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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Swynson Ltd & Anor v Lowick Rose Llp [2014] EWHC 2085 (Ch) (30 June 2014) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2014/2085.html Cite as: [2014] EWHC 2085 (Ch), [2014] CN 1161, [2014] PNLR 27

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		30/06/2014

Mrs Justice Rose:

1. The First Claimant ('Swynson') is a company owned indirectly by the Second Claimant ('Mr Hunt'). At the end of October 2006, Swynson lent a substantial amount of money to an English company called Evo Medical Solutions Limited ('EMSL'). The loan was made to enable that company to facilitate a management buy-out of a company based in Des Moines, Iowa, USA, called Medical Industries America Inc, trading as Evo ('Evo'). Evo's business was the distribution of medical devices in the USA. The Claimants say that they made that loan in reliance on the advice and positive due diligence reports they received about Evo's future prospects from Mr Bruce Morrison of the Defendant accountancy firm. At the relevant time the Defendant firm was called Hurst Morrison Thomson and I will refer to it in this judgment as 'HMT'. The Claimants allege that that advice and encouragement was given negligently. Soon after the loan was made, it became clear that Evo's business was not picking up in the way its management had forecast. EMSL defaulted on the payments of interest due and on the repayment of the instalments of the principal sum they were supposed to repay. Swynson made further smaller loans in 2007 and 2008 in the hope that Evo's fortunes could be turned around. In fact the business never enjoyed any great success and apart from the sale of some real property owned by the company, the assets of Evo have proved worthless. The total loss claimed is now over £16 million.

The loan made by Swynson in October 2006

2. Evo was incorporated in Iowa in 1987 and was owned by Mr and Mrs Bird. Evo's business was the manufacture and supply of medical devices particularly those designed to help people manage respiratory illness in the home. By mid 2006, Evo's business focussed on the supply of products in three main areas: oxygen therapy, for example sales of a portable oxygen concentrator; aerosol/nebulizers, for example a micro pump nebulizer; and sleep products such as a ventilation device which produced a stream of air into the nose to keep the patient's airways open. By that time also the Birds had handed over executive control to Mr Bryan Hansel and Mr Daniel Bunting. In addition to the company's operations in Iowa, there was some limited business in Europe. There was an Evo employee, Mr Robin Mackie, based in England with responsibility for developing sales in Europe. The turnover of Evo for the year ending 31 December 2004 was just over $25 million and earnings before interest, tax, depreciation and amortisation were about $2.4 million.
3. HMT first became involved in discussions about the sale of the Birds' interest in Evo in May or June 2006 when a different buyer was briefly interested in funding the company. When that buyer withdrew, Mr Morrison approached Mr Hunt. The two men had worked together on a range of deals in the past and had been colleagues and friends for many years. Mr Hunt is a wealthy business man who, at least at this time, was looking for ventures to invest in. One of his preferred methods of investment was to lend money to companies whose business was too risky for them to be able to borrow on normal terms from banks. He would lend money at interest rates higher than the banks would commonly charge and would in addition charge either a substantial 'arrangement' fee up front or a redemption fee when the loan was repaid. He would expect the bulk of the principal of the loan to be repaid either when the company prospered or, more likely, when the company was floated on a stock market for small companies, such as AIM in London. Some of the projects that Mr Hunt invested in he described as 'hobby' companies because they related to football in which both he and Mr Morrison were very interested or had some philanthropic aspect which appealed to him. Other investments were made purely for business reasons; for these his evidence was that one of his criteria for choosing to invest was whether he and his people could take over the running of the company if it got into difficulties.
4. Mr Hunt met Mr Hansel and Mr Mackie together with Mr Morrison at a meeting in London on 13 July 2006. The investment proposal being put forward to Mr Hunt was that he would provide funding for a management buy out of Evo and also that he would take a 25 per cent stake in Evo in addition to earning the interest and arrangement or redemption fee. The total funding requirement was said to be £15 million made up of a purchase price of $23 million and a working capital requirement of $2 million. At that meeting it is alleged by the Claimants that Mr Morrison made various representations to Mr Hunt about the current and projected health of the Evo business and about Evo's strong position in the market for distributing the medical devices which it stocked. It is alleged further that after that meeting, in or about mid to late July 2006 or early August 2006, Mr Morrison again emphasised to Mr Hunt that Evo represented a high return and low risk investment opportunity. The Claimants assert that Mr Morrison expressly or impliedly represented to Mr Hunt that the team at HMT had checked the forecasts being put forward by the management of Evo about the strong sales growth expected in the short term and that they were satisfied that these forecasts had a sound basis.
5. Mr Hunt agreed in principle to pursue this investment opportunity and in August 2006 he instructed lawyers to assist in putting together the contractual documents to effect the transaction. The Claimants also instructed HMT to carry out financial due diligence work on Evo. It was common ground that there was no engagement letter signed by Swynson and HMT at this point. There are engagement letters signed by them but it is accepted by HMT that these were only produced and signed later, in February 2007, though they were back-dated to various dates in September 2006.
6. In the autumn of 2006, Mr Morrison and his colleagues went to Des Moines to carry out investigation into Evo's business. Mr Morrison was assisted by Mr Hussein Mohamed who also worked for HMT. They met Evo's suppliers and spoke with the Evo management there. They were provided with business projections for the coming months and years by the management. Mr Morrison accepted in his evidence that part of HMT's role was to adopt a sceptical stance vis a vis such projections and check whether they were realistic or not. There was substantial email correspondence to and fro during the course of October 2006, including an agreement that the cap on HMT's liability for the due diligence exercise would be raised from the £5 million suggested by HMT to £10 million insisted upon by Mr Hunt. One of the issues between the parties is whether when the letters of engagement came to be signed in February 2007, this limit was further increased to £15 million.
7. The loan transaction was scheduled to be concluded on 31 October 2006. HMT sent a draft of their due diligence report to Swynson's offices on 30 October 2006. They emailed the final version of the report to Swynson at about 4:30 pm on 31 October 2006. I shall refer to that report as the 'Due Diligence Report'. The agreements comprising the deal were signed by Swynson later that evening on 31 October 2006.
8. The structure of the deal was that the English company EMSL set up a US subsidiary called EMS Solutions Inc and that subsidiary bought the entire share capital of Evo from Mr and Mrs Bird for the price of $22,350,000. EMS Solutions Inc then merged with Evo so that Evo became directly owned by EMSL. The shares in EMSL were held as to 25 per cent by a company called Henley Trustees Ltd on behalf of Mr Hunt, as to 71.4 per cent by the MBO team (that is Mr Hansel, Mr Bunting and Mr Mackie) and as to 3.6 per cent by a Mr Gallagher, a colleague of Mr Hunt's who agreed to be a non-executive director of EMSL to look after the interests of Swynson on the board. Mr Hansel and Mr Bunting became the executive directors of EMSL on 31 October 2006.
9. On 31 October 2006, therefore, Swynson made a loan to EMSL totalling £15 million secured by charges granted by EMSL and Evo over the companies' assets. There were also personal guarantees given by the MBO team, limited to an aggregate of £500,000. This loan ('the 2006 Loan') carried an interest rate of 6 per cent per annum above National Westminster Bank plc base rate to be paid on the last business day of each month. It was repayable in full with interest on 31 October 2007 and it was subject to an arrangement fee of £750,000 to be paid in monthly instalments from 30 April 2007. The monies used by Swynson to make the loan were initially borrowed by Swynson from the account with Credit Suisse bank owned by another corporate vehicle of Mr Hunt called ABC. Swynson then opened an account with Credit Suisse which was used to repay the ABC account on 28 February 2007. This borrowing was guaranteed by Mr Hunt and secured on Mr Hunt's assets by Credit Suisse. No security was provided by Swynson to Credit Suisse for the loan.

The evidence as to the Due Diligence Report and the 2006 Loan at trial

10. At the trial before me, the main witnesses were Mr Morrison for HMT and Mr Hunt for the Claimants. I find that both men were doing their best to give an accurate account of events to the court. Mr Morrison had very little independent recollection of the events surrounding the deal and he could not remember much of what had been said at meetings or in conversations with Mr Hunt. He gave the impression that he had 'moved on' from these events; that this had been one of a large number of deals that he was working on then, he has worked on many other deals since and there was nothing particularly remarkable about these events to make them stick in his mind. He is now working for another firm. Mr Hunt's recollection of events was more detailed than Mr Morrison's and as Mr Morrison was not in a position to gainsay it, much of Mr Hunt's evidence went effectively unchallenged.
11. During his careful cross-examination of Mr Morrison on behalf of the Claimants, Mr Sims QC pointed out to him aspects of the contemporaneous financial documents from Evo. It appeared that Mr Morrison had not appreciated the significance of the numbers that he was being shown though he accepted that either he had seen the relevant documents or that they would have been made available to him by Evo's management if he had asked for them during the course of the financial due diligence exercise. He frankly accepted that if he had seen some of the figures that Mr Sims showed him in the Evo documents, he would have been under a duty to alert Mr Hunt to some serious problems in the Evo figures and that if he had done so, it was likely that Mr Hunt would have called a halt to the transaction, even if this had meant backing out at the eleventh hour shortly before the transaction was due to complete.
12. After Mr Morrison had completed his evidence and Mr Ramsden for HMT had been able to take instructions, it was conceded that HMT had been negligent in the preparation of the Due Diligence Report. It was also accepted that there was a causal link between HMT's negligence and the decision of the Claimants to enter into the loan transaction with EMSL. The position was helpfully encapsulated in a revised joint report by the parties' expert witnesses who had been retained to give evidence about the standard of care expected of a firm carrying out due diligence and as to the reasons for Evo's very poor performance and failure to achieve its forecasts. That evidence was no longer relevant to the claim. Their supplemental report prepared after Mr Morrison had given evidence records as follows:

i) If a provider of financial due diligence services were to identify 'a black hole' or 'catastrophe' in the business of the company under investigation, they agree that it has a duty to report that as soon as possible to the client.

ii) The insufficiency of Evo's working capital was one of the four principal reasons for the failure of Evo to achieve its forecasts.

iii) There was a $3 million - $4 million adverse difference between Evo's actual and forecast working capital as at the date of completion – an amount which would have had a material impact on Evo's cash flow post completion.

iv) Since Mr Morrison accepted that this difference could reasonably have been discovered by HMT during the course of its investigations in Des Moines and further that it should have been reported to Mr Hunt, the experts agree that the standard of HMT's work fell below that of a reasonably competent financial due diligence provider.

v) Evo's actual performance in October 2006 was significantly below the forecast for that month provided by Evo's management to HMT; HMT failed to take reasonable steps which would have discovered this. In this regard also the standard of HMT's work fell below reasonable competence.

vi) Mr Morrison had accepted in evidence that had he discovered this discrepancy between the October 2006 forecast and October 2006 actuals, he would have informed Mr Hunt and Mr Hunt would likely at least have delayed the completion of the transaction.

The subsequent loans in 2007 and 2008

13. By the end of the first quarter of 2007, it became clear to everyone that Evo was not enjoying the increase in business that management had predicted. EMSL did make the monthly interest payments to Swynson for the first few months but during the first quarter of 2007, Mr Morrison told Mr Hunt that Evo was experiencing cash flow problems. The parties discussed whether further financing could be obtained by entering into a factoring agreement with a bank. But it was thought that a bank would only be willing to enter into such a deal if Swynson agreed to subordinate its loan to the bank's security over the business. Mr Hunt was unwilling to agree to this. At the end of June 2007 EMSL failed to make its monthly interest payment. In late July 2007, Mr Morrison told Mr Hunt that Evo was at risk of financial collapse without further investment.
14. Mr Hunt agreed that Swynson would offer additional funding of $4 million. On 13 August 2007 Swynson granted a further facility of £1.75 million (the '2007 Loan'), providing for a drawdown of £1.25 million on 14 August 2007 and a further tranche of £500,000 on 1 October 2007. This loan was repayable on 31 October 2007, at the same time as the 2006 Loan. Interest was set at 5.5 per cent over base, with a minimum base rate of 5.75 per cent. There was a facility fee of £2,400 per month due from 30 August 2007.
15. Despite this injection of funds there was still no improvement in Evo's sales performance and Evo began to experience problems with its suppliers. The company's shortage of cash was damaging its relationships with its suppliers and this in turn meant that it could not acquire the stock it needed to supply its own customers. As Mr Hunt said in his evidence: "the management team at Evo did not appear to have any continuity or consistency in their way forward, they were forever changing their plans and seemed to be lurching from one crisis to another". When it came to the time for the second drawdown of the 2007 Loan at the start of October 2007, Mr Hunt says that he was very reluctant to allow Evo to draw down the £500,000. A meeting was held between Mr Hunt, Mr Morrison, Mr Hansel, Mr Mackie and Mr Bunting in London on 11 October 2007. The management laid out the case for the second payment to be made. They said that they needed additional money for a very short period of time to tide them over until January 2008 when they were absolutely confident that their sales programme would take off. Mr Hunt's evidence is that he thought management's explanation for their consistent failure to meet their targets was lame and he began to have serious reservations about the competence of the people involved. However, the £500,000 was paid to Evo on 12 October 2007.
16. As regards the making of the 2007 Loan, the Claimants' pleaded case was put on the alternative bases that (i) Swynson had entered into the 2007 Loan as an independent transaction on the advice of Mr Morrison so that a separate cause of action in negligence arose in respect of that Loan; and/or (ii) that the 2007 Loan should be regarded as a step taken by the Claimants in a reasonable attempt to mitigate the loss arising from the making of the 2006 Loan in reliance on Mr Morrison's advice in summer 2006 and the Due Diligence Report. During the course of his cross-examination by Mr Ramsden, however, Mr Hunt accepted that there was no alternative to making the 2007 Loan 'other than to cease with the company'. He effectively accepted that regardless of the advice given by Mr Morrison in 2007, he had no choice but to allow both tranches of payment under the 2007 Loan or else allow Evo to collapse and lose all the value of the 2006 Loan. Following the completion of his evidence and upon Mr Sims then being able to take instructions, it was conceded by the Claimants that there was no independent reliance on advice from HMT in respect of the 2007 Loan so that only the second of the pleaded alternatives was pursued.
17. By the end of October 2007, Evo/EMSL should have repaid the 2006 Loan of £15 million and the 2007 Loan of £1.75 million. This did not happen. There were also interest payments and loan arrangement fee payments outstanding. Mr Hunt's colleague Mr Littlewood who was working for him on these problems at the time summed up the situation by saying that Evo had no cash and they were very close to insolvency. Some measures were put in place to reduce Evo's costs and to restructure the debts. There was also some discussion about Evo buying a new business that would give them a better distribution outlet to the market for their products. Mr Hunt's evidence was that by April 2008 the Evo management team had lost all credibility in his eyes. The management accounts showed that Evo continued to be seriously loss making; sales were not recovering and payroll and overheads were increasing.
18. As at May 2008, EMSL had not made any interest payments for over six months. Mr Hunt's evidence was that if there was to be any chance of protecting the initial investment then he had no choice but to support Evo until they were in a position to float on a stock exchange or find a private equity investor. Until such time as they were in a better financial position, neither of those options was likely. He reluctantly agreed to provide a further £3 million to alleviate Evo's cash flow problems. The further loan ('the 2008 Loan') was concluded between Swynson and EMSL on 4 June 2008. The loan was to be repaid in 12 monthly instalments commencing 1 June 2009. Quarterly interest was due in arrears on 31 March, 30 June, 30 September and 31 December 2009. Interest was charged at 1.5 per cent over LIBOR with the final repayment date being 1 May 2010. There was an exit fee of 2 per cent per annum from drawdown to repayment on 1 May 2010. At the same time as entering into the 2008 Loan, the EMSL shareholders agreed that the 25 per cent shareholding held by Henley Trustees Ltd would be converted into 85 per cent preferred ordinary shares giving Mr Hunt majority control of EMSL. The other 15 per cent shareholding was held by members of the Evo management.
19. After the 2008 Loan was agreed, further strenuous efforts were made by Mr Hunt and people working for him to turn the Evo business round. It has not been suggested by HMT that there is anything more that could have been done to achieve this over and above what was done.
20. At the end of 2008 there was a refinancing of the 2006 and 2007 Loans whereby in effect Mr Hunt personally took over the loan from Swynson by providing the funds which enabled EMSL to pay off the sums it owed to Swynson under those two Loans (but not the 2008 Loan). I will describe this partial refinancing in more detail later when considering whether this affects the quantum of loss suffered by Swynson and hence the value of Swynson's claim against HMT.
21. Throughout November 2008 the weekly financial reports from Evo continued to cause Mr Hunt concern. Despite the management changes and restructuring there was no indication that Evo's fortunes were improving. By the end of December 2008 Mr Hunt was advised that Evo was very likely to run out of cash in early 2009. Continued efforts were made in 2009 and 2010 to support and rescue the business but without success. On 23 May 2011 Mr Hunt exercised his rights under his loan and the associated debentures to cause Evo to transfer real property in Iowa worth $2,252,780 to him (equivalent to £1,398,634 at the then prevailing exchange rate). This property was eventually sold on 3 July 2013 for a net sum of $2,100,864.20 (equivalent to £1,355,396 at the then prevailing exchange rate).
22. On 5 October 2011 a collateral surrender agreement ('collateral' in the sense of a pledge rather than in the sense of 'additional') was entered into whereby Evo's business was surrendered and transferred to a company called Global Medical Holdings LLC which is indirectly owned and controlled by Mr Hunt. The deemed value of the business included in the collateral surrender agreement was said to be no less than $7.5 million, equivalent to £4.85 million at the date of the transfer. There is a dispute over the significance of this deemed transfer value to the quantum of Swynson's loss. Global Medical Holdings LLC continued to make efforts to realise value from the Evo business but in December 2012, the decision was made to wind the company down. The evidence of Mr Simon Rebbetts who works as a tax advisor to Mr Hunt and his businesses is that neither Mr Hunt nor Swynson has received any monies from the realisations. There have been continuing losses and collections from debtors have been absorbed by payments to creditors. The stock left is, he said, virtually unsaleable and "There is nothing – there is no cash left in the bank'.

The loss claimed

23. The loss claimed in the Particulars of Claim served on 13 February 2013 did not seek the lost interest as damages but was limited to the three principal sums loaned in 2006, 2007 and 2008. It gave credit for various receipts and, at that stage also gave credit for the £4,850,000 deemed to be the value of the assets transferred to Global Medical Holdings at the time of the collateral surrender agreement.
24. By the time of the trial, the quantum claim had been revised and was computed as follows:

i) The total of £15 million for the 2006 Loan, £1.75 million for the 2007 Loan and £3 million for the 2008 Loan making a total of £19.75 million.

ii) Credit was give for £265,798 received under the personal guarantees from the Evo management, £1,355,396 realised on the sale of the real property transferred to Mr Hunt in May 2011 and £1,972,109 being repayments of the 2006 Loan made before the defaults started.

iii) The total claimed was £16,156,697.

The issues for determination

25. By the close of the trial the issues outstanding between the parties were as follows:

i) Did HMT owe a duty of care to Mr Hunt personally as well as to Swynson when Mr Morrison gave the advice that led to Swynson making the 2006 Loan?

ii) Has the quantum of Swynson's loss been reduced to nil by the refinancing that took place in 2008 whereby Mr Hunt caused EMSL to repay all outstanding sums under the 2006 and 2007 Loans to Swynson?

iii) Should the Claimants give credit for the deemed value of the assets of Evo that were transferred to Global Medical Holdings LLC in May 2011, that is £4,850,000, even though in fact the assets have not generated any proceeds of sale?

iv) Were the 2007 Loan and the 2008 Loan made in reasonable mitigation of the losses arising from the 2006 Loan?

v) What was the cap on liability agreed between Swynson and HMT – was it £10 million as indicated by the email correspondence during October 2006 or was this amended to £15 million when the Letters of Engagement were signed retrospectively in February 2007?

vi) For what period should interest be paid on the judgment sum, given that the Claimants did not bring their claim until the end of the limitation period?

A. DID HMT OWE A DUTY OF CARE TO MR HUNT AS WELL AS TO SWYNSON?

26. Discussions took place between Mr Morrison and Mr Hunt during the summer of 2006 before Swynson was identified as the corporate vehicle by which the loan would be made to EMSL. Mr Hunt says that misrepresentations were made by Mr Morrison to Mr Hunt about the prospects of Evo's business in the course of those discussions. Previously when Mr Morrison had brought business propositions to Mr Hunt in the course of their dealings with each other over the years, sometimes Mr Hunt entered into the transaction advised upon in his personal capacity and sometimes through a corporate vehicle like Swynson. Mr Morrison was asked in cross-examination about whom he had thought he was dealing with when he had these discussions with Mr Hunt. The following exchange took place:

"Q. You - when you were dealing with this matter in relation to the deal - knew that Mr Hunt was a high net worth individual who you were looking to for the funds, didn't you, in relation to this deal?

A. Yes.

Q. You knew that he would be relying on your work, whichever investment route he, in fact, chose, whether it was him personally who was carrying the investment, CAM or another of his companies?

A. In terms of the due diligence report, you mean?

Q. Yes.

A. Yes, I mean, I think we - my dealings were with Michael and I think I said on my witness statement that actually I was unaware that Debbie was a director of Swynson and my dealings were - it wouldn't have been - we wouldn't have had meetings with Debbie or whoever the other directors were.

Q. It was in effect the Hunt group?

A. Sorry?

Q. It was in effect the Hunt group. It was Mr Hunt personally, all his corporate vehicles, all these companies, as far as you were aware, were Mr Hunt's companies.

A. Yes."

27. On the other hand, it is of course accepted by the Claimants that the letter of engagement governing HMT's work was addressed only to Swynson and EMSL, not to Mr Hunt personally. Further, although it was Mr Hunt who arranged to put Swynson in funds to enable it to make the loan to EMSL he was not himself a party to any transaction with EMSL or Evo at this stage.
28. The pleaded case is that HMT owed both contractual and tortious duties to Swynson to carry out the due diligence work with proper skill and care. The Particulars of Claim then go on to assert:

"120. HMT knew that Mr Hunt's personal assets were ultimately at stake in relation to the proposed Acquisition and Transaction, that he was relying on their representations, advice and due diligence, and accordingly a duty of care was also owed to Mr Hunt in the like terms to that stated in relation to Swynson and EMSL above and below.

121. In particular to the extent that HMT provided any advice or assistance to Swynson and Mr Hunt outside the Retainer it voluntarily assumed a tortious duty to them in that respect (or it would be just, fair and reasonable for such a duty to be imposed), whether or not that work formed part of the work under the Retainer which EMSL was subsequently invoiced for on 30 October 2006."

29. The Defence denies that any duties are owed outside those set out in the letters of engagement between HMT, Swynson and EMSL.
30. In their submissions, Counsel referred to some of the many cases in which courts at all levels have considered the difficult question of when and to whom a duty of care is owed by a professional person giving advice when the claim brought is for pure economic loss. In support of the contention that HMT owed a duty of care to Mr Hunt as well as to Swynson, Mr Sims submitted that Mr Morrison's evidence established that he had 'assumed responsibility' for his advice to Mr Hunt and that that was sufficient to give rise to a duty of care. He relied on a passage in the speech of Lord Goff of Chieveley in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145. The issue for the House of Lords in that case was whether the law of tort imposed any duty on managing agents at Lloyd's insurance market not to cause purely economic loss to Names. Lord Goff, having set out key passages from the House of Lords' decision in Hedley Byrne & Co. Ltd. v Heller & Partners Ltd [1964] AC 465, said at 181C-F: (emphasis added)

"Furthermore, especially in a context concerned with a liability which may arise under a contract or in a situation "equivalent to contract", it must be expected that an objective test will be applied when asking the question whether, in a particular case, responsibility should be held to have been assumed by the defendant to the plaintiff: see Caparo Industries Plc v. Dickman [1990] 2 AC 605, 637, per Lord Oliver of Aylmerton. In addition, the concept provides its own explanation why there is no problem in cases of this kind about liability for pure economic loss; for if a person assumes responsibility to another in respect of certain services, there is no reason why he should not be liable in damages for that other in respect of economic loss which flows from the negligent performance of those services. It follows that, once the case is identified as falling within the Hedley Byrne principle, there should be no need to embark upon any further enquiry whether it is "fair, just and reasonable" to impose liability for economic loss - a point which is, I consider, of some importance in the present case."

31. The 'assumption of responsibility' test, described in Henderson v Merrett as having been established in Hedley Byrne, was one of the formulations of the test considered by Lord Bingham of Cornhill in his review of the authorities in Her Majesty's Commissioners of Customs and Excise v Barclays Bank plc [2006] UKHL 28, [2007] 1 AC 181 ('Barclays'). Lord Bingham described three tests which have been used in deciding whether a defendant sued for causing pure economic loss owed the claimant a duty of care in tort; (i) whether the defendant assumed responsibility for what he said and did vis-à-vis the claimant, or is to be treated by the law as having done so; (ii) the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant; and (iii) the incremental test by which novel categories of negligence are developed incrementally and by analogy with established categories rather than by massive extensions of prima facie duty. As regards the assumption of responsibility test, Lord Bingham agreed that it was correct to regard an assumption of responsibility as a sufficient but not a necessary condition of liability: it was 'a first test which, if answered positively, may obviate the need for further inquiry'. Lord Hoffmann in Barclays also considered the relationship between the assumption of responsibility test and the 'just, fair and reasonable' criterion in the three fold test. He described various situations in which it will be 'useful to ask' whether the defendant assumed responsibility to the claimant and went on at paragraph 35 of his speech:

"The answer does not depend upon what the defendant intended but, as in the case of contractual liability, upon what would reasonably be inferred from his conduct against the background of all the circumstances of the case. The purpose of the inquiry is to establish whether there was, in relation to the loss in question, the necessary relationship (or "proximity") between the parties and, as Lord Goff of Chieveley pointed out in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 181, the existence of that relationship and the foreseeability of economic loss will make it unnecessary to undertake any further inquiry into whether it would be fair, just and reasonable to impose liability."

32. However, Lord Hoffmann also acknowledged that because the assumption of responsibility is a legal inference to be drawn rather than a simple question of fact, questions of fairness and policy will enter into the decision whether there was such an assumption. Lord Rodger of Earlsferry in Barclays noted that although the assumption of responsibility test may be decisive in many situations, it does not necessarily provide the answer in all cases: see paragraph 52.
33. What I draw from these authorities are the following propositions. First, when considering a claim based on advice given by a professional person, it is useful to ask whether the professional person assumed responsibility for the advice to the claimant. Secondly, the test of whether responsibility has been assumed is an objective test and does not depend on the thoughts and intentions of the advisor. This has been consistently emphasised in the case law: see for example Lord Bingham's speech in Barclays at paragraph 5 and the authorities there cited. Thirdly, the advisor's knowledge that a third party might rely on the advice and might suffer loss if the advice is inaccurate is not a sufficient basis for the law to infer an assumption of responsibility. In Caparo Industries Plc v. Dickman [1990] 2 AC 605 Lord Oliver of Aylmerton acknowledged that in relation to pure economic loss, the concept of foreseeability of harm as a single test – even a prima facie test - of the existence of the duty of care must be discarded if the law is to be kept within the bounds of common sense and practicality: see page 633. Fourthly, liability is established only if the claimant can show that he has relied on the advice. This is clear from the passages from speech of Lord Morris of Borth-y-Gest in Hedley Byrne which were cited by Lord Goff in Henderson v Merrett at pages 178 – 179: the advisor must know or ought to know that a person to whom the advice is given will place reliance on it and that person must indeed place reliance on it.
34. Applying those propositions to the present case, I have concluded that there was no duty of care owed by HMT to Mr Hunt personally when Mr Morrison gave advice in the summer and autumn of 2006. The advice related to the merits of Evo for the purpose of deciding whether to make a loan of monies the repayment of which was in large part dependent on the future success of the Evo business. The only person to whom HMT assumed responsibility for the accuracy of its advice was the person who entered into that transaction and made the loan. That person was Swynson and not Mr Hunt. The fact that Mr Morrison knew that Mr Hunt was going to put his own money into the venture or that it was his assets which were 'ultimately at stake' as alleged in the Particulars of Claim may establish that it was foreseeable that Mr Hunt would lose money if the advice was bad. But foreseeability is not the test.
35. One cannot get round that by saying, as Mr Morrison seemed to accept in cross-examination, that Swynson's money is really Mr Hunt's money. Mr Morrison's answers in the exchange I have quoted above cannot be taken at face value because to look through Swynson to see Mr Hunt as he appears to do would involve a lifting of the corporate veil for which there is no support in the case law. None of the many cases in which duties of care for advice have been explored has suggested that where advice is given to a company it is also given to the human agents who receive that advice on behalf of the company so as to give rise to a parallel duty of care owed to them in their personal capacity, whether they are directors, shareholders or funders of the company. A company has no ears to hear advice nor eyes to read emails and due diligence reports other than the ears of the people with whom the adviser discusses the advice or the eyes of the people to whom the emails and reports are sent. It may well be that the owners of those ears and eyes stand to lose personally if the advice is negligently given. That does not mean that the adviser assumes responsibility for the advice to them as well as to the company, even if the adviser is well aware of what is at stake for them personally.
36. Further, I do not see that Mr Hunt placed any reliance on the advice which is separate from the reliance of Swynson. Mr Sims argued that there had been two forms of reliance by Mr Hunt. The first was that Mr Hunt caused Swynson to enter into the transaction with EMSL and loan the money. But again, this conduct is not conduct separate from the conduct of Swynson but one and the same thing. Since a company can only act through human agents, every action of a company is also action of those who control the company and bring about its actions. That conduct is not generally treated in law as something they do personally in parallel with or in addition to the action of the company and I do not see any reason why it should be so treated for current purposes.
37. The second form of reliance asserted was that Mr Hunt put Swynson in funds so that the money could then be transferred as part of the transaction to EMSL. I will consider this issue on the basis that Mr Hunt had simply paid Swynson the money himself that Swynson paid EMSL although the actual transaction was somewhat more complicated than that. Even on the basis that Mr Hunt gave Swynson the £15 million, it seems to me that it was entirely fortuitous that this transfer of funds from Mr Hunt was made after the discussions with Mr Morrison. It might just have easily been the case that Swynson was already in funds and did not need extra money from Mr Hunt in order to make the loan or that it had half the funds and needed only a top up from Mr Hunt. In that event there would have been no action by Mr Hunt other than his action in causing Swynson to enter into the agreement and transfer the money for the loan. It cannot be the case that the existence of reliance depends on the happenstance of the state of the corporate vehicle's finances at the moment the decision to invest is made. That would lead to arbitrary results depending on when one or more funders had acted to transfer parts of the money used to make the loan or investment.
38. Mr Sims also argued that there was a duty owed to Mr Hunt when representations were made or advice given before it became clear that it was Swynson and not Mr Hunt personally that was going to enter into the deal with EMSL. I do not agree that one can treat that early advice as separate from the chain of advice on which Swynson ultimately acted. If one asks the question at the time that the advice was given in June or July 2006: 'To whom is HMT assuming a responsibility for the accuracy of its advice in the discussions with Mr Hunt?' the answer would be 'To whomever ends up loaning EMSL the money'. If no loan takes place then the accuracy or inaccuracy of the advice that HMT gave would have been irrelevant because no one would have acted on it. The accuracy of the advice only matters to the person who relies on it and that is the person who enters into the transaction.
39. This analysis is supported by the comments of Lord Goff in Henderson v Merrett Syndicates where he addressed the application of his decision in that case to other situations where an assumption of responsibility would, he recognised, 'have the effect of, so to speak, short circuiting the contractual structure so put in place by the parties' (page 195H). Referring to the common situation where a building owner has no contractual claim against a sub-contractor, he confirmed that it will not ordinarily be open to the building owner to sue the sub-contractor direct under the Hedley Byrne principle:

"For there is generally no assumption of responsibility by the sub-contractor or supplier direct to the building owner, the parties having so structured their relationship that it is inconsistent with any such assumption of responsibility'

40. Similarly in the instant case, it is inconsistent with Mr Hunt's decision to structure the deal with EMSL by using his company Swynson for him then to assert that the advice was given by HMT not only to Swynson but to him in his personal capacity. There is no authority for the proposition that when a professional person provides advice about a transaction and the transaction is entered into by a corporate entity, a duty of care is owed in tort not only to that company but to the human agents who received the advice, or caused the company to act upon it or put the company in funds to enable it to perform its obligations under the contract. There is no assumption of responsibility by the professional person to those individuals.
41. If one applies the three-fold test from Caparo v Dickman rather than the 'assumption of responsibility' test, it is not in my judgment just, fair or reasonable for a duty of care to arise in those circumstances. Mr Sims stressed that here the duty could only be owed to one person – to Mr Hunt - so there was no danger of creating a wide class of potential claimants. However, there seems to me no justification in principle to limit any such duty of care to the sole owner of a company (assuming that Mr Hunt was the sole direct owner of the shares in Swynson). If there are two owners, or five or 100 who all put their money into a company in reliance on advice from a professional person, where is the dividing line to be drawn?
42. In my judgment therefore there was no duty of care owed by HMT to Mr Hunt arising out of the discussions between Mr Hunt and Mr Morrison before the transaction was concluded on 31 October 2006.
43. The Claimants also put the case on duty of care in a different way, relying on the fact that HMT would have expected Swynson to show the Due Diligence Report to Mr Hunt once it had received it and that Mr Hunt did not sign a disclaimer in the form attached to the letter of engagement signed by Swynson and HMT. At the end of the letter of engagement was a paragraph which said:

"We trust that this letter set out your understanding of the level and scope of work that you require us to perform. Your continuing instructions will amount to your acceptance of the terms of this letter and our Terms of Business but we would be grateful if you could kindly acknowledge your understanding and agreement by signing the enclosed copy of this letter and returning it to us. We will then be confident that you understand the basis on which we are acting for you"

44. There were various appendices to the letter, including the scope of work for the particular project and lengthy terms of business. There was also a document headed 'AGREEMENT FOR RECIPIENT OF FINAL DRAFT REPORTS: Letter to be addressed to HMT by potential institutional investors and lender'. The agreement/letter was drafted as if it were written to HMT by a third party which had asked Evo to show it copies of the draft Due Diligence Report. The third party writes assuring HMT that it understands that the draft report is not prepared with it in mind, and that any reliance the third party places on the draft is at its own risk and without recourse to HMT. The putative author of the letter assures HMT that the contents of the report will not be disclosed to anyone other than its own advisers who will in turn undertake not to have recourse to HMT if they rely on it. Mr Hunt did not remember seeing this letter but in any event it is accepted that he never signed a copy.
45. I do not consider that this disclaimer has any relevance to the present case for the reasons that I have already described – that is that Mr Hunt is not to be treated as a third party to whom Swynson has shown the report in order to persuade him to join with Swynson as an additional institutional investor or lender. When Mr Hunt was shown the report he was shown it because he was the eyes and ears of Swynson not of a potential lender separate from Swynson. He did not invest any of his own money in the transaction and he was not asked by Swynson to do so. The only money invested in the loan was Swynson's money and it was never contemplated that Mr Hunt would invest personally until the refinancing took place in 2008. The situation in which the template letter was designed to be sent by a third party to HMT did not arise.

B. THE EFFECT OF THE REFINANCING IN 2008 ON THE QUANTUM OF SWYNSON'S LOSS

46. HMT argues that the quantum of Swynson's loss is limited to the £3 million that was loaned in 2008 because EMSL has in fact repaid to Swynson the entire amount of the initial 2006 Loan and the 2007 Loan, and all the interest due on those amounts. The only loss that Swynson is entitled to claim, HMT say, is the loss arising from the 2008 Loan.
47. The reasons for the refinancing in 2008 were explained in evidence by Mr Rebbetts. After the 2008 Loan was entered into, Mr Hunt became the majority owner of EMSL. As he was already the sole owner of Swynson, the debt between the two companies became a debt between two connected entities. This meant that Swynson would have to pay tax as if it were receiving the interest payments from EMSL even though EMSL continued to default on those payments. In addition to this problem, Mr Rebbetts and Mr Hunt also formed the view that it was disadvantageous for Swynson to have an impaired debt on its books. Mr Rebbetts advised that the loans should be restructured by Mr Hunt arranging for EMSL to pay off most of the sums due and the monies being instead owed to Mr Hunt personally. On 31 December 2008 EMSL and Mr Hunt entered into a loan agreement whereby Mr Hunt made funds available to EMSL in the sum of £18,663,306.59. EMSL then paid Swynson £17,015,000 which appears to have been the totality of the sums due under the 2006 and 2007 Loans. I shall refer to this transaction as 'the 2008 Partial Refinance'.
48. The issue of how this affects the continuing liability of HMT is a live issue between the parties because I have held that HMT did not owe a duty of care to Mr Hunt personally in respect of that advice. If HMT is right that it is Mr Hunt who now bears the loss rather than Swynson, then HMT will be liable to pay only nominal damages to the only party to whom it owed a duty of care. Mr Hunt's evidence which I accept was as follows:

"It should be obvious from what I have said … that there was no intention on my part or Swynson's part to relieve HMT from any liability due to the refinancing exercise. As far as I was concerned the claim against HMT remained unaffected by this refinancing and was of no concern of theirs. As between me and Swynson the consideration of who technically would be entitled to recover the money from HMT did not matter as I was the owner of Swynson, but it was implicitly understood that the recovery would be held pro-rata according to the unpaid lending advanced."

49. Mr Sims submitted that there were three grounds on which the court would be justified in ignoring the 2008 Partial Refinance and treating the 2006 and 2007 Loans from Swynson to EMSL as still outstanding. The first is that the 2008 Partial Refinance is res inter alios acta, that is a transaction between third parties which does not have any effect on the liability of this defendant for this claim. The second is to regard Mr Hunt as being subrogated to Swynson's claim either by analogy with the position of an insurer who is subrogated to the claim of the insured when the policy pays out or under the principle of equitable subrogation. The third is the principle of transfer of loss under the exception to the rule that a claimant can only recover his own loss established in The Albazero [1977] AC 777. More generally, Mr Sims submitted that the courts have displayed an antipathy to the prospect of professionals taking advantage of transfers or assignments of losses. He cited in support of this the judgment of Rix LJ in Technotrade Ltd v Larkstore Ltd [2006] EWCA Civ 1079. Rix LJ referred to authorities considering the effect of an assignment of a loss and said at paragraph 67:

"The authorities in this area demonstrate the courts' striving to ensure that wrongdoers do not escape from their liabilities, by reference to the general principle that a person can only recover for his own loss, because of the happenstance that a cause of action lies in the hands of someone other than the person who has suffered the loss. The courts are concerned to see that justice is done between the parties."

50. I consider first the arguments based on res inter alios acta. The relationship between that principle and the duty of a claimant to mitigate the loss suffered from the defendant's breach was considered by Viscount Haldane LC in British Westinghouse Electric and Manufacturing Company Ltd v. Underground Electric Railways Company of London Ltd [1912] AC 673 at 689. Viscount Haldane stated that the fundamental basis for compensation is pecuniary loss naturally flowing from the breach but that this principle was qualified by a second principle which 'imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps'. This second principle does not oblige the claimant to take any step that a reasonable and prudent man would not ordinarily take in the course of his business. But if he does in fact take such a step and that step diminishes his loss, then that diminution in loss may be taken into account even though he was not under a duty to take that step. Viscount Haldane described this principle as being that:

"provided the course taken to protect himself by the plaintiff in such an action was one which a reasonable and prudent person might in the ordinary conduct of business properly have taken, and in fact did take whether bound to or not, [the court] may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage.

…

The subsequent transaction, if to be taken into account, must be one arising out of the consequences of the breach and in the ordinary course of business."

51. Viscount Haldane distinguished cases where loss was mitigated by the actions of the claimant from those where sums received under an insurance policy were not taken into account; or where, for example, the loss of passenger revenue caused by the defendant's delay was not reduced by the fact that some passengers in fact booked later passages with the same claimant. Such receipts were res inter alios acta rather than transactions 'in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach.' He thus contrasted actions which are 'the natural and prudent course followed by those whose object was to avoid further loss' with actions which constitute 'an independent or disconnected transaction'.
52. The principles explained by Viscount Haldane were applied more recently in Mobil North Sea Lt and another v P J Pipe & Valve Co (t/a PJ Valves or PJ Valve Ltd) [2001] EWCA Civ 741, [2001] 2 All ER (Comm) 289. In that case the owner of a North Sea oil facility and the main contractor both sued the defendant for the supply of defective valves installed at the facility. Before the action was commenced, the main contractor and the owner entered into a settlement agreement under which, broadly speaking, the main contractor was absolved from having to pay damages for the defective valves under the head contract. The question arose whether the main contractor had thereby avoided any loss so that it could no longer maintain its action against the valve supplier. The Court of Appeal held that the settlement agreement did not have that effect. Rix LJ with whom Aldous and May LJJ agreed, reiterated that if a claimant goes beyond his obligation to mitigate and reduces his loss, then that reduction is taken into account in reducing the defendant's liability. But that does not apply if the transaction said to reduce the loss 'is an entirely independent and collateral matter arising not in the context of mitigation at all' (paragraph 30). He held that the later settlement agreement 'was not an attempt at mitigation' but was merely the reformulation of the relations between the owner and the main contractor. It did not therefore reduce the valve supplier's liability to the main contractor.
53. Mr Sims also referred me to the useful comments on Staughton LJ in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd and others (1992) 30 Con LR 1:

"When a plaintiff's initial loss has subsequently been made good by someone other than himself, the general rule is that he can recover only nominal damages. But there are certainly exceptions. An obvious example, which occurs every day, is when a plaintiff has been compensated by his insurers; nevertheless he may sue in his own name and recover substantial damages, although he may be bound to pay them over to the insurers. Another example is to be found in the case of Design 5 v Keniston Housing Association Ltd (1986) 10 ConLR 122. There the loss of the counter-claiming defendants had been or would be made good by a grant from the Department of Environment. It was held that the defendants could nevertheless recover substantial damages. Judge Smout QC, regarded the test as being whether the recovery was relevant to the harm suffered (see at 136), or whether it was res inter alios acta; money received by way of insurance or benevolence was merely an example of a recovery that was not relevant.

…

The sale of goods cases show, in my opinion, that there is a wider exception to the general rule than recoveries achieved by insurance or benevolence or government grants (as in the Design 5 case). There may be circumstances which are accidental, or peculiar to the plaintiff, or arise from mere good fortune; recoveries to which these give rise do not benefit the party in breach of contract."

Although Staughton LJ dissented on the overall result of the appeal, his comments on res inter alios acta related to a different part of the case.

54. Applying those principles in this case, I accept Mr Sims' submission that the 2008 Partial Refinancing is not an act of mitigation which operates to extinguish the loss that Swynson has suffered on the 2006 and 2007 Loans for the benefit of HMT. It is not a transaction that Swynson could have brought about by itself, however eager it was to mitigate its loss. Given the poor record of EMSL in paying the sums due under the loan, there would have been no prospect of selling the debt to a third party for anything like its value, if indeed a buyer could have been found at all. The transaction was peculiar to Swynson in that Mr Hunt would not have funded the repayment of the loan on those terms for any other company. So far as Swynson was concerned, the repayment of the debt was mere good fortune albeit that Mr Hunt had his own tax reasons for taking over the loan. To adopt the wording used by Viscount Haldane in British Westinghouse the 2008 Partial Refinance was not something that Swynson brought about in the ordinary course of business in order to mitigate the consequences of HMT's negligence.
55. I therefore hold that the 2008 Partial Refinance does not affect Swynson's entitlement to sue HMT for compensation for the losses arising from entering into the deal with EMSL. In the light of that finding, I do not need to consider the alternative grounds of subrogation and transferred loss.

C. THE DEEMED TRANSFER VALUE UNDER THE COLLATERAL SURRENDER AGREEMENT

56. The collateral surrender agreement was entered into on 5 October 2011 and acknowledged that Evo was in default under the loans in the amount of at least $35 million to the 'Secured Party' defined as Swynson and Mr Hunt. The collateral covered by the surrender was all Evo's assets including accounts, inventory, equipment and intellectual property with certain exceptions. Clause 11 provided that the Secured Party's acceptance of the collateral shall be in partial satisfaction of the obligations due to the Secured Party by Evo: 'Collateral Owner's Obligation to Secured Party shall be deemed satisfied as the value Secured Party receives from the sale to a disinterested third party but in no event shall said satisfaction of Collateral Owner's Obligation be less than $7,500,000'. The clause goes on to provide in sub-clause a. that 'except as expressly provided herein' the surrender of the collateral shall not be deemed a waiver or satisfaction of any of Secured Party's rights' such as the right to pursue Evo for the remainder of the monies owed. It says 'all rights and remedies granted to Secured Party hereunder, under the Loan Documents, and at law are cumulative and remain in full force and effect'.
57. Mr Rebbetts described this as a document designed in part to protect Mr Hunt from any accusations from American creditors that any transaction between him as owner of both Evo and Global Medical Holdings LLC had been at an undervalue. The transaction needed to be seen to be done at market value so that there was, as he put it, 'no chance of any come-back from creditors in America'. That 'come-back' as I understood it might take the form of the creditors arguing that Mr Hunt was liable for Evo's debts. Mr Hunt confirmed in evidence that he had not been pursued by disgruntled creditors accusing him of receiving the assets of the company at an undervalue and he accepted that the protection designed to be provided by the deemed value does seem to have worked.
58. I do not see that there is any reason to attribute to this 'deemed value' in the collateral surrender agreement a legal consequence which could not have been intended by the parties and which would go far beyond its purpose under the terms of the agreement. The function of clause 11, which is headed 'Partial Satisfaction of Debt', is to specify by how much the monies owed by the Collateral Owner (Evo) to the Secured Party (Swynson and Mr Hunt) are to be treated, as between them, as having been reduced as a result of the transfer of the collateral by which the loans were secured. It provides that Evo's obligations to the Secured Party are deemed satisfied in the amount realised by any sale of the collateral assets to a third party or by $7.5 million which ever is the greater. The clause itself stresses the limited scope of its operation and states that all other rights and remedies granted to the Secured Party remain in full force and effect. It is not intended to specify the value of the collateral property for all purposes but only for the purpose of quantifying the reduction in the debt treated as resulting from the surrender of the collateral.
59. It may have had the indirect effect of protecting Mr Hunt from pursuit by other creditors of Evo, although there was no evidence before the court of how likely any such claims would have been in the absence of the deemed value. But the fact that Mr Hunt may have received some 'value' from the clause, as Mr Ramsden seemed to suggest, does not mean that Swynson is somehow stuck with that valuation when assessing the quantum of its loss. In my judgment therefore the quantum of Swynson's loss is not affected by the deemed valuation of Evo's assets in the collateral surrender agreement.

D. WERE THE 2007 AND 2008 LOANS MADE IN REASONABLE MITIGATION OF SWYNSON'S LOSSES ON THE 2006 LOAN?

60. I can deal with this matter fairly briefly. Mr Hunt's evidence was that it was made clear to him when he was considering whether Swynson should make the 2007 and 2008 Loans that the choice was between either providing this further funding to Evo or effectively pulling the plug on the Evo business. I did not understand the Defendant to contend that this was not in reality the choice facing Mr Hunt. It also appears both from Mr Hunt's evidence and from the contemporaneous documents that Mr Morrison never advised Mr Hunt that it would be foolish to make any further payments. Mr Morrison was certainly not telling Mr Hunt that there was no chance of the management turning the business round or that Mr Hunt would simply be throwing good money after bad if he gave them additional cash. The management always had some answer as to why their forecasts had thus far proved so unreliable and insisting that success was just around the corner. Mr Morrison seemed to find their reassurance more convincing than Mr Hunt did. Despite his misgivings, Mr Hunt thought it was worth Swynson investing a little more money to see if the management's optimism was justified. Given Mr Morrison's stance throughout the period, HMT cannot now assert that Mr Hunt behaved unreasonably in trying to mitigate Swynson's losses on the 2006 Loan.
61. I am satisfied that the 2007 and 2008 Loans were made by Swynson in a reasonable attempt to prevent the total loss of the 2006 Loan. Even though these attempts were not successful Swynson is entitled to recover the money spent in attempted mitigation. I therefore find that Swynson is entitled to recover the losses resulting from the two later loans.

E. HMT'S CAP ON LIABILITY

62. The draft Due Diligence Report sent by HMT to Swynson on the afternoon of 30 October opened with a letter to the directors of EMSL one paragraph of which was as follows:

"The liability of Hurst Morrison Thomson LLP (including its partners, staff and associated entities) in respect of breach of contract or breach of duty or fault or negligence or otherwise whatsoever arising out of or in connection with this engagement, shall be limited in total to £5 million to cover claims of any sort whatsoever (including interest and costs) arising out of or in connection with this engagement. This provision shall have no application to any liability for death or personal injury, or any other liability for which exclusion or restriction is prohibited by law or to liability arising as a result of fraud on the part of Hurst Morrison Thomson LLP."

63. Later that evening, EMSL's lawyer Mr Thompson wrote back querying the £5 million limit saying that it 'seems a bit low given the size of the transaction'. Mr Mohamed, who has assisted Mr Morrison in the preparation of the Due Diligence Report, emailed back to say there was no particular reason for the £5 million limit. Shortly after, Mr Mohamed wrote again saying that they should be able to increase the limit to £10 million saying 'I trust that's ok because our limit is capped at this level'. The lawyer said that was fine with the purchaser but that it would need to be confirmed with Mr Hunt. On the morning of 31 October 2006, Ms Perry, acting for Swynson asked that the Due Diligence Report be addressed to Swynson as well as to EMSL. Mr Mohamed wrote to both Ms Perry and Mr Thompson saying that he had spoken to Mr Morrison and had not changed the £5 million cap 'because this was agreed as part of our engagement letter'. There were many emails back and forth during the course of the day dealing with other details of the transaction. At about 2 pm on 31 October, Ms Perry wrote to Mr Mohamed saying that she had spoken to Mr Hunt about the cap and that he would like it moved from £5 million to £10 million 'for the Lender's benefit'. She asked him to discuss the matter with Mr Morrison and let her know the outcome. About 15 minutes later, Mr Mohamed wrote back "Done, this has been increased to £10m". The letter which opened the final version of the Due Diligence Report was addressed to both EMSL and to Swynson and the paragraph quoted above appeared but with the figure of £10 million rather than £5 million.
64. The issue between the parties is whether this was changed from £10 million to £15 million at the time when the letter of engagement was signed by Swynson in February 2007. Evidence about the signing of the letter of engagement was given by Mrs Deborah Jenkins who is Mr Hunt's personal assistant although she is also more involved in the running of Mr Hunt's businesses. She has been a director of Swynson since April 2001. In the period from 2006 onwards she acted on Mr Hunt's instructions when carrying out that role, given his ultimate ownership and control of the company. She said that at the time the Evo deal was proceeding, Mr Morrison did not require Mr Hunt or Swynson to sign a letter of engagement for HMT. This was in accordance with what usually happened in the business dealings between them. In February 2007 Mr Morrison telephoned Mr Hunt to say that HMT was about to have a routine audit by their regulator and that he needed to get his client files in order. Mr Morrison came to Swynson's office, Mr Hunt signed several letters regarding his personal loan arrangements and Mrs Jenkins signed the Evo letter of engagement on behalf of Swynson. She put the date 6 October 2006 under her signature. She did not read the terms of the engagement with HMT and, she says, she did this simply to assist Mr Morrison for regulatory purposes.
65. Mr Hunt accepted in his evidence that the terms on which HMT undertook the due diligence work for Swynson as from August 2006 were governed by the engagement letters that had been signed in February 2007. Mr Ramsden submitted rightly that whether the signing of the letter of engagement had retrospective effect was a legal rather than a factual question, but he acknowledged that the intention of the parties was relevant. It may well not be necessary for Swynson to rely on the retrospective effect of the letters in order to assert that the liability cap was increased. Provided that there was consideration for the increase there is no reason why the parties cannot agree after the work has been done to increase the cap on liability should the work turn out to have been done negligently. There was plainly consideration in assisting Mr Morrison in getting his paperwork in order. Further, as Mr Sims pointed out, HMT sought to rely on the terms of the letter of engagement in other respects in this litigation as limiting the scope of the due diligence work that HMT had agreed to do. That reliance was no longer relevant once negligence had been conceded in the middle of the trial but I agree with Mr Sims' submission that HMT cannot rely on the terms of the letter of engagement for some purpose and yet deny that it governed the relationship between Swynson and HMT for other purposes.
66. There were three different versions of the letter of engagement in the bundle at trial. Each one contains a paragraph saying:

"Limit of liability

Our maximum liability to you for advice given in respect of this matter is limited to £[X] million in aggregate in respect of any claim or claims you may have against us arising out of this engagement"

67. In each version, that paragraph appears on the same page as the signature of Mr Morrison on behalf of HMT. Where the versions differ is in the figure I have put there as [X]. There is one version dated 30 September 2006 addressed to EMSL and to Swynson signed by HMT and by Mrs Jenkins on behalf of Swynson with a date under her signature of 6 October 2006 ('Version 1'). On this version, the X figure is typed as '10' but has been crossed through in manuscript and replaced with '15' and initialled. In her witness statement, Mrs Jenkins said:

"I note that the letter itself refers to a limit of liability of £15 million and not the £10 million that I understand had been agreed immediately before completion on 31 October 2006. I believe this sum is likely to have been entered by Bruce as it represented his insurance limit at the time we signed in February 2007."

68. When Mrs Jenkins was asked about this in cross-examination she said that it looked like her writing and it was her initials. She said that she could not remember making that manuscript amendment. In re-examination she was reminded of what she had said in her witness statement about the sum having been 'entered by Bruce' and the following exchange took place:

"Q. Pausing there. Are you in any doubt that this occurred in 2007 or in 2006?

A. No, I'm sure that this was in 2007.

MRS JUSTICE ROSE: I thought you said that it was your initials, though.

A. It is. I don't -- I remember signing the letter. I don't remember altering that limit, so I can only imagine that Bruce must have asked me to do it at the time. But I have no recollection of altering the limit. But I remember signing the letter. But that's definitely my - those are definitely my initials.

MR SIMS: Can you recall having any discussions with anyone as regards the insurance limit at the time, or not?

A. I didn't have discussions. At the time of signing the letter?

Q. This letter, yes.

A. No, I ...

Q. Would you have known what the insurance limit for HMT was at that time, or not?

A. I'm not ... I'm not sure that I would have recalled at signing that letter. When this letter was signed it was done in a hurry. Bruce had telephoned Mr Hunt before he came into the office. Mr Hunt came into the office and said, "Bruce is coming, he needs us to sign some letters, he is having an inspection, he's got to get his files in order". And Bruce came down with his letters. He was in Mr Hunt's office. Mr Hunt signed a few of them. Mr Hunt called me in and asked me to sign the Swynson letter. So it was all done very much in a hurry because Bruce needed to get his files in order."

69. There was another version of the letter of engagement dated 28 September 2006 addressed only to EMSL and signed on EMSL's behalf by Mr Mackie over a manuscript date of 30 September 2006. It is also signed by Mr Morrison on behalf of HMT. That has the same paragraph about the limit of liability but has the un-amended figure of £10 million (Version 2). There is a third version which is dated 30 September 2006 and also signed by Mrs Jenkins on behalf of Swynson over a manuscript date of 6 October 2006. In this version the paragraph appears with the figure of £15 million typed in and the letter is signed by Mr Morrison on behalf of HMT (Version 3). That signature of Mr Morrison is a slightly different signature from the one in the first version so this could not be an altered photocopy of the earlier version of the page.
70. Mr Morrison was asked about these versions of the document in cross-examination:

"Q. Now, my learned friend, in his opening written submissions in this case, put forward two different alternatives and I just want to understand your evidence in relation to the two different alternatives he has put. The two alternatives he has put are that the cap was increased by agreement from 10 million to 15 million; or -- and this is the second alternative he has put --that the change in this was inserted unilaterally on behalf of the first claimant. Now, just so I understand, Mr Morrison, is that based on your evidence, or is that based on his inferences from the documents?"

A. I don't think it's based on my evidence.

Q. It's not based on your evidence?

A. I don't think. I don't -- I really don't recall any of this, I am afraid.

Q. That's not your evidence, is it?

A. What's not my evidence?

Q. It's not your evidence that this figure of 15 million was unilaterally put in by the first claimant?

A. I don't know. I simply don't know.

Q. You are not advancing positively the evidence, are you, Mr Morrison, that a change was made to this letter without your knowledge, are you?

A. I'm saying that I don't know. Yes. Yes, I'm -- you know, I'm not saying it was definitely done without my knowledge. Yeah, absolutely.

Q. Is it not something you would recall, Mr Morrison? It's quite a big figure, isn't it, a big change? It is your potential liability which is being considered, isn't it?

A. Yes, but I don't recall it, so ... sorry.

Q. Okay.

MRS JUSTICE ROSE: Was this something that was often done, to change the limit of liability for the firm?

A. I think at the time we were carrying £20 million-worth of liability cover, I think. And within reason --I mean, if you are doing due diligence for a lender, it is not unusual for the lender to want the whole of that lending to be covered by the cap.

MR SIMS: Yes.

A. And obviously we would have a major problem if that was over and above our limit, but if it wasn't, I suspect we wouldn't be too worried about it as long as it was reasonable."

71. Mr Ramsden submitted that the evidence about what had happened about an increase in the liability cap was unclear because none of the witnesses could remember how it came about that the figure of £15 million was substituted by Mrs Jenkins in manuscript and then incorporated in a typed version of the letter. However, it seems to me that people reduce their agreements to writing precisely because the written terms are likely to outlast their recollection of what happened and what was agreed. The fact that none of them now remembers what happened does not detract from the documents as evidence of what was agreed. If the evidence had been limited to the manuscript amendment in Version 1 I would have been in some doubt as to whether that was sufficient to establish that HMT had agreed to the change. I should say that Mrs Jenkins struck me as an entirely honest witness who did not attempt to embellish her evidence about her lack of independent recollection. It was not ultimately suggested by HMT, given Mr Morrison's evidence, that Mrs Jenkins had changed and initialled the new figure after the letter had been signed by Mr Morrison and without his knowledge. But the fact that Mr Morrison separately signed all three versions, including Version 3 with the typed figure of £15 million, establishes, in my judgment, that he must have agreed on behalf of HMT to increase the cap on liability from £10 million to £15 million. It appears that the benefit of this increase was not extended to EMSL, hence Version 2 signed by EMSL referring still to the £10 million limit. Someone must have created the two different versions of the letter, one to be signed by Mr Mackie and one to be signed by Mrs Jenkins. That can only have been HMT.
72. I therefore find that Swynson has succeeded in showing that the liability cap was increased from £10 million to £15 million in February 2007 when the engagement letters were signed.

F. RATE AND PERIOD OF INTEREST

73. In the Particulars of Claim the Claimants seek interest at a rate of 8 per cent on their losses on the 2006 Loan of £15 million as from 31 October 2006, on the 2007 Loan of £1.75 million as from 13 August 2007 and on the 2008 Loan of £3 million as from 4 June 2008. The Defence denies any entitlement to interest. HMT argues that the claim is very stale as it was issued on the last possible day before the expiry of the limitation period, that is on 30 October 2012. Mr Hunt's evidence was that he knew the transaction had been a mistake by March 2007 and formal letters of complaint were written to HMT alleging negligence in 2008 and 2010. The Claimants have, HMT argues, sat on their hands for four years. Interest should be awarded only for three years.
74. As to the rate of interest, Mr Sims accepted that in commercial cases an interest rate of 1 per cent above the prevailing Bank of England base rate is more appropriate than 8 per cent. I agree with this – the prevailing interest rates for most of the period covered were much lower than 8 per cent.
75. The relevance of delay to the period for which interest should be awarded was considered by Jackson J (as he then was) in Claymore Services Ltd v Nautilus Properties Ltd [2007] EWHC 805 (TCC). Having reviewed the authorities he set out three propositions:

"(1) Where a claimant has delayed unreasonably in commencing or prosecuting proceedings, the court may exercise its discretion either to disallow interest for a period or to reduce the rate of interest.

(2) In exercising that discretion the court must take a realistic view of delay. In the case of business disputes, litigation is for all parties an unwelcome distraction from their proper business. It is not reasonable to expect any party to take every litigious step at the first possible moment, or to concentrate on litigation to the exclusion of all else. Delay should only be characterised as unreasonable for present purposes when, after making due allowance for the circumstances, it can be seen that the claimant has neglected or declined to pursue his claim for a significant period.

(3) When determining what disallowance or reduction of interest should be made to mark a period of unreasonable delay, the court should bear in mind that the defendant has had the use of the money during that period of delay."

76. Applying those principles I do not consider that there has been unreasonable delay here. Although the bulk of the loss is treated, for the purposes of the claim as having arisen at the moment the loan was made in 2006, it was not apparent that the money would in fact all be lost until much later. I have already described Mr Hunt's efforts, with the support of Mr Morrison, to prevent the loss occurring by making the later loans and by trying to restructure and improve the management of the company. It was only in 2011, when the collateral surrender agreement was entered into, that Mr Hunt had accepted that the long hoped for improvement in Evo's business was never going to happen. I also bear in mind that Mr Morrison's evidence was that he and Mr Hunt were friends as well as business associates and he made clear when he was in the witness box that he hoped that this friendship would survive this litigation. That is another reason why Mr Hunt should not be criticised for failing to launch the litigation at the first possible moment. Mr Hunt's evidence was that he contemplated sending a letter before action to HMT in about July 2008 but that Mr Morrison persuaded him not to. The Claimants point out that HMT refused to give voluntary disclosure of their files, necessitating a court order. Having regard to all the circumstances of this case, I do not consider it would be right to reduce the period for which interest is payable.

CONCLUSION

77. My conclusions on the issues that remain between the parties at the end of the trial, negligence and causation having been conceded are as follows:

i) HMT did not owe a duty of care to Mr Hunt personally in addition to the duty of care they owed to Swynson;

ii) The partial refinancing of the debt at the end of 2008 was res inter alios acta and does not affect the liability of HMT to Swynson;

iii) The deemed value of the assets referred to in the collateral surrender agreement in May 2011 does not affect the quantum of Swynson's loss;

iv) The 2007 and 2008 Loans were made by Swynson in reasonable mitigation of the losses arising from the 2006 Loan;

v) The cap on HMT's liability was increased to £15 million by agreement between HMT and Swynson in February 2007;

vi) Interest at the rate of 1 per cent above prevailing Bank of England base rate from time to time is payable for the periods claimed by Swynson in the Particulars of Claim.