(1) Andrew Breeze v The Chief Constable of Norfolk Constabulary
| Jurisdiction | England & Wales |
| Judge | Master Victoria McCloud |
| Judgment Date | 15 March 2018 |
| Neutral Citation | [2018] EWHC 485 (QB) |
| Court | Queen's Bench Division |
| Docket Number | No. HQ16X01317 |
| Date | 15 March 2018 |
[2018] EWHC 485 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Master McCloud
No. HQ16X01317
Mr. Leslie Thomas QC and Mr Nick Scott ( instructed by Messrs Hatch Brenner, Solicitors), appeared for the Claimants
Mr. Jason Beer QC and Ms Charlotte Ventham ( instructed by Messrs Weightmans LLP, Solicitors) appeared on behalf of the Defendant.
Cases referred to in judgment (in addition to cases cited in quotations from other judgments):
Johnson v Gore Wood (No. 1) [2002] AC 1
Bank Mellat v HM Treasury [2016] EWCA Civ 452
A v Hoare [2008] 1 AC 844
Letang v Cooper [1965] 1 QB 232
Three Rivers DC v Governor and Company of the Bank of England (No. 3) [2003] 2 AC at 191B–193H Akenzua v Home Secretary [2003] 1 WLR at para. 29–32 Giles v Rhind [2002] EWCA Civ 1428 Gardner v Parker [2005] BCC 46 Towler v Wills [2010] EWHC 1209 (Comm.) Kim v Park [2011] EWHC 1781 (QB) Spencer v Barclays Bank PLC (unrep)
Keywords:
Reflective loss principle (exceptions to) — shareholders — pleading — principles on amendment of statements of case — strike out
Hearing: 5 th October 2016
Draft Judgment: 31 st October 2016
Handed down: 15 th March 2018
The application
Insofar as material to this judgment, this is an application by the defendant to strike out two heads of claim brought by the claimants totalling over £30m, and/or to grant summary judgment dismissing those aspects of the claim. The claims in question are for loss of share value. Both sides were ably represented by leading and junior counsel before me. In this decision I must consider the Reflective Loss principle and exceptions to it, and principles in relation to amendment of statements of case in the context of a strike out application.
The parties and history
The claimants were the main shareholders in a company latterly called Cawston Park Holdings Ltd (CPH). The company was concerned in the provision of medical mental health services to the National Health Service's Primary Care Trusts (PCTs). The services were supplied at Cawston Park Hospital. Sometimes CPH raised charges for ‘extra care’ in respect of certain patients where additional or more onerous work had been required than usual. The first claimant was at the material time the General Manager and Director of the hospital and the second claimant was the Finance Director.
The claimants, personally, were charged and unsuccessfully prosecuted for alleged over-charging in respect of ‘extra care’ charges which the Crown alleged had not been provided. They were exonerated at trial by an acquittal directed by the judge, and are innocent men. It is pleaded that the judge stated that they were “ vindicated” and could “ leave court with heads held high”, and those statements are admitted by the defendant.
A former employee at the hospital whom I shall call Mr D alleged in January 2006 to the NHS fraud reporting line that the claimants were committing fraud in respect of the ‘extra care’ charges. In the hearing before me we did not explore what if any personal history lay behind that report but the Particulars of Claim plead (and the Defence admits) that the employee in question had been caught photocopying business plans relating to a new proposed business, at work. He was suspended and disciplinary steps were taken. Pornography was found on his work computer as well as business plans for the new business. The new business was substantially a duplicate of the business plan of the hospital. On 14 November 2005 Mr D and another member of staff resigned before the disciplinary hearing. It was not until January 2006 that the now former employee made the report of alleged fraud to the NHS.
In July 2006 Norfolk police created ‘Operation Meridian’ to investigate the allegations. The Claimants were arrested in November 2006 at an early morning raid of their homes, tried in April 2009 and acquitted in June 2009. I note in passing that there was a period of more than two years before arrest and trial during which these serious charges hung over the heads of the Claimants. At some stage the Claimants were removed from their posts during the criminal process and replaced with other people, though they remained the major shareholders in CPH.
It is pleaded in the POC that the police appreciated that there was a risk of the hospital business failing in the event of a prosecution, and that the police considered whether an administrator should be appointed. Orders under the Proceeds of Crime Act 2002 were obtained restraining the claimants from disposing of their assets, though the Defence places some of that averment in issue.
I need not summarise the whole pleading and what it says about the manner in which the investigation and prosecution proceeded, but the upshot is that the claimants now sue for malicious prosecution and/or misfeasance in public office.
There are 15 heads of damage (POC para 210) but only two are material to this judgment. The relevant ones are heads 13 and 14 which state the value of both claimants' interests in the company, being £15,151,874 each. Criticism was made by the defendant of the particulars of loss and damage merely state the value of the claimants' interests in the company but in my judgment reading the preamble to para 210 and 211 it is clear that the intention is that the whole of those sums – totalling well over £30m – are claimed. The pleading is however somewhat lacking a pleading of the mechanism by which that loss was sustained other than that it was by reason of the alleged torts and that per 209 (4) that “the Defendant's officers knew that the prolonged investigation and prosecution of the Claimants would lead to the demise of their business.”
The effective claim pleaded when read with the Part 18 reply is that the prolonged investigation and alleged malicious prosecution or misfeasance caused and was known to risk causing the demise of the CPH business, and that by reason thereof the claimants claim, as a head of loss, the full pleaded value of their interests in the business.
The business of CPH – which by that stage was of course not managed by the claimants albeit they remained shareholders restrained from dealing with their own assets – was taken into receivership in November 2009 some months after the failed prosecution and was dissolved in February 2011. The company itself did not at any stage bring proceedings against the present defendant in respect of any loss of company value nor were any rights of action which might have been vested in the company assigned to the current claimants.
The application before me
This application before me is to strike out or summarily dismiss the claims for loss of share value pleaded in heads of loss 13 and 14, as further clarified by a response to a Part 18 request dated 10 May 2016 in which the question was posed:
“Please confirm whether it is the Claimants' intention to advance a case at trial that, by reason of the alleged malicious prosecution and/or misfeasance in public office on the part of the Defendant's officers, the company (latterly known as Cawston Park Holdings Ltd) suffered a diminution in its share value which, in turn, caused the Claimants to sustain financial losses in the sum of £15,151,874 each, which sums represented the diminution in their respective share values in the company?”
To which the answer was “ Yes”.
The arguments and law
I had the benefit of four skeleton arguments from counsel, specifically two skeletons followed by two supplemental skeletons (a total of two from each side). This came about because following service of the first skeletons the claimants introduced a new line of argument rather late in the day in a supplement to which the defendant naturally responded. In the event I heard argument on all points.
(i) That the claim cannot succeed because it falls foul of the ‘Reflective Loss’ principle
The defendant relied on Johnson v Gore Wood (No. 1) [2002] AC 1 for the basis and application of the ‘Reflective Loss’ principle, as it was termed in submissions. I was taken by both sides to parts of their Lordships' decisions in that case and the two sides had markedly different interpretations of what was said about the scope of that principle. I shall therefore need to quote the parts relied on.
The essence of the principle, subject to disagreement over the circumstances in which it applies, was not in dispute. That is that, per Lord Bingham in Johnson at 35E–36C “Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company.”
It is important that I cite the passage in full and most of the other passages to which I was taken because there was a difference between the defendant and the claimants as to whether, as the claimants contend, the Reflective Loss principle in Johnson is limited to cases where there is specifically a ‘breach of duty’ owed by the tortfeasor to the company, or as the defendant contends, that the principle is wider than that and includes any claim where an action lies at the suit of the company to make good loss of its assets by suing the tortfeasor (even if in principle a claim could, but for the Reflective Loss principle, be brought by the shareholder as well).
It is important that I quote the whole passage extracted from Lord Bingham's judgment. The emphasis in this and other quotations is my own, highlighting the passages which seem to me to be of most relevance to the issues in this...
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