The Wine Enterprise Investment Scheme Limited (In Liquidation) v Crowe UK LLP [2026] EWHC 692 (Ch)

“The onus of proving causation is on the claimant. Causation of loss often involves more complex issues in a professional negligence case than in an ordinary negligence claim, making it generally necessary to set out the material facts relied upon as connecting the negligence to the damage suffered.”

“(a) It is admitted that Crowe did not carry out adequate enquiries to obtain an understanding of the entity, Lilliput, that was said to be holding funds on behalf of [the Company]. (b) Had further investigations been carried out once Lilliput had been identified as holding the funds in 2013, it is likely that Lilliput would have been identified as a related party. (c) If this had happened, Crowe would have had to act with scepticism, consider the business rationale for the arrangement and the risk of fraud and other undisclosed transactions, and assess the ability of Lilliput to repay the amounts owed by seeking evidence as to this. (d) Once Crowe identified Lilliput as a related party in 2016 it should have applied further professional scepticism. In particular it should have: i. Questioned the reasons why the disclosure was only made in 2016; ii. Not have accepted the Deposit Trade Certificates and balance sheets provided by [AdC] without further enquiry.” i. Questioned the reasons why the disclosure was only made in 2016; ii. Not have accepted the Deposit Trade Certificates and balance sheets provided by [AdC] without further enquiry.” (2) In [88] of Crowe’s opening Skeleton Argument for trial Crowe accepted that: “(a) It did not obtain sufficient audit evidence as to the existence and recoverability of the sums held by Investec and Lilliput. Whilst Crowe clearly did some work - such as obtaining the “money market trade” document, Lilliput [Deposit Trade Certificates] and/or Lilliput accounts, that did not go far enough. (b) Until Y/E 2017, [the Company] incorrectly recorded the Lilliput balance as a cash balance rather than a debtor balance due from a related party, which was not challenged by Crowe. (c) The emphasis of matter in the Y/E 2018 [i.e. the wording produced by Crowe that “The directors have emphasised the steps they have taken in order to assess the recoverability of the [Lilliput] balance”] did not go far enough in that it did not solve the lack of audit evidence and it read in a way that suggested that Crowe was satisfied as to the position. (d) Crowe did not adequately identify the audit risks in relation to the commingling of funds [this being a reference, in particular, to the fact that the Company’s bank statements, which were obtained by Crowe for audit purposes, contained many counterparty references to “TWIF General”, “TWIF General Deposit” and in one case a counterparty reference to “Wine Inv General”]. (e) Crowe should have sought audit evidence that was independent of the directors or which independently corroborated the evidence tendered by the directors.”

“The auditor has professional and legal responsibilities in such circumstances and these responsibilities may vary by country”; and the opening words of the following sentence read: “In some countries, for example …”

“I have reviewed the other bank statements made available to me to assess if, at each of the Relevant Dates, the Associated Bank Accounts may instead have held sufficient funds on behalf of TWEISL to make up for the Missing Cash amounts. Only at 31 December 2012 was this the case.”

“8.33 As discussed at paragraph 5.23, there was Missing Cash from the Cash Deposits balance at each of the Relevant Dates. 8.34 I consider that it is reasonable to assume that at least some proportion of the Missing Cash would not be recoverable by a hypothetical liquidator throughout the period. 8.35 However, I consider it is conceptually reasonable to assume that the earlier that the alleged fraud had been identified, the higher the probability would have been that recoveries could have been made from related individuals and entities. It would have been less likely that funds would have been dissipated and the value of amounts dissipated would therefore have been lower (with the resulting likelihood that it would be easier for directors and other third parties to repay sums received improperly by them from TWEISL). 8.36 I have therefore assumed that a greater proportion of the Missing Cash would be recoverable at the earliest Relevant Date compared to the latest Relevant Date. This is to reflect the assumption that, as time passes, amounts would be more difficult to recover owing to the complexity of dissipation and the duration over which the alleged fraud was perpetrated. In the absence of information around the dissipation of funds and the assets held by related entities and individuals at each Relevant Date, this is necessarily a judgemental calculation. 8.37 Based on the above, at the earliest Relevant Date (31 December 2012), I have assumed that all barring 10% of the Missing Cash would be recoverable by a hypothetical liquidator. I have assumed that only 50% of the Missing cash at the latest Relevant Date (1 September 2019) would have been recoverable. For all Relevant Dates in between, I have assumed that the proportion of the Missing Cash that would be recoverable would have decreased linearly. The percentage of Missing Cash that is assumed to be recoverable at each of the Relevant Dates is highly subjective, consequently, these calculations are necessarily “broad brush”. 8.38 This adjustment is set out at Figure H of Appendix 10(a) and Appendix 10(b), where I effectively include the value of cash that I have treated as recoverable at each Relevant Date.”

“It will be apparent that certain of these questions concern legal matters, whereas others relate to matters of fact, neither of which are within the expertise of a quantum expert. Nonetheless, assumptions have to be made in order to prepare loss calculations, and in the following paragraphs I outline the assumptions I have made in respect of each question, recognising that should the Court determine that other assumptions should be made instead, then I may have to revise my calculations.”

“3.3.29 … in periods when monies were not invested in wine stock, the Company’s funds were purportedly held on deposit with an offshore entity called Lilliput. The Claimant alleges that these were in fact paid by the Company to third parties for the benefit of the Directors and associates of the Directors. At the point at which the Company entered into MVL, the Company’s SAGE accounting software recorded that £4,515,030 was held on deposit with Lilliput, which is said to have been dissipated. 3.3.30 I understand it to be the Claimant’s case that the Directors were fraudulent. In paragraphs 34 and 35 of the Particulars of Claim, TWEISL states that at interview on 13 November 2020 the Directors admitted that: “over a lengthy period, in fact, the investors’ funds had been taken from TWEISL and paid into various third party bank accounts. Those bank accounts were in the names of Anpero Capital Limited, Huntsman Wine EIS Ltd, Alladin Limited and the Wine Investment Fund Limited and / or the personal bank account of ADC” and “As a result, there were no payments to or deposits with Lilliput. Rather, TWEISL monies had been paid over to Anpero and/or other parties (such as those mentioned above at paragraph 34(b) to be used (by Anpero at least) on day to day expenses and for other purposes and/or not for the benefit of TWEISL.” 3.3.31 The Claimant’s position with respect to payments purportedly made by TWEISL to Lilliput is that they were (1) recoverable as a matter of law in each audit year, and (2) capable of being recovered as a matter of fact in each audit year. Notwithstanding the Claimant’s position, I understand that no significant recoveries have in fact been made and that monies said to have been paid to Lilliput have been dissipated. 3.3.32 In his witness evidence, Mr Hardman provides an account of the investigations undertaken by the Joint Liquidators to establish the movement of monies from TWEISL. He states that “funds were often moved through multiple accounts connected to TWEISL and co-mingled with other funds before their ultimate dissipation”

“Do you consider, now you have finished giving your evidence, that the appraisal you have put in your expert’s report is one you want to stand by?”

“11. Further or alternatively, it was an express alternatively implied term (and/or Crowe owed a concurrent duty of care in tort to a like extent) that in each of the auditors’ reports prepared and submitted by Crowe for TWEISL (for the years ending 2012 to 2018), Crowe would take reasonable steps to ensure that the financial statements would: () give a true and fair view of the state of TWEISL’s affairs for the relevant period and of its profit or loss for that period; () be properly prepared in accordance with the International Financial Reporting Standards (“IFRS”) as adopted by the European Union; () be prepared in accordance with the requirements of the Companies Act 2006.” “12. Further or alternatively, it was an implied term of the Engagement Letters and/or engagements (and each of them) and/or Crowe owed a concurrent duty of care to TWEISL which was that: (1) Crowe would act with the standard of skill and care reasonably to be expected from a firm of auditors experienced in the auditing process and the provision of audit reports. (2) Crowe’s work incorporated by reference the ISAs for the relevant audits. (3) Crowe was obliged to obtain reasonable assurance about whether the financial statements as a whole were free from material misstatement, whether due to fraud or error, thereby enabling it to express an opinion on whether the financial statements were prepared, in all material respects, in accordance with the applicable financial reporting framework. (4) Crowe was obliged to exercise professional scepticism in the carrying out of the audits and audit reports.” () give a true and fair view of the state of TWEISL’s affairs for the relevant period and of its profit or loss for that period; () be properly prepared in accordance with the International Financial Reporting Standards (“IFRS”) as adopted by the European Union; () be prepared in accordance with the requirements of the Companies Act 2006.”

“For the avoidance of doubt each report (and linked duties of care) was prepared for the benefit and/or use of TWEISL as a company and/or its members as a body and not or not primarily or solely the Directors of TWEISL.”

“Crowe acting competently would have declined to submit auditors’ reports for TWEISL (for each of the years ending 2012 to 2018) which stated that financial statements: () gave a true and fair view of the state of TWEISL’s affairs for the relevant period and of its loss for that period; () were properly prepared in accordance with the IFRS as adopted by the European Union; () were prepared in accordance with the requirements of the Companies Act 2006.”

“Further or alternatively, Crowe acting competently would have reported promptly and without any delay to TWEISL the matters set out below: () The relevant matters referred to at paragraphs 40 and 41 above. () The business of TWEISL was (as carried out by its management) fraught with risk, unsustainable and likely to lead to financial collapse if it continued to trade. () For each audit for the year ending December 2012 onwards, that TWEISL monies were being used and/or mixed with the monies of other companies. () For each audit for the year ending December 2013 onwards, that although documents had been generated by the management which appeared to record deposits or loans or payments to Lilliput, no monies were in fact paid to Lilliput. () Lilliput was not a bank/an entity capable of holding funds “on deposit” in order to “generate a greater return on investment”. () The actual destination of the funds was from the TWEISL bank account to other third parties and/or used for their purposes or the purposes of the Directors but not the benefit of TWEISL or that there were grounds for serious concern that this was the case. () The above factors (and each of them) were clear evidence of and/or indicative of and/or raised suspicions of, a significant fraud being committed against TWEISL by its management or Directors (or some of them).”

“On relevant notification TWEISL (through its members) would have taken prompt and significant action including: (a) the securing, preservation and valuation of its assets (including wine stock, money in accounts etc); (b) insisting upon the repayment of the “loans”; (c) ensuring that no more deposits be made or (if made) would be with a well-known commercial bank; (d) the immediate dismissal of the Directors; (e) the appointment of new management; (f) (if necessary) the winding up of the business of TWEISL and the distribution of its assets (including the sale of wine held in stock).” (a) the securing, preservation and valuation of its assets (including wine stock, money in accounts etc); (b) insisting upon the repayment of the “loans”; (c) ensuring that no more deposits be made or (if made) would be with a well-known commercial bank; (d) the immediate dismissal of the Directors; (e) the appointment of new management; (f) (if necessary) the winding up of the business of TWEISL and the distribution of its assets (including the sale of wine held in stock).”

“If winding up were to have taken place, the liquidators would have taken or continued the steps set out at paragraphs 45 a) – f) above and sought to: (a) recover the sums from Anpero and/or the Directors and/or such other third parties to which TWEISL monies had been improperly paid; and (b) establish the value of TWEISL in liquidation.”

“(a) What it is said Crowe would have done if it had declined to submit auditors’ reports, and what would TWEISL have done in response. (b) When, to whom and how would reports have been made and TWEISL (through its members) have been notified. (c) What it is that ought to have been reported to TWEISL regarding the matters referred to at [40] and [41]?”

“10(b): Not entitled. The relevant steps are those needed to recover monies paid away and/or prevent further fraud or other irregularities (as set out at paragraph 40 (u)) which would include (without limitation) those set out in paragraphs 42-44 and 45 of the Particulars of Claim.” “13(a): Not entitled. Adequately pleaded. Paragraphs 42 and 43 of the Particulars of Claim set out what Crowe would have done if it had declined to submit audit reports. Paragraphs 45 and 46 sets out what TWEISL would have done in response.” “13(b): Not entitled. Adequately pleaded. Paragraphs 1, 4, 7 and 44 of the Particulars of Claim set out the steps which should have been taken and the relevant notification timing.”

“The Claimant (“TWEISL”) is a company now in liquidation (it entered liquidation on 10 January 2020) which was incorporated on 4 November 2011 (registered no. 7835642) with an address at 15 Clifford Street London W1S 4JY.” “On 10 January 2020, following a special resolution placing TWEISL in members’ voluntary liquidation, Paul Higley and Paul Pittman of Price Bailey LLP were appointed joint liquidators of TWEISL. On 27 October 2020, Messrs Higley and Pittman were removed and Finbarr O’Connell and Colin Hardman of Evelyn Partners LLP (then called Smith & Williamson LLP) were appointed creditors’ voluntary liquidators of TWEISL.” “At the end of each financial year, Crowe audited TWEISL’s accounts and, at the conclusion of that process, the accounts for each particular year were signed and filed at Companies House together with Crowe’s independent auditor’s report to the members of TWEISL as set out below.”

“As to Request 20, Crowe accepts that the directors of TWEISL were entities (in the form of individual natural persons) distinct from TWEISL as an entity (in the form of a company). However, Crowe denies the purported distinction drawn by TWEISL (at para 9 of TWEISL’s Part 18 Response) between TWEISL and TWEISL’s directors for present purposes. Specifically, TWEISL, as a corporate entity, necessarily acted through its directors. The knowledge and conduct of TWEISL’s directors are to be attributed to TWEISL.”

“The Company alleges that: a) Had Crowe acted competently, it would have declined to submit auditors’ reports with the certification identified above, and/or would instead have reported promptly and without any delay to the Company various matters (pleaded at paragraph 43 of the Particulars of Claim), including that there was clear evidence of a fraud being committed against the Company by its management or Directors (or some of them). b) On relevant notification, the Company (through its members) would have taken significant action (pleaded at paragraph 45 of the Particulars of Claim) including inter alia the dismissal of the Directors, the appointment of new management and (if necessary) the winding up of its business and distribution of its assets. In the latter case, the liquidators would have taken steps (pleaded at paragraph 46 of the Particulars of Claim) including to recover sums from those third parties (including the Company’s directors) to which Company monies had been improperly paid.”

“Had Crowe reported (a) the matters pleaded at PoC paras 42 and/or 43 to TWEISL; or (b) any other matters in accordance with its obligations, then what steps would have been taken by: (a) Its directors; and (b) Its members.”

“The detailed witness statements of the witnesses served by the Claimant on 7 February 2025 deal adequately in respect of the steps which would have been taken. The Defendant is referred to those witness statements. In any event the Claimant reserves the right to serve a further witness statement dealing with details of these matters rather than address them in this Response”

“Ultimately, I took great comfort from the fact that the financial statements had been subject to independent review and sign-off by Crowe. I was confident that any issues or problems (or potential problems) with TWEISL’s accounts would have been brought to my attention, for example by Crowe refusing to sign-off the accounts or highlighting any concerns in the financial statements themselves. It was greatly reassuring to me that for each financial year, Crowe signed off the accounts without qualification. As far as Lilliput was concerned, I took this as confirmation that Crowe had investigated the position as to Lilliput to its satisfaction, including that it was confident that the deposits had been made in the manner set out in the financial statements.”

“As I explain above, I read TWEISL’s financial statements shortly following their publication each year and was very reassured by the fact that they had been signed-off by Crowe. It would have been immediately apparent to me had Crowe declined to submit auditors’ reports. I would have also been deeply concerned on the basis that (as I explain above), I placed a great deal of weight on the fact that TWEISL’s accounts were audited and therefore gave a true and fair view of the state of the company’s affairs at the relevant time. My first thought would have been that there must be a (relatively substantial) issue which meant that the auditors were not comfortable with signing-off the financial statements. I have previously come across situations where auditors have been fired and newly appointed auditors have undertaken a fresh review of the company’s accounts and have identified problems which have prompted them to refuse to sign-off auditors’ reports or where there has been a delay in finalising financial statements because portfolio assets have been unusually difficult to value (for example, as a result of litigation). I would therefore have been on high alert at this point and my suspicions would have continued to build the longer the absence of auditors’ reports persisted.”

“I would have been very alarmed had I received a notification in respect of the above matters individually or as a whole. I had made a very considered investment in TWEISL on the basis of my due diligence and my risk appetite at the time. In doing so, I considered the various risks associated with the investment, including those set out in the Financial Promotion and TWEISL’s financial statements. Those risks did not extend to the risks set out above including the risk of fraud by TWEISL’s directors. The notification would have alerted me to risks that I simply did not think I was taking, and it would have prompted me to take immediate action to protect my investment (which I discuss further below).”

“Had I received a notification from Crowe in the terms set out above, I would have considered it to be a significant red flag. I explain above that in respect of the financial statements for the year ended 2016 onwards, I was aware of the reference to Lilliput but took great comfort from the fact that Crowe had signed off auditors’ reports for the relevant years and had not raised any warnings regarding the sums purportedly deposited with Lilliput. On this basis, I had assumed that Crowe had undertaken all proper investigations and had satisfied itself as to [the] position regarding Lilliput. Had I been made aware that in fact the opposite was the case and that a proper assessment had not been undertaken – to include a failure to obtain any evidence of deposits – I would have lost confidence in TWEISL and the security of my investment.”

“I would have taken (or considered taking) a range of action, including the steps set out below: (a) I would have contacted Mr della Casa to discuss the situation and ask questions. I also would have requested that he take immediate steps to organise a shareholders' meeting to provide opportunity to discuss these significant issues and decide on a course of action going forward. Given the terms of the notification, I would have treated with extreme caution anything said to me by Mr della Casa and would have anticipated a degree of prevarication on his part in terms of liaising with the shareholders and/or setting up a meeting. I would therefore have taken steps (in conjunction with my discussions with Mr della Casa) to contact Crowe to discuss the notification issued by them and to see whether any further information could be obtained/whether they could verify any information which may have been provided to me by Mr della Casa. (b) Depending on Mr della Casa’s response to my request for a shareholders’ meeting, I would have taken independent steps to contact the shareholder group. I would have first contacted Crowe to request that they put me in touch with the other shareholders or provide me with their contact details. Had Crowe declined to do so, I would have searched Companies House to establish the shareholders’ names and their approximate shareholdings (which are recorded in TWEISL’s annual returns) so I could form a view about which investors held significant interests. I would then have contacted these individuals to discuss the notification further. I would also have considered placing a notice in the press inviting any shareholders to contact me. I am confident that these efforts to established contact with other shareholders would have been successful. As noted above, I had been in contact with another investor (Anthony Edwards) around the time of discussions amongst the shareholder group to remove Price Bailey as TWEISL’s liquidators. Anthony had in turn informed me of the steps being proposed by other shareholder groups regarding Price Bailey’s removal. Given this degree of contact amongst the shareholder group, I am certain that contact would also have been established in circumstances where the shareholders had been notified of a fraud (or potential fraud) against TWEISL. (c) I would have considered and supported obtaining legal advice in relation to the notification and the options/remedies available. (d) I would have considered and supported the immediate dismissal and replacement of the directors, especially in circumstances where there was a significant concern that they had been committed the fraud. (e) I would have considered and supported an investigation of the reasons for the matters of concern set out above which would have revealed all the matters which we now know about, including the use of TWEISL monies for ulterior purposes. (f) I would have fully supported the liquidation of TWEISL regardless of any tax relief which was or may have been available to me. The whole hypothesis behind my investment (being to make a reasonable return on a risk adjusted basis and involve experienced professionals in my wine investment) would no longer have stood up at that point (because the risks would have increased significantly in a manner that could not be accurately quantified) and so a liquidation would have appeared a logical and sensible option in the circumstances. It would also have been very advantageous at that point given that a liquidator would have had access to the assets of TWEISL and would have had statutory powers to investigate matters and take immediate steps to preserve and secure TWEISL’s assets. I would have supported the taking of any such steps and would have made every effort to protect what I could in terms of my investment and the assets of the company. (g) I would have considered and supported reporting the matter to Action Fraud (the national reporting centre for fraud and cyber-crime).”

“If a reputable professional auditor such as Crowe had taken the above action, I would have been highly concerned. Given that I reviewed the Company’s financial statements on an annual basis, any declination in the manner set out above would have been immediately obvious to me following that review and would have led me to suspect that there were major issues with the Company’s financial position. I certainly would not have invested any further money with the Company in these circumstances and would have been nervous about the security of my existing investment. My first action would have been to contact Crowe to establish why they had declined to submit an auditors’ report. Crowe may have been unwilling to engage in discussions or provide me with any further information. In this case, I would have contacted the directors of the Company to seek further information. Again, there is no certainty that I would have received satisfactory answers from them (particularly in circumstances where there was a suspicion that the directors had committed a fraud or potential fraud). In this instance, I would have contacted the other shareholders to discuss the position and seek their views, to include in respect of the next steps. This may have included seeking to replace the directors with an independent board.”

“I would have read any such notification at the time of my annual review of the Company’s financial statements and would have considered it to be extremely alarming. Again, it would have made me very nervous about the security of my investment and question how such a situation could have possibly occurred given Crowe’s involvement in the annual audit process. With specific reference to the notification concerning Lilliput, as I have explained above, I was very comforted by the fact that Crowe had audited the financial statements every year and assumed that this process had been conducted competently and in line with the standards I would have expected from such a reputable firm. If I had found out that Crowe had in fact failed to undertake proper investigations, including in respect of Lilliput, I would have lost confidence in both Crowe and the Company. I would have started interrogating Crowe and the Company's directors as to the exact position regarding Lilliput and the true destination of the monies which had purportedly been lent to it.”

“If I had received a notification in the above terms, I would have taken immediate action including the following: () I would have started by asking questions of Crowe and the directors of the Company to try and establish whether any further information or explanation could be obtained in respect of the issues identified in the notification. Given the very serious nature of the notification, I suspect that I would not have received sufficient explanations from either of these parties. I would obviously have treated any information received from the directors with a large amount of caution and scepticism (as indeed I did when receiving information from Mr Della Casa in July and October 2020) given the warning that they had been (or may have been) involved in a fraud. () I would have supported a full investigation into each of the matters referred to above (being Crowe's failure to submit auditors' reports and/or each of the matters contained in Crowe's notification). I consider that such an investigation would have uncovered all the matters of which we are now aware concerning the true state of the Company's affairs and operations, including the dissipation of monies from the Company to third parties for their benefit (or the benefit of the directors). () I would have contacted the other shareholders to discuss the notification, their views about the notification and the possible courses of action open to us as shareholders. I explain above the various steps I took to contact the other Company shareholders in the context of replacing the Price Bailey liquidators with new liquidators. The notification of a fraud (or potential fraud) is clearly a significantly graver matter and one which warrants immediate action to ensure that the fraud and any losses are stopped or minimised to the greatest extent possible. There is absolutely no doubt in my mind that I would have embarked upon exactly the same course of action as I did in the context of Price Bailey's replacement in contacting the other shareholders so that an immediate discussion could be facilitated. This would have comprised the following steps: (1) I would first have contacted Crowe and/or the directors to seek the names and contact details of the other shareholders; (2) if these details had not been forthcoming, I would have conducted searches of Companies House and/or the internet to seek the relevant information. Given the success I achieved in contacting the investors in the context of the Price Bailey replacement, I am very confident that I would have been equally successful in establishing contact and organising a shareholder meeting in this instance. Based on my previous discussions with the shareholders and their enthusiasm for taking action in the context of the replacement of Mr Pittman and Mr Higley, I am convinced that there would have been the same – if not significantly greater - enthusiasm for discussing and agreeing next steps following a notification which indicated that a significant fraud had been committed against the Company. () As I did in connection with the replacement of Mr Pittman and Mr Higley as joint liquidators, I would have taken (or supported the taking of) legal advice as to the notification and the various options available to the shareholders. I would have sought to instruct specialist lawyers with experience of fraud to provide this advice. () In circumstances where there was evidence or a suspicion that the directors may have committed a fraud, I would have supported immediately replacing the directors with new directors/management. () I would have taken (or supported the taking of) any reasonable action which would have stopped further monies from being transferred out of the Company and preserved the assets of the Company. This may have included placing the Company into liquidation (and I would have been fully supportive of such a step). I would also have been fully supportive of any recovery action in respect of the missing monies. This may have included seeking a freezing order or presenting a winding up petition. I have a reasonable familiarity with these options from my knowledge as a general practitioner. I can say categorically that I would certainly not have prioritised the maintaining of any EIS relief over a possible liquidation of the Company (which I note is suggested by Crowe at paragraph 40.3 of its Defence). This would have been a ludicrous course of action to take in circumstances where a possible fraud was being committed against the Company which placed at risk my investment. As I explain above, my main priority in terms of my investment was making a profit and so I would have taken (or supported the taking of) any action which would have safeguarded my investment funds.” () I would have started by asking questions of Crowe and the directors of the Company to try and establish whether any further information or explanation could be obtained in respect of the issues identified in the notification. Given the very serious nature of the notification, I suspect that I would not have received sufficient explanations from either of these parties. I would obviously have treated any information received from the directors with a large amount of caution and scepticism (as indeed I did when receiving information from Mr Della Casa in July and October 2020) given the warning that they had been (or may have been) involved in a fraud. () I would have supported a full investigation into each of the matters referred to above (being Crowe's failure to submit auditors' reports and/or each of the matters contained in Crowe's notification). I consider that such an investigation would have uncovered all the matters of which we are now aware concerning the true state of the Company's affairs and operations, including the dissipation of monies from the Company to third parties for their benefit (or the benefit of the directors). () I would have contacted the other shareholders to discuss the notification, their views about the notification and the possible courses of action open to us as shareholders. I explain above the various steps I took to contact the other Company shareholders in the context of replacing the Price Bailey liquidators with new liquidators. The notification of a fraud (or potential fraud) is clearly a significantly graver matter and one which warrants immediate action to ensure that the fraud and any losses are stopped or minimised to the greatest extent possible. There is absolutely no doubt in my mind that I would have embarked upon exactly the same course of action as I did in the context of Price Bailey's replacement in contacting the other shareholders so that an immediate discussion could be facilitated. This would have comprised the following steps: (1) I would first have contacted Crowe and/or the directors to seek the names and contact details of the other shareholders; (2) if these details had not been forthcoming, I would have conducted searches of Companies House and/or the internet to seek the relevant information. Given the success I achieved in contacting the investors in the context of the Price Bailey replacement, I am very confident that I would have been equally successful in establishing contact and organising a shareholder meeting in this instance. Based on my previous discussions with the shareholders and their enthusiasm for taking action in the context of the replacement of Mr Pittman and Mr Higley, I am convinced that there would have been the same – if not significantly greater - enthusiasm for discussing and agreeing next steps following a notification which indicated that a significant fraud had been committed against the Company. () As I did in connection with the replacement of Mr Pittman and Mr Higley as joint liquidators, I would have taken (or supported the taking of) legal advice as to the notification and the various options available to the shareholders. I would have sought to instruct specialist lawyers with experience of fraud to provide this advice. () In circumstances where there was evidence or a suspicion that the directors may have committed a fraud, I would have supported immediately replacing the directors with new directors/management. () I would have taken (or supported the taking of) any reasonable action which would have stopped further monies from being transferred out of the Company and preserved the assets of the Company. This may have included placing the Company into liquidation (and I would have been fully supportive of such a step). I would also have been fully supportive of any recovery action in respect of the missing monies. This may have included seeking a freezing order or presenting a winding up petition. I have a reasonable familiarity with these options from my knowledge as a general practitioner. I can say categorically that I would certainly not have prioritised the maintaining of any EIS relief over a possible liquidation of the Company (which I note is suggested by Crowe at paragraph 40.3 of its Defence). This would have been a ludicrous course of action to take in circumstances where a possible fraud was being committed against the Company which placed at risk my investment. As I explain above, my main priority in terms of my investment was making a profit and so I would have taken (or supported the taking of) any action which would have safeguarded my investment funds.”

“In all cases when reasonable assurance cannot be obtained and a qualified opinion in the auditor’s report is insufficient in the circumstances for purposes of reporting to the intended users of the financial statements, the ISAs (UK) require that the auditor disclaim an opinion or withdraw (or resign) from the engagement, where withdrawal is possible under applicable law or regulation.” “The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.”

“In view of these requirements and given the significance of the amounts involved and the pervasive nature of the concerns surrounding cash paid to TWIFL via TWIF, in my opinion a reasonably competent auditor would have concluded that in order to properly report to the shareholders they should either disclaim an opinion or more likely consider resigning.”

“If a reasonably competent auditor proposed issuing a disclaimer, then it is possible that the directors would have asked them to stand down as auditors in any event. Whilst the directors could not have insisted on such a step (the removal of auditors before the end of their term of office is reserved to the members by section 510(4) [CA 2006]) a reasonably competent auditor would likely in my opinion either in response to such a request or otherwise have decided that they should consider resigning without issuing a report.”

“In my opinion a reasonably competent auditor is likely to have determined, even without taking legal advice, that in the circumstances outlined above it was appropriate for them to consider resigning. I believe however that they would have taken legal advice on the exact steps to be taken as a consequence of that conclusion. In this context, and given the serious legal issues to be considered, the reasonably competent auditor would work closely with either in-house counsel and/or external lawyers in respect of the bullet points set out below, taking legal advice until the conclusion of this matter: - the obligations set out under sections 519, 521 and 522 CA2006. These provisions would have required them to report any circumstances connected with their resignation that they believed needed to be brought to the attention of members/creditors to the directors, the registrar of companies and the appropriate audit authority. They would also have been able under section 518 CA 2006 to require the directors to convene a general meeting of the members to consider any explanation they wished to present of the circumstances connected with their resignation. - any duty that they had to inform the Company (or its shareholders in the circumstances of this case) of the auditor becoming aware of or suspecting fraud or any other third party as articulated in the case of Sasea Finance Limited. - the obligation under the Prevention of Crime Act 2002 to file a Suspicious Activity Report and also not to commit a “tipping-off” offence.”

“- They knew that the funds of TWEISL had been comingled with a related party also advised/managed by the Scheme Manager in that purported bank deposits as well as some purchases and sales of wine had been routed through TWIF. - An amount represented to them in the draft financial statements as a cash and cash equivalent as at 31st December 2012 was seemingly due from TWIFL. This purported deposit had also seemingly increased significantly since the year end and (assuming this was now after 31st December 2013) was now over £700,000. - Whether the balance was still represented as being with TWIFL or (more likely) with Lilliput they did not have sufficient appropriate audit evidence as to its existence (given the payments that had been routed through TWIF) or its recoverability. In relation to Lilliput they had also received no satisfactory explanation as to why the payments had been routed through TWIF. They also had no evidence that the purported deposit met the definition of cash and cash equivalents under IFRS. - TWIFL, TWIF and Fine Wines had not been identified by the directors as related parties. This might also apply to Lilliput given that when the existence of Lilliput first came to light in the 2013 audit it was not seemingly identified by the directors as a related party. - There did not seem to be any controls operated by either the directors or Scheme Manager to prevent future comingling of TWEISL’s funds with those of other funds managed/advised by the Scheme Manager. Indeed the arrangements with TWIF were seemingly designed explicitly to facilitate this. - The Scheme Manager’s own accounts showed that it had a significant net liability position and was supported certainly by loans from the directors (RB and AdC) and also at least in the past by borrowings from one of the wine funds that it advised/managed. - The Company was continuing to raise funds from investors. - As a consequence of the above they had grounds for serious concern about the integrity of the directors and that TWEISL’s cash funds may have been and may in future be diverted for the benefit of the directors and/or Anpero in a manner that may constitute fraud.”

“As noted above a reasonably competent auditor would have taken legal advice on the contents of any communication with the shareholders of TWEISL and/or such resignation letter, having regard to the considerations set out in (i) the provisions of ss519, 521 and 522 of the CA 2006, and the fact that, pursuant to s518, Crowe could require the directors to convene a general meeting of the members to consider any explanation it wished to present of the circumstances connected with its resignation above.”

“- They knew that the funds of TWEISL had been comingled with a related party also advised/managed by the Scheme Manager in that purported bank deposits as well as some purchases and sales of wine had been routed through TWIF. - An amount represented to them in the draft financial statements as a cash and cash equivalent as at 31st December 2013 was in fact an amount purportedly due from Lilliput which had seemingly increased significantly since the year end and (assuming this was now after 31st December 2014) was nearly £1.2 million.”

“It is clear, I think, from what I am aware of, particularly I had my attention drawn to the case of Sasea, but I would have always accepted, I think, that there may be common law duties that an auditor owes to shareholders, again probably as a body, outwith the statutory requirements. Sasea makes it clear that there are circumstances, particularly in cases involving suspected fraud, where, as I indicated earlier, an accountant, not just an auditor, acting in the public interest might be expected to try and draw a halt to that fraud. So I was merely allowing for the possibility that the legal advice might say, I do not know that it would, that I should be communicating directly to the shareholders in order to be able to draw a halt to what I thought might be a potential fraud.”

“Paragraphs 43 and 44 of the Particulars of Claim sets out various matters which it is alleged should have been reported by Crowe to TWEISL and that such reporting should have been made no later than the signing date of each set of accounts. I understand that in this context reporting to TWEISL encompasses reporting to its members in circumstances where all the directors were or were reasonably likely to be involved in the dishonest activity in question.”

“The Experts agree that the auditor has the following duties to report matters arising from their audit of a limited company in the United Kingdom when that company is not a regulated company under the Financial Services and Markets Act 2000 (and the Experts agree that TWEISL was not a regulated entity): There is a requirement in ISA 260 for auditors to report to those charged with governance (which in the case of TWEISL comprised only Mr della Casa and Mr Birrell), timely observations arising from their audit that are significant and relevant to their responsibility to oversee the financial reporting process. There is a requirement in ISA 260 for auditors to evaluate whether the two-way communication between the auditor and those charged with governance has been adequate for the purpose of the audit. If it has not, then the auditor is required to evaluate the effect, if any, on the auditor’s assessment of the risks of material misstatement and ability to obtain sufficient appropriate audit evidence and take appropriate action. ISA 260 notes that such action may include communicating with “a higher authority in the governance structure outside the entity, such as the owners of the business”

“Mr Ashley notes that in the event that the auditor sought legal advice in contemplation of resigning, then such legal advice would as a matter of course cover not only the auditor’s statutory duties, but also any other common law obligations that the lawyer felt the auditor may have in the specific circumstances. Where, as in this case, the auditor had concerns that fraud may be being committed, Mr Ashley understands that such legal advice would in particular consider the implications arising from the decisions in the Sasea Finance cases.” “Mr Main is not aware of any other reporting responsibilities of the auditors apart from through the channels described in the areas of agreement above.”

“If the two-way communication between the auditor and those charged with governance is not adequate and the situation cannot be resolved, the auditor may take such actions as: • Modifying the auditor’s opinion on the basis of a scope limitation. • Obtaining legal advice about the consequences of different courses of action. • Communicating with third parties (for example, a regulator), or a higher authority in the governance structure that is outside the entity, such as the owners of a business (for example, shareholders in a general meeting), or the responsible government minister or parliament in the public sector. • Withdrawing from the engagement, where withdrawal is possible under applicable law or regulation.”

“Examples of exceptional circumstances that may arise and that may bring into question the auditor’s ability to continue performing the audit include: • The entity does not take the appropriate action regarding fraud that the auditor considers necessary in the circumstances, even where the fraud is not material to the financial statements; • The auditor’s consideration of the risks of material misstatement due to fraud and the results of audit tests indicate a significant risk of material and pervasive fraud; or • The auditor has significant concern about the competence or integrity of management or those charged with governance.”

“(3A) Where there are matters connected with an auditor’s ceasing to hold office that the auditor considers need to be brought to the attention of members or creditors of the company, the statement under this section must include details of those matters. (4) A statement under this section must be sent (a) in the case of resignation, along with the notice of resignation …”

“(2) He may send with the notice an authenticated requisition calling on the directors of the company forthwith duly to convene a general meeting of the company for the purpose of receiving and considering such explanation of the reasons for, and matters connected with, his resignation as he may wish to place before the meeting. (3) He may request the company to circulate to its members (a) before the meeting convened on his requisition, or (b) before any general meeting at which his term of office would otherwise have expired or at which it is proposed to fill the vacancy caused by his resignation, a statement in writing (not exceeding a reasonable length) of the reasons for, and matters connected with, his resignation. (4) The company must (unless the statement is received too late for it to comply) (a) in any notice of the meeting given to members of the company, state the fact of the statement having been made, and (b) send a copy of the statement to every member of the company to whom notice of the meeting is or has been sent. (5) The directors must within 21 days from the date on which the company receives a requisition under this section proceed duly to convene a meeting for a day not more than 28 days after the date on which the notice convening the meeting is given.”

“Had I received a letter of resignation or other communication from an auditor identifying either individually or collectively any of the first-tier concerns, I would have considered these to be very significant red flags requiring immediate action. It is important to remember that TWEISL’s trading strategy was relatively simple and straightforward: its aim was to purchase good quality wine and sell it at a profit. It should therefore have been easy to audit. It is against this backdrop that I would have viewed any of the first-tier concerns as extremely out of character for any fund but especially one of this type and consequently very alarming.”

“Had I received a letter of resignation or other communication from an auditor identifying only the second-tier concerns (either individually or collectively), then I would have considered that, whilst they would not have raised immediate red flags in the manner that the first-tier concerns would have done, they would have been issues that required further investigation. I would have supported any such investigation, and I believe that this would have uncovered the true state of TWEISL’s affairs which existed at the time that the letter of resignation or other communication was issued by the auditor. Had such a letter of resignation or other communication identified any of the first-tier concerns in combination with the second-tier concerns, then this would have resulted in an even bigger red flag, and I would have viewed any such notification with a very high degree of alarm.”

“Having considered each of the issues identified by Mr Ashley in his report, there are a couple that I would have treated with perhaps the most alarm. This would have included any warning relating to Lilliput. I explain in my first statement what my reaction would have been had I received notification that Crowe had not undertaken proper investigations in respect of that company. Had I received a letter of resignation or other communication from Crowe which identified that the Company's draft financial statements recorded an amount which was in fact an amount purportedly due from Lilliput; that Crowe did not have sufficient appropriate audit evidence in respect of that amount or whether it was actually owed; and/or that the Company's directors had failed to identify Lilliput as a related party, I would have immediately suspected that a fraud was being committed and that would have prompted me to take immediate action (which I address below). I also would have regarded with considerable consternation any concern from an auditor as to the integrity of the directors and/or that the Company's monies may have been and may in the future be diverted for the benefit of the directors and/or Anpero in a manner that may constitute fraud. I would thus have been extremely worried about the safety of my investment.”

“My concerns would have been further compounded had any letter of resignation or other form of communication from Crowe extended to any of the other matters detailed in Mr Ashley’s report, such as (1) the losses suffered by Anpero and that it was seemingly being supported by the Company’s directors and another wine fund it advised/managed as well as by monies from unidentified sources; and/or (2) the co-mingling of the Company's monies with a related party also advised by Anpero and the lack of controls to prevent this happening; and/or (3) that the Company was continuing to raise monies from investors. I should make clear that had Crowe’s communication been limited to its concerns in respect of the matters addressed in this paragraph and been silent on the concerns identified in paragraph 16 above, I would still have been alarmed to have received that notification and would have taken immediate action to investigate the position further.”

“To the extent not already covered in this second statement, I confirm that had I received a letter of resignation or other communication identifying any or all of the matters set out above, I would have supported the actions set out at paragraph 45 of the Particulars of Claim, including the securing and preservation of the Company’s assets, insisting on payment of losses, taking steps to ensure that no more deposits be made, the immediate dismissal of the directors and the appointment of new management and, if necessary, the winding up of the Company and the distribution of its assets.”

“Had I been made aware of such a notification from the Company’s auditors in the terms set out above, then I would have considered that there were huge problems with the Company and would not have made any investment whatsoever (had I received such a notification before my first investment on 15 July 2015). Alternatively, I would not have made any further investment (had I received such notification before my second and third investments on 21 October 2015 and 28 January 2016). In this scenario, I note that I would have made my second investment of just under £24,000 only a matter of weeks prior to the date on which I should have received notification from the Company's auditors in August or September 2015. Had this have happened, then I would have demanded the immediate return of my investments made up to that point.”

“Thank you so much, Elizabeth, for sending these on to me. Yes, please continue to send them all as they are very useful as we explain that there’s categorically no skulduggery involved in what we’re doing. It’s not been an easy start to the week. Thanks again.”

“There is a requirement in ISA 260 for auditors to evaluate whether the two-way communication between the auditor and those charged with governance has been adequate for the purpose of the audit. If it has not, then the auditor is required to evaluate the effect, if any, on the auditor’s assessment of the risks of material misstatement and ability to obtain sufficient appropriate audit evidence and take appropriate action. ISA 260 notes that such action may include communicating with “a higher authority in the governance structure outside the entity, such as the owners of the business.”

“(2) … the company must within 14 days of the receipt of the statement either (a) send a copy of it to every person who under section 423 is entitled to be sent copies of the accounts, or (b) apply to the court. (3) If it applies to the court, the company must notify the auditor of the application. (4) If the court is satisfied that the auditor is using the provisions of section 519 to secure needless publicity for defamatory matter (a) it shall direct that copies of the statement need not be sent out, and (b) it may further order the company’s costs (in Scotland, expenses) on the application to be paid in whole or in part by the auditor, even if he is not a party to the application. The company must within 14 days of the court’s decision send to the persons mentioned in subsection (2)(a) a statement setting out the effect of the order. (5) If no such direction is made the company must send copies of the statement to the persons mentioned in subsection (2)(a) within 14 days of the court’s decision or, as the case may be, of the discontinuance of the proceedings.”

“Ultimately, if it appears to a reasonable auditor, in the hypothetical position that we are putting Crowe in, that there is information that, as a matter of urgency, needs to reach the members about director fraud, and the directors are acting in a way which means that the members are not going learn about director fraud, then the auditors are going to have to take appropriate action in one way or another.”

“The procedure that has been suggested is effectively … convening a meeting, deciding what to do, taking appropriate steps, and putting the company into liquidation”, Mr Lawrence agreed with that. But he then alluded to the “obvious” inference that on the discovery of fraud or a very strong suspicion of fraud “legal advice will be taken”

“my brother is a lawyer and I know some of his ex-partners who are in litigation. I would have probably spoken to them”

“What would have brought the fraud/impropriety to an end?”

“a. Proper audit enquiry and procedure has exposed the fraud. Crowe has concluded that the Lilliput deposit is or is very probably a dishonest fiction concocted by Mr della Casa for illegitimate purposes. . It follows that any previous years’ accounts which have been audited by Crowe, and have been the subject of an unqualified audit opinion, have or probably have been fundamentally misleading because they have represented that TWEISL holds a lot of money in a deposit account with Lilliput when that is a lie. . Crowe’s audit opinion supporting those accounts has been addressed to the shareholders as a body. . Crowe would be, and would know that it was, in a very delicate position. Crowe and its partners and employees are chartered accountants who are obliged (both as a matter of professional ethics and pursuant to contract) to act in accordance with the ICAEW’s Code of Ethics. That, as Mr Main confirmed, attaches weight to integrity. Accountants must not knowingly be associated with reports or other information where it contains a materially false or misleading statement, being subject to broad principles to act in the public interest. Where an accountant becomes aware of having been associated with such information, he must take steps to be disassociated from it. . Crowe would go to its lawyers and explain the situation and say, in effect: “What are we required to do, in circumstances in which a report to the directors may well be wholly ineffectual, and the company’s and the shareholders’ interests may be seriously prejudiced if we do not make a report to them as a matter of urgency”.”

“If the circumstances are such as to give rise to a reasonable suspicion of fraud, [the auditors] must necessarily proceed further and either determine that no fraud exists or report their suspicion to the general manager, or the board, or even the shareholders of the company, as may be appropriate in the circumstances of the case.” (i) “However, at the same time as resigning or contemplating resigning, they would have had to consider their reporting obligation, an obligation which exists, according to Sasea, in order to address the risk of further losses flowing from the misconduct that has been identified. So I say resignation and report to shareholders, broadly speaking, [are] contemporaneous in this case.” (ii) “So there may be occasions when it is necessary for an auditor to report directly to a third party - that is somebody outside the internal management of the company - without the knowledge or consent of the management.” () Reference was made to ISA 240 at [A54]. () Reference was made to ISA 260 at [A44]. () Reference was made to [51] and [52] of the Company’s written Closing Submissions as “posing the question that has to be answered as a matter of law”. () When asked whether it was the Company’s case that the document that Crowe was required to serve in accordance with the CA 2006 should also have been circulated to shareholders, or whether a different document should have been circulated, Mr Lawrence answered: “It would be a separate report, in that it would go directly to the shareholders, and would not follow the statutory path which would involve going via the directors. The gist of what would be reported, what needed to be reported, would be substantially the same in both documents, because the matters of concern, which we have summarised in this morning’s Note, represented the reasons for resignation.”

“Both parties approached and conducted the trial on the basis that the question whether a direct report should be made to shareholders was in issue; the possibility of a ‘pleading point’ in this respect was not raised by Crowe until it was alluded to by the court on Day 9 of the trial; in the circumstances, the point is in issue and no amendment is required; alternatively, the court should permit an amendment. The issue is one of law, and there is no evidential prejudice.”

“Further or alternatively Crowe acting competently would have (for the avoidance of doubt because it would have been under a duty to TWEISL to do so): A. reported promptly and without any delay to TWEISL (which would for the avoidance of doubt have involved reporting directly to the members of TWEISL in circumstances where all the directors were involved or were suspected of being involved in the dishonest activity in question) the matters set out below; and B. resigned and included the same or substantially the same matters as set out below in their resignation statement to be sent to TWEISL and the registrar of Companies House pursuant to ss. 519-521 of the Companies Act 2006. The gist of TWEISL’s case that Crowe was under a duty to so report and/or include such matters in their resignation statement is a matter for legal submissions and is not required to be stated in this statement of case; it is for the avoidance of doubt set out at paragraphs 46-54 of its written Closing Submissions and oral submissions on Day 11 in the transcript [I/21/51-82].”

“Crowe should (in each relevant year) have taken the steps set out above at paragraph 43 promptly and/or without limitation no later than the signing date of each set of accounts as set out in paragraph 7 above.”

“44A) In particular with reference to each audit year such reporting should have occurred (as set out in the expert report of Mr Ashley dated 2nd April 2025): a). for audit y/e 2013 on or around January/February 2015. b) for audit y/e 2014 on or around August/September 2015. c) for audit y/e 2015 on or around September/October 2016. d) for audit y/e 2016 on or around November/December 2017. e) for audit y/e 2017 on or around August/September 2018. f) for audit y/e 2018 on or around August/September 2019. 44B) Further or alternatively the members of TWEISL would have had notice of the resignation notice and/or statement either: . as sent to them pursuant to the company’s obligations under s 520 of the Companies Act 2006. . alternatively within 21 days beginning with the day on which Crowe should have sent the s. 519 statement to the company it should have sent a copy of the statement to the registrar within 7 days. That statement would have been placed on the website at Companies House within a further 7 days and been accessed by the members within 14 days thereafter.”

“On relevant notification pursuant to 43A and/or 43B above TWEISL (through its members) would have taken prompt and significant action including: . the securing, preservation and valuation of its assets (including wine stock, money in accounts etc) and without prejudice to the generality of the foregoing by (i) issuing a petition to wind up the company on just and equitable grounds pursuant to s. 122(1)(g) of the Insolvency Act 1986 (ii) applying for interim injunctive relief to preserve the assets of the company (“the injunction steps”) and/or (iii) applying for the appointment of a provisional liquidator pursuant to s. 135 of the Insolvency Act 1986. . insisting upon the repayment of the “loans”. . ensuring that no more deposits be made or (if made) would be with a well-known commercial bank. . the immediate dismissal of the Directors. . the appointment of new management. . (if necessary) the winding up of the business of TWEISL and the distribution of its assets (including the sale of wine held in stock).”

“45A). As to the particulars of such prompt and significant actions: a) the notified members of TWEISL or sufficient of them would have taken urgent legal advice promptly. It is to be inferred that they would have sought and obtained such legal advice within 4 days or such period as the court may find after notification as set out above which advice would have notified them of: ) their rights in relation to the injunction steps and/or to apply for the appointment of a provisional liquidator pursuant to s. 135 of the Insolvency Act 1986. ) their rights to take control of the management of the company by using their power to require a general meeting pursuant to s. 305 of the Companies Act 2006 (members representing 5% of paid-up capital may do so) and/or if impracticable to call a meeting in the usual way (because for example of the unwillingness of the directors to call such a meeting) request the court to order such a meeting on the application of a member who would be entitled to vote at such a meeting pursuant to s. 306(2). ) The said members would have taken the injunction steps promptly and within 3 days of the legal advice or such period as the court may find. 45B) In the premises the relevant actions would have led to the preservation and securing of the assets promptly and in any event within 7 days of notification as set out at 44A and 44B above and/or the general meeting within 8 weeks of the notification or such date as the court may find.”

“(2) Dealing with a case justly and at proportionate cost includes, so far as is practicable— (a) ensuring that the parties are on an equal footing; (b) saving expense; (c) dealing with the case in ways which are proportionate— (i) to the amount of money involved; (ii) to the importance of the case; (iii) to the complexity of the issues; and (iv) to the financial position of each party; (d) ensuring that it is dealt with expeditiously and fairly; (e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases; and (f) enforcing compliance with rules, practice directions and orders.”

“… Unless and until an application to amend was made, so as to bring the claimant’s pleaded case into alignment with the evidence of its witnesses, the Bank was entitled to proceed on the footing that the issues remained those defined by the statements of case in their existing form. It puts matters the wrong way round, in my judgment, for the claimant to say that the Bank was now on notice of the “real” case that the claimant wished to advance. It is the function of the pleadings to define the issues, and evidence which does not go to the pleaded issues is, strictly speaking, irrelevant and liable to be struck out or disregarded accordingly…”

“I endorse the view expressed by the judge to the parties at the trial and repeated in his judgment at [11] that the statements of case ought, at the very least, to identify the issues to be determined. In that way, the parties know the issues to which they should direct their evidence and their challenges to the evidence of the other party or parties and the issues to which they should direct their submissions on the law and the evidence. Equally importantly, it enables the judge to keep the trial within manageable bounds, so that public resources as well as the parties’ own resources are not wasted, and so that the judge knows the issues on which the proceedings, and the judgment, must concentrate. If, as he said, there was “a prevailing view that parties should not be held to their pleaded cases”, it is wrong. That is not to say that technical points may be used to prevent the just disposal of a case or that a trial judge may not permit a departure from a pleaded case where it is just to do so (although in such a case it is good practice to amend the pleading, even at trial), but the statements of case play a critical role in civil litigation which should not be diminished.”

“(1) This rule applies where – (a) a party applies to amend their statement of case in one of the ways mentioned in this rule; and (b) a period of limitation has expired under – (i) the Limitation Act 1980; (ii) the Foreign Limitation Periods Act 1984; or (iii) any other enactment which allows such an amendment, or under which such an amendment is allowed. (2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as are already in issue on a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.” (a) a party applies to amend their statement of case in one of the ways mentioned in this rule; and (iii) any other enactment which allows such an amendment, or under which such an amendment is allowed. (2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as are already in issue on a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.”

“New claims in pending actions: rules of court. (1)For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced— (a)in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and (b)in the case of any other new claim, on the same date as the original action. (2)In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either— (a)the addition or substitution of a new cause of action; or (b)the addition or substitution of a new party; and “third party proceedings” means any proceedings brought in the course of any action by any party to the action against a person not previously a party to the action, other than proceedings brought by joining any such person as defendant to any claim already made in the original action by the party bringing the proceedings. (3)Except as provided by section 33 of this Act or by rules of court, neither the High Court nor the county court shall allow a new claim within subsection (1)(b) above, other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Act which would affect a new action to enforce that claim. For the purposes of this subsection, a claim is an original set-off or an original counterclaim if it is a claim made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action. (4)Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose. (5)The conditions referred to in subsection (4) above are the following— (a)in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and (b)in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.”

“29. Section 35 and CPR 17.4 refer to “a new claim” and to a “claim already made”, and s.35 refers also to “a claim involving a new cause of action”

“[131] While it is good sense not to be pernickety about pleadings, the basic requirement that material facts should be pleaded is there for a good reason—so that the other side can respond to the pleaded case by way of admission or denial of facts, thereby defining the issues for decision for the benefit of the parties and the court. Proper pleading of the material facts is essential for the orderly progress of the case and for its sound determination. The definition of the issues has an impact on such important matters as disclosure of relevant documents and the relevant oral evidence to be adduced at trial. In my view, the fact that the nature of the grievance may be obvious to the respondent or that the respondent can ask for further information to be supplied by the claimant are not normally valid excuses for a claimant’s failure to formulate and serve a properly pleaded case setting out the material facts in support of the cause of action. If the pleading has to be amended, it is reasonable that the party, who has not complied with well-known pleading requirements, should suffer the consequences with regard to such matters as limitation.”

“34. Helpful guidance as to the proper approach to the resolution of this question was given by Colman J in BP plc v Aon Ltd [2006] 1 Lloyd’s Rep 549 where, at page 558, he said this: “52. At first instance in Goode v Martin [2001] 3 All ER 562 I considered the purpose of Section 35(5) in the following passage: “Whether one factual basis is ‘substantially the same’ as another factual basis obviously involves a value judgment, but the relevant criteria must clearly have regard to the main purpose for which the qualification to the power to give permission to amend is introduced. That purpose is to avoid placing a defendant in the position where if the amendment is allowed he will be obliged after expiration of the limitation period to investigate facts and obtain evidence of matters which are completely outside the ambit of, and unrelated to those facts which he could reasonably be assumed to have investigated for the purpose of defending the unamended claim.” “52. At first instance in Goode v Martin [2001] 3 All ER 562 I considered the purpose of Section 35(5) in the following passage: “Whether one factual basis is ‘substantially the same’ as another factual basis obviously involves a value judgment, but the relevant criteria must clearly have regard to the main purpose for which the qualification to the power to give permission to amend is introduced. That purpose is to avoid placing a defendant in the position where if the amendment is allowed he will be obliged after expiration of the limitation period to investigate facts and obtain evidence of matters which are completely outside the ambit of, and unrelated to those facts which he could reasonably be assumed to have investigated for the purpose of defending the unamended claim.”

“The policy of the section was that, if factual issues were in any event going to be litigated between the parties, the parties should be able to rely upon any cause of action which substantially arises from those facts.”

“In borderline cases this may be so. In others it must be a question of analysis.”

“So I was merely allowing for the possibility that the legal advice might say, I do not know that it would, that I should be communicating directly to the shareholders in order to be able to draw a halt to what I thought might be a potential fraud.”

“My recent experience in this court shows that some counsel and judges are not giving pleadings the attention which they should. Pleadings are formal documents which have to be prepared at the beginning of litigation, they are essential for the fair trial of an action and the saving of time at trial. The saving of time keeps down the costs of litigation. A plaintiff is entitled to know what defences he has to meet and the defendant what claims are being made against him. If the parties do not know, unnecessary evidence may be got together and led or, even worse, necessary evidence may not be led. Pleadings regulate what questions may be asked of witnesses in cross-examination. When counsel raises an objection to a question or a line of questioning, as Mr Morritt did on a number of occasions, the trial judge should rule on it at once. He should not regard the objection as a critical commentary on what the other side is doing. If the judge does not rule, counsel should ask him to do so. If a line of questioning is stopped because it does not relate to an issue on the pleadings, counsel should at once consider whether his pleadings should be amended. If he decides that they should, he should forthwith apply for an amendment and should specify precisely what he wants and the judge should at once give a ruling on the application. The principles upon which amendments should be allowed are well known and are set out in the current edition of the Supreme Court practice.”

“It will be apparent from what I have already said that the appeal proceeds on the basis that, by allowing the amendment to the particulars of claim the Recorder allowed the claimants at the beginning of the trial to put forward a new case which raised issues of fact which the defendants had not had a proper opportunity to deal with and so put them at a serious disadvantage. If that had indeed been the case there would have been a strong argument that the defendants had been denied a fair trial, but in my view to describe it in those terms is to ignore the procedural history to which I have referred. The fact is that almost as soon as the will was produced, the claimants through their solicitors made it clear that they disputed its authenticity. In opposition to the defendants’ application for summary judgment, they filed the affidavit of Mr Safdar and the first affidavit of Mr Hossain which together made it clear that the validity of the will was being challenged. Moreover, it is clear that the defendants themselves understood that the authenticity of the testator’s signature was being challenged because they asked Mr Recorder Chapman at the pre-trial review for permission to call a handwriting expert. There can only have been one purpose in doing so: to assist in establishing (if the report were favourable) that the signature of the testator was genuine and the will validly executed.”

“Since that case was decided the approach to late amendments has become significantly less permissive than had become the practice – see Swain-Mason v Mills & Reeve LLP [2011] EWCA Civ 14 [2011] 1 WLR 2735. Whilst of course it will be appropriate or even necessary for a pleading point to be taken when it becomes apparent that the party concerned is departing from his her or its pleaded case, the more rigorous approach now taken in relation to late amendments together with the revisions made to the definition of the overriding objective that came into effect on 1 April 2013, means that it is less likely than in the past that such an application will succeed.”

“Thus, if and so far as the purpose for which the audit was carried out is a relevant consideration in determining the extent of any general duty in tort owed by the appellants to persons other than the company which is their immediate employer, that purpose was simply that of fulfilling the statutory requirements of the Companies Act 1985. That, in turn, raises the question … of what is the purpose behind the legislative requirement for the carrying out of an annual audit and the circulation of the accounts. For whose protection were these provisions enacted and what object were they intended to achieve? My Lords, the primary purpose of the statutory requirement that a company’s accounts shall be audited annually is almost self-evident. The structure of the corporate trading entity, at least in the case of public companies whose shares are dealt with on an authorised Stock Exchange, involves the concept of a more or less widely distributed holding of shares rendering the personal involvement of each individual shareholder in the day-to-day management of the enterprise impracticable, with the result that management is necessarily separated from ownership. The management is confided to a board of directors which operates in a fiduciary capacity and is answerable to and removable by the shareholders who can act, if they act at all, only collectively and only through the medium of a general meeting. Hence the legislative provisions requiring the board annually to give an account of its stewardship to a general meeting of the shareholders. This is the only occasion in each year upon which the general body of shareholders is given the opportunity to consider, to criticise and to comment upon the conduct by the board of the company’s affairs, to vote upon the directors’ recommendation as to dividends, to approve or disapprove the directors’ remuneration and, if thought desirable, to remove and replace all or any of the directors. It is the auditors’ function to ensure, so far as possible, that the financial information as to the company’s affairs prepared by the directors accurately reflects the company’s position in order, first, to protect the company itself from the consequences of undetected errors or, possibly, wrongdoing (by, for instance, declaring dividends out of capital) and, secondly, to provide shareholders with reliable intelligence for the purpose of enabling them to scrutinise the conduct of the company’s affairs and to exercise their collective powers to reward or control or remove those to whom that conduct has been confided.”

“It is accepted for present purposes that it was KPMG’s duty to warn either the directors or some relevant third party of any fraud or irregularity likely to result in material loss to the company with a reasonable degree of promptitude. Why should that be? The obvious and common-sense answer is that by so doing the company may be spared such losses.”

‘In addition, I agree with Moffitt J (as he then was) in Pacific Acceptance Corporation Ltd v Forsyth (1970) 92 WN (NSW) 29 that, in planning and carrying out their work, auditors must be mindful of the possibility of fraud. Indeed, many of the tests which auditors habitually apply proceed on the assumption that some person or persons may have been dishonest or fraudulent. As the Judge observes with complete logic (at p 63): “Once it is accepted that the auditor’s duty requires him to go behind the books and determine the true financial position of the company and so to examine the accord or otherwise of the financial position of the company, the books and the balance sheet, it follows that the possible causes to the contrary, namely, error, fraud or unsound accounting, are the auditor’s concern.” I also agree that the question cannot be dismissed by reference to well-known dicta and metaphors concerning dogs and detectives. Such dicta are generally directed to the state of mind of the auditors, such as whether they were sufficiently sceptical or suspicious – or should have been sceptical or suspicious. The questions tend to obscure the auditor’s basic duty to plan and carry out the audit of the company cognisant of the possibility of fraud. If and when the auditors discover an apparent irregularity, they must carry out such further tests or make such further inquiries as may be required to be satisfied that, in fact, no irregularity exists. If an irregularity is found to exist they must be satisfied, or take such further steps as may be necessary to be satisfied, that the irregularity will not affect the truth of the accounts. If the circumstances are such as to give rise to a reasonable suspicion of fraud, they must necessarily proceed further and either determine that no fraud exists or report their suspicion to the general manager, or the board, or even them shareholders of the company, as may be appropriate in the circumstances of the case.’] ‘The auditors perform their duty to the company and safeguard the interest of the shareholders by making communication, properly called for, to the appropriate level of management or the directors, during the course of the audit, with an appropriate report to the shareholders at the annual general meeting. They do not perform such duty if, having uncovered fraud or having suspicion of fraud in the course of the audit, they fail promptly to report it to the directors and perhaps in the first instance, according to the circumstances, immediately to management. If it involves a senior executive or a director or implicates one of them it is difficult to imagine a case where the board should not be informed without delay.’

“It is impossible to read s7 of the Companies Act, 1879, without being struck with the importance of the enactment that the auditors are to be appointed by the shareholders, and are to report to them directly, and not to or through the directors. The object of this enactment is obvious. It evidently is to secure to the shareholders independent and reliable information respecting the true financial position of the company at the time of the audit. The articles of this particular company are even more explicit on this point than the statute itself, and remove any possible ambiguity to which the language of the statute taken alone may be open if very narrowly criticised.”

“an auditor is required to report to members on the accounts examined by them and to state whether they have obtained all the information and explanations which they required; whether, in their opinion, and so far as appears from the examination of those records, proper accounting records have been kept by the company; and whether, in their opinion, according to the best of their information and the explanations given to them and as shown by the books of the company, the balance sheet and profit and loss account are properly drawn up so as to give a true and fair view of the state of the company’s affairs as at the end of its financial year and the results of the business of the company for that financial year.”

“Examples of exceptional circumstances that may arise and that may bring into question the auditor’s ability to continue performing the audit include: • The entity does not take the appropriate action regarding fraud that the auditor considers necessary in the circumstances, even where the fraud is not material to the financial statements; • The auditor’s consideration of the risks of material misstatement due to fraud and the results of audit tests indicate a significant risk of material and pervasive fraud; or • The auditor has significant concern about the competence or integrity of management or those charged with governance.” () At [A56], the following explanation: “The auditor has professional and legal responsibilities in such circumstances and these responsibilities may vary by country. In some countries, for example, the auditor may be entitled to, or required to, make a statement or report to the person or persons who made the audit appointment or, in some cases, to regulatory authorities. Given the exceptional nature of the circumstances and the need to consider the legal requirements, the auditor may consider it appropriate to seek legal advice when deciding whether to withdraw from an engagement and in determining an appropriate course of action, including the possibility of reporting to shareholders, regulators or others.”

“For purposes of the ISAs (UK and Ireland), the following terms have the meanings attributed below: (a) Those charged with governance – The person(s) or organization(s) (for example, a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process. For some entities in some jurisdictions, those charged with governance may include management personnel, for example, executive members of a governance board of a private or public sector entity, or an owner-manager. For discussion of the diversity of governance structures, see paragraphs A1-A8. In the UK and Ireland, those charged with governance include the directors (executive and non-executive) of a company and the members of an audit committee where one exists. For other types of entity it usually includes equivalent persons such as the partners, proprietors, committee of management or trustees.” () At [A44]: “If the two-way communication between the auditor and those charged with governance is not adequate and the situation cannot be resolved, the auditor may take such actions as: • Modifying the auditor’s opinion on the basis of a scope limitation. • Obtaining legal advice about the consequences of different courses of action. • Communicating with third parties (for example, a regulator), or a higher authority in the governance structure that is outside the entity, such as the owners of a business (for example, shareholders in a general meeting), or the responsible government minister or parliament in the public sector. • Withdrawing from the engagement, where withdrawal is possible under applicable law or regulation.”

“then you beetle off to the lawyers to say, ‘This is the set of circumstances I have got. This is what I have found out so far. This is what I know. What sort of resignation letter can you help craft for me, and/or do I need to do anything else?’”

“In those circumstances it is easily understandable that a logical connection may be made between the company, which was previously unaware that a fraud was being committed against it, becoming aware of the fraud and taking steps to recover in respect of it and to prevent repetition”

“There are numerous cases …, in which a third party who has received property from the principal/beneficiary pursuant to a fiduciary’s breach of duty (other than a bona fide purchaser for value of the legal estate without notice) has been found to receive it on constructive trust.”

“As to paragraphs 47 to 49, it is denied that Crowe is liable for those alleged “losses”

“Had it been raised in good time, I can say that the Liquidators would undoubtedly have sought a great deal of factual evidence to support TWEISL’s wine stock figures from various sources as I detail below. The further evidence that would have been sought would have included: () Direct engagement with wine warehouse providers (in particular LCB (as referred to in paragraph 42 of Mr Malkin’s witness statement)) to obtain disclosure of documents relevant to TWEISL’s ownership of stock held by LCB at all relevant times. The liquidators can see that LCB held records of TWEISL stock. We would have wished to see those records to rebut Crowe’s case that there is uncertainty as to ownership. We would also have wished to explore the electronic system referred to by Mr Malkin and details of LCB’s engagement with those at Anpero who dealt directly with Crowe in respect of stock. If necessary, the liquidators might have relied upon section 236 Insolvency Act 1986 to compel information. () Direct engagement (again under section 236 Insolvency Act 1986 if necessary) with individuals other than Mr della Casa and Mr Birrell at Anpero in respect of stock lists of TWEISL wine at all relevant time, and the valuation of that wine. There were individuals (in particular Chris Smith) at Anpero who were directly involved in the provision of wine stock information to Crowe in the context of the audit of TWEISL’s wine stock … () Further engagement with Tromino (Fabian Schonenberg in particular) as to its role in what the Crowe Skeleton itself notes was Tromino’s role in “… putting in place internal financial controls … monitoring assets and dealing with valuation issues” (see paragraph 3(a)). () Further engagement with Mr della Casa and Mr Birrell and with Mr Patel (under section 236 Insolvency Act 1986) to ask them explicitly about the ownership and valuation of TWEISL’s wine stock. () The liquidators would have sought to adduce witness evidence from some or all of the above and/or would have included specific reference to their enquiries and information gathered in the context of those enquiries in Mr Hardman’s witness statement.”

“Further, TWEISL’s case is that there was a fraud by its directors. Even if (in the light of further steps by Crowe) further measures had been taken to recover monies paid to or held by third parties, and ensure that all sums were held by TWEISL in TWEISL’s own bank account (or some other identified location) or to secure or preserve wine, (a) the directors would have had authority to make payments out of that bank account (or other location).; (b) the directors would have been able to sell wine in advance of any steps being taken that would have prevented this; (c) As such, the directors could have misappropriated the sums at any time, and/or could have sold wine before steps were taken preventing this, resulting in the same or similar alleged losses to TWEISL (or substantially reducing those alleged losses).”

“It is clear that there is additional evidence that would be relied upon had this point been run at the appropriate time, for example evidence (both fact and expert) going to: (i) How quickly Mr della Casa would have sought to sell the wine and (if so) how quickly he would have been able to sell the significant quantity of wine at the bonded warehouse. This might encompass an assessment of whether other people involved at Anpero in managing TWEISL’s wine stock would have raised significant concerns about an auction sale or fire sale of all of part of TWEISL’s wine stock (as to which see below). It is not clear to me that if he had become aware that Crowe had reported concerns about fraud to TWEISL’s shareholders, Mr della Casa would have necessarily sought to immediately sell all or a substantial part of TWEISL’s wine rather than, as Crowe has suggested, continue to try and obfuscate and deceive TWEISL’s auditors and shareholders. Such evidence as is available appears to show that Mr della Casa took relatively small sums of money repeatedly over time towards household expenses (for example payments towards mortgages) (it is fair to say the sums taken accelerated post 2016 – see Mr Pearson’s report at paragraphs 5.25 – 5.38), but not large lump sums as would be the case in a “smash and grab” scenario. But this has not, of course, been a focus of the evidence to date. (ii) Whether the bonded warehouse (LCB) would have been cautious about acting on instructions in respect of the auction or fire sale all or a significant part of TWEISL’s wine on the basis of instructions solely from Mr della Casa. It is noted that even though this has not been an issue for disclosure in this case (because it has not been pleaded by Crowe), the following appears from preliminary searches to be the case: (iii) Documents on Trial View indicate that contact with LCB in the context of stock takes by Crowe in the context of its audit work was conducted through Chris Smith or William Grey at Anpero, not through Mr della Casa. (iv) Documents disclosed in this case indicate that contact with LCB was primarily through William Grey at Anpero; there were no instances of Mr della Casa giving instructions covering the sale of wine to LCB directly. (v) I have also arranged for searches to be conducted of documents that were not disclosed by TWEISL to be carried out. That has also identified documents that indicate that Mr della Casa did not give instructions to LCB to sell wine directly and that the primary contact with LCB was through either Mr Grey or Mr Smith at Anpero. (vi) These preliminary searches indicate to me that any direct instructions from Mr della Casa concerning the sale of all or a substantial part of TWEISL’s wine stock urgently which did not copy in Mr Grey and/or Mr Smith would have appeared inherently odd to LCB. It seems far from clear to me that LCB would simply have acted on instructions from Mr della Casa which were not copied to Mr Grey and/or Mr Smith and without checking with Mr Grey and/or Mr Smith. There has been no suggestion (from either TWEISL or Crowe) that Mr Grey or Mr Smith were dishonest or would voluntarily involve themselves in fraud (and therefore potential personal liability), when they would at the relevant time (as far as I or the Court is aware) likely have been thinking that TWEISL was in the process of conducting an orderly and measured sale of TWEISL’s wine stock leading to an MVL process in due course. What rationale could Mr della Casa have provided to those two individuals for a fire sale of all or a substantial part of TWEISL’s wine stock in double quick time? This has simply not been explored in evidence to date because it was not part of Crowe's case. A further issue would be whether Nirav Patel would have been aware of the concerns of Crowe and what his reaction (as a qualified accountant not directly implicated in the suspected fraud) would have been. Would he have taken steps to stop Mr della Casa preparing a fire sale of all or part of TWEISL’s wine? (vii) Whether shareholders notified by Crowe of the likelihood of director fraud at TWEISL would have immediately acted to prevent the same, including urgently getting in contact with the bonded warehouse to ensure that the bonded warehouse did not act on instructions from the directors of TWEISL to sell wine held for TWEISL and, if so, what the bonded warehouse would have done if it had become aware that Crowe had raised such concerns about TWEISL’s directors with the shareholders. (viii) Whether Mr della Casa would have been forced to pay duty and tax on the wine held for TWEISL when conducting an auction or a fire sale of the same. My understanding is that if the wine held by TWEISL in the bonded warehouse was to be sold out of bond, then VAT and duty would become payable on that wine. VAT of approximately £800,000 (i.e. 20% of £4m), plus approximately £3.20 per bottle of Duty would have to be paid before the wine could be removed from the bonded warehouse. There is simply no evidence as to whether it would be practically possible to sell a very significant amount of wine in bond at auction or in a fire sale so as not to incur that Duty and VAT. In any case, such an auction or a fire sale in bond would seem unlikely if Mr della Casa wished then to dissipate the proceeds – it would leave an obvious trail. Mr della Casa (and any potential purchaser) would no doubt be alive to the fact that whether the wine was sold in bond or not there was an obvious risk in a fire sale of a large amount of wine below market value (which was readily ascertainable from Liv-ex) of challenge by a liquidator subsequently appointed to TWEISL (for example as a transaction at an undervalue under section 238 Insolvency Act 1896 or similar, particularly if such fire sale was to an entity connected in some way to Mr della Casa). (ix) If Mr della Casa had attempted to sell the wine via an auction or a fire sale, whether shareholders would have become aware of his attempts to do so and would have reacted to the same irrespective of whether they had been notified by the auditors of fraud or suspected fraud at TWEISL by Crowe.”

“S**T! May have to change priorities now can you think of anything to say to Graham”

“[AdC] (and any potential purchaser) would no doubt be alive to the fact that whether the wine was sold in bond or not there was an obvious risk in a fire sale of a large amount of wine below market value … of challenge by a liquidator subsequently appointed to TWEISL”

“The Scheme Manager has been appointed by the Company to trade the Company’s wine stocks on its behalf and will use its disciplined methodology based on its proprietary stock picking philosophy and its relative value analysis of the wines to be traded by the Company to provide the framework through which purchases and sales of wine will be made.”

“ADC explained that monies from the various investment vehicles that Anpero are scheme manager for are pooled and place together on deposit as this saves on charges and maximises the potential interest rate that can be obtained. In total, an amount of £357,000 was placed on deposit with Investec on 21 December (with this deposit maturing on 21 Jan 2013), which included £137,000 of TWEISL’s funds. A copy of the money market trade confirmation has been provided (see 1 C16). In order to obtain further confidence regarding the value of monies placed on deposit by TWEISL as at 31/12/12 we need to evidence the payment of £137,000 going out on 21 Dec and being received back in on 21 Jan. This has been followed up with Nirav. Rather than £137,000 being paid over in Dec and then being received back in Jan, it is the case that transfers were made in and out of the money market deposit during 2012, which resulted in a net amount of £137k being held at 31/12/12, and further amounts were then added into the deposit following the year end. The transfers in and out of the deposit during 2012 have therefore been agreed to TWEISL’s bank statements – see 1 C19 – and it has been agreed that a written representation confirming the portion of the deposit as a whole that relates to TWEISL funds will be provided in the LOR [i.e. the directors’ Letter of Representation].”

“The Company ensures that bank accounts are held with reputable banks. The carrying amount of these financial assets represents the maximum credit exposure” and “In order to ensure liquidity, the Company maintains sufficient cash and cash equivalents to meet the Company’s obligations as and when they fall due.”

“The Company has no significant concentrations of credit risk. The Company has credit risk management policies in place and exposure to credit risk is monitored on an ongoing basis.”

“See 1C11 and 1C12 – audit evidence obtained via the process of audit clearance meeting”

“The Experts agree that Crowe was advised in the course of their 2012 audit that TWEISL’s cash had been pooled with other funds managed by Anpero in an Investec bank account in the name of [TWIFL]. TWEISL’s directors represented to Crowe that this Investec bank account held £137,000 belonging to TWEISL. Crowe did not indicate in their audit documentation that they understood the pooling arrangements and hence whether TWEISL had any direct interest in the Investec account.” (2) Under the heading “Crowe’s audit of the Deposit Account – Areas of Agreement”: “The Experts agree that Crowe failed to obtain sufficient appropriate audit evidence in respect of the existence or recoverability of the Deposit Account in any year. The Experts also agree that a reasonably competent auditor would have recognised that the Deposit Account represented a significant audit risk, including the risk of fraud specifically by the directors. The Experts agree that Crowe did not adequately identify the significant audit risks in relation to this balance including in relation to the co-mingling of funds and therefore did not apply an appropriate level of professional scepticism. The Experts agree that it is unlikely that in any financial year it would have been appropriate to describe the Deposit Account balance as cash and cash equivalents in the financial statements of TWEISL, but instead it should have been presented, to the extent the balance was recoverable, as a debtor (receivable) and where appropriate disclosed as due from a related party. The Experts agree that the further audit procedures that a reasonably competent auditor should have performed, or attempted to perform, in order to obtain sufficient appropriate audit evidence would have necessitated obtaining information either independently of the directors and/or independently corroborating the same. Examples of the steps that might have been taken include those described in paragraphs 6.2.5 to 6.2.9 and 6.2.15 to 6.2.18 of Mr Ashley’s report and in paragraphs 6.4.35, 6.4.36 and 6.4.46 to 6.4.48 and 6.4.83 and 6.4.84 of Mr Main’s report and the further evidence referred to in paragraphs 6.4.83 and 6.4.84 of Mr Main’s report would apply equally to 2012 if on further inquiry Crowe had established that the counterparty to the balance was not Investec.” (3) Under the heading “Possible outcomes of further audit procedures that could have been, but which were not, performed in respect of the Deposit Account - Areas of agreement”: “The Experts agree that in relation to the 2012 audit that if it was identified that the Deposit Account at that date may have been materially misstated because there was either a lack of sufficient appropriate audit evidence as regards its existence or recoverability or that there was evidence that this had become irrecoverable, then a reasonably competent auditor would have needed to have considered whether this might also have applied to any increase in the balance after 31 December 2012 and before they issued their audit opinion on 6 August 2013. If further material loss was shown to have arisen or there was a continuing lack of sufficient appropriate audit evidence as to the recoverability of the Deposit Account after that date, then that would have been reportable in the financial statements as a non-adjusting post balance sheet event in accordance with paragraph 21 of IAS 10.” (4) Under the heading “Possible outcomes of further audit procedures that could have been, but which were not, performed in respect of the Deposit Account - Areas of disagreement”: “Mr Ashley considers that in each financial year a reasonably competent auditor having carried out or attempted to have carried out the further audit procedures described in the Experts’ reports is very unlikely to have been able to obtain sufficient appropriate audit evidence on either the existence or the recoverability of the Deposit Account balances in each financial year. Mr Main explains that it was outside the scope of his report to form a view on what the results of such audit procedures might have been, as explained further below. Mr Ashley considers that further investigation of the background and financial position of Anpero would have been carried out by a reasonably competent auditor. Mr Main agrees that investigation into the financial position of Anpero should have been carried out, but only if there was a material amount owing by Anpero to TWEISL or if there were material amounts owing by another debtor of TWEISL and that debtor would only be able to repay TWEISL if that debtor was in turn repaid amounts owed by Anpero. Mr Ashley also considers the most likely course of action is that a reasonably competent auditor would have contemplated resigning and sought legal advice regarding the action they should take and in respect of the content of any letter explaining their resignation or some other communication with shareholders. Mr Main cannot comment on whether a resignation would have been an appropriate course of action as he cannot say what the outcome and explanations received in respect of the further audit procedures would have been.”

“In relation to the 2012 audit, had Crowe reviewed the public information on Anpero filed with Companies House [Crowe] would have established the following from [Anpero’s] unaudited financial statements for the year ended 31st December 2011 (the last set of financial statements filed before Crowe signed the 2012 audit opinion): - As at 31st December 2011 Anpero had debtors of about £371,000, creditors of about £1,433,000 and an overall net deficit of £1,057,000. - Included in creditors were amounts owed to Bristol, a related party of RB and Alladin, a related party of AdC, of £382,000 and £545,000 respectively. - The related party disclosures note also shows that included in creditors were amounts owed to “The Wine Investment Fund Limited – 2011(2) Tranche” of £245,000. The comparative amount was an amount of £150,000 owed to “The Wine Investment Fund Limited 2010(6) Tranche”. - There is no information on the remaining creditors of about £261,000.”

“[Crowe] knew that the funds of TWEISL had been co-mingled with a related party also advised/managed by the Scheme Manager in that purported bank deposits as well as some purchases and sales of wine had been routed through TWIF. An amount represented to [Crowe] in the draft financial statements as a cash and cash equivalent as at 31st December 2012 was seemingly due from TWIFL. This purported deposit had also seemingly increased significantly since the year end and (assuming this was now after 31st December 2013) was now [£723,750]. Whether the balance was still represented as being with TWIFL or (more likely) with Lilliput they did not have sufficient appropriate audit evidence as to its existence (given the payments that had been routed through TWIF) or its recoverability. In relation to Lilliput they had also received no satisfactory explanation as to why the payments had been routed through TWIF. They also had no evidence that the purported deposit met the definition of cash and cash equivalents under IFRS. TWIFL [and maybe TWIF] … had not been identified by the directors as related parties. This might also apply to Lilliput given that when the existence of Lilliput first came to light in the 2013 audit it was not seemingly identified by the directors as a related party. There did not seem to be any controls operated by either the directors or Scheme Manager to prevent future comingling of TWEISL’s funds with those of other funds managed/advised by the Scheme Manager. Indeed the arrangements with TWIF were seemingly designed explicitly to facilitate this. The Scheme Manager’s own accounts showed that it had a significant net liability position and was supported certainly by loans from the directors (RB and AdC) and also at least in the past by borrowings from one of the wine funds that it advised/managed. The Company was continuing to raise funds from investors. As a consequence of the above [Crowe] had grounds for serious concern about the integrity of the directors and that TWEISL’s cash funds may have been and may in future be diverted for the benefit of the directors and/or Anpero in a manner that may constitute fraud.”

“AssetCo claimed damages for the following losses. Firstly, a total of £23,348,675 was claimed in respect of sums provided to its loss-making subsidiaries between 31 March 2009 and 29 September 2011. These sums were provided by AssetCo from a group cash pool facility with the group’s bankers and represented loans to the subsidiaries. These loans were not repaid, and the judge found at [1239] that they were at all material times irrecoverable. The loans were in part funded out of £7.5m, plus interest of £235,089, subscribed for preference shares in AADL [a subsidiary of AssetCo] …”

“A preliminary point should be noted. Whether the receipt by a company of the subscription monies for an issue of shares is properly analysed as a benefit for these purposes may not be a straightforward question. AssetCo raised this issue before the judge, submitting that it is not a benefit but a neutral transaction, consistently with (it was submitted) the decision of the High Court of Australia in Pilmer v Duke Group Ltd [2001] HCA 31. The judge noted that, given his findings, the point was academic and, because he did not consider it to have been fully argued before him, he preferred to express no view on it. The point has not been revived before us and the appeal has proceeded on the basis that the receipt of the proceeds of a share issue is a benefit.”

“The central issue in this appeal is whether Kia Ora suffered any loss by the issue and allotment of its shares to those who accepted its takeover offer for Western United”

“63 …The relevant hypothesis is that the company could and would have made no takeover and the inquiry is about what it gave up or lost because it did. 64 The answer to that inquiry must be that Kia Ora outlaid cash and whatever may have been the administrative costs of issuing the shares. If a claim had been made, it may well be that some allowance would be made for the consequential effect on its capacity to raise other equity or debt finance. Otherwise, however, it gave up, or lost nothing by the issue of its shares. 65 It follows that in our opinion the Full Court was wrong to allow the sum which it did for the issue and allotment of Kia Ora shares in assessing the damages to be allowed for breach of contract or negligence.”

“237 Mr Salzedo submits that, if GT is responsible for AssetCo continuing to conduct its business in a dishonest way (or, I would add, on the basis that the business was only “ostensibly sustainable” because of dishonest representations by management which GT should have reported), that too must have been a substantial cause of it raising money to spend in its continuing business. If GT’s wrong caused AssetCo to continue its loss-making activities, the same wrong caused it to raise the money to do so. It was no answer to say, as the judge did, that the proximate cause of the share issue in July 2009 was AssetCo’s need for cash, because its need for cash arose from its continued trading for which GT was, ex hypothesi, responsible. 238 Mr Templeman submits that it does not follow that, if GT’s breach caused AssetCo’s wasted expenditure on its subsidiaries, it must also have been the cause of whatever benefits it received after the breach. That must depend on the specific circumstances in which the funds were raised. So, if an asset which AssetCo owned before GT’s breach were sold after the breach, the proceeds of sale could not be said to be a benefit caused by GT’s breach. I pause to say that must, of course, be right. The asset could have been sold irrespective of GT’s breach and its sale would have no connection with GT’s breach. Moreover, it is not clear how a sale of an asset at market value could properly be called a benefit for these purposes; by selling the asset, the company would give full value for the cash price it received. 239 Specifically as regards the share issues, Mr Templeman submits that the effective cause was, as the judge found, that AssetCo needed the money. If one goes further back in the chain of causation, no doubt GT’s breach is the cause of the company continuing to trade on the basis that it was ostensibly sustainable, but while that was the effective cause of the loss, the effective cause of the share issues was the need for cash. 240 I am unable to accept this distinction. The share issue in July 2009 was undertaken in the course of the continuation of AssetCo’s “ostensibly sustainable” business. It was part and parcel of that business, as Phillips LJ put to Mr Templeman in the course of argument. To say that the need for cash was the effective or proximate cause of the share issue is no different from saying that the effective or proximate cause of AssetCo’s loans to its subsidiaries was their need for cash. In my judgment, the legal cause of both was the audit reports on the 2009 accounts that deprived AssetCo of the opportunity, which it would have taken, of putting a stop to its “ostensibly sustainable” business. The point was well put by GT in its closing submissions, quoted by the judge at [1065], when it said (assuming against itself that its negligence was the legal cause of the losses): “The necessity of raising further funds from equity investors … arose from AssetCo’s financial model which it is common ground would have been known if the audit had been competently performed”. 241 In my judgment, and accepting that the identification of the legal causation of a benefit, as much as of a loss, involves taking account of all the circumstances to form a common sense overall judgment on the causal nexus between breach and profit or loss (see Famosa Shipping Co Ltd v Armada Bulk Carriers Ltd (The Fanis) [1994] 1 Lloyd’s Rep. 633 at 637 per Mance J), the judge’s contrary view displays an error of law and inconsistency in the application of the test of legal causation, leading him to a conclusion which was not open to him on the evidence. 242 The judge also appeared to take account of (what he reasonably took to be) the proximate cause of the investors’ decision to take up the shares, namely the securing of a profitable contract by the group. That was indeed the reason given by AssetCo for the share issue, but the principal purpose was to raise funds to sustain the business by paying urgent debts. Whether the share issue constituted a benefit is determined by reference to AssetCo’s purposes and uses of the funds, not the understandings or motives of the investors in taking up the shares. 243 This conclusion makes it necessary to consider AssetCo’s submission that considerations of justice, fairness and public policy require that, even if legally caused by GT’s negligence, credit should not be given for the proceeds of the July 2009 share issue. This was the judge’s conclusion, although of course he did not rely on it as he had decided that the share issue was not legally caused by GT’s negligence: see the judgment at [1086]. It is established that such considerations justify the exclusion of collateral benefits, but the effect of the reasoning in Parry v Cleaver on which such exceptions are based will in general be confined to the established categories of such benefits: see Swynson at [11] per Lord Sumption and [100] per Lord Neuberger. 244 The judge adopted the submissions made to him by AssetCo, which he summarised at [1084]–[1085]. The reasoning was: (i) the investors had no claim for their loss against GT (see Caparo); (ii) AssetCo had a claim for the losses caused to it; (iii) if AssetCo had to give credit for the share issue proceeds, it would not to that extent recover the losses it had suffered but nor would the investors be compensated for their loss; and (iv) it was a readily foreseeable consequence of GT’s negligence that the company via dishonest management would continue to suck in capital that would be wasted. In oral argument before us, Mr Templeman summarised the judge’s reasoning as being that, if AssetCo were required to give credit for the proceeds of the share issue, there would be a gap in the sums for which GT was liable. 245 The premise for this submission is not well-founded. While the investors would have no remedy against GT, they would have a remedy against AssetCo, if (as this argument assumes) they were misled into investing by fraudulent, reckless or negligent statements in, or omissions from, the share offer documents issued by AssetCo. If any such claims had been made, or (perhaps) might realistically have been made, the benefit of the proceeds of the share issue would be matched in whole or in part by a certain or contingent liability and, to that extent, would not be a benefit in the hands of AssetCo. Credit would not therefore, to that extent, be available to GT. In fact, no such claims were made and any such claim was, by the date of the trial, time-barred. In those circumstances, AssetCo received a substantial benefit from its continued trading as a result of management’s dishonest representations to the auditors. I see no reason in principle why GT, whose liability is for negligence, should be denied a credit for that benefit to AssetCo. 246 For these reasons, I have reached the conclusion that the judge was wrong not to treat the share issue in July 2009 as a benefit to AssetCo, caused as a matter of law as well as fact by GT’s negligence. Credit should therefore be given for AssetCo’s receipt of the proceeds of £7,506,000.”

“There can be no real dispute over whether the introduction of more shareholder funds was part and parcel of the fraud which TWEISL says Crowe should have stopped. It is clear from a review of the bank statements that ADC’s [fraud] required further introductions of capital from shareholders to keep going”

“It appears to be TWEISL’s own case that, as a result of the steps which Crowe allegedly ought to have taken, TWEISL would have ceased to operate and would have been wound up shortly after Crowe began its work in respect of the audit of the y/e 2012 financial statements. On that basis, TWEISL would have received no further investment and credit should be given for the investment received thereafter.”

“As to paragraph 45.1, it is specifically denied for the avoidance of doubt that credit should be given for future investments given (i) the accounting treatment of those investments by the Claimant (ii) that an equal, alternatively substantial, liability arose to the shareholders when those future investments were made and (iii) the proceeds of the share issues were not a benefit to the Claimant, because the funds were dissipated by the miscreant directors.”

“I invested monies in [TWEISL] on the basis of the information memorandum, namely for the purposes of investment in and trading fine wine for the purposes of receiving a return on the original investment. I was induced to make an investment on that basis alone. Had I had any idea that [TWEISL] might lend monies to or invest money with third parties especially parties resident abroad or invest in anything other than wine, I would not have made the investment. At no stage before I invested did the Company indicate that it might lend monies to third parties or invest in anything other than wine.”

“The power of a liquidator is. in this respect, no different from that of the court itself, since the liquidator, in deciding whether to accept or reject a creditor’s proof in whole or in part, is acting in a quasi-judicial capacity: see Tanning Research Laboratories Inc v O’Brien ( 1990) 8 ACLC 248 at p.253, citing Re Britton & MiIlard Ltd (1957) 107 LJ 601. His statutory duty is to ensure that the company’s property is collected in and applied in satisfaction of its liabilities pari passu among its proper creditors.” () Re Van Laun [1907] 2 KB 23, Bigham J: “The trustee’s right and duty when examining a proof for the purpose of admitting or rejecting it is to require some satisfactory evidence that the debt on which the proof is founded is a real debt. No judgment recovered against the bankrupt, no covenant given by or account stated with him can deprive the trustee of this right. He is entitled to go behind such forms to get at the truth, and the estoppel to which the bankrupt may have subjected himself will not prevail against him. In the present case the trustee desires to satisfy himself that the claims for costs represent a real indebtedness. He can only do this by seeing and examining the bills. When he sees them it may be that he thinks them fair and reasonable and, if so, he will probably admit the proof. But until Mr Chatteron furnishes him with the means of forming an opinion I think the trustee cannot do otherwise than reject the proof.” () Lynch v Cadwallader [2021] EWHC 328, Chief ICC Judge Briggs at [82]: “The burden of proof falls on the creditor to make out their debt on the balance of probabilities.”

“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] AC1. 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. Justice, reasonableness and public policy are, however, the basis on which the law has arrived at the relevant principles. They are not a licence for discarding those principles and deciding each case on what may be regarded as its broader commercial merits.”

“The Court is asked to enter judgment for TWEISL on the basis of findings as to breach and causation. It is not suggested that it will be possible for the Court to arrive at a final quantification of damages at this point, given the uncertainty of the premise on which damages will fall to be assessed.”

“6.5.1 In my opinion Crowe did not obtain sufficient appropriate audit evidence in respect of the Deposit Account balance included in TWEISL’s balance sheet in respect of any of the accounting years on which they provided an audit opinion on the financial statements. The work carried out by Crowe did not provide sufficient appropriate audit evidence to conclude that the balance was appropriately classified and disclosed (including whether disclosures of related party relationships, transactions and balances were adequate to meet the requirements of accounting standard IAS 24) or that the quantum of the balance was not materially misstated. 6.5.2 I have identified audit procedures that a reasonably competent auditor would have or would have attempted to carry out, to obtain sufficient appropriate audit evidence to draw conclusions as to the existence and recoverability of the Deposit Account balance. I do not know what the results of those procedures might have been and observe that the findings might have been different for each financial year. Crowe would only have been able to issue an unqualified opinion if they had been able to obtain sufficient appropriate audit evidence relating to the existence and recoverability of the Deposit account, and then only if the asset was identified as being a debtor rather than a bank balance in accounting periods prior to 2017 and this was appropriately classified as such in the balance sheet. Crowe would also have needed to have been satisfied that if there were related party relationships, these were also disclosed (as in the 2016 financial statements) in accordance with IAS 24. 6.5.3 As indicated in this section of my report it is possible that the further procedures that I have described that Crowe should have performed or attempted to perform as a reasonably competent auditor might have resulted in: - Crowe being unable to obtain sufficient appropriate audit evidence and either qualifying their audit opinion or disclaiming their opinion on the financial statements depending upon the quantum of the amount for which insufficient audit evidence was obtained. - Crowe obtaining audit evidence that indicated that the financial statements were misstated, but the directors amended the financial statements to correct this, such that Crowe was able to issue an unmodified audit opinion. - Crowe obtaining audit evidence that indicated that the financial statements were misstated, and no corrections were made. In which case Crowe would have issued a qualified audit opinion if the misstatement was material or an opinion disagreeing that the financial statements gave a true and fair view if the amount was material and pervasive. - Crowe’s enquiries indicating that the directors might have behaved fraudulently, resulting in their resignation as auditors because of the exceptional circumstances set out in paragraph 38 of ISA 240. This would have resulted in Crowe also issuing a statement of the circumstances connected with their resignation to the Company, which Crowe would have also filed at Companies House unless the directors obtained a court order that the statement was unnecessarily defamatory.”

“I have reviewed the audit files and Leo has performed an initial review of the financial statements. We have a couple of questions mainly around Lilliput Holdings. This has been treated as a cash balance this year and in the past but it does not appear to be a banking institution. ◦ Are the funds held by Lilliput segregated for TWEISL? ◦ Is this entity regulated? ◦ Do you have financial statements for Lilliput?” ◦ Are the funds held by Lilliput segregated for TWEISL? ◦ Is this entity regulated? ◦ Do you have financial statements for Lilliput?”

“You said that they weren’t put on deposit, so aren’t they available to help with the overall position?”

“I was mildly horrified to see in Fabian’s accounts that the amount of HWEISL funds on deposit actually rose in August, even though the deposit problem was confirmed in July. Is this really right? I guess it must be as the recent subscriptions don’t seem to be available for investment. But if so…..”

“… I confirm that TWEISL continues as a going concern and that there has been no litigation since the 2015 year end. Please find attached a recent bank statement, the latest valuation (you will recall that these are prepared by the Company’s Administrator, Tromino Financial Services Ltd), and a copy of Lilliput Holdings’s accounts. Please let me know if you need anything else …”

“Please disclose the balance with Lilliput Holdings for both 2016 and 2015 in the related party note since the companies have a common director”

“The Company has £1,714,450 (2015: £2,259,500) held on deposit with Lilliput Holdings Limited, a company in which Andrew della Casa is a director.”

“Lilliput shown as a related party so no issues”

“o They knew that the funds of TWEISL had been comingled with a related party also advised/managed by the Scheme Manager in that purported bank deposits as well as some purchases and sales of wine had been routed through TWIF. o An amount represented to them in the draft financial statements as a cash and cash equivalent as at 31st December 2016 and in earlier years was in fact an amount purportedly due from Lilliput. o They did not have sufficient appropriate audit evidence as to its recoverability or as to whether Lilliput in fact owed the money given that all payments had been routed through TWIF and they had received no satisfactory explanation as to why that had been the case. They also had no evidence that the purported deposit met the definition of cash and cash equivalents under IFRS. o Lilliput, TWIF and TWIFL had not been identified by the directors as related parties. o There did not seem to be any controls operated by either the directors or Scheme Manager to prevent future comingling of TWEISL’s funds with those of other funds managed/advised by the Scheme Manager. Indeed the arrangements with TWIF were seemingly designed explicitly to facilitate this. o The Scheme Manager’s own accounts showed that it had a significant net liability position and was supported in the past by loans from the directors (RB and AdC) and by borrowings from one of the wine funds that it advised/managed. Specifically Anpero’s accounts for the year ended 31st December 2016, which were filed on 30th September 2017 showed that it made a loss of over £450,000, but at the same time showed no amounts owed effectively to RB and AdC implying other funding from undisclosed sources of over £3.2 million. o As a consequence of the above they had grounds for serious concern about the integrity of the directors and that TWEISL’s cash funds may have been and may in future be diverted for the benefit of the directors and/or Anpero in a manner that may constitute fraud.”

“Included in Other debtors is an amount of £384,025 (2016: £1,714,450) held on deposit with Lilliput Holdings Limited, a company in which Andrew della Casa is a director”

“ In forming our opinion on the financial statements we would like to draw attention to the balance included in other debtors of £2,995,150 (2017: £384,025) held on deposit with Lilliput Holdings Limited as disclosed in Note 1.6 and 13. The directors have emphasised the steps they have undertaken in order to assess the recoverability of this balance. The directors have not recognised any provision on this balance. Our opinion is not modified in respect of this matter.”

“… even a cursory review would have revealed even more concerning features as follows: - The creditor shown in Lilliput’s accounts of £3,713,721 is essentially the sum of the balances held by TWEISL (£2,995,150) and Huntsman (£718,570), but as at 31 December 2018 not 28 February 2019 by which date the balances had changed to £3,295,985 … and £716,095 respectively. This total of £4,012,080 is therefore significantly higher than the corresponding creditor shown by Lilliput purportedly at the same date. - Despite the considerable increase in deposits purportedly made by TWEISL and Huntsman, the cash at bank recorded by Lilliput had declined since 28 February 2018 and was now less than 7% of the combined purported deposits. Debtors in contrast had more than doubled and net current assets of nearly £400,000 had been virtually eliminated.”

“Mr Pearson has calculated selling costs to have been on average, 0.65% of sales historically. Mr Pearson has assumed that such levels of costs would be applied to the market value of stock sold on liquidation at each of the Relevant Dates, for the reasons set out above, thereby deriving the NRV of stock. It is unclear what proportion of the 5% discount applied by Mr Conti to stock represents selling costs or a bulk discount, however Mr Pearson considers any amounts materially in excess of 0.65% in respect of selling costs is unsupported based upon historical costs incurred by TWEISL. Mr Pearson notes Mr Conti’s consideration “…that an opportunistic buyer might very well require such a discount…”, and acknowledges that in some circumstances a bulk buyer may require such a discount. However, Mr Pearson considers that the fact that the market value was based upon current market pricing and actual transactions, indicates that there was ready demand for the stock held by TWEISL at market value, without the need to apply a discount. Similarly, unless it is considered that TWEISL held such large volumes of the available stock of any given line item that in selling all of TWEISL’s stock, it would cause a surplus in the market and cause a decrease in selling prices, there is no apparent reason to assume that the stock held by TWEISL would sell for anything substantially less that the values per the Tromino Spreadsheets (with the exception of a deduction of reasonable selling costs).”

“Mr Conti says that any liquidator of TWEISL in a hypothetical earlier liquidation would have selling costs of 5%; Mr Pearson says 0.65% (in line with TWEISL’s historic sales costs). In order to get to agreement, and without prejudice to our ability to argue for the lower percentage if this is not accepted, we would be prepared to agree 2.5% sales costs. Please confirm this is now agreed and the Judge does not have to decide this matter.”

“We consider that Mr Conti’s selling costs are conservative, not least in view of discussion at trial surrounding likely auction costs in the region of 10+%. We do not therefore accept the compromise of 2.5% proposed.”

“… I am not a wine expert. The 5% is my assumption. But obviously, as you would expect, I did conduct some internet research, and I looked at the cost that you might get from the various options, Christies, Bonhams, you know, the 10% commission they might charge, the 10% commission that a broker might charge. But recognising that my research might not be complete, I opted for a lesser value of 5%. I did not see that Mr. Pearson’s 0.65% was in my view, not an expert view, it did not seem to be a credible number for the sale by a liquidator of a large volume of stock. But it is just an assumption.”

“8.50 As discussed at paragraph 8.10, I consider that had a hypothetical liquidator been appointed at the Relevant Dates, cost savings would likely have been achieved compared to the £626k actually incurred. 8.51 This is because, had the alleged fraud been flagged sooner, there would have been fewer years of wrongdoing and transactions to work through and therefore fewer hours would likely have been incurred. 8.52 I have consulted with colleagues in the Quantuma Advisory Limited Restructuring and Insolvency team, and have been advised that, in 2012 based on the size of the company and the duration with which it had been trading, likely liquidation fees would have been around £125k. For each of the Relevant Dates from 31 December 2012 to 1 September 2019, I increase this on a linear basis, rising from £125k to the £626k actual costs incurred by the Joint Liquidators, to calculate the hypothetical liquidators’ costs had the auditors notified the shareholders/resigned as auditor at each of the Relevant Dates.”

“8.5.1 It will be apparent from the analysis set out above that estimating the But For costs of liquidation requires a subjective counter-factual analysis, taking into account many factors relating to the Company’s financial position as at the date of the assumed liquidation, including: ◦ the number, nature and value of the Company’s assets; ◦ the number, nature and value of the Company’s liabilities; ◦ the actions that the Directors might have taken to frustrate the liquidation process; and the value of the Lilliput account and the reasonable approach to investigating it and its recoverability. 8.5.2 Given this subjectivity, I have sought to simplify my assessment (which is, in any event, outside my area of expertise) by taking the Actual costs of the liquidation of £986,198 and “scaling” them to each assumed But For date by applying an appropriate metric. 8.5.3 In choosing such a metric, I consider it reasonable to assume that: ◦ the greater the number and value of the assets to be realised, the greater the overall cost of the liquidation; ◦ the greater the number and value of the liabilities to be paid, the greater the overall cost of the liquidation; ◦ the greater the value of the Lilliput balance, the greater the cost that could reasonably be justified in investigating its dissipation and recoverability.” ◦ the number, nature and value of the Company’s assets; ◦ the number, nature and value of the Company’s liabilities; ◦ the actions that the Directors might have taken to frustrate the liquidation process; and the value of the Lilliput account and the reasonable approach to investigating it and its recoverability. ◦ the greater the number and value of the assets to be realised, the greater the overall cost of the liquidation; ◦ the greater the number and value of the liabilities to be paid, the greater the overall cost of the liquidation; ◦ the greater the value of the Lilliput balance, the greater the cost that could reasonably be justified in investigating its dissipation and recoverability.”

“In terms of that meeting on 13th November 2020, he started talking about a contract with Ali Baba in terms of a wine bond, giving the impression that it was close to fruition, that it was almost there. I never really got any feeling that that was a reality. It was just conversation. … what we were doing at the same time as we were listening to conversations about shipping contracts, which were very opaque, albeit we did get assurances from Gowlings that the contracts did exist, or at least they could provide it, was putting leverage on him with regard to what we could do. Admittedly, we did not tell him, we could not because of lack of funds, in terms of enforcement action over his wife, his sister and himself.”

“So the tracing we are able to do, given the restriction on funds we had, and through reverse tracing, i.e. through the bank statements we received eventually regarding Anpero, and Mr della Casa’s personal bank statements, is we identified transactions going to mortgage companies. And on enquiring, it was established that those were mortgage payments regarding a number of properties which were owned by connected parties, so specifically Leonie, his wife, and Alex Maxwell, his sister. In doing that tracing exercise, we established what the properties were, and we tried to understand what equity there might be available in those properties, which might come back to the estate of the liquidators, given that we traced it and whether there was any proprietary claims over them. So we entered into discussions with Mr della Casa, with his lawyers, in terms of entering into a settlement agreement with him to get some value back from those. … we were very, very close, and it would have been a substantial sum, which would have made a huge difference in terms of the monies owed to the shareholders. It could have quite changed the strategy of the liquidation if that had come to pass. Now that we had signed that, we were on the edge of doing that. We literally had a compromise agreement in agreed form. We are very conscious of time as well, because there was concern that the likes of Huntsman could go into liquidation and there might be competing claims for those same assets. So we were very keen to get that contract over the line and literally what we assumed was on the agreed form for this settlement agreement -- there was an additional requirement made by Mr della Casa with regards to the terms, which meant we could not signed it. So it was incredibly disappointing, that. That would have meant funds coming through to the liquidation estate over -- I think I recall there was a phased arrangement where monies, and precisely significant monies, would have come into the estate over [2023/2024]. By early [2024] those monies would have come in.”

“We did not get full details, because we were not provided with all the information from, for instance, Standard Chartered, which was the mortgagee on three of the companies. So we could not get full clarity on what equity was in the properties, reliance unfortunately on Mr della Casa, and Alex Maxwell and Leonie, his wife.”

“Mr Pearson accepts that it is ‘conceptually reasonable’ for a deduction to be made on account of these payments insofar as funded by ADC rather than other wine funds. Mr Pearson also accepted that sums should be deducted if this is an amount from which the Company ultimately benefitted, which we understand to be the case … as far as we are aware, (a) these amounts were received by TWEISL; and (b) there have in fact been no claims in respect of them. We do not therefore agree that there is any basis on which to “split the difference”.”

“Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage”

“The judge in Barings made graded deductions of different amounts over different periods. Broadly speaking, for the period when the element of contributory negligence on the part of the bank comprised the fraudulent conduct, the deduction was 50%. The judge said that although Mr Leeson’s fraudulent unauthorised trading was overwhelmingly the most important cause of Baring’s loss, in common sense terms, he had to recognise the auditors’ fault in failing to detect that fraud and therefore could not attribute to it the overwhelming causative influence which it would otherwise have. Over later periods when the contributory negligence also comprised additional failures of management to exercise proper control and supervision over Mr Leeson, the deduction rose to 80%.”

“But, and it is a very big but in the context of contributory negligence, GT’s (admitted) failings, as identified above, were very serious, indeed flagrant, breaches of duty and importantly they went to the “very thing” it was responsible for as auditor. Those breaches of duty included a failure to exercise proper scepticism which would have led to the detection of dishonesty and prevention of fraud including representations and assumptions made by Management during the course of the Audit. These were the very matters that were allowing AssetCo to continue to trade in a dishonest manner. In such circumstances I consider and find that (leaving aside dividends which are in a category of their own) GT’s breaches were of very high relative causal potency in relation to the losses and they also bear the lion’s share of relative blameworthiness.”

“The shareholders have been defrauded by directors whose fraud should have been identified by [Crowe] [whose] failings persisted over many years and were extremely serious… The shareholders were blameless. The action is brought, as a matter of economic reality, for their benefit. There is no sense and no justice in making any deduction …”

“In relation to commercial claimants the general presumption will be that they would have borrowed less and so the court will have regard to the rate at which persons with the general attributes of the claimant could have borrowed. This is likely to be a percentage over base rate and may be higher for small businesses than for first class borrowers.”

“In my judgment, I consider that it is wholly appropriate to adopt the judgment debt rate in the present case. That is not just because the judgment debt rate more adequately compensates Mr Perry for the fact that he has been kept out of his money for so long, but also because the conduct of Raleys (or their insurers), in their long drawn-out defence of this claim, deserves appropriate sanction. … … If that is the manner in which Raleys, and/or their insurers, propose to conduct what Mr Quiney referred to as “many similar claims”, then they should be under no illusion that, at least in my judgment, a fair and just result justifies interest being awarded on the judgment debt basis.”

“(1) The purpose of an award of interest is to achieve restitutio in integrum. The enquiry does not focus on assessing the profit to the defendant of the use of the money. It is directed to an estimation of the cost to the claimant of being deprived of the money which he should have had (per Steyn J in Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd & Others [Transcript 11 December 1987]). (2) However, the Court adopts a broad brush. For practical reasons it will not make an enquiry into the claimant’s actual loss; nor will it enquire or speculate as to what the claimant would have done with the money had he not been deprived of it. The Court almost invariably adopts as its measure what it would have cost a person in broadly the same position as the claimant to borrow the money of which he was deprived. Thus, to quote Steyn J in Banque Keyser Ullman again, the aim is to establish the rate(s) at which "a person in the position of the claimant would have had to pay to borrow the money" over the period for which interest is awarded. (3) The way this is applied was explained in more detail in an oft-quoted and applied approach of Forbes J in Tate & Lyle Food and Distribution Ltd v Greater London Council [1982] 1 WLR 149 at 154: “I feel satisfied that in commercial cases the interest is intended to reflect the rate at which the plaintiff would have had to borrow money to supply the place of that which was withheld. I am also satisfied that one should not look at any special position in which the plaintiff may have been; one should disregard, for instance, the fact that a particular plaintiff, because of his personal situation, could only borrow money at a very high rate or, on the other hand, was able to borrow at specially favourable rates. The correct thing to do is to take the rate at which plaintiffs in general could borrow money. This does not, however, to my mind, mean that you exclude entirely all attributes of the plaintiff other than that he is a plaintiff. There is evidence here that large public companies of the size and prestige of these plaintiffs could expect to borrow at 1% over MLR [minimum lending rate], while for smaller and less prestigious concerns the rate might be as high as 3% over MLR. I think it would always be right to look at the rate at which plaintiffs with the general attributes of the actual plaintiff in the case (though not, of course, with any special or peculiar attribute) could borrow money as a guide to the appropriate interest rate.” (4) Thus, the parties may demonstrate that an entity with the claimant’s general attributes, following “categorisation of the plaintiff in an objective sense” (Steyn J in Banque Keyser Ullman), could at the relevant time borrow on the markets at a particular rate. Specific features of the claimant (for example in relation to personal creditworthiness) will be disregarded in order to save time and money at trial, and so there is no need to seek to measure the “actual loss” of the actual claimants (Steyn J in Banque Keyser Ullman). (5) Until recently, the presumption in the Commercial Court, often adopted in business disputes, was that the rate of interest should be 1% above base rate. However, in the present financial circumstances, where the spread between base rate and the actual cost of borrowing is much greater than in the past, that presumption has largely fallen away: and the latest Commercial Court Guide indicates that there is no longer such a presumption; and see Sycamore Bidco Ltd v Breslin [2013] EWHC 174 (Ch) per Mann J at para 51. (6) Moreover, there is also a consistent line of authority supporting rates above the Commercial Court rate where the claimant is a small business or (as in this case) a group of individuals. Thus: (a) In Jaura v Ahmed [2002] EWCA Civ 210, the “real costs of borrowing incurred by… small businessmen” were fixed at 3% over base, Rix LJ observing (at paragraph 26) that “The law should be prepared to recognise, as I suspect evidence might well reveal, that the borrowing costs generally incurred by them are well removed from the conventional rate of 1% above base (and sometimes even less) available to first class borrowers”

“The Court almost invariably adopts as its measure what it would have cost a person in broadly the same position as the claimant to borrow the money of which he was deprived”