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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Channon v Lindley Johnstone (a firm) [2002] EWCA Civ 353 (20th March, 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/353.html Cite as: [2002] EWCA Civ 353, [2002] Lloyd's Law Rep PN 342

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Channon v Lindley Johnstone (a firm) [2002] EWCA Civ 353 (20th March, 2002)

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION BRISTOL DISTRICT REGISTRY
(His Honour Judge Meston QC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		20th March 2002

Lord Justice Potter :

INTRODUCTION

1. In this case both the claimant and the defendants appeal from the judgment of His Honour Judge Meston QC, sitting as a High Court Judge, given on 24 November 2000 when he awarded the claimant damages for the professional negligence of the defendants, his former solicitors, in relation to their preparation for, and representation of, the claimant at a hearing before District Judge Rutherford on 10 December 1992 in the Bath County Court; and thereafter in prosecuting the claimant’s appeal from the District Judge’s decision which HH Judge Batterbury affirmed. The proceedings concerned the claim of the claimant’s former wife for financial relief following the parties’ divorce. The outcome proved highly unsatisfactory, if not ruinous, to the claimant. In the light of the issues and the contentions of the parties on this appeal, it is necessary to set out the underlying facts in some detail.

THE FACTS

2. The claimant and his wife were both born in 1944, married in 1968 and had two children, a disabled son named Ian, born in 1972 (aged twenty at the first hearing), and a daughter, Kathryn, born in 1976. Thus she was a minor dependent child of the family, aged sixteen at the relevant time. Mr Channon was an engineer, whose main operative company for his own work was called Channon Design Limited. Mrs Channon was a qualified nurse and was working part time towards the end of the marriage. Mr Channon was a chronic diabetic.
3. By the time of the first hearing, the claimant and his wife personally owned two freehold properties in Holcombe. One was the matrimonial home, a jointly owned converted bungalow called ‘Woodlands’, alongside which the claimant also had a quite substantial engineering workshop in which he pursued his career as an engineer/inventor. ‘Woodlands’ was subject to a mortgage in favour of National Westminster Home Loans Limited and also to a second charge in favour of the National Westminster Bank which secured the guaranteed liabilities of his various companies and his personal overdraft. The other property was the next door bungalow called ‘Sylvanook’. It was unoccupied and in need of some repairs. It was free of any mortgage and was in the claimant’s sole name. The other two principal assets available for division were a pension fund called the Bob Channon Executive Pension Trust and a company called Shellcourt Limited (the issued share capital of which was owned as to 99 shares by Mr Channon and as to 1 share by Mrs Channon) which owned two factory units which were commercially let.
4. The marriage broke down in 1991 and Mrs Channon consulted a firm of solicitors called Faulkeners, who wrote to the claimant in May 1991. He turned for advice to Mr Hendey of the defendants who had acted for him in a number of business matters. Mr Hendey’s practice was mainly business and commercial law but he did some matrimonial work for existing clients and he agreed to act. He replied to Faulkeners setting out a summary of the assets and liabilities of the marriage as he understood them and proposed that the claimant should have ‘Woodlands’ and that Mrs Channon should have ‘Sylvanook’, a nominal order being made for maintenance. Agreement was not reached and considerable tension developed over what the claimant thought was his wife’s unreasonable attitude and the view made clear by her solicitors in correspondence that they distrusted the financial disclosure given by Mr Channon. They asserted the complexity of the claimant’s finances and that accountants should be involved.
5. Mrs Channon issued her petition for divorce in January 1992. It included claims for ancillary relief with which she proceeded in April 1992 following cancellation by the claimant of a standing order in her favour. Her affidavit, sworn in April 1992, put the claimant to proof of his earnings, capital and company interests. On 1 May 1992 the claimant swore an affidavit which largely dealt with various conduct allegations raised by his wife, but it also dealt with financial matters. Whether or not (as suggested by Mr Hendey in evidence below) it was intended only for use in expected proceedings for maintenance pending suit, to be supplemented later at the final hearing, the affidavit was insufficiently full or clear in relation to the claimant’s means. Judge Meston described it as having ‘left a lot to be desired both as to content and form. It did not appear to follow any structural scheme to set out income, outgoings, assets and liabilities and other relevant matters’.
6. In August 1992, Mrs Channon, in the light of the claimant’s behaviour towards her, obtained an order excluding the plaintiff from the matrimonial home at ‘Woodlands’, while permitting him access to the workshops and outbuildings. She obtained a decree nisi on 14 October 1992 and, on 10 December 1992, the District Judge heard her application for financial relief. Both parties were represented by counsel; Mr Crabb for the claimant and Mr Evans for Mrs Channon. The District Judge read affidavit evidence and heard oral evidence from both parties. However, he lacked any supplementary or more complete affidavit from the claimant who plainly had a number of deficiencies as a witness. Above all, the District Judge lacked any evidence from an accountant to make clear the true financial picture in relation to the claimant’s income, liquidity and assets reasonably available to provide for his wife. The difficulties to which this gave rise and the context in which Judge Meston held the defendants to have been negligent can best be described by setting out the following passage from his judgment:

“It was very hard to discern on reading the affidavit what Mr Channon’s income was said to be. Lists of regular outgoings were set out in two different paragraphs, some of them in round figures, making no attempt to separate out personal and domestic expenditure from business expenditure. Moreover, those lists would suggest that several likely expenses have been left out. All in all, the affidavit left a confusing and unfair picture of Mr Channon’s circumstances. In preparing that affidavit Mr Hendey did not seek any assistance from Mr Channon’s accountant, Mr Blanning, who had acted for Mr Channon for some considerable time … and who would have been ready and able to assist Mr Hendey, and was willing to do so, despite some unpaid fees …

In the present case there were strong reasons for involving Mr Channon’s accountant from the outset. (1) He had acted for Mr Channon for a number of years and had therefore a good existing knowledge and understanding of his affairs … (2) Mrs Channon’s solicitors had already warned that they expected accountants to be involved, suggesting that they might involve one to assist in the investigation of Mr Channon’s finances. (3) The accountant almost certainly would give a more accurate objective and coherent explanation of Mr Channon’s business activities and finances than Mr Channon himself. (4) Information that came directly from the accountant would be likely to carry more weight than Mr Channon’s own assertions in an affidavit or any submissions to the court from a legal representative. (5) Information from an accountant would minimise the risk of later contradictions or inconsistencies appearing .. [he] .. could have provided the company accounts and draft accounts, a picture of Mr Channon’s income from all sources, a picture of his personal taxation liabilities and of his potential liquidity or liquidity problems. He could also provide an explanation of Capital Gains Tax and other fiscal implications of any particular solution or proposed solution in the case. In particular, it was almost certain that the accountant could have presented the necessary evidence to prevent or rebut the misconceptions and suspicions on the part of Mrs Channon’s advisers as to Mr Channon’s financial position and dealings and dispel their belief that his affairs were more complex than in reality they were. In short … the early involvement of an accountant would .. probably have protected Mr Channon from most, if not all, of the problems and misunderstandings which later emerged. ….. The figures which the accountant provided for the legal aid application which he could have provided for the first substantive hearing would have shown that Mr Channon’s true income could not have been as high as was suggested by counsel for Mrs Channon before the District Judge, and indeed it was also later established in 1995 that Mr Channon’s income at the time was very low indeed. That was established by the accountant figures which he provided to the Inland Revenue who accepted those figures on the basis of the accounts and information then provided ..[which] .. established .. that Mr Channon had no taxable income from Channon Design Limited for the years with which we are concerned in the matrimonial and ancillary relief proceedings.”

7. At the end of July 1992, Mrs Channon’s solicitors had written to say that on the basis of the affidavit sworn by Mr Channon they estimated the net assets to be £220,000 and that Mrs Channon would settle for £115,000, made up of the transfer to her of ‘Sylvanook’, and a lump sum in full settlement of all her claims, taking into account loss of pension rights and termination of her maintenance entitlement. She was also prepared to bear her own costs. She envisaged that the lump sum would be raised by a sale of ‘Sylvanook’ and the factory units belonging to Shellcourt. For reasons which remain obscure, the claimant put the proposal to the bank on the basis that ‘Woodlands’ would be sold rather than Shellcourt’s assets. The bank wrote on 19 August 1992 that, if ‘Woodlands’ were sold, it would want the first mortgage of about £20,000 and other business borrowings of about £44,000 secured by the second charge to be redeemed. So far as Shellcourt was concerned, the bank stated that Shellcourt’s borrowings of £150,000-odd secured by a first charge on the factory units would be permitted to run their course as they were serviced by rental income. Because the net proceeds of the sale of ‘Woodlands’ and ‘Sylvanook’ would not have been enough to meet Mrs Channon’s proposals, because Mr Channon was unwilling to sell ‘Woodlands’ with his workshop in any event, and because the bank would not contemplate allowing him to keep ‘Woodlands’ and borrow more, Mr Channon then contemplated the realisation of Shellcourt’s assets.
8. In September 1992, he sought the advice of Mr Blanning, his accountant, as to the merits of selling Shellcourt or of Shellcourt disposing of its freehold property. Mr Blanning advised that any purchaser would wish to buy the units rather than the shares and that ‘given the current depressed state of the property market’ a sale at £190,000 would be likely, and the bank and the Channons would then be left with an empty shell and shares which were virtually worthless. He stated that, even if the company sold its property for 7½ times current rental value, i.e. £260,000, a suggestion by Mr Channon which he regarded as very unlikely, taxation would reduce the proceeds in the Channons’ hands. He advised that it would be more sensible for all concerned to retain the properties against an upturn in the market and future rent increases which would improve the position. It appears that in the light of that advice Mr Channon, who regarded Shellcourt and its long-term income stream as security for his future and that of his children, became unwilling to sell Shellcourt’s assets. In November, he obtained legal aid and Mr Hendey instructed counsel who held a conference on 16 November with less than four weeks before the hearing date fixed before the District Judge.
9. On receipt of a belated questionnaire from Mrs Channon’s solicitors at the end of November, asking among other things for details of all income received in the last twelve months by the claimant, the defendants sowed the seeds of future confusion by answering

“All earnings from our client’s employment as an engineer have been paid into the Channon Design Limited bank account and can be seen from the bank statement.”

10. As HH Judge Meston found, that answer encouraged the assumption by the other side that all payments into that bank account were in fact earnings when it was not so. The suspicions of the other side were further fanned when, in response to a request for the accounts of Channon Design Limited for 1991 and, if available 1992, the defendants simply replied:

“You have been provided with the most recently available company accounts. Since your client is Secretary of the company obviously she will have any further information”

11. The judge found that the request should have been passed straight to the accountant with instructions to provide figures and to produce draft accounts if possible for the hearing. That was not done. Finally, on 1 December 1992, the defendant sent to Mrs Channon’s solicitors a list of debts compiled by Mr Channon in a form which was described by the judge as:

“A confusing jumble of figures, some of them round figure sums representing both personal and company liabilities, and also both actual and potential liabilities.”

The judge found that it should have been re-arranged into a useful form more helpful to the court in its enquiry.

12. At the hearing before the District Judge, Mr Evans, counsel for Mrs Channon, both sought and achieved a result whereby there were transferred to her both ‘Woodlands’ and ‘Sylvanook’ with a reduction of the bank charge and a clean break. He also persuaded the judge that, contrary to what subsequently emerged to be the case, the claimant had a gross income of £45,171. En route to this figure he submitted a schedule based on 8 or 9 months credits into the bank account of Channon Design Limited from October 1991 which showed payments which could be identified as coming from Cunningham Hart, a firm of loss adjusters for whom Mr Channon did most of his regular work, along with various other unidentified payments. He submitted that the total receipts of £18,714 over eight months could be analysed to show a gross income of £28,071. per annum through Channon Design Limited. Unfortunately, it was not pointed out to the judge that the figures included reimbursement of expenses, VAT on fee income and were in any event subject to deduction for other legitimate business expenses. Further, because Channon Design had a substantial overdraft which required reduction, the claimant could not easily draw income out. Yet further, Mr Evans’ schedule appeared to demonstrate that the claimant’s income from Shellcourt was about £10,000 per annum calculated by taking the rental income of £34,000 and deducting only the interest on bank loans and a modest amount for other assumed expenses. It ignored the fact (which again was not pointed out to the judge) that Shellcourt was obliged to repay capital as well as interest over the ten year term of each of its two loans, with the result that little or nothing was available by way of distributable income to the shareholders or directors. The balance of the gross income figure put forward (and apparently accepted by the judge) was made up, uncontroversially, of income from Mr Channon’s pension fund of £7,100.
13. Without the benefit of corrective or elucidating evidence from an accountant, the District Judge essentially accepted the figures and solution put forward by Mr Evans based on the income of Mr Channon which he had propounded. He gave a short judgment in which he treated Mr Channon as having a business income of £35,000 per annum and an additional income of £7,000 per annum from his pension. Mrs Channon, on the other hand, had part-time earnings of £4,460 per year but was a qualified nurse who, after a re-training course, had earning potential in that occupation of £10,800 per annum, the judge holding that, as her daughter was sixteen, Mrs Channon’s work did not have to be confined to school term-time. The District Judge observed that, on the face of it, there were two houses in which the parties wished to live with the facilities they required, subject to the condition of ‘Sylvanook’ which needed more money spent on it before it was immediately habitable. Nonetheless, with regret, he held:

“The deep bitterness between the parties makes it impossible to divide the houses between them and makes it clear that I should find that there should be an absolute clean break.”

14. The District Judge calculated the assets available as follows:

Shellcourt: £245 000

Less Borrowings: 150 000

Net Value: 95 000

Woodlands 77 250

Less Mortgage 20 000

Sale Costs 3 050

Secured Borrowing 41 000

Net Value 13 200

Sylvan Nook 60 000

Net Value 60 000

Cosworth Car 8.000

Pension Fund 63 830

£240 000

Thus the District Judge concluded that there were net assets of £240,000, in which he included the Bob Channon Pension Fund of £63,830, although it was at that stage simply a source of income for Mr Channon and would in time have to be used for an annuity. (Again, it does not appear that there was evidence of that point before the District Judge.)

15. On that basis the District Judge said:

“If these assets are available as cash, taking into account the disparity of income between the parties, I would split them 60% to Mrs Channon and 40% to Mr Channon.

I realise that a forced sale makes no sense and, in addition to the pension fund she has already taken, I find that the Petitioner should have transferred to her ‘Woodlands’ and ‘Sylvanook’ subject to the mortgage on ‘Woodlands’ but free from the business borrowing .....”

16. HH Judge Meston, a judge of great experience in matrimonial matters, reviewed the decision of the District Judge in this way:

“On the District Judge’s figures he was awarding Mrs Channon ‘Woodlands’, said to be worth £77,250 and ‘Sylvanook’ said to be worth £60,000, less the first mortgage on ‘Woodlands’ at £20,000 and the potential costs of sale at £3,050. That is about £114,200. That in fact is less than sixty per cent of the District Judge’s calculated total asset value of £240,000, but rather more than sixty per cent of his total minus the pension fund. The District Judge’s decision to divide assets as he did with the balance in favour of Mrs Channon was not in itself unreasonable given the statutory consideration in Section 25 of the Matrimonial Causes Act 1973, but it was clearly influenced by the finding that Mr Channon had a substantial income of £42,000 per annum and that his future needs could be met out of income at least until Shellcourt’s assets could be realised. The decision must have also assumed that Mrs Channon's maintenance claims required a substantial payment in order for them to be terminated. If in fact Mr Channon had no greater income or earning capacity than his wife, her maintenance claim obviously requires much less in capital terms for them to be extinguished. In reaching the finding that Mr Channon had income of £42,000 per annum, the District Judge observed that Mr Channon’s evidence about financial backing and the receipts in his company bank account had been so vague as to be incredible. Mr Channon was also to pay up to £5,000 towards Mrs Channon’s costs, that not to be enforced without leave. Clearly, both Mr Channon and Mr Hendey were disappointed by the outcome.”

17. Following the hearing before the District Judge, legal aid was extended to the claimant to cover an appeal. Evidence was then obtained to show the source and nature of the payments into the company’s bank account, such that the £28,000 annualised income figure could be rebutted, and demonstrating that the surplus rental income to Shellcourt was £63,000. The principal aim of the appeal was to enable the claimant to retain ‘Woodlands’ and his workshop. However, the opportunity to make realistic proposals to meet Mrs Channon’s claim on a clean break basis as the price of retaining ‘Woodlands’ was adversely affected by the fact that the bank’s attitude had hardened, so that on 17 February 1993 it made formal demands against Mr Channon and two of his companies. On 29 March 1993, it made clear that it expected the borrowings secured against ‘Woodlands’ to be placed on a reducing basis and that no increase in the level of assistance could be expected, the bank’s head office having declined the request of the claimant’s bank manager for an increase of £10,000 to complete the modernisation of ‘Sylvanook’.
18. By an Amended Notice of Appeal dated 16 April 1993, variation of the order made by the District Judge was proposed in order to give ‘Woodlands’ to the claimant subject to any mortgages on it and to transfer ‘Sylvanook’ to Mrs Channon together with a lump sum of £30,000 payable as to £10,000 in 1993 and £20,000 by May 1995. Thus, it proposed in round terms to give Mrs Channon over a two year period an overall sum of about £90,000 which was some £25,000 less than the overall value of the District Judge’s Order.
19. The Amended Notice of Appeal pointed out in detail the erroneous attribution of income to Mr Channon and criticised other areas in the District Judge’s appraisal of the assets and liabilities in a lengthy Case Outline prepared by counsel, Mr Wildblood. It was contended that the claimant’s income was in fact £15,000 made up of £7,000 by way of pension, £3,000 from Shellcourt and £5,000 from Cunningham Hart via Channon Design Limited. The draft accounts of Channon Design Limited, by then available for the year ending September 1992 showed a net profit of £7,870 but there was a substantial overall deficit in the company and a diminishing director’s loan account. The Case Outline re-worked the figures taken by the District Judge, removed the value of the pension fund and included another £20,000 worth of debts. This appeared to demonstrate that Mrs Channon in fact received 73% of the net assets, leaving Mr Channon with Shellcourt and substantial debts.
20. A number of further affidavits were prepared for the appeal, including an affidavit of the claimant setting out in more methodical form his original affidavit and drawing together the points he wished to make, in particular his need and his wish to keep ‘Woodlands’ and his workshop. It stated that his income from Cunningham Hart was down to £5,000 per annum, (as the Case Outline indicated). However, by the time the affidavit was sworn, the claimant had told Mr Hendey that he had lost his employment with Cunningham Hart thereby reducing his income further. For some unexplained reason, neither Mr Hendey nor the claimant altered the draft affidavit to include this important information and it was therefore never conveyed to the court at the hearing. In fact, in the face of objection from Mrs Channon’s counsel, the affidavit never went before the court by the agreement of counsel, they having agreed that two further affidavits, one from Mr Blannin, the accountant, and one from the claimant’s bank manager should go in. Mr Blannin’s affidavit was able to set out the contemporary position save that, unfortunately, it too made no reference to the cessation of the Cunningham Hart income.
21. The appeal before HH Judge Batterbury did not entertain oral evidence but was dealt with on the affidavits, written evidence and submissions. Mr Wildblood emphasised the true income position and how both the income from Channon Design Limited and Shellcourt had been seriously overstated by the District Judge in reliance on Mr Evans’ calculations, as plainly it had. He also argued that, if the bank pursued its demands in respect of the debts charged on ‘Woodlands’ there would be no equity in that property and Shellcourt would be at risk, possibly involving a forced sale of the factory units at a lower figure than could be obtained if they were marketed over time. It was a key part of Mr Evans’ submissions that the claimant cleverly borrowed against factories which he had owned and which had been unencumbered in order to fund his pension and that the had borrowed using tax efficient business development loans. However, Mr Wildblood pointed out that the pension fund was not created out of borrowings but out of profit, and was set up long before the borrowing by Shellcourt as Mr Blannin the accountant confirmed. Judgment was reserved. Before it was delivered, the bank wrote letters in December 1993 formally demanding the sum of £135,549 owed by Shellcourt. However, Mr Wildblood was not informed of this, nor asked to consider whether it should be put before the judge before he reached his decision. Thus, that aspect was not considered in HH Judge Batterbury’s reserved judgment dated 17 November 1993.
22. The judge affirmed the order of the District Judge and ordered the claimant to pay costs up to a limit of £10,000. In dismissing the appeal, he found that, despite the further figures and accounts which were before him, he was not prepared to hold that the District Judge’s estimate of income was substantially wrong. We are bound to say that we cannot understand the reasoning behind that finding. While the judge noted that the District Judge had heard the claimant’s evidence and was unimpressed by it, the reduced figures were in our view clear on the material before him and Mr Christopher Gibson QC, for the defendants, has not been able to point to any tangible evidence to the contrary. The judge also accepted Mr Evans’ argument that the Shellcourt loans were used to finance the pension scheme and that the Shellcourt factory units provided a potentially valuable asset for the future which would be free of borrowing and tax in the year 2000. Again, this appears to us to be the result of Mr Evans’ powers of advocacy rather than demonstrable from the evidence. The judge described Shellcourt as an ‘extremely valuable asset’ and concluded that the claimant was adequately protected by keeping Shellcourt, his pension and his business.
23. Nonetheless, Mr Wildblood advised against an appeal. In January 1994, events took a disastrous turn for the claimant, when further demands were received from the bank’s head office. On 24 January 1994 the claimant started acting in person, making numerous unsuccessful applications to the court. He was refused leave to appeal out of time by Judge Batterbury. In October 1994, being unable to meet the mortgage payments upon ‘Woodlands’, Mrs Channon sold it for £79,000 and went to live in ‘Sylvanook’ where she remained. The bank enforced the amounts secured against ‘Woodlands’ and the solicitors for Mrs Channon demanded from him £55,460 to reimburse Mrs Channon for the amount taken by the bank. In June 1995 Mr Channon issued a notice of application for leave to appeal to this court and after considerable further delay went back to the defendants who obtained legal aid limited to counsel’s advice on the merits. Counsel advised that there was a reasonable prospect of success. However, at the last moment, counsel was unable to appear at the hearing on the oral application on 9 July 1996 and there was no time to get papers to other counsel. Mr Channon therefore appeared in person before the Court of Appeal which refused his application for leave to appeal out of time or to adduce fresh evidence in relation to what had happened since the hearing. At the time of the hearing below, the claimant’s only source of income was from his work at a small factory unit which he had purchased with capital improperly drawn from his pension fund. He was using the unit both as his work premises and his home, despite the fact that the premises were small and for commercial use only.

THE DECISION BELOW

24. HH Judge Meston held that he had no doubt that, had the claimant’s case been properly prepared and presented before the District Judge, it would have had a more favourable outcome and the claimant himself would probably have made a better impression. He also observed:

“To what extent the outcome would have been different or better from Mr Channon’s point of view is by no means easy to assess. This was a difficult case with no obvious or easy solutions and, indeed, more accurate presentation of Mr Channon’s financial position and prospects would not have made it really any easier to resolve. The court under its statutory duty still had to consider the position of both parties and, indeed to give, priority to the interests of the younger child of the family.”

25. So far as the appeal to the judge was concerned. HH Judge Meston stated:

“After the hearing before the District Judge the situation was bound to be more difficult to retrieve on an appeal to a Circuit Judge. Costs inevitably would have increased. The Circuit Judge did not hear oral evidence and, although he read evidence and heard submissions which were intended to correct the misapprehensions of the District Judge, the damage done before the District Judge could not necessarily be undone in a hearing of a different character before a Circuit Judge”

26. He said that he found it difficult to point to any particular deficiency or combination of deficiencies which caused the appeal to fail. However, the judge did pinpoint what he called ‘an unexplained failure’ to put before the court or counsel the evidence that the Cunningham Hart work had in fact completely dried up; so that the figures which Mr Wildblood carefully presented were in fact incorrect and overstated. The judge said that the defendants were primarily responsible for that omission. He did not criticise Mr Wildblood’s conduct of the appeal. He observed that it was not possible to predict that Mr Evans would, on the appeal, return to and develop his argument that Mr Channon’s pension arrangements had been created by making borrowings against pre-existing assets to fund the pensions scheme. He observed that Mr Wildblood was taken by surprise by the argument and said:

“What was needed and what was never put before the judge was a straightforward chronological analysis of how the pension was in fact funded and of the transactions and constructions involving the factory site, showing how they were funded by the loans. There was never quite enough evidence presented to make clear that the pension fund and the Shellcourt assets and loans were truly independent of each other or that the ‘purchase’ by Shellcourt of assets, if indeed it really was a purchase for any substantial value, which is not clear, did not benefit or enhance the pension fund.”

27. Having concluded that the defendant’s negligence had deprived the claimant of an improved outcome of proceedings, HH Judge Meston rightly observed how difficult it was to evaluate what the likely outcome would have been had the case been properly prepared and presented, in particular (a) because of the risks that the claimant might spoil his own case because of his unsatisfactory nature as a witness (which HH Judge Meston had himself observed) and (b) because, in what was essentially a “clean break” case, it was not realistic for the claimant to hope to achieve a reduced capital settlement by offering payments of income. The judge stated that:

“His finances were too precarious and his income and earning capacity too uncertain to leave the court to think that he would pay maintenance when he had not done so before.”

28. The principal submission before the judge had been that, if the case had been properly presented to the District Judge, in the light of the parties’ relative positions, he would have divided the properties rather than awarding both to the claimant’s wife, giving the claimant ‘Woodlands’ and its workshop and treating him as capable of finding whatever (modest) lump sum it might have awarded to Mrs Channon over and above ‘Sylvanook’. It was argued that, for that purpose, he could have disposed of Shellcourt’s assets to resolve his existing borrowing obligations so that the bank would increase his first mortgage on ‘Woodlands’ to provide the lump sum. The judge acknowledged that as a possibility, while observing it would always have been difficult to devise a means of meeting the wife’s claims.
29. The judge resolved his dilemma largely by reference to the result which had been put forward by the claimant in his appeal, which would have provided about £25,000 less for Mrs Channon than the District Judge had ordered. He also referred to advice which, according to the claimant, had been given to him by Mr Wildblood, that the best he could expect from the appeal was a movement in his favour of between £20,000 and £30,000. It had been submitted to HH Judge Meston that, had that been the original order, Mr Channon would have been able to find reasonable accommodation, probably subject to mortgage, and would have derived income from his work to enable him to live and to rent a workshop had he not been able to purchase one, as in fact he had since done. The judge then turned to, and rejected, a submission made to him that, on the basis that Mr Channon would indeed have managed to retain ‘Woodlands’, the award of damages should be sufficient to enable him to buy an equivalent home to ‘Woodlands’ at current prices, subject to whatever borrowings he would have had to maintain in order to remain at ‘Woodlands’.
30. The judge dealt with that last proposition and the proper measure of damages for loss of an improved outcome compendiously. He stated the fundamental problem as follows:

“It is not at all clear that Mr Channon would now be in ‘Woodlands’ even if the case had gone as well as it could. If he had been able to retain ‘Woodlands’ it would have been subject to the first mortgage of £20,000 which was already in arrears in 1992 with the mortgagee threatening possession and it would have been subject to the guaranteed and secured personal and corporate bank borrowing of about £45,000 in respect of which the bank was clearly concerned. Even if Mr Channon had been able to raise money by extending the Shellcourt borrowing to a 15 year term or had disposed of Shellcourt and thereby rid himself of all or most of the borrowing by Shellcourt and the other companies, he would still have had to take on more borrowing to finance the necessary lump sum payment for Mrs Channon. His income was certainly not high. The only assured income was the pension and whatever surplus Shellcourt produced. I must not lose sight of the fact that, probably irrespective of matrimonial proceedings, his income from Cunningham Hart had dried up. His earning capacity was always at the mercy of his health. In the circumstances I find it very hard to envisage that Mr Channon would have been able to hang onto ‘Woodlands’ even if it had been transferred to him as part of the more favourable order predicated. If he had the equity, it would not have been substantial, probably less than the £25,000 or so which he sought to claw back on appeal.

I therefore conclude that Mr Channon was deprived of a good chance of a better outcome but one which was worth no more the £25,000 suggested on appeal. The court cannot go further to put him in a position in which he might have been today, eight years later, had that more favourable outcome resulted. In a sense that would be, rather than to compensate him for what he failed to get in 1992, to try instead to get him out of the position in which he is in the year 2000 which may have many causes other than unsatisfactory litigation. I consider that the correct approach therefore is to award him £25,000 and interest for the eight years or so which have elapsed to date.”

31. The judge then made an award to the claimant for the ‘inconvenience, distress and disappointment he had suffered over the years. He said:

“… Mr Channon has been very badly affected by the matrimonial litigation and its outcome. Even before the final hearing before the District Judge he was clearly showing signs of stress and the result was the injunction proceedings which I have mentioned. I have already referred to his health problems and I have seen medical reports. He is, or has become, in some ways a rather vulnerable personality. Having got himself into a hole he has displayed a tendency, in attempting to dig himself out of it, in fact to dig himself deeper in. However, I bear in mind that it was the failures of the defendants as I have found them to be which exposed Mr Channon to costly, protracted litigation and to judicial criticism, most of which in the early stages was probably unjustified. As it is, these matrimonial proceedings have in effect dominated his life for getting on for 10 years. Mr Channon has not been able to move on to rebuild his life as one would have hoped after a divorce. He has made, as I have already indicated without detailing them, numerous applications to the court, and I have no doubt that there is some justification for his disappointment with the legal profession and with the legal system. From a physical point of view he gave evidence that he has had had to live in reduced circumstances in lodgings and indeed, I think on occasions live rough, and he is now occupying an unsatisfactory home in what is in fact an industrial unit. He simply has not achieved the finality which is or ought to be the object of matrimonial litigation of this sort.

I understand that the principle of awards for general damages of this sort is at present the subject of an appeal to the House of Lords. What I also understand about these awards is that there is no clear tariff for them as there is in other types of litigation. I have not found it easy to select an appropriate figure but have decided that such has been the impact upon Mr Channon of all that has happened that an appropriate award under this head would be £10,000.”

LOSS OF CHANCE

32. It has not been in dispute between the parties to this appeal, nor indeed was it in dispute before the judge that, given the uncertainty of what the District Judge would have ordered had the case been properly presented to him, the damages in respect of the defendants’ negligence fell to be assessed on the ‘loss of chance’ basis. Thus, having decided that substantial loss had undoubtedly been suffered as a result of the deficiencies in the material put before the District Judge, the judge was faced with the uncertainty of assessment identified by Hobhouse LJ in Allied Maple Group –v- Simmonds and Simmonds [1995] 1 WLR 1602 at 1621:

“The judge will have to assess the plaintiffs’ loss on the basis of the value of the chance they have lost … This involves two elements: what better terms might have been obtained - there may be more than one possibility – and what were the chances of obtaining them. Their chance of obtaining some greater improvement, although significant, may be less good than the chances of obtaining some other lesser improvement. It will be a question for the judge, on the basis of the evidence … which the parties place before him … to make his assessment of the value of what the plaintiffs lost.”

33. On this appeal both the claimant and the defendants assert that the judge erred in his approach when assessing the value of the claimant’s lost chance.

The claimant’s appeal

34. Mr ter Haar for the claimant has argued as follows. First he submits that, had all the necessary information been before the District Judge, he would have found the total of the net assets available for division to have been no more than £130,500 rather than the figure of £240,000 to which he worked. That greatly reduced figure is arrived at by (a) Deduction of £20,000 from the agreed value of Shellcourt to allow for the incidence of tax and selling fees on the sale of its assets. Thereafter, a further reduction is made in the net value after repayment of borrowings (£75,000) to allow for capital gains tax or income tax (25%) in the hands of the Channons. This produces a final net value of £56,250. (b) Exclusion from the net assets for division of the pension fund of £63,830. (c) Addition to the assets of a further sum of £8,000 for two cars left out of account. (d) Deduction from the assets of various debts of Mr Channon totalling £18,000 (not revealed to the District Judge but accepted as existing by HH Judge Batterbury on appeal). On the basis of those figures Mr ter Haar points out that, if Mrs Channon had received the 60:40 split of assets considered appropriate by the District Judge she would have been entitled to assets worth £78,300, as compared with the total of £114,200 awarded by the District Judge i.e. the net value of ‘Woodlands' after deduction of £20,000 mortgage and £3,050 sale costs (£54,200) plus the value of ‘Sylvanook’ (£60,000). Mr ter Haar submits that the District Judge was in error to take the pension fund into account because it was not available to produce realisable capital for the purposes of the clean break, or any lump sum payment, and was essentially relevant only to the long-term income position of both parties. He also points out that, in any event, Mrs Channon had earlier received a portion of it in the amount of £10,830.
35. Working from those figures, Mr ter Haar argues that, on a proper understanding of the facts the District Judge was likely to have allocated ‘Woodlands’ to the claimant, awarding ‘Sylvanook’ to Mrs Channon, on the basis of its agreed value of £60,000, without any more by way of a lump sum On that basis he recognises that, if Mrs Channon and her daughter were to continue to have a roof over their heads, ‘Sylvanook’ would have had to be sold, Mrs Channon purchasing a more modest house elsewhere. However, he submits that that complication could have been met by Mrs Channon remaining at ‘Woodlands’, the claimant continuing in lodgings and restricting himself to the workshop until that had been achieved.
36. Mr ter Haar also submits that HH Judge Meston was wrong to reject the submission made to him that, if Mr Channon had been awarded ‘Woodlands’, he would have been able to retain it. He says that for two reasons. First, because he says that the judge wrongly assumed the District Judge would have awarded Mrs Channon a lump sum in addition to allotting her ‘Sylvanook’. He submits that, on the figures now available, there was near parity of earning power as between Mr and Mrs Channon and that the District Judge had proceeded on the basis of ignorance of, or had left out of account, the fact that the claimant had additional debts of £18,500. Second, he asserts that, on the evidence, the £44,000 of business borrowings secured upon ‘Woodlands’ (and indeed any lump sum additional to the award of ‘Sylvanook’) could have been discharged either out of the proceeds of the eventual sale of Shellcourt or, if that was insufficient (as later proved to be the case) out of the modest income the claimant would, in one way or another, have been able to have earned from using the workshop at ‘Woodlands’. Mr ter Haar argues that, with the workshop available to him and a proper roof over his head he would somehow have been able to keep up the payments due. He makes the general complaint that the judge’s approach to the assessment of the claimant’s loss of chance was unstructured and insufficiently reasoned. The judge should have considered the best outcome which could reasonably have been expected had the case been properly handled, against the worst outcome (that which happened) and then assessed the probabilities of the outcome being at the higher or lower end of the range thereby produced.
37. On the basis of Mr ter Haar’s primary submission that the judge should have been satisfied that the claimant would have obtained and retained ‘Woodlands’, Mr ter Haar renews the submission made before the judge that the appropriate level of award should not simply be based on the value to him of ‘Woodlands’ at the time of the District Judge’s decision (i.e. a calculation of the value of that of which he was deprived in 1992, together with a suitable award of interest), but should be the amount of the sum necessary to provide him with an equivalent home at the prices prevailing in late 2000 at the time of the award of damages (said to be £155,000-£175,000), subject to such borrowings as would have continued to be secured on ‘Woodlands’ had he remained there.
38. Mr ter Haar’s secondary submission is that, even if the judge was correct to look at the matter in terms of 1992 values, the sum of £25,000, treated by the judge as the appropriate award to compensate the claimant for loss of the award which should have been made, was inadequate.
39. In approaching Mr ter Haar’s submission that HH Judge Meston failed properly to evaluate the claimant’s loss of the chance of a more favourable outcome in the proceedings which he faced, I proceed with considerable caution. As Mr Gibson has emphasised, HH Judge Meston is a judge highly experienced in matrimonial proceedings and well acquainted with the proper approach in relation to disposal of claims for financial relief of the kind which were the subject of the negligence claim before him. Second, the trial before him lasted over five days, for two of which the claimant was in the witness box. The judge had before him all the material relating to the hearing before the District Judge and the Circuit Judge as well as the material generated thereafter. Also he heard evidence from Mr Wildblood who had represented the claimant on appeal before the Circuit Judge and had been responsible for obtaining the evidence which should have been before the District Judge below. Mr Wildblood had drafted a notice of appeal which took most of the points made before HH Judge Meston and this court as to the deficiencies in the District Judge’s findings on the basis of the accounting and other material since assembled. What, of course, it did not contain was the information (which had been kept from Mr Wildblood) that the claimant’s Cunningham Hart income of £5,000 per annum had just ceased. Finally, it seems to me unrealistic, as HH Judge Meston plainly accepted, to suppose that, even if the District Judge had been aware of the reduced assets available out of which to satisfy Mrs Channon’s claim, he would have made any order (a) which did not represent a clean break and (b) which required Mrs Channon to leave ‘Woodlands’ in the immediate future. It is plain from the terms of the judgments of the District Judge, HH Judge Batterbury, and HH Judge Meston, all being judges experienced in such cases, that this was the position. The position was well summarised in the witness statement of Mr Wildblood as follows:

“From the very outset I had advised: “Securing an order by which Mrs Channon was ordered to leave ‘Woodlands’ would not be easy because one has to balance against Mr Channon’s desire for the workshop, the needs of Mrs Channon and, in particular, Kathryn. The court had to give first consideration to the welfare of Kathryn. Further the affidavit from Mr Norman (of Nat West bank) stated at paragraph 7 that the bank would not be willing to increase its lending to Mr Channon or any of his companies in the current situation”. Mr Channon’s case was that he would raise a lump sum of £30,000 and would himself do some work on ‘Sylvanook’ in order to renovate it and permit it to be occupied by Mrs Channon. However, the more the liabilities were stressed and the income constrained, the more lightweight became this submission ... it was inevitable that the Judge would place considerable weight on the poor relationship between the parties (and thus seek to avoid an arrangement which left them living side by side). To suggest that wife and child should move back into ‘Sylvanook’ and then sell it and move on was always going to be difficult.”

Later he stated:

“The bank affidavit makes the position plain. I found Mr Channon’s contentions about his ability to pay a lump sum very difficult to advance coupled as they were with his contentions about his health, income, lack of chargeable security and indebtedness ... My recollection is that the main argument was that, if ‘Woodlands’ were to be transferred to him, he could start his business up again and use ‘Woodlands’ as a source of security. There was obvious and unavoidable difficulty in persuading the bank to lend money on the basis of future contingencies.”

40. In these circumstances, and with all the uncertainties, I have no doubt that the judge was right to proceed on the basis (a) that a straightforward division of the assets in an appropriate proportion was required without regard to any proposal or possibility of future maintenance payments being made by the claimant; (b) in the light of the declared attitude of the bank, if the claimant had been obliged to make any lump sum payment to Mrs Channon over and above the award of ‘Sylvanook’ (or its assumed value of £60,000), he would never have been able to retain ‘Woodlands’ (viz the difficulties referred to by Mr Wildblood in his advice and the clear view of HH Judge Meston).
41. Where, however, I part company with the reasoning of the judge was his apparent acceptance that the yardstick of the value of what the claimant was likely to have obtained before the District Judge was to be found or, at any rate, was reflected in his offer of a lump sum of £30,000 in addition to ‘Sylvanook’; and/or (b) the advice of Mr Wildblood that the best he could expect from the appeal was £20,000-30,000. I say that for three reasons. First, the relevant question was and remains: what is the best that could have been achieved before the District Judge, had he been properly informed? That was a question which fell to be assessed directly by the judge as if himself sitting at first instance and apprised of all the facts which should have been before the District Judge. Second, the position adopted, and indeed the advice given, on an appeal in a case of this kind, essentially concerns a retrieval exercise, in which to an appreciable extent, damage done below may well not be undone on appeal. Indeed, the judge himself recognised this (see paragraph 25 above). It is also plain, as again HH Judge Meston acknowledged, that the claimant’s offer for the purposes of his appeal of a lump sum of £30,000 payable over a period was based on his anxiety, if not desperation, to retain ‘Woodlands’ and the workshop and was quite unrealistic in the light of the bank’s hardened attitude and his own uncertain health and earning power. Third, Mr Wildblood’s estimate of the best the claimant could hope for was no doubt postulated upon the assumption that the judge would accept the claimant’s proposal to pay a lump sum of £30,000 in addition to ‘Sylvanook’, thereby obtaining an order worth £25,000 less than the value of the District Judge’s order.
42. I agree with Mr ter Haar that, as the first part of the exercise in assessing the loss of the claimant’s chance, it was necessary for the judge to consider the value of the best order reasonably likely to have been achieved by the claimant before the District Judge, had he been properly informed. In this respect, Mr Gibson has not sought to challenge the accuracy of the figures put forward by Mr ter Haar, save to demur at the omission from his overall total of the amount of the pension fund.
43. Approaching the matter on the basis of the revised figures therefore, it seems to me that the amount awarded by the District Judge would have been considerably reduced on the following grounds. He would not have approached the assets in the light of a large disparity of income between the parties. Instead of working on a disparity of at least £36,000 (before tax) he would have found a current disparity of no more than £6,000 or £7,000 in favour of the claimant who had the burden of the mortgage payments on 'Woodlands’. Further, the wife’s potential income after re-training as a nurse would bring her up to rough equality unless the claimant’s income increased. That being so, it seems clear from the District Judge’s judgment that the 60:40 split in favour of the wife from which he started would almost certainly have been reduced to a proportion of 50:50. Nonetheless, in the light of the considerably reduced asset picture and the attitude of the bank, it also seems clear that the District Judge would have maintained his determination to ensure that Mrs Channon and her daughter had a roof over their heads by ensuring the transfer to her of ‘Sylvanook’ to provide her with the means to secure that end. Even on Mr ter Haar’s figures (excluding the pension fund) that would not amount to 50% of the assets. That being so the only question would be whether and to what extent the District Judge would have awarded Mrs Channon a further lump sum over and above the £60,000 represented by ‘Sylvanook’, so that she would either have the opportunity to live there after carrying out repairs, or would have some spare capital if she sold it in order to buy herself a smaller house. In my view such a further award would indeed have been the likely outcome.
44. In this connection, I would observe that, while I accept the submission of Mr ter Haar that, in a case of this kind, where the parties have limited means and the focus is principally upon the immediate availability of funds to provide a home for each, it is not usually appropriate to treat a pension fund as immediately available, the existence of such a fund is undoubtedly to be taken into account in a clean break case when making a once and for all division of assets. That being so, the pension fund was an element which justified a greater degree of generosity towards Mrs Channon than would be achieved by simple 50:50 split of the immediately realisable assets.
45. In my view the best order which could reasonably have been hoped for before the District Judge was an order for the transfer of £70,000 to Mrs Channon, in the form of ‘Sylvanook’ plus £10,000 by way of lump sum in addition to her share of the pension fund previously received; that is to say £44,200 less than the value of the District Judge’s award.
46. I would accept the view of HH Judge Meston that there would have been no substantial chance in those circumstances of the claimant retaining ‘Woodlands’ in the light of the lump sum to be found, the attitude of the bank and the difficulty in any speedy and profitable disposition of Shellcourt’s assets. In those circumstances, the assessment of damages on the basis of the retention of ‘Woodlands’ and, in particular, the submission that the damages should be based on 2000 rather than 1992 values does not arise.
47. However, the question does arise as to the amount by which the sum of £44,200 falls to be discounted on the basis of uncertainty, in this context the likelihood that the District Judge would, for whatever reason, have made a higher award, thereby reducing that sum. As it seem to me, the two principal uncertainties to be taken into account are, first that the claimant was, as the judge noted, a bad and difficult witness unlikely to inspire sympathy in the court. Nonetheless, as the judge also acknowledged, he would have made a better impression if facts and figures were clearly placed before the judge. Indeed, as it seems to me, the figures would have largely spoken for themselves. Further, the District Judge might have taken a view that the appropriate ‘split’ in the assets on a cash basis remained at 60:40, given that Mrs Channon retained the responsibility of looking after Kathryn. While, as a rule of thumb, that approach has much to commend it, it seems pretty clear from the District Judge’s judgment that this would not have been so, had he appreciated that there was a relatively small disparity between the parties’ income and earning capacity. Lastly, it had plainly been the view of Mr Wildblood that the best result which could be attained on appeal was an improvement of £30,000. However, as I have made clear, the exercise which he was performing was that of a rearguard action in an effort to persuade the Circuit Judge that the District Judge’s decision ought to be preserved, whereas the exercise required to be performed by HH Judge Meston was the assessment of the order likely to have been made by the District Judge had he had the proper information before him from the start.
48. In my view, the appropriate sum to be awarded by way of damages for the claimant’s loss of the chance of a more favourable award is one which represents a discount of approximately 20% from the figure of £44,200 at paragraph 44 above. In the round figures which I consider to be appropriate, that produces a figure of £35,000 rather than £25,000 as found by HH Judge Meston. I would therefore increase the figure awarded by the judge by way of damages for loss of a chance by the sum of £10,000.

The Defendants’ appeal

49. By their notice of appeal, the defendants sought to criticise the judge’s award for loss of a chance on the grounds that it was too high. The point sought to be taken was a short one. Mr Gibson fixed upon the sentence in the judgment where HH Judge Meston stated his conclusion that ‘Mr Channon was deprived of a good chance of a better outcome, but one which was worth no more than £25,000 suggested on appeal’. He submitted that, taking those words at face value, the judge plainly erred in not awarding damages at a lower figure, bearing in mind the need for him to discount for uncertainty the best result which might have been achieved. In my view the point taken is almost certainly a bad one. When it was raised before the judge immediately following his judgment, HH Judge Meston explained that, in his view, an improved award of £25,000 was a ‘near certainty’ and he declined to reduce it. In the event, it is not necessary to consider Mr Gibson’s submission further; the point which he makes has been rendered academic by my conclusion that, even on a discounted basis, a higher award than the sum of £25,000 is appropriate.

INCONVENIENCE, DISTRESS AND DISAPPOINTMENT

50. The defendants’ second ground of appeal seeks to set aside the judge’s award of £10,000 damages to the claimant for ‘Inconvenience, Distress and Disappointment’ as being contrary to the general rule laid down in Addis –v- Gramophone Company Limited [1999] AC 488 that damages for breach of contract should not include damages for mental distress and anxiety. He relies upon the summary of the position stated in Watts –v- Morrow [1991] 1 WLR 1421 at 1445 per Bingham LJ. That case was concerned with the contractual negligence of a surveyor in failing to discover and report upon extensive defects, his clients having required a house which should be as far as possible trouble-free and to which they could move without the need for any substantial works of repair. Under the heading ‘Damages for Distress and Inconvenience’, Bingham LJ stated:

“A contract-breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party. This rule is not, I think, founded on the assumption that such reactions are not foreseeable, which they surely are or maybe, but on considerations of policy.

But the rule is not absolute. Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead. If the law did not cater for this exceptional category of case it would be defective. The contract to survey the condition of a house for a prospective purchaser does not, however, fall within this exceptional category.

In cases not falling within this exceptional category, damages are in my view recoverable for physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience and discomfort. If those effects are foreseeably suffered during a period when defects are repaired, I am prepared to accept that they sound in damages even though the cost of the repairs is not recoverable as such …”

51. The first two paragraphs of that quotation were recently specifically approved and applied by Lord Bingham in Johnson –v- Gore-Wood [2001] 2 WLR 72 at 96. That case concerned a claim against a solicitor retained to advise and act for the plaintiff in relation to his business affairs, including the exercise of an option to purchase land. It was pleaded that, as a result of the negligence of the solicitors the plaintiff had suffered ‘mental distress and anxiety … as a result of the protracted litigation process to which he has been submitted, extreme financial embarrassment in which he and his family have found themselves and the deterioration in his family relationships …’. Having referred to an observation of Lord Lloyd in Ruxley Electronics and Construction Limited –v- Forsythe [1996] AC 344, in which he referred to certain exceptions to the general rule in the case of contracts to provide a holiday (see Jarvis –v- Swann Tours Limited [1973] QB 233 and Jackson –v-Horizon Holidays Limited [1975] 1 WLR 1468) and other contracts ‘for the provision of a pleasurable amenity’ (see Ruxley itself at p.374), Lord Bingham stated:

“I do not regard this observation as throwing doubt on the applicability of Addis –v- Gramophone Co Ltd in a case such as the present.”

52. Concurring, Lord Goff stated at p.101:

“I agree with my noble and learned friend Lord Bingham of Cornhill that, as a matter of principle, damages on these grounds [i.e. mental distress] are not generally recoverable: see Addis –v- Gramophone Co Ltd .. ; Watts –v- Morrow ..; McGregor on Damages, paras 98-104. It is true that in recent years there has been a softening of this principle in certain respects (see McGregor on Damages and Mahmud –v- Bank of Credit and ‘Commerce International SA [1998] AC 20); but none of these developments has, so far as I can see, gone so far as to allow recovery on the broad grounds here pleaded.”

53. Lord Hutton (at p.115) and Lord Millett (at p.127) agreed with Lord Bingham. Lord Cook of Thorodon expressed some doubts upon the broadness of the principle and the narrowness of the exceptions. However, he accepted that the first two paragraphs of the passage from Bingham LJ which I have already quoted from Watts –v- Morrow is an ‘authoritative statement of the present law of England regarding commercial contracts’ and that a solicitor’s retainer to advise and act in relation to the affairs of a client is classified in English law as ‘commercial’.
54. At the time of the hearing below, the decision in Johnson –v- Gore-Wood was awaited. Before us, Mr ter Haar effectively accepted, as he was bound to do, that prima facie the effect of that decision on this case was that, unless he could demonstrate some particular feature of the defendant’s retainer which amounted to a contract to protect the claimant from mental distress or disappointment or actually to procure for him a particular beneficial result, then the general rule in relation to solicitors’ retainers would apply (see also Farley –v- Skinner (2001) 3 WLR 899). Mr ter Haar sought to establish that there was indeed a retainer of that kind in this case on the basis of certain admissions made by Mr Hendey in cross-examination.
55. In paragraph 41 of his witness statement the claimant had stated that he had told the defendant what he wanted from the outcome of the ancillary relief hearing, namely (a) that he needed to retain ‘Woodlands’; first because it formed part of the security for his business and personal borrowings and, second, because he needed the work shop to continue his research development work and work for Cunningham Hart; (b) that he was also prepared to provide Mrs Channon with a house and on-going maintenance for her and their daughter Kathryn until she was independent and (c) that Carol should retain the car that she was using. In cross-examination, Mr Hendey accepted that, if the claimant did not retain Woodlands, it was going to be difficult for him to raise a mortgage and buy another house to live in, given his age and medical condition. A passage in cross-examination then followed upon which Mr ter Haar has relied:

Q. And so, one of your objectives on his behalf was to try to make sure that out of the court proceedings he would retain sufficient assets to be able to house himself?

A. Yes, and to run his business or to run a business.

Q. And it was readily foreseeable to you that, if it all went wrong in the courts, he might not be able to buy a house and run his business?

A. I think it depends on the definition of ‘wrong’. In terms of what Mr Channon wanted to achieve and was put forward in terms of offers, I always felt that it was going to be very difficult for him to achieve. Something that was less than everything he wanted, but not as bad as what he ended up with, I think would have allowed him a prospect of commercial success.

Q. … if, for example, one outcome might have been that each member of the family kept ether the house or the proceeds of sale of each house, but the Shellcourt assets had to sold off to provide some cash to allow that to take place?

A. That was one of the compromises I tried to persuade him to put forward … that would have worked.

Q. .. that was the sort of fall back position that you had in mind?

a) A. Yes

Q. And underlying all this was that from your perception it was essential to try to make sure that Mr Channon either had a house or the means to buy a house?

A. Yes, I think it goes beyond that, it was important, if not vital from his point of view, that he, at that stage at least, kept ‘Woodlands’ and the workshop.

56. In my view Mr Hendey’s answers constitute insufficient material upon which to categorise this case an exception to the general rule. It is clear that the defendant’s retainer was one which required Mr Hendey to advise and act for the claimant in the ancillary relief proceedings brought by his wife and to seek to obtain for him as good a result as possible. It is also clear that Mr Hendey was instructed as to the claimant’s aims, appreciated what they were and tried (albeit inadequately) to achieve them. However, the defendants did not undertake to achieve any particular result, whether as to the claimant’s peace of mind or his retention of ‘Woodlands’, nor was the retainer one which of its very nature involved protecting the claimant from molestation or distress. In fact, by August 1992, he had already been subject of an exclusion order from ‘Woodlands’ and was living in ‘digs’ at the time, while continuing to use his workshop from which he had not been excluded. It seems to me that Mr Hendey’s evidence in cross-examination amounted to an acknowledgement of the claimant’s aims within the scope of his retainer and (no doubt) that the claimant would be disappointed not to achieve them; however, foreseeability alone is not the touchstone of liability for this category of damage and it does not seem to me that considerations of policy dictate an enlargement of the defendants’ liability in the circumstances of this case.
57. Mr ter Haar also sought to justify the judge’s award on a more limited basis, namely reliance upon the third paragraph in the passage I have quoted from Bingham LJ in Watts –v- Morrow. He asserts that, since the defendants should have obtained, but through negligence did not obtain, a position whereby ‘Woodlands’ was awarded to the claimant, he should at least receive damages for his subsequent physical inconvenience and discomfort, together with an award for the mental suffering directly related to such inconvenience and discomfort, in relation to (i) having to go on living in lodgings and (ii) on occasions sleeping out in his car until the purchase of his new factory unit and (iii) in thereafter being obliged to live in such unit as his home. Mr ter Haar submitted that one sentence commencing ‘From a physical point of view .....’ in the passage of the judgment set out at paragraph 31 above demonstrates that such was, in part at least, the nature of the judge’s award.
58. There seem to me to be two objections to upholding the award of £10,000 on those grounds. First, I am satisfied that the award was intended, and purported, to be made under the broad head of damages for inconvenience, distress and disappointment as stated at the outset of that part of the judgment, and that the judge’s reference to the claimant’s reduced and unsatisfactory living conditions was no more than a subsidiary aspect of that wider head. That is confirmed by the judge’s final observation to the effect that he had selected a figure appropriate to compensate for ‘the impact upon the claimant of all that had happened’. Second, whereas, had the judge found that the claimant had indeed lost ‘Woodlands’ through the defendant’s negligence, an award for physical inconvenience and any mental suffering directly related to it would have been appropriate, Judge Meston did not so find. As already made clear the judge held that, even had ‘Woodlands’ been transferred to the claimant under a more favourable order, it was unlikely that he would have been able to retain it. Consequently, the basis for a more modest award on the basis of Mr ter Haar’s fallback submission cannot be established. I would therefore allow the defendant’s appeal under this head.

COSTS

The defendant’s appeal

59. At the end of his judgment, the judge referred to the orders for costs made against the claimant’s by the District Judge (£5,000 not to be enforced without leave of the court) and the Circuit Judge (costs limited to £10,000) and referred to the fact that the defendants had ‘very properly’ conceded that if the decision went against them, there would in effect be an indemnity to cover future enforcement of those orders by Mrs Channon or her solicitors. He said he would leave counsel to draft the appropriate order.
60. Mr Gibson then addressed the judge on the basis that the concession made was that, if it was held that the costs orders would not have been made, then damages should be dealt with by an order for indemnity. That being so, the concession left room for the possibility that, even with an improved position before the District Judge, Mr Channon would not have been satisfied and would still have appealed to the Circuit Judge. HH Judge Meston observed that it was not appropriate to be too sophisticated about the matter. Mr Gibson then reminded him that the order he proposed to make involved holding that, not only would Mr Channon in all probability not have had a costs order made against him by the District Judge, but also that he would not have appealed and would not have had a costs order made against him in respect of such appeal. The judge indicated that he would think it through and, after further discussion, stated:

“I think that he [Mr Channon] certainly had a significant chance of avoiding an order for costs before the District Judge and therefore the indemnity ought to extend to that and, so far as the Circuit Judge is concerned, I certainly think that, if he had appealed, he would not have appealed in those terms, so I think it is academic. No, I think that it must follow that the indemnity ought to cover the first appeal to the Circuit Judge.”

61. Mr Gibson has sought to challenge that conclusion before us, complaining that, in the course of his main judgment, the judge had not fully and separately considered Mr Channon’s chances of avoiding either of the costs orders in the light of all the evidence. Mr Gibson submits that, had the judge done so, given Mr Channon’s desire to keep ‘Woodlands’, he would have been likely to have appealed and failed; the judge should therefore have allowed for that likelihood and heavily discounted the 100% order for indemnity which he made. I reject this argument. While it is correct that the judge appears to have misunderstood the full extent of the defendant’s original concession, he afforded a proper opportunity to Mr Gibson to advance his arguments immediately following the main judgment. In fact Mr Gibson neither raised nor pressed his arguments in the detail which he has deployed before us. Having raised the question of the appeal costs for the judge’s consideration, he specifically stated that he was not going to make any further submissions upon it. The judge had enjoyed ample opportunity to assess the claimant’s temperament and the history of the proceedings in the course of the trial. Indeed, in the course of his judgment, he had specifically referred to the submission of the defendants that a more satisfactory outcome before the District Judge ‘would not necessarily have ruled out the possibility that he would have reacted adversely to the decision of the court’, to which he added the observation that it was nonetheless doubtful whether a more satisfactory outcome from his point of view would have led him to ‘the extensive continuation of litigation which has taken place in his case'.
62. There is no reason to think that, in dealing with the matter shortly in response to Mr Gibson’s brief submissions following his main judgment, the judge failed to take into account the various aspects of the history and the claimant’s behaviour which Mr Gibson has highlighted before us. I would dismiss the defendants’ appeal against this aspect of HH Judge Meston’s judgment and the form of the order and indemnity made consequent upon it.

The claimant’s appeal

63. Besides resisting the defendant’s appeal upon costs, at the hearing before us, Mr ter Haar, sought permission for the claimant to amend his grounds of appeal in order himself to complain in relation to the question of costs. He sought leave to add a ground as follows:

“Further and in any event the learned judge erred.

(1) In failing to order that the defendants should indemnify the claimant in respect of [Mrs Channon’s] costs of the appeal to the Court of Appeal in July1996;

(2) In failing to order an enquiry into the other costs liabilities incurred by the claimant to his former wife;

(3) In failing to award damages in respect of his costs paid to the defendants for the appeal to the Circuit Judge.”

64. We indicated that we would hear argument and rule on the application in the course of giving judgment.
65. In relation to ground (1), I have already briefly referred to the fact that Mr Wildblood originally advised Mr Channon (who was then legally aided) against an appeal from Judge Batterbury’s decision and the unfortunate circumstances in which Mr Channon was later refused leave to appeal. We have before us the judgement of the Court of Appeal dated 9 July 1996 by which the application for an extension of time for leave to appeal was dismissed. The transcript records no reference to costs. However, we were informed by Mr ter Haar that Mrs Channon’s counsel attended on notice and it is his costs which are sought to be recovered. Whether or not that is so, it seems to me that the question of an indemnity in respect of any of Mr or Mrs Channon’s costs in relation to the application for leave to appeal should have been properly raised and argued before Judge Meston following his judgment when the question of the defendants’ liability for Mr Channon’s earlier costs was under discussion. It does not appear that that was done and I am not satisfied that all the relevant circumstances are before us. I would therefore deny the application for leave to amend the grounds of appeal under (1).
66. Similarly, in relation to ground (2), despite a reference by the judge at the end of his main judgment to the fact that ‘possibly other costs awards fall to be considered’, such costs awards were neither identified, nor the subject of any argument raised, before the judge thereafter. Nor was the position reserved by counsel in drafting the form of order subsequently made. Finally, Mr ter Haar has been unable to place us in possession of any detail as to the other costs liabilities contemplated by the amendment in (2); he simply submits that there should be an order for an enquiry into other costs liabilities incurred by the claimant to Mrs Channon. I do not think it either desirable or appropriate to make such an order ‘at large’ and I would refuse Mr ter Haar’s application to amend the grounds of appeal under (2).
67. Finally, as to ground (3), it seems to me to follow from the findings of the judge as to the justification for the appeal to HH Judge Batterbury, and from his decision that the defendants should indemnify the claimant against any costs order sought to be enforced against him, that the defendants should also be deprived of, or alternatively held liable in damages and/or by way of indemnity for any costs due from the claimant to the defendants as his own solicitors in respect of that appeal. It appears that, before the District Judge, the claimant was legally aided. However, in 1993, as a result of a complaint from his wife, his legal aid was withdrawn and, as a result, he incurred personal liability to the defendants in respect of his costs thereafter. Mr Gibson did not address any argument to us in respect of ground (3), save by way of comment that the claimant had failed to ask for relief in respect of such costs at the time. In the case of ground (3) only, I would grant permission for the amendment to be made and would make an order appropriate to ensure that Mr Channon should not be liable for and/or should be entitled to damages and/or an indemnity in respect of any costs paid or payable by him to the defendants in respect of his appeal to the Circuit Judge.

Lord Justice Judge: I agree

Lord Justice Henry: I agree

Order: As minuted by counsel. (Order does not form part of the approved judgment)