Sir Martin Nourse
Introduction and background
The claimant, Bernie Joel, alleges that, by reason of negligent advice given to him by the defendants, a firm of certified chartered accountants, over the sale of his shares in a small private company, he incurred a liability to capital gains tax of £90,165 which he would not have incurred had he been properly advised. After a four day trial, His Honour Judge Hutton, sitting as a judge of the Queen’s Bench Division, found as a fact that the defendants had not been retained to advise the claimant in relation to the sale. On that ground, without deciding any of the other questions in issue, he dismissed the action. The judge having refused permission to appeal, permission was granted by Lord Justice Jonathan Parker.
Shortly stated, section 163 of the Taxation of Chargeable Gains Act 1992 gives relief (known as “retirement relief”) from capital gains tax where an individual aged 50 or more disposes of shares in a trading company in which he has not less than 5% of the voting rights and of which, at the date of the disposal, he is a full time working officer or employee. The effect of section 28(1) of the Act is that, in the case of an unconditional sale of shares, the disposal is made at the time that the agreement for sale is entered into. For present purposes, the most significant of the statutory requirements is that the individual should be a full time working officer or employee of the company at the date of the disposal.
The claimant, who was born in 1944, is a former black cab taxi driver. In the 1980s he and his partner, Brian Conroy, set up two companies, UK Taxis Services Ltd (1988) and UK Taxi (Agency) Ltd 1982, which were engaged in providing finance for the purchase of black cabs. In 1989 there was a merger between those companies and a company called KPM Autos Ltd, which was in the business of servicing and repairing black cabs. (The merged company, KPM UK Taxis Ltd, is hereafter referred to as “the Company”). Following the merger, the Company had five directors: Peter Harvey Da Costa, Michael Troullis and Keith Leonard Marder (all of whom had been directors of KPM Autos Ltd), the claimant and Mr Conroy. Each of them, directly or indirectly, held shares in the Company. The claimant originally held 10,000 shares but his holding was increased to 12,500 when Mr Conroy left the Company in 1996. The Company has been described as providing a one-stop service for cab drivers, selling new and second-hand cabs, servicing and repairing them and arranging insurance and finance. The judge said that it seemed to have been a very successful and profitable company. In 1997 it had a turnover of approximately £24m. Mr Da Costa said in evidence that it might possibly have had a value of £6m at that time.
For many years prior to the merger Melvyn Samuel Langley had acted as accountant and auditor to KPM Autos Ltd and after the merger he acted in those capacities for the Company. In 1993 he formed and became senior partner of the defendant firm. From the fiscal year 1989/1990 onwards he prepared annual income tax returns for both the claimant and his wife, Hilary Joel. He performed similar services for Mr Conroy while he was with the Company.
From the time of Mr Conroy’s departure the directors were Mr Da Costa, Mr Troullis, Mr Marder and the claimant, whose 12,500 shares represented 25% of the Company’s issued capital and carried 25% of the voting rights. The claimant was in charge of the sales department, in which his son, Trevor, was employed as a sales manager. Mr Da Costa said in evidence that in the latter half of 1997 he became increasingly convinced that Trevor Joel was defrauding the Company by making secret commissions on sales of second-hand vehicles. Accordingly, at the end of November of that year, he asked Mr Langley to carry out a full investigation of the sales department in the course of the defendant firm’s forthcoming audit of the Company’s accounts. Mr Da Costa said that on 19th January 1998 the two members of the firm who were conducting the audit came to investigate the sales department, to whose members it soon became apparent that a fraud investigation was being carried out. After what Mr Da Costa described as an ugly incident (denied by the claimant), in which the claimant threatened one of the auditors physically in the showroom, Trevor Joel failed to return to work. He formally resigned from the Company’s employment by a solicitor’s letter dated 26th January. Much later, on 20th October 1998, the defendants wrote to Mr Da Costa, informing him of their conclusion that the irregularities were likely to be of a very small and non-material nature and advising that the investigation should be abandoned. Mr Da Costa agreed in evidence that he had made no allegations against the claimant himself.
Evidence of the material events
Such was the background to the material events, which took place between Friday 23rd and Saturday 31st January 1998. In relation to those events the judge made very few findings and scarcely reviewed the evidence. That makes it necessary for it to be closely examined by this court.
The evidence consisted of the following. There were two witness statements by the claimant himself and one each by Mrs Joel and their daughter, Melanie. On the other side, there were witness statements by Mr Langley, Mr Da Costa and Mr Marder. With the exception of Mr Langley, each of those witnesses gave oral evidence. In addition, the claimant’s solicitor, Simon Paul Richard Vivian, whose witness statement had been confined to an isolated matter, gave oral evidence as to some of the material events. There was also documentary evidence, some of it of great importance.
Mr Langley’s statement
The reason why Mr Langley did not give oral evidence was that the judge ruled, on the basis of psychiatric evidence given at the trial, that he was unfit to do so. The judge therefore allowed his statement to be adduced in evidence “for what that was worth”. He continued:
.... Dr Pfeffer’s opinion was that the statement which had been taken at an early stage in Mr Langley’s depression, before his condition had considerably worsened to its present state, and if taken in a calm way to avoid agitation, could well be an accurate statement. But of course I realise that, in so far as I pay regard to that statement, it has not been tested in cross-examination.
With respect to the judge, his summary of Dr Pfeffer’s evidence about Mr Langley’s statement was not as full as it might have been. During Dr Pfeffer’s cross-examination the judge asked him what he thought of Mr Langley’s ability to make an accurate and worthwhile statement of twelve pages long in December 2000, some five months before the trial. Dr Pfeffer answered:
I think it depends upon the situation. If it is done in a relatively stress free situation with plenty of time it is going to be more accurate than it would be under cross-examination. Having said that, if he was on no medication at all and not at all depressed it might be even more accurate in those situations.
Later in the cross-examination there were the following exchanges between the witness and counsel:
In re-examination it was put to Dr Pfeffer that a distinction had to be made between the reliability of Mr Langley’s evidence if given in documentary form taken in stress free circumstances and the reliability of his evidence if he was put in the box and asked questions. Dr Pfeffer answered:
Because there are different factors involved. I mean his evidence is going to be possibly less reliable for anybody who is depressed and on medication. If someone adds the further stress of being cross-examined it becomes even less reliable.
Friday 23rd January
The evidence as to the material events must now be summarised, day by day. In his witness statement Mr Marder said that on 23rd January he had a conversation with the claimant, in which he said that he was going to leave the Company; that he wanted a month’s pay, private health insurance until he was 55 and £300,000 for his shares; that he wanted the Company to leave Trevor alone; and that he wanted to have a think about everything over the weekend and discuss matters with his wife. In cross-examination the claimant agreed with that evidence, except that he denied that he had told Mr Marder that he wanted the Company to leave Trevor alone.
Monday 26th January
There was a dispute as to what happened on 26th January. In his first witness statement the claimant said that he met Mr Da Costa and Mr Marder at the Company’s offices at around 9.00 am, when it was agreed in principle that he would resign as a director and employee of the Company and that the Company would buy back his shares for £300,000. He added that Mr Da Costa informed him that he would arrange a meeting for him on Wednesday 28th January with Mr Langley, who would provide tax advice both to him and to the Company in relation to the buy back of shares. The claimant said that after that meeting he went home. In their witness statements both Mr Da Costa and Mr Marder said that the claimant came into work on 26th January but said nothing about leaving the Company or about his discussion with Mr Marder on 23rd January. They said that there was no meeting on 26th January and Mr Marder added that the claimant worked normal hours that day. Each of the three witnesses maintained his position in cross-examination.
Tuesday 27th January
So there was a conflict of evidence as to whether or not there was a meeting on 26th January. However, all three witnesses agreed that there was one on 27th January. Such a meeting was not mentioned in either of the claimant’s witness statements and it seems possible that he had confused the two dates. In any event, there was a measure of agreement as to the meeting on 27th January. It was convened by Mr Da Costa. It started in mid-afternoon or later and went on for some time; the claimant’s estimate being an hour to an hour and a half, Mr Da Costa’s “something like three hours” and Mr Marder’s “some hours”. The terms for the claimant’s departure from the Company which he had put forward on 23rd January were agreed in principle. Mr Da Costa said that it was not “a done deal”. He said that it was subject to the approval of Mr Troullis, who was away in Scotland for the week, and to clearance by the Inland Revenue. Mr Marder said that it was subject to the tax implications for the Company and for the claimant. He said nothing about Mr Troullis.
Of the points on which there were conflicts of evidence, the most acute was in relation to the claimant’s assertion that Mr Da Costa told him that he had made an appointment for him to see Mr Langley at 2.30 pm on the following day. Both Mr Da Costa and Mr Marder strongly refuted that assertion. The claimant also said that he was handed a draft letter of resignation from the Company. Mr Da Costa said that he was not handed the draft until the following morning, but Mr Marder agreed with the claimant who, he said, wished to take it home to discuss with his wife overnight.
The draft letter was dated 28th January and addressed to Mr Da Costa at the Company’s address. It read:
It is with the utmost regret that I must tender my resignation with the Company as I have been advised by my Doctor to take complete rest for an unspecified period of time and I feel that I would not be doing the Company justice by staying.
For consideration of my shares I require the following:-
I will be leaving today and wish everybody well for the future.
Wednesday 28th January
It is in regard to the events of 28th January that the conflict of evidence between the claimant on the one hand and Mr Da Costa and Mr Marder on the other was the most striking. Although a resolution of the conflict is not directly material to the determination of the issues between the claimant and the defendants, it seems possible that the judge attached importance to the matter in assessing the claimant’s credibility.
Both Mr Da Costa and Mr Marder maintained that there was a further meeting between them and the claimant at about 9.30 am on 28th January; a short meeting, at which the claimant formally resigned as a director. The claimant, on the other hand, was adamant that he did not attend the Company’s premises on that day; that he remained at home during the morning; and that he left at about 1.00 pm to drive to Mr Langley’s office in East Finchley. His evidence was confirmed by Mrs Joel and Melanie. When Mrs Joel was asked in cross-examination why she had a specific recollection of what the claimant was doing that day, she answered:
Right, mainly because it was a particularly traumatic week for our family, obviously, because of all this, and also the build up to the week. Obviously, my husband and I spoke about it over the weekend previously. So it was on our minds. It was very fresh. So that time was very fresh to me.
In cross-examination Melanie, when asked a similar question, said that she knew that the claimant was at home that morning because at that time her day off from work was a Wednesday. When pressed, she maintained that position.
The claimant also produced the BT log of calls made from his home telephone number, which showed that on 28th January two calls were made to Mr Langley’s office number, the first timed at 12.08 pm and lasting 4 minutes and 20 seconds and the second timed at 12.34 pm and lasting 2 minutes and 45 seconds. The claimant said that both calls were made by him to Mr Langley; the first to make sure that the appointment was at the time that Mr Da Costa had told him it would be (roundabout 2.30 pm) and the second to ask whether he had to bring any papers with him.
At 1.08 pm on 28th January Mr Da Costa faxed to Mr Langley at his office a letter bearing that date, which read:
Please find enclosed letters and minutes of a Board Meeting carried out today on the resignation of Bernie Joel from our Company.
The letters enclosed are self-explanatory.
The letter bore a manuscript PS, which read:
I have not given him my reply letter as he did not sign his.
Two letters were enclosed: the draft of the claimant’s resignation letter (para 14 above) and the draft of a letter also dated 28th January from Mr Da Costa to the claimant, which read:
It is with deep sorrow that I accept your resignation on behalf of the Company.
I have noted your request and have passed that request on to Melvin Langley the Company Auditor, to get clarification and acceptance from the Inland Revenue to deal with your wishes.
On behalf of the whole Board we wish you well in the future.
Also enclosed were draft minutes of a meeting of the board held on 28th January at 9.30 am, at which those present were stated to have been Mr Marder, Mr Da Costa and the claimant. The minutes read:
Bernie Joel resigned his position as a Director of the Company today which was accepted by the Board.
The claimant’s meeting with Mr Langley
The crucial event in the action was the meeting between the claimant and Mr Langley on the afternoon of 28th January. In his first witness statement the claimant said that he met Mr Langley at his office at around 2.00 pm in order to discuss the tax issues associated with his intended resignation from the Company and the buy back of shares by the Company. He said that Mr Langley who, it was clear to him was already fully advised of his intention to resign and sell his shares by way of the buy back, said “I will look after the tax for you” on the sale of the shares. The claimant said that Mr Langley advised him to sign the letter of resignation in the terms of the draft, and that the first £250,000 was free of tax and that the next £50,000 would be subject to 40% capital gains tax.
In his witness statement Mr Langley said that on the morning of 28th January he received a telephone call from Mr Da Costa, who told him that the claimant had resigned as a director, that the board had both accepted and recorded his resignation, that minutes had been prepared and would be sent to him and that a price of £300,000 had been agreed with the claimant for his shares. Mr Langley said that that was the first time that he had heard of the claimant’s resignation and he denied that Mr Da Costa made an appointment for him to see the claimant. Having referred to his receipt of Mr Da Costa’s faxed letter of that date and the enclosures, Mr Langley said he was certain that the appointment for the claimant to see him was made by telephoning his secretary because it was her handwriting in his diary.
Mr Langley continued:
The meeting with Mr Joel was very brief. He told me that he had resigned as a director and said that he was on his way to see his solicitors. I told him that I knew that he had resigned because I had received a fax of the board minutes earlier in the day. I also said that it was apparent from the fax that I had received that an agreement had been reached about his shares and that he should now discuss the way forward with his solicitors. I told him that I could obviously not deal with the matter for him because I was not independent. I did not offer him any advice at this meeting and I did not advise him to sign the letter which I had received from Peter or any other documents. It was not my place to advise him on what appeared to be a concluded agreement about his shares, particularly as he told me that he was happy about the outcome of his meeting with Peter. He expressed some personal animosity towards Peter and said that he was glad that he was leaving. There was no discussion about any formalities. The whole encounter lasted about five minutes.
I am aware that Mr Joel claims that I expressly agreed with him that Langley & Partners would handle ‘all the tax ramifications’ associated with Mr Joel’s sale of his shares to KPM. This is completely untrue and I deny anything of the sort. I am also aware that Mr Joel claims that I advised him that £250,000 of the £300,000 that he would receive for his shares would be free of tax. This too is absolutely untrue and I deny that I said anything of the sort ....
After Mr Joel left, I spent the afternoon reviewing the work Langley & Partners had carried out to date on the fraud investigation. I also spoke to Peter Da Costa on the telephone about the situation generally.
Mr Langley’s witness statement was served on 9th April 2001. The claimant’s second witness statement, signed on 27th April 2001, was made in order to answer Mr Langley’s and to give further details of their meeting on the afternoon of 28th January. Having corrected the time of the meeting to 2.30 pm instead of 2.00 pm, the claimant gave a very detailed account of it, saying that several extraneous subjects were discussed, including one of Mr Langley’s clients to whom he spoke on the telephone, Mr Da Costa and his wife, the claimant’s intentions for his retirement, Mr Langley’s house in Marbella, motor cars, a mutual friend called Mike Rose and holidays. The claimant said the meeting ended at about 4.15 pm. He noticed that it was starting to get dark as he had to put the lights on in his car.
The claimant’s account of the meeting included the following:
I told Mr Langley that Da Costa had told me that he (Langley) would sort out my tax for me. Mr Langley replied that he knew that I could not deal with it myself and that he would of course sort it all out so that I would just have to sign on the dotted line ....
He told me not to pay much attention to the draft [resignation] letter and then started to tell me about the effect of retirement relief on the sale of my shares. A lot of what he told me I did not understand but I told him that I was leaving it in his hands to deal with in the way in which he had helped Brian Conroy when he had sold his shares back to the Company.
Mr Langley told me that the first £250,000 I would receive free of tax but that unfortunately I would have to pay tax at 40% on the remaining £50,000 of the total £300,000 consideration. I replied that the additional £50,000 was not really worth having because of all the tax I had to pay on it. He said ‘Leave it all to me I will sort everything out’. He said that he would draft a letter to the Inland Revenue and that clearance would take about six weeks. He said that if there were any problems I could give him a call but that it is really very straightforward. I asked him if there were any papers that I had to give him or to sign. He replied that I could leave it all to him and he would see it all through for me.
In cross-examination the claimant gave much the same account of the meeting as he had in his second witness statement, including reference to most of the extraneous subjects above referred to.
Thursday 29th January
On 29th January Mr Langley faxed a letter to Mr Da Costa in the following terms:
I am in receipt of your fax timed 13.07 pm 28 January.
I have spoken to Bernie and in order to resolve the position on the proviso that you are happy with the contents of the letter dated 28 January addressed to yourself, then may I suggest that Bernie attends the office and both of you sign the letter, ie Bernie sign the letter from him to you and your acceptance by signing a copy of the letter and the both of you handing a copy to each, ie as an exchange for the consideration and agreement. Thereafter, in my opinion, this will be binding upon both parties.
In his witness statement Mr Da Costa said that after receiving Mr Langley’s faxed letter of 29th January he discussed the draft of the Company’s acceptance letter with Mr Langley, who told him that it was not phrased quite as it should be and that the proposal regarding the claimant’s shares had to be phrased as a request subject to Inland Revenue clearance.
Saturday 31st January
Mr Da Costa’s statement continued:
On Saturday 31 January 1998, Bernie came back to the office to collect his personal belongings. Earlier that morning, I had prepared new letters .... in accordance with what Melvyn had told me. I drafted Bernie’s letter as if it had been written and signed on 28th January 1998 to represent the fact that he had actually resigned on that day. Accordingly, it said ‘I will be leaving today’ and ‘I will be asking Melvyn Langley to act for me in this transaction’ and it was dated 28 January rather than 31 January.
It is agreed that on 31st January the claimant went for the last time to the Company's’premises, where he met Mr Da Costa and Mr Marder. The letters signed by the claimant and Mr Da Costa respectively on that day were each in a different form from the draft originally proposed. Thus to the first paragraph of the claimant’s letter were added the words ‘I will be leaving today and I would like February’s salary in lieu of notice’. The letter continued:
For consideration of the Company to buy back my shareholding I require the following:-
I will be asking Melvyn Langley to act for me in this transaction, I wish everyone well for the future.
The significant alteration to that letter was the addition of the sentence ‘I will be asking Melvyn Langley to act for me in this transaction’. In his witness statement Mr Langley, having said that he did not see the two letters before they were signed, said that he did not know why that sentence was added to the claimant’s letter. That question appears to have been answered in the passage from Mr Da Costa’s witness statement quoted in para 26 above, where he said that the new letters were prepared in accordance with what Mr Langley had told him.
The letter signed by Mr Da Costa on 31st January was headed ‘Without prejudice’. It read:
It is with deep sorrow that I accept your resignation on behalf of the Board. You will be paid February’s salary as requested in lieu of notice, and I have passed on to Melvin Langley, the Company Auditor your request regarding the purchase back by the Company of your shares also your request for the Company to pay your Private Health Plan until you are 55.
As soon as Melvyn gets clarification and acceptance from the Inland Revenue the Board will consider your offer.
On behalf of the whole Board we wish well in the future.
It is clear that after 31st January the claimant was no longer a full time working officer or employee of the Company. In due course the Company applied for and obtained from the Inland Revenue an advance clearance under the material provisions of the Income and Corporation Taxes Act 1988 for the purchase by the Company of its own shares. We were assured by counsel that the transaction gave rise to no problems under the current companies legislation. Eventually, in circumstances which need not be explored, a binding agreement was entered into for the sale and purchase of the shares at the lower price of £250,000. But because there was no such agreement on 31st January and by the time that one was entered into the claimant was no longer a full time working officer or employee of the Company, the Inland Revenue declined to allow him retirement relief, the amount of the tax being assessed at £90,165 and duly paid. The claimant seeks to visit that loss on the defendants.
The trial and the judgment below
The trial started on Monday 30th April 2001. The first day was taken up with Miss Allan’s opening on behalf of the claimant, her application to cross-examine Dr Pfeffer, which was granted, and Mrs Talbot-Rice’s application on behalf of the defendants for the question of causation to be tried as a preliminary issue, which was refused. The second and third days were taken up with evidence, including Dr Pfeffer’s. An application by Miss Allan to exclude Mr Langley’s witness statement was refused. That was on the second day. At the beginning of the third day the judge said that he would allow only another half hour for the claimant to be cross-examined by Mrs Talbot-Rice. At the end of the evidence the judge asked her whether she was not making the case more complicated than necessary, saying that it was a short issue of fact. He then gave directions for the timing of closing submissions on the following day, Thursday 3rd May. Submissions were concluded by the end of that day. The judge gave judgment at 2.00 pm on Friday 4th May.
The transcript of the judge’s judgment covers no more than eight and a half pages. It starts by setting out the nature of the claim and the defence and the background facts, in the course of which the judge observed that the defendants had acted for the claimant and his wife on their annual income tax returns from the date of the merger, but that Mr Langley had said that he could no longer act for the claimant on advice as to tax matters as well as advising the Company, ‘because there was the obvious possibility of a conflict of interest’. The judge then referred to section 163 of the 1992 Act, pointing out that it was a condition of the relief that the shares were sold while the claimant was still employed by the Company, who therefore had to prove a legally enforceable contract to sell them before, or at least at the same moment, as his ceasing to be employed by the Company. The judge added that on the evidence he was sure that the claimant was not aware of that important provision; Mr Langley, on the other hand, certainly should have been aware of it.
The judge said that the alleged retainer was categorically denied by the defendant firm and Mr Langley, though they did accept that they had been retained for some years by the claimant to advise on his income tax returns while at the same time advising the Company on its tax matters. He continued:
So the issues which I have to decide are whether the defendants had been retained to advise the claimant on his tax matters in respect of his retirement and sale of the shares. If not, his claim against the accountants fails.
Secondly, if he had been so retained, or rather if the defendants had been so retained, were they, in the person of Mr Langley, negligent and/or in breach of their contract with him in failing to advise him not to resign from his employment until he had sold his shares.
Turning to the first of those issues, and pointing out that the burden of proof was on the claimant, the judge said that it was unfortunate that Mr Langley was not available to give oral evidence. Having referred to Dr Pfeffer’s evidence and the ruling he had made, he said that he had, however, heard evidence from Mr Da Costa and Mr Marder, who were clearly giving evidence favourable to Mr Langley and his firm.
The judge then restated the first issue he had to decide and referred to the rival evidence of the claimant and Mr Langley. In dealing with Mr Langley’s evidence he referred to the faxed letter received by Mr Langley from Mr Da Costa on 28th January and the accompanying documents. Having said that there was a complete conflict of evidence between the claimant and Mr Langley, the judge stated his conclusions as follows:
This is an issue of fact which I have to resolve, and it is all important because, depending upon the way that I resolve it, it may result in a complete failure of this action by the claimant.
The facts are given by the evidence of the claimant and on the statement I have referred to by Mr Langley. The evidence is unsupported by documents and I therefore have to decide on what I have got, which is the evidence on oath from the claimant and the statement of evidence unsupported by oath from Mr Langley.
Having considered this matter carefully, I find that I am not satisfied, on the balance of probabilities, of the truthfulness of the claimant’s evidence. I have some doubt as to the veracity of Mr Langley in view of the allegations of misconduct which of course have not been proved, although his statement has not been tested in cross-examination. But the balance of proof is upon the claimant. I have heard his evidence. I am not impressed by his truthfulness. I am quite satisfied on Mr Langley’s account as to the date of this incident because of the fax typing on the top of the documents. I reject the suggestion that Mr Langley could in some way have faked those letters and figures. Therefore I am satisfied as to the date of the incident, but I am not satisfied on what the claimant says occurred.
Therefore, on the balance of probabilities, I am not satisfied that he has proved the first limb of his claim, that at the material time Mr Langley and therefore his firm was acting for him, and therefore his whole claim fails in limine. It is unnecessary therefore for me to make any other findings as to when the sale of the shares was complete and when he actually stopped working for KPM. There will therefore be judgment for the defendants.
Quite apart from the judge’s omission to discuss the evidence, much of it conflicting, that had emerged from seven witness statements, two days of oral evidence and some important documents, that decisive passage in his judgment raises two serious problems.
First, the judge said that the evidence, by which he clearly meant the claimant’s evidence as to the retainer, was unsupported by documents. Unless he was referring only to Mr Langley’s omission to make a contemporaneous attendance note of the meeting on the afternoon of 28th January, that was plainly incorrect. Secondly, the judge, having said that he was not impressed by the claimant’s truthfulness, said that he was quite satisfied on Mr Langley’s account “as to the date of this incident because of the faxed typing on the top of the documents”. Read literally, that observation was entirely beside the point. There was never any doubt or dispute as to the date on which the meeting between the claimant and Mr Langley took place. There was some discussion before us as to what the judge can have meant. It was suggested that he intended to find that there was, as Mr Da Costa and Mr Marder asserted and the claimant denied, a meeting at the Company’s premises at about 9.30 am 28th January. If that is what he intended, he expressed himself in a most obscure way. Each of these problems must be dealt with in turn.
Miss Allan relied on six documents in support of the claimant’s case on the retainer, two of which have already been referred to. In date order they were the following:
Mr Langley’s office engagement diary for 28th January. Here there is an entry in his secretary’s handwriting, which reads ‘2.30 Bernie Joel 551-3931’. That was the claimant’s telephone number. There is then an entry in larger and different writing, which reads ‘2 KPM’. It was the general view before us that the second entry signified that two hours of Mr Langley’s time was to be charged to the Company. In his witness statement he said that after his meeting with the claimant he spent the afternoon reviewing the work the defendant firm had carried out to date on the fraud investigation. But in the light of the claimant’s very detailed account of a meeting lasting nearly two hours Miss Allan submitted that that contested explanation should be rejected. She submitted that the entry was entirely consistent with the claimant’s version of events and that there would have been nothing untoward in the Company’s being charged for Mr Langley’s time.
Mr Langley’s letter to Mr Da Costa dated 29th January (para 24 above). Miss Allan submitted that this letter is consistent both with Mr Langley’s acting for the claimant at the material time and with the view that, contrary to what Mr Langley said in his witness statement, there was at that stage no concluded agreement as to the sale of the claimant’s shares.
The resignation letter signed by the claimant on 31st January (para 27 above). Miss Allan relied strongly on Mr Da Costa’s evidence that he had prepared the new resignation and acceptance letters in accordance with what Mr Langley had told him. In the light of that evidence she submitted that Mr Langley’s untested statement that he did not know why the sentence ‘I will be asking Melvyn Langley to act for me in this transaction’ was added to the claimant’s letter was worthless. Indeed, she submitted that no reason had been proffered on the defendants’ side to explain why Mr Da Costa should have included that sentence without Mr Langley’s advice that he should do so.
A letter dated 6th February from Mr Vivian (the claimant’s solicitor) to Mr Langley. The material part of this letter, which was headed ‘Without prejudice’, read as follows:
As I had mentioned on the telephone on Tuesday [3rd February], I am acting for Bernie Joel who has asked me to assist in connection with finalising his exit from KPM UK Taxis Plc. My understanding is that it has been agreed between Peter Da Costa and Bernie Joel that the price payable for Bernie Joel’s shares in KPM UK Taxis Plc will be £300,000, and I am pleased to note that you have instigated an application for retirement relief clearance in relation to the repurchase of shares by the company.
Miss Allan submitted that this letter confirmed that Mr Langley had been acting for the claimant and had undertaken to apply on his behalf for retirement relief. In cross-examination Mr Vivian accepted that a claim for retirement relief was made in the taxpayer’s annual return and that a separate application was unnecessary. It was suggested to him that what Mr Langley had told him on the telephone on 3rd February was that an application had been made on behalf of the Company for Inland Revenue clearance. However, Mr Vivian several times repeated his understanding that the defendant firm were the claimant’s personal accountants at that time. He added:
I would comment that it is extremely usual for the accountants to a small company to also deal with the personal tax affairs of all the directors and shareholders of that company, and the fact that one of them is ceasing to be a director and shareholder does not mean that the accountants will not carry on acting for the individual in a personal capacity.
A fee note dated 26th March 1998 in the sum of £211.50 rendered by the defendant firm to the claimant, together with a pro forma check-list and covering letter. The fee note was expressed as follows:
To Professional Services:
Interim fee re collation and processing of your self assessment tax return and supporting schedules for the tax year ending 5 April 1998.
In his witness statement Mr Langley said that the sending of the check-list and the fee note was simply a standard procedure adopted for all clients on the firm’s database for whom they had previously acted in relation to tax returns. Miss Allan submitted that this provided decisive support for the view that the defendants were still acting for the claimant in relation to his tax affairs at the end of March 1998 and had been so acting in January of that year. The covering letter asked for the completion and return of the check-list at the earliest opportunity and for payment of the fee note “by return”. There was some confusion as to whether, and if so by whom the fee was paid. The claimant alleged that it was paid by him at the beginning of April 1998, but that was denied by the defendants.
A letter dated 5th May 1998 from Mr Langley to the claimant. This letter read as follows:
I write to advise you that we must cease acting as your tax advisor, as it appears there is and will be a conflict between that as auditors to the company, of which you are a shareholder, and in respect of yourself personally.
Until the conflict is resolved to the mutual satisfaction of all parties, we therefore must put you on formal notice that you should immediately seek the services of another firm of accountants.
I am sorry to write a letter to you in this vein, but you no doubt can appreciate our position.
In his witness statement Mr Langley said of that letter:
That letter might give the impression that Langley & Partners were acting for him up until that date. In hindsight, I should have recorded that I had told Mr Joel that we could no long act for him in January 1998. However, the letter was dictated quickly and I did not appreciate at the time that any significance could be attached to the date on which Mr Joel was informed that we could no longer act for him.
Miss Allan submitted that that untested explanation is, on its face, entirely unsatisfactory and that it cannot detract from the further decisive evidence provided by the letter itself in the context of the other documents relied on. It was to that letter that Lord Justice Jonathan Parker particularly referred when granting the claimant permission to appeal.
Was there a meeting at about 9.30 am on 28th January?
Here I proceed on the speculative assumption that the judge intended to find that there was a meeting at the Company’s premises between Mr Da Costa, Mr Marder and the claimant at about 9.30 am on 28th January. There was certainly evidence, that of Mr Da Costa and Mr Marder, on which such a finding could be made. Equally, there was evidence, that of the claimant, Mrs Joel and Melanie, supported by the BT log, which pointed the other way. Moreover, it could be said that after the extended meeting of the previous day there was no obvious need for another, formal meting and, further, that there would have been nothing improbable in Mr Da Costa’s preparing draft minutes of a meeting purporting to be held on the day on which it had been agreed in principle that the claimant’s retirement would take effect.
Whatever may be the correct view of this question, it is most unsatisfactory that the judge should have made a finding on it, if that is what he did, without any review of the evidence which bore on it. It is even more unsatisfactory that he should have made that finding, as he appears to have done, the basis of his dissatisfaction with the claimant’s evidence on the retainer issue, to which, as Miss Allan submitted, it was peripheral.
Can the judge’s decision as to the retainer be upheld?
The judge arrived at his decision because he was not satisfied of the truthfulness of the claimant’s evidence. He said that the balance of proof was on the claimant; that he had heard his evidence; and that he was not impressed by his truthfulness. We were referred to a number of well known authorities dealing with the circumstances in which an appellate court is at liberty to reverse a finding of fact by the trial judge based on his assessment of the truthfulness of a material witness. The most helpful authority in present circumstances is Yuill v Yuill  P. 15, which was approved by the House of Lords in Watt or Thomas v. Thomas  AC 484. In the former case, at p. 19, Lord Greene MR said:
We were reminded of certain well-known observations in the House of Lords dealing with the position of an appellate court when the judgment of the trial judge has been based in whole or in part on his opinion of the demeanour of witnesses. It can, of course, only be on the rarest occasions, and in circumstances where the appellate court is convinced by the plainest considerations, that it would be justified in finding that the trial judge had formed a wrong opinion. But when the court is so convinced it is, in my opinion, entitled and indeed bound to give effect to its conviction. It has never been laid down by the House of Lords that an appellate court has no power to take this course .... I may further point out that an impression as to the demeanour of a witness ought not to be adopted by a trial judge without testing it against the whole of the evidence of the witness in question.
In Yuill v Yuill there were no documents against which the oral evidence could be tested. What the Master of the Rolls said was that an impression as to the demeanour of a witness ought not to be adopted by a trial judge without testing it against the whole of the evidence of the witness in question. All the more so, such an impression ought not to be adopted without testing it against all documents which bear directly or indirectly on the issue which is the subject of the oral evidence, an exercise which is part of the everyday experience of trial judges.
In saying that the claimant’s evidence was unsupported by documents, Judge Hutton appears either to have misread or to have misunderstood the documents on which Miss Allan relied. In my judgment, broadly for the reasons advanced by her as I have stated them, those documents, in particular those numbered (3), (5) and (6), combined with the oral evidence of Mr Vivian, convincingly establish that Mr Langley was acting for the claimant in relation to his tax affairs at the material time. Moreover, that view is entirely consistent with the common sense of the matter. Mr Langley had acted for the claimant and Mrs Joel in relation to their tax affairs ever since 1989. While he might have been faced with a conflict of interest if the claimant had asked him to act for him in relation to the terms on which he was to leave the Company, there was no such conflict in his acting for the claimant in relation to a claim for retirement relief, being a claim in which the Company had no interest.
In all the circumstances, applying the test formulated by Lord Greene MR, I find myself convinced by the plainest considerations that the judge formed a wrong opinion as to the truthfulness of the claimant in relation to the retainer issue. That conviction is not disturbed by the consideration that the judge could have found, and perhaps impliedly did find, against the claimant on other issues of fact, in particular the questions whether there was a meeting on the morning of 28th January and whether the claimant’s meeting with Mr Langley on the afternoon of that day was arranged by Mr Da Costa. None of those issues goes to the fundamental question of the retainer, in respect of which the evidence and circumstances appear to me to be overwhelmingly in favour of the claimant. The judge’s decision on that question cannot stand.
We were also referred to authority on a trial judge’s duty to give reasons for his decision, in particular to the recent decision of this court in Flannery v Halifax Estate Agencies Ltd  1 WLR 377. While that principle may well apply to the present case, it is unnecessary to rely on it. Here the judge’s decision must be set aside on the simple ground that it was against the weight of the evidence and plainly wrong.
That makes it necessary to consider the second issue, stated but not decided by the judge, namely did Mr Langley give the claimant negligent advice. The essence of the claimant’s case on this issue was that Mr Langley advised or allowed him to sign the letter of resignation of 31st January (which merely recorded his requirement that the Company should purchase his shares) instead of advising him to enter into a binding agreement for sale before he left the full time employment of the Company. Although Mrs Talbot-Rice submitted that that case was not properly pleaded, I am satisfied that it was and, further, that the trial proceeded on that basis.
In my view it is clear that Mr Langley did give the claimant negligent advice. According to the claimant, Mr Langley advised him to sign whatever letter Mr Da Costa put before him. It is very possible that Mr Langley did not go that far. What is incontestable is that Mr Langley did not, as he ought to have done, advise the claimant not to sign the letter he did sign, that letter having been prepared by Mr Da Costa on Mr Langley’s advice. Nor did Mr Langley, as he ought to have done, advise the claimant that his entitlement to retirement relief was conditional on his entering into a binding agreement for the sale of his shares to the Company before he left its full time employment. In these respects it is clear that Mr Langley’s conduct fell short of that to be expected of a competent accountant acting for a client in the claimant’s situation.
The next question to be decided is whether Mr Langley’s negligence caused the claimant to enter into the transaction effected by the two letters signed on 31st January, being a transaction which did not entitle him to retirement relief on the sales of his shares. In the circumstances related, it is clear that it did and, on the footing that the defendants were duly retained and that Mr Langley gave the claimant negligent advice, the contrary was not suggested. On that footing the defendant’s liability to the claimant in breach of contract would be established.
It is, however, necessary to bear in mind the following observations of Millett LJ in Bristol and West Building Society v Mothew  Ch. 1, at p 10:
In a case of the present kind .... two different questions of causation are involved and it is necessary to distinguish between them. Where a plaintiff claims that he has suffered loss by entering into a transaction as a result of negligent advice or information provided by the defendant, the first question is whether the plaintiff can establish that the defendant’s negligence caused him to enter into the transaction. If he cannot his claim must fail. But if he can, it is not sufficient for him to establish that the transaction caused him loss. He must still show what (if any) part of his loss is attributable to the defendant’s negligence. This is usually treated as a question of the measure of damages rather than causation, and for convenience I shall so treat it in this judgment, but it must be acknowledged that it involves questions of causation.
I will revert to those observations later in this judgment.
What course ought this court to adopt?
On the footing, as I have held, that the judge’s decision on the retainer issue must be set aside, it is necessary to consider what course this court should adopt. Can we ourselves find that Mr Langley was duly retained by the claimant or must we order a retrial on that issue? Certainly, it must be rare for an appellate court to make a finding in accordance with the evidence of a witness with the truthfulness of whose evidence the trial judge has been dissatisfied and whose evidence has not been heard by the appellate court. But here the documentary evidence and the common sense of the matter are so compelling that it is in my view inconceivable that a retrial would result in anything other than a verdict for the claimant on the retainer issue. In the circumstances, and since there can be no dispute as to the negligence issue and the main causation issue, I think that this court is entitled and indeed bound to enter a verdict for the claimant on liability. Beyond that, without the agreement of both sides, we cannot go. Unless the parties can dispose of the matter by agreement an inquiry as to damages must be ordered.
Mrs Talbot-Rice submitted that, even if Mr Langley did give negligent advice which caused the claimant to enter into a loss-making transaction, the loss was not caused by that advice. It is therefore clear, as Millett LJ envisaged might be likely in this type of case, that the inquiry as to damages will necessarily raise questions of causation. It is not for us to decide those questions. However, since we heard argument on some of them, it may be helpful to the parties and the judge who takes the inquiry for some provisional views to be expressed.
Mrs Talbot-Rice submitted, correctly, that for the claimant to qualify for retirement relief it would have been necessary for him to be a full time working officer or employee of the Company on the date of the agreement for sale. She then submitted that the claimant’s last day of full time employment by the Company was 27th January, so that by the time he went to see Mr Langley on the afternoon of 28th January the retirement relief had been lost and Mr Langley could have done nothing to regain it.
In my view the correct analysis is that there was no binding agreement between the parties until the exchange of letters on 31st January. Mr Da Costa said that the agreement arrived at on 27th January was an agreement in principle and not “a done deal”. That is confirmed by his manuscript PS on his letter to Mr Langley of 28th January “I have not given him my reply letter as he did not sign his”. Accordingly, no binding agreement had come into existence when the claimant went to see Mr Langley. Equally, his resignation as a director can only have been conditional on the agreement as to the terms on which he was to leave the Company. Mr Langley’s letter to Mr Da Costa of 29th January clearly envisaged that the agreement would not be binding until there had been an exchange of signed letters. That did not take place until 31st January.
The suggestion that the claimant ceased to be in the full time employment of the Company on 27th January because that was the last day on which he worked at its premises is unrealistic. His resignation as a director having been conditional, it is only a matter of common sense that his employment was not terminated until 31st January. It is clear that on the afternoon of 28th January it would still have been possible for the claimant to claim retirement relief. Whether, if he had been given the correct advice, the Company would have been willing and able to enter into a binding agreement to purchase the shares before he left its full time employment is perhaps the most important question which would arise on the inquiry. So far there has been little or no evidence on that question. But it is difficult to see why the Company would not have wanted to help the claimant save tax, just as it appears to have done in the case of Mr Conroy.
I would allow the appeal, enter a verdict for the claimant on liability and direct an inquiry as to damages to be taken by a judge of the High Court. The inquiry will also have to cover the claimant’s claim for damages in respect of additional fees paid by him to his solicitors and accountants. The future progress of the case can be discussed with counsel after judgment.
Lord Justice Longmore
Lord Justice Pill
I also agree.
Permission to appeal to the House of Lords was refused.
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