Commodities Research Unit International (Holdings) Ltd & Or v King & Wood Mallesons LLP [2016] EWHC 727 (QB)

Case No HQ14X02754

[2016] EWHC 727 (QB)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date Tuesday 5 th April 2016

Before

MR JUSTICE DINGEMANS

Between

Commodities Research Unit International (Holdings) LimitedClaimants

CRU Strategies LimitedClaimant

CRU International LimitedClaimant

CRU Publishing LimitedClaimant

King & Wood Mallesons LLP (formerly known as SJ Berwin LLP)Defendant

Nicholas Davidson QC and Michael Ryan (instructed by Fox) for Claimants

Michael Pooles QC and Nigel Porter (instructed by Reynolds Porter Chamberlain LLP) for Defendant

Hearing Hearing dates: 9 th, 10 th, 11 th,, 12 th and 16 th February 2016

Judgment

Introduction

[1]This is a claim for professional negligence made by the Claimants, who are part of a group of companies known as the CRU Group (“the CRU Group”). The claim is made against a firm of solicitors King & Wood Mallesons LLP, who were formerly known as SJ Berwin LLP (“the solicitors”). The claim is in respect of advice given in 2007 and 2008 in relation to the termination of the employment of a former Chief Executive Officer (“the former CEO”) of the CRU Group.

[2]The employment of the former CEO was terminated by agreement dated 15th August 2008 (“the employment termination agreement”) about which advice had been given by the solicitors. In 2010 the former CEO brought proceedings in the Chancery Division (“the Chancery action”) against the CRU Group in respect of his entitlement under a Long Term Incentive Plan (“LTIP”) which had been agreed with him when he became CEO of CRU Strategies Limited (“Strategies”) in 2004. The LTIP had been referred to in a side letter to the employment termination agreement.

[3]The Chancery action was compromised by a payment by the CRU Group of £1,350,000 following a settlement agreement reached on 19th October 2012 at a second mediation between the CRU Group and the former CEO (“the mediation settlement agreement”).

[4]In these proceedings the CRU Group claim against the solicitors the £1,350,000 paid to the former CEO, the costs incurred by the CRU Group in those proceedings (in the sum of £838,567.93 exclusive of VAT), and the costs of wasted management time in the sum of £71,000.

[5]After the making of the mediation settlement agreement there was then a further dispute between the former CEO and the CRU Group about the terms of the mediation settlement agreement and whether tax of £673,177.16 should have been deducted by CRU Group when it paid the monies to the former CEO (“the tax action”). The tax action was determined by Vos J. on 10th June 2013 in a judgment reported at

[2013] EWHC 1633 (Ch)

. The former CEO’s claim was dismissed. It is not suggested by the CRU Group in this action that the solicitors had any liability in respect of the tax action. The issues and a pleading point

[6]The issues between the parties have been refined in the course of the hearing, and I am very grateful to Mr Davidson QC and Mr Pooles QC and their respective legal teams for their assistance. The main issues between the parties are: the scope of the retainer of the solicitors by the CRU Group and whether advice about the LTIP was requested and given; whether there was a breach of duty on the part of the solicitors; whether there was any contributory negligence on the part of CRU Group; whether any breach of duty caused any loss to the CRU Group; and the quantum of any loss if loss was caused.

[7]The main case advanced on behalf of the CRU Group was to the effect that: the solicitors were asked to and gave advice about the meaning of the LTIP clause at a meeting on 4th September 2007; in order to give that advice the solicitors should have asked for further documents made at the time of the making of the LTIP; as a result of such advice emails exchanged in October 2004 relating to the LTIP would have been discovered (“the October 2004 emails”); on the discovery of the October 2004 emails both the CRU Group and the former CEO would have recognised that the former CEO had no entitlement under the LTIP; and as a result the Chancery action would not have been commenced and the CRU Group would not have had to pay monies to the former CEO, incur costs and waste management time.

[8]In addition the CRU Group advanced a secondary case. This was to the effect that: the solicitors should have identified that there were general conditions of employment which were incorporated into the contract of employment; the general conditions contained a “payment in lieu of notice” (“PILON”) clause; the existence of the PILON clause should have been discovered; if the PILON clause had been discovered the employment settlement agreement would have been concluded on terms more favourable to CRU Group.

[9]A pleading point arose during the course of closing submissions. It was submitted by Mr Pooles on behalf of the solicitors that the secondary case had not been sufficiently pleaded in the Amended Particulars of Claim. Mr Davidson did not seek permission to re-amend, contending that the secondary case had been sufficiently pleaded.

[10]My understanding had been, since reading the opening Skeleton Arguments, that there was a secondary case being advanced on behalf of the CRU Group. This part appears from paragraphs 66 and 67 of the Claimant’s opening Skeleton Argument which included a submission that “whether the contract contained a PILON mattered”. Expert evidence relating to whether a contract of employment concluded in 2004, about which advice was being given in 2007 and 2008 might expect to include a PILON clause was adduced. Evidence had been led and questions asked on the secondary case.

[11]However the pleading point having been taken, it is necessary to determine it. In particular Mr Pooles submitted that although a breach of duty had been pleaded, the loss in respect of the secondary case had not been sufficiently pleaded. I do not accept that submission. The advice given by the solicitors that the former CEO would be entitled to the final portion of the LTIP scheme because there was no PILON clause was set out in paragraph 39(b) of the Amended Particulars of Claim. In paragraph 41(b) under breach of duty it was pleaded that it was a breach of duty to advise that there was an “indefeasible prospective right to the final portion of the incentive”, and paragraph 31(a) had specifically referred to the failure to identify the reference to the conditions of service. This means that the fact of the advice about the vesting of the final portion of the LTIP, and the contention that the advice was a breach of duty, had been pleaded. In his submissions about loss Mr Pooles made reference to paragraph 56 in which it was pleaded in general terms that the solicitors’ breach of duty had caused damage. However that does not take account of paragraph 48 of the Amended Particulars of Claim where it was pleaded “If the Defendant had acted in accordance with its duties, the termination would not have taken place” on the terms which were agreed. It was pleaded that Mr Perlman’s aim was that the former CEO should receive the absolute minimum required to achieve his termination. It was pleaded in paragraph 48(b) that damages were to be assessed by reference to the value of the chances if Mr Perlman had acted differently and a plea as to percentage chances was then made.

[12]In my judgment in these circumstances the loss in respect of the secondary case had been fairly pleaded. I also note that there had been no objection to the secondary case until closing submissions even though the secondary case had featured in the Skeleton Arguments and evidence. I am satisfied that this way of putting the case did not take the solicitors by surprise. In these circumstances I should record that if it had been necessary to ask for permission to re-amend the Particulars of Claim to advance the secondary case I would have granted such permission. This was because the point was fairly in issue, evidence had been led and examined at the trial on the point without objection, and the solicitors had been permitted by agreement to re-amend their defence on the eve of the trial and it would be fair to allow the CRU Group the same indulgence where no one had been taken by surprise and the case could be fairly considered. Applicable legal principles

[13]It was common ground that it is for me to determine what were the terms of the retainer as a matter of fact, see Minkin v Landsberg

[2015] EWCA Civ 1152

; [2016] PNLR 14 at paragraphs 38 and 41.

[14]It was common ground that the relevant standard of skill and care applicable to the solicitors was that of the specialist employment lawyer willing to undertake work in relation to the matters which may arise when a corporate client is considering bringing, or wishing to bring, to an end the employment of a chief executive, see Wright v Lewis Silkin

[2015] EWHC 1897

; [2015] PNLR 718 at paragraphs 110-116.

[15]It was common ground that when assessing damages when incorrect negligent advice has been given on the strength of which negotiations have taken place the first issue was for me to determine, on the balance of probabilities, whether the claimant would have acted differently if correct non-negligent advice had been given. If so, and if the negotiations are with a third party, it is then for me to assess whether the claimant had “a real and substantial chance of a better outcome” and not a speculative chance, in the negotiations with the third party, and if so attempt to assess those prospects in percentage terms and quantify any loss, see the judgment of the Court of Appeal in Allied Maples v Simmons & Simmons

[1995] 1 WLR 1602

at 1614 B-E. The evidence

[16]I heard evidence on behalf of the CRU Group from: Robert Perlman (“Mr Perlman”), who is the chairman of the CRU Group and a director of each of the Claimant companies; Wendy Aboucham (“Ms Aboucham”), Mr Perlman’s personal assistant at the material time; Ian Fisher (“Mr Fisher”), a business consultant and a friend of Mr Perlman who provided advice to Mr Perlman at material times; Robert Yentob (“Mr Yentob”), a businessman and friend of Mr Perlman who became a director of holding companies in the CRU Group from 2013, who was aware of the issues between Mr Perlman and the former CEO; Geoffrey Barber (“Mr Barber”), the Chief Financial Officer of CRU Group from 1st November 2006; Ian Glick QC (“Mr Glick”), leading counsel who advised on the terms of the mediation settlement agreement. I also had expert evidence in the form of a report from Julian Roskill (“Mr Roskill”), a solicitor and legal consultant with experience in employment law.

[17]I should record that Ms Aboucham gave evidence via video link from France. Part way through Ms Aboucham’s evidence there was a crossed video link from the Court of Appeal, Criminal Division to an appellant at one of Her Majesty’s Prisons. This was resolved and it was possible to hear the material parts of Ms Aboucham’s evidence.

[18]I heard evidence on behalf of the solicitors from: Nicola Kerr (“Ms Kerr”), a solicitor and partner of the solicitors at the material time; and Catherine Briant (“Ms Briant”), a solicitor at the solicitors at the material time. I also had evidence in the form of statements from Carl Richards and James Darbyshire both solicitors working for the solicitors at the material time.

[19]There was extensive documentation (in some 29 full bundles marked with letters and numbers) to which reference was made at trial. The use of the letter I for the labelling of some of the bundles, followed by numbers 1-9, was not helpful. This was because witnesses on both sides overlooked bundle “I2” when asked to turn to it, thinking it was bundle “12”.

[20]It was common ground, and my judgment, that all of the witnesses were doing their honest best to assist me. However that did not mean that all of the evidence given to me was reliable. This was not surprising in circumstances where the relevant events had happened over 7 years ago and a critical meeting had occurred over 8 years ago (on 4th September 2007). All of the witnesses accepted that their recollections were in many important respects either limited or non-existent. This meant that there was considerable potential for a witness to persuade him or herself that something had happened, even though it had not. Although there was an important dispute of fact about what advice had been given at the meeting on 4th September 2007, there was much common ground and the matters set out below represent my findings, unless otherwise stated. The employment of the former CEO

[21]The CRU Group provides market analysis, management consultancy and event services in mining, metals and fertilisers industries. It was started by Mr Perlman in 1969 providing market analysis before growing and diversifying. By 2004 Mr Perlman was contemplating a sale of the CRU Group in a 3-5 year timescale, and he needed to bring in a Chief Executive. Mr Perlman was and is the owner of 84.5 per cent of the shares, with the other shares being held by trustees for an employee share incentive scheme. Mr Perlman was and is very much the guiding and dominant force in the CRU Group.

[22]Mr Perlman was helped in identifying a Chief Executive by Mr Fisher in 2004. Mr Fisher was a long-standing friend of Mr Perlman and he had provided advice on a friendly basis over a number of years. In 2004 Mr Fisher was retained on a paid basis by the CRU Group. The former CEO was identified and it was discussed that he would start his employment with Strategies in the hope that he would move to become CEO of CRU Group. Part of his proposed remuneration package was to be a long term incentive plan providing for a payment on the (then contemplated) sale of the CRU Group.

[23]The October 2004 emails were sent on 26th October 2004. The former CEO recorded that he had spoken with Robert Gellman of the CRU Group and he also stated that he agreed that if he “left the firm prior to the transaction contemplated in the long term incentive then there is no long term incentive which accrues to me”.

[24]Thereafter the former CEO was employed by Strategies. There were 3 main contractual documents:(1) the Statement of terms of employment signed on 1st November 2004 (“statement of terms”);

(2) the addendum to the statement of terms of employment signed on 1st November 2004 (“the addendum”) which related to the LTIP; and

(3) Strategies’ General Conditions of Service (“the conditions of service”) which were incorporated by reference in the statement of terms.

[25]The following were material terms of the statement of terms: “The company’s general terms of employment are set out briefly on the attached memorandum. Your individual terms at the date of this statement are set out below.” (opening part above clause 1); “Date of commencement of employment: 1st November 2004” (clause 1); “Length of notice: Nine months on the part of the company and six months on your part” (clause 1); “The Employee agrees and covenants with the company during his employment to devote the whole of his working time to such duties as may be assigned to him …” (clause 2); “The employee may not at any time during his employment by the Company or during a period of six months after its termination without the Company’s prior written consent directly or indirectly divulge to any person or use any confidential information of the company or of any third part (sic) for which the Company is responsible or in respect of which the Company has an obligation not to disclose …” (clause 3.2); “That he will not for a period of three months from the termination of his employment directly or indirectly approach, solicit or deal with in competition with the Company or in relation to the Company’s business the custom of any person, firm, company or body … who at any time during the period of twelve months immediately preceding the termination of his employment was a customer of the Company or any subsidiary company … in the event that the Company requests to apply this clause then the Company will reimburse the employee at the current salary for this three month period …” (clause5.1.1 ); “That he will not either during the continuance of his employment or during a period of one year from the termination of his employment solicit, offer employment to, seek to engage the services of or otherwise attempt to persuade to terminate his employment any person who at any time during the period of six months immediately preceding the termination of his employment was an employee or agent of or consultant to the Company or of any subsidiary company … whose work involves knowledge or use of confidential information of the business or the customers of the Company …” (clause

5.1.2 ); “That he will not for a period of three months from the termination of his employment carry on or be employed by or engaged, concerned or interested … in or assist any business which is wholly or partly in competition with any business of the Company or any subsidiary company … within 120 miles of his place of work” (clause

5.1.3 ).

[26]It was common ground that the reference to “the company’s general terms of employment”, which I have underlined in the paragraph above for ease of reference, was a reference to the conditions of service.

[27]The addendum provided that the former CEO’s salary, which was £140,000, would be supplemented by a bonus of £70,000, and that when appointed CEO of CRU Group, his salary and bonus would be £160,000 and £100,000. There was no pension provision made for the former CEO. The addendum also set out the terms of the LTIP which provided for a payment to the former CEO of a percentage of the sale proceeds of CRU Group if CRU Group was sold for a sum of or in excess of £11 million. These sums were 1% on £11 million increasing to 5% on £15 million up to £25 million, with a further 2.5% on the sum by which the sale price exceeded £25 million (so that there would be 5% on the £25 million, and a separate 2.5% on the balance above £25 million). The addendum provided “the long term incentive vests over a four year period. At the end of year 2 you will be entitled to 50% of the value of the long-term incentive at the end of year 3 your entitlement rises to 75%; and another 25% at the end of year 4.”

[28]The general conditions contained a PILON clause. The PILON clause was at clause 5 and provided:

“… The Company also reserves the right to pay an employee in lieu of notice and during all or part of their period of notice the company will be under no obligation to vest in or assign to an employee any powers or duties or to provide any work for an employee and, during such period, the Company will be entitled to exclude an employee from any premises of the Company.”

The issue of whether an employee was entitled to a payment to represent the entitlement to a benefit which would have vested during the period of notice is a question of interpretation of the provisions of the relevant clauses. The clauses must be interpreted without the preconception that the PILON clause seeks to give the employee what he would have earned during the period of notice if he was still an employee, see Locke v Candy & Candy Limited

[2010] EWCA Civ 1350

;

[2011] IRLR 163

[29]The evidence showed that this contract of employment had been put together by Strategies without the input of legal assistance. Ms Kerr described the addendum containing the LTIP as a “pig’s ear” and it is common ground that it is not for me to attempt to determine whether vesting of the LTIP would have occurred during the period of any PILON, but it should be noted that the PILON clause meant that the issue became properly contestable. The former CEO at the CRU Group

[30]The former CEO became Chief Executive of the CRU Group in 2006, as well as remaining CEO of Strategies. It is apparent that during his time as CEO of the CRU Group, the amount of the former CEO’s remuneration became an issue. The evidence shows that the former CEO perceived that he was being paid less than the market place warranted. In June 2007 PriceWaterhouse Coopers (“PWC”) were instructed to review the remuneration package of the former CEO against comparable roles in the wider market place. The “draft for discussion” report produced by PWC (“the PWC report”) noted that the majority of employers operated a pension plan, with employers contributing between 10-25 per cent of pensionable pay into the plan. As noted above the former CEO did not have a pension from the CRU Group. There was a section in the PWC report headed “Long-Term Incentives” in which it was noted that most companies operated a scheme with conditional awards of shares on an annual basis. It was said to be difficult to compare the rolling plans described “with the `fixed’ plan within CRU Strategies”. The PWC report recorded that the former CEO suggested that he might be earning gross earnings of £900,000 per annum, which was described as a basis for negotiation rather than a reasonable benchmark. However the PWC report referred to the LTIP and noted that for an exit value of £50 million the former CEO would achieve a similar value. There was nothing in the PWC report to suggest that the LTIP would not be paid.

[31]At some point after October 2004 and before September 2007 both Mr Perlman and the former CEO forgot about the exchange of emails in October 2004 relating to the LTIP. It is apparent that although Mr Perlman has been a very successful economist and businessman it is apparent from his own evidence, and I find, that he has a remarkably bad memory. It is likely that there were a number of features which contributed to this joint loss of memory. First Mr Perlman has a very bad memory. Secondly it is likely that the October 2004 emails were filed either on the former CEO’s personnel file which was held by the HR Department, or in a file held by Ms Aboucham which related to the former CEO and which started off as a relatively slim buff file and which by 2012 was “thick”, but either way (and I am not in a position to say on which file they were located and nothing much turns on the point) they were not readily accessible during discussions on remuneration. Thirdly the addendum to the statement of terms of employment does not make it immediately clear whether any vested LTIP rights would survive the termination of the former CEO’s employment. Fourthly both Mr Perlman and the former CEO had differing views about the proper level of remuneration for the former CEO but the existence of the LTIP was, as appears from the PWC report, an important part of the package which helped to bridge the differences between Mr Perlman and the former CEO about the appropriate level of remuneration. This meant that any prior agreement to the effect that the LTIP would not be paid had become, at least in part, overtaken by events. Fifthly everyone was working, at least at the start, towards a sale of the CRU Group and so issues about the former CEO leaving before the sale was completed were not then relevant. Finally Mr Fisher, who acted as a mediator between both Mr Perlman and the former CEO as their relationship deteriorated from the beginning of 2007, was quite certain that the former CEO was entitled to the LTIP as part of his package and that once he had earned it over the 4 year period he was going to keep it. Mr Fisher’s strong views on the issue of the LTIP meant that the original agreement set out in the October 2004 emails became a matter of forgotten history.

[32]It is not clear why Mr Fisher had such a settled view about the former CEO’s entitlement to the LTIP even after he had left the employment of the CRU Group and Strategies. It might be noted that the evidence shows that when the Chancery action began there was very considerable concern on the part of the CRU Group and its advisers about whether Mr Fisher would give evidence for the former CEO. It was apparent from the evidence of Mr Glick that the real concern on behalf of the CRU Group in their litigation with the former CEO was that a trial Judge might consider that there was force in the former CEO’s estoppel by convention argument.

[33]The evidence shows that Mr Perlman was very reluctant to accept Mr Fisher’s view about the former CEO’s entitlement to the LTIP after he had left his employment with the CRU Group. It is not possible to say whether this was because Mr Perlman had some subconscious recollection of the October 2004 emails, or because Mr Perlman considered that it would not be right to pay monies on a sale which might take place long after the former CEO had departed. However the evidence, including Mr Perlman’s own evidence, showed that Mr Perlman did not want to discuss the issue of LTIP with the former CEO when the former CEO’s employment was terminated. Mr Perlman said that he could not negotiate with the former CEO, and indeed the discussions and negotiations leading up to the termination of the former CEO’s employment were handled by Mr Fisher. I consider it most likely, and find, that Mr Perlman was aware that, so far as the former CEO was concerned, the LTIP had become a very important source of his remuneration package, whatever might have been originally agreed in the October 2004 emails. I make this finding because it is apparent from the PWC report that the LTIP was being considered by both sides (the CRU Group on one side and the former CEO on the other side) to be valuable. I also find that the former CEO was a very persistent negotiator on his own behalf. The emails exchanged in 2004 about the extent of the restrictive covenants, Mr Perlman’s evidence about the former CEO’s negotiating tactics, and the former CEO’s actions in pursuing the tax action to a judgment even though his own evidence, as recorded in the judgment by Vos J., showed that he thought that the wording of the mediation settlement agreement presented him with an unexpected opportunity, proved that. The deteriorating relationship between Mr Perlman and the former CEO

[34]From sometime in 2006 the relationship between Mr Perlman and the former CEO began to deteriorate. It was apparent from all the evidence, which included the emails and the evidence from Mr Perlman, Mr Fisher and Mr Yentob, that although Mr Perlman wanted to have a CEO of the CRU Group to enable it to be sold, he was still very much involved in the running of the CRU Group, had very firm views about the running of the CRU Group, and was not ready to let go of the running of the CRU Group to the former CEO. It is not necessary for me to determine who was responsible for the breakdown of the relationship and it would not be fair for me to attempt to do so without having heard from the former CEO. It is apparent that even views of those close to the breakdown such as Mr Fisher have fluctuated about who bore responsibility for the deterioration over the course of time. However it was common ground that a relationship between a new CEO and a majority shareholder who had built up a company from the start is always likely to be difficult.

[35]It was about this time that Mr Perlman started to get advice from Mr Yentob, another very successful businessman and friend who he met for lunch and outings to the opera. Mr Yentob, who read emails sent by the former CEO to Mr Perlman, took a position which was more critical of the former CEO than did Mr Fisher. Mr Yentob remains a director of holding companies within the CRU Group.

[36]It appears that, certainly so far as Mr Perlman was concerned, there was an incident on a trip to Chile in early 2007 which caused Mr Perlman to consider that the relationship with the former CEO was breaking down. Mr Fisher attempted to mediate between Mr Perlman and the former CEO and matters survived until the relationship was put under fresh strain by an issue relating to a mining fund. It appears that the former CEO had been asked to become involved in a mining fund, but there arose a disagreement between the former CEO and Mr Perlman about whether the former CEO should have any continuing involvement with the mining fund and, if so, what form that further involvement should take. In the event it was the catalyst for Mr Fisher, who is the co-founder and partner at Rubicon Partners LLP (“Rubicon”), to suggest that Mr Perlman needed advice from the solicitors. The CRU Group and the solicitors

[37]The solicitors are and were at material times a leading firm of solicitors for employment and employment law related issues. Mr Fisher had been a client of the solicitors for over 25 years. He and Rubicon had placed a significant amount of legal business with the solicitors over the years, and he had worked with Ms Kerr over a number of years. The evidence showed that Ms Kerr had a very high reputation as a solicitor providing advice on employment matters.

[38]It was apparent from Mr Fisher’s evidence at trial that he felt that he was in a very difficult position because of the claim made by the CRU Group against the solicitors. Mr Fisher had grown old (as he put it in evidence) with Mr Perlman who had been a long term friend and Mr Fisher had advised Mr Perlman, informally and formally, over the years. Although the relationship between Mr Fisher and Mr Perlman had deteriorated at about the time of the former CEO’s departure from the CRU Group (mainly because Mr Perlman felt that Mr Fisher had wrongly taken the side of the former CEO) it was apparent that Mr Fisher felt considerable loyalty to, and had a strong continuing regard for, Mr Perlman. On the other hand Mr Fisher had had a long and productive relationship with Ms Kerr. He had a very high regard for Ms Kerr, and the evidence showed Ms Kerr to be a leading employment lawyer. The strength of the professional relationship between Ms Kerr and Mr Fisher is evidenced by the fact that when the claim to the effect that Ms Kerr had provided advice about the LTIP to Mr Perlman was made, Ms Kerr telephoned Mr Fisher to discuss it, and I will revisit what was said in that telephone call when making findings of fact in that respect.

[39]It was Mr Fisher who was responsible for introducing Mr Perlman and the CRU Group to the solicitors. The solicitors had provided advice which had enabled CRU Group to deal with the departures of some previous employees. Although Mr Perlman could not recall it, I accept and find that Ms Kerr had also phoned into conversations between Mr Perlman and Mr Fisher to mediate between them in relation to certain issues. The evidence, including the emails, showed that both Mr Fisher and Mr Perlman held firm views and were prepared to express themselves forcefully. The meeting on 4th September 2007 and the dispute of fact about whether Ms Kerr gave advice about the LTIP

[40]Mr Fisher arranged a meeting at short notice between Mr Perlman, Ms Kerr and Mr Fisher for the afternoon of 4th September 2007. Earlier that morning his secretary had sent Ms Kerr some documents which were described as “the employment contract of [the former CEO]”, “some recent emails” and “a note by Robert Perlman of conversations between himself and Mike Barden”. Ms Kerr was not given any indication about what was to be discussed.

[41]Ms Kerr said that she believed that the meeting took place at the solicitors’ offices in Queen Street Place, London. Mr Fisher did not have a mental picture of where the meeting took place. Mr Perlman always had a mental picture of receiving advice from Ms Kerr at Ms Kerr’s offices, discussing the former CEO’s contractual documentation. I find that the meeting between Mr Perlman, Mr Fisher and Ms Kerr did take place at Ms Kerr’s offices. This accords with Mr Perlman’s recollection of a meeting in the office and Ms Kerr’s belief, and it reflects the probability that for a meeting arranged at short notice the clients would travel to see the solicitors.

[42]There is a substantial issue between the parties about whether at this meeting Ms Kerr was asked to advise and did advise Mr Perlman that the former CEO was entitled to receive the LTIP after he had left his employment with the CRU Group. Ms Kerr made a handwritten attendance note at this meeting and both sides have analysed and rely on certain parts of that note. It is apparent from the start of the attendance note that there must have been some form of discussion between Mr Fisher and Ms Kerr about the meeting before Mr Perlman arrived. I make this finding because Mr Perlman was described as “difficult” and although Mr Perlman and Mr Fisher were able to talk bluntly to each other it is unlikely that Mr Fisher would have described Mr Perlman as difficult to Ms Kerr in front of Mr Perlman at Mr Perlman’s first meeting with Ms Kerr.

[43]The attendance note showed that the meeting with Mr Perlman began and there was then reported some background about the breakdown of the relationship between Mr Perlman and the former CEO over the mining fund. In the course of that discussion (on page I180 of the bundles) Mr Perlman’s concerns about competition from the former CEO should he leave the CRU Group were recorded (“RP worried that wanted non comp from [the former CEO] if left Cru”). During the course of the discussion the former CEO was reported: to be “aggressive and always leaves wriggle room”; to have taken advantage of confusion in a telephone discussion; and to have found that he got what he wanted by pushing. Mr Perlman’s views about the former CEO explain his later refusal to carry out personal negotiations with the former CEO.

[44]Ms Kerr said, and I accept, that she took charge of the meeting by asking whether the relationship between Mr Perlman and the former CEO had broken down. Mr Perlman replied that if the former CEO recognised that Mr Perlman was “wholly in charge of Cru” matters might work. There was reference to the LTIP on a page (I184) which recorded:

“- if leaves based on valuation of company – not stated in documents enforceable – speak to TB/AL Cru still making loses. Exit value not great”

Cru still making loses. Exit value not great”

[45]There was no further writing on that page. The next page (I185) contained further writing as follows:

“Look at 2 agr[eement]s re a/m of comp period Co[ntractual] r[igh]t 9 months and bens and any bonus 3 months salary [long term incentive?] Stat. Stat[utory] r[igh]t 60K+”

Co[ntractual] r[igh]t [long term incentive?]

Stat[utory] r[igh]t

[46]It was suggested on behalf of CRU Group that the proper understanding of these notes was that Mr Fisher had spoken about the LTIP saying that if the former CEO left the LTIP would be “based on valuation of company” and Mr Perlman had said “not stated in documents” and that Ms Kerr had said it was “enforceable” after the former CEO had left the CRU Group. It was also suggested that that had been the end of the meeting, which explains why the page had not been filled in, and that the following page about contractual and statutory rights was probably internal notes or notes of a discussion between Mr Fisher and Ms Kerr. It was noted that although there were staple holes in the final page of the note it was not, at the time of the trial, all together as one note and the final page was loose. It is right to record that it was common ground that the pages had been separated at some stage for the purposes of giving disclosure. This suggestion was supported by Mr Perlman’s evidence that he had been advised by Ms Kerr in her office about the LTIP. Although Mr Perlman had made different claims in pre action correspondence about when he had been given advice by Ms Kerr. It was accepted on behalf of the CRU Group that he had been wrong about the dates, it was said that he had always been consistent about having been advised by Ms Kerr on the LTIP.

[47]Reliance was also placed by the CRU Group on the evidence given by Mr Fisher in his witness statement for the purposes of this action where he said, at paragraphs 34 and 35, that having seen documents shown to him by CRU Group’s solicitors, he recalled that he shared his view about the LTIP with Ms Kerr, and that he believed that Ms Kerr agreed with his view. Mr Fisher said that he believed that it was likely that Mr Perlman asked about the LTIP and Ms Kerr’s views with regard to the survival of any vested portion of the LTIP on termination of the former CEO’s employment.

[48]Ms Kerr maintained that she had not provided any advice about the LTIP. She noted that TB and AL were the initials of colleagues in the litigation department and she considered that the note was a reminder for her to speak to them on the likely construction of the LTIP if she was to advise on the construction of the LTIP. This was because, although Ms Kerr accepted in evidence that she was well able to advise on the construction of a written agreement, she said she would want the input of the litigation department who would have had more experience of the court’s likely approach to the issue of construction of the agreement. Ms Kerr said that the note on the following page was made as part of the meeting, and that she had put square brackets around the phrase “long term incentive” together with a question mark, which was her way of identifying that the position had not been resolved.

[49]The solicitors also placed reliance on Mr Fisher’s responses to Ms Kerr when she called him about the claim made by the CRU Group against the solicitors. There were two telephone calls, and Ms Kerr had made attendance notes of both of them. The calls took place on 18th July 2013 and 11th October 2013. Mr Fisher accepted in evidence that the attendance notes were accurate in material respects, although he thought the tone of some of what had been recorded was not accurate, mainly representing areas where Ms Kerr had summarised the gist of what he had said in her own words. An example of this was the reference to Mr Perlman’s “wealth, power and influence” which Mr Fisher said he would not have said in those terms. In the attendance note on 18th July 2013 Mr Fisher was recorded as having said “we never asked your opinion on the LTIP”. He was recorded as saying that he did recall a telephone call in which the LTIP was discussed. Mr Fisher accepted that the material passages in that attendance note were accurate and I find that they were an accurate record of what Mr Fisher said to Ms Kerr. In the attendance note on 11th October 2013 Mr Fisher was recorded to have said that “he could not imagine that [Ms Kerr] would give advice on enforceability of a document without reducing that advice to writing”. He was also recorded as saying that he could not recall Mr Perlman asking Ms Kerr to advise on the meaning of the LTIP. In evidence Mr Fisher accepted the accuracy of these passages of the attendance note dated 11th October 2013 and I find that they were accurate. Mr Fisher also accepted that in his experience of Ms Kerr she would not have advised on the meaning of the LTIP without having noted or confirmed the advice.

[50]I find that, as the attendance note shows, the LTIP was mentioned at the meeting. I consider it more likely than not, and find, that Mr Fisher did say words to the general effect that the LTIP would continue for the former CEO’s benefit after the former CEO had left the CRU Group, because that was his firm belief at the time, and it reflects the words “if leaves” in the attendance note. I consider it more likely than not, and find, that Mr Perlman would have shared his view that the LTIP would not continue after the former CEO left, because that was his view at the time. However I am also satisfied, and find, that Ms Kerr did not give advice on the meaning of the LTIP. I make this finding because Ms Kerr did not record any advice given about the LTIP and it would not have been her practice to give advice on an issue such as the LTIP without recording it. I reject the suggestion that the word “enforceable” is a record of advice given by Ms Kerr. This is because “enforceable” is not the advice which would be given by a lawyer about whether the LTIP continued after the termination of employment because the issue would be the interpretation of the meaning of the LTIP, not whether it was enforceable. I also rely on the fact that the attendance note goes on to record that CRU was making losses and the exit value would not be that great, which would explain why the CRU Group considered that it was not necessary to have advice on the issue of the LTIP at that time. I note that on the next page “LTIP” is in square brackets with a question mark, which is inconsistent with concluded advice having been given by Ms Kerr, regardless of whether the note was made during the meeting or just afterwards. I find that, particularly having regard to the words recorded about losses and the exit value not being great that Ms Kerr mentioned words to the effect that she would need to take time to give advice on the LTIP, having in mind the names of the lawyers in the litigation department that she was going to consult and whose initials she recorded in the note, before both Mr Fisher and Mr Perlman noted that the issue could wait because of the losses and lack of value of the exit value for the LTIP.

[51]I consider it more likely than not, and find, that Ms Kerr noted that she could give advice on this matter. Ms Kerr was very quick in evidence to identify that she would have liked to have been asked to give advice on the LTIP because it would have been a good piece of chargeable work. I consider it more likely than not and find that the bottom of that page of the note relating to the LTIP records that a commercial decision was made by Mr Fisher and Mr Perlman not to seek advice because the CRU Group was making losses and the exit value was not believed to be that great. I find that Ms Kerr then continued on to the next page of her attendance note to record the outline of the possible claims. This included contractual and statutory claims and square brackets with a question mark next to the LTIP to confirm that the value of this depended on advice which was not being sought at the time. In these circumstances I reject the claim advanced on behalf of CRU Group that the solicitors were retained to advise and did advise on the construction of the LTIP at the meeting on 4th September 2007.

[52]In making my findings I have also relied on Mr Fisher’s immediate response to Ms Kerr in July 2013 when he said that Mr Perlman and he had not asked for Ms Kerr’s advice on the LTIP. I prefer this immediate response to the evidence which Mr Fisher gave in his witness statement which he adopted at trial. This is because it is apparent that by the time the witness statement was made Mr Fisher had been presented with the attendance notes and suggestions as to what may have occurred, which is fertile ground for creating unreliable recollections and beliefs. It follows that I do not accept Mr Perlman’s evidence that he was given advice about the LTIP by Ms Kerr. I should record that I have also taken account of his remarkably poor memory, evidenced by his failure to remember the October 2004 emails in 2007.

[53]After the meeting Mr Fisher followed up with a call to Ms Kerr in which he expressed views to the effect that both Mr Perlman and the former CEO were to blame for the current poor state of their relationship. He noted that the former CEO wanted compensation in relation to the mining fund and that Mr Perlman and the former CEO had then taken differing views.

[54]After the meeting Ms Kerr sent a letter in order to ensure compliance with the Law Society’s Rules recording that “you have asked us to advise on the employment situation surrounding [the former CEO]”. The fee note was headed “sensitive employment advice”. I consider that both descriptions were an accurate summary of what Ms Kerr had been asked to do at the meeting on 4th September 2007, which was to provide advice on the employment of the former CEO. In the course of giving that advice Ms Kerr properly identified possible claims that could be made and also identified that the position of the LTIP was uncertain and would need further advice. I also find that Mr Perlman and Mr Fisher were then able to form a commercial view about whether detailed advice about the LTIP was reasonably required but at that stage did not do so.

[55]As a matter of fairness to Mr Perlman and Mr Fisher I should record that the decision not to seek advice about the interpretation of the LTIP was, in the circumstances, very understandable. Mr Perlman had formed the view that the viability of the CRU group was uncertain because it was making losses and because, at about this time, the CRU Group was “haemorrhaging” money (as Mr Perlman put it). In 2008 when the issue of the LTIP was again considered and left unaltered, as appears below, there was the added factor that the former CEO was either going through or had just gone through a divorce. This meant that he had less funds available and Mr Perlman was entitled to assume that the risk of litigation about the LTIP was something he could safely leave for the future. May 2008

[56]Having received advice from Ms Kerr about the potential costs of terminating the employment of the former CEO, and as a result of advice from Mr Fisher who considered that the continued employment of the former CEO would be the right thing for the CRU Group, Mr Perlman tried to make his relationship with the former CEO work. It was not a success. It is sufficient to record that by 16th May 2008 Mr Fisher was seeking further advice from the solicitors about a draft document which Mr Fisher had prepared which was intended to enable both Mr Perlman and the former CEO ensure that their relationship remained on a professional footing.

[57]Ms Kerr was not available for a meeting that afternoon and the meeting took place with Ms Briant. Mr Fisher gave a summary of the background setting out the breakdown of the relationship, and there was a brief discussion of the sums needed to be paid should an exit with the former CEO be negotiated. The conversation then turned to the most effective ways of ensuring that the former CEO was engaged in the process of making his relationship with Mr Perlman work. The departure of the former CEO and the making of the employment termination agreement

[58]The evidence shows the relationship between the former CEO and Mr Perlman then continued to be difficult, and Mr Perlman decided that the former CEO needed to leave.

[59]The evidence also shows that at some time in 2008 which was before 21st July 2008, Mr Fisher and Mr Perlman had a discussion about the LTIP. It was agreed by Mr Fisher and Mr Perlman that the former CEO’s rights under the LTIP would continue after the termination of the former CEO’s employment. This was Mr Fisher’s settled view about what was the effect of the LTIP so it was not surprising that he should have agreed that this should be the approach to the negotiations leading up to the termination of the former CEO’s employment with the CRU Group. Mr Perlman also accepted that he agreed this, but he contended that he agreed this because he had been given advice by the solicitors that this was the effect of the LTIP. As indicated above I have not found and do not accept that Mr Perlman was given such advice. I consider it more likely than not, and find, that Mr Perlman agreed this with Mr Fisher because he did not consider that the value of the LTIP would be great, and because his primary concern, as he stated in evidence, was to ensure the departure of the former CEO so that Mr Perlman could save the CRU Group from its cash flow difficulties.

[60]On 10th July 2008 the former CEO emailed Mr Perlman and Mr Fisher making it clear that he did not consider that his current remuneration package was acceptable, and referring to a “grievance”. It was in these circumstances that on 21st July 2008 Mr Perlman made a request for assistance from Ms Kerr forwarding the email from the former CEO. It was apparent that advice was required about the termination of the employment of the former CEO. The statement of terms and the addendum were sent through to the solicitors. The conditions of service were not sent through. The email was seen by Ms Briant who prepared a draft email of advice for Ms Kerr. Ms Briant noted that there did not seem to be any copy of the former CEO’s contract, or any grievance procedure or share scheme.

[61]On 23rd July 2008 four documents were sent through by Mr Perlman to Ms Kerr. The evidence shows that these documents were likely to have been retrieved on behalf of Mr Perlman by his personal assistant, Ms Aboucham. The documents were: what was said to be the former CEO’s contract of employment; the addendum to the statement of terms of employment for the former CEO; CRU’s disciplinary procedure and policy; and CRU’s grievance procedure and policy. It was common ground that the description of the first document as the “contract of employment” was not correct because it was only the statutory statement of terms and because there were other contractual documents. However it is plain from the documents themselves that the CRU Group, in the form of Mr Perlman and Ms Aboucham, appreciated that what was described as “the contract of employment” was not the beginning and end of the contractual documentation because the addendum and the disciplinary and grievance policy were also sent through to the solicitors. Incorrect advice about the absence of a PILON clause

[62]Arrangements were made for a conference call between Mr Perlman, Mr Fisher and Ms Kerr on 24th July 2008. On 23rd July 2008 Ms Briant reviewed the documentation on behalf of Ms Kerr and produced an aide memoire for a conversation with the former CEO. The aide memoire set out the ways in which it was permissible for Mr Perlman and Mr Fisher on the one hand, and the former CEO on the other hand, to have a without prejudice discussion without undermining the statutory grievance procedure. It is apparent that the aim of the without prejudice discussion was to enable the CRU Group to raise with the former CEO concerns that the former CEO doubted that his long term future lay with the CRU Group and that the CRU Group were considering “a mutually agreed termination of employment”, see paragraph 8 of the aide memoire for without prejudice discussion. Ms Briant also produced a first draft compromise agreement for the former CEO. Ms Briant noted that the former CEO had negotiated exit agreements for two other former CRU Group employees and had been “pretty generous” in financial and fringe benefit terms. Ms Briant noted that the former CEO “has a nine month notice period and no PILON”.

[63]It is common ground that Ms Briant’s statement about there being no PILON was inaccurate, and this was because the conditions of service had not been sent through, and the absence of the conditions of service had not been identified. This was even though the Statement of Terms of Employment stated “The Company’s general terms of employment are set out briefly on the attached memorandum” and the “Addendum” could not have been the “general terms of employment” (or conditions of service) because they were terms specific to the former CEO.

[64]A conference call took place on 24th July 2008 between Mr Perlman, Mr Fisher and Ms Kerr. Ms Briant acted as the note taker. No witness had a clear recollection of the meeting. The attendance note gave rise to some issues of interpretation, including to whom the words “client will be difficult” was a reference. The CRU Group contended that it was a reference to them and the solicitors contended that it was a reference to the former CEO. Although not much turns on the point, I consider it more likely than not and find that this reference was to the former CEO. This was because although the former CEO was not then the client of the solicitors, he had been the client when the solicitors had previously given advice to the CRU Group about the termination of senior employees of the CRU Group, and there was no good reason to expect that the CRU Group would be difficult over the proposed interpretation.

[65]It appears from the attendance note that the CRU Group, represented by Mr Perlman and Mr Fisher, were advised that there was no garden leave provision and “no PILON”. Advice was given about weaknesses with the restrictive covenants which, even if enforceable related only to Strategies and not the CRU Group, and one of which was said to be “likely to be held unenforceable”. It was common ground that the advice given by the solicitors about the weaknesses and limitations of the restrictive covenants was reasonable.

[66]It appears from the attendance note that at the meeting there was speculation about why the former CEO had stayed in his employment with the CRU Group, which speculation must have been against the background of his difficult relationship with Mr Perlman. One suggested reason was that “options vest in November 2008” which was a reference to the vesting of the remaining 25 per cent of the LTIP. A question was specifically raised about the vesting of the LTIP by either Mr Perlman or Mr Fisher because it said “if terminated now – still final 20% vest?”, although the reference should have been to 25% and not 20%. The answer was “strictly no, but no PILON, so damages”. It is common ground that this advice was wrong because there was a PILON, which had not yet been located in the conditions of service, which had not been sent through by the CRU Group and had not been identified as missing by the solicitors. It was also common ground that the right answer should have been to the effect that the 25 per cent would not vest, but it was possible that damages might be payable to represent the value of the vesting of the final part of the LTIP depending on whether, as a matter of interpretation of the whole contract of employment with the former CEO, the payment due to the former CEO in lieu of notice under the PILON clause included a sum to represent the value of the final 25 per cent. This is for the reasons given in the majority judgment of the Court of Appeal in Locke v Candy

[2010] EWCA Civ 1350

which, although post-dating the advice given by the solicitors, was accepted to have represented the law at all material times.

[67]After this meeting an email was sent on behalf of Ms Kerr to Mr Fisher. It included speaking notes for the without prejudice conversation with the former CEO and a draft compromise agreement. The email noted that “we need to discuss any future restrictive covenants, and the treatment of the LTIP”. In the draft at clause 13 it noted “LTIP” and had a note that the matter needed to be discussed.

[68]By an email dated 29th July 2008 Ms Briant noted that the restrictive covenants would not have any effect if the former CEO did not work his notice period. It was also common ground that this advice was incorrect. This was because the effect of the PILON clause meant that it was not a breach of contract to terminate the contract if payment was made in lieu of notice.

[69]Negotiations continued. In further email exchanges on 6th August 2008 the former CEO asked for “a positive statement that the Long Term incentive scheme is fully vested”. It was recorded, in notes made by the solicitors on the email exchange that Mr Fisher was happy to give confirmation that the LTIP had vested, but it is fair to note that this postdated the advice given by the solicitors to the effect that the 25 per cent would be payable as damages. Ms Briant recorded “hasn’t quite yet – 1 November vesting date”. Further negotiations led up to the execution of the employment termination agreement. The execution of the employment termination agreement and the CRU Group

[70]In the event the employment termination agreement was made. Extensive and properly drafted restrictive covenants were included. All the usual areas of potential conflict were addressed including agreed announcements about the termination of employment and references. The employment termination agreement included an acknowledgment at clause 2.1 that “the employment of the employee with the company will terminate in breach of contract by the company with immediate effect on the departure date”. This provision was consistent with the advice given by the solicitors who had not yet discovered the PILON clause, but it was also relevant to the tax treatment of sums paid under the employment termination agreement.

[71]The side letter to the employment termination agreement about the LTIP referred to the LTIP recording that “under the terms of the Employment Contract, you are entitled to a long-term incentive plan …”. The side letter recorded that in the event of a sale notification would be provided to the former CEO. The rights of the former CEO under the LTIP were not addressed in the side letter. The solicitors had advised the CRU Group that the wording of the LTIP was vague and likely to lead to litigation, but Mr Perlman had been adamant that he did not want to address that issue at the current time. It was apparent from his evidence that he did not want that particular battle, over the value of the LTIP, with the former CEO at that time. The discovery of the PILON clause

[72]It appears that on about 26th August 2008 the existence of the PILON clause was discovered by the CRU Group and the solicitors were supplied with the conditions of service by the CRU Group. Ms Briant read the conditions of service and noted the existence of the PILON clause and, very properly, contacted Mr Perlman of the CRU Group and reported its existence. The effect on the taxation arrangements was noted. Mr Perlman asked if it would have made a difference if it had been known about before and Ms Briant replied “yes, able to terminate straight away and rely on restrictive covs”. Mr Perlman asked whether they had paid monies for nothing and Ms Briant recorded that “we now have 12 month restrictive covenants, and drafted more tightly. Only 3 months in service agreement.” Mr Perlman asked if the CRU Group would have had better bargaining power and Ms Briant replied “yes”. Mr Perlman asked for an email explaining tax payments on the new figures.

[73]It might be noted that although Ms Briant had correctly pointed out that if the existence of the PILON clause had been known it would have provided a potential option to terminate the former CEO’s employment without notice and without breach of contract, there was no reference made to the potential effect of the PILON clause on the vesting of the final part of the LTIP. The CRU Group and the discovery of the 2004 emails

[74]After the conclusion of the employment termination agreement Mr Perlman devoted his energies to rescuing the CRU Group. The evidence shows that he was successful and the cash flow situation at the CRU Group, which had been a particular concern of Mr Perlman, improved. The October 2004 emails were discovered after Mr Perlman had received legal advice (the details of which were not shared with me) to do with the restructuring of CRU Group and he was asked to find documents relating to the LTIP. It appears from Mr Perlman’s witness statement (at paragraph 172) that the October 2004 emails were discovered in September 2010, although in the Chancery action drafts of his statement suggested that the discovery was made in or around October 2010.

[75]The evidence relating to later events is not controversial and can be summarised briefly. The former CEO was notified of the existence of the 2004 emails, and the contention by the CRU Group and Strategies that there was no liability under the side letter to the Employment Termination Agreement.

[76]The former CEO commenced proceedings in the Chancery Division against the CRU Group in respect of his entitlement under the LTIP. In the litigation the CRU Group was represented by Norton Rose solicitors who instructed Mr Glick. In his evidence Mr Glick detailed the efforts which had been made to compromise the litigation and recorded, in a letter, his reasons for concluding that the compromise with the former CEO was a reasonable one for the CRU Group. It was apparent that Mr Glick thought that CRU had a good case against the former CEO, and Mr Glick advised that there was a 60-70 per cent prospect of success. Mr Glick did not consider that in any case involving witnesses he had advised on prospects of success greater than 70 per cent. His concern related to the estoppel by convention argument, against an evidential background which included Mr Fisher’s settled view that the LTIP continued after the cessation of the former CEO’s employment. He thought that the litigation risk might arise if the Judge thought that the former CEO had been ill-used by CRU and that it would be wrong for CRU to go back on the assumption that the LTIP would continue. A detrimental reliance case might be based on the sum which would have been paid, and in the worst case Mr Glick thought that the former CEO might get the whole lot. Mr Glick also recalled that towards the end of the first mediation Mr Perlman had made a comment (the details of which Mr Glick could not now remember) which had caused the mediator to consider that there was more to the former CEO’s case than before the comment had been made. At the second mediation progress had been made because the former CEO had indicated a willingness to sort matters out by coming down from £4 million to £2 million.

[77]In the event, as noted above, the litigation by the former CEO about the LTIP was compromised by a payment by the CRU Group of £1,350,000 following a settlement agreement reached on 19th October 2012 at a second mediation between CRU Group and the former CEO. The CRU Group incurred costs in the Chancery proceedings in the sum of £838,567.93 exclusive of VAT, and also claimed to have incurred costs of wasted management time in the sum of £71,000.

[78]After the conclusion of the mediation settlement agreement there was then a further dispute between the former CEO and CRU about the terms of the mediation settlement agreement and whether tax of £673,177.16 should have been deducted by CRU Group when it paid the monies to the former CEO. As noted above this tax dispute was determined by Vos J. on 10th June 2013 in a judgment. It might be noted that, as appears from the judgment of Vos J., the former CEO made it clear in the tax action that although he had a subjective understanding about what had been intended in relation to taxation matters, he considered that the wording of the mediation settlement agreement entitled him to claim the tax due from the CRU Group. Vos J. considered that the former CEO was very frank in his evidence about these matters, and part relied on that evidence in dismissing the former CEO’s claim. The report of the former CEO’s approach to negotiations and claims set out in the judgment of Vos J. accords with Mr Perlman’s evidence about the former CEO being a very difficult person with whom to have a negotiation.

[79]Having made the findings of fact set out above I now turn to address the issues between the parties. The retainer

[80]For the reasons given above I find that Ms Kerr was not asked to, and did not, advise on the meaning of the LTIP at the meeting on 4th September 2007. I find that Ms Kerr was asked to provide employment advice in relation to the employment by Strategies of the former CRU Group in 2007. In order to give that advice Ms Kerr was provided with the statement of terms and the addendum, but not the conditions of service which were referred to in the statement of terms. I find that the solicitors were not asked to provide advice on whether the LTIP continued in force after the termination of the former CEO’s employment in 2008 because Mr Fisher and Mr Perlman agreed that would be the case, but they were retained to advise in relation to and draft the employment settlement agreement. Whether there was a breach of the duty of care

[81]I find, for the reasons given above, that Ms Kerr identified on 4th September 2007 that in order to give advice about the continuation of the LTIP after any termination of the former CEO’s employment she would need to consider the matter, having in mind the names of the litigation partners that she was intending to consult, but the CRU Group had not pursued getting advice about the LTIP, for understandable reasons. This advice was reasonable and proper advice and did not involve any breach of the relevant standard of skill and care.

[82]I find that the solicitors had identified to the CRU Group in 2008 that the wording of the LTIP was “vague and unsatisfactory” (see the email dated 11th August 2008 from Mr Darbyshire to Ms Briant) but that the CRU Group did not want the wording of the LTIP clarified, because of the desire to avoid further negotiations with the former CEO and to defer the issue of the LTIP. The advice to improve the wording of the LTIP was reasonable and proper advice and did not involve any breach of the relevant standard of skill and care.

[83]It was the CRU Group’s case that the solicitors, in both September 2007 and July 2008 should have asked for “a comprehensive set of documents, and ask for sight of such file(s) as would contain such documents (what might be termed a personnel file relating to [the former CEO] – there was in fact a personnel file for him” (see paragraph 19(d) of the Amended Particulars of Claim). In closing Mr Davidson formulated his proposition to the effect that the experienced employment solicitors should “ask the client for access to the documents to enable the employment lawyer to identify the agreement between the parties and any factual background relevant to the interpretation of the contract” (day 5, page 39, lines 7-11). By way of shorthand Mr Davidson said that the solicitors should have asked for the file. Mr Davidson said that a professional who advised in ignorance of documents advised at their own peril. Mr Davidson pointed out that written contracts can be affected by collateral contracts. However it is also established that written contracts can be varied orally, and there can be waiver and estoppels which affect contractual rights and liabilities, even where entire agreement clauses are concerned. Mr Pooles on behalf of the solicitors submitted that the approach advocated by Mr Davidson would mean that no one could advise on any contract without requiring sight of all documents exchanged between the parties and drafts of witness statements from the persons involved in the contract to identify if there are any waivers and estoppels.

[84]Mr Davidson submitted that a material failure on the part of the solicitors in this case was to request only a contract, which reasonable persons might understand simply to be the statutory statement of terms. The difficulty with this particular submission is that in answer to the request for a contract the CRU Group sent the statement of terms and the addendum, so that it was appreciated by the CRU Group that documents other than the statement of terms were relevant and required by the solicitors.

[85]Mr Davidson advanced the general proposition that any professional who advises without identifying and asking for relevant documents is advising at their own risk. However as Mr Davidson also accepted, it is reasonable for professionals to identify to their clients that they had not been supplied with anything other than a limited number of documents, and that advice might change in the light of the contents of further documents.

[86]It is not necessary for me to deal with general propositions about relevant standards of care, because I have to address what was required in this particular case to discharge the duties on the solicitors. In my judgment the solicitors acted reasonably in this case, and in accordance with the relevant standards, by giving advice on 4th September 2007 and from 21st July 2008, without asking for “the file”. On 4th September 2007 Ms Kerr had been asked for urgent advice at a meeting, and there was nothing to put her on inquiry that there were the October 2004 emails, nor was there anything to suggest to the solicitors in July 2008 that there were the October 2004 emails. For the detailed reasons given above I find that Ms Kerr had not been asked to advise on, and had not advised on, the LTIP. There was no need for Ms Kerr or the solicitors to state that which was obvious, namely that they had not been given every single piece of paper exchanged by the parties over the years, and had not taken draft witness statements from every person involved in dealings between the former CEO and the CRU Group. Any other conclusion would either prevent solicitors giving urgent advice when required by clients, or require solicitors to set out a whole series of qualifications which would be unnecessary and offensive to common sense. Carradine Properties v DJ Freeman [1999] Ll PN Rep 483 makes it plain that it is not the general duty of a solicitor to tell a client what is, common sense as a matter of business. The failure to discover the October 2004 emails was a failure on the part of CRU Group which had filed them in October 2004 and forgotten about them by September 2007. It is fair to note, as did Ms Kerr in her evidence, that there was a respectable argument that the October 2004 emails would, on a strict analysis of the law, be considered to be inadmissible pre-contractual negotiations. However I do not have to decide this point, and, as Mr Davidson pointed out, knowledge of the existence of the October 2004 emails could have given rise to other arguments, including arguments about rectification.

[87]However it is clear that a solicitor may be put on inquiry that there are further relevant documents to be discovered or information to be obtained by the documents that have been provided, or by what has been said by a client. I turn then to consider the CRU Group’s secondary case and the failure to identify the missing conditions of service which contained the PILON clause. There was in the statement of terms a reference to “the company’s general terms of employment” which it is common ground was a reference to the conditions of service. In order to provide advice about the employment situation of the former CEO there was a need to ask for the “general terms of employment”. If they had been asked for, the evidence shows that the conditions of service would have been located and supplied by the CRU Group, because copies were held by the CRU Group and they were supplied after the making of the employment termination agreement. If the conditions of service had been provided the PILON clause would have been discovered.

[88]Ms Kerr had had an opportunity to consider and mark the statement of terms and the addendum before the meeting on 4th September 2007. In the course of Ms Kerr’s review of the statement of terms Ms Kerr did not note the reference to “the company’s general terms of employment” set out in the statement of terms and either ask for a copy of those general terms or identify that any advice that she gave might be affected by the contents of those general terms. The general terms are now known to be a reference to the general conditions.

[89]In her witness statement at paragraph 87 (albeit by reference to a meeting in July 2008) and in her evidence before me, Ms Kerr accepted that she “should have noticed the reference to them in my review and asked to see them”. I consider it likely that both Ms Kerr and Ms Briant in 2008 assumed that the addendum was the “general terms of employment” because it was annexed to the statement of terms. However reasonable and careful consideration showed that the addendum could not be the general terms of employment, because the addendum contained terms specific to the former CEO rather than general terms.

[90]Ms Kerr was asked in cross examination whether she accepted that she had acted in breach of the applicable standards of care and skill in failing to notice the reference to the general terms of employment and answered, and was entitled to answer, that the issue of whether the failure to identify the missing general terms of employment was a breach of the applicable standards of care was not a matter for her. However I am satisfied, and find, that the failure of Ms Kerr and the solicitors to identify that there were missing “general terms of employment” on 4th September 2007 and in July 2008 was a breach of applicable standards of care, notwithstanding all the points set out in the Defendant’s closing argument at paragraph 104. This is because there was an express reference to “general terms of employment” in the statement of terms and because it should have been obvious that the addendum contained not general, but specific, terms of employment. In making this finding I did reflect carefully on the fact that both Ms Kerr and Ms Briant had reviewed the statement of terms and failed to notice the reference to the general terms of employment and that the documentation was an amalgamation of a number of different precedents created by CRU Group and included documents which were a bit of a mess (as was noted in the evidence). However in my judgment the fact that the documents were a bit of a mess did not reduce the need to take care. There was a reference to the general terms of employment, which could not sensibly have been the addendum, meaning that to discharge the relevant duty of care the general terms of employment should have been requested, as both Ms Kerr and Ms Briant both fairly accepted in their evidence.

[91]In my judgment, for the reasons given above, the solicitors should have asked for the general terms of employment, which would have yielded the conditions of service, which would have meant that the PILON clause would have been noted.

[92]This would have meant that advice would have been given to the effect that the contract of employment with the former CEO could be terminated without notice, without involving a breach of contract. That would have meant that the restrictive covenants (albeit with their limitations and issues about enforceability) could have been relied on because there would not have been a repudiatory breach of the contract of employment. It would also have meant that the issue about whether damages representing the value of the remaining 25 per cent of the LTIP would be payable would be a question of interpretation of the addendum. Contributory negligence

[93]I do not consider that there was contributory negligence on the part of the CRU Group in failing to send the conditions of service to the solicitors. This is because the CRU Group had sent the statement of terms and the addendum to the solicitors, and it was the responsibility of the solicitors to identify that there were “general terms of employment” (being the conditions of service) which needed to be supplied in addition to those documents. It is not reasonable to expect that the CRU Group, which was seeking expert advice from the solicitors, should read through the documents to identify that type of reference to the conditions of service. Causation and loss in respect of the incorrect advice about the absence of a PILON clause

[94]The failure to note that there were general terms of employment on 4th September 2007 did not, in the event, cause any loss. This was because Mr Perlman and Mr Fisher decided to continue to try and work with the former CEO. However the fact that advice was given on 24th July 2008 about the absence of a PILON clause raises issues of causation and damage and involves considering what would have been the effect of the correct non-negligent answer given by the solicitors.

[95]The CRU Group contend that if Mr Perlman had been given correct advice about the final portion of the LTIP Mr Perlman would not have agreed, as he did, to the vesting of the final 25 per cent of the LTIP, and that there was a substantial chance that the outcome of the negotiations would have been different and the final 25 per cent would not have vested. The solicitors contend that Mr Perlman would have agreed to the vesting of the final 25 per cent because he knew the former CEO wanted the vesting of the LTIP, if the CRU Group had decided to exercise their right to terminate without notice the CRU Group would have been left with ineffective restrictive covenants and Mr Perlman was worried about the restrictive covenants, and because Mr Perlman did not place much value on the LTIP he was happy to give the final portion away. The solicitors contend that even if Mr Perlman would not have agreed to offer the 25 per cent shares straight away there was no prospect of a different outcome to the negotiations because of the relevant factors. Mr Pooles submitted (paragraph 28 of the Closing Argument for the Defendant) that the conditions of service, which included the PILON clause, would have had no effect on the LTIP negotiations.

[96]It is common ground that the first matter I have to decide on the balance of probabilities is whether, as a matter of fact, Mr Perlman would have done anything differently in his negotiations with the former CEO if he had been given correct and non-negligent advice about the PILON clause. In my judgment Mr Perlman would not have given the final 25 per cent of the LTIP to the former CEO as a starting point in his negotiations with the former CEO. It is right to observe that Mr Perlman did not want to deal or negotiate with the former CEO, as is evidenced by the fact that the negotiations took place between the former CEO and Mr Fisher. It is also right to record that Mr Perlman wanted better restrictive covenants from the former CEO, and that he wanted to defer any further discussions about the LTIP. This was partly because he did not like negotiating with the former CEO, even with Mr Fisher acting as his envoy, and partly because the evidence (and in particular Mr Perlman’s decision not to engage in negotiations to improve and clarify the wording of the LTIP despite the issue being raised by the solicitors) shows that he thought that in the future he would be better able to see off the former CEO who had recently divorced and who might lack the financial ability to bring him to Court about the LTIP. However although he did not want to get into negotiations about the LTIP, and wanted better restrictive covenants from the former CEO, in my judgment Mr Perlman did not want to give anything to the former CEO unless he had to give it away. I make this finding because it is apparent from the evidence that Mr Perlman felt that the former CEO had not performed well as CEO and was not prepared to start negotiations by giving into the demands made by the former CEO, as is evident from the former CEO’s email of 10th July 2008. In these circumstances I find that if Mr Perlman had been told that there was an issue about whether he needed to pay the final 25 per cent of the LTIP he would not have offered it as a starting point of negotiations to the former CEO.

[97]The negotiation which would have followed would have been with the former CEO, a third party. It is established by the judgment of the Court of Appeal in Allied Maples v Simmons & Simmons

[1995] 1 WLR 1602

at 1614 B-E that a claimant can succeed in proving damages if it shows that it had “a real and substantial chance of a better outcome” and not a speculative chance, of avoiding handing over the 25 per cent of the LTIP in the subsequent negotiation with the former CEO.

[98]There are important points that can be made both ways in this respect. On behalf of the CRU Group it can be fairly noted that Mr Perlman did not want to give the former CEO any more than he had to give. Mr Perlman would have been able to tell Mr Fisher that the fact that he was fighting so hard on the vesting of the final portion of the LTIP showed its value. This was a negotiating stance adopted by the CRU Group, even though it was privately thought that the LTIP was of little value. Agreeing the side letter without agreeing the extra 25 per cent would have meant that everything was being deferred for future consideration.

[99]On the other hand the solicitors are able to point to the fact that the former CEO thought that the LTIP was an important part of his remuneration, and would have held out for the vesting of the final portion of the LTIP because of the importance that he attached to it as part of his remuneration, and because the battle about its value (if anything) was being deferred. In this respect it might be noted that in the Chancery action the former CEO made it clear at paragraph 21(2) of the pleadings that he “would have held out for a larger settlement sum than the £230,000” if the October 2004 emails had been discovered, although the legal basis for such a holding out is not specified. The former CEO would have been able to point to the fact that even with a PILON it was open to interpretation of the addendum whether damages representing the value of the final 25 per cent should be paid. Importantly, in circumstances where he was being advised by competent solicitors, the former CEO would have been able to point out that if the PILON clause was used no better restrictive covenants would be obtained, and everyone acknowledged the importance of getting better restrictive covenants.

[100]Evaluating the effects of all these matters on the hypothetical negotiation between the CRU Group and the former CEO is obviously difficult. Doing the best I can I consider that there was about a 35 per cent chance that the CRU Group would have been able to avoid the vesting of the final 25 per cent of the LTIP. I am satisfied that the former CEO would have had the upper hand in the negotiations because of CRU Group’s understandable desire to get better restrictive covenants, but the former CEO also knew he was being paid monies now to leave and would still have 75 per cent of the value of the LTIP (whatever that might have been) to argue about in the future if he had taken the accrued LTIP and not held out for the final 25 per cent. I do not consider that I can say that the former CEO’s position was so strong that there was not a substantive chance that the CRU Group would not have been able to avoid vesting the final 25 per cent of the LTIP, but the former CEO had the better position. I did spend some time wondering whether I should assess the prospects of the CRU Group successfully avoiding the vesting of the final portion of the LTIP at 40 per cent, but that did not seem to me to reflect the strength of the former CEO’s position as against the CRU Group on this point. On the other hand I did not consider that 30 per cent, or even a finding of a third, reflected fairly the points that the CRU Group could make to avoid giving the final 25 per cent of the LTIP to the former CEO. In the final event I considered that 35 per cent is the best evaluation of the substantial chance that the CRU Group had of avoiding vesting the final 25 per cent of the LTIP, if they had been given correct and non-negligent about the PILON clause.

[101]In these circumstances I find that if the CRU Group had been given correct non-negligent advice to the effect that there was a PILON clause in the conditions of service the CRU Group would have had a 35 per cent chance of avoiding the vesting of the final 25 per cent of the LTIP. Quantifying the loss and damage

[102]The CRU Group contended that its losses were: £1,350,000, being the sum paid under the mediation settlement agreement; CRU Group’s own costs of £838,567.93 (exclusive of VAT which was recovered) for the Chancery proceedings; and £71,000 for management time.

[103]An issue in the proceedings before me was whether the compromise under the mediation settlement agreement in the sum of £1,350,000 was reasonable, because an unreasonable settlement would break the chain of causation, meaning that the CRU Group would need to prove their actual liability to the former CEO under the LTIP. It was said on behalf of the solicitors that the settlement was for too high a sum because there was in fact no liability to the former CEO. Alternatively it was said that the settlement came too late, and that the costs from Norton Rose were too high.

[104]In my judgment CRU acted reasonably in making the mediation settlement agreement with the former CEO at the time that they made it. It was made in reliance on advice by expert solicitors, Norton Rose, and expert counsel Mr Glick. As noted above Mr Glick thought that the CRU Group should succeed in the litigation, but there was no guarantee about that and the settlement was for a sum which he considered reasonable. There is no doubt that £1,350,000 was a substantial sum which was paid by the CRU Group to the former CEO, but it was apparent that the former CEO was prepared to push very hard for the best possible deal for himself. It was made after an unsuccessful mediation, and success was only achieved because the CRU Group had resisted excessive claims for payment made by the former CEO in the first mediation.

[105]I do not consider that the sum of £838,567.93 paid by the CRU Group for its costs in the Chancery action is a sum which can be claimed from the solicitors. This is because the former CEO would have commenced proceedings for payment of the LTIP whether he had 100 per cent or 75 per cent of the LTIP in any event, and the CRU Group would have incurred costs in defending those proceedings. There was no evidence that the CRU Group’s costs were increased because the claim was for 100 per cent and not 75 per cent of the LTIP, and (unlike the position in relation to the former CEO’s costs, see below) there is nothing to suggest that it would be fair to appropriate part of the CRU Group’s costs to the extra 25 per cent of the LTIP. The solicitors acted reasonably and gave proper advice that the wording of the LTIP was likely to lead to future litigation, and the CRU Group’s expenditure of legal costs was not caused by any negligent advice given by the solicitors. This means that the issue of whether the costs incurred by the CRU Group in the Chancery action were reasonable does not arise for decision, and because there is an outstanding issue of law about who has the burden of proving reasonableness and the effect of unreasonable costs on damages, I will not address it, and will leave the issue for a case where it is raised.

[106]I should record that although it was obvious that some management time would have been devoted by the CRU Group to the Chancery action the evidence about how much management time was actually incurred was not proved before me. Mr Barber gave evidence confirming his witness statement to which various schedules were exhibited. However it became clear that these schedules could not be sensibly related to time spent by the CRU Group on the Chancery action as opposed to the time spent by Norton Rose. In the event the claim for management time was not pursued and it is not necessary for me to make any findings in relation to it.

[107]It might be noted that if £1,350,000 represented 100 per cent of the LTIP by way of overall settlement, then 25 per cent of this figure would be £337,500. I note that the sum of £1,350,000 was a global sum and would have included a sum for costs incurred by the former CEO in bringing the Chancery action, and costs would have been incurred in any event by the former CEO in bringing the Chancery action even if he had had only 75 per cent of the LTIP. I was not addressed on whether it would be appropriate to reduce the sum of £1,350,000 to represent the former CEO’s costs, before valuing the 25 per cent of the LTIP, perhaps because there was no breakdown of the figure for costs that would have been included in the £1,350,000. However having considered the matter it seems to me that the value of 25 per cent of the LTIP is 25 per cent of the sum of £1,350,000. This is because it was apparent that the former CEO was seeking a global sum representing to him the value of the LTIP, and because it would be fair to attribute any costs incurred by the former CEO in obtaining value for the LTIP included in the settlement sum on a pro rata basis (thereby attributing 25 per cent of the former CEO’s costs recovered in the settlement sum to 25 per cent of the LTIP) in circumstances where the figures for costs were not broken down by the parties in the global sum. This means that 25 per cent of the LTIP was reasonably valued in the sum of £337,500

[108]For the detailed reasons given above, I have found that the CRU Group had a substantial chance, which was 35 per cent, of avoiding giving the final 25 per cent of the LTIP to the former CEO if non-negligent advice had been given about the PILON. 35 per cent of £337,500 is £118,125.

[109]In these circumstances as a result of the wrongful failure to identify the PILON clause and give correct advice about the vesting of the final 25 per cent of the LTIP, in my judgment the CRU Group lost a 35 per cent chance of avoiding £337,500 of the sum paid to the former CEO by way of settlement, which is £118,125. Conclusion

[110]For the detailed reasons given above I find that Ms Kerr was not asked to advise, and did not advise, the CRU Group about the interpretation of the LTIP. Ms Kerr and the solicitors did not act in breach of duty by failing to ask for the file. When providing advice about the employment settlement agreement the solicitors acted in breach of duty in failing to identify the existence of the conditions of service and by failing to ask for the conditions of service, which would have meant that the PILON clause would have been identified. If the CRU Group had been given correct non-negligent advice about the effect of the PILON clause on the vesting of the final 25 per cent of the LTIP, Mr Perlman would not have offered to the former CEO the vesting of the final 25 per cent of the LTIP. There was a substantial chance, of about 35 per cent, that the CRU Group would have been able to avoid agreeing to the vesting of the remaining 25 per cent of the LTIP in the employment settlement agreement and side letter. The valuation of the final 25 per cent of the LTIP is 25 per cent of the sum that was agreed to be paid to the former CEO to settle the Chancery action. This is 25 per cent of £1,350,000 which is £337,500. The 35 per cent chance of avoiding payment of £337,500 is £118,125. I therefore award the CRU Group the sum of £118,125 by way of damages.

Cited in 1 later judgment

Commodities Research Unit International (Holdings) Ltd & Ors v QSP Residual Recoveries LLP 2017