Wemyss v Karim & Anor [2014] EWHC 292 (QB) (13 February 2014)

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Cite as: [2014] EWHC 292 (QB)

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		Neutral Citation Number: [2014] EWHC 292 (QB)
		Case No: 2BM40007

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
MERCANTILE COURT

Birmingham Civil Justice Centre
Bull Street, Birmingham B4 6DS

13/02/2014

B e f o r e :

HHJ DAVID COOKE
____________________

Between:

	Douglas Macduff Wemyss	Claimant
	- and -
	Sameer Karim (1) Douglas Wemyss Solicitors LLP (2)	Defendants

____________________

Paul J Dean (instructed by Edward Hands & Lewis) for the Claimant
James Quirke (instructed by Sidhu & Co) for the Defendants
Hearing dates: 2-4 July, 2-3 September, 5-7 November 2013
____________________

HTML VERSION OF JUDGMENT
____________________

HHJ David Cooke:

This litigation arises from the sale of a solicitor's practice by the claimant to the first defendant, by an agreement dated 31 March 2008. The practice was at the time of the sale known as Douglas Wemyss Solicitors and conducted through the second defendant, an LLP. An LLP is of course a legal entity separate from its members. The claimant was the sole member of the LLP and the first defendant (whom I will refer to as Sameer Karim in order to distinguish him from his father Rafik Karim who is also closely involved) was a solicitor employed by the firm. Previously the practice had been conducted by the claimant in partnership with a Mr Hathaway and known as Wemyss Hathaway, but Mr Hathaway left in June 2007, at which time the LLP came into existence.

The relevant terms of the sale were negotiated between Mr Wemyss and Sameer Karim (assisted by Rafik Karim) and set out in two documents drafted by another firm of solicitors acting for Sameer Karim. The principal agreement (Bundle v2/p194) is intended to transfer the operation of the practice but is somewhat confused in character, being based on a precedent for sale of assets and failing to recognise clearly that the trading assets of the business were now owned not by Mr Wemyss but by the LLP. Mr Wemyss is defined as "the Seller". The LLP is a party, defined as "the Business", but there is also a separate definition of "the Business" as "the business of a solicitors practice carried on by Douglas Wemyss Solicitors LLP…". The operative clause (cl 2) provides that the Seller (Mr Wemyss) shall sell to the Buyer (Sameer Karim) "the Business and the Assets… the Goodwill…the Records…the Work in Progress…the Debtors…"subject to the exclusion of "the Excluded Liabilities…the Creditors (subject to apportionment)…", all the capitalised terms being defined. This fails to recognise that the assets referred to could not be sold by Mr Wemyss because they were held by the LLP, and that if (as was clearly intended and implemented by the parties) Sameer Karim was to succeed Mr Wemyss as member of the LLP which would continue the practice, the LLP as a corporate entity would continue to be liable for the debts stated to be excluded. What Mr Wemyss in fact sold was his entitlement as a member of the LLP, which was more akin to a sale of shares in a limited company. The agreement has to be given a very free and purposive reading in relation to the mechanism of the sale in order to overcome this confusion.

The basic terms of the sale were that Sameer Karim would pay a consideration of £100,000 on completion, which by Sch 1 was to be apportioned between goodwill, chattel assets at the offices including the IT system and Intellectual Property (I am not clear if there was any intellectual property in fact). Clause 3.1 provided that this payment would be "[i]n addition to the sums due at the effective time in respect of Debtors and WIP set out in clauses 3.2 and 3.3".

"Debtors" was defined as, in summary, any amount due to the LLP at completion, principally no doubt being amounts for fees and disbursements due from clients pursuant to invoices delivered before completion. Clause 3.3 provided that

" As each invoice in relation to the Debtors at Completion is collected and paid by clients of the Business then the Seller and Buyer shall agree to deposit such amount to the account of the Seller on an invoice by invoice basis and as soon as cleared funds are received by the Business. "

Although this is drafted in terms of a requirement to agree in future, it was not suggested that this clause did not create a binding obligation. Nor was it suggested that "such amount" meant anything other than the whole amount paid by the client, excluding VAT.

In respect of Work in Progress, i.e. amounts not yet invoiced to clients in respect of work done prior to completion, clause 3.2 provided:

" As each invoice for clients who had Work in Progress at Completion is rendered and paid then the Seller and Buyer shall agree to deposit the agreed apportioned amount to the account of the Seller on an invoice by invoice basis and as soon as cleared funds are received by the Business… if the Bill is rendered on any file, it must include the WIP. Once WIP has been included as part of, it will be treated in the same way as debtors below …"

The clause went on to provide a formula for determining the value of WIP on domestic conveyancing files according to this stage the matter had reached (e.g. "Contract Exchanged £350") but otherwise there was no mechanism set out in the contract for determining "the agreed apportioned amount" of any invoice which (as would be likely) covered work done both before and after the completion date. Mr Quirke submitted that unless and until an amount was agreed, nothing was due.

Since, as explained above, the debts and work in progress were not assets actually sold, these provisions are to be interpreted not as consideration for any such sale but consideration for the transfer of Mr Wemyss' interest in the LLP, calculated by reference to the amount received by it in respect of these assets which it at all times owned, but payable by Sameer Karim as and when the amounts were collected by the LLP. What was expressed to be consideration apportioned to goodwill must be interpreted in a corresponding way.

The LLP did not own the premises from which the practice operated, which were dealt with separately and do not feature in this litigation. Mr Wemyss in addition entered into a consultancy agreement with the LLP under which he would continue to work in the practice.

Mr Wemyss' claim is made up as follows:

i) £50,000 being part of the £100,000 stated to be payable on completion but agreed to be deferred. This is accepted in principle, subject to set off for the amounts counterclaimed and a dispute over whether the terms agreed for deferment also waived any interest on the deferred amount.

ii) The amounts he says are unpaid in respect of WIP that has been billed and paid since completion and consultancy fees in respect of work done since that date. In his skeleton argument, Mr Dean put these amounts at £49,784.27 and £35,407.52 respectively. The figure for consultancy fees is agreed in principle, subject as before, but the figure for WIP is disputed.

iii) Interest, at the contractual rate provided under the sale agreement and/or under the Late Payment of Commercial Debts (Interest) Act 1998.

The defence and counterclaim is based on warranties and indemnities contained in the sale and purchase agreement. Because of the way the document was drafted, this results in a somewhat confusing mixture of claims made by Sameer Karim as the buyer in respect of losses said to have been incurred by him, claims by Sameer Karim for indemnity payments in respect of losses and costs said to have been suffered by the LLP and the claim for indemnity in respect of increased professional indemnity insurance premiums which may be pursued by either defendant. The principal matters giving rise to these claims are as follows:

i) Mr Wemyss had failed to disclose circumstances which subsequently gave rise to substantial claims against the LLP by clients referred to as Purewal, Malhotra and Le Butt. This was said to amount to a fraudulent or reckless breach of warranties to the effect that the information contained in the agreement and other information provided to the buyer was true accurate and complete in every respect and not misleading, and that there was no other information that might reasonably affect the willingness of the buyer to purchase the business on the terms of the sale agreement, that the records of the business were fully properly and accurately maintained and complete and that nothing had been done or omitted by Mr Wemyss that might give rise to any fine or penalty.

ii) Mr Wemyss made an erroneous statement as to the current rate of turnover and profitability of the LLP in the period leading up to completion, which is pleaded both as a negligent or innocent misrepresentation, and as a breach of the warranty as to accuracy of information

iii) Mr Wemyss failed to disclose an outstanding loan liability of the LLP in the sum of £30,000 and various acts of negligence which led to the LLP being removed from the panels of National Westminster bank and Nationwide Building Society and prevented it being appointed to the panel of Norwich & Peterborough Building Society, and gave inaccurate information as to the terms of employment of various employees by failing to disclose undocumented entitlement to additional holidays

iv) The agreement provides at clause 5.8 a specific indemnity in respect of "any increase in professional indemnity insurance premiums arising as a result of claims made upon the professional indemnity insurance policy of the Business". Sameer Karim contends that the LLP suffered and continues to suffer increases in the insurance premiums payable by it after completion as a result, principally, of the claims brought by Purewal Malhotra and Le Butt, and seeks to recover the amount of these increases.

These issues have been dealt with in a somewhat unfocused way in the pleadings and evidence. The preparation for trial of the defendants, in particular, has been far from ideal. On 29 March 2012 His Honour Judge Brown QC made an order permitting single joint experts in insurance (as to whether any increase in premiums was attributable to the claims made) and accountancy (as to the amount of additional consideration due by reference to debtors and work in progress, and the rate of profitability at dates relevant to the pleaded representation). It does not appear that at any point the parties sought permission for evidence as to the value of the LLP absent the alleged misrepresentations and breaches of warranty, despite the obvious relevance of such evidence. Although the parties identified experts to provide the insurance and accounting evidence, no such evidence was in fact obtained.

On 19 October 2012, on the basis of the claimant's complaint that the defendants had not proceeded with instruction of the experts and had not served any lay witness evidence, HHJ Brown made a further order debarring the defendants from calling any lay or expert evidence at trial, which was then just over a month away. I was persuaded on 9 November 2012 to set aside that order, adjourn the trial and set a new timetable for provision of expert evidence. That too was not complied with and on 21 June 2013 I refused a further application for adjournment to obtain the expert evidence. I also refused applications by the defendants to rely on their own separately obtained evidence from an insurance broker in relation to premiums and from an accountant in relation to the value of the business, it being far to close to trial for the claimant to be able to deal fairly with such evidence. There has been no appeal against those rulings, though I have also subsequently had to refuse various applications by Mr Quirke to introduce the excluded expert insurance evidence under other guises.

The matter thus came on for trial without evidence that would potentially have been highly relevant to the defendants' case on causation and loss. Further, the evidence in relation to the amounts claimed and said to have been paid in relation to debtors and WIP was confused, because the parties have put their respective cases in ways which do not allow their figures to be easily compared. Mr Dean has made a sterling effort to reconcile the conflicting ways in which this information was presented, for which I am very grateful.

The trial bundles were not agreed. At the opening of the trial I was presented with three lever arch files of additional material, much of which turned out to be duplication, plus additional documents in a "housekeeping" bundle. Much the same was to happen at the subsequent hearings.

No doubt at least partly as a result of the lack of focus in preparation, the trial overran inordinately. The original listing of 3 days was largely taken up with last minute applications and lengthy openings, predominantly for the defence. It was adjourned part heard and relisted for two days in September, with two further days in reserve subject to other listings. In the end the two reserve days were not available but would not have been sufficient and the case had to come back for no less than four further days in November. It was only completed then after a last minute application by the defence for a yet further adjournment and a very late sitting on the final day.

The claim

The first element of the claim is for the outstanding balance of £50,000 originally provided to be payable on completion. Mr Wemyss accepts that it was orally agreed at the time of sale that payment of £50,000 would be deferred until the end of 2008 and later orally agreed to be further deferred until 31 March 2009. After that, it was not paid but there was no further agreement as to deferment. The claim seeks interest at the contractual rate from the original completion date. The evidence was that nothing had been discussed about interest when it was agreed to defer payment, the claimant's case being therefore that he agreed not to insist on payment but did not forego his entitlement to interest.

It seems to me however that the agreement reached can only sensibly be construed as an agreement to vary the contractual date for payment, rather than an agreement to tolerate a breach by non-payment. I find therefore that the claimant is, subject to the matters put forward by way of defence and counterclaim, entitled under this head to £50,000 plus interest at the contract rate from 1 April 2009.

As to the remaining disputed elements of the claim, I gratefully adopt Mr Dean's Master Schedule, produced at the opening of the trial and revised into version 3 by the close, which seeks to reconcile the non-matching ways in which the parties have pleaded and evidenced the various invoices sent, payments made and deductions claimed. That shows that the difference between the pleaded cases of the parties can be narrowed down to some £60,300 (ignoring pennies and excluding interest). Mr Dean further analysed that difference into the elements I now deal with.

The most straightforward is the claim for outstanding consultancy fees, which is for £35,407.72 and is made against the LLP as Mr Wemyss's employer under the consultancy agreement. It is thus not subject to set off, save in respect of any part of the counterclaim which relates to breaches of the consultancy agreement. The figures are derived from Mr Wemyss's various invoices. Sameer Karim's evidence was that these amounts were not disputed, and indeed that he was under the impression that they had been paid, presumably because he regarded the various lump sum payments that had been made without appropriation as between the invoices submitted as having been intended to pay the consultancy fees before other sums. There should accordingly be judgment for Mr Wemyss against the LLP for that amount, subject to any counterclaim as referred to.

The claim against Sameer Karim is in respect of consideration due for WIP and debtors. Mr Dean's schedule shows that the difference between the parties' pleaded positions is £24,892 (again ignoring pennies and interest). The precise derivation of this figure is complex since it involves amounts accepted to have been omitted and double counted on both sides, but the remaining areas of dispute can be reduced to those that follow. Resolving some of these points essentially requires an account to be taken, and one submission on behalf of the defendants was that this aspect should be put off for an account to be taken at a later date. However the directions for trial were given on the basis that all issues would be determined at trial, the amounts at issue are relatively small and it would not be appropriate in my view to defer the issue in that way, inevitably incurring further costs, when any difficulties have been caused by the parties having failed to comply with directions and produce the evidence that they now argue is necessary. Accordingly I propose to determine the disputed amounts now, doing the best I can with the evidence before me.

What in practice happened after completion was that Mr Wemyss would submit a monthly account showing the amounts he claimed for WIP, debtors and consultancy fees. The claims for debtors and WIP were supported by schedules originally prepared at completion. The debtors schedule was straightforward enough; it showed each invoice delivered but unpaid at 31 March 2008, and Mr Wemyss's monthly accounts included a running statement of the amounts paid against these invoices in the period covered. No dispute is raised in relation to the amounts claimed for debtors.

There was a similar schedule of WIP prepared at completion, listing each open file and a figure for WIP against it. That figure was produced by the firm's fee earners, who were asked to go through their files and report a WIP figure for each, based in the case of domestic conveyancing on the formula in the sale agreement, and in other cases on their estimate of the minimum billable amount if instructions were terminated on that day. The firm did not have a computerised time recording system but fee earners were supposed to make notes on the file of time taken on it and could go back through the file and add up the total time shown on those notes. Mr Wemyss's subsequent monthly accounts attached a running version of this schedule, showing when a bill was subsequently rendered and paid on each file, and his contention as to how much of that payment represented the WIP at completion.

However, the schedule itself is not referred to in the sale agreement. Clause 3.2 provides that Mr Wemyss will be paid an amount equal to "the agreed apportioned amount" of any invoice that included WIP. There is no indication given as to how this is to be determined; in particular no reference to the basis the fee earners were asked to use when compiling their figures. Mr Wemyss's case is that the clause required a fair apportionment to be made of each invoice between the work done before and after completion, which might produce a figure greater or lesser than the amount estimated at completion. Files were billed ultimately on a negotiated basis, in which the time recorded (which may have been incomplete) was only one factor - the value to the client for example was another. In his monthly schedule Mr Wemyss set down what he considered to be a fair apportionment. In most cases this was the figure in the completion WIP schedule, but in some cases it was more because, he says, the file was eventually billed at a premium to the recorded time, part of which should be apportioned to the pre-completion WIP.

Sameer Karim provided a schedule setting out the extent of his disputes with the amounts claimed for WIP (6/1010). That shows that in relation to 16 named files where Mr Wemyss claims WIP of £45,858 in total, Sameer Karim contends that only £29,075 is due, his dispute therefore being as to £16,783. His case is that the WIP schedule at completion shows what was "the agreed apportioned amount" for each file, save that if the file was eventually billed for less, the actual bill would have to be apportioned between pre and post completion work. Some files had no WIP shown in the schedule at 1 April 2008 so that in Sameer Karim's view the eventual bill should not be apportioned at all. In relation to other files that were billed eventually at less than the amount shown in the WIP schedule he seeks to deduct what he says is the value of time recorded after 1 April 2008. If a file was eventually billed at a premium, Sameer Karim says that was due to his skill in negotiating with the client for an uplift and should be for his benefit, so that Mr Wemyss should be entitled only to the amount on the WIP schedule even if no further work was done after 1 April 2008.

In closing, Mr Dean said that he would be prepared to concede a reduction of £4,000, in respect of files where Mr Wemyss had claimed an amount for WIP greater than had been included in the WIP schedule. This offer was made in something of a rush at the end of the hearing, when I understood him to say that even if Sameer Karim's point on this were accepted in full, the maximum reduction would be of the order of £4,000. In fact, looking at the schedule of objections, I do not think that is so. I do not feel I can fairly take that offer to be to concede the significantly larger amount that Sameer Karim in fact objects to on that ground.

Doing the best I can with the available evidence, it seems to me the position is this. Firstly, I reject the submission that the effect of the contract is that Mr Wemyss can never recover more than the amount on the WIP schedule for a particular file. It would no doubt have been possible to define the amount due by reference to the schedule, but the contract did not do that. Nor did it set out that WIP was to be valued on the "instructions terminated" basis, which would be likely to produce an absolute minimum figure and so be very favourable to the buyer. The reference to an "agreed apportioned amount" means in my view that an apportionment of the eventual bill must take place, and is to be interpreted as requiring the parties to agree a reasonable apportionment in all the circumstances when the bill had been delivered, and not as referring to payment of an amount that had already been agreed. That would allow for circumstances on any individual file such as eventual negotiation of a premium or discount, and take into account the degree to which the work done before and after completion (whether or not such work was reflected in the WIP schedule) contributed to the final bill. In principle, if the parties do not agree, the court could determine what is a reasonable apportionment having regard to any relevant evidence for each file.

Mr Wemyss made his estimated apportionment in his invoices. Sameer Karim has not approached the matter in that way, relying instead in most of his disputed bills on the amounts included in the completion WIP schedule, which I have held to be the wrong basis. It would be for him to provide the evidence on which he relies if he disputes Mr Wemyss's figures. This he has not done, save that he has stated certain amounts as being the value of time charged to the files after 1 April 2008 in cases where the eventual bill was less than the amount in the WIP schedule. I accept his evidence on that point, and adjust Mr Wemyss's apportionments by the total of £2895 put forward. For the remainder of the disputed files I would have accepted Mr Wemyss's evidence as the most reliable indication of a fair apportionment, being the most nearly contemporaneous. However, since Mr Dean was prepared to concede an overall reduction of £4,000 in respect of disputes relating to WIP, which exceeds the figure of £2895 I would have allowed, I think the fair outcome is to allow a deduction of £4,000 instead.

Next it was said by Sameer Karim that amounts claimed for WIP of £26,525 had not in fact been included in invoices rendered since completion. I reject that objection; it seems to have been based on a misunderstanding in that the defendants relied on an incomplete copy of a particular spreadsheet which they said had been attached to Mr Wemyss's invoice. The full copy of the schedule was produced and showed amounts totalling £26,525 on the missing pages. However, against that Mr Dean conceded that the same invoice by mistake charged £21,500 that had already been included in earlier invoices, so that the effect of the objection, if I had upheld it, would only have been as to £5,025.

Finally there were three deductions pleaded by the defendants. The first is as to £200 being one third of an amount invoiced to a client (Birkdale) but not included on the supporting schedule for Mr Wemyss's invoice. The client invoice was produced and I accept that Mr Wemyss was entitled to charge that amount. The second seeks to deduct the amount of an invoice for £525 submitted by solicitors acting for Natwest Bank in connection with chasing up a delayed registration. That is conceded. The third is £1000 said to be the cost to the firm of sending Sameer Karim, Rafik Karim and an accountant to attend a conference with counsel in London on one of the claims Mr Wemyss is alleged not to have disclosed. Mr Wemyss denies that he was in breach of warranty in this respect, but for reasons that will appear below I find that he was. In principle the cost to the LLP is accepted to be recoverable, but there were objections to the amounts charged for time, whether it was necessary for three fee earners to travel and whether the cost could have been mitigated by asking counsel to travel to Leicester. These objections have force; Sameer Karim is the LLP's principal so that sending him does not incur any outlay, nor does it result in any loss unless work has to be turned away and there is no evidence of that. He is nevertheless entitled to claim a reasonable amount for management time. The accountant and Rafik Karim are apparently paid as consultants, but there is no evidence of the hourly rates they are paid and I doubt they are as high as the rates claimed, which seem to be client charge out rates. It is hard to see that three fee earners were required to attend the conference when none had any direct knowledge of the circumstances of the claim. Doing the best I can, I allow a deduction of £400 for this amount, including 10 hours of management time at £30 per hour.

I therefore allow deductions of £4,000 + £525 + £400, or £4,925 in all against Mr Wemyss's claims of £110,300 (£50,000 + £60,300). Subject to the counterclaim, there should be judgment for Mr Wemyss for the balance of £105,375 accordingly. I will hear submissions as to interest, and apportionment between the defendants.

The counterclaim- statement as to turnover and profits

It is convenient to deal first with the claim for misrepresentation as to profitability and turnover, and such of the losses claimed in the defendants' revised schedule of loss (3/720e) as are said to relate to that.

The statement complained of was made in an email sent by Mr Wemyss to Sameer Karim on 4 December 2007, almost 4 months before completion (2/228a). The opening part of that message deals with queries that Sameer Karim had raised in relation to the draft accounts of the LLP for the last year (ie year ending 30 April 2007) which had been provided to him and to Rafik Karim together with the final accounts for the three preceding periods. At the end of the first page Mr Wemyss then says:

"Not that you asked for it but I have done the following analysis of the accounts. The essential features are that the last 4 years gross and net income have been

2004 559k/69k

2005 682k/156k

2006 527k/99k

2007 647k/100k* (see my notes re 2007 accounts)

2008 On course for 640k/120k…"

No complaint is made about the figures for 2007 and earlier years, but Sameer Karim's case is that the performance in the then current year was such that it was not "on course for" turnover of £640,000 or profits of £120,000 in that financial year, and that Mr Wemyss did not believe, and could not reasonably have believed that it was when he made that statement. Further, in the light of information available to him between 4 December 2007 and completion on 31 March 2008, he must have known that by that date the business was not "on course for" the stated figures for the year, but he made no attempt to correct what he had said. It is common ground that the stated figures were not in fact achieved; when the accounts were eventually prepared for the 11 month period to completion they showed turnover of £517,832 and profits of £84,083 (7/1450), which if annualised crudely by multiplying by 12/11 would equate to approximately £565,000 and £92,000 for a full year.

It was of obvious potential relevance to a purchaser to know whether the current performance of the business has continued at a level consistent with that in previous years for which accounts were available. This was particularly so in this case since Mr Hathaway's departure might have had a significant impact; as well as being an equity partner he was the firm's single biggest fee earner. Mr Wemyss sought to address this directly in his email, giving reasons why "the absence of Jason [Hathaway] hasn't made much difference" (2/228b).

Clause 5.2 of the agreement provided that Mr Wemyss as seller "warrants and represents to the Buyer that to the best of his knowledge and belief each of the Warranties is true accurate and not misleading". The Warranties were set out in Sch 4 and included the following which were potentially relevant:

"1.1 All information contained in this agreement, and all other information relating to the Business given by or on behalf of the Seller to the Buyer… are true accurate and complete in every respect and are not misleading.

1.2 There is no information that might reasonably affect the willingness of the Buyer to buy the Business and the Assets on the terms of this agreement."

By clause 5.3 the Warranties were "deemed to be repeated by reference to the circumstances prevailing at the time of repetition, on each day up to and including Completion…". Mr Quirke submits that the effect is that Mr Wemyss represented and warranted that what he said on 4 December 2007 was true to the best of his knowledge at that date, and was deemed to repeat that representation on every day thereafter up to Completion. Alternatively, he said, that was the effect of With v O'Flannagan [1936] Ch 575. In my judgment, the legal position in relation to the statements made in the 4 December email is not quite as Mr Quirke suggests, though the difference is not ultimately significant.

First, the statement when made was a pre-contractual representation, potentially founding liability in misrepresentation. It was a statement of present fact, ie that the performance of the business to date and the trend was such that it could be reasonably anticipated that the full year out turn would be at or about the level stated. Mr Quirke accepts that it was not as firm as a prediction (eg "turnover will be £x") and I do not regard it as a statement of subjective opinion since there were no words indicating that what was said was only Mr Wemyss's opinion.

The Warranties in the sale agreement were given only when that document was signed. At that time the relevant warranty was that "to the best of the Seller's knowledge and belief…" all the information in the agreement itself and all information previously given (which would include the statements made in the 4 December email) "are true…", which is framed in the present tense and so speaks to the state of affairs at the date of the contract. It is thus not in my view a warranty that a previous statement was true when made (though one commonly sees warranties drafted in that way) but that it is true at the date of the contract, no doubt by reference to the facts at that date. That could be regarded as a form of repetition of past representations, and has an effect somewhat similar to the obligation held to exist in With v O'Flannagan to correct a statement which was either believed to be true when made but was later found to be untrue, or one which was true when made but is discovered by the maker to have become untrue before the contract is entered into.

There is then no further room for the operation of the repetition provisions found in clause 5.3, because there was no time interval between the date on which the Warranties were given and Completion of the contract.

The 4 December email refers to Mr Wemyss's "analysis of the accounts". It is accepted that Mr Wemyss had available to him, but had not (by then at least) sent to Sameer Karim or Rafik Karim, the monthly trial balances produced from the practice's Lawbyte accounting system. Mr Quirke produced a schedule setting out the relevant figures from those trial balances at various dates, on the basis of which Mr Wemyss was obliged to accept in cross examination that the trial balance at 3 December 2007 showed billing in the year to date of just under £319,000, compared with approximately £378,000 at the same date in the previous year. If annualised by multiplying by 12/7 these would project a yearly turnover of £649,000 for the year 2006-7 (for which the actual result was £647,000) but only £547,000 for the year 2007-8 rather than the £640,000 Mr Wemyss said the business was "on course for".

Furthermore, the figures as updated at the end of each subsequent month, all of which Mr Wemyss saw, were each substantially below those at the corresponding date in the previous year, and gave annualised turnover figures which were if anything reducing- £530,000 from the figures at the end of January 2008 and £511,000 at the end of February.

It was also shown that in the previous year Mr Hathaway had billed over £113,000, and Mr Quirke put to Mr Wemyss that these figures showed that it was misleading to say that his absence had made little difference. Mr Wemyss said that was what he believed at the time, though it is hard to see how he could have done so; the only reasonable interpretation of these figures was that unless something remarkable happened an amount approximately equal to Mr Hathaway's annual billing had been lost and not replaced.

Mr Quirke also pointed to the insurance proposal submitted by Mr Wemyss in July 2007 (3/611) in which he estimated turnover for the financial year 2007-8 would be £525,000, down £110,000 on his estimate in the corresponding proposal in 2006 and suggesting that at that point he must have been anticipating that Mr Hathaway's absence would have a substantial effect.

The issue of the statements made in the 4 December e-mail was raised by Rafik Karim and responded to by Mr Wemyss in an e-mail dated 17 November 2008. In that, Mr Wemyss said that the figures he had given were taken from the figures reported by the accounts software at the end of November 2007 and showed that the income in the month of November itself had been £57,000, compared with £52,000 for the corresponding month in the previous year. "Extrapolated over a whole year this would have meant an increased turnover of £60,000". He also said that the fees for the seven months of the financial year to the end of November showed a turnover of £356,000, an improvement on the previous year's figures which, if Mr Hathaway's billings were excluded, were £326,000 for the corresponding period. However, in cross-examination Mr Wemyss accepted that it was dangerous to attempt to make a projection for the whole year based on comparison of figures for a single month (as he had) and also that what he had said about turnover excluding Mr Hathaway's fees, even if correct (which was disputed) could not explain the statement that turnover was "on course for" £640,000. He could not, he said, recall exactly how he had come up with the figures he had given on 4 December, and accepted that he had been trying to provide a justification for them retrospectively.

Mr Wemyss has not put forward any basis on which the statement that profit was "on course for" £120,000 could have been justified.

I have no hesitation in concluding that the statement that turnover and profits were "on course for" £640,000 and £120,000 respectively was not true when made. It was not supported by any of the information available to Mr Wemyss at that time. I held above that this statement was not a matter of subjective belief but of present fact, but even if it had been an expression of belief, I do not accept that Mr Wemyss believed it to be true when made, since he was unable to put forward any credible basis upon which he could have formed that belief either in the e-mail sent on to 17 November 2008 or in his evidence in his witness statement or at trial.

Furthermore, the warranty that the same statement was true "to the best of Mr Wemyss's knowledge and belief" as at the date of the sale and purchase agreement (as provided by clause 5.2) was untrue, because by then he had access to the subsequent monthly management information which showed that the outcome for the year would be well below the stated figures. A warranty in those terms requires some degree of enquiry and investigation, and not merely reliance on subjective belief. Even if Mr Wemyss had himself believed the statement to be true at the time it was made (which I have not accepted) by the time the contract was entered into Mr Wemyss had received the subsequent information and must have known the true position if he had looked at it. I do not have to express a view on the precise degree of investigation required; however low the test, Mr Wemyss fell short of it in this case because the untruth of what he had said was blindingly obvious.

Mr Dean submitted that Sameer Karim either himself or through Rafik Karim knew or could reasonably have discovered that the statements complained of were not true, and/or had not relied on them in entering into the agreement. I do not need to go into detail on the effect that these matters would have if the contentions were substantiated because I have concluded that they are not.

Reliance was principally placed on the fact that Rafik Karim had sat in the administrative office with Mr Wemyss's wife for approximately 2 weeks before completion, when he was shown the computer system and so had access to all the information on it, as well as to the hard copy files in that room which included copies of the monthly management accounting information. Any questions he had were answered and any information he requested was provided. But his evidence was that the purpose of his sitting in was to learn about the internal administration systems that he would have to take responsibility for from completion, and he had not in fact undertaken due diligence in the sense of examining the books and records to verify its financial performance. Specifically, he denied that he had looked at or provided with any of the monthly management accounting information and said that he had relied on the copies of the previous years' accounts and additional information that Mr Wemyss had given. Mr Wemyss said that he thought he had provided copies of the January management accounts, based on a note made on one of the drafts of the sale and purchase agreement, but he had no positive memory or supporting evidence, and Rafik Karim denied that he had received those accounts.

It was put to Rafik Karim and Sameer Karim that they had in fact relied on the advice of their accountant, who had been shown in the accounts from previous years, that the proposed transaction was a good one and that they should go ahead with it. It was accepted that that advice had been given, but that would not be inconsistent with also relying on the further information provided as to performance since the date of the last full set of accounts.

Both were questioned at length about whether documentation existed that had not been disclosed but which might undermine the case on reliance. No disclosure had been given of any documentation applying to the bank for funding, which might have stated what information was being put forward as justifying the purchase price. A paper copy of the 4 December e-mail was disclosed as received by Rafik Karim, having been sent to him by Sameer Karim (not from the address to which it had originally been sent by Mr Wemyss). In that copy part of the e-mail header was apparently omitted (which would have indicated that the e-mail was being forwarded). There was also a large blank which might have indicated that approximately half a page of text had been blanked out. Despite disclosure orders and attempts to search, no electronic or paper copies have been disclosed of the e-mail as received by Sameer Karim at the original address, or as sent on by him either from that address to another account in his own name, or from the other account to Rafik Karim. All of these records were said to be unobtainable for various reasons which Mr Wemyss finds suspicious but ultimately has no firm evidence to contradict.

It was also suggested to Sameer Karim and Rafik Karim that they were determined to buy the business in any event and would not have changed that decision or altered the price they agreed to pay if they had been given the true financial information. This was said to be shown because at one point they attempted to negotiate down the price of goodwill from £100,000 to £75,000, but proceeded when Mr Wemyss refused to accept the lower amount. It seems to me, however, that this takes Mr Wemyss's case no further; Sameer Karim could be expected to have relied on the financial information given just as much in backing down from his attempt to renegotiate the price as he did when agreeing it in the first place.

In the end therefore, although information was available to Rafik Karim if he had chosen to make his own investigations, there is no evidence that he in fact did so and I accept his evidence that he (and therefore Sameer Karim) relied on the information acknowledged to have been provided by Mr Wemyss and that he was not given, and did not himself discover, anything to put him on notice that it was not correct. Mr Dean submitted on the basis of Infiniteland Ltd v Artisan Contracting Ltd [2005] EWCA Civ 758 that the documents that would have shown the true position were available in the office in which Rafik Karim sat for two weeks and it could reasonably be expected that he would become aware of their content (see per Chadwick LJ at para 72). That however was a case of a structured due diligence exercise by reporting accountants on behalf of a purchaser who accepted that documents made available to the accountants should be deemed disclosed for the purposes of a disclosure letter which expressly qualified the warranties. In those circumstances the question was whether the content of certain documents was deemed disclosed, not an inference of fact as to whether the accountants or the purchaser were actually aware of them, as Chadwick LJ made clear in the same paragraph. There was no disclosure letter provided for in the agreement in this case, I have not found that Rafik Karim was conducting a due diligence exercise such as an accountant might and Infiniteland is no basis for fixing him with knowledge that he cannot otherwise be shown to have had.

Accordingly, a liability is in principle established on the grounds both of misrepresentation and breach of warranty. The misrepresentation in this respect is not pleaded to have been fraudulent or reckless, but for the reasons given above I conclude that it was negligent.

Mr Quirke accepts that the normal measure of damages in either cause of action would be based on the value the business would have had if the misrepresentation had not been made or the warranty had been true. The loss in a "no transaction" case is generally assessed as the difference between what was paid and the true value of the asset acquired. Sameer Karim's evidence was that if he had known the true facts (in respect of this and the other breaches) he would not have purchased the business, and that in the light of what is now known he considered that the goodwill of the business had no value, or even a negative value, rather than the £100,000 he paid. The schedule of loss contains a figure for £75,000 stated to be the reduction in value of goodwill (I assume on account of all the matters complained of). But the court has no accountancy or other expert evidence before it to establish the value of the business, and Sameer Karim's subjective opinion is not sufficient. Mr Quirke, as I understood his closing submission, did not therefore pursue damages on this basis, which I would in any event have found not proved on the evidence. Instead, the particulars given in the Defence and in subsequent schedules put forward alternative calculations based on amounts which, Mr Quirke submitted, were necessary to put the buyer in the position he would have been in if the warranty had been true, or were costs expenses or consequential losses incurred either by Sameer Karim as buyer or by the LLP as a result of a warranty being untrue, and so recoverable under clause 5.5 of the sale and purchase agreement.

Two amounts were put forward as recoverable in relation to the warranty on profit and turnover figures. The first was a sum of £63,385, based on the fact that the LLP had borrowed £60,000 from a company connected with Mr Wemyss during its first year of operation in order to set up or expand a personal injury department. This was said to be capital that would not have had to be introduced if the business had been making the turnover and profits indicated. This loan has since been repaid in due course, with the additional £3385 representing interest paid to the lender. In my judgment, there are a great many reasons why none of this represents a loss recoverable from Mr Wemyss. Firstly, a warranty as to turnover and/or profit in a period before completion is not the same as a warranty that the LLP as a corporate entity would have any particular level of assets or capital at the date of completion such as might provide capital for future expansion. Nor is it a warranty that the firm will continue to have a particular turnover or earn a particular level of profits at any time after completion, such as might have generated capital for the new business.

There is no accounting or other evidence to back up Sameer Karim's assertion that the additional turnover or profits prior to completion would have obviated to any extent the need to borrow thereafter. In this context, it is relevant to note that the structure of the agreement appears to assume that Mr Wemyss would have been entitled to draw out of the LLP all profits earned up to the date of completion, and that the full value of its the principal assets, WIP and debtors, would be paid as additional consideration. Accordingly, insofar as increased turnover resulted in increased levels of WIP or debtors at completion, that would have increased the sums payable to Mr Wemyss by way of consideration. Those payments would have to be funded by Sameer Karim either from his own resources or out of the LLP, in either case meaning the capital for any additional business would have to be funded elsewhere.

As Mr Wemyss pointed out, the global financial crisis was brewing in 2008 and caused a significant downturn in property transactions such that conveyancing turnover fell substantially. This was accepted to have been a factor influencing the decision to increase personal injury work. It must also have affected the profitability of the firm and its ability to fund that new venture. It was not alleged that the decision to open a personal injury department was itself related to the lack of turnover or profits prior to completion, as distinct from the downturn in conveyancing work thereafter. In his witness statement Sameer Karim said that his initial intention had been to borrow from a bank, but he was unable to do so because of the earlier undisclosed loan taken out by Mr Hathaway and so had to turn to Mr Wemyss who arranged a loan from Perseus. If this is right, he would always have had to borrow and it was only the identity of the lender that changed.

Even if there was a need to inject capital, the amount of borrowing for that purpose, from whatever source, cannot in any event be regarded as a loss or cost. When the money is borrowed, the amount of cash received is exactly balanced by the obligation incurred to the lender, so that the assets of the LLP are neither increased nor reduced. Nor is there any change in that position when the money is repaid. The only cost to the LLP is the amount of interest and any other charges paid for the provision of the facility. But, for the reasons given above, that cost is not causally related to the misrepresentation or breach of warranty relied on.

Accordingly neither the need for capital, nor the need to borrow it because it could not be provided from the LLP's resources, have been shown to be caused by the breaches established. If they had been, the only loss suffered by the business would have been the amount paid in interest on the additional borrowing required.

The second basis put forward is in my view equally misconceived. As set out in the revised schedule of loss it is described as "continuing lower turnover than warranted". It is said that this "[generated] reduced profit and benefits of (£140,000 - £93,728) [=] £46,722". That figure appears to relate to the period prior to completion. It is then multiplied by 5.167 being the number of years elapsed between completion date and 1 June 2013 to produce a total claimed of £261,412. Why the calculation stopped there I do not know. Since it does not seem to have borne any relation to profit actually earned in the period after takeover, if the basis of it was correct there would seem to be no reason why the alleged loss should not have continued indefinitely into the future. The absurdity resulting is indicative of the fact that the basis of the calculation is not correct.

The breach of warranty established is in relation to a statement as to turnover for a period that was past at the date of the contract. A shortfall of turnover or profitability in that period was a loss to the LLP which, in the context of this sale effectively fell on the seller and not the buyer. The statement made was not a warranty that any particular level of turnover or profits would continue to be achieved in the future during the period when the buyer owned the business. Insofar as the statement was untrue and affected the net assets or future profit earning potential of the business, that loss is reflected in the difference between the price that a buyer would pay for the business if the statement were true, and that which he would pay in its actual condition. The loss is suffered at the moment of purchase, and does not, in principle, depend upon whether after purchase the financial performance of the business is the same as, or better or worse than, indicated by the statement warranted. But the defendants have failed to provide any evidence that would establish whether the value of the business was less than was paid for it. It would be wholly illegitimate to seek to make good that failure by treating the warranty as if it was a warranty as to future turnover or profitability when it plainly was not, and even more so to seek to claim a loss suffered by the seller as if it were a continuing loss suffered by the buyer for an indefinite period.

No recoverable loss has therefore been shown to have been caused by the misrepresentation or breach of warranty in respect of turnover or profits on either of the bases proposed.

Claims by Purewal/Malhotra and Le Butt

The second major part of the counterclaim relates to two claims that were made against the firm subsequent to completion by three clients, Mr Purewal (with his business partner Mr Malhotra) and Mr Le Butt, for whom Mr Wemyss had acted prior to completion, and the additional costs of professional indemnity insurance said to have arisen by reason of the reserves and payments made by insurers in respect of those claims.

The background to these claims is long and complex, and led to proceedings before the Solicitors' Disciplinary Tribunal in 2011 in which Mr Wemyss was found to have acted improperly in a conflict of interest situation and to have failed to act in the best interests of his client Mr Le Butt. I have drawn in part on the findings of that Tribunal (7/1697) for the summary that follows. Mr Le Butt was a builder/developer for whom the firm had acted in relation to numerous transactions. He was clearly the source of a considerable amount of conveyancing and related legal work. Mr Wemyss had however gone substantially beyond that and become involved in providing or arranging for the provision of substantial amount of finance to Mr Le Butt for his projects. The decision of the Tribunal records a number of loans in the period up to 2004 which were made following approaches by Mr Le Butt to Mr Wemyss. Most of the funds were provided by a company called Perseus Investments Limited ("Perseus") of which Mr Wemyss was a substantial shareholder. Some, approximately £30,000, came from Mr Wemyss personally. Substantial amounts came from other clients or professional contacts recruited by Mr Wemyss on the promise of generous returns.

By late 2004, Mr Le Butt was under substantial pressure because of his accumulated debt. He sought a loan of £455,000 to refinance this debt. On his behalf, Mr Wemyss approached an accountant, suggesting that Mr Purewal and Mr Malhotra (who were clients of the accountant) might be interested in making those loans, and proposing a very substantial return to them if they did. Mr Purewal and Mr Malhotra were also property developers, and had also been clients of the firm. In due course, Mr Purewal and Mr Malhotra agreed to make the loan, and were given security in the form of a mortgage prepared by Mr Wemyss over various properties owned by Mr Le Butt. The previous loans from Mr Wemyss and Perseus, among others, were repaid from the new advance.

Mr Le Butt defaulted on the loan and was eventually made bankrupt. Apparently, despite the security given, nothing at all was recovered from him. In his complaint to the SDT it was found that Mr Wemyss had offered terms to the proposed lenders which had not been agreed in advance by Mr Le Butt. He had acted in conflict of interest in that some of the lenders were also his clients, or the company Perseus in which he was personally interested. He had failed in their circumstances to have regard to the best interests of his client Mr Le Butt. He was fined £20,000 in consequence.

Mr Le Butt issued two sets of proceedings against Mr Wemyss and the LLP, the first issued on 25 March 2010 were briefly pleaded and apparently later struck out. They alleged fraud, fraudulent misrepresentation, negligence or breach of contract and undue influence in connection with unspecified loan transactions, presumably those referred to above. The second set of proceedings were issued in June 2011 (6/1194) and extensively pleaded allegations of negligence, breach of contract and breach of duty in relation to the same loans, in that Mr Wemyss was said to have arranged those loans without his client's authority on excessive and unreasonable terms from which, in certain cases, he or parties related to him profited personally, including an alleged profit of £120,000 on repayment of Perseus's loans. The claim was stated to have a value of between £300,000 and £2m.

Mr Purewal and Mr Malhotra issued proceedings in February 2011 (7/1676) in which they alleged that they had been induced to lend money to Mr Le Butt by Mr Wemyss's fraudulent misrepresentation to them that in his opinion Mr Le Butt could repay that amount, and also that Mr Wemyss had acted as their solicitor in relation to the loan without disclosing that the purpose of the advance was to repay moneys due to his connected company Perseus. Although the basis of the claim was presumably that but for these defaults the loan would not have been made, the claim form sought recovery of both the principal and the interest at the rate of 40% per annum that Mr Le Butt had contracted to pay, amounting to some £2.6 million at the date of issue. It appears (6/1186) that this claim was eventually settled by insurers for £325,000, of which £50,000 was contributed by the accountant who was also a defendant.

It is not in dispute that nothing was notified to insurers prior to the sale of the business in respect of any potential claim arising out of these matters. Both potential claims were in fact notified in 2010, two years after the sale (3/659). Furthermore, no information about any such potential claim was specifically given to Sameer Karim or Rafik Karim in the course of negotiations. It was suggested to Sameer Karim that he would have known about the loan transaction and any potential claim arising from it because he had in the past acted on some of the work done for Mr Le Butt, but there was no evidence that he was involved in relation to any of the loan transactions themselves, as distinct from conveyancing or other work done for Mr Le Butt, or of anything specific to indicate that Sameer Karim would have become aware of any of the matters that were later complained of. Mr Wemyss produced what he said was a copy of a note of the way in which correspondence referring to a potential claim by Purewal/Malhotra was dealt with, which he said would have been contained in a lever arch file dealing with similar client service issues, which was in the administrative office and so available to be seen by Rafik Karim in the two weeks prior to completion. The defendant's witnesses gave evidence that no such note was now in that file, and they had never seen it before. Mr Wemyss was given the opportunity to make a search of the firm's wordprocessing system, on which he said it would have been produced, but it could not be located. I accept the evidence of Sameer Karim and Rafik Karim that they did not see any such note prior to completion and were not otherwise aware of any threatened claim, or of the circumstances which ultimately gave rise to claims by Purewal/Malhotra and Le Butt.

The defendants' case was put on the basis that the circumstances of these transactions, and correspondence threatening a claim on behalf of Mr Purewal and Mr Malhotra prior to the sale clearly gave rise to a risk that substantial claims might be brought. That in turn was information which might reasonably affect the willingness of a buyer to purchase the LLP on the terms set out in the sale and purchase agreement, and so a breach of the warranty in paragraph 1.2 of schedule 4, which I have set out above. It was also submitted that it was a breach of the warranty in paragraph 10.1 that:

" Neither the Seller nor any person for whose acts all defaults the Seller may be vicariously liable has committed or admitted to do any act or thing in relation to the Business which could give rise to any fine or penalty "

and/or paragraph 11.1:

" Neither the Seller, nor any person for whose acts or omissions it may be vicariously liable, is engaged in, subject to or threatened by any :

(a) litigation … in relation to the Business or the Assets or any of them ….

11.2 Details of all material claims [and] complaints relating to the Business that have occurred during the 12 months preceding the date of this agreement have been Disclosed. "

Although "Disclosed" is capitalised it is not a defined term in the agreement, which does not contain the usual provision for a disclosure letter. In the event, nothing turns on this because there is no suggestion that any such information was disclosed to the buyer in any manner and as indicated above I am not satisfied that Sameer Karim was otherwise aware of it.

Sameer Karim also relies on the specific indemnity against increased costs of insurance in clause 5.8, which I set out below.

Mr Wemyss's view of these claims was that no claim had in fact been made or threatened against him or the firm prior to sale, that he was not in fact aware of any grounds on which there might be such a claim and the claims when made were unmeritorious try-ons by parties seeking to recover their losses from the deep pocket of his insurers. He appears to have accepted before the SDT that he offered potential lenders terms that had not been approved in advance by Mr Le Butt, but said that Mr Le Butt had given him discretion to do so and had known and therefore approved the terms offered by signing the relevant documents when the loans were taken. Even if that was correct, he knew or must be taken to have known that it was improper of him to act in such a manner in relation to loans in which he had a financial interest, either personally or through Perseus, and so he was potentially subject to penalties for breach of his professional obligations as well as claims for breach of fiduciary duty. Had he thought about it, he would inevitably have appreciated that any sensible buyer made aware of the extraordinary arrangements entered into on behalf of Mr le Butt would have at the very least wanted to enquire further to see what the consequences for the firm might be, and so the circumstances of these loans and the claims they might have given rise to constituted information that might affect the willingness of a buyer to purchase the firm, or the terms he might offer.

I accept Mr Wemyss's evidence that he had not received any complaint or threat of proceedings and was not in fact aware of any potential claim by Mr Le Butt prior to completion. There is no evidence that any complaint or claim was put forward until a letter from the SRA following a complaint made by Mr Le Butt in November 2008. Mr Wemyss said to Rafik Karim in August 2009 that he thought a notification of a claim by Mr Le Butt might have been given to insurers as much as 3 or 4 years previously, but I accept that he had no specific memory and was probably confusing matters with Purewal/Malhotra, where he thought he had made a file note of threats received from their solicitors.

It follows that in relation to the Le Butt matter there was a breach of warranty 1.2 and 10.1 but not of warranties 11.1 or 11.2.

In relation to Purewal/Malhotra, Mr Wemyss's position was that he had not acted for them but only for Mr Le Butt, and that he had made this clear in correspondence throughout. He accepted that he had prepared the mortgage in their favour and attempted to register it, but said that he had done so on behalf of his borrower client Mr Le Butt. He had not made any representation and owed no relevant duty to Mr Purewal and Mr Malhotra. However, he accepted that he had received letters from solicitors acting on their behalf in September 2006 demanding his files, and in January 2007 (2/227) making allegations that he had admitted acting for Mr Purewal and Mr Malhotra, had been negligent in dealing with their affairs and demanding that he should pass the letter on to his indemnity insurers "and send a copy of the letter you have written to them reporting this claim".

Mr Wemyss did not of course report any claim at that time. He said that he assumed that the matter had been dropped thereafter. But I do not think that there was any reasonable basis for that assumption, which would have been inconsistent with the approach he adopted in various e-mails to staff at the time of the sale seeking to flush out any circumstances that might possibly give rise to a claim. Accordingly, whatever Mr Wemyss thought of the merits of the potential claim, the threat was still in existence at the date the agreement was entered into and the allegations made on behalf of Mr Purewal and Mr Malhotra were again matters that any sensible buyer would have enquired about and so matters which might have affected the willingness of a buyer to purchase on the terms offered. Accordingly, in my judgment there was a breach of warranties 1.2, 11.1 and 11.2.

The principal loss asserted to have flowed from the breaches is the additional cost of professional indemnity insurance which, it is said, would not have been incurred following the sale if the warranties had been true, that is to say if the circumstances giving rise to the Purewal/Malhotra and Le Butt claims had not existed. But these costs are sought to be recovered pursuant to the specific indemnity in clause 5.8, and it was not suggested that the claims for breach of warranty add anything to the amount recoverable under that clause. There is however a general claim for "a reasonable amount" in respect of costs of management time incurred in dealing with the various alleged breaches, put at £8,675 in the final schedule of loss, and a separate amount of £5625 in respect of additional management time in dealing with professional indemnity insurance renewals as a result of the existence of these claims, which would be recoverable under clause 5.5(b).

The latter amount is put at £5265, based on 39 hours of Rafik Karim's time at £135 per hour. The only explanation of the former amount is at paragraph 48 of Sameer Karim's witness statement, where he puts forward an estimate of £8000 in respect of 50 hours work done by himself and employees, all said to be in relation to the Malhotra claim and implying an hourly rate claimed of £160. There are no records to support the time estimated, and there appears to be some overlap between the two amounts, since some of the hours said to have been spent by Rafik Karim are described as being in dealing with issues, claims and mitigation in relation to the two claims. Some costs in respect of a specific trip to London to attend a conference with counsel had been separately claimed and allowed above against the amounts due for debtors and WIP, and those should not be double counted again in any allowance under these heads. I have no doubt that a substantial amount of management time was required to deal with the fallout from the claims, but given the absence of records, the possibility of overlap and the general doubts I have about the reliability of estimates made by Sameer Karim, I think I must make a reasonable but relatively conservative estimate and allow a total of 60 hours across the two heads claimed.

The hourly rate at £135 claimed in respect of Rafik Karim seems to me to be wholly excessive; it is more akin to a charge out rate to a client, but Rafik Karim is not a fee earner and that was no suggestion that the firm remunerates him at anything like that hourly rate. Furthermore, it is not appropriate in my view to allow a claim for the cost of management time in respect of Sameer Karim or other fee earners at the rates they would charge to clients. That is not the cost to the firm of employing a fee earner. In so far as part of the time may have been spent by fee earners, there is no evidence that this prevented them from doing any other work which would have been chargeable to clients. Sameer Karim is not an employee and his time does not cost the firm anything since he is remunerated from its profits. Nevertheless, in my judgment, the language of clause 5.5 entitles him to make a claim for a reasonable amount in respect of his own time. In my judgment, a reasonable amount in respect of that management time, in respect of all the individuals involved, would be at the rate of £30 per hour, £1800 in total.

Clause 5.8 reads as follows:

" The Seller shall indemnify and keep fully indemnified the Buyer in relation to all compulsory and voluntary excesses payable by the Buyer and/or the Business that arise out of any claim made by a client or former client on the professional indemnity insurance policy of Business and also shall indemnify the Buyer and the Business in relation to any amounts that the Buyer or the Business is ordered to pay in the event that the professional indemnity insurance policy does not meet the liability. The Seller shall also indemnify the Buyer and/or the Business for any increase in professional indemnity insurance premiums arising as a result of claims made upon the professional indemnity insurance policy of the Business. (The burden of proof as to the reason for the increase in the premiums and the element attributable to such a claim or claims shall be upon the buyer) "

This clause is not particularly well drafted. In particular, it does not in terms say whether the "claims" it refers to are limited to claims in respect of matters occurring before the sale of the business. In his closing submissions however Mr Quirke realistically accepted that it must be interpreted with that limitation. I agree; elsewhere the sale and purchase agreement attempts, however imperfectly, to draw a line as between liabilities and obligations incurred prior to the sale date which are to be the responsibility of the seller and those incurred thereafter which are the responsibility of the buyer. Further, the agreement must be interpreted in the commercial context in which it was made, and would make absolutely no sense for the seller to accept responsibility for the consequences of acts and omissions after completion when the business was under the operation of the buyer.

There is also a dispute as to whether the "claims" that may be relevant are limited to those that had not already been notified by the date of sale, i.e. those subsequently made by Purewal/Malhotra and Mr Le Butt, or whether they may also include claims that had already been notified. There were a certain number of claims in the latter category, which are referred to in the documents as the "RSA" claims, since they were notified when RSA was the relevant insurer. In this respect, I agree with Mr Quirke that the better construction is that such claims are included; to construe the clause otherwise would require the insertion of words that are not there and could not be said to be required by commercial necessity. No doubt a seller could be expected to seek to negotiate on the basis that the buyer would accept all commercial risk after the date of completion, but it cannot be said that no seller could be reasonably expected to proceed on any other basis.

Since the date of completion, the insurance premiums payable by the business have varied substantially. As Mr Wemyss has always maintained, there are many factors that may potentially have affected the level of premium charged in any year. General market forces, including the appetite of insurers for professional indemnity risk, varies from year to year. Since the sale, it is evident that the attitude of insurers to small firms engaged in the sort of business that this one is has changed substantially; it became necessary at different points for Mr Wemyss to be asked to allow himself to be named as a principal (which he agreed to) in order that the firm could obtain insurance at all, and for another fee earner to be similarly named as a principal so that the firm could be rated as if it had three principals. The global financial crisis led to a sharp rise in losses deriving from property transactions and consequent claims upon professionals, reflected in the rates quoted to firms whose businesses might expose them to such claims. Clause 5.8 states expressly what would be the position in any event, namely that the burden is on the buyer to demonstrate the extent to which any loss or expense sought to be recovered was caused by the claims made against the firm rather than any of these other factors.

The defendants have only themselves to blame for the fact that the expert evidence that the court permitted, which would have assisted in identifying how much of any of the subsequent premiums would not have been payable but for these claims, was not provided. I refused various applications which were attempts by the back door to introduce what amounted to alternative expert evidence in circumstances in which the claimant had no opportunity to contribute to, or respond to, such evidence. The defendants now rely on various letters and other documents generated in the course of renewal of their policy since the sale, from which they say inferences may be drawn. In the circumstances, the court has no option but to do the best it can from the available evidence. In identifying what inferences may properly be drawn from these documents, I bear in mind that all of them were produced by parties dealing with the defendants at a time when they may have expected to make claims pursuant to the indemnity, particularly in more recent years when this claim was on foot. The defendants may have had an interest in generating documents that would support their case. Many of these documents were clearly requested with that in mind.

It is common ground that no claims or potential claims were notified by the firm after the takeover with the exception of the Purewal/Malhotra and Le Butt claims, so that it is not necessary to seek to disentangle the effect of claims for which Mr Wemyss can not on any basis be held responsible.

Mr Dean produced a helpful table of the insurance premiums actually paid in respect of each of the relevant years. The figures are as follows:

Period	Premium (£)
2007/8	27283
2008/9	52500
2009/10	48000
2010/11	36126
2011/12	58101
2012/13	38610
2013/14	37524

There was clearly a substantial rise in the first year after the purchase, 2008/9. Mr Quirke relied upon an e-mail sent by the broker, Mr Balme, dated 30 September 2008 (2/268) in which he said "as regards the increase in terms, I confirm that on average, premiums have increased by about 20% with Royal and Sun Alliance. Conveyancing rates have on average increased by slightly more than this and a number of insurers have moved away from underwriting cover on conveyancing practices. The main impact on the premium for your practice this year, however, has been a more close focus on the claims record of practices. Whereas in the past it has been possible to apply commercial pressure or get insurers to take a more lenient approach, the market has changed fundamentally and this is not now possible. The claims record of Douglas Wemyss solicitors shows an average of over £100k per year in claims payments and reserves. Although the stems largely from one year, this has been the main cause of the dramatic premium increases this year. Please let me know if you need any further information."

This of course was before the Purewal/Malhotra and Le Butt claims were notified, so that insofar as insurers were taking a different view of reported claims it must have been in relation to those notified prior to the date of sale.

In respect of this year, Mr Quirke submits that the increase attributable to those claims must be £19,760, based on allowing an increase of 20% on the premium for the previous year and attributing all the remaining increase to the effect of insurers taking a harder view of the existing reported claims. I am not however satisfied that the e-mail referred to is a sufficient basis for making such a finding. There is the general point that it appears to be a response to a request for information from Sameer Karim which he may have had an interest in steering towards a conclusion that the claims history was to blame. Further, earlier in the e-mail Mr Balme said that "As discussed, it has been extremely difficult to obtain terms this year. The majority of the insurers have applied very strict parameters to the type of practices and the work that they undertake. As a two partner practice, Douglas Wemyss Solicitors LLP no longer fits the stated parameters of the RSA and they have not been deviating from his parameters. It was therefore necessary for us to find an alternative provider. Most firms declined to offer terms either because of the proportion of conveyancing undertaking by the practice or due to the claims record. Finally Travellers agreed to offer terms, but we regarded these as high even in the present market. It was therefore necessary for us to re-approach RSA to see if we could agree a more acceptable compromise. Finally this was achieved."

It is apparent therefore that RSA were initially not prepared to provide cover at all, and that this was not due to the claims record but because the firm had only two partners. Other insurers refused to offer cover, in some cases because of the nature of the work (conveyancing) and/or the claims record. A second approach had to be made to RSA, who would no doubt in a position to dictate terms if they were to accept a risk they were initially unwilling to take on. It is also apparent from surrounding e-mails that it was at this time that Mr Wemyss was persuaded to become a member of the LLP again in order to present it to insurers as having an additional partner. Mr Quirke's calculation is based on the stated general rise for firms whose business RSA was willing to take on and takes no account of any additional amount that they may have charged by reason of the proportion of conveyancing business or because they were having to be persuaded to take on a two partner firm when they would not ordinarily have done so. They must also have known that reappointing Mr Wemyss as a member of the LLP was something of a manoeuvre for their benefit and may have been accordingly slightly sceptical as to whether the firm genuinely fitted the profile that they wished to insure.

I accept from the e-mail that the claims record was an important factor in the premium eventually quoted and that insurers were now looking at the claims record in a different light, so that increased premiums might have been charged even though there had been no further claims notified. It is not however in my view a sufficient basis on which to infer that all the premium except for an increase of 20% on the previous year was attributable to that factor. It is not in my view credible that factors which initially led the insurer to assess the risk as one it did not want to cover at all would not be reflected in the premium if the insurer was subsequently persuaded to accept the risk. In the absence of independent expert evidence which might have weighed up all the factors dispassionately, for which as I say the defendants have only themselves to blame, it is appropriate in my view to be cautious about the inferences to be drawn in their favour from this e-mail. Doing the best that I can, in my judgment a fair inference would be that £10,000 of the increased premium related to the more strict view taken of the claims record.

For the following year, Mr Quirke's calculation of £10,021 was based on allowing a further 20% increase on the premium for 2007/8 and again assuming that the difference between that and the premium eventually charged was wholly attributable to the claims record. The firm appears to have used a different broker, and eventually the policy was placed with a different insurer. The broker instructed, Mr Levey, sent an e-mail on 19 August 2009 (2/330). Mr Quirke relies on what he said there as follows: "I have now obtained the Navigators claims print and there are (I am afraid) some bad claims. In order to negotiate the best I can, please could I have a detailed explanation of [three specified] claims… if I am going to get your quotation down or at least hold it where it is I am going to need this." He also said "the market is a very volatile market with insurers using any excuse to raise the premium." In a later e-mail (2/331a) Mr Levey said "I am sorry that I am still unable to obtain quotations for your firm. The claims experience is causing underwriters a problem. Their fear is that there may be more claims in the future. I have tried my hardest to explain the claims of way but despite this quotations have not been forthcoming." He suggested that a different firm of brokers be approached "who have an exclusive arrangement with Hannover".

In the end the insurance was placed with Hannover, at a premium of £48,000 (6/1180) but there appears to be no further explanation of any factors that led to the setting of that premium.

It is apparent therefore that the claims history was a significant problem with insurers, but also that the market remained volatile. Mr Levey's reference to their using "any excuse" to increase premiums indicates that there are likely to have been other factors that would have influenced some or all insurers. It would be in my view entirely unsafe to assume that in the absence of a changed attitude to the claims record a quotation would have been available on the basis of an assumed inflationary increase over the rate quoted in a very different market two years earlier. Again, doing the best that I can and being appropriately cautious as to the inferences I draw in the absence of independent expert evidence, in my judgment a fair inference would be that an additional amount of £5000 was attributable to the view taken of the claims record.

No claim is made for the insurance year 2010/11, since the firm was able to obtain a premium at a much more favourable rate that year. By this time, the previous notifications (which were made in the year 2004/5) would be likely to be having a diminishing, if any, influence on the risk assessed by insurers. It is relevant to note that the premium for this year was set when both the Purewal/Malhotra and Le Butt claims had been notified.

For the insurance year 2011/12 the claim made is £40,107, based on the difference between the premium actually paid and the amount of a quotation (£17,994) said to have been given by Enterprise on the footing that the firm had no relevant claims history (6/635). It appears from surrounding correspondence that by the time that this quotation was sought the insurer's reserves in respect of the Purewal/Malhotra claim had been substantially increased, and a number of insurers either declined to quote or quoted sums very much higher than in previous years. Enterprise itself eventually declined cover, apparently when it was told of the full claims history.

I have some reservations about accepting the quotation relied on at face value. There is no indication from the quote itself what information was given to Enterprise to obtain it and whether, for instance, there might have been some information apart from the claims record which was not disclosed in which might have affected the size of the premium quoted. It would I think be highly unusual to request a quotation without disclosing all the relevant facts, including the claims history, so I am left wondering whether Enterprise were asked to provide a quotation on a basis that they knew was only theoretical, in which case one might question whether it could ever have been truly realistic, or whether they were deliberately not told information that was known to be relevant, and if so whether there might have been omissions other than the claims history. I assume that if Enterprise were told anything about claims history it was that there were no relevant claims at all, although I note that the quotation required supply of a full claims history going back as far as 2004, which would therefore have had to include the RSA claims. If the expert evidence anticipated had been provided, it might have assisted in assessing whether this quotation was realistic in the hypothetical circumstances that either there were no claims at all, or perhaps that the RSA claims existed but no claims had been made by Purewal/Malhotra or Le Butt.

The quotation relied on is lower than the premium paid in the year prior to take over. A calculation based on it is not therefore in my judgment one which establishes the "increase" in premium attributable to claims, since the word "increase" in the indemnity given must imply a reference to a starting point which, construed at the date on which the contract was entered into, can only be the level of premium that the firm was then paying. It makes more commercial sense, since a buyer would normally expect to buy with knowledge of and accepting responsibility for existing levels of outgoings, relying on warranties and indemnities in respect of any adverse changes from what he had been led to expect. That is the basis on which Mr Quirke put forward his calculations in respect of the first three premium years after completion, which started from the premium actually paid and did not seek to substitute a basis of a lower theoretical premium if there had been no claims history at all. It is inconsistent in respect of later years to move to a basis which seeks to establish not the "increase" in the amount of premium payable, but the whole element of the premium that can then be attributed to the claims history.

The increase in the premium for this year over the premium for the year 2007/8 was £30,818. Bearing in mind that doubts that I have about the reliability of the quotation that the defendants rely on, and in doing the best that I can with the incomplete evidence before me, I think it is appropriate to make some discount from this amount and accordingly find that £25,000 is the amount of that increase attributable to the claims notified (both before and after completion).

For the insurance year 2012/13 the amount claimed is £15,665, based on the difference between the premium actually paid and the amount of a quotation given by Enterprise at £20,490. In this case, the proposal used to generate that quotation is provided (3/649), from which it can be seen that it was produced on the basis that no claims had been notified in any relevant previous year. This was obviously known not be true, so the quotation is clearly a self-serving document generated for the purpose of this claim. That said, I have no indication that any of the other statements made in it were untrue or misleading, and I assume they were not. The increase over the premium paid in the 2007/8 year was £9142, from which in my view it is appropriate to make a small discount to reflect the general doubts about the completeness of the evidence that I have referred to above, and accordingly I find that £8500 of that increase was caused by the view that insurers took of the claims notified.

Adopting a similar basis for the insurance year 2013/14, the increase over the premium paid for the 2007 year was £10,241. There is an e-mail from the broker stating what is said to be the premium would have been charged in the absence of any relevant claims, showing different amounts depending apparently on the level of access selected, the highest of which is just over £23,000. I again make a small discount and find that £9500 of the increase was attributable to the continuing influence of the claims previously notified.

The schedule of loss seeks a capitalised amount in respect of assumed continuing future losses under this head for periods extending as far as 2018. I am not satisfied however that it would be appropriate to find that any such loss is likely to be suffered. All the notified claims are now very old, the cause of action having arisen at least eight years ago. Such correspondence as there is from the broker indicates that different insurers take different views as to how far they should look back at the claims history. It is impossible to tell from the evidence before me what their attitude is likely to be when the next or subsequent renewals take place, and it is not a matter that in my view it is appropriate to make any estimates of in the absence of expert evidence.

The amount of the increased premiums that I have found recoverable under the indemnity in clause 5.8 is therefore as follows:

Period	Premium (£)	Recoverable Increase
2007/8	27283	0
2008/9	52500	10000
2009/10	48000	5000
2010/11	36126	0
2011/12	58101	25000
2012/13	38610	8500
2013/14	37524	9500

giving a total of £58,000.

Undisclosed loan

Mr Wemyss accepted that he had not disclosed the existence of a loan taken out in the name of the firm by Mr Hathaway, which (presumably) constituted a liability of the LLP at the date of completion. It was not disputed that Mr Wemyss subsequently paid this off himself. The only consequence referred to in the evidence was that Sameer Karim said it made it impossible for the LLP to obtain bank lending to fund the personal injury department so that he had to borrow from Perseus instead. He did not say that this cost more, and no amount appears in the schedule of loss in relation to this loan. Accordingly, even if there was a breach of warranty in respect of it, no loss has been shown to have been caused.

Undisclosed employment terms

It was alleged at para 3(3) of the Particulars of Claim that the information given before completion in relation to the terms of employment of staff failed to disclose that those terms "included the grant, in lieu of salary increases, of rights to unusually long holidays", contrary to the warranty in para 9.2 of Sch 4 that full accurate and complete particulars had been provided.

This matter arose because on 27 January 2009 Rafik Karim sent an e-mail to all staff notifying them of what holiday they would be allowed from then on, which excluded additional holidays on Tuesdays after bank holidays and three days allowed to staff over the Christmas period, which all staff had traditionally enjoyed. This led the staff members to consult ACAS and write a series of e-mails in closely similar terms apparently settled by ACAS asserting that they were contractually entitled to the additional days. Rafik Karim and Sameer Karim were forced to back down and continue the additional holidays. They alleged however that the particulars of employment supplied by Mr Wemyss prior to completion made no mention of these additional days and sought to recover as damages what they said was the additional cost to the firm of paying for holidays on those days, which would not have been incurred if the particulars supplied had been true. This claim was maintained through the trial up to the final version of the schedule of loss in which it was stated to amount to £15,850 to date, continuing at the rate of £565 per annum.

In fact in his evidence Rafik Karim accepted that he had been provided with a document prepared by Mrs Wemyss (3/701) which set out details of the basic holiday entitlement of each employee and made it clear that in addition to those days and statutory holidays, the firm closed on three Tuesdays after bank holidays, and for an additional three days over Christmas. It is quite plain that Rafik Karim received this information on behalf of Sameer Karim, although Sameer Karim maintained that he was unaware of it, and accordingly the allegation of breach of warranty in failing to supply correct particulars was untrue. I observe that it is hard to see how Sameer Karim can in fact have been unaware of the custom of giving additional days, given his own employment prior to the purchase.

There remains a very limited part of this claim. Two of the employees, Lesley Hogg and Rosemary Toone, alleged in their e-mails that they had been given an entitlement to an additional week's holiday in lieu of a pay rise three years previously. This had not been referred to in the document prepared by Mrs Wemyss. Sameer Karim accepted that both employees had left within two years after the takeover. Mr Wemyss accepted that Ms Hogg was entitled to the additional week's holiday. The cost of it for a two-year period would be £565. He denied however that Ms Toone was entitled to the same holiday and said that therefore Rafik Karim had been wrong to concede that she should receive it when she sent her e-mail. In relation to the holidays and terms of employment, Mr Wemyss's evidence has been found to be accurate and that given by Rafik Karim and Sameer Karim, at least up until Rafik Karim's evidence in the witness box, was inaccurate. I see no reason to disbelieve Mr Wemyss in respect of the terms enjoyed by Ms Toone and so find that she had no such entitlement, and the LLP was under no obligation to concede it to her and could easily have found that out if Mr Wemyss had been asked at the time.

Accordingly I find that the claim for breach of warranty in this respect is proved only to the limited extent of the additional week's holiday to which Ms Hogg was entitled for a period of two years, and the amount for which Mr Wemyss is liable in respect of that breach is £565.

Loss of business

The defendants claim to have suffered loss by reason of the firm having been excluded for periods from the panels of solicitors authorised to act on transactions involving three lenders (National Westminster Bank, Nationwide Building Society and Norwich and Peterborough Building Society). The basis on which these losses were said to be recoverable from Mr Wemyss was not in my view adequately set out in the pleaded case. Paragraph 3(2.8) pleaded that the records and information of the business "failed to disclose acts of delay or negligence in the registering of … charges … for National Westminster Bank and Nationwide which resulted after the date of agreement in the removal of the business from their panels of solicitors". It was not pleaded what omissions there were in the records, and given that it is plain from the evidence that the firm's files when the matters came to be looked at did in fact show that the relevant charges had not been registered, it is hard to see that there was any such omission. The thrust of Sameer Karim's complaint is that he was not aware until after completion that there was any cause for complaint on behalf of these lenders, but it was not pleaded or even suggested Mr Wemyss was aware of any complaint prior to completion or that any failure to inform the buyer of the circumstances that later gave rise to the complaints constituted an omission to disclose information that might have affected his willingness to buy on the agreed terms.

Sameer Karim's general approach to these matters throughout his evidence seemed to me to be that if they derived from something that happened before the takeover he regarded them as Mr Wemyss's responsibility and thought that he was entitled to lay all the consequences, as he saw them, at Mr Wemyss's door. The lack of focus as to how it was that Mr Wemyss could be said to be liable under the agreement was reflected in the approach to the evidence of the losses sought to be recovered, which consisted in large part of Sameer Karim's unsupported assertion. Having heard his evidence, I came to the conclusion that such assertions were not always reliable.

A combined sum of £7000 is claimed in respect of the alleged loss of business resultant on removal from the panels of National Westminster Bank and Nationwide. In relation to NatWest, correspondence was received from solicitors acting on behalf of the bank apparently starting in February 2008 alleging delay in registration of a mortgage in favour of the bank. It appears that this correspondence was dealt with by, or under the supervision of, Mr Wemyss and although the original registration problem appears to have been sorted out, the bank's solicitors sent a bill which they demanded that the firm should pay. Mr Wemyss replied disputing the amount of the bill and offering a lower amount, which the solicitors did not accept. This eventually led to a letter dated 4 February 2009 in which the solicitors said that as their fees had not been paid, the bank had now removed the firm from its panel. This came to Rafik Karim's attention towards the end of 2009, when he asked Mr Wemyss to deal with it. He was able to do so promptly by paying the amount of the solicitor's bill (£525) and speaking to a contact of his at the bank, Mr Thompson, who secured the firm's reinstatement.

Mr Thomson wrote on 6 July 2010 (7/1512) saying "Given the position with these files our credit documentation department had made a note that they were unhappy if DWS were to be instructed in relation to any new security. Had this continued, then there may have been cases where we made known to a client DWS's unacceptability as acting for the bank. I managed to put a halt to this action in or around November 2009…".

Mr Wemyss has conceded a credit for the amount of the solicitor's bill against the sums claimed by him, so I need say no more about that. As regards any other claim, I am not satisfied that any breach of warranty is shown in relation to the original error, if there was one, in dealing with the registration of NatWest's security. Taken at its highest, it seems to me that it might be said that Mr Wemyss's handling of the correspondence from the bank's solicitors after completion might have amounted to a breach of its obligations under his consultancy agreement, although no such breach was pleaded. However there is no evidence that any business was actually lost as a result, and the letter from Mr Thompson would seem to indicate that there had not in fact been any occasions when the bank had to steer customers away from using the firm. Accordingly, no loss is shown.

The issue with Nationwide seems to have come to Sameer Karim's attention in January 2010. He sent a memo to staff on 19 January (7/1581) telling them that he had been dealing with an issue with Nationwide and that "according to them we have been declined our panel status". In that message he said "If any of you are aware of this scream out as this is costing the firm both with my time and with us not being able to service clients!!!". He asked for an explanation as to what had gone on on a particular file that seems to have been the source of the problem from Rosemary Toone on 20 January 2010, which she sent to him on the same day. He immediately passed this on to Mr Wemyss with a covering message (7/1588) saying "when you get back into the office can you look into this as a priority. As it stands we have at least two lenders who have struck us off their panel for what I refer to as 'pre-takeover cock ups'. Because of this I have had to farm out the work to other solicitors. As you know we can't afford such losses, for every day this continues the firm is unable to act and clients having to go elsewhere. So far as it stands we have lost several conveyances and commercial transactions as the lender will not deal with us."

Mr Wemyss replied immediately, disputing what Ms Toone had said in her e-mail. It appears that he then contacted Mr Beale, the chief executive of Nationwide who was known to him personally, and wrote to him on 27 January, because on 2 February 2010 Mr Beale responded to the effect that he had investigated the matter and arranged for the firm to be reinstated to the panel with immediate effect.

Sameer Karim sent a further message by general e-mail to staff on 27 January in which he said "Since this issue arose I have had to turn away at least 6-7 instructions from estate agents, contacts etc…".

Again, I am not satisfied that any breach of warranty is shown in relation to errors on the file prior to the takeover, although the matter is said to have started at some point in 2007. It does appear from the note of 20 January that attempts to rectify it had been going on between 2007 and 2010, so again at its highest it might be said that Mr Wemyss had failed to deal with or supervise the matter effectively, in breach of his duties under his consultancy agreement, no such breach having been pleaded.

However even if there was such a breach, I am not satisfied on the evidence that there was any loss caused by actually having to turn business away. Although it is obvious from the first e-mail dated 19 January that Sameer Karim was very exercised about the problem that he had discovered, there is no indication in that e-mail that it had actually cost the firm any lost business; rather he was asking staff to let him know if they were aware of any problem because of it. There is no evidence that any member of staff reported any such problem. By the following day Sameer Karim was asserting to Mr Wemyss that he had had to turn away business, and the same assertion was made in the subsequent message to staff on 27 January. However no particulars were given in either of those messages, nor has Sameer Karim been able to give any particulars subsequently by way of disclosure or in his evidence. I think it unlikely that between 19 and 20 January Sameer Karim had actually been forced to turn away "several" instructions, or that a problem which seems to have been brewing for some time resulted in "6-7" instructions having to be turned away between 19 and 27 January, and having regard to the inability to provide specific details and particularly to the tone of Sameer Karim's communications, I have come to the conclusion that his statements to that effect were probably not true and inserted only to emphasise the depth of his anger and the urgency with which he wanted Mr Wemyss to resolve the problem. Again, no loss is shown.

In relation to Norwich and Peterborough Building Society, a claim is made for the sum of £24,000, continuing indefinitely into the future at a rate of £1600 per month. This is on the basis that a particular introducer, B2B Mortgages, would have introduced four clients per month from March 2012 paying a conveyancing fee of £400 on each occasion, but was prevented from doing so because Norwich and Peterborough refused to admit the firm to its panel.

There is an e-mail from Mr Gill at B2B dated 21 March 2012 (2/472) in which he says that he has two clients who were willing to use the firm in respect of mortgage deals that he had placed with Norwich and Peterborough Building Society. He went on to say:

" I requested the lender to add Douglas Wemyss Solicitors on to their panel and unfortunately was advised last night that they were not willing to add your firm on to their panel. I have been referred to the [SRA's] website for further information but I was not disclosed specific information to give reasons why your firm could not be added …

I am aware that there appeared to be an issue with Mr Douglas Wemyss a couple of years ago-which may be the reason why the lender was unwilling to add the firm on to their panel, I did advise that Mr Wemyss was no longer part of the firm in any shape or form but I was advised they were already aware of this. Norwich and Peterborough are one of our key lenders at the moment and this will cause us issues as it will prevent my clients from using your company as their solicitors. "

The only evidence of any other lost transactions is from Sameer Karim himself. At paragraph 55 of his witness statement he says "we had been assured we would receive on average 4 to 6 new instructions per month…".

The only reference to Norwich and Peterborough Building Society is in the "particulars" of loss and damage given in paragraph 11 of the re amended Particulars of Claim. It is not made clear which of the alleged breaches are relied on in this regard. Sameer Karim's evidence was that the loss of business flowed from the record of the disciplinary proceedings against Mr Wemyss, and I take it that but what is relied on is consequential loss flowing from a breach of the warranty that there had been no acts or omissions which might give rise to a fine or penalty. However, as I have indicated above the measure of loss for breach of that warranty would require an assessment of the value of the business in its actual state and if the warranty had been true. The loss suffered is the acquisition of an asset, the LLP, which had a reduced capital value at the date of sale because of its reduced ability to earn fees or generate profits in the future. The loss is suffered once and for all at the date of purchase, irrespective of the level of fees actually earned thereafter. In the absence of a specific indemnity, such as was contained in clause 5.8 in relation to insurance premiums, breach of such a warranty does not in my judgment entitle the purchaser to recover individual amounts for particular business opportunities the business was not able to take advantage of, either in addition to or instead of damages based on reduction in value of the asset acquired.

The remedies available in respect of a breach of warranty are potentially expanded by clause 5.5 of the agreement, but I do not think that assists the defendants in this case. The only potentially relevant part is in subparagraph (b) which provides that the seller must pay "all costs and expenses (including, without limitation, damages, claims, demands, proceedings, costs legal and other professional fees and costs penalties expenses and consequential losses) incurred by the buyer… or the Business as a result of the breach or of such warranty not being true or misleading…". Turnover that might have been earned but has not been is not a "cost or expense". I do not think this is affected by the subsequent reference to "consequential losses" which is one of a considerable number of matters all of which are governed by the opening words. All of what precedes indicates payments that have to be made or liabilities that have to be satisfied. In my judgment, the reference to "consequential losses" may mean, perhaps, liabilities that have been incurred but not paid in connection with any of the foregoing matters, or payments that have to be made as an indirect consequence of the breach, but it does not have the effect of creating a whole new category of recoverable amounts in respect of income foregone as distinct from costs and expenses incurred.

If I am wrong on that, I would assess the loss shown on the evidence as limited to £800, being £400 in respect of each of the two sets of instructions referred to by the introducer. He was not called to give evidence of the potential for further business. I have doubts about relying on Sameer Karim's evidence as to the potential for such further business, since he had a tendency to make unsupported assertions in his own favour in other respects. Even if some remark to that effect may have been made to him by the broker, it was not a guarantee of future business and may have been no more than puff. It did not in any event indicate how many of the instructions might have been on loans from Norwich & Peterborough. There is no evidence of any subsequent business introduced by that broker, or of any other specific opportunities lost, or even that any business relationship continues with that broker. There is no evidence of any subsequent attempts to contact the lender and persuade it to take a different view, or that it continues to hold the view that it apparently did nearly 2 years ago. The attempt to claim a loss on a continuing basis apparently indefinitely into the future without any supporting material was in my view wholly unrealistic and an indication of the tendency of Sameer Karim to exaggerate the presentation of matters in his own favour.

The sums that I have found due in respect of the counterclaim are therefore £58,000 (increased insurance premiums) £1800 (management time) and £565 (employment terms), totalling £60,365. Subject to any issue as to apportionment between the defendants, that leaves a net amount of exactly £45,000 due to Mr Wemyss. I invite counsel to seek to agree an order to reflect this judgment.

Matters of interest were left over to be addressed after judgment. I will not require attendance at the formal handing down but invite parties to agree a time estimate for any matters arising and contact my clerk to arrange a hearing. I remind them however that any request to adjourn the handing down to consider permission to appeal must be made before the handing down date.

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	England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Wemyss v Karim & Anor [2014] EWHC 292 (QB) (13 February 2014) URL: http://www.bailii.org/ew/cases/EWHC/QB/2014/292.html Cite as: [2014] EWHC 292 (QB)

		Birmingham Civil Justice Centre Bull Street, Birmingham B4 6DS
		13/02/2014