•
The appeal court should be reluctant to interfere with a judge's findings
of fact where he had made a complex evaluation of oral evidence
• A sole shareholder suing for negligence in his personal capacity
should give credit for a gain that the company achieves as a result of
suing for the same loss: the wrongdoer should not be made liable twice
for the same loss
The action
arose out of negligent tax advice given by the respondents, Fairhurst,
who were accountants and tax advisers to the first and second appellants,
Mr and Mrs Floyd.
Mr &
Mrs Floyd were the sole directors and shareholders of the third appellant,
Boundary. The local authority had compulsorily purchased land belonging
to all three parties, resulting in chargeable gains. Fairhurst admitted
that they had failed to advise Mr Floyd that he could have obtained
a type of rollover relief under the Capital Gains Tax Act 1979 (now
the Taxation of Chargeable Gains Act 1992), available in respect of
compulsorily purchased land ("CPO relief"). It was accepted
at first instance and on appeal that an award of interest would be adequate
compensation for the losses incurred.
At trial,
the judge concluded that he was not satisfied that if Mr Floyd had been
advised of the availability of CPO relief and its implications, he would
have followed that advice. He therefore rejected his claim for damages
in that respect. The judge awarded the claimants damages on their claim
for loss arising out of the payment by Boundary of a bonus to the Floyds
which they contended they should have been advised to make by way of
dividend. The judge calculated those damages by setting off the saving
of tax to the Floyds if the dividend had been paid against the tax which
would have been borne by Boundary if the dividend had been paid.
The claimants
appealed and the defendants cross-appealed. The claimants submitted
that
• the judge had not been entitled on the evidence to find that
Mr Floyd would not have utilised the CPO relief in any event;
• the judge's approach to calculation of the loss in respect of
the bonus payment offended fundamental principles of company law as
the company was a separate legal entity and its gain should not affect
the claim of the two individual claimants.
The Court
of Appeal disagreed on both matters:
•
The question whether Mr Floyd would have chosen to seek CPO relief had
required the judge to make an evaluation on the basis of oral evidence
and on the basis of a hypothetical person with his characteristics (Assicurazioni
Generali SpA v Arab Insurance Group (BSC) (2002) EWCA Civ 1642, (2003)
1 WLR 577 and Todd & ors v Adams & anr (2002) EWCA Civ 509,
(2002) 2 All ER (Comm) 97 considered). The subjective elements in that
complex evaluation meant that the appeal court should be reluctant to
intervene with the judge's findings of fact. The judge had approached
the issue in a logical and methodical way. He had taken Mr Floyd's evidence
as his starting point and then tested it by reference to various objective
factors that could be expected to throw light on the reliability of
his evidence. He had taken account of the merits and demerits of CPO
relief. The claimants had not shown that the judge's conclusion was
plainly wrong or that he had omitted to take into account some significant
or relevant matter. The judge's role is closely analogous to the exercise
of a discretion. (Reference CPR 52.10 and 52.11; the leading authority
on when an appellate court can set aside findings of fact is Benmax
v Austin Motor Co Ltd [1955] AC 370).
•
It was well established that a shareholder could not bring proceedings
to recover loss that was merely reflective of loss suffered by his company.
This is so even if he can establish that he has a cause of action separate
from the company: see Johnson v Gore Wood & Co (A Firm) (2001) PNLR
439. This principle will apply where the shareholder is effectively
the sole shareholder of the company, as here; it may not apply in other
cases. The judge's approach was an application of the principle of reflective
loss by analogy - a shareholder must also give credit for a gain that
the company achieved as a result of the negligence on which he sued.
The wrongdoer should not be made liable twice for the same damage.
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