Humberclyde Finance Group Ltd v Hicks [2001] EWHC 700 (Ch) (14 November 2001)

[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

England and Wales High Court (Chancery Division) Decisions

You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Humberclyde Finance Group Ltd v Hicks [2001] EWHC 700 (Ch) (14 November 2001)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2001/700.html
Cite as: [2001] EWHC 700 (Ch)

[New search] [Printable RTF version] [Help]

		Neutral Citation Number: [2001] EWHC 700 (Ch)
		Case No: HC 1998 02156

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

14th November 2001

B e f o r e :

THE HONOURABLE MR JUSTICE NEUBERGER
____________________

	HUMBERCLYDE FINANCE GROUP LTD	Claimant
	- and -
	MICHAEL PETER HICKS Defendant/	Defendant Claimant by Counterclaim
	- and -
	HUMBERCLYDE FINANCE GROUP LTD (1) ROBSON RHODES (A FIRM) (2) FRANK ROUNTHWAITE (3) ROY SIGGERY (4)	Defendants by Counterclaim

____________________

Mr Stephen Cogley (instructed by Tasselli & Co.) for the Claimant by Counterclaim.
Mr William Trower QC and Stephen Atherton (instructed by Davies Arnold Cooper) for Defendants 1 and 4 by Counterclaim.
Mr Christopher Moger QC (instructed by the Simmons & Simmons) and Mr Colin Passmore (Solicitor Advocate) for Defendants 2 and 3 by Counterclaim.
____________________

HTML VERSION OF JUDGMENT
____________________

MR JUSTICE NEUBERGER:

This is an application by defendants to counterclaim to strike out parts of the counterclaim, and an applicant by the counterclaiming claimant to amend the counterclaim. The issues raised by the application concern the extent of the restrictions on the ability of a shareholder to maintain an action following the decision of the House of Lords in Johnson -v- Gore Wood & Co. [2001] 2 WLR 72 ("Johnson"), the interrelationship of that decision and the European Convention on Human Rights ("the Convention"), consideration of the extent of the rules of issue estoppel, the circumstances in which aggravated damages and damages for injured feelings can be recovered, and the interpretation of section 35(5) of the Limitation Act 1980.

THE FACTS

At all material times, Mr Michael Hicks was the principal director and 99% shareholder in Hinckley Island Hotel Limited ("the Company"), which owned a hotel complex at Hinckley, Leicestershire ("the Hotel"). In 1989, the Company wished to expand its business, and it needed additional finance for that purpose. The Humberclyde group of companies was prepared to provide additional finance through various companies in that group, and, as a result, a number of transactions were entered into on 22^nd January 1990. These included three Deeds. First, a lease whereby the Company granted HCI, a Humberclyde group company, a lease of the Hotel for 125 years at a premium of £8.45m, to pay off the Company's then indebtedness. Secondly, an underlease of the Hotel by HCI to the Company for a term of 25 years at a full rent. Thirdly, a development agreement whereby about £4m would be provided by HCI to the Company by way of a loan, for which HCI took security over the whole of the Company's undertaking and assets.

On 10^th December 1990, HIF, another company within the Humberside group, granted the Company further finance through the medium of a leasing agreement in respect of the chattels in the Hotel. By May 1991, the Company needed more money and Mr Hicks approached Robson Rhodes, the Company's auditors and Mr Hick's personal accountants, and instructed them to provide a report. Robson Rhodes concluded that the Company was insolvent and that, without further injection of capital, it was likely to go into insolvent liquidation in the near future. It was agreed that Robson Rhodes would monitor the position and assist the directors of the Company, and that Mr Frank Rounthwaite of Robson Rhodes would set up an office in the Hotel for that purpose on 13^th June 1991. At this time Mr Roy Siggery was the general manger of the Hotel.

On 21^st June 1991, HFG, another Humberclyde company, advanced £767,500 to the Company, on terms which included a requirement that the Company permitted Robson Rhodes to monitor its expenditure in order to safeguard the interests of the Humberclyde group. The terms of HFG's advance also provided for further security for HFG, in particular a charge over the Hotel. A further £450,000 was advanced by HFG to the Company on 25^th July 1991, on very similar terms. On 28^th June 1991, Mr Hicks executed a guarantee ("the guarantee") in favour of HFG in respect of the Company's liabilities to HFG.

On 9^th September 1991, as a result of the Company's failure to meet its obligations under the various agreements with Humberclyde companies, HFG and HIF made formal demands for repayment of the sums owing to them. On the Company failing to repay, HFG took possession of the Hotel as mortgagee, whereafter it entered into a management agreement for the future management of the Hotel with HIH, another company in the Humberclyde group. On 7^th January 1993, a Statutory demand was served on the company by HIF for non payment of sums due under the chattels lease, and, as the demand was not complied with, a winding up petition was presented to the court on 5^th March 1993. Although the petition was contested, the court ordered that the Company be wound up on 11^th November 1993, when the Official Receiver was appointed liquidator. Although the Company appealed that decision, the appeal was dismissed on 26^th January 1996, as a result of the Company failing to provide security for costs. In October 1996, the Hotel was sold by HFG to a third party. Meanwhile, in March 1992, HFG issued the present proceedings against Mr Hicks, seeking payment from Mr Hicks pursuant to the guarantee of all sums owing by the Company to HFG. In May 1992, Mr Hicks served a Defence and Counterclaim. One of the principle allegations in the Defence and Counterclaim is that HFG, and indeed the other Humberclyde group companies (which are not defendants to the Counterclaim), Robson Rhodes, Mr Rounthwaite and Mr Siggery (who are defendants to the Counterclaim with HFG) were parties to a conspiracy to injure the Company and Mr Hicks, by depriving the Company of possession and ownership of the Hotel and of its business, and exposing Mr Hicks to liabilities and potential bankruptcy. This conspiracy is said to be one involving unlawful means.

In his Defence and Counterclaim, Mr Hicks contends that the objects and effect of the actions of the alleged conspirators, HFG, Robson Rhodes, Mr Rounthwaite and Mr Siggery ("the defendants") was to place the Company in default thereby enabling HFG to take possession of the Hotel. He claims that, but for the actions of the defendants, the Company would have been able to fulfil all its obligations, and would have retained the Hotel and business, and that Mr Hicks would have been able to retain his other assets. The consequence of the conspiracy alleged by Mr Hicks is said to be that the Company suffered loss equal to the value of the Hotel and business. In particular, Mr Hicks' Counterclaim pleads that the Company's loss was the difference between the value of the Hotel and its business to the Company had it retained possession and the value to the Company of the assets in the possession of its mortgagees. It is alleged that Mr Hicks has suffered personal losses as a result of the alleged conspiracy.

The allegations of conspiracy in Mr Hick's Defence and Counterclaim are very similar to those put forward in proceedings brought in October 1993 shortly before the hearing of the petition, by the Company against various Humberclyde companies, including HFG, and against Robson Rhodes, although not against Mr Rounthwaite specifically, or against Mr Siggery. In particularly, in that action ("the Company's action") the Company made effectively the same claims as to the existence, object and effect of the alleged conspiracy, and it formulated its loss in identical terms to those advanced in Mr Hicks' pleading in the present case. Indeed, I think it is acknowledged on behalf of Mr Hicks that the Company's claim was essentially identical to that he now advances.

Mr Hicks and his fellow director of the Company, Mrs Spence, wished to take an assignment from the Official Receiver of the Company's conspiracy claim as advanced in the Company's action. However, objection was taken to this by the Humberclyde group who had made their own offer to the Official Receiver to settle the claim. The Official Receiver was ordered to seek directions, and the matter came before Chadwick J in June 1997. One of the issues before him was whether there was any value in the claims advanced by the Company in its action: if there had been no value, there would have been nothing capable of assignment to Mr Hicks. The resolution of that point depended on whether the value of the Hotel as a going concern in September 1991 exceeded the indebtedness of the Company to the Humberclyde group company, which indebtedness was at least £13.5m at the time of the hearing. Chadwick J held that the value of the Hotel exceeded that of the indebtedness, and that there were therefore assets capable of assignment to Mr Hicks; he directed the Official Receiver to effect such an assignment, which was duly done.

HIFG appealed, and Mr Hicks and Mrs Spence were parties to the appeal. The Court of Appeal allowed the appeal, holding that there was no real value in the claims raised in the Company's action, because the value of the Hotel was £10m in September 1991. This value was based on evidence of a surveyor's valuation which had been adduced to the court. Mr Hicks had applied to produce further evidence as to the value of the Hotel, so as to put the valuation before the court in issue. However, his application was refused by the Court of Appeal. The basis of this refusal was that Mr Hicks had ample opportunity to put such evidence in, but had failed to do this.

The decision of the Court of Appeal is reported as Re Hinckley Island Hotel Ltd [1998] 2 BCLC 526 ("Hinckley Island"). At paragraph 29, [1998] 2 BCLC 538D-G, Morritt LJ, giving what was effectively the judgment of the Court of Appeal, said this:

"I have no doubt that this court has the power both to grant leave to the directors to adduced further evidence and to reopen the hearing if, in its discretion, it thinks fit. Equally I have no doubt that in the circumstances neither power should be exercised. The directors have had ample time in which to prepare and seek leave to adduce any further evidence they wished. During that time they have been legally represented and, as the correspondence demonstrates, the question whether to do so has been under active consideration. The reason why the opportunity was not taken and whether, as the directors claim it was due to incompetence on the part of some or all of their advisers are not matters for this court. Both applications were far too late and would have necessitated adjournments for which it is unlikely, given that they are in receipt of legal aid, that the directors could have compensated the other parties for the consequential costs which would be wasted."

At [1998] 2 BCLC 538H-I, Morritt LJ went on to say this:

"It is submitted [by the Humberclyde group] that the debt of the Company, which was admitted to be at least £13.5m, should be set against the value of the Hotel given in the 1991 valuation of £10m and not against a speculative figure of £18m to £20m arrived at by discounting the valuation given in 1989… If that is correct then there is nothing for the Official Receiver to assign the directors for the debt due from the Company would exceed the maximum sum recoverable in the conspiracy action if it were fought to a successful conclusion."

After considering the contrary argument (at [1998] 2 BCLC 539A-C) advanced principally on behalf of Mr Hicks and Mrs Spence, Morritt LJ said that he did "not accept the submissions made on behalf of the directors". Accordingly, he said that he was "driven to the conclusion that the conspiracy action could not yield a money judgment sufficient to extinguish, let alone over-top, the debt due by the Company to the Humberclyde group". In light of this conclusion, the Court of Appeal directed the Official Receiver to enter into a compromise of the Company's action with the Humberclyde group of companies. The settlement of that action was finally completed in August 2001, when the Humberclyde group paid £100,000 to the Official Receiver for the assignment to HCI of the company's claims in the Company's action.

While the Company's action and the proceedings before Chadwick J and the Court of Appeal were under way, the present action proceeded leisurely. After Mr Hicks' Defence and Counterclaim was served on 18^th May 1992, an amended Defence and Counterclaim was served on 12^th January 1995, and a re-amended Defence and Counterclaim was served on 22^nd April 1997. Various other pleadings have been served, and various requests and orders for further and better particulars have been made and complied with. So far as the present applications are concerned, neither Mr Hicks nor the defendants have sought to apportion blame about the leisurely way in which the action has proceeded. It seems that this action was regarded as in abeyance to some extent while the Company's action remained to be resolved, i.e. until sometime in 1998.

THE PRESENT APPLICATIONS

HGF and Mr Siggery, represented by Mr William Trower QC and Mr Stephen Atherton, and Robson Rhodes and Mr Rounthwaite, represented by Mr Christopher Moger QC and Mr Colin Passmore, apply to strike out the following claims by Mr Hicks:

(1) The claim, pleaded in paragraph 24(3) of Mr Hicks' counterclaim for "loss of livelihood" which, in further information he has provided, is a claim for lost salary, lost pension, lost pension rights, and lost dividends, as a shareholder in the Company;

(2) The claim, pleaded in paragraph 24(4) of the counterclaim, for "loss of the value of [Mr Hicks'] shareholding in [the Company]" which, in further information, Mr Hicks estimated as "being not less than £6.3m as at 9^th September 1991, valuing [the Company] at £20.3m with liabilities of £14m";

(3) Aggravated damages, sought in paragraph 25 of the counterclaim, "on account of HFG's actions being calculated to cause and causing injury to [Mr Hicks'] feelings, reputation and credit", this claim being explained in further information as attributed to loss of reputation as a successful businessman, loss of credit worthiness, depression and family disruption.

The applications to strike out paragraphs 24(3) and 24(4) of the counterclaim are said to be justified by reference to the decision in Johnson. On behalf of Mr Hicks, Mr Stephen Cogley contends, first, that Johnson is distinguishable on the facts of this case in domestic law, and, secondly, that Johnson should not be applied in a case such as this because it would contravene Mr Hicks' human rights under the Convention.

Mr Hicks' claim in paragraph 25 of his counterclaim can be analysed as having three strands. The first is a claim for aggravated damages; the second is a claim for damages for loss of reputation; the third is a claim for damages for mental distress. It is argued against Mr Hicks that none of those claims can be justified in the present case.

Mr Cogley emphasises that an application to strike out a claim can only succeed where the court is satisfied that it stands no prospect of success. Although the applications against Mr Hicks seek to strike out part of his pleaded case under Rule 3.4(2)(a) of the CPR, the approach of the court is, I think, not really any different from that under Part 24 of the CPR. The distinction between striking out a claim or dismissing a claim before trial, where, as here both sides rely on evidence, is one which may be of interest to academic lawyers. However, in most cases, and in particular in this case, it seems to me to be a valueless exercise to consider whether there is in practice any difference between the way in which applications under the two Rules are dealt with. Apart from anything else, even if the applications are made only under Rule 3.4(2)(a), the court can of its own motion make an order under Part 24. The fact that the court has to be very careful before striking out a claim, or dismissing it under part 24, and the fact that the two jurisdictions are very similar seems to me to be supported by observations of the House of Lords in Three Rivers DC -v- Bank of England [2001] 2 All ER 513 at 540 to 542.

There is also an application by Mr Hicks to amend his counterclaim by adding further substantial claims for damages. In summary terms, these are as follows:

(1) Loss caused by his inability to service personal loan obligations, resulting in inability to realise the investment and development potential of certain properties – paragraph 23A;

(2) Loss arising from his exposure to covenants to repay under mortgages of particular properties resulting from a shortfall on each of the properties on sale by their mortgagees – paragraph 23B;

(3) Loss represented by Mr Hicks' liability under contracts of guarantee or indemnity relating to the obligations of the Company – paragraph 23C;

(4) Loss arising from his inability to discharge personal liabilities and his need to borrow sums – paragraph 23D .

Mr Hicks' application to make these amendments is resisted by the defendants on a number of grounds. First, it is said that the court has no jurisdiction to permit these amendments because the application to add these claims is made outside the limitation period and they involve new causes of action which do not arise out of the same facts or substantially the same facts as those already pleaded – see section 35(5) of the Limitation Act 1980. It is also contended that permission to amend should not be given because these new proposed claims could not succeed, in some cases because they offend the principle in Johnson, and in other cases because even if the alleged loss was sustained, it could not be said to have been caused by the alleged wrongdoing of any of the defendants. To the extent that these arguments are not correct, it is contended that the amendments sought by Mr Hicks should not be granted because they are raised far too late with no good explanation, they are insufficiently particularised, and to allow them would cause the defendants unfair prejudice.

There is another point which applies to the application to amend, and would also apply to any sums counterclaimed by Mr Hicks. Many, and possibly all, of the monetary claims asserted, or sought to be asserted, by Mr Hicks are predicated on the Hotel being valued as at 1991 at over £13.5m or thereabouts, and in particular not having the value upon which the Court of Appeal proceeded in 1998, namely £10m. The defendants contend that Mr Hicks is estopped from contending that the Hotel was worth more than £10m in 1991, as a result of the Court of Appeal's decision.

I propose first to consider the application to strike out paragraphs 24(3) and 24(4) of the counterclaim, which involves the arguments based on Johnson and the Convention. I shall then deal with the estoppel issue, i.e. the extent to which Mr Hicks is barred from seeking to establish that the Hotel was worth more than £10m in 1991. Next, I shall turn to Mr Hicks' claim for aggravated damages, damages for mental distress, and damages for loss of reputation. Finally, I shall consider Mr Hicks' application to amend.

THE FIRST ISSUE: REFLECTIVE LOSS

Johnson -v- Gore Wood

The decision of the House of Lords in Johnson -v- Gore Wood [2001] 2 WLR 72 was concerned with three of the issues raised in the present case. It is particularly relevant in relation to the application to strike out paragraphs 24(3) and 24(4) of Mr Hicks' re-amended Defence and Counterclaim. In Johnson, the court was proceeding on the basis that the defendant solicitors owed a duty of care both to the claimant, Mr Johnson, and the company in which he had a substantial shareholding. After considering a number of cases, Lord Bingham of Cornhill summarised the law in three propositions at [2001] 2 WLR 94:

"(1) 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. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss….

(2) Where the company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so) even though the loss is a diminution in the value of the shareholding. …

(3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other."

At [2001] 2 WLR 95-96, Lord Bingham went on to consider which of Mr Johnson's claims should be struck out, in light of the application of the principles. He came to the conclusion that the following claims should not be struck out:

(1) Investments by Mr Johnson in other companies on the basis of the defendants' advice;

(2) Cost of personal borrowings which Mr Johnson claimed that he had to borrow to fund his outgoings, although Lord Bingham said that "the ingredients and the quantum of this claim will call for close examination", he said it was not "bad on its face";

(3) Mr Johnson's claim for bank interests and charges, which Lord Bingham said was subject to the same considerations;

(4) Mr Johnson's increased tax liability.

However, Lord Bingham concluded that the following claims should be partly struck out in light of the principles he had identified:

(5) Diminution in the value of Mr Johnson's pension, but only in so far as it was attributable to payments which the company would have made into Mr Johnson's pension fund; in so far as the claim related to enhancement of the value of his pension, it was allowed to proceed;

(6) Diminution in the value of Mr Johnson's majority shareholding in the company. However, loss of a specific shareholding which Mr Johnson made available to a lender of security for a loan but which he was unable to buy back due to the defendant's alleged breach of duty was not struck out.

All the other members of the House of Lords, with the exception of Lord Cooke agreed with the result. Lord Millett explained the position "where the company suffers loss caused by the breach of a duty owed both to the company and to the shareholder" in these terms at [2001] 2 WLR 121:

"In such a case the shareholder's loss, in so far as this is measured by the diminution in value of his shareholding or the loss of dividends, merely reflects the loss suffered by the company in respect of which the company has its own cause of action. If the shareholder is allowed to recover in respect of such loss, then either there will be double recovery at the expense of the defendant or the shareholder will recover at the expense of the company and its creditors and other shareholders. Neither course can be permitted. This is a matter of principle; there is no discretion involved."

Later, at [2001] 2 WLR 125, Lord Millett said this:

"The disallowance of the shareholder's claim in respect of reflective loss is driven by policy considerations. In my opinion, these preclude the shareholder from going behind the settlement of the company's claim. …Reflective loss extends beyond the diminution in the value of the shares; it extends to the loss of dividends… and all other payments which the shareholder might have obtained from the company if it had not been deprived of its funds. All transactions or putative transactions between the company and its shareholders must be disregarded. Payment to the one diminishes the assets of the other. In economic terms, the shareholder has two pockets, and cannot hold the defendant liable for his inability to transfer money from one pocket to the other."

The final passage in the speech of Lord Millett to which I would refer is at [2001] 2 WLR 126, where he said this:

"The same applies to other payments which the company would have made if it had the necessary funds even if the plaintiff would have received them qua employee and not qua shareholder and even if he would have had a legal claim to be paid. His loss is still an indirect and reflective loss which is included in the company's claim. The plaintiff's primary claim lies against the company, and the existence of the liability does not increase the total recoverable by the company, for this already includes the amount necessary to enable the company to meet it."

Prima facie application of Johnson to this case

On the face of it, at least, application of the reasoning in those passages to the two paragraphs in Mr Hicks' re-amended Defence and Counterclaim would appear to justify the defendants' contention that paragraphs 24(3) and 24(4) of the Counterclaim should be struck out. The first of those claims, namely in paragraph 24(3), although described as "loss of livelihood" is explained by Mr Hicks to be in part a claim for lost dividends from the Company. In my judgment, subject to the arguments to which I will turn in the next sections of this part of the judgment, that head of claim is plainly for reflective loss. That is equally true of the whole of the second head of claim, namely the loss of value in Mr Hicks' shareholding in the Company, claimed in paragraph 24(4) of the Counterclaim.

The position is not so clear in relation to the claim in paragraph 24(3) in so far as it is a claim for lost salary, lost pension and lost pension rights from the Company. In this connection, it seems to me that there is a potential difference between loss a shareholder suffers in his capacity as a shareholder, e.g. diminution in the value of his shares, loss of dividends, and loss that he suffers in a different capacity, such as loss of wages or pension as a director or other employee. There is no doubt, following Johnson, that the first category is reflective loss. There is a real argument that the second category should nonetheless not constitute reflective loss. An employee, or indeed a guarantor, of the Company who is able to establish breach of a duty by a defendant, who owes a similar duty to the Company, would not be precluded from bringing an action against that defendant for his loss as an employee or guarantor. So why should an employee or guarantor who happens to be a shareholder be in any different position? The point is reinforced when one considers the case of a director with a very substantial salary and pension, but with nominal shareholding. It seems hard to explain why such a person should be precluded from claiming for his loss just because he has a few shares in the company, unless, of course, an employee who had no shares in the company was similarly precluded from suing. There is no suggestion in any case, least of all in Johnson itself, that the reflective loss principle applies to an employee who is owed a duty of care by the defendant, but who is not a shareholder in the employer company, which is owed a similar duty by the defendant.

On the other hand, a shareholder, irrespective of the size of the shareholding, is a member of the company, and, sometimes only together with other shareholders, has indirect rights in relation to the company's assets, and indirect rights and powers of control, over the company. He therefore has a degree of interest in and over the company's ability to enforce any claim for damages against the defendant. Indeed, if the company does not enforce such claims properly, he will have a cause of action against its proper officers, normally the directors of the company or, if the company is insolvent, normally against the liquidator. In principle, therefore, he has some ability to ensure that the company recovers damages against the defendant, and in particular sufficient damages to enable him to be indirectly compensated for the loss which, as employee, he would otherwise suffer. Further, although it is less easy to justify as a matter of strict principle in accordance with the guidance given in Johnson, there is a much stronger argument for saying that the loss suffered by an employee may be reflective loss where he is effectively the sole shareholder in the company, or alternatively where he owns more than half the shares of the company, but not otherwise.

Given that this is a strike out application, it seems to me that, unless I am satisfied that Johnson clearly treats loss suffered by a person who is a shareholder, but who suffers the loss in a different capacity, namely an employee, as reflective loss, I ought not strike out Mr Hicks' claim for lost salary, lost pension or lost pension rights.

I do not find it entirely easy to determine whether the decision in Johnson does justify striking out Mr Hicks' claim for these losses. Lord Bingham, with whom Lord Goff and Lord Hutton agree, referred in his first principle at [2001] 2 WLR 94 to no action lying "at the suit of a shareholder suing in that capacity and no other", which would suggest that a claim made in another capacity would not be rule out. However, he concluded that Mr Johnson's claim for diminution in the value of his pension, at least in so far as it was attributable to payments which the company would have made into his pension fund, should be struck out. This was presumably the loss suffered by Mr Johnson in his capacity as a director of the company, but it is fair to say that the point is not spelt out. Lord Millett, especially in the passage I have quoted at [2001] 2 WLR 126, expressed himself more widely, stating that a shareholder cannot claim for loss of money which he "would have received" from the company even "qua employee and qua shareholder and even if he would have had a legal claim to be paid". I am not convinced that, at least in a case where the employee holds only a few shares in the company, this can be said to be justified on the basis explained by Lord Millett in an earlier passage I have also quoted. He referred to the fact that in economic terms "the shareholder had two pockets and cannot hold the defendant liable for his inability to transfer money from one pocket to the other". I do not think that can apply to every shareholder who is suing for loss suffered qua employee; it seems to me that it could only reasonably apply in a case where the shareholder effectively owns all the shares in the company.

In this perplexing and developing area, there is a powerful argument for concluding, as Mr Cogley urges on me in this case, that I should be particularly careful before striking out any aspect of Mr Hicks' claim on the basis of the reasoning in Johnson. So far as loss of dividends and loss of value of Mr Hicks' shareholding is concerned, there can be no doubt, at least subject to Mr Cogley's other arguments, that they are ruled out by Johnson. Whatever my doubts as to whether Johnson can justify striking out a claim by a director for pension rights simply because the director happens to own a few shares in the company, the fact remains, that the House of Lords struck out Mr Johnson's claim for pension rights. At least where the director concerned effectively owns the company, as in Johnson and as in the present case, I can see how that can be justified. If the director in question had not effectively owned all the shares in the company, I would have concluded that the present case was at least arguably distinguishable from Johnson so far as the claim for pension rights is concerned, and I would have refused to strike out the claim. However, subject to Mr Cogley's other arguments, it seems to me that, if I took that course here, where Mr Hicks' owned all the shares in the Company, I would be refusing to follow a decision of the House of Lords to strike out a claim on indistinguishable facts.

Having concluded that I should strike out Mr Hicks' claim for lost pension rights, I think it must follow that his claim for loss of salary must similarly be struck out. First, the logic which led the House of Lords to strike out the claim for lost pension rights in Johnson seems to me inevitably to lead to the conclusion that a claim for lost salary must similarly be struck out, at least in a case in which the director is effectively the sole shareholder in the company concerned. Secondly, as I have mentioned, Lord Millett, at [2001] 2 WLR 126 specifically stated that the loss of a director of the company in his capacity as an employee is still reflective loss if that employee is a shareholder in the company. As I have said, while I have some difficulty with that proposition where the director only has a small shareholding, I can understand its application where the director effectively owns the company, as was the case in Johnson and as is the case here.

Accordingly, subject to Mr Cogley's grounds for distinguishing Johnson, I conclude that his claims in paragraph 24(3) and (4) of the Counterclaim should be struck out. I turn to consider the reasons raised by Mr Cogley as to why I should not strike out paragraphs 24(3) and (4) of the Counterclaim.

The argument that Johnson is distinguishable

The present case is different from Johnson in a number of respects, and Mr Cogley contends that the effect of some or all of these differences is such that Johnson is or may be distinguishable, and that, unless I am quite satisfied that he is wrong, paragraphs 24(3) and 24(4) should not be struck out. First, he points out that the claim in the present case is based on the alleged dishonesty of the defendants, whereas in Johnson it was merely based on negligence. I do not think that there is anything in that distinction. In a number of places in the speeches in Johnson, reference was made with approval to the decision of the Court of Appeal in Prudential Assurance Co. Ltd -v- Newman Industries Ltd (No. 2) [1982] Ch. 204 (see e.g. per Lord Bingham at 94 and per Lord Millett at 121-122). That was a case where the plaintiff shareholder's claim was for reflective loss, and it failed, notwithstanding that it was based at least in part on the alleged dishonesty of the defendants. Further, I do not see the logical basis upon which the reasoning of Lord Bingham and of Lord Millett should be disapplied simply because the defendant's behaviour is morally opprobrious.

Secondly, Mr Cogley points out that the activities complained of against the defendants in this case are claimed to have resulted in the Company going into liquidation, whereas there was no question of the Company in Johnson going into liquidation. That is true, but it does not seem to me to justify a different result here from that arrived at in Johnson. If the defendants' alleged activities caused damage to the Company, and the Company is in liquidation, whether as a result of that damage or otherwise, the right to sue the defendants for that damage remains with the Company, and can be enforced in principle by its "constitutional organs", namely its liquidator. It is true that the Company's "constitutional organs" are statutory under the Insolvency regime, rather than basically contractual under the Memorandum and Articles of Association. Nonetheless, the fact that the Company is in liquidation plainly does not prevent it suing for its loss, as the existence of the Company's action and the proceedings before Chadwick J and the Court of Appeal demonstrates. Further, if the liquidator had culpably failed to cause the Company to bring proceedings to recover the loss caused by the defendants, then Mr Hicks, as a person who would potentially benefit from any such recovery if there were a surplus, would have had a claim against the liquidator. I do not see why the fact that the Company in this case is in liquidation, or, indeed, that the activities complained of against the defendants allegedly resulted in the liquidation, should result in the principle of reflective loss identified in Johnson ceasing to apply.

Indeed, it can be said that, in the present case, the principle should apply with particular force. If the Company had been able to recover sufficient damages from the defendants so as to be in surplus after all creditors had been paid, then the Company would have accounted for the balance to its shareholder, effectively Mr Hicks, whereas if the Company had no claim against the defendants or if the value of the claim had meant that it would not be in surplus, there would be nothing to account for to Mr Hicks. If the former alternative were correct, then to permit Mr Hicks to claim in his own right the loss he has suffered could result in the most obvious double recovery. If the second alternative were correct, then Mr Hicks would have no claim in any event.

Thirdly, Mr Cogley contends that, unlike Johnson, the Company has not been able to claim for the damage it suffered. In Johnson, the Company had proceeded with an action against the defendants for the same breaches as those for which Mr Johnson was claiming, and, after the action had proceeded for several days, it settled its claim with the defendants. In the present case, it is said that the Company has in practice been able to recover nothing from the defendants because of the decision of the Court of Appeal in June 1988. In my judgment, there is nothing in this point. The Company, through the liquidator, was indeed able to pursue a claim against the defendants, but, as a result of the decision of the Court of Appeal, this was effectively compromised as a result of the mandatory operation of the Rules of set off in Insolvency. Although the facts are rather different from those in Johnson, the principle is no different: in Johnson, the company's claim was compromised voluntarily during the action against the defendants, whereas in this case it was compromised following application of the strict rules of set off as a result of a ruling of the Court of Appeal.

Fourthly, Mr Cogley relies on the fact that Mr Hicks is prepared to agree to limit his claim to what he would have recovered as a shareholder in the company, had the Company, through the liquidator, recovered substantial damages from the defendants. While that can be said to meet the practical problem thrown up if both Mr Hicks and the Company can sue, I do not consider that it represents a satisfactory answer to the problem. First, as the speeches of Lord Bingham and Lord Millett in Johnson indicate, the rule that a shareholder cannot recover reflective loss is one of principle, and its seems to me that Mr Hicks cannot get round it by the sort of device proposed by Mr Cogley, even though that device has inherent practical attraction. Secondly, I consider that the argument in any event assumes something which is impermissible, namely that the Company could recover damages from the defendants in respect of the matters complained of in these proceedings by Mr Hicks: in my judgment, that assumption cannot be right following the decision of the Court of Appeal in June 1998. The effect of that decision was that, after set off, the company did not have a valid claim, and, whatever my view on the estoppel point (dealt with in the next part of this judgment), there must be issue estoppel on that issue between the Company and HFG and Robson Rhodes.

Finally, Mr Cogley relied on a recent decision, Giles -v- Rhind (24^th July 2001, unreported) where Blackburne J reluctantly followed the decision in Johnson in circumstances not dissimilar from the present case. Blackburne J said in paragraph 31 there would in practice be no double recovery if the shareholder, Mr Giles, was entitled to proceed, because the company had undertaken not to proceed. He also gave permission to appeal. I draw a different conclusion from that decision of Blackburne J from that which I am invited to draw by Mr Cogley. First, perhaps a little cheaply, the fact that Blackburne J reached the decision that he should follow Johnson with some regret underlines the force of the decision of the House of Lords. Secondly, there can be no question in the present case of the Company foregoing any claim against the defendants, in light of the decision of the Court of Appeal. Thirdly, if anything, I should follow Blackburne J and strike out the claim, although there may obviously be force in the argument that I should grant permission to appeal so that the Court of Appeal could consider the decision in Giles and in this case at the same time.

The argument that the Convention assists Mr Hicks in this case

Mr Cogley argues that the decision in Johnson, at least if applied in this case, would represent a violation of Article 1 of the First Protocol to the Convention, which guarantees "every person" the entitlement to "the peaceful enjoyment of his possessions". In Marcx -v- Belgium [1979] 2 EHRR 330 at paragraph 63, the Human Rights Court stated:

"By recognising that every one has the right to the peaceful enjoyment of his possessions, Article 1 is in substance guaranteeing the right of property. This is the clear impression left by the words "possessions" and "use of property" …"

Mr Cogley's argument proceeds on the basis that a diminution in value of his shares in the company is an interference with his right of property, namely his economic interest in the shares. In principle, this proposition appears to have been implicitly accepted by the Human Rights Court in Agrotexim -v- Greece [1996] 21 EHRR 250 and SJ -v- Luxembourg [2000] BPIR 1020. In these circumstances, given that the value of Mr Hicks' shares has (if the allegations against the defendants in the Counterclaim are correct) been significantly diminished by the wrongful acts of the defendants, it would be a contravention of Mr Hicks' rights if the court concluded that he could not pursue a claim for this loss.

The Human Rights Act 1998 contains no provision in relation to the common law similar to that in section 3(1), which requires legislation to be read and given effect, if possible, in a way which is compatible with the Convention. However, it seems to me that it must be the duty of the court as a public authority (as to which see section 6) to give effect to the common law so that it is consistent with the Convention. If this involves changing the common law, so be it. That view is supported by what is said in paragraph 18.034 of Human Rights Practice (March 2001). It is right to add that I think that it will be relatively rarely that the common law would not be Convention-compliant. One would normally expect the established common law to be consistent with the spirit of the Convention, and, given that the common law is always developing, one would expect it to develop along the same general lines as the Convention in any event.

It is clear from the judgment in Agrotexim 21 ECHR 250 at paragraph 64, that the Human Rights Court took the same general view as the House of Lords in Johnson, in that it held that the fact that an alleged violation of the company's rights leads to diminution in the value of a shareholder's shares does not infringe the shareholder's rights in respect of those shares. Accordingly, Mr Cogley accepts that, even on his case, the jurisprudence of the Human Rights Court as developed in Agrotexim 21 ECHR 250 and in SJ [2000] BPRI 1020, only gives Mr Hicks cause for complaint if there is "a factual or legal impossibility preventing the Company from suing for the loss". In my judgment, it is at that point that his argument based on the Convention falls down. It is true that, in one sense, it is factually impossible for the Company to sue for any loss it may have suffered as a result of the defendants' alleged activities, but that would be true in any case where the company had already successfully or unsuccessfully brought proceedings or settled proceedings. For instance, in Johnson; it would have been impossible for the company to sue, because it had compromised its claim; in another case, it might be impossible for the company to sue because its claim had been dismissed or struck out. It cannot be right that, in such a case, the shareholder would be entitled to sue for his reflective loss pursuant to the Convention.

In the present case, because the Company has gone into liquidation, and therefore any claims and cross claims as between it and a potential defendant are subject to mandatory set off provisions, any claim it had against the defendants has been compromised pursuant to the set off considered and approved by the Court of Appeal in June 1998. The effect of that decision was either to extinguish the Company's claim against the defendants or to result in the claim being compromised in August 2001. The Company had a claim against the defendants, but the defendants' counterclaim against the Company was greater than the Company's claim, and that put an end to the Company's claim, or, more accurately, it resulted in the claim being compromised. Thus, it is the same as if the Company's claim had been voluntarily compromised during proceedings with the defendants. I do not consider that could possibly represent the sort of "factual impossibility" which the Human Rights Court had in mind in Agrotexim 21 ECHR 250 or in SJ [2000] BPIR 1020.

THE SECOND ISSUE: ESTOPPEL

At least some, and possibly all, of the claims Mr Hicks advances in his pleadings, and which, by amendment, he seeks to advance in his pleadings are predicated on the Hotel being worth substantially more than £10m. The defendants contend that it is not open to Mr Hicks to contend that the Hotel was worth more than £10m in light of the finding to that effect by the Court of Appeal in June 1998 in Hinckley Island at paragraph 30, [1998] 2 BCLC 538H, which were proceedings to which Mr Hicks was a party.

I propose to consider this argument first by reference to the position of Mr Hicks as against HFG and Robson Rhodes, both of whom were parties to the decision in Hinckley Island. (Robson Rhodes were represented at first instance, but did not participate in the Court of Appeal for reasons of costs and convenience, but that makes no difference to the fact that they were parties in the case and were therefore bound by the decision).

The position as between Mr Hicks, HFG and Robson Rhodes in principle

The nature of the doctrine of issue estoppel is summarised in the judgment of Diplock LJ in Mills -v- Cooper [1967] 2 QB 459 at 468 to 469 in these terms:

"[The] doctrine, as far as it affects civil proceedings may be stated thus: A party to civil proceedings is not entitled to make, as against the other party, an assertion whether of fact or of legal consequences of facts the correctness of which was an essential element in his previous cause of action or defence, if the same assertion was an essential element in his previous cause of action or defence in previous civil proceedings between the same parties or their predecessors in title and was found by a court of competent jurisdiction in such previous civil proceedings to be incorrect, unless further material which is relevant to the correctness or incorrectness of the assertion and could not by reasonable diligence have been adduced by that party in the previous proceedings has since become available to him."

That formulation was cited in full, with approval by Lord Keith of Kinkel (with whom the other members of the House of Lords agreed) in Arnold -v- National Westminster Bank plc [1991] 2AC 93 at 108B-D, where it was also observed that this reflected the previous approval of that formulation of the House of Lords in Hunter -v- Chief Constable of the West Midlands Police [1982] AC 529 at 541.

The defendants say that application of the formulation of Diplock LJ to the facts of the present case shows a classic instance of issue estoppel. The "party to civil proceedings" is Mr Hicks in the present action. The "other party" is HFG and Robson Rhodes. The "assertion" is that the value of the Hotel is substantially more than £10m, and it is an assertion "of fact". Given that Mr Hicks was added as a party with a view to arguing the case in the Court of Appeal, and HFG and Robson Rhodes had always been a party to the earlier proceedings, it seems to me that the decision of the Court of Appeal in Hinckley Island represented "previous civil proceedings between the same parties". The "correctness" of the contention that the Hotel was worth more than £10m in 1991 is "an essential element in [Mr Hicks'] cause of action or defence" in the present proceedings, because, as I have mentioned, he has to establish a value substantially in excess of £10m for the Hotel if he is to succeed on most, possibly all, of his claims or projected claims.

I find it difficult to see how it cannot be said that "the same assertion was [not] an essential element in [Mr Hicks'] previous case" before the Court of Appeal in Hinckley Island. The only way Mr Hicks could have avoided the conclusion reached by the Court of Appeal, namely that the assignment of the Company's cause of action against HFG and Robson Rhodes was ineffective because it had no value, was by establishing that the value of the Hotel was substantially more than £10m. Indeed, it was for that reason that Mr Hicks sought to put in evidence and to argue that that was indeed the case: see what was said by Morritt LJ at paragraph 29 in Hinckley Island at [1998] 2 BCLC 538D-F. Finally, as I see it, in that paragraph, the Court of Appeal found, on the evidence which they considered to be properly available to them, that the contention that the Hotel was worth more than £10m in 1991 was "incorrect". On the fact of it, at least, it thus appears to me that the defendants' estoppel argument is well founded. However, Mr Cogley has raised a number of arguments against the estoppel arising, to which I must turn.

The first argument is that Mr Hicks was not really a party to the earlier proceedings. I do not agree with that. In my judgment, Mr Hicks plainly was a party to the earlier proceedings, both in form and in substance. He was a party in form, because he applied to be joined in those proceedings, and he was joined. As a matter of principle, it seems to me that a party who applies to be joined to proceedings makes his application because it is in his interest to be a party; its seems unattractive and contrary to principle that, if he is joined on his own application in such circumstances, he should not take the disadvantageous consequences as well as the advantageous consequences of being joined. Quite apart from this, Mr Hicks was a proper party to the proceedings. Following the judgment of Chadwick J, he had taken an assignment of the Company's cause of action against HFG and Robson Rhodes, and he therefore had an interest in defending the assignment, and thus in justifying the contention that the cause of action had real value. Further, he took advantage of being joined by making representations and, indeed, seeking (albeit unsuccessfully) to put in evidence to rebut the conclusion that the Hotel was worth £10m in 1991.

Secondly, Mr Cogley contends that the purpose of the rule summarised by Diplock LJ is to ensure that a point determined by the court as between two parties should not subsequently be open for re-determination (save in the exceptional sort of circumstances described at the end of the passage I have quoted). He says that, in the present case, there would be no question of re-litigation, because the determination of the Court of Appeal in Hinckley Island did not involve assessing any evidence: it merely resulted in the only evidence of the Hotel's value in 1991 being a valuation of £10m. Indeed, Mr Cogley says that it would be ironic and unfair if Mr Hicks was effectively estopped from raising the contention that the Hotel was worth more than £10m in 1991 on the basis of a decision reached because he was prevented from putting in evidence to support that very contention. That argument has some obvious force in terms of fairness. However, that aspect can be overstated. As Morritt LJ made clear at [1998] 2 BCLC 538, the Court of Appeal's refusal to permit Mr Hicks to put some evidence of value was because he and the other former directors of the Company had "ample time in which to prepare and seek leave to adduce any further evidence they wished" and if, as the directors suggested, their failure to do so "was due to incompetence on the part of … their advisers", that was effectively a matter for the directors to take up with those legal advisers. In other words, the alleged estoppel as between Mr Hicks and HFG and Robson Rhodes is not particularly unfair, if one looks at the position as between Mr Hicks and HFG and Robson Rhodes, and not as between Mr Hicks and his advisers or representatives. Another way of making the same point is that, if it is due to the incompetence of his advisers that Mr Hicks finds himself estopped as HGF and Robson Rhodes contend, then Mr Hicks would appear to have a claim for compensation from his legal advisers.

There is, nonetheless, some force in the point that there was no reasoned assessment by the Court of Appeal as to the value of the Hotel, in the sense that they simply had a valuation of £10m upon which two parties, HFG and Robson Rhodes, relied, and to which the other party, Mr Hicks, could not reply, because the Court of Appeal so decided. In Arnold at [1991] 2 AC 107D, Lord Keith of Kinkel said in relation to the doctrine of issue estoppel that:

"There are indications that special circumstances may exist where the earlier proceedings have resulted in a default judgment."

He then went on to cite a passage in the speech of Lord Reid, in Carl Zeiss Stiftung -v- Rayner & Keeler Ltd (No. 2) [1967] 1 AC 853 at 917, who pointed out the potential unfairness where the issue is "of trifling importance" in the first action, and therefore one litigant may not think it worth challenging, or at least strongly challenging, the other litigant's case on the point, but where in the second action the point is of very great importance. Lord Reid observed:

"It seems to me that there is room for a good deal more thought before we settle the limits of issue estoppel. But I have no doubt that issue estoppel does exist in the law of England."

While there will be cases where it is arguably inappropriate to insist on the strict application of the doctrine because of these sort of factors, I do not consider that there is a seriously arguable case for saying this is such a case. The value of the Hotel was not of "trifling importance" before the Court of Appeal in 1998: it was of central relevance, in that the valuation of £10m essentially determined the appeal against Mr Hicks. Further, although it could be said that there were elements of "default" in the Court of Appeal's decision that the value would be assessed in accordance with the valuation of £10m, the decision was reached after a full hearing with evidence and was on the basis that Mr Hicks, and indeed his co-directors, had had ample opportunity to put in their evidence, and the Court of Appeal had "no doubt" that they should be refused further time to do so. If the claimed estoppel did not apply against Mr Hicks in the present case simply because the decision of the Court of Appeal involved some sort of quasi-default judgment, then one would almost be letting Mr Hicks re-open the question of the value of the Hotel through the back door after the Court of Appeal had comprehensively barred the front door.

Mr Cogley suggested that the issue estoppels should not apply to a case where the question was one of opinion, as opposed to law or fact, and that the relevant issue here is a matter of opinion, namely the value of the Hotel as at a certain date. There is nothing in that point, in my view. There is no conceivable reason why the principle of issue estoppel should not apply to matters which can be characterised as matters of opinion, given the basis upon which the doctrine exists and has been developed in relation to issues of fact and law. When referring to "an assertion, whether of fact or of the legal consequences of facts", Diplock LJ was, I believe, intending a question of "fact" to include questions which may be characterised as ones of opinion. As a matter of principle, it seems to me that, when deciding on the value of a particular property at a particular date, the court is reaching a conclusion of fact. Quite apart from this, any conclusion of law can be characterised as a matter of opinion, and it would seem strange indeed if the opinion of the court on an issue of law would give rise to an estoppel, but, in precisely the same circumstances, the opinion of the court on a question of valuation did not give rise to an estoppel.

There is, however, one point raised by Mr Cogley which, in my view, is correct. It involves fastening on the word "party" in Diplock LJ's formulation. As I see it, if the court determines a point of fact or law in litigation between A and B, then that decision will (absent the discovery of new matters which could not reasonably have been discovered at the time) bind those parties, but only in the same respective capacities, in a future action. Thus, as I see it, A would normally not be bound as against B, if A and/or B are acting in a wholly different capacity in the second action. An obvious example would be where a litigant in one action was a trustee of one trust, but is a trustee of a wholly different trust, or is acting in his personal capacity, in the second action. As was stated by Lord Upjohn in Carl Zeiss at [1967] 1 AC 853 at 947:

"All estoppels are not odious but must be applied so as to work justice and not injustice and I think the principle of issue estoppel must be applied to the circumstances of the subsequent case with this overriding consideration in mind."

That passage was cited with approval by Lord Keith in Arnold at [1991] 2 AC 107. I do not understand that passage to mean that the law of issue estoppel should be regarded as based on some generally flexible discretion. So to hold would conflict with the approval of the formulation of Diplock LJ and, indeed, the thrust of the decision in Arnold [1991] 2 AC 93. On the other hand, as that decision itself illustrates, it is open to the court, in an appropriate case, to introduce a degree of flexibility to achieve justice, provided this can be done without undermining the principles upon which the doctrine is based. Thus, in Arnold itself, a tenant was held to be entitled to raise, on a subsequent rent review, an issue of construction relating to the rent review clause, which had been determined against him by the court on a previous rent review. This was not so much because the earlier decision was plainly wrong (which it was), but more because, since the earlier decision, there had been decisions of the court which showed the earlier decision was wrong, which decisions were ex hypothesi unavailable at the date of the earlier decision. Accordingly, the House of Lords achieved justice, in that the tenant was not bound on subsequent rent reviews by the wrong court decision on an earlier rent review. However, the decision did not involve undermining the doctrine of issue estoppel, it merely involved extending the category of new undiscoverable matter, which Diplock LJ's formulation specifically allowed, to subsequent decisions of the court.

Application of the principles as between Mr Hicks, HFG and Robson Rhodes

In the present case, it seems to me that the issue estoppel arising from the Court of Appeal's findings that the value of the Hotel in 1991 was £10m should, as against HFG and Robson Rhodes, bind Mr Hicks, but only in so far as it is appropriate and just to bind him in the capacity in which he was party to the earlier decision, namely as actual or potential assignee of the Company's claims against the defendants. On that basis, in my judgment, the estoppel argument would run against Mr Hicks in relation to his claims under paragraphs 24(3) and (4) of the Counterclaim, because they are all claims which are effectively the same as the claims which he would have been able to pursue as an assignee of the Company's rights against the defendants, essentially for the reasons that those claims are for reflective loss, as discussed in the previous part of this judgment.

The claims under paragraphs 24(3) and (4) of the Counterclaim are claims by Mr Hicks which are reflective of the Company's loss and are therefore unmaintainable for the reason as discussed in the previous part of this judgment. However, it seems to me that, if they were not liable to be struck out on that ground, they would be bound to fail because Mr Hicks would, in relation to those claims, be estopped from contending in relation to those claims that the value of the Hotel in 1991 was more than £10m.

However, if the value of the Hotel in 1991 is relevant to Mr Hicks' claim in paragraph 25 of the Counterclaim, namely the claim for aggravated damages or for damage to Mr Hicks' reputation and feelings, then I do not consider that the estoppel would run. That is because Mr Hicks' claim under paragraph 25 of the Counterclaim is a claim which has always been vested in him in his own right, and is quite independent of any loss which had been suffered by the Company. Therefore any estoppel which binds him as a result of the decision of the Court of Appeal in 1998 as a potential assignee of the Company's claims, does not bind in respect of a claim in his own right.

So far as Mr Hicks' other claims are concerned, it seems to me to be a potentially difficult question as to whether the estoppel would run. Thus, in paragraph 24(1) of the Counterclaim, Mr Hicks claims that one head of loss he has suffered is a liability to HFG under the terms of his guarantee of the Company's liabilities to HFG. There is a possible basis for contending that the estoppel raised by HFG against Mr Hicks as to the value of the Hotel should apply, given that the existence and extent of Mr Hicks' liability under this guarantee will be equal to the amount owing by the Company to HFG, and that amount will have effectively been determined between the Company and HFG by the decision of the Court of Appeal in June 1998, at least in so far as the amount is dependent on the value of the Hotel as at 1991. However, it is well established that a determination of a court, in proceedings to which the guarantor is not a party, as to the amount owing as between the creditor and the principal debtor does not, in the absence of a specific term to the contrary, bind the guarantor. That was the effect of the decision of the Court of Appeal in ex p Young, in Re Kitchin (1881) 17 Ch D 668, where the decision the creditors sought to enforce against the guarantor was that of an arbitrator, rather than of the court, but I do not consider that can make any difference. As James LJ said at 17 Ch. D672:

"The principal debtor might entirely neglect to defend the surety properly in the arbitration; he might make omissions of various things which would be binding as against him, but which would not, in the absence of agreement, be binding as against the surety. It would remain monstrous that a man who is not bound by any admission of the principal debtor, should be bound by an agreement between the creditor and the principal debtor as to the mode in which the liability should be ascertained."

As a matter of principle, if that argument is good so far as Mr Hicks' defence is concerned, it must also be good so far as any counterclaim is concerned. It follows that any claim by Mr Hicks which is said to arise from the fact that he would not have been liable under the guarantee were it not for the alleged wrong doing of HFG, could be maintained notwithstanding that it involved his alleging that the Hotel was worth substantially more than £10m in 1991. I reach that conclusion notwithstanding that this would be an allegation inconsistent with what was bindingly found by the Court of Appeal as between HFG and Robson Rhodes and the principal debtor, the Company. I do not think that the fact that Mr Hicks happened to have been a party to those earlier proceedings, in his capacity as the actual or potential assignee of the Company's claims, should prevent him from contending that the Hotel was worth more than £10m in 1991 when pursuing his own defence, or mounting his own claims, against HFG. If Mr Hicks, in his capacity as guarantor, would not have been bound by the decision of the Court of Appal against the Company if he had not been a party, then it seems to me that the extent to which he is bound as a result of having been a party must depend on the capacity in which he was a party. That capacity was as potential or actual assignee of the Company's claim against HFG and Robson Rhodes, not as guarantor of the Company's liability to HFG.

The correctness of this conclusion may be tested by considering the justice of the situation (especially relevant in light of Lord Upjohn's observation in Carl Zeiss at [1967] AC 947). The hearings before Chadwick J and the Court of Appeal were concerned with the value of the Company's claim against HFG and Robson Rhodes, and only indirectly with the value of the Humberclyde group's claim against the Company, and not at all with HFG's claim against Mr Hicks. If that latter aspect had been before the court, it is by no means inconceivable that Mr Hicks and/or his legal advisers would have properly appreciated the vital importance of obtaining a valuation of the Hotel. It is even conceivable (albeit, I accept unlikely, in view of the way in which Morritt LJ expressed himself in paragraphs 29 and 30 of his judgment) that the Court of Appeal would have been more indulgent to Mr Hicks in light of the substantial loss he would suffer as guarantor if he could not produce evidence as to the value of the Hotel in 1991.

It is fair to say that, while I do not think that the strict principles of issue estoppel would bind Mr Hicks, it is conceivable that the doctrine embodied in Henderson -v- Henderson 3 Hare 100 could apply. This doctrine, cause of action estoppel as it was described in Arnold at [1991] 2 AC 104D, is wider and more flexible than issue estoppel. At the moment, it seems to me very unlikely that Mr Hicks would be prevented by this doctrine from contending that the Hotel was worth more than £10m in 1991 in relation to his own claims which are not, on analysis, claims for reflective loss. It is unnecessary, indeed, it could be said to be inappropriate, to decide the point in favour of Mr Hicks, given that this is the defendants' application to strike out its claim. However, it seems to me, at present advised, that it would be unfair to invoke cause of action estoppel against Mr Hicks in relation to this point on the facts of this case. He was only joined in the earlier proceedings in his capacity as an assignee or potential assignee of the Company's claims against HFG and Robson Rhodes; he was only joined after the hearing at first instance, and so had no ability himself to put in evidence; the issue at stake, namely the value of the Hotel in 1991, was not determined after exhaustive evidence and cross examination; if the Hotel was worth substantially more than £10m in 1991, it would represent a substantial windfall to HFG and Robson Rhodes and a very substantial injustice to Mr Hicks, if he was not allowed to establish the point by evidence and argument.

In these circumstances, I have reached the conclusion that the estoppel argument does, in principle, apply in favour of HFG and Robson Rhodes to prevent Mr Hicks from challenging the valuation of the Hotel, but only to a limited extent, namely to the extent that his claims represent reflective loss. Therefore, if my conclusion in the first part of this judgment is correct, the estoppel issue does not get HFG and Robson Rhodes any further forward. I should add that Mr Cogley argued that there were new facts which had come to light since the Court of Appeal's decision which justified disapplication of the estoppel, but, on analysis, it became clear that there was nothing in this point.

Estoppel in favour of the defendants other than HFG and Robson Rhodes

Even to the extent that there is issue estoppel as between Mr Hicks and HFG and Robson Rhodes, it cannot be said that it extends to benefit any one else who was not a party to the earlier proceedings. However, Mr Rounthwaite is entitled to the benefit of the issue estoppel because at the relevant time he was a partner in Robson Rhodes. That it not true of Mr Siggery; his case has to be put on the basis of the wider more flexible concept of cause of action estoppel to which I have referred. On the facts of this case, it seems to be that Mr Hicks should be treated as estopped, on this broader more flexible principle, against Mr Siggery to the same extent, but no more than the same extent, as he is estopped as against HFG and Robson Rhodes.

Mr Siggery was employed by the Company as the operations manager of the Hotel and is claimed by Mr Hicks to have been a party to the alleged conspiracy in that capacity. To the extent I have indicated, Mr Hicks and all Mr Siggery's co-conspirators (i.e. the other defendants) are bound by, and entitled to enforce an estoppel as to the value of the Hotel. It is also clear that the Company, Mr Siggery's employer, is so bound, as a party to the earlier proceedings.

In my view, when one considers the unreality of an estoppel applying against only one of several conspirators, the way in which the Court of Appeal expressed itself at [1998] 2 BCLC 538D-G, and the drawn out history of this action, it would be an abuse of process if Mr Hicks was allowed to allege against only one alleged conspirator, at least in relation to his reflective loss claims, that the value of the Hotel was different from that he is prevented from challenging against all the other alleged co-conspirators, particularly where that alleged conspirator was at the time an employee of another who is bound by the estoppel.

THE THIRD ISSUE: AGGRAVATED DAMAGES

As I mentioned, although Mr Hicks seeks aggravated damages, this has been extended so as to raise three possible different heads of damage, namely aggravated damages in the strict sense, damage for loss of reputation, and damage for mental distress. It seems clear that neither aggravated damages nor damages for mental distress or loss of reputation can be sought by a claimant alleging breach of contract, unless the object of the contract is to provide pleasure, peace of mind etc.: see Johnson at [2001] 2 WLR 96 to 97 per Lord Bingham, with whom the other members of the House of Lords, with the exception of Lord Cooke, agreed. Further, where the claim is in tort, but the tort is, as it were, parasitic on the claim in contract, the same principle will apply: see Hayes -v- James & Charles Dodd [1990] 2 All ER 815 at 826 (cited by Lord Cooke in Johnson at [2001] 2 WLR 108).

However, Mr Hicks' claim under this head is based not so much on alleged breach of contract, but more on the existence of an "unlawful means" conspiracy to injure the Company and himself by unlawful means. Accordingly, the question which I have to consider is whether it is plain, so as to justify striking out, that any or all of the three claims advanced by Mr Hicks under this head must fail.

I turn first to aggravated damages. In Rookes -v- Barnard [1964] AC 1129 at 1221, Lord Devlin said this:

"[I]t is very well established that in cases where damages are at large… the Judge… can take into account the motives and conduct of the defendant where they aggravate the injury done to the plaintiff. There may be malevolence or spite or the manner of committing the wrong may be such as to injure the plaintiff's proper feelings of dignity and pride. These matters which [can be taken] into account in assessing the appropriate compensation."

In principle, it seems to me that there is no reason why Mr Hicks should not be entitled to claim aggravated damages in the present case, provided the factual basis is made out, namely that the defendants, or at least some or one of them, were or was guilty of malevolence or spite or committed the wrong in such a way as to injure his proper feelings of dignity and pride.

Nonetheless, if a claim for aggravated damages is to be made, I consider that the basic factual ingredients must be pleaded. Injury to Mr Hicks' feelings is undoubtedly pleaded, but I am not convinced that malevolence, spite or the manner of committing the wrong are sufficiently pleaded to justify a claim for aggravated damages. It is fair to say that, as a matter of common sense, where parties get together with a view to injuring a third party by unlawful means, it will normally be inevitable that, particularly if the conspiracy is successful, the third party will suffer mental distress in addition to any financial loss he suffers. However, whether or not the court has power to award damages for that mental distress does not impinge on whether the court has power to award aggravated damages. If the court does not have power to award damages for mental distress, then to hold that the court could award aggravated damages to compensate for mental distress would involve letting the claimant in through the back door having locked the front door. On the other hand, if the claimant could recover damages for mental distress, then to award aggravated damages in addition, without there being separate grounds for justifying the award, would mean the claimant could enjoy double recovery.

In other words, one comes back to the point that, whatever the nature of the fundamental complaints made by a claimant against a defendant, he can only recover aggravated damages if he can show damage to his feelings as a result of "malevolence, spite or the manner of committing the wrong" over and above damages to feelings caused by the wrong itself. On looking at the particulars of claim in the present case, it seems to me that the defendants are right to contend that there is no allegation over and above the acts of conspiracy and other wrongdoing alleged which can fairly be said to fall within those words of Lord Diplock. Certainly, I was not taken by Mr Cogley to any specific passage in Mr Hicks' present or proposed Defence and Counterclaim to suggest otherwise. In these circumstances, at least unless his pleading is sought and permitted to be amended appropriately, I conclude that Mr Hicks is not entitled to aggravated damages.

I turn to the second question, namely whether Mr Hicks is entitled to damages for injury to his feelings resulting from the wrongdoing he alleges against the defendants (as opposed to the manner of committing those wrongs or the motives underlying them). In the absence of clear authority to the contrary, I would have thought that there was at least a reasonably arguable case for saying that an individual who has suffered mental distress as a result of damage caused to him as a result of unlawful means conspiracy should not be disentitled from claiming damages for such distress, merely because the relationship between the claimant and the alleged wrongdoers was commercial, and/or the purpose of the wrongdoers was to gain commercially and/or to cause commercial damage to the claimant. I do not consider that the reasoning and conclusion of Lord Bingham in Johnson at [2001] 2 WLR 96B to 97D shows that this view is wrong. The whole of that passage in Lord Bingham's speech was directed towards breach of contract, and while it extended to Mr Johnson's claim in tort, the duty of care effectively arose in the context of a commercial contract. Further, in that case there was no question of any wrongdoing on the part of the defendant which, if established, would involve moral turpitude. Accordingly, I do not consider that Lord Bingham's reasoning on this aspect can be said with any confidence to apply in the present case. While Lord Goff of Chievely at [2001] 2 WLR 101A-C can be said to have expressed himself more widely, his observations must be read in light of the fact that he agreed with Lord Bingham, and the fact that his observations were made in the context of the facts of the particular case. Further, while he held that aggravated damages or damages for mental stress were "not generally recoverable", he went on to say that "there has in recent years been a softening of this principle in certain respects".

The defendants also rely on the decision of the Court of Appeal in Lonrho plc -v- Fayed (No. 5) [1993] 1 WLR 1489 to support the proposition that damages for injured feelings cannot be recovered in a claim based on conspiracy. In that case, the plaintiffs' case was based on an alleged conspiracy by the defendants to sponsor and encourage a third party to publish defamatory statements about the plaintiffs. Dillon LJ said this at [1993] 1 WLR 1496B-D:

"In my judgment, if the plaintiffs want to claim damages for injury to reputation or injury to feelings, they must do so in an action of defamation, not in this very different form of action. Injury to reputation and to feelings is, with very limited exceptions, a field of its own and the established principles in that field are not to be side stepped by alleging a different cause of action."

In the passage at 1502G to 1504G, Stuart-Smith LJ considered, by reference to a number of previous authorities, the question: "Can the plaintiff recover damages for injury to reputation?" At the beginning of the passage, he said this:

"An individual can sue for injury to reputation, and a trading company can sue for injury to its business reputation but, in my judgment, to do so it must sue in defamation. I think this follows as a matter of principle and also on authority. The reason in principle is that no one has a right to a reputation which is unmerited. Accordingly one can only suffer an injury to reputation if what is said is false. In defamation the falsity of the libel or slander is presumed; but justification is a complete defence. In malicious falsehood, the plaintiff has to prove that the statement is false."

In my judgment, the observations in Lonrho [1993] 1 WLR 1489, as is illustrated by considering the facts of the cases discussed by Stuart-Smith LJ, must be read in the context of, and as referable to, a claim for "unlawful means" conspiracy and where the claimed damages for injury and reputation arise from the fact that the conspiracy is to publish harmful material. If the material complained of were true, then a claim in defamation would fail (because the defendants could plead justification) as would a claim in malicious falsehood (because the published material would not be false). However, the mere fact that the material was accurate would by no means necessarily mean that the conspiracy claim would fail. As was explained by Dillon LJ in Lonrho [1993] 1 WLR 1492H to 1493A, the law recognises:

"[a] form of the tort of conspiracy which has been referred to, not altogether conveniently, as a "lawful means" conspiracy… where actions which, if done by one person on his own, would be lawful and cannot be actionable, can be actionable as a tortuous conspiracy if done by several person in combination and if the predominant purpose of those persons was to injure the plaintiff, and not to protect or forward their own interest."

It seems to me that the present case, although it is has features of similarity, in that it involves claims based on conspiracy, is, on analysis, distinguishable from Lonrho [1993] 1 WLR 1489 and the cases cited therein. Further, it is not a "lawful means conspiracy" case: it is an "unlawful means conspiracy" case. Secondly, the matters complained of as causing the claimant's injured feelings are not statements which could be the subject of defamation or malicious falsehood proceedings. In those circumstances, I do not consider that the reasoning of the Court of Appeal in Lonrho [1993] 1 WLR 1489 and the cases cited therein can be said confidently to bear on the issue, let alone justify my striking out Mr Hicks' claim for injured feelings.

Finally, I turn to Mr Hicks' claim for damages for loss of reputation. The defendants' contentions on this issue really mirror their contentions on the claim for damaged feelings. At first sight, at any rate to me, a claim for loss of reputation appears to be more questionable than a claim for injured feelings. However, on analysis, I think that is merely because it is a more unusual claim to encounter outside a defamation action. It seems to me that some of the objections the defendants raise to Mr Hicks' right to seek damages for injured feelings may well not apply to his claim for loss of reputation. In reliance on what was said by Lord Bingham in Johnson [2001] 2 WLR 72, it will be recalled that the defendants contend that injured feelings are not compensatable in the context of commercial claims. That may turn out to be right here, but, as indicated, I am certainly not confident the defendants would succeed on this point in relation to Mr Hicks' claim for injured feelings. However, the defendants' reliance on this point in relation to Mr Hicks' claim for damage to his commercial reputation would appear to me, at least as a matter of principle, to be weaker. If the defendants are right and this case is to be looked at in a purely commercial context, that could conceivably justify refusing a claim for damage to feelings, but it is harder to see how it could justify dismissing a claim for damage to commercial reputation.

In the event, however, I accept the defendants' argument that Mr Hicks is not, at least on his actual or proposed pleaded case, entitled to aggravated damages, but I consider that his claim for damages for injured feelings and damages for loss of reputation can properly proceed to trial.

THE FOURTH ISSUE: MR HICKS' APPLICATION TO AMEND

Jurisdiction

As I have mentioned, Mr Hicks seeks to amend his counterclaim by raising what he would characterise as four new heads of damage which he wishes to content that he has suffered as a result of the alleged unlawful means conspiracy which he says was conducted against him by the defendants. The first point to be considered is whether there is jurisdiction in principle to permit him to amend to plead these heads of damage. As I have mentioned, it is accepted on his behalf that the limitation period for making these claims has expired, and consequently they can only be advanced if the requirements of section 35(5) of the Limitation Act 1980 are satisfied. That provides that the conditions which have to be satisfied before the court can have jurisdiction to permit a new claim to be pleaded outside the limitation period are:

"In the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action…"

The provisions of that sub-section are reflected in CPR Rule 17.4(2) which is in these terms:

"The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings."

In Letang -v- Cooper [1965] 1 QB 232, the Court of Appeal had to consider a similar provision in the predecessor of the 1980 Act, namely the Limitation Act 1939. Diplock LJ said this at [1965] 1 QB 242 to 243:

"A cause of action is simply a factual situation the existence of which entitles one person to obtain from court a remedy against another person. Historically, the means by which the remedy was obtained varied with the nature of the factual situation and causes of action were divided into categories according to the "form of action" by which the remedy was obtained in the particular kind of factual situation which constituted the cause of action… [I]t is essential to realise that when, since 1873, the name of a form of action is used to identify a cause of action, it is used as a convenient and succinct description of a particular category of factual situation which entitles one person to obtain from the court a remedy against another person. To forget this will indeed encourage the old forms of action to rule us from their graves."

In Steamship Mutual Underwriting Association Ltd -v- Trollope & Colls (City) Ltd (1986) 33 BLR 81, May LJ considered a number of authorities, including Letang [1965] 1QB 232. At 33 BLR 97, May LJ said this:

"When a plaintiff seeks leave to serve a re-amended statement of claim, and one has to consider and contrast it with the earlier amended statement of claim for the purposes, for instance, of section 5 of the Limitation Act 1980, one realistically looks at the two statements of claim… - the amended and re-amended statement of claim… - adopting what I trust is a reasonable and sensible approach, remembering the definition of the cause of action in, for instance, Letang's case…"

He went on to say that, applying that test in that case, it seemed "clear" that "the plaintiff was seeking to enforce a new claim, that is to say one, which involved the addition of a new cause of action". On the next page, he said this:

"In light of the definitions of the cause of action already referred to, I do not think one can look only to the duty on a party, but one must look also to the nature and extent of the breach relied upon, as well as to the nature and extent of the damage complained of in deciding whether, as a matter of degree, a new cause of action is sought to be relied on. The mere fact that one is considering what are, as it is said, after all only different defects in the same building, does not necessarily mean in any way that they are constituents of one and the same cause of action."

In Darlington Building Society -v- O'Rourke [1999] 1 Lloyds LRPN 33 at 36, Sir Iain Glidewell said this in relation to the question of whether or not an amendment raises a new cause of action:

"Where… the claim is based on a breach of duty, whether arising from contract or in tort, the question whether an amendment pleads a new cause of action requires comparison with the unamended pleading with the amendment proposed in order to determine:

(a) Whether a different duty is pleaded;

(b) Whether the breaches pleaded differ substantially; and where appropriate

(c) The nature and extent of the damage of which complaint is made."

The point was pithily expressed by Hobhouse LJ in Lloyds Bank plc -v- Rodgers (20^th December 1996, unreported, at paragraph 20) to this effect:

"Section 35 contemplates that the introduced cause of action will be time barred. The policy of the section is that, if factual issues are in any event going to be litigated between the parties, the parties should be able to rely upon any cause of action which substantially arises from those facts. There is no indication in the drafting of the Act that there should be a further limitation on section 35. If there is any relevant prejudice to the party opposing the amendment, it can and should have regard to on the exercise of the court's discretion whether or not to allow the amendment."

On behalf of Mr Hicks, Mr Cogley contends that the four heads of damage which he seeks to claim by re-re-amending the counterclaim would merely introduce additional heads of loss which Mr Hicks says he has suffered as a result of wrong doing which he has always alleged and pleaded against the defendants, namely the unlawful means of conspiracy. Accordingly, Mr Cogley's first point is that no new cause of action would be introduced by the proposed amendments to the counterclaim. Alternatively, he argues that, if the amendments would introduce new causes of action, the facts out of which they arise are "substantially" the same as those before the court. If he is right in either contention, then there is nothing in the 1980 Act which would prevent me allowing Mr Hicks to add his new claims.

On the face of it at least, it is consistent with common sense and first impression to characterise Mr Hicks' proposed new heads of claim as constituting new heads of damage arising from the same cause of action as have always been pleaded, namely the conspiracy. However, the main point taken on behalf of the defendants in this connection is that proof of damage is a vital element in the cause of action of conspiracy, and that, therefore, the proposed amendments, even though they may seem to be limited to heads of alleged damage, would involve pleading fresh causes of action. If that is right, then it seems to me that it would be impossible to plead any new head of damage in a tort claim outside the limitation period, because any new head of damage, however closely connected with any head already pleaded would, on this argument, represent a fresh cause of action. To my mind, such a conclusion is inconsistent with the authorities to which I have referred, and would lead to an extraordinary difference between claims in tort and claims in contract. Applying the test in Darlington [1999] 1 Lloyds LRPN 33 at 36, the proposed amendments involve the same duty as that already pleaded, the same breaches as those already pleaded, but the nature and extent of the damage would be new. However, echoing what was said by Staughton LJ, it seems to me that the question of whether the new heads of damage should be permitted to be pleaded is a matter which should be determined by reference to the court's discretion rather than by reference to the court's jurisdiction.

As to the difference between tort and contract, damage is not, of course, an essential ingredient in a claim for breach of contract, and therefore, if Mr Hicks' claim were in contract, the basis upon which it is said that that the court would not have jurisdiction to permit the present amendment would not apply. That is not an overwhelmingly strong point, because the effect of the 1980 Act on claims in tort and contract is different in a number of ways. Nonetheless, it does seem an unduly technical, even arbitrary, conclusion that the court has power to allow amendments of the sort proposed here if the claim is in contract, but that it has no such power if the claim is in tort.

Accordingly, I consider that there is jurisdiction to grant Mr Hicks permission to amend. However, if I am wrong on this aspect, and the proposed amendments do amount to pleading any new cause, or even new causes, of action, then I would not accept that the new cause or causes of action can be said to arise out of substantially the same facts as the causes of action already pleaded. That is because the new pleading would involve pleading causes of action which included allegations of damage which were wholly new. Bearing in mind the novelty and extent of the new claims (and I will deal with the extent in a little more detail below) I do not consider that it can be fairly said that, if they amount to new causes of action, they can nonetheless be pleaded in light of section 35 of the 1980 Act.

Are the amended claims bound to fail?

Before turning to the question of discretion in the broad sense, it seems to me that there are aspects of the proposed amendments which should not be allowed in any event because they are bound to fail. First, I would not allow part of paragraph 23D, namely the alleged loss arising from Mr Hicks' alleged need to borrow sums. That is because the sums of money which, and the dates on which he allegedly had to borrow are all particularised and the dates all antedate the conspiracy which Mr Hicks alleges against the defendants. Quite apart from this, there is no allegation that Mr Hicks has paid these sums, and it seems likely that he would have a limitation defence against a claim to recover them.

So far as paragraph 23C is concerned, namely loss arising from Mr Hicks' liability under contracts of guarantee or indemnity relating to the obligation to the Company, there is obviously a powerful case for saying that these sums are not claimable because they represent, on analysis, reflective loss. The most attractive way in which that argument is formulated is that, as a surety, Mr Hicks had a right of indemnity against the Company for any liability he incurred in such a capacity, and that the substance of Mr Hicks' case under this Head is that he has a claim for the diminution in the value of his right of indemnity against the Company. This loss, runs the argument, would therefore be a loss which he would not suffer, if the Company had enforced, or been able to enforce, in full its rights against the defendants. In these circumstances, the argument runs, even if this loss was suffered, no damage could be recovered in respect of it, because it would be reflective loss, particularly in light of what Lord Millett said in Johnson at [2001] 2 WLR 126. It is not easy to see why a guarantor in the position of Mr Hicks would not be claiming for reflective loss for his inability to recover on his implied indemnity from the Company, when, according to Lord Millett, an employee in the position of Mr Hicks could not recover for loss of his salary.

In my judgment, if Mr Hicks was not effectively the owner of the Company, then it would be inappropriate to conclude that his claim under paragraph 23C should not be allowed to proceed. It seems to me that where a defendant breaches a duty of care owed both to the principal debtor and the guarantor and the guarantor sues on the basis that he has had to pay up on his guarantee whereas otherwise he would not have been called on it, the measure of damages would normally be the amount he has to pay up on the guarantee, less the value of his right to an indemnity from the principal debtor, and that value will inevitably depend on the financial position of the principal debtor.

However, in the present case, where the guarantor, Mr Hicks, is effectively the owner of all the shares in the principle debtor, namely the Company, it appears to me that the guarantor's right to claim damages is to be treated as reflective loss in the same way as where the claim is by a director of the company for loss of salary or pension rights, and the director is effectively the sole shareholder in the company. It appears to me that the fact that the House of Lords struck out Mr Johnson's claim for loss of pension, and that Lord Millett thought that a claim by an employee of a company, at least when he was effectively the sole owner of the company, was for reflective loss, cannot sensibly be distinguished just because the claim is by a guarantor for a liability which accrued under his guarantee. Again, if Mr Hicks had not effectively been the sole owner of the Company, I would not have thought this is a good ground for striking out paragraph 23C. Given that the claim under paragraph 23C is to be treated as being reflective loss, it is, in my view, bound to fail not only because of the reasoning in Johnson, but also in light of the estoppel as to the value of the Hotel, which would be binding on Mr Hicks in this connection.

The defendants contend that the proposed claims in paragraph 23A and 23B should also be struck out, albeit on rather different grounds from those I have been considering. In effect, Mr Hicks complains that, as a result of the financial difficulties caused to the Company and to him by the defendants, he was forced to sell some investments (principally properties) which resulted in two forms of loss. The first arises from the fact that some of the properties were sold for less than the amount secured on them, as a result of which Mr Hicks found himself liable for the shortfall, to be pleaded under paragraph 23B. The second arises from the fact that, had he retained the properties, as he would have done, he would have made a profit, because their investment value would have increased, or their development potential would have been greater, or because he would have developed them profitably himself – to be pleaded in paragraph 23A.

There is very considerable force in the argument advanced by the defendants that these losses could not have been caused by the defendants in any event: the properties were presumably worth what they fetched in the open market when they were sold (and if they were not that would have been the fault of those responsible for selling them, and not the defendants). In particular, the value of each property would have reflected its future potential, including that due to increase in value and that due to development prospects. At least as a general proposition, it seems to me that where a claimant contends that he has lost a property as a result of the defendant's breach of contract or breach of professional duty, the measure of damages will be based upon the value of the property at the date of breach, the date of the hearing or some appropriate intermediate date, and will not take into account any additional profit which the claimant might have made by developing the property or enjoying its Appreciation: see Diamond -v- Campbell-Jones [1961] Ch. 22, Ruxley Electronics Ltd -v- Forsyth [1996] AC 344 and Watts -v- Morrow [1991] 1 WLR 1421.

However, particularly where, as here, the basis of the claimant's claim is in tort and involves allegations of serious misconduct on the part of the defendants, I do not think it right to rule out the possibility of the claimant being able to claim damages on the basis that, if he had not suffered the damage, he would have retained the property and made a profit because of a rise in the market, an increase in its development potential, or because he would actually have developed it. Any such claim would have to be scrutinised particularly carefully so far as causation, foreseeability and quantum are concerned. While they raise speculative claims which are unlikely to succeed, I do not think paragraphs 23A and 23B could be characterised at this stage as hopeless. In this connection, I note that in Cottrill -v- Steyning & Littlehampton Building Society [1996] 1 WLR 753, a breach of contract case, damages were assessed on the basis of the loss of profit which the plaintiff would have made had he developed the property, although it is fair to point out that the defendant was shown as the relevant time to know of this intention. Accordingly, albeit with considerable scepticism as to Mr Hicks' prospects of being able successfully to succeed in this claim, I would accept that, if it is right to do so as a matter of discretion, Mr Hicks would have a prospect of successfully claiming damages pursuant to the proposed paragraph 23A and 23B of the Counterclaim.

Discretion

I therefore turn to consider whether, as a matter of discretion, Mr Hicks should be permitted to amend his Counterclaim to seek damages pursuant to the proposed paragraphs 23A and 23B. I shall also consider whether, as a matter of discretion, I would have allowed him to seek to add paragraphs 23C and 23D to his Counterclaim, even though I have concluded that his claims under those paragraphs will be bound to fail.

The prejudice to Mr Hicks if I do not allow him to add paragraphs 23A and 23D to his Counterclaim is self-evident: he will not be able to pursue these claims, and, at least to the extent that they are arguably maintainable, he should, in the absence of good reason to the contrary, be permitted to advance them. However, it is fair to bear in mind my conclusion that his proposed claims under paragraphs 23A and 23B are no better than speculative, and his prospects of success under paragraphs 23C and 23D are such that I thought it right that they should be struck out. Obviously, when considering whether to permit an amended claim as a matter of discretion, I do not treat that as hopeless. However, when considering the issue of discretion, I think I am justified in taking into account the point that Mr Hicks' prospects of succeeding in any of these proposed claims, even if he establishes liability against the defendants, are very speculative. To that extent, his loss if he is not able to advance the claims is rather less than if they were strong, if he wins on liability. In addition, Mr Hicks' only explanation as to why the proposed new claims were not pleaded earlier is that it was the fault of his previous solicitors: if that is right, and he has suffered damage as a result of these matters not being pleaded, then he would appear to have a remedy against his former solicitors.

Even without the fact that the proposed claims look weak and Mr Hicks would appear to have a claim against his former solicitors, I would think it right to refuse him permission to amend by adding paragraphs 23A to 23D to his Counterclaim. I reach that conclusion for a number of reasons, the combination of which appears to me to render the defendants' resistance to his application to amend very strong.

First, as I have mentioned, Mr Hicks' Defence and Counterclaim was served as long ago as May 1992, and it was amended in January 1995 and re-amended on 22^nd April 1997. There has therefore been not merely a substantial amount of time, namely around nine years, but also three opportunities, in which Mr Hicks and his advisers could have pleaded the heads of damage that he now wishes to put forward. This overlooks the occasions when he and his advisers would have considered his Counterclaim. For instance, when he was asked to provide, and subsequently did provide, further and better particulars of his case: four sets of further and better particulars were served over the period 1997 to 2000. It is not merely that Mr Hicks has had a long period of time and a number of specific opportunities to plead the heads of loss that he now seeks to raise. Until the beginning of this year, Mr Hicks had given no indication to the defendants that he would be raising any new heads of claim. Even more remarkably, even though the defendants have sought an explanation as to why it is only in 2001 that Mr Hicks is seeking to raise these heads of claim for the first time, no explanation has been forthcoming, save an unparticularised statement blaming Mr Hicks' former solicitors, and adding that, for parts of the past nine years he has not in fact been legally represented or advised.

Secondly, it appears to me that it would be very unfair on the defendants to have to consider these new claims for the first time in 2001, in circumstances where they raise many points of fact and valuation which would involve going back to 1991, and which could involve looking at properties to which access may be problematic, and which may have changed possibly very substantially in the meantime. The claim under paragraphs 23A and 23B would involve investigating the value of the six properties in 1991, the question of whether Mr Hicks was unable to service his loan obligations in respect of them, Mr Hicks' likely attitude to the six properties in 1991 and thereafter if he had not been forced to sell, the likely value of the six properties at various times after 1991, the development potential of those properties, the date at which they might have been developed, and the cost and profits likely to have been involved on any development. What has happened to the six properties since 1991, including their ownership and their current physical state, is a matter of speculation.

The same sort of point can be made in relation to the claims which would be raised under paragraphs 23C and 23D. There are a large number of transactions, most with different parties; accordingly, if they could be pleaded, each of them will have to be investigated now, ten years after the events complained of. The strength and quantum of each claim will have to be considered, together with the nature and value of any potential defence which might have been open to Mr Hicks.

Thirdly, and connected with the second point, it seems to me that the proposed new claims are pleaded very sparsely. This is connected with the second point, because, if the amendments were allowed, the sparseness of the pleading would render the onerousness of the task of the defendants all the greater. However, quite apart from this, particularly where complex new heads of damage are sought to be raised by a claimant very late, I think that he is under a duty to plead the case particularly fully, or at least to explain the nature of his case pretty fully in supporting evidence. In the present case, for instance, the valuation ascribed to the various properties in 1991, the likely investment and development values of the properties, and the likely costs and profits of projected development, are included in the baldest of terms, and appear to be based purely on Mr Hicks' assessment, and not that of an independent chartered surveyor. There is therefore no explanation as to how the figures are arrived at. Robson Rhodes' solicitors wrote to Mr Hicks' solicitors as long ago as March 2001 to ask how Mr Hicks had arrived at his valuations and assessment of his loss of opportunity, as well as asking for details of the guarantees and personal liabilities, whether those liabilities still existed, what steps had been taken to enforce them, and how the defendants' actions were said to have caused the loss. In a further letter of 11^th April, the solicitors to Robson Rhodes wrote repeating their request for particulars, and also pointing out that the valuations ascribed to some of the six properties in the proposed amended Counterclaim were different from those contained in a statement of affairs prepared by Mr Hicks in March 1992, and seeking an explanation. While answers were provided to a very limited degree by Mr Hicks' solicitors on 25^th April, it appears to me that the sort of details and particulars which the defendants, and indeed the court, would expect to see before it could fairly decide that the amendment should be permitted despite the potential prejudice to the defendants, simply remain unprovided.

Fourthly, it appears to me that, if allowed, the proposed amendments would add significantly to the costs of the action, to the long delay which has already occurred between the issue of proceedings and trial, and to the cost and length of the trial itself. As I have mentioned, the delay between the issue of proceedings today is not alleged by Mr Hicks to be the fault of the defendants or by the defendants to be the fault of Mr Hicks. However, that does not mean that its existence can be ignored. Even ignoring the existence of the delay, it appears to me that, if these amendments are permitted, there will inevitably have to be a substantial further delay before trial, over and above that which will occur anyway, while the parties incur substantial expense and time in investigating the many facets of the proposed new claims. Further, it is likely that there will be a number of substantial disputes in relation to the many facets of the proposed amended claims and their resolution will take up a significant amount of court time and will cost the parties a concomitant amount. Mr Hicks' claim against the defendants raises very serious allegations. If they are justified, the sooner they come to trial the better, and the court should be slow to exercise its discretion in favour of a course which will significantly delay the hearing. If the allegations are not justified, then the defendants have been in the unfair position of having the allegations hanging over their heads, and they would have obvious cause for complaint if the court exercised its discretion at this late stage to permit Mr Hicks to add allegations which he could have raised a long time ago, and which will now delay matters yet further. In effect, the observations of Morritt LJ in Hinckley Island at [1998] 2 BCLC 538D-G, which I have quoted above, appear to me to be as applicable to Mr Hicks' application to amend his Counterclaim today as they were to his application to adduce further evidence in 1998.

CONCLUSION

In these circumstances, I conclude as follows:

(1) Paragraphs 24(3) and 24(4) of Mr Hicks' Counterclaim should be struck out;

(2) Mr Hicks' claim for aggravated damages in paragraph 25 should be struck out in so far as it is a claim for aggravated damages in the technical sense, but in so far as it is a claim for mental distress and loss of reputation, it should not be struck out;

(3) The defendants' contention that Mr Hicks is estopped from disputing that the value of the Hotel is £10m is valid, but it only extends to his claims in paragraphs 24(3) and 24(4) of the Counterclaim, which are struck out anyway;

(4) So far as Mr Hicks' application to amend his Counterclaim is concerned, it is refused because:

(a) in relation to paragraphs 23C and 23D, the proposed claims are bound to fail, but, even if they are not, the court's discretion should be exercised against allowing them;

(b) although the proposed claims in paragraphs 23A and 23B look weak and speculative, they cannot be characterised as hopeless, but nonetheless, as a matter of discretion, they should not be allowed in.

I am grateful to Counsel for the clear way in which their respective cases were advanced in writing, and for the clear and efficient way in which the hearing was conducted. I should like to thank Mr Cogley in particular, given that he had the unenviable task of facing two teams each of two counsel, albeit that Mr Trower and Mr Moger very sensibly ensured that they did not repeat each others' submissions.

BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2001/700.html

	[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Humberclyde Finance Group Ltd v Hicks [2001] EWHC 700 (Ch) (14 November 2001) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2001/700.html Cite as: [2001] EWHC 700 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th November 2001