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Cite as: [2013] ScotCS CSOH_72

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[2013] CSOH 72



in the cause







Pursuer: Murphy QC, McBrearty; TLT Scotland Limited

Defender: Hanretty QC; Shepherd & Wedderburn LLP

14 May 2013

[1] The pursuer ("MGL") is a mechanical engineering and contracting company. MGL instructed the defender ("MMS") as its solicitors in relation to an arbitration against Haden Young Limited ("HYL"). This is an action for damages against MMS for breach of contract and professional negligence arising from failures to give certain advice in its conduct of the arbitration. MMS has admitted that it acted in breach of contract and failed to meet the required standard of care in two respects which I set out more fully in paragraphs [40] and [41] below. The issues in the proof were therefore (i) causation and (ii) quantification of loss.

[2] An underlying problem for MGL in the arbitration was that the parties to the arbitration did not confer on the arbiter (i) power to award damages or (ii) power to award interest from a date before the arbiter's award. MMS failed to advise MGL to raise a protective summons which would have entitled it to pre-award interest and made it pointless for HYL to exclude the award of damages from the arbitration.

[3] The arbitration was not a good advertisement for this form of dispute resolution. It ran from 1992 until 2004. As a result, MGL's entitlement to interest was roughly equal to the value of its principal claim. The parties eventually settled the claim in 2004. The arbiter therefore never ruled on the merits of MGL's claims and parties have not attempted to analyse those merits in this action. MGL asserts that MMS's failures caused it to lose a chance of settling the arbitration on terms considerably more favourable than those which were eventually agreed.

[4] MGL now claims as damages (i) the difference between the settlement it achieved in 2004 and what it asserts it would have achieved in May 2003 if it had been advised that it had no right to claim pre-award interest or damages in the arbitration, (ii) pre-award interest on the total sum that it asserts it would have achieved in a settlement with HYL if MMS had not been negligent, (iii) the expenses it incurred in the arbitration after the opportunity for settlement had passed, and (iv) judicial interest on those claims.

[5] Many years have passed since the relevant events occurred. Much time was taken up in the proof in testing the credibility and reliability of witnesses' recollection of those events. I comment on issues of credibility and reliability in paragraphs [43] to [49] below. A central issue in the case as MGL presented it was whether Mr William McCrindle, the managing director and controlling shareholder of MGL, would have agreed to settle the arbitration in the hypothetical circumstances which the court was invited to consider.

[6] I set out, first, the factual background until Mr McCrindle transferred his instructions in the arbitration from MMS to MacRoberts LLP ("MacRoberts") on 20 May 2002. I then set out MMS's admissions of breach of contract and fault. Thirdly, I comment on issues of credibility and reliability before I, fourthly, set out the course of the arbitration until it settled in June 2004. Thereafter, I examine the legal issues that arise.

The factual background to 20 May 2002
(i) The contractual dispute
[7] In October 1987 MGL was awarded a contract as a sub-sub-contractor of HYL, who in turn was a sub-contractor of Edmund Nuttall Limited ("ENL") in a contract for the construction of a new jetty at R.N.A.D. Crombie near Rosyth. The Property Services Agency ("PSA") was the employing authority on behalf of the Ministry of Defence. MGL's role was the installation of high pressure piping on the jetty for the supply of fuel to ships and aircraft on those ships.

[8] MGL complained that there were significant delays in the performance of the main contract and the sub-contract which disrupted MGL's work on site. It had planned to be on site for about one year but had to remain on site for about two and a half years. It also claimed payment for additional works. In February 1991 MGL presented HYL with a claim of about 620,000 and interest thereafter for submission to the PSA.

[9] Clause 22 of the sub-sub-contract provided for the reference to arbitration of any dispute between the parties. On 27 February 1992 MGL gave HYL a formal notice of dispute in which it claimed 842,161 and interest at 15% per year on outstanding sums from the dates they became due. It asserted an entitlement to interest from 1 January 1990.

[10] HYL sought to avoid a separate arbitration with MGL and suggested that MGL join it in a tripartite arbitration involving ENL. In June 1992 HYL challenged the appointment of the arbiter in an interdict application that failed. MGL engaged a chartered quantity surveyor, Mr David Spence, to assist it in the preparation of its claim. He prepared a draft joint deed of submission. But Steedman Ramage, who acted for HYL, refused MMS's request that they agree to enter into a deed of submission. The President of the Royal Institute of Chartered Surveyors appointed Mr George F Robertson as arbiter on 5 November 1992 and Alan D Mackay WS was appointed as clerk in the arbitration. HYL challenged the appointment of the arbiter in a judicial review in November 1992 but was not successful. Its petition was dismissed on 10 February 1993. HYL appealed the decision but abandoned the reclaiming motion in October 1993.

[11] MGL lodged its statement of claim with the arbiter's clerk in November 1993. At that stage it sought payment of 842,161 and interest at 15% per year from 1 January 1990. MGL had engaged Mr Spence to prepare a final account supported by Scott schedules to present its claims. As MGL's pleadings developed in the arbitration, it advanced claims for payment (i) of damages for breach of implied terms of contract such as to give MGL possession of the site, to supply it promptly and not interfere with its timely performance of the sub-sub-contract, (ii) for variations of contract, (iii) of reasonable remuneration for works associated with the contract, and (d) for direct loss and expense. MGL pleaded a claim for interest in statement 12 of its pleadings (Closed Record of 11 March 2002) thus:

"In terms of Clause 13(4) of the sub-contract form the Claimants were entitled to payment within 42 days of the submission by them of statement of the value of the work. As regards amounts claimed and to which the Claimants are entitled in terms of the contract (but not as damages for breach of contract) the Claimants are entitled to interest because the respondents have wrongfully withheld payments from the Claimants. ...As regards amounts to which the Claimants are entitled as damages for breach of contract, the claimants claim interest from the date of breach. The earliest date of breach condescended upon is 4th January 1988 and that is accordingly the date referred to in the first conclusion."

The problem was that the arbiter had no power to award damages or pre-award interest.

(ii) The failure to raise a protective court action
[12] On 16 December 1994 MMS raised an action on behalf of MGL against HYL for payment of 81,200 in order to prevent the operation of prescription. The claim related to loss and expense which MGL asserted that it had incurred between 18 December 1989 and July 1990. MGL averred that because of an agreement between HYL and ENL on 18 December 1989 compromising claims for delay, of which it received no notice, it had lost the benefit of rights under the contract between HYL and ENL to claim loss and expense in respect of that period. The action was sisted on 30 May 1995.

[13] By contrast, MMS did not inform MGL at this time that the arbiter had no power to award damages or pre-award interest and did not advise Mr McCrindle to authorise the raising of a court action to preserve the right to interest and to remove any rationale for HYL to refuse to allow the arbiter to assess damages.

[14] I had the benefit of the expert evidence of Mr Michael J R Simpson WS, who has retired as a solicitor but when in practice had considerable expertise in arbitration. Mr Hanretty QC for MMS did not challenge his evidence in any material way. Mr Simpson opined that MMS should have advised MGL to raise a protective court action after HYL refused to enter into a joint deed of submission conferring the needed powers on the arbiter. He pointed out that, if MGL's claim were established, interest was worth about 64,000 per year. In the late 1980s and early 1990s it was known that a general arbitration clause referring disputes to arbitration did not confer on an arbiter power to award damages or pre-award interest. That required MMS in the exercise of reasonable care to advise MGL to commence and then sist a protective action in order to preserve the claim for interest.

[15] Mr Simpson considered the relevant correspondence and opined that by December 1992 MMS was aware that HYL was trying to delay the commencement of an arbitration. MMS should have advised MGL of the need to raise protective proceedings then. He suggested that MMS had sufficient information to have counsel prepare a summons by that stage. I accept his evidence that MMS's failure to give that advice by then amounted to professional negligence. I also accept his opinion that, once a solicitor has concerns or suspicions that he or his firm has not adequately protected his client, he is under a duty to investigate those concerns and, if they are shown to have some foundation, report those concerns to the client to avoid a conflict of interest. MMS in making the admissions in the joint minute that I set out in paragraphs [40] and [41] below, appears to accept the substance of Mr Simpson's opinion.

(iii) The changes of personnel
[16] One of the difficulties in getting at the truth in this action, and also earlier when MMS and MacRoberts sought to investigate what had occurred in the early and mid-1990s, has been the changes over time of the lawyers responsible for the arbitration.

[17] MGL initially instructed Mr Spencer Patrick in MMS in relation to the dispute in about September 1991. Ms Diane Nicol was also involved. MMS initially instructed Mr Philip Brodie QC and Mr Colin Tyre, advocate, in the lead in to the arbitration in about the first half of 1992. Mr Patrick instructed Mr James Wolffe, advocate, to defend MGL in HYL's judicial review application in late 1992 and early 1993. When Mr Patrick retired in 1993, he was replaced by Mr Ewan Easton who engaged Mr G J B Moynihan, advocate, and informed him in October 1993 that instructions would come directly from Mr Spence. Between about October 1993 and November 1994, Mr Spence, on MGL's instructions, exercised direct access to Mr Moynihan and MMS did not take a direct part in the preparation of MGL's statement of claim and the conduct of the arbitration. Mr Easton and his assistant, Mr Douglas Fairley, had very limited involvement during this period. As a result of disagreements between Mr Spence and Mr Moynihan, MGL re-engaged MMS to instruct counsel in the arbitration in November 1994. At this stage Mr Easton involved Ms Ros McInnes, a solicitor in MMS, in the arbitration. Mr Moynihan prepared the pleadings in the arbitration and the summons to which I referred in paragraph [12] above. MMS sought advice from Mr Nimmo Smith QC on certain matters in early 1995.

[18] When Mr Moynihan took up office as advocate depute in 1995, MMS engaged Mr Alastair Clive, advocate, in the arbitration. Within MMS, Mr Kenneth Carruthers took over responsibility for the case from Ms McInnes in about December 1997 and at about that time Mr Clive, who was unwell, was replaced by Mr Colin Campbell QC and Mr Jonathan Lake, advocate. In about April 1999 Ms Kirsti Olson took over responsibility for the arbitration when Mr Carruthers left MMS. In about June 1999 she instructed Mr Robert Weir, advocate, in place of Mr Lake. Thereafter MGL's legal team remained unchanged until MGL removed its instructions in May 2002.

(iv) The emergence of concerns over MGL's claim for interest
[19] Mr Alastair Clive revised the pleadings in the arbitration in about 1996. His revision included the averments relating to interest in statement 12 in order to seek interest on damages from January 1988. He also wrote on 10 January 1997 to MGL's auditors at their request to explain the progress of the arbitration. In that letter he explained that the claim as revised was for 880,000 together with interest, which in the event of complete success would amount to more than 500,000. But he warned both that interest would be awarded on only some parts of the claim and also that there were serious legal difficulties which were likely to reduce the size of the claim at debate. Because there were so many contingencies, he could not suggest a figure for a reasonable valuation of the claim. On 3 December 1997 HYL lodged a tender for 80,000 and expenses.

[20] At a consultation on 8 May 1998 when Mr Colin Campbell QC was briefed on the claim by Mr McCrindle and Mr Spence, the principal sum due in the claim was tentatively estimated at 452,000. But it was recognised that that sum might require to be revised as it was much less that the figure of 620,000 which MGL had submitted in 1991. After the consultation MMS informed Mr McCrindle that the arbiter had only the powers that were conferred on him in the correspondence that appointed him and those conferred at common law. Mr McCrindle asked a direct question in his letter of 20 May 1998 - "what are the arbiter's powers if restricted to common law?" It was not answered.

[21] Mr Robertson, the arbiter, heard a debate in July 1998 in which HYL sought to reduce MGL's claim by asserting that it was subject to a "pay when paid" contractual regime in relation to about one-half of its clams. In a draft finding in February 1999 Mr Robertson rejected HYL's contentions and refused to sist the arbitration. The parties then embarked on the recovery of documents and the preparation for a proof before answer. During 2000 Mr Robertson expressed concerns about the slow progress of the arbitration and sought to resign from office because of ill health. In December 2000 MMS agreed on behalf of MGL that he could resign and that a new arbiter would hear the proof before answer.

[22] There were occasions when MGL's legal team discussed its entitlement to claim pre-award interest in Mr McCrindle 's presence. At a consultation on 4 May 1999 it was observed that there was no deed of submission. In a letter to MMS dated 25 August 2000 Mr McCrindle gave a clear instruction:

"Please establish how my interest due on the claim is protected and advise if this is adequate. Clearly interest is very important for a case which looks like running 10 years from the date the arbiter was appointed."

He also wrote at around that time to Mr David Spence to ask how interest was protected.

[23] At the end of a long consultation with Mr Campbell and Mr Weir on 30 November 2000 Mr McCrindle again asked what his position was in relation to interest. Ms Olson stated that there was no joint deed of submission or interest provision in the sub-sub-contract. The consultation note stated that she agreed to continue to check the position as the claim was for interest from 1988 and it was not yet clear why. The manuscript note of the meeting, which preceded the typed up note, recorded that Mr McCrindle stated that he did not know that his claim for interest was not protected and Ms Olson agreed to have another look at the issue. On 9 January 2001 Ms Olson faxed Mr Spence with the results of her review of the files and asked him to confirm what had happened when he exercised direct access to counsel in 1993-94. She suggested that it would be sensible to obtain counsel's opinion on the prospect of recovering interest in the arbitration. Thereafter, there was a delay while Ms Olson and Mr McCrindle urged Mr Spence to check his files. Ms Olson also asked a trainee in MMS to investigate the arbiter's power to award damages.

[24] Nothing more seems to have occurred on this issue until Ms Olson instructed Mr Campbell and Mr Weir to consult on 23 August 2001. In her letters of instruction she recorded the results of her researches in the files. She concluded that there was no contractual basis for an award of interest and no deed of submission that gave the arbiter such a power. Accordingly the arbiter had only common law power to award interest from the date of his award. She noted that the claim sought interest as damages but stated that the arbiter might have power only to determine liability and not to award damages. She stated that she wished to discuss the issue at the consultation. Mr McCrindle did not see those letters until they were disclosed in this action.

[25] MMS, Mr Spence and Mr McCrindle each recognised that the appointment of Mr James Dinsmore as arbiter in place of Mr Robertson and his request for a deed of submission gave an opportunity to include in the deed of submission a power to award pre-award interest. They discussed the question of interest with counsel at the consultation on 23 August 2001. It was clearly stated at that consultation that the arbiter had no common law power to award interest before the date of his award and that there was no joint deed of submission. But it was also suggested that an agreement to confer the needed power could be inferred by conduct and that the proof had been allowed without a challenge to the claim for damages. While the issue was seen as an unwelcome complication, counsel advised that they should do nothing to provoke HYL into challenging the claims for interest and damages.

[26] In the event, MMS was not able to get a joint deed of submission. Mr Mackay, the arbiter's clerk, intimated that Mr Dinsmore had observed that the parties had not agreed a joint deed for the previous arbiter and did not insist on one. Steedman Ramage for HYL expressed the view that there was no need for such a deed and confirmed that there had not been one for Mr Robertson. MMS informed Mr McCrindle and counsel of this outcome on 4 October 2001. In a response to a question by Mr McCrindle, Ms Olson wrote to MGL on 8 November 2001. She advised that MMS should not press for a joint deed of submission as that would draw attention to the fact that there was a specific reason for MGL wishing to enter into such an agreement. MMS also discussed the issue with junior counsel on 12 November 2001 and agreed not to press the matter lest it alerted HYL to the argument that the arbiter did not have power to award interest.

[27] After Mr Dinsmore instructed parties' experts to agree figures, HYL proposed that it should pay 10,666.94 in relation to some undisputed items in the Scott schedules which could be withdrawn from the arbitration. When MMS wrote to state that MGL would accept the sum together with interest from the commencement of the arbitration, Biggart Baillie for HYL stated that interest had not been discussed in the compromise. When Mr McCrindle saw Biggart Baillie's letter, he wrote on 5 December 2001 to acknowledge that they had neatly dodged the question of interest and to advise that MMS should be very careful in its response. In further correspondence within MGL's team in January 2002, Mr Spence urged MGL not to compromise on the interest claim on these items lest it set a precedent. Mr McCrindle acknowledged the point but did not wish to alert HYL to the fact that any figures, which the experts agreed were due, would double once interest was added.

[28] Mr McCrindle corresponded with Ms Olson and Mr Spence over how to deal with interest when agreeing to accept the sum of 10,666.94. On 11 January 2002 he told Ms Olson that they had to decide whether to leave interest to be agreed in a pre-proof settlement or to a decision of the arbiter. On the same day he wrote to Mr Spence on the issue and informed him that Mr Peter McGillivray, whom MGL engaged as a second expert, had pointed out that MGL had included additional finance charges in its loss and expense claim, "which was effectively another way of claiming interest, which a Scottish arbiter will allow." He copied the correspondence with Mr Spence to MMS.

(v) Preparation for the proof
[29] On 8 October 2001 the arbiter fixed a diet of proof to run from 14 May until 5 July 2002 and set a timetable for the lodging of documents and witness statements. He also granted orders for the recovery of documents and fixed a timetable for their production. Later, when Biggart Baillie intimated that they were able to hand over only part of the documents covered by MGL's specification within the ordered timescale, Mr McCrindle ordered MMS not to hand over the documents which MGL had delivered to them in response to HYL's specification. Ms Olson advised Mr McCrindle to allow her to release the documents to HYL, but he refused. This led to complaints by HYL and correspondence with the arbiter's clerk. Eventually the parties released documents under the specifications in January 2002.

[30] The tensions that frequently arise before a major proof occurred in this case. There was anxiety that HYL would challenge Mr Spence's status as an expert witness because he had prepared MGL's final account and acted as its instructing agent in 1993 and 1994. MGL therefore engaged Mr Peter MacGillivray to comment on Mr Spence's work. There were concerns about delays in receipt of Mr Spence's report and the repeated postponement of a meeting of the experts. Mr Spence was involved in an arbitration in Thailand and advised MGL that he could not produce a final report until May 2002. Ms Olson expressed concern that Mr McCrindle had sent a draft of Mr Spence's report to HYL before MMS or counsel had seen it. Mr McCrindle complained to MMS that he and Mr Spence had not been kept "in the loop" when solicitors and the arbiter's clerk were corresponding on the text of arbiter's interlocutor ordering the timetable of preparation for the proof.

(vi) The deterioration of relations between Mr McCrindle and MMS
[31] Those tensions were reflected in the tone of the correspondence that passed between MGL and MMS. MMS was concerned by Mr McCrindle 's refusal to allow them to deliver documents covered by HYL's specification in compliance with the arbiter's timetable. In a letter dated 11 February 2002 Ms Olson rejected his contention that the arbiter's interlocutor was ambiguous and also rebuked Mr McCrindle for sending Mr Spence's draft report to HYL. Mr McCrindle responded in kind. In 1995 he had instructed MMS to copy to him, for clearance by him and Mr Spence before sending, all correspondence with HYL and its solicitors. In 2002 he was displeased by MMS's failure to copy correspondence with the arbiter's clerk. In his letter of 12 February 2002 he described this as "unacceptable". On 11 February 2002 MMS informed Mr Weir by fax that Mr McCrindle had not allowed it to obtain witness statements from his company's witnesses and that he had been taking them himself. Ms Weatherhead of MMS also recorded in the fax that he had not allowed MMS to go to his offices to look at the rest of the papers for inclusion in the inventories of documents. At a consultation later that day Mr McCrindle strongly objected to Mr Weir's advice that he should not attend a meeting of the experts in order not to prejudice their independence.

[32] On 14 March 2002 Ms Olson wrote a long letter to Mr McCrindle in which she expressed concern that she would not have time to analyse the thirty volumes of documents which he had produced on 27 February and the further volumes that he intended to produce before they had to be lodged in the arbitration. She also protested about his retention of the details of his witnesses and his insistence on interviewing them himself. She recorded that the Dean of Faculty (Mr Campbell QC) had expressed astonishment that she had allowed this to occur and that the Dean wished to be assured that the statements were prepared in the normal way. She also recorded that Mr McCrindle had refused her request to inspect MGL's documents at Ardrossan to check that MGL had complied with HYL's specification. She listed steps that had to be taken to remove those difficulties. In my view MMS's concerns were understandable as Mr Spence had acknowledged at a meeting with HYL on 4 January 2002 that several of MGL's claims were not vouched by documents but that witnesses would give oral evidence about them.

[33] While parties prepared for the proof, Mr McCrindle maintained communications with HYL. In a telephone discussion on 19 April 2002, Mr Geoffrey Bryce, HYL's area manager, offered to settle the claim at an all-inclusive 160,000. But Mr McCrindle declined the sum which he considered to be less than the tender of 80,000 and expenses which HYL had made in December 1997. At a consultation on 30 April 2002 Mr Campbell expressed concerns that MGL had not given HYL timely notice of its delay claims during the subsistence of the sub-sub-contract. He warned that MGL would have to overcome substantial evidential and legal hurdles to establish its case. Mr McCrindle responded by complaining that he should have been warned of that much earlier. While the consultation note does not record the whole encounter, Mr McCrindle must have criticised MMS's handling of the case in forceful terms because Ms Olson prepared a letter to him expressing concern that the solicitor/client relationship had begun to break down. She warned that counsel had considered withdrawing from acting and that she had decided to continue to receive instructions because of the closeness of the proof. Mr McCrindle apologised to her on 2 May; she accepted the apology but sent him the draft letter so that he was aware of her position.

[34] At a hearing on 2 May the arbiter postponed the start of the proof until 28 May 2002 because parties had not been able to compile and reproduce a joint inventory of productions in time. At that hearing Mr Angus Glennie QC for HYL expressed concern that Mr Spence's and Mr McGillivray's reports were statements of fact rather than reports of expert opinion. Mr Campbell explained the role of each expert and offered to make submissions on Mr Glennie's challenge to their status as experts after further consideration if the arbiter so wished. The arbiter agreed.

(vii) The dismissal of MMS and the instruction of MacRoberts
[35] The relationship between Mr McCrindle and his legal team deteriorated again when MMS learnt on about 15 May 2002 that Mr Spence would not be available to give evidence when required in the proof because of professional commitments in Thailand during three weeks from 29 May. Ms Olson wrote to Mr McCrindle to inform him that Mr Spence had said that he had told him of his commitments and that Mr McCrindle had instructed him not to mention it to MMS. Ms Olson told counsel of this and they expressed serious concern. Mr McCrindle responded that he understood that Mr Spence had told MMS about his commitments and denied that he had told him not to tell them. Matters got worse when Mr McCrindle and MMS learnt on 15 May 2002 that Mr Campbell QC had a conflicting commitment in his diary from 24 June to 5 July. In the course of discussions with HYL, Mr McCrindle was alarmed about HYL's continued challenge to the status of MGL's expert witnesses.

[36] Mr McCrindle decided to change his legal team. On 20 May he asked Mr Richard Barrie of MacRoberts to assume responsibility for the management of the arbitration with immediate effect. He told Mr Mark MacAulay of MMS of his decision by letter of the same date. MMS informed the arbiter that it was no longer instructed.

[37] In his witness statement and in his oral evidence Mr McCrindle explained that he had become concerned about MMS's performance. His list of grievances included what he perceived as its failure to copy him in on all correspondence, the failure by MMS and counsel to answer HYL's challenge to Mr Spence's status as an expert witness, the loss of the first two weeks of the proof when the productions were not ready, and Mr Colin Campbell QC's inability to represent MGL in the last two weeks of the proof. He stressed, and I accept his evidence, that he did not realise at that time that MMS had failed to answer his repeated requests for an explanation about MGL's entitlement to claim pre-award interest and that that failure did not prompt his withdrawal of MGL's instructions.

(viii) Mr McCrindle's understanding when he instructed MacRoberts
[38] One might have thought that enough had been said by MGL's legal advisers in Mr McCrindle 's presence to have alerted him to the company's predicament that it did not have a basis for recovering pre-award interest in the arbitration in any form. He was aware that there were doubts about the arbiter's powers, a desire to include a power to award interest in a joint deed of submission when Mr Dinsmore took over from Mr Robertson, and a concern to preserve MGL's position when agreeing to accept the principal sum of 10,666.34 for the agreed items in the Scott schedules (paragraphs [25] - [28] above).

[39] Nonetheless I accept that, when he first instructed MacRoberts, Mr McCrindle was not aware that MGL did not have a claim for pre-award interest against HYL. He did not receive the letters that MMS wrote to counsel nor the in-house research that MMS carried out which highlighted the problem. I accept Mr McCrindle 's evidence that while MGL instructed MMS, he did not have the understanding of the law that he later acquired and that he did not realise that the failure to raise a protective action had prevented MGL from obtaining pre-award interest in the arbitration in any form. Mr Barrie's evidence was unequivocal: when Mr McCrindle first instructed him in May 2002 he believed that MGL had a right to recover pre-award interest on its claim. I accept that evidence, which I discuss in more detail below.

MMS's admissions and my finding of breach of contract and negligence
[40] As I have said, MMS has admitted breach of contract and also breach of duty of care. In a Joint Minute the parties agreed, firstly:

"That (i) the defenders knew or ought to have known that, in the absence of any agreement (protecting the pursuer's claim to the aftermentioned retrospective interest) between the pursuer and Haden Young in the arbitration between them, it was necessary to raise collateral court proceedings in order to protect the pursuer's right to recover retrospective interest (i.e. interest in respect of the period prior to the granting of any decree arbitral) due on the claims made by the pursuer in the arbitration against Haden Young; (ii) the defenders failed to advise the pursuer that it was necessary to raise such collateral proceedings and failed to raise such proceedings, prior to the expiry of the relevant prescriptive period; and (iii) in so failing, the defenders failed to act in accordance with the standard of ordinarily competent solicitors acting with reasonable care, and were thereby in breach of the implied contractual duty and, separately, of the duty of care owed to the pursuer; all under explanation that the date within the prescriptive period by which the defenders ought to have raised such collateral proceedings is not agreed by the parties and will be the subject of evidence."

[41] Secondly they agreed:

"Having failed to raise collateral proceedings as referred to at paragraph 1 above then (i) the defenders ought to have realised by in or about August 2000 that the pursuer was unable to recover retrospective interest (i.e. interest in respect of the period prior to the granting of any decree arbitral) due on the claims made by the pursuer in the arbitration against Haden Young; (ii) during the period in which the defenders remained instructed by the pursuer (i.e. from August 2000 up to 20 May 2002) the defenders ought to have advised the pursuer that it was unable to recover such retrospective interest from Haden Young as the obligation to pay such retrospective interest had been extinguished by the operation of prescription; (iii) the defenders failed to so advise the pursuer; and (iv) in so failing, the defenders failed to act in accordance with the standard of ordinarily competent solicitors acting with reasonable care, and were thereby in breach of the implied contractual duty and, separately, of the duty of care owed to the pursuer."

[42] Those admissions are sufficient to confine the scope of the dispute to causation and quantification of loss. But I record for the sake of completeness my conclusion, which is based on Mr Simpson's expert evidence (paragraphs [14] and [15] above), that MMS also broke their contract and duty of care in failing to secure a claim for damages in a protective court action and in failing to advise MGL that the arbiter had no power to award damages. This finding does not affect the quantification of MGL's claim which is based on the loss of the opportunity to settle the claim on favourable terms. But it is necessary to bear that finding in mind in order to understand the predicament in which MMS's failures placed MGL and the unhelpful and misleading nature of the advice which MMS gave in response to Mr Barrie's enquiries (paragraph [52] below).

Questions of credibility and reliability
[43] Mr Hanretty QC for MMS rested much of his submission in relation to causation on his challenge to the credibility and reliability of Mr McCrindle 's evidence. It is convenient that I address that issue before considering the events that are central to MGL's case of a loss of a chance of settlement.

[44] Mr McCrindle is a remarkable man. He has unusual energy and determination. Those qualities have contributed to his impressive career as a self-made businessman. He built up a group of companies as general mechanical engineering contractors which took on major engineering projects and diversified into property development. He is a man who likes to be in control of events. At a consultation on 23 August 2001 he was very reluctant to allow counsel or MMS to meet with Mr Spence when he was not present. At a consultation on 11 February 2002 he argued with counsel and his solicitors when they insisted that he did not attend meetings of each side's experts. He was not at ease when he had to comply with rules that others had made. For example, he rejected MMS's advice to release documents to HYL in order to comply with the arbiter's order when HYL was not able to hand over all of the documents which it had to produce in response to MGL's specification. His dislike at being controlled or constrained also manifested itself repeatedly during the proof when he stood up when giving evidence at points when counsel challenged his evidence and in the speed with which he stepped out of the witness box at the end of a day's evidence before the court rose.

[45] Ms Olson described him as a difficult client. Mr Richard Barrie also saw him as difficult and Mr Murray Shaw, HYL's solicitor in the latter stages of the arbitration, recognised this. There is nothing wrong with being a fiercely independent person and demanding high standards of one's legal advisers. But a difficulty arises in predicting such a person's behaviour where, as here, the court has to assess how a client would respond to a hypothetical offer of settlement. Mr McCrindle considered himself to be a very experienced negotiator who had dealt with trades unions at the height of their powers in the 1970s. He deliberately did not tell Ms Olson or Mr Barrie the sum for which he would settle MGL's claims against HYL at any stage. He thought that he could negotiate more effectively than solicitors or counsel. For aught seen, that belief may have been justified. But it makes it very difficult for the court to assess his likely responses to the legal advice that he would have received in the course of settlement negotiations on the hypothesis that I must consider.

[46] Mr McCrindle also had a deep sense of grievance against MMS, whom he had engaged as his companies' solicitors for almost thirty years. He considered that MMS had been less than honest in covering up its mistakes and had betrayed his trust. He blamed it for the unfavourable outcome in the arbitration. Because MMS have admitted breach of contract and failure in its duty of care, MGL did not attempt to prove its allegations that MMS had not acted in good faith. I need make no formal ruling on that issue. But it is important and only fair when assessing the way in which Mr McCrindle gave his evidence to bear in mind his belief that his solicitors of long standing had not acted in good faith.

[47] Some of Mr McCrindle's evidence was not satisfactory and exposed him to Mr Hanretty's criticisms. He treated the task of giving evidence in some of his cross-examination as if it were a negotiation in which he endeavoured to keep his cards close to his chest. That prolonged the hearing. He was defensive when questioned by Mr Hanretty but more open in his answers when I questioned him. On occasion his evidence smacked of retrospective rationalisation and could not be relied on, such as his assertion that he reached an agreement with Mr Bryce on 22 May 2003 (paragraphs [64] to [66] below). Some of his assertions, particularly when he was in a combative mood, were simply not credible. For example I reject his assertion that he had not spoken to his employees before MMS obtained witness statements from them. That is contradicted by contemporary documentation and is in any event inconsistent with his controlling approach to the arbitration. I accept that he did not personally obtain witness statements from the employees; but I cannot believe that he did not discuss the nature of their potential evidence in the arbitration with them. On another occasion he showed that he was not averse to generating evidence retrospectively to support his case, when he got HYL as part of the eventual settlement to send him a letter complaining about MMS's failure to respond to the "Mackay initiative" (paragraphs [100] to [106] below).

[48] Those flaws in his evidence have caused me to consider carefully his account of events and to look for corroboration where it is available. In particular I bear in mind the danger of retrospective rationalisation when I consider his evidence about the critical meeting on 29 May 2003 which MGL presents as the lost opportunity. Nonetheless, my general impression was that, subject to some combative exchanges in the heat of cross examination, Mr McCrindle tried to give his honest recollection in his evidence. I accept as broadly accurate his evidence of his continuing uncertainty about whether MGL had a claim for retrospective interest against HYL in any guise and that that uncertainty hampered the negotiation of a settlement in the arbitration. In this regard he is corroborated by Mr Barrie and by contemporary documentation. I also accept that by 29 May 2003 he was keen to settle the arbitration if he could.

[49] Mr Hanretty also criticised Mr Barrie's evidence that he believed that, had they not been distracted by the issue of pre-award interest, HYL would have offered and Mr McCrindle would have accepted an all-inclusive sum of 400,000 at the meeting on 29 May 2003. This, he suggested, was merely speculation. Otherwise he did not seriously challenge Mr Barrie's evidence. I think that Mr Barrie did not provide a persuasive basis for his belief in that hypothetical situation. But I see no reason to question the thrust of Mr Barrie's factual evidence. He struck me as a witness who took care to give accurate evidence in so far as he could recall events. Inevitably, he could not remember the detail of events that occurred about a decade ago. No challenge was made to the evidence of Ms Olson or Mr Shaw.

Events after 20 May 2002
(i) The preliminary proof
[50] Mr McCrindle 's instructions to MacRoberts to take over the arbitration gave Mr Barrie a daunting task, because the proof was due to commence on 28 May. Mr McCrindle described the dispute with HYL and gave a copy of the Closed Record to Mr Barrie, who read its claim for interest but speedily ascertained that there was no deed of submission and no protective legal action. Mr Barrie was clear in his evidence that, at that first meeting, Mr McCrindle believed that MGL was entitled to claim pre-award interest but was vague as to the basis of that claim. Mr Barrie was aware that, with the passage of time, the interest element of the claim would be as large as the principal sum. He warned Mr McCrindle that without either of those documents MGL would probably not be able to claim interest. Mr Barrie ascertained that MGL had been represented by experienced counsel and thought that they would have advised MGL that it did not have a claim for interest, if no such claim existed. He thought that Mr McCrindle was confused and that there would have been some protection in place for pre-award interest.

[51] MGL confirmed Mr Barrie's instructions on 21 May 2002 and he hurried to MGL's factory in Ardrossan to review the papers that were relevant to the arbitration. He was surprised by the volume of documents that he had to consider and realised that he could not start the proof on 28 May. At a hearing on 22 May HYL opposed his motion to postpone the proof for two weeks. Mr Glennie QC in the course of his opposition to further delay referred to MGL's claim for interest. He stated that HYL did not accept that the arbiter had power to award interest but submitted that 8% was well above bank rates and that it should be a condition of any discharge of the proof that interest would not accrue between the date of discharge and the fresh diet. Mr Dinsmore suggested that the parties use the time available for a preliminary proof to identify the contractual documents which governed the sub-sub-contract. That was agreed and the preliminary proof began on 11 June 2002.

[52] Mr Barrie spent the days leading up to 11 June preparing for the preliminary proof. Having reviewed the relevant papers, he advised Mr McCrindle that he thought MGL had no basis for claiming pre-award interest and expressed his surprise that neither MMS nor counsel had so advised him. On 23 May 2002 Mr Barrie faxed MMS to ask Ms Olson to confirm whether she believed the arbiter had no power to award interest and how MGL could secure that interest. Ms Olson replied by fax on 24 May. She explained that MMS's files for 1992 and 1993 were in storage but that she understood that no deed of submission had ever been signed. She stated:

"The contract between the parties does not to our knowledge provide for interest to be payable on the outstanding sums.

The basis for Mr McCrindle's claim for interest is set out in Statement 12 in the Closed Record. It is a crave for interest as damages for wrongful withholding of payment."

She then described the court proceedings for 81,200 and stated:

"In summary, Mr McCrindle does have a claim for interest, as set out in Statement 12 of the Closed Record. He is well aware of the basis for his claim as the issue was certainly discussed at consultations with counsel that Mr McCrindle and the writer attended in November 2000 and in August 2001."

[53] The preliminary proof began on 11 June. Evidence was led over several days subject to interruptions. On 17 June 2002 Mr Barrie again faxed Ms Olson to ask her to clarify MMS's understanding of the basis on which MGL could claim pre-award interest and why no protective action was raised. He explained that he needed the information in order to evaluate any offer of settlement that HYL might make. Ms Olson replied on 21 June. She explained that the claim in statement 12 of the Closed Record was a claim for damages rather than interest; any power of the arbiter to award interest and HYL's assertion that he had no such power were irrelevant. She asserted that the claim in statement 12 was valid and should be used to the fullest extent in negotiations. Mr Barrie responded on 18 July, stating that the interest issue would dominate any settlement negotiations with HYL and that MGL proposed to take the opinion of senior counsel.

[54] MMS released its productions in the arbitration to MacRoberts shortly after Mr McCrindle instructed Mr Barrie but it did not hand over its files, which it retained in the exercise of a lien. While Mr Barrie had the correspondence that MMS had copied to Mr McCrindle, he did not have the communications which had not been copied or MMS's internal memoranda. He was therefore not able to make much of Ms Olson's explanations about the claim in statement 12 of the Closed Record, particularly as he could not see how the arbiter had been empowered to award damages.

[55] In December 2002 Mr Dinsmore issued his proposed findings in the preliminary proof in which he found against MGL. Mr McCrindle was very disappointed by the result and described it in a letter to Mr MacAulay of MMS on 3 January 2003 as a "serious setback" which jeopardised 100,000 of MGL's claim. MacRoberts prepared submissions on the arbiter's draft interlocutor and in March 2003 lodged a minute requesting the arbiter to state a case for the opinion of the Court of Session.

[56] Meanwhile, on 9 January 2003 Mr Barrie sent a memorial for the opinion of James McNeill QC. While awaiting the opinion, Mr Barrie suggested to Mr McCrindle in a fax dated 16 January that if counsel advised that there was no prospect of recovering pre-award interest "then we are clearly in the territory of a claim against Maclay Murray & Spens for professional negligence." In an opinion, which Mr Barrie received on 17 January, Mr McNeill advised that the arbiter did not have power to award interest for a period before his decree-arbitral and that a claim in a new court action for wrongful withholding would face a strong argument that the obligation had prescribed.

[57] There is no doubt that by this stage Mr McCrindle knew both that MGL's claim in the arbitration for pre-award interest faced serious problems and that he might have a claim for professional negligence against MMS. On 29 January 2003 he wrote to Mr Barrie to discuss correspondence with MMS in relation to their outstanding fees before he had received Mr McNeill's opinion. He stated:

"You also suggested a draft response on the basis James believed we could recover retrospective interest. It is now clear we cannot. You also indicated we could even be at risk for the recovery of our damages on the basis of the current Maclay Murray & Spens pleadings."

He asked Mr Barrie to draft a letter to MMS on the interest issue.

[58] On 11 February 2003 Mr Barrie wrote to MMS to intimate a potential claim on behalf of MGL. He enclosed copies of the memorial to Mr McNeill and his opinion and said that, if his understanding of the facts were correct, there was no scope for recovering pre-award interest. But he also sought information from MMS. He stated:

"As you will appreciate our clients are reluctant to contemplate a settlement with the Respondents unless they enjoy a clear view as to where they stand on the issue of interest. In the event that there is a possibility of recovering retrospective interest against the respondents then clearly that will require to be factored into any settlement offer. Alternatively, in the event that Senior Counsel is correct and there is little or no scope for recovering retrospective interest then our clients would have little or no choice other than to consider a very significant compromise with the respondents to reflect the absence of any interest being recovered from the Respondents".

Mr Barrie pointed out that he had not had access to MMS's files. He stated that there was a theoretical possibility that the files might contain something that would trigger a claim for retrospective interest. But he had not seen anything of that nature in the copy correspondence which Mr McCrindle held.

[59] On several occasions Mr McCrindle and Mr Barrie discussed the question of MGL's entitlement to pre-award interest. In a diary note of a meeting on 31 January 2003 Mr McCrindle recorded Mr Barrie's report of a discussion with Mr Murray Shaw of Biggart Baillie about the expenses of the arbitration and the forthcoming proof. In the discussion the parties assumed an award (without interest) of between 350,000 and 400,000 and total costs, including the expenses of both parties, of over 900,000. Mr Barrie told Mr McCrindle that he had said to Mr Shaw that MGL was reviewing the question of interest and believed that he had said that MGL would get the interest either from HYL or from MMS's insurers. In a diary note of a meeting with Mr Barrie on 16 April 2003 Mr McCrindle recorded that Mr Barrie had told him that he had told Mr Shaw that MGL was not conceding the interest issue and that he was still dealing with MMS on the issue. In a letter dated 17 April he sent Mr Barrie a copy of the diary note. He stated in the letter that he thought MGL's total claim remained about 900,000 and he looked for a "fair and reasonable prime sum" against that sum. He continued:

"The 'interest' issue is much less complicated. It will either be paid by Haden Young or Maclay Murray & Spens. Although I do expect we may require a hearing before Mr Dinsmore on the 'interest' issue to properly satisfy the professional indemnity insurers of Maclay Murray & Spens."

(ii) Preparation for the proof
[60] The proof in the arbitration was set down for six weeks commencing on 29 April 2003. In early April 2003 Mr Barrie prepared and intimated a minute of amendment to bring the written pleadings into line with the Scott schedules and to increase the sum sued for from 871,927.27 to 957,218.75. He also intimated new expert reports from a Mr Crawford and a Mr Knubley. On the first day of the proof HYL unsuccessfully opposed the receipt of the minute of amendment and those reports. HYL challenged Mr Dinsmore's decision by judicial review but on 6 May 2003 Lord Brodie refused its petition. HYL's immediate response was to make a new offer in settlement.

(iii) HYL's offers
[61] It will be recalled that HYL had lodged a tender for 80,000 in December 1997 (paragraph [19] above) and had made an inclusive offer of 160,000 to settle in April 2002 (paragraph [33] above). On 6 May 2003 Mr Shaw handed Mr Barrie a letter in which HYL offered to pay 160,000 exclusive of VAT together with the expenses of the arbitration but under exception of three items of expense on which it sought agreement or a determination by the arbiter. Those items were (i) the expenses of the preliminary proof, (ii) the expenses arising from MGL's change in legal representation in May 2002 and the discharge of the proof in May and June 2002, and (iii) fees incurred in instructing Mr Spence except any in respect of which he would be certified as an expert witness. Mr Barrie gave evidence, which I accept, that Mr Shaw stated, when he handed over the letter, that, if the offer was not attractive enough, there was still some room for manoeuvre on HYL's part, so long as the parties were in the same ball-park.

[62] This offer was modelled on the "Calderbank offer", which is used in the English courts. Biggart Baillie also lodged it in a sealed envelope with the arbiter's clerk. HYL was concerned that it might have to pay the whole costs of the arbitration and sought to preserve its entitlement to the expenses of the preliminary proof and also the chance to argue that Mr Spence should not be certified as a skilled witness. Mr McCrindle did not wish to accept the offer. Both he and Mr Barrie were disappointed by the level of the offer as they had been hoping to receive an offer of between 400,000 and 500,000 including expenses. Mr Barrie was confident that MGL would beat the offer of 160,000 and thought it likely that the claim was worth more than 200,000. Nonetheless, as I discuss below, when the proof progressed they decided to take counsel's advice on the validity in Scots law of the "Calderbank offer". I infer from that action that they were by then aware of a real risk that MGL might not be awarded more than 160,000 as a principal sum and thus not beat the offer.

(iv) The proof and settlement discussions
[63] The proof commenced after the judicial review. Mr McCrindle was the first witness for MGL. He was followed by Mr Spence who gave evidence between 10 and 29 May. While he gave his evidence in considerable detail, the solicitors for each side raised the possibility of settlement as each foresaw a lengthy and expensive proof. On about 12 May Mr Barrie and Mr Shaw discussed the scope for a settlement. Mr Barrie suggested that it was critical to ascertain whether Mr Spence's evidence went well. Mr Shaw suggested that HYL would require Mr McCrindle to give it some idea of the amount that he was looking for in a settlement. In the event, Mr Spence's evidence did not go well for MGL. On Mr Glennie's detailed cross-examination he had repeatedly to admit that he had relied on the evidence of others in formulating MGL's claims and that he was not able independently to vouch those claims. He also accepted that he had made a number of errors. He also made concessions that MGL's team thought were not necessary. It was clear that his evidence disappointed both Mr McCrindle and Mr Barrie. Mr McCrindle stated in evidence that he thought that Mr Spence was "not quite with us" and he was worried about his health. He said the experience depressed him enormously.

[64] On 22 May 2003, when Mr Spence continued to give evidence on cross-examination, Mr McCrindle and Mr Geoffrey Bryce of HYL spent the afternoon in what Mr McCrindle described as amicable discussions in an attempt to find common ground on a basis for settlement of the dispute. Their discussions continued into the evening on a train to Glasgow and in Mr Bryce's car in the car park of Queen Street Station, Glasgow until about 10.30pm. In his evidence Mr McCrindle referred to the discussions as the "Queen Street concordat" and suggested that Mr Bryce had agreed in principle to pay an inclusive sum of 525,000 to MGL to settle the action, subject to obtaining authority from his superiors. He said that Mr Bryce had telephoned the next day and had frostily informed him that he would not offer any more than 350,000.

[65] In a contemporaneous manuscript note he recorded the figures that they discussed. He also got Mr Bryce to write on the note "handwritten by W McCrindle at 10.30pm Queen Street Station in G Bryce's car 22/05/03". The figures set out HYL's offer of 160,000 and MGL's expenses of 252,000, amounting in total to 412,000. It then stated MGL's claim of 620,000 and HYL's offer of 160,000, added them together and then divided the result by two to reach the mid-point of 390,000. Adding the expenses of 252,000 to the figure of 390,000 gave a result of 642,000. To that sum Mr McCrindle added 412,000 (being HYL's offer of 160,000 and MGL's expenses of 252,000), giving a total of 1,054,000 (incorrectly stated as 1,052,000), which he then divided by two to reach the rounded down figure of 525,000. The exercise appears to have been an attempt to calculate the midpoint between (HYL's offer + MGL's expenses) and (the midpoint of each side's offers + MGL's expenses). Mr McCrindle gave evidence that he believed at the time that he had reached an agreement in principle that HYL would pay that sum. On the manuscript document Mr McCrindle also listed issues to be determined. MGL sought payment of the agreed 10,267 for items in the Scott schedules and the expenses of (i) the May 2003 judicial review, (ii) the judicial review in relation to Mr Robertson's appointment (1992-93), and (iii) the "pay when paid" legal debate in 1998. The other issue to be determined was the expenses of the preliminary proof.

[66] I am satisfied that a lengthy discussion took place between Mr McCrindle and Mr Bryce on 22 May and that the manuscript note is a genuine contemporary document which Mr McCrindle wrote and Mr Bryce verified. But I am not persuaded that Mr McCrindle is correct in his recollection that Mr Bryce agreed in principle the figure of 525,000 as a basis for settlement. On cross-examination Mr Hanretty showed Mr McCrindle his diary entry for 22 May 2003 which recorded MGL's offer to settle for similar figures (527,000 plus 10,000 for the agreed Scott schedule items) and the expenses of (i) the judicial review challenge to Mr Robertson's appointment, (ii) the "pay when paid" debate and (iii) the recent judicial review. The entry continued:

"Geoff says this is unacceptable and we parted in good spirits."

Mr McCrindle accepted that he could not reconcile this contemporary record that there was no agreement with his recollection. I accept that Mr Bryce stated on the following day that he would not offer more than 350,000 all-inclusive. There was also evidence that Mr Bryce was annoyed by Mr McCrindle's assertion that he had agreed in principle that HYL should pay the higher figure. See paragraphs [91] and [92] below.

[67] The proof continued. The arbiter fixed a further diet of six weeks in November and December 2003. Mr Spence completed his evidence on 29 May 2003. There then occurred a settlement negotiation that MGL has placed at the centre of its claim for damages both in relation to its arguments on causation and on quantification. I must therefore examine the evidence relating to this meeting in some detail.

(v) The settlement negotiation on 29 May 2003
[68] It is not clear who within the HYL team initiated the joint consultation on 29 May after Mr Spence completed his evidence in the arbitration or whether it was organised much in advance. But it is clear that both parties intended it to be a serious attempt to settle the dispute. The meeting took place in the Lord Reid Building in the High Street and rooms were reserved for each of the parties and their legal teams. The meeting lasted approximately two hours. It did not result in a settlement. But it was the closest the parties came to settlement until the dispute was resolved in 2004.

[69] Mr McCrindle's and Mr Barrie's recollection, which I accept, was that someone in the HYL team, probably Mr Glennie, suggested that the parties should try to negotiate a settlement but that before the parties sat down, Mr McCrindle had to agree that he would accept an overall settlement in six figures which began with the number four. Mr Barrie interpreted this as meaning that HYL saw the scope of the discussion was to achieve a settlement in the range of 400,000 and 499,999. He advised Mr McCrindle that the precondition of the meeting was that if HYL offered the latter figure, MGL had to accept it. Mr McCrindle agreed to take part in the discussion on that basis. The figures to be discussed were to be exclusive of VAT. Mr Barrie informed Mr Shaw that MGL accepted the pre-condition.

[70] Within the Lord Reid Building, HYL's team, which comprised Mr Angus Glennie QC, Mr Charles Cowie, advocate, Mr Shaw, Mr Ron Lindsay, who was HYL's Scottish quantity surveyor, and Mr Bryce, occupied one room. MGL's team, which comprised Mr Barrie and Mr McCrindle, occupied another. The parties' legal advisers shuttled between the two rooms.

[71] Mr Barrie did not take notes of the discussions and there is no evidence that others did. I heard only the evidence of Mr McCrindle, Mr Barrie and Mr Shaw about what occurred. While it is clear that the conversations were side-tracked into a discussion about pre-award interest before any agreement was achieved on the amount of the principal sum, there must have been some detailed discussion of the value of MGL's claim to fill the time that the meeting took. The recollection of the three witnesses varied; but none recalled the detail of those discussions.

[72] Mr Shaw recalled that there had been a meeting on that date but nothing had caused it to stay in his memory as an important or critical meeting. He had only a very limited recollection of the meeting. Mr McCrindle gave evidence that in response to HYL's opening offer of an inclusive sum of 350,000, he had made a counter offer of 450,000. He said in evidence that he would have been prepared to settle for 400,000 if he could have obtained certainty over MGL's entitlement to pre-award interest either from HYL or MMS's insurers. At the meeting he suggested that the parties seek to agree the principal sum due to MGL and also expenses. Thereafter, the parties could approach the arbiter for a ruling on pre-award interest. Mr Glennie rejected the idea of allowing the arbiter to rule on interest and no agreement was reached on the principal sum and expenses.

[73] Mr Barrie recalled HYL's opening offer of 350,000 but did not remember any counter-offer from MGL. On the contrary, he said that Mr McCrindle did not disclose any figure at which he would settle. He remembered discussing the merits of each party's case with HYL's legal team and expressing the views that MGL would beat the tender of 80,000 and that the "Calderbank offer" was not a valid tender. Mr Glennie suggested that HYL would seek to persuade the arbiter to have regard to that offer if MGL did not beat the figure of 160,000. Mr Barrie recalled that MGL asked HYL for its proposals for pre-award interest and HYL responded that they had none as the arbiter had no power to award such interest. Mr McCrindle suggested that, in order to achieve clarity on the issue, they should request the arbiter to decide whether or not he had power to award such interest on a negotiated principal sum. But Mr Glennie rejected that proposal and said that it was for Mr Barrie to advise MGL on that issue.

[74] HYL's refusal to allow the arbiter to rule on his power to award interest surprised Mr Barrie, who was also puzzled that HYL had allowed MGL to spend days leading evidence in support of a claim for damages. He was uncertain whether there was something in MMS's files which supported the existence of an agreement to empower the arbiter to award interest and damages. He told Mr McCrindle that he could not guarantee that MGL was not entitled to recover pre-award interest in the arbitration. The meeting ended without any agreement. Mr Barrie expressed the view in his evidence that the meeting failed because Mr McCrindle was terrified of doing a deal which might cause him to lose MGL's claim for pre-award interest.

[75] The importance of the meeting is, as I have said, that MGL relies on it to support its case that MMS's breaches of contract lost it the chance of a favourable settlement on that day. Both Mr McCrindle and Mr Barrie expressed the view that if there had been certainty that MGL's claim for interest had prescribed, Mr McCrindle would have settled for 400,000 plus VAT. Mr Barrie suggested that HYL would have offered that sum because it was very keen to settle to avoid paying in excess of 8,000 per day on the arbitration. Agreement of such a figure would have caused each side to waive all entitlements to expenses. He thought that the arbiter would have awarded most of the expenses of the preliminary proof to HYL and that he would not certify Mr Spence as an expert witness. The deal would have involved each side bearing its own expenses and waiving all pre-existing awards of expenses. Mr McCrindle's view was based on his recollection that he had made a counter-offer of 450,000 and that HYL would split the difference between their positions. He also gave evidence that he would have settled MGL's claim in the range of 350,000 - 400,000. As their assessments of the likely outcome of the negotiation, on the hypothesis of certainty about interest, rested on differing recollections about the progress of the discussions, I cannot regard them as wholly supporting each other and look also to contemporary documentary evidence to form a view on what might have occurred.

[76] There are contemporary documents which support the view that the meeting was a significant opportunity for the parties to settle the arbitration. Mr Barrie's recollection that Mr McCrindle's disappointment at Mr Spence's performance under cross-examination made him wish to settle is supported by what he wrote at the time.

[77] On 27 May Mr Barrie spoke to Mr Donald of Shepherd & Wedderburn ("S & W"), who were acting for MMS's PI insurers, to update him on developments. Mr Donald's file note recorded that HYL had made an offer in the absence of payment of interest and that Mr McCrindle considered the offer to be "totally inadequate". Mr Barrie asked whether MMS's insurers would pay the interest which he assessed would be 120% of the principal sum in any settlement. The offer was in the order of 250,000. Mr Donald advised that the insurers would not pay such a sum. I consider the figure of 250,000 which Mr Barrie mentioned must have been a reference to Mr Bryce's offer of 350,000 less an allowance of 100,000 for MGL's expenses, as that tallied with Mr Barrie's evidence about his thinking when he approached the negotiation on 29 May.

[78] A later S & W file note of a telephone conversation on 29 May recorded that Mr Barrie advised that the parties were trying to see if agreement could be reached. Because he had not had access the MMS's files, he wished to be satisfied that there were not arguments in relation to the arbiter's power to award interest which should be advanced. The note ended by recording:

"He advised that if interest was factored out then the settlement sum now being proposed was a figure likely to be acceptable to Mr McCrindle."

[79] Mr Shaw's file note of events on 29 May 2003 also is instructive. It stated:

"Travelling through to Edinburgh. Concluding the evidence of Mr Spence. Thereafter entering into settlement negotiations with Mr McCrindle and Richard Barrie. The position was that Mr McCrindle was keen to settle but there were issues about the sums and whether or not settling would cause prejudice with his claim against Maclay Murray & Spens. Discussing the matter in some detail with Angus Glennie and the clients. Discussing various schemes whereby we can seek to a sist [assist?] but agreeing that none of these work. Eventually leaving matters on the basis that McCrindle would think about matters overnight and possible take counsel's advice.

Subsequent phone call with Richard Barrie at the house and noting that they were seeing John McNeill first thing. Discussing the position with him."

[80] Mr Barrie's manuscript fax to James McNeill QC at 2005 hours on 29 May also is consistent with what he told Mr Donald. Before setting out three issues on which he wished to consult, he summarised developments thus:

"Arbitration progressing slowly. Real prospect of settlement. The potential obstacle is the interest issue however and the impact of the letter of 6th May 2003 (attached)."

[81] At the consultation early on 30 May 2003 Mr McNeill advised MGL on whether a settlement with HYL would preclude a claim against MMS and on whether the arbiter would view the "Calderbank offer" as equivalent to a tender. Mr McNeill advised that there were strong grounds for the contention that HYL could not use the letter of 6 May 2003 as the equivalent of a formal tender in relation to an entitlement to expenses. He confirmed this advice in writing on 17 June 2003. In the meantime, Mr Barrie, with Mr McCrindle's concurrence, instructed a second opinion on the issue from Mr Stephen Woolman QC. In his written opinion of 3 June Mr Woolman advised that the letter was a tender and that in any event the arbiter was likely to take it into account when awarding expenses as it was a genuine attempt by HYL to settle the proof.

[82] It is in my view significant that Mr McCrindle and Mr Barrie thought it appropriate to obtain a second opinion on the "Calderbank offer". If they had been very confident that MGL would be awarded significantly more than 160,000, there would have been no reason to treat the letter as a significant threat to MGL's entitlement to expenses thereafter. This view is supported by a business entry written by Isobel Griffiths of Biggart Baillie dated 8 July 2003 recording a consultation with Mr Glennie and Mr Cowie. The note records that Mr Glennie said that there was little doubt that the arbitration would have settled if Mr McNeill had not said what he did about the "Calderbank offer". I conclude that there was a real opportunity for settlement at the end of May 2003 if there had been greater clarity about MGL's entitlement to pre-award interest. I discuss what that chance amounted to in paragraphs [148] to [156] below.

[83] The opportunity for a settlement passed. The proof resumed and Mr MacMillan gave evidence on behalf of MGL during the final week of the May/June diet. Mr McCrindle considered that his evidence was of much better quality than that of Mr Spence. This appears to have restored some of his confidence in his claim. On 5 June 2003 Mr Shaw recorded that the arbiter had fixed a further diet from 4 May 2004 to 11 June 2004 to follow the diet in November and December 2003. He recognised that the arbitration made no commercial sense for either party. He emailed his expert witness to report:

"We did not manage to settle though economics are mad."

(vi) MMS's approach to Mr Barrie's enquiries
[84] Before discussing the progress of the arbitration until the eventual settlement, it is appropriate to record the policy which S & W and MMS adopted to Mr Barrie's enquiries.

[85] S & W adopted a strategy of sitting on the sidelines waiting to see what developed. Mr Donald said so in a discussion with Ms Olson recorded in a file entry dated 7 April 2003. On 17 April 2003 Mr Donald explained to MMS's insurers that he could not advise on liability without a careful review of MMS's previous files. After Mr Barrie's enquiry on 29 May Mr Donald discussed the policy with MMS on 30 May. His file note recorded:

"Attendance at telephone with Bruce Patrick of Maclays. Discussing position with him. Our reflection now was that it might be better to offer no form of indication of our position. If settlement was to be agreed upon the basis that the Arbiter had no power to award interest then that had to be on the basis of MacRoberts' own advice."

In my view, the pursuit of this policy by MMS and S & W maintained the causal link between the second of MMS's admitted wrongs (paragraph [41] above) and the difficulties that MGL faced in reaching a settlement with HYL.

[86] Mr Barrie telephoned Mr Donald again on 13 June to report that the diet had ended and that further diets had been fixed for the end of the year and in the following year. He stated that there had been reasonable dialogue between the parties but that the sticking point remained over interest. He wrote to Mr Donald on 19 June to request the insurers to confirm to the best of their knowledge that the arbiter did not have power to award retrospective interest, as that might enable the parties to compromise the arbitration. On 24 June Mr Donald sent the insurers a copy of Mr Barrie's letter and advised that the size of the potential claim justified a complete review of MMS's files, particularly as MGL had instructed counsel directly for a period when MMS had not been involved. In a letter of the same date he gave similar advice to Ms Olson. At a meeting on 16 July 2003 between Mr Donald, Ms Olson and a representative of the insurers it was agreed that the MMS files would be reviewed. Ms Olson sent the files to Mr Iain Drummond of S & W on 19 August 2003. On 27 August 2003 S & W instructed Mr Gordon Reid QC for an opinion. In an opinion dated 14 September 2003 he advised that the arbiter had no power to award interest and no power to assess or award damages in the arbitration. The opinion concluded:

"The raising of an action at the outset, when arbitration proceedings were being contemplated, to secure the running of interest at least from the date of citation, would have avoided much of the difficulty in relation to interest which has subsequently arisen."

[87] Thus it appears that the problem for MGL, MMS and the insurers was the same. Until the full facts had been ascertained from MMS's files no concession could be made in relation to the arbiter's power to award interest. But it lay in the hands of MMS and the insurers to achieve that needed clarity.

(vii) The progress of the arbitration from June 2003 until settlement
[88] The arbitration was inactive between June and November 2003. Mr Barrie recalled that as Mr Macmillan's evidence in chief had gone well, Mr McCrindle's morale was relatively high in this period. But it was necessary to progress settlement discussions in an attempt to avoid heavy preparatory costs for the six-week diet in November and December. On 16 September 2003 Mr Barrie wrote to Mr Donald to remind him that he awaited clarification of the insurers' position and to express MGL's disappointment at the continued delays. He stated that his client could not settle the arbitration until it was clear whether the arbiter could award retrospective interest.

[89] On 2 October 2003 Mr Donald replied. He stated that MMS and S & W had reviewed the files and had concluded that the arbiter did not have power to award the judicial interest that MGL claimed. It was, he said, for MGL to decide how to progress the arbitration and explore the possibility of any settlement with HYL. But he invited him to consider three points and reminded that MGL had a duty to maximise recovery in the arbitration. The three points were:

"1. It is our understanding that the claim in the arbitration seeks recovery of finance charges. To the extent that this is interest by another name, it must be for your clients to maximise recovery of finance charges whether by a determination of the Arbiter or through negotiated settlement.

2. Consideration should be given to the raising of new Court proceedings for interest and/or finance charges with the action to be sisted pending outcome of the arbitration. It will be appreciated by you that recovery could be effected for the five years prior to the raising of any action.

3. You will be aware of the existence of the Court action brought in 1994 for 81,200. Interest has competently been claimed in that action. It will also be for your clients' consideration whether it would be appropriate to amend that action to include the sum sought in the arbitration, securing a claim for judicial interest from the date when the proceedings were raised."

[90] Mr Barrie consulted Mr McNeill on this letter on 14 October 2003 and obtained his written opinion. Mr McNeill warned that a new court action would be likely to face the plea of negative prescription. By this time Mr McCrindle was aware of an offer of settlement from S & W which I discuss in paragraph [93] below. On 15 October Mr Barrie wrote to Mr Shaw with an offer to settle the arbitration. Against Mr Barrie's advice, Mr McCrindle insisted on renewing the proposal for a settlement at 525,000. Mr Barrie advised him to renew the negotiations of 29 May and not to pursue the sum of 525,000 as his earlier assertion that there had been a deal at that sum had "caused bad blood" with HYL. Mr McCrindle faxed Mr Barrie to tell him that he was taking "a very firm line" on the 525,000 and the costs of the judicial review before Lord Brodie. On his instructions Mr Barrie referred in his letter to the discussion of 22 May and the figure of 525,000. He said that MGL would not insist on the four extra items in addition to the 525,000 but would accept that sum and also payment of its expenses for the judicial review proceedings before Lord Brodie.

[91] Biggart Baillie consulted Mr Bryce who instructed them to reject the offer. After discussing drafts of a reply with Mr Lindsay of HYL and counsel, Biggart Baillie responded by letter dated 21 October. They wrote that HYL was acutely aware that the costs of the arbitration were "wholly disproportionate" to the amount of the claim and had tried to reach settlement. But HYL rejected MGL's proposal in peremptory terms:

"We will not go into the details of the discussions that have taken place nor the reasons why attempts have proved fruitless. However, to avoid future misunderstandings, we must put the record straight about the meeting on 22 May this year. It is true that at that meeting the figure of 525,000 was put forward by Mr McCrindle for an "all in" settlement. However, it was immediately rejected by Mr Bryce. We have told you that more than once since then. Our clients regard such a figure as wholly unrealistic. In so far as your letter seeks to suggest that the parties were close to agreement on that figure it is inaccurate. Our clients do not regard a repetition of that offer (with or without the four discrete sums to which you refer) as a constructive or reasonable attempt to reach agreement on a compromise."

HYL considered that the evidence in the arbitration had strengthened its case and saw no prospect of settlement unless MGL was willing to settle in accordance with the principles set out in HYL's "Calderbank offer".

[92] This exchange is significant for two reasons. First, it supports the view that Mr McCrindle had acquired a mistaken recollection that he and Mr Bryce almost did a deal at 525,000 some time after the meeting on 22 May. He asserted that there had been "a strong measure of agreement with Mr Bryce" in a draft letter dated 9 October which he prepared for Mr Barrie to send to Mr Shaw. Yet, as mentioned in paragraph [66] above, his contemporary diary entry did not support his recollection. Secondly, it shows that HYL was prepared to renew discussions at the sort of figures which it had proposed in early May. This was notwithstanding Mr Spence's poor performance as a witness and HYL's irritation, of which Mr Shaw spoke in evidence, at Mr McCrindle's repeated assertion that they had been close to a deal at 525,000.

[93] At about the same time, S & W discussed the possibility of settling a claim by MGL against MMS. In a telephone conversation with Mr Barrie on 13 October, Mr Donald suggested that if one took as a starting point a principal sum of 160,000, interest thereon would be just over 144,000. Allowing for MMS's outstanding fees and outlays to counsel, a sum of about 70,000 would be due to MGL. Mr McCrindle was not prepared to accept a settlement at this level.

[94] The arbitration continued at considerable expense in November and December 2003 during which Mr MacMillan gave further evidence. On 23 December 2003, Mr Barrie updated S & W on progress. He explained that the parties had done little in an attempt to settle the dispute. A further diet of six weeks was scheduled to begin in May 2004 and a diet of five weeks in the autumn of 2004. HYL would not improve its offer above 160,000 but he hoped it would be possible to squeeze a bit more out of them.

[95] In February 2004 Mr Dinsmore found MGL liable for 90% of the expenses of the discharged diet of proof from 28 May 2002 and also the whole expenses of the preliminary proof on the contract documents. Biggart Baillie had law accountants prepare an account of the expenses which totalled in excess of 130,000. MGL suffered further misfortune after a hearing on 23 February 2004 when the arbiter by interlocutor dated 6 May 2004 refused its motion to allow the Record to be amended in terms of the Minute of Amendment which he had allowed to be received in May 2003. Since then MGL had adjusted the Minute of Amendment in October and December 2003 and insisted that the arbiter either allow it in full or refuse it. He decided to refuse it although the proof in 2003 had covered material contained in the initial Minute of Amendment. In about April 2004 Mr McCrindle commenced discussions with Mr Peter Barnes, a director of HYL, in an attempt to settle the arbitration. On 6 May 2004 Mr Shaw wrote to Mr Barrie to renew HYL's offer of 6 May 2003 and to make an all-inclusive offer of 55,000 with the added benefit that HYL would waive its entitlements to expenses.

[96] In late 2003 Mr McCrindle became concerned that he had lost what he saw as the moral high ground in the dispute. He came to believe that MMS had in April 2002, without consulting him, rejected a viable proposal by Mr MacKay, the arbiter's clerk which would have limited a witness's evidence in chief to two hours. He thought that this rejection had caused HYL to believe that MGL was deliberately prolonging the evidence as a device to obtain a favourable settlement of the arbitration. I discuss this in paragraphs [100] to [106] below as "the Mackay initiative". In his evidence Mr McCrindle said that this affected his willingness to continue the fight in the arbitration.

[97] MGL also obtained a further opinion from Mr McNeill QC dated 13 May 2004 on whether the arbiter might take account of the "Calderbank offer" within his discretion in relation to an award of expenses after 6 May 2003. Mr McNeill warned that MGL's position would be "precarious" if it were to accept the offer one year after it was made. Further bad news came on 21 May when the arbiter issued a certificate refusing MGL's request that he state a case for the opinion of the Court of Session on whether he was correct in law in refusing to postpone his award of expenses for the preliminary proof until the conclusion of the proof before answer.

[98] Mr McCrindle also suffered from ill health at this time. On 13 May 2004 his doctor discovered an irregularity in his heart beat. This caused him to be seriously worried about his health and the strain that the arbitration placed on him. In his evidence he explained that this concern and also his discovery that MMS had refused the "MacKay initiative" caused him to settle the arbitration for a low sum.

[99] Discussions between Mr McCrindle and Mr Peter Barnes culminated in an agreement on 3 June 2004. MGL accepted an offer by HYL to settle the arbitration for 90,000 plus VAT, with a finding of no expenses due to or by either party, and an agreement that the parties would not enforce any other awards of expenses in the arbitration.

The MacKay initiative
[100] It is necessary to discuss briefly Mr McCrindle's behaviour in relation to the MacKay initiative as Mr Hanretty used the incident as a ground of challenge to the reliability of his evidence.

[101] In March 2002 Mr MacKay, the arbiter's clerk, suggested to Ms Craig of Biggart Baillie that the parties should lodge full witness statements and that a time limit be placed on each witness's evidence in chief. He suggested that two hours might be appropriate. Ms Craig informed Ms Olson and the solicitors for each of the parties asked their counsel for advice. HYL's counsel responded cautiously. On 25 March Ms Craig wrote to Mr MacKay to express a provisional view that the time limitation was not appropriate. She copied this response to Ms Olson. Mr Robert Weir informed MMS that he and Mr Colin Campbell QC were not able to reach a view on the initiative until they saw the witness statements. They considered that Mr MacMillan's evidence would take longer. On 27 March 2002 Ms Olson wrote to Mr MacKay and copied the letter to Ms Craig. She stated that MMS did not wish to have a two-hour time limit on each of the witnesses at this stage and did not know if the evidence could be led within that time restriction. By letter dated 1 April 2002 Mr MacKay confirmed that the arbiter had decided not to impose a time limit as the parties had not agreed to it.

[102] Mr McCrindle was not aware of this correspondence at the time. He learned of it only on 23 October 2003 at a hearing in the arbitration when Mr Angus Glennie QC produced several of the letters. In his witness statement in this case and in his oral evidence Mr McCrindle said that he would have embraced the initiative if he had known about it. When he learned of the initiative he was concerned to assure HYL that he had had no knowledge of it because he thought that MMS's refusal would have caused HYL to believe that he was trying to expose it to unnecessary legal expense. In reality, as Mr Murray Shaw explained in his witness statement, HYL would not have agreed to the initiative even if MMS had. The issue was not important to HYL.

[103] Mr Barrie wrote to S & W on 29 March 2004 to express concern that HYL would found on MMS's refusal of the MacKay initiative in a future motion for expenses. He requested clarification, which Mr Donald supplied on 21 April by sending copies of the relevant correspondence. On 28 April Mr Barrie, on MGL's instructions, made a statement in the arbitration that MGL and Mr McCrindle had been unaware of the MacKay initiative and were dismayed to receive the correspondence. Mr Barrie also wrote to Biggart Baillie on 7 May to reiterate that Mr McCrindle had been unaware of the initiative. Mr McCrindle wrote a robust letter to Mr MacAulay at MMS on 26 May to protest at MMS's failure to alert him to the initiative. He asserted that, if he had known, he would have ensured that the proof would have been completed within three to four weeks.

[104] In his settlement negotiations Mr McCrindle sought to obtain ammunition from HYL to use against MMS. He asked Mr Barnes to sign a letter which he had drafted for that purpose. Mr Barnes agreed; he signed a letter dated 4 June 2004 on HYL letterhead expressing pleasure at the settlement. It continued (in accordance with Mr McCrindle's draft):

"I was most surprised to have learnt during those discussions that you had not been made aware of the MacKay Initiative that emerged in April of 2002. My solicitors had of course kept me fully informed of this development, and your apparent abrupt and total rejection of the proposals floated via the arbiter's clerk certainly contributed to the view from our side that you had no desire or intention of genuinely seeking a negotiated settlement. This misconception (for this is what it transpires to have been) has proved to be most costly. At the very least the adoption of the proposals might have resulted in a much less protracted proof and in consequence, massively reduced expenses on both sides. Furthermore it is possible that a settlement could have been achieved at that time, more or less eliminating any significant further expenditure at all. If so both of us will have paid a high price for this incredible breakdown in communication between you and your lawyers."

[105] This was untrue. There was no abrupt and total rejection. MMS's response followed Biggart Baillie's provisional but negative response. The initiative was in all probability not practicable. More significantly, as I have said, Mr Murray Shaw gave evidence that HYL would not have accepted the MacKay initiative and did not treat the initiative as important.

[106] I do not doubt that when he drafted the letter, Mr McCrindle was very annoyed with MMS and had persuaded himself that the MacKay initiative had been a lost opportunity. But the facts do not support the assertions in the letter, which was devised as a weapon to be used in a claim against MMS. While I do not treat the letter as undermining his credibility, its creation, like his faulty recollection of the discussions on 22 May 2003, calls into question the reliability of his recollection of events.

MGL's claim and MMS's response

[107] MGL claims that if it had not been for MMS's breach of contract and failure in its duty of care, it would have achieved a larger sum in settlement of the arbitration than it achieved on 3 June 2004. It seeks pre-award interest on the part of that larger sum that is attributable to the principal sum of its claim in the arbitration. MGL also claims that it would have settled the claim much earlier and that it is entitled to recover the legal expenses it incurred in the arbitration from the date when settlement would have been achieved. Its claim is therefore focused on the loss of a chance. But it is important to analyse what it is that MGL lost and what caused that loss.

[108] In this case there were two breaches of contract which were also wrongs. First, MMS failed to advise MGL to raise a protective court action before its claims for damages and pre-award interest were extinguished by the operation of negative prescription on HYL's correlative obligations. MGL's claim against MMS in this action does not found on the extinction of a right to claim damages or attempt to quantify the loss that that occasioned. That is readily understood as it would be almost impossible to assess what loss occurred without re-hearing the merits of the dispute in court. Its claim in respect of the first admitted failure is confined to the loss of the right to pre-award interest. Secondly, MMS failed to advise MGL before it withdrew its professional instructions in May 2002 that MGL had lost its claim for pre-award interest in the arbitration. That gives rise to the wider claim.

[109] There is no doubt that the first breach materially reduced the value of MGL's claim against HYL. While internal memoranda in Biggart Baillie's files suggest that there may have been some uncertainty within HYL's legal team as to whether MGL might be able to claim pre-award interest in some form for some period, such as on the basis of wrongful withholding, the consistent stance of the HYL team was that MGL had no claim for pre-award interest in the arbitration as the arbiter had no power to award it. The offers, which HYL made, were made on that basis. At an elementary level, MGL's total claim would have been between 90% and 120% larger depending upon whether interest on certain claims ran from the commencement of the arbitration in 1992 or from an earlier date of a breach of contract by HYL in or before 1988. If, as it appears, HYL was keen to settle the dispute economically and avoid liability in expenses, it is likely that it would have increased its offers proportionately to meet its assessment of the value of MGL's claim. Mr Shaw stated in his evidence that, if there had been a protective action, he would have had to advise HYL to offer more in order to protect itself from liability in expenses.

[110] The second breach is relevant because MGL asserts that the uncertainty, as to whether it could obtain pre-award interest in any form in the arbitration, deprived it of the possibility of reaching a more advantageous settlement on 29 May 2003. Mr Murphy for MGL submitted that the evidence established on balance of probabilities that HYL would have offered a sum (either 400,000 or at least 350,000) which MGL would have accepted on 29 May 2003. He argued that, having established his case on the balance of probabilities, the court should value the claim without any discount for chance.

[111] Mr Hanretty submitted that MGL had failed to establish that MMS's failures in duty had caused MGL loss. He did not seek to deny that MGL's claim in the arbitration had a value. But, on the evidence available, the court was being asked to speculate upon, rather than value, MGL's loss. First, he submitted that uncertainty over the claim for pre-award interest was not an obstacle to settlement in May 2003. MGL had received clear advice from Mr McNeill in January 2003. In any event, there was no obstacle to settlement after MGL had analysed and taken advice on S & W's letter of 2 October 2003. Secondly, he challenged the veracity and reliability of Mr McCrindle's account of events. He invited me to conclude that it was only with hindsight that Mr McCrindle had come to attach such importance to the meeting on 29 May 2003 as a lost opportunity for settlement. Thirdly, he suggested that Mr McCrindle had failed to prove his assertion that, if he had known that he could not claim pre-award interest in the arbitration, he would have negotiated and agreed an all-inclusive settlement of 350,000 or 400,000 at the meeting on 29 May 2003. His approach to negotiation, his insistence on controlling such negotiation, his stance on 22 May 2003, and his resumption of negotiation in October 2003 at the figure of 525,000, contrary to Mr Barrie's advice, suggested strongly that he would not have reconciled himself to a lower settlement.

[112] Mr Hanretty also referred to the decision of the Court of Appeal in Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 and to later cases which followed it (which I discuss below). They supported the proposition that in valuing a chance of settlement the pursuer had to prove on balance of probabilities that he would have accepted an offer from a third party which there was a real or substantial chance that the third party would make. He submitted that MGL had failed to prove to that standard that Mr McCrindle would have accepted an offer which there was a real or substantial chance that HYL would have made on 29 May 2003.

[113] I therefore consider first the issues of causation before turning to the valuation of MGL's claim in this action.

[114] I am satisfied that when MGL removed its instructions from MMS, Mr McCrindle was aware that there was a question whether the arbiter had power to order the payment of pre-award interest. But I accept his evidence that he had been a busy man with many responsibilities for his companies and that he had learnt much about the law of arbitration which he did not know in 2002 and 2003. It is clear that MMS did not tell him that MGL had lost its entitlement to pre-award interest in any guise. I also accept Mr Barrie's assessment that Mr McCrindle had no understanding of the law of prescription when MGL first instructed MacRoberts.

[115] While Mr McCrindle was aware that there were problems with his claim for pre-award interest and had Mr Barrie's clear advice to that effect from May 2002 onwards, there remained uncertainty in Mr Barrie's mind. That uncertainty must also have affected Mr McCrindle's assessment of MGL's position. Mr Barrie gave evidence, which I accept, that, when they first met, Mr McCrindle believed that MGL was entitled to pre-award interest. Mr Barrie was concerned that MGL did not have such a claim but several factors prevented him from giving unequivocal advice. First, the pleadings in the arbitration, in which MGL had been represented by experienced counsel, stated claims for both damages and interest. Secondly, MMS, which had enjoyed a 25-year professional relationship with Mr McCrindle, would not confirm that MGL had no right to pre-award interest. Thirdly, while he had access to MGL's extensive correspondence files, he had not seen MMS's files and was concerned that there might be something there that empowered the arbiter to award interest. That concern was not unreasonable for, as we have seen (paragraphs [84] to [87] above) both Ms Olson and S & W had similar concerns. Fourthly, Mr Barrie was puzzled that HYL had not challenged the relevancy of MGL's extensive claim for damages, which from May 2003 onwards took up a great deal of time at the proof, or its claim for pre-award interest. Fifthly, the unwillingness of HYL and its counsel in the discussions on 29 May 2003 to allow the arbiter to determine whether he had power to award interest also caused him to question whether there was something important about which he did not know.

[116] In my view, both Mr McCrindle and Mr Barrie were uncertain as to whether there might be a basis for claiming pre-award interest in the arbitration and were not unreasonable in so being. That uncertainty continued until S & W clarified the matter in October 2003. Even then, S & W raised several insubstantial points in their letter of 2 October 2003 (paragraph [89] above) on which Mr Barrie reasonably sought Mr McNeill's legal advice. I am satisfied that that uncertainty was a serious obstacle to the achievement of a settlement in 2002 and 2003. I am not impressed by the assertion on behalf of MMS or its insurers that MGL and Mr Barrie should have seen through protestations that MGL could recover interest in other ways or have taken other steps. That comes ill from the mouths of the defenders. In this regard I consider that Mr Murphy was entitled to found on the well-established approach of the court not to judge too finely the actions of the party, whose contract has been broken, in dealing with that breach (Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452, Lord MacMillan at 506; Clippens Oil Co Ltd v Edinburgh and District Water Trustees 1907 SC (HL) 9, Lord Collins at 14). I am satisfied that there is a continuing causal link between MMS's failure to advise of the loss of pre-award interest and the uncertainty that remained in MGL's camp in 2002 and which until late 2003 obstructed the negotiation of a settlement. But that uncertainty was not the only obstacle to a settlement.

[117] There were concerns about the proper accounting for VAT. But those would have caused the parties no difficulty as they would not have had a net effect financially. There were also awards of expenses to be settled or waived. In my opinion those questions would easily have been resolved if other matters were agreed. The main obstacle, other than the question of pre-award interest, was finding a sum that HYL would pay and MGL would accept. It is in this context that the law on the valuation of a chance takes centre stage, at least in respect of MGL's wider claim.

The valuation of a chance: causation and quantification

[118] It is a general principle that damages for breach of contract are awarded to place the person, whose contract has been broken, as near as possible in the same position as if it had not (Gloag on Contract (2nd ed.) p.689). Damages for reparation are similarly intended to put the pursuer in the same position as he would have been in if he had not suffered the wrong (Livingstone v Rawyards Coal Co (1880) 7 R (HL) 1, Lord Blackburn at 7). In this case we are concerned with the admitted loss of a right and also the averred loss of a chance of a better economic outcome in the past.

[119] In so far as this case is concerned with the loss of a chance, one must distinguish between (i) the limited class of cases in which our law allows a person to claim damages for the loss of a chance, which is not a consequence of some other loss or injury, and (ii) the valuation of a chance which is a consequence of an established loss or injury, such as the loss as a result of personal injury of the prospect of promotion.

[120] I speak of a limited class because the law has set its face against the awarding of damages for a reduced chance of a more favourable medical outcome in personal injury claims; the claimant has to prove on balance of probabilities that the negligence caused the unfavourable outcome (Hotson v East Berkshire Area Health Authority [1987] AC 750; Gregg v Scott [2005] 2 AC 176). That is clear. I also see no basis for awarding damages for the loss of an economic chance in a circumstance which Professor Jane Stapleton uses to pose a question in her article, "Cause in fact and the scope of liability for consequences" ((2003) 119 LQR 388, 409):

"Suppose a Ms Donoghue receives a donation of a carton of new nails to secure the roof of her orphanage. She secures the roof. Later it is revealed that nails in a quarter of the cartons are faulty by reason of the negligence of the manufacturer and will dissolve after a short period of rainfall. Records do not reveal whether Ms Donoghue's carton was one of the faulty ones. Does her claim against the manufacturer fall foul of the decision in Hotson and, if so, why?"

Absent binding authority to the contrary, I would answer the question affirmatively as the law generally does not allow recovery for the loss of a chance, including an economic chance.

[121] Nonetheless, the law has long recognised the loss of an economic chance as a recoverable head of damage in certain cases. Thus the court will place a value on the loss of a contractual entitlement to compete for a prize (Chaplin v Hicks [1911] 2 KB 786), or on the prospects of success of a court action which could not be raised because the negligence of solicitors had deprived the claimant of a right of action (Kitchin v Royal Air Force Association [1958] 1 WLR 563). Closer to home, in Kyle v P & J Stormonth Darling 1992 SLT 264, Lord Prosser considered a claim arising from the loss, as the result of the negligence of a solicitor, of a right to appeal to the Inner House of the Court of Session from a decision of a sheriff principal. He held that, where through negligence a litigant had lost a legal right, a claim for a loss of a chance to obtain a favourable decree or a compromise was a relevant head of damages. He saw the deprivation of a legal right as entailing a loss and held that

"one will be entitled, as a matter of valuation, to take into consideration all reasonable prospects of success, if they exceed nuisance value, even if they fall short of probability." (268E)

The loss was the loss of the legal right; the valuation of the chance of success or of a compromise was the method by which the court attributed value to the lost right. Lord Prosser's decision was upheld on appeal (1994 SLT 191). See also Yeoman v Ferries 1967 SC 255.

[122] It is important to bear in mind that this case concerns two separate but closely-related failures of duty. The first involved the loss of the right to claim interest (and damages). That failure caused what Lord Prosser (268F-G) described as

"deprivation not merely of some general opportunity, but what may be called an opportunity, but is itself a legal right."

It seems to me that Chaplin and Kitchin also fall into this category (Gregg v Scott, Lord Hope at para 117).

[123] But the loss of chance cases are not confined to loss of rights which have to be valued by reference to a chance. Particularly in cases of professional negligence where an adviser has failed to give his client proper professional advice, the courts have allowed claims for economic chances lost because of the adviser's failure. Lord Hoffmann in Gregg v Scott (at para 83) observed that

"most of the cases in which there has been recovery for loss of a chance have involved financial loss, where the chance can itself plausibly be characterised as an item of property, like a lottery ticket."

While that may be so, it is important in my view to distinguish those cases which involved the loss of a right and those which did not.

[124] In this case the court is concerned with the admitted loss of a right to claim pre-award interest. As a result of the first of the admitted failings, MGL lost the right to claim pre-award interest (and damages) from HYL. The question in relation to that failing is not one of causation but of valuation. But because the valuation of the loss of interest depends upon the valuation of the principal sum in MGL's claim, the court has to come to a view on the latter.

[125] MMS also failed in its duty to alert MGL to the first failing and the resulting loss. MGL claims that as a result it was deprived of the opportunity of a better settlement than that which it eventually accepted. In relation to this claim it is more difficult to use Lord Hoffmann's formulation convincingly. We are more in the realm of cases concerned with negligent failure to advise where the client is deprived of information which he might have used to his economic benefit rather than the loss of an item of property such as a right. In this context issues of causation arise.

[126] Mr Murphy's submissions did not highlight the difference between the two types of claim, partly because he needed to establish a valuation of MGL's principal claim in order to calculate the value of the lost claim for interest.

[127] The ways in which counsel presented their opposing submissions give rise to two questions. The first is whether, as Mr Murphy submitted, MGL can receive damages without any discount if it establishes on a balance of probabilities that, in the hypothetical situation of no breach of duty, HYL would have offered and it would have accepted a particular sum. The second is whether, as Mr Hanretty submitted, MGL must prove on a balance of probabilities that it would have accepted a specific sum which there was a real and substantial chance that HYL would have offered (the "Allied Maples point").

[128] I deal with the Allied Maples point first as it was central to Mr Hanretty's submission that MGL had failed to prove any loss. In this context I consider the cases to which he referred me. Allied Maples concerned the loss of a chance to negotiate a warranty or other protection in a share purchase agreement as a result of a solicitor's negligent failure to advise. The Court of Appeal held that the plaintiff must prove on balance of probabilities as a matter of causation that he would have taken action to obtain the benefit, in that case by negotiating with the seller. Where the benefit depended on the hypothetical action of a third party (i.e. the seller) the plaintiff could succeed only if he showed that there was a real or substantial chance that the third party would have conferred the benefit.

[129] I have no difficulty with the proposition that in a question of causation, a pursuer must prove what he would have done in the hypothetical situation of no negligence or no breach of contract. The well-known case of the deceased steel erector who would not have worn a safety harness if his employers had provided it in performance of their duties under the Factories Act 1937 has long vouched this proposition by analogy (McWilliams v Sir William Arroll & Co Ltd 1962 SC (HL) 70). But I do not think that the Allied Maples approach is relevant once the court has moved from causation to the valuation of a lost legal right in a hypothetical settlement of a dispute.

[130] In Gregg v Scott (at para 83) Lord Hoffmann referred to the distinction between cases, where the outcome depended on what the claimant himself or someone for whom the defendant was responsible would have done, and cases in which it depended upon what some third party would have done. In the former category he referred to McWilliams (above) and Bolitho v City and Hackney Health Authority [1998] AC 232. He stated:

"In the first class of cases the claimant must prove on the balance of probability that he or the defendant would have acted so as to produce a favourable outcome. In the latter, class, he may recover for loss of the chance that the third party would have so acted. This apparently arbitrary distinction obviously rests on grounds of policy."

He went on also to compare the loss of chance cases with a lottery ticket (paragraph [123] above).

[131] In Allied Maples the Court of Appeal was dealing with a case where the negligent failure to advise did not cause the loss of a legal right but simply deprived the client, who should have been properly advised, of information which he might have used to his benefit in negotiating further protection. The court was not valuing a lost right but was dealing with the prior question of causation.

[132] In Dayman v Lawrence Graham [2008] EWHC 2036 (Ch) Judge Hodge QC, sitting as a Judge of the High Court dealt with a claim against solicitors that, as a result of their acts and omissions in transactions involving the sale of a house and the purchase of another, a Mrs Fielding had lost a chance of negotiating her release from her extensive indebtedness to a bank in return for payment of the sale proceeds. Again this was a causation case and not one that involved loss of a legal right. Judge Hodge QC adopted the approach which Mr Hanretty urges on me. He referred to the decisions of the Court of Appeal in Allied Maples and also Maden v Clifford Coppock & Carter [2005] PNLR 7 (Neuberger LJ at paras 48-50) and summarised the law thus:

"I hold that the correct approach in law is as follows: (1) The claimant [Mrs Fielding's trustee in bankruptcy] must prove, on the balance of probabilities, that Mrs Fielding would have approached RBS. If she succeeds in doing so, then (2) the court must determine whether there was a real or substantial chance that RBS would have responded to such an approach by proposing a deal to Mrs Fielding. If it does so, then (3) the claimant must prove, on the balance of probabilities, that Mrs Fielding would have accepted that deal."

[133] Judge Hodge recognised the difficulty of this approach of identifying the deal that was both closest to the third party's bottom line and one that would probably have been accepted by the claimant (or in that case Mrs Fielding). He quoted from extra-judicial observations by Neuberger LJ in a lecture, "The loss of a chance", in which he stated:

"There are also difficulties where the question turns, as it so often does, on what both the claimant and the third party would have done - e.g. would they have agreed the reduction in price or settled the case. Deciding what two parties would have agreed is difficult enough: if one has to decide what one party would have agreed on the balance of probabilities, but then assess damages by reference to the chances of what the other party would have agreed, a judge may be placed in an almost impossible situation."

The court does not undertake an easy task when it considers the chance of a

settlement in the context of the valuation of a lost right; but it is a different task.

[134] In 4 ENG Ltd v Harper [2009] Ch 91, David Richards J dealt with an action of deceit in which the claimants sought damages on the basis that, if they had not purchased one company as a result of the defendants' fraudulent representations, they would have purchased another and earned income and capital profits from it. He applied the Allied Maples approach to the question of the purchase of the other company. Again, this is a case in which causation was in issue and not simply the quantification of a lost right.

[135] It seems to me on this authority that where there is an issue of causation to be determined, and not merely a question of quantification of a lost right, there is substance in Mr Hanretty's Allied Maples point.

[136] In Lonedale Ltd v Scottish Motor Auctions (Holdings) Ltd [2011] CSOH 4, a case about damages for breach of a warranty in a share purchase, Lord Glennie also adopted the approach in Allied Maples and Dayman in assessing the prospects that one party to a joint venture might have bought out the other. He considered it appropriate to follow the disciplined approach of Judge Hodge QC in Dayman to reconstruct the bargaining process to reach the position at which the claimant would have struck the deal. But he suggested (para 185) that

"a formulaic application of that approach must not be allowed to get in the way of a robust assessment of the evidence as a whole."

In that case the court was considering the quantification of the diminution in value of the shares in the acquired company as a result of the breach of warranty.

[137] I turn then to Mr Murphy's submission that the pursuer can receive damages without a discount for chance if he establishes that it is more likely than not that the parties would have settled a claim at a particular sum. I am satisfied that that submission is unsound. Where a pursuer has established that he has suffered loss caused by a defender's breach of duty or breach of contract, the assessment of damages may involve the evaluation of a chance. In Mallett v McMonagle [1970] AC 168, Lord Diplock stated (at 176):

"In determining what did happen in the past a court decides on the balance of probabilities. Anything that is more probable than not it treats as certain. But in assessing damages which depend upon its view as to what will happen in the future or would have happened in the future if something had not happened in the past, the court must make an estimate as to what are the chances that a particular thing will or would have happened and reflect those chances, whether they are more or less than even, in the amount of damages which it awards."

This may involve an award of a proportion of what would have been awarded if the prospect had eventuated.

[138] In Paul v Ogilvy 2002 SLT 171, the pursuers lost an agricultural tenancy through the negligence of their solicitors and claimed damages not only for loss of their housing and the smallholding but also for the loss of the development potential of the farm. Lord Hamilton awarded damages on the latter head based on the percentage chance of obtaining permission for development. He referred in support of his approach to the decision of the House of Lords in Davies v Taylor [1974] AC 207 and Mallett (above) and stated (180L):

"It is accordingly clear on authority that, once the requirements of causation have been satisfied, the assessment of damages may involve the evaluation of a chance or prospect. In appropriate cases that evaluation may be the adoption of a proportion of what would have been awarded had the prospect been a practical certainty."

He made it clear (179L) that he would have adopted that approach even if the loss of the chance of planning permission had been the only element of loss because it flowed from the deprivation of a right, namely the right to hold the tenancy.

[139] Once it is shown that loss has occurred, the court has to quantify that loss. In Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486, Toulson LJ stated (at para 25):

"Where that involves a hypothetical exercise, the court does not apply the same balance of probability approach as it would to proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account. (See Davies v Taylor [1974] AC 207, 212 (Lord Reid) and Gregg v Scott [2005] 2 AC 176, para 17 (Lord Nicholls) and paras 67-69 (Lord Hoffmann))."

In Maden v Clifford Coppock & Carter (above) (para 50) the Court of Appeal applied a discount for chance. The decision of the Court of Appeal in Dixon v Clement Jones Solicitors [2005] PNLR 6, to which Mr Murphy referred in his speech in reply, is a case, like Kyle, of deprivation of a legal right, and in quantifying the lost right the judge employed a percentage discount.

[140] In this jurisdiction Lord Clyde's opinion in Duke of Portland v Wood's Trustees 1926 SC 640 is often cited for the proposition that Scots law does not favour judge-made rules for the assessment of damages which make a particular approach the sole measure of damages. Therefore, once causation has been established, there may be several acceptable ways in which a pursuer can legitimately quantify his loss. But that does not support the view that, when assessing what would have happened on the hypothesis of no breach of contract, the law can treat as certain that which is merely probable. The court must value the chance.

The valuation of MGL's claim
[141] Mr Murphy presented alternative calculations of MGL's claim on the hypothesis that the parties would have settled the arbitration on 29 May 2003 for an inclusive sum of either 400,000 or 350,000. His first head of claim was the difference between the sum of the hypothetical settlement and the 90,000 that MGL eventually accepted. Next, he deducted from the hypothetical inclusive sum the total expenses on a party/party basis which MGL could have recovered from HYL in the arbitration up to that date. The parties had agreed in a joint minute that that sum was 158,650. That gave a result of 241,350 or 191,350. Thereafter, as his second head of claim, he calculated the pre-award interest on that principal sum from 16 December 1992 (the date when MMS should have raised the protective legal action) at the judicial interest rate, namely 105 days at 15% until 31 March 1993, when the judicial rate fell to 8%, and 3710 days thereafter at that rate until 29 May 2003. Thirdly, he claimed the legal expenses which MGL incurred in the period after 29 May 2003 until the settlement in June 2004, which the parties had agreed in a joint minute amounted to 196,414.66. MGL also sought judicial interest on its claims from 29 May 2003 until payment.

[142] I am satisfied that this claim, which on either alternative values MGL's loss at close to 1 million, materially overstates what the law treats as recoverable damages. It rests on an incorrect assumption that MGL has proved on balance of probabilities that on the hypothesis of no breach it would have accepted an offer of 350,000 or 400,000 on 29 May 2003 to cover all claims except pre-award interest. It makes no allowance, as it must, for chance. And it does not take account of the Allied Maples point in relation to the calculation of the figure at which the parties would have settled the action. I must therefore approach the calculation on a different basis.

(i) The loss of pre-award interest

[143] The value of the lost pre-award interest depends on the value which may properly be attributed to the principal sum in MGL's claim. This case is unusual in this context. It is not like a legal claim which has been barred through the passage of time, where the court has to assess the chances of success in an action that was never raised. Here the arbitration lasted many years and certain issues were determined by the arbiter. Nonetheless, because of the complexity of the claim and the defences that HYL advanced against it, it is not possible to assess the value of the principal sum of the claim except by reference to the behaviour of the parties in the course of the arbitration.

[144] In May 2003 HYL was prepared to offer 160,000 to settle the claim and it left that offer in place thereafter. Mr Barrie was confident that MGL would beat that offer and when the parties negotiated in May 2003 HYL made it clear that there was some room for upward adjustment of the offer as long as the parties were discussing in the same ball-park (paragraph 61 above).

[145] Further, the facts that HYL offered 350,000 as an inclusive settlement and were prepared to negotiate with Mr McCrindle as long as he would accept a settlement sum that began with the figure "4" suggest that HYL was prepared to treat the claim as worth about 200,000 when one has regard to the agreed figure for recoverable expenses on a party/party basis (paragraph [141] above). I note also that in the eventual settlement HYL waived awards of expenses in its favour and thus gave MGL value in excess of 220,000.

[146] I recognise that the principal sum in the claim would have value only if the parties settled the dispute or pressed on to a resolution by the arbiter. But I do not consider that the valuation of the claim depends on the prospects of the settlement negotiation on 29 May 2003. The claim had a value which the parties recognised throughout the arbitration. Subject to my consideration of the chance of a more favourable settlement for MGL in the negotiation on 29 May 2003, which I discuss below, I consider that I have to take a broad approach and assess the principal sum at 180,000. In so doing I have taken the probable sum based on the parties' behaviour as 200,000 and deducted 10% for chance. I consider this is a conservative valuation. It is important to recall in this exercise that I am valuing the lost right on the hypotheses (i) that MGL was conducting the arbitration unburdened by MMS's failures which had lost him the right to claim damages as well as pre-award interest, (ii) that Mr McCrindle was not having to fight on two fronts, and (iii) that in negotiating with MGL HYL faced a claim on which interest was accruing.

[147] MGL's claim against HYL involved claims for damages and also other claims. I have to take a broad approach to the question of the starting date for interest as some claims might carry interest from the completion of the contract while others would run from the commencement of the arbitration. I have already stated that the range of interest is between 90% and 120% of the principal sum. I take the midpoint between those figures and calculate pre-award interest at 105% of 180,000, namely 189,000.

(ii) The loss of a chance of a bigger settlement
[148] MGL in presenting its claim has focused on the negotiation that took place on 29 May 2003 because it appeared to be the closest the parties came to settlement in 2003. It has framed its claim on the hypothesis that MGL was aware of MMS's failure to preserve its claim for pre-award interest and that its claim against HYL was therefore only for the principal sum. It would have been possible in theory at least for MGL to have framed a claim based on an assessment of what HYL would have offered if it faced a valid claim for pre-award interest. But that would have been divorced from the events that occurred.

[149] There is only limited information about the meeting on 29 May 2003 as neither party took notes and I did not hear evidence from HYL's employees or from Lord Glennie (as Mr Glennie has become) or Mr Cowie. But that does not matter as the precise state of the negotiations on 29 May 2003 would be at best a broad guide to what would have occurred on the hypothesis that MMS had not failed in its duty to advise MGL of its earlier failing. MGL would then have negotiated in the knowledge that it would recover a sum equal to the pre-award interest from MMS and could have concentrated in discussions with HYL on reaching an acceptable deal on the principal sum and expenses. Further, in assessing what occurred, the court has to allow for posturing and consider what the parties' ultimate positions would have been.

[150] I am satisfied that uncertainty over MGL's entitlement to recover pre-award interest from either HYL or MMS blighted the negotiations between MGL and HYL until October 2003. Mr McCrindle and Mr Barrie gave clear evidence to that effect which I accept. While there seems to have been an attempt to agree what was the principal sum due to MGL on 29 May and the parties appear not to have been far apart, the discussions were side-tracked onto how to resolve the uncertainty over interest.

[151] Mr McCrindle was keen to negotiate a settlement on 29 May 2003. He was very disappointed by Mr Spence's evidence. Mr Barrie had been expecting an inclusive offer in the range of 400,000 to 500,000 and had been disappointed by the "Calderbank offer". Mr McCrindle had agreed to attend the meeting on the basis that he would accept an offer starting with the number "4". Mr Shaw was aware that Mr McCrindle was keen to settle. The contemporary records which I set out in paragraphs [78] to [80] above suggest that the parties were close to settling the arbitration.

[152] Adopting the Allied Maples approach and acknowledging that the parties were in negotiation, I look first at what HYL would have offered in the hypothetical situation. It had made the "Calderbank offer" which it never withdrew. Mr Bryce had stated after the long discussion on 22 May that HYL would offer 350,000 but no more. That sum remained on the table on 29 May. But Mr Barrie recalled that HYL's team were keen to increase the offer when they faced the prospect of the proof lasting many more weeks. HYL's team acted consistently with Mr Barrie's understanding when they imposed the pre-condition on the meeting that MGL would accept an offer beginning with the figure "4". The parties were aware that the arbitration made little economic sense and it was costing HYL about 8,000 per day. A further six-week diet had been arranged for November and December 2003 and more time would be required if all the evidence were to be led. Each side's legal advisers encouraged their clients to take an economic view of the proceedings. In the hypothetical circumstances I think that it is highly likely that HYL would have offered an inclusive sum of 400,000 to settle the action on 29 May 2003. HYL might have been prepared to offer more to obtain a settlement but I think it is less than probable that it would have offered 450,000. I assess the chance of its offering that sum at 40%. I have to balance against the factors pointing towards a settlement the considerations (a) that Mr Bryce was a determined man and did not want HYL to compromise the arbitration on unfavourable terms and (b) that he was annoyed by Mr McCrindle 's assertion that they had been close to a deal at 525,000.

[153] Turning to MGL's position, I do not accept the suggestion by Mr McCrindle and Mr Barrie that MGL would have accepted a settlement of 350,000 or 400,000. I think that that evidence cannot be relied on and amounts to retrospective rationalisation. It attaches insufficient weight to Mr McCrindle's approach as a negotiator. On 22 May he was willing to accept 525,000 which involved an enhanced principal sum and repayment of all of his expenses in the arbitration and not just party/party expenses. He had agreed as a condition of the 29 May meeting to accept a settlement starting with the figure "4". For him to have agreed a settlement at 400,000 would have been to concede the entire area of debate between 400,000 and 499,999. The view that he would have done so does not chime with my assessment of his personality and in particular his determination. Nor does it fit well with his stance in October 2003 when he instructed Mr Barrie to take a very firm line in his demand for 525,000. While I must allow for posturing, I do not see it as likely that he would have been prepared to reduce his claim by 125,000 from his position on 22 May if HYL raised its offer by only 50,000.

[154] That is not the end of the matter because I think that it is more likely than not in the hypothetical situation in which he knew that he would be compensated by MMS for the loss of pre-award interest, Mr McCrindle would have been prepared to compromise his claim at an inclusive 450,000, particularly when it would remove the real risk of adverse awards of expenses.

[155] I do not think that questions of liability for VAT or its entitlement to expenses of the other proceedings would have altered MGL's ultimate position. A settlement at 450,000 would have been a good deal for MGL in a situation where its recoverable expenses in the arbitration would have been 158,650 and the other awards of expenses in its favour would not have exceeded 50,000. I also think that HYL would have been willing to forgo the possibility of an award of expenses for the discharged diet in May 2002 and the preliminary proof in the context of an overall settlement.

[156] Accordingly, on the Allied Maples approach, I think that on balance of probabilities MGL would have accepted an offer of 450,000 which there was a real or substantial chance, rather than a speculative chance, that HYL would make. I have assessed the chance of HYL making such an offer at 40%. The loss of the chance therefore is 450,000 x 40%, namely 180,000. Adopting MGL's approach to quantification, I have to deduct the sum which HYL eventually paid (90,000) from that figure, giving a result of 90,000.

(iii) Post-settlement expenses
[157] I see no justification for MGL's claim for its whole expenses in the arbitration after 29 May 2003. By the time MGL recommenced negotiations with HYL on 15 October 2003, it knew from S & W's letter of 2 October and Mr McNeill's advice on 14 October that it had a claim against MMS for the lost pre-award interest. From then on, uncertainty over its entitlement to such interest was not a bar to settlement. Accepting the approach in cases such as Banco de Portugal (above), I do not seek to make fine judgments on the reasonableness of MGL's behaviour. But I do not see how it can be said that MMS's failures in duty caused or contributed to the incurring of legal expenses after mid-October 2003.

[158] MGL's entitlement to damages for legal expenses incurred after the hypothetical settlement therefore is confined to the period from 30 May to 15 October 2003. Further, as the chance of that settlement was only 40%, it seems to me that the expenses for that period should be reduced to reflect that chance. As I have to put the matter out by order to deal with other matters and as I have not heard counsel on this issue, I will postpone a determination of this issue until I have given an opportunity for further submission at the by order hearing.

(iv) Judicial interest
[159] In their submissions counsel alerted me to the fact that the Inner House was due to issue its opinion on my decision in Farstad Supply v Enviroco Ltd 2012 SLT 348. They invited me to leave the question of judicial interest to a further hearing at which they could address the court with the benefit of the Inner House's opinion. As that opinion is now available, I am content that the issue should be addressed at a by order hearing.


[160] I am satisfied that MGL has proved that MMS's failings caused it to suffer the loss of its claim for pre-award interest (and damages) and also contributed to the failure of the negotiations to settle the arbitration on 29 May 2003, resulting in the loss of a chance of settlement on that occasion. I have valued the former claim at 189,000 and the latter at 90,000. I invite parties to make further submissions on the claim for loss of expenses, the judicial rate of interest and the way in which interest should be applied to MGL's claims. I will have the case put out for an extended by order hearing to allow counsel to make those submissions.

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