Paul Richards v Speechly Bircham LLP
| Jurisdiction | England & Wales |
| Judge | Russen |
| Judgment Date | 29 April 2022 |
| Neutral Citation | [2022] EWHC 935 (Comm) |
| Docket Number | Case No: LM-2020-000172 |
| Year | 2022 |
| Court | Queen's Bench Division (Commercial Court) |
[2022] EWHC 935 (Comm)
HHJ Russen QC
(Sitting as a Judge of the High Court)
Case No: LM-2020-000172
IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (QBD)
Rolls Buildings
Fetter Lane
London
EC4A 1NL
Richard Leiper QC (instructed by Cardium Law Limited) for the Claimants
Nigel Tozzi QC and Alexander Wright QC (instructed by Norton Rose Fullbright LLP) for the Defendants
Hearing dates: 8 th–10 th and 14 th – 16 th March 2022
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
HH JUDGE Russen QC
HHJ Russen QC:
The structure of this judgment is as follows:
A. INTRODUCTION
| CONTENT | OPENING PARAGRAPH |
| A. Introduction | 2 |
| B. The Background to the Transaction | 15 |
| C. The Key Terms of the Transaction | 34 |
| • The RPP | 35 |
| • The Leaver Provisions | 42 |
| D. Events Giving Rise to the Leaver Litigation | 55 |
| E. The Leaver Litigation and the Quantum Judgment | 63 |
| F. The Pleaded Cases | 87 |
| • The Particulars of Claim | 89 |
| • The Defence | 93 |
| G. Observations upon the Pleaded Cases | 100 |
| • Complexity | 101 |
| • Tensions Generated by Article 18.4.1 | 105 |
| • Scenarios 1 and 2 | 112 |
| H. Legal Principles | 115 |
| • Duty/Standard of Care | 116 |
| • Causation | 126 |
| • Loss of a Chance | 128 |
| • Contributory Fault | 133 |
| I. The Evidence | |
| • The Factual Evidence | 139 |
| ○ Mr Richards | 148 |
| ○ Mr Purves | 158 |
| ○ Mr Billingham | 167 |
| • The Expert Evidence | 191 |
| ○ A Summary of the Experts' Disagreement | 207 |
| ○ Criticisms of Mr Skeels' Approach | 217 |
| ○ Criticisms of Mr Taylor's Approach | 219 |
| • The Expert Evidence: Conclusions and Reasoning | 223 |
| ○ Conclusions | 226 |
| ○ Reasons | 231 |
| J. The Interpretation of Article 18.4.1 | 326 |
| K. Findings on Liability | 356 |
| • Conclusion | 387 |
| L. Causation | 394 |
| • Scenarios 1 and 2 | 398 |
| • Evaluation of Scenario 2 | 417 |
| • Legal Fees | 451 |
| M. Quantification of Loss | 476 |
| • Scenario 1 | 477 |
| • Scenario 2 | 478 |
| • Legal Fees | 479 |
| • Credits | 480 |
| N. Contributory Fault | 495 |
| O. Disposal | 514 |
This is my judgment following a trial of a professional negligence claim which was heard over 6 days in March 2022.
The Claimants (respectively Mr Richards and Mr Purves) sue the Defendants ( the Firm, following the merger on 1 November 2014, during the course of the Claimants' retainer, of the First Defendant with another firm so as to form the Second Defendant) in respect of losses said to have been suffered by them on the sale of their respective 42.95% equity stakes in a cloud-based communications technology company, IP Solutions UK Limited (“ IPS UK”) in December 2014 (“ the Transaction”).
The Firm acted for the Claimants on the Transaction. The Claimants allege that the Firm was negligent in failing to advise them in relation to their financial exposure in the event of them subsequently leaving the employment of IP Solutions Group Limited (“ the Company”), the newly incorporated company which acquired their shareholdings in IPS UK and in which they each acquired a 30% holding of C Class Shares and became the Company's CEO and Sales Director respectively.
Their principal complaint is that the Firm failed to warn them that the terms of the Transaction were such that even if they were subsequently wrongfully dismissed from their employment by the Company, so that they would be classed as “Good Leavers” for the purposes of the resulting sale of their shareholdings in the Company, they would receive no or only nominal value for their shareholding. That is because of the impact of something called the Redemption Premium Provision (“ the RPP”) on the determination of the “Market Value” of their shareholdings, upon them leaving the Company, in accordance with the Company's Articles. Their pleaded case is that, had they been made aware of this risk, they would have sought to have negotiated a care-out of the RPP from the determination of Market Value. The true construction of the relevant article was key to the decision of the High Court in the litigation between the Claimants and the Company, mentioned next, and it is now central to the present proceedings between the Claimants and the Firm. The Claimants say that, had they been warned that the RPP would or could have had that impact, then they would either (1) have negotiated a carve-out in the Articles, such that the RPP did not apply to the determination of Market Value (“ Scenario 1”); or (2) concluded an agreement with an alternative investor (“ Scenario 2”). Either way, they say that they have each suffered a loss of between £1.7 and £1.9 million.
In addition, they seek to recover the costs of what has been described as “ the Leaver Litigation” in the sum of £895,141.63. The Leaver Litigation arose out of the dismissal of Mr Richards and Mr Purves from their employment by the Company in July 2015. They were categorised by their employer as “Bad Leavers” for the purposes of the resulting sale of their shareholdings, which, if a correct categorisation, meant that under the Articles each shareholding was only worth £1. They challenged that categorisation in the Leaver Litigation brought against the Company. Following a trial earlier that month, by her judgment dated 22 July 2016, Mrs Justice May DBE, determined that they had been wrongfully dismissed (“ the Liability Judgment”: [2016] EWHC 1835 (QB)). The result meant that the Claimants ought to have been categorised as Good Leavers. On that basis they claimed to be entitled to receive “Market Value” for their shares.
However, by a further judgment dated 30 November 2016 (“ the Quantum Judgment”: [2016] EWHC 2599 (QB)), following a hearing on 5 September 2016 and further written submissions thereafter, May J ruled that they were only entitled to receive a nominal sum for their shares. This was because of what the judge held to be the application of the RPP to their disposal. As a result, their shares were denuded of value just as if they had been Bad Leavers.
The Company sought to appeal the Liability Judgment but its paper application for permission was unsuccessful. The Claimants obtained permission to appeal the Quantum Judgment. However, their appeal and the Company's renewed, oral application for permission to appeal the Liability Judgment were both compromised on 15 January 2018 and by consent both intended appeals were dismissed. The Claimants were each paid the sum of £87,500 under the compromise.
After the Claimants had completely severed their connection with it by that compromise, the Company was put into liquidation on 19 December 2018 and dissolved on 19 October 2019. It was insolvent and there was no distribution to its members.
The Firm defended the negligence claim by reference to liability, causation, and quantum. Part of its defence rests upon the contention that the Quantum Judgment was wrong as the RPP did not apply in a Good Leaver scenario. The Firm said that May J erred in reaching the conclusion she did and may have done so because of an incorrect concession made by the Claimants that a forced transfer constituted a “ Share Sale” for the purposes of article 13.3.
The other main points relied upon in defence of the claim were as follows:
i) In relation to the Firm's duty of care, that the risk against which it is alleged Firm should have warned was not a substantial one requiring such a warning. It is said to be a risk which eventuated only because of a most unlikely combination of factors: a situation in which (a) both the private equity house behind the December 2014 purchase (“ Livingbridge”) and the independent Chairman, Mr Andrew Lockwood (“ Mr Lockwood”) decided they should summarily dismiss the Claimants on what they considered to be justified grounds; (b) the Claimants were then held by May J to be Good Leavers; (c) the court construed the Company's Articles incorrectly; and (d) the value of the Company (on the Claimants' case) was such that it would have made a material difference to the price received by them. The Firm says that chain of events was not one that could have been foreseen during the negotiation of the Transaction.
ii) Further, and in any event, any such risk was the result of commercial negotiations between the Claimants and their corporate finance advisers Knight Corporate Finance Limited (“ Knight”) and Livingbridge in September 2014. The Firm was not party to those discussions and was neither asked nor required to advise on the commercial desirability of the deal. It says that the commercial aspects were addressed by the Claimants with the assistance of Mr Paul Billingham (“ Mr Billingham”) and Ms Laura Cockburn (“ Ms Cockburn”) of Knight.
iii) In relation to causation and quantum, there was no real or substantial chance that Livingbridge would have agreed to carve out the RPP from a Good Leaver scenario. The Claimants would most likely have done the same deal with Livingbridge as the one they actually did conclude.
iv) Alternatively, if Livingbridge had been prepared to agree to the proposed carve out (Scenario 1), it would have made no difference, both because (a) the Market Value of the Claimants' shareholdings in the Company as at 29 July 2015 was zero, and (b) even if the Claimants had obtained a judgment against the Company, they would not have recovered more than they did under the compromise of the appeals in the Leaver Litigation because, by the conclusion of that litigation, the Company was effectively insolvent. On the scenario of the Claimants...
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