Galoo Ltd and Others v Bright Grahame Murray

JurisdictionEngland & Wales
JudgeLord Justice Evans,Lord Justice Waite,Lord Justice Glidewell,LORD JUSTICE GLIDEWELL
Judgment Date21 December 1994
Judgment citation (vLex)[1993] EWCA Civ J1221-2
Docket Number93/0797
CourtCourt of Appeal (Civil Division)
Date21 December 1994
(1) Galoo Limited (In Liquidation)
(2) Gamine Limited
(3) Hillsdown Holdings Plc
Plaintiffs
and
Bright Grahame Murray (A Firm)
Defendant and
Kpmg Peat Marwick (A Firm)
Third Parties

[1993] EWCA Civ J1221-2

Before: Lord Justice Glidewell Lord Justice Evans and Lord Justice Waite

93/0797

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

MR H BENNETT, QC and MR J ACTON DAVIS (instructed by Messrs Biddle & Co, London EC2V 7BU) appeared on behalf of the Plaintiffs.

MR I HUNTER, QC and MR G DUNNING (instructed by Squire & Co, London EC1V 4JL) appeared on behalf of the Defendant.

1

Court of Appeal

2

Constitution: Lord Justice Glidewell

Lord Justice Evans Lord Justice Waite Lord Justice Glidewell
3

The first Plaintiff, Galoo Limited, (Galoo) which is now in liquidation, (Galoo) formerly traded in animal health products. The second Plaintiff, Gamine Limited, (Gamine) owned all the shares in Galoo. Both the first and second Plaintiffs have changed their names. Galoo was formerly Peter Hand (GB) Limited, and Gamine was Peter Hand Holdings Limited.

4

The Defendants, Bright Grahame Murray (BGM) are a firm of Chartered Accountants. From 1981 until 1991 they were the auditors of the accounts of Galoo, and from 1984 until 1991 of the accounts of Gamine.

5

In 1987 the third Plaintiff, Hillsdown Holdings Plc (Hillsdown) purchased 51 per cent of the shares in Gamine from the holders of those shares. Between March 1987 and January 1993 Hillsdown made loans to Galoo and Gamine which amounted in total to over £30m. In May 1991 Hillsdown purchased a further 44.3 per cent of the shares in Gamine.

6

By a Specially Indorsed Writ issued on 6 October 1992, the Plaintiffs claim that the audited accounts of Galoo and Gamine for the years 1985 to 1989 and the draft audited accounts for the year 1990 contained substantial inaccuracies, that in auditing the accounts without discovering or reporting such inaccuracies BGM were negligent and in breach of duties owed in contract and tort to Galoo and Gamine and in tort to Hillsdown, and that as a result the Plaintiffs have all suffered loss and damage.

7

BGM applied to strike out the Statement of Claim indorsed on the Writ on the ground that it disclosed no reasonable cause of action. We have not been supplied with a copy of the application but it seems that it was made under RSC order 18 rule 19(1)(a) and under the inherent jurisdiction of the court.

8

The application was heard by Mr Ronald Walker QC, who gave judgment on 17 May 1993. He ordered:

9

i)that the claims of the first and second Plaintiffs should be struck out and that the action by them should be dismissed pursuant to order 18 rule 19 of the RSC and/or the inherent jurisdiction of the court.

10

ii)that part of the third Plaintiff's claims should be struck out, as indicated in his judgment, and that the third Plaintiff should amend its Statement of Claim so as to reflect the decision and to pursue only that part of the claim not struck out.

11

The Deputy Judge granted leave to all the Plaintiffs to appeal against his order, and for the Defendants to cross-appeal against his refusal to strike out the whole of the claims of the third Plaintiffs.

12

The Plaintiffs now appeal against the decision to strike out, and the Defendants cross-appeal against the decision not to strike out part of the claim by Hillsdown.

13

The nature of these proceedings

14

Although the application was more widely framed, in this appeal it has properly been treated as an application under order 18, rule 19(1)(a) only (with one exception to which I shall refer later). On such an application, no evidence is admissible by virtue of order 18, rule 19(2). I therefore do not understand why the papers before the Judge, and before this court, included and include a number of affidavits. As the Deputy Judge correctly said,

"For the purposes of the applications, all the allegations in the Statement of Claim must be assumed to be true."

15

The issue for the court is therefore, making that assumption, is the Plaintiffs' claim nevertheless bound to fail? Only if the answer in relation to any claim is "Yes" should that claim be struck out. On the other hand I agree with the Deputy Judge that if the Statement of Claim does not disclose a reasonable cause of action on a particular claim, that claim should be struck out at this stage, thus saving an unnecessary trial, perhaps lengthy, on that claim. I also take the view that, since the court at this stage is concerned only with the allegations in the Statement of Claim and not with evidence, the court hearing the application was and is in as good a position to decide the issue now as it would have been at the conclusion of a trial.

16

Order 18 rule 19(1) expressly provides that the court, as an alternative to striking out a pleading, may order that it be amended. Obviously if, after an amendment properly made, the Statement of Claim does disclose a reasonable cause of action, it should not be struck out. So the Deputy Judge, without objection by Mr Hunter on behalf of the Defendants, made his decision in relation to a draft, amended Statement of Claim which was before him. With some further amendment to which reference was made in the hearing before the Deputy Judge, this document has been submitted to us. For the purposes of this appeal I shall treat the Statement of Claim so amended as the effective Statement of Claim. When I come to consider the claims in detail I shall do so by reference to the paragraph numbers in the draft amended Statement of Claim.

17

The issues and the Judge's decision

18

i)Claims by Galoo and Gamine for damages for breach of contract or in tort.

19

It was accepted before the Judge that the same principles apply to damages under both heads. No different argument has been presented to us. The facts which would establish a breach of contract by the Defendants have been pleaded. Thus these Plaintiffs are entitled at least to nominal damages. The Deputy Judge however said in his judgment

"I was not, however, invited to refuse to strike out the claims on the basis that they could properly proceed with a view to obtaining nominal damages, and it appears to have been accepted that even if RSC o.18, r.19(1)(a) would not be satisfied in those circumstances, then the claim would

be demurrable by reason of the further provisions of that sub-rule."

20

I agree that this was a proper approach for the Deputy Judge to adopt.

21

The Judge then considered whether the first and second Plaintiffs would be entitled to substantial damages for the pleaded loss under two heads:

22

a)by incurring an obligation to repay the sums advanced by Hillsdown; and

23

b)by incurring trading losses as a result of relying on the negligent auditing by the Defendants and thus continuing to trade.

24

The Deputy Judge decided that neither Galoo nor Gamine could recover damages under either head, and he therefore struck out their claims.

25

The claims by Hillsdown are all in tort. They are claims for damages under the following heads.

26

ii)For loss resulting from the original purchase by Hillsdown of the shares in Gamine.

27

The Deputy Judge decided that the Statement of Claim did disclose a reasonable cause of action on this head and therefore declined to strike it out. This is the subject of the cross-appeal.

28

iii)For loss resulting from making the loans to Gamine.

29

The Deputy Judge struck out this claim.

30

iv)For amounts paid under a supplementary agreement for the purchase of the further 44.3 per cent of the shares in Gamine, and for payments made to a Mr Sanders at the same time for loss of office.

31

These claims were also struck out.

32

I shall deal with each of these issues in turn, in that order. Before I do so, however, it is necessary to refer to the Statement of Claim in more detail.

33

Facts alleged common to all issues

34

I have already described the parties briefly. By paragraph 4 of the Statement of Claim, it is alleged that by a written agreement dated 25 February 1987 Hillsdown purchased 51 per cent of the issued £1 shares in the capital of Gamine. The vendors of the shares were Mr Michael Sanders, the Chairman and Managing Director of both Galoo and Gamine, together with members of his immediate family, and also Mr Roger Tabakin, a partner in the Defendant firm and trustee of the Sanders family settlement. This agreement is described as "the acquisition agreement".

35

Paragraph 10 sets out the method of calculation of the shares purchased under the acquisition agreement. It was to be 5.2 times the net profits of Gamine as set out in the completion accounts, which were defined as including the audited accounts of Galoo and Gamine for the year ending 31 December 1986. The agreement provided that the parties should jointly procure as soon as practicable and in any event within 90 days of the date of completion the preparation of the completion accounts, which "shall be audited" by BGM. BGM were required to calculate the net profits from the completion accounts, and deliver to the vendors and to Hillsdown copies of the completion accounts and a statement setting out the net profits and the shareholders' funds.

36

Paragraph 11 sets out a further provision of the acquisition agreement, that, if the vendors so elected, Hillsdown would be required to purchase the remaining shares in Gamine in annual tranches, and that the price payable for each such tranche of shares should be calculated by reference to the pre-tax earnings of Gamine for the relevant year as shown by the accounts for that year, which were to be prepared and audited by BGM.

37

Paragraph 5...

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255 cases
6 firm's commentaries
  • Complex Commercial Litigation Law Review – England and Wales
    • United Kingdom
    • JD Supra United Kingdom
    • 27 January 2021
    ...[2019] EWHC 606 (QB).43 Per the provisions of the Corporate Insolvency and Governance Act 2020.44 Galoo Ltd v. Bright Grahame Murray [1994] 1 WLR 1360.© 2020 Law Business Research LtdEngland and Wales118i Force majeure and frustrationContracting parties may choose to include a force majeure......
  • Complex Commercial Litigation Law Review - Fifth Edition - England & Wales
    • United Kingdom
    • JD Supra United Kingdom
    • 19 December 2022
    ...Frustration is the principle that a contract may be set aside if the performance of the contract 47 Galoo Ltd v. Bright Grahame Murray [1994] 1 WLR 1360.48 British Electrical and Associated Industries (Cardi) Ltd v. Patley Pressings Ltd [1953] 1 WLR 280.49 See Tandrin Aviation Holdings Ltd......
  • Complex Commercial Litigation Law Review – England & Wales
    • United Kingdom
    • JD Supra United Kingdom
    • 10 January 2019
    ...and effective, unless and until rescinded). 26 CPR 26. 27 Heyman v. Darwins Ltd [1942] AC 356. 28 Galoo Ltd v. Bright Grahame Murray [1994] 1 WLR 1360. © 2019 Law Business Research England & Wales 66 A contract that lacks any key element required for the formation of a valid contract is voi......
  • Professional Negligence Round Up Of 2018
    • United Kingdom
    • Mondaq UK
    • 8 January 2019
    ...the proposition that reliance had to be proved but were unsuccessful in this regard. [3] See e.g. Galoo v Bright Grahame Murray [1994] 1 WLR 1360. [4] The appeal was argued before the Supreme Court in December The content of this article is intended to provide a general guide to the subject......
  • Request a trial to view additional results
12 books & journal articles
  • Contract Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2003, December 2003
    • 1 December 2003
    ...Though different terms have been used, (‘dominant and effective cause’ in contractual cases like Galoo Ltd v Bright Grahame Murray[1994] 1 WLR 1360 as opposed to what is termed the ‘but for’ test often used in tort cases to determine causation) the law of causation in tort and contract is t......
  • ASSESSMENT OF DAMAGES IN INTELLECTUAL PROPERTY CASES
    • Singapore
    • Singapore Academy of Law Journal No. 2015, December 2015
    • 1 December 2015
    ...819 at 824–826. 14 Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443 at 452 (CA). 15 Galoo Ltd v Bright Grahame Murray [1995] 1 All ER 16 at 29, per Glidewell LJ, cited by Jacob J (as he then was) in Work Model Enterprises Ltd v Ecosystem Ltd and Clix Interiors Ltd[1996] FSR......
  • CONTRACT DAMAGES AND THE PROMISEE'S ROLE IN ITS OWN LOSS.
    • Australia
    • Melbourne University Law Review Vol. 42 No. 2, April 2019
    • 1 January 2019
    ...Law Quarterly Review 68. (153) McGregor (n 3) 250 [9-006]. (154) See, eg, Alexander (n 70); Galoo Ltd (in liq) v Bright Grahame Murray [1994] 1 WLR 1360. (155) The auditors' breach, as a matter of causation, may not relevantly increase any particular risk of loss; alternatively, the auditor......
  • No reflective loss: The English approach reconsidered
    • South Africa
    • Juta Journal of Corporate Commercial Law & Practice No. , April 2021
    • 31 March 2021
    ...IEHC 363.160 Prudential supra note 24 at 223: Johnson supra note 36 at 481; Giles supra note 142.161 Galoo Ltd v Bright Grahame Murray 1994 1 WLR 1360; See also Alistair op cit note 144 at 219.162 Davies op cit note 110 at 452–3. © Juta and Company (Pty) 33NO REFLECTIVE LOSS: THE ENGLISH AP......
  • Request a trial to view additional results

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