioned the EGM on 8 May 2014 for the purpose of considering and passing a resolution to appoint Prashant to the board of directors [F1/266/1767]. If Girish had not improperly denied Bedford’s rights as a member, the EGM would have gone ahead and the resolution appointing Prashant as a director would have passed, with the support of Bedford, and Suresh and Yashwant as trustees of the Mrs PD Trust. Prashant and Suresh would then have represented the majority on the board of directors and they would have taken operational control of Barrowfen (and the majority of shareholders would have exercised their powers as necessary to ensure that this remained the case). 233. In relation to S&B, Barrowfen puts its case in two alternative ways. Firstly, having decided to provide advice to Barrowfen, S&B owed a duty to act in the best interests of Barrowfen and not to prefer the interests of Girish over Barrowfen in the advice that it gave. As explained in detail above, S&B should have advised Girish (as director of Barrowfen) to update Barrowfen’s register of members to record Bedford’s ownership of 60,000 shares, so that Bedford could proceed with the EGM on 8 May 2014 (or alternatively, at the very least, S&B needed to advise Barrowfen to make an immediate application for rectification seeking this relief). S&B should not have advised Girish to write up the Mr DP Trust and the Mrs PD Trust in the register of members in a way that prolonged Girish’s control (and without this advice, as recognised in paragraph 2.3 of the note of conference with Jonathan Russen QC [F2/383/2772], neither the Mr DP Trust nor the Mrs PD Trust could or would have voted to block a resolution supported by Bedford). S&B should also have advised Barrowfen to accept Suresh’s confirmation that he had not resigned as a director (n.b. if Prashant and Suresh had majority shareholder control they would have been able to pass a resolution to reinstate him in any event). 234. If S&B had provided appropriate advice to Barrowfen, the likelihood is that Girish would have followed it. In cross-examination, Girish confirmed that if Mr King had advised him to write up Bedford as a member, he would have accepted that advice and acted upon it [Day8/p.34, line20 – p.35, line 2]. He further explained that the “self-help” approach to writing up the register of members was based upon the legal advice he received [Day8/p.52, lines 10-13] [Day8/p.53, lines 11-18]. He also confirmed that if S&B had advised him to accept what Suresh was saying that he had not resigned as a director, he would have followed that advice because he was “basically depending on the professional advice from the people who were acting for Barrowfen” [Day7/p.120, line 19 – p.121, line 10]. 235. Whilst Girish provided untruthful instructions to S&B about the authenticity of the documents upon which he relied, the evidence shows that when S&B gave him clear legal advice, he followed it. For example, Girish did not contest Bedford’s claim to rectify the register of members on the advice of Mr King. He also ultimately consented to Suresh’s claim that the Purported Director Resignation Letter was not an authentic letter upon the advice of Mr King. That Girish would follow S&B’s legal advice was also seen in his letter of 3 March 2014 in relation to Bedford’s requisition of an EGM [F1/252/1651]: “In light of the above can you kindly advise if Barrowfen and the writer can refuse to recognise [Bedford] call for a meeting. Are there any alternatives for the writer!”

“245. In the recovery of equitable compensation for breach of fiduciary duties by S&B and breach of directors’ duties by Girish, Barrowfen is entitled to recover for all losses caused by the breaches of duty (in the sense that the loss must flow directly from the breaches). Foreseeability of loss and remoteness is irrelevant: see AIB Group (UK) place v Mark Redler & Co Solicitors [2015] AC 1503 at [89], [133] – [138] [AB/Tab 48]; Swindle v Harrison [1997] 4 All ER 705 at 715 h – 718 b [AB/Tab 18]. 246. To quantify the lost rental income caused by the delay, it is necessary to establish (1) the length of delay to the completion of the development of the Tooting Property; and (2) the monthly rental income that Barrowfen would have generated from the developed Tooting Property. 247. In relation to the length of the delay, it is common ground that if works on either the Unamended Original Development Scheme or the Amended Original Development Scheme had commenced in January 2015 (or sometime thereafter), they would have completed within 20 months: see paragraph 2.01 of the Joint Statement [C/10/566]. If construction had commenced in January 2015, the development would therefore have been completed by September 2016. This confirms Mr Radmore’s evidence that the development was due to be completed by September 2016 in time for the 2016/17 academic year: paragraph 28 of Mr Radmore’s w/s [B/3/91]. 248. In the real world, the evidence is that the Revised Development Scheme is due to be completed in April 2021 [Day4/p.170, lines 16-24]. 249. Barrowfen therefore claims for the delay of up to 55 months from September 2016 (when the Amended Original Development Scheme should have been completed) until April 2021 (when he Revised Development Scheme will be completed).”

“A further limitation on the awarding of statutory interest also stemming from the fact that it may only be recovered on the damages awarded and not on any higher amount has come to the fore. Where the defendant’s negligence causes the claimant to lose a particularly profitable sale of a property which the claimant is only able to sell later but before judgment at a reduced price or which they are still retaining at judgment at a reduced value, and their damages are calculated at the profitable resale price less the reduced price or value, statutory interest falls to be given on this net figure and is not available on the profitable resale price lost despite the fact that this loss has continued for some considerable time after its accrual. This result the claimants had eventually to concede in Blue Circle Industries v Ministry of Defence where their property, damaged by the defendants’ breach of statutory duty, had not, as anticipated, been profitably sold and was still retained at judgment.”