Riyad Bank v AHLI United Bank Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Dyson,Lord Justice Longmore,Lord Justice Neuberger,Lord Justice Buxton |
| Judgment Date | 13 June 2006 |
| Neutral Citation | [2005] EWCA Civ 1419,[2006] EWCA Civ 780 |
| Docket Number | Case Nos: 2005 1019 A3 & 2005 1019(D) A3,Case No: A3/2005/1019 (B), (C) AND (Y) |
| Court | Court of Appeal (Civil Division) |
| Date | 13 June 2006 |
[2005] EWCA Civ 1419
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM The High Court of Justice
Commercial Court
Mr Justice Moore-Bick
2002 Folio 1323
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Waller and
Lord Justice Dyson
Case No: A3/2005/1019 (B), (C) AND (Y)
Michael Brindle QC and Simon Colton (instructed by Slaughter & May) for the Respondent
Michael Lyndon Stanford QC and Dominic Chambers (instructed by Lovells) for the Appellant
Waller LJ:
On 1 st March 2005 Moore-Bick J (as he then was) handed down a judgment dealing with liability (the duty aspect), and the principles to be applied in assessing damage (the valuation aspect). He granted permission to appeal on the duty aspect but refused it on the valuation aspect. Tuckey LJ then refused permission to appeal on the valuation aspect on paper.
On Monday 14 th November 2005 we had before us the renewed application for permission to appeal on the valuation aspect. That had however been joined by an application to put in fresh evidence, together with an application to amend the notice of appeal to add a further ground of attack on Moore-Bick J's ruling on the valuation aspect. The two matters were listed for half a day. There were six lever-arch files, extensive skeletons, one of which relating to the admission of fresh evidence did not reach us until the midst of the hearing. That skeleton was received in the Civil Appeals Office on the 7 th November and unfortunately through some administrative error had not reached us by the start of the hearing.
We heard first argument from Mr Lyndon-Stanford QC in support of his application for permission to appeal in relation to the original grounds. Having read the skeleton arguments and the relevant parts of the judgment, plus substantial further documentation, we were already conscious of the fact that the arguments on valuation were complex. At the oral hearing it soon became obvious that to fairly assess the prospects of success at only a short hearing would be extremely difficult. Furthermore there was the fresh evidence application to be dealt with as well. We took the view in relation to the permission application that this was one of those cases where, since (1) a large amount of money was at stake and (2) debating arguability needed in fairness longer than can ordinarily be made available on a permission application, and because arguing arguability can at times become time wasted when an appeal may itself not last that much longer, the right course, particularly as an appeal was already coming to the court, was to grant permission.
We did however feel that we should try to deal with the application to put in fresh evidence in order to relieve the full court at least of that burden. In order to consider that application we must therefore set out in a little detail what the valuation aspect is about.
This is an action in which there are three claimants and one defendant (UBK). It concerns the purchase by the third claimant (the fund) of 198 equipment leases for just over US$100M. UBK advised on the appropriate value of the leases at the time they were purchased by the fund. The contractual structure under which they gave that advice gave rise to an argument as to whether they owed a duty of care directly to the fund. That is the duty aspect ruled on by Moore-Bick J. If they owed that duty, further issues in relation to breach and damage gave rise to the valuation issue. There is a helpful table set out in a recent judgment of Morison J, given on 29 th September 2005, which sets out the type of equipment, the subject of the leases, the number of leases, the cost to the fund and the sum now claimed by the fund as damages. The table shows that there are 18 equipment types and the total amount claimed, excluding interest, is US$18,176,738.
On the 20 th October 2004, Moore-Bick J had ordered a two-stage trial. The first stage "will deal with issues of fact, the law and the principles underlying the expert evidence, together with an assessment of the credibility and reliability of the witnesses" and "no final decision will be made during or following the first stage of the trial as to precise quantum of damages, if any." It was further ordered that:—
"following judgment given at the first stage, the court will consider the future procedure in the action including deciding to what extent if any it would be necessary to hear further submissions and/or expert evidence prior to determining the precise quantum of damages (if any). This order is without prejudice to the parties' rights to cross-examine witnesses generally during the first stage of the trial."
The first stage of the trial took place between 18 th October and 2 nd December 2004. The main issue between the parties at the first stage was whether the defendants were liable to the third claimant in tort and whether the first and second claimants were entitled to compensation for payments to protect commercial reputation (which was dismissed). A judgment was handed down on 1 st March 2005 ruling that the defendants did owe a duty of care, despite the underlying contractual structure. From paragraph 93 onwards of the judgment Moore-Bick J considered on the evidence of the four experts the correct basis of the valuation of what is termed the ERV (the Estimated Residual Value) aspect of the price to be paid for the lease when being purchased by the fund.
The experts all recognised that a number of different bases of valuation could be used when estimating the residual value of leased equipment. Moore-Bick J set them out in paragraph 93 of his judgment. He set them out in ascending order, starting with scrap value, forced liquidation value (FLV), orderly liquidation value in exchange (OLVIE), fair market value in exchange (FMVIE) and fair market value in place (FMVIP). The main contest between the experts at the trial was whether the appropriate basis was OLVIE or FMVIE. A further issue between the experts was the extent to which, in making the calculation as to value, the prospect of a lease being renewed should be taken into account. The judge ruled on those aspects in the following terms:—
"101. It is necessary at this stage to say something about the significance to be attached to the prospects of renewals which pose difficulties of their own. At the time of entering into a lease there is little or no information that will enable the lessor to form a reliable view about whether the lessee will renew, and if so, for how long or on what terms. Much will depend on the circumstances in which the lessee finds himself at the end of the lease term and even lessees with a long history of renewing have been known to change policy abruptly. The difficulty of predicting the likelihood of renewal in any given case was acknowledged by both Mr Florenz and Mr Fry, neither of whom was able to support the renewal assumptions approved by UBK. It is true that Mr Florenz was prepared to suggest that there is a level at which the renewal rental is so low as to be compelling, which he put at 50% of the original, but I obtained the clear impression that that was little more than an attempt at an educated guess. Moreover, once rentals are reduced that far there is an increased risk that renewal will reduce rather than increase the amount ultimately realised by way of residual value. I think Mr Deane was right in saying that it is a mistake to place any reliance on the prospect of achieving a negotiated renewal on terms that are beneficial overall.
102. Having heard the different approaches debated with the witnesses in cross-examination, I am satisfied that at the commercial level, as one would expect, there is no one single clearly defined approach in this market. Different lessors adopt different approaches to pricing and valuation based on a variety of commercial factors. Mr Deane's preference for OLVIE as the basis of valuation, subject to a further 30% haircut, no doubt reflects the practice of many lessors, but I think it represents the conservative end of the scale. Similarly, I accept in the light of the evidence of Mr Fry and Mr Florenz that some leasing companies do adopt FMVIE as a basis of valuation, perhaps with a small haircut, or even no haircut at all, though I am unable to accept that that is the general practice. Certainly the quotation from the guide to leasing on which Mr Deane relied suggests that FMVIE is one recognised basis of valuation, although it probably reflects the more speculative end of the scale and would no doubt justify a substantial haircut."
The judge also then in para 103 set out why he concluded that OLVIE, with no haircut, fairly represented the mid-point in market practice. He did so in the following terms:—
"103. In my view the right approach is to take the basis of valuation that broadly reflects the mid-point in market practice and I think that OLVIE with no haircut fairly represents that for a number of reasons. First, in some leases the lessee is given the right to buy the equipment at the end of the term at FMVIE, which prevents the lessor from obtaining any premium that it might otherwise obtain as a result of selling the equipment in place. Such a term was included in some, though by no means all, of the leases held by the Fund. Secondly, the premium over FMVIE that the lessor can hope to obtain from a sale to the lessee of equipment that is not of a specialised kind or installed as part of an existing plant is likely to be small or even non-existent. Indeed, there is a serious risk that the lessor...
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