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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Youlton v Charles Russell (a firm) [2010] EWHC 1032 (Ch) (13 May 2010)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/1032.html
Cite as: [2010] Lloyd's Rep PN 227, [2010] EWHC 1032 (Ch)

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Neutral Citation Number: [2010] EWHC 1032 (Ch)
Case No: HC09C00566 & HC09C00751

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL
13/05/2010

B e f o r e :

MR JUSTICE WARREN
____________________

Between:
DAVID ALFRED YOULTON
Claimant
- and -

CHARLES RUSSELL (a firm)
Defendants

____________________

Hugh Evans (instructed by Trethowans LLP) for the Claimant
Ben Hubble QC and Emilie Jones (instructed by Barlow Lyde & Gilbert LLP) for the Defendants
Hearing dates: 8th,9th,10th,11th,14th,15th, and 18th December 2009

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Mr Justice Warren :

    Introduction

  1. This judgment concerns two related negligence claims against Charles Russell, a firm of solicitors ("CR"). They concern allegedly defective advice given (or rather not given) by CR in relation to a pension scheme known as the Snell & Wilcox Pension Plan ("the Scheme"). The Claimant ("Professor Youlton") in each action was at all material times, and remains, one of the trustees of the Scheme. He is also a member of the scheme prospectively entitled to benefits from it.
  2. The background in brief

  3. Snell & Wilcox Ltd ("S&W") is a company about which a little needs to be said. It was founded by Roderick Snell and Joseph Wilcox in 1973. Professor Youlton joined as Chairman and Chief Executive in 1988. S&W was and is a company which designs and develops digital signal processing products for the broadcast, post production and digital media markets. When Professor Youlton joined S&W, about 20 people worked for it. Over the next 13 years, it grew substantially so that by early 2000 it had over 600 people working for it and a turnover of £40 million. By 2007/8, although turnover remained much the same, the staff levels had halved.
  4. The Scheme, a Small Self-Administered Scheme, was set up by S&W for a small handful of individuals. The members were Professor Youlton (with a 41% interest under the Scheme) Joseph Wilcox, Professor Snell (with a 35% interest under the Scheme) and David Lyons. Those four individuals, together with a professional corporate trustee, were and remain the trustees of the Scheme ("the Trustees").
  5. In about February 1995, the Trustees acquired for the Scheme the property known as Southleigh Park, Havant, Hampshire ("the Property"). This consisted of about 8 acres of parkland within which is found Southleigh Park House. The House is Grade II Listed. The Property also comprised a large two storey modern office building, a coach house, stable block, lodge and outbuildings.
  6. S&W used the Property as its headquarters. It held the Property under a lease, dated 21 May 1996, from the Trustees for a term of 15 years from 25 March 1995 ("the Lease").
  7. Between 1995 and 2001, significant works of improvement and refurbishment were carried out to the Property (both its buildings and grounds), the cost of which was, as a matter of fact, met largely, if not exclusively, by the Trustees. There was a dispute about the extent to which the Trustees were entitled to reimbursement of that cost from S&W.
  8. Professor Youlton was an important figure in the development of S&W. He had been a controlling shareholder and chairman of the board of directors. Outside investors came into S&W. Professor Youlton ceased to be a director – he would say that he was ousted in a boardroom coup – in 2001.
  9. Following his departure from the board, various agreements were made between him and S&W to deal with the terms of compensation for his removal as director and with other matters concerning his departure. One of these was an agreement referred to in these proceedings as "the Apportionment Agreement". It is dated 24 August 2001. It was executed as a deed, on behalf of S&W by John Spencer and Professor Snell. Mr Spencer was the Chief Executive Officer of S&W and Professor Snell was at that time a director. Professor Snell was also one of the Trustees. Each of the Trustees (including Professor Snell) executed the Apportionment Agreement for himself. I will deal later with its relevant terms but note at this stage that it was obviously intended to be a binding agreement. It provided for surveyors to determine how much of the costs of the improvement and refurbishment works at the Property was to be borne by S&W, a matter on which the parties were in dispute.
  10. In connection with the Apportionment Agreement, a letter, also dated 24 August 2001 ("the 2001 Side Letter"), was sent by Mr Spencer on S&W headed paper to Professor Youlton, a copy being countersigned by him. I set out the relevant passages later in this judgment.
  11. As I have mentioned, outside investors became involved. In May 2002, a majority stake in S&W was sold to a group of private equity funds collectively known as Advent Venture Partners ("Advent"). This transaction was effected by introducing a holding company (Snell & Wilcox (UK) Ltd) to hold 100% of the shares in S&W. Advent took a majority share in the holding company. Professor Youlton was bought out.
  12. On 8 May 2002, an agreement letter ("the 2002 Side Letter") relating to the Lease was signed by Professor Youlton (on behalf of the Landlord, the Trustees) and Mr Spencer again purportedly on behalf of S&W. I say purportedly in each case, because it has been alleged by S&W that Mr Spencer had no authority to sign the 2002 Side Letter on behalf of S&W. I will come to the details of the 2002 Side Letter later.
  13. The terms of the Apportionment Agreement were not fully implemented. The 2002 Side Letter was not implemented at all. Professor Youlton's position is that S&W was undergoing a restructuring at the time, 2002-3, and that the Trustees, who acted principally through Professor Youlton, did not press for implementation of these agreements. They did start to press, however, in 2004 when they wished to sort matters out. This was partly driven by the imminent retirement of some of their number and partly by the need to establish, essentially for tax reasons, the value of the pension fund at as high a level as possible which required uncertainties to be resolved.
  14. S&W for its part appears to have wished to avoid or limit its apparent liabilities under the Apportionment Agreement and the 2002 Side Letter. On 16 September 2005, in a very short letter from its solicitors, Blake Lapthorn Linnell, S&W denied that the correspondence of 8 May 2002 (a reference to correspondence including the 2002 Side Letter) constituted a binding agreement and asserted that it did not comply with section 2 Law of Property (Miscellaneous Provisions) Act 1989.
  15. The emerging defence included the following components identified by Mr Hugh Evans (who appears for Professor Youlton).
  16. The most important component was that, under the 2002 Side Letter, S&W were to be permitted to sublet appropriate parts and the parties were to ask Mr Young, a surveyor, to advise. S&W alleged that this was too uncertain alternatively that it was an agreement to agree. The Trustees' response was, in effect, that "advise" should be interpreted as "determine".
  17. The next component was that the 2002 Side Letter failed to specify the terms on which S&W would be entitled to sublet. Then it was said that the provision that the rent for 2001 be settled was also an agreement to agree. The Trustees' answer to that was that the parties had agreed to instruct Mr Young to provide a valuation for the purposes of the review.
  18. Then it was said that the terms of the new lease were not specified, it merely being stated that the Lease was to form the basis of those terms.
  19. Lastly, by reason of those matters, the 2002 Side Letter failed to comply with the terms of the Law of Property (Miscellaneous Provisions) Act 1989.
  20. I shall, following Mr Evans, refer to those challenges to the validity of the 2002 Side Letter as "the Unenforceability Defence".
  21. There were attempts to settle the differences between the Trustees and S&W but they came to nothing. On 19 October 2006, Blake Lapthorn Linnell wrote to CR alleging the invalidity of the Apportionment Agreement and the 2002 Side Letter on additional grounds:
  22. a) It was said that Mr Spencer and Professor Snell had no authority to enter into the Apportionment Agreement and Mr Spencer had no authority to enter into the 2002 Side Letter. It was alleged that it was not possible to rely on the usual ostensible authority of a CEO and a director. This was because they in fact had no authority and at the time of the Apportionment Agreement, three of the directors, Professor Youlton, Professor Snell and Mr Lyons, were directors of S&W. Although that position had changed by the time of the 2002 Side Letter, Professor Snell remained a director.
    b) The three director Trustees were in breach of their fiduciary duty as there was an obvious conflict of interest. This had not been disclosed to the board of S&W in accordance with its Articles of Association (see Art 85 Table A) and section 317 Companies Act 1986.
    c) Apparent acts of confirmation of the agreement (eg participation in the appointment of surveyors under the Apportionment Agreement, provision of information, payment of fees) were ineffective because they were not ratified by the board or the shareholders.
  23. I shall refer to the defences based on want of authority as "the Want of Authority Defence". Perhaps slightly misleadingly, I include in that definition the defence based on failure to comply with company law requirements and breach of duty (which have sometimes been referred to as "the Company Law Points" and which is a reference which I will use from time to time).
  24. Faced with S&W's refusal to implement the terms of the Apportionment Agreement and the 2002 Side Letter, and settlement negotiations having come to nothing, the Trustees, acting through CR, issued proceedings against S&W on 21 December 2006 in relation to each Agreement. The Trustees sought:
  25. a) A declaration that S&W was bound by the Apportionment Agreement.
    b) A declaration that the surveyors were entitled to proceed with their determinations.
    c) Payment under the Interim Award.
    d) A declaration that the 2002 Side Letter was binding.
    e) Specific performance of it, alternatively damages.
  26. The claims were settled at a mediation (to which I will come in detail later) held on 12-13 September 2007 ("the Mediation"). The claims were settled for a fraction of the amounts claimed. It should be noted that the compromise agreement not only settled claims under the Apportionment Agreement and the 2002 Side Letter, but also disposed of any other claim which the Trustees might have had outside those Agreements in respect of the costs they had met in relation to the improvement and refurbishment works which I have mentioned. Under the compromise, a lease to 2017 was obtained, rent review dates were fixed for 2007 and 2012 and £500,000 was payable in two instalments. In accordance with that compromise, the reviewed rent for 2007 was subsequently agreed at £440,000 pa in 2008 and the full amount £500,000 has been paid.
  27. The present claims

  28. Professor Youlton's claim, in essence, is that CR were negligent in their drafting of the 2002 Side Letter and negligent in failing to ensure that such formalities were effected as would ensure that the Apportionment Agreement and the 2002 Side Letter could not be challenged on the basis of any lack of authority on the part of the signatories to them or any conflict of interest or breach of duty on their parts.
  29. In relation to the drafting of the 2002 Side Letter, it is alleged that CR were negligent in failing to ensure that the Unenforceability Defence could not be raised. Even if it would not have proved to be a good defence at the end of the day if tested in court, nonetheless, it was an arguable defence which should never have been available to S&W. In relation to authority and the company law formalities, it is said that CR should have ensured that Mr Spencer and Professor Snell had authority to execute the Apportionment Agreement and that Mr Spencer had authority to sign the 2002 Side Letter and should have ensured compliance with the company law formalities to avoid any argument based on conflict of interest or breach of duty. Had CR not been negligent, it is said that the Trustees would not have settled their claims at the Mediation for the amount which they did – indeed, the Mediation would not have taken place in the form it did and may not have taken place at all. Instead, they would have enforced the Apportionment Agreement and obtained the lease extension and revised rent review dates under the 2002 Side Letter with a far better economic outcome than was in fact achieved.
  30. CR's case is that they were not negligent at all. Further, they say that, even if they were negligent, that did not cause any loss because the compromise at the Mediation was driven entirely by concerns which the Trustees had about the financial strength of S&W: the Trustees achieved as good a settlement as they could given S&W's financial position and would not have achieved any more even if the Apportionment Agreement and the 2002 Side Letter were as water-tight as Professor Youlton asserts they should have been. Much of the evidence which I received went to this issue.
  31. CR were originally retained by Professor Youlton personally in relation to his position vis a vis S&W following his removal from the board and departure from S&W. In his first action, issued on 7 May 2008 ("the First Action"), he alleges that he retained CR in relation to the documents to resolve his disputes with S&W. He also alleges that CR drafted the Apportionment Agreement, it being implicit in the context of the Particulars of Claim that they did so pursuant to the retainer which had just been pleaded.
  32. The Particulars of Claim also allege that on or about 8 May 2002, S&W's shares were sold to Advent. It is alleged that, as part of that sale, the Trustees and S&W entered into the 2002 Side Letter. It is alleged that Professor Youlton instructed CR in or about April 2002 in relation to the transactions which took place in May 2002. He pleads that CR drafted and/or approved the 2002 Side Letter. As with the Apportionment Agreement, it is clear that Professor Youlton was alleging a breach of his retainer of CR in relation to the 2002 Side Letter.
  33. One of CR's responses to Professor Youlton's personal claim is that they were not instructed by him personally in relation to the Apportionment Agreement or the 2002 Side Letter. Rather, they were instructed by the Trustees. It was, after all, the Trustees rather than Professor Youlton personally who were concerned with the Lease under which they, and not he personally, were lessors. In the light of that response, Professor Youlton took an assignment of the claims of his co-trustees against CR in respect of the Apportionment Agreement and the 2002 Side Letter and commenced a second set of proceedings ("the Second Action") alleging similar breaches of duty to those he had alleged in the First Action but this time asserting, as assignee, the claim which, if it is a good claim, was originally a claim belonging to the Trustees in their capacities as trustees of the Scheme. The Claim Form in the Second Action was issued on 11 March 2009.
  34. Limitation points arise, to which I will come in due course.
  35. From this outline of the case, it can be seen that the issues which I have to decide can be broken down into four groups:
  36. a) The scope of CR's duty and breach of their duties in 2001 and 2002.
    b) Limitation.
    c) Causation and loss.
    d) Quantum.

    The witnesses

  37. Professor Youlton: He produced a number of witness statements and gave oral evidence. He was extensively cross-examined by Mr Ben Hubble QC who appeared for CR. Professor Youlton is, sadly, seriously ill. He was, from time to time, clearly in physical distress. I am grateful to Mr Hubble for the way in which he dealt with Professor Youlton, being sensitive to Professor Youton's difficulties whilst, at the same time, protecting the interests of his own clients. I should record that Professor Youlton himself appreciated this and thanked Mr Hubble for his approach at the end of his evidence.
  38. Professor Youlton had a lot which he wanted to get off his chest. His answers were very discursive, but that is not entirely surprising given the open nature of many of the questions he was asked. In any case, I found most of what he said ultimately to be of relevance in understanding his case which has to be put in the context of his involvement in and knowledge of the affairs of S&W. He was, it must said, somewhat repetitive, but in reality it was for me to bring him back when he became too discursive. I have no doubt that he was always trying to help the court as well, of course, as his own case. In spite of his discursive approach, he did not try to avoid answering the questions asked of him; answers came in the end.
  39. Further, I consider that Professor Youlton was honest in the sense that he was not telling his story other than as he genuinely saw it and believed it. However, he has so convinced himself of the righteousness of his claim that he was prone to under-estimate, in my judgment, his own reservations about the financial state of S&W. This is not to say that his evidence on that aspect of the case is fundamentally flawed. Nor is it fair to categorise it as "self-serving and unreliable" as Mr Hubble would have it.
  40. There is, however, one piece of evidence which I must deal with at this early stage of my judgment. I do so because it touches on a matter which is not of relevance to his claims but is of some relevance to his reliability as a witness. In his witness statement, he says that at a late stage in the Mediation, Mr Todd and Mr Clark took Ms Manson and himself into a separate room where they strongly advised them to accept what was on offer and told them that they would have a much less complex case getting the full value for the claim by suing CR for negligence. In cross-examination he was adamant that Mr Todd had given absolutely firm advice that there was a good claim against CR. He clearly viewed what Mr Todd had said in his own witness statement in the same light, saying to Mr Hubble that he, Mr Hubble, had had the opportunity to challenge what Mr Todd had said but did not do so. As Professor Youlton put it "It was absolutely firm from his witness statement".
  41. In contrast, Ms Manson said in her witness statement simply that there had been no time to consult professional negligence lawyers and that they were told by Mr Todd and Mr Clark that they could deal separately with the settlement with S&W on the one hand and a negligence claim against CR on the other hand.
  42. What Mr Todd actually said in his witness statement was this:
  43. "I remember going into a separate room at one stage with Wayne Clark and David Youlton and informing David Youlton that he may have a claim against Charles Russell but that I could not advise him or the other Trustees in relation to it. This was on the basis that I would have expected a solicitor to have ensured that the other side had the necessary authority to enter into the transaction. I said that a settlement with the Company would not preclude David Youlton or the Trustees suing Charles Russell."
  44. It can be seen clearly from that passage that Mr Todd's witness statement said precisely what Mr Hubble had put to Professor Youlton; and yet Professor Youlton was prepared to say that that it was absolutely firm from his witness statement that Mr Todd had given clear advice. But it can be seen from a reading of the witness statement that Mr Todd did not say that he had given that clear advice: quite the reverse.
  45. In any case, I am quite satisfied that Mr Todd did not give the clear advice which Professor Youlton purports to record. Not only does he say what he does, but it is inherently unlikely that an expert company lawyer would give clear advice about a topic in which he does not profess to be an expert and to do so in a breakout meeting towards the end of a long and tiring Mediation.
  46. I do not accept Professor Youlton's evidence on this point. It is, however, not a case of a deliberate lie. Rather, Professor Youlton has recorded in his mind from the conversation with Mr Todd and Mr Clark that which he wishes now to hear. There would be no reason for Professor Youlton to lie. It makes no difference to his actual claim whether Mr Todd did or did not give the advice which Professor Youlton says he did give so there would be no reason to lie. So rejecting both the proposition that Professor Youlton is lying and the proposition that Mr Todd gave the advice which he is said to have given, the only explanation for Professor Youlton's evidence is that he has wrongly himself come to believe his own case.
  47. I therefore treat Professor Youlton's evidence with an appropriate measure of circumspection.
  48. Ms Manson: The other main witness who gave evidence on behalf of Professor Youlton, was his wife, Jill Manson ("Ms Manson"). Her evidence was more focused than that of her husband. I considered her too to be entirely honest again in the sense that she was not telling her story other than as she genuinely saw it and believed it.
  49. Professor Snell, Joseph Wilcox, Brian Rogers and Jeremy Young: These gentlemen also provided witness statements and were cross examined. Professor Snell, in particular, gave helpful evidence which I see no reason to doubt. I accept entirely the evidence given by Mr Rogers and Mr Young. Professor Snell and Mr Wilcox did not, I am sure, attempt to mislead the court in any way. As with Professor Youlton, I have to guard against the possibility that they have convinced themselves of the way they saw things at the time, particularly during the Mediation. I must assess their evidence against what is recorded in the attendance notes of the Mediation.
  50. Michael Todd QC: The final witness called by Professor Youlton was Mr Todd. He gave evidence about the advice which he, together with Mr Clark, had given prior to the Mediation. He also gave evidence about what happened at the Mediation which he attended on behalf of the Trustees. I found Mr Todd's evidence to be of great assistance and have no reason to doubt anything which he said.
  51. CR relied on the evidence of three solicitors in the firm. They are two partners, James Holder and David Haines, and an assistant solicitor, Natalie Deuchar.
  52. Mr Holder: He was not as closely involved in Professor Youlton's affairs as some others in the firm. But he was the responsible partner in relation to the matters giving rise to the claims in the Actions. There is no doubt – and he admitted this – that he takes Professor Youlton's claims very personally and that there is animosity on his part to Professor Youlton (although not, I think, vice versa). Mr Holder refused to shake Professor Youlton's hand when proffered outside court before the hearing commenced. Mr Evans raises it as one of his reasons for saying that Mr Holder was not an impressive witness. I mention it only to record that the fact that Mr Holder feels as he does towards his former client does not mean that his evidence is somehow to be doubted.
  53. Mr Haines: Mr Evans, in his closing submissions goes as far as to say that Mr Haines was a dishonest witness and that nothing he says should be accepted unless independently corroborated. In making that suggestion, he placed great weight on a letter written by Mr Haines to Blake Lapthorn Linnell on 29 November 2006. I should deal with this allegation immediately.
  54. This letter stated that CR had "reviewed both the property law and company law issue with Counsel". Prior to that letter, Mr Haines had on 23 November 2006 attended a conference with Mr Clark. Mr Clark is not a company law specialist, his field of practice being in property law. One might, therefore, think that Mr Clark had not given advice at the conference about the company law aspects. Indeed, Mr Clark thought it unlikely that he would have done so. Mr Haines, in his evidence, said that the point had been "run past" Mr Clark but accepted that Mr Todd had not yet advised.
  55. Accordingly, Mr Evans said that it was a lie to say that CR "had reviewed ….. the company law issue with Counsel". But at that stage, Mr Evans did not have any note of the conference. Since the hearing, such a note has been found. It shows that the company law issues (authority of Mr Spencer and disclosure of interest) as well as the property law issues were extensively canvassed at the conference and Mr Clark did himself proffer some views. Mr Evans, on receiving the attendance note, promptly and properly withdrew his allegation that Mr Haines was lying in the letter. I am very glad he has done so since it seems to me that the suggestion that Mr Haines was lying in the letter was, even absent the attendance note, an extreme submission which I do not think the evidence warranted. I say no more about it.
  56. However, some of his criticisms of Mr Haines remain to be considered. When Mr Evans put to Mr Haines the suggestion that it was a lie to say that the company law issues had been reviewed by counsel, Mr Haines' response was to say that the phrase in the letter was ambiguous. I have to say that I fail to see how the phrase is remotely ambiguous. It clearly tells the reader that the company law aspects have been discussed with counsel. As a matter of fact, they had been; and they had been discussed rather more fully than Mr Haines recollected. There was no need for the letter to be ambiguous and, in my view, it was not.
  57. Mr Evans focuses on other parts of Mr Haines' evidence which he says show him to be unreliable. Without going as far as Mr Evans, I did find Mr Haines' evidence to be less than satisfactory and find myself unable to accept without corroboration his account of what he says he perceived as "almost the sole focus of the mediation" namely the state of S&W's finances
  58. Ms Deuchar: she is described by Mr Evans as being "not a satisfactory witness". She was subject to a sustained attack by Mr Evans in his cross-examination. He effectively accused her of deliberating "spinning" her long attendance note of the Mediation, a note which I will consider in more detail later, so as to cast CR in a more favourable light than was justified by events. She was also effectively accused of misleading the Court in her account of her recollection of events at the time. She was clearly, and understandably, upset by these suggestions but kept firmly and calmly to her perception of events as recorded in her attendance note. I consider that Ms Deuchar was an honest witness trying the help the court. I will have to resolve, in due course, whether, at the hearing, she could remember the events of the Mediation in detail or whether her recollection was anything more than what was recorded in her attendance note. I will also have to decide whether to accept the version of events recorded in the attendance notes as accurate. What I do want to say, at this stage of my judgment, is that I wholly reject any suggestion that Ms Deuchar deliberately inserted into or omitted from the attendance notes material with a view to casting CR in a more favourable light in relation to their advice to Professor Youlton and the other Trustees than the events justified. She did not either, I consider, seek to hide anything or to put a favourable "spin" on events. As with Mr Haines, I will consider Mr Evans criticisms in the context of consideration of the events at the Mediation
  59. Wayne Clark: CR also called the counsel, Mr Clark, who had advised the Trustees in relation to their rights under the Lease and in relation to the validity of the 2002 Side Letter. Mr Clark, together with Mr Todd, represented the Trustees at the Mediation. There is no conflict between their evidence. As with Mr Todd, I found Mr Clark's evidence about what happened at the Mediation to be of great assistance and have no reason to doubt anything which he said either.
  60. The relevant facts in more detail

    A. Events prior to 8 May 2002

  61. I have already stated that S&W held the Property under the Lease. I note that the Lease contained a covenant on the part of S&W to "put and keep [the Property] in good and substantial repair and condition" throughout the term granted. The Lease also provided for rent reviews in March 1997 and every 2 years thereafter at the higher of an open market rent or the previous rent plus RPI excluding the effect of any tenant's improvements otherwise than under an obligation to the Lessor.
  62. In about 1995 or 1996, a scheme of repair, fitting out works renovations and alterations at the Property was commenced with works, continuing through to 2001. Professor Youlton's evidence is to this effect:
  63. "This [scheme of works] was undertaken by Snell & Wilcox's in-house team of architects and builders. These works were commissioned and paid for by Snell & Wilcox but were, without the knowledge or agreement of the Trustees, subsequently charged in full to the SASS Pension Fund by way of offset to rent and reimbursement. The S&W finance department was managing the SASS's finances until 2002. I only became aware of this in 2001 when I was about to leave the Company and discovered that there was no money in the Pension Fund.……. We also discovered that some work on other properties carried out by Snell & Wilcox had also been wrongly charged to the Trustees. In total some £2.7 million had been charged to the Pension Fund. This came as a huge shock and a serious concern given that the Pension Fund represented the primary source of my future income."
  64. One of the disputes between the Trustees and S&W was who commissioned these works and who was responsible for the cost. There was no dispute that the Trustees in fact bore the cost initially.
  65. In around February 2000, Mr Spencer joined S&W and took over the role of Chief Executive Officer. Professor Youlton, who had been CEO, became Chairman. He says that Mr Spencer was to focus on day to day operations and the financial side of the business, whereas his focus was to be mainly on Corporate Strategy. Whilst away on business in the USA in January 2001, he was diagnosed with prostate cancer. He remained in the USA for treatment for some weeks before returning to the UK in March.
  66. On 14 May 2001, Professor Youlton was removed as chairman of S&W in what he refers to as a boardroom coup. He was asked to resign his directorship. He did not at that stage do so. On 15 May 2001, Mr Spencer wrote to Professor Youlton in terms showing that S&W wished to reach an amicable settlement.
  67. Professor Youlton sought legal advice, eventually instructing Mr Holder of CR who had been recommended to him. He did so in his personal capacity. It is clear that instructions had been accepted by, at latest, 25 May 2001 when Mr Holder wrote to Professor Youlton in terms which are only consistent with such instructions having been accepted. There was no engagement letter, but CR advised (through Mr Holder and other lawyers) in relation to various matters between May and August 2001 concerning the terms of Professor Youlton's severance.
  68. It is clear that CR gave advice about employment, property and pension matters. Professor Youlton's case is that, in giving such advice, they were in all cases advising and acting for him (whether or not they were also advising and acting for the Trustees). He says that Mr Holder and his colleagues (including Joanne Owers and Andy Williams on employment, property and pensions) advised him in connection with the ongoing negotiations with S&W between May and August 2001 and the terms of an appropriate settlement agreement. It was in this context that he says Heads of Agreement were drawn up which were signed or initialled on or around 8 August 2001, and which I deal with further in a moment. There followed a period of further negotiation before the various agreements were finalised.
  69. It is clear that CR were, in some respects, acting for Professor Youlton and not for the Trustees. The Trustees were not, of course, concerned with his terms of severance. Thus, on 12 July 2001, we find CR writing to Professor Youlton and Ms Manson to confirm the purposes of a proposed meeting with Mr Spencer and Mr Garratt (a director of S&W) and to provide a list of the outstanding issues. These all related to the personal positions of Professor Youlton and Ms Manson under the headings "Continued Pension and Health Cover", "Hold Harmless Provisions", "IPO", "Service Contract", "non-Executive Directorship Appointment Letter" and "Indemnity". Nothing in that letter related to the claims of the Trustees in relation to the payment for works carried out at the Property. Further, although one can see reference to the Scheme in earlier documents, that is only in relation to the rights which Professor Youlton had under the Scheme: see for instance an internal CR memo from Joanne Owers to George Duncan dated 15 June 2001.
  70. Professor Youtlon had concerns about the Scheme. These were articulated in a fax he sent on 6 August 2001 to a Mr Charles Evans. He is a gentleman who has been described in these proceedings as an informal arbitrator. It seems that he was attempting to broker a deal between Professor Youlton and Ms Manson on the one hand, and S&W on the other. In this fax, Professor Youlton dealt with pensions issues. Under his first heading, he dealt with S&W's contractual obligations. Under the second heading, he dealt with the funding shortfall in the Scheme. In the course of his discussions he identified that there was a
  71. "significant level of adjustment to be made between landlords' responsibilities and tenant fit-out at Southleigh Park (we are taking separate advice on this issue from the company's property surveyor and the company's quantity surveyor…..). When we have established the true level of under-funding we will be in a position to discuss with the company how this shortfall is to be made up."
  72. On 8 August 2001, there was a phone call between CR (Mr Williams and Ms Owers) and Professor Youlton and Ms Manson. The note of the conversation made by CR records Professor Youlton raising a query about S&W having defrauded the Scheme by overcharging it for certain costs concerned with the works at Southleigh Park. Although certain advice was given about the funding of the Scheme, nothing was said about the merits of the allegation about overcharging; nor is there anything to suggest that the advice which was given was advice to the Trustees rather than to Professor Youlton and Ms Manson.
  73. In the meantime, Heads of Agreement were being prepared relating to the terms of Professor Youlton's severance. It seems that Norton Rose (acting for S&W) had prepared a draft dated 3 August. A marked-up copy with amendments was returned by CR on 6 August. This resulted in Heads of Agreement being initialled or signed on 8 August 2001. They are initialled or signed by Mr Spencer and Professor Snell (acting for S&W) and by Professor Youlton and Ms Manson. There is a fifth signature and initial on the document, I think that of Mr Evans.
  74. The Trustees (apart from Professor Snell and Professor Youlton) did not initial or sign the Heads of Agreement; nor is there is anything to suggest that Professor Youlton signed on behalf of the Trustees. This is not surprising. The Heads of Agreement deal principally with matters personal to Professor Youlton and, in small measure, Ms Manson. The only mention of Southleigh Park is this:
  75. "Southleigh Park tenant fit out to be settled through use of jointly agreed professionals whose recommendations shall be binding on both parties"
  76. No mention is made of a proposed Apportionment Agreement.
  77. On 9 August 2001, there was a meeting at Norton Rose's offices for the purpose of clarifying the Heads of Terms of Agreement which had been signed the day before. It was decided to discuss pensions initially, using the draft Compromise Agreement prepared by Norton Rose (draft dated 3 August) together with the Heads of Terms agreed the day before (a reference to the Compromise Agreement and, I think, another agreement relating to Professor Youlton's position on the Advisory Board).
  78. At that meeting, Mr Williams (of CR) gave to Mr Burge (of Norton Rose) a copy of new proposed rules for the Scheme. Who drafted those rules, I do not know; nor do I know who gave instructions for the preparation of new rules. However, it is recorded that Mr McIntosh (the chairman of the meeting) would chase S&W "in relation to how far down the line the new rules have gone to being adopted" which might suggest that the initiative for the change came from S&W. Further, one finds in a note dated 11 August from Mr McIntosh that the new rules have been approved (this must, I think, mean approved by S&W) and are being circulated for approval. Thelma McNeil was, he said, in charge of the process: she was the executive personal assistant to the CEO of S&W, again suggesting that the initiative for the change came from S&W. Certainly, there is no evidence before me to suggest that CR were retained by the Trustees to draft any rule changes.
  79. The only reference to the Property recorded in the note of the meeting was that Ms Owers (of CR) would arrange with a property colleague at CR to draft the necessary side letter in relation to the appointing of a surveyor to act as arbitrator regarding the fair market rent subsequent to improvements to the Property carried out by S&W. This would not be mentioned in either of the other agreements.
  80. Although it is clear that CR had given a great deal of attention over the weeks since they were instructed to Professor Youlton's pension provision, including giving some thought to the ultimate liability of the cost of the works to the Property, there is nothing which I have seen up to and including the meeting on 9 August which suggests that CR had been instructed by Professor Youlton on behalf of the Trustees to give any advice or to carry out any functions.
  81. On 10 August 2001, Ms Owers wrote to Professor Youlton and Ms Manson. She enclosed two side letters. One of these related to the Property (I do not know what the other related to). It was a draft letter from Mr Spencer on behalf of S&W to Professor Youlton under which S&W agreed to abide by the ruling of jointly appointed professionals to review the works and the accounting in relation to the West Wing. It sought counter-signature of the letter "to indicate agreement to these arrangements on behalf of the Trustees of the Pension Scheme". Ms Owers letter includes the following:
  82. "I have spoken to Andy [Mr Williams] re the side letter on Southleigh Park. As suspected, he has advised that as the issue concerns the value of the fund all the Trustees need to agree to this process taking place. As such, the safest route is to arrange for a Board resolution of the Trustees to allow David [Professor Youlton] to agree the contents of the letter with John Spencer on their behalf rather than signing the letter individually….."
  83. This advice was clearly being given by Ms Owers to the clients, Professor Youlton and Ms Manson. It was not advice being given to the Trustees. Whether, and if so to what extent, the Trustees needed advice and whether CR undertook to give that advice or otherwise undertook a duty of care to the Trustees is a matter I will come to. But as of 10 August 2001, there is no reason to think that CR were not advising Professor Youlton and Ms Manson about what needed to be done in relation to the side letter. They both had a real interest in the matter as beneficiaries of the Scheme and both – particularly Professor Youlton – had an interest in seeing that the Trustees recovered what was properly due to them.
  84. On 13 August 2001, Ms Manson sent a fax to Mr Williams at CR headed "SNELL & WILCOX/DAVID YOULTON" concerning "Southleigh Park Agreements to settle split in landlord and tenant costs of alterations and provide Professional Indemnity to Jill Manson". This was clearly a communication from a client to her lawyer. In this fax, Ms Manson stated that "we understand [that must be a reference to herself and her husband] that these [a reference to the agreements referred to in the subject title] would both be agreements rather than letters to be signed by S&W and the Trustees". I do not know what communications there were between CR and their clients between 10 August and 13 August to give rise to this understanding. Ms Manson provided Mr Williams with the names of the Trustees and informed him that Hartleys (the independent corporate trustee) was happy to sign. She also provided the names of the professionals to be appointed to settle the landlord/tenant costs. She wished the Agreements for signature by the Trustees to be signed the next day prior to Professor Youlton signing his severance agreements – what she referred to as "the Cessation and other documents".
  85. In passing, it is perhaps worth making the obvious point that Ms Manson was referring to two agreement in relation to one of which – the indemnity – her own interests were in conflict with those of the Trustees and in relation to which it is difficult to see how CR could have advised the Trustees (which, I hasten to add, it is not suggested they did).
  86. E-mail correspondence between CR and Norton Rose continued concerning the detailed drafting of the various agreements. On 13 August 2001, Ms Owers faxed (under cover of the single line "Please see attached") to Professor Youlton and Ms Manson the first draft of what became the Apportionment Agreement. It showed S&W as one party and Professor Youlton as the other.
  87. Under clause 2 of this draft, S&W and Professor Youlton "for and on behalf of the Trustees of the [Scheme]" agreed jointly to appoint professionals to review the renovation works and accounting to ensure the correct allocation of the costs. Any recommendations issued by the jointly agreed professionals were to be binding. This draft was superseded by a second draft prepared by CR dated 14 August. The wording was slightly different, but still only related to the appointment of professionals to deal with the apportionment of expenditure on the works to the Property. Ms Owers sent, on the same day, to Professor Youlton a draft Trustee resolution authorising him to execute the apportionment agreement and the indemnity to Ms Manson.
  88. Between 13 August and 24 August, there was considerable activity within CR and, one can be sure, Norton Rose, with considerable email and other correspondence between the firms. Most of it related to the Compromise Agreements and other agreements between S&W on the one hand and Professor Youlton or Ms Manson on the other. Those agreements do not involve any contractual arrangements concerning the Lease or the Property and it is not necessary to say anything about them save to point out that CR were clearly acting for Professor Youlton and Ms Manson personally in relation to those mattes. I would also add that they were clearly acting for Ms Manson personally in relation to the indemnity to be given to her by the Trustees.
  89. So far as communications concerning the Lease and the Property are concerned, Ms Owers sent a fax to Professor Youlton and Ms Manson on 16 August. It informed them that she had just received a "draft Southleigh Park agreement" advising that "it does appear that we need a Charles Russell property lawyer to review the changes!".
  90. On 17 August, Mr Williams sent an internal memorandum to a property lawyer within the firm, Nigel Richards, copied to Ms Owers. He informed Mr Richards that Ms Owers and he "are working on the employment and pensions aspects of the termination of the employment of our client, Professor David Youlton". He records that CR were "originally given instructions to prepare a very basic two page document between the Company and David" relating to the dispute over the Lease. He goes on to say that "Both parties to the Agreement (i.e. David and the Company) have agreed to appoint" professionals to investigate and make a report, with both parties being bound by the findings.
  91. On 24 August 2001, Professor Youlton entered into a Compromise Agreement and a number of related agreements and side letters. These included the Apportionment Agreement and the 2001 Side Letter although these he executed or signed in his capacity as one of the Trustees. The Apportionment Agreement was also executed by the other Trustees. He enclosed a copy of the Norton Rose draft asking Mr Richards to review it. It is pretty clear that, at that stage, Mr Williams regarded Professor Youlton and Ms Manson as his clients even in relation the dispute concerning the Lease (ie the apportionment of the costs of the works).
  92. Mr Williams returned the draft to Norton Rose on 17 August marked up with proposed changes. It came back to him from Norton Rose with further proposed changes on 20 August. There is a note dated 21 August of a discussion involving Mr Richards, Ms Manson and Mr Williams. It is not clear whether it was a telephone conversation or took place at a meeting. There was discussion about the costs incurred on works at the Property and the nature of those works as well as about responsibility for repairs.
  93. There is also an S&W internal memorandum of the same date, 21 August, from Mr Spencer to Mr Lyon, Mr Wilcox, Mr Goodwin, Professor Snell and Mr Garratt, all directors of S&W. It was sent to explain to the board "the structure of the deal" concerning Professor Youlton's severance arrangements. The memorandum dealt with the terms of the Compromise Agreement and the Employment Contract. The former included reference to Professor Youlton's pension rights. The latter related to Professor Youlton's re-employment as Chairman of the Advisory Board, effectively a method of ensuring his continued employment for pension purposes. Reference was also made to the proposed indemnity to Ms Manson. But nowhere in the Memorandum was reference made to the disputes concerning the Lease and the Property.
  94. On 21 August 2001, Mr Williams faxed Professor Youlton and Ms Manson, in the course of which he referred to the Southleigh Park agreement, stating that he needed "to take instructions from you on developments today". It is not entirely clear what happened in response to that item. But what clearly did happen is that, on 23 August, Norton Rose sent a copy of the draft agreement to Mr Williams for his consideration. Norton Rose stated that their client had accepted that the question of liability for repairs to the structural fabric would be addressed after completion but that Professor Youlton would sign a side letter confirming that he would use his best endeavours to obtain the consent of the other Trustees to apportion the cost of such repairs to the Scheme.
  95. A handwritten note of a discussion between Mr Richards, Mr Williams, Professor Youlton, Mr McIntosh and Ms Manson on 23 August show that a decision was made to "go with" Norton Rose's first draft and CR's minor amendments. It was recorded that Professor Youlton was happy with that and understood that he would be binding the Trustees to "pay lots of money for works which under the Lease they are not obliged to do". On the same day, Mr Williams faxed to Professor Youlton and Ms Manson an index of all the documents. He had not reviewed them comprehensively but was about to do so to "ensure that there are no gremlins lurking". Included in the index was the Southleigh Park Agreement (ie the document which became the Apportionment Agreement), as well as 3 other agreements relating to the Scheme – namely the Trustees' indemnity to Ms Manson, the Trustees' indemnity to Professor Youlton and the Trustees' Resolution (resolving to give the indemnities). Mr Williams said that he had e-mailed the 4 trust documents to Thelma McNeil, Mr Spencer's personal assistant, asking her to confirm with Professor Youlton and Ms Manson that they are acceptable before circulating for signature.
  96. On 24 August 2001, all of the various agreements were completed. I have already mentioned the parties to the Apportionment Agreement I now deal with its terms in more detail.
  97. The Apportionment Agreement

  98. The Apportionment Agreement recites that the Scheme is the freehold proprietor of the Property and has granted the Lease to S&W. It recites that various works of repair and refurbishment have been carried out to the Property and that the Agreement is entered into for the purposes of apportioning the cost of such works between the parties. It contains a number of definitions which I do not need to go into save that (i) "Category A Specification" is used to describe the level of fitting out between the shell and core; and (ii) "Surveyors" means two identified individuals, Mr Young and Mr Simler.
  99. By Clause 2, the parties agreed jointly to appoint the Surveyors to make an award in respect of all costs incurred in carrying out the works in order to attribute and account for the costs between the parties. At clause 2.2, it set out the principles on which the apportionment was to be effected: S&W were to be responsible for that part of the cost of the works which would reasonably have been carried out by a tenant in the same industry as S&W and taking a similar lease (to the Lease) and the Trustees were to be responsible for works within the "Category A Specification". The award was to be made within 28 days of their appointment. By clause 3, the parties agreed to disclosure of documents and information needed by the Surveyors.
  100. I have already mentioned the 2001 Side Letter. It reads as follows:
  101. "Compromise Agreement – Escrow Arrangements
    We refer to the compromise agreement proposed to be entered into on the date hereof between Snell & Wilcox Limited (S&W") and you (the "Agreement"). You and S&W hereby agree that the Agreement and all documents ancillary thereto which may be executed by Snell & Wilcox Limited shall be deemed to be held in escrow, and the Agreement and all such documents and all matters to be effected thereby, shall be conditional on the approval of the Agreement and such documents, and the matter referred to therein, by the board of S&W.
    We hereby undertake to seek to procure a meeting of the board of S&W within 7 days of the date of this letter to seek such approval."
  102. The letter, according to its terms, relates principally to the Compromise Agreement. But it also relates to ancillary documents. That would include the Apportionment Agreement, or so it seems to me.
  103. On 29 August 2001, a board meeting of S&W was held. The Directors present were Dr Eeles, Mr Garratt, Mr Goodwin, Mr Lyons, Professor Snell (who chaired the meeting) and Mr Spencer. The board had Mr Spencer's memorandum dated 21 August explaining the structure of the compromise (which, as I have mentioned, made no mention of the disputes concerning the Lease and the Property). The board approved the three agreements which they understood dealt with the compromise, namely the Compromise Agreement, the Employment Contract and the Indemnity to Ms Manson. It does not appear that the board were told anything about the Apportionment Agreement or, indeed, that any of the agreements effecting the compromise had actually been executed.
  104. It appears that on 3 September 2001, there was a phone conversation between Professor Youlton and Ms Manson on the one hand and someone at CR on the other hand. Under the heading "Matter" one finds "Emp" suggesting that this was dealt within the employment department. An attendance note of CR of this conversation records:
  105. " – everything signed - Bd approval. Weds last week
    - copies of all signed docs".
  106. On 7 September 2001, Thelma McNeil sent a set of documents - noting that some were still missing – to Ms Owers. I am not clear why she did not already have them, but it may because completion took place at the Property without CR attending. That set of documents included the 2001 Side Letter.
  107. Everything then being apparently complete, Mr Holder wrote to Professor Youlton on 7 September 2001. He recorded that "the terms of your departure from Snell & Wilcox have now been resolved and approved by the Board". One might think, as no doubt Mr Holder believed, that the board approval related to all of the documents which had been agreed between CR and Norton Rose, thus including the Apportionment Agreement. It seems that Mr Holder was aware that board approval was necessary but what is not at all clear is why Mr Holder would have believed that a board resolution had been obtained. There is no letter – at least none was drawn to my attention – from S&W or from Norton Rose informing CR (or indeed Professor Youlton and Ms Manson) of such a resolution. Perhaps he knew of the 'phone call just recorded above or perhaps he can only have assumed that, because the documents were sent to him by Thelma McNeil, they had been approved by the board.
  108. Mr Holder gave a brief resume of the work which had been done in order to explain the amount of CR's fees (which were being met by S&W as part of the severance terms). He expressly referred to property advice in relation to the Southleigh Park arrangements. As far as I am aware, there was no obligation on the part of S&W to meet the Trustees' costs of the advice in relation to Southleigh Park. But clearly CR were expecting the costs of that advice to be met by S&W. That could only be because they were costs for which Professor Youlton and Ms Manson, as CR's clients, were liable to pay since there is nothing to suggest that S&W had ever agreed to pay any costs incurred by the Trustees.
  109. I now move forward to the events of 2002 leading up to the 2002 Side Letter. I can start with a meeting on 16 April 2002 attended by Professor Youlton, Ms Manson, Professor Snell and Mr Holder. One item on the agenda concerned the Property. CR's attendance note records that the Lease now had 8 years to run and that Professor Youlton wanted it extended to 15 years "to make the main asset of the Scheme more saleable. This would mean more would be received on a sale which would take place soon as Professor Snell and Mr Wilcox were shortly to retire, giving rise to liquidity issues". Although Professor Snell attended, it does not appear that he was there because he was one of the Trustees; rather, he was there as a shareholder of S&W concerned with a possible restructuring of S&W on which Mr Holder was advising Professor Youlton, that is to say, the Advent investment.
  110. At some point prior to 3 May 2002, there must have been discussions between CR and Norton Rose concerning the proposed side letter which became the 2002 Side Letter. I do not know the history of the drafting – or who produced a first draft – but in the bundle is a draft amended in manuscript by Victoria Brett of CR and faxed to Norton Rose on 3 May. The draft went through a few iterations until being signed on 8 May 2002. The eventual agreement (ie the 2002 Side Letter) provided as follows:
  111. i) It referred to the Lease and to the desire of the Trustees to complete the refurbishment of the west wing of the premises (that is to say the main building on the Property). It recorded that the Trustees wished to ensure, before incurring further expenditure on that refurbishment, that S&W would remain as a tenant for a further period after expiry of the Lease.
    ii) It was recorded that, in consideration of the Trustees agreeing to vary the terms of the Lease (and conditional on completion of Advent's acquisition of its majority stake) S&W agreed to:
    "1. Enter into a deed of variation amending the terms of the Lease as follows:
    (a) ……………
    (b) [S&W] is to be allowed to underlet the whole or appropriate parts of the Premises at an open market rent and without the current restrictions so as to strike a fair balance between the requirements of the tenant but having regard to the landlord's wish to preserve the reversionary value. The parties agree to ask Jeremy Young of Young & Butt to advise.
    (c) that the rent review outstanding from 2001 be settled and that the rent review pattern be amended to provide rent reviews in March 2004 and March 2009.
    2. Enter into a reversionary lease for a period of seven years from 25 March 2010 in respect of the whole of the Premises……."
  112. I have gone into the events leading up to the Apportionment Agreement and then the 2002 Side Letter in considerable detail. I have done so in order to paint a full picture of the context in which the extent of CR's retainer can be assessed, a task I carry out later in this judgment.
  113. Events after May 2002

  114. Progress on the costs apportionment exercise was slow. Following the restructuring of S&W, Mr Spencer was replaced as CEO in November 2002 by Mr Simon Derry. There seems to have been some, possibly regular, contact between Professor Youlton and Mr Derry. They met for lunch in late April 2003 following which Professor Youlton wrote to Mr Derry on 29 April 2003 to -
  115. "confirm our agreement to clear away all the minor issues still outstanding from the Compromise Agreement and indeed the Advent Sale Agreement. We should then only be left with the split of costs between Landlord and Tenant and issues relating to the conversion of the West Wing and completion of the site at Southleigh Park House."
  116. Under the heading Southleigh Park, Professor Youlton raised (i) actioning the lease extension including the agreement about subletting, something which he said was long overdue (this was a reference to the 2002 Side Letter) (ii) review of maintenance issues outstanding and (iii) the rent review due at 31 March 2003.
  117. There was some follow-up correspondence but nothing was achieved. On 17 March 2004, Professor Youlton, Ms Manson and Brian Rogers attended a meeting with Mr Holder. There is an attendance note of that meeting over Mr Holder's initials. Three issues are recorded as having arisen: the terms of the variation to the Lease, the maintenance of the Property (ie the dilapidations issue) and the allocation of costs of the works. In fact, the question of the rent review was raised as well and it was agreed that a review notice should be given under the terms of the Lease as it then existed, the deed of variation not having been entered into by that time. CR duly served a notice on 22 March 2003 acting on behalf of the Trustees whom they described as "our clients". During the course of May, Mr Holder appears to have communicated with the in-house General Counsel at S&W, Nicola Proudlock. I did not have the privilege of receiving evidence from her but if one were to judge by the comments made in court by several people, it would be correct to describe her as "difficult". Whether that is right or wrong, she certainly failed to address directly Mr Holder's reasonable requests concerning S&W's lack of progress on the rent review and costs allocation exercise.
  118. It can be seen that there was significant delay in implementing the Apportionment Agreement. This delay, resulted partly, if not wholly, from S&W's failure to provide information to the surveyors. The fact of the failure to provide information is not challenged by Mr Hubble. He suggests that there is a clear inference from the documents that much, if not all, of the delay was due to the financial circumstances of S&W; he relies particularly on a letter from Ms Proudlock dated 28 May 2004 in which she stated that the Trustees "well understand why the company has to date been unable to give priority to the allocation exercise required to give effect to the agreement of 24 August 2001". That is a rather cryptic statement. Even assuming that financial difficulties lie behind it, it is a pretty feeble excuse for failing to provide information to the surveyors and ignoring the contractual obligations under the Apportionment Agreement. If Mr Hubble is relying on this to show that S&W was in a dire financial position, I do not agree. It shows Ms Proudlock being "difficult" and seeking to delay the "evil day" when payment would have to be made. She may have had reasons for wanting to do that which had nothing to do with finance, a suggestion which gains some support from what Mr Fredericks said much later at the Mediation about the strength of feeling that S&W had received from long-serving employees about who was responsible for the costs of the works and the lack of suitability of the Property as premises for S&W.
  119. Although CR had originally been instructed by Professor Youlton personally, they were instructed by him on behalf of the Trustees in March 2004 to act on the continuing issues with S&W concerning the allocation of cost of the Works, the terms of the proposed lease extension and the ongoing problems concerning maintenance of the Property. Mr Hubble says that Professor Youlton and Ms Manson were concerned even then about the financial situation of S&W and draws my attention to attendance notes of 17 March 2004 and 21 March 2005 where questions are raised about the implications of sub-letting if S&W should go into liquidation.
  120. So far as the revised rents on the rent review were concerned, Mr Rogers provided some figures to CR (Elinor Short) on 21 October 2004. He did so not on the basis of any valuation – he is not a valuer – but simply by applying RPI to the existing rent in accordance with the rent review provisions. On that basis, a review on 31 March 2003 (the review date under the Lease) would have produced an annual rent of £334,000 or £402,000 on completion of works to the West Wing, Lodge and entrance. Now, that difference might have set bells ringing in a property lawyer's brain, since it suggests that the rent would depend on the extent of the demise available for useful occupation. But an examination of the Lease would show that S&W was not entitled to enjoy the Property without paying rent on the West Wing in the first place. At this time, the point was not picked up by CR. For the "new lease", by which Mr Rogers meant the variation and extension which should have been implemented pursuant to the 2002 Side Letter (if valid), a review in March 2004 would have produced corresponding figures of £342,500 and £412,500.
  121. This approach to the Lease was taken by Mr Young in his own letter of advice dated 10 December 2004 where he referred to the West Wing being refurbished and to the time when "the space becomes part of the lease…".
  122. On 20 December 2004, Professor Youlton sent an email to Ms Short, copied to Mr Rogers. He told Ms Short that a surveyor friend had raised some points which caused him concern and sought advice on a number of matters including these two: first, whether S&W were obliged to pay rent on the West Wing when it had been renovated and secondly, whether S&W were responsible for renovation of the fabric under the covenant in the Lease "to put and keep the Demised Premises….in good repair".
  123. In her response of 20 January 2005, Ms Short referred to the Lease pointing out that it did not refer to different parts of different buildings on the site – the tenant was obliged to pay rent on the entire site. She also gave some, unexceptional, advice on the effect of a "put and keep" covenant.
  124. During much of 2005, negotiations proceeded between the parties on the terms of a deed of variation of the lease (including an extension) and the terms on which sub-letting would be allowed. Those negotiations included the question of rent payable in respect of the West Wing and review of that rent from time to time: it seems to have been accepted that rent would not be payable until the refurbishment was complete notwithstanding the advice which Ms Short had given. The position in July is summarised in the Minute of the Trustees' meeting held on 29 July:
  125. "….As the lease was being negotiated it became apparent that the pension scheme would not be able to charge rent on the renovated West Wing until the next rent review in 2009. In order to deal with this the Scheme Manager had requested a clause be inserted in the lease to allow a review to increase the rent on the West Wing on practical completion of the refurbishment.
    As a counter to this the tenant requested the removal of the RPI clause in the rent review and also the removal of the "put" clause in the repairs and maintenance covenant. It was confirmed by the Valuing Surveyor that if the Trustees agreed to this it would be detrimental to the value of Southleigh Park House.
    As a result of the above factors it is AGREED that the Scheme Manager should proceed with the completion of the lease extension without pursuing the interim rent review of the West Wing. This would establish the rent for Southleigh Park at March 2005 under the RPI provisions of the old lease at £345,000".
  126. Further correspondence ensued through August 2005.
  127. The parties could not, however, resolve their differences. On 30 August or 1 September 2005, S&W withdrew altogether from the lease extension and the deed of variation. They did so regardless of the obligations, which they had not up to then challenged, under the 2002 Side Letter. They refused to accept liability under the terms of the Lease for repairs to the West Wing, saying that such an obligation had never been intended and asserting that the Lease should be rectified.
  128. On 13 September 2005, Ms Short wrote to Andy Peck at Blake Lapthorn Linnell (acting for S&W in relation to the Lease dispute) asserting that S&W was contractually bound to enter into the deed of variation and reversionary lease pursuant to the 2002 Side Letter. Absent a reply within 7 days, she stated that proceedings would be commenced. His reply, on 16 September, which I have l already referred to at paragraph 13 above was very short: it was "denied that the correspondence of 8th May 2002 constituted an agreement and, in any event, it does not comply with Section 2 [ie of the Law of Property (Miscellaneous Provisions) Act 1989"].
  129. The reply to that letter, dated 25 October 2005, was a short response threatening litigation. Mr Hubble points to some material which suggests that not all of the Trustees in fact wanted an extension lease. I have no evidence about why any of the Trustees might have taken that approach. There is in any case nothing to suggest that it was ever pursued.
  130. Meanwhile, on 29 September 2005, a Schedule of Dilapidations under the Lease was served on S&W on behalf of the Trustees by CR.
  131. On 17 October 2005, Mr Young and Mr Simler produced what they called (and I shall refer to as) an Interim Report on the apportionment of the costs of the works at the Property. It was interim in the sense that it covered only works carried out to the Main House excluding the West Wing and did not relate to any other parts of the Property. The Interim Award and Determination was that the sum of £589,892 was for the account of S&W.
  132. Some more detail of the case under the Law of Property (Miscellaneous Provisions) Act 1989 Act was given in a letter from Blake Lapthorn Linnell dated 15 November 2005; and in the same letter, it was said that the 2002 Side Letter was no more than an agreement to agree. It is not clear precisely when Professor Youlton was informed about this letter but he certainly knew that there was a dispute by 23 November 2005. On that date. Ms Short had a conversation with him and Ms Manson which is recorded in her attendance note. She said that she had spoken to Mr Holder who confirmed that the 2002 Side Letter had been intended to be a binding contract. She had also briefed her colleague David Haines, a litigator, who had expressed the view that Counsel's opinion should be sought on the enforceability of the 2002 Side Letter. Professor Youlton wanted to know what his options were if reliance could not be placed on the 2002 Side Letter. All she could think of was attempting to negotiate with S&W but it is recorded that he did not see that as an option.
  133. The upshot was that Mr Clark was instructed at the beginning of December 2005. He produced an Opinion dated 7 December 2005. In summary, he advised:
  134. i) It was arguable that the provisions of clause 1(b) of the 2002 Side Letter were too uncertain so as to render it unenforceable. He expressed the view, but only on balance, that such argument ought to fail.
    ii) It was not possible to sever clause 1 and 2 so as to uphold part.
    iii) S&W did not have the better case of i) but did have the better argument on ii).
    iv) Accordingly, the 2002 Side Letter is more than likely to be held to be a valid rather than an invalid contract.
  135. I set out what Mr Clark actually advised because Mr Hubble selects that part of Mr Clark's opinion where he says that the contract was "more than likely" to be held valid which, read in isolation, does not give a full and fair view of what Mr Clark actually said.
  136. At subsequent Trustees' meetings on 8 December 2005 and 16 January 2006, Professor Youlton was given authority to represent the Trustees in negotiations with S&W. At the January meeting, Mr Rogers informed those present that S&W were not meeting their rental obligations under the Lease. £37,000 was due which S&W were withholding pending settlement of all outstanding issues.
  137. It appears that Professor Youlton had communications with Peter Fredericks during the course of January 2006. Mr Fredericks was then the Finance Director of S&W having been appointed in February 2004. On 19 January, a without prejudice discussion was held. There is a document of that date containing Heads of Terms of agreement settling the outstanding issues. It is recorded "it became clear in the discussions with Mr Fredericks that if Snell & Wilcox was to fully comply with all its obligations to the Snell & Wilcox SAS at this time, this would put the company under intolerable financial pressure". The terms, briefly, were (a) a 15 year extension lease from signing (and thus running to 2021 rather than 2017) (b) with upward only rent reviews with RPI as a minimum (c) a £96,000 pa increase in the rent for the West Wing and Office rental rates on the New Building (revised rent £449.000 pa) (d) payment of certain insurance premiums to cover the risk of default by S&W on the outstanding loan or the lease agreement (e) payment of the Interim Award (£589,000) by way of a 5 year loan to be repaid in monthly instalments with interest at the rate payable to Advent and (f) a planned programme in relation to dilapidations. Mr Hubble describes that proposal as broadly similar to that of the eventual settlement. That the structure was similar, I would agree, but I hardly think it is an accurate use of language to describe the actual terms as broadly similar, particularly in relation to the term of the extension lease (to 2017 under the settlement agreement) or the terms of rent as compared to £440,000 pa on review.
  138. I do not know who prepared this document. It is relied on by CR in support of its allegation that what drove the settlement at the Mediation was S&W's parlous financial state. I will return to it later, only commenting at this stage that it is consistent with the proposition that the "intolerable financial pressure" might refer to a serious cash-flow problem rather than a systemic failure of the entire undertaking which would collapse under this pressure or it might mean something between these two extremes.
  139. It appears that on 20 January, Mr Fredericks sent, by email, to Professor Youlton the accounts for S&W and a subsidiary, S&W UK Ltd, for 2004-5 as filed at Companies House. Professor Youlton's evidence was that he had no recollection of seeing these accounts but I consider that it is more likely than not that they were in fact sent. One might infer that they were sent by Mr Fredericks to indicate the financial problems facing S&W.
  140. On 26 January 2006, Professor Youlton sent an email to Mr Fredericks in the course of which he wrote this:
  141. "We are both looking into the abyss of huge legal and other professional costs and a major distraction for those at S&W who are responsible for and focussed on preparing the company for sale and enhancing its profitability…
    ….Whatever you are being advised by your Lawyers, we have been advised by our lawyers after Counsel's Advice, that there are no substantive legal issues outstanding over which we could not expect to get Judgment.
    …We must now put it to bed or see each other in court."
  142. On 14 March 2006, there was a conference call involving Claire Timmings of CR, Mr Haines, Professor Youlton and Ms Manson. Ms Timmings had only recently become involved in the case so Professor Youlton gave her a brief background. He is recorded as saying that S&W were in trouble and wanted to reach a settlement before the company was sold. He knew of course that S&W had been acquired by Advent and having experience of venture capitalists of that sort considered that they would be likely to want to realise their investments within about 5 years of investing.
  143. In March or April 2006, Professor Youlton and Ms Manson, on behalf of the Trustees, instructed another firm of solicitors, Shoosmiths, to give further advice about the dilapidations issue and the "put and keep" covenant in the Lease. Whether there had been a loss of confidence in CR or whether the comfort of a second opinion was the reason for these instructions, I do not know. A briefing note was provided by Professor Youlton for this conference It identified issues as to (a) putting into effect the mechanism laid down in the Apportionment Agreement especially concerning lack of information from S&W (b) S&W's decision not to proceed with the lease extension in compliance with the 2002 Side Letter and (c) the alleged failure by S&W to comply with the "put and keep" covenant, said to have resulted in considerable dilapidations within the Property and in particular the West Wing.
  144. Further advice was taken from Mr Clark. He advised in conference on 5 April 2006. His advice in relation to the dilapidations issue was that S&W were obliged to repair.
  145. Mr Hubble has drawn attention to the differences between the manuscript note taken by Mr Sanderson of Shoosmiths and the final version of the attendance note (which went through a couple of drafts) which reflected input from Professor Youlton and Ms Manson. Professor Youlton is reported in the manuscript note as saying "They are not good for the money latest a/cs are not pretty. They want to sell in 6/9 months therefore they have an interest to settle". I have not had evidence from Mr Sanderson. I do not know if his style of note-taking is to write down the words he hears or whether it is to write down the gist of what is said perhaps using different words. In any event, the final approved version of the attendance note is as follows:
  146. "DY said that he did not think that [S&W] have been financially strong and the latest accounts are not encouraging, although it is understood that the situation is improving. However, the venture capitalists wished to sell the company in 6 to 9 months time and it is therefore in their interests to try and settle this dispute rather than have an unknown liability in the background….".
  147. Mr Hubble says that the message from these notes is clear, namely that Professor Youlton had concerns about the financial circumstances of S&W at an early stage. He expressed concern at the "glossing" of the notes for which no real explanation was given by Professor Youlton or Ms Manson. I do not share that concern. Let it be supposed that Professor Youlton actually said in the conference what he is recorded in the manuscript note as saying. But let it also be assumed that Professor Youlton's true view was as recorded in the final version. I would expect him, when commenting on the draft note, to correct what was said in the conference itself. How that correction might best be reflected might depend on what was actually said at the conference. In adopting the correction, Mr Sanderson might have been recognising that Professor Youlton actually said something more in line with what is recorded in the final version. On the other hand, he might have simply been recording in the note what Professor Youlton was saying what his view actually was at the time when he came to correct the note. For his part, Professor Youlton might have made the correction because he had used an infelicitous form of words at the conference, or he might have done so because, on reflection, he considered that the manuscript note did not reflect his (revised) view. In either case, it is not surprising that the note in its final version reflected Professor Youlton's considered view. A counsel of perfection might have been to record in the note what was actually said with an editorial note explaining the client's correction. The fact that that was not done does not cause me any concern. If Mr Hubble is suggesting, as I think he is, that the "gloss" as he puts it is somehow an attempt by Professor Youlton to play down the significance of the financial state of S&W, I simply wonder why Professor Youlton would want to do that. He clearly did not have in mind the possibility of the current litigation and would have had no reason to want to paint anything other than an accurate record of what he actually thought.
  148. Before leaving the attendance note, I must record Mr Clark's advice about the Apportionment Agreement. He advised that if a declaration were sought that the Apportionment Agreement was binding then on the evidence to date he would favour the Trustees' case rather than that of S&W. He advised that he would favour the case of the tenant (S&W) on any application for specific performance: this was a reference to enforcement of repairing obligations, not the 2002 Side Letter. After recording both of those pieces of advice in the first 3½ lines of the relevant paragraph, the remaining 1½ lines reads "Any application to the court is likely to take a year to come to trial and, as ever, all litigation carries a great deal of uncertainty".
  149. That last observation is relied on by Mr Hubble in riposte, as it were, to a suggestion by Professor Youlton that, but for CR's alleged defaults, the Trustees' rights could have been easily enforced. I do not think that which Mr Clark said provides the slightest support for Mr Hubble's riposte. Mr Clark made that remark in the context of litigation concerning both the Apportionment Agreement and the repairing obligation. But even assuming that his remark can be taken as equally applicable to a declaration concerning the Apportionment Agreement alone, the relevant action would be a claim for a declaration in relation to which the only issue identified at that stage was S&W's contention that the Interim Award was an end of the matter. I consider later in this judgment the course of action open to the Trustees in relation to the Apportionment Agreement and comment at this stage only that it seems highly unlikely to me that a simple point of construction concerning the effect of the Interim Award could not be dealt with much more quickly than a year.
  150. In his oral evidence (which like all his evidence I accept), Mr Clark was able to say this about how he saw the case at the Mediation:
  151. "... On the apportionment agreement I did not actually consider that there was really any potential problem other than the company law point because on the apportionment agreement that had been - if it were a valid contract there was no other reason to invalidate it. There was this argument about an interim award having been issued and therefore in some way that rendering the surveyors redundant but I did not -- I did not myself consider that had any particular chance of success. So on the apportionment agreement it seemed to me the company law points were the only issue..."
  152. On 4 May 2006, the parties met on a without prejudice basis with the intention of reaching a settlement of their disputes. The parties had each prepared a position statement which identified the issues and put forward their respective proposals. That meeting did not result in a concluded agreement. But proposals and counter-proposals were put.
  153. Thus on 16 May 2006, the Trustees proposed:
  154. i) S&W would accept its responsibility for repair work to the demised premises.
    ii) But in relation to the West Wing, the Trustees would carry out repair works at a cost of about £1 million with contribution from S&W of 50% of the costs capped at £500,000.
    iii) The Trustees would undertake landscaping works with a contribution of £50,000 from S&W.
    iv) S&W would meet the award made under the Interim Award (£590,000) and a further £330,000 towards overcharging in respect of architects' fees.
    v) The rent review would be settled as of March 2007 at £450,000 with subsequent reviews on a 4-yearly basis. And the new lease would run to 2021.
  155. This proposal was rejected, not least because the proposal in relation to the extension lease proposed was for a term 5 years longer than what had been provided for in the 2002 Side Letter.
  156. S&W made a counter-proposal. It came from Blake Lapthorn & Linnell on 6 June 2006. S&W accepted that it would comply with the repairing obligations (other than to the West Wing) but not with the schedule of dilapidations which it was considered went further than its obligations. A contribution to the repairs of the West Wing was agreed in principle but no figure or formula was proposed or agreed. S&W would accept liability to make payment under the Interim Award; but no further obligations under the Apportionment Agreement would be agreed on the basis that it provided for only one award with no provision for an interim award (so that the intended interim award must, I suppose, be treated as a final award or no award at all). The rent review was not agreed and the new lease was run only to 2017. The parties were miles apart.
  157. On the same day, 6 June 2006, Blake Lapthorn Linnell invited CR to consider two further matters. These related to the enforceability of the 2002 Side Letter and repairs to the West Wing. As to the first of these, Blake Lapthorn Linnell raised issues under section 320 of the Companies Act 1986 pointing out that Professor Youlton and Professor Snell were both directors at the time of the 2002 Side Letter and that they had not disclosed their interests at a directors' meeting nor had the approval of shareholders even been obtained. As to the second matter, reference was made to Professor Snell's potential exposure under warranties given to Advent which could bite if S&W was in fact liable to repair the West Wing. Further, material was referred to in support of a suggestion that the Trustees were estopped from relying on the strict terms of the Lease in respect of repairs to the West Wing. These points were all challenged in CR's response dated 14 June 2006.
  158. Undaunted, Professor Youlton made another attempt to reach settlement and to avoid what he perceived as unnecessary and futile litigation. He personally wrote to Mr Derry (CEO of S&W) on 26 June 2006. He effectively urged Mr Derry to accept the offer which the Trustees had made pointing out the problems S&W would face on a sale when due diligence would reveal the disputes. But his efforts were to no avail.
  159. The next letter I need to refer to is the one dated 19 October 2006, which I have already mentioned, raising the Want of Authority Defence for the first time (other than the Company Law Points which had been mentioned previously in relation to the 2002 Side Letter) and giving further details of the Unenforceability Defence.
  160. Mr Haines forwarded a copy of that letter to Professor Youlton. He asked Blake Lapthorn Linnell for copies of board minutes and other documents. And he spoke to Mr Clark and to Mr Holder about the contents of the letter. Mr Holder's considered response to Mr Haines in his email dated 26 October 2006 was to say that the Mr Spencer had ostensible authority to bind the company. But he accepted that it could be argued either way whether the agreement was voidable at the instance of S&W.
  161. There then took place the conference on 23 November 2006 with Mr Clark. That was followed by the letter dated 29 November 2006, reflecting Mr Holder's views at that time and supported by Mr Clark's advice, suggesting that Mr Spencer had ostensible authority to bind S&W to the Apportionment Agreement and dealing at length with the company law issues which had been raised by Blake Lapthorn Linnell. CR refuted the suggestion that Mr Spencer had no authority to sign the 2002 Side Letter and rejected the company law defences raised in relation to it.
  162. The disputes were not resolved. On 21 December 2006, the Trustees issued proceedings against S&W in the Chancery Division. They sought declarations, specific performance and damages with regard to the Apportionment Agreement and the 2002 Side Letter. The Particulars of Claim were served with the Claim Form or very soon thereafter.
  163. S&W served a Defence and Counterclaim on 1 February 2007. It was alleged that there had been no agreement by S&W to pay for the refurbishment costs in relation to the Property which, it was said, were undertaken at the instigation of the Trustees and that Professor Youlton, in response to criticisms concerning the costs involved, had informed S&W that the works would be paid for by the Trustees.
  164. It was also alleged that the Apportionment Agreement was not binding on S&W; alternatively, it was voidable and had been rescinded by S&W. The Want of Authority Defence was raised in all its aspects (ie lack of authority and the Company Law Points). Further, the point was taken that the Apportionment Agreement did not provide for an interim award with the alleged result that no further sums could be claimed over and above the Interim Award.
  165. As to the 2002 Side Letter, the Uncertainty Defence was pleaded. Again, conflicts of interest and lack of authority were alleged.
  166. The litigation proceeded in a conventional way with requests for further information and disclosure. There was, within the Trustees camp, discussion of strategy and tactics. Further advice from Mr Clark was sought; and at the beginning of February 2007, Mr Haines was investigating instructing counsel from Erskine Chambers to advise on the company law aspects. Mr Todd was duly instructed and a consultation was held on 21 February 2007 attended by Mr Clark, Mr Haines, Mr Rogers, Professor Snell, Professor Youlton and Ms Manson. I have not seen a note of the consultation, but Mr Haines reported to Mr Holder to the following effect: Mr Todd confirmed that whilst there was a strict breach of the statutory provisions (section 317 Companies Act 1986) this should not cause any difficulties and one of the equitable defences should be available to stop the agreements (the Apportionment Agreement and the 2002 Side Letter) being unenforceable; he did not think that there was anything in the lack of authority point. So Professor Youlton would have been entitled, on the basis of that advice which was communicated to him in that way by Mr Haines, to think that there was not much to worry about. Certainly nothing would have alerted him to the possibility that CR might not have got matters perfectly right in 2001 and 2002.
  167. On 1 March 2007 there was a meeting which was attended by, among others, Professor Youlton, Ms Manson, Mr Rogers and Mr Haines. The purpose of the meeting was to discuss the defence and counterclaim which had been served. In going through the defence it was accepted that one of the directors of S&W was George Waters: he was said to be a non-executive director living in Ireland who never in practice attended board meetings.
  168. Professor Youlton is recorded as saying (he does not dispute this) that there was no delay in the Trustees seeking a remedy: he had raised the issue periodically with Mr Derry. The note records as follows:
  169. "However, rather than aggressively pursuing performance of the Agreement, DY had attempted to help the Company's cash flow/financial position…
    There was delay but only because he was trying to help the Company. DY confirmed that he was having meetings with Simon Derry who was requesting that DY did not pursue the Agreement as the Company had financial difficulties and could not afford to pay as yet…"
  170. The time came for a Case Management Conference. This was fixed for 30 April 2007. CR, with input from Mr Clark, drafted proposed directions, one of which was that the claim should be stayed for 6 weeks to enable the parties to attempt settlement. On 30 April, an order for stay until 25 June 2007 was made for the parties to try to settle the dispute by Alternative Dispute Resolution. CR were of the view that mediation was the appropriate form of ADR to adopt and wrote to Blake Lapthorn Linnell to that effect on 11 May, proposing Presiley Baxendale QC as the mediator. In early July, S&W agreed to mediation and to the appointment of Miss Baxendale as mediator. She was duly appointed (and I will refer to her as "the Mediator"). The Mediation eventually took place on 12 September 2007, running over midnight into the small hours of 13 September.
  171. In the weeks leading up to the Mediation, consultations and conferences were held with Mr Todd and Mr Clark. On 17 August 2007, a consultation was held at which were present Mr Todd, Mr Clark, Professor Youlton, Ms Manson, Professor Snell, Mr Lyon, Mr Haines and Ms Deuchar. It is clear from the note of the consultation that the meeting was to discuss matters within the scope of the claim; in other words, the parties would be attending the mediation with a view to settling the disputes concerning the Apportionment Agreement and the 2002 Side Letter. That is not to say that other matters (such as the dilapidations claim more generally and Ms Manson's outstanding claims in respect of architectural services) would necessarily be forbidden territory but the claims made in the action were the driver for the Mediation.
  172. Ms Deuchar prepared a note of the consultation. There are some points arising from that note which I want to mention since they may have some impact on the issues which I have to determine:
  173. i) Mr Clark pointed out that S&W had said that they did not want to be involved in legal arguments; the Mediation would therefore be a commercial settlement. Professor Youlton, however, considered that there was no way an acceptable settlement could be reached without the weight of the legal argument being demonstrated.
    ii) Mr Todd took the view that not all of the legal arguments should be rehearsed at the Mediation. It was the main points which should be made. With regard to the authority point, he said that there were lots of arguments each way.
    iii) The note records Professor Youlton as confirming
    "that the key issue is whether the company has got any money. The company is currently trading profitably but has recently been refinanced. They were paying Advent 13% on loans but he hopes that it has been refinanced through banks at a proper rate. There is also some restructuring going on. We also know that Advent has pulled out of all electronic businesses. In order to help with any settlement, the trustees would need to seek cash up front, but not promises in the future. It is essential that they get money in the pension fund in order to allow them the opportunity to be able to retire. A deal needed to be structured which either [sic] allows an exit before two years time because David Youlton does not think that Snell & Wilcox will be in business then, and they need a lump sum into the fund to allow that trustees to retire."
    iv) Professor Youlton is recorded as saying that he would like S&W to buy the building in order to reach a settlement.
  174. Professor Youlton has reservations about certain aspects of this note. I deal with them at paragraph 431 (xii) below.
  175. According to Mr Haines' short manuscript note of the meeting, it was left that Professor Snell would try to obtain a copy of the latest accounts of S&W.
  176. On 10 September 2007, the surveyors produced a provisional view about the level of the final award. For the detail of this, see at paragraph 512 below.
  177. A further consultation was held on 11 September in preparation for the imminent mediation. All those who attended the 17 August consultation attended this further consultation; also present were Mr Wilcox and Mr Rogers. Ms Deuchar prepared a note of this meeting. Again, I wish to note some points recorded:
  178. i) Mr Todd expressed the view that the case had to settle. The company law points would cause problems because of Professor Youlton's control and lack of documents. There was nothing to show that Mr Spencer had authority to conclude the agreements. The Trustees would also need to establish that the Board knew of Professor Youlton's and Professor Snell's interests under the trusts of the Scheme. These matters were addressed in more detail but I do not need to go into that.
    ii) Mr Todd said he had been instructed to advise on the company law aspects of the dispute. The answers would depend on the facts and on what the witnesses say and what documents are disclosed.
    iii) In relation to affirmation of the agreements, Mr Todd considered that there were good arguments based on acts of performance of the agreements but the court could find that there were not sufficient acts of affirmation.
    iv) Mr Todd considered on balance that the Trustees should win on the company law issues but this was dependent upon proving that either Mr Spencer or Professor Snell had actual authority to execute the Apportionment Agreement or the 2002 Side Letter. Those, of course, were very significant qualifications. He repeated an "on balance" view later in the consultation.
    v) In addition, there was a need to establish that the board knew of Professor Youlton's and Professor Snell's interests under the Scheme.
    vi) On the affirmation point, Mr Todd considered that the Trustees had good arguments, but it was not as clear cut as Professor Youlton would like to think it was.
    vii) Professor Youlton said that the Trustees would walk away from the mediation unless the 2002 Side Letter was implemented with a lease extension to 2017. The problem, he said, was that the company could go broke so the Trustees would want to know what was going to be paid immediately. It is worth quoting from one paragraph of the note:
    "MT confirmed that the company could be in a worse state next May as he had seen the last accounts. DY said that they have refinanced. They have changed the direction of the company…… What put S&W into difficulties in the late 90s was when the market turned from analogue to digital and now it is high-definition. The buyer's profile in the industry have changed. S&W is now positioned in the market in a new position and his opinion is that it will struggle and be in trouble very shortly."
    viii) Mr Lyon commented that all that is relevant is whether they have any cash at the bank. He considered that the company would come into the Mediation having to fund any settlement through a loan.
  179. It is right to say that at the 11 September 2007 consultation Mr Todd was markedly more pessimistic than he had been previously (assuming that his previous advice had been accurately summarised by Mr Haines when reporting to Professor Youlton). It is right also to record the following passage from the attendance note made by Ms Deuchar:
  180. "DY said as far as he is concerned, the trial [sic] leads back to Charles Russell, because if they lose, then Charles Russell will get sued. If Charles Russell allowed the document to be signed without the requisite authority, then there will be problems."
  181. There is one other important aspect of the consultation on 11 September 2007 which had a profound impact on the way matters progressed. Mr Todd, no doubt concerned about what Professor Youlton had said as recorded by Ms Deuchar in the passage just set out, identified the possible conflict of interest between CR and the Trustees. This arose from the fact that the Apportionment Agreement and the 2002 Side Letter were being challenged on the basis of the Want of Authority Defence but it was CR who were responsible, on behalf of the Trustees, for the legal aspects of those documents. The Trustees held a meeting with Mr Todd and Mr Clark in the absence of CR to discuss this conflict. There was then a meeting between Mr Todd and Mr Clark with Mr Haines and Ms Deuchar. Let me set out another part of the note:
  182. "MT confirming that there was obviously a conflict between CR and the trustees. JM had asked who should have satisfied who. MT advised that both sides should have ensured that there was binding authority. We do not know whether this was done in this case. As a firm CR need to look into this….. DY is saying that he is going to ensure that if the trustees go down on the company law points, he will make sure that CR is on the hook……
    With regards to tomorrow [the Mediation], it was agreed that there is a conflict in the circumstances which have arisen today, and CR will not be able to advise the trustees if it is in their interests to settle. Any advice in relation to settling will need to be left to WC and MT. It will be down as far as they are concerned to a financial matter not a legal matter."

    The Mediation

  183. The Mediation took place on 12 September 2007 running into 13 September. Ms Deuchar had the onerous job of taking notes and producing a Note of Attendance of the meeting. She took copious manuscript notes which she later used to produce, in due course, a full Note of the meeting. But this was not done until some time later, in October 2008. I shall refer to it as "the 2008 Note". It was included in the core trial bundle. Ms Deuchar's manuscript notes were also available, and have been transcribed into a typed-up version which I shall refer to as "the written notes". The 2008 Note does not correspond precisely with the written notes. I will consider Ms Deuchar's explanation for this later.
  184. What took place at the Mediation is of central importance to one of CR's defences to Professor Youlton's claims, namely that the settlement arising out of the Mediation was driven by the Trustees' need to settle and the allegedly parlous state of S&W. CR allege that even if they were negligent as alleged, no loss was suffered as a result. I will therefore need to look in rather tedious detail at what took place in order to establish, as far as is possible, the Trustees' reasons for settling and whether, had the Apportionment Agreement and the 2002 Side Letter been watertight, the Trustees would or could have held out for more.
  185. Before considering the evidence given about the Mediation by several witnesses, I wish to address the contents of the 2008 Note and the written note. Professor Youlton's case is that they are incomplete and, in some cases, wrong. It is said that Ms Deuchar has put a spin in her notes to present matters in a way favourable to CR given that, by this time, the conflict of interest had been identified and CR knew that they were exposed to a potential liability. CR's case is that the notes are accurate and that Ms Deuchar did her very best to record what she observed.
  186. The 2008 Note and the written notes

  187. This section of my judgment (paragraphs 158 to 219) simply reviews what is found in the 2008 Note together with some observations on my part. Where there is a point to make about the written notes, I do so in the course of this review.
  188. Soon after the first full session of the Mediation started (ie with both sides and the Mediator present), the 2008 Note shows that Mr Clark explained that he was dealing with the non-company points. He did so under these headings: the Apportionment Agreement (making the point that the Interim Award could not be taken as a final award with no chance for the Trustees to claim more), restitution (a claim that the improvement works had been paid for by the Trustees acting under a mistake), estoppel (which was not pursued) and the 2002 Side Letter. Apart from the company law points, Mr Clark said the only issue was uncertainty. Clarification of S&W's case was sought.
  189. Mr Todd then identified the company law points: there were two points, namely authority and declarations of interest. Mr Todd put the arguments that S&W would find it difficult to persuade a court that Mr Spencer had no authority to execute the Apportionment Agreement. Similar points were made in relation to the 2002 Side Letter. As to the failure to declare interests on the part of the directors, the question was whether the contract could be avoided by reason of the technical breach. Professor Youlton added some merit points including that he had given employees 25% of the company.
  190. Mr Fredericks then spoke. He wished to give the historical context from the point of view of S&W. I can do no better than set out parts of the relevant paragraph of the 2008 Note.
  191. "….It was clear that through the 90s, the company grew the sales, but in doing so, the costs and the debt levels significantly grew. 5 or 6 years ago, when the Apportionment Agreement was entered into, Snell & Wilcox were bleeding badly. The deal with Advent was about saving the company. PF joined the company 3 years ago, when it was still struggling. In the last 2 years, the sales of the company have again grown. However, because of the debt, they are still trading with losses. At the end of March 2007, there was £20m losses. The company has, over a period of a decade, gone in and out of cash crises…. They have secured some additional funding by refinancing, which is not quite complete. They need to trade with adequate headroom for the next 12 months…. In context, the level of claim being put to the company is simply not able to be met by the company, which is severely limited in its capacity…."
  192. The first joint session finished. The Mediator remained with the Trustees' side. When Professor Youlton observed that S&W had just said that it had no money, he was corrected by Mr Clark; and Mr Lyon confirmed that S&W was just saying that it had limited funds.
  193. Although the Mediation was brought about because of the issues raised in the litigation, discussions at the Mediation, both in full session and in breakout sessions, included the question of dilapidations more generally. The parties positions shifted from time to time about dilapidations.
  194. In the early afternoon, a settlement proposal from S&W was communicated to the Trustees by Mr Haines. In relation to the Apportionment Agreement, S&W offered £250,000 payment to be within 28 days: this was a fraction of the amount of the Interim Award and allowed nothing for the possibility that the Trustees were not fixed with an interim award and unable to obtain more. S&W indicated it was happy to talk about the 2002 Side Letter but questioned whether the Trustees really wanted it as a tenant until 2017. Mr Todd interjected that he wanted to see whether there was a lot of indebtedness on the balance sheet by way of inter-company loan. As to rent, S&W was willing to accept two quarters as due at £177,000 and would consider the £553,000 contained in the Trustees' position paper if it was explained. With regard to dilapidations and the rent review, the Note records:
  195. "(a) They want to park them
    (b) The are not taking a point on the lease
    (c) They agree the "put and keep""
  196. This would be in full and final settlement apart from dilapidations and rent review. Mr Todd had asked for further information on which the lawyers on the other side were taking instructions especially in relation to the Trustees' concerns about refinancing. Professor Youlton said that the "key to this is in fact BR [Mr Rogers] and the figures". The Trustees could not put a value to the pension fund without the extended lease so they at least needed that.
  197. That last comment requires some explanation. It was important, mainly for tax reasons, to establish as soon as possible the value of the trust fund of the Scheme at as high a value as possible. The Trustees' valuation advice was that this required the lease extension to be in place.
  198. The 2008 Note then goes on to record Professor Youlton continuing in this vein:
  199. "£250,000 is sufficient for the pension lump sums. They [the Trustees] will also require the balance of the arrears [a reference to rent] to be paid. In terms of figures, JM confirmed that this was £263,278 with interest at £158,000. This makes £421,858….If you add £250,000 to this, this makes £671,859. So DY confirmed we are £400,000 adrift from where we want to be. JM indicated that on their calculations, if you are taking the apportionment agreement through and getting a final award, it should be approximately £2.7m.
    DY said that provisionally they had said that they would settle for £1m, but as a minimum, they would settle for (a) £1m (b) Lease extension (c) Rent at £450,000"
  200. Mr Rogers was brought to the meeting: he arrived at just before 2.00 pm. He, together with Professor Youlton, Mr Haines and Mr Todd left the others and went to discuss finances with Mr Fredericks. Ms Deuchar remained and so was unable to take a note of what took place at the financial discussion. On their return, Mr Rogers and Professor Youlton reported. The 2008 Note records:
  201. "BR reported that they are apparently £20 million in debt. DY said that apparently in five years, they have taken the debt from £17 million to £20 million, despite having downsized. BR reported that they have taken huge hits from the US. These are big loss figures. There is a net current debt of £11 million. There is a long term £2.5 million figure and £9 million of preferentials. BR's biggest concern was £15 million of creditors. DL did not know that they had not been paying suppliers. DY would like a breakdown of who the debt is due to…..
    …BR reported that they say that they have written off £4 million from US subsidiaries……..
    MT reported that the bank debt is mainly at 1%. DY was saying that the Advent debt had been at 15%.
    DY said that the other thing which came out of the meeting is that we can forget about the shareholding. They owe Advent huge sums by way of dividends etc. They are hoping to get a moratorium on the debt from the banks. If all of what he says is true, then someone is failing appallingly. He said that margins are just over 50%, so they have gone down by 10%. The most they ever turned over was £37.5 million which was last year. A lot of the information given had to be taken at face value, but DY didn't think that there was anything obvious that they could have manipulated.
    DL pointed out that the point they are making is whether we want the company like this as a tenant. DY said it did not matter. We have said to them that the Lease is a deal breaker. We have said that it's still a deal breaker because we need to be able to value the fund. If they go broke, they will be paying rent until they go broke. DL thought they could be making the figures look more grim. BR thought that the figures won't be manipulated to a very high degree at all."
  202. There is nothing which causes me to think that this note is inaccurate in recording the sense of what was said: I accept it is accurate.
  203. There was a discussion about dilapidations during the course of which Professor Youlton observed that "…whatever they do, we need to ensure that they do it [the building], and trade out of their difficulties".
  204. The Mediator was very keen to take back to S&W a response to its offer. There were lengthy discussions which resulted in some proposals for the Mediator to take to S&W. This she did. The financial package which she took to S&W was as follows: (a) back rent since 2004 to date at £478,500 + VAT, (b) £177,000 plus VAT for the previous 2 quarters rent (included in (a)) £250,000 (which I think was intended as a payment on account of what was due under the Apportionment Agreement equal to the figure which S&W had offered – not in full and final settlement).
  205. The Mediator returned some time later. She reported that the counter-proposals had gone down very badly especially in relation to the financial points. The Trustees were asking for over £1 million in effect from a company about to raise £2 million in refinance. It seemed to S&W that account had not been taken of the detailed description of the company's financial problems.
  206. Mr Haines and Mr Clark left the meeting to hear S&W's response and new offer. Mr Clark reported that there had been a preliminary discussion about what S&W thought the Trustees wanted. There were two main components identified: certainty of the Lease period and the rent; and cash. And in that context, an offer was conveyed by Mr Clark.
  207. There was discussion about some figures. The 2008 Note then records this:
  208. "WC confirmed that he has reiterated on a number of occasions that the money is simply not there. WC pointed out to DY that insofar as he is wanting the sort of figures that our offer leaves them to think, then he is simply not going to get these.
    DKH asked about the merit of looking at a structured payment. WC thought that if the state of their finances is to be agreed, then we need to question what we would achieve if we carry on pushing on. Surely we need to try to improve the offer that they have made.
    DY thought there was a tax loss in the company worth at least £25 million. He has decided he does not believe them. He thinks there are too many adjustments in their figures. He heard someone had offered £50 million and they turned it down. They have offered us £900,000 last time and now we are at £250,000. There is no scope for agreement here where the Trustees are supposed to be protecting the assets of the pension fund…..
    …..
    PB [the Mediator] pointed out that if the company goes bust, they will lose everything. PB said the options are to do a deal today, or to carry on and go to Court. Whether we win or lose at that stage, they may still go bust. The main problem is if what they are saying is true, we could end up with them not refinancing. DY did not think that Advent would walk away.…
    RS said if what they were saying about their finances is true, we should take the offer and run. If not, it may be critical. He asked whether there was any scope to look into the figures now.……
    DL confirmed that he has explained to JM the discussion that they have had. We have got £500,000 on the table which goes if we walk away. They're clearly strapped for cash…. We will not be able to get the cash that we want now. JM thought there may be cash in the future.
    DL said we could get Liss Mill, their perception is, it's worth a lot less than it is for us. They would not then need to pay out cash and as they are having problems paying suppliers, they are obviously in serious problems. DL knows that at least one of the suppliers who has got £500,000 outstanding and has agreed to a payment of £50,000 per month. The cash issue is very real. There might be a bit of fiddling around the £250,000 figure [a sum S&W had offered] but not much…..
    WC said that PB needs to go back and say that clearly they have cash flow problems and tell them a flavour of the other options and let them consider these."
  209. Professor Youlton then met alone with Mr Fredericks. He returned about 10 minutes later. The 2008 Note is important in its record of what he told the Trustees' side:
  210. "DY's first comment was they have got nothing.
    DY has spoken to PF who is adamant that they will not move. They can't.
    He says the rent review is extortionate and they will not agree.
    DY had offered a third party arbitrator and PF had confirmed they would only go to £250,000.
    DY had pointed out that they had previously offered £900,000 but PF said this was when they were trading profitably. The overheads are now so high. They have been told it will cost £250,000 to go to Court so they have offered £250,000. PB said it would in fact be much more than this.……….
    DY confirmed the only offer is (a) £400,000 now; (b) £400,000 when the company is sold.
    MT indicated that in relation to a 10 day trial they should be looking at costs of £1 million between them easily, or £750,000 each. "
  211. The written note from which the first part of that note is taken reads: "spoken 2 PF – adamant they not move". Omitted from the 2008 Note is anything to reflect the written note which includes, after reference to overheads, "over time sd no".
  212. I deal with this part of the 2008 Note and the written note at paragraph 193ff below.
  213. Further proposals were formulated although I find it quite difficult to discern from the 2008 Note precisely what they were. In any case, they were taken to S&W by the Mediator and Mr Clark who returned 30 minutes later. They came with a take-it-or-leave-it final offer from S&W:
  214. i) S&W were not interested in a 15 year lease extension; it should be for 10 years (thus expiring at the date which would have applied had the 2002 Side Letter been promptly implemented;
    ii) A choice was given on rent reviews: either RPI increases and open market rent reviews in 2009 and 2013 or open market rent in March 2007 and a review in 2013 [this is probably a mistake for 2012 which is the date which appeared in the final agreement and which Mr Todd recorded in his note of the terms made at the Mediation];
    iii) Payment to the Trustees of £250,000 within 28 days;
    iv) Payment of a further £250,000 on sale [of the company] or in 3 years together with interest;
    v) Everything else as agreed (for instance, payment of the £177,000 and interest in respect of rent arrears but nothing agreed in relation to dilapidations).
  215. Clearly Professor Youlton was deeply unhappy with this proposal. His view is recorded as "in his view they are walking away from here with nothing". Mr Lyon agreed with that "but the company that they are dealing with has nothing to give. They all know that". Professor Youlton regarded it a "rubbish deal". He would prefer to litigate: he could afford it but the others could not. Mr Lyon thought "litigation would be pointless and if they went to litigation, the chances of getting anything are almost nil", a sentiment with which both Professor Snell and Mr Wilcox agreed. Whilst it can be said with some force that Mr Lyons took this view because of his perceptions of the financial position of S&W, it is far from clear that that was so for Professor Snell and Mr Wilcox, both of whom say in their evidence that it was other factors which formed a significant part of their decision to settle. And given what they had heard from Mr Todd and Mr Clark about the merits of their case, it is not surprising that they were prepared to concur with a view that prospects of litigation success were small. It should not be overlooked, either, that the Trustees were coming under pressure from the Mediator and to some extent their own counsel, to settle and the only terms available were those on offer from S&W.
  216. Finally, it is recorded:
  217. "DY confirmed that they [ie S&W] are choosing to spend their money in other ways. They have won by attrition. They simply do not have the money"
  218. That is curious juxtaposition. It is hardly winning by attrition if they do not have the money. If there was genuinely no money, it is not so much winning by attrition – by grinding you opponent into despair and collapse – as the parties each realising that the game is not worth the candle. Further, it is not easy to see how the first and the last sentences are consistent. The first suggests that they have the money but are spending it in other ways; the last says they do not have the money.
  219. In any event, the contemporaneous written note of these remarks is different: The first two sentences reflect what is in the written note, but what then follows in the written note is this: "They do have the £". I shall come to Ms Deuchar's position in relation to that in a moment.
  220. Professor Snell, Mr Lyon and Mr Wilcox all confirmed that they wished to accept the proposal on the table. Professor Youlton wished to pass the decision to his wife (on the basis, not recorded in the note, that he regarded her, in the light of his own bad state of health, as the likely beneficiary of his share of the pension fund).
  221. There is a page of the written note which appears to record discussions after the time when the 2008 Note finishes. It seems also from Mr Haines' note that discussions continued among the Trustees and their advisers after the deal had been struck about some of the detailed provisions of the extension lease and deed of variation. In particular, Professor Youlton appears to have been concerned that the new lease continued the same provisions as the old concerning "being able to get rid of them if they go broke".
  222. Mr Evans has a number of criticisms of the 2008 Note which need to be assessed against his criticisms of Ms Deuchar as a witness. She produced two witness statements. In her first witness statement, she records that she took a full handwritten note of the 11 September 2007 conference and the Mediation although she made clear she was not present for a number of the breakout sessions so that her note refers only to the report given by those attending the sessions to the others of the Trustees. She said that she had "subsequently had my handwritten notes typed-up" exhibiting a copy of the 2008 Note but not the manuscript notes. The 2008 Note bears only the date of the Mediation itself. A reader would not detect that it was prepared later – in October 2008, some 13 months after the event. I am bound to say that, given the great reliance which CR were going to place on what happened at the Mediation, I find it surprising that it was not made clear from the beginning that this was neither a contemporaneous note nor a verbatim transcript of her manuscript notes.
  223. Professor Youlton challenged the accuracy of the 2008 Note in his witness statement dated 26 October 2009. Ms Deuchar responded to the criticism in her second witness statement. She strenuously denied that she had included or excluded certain information in order to best serve the interests of CR in the event of a claim being made against the firm. She explained that she had not prepared a typed-up version at the time because it was not cost effective: the note was enormously long dealing as it did with a mediation which took place over 23 hours. But when it came to the claim being made against CR, she was asked to prepare a note to assist counsel instructed by CR. She says "It was recognised that my handwritten notes would serve as valuable evidence….. and Counsel wanted the benefit of typed note which was easily readable".
  224. She explains that the only sensible way to produce the note was to "dictate-up my handwritten notes". She did this by reference not only to her own notes but also by reference to those of Mr Clark which were on CR's files. She says this was done in exactly the same way as would been the case if she had carried out this exercise at the time. That may be true. But there is a major difference between the two cases. It is one thing to dictate a contemporaneous record of a meeting, using notes taken at the meeting, when matters are fresh in the mind. The note can be used as an aide memoire which can be expanded on from the direct recollection of very recent events. It is quite another thing to produce a record on the basis of those same notes after a considerable period of time. In this context, I consider that a period of 13 months is a significant period and I treat with great caution a suggestion that the contents of the 2008 Note, where they are not directly supported by the manuscript note, are of more help than Ms Deuchar's live evidence as to her recollections in the witness box. It is true that the 2008 Notes were 13 months after the events where as her live evidence was over 2 years after the events; I accept that her recollection in October 2008 may have been clearer than her recollection in December 2009 at the trial. But where there is a dispute between her and Professor Youlton about what was or was not said, I cannot regard the 2008 Note as carrying such weight that I must accept her account. I must judge the facts by reference to all of the evidence, including the manuscript notes and the evidence of all the witnesses and be careful not to place undue weight on the 2008 Note.
  225. Ms Deuchar goes on to say, in her second witness statement, that it was never her intention to prepare a strict transcript of her handwritten notes as this was not what she had been asked to do. Then she explains the reasons for the differences between the written notes and the 2008 Note:
  226. i) The main reason was that the typed-up note should make sense; this meant that she chose not to include certain passages of the manuscript notes which were either incomplete (because she had been unable to keep up with that part of the discussion) or did not make sense upon a subsequent reading of the manuscript notes.
    ii) On a number of occasions, Professor Youlton used expletives to reinforce his opinion on various issues. Not having included these in her manuscript notes, she did not consider it necessary or appropriate to incorporate them into the 2008 Note itself.
    iii) In order to give as full a picture as possible, she also included certain passages in the 2008 Note which she had summarised in shorthand in her manuscript notes, which appears in Mr Clark's notes or which did not appear in the manuscript notes but of which she has a "very clear recollection".
  227. I agree with Mr Evans when he says that these qualifications should have appeared in Ms Deuchar's first witness statement. But the fact that they did not do so does not lead me to conclude that she was deliberately misleading let alone dishonest. It would have been absolutely pointless to attempt to mislead because the actual nature of the 2008 Notes would have been bound to come out in exactly the way in which it did. It at most shows, in my view, that Ms Deuchar was not perhaps as careful and thorough as she might have been.
  228. However, Mr Evans goes on to criticise the correction which Ms Deuchar makes in her second witness statement. He says that it is fundamentally misleading in that there were omissions (he says "substantial" omissions) from the 2008 Note which cannot possibly be seen as falling within any the three reasons Ms Deuchar gave for the differences. He also accuses Ms Deuchar of being unwilling to give an explanation of why no qualification was made to the first witness statement. I am bound to say that Ms Deuchar's attempts to give an explanation were not satisfactory. But I do not consider that this was because she had been attempting to mislead the court in her witness statements. Rather, I think it is because there is in fact no explanation at all other than that the witness statements were not prepared sufficiently carefully given the importance which would be attached by CR in their defence to the 2008 Note and the written note.
  229. I must, in the light of this discussion, be especially careful, not only in attaching weight to the 2008 Note where it is not directly supported by the manuscript notes, but also in accepting the nuance produced by adjectives and verbs appearing in the 2008 Note which do not appear in the manuscript notes. Thus, to make grammatical sense of the manuscript notes, verbs are added. Mr Evans gives an example where the manuscript note records Mr Lyon as saying "spend a fortune more on legal fees + end up with nothing". This is transposed into the 2008 Note as "DL's concern was that they would spend a fortune on more legal fees and end up with nothing". A rather different message in terms of the Trustees perceptions of risk and reward would be given if the word "might" had appeared in place of "would" in the 2008 Note. It is a small point, but cumulatively, small points of that sort give the impression that the Trustees were more concerned about the financial state of S&W than they in fact were. That is why I regard the manuscript notes, as I do, as being far more important than the 2008 Note where the two differ.
  230. An example of the importance of the written notes where they differ from the 2008 Note relates to the involvement of Mr Haines in the Mediation. The written notes contain a number of references to Mr Haines – Mr Evans has referred me to a number of instances – which do not find their way into the 2008 Note and where none of the three reasons for the differences seems to apply.
  231. A number of other omissions in the 2008 Note are identified by Mr Evans. For some of these there is no sensible explanation. I do not propose to go through his list item by item. But I do mention one quite important aspect. As the 2008 Note shows, Professor Youlton and Mr Fredericks had a meeting alone. I have set out at paragraph 175 above the relevant part of the 2008 Note recording what occurred on Professor Youlton's return and have mentioned the written note too in that context.
  232. CR rely on what Professor Youlton is alleged to have said; what he said shows, they say, that the Trustees appreciated that S&W simply did not have the money to meet their demands. It made no difference to the Trustees' decision whether the claims were likely to succeed or not; their negotiations were driven, in the end, by what S&W would be able to pay rather than by what, in the Trustees' view, it was obliged to pay. Both Ms Deuchar and Mr Haines gave further details about what happened when Professor Youlton returned from his meeting with Mr Fredericks.
  233. Ms Deuchar and Mr Haines' recollections are both that when Professor Youlton returned he did not say simply "they have got nothing". Her evidence was as follows:
  234. "A. Professor Youlton then left the room to go and have a cigarette outside, and as far as we were aware Peter Fredericks was then talking to him at the time. There was then obviously a gap in time where most of the trustees remained in the room where I was, and to a certain extent I think, you know, there was the impression that, well, maybe something might happen here. There had been discussion about Liss Mill and, you know, whether we could throw something into the equation to help, to help the negotiations. So when Professor Youlton came back to the room, I distinctly remember his opening gambit, which was quite shocking not only because of the language being used but mostly because it was a real "right, okay, we don't really have anywhere to go here".
    Q. That is what you recall him saying, "We don't have anywhere to go here"?
    A. No, sorry, that is what I am saying the flavour of it was. I recall him saying as –
    Q. We don't have to use the words because we now know them. What specifically do you recall?
    A. I have just told you what I recall. I recall him coming back into the room, having gone for his meeting with Peter Fredericks, and saying, "They have got fuck all."
    Q. Yes. Now, you don't recall the detail though of the passages I have just read out?
    A. I don't recall, remember each and every thing that he said now, no, but I would have written down, in so much as I could, when he came back into the room, as I always had done throughout the mediation, what was being said at that time so when Professor Youlton came back in, I would have written down in so much as I could what he had said.
    Q. Yes.
    A. I didn't, however, write down his opening gambit. I was quite surprised by what he had said. All the trustees were looking around and then I took a detailed note of what he said after that."
  235. It should be remembered that the written notes did not record Professor Youlton's opening remark – whether as an expletive or otherwise. It was only in the 2008 Note that the sentiment begins to be articulated. Mr Evans suggests that there was no explanation of why the interpolations were not recorded at the time. There could be two explanations: the first is that the comments were not made at all; the second is that they were made but Ms Deuchar simply did not record them. If they were made, I do not find it remotely surprising that they were not written down. Ms Deuchar can scarcely have thought that her notes would be pored over in detail in the way that is now happening; expletives in the course of a day such as the day of the Mediation would hardly warrant recording. Of course, the absence of a note of the expletive is consistent with the words not having been used in the first place; but it does not follow from the fact that they were not recorded that they were not said. The relevance of all this, I remind myself, is this: if Professor Youlton did say what Ms Deuchar and Mr Haines assert, then it is some evidence that he, and the Trustees, were influenced, to put it no higher, by the inability of S&W to pay in reaching the settlement which they did. But one must not read too much into a comment of that sort even if it was made particularly bearing in mind that S&W clearly did have something: after all, it settled on the basis of immediate payment of sums of money which could not, on any view, be regarded as trivial and show that it did not have "nothing" to use the polite language of the 2008 Note.
  236. But the absence of any record of this remark in the written notes means that there is no contemporaneous record of precisely what Professor Youlton said. Ms Deuchar's recollection is that he said words to the effect that S&W had nothing. Mr Evans put it to her that Professor Youlton (who denies that he said anything like it at all) might have said words to the effect that S&W was offering nothing at all. But Ms Deuchar remained adamant in her recollection that Professor Youlton made the remark.
  237. There is one other point to make about this part of 2008 Note which used the words "They can't". This does not reflect anything which was recorded in the written note. It is, of course, consistent with Professor Youlton having previously said that S&W had nothing; and, indeed, Mr Hubble makes that point, conflating the two statements. But whether or not the underlying point is the same, Mr Evans says that this is another aspect where the 2008 Note is inaccurate. Ms Deuchar accepted that she could no longer remember whether the words "They can't" were used but said that she would, in October 2008, have remembered those words – presumably saying this because, if she had not remembered them in October 2008 and if she was being wholly honest in preparing the 2008 Note, the words would not have been included.
  238. Mr Haines, although clear that Professor Youlton had said that S&W had nothing, did not say one way or the other whether he also reported "They can't".
  239. I have mentioned (see paragraph 176 above) the line in the written note reading "over time – sd no"; this is not reflected in the 2008 Note. Ms Deuchar agreed that this was an important comment and could not explain why it had been omitted from the 2008 Note. I think that she and Mr Evans were at cross-purposes. Mr Evans was questioning her on the basis that it was Professor Youlton who suggested "over time" and Mr Fredericks who said "no". But it is possible to read the comment the other way round, that is to say as recording a suggestion by Mr Fredericks that S&W should pay over time to which Professor Youlton said no. Ms Deuchar must have read it in the latter sense as is revealed by this exchange:
  240. "Q. This was an important comment, wasn't it? This was an important comment by Professor Youlton, wasn't it?
    A. There had been discussion about whether they could pay over a period of time. The trustees, I think, wanted them to be -- wanted the monies to be paid –
    Q. We agree about that.
    A. -- whatever they settled on to be paid quickly. I don't know why that note isn't in -- why that comment isn't in here.
    Q. Can I suggest why it is an important comment – because you won't answer the question whether it is an important comment. It is an important comment because one way round the actual perceived financial difficulties of the company would be that they pay money over time. That is what Professor Youlton had suggested to Mr Fredericks and Mr Fredericks had simply said, "No". That's important, isn't it?
    A. Yes, but that's not how I -- I didn't leave it out because I thought that was -- I don't know why it's not in there."
  241. Although Ms Deucher in her last answer appears to agree with Mr Evans proposition, I think that she is really answering his point that it was important – that after all is the only question she was asked. She was slightly flustered by this stage of her cross-examination and was more concerned with meeting the suggestion that she had deliberately left the comment out of the 2008 Note. Her earlier answer – unfortunately interrupted at just the moment when the point might have been noticed – shows that she was saying that the Trustees wanted to be paid quickly, the very antithesis of payment over a period of time.
  242. For my part, I find it very hard to believe that the suggestion for payment over time came from S&W only to be rejected by Professor Youlton. If S&W really was saying it simply had no assets and could not pay either then or at all, then it is very difficult to understand how Mr Fredericks could have suggested paying over time. But if it was saying that it could pay over time then, quite apart from the fact that Professor Youlton would probably have grabbed it, it would mean that "they have got fuck all" could not mean anything other than an inability to make an immediate payment. In any event, it is clear that the Trustees had discussed the question of payment over time as Ms Deuchar herself acknowledged so that it would be entirely unsurprising to find Professor Youlton making precisely that suggestion.
  243. As to what other witnesses had to say about this part of the Mediation, Professor Youlton himself was forthright, to use Mr Hubbles' word:
  244. "Q. Do you recollect returning into the room and saying, in extremely forthright language, that the company didn't have anything, the company had nothing?
    A. I categorically refute that I said either of those things, that they have got nothing or -- they were adamant they will not move, they can't. I categorically refute that. Categorically. No ambiguity in my memory at all about that. On other things I'm prepared to allow my memory to be, you know, flawed but on that I absolutely am sure. I never did that.
    Q. So what were your words to the group when you returned?
    A. I can't remember but they certainly weren't that. I mean I got the impression from Peter, as I said to you, that they were not prepared to go further. It's nothing to do with whether they could or couldn't; they were not prepared to, because they'd come to an agreement, I suppose, at board level, and he was instructed that they would only pay up to the level of costs, and after that they were not prepared to go any further. And it was prepared to pay, not afford to pay. That was the point he made to me. And the fact that they felt they had the winning hand and they would win at trial."
  245. It is significant that Professor Youlton acknowledges in this last answer that he had the impression that S&W would not, rather than could not, go further. He was aware that the rationale for S&W's offer was paying to the Trustees that which it would in any case have to spend on costs; and thought that Mr Fredericks was constrained by what he had been instructed. What he said in that passage rings perfectly true. Ignoring his speculation about Mr Frederick's instructions, I accept what Professor Youlton said there. That is not evidence which is generated by wishful thinking and has come to be believed when these things were not said by Mr Fredericks let alone evidence which is deliberate untruth.
  246. It is also to be noted that Professor Youlton is adamant about the sense of what he said (and not about the actual words used) namely that they have got nothing and that they cannot move. I do not dismiss the possibility that he used an expletive even though he cannot remember doing so. Let me speculate for a moment and assume that Professor Youlton did use the expletive which it is said he did; that may be a reason why Ms Deuchar would remember that he said something along the lines that S&W had nothing. Accordingly, she inserted into the 2008 Note the words which she did. But that would be a filling a gap where the memory many months later would not be perfect. It is precisely the sort of area where the perception of what had been said influences what is recorded as having been said whereas the function of an attendance note is exactly the reverse namely to give an accurate record of matters where the memory is unreliable. That is why the manuscript note is so important in that it says nothing to the effect that "They have got nothing" (but rather said "They are not good for the money") nor about "They can't" [ie they cannot move].
  247. It seems to me therefore that, even if I accept that Professor Youlton uttered words including "they have got fuck all" he could equally well have been saying that they had nothing they were prepared to offer whether by way of immediate payment or over a period of time.
  248. That is speculation. But it does emphasise why I must be particularly careful about taking the 2008 Note as accurate and must be careful in assessing Ms Deuchar's evidence, both written and oral, about the details of what was said at the Mediation.
  249. I return now to the last page of the 2008 Note and the passages recorded at paragraphs 180 and 181 above and in particular the sentence "They simply do not have the money" to be contrasted with the written note recording " they do have the £".
  250. Ms Deuchaer did not have a clear recollection of what was actually said. She acknowledged, as she had to, that the written note did not include the word "not". She explained the addition of that word in the 2008 Note saying "Because when I came back to write the note in the context of the mediation I thought that I had probably recorded what he said there wrong". I do not go with Mr Evans when he says that this was deliberate fabrication (supporting his submission that the written notes and the 2008 Note were deliberately slanted to support CRs' position in the light of a possible negligence claim) but I do think that Ms Deuchar has presented the 2008 Note in a way consistent with her impression that the financial state of S&W was a major driver in the approach of the Trustees. This particular example illustrates the point perfectly. The written note made perfect sense; she thought it was wrong, but did not explain why it was wrong. The reason must have been because it did not accord with her overall perception of what Professor Youlton would have said. But that is putting matters the wrong way round since the purpose of a note is to record what people actually did say and to leave matters of interpretation of what they said, if such a task ever needs to be undertaken, to another day.
  251. Perhaps more importantly, even if the word "not" should be taken as appearing in the written notes, it does not follow that the strength of the sentiment expressed in the 2008 Note is correct. If Mr Fredericks was saying that S&W could not afford to pay at that time that is one thing, and it is something he might have said. But he is recorded in the 2008 Note as saying, in effect, that S&W cannot pay now and never will be able to, something very different – and critically different in the context of the present claim.
  252. Yet again, it is demonstrated what care must be taken in the weight to be placed on the 2008 Note.
  253. Mr Evans relies on two contemporaneous notes prepared by Mr Fredericks which appear to be notes of what he intended to say at the Mediation. It is possible to compare the notes with what he is recorded as saying in the 2008 Note. Mr Fredericks notes are materially different from what the 2008 Note records him as having said. Mr Evans identifies a number of differences the most significant of which is that both of Mr Fredericks notes refer to S&W being limited in its capacity to incur any significant sum outside its planned trading headroom in the short term whereas the written notes and the 2008 Note do not add the qualification which I have underlined. It is to be noted, however, that the phraseology of Mr Fredericks notes and the order in which those ideas are presented is not reflected in the written notes or the 2008 Note. In any case, it might be thought that the flavour of the words I have underlined is captured by what is recorded in the 2008 Note – "They need to trade with adequate headroom for the next 12 months". Further, the 2008 Note and the written notes contain significant points which are not included in Mr Fredericks notes at all. Mr Evans submits that it is likely that Mr Fredericks mentioned during the course of his introductory address all of the matters of which he had made a note. I see no reason to think that the 2008 Note is not a more accurate reflection of what he actually said than his own notes, particularly given the different order of presentation and the inclusion of matters which were not covered by his own notes. I do not find Mr Fredericks notes of any assistance in determining the accuracy or otherwise of the written notes and the 2008 Note.
  254. Mr Evans not only challenges the 2008 Note, he also challenges the accuracy of the written notes. First of all, he says that if the court accepts that the 2008 Note is biased in favour of CR it is easy to infer that the written notes are biased. I disagree. It would, I think, be an enormously difficult task for a solicitor in the position of Ms Deuchar to have made the notes which she did, over a period of many, many hours, in a consistently biased way. The written notes are not occasional notes taken along the way, recording only what strikes the writer as to the interests of her firm. These written notes are very full and, if I may say so, a remarkable achievement. That there might be errors and omissions (there probably are) is entirely unsurprising. Ms Deuchar would have had to be superhuman to have produced a complete and accurate note of the entirety of those parts of the proceedings at which she was present. She would have had to be more than superhuman, when taking these notes, to include matters which were favourable to CR but to exclude those which were not. She would have had to assess each statement made by persons present as it was made and decide whether to include it or not. I find it impossible to see how she could have done that.
  255. But let me suspend disbelief for a moment and stand back to ask why Ms Deuchar would have done such a thing. Either she would have done it by herself; or she would have been requested or persuaded to do so by someone else, presumably Mr Haines or Mr Holder. There is not a shred of evidence to support the latter. Mr Evans did not suggest that there was. He did not invite me to infer that there was improper conduct of this sort and, had he done so, I would have rejected it without hesitation. So, if Mr Evans is right that the written notes and the 2008 Note were biased, that must be so because Ms Deuchar went off on a frolic of her own, presumably to preserve the good name of CR. I reject any such suggestion too. I do not consider that there is any merit at all in Mr Evans' submissions that Ms Deuchar deliberately included or omitted information, let alone that she deliberately distorted information, in relation to the written notes or the 2008 Note.
  256. Mr Haines also kept some notes of the Mediation. They are quite sparse. I do not find them of any real assistance.
  257. I deal with the events at the Mediation itself separately: see paragraph 407ff below.
  258. A settlement agreement was signed by all parties on 13 September 2007 ("the Settlement Agreement"). It takes the form of a Tomlin order in the Trustees' action against S&W. All further proceedings in the action were stayed except for the purposes of carrying the terms set out in the Schedule into effect. Those terms were as follows:
  259. i) The agreed terms were in full and final settlement of
    a) All claims made in the action;
    b) All claims arising out of the Apportionment Agreement, the 2002 Side Letter and the Lease (but excluding matters arising after the date of the agreement and matters arising from the Schedules of Dilapidations already served). It is not disputed that there would be a rent review as of March 2007.
    ii) A new lease from 2010 to 2017 was to be entered into in the form of the draft annexed. This provided for a single rent review on 25 March 2012.
    iii) A deed of variation amending the terms of the Lease was to be entered into to deal with permitted use and under-letting.
    iv) S&W was to pay £250,000 plus VAT by 11 October 2007.
    v) Rent arrears of £177,000 plus VAT were to be paid by the same date.
    vi) A further sum of £250,000 plus VAT was to be payable on the earlier date of 13 September 2010 and the date on which a majority of the shares in S&W were subsequently sold as detailed in clause 6 of the Schedule.
    vii) Certain works were to be undertaken by S&W to the external fabric of the West Wing in accordance with a programme to be agreed between the parties or, in default of agreement, determined by an expert.
  260. The settlement agreement thus disposed of all the issues between S&W and the Trustees save for (i) the dilapidations claim and (ii) the level of rent under the 2007 rent review (which was eventually agreed at £440,000).
  261. The day after the Settlement Agreement had been signed, Mr Haines wrote to Professor Youlton. He reported that he had had an informal debriefing session with Mr Todd and Mr Clark both of whom were in no doubt that the Trustees had been right to conclude the litigation on the settlement terms agreed
  262. "given the further significant legal costs that could have been incurred in taking the matter to trial and importantly the financial position of Snell & Wilcox Limited".

    Duty of Care: to whom was any duty of care owed?

  263. There can be no dispute that CR owed Professor Youlton personally a duty of care in 2001 in relation to the various documents relating to the terms of his severance – in particular the Compromise Agreement and the Employment Agreement – and later in 2002 in relation to the complex corporate restructuring leading to the various commercial agreements with Advent in May 2002. Professor Youlton's case is that CR also owed him personally a duty of care in relation to the Apportionment Agreement, the 2001 Side Letter and the 2002 Side Letter, a duty to ensure that valid and binding agreements were effected.
  264. CR's case is that they owed no duty to Professor Youlton personally in relation to these matters. In the First Action they plead in their Amended Defence that they were instructed by and owed Professor Youlton duties in his personal capacity, in respect only of those documents to be entered into in order to resolve disputes between himself in his personal capacity and S&W; there was no wider retainer of CR by him. They plead that, in relation to the Apportionment Agreement, the 2001 Side Letter and the 2002 Side Letter, CR were instructed by, and owed duties to, the Trustees in their capacity as such. They owed no duty to Professor Youlton in his personal capacity. Any claim could be brought only by the Trustees. That case is repeated in their Amended Defence in the Second Action.
  265. I have related the chronology of events leading up to the Apportionment Agreement and then leading up to the 2002 Side Letter. The following are particularly material:
  266. i) The original instructions to CR clearly came from Professor Youlton in relation to his severance terms. It was in the course of the determination of the terms of severance that Professor Youlton's concerns about the Scheme were raised. In that sense, the Apportionment Agreement and the negotiations leading up to it arose out their original retainer. Mr Holder accepted that both agreements arose out of the retainer.
    ii) Professor Youlton had a personal interest in the well-being of the Scheme since it was to be the main, if not the only, source of his retirement income. He therefore had a personal interest which needed looking after by his own lawyers. Suppose, for instance, that the Trustees as a body had gone to separate solicitors; Professor Youlton could still have retained CR to ensure, on his behalf, that the solicitors advising the Trustees were adequately protecting his interests. There is nothing surprising about CR remaining under a duty of care to Professor Youlton personally. Mr Holder accepted – he could hardly deny it – that Professor Youlton would be personally affected.
    iii) CR took their instructions in relation to the Apportionment Agreement from Professor Youlton; they appear to have had no contact with the other Trustees apart from Professor Snell and their contact with him was not in his capacity as a trustee.
    iv) CR's bills in relation to their advice and work concerning the Scheme were sent to and paid by Professor Youlton up to and including the time of the Apportionment Agreement. The bill in 2002 was to be divided with Professor Snell (but not the other Trustees) but this related to work on the disposal of their shares to Advent.
    v) Professor Youlton thought that he was acting in his own capacity. Mr Holder accepted that he regarded Professor Youlton personally as his client in acting in relation to both agreements.
  267. Mr Evans says it is salami-slicing of the worst sort to seek to divide some parts of the work which CR undertook for Professor Youlton and say that duties were only owned to the Trustees and not to Professor Youlton when in reality they were part of a seamless whole. I will not allow myself to be influenced by forensic flourishes of that sort. Nonetheless, I think that the conclusion is that CR owed at all times a duty of care to Professor Youlton in his personal capacity in relation to the advice which they were giving about the Scheme and in particular the advice about and drafting and completion of the Apportionment Agreement and the 2002 Side Letter. I do not doubt that CR could have made clear that they were not prepared to undertake any duty to Professor Youlton in relation to the Scheme but that they would be responsible only to the Trustees. They did not do so. Nothing which they said or did would have led Professor Youlton to think that he was not receiving all the advice which he needed about the Apportionment Agreement and the 2002 Side Letter from CR.
  268. In my judgment, CR were under a duty of care to Professor Youlton personally in relation to both the Apportionment Agreement and the 2002 Side Letter. This does not mean that it is unimportant to determine whether the Second Action is, in part, time-barred. Suing in a personal capacity, Professor Youlton can only recover damages on his own account (which in practice would mean that he would be restricted to damages reflecting the value of his own interest and that of his dependents under the Scheme), whereas the Trustees can, if successful, recover damages equal to the loss suffered by the trust fund.
  269. Professor Youlton could no doubt see that a claim by the Trustees was conceptually more logical. He accordingly took an assignment from himself and his co-Trustees of the cause of action if any possessed by the Trustees against CR and Professor Snell assigned any cause of action which he personally might have against CR. The assignment is dated 8 December 2008. I see no reason to think that it is not a valid assignment according to its terms. Professor Youlton was therefore able to launch the Second Action which would, of course, be subject to the same limitation defences as would have been a claim by the Trustees commenced at the time of the commencement of the Second Action.
  270. To the extent that the Trustees have a good claim, Professor Youlton's personal claim is qualified. Although he may have a claim in contract or in tort, his damages would be affected by any recovery which the Trustees (or by him pursuing the Trustees' rights as their assignee) achieve otherwise there would be double recovery. But that does not mean there is no personal cause of action at all: I refer again to the example where the Trustees have taken advice from separate solicitors but Professor Youlton has continued to retain CR to protect his own personal interests.
  271. It would not be, in any case, a matter of great significance whether CR owed Professor Youlton a duty of care in relation to the Apportionment Agreement and the 2002 Side Letter if the claims in the Second Action were all in time or if the First Action could be amended so as to allow Professor Youlton to assert the Trustees' claims. But those aspects raise limitation issues to which I now turn
  272. Limitation

  273. The First Action was commenced on 7 May 2008; the Second Action was commenced on 11 March 2009. The claims in the Second Action were made outside the primary limitation period of 6 years. In relation to the First Action, the claim in respect of the 2002 Side Letter (8 May 2002) was made within (just) the primary limitation period, but the claim in relation to the Apportionment Agreement was not.
  274. Accordingly, Mr Evans also relies on section 14A Limitation Act 1980 which, in effect, allows a claimant to bring his claim within 3 years from the starting date for reckoning the period of limitation. To succeed in his invocation of section 14A, Mr Evans needs to show, therefore, that the starting date does not fall before 7 May 2005 and 11 March 2006 for the First and Second Actions respectively.
  275. The starting date for reckoning the period of limitation is the earliest date on which the claimant first "had both the knowledge required for bringing an action for damages in respect of the relevant damages and a right to bring such an action". Such knowledge is knowledge both (a) of the material facts about the damage in respect of which damages are claimed and (b) of the other facts mentioned in sub-section (8).
  276. One of those other facts is "that the damage was attributable in whole or on part to the act or omission which is alleged to constitute negligence". The "material facts about the damage" are such facts about the damages as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings against a defendant who did not dispute liability.
  277. A person's knowledge includes, by virtue of section 14A(10), knowledge which he might reasonably be expected to acquire (a) from facts observable or ascertainable by him or (b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek.
  278. The meaning of "knowledge" for the purposes of section 14A was dealt with at some length in Haward v Fawcetts (a firm) [2006] 1 WLR 682, a decision of the House of Lords. Lord Nicholls mentioned, in paragraph 8 of his speech, two aspects of the "knowledge" provisions which he described as comparatively straightforward. They concerned the degree of certainty required before knowledge can be said to exist and the degree of detail required before a person can be said to have knowledge of a particular matter.
  279. As to the first, the relevant date is when the claimant first knew enough to justify setting about investigating the possibility that the defendant's advice was defective. The claimant must know enough for it to be reasonable to begin to investigate further.
  280. As to the second, questions of this nature, he explained, had mostly arisen in the context of the need for the claimant to know that "the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence": see section 14A(8)(a). It is enough if the claimant has "broad knowledge" or if he had knowledge "in broad terms" of the facts on which the complaint is based. And so, consistently with the underlying statutory purpose, "attributable" has been interpreted by the courts to mean a real possibility and not a fanciful one so that time does not begin to run against a claimant until he knows there is a real possibility that his damage was caused by the act or omission in question. In that case, Lord Nicholls stated Mr Haward's claim in these "simple and broad terms": Austreng did not do his job properly. Time did not start to run until Mr Haward knew enough for it to be reasonable to embark on preliminary investigations into this possibility.
  281. Lord Walker, after citing from Hallam-Eames v Merrett Sydicate Ltd [2001] 1 Lloyd's Rep PN 178,181 summaries the position by saying that the court is concerned with the identification of the facts which are the "essence" or "essential thrust of the case" or which "distil what [the claimant] is complaining about".
  282. Turning to the facts of the present case, the first hint that the Apportionment Agreement was susceptible of attack was when the letter dated 19 October 2006 was received from Blake Lapthorn Linnell asserting the Want of Authority Defence. That is the earliest date on which Professor Youlton (or any of the Trustees) could have had the knowledge required for the purposes of section 14A so far as the Apportionment Agreement is concerned. That was also the first occasion on which there was any hint that the 2002 Side Letter was vulnerable on that ground. This date falls within 3 years of the commencement of both the First Action and the Second Action. Accordingly, claims against CR based on breach of duty in respect of the Apportionment Agreement are not time-barred.
  283. The validity of the 2002 Side Letter was also attacked by S&W on the basis of the Unenforceability Defence. The first articulation of that defence before it was developed over time was in Blake Lapthorn Linnell's letter dated 16 September 2005. That was less than 3 years before the commencement of the First Action which is not, therefore, time-barred. Accordingly, Professor Youlton is not time barred in relation to his personal claims against CR in relation to the 2002 Side Letter in that Action.
  284. The position in relation to the Second Action is more complex since the letter just referred to was sent more that 3 years before the commencement of the Second Action. No reason is given in that letter other than a general reference to section 2 Law of Property (Miscellaneous Provisions) Act 1989 about why the correspondence did not amount to an agreement.
  285. Some more detail of S&W's case under the Law of Property (Miscellaneous Provisions) Act 1989 was given in the letter from Blake Lapthorn Linnell dated 15 November 2005 where it was also said that there was nothing more than an agreement to agree.
  286. But CR were concerned and advised Professor Youlton to seek an opinion from Counsel. Mr Clark gave his opinion on 7 December 2005 the essence of which I have already explained.
  287. In accordance with the principles which I have considered above, time did not begin to run against Professor Youlton and the Trustees until he (or they) knew enough for it to be reasonable to embark upon a preliminary investigation into whether CR's drafting or approval of the 2002 Side Letter was defective. There needs to be something which would reasonably have caused Professor Youlton to start asking questions about CR's conduct in relation to the 2002 Side Letter. It is of the essence of the complaints that the drafting was defective in that it gave rise to the Unenforceability Defence. It was not, at earliest, until they knew of those defects that they can be said to have had the requisite knowledge.
  288. It is clear that Professor Youlton knew of the defects at the latest by the time he knew of Mr Clark's advice which would have been around the date of his Opinion. Professor Youlton therefore certainly knew of the advice well before 11 March 2006. He knew that they had been relying on CR in relation to the drafting of the Side Letter. In my judgment, he had the necessary knowledge to start time running some time after the date of Mr Clark's Opinion and well before 11 March 2006. Accordingly, the Trustees' claim against CR by reference to the Unenforceability Defence was time-barred by the date of commencement of the Second Action.
  289. During the course of argument, I suggested that it might be possible to amend the First Action to include the claim against CR which (if it was a good claim) was originally vested in the Trustees and had been assigned to Professor Youlton. Whether this can be done, and if it can, whether I should allow it to be done, requires me to consider section 35 Limitation Act 1980 as well as the relevant provisions of the CPR, namely CPR 17.4 and CPR 19.5.
  290. Under section 35, a new claim in an existing action can be made after the expiry of a limitation period in accordance with rules of court. A new claim (so far as relevant to the present case) is one which involves either the addition of a new cause of action or the addition of a new party. An amendment to join the other Trustees as claimants and to allege a duty of care to them and breach of it, would be a new claim under both heads. Rules of court may, however, allow a new claim to be made only where (i) in the case of claim involving a new cause of action, it arises out of the same facts or substantially the same facts as are already in issue in any claim previously made and (ii) in the case of a claim involving a new party, if the addition of the new party is necessary for the determination of the original action.
  291. The relevant rules of court are CPR 17.4 and CPR 19.5:
  292. i) The former, so far as relevant to the present case, allows the addition of a new claim but only if it arises out of the same facts, or substantially the same facts, as a claim in respect of which the claimant has already made a claim in the proceedings. The decision of the Court of Appeal in Goode v Martin [2002] 1 WLR 1828 establishes that CPR 17.4(2) is to be read as allowing a new claim where it "arises out of the same facts or substantially the same facts as are already in issue on" in an existing claim. Thus a claimant can rely on facts and matters pleaded in a defence as part of the "facts and matters…in issue".
    ii) The court may also allow an amendment to alter the capacity in which a party claims if the new capacity is one which that party had when the proceedings started or has since acquired.
    iii) CPR 19.5, so far as relevant to the present case, allows the addition of a party only if that addition is necessary. That will be so where the claim (ie the original claim) cannot properly be carried on by the original party unless the new party is added.
  293. I considered section 35 and CPR 17.4 in some detail in my decision in Harland and Wolff Pension Trustees Ltd v Aon Consulting Financial Services Ltd [2009] EWHC 1557 (Ch) [2010] ICR 121. I do not need to refer to it save in relation to what I described as the "piggy back" claim. Thus, if the court in its discretion decides to allow a particular amendment to particulars of claim the pleading as amended can then form the starting point when it comes to assessing whether a different proposed amendment arises out of the same facts and matters as those already pleaded: see Dhillon v Siddiqui [2007]  EWHC 2936 at [28]-[35] per Richard Sheldon QC, following the Court of Appeal in Welsh Development Agency v Redpath [1994] 1 WLR 1409 at 1416H-1417A and Lloyds Bank plc v Rogers (The Times, 27 March 1997).
  294. Although my own decision and the earlier decisions related to amendments introducing a new cause of action, I see no reason why the same should not apply where it is sought to add a new party as a necessary party to a cause of action which has been added by amendment.
  295. Under CPR 19.3(1), all persons jointly entitled to a remedy must be made parties and if a person does not agree to be a claimant he must be made a defendant as required by CPR 19.3(2); each of these requirements is subject to the rubric "unless the court orders otherwise". These are essentially procedural requirements. If a person jointly entitled to a remedy were to sue without joining those jointly entitled with him, that would not make the proceedings a nullity. The defendant might be able to obtain a stay pending compliance with CPR 19.3 but he would not be entitled to strike out the action, at least not without the claimant being given the opportunity to comply. If the joinder of other persons is necessary for the determination of the action, as it would be in the case of co-trustees, it is permissible (although this is for the discretion of the court) to join the co-trustees, even after the expiry of a limitation period, under section 35(5)(b) and CPR 19.5(2)(b) and (3)(b).
  296. In the present case and ignoring for the moment, for the purpose of analysis, the making of the assignment, Professor Youlton could seek to amend the current Amended Particulars of Claim to allege a duty of care owed to the Trustees and to claim relief as one of the Trustees. If that is to be seen as a change in the capacity in which he claims, he can seek to rely on CPR 17.4. He can argue that the new claim which he makes as one of the Trustees is one which arises out of the same or substantially the same facts as are already in issue. And, having succeeded in having that amendment allowed, if he does, his co-Trustees can be added as co-claimants.
  297. In my judgment, the court does have jurisdiction to make such amendments. Whether it should allow such an amendment as a matter of discretion is a separate question which I will deal with in due course. But so far as jurisdiction is concerned, the first question is whether the new claim does, indeed, arise out of the same or substantially the same facts. In my judgment, it clearly does. The duty owed to the Trustees is positively asserted by CR in its existing Amended Defence and is already one of the facts "in issue" in the action as presently constituted. That duty, in its scope, is the same as the duty alleged to be owing to Professor Youlton. The facts and matters relied on to establish breach of the duty to Professor Youlton are exactly the same facts as are relied on to establish a breach of duty to the Trustees. Indeed, the evidence adduced in the First Action and the Second Action is precisely the same. It is true that the allegation of breach of the duty owed to the Trustees will be a new claim, but it is a question of law whether the facts established amount to a breach of duty and the introduction of that allegation is not the introduction of a new fact making the claim one which does not arise out of the same or substantially the same facts.
  298. If that is correct, then the court has power to allow amendments which (i) introduce the duty of care owed to the Trustees into the Particulars of Claim (ii) allege a breach of that duty (by reason of the facts or substantially the same facts as are already pleaded) and (iii) if it is necessary at all which I rather doubt, allow Professor Youlton to claim in his capacity as a Trustee. If such an amendment is allowed, then a subsequent amendment would be permissible to join the other Trustees under CPR 19.5 as a "piggy-back" amendment so as to comply with CPR 19.3. It would be absurd to insist on separate amendments: the court should simply allow all the amendments to be made in one go.
  299. As it happens, the Trustees' claims have been assigned to Professor Youlton. There is therefore no longer any need for the other Trustees to be joined. However, it would, Mr Hubble submits, be necessary to add to the Particulars of Claim a further pleading that the claim has been assigned. That, it is true, is a new fact, but the claims do not arise out of that fact; it is only the question of who are the necessary parties to assert those claims which is affected. In deciding whether to allow an amendment to allege the assignment, I consider that I should allow it if, but only if, I would have allowed the joinder of the other Trustees in the absence of an assignment.
  300. The next question is whether, in the exercise of my discretion, I should actually allow such amendments.
  301. Mr Hubble submits that I should decline to afford the benefit of relation back to a claimant who expressly brought proceedings in his capacity as beneficiary only, and then, in apparent response to CR's defence and after the expiry of the relevant limitation period took an assignment of the Trustees' alleged cause of action. To do so would be to allow Professor Youlton to bring an action for a much increased quantum based on a later assignment as if that claim had been brought as at the date of issue of the original claim form, and in so doing to avoid the consequences of CR's limitation arguments, in circumstances where (i) the Trustees had obviously decided not to bring a claim themselves and (ii) the assignment was not in existence at any time prior to the expiry of the relevant limitation period. Mr Hubble submits that it is immaterial to suggest that the claim could all along have been brought by Professor Youlton qua Trustee, simply joining the other Trustees in as defendants, because that is expressly not the way in which the claim was pursued or pleaded. Professor Youlton is now seeking to avoid the consequences of his election, namely that the claim which he has brought based on the Trustees' alleged cause of action is statute-barred in substantial respects.
  302. The prejudice to CR should the amendments be allowed is, he also says, self-evident: Professor Youlton's case has been pursued throughout (up to and including at trial) on the basis of there being two actions. The first of those actions is for the Claimant's alleged loss as beneficiary and so is limited to 41% of the Trust's loss. The second of those actions is for all ie 100% of the alleged loss of the Trustees. So allowing the amendment would not just allow an accrued limitation defence to be circumvented, but would also increase the otherwise time barred losses from 41% to 100% (on the basis, as I have held, that CR owed a duty to Professor Youlton and not just to the Trustees as such). Thus, he submits that CR's position is substantially and unfairly prejudiced.
  303. It is important, I think, to keep in mind the limited scope of this amendment in the context of Professor Youlton's overall claims. There is already on foot an action, the First Action, brought within the limitation period which raises precisely the same disputed factual issues as would arise in relation to the proposed amendments, an action to which both Professor Youlton and the Trustees are parties. Assuming that liability in that case is established, Professor Youlton should, broadly speaking, be entitled to damages, as Mr Hubble's submission indicates, equal to 41% of the Trustees' claim, as a beneficiary to the extent of 41% of the trust fund of the Scheme. The amount of that 41% is only capable of ascertainment if the 100% is ascertained: yet it is precisely that 100% which Professor Youlton seeks to obtain by asserting the Trustees' claim. The amendment, if it had been sought to be made as the trial opened, would have added nothing to the factual material which I needed to hear and nothing of substance or difficulty to the legal argument. There will be no prejudice to CR if the amendment is allowed now other than the prejudice, if that is the right word, of being made liable to the full extent of the damage suffered as a result of their negligence rather than only some of it.
  304. In that context, it is not possible or sensible to ignore the Second Action. When it comes to assessing Professor Youlton's personal damages in the First Action, account must be taken of the value of the Trustees' claim in the Second Action: he has not suffered loss to the extent to which the trust fund of the Scheme is reconstituted by an award of damages to the Trustees in the Second Action. In the Second Action, a claim is already made against CR by the Trustees in relation to the 2002 Side Letter which does not turn on the Unenforceability Defence, but turns on the Want of Authority Defence. Accordingly, in that Action, I have the difficult task of assessing damages on the footing that the Trustees would have had a 2002 Side Letter which was vulnerable to attack by virtue of the Unenforceability Defence (the availability of which cannot be blamed on CR since that claim is time-barred) but which is vulnerable to attack by virtue of the Want of Authority Defence.
  305. The resulting position is best explained by an example. Suppose that the Trustees' claim is worth £X but suppose that it is worth only the smaller figure of £Y if the Trustees can claim, so far as concerns the 2002 Side Letter, only in respect of the Want of Authority Defence being available when it should not have been and not in respect of the Unenforceability Defence being available. The Trustees would recover £Y. Professor Youlton's full claim under the First Action would be for 41% x £X but he would have to give credit for his share of the Trustees' recovery, namely 41% x £Y. So the total liability of CR would be £(Y + 41% x (X-Y)) = 41% x £X + 59% x £Y. To allow the amendment would result in a total recovery of £X. So the increase in damages as a result of allowing the amendment would be £(X – (41% x X + 59% x Y)) = 59% x £(X- Y). Unless £Y is zero, this is a very different level of prejudice from that identified by Mr Hubble.
  306. In my judgment, the balance comes down firmly in favour of allowing the amendment even at this very late stage in the proceedings bearing in mind (a) the scope of the amendment (b) the lack of any prejudice to CR (other than the prejudice of the quantum of recoverable loss being increased and (c) the scope of what is already in issue in the First Action. This conclusion is supported by consideration of the consequences for the Second Action although I do not take this into account as a factor in the exercise of my discretion. Allowing the amendment effectively eliminates the need to consider the amount of £Y in the above example, an enormously difficult question requiring resolution of the question about what the Trustees would have done in 2006 if the Apportionment Agreement was valid but the 2002 Side Agreement was vulnerable to attack pursuant to the Unenforceability Defence but not the Want of Authority Defence.
  307. My conclusions on limitation are these. None of Professor Youlton's claims are time-barred save to the extent that reliance is placed in the Second Action on CR's breach of duty to the Trustees in respect of the defective drafting of the 2002 Side Letter giving rise to the Unenforceability Defence. I allow the proposed amendments to the First Action in order to allow Professor Youlton to plead the Trustees' claims which have been assigned to him.
  308. Breach of Duty

  309. In addressing the question of CR's alleged breach of duty, I bear very much in mind, as Mr Hubble urges me, not to apply the benefit of hindsight. The question is whether, in the circumstances in which they were acting at the time, CR acted in a manner which can properly be described as negligent. It must also be kept in mind that solicitors do not guarantee the outcome of transactions, or that problems will not arise with the same in future. Thus Mr Hubble submits that the fact that S&W, in the course of a complex and hard-fought dispute with the Trust (and in circumstances where it had, on any view, significant financial problems), took certain opportunistic technical points with regard to two agreements out of the raft of agreements entered into between Professor Youlton or the Trustees and S&W, does not mean that the Defendants were negligent in relation to the drafting and/or execution of those agreements. I agree. But neither does it mean that there was no negligence. If a technical point is taken and it is one which any reasonable solicitor ought to have appreciated, then the fact that it is taken opportunistically does not excuse the solicitor. I accept as Mr Hubble says, that a client cannot expect an agreement to be in all respects to be 100% watertight and to be incapable of challenge. But the need to accept seepage from the water-container does not excuse a failure to plug a leak.
  310. The breaches of duty with which I am concerned are those which it is alleged gave rise to the possibilities of the Want of Authority Defence and the Unenforceability Defence being raised as serious, rather than clearly hopeless, defences to the Trustees' claims. The question is not whether the defences would have succeeded had they been tested at trial but whether, and if so to what extent, the Trustees were prejudiced by those defences being ones which S&W could raise as real problems for the Trustees. I deal with the two defences in turn.
  311. It is elementary that if a contract made by way of deed (such as the Apportionment Agreement) is to be binding on a party which is a company, the persons executing the deed on behalf of the company must have authority to do so. Such authority may be actual authority (which may be express or implied) or it may be ostensible (or apparent) authority. Ostensible authority derives from action taken by a principal which leads a third party to believe that the apparent agent has the appropriate authority to act on behalf of the principal. A person can have ostensible authority when in fact he has no actual authority. Typically in a case of ostensible authority the agent is held out as having a particular authority which often flows from the agent having been appointed to a particular post which normally carries that authority with it or through dealings over a period of time leading the third party to think that the agent in fact has authority even though he does not. I should add that a contract made without authority can, of course, be ratified by the principal.
  312. On 8 March 2001, a board meeting of S&W was held. Agenda items included consideration of the roles of the chairman (at that time Professor Youlton) and the CEO and what powers of the company should be reserved to the board. According to the Minutes, both Professor Youlton (as chairman) and Professor Snell were present at that meeting. In relation to the roles of the chairman and the CEO it is recorded "The Chairman and the CEO informed the meeting that in the light of experience….they had reached broad agreement….". Consideration of those roles was postponed to the next board meeting. But in relation to reserved powers it was resolved, with immediate effect, that the powers detailed in the Schedule of Power Reserved to the Board attached to the minutes were reserved to the board in plenary session.
  313. Professor Youlton in his main witness statement says that he was spending most of his time out of the office over this period and "had not therefore been present when a Board resolution had been passed limiting John Spencer's authority and no one had brought this to my attention". If that is right, the minute is wrong not only in recording Professor Youlton's presence as chairman but in recording what he and Mr Spencer said to the meeting. I think that it is likely that Professor Youlton has simply forgotten this meeting. But even if he was not there the Board nonetheless passed this resolution.
  314. Those reserved powers included the following:
  315. i) "Conclusion or amendment of contracts by virtue of which the Company enters into obligations in excess of £100,000 in individual cases other than in the normal course of business".
    ii) "Legal transactions of any nature between the Company and its executives, shareholders including spouses, relations, relations-in-law of executives or shareholders".
    iii) "Initiation, conduction and termination of legal disputes with a value in litigation exceeding £100,000 or of legal disputes which are of fundamental significance to the Company".
  316. Clearly the suite of agreements made in August 2001 concerning Professor Youlton's severance conditions fell within the second and third of those reserved powers. Clearly the Apportionment Agreement, if it was to become binding, and the 2002 Side Letter fell within the second of those reserved powers since Professor Youlton and Professor Snell were shareholders at the times of each of those agreements. The Apportionment Agreement may also have fallen within the third of those reserved powers if it is to be viewed as part of the suite of agreements settling Professor Youlton's severance claims and possibly as settlement of a legal dispute of fundamental significance to S&W. It follows that Mr Spencer and Professor Snell (who executed the Apportionment Agreement on behalf of S&W as director and secretary respectively) had no actual authority (either express or implied) in the absence of a board resolution giving such authority or in the absence of facts which would estop S&W from asserting that such authority had not been granted.
  317. Quite apart from actual authority, third parties dealing with a company are often able to rely on the ostensible authority of officers and employees of the company to bind the company even in the absence of actual authority. There was a difficulty in the past in relying on that doctrine where the lack of actual authority was apparent from the public constitutional governing provisions of the company, namely its memorandum and articles of association. A third party was deemed to have notice of the provisions of these documents even if he had not read them and thus to know of the restrictions on the powers of a director. That approach was ameliorated by the developments by the courts of the rule which came to be known as the rule in Turquand's case (a reference to the decision in Royal British Bank v Turquand (1856) 6 E&B 627). In his speech in Morris v Kansenn [1946] AC 459, Lord Simons stated the rule in this way:
  318. "But persons contracting with a company and dealing in good faith may assume that acts within its constitution and powers have been properly and duly performed and are not bound to inquire whether acts of internal management have been regular."
  319. Thus in Turquand's case itself, a security for a loan had been given by a company through its directors but the articles provided that the directors could borrow only such sums as the shareholders in general meeting authorised. There was in fact no such authority. A third party would be deemed to know of the restriction on borrowing – not, it is to be noted, an absolute prohibition - but was held to be entitled to assume that there had been a resolution of the shareholders "authorising that which on the face of the document appeared to be legitimately done".
  320. The benefits of the rule in Turquand's case are not available to third parties who have a relevant degree of connection and involvement with the company. On the basis of Morris v Kansenn, it might be said that a director, who was under a duty to see that the company's articles were complied with, could not take advantage of the rule since his duty would be inconsistent with his taking the benefit of the rule. But in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, Roskill J considered a director would be debarred from taking advantage of the rule only if the company was so intimately concerned with his position as a director as to make it impossible for him not to be treated as knowing of the limitation on the powers of the officers through whom he dealt. That approach may be helpful where a contracting party has failed to obtain the necessary board resolution but it might be thought to be a risk, to a greater or lesser extent, to rely on the court coming to the rescue when the contracting party is himself a director: it may be difficult in any given case to draw the line.
  321. I have mentioned the rule in Turquand's case and other cases only because the rule was referred to by counsel in the context of the problems facing the Trustees when it came to enforcing the Apportionment Agreement and the 2002 Side Letter. Quite possibly, on the authority point, the Trustees would have been able to present strong arguments, on the basis of Hely-Hutchinson v Brayhead Ltd to show that they were entitled to take advantage of the rule in Turquand's case. But equally strong arguments could have been presented to distinguish Hely-Hutchinson v Brayhead Ltd, in particular, so far as concerns the Apportionment Agreement, that Professor Snell was a contracting party, as a Trustee, on one side but executed it as company secretary to create the contract on behalf of the company on the other side.
  322. But the question would not have been limited to the applicability of the rule in Turquand's case. The Trustees faced other problems, but before turning to those, I need to say a little about the effect of the 2001 Side Letter.
  323. It was intended, so it would appear from its terms, to make the execution and signature of all of the relevant documents conditional upon board approval. The term "escrow" is used in the 2001 Side Letter to achieve this conditionality. That is a term which is conventionally used to describe the conditional delivery of a deed. Thus a deed can be executed in escrow upon satisfaction of a condition. Until the condition is satisfied, the deed is not fully effective. The point of an escrow, however, is that the parties are bound and cannot withdraw: if the condition is satisfied, the deed is fully effective. Almost any condition can be imposed as an escrow condition except that it cannot be one which it is within the unilateral power of the grantor to fulfil or not as it wishes.
  324. It is, perhaps, not entirely clear how this concept fits with a condition described as an escrow which purports to make the execution of a deed on behalf of a company conditional upon the approval of the board of that company. Is it an invalid escrow condition on the footing that it is within the unilateral control of the company to perform? Or is a condition precedent to the coming into being a contract at all? Or does it have some other effect? I do not need to provide an answer to those questions. All that it is necessary to say is this: firstly, that, in the present case and absent the board resolution envisaged by the 2001 Side Letter, it must be very doubtful indeed that the Trustees would obtain any rights under the Apportionment Agreement whatever the true scope of Mr Spencer's authority; and secondly, that if a board resolution had been obtained, the status of the Apportionment Agreement prior to the board resolution would be of no relevance at all and a contract would have come into force even if Mr Spencer had no power to bind S&W.
  325. As to the first of those propositions, I say that it is doubtful because the 2001 Side Letter makes clear that Mr Spencer was not, by executing any of the documents (including the Apportionment Agreement), intending to bind S&W to anything without board approval. It matters not whether this was because he had no authority to do so or whether he had authority but wished to have the confirmation of the board to what he had negotiated with Professor Youlton. Even if the matter were to be fully tested in the courts and it was established that the Apportionment Agreement was delivered unconditionally and not subject to an escrow condition, no adviser, whether advising at the time or advising today, could I think possibly advise with any confidence that that would be the outcome. An adviser would be bound to point out the risk – indeed perhaps the possibility – that absence a board resolution, there would be no binding contract whatever the scope of Mr Spencer's authority.
  326. The problems facing the Trustees were these:
  327. i) The board had expressly reserved certain matters to itself. For reasons already given, the Apportionment Agreement and the signing of the 2002 Side Letter fell within those reserved areas.
    ii) Professor Snell was at the meeting when this reservation was resolved upon, making it difficult to see how he could have thought that a board resolution would not be necessary had they thought about it. If I am right in my finding that Professor Youlton, too, was present, then the same applies to him.
    iii) The Apportionment Agreement was executed on 24 August 2001 as was the 2001 Side Letter. Given the circumstances set out in the preceding two paragraphs and given the contents of the 2001 Side Letter, it would have been a steeply uphill task for the Trustees to persuade the court that any unconditional agreement had been entered into in terms of the Apportionment Agreement. Professor Youlton and Professor Snell are surely to be taken to know (even if they did not in fact appreciate) that a board resolution was necessary.
    iv) There was, as we know, no board resolution approving the Apportionment Agreement. It might have been argued against S&W on behalf of the Trustees that the rule in Turquand's case should be applied in the context of the escrow condition being fulfilled or, a contract coming into being in the first place: see paragraph 275 above. In other words, information from S&W to the effect that the Apportionment Agreement had become unconditional should be capable of being relied upon by a third party.
    v) There are difficulties with this argument, at least so far as I can take account of them.
    a) There is no evidence about who provided to Professor Youlton or Ms Manson the information that any of the suite of documents had been approved by the board.
    b) Even if such information was provided (which would have been true in relation to the principal documents concerning Professor Youlton's severance terms), there is no evidence to show whether or not it was couched in terms which could reasonably be taken as covering the Apportionment Agreement.
    c) Professor Youlton was chairman of the board and knew, or ought to have known, that there was no board resolution approving the Apportionment Agreement. The Trustees, include him among their number, thus giving rise to arguments that the Trustees could not, consistently with his duty to see compliance with the restrictions on the authority of the CEO, take advantage of the Apportionment Agreement.
    d) So far as concerns the 2002 Side Letter, the Trustees' were not, perhaps, as exposed as they were in relation to the Apportionment Agreement. By this time, Professor Youlton was no longer a director and might have been able to take advantage of the rule in Turquand's case. But even if that is so, the fact that Professor Snell remained on the board still left the Trustees exposed to the technical point.
  328. Quite apart from the authority issue, another problem facing the Trustees was the other part of the Want of Authority Defence, namely the difficulties arising from the conflict of interests faced by both Professor Youlton and Professor Snell in relation to the Apportionment Agreement and by Professor Snell in relation to the 2002 Side Letter. Whether S&W would have prevailed on these issues at trial may be open to doubt. But what can be said is that the points which were raised by S&W could not be dismissed out of hand: they raised triable issues.
  329. The final problem faced by the Trustees in relation to the 2002 Side Letter is the Unenforceability Defence. Mr Evans suggests that the 2002 Side Letter "was obviously vulnerable to a defence that it was so vague as to be unenforceable and was an unenforceable agreement to agree". A more measured and objective view was taken by Mr Clark when he advised, as to which see the summary of his conclusions at paragraph 115 above. He addressed the argument raised on behalf of S&W but was able to conclude only on balance that the Trustees would succeed on the uncertainty issues. Quite clearly, therefore, S&W had a respectable argument about uncertainty.
  330. I do not need to resolve any of these matters. It is enough for present purposes to say that, when it came to litigation later by the Trustees against S&W, the Trustees were faced with arguments, which were not fanciful and wholly devoid of legal merit.
  331. It is common ground that CR were under a duty (whether that duty is owed to Professor Youlton or to the Trustees does not matter at the moment) to exercise reasonable care and skill in acting for the client or clients. In the context of the Apportionment Agreement this included, in my judgment, not only taking reasonable care and skill to ensure that its contents were appropriate but also that the draft which had been agreed with S&W's solicitors became a binding instrument.
  332. So far as content is concerned, the only complaint about the Apportionment Agreement might be (but the complaint was not raised) that there was no mention made of an interim award thus opening up to the risk that S&W would take the point which they did take, namely that the Trustees were stuck with the Interim Award and no more. Perfect drafting might have covered the point – it is at least arguable that the experts were not entitled to make an interim award but the result of that would be that the Trustees would have to await a final award before being able to recover (unless they accepted the Interim Award as final). What is unarguable, in my view, is that the Trustees had to accept the Interim Award as final.
  333. So far as execution is concerned, CR fell short, in my judgment, of the standard of care and skill which Professor Youlton and the Trustees were entitled to expect of them. I do not suggest that the duty of care required CR to guarantee that the Apportionment Agreement had become immediately binding; they were not in breach of duty simply because Mr Spencer made clear in the 2001 Side Letter that a board resolution would be required. However I do consider that CR were at fault in failing to confirm that a board resolution had been passed approving the Apportionment Agreement.
  334. CR could have protected the positions of Professor Youlton and the Trustees by ensuring, whether before or after the execution of the Apportionment Agreement does not matter, that a board resolution was passed and that a copy of that resolution was obtained. In the absence of a resolution, it may be that nothing could have been done after execution to force S&W to pass one, but that is beside the point. It is beside the point because there can be no doubt, and I find as a fact, that had the Apportionment Agreement been put before the board together with the other documents approved at the 29 August 2001 board meeting, it would have been approved. Lest it be said by S&W that there was no evidence which would justify my reaching that conclusion, the contrary view (ie that approval would not have been obtained) would be wholly inconsistent with the way in which S&W conducted itself over the following years. In particular, it implemented the apportionment exercise provided for by the Apportionment Agreement. Indeed, in their Defences in the two Actions, CR themselves rely on S&W's alleged part performance and other matters (eg the board resolutions on 2 October 2002) to show that any breach of duty would be of no causal relevance because S&W affirmed the Apportionment Agreement.
  335. CR did not take this step. I do not know whether this was by oversight or as a matter of deliberate decision. Mr Holder at one stage expressed the strong view in an internal memorandum that S&W were bound by the Apportionment Agreement, essentially relying on the ostensible authority of Mr Spencer as CEO to bind the board otherwise, he suggested, commercial contracts could never stand and it would always be necessary to obtain a board resolution. That, as I think he now appreciates, misses the point. In the case of an ordinary commercial contract with an independent third party, the rule in Turquand's case would often come to the rescue. And today, but not at the time of the Apportionment Agreement or the 2002 Side Letter, the provisions of section 40 Companies Act 2006 will often ensure validity.
  336. In the present case, the position is different. By 7 September 2001 at the very latest, CR knew of the 2001 Side Letter – it may I suppose even have been one of the documents which they approved but I do not have any evidence one way or the other about that. They knew (or should have appreciated) by then that the Apportionment Agreement had expressly been made subject to the approval of the board irrespective of any restriction on the authority of Mr Spencer. They should have appreciated that the Apportionment Agreement, like all the other documents executed or signed on 24 August 2001, was subject to board approval.
  337. Since the 2001 Side Letter was one of the documents signed by Professor Youlton, he would have known that Mr Spencer had no authority to commit S&W to the agreements without the consent of the board. Or, if Mr Spencer did have authority, he was clearly not exercising it because he was referring the matter back to the board for approval. Professor Youlton and the Trustees would not have been entitled, as against S&W to enforce the Apportionment Agreement without a board resolution any more than he would have been able to enforce any of the severance agreements without that approval. The rule in Turquand's case could not assist the Trustees here even if it were in principle possible to treat Professor Youlton as other than an "insider" since, as a result of the 2001 Side Letter, he would have known that board consent was required and clearly had not already been obtained.
  338. I use the phrase "would have known" because neither Professor Youlton nor Professor Snell is a lawyer and may very well not have appreciated these points of the law of agency. But CR should, in my judgment, have appreciated them at latest by 7 September. I have already found as a fact that, had a board resolution been sought, it would have been obtained. But suppose that were wrong and that, faced with a request for a resolution to be passed, the board would have refused. It may be that the Trustees would have had arguments that the Apportionment Agreement was already binding; but those arguments would not have been clearly bound to succeed. I have already discussed this aspect in the context of the claim which the Trustees actually did make against S&W, referring to Mr Todd's advice and concluding that serious arguable defences were available in relation to the claim. So, whilst Mr Holder might, had he specifically addressed his mind to the question of authority, have concluded that a resolution was not necessary, he ought also to have concluded that the only sensible course would be to seek a resolution. CR did not do so and, in failing to do so, were in my judgment in breach of their duties to Professor Youlton and the Trustees. Moreover, they did not even advise Professor Youlton and the Trustees that there might be a risk, leaving those to whom they owed a duty to make an informed decision about whether to seek a resolution.
  339. There is the separate, albeit related, aspect concerning the Apportionment Agreement arising from the fact that three of the Trustees (Professor Youlton, Professor Snell and Mr Wilcox) were directors of S&W. This gave rise to a potential conflict of interest being involved on both sides of the contract (ie the Apportionment Agreement). Any competent company lawyer would have appreciated at that time that issues of conflict of interest in the context of directors of companies was a legal minefield. In particular, a competent lawyer would have known of what has come to be called the "no-conflict" rule which was exhaustively reviewed by Lewison J in Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch). I relied on his analysis in my own decision in Wilkinson v West Coast Capital [2005] EWHC 3009 (Ch) [2007] BCC 717.
  340. Contracts entered into where there is a conflict may be open to challenge. An extreme case is Transvaal Lands Co v New Belgium (Transvaal) Land & Development Co [1914] 2 Ch 488. In that case, one reason for the decision avoiding a sale of shares in L Ltd by the defendant company to the plaintiff company was that one of the directors of the plaintiff company voting in favour of the sale owned, as trustee, a comparatively small shareholding (well under 1%) in the defendant company.
  341. Section 317 Companies Act 1985, the relevant provision in force at the times of the Apportionment Agreement and the 2002 Side Letter, required a director to "declare the nature of his or her interest" in any contract or proposed contract with the company. In this context, even if Mr Spencer had authority to make the Apportionment Agreement (so that it might not have had to go before the board contrary to the express terms of the 2001 Side Letter), the reasoning of Lightman J, in Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1996] Ch 274 at pp 284-4, if correct, shows that a declaration of interest would still be required.
  342. In many cases, the Articles of Association of a company make provision for dealing with conflicts of this sort. That is so in the case of S&W whose Articles adopt Article 5 of Table A. A director of S&W could, in 2001, avoid the effect of the no-conflict rule by relying on Article 85 and at the same time comply with his statutory duty under section 317. Article 85 provides that a director may be a party to a transaction with the company "…..provided that he has disclosed to the directors the nature and extent of any material interest of his…". A general notice (as specified in section 317(3) or Article 86 as the case may be) can amount to a sufficient declaration or disclosure of interest.
  343. If a director does not comply with Article 85 and section 317, the best that he can expect is that the "no-conflict" rule will be applied without qualification and it may even be arguable that the contract is void or voidable even if the resulting agreement would not otherwise be struck down under that rule.
  344. There was not, as a matter of fact (and I so find), any declaration by any of the 3 trustee/directors at a board meeting as was required at that time by section 317 Companies Act 1985. Nor was there any disclosure such as that envisaged by Article 85 either specifically in relation to the Apportionment Agreement or generally in relation to contracts with the Trustees let alone one stating the nature and extent of their interests in any such contracts. It is no answer to that to say that the other directors all in fact knew that the 3 directors/trustees were trustees and members of the Scheme since (a) that does not absolve them from making declarations and disclosures and (b) that does not mean that the other directors knew the extent of their interests as members. In any case, there is no evidence before me that all of the other directors did know that the 3 trustee/directors were trustees and members of the Scheme.
  345. Any competent corporate lawyer would have been aware of the terms of section 317 and Article 85, would have ascertained whether Article 85 (or some other similar Article adopted in its place) applied, and would have known that, absent a declaration and disclosure in accordance with those provisions, the protection afforded by Article 85 would not be available in relation to any particular transaction. Accordingly, CR would, or certainly should, have been aware Article 85 could not be invoked to support the validity of the Apportionment Agreement.
  346. It inevitably follows from the fact that no declaration or disclosure within the scope of section 317 and Article 85 was made that there was, to put it at its lowest, a possibility that the "no conflict" rule would apply. This made it incumbent, in my judgment, for CR to consider whether the Apportionment Agreement (if otherwise valid) might be vulnerable to attack under the rule. If there was no risk – or only a fanciful risk – that the "no conflict" rule would apply then CR might have been justified in taking no further steps to protect those to whom they owed duties from the risk of application of the rule. But if, as I find was the case, there was a real risk that the "no conflict" rule might apply, CR were, in my judgment, in breach of duty in failing (a) to advise about the risk and (b) to advise how the risk could be eliminated.
  347. As to removal of the risk, CR should have appreciated this problem before the Apportionment Agreement was executed. Had they done so, the relevant disclosure under Article 85 could have been made. Further, in fact not having done so, CR could have ensured that full disclosure was made which would have added considerable strength to a defence to any subsequent challenge were one ever to be made.
  348. I need to mention now the phone conversation on 3 September 2001 (see paragraph 91 above) Quite how Professor Youlton came to the understanding that the various documents which he had signed on 24 August 2001 (or at least some of them) had become unconditional I do not know. The note of this conversation was produced late in the day and was not put to any of the witnesses. The note is opaque in its meaning. It does not, on its face, tell the reader whether "Bd approval" had been obtained or would need to be obtained. It does not tell the reader precisely what documents had been, or would need to be, approved. One can imagine – but this is pure speculation I hasten to add – that Professor Youlton had been told by someone at S&W that board approval had been given, he taking that as meaning that approval of all the documents whereas the relayer of the information intended it to mean approval of the documents directly concerned with his severance terms.
  349. Be that as it may, the note, its seems to me, highlights the importance of a board resolution. CR cannot possibly, in my view, in reliance upon that note without more, suggest that they were told by their clients that all of the documents, including the Apportionment Agreement, had gained board approval and thus submit that they were absolved from any further responsibility. Indeed, even if Professor Youlton had informed CR that the Apportionment Agreement had been approved, that would not absolve CR from advising him that he ought to obtain a copy of the resolution for him to satisfy himself that it was adequate for his purposes.
  350. Mr Holder's own evidence was to this effect:
  351. i) In a substantial matter, a board minute is good practice, with the qualification that this might not be so in some cases, for instance in relation to compromise agreements resolved before a board meeting was held.
    ii) He knew that the rule in Turquand's case does not apply to "insiders" (although the precise meaning of that word was not explored with him). Curiously, he said that Professor Youlton was not a director at this time (ie 2001) which was of course true from the end of August 2001 but it was not true when the Apportionment Agreement was executed by Mr Spencer, Professor Snell and himself on 24 August. It was only by virtue of the documents signed on that day that Professor Youlton agreed to resign.
    iii) He accepted that the validity of a company entering into an agreement was something which would be checked once the terms had been negotiated and agreed.
    iv) He was taken to the Apportionment Agreement. It was suggested to him that any competent lawyer seeing Professor Snell's execution of it would have flagged that there may an issue of conflict to be sorted. He replied that he would expect it to have been resolved in the board minute.
    v) He accepted, in the light of the 2001 Side Letter, that he "would have anticipated that it [ie the various documents referred to] would have been necessary to come out of escrow".
    vi) He accepted that, with hindsight, it would have been prudent to have obtained a copy of the board minute. Mr Evans put to him that this should have been done. He replied "I can say with hindsight, yes. At the time I don't think we were doing anything wrong".
  352. In relation to v), he went on to say that he did not assume that there would be a board minute; if there had not been a board minute, the documents would not, he said, have come out of escrow. He was asked whether, once they had come out of escrow, he assumed that there had been a board minute to which he responded that "They informed us we were out of escrow"; but his foundation for that remark was not that there had been a statement to that effect but that the compromise agreement (this was not a reference to the Apportionment Agreement but to one of the main agreements concerning Professor Youlton's severance terms) was performed. Later, he said that since "coming out of escrow" was a unilateral act that "we assumed that they had done what was needed to come of out escrow, which was to pass the necessary board resolutions".
  353. If by "assume", Mr Holder means that the question was specifically addressed and a deliberate decision was made that it was unnecessary to seek sight of a board resolution because the compromise agreement had been implemented and the Apportionment Agreement had in fact been handed over, I very much doubt that that CR did so assume. It seems much more likely to me that the point was simply not addressed and went by default.
  354. However, if the question was addressed, leading to the assumption that all was well, it was, in my judgment, a breach of duty for CR to have made that assumption. The implementation of the compromise agreement may or may not have been a sufficient justification for reaching the conclusion that it had become unconditional. But that agreement and the Apportionment Agreement were not, by their terms, linked to each other, so that performance of the one does not lead to the conclusion that the other had become unconditional. It has not been argued on behalf of CR that the 2001 Side Letter was intended to create a conditionality under which one document could not become binding unless and until every document became binding – in other words, unless all the documents had to be approved before the escrow condition was fulfilled in relation to any of them. But if that were correct, I can see that Professor Youlton and the Trustees would have arguments for saying that that would not absolve CR from checking that a board resolution had in fact been passed. How, they might ask, could the agents of S&W (presumably Thelma McNeil or perhaps Mr Spencer himself) any more release the documents from escrow without a board resolution than they could have entered into the Apportionment Agreement in the first place?
  355. If, in contrast to the hypothesis about what was "assumed" in the preceding paragraph is wrong, and CR simply did not address the point, the case is a fortiori and there was a breach of duty.
  356. My conclusion, therefore, is that CR were in breach of duty to Professor Youlton and the Trustees in failing to take steps in an attempt to ensure that a board resolution of S&W approving the Apportionment Agreement was passed. Had they made such attempts, either before the execution of the Apportionment Agreement or even within a reasonable time after 7 September 2001 (when the documents, not including the Apportionment Agreement, were sent to CR), those attempts would, in my judgment, have been very likely to have been successful. CR were also in breach of duty in failing to ensure that the 3 trustee/directors made formal declarations and disclosures for the purposes of section 317 and Article 85.
  357. It is important, for limitation purposes, to consider when the latest breach of that duty occurred. Given the terms of the 2001 Side Letter, the complaint against CR is not so much that they failed to advise Professor Youlton and the Trustees about the requirements for due execution prior to the making of the Apportionment Agreement, but rather that, having failed to do so, they took no steps to advise them after execution that, to become valid, a board resolution would be required or to ensure that it had been obtained. It is not an entirely easy question to answer how long CR remained under a duty to advise about this aspect. It seems to me, however, that this duty came to an end at latest by the time that the Apportionment Agreement had, apparently, been released by S&W and that was on or before 3 April 2002 when it was sent to CR by S&W.
  358. Turning now to the 2002 Side Letter, I have already addressed the ways in which this letter was said by S&W to be invalid and have recorded Mr Clark's advice. My conclusion is, as stated, that S&W's case was not fanciful or without legal merit. Mr Clark's own view that the 2002 Side Letter was not uncertain was expressed only on balance. That is, I consider, a perfectly reasonable view for him to have held.
  359. It can be seen, with the benefit of hindsight, that the drafting was not perfect. The question of course, in the context of CR's duties, is not whether the 2002 Side Letter should have been drafted with such precision that no point could be taken, but whether the standard of drafting fell below that which can be expected of a competent property solicitor. I refer to a property solicitor because this was a property transaction Mr Hubble, in his closing submissions, says that there was nothing, "in the context of the commercial solicitor drafting and/or negotiating its terms with the solicitors for the other side" which should not have set alarm bells ringing. I dare say that there are highly competent commercial solicitors who although they have awareness of the existence of the Law Reform (Miscellaneous Provisions) Act 1989 really have no idea what it says. But if such a solicitor chooses to involve himself in a property transaction, he must improve his state of knowledge and understanding. It is surely right to apply the standard of a reasonable solicitor versed in property matters when approaching the scope of CR's duties in relation to the 2002 Side Letter, see for instance Central Trust Co. v Rafuse (1997) 31 DLR (4th) 481 at 524.
  360. It must be remembered that CR were not acting under acute pressure to produce or agree the terms of the 2002 Side Letter; they had adequate time to consult with their clients and to negotiate, back and forth, terms with Norton Rose. Nor is this a case where wording was put forward by CR to eliminate an ambiguity or uncertainty but was rejected by Norton Rose; had that been the case, and provided that the clients were adequately warned of the risks flowing from an ambiguous or uncertain provision, there would, quite probably, be no breach of duty.
  361. There is no reason to suppose that, had CR put forward express terms to meet the uncertainties which S&W alleged infected the 2002 Side Agreement, they would not have been resolved easily. At that stage, all parties quite clearly wanted genuinely to enter into a binding agreement; it was for the lawyers to turn into a legally binding agreement that which had been agreed in principle.
  362. In my judgment, the drafting of the 2002 Side Letter was not only less than perfect but it was defective in the sense that it did not meet the standard to be expected of a competent property solicitor given the facts addressed in the preceding paragraphs. The defects have been identified already. They are addressed in detail in Mr Clark's Opinion. They certainly go, in my judgment, beyond the sort of point which a lawyer can always find to help his client wriggle out of an agreement and they go far enough beyond that to reach the point where it is the duty of a solicitor to avoid exposing his client to risk. I reject Mr Hubble's submission that Professor Youlton's claim amounts to a counsel of perfection and would require solicitors to act both as guarantors and clairvoyants.
  363. Mr Hubble suggests that the weakness of Professor Youlton's argument on this aspect of the case is shown by the evidence that, going into the settlement negotiations which took place in early 2006, this was not viewed by anyone involved on the side of the Trustees as a point on which any ground needed to be conceded. I am not at all surprised to find Professor Youlton (or indeed any of the Trustees) taking the approach that they were entitled to the extension lease: that is what Professor Youlton thought he had agreed and he was not going to concede to S&W that the Trustees were not so entitled. But he was well aware of the technical problem: he had Mr Clark's Opinion and knew of the risk. Professor Youlton no doubt hoped that the technical point would be reconsidered by S&W as a dishonourable one to rely on and there is some evidence to suggest that the point would not be pursued.
  364. By the time of the 2002 Side Letter, Professor Youlton had ceased to be a director of S&W. But Professor Snell remained a director. Accordingly, the same company law conflict issues were present as were present in relation to the Apportionment Agreement with the difference that Professor Snell was not a signatory on behalf of S&W. As with the Apportionment Agreement, there is no declaration or disclosure for the purposes of section 317 or Article 85.
  365. So far as Mr Spencer's authority was concerned, the 2002 Side Letter was, in my view for reasons already given, a matter reserved to the board so that Mr Spencer had no actual authority to make it on behalf of S&W. There is nothing to suggest that the board ever approved – or perhaps even knew – about the 2002 Side Letter at the time. The issue of validity then comes back to the question whether the Trustees would have been able to enforce a contract entered into without actual authority by Mr Spencer when one of their number, Professor Snell, was a director. That is not an easy question; but what is clear is that there is serious doubt about the correct answer.
  366. In my judgment, a competent company lawyer acting for Professor Youlton or the Trustees in 2002 should have appreciated that there would be a real risk that, absent a declaration or disclosure of interest, it could not be said with confidence that the 2002 Side Letter would be free from attack as a result of the "no-conflict" rule. A competent company lawyer should also have appreciated that the 2002 Side Letter would be valid only if Mr Spencer had actual authority to sign it and that, if he did not, its validity would depend on the Trustees being able to say that Professor Snell was not an "insider" who might be taken to know of Mr Spencer's lack of authority. A competent corporate lawyer would have taken steps to ensure, so far as he could achieve it, a declaration and disclosure of interest by Professor Snell; and would have advised his clients that since Professor Snell was a director, this issue of Mr Spencer's authority was a real one which could most easily be dealt with by a board resolution.
  367. It follows from this discussion that, in my judgment CR were in breach of their duties in the way that they handled the preparation of the 2002 Side Letter and in their failure to ensure that it was signed on behalf of S&W by a person who had actual authority to do so or whose authority could safely be presumed. Its drafting fell below the standard to be expected of a competent property solicitor and advice about its signing fell below the standard to be expected of a competent company solicitor. It forms no part of the reason for my decision, but I note that Mr Holder himself accepted that a board minute should have been obtained dealing with both a declaration of interest by Professor Snell and the authority of Mr Spencer.
  368. There is one other aspect of breach of duty which I need to mention. In his Reply in the First Action, Professor Youlton asserts that CRs had a duty to advise him at an early stage that they might have been at fault or to seek independent advice. This they failed to do as a result of which his and/or the Trustees' claim against CR because (on CR's case) it is statute barred. Mr Evans submits therefore that Professor Youlton and the Trustees have an independent claim against CR, relying on Gold v Mincoff Science & Gold [2001] Lloyd's Rep PN 423 paragraphs 97 to 104, and Ezekiel v Lehrer [2002] Lloyd's Rep PN 260 at paragraph 24.
  369. In the light of my conclusions on limitation, it is not necessary for me to consider this point further. There is no need for Professor Youlton to rely on this alleged breach of duty. I comment only that the argument faces difficulties.
  370. In conclusion on the issue of breach of duty, it is my judgment, CR were in breach of duty in relation to the execution of the Apportionment Agreement and the 2002 Side Letter and in relation to the drafting of the 2002 Side Letter. Had there been no breach of duty:
  371. i) The Apportionment Agreement would have been approved by the board of S&W and would have been a valid agreement not vulnerable to the Want of Authority Defence.
    ii) The 2002 Side Letter would have been slightly differently worded and would have created a valid and enforceable contract.

    The financial state of S&W

  372. It is the central plank of CR's defence that if, contrary to their case, they were in breach of duty in the first place, the reason why the Trustees settled on the terms which they did was nothing to do with any defects in the Apportionment Agreement and the 2002 Side Letter but everything to do with the financial state of S&W.
  373. It is said that, even if the Apportionment Agreement and the 2002 Side Letter had not been vulnerable to any sort of attack, the Trustees would not have achieved more than they actually achieved in relation to the matters dealt with in the settlement agreement. There are two aspects to that. First, it is said that the Trustees would not have achieved more if they had settled their claims since the same financial factors which led them to settle on the terms which they did at the Mediation would have led to the same result. Secondly, it is, or would need to be, said that, even if judgments had been obtained in respect of claims under the two Agreements, the Trustees would not have recovered more than they actually did.
  374. It is therefore important to consider the financial state of S&W from time to time. It is also important to consider not only the accounts of S&W, both its profit and loss account and its balance sheet, but also the state of its underlying business and its potential worth. The involvement of Advent is also of the greatest significance since it is said by Professor Youlton, in effect, that it is fanciful to think that the venture capitalists involved would have allowed S&W to go under; it follows from that, I think, that if a judgment had been obtained against it by the Trustees, that judgment would have been met albeit perhaps, by agreement, over a period of time.
  375. Burden of proof on impecuniosity of S&W

  376. A preliminary question is on whom the burden of proof of impecuniosity or otherwise lies. Mr Evans contends that there is some sort of burden on CR to show the impecuniosity of S&W if they are to rely on the defence they raise. The general rule, however, is that a claimant must prove his damages. Where his damage flows from having lost the opportunity to recover from a third party, the financial state of that other is a relevant factor, so that the burden lies, in principle, on the claimant to prove the impecuniosity of the third party. Mr Evans has referred me to Brinn v. Russell Jones & Walker [2003] PNLR 16. The effect of that decision is succinctly summarised in Jackson & Powell on Professional Liability (6th ed) at 11-297. This was a case where the solicitor concerned failed to serve a claim within the limitation period. It was said that:
  377. "…the defendant had to plead the issue of the original defendant's impecuniosity, and had an evidential burden. As the defendants had satisfied this, the burden or proof rested on the claimant. The judge held that such impecuniosity would have had an effect on the likely settlement obtained.."
  378. Mr Hubble, referring to that case and to Redman v. Instant Nominees Pty Ltd [1987] W.A.R. 277, at 294 which had been relied on by Gray J in Brinn, says that in the present case the issue of solvency was clearly raised on the pleadings and that CR have taken the court to considerable evidence of S&W's difficult financial position (adding that CR have rebutted the factors relied upon by the Claimant as allegedly undermining the picture of impecuniosity which clearly appears from the documents). In the circumstances, CR, like the solicitors in Brinn, have discharged any evidential burden which lay upon them in relation to this issue.
  379. In my judgment, Mr Hubble is correct in that submission. The evidence which he then relies on in the form of S&W's accounts and S&W (UK)'s accounts casts doubt on the ability of S&W to meet a judgment or to agree a settlement in either case in excess of that which it in fact agreed. That doubt is sufficient for the overall burden to rest on Professor Youlton to persuade the court, on the totality of the evidence, that that apparent impecuniosity was apparent and not real or, if it was real, it does not lead to the conclusion that no more could be recovered than was in fact recovered. I put it that way because it does not follow from the accounts of S&W that it would not, in fact, have agreed to pay more than it did; provided that I am satisfied that it might have done so, then an assessment must be made of the chance that the Trustees would have recovered more than they did. Indeed, if the accounts were the beginning and end of the story, it is not at all easy to understand how S&W could agree to pay the amount which it did agree to pay. In my judgment, it is clearly right that I must take into account S&W's financial state and decide on all the evidence what impact, if any, the financial state of S&W had on the prospect of actual recovery whether under a settlement or under a court order.
  380. Directors' Reports

  381. Although loss making in the accounting years immediately before the year ending 31 March 2005, the accounts for that year and subsequent years until the merger which I will come to, show increasing turn-over and increasing operating profit, ignoring exceptional items, following restructuring after Advent became involved.
  382. To obtain a flavour of the perceptions of those involved of the strength or weakness of the underlying business, reference can be made to the Directors' Reports over the years. I highlight salient points in the next few paragraphs. I set out a schedule of some relevant figures derived from the accounts prepared by Mr Evans.
  383. The Report for the year ending 31 March 2002 contains some post-year-end information. Advent became involved in May 2002, investing £10,800,000 in the company; banking facilities with Royal Bank of Scotland were renegotiated and overdraft arrangements were agreed sufficient to provide for future operational needs. In July, the entire share capital in S&W was acquired by Snell & Wilcox (UK) Ltd in a share for share exchange. That company had not previously traded and had no liabilities. The Group (S&W and its subsidiaries) had "continued its policy of allocating resources for the pure scientific research work which gives rise to the applied research required for the development of new and existing products". This is a rubric repeated in subsequent reports for later years.
  384. The Report for the year ending 31 March 2003 records post-year-end information, stating that S&W continued to experience difficult market conditions resulting in an operating loss during the first half of the year 2003/4. But some restructuring (including property sales) resulted in a return to operating profit for the second half of the year. Optimism was expressed for the future but the company's exposure to a patent claim in the United States was noted as a "significant uncertainty in projecting future cash flow". I shall refer to this as the "Patent Claim". All of this information is effectively repeated in the Report for the year ending 31 March 2004 as actual events during that year and optimism was again expressed. Provision was made for a liability of £2 million (as I understand it, in respect of the Patent Claim).
  385. The Report for the year ending 31 March 2005 states that as "indicated last year our market conditions have continued to improve and we generated an operating profit of £1,131,000 for the full year". The Patent Claim had settled. Continued growth was envisaged.
  386. The Report for the year ending 31 March 2006 was described as "a very successful year". The directors were able report the delivery of "increases in profit and cash generation that the directors are pleased to report to the shareholders". Mr Evans says that the financial state of S&W at this time is important because, according to him, the claims against S&W under the Apportionment Agreement and the 2002 Side Letter would have settled during the course of the year if it had not been for CR's negligence.
  387. The Report for the year ending 31 March 2007 presents a less sanguine picture than the previous year. Sales growth was very modest with export sales to the United States being hampered by the weakening of the US dollar. The directors recognised the risks to the company from technology and market changes but believed that it was well positioned to convert those same changes into significant opportunities. It is recorded that the company exports about 90% of its products from the UK where they are manufactured. In this year there was an exceptional item of £4,722,000. This resulted, as to £4.4 million, from the writing-down of inter-company receivables and, as to £113,000, legal costs in relation to the disputes with the Trustees. This Report was not available at the Mediation, but a draft of it was presented by Mr Fredericks. The figures in the draft were not materially different.
  388. The Report for the year ending 31 March 2008 describes the year as seeing "another successful progression for the Company". It was during this year that the Mediation took place; this Report was not, of course, available at the Mediation.
  389. The following is a table of figures extracted from the Financial Statements forming part of the Directors' Reports.
  390.   2003 2004 2005 2006 2007 2008
                 
    Turnover 31,378 30,147 30,202 33,112 33,603 36,696
                 
    Operating profit (before exceptional items) (2,451) (553) 1,782 3,434 887 1,791
                 
    Operating profit (9,613) (2,804) 1,121 2,384 (3,835) 47
                 
    Profit Before tax (10,765) (3,674) 527 1,463 (5,566) (2,105)
                 
    Current Assets 14,468 11,582 9,636 10,432 12,037 12,859
                 
    Current Liabilities 11,719 13,065 12,127 20,327 22,095 22,925
                 
    Net Current Assets (Excl Preference shares) 2,749 (1,483) (2,491) (9,895) (10,058) (10,066)

    The position shown here is in contrast to the impression given by Mr Fredericks at mediation.

  391. Snell and Wilcox (UK) Ltd was put in place as part of the restructuring which took place when Advent became involved. That company became the holding company of the group holding 100% of the shares in S&W. Advent took a majority stake in the holding company. I do not think that there is any real dispute that Advent did not acquire S&W as a long-term investment. Advent was a group of venture capitalists who expected a return on their investment in not more than 5 years. That, at any rate, was Professor Youlton's perception of these investors. I accept his evidence when he says that this is what he was told by Advent at the time of their investment.
  392. Professor Youlton's case is that, by April 2006, Advent were looking to dispose of their investment in S&W; the investors were looking to liquidate their investment and of course were hoping for a profit. It is not possible to point to a document where Advent expresses this intention, nor indeed one which demonstrates the correctness of Professor Youlton's perception that Advent was not a long-term investor. There are some pointers, however, that a decision had been made to liquidate the investment by that time:
  393. i) There are references in the documents to the fact that Advent were going to sell. There is, for example, the attendance note of the conference with Mr Clark on 6 April 2006 when Professor Youlton informed the meeting that the various venture capitalist wished to sell S&W within 6 to 9 months.
    ii) Advent's preference shares were converted to ordinary shares to prepare the holding company for sale.
    iii) Professor Snell was able to say, and I accept, that not long after the Mediation serious negotiations were taking place with Dolby, the well-known United States electronics enterprise, for the acquisition of S&W. The sale figure being discussed at board meetings was £55 million. Professor Youlton says he was told, and I accept this part of his evidence, by Mr Tasker (who was head of technical sales at S&W) that S&W were discussing with Dolby an acquisition for as much as £75 million. Nothing came, in the end, of that negotiation and so I must be careful about treating a figure discussed at a board meeting or elsewhere as being a true reflection of the value of the S&W. But it shows that there was interest at a substantial sum demonstrating the worth of the underlying business at least.
    iv) Professor Snell said in his oral evidence, which I accept on this point, that he knew of a proposed sale at a good price in the summer of 2008 and where the price being talked about was £50 - 70 million.
    v) In the end, Advent did dispose of a considerable part of its shareholding as part of a merger with Pro-Bel Ltd in March 2009, retaining an investment in the merged company (as to which see further at paragraph 342 (iii) below). I am satisfied on the totality of the evidence that although described as a merger in the sense that the businesses merged, the result of the transaction was that Advent sold part of its interest and returned money to its investors.
  394. Those same references lend support to Professor Youlton's claim that S&W was a valuable company with a sound underlying business whatever its supposed financial difficulties were. The sort of figures being mentioned by Professor Youlton and Professor Snell are consistent only with S&W having a considerable value; and even if those figures related to the value of the business free of its debt obligations, that value far exceeded the current and long term liabilities as shown in the balance sheets over the entire period of existence of S&W.
  395. Mr Evans goes as far as to suggest that the merger terms demonstrate the value of S&W. A figure of £72 million was used to describe the merger in press release from Lloyds Development Capital, (describing itself as a mid-market equity house) announcing its completion of the merger. What that means in the context of the value of the S&W immediately prior to the merger it is not possible to say. Even if the merged business was viewed as worth £72 million, it is not possible to say what part of that value was attributable to S&W (although Professor Youlton says that S&W was by far the bigger partner in the transaction). Further, the same press release refers to a debt support package of £25 million from The Royal Bank of Scotland. I cannot derive from that press release any real indication of the value of S&W going into the merger. Mr Hubble says in any event that I should not take documents like this into account at all. I hope he is content that I have dealt with them in the way I have.
  396. Advent was a holder of preference shares in Snell & Wilcox (UK) Ltd. The preference share dividend payable for 2005/6 was £1,574,000 and for 2006/7 was £2,011,000. This, of course, had a significant impact on group profits. The group balance sheets for those years showed liabilities in respect of preference shares and accrued dividends on them of £15,764,000 and £19,924,000 respectively. In the 2007/8 balance sheet, the figure had risen to £22,199,000 reflecting a further dividend of over £2 million. For 2006/7, net current liabilities were £24,799,000 (of which £19,924,000 related to the preference shares). Included in the profit and loss account was the figure of £1,033,000 for "other interest and guarantee and commitment fees payable" most of which was due to Advent but remained unpaid. The corresponding item in S&W's accounts is £994,000.
  397. At the level of Snell & Wilcox (UK)'s subsidiary, S&W itself, its balance sheets for 2005/6 and 2007/8 showed liabilities in relation to preference shares of £9,684,000 and £10,800,000 respectively. During the course of 2007/8, the preference shares were converted into ordinary shares thus strengthening the balance sheet.
  398. Since the hearing, Mr Evans has sought to introduce accounts filed by S&W for the 9 months to 31 December 2008. Mr Hubble reluctantly accepts that I should look at them. Mr Hubble makes the perfectly valid point that these accounts were not available at the Mediation and cannot have had an impact on the state of mind of the Trustees; he says that they are irrelevant, therefore, to the central question of causation which is the position of S&W in the run-up to and at the Mediation. They may, nonetheless, I consider, be relevant to another issue which is whether, had a judgment been obtained against S&W for the amounts claimed by S&W, those judgments would been met or would have resulted in the insolvency and winding-up of S&W in which the Trustees would be unsecured creditors.
  399. What the accounts show is as follows:
  400. i) The directors' report contains the usual remarks about allocation of resources for pure research giving rise to the applied research required for the development of new and existing products. The directors believe that this ongoing investment of resources will enable S&W to maintain its position as one of the market leaders in the industry. The report proceeds to inform the reader that "the 9 month period saw another successful progression: the Kahuna switcher continued to win significant market share and the range of infrastructure products also grew year by year".
    ii) It is stated that:
    "Following on from the separation of the Contents Repurposing business unit last year, the Company has performed extremely well since focussing on its Broadcast business as demonstrated in the significant improvement in profitability in a shorter reporting period."
    iii) Other paragraphs paint a bullish picture going forward, especially in the light of the acquisition by Oval (2194) Ltd (now Snell Corporation Ltd) in February 2009. The passage throws a little more light on what might have been meant by the £72 million merger in the press release. It is revealed that Snell Corporation Ltd also acquired Pro-Bel with the intention of bringing the businesses of the two groups together. Snell Coporation Ltd "obtained funding of approximately £75 m by way of institutional and bank debt. A result of the transaction was that the bank borrowings were fully paid down being replaced with funding from Snell Corporation Ltd".
    iv) This is not, in my view, the report of a board of directors with any concern about the future viability of the company.
    v) An operating profit of £8,344,000 before exceptional items is shown with a profit on ordinary profits before taxation of £7,007,000. The exceptional items show on the debit side restructuring and redundancy costs and onerous lease provision and on the credit side a profit on the sale of Liss Mill. The net position is a debit of £503,000. After utilising losses, there is no tax shown, resulting in a profit after exceptional items for the 9 month period of £6,504,000. This compares with the (pre-tax) loss for 2007-8 of £2.1 million. Turn-over was up, on a yearly basis extrapolating from the 9 month period on a pro rata basis from £36.7 million to £44 million.
    vi) Net current liabilities had reduced from £7,887,000 to £3,699,000 and the net liability position after provisions and unfunded pension obligations had reduced from £12,722,000 to £6,218,000 (the liability including a provision of £681,000 (all of which presumably relates to the Property)).
    vii) Research costs were down compared with the previous year. This reflects the shorter accounting period, and the transfer of the Content Repurposing business referred to above.
  401. Unsurprisingly, Mr Evans submits that this shows that the core business of S&W
  402. "was always inherently profitable, as the Claimant has maintained. It adds support to the Claimant's submission [the five reasons given below at paragraph 343 to 354] as to why S&W was inherently valuable and in reasonable shape."

  403. However, Mr Hubble says there are still significant financial clouds. The accounts still show a shareholders' deficit of £6,218,000. He suggests that any apparent improvements in the accounts "are likely to be a reflection of the reorganisation of debt within the corporate group rather than a reduction of debt in any real sense". He draws my attention to a Note to the accounts which shows amounts owed to group undertakings increasing from £4,809,000 to £8,246,000. But a similar reduction in bank borrowing is revealed. Further, another Note reveals that on 26 February 2009 (when Snell Corporation Ltd acquired S&W) all S&W's debt with RBS was repaid. That no doubt reflects the passage in the directors' report which I have just mentioned about bank borrowings being fully paid down. Mr Hubble suggests that since the bank loans were secured by way of fixed and floating charges over group assets, the accounts effectively show in effect the profit but not the cost of S&W's working capital. I do not understand that submission which seems to ignore the interest charges on bank borrowing and other interest and guarantee and commitment fees shown on the accounts. He adds, more importantly, that the accounts do not show the liabilities which are owed to Advent in respect of the dividends payable on its preference shares which were issued to Advent in consideration of Advent providing the parent company with working capital which would be provided for in the parent company's accounts. I am not sure, again, what point is being made here. Presumably the directors of S&W and its auditors consider that the absence of any provision is correct. In any case, the preference shares were converted to ordinary shares in the year 2007-8 so presumably no preference dividend ever became due, and for 2005-6 and 2006-7, the dividend was waived.
  404. The Patent Claim had been noted in the accounts of S&W for the year end 31 March 2003. It settled for £2 million odd during 2004-5. That is a conclusion which I reach based on the provision which was made in the accounts and the Notes to the accounts; and it is confirmed by what Professor Youlton says (and I accept) he was told namely that the claim had settled for £2 million payable over 2 years.
  405. Mr Evans submits that S&W was "inherently valuable and in reasonable shape" at the time of the Mediation as well as at the time, in 2006, when he says that claims in relation to the Apportionment Agreement and the 2002 Side Letter would have been dealt with (either by agreement or by summary judgment) had it not been for the Want of Authority Defence and the Unenforceability Defence. He then presents 5 reasons for suggesting that Advent would not have failed to support S&W to enable it to meet a claim from the Trustees under the Agreements (had they clearly been fully effective and valid) for £2-3 million. I take these reasons in turn.
  406. The first reason given is that S&W was of real value. This is shown by the proposed sale to Dolby which, although it fell through, was a genuine negotiation at a substantial figure as already discussed. I agree that this factor indicates a substantial value.
  407. The second reason given is that the real value of S&W reflects its intellectual property ("IP") rights. These have only an insignificant value in the balance sheet. One would expect a significant part of the worth of a company of this nature to rest in its IP rights.
  408. Professor Snell said in his evidence, and I see no reason to doubt this and accept it as correct, that S&W had substantial IP rights which were not reflected in the balance sheet, pointing out that S&W did not get nine Queen's awards for nothing. He was not asked to put any sort of figure on the value of these rights.
  409. The amount of expenditure on R&D would suggest that this is so. Thus the Directors' Reports show a regular and substantial amount of such expenditure each year, with large sums - £5 – 6 million being written off in the profit & loss account for 2006, 2007 and 2008. The figures are for research and development: Professor Snell thought that those sorts of sums were spent on development (ie on product development) rather than pure research which was less predictable in its results. Mr Rogers was of the same view. He also pointed out one option for S&W if it was running out of money, saying this in answer to a question about the attitude of the Trustees at the Mediation:
  410. "Did they have any money? A business that's generating £35/36 million worth of turnover is creating and generating that amount of money. They make decisions on how to spend that money. And they have a £20 million administrative cost of which approximately 30% related to research and development, something in the region of £6 million. If they were in serious financial difficulty, and they were running out of cash, one option would be to cut back on that R&D cost. That R&D cost relates to future earnings not to the current earnings. And I would think that that was probably quite an important issue at the time; that they weren't cutting back on those costs."
  411. That was certainly one view which it would have been reasonable for a Trustee to hold at the date of the Mediation.
  412. The third reason given is that S&W had a valuable tax loss worth about £20 million. The accounts for the year ending 31 March 2008 refer to a tax loss with a value exceeding £20 million (2007 £20.4 million). Advent would clearly not want that loss to be lost and, if it was to be utilised other than by S&W itself, S&W would expect to see value derived from it. These losses are described in the accounts as available for carry-forward against future profits.
  413. The fourth reason given is that the banks provided funding at all material times at 1.5% above base rate, according to Mr Evans a low rate reflecting the low risk of S&W default. I have no evidence of how the bank's perception of the risk was reflected in the interest rate nor of precisely what security or guarantees which it had which might be reflected in the interest rate. The bank may have had its own concerns since S&W was under the supervision of the bank's special care unit. I have had no evidence from the bank about why this was so and it may be a reflection of financial problems from an earlier era.
  414. The fifth, and final, reason given is that the accounts were never qualified. I do not understand why this is relevant. The accounts, as accounts, did not need to be qualified unless the auditors had reason to doubt the figures or statements provided to them by the directors.
  415. To this one can add the accounts to 31 December 2008 to show the then position of S&W and which might throw some light on its actual (in contrast with its perceived) financial position at earlier dates. What these figures show, and what Professor Youlton has always said, is that the underlying business of S&W is sound and profitable. The accounts show that it is being turned round. The directors' report is consistent only with a reasonably healthy company, or at least a company in successful recovery.
  416. That is really all of the direct evidence about S&W's financial state. It is appropriate to say something at this stage about the perception of various individuals about its state.
  417. Professor Youlton's says that it has always been his opinion that Advent would stand behind S&W and that S&W had a valuable underlying business. I accept that that was his opinion; he genuinely believed in the fundamental underlying strength of S&W's business. In the light of his own experience in business and of venture capitalists, he believed that Advent would indeed stand behind (that is to say, support) S&W. Advent would not, he believed, allow S&W to go into liquidation simply because of the Trustees' claim. He has also said on a number of occasions that his concerns about S&W's financial position related to cash-flow. That depends on what he means by cash flow. This is something I address at paragraph 371 below. If Professor Youlton is using the phrase in the sense that he never considered that S&W was ever other than profitable, I cannot accept that he never had concerns. There were clearly periods when S&W was losing money which were not simply down to a mismatch between receipts and outgoings because of timing problems. This was not simply always a lack of working capital. But that he believed in the fundamental underlying strength of the company and thus of the willingness of the venture capitalists to stand behind it, I do not doubt.
  418. Mr Rogers effectively expressed a similar view that Advent would be expected to support S&W. I accept that this, too, was a genuine expression of his belief. It was put to him that, at the time of the Mediation, S&W was dependent on the support of Advent. He agreed, saying this:
  419. "Yes. It was always the case. Advent had in excess of £20 million tied up in company. They wouldn't lightly put that at risk. And that's just in terms of what they had invested in there. There is other value within the company as well, in terms of its intellectual property."
  420. He also expressed his view in cross-examination that the Trustees "did not believe that [S&W] was in any impending danger of going broke". Of course, as he acknowledged, only the Trustees could answer the question what they actually believed, but Mr Roger's impression is of relevance because he was present at the Mediation but did not understand the Trustees to have the concerns about the financial viability of the company which, according to CR, were the drivers for settling on the terms eventually agreed. I have no reason to doubt what Mr Rogers said his view about the Trustees beliefs was; I accept his evidence.
  421. At the Mediation, it is fair to say that Mr Fredericks presented a gloomy picture of S&W's finances. It is interesting to see, therefore, what the board of S&W was told. And in that regard, I have the advantage of the evidence of Professor Snell. In his witness statement, after referring to S&W's claim at the Mediation that they did not have the money to fund a settlement due to cash-flow problems and heavy indebtedness to Advent, he said this:
  422. "This came as somewhat of a surprise given that at Board Meetings I was getting a very different picture. I had actually told the other Trustees and their legal advisors at the conference the day before that Snell & Wilcox's turnover was continuously improving and what I was hearing at Board level were optimistic reports about the prospects for a successful sale. At no time during the Board Meetings did anyone suggest that the Company was at financial risk or in any financial danger."
  423. This is confirmed by what he said in cross-examination in the following exchange:
  424. "Q. Did you have a clear understanding of the financial position of the company year on year or is that simply not your bag?
    A. I had a clear impression, but no more than that, in that when things were difficult you knew. You know, research expenditure was cut back and so forth. So I had a good impression but I wouldn't say it was an exact one because understanding balance sheets and such like is not my strength.
    Q. As a matter of impression, the company was making losses year on year over the period 2004 through to 2007; that's correct, isn't it?
    A. I don't think that's true, no. No, we were in fact -- in order that the company could be merged in the way it was, we were doing quite well. I mean, much better than was -- at the board meetings, the issue was not how do we survive, ever; it was making sure our costs were kept to a minimum and we grew the business."
  425. There were produced at a fairly late stage in the proceedings (before the trial commenced) some financial documents relating to S&W. These appear to be part of an internal presentation within the sales team at S&W, although no comprehensive explanation has been given by any of the witnesses as to who produced them, in what circumstances and for what purpose. Mr Hubble complains that they are put before the court out of any context, and unaccompanied by other such internal documents which might present a more rounded - and potentially very different - picture of S&W's finances. He says that, in all the circumstances, the court should not attach any weight to these documents. As documents providing information, his point has some force. However, Professor Snell had seen these documents at board meetings. He was asked whether the information in these documents accorded with his understanding of how the company was performing. He responded "Oh, they certainly do". I accept that evidence. So I rely on the documents only as a graphic (literally since they contain graphs) confirmation of the views which Professor Snell was articulating in his evidence namely increasing sales and the company moving into operational profit.
  426. Now, as Professor Snell acknowledged, "understanding balance sheets and such like is not my strength". Mr Hubble was able to put propositions to Professor Snell based on the contents of the accounts with a view to getting Professor Snell to accept that the company was in fact not in the reasonable financial state which his evidence suggested. I do not consider that he did persuade Professor Snell to accept that. But that is, in a sense, beside the point. The point, so far as Professor Snell's evidence is concerned, is not whether the company was in fact in financial difficulty. The point is, or rather the points in the plural are these: first, that Professor Snell's evidence about what he believed (accepting it as I do) is highly relevant to the question about the extent to which the Trustees were driven by their concerns about the financial state of the company in arriving at the Settlement Agreement; and secondly, that Professor Snell's evidence about the impression he gained at Board Meetings, and in particular the absence of any expression of concern about financial risk or financial danger leading to imminent collapse (or indeed at all), is relevant to the actual state of the company's finances requiring the parties to the Mediation at the time (and me today) to go beyond the picture painted by the accounts.
  427. All of this, Mr Evans submits, shows that there was no sensible prospect of Advent not supporting S&W if presented with a claim of £2-3 million by the Trustees. Any other result would be inconsistent with what Advent did and did not do. What it did not do was seek to withdraw dividends and interest from the group which would surely have brought the enterprise tumbling down. It did continue to provide a £4.5 million guarantee in respect of banking facilities (albeit for a substantial fee) in the absence of which the same result might have transpired. It did make an investment of a further £2.5 million in 2007-08: this can be seen from the accounts for the group for the year end 31 March 2007.
  428. I am satisfied on the totality of the evidence which I have seen and heard that it would have been unlikely that Advent would allow S&W or Snell & Wilcox UK to enter insolvency or administration at any time from the commencement of its involvement to the time of the transaction with Pro-Bel and the acquisition by Snell Corporation Ltd. It may well be that S&W would have sought time to pay (perhaps by instalments) what was properly owing and may well have obtained some accommodation from the Trustees.
  429. Causation and Loss

  430. Although time was taken up at the trial with establishing the actual financial state of S&W at various dates, particularly at the time of the Mediation, far more time was taken up with establishing what took place at the Mediation partly for the same purpose, that is to say to establish the actual financial state of S&W but more importantly for a different but related purpose, that is to say to establish the Trustees' understanding of that financial state. It is said by CR both that (a) the financial state of S&W was very weak and (b) the Trustees understood that to be the case. It is said that the Trustees were driven to reach the settlement which they did essentially because S&W simply could not afford more and that this driver was the one of overwhelming importance to the decision.
  431. Next it is said that there can be no real doubt that, even if the Want of Authority Defence and Unenforceability Defence had never been raised, the dispute between the Trustees and the Company would have been a complicated and hard-fought one in which (contrary to Professor Youlton's case) summary judgment would have been inappropriate and would never have been achieved. The matter would therefore, in all likelihood, have proceeded to a mediation (or similar) in any event, and would have settled at that mediation, particularly bearing in mind the evident desire of the other Trustees (even if Professor Youlton had wished to carry on) to settle.
  432. Then it is said by CR that, given those circumstances, the Trustees would have actually settled on the terms which they did settle even if there had been no difficulties about the Apportionment Agreement and the 2002 Side Letter. The Trustees had a need to recover funds quickly in the light of the impending retirement of some of their number who would wish to draw their pensions and take their lump sums. They needed the lease extension in order to establish and demonstrate as high a value in the fund as possible. They would have settled for what they actually got. Accordingly, the Trustees and Professor Youlton have suffered no loss even if CR were in breach of duty. It has not been submitted by CR that, had a settlement been reached on different terms, or had litigation resulted in success for the Trustees, that the Trustees would not eventually have recovered that which was agreed or ordered. I will need, however, to take account of the likely recovery of the Trustees if, contrary to CR's case, they do not have a complete defence.
  433. CR's starting point on this argument is therefore to compare what the Trustees achieved at the Mediation as compared with what they would have achieved if there had been no difficulties with the two Agreements. In that case, Mr Hubble says that the parties would almost certainly have gone to an alternative dispute resolution such as mediation. The argument appears to take account of what happened at the Mediation itself and to treat the Trustees in the same, or a similar, position in the hypothetical mediation which Mr Hubble envisages as that in which they found themselves at the Mediation itself with the difference, of course, that the Apportionment Agreement and the 2002 Side Letter are assumed to be valid.
  434. If that is the correct starting point, then Professor Youlton's case is that the argument is wrong. It is wrong factually because, according to him, the Trustees were not driven by their perception of the weakness of S&W's financial position to settle on the terms which they did. It is accepted that S&W was facing cash-flow difficulties but not that its underlying business was not valuable. It is also accepted that there was a need for cash. But it is said by Professor Youlton as follows that:
  435. "The Trustees would not have settled on the terms which they did were it not for the doubts about the two agreements. It was the risk that they might not win the action which the Trustees had brought against S&W coupled with the risk of costs (the risk of not recovering if they were successful and the near certainty of having to pay if they were unsuccessful) which forced the Trustees to settle on the terms which they did. If the two agreements had not been vulnerable, those risks would not have been present. The defences raised in the action (the Want of Authority Defence and the Unenforceability Defence) would not have arisen at all and summary judgment would have been obtained on the Interim Award. Specific performance of the 2002 Side Letter would have been obtained with the result that the rent reviews could have been implemented. Further, the extension lease would have been granted enabling the Trustees to value their reversionary interests with the benefit of that extended lease."
  436. There is ambiguity in the language used by both sides. Frequent reference is made to "cash flow" difficulties. But what is a cash flow difficulty?
  437. i) A company can be balance sheet solvent and show an operating profit but, at the same time, be facing difficulties in meeting its liabilities as they fall due. To describe such a company as having "cash-flow" difficulties is entirely apposite.
    ii) A company may be in worse condition than that, but not terminally ill. It might be having the same difficulties as the first company, but also be balance sheet insolvent. Ignoring the possibility that there are valuable assets (such as IP rights) which are not reflected at their real value in the balance sheet, the board of this company might have been able to produce a business plan which satisfies its backers and bankers that it will be able to trade out of its difficulties in a period of time. It is certainly the case that this company has "cash flow" difficulties, but it would not be entirely apposite to describe all of its problems in that way.
    iii) A company may be much sicker than that. Whilst not yet subject to a winding-up petition and able to stave off its creditors and to continue to trade (without breach of the law) it may be in a position where it has to say to a creditor C that payment of C's debt would bring the company to its knees and result in a winding-up. It would not be apposite to describe that sort of case as amounting only to "cash flow" difficulties.
  438. A creditor with a debt not open to challenge in any way, and in respect of which it could obtain summary judgment, is unlikely, I suggest, to agree to payment of less than what is due in either situations i) or ii) The creditor might well agree, particularly in situation i), to payment over a period of time. But it not easy to see why he would accept significantly less than was due unless there was some special factor: for instance, it may be that immediate payment is critical with the creditor being unable to risk even the delay which obtaining summary judgment would entail.
  439. In situation iii), the position might be different. For instance, if the company was not only insolvent but had granted security so that there would be nothing for unsecured creditors in a winding up, the creditor might be willing to accept a significant discount whether with or without instalment payments, because he would receive nothing if he took the only other course open, namely to recover judgment and wind the company up. But he would only agree to such a reduction if he was convinced that there was real risk that the company would indeed go into winding up if the creditor attempted to obtain more than was on offer.
  440. There is a raft of intermediate positions. There are difficulties to face where the claim against the company is not for money but for enforcement of a contract, such as the 2002 Side Letter. In the present case, I need to determine where on the scale the Trustees' claim against S&W (assuming the validity of the Apportionment Agreement and the 2002 Side Letter) is to be placed.
  441. At this stage, I want to address the claims which the Trustees would have had if the Want of Authority Defence had not been available so that the Apportionment Agreement would have clearly been a valid agreement and if the 2002 Side Letter had been differently drafted so as to eliminate the possibility of the Uncertainty Defence.
  442. As to the Apportionment Agreement, the surveyors were perfectly able to arrive at the Interim Award. I see no reason, subject to one caveat, to think that the surveyors, left to their own devices and given relevant information by S&W, would not have been able to proceed to and agree a final award. That the surveyors had not by June 2006 arrived at a final award was, at least in part, if not entirely, due to a lack of information which arose from a disinclination, if I may put it that way, on the part of S&W to provide that information and to allow the surveyors to complete their task. I am left with the distinct impression that S&W were using the Want of Authority Defence as a justification for their lack of co-operation in the continuation of the exercise which the surveyors were undertaking. It must be doubtful, to say the least, that the surveyors would have encountered the difficulties which they did if the Apportionment Agreement had been clearly valid. Once that final award had been made, the Trustees would have a clear right to payment enforceable by summary judgment
  443. Mr Hubble says that there were points of principle – by which he means, I think, issues of interpretation of the Apportionment Agreement – on which the Trustees and S&W did not agree (although whether the surveyors disagreed I do not know). This is the point that the Interim Award was a final award and that S&W could not obtain more than was provided for in the Interim Award.
  444. So far as concerns the Interim Award, it is true that one of the defences in the action brought by the Trustees was that the Apportionment Agreement makes no provision for an interim award. Since there can be only one award, the argument runs, the Interim Award was in fact final with the consequence that no further sums would ever be due. But that defence went to the declaratory relief sought and it is, in my judgment, a defence without any merit, legal or otherwise, at all. At most it could be argued – an argument not in fact raised by S&W – that the Interim Award was not an award at all or at least was an award that could only form part of, and be enforced as part of, a final award. Although the amount of Interim Award would eventually be due, S&W might have been able to resist summary judgment unless and until a final award was made.
  445. I have serious doubts about this defence to a summary judgment claim on the Interim Award as a matter of construction of the Agreement. Quite apart from those doubts, a failure to provide information required by the surveyors was a breach of clause 3.1 of the Agreement. Further, it appears to me very likely that a final award would have been produced well before June 2006 if S&W had given the assistance which was to be expected of it. In these circumstances, it would hardly have lain in S&W's mouth to maintain that it did not have to meet the Interim Award because a final award had not been made. It follows that the Trustees would have had a well arguable claim for summary judgment in relation to the Interim Award certainly by June 2006 if not before but I accept, as I must, that it would not have been a clear claim. But what is clear, and to my mind is clear beyond argument, is that the Interim Award did not preclude a further award and that when the final award was made, the Interim Award would be enforceable. The Trustees would have had in due course an unassailable claim to the whole of the Interim Award. As a result of CR's breaches of duty, the Trustees lost that opportunity.
  446. As to the 2002 Side Letter, I am of the view that the Trustees would, had it been clearly valid, have had a clear claim to specific performance on a summary judgment application subject to one caveat. Even if some terms of the extension lease remained open, by May 2006 the terms were virtually agreed and if differences still continued, there would have been procedures for resolving them. I do not consider that there is any merit at all in the suggestion which has been made that the Trustees had somehow disentitled themselves from specific performance because of their delay in seeking it given the attempts in correspondence to obtain compliance and the passing of drafts between the parties' solicitors. In any case, there would have been a clear case for damages if specific performance had not been available.
  447. The caveat just mentioned is this. There was a dispute about whether rent on the West Wing was payable before the time when S&W could take beneficial occupation of it and a dispute about whether such rent should be taken into account on a rent review taking place before that time. This, however, was a dispute about the Trustees' rights under the Lease: the origin of the dispute had nothing to do with the terms of the 2002 Side Letter. However, the dispute would run through into the rent reviews under the 2002 Side Letter because it simply changes the pattern of the reviews without changing the basis. No doubt any overall settlement would have had to resolve this dispute (as the Settlement Agreement did). But had the Trustees sought specific performance of the 2002 Side Letter in order to acquire the lease extension, I do not think that this element of the dispute would have been a ground for refusal. Rather, the point would continue to be live issue when it came to a review under the extension lease or the new pattern of rent reviews to 2009.
  448. I need now to address the correct starting point for ascertaining what the Trustees' would have done but for CR's breach of duty. The correct starting point is not, in my judgment, the point (namely the Mediation) from which CR would like to start. There are two central points:
  449. i) The first is that the Trustees court action seeking declaratory and other relief against S&W was necessary only because of the availability as real arguments of the Want of Authority Defence and the Unenforceability Defence. If it had not been for those defences, the action would not have been necessary. It is true that S&W might nonetheless have declined to comply with the Agreements but it would not have had, for reasons already given, any defence with any real prospect of success to a claim for specific performance of the 2002 Side Letter. S&W would not have been entitled to refuse co-operation in the apportionment exercise: if it had done so, the Trustees would have had a strong claim to summary judgment for immediate payment of the Interim Award. And they would, in any event, have known that the Interim Award would certainly become due in the future.
    ii) The consequence is that when the Trustees decided to enforce their rights under the two Agreements in 2006, they would have been in a far stronger position than they in fact found themselves. They would not have found themselves under pressure, in September 2007, to obtain an extension lease, pressure which was an important factor in pushing them into the Settlement Agreement.
    iii) The second central point is that the Mediation was convened principally to settle the action which the Trustees had brought. It was not concerned with dilapidations; nor was it convened to deal directly with the amount of rent which would be paid on the rent reviews provided for in the Lease or in the extension lease envisaged by the 2002 Side Letter.
    iv) The only reason why this particular mediation took place was because the Trustees had brought an action against S&W. If that action had not been necessary, there would have been no mediation to resolve the issues in the Trustees' action. If there had been some sort of dispute resolution process out of court, it would have been against the background of clearly enforceable agreements and would, if it had taken place at all, been very different from the Mediation itself.
  450. But Mr Hubble says that matters would, in any case, have been complex and hard-fought. A mediation would have been the obvious outcome. In this context, Mr Hubble identifies a number of disputes between the parties. These disputes include:
  451. i) The implementation of the Apportionment Agreement.
    ii) The interpretation of the "put and keep" clause in the Lease.
    iii) The completion of the works to the West Wing of the Property.
    iv) The actioning of the lease extension (this is the dispute about the 2002 Side Letter).
    v) The review of maintenance issues outstanding at the Property.
    vi) The question of the rent review due for March 2003.
  452. No doubt these were all areas of dispute. No doubt some or all of them were complex and would be hard fought. For instance, the dilapidations claim and the whole scope of the "put and keep" clause could be fertile ground for dispute. But the dilapidations issue was not part of the Trustees' action against S&W nor was it resolved in the Mediation, so it is not easy to see what relevance its complexity has in the current context. No doubt litigation concerning the validity of Apportionment Agreement and the 2002 Side Letter would have been complex and hard-fought, but that is precisely the complaint being made against CR because there should have been no opportunity for the complexities to have been raised.
  453. I can see no reason for concluding that all of the disputes between S&W and the Trustees needed to be, or would be, run together. In particular, if the Apportionment Agreement and the 2002 Side Letter had been clearly valid, their enforcement could, and I think would, have been dealt with separately from for instance, the dilapidations dispute. Meetings might be held at which all the issues could be discussed, but it would have been open to the Trustees to bring proceeding in relation to some and not others. This indeed is precisely what they did in 2006 when they issued proceedings dealing with discrete issues relating to the two Agreements in order to establish their validity. I reject Mr Hubble's attempts to add complexity in this way in order to suggest that summary judgment could not or would not be obtained and that the implementation, and if necessary enforcement, of the Agreements would have ended up in a mediation about which I shall say more in a moment. I do, of course, accept his submission to the extent that mediation would have been one of the possible ways in which the matters in dispute would have been dealt with. But, to repeat, such a mediation would have been a very different exercise from the Mediation itself.
  454. Accordingly, in looking at the consequence of CR's breach of duty in failing to produce valid and enforceable agreements, the question is not what the Trustees would or might have done at the Mediation (or something similar to the Mediation at about the same time as the Mediation) if the Want of Authority Defence and the Unenforceability Defence had not been available (although that is something I will need to consider). Rather the question is what would or might have happened once the Trustees sought to pursue their rights, if they had not been met along the way by those defences which should not have been available in the first place.
  455. As to that, it is clear that, by the end of 2005 if not before, the Trustees were intent on obtaining from S&W that to which they were entitled under the Apportionment Agreement and the 2002 Side Letter. Indeed, they actually sought to do so, first by an attempt to persuade and then, when that attempt failed, by litigation where they were met with defences which, but for CR's breach of duty, could not have been raised. The answer is clear and is clear beyond any doubt. The Trustees would have sought to hold S&W to its contracts by litigation if necessary. Quite possibly they would have commenced litigation much earlier: they were, after all, attempting to obtain proper implementation of the 2002 Side Letter in 2004 and by September 2005 were putting real pressure on S&W only to be met with the Unenforceability Defence.
  456. The Trustees' first approach once they had decided to press for implementation of the Agreements would, there can be no doubt, have been to do what they actually did, namely to seek voluntary compliance with the two agreements. What then would have happened? One possibility is that S&W would, in the absence of the Want of Authority Defence and the Unenforceability Defence, have acknowledged the validity of the contracts and implemented them according to their terms.
  457. On that basis, there would have been no difficulty in proceeding to completion of the 2002 Side Letter (which, on the hypothesis under consideration, namely that there had been no breach of duty by CR) would be certain in its terms and effect. In contrast, had S&W refused to complete, an action for specific performance could have been commenced in relation to which summary judgment would almost certainly have been available as already discussed. Whether the Trustees would in fact have taken that course is something I will address in a moment.
  458. Further, on the basis that S&W would not have disputed the validity of the Apportionment Agreement, there would also have been no difficulty in proceeding to a final award. I have already noted the difficulties which the surveyors were experiencing in completing their task. It must be doubtful, to say the least, that the surveyors would have encountered those difficulties if S&W had accepted the validity of the Apportionment Agreement with the effect of any disputed terms, in the case of the Apportionment Agreement, being resolved by agreement or by litigation which, compared with the litigation on which the Trustees were forced to embark would have been relatively straightforward.
  459. As to the Interim Award, the Trustees would know that sooner or later they would be entitled to the amount of the Interim Award. In practice, assuming that S&W was prepared to honour its commitments, the final award might have been completed quite speedily but there is no need to speculate about that. But even if the Trustees had to recognise that they might not be entitled to immediate payment, there remained the possibility of agreeing an immediate payment, discounted or payable over a period of time or both to reflect these factors.
  460. If, contrary to that scenario, S&W simply declined to implement the Apportionment Agreement and continued to be uncooperative in relation to its implementation, the Trustee's claim to summary judgment would have been enormously strengthened since it would hardly lie in the mouth of S&W to deny liability to make immediate payment of the Interim award when (i) that award would be bound to become due when the final award was made and (ii) the reason for delay in the final award was the responsibility of S&W.
  461. Notwithstanding their clear rights under both agreements, the Trustees, like any sensible person faced with litigation, would no doubt seek some way to avoid it, in particular they would try to reach an accommodation with S&W. Whether there would have been an attempt at some sort of Alternative Dispute Resolution, I cannot say; Mr Hubble may be right to say that in practice some sort of mediation process would have taken place. But to repeat, that mediation would have taken place against a very different background from the Mediation itself. There would not have been a dispute about what the Trustees' rights were; instead, the parties would have been looking for a solution in which those rights could most effectively be adjusted to reflect the needs of, and constraints facing, each side. I need to consider a number of scenarios.
  462. First, if there were no doubt about S&W's financial strength, there would be no reason for the Trustees to settle their claims on any less favourable terms than their actual entitlements. They may have been prepared to settle the Apportionment Agreement claims for a fixed amount without requiring the surveyors to complete their task; they may have been willing to agree a discount from the amount of the Interim Award in return for immediate payment. There would be no need to make any concession in relation to the 2002 Side Letter although I can well believe that the Trustees might have been prepared to trade a longer extension for a reduction in the payment under the Apportionment Agreement but not so as to lose any significant economic value. Even if there were merit in the argument concerning the Interim Award in fact being final and that the Trustees would sensibly have agreed a reduction in their claim to reflect this possibility, the result could not, I think, possibly have been a reduction to the level in the Settlement Agreement, an amount less than the Interim Award itself.
  463. But if, secondly, the Trustees were persuaded that S&W was facing financial difficulty, one would expect them to reflect this in their demands.
  464. For example, if the Trustees were persuaded that S&W was facing cash-flow difficulties in the short-term, they might agree that the amounts payable under the Apportionment Agreement should be paid over a period of time or that rent reviews under the lease extension might be adjusted. But there would be no reason at all for the Trustees, on the basis only of cash-flow problems, to agree to forgo a substantial part of the value of what was or would become due. They would know that the Interim Award, if not already due, would become due when the final award was made. There would be no reason at all to link the obligation of S&W to take the extension lease under the 2002 Side Letter with its obligations under the Apportionment Agreement and no reason to think that there was some way in which the one might have to be traded off against the other.
  465. Another example is this: if the Trustees were concerned that S&W was facing serious financial difficulties which could result in its ceasing to trade and entering into insolvency proceedings, their attitude to settlement might well be different. But they would need to know what those problems were and how any liability under the Apportionment Agreement and the 2002 Side Letter contributed to those difficulties. They would need to assess the risk of Advent allowing S&W to go into liquidation (for if there were no risk of that, the Trustees could simply enforce their rights in the courts). They would need to assess the level of dividend in any liquidation. For reasons already given, I have concluded (a) that S&W had a valuable and viable business and (b) that Advent would be unlikely to allow S&W to enter insolvency proceedings rather than meet its obligations under the agreements. Whatever doubts there may be about the Trustees' perceptions of the financial strength of S&W at the time of the Mediation, I have no doubt that none of them had any reason to think that S&W was on the brink of collapse before that time and there is not a shred of evidence to suggest that any of them did hold such a view. It is, in my judgment, unlikely that that Trustees' views would have been different had they been in possession (in, say, May, 2006) of all the material which was available at the Mediation. In particular, I do not consider that their views would have been different as a result of the materials provided by Mr Fredericks at the Mediation which painted S&W's finances in an unfavourable light. Their views would not have been different because they would have been able to test, in a way which they were not able to test at the Mediation, what lay behind the figures in these materials, to test whether S&W was in fact valuable because of its underlying business strength and the value of its IP rights. Above all, they would have had the opportunity (i) to discover what offers were being made by potential purchasers to show the real value of the company and (ii) thereby to demonstrate Advent's commitment to stand behind the company.
  466. Accordingly, I do not consider that the Trustees would have been concerned that S&W was facing the sort of financial melt-down mentioned at the beginning of the previous paragraph.
  467. But even if that is wrong, and a real risk of Advent allowing S&W to enter liquidation were acknowledged as a concern to the Trustees, it is not at all easy to see why that would lead to the Trustees agreeing to settle on terms under which they gave up a significant part of their valid claims. Whilst accepting, on this hypothesis, that S&W could collapse, it is hard to see that it would be the Trustees' claim which was the straw which broke the camel's back. There is nothing in the evidence to suggest that S&W would be forced into liquidation if the Trustees' claim was not disposed of for a sum substantially less than the claim. There is nothing in the evidence to suggest that Advent would support S&W if the Trustees' claim were got rid of for the amount of the eventual settlement, but not otherwise. As Mr Evans points out, Mr Fredericks, for all his gloom and doom at the Mediation, is not reported by anyone as threatening a liquidation of S&W unless the Trustees agreed to his terms. Accordingly, there would be no reason for the Trustees to modify their claims although it might, I can see, be expected that they would allow S&W time to pay any money due to assist its cash-flow. There would be no reason because the Trustees would perceive that either S&W would collapse or it would not, but that if it were to do so, the collapse would not be caused by its liabilities to the Trustees. The Trustees would surely take the view that if it were to collapse, they ought to be in a position to prove in the liquidation for the entirety of S&W's liabilities to them; and that, if no collapse were to occur, they ought to be able to enforce the agreements to the fullest extent. There is simply no rationale for the Trustees agreeing to a settlement which gave them significantly less than they would otherwise have achieved by way of remedy – specific performance or money - in litigation.
  468. This analysis depends, of course, on the proposition that, absent any settlement, the Trustees would have pursued litigation to its end. I think it is more likely than not that the Trustees would, in the absence of any settlement, have pursued appropriate claims against S&W to judgment in respect of the Apportionment Agreement and the 2002 Side Letter.
  469. What if I am wrong about what I have said in relation to summary judgment? Suppose that specific performance of the 2002 Side Letter and full implementation of the terms of the Apportionment Agreement could be reached only after trial. The Trustees' position would then have been less secure in June 2006 than I have suggested it would be. The Trustees would, nonetheless, have had justifiable confidence in relation to the 2002 Side Letter: indeed Mr Hubble has not actually suggested any reason why summary judgment would not have been obtainable saying only that substantial issues would have existed. So far as the Apportionment Agreement is concerned, the Trustees would, again, have been confident that they would recover in due course the amount of the Interim Award but would have to recognise that their other rights under the Apportionment Agreement could take time to clarify and enforce (but that is no different from the position were summary judgment on the Interim Award to be available).
  470. The Trustees' actual negotiating position when it came to the Mediation was completely different from the hypothetical situation I have been addressing of unquestionably valid agreements. Let me mention the main differences.
  471. The first and single most important difference is that the Trustees were negotiating from a position of weakness and not strength. The advice which they had from Mr Todd and from Mr Clark was gloomy – Mr Todd had said the day before that the case had to settle. Even if they were to be successful in their litigation, any result would be a long time away, there would be enormous costs and the Trustees would be exposed to substantial risks. There was a need for fairly immediate cash to meet pension obligations but no certain or quick way of obtaining that cash. These contrast with the position which the Trustees should have been in as of May 2006. They should have been negotiating from a position of strength. Absent an agreement, the Trustees would have had an effective and speedy remedy, namely specific performance, of the 2002 Side Letter (with the result that the main asset of the Scheme, the freehold of the Property, would have had an increased and ascertainable value). They would have had the certainty of obtaining the Interim Award in due course and substantial arguments that they were entitled to payment already; any dispute about the true meaning of the Apportionment Agreement could have been resolved by a comparatively straightforward piece of litigation. There would be virtually no costs risk.
  472. The next difference is that the Trustees were faced at the Mediation with substantial litigation delays, costs and risks. Substantial costs had already been incurred and substantial costs would follow. The Trustees had already been kept out of a remedy for a considerable period and a final determination would be a considerable time away. To the extent that litigation would have been necessary at all absent any breach of duty by CR, it would not have resulted in the delays and costs on the scale suffered by the Trustees; and the risks faced by the Trustees on the merits and in relation to costs would, if they had existed at all, have been very substantially less.
  473. The next difference (and the final one I want to mention at this stage) is that the Trustees had sprung on them the financial information which was produced for the first time by Mr Fredericks at the Mediation. If that information had been disclosed in negotiations against the background of valid agreements, the Trustees would have had an opportunity to consider it calmly and fully rather than in the stressed and rushed circumstances of the Mediation. I have already identified the many ways in which they would have been able to test the information and investigate further. Professor Youlton for certain, and Professor Snell too I think it likely, would have made to S&W most forcefully the points which Professor Youlton made in evidence before me that, even if there were justifiable concerns about cash-flow, there was no real concern about the underlying worth of the business.
  474. In order to succeed in its defence, CR need to show that notwithstanding these differences, that the financial position of S&W was of such overwhelming importance that the Trustees would have settled their claims against S&W on the terms which they actually settled even if the Apportionment Agreement and the 2002 Side Letter had been clearly valid. Since much of the argument has focused on what would have happened at the Mediation had the two Agreements been valid, I shall start with that; but since that is not, for reasons already given, the correct starting point, it will be necessary to return to the real question (What would or might have happened in and after May 2006?) to see whether the Trustees must be treated as if they would have settled their claims against S&W on the terms which they did.
  475. Going into the Mediation and the Mediation itself

  476. CR pleads that the sums S&W paid by way of settlement reached in the Mediation were the maximum sums which it could afford to pay, there was no realistic prospect that the Trustees would in any circumstances have obtained a greater recovery from S&W than was in fact achieved. It is pleaded that, in short, the settlement was driven by commercial realities not legal merits.
  477. There are different threads to that allegation. The first is quite simply that S&W could not afford to pay more. I have already considered S&W's actual financial strength and the likelihood or otherwise of Advent continuing to support it. I have concluded as a matter of fact (on a balance of probabilities but with a stronger than "on balance" view) that Advent would have continued to support S&W (UK) and S&W even in the face of the Trustees' claims, at least if the Trustees were to agree – as I find they would have – to payment of any money sum in instalments which S&W might reasonably request.
  478. The second thread is that the information which the Trustees had prior to the Mediation and which was provided to them by Mr Fredericks at the Mediation fixed in their minds a belief that, whatever may have been the reality, the financial position of S&W was very weak. They then negotiated a settlement which they recognised was less than they were entitled to but was, to use CR's phrase, the maximum sum which S&W could afford to pay. That phrase is not without considerable difficulty. Does it mean unable to pay without bringing about an insolvency? Does it mean unable to pay at any time in the future? Does it mean anything more than "unwilling to pay"? Clearly CR do not mean it in that last sense, but I have to confess that even as I write this judgment, I am not clear what this chameleon-like epithet is meant to convey.
  479. The central issue here is why the Trustees settled on the terms which they did. They did so, of course, because the terms were the best which they could achieve. S&W were either unable or not prepared to offer better terms. Mr Hubble submits that the financial state of S&W was of such overwhelming significance that other factors which might normally be expected to feature in a decision whether or not to settle were mere make-weights. It is on that footing alone that he is able to assert that, even if the Want of Authority Defence and the Unenforceability Defence were not available, the Trustees would have settled at the Mediation on the same terms.
  480. In contrast, Mr Evans says that the Trustees settled on the terms which they did because of a combination of factors. He must be right in saying that all the factors which he identifies were in play in the sense that the Trustees were aware of them. But that is not to say that the Trustees attached any weight at all to them or, if they did, that those factors did anything other than weigh down yet further a balance which had entirely tipped one way already. The factors which he identifies and, which I have largely addressed already, are these:
  481. i) The merits of the claim.
    ii) The costs of taking the matter to trial. The costs would, it is common ground, have been substantial. Figures of £400,000 - £800,000 to take the matter to trial (in addition to what had already been incurred) were mentioned. The precise figure does not matter: the sums were, on any basis, significant to the Trustees whose pension fund would be at risk.
    iii) The delay in reaching a conclusion if the claim were fought. Some of the Trustees wanted to retire.
    iv) S&W's financial state.
  482. The Trustees' evidence is that their perception of the merits, in the light of the advice of Mr Todd and Mr Clark, was that the claims were fraught with difficulty. This meant that the case was complex and could well be lost. Loss of the action would involve the Trustees in considerable expense – not only their own costs but those of S&W. Delay speaks for itself. Those factors, ignoring S&W's alleged financial weakness, are ones which the Trustees would have been bound to take into account in making their decision. Those factors would have been almost entirely absent if the Apportionment Agreement and the 2002 Side Letter had been clearly valid. The Mediation would have taken place (suspending reality for a moment and assuming that a mediation such as the Mediation would have taken place at all), therefore, in a very different context.
  483. Not only do I consider that the Trustees did perceive the case in that way when the Mediation started, I consider that they were justified in doing so. I do not propose to go into the question whether the advice given by either of Mr Clark or Mr Todd was right or wrong (although I would not want it to be thought that I am making any suggestion at all that I think it was wrong). They gave the advice which they did and CR did not question it or suggest that it might be doubtful in any way. The relevant advice, so far as the claim under the 2002 Side Letter, was that on balance the Trustees should win. But Mr Clark recognised the difficulties which the Trustees were facing, something reflected in the way in which he expressed the prospect of success – on balance. I say the "relevant" advice, because advice might initially have been conveyed to the Trustees simply that they should succeed in their claim. But Mr Clark's formal advice, given in writing on 7 December 2005 expressed his "on balance" view. It is a view which he did not change, as he confirmed in evidence. Professor Youlton certainly knew of that advice and it was he who was in control of the case on behalf of the Trustees. It seems to me to be highly likely, indeed the contrary is almost inconceivable, that each of the Trustees knew, by the time of the Mediation, that they faced difficulties in their claim under the 2002 Side Letter as well as the Apportionment Agreement.
  484. So far as the Apportionment Agreement is concerned, it is fair to say that the advice from Mr Todd was initially quite optimistic. Indeed, the advice received by the Trustees was strong enough to persuade them to commence proceedings. But by the time of the consultation on 11 September 2007, his advice had changed in the light of the information which he then had.
  485. As to that, more pessimistic, advice, it is recorded in the attendance note made by Ms Deuchar of the consultation with Mr Todd on 11 September 2007. The note contains this:
  486. "MT confirmed that in his view, this had to settle. Otherwise costs will increase and there will be a huge trial, on the basis that this matter involves lots of complex issues. DY had far too much control. The company law points will cause problems because of DY's control and the lack of documents. There are also huge issues of fact. The other side are only accepting that Spencer had actual authority to negotiate, but no one had authority of any type to sign. We have seen no documents at this stage to show that there was authority. We have only seen some board minutes."
  487. In his witness statement, Mr Todd explained that he could recall only the general tenor of his advice at the consultation on 21 February 2007. He explained that originally he thought the Trustees had reasonably good prospects of success because he thought the Trustees would be able to show that either all the shareholders or all the directors knew about the execution of the Agreement. He recalls a "difficult" afternoon, specifically identifying one real issue which concerned him about the residence of one director in Ireland who had never turned up to a board meeting. He remembers advising that, in the absence of knowledge of the directors or members, the case would turn on ostensible authority. A major problem became apparent when he saw the board minute giving Mr Spencer authority; the minute disclosed that his authority was limited and whilst Professor Youlton might arguably be regarded as an outsider, Professor Snell was not.
  488. Nonetheless, Mr Todd said that he considered that the Trustees had reasonable prospects of success. But this was more because S&W had an unmeritorious defence rather than the Trustees having particularly strong arguments, so that the Court would try to find in the Trustees' favour. He does not think that he would (and was fairly certain that he would not) have said that S&W's arguments stood no reasonable chance of success.
  489. He recalls that he was provided with a copy of S&W's Further Information and his views began to change. This he described as "not helpful" to the Trustees. He recalls that he was of the view that solicitors should satisfy themselves that the other side to a transaction had authority to enter into agreements to effect that transaction. He said that he did not know why this issue had not arisen previously. He speculated that it was because everyone knew that the CEO, Mr Spencer, was negotiating with Professor Youlton or because it had not been appreciated (at least by him) that Professor Snell had attended the board meeting at which only limited authority had been given to Mr Spencer. He could not recall saying at the time of the Mediation any more about the merits other than that the Trustees had some prospect of success. Had he been pushed, to give a percentage, he would, I find reluctantly, have said that they were much less than 70% (the highest he would ever state).
  490. I have already set out the main points recorded in the attendance note of the consultation on 11 September 2007: see paragraph 152 above. Mr Todd, in his oral evidence, confirmed that the note broadly reflected the advice which he would have given although at this distance of time he was not able to recollect the detail precisely. I accept what he said.
  491. Thus, although Mr Todd considered on balance that the Trustees should win on the company law issues, this was dependent upon proving that either Mr Spencer or Professor Snell had actual authority to execute the Apportionment Agreement or the 2002 Side Letter. That, of course, was a very significant qualification. As with the Company Law Points, Mr Todd's view that the Trustees should succeed was dependent on the facts; and so the attendance note records:
  492. "Whether or not we win depends on the facts as have pleaded them and whether we can establish those. If we do not do so, then we will lose…..Mr Todd said that the burden of proof is actually on us because of the absence of board minutes showing actual authority – so we need to show ostensible authority…."
  493. The note is consistent with Professor Youlton's recollection that Mr Todd's views had become more pessimistic. His assessment of Mr Todd's view being, in essence, that the case was no better than 50/50 is a fair assessment given that Mr Todd twice expressly stated an "on balance" view. Why did Mr Todd become more pessimistic? As he explained this was because S&W had produced further documentation (the "Further Information and Clarification" dated 6 September 2007) showing that there were four directors of S&W who, it was said, did not know about the negotiations carried out by Mr Spencer leading to the Apportionment Agreement nor of the execution of it.
  494. His advice was also qualified by the requirement of proof that Mr Spencer or Professor Snell had appropriate authority and that the board of directors knew of Professor Youlton's interests under the Scheme. This was not a matter, as Mr Hubble puts it in his closing submissions, of witnesses coming up to proof. There was as yet no proof obtained for them to come up to, and there was clearly a great deal of doubt about whether some relevant people would give evidence at all and if they did what they would say.
  495. I am sure that the Trustees went into the Mediation thinking that they had nowhere near as strong a legal case as they had believed prior to the consultation on 11 September 2007. They would, I accept, not have come away from that consultation thinking that they had a hopeless or very weak case, but they would not have thought their chances were much better, if at all better, than evens. Further, I have no doubt that the merits were of the greatest importance to the Trustees going into the Mediation and to the course they were then taking.
  496. There was some discussion of the financial position of S&W which I will deal with later. But, as will be seen, I do not consider that the financial state of S&W was perceived by the Trustees, prior to the Mediation as being so dire that a settlement had to be reached at any cost. The reason why Mr Todd opened the consultation – before discussion of the financial state of S&W – as he did was because of his and Mr Clark's perceptions of the merits. How different that opening advice, which coloured the advice from that point onwards, might have been if the merits had been strong. The weight of the evidence, in my judgment, comes down firmly against the view that the Trustees went into the Mediation believing that S&W was in such dire straits that a settlement had to be reached whatever the legal merits or that the purpose of the negotiation was simply to obtain as large an immediate cash payment as possible consistent with what S&W could afford. On the contrary, it is clear that factor i) identified at paragraph 411 above was very much on the Trustees' minds, the concerns about factors ii) and iii) flowing from factor i). As Professor Youlton says (and I accept) it was clear to him and the other Trustees that the case against S&W was simply not strong enough to risk the added costs and the risk of going to trial. This is confirmed by Ms Manson (whose evidence I accept on this) who explains that the pessimistic advice of Mr Todd the day before the Mediation had left the Trustees and herself in a state of shock, explaining that the Trustees had spent an enormous amount of time and money on the case in the belief that they had a reasonably strong case.
  497. Professor Youlton accepts, and has probably accepted since he was ousted from S&W, that it faced financial challenges and that its cash-flow was a problem. He was pushed very hard on a number of occasions to accept that he thought the company would go into liquidation. I have read and re-read the transcript of the evidence. There is nothing which I have heard or read which can be pointed to by CR to show that Professor Youlton or any of the Trustees had expressly acknowledged a belief, prior to the Mediation, that S&W was heading for liquidation. Certain matters are consistent with such a belief, but are also consistent with belief that there was only a cash-flow problem and nothing of much more serious concern. To give the flavour of Professor Youlton's evidence, let me set out part of his answer to a question about why he had been provided with the 2005-6 accounts by Mr Fredericks:
  498. "As I've said to you, repeatedly, in this cross-examination, there is no evidence anywhere that anybody other than remarks made by me in passing that have been referred to in notes taken by your client, is there any evidence that Peter Fredericks, the Chief Executive, anybody else, ever mentioned -- apart from lawyers, ever mentioned this problem of financial jeopardy of the company. It's always cash flow, cash flow, cash flow........ I said to you before, that the company had a financial problem. It was backed by a very wealthy venture fund who were continuing to invest in it. And I think it was choices they made about how their balance sheet was constructed and the debt that they were establishing and the fact that they would one day capitalise it and liquidate the ordinary shareholders, as they did. I don't think there is anything other than that that's in this."
  499. Subject to the caveat which I have already expressed about the use of the phrase cash flow, I accept what Professor Youlton says. In other words, nobody believed the company was in jeopardy, that it was about to go bust. Professor Youlton, Professor Snell and Mr Rogers all recognised the difficulties but considered that S&W had real underlying value and that Advent would not let it fail. I suppose it follows that they were of the view that S&W would trade out of its problems although it was never put to them in those terms.
  500. To give one concrete example which supports this evidence, Professor Youlton referred to a property which he owns in Richmond and which S&W rented as a sales headquarters. He explained that, in 2005/6 it became vacant and that S&W offered him two years' rent to get out of the lease. He refused. I have no reason to doubt that truth of any of that. But why, he asked rhetorically, would he refuse to take two years' rent if he thought S&W was going broke? He said that none of this adds up, a sentiment with which I agree.
  501. Even Mr Haines accepted that Professor Youlton would on occasions describe the problems facing S&W as "cashflow difficulties" although he pointed out that the phrase "financial difficulties" was also used. It is nowhere suggested that Professor Youlton or any of the Trustees expressed concerns that the financial difficulties were so serious that S&W was facing imminent liquidation or even that a risk of liquidation was seen on the horizon. And one can see that reflected in the 2008 Note just before Professor Youlton went out to his one-to-one meeting with Mr Fredericks when Mr Clark refers twice to "cash flow problems".
  502. This is consistent with his evidence, supported by attendance notes, that he believed that Advent would always support S&W and could not afford to let it fail. I have no doubt that that was certainly his view before the Mediation.
  503. Mr Holder has a different perception of what the concerns were from time to time. For instance, in discussing the period 2001-2, he said in his main witness statement that concerns were always being expressed about the company's financial situation. But he acknowledged that Professor Youlton was "always very reluctant to admit that the Company had financial concerns and that he always maintained that the Company was worth more than any investor was willing to pay". And he appears to me to have accepted in cross-examination that his source of information was (a) Professor Youlton himself and (b) Ms Proudlock. As to that latter, all that he had learned from her was what she said in a letter dated 28 May 2004 (sometime later) referring to the fact that the Trustees knew why S&W had to date been unable to give priority to its obligations pursuant to the Apportionment Agreement. Mr Holder was unable to enlarge on what those reasons might be. It may very well be that they were reasons to do with the financial problems but there is no reason to think that they were not problems which would not be resolved in due course. Even if those problems went beyond what one might describe as cash-flow problems, they could not have been problems which even Ms Proudlock saw as ones which were about to bring S&W to the ground. After 2002, Mr Holder accepts that he had very limited involvement.
  504. Mr Hubble has identified in his closing submissions (at Appendix A) a number of pieces of evidence which he relies on to show the concerns which were held about S&W's finances, most of which pre-dates the Mediation. I must address each of the matters he raises. The easiest way for me to do so is to set out Appendix A as Annex A to this judgment and to address each item, identifying it by the date on the Appendix.
  505. i) 17.03.2004: This does not strike me as indicating a concern about S&W going into liquidation. It is the sort of question any landlord might ask given the long-term nature of the tenant's obligations. Indeed, if the Trustees had concerns about, and only about, cash-flow it would make the question even more relevant to ask in case current difficulties escalated into unmanageable problems resulting in liquidation.
    ii) 22.03.2005: again, I make the point that the lease created long-term obligations. Cash-flow difficulties could result in covenant default on loan obligations giving rise to the appointment of a receiver. This does not mean that the landlord anticipates that the tenant is about to suffer a receivership still less that its financial state is such that liquidation is impending. It is true that Mr Young, in his informal valuation dated 29 July 2005, values the Property on the basis that there are concerns about the financial standing of the tenant. But that is not something which Professor Youlton denies in the light of the available accounts which did not paint a rosy picture.
    iii) 13.09.2005: Although Professor Youlton doubts that he would have said quite what is recorded, I see no reason to think that the note is inaccurate in recording that he was "prepared for war" or that the possibility of liquidation was mentioned. These were not considered responses. They came when Professor Youlton had learned that S&W was not going to enter into the extension lease in accordance with the 2002 Side Letter and might be seen as a somewhat emotional reaction. But what he also said was that he wanted to reach an agreement and look at the matter commercially. That is not indicative of a serious concern that S&W was staring disaster in the face or even of serious financial difficulties rather than cash-flow difficulties. The commercial deal might require S&W being allowed time for payment; it might require a reduction in the amount claimed; or, in relation to the 2002 Side Letter, it might require a variation of its terms. None of that is to say that the Trustees' perceptions of the company's financial difficulties were such as to lead them to a settlement such as they eventually entered into.
    iv) 19.1.2006: Mr Evans points out that the note refers to compliance by S&W "at this time". Professor Youlton says that this is again a reference to cash-flow difficulties and I am bound to say that the language of the note (which is all I have to go on) points strongly to that conclusion. This makes sense since S&W was already facing exceptional cash-flow problems as a result of the settlement of the Patent Dispute, requiring it to find £2 million over the next 2 years. Since the Interim Award had been made by this time, and since Professor Youlton and Ms Manson saw as much as £2 million in total being recovered by the Trustees, it is easy to see that the resulting position might have been seen by S&W as "intolerable pressure".
    But even accepting that immediate enforcement would have forced S&W into liquidation, it does not follow than an accommodation could not have been reached under which, over a period of time, S&W's obligations would not have been met in full. In any case, it is not easy to see why financial pressures would have precluded the execution of the lease extension although it may have been necessary for S&W to renegotiate the terms of the rent review provisions and in particular the dates of review.
    v) 14.03.2006 and 23.03.2006: I do not understand why this is said to indicate a concern that S&W might become insolvent. Insurance was a prudent course to consider. It is not clear who first brought up the question of insurance, but even if it was Professor Youlton, the discussion with Ms Manson shows that Ms Timmings (of CR) thought the proposal was a good one "because there was the risk that Snell & Wilcox could default in their payment of the apportionment payment over the five year period and there was otherwise no security to cover this". A concern about what might happen as long as 5 years away does not lend any support to the suggestion that anyone at that meeting thought an impending liquidation was looming or that S&W's financial situation was so dire that a 5 year payment period was pointless. There was not a hint at this stage that the Trustees should take what they could get and run.
    vi) 05.04.2005: This item relates to the conference with Mr Clark. It is interesting to see the note in its original stage being amended to water-down what Professor Youlton had been recorded as saying. It may have been Mr Clark who made the changes. In any case, it is the final version which is likely to be the more accurate reflection of the flavour of what was said. Even if Professor Youlton had had input into the changes, the changes surely are more reflective of his state of mind than hyperbolic words possibly used at the meeting. I accept of course, and I imagine Professor Youlton does too, that there were concerns about the financial state of S&W in the sense that the accounts disclosed a weak position; but (a) matters were improving and (b) the venture capitalists were looking to exit their investment. As to (b), it would therefore be in the interests of S&W to settle the dispute: this is not an expression of any sort of desperation to settle the dispute on whatever terms might be offered for fear of finding something worse.
    vii) 26.06.2006: This letter is entirely consistent with the existence of concerns about cash-flow and certainly does not indicate such a serious financial position as would force the Trustees into the settlement which they in fact made.
    viii) 21.12.2006: That the company was not given the resources to grow in an emerging market does not indicate a concern about its finances. Indeed, the expression of hope that new investors would have the necessary vision suggests a faith in what was already there.
    ix) 01.03.2007: The passage is also set out at paragraph 145 above. The point here is that "the company could not afford to pay as yet". Again, the focus is on temporary difficulty with no concern being expressed about the long term prospects let alone a concern that the company was facing immediate insolvency.
    x) 21.05.2007: This refers to cash-flow problems; no doubt they were exacerbated by the "record monthly order" requiring a "record number of materials" to manufacture the order requirements. The fact that Dolby had dropped out could well indicate problems – but whether those were problems simply about price, or about technical aspects of the products, or about finance it is impossible to say. It is interesting to note Professor Youlton's perception (although I do not think anything turns on it) that the Dolby deal fell apart because the venture capitalists would not let the engineers talk to each other. I perhaps paraphrase unjustly when I say that a brilliant synergistic merger was prevented by financiers who did not understand the business.
    xi) 29.06.07: This refers to a note of the first consultation with Mr Todd. This really gets CR nowhere in my view. There is reference to the hope that "we will recognise that they don't have very much, so we wouldn't get a lot out of this action". I do not read that as an acceptance that "they don't have very much" or, even if that is wrong, it is certainly not an acceptance that there will be a problem if Advent put more money in – as it was Professor Youlton's view that they would, a view which was eventually vindicated.
    xii) 17.8.2007: This relates to the consultation of Mr Todd and Mr Clark. Professor Youlton has serious issues about this part of the attendance note. I make a number of observations and findings:
    a) Professor Youlton perceives it as ambiguous, confusing and in some respects wrong. One concern relates to his "confirming that the key issue is whether the Company has got any money". If he did say that, he clearly did not mean it in the abstract since the company was trading profitably. At most it could mean enough money to meet the Trustees' demands immediately or enough money to give certain of the Trustees the opportunity to retire. In that sense, the terms of any settlement which could be reached with S&W would necessarily turn on what S&W could pay and when it could pay. It is quite impossible to read into this paragraph of the note, even if it is accurate, a suggestion that the Trustees would recover only that which the company could be forced to pay immediately.
    b) It is curious that Professor Youlton would have said that the Trustees would need to seek cash up front but not promises in the future (ie all the cash would be needed up front). This was not the approach he took when making offers in 2006 nor was it the basis on which the eventual settlement was reached at the Mediation, which provided for payments in the future. It is not easy, in any case, to see how the phrase "In order to help with any settlement" fits into what was being said. That would suggest that it would be S&W which would want to make immediate payment with no promise in the future, presumably in order to make it "clean" for the venture capitalist's exit. But even ignoring that phrase, it is not possible to read the note as saying that all of any recovery must be cash up front. Surely what the note is properly to be seen as recording is that the Trustees need enough cash up front to enable some of them to retire and that promises in the future alone would not be enough.
    c) Mr Haines' manuscript note of the same meeting does not help in these aspects as it contains nothing at all corresponding to the passage in the full attendance note prior to "A deal needs to be structured".
    d) The sentence beginning "A deal needs to be structured…." is tantalising because it contemplates an alternative ("which either….") but does not go on to provide one. The reference to "an exit before two years" is ambiguous since it could refer to an exit by Advent or possibly disengagement between the Trustees and S&W. The word "exit" is appropriate to the former and can be seen used in that sense elsewhere in the documents. It is a curious word to use in relation to the Trustees and S&W and has not been used in that sense anywhere else so far as I am aware. This suggests that the reference is to an exit by Advent.
    e) That reading does not, however, fit wholly comfortably with the phrase "because David Youlton does not think that Snell & Wilcox will be in business then". That could be taken to indicate that the "deal" refers to a deal between the Trustees and S&W and that "exit" refers, rather oddly I think, to some sort of disengagement between the Trustees and S&W. But that is itself problematical since it is not at all clear what such disengagement would involve or how it would qualify as an "exit". It cannot mean the bringing to an end of all ongoing relations since the Trustees were clearly not contemplating the Lease coming to an end: that had never been mentioned as part of a possible compromise.
    f) Mr Haines' note reads:
    "deal
    Structure deal exit 18-24 months
    + money in fund in case liquidation
    + forfeit lease"
    g) That note takes one no further in relation to what "exit" is being referred to. I might add that anyone who has seen the whole of Mr Haines' note would see that it is sparse in the extreme and does not cover a lot of the ground: this is not a criticism since Ms Deuchar was taking a full note and Mr Haines' jottings may be seen more as an aide memoire. It might be said that the reference to liquidation shows concerns on the part of the Trustees about the financial position of S&W. It is interesting to observe, however, that Ms Deuchar's note of this part of the meeting makes no mention of liquidation making it possible that Mr Haines is using the word as short-hand for "not being in business".
    h) As to not being in business, I think that it would be wrong to infer that Professor Youlton thought that S&W would not be in business because it had gone bust; it could equally well be because Advent had sold out and S&W had been restructured. Mr Haines records the word "liquidation". We know that Professor Youlton did refer to liquidation at other meetings and the possibility of liquidation was always recognised. That is not to say that it was seen as a probable occurrence. In any case, Mr Haines has not noted down any period of time in relation to liquidation, in contrast with the 2 years recorded by Ms Deuchar in relation to S&W not being in business. It would be quite wrong to take some words from one note and other words from another and link them together in the way most disadvantageous to the Trustees. This is particularly so given the absence of the alternative which I have mentioned.
    i) My conclusions are (i) that "exit" is to be read as a reference to an exit from its investment by Advent, something which Professor Youlton had all along been saying was the way in which venture capitalists work (ii) that little significance can be attached to the use by Mr Haines of the word "liquidation" in the sense that a reference to a possible liquidation does not demonstrate a serious concern about the financial position of S&W.

    j) Professor Snell was asked questions about this meeting. The questions and answers were really in the context of the accuracy of the note of the meeting. He could not answer for Professor Youlton, but his evidence about his own views, which I accept, is that he did not think that S&W would go out of business in two years although it,
    "might be part of a bigger company or it might own another -- there would be change because that was -- we didn't expect to go out of business."
    xiii) 17.08.2007 and 29.08.2007: neither the action points not the Ernst & Young letter (which was only presented to the Trustees at the Mediation) show that S&W was about to go out of business. The latter does, perhaps, show that there were concerns which might go beyond immediate cash flow. There is nothing to suggest concerns of the sort which would lead a creditor of S&W to accept less than was due to it (rather than come to terms about a period of payment) where the creditor's legal rights were clear. The financial position might, on further investigation, be shown to be such that, even given time, a particular creditor's claim was so large that it simply could not be paid. But these documents do not establish that things had come to that pass or even that there was a serious concern that they would do so by virtue of the Trustees' claim.
    xiv) 11.09.2007: this relates to the pre-Mediation consultation with Mr Todd and Mr Clark at which all the Trustees, Mr Rogers, Mr Haines and Ms Deuchar were present. The passages set out by Mr Hubble must be put in context.
    a) Just before the first passage he sets out, is a record of a discussion about the lease extension. The Trustees' position was that they would not move on the 2002 Side Letter if S&W would not move either. Mr Clark asked if this issue would then be parked leaving the other issues open in the Mediation to be resolved. The note records:
    "Mr DY said that we would then walk away because it is so fundamental to him, RS, JW and DY have to make a decision as to whether to value as is, take a risk, or bail out. The question is who can afford it more…… This is a hard call. DY said that he would be prepared to agree £1 million being paid into it. [The note continues with the passage set out by Hubble]".
    b) It is impossible, I think, to view this part of the note as reflecting a concern that S&W was actually about to "go broke". Everyone knew that the company was facing some difficulties and the possibility of insolvency was contemplated. That is why Professor Youlton was insisting that at least part of the Trustees' claim - £1 million - should be paid in cash immediately (something which was nowhere near achieved in the actual settlement); but if it had been suggested during this part of the exchanges which are recorded in the 2008 Note that the Trustees would walk away with £1 million and nothing more (that is not, say, the abandonment of the 2002 Side Letter and any further claim) Professor Youlton would have given a clear negative response.
    c) As the note records further down the page, his bottom line was the lease extension, agreement on the rent and cash into the fund. The financial state of the company was, no doubt, a factor in the thinking ("The question is what state the company will be in next May") but it is to my mind important to remember that this discussion about settlement was being conducted against the background of the challenges being made by S&W to the Apportionment Agreement and the 2002 Side Letter. The discussion cannot be seen in isolation as a discussion about the financial state of the company being such that the Trustees could press only for £1 million (or any other figure) because it could not afford more. Moreover, the bottom line includes the lease extension and rent reviews. If Professor Youlton was seriously concerned that S&W was on the verge of collapse, it would have made no sense to hold out for these elements of his bottom line if, by doing so, the Trustees were to lose the opportunity of receiving a substantial immediate cash sum.
    d) The passages also need to be put in the context of other things which are recorded later. In particular, Mr Todd said that, having seen the last accounts, the company could be in a worse state by next May in response to which Professor Youlton made observations about S&W's position in the market, referring to its refinancing. He is then recorded in the note as saying that the company "will struggle and be in difficulty very shortly". The words "very shortly" do not appear in Ms Deuchar's manuscript notes. Moreover the typed-up notes omit this "Continue 2 have strong values – 1 yr – 18 months then find themselves w/o [the last word is then illegible]". I do not consider that I can attach any weight to this part of the note in support of the suggestion that the company was in imminent danger of collapse. This is especially so since Professor Snell's evidence, which I accept, was that he did not think that S&W would struggle and be in trouble very shortly.
    e) Moreover, Professor Snell said in his witness statement that it came as something of a surprise to him to hear that S&W might not have the money to fund a settlement due to cash flow problems and heavy indebtedness since he was getting a very different picture at Board Meetings. He says that he told the Trustees and the legal advisers at this meeting on 11 September 2007 that turnover was continuously improving and that he was hearing at board meetings optimistic reports about the prospect for a sale, although this is not recorded in the note. No-one suggested, at board meetings, that the company was at financial risk or in any financial danger. I accept Professor Snell's evidence about what he was told, what he believed and what he told the Trustees and their advisers.
    f) Professor Youlton is also recorded as saying (as he agrees he did) words to the effect that "In the worst case scenario, the company goes broke". It seems to me that that really captures the flavour of all this discussion; consideration was being given to various scenarios of which the insolvency of S&W was simply one.
    xv) I have carried out this detailed analysis because of the way in which both Mr Hubble and Mr Evans have picked on phrases and sentences here in support of their own cases. It is an analysis which has to be carried out, but it is important not to lose sight of the proverbial wood for the trees. I have read the whole of the attendance note from beginning to end a number of times and read certain pages several times. I have formed the clear overall impression that Mr Todd's advice was sensibly cautious and qualified. Nobody in receipt of that advice would think that his case was other than full of risks; indeed, he would know that Mr Todd's advice was qualified by his reference to the facts about which, to be clear, he knew no more than he was told by his clients. The Trustees knew that they would have a hard battle at trial and could well lose – after having spent a great deal more money and suffered a great deal of delay, not to speak of anxiety.
    xvi) 11.09.2009: I do not find Ms Manson's note of any assistance at all in addressing the perception of the Trustees about the financial position of S&W.
    xvii) 09.2007: I deal with particular aspects of Mr Fredericks' notes in preparation for the meeting in a moment. These notes must be treated with some care when it is sought to derive from them some indication of the difficulties facing S&W. Whatever his notes may say, it is only what he actually said at the Mediation which is relevant in any way to the state of mind of the Trustees concerning the financial state of S&W. A submission that Mr Fredericks notes are indicative of the actual state of the company is one which I view with a considerable degree of circumspection. They were notes prepared by a gentleman for the purpose of advocating the cause of S&W; he would be bound to paint as gloomy a picture as possible within the constraints of honesty.

  506. My conclusion in the light of the above is that the Trustees, going into the Mediation, had concerns about the financial position of S&W but those concerns were essentially about the ability of S&W to meet its financial obligations to them immediately, what has been referred to as cash-flow difficulties. There may well have been a concern, but only a slight concern, that S&W might, as a result of its difficulties, not be able to survive and consideration was given to that worst position scenario. But the Trustees had no reason to think that an agreed settlement of their claims reflecting the strength of their "on balance" legal position could not be met. No doubt the financial position of S&W would be one factor in the decision whether or not to settle, but it would not be seen as a factor of overwhelming importance such as to make the merits of the case irrelevant. In particular, I am satisfied that the implementation of the 2002 Side Letter was seen to be of the greatest importance and that whatever concerns the Trustees may have had about the financial state of S&W, those concerns were not such as would persuade them that they should compromise on obtaining a lease extension under the 2002 Side Letter.
  507. The Trustees' perceptions of the legal merits certainly did not improve during the course of the Mediation; and a fortiori even if they were more optimistic than I think they were in going into the Mediation. Mr Hubble picks on sentences here and there to show that even at the Mediation, Mr Todd's advice was not as pessimistic as Professor Youlton would have me believe. Mr Todd is recorded this way at one point during the late morning: "He finds it extraordinary that there was clear authority for JS to enter into twelve out of thirteen agreements. Why would they know about the lack of authority in relation to only one agreement". I hardly think that a remark of that nature would have led the Trustees to have a different perception of the merits from that which they already had. But to answer Mr Todd's question, Mr Spencer did not have any authority to make any of the thirteen agreements. They were all subject to the escrow arrangement in the 2001 Side Letter. For one reason or another – perhaps by mistake – the Apportionment Agreement was not a document which would put to the board for approval so that, on S&W's case, it never became binding.
  508. Given the preceding two paragraphs, it is necessary for me now to address the question whether anything which took place in the Mediation might have caused a change in the Trustees' perceptions about S&W's financial difficulties to the extent that that factor overwhelmed all other factors surrounding the terms of any settlement.
  509. Let me look, then, at what the Trustees now say were their reasons for settling as they did and how Ms Manson, Mr Todd and Mr Clark saw the matter:
  510. i) Professor Youlton says he was influenced by the weakness on the merits and by the risk about costs. The need to change solicitors following the identification of the conflict of interest was seen as a daunting prospect and was a factor in the decision to settle.
    ii) Ms Manson was not one of the Trustees but had a role in the settlement because Professor Youlton left the ultimate decision whether to settle to her. She says that she saw the merits and costs exposure as important issues and was worn out by the battle. She was concerned about the continuing toll on her husband's health. Her attitude is neatly encapsulated in the following exchange with Mr Hubble, which I accept as an honest opinion of her views:
    "Q. Isn't what was happening that Mr Fredericks was identifying the financial difficulties the company was in; Mr Lyon, who had inside knowledge of the company, was indicating problems with suppliers; and the mediator –
    A. That doesn't mean the company is terminal.
    Q. No, but it means the trustees have to make a decision about whether they accept what's on offer, or push on and risk losing everything?
    A. We weren't seriously going to push on when we were being told we had a weak case and we had Michael Todd telling us it would cost us 700,000 to go ahead. He was advising us against it. So it's very difficult to negotiate when you're actually being told to settle. We couldn't actually have that last card and say "We'll see you in court." That was far too risky."

    iii) Professor Snell thought that the merits, the costs, the need to appoint new solicitors and delay were all important factors in the decision to settle. Three of the four trustees had been waiting for some time to retire and he understood that until settlement was reached (on the Apportionment of costs, the lease extension, the rent review and repairs to the West Wing) it was impossible to value the fund. To his mind it was the uncertainty of the eventual outcome, the costs, the risk of indebting the Fund and putting back retirement by years if the Trustees lost the case which were more important than the ability of S&W to pay, a factor which to him was the least important.
    iv) Mr Wilcox's main concern was that his retirement would be put back for years since there was not a good enough case and the costs were so high.
    v) Mr Todd advised that the settlement terms should be agreed. His recollection as expressed in his witness statement was that this was because of his view of the prospects of success, the cost of taking the matter to trial and recovery in the light of S&W's financial position. It should be noted, however, that his clear advice, as recorded in the first paragraph of the attendance note of the consultation on 11 September was that the case had to settle, otherwise costs would increase and there would be a huge trial (in relation to which the merits were only on balance in favour of the Trustees). For Mr Todd, by the time of the actual settlement, it was a mix of the three factors which I have just mentioned. He accepted that he might have questioned with Professor Youlton that, even if S&W had been in a better position that it was representing, it would have been worth the risks which he, Mr Todd, had highlighted in taking the matter to trial. "That is certainly the sort of advice that I might well have given. The commercial decision is then for the client to take". Sound advice, one might think.
    vi) Mr Hubble, unsurprisingly, wishes to paint Mr Todd's advice about the financial state of the company in the most pessimistic of lights. Thus he says in his closing submissions that Mr Todd gave clear evidence that he considered the company to be in acute financial difficulties both in the long term and the short term. It is true that Mr Todd considered the financial difficulties which he did perceive as long term and short term. But it is clear that he was speaking only of what could be derived from the figures which Mr Fredericks produced: as he said
    "….my recollection was that we could not undermine the figures and that it looked on the basis of the information we were shown as if the company was in acute financial difficulties…..
    ……we didn't have any financial -- I didn't -- I personally didn't have any financial information which I could put to Mr Fredericks to test the information he was giving. So it's just a question of here's a piece of paper setting out figures. Now ask some questions about it. Which is what we did. I didn't have the background knowledge about the way the company was financed in the past, and so it's a bit like not having any material to put in cross-examination. You just do it cold. Somebody says, "This is my evidence" and you've got to try and undermine it without having anything positive to put or to undermine that -- that case. So we didn't have any information -- any figures to put to him and say, "That can't be right, can it? Because."
    vii) Mr Rogers' impression was that the Trustees had no appetite for continuing litigation given the merits, cost and the need for new solicitors. His impression was that the consultation the day before had undermined the Trustees' confidence. He pointed out to the Trustees that losing the case and being liable for costs of £700,000 could easily delay their retirement by years.
    viii) Mr Clark considered that the merits (the company law issues more than the landlord and tenant issues), costs and financial position of S&W were all factors for the Trustees, although the last was not, he readily agreed, a factor for Professor Youlton. Mr Clark's evidence is particularly strong because, in his witness statement, he retracted what he had said in an earlier statement in July 2009 where he had said
    "The settlement was driven by commercial realities as opposed to legal merits. The Trustees obtained the best deal which they were ever going to obtain on the day and it was clear that it would have made no practical difference to the eventual outcome even if there had been no argument at all on the legal issues."
    ix) I would add here that I think it highly unlikely that the Trustees would have settled on the terms of the Settlement Agreement if Professor Youlton had opposed it rather than left the decision to Ms Manson. It necessarily follows that in the hypothetical mediation envisaged by Mr Hubble, there would be no settlement unless Professor Youlton had agreed (which he clearly would not have) or would have left the matter to his wife; I doubt the she would have agreed given her reluctance even to agree these terms at the Mediation itself. I accept, of course, that the Trustees could make a decision by a majority under the Rules of the Scheme, but I find the suggestion that they would positively have opposed Professor Youlton somewhat far-fetched.
  511. In contrast, Mr Haines and Ms Deucher gave different evidence, to the effect that the overriding consideration of all the Trustees was the financial position of S&W. CR rely, of course, on the evidence of Mr Holder, Mr Haines and Ms Deuchar as well as on the written attendance note taken by Ms Deuchar (and the 2008 Note) and to a lesser extent the note taken by Mr Haines. They also rely on what was not said at the Mediation. They rely on all of this evidence to show two sides of the same coin namely that the financial position of S&W was of overriding importance and that the merits of the case were of no significant importance.
  512. As to what was not said at the Mediation, CR say that the merits played little part in the discussion at the Mediation. It may well be that discussion of the merits was not a major focus of the lengthy discussions whether in private sessions or in sessions with those representing S&W. But they certainly were not ignored. That they were not discussed at length or in detail is not surprising. They had been considered at length before the Mediation, particularly in the consultations with Mr Todd and Mr Clark. S&W's advisers had made it clear that so far as they were concerned the Mediation was not to discuss the legal merits but to arrive at a commercial deal. This was also the Trustees' approach as the decision, on advice, had been not to spend a great deal of time on the legal arguments, although as Mr Haines pointed out, it would be necessary to raise some legal arguments in order to explain the strengths and weaknesses of the case. Each side had taken its own advice; the parties' respective positions were well known. There was no point in further debate about the legal merits. It does not follow from that that the merits did not form an important part in the decision to settle (or indeed the terms on which to settle). The decision to settle had been taken before the Mediation started and that, so far as I can see, was a decision based on consideration of the merits, costs and delay, a decision in which the financial state of S&W played virtually no part at all.
  513. The only substantial matters which might have caused a change of perception on the part the Trustees were (a) what Mr Fredericks said in his presentation early on in the Mediation for which he had prepared the speaking notes to which I have already referred and (b) the provision by Mr Fredericks of further financial information to Professor Youlton and Mr Rogers who, together with Mr Todd and Mr Haines (I shall refer to them as the group), went to a separate room for a discussion with Mr Fredericks,
  514. As to the presentation itself, I do not consider that anything which Mr Fredericks actually said would have caused a change of attitude on the part of the Trustees unless supported by something more. It is something more which may have been provided later namely the further financial information to which I have just referred. Mr Fredericks did not say in his presentation (or indeed at all) either that S&W could not afford a large settlement or that it would go into liquidation if it had to pay a large sum. Instead, Mr Evans identifies a specific threat on which he relies which is to be found in Mr Fredericks' speaking notes (the same notes as those on which Hubble relies) namely SW's "capacity to incur any significant [sum] outside its planned trading headroom in the short term". Mr Evans relies on this to show that Mr Fredericks' concerns were about the short-term position of the company. I think that there is considerable force in that and, if I were to take the notes in isolation, that is the conclusion which I would reach. In any event, the notes are certainly consistent with, indeed I think consistent only with, the view that S&W has a long term future but was experiencing immediate financial difficulties. The concern was about S&W's "capacity to incur any significant [sum] outside its planned trading headroom in the short term". Here one sees reference to the short term. And I note Mr Fredericks' choice of the word "incur" in his note. He intends to present the company as taking on a liability for which it is not already liable. I wonder how he would have presented matters if he had been at a meeting where the Want of Authority Defence and the Unenforceability Defence were simply unavailable as arguments.
  515. This view of the notes is consistent with the evidence of Professor Youlton, Ms Manson, and Mr Wilcox. Professor Youlton's evidence was that his attitude had always been that after an initial lump sum, any further amounts could be paid over time – the immediate sum being needed, I repeat, to fund the lump sum which any retiring member of the Scheme would be entitled to receive. Ms Manson's evidence is that Mr Fredericks made it clear at the Mediation that the company had cash-flow problems. And Mr Wilcox was to the same effect – "they said they were having cash-flow problems, or I understand that they were having cash-flow problems, but not that they couldn't afford to pay".
  516. Just as there is nothing in the speaking notes to show that Mr Fredericks was making a direct warning that S&W might be forced into liquidation, there is no evidence that he did so at any other time during the Mediation or that any other person ever gave such a warning on behalf of S&W. Thus Professor Snell was to remark in cross-examination about the final settlement offer "It wasn't can't pay, what do we do? It's, "this is our offer"", evidence which I accept.
  517. As to the provision of further information, I have recorded at paragraph 168 above what little is known about the discussion between Mr Fredericks and the group and what the 2008 Note has to say about what happened when the group returned to the other Trustees. What the 2008 Note could not record is what happened at the discussion: Ms Deuchar did not attend that discussion and no-one else appears to have taken a note. I am satisfied on the evidence that what Mr Fredericks showed the group were two pages, and no more, of financial information namely a draft profit and loss account and a draft balance sheet for S&W for the year end 31 March 2007. No information was given about Snell & Wilcox (UK) Ltd.
  518. There is, in the bundle, a letter dated 29 August 2007 from Ernst & Young to the board of S&W. It is the letter from which Mr Hubble quotes: see the Annex to this judgment under the entry for that date. The letter appears to have had attached to it the two pages which I have just referred to. On the copy in the bundle there appears in manuscript "GIVEN TO TRUSTEES 12/9/07". There is no record in the 2008 Note of copies of either this letter or the two pages of accounts actually being given to anyone in the group. There is no evidence that the documents were in fact provided. Indeed, it is reasonably clear that no-one emerged from the discussion with Mr Fredericks with any piece of paper which he had provided. I am satisfied that none of these documents was actually handed over by Mr Fredericks during the discussion. There is not a hint in the 2008 Note, nor in any other evidence, that any of those documents were handed over later in the Mediation. There is no evidence about who wrote the words on the letter and no evidence, apart from those words, that anything was given to the Trustees on 12 September 2007. My conclusion is that nothing was handed over and that the words written on the letter are not correct.
  519. Nonetheless, it is clear that the two pages of accounts were shown to Professor Youlton and the other members of the group. But whether the letter was shown to them is another matter. Professor Youlton does not remember seeing it. But Mr Rogers thinks it was provided although he concentrated on the two pages of account. I do not think anything turns on this but if it were necessary to decide, I would conclude, on balance, that it was shown to the group.
  520. Only limited information can be derived from a profit and loss account and a balance sheet by themselves. The notes to the accounts form an important part of a Directors' Report; but these were not made available during the discussion although the previous accounts and the notes to them were known to the Trustees.
  521. In relation to what took place at the discussion, the evidence is rather sparse. Professor Youlton's recollection is that Mr Fredericks produced the two pages of accounts. He and Mr Rogers ascertained that of the loss of £5.5 million appearing, £4.7 million was an exceptional item relating to the inter-company balances which I have already mentioned. Mr Rogers confirms this, explaining the exceptional items being writing down of inter-company receivables. He said that the bulk of the liabilities related to preference shares and ordinary bank debt. He said that Mr Fredericks told the group that the company accounts broadly mirrored those of the group. I accept all of that evidence. I also accept what Mr Rogers says when he explains that, when the group accounts were subsequently seen, this broad mirroring was absent: operating profits for the group were £28,000 whereas the company accounts disclosed an operating loss of £3.9 million.
  522. What the group then reported to the Trustees is of importance. I have already set out some of what the 2008 Note records about that including Professor Youlton's statement that "…whatever they do, we need to ensure that they do it [the building], and trade out of their difficulties". I observe that this is not the remark of a person concerned about the imminent collapse of S&W when his remark might then have been "we need cash now because they will never be able to trade out of their difficulties".
  523. Mr Rogers gave evidence which I accept to the effect that although Mr Fredericks had reported that S&W was experiencing cash flow problems, he pointed out to the Trustees after the group had returned, that the bulk of the £5 million loss related to exceptional provision against inter-company receivables and that Mr Fredericks was "quite clearly presenting Snell & Wilcox's financial situation in its most unfavourable light". He remembers reporting to the Trustees the impact of the exceptional items on the profits and losses in S&W's accounts and the different impact on group accounts. I accept that he did tell the Trustees about this notwithstanding that it is not recorded in the 2008 Note. I also accept that more scepticism was expressed at the Mediation overall (both by Professor Youlton and himself) than perhaps a reading of the 2008 Note alone would suggest was expressed.
  524. I have already mentioned Professor Snell's surprise (see paragraph 360 above) at being told of S&W's financial position. Whether he expressed that surprise, I do not know and the 2008 Note does not record him as having said anything. But he says, and I accept that, he had told the Trustees the day before that turnover was continuously improving and that he was hearing optimistic reports. He regarded what Mr Fredericks was saying as so much "smoke and mirrors". It would be surprising if he had not said something. Mr Wilcox recalled him reporting at the board meeting saying there was strong growth and that Advent were going to sell. It may possibly be the case that Mr Wilcox was confusing this with what had been said the day before, but there is no doubt that Professor Snell had told the Trustees about what the board had said. Mr Wilcox confirmed that Mr Fredericks had said words to the effect that Mr Fredericks was putting a pessimistic slant on S&W's financial position. I accept Professor Snell's, Mr Rogers' and Mr Wilcox's evidence on this aspect (save that Mr Wilcox may have his days confused as indicated).
  525. I also accept another aspect of Mr Rogers' evidence concerning his own belief. Notwithstanding that he was actually one of the group which met with Mr Fredericks during the Mediation, he was able to say in his witness statement as follows:
  526. "Having been intimately involved in the Company's financial affairs over so many years I was aware that the Company had a substantial value which far outweighed that represented by the net assets disclosed in the published accounts. At no time did I believe the majority shareholder in the holding company, Advent, would allow this value to be lost."
  527. Mr Rogers' evidence in that regard was not shaken in cross-examination. I accept it.
  528. Professor Youlton says that he repeatedly cast doubt on Mr Fredericks' information. Having seen Professor Youlton for many hours in the witness box, I can believe that if he said it at all, he said it repeatedly. There is no doubt in my mind that he did say it. Mr Todd confirmed as much saying that Professor Youlton's reaction was that S&W was "loading the balance sheet" and expressed "concerns about the reliability of what they were saying". But Mr Todd said that "we could not undermine the figures and that it looked on the basis of the information we were shown, as if the Company was in acute financial difficulties". Two points need to be made which spring from that last observation of Mr Todd. First, effectively, there was a shortage of material on which to challenge what was being said; so that Mr Todd's assessment based on the accounts alone (which would not disclose any of the matters on which Professor Youlton has always relied to indicate the underlying strength of S&W) was pessimistic. Secondly, if the Trustees had not been compelled by the doubts over the validity of the Apportionment Agreement and the 2002 Side Letter to attend a mediation such as the Mediation with a weak legal case, they would have been able to spend time and effort in an attempt to mount an effective rebuttal. Instead, they were forced by the circumstances of the Mediation into the settlement which they made – or if not forced, they in fact entered into it in circumstances where all concerned, including CR, recognise the sense and reasonableness of doing so. Mr Todd said that Professor Youlton was very much more robust (than, I think Mr Todd himself) in rejecting what S&W was saying about its finances. Professor Youlton, in his witness statement, explained why he thought S&W was worth tens of millions of £s and why it was inconceivable that Advent would allow S&W to be wound up for the sake of £2-3 million. To similar effect, Mr Clark's recollection was that Professor Youlton was "adamant that the Company's stance was a "try on"". Whilst Professor Youlton's view may have been rather more robust than caution would suggest was appropriate, it is one, I accept, that he expressed.
  529. The next aspect of importance is the meeting which Professor Youlton had alone with Mr Fredericks. I have already dealt with this at length at paragraphs 194 to 207 above and do not need to say anything more about it. I have also described the take-it-or-leave-it offer which followed that meeting and the differing attitudes of the different Trustees to it. Mr Lyon had the most pessimistic view of the finances of S&W but he was only one of four Trustees who would need to decide whether to accept the offer or not.
  530. Having reviewed all of the evidence, I have reached the firm conclusion that the financial difficulties facing S&W were not of such overwhelming importance in the decision of the Trustees to make the Settlement Agreeement as to sideline altogether the other factors. The financial position of S&W was I am sure one, but only one factor in the decision.
  531. However, in my judgment, it would have been unlikely, indeed highly unlikely, that the Trustees would have settled on the terms which they did if the Apportionment Agreement and the 2002 Side Letter had been clearly valid and binding agreements even assuming that this issue were being judged in the context of the Mediation or a mediation anything like the Mediation. I must repeat: it is, as I have already said, difficult to imagine how a mediation anything like the Mediation could have come about absent the Want of Authority Defence and the Unenforceability Defence. The Mediation is the wrong starting point.
  532. If I am correct in that judgment, then taking the correct starting point as discussed at length earlier in this judgment, the same result follows; it is an a fortiori case. But suppose I am wrong in my assessment so that the settlement at the Mediation was driven by the financial situation as presented by Mr Fredericks and was regarded by the Trustees as of a very serious concern, so serious as to be the dominant driver. What then follows?
  533. What follows is that one must start from the correct starting position so as to ask, and then answer, what would have happened if the Want of Authority Defence and the Unenforceability Defence had not been available. I have carried out the major part of the exercise necessary to answer that question at paragraphs 382ff above.
  534. As to the 2002 Side Letter, summary judgment would have been obtainable. There is a remote argument that delay on the part of the Trustees would disentitle them from specific performance but, if so, they would have had a clear damages claim. It must be very unlikely that S&W would have preferred a money judgment and the likelihood must, I think, be that it would not have forced the Trustees to court at all but would have executed the extension lease. The Trustees might, of course, have settled their claim in order to avoid litigation and in recognition of cash-flow problems which might indicate that a postponement of any rent review should be agreed. It is difficult to see why the Trustees would have accepted proposals which were of any significantly less value than that to which they should have been clearly entitled.
  535. As to the Apportionment Agreement, summary judgment even on the Interim Award might have presented a problem. As to that, I have expressed the view that the Trustees probably would have been able to enforce the Interim Award, but even if that is wrong, they would know that, in due course, they would receive the entirety of the Interim Award together with whatever sum they would be awarded on the final award. Although Mr Evans says that the Trustees had good reason to think the total award (Interim and final) would exceed £2.5 million, I cannot agree with that. The figure is something under £1.5 million as will appear when I consider the money claim under the apportionment Agreement when dealing with quantum. They would have no reason to settle their claims for significantly less than they were worth although it must be accepted that, faced with a refusal of S&W to pay or to allow the surveyors to continue with their task, litigation would be necessary.
  536. However, in deciding how to proceed in relation to the Apportionment Agreement, the Trustees would need to decide whether to sue immediately on the Interim Award and for relief to compel S&W to provide necessary assistance to the surveyors, or to await the final award before taking action, or to negotiate some sort of deal. Factors in the decision would have included (i) the merits of the claim (clearly from a purely litigation aspect, an action brought after the final award had been made would be bound to succeed, whereas a summary judgment application on the Interim Award would be more problematical) and (ii) the financial position of S&W. As to the second of those, the Trustees would have been able to, or at least to attempt to, obtain fuller financial information than was made available by Mr Fredericks and, importantly, would have had time to consider and to test it. Instead of the high-stakes poker at the Mediation, the Trustees would have been able to play a more open game and able to make their case in a way which they could not do at the Mediation, and to obtain a clear explanation, if one could be given, why Advent would not in fact continue to support S&W if the Trustees insisted on pushing their claim.
  537. There should not be overlooked, of course, the position of the Scheme. Having obtained a proper increase in the value of the Property by grant of the lease extension, and thereby of the major asset of the fund, the concerns about the financial position of the Scheme would have been perceived as less serious. Nonetheless, the Trustees would still have had need for some cash to facilitate impending retirements. That might mean that there was a commercial deal to be done between them and S&W under which S&W would obtain immediate payment of some cash in return for a reduction in its overall obligations under the Apportionment Agreement. But, assuming for the moment that there were no concerns at all about S&W's ability to pay, it is inconceivable that the Trustees would have agreed what they actually did agree especially bearing in mind the real legal merits which they would have in a claim for immediate payment of the Interim Award.
  538. Nonetheless, there would in my judgment, have been some impact on the Trustees behaviour of the financial problems facing S&W. Although the Trustees would have known – Professor Youlton would have got this home to them – the commercial imperative for Advent to obtain a return to its investors within the next couple of years, the Trustees too had their own commercial imperatives, the grant of the extension lease and the obtaining of immediate cash. Whatever their views about the underlying strength of S&W, it could hardly be disputed that it was facing what Professor Youlton would call cash flow difficulties. I shall assess the impact of that when dealing with quantum.
  539. In any case, the Trustees would know, as I have said already, that in the end, they would be entitled to recover the Interim Award and any final award in full even if litigation were needed to enforce recovery (a straightforward action once the final award had been made). It would come down to a question of timing. Sooner or later, therefore, the Trustees would have been paid out. Mr Hubble would not agree. He says that, in the light of all of the disputes between the parties and the "difficult" character of Ms Proudlock, Professor Youlton's contention that matter would have been straightforward but for the Unenforceability Defence and the Want of Authority Defence "simply does not accord with the reality of the situation". I agree that it might not have been entirely straightforward, but if it suggested that the Trustees' negotiating position would thereby be no stronger than it actually was, I must disagree which I do for two reasons. First, as I have already said in different words, there is no reason at all why the recognition or enforcement of the Trustees' rights under the Apportionment Agreement should be linked in their resolution to other areas of disagreement between the parties; secondly, Ms Proudlook could be as difficult as she liked but faced with counter-parties who had clear and enforceable contracts rather than ambiguous and possibly void contracts, her room for manoeuvre would have been rather less than it was.
  540. In my judgment, therefore, the position of the Trustees if the Apportionment Agreement and the 2002 Side Letter had been valid would have been very different from their actual position. The factors, other than the financial state of S&W, which compelled the actual settlement would have been largely absent. I reject the proposition that the financial difficulties facing S&W would have led the Trustees to a course of action, in and after May 2006, which would have resulted in a recovery under the Apportionment Agreement as low as that obtained or an extension lease other than on the terms of the 2002 Side Letter and excluding a rent review in 2004. There is no reason to think that the Trustees could not have achieved an end result under which they received, probably by instalments, a significant part of what ought to be due under the Apportionment Agreement and no reason to think that they would not have achieved an extension lease in the terms of the 2002 Side Letter.
  541. In carrying out the above analysis, I have not overlooked settlement proposals which were put forward in January and May 2006. Quite the reverse: they form an important part of my eventual conclusions.
  542. I start with the offer made by the Trustees on or about 19 January 2006 made at a time, it needs to be remembered, after Mr Clark had given his "on balance" advice about the 2002 Side Agreement but before the Want of Authority Defence had been raised. I have set out the terms of the proposal at paragraph 118 above. As I have noted, the recital states that full compliance with its obligations "at this time" would place S&W under "intolerable financial pressure". That language is at least as consistent with the need for a breathing space as it is with the need for the Trustees to forego for ever some value. The attempt had been to reach a compromise where "the interests of the [Scheme] could be protected while giving the company clarity and certainty with regard to its current and ongoing obligations". One area of uncertainty which had been identified by then was, of course, the validity of the 2002 Side Letter. Another was the scope of the "put and keep" clause and the scope of S&W's obligations in relation to dilapidations. Another was the implementation of the Apportionment Agreement and liability for payment of the Interim Award.
  543. It can be seen that the proposal went considerably beyond dealing with the 2002 Side Letter and the Apportionment Agreement. Indeed, the proposal identifies the 2002 Side Letter, the Apportionment Agreement and the dilapidations schedule which had been served in October 2005 and then goes on to say that S&W and the Trustees "are prepared to consider trading" full completion of the Apportionment Agreement and the works required under the "put" clause of the lease for the elements of the proposal which I have identified at paragraph 118 above. This is not language of a party (the Trustees) who thinks that it is giving something up for nothing. Rather, each side needed something which the other could give:
  544. i) S&W needed to reduce its immediate exposure being under "intolerable financial pressure" if it had to meet all of its obligations "at this time". Those obligations included not only its financial commitment under the Apportionment Agreement but also its liability in relation to dilapidations as well as its (apparently disputed) obligation to put the West Wing into a state of good repair. I am not sure that S&W would, if push had come to shove, actually have disputed its obligations in relation to the West Wing, but it said that such an obligation was never intended and was making noises about rectification.
    ii) The Trustees wanted as long an extension lease as possible in order to maximise the value of the trust fund of the Scheme. It was perceived that the Property with the benefit of a lease with a reasonably substantial term would be more valuable than the Property subject only to the Lease. The reason this increase in value was wanted was not just for its own sake – the Trustees could probably have waited for that – but was to maximise the value for tax purposes in the light of the complex provisions relating to tax-free lump sums and other matters. They also needed some cash up-front in the light of the wish of three of the Trustees to retire in the short-term. It should be noted, however, that the Trustees were content with payment (with interest) over 5 years. That, together with the rent, would be the only immediate cash so that in year 1, the Trustees would receive no more than £120,000.
    iii) This, then, was a package. It would not be right to focus on the proposal in relation to the Apportionment Agreement in isolation and to say that the Trustees were prepared to settle their claim under that Agreement for the amount of the Interim Award.
  545. Mr Hubble submits that the Trustees proposals were not significantly influenced by the Unenforceability Defence, pointing out that the Want of Authority Defence had not yet been raised and saying "Indeed, in making these proposals the Trust sought not just the lease extension to 2017 provided for by the 2002 Side Letter (to which it seems the Company was amenable) but an extension to 2021."
  546. Why it follows from "Indeed….." that the Trustees were not influenced by the Unenforceability Defence, I do not understand. Their negotiating position, reflected in an email to Mr Fredericks of 26 January 2006, was, unsurprisingly, that the 2002 Side Letter was valid; from that they were prepared to trade full completion of the Apportionment Agreement and their rights under the "put" clause [ie to put the West Wing into repair] for a longer lease extension. This says nothing about what their actual concerns in relation to the Unenforceability Defence might have been. They had Mr Clark's opinion giving them only an "on balance" prospect of success and it is not open, in my view, to Mr Hubble to seek to dilute that advice by reference to the minute of the Trustees' meeting on 8 December 2005 when that advice was reported by Professor Youlton as "this was a valid contract and should be enforceable".
  547. By April 2006, however, Professor Youlton seems to have hardened his stance. He and his team were considering their strategy and tactics to a proposed settlement meeting. Mr Clark has drafted a proposed position statement covering the Lease, the extension lease and the Apportionment Agreement. The final paragraph of his draft suggested that the Trustees would expect S&W to adhere to the 2002 Side Letter in exchange for flexibility over the repairing obligation and the Apportionment Agreement in relation to which the draft stated that the Trustees would be prepared to negotiate over the extent of S&W's liability and to agree a ceiling. As part of his response to that, he said this:
  548. "With regard to trading anything for the Lease Extension which by right they are obliged to sign anyway, seems to be greatly disproportionate. We are trading something which is arguably already our right, for what?....."
  549. That shows more confidence, perhaps, in the Trustees' case than Mr Clark's advice would justify. But it recognises that the Trustees' position was not certain ("arguably already our right").
  550. Mr Hubble says that in all the circumstances, the conclusion to be drawn is that the Trustees' proposals in January 2006 reflected the genuine commercial position at that stage and the existing issues between the parties as to the "put and keep" clause, dilapidations, the renovations to the West Wing and so on, and was not materially influenced by the Unenforceability Defence (nor, of course, the yet-to-be-raised Want of Authority Defence). I think it is broadly correct to say that the proposal reflected the commercial positions of the parties – as I have explained, the January proposals were viewed as a trade – but that is not to say that the Unenforceability Defence was not in mind although it probably played very little part in the formulation of the proposal. But equally, I would add, the financial state of S&W was taken into account in the sense that the Trustees recognised that immediate fulfilment of all S&W's obligations would present it with very severe problems. The proposal is not really consistent with a serious concern on the part of the Trustees that there was a real risk of imminent collapse: if there were such a risk, the proposed insurance would be unobtainable and the proposal would not be able to proceed.
  551. In any event, the January proposals were superseded by the meeting on 4 May 2006 to discuss compromise. I do not consider that the January proposals have the importance, or can carry the weight, which Mr Hubble would attach to them and have them carry given that they were superseded. Of more relevance are the proposals made by the Trustees on 16 May 2006 considered at paragraph 131 above.
  552. These, like the January proposals, were made at a time before the Want of Authority Defence had been raised. At this stage, Professor Youlton was willing to take £920,000 in settlement of the claim under the Apportionment Agreement - £420,000 more than was obtained at the Mediation. Although this is not stated, S&W would still have been under the same "intolerable financial pressure" as in January. Equally, although this is not stated either, it can be seen that the proposals are a trade in much the same way as the January proposals. Nonetheless, viewing the proposals in relation to the Apportionment Agreement in isolation, it might be argued the amount of £920,000, plus the Trustee's further costs of say another £270,000, is all that the Trustees' claims were worth so that their loss was only about £690,000 (plus some interest).
  553. Mr Evans submits that this suggestion would be wrong. He says that the apparent concession in relation to the Apportionment Agreement was part of a larger package of proposals. The package included a resolution on the issue of repairs, agreement on a rent review as at 2006 at £450,000, and a lease to 2021 (longer than the lease under the 2002 Side Letter and an important issue in the light of the effect on the value of the Property). Professor Youlton has given in his witness statement an explanation of the various components of the proposal. Without necessarily accepting for the moment the importance which he attached to each element of the proposals and the way in which he perceived the Trustees' weaknesses, I accept his description of the package and how it was seen as a trade-off in relation to the various elements which were of importance to the Trustees. He put a value of £4 million to the Trustees on the whole package (including, of course, the beneficial effect which having the lease extension to 2021 would have on the value of the trust fund of the Scheme). He was not challenged on that figure (which should not be taken at this stage as acceptance by me that the figure is realistic). Indeed, in his email dated 27 April 2006 to Mr Haines, he was keen to ensure that S&W were aware of the scale of the claims against them, he had previously mentioned the figure of £4.3 million but as he said "it's a judgment call but I would not want the other side to be shocked at the meeting".
  554. These are very much the same reasons as I have considered in relation to the January proposals. I will not repeat what I said; my observations apply equally here. I do, however, add this: there was from the Trustees' perspective a need for a reasonably speedy resolution of these issues in the light of the need (i) to value the fund at as high a level as possible and (ii) the need for cash in the light of impending retirements. The delay factor was even more critical some 16 months later when the Mediation took place. It is not surprising therefore, that the level of settlement would be smaller at the later time even if other things were equal.
  555. I agree with Mr Evans that these considerations render the £920,000 figure, which is to be derived from the May 2006 proposals, an unreliable indicator of the value of the Apportionment Agreement and the 2002 Side Letter to the Trustees.
  556. There is one discrete point which Mr Hubble raises which I can deal with at this stage as easily as anywhere else. He says that it is important to keep in mind that, even absent the 2002 Side Letter and Apportionment Agreement, the Trustees would still have had (a) rights under the Lease to rent reviews, and (b) a restitutionary claim for money paid under a mistake ie expenditure on the works to the West Wing. Mr Hubble is right in relation to the rent review, although it must be remembered that the Lease would expire in 2010 and there were concerns that S&W would vacate the Property. Mr Hubble has made forceful submissions about how difficult and complex the Trustees' claims generally were in an attempt to squash the suggestion that the Trustees would have been able to obtain summary judgment on any issues. Of all the claims which the Trustees might have made, I would have thought that a claim in restitution presented the highest hurdle. I think that Mr Clark himself, in the Mediation, recognised this when he explained
  557. "We need to show we were mistaken. The documents do not show this. The documents say the trustees were paying. We need to show a change of mind."
  558. In any case, the strength of the restitutionary claim was part of the assessment of the strength of the Trustees claim in general by Mr Clark at the Mediation and his views on the merits were certainly not that the Trustees had a strong fall-back case.
  559. I have already dealt with most of the arguments in each direction relating to cash flow and Professor Youlton's evidence that his only financial concerns were about cash flow. There are, nevertheless, some points which Mr Hubble makes which I have not dealt with or which need re-emphasising.
  560. i) Mr Hubble observes that much is made of the fact that, subsequent to the mediation, S&W was the subject of refinancing and arguments about the actual financial position of S&W, rather than the position as perceived by the Trustees (and their advisors) at the Mediation. He clearly implies that the perception, rather than the reality is what is important. He is right to say that in relation to what took place at the Mediation and whether it was right to settle on the basis which was eventually agreed. But, for reasons already given at length, the Mediation is not the right starting point. If one asks the correct question – What would the Trustees have done if the Apportionment Agreement and the 2002 Agreement had been clearly valid? – then, although it is necessary to focus on what the Trustees would have perceived in this hypothetical world, what they would have perceived is likely to have been informed by reality and certainly more informed and challenged that was the case at the Mediation.
    ii) Professor Youlton relies on the fact that S&W was able to refinance in 2007. Mr Hubble says that it paid dearly for Advent's £4.5 million guarantee, being charged some 20% (ie. £900,000) per annum; but the really significant evidence on this aspect comes, he says, from Mr Fredericks' August 2007 Management Accounts (produced pursuant to CR's witness summons shortly before trial) which show an increase of net debt of £1,406,000 as against a budget of only £952,000. Those management accounts relate, however, to Snell & Wilcox (UK) Ltd not to S&W. It is not possible to be confident in any respect about what these management accounts tell the reader about S&W. There was, in any case, this exchange between Mr Hubble and Mr Rogers:
    "Q. [the increase in net debt] at the same time suggests that the company was performing worse than its budget?
    A. That's what you would draw from those figures. They're for five months. What I do know about this business is that it is often the sales are driven by large contracts and they can come in at different parts of the year, and it is very difficult to predict when they will come in. So you can have a slow start to the year and then you can have things pick up later on, with large contracts coming through, and that may well be why they were behind on the budget at that time. What I do know is that when you look at the year as a whole, that their figures were growing on the previous year and that they were reporting operating profits as well."

    That timing point is well-made by reference to the budget figures. For the period to date, the budget was £952,000 whereas the budget for the full year was only £166,000.

    iii) Mr Hubble refers to S&W's tax loss of £75 million. Ignoring the possibility of group relief (which was not available because no group company had profits against which to offset the loss in any given year) such a tax loss is only valuable if a profit is subsequently generated against which it can be set off. Mr Hubble says that this was something that S&W failed to do to any material effect; although I note that the most recent accounts, which were introduced after the hearing had finished, show that such setting-off is taking place. He also says that Professor Youlton was aware of this at the time of the settlement and accordingly any effect which it had on his perception of the financial position of S&W must be taken to have been taken into account in the Trustees' decision to enter into the settlement on the terms agreed. I do not know if Professor Youlton's knowledge of tax at that time was such that he realised that this loss was available and if so how use could be made of it.
    iv) Much of the debt on the balance sheet relates to preference shares, with dividends/interest being rolled up as S&W did not have distributable profits out of which dividends could be paid; but that does not affect the reality of the position, namely that S&W and Snell & Wilcox (UK)) were in acute financial difficulty. I think I have said enough in this judgment about that aspect already.

    Quantum

  561. In the present case, issues of causation and quantum merge into each other. Some of what follows might be seen as fitting more properly into causation rather quantum. It makes no difference to the result. I have already dealt at some length with the question of what the Trustees might have done if the Want of Authority Defence and the Unenforceability Defences had not been available. In order to assess the Trustees' loss, I have to compare what they might have achieved with what they actually achieved. And in assessing what they might have achieved, and the value of what they might have achieved, I must take into account the impact which the financial position of S&W would have on what the Trustees would or could otherwise achieve.
  562. It seems to me that the convenient starting place is to examine what the position would have been if, counterfactually, there had been no concerns whatsoever about the financial position of S&W and no basis for any concerns. In case Mr Hubble says that that is putting the cart before the horse (because he would say that there is no loss in the first place and therefore no claim) I would respond that it is only possible for me to judge what the Trustees would have done in this hypothetical scenario if I have an idea of what it is that the Trustees would be giving up in settling the dispute on the terms which they did. It is only with that information that I can assess whether the financial situation of S&W, because of that the Trustees would have been forced to settle on those terms even with valid Agreements in their hands.
  563. I take the 2002 Side Letter first. There are two elements to the claim, a rent claim and a loss of sale claim.
  564. The rent claim arises from the premise that, had the 2002 Side Letter been valid, there would have been rent reviews in March 2004 and March 2009. It is said that although ultimately a lease to 2017 was entered into, the opportunity to have the rent review in March 2004 was missed, and that caused loss because the rent would have been reviewed, as at March 2004, in the sum of £450,000 (a figure including rent for the West Wing).
  565. In the context of rent for the West Wing, it is, I think, important to understand that the dispute was not essentially one about the 2002 Side Letter; it was really a dispute about the Lease. A question would arise under the Lease, ignoring altogether the 2002 Side Letter, whether, on a rent review, S&W was prima facie entitled to have the rent fixed on the basis of a full market rental assuming the West Wing was in good repair or whether prima facie it was not entitled to any rent until the next review. If the former, S&W could argue that the rent was suspended until the West Wing was actually available for occupation after refurbishment. If the latter, the Trustees could argue that rent should begin to be payable once S&W were able to take beneficial occupation after refurbishment.
  566. The 2002 Side Letter does not alter the nature of the problem. A change in the pattern of the rent reviews as envisaged by the 2002 Side Letter would not have changed the basis of the rent review. Accordingly, even if the 2002 Side Letter had been clearly valid, this issue would still have arisen.
  567. The most that the Trustees can say, therefore, is that they have lost the opportunity of negotiating a settlement of the rent review issue against the background of a valid 2002 Side Letter. Had the 2002 Side Letter been valid they would at least have had a chance of obtaining such a rent review. I consider that the right approach is to assess the chance of success and to assess damages on the basis of the loss of that chance.
  568. In paragraphs 103 to 156 above, I have set out the way in which rent was ascertained. It can be seen that it was not until December 2004 that anybody considered the point whether S&W was obliged to pay rent on the West Wing. S&W were not, at that time, paying such rent and had never done so. At the beginning of 2005, Ms Short of CR advised that the Lease drew no distinction between different parts of the Property and that rent was therefore due.
  569. The Trustees do not seem to have acted on this advice by insisting that the current rent review must reflect rent on the West Wing. There is evidence which suggests that any rent review would in fact have been on the basis that rent would not be charged for the West Wing. Thus on 22 July 2005, Professor Youlton sent an email to Ms Short that the Trustees were willing to drop the point provided that the RPI provision remained in the rent review and amendments proposed by S&W to the repairing obligation were dropped. The point was not raised or taken into account by Mr Rogers when he emailed Ms Short on 27 July 2005 to inform her of the revised rent. Then there is the Minute of the Trustees' meeting on 29 July 2005 (as to which see paragraph 107 above). As Mr Rogers confirmed in cross-examination, the Trustees, in July 2005, decided to proceed under the old lease at £354,000, that is to say a figure taking no account of the West Wing. Mr Young in his evidence, in cross-examination, expressed the view that £353,000 as at March 2004 was the open market rental leaving out of account the West Wing.
  570. Two things are in my view clear. The first is that at least until the end of July 2005, the fact that the 2002 Side Letter had not been implemented had nothing to do with any alleged negligence on the part of CR; nor did it have anything to do with its potential invalidity. The second is that if the 2002 Side Letter had been implemented and if the 2004 rent review had been operated by that time, the rent would have been fixed on the basis that the West Wing was excluded.
  571. But then matters became more confrontational. On 30 August 2005, S&W withdrew unilaterally from further discussions about implementation of the 2002 Side Letter and on 16 September 2005 it was claimed for the first time that the 2002 Side Letter was invalid. This no doubt caused the Trustees to reconsider their position on all issues. One sees, for instance, in the January settlement proposals, that one of the items which Professor Youlton sought was an increase in rent of £96,000 pa "for the West Wing and Office rental rates….." for a revised rent of £449,000, a figure reflected in the May 2006 proposal of £450,000 as of March 2007. In the conference on 5 April 2006, Mr Clark advised that the rent review clause required the surveyor to determine a market rent of the whole premises and should assume that the property is occupied and in good repair. He recognised that S&W would "no doubt argue that the Trustees had taken over the West Wing for refurbishment and therefore no tenant would take it over". He did not – I may have missed it in the note of conference – mention the possibility of rectification which had been mooted by S&W at one stage. This, then, was another fertile area for disagreement, possibly giving rise to complex disputes of fact and law.
  572. It seems that S&W had recognised by the time of the Mediation that the Trustees were correct as a matter or interpretation of the Lease. Whether it also accepted that it was bound actually to pay the rent before occupation could be given to it is a different matter. Be that as it may, the 2007 rent review agreed as part of the settlement did reflect rent on the West Wing and the 2009 review would need to do so as well. But the settlement did not reflect the 2002 Side Letter which, properly implemented, would have provided for a rent review in March 2004.
  573. Mr Hubble submits that, in all of the above circumstances, the rent claim must fail. It fails in relation to the 2004 rent review because, as he submits and I have held, the rent on that review, if it had actually been operated in 2004 or 2005 (at least up to August), would not have taken the West Wing into account. He puts it attractively in this way:
  574. "The fallacy in the rent claim is, assuming that because one waves a wand as soon as you start doing causation, you can go back in time and say: well actually the rent review in March 2004 would have included the west wing, would have included the other buildings on the site, and they would be treated as being 'rentalised' for the purposes of the rent claim."
  575. I accept, of course, that I must take into account the rent which would have been agreed if the rent review had actually been carried out and completed prior to the end of July 2005 and assuming that the 2002 Side Letter had been implemented. But just as CR are entitled to point to the reality of what would have happened, the Trustees are entitled to look at what actually happened before the validity of the 2002 Side Letter was brought into question. We know that the Trustees and S&W could not reach an agreement and that the Trustees could not, in fact, obtain implementation of the 2002 Side Letter for reasons which had nothing to do with its invalidity. Accordingly, even if the 2002 Side Letter had been valid, the Trustees would have found themselves in August 2005 with no extension lease and no variation of the rent review pattern.
  576. It is therefore necessary to look at what the Trustees might have done finding themselves in that position. We know that they did in fact raise the issue of rent on the West Wing once matters had become more confrontational as a result of the allegations concerning the validity of the 2002 Side Letter, including it in their proposals in January and May 2006. I see no reason to think that they would not have raised the point with S&W moving forward from August 2005 even if the validity of the 2002 Side Letter had never been questioned. There would, therefore, have been a chance that the Trustees would have reached a settlement of the dispute over the 2002 Side Letter under which a rent review in 2004 was obtained recognising the entitlement of the trustees to rent in respect of the West Wing. It is no answer to that for CR to say that, had the review as of March 2004 taken place in 2004 or early 2005, the rent would not have taken account of the West Wing any more than the fact that the actual settlement at the Mediation took account of the West Wing in respect of the 2007 review is conclusive in favour of the Trustees. I have to consider the position as it stood once the Unenforceability Defence was raised, at which point the reality diverges from the hypothetical.
  577. There was, by parity of reasoning, a chance that the Trustees would not have achieved any rent review at all, although I think that that chance is so small as to approach disappearing point. But there was a real chance that, in a compromise, a rent review as of March would be agreed but that it should operate only from the date of the compromise or perhaps from the date when beneficial occupation was eventually afforded. Thus, if a compromise had been reached in say October 2006, the increased rent would run from that time until the 2009 review at the level reviewed as of March 2004. Although this is the logical approach, it adds a layer of complexity which is not a proportionate response to the exercise which I have to carry out. It adds more artificiality to what is already an artificial process making my task almost impossible to complete. I propose simply to assess a percentage chance of achieving a rent review including the West Wing with the increased rent being payable from the review date in March 2004 and to reflect, in that percentage, an allowance for the chance of the increased rent running from some later date.
  578. I have talked of chance in the preceding paragraphs. This part of the case is not to be decided on a balance of probabilities. The question is not whether, on a balance of probabilities, the Trustees would have succeeded in obtaining a rent review as of March 2004 taking into account the West Wing prior to the time when S&W was able fully to occupy it.
  579. Rather, I have to assess whether the Trustees had any chance, and if so the level of that chance, of achieving that result (or some midway point between that and no review at all) either by way of agreement or by litigation.
  580. In my judgment, the Trustees would, absent any financial concerns about S&W, have had a real, and not a fanciful, chance of obtaining a rent review as at March 2004 which included rent in respect of the West Wing in respect of that review (and subsequently for the 2009 review). In the events which happened, S&W withdrew from the lease extension altogether at the end of August 2005. Although no justification was given at that stage, it is not unreasonable to think that S&W had been looking around for a legal excuse for their decision since it was less than 3 weeks later that Blake Lapthorn Linnell asserted that the 2002 Side Letter did not give rise to a binding agreement. It must be doubtful that there would have been a total withdrawal from the 2002 Side Agreement if there had been no hint of a legal justification. It seems to me that there was high probability that there would be a lease extension. But whilst there is no reason to think that there would have been no rent review at all as of March 2004, there would have been resistance to that review including rent for the West Wing. The Trustees did, however, have a chance of obtaining such a review.
  581. I will come to the actual assessment of the percentage of that chance in a moment. But before I do that I want to state my conclusion about how the financial circumstances of S&W might have impacted on the percentage. In my judgment, they would not done so at all. I will explain why this is so when addressing the same question in relation to the Apportionment Agreement at paragraphs 511 to 527 below.
  582. Mr Hubble submits, as I have already recorded, that the dispute between the parties on the 2002 Side Letter would have found its way to a single mediation in which the 2002 Side Letter would be but one element of wider disputes including the validity of the Apportionment Agreement, the dilapidations claim and the "put and keep" covenant. That, of course, would have been one possible outcome and I take account of that, and of what might have happened at such a hypothetical mediation, in reaching my overall conclusion.
  583. I consider that, taking all of these factors together, and taking the view that the financial circumstances of S&W would not have affected this part of the claim, there was a 40% chance that the Trustees would have obtained a rent review as of March 2004 which reflected an obligation to pay rent in relation to the West Wing. This percentage reflects the possibility of a review operating from a date later than March 2004 as explained above. Had it actually succeeded in that objective, the total rent payable from the March 2004 review date to the 2009 review date would have been of a certain sum (call the rent £R1pa making a total of £5R1). The total rent actually paid in respect of that period including the additional rent achieved on the 2007 review I call £TR. Accordingly what the Trustees have lost, ignoring any interest, is £(5R1 – TR). Applying the percentage chance of succeeding in their claim to that figure, the measure of the Trustees' damages is 40% x £5R1 –TR). The figure for £R1 is not agreed; its ascertainment has been left over pending my decision on the point of principle.
  584. The Trustees' claim in relation to the period after the March 2009 review date is for the difference in rent between what is actually payable (£440,000 pa) and what should have been payable if a review in March 2009 had been available. This loss runs until March 2012, the date of the next review. This claim has as its starting point a rent review in 2009 based on an RPI increase to the rent at the March 2004 review. Let me define £R3 as £R1 increased by RPI over that period. However, since there was only a 40% chance of the reviewed rent in March 2004 taking account of the West Wing (this is the £R1 figure), there is only that same percentage chance of £R1 forming the base rent for the application of an RPI increase at March 2009. No alternative claim is made, and it has not been suggested, that a higher figure in March 2009 than the rent actually payable (£440,000) would be reached by applying RPI to the actual rent payable in March 2004 (or pursuant to a (notional) review in March 2004 ignoring the West Wing). Accordingly, the claim is for 3 years' rent at 40% of the difference between the rent reviewed in March 2009 (ie RPI on £R1 over the period March 2004 to March 2009) and the actual rent (£440,000 pa).
  585. In my judgment, therefore, the result is Professor Youlton is now entitled to recover 40% of £(5R1 – TR) and 40% of £(3 x (R3 – 440,000))
  586. The other claim under the 2002 Side Letter is pleaded this way:
  587. "As a further result of the 2002 Side Letter, if properly drafted and executed, the Trustees would have been able to and would have raised monies in or about 2006 by selling the Property, alternatively using the extended Lease as security. They are no longer able to do so, or do so on satisfactory terms, by reason of (a) the fact that the remaining term of the Lease (as extended) is 9 years (in 2007) not 11 (in or before 2006; and (b) the fall in commercial property prices. The Trust has lost about £1.2m as a result thereof, but claims only £386,000 representing the difference in value between a lease with 11 and 9 years remaining."
  588. I consider that this claim is unsustainable on the evidence for the following reasons:
  589. i) There would not have been a sale unless and until the extension lease had been granted. There was no attempt to sell the Property prior to late August 2005 when the validity of the 2002 Side Letter was first challenged. Quite clearly it would have made no difference to that even if the 2002 Side Letter had been properly drafted.
    ii) The term of the extension lease was to expire in 2017 under the 2002 Side Letter. The extension under the settlement agreement did precisely that although by the time of the Mediation, it was over 5 years after the date of the 2002 Side Letter and only something over 9 years was left to run.
    iii) It is part of Professor Youlton's case that, if the 2002 Side Letter had not been defective, the Trustees would before the end of 2007 have achieved the grant of the extension lease and successfully marketed and sold the property. I say the end of 2007 because Mr Evans adopts this date in his closing submissions when he says that no sale was possible after 2007.
    iv) In this scenario, the Trustees would have had to persuade S&W as part of some compromise to take the lease extension or to have obtained an order for specific performance with that order being completed. They would then have had to market the Property. And they would have had to find a buyer and exchange contracts. Even assuming that, absent the possibility of asserting the invalidity of the 2002 Side Agreement, S&W would eventually have agreed to take the lease extension, that clearly would not have happened for some time after the end of August 2005. It would have been highly unlikely, I consider, that the lease extension would have been completed before Easter 2006.
    v) Let it be supposed, then, that the Trustees had granted the lease extension by the beginning of April 2006. That would leave the following problems facing them:
    a) First, the dilapidations issue. There were significant dilapidations in respect of which a schedule had been served on S&W. There was also the problem of the West Wing which was in a state of disrepair. There was a real dispute about whether the "put" part of the "put and keep" covenants could be relied on however strong the Trustees might have perceived their case on this. These issues would have to be revealed to a purchaser.
    b) Mr Evans accepts that the dilapidations would have damaged the value at any time but says that even if they had not been rectified, that in itself would not prevent a sale. Indeed, Mr Young acknowledged unsurprisingly that to get best value one would need to complete the Works to the West Wing and to ensure that the dilapidation schedules were dealt with. No doubt Mr Evans is right in that these matters would not prevent a sale: a "fire sale" is always possible and forced sales often occur in the real world where lenders seek to enforce their securities. But in the present case, I find it very unlikely that the Trustees would have sold the Property without these matters having been resolved at the very least by making sure that the West Wing was watertight and that, if not actually dealt with, the dilapidations would be dealt with in a way satisfactory to a purchaser. These Trustees were never, I think, going to sell their major asset at an undervalue.
    c) The Trustees themselves were not going to invest further in improvements particularly completion of the West Wing. Probably they could not afford to do so, but their attitude is demonstrated in the minutes of their meeting on 8 December 2005:

    "6. Southleigh Park further investment
    The meeting was informed that no further investment was sensible until the dilapidations issue had been addressed. If the Trustees were to expend money on the property without following the process set out in the lease then this would compromise their position in seeking recovery of the costs from the tenant."
    d) I feel confident in saying that the Trustees would not have marketed the Property until the dilapidations issues had been resolved. This is not a matter of a balance of probabilities. It is to my mind highly improbable that the Trustees would have done so.
    e) The second problem facing the Trustees would have been the scope of the rent review under the extension lease and the new pattern or review prior to 2010. I have already discussed the problem at length in addressing the rent claim. Even on the assumption that the Trustees had achieved the grant of the extension lease and the changes to the pattern of the rent review, it is an entirely different question whether, in the course of so doing, they would have achieved resolution of the rent review issue. It is again highly unlikely that they would have marketed the Property while that issue remained in dispute.
    vi) Eventually, all these disputes would have to be resolved, either by way of agreement or by litigation; I see no reason, however, to think that the dilapidations dispute would have been dealt with in time for a sale to proceed during 2007. Indeed, the indications are all to the contrary. In particular, that issue was not brought into the Mediation and was not resolved at the time. Nor is it at all clear that the issue of rent for the West Wing on a review would have been speedily resolved.
  590. Although this point has not been argued, the question arises whether this is a loss of a chance case. In my view, the facts of the present case give rise to two separate issues.
  591. i) The first issue relates to what the Trustees have lost. What they have lost, it is alleged, as a result of CR's breach of duty is the opportunity to market the Property. As with the rent claim, I consider that this aspect of the claim is all to do with chances and nothing to do with a balance of probabilities. It is necessary to assess the chance that the Trustees would have achieved a lease extension and change in rent review pattern in time to market and sell the Property before the end of 2007; it is not an all-or-nothing depending on whether the Trustees can show, on a balance of probabilities, that they would have done so.
    ii) The second issue relates to what the Trustees would have done assuming that they would have achieved a lease extension. If, as a matter of fact, they would not have marketed the Property, then no loss flows from the fact that the lease extension was not granted until after the Mediation. But that issue is to be decided on a balance of probabilities since it is a question of what the Trustees themselves would have done which is not in any way dependent on the actions and decisions of third parties.
  592. In my judgment, Professor Youlton has failed to demonstrate, on a balance of probabilities, that the Trustees would have sought to sell the Property unless and until the dilapidations issue had been resolved and the West Wing had at least been made watertight. The dilapidations issues were not in fact resolved by the date of the Mediation nor, so far as I am aware, during the rest of 2007, so that, even if the lease extension had been granted, marketing of the Property would not have been commenced.
  593. It might, I suppose, be said that another loss of opportunity aspect raises its head at this stage. Even accepting that the Trustees would not have marketed the Property while the dilapidations remained unresolved, the reason, it might be argued, that they were not resolved was because of the ongoing disputes concerning the validity of first the 2002 Side Letter and later the Apportionment Agreement. As a matter of fact, it does appear that the Trustees had decided to "park" the dilapidations claim while they fought over the validity of the Agreements. I am bound to say that I find the chances of the Trustees actually resolving the dilapidations issue in time to market and sell the Property by the end of 2007 to be very slim. The scenario is one where the Trustees have achieved the lease extension but where the dilapidations and disrepair of the West Wing are still outstanding, matters which need resolving if a proper value is to be achieved on a sale; it is a scenario where the Trustees want to see all outstanding issue resolved; but it is not a scenario where a property market collapse is seen on the horizon, bringing a real sense of urgency to the matter. In the light of the difficulties which S&W were raising in relation to the dilapidations and the repair of the West Wing, I consider the chances of those having been resolved in time to market and sell the Property by the end of 2007 to be de minimis.
  594. In the result, therefore, I do not need to assess the chances of the Trustees being able to achieve the grant of the lease extension in time to market and sell the Property by the end of 2007. Professor Youlton's claim in respect of the lost sale fails.
  595. I now turn to the Apportionment Agreement. Professor Youlton claims 67.5% of £2,695,205 being £1,819,263, plus interest to September 2007 of about £650,000; plus architect's fees of £200,000, a total of £2.67 million as set out the Amended Particulars of Claim. Mr Evans submits that there is clear evidence as to the likely value of the Apportionment Agreement in the surveyors letter.
  596. What the surveyors actually did, in the absence of full information, was to express in their letter dated 10 September 2007 a provisional view, subject to the need for further investigation, that 57% of the costs of the works should be borne by S&W. A higher percentage was mentioned based on the Cost Plan; it was expressly stated that reliance could not be placed on the Cost Plan in making an award but it showed that further investigations were necessary. The surveyors were only able to apportion £1,496,000 to the tenant taking a percentage of the whole expenditure of 57%. Mr Young said, in re-examination, that he would have plumped for 60% to adopt a round figure and in the light of the uncertainties and given that the minimum amount was as I have set out. I am not willing to accept that evidence as justifying a higher percentage as the basis of an award of damages. It is far too speculative and gives weight to a factor which the letter states is not to be relied on, namely the Cost Plan.
  597. I have carefully re-read the surveyor's letter as Mr Evans invites me to. I am unable to accept his submission that the letter shows that the apportionment to S&W should be at least 62.25%. I am not satisfied, on a balance of probabilities, that the Trustees would have recovered more than £1,496,000. They might have done, but Professor Youlton has not proved it to my satisfaction. Mr Evans has not suggested that I should apply a different test and attempt to assess the chance of a larger allocation of costs to S&W being achieved on a final award. But even if I should do so, I have no material at all on which I can assess the chance of the award being greater or, more importantly, of how this possibility would feature in any negotiations between the parties to settle their disputes. I therefore consider that, for the purposes of assessing damages against CR, it should be assumed that the amount to be apportioned to S&W under the Apportionment Agreement was the sum of £1,496,000.
  598. As to the architect's fees in issue (£200,000), these had been included in the total to be apportioned but, it now appears, related to other projects. Mr Hubble submits that that, being so, they fall outside the Apportionment Agreement in any event. In contrast, Mr Evans says that these are plainly not sums which could be apportioned to the Landlord and that it is highly likely that they would be recoverable as money which should have been paid by S&W because Mr Simler would have allocated the sums to S&W or because S&W would have paid it in any deal with the Trustees.
  599. I reject Mr Evans submissions in relation to the architect's fees. They should not have been included in the total costs falling within the Apportionment Agreement in the first place. Whether or not the Trustees had a good claim against S&W outside the Apportionment Agreement is neither here nor there. CR cannot be held responsible in respect of amounts which could not, in any case, have been apportioned to S&W under the Apportionment Agreement if it had been valid.
  600. Accordingly, ignoring the financial circumstances of S&W, what the Trustees lost as a result of CR's breach of duty was the difference between £1,496,000 and what they received under the settlement agreement, namely £500,000, resulting in a claim for £996,000. That simple approach fails to take account of interest at any stage. Professor Youlton's pleading claims a substantial amount of interest to September 2007 - £650,000 – but that is based on a claim of £1.8 million rather than £1.496 million and seems to assume that interest would be paid from the date of the Apportionment Agreement. The Apportionment Agreement says nothing about interest; I doubt very much that the Trustees would have been able to obtain contractual interest from S&W on monies which they eventually received from S&W. If S&W had been responsible for delay in the award, being delay which gave rise to a breach of contract, damages might have been obtained against them by that route. This is all highly speculative. I would put the chances of the Trustees having obtained interest even if the Apportionment Agreement had been clearly valid as low.
  601. I have already addressed (see paragraph 262ff above) the strength of the Trustees' claims against S&W in respect of the Apportionment Agreement. If there were no doubt about S&W's financial strength, the claim would at face value be worth £996,000 ignoring any interest element. In any settlement negotiations, both sides would have recognised the strength of the Trustees' claims. Even accepting that an argument existed that payment of the Interim Award might not be due until the final award had been made, it would not be reasonable to expect that a substantial discount would have been agreed for early settlement given that litigation in respect of the claim would be relatively straightforward. The loss of the opportunity to assert a claim under the Apportionment Agreement which, sooner or later, would have produced at least £1.496 million should not, in my view, be discounted from its full value by a large percentage in order to obtain a speedy cash payment, especially once the Interim Award had been made especially if the sum was not to carry interest from the time when the surveyors had originally been expected to produce their award.
  602. It might be said that, in negotiations involving both the Apportionment Agreement and the 2002 Side Letter, the amount payable under the Apportionment Agreement for which the Trustees would have been prepared to settle in order to obtain certainty under the 2002 Side Letter in respect of rent on the West Wing would be reflected in a significant discount from the £1.496 million. But that discount would, on this hypothesis, reflect the value of the compromise on the 2002 Side Letter. For instance, if the settlement in relation to the 2002 Side Letter provided for the 2004 and 2009 rent reviews to take no account of rent on the West Wing, one would not expect the amount payable under the Apportionment Agreement to be reduced. In contrast, if both those rent reviews were to be on the basis that rent on the West Wing would be taken into account, then one would expect some reduction in the amount payable under the Apportionment Agreement to reflect the risk that the Trustees were exposed to on that issue.
  603. However, in addressing the chance of achieving a rent review including rent in respect of the West Wing, I took no account of the possibility that such a result might be achieved as part of a quid pro quo for a reduction in the amount payable under the Apportionment Agreement. Accordingly, if the amount payable under the Apportionment Agreement is reduced, as part of a compromise under which the rent reviews take account of rent on the West Wing, the chance of that occurring must be treated as 100% rather than 40% percent. This would result in an increase in CR's liability in respect of the rent claim. This again results in a complex and in my view disproportionately complex analysis. It is another reason why I consider the appropriate course to be to view the 2002 Side Letter and the Apportionment Agreement separately.
  604. On that basis, I would not consider a discount of more than 10% appropriate. In other words, to have achieved an immediate disposal of the dispute concerning the Apportionment Agreement (in reality, the debate about the effect of the Interim Award) and in order to achieve an immediate cash payment of a substantial amount, the Trustees would in my view have been likely to compromise for a payment of £1,250,000 in round terms without any interest provided that payment was effected promptly. I will leave for further argument in working out the final order in this case whether any interest should run on that sum and if so from when.
  605. The question then is what effect the financial difficulties of S&W would have been likely to have on both the terms on which it would have agreed to dispose of the issue under the 2002 Side Letter and the amount which it would have agreed to pay under the Apportionment Agreement.
  606. Throughout the period in 2004-5 when negotiations were actually proceeding about implementation of the 2002 Side Letter including the terms of the extension lease and the level of rent in 2004, it was never suggested that the Trustees should settle on disadvantageous terms because that was all S&W could afford. S&W was making proposals and considering proposals without a hint that it would not be able to meet the commitment which would arise if any of those proposals were to be implemented. The actual review as at March 2007 took into account the West Wing as should the 2009 review. I do not consider that the chances of agreeing a rent review as at March 2004 including rent for the West Wing would have been materially reduced by S&W's financial position at the time of a notional compromise agreement sometime after August 2006.
  607. However, the position in relation to the Apportionment Agreement is different. Immediate payment of £1.496 million at any time after October 2006 (when the Want of Authority Defence was first raised) would have been impossible. By that time, the Trustees were well aware that S&W had some financial problems even if they were perceived as cash flow problems. That much is clear from the Heads of Terms in January 2006 ("intolerable financial pressure…at the present time"). That problem would have been even worse if the rent review as of March 2004 were implemented on the basis that rent would be payable in respect of the West Wing (the 40% chance considered in relation to the rent claim).
  608. Accordingly, it is clear that the financial difficulties faced by S&W would have had some impact on the terms of settlement. There can be little doubt, for instance, that the Trustees would have had to agree instalment payments. But as I have already said, the Trustees would have been resistant to a substantial reduction in what they would receive in the medium to long term. Why, it might be asked, should they take significantly less that they were entitled to? I do not need to repeat what I have said at paragraph 372ff. It is, however, worth emphasising that the possibility of instalment payments was raised. On the evidence, I have decided that it was suggested by Professor Youlton but rejected by Mr Fredericks. Given the weakness of the claim then perceived on the Trustees' side as a result of advice on the Want of Authority Defence, the Trustees were in no position to push that particular point at the Mediation. But it was a point they could push hard if the validity of the Apportionment Agreement was not in issue. However, even the Trustees would have had to recognise that they could not expect S&W to take on a long-term commitment to pay, say, £250,000 pa (the amount of the two instalments agreed under the Settlement Agreement). But a commitment for 5 years would, I think, have been one which there was a real prospect of obtaining by agreement. I do not consider it likely that such a commitment, even taking into account a possible increase in rent pursuant to rent reviews including rent on the West Wing, would have caused Advent to withdraw its support or have precluded an investment from an investor such as Snell Corporation Ltd from continuing to support the company.
  609. There is one step left to consider however. It does not follow from the fact that a significantly larger figure would have been provided for (over a period of time) than was obtained under the Settlement Agreement that actual recovery would have been made. S&W might, contrary to hopes, not have been able to effect a recovery. Indeed, even at the date of the latest available figures to December 2008, it can be seen that S&W was not, so far as its accounts show, over the hill although its profitability was improving. But S&W gave a commitment under the settlement agreement to pay £250,000 over the next two years. If it had agreed to continue that commitment for another 5 years, there is no reason to think that it would not have been and would not be able to meet that commitment.
  610. I accept that there was a possibility to the contrary, and that it is appropriate to recognise that possibility in the damages which can be said to flow from CR's breach of duty.
  611. Taking into account both that possibility and the possibility that the Trustees would have accepted less than the full amount of their claims under the Apportionment Agreement in order to obtain some immediate cash and the certainty of the lease extension, I would assess the chance of the Trustees having obtained a settlement and making actual recovery over a period of time at 70% of the full value of their claim of £1.496 million, that is to say £1.047 million. Since the parties cannot have known the way in which I would decide this issue, I have not received any submissions about the notional date of ascertainment of that figure for the purposes of interest, nor the value at which the two instalments under the Settlement Agreement should be brought into account to set against this claim. I will hear further submissions if requested when handing down this judgment.
  612. Costs

  613. The final head of loss claims are various costs totalling £303,000. Mr Hubble submits that in any claim for costs said to have resulted from CR's alleged negligence, Professor Youlton must prove that the costs claimed are costs which would not have been incurred but for that alleged negligence. He is right to say that the burden of proving this head of loss, like any other, rests on Professor Youlton. But once he has shown that he has incurred particular costs in resolving areas of dispute which, but for the negligence, would not have been in dispute, it seems to me that the burden is not then on him to show that these costs would not have been incurred.
  614. He also says, that Professor Youlton is only entitled to those costs which he can show are reasonable relying on British Racing Drivers Club v. Hextall Erskine & Co [1996] 3 All E.R. 667. That decision is not the most recent case to deal with the issue of recovery as damages of costs and expenses (whether of litigation or not) against a third party. It is not necessary to consider that decision in any detail (an exercise I carried out in my own decision in Dadourian Group International Inc v Simms [2007] EWHC 454 (Ch)). In effect, Carnwath J stated a general rule that costs recoverable as damages would be restricted to reasonable costs at the same level as costs assessed on the standard basis. However, the judge was prepared to take a different approach in relation to the fees of the solicitors who had been recommended by the defendant and whose fees were similar in amount to those which the defendant would have charged. This is a departure from the old regime which was to allow at least the costs on what was the then solicitor and own client basis.
  615. Mr Hubble also submits that Professor Youlton's claim to recover costs appears to ignore the fact that this is a case where there would have been a dispute, and in all likelihood a mediation, in any event. I can well accept that there would have been disputes between the parties, but there would not have been a dispute about the validity of the two Agreements.
  616. I want to spend a little time identifying what those disputes would have been and how they might have been resolved. The disputes would have related (at least) to
  617. i) Dilapidations.
    ii) The "put and keep" covenant.
    iii) Whether or not rent for the West Wing was to be taken account of on rent reviews.
    iv) The effect of the Interim Award in relation to recoveries under the Apportionment Agreement.
  618. Dealing with those in turn:
  619. i) Dilapidations. This issue was a serious area of dispute. But it was not dealt with in the Mediation and the settlement agreement did not resolve the dispute. There is no more reason to think that the hypothetical mediation which Mr Hubble says would have taken place would have dealt with dilapidations any more than the actual Mediation did. It seems to me, therefore, that dilapidation ought not to feature in any way in the recoverable costs which Professor Youlton seeks. It follows from that that, to the extent to which the costs actually claimed, include costs referable to the dilapidations issue, they should be removed. As to that, I doubt very much that any significant part of CR's fees were incurred in relation to this issue after October 2005 once the Uncertainty Defence has been raised and minds were concentrated on enforcing the 2002 Side Letter and then the Apportionment Agreement. The costs claimed in respect of CR only relate to those incurred after 25 October 2005. However, the bulk of Shoosmith's fees and some of Mr Clark's fees to relate to dilapadations and are not, in principle, recoverable (but see further below). Mr Clark's fees included part of the total of Counsels fees of £94,700 invoiced through CR and also included £2,000 invoiced through Shoosmiths. I would like to hear further argument when handing down this judgment about the detail of what should be disallowed.
    ii) The "put and keep" covenant: There is little doubt in my mind that time and expense would have been spent on this issue even if there had been no dispute about the validity of the two Agreements.

    iii) The issue whether rent on the West Wing should be included in a rent review would, I think, have been an important issue needing to be resolved and on which significant expense would have been incurred.
    iv) The effect of the Interim Award would also have featured in any settlement negotiations, mediation or litigation. However, for reasons already given, S&W's case here was weak and it is not easy to see that much cost would have been incurred in relation to it.
    v) Nonetheless, all of points ii) to iv) taken cumulatively would have had to be resolved either by agreement, mediation or litigation. The settlement agreement reached at the Mediation meant that no further expense would need to be incurred in relation to them. It is in principle correct, I consider, that credit should be given against the costs claimed (including the costs which are attributable to those issues but after stripping out the costs attributable to dilapidations) for the expense which would have been incurred in resolving those disputes even if the two Agreements had been valid.
    vi) How, in principle, that credit ought to be assessed is not entirely easy. Resolution of the disputes might have taken place by agreement or by an alternative dispute resolution process (such as mediation) or by litigation. An agreement prior to mediation or litigation would have been achieved at considerably less expense that mediation or litigation. A mediation, if it had taken place would, in my view, have been a simpler, shorter and cheaper process than the Mediation itself. Litigation, of course, would have been likely to be far more expensive but just as the parties in fact avoided litigation, I consider that the prospect of the disputes actually going to trial would have been very small.
    vii) My view is that I should take into account all of these possible routes to resolution and take account of the relative likely costs of each route. The likelihood would have been, I think, that the issues would all have resolved without the need for a trial although, as actually happened, the Trustees may have had to commence proceedings. Whether a full blown mediation would then have taken place or whether the parties would have been able to settle more informally is not clear. And, of course, the actual costs of either route as compared with the costs actually incurred are not at all clear. I will deal with the actual discount when considering each aspect of the costs which Professor Youlton seeks to recover, later.
  620. As well as making his general point about the need to take into account the costs which would have been incurred in any event in a different mediation, Mr Hubble has also identified specific costs which he says should be reduced or not brought into account at all. I deal with them in following paragraphs.
  621. CR's fees:
  622. i) The general point is made in relation to these fees that a substantial part of them would have been incurred in any case given the inevitability of dispute and the likelihood of mediation. Accordingly Mr Hubble says that a substantial proportion of the fees charged by CR, who were instructed in the dispute in any event, would have been incurred in any event.
    ii) He reminds me that the Unenforceability Defence and Want of Authority Defence were raised at different times. In particular, the latter was not raised until 19 October 2006 and accordingly no sums charged by CR prior to that time can have been in any way related to those points. I agree with that in relation to costs incurred in respect of the Apportionment Agreement. But for the 2002 Side Letter, the position is different since the Unenforceability Defence was raised earlier, on 16 September 2005. I conclude that, to the extent that Professor Youlton's claim includes any costs raised in respect of the 2002 Side Letter for work done prior to 16 September 2005 and in respect of the Apportionment Agreement prior to 19 October 2006, such charges are irrecoverable as damages.
    iii) Mr Evans points out that the costs claimed in respect of CR's invoices relate to work after 25 October 2005. But that does not meet the objection by CR that the cost of work done in relation to the Apportionment Agreement after that date but before 19 October 2006 should not be recoverable. Mr Hubble's point is I consider a good one and the claim must be appropriately adjusted.
    iv) The reverse of this argument must not be overlooked. If the actual expense incurred by the Trustees prior to those dates left out of account in assessing damages, the cost of obtaining that advice must be left out of account when it comes to ascertaining the expense which the Trustees would have incurred in any case if the two Agreements had been valid. Otherwise the Trustees would in effect be paying for the same advice twice.
    v) I do not understand Mr Hubble to say that any of CR's own fees would not be recoverable on the basis that they exceed what would be allowed on a standard taxation of those costs. Mr Evans has made some submissions on the basis that such a suggestion is made. If the suggestion is made, I reject it. There would be something offensive about allowing a solicitor, whose conduct resulted in his client paying him fees which should never have been incurred, to reduce the recovery by arguing that his bill was larger than was reasonable on a standard basis assessment.
    vi) I would like to hear further submissions on the impact that the conclusions at ii) to iv) above have on the figures and how Mr Hubble's general point is to be reflected.
  623. Counsel's fees. These are claimed in the sum of £96,700. They include not only the invoices included in CR's bills which total £94,700, but also Mr Clark's invoice to Shoosmiths of £2,000. Part of those costs may be referable to dilapidations and should therefore be left out of account. The same points as made above in relation to CR's fees apply: it is said that a substantial proportion of Mr Clark's fees would have been incurred in any event. Mr Clark's fees in relation to advice concerning the 2002 Side Letter (and the Apportionment Agreement to the extent that he gave any) should be recoverable in full as, in my view, should his fees for attending the Mediation. It is not easy to see why his attendance would have been required were it not for the special problems arising from the points on which he had originally been instructed to advise. Mr Hubble does not suggest, nor could he, that any part of Mr Todd's fees should be disallowed: there is no reason to think that the advice of a company law specialist would have been needed but for the Want of Authority Defence.
  624. The Mediator's fees. Mr Hubble submits that the claim for the Mediator's fees is unsustainable in circumstances where, on his case, there would have been a mediation in any event. Not so, says Mr Evans: no formal mediation would have been necessary but for the complexity of the dispute caused by CR's negligence. My own view, as is apparent from what has gone before, is that there might have been a mediation but that would have been only one of a number of possible routes the costs of which need to be taken into account. If there had been a mediation, I see no reason to think that it would have been as long or as costly as the mediation which actually took place. Taking account of the possibility that there would not have been a mediation, the high probability that a mediation, had it taken place, would have been simpler and shorter than the Mediation and the unlikely possibility of (expensive) litigation, I consider that half of the Mediator's fees should be disallowed.
  625. Shoosmith's costs. These are claimed in the Amended Particulars of Claim in a modest sum. Mr Hubble submits that they are not recoverable where the burden of the retainer of Shoosmiths in March/April 2006 appears to have related to the interpretation of the "put and keep" clause and/or dilapidations. Mr Evans does not accept that the costs of the dilapidations dispute are irrelevant as CR alleges. He says that the parties downed tools on dilapidations to pursue issues under the 2002 Side Letter and that the Apportionment Agreement and the issue has not been pursued since. He suggests that the parties may well have reached amicable agreement on dilapidations if the Apportionment Agreement and the 2002 Side Letter had not been issue. This seems to me to be far too speculative an approach. The fact is that there was dispute about the "put and keep" clause and dilapidations on which the Trustees took advice and on which, on any scenario – even one which resulted in amicable settlement – advice would have had to be taken. I think Mr Hubble is correct.
  626. Jekyll Partnership costs. The Jekyll Partnership was a partnership consisting of Ms Manson and Professor Youlton through which she provided architectural services as a consultant, using a company called Larkfield Consultants Ltd, to S&W. Matters were structured in this way possibly for tax reasons and because if she had been directly employed by S&W this, according to her, "would have looked like [the Claimant] was earning a lot more from the company than he was". The individual providing the architectural and related services of the partnership was Ms Manson, of course. Professor Youlton had no professional input. Ms Manson explained the fees claimed from CR in these actions and reflected in her invoices are her fees in, effectively, assisting the Trustees in their disputes with S&W. But, as she said and I accept, the relevant invoices all come after the date when the Unenforceability Defence was raised and do not relate to the dilapidations issue, or anything after the settlement agreement.
  627. Mr Hubble says that none of these invoices should be recoverable: it is not reasonable he says – and therefore falls foul of the rule in British Racing Drivers v. Hextall Erskine – for Professor Youlton to recover from CR money paid to a partnership consisting of Ms Manson and Professor Youlton himself, or indeed just Ms Manson, at a professional rate, in order to carry out work which the Trustees could have carried out. I do not consider that Professor Youlton (asserting by way of assignment what was originally the Trustees' claim) is disentitled from recovering costs to which the Trustees would otherwise be entitled by the mere fact that the work was done by his wife and that is so even though she was working for a partnership of which he was a member.
  628. A separate question, however, is whether the Trustees could have recovered for the work which Ms Manson carried out for them. As she said, she did this work because (a) she had been involved for a long time and knew the factual position better than anyone else and (b) the other person who knew a lot was Professor Youlton himself but he was very ill. So far as I am aware, Ms Manson was not giving professional advice in a capacity as an architectural consultant when carrying out the work which she did in assisting the Trustees in their claims against S&W. Had these costs been sought against S&W if there had been litigation which it lost, I do not consider that the work she carried out would have been allowed on an assessment of costs on a standard basis. On that footing, it is not now recoverable as damages by Professor Youlton. However, if my understanding is incorrect and Mr Evans wishes to argue, on the evidence already before the court, that part of her work was of an expert nature in respect of which it would have been necessary to instruct an expert in the litigation with S&W, I will revisit this aspect of the claim. If such argument is raised, I will deal at the same time with the detailed submissions which Mr Hubble has made in his closing submissions about the invoices submitted by Ms Manson.
  629. Pension Fund Accountant's costs. This is no longer pursued in the light of the evidence which Mr Rogers gave about how he was remunerated, that is to say under a standard retainer of £1,000 per month.
  630. Lambert Smith Hampton's fees and James Simler's fees. As Mr Hubble points out, these fees relate to the actual apportionment exercise and therefore, he says, are not recoverable from CR in any event. However, Mr Evans draws attention to clause 2.4 of the Apportionment Agreement which provided that the costs of the Surveyors "shall be borne exclusively by the Company". This is clearly, therefore, a recoverable head of loss.
  631. Conclusions

  632. I conclude as follows:
  633. i) CR owed a duty of care to both Professor Youlton and to the Trustees.
    ii) CR were in breach of those duties.
    iii) Professor Youlton is to have permission to amend the First Action to assert the Trustees' claim which has been assigned to him.
    iv) Damages are to be assessed on the basis of the lost chance of settling or enforcing the Trustees' claims had the Apportionment Agreement and the 2002 Side Letter been valid in accordance with the section of my Judgment headed "Quantum".
    v) In order to arrive at a final figure, Counsel may wish to make further submissions as indicated in the judgment.

    ANNEX
    EVIDENCE OF CONCERNS ABOUT COMPANY'S FINANCES

     

    Date

    Event/Document

    Reference

    17.03.2004

    C provides instructions to D regarding the terms of variation of the Lease, the maintenance of the premises and the allocation of the cost of the works:

    "David [Youlton] asked what the position would be if SW [the Company] was to go into liquidation and what impact this would have on sub-tenants.  He asked whether we could be ensured that if SW did default on its lease or became insolvent, the head lease would revert to the trustee?"

    E2/760

    21.03.2005

    BR writes to D instructing that the Trustees do not agree that the subleases should only terminate if the Company surrenders the lease:

    "...this would present the landlord with a difficult situation in the event that SW were to go into receivership."

    E3/853

    13.09.2005

    Meeting at C's house attended by, amongst others, David Haines (DH) of D.  D's note records:

    "David [Youlton] commented that he was 'prepared for war'.  He was conscious that by pursuing the Company this could result in it being placed in liquidation, but that his primary concern is to maintain his pension fund.

    David appreciated that commercially we should look to reach agreement with the Company and this he was fully prepared to do at this stage.  He appreciated that this could be a complicated and expensive legal battle, which he would prefer to avoid if possible.  However, he appreciated that this would depend upon the attitude of the Company." 

    Manuscript note of DH:

    "S+W - financial diffs

    50% [drop in] head count

    CEO - trying sell

    If so, due diligence issues"

    D/36

     

     

     

     

     

     

     

     

     

     

     

    Rear of D

    19.01.2006

    Without prejudice meeting between PF of the Company and C/BR.  Heads of Terms drawn up by C after the meeting record:

    "In discussions with Snell & Wilcox Finance Director, it became clear, if Snell & Wilcox was to fully comply with all its obligations to the Snell & Wilcox SAS at this time, this would put the company under intolerable financial pressure."

    D/80

    14.03.2006

    Meeting between DH and Claire Timmings of Charles Russell and DY/JM.  D's attendance note records:

    "1.4   Discussing with Jill Manson (as David Youlton had left room) as to whether an insurance policy would be available to cover the default in payment on the apportionment payment from SW..."

    E4/1056

    23.03.2006

    Meeting between Shoosmiths (David Sanderson), DY, JM and BR (D not involved).  Shoosmiths' attendance note records:

    "In addition to the above, the fund would want the Company to take out an insurance policy in relation to the £580,000 just in case the Company were to go bust." 

    N/82

    05.04.2006

    Conference with Counsel, WC, attended by DY, JM, BR and David Sanderson of Shoosmiths (D not involved).  Shoosmiths' (David Sanderson's?) manuscript notes record:

    "They are not good for the money.  Latest a/cs are not pretty.  They want to sell in 6/9 months and therefore they have an interest to settle." 

    Draft meeting note, which appears to have been circulated to DY/JM and WC, states:

    "DY said that he did not think that Snell & Wilcox were good for the money as the latest accounts were not encouraging.  However, the venture capitalists wished to sell the company in 6 to 9 months time and it is therefore in their interests to try and settle this dispute..."

    This draft has been amended in manuscript as follows:

    "DY said that he did not think that Snell & Wilcox have been financially strong as the latest accounts were unencouraging, but it is understood that the situation is improving"  (underlining added to denote manuscript amendments).

    Final version records:

    "DY said that he did not think that Snell & Wilcox have been financially strong and the latest accounts were not encouraging, although it is understood that the situation is improving.  However, the venture capitalists wished to sell the company in 6 to 9 months time and it is therefore in their interests to try and settle this dispute..."

     

     

    N/126

     

     

     

    N/64; see also N/41 as to circulation for approval

     

    N/64

     

     

     

     

    N/144

    26.06.2006

    Letter from DY to Simon Derry of the Company:

    "I have attempted to find an amicable solution in the context of shared interests and in light of Snell & Wilcox's financial position...

    ...the Trustees have been patient and sympathetic to the Company's situation and its need to put a new management team in place and restructure its finances and workforce..."

    D/108

    21.12.2006

    Letter from DY to Simon Derry:

    "To have had insufficient financial resources to adequately grow the company at such an important moment in the digital HD TV switchover process, must have been very disappointing for you Simon.  I sincerely hope that whoever buys S&W will have the financial resources and vision to support you in the investment the Company needs..."

    E4/1181

    01.03.2007

    Meeting attended by DH, DY, JM and BR, to review the Company's Defence and Counterclaim:

    "DY confirmed that there was no delay in the Trustees seeking a remedy... However, rather than aggressively pursuing performance of the Agreement, DY had attempted to help the Company's cash flow/financial position... There was delay but only because he was trying to help the Company.  DY confirmed that he was having meetings with Simon Derry who was requesting that DY did not pursue the Agreement as the Company had financial difficulties and could not afford to pay as yet..."

    D/156

    21.05.2007

    Note taken by JM of telecon with DH:

    "6. S&W Sale

    Dolby dropped out & no more news, suggests problems.  Also hear cashflow problems - even being able to pay suppliers so parts for £5.5m order in June (record monthly order)"

    E5/1554

    05.06.2007

    Letter from DH to DY:

    "Unfortunately, and whilst I hope I may be wrong, the company appear to be seeking to put obstacles in the way of a mediation, and this may be linked to the reports as to its financial position (e.g. an inability to make any payment to you at this point in time)."

    D/156A

    29.06.2007

    Note taken by D's ND of meeting with Counsel, MTQC:

    "David [Youlton] said that S&W had put themselves on the market and made a real mess of it.  It looks as if the only way that they will stay ahead of the game is to get Advent to put more money into the company.  They are hoping either that this goes away or that we will recognise that they don't have very much, so we wouldn't get a lot out of this action"

    E5/1580

    17.08.2007

    D's attendance note of conference with WC and MTQC, attended by DY, JM, RS & DL, and DH & ND of D:

    "David Youlton confirmed that they key issue is whether the Company has got any money.  The company is currently trading profitably but has recently been refinanced.  They were paying Advent 13% on loans but he hopes that it has been refinanced through banks at proper rates.  There is also some restructuring going on.  We also know that Advent has pulled out of all electronic business.  In order to help with any settlement, the trustees would need to seek cash up front, but not promises in the future.  It is essential that they get money in the pension fund in order to allow them the opportunity to be able to retire.  A deal needs to be structured which either allows an exit before two years time because David Youlton does not think that Snell & Wilcox will be in business then, and they need a lump sum into the fund to allow the trustees to retire...

    DY indicated that if the company goes broke in two years, the trustees will get the building back and they have been told that it will cost approx £1.4m to do it up..."

    Manuscript note of D's DH:

    "DY - deal

    Structure deal exit 18-24 months

    + money in fund in case liquidation

    & forfeit lease ...

    * RS - get co's latest accs

    DY/DL c £40m turnover

    ? profit"

    D/164-5

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    E5/1679

    17.08.2007

    Action Points produced by ND (of D) after the conference.  Includes that RS is to try to obtain a copy of the latest company accounts.

    E5/1664

    29.08.2007

    Ernst & Young letter, as auditors, to the Company, presented to the Trustees by PF at mediation:

    "As you are aware, we are not in a position to sign off our audit report to the annual financial statements from which the profit and loss account and balance sheet have been extracted as we still have to audit the recoverability of intercompany debtors and conclude on our going concern review once the parent company, Snell & Wilcox (UK) Limited has completed the current refinancing exercise, and they have not yet been approved by the Directors."

    F2/459

    11.09.2007

    Pre-mediation con with MTQC and WC.  All trustees, BR and CR's DH & ND present.  ND's attendance note records:

    "The problem is that the company could go broke, so they would want to know that [the £1m figure canvassed by DY] is going to be paid in now...

    The question is what state the company will be in next May.

    MT confirmed that the company could be in a worse state next May as he has seen the last accounts.  DY said that they have refinanced...

    S&W is now positioned in the market in a new position and [DY's] opinion is that [the company] will struggle and be in trouble very shortly.

    DL said that he has no comment on where the company is going.  All that is relevant is now and do they have any cash in the bank.  He thinks that they will come into the mediation having to fund any settlement through a loan...

    DY confirmed that in the worst case scenario, if the company goes broke.  It is irrelevant if they have the [lease extension].  If in 2009 the company goes under they have got their pensions established...If they go broke after they have got the valuation and the lump sums, it may not be such a bad thing.  Valuation is very important."

    D/184-187

    11.09.2007

    JM's manuscript note of the con on 11.09.2007 appears to state:

    "Problem will co be [sound] in May next year"

    Note that in the typed transcript of these notes produced by JM at F1/282 the word which appears to be "sound" in the manuscript notes is transcribed as "sold", but D queries this and in evidence JM accepted that this was not clear [Day 2, p. 74, line 7 - p.74, line 13].

    F1/282

    09.2007

    Manuscript notes of PF on behalf of the Company in preparation for the mediation:

    "Bleeding heavily at turn of century

    A company with a clear lack of governance and also structure

    I joined company 2 years after Advent & the Company was still struggling with costs, profitability & cash.

    Although returned to operating profit over last years with YoY sales growth a very heavy debt burden (£19.9m on 31/3/07) means net liabilities have increased

    Recent major difficulties paying suppliers which has included rent payments

    Close to completing a refinancing to increase available cash to restructure company and fund trading over next 12 m

    In context of the level of claim it should be noted by all parties that the company is limited in its capacity to incur any significant some [sic] outside its planned trading headroom in the short term"

    F2/508

    12.07.2009

    Mediation before Presiley Baxendale QC.  ND's attendance note records as follows in relation to the period after DY, BR, DH and MT have their meeting with PF of the Company to discuss finances:

    "BR reported that they are apparently £20 million in debt.  DY said that apparently in five years, they have taken the debt from £17 million to £20 million, despite have downsized.  BR reported that they have taken huge hits from the US.  These are big loss figures.  There is a net current debt of £11 million.  There is a long term £2.5 million figure, and £9 million of preferentials.  BR's biggest concern was £15 million of creditors.  DL did know that they had not been paying their suppliers...

    DY said that the other thing which came out of the meeting is that we can forget about the shareholding... If all of what he says is true, then someone is failing appallingly...A lot of the information given had to be taken at face value, but DY didn't think that there was anything obvious that they could have manipulated...

    ...DL thought they could be making the figures look more grim.  BR thought that the figures won't be manipulated to a very high degree at all...

    ...WC confirmed that he has reiterated on a number of occasions that the money is simply not there.  WC pointed out to DY that insofar as he is wanting the sort of figures that our offer leaves them to think, then he is simply not going to get these...

    ...DY...has decided he does not believe them.  He thinks there are too many adjustments in their figures...

    ...RS said if what they are saying about their finances is true, we should take the offer and run.  If not, it may be critical...

    ...DL confirmed that he has explained to JM the discussions they have had....They are clearly strapped for cash...The cash issue is very real.  There might be a bit of fiddling around with the £250,000 figure but not much...

    ...8.50pm ... DY and PF in a room together...

    ...DY returns at 9.00pm.

    DY's first comment was they have got nothing.

    DY has spoken to PF who is adamant that they will not move.  They can't....

    ...DY said that in his view they are walking away from here with nothing.

    DL agreed, but the company that they are dealing with has nothing to give.  They all know that...

    DL confirmed he thinks litigation is pointless and if they went to litigation, the chances of getting anything are almost nil.  RS agreed this as did JW..."

    D/204 et seq.

     

     

    D/216-217

     

     

     

     

     

     

     

    D/217

     

     

     

     

     

     

     

     

    D/223

     

     

     

    D/224

     

     

     

    D/225

     

     

     

    D/226

     

     

     

     

    D/230

     

     

     

     


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