“In connection with these articles, and in order to save repetition, it should be stated that by the articles of this bank it is the duty of the directors, and not of the auditors, to recommend to the shareholders the amounts to be appropriated for dividends (clause 98), and it is the duty of the directors to have proper accounts kept, so as to shew the true state and condition of the company (clause 103). Lastly, it is for the shareholders, but only on the recommendation of the directors, to declare a dividend (clause 115)… It is no part of an auditor’s duty to give advice, either to directors or shareholders, as to what they ought to do. An auditor has nothing to do with the prudence or imprudence of making loans with or without security. It is nothing to him whether the business of a company is being conducted prudently or imprudently, profitably or unprofitably. It is nothing to him whether dividends are properly or improperly declared, provided he discharges his own duty to the shareholders. His business is to ascertain and state the true financial position of the company at the time of the audit, and his duty is confined to that.”
“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.”
“In particular, they are responsible for maintaining proper accounting records and for the preparation of financial statements which satisfy the requirements of the Companies Act. The directors are also responsible for making available to us, as and when required, all the company’s accounting records and all other relevant records and related information, including the minutes of all directors’ and shareholders’ meetings. We are entitled to require from the company’s officers such other information and explanations as we think necessary for the performance of our duties as auditor. The directors also have to confirm in their statement of responsibilities in the financial statements that, in so far as they are aware: • there is no relevant audit information of which the company’s auditor is unaware; and • the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. It is important that the directors understand these responsibilities and we would be happy to discuss them.” (2) The engagement letters also made clear the limitations of the audit process: “Our audit is not designed to identify all significant weaknesses in the company’s systems but is designed primarily for the purpose of expressing our opinion on the financial statements of the company. In consequence, our work will not encompass a detailed review of all aspects of the systems and cannot be relied upon necessarily to disclose defalcations or other irregularities or to include all possible improvements in internal control that a more extensive special examination might develop. However, if such weaknesses come to our notice during the course of our audit which we think should be brought to your attention, we shall report them to you.” (3) The engagement letters also set out the relative responsibilities of the directors and GT regarding fraud and other irregularities: “Fraud and other irregularities The directors of the company have sole responsibility for the prevention of fraud and other irregularities and primary responsibility for their detection. We shall endeavour to plan our audit so that we have a reasonable expectation of detecting material misstatements in the financial statements or accounting records including those resulting from error, fraud or other irregularities, or non-compliance with law or regulations. However, our audit should not be relied on to disclose all such material misstatements, error, fraud or other irregularities or instances of non-compliance that may exist.”
“We confirm to the best of our knowledge and belief that the following representations are made on the basis of appropriate enquiries of other directors, related parties, controlling bodies, management and staff, with relevant knowledge and experience (and, where appropriate, of inspection of supporting documentation) sufficient to satisfy ourselves that we can properly make each of the following representations to you in respect of your audit of the above financial statements, in accordance with the terms of your engagement letter dated [13 February 2009 ]. i As set out in the directors’ report, we acknowledge our responsibilities for preparing financial statements which give a true and fair view and for making accurate representations to you. ii As far as we are aware: there is no relevant information of which you are unaware, and we have taken all steps that we ought to have taken to make ourselves aware of any relevant audit information and to establish that you are aware of that information iii All the accounting records of the company have been made available to you for the purpose of your audit and all the transactions undertaken by the company have been properly recorded in the accounting records and reflected in the financial statements. iv All other records and related information, including minutes of all management and shareholders’ meetings, have been made available to you. v The financial statements are free of material misstatements, including omissions. vi We acknowledge our responsibility for the design and implementation of internal control to prevent and detect error and fraud. vii We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud. viii We have disclosed to you our knowledge of fraud or suspected fraud affecting the entity involving: management employees who have significant roles in internal control; or others where the fraud could have a material effect on the financial statements; ix We have disclosed to you our knowledge of any allegations of fraud, or suspected fraud, affecting the entity’s financial statements communicated by employees, former employees, analysts, regulators or others. x Except as stated in the accounts: there are no unrecorded liabilities, actual or contingent none of the assets of the company has been assigned, pledged or mortgaged there are no material prior year charges or credits, nor exceptional or non-recurring items requiring separate disclosure xi There were no transactions, arrangements or agreements to provide credit facilities, (including loans, quasi-loans or credit transactions and guarantees to provide security for such matters), involving directors or officers that should be disclosed in the financial statements undersection 232 of the Companies Act 1985 . xii All related parties have been identified to you and there were no transactions with related parties nor details of controlling interests which should be disclosed in the financial statements. xiii There are no claims, legal proceedings or other matters which may lead to a loss falling on the company or which could result in the creation of an unrecorded asset, that should be disclosed in the financial statements. xiv The company has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of non-compliance. There has been no non-compliance with requirements of regulatory authorities that could have a material effect on the financial statements in the event of non-compliance. xv We are not aware of any instances of actual or possible noncompliance with laws and regulations which might affect the view given by the financial statements. xvi We have no plans or intentions that may materially alter the carrying value or classification of assets and liabilities reflected in the financial statements. We have no plans to abandon lines of product or other plans or intentions that will result in any excess or obsolete inventory, and no inventory is stated at an amount in excess of net realisable value. xvii No significant events having an effect on the financial position of the company have taken place since the balance sheet date which necessitate revisions of the figures included in the financial statements or inclusion of a note thereto. […] The financial statements were prepared by Grant Thornton UK LLP on behalf of the directors. The financial statements have been fully explained to and discussed with us.” i As set out in the directors’ report, we acknowledge our responsibilities for preparing financial statements which give a true and fair view and for making accurate representations to you. ii As far as we are aware: there is no relevant information of which you are unaware, and we have taken all steps that we ought to have taken to make ourselves aware of any relevant audit information and to establish that you are aware of that information iii All the accounting records of the company have been made available to you for the purpose of your audit and all the transactions undertaken by the company have been properly recorded in the accounting records and reflected in the financial statements. iv All other records and related information, including minutes of all management and shareholders’ meetings, have been made available to you. v The financial statements are free of material misstatements, including omissions. vi We acknowledge our responsibility for the design and implementation of internal control to prevent and detect error and fraud. vii We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud. viii We have disclosed to you our knowledge of fraud or suspected fraud affecting the entity involving: management employees who have significant roles in internal control; or others where the fraud could have a material effect on the financial statements; ix We have disclosed to you our knowledge of any allegations of fraud, or suspected fraud, affecting the entity’s financial statements communicated by employees, former employees, analysts, regulators or others. x Except as stated in the accounts: there are no unrecorded liabilities, actual or contingent none of the assets of the company has been assigned, pledged or mortgaged there are no material prior year charges or credits, nor exceptional or non-recurring items requiring separate disclosure xi There were no transactions, arrangements or agreements to provide credit facilities, (including loans, quasi-loans or credit transactions and guarantees to provide security for such matters), involving directors or officers that should be disclosed in the financial statements undersection 232 of the Companies Act 1985 . xii All related parties have been identified to you and there were no transactions with related parties nor details of controlling interests which should be disclosed in the financial statements. xiii There are no claims, legal proceedings or other matters which may lead to a loss falling on the company or which could result in the creation of an unrecorded asset, that should be disclosed in the financial statements. xiv The company has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of non-compliance. There has been no non-compliance with requirements of regulatory authorities that could have a material effect on the financial statements in the event of non-compliance. xv We are not aware of any instances of actual or possible noncompliance with laws and regulations which might affect the view given by the financial statements. xvi We have no plans or intentions that may materially alter the carrying value or classification of assets and liabilities reflected in the financial statements. We have no plans to abandon lines of product or other plans or intentions that will result in any excess or obsolete inventory, and no inventory is stated at an amount in excess of net realisable value. xvii No significant events having an effect on the financial position of the company have taken place since the balance sheet date which necessitate revisions of the figures included in the financial statements or inclusion of a note thereto. […] The financial statements were prepared by Grant Thornton UK LLP on behalf of the directors. The financial statements have been fully explained to and discussed with us.”
“Statement of directors’ responsibilities The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (‘EU’) and the parent company financial statements in accordance with United Kingdom Accounting Standards (‘United Kingdom Generally Accepted Accounting Practice’). The financial statements are required by law to give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to: Select suitable accounting policies and then apply them consistently; Make judgements and estimates that are reasonable and prudent; State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Acts [1985/2006]. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the directors are aware: There is no relevant audit information of which the company auditor is unaware; and The directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.”
“Audit committee The audit committee, which convenes every six months, has primary responsibility for monitoring the quality of internal controls and for ensuring that the financial performance of the Group is properly measured and reported on, as well as reviewing reports from the Group’s auditors relating to the Group’s accounting and internal controls, in all cases having due regard to protecting the interests of the shareholders.”
“Internal control The Board is responsible for maintaining a sound system of internal controls to safeguard the investment of shareholders and the assets of the Group. The directors monitor the operations of the internal controls. The objective of the system is to safeguard the assets of the Group, to ensure adequate accounting records are maintained and to ensure that the financial information used with the business, and for publication, is reliable. Any such system of internal control can only provide reasonable, but not absolute assurance, against material misstatement of loss. Internal control procedures implemented by the Board include: A clearly defined organisation structure with formal lines of authority, accountability and responsibility; • Review of monthly financial reports and monitoring of performance; • Prior approval of all significant expenditure including all major investment decisions; and • Regular assessment of major business, investment and financing risks. The board has reviewed the operation and effectiveness of the Groups’ system of internal control for the financial year and the period up to the date of approval of the financial statements. During the course of its review of the system of internal control, the Board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore, a confirmation in respect of necessary actions has not been considered appropriate. Internal audit function The audit committee remains of the view that given the size and the nature of the operations of the Group that the establishment of an internal audit function is not warranted. The audit committee continues to review this decision.”
“I accept Mr Gaisman’s submission that there is nothing special about auditors which requires of them a special standard of skill and judgement in their investigation of an audit client’s affairs over other professional men and, in particular, over the directors and officers of the commercial companies they audit. As I have remarked, it is upon such directors and officers that the primary duty to protect the company from loss occasioned by fraud rests. I would draw attention again to the passages quoted from the judgment of Lucas CJ in the Bily case cited at paragraphs 822 and 823 above. The authorities establish that the auditor’s duty is to report to the shareholders, in particular, on the conduct of the company’s management. But the shareholders cannot escape responsibility for the conduct of those directors and officers whom they have been instrumental in appointing, directly or indirectly. The comparison here is between the degree of blameworthiness of the auditors for the negligence which I have found and that of the management of BFS for the fault, some accepted and some contested, but which I have also found to be established.”
“Reasonable Assurance 8. An audit in accordance with ISAs (UK and Ireland) is designed to provide reasonable assurance that the financial statements taken as a whole are free from material misstatement. Reasonable assurance is a concept relating to the accumulation of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial statements taken as a whole. Reasonable assurance relates to the whole audit process. 9. An auditor cannot obtain absolute assurance because there are inherent limitations in an audit that affect the auditor’s ability to detect material misstatements. These limitations result from factors such as: The use of testing. The inherent limitations of internal control (for example, the possibility of management override or collusion). The fact that most audit evidence is persuasive rather than conclusive. The impracticality of examining all items within a class of transactions or account balance. The possibility of collusion or misrepresentation for fraudulent purposes.”
“5 Application of Subscription Proceeds and Profits 5.1 Save as provided in clause 5.2, the Subscription Proceeds and any and all profits made by [AADL] in pursuance of the Business (or otherwise) whilst the Investors hold Preference Shares shall be retained in [AADL] and utilised to provide working capital for the development of the Business. 5.2 [AADL] shall be entitled to use£5,000,000 of the Subscription Proceeds to grant the Loan to AssetCo on the terms set out in the Loan Agreement. 5.3 AssetCo hereby undertakes to the Investors to repay to [AADL]£1,500,000 of the Loan on or before30 June 2009 and to repay the balance of the Loan on or before the Loan Repayment Date.” 117. This clause used the following terms defined in clause 1: “Subscription Proceeds means the net proceeds, after payment of expenses, of the subscriptions made by the Investors on Completion.” “Business means any and all business carried on by [AADL] in furtherance of the Abu Dhabi Project or any other similar projects in Abu Dhabi.”
“management and strategic consultancy services and advice in connection with the funding and development of the Business and the securing of additional contracts, including advice and assistance in developing the Business Plan, researching opportunities for further development of the Business in Abu Dhabi.”
“We will communicate any adverse or unexpected findings affecting the audit on a timely basis with the appropriate person within the business. Such communications will be made either informally or via an audit progress memorandum.”
“AssetCo had an impressive presence on the ground in Abu Dhabi through Mr Gareth White and Dr Jeff Ord, a credible track-record with the London Fire Brigade, and strong connections in the region through the Al Nowais family, and both MS and I were confident that it was well-placed to win business in Abu Dhabi. Abu Dhabi entities doing business with foreign companies in Abu Dhabi always want to know who the local sponsor is, and in the case of Al Nowais, they would know immediately that they were dealing with one of the most well respected families in the region. However, it can sometimes take a very long time for contracts in Abu Dhabi to come to fruition, and often extensive delays can occur due to factors such as the non-availability or lack of engagement of key individuals, and political manoeuvring by interested parties. Delays and changes are just part and parcel of tendering for government-backed contracts in Abu Dhabi.”
“AssetCo can apply for a branch licence. Branch offices are generally preferred by the foreign companies in order to avoid any sharing in the ownership and in the profits of the business. Branch office of a foreign company will require a UAE national as a local service agent against certain amount of fee payable on monthly or annual basis. There is no minimum or maximum fee prescribed by the law. The local agent will have a limited role and shall be only required to support the branch in submitting applications to the governmental offices. However, it should also be noted that the parent company of the branch office will be required to provide a financial undertaking and will remain responsible for its branch. Furthermore, we also mentioned that some foreign entities prefer to structure their business in a way that could provide them certain tax benefits. Such as incorporating an offshore company and then opening a branch office of that offshore company in the UAE. Generally, the UAE Ministry of Economy requires two years’ financial statement in order to register a branch office but we have experienced on some occasions where such requirements are waived by the Ministry’s sole discretion.”
“JS [Shannon] provided an update regarding the decision making process and timescales in Abu Dhabi. JS confirmed that a decision in principle has been made to outsource the handling of fires and emergencies in Abu Dhabi. If AssetCo London were successful in its bid for LondonGuard this would be of assistance. JS confirmed that he and Christopher Mills of JO Hambro would be visiting Abu Dhabi within the next fortnight. […] JS confirmed that an office in Abu Dhabi was now open. JS confirmed the need for the Company to establish a branch in Abu Dhabi. Ideally this would have been a branch of AssetCo Abu Dhabi Limited, however it was a requirement that two years accounts be submitted to the relevant authority to open a branch and it was proposed that a branch of the Company be established. ML [Mr Lavender] confirmed the requirement that the branch be capitalized with 250,000 Dirhams (about£40,000 ).”
“Walid still believes this project will succeed but they have had a lot of local ‘political’ difficulties”
“Thanks for update Christopher. We continue to be told we need a Senior Emirati Sponsor to help address the political barriers and to position us correctly with Sheik Saif. I am unclear whether Hussein is openly our Sponsor, or would be interested in being our Sponsor. The Chairman of Abu Dhabi Airports Corporation (ADAC) has indicated his interest (he has just been appointed Chief Exec of the Municipality of Abu Dhabi).”
“I thought Hussain, or at least Emirate Holding, was the company’s sponsor?”
“Actually, AssetCo does not have a branch in Abu Dhabi and therefore does not have a sponsor. AssetCo has a marketing services agreement with Teletech Solutions International LLC to help them secure work. Teletech is owned by Michael Sawaya and a UAE national other than Hussain but the company is backed by Hussain. I agree that AssetCo will need to establish a branch in Abu Dhabi and appoint the right sponsor. Let me get back to you on that after returning to the UAE and seeing Hussain.”
“[Q] The Rabdan Disaster City Pre-Incorporation Contract sets out the terms for the formation of the joint venture to be entered into between Assetco plc and the Rabdan Academy I Critical National Infrastructure Authority. The contract requires the incorporation of Rabdan Disaster City LLC (‘Rabdan LLC’). The agreement is stated to terminate if the parties have not entered into a memorandum of association and shareholders’ agreement with respect to the Rabdan LLC within 3 months of the date of the agreement, or such date as may be agreed between the parties. We have seen no evidence to date to confirm that the Rabdan LLC has been incorporated and that the memorandum of association and shareholders’ agreement have been entered into. Therefore if the 3 month deadline was not extended, it would appear that this agreement may have automatically terminated. In addition, the agreement contains a non-compete whereby Assetco plc shall not directly or indirectly enter into or participate or be employed by any company or establishment in competition with or similar to the business of Rabdan LLC. This restriction would potentially conflict with the non-compete restrictions under the shareholders’ Agreement with Emirates Response Services if there is an overlap between the two businesses. Please confirm whether (i) Rabdan LLC has been incorporated or (ii) the joint venture agreement in respect of Rabdan LLC has been terminated. [A] Rabdan LLC was not entered into but there is no non compete issues with ERS. Rabdan Disaster City is still at planning stages and has no further development at this stage. The process is being managed by a Government entity called Tawazun and we are in regular dialogue with them. The project is a government training centre where we would send firefighters to be trained or actually conduct the training ourselves.”
“Would you kindly draw down£1.5 million of funds off deposit and telegraphically transfer to the Jaras Property Development account at Bank of Ireland, where our rent payments are paid into. Ideally if cleared funds where (sic) there for end of play tomorrow.”
“The parent company balance sheet shows net assets of£120m compared with group of£63m and a market capitalisation of£45m . This indicates that there has been impairment. The note to the accounts suggests that the directors have reviewed forecasts and that these support the carrying values. I don't understand how this can be the case as the group note on impairment suggests that an impairment is triggered by raising the discount rate to 14 per cent and that is based on net assets of only£63m . It is also very hard to see how they can bridge between the net assets of the parent being£120m and a market capitalisation of£45m . Related to the above the parent company does not appear to have sufficient distributable profits to have paid the dividend in the year and the proposed dividend to be paid shortly. If you then factor in the potential need for an impairment charge this issue becomes a very major one.”
“You mentioned that you had not seen many HMRC winding-up petitions in the gazette. I have just reviewed the last 3 issues (Thursday, Friday and yesterday) and HMRC have issued 54 windingup petitions against companies in the London gazette alone.” “You mentioned that you had not seen many HMRC winding-up petitions in the gazette. I have just reviewed the last 3 issues (Thursday, Friday and yesterday) and HMRC have issued 54 windingup petitions against companies in the London gazette alone.”
“CM had put forward a proposal to finance the company. He proposed that NAVLLP put£2m on deposit with Lloyds as security for a shortterm facility to be provided by the bank. The bank listened to NAVLLP's proposals but did not respond. In a separate break out session, CM made it clear to the company that his main concerns were: • HMRC and the future corporation tax liability; • The amount of further funds needed; and • He required redundancies/cost savings of c.£500k Feedback from Lloyds later in the same afternoon was that they: • Were very concerned about the uncertainty of the HMRC position; • Expected to be able to send a term sheet/proposals by 5.30 this had not arrived by the time of the meeting); • They were pleased with NAVLLP's proposal to put£2m on deposit and the offer to take BOSI in full when the transaction was complete; and • Are not prepared to give the firm indication of funding required by HMRC themselves – this must come from NAVLLP. The bank said that they now needed to explore the security net and perfect their own security e.g. over Mflow. They would look at fees. The IBR [Independent Business Review] was not mentioned. In the meanwhile they emphasised that we should continue with planning for administration (Plan B).”
“The only way HMRC will withdraw the petitions is either payment in full of the£3.5m arrears or acceptance of an instalment plan once HMRC have seen a turn around plan and evidence of meeting current liabilities. HMRC’s biggest concern, apart from being paid, is that the debt could increase. HMRC consider that the inability to pay HMRC is indicative of trading insolvently. We would advise that all directors take suitable professional advice from an insolvency specialist concerning their own personal risks.”
“At [the] board meeting JS revealed that contrary to our previous understanding and in breach of the terms of the Investment Agreement, the Abu Dhabi business was not conducted in the name of AADL, but was being conducted by a branch office of AssetCo. This meant, of course, that the investment in AADL had not been ring-fenced in the way that had always been agreed, and that the future security of our investment in AADL was dependent upon AssetCo. I appreciated therefore that AssetCo had got itself into a real mess and that the NAV Funds’ investment was at risk.”
“Christopher Mills had confirmed that he was in touch with InvestIndustrial (II) and that a revised proposal would be tabled on Monday 21st February. He is to have a meeting with II followed by one with JS at 11:30am. If the proposal was acceptable to the Board, NAV would make short term funds available. The Takeover Panel had been approached and had been advised that the company would be monitored under rule 2.4 of the code. No announcement was necessary because bid talks had not begun (or restarted with respect to II). The Board agreed to wait until it received a formal offer.”
“The confusion has led me to investigate further and I now have a chain of emails between John and Frank from last financial year that indicate the£1.5m was a loan to John that he was to sell shares to cover. Failing to do this it was then changed to an advance on the rental.”
“Your offer will carry my support and another 10% support from former Directors.”
“Clearly my ability to participate in the Placing is dependent on the repayment of my current account balance, including the outstanding dividend payment.”
“The short term funding requirement resulted from delays in securing the refinancing transaction detailed in the interim results of the Group announced on13 December 2010 and as a consequence a winding-up petition being presented by a substantial creditor [HMRC] in relation to an outstanding payment obligation. This action has precluded the Company from obtaining short-term bridging finance and it is now, therefore, raising additional equity finance. The substantial creditor has agreed to withdraw the winding-up petition on receipt of the amounts due to it from the proceeds of the Placing. During this period, the Company has been in discussions with its banks and principal creditors. Each of the Group’s banks has given a waiver of the breaches of the Group’s facility agreements which is conditional amongst other things on the Placing taking place. The Company has received approaches from various third parties in relation to short-term funding linked to possible offers to acquire the Company. The Directors have carefully considered each of these approaches and concluded that the Placing is the most appropriate route to follow in the interests of the shareholders and creditors of the Group. The Company is no longer in any discussions with any of these third parties relating to these various proposals. The Company has received a threat of legal proceedings from an investor in the Group relating to certain historic transactions. The Directors believe that these claims are without merit. Without the additional equity funding being forthcoming through the Placing, the Directors believe that it is likely that the Group’s banks would withdraw their support which would mean that the Company could not continue in its current form. The Directors have concluded in the current circumstances, that it would not be practicable to carry out a pre-emptive offer to all Shareholders.”
“We were content at that point to await developments, safe in the knowledge that the£16 million fundraising either would be sufficient – in which case the immediate problem of AssetCo’s liquidity would be solved – or it would not, in which case we would get another opportunity to shape AssetCo’s destiny.”
“I don't want any payments being made without my written approval - those that have to be made because of the petition etc should be legally binding and undisputed debts- if they're not they don't get paid … no banks should be paid off … The overriding principle must be that we keep the funds away from all creditors”
“1). Funds should not be dispersed into any bank accounts where the bank is an existing creditor. Nor should funds be dispersed to the operating businesses where presumably most of the liabilities reside. 2) My signature or my nominee to be required before any payments. 3) Payments should be prioritised to ensure they are as far as possible to essential suppliers for the operation of the business. 4) The only exceptions to the above are payments where we are legally bound eg HMRC. Once again these payments should not be made without my authority as I would need to satisfy myself that firstly they were legally due there and then and were not capable of deferral. I hope you appreciate that these measures are normal and absolutely essential interim measures for the business to continue to operate for as long as possible to ensure we have maximum time to assess the situation, reorganise and sort out future financing.”
“I am not sure you have as yet really grasped that the issue has been there ever since you've been on this board and is really quite simple: the business generates about 8 million in cash and the cost of servicing the debt is about 19 million … Shannon and Flynn have been reckless and helped themselves to millions in related party deals including illegal dividends. All this was done whilst the company was bleeding to death. Occasionally it might have looked better but in reality the funds put in by shareholders since 2007- some 37million funded this mess and these pickings!”
“… it became apparent that JS and FF had been running the business largely for their own benefit, with little or no regard for corporate governance, and were in serious breach of their fiduciary duties.”
“I asked [Lloyds] whether they still had the accounts blocked and they said they did. I told them regretfully I had to put out an RNS saying Lloyds Banking Group had withdrawn support to the London Fire Brigade so its finances were in a precarious state etc - Also read them the [draft] RNS - they were fuming/crapping themselves telling me that it was wrong / shouldn't mention them / they hadn't withdrawn support etc. I just stuck at it telling them that it was my responsibility, my decision, my judgment and commercially it was correct and it had to go out. They now have a taste of what will happen if they don't play ball!!! They then broke off and kept us waiting for 2 hours while they scrabbled around. In the end they promised to get it lifted on Tuesday. 372. they could take fright and do something stupid - but the publicity would probably mean they wouldn't.”
“The deferral of the hearing [of Northern Bank’s petition] was requested by the Company, to enable it to continue ongoing discussions with potential offerors and on potential refinancing of the group. These discussions have now reached an advanced stage, although there can be no certainty at present that they will result in an offer for the Company being made or any re-financing taking place. If an offer is made, then at this stage, the Directors do not anticipate that it would be in excess of the current share price. The Company continues to review all the options open to it in order to maximise the return to its various creditors and shareholders.”
“an injection of 10m plus a compromise with creditors”
“ … the Board is pleased to announce it has received a refinancing proposal from the Investor Group that would involve, inter alia, a£10m equity injection into the Company and compromises with certain creditors of the Company to be implemented through a scheme of arrangement. It is anticipated that certain other existing institutional shareholders in the Company will also be allowed a participation in this equity fundraising. It is expected that this proposal will require shareholder approval. At the Group level, the strategy will be to focus on developing the Middle-East business into a leading emergency services platform and on running the London and Lincoln contracts.”
“AssetCo plc today announces Proposals which will refinance the Group, including the injection of£14 million of new equity into the Company. The Proposals, together with the Further Arrangements in relation to the London Group, will help stabilise the Company and create a strengthened platform on which to expand. In particular, the Company continues to pursue several contract opportunities in the UAE where it sees potential for significant expansion.”
“When the question is whether a certain thing is or is not true – whether a certain event did or did not happen – then the court must decide it one way or the other. There is no question of chance or probability. Either it did or it did not happen. But the standard of civil proof is a balance of probabilities. If the evidence shows a balance in favour of it having happened, then it is proved that it did in fact happen. … …You can prove that a past event happened, but you cannot prove that a future event will happen and I do not think that the law is so foolish as to suppose that you can. All that you can do is to evaluate the chance. Sometimes it is virtually 100 per cent: sometimes virtually nil. But often it is somewhere in between. and if it is somewhere in between I do not see much difference between a probability of 51 per cent. and a probability of 49 per cent.”
“The role of the court in making an assessment of damages which depends upon its view as to what will be and what would have been is to be contrasted with its ordinary function in civil actions of determining what was. In determining what did happen in the past a court decides on the balance of probabilities. Anything that is more probable than not it treats as certain. But in assessing damages which depend upon its view as to what will happen in the future or would have happened in the future if something had not happened in the past, the court must make an estimate as to what are the chances that a particular thing will or would have happened and reflect those chances, whether they are more or less than even, in the amount of damages which it awards.”
“What has to be proved to establish a causal link between the negligence of the defendants and the loss sustained by the plaintiffs depends in the first instance on whether the negligence consists of some positive act or misfeasance, or an omission or non-feasance. In the former case, the question of causation is one of historical fact. The court has to determine on the balance of probability whether the defendant's act, for example the careless driving, caused the plaintiff's loss consisting of his broken leg. Once established on balance of probability, that fact is taken as true and the plaintiff recovers his damage in full. There is no discount because the judge considers that the balance is only just tipped in favour of the plaintiff; and the plaintiff gets nothing if he fails to establish that it is more likely than not that the accident resulted in the injury.”
“Although the question is a hypothetical one, it is well established that the plaintiff must prove on balance of probability that he would have taken action to obtain the benefit or avoid the risk. But…if he does establish that, there is no discount because the balance is only just tipped in his favour.”
“…in my judgment, the plaintiff must prove as a matter of causation that he has a real or substantial chance as opposed to a speculative one. If he succeeds in doing so, the evaluation of the chance is part of the assessment of the quantum of damage, the range lying somewhere between something that just qualifies as real or substantial on the one hand and near certainty on the other. I do not think that it is helpful to seek to lay down in percentage terms what the lower and upper ends of the bracket should be. All that the plaintiffs had to show on causation on this aspect of the case is that there was a substantial chance that they would have been successful in negotiating total or partial (by means of a capped liability) protection.”
“That left the second head of loss: the chance that, if properly advised, the plaintiffs might have succeeded in persuading the defendants to agree to reinstate warranty 29 or to provide some other total or partial protection against the risk of first tenant liability. This depended on (i) whether the plaintiffs would have sought to reopen the negotiations to obtain such protection and (ii) whether and if so how far they would have been successful. The first of these again depended on what the plaintiffs themselves would have done in a hypothetical situation and accordingly had to be established on a balance of probabilities. The judge thought that it had been so established, and I agree with Stuart-Smith L.J. that there was evidence to support his conclusion. That, however, was all that the plaintiffs came to court prepared to prove. They evidently believed that the question whether and to what extent Gillow would have acceded to the plaintiffs' request could be left to the assessment of damages. In my view they were in error. It was incumbent on them to establish, at the very least, that there was a chance that Gillow would have been receptive to their request, and in my opinion this was not something which could simply be inferred. The judge found (or rather inferred, since no evidence from Gillow or Theodore Goddard was called by either party) that, if asked, Gillow would probably have offered some form of protection against the risk of first tenant liability. In this the judge went further than was necessary. Since the question depended on what an independent third party would have done in a hypothetical situation, the plaintiffs did not need to establish it on a balance of probabilities. Provided that they could demonstrate, by evidence or inference, that there was a real and substantial chance that Gillow would have offered the reinstatement of warranty 29 or its replacement by some other total or partial protection, they were entitled to have that chance evaluated. I agree with Stuart-Smith L.J. that the judge's finding is not supported by the evidence and must be set aside; the defendants must at least be given an opportunity to call witnesses from Gillow to say that they would not have acceded to the plaintiffs' request. In my judgment, however, the evidence was not even sufficient to justify the inference that there was any real or substantial chance that Gillow would have acceded to the plaintiffs' request. Whether they would or would not have done is, on the evidence so far adduced, a matter of pure speculation.”
“96 The assessment or quantification of damages is itself an exercise which is different in nature from establishing whether any fact did or did not occur, or even whether any event would, in some hypothetical situation, have occurred or is likely in the future occur. One does not, for example, expect a party to show that the particular sum which he claims as general damages is more likely than not to be the precise damage which he has suffered. 97 As the passage from Mallet recognises, however, the assessment of damages may be dependent on the court's view as to whether particular events would have occurred or will occur. Those chances are to be taken account of in the assessment of damages. 98 Questions of assessment of damage, however, have to be distinguished from questions of causation. These issues are discussed at length in the decision of this court in Allied Maples. As the court there explained, in the context of causation, some hypothetical questions (“what would have happened if … ”) do fall to be decided on the balance of probabilities. Thus (see Stuart-Smith LJ at page 1610 D-H) where the breach of a duty consists of an omission, for example to provide safety equipment, and the question is what the claimant himself would have done had the breach of duty not occurred – a question of causation — the claimant has to prove the matter on the balance of probabilities. He does not get a percentage award if he falls just short of the threshold, and he does not suffer a discount if he passes it. 99 Stuart-Smith LJ went on to explain that in many cases the causation of the claimant's loss may depend on the hypothetical action of a third party, either in addition to the claimant himself or independently of him. In those cases the court does not demand that the claimant establish his case of causation on the balance of probabilities: see Allied Maples at 1611 A-C. All the claimant has to show in such cases is that the chance is a real or substantial one. Having done so he must still show, on the balance of probabilities that the defendant's act has caused the loss of the chance (see to this effect per Lord Nicholls in Gregg v Scott[2005] UKHL 2 at [17]). Once the claimant has shown on the balance of probabilities that he has lost the relevant chance, the valuation of the chance is a question for the quantification or assessment of damages.”
“I would have thought that, applying those principles to the present case, it would be plain that, whilst WP would need to show on the balance of probabilities that, but for the negligence complained of, they would have opened a US office (a question of causation dependent on what the claimant would have done in the absence of a breach of duty), the actual loss which they claimed to have been caused by the defendant was dependent on the hypothetical actions of a third party, namely Nomura. Accordingly, in line with well-established principle, the chances of Nomura deciding to award the mandates to WP would have to be reflected in the award of damages.”
“101 Ms Parkin submits, however, that subsequent cases show this result to be incorrect. The Owners of the Ship “Front Ace” v The Owners of the “Vicky 1”[2008] EWCA Civ 101 , concerned a vessel which had been prevented by a collision from 57 days of profitable employment by its owners. The experts had proceeded to agree a figure for hire in that period without any suggestion of a reduction on the basis of a loss of a chance that the vessel would be profitably employed. Sir Anthony Clarke MR (with whom Dyson LJ and Jacob LJ agreed) said this: “71. … I am not persuaded that this is a case for the application of the loss of a chance approach discussed in Allied Maples among many other cases. This is not as I see it a case in which, as Stuart- Smith LJ put it at 1611A-B, “… the plaintiff's loss depends on the hypothetical action of a third party, either in addition to action by the plaintiff, as in this case, or independently of it.”
“102 In Parabola (cited above) Tangent claimed damages in deceit for capital losses, and lost profits lost through being induced to engage in loss-making trades. The judge found on the balance of probabilities that, but for the deceit, Tangent would have traded profitably at a particular level. On appeal the defendants' attack was on the figure for profitability on which the judge alighted. It was submitted that there was no basis for the finding that the claimant would have traded at this specific level of profitability. Toulson LJ, as he then was (with whom Mummery and Rimer LJJ agreed) rejected this argument: “22. There is a central flaw in the appellants' submissions. Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial). Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the defendant's wrongful conduct, as distinct from things which have happened. In such a situation the law does not require a claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss. “22. There is a central flaw in the appellants' submissions. Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial). Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the defendant's wrongful conduct, as distinct from things which have happened. In such a situation the law does not require a claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss. 23. The claimant has first to establish an actionable head of loss. This may in some circumstances consist of the loss of a chance, for example, Chaplin v Hicks[1911] 2 KB 786 and Allied Maples Group Limited v Simmons and Simmons[1995] 1 WLR 1602 , but we are not concerned with that situation in the present case, because the judge found that, but for Mr Bomford's fraud, on a balance of probability Tangent would have traded profitably at stage 1, and would have traded more profitably with a larger fund at stage 2. The next task is to quantify the loss. Where that involves a hypothetical exercise, the court does not apply the same balance of probability approach as it would to the proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account. (See Davis v Taylor[1974] AC 207 , 212 (Lord Reid) and Gregg v Scott[2005] 2 AC 176 , para 17 (Lord Nicholls) and paras 67-69 (Lord Hoffmann)). 24. The appellants' submission, for example, that “the case that a specific amount of profits would have been earned in stage 1 was unproven” is therefore misdirected. It is true that by the nature of things the judge could not find as a fact that the amount of lost profits at stage 1 was more likely than not to have been the specific figure which he awarded, but that is not to the point. The judge had to make a reasonable assessment and different judges might come to different assessments without being unreasonable. An appellate court will therefore be slow to interfere with the judge's assessment.” 103 Toulson LJ is thus saying that Tangent's claim was not one which depended on “loss of a chance” in order to identify some head of loss. The judge had been able there to find that it was likely that Tangent would have traded profitably, as contrasted with cases such as Chaplin v Hicks where no analogous conclusion could be drawn. The judge was nevertheless required to take account, in the assessment of damages, of “the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account.” 383. Floyd LJ then considered Vasilou at paragraphs [104]-[105]: 104 In Vasiliou the defendant was responsible for causing the claimant restaurateur to cease trading. There were two separate claims involved, but it is sufficient for these purposes to consider what was said about the first. The trial judge had concluded that, but for the difficulties created by the defendant, the claimant would have succeeded in running a successful restaurant. Patten LJ (with whom Ward and Black LJJ agreed) said this: “21. In the classic loss of a chance case the most that the claimant can ever say is that what he (or she) has lost is the opportunity to achieve success (e.g.) in a competition ( Chaplin v Hicks[1911] 2 KB 786 ) or in litigation ( Kitchen v Royal Air Forces Association[1958] 1 WLR 563 ). The loss is by definition no more than the loss of a chance and, once it is established that the breach has deprived the claimant of that chance, the damage has to be assessed in percentage terms by reference to the chances of success. But there will be other loss of chance cases where the recoverability of the alleged loss depends upon the actions of a third party whose conduct is a critical link in the chain of causation. The decision of this court in Allied Maples Group Ltd v Simmons & Simmons[1995] 1 WLR 1602 has established that causal issues of that kind can be determined on the basis that there was a real and substantial chance that the relevant event would have come about. 22. To that extent the Allied Maples approach may assist a claimant by providing an alternative way of putting his case on damage which avoids the possibility of total failure inherent in the judge being asked to decide whether, on the balance of probabilities, the causal event would have occurred. But caution needs to be exercised in identifying the contingency which is said to represent the lost chance. The loss of a chance doctrine is primarily directed to issues of causation and needs to be distinguished from the evaluation of factors which go only to quantum. 23. So in the first claim the respondent's case on causation was straightforward. The appellant's breach of covenant had made the operation of the restaurant a legal impossibility. As a result, it did not trade. There was therefore no doubt at all that the breach had caused the loss subject only to the quantification of that loss. The issues raised about the respondent's competence and the restaurant's prospects of success were not matters that went to causation at all. They were relevant at most to the assessment of how profitable (or not) the restaurant would have been had it been able to operate. If it would have been a commercial failure Mr Vasiliou could have received no more than nominal damages for the breach. 24. Judge Levy, in the passages I have quoted from his judgment, found as a fact that Zorbas would have been a successful restaurant and therefore assessed its lost profits on that basis. His analysis of the variable factors I have outlined which formed the agreed components of that calculation involved taking into account the time needed to establish a reputation and other everyday contingencies but did not involve a more general discount of the kind described in Allied Maples to take account of the statistical possibility of failure. That was excluded by his finding that the restaurant would have been a success. 25. Where the quantification of loss depends upon an assessment of events which did not happen the judge is left to assess the chances of the alternative scenario he is presented with. This has nothing to do with loss of chance as such. It is simply the judge making a realistic and reasoned assessment of a variety of circumstances in order to determine what the level of loss has been. This process was described by Toulson LJ in Parabola Investments Ltd v Browallia Cal Ltd & Others[2010] EWCA Civ 486 …”. 105 Later, at paragraph 44, Patten LJ rejected an argument that the quantification of the lost profits should be discounted by a percentage to allow for the fact that the restaurant might have been a failure: “… the issue of how successful the restaurant would have been was not an issue of causation. It was relevant only to quantum. Judge Dight and Judge Levy were satisfied that the restaurant would have been profitable and calculated the damages accordingly. One can express this in terms of them assessing the chances of success at 100% but either way there is no room for a further discount. The calculation of profits which they made was not determined as the best level of profits reasonably obtainable. It was the amount which on their findings he would have earned.”
“106 In Aercap the claimant seller alleged that the defendant buyer was in repudiatory breach of a contract for the sale of two Boeing 757-200 aircraft. The seller resold at a reduced price and claimed damages. The buyer claimed that the seller had not been in a position to supply the contractually agreed engines, given certain leasing commitments into which it had entered. It argued that even if it was liable to the seller, its damages should be reduced by a factor to reflect the chance that the lessee would not have returned the engines in time for them to be delivered to the buyer. Gross LJ considered, in obiter and very tentative observations at the end of his judgment, that where the claimant can prove causation on the balance of probabilities, the authorities did not require the court to go on and evaluate the chances involved, even when it came to the assessment of damages. He went on to hold in any event that there was no relevant uncertainty.”
“107 The outcome in The Owners of the Ship “Front Ace” v The Owners of the “Vicky 1” depended on the fact that there was a finding that the vessel would have been profitably engaged and the existence of a relevant market. I do not think that it assists WP's case here, where there was obvious uncertainty as to whether WP would find a market for its services in the US. 108 Parabola and Vasiliou are illustrations of the principles established by Allied Maples. As I have indicated, I do not read either judgment as disagreeing with Stuart-Smith LJ's proposition in Allied Maples, that a judge's evaluation of the substantial chance of obtaining the benefit in question forms a legitimate part of the quantification of damages. I do not think that Gross LJ was doubting these principles in Aercap. If he was, I respectfully disagree.”
“3 Under the restructuring the Bondholders agreed to accept certain changes to the terms on which the Bonds were issued, including a reduction in the coupon. In return the conditions attached to the bonds were amended to include (by condition 6(k)) the right to a Contingent Payment, sometimes called an “equity kicker”, entitling Bondholders in certain events to an additional cash payment to be calculated using a formula of which the principal integer was “the Fair Market Value” of Elektrim's assets as determined by reference to its last annual audited consolidated financial statements (in the events which happened) for the period ended31 December 2005 . 4 The first part of the definition in condition 6(k) of Fair Market Value is of critical importance to these appeals so we will set out the whole of the definition at this point: “Fair Market Value” means the fair market value of the assets of the Guarantor (including, without limitation, the Guarantor's interest in any affiliates, but excluding the receivables from any loans to the Guarantor's shareholders made by the Guarantor) after deduction of any debt (but excluding contingent liabilities or amounts due in respect of working capital) and assuming that the Guarantor has no obligations in respect of the Contingent Payment, as determined (by reference to the most recent annual audited consolidated financial statements of the Guarantor) on the Contingent Payment Determination Date by two leading investment banks of international repute, appointed by, and at the expense of, the Guarantor, one chosen by the Guarantor and one chosen by the Bond Trustee, on the basis that: (i) if the higher of the two valuations is less than 15 per cent greater than the lower valuation or the two valuations are the same, then the Fair Market Value shall be the arithmetical mean of the two valuations; (ii) if the higher of the two valuations is 15 per cent or more greater than the lower valuation, then the Guarantor shall, at the expense of the Guarantor, appoint a third investment bank chosen jointly by the Guarantor and the Bond Trustee to determine the Fair Market Value, which valuation must be no higher than the higher valuation and no lower than the lower valuation determined by the original two investment banks and which valuation shall be conclusive and binding on the Issuer, the Guarantor, the Bond Trustee and the Bondholders; and (iii) the investment banks shall act as experts and not as arbitrators, and their determination and findings shall be conclusive and binding on the Issuer, the Guarantor, the Bond Trustee and the Bondholders …”
“40 The Trustee's primary case is that damages for breach of condition 6(k) should be assessed by reference to the loss of a chance of what the bondholders might have received by way of a Contingent Payment had the machinery in condition 6(k) been operated and investment banks been appointed to make the relevant assessment of Fair Market Value of Elektrim's assets at the proper time. At the trial it submitted in the alternative that Elektrim was in breach of an obligation to redeem the bonds prior to15 December 2005 and that damages for this breach should similarly be assessed on the basis of a loss of a chance but we are not concerned with this alternative argument. The judge accepted that the correct principle was loss of a chance but (in relation to the PTC shares) that where the court was in a position to hold that it was probable that the valuers would have received certain legal advice there was no need to make any discount for the chance of other advice having been rendered. Likewise he held, in relation to the valuation of the PAK shares, that as Elektrim failed to lead evidence as to the financial information that would have been available at the time, he was entitled to draw inferences and make findings against Elektrim as to what such information would have shown and thus that he did not need to make a discount for the possibility that the financial information might have been otherwise.”
“44 … He accepted that he had to assess what conclusion a third party would be likely to reach in relation to the valuation of the PTC shares but said that it was very little different from deciding the consequences of a negligent solicitor failing to issue proceedings before a limitation period expired or allowing a client's action to be struck out. He said (para 173):— “In this type of case, the court hearing the negligence claim usually makes a single broad assessment of the value of the opportunity which has been lost, assessing the legal merits for itself and allowing an appropriate discount to take account of contingencies which might have affected the claimants' prospects of winning at trial. The court does not usually try to assess a range of different possible judgments on the legal merits which might have been given by the notional trial court, and then produce a table of probabilities in respect of the possibilities in that range and aggregate the resulting values. Rather, the court draws on its own legal knowledge and expertise to produce the best assessment it can of the legal merits, with a discount primarily to take account of contingencies and uncertainties in relation to the evidence which might have been called in the case.”
“46 Indeed we rather doubt whether the present case should be categorised as a “loss of a chance” at all. Dr Harvey MacGregor QC has pointed out (Damages 16th ed para 8-032) that the “loss of a chance” concept has been extended well beyond the kind of case in which it was originally developed. In the present type of case the court has to assess what a banker would have concluded as to the valuation of certain shares. That may not be easy but if something of value has been lost, the court must do its best to estimate that value and should not too readily decide that it is a matter of chance what the true value of something as concrete as a share is likely to be.”
“76 As it seems to me, the second conclusion raises for consideration the question of whether the “loss of a chance” approach involves a restrictive as well as a permissive principle. In short, when a “hypothetical past event” (see, per Lord Nicholls, albeit a dissenting speech, in Gregg v Scott[2005] UKHL 2 ;[2005] 2 AC 176 , at [15]) turns on the act of a third party but the Claimant is in a position to prove causation to the standard of a balance of probabilities, is the Claimant without more entitled to recover its damages in full (subject only to contingencies affecting quantum) or must the loss of a chance analysis be applied? In the light of the first conclusion (and, for that matter the third conclusion), the present is not the right case to delve into a point of this nature, so I confine myself to the following: (i) The origins of the loss of a chance principle are clearly permissive. The doctrine applies to the causation of damage and, in the circumstances where it is applicable, facilitates recovery where the uncertainty is such that a claimant would fail if required to prove its loss to a balance of probabilities: see the leading case of Allied Maples Group v Simmons & Simmons[1995] 1 WLR 1602 , in the judgment of Stuart-Smith LJ, esp. at pp. 1611 et seq . See too, Gregg v Scott ( supra ), per Lord Nicholls, at [15] et seq and per Lord Hoffmann, at [82] – [83]. (ii) The loss of a chance analysis applies to causation not to quantification of damage: Allied Maples ( supra ), at p. 1609; Gregg v Scott ( supra ), at [67] – [69], in the speech of Lord Hoffmann. Contingencies which result 448. in a reduction in the quantum of damage have nothing to do with the claimant's inability to prove causation to a balance of probabilities or the doctrine of loss of a chance; by the time this stage of the argument is reached, the claimant will already have succeeded on the issue of causation. The decision of the House of Lords in Golden Strait Corpn v Nippon Yusen Kubishika Kaisha[2007] UKHL 12 ;[2007] 2 AC 353 (“The Golden Victory”) was concerned with the assessment of damages, not causation or the loss of a chance doctrine. Accordingly, the observations of Lord Carswell, at [64], relied upon by Mr. Adair, are, with great respect, not in point. I agree with Mr. Shah in this regard. (iii). However and more challenging for Mr. Shah, the loss of a chance doctrine is applicable to questions of causation arising out of hypothetical past events hinging on the act of a third party. That is plain from both Allied Maples and Gregg v Scott ( supra ). Where the outcome of such an event depends on what the claimant, the defendant or someone for whom the defendant is responsible would have done, the claimant must prove on a balance of probabilities that he or the defendant would have acted so as to produce a favourable outcome. By contrast, where the outcome of a hypothetical past event depends on what a third party would have done, the claimant may recover for loss of the chance that the third party would have so acted. That the loss of a chance doctrine may thus benefit a claimant is apparent (and indeed underlies the decision in Allied Maples). But, does it follow that where a claimant is in a position to prove the outcome of a hypothetical past event turning on the actions of a third party to a balance of probabilities, he is unable to recover full damages (without more) and must nonetheless have the chance of his success evaluated? (iv). As far as I could see, neither party produced an authority directly in point, addressing this very issue. Mr. Shah drew my attention to observations of Sir Donald Nicholls V-C (as he then was) in White v Jones[1995] AC 207 , in the Court of Appeal, at p. 228, which suggest that straightforward full recovery is possible – but it is far from clear that any question of the loss of a chance doctrine arose for consideration. In 4 Eng Ltd v Harper[2008] EWHC 915 (Ch) ;[2008] 3 WLR 892 , David Richards J applied the loss of a chance analysis to such a case where a defendant — rather than the claimant — had submitted that a balance of probabilities test should be applied on the ground that a witness from the third party had been called to give evidence. David Richards J explained that other witnesses who might have given evidence relevant to the conduct of the third party had not been called. The learned Judge underlined that he was expressing no view on what the position would be where all the evidence relevant to the third party's conduct was available. (v). If required to express a conclusion on this question, my inclination would be to decide it in favour of AerCap which, in accordance with my second conclusion, has proved causation on a balance of probabilities, on the basis of all the relevant evidence. Mr. Harrison's evidence covered the ground; there was no need to go beyond it. The rationale of the loss of a chance doctrine is to permit recovery to a claimant who, by reason of uncertainty, would otherwise be unable to prove causation to the standard of a balance of probabilities; it is not to deny full recovery to a claimant who successfully meets that burden. Underlying the loss of a chance doctrine, are, as it seems to me considerations of policy and good sense. But where a claimant can establish causation on a balance of probabilities, such considerations do not oblige the court and the parties nonetheless to evaluate the chances involved. There is no relevant uncertainty as to causation and, as Mr. Shah put it, no need to reduce the damages on the basis of a loss of chance. The claimant, as in any other case, should be entitled to full recovery, subject only to the contingencies affecting quantification of damage — inapplicable here, save in one respect to which I shall return in a moment. 452. 77 The third conclusion means that even if I am wrong as to my first and second conclusions, so that the loss of a chance needs to be evaluated, the outcome is so apparent that no discount needs to be made. For the reasons already given, the pointers as to what TUI would have done were overwhelming: it had an important relationship with AerCap, it wished to assist, there were no logistical or technical difficulties in the way of it doing so. In those circumstances, even if the loss of a chance doctrine was applicable, I cannot, as a matter of fact, see the need to discount the recoverable damages and I am not persuaded that there is any rule of law requiring me to do so.”
“48. I turn, to the second ground of appeal. The effect of the judge's findings in paragraphs 65 and 66 of his judgment was that “on a balance of probabilities”, Mr Maden and Mrs Chadburn would have settled the Wardle action by Mr Maden paying Mrs Chadburn£20,000 and costs; indeed, the judge considered that the prospects of such a settlement were “high”
“Where it is the claimant’s case that, but for the defendant’s negligence, the claimant would have taken (or refrained from taking) some steps – alone and/or in conjunction with third parties – to bring about a beneficial result, then at every step the burden is on the claimant to show that there is a real or substantial chance that the third party would have taken (or refrained from taking) the required hypothetical action, and what that chance would have been.”
“I do not find the Interleisure case persuasive as to how to deal with the respective chances of success of the three issues I have dealt with. It seems to me the odds of losing on the fraud issue are neither increased nor decreased by the chances of winning on the two other issues. They really do not, in my judgment, impinge on it and in the present case the other two issues could be effectively ignored. Therefore, the value of the lost chance is one quarter, in my judgment, of the value of the insurance claim as properly calculated.” 34. That reasoning is, in my judgment, open to criticism. It is the fact that the three issues are separate hurdles that enables the argument that the percentage prospects on each should be multiplied together to give an overall lower percentage prospect. On the other hand, if, and to the extent, that all three issues involved as at least one aspect the same consideration, eg a consideration of honesty or credibility, then success on one could mean that success on another was more likely. 35. Here Mr Gibson submits that the judge's words indicate that in his view success on any one issue would not in fact or law affect the prospects of success upon any of the other issues. Certainly, the different percentage prospects, at which the judge arrived in respect of each of the three issues, indicate that some very different considerations must govern, as they obviously do, these different issues. 36. However, that does not mean to say that there was no interplay at all. 37. If one looks at the nature of the three issues, as set out in the judge's judgment, it is clear that all three of them did involve some questions of fact on which a judge's view of the credibility of, in particular, Mr Sheikh, could be significant. Thus, the judge said in respect of the premium issue 1 at page 12B: “Apart from evidence that instalment payments were agreed I have absolutely no information as to what was said or written as to in particular the consequences of late payment. It is possible it was made clear that in the event of failure to pay on time the right to recover would be forfeit in respect of any claim.” 38. In respect of the non-disclosure issue the judge said that there was an issue of fact as to how many days a week this nightclub was in fact open. Mr Sheikh and/or the respondent were witnesses on that. The licence was in fact for only four days a week. Even if later it opened for six days, there was, the judge pointed out, a question as to what the position was at the date when the proposal form was signed and whether the proposal form related to current or future intended opening hours and what the position was when the insurance was incepted. As to the third issue, arson, the significance of credibility is obvious. 39. It follows that if Mr Sheikh was accepted on Issue 3 — on which, on the judge's judgment, there was, viewing it discretely, a 25% prospect of success — that could to some, perhaps small, degree increase prospects on Issues 1 and 2 above the 80% and 60% at which the judge arrived, viewing them discretely. 40. The judge's comments address the question whether the prospects on the fraud issue would be increased or decreased by the chances of winning on the two other issues. It seems to me more helpful to look at the matter the other way and ask what the impact would have been, on the rather more technical issues, of success on the major issue of arson. Indeed, if one looks at the matter that way round, any interplay between the issues arising from questions of credibility could well be said to have improved prospects on Issue 1 to the point where the 20% chance of failing would have reduced to the insignificant, in other words to a point where it could be altogether disregarded. 41. Next it also seems to me legitimate to bear in mind that, if one postulates that the insured could overcome the major hurdle of the arson issue, insurers might have been less prone to insist on the merits of their more technical policy defences and more ready to make an offer of settlement. Perhaps even a judge trying the issue between the respondent and insurers, might, even if only subconsciously, have been predisposed towards a more favourable overall conclusion on the technical issues if and when he had concluded that the hurdle involved in the issue of arson could be overcome. 42. Mr Gibson submits that this consideration cuts both ways. A judge who was just in favour of an insured on the issue of arson might temper his decision by deciding against the insured on other issues. It seems to me, insofar as there is any “bandwagon” effect at all, it is one which is more likely to militate in an insured's favour — both in the minds, as I have said, of insurers when considering whether to make an offer of settlement and, insofar as it is of any relevance at all, in the subconscious of any original judge. 43. In the circumstances, I think the judge was wrong to ignore the fact that the two insurance issues were additional hurdles. But I do not think that it would have been right, on the facts of this case, simply to multiply all the percentages mathematically. Instinctively, although he did not express himself logically on the point, I think that is probably what the judge felt. I also find it difficult to believe, however deficient his ostensible reasoning, that the judge was not, by his ultimate 25%, at least attempting to reflect some sense of the overall prospects. I think that some allowance should be made when arriving at the overall prospects for the fact that if the hurdle of arson could be overcome, the other two hurdles might have seemed and have been, in reality, lower, for reasons which I have indicated, than when assessed entirely independently. 44. I would, in the circumstances, reduce the judge's assessment of 25%, viewing the matter on an overall basis, to 20%. That percentage prospect does not seem to me insignificant, so that the further point which Mr Gibson raised — that anything below 20% would represent an insignificant prospect and should lead to the respondent being regarded as having only negligible prospects of success and recovering no damages — does not arise.”
“26. In my view, the Judge was entitled to approach this aspect of the evidence on the basis of a balance of probabilities and not to consider it, in the alternative under the heading of loss of chance, since the son and father were for practical purposes a unity and closer to the second category of causation/quantification considered by Stuart-Smith in Allied Maples, at 1610D-H, namely where the question is "what would the plaintiff have done" about it. His reasoning, on that basis, appears to be well supported by the evidence indicating a reluctance on the part of Mr Veitch to put at risk any money that his father might have been prepared to put into the conservatory venture and a real doubt as to whether the father would or could have come to the rescue, if asked…that the father and son “were for practical purposes a unity and closer to the second category of causation/quantification considered by Stuart-Smith in Allied Maples, namely where the question is ‘what would the plaintiff have done’ about it”
“ even if the attitudes of third parties may be relevant to whether AssetCo would have taken these steps, that does not mean that AssetCo’s claim depends on those third parties, or that the claim must be assessed on a ‘loss of a chance’ basis.”
“…there is no “reason of uncertainty” which prevents it from proving its case on the balance of probabilities, and therefore “no need to reduce the damages on the basis of a loss of chance” (AerCap, [76(v)]…). That is particularly so where AssetCo’s claim is based on facts which actually occurred in 2011, and which AssetCo contends would have occurred in the 2009/10 counterfactuals.”
“I set out below a table showing the latest date I consider that the Competent Auditor would have notified AssetCo’s management and Audit Committee of each of the issues set out in paragraphs 2.32 to 2.48 above.”
“Q. But in fact isn't it true to say that as soon as the competent auditor recognised the cash in transit issue of 2010, he or she would have realised that there was a serious issue as to going concern anyway. A. Not from the cash in transit issue but as soon as the competent auditor had realised that all of the preference share proceeds appeared to have been spent, which was a knock-on impact from the cash in transit issue, then, yes, that would have had an immediate concern around going concern. Q. Right. So, when in 2010 would the competent auditor have raised with management going concern issues? A. Well, again, a competent auditor would have asked the question where's the preference share proceeds? Not on the first day of the audit but probably maybe towards the end of the first week. So maybe 8 or 9 May. Management may have responded in the second week in conjunction with chasing the cash flow analysis for going concern. Q. So raised with management second week of May and on the assumption that no satisfactory response, when would a competent auditor go to the audit committee with this information? A. Well, I think a competent auditor would have continued chasing management certainly until the end of the third week and so it would have been the last week of May before you know a competent auditor would have lost their patience with management and said -- and picked up the phone for the chairman of the audit committee, assuming that information hadn't been provided in that time.” (3) In relation to the impairment of AssetCo’s assets, that “there was a high likelihood that there was going to be a significant impairment charge”; (4) In relation to dividends that AssetCo was not going to be able to pay a dividend for many years: “…In both years I think they would have raised the issue about the 548. likelihood of there being a significant impairment before they knew the final answer. The same would apply here. They may have said there is likely to be a significant impairment of goodwill. I don't know the number but it is going to be significant and as a result of that it follows on that there is likely to be a significant write-down in the value of the investment in subsidiaries meaning that AssetCo Plc is not going to be able to pay a dividend for many years. But they wouldn't necessarily have known the precise number at the point that they raised that question. Q. But at that point they would have recognised that the problem was so big that they needed to do something about it? A. Yes. 550. Q. When would they have gone, do you say, to the audit committee with that information? 551. A. I say in both years at the end of May, so give or take a few days.” 552. Although this was said in the context of the 2009 year, it must equally be true in 2010 given the significant impairment of goodwill in both years. (5). In relation to AssetCo’s announcement that its results would be announced on16 June 2009 , and in consequence of the above that there would be a delay in AssetCo publishing its results, which would trigger a need to tell the market of that:- 554. I say, at the end of May there would have been a serious discussion around a number of issues which would probably have said concluded and we are probably not going to meet the reporting deadline. Q. So there would have been two things. A number of issues including this one, which is a significant one and also the need to tell the audit committee that the date that the company has advertised for publication of its results probably won't be met which would trigger a need to tell the market that? A. Once the company had agreed that. … Because it is the company’s announcement not the auditors”
“A. Subsequently for when information hadn't been received but all I'm saying is initially I do not think there was any reason to assume that AssetCo would have provided information to a competent auditor any quicker than it provided it to Grant Thornton.”
“…But what if the competent auditor doesn't get the information and you say that they would have pressed harder or whatever, isn't the consequence of that that either they would have got information quicker or that would give rise to a concern they would have because they were not getting the information – A. You are absolutely right, my Lord, yes. In a number of cases Grant Thornton received a piece of varied information initially, queried it and then didn't get a response. And several of the things I say where they would have chased harder would have been in response to a second request where the initial request was not adequate and what I'm saying is that initial response, there is no reason to believe that would have been received by a competent auditor any quicker. If management had delayed giving information completely, then a competent auditor would have chased for it quicker. A good example of that I think is in 2010 when the going concern schedules weren't received until some time in June.”
“MR TEMPLEMAN: It is at every stage, isn't it, Mr Bligh, because if as a competent auditor you ask for information and you want it and it doesn't come within seven days then you chase again don't you, the upshot of that is likely to be that you get it more quickly than if you wait for a month. A. You certainly chase information. Whether you chase every piece of information within seven days will depend. Q. Yes. It depends on the importance of the information and I suppose whatever else you are up to? A. Yes because whilst an auditor clearly wants all of the information so he can carry out his work sufficiently he can't do the whole audit on day one. Q. So would it not be a reasonable assumption that if a competent auditor had done what you say a competent auditor would have done, the result would have been that they got more information more quickly than Grant Thornton? A. I have said in my supplementary report that in certain instances a competent auditor would have chased management quicker. I can't tell whether management would have responded any quicker, though it is possible, but I can't guarantee that.”
“A. They are told to prioritise it by every audit team in the firm, so they will say: I will deal with it in order with all the other ones I have got, it is a small number of people looking at quite a lot of these at a busy time of year. And everyone wants them prioritised. Sorry, I'm just giving you my experience of 20 years of auditing.”
“But I do not think that would have been before the 14 May. I think this was reviewed by Ricky Lane on 18 May. All I'm saying is I think that is the earliest if they had been fairly alert and it could have been later on before they actually joined the dots together.” 526. In relation to 2010, Mr Bligh said that, “yes, I’m very willing to agree that at some stage in May that a competent auditor would have firstly asked the question, what’s happened to the original preference share proceeds and secondly, realised that it had all gone.”
“I think it perfectly reasonable to expect a member of a competent auditor’s team to have asked management about the preference share agreement and what has happened to the cash at an early stage of the audit.”
“bank re-financing, business turnaround focusing on rationalizing operations, increasing margins and resolving defined benefit pension scheme issues” and that he “repositioned company for growth, focus on power, oil, gas, resources, shipping, rail sectors in international markets, and expansion into Middle East.”
“I think the better way to describe this is, we would have done whatever is necessary by (a) getting ourselves on the board (b) making sure the company [AssetCo plc] survived, (c) continuing with the Abu Dhabi business and the fact of the matter is we would have realised that any attempt by NAV to take money out of the Plc would basically hit all the claims that would turn up from everywhere and we would get nothing. So in essence the best solution for all of us was to work at the Plc to secure its survival and that would have been absolutely obvious to anybody that survival of the Plc was in the best interests of everybody.”
“JS [Shannon] reported that JOH [NAV] are considering supporting the company with a package of circa of£8m consisting of a cash backed guarantee to Lloyds to cover the HMRC liability and then a further£4m in funding shortly after to support the working capital requirements. As part of the pre-conditions of this funding JOH were seeking…To replace the current Chairman with the appointee of JOH’s choice…The Board agreed to proceed on this option once written Heads of Terms were received from JOH and JS was tasked to obtain this tomorrow. It was agreed as the most likely alternative and the one the company should invest the most effort in.”
“Q: Why was it a one-way bet? 705. Q. Equally, if you didn't get the contract, you would get your money back? A. And there was 6% return. But I always believed we would 706. get them. … and I'm speaking all the time to Mr Chatila, who is telling me we are going to win contracts.”
“The fact that in June 2009 AssetCo had not yet been awarded any contracts in Abu Dhabi would not have affected my willingness to invest. As I have explained, we had assisted AssetCo in pursuing business opportunities in Abu Dhabi since late 2007, and had every confidence that with the strength of our local connections, AssetCo would be awarded contracts in the region. As of June 2009 AssetCo had established a permanent presence in Abu Dhabi and we were being reassured by [Walid Chatila / Hussain Al Nowais] that contracts would be awarded, although this would take time”
“Whilst it is correct that we could not be certain which contracts would be awarded to AssetCo by which UAE authority, as I have explained there was never any doubt in my mind that AssetCo would be awarded profitable business in Abu Dhabi. I would reiterate that when we agreed to invest as part of the restructuring in 2011, we were aware that there was no further cash return to be earned from the existing SOC Contract, since previous management had diverted the profit element of that contract (in the form of the advance payment) and expended it on the UK subsidiaries. There was thus no absolute certainty in 2011 that AssetCo would be able successfully to win the tender for an extension/renewal.”
“I asked [Lloyds] whether they still had the accounts blocked and they said they did. I told them regretfully I had to put out an RNS saying Lloyds Banking Group had withdrawn support to the London Fire Brigade so its finances were in a precarious state etc - Also read them the RNS - they were fuming/crapping themselves telling me that it was wrong/ shouldn't mention them/ they hadn't withdrawn support etc. I just stuck at it telling them that it was my responsibility, my decision, my judgment and commercially it was correct and it had to go out. They now have a taste of what will happen if they don't play ball!!! They then broke off and kept us waiting for 2 hours while they scrabbled around. In the end they promised to get it lifted on Tuesday. So where does this leave us -we and Charles think that we've called their bluff, they'll take a haircut and work with us, and they're now so shit scared of publicity they will not appoint an Administrator- but suppose they could take fright and do something stupid - but the publicity would probably mean they wouldn't.”
“What happened in the actual in 2011 was that the banks agreed to allow us to use the gross funds. In truth perhaps I ought to describe that slightly differently. What they agreed to do was for them, KPMG, and us to monitor the amounts needed and they would let it come out of the blocked or locked account. The locked or blocked account had the gross receipts in it. As this developed and until the business was disposed of, this was the system. The banks would support through that … It was the only way that they could do it because they wanted a solvent solution. If they hadn't have done it we would not have been there for very long at all. No business can operate as this one tried to do on less than half of its receipts. And this was the whole argument that I had with them when I threatened to put out that press announcement in - when was it? April 2011. If you don't start releasing all the monies, there is only -- the option is obvious.”
“What I'm talking about is [the banks] relaxing their debt and service costs. So that the [unitary payment] income is used first to run the vehicles, not the whole Fire Brigade and to pay all of the running costs and any other liabilities and the banks sit at the bottom.” (4) In the words of Mr Davies in his oral evidence, the basic principle of this arrangement would have been “you pay for your costs [i.e. of the LFEPA and Lincoln Contracts] we pay for ours [i.e. of AssetCo plc]”, as it was in 2011. (5) This would have included the costs borne by AssetCo Fire and Rescue Limited (previously called AssetCo Group Limited). There would have been a “sit-down negotiation” with the banks where AssetCo, in the words of Mr Davies in his oral evidence, “would have gone down the expenses [borne by Fire and Rescue] and said, which are yours [i.e. the London/Lincoln Group’s], which are ours [i.e. AssetCo plc’s]”. (6) The arrangement would also have involved the banks paying any tax arrears attributable to the LFEPA and Lincoln Contracts, as they did in 2011. As Mr Davies explained in his oral evidence, the vast majority of outstanding VAT was attributable to the London Group “because that was the big invoicing company”
“What I would have told the banks is, I'm not wasting my time looking into all of this, but it seems to me your assets are overvalued. And that would be it. It would not -- you know, I'm trying to get a strategy for the future. I'm not really interested in the past.”
“Well when one of them had some valuations, I remember having a discussion with them, just a sort of quiet discussion, just saying, you know, where does this get you? It doesn’t produce any more income. You are where you are …”
“The overriding principle would have been for those companies to manage their own cash resources without support from any other group entity. Those that were profitable would therefore have survived (and been either retained or sold), whilst the remainder would have been wound down, struck off or liquidated.”
“The other payments under the heading “Subsidiary liability” were in respect of subsidiary liabilities which were thought essential to keep the group operating. As I have explained, since we had no knowledge of the business when we first took over, we had to be guided as to what was essential by MC. In the 2009 or 2010 counterfactuals, we would have reached a materially similar agreement with the banks as we reached in May 2011, but much sooner given that we would have had access to a proper set of accounts, and AssetCo would not have been subject to a winding-up petition. This expenditure would therefore not have been financed by AssetCo but it would instead have been paid from the UPs under the LFEPA/Lincoln Contracts. Had AssetCo not neglected its suppliers for so long, and faced such intense pressure as a result of the winding-up petitions which it was facing, I would not have authorised this expenditure in 2011. At the time, in my judgment this was the only commercial choice. In fact as can be seen from the schedule, despite all the difficulties in 2011 as a result of the petitions and the lack of financial records, as a result of the agreements which we reached with the banks, AssetCo’s net expenditure on its subsidiaries from6 May 2011 onwards was only approximately£38,000 .”
“But if you look at from my position, I have kind of won the game, haven't I? [1] We now have a scheme arrangement. [2] My contract in Abu Dhabi is safe. [3] I have got a third party to value my preference shares because my fundamental problem through this whole thing is if I have to value this preference shares I don't know what to value them at. Because you could make the argument they are worthless. So I have negotiated to keep value for the preference shares, [4] I'm [now] going to have a completely clean company. [6] I have a chance of restructuring the London Fire Brigade as a freebie. [7] I have my contract in Abu Dhabi and I have, in my opinion, a reasonable hope of winning more business in Abu Dhabi. And I'm a very happy bunny.”
“…and in my belief an extremely good chance of winning very substantial business in Abu Dhabi. We aren't obviously at this stage talking of the SOC contract, we were hoping for much better things than just that. That would have been fair, when I put the 7.5 million in, I would have gone to all the major shareholders, just like I did -- or Tudor and I did in 2011, and basically say: we have cauterised the problem, we are now a cash shell, I believe we are going to do substantial business in Abu Dhabi, I'm prepared to put 7.5 million in but if you would like to participate with me, you would be very welcome. Just like we did in 2011.”
“We would have come to an arrangement with HMRC that enabled them to have -- sorry, which enabled a mutually satisfactory arrangement taking into account the different circumstances where we would have receipts, we would no longer be bound by the extremely onerous capital and interest payments and we may not be paying some of the things as they are shown in the group cash flow because we wouldn't be operating a group cash system.”
“There would always have been a risk [of not winning any business] but that was not my belief. So even if we had written off all of the 7.5 million, the business would still have£7.5 million , it would still have the operating businesses. We would have a cash shell and we would have my very strong belief which never wavered in all this mess that we would win business in Abu Dhabi.”
“I have been through this at length with Mr Chatila who was involved in this in Abu Dhabi and he says that as long as he was convinced of the back-up in terms of financial reconstruction, he thinks that the SOC would not have had a problem.”
“I assure you he [Shannon] was not critical…The important thing, as you saw in the previous evidence, was we went and apologised to the Al Nowais Group and introduced Tudor Davies and from then on Mr Shannon was totally utterly and completely irrelevant.”
“I should point out that if our contract partners had been unduly concerned about the events concerning AssetCo in 2011 or 2012 they would simply have found a reason to terminate the contracts or withheld payment. In any event the Abu Dhabi authorities and finance community were no strangers to distressed situations and financial restructurings (particularly given their bail-out of Dubai in 2008). The fact that AssetCo had undergone a financial restructuring in 2011 or no longer had the London or Lincoln contracts from 2012, or publicly announced all the events which were the subject of RNS announcements from March 2011 onwards, did not, so far as I am aware, give rise to any cause for concern on their part at all.”
“The first and most important rule is that the claimant must take all reasonable steps to mitigate his or her loss consequent upon the defendant’s wrong and cannot recover damages for any such loss which he or she failed, through unreasonable action or inaction, to avoid. Put shortly, the claimant cannot recover for reasonably avoidable loss. The second rule is the corollary of the first. It is that where the claimant does take reasonable steps to mitigate the loss to him consequent upon the defendant’s wrong he or she can recover for loss incurred in so doing; this is so even though the resulting damage is in the event greater than it would have been had the mitigating steps not been taken. Put shortly, the claimant can recover for loss incurred in reasonable attempts to avoid loss. The third rule is that where the claimant does take reasonably necessary steps to mitigate the loss to him or her consequent upon the defendant’s wrong, and where these steps are successful, the defendant is entitled to the benefit accruing from the claimant’s action and is liable only for the loss as lessened; this is so even though the claimant would not have been debarred under the first rule from recovering the whole loss, which would have accrued in the absence of his successful mitigating steps, by reason of these steps not being ones which were required of him under the first rule. In addition, where the loss has been mitigated by other reasonably foreseeable means, the claimant can again recover only for the loss as lessened. Put shortly, the claimant cannot generally recover for avoided loss.”
“[the claimant] can recover no more than he would have suffered if he had acted reasonably, because any further damages do not reasonably follow from the defendant’s breach.”
“what was dealt with by the scheme of arrangement were liabilities of AssetCo plc which were not satisfied, whereas, what we are claiming is liabilities which had been satisfied prior to the scheme of arrangement. And therefore, you are not talking about the same loss, the wasted expenditure claim is something completely different from what is dealt with by the scheme of arrangement.”
“Now, in my judgment, these three aspects of mitigation are all really aspects of a wider principle which is that, subject to the rules of remoteness, the plaintiff can recover, but can only recover, in respect of damage suffered by him which has been caused by the defendant's legal wrong. In other words, they are aspects of the principle of causation … It follows that what is alleged to constitute mitigation in law can only have that effect if there is a causative link between the wrong in respect of which damages are claimed and the action or inaction of the plaintiff.”
“There is some underlying unity [in the three sub-rules of mitigation] in the notion of ‘factual’ causation but ‘factual’ causation is not sufficient”
“(i) Does a legally enforceable duty of care exist? (ii) If so, what is the scope of that duty? (iii) What is the prospective harm, or kind of harm, from which the person to whom the duty is owed falls to be protected? (iv) Has there been a breach of that duty? (v) If so, was the loss complained of caused by that breach, or was it caused by some other event or events unconnected with the breach?”
“It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless. ‘The question is always whether the defendant was under a duty to avoid or prevent that damage, but the actual nature of the damage suffered is relevant to the existence and extent of any duty to avoid or prevent it:’ see Sutherland Shire Council v. Heyman, 60 A.L.R. 1, 48, per Brennan J.”
“…one cannot give a common sense answer to the question of causation for the purpose of attributing responsibility under some rule without knowing the purpose and scope of the rule. Does the rule impose a duty which requires one to guard against or makes one responsible for, the deliberate act of third persons? If so, it will be correct to say, when loss is caused by the act of such a third person, that it was caused by the breach of duty… Before answering questions about causation, it is therefore first necessary to identify the scope of the relevant rule. This is not a question of common sense fact; it is a question of law.” (2) In Barings (No. 4) [2002] Lloyd's Rep. P.N. 127, at [47], Evans-Lombe J approved the auditor’s proposition (at [35]) that: “where a claimant claims damages in tort flowing from a negligent mis-statement he must plead and prove not only that the loss for which compensation is claimed was caused by the defendant’s breach of duty to the claimant, and was foreseeable, but also that the claim arises from a transaction or class of transactions, that was within the contemplation of the defendant at the time he undertook the relevant duty and for the purpose of which transaction, inter alia, he provided his services, and that the claimant relied on those services for the purpose of that transaction” (3) In MAN Nutzfahrzeuge AG v Freightliner[2007] EWCA Civ 910 ,[2008] 2 BCLC 22 , Chadwick LJ (with whom Dyson and Thomas LJJ agreed) stated at [54]: “For my part, I would accept that it was within the scope of [the auditor’s] general audit duty to protect [the company] from the consequences of decisions taken by [the company] (or by its shareholders in relation to the affairs of [the company]) on the basis that the accounts were free from material misstatement, including misstatement caused by fraud.”
“… [the defendants] cannot have supposed that, so long as some accounts were provided, it mattered not whether they showed a true and fair view of the financial affairs of [Barings Singapore]. The primary responsibility for safeguarding a company’s assets and preventing errors and defalcations rests with the directors. But material irregularities, and a fortiori fraud, will normally be brought to light by sound audit procedures, one of which is the practice of pointing out weaknesses in internal controls. An auditor’s task is so to conduct the audit as to make it probable that material misstatements in financial documents will be detected. Detection did not occur here, and there therefore is a case for [the defendants] to answer.” 59.. This does not say that an auditor has an unqualified duty to safeguard the assets of a company. That duty rests on the directors. On the contrary this passage emphasises the auditors’ duty is to detect, where reasonably detectable, material misstatements in the financial documents. I do not read it as supporting Mr. Powell’s wide submission. It does not say that an auditor’s duty of care extends to protecting it against general trading losses in the future. It follows that this argument does not support the conclusion he sought to derive from it on the issue of causation, namely that all losses which flow from the continuation of a business which should have been closed down are caused, in the legal sense, by a breach of the auditors’ duty of care which resulted in the company and its businesses being allowed to continue longer than otherwise would have been the case.”
“Sir Brian may have been saying no more than that the auditors might be liable for losses flowing from a continuation of the same type of wrongful business which, according to the pleadings, they should have but did not discover and report to the company, for example the corrupt loans.”
“In my view there is no arguable case that the EW defendants’ duty of care to Holdings…extends as far to cover a liability for deficits arising out of legitimate but loss-making business activities, such as investing in subsidiaries and guaranteeing loans. None of those activities was asserted as being either touched by fraud or imprudence. They are not pleaded as being a continuation of a type of business which was touched by fraud or imprudence which the EW defendants should have discovered and disclosed. They are simply losses occasioned by BCCI’s continuing in trade. This conclusion can be expressed in alternative ways. The EW defendants’ duty of care did not extend this far. This is not the kind of damage from which they had to take care to save Holdings harmless. Alternatively, the pleaded losses were not caused by the breaches alleged. They were caused by continued trading. The alleged negligence of the EW defendants, if proved at the trial, was just one of the factors which resulted in Holdings continuing to trade.”
“The question can, I think, be further illustrated by cases in which the relevant company is in fact insolvent but the audited accounts fail to reveal the insolvency. Galoo is an example of such a case. So, too, is Alexander v Cambridge Credit Corporation (1987) 9 NSWLR 310. In both cases the decision was that the auditor was not liable for the increase in the company’s deficiency arising after the date when a careful audit should have led to the appointment of a receiver or liquidation. The decisions were based on want of causation but as Lord Hoffmann himself has pointed out (lecture to the Chancery Bar Association15 June 1999 ) the same result might (even might better) have been reached by application of the ‘scope of duty’ concept. In both Cambridge Credit (the majority) and Galoo the courts applied an ultimate test of whether ‘as a matter of common sense’ the relevant act of omission was a cause. ‘Common sense’ is, however, an uncertain guide. One man’s common sense may be another’s nonsense. But if an auditor simply as such is not to be liable for losses arising from the audited company’s continued existence (which as the law stands is, I think, undoubtedly the case) I find it difficult to discern any distinction of substance which could justify liability for a failure to sell itself and so to realise the then value of whatever assets a company had.”
“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.”
“If Mr Downes' submissions are well founded, it would have been sufficient to dispose of the claims [in Galoo] by claimants one and two, Galoo and Gamine, simply upon the basis that no duty was owed by the auditors to those companies, for which they were the auditors, to prevent the incurring of losses in reliance upon the incorrectly stated accounts. However, that approach was not taken by the Court, nor apparently by counsel arguing the case before them. But rather the question was posed in terms of whether or not the losses suffered by Galoo and Gamine could be said properly to flow in terms of the traditional test of causation from the breach of contract of the auditors in failing to detect the frauds.”
“To state that trading losses flow from trade is to state the obvious. The key question remains, did the defendant's default cause the trading to continue, and, if it did, did it cause the trading losses which then eventuated? If it can be said that the company not only continued to trade, but continued to trade in a certain way as a result of the auditor's breach, and that the way in which it traded is responsible for the trading losses, it is at least arguable that a causal link is established. The mere fact that other factors might cause trading losses, such as imprudent trading or an earth quake at the plaintiff's plant, does not mean that the trading losses cannot be caused by identifiable features in the business activities of the plaintiff. Whether or not that is the case, it is essentially a question of fact.”
“59 Thus, it seems to me, Mr Downes may be guilty of mischaracterising the claim brought against him, insofar as he suggests that what is being sought to be imposed is a duty to prevent the incurring of losses. What is being alleged against the defendants is a duty to exercise all appropriate skill and care in auditing the accounts and in reporting on the question whether or not they reflect a true and fair picture. 60 The gravamen of the complaint is that they negligently failed in that endeavour and that they certified as accurate figures that were in fact inaccurate. What is then said is that in reliance upon those figures, having been certified as accurate, the directors took certain trading decisions. That in turn will raise serious factual questions as to the extent to which the directors either did rely, or were reasonable in placing reliance. Again, I do not make any assumptions as to what the conclusion will be as a result of that investigation. But it seems to me that the question which will in fact arise for decision at the end of the day will be the question foreshadowed by Lord Hoffmann in the South Australia Asset Management case, where he pointed out that if a person is negligent in providing information he will be responsible for all foreseeable consequences of the information being wrong. One question, as it seems to me, will be the extent to which it is foreseeable, or reasonably within the contemplation of an auditor, that a consequence of the incorrectness of the information which he gives is that the company will continue to trade in the manner in which it has hitherto traded with the result that it will incur losses which might otherwise be avoided.”
“[64]… Livent’s reliance on Deloitte for the purpose of overseeing the conduct of management was therefore both reasonable and reasonably foreseeable. And, as Livent’s injury arises from its detrimental reliance, the injury linked to that reliance is itself reasonably foreseeable. [65] It follows that the type of injury Livent suffered here was a reasonably foreseeable consequence of Deloitte’s negligence. Through the 1997 Audit, Deloitte undertook to assist Livent’s shareholders in scrutinizing management conduct. By negligently conducting the audit, and impairing Livent’s shareholders’ ability to oversee management, Deloitte exposed Livent to reasonably foreseeable risks, including “business losses” that would have been avoided with a proper audit. Indeed, the risk of injury flowing from undetected fraud is precisely the type of injury statutory audits seek to avoid. [66] We add one final point in this regard. In Hercules (at para. 48), this Court cited Caparo for the proposition that statutory audits are conducted, in part, “to provide shareholders with reliable intelligence for the purpose of enabling them to scrutinise the conduct of the company’s affairs”
“[90] In simple terms, the SAAMCO principle denies recovery for pure economic loss where the plaintiff’s injury would still have occurred even if the defendant’s negligent misrepresentation were factually true. Rephrased as a test, the principle denies liability where an alternate cause that is unrelated to the defendant’s negligence is the true source of the plaintiff’s injury. This alternate and unrelated cause explains why the truth of the negligent misstatement has no bearing on the plaintiff’s ultimate injury (i.e., because, even with that truth, the injury would have flowed as a result of the alternate cause). Or, framed from the perspective of the duty of care, the defendant could not have undertaken to protect against injuries that would have been caused by alternate and unrelated sources. In SAAMCO, the House of Lords explained the principle with the commendably Albertan example of a mountaineer: A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor who negligently makes a superficial examination and pronounces the knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee. [p. 213] [91] In this example, the doctor’s negligent misrepresentation (the positive knee diagnosis) is a cause that is alternate and unrelated to the cause of the mountaineer’s injury (a mountaineering accident unrelated to the knee, for example, an avalanche). As a result, even had the doctor’s negligent misrepresentation been true (i.e., even if the mountaineer’s knee had been fit), the injury would still have occurred, since the fitness of his knee would not have prevented the injury caused by the avalanche. In other words, the doctor could not have undertaken to protect against an avalanche, which is unrelated to his or her diagnosis. [92] Deloitte is unlike the doctor. Deloitte’s negligence related to a statutory audit, a purpose of which is management oversight by shareholders. That oversight, in turn, informs (or is related to) subsequent business decisions by the corporation. It follows that Livent’s trading losses were not an alternate and unrelated cause of Livent’s injury. To the contrary, the shareholders’ capacity to oversee the conduct of Livent’s business was entirely dependent upon the statutory audit preceding that oversight. In particular, the shareholders’ reliance on that audit and the audit’s portrayal of the directors and their business ventures was a critical component of their oversight of management — which, we reiterate, was the very purpose in respect of which Deloitte undertook to act with reasonable care.”
“As regards the claim of the first plaintiff, Berg, there can in my judgment be no causal relationship between the breach of contract and the alleged losses. If the contract had been fully performed by the inclusion of a qualification of uncertainty in the certificate, it would not have affected the knowledge of the company and its members. Since the provision of knowledge to the company and its members is the subject matter of the contract, unless it can be shown that the company or its members were in some way misled or left in ignorance of some material fact, the breach of contract lacks significance and has no legal consequence. Accordingly, even if the first plaintiffs had been able to show a factual connection between the certification of the 1982 accounts and the collapse of Berg in 1984, that would not have enabled them to show legal causation. However, as previously stated, the certification of the 1982 accounts was not as a matter of fact a cause of the collapse of Berg.”
“Since the provision of knowledge to the company and its members is the subject matter of the contract, unless it can be shown that the company or its members were in some way misled or left in ignorance of some material fact, the breach of contract lacks significance”
“i) Although the legal burden of proof that the breach of contract caused loss rests throughout on the claimant, there is an evidential burden on the defendant if it contends that there was a break in the chain of causation. ii) To break the chain of causation, the intervening conduct of the claimant must be of such impact that it obliterates the wrongdoing of the claimant in the sense that the claimant’s conduct must be the true cause of the loss rather than the conduct of the defendant. That is because, where the defendant’s conduct remains an effective cause of the loss, at least ordinarily the chain of causation will not be broken. iii) It is difficult to conceive of anything less than unreasonable conduct on the part of the claimant breaking the chain. iv) Even unreasonable conduct will not necessarily break the chain, for example where the defendant’s conduct remains an effective cause. v) Reckless conduct ordinarily breaks the chain of causation, although there is no general rule that only reckless conduct will do so. vi) The claimant’s state of knowledge at the time of and following the defendant’s breach is likely to be a factor of great significance. vii) However it does not follow that actual knowledge of the breach is a pre-requisite of breaking the chain. viii) The question of whether there has been a break in the chain is fact sensitive. In a given case the determination of whether the chain of causation is broken may involve the cumulative effect of a number of factors which have the effect of removing the wrongdoing sued on as a cause. ix) Whilst the authorities provide guidance they are not to be read as statutes.”
“27. Determining whether there has been a novus actus interveniens requires a judgment to be made as to whether, on the particular facts, the sole effective cause of the loss, damage or injury suffered is the novus actus interveniens rather than the prior wrongdoing, and that the wrongdoing, whilst it might still be a ‘but for’ cause and therefore a cause in fact, has been eclipsed so that it is not an effective or contributory cause in law. 28. As Aikens LJ observed in [Spencer v Wincanton Holdings Ltd[2009] EWCA Civ 1404 ] at [45], where the line is to be drawn is not capable of precise definition. Various considerations may, however, commonly be relevant. In a case involving intervening conduct, these may include: (1) The extent to which the conduct was reasonably foreseeable – in general, the more foreseeable it is, the less likely it is to be a novus actus interveniens. (2) The degree of unreasonableness of the conduct – in general, the more unreasonable the conduct, the more likely it is to be a novus actus interveniens and a number of cases have stressed the need for a high degree of unreasonableness. (3) The extent to which it was voluntary and independent conduct – in general, the more deliberate the act, the more informed it is and the greater the free choice involved, the more likely it is to be a novus actus interveniens.” (1) The extent to which the conduct was reasonably foreseeable – in general, the more foreseeable it is, the less likely it is to be a novus actus interveniens. (2) The degree of unreasonableness of the conduct – in general, the more unreasonable the conduct, the more likely it is to be a novus actus interveniens and a number of cases have stressed the need for a high degree of unreasonableness. (3) The extent to which it was voluntary and independent conduct – in general, the more deliberate the act, the more informed it is and the greater the free choice involved, the more likely it is to be a novus actus interveniens.”
“741 The House of Lords had to deal with a somewhat similar issue in Reeves. In that case, Mr Lynch had hanged himself in a police cell. The police were found to have been in breach of a duty of care to take reasonable steps to prevent Mr Lynch committing suicide. Had it not been for the existence and breach of that duty of care, the normal rule of novus actus interveniens would have meant that Mr Lynch's own act was regarded as the only cause of his death. The question for the House was whether that rule should be displaced by the nature and breach of the police's duty. 742 The House held that it should. Lord Hoffmann said at p.367 that the general principle was that: “‘the free, deliberate and informed act or omission of a human being, intended to exploit the situation created by the defendant, negatives causal connection.’ However, as Hart and Honoré also point out …, there is an exception to this undoubted rule in the case in which the law imposes a duty to guard against loss caused by the free, deliberate and informed act of a human being. It would make nonsense of the existence of such a duty if the law were to hold that the occurrence of the very act which ought to have been prevented negatived causal connection between the breach of duty and the loss.” 743 Likewise in the present case D&T were in breach of a duty to detect representations of the very type that were made. To adapt Lord Hoffmann's words only slightly, “it would make a nonsense of the existence of [that] duty if the law were to hold that the occurrence of the very act which ought to have been prevented ” gave rise to an equal and opposite counterclaim and thereby “ negatived causal connection between the breach of duty and the loss ””. “‘the free, deliberate and informed act or omission of a human being, intended to exploit the situation created by the defendant, negatives causal connection.’ However, as Hart and Honoré also point out …, there is an exception to this undoubted rule in the case in which the law imposes a duty to guard against loss caused by the free, deliberate and informed act of a human being. It would make nonsense of the existence of such a duty if the law were to hold that the occurrence of the very act which ought to have been prevented negatived causal connection between the breach of duty and the loss.”
“,,,My Lord will recall that the fraud which should have been discovered and disclosed in our case, in 2009, was the capitalisation of bid costs and the overstatement of the unitary payment. It was a flattering of the accounts through those two specific means. It is not enough picking up 366(1) for them to say that the business was being run in a fundamentally dishonest way because it is not said and cannot be said that it was part of GT’s breach of duty to spot that broad fraud.”
“…If there had been a related party transaction in 2009 involving Mr Shannon, where he had brought about some invoicing of future rent similar to Jaras, then one can well see how the Jaras transaction might then fall within the scope of the breach of duty −− sorry. If there had been such a transaction which GT had negligently failed to spot, then one can well see that the Jaras transaction could be recoverable. But one cannot take a general allegation of a fraud or a specific failure to identify specific frauds and generalise from that a liability for all frauds, let alone all frauds and non−fraudulent losses.”
“3 Declaration of Dividend Having considered the annual accounts and having discussed the reasons for the timing of the dividend, the Board RESOLVED to recommend the declaration of a dividend of 1.25 pence per share payable on25th September 2009 with a record date of28th August 2009 .”
“Shareholders are being asked to approve a final dividend of 1.25 pence per ordinary share for the year ended31st March 2009 . If you approve the recommended final dividend, this will be paid on25th September 2009 to all ordinary shareholders who were on the register of members on 28tn August 2009.”
“the reasons for the timing of the dividend, the Board RESOLVED to recommend the declaration of a dividend of 1.5pence per share payable on25th October 2010 with a record date of24 September 2010 .”
“The Board noted that the Company had yet to pay the declared dividend although we had passed the payment date shown in the Annual Report. The Board deliberated over formally postponing the dividend to a future date taking into consideration the following points: • New CFO requiring time to get comfortable with the head room available in facilities; • Changing liquidity position as a result of early repayment demands from funders; • Sensitivity of the HMRC to shareholders being paid in advance; • The potentially political sensitivity the Company was under given the operation of the EFCC contract; • The potential drop in confidence by suppliers and funders if the Company were to take the unusual step in delaying a dividend payment; • The potential for an offer to be made for the Company. The Board agreed that formal advice should be taken from Arden as to the announcement required and given the timing of an offer decide on the appropriate action accordingly. TW to follow up.”
“that as a prolonged delay in the payment of the dividend would require an explanatory announcement which could jeopardise the Gatehouse refinancing and/or Plan B it was in the best interest of creditors for the dividend to be paid as soon as possible. It was noted that that JS and Frank Flynn would not drawing down their dividend at this time.”
“Dividend After further consideration concerning the payment of the dividend (which would have a detrimental effect on cash), or postponement of the payment (which would require an announcement which could jeopardise the re-financing), the directors had decided the previous evening that the dividend should be paid as soon as possible. Accordingly it had been paid to institutional and private shareholders today.”
“it cannot be emphasised too often when considering the assessment of damages for negligence that they are intended to be purely compensatory. Where the damages claimed are essentially financial in character, being the measure on the one hand of the injured plaintiff’s consequential loss of earnings, profits or other gains which he would have made if not injured, or on the other hand, of consequential expenses to which he has been and will be put which, if not injured, he would not have needed to incur, the basic rule is that it is the net consequential loss and expense which the court must measure. If, in consequence of the injuries sustained, the plaintiff has enjoyed receipts to which he would not otherwise have been entitled, prima facie, those receipts are to be set against the aggregate of the plaintiff’s losses and expenses in arriving at the measure of his damages. All this is elementary and has been said over and over again. To this basic rule there are, of course, certain well established, though not always precisely defined and delineated exceptions. But the courts are, I think, sometimes in danger, in seeking to explore the rationale of the exceptions, of forgetting that they are exceptions. It is the rule which is fundamental and axiomatic and the exceptions to it which are only to be admitted on grounds which clearly justify their treatment as such.”
“The general issue is in my view appropriately stated as being whether any profit or loss arose out of or was sufficiently closely connected with a breach to require to be brought into account in assessing damages. Resolution of that issue involves taking into account all the circumstances, including the nature and effects of the breach and the nature of the profit or loss, the manner in which it occurred and any intervening or collateral factors which played a part in its occurrence, in order to form a common sense overall judgment on the sufficiency of the causal nexus between breach and profit or loss.”
“In respect of each of the benefits identified below, these would not have been available to AssetCo but for GT’s unqualified audit opinion on AssetCo’s 2009 financial statements (and, as the case may be, its 2010 financial statements).”
“64. … a number of principles emerge from the authorities considered above which I would endeavour to summarise as follows: (1) In order for a benefit to be taken into account in reducing the loss recoverable by the innocent party for a breach of contract, it is generally speaking a necessary condition that the benefit is caused by the breach: Bradburn, British Westinghouse, The Elena D’Amico, and other authorities considered above. (2) The causation test involves taking into account all the circumstances, including the nature and effects of the breach and the nature of the benefit and loss, the manner in which they occurred and any pre-existing, intervening or collateral factors which played a part in their occurrence: The Fanis. (3) The test is whether the breach has caused the benefit; it is not sufficient if the breach has merely provided the occasion or context for the innocent party to obtain the benefit, or merely triggered his doing so: The Elena D’Amico. Nor is it sufficient merely that the benefit would not have been obtained but for the breach: Bradburn, Lavarack v Wood , Needler v Taber. (4) In this respect it should make no difference whether the question is approached as one of mitigation of loss, or measure of damage; although they are logically distinct approaches, the factual and legal inquiry and conclusion should be the same: Hussey v Eels. (5) The fact that a mitigating step, by way of action or inaction, may be a reasonable and sensible business decision with a view to reducing the impact of the breach, does not of itself render it one which is sufficiently caused by the breach. A step taken by the innocent party which is a reasonable response to the breach and designed to reduce losses caused thereby may be triggered by a breach but not legally caused by the breach: The Elena D’Amico. (6) Whilst a mitigation analysis requires a sufficient causal connection between the breach and the mitigating step, it is not sufficient merely to show in two stages that there is: (a) a causative nexus between breach and mitigating step; and (b) a causative nexus between mitigating step and benefit. The inquiry is also for a direct causative connection between breach and benefit (Palatine), in cases approached by a mitigation analysis no less than in cases adopting a measure of loss approach: Hussey v Eels, The Fanis. Accordingly, benefits flowing from a step taken in reasonable mitigation of loss are to be taken into account only if and to the extent that they are caused by the breach. (7) Where, and to the extent that, the benefit arises from a transaction of a kind which the innocent party would have been able to undertake for his own account irrespective of the breach, that is suggestive that the breach is not sufficiently causative of the benefit: Lavarack v Woods, The Elena D’Amico. (8) There is no requirement that the benefit must be of the same kind as the loss being claimed or mitigated: Bellingham v Dhillon, Nadreph v Willmett, Hussey v Eels, The Elbrus, cf The Yasin; but such a difference in kind may be indicative that the benefit is not legally caused by the breach: Palatine. (9) Subject to these principles, whether a benefit is caused by a breach is a question of fact and degree which must be answered by considering all the relevant circumstances in order to form a commonsense overall judgment on the sufficiency of the causal nexus between breach and benefit: Hussey v Eels, Needler v Taber, The Fanis. (10) Although causation between breach and benefit is generally a necessary requirement, it is not always sufficient. Considerations of justice, fairness and public policy have a role to play and may preclude a defendant from reducing his liability by reference to some types of benefits or in some circumstances even where the causation test is satisfied: Palatine, Parry v Cleaver. (11) In particular, benefits do not fall to be taken into account, even where caused by the breach, where it would be contrary to fairness and justice for the defendant wrongdoer to be allowed to appropriate them for his benefit because they are the fruits of something the innocent party has done or acquired for his own benefit: Shearman v Folland, Parry v Cleaver and Smoker.”
“Leaving aside purely benevolent benefits, the paradigm cases are benefits under distinct agreements for which the claimant has given consideration independent of the relevant legal relationship with the defendant, for example insurance receipts or disability benefits under contributory pension schemes. These are not necessarily the only circumstances in which a benefit arising from a breach of duty will be treated as collateral, for there may be analogous cases which do not exactly fit into the traditional categories. But they are a valuable guide to the kind of benefits that may properly be left out of account on this basis.”
“311. In the present case, none of the relevant benefits can be regarded as collateral. None of them can be regarded as having arisen independently of the circumstances giving rise to the loss. (1) The essence of the circumstances giving rise to the loss is the delay from 2009 to 2011 of the discovery of AssetCo’s true financial position, with the consequential delay in the restructuring and recapitalisation that would (in the Counterfactuals) have taken place in 2009 or 2010 and did (in reality) take place in 2011. (2) All of the identified benefits obtained by AssetCo in this period – the capital raisings, borrowings, and appropriation of AADL monies – are intimately connected with the delayed discovery of AssetCo’s true financial position. (a) It is not merely that AssetCo’s continued existence provided the opportunity for these benefits to be obtained; rather, it is precisely because prospective shareholders, banks, and AADL’s independent directors were unaware of AssetCo’s true financial position that they provided the benefits. (b) Moreover: (i) The necessity of raising further funds from equity investors and banks, and the misappropriation of money which should have been retained in AADL, arose from AssetCo's financial model being unsustainable which it is common ground would have been known if the audit had been competently performed; and (ii) If it had not been for the benefits received, AssetCo would not have been able to spend the money which forms the basis of the wasted expenditure and other claims. (3) None of the benefits are ‘collateral’ as described in Tiuta. None are purely benevolent; nor benefits under distinct agreements for which prior consideration (such as insurance premiums) had been given.”
“This report is made solely to the Company’s members, as a body, in accordance withSection 235 of the Companies Act 1985 . Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.”
“… in practice no problem arises in this regard since the interest of the shareholders in the proper management of the company's affairs is indistinguishable from the interest of the company itself and any loss suffered by the shareholders, e.g. by the negligent failure of the auditor to discover and expose a misappropriation of funds by a director of the company, will be recouped by a claim against the auditors in the name of the company, not by individual shareholders.”
“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” “Fault” is defined in section 4 as meaning: “negligence, breach of statutory duty or other act or omission which gives rise to a liability in tort or would, apart from this Act, give rise to the defence of contributory negligence” “negligence, breach of statutory duty or other act or omission which gives rise to a liability in tort or would, apart from this Act, give rise to the defence of contributory negligence”
“If the [claimant] were negligent but his negligence was not a cause operating to produce the damage there would be no defence. I find it impossible to divorce any theory of contributory negligence from the concept of causation.”
“The question of contributory negligence must be dealt with somewhat broadly and on commonsense grounds as a jury would probably deal with it.”
“Section 1(1) does not specify how responsibility is to be apportioned, beyond requiring the damages to 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 (not, it is to be noted, responsibility for the accident). Further guidance can however be found in the decided cases. In particular, in Stapley v Gypsum Mines Ltd[1953] AC 663 , 682, Lord Reid stated: ‘A court must deal broadly with the problem of apportionment and in considering what is just and equitable must have regard to the blameworthiness of each party, but ‘the claimant’s share in the responsibility for the damage’ cannot, I think, be assessed without considering the relative importance of his acts in causing the damage apart from his blameworthiness.’” … The problem is not merely that the factors which the court is required to consider are incapable of precise measurement. More fundamentally, the blameworthiness of the pursuer and the defender are incommensurable. The defender has acted in breach of a duty (not necessarily a duty of care) which was owed to the pursuer; the pursuer, on the other hand, has acted with a want of regard for her own interests. The word ‘fault’ in section 1(1), as applied to ‘the person suffering the damage’ on the one hand, and the ‘other person or persons’ on the other hand, is therefore being used in two different senses. The court is not comparing like with like.” ‘A court must deal broadly with the problem of apportionment and in considering what is just and equitable must have regard to the blameworthiness of each party, but ‘the claimant’s share in the responsibility for the damage’ cannot, I think, be assessed without considering the relative importance of his acts in causing the damage apart from his blameworthiness.’”
“The paradox is resolved by the well-established principle that a defendant may be held liable for loss suffered by a claimant where that loss was the ‘very thing’ which the defendant was under a duty to protect against.”
“It is the responsibility of a company’s board of directors to manage all aspects of the company’s business. The board will delegate many aspects of that task to individuals or committees, either within or (more rarely) outside the company. But if the delegates fail in their tasks, such that the company fails to take proper care of its own interests, their failure is to be attributed to the company and its board of directors. Where the company is a claimant, and its management failures are relevant to an issue of negligence or breach of contract, those failures are to be treated as fault for the purposes of a defence of contributory negligence.”
“there is nothing special about auditors which requires of them a special standard of skill and judgement in their investigation of an audit client’s affairs over other professional men and, in particular, over the directors and officers of the commercial companies they audit. As I have remarked, it is upon such directors and officers that the primary duty to protect the company from loss occasioned by fraud rests. […] The authorities establish that the auditor’s duty is to report to the shareholders, in particular, on the conduct of the company’s management. But the shareholders cannot escape responsibility for the conduct of those directors and officers whom they have been instrumental in appointing, directly or indirectly. The comparison here is between the degree of blameworthiness of the auditors for the negligence which I have found and that of the management of BFS for the fault, some accepted and some contested, but which I have also found to be established.”
“94. Paragraphs 243, 246 and 251 of the judge’s judgment make clear that she correctly took into account, in this context, Singularis’s vicarious liability for Mr Al Sanea’s fraud, alongside Mr Wetherall’s involvement as part and parcel of that fraud. She also considered (in that latter paragraph) the other directors’ failure properly to supervise Mr Al Sanea. I have already mentioned her findings on the flagrant nature of Daiwa’s breach, against which these factors were balanced. 95. In my judgment, Mr McCaughran QC’s arguments do not get off the ground because he has failed to show either that the judge made any error of principle in her approach to contributory negligence, or that her assessment fell outside the range of reasonable possibilities. The judge took into account all the appropriate factors as elements of contributory negligence, namely the supine nature of the other directors, their failure to control Mr Al Sanea, and Singularis’s vicarious liability for his actions, and concluded that the damages should be reduced by 25 per cent.”
“In assessing the respective responsibilities of the parties the court should take into account the scope of the defendant’s duty and the extent to which that duty involved taking precautions against the claimant’s own negligence. That should then be weighed against the question of whether the claimant’s fault was causative of the damage and “if it was, what the relative blameworthiness and causative potency of the parties’ respective faults were”.”
“Each of the examples of the NEDs’ conduct which (i) involved a failure to take proper steps to supervise, question, or challenge Management’s conduct or honesty, or (ii) involved failing to investigate, challenge or correct – or confirming or approving – Management failings which caused or contributed to AssetCo’s accounts not giving a true and fair view of the assets, liabilities, financial position and profit or loss of AssetCo, caused or contributed to all of AssetCo’s claimed losses.”
“All parties agreed that the additional time in the current timetable [versus 2008] would allow all parties to reflect on the issues pertinent to the audit, review the financial statements before the market release and finalise the audit documentation thus reducing the risk of error and late changes. Neither party wants to rush through the finalisation processes as was the case in the prior year.”
“AssetCo - Governance • Executive Control in hands of Shannon/Flynn • Inadequate Controls/Governance • Related Party Property arrangements /transactions • Related Party Corporate Deals - Star Rentals -Graphic Traffic • Excessive Personal Expenditure • Dividends from ‘questionable reserves’ • Aggressive Accounting/misleading Financial Reports Potentially serious breaches of Fiduciary duty.” • Executive Control in hands of Shannon/Flynn • Inadequate Controls/Governance • Related Party Property arrangements /transactions • Related Party Corporate Deals - Star Rentals -Graphic Traffic • Excessive Personal Expenditure • Dividends from ‘questionable reserves’ • Aggressive Accounting/misleading Financial Reports Potentially serious breaches of Fiduciary duty.” (2). In an email from Mr Davies to Mr Freemantle and Mr Manning in May 2011, he stated “I am not sure you have as yet really grasped that the issue has been there ever since you've been on this board and is really quite simple: the business generates about 8 million in cash and the cost of servicing the debt is about 19 million. To put it into perspective the debt service cost of 19m is close to the Revenues of just over 20m!!!!!! That's the extent of the problem. … Shannon and Flynn have been reckless and helped themselves to millions in related party deals including illegal dividends. All this was done whilst the company was bleeding to death. Occasionally it might have looked better but in reality the funds put in by shareholders since 2007- some 37million funded this mess and these pickings! Also the 15 million raised to develop business in Abu Dhabi didn't get anywhere near there and was used elsewhere and is now lost and Abu Dhabi is short of cash!! The last 16m was insufficient even for bringing creditors up to date. It probably shouldn't have been raised as with the current financing structure even if you'd raised 30 m it would have gone down the same big black hole that all the rest went.” (3). In April 2012, when AssetCo was reporting on its activities and results for the 18-month period leading up to30 September 2011 , the Board stated as follows: “Financial Control Issues The Group has experienced serious failure of management and financial control at subsidiary and at Group level, and these have resulted in the prior year adjustments and exceptional items. The Board believes the control failures were due to basic controls not being in place, controls being overridden by senior management, and incorrect accounting treatment. The new board have been informed that under the stewardship of Mr. Shannon and Mr. Flynn there was a lack of transparent reporting, requests for information were ignored, and related party transactions were entered into without full board approval. The new board cannot be certain that all issues have been captured. … Corporate Governance As an AIM listed company, AssetCo plc is not obliged to comply with the UK Corporate Governance Code published in June 2010 (the ‘Code’) but instead uses its provisions as a guide, but only as considered appropriate to the circumstances of the company. The company is committed to high standards of corporate governance but during the period to30 September 2011 , a combination of a considerable strain due to the pressures in its liquidity position, creditor action, and the departure of the Chairman, Chief Executive, two Finance Directors, the Company Secretary and the Financial Controller, and inadequate accounting systems, resulted in areas of noncompliance. The principal areas of non-compliance were a breakdown in the systems to produce timely and accurate management information...”
“Nicol Thornton, LFB Head of Procurement confirmed to me that our Londonguard bid had been recommended ahead of G4S for formal approval at the next Corporate Management Board. Contract announcement is 30 June. You appreciate the sensitivity around this, and I would appreciate if you would confirm that this email will not be made publicly available.” (2) In FY09 and FY10, Mr Boyle provided GT with fabricated spreadsheets and invoices in support of supposed increases in the Unitary Payment. (3) On15 June 2010 , Mr Boyle forwarded to the GT audit team a fax purportedly sent by the SOC on4 April 2010 , relating to payment against an invoice dated17 March 2010 . This stated that the invoice had been “passed for payment on31/03/2010 ”
“You’re probably being asked for copies of SOC and Mystery Machine contracts. Let them sit.” (5) On21 June 2010 , GT indicated in an email to the Board an intention to treat£3.9 million received from Abu Dhabi on12 April 2010 as a debt at year end, and not a cash equivalent. Mr Shannon asked GT to re-consider this, and Mr Napper responded by asking whether there was third party evidence that the payment was made on or before 31 March. In response, on22 June 2010 , Ms Pullin, the personal assistant of Mr Clissett, at Mr Shannon’s request, emailed Mr White with a forged confirmation of payment purportedly received from SOC, headed ‘Presentation at SOC’. A little later that same day, Ms Pullin at Shannon’s request emailed to Mr White an amended version of the same document, now headed ‘Payment Confirmation’. Mr White caused a fax header to be appended to the document, and then emailed it to Mr Shannon with a covering message purporting to record that it had been received from SOC, and stating “Can I take it that the matter is now closed as frequent requests to the client about previously submitted information is not conducive to their business practice here…”
“to ensure that money which should have been ring-fenced under the Preference Share Agreement was properly retained for the benefit of AADL, and failed to disclose in the accounts restrictions imposed on such sums, and failed appropriately to treat certain cash sums that were received after the financial year end date and recorded as cash in transit, and failed to consider the impact of cash in transit on AssetCo’s fulfilment of its covenants, and failed in other respects in the reporting of cash balances.”
“78. In my judgment, Evans-Lombe J’s reasoning in Barings applies with equal, if not greater, force to the situation in this case. Ordinarily, a third party who was misled by Mr Al Sanea’s false statements into entering into a transaction would be able to recover all losses flowing from that transaction. However, Daiwa is not an ordinary third party, in the sense that it was in breach of a pre-existing duty to Singularis to refrain from making the payments whilst the circumstances put it on inquiry. It was this breach of duty, and not Mr Al Sanea’s previous deceit, which caused Daiwa’s exposure to suit. This conclusion is in keeping with the policy of the rules concerned.”
“569. However, the fraudulent misrepresentations in the Letters of Representation went beyond the misrepresentations which GT negligently failed to identify. In particular Management had knowingly underreported tax liabilities to HMRC, and not disclosed that to GT: see paragraphs 68 to 114 above. 570. These were matters which Management should have disclosed to GT, and Shannon and Flynn acted deceitfully in not mentioning these matters in the Letters of Representation. There is no allegation that GT was negligent in failing to identify these matters. If the Letters of Representation had been truthful in this regard, GT would not have signed the audit opinions in either FY09 or FY10. 571. For these reasons, AssetCo’s claim must fail for circuity of action: to the extent that GT is liable to AssetCo for negligence, AssetCo is liable in the same amount to GT for deceit.”
“[728] In the case of these two representations, D&T were negligent in failing to detect the falsity of the very representations which they now claim induced them to suffer loss. It would seem surprising if D&T were able to extinguish their liability for that failure by bringing a claim in deceit based on those representations and invoking Standard Chartered Bank. Almost any auditors’ negligence case based on a failure to detect fraud at an audit client will involve deception of the auditors by the fraudster. … [729] There is no doubt that Leeson’s deceit, and the signature of the audit certificate which it induced, was a “but for” cause of D&T’s exposure. However, going on to the second inquiry described by Lord Nicholls in Kuwait Airways, I have no doubt as to my “immediate intuitive response”
“[75] Mr McCaughran submitted that the distinction between this case and Barings [2003] PNLR 34 is that the knowledge and deceit of Mr Al Sanea is to be attributed to Singularis, whilst Barings was only vicariously liable for Mr Leeson's fraud. This, he argued, was a crucial distinction, because it meant that Singularis was culpable for the deceit. The court is faced with and equal opposite claims between a fraudulent party and a negligent party, and the claim of the fraudulent party must, therefore, be denied. [76] Mr Miles submitted that, even if the fraud of Mr Al Sanea were to be attributed to Singularis, this was a distinction without difference. Barings was decided on the basis of causation, as Rose J correctly pointed out, at paras 225–228 of her judgment, and the same principles should apply regardless of whether Singularis is directly or vicariously liable for Mr Al Sanea's fraud. [77] Once again, in the light of my decision on the first issue [that the fraud of Mr Al Sanea was not to be attributed to Singularis], this question does not strictly require determination, but again I will briefly explain my views. [78] In my judgment, Evans-Lombe J's reasoning in Barings applies with equal, if not greater, force to the situation in this case. Ordinarily, a third party who was misled by Mr Al Sanea's false statements into entering into a transaction would be able to recover all losses flowing from that transaction. However, Daiwa is not an ordinary third party, in the sense that it was in breach of a pre-existing duty to Singularis to refrain from making the payments whilst the circumstances put it on inquiry. It was this breach of duty, and not Mr Al Sanea's previous deceit, which caused Daiwa's exposure to suit. This conclusion is in keeping with the policy of the rules concerned. [79] The existence of the fraud was a precondition for Singularis's claim based on breach of Daiwa's Quincecare duty, and it would be a surprising result if Daiwa, having breached that duty, could escape liability by placing reliance on the existence of the fraud that was itself a precondition for its liability. The distinction that Mr McCaughran seeks to draw between this case and Barings is, as Mr Miles argued, a distinction without a difference. The judge was right for the reasons she gave. [80] I would, therefore, hold that, even if Mr Al Sanea's fraud were to be attributed to Singularis (which it is not), Singularis's claim cannot be defeated by an equal and opposite claim in deceit by Daiwa against Singularis.”
“[756] No doubt in any audit negligence case involving fraud, there will be representations made to the auditors aimed at concealing the fraud. If the auditors have been negligent, they will have been negligent in believing some of the representations made to them. Other representations they will not have been negligent in believing. It cannot be right that the auditors have only to find one false representation in the latter category, to escape liability altogether for their negligent failure to detect both the fraud itself and the representations intended to conceal it. [757] I hold that it is not right. Representation (ii) [in respect of which D&T was not negligent] was part of the concealment of the fraud which D&T were negligent in failing to detect. The Reeves principle applies to it in the same way as it applies to the other representations dealt with above, and means that representation (ii) was not an effective cause of D&T’s loss”
“Q. [S]o the facility account is AssetCo Plc's account and the money in it, if there is any, is AssetCo's Plc's money but the subsidiary companies have access to that money through their detailed accounts. A. Correct. The ultimate balance belongs to AssetCo Plc. That is what this agreement says and that is what the accounting within the financial statements of AssetCo Plc follow and which I agree with Ms Fowler in the joint statement.”
“Items which are material either because of their size or their nature and which are non-recurring, are presented within their relevant profit and loss category, but highlighted through separate disclosure. The separate reporting of exceptional items helps provide a better picture of the Company’s underlying performance. Items which may be included within the exceptional category include: … Operating … • provisions against amounts owed by subsidiaries.”
“Q. If a payment is made to HMRC which settles the liability of a subsidiary for VAT, that is an amount, is it not, which AssetCo Plc has expended on behalf of the subsidiary? A. I understand your point now. Yes. That will be funds that have been spent on that basis, I agree.”
“Q. And as part of that what you have done is tried to identify movements between AS Fire and Todd and the other group companies? A. So what we have tried to do, or what I have tried to do, is establish what cash that AS Fire and Todd would generate and what is available and then to the extent that that cash is not available, I have concluded, and I think Mr Cuerden has as well, that that sum was expended on group subsidiaries.”
“It may seem odd that a person found to have been guilty of negligence, which involves failing to take reasonable care, can ever satisfy a court that he acted reasonably. Nevertheless, the section clearly contemplates that he may do so and it follows that conduct may be reasonable for the purpose of [section 1157] despite amounting to lack of reasonable care at common law.”