PROVING THINGS 114: A WITNESS OF FACT CANNOT GIVE EXPERT EVIDENCE: NO ADMISSIBLE EVIDENCE OF ANY LOSS

There are several elements worth looking at in the judgment in Wessely & Anor (Liquidators of Laishley Ltd) v White [2018] EWHC 1499 (Ch).  However it is a prime example of a simple failure to prove things. If the applicants had succeeded on liability they would have lost on damages. The applicants placed no admissible evidence before the court to prove a loss. An attempt to rely on a witness of fact to “prove” the value of something was misconceived.  This demonstrates the dangers of not identifying the fact that a witness of fact is attempting to give expert evidence.

“…there is no admissible evidence of any loss.”

THE CASE

The liquidators of a company were seeking compensation following the liquidation of a construction company. They alleged breach of fiduciary duty when the directors of the company executed two deeds of release shortly before the company ceased trading.

A STALE CLAIM

HHJ PAUL MATTHEWS observed that this was a stale claim.

  1. As I have said, this claim was issued on 23 May 2016. The deed of release in relation to Bersted Green is dated 14 May 2010, and that relating to Farnborough is dated 20 May 2010. No point is taken on limitation, but on any view these are stale claims. The dangers of leaving claims until the last minute are vividly illustrated here by the fact that I must resolve this dispute without the evidence of Mr Keith, who was intimately concerned in it. In addition, of course, memories dim over time and the accuracy of recollection can be compromised. On a number of important occasions during the evidence the answer given to a particular question was “I do not remember”. This is inevitable when witnesses are being asked to recall events now some 8 years and more ago

THE JUDGE’S FINDINGS: NO BREACH OF DUTY

The judge found that there was no breach of duty. The defendant director made mistakes but did not breach his fiduciary duties.

PROVING LOSS AND PROVING CAUSATION

However it is the part of the judgment that deals with whether the applicants could have proven causation and loss that is of the most interest.

    1. Even if entering into these deeds had been a breach of his duties, it would still have been necessary to show that any losses suffered by the company were caused by those breaches, As Lord Browne-Wilkinson said in Target Holdings Ltd v Redferns [1996] AC 421, 439A-B,
“Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach.” (See also AIB Group (UK) plc v Mark Redler & Co Solicitors [2015] AC 1503, [136]).
  1. But I am not persuaded that the entry into the deeds of release caused any of the losses of which the company complains. In relation to the loss of the value of the contracts themselves, all of the company’s contracts went out to the market to see what interest there was amongst other contractors, and the only interest shown was that of Core Interspace. But that company made bids which were much higher than anyone else, which it is not shown that it could afford to pay, or that it had the finances to do the work necessary under the contracts, or indeed that that company would have been acceptable to an employer. A final point is that, because the company had already ceased work under the contracts from 10 May 2010, on the evidence before me the company was in breach, and the employer companies could have terminated the contracts anyway. Accordingly, even if the deeds of release had not been executed, the company cannot be shown to have lost anything of value. In relation to the loss of the “equity” due to the company, as I have already said, there is no admissible evidence of any loss.

“NO ADMISSIBLE EVIDENCE”

The applicants were litigating without any expert evidence to establish the value of what claimed the company had lost.  They had evidence from someone who was involved on behalf of the administrators to attempt to realise the assets. The witness, Mr Edgington, was called as a witness of fact.

    1. The claims made by the applicants in these proceedings include not only a claim for the loss of the value which these two contracts represented to the company if they were novated to a third party, but also a claim for the loss of the rights to payments due under the contract at the time that the deeds of release were entered into. The only evidence of the value of these rights is contained in the first witness statement of Mr Edginton.
    2. At paragraphs 13 and 14 he says this in relation to the Bersted Green contract:
“13. With a Contract Sum of £1.73 million, the Company had completed approximately £270,000 of work, representing 16% of the value of the contract. Accordingly, there was approximately £1.46 million remaining in value for an interested party to potentially take over under a novation of the contract, plus £105,268 of assessed equity in the contract, comprising £100,000 of applications and the £5268 of contract retention held by Health Investments in respect of work already valued and certified by their consultants.
14. The £105,268 of assessed equity in the New Health Centre Contract was detailed in our Initial Report Schedule as appears at pages 3 to 4. This had been reduced by some of £18,000 from the Company’s earlier assessment of £123,268 based on advice I received from the Company’s surveyor Jimmy Marsh that the Company’s application was potentially over estimated by this value. Accordingly, although the Company’s perceived equity in the contract could arguably be the higher figure of £123,268, the reduced account at £105,268 was a reasonable valuation assessment of the company’s equity on the contract at that time.”
    1. There is a similar analysis in the first witness statement of Mr Edginton in relation to the Farnborough contract. At paragraphs 24 and 25 he says this:
“24. With a contract sum of £3.74 million, the Company had completed approximately £2.25 million of work, representing 60% of the value in the Aparthotel Contract. Accordingly, there was approximately £1.49 million remaining in turnover value for an interested party to potentially take over the contract by novation, plus £453,661 of assessed equity owed, comprising £359,064 on applications for payment and also £94,547 of contract retention held by IPC [the employer] against were previously valued and certified by their consultants.
25. The £453,610 of equity is detailed in our Initial Report Schedule [3 to 4], however, this was after we had reduced the account by hundred and £36,195 in our assessment, because we had been advised by the Company that the Company’s application could potentially be over estimated by a sum of £50,000 and, further, because we assessed it could be prejudiced by unpaid kitchen materials over which the supplier may have a valid retention of title of up to £64,000 and also other items. Accordingly, whilst the Company’s perceived equity in the contract could arguably have been considerably higher than our reported assessment at a sum of £589,805, the reduced account at £453,610 was a reasonable valuation assessment of the company’s equity on the contract at that time”.
  1. The problem is that this evidence is plainly of an assessment by Mr Edginton of what is or may be due under the terms of contracts of which there are no copies before the court, by virtue of two procedures under those contracts. The first is the procedure for interim payments becoming due by way of applications made in respect of work done. The second is in respect of retentions made from payments otherwise previously made. As to the first, as I understand the matter, when an application is made under the contract that sum does not automatically become due. It has to be checked and certified, normally by the employer’s quantity surveyor. Sometimes inflated applications are made, or indeed applications may be made for work that has not been done. The applications appeared not yet to have been certified by the employers’ quantity surveyors. The evidence of Mr Edginton is plainly his “assessment” of the value of the rights to interim payments upon applications made. He refers in each case to “assessed equity”, where “equity” refers to an amount payable under the contract to the contractor, but not yet paid. In making his assessment, he is applying his own opinion as an experienced surveyor, although he did not attend the sites and inspect the work done.
  2. But the real problem is that, even assuming that he has the appropriate expertise, Mr Edginton, being a witness of fact in a heavily contested application, is not the appropriate person to act as an expert witness as well: see Re Continental Assurance Company of London plc [2001] BPIR 733, [327]; Re Colt Telecom Group plc (No 2) [2003] BPIR 324, [80]. In addition, as I have already said, no permission had been given for expert opinion evidence to be adduced, and neither was any application made at trial for this purpose. Accordingly, I hold that there is no admissible evidence in this case of the value of the rights to payments under the contracts (the “equity”) at the time that those contracts were discharged by the deeds of release. In these circumstances, I am unable to find that the “equity” due to the company in respect of each of these two contracts had any value at all.
  3. Mr Brockman, for the respondent, sought to take a similar point about admissibility in relation to the evidence of the respondent himself as to the value that he and his fellow directors placed on the two contracts themselves. I asked him whether he objected to the applicants relying on the respondent’s evidence on this point and he said that he did. But, as it seems to me, the point here is rather different. The first thing is that it was the respondent himself who put this evidence forward, not the applicants. So I doubt it lies in Mr Brockman’s mouth now to object the admissibility of that which his own client puts forward. But the second, and to my mind more important, point is that what the respondent was putting forward was evidence of what someone (ie himself and his fellow directors) would pay in order to novate these contracts. That is not giving an expert opinion about anything. In essence it is exactly the same as the reliance placed by the applicants on the bid by Core Interspace. Evidence of what someone will pay for a good is evidence of its value. So I reject Mr Brockman’s point on the admissibility of the respondent’s statements about what they would pay to novate the contracts.”