Seery v Leathes Prior (a firm) [2017] EWHC 80 (QB)

Case No HQ13X04873[2017] EWHC 80 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 24 January 2017
Before
SIR DAVID EADYSitting as a Judge of the High Court
Between
GRAHAM SEERYClaimantLEATHES PRIOR (A FIRM)Defendant
C Aylwin (instructed by GMS Law) for ClaimantT Asquith (instructed by Kennedys Law) for DefendantHearing Hearing dates: 5, 6, 8, 9, 12, 13 and 20 December 2016
JudgmentSir David Eady :The parties
[1]Mr Graham Seery (the Claimant) sues a firm of solicitors, Leathes Prior (the Defendant), for alleged professional negligence in relation to events occurring between October 2007 and February 2008. This was during the period when one of the partners, Mr Dan Chapman, was acting on his behalf in negotiating the settlement of a dispute between himself and a company called FWA West Ltd, of which he had been an employee, minority shareholder and finance director. He had fallen out with two former colleagues, Messrs Boswell and Causer, who were the remaining shareholders and directors, and claims to have been wrongfully excluded by them from participation in the company’s management.[2]The Claimant submits that the relationship was such that he was entitled to invoke the equitable principles discussed in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, as they had been “quasi-partners” (albeit a term which Lord Wilberforce thought apt to confuse). It is quite possible that this could have been established (not least in the light of his substantial investment in the project), but there is no clear evidence as to the terms on which the venture had originally been launched. He also contends that he might then have been in a position to claim remedies in respect of “unfair prejudice” in accordance with the provisions of the Companies Act then applying, such as an order that his shares be purchased at a fair valuation.

The background against which the Defendant firm was instructed

[3]It is thus important to address matters as they stood at that time, specifically with regard to the parties’ state of knowledge, and to avoid the temptations of hindsight. It is necessary at the outset to focus upon the terms of the retainer, the scope of the duty of care owed by the solicitor to the particular client, and any specific role he was required to fulfil. Useful guidance of a general nature is to be found in a recent decision of the Court of Appeal in Minkin v Landsberg (trading as Barnet Family Law) [2016] 1 WLR 1489, and in particular from the judgment of Jackson LJ at [38], where he summarised the relevant principles:(i) A solicitor’s contractual duty is to carry out the tasks which the client has instructed and the solicitor has agreed to undertake;(ii) It is implicit in the solicitor’s retainer that he/she will proffer advice which is reasonably incidental to the work that he/she is carrying out;(iii) In determining what advice is reasonably incidental, it is necessary to have regard to all the circumstances of the case, including the character and experience of the client;(iv) In relation to (iii), it is not possible to give definitive guidance, but one can give fairly bland illustrations. An experienced businessman will not wish to pay for being told what he/she already knows. An impoverished client will not wish to pay for advice which he/she cannot afford. An inexperienced client will expect to be warned of risks which are (or should be) apparent to the solicitor but not to the client;(v) The solicitor and the client may, by agreement, limit the duties which would otherwise form part of the solicitor’s retainer. As a matter of good practice the solicitor should confirm such agreement in writing. If the solicitor does not do so, the court may not accept that any such restriction was agreed.[4]This passage serves as a useful reminder that no solicitor is called upon to advise a client in a vacuum. There are almost always inconvenient circumstances which have to be taken into account. These will impact correspondingly upon the scope of the duty to be discharged and upon the limits of what can be achieved. In this case, it is clear to me that the Claimant had not initially wished to leave FWA, but when he realised (in or about April 2007) that Messrs Boswell and Causer wanted to be shot of him, he decided to pursue the most advantageous exit strategy he could and to press on with new opportunities in another business (Macklow) – for which he required capital to invest. As he told his accountant, on 21 September, he wanted to find the most expeditious way “to conclude this sorry saga, before it starts getting out of control”. He referred also to his “significant financial commitments and little funds as a result of investing in FWA”. The position was alleviated to an extent, and specifically regarding his need to invest in Macklow, when he managed to re-mortgage his house shortly afterwards.

The prior involvement of SJ Berwin

[5]The Claimant had instructed SJ Berwin as his solicitors and they were in the process of negotiating a settlement with those acting for Messrs Boswell and Causer. This was well in train before the Defendant firm came on the scene.[6]Any settlement would need to take account inter alia of the debt owed on his director’s loan account and the value or potential value of his 20% shareholding. It is important to note that SJ Berwin and the Claimant were having to negotiate with their hands tied, in the sense that there was a lack of knowledge in certain respects as to the financial state of FWA, as to its commercial prospects in the near future and thus as to its capacity to fulfil any commitments undertaken if a settlement was reached. The Claimant did not trust Messrs Boswell and Causer to give accurate information in any event. These factors were obviously significant for his solicitors to bear in mind. Not least, the Claimant was reluctant to accept instalments and pressed to have payment up front. In any event, he preferred to avoid costly and time-consuming litigation for any purpose and, in particular, for that of obtaining disclosure of documents and information. He was thus, in Mr Chapman’s words, “between a rock and a hard place” well before he came to instruct the Defendant firm. He wanted to achieve as good a settlement as possible without delay and without undue expenditure, even if that meant taking the risk that further accurate information might enable him to negotiate a significantly higher figure.[7]Against this unhappy background, advice was given to the Claimant by SJ Berwin and in due course offers were put forward by them on his instructions. On 12 September 2007, they stated that he would resign his employment and directorship forthwith if he was paid £800,000 for the shares, £100,000 by way of compensation for unfair dismissal, breach of contract and discrimination, £270,000 in respect of his director’s loan account and £8,500 as a contribution towards the legal costs. A detailed response joining issue on the claims put forward was sent on 25 September by the solicitors then acting for FWA, Edward Hayes. They made a counter-offer dated 5 October of £340,000, to be paid by monthly instalments of £5000, with the outstanding balance to fall due in January 2009.[8]The Claimant then expressed the view that he would be giving up a 20% share of a company that would be making a net profit (so far as he could tell at that stage) in the region of £1.5m to £2m and that his shares would accordingly “be worth something”. In the light of this, he indicated that “to avoid … a costly, acrimonious, long drawn out fight” he would consider a payment of £400,000 net with “a lump sum now say £150,000, to clear expensive loans & a bit of working capital” together with monthly payments of £10,000. Accordingly, on 8 October 2007, SJ Berwin made an offer to settle for £400,000 in a without prejudice letter. This was despite the fact that they had not succeeded in obtaining data about FWA which could well have enabled them to make a more informed judgment and in particular about share values. Indeed, Mr Asquith makes the point that an open letter had also been sent by SJ Berwin, on the same day, requesting such information, but that the Claimant was clearly eager to settle on the terms proposed without waiting for answers.[9]This provides clear evidence of the Claimant’s priorities at that time and is difficult to reconcile with his present case. What he now says is that any competent solicitor should have given him positive advice to the effect that those priorities were all wrong and contrary to his own best interests. He should not have been aiming at a quick resolution, but rather biding his time until he had much more reliable information as to FWA’s financial status and prospects; moreover, he should, if necessary, have pursued contested litigation in order to obtain it. That would have required a complete reversal of tactics as at 8 October.

The change of solicitors

[10]The next day, the Claimant transferred his instructions to the Defendant firm which is based in Norwich, where he was by then living and working (and whose charges were likely to be more modest than those of SJ Berwin). Shortly thereafter, the file was transferred and it could be seen what advice had been given hitherto and the problems encountered. It is crucial, in judging the scope of the Defendant’s duty, to have in mind the stage which had been reached in the negotiations and the factors which were then operating on the Claimant’s mind. Specifically, there is no evidence of a wish to change strategy on his partor to realign his priorities. Effectively, he still wanted to make “the best of a bad job”, rather than pursue what might be an ideal solution uninhibited by considerations of time or money. It is not easy to see why a competent solicitor should then have taken it upon himself to advise so fundamental a change of course – especially in the case of a client who gave the appearance of being an experienced businessman who knew his own mind and, moreover, one who had direct knowledge of FWA’s financial affairs having been its financial director.[11]It is clear that the primary duty of the Defendant firm was to continue with the same strategy in place of SJ Berwin. It is unrealistic for the Claimant now to suggest (as he did in cross-examination) that Mr Chapman should have challenged him and asked “why I didn’t go for it”. The Defendant’s primary case is that there was no breach of duty, but there is also a plea of contributory negligence in the alternative.[12]In taking up the reins, a letter was written by Mr Chapman to Edward Hayes on 22 October calling for a response to the outstanding offer of 8 October. But there was then another change of cast in that Wedlake Bell replaced Edward Hayes. A without prejudice conversation therefore took place between the new firms, on 5 November, during which it was claimed by Wedlake Bell that FWA could not afford as much as £400,000 and that a further offer would be forthcoming. By this time, there was still no indication of any change on the part of the Claimant as to his chosen strategy or his priorities. As he had confirmed on 30 October, “I really want to bring this to an end as I have other opportunities”.

The threat of a general meeting: a diversion

[13]Meanwhile, however, there had been another development. On 31 October, FWA sent the Claimant notice of a general meeting to take place on 29 November, at which there would be an attempt to purchase the Claimant’s shares compulsorily and to have his directorship terminated. It was further asserted that he had already resigned as an employee. There was also to be a proposal to amend the articles of association to introduce a right and an obligation for shareholders no longer actively involved in the company to sell their shares at a fair value. On 2 November, the Defendant firm wrote to Wedlake Bell denying that he had resigned and claiming that he had been unfairly prejudiced by the proposed change of the articles. Also, through Mr Guthrie on 14 November, it instructed Mr Ben Shaw of counsel to advise on this aspect of the case. On 20 November, having received advice from counsel orally, it sent a letter seeking an undertaking that the articles should not be amended and Wedlake Bell confirmed two days later that the general meeting would not take place. All this had naturally diverted attention from the primary task of pursuing the exit strategy. Yet there has been no criticism directed at the handling of this diversion.

Was there any change of instructions?

[14]Once this problem was out of the way, Mr Chapman clearly thought that his instructions required him to resume the previous strategy. On 12 November he had written, “Anyway, I know you will want me to press on as per the previous plan. So we are starting to draft the Tribunal claim”. This understanding was not corrected or countermanded.[15]Like SJ Berwin before him, Mr Chapman had limited information on which to negotiate a settlement figure. On 8 November, for example, the Claimant had described his director’s loan as a “moving target”. Mr Aylwin submits that the only uncertainty by that stage related to the value of the car he had been using. No doubt the outstanding figure could have been calculated by reference to the drawings recorded over the relevant period.[16]More problematic, however, was the valuation of his shares. The Claimant sent a note on 13 November introduced by these words:
“Currently, my shares are worthless as FWA is a closed company. What loony would invest in FWA as I did with £24,000 in March 2000?” (He had made a similar observation to SJ Berwin on 26 September.) He went on, however, in the same note to refer to certain projections to the end of August 2008, where the balance sheet showed £1.5m, and to a projected consolidated net profit to August 2007 of £300,000, including £400,000 of dividends from UMS and a balance sheet position showing £381,000. He also mentioned “the new Ujima/Mansell development deal, where Ujima have a budget of £67 million and a deal has now been struck”
. In the light of these items, he added, “Once all these come on line, my shares will be worth something”. Despite this, he did not suggest that negotiations should be put on hold to take advantage of any upturn. (We now know that the Ujima contract was terminated and that compensation of £2.5m was paid to FWA in May 2008.)[17]A month later, on 19 December, the Claimant reported to Mr Chapman that he had been informed that FWA had secured three new maintenance contracts. But, again, there was no instruction to slacken the pace or to carry out any further enquiries as to how this might be relevant to the ongoing settlement discussions. On the contrary, he and his wife were keen to wrap up the deal in time for Christmas. As he had said on 13 December, “I just want it sorted now”. Although agreement was reached in principle by about 20 December, matters were not finalised until 22 February 2008. It is thus of some interest that in the meantime, on 22 January, the Claimant informed Mr Chapman that he had heard that Ujima no longer existed, but again this rumour did not prompt him to give instructions to hold fire on the negotiations, or to carry out any further enquiry as to how this might impact on the strength of his hand. This would appear to be part of a consistent line of travel from the first instructions to the Defendant firm through to the date of the agreement.

The issue of a “minority discount”

[18]One of the main criticisms levelled at Mr Chapman during the trial was that he should have attached significance to the introductory sentence in the note of 13 November, about the shares being “worthless”, and disabused the Claimant of what was described as a mistaken view of the law. Mr Aylwin said that it was quite wrong to say that the shares in a closed company were worthless because, in court proceedings, they would probably be valued without any minority discount. He referred to the judgment of Nourse J in ReBird Precision Bellows Ltd [1984] Ch 419. It was held that there was a general (although not universal) rule where there had been a finding of “unfair prejudice”, in respect of the shares of a quasi-partner in a quasi-partnership, that the fair price should be determined on a pro rata basis, and thus without any automatic discount. Mr Aylwin submits, simply on the basis of the 13 November note, that the Claimant must have been, therefore, under a misapprehension as to the law: he took him to be expressing his understanding that the court would apply a discount in valuing his minority holding.[19]Mr Chapman, on the other hand, said that he did not believe the Claimant to be asserting a proposition of law about closed companies, mistaken or otherwise, but merely bewailing the difficulties of attempting to dispose of shares where there was no open market: he would in practice be dependent on two prospective purchasers who were hostile and untrustworthy. This is quite consistent with observations made by Mr Kash Karup (from Haslers, the company auditors) at a meeting on 28 August, at which the Claimant had been present. According to the note, Mr Karup said something to the effect that “Very few people to buy 20% minority shares in an existing company controlled by 1 or 2 other people”. That corresponds to the concern expressed by the Claimant on 13 November (and on 26 September).[20]A separate point was that the company appeared not to be doing very well at that particular time. He knew that his shares were not literally worthless, and had reason to believe that they would be “worth something” in the near future.[21]Against this background, Mr Chapman saw no reason to proffer formal advice at that point about the court’s approach to the valuation of shares in closed companies.[22]Nor did Mr Guthrie, another solicitor in the Defendant firm, who was cross-examined on the same basis. He too was of the clear view that the Claimant was not labouring under any such misapprehension. He (the Claimant) had said in the very same document that the company was then not worth very much: he thought the figure of £80,000 was about right and, therefore, assessed his own shares as being worth roughly about 20% of that (without applying any discount). He also said that there were reasonable prospects for the company in the short term and that his shares would be likely to increase in value correspondingly. These observations were surely quite revealing as to his true state of mind. Neither solicitor interpreted the email in the way that Mr Aylwin was suggesting they should. Nor do I. The Claimant was not evincing any misapprehension of company law. He said nothing about applying a discount: he was merely bemoaning the fact that his shares appeared not to be worth much at that juncture. If he had been in a position to bide his time, things might have improved. But, for a number of reasons I have explained, he felt that he had to extricate himself with a degree of urgency. Even his witness statement, drafted at leisure several years later, did not contain anything about his supposed belief as to an automatic discount.[23]It is relevant here to note that on 28 November Wedlake Bell offered to have the shares valued, but the offer was rejected because Mr Chapman and the Claimant were both of the opinion that the offer was being made for the very reason that the value would be set very low at that time, and might well be higher if the assessment were to be made some months hence. That analysis is hardly consistent with the Claimant actually believing that his shares were “worthless”. (It is perhaps ironic that for a time the Claimant chose to allege, in this litigation, that it had been negligent of Mr Chapman not to advise him to accept the offer of a valuation, but that charge was abandoned in the course of cross-examination. This was just one example of his tendency to throw in allegations casually and without much analysis or thought as to the consequences.)[24]It is, therefore, not surprising that an admission was made in the amended defence, at para 20B(a), that no such advice was given about “minority discounts”; or that it was denied, at para 20B(b), that the Claimant had been under any such misapprehension. Furthermore, I do not attach any greater significance to para 20B(c), where it is denied “that a court would have valued his shares at full value without discount”, than that the Defendant firm was formally putting the Claimant to proof of that speculative proposition. As I have pointed out already, Nourse J was not purporting to set out a rule of universal application in Bird Precision Bellows that there would never be a discount: it will depend on the circumstances of the particular case. There was no obligation to make an admission. This passage in the pleading seems to me unremarkable and not to assist the Claimant’s case in any way. In particular, I do not take it to betray ignorance of the law on the part of either Mr Chapman or Mr Guthrie.[25]Mr Aylwin seemed to go further at one point and to suggest that Mr Chapman should not only have explained the principle expounded by Nourse J, but that he should have also encouraged the Claimant seriously to consider litigating in pursuit of a valuation and sale by order of the court (to “go for it”); that he was negligent in not doing so; and that the Claimant had thereby lost the chance of attaining such an award or, at least, of negotiating a more generous settlement.[26]One could view the “minority discount” argument simply as an ex post facto legal point, as to which the Claimant could himself give no useful evidence. Yet, given the weight placed upon it at trial, it surely required him at least to explain how his tactics would have been affected if he had received specific advice about the judgment of Nourse J. I do not accept that it would have given him “the confidence to drive a much harder bargain than he did” (as Mr Aylwin put it in closing). His own evidence lent no support to that proposition. I concluded that it would have made no difference: he would simply have scratched his head and puzzled over its relevance. I regard the point as a red herring.

Should Mr Chapman have encouraged the Claimant to litigate?

[27]There is no doubt that Mr Chapman addressed the possibility of litigation of various kinds. He did not believe this would have been in his client’s best interests at that time and thought it appropriate to advise him accordingly. One possibility was to petition in accordance with the provisions of s.459 of the Companies Act 1985 on grounds of “unfair prejudice” and to seek an order for the sale of his shares. (These had in fact been replaced by the corresponding provisions in s.994 of the 2006 Act with effect from 1 October 2007.) This was a matter on which Mr Shaw had been asked to advise, although in the specific context of the proposed general meeting. It had, however, been considered more generally and, so far as Mr Chapman was concerned, rejected – not least because such litigation would have given rise to “a costly, acrimonious, long drawn out fight”. This was exactly what the Claimant wished to avoid.[28]Furthermore, it is clear that in a detailed letter of 14 August the Claimant had been advised by SJ Berwin inter alia of the availability of a claim under s.459 and that the court had “a general discretion to order whatever relief it sees fit”, including an order for the purchase of a minority shareholder’s shares. This was not a passing reference: a whole page of the letter was devoted to s.459 and “unfair prejudice”. Further advice was given in a letter of 12 September. The concept was never far from anyone’s thoughts in the coming weeks.[29]Mr Chapman was, however, right to be cautious. Proceedings based on “unfair prejudice” would not have been by any means straightforward: there were a number of potential hurdles for the Claimant to surmount. There was likely to be an issue, for example, as to whether he wished to leave FWA, anyway, in order to pursue his plans with Macklow. There was the possibility that an apparently independent witness (Mr Karup of Haslers) would have given unfavourable evidence in this context. Furthermore, it could have been argued that the Claimant had received an offer for his shares at a reasonable price (about £100,000) as part of a proposed deal the previous April (referred to as the “Meridian deal”). The relevance of this is that the court may treat exclusion from the management of a company as not being unfair in such circumstances.[30]There is the additional factor that the Claimant is now alleging that he was physically excluded from FWA premises in the summer of 2007. That is despite the absence of any contemporaneous document showing that he had raised any complaint about that, and the omission of anything to that effect in his witness statement for these proceedings. This could have undermined his credibility in any such litigation at that time, as in Mr Asquith’s submission it tends to undermine it now.[31]Mr Chapman was wise, for all these reasons, not to give encouragement to taking such a risky course of action.[32]Another possible tactic would have been to take proceedings in reliance upon s.994, but only to pursue them as far as obtaining an order for disclosure of documents (which Mr Aylwin thought might take six to eight weeks, although Mr Asquith regards that estimate as over-optimistic). It is possible that taking such a course would have been characterised as an abuse of process, but I leave that aside for present purposes. Mr Chapman in his evidence voiced concerns about this proposal for a variety of reasons. It might or might not succeed; Messrs Boswell and Causer would probably place every difficulty in the way, thus causing delay and increased cost; they might not comply with an order or might at least find some way of avoiding it; moreover, the Claimant might then not be able to extricate himself from the proceedings without adverse costs consequences.[33]Another route canvassed was that of a winding up petition based, once he had resigned his directorship, on the sum owed him on the director’s loan account – to the extent that it was undisputed. In the view of Mr Chapman, this was likely to be strongly resisted by Messrs Boswell and Causer. The outcome was uncertain and likely to eat up costs. (It is true that on or about 29 November the Claimant was feeling more bullish on this option, and suggested the threat to start such proceedings but he added, “I am assuming that we can stop it if we want”. Yet it could not be assumed that there would be no costs penalty.) In any event, Mr Aylwin places no reliance on this aspect of the case as evidence of negligence.[34]There was also the option, it was suggested, of pursuing his common law right as a director to call for company documents. There were two problems with that. First, it was only available for the purposes of carrying out the director’s duties to the company: Oxford Legal Services Group Ltd v Sibbasbridge Services Ltd [2008] Bus LR 1244, CA, at [23]; see also Conway v Petronius [1978] 1 WLR 72, 89-90 (Slade J).[35]It is true that the appellate decision in Oxford Legal Services post-dated the events in question, and that the first instance judgment of Kitchin J coincided with Mr Chapman’s initial instructions, but the law seems nonetheless to have been clear in this respect. Mr Aylwin expressed the ratio as being that a director cannot inspect documents for an “improper purpose”. Yet it is important to have in mind how that terminology was construed by Sir John Chadwick in the Court of Appeal, ibid:
“… for a director to invoke the right to inspect for some purpose other than that of carrying out his duties as a director is to seek to use the right for an improper purpose”
. Hughes and Toulson LJJ (as they then were) agreed with all that Sir John had said. It is interesting to note, however, that Hughes LJ added, in relation to the facts of that case, that there was “clear reason to say that the purpose of inspection might be other than qua director”. He referred to the obtaining of a “collateral advantage” in parallel litigation. So here, it seems also to be clear that the Claimant could not have prayed in aid the director’s right to inspect documents for the purpose of his own private litigation.[36]Secondly, Messrs Boswell and Causer were bent on removing the Claimant’s directorship and it was within their power to do so. In any event, he ceased to be a director of FWA with effect from 12 November 2007.[37]A point taken in cross-examination of Mr Chapman was that he had advised the Claimant to make a claim in the employment tribunal (albeit in his view “worthless in real terms”) – so why not in the Chancery Division? Mr Chapman’s response was that tribunal proceedings were much cheaper and, at that time, did not carry a risk of an adverse costs order. Also, it would be easier to terminate them if it became necessary. Furthermore, there were in his view certain tactical advantages, in that the Claimant’s adversaries would be more likely to take his claims seriously and make an acceptable offer. The proceedings were launched on 27 November. Mr Chapman expressed the view that this was a tactic which had proved successful. He described it as a “game changer” which “made them take us seriously”.[38]The cost and risk of litigation were matters on which Mr Chapman plainly advised by way almost of a leitmotiv. The Claimant could be in no doubt as to his views – or Mr Chapman as to his client’s. He had in mind, throughout, the limited funds available and the tactics prescribed by the Claimant both to SJ Berwin and to him; that is to say, to achieve a reasonable deal as quickly as possible while avoiding expensive and acrimonious litigation. He sent an email on 10 December 2007, for example, which was the subject of criticism by Mr Aylwin in cross-examination. It is too long to set out in full, but it was thorough and comprehensive. The following extract gives the flavour:
“… I have a strong feeling that we might be at the end of the road in these negotiations; I know my counterpart feels that his clients are also being ‘emotive’ about the dispute and thus perspective is being lost. He feels also there is not likely to be any more movement from his clients, rightly or wrongly. So I suggest you discuss the current offer – which totals 310k with 210k being paid up-front (I think we should be able to reallocate the figures to get it all net, so assume this for the time being) and the remaining 100k paid over 18 mths with interest – with your wife tonight. It seems to me a huge financial decision for you and your family; if we reject this now I think we will be tied down to litigation for sometime. We will need to fight the Tribunal claim, issue winding up petitions and, to gain any real value (since the Tribunal claim is worthless in real terms), issue (and succeed on) a High Court unfair prejudice claim. The costs will be enormous (not by SJ Berwin standards, of course, but huge nonetheless) and no guarantee of any return whatsoever if FWA go bust in the meantime (or manage to reallocate their assets). So take some time to seriously consider your options, and check that you and your wife are comfortable with where we are going – as I say, my very strong hunch (and I am usually right on these things) is that their offer is now their final offer. Of course, that doesn’t make it right or mean you should accept it – but I need to advise you of the consequences of rejecting what might well be their final offer. As experienced litigators, we tend to have a feel for how these sort of cases pan out, and you don’t pay me to tell you what you want to hear, but what I would advise. In this particular case, if it were me then I would accept the offer, bank the cash (as galling as it undoubtedly is to you) and get on with my life. But it is not me who is living this case, and I shall do whatever you instruct me to do! Please don’t misunderstand me – I (and my firm) will be more than happy to fight this all the way. However, I have a duty to ensure that you (and your family) are fully aware of what you are getting yourselves into. I don’t want to be walking out of the High Court in 2 years time, telling you that whilst we have won the total damages you are able to recover from FWA amount to zero since the company has gone into liquidation, and then handing you my firm’s bill for 70k, at which point you might wish you had accepted the 310k on offer! You would not be too pleased with me, either, if I had not have advised (sic) you to accept that 310k! And then I would be getting sued for negligence!”
[39]Mr Aylwin criticised this advice as not being sufficiently neutral or balanced. He suggests there should have been greater encouragement to think about pursuing litigation and thereby achieving a higher level of compensation. Mr Chapman, on the other hand, stands by what he wrote and would give the same advice today (in the light of his knowledge and his instructions at the time).[40]The matter was explored in cross-examination and the Claimant appeared to accept that he would not have been interested, at least by that time, in spending money on litigation. Mr Aylwin suggested that this was simply because he had “folded” because, by then, it was too late – “through no fault of his own”. I do not believe that the evidence bears this out, since it was Mr Chapman’s impression from the outset that he was reluctant to become involved in expensive and risky litigation. In those circumstances, there would be no reason for a competent solicitor to seek to persuade him to “go for it” (save perhaps in a case where the merits were “all one way”, and the relevant client was only concerned about a perceived risk which truly could be discounted).[41]After some further exchanges, the Claimant clarified his requirements on 12 December and, on the following day, Mr Chapman conveyed his latest instructions to Wedlake Bell. Once again, the emphasis was upon obtaining as much “up front” as possible and resolving the outstanding issues by Christmas.[42]Negotiations continued and similar advice was given on 14 December:
“I think we are getting there slowly. £7,000 better off than we were this morning, anyway. My view is that the deal, which I do suspect may well be close to their final offer, is probably worth taking in the overall circumstances (subject to security and instalments; I can see where you are coming from on that). The cost and risk of litigation, in my opinion, is too great. However, that is your call of course.”
[43]Again, I assume the same criticism is made; namely, that a less cautious approach should have been taken and proceedings in the Chancery Division positively considered. Perhaps another solicitor would have given more bullish advice in this regard (although I doubt it), but I cannot see that Mr Chapman could possibly be said to have been in breach of duty by not having done so. He did not sit on the fence: he told the client in no uncertain terms where he thought his best interests lay.

The issue of “stress”

[44]The Claimant has suggested from time to time in the witness box that he was at times so stressed out that he was unable to take in the legal advice he was given and, in particular, that which he received from SJ Berwin. There are at least four points to bear in mind. First, he did not tell Mr Chapman at the time that he did not understand the advice (although he had produced sick notes to excuse non-attendance at work). Secondly, much of the advice was in writing and could be reread at any time when the stress subsided. Thirdly, if true, this tends to confirm the wisdom of Mr Chapman’s advice that uncertain and stressful litigation was probably not in his best interests. Fourthly, a solicitor “… will have fulfilled his duty if he gives an explanation in terms the client reasonably appears to him to be able to understand, and to have understood, even if the client later alleges that he did not in fact understand what was said”: Kandola v Mirza Solicitors LLP [2015] EWHC 460 (Ch), at [47], per HHJ David Cooke. Although Mr Aylwin submits that this principle cannot apply in the present case, because the facts are different, I do not accept this. What matters is Mr Chapman’s impression of the Claimant’s comprehension of the advice he was being given. Unless he was told by the Claimant that he had failed to understand some or all of the advice he had been given by SJ Berwin, there is no reason why Mr Chapman should have made any such assumption. The Claimant should have made clear that he would have to start from scratch and explain everything afresh – if that was the true position. I am not persuaded that it was.[45]With regard to the stresses and acrimony of what was then s.459 litigation, Mr Asquith drew my attention to the observations of

Judge Howarth in the Chancery Division in Corbett v Corbett [1998] BCC 93, 103F-G:

“I am well aware of the fact in s.459 cases they are in every bit like an acrimonious divorce case between people whose marriages fail. They are one of the instances in life where frankly bloody-mindedness takes over and people are capable at least of acting in a way of doing the other side down and getting pleasure from doing the other side rather than by acting in accordance with strict, rational forms of behaviour for their own long-term interests and certainly the long-term interests of the company.”
[46]These factors are material when judging the advice given by Mr Chapman, and specifically in the context of “unfair prejudice” proceedings.

Was there a change in circumstances requiring any change of advice?

[47]It is necessary, in any event, to keep in mind the overall combination of circumstances confronting Mr Chapman, at the relevant times, when judging whether his conduct fell short of the standards which the Claimant could reasonably expect of him. In particular, in December 2007 he was acting for a client who: (i). still had relatively “little funds”, even allowing for the re-mortgage; (ii). had significant commitments in respect of outstanding loans; (iii) wished/needed to use the re-mortgage loan for the purpose of investing in a new business; (iv) felt under pressure of time and needed to get on with his life and his new business; (v) was confronted by two hostile and apparently “dodgy” adversaries; (vi) lacked up to date information as to FWA’s finances and medium term prospects; (vii) might find his conduct subjected to detailed but unknown criticisms in court; (viii) might have to overcome significant hurdles in establishing “unfair prejudice”; (ix) could well be unable to recover any monetary award if FWA went into liquidation; (x) did not want to be embroiled in costly and acrimonious litigation if it could be avoided.[48]Against this background, I find it difficult to see what else Mr Chapman could or should have done to serve his client’s best interests.

Mr Chapman as an “employment lawyer”

[49]I should also make it clear that I see nothing in the argument that Mr Chapman treated the dispute as an “employment case”, when he should have recognised that it was primarily a “company law case”. As with many such disputes, the facts were not neatly confined within one specialisation and gave rise to considerations in both areas of law. He accepted that his particular expertise was in employment law, but also explained that he naturally encountered issues of company law from time to time in the course of his practice. Mr Guthrie, on the other hand, regarded himself as primarily a company lawyer. I am not persuaded that Mr Chapman’s speciality led him to overlook some matter of company law that he should have taken into account. In any event, when he familiarised himself with the SJ Berwin file, he would have taken note of all the issues which had arisen and which needed to be addressed – including company law and “unfair prejudice”.[50]Nor do I see any reason to suppose that the Defendant firm was under an obligation to make another partner or associate available who was deemed in some way better qualified for the task. I have already noted that Mr Guthrie stepped in to help when it became necessary to instruct counsel over the proposed general meeting. From looking at the file, it is quite apparent to me that the service provided was very “hands on”: there was no lack of attention to the Claimant’s various needs.[51]It is said by Mr Aylwin that Mr Chapman lacked the resolve to obtain the company documents, but I think it unfair to blame him for the hold ups. He was keen to make progress, but inevitably he was frustrated by lack of response and/or delaying tactics from the other side. Whether or not to adopt a more aggressive approach in negotiations is a matter of personal judgment in the light of one’s experience and the personalities involved. It would be a most unusual case if such a decision could be classified, even with the benefit of hindsight, as negligent. Moreover, one cannot possibly tell, at this stage, whether a more aggressive or insistent approach would have yielded better or worse results.

Should Mr Chapman have insisted on warranties?

[52]There was a curious twist to the Claimant’s case in the course of Mr Guthrie’s cross-examination. It was put to him with some vehemence that it was his (and the Defendant’s) duty to keep the Claimant “safe”; and, moreover, that this was why he (or Mr Chapman) was required to call and press for warranties to be given by Messrs Boswell and Causer, as pleaded in the amended particulars of claim, at paras 24(11) and (12). Mr Guthrie seemed puzzled by this. He has been involved in many “buy outs”, but he had never encountered warranties being demanded from a proposed purchaser of shares, although they were sometimes given by sellers. He was shown a Butterworth’s precedent in that context and invited to agree that it would have been straightforward to adapt this for the purpose of the sale of the Claimant’s shares. He thought it would present a number of problems, not least changing significantly the basis of the contract.[53]It would have involved bringing in Messrs Boswell and Causer for the purpose of their giving personal warranties. The very idea seemed to him (and to me) quite unreal. They were hardly likely to undertake such obligations – especially in view of their obvious reluctance to provide information about the company’s finances and commercial prospects. Mr Aylwin’s response was simply:
“Unfortunately like so much else in this case, we shall never know as the possibility was never explored”
. But it is for the Claimant to demonstrate that such warranties would, if sought, have been forthcoming and how they would have secured a material advantage. In my judgment, on the balance of probabilities, it seems clear that Messrs Boswell and Causer would have dismissed such a demand in short order.[54]Mr Aylwin deployed arguments intended to show the contrary. First, if Mr Chapman had pressed for disclosure of the company documents, they would have given ground and realised that “the game was up”. Mr Aylwin thought they would have been even more likely to succumb if he pointed out that the advice given by Mr Karup on 28 August had been wrong. I understood this to be referring to the note I mentioned earlier, where he is recorded as saying that very few people would be interested in buying “20% minority shares in an existing company controlled by 1 or 2 other people”. I do not see how it would have advanced matters to tell Wedlake Bell that this assessment had been wrong (even if it was).[55]Next, he argued that Messrs Boswell and Causer would have been likely to know, by a date in January 2008, that FWA was in line for compensation in respect of the Ujima contract. At this point, the London and Quadrant Housing Group was about to receive a transfer of all its assets and liabilities. They knew that it would eventually leak out and, therefore, that time was not on their side. Thus, if Mr Chapman had pressed for the documents, they would have realised, once again, that “the game was up”. I do not find these submissions persuasive against the background I have described and what is known as to the previous conduct and character of the two individuals in question. I do not believe that the evidence gives any support to either of these optimistic hypotheses (i.e. that they would have offered the warranties and/or improved their offer in January 2008).[56]I am prepared to accept that it did not occur to Mr Chapman that he should ask for warranties, but I do not regard that as negligent.[57]More generally, however, close scrutiny is required of any proposition to the effect that a solicitor has a positive duty to take a new and apparently unprecedented step. It is not necessarily wrong, of course, but it is appropriate to ask why such an unusual approach was so “obviously” required in the instant case (as Mr Aylwin submitted). It calls for careful consideration. Exactly what warranties were required? For how long were they to be effective? What was to constitute an actionable breach? How was it to be fitted in with the rest of the contract? No draft was produced or other explanation offered. This was another allegation of negligence which appeared to have been thrown into the mix without much analysis or forethought.[58]What would the Claimant’s reaction have been if he had been advised to insist on warranties? The Claimant suggested in paragraph 124 of his witness statement that “I would certainly have stated the Directors Loan figure as Warranty (sic)”. That tends to confirm that a rather superficial approach was taken and that this complaint also was not properly thought through. He added, “I would have included a warranty as to £220,000.00 as being a correct value of my shareholding at the date of the Agreement”. How would this have been achieved and what is the loss to be attributed to that omission? The point remains obscure.[59]I cannot see how it can now be maintained that the Defendant was under a positive obligation to insist upon such warranties with the two individuals concerned, or how the failure to do so has led to an actionable breach. In any event, the notion of keeping the Claimant “safe” would be quite contrary to his requirements (and instructions) at that time. He had made a judgment that he needed a quick deal: he was quite ready to forego the possibility of a better deal if he could be sure of “a bird in the hand”. Of course he did not trust the two men, but it would be unrealistic to advise him that he should have nothing to do with them if they refused to give warranties. The Claimant needed to extricate himself and wanted an exit strategy that was going to work. Mr Chapman complied with those instructions. If he had refused to go further without warranties, there would have been no quick exit – and thus no immediate payment.

Was the Claimant told that he could always come back for more?

[60]One other criticism, made repeatedly in the Claimant’s witness statement, was that Mr Chapman had misled the Claimant by telling him that, if he reached terms of settlement with FWA, he could always come back for more if he obtained information, later, to the effect that the company had better prospects than they realised at the time of settlement. I am quite satisfied that this is untrue. No solicitor would give such advice about an agreement reached in full and final settlement. Only in very specific circumstances could such an agreement be set aside. In cross-examination, these allegations were largely withdrawn by the Claimant, but I am surprised that they were made and maintained for so long.[61]There is a possible explanation for this: namely, that the Claimant got hold of the wrong end of the stick during a discussion about his director’s loan account. When contemplating the possibility of winding up proceedings, Mr Chapman suggested in an email on 29 October that they could ask what sum was actually admitted as due and serve a statutory notice on the basis of that figure – without waiving the right to claim any balance later found to be due. The Claimant may have inferred that he could also “come back later” in respect of any other financial information which emerged. That would be a surprising and unsophisticated conclusion to draw (especially for a finance director), but that may be the origin of this canard. The only alternative is that it was fictitious. At all events, it seems to have been another red herring.

My conclusions on liability and causation

[62]Ultimately on 22 February 2008 agreement was reached, and assented to by the Claimant, whereby he was to receive £40,000 by way of termination payment, £220,000 in respect of shares, £50,000 with regard to the director’s loan account and £7,000 as a contribution to legal costs.[63]I am not persuaded, therefore, that there was any breach of duty on Mr Chapman’s part, or on that of the Defendant firm. Indeed, it seems to me that the Claimant received a very good service from them in the difficult circumstances in which he found himself.[64]There would also have been real problems for the Claimant on causation. Even if Mr Chapman had been more “neutral” or “balanced” on the merits of costly and acrimonious litigation in November or December (over and above the commencement of tribunal proceedings), I see no evidence to suggest that the Claimant would then have opted to take that course. There was no way that Mr Chapman was ever going to make a positive recommendation to sue. (I do not believe that Mr Aylwin goes so far as to submit that he should have done so.) Without that, I do not believe that the Claimant would have overcome his reluctance, or willingly embraced the risks that had been pointed out to him throughout in no uncertain terms. It would still have been a huge gamble and contrary to his personal inclinations, as hitherto clearly expressed. There was certainly no rational basis for reversing his instructions at that time. I would proceed on the basis that there is no way that he would have changed his spots and chosen to spend money litigating for six months or a year in the High Court – even if he could afford it.[65]Nor is there any evidence on which I could safely conclude on a balance of probabilities that he would thereby have achieved, overall, a significantly better outcome than Mr Chapman had negotiated. It would be mere speculation. If some of the company documents had been sought more vigorously, and they had been disclosed, what would they have revealed? By how much would they have increased the Claimant’s chance of extracting a more generous offer from Messrs Boswell and Causer? Even by the time of the trial, there was no evidence before the court to show what the documents in question would have contained.[66]The experts have made calculations with a view to establishing the value of the shares, with the benefit of hindsight, as at 22 February 2008. It would perhaps be more relevant to consider whether litigation, if recommended in (say) November 2007, would have led to the disclosure of more information some months later, and that this in turn would (or might) have enabled the Claimant to negotiate a more advantageous settlement with Mr Boswell and Mr Causer than was in fact achieved by Mr Chapman. I see no basis for drawing any such conclusion. In particular, I have no means of knowing whether his future business opportunities (specifically with Macklow) would still have been open to him.[67]My principal conclusions can be summarised as follows:(1) The Defendant firm was not under a duty to advise the Claimant to change course, and to pursue litigation in the Chancery Division based on “unfair prejudice”, in the hope of finding out further information about FWA before reaching a settlement on the terms of his departure.(2) Had such advice been given in October to December 2007, it seems most unlikely that it would have been taken.(3) It is now (and would have been then) extremely difficult to establish what would have been the outcome of any such litigation – let alone what impact it would have had on the Claimant’s exit strategy.(4) Nor would it have been sensible to advise a claim founded upon any common law right of a company director to obtain such information, since it could not properly be said that the information was sought for the purpose of discharging the duties of a director towards the relevant company – moreover, Messrs Boswell and Causer would have been able to arrange the termination of his directorship if they wished to do so.(5) Nor could it be suggested, therefore, that the Claimant should have been advised to retain his directorship, or at least to attempt to do so, for the purpose of pursuing such a claim.(6) Mr Chapman did not advise the Claimant that he would be able to come back and seek more money if, having reached a settlement agreement, he later found out that FWA’s prospects had been better than he thought.(7) There is no reason to suppose that the Claimant believed that, on a valuation of his shareholding ordered by the court, an automatic discount would have been applied purely by reason of FWA being a closed company.(8) Nor is there any reason to believe that Mr Chapman or Mr Guthrie understood the Claimant to have been labouring under any such misapprehension.(9) The Defendant firm was not under a duty to volunteer advice to the Claimant about the principles discussed by Nourse J in Re Bird Precision Bellows Ltd. (not least because it cannot be characterised as being “reasonably incidental” to any task he was carrying out).(10) Had such advice been proffered, there is no reason to think that it would have made any difference to the Claimant’s attitude towards time consuming and expensive litigation or to his chosen strategy of negotiating exit terms through solicitors.(11) There was no reason to advise the Claimant that he should accept the offer of a valuation on 28 November 2007;(12) The Defendant firm was not under a duty to advise the Claimant that he should take the most unusual step of seeking or insisting upon warranties from Messrs Boswell and Causer (neither of whom did he trust in any event) as to the financial or commercial status of FWA.(13) Had such advice been proffered, it is most unlikely that the Claimant would have accepted it as a worthwhile course of action, since (a) he did not trust either of them, (b) they would not have been willing to give any such warranties, (c) any such insistence would have led to unacceptable delay in reaching a settlement or to a stalemate in the negotiations.[68]In those circumstances, I see no alternative but to dismiss the claim. Accordingly, there is nothing to be gained by exploring the pleaded case on contributory negligence, or entering further into the arguments about expert evidence on valuation, an exercise which would have been in my view too speculative to have been of much practical use anyway.

Cited in 1 later judgment