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1. The Hinckley Island Hotel Ltd (“the Company”) was wound up by the court on 11th November 1993; the Official Receiver became and still is its liquidator. Its assets at that time included the freehold of a hotel complex at Hinckley, Leicestershire, the expansion of which had been financed by the Humberclyde Group, and alleged causes of action against four members of that group which the Company sought to enforce in three actions it had commenced. The Official Receiver was not in a position to pursue those actions and was considering assigning the causes of action to former directors of and shareholders in the Company, Mr Hicks and Ms Spence (“the Directors”). At that stage the Humberclyde Group made a counter-proposal for the compromise of the actions. By an order made by Chadwick J on 14th February 1997 the Official Receiver was directed to apply to the court for directions under s.168(3) Insolvency Act 1986.

2. The application was duly made and came before Chadwick J on 10th and 11th June 1997. Those present or represented at the hearing included the Official Receiver, Humberclyde Group and the Directors. The judge indicated that he proposed to adopt the procedure applied in the Chancery Division when trustees seek directions whether to take proceedings against a beneficiary and entertain evidence and submissions from other parties in the absence of that beneficiary. Accordingly on the morning of the second day he required the representatives of the Humberclyde Group to leave court. On their return, early in the afternoon, the judge indicated that he had entertained submissions from the Directors and invited counsel for the Humberclyde Group to deal with various points he described as arising “partly out of what Mrs Spence has been telling me and partly out of my own thoughts”. At the conclusion of counsel’s submissions on those points the judge indicated that he would reserve his judgment.

3. Chadwick J gave judgment on 20th June 1997. He described the complicated background to the application before him and the rival proposals of the Humberclyde Group and the Directors. He described the principal points made by the Humberclyde Group in opposition to the submission of the Directors that the causes of action should be assigned to them so that they might pursue them. The first of those points was the contention that, applying the provisions of Insolvency Rule 4.90 requiring the set-off in the liquidation of cross-claims as recently explained by Lord Hoffmann in Stein v Blake [1996] AC 243, there was nothing to assign because the balance was in favour of Humberclyde Group. This and the other points urged on him by Humberclyde were rejected by the judge. His orders, made on 20th and 30th June 1997, directed the Official Receiver to assign the causes of action to the Directors. This is an appeal by the Humberclyde Group from those orders.

4. The issues raised by the notice of appeal fell into two groups. The first group consisted of objections to the procedure adopted by the judge. There are two such objections; first, the judge was wrong to apply the procedure applicable in the Chancery Division to an application by trustees for directions whether to sue one of their beneficiaries; second, the judge did not in fact give to counsel for the Humberclyde Group adequate opportunity to address him on the merits of the actions the Directors sought to pursue if the causes of action were assigned to them. The second group comprised a number of wide-ranging issues of fact and law which arose on the merits of the application. One of those issues was whether the judge was right to conclude that the balance of debt, after applying Insolvency Rule 4.90 to the cross-claims of the Company and members of the Humberclyde Group, was in favour of the Company. The Humberclyde Group contended in the light of fresh evidence admitted on the hearing of the appeal that the judge was wrong in that respect. We heard argument on the two procedural objections and the question of where the balance lay assuming Insolvency Rule 4.90 to be applicable. In the light of that argument we did not consider it necessary to call on counsel to address us on the other issues raised by the notice of appeal and extensively elaborated in the written arguments submitted by the parties in advance of the hearing. What follows is, therefore, limited to my consideration of and conclusions on those three issues and such further description of the facts as is necessary to explain them.

5. In 1989 the Company wished to expand the hotel operations but needed additional finance for that purpose. On 24th October 1989 Mr Hicks, then the managing director of the Company, instructed Christie & Co. to prepare a valuation for finance purposes. Such a valuation was produced on 16th November 1989 putting different figures on the value of the property depending on the stage of its development which had been reached, rising from £7.9m. at phase 1 through £22.5m. at phase 4 to £37m. at phase 7.

6. The Humberclyde Group were prepared to provide the Company with finance and a series of complicated transactions were entered into on 22nd January 1990. In summary the transactions included a lease and leaseback realising a premium of £8.5m., a development agreement whereunder finance for the development would be provided by way of loan, a debenture conferring a floating charge over the whole of the Company’s undertaking, property and assets both present and future and a put option whereby the Company might be required to enter into a further lease of the hotel. Further finance was provided by the Humberclyde Group on 10th December 1990 by means of a leasing agreement in respect of the chattel equipment in the Hotel.

7. The third of the issues I described earlier depends in part on the state of account between the Company and the Humberclyde Group in the period May to September 1991. At this stage it is sufficient to record that it is not disputed by the directors that during that period the Company owed the Humberclyde Group not less than £13.5m. On 10th June 1991 Robson Rhodes, a firm of accountants, reported that in their view the Company was insolvent. On 21st June 1991 the Humberclyde Group granted to the Company a further facility but one which required the Company to permit Robson Rhodes to monitor the Company’s expenditure in order to safeguard the interests of the Humberclyde Group. Pursuant to the terms of this facility and a facility granted on 25th July 1991, the Company granted three further debentures to companies in the Humberclyde Group in June and July 1991.

8. On 9th September 1991 a company in the Humberclyde Group took possession of the Hotel as mortgagee and entered into a management agreement for the future management of the Hotel with another company in the Group. The first two of the three relevant actions were commenced by writs issued by the Company on 23rd October 1991. In the first, the Redemption Action, it was alleged that the complicated transactions by way of lease and lease-back and put option entered into on 22nd January 1990 were in substance a loan of £8.5m. on mortgage which might and should be redeemed. In the second, described as the Window Payment Action, the Company alleged that the Humberclyde Group were in breach of contract in failing to make a loan of £663,000 during a “window of opportunity”.

9. On 7th January 1993 a statutory demand was served on the Company for non-payment of sums alleged to be due by the Company under the chattel equipment lease. The demand was not complied with and a petition for the winding up of the Company was presented to the Court on 5th March 1993. On 22nd October 1993 the Company commenced the third relevant action. This, the Conspiracy Action, alleged that four companies in the Humberclyde Group and Robson Rhodes had conspired together in the period May to September 1991 to deprive the Company of its hotel and business. The Company sought damages in respect of that loss but did not attempt to quantify it. For present purposes it is sufficient to record that the merits of that claim were considered by Mr Neuberger QC, sitting as a deputy judge of the Chancery Division, in his judgment on the petition to wind up the Company given on 11th November 1993 and by the Registrar of Civil Appeals in his judgment, given on 17th July 1995, on an application by the Humberclyde Group for security for their costs of the Company’s appeal from the winding up order made by Mr Neuberger. Neither of them was impressed with the alleged merits of the Conspiracy Action. The Company’s appeal against the winding up order was ultimately dismissed on 26th January 1996 for failure to provide the security for costs ordered by the Registrar.

10. On 23rd May 1996 the Official Receiver gave notice to the Company’s creditors that he proposed to assign the causes of action relied on by the Company in all three actions to the Directors on terms that 40% of the recoveries (if any) would be paid to the liquidator for distribution in the winding up of the Company. By then it was clear that the Official Receiver could not pursue the actions as the liquidator for he had no funds with which to do so and the Company was likely to be, as shortly afterwards it was, ordered to provide security for costs in each of them. On 28th August 1996 the Hotel was sold by the Humberclyde Group, as mortgagee, as one of a portfolio of hotels for £17.5m.

11. On 14th February 1997 Chadwick J directed the Official Receiver to apply to the court for directions under s.168(3) Insolvency Act 1986. This was in the context of a rival proposal made by the Humberclyde Group on 7th June 1996 and an application of the Humberclyde Group for an injunction to restrain the Official Receiver as liquidator from accepting the proposal of the Directors. It is plain from the terms of the order that Chadwick J envisaged at that early stage that it would be necessary to adopt the procedure applicable to a trustee’s application for directions whether to sue a beneficiary.

12. A revised proposal was submitted by the Humberclyde Group to the Official Receiver on 27th March 1997. It involved a number of elements which it is unnecessary to describe. It was valued by the Official Receiver as worth 1.6 p in the £1 to each unsecured creditor.

13. The application of the Official Receiver directed by Chadwick J on 14th February 1997 was duly issued on 23rd April 1997. The Official Receiver sought directions as to the manner in which he should deal with the causes of action relied on in each of the three actions, in particular whether he should assign them to the Humberclyde Group or to the Directors. The application was supported by various reports of the Official Receiver. Affidavit evidence from the solicitors for the Humberclyde Group was also put before the judge. But there was no affidavit evidence from the Directors.

14. We have seen transcripts of the hearing of the application on 10th and 11th June 1997, save for that part of the proceedings on 11th June 1997 when the representatives of the Humberclyde Group had, at the request of the judge, withdrawn. The application was opened by Counsel for the Official Receiver until shortly after the midday adjournment on 10th June. Counsel for the Humberclyde Group addressed the judge until the middle of the morning on 11th June. Chadwick J then invited the Directors to address him. Mrs Spence did so on behalf of herself and Mr Hicks. It soon became apparent that she wished to put before the judge a letter from her former solicitor. At this point the judge indicated that he would have to proceed in the absence of the representatives of Humberclyde by treating the matter on the same basis that he would deal with a Re Moritz type summons. Counsel for Humberclyde demurred but complied with the judge’s request and left court. On his return to court that afternoon the judge indicated that there were one or two points “arising partly out of what Mrs Spence has been telling me and partly out of my own thougts [on] which you should have an opportunity of addressing me”. In his judgment Chadwick J said that

“I have also taken account of the material in the opinions of counsel which have been obtained by the company or by Mr Hicks. Those opinions cannot be disclosed to the Humberclyde companies who are actual defendants. It would not be appropriate, in this judgment, to set out their contents in any detail. It is enough that I am satisfied, from what I have seen, that there are matters which require investigation and that it is not possible, at this stage, to say that the claim in conspiracy would be bound to fail. There are serious difficulties in its way. It may be that at some stage a court will reach the conclusion that it is not sustainable. If so, it will be struck out. At this stage I bear in mind that the position after trial in a conspiracy action, following full discovery and oral evidence, may look rather different from the position as it appeared to Mr Neuberger QC on the hearing of the winding up petition; or as it appeared to Mr Registrar Adams on the hearing of the application for security for costs.”

15. In Re Moritz [1960] 1 Ch. 251, to which Chadwick J referred, trustees of a settlement had applied to the court for directions whether they should sue two of their beneficiaries. The fact that the proposed defendants were beneficiaries caused problems for they were bound to be joined as parties to the application but the trustees were not prepared to show them the evidence on which they relied including, as it did, privileged information and advice. In those circumstances the trustees refused to supply such evidence to those beneficiaries. The beneficiaries sought an order for disclosure of the evidence to them. Wynn-Parry J refused to make the order sought. He said, at page 254

“Speaking for myself, so far as I know, it has been the practice of this court, without exception, over a great many years, that where, in such a case as this, application is made by a trustee, ex necessis where there are disputes, for directions from the court as to whether or not proceedings should be brought against the defendants, those defendants are not entitled to be heard upon that application. The court acts upon such evidence as is placed before it and it expresses itself one way or the other.”

He then referred to Re Kay’s Settlement [1939] Ch.329 and Re Hinchcliffe [1895] 1 Ch.117 and continued, on page 255

“As I understand it, the practice in this Division is that where a trustee finds it is compelled to ask for the directions of the court as to whether or not certain proceedings should be taken, while it is proper and indeed necessary to join the parties against whom the proposed relief is sought, those parties should not be present in Chambers when the matter is debated; and they should not be furnished with the evidence upon which the court is asked to act. The court in these circumstances is appealed to by the trustee to say “Aye” or “No”, in view of the circumstances put before it, should the action proceed, and, if so, how far? Very frequently, the leave to proceed is limited, for instance, up to discovery, but it would seem to me to be a quite unjustified inroad upon what I conceive to be a very useful practice if I were to allow this application and to allow the two defendants not merely to be present at the begining of the proceedings when the originating summons is heard, but to remain there throughout those proceedings and to have all the evidence on which the trustees are asking the court for its directions. I know of no precedent for it, and, in my view, it is completely against the established practice.”

16. In Re Eaton [1964] 1 WLR 1269 Wilberforce J endorsed the procedure as described by Wynn-Parry J in Re Moritz as reflecting the correct general rule and practice because the court is acting in an essentially administrative capacity. He added that the court endeavoured to adjust its actions to the circumstances of the individual case with a view to doing justice so far as possible to all the parties. In that case he permitted the beneficiaries to submit a statement of facts indicating why, in their view, they should not be sued. The practice, as described in Re Moritz , was also endorsed by Oliver J in Midland Bank Ltd v Green [1980] Ch. 590, at page 609 and is, in my view, beyond doubt.

17. Counsel for the Humberclyde Group submitted that the procedure was limited in its application to trustees seeking directions whether to sue a beneficiary and had no application to the different problem faced by the liquidator, which of two rival offers to accept. He suggested that the purpose of the procedure was to resolve the dilemma of the trustee how to make sure he got his costs of the proposed action out of the trust fund without making advanced disclosure to the proposed defendant. As, so he submitted, there was no such dilemma in this case so the procedure was inapplicable.

18. I do not accept that submission. The power which the Official Receiver was seeking to exercise is that conferred by para.6 Sch.4 Insolvency Act 1986 to sell the property of the company, as opposed to that conferred by para.4 to bring legal proceedings in the name and on behalf of the company. Though the power is exerciseable without sanction in any winding up it is subject to the control of the court s.167(3) Insolvency Act 1986. The jurisdiction Chadwick J was exercising is that conferred by s.168(3) Insolvency Act 1986 whereunder

“the liquidator may apply to the court...for directions in relation to any particular matter arising in the winding up.”

19. Counsel’s description of the purpose of the practice in Re Moritz applications as the resolution of the dilemma he described is altogether too narrow, even though it may express the practical result. The purpose of the procedure is in an essentially administrative jurisdiction, as described by Wilberforce J in Re Eaton , to ensure so far as practicable the proper exercise of fiduciary powers or obligations. It is true that the directions sought in this case are essentially how and to whom the asset of the company should be sold rather than whether the company should itself sue. But that distinction lacks substance. In each case the problem is how best to realise an asset of the fund, be it a trust fund or the property of a company in liquidation divisible amongst its creditors, which consists of a chose in action. Such an asset may be realised by suing on it or selling it. The Re Moritz procedure plainly applies to the former alternative and I can see no reason why it should not similarly apply to the latter. In my view it is appropriate to apply the practice and procedure applicable to applications by trustees under RSC Ord.85 r. 2(3) to comparable applications by a liquidator under s.168(3) save insofar as the Insolvency Act or Rules make other provision. Accordingly I would reject the first of the procedural objections relied on by the Humberclyde Group.

20. The second objection is that Chadwick J failed to give to counsel for the Humberclyde Group adequate opportunity to deal with the alleged lack of merit in the Conspiracy Action. To explain this submission it is necessary to describe the course of the hearing in greater detail. The evidence before the judge, which he had obviously read with care, included the judgments of Mr Neuberger QC and of the Registrar of Civil Appeals to which I have already referred and two affidavits of the solicitor for the Humberclyde Group. In the first the solicitor referred to all three actions having been established “to be wholly without merit” together with quotations from the judgments of Mr Neuberger QC and the Registrar to that effect. In his second affidavit he referred again to the fact that “for the reasons given in my first affidavit and amplified herein, the actions are without merit”. The judge can have been in no doubt as to the contention of the Humberclyde Group.

21. During the morning of 10th June counsel for the Official Receiver invited the judge to look at opinions of counsel obtained by the Legal Aid Board and Mr Hicks on the merits of the actions. He indicated that he did not wish to do so at that stage and certainly not in the presence of the representatives of the Humberclyde Group. He doubted whether he would be assisted by argument which sought to give alternative percentage prospects of success. He described the points he had to consider as being first whether the action could proceed at all in view of the existing orders for security for costs, second, whether the Directors were likely to obtain legal aid to prosecute the actions if the causes of action were assigned to them and

“when I have weighed the two chances of, first, the action going ahead at all and, secondly, the action going ahead with the benefit of legal assistance, it may then be relevant to consider whether it really is such a hopeless claim that it would effectively be struck out.”

In the course of his submissions during the afternoon of 10th June counsel for the Humberclyde Group suggested that there was no merit in the Conspiracy Action for which he was rebuked by the judge on the ground that the point under consideration being one of law did not depend on the merits of the Conspiracy Action. On the morning of 11th June when Mrs Spence commenced her submissions the judge invited her to deal with the questions arising on legal aid, security for costs and the amount of the debt claimed by the Humberclyde Group and said

“until you have covered those points, do not venture into the merits of your conspiracy action because those three matters I think are matters which [counsel for Humberclyde Group] and those with him can perfectly well be here for.”

22. In the argument about whether the judge could properly exclude counsel for Humberclyde Group he indicated that if the opinions of counsel he was invited to look at cast a new light on the merits of the causes of action

“then I shall have to consider it, and if that raises some question which I think you should have the opportunity of dealing with, I will put the question to you.”

As I have already indicated that is what the judge did when counsel for the Humberclyde Group returned to court on the afternoon of 11th June. The questions raised by the judge fell under the following headings: the orders for security for costs already made, the amount of costs incurred in obtaining those orders, a document produced by the Directors claimed to emanate from Robson Rhodes and to be a consolidated profit and loss account and balance sheet for the Company for the year ended 31st August 1991 as printed out on 30th June 1993 with particular reference to the amount of the debt due to the Humberclyde Group, the likely fruits of the Conspiracy Action if it proceeded and was successful, Mr Hicks’ counterclaim to Humberclyde Group’s claim against him on his guarantee for which he had obtained legal aid and which was similar to the allegations made in the Conspiracy Action, and various faxes from creditors which had been sent to the court that day. At the conclusion of that lengthy enquiry the following exchange took place

Chadwick J

“I think those are the points that I wanted you to address me on, although if there is anything you want to add you should do so.

Mr Moss

“No I think that we have made our points on those areas which your Lordship has invited submissions. We have tried our best not to get into the merits although we have strayed into them from time to time.”

At the conclusion of the hearing the judge, evidently addressing the court at large, said

“I do not want anybody to leave feeling that they have not said to me whatever they want to say to me. Does anybody else want to say anything to me?”

There was no reaction to that invitation from any of those present.

23. Given that the judge was entitled to apply the Re Moritz procedure and withold from the Humberclyde Group the contents of the opinions of counsel to which he had been referred, and given the invitations to counsel for the Humberclyde Group to address the judge on any other matter counsel wished to raise, I cannot accept the submission that the judge failed to give to counsel for the Humberclyde Group adequate opportunity to address him on the alleged lack of merit in the Conspiracy Action. In my view it is plain that having been excluded, notwithstanding his argument that the Re Moritz procedure was inapplicable, for part of the Directors’ submissions and having dealt with all the points the judge raised with him counsel for the Humberclyde Group sensibly realised that there was nothing to be gained by seeking to elaborate the arguments, already canvassed in the affidavits, concerning the alleged lack of merit in the Conspiracy Action. I do not see anything unfair in the course the proceedings took. In any event no party sought a new trial and, had it arisen, counsel would have been afforded the opportunity to address this court on the alleged lack of merit. For these reasons I would reject the second procedural objection.

24. I turn then to the third issue: where the balance of debt lay. Having set out the facts, described the attitude to the application of the various creditors and the effect of the rival proposals on which he was required to give directions Chadwick J turned to the first objection of Humberclyde Group that applying Stein v Blake [1996] AC 243 there was nothing to assign

“unless it can be shown that the Company’s claim in the actions against the Humberclyde companies may exceed the claims of those companies against the company”.

He then proceeded to analyse the cross-claims with particular reference to the Conspiracy Action in which the claim of the Company had not until then been quantified. In that connection he said

“Some indication of the value that might be put upon them [sc.the claims] can be seen from the figures in the Christie & Co. Report of 24th October, 1989, to which I have already referred. The Christie & Co. report puts projected value on the hotel as a going concern at the completion of phase 4, which is the point at which the development is said to have reached by September, 1991, of £22.5 million. It is necessary of course to bear in mind that that was a valuation made in 1989 and circumstances dramatically [changed] in the market between 1989 and the middle of 1991. But even discounting for that, it is still clear that the valuation at the completion of phase 4 is likely to be in the order of £18 million to £20 million. As at that date the amount due to the Humberclyde companies was approximately £13.5 million. It follows that if - and if is the word which must be emphasised - the allegations in the conspiracy action can be made good, the company was deprived of an asset worth some £18 million to £20 million by the action of Humberclyde and Robson Rhodes, whose secured claims over that asset amounted to some £13.5 million. A difference of £5 to £7 million. Whether those figures can be made good - and whether the allegations can be made good - is not a matter which I can decide today. It would not be appropriate to attempt to form any view. I mention the figures only to show that it is by no means self-evident that the claim in the conspiracy action will be nominal. On the basis of those figures the claim, after set-off, is likely to be between £5 million and £7 million with interest.”

25. The evidence before the judge included a later open market valuation of the hotel in its then existing use and condition by Christie & Co. as at 28th November 1994 in the sum of £11m. That valuation stated that there had been a slight rise in values for hotels “as between 1992 and 1993 albeit that in real terms values are still well below those achieved at the height of the market in 1989”. Though the page of contents indicated that a Report dated 27th August 1991 formed part of Appendix II it was not included in the exhibit. We gave leave, there being no opposition, for that report (“the 1991 Valuation”) to be adduced in evidence at the hearing. The admission of the 1991 Valuation gave rise to applications from the Directors to which I will refer later.

26. The 1991 Valuation was prepared by Christie & Co. on the instructions of a director of the Humberclyde Group, Mr Powell. The covering letter from Christie & Co. indicated that the Report was a current open market valuation of the freehold interest of the fully equipped and operational Hinckley Island Hotel as at 19th August 1991 following an inspection on that date in the company of a partner of Robson Rhodes who had provided information on which Christie & Co. had acted. The Report referred to a reduction in room occupancy as being “in part a reflection of the deterioration in general trading conditions and also the fact that additional bedrooms having been added which will require a period of time before fully trading”. The conclusion expressed on page 5 of the Report was

“Hinckley Island Hotel is a property and business in a transitional state which has yet to achieve full trading based on current facilities and, in common with much of the hotel industry, is suffering from the current recession.

We further comment that although the current income mix is in line with hotel industry norms, nevertheless the addition of a further 83 letting bedrooms in Bedroom Block C may result in an imbalance in the facilities of the hotel and further depress room occupancy statistics.

Finally, as a result of the current recession we are observing few major capital decisions being taken and scarce evidence of sales in all market sectors, including hotels. Against this background, we have substantial doubts about the saleability of the hotel and we consider that in the present market over twelve months would be required to negotiate a sale.

Our opinion of the open market value of the freehold interest in the Hinckley Island Hotel, A5, Hinckley, in its existing use as a fully equipped and operational hotel, as at 19th August 1991, is in the region of:

£10,000,000

(Ten Million Pounds)”

27. The admission of the 1991 Valuation gave rise to two applications by or on behalf of the Directors to which it is convenient to refer now. On 30th October 1997 I directed that the application of the Humberclyde Group for, amongst other directions, leave to adduce further evidence on the hearing of the appeal should be determined by two Lord Justices at an oral hearing. The application came before Lord Justice Waller and me on 27th January 1998. The Directors were represented by solicitors and junior counsel. The directions given included a direction that the application of the Humberclyde Group for leave to adduce further evidence be adjourned to the court hearing the appeal and that any application for leave to adduce further evidence in answer to such evidence be likewise adjourned. Correspondence then ensued between the solicitors for the Humberclyde Group and for the Directors whereby the former sought to obtain fair warning of any further evidence for which the Directors would seek leave. On 12th March 1998 the solicitors for the Directors indicated that the further evidence (if any) would be made available to Humberclyde Group no later than Friday 17th April, on 6th and 7th May they indicated that there would be no further evidence but on 18th May stated that leading counsel, by then instructed by them to represent the Directors, was of the view that it might be necessary to seek leave to adduce further evidence.

28. The hearing of the appeal started on 19th May 1998. In the event leading counsel for the Directors limited his application to one letter dated 28th August 1991 from the Directors to Robson Rhodes challenging figures produced by the latter which are likely to have been communicated to Christie & Co. and have been taken into account by them in making the 1991 Valuation. He sought to use it to undermine the weight which might otherwise be placed on the 1991 Valuation. We refused leave to adduce that letter in evidence because we considered that the application was made far too late. The argument was concluded on the first day and we indicated that we would reserve judgment. By a letter from the Directors dated 20th May we were informed that they had dismissed their solicitors and counsel. As litigants in person they sought leave to adduce further evidence in answer to the evidence of the Humberclyde Group and to reopen the hearing. They relied on the passage in the Supreme Court Practice Vol.1 para.59/1/63 which states that the Court of Appeal may alter its decision before its order has been perfected.

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

30. Accordingly the evidence in respect of the third issue is confined to that to which I have already referred. For the Humberclyde Group it is contended that assuming (contrary to other submissions advanced by the Humberclyde Group) the judge was right to apply the set-off provision of Insolvency Rule 4.90 the 1991 Valuation shows that he took the wrong figures with the consequence that he got the wrong answer. It is submitted that the debt of the Company, which was admitted to be at least £13.5m, should be set against the value of the Hotel given in the 1991 Valuation of £10m and not against the speculative figure of £18m to £20m arrived at by discounting the valuation given in 1989, on the assumption that phase 4 had been completed, of £22.5m. If that is correct then there is nothing for the Official Receiver to assign to the Directors for the debt due from the Company would exceed the maximum sum recoverable in the Conspiracy Action if it were fought to a successful conclusion.

31. For the Directors counsel submitted that the appropriate comparison was to be made as at the time of the alleged conspiracy, namely May to September 1991. He accepted that the debt due by the Company was at least £13.5m (a figure made up of £8.5m in respect of the premium and £5.1m development expenditure). Thus the question depended on the proper figure to take for the Hotel. He submitted that the court could not be satisfied to the requisite degree of certainty for which he contended, namely conviction, that £10m was right. He relied on the fact that, as the 1991 Valuation shows, relevant information was supplied to Christie & Co. by two of the individuals alleged to have conspired on behalf of the Humberclyde Group and Robson Rhodes. He suggested that the 1991 Valuation was dependent in part on figures which, when used in a different context, had been criticised by the Directors. But in the absence of the letter which had not been admitted in evidence he was unable to make that submission good.

32. I do not accept the submissions made on behalf of the Directors. There is no suggestion that Christie & Co. were party to the conspiracy alleged against the Humberclyde Group and Robson Rhodes. The 1991 Valuation was entirely consistent with that of 1989, given the condition of the hotel at the former date, and of 1994 given the change in the market conditions which were noted. The shortfall of one third of the value of the Hotel is substantially more than the accepted valuation margin and there seems little doubt that the debt of the Company at that time was £14.5m rather than £13.5m. The value of the Redemption Action and the Window Payment Action were minimal by comparison and no reliance was placed on them in this court. In these circumstances I am driven to the conclusion that the Conspiracy Action could not yield a money judgment sufficient to extinguish, let alone overtop the debt due by the Company to the Humberclyde Group. Accordingly, assuming the application of Insolvency Rule 4.90, there can be no cause of action susceptible of assignment to the Directors. Thus the foundation to the judge’s conclusion is shown by the 1991 Valuation not to exist and, in my view, the appeal of Humberclyde should be allowed.

33. At the hearing it was confirmed that the revised offer of the Humberclyde Group put forward in the letter from their solicitors dated 27th March 1997 was still open for acceptance. In those circumstances I would allow the appeal and, subject to any further submissions of counsel, make an order in the terms of paragraph 1 of the order sought by the notice of appeal.

Brooke LJ. I agree.

Hirst LJ. I also agree.