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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Pegasus Management Holdings SCA & Anor v Ernst & Young (A Firm) & Anor [2010] EWCA Civ 181 (12 March 2010) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2010/181.html Cite as: [2010] EWCA Civ 181, [2010] 3 All ER 297, [2010] 2 All ER (Comm) 191, [2010] STI 1366, [2010] PNLR 23, [2010] BTC 398, [2010] STC 1461

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE LEWISON)

[2008] EWHC 2720 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		12/03/2010

Lord Justice Rimer :

Introduction

1. This is a claimants' appeal against an order made by Lewison J on 11 November 2008. The claimants are Pegasus Management Holdings SCA and Ivan Bradbury. Mr Bradbury owns all the shares in Pegasus. The defendants, respondents to the appeal, are Ernst & Young (a firm) and Ernst & Young LLP (between whom it is unnecessary to distinguish and to whom I will refer simply as 'E&Y'). The claims are for damages for professional negligence, the complaint being the alleged failure of E&Y to give the claimants proper tax planning advice. The claimed consequence is that it resulted in Pegasus incurring a liability for corporation tax calculated by reference to a capital gain when the relevant disposal in fact resulted in a loss; and it is said that the same is likely to recur on further disposals. The primary claim is by Pegasus, which sues in contract and tort. Mr Bradbury's claim, as a shareholder of Pegasus, is also brought both in contract and tort and is for the diminution in the value of his Pegasus shares caused by the allegedly negligent advice. His claim is, however, an alternative one as it is recognised that, if Pegasus is entitled to sue, he cannot do so as well.
2. The claim form, issued on 10 November 2005, asserts that E&Y's breaches occurred over the period 1997 to 2003, although the claims relate to two distinct periods. The first period concerns advice given before 2 April 1998; and the second period concerns advice given between 1999 and 2002. There is no dispute that the claims in respect of the second period fell within the limitation period, they are proceeding to trial and the appeal is not concerned with them.
3. The appeal is concerned only with the claims in respect of the first period. Before the judge was a preliminary issue raising questions as to whether the claimants' claims in contract and tort in respect of that period were time-barred. So far as concerns the claims in contract, there is no dispute that Mr Bradbury engaged E&Y under a contract for professional services; and also no dispute that any claims by him based on breaches of contract by E&Y committed before 10 November 1999 (six years before the claim form) are time-barred. That includes his claims in respect of the first period: it is agreed that any breach of contract during this period was committed by 2 April 1998. There is similarly no dispute that if Pegasus had retained E&Y under a contract (although the judge found it did not), its claim in contract was similarly time-barred.
4. So far as concerns the claims in tort, proof of damage is an essential ingredient. The critical question raised by the preliminary issue was whether E&Y could show that the claimants had suffered actual damage before 10 November 1999; and, in particular, by 2 April 1998, that being the date by which, if any such damage had been suffered, it must have been suffered. As regards Pegasus, the judge held on a separate summary judgment application that it had no real prospect of showing at trial either that it had any contract with E&Y or that E&Y owed it a duty of care in tort. Whilst, as I have said, the judge held on the preliminary issue that any claim by Pegasus in contract would be statute-barred, he did not find it necessary also to decide whether, if E&Y did owe Pegasus a duty of care in tort, its claim in tort was also time-barred. As regards Mr Bradbury, the judge held on the preliminary issue that he had suffered damage by 2 April 1998 so that his claim in tort was time-barred.
5. The judge gave permission to appeal against his orders on both the preliminary issue and the summary judgment application. By this appeal, Mr Rhodri Davies QC and Mr Conall Patton, for the claimants, have submitted that the judge was wrong to hold that E&Y owed Pegasus no duty of care in tort and also wrong to hold that Mr Bradbury's claim in tort was time-barred. They contend that neither tort claim was time-barred. Mr Simon Salzedo, for E&Y, has submitted that the judge's decision was correct and should be upheld. By a cross-appeal for which Lawrence Collins LJ (as he then was) gave permission on 11 February 2009, he also argued that if, contrary to the judge's view, E&Y did owe a duty of care in tort to Pegasus, Pegasus's claim is also time-barred.

The facts

6. There is virtually no dispute about the facts. I gratefully take the account that follows largely from the judge's judgment. E&Y are accountants and tax specialists. By 1997 Mr Bradbury had been their client since about 1980. They advised him on his personal tax affairs and on the tax liabilities of his companies, although there is an issue as to whether they had also advised the companies. In about April 1997 Mr Bradbury sold his electronics manufacturing business for a substantial sum. The sale consideration was paid in loan notes, which enabled the deferring of liability for capital gains tax until the notes either matured or were disposed of. Such disposal was likely to generate a large tax liability which Mr Bradbury was anxious to mitigate or defer. One way of deferring it that was available in 1997 was to achieve roll-over relief by investing the proceeds of such disposal in a qualifying business satisfying the conditions of reinvestment relief provided by the then applicable legislation in sections 164A to 164N of the Taxation of Chargeable Gains Act 1992 ('TCGA'). By early 1998 Mr Bradbury was in discussion with Mr Rhodes of Macfarlanes (solicitors), Mr Allan of E&Y and the Revenue about reinvestment options. He was considering investing in clinics through which primary health care services would be supplied to the public.
7. I must digress to the legislation. Section 164A of TCGA made roll-over relief available to individuals who had incurred a chargeable gain but who acquired a 'qualifying investment' in the 'qualifying period'. A 'qualifying investment' was defined as the acquisition of shares in a 'qualifying company' but in a case where such shares were issued to him, his acquisition would not be a qualifying investment

'… unless the qualifying company, or a qualifying subsidiary of that company, is intending to employ the money raised by the issue of shares wholly for the purposes of a qualifying trade carried on by it' (section 164A(8A)).

8. That sub-section, described by the judge as 'not a masterpiece of drafting', made it clear that the relief was available if the qualifying company intended at the time of the share subscription to use the subscribed money for the purposes of a qualifying trade carried on by itself. It also showed that the relief would be available if a subsidiary company intended so to use the money. There was, however, an uncertainty as to whether the subsidiary needed to exist at the time of the share subscription. That uncertainty led to the raising of questions by the Chartered Institute of Taxation and the provision of Revenue guidance in response. The guidance, published in the July 1997 edition of the Taxation Practitioner, included these answers:

'You ask a number of questions about how the test of whether a company is intending to employ money raised will be applied. A statement by the company that the money raised by the share issue will be employed for the purposes of a qualifying trade carried on by that company or by a qualifying subsidiary, will normally be accepted unless on the facts that appears unlikely. The test will then be whether it does so within the time limits. If it does not do so, or does not wholly do so, any deferred gain will be recovered at the time the time limits expire.

Where a company intends to use funds in a subsidiary which has not yet been set up, there is no reason why the subsidiary should not be set up and the money passed on to the subsidiary to enable it to acquire or commence a qualifying trade. …'

9. This guidance had been withdrawn by March 1999, but not so as to affect retrospectively any reliance earlier placed on it. The new guidance was to the effect that the subsidiary had to exist at the time of the share subscription. It is agreed that the effect of the earlier guidance was that, provided that the qualifying company in which the individual subscribed for shares had, by the time of such subscription, the intention of forming subsidiaries through whom a qualifying trade would be acquired and carried, it mattered not to the obtaining of roll-over relief that it only subsequently incorporated and funded them. The requisite intention could be formed, and evidenced, by a properly minuted board resolution. In short, the guidance showed that, by the time of the share subscription, there must be in place an intention by the company to carry on the qualifying trades by itself or by subsidiaries, being subsidiaries that were either already in place or that the company had determined to incorporate. The significance of this will become clear.
10. On about 9 March 1998 Mr Allan provided Mr Bradbury with an undated note on reinvestment relief. It opened by saying that its purpose was 'to summarise the current position with regard to the establishment of a new company (or companies) which would carry on the proposed new venture, and which would qualify for capital gains tax reinvestment relief'. It suggested setting up a Luxembourg company (Mr Bradbury wanted an overseas company for reasons of confidentiality) but which would trade and be resident for corporation tax purposes in the United Kingdom. It said that 'the Luxembourg company may be owned by a Luxembourg holding company'. It did not, therefore, expressly advise that the structure should comprise a holding company and a trading subsidiary, let alone that there should or might be several subsidiaries. The note continued:

'Assuming the more complex structure, money would be subscribed for shares in the holding company. It is recommended that the trading subsidiary is set up as quickly as possible. When the subsidiary requires funds to acquire a suitable trade, they could be borrowed from the holding company.

To be sure that reinvestment relief is given it would be advisable to transfer any trade and assets acquired by purchasing a company into the subsidiary. This is because s.164A TCGA 1992 allows reinvestment relief if a qualifying subsidiary is intending to "… Employ the money raised by the issue of the shares wholly for the purposes of a qualifying trade carried on by it." (emphasis added). There is a view that the qualifying subsidiary therefore has to exist before the acquisition of the trade and that the subsidiary must carry on the trade acquired. The Inland Revenue have stated that they do not see the perceived problem. In a letter to the Chartered Institute of Taxation, the Revenue stated:

"… It is not clear what prevents the holding company from lending money raised to its subsidiary which can then acquire the company in question. This would enable a group to retain a holding company and separate trading subsidiaries as required." '

11. The letter referred to was not part of the 1997 guidance, to which the note did not refer expressly. The note did not explain that, insofar as the qualifying company intended to carry on any qualifying trades through subsidiaries, they must either exist by the time of the share subscription or else their later incorporation must be the product of an intention formed by such time. It did, however, advise that if the 'more complex' structure was adopted, the trade of the acquired company should be transferred across to the subsidiary, advice reflecting the section 164A(8) requirement that the trade must be carried on either by the qualifying company or a subsidiary.
12. The note continued by advising on the tax effects of the structure, although not about the tax problems that later emerged. It explained how reinvestment relief would be available. It referred to section 164A(8) TCGA and explained (inter alia) that the 'qualifying investment' had to be taken up no later than three years after the disposal of the asset or by such later time as the Revenue might allow. It explained the requirements of a 'qualifying company'. Under the heading 'Issue of shares', it advised that it was intended that a Luxembourg company would be incorporated within the next few days, with the initial capital subscription to be modest, followed by a more substantial subscription at the end of the week beginning 9 March 1998. This timetable reflected that the Budget was on 17 March 1998. In his Budget speech, the Chancellor announced a restriction from 6 April 1998 limiting reinvestments in companies with gross assets of up to £10m before, and up to £11m after, investment. Mr Bradbury's potential gain from the disposal of the loan notes was very much larger than this but he had the opportunity before 6 April 1998 to take steps to arrange a reinvestment that would enable him to achieve the roll-over relief he wanted.
13. On 20 March 1998, at a meeting with Mr Rhodes and Mr Allan, Mr Bradbury decided to incorporate a Luxembourg company with a view to making a substantial capital subscription in it by 6 April 1998. The money he subscribed would later be invested in a business he would select by experimenting with smaller companies within the £10/11m limits. The Luxembourg company (later renamed Pegasus) was incorporated on 26 March 1998. Its objects included the building or acquiring of healthcare clinics and the operation of medical services in the United Kingdom. Mr Bradbury subscribed $40,000 capital in return for shares. At a Pegasus shareholders' meeting on 26 March 1998, Ernst & Young Luxembourg SA ('Luxembourg SA', not a defendant) was appointed Pegasus's auditor. Mr Bradbury and two partners of Luxembourg SA became directors, although the partners resigned on 23 November 1998 to be replaced by Mrs Bradbury and Mr Rhodes.
14. On 31 March 1998 Pegasus resolved to increase its share capital by the creation of 1,500,000 new shares of US$100 each. Mr Bradbury sold some of his loan notes for about $150m (then worth about £90m) and on 2 April 1998 used it to subscribe for further shares in Pegasus. Although the advice in E&Y's note of March 1998 had contemplated the incorporation of a holding company and a trading subsidiary, only one company, Pegasus, was formed. It had no existing subsidiaries, nor had it resolved – or, therefore, formed an intention - to incorporate any in the future. Pegasus's assets were, as at 2 April 1998, represented by cash; and Mr Bradbury's £90m was represented by Pegasus shares.
15. In order to qualify for roll-over relief, Pegasus needed to invest the £90m in 'qualifying trades' in the UK. To that end, it had to make the first investment by 2 April 2000 (two years from the share subscription) and to invest the full amount by 2 April 2001 (a year thereafter).
16. Mr Bradbury took advice on this. A Pegasus board meeting on 1 December 1998 confirmed the appointment of E&Y as tax accountants and auditors. Mr Allan wrote to Mr Bradbury on 25 June 1999 referring to a forthcoming meeting at which he 'would like to clarify your intentions as regards the additional business opportunities you are considering as it is not clear to me that you are sufficiently aware of the tax consequences should you choose to do this'. The letter emphasised that Pegasus must commence trade at some date before 5 April 2000 'otherwise there is a total claw-back'.
17. By about October 1999 Pegasus had identified Lister Healthcare Group Limited ('Lister') as an acquisition target. E&Y knew of this by 12 November 1999 and produced a memorandum stating, inter alia, that it would be beneficial for the acquisition to be of assets rather than shares. (I record in passing that the claim form was issued six years later, on 10 November 2005). Despite E&Y's contrary advice, the acquisition proceeded as a purchase of Lister shares, not assets. On 9 March 2000 E&Y advised Mr Bradbury that, in consequence, and in order to satisfy the reinvestment relief requirements, it would be necessary for the assets and trading activities of Lister to be hived up to Pegasus after the acquisition: this was because section 164A(8) required Pegasus to carry on the trade itself. They advised that this would not trigger immediate capital gains tax liabilities but that Pegasus would inherit Lister's original base cost of each asset. The claimants do not question the correctness of that advice, but complain that it did not also explain the potentially adverse consequences of such inheritance. In the same memorandum, E&Y advised:

'We recommend that a full review of the corporation tax and VAT position of the group is carried out in order to consider the impact of the hive up arrangements. In view of the timescale envisaged this is unlikely to be possible before the hive up occurs. Hence we recommend that this occurs after the hive up has been implemented. This will have the benefit of ensuring that the position after the hive up can be clarified and any potential planning opportunities may be ascertained.'

This advice, which was apparently not followed, showed that E&Y had not already carried out any such review and no such review ever took place.

18. Pegasus entered into the Lister share acquisition agreement on 16 March 2000, two weeks before the April 2000 deadline after which all reinvestment relief would have been lost. The hive up followed. In November 2000 the Revenue agreed with Mr Bradbury to defer the gain made on the April 1997 disposal pending the disposal of the loan notes and also to extend Pegasus's time for investing the £90m for a further year to 31 March 2002. Such investment was duly completed by the purchase by Pegasus of seven healthcare businesses and a property. Save that the acquisition of the business of Westminster Healthcare Diagnostics was by a purchase of assets, all the other businesses were acquired by way of share purchases. In all cases the assets were hived up to Pegasus.
19. The problem that sowed the seed of this litigation became apparent in October 2002, just over three years before the issue of the claim form. The judge explained it thus in paragraph [19] of his judgment:

'… The problem was that when Pegasus bought the various businesses much of their value lay in the goodwill built up by each business during the course of its existence and before the acquisition by Pegasus. When the assets of the business were "hived up" to Pegasus, the "base cost" at which Pegasus was taken to acquire those assets for the purposes of corporation tax on capital gains was the original base cost to the acquired business. Since the goodwill had been built up by the acquired business itself, it had not paid anything for it. Thus the value of the goodwill (for which Pegasus had paid) did not form part of the base cost to the acquired business. When Pegasus then came to sell those assets, with their accompanying goodwill, its gain fell to be calculated as the excess of the sale price over the original base cost to the acquired business (not the gain over the purchase price paid by Pegasus). This had the consequence that if Pegasus were to sell one of the businesses for less than the amount that it itself had paid for it, but more than that base cost, it would be making a capital gain for tax purposes and would be liable to corporation tax on that gain. The Particulars of Claim call this problem "the Adverse Consequence"; and I will do likewise [so will I]. The Adverse Consequence could have been avoided if, instead of buying shares in the target businesses, Pegasus had bought the assets of the target companies (including goodwill). If that had been done then Pegasus would only be liable to pay tax on a gain over and above the whole price that it paid for the assets. It could also have been avoided if E&Y had timeously advised that Pegasus should incorporate and fund subsidiaries, which would in turn acquire the businesses. If this had been done, Pegasus would have been able to dispose of an acquired business by a sale of its shares in the subsidiary without triggering a liability for tax on capital gains (save insofar as it made an actual gain on the sale). One of the issues is the timing of the incorporation of subsidiaries in order to take advantage of the tax legislation.'

20. On 1 November 2004 the assets in Pegasus were hived down into subsidiaries, which, I understand, will have the effect that the Adverse Consequence will cease to exist for any assets not sold before 1 November 2010. But the claimants say that in the meantime they have also sold two of the businesses, the IT Business and Rocialle. The sale of the former, in 2003, is said to have been at a loss of about £3m, although the effect of the Adverse Consequence is that Pegasus is treated as having made a gain of some £5.13m, giving a tax liability of some £1.54m (30% of the gain). That liability is, however, said to have been held over or set against available tax losses. The claimants assert, but E&Y do not admit, that the potential cost of the Adverse Consequence is a further £14.2m in tax in addition to that incurred on the sale of the IT Business.
21. The claim with which the judge was, and this appeal is, concerned is the 'subsidiaries claim'. The claimants' case is that E&Y negligently breached the duties owed to Mr Bradbury and Pegasus in failing to advise them by 2 April 1998 (the final cut-off date by when it is agreed such advice had to be given) that subsidiaries of Pegasus should be established before Mr Bradbury's second subscription for shares; or at least that Pegasus should by then form a properly documented intention to form subsidiaries through which qualifying trades acquired in the future could or would be carried on. The case is that E&Y should have foreseen, and advised, that the Adverse Consequence would arise unless a series of subsidiaries was set up to make the purchases of businesses themselves. Instead, Pegasus was established as a stand-alone company that would purchase all the businesses directly. Had E&Y advised upon a corporate structure with subsidiaries, each subsidiary would have had a base cost in the hands of Pegasus equivalent to whatever was paid for the new business, and Pegasus could have sold the subsidiary without incurring tax on chargeable gains above and beyond the actual gain on the sale. Once 2 April 1998 was passed, it was too late for any such subsidiaries so to be used. Only Pegasus itself could acquire qualifying trades and it would itself have to carry them on. Any subsequent sales of any of such trades would potentially throw up the tax penalties of the nature actually suffered on the actual sale in 2003 of the IT business. The consequence of what is said to be E&Y's negligence was therefore to cause a significant and potentially damaging loss of flexibility to Pegasus in the way it carried on its business.
22. The claimants' case is that, in failing to advise Pegasus and Mr Bradbury, of the need by 2 April 1998 for subsidiaries already to exist – or for Pegasus to form an intention to incorporate them subsequently - E&Y breached the duty of care they owed to the claimants. The result was that, by 2 April 1998, Mr Bradbury was fixed with a corporate structure that lacked the flexibility of the structure that he ought to have got. Pegasus suffered a like loss of flexibility. The claimants not only accept that this was the position as at 2 April 1998, they assert it. They have to because it is their case that by 2 April 1998 E&Y had breached the duties they owed them. Unless they can prove that, they have no case in tort.
23. That, however, is as far as they go. It is a further, and crucial, part of their case that, whilst E&Y had by 2 April 1998 breached the duty of care they owed them, such breach was not one that, by that date, also caused any damage to either Pegasus or Mr Bradbury sufficient to complete the tort. The reason that that is also an essential part of their case is that, were it otherwise, the tort would have been complete by 2 April 1998 and so time-barred under the Limitation Act 1980 by the time that the claimants issued their claim form in November 2005. The way that the claimants put their case on damage is that they say there was, at 2 April 1998, no more than a possibility that damage might result from the breach of duty. In particular, there was no certainty that any such damage as did eventually happen upon the sale in 2003 of the IT Business would in fact happen. They say that Pegasus might not have proceeded with the acquisition of any qualifying trades; or it might simply have bought assets rather than shares, in which event the problem would not arise; or it might never have sold at all. It is said that the suffering of damage necessary to complete the tort only happened upon the occasion of the first sale upon which Pegasus suffered the Adverse Consequence. In short, whilst it is accepted that Pegasus suffered an admitted degree of inflexibility as from 2 April 1998 as a result of E&Y's breach of duty – with the result Mr Bradbury did not thereby get what he should have got - that did not constitute damage sufficient to complete the tort. The most he then suffered was the possibility of future damage.

The judge's judgment

24. The judge's judgment ([2008] EWHC 2720 (Ch)) is a model of judicial excellence that repays careful reading. I will not attempt here to rehearse his reasoning. I hope it will suffice to say that, as regards Pegasus, he concluded that it had no reasonable prospect of proving at trial that, prior to 2 April 1998, it had entered into any contract with E&Y for the provision of professional services to it or that E&Y owed it a duty of care in tort. As regards Mr Bradbury, there was no dispute for the purposes of the preliminary issues that E&Y owed him a duty of care in tort and breached it. As to whether it resulted in actual damage by 2 April 1998, the judge's intuitive reaction was that orthodox principles of tort law suggested that it had not. He concluded, however, that the authorities, including in the Court of Appeal, established that in the field of professional negligence a different answer was required, namely one to the effect that in a case in which, because of a failure of the professional to exercise due care and skill, the client does not secure the benefit that he should have secured, damage is suffered when the transaction takes place. For that reason, he concluded that damage was suffered by 2 April 1998 so as to complete the tort.
25. I shall deal with the appeal by (a) summarising the claimants' submissions on both grounds of appeal, (b) summarising E&Y's responsive submissions on both grounds, and (c) then expressing my conclusions

A. The appellants' submissions

Are the tort claims time-barred?

26. Mr Davies dealt first, and together, with the limitation points raised by Pegasus and Mr Bradbury. His submission was that (assuming E&Y also owed Pegasus a duty of care in tort), by 2 April 1998, each of Pegasus and Mr Bradbury had entered into the transaction that it and he had respectively intended; and each had received in return what it and he expected to receive. Pegasus had issued shares and received money in exchange; Mr Bradbury had received shares in exchange for money. There was no expert evidence on the value of the shares; and the judge observed that since Pegasus's assets immediately after the share subscription consisted of £90m in cash, it was not self-evident that Mr Bradbury's shares were worth less than he had paid for them. Mr Davies submitted that there was therefore no evidence that either Pegasus or Mr Bradbury suffered any loss as at 2 April 1998. The burden of proving a loss rested on E&Y. But, he said, the only damage then suffered was of a future and prospective or contingent nature. A loss would only occur if all of the following happened in the future: (i) Pegasus acquired trades from other companies by way of a share purchase rather than an asset purchase; (ii) the trades so acquired included assets with low original base costs for chargeable gains purposes, without any sufficient assets with uncrystallised capital losses to be offset against the gains on the assets with low base costs; (iii) Pegasus then sold individual businesses or assets rather than its whole business or a share in its business; and (iv) businesses acquired by Pegasus were sold before tax planning measures had been taken to prevent the crystallisation of chargeable gains on such sales. Such events were all foreseeable in April 1998 and did happen; but in April 1998 they were no more than future and prospective.
27. As for the judge's conclusion that the application of orthodox principles in tort pointed to the conclusion that no damage had been suffered in this case, but that the rules applying to professional negligence cases pointed to a different conclusion, Mr Davies submitted that there was no special rule for professional negligence cases, no reason why there should be and no reported case showing that there was. He recognised that there were cases showing that damage was suffered when the client was not in the position that he should have been in and where the relevant difference amounted to what he called 'actual, immediate damage'. He instanced as an example of such a case one in which the client paid a premium for a valid insurance policy which proved to be a voidable one (a reference to Knapp & Another v. Ecclesiastical Insurance Group Plc & Another [1998] PNLR 172, to which I shall come). Where the judge went wrong was, he said, to equate Mr Bradbury's failure to get what he ought to have got with the suffering of present damage. The first does not necessarily equate to the second, the latter being the subject of an objective test. Objectively assessed, no measurable damage was suffered in this case in April 1998. A lack of flexibility is not damage. Mr Davies took us on a tour of the authorities with a view to demonstrating that nothing less than objective proof of damage will amount to the suffering of damage for the purpose of perfecting a claim in tort.
28. Before coming to the authorities, it may be helpful to categorise them thus: (a) 'no transaction' cases, being those in which the claimant asserts that, but for the negligence, he would not have entered into the transaction at all; (b) 'wrong transaction' cases, being those in which, had there been no negligence, the claimant would have entered into a transaction similar to the one into which he entered by reason of the negligence; and (c) other cases not falling within either class, which I will call 'category 3' cases. Mr Davies' submission, however, was that, however the cases might be categorised, all are underpinned by the same principle and all lead to the same result. Mr Salzedo's case was that this case is a 'wrong transaction' case and that the judge correctly identified the principle he described as applying to such cases.
29. Mr Davies opened his tour with the decision of the House of Lords in Nykredit Mortgage Bank PLC v. Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627. The bank had advanced money to a borrower on the strength of a negligent overvaluation by the defendant valuers of the security for the loan. The claim was brought in tort. But for the negligent valuation, the bank would not have made the loan. The case was thus a 'no transaction' case. The issue before the House was as to the date from when interest ran on the damages, which required an inquiry as to when the bank's cause of action arose. Did it arise, as the bank said, when it entered into the loan transaction, and suffered an immediate loss by making a loan on inadequate security? Or did it only arise when, three years later, the security was subsequently sold?
30. Lord Nicholls of Birkenhead, after referring to this court's decision in Forster v. Outred & Co [1982] 1 WLR 86 (also a 'no transaction' case), said, at 1630, that the question was when 'actual damage' occurred, which meant any detriment, liability or loss capable of assessment in money terms and included liabilities which arise on a contingency. He gave, as a simple example, a 'no transaction' case in which a purchaser buys a house subject to a land charge of which his solicitor negligently fails to advise him, being a purchase he would not have made had his solicitor advised him correctly. In such a case, said Lord Nicholls, the purchaser suffered actual damage when he completed the purchase, by parting with his money and receiving in exchange a property worth less than he paid for it.
31. The case before the House was, however, more difficult. In one sense, the bank suffered loss at the moment of completion because it would not have made the loan at all had it been properly advised. Equally, it was then uncertain that it would in fact suffer actual damage: the borrower may not default and any actual loss may not only be uncertain, it may be unlikely. When, asked Lord Nicholls, does the lender first sustain measurable, relevant loss? He said, at 1631E, that in a 'no transaction' case (although he did not use that shorthand) what was necessary was a comparison between (i) the plaintiff's position had he not entered into the transaction and (ii) his position under the transaction. The case of a loan made on the basis of a negligent security valuation posed additional difficulties, as he explained. But he said that basic comparison required was between (a) the money lent by the plaintiff – which he would still have had but for the loan transaction - plus interest at a proper rate, and (b) the value of the rights acquired, namely the borrower's covenant and the true value of the overvalued property. His conclusion was that, in the particular case, the borrower's covenant was worthless and that the cause of action therefore accrued 'at the time of the transaction … or thereabouts' (p. 1635A).
32. Lord Hoffmann, who agreed with Lord Nicholls' speech, said this at 1638:

'Proof of loss attributable to a breach of the relevant duty of care is an essential element in a cause of action for the tort of negligence. Given that there has been negligence, the cause of action will therefore arise when the plaintiff has suffered loss in respect of which the duty was owed. It follows that in the present case such loss will be suffered when the lender can show that he is worse off than he would have been if the security had been worth the sum advised by the valuer. The comparison is between the lender's actual position and what it would have been if the valuation had been correct.

There may be cases in which it is possible to demonstrate that such loss is suffered immediately upon the loan being made. The lender may be able to show that the rights which he has acquired as lender are worth less in the open market than they would have been if the security had not been overvalued. But I think that this would be difficult to prove in a case in which the lender's personal covenant still appears good and interest payments are being duly made. On the other hand, loss will easily be demonstrable if the borrower has defaulted, so that the lender's recovery has become dependent upon the realisation of his security and that security is inadequate. On the other hand, I do not accept Mr Berry's [leading counsel for the valuers] submission that no loss can be shown until the security has actually been realised. Relevant loss is suffered when the lender is financially worse off by reason of a breach of the duty of care than he would otherwise have been. This is, I think, in accordance with the decisions of the Court of Appeal in UBAF Ltd v. European American Banking Corporation [1984] QB 713 and First National Commercial Bank Plc v. Humberts [1995] 2 All ER 673.

In the present case, the lender defaulted almost at once, well before the date in December 1990 from which Nykredit claims interest. There was ample evidence of relevant loss having been suffered before that date.'

33. Mr Davies relied on Nykredit (No 2) as providing high authority to the effect that the answer to the question as to when a cause of action in tort arises is when actual damage is suffered; and that it will not necessarily coincide with the entry by the claimant into a transaction which, but for the defendant's negligent advice he would not have entered into. He also referred us to the decision of the House of Lords in Rothwell v. Chemical & Insulating Co Ltd and another [2008] 1 AC 281, the pleural plaques case, which I would characterise as a 'category 3' case. The claim there was against employers for negligently exposing the claimants to asbestos dust. Lord Hoffmann, at paragraph [2], repeated that proof of damage was an essential ingredient in the tort of negligence and pointed out that the risk of future illness, or anxiety about the possibility of a risk materialising, did not amount to damage for the purpose of creating a cause of action. He explained, however, that if some actionable damage had been suffered sufficient to complete the cause of action, such risk or anxiety could also be taken into account in computing the claimant's loss. At paragraph [14] he said that:

'… if a claimant does have a cause of action, he may recover damages for the risk that he may suffer further injury in consequence of the same act of negligence, even though (under the principle in Gregg v. Scott [2005] 2 AC 176), such risk would not be independently actionable.'

Lord Scott of Foscote said much the same at paragraph [67]:

'… it is accepted that a risk, produced by a negligent act or omission, of an adverse condition arising at some time in the future does not constitute damage sufficient to complete a tortious cause of action: see Gregg v. Scott [2005] 2 AC 176 and Law Society v. Sephton & Co [2006] 2 AC 543. The victim of the negligence must await events. Here, too, however, it is common ground that if some physical injury has been caused by the negligence, so that a tortious cause of action has accrued to the victim, the victim can recover damages not simply for his injury in its present state but also for the risk that the injury may worsen in the future and for his present and ongoing anxiety that that may happen.'

34. Mr Davies then turned to a clutch of 'wrong transaction' cases. These are of direct importance for the purposes of the appeal. He placed particular reliance on D.W. Moore and Co Ltd v. Ferrier and Others [1988] 1 WLR 267, Court of Appeal, but for a proper understanding of it, I consider it necessary first to refer to Baker v. Ollard & Bentley (a firm) and Another 12 May 1982, unreported, Court of Appeal, also a 'wrong transaction' case, and one which was cited in Moore. The court comprised Lawton, Templeman and Fox LJJ.
35. The defendant solicitors in Baker applied to strike the claim out as statute-barred. For the purposes of their application, the facts alleged in the statement of claim were assumed to be correct and were as follows. The plaintiff and Mr and Mrs Bodman retained the solicitors to act for them on their purchase of a house. The solicitors knew that the plaintiff and the Bodmans intended to occupy separate parts of it: the first floor was appropriated to the plaintiff and the ground floor to the Bodmans. The solicitors' duty was to ensure that the plaintiff had security of tenure in respect of her floor and could dispose of it without requiring the Bodmans' co-operation. This could have been achieved by the purchase of the house by all three as joint tenants, followed by grants of a long lease of the first floor to the plaintiff and a long lease of the ground floor to the Bodmans. The solicitors did not advise that this should be done, nor was it. They instead negligently advised a conveyance of the house to the plaintiff and the Bodmans as joint tenants on trust for sale for themselves as tenants in common in shares of 49% to the plaintiff and 51% to the Bodmans. The purchase was completed by such a conveyance dated 12 April 1973.
36. The plaintiff alleged that the Bodmans could, in consequence, at any time afterwards have sought a sale of the house, with vacant possession of both floors. Within eight months of completion, the Bodmans sought to do just that. In 1975 the plaintiff managed, however, to negotiate with them the grant to her of a freehold interest in the first floor, although that interest was only saleable at less than its full value because building societies would not lend on such an interest. Had the solicitors done at the outset what they should have done, the plaintiff would have had a long lease that would have been saleable at full value.
37. The plaintiff issued her writ against the solicitors in April 1981, eight years after completion of the purchase. The question was whether she had suffered damage on 12 April 1973, the date of completion. If so, her claim was time-barred. She asserted that she only suffered damage in 1975 when, whilst achieving security of occupation of the first floor, she suffered a loss of value of her interest in the house. She claimed to have suffered no damage at completion because (i) she might have been left undisturbed in her occupation of the first floor, and (ii) the value of her interest in the house when eventually sold, namely 49% of her interest in the house, would or might exceed the value of a long lease of the first floor. Whilst, therefore, the solicitors breached their duty of care at completion, it was necessary to wait and see whether – and when - any damage was actually suffered. Only if and when it did was a cause of action in tort complete.
38. I will cite an extended passage from the judgment of the court delivered by Templeman LJ explaining why relevant damage was suffered at completion, so that the action was time-barred:

'In our judgment, the plaintiff suffered damage on 12^th April 1973. On that date, if the solicitors were negligent, she should have received a long lease of the first floor and an interest as joint tenant of the freehold of the house subject to a long lease of the first floor in her own favour and subject to a long lease of the ground floor in favour of the Bodmans. The plaintiff did not receive that which the solicitors ought to have obtained for her. She received something different. Therefore she suffered damage. The quantum of damage depends, and would in any event depend, on the attitude of the Bodmans. If the Bodmans were willing to concur in the grant of long leases, there would have been no significant damage. If the Bodmans were only willing to concur in the grant of the fee simple of the first floor then the damages would have been the difference between the value of the freehold of the first floor on the one hand and the value of a long lease of the first floor and the joint tenancy of the house subject to two long leases on the other hand. If the Bodmans were unwilling to do anything or to commit themselves, the assessment of damages would have involved a valuation by the court of the inconvenience and possible loss which might be suffered by the plaintiff if she were obliged to leave the first floor at the behest of the Bodmans and to allow a sale of the house with vacant possession at some uncertain and unforeseeable date in the future. But, whenever the plaintiff brought her action against the solicitors – whether immediately after the conveyance dated 12^th April 1973, or before or after the Bodmans sought an order for vacant possession – evidence could have been adduced of the attitude and intentions of the Bodmans to enable the judge to perform the task of assessing the quantum of damages. We now know that the Bodmans were willing to grant security of occupation to the plaintiff by conveying the first floor to her in fee simple but they were not willing to grant her a long lease. In these circumstances the plaintiff would have been able, and was in fact able, to mitigate her damages by achieving that security of occupation of the first floor which the solicitors should have obtained for her, but she would have been and was unable to obtain the grant of a long lease. In those circumstances the quantum of damages suffered by the plaintiff would have been and is represented by the difference between the value of a freehold of the first floor and the value of a long lease of the first floor, plus a joint tenancy of the house subject to long leases of the first floor and the ground floor. That is the quantum of damages which the plaintiff now seeks.

But the fact that the quantum of damages suffered by the plaintiff on 12^th April 1973 could immediately thereafter, or at any time thereafter, only be established by ascertaining the attitude and intentions of the Bodmans only goes to quantum of damages and does not affect that fact that the damages were suffered on 12^th April 1973. Damages were suffered on that date because the plaintiff did not receive the long lease and joint tenancy which the solicitors should have secured for her. She secured instead some other and different interest. She suffered damage because she did not get what she should have got.' (Emphasis supplied).

39. The plaintiff's argument in that case was essentially akin to that advanced by the present claimants. It was that the solicitors breached their duty to her at completion but that no damage was then suffered because events might so turn out that she would suffer none. In particular, it was no part of her case that she was financially worse off on completion than she would have been had the solicitors performed their duty correctly: she recognised that a 49% interest in the whole house was or might be worth no less than, and might be worth more than, a long lease of one floor. Her assertion that she suffered no damage at completion was rejected by this court for the reasons given in the emphasised passages: she did suffer damage then because she did not get the particular property interest (a long lease of the first floor) that she should have got. Her cause of action in tort was then complete. The quantum of her recoverable damages would have depended on an investigation of the Bodmans' attitude.
40. Reverting to Moore, the court in that case comprised Kerr, Neill and Bingham LJJ. It concerned the agreement of the second and third plaintiffs with a Mr Fenton that he should become a shareholder and director of their insurance broking company, the first plaintiff. The defendant solicitors prepared an agreement which by clause 5 purportedly imposed a time and area restrictive covenant binding on each of the plaintiff directors and Mr Fenton if any should cease to be a member of the company. It was dated 1 July 1971, and a further agreement, in like terms, was entered into in 1975. Mr Fenton left the business in 1980 and set up in competition in breach of the time and area restraints. It then emerged that the agreements did not achieve for the plaintiffs what they had intended them to achieve, namely that the restraints should bite not just if Mr Fenton ceased to be a member of the company (which he did not), but also if he ceased to be a director or employee. In April 1985 the plaintiffs sued the defendant solicitors for negligence in the drafting of the agreements. Any claim in contract was time-barred. The question was whether the tort claim was also time-barred. This court upheld the judge's decision that it was.
41. The plaintiffs' argument was the same as that of the plaintiff in Baker: namely, that the solicitors breached their duty in the drafting of the agreements but that no damage was suffered until Mr Fenton set about doing that which the agreements ought to have restrained. Put the other way, he might never have left the plaintiff company, or he might not have set up in competition, so that no question under the agreements would ever have arisen and no damage suffered. The judge held, however, that actual damage was suffered when, in 1971 and 1975, the plaintiffs failed to get the agreements they had sought. The agreements they did get were of less commercial value than the agreements they should have got because of the absence of proper protection against competition. That difference was damage capable of quantification. He applied Baker and held that, had the court had to assess damages in, say, 1977 it would have had to assess the chances of severe financial loss.
42. This court upheld the decision. Neill LJ referred to Forster v. Outred & Co [1982] 1 WLR 86, a 'no transaction' case in which the solicitors' negligence caused the plaintiff to encumber her property with a mortgage to secure her son's liabilities, a mortgage which, but for such negligence, she would not have granted. Her claim against the solicitors was issued more than six years after its execution, her liability under it having in the meantime been called. It was held in this court that her cause of action accrued when she executed the mortgage, even though she did not become liable to the mortgagee for the repayment of the loan until the demand. It so accrued because whereas before she had owned an unencumbered property, it was now encumbered, even though the actual quantum of any loss she might suffer would depend on subsequent events. Neill LJ also referred to and cited from Baker.
43. The argument for the appellant plaintiffs was that it was obvious in both Forster and Baker that the plaintiffs had suffered actual damage, even though it might be difficult to quantify it. By contrast, it was said that it was not obvious that agreements with the defective clauses were less valuable than they should have been, nor was there any evidence of any diminution in value. Neill LJ rejected that submission. He said, at 277A, that it required no evidence to prove that a valid restrictive covenant has value. He said, at 277B:

'… if an action had been brought in, say, 1976, the actual assessment of damages would have depended on the evidence as to the likely future attitude of Mr Fenton. But the imponderables which future behaviour presented relates to the quantification of damages and not to the existence of a cause of action.'

In saying that, he was echoing what this court had said in Baker. He then said, at 278F:

'… the judge rightly rejected the notion that where a solicitor gives negligent advice, damage is presumed to occur at the time when the advice is acted upon. I am satisfied that there is no such presumption. It is a question of fact in each case whether actual damage has been established. In the present case, to use the language of Templeman LJ in Baker v. Ollard & Bentley, Court of Appeal (Civil Division) Transcript No 155 of 1982, the plaintiffs suffered damage "because [they] did not get what [they] should have got." The plaintiffs' rights under the two agreements were demonstrably less valuable than they would have been had adequate restrictive covenants been included.' (Emphasis supplied)

44. Bingham LJ agreed. He said, at 279H:

'It seems to me clear beyond argument that from the moment of executing each agreement the plaintiffs suffered damage because instead of receiving a potentially valuable chose in action they received one that was valueless. Indeed, the invalidity of the covenants against competition rendered the rights which the second and third plaintiffs did obtain, to Mr Fenton's undivided services, a somewhat double edged benefit.

If the quantification of the plaintiffs' damage had fallen to be considered shortly after the execution of either agreement, problems of assessment would undoubtedly have arisen. It might have appeared that Mr Fenton was unlikely to leave, taking much of the first plaintiff's business with him, to establish a competing business. If so, the plaintiffs' damages would have been assessed at a modest figure. But the risk of his doing so could not have been eliminated altogether, and so long as there was any risk that one of the first plaintiff's two directors might leave, taking much of the first plaintiff's business with him, to establish a competing business, there must necessarily have been a depressive effect on the value of the first plaintiff's business and on that of the second and third plaintiffs' derivative interests. In making his assessment the judge would have had to attach a money value to a possible future contingency, but judges do this every day in awarding claimants damages for the risk of epilepsy, the risk of osteoarthritis, the risk of possible future operations, the risk of losing a job and so on. The valuation exercise is, of course, different, but the difference is one of subject matter, not of kind.'

Kerr LJ agreed with both judgments.

45. Mr Davies relied upon Moore for the sentence in Neill LJ's judgment that I have emphasised, which itself emphasised that it is a question of fact in every case whether actual damage has been suffered at the time of the breach. He relied also on Bingham LJ as saying that it was clear that the plaintiffs suffered actual damage at the time the agreements were executed. His submission was that it simply cannot be said in the present case that any such damage was suffered by 2 April 1998. It is to be contrasted on its facts from each of Baker and Moore, both also 'wrong transaction' cases, in both of which it was, he said, apparent that damage was suffered at the time the plaintiffs acted in reliance on the negligent advice.
46. The next 'wrong transaction' case to which Mr Davies took us was Bell v. Peter Browne & Co [1990] 2 QB 495, also a decision of this court. The marriage between the plaintiff and his wife was breaking down and he instructed the defendant solicitors as to the arrangements agreed in relation to the jointly owned matrimonial home. He was to transfer it to her on terms that he would receive one-sixth of the gross proceeds whenever it was sold. The solicitors took no step upon the execution of the transfer to the wife to protect his interest by securing the execution of a declaration of trust or other instrument; and no step thereafter to protect his interest by lodging a caution against dealings at HM Land Registry. Eight years on the plaintiff discovered that his former wife had sold the house and spent the proceeds, following which he sued the solicitors for breach of contract and breach of their duty of care in tort. The claim in contract was held to be time-barred. So was the claim in tort. It is the court's observations in relation to that claim which are material.
47. As regards the failure to protect the plaintiff's interest with a declaration of trust or agreement, Nicholls LJ said, at 502D to F, that it resulted in the suffering by the plaintiff of prejudice at the time the transfer to the wife was completed. The extent of the prejudice would depend on the wife's attitude but the uncertainty as to that would not go to whether damage had been suffered, it would go merely to the quantum of loss. The case was, Nicholls LJ said, in that respect akin to Baker. As for the breach in failing to lodge a caution, it was in the plaintiff's own power to remedy that by lodging one himself, for which he did not need his wife's co-operation. Nicholls LJ declined, however, to regard the availability of such self-help as making a material difference to the solicitors' liability. Had the plaintiff learned of their default and gone to other solicitors for advice as to what to do, he could at least have recovered from the solicitors the cost of doing so. The cost would have been modest, but not negligible. I understand Nicholls LJ to have held that such cost would represent the recoverable quantum of the loss caused by the solicitors' default at the outset (see his opening words in the paragraph at 503G). He regarded the case as indistinguishable from Baker and Moore.
48. Mr Davies said that this was also a case in which the suffering of actual damage at the time of the transfer was apparent. Beldam LJ said, at 510F, that the parting by the plaintiff with his legal estate in the house in exchange for an equitable interest in the proceeds of sale that was unsecured by a trust deed or mortgage was 'clearly less valuable to the plaintiff'. Mr Davies also referred to the observation by Mustill LJ in his concurring judgment, at 513C:

'The transaction caused the plaintiff to exchange his valid legal estate for an equitable interest in the proceeds of sale which was dependent on the goodwill and solvency of the wife unless and until protected by a formal declaration of trust and the lodging of a caution. The failure to see that these steps were taken promptly meant that the plaintiff was actually, and not just potentially, worse off than if the solicitors had performed their task competently. The sale in 1986 simply meant that the breach and its consequences were irremediable. As Nicholls LJ has pointed out, the solicitors' negligence had two different aspects: the failure to obtain the wife's participation in a formal instrument, and the failure to protect the interests by a caution, but I respectfully agree with his view that this characteristic forms no ground for distinguishing [Baker] and [Moore], which are binding on this court.' (Emphasis supplied)

That, said Mr Davies, showed the need to prove that damage had actually been suffered before the tort was complete; and Mustill LJ's 'potentially' reflected that there can and will be cases in which the breach of duty will do no more than create the risk of future damage. Bell, however, was not such a case.

49. By way of support for the distinction indicated by Mustill LJ, Mr Davies referred us to First National Commercial Bank plc v. Humberts (a firm) [1995] 2 All ER 673. That was a 'no transaction' case in which the bank advanced money to developers in reliance on an allegedly negligent overvaluation of a lease by the defendant valuers. The developers became insolvent and, more than six years after the valuation, the bank sued the valuers for negligence. The judge held the claim to be time-barred, but this court allowed the appeal, on the basis that the evidence showed that the bank did not suffer any relevant damage until some years after it had parted with its money and entered into the transaction. Mr Davies relied on some general observations by Saville LJ, who pointed out, at 676b, that a cause of action in negligence only arises when there has been a breach of duty 'resulting in actual (as opposed to potential or prospective) loss or damage'. He also referred to this court in Forster as having accepted the submission that 'actual damage meant any detriment, liability or loss capable of assessment in money terms'. Saville LJ then said, at 679b:

'… much reliance was placed on the cases where the claimant entered into a transaction which through a breach of duty owed to the claimant provided the claimant with less rights than should have been secured, or imposed liabilities or obligations on the claimant which should not have been imposed. Examples of these cases are: [Forster]; Iron Trade Mutual Insurance Co Ltd v. J.K. Buckenham Ltd [1990] 1 All ER 808 and [Bell]. In all those cases, however, the court was able to conclude that the transaction then and there caused the claimant loss, on the basis that if the injured party had been put in the position he would have occupied but for the breach of duty, the transaction in question would have provided greater rights, or imposed lesser liabilities or obligations than was the case; and that the difference between these two states of affairs could be quantified in money terms at the date of the transaction.'

50. Taking stock at this point, each of Forster, Baker, Bell and First National was referred to by Lord Nicholls in Nykredit (No 2) with apparent approval (see [1997] 1 WLR 1627, at 1633H to 1634G); and Lord Hoffmann agreed with Lord Nicholls' speech, adding that the principle that 'Relevant loss is suffered when the lender is financially worse off by reason of a breach of the duty of care than he would otherwise have been' was in accordance with the decision in First National (see 1637E and 1639C to D).
51. Mr Davies' next authority, also a 'wrong transaction' case, was Knapp & Another v. Ecclesiastical Insurance Group Plc & Another [1998] PNLR 172. He did not in fact cite the judgments to us, although Mr Salzedo did and I should refer to them. Judgment in that case was delivered on 30 October 1997, 28 days before the judgment in Nykredit (No 2), although the latter did not refer to it. It was a case in which, following a fire, the plaintiff's property insurance policy was avoided for non-disclosure. The policy had been arranged via S, the second defendant, with whom the plaintiffs had a contractual relationship and who admitted a duty of care to them in tort. He had completed the proposal form on their behalf and had known all the relevant facts that ought to have been disclosed. It was said that he had a duty to advise the plaintiffs as to the correct completion of the proposal form. The claim against him for negligence was brought more than six years after the renewal of the policy.
52. The plaintiffs' case was that until the fire, or the later avoidance of the policy, they suffered no loss. S claimed that they suffered loss on the earlier date when the renewed cover started. The judge, Sir Peter Webster, took the view that as the policy was prima facie valid until avoided, it was impossible until avoidance to say that there was any diminution in its value. It was in his view impossible to assess in money terms the degree of likelihood that the insurer would become aware of the non-disclosure and avoid the policy. He distinguished Forster and Bell and referred to Neill LJ's observation in Moore that 'it is a question of fact in each case whether actual damage has been established'. He therefore held that the claim was not time-barred.
53. This court allowed the appeal. Hobson LJ referred to Forster and Baker. His brief citation from Baker reflected that he regarded its ratio as being that the plaintiff in Baker 'has suffered damage because she did not get what she should have'. He pointed out that Forster and Baker were followed in Moore. He referred to Bell. His conclusion, at 184E, was that:

'From these authorities it can be seen that the cause of action can accrue and the plaintiff have suffered damage one [sic: should be 'once'] he has acted upon the relevant advice "to his detriment" and failed to get that to which he was entitled. He is less well off than he would have been if the defendant had not been negligent. Applying this to the present case, the plaintiffs paid their renewal premium without getting in return a binding contract of indemnity from the insurance company. They had acted to their detriment: they did not get that to which they were entitled. The fact that how serious the consequences of the negligence would be depended upon subsequent events and contingencies does not alter this; such considerations go to the quantification of the plaintiffs' loss not to whether or not they have suffered loss. The risk of loss existed from the outset and in the absence of better evidence would have to be evaluated and assessed as a risk and damages awarded accordingly.'

54. Buxton LJ delivered a concurring judgment, which also recognised the ratio of Baker as being that the plaintiff there suffered damage because she did not get what she should have got. The same applied in Knapp.
55. Mr Davies moved to Gordon v. J.B. Wheatley & Co (a firm) and Another [2000] Lloyds PN 605, Court of Appeal. The claimant, through various companies, had since about 1980 operated a private mortgage scheme, bringing lenders and investors together. The Financial Services Act 1986 came into force in 1988. Section 3 required those carrying on investment business to be an authorised person and section 6 empowered the court to order that 'any other person who appears to the court to have been knowingly concerned in the contravention to take such steps as the court may direct for restoring the parties to the position in which they were before the transaction was entered into.' In 1991 the claimant changed the nature of his business by ceasing to match lenders and borrowers, a change which ought to have required him to consider whether he was entering into a collective investment scheme that might attract the attention of the Securities and Investments Board. His claim against the solicitors, which he commenced in 1998 (more than six years since they had ceased to act for him), was that they had negligently failed to advise him that his new scheme could be considered such a collective investment scheme and what he should do to protect himself (ie obtain the necessary authorisations). In May 1992 (also after they had ceased to act for him), he had submitted to an investigation by the Securities and Investments Board, and in the same month (on the advice of other solicitors) had signed an undertaking which led in due course to a judgment against him for nearly £700,000. His claim against the solicitors was in tort and the issue was when the cause of action accrued. That turned on when loss or damage was sustained. Was it, as the solicitors claimed, every time an investor made an investment into the pooled scheme, in which event each head of loss occurred more than six years before the issue of the writ? Or was it, as the claimant asserted, when he signed the undertaking, claiming that before then he faced no more that a serious risk of loss. If his argument was right, the claim was brought in time.
56. Kennedy LJ referred, amongst other cases, to Forster, Moore, Bell, First National, Knapp, Nykredit (No 2). His conclusion, at 612 – and after referring to Lord Hoffmann's statement in Nykredit (No 2) that loss was only suffered 'when the lender can show that he is worse off' – was to reject the submission that the claimant was only potentially worse off as a result of the solicitors' allegedly negligent failure to advise. He held that such failure exposed the claimant to the risk of being required by the court, pursuant to section 6(2) of the 1986 Act, to restore investors and borrowers to the position they were in before the transactions were entered into. He said that that 'was a liability, albeit a contingent liability, a fetter on his assets, from which on his case he would have been protected if the first defendant had exercised proper care'. He thus held the claim to be time-barred, with which Kay LJ agreed. Mr Davies relied not so much on the decision of this court in Wheatley but on the criticism of it by the House of Lords in the next case to which I shall come.
57. Law Society v. Sephton & Co (a firm) and others [2006] UKHL 22; [2006] 2 AC 543 is an important decision of the House of Lords in relation to limitation issues, and includes a discussion of the authorities to which I have referred. The case was one in which the defendant accountants had negligently certified annual reports in respect of the years 1988 to 1995 to the effect that a solicitor acting as a sole principal had complied with the Solicitors' Accounts Rules. The solicitor had not in fact done so. He had, over a period of six years ending in March 1996, instead misappropriated over £750,000 from his client account which, but for its negligence, the defendant firm ought to have discovered. The Law Society applied its Compensation Fund in compensating clients who had lost out. In 2002 the Society sued the defendant auditors, claiming to have relied on its negligent reports.
58. The judge held that the cause of action in negligence accrued as soon as the solicitor misappropriated money following the receipt by the Society of the relevant report. As all misappropriations had happened more than six years before the claim was commenced, he held the claim to be time barred. The Court of Appeal reversed that order and the House of Lords affirmed their decision. The essence of the House's reasoning was that the misappropriations gave rise to no more than a possible liability to a call upon the fund, which was contingent on the misappropriation not otherwise being made good and a claim in proper form being made. A contingent liability to pay money in the future was not in itself damage until the contingency occurred. It followed that the Society suffered no loss until a claim was made and so until then no cause of action had accrued. The claim was therefore not time-barred.
59. I do not regard the decision in Sephton as providing direct guidance to the disposition of this appeal. First, it was dealing with a type of claim that bore no factual similarity to the present case: it was neither a 'wrong transaction' nor a 'no transaction' case. It was a 'category 3' case. It is, however, an important decision since it contains a typically illuminating exposition of the applicable law by Lord Hoffmann, with whose speech Lord Scott of Foscote (paragraph [33]), Lord Rodger of Earlsferry (paragraph [36]) and Lord Walker of Gestingthorpe (paragraph [54]) expressly agreed, Lord Walker adding a substantive concurring speech of his own, as did Lord Mance. I regard the key parts of Lord Hoffmann's speech for present purposes as the following:

'20. The Nykredit (No 2) case [1997] 1 WLR 1627 therefore decides that in a transaction on which there are benefits (covenant for repayment and security) as well as burdens (payment of the loan) and the measure of damages is the extent to which the lender is worse off than he would have been if he had not entered into the transaction, the lender suffers loss and damage only when it is possible to say that he is on balance worse off. It does not discuss the questions of a purely contingent liability.

21. Next, there are a number of cases in the Court of Appeal which involve transactions, with both benefits and burdens, into which the plaintiff entered as a result of the negligence or breach of contract of the defendant. None of these cases concerned purely contingent obligations. It is only necessary to observe that in such bilateral transactions the answer to the question of whether damage has been suffered may be different according to whether the liability is for the consequence of the defendant not performing his duty or (as is usual in claims for misrepresentation) the consequences, or some of the consequences, of the plaintiff entering into the transaction. If the liability is for the difference between what the plaintiff got and what he would have got if the defendant had done what he was supposed to have done, it may be relatively easy, as Bingham LJ pointed out in D.W. Moore & Co Ltd v. Ferrier [1988] 1 WLR 267, to infer that the plaintiff has suffered some immediate damage, simply because he did not get what he should have got. Thus in Knapp v. Ecclesiastical Insurance Group plc [1998] PNLR 172, where the plaintiff paid a premium for a voidable fire insurance policy because his insurance broker had failed to disclose material facts, the Court of Appeal held that he had suffered immediate damage because "he did not get what he should have got", namely a policy binding on the insurers. On the other hand, if the damage is (as it was in the Nykredit (No 2) case [1997] 1 WLR 1627 and First National Commercial Bank plc v Humberts [1995] 2 All ER 673) the difference between the defendant's position after entering into the transaction and what it would have been if he had not entered into the transaction, the answer may be more difficult. Despite the breach of duty, the transaction may on balance have originally been advantageous to the plaintiff and some evidence may be necessary to show when he was actually in a worse position. ….

22. Thus cases like Bell v. Peter Browne & Co [1990] 2 QB 495 and Knapp v Ecclesiastical Insurance Group plc [1998] PNLR 172 are readily explicable as cases in which the damage was the difference between the plaintiff's position as it was and as it would have been if the defendant had performed his duty and in which it was possible to infer that the plaintiff's failure to get what he should have got from a bilateral transaction was quantifiable damage, even though further damage which might result from the flaw in the transaction was still contingent. The plaintiff had paid money, transferred property, incurred liabilities or suffered diminution in the value of an asset and in return obtained less than he should have got. But these authorities have no relevant to a case in which a purely contingent obligation has been incurred.' (Emphasis in paragraph [21] supplied).

60. Those paragraphs draw a clear distinction between 'no transaction' cases such as Nykredit (No 2) and 'wrong transaction' cases such as Baker, Moore, Bell and Knapp. The latter type of case includes those in which the claimant did not get what he should have got. In such cases it may, as Lord Hoffmann said, be relatively easy to infer that the shortfall has resulted in immediate damage sufficient to complete the tort. In paragraphs [23] to [25] Lord Hoffmann considered this court's decision in Wheatley and said he was 'inclined' to think it was wrongly decided. It was not, he said, analogous to cases such as Bell and Knapp. The risk of action by the SIB was not one that arose directly from the investment transactions in which he, or his companies, continued to engage. The enforcement powers of the SIB were independent of the rights and liabilities arising under the scheme. Lord Walker, at paragraph [51], regarded the correctness of the decision as close to the borderline. Lord Mance, at paragraph [82], expressed the view that it was wrongly decided. He distinguished it from cases like Moore and Knapp and said that it was not a case in which the risk to which the claimant was exposed arose from the effect of a transaction into which the defendant solicitors negligently allowed him or his companies to enter. He would therefore characterise it as a 'category 3' case, and I understand Lord Hoffmann to have been of a like view.
61. The only other references in Sephton that I would make are to other parts of Lord Mance's speech. At paragraph [67], he summarised the 'wrong transaction' cases, explaining how they were cases where the claimant's position had been altered to his 'immediate, measurable economic disadvantage'. He referred to Baker as a case in which 'the claimant due to solicitors' negligence acquired a less valuable interest in a house held on trust for sale, rather than a separate and valuable interest in its first floor'. With great respect, I can find nothing in the report of Baker that shows, or even suggests, that the interest that the plaintiff received in the house on completion (49% of the whole house) was 'less valuable' – meaning worth less – than the value of a long lease of the first floor. The plaintiff's case was that it was not, or might not be; and Templeman LJ, in the penultimate paragraph of the court's judgment, said that:

'The value in monetary terms of the plaintiff's tenancy in common in equity of the house sold with vacant possession must exceed the value of a long lease of the first floor.'

The point is important because Baker was not a case in which the plaintiff suffered an immediate, measurable financial loss on completion. That was neither her case nor the basis of the court's decision. The basis of the decision was that she had not got the different property interest that she should have got, one which might well have been worth less than the one she did get. That failure nevertheless represented immediate loss sufficient to complete the tort, although its quantification in money terms might well be difficult: it would depend on the Bodmans' attitude. Finally, at paragraph [68], Lord Mance cited with approval the passage from Saville LJ's judgment in First National that I have earlier cited.

62. Mr Davies referred us to Shore v. Sedgwick Financial Services Ltd [2008] PNLR 874, a claim about negligent pension advice. The claimant was in a corporate pension scheme and received advice, upon which he acted in entering into a pension fund withdrawal scheme. That proved to be less valuable to him than he would have enjoyed had he stayed in his corporate scheme. He sued for negligent advice. He lost on all grounds, including limitation, at first instance. The Court of Appeal gave permission to appeal on the limitation point alone. The case was a 'wrong transaction' case in which the complaint was that Mr Shore did not get the advice he ought to have got as to the pension scheme he required. Its present relevance lies in some observations by Dyson LJ, with whom Keene and Buxton LJJ agreed, at paragraphs [37] and [38]. They were to the effect that Mr Shore had wanted a secure scheme, whereas that advised by the defendants was riskier than the scheme he was already in. It was therefore an inferior one and, 'from Mr Shore's point of view, it was less advantageous and caused him detriment.' (Emphasis supplied). Dyson LJ added, in paragraph [38], a share purchase analogy:

'… In my judgment, an investor who wishes to place £100 in a secure risk-free investment and, in reliance on negligent advice, purchases shares does suffer financial detriment on the acquisition of the shares despite the fact that he pays the market price for the shares. It is no answer to the investor's complaint that he has been induced to buy a risky investment when he wanted a safe one to say that the risky investment was worth what he paid for it in the market. His complaint is that he did not want a risky investment. A claim for damages immediately upon the acquisition of the shares would succeed. The investor would at least be entitled to the difference between the cost of buying the Government bonds and the cost of buying and selling the shares.'

63. Mr Davies criticised those passages. First, he said, the question of loss has to be answered by an objective assessment, not by reference to the subjective viewpoint of the claimant. Second, he said that the point made in paragraph [38] was also unsound, since if, for example, the shares had in the meantime increased in value to £120, and the cost of a switch into Government stock would be £10, it could not be said that the claimant had suffered any recoverable damage at all.
64. Mr Davies's overall submission was that Moore showed that it was a question of fact whether damage had been suffered. He relied on the passage in Saville LJ's judgment in First National that I have cited as providing guidance on when such damage has been suffered. He said that the judge's finding in paragraph [111] was not a sufficient finding of damage in the present case. That read:

'Once the share issue had taken place it was too late to retrieve the situation. This is in itself a strong indication that the damage was sustained at the date of the share issue. In addition I consider that the nub of the complaint is that if Mr Bradbury had been given the correct advice he would have bought shares in a company which was the parent of a group (or at least had already resolved to become the parent of a group). That would have enabled the Adverse Consequence to be avoided. Instead he bought shares in a stand-alone company. Thus the company whose shares he in fact bought had different characteristics from the company whose shares he would have bought but for the breach of duty. On the footing that the correct comparison is between what the client in fact acquired and what he ought to have acquired (or would have acquired if he had been given the correct advice), it is, in my judgment, impossible to say that what Mr Bradbury acquired was no less advantageous to him than what he ought to have acquired. Just as Mr Shore did not invest in the kind of pension scheme he ought to have been advised to invest in, so Mr Bradbury did not subscribe for shares in the kind of company he ought to have been advised to invest in.'

65. Turning to Pegasus's tort claim, Mr Davies submitted that it could anyway not be said that Pegasus had suffered damage in 1998. It simply received money in exchange for shares. It was not exposed to any liability. The only contrary argument was that it was placed in a less advantageous position than it should have been in because it might not be able to conduct the kind of transactions that it wanted to conduct without incurring an unnecessary tax liability. This, repeated Mr Davies, was not damage sufficient to complete the tort of negligence. Nothing that happened to it in April 1998 constituted such damage. Mr Bradbury's complaint was derivative from Pegasus. There was no evidence of any diminution in April 1998 of the value of his shares in Pegasus. If Pegasus did not suffer any damage until after April 1998, the same must be true of Mr Bradbury and his claim cannot have arisen any earlier than Pegasus's.

Did E&Y owe a duty of care to Pegasus?

66. Mr Davies then turned to this limb of the appeal. As to whether E&Y owed any duty of care to Pegasus, the judge regarded this issue as one that logically fell to be considered in advance of whether, if it did, any breach of such duty was time-barred. Although Mr Davies preferred to argue the latter point first, I agree with the judge. This issue is much shorter. It arose on E&Y's summary judgment application.
67. Pegasus did not exist before 26 March 1998 and it is no part of its case that Mr Bradbury had entered into a pre-incorporation contract with E&Y on its behalf. The share issue was on 2 April 1998. If a relevant contract came into existence, it must have happened between those two dates. Any later contract will not do for present purposes. E&Y Luxembourg was appointed as Pegasus's auditor during that period, but that is an entity separate from E&Y. As the judge pointed out, there is no evidence of any communication between Pegasus (or Mr Bradbury acting on its behalf) and E&Y between the key dates. The judge found it impossible to see how a contract could have been made between E&Y and Pegasus during that period or to detect any basis for finding an assumption of relevant responsibility towards Pegasus by E&Y.
68. The essence of Mr Davies' argument that this is a question fit for trial is shortly this. Mr Bradbury's assertion on his written evidence is that at the time he took it for granted that E&Y were acting not just for him but also for Pegasus. This would, Mr Davies says, make complete sense. There is also no denial by anyone from E&Y that they were acting for Pegasus during those crucial days. There is no more than argument in a witness statement from Simon Schooling, of E&Y's solicitors, to the effect that any advice on the Adverse Consequence point was advice that had to be given to Mr Bradbury, evidence that includes the assertion that there was no real prospect at trial of proving the making of a contract with Pegasus or the assumption by E&Y of responsibility towards it: the former, it is said, would have involved various formalities which would have taken more than a few days.
69. Mr Davies says that none of this is sufficient to meet the point. On E&Y's case no one was looking after Pegasus's interests during the crucial few days. There has not yet been disclosure. Who knows, he asked at one point, what might emerge at the trial when the full facts have been explored, a rhetorical question that he denied smacked of Micawberism. In his reply, however, he retreated from that stance and submitted that there is sufficient material before this court to conclude that there is a properly arguable issue as to whether E&Y had assumed a responsibility to advise Pegasus during the crucial few days. He persisted in the argument that E&Y owed a duty of care to advise Pegasus (and not just Mr Bradbury) of the need to avoid the Adverse Consequence even though Pegasus itself could have avoided such Consequence by subsequently incorporating subsidiaries and using them to buy the various businesses. That, however, would have cost Mr Bradbury his roll-over relief. Mr Davies did not accept that that was a significant consideration. Nor could he, because it is a key part of Pegasus's case that it ought to have been separately advised on a matter that was in fact exclusively of interest to Mr Bradbury.

B. The submissions for E&Y

Is the tort claim time-barred?

70. Mr Salzedo, in succinct submissions, submitted that the authorities bear out that there are three categories of case – 'wrong transaction' cases, 'no transaction cases' and 'category 3' cases (ones involving no transaction at all) – and that different considerations apply to each category in the context of an inquiry as to when damage sufficient to constitute the tort of negligence has been suffered. This case was a 'wrong transaction' case, such as Baker, Moore, Bell and Knapp. Such cases are about a proved complaint that the claimant did not get what he should have got from the transaction as a result of the defendant's negligence. It is intrinsic in such claims that the feature that he did not get was one that was valuable to him.
71. He pointed out that in Baker there was no financial loss at the time of completion assessed on an objective basis. But that did not mean that relevant detriment, or damage, was not suffered at completion: damage was then suffered, because the plaintiff did not get the property interest she wanted to get and should have got. Her purpose was to obtain a long lease of the first floor, not a (perhaps more valuable) 49% share in the whole house. The defendants' negligence caused her immediate damage. In Moore, (at [1988] 1 WLR 267, 277A), Neill LJ presumed that a covenant in the form that should have been obtained had value and, as a corollary, that the failure to obtain such a covenant caused damage. Neill LJ said in the next paragraph that the quantification of the damages recoverable on any claim brought in, say, 1976 would depend on evidence as to the likely future attitude of Mr Fenton, just as the assessment of damages in any claim by the plaintiff in Baker would turn on the attitude of the Bodmans. Mr Salzedo said that, as in those cases, there was no evidence of any loss suffered by Mr Bradbury by reason of the fact that E&Y's negligence meant that Pegasus did not have the corporate characteristics that it should have had. But, as in those cases, the court could, as the judge did, infer that E&Y's failure to deliver what it should have delivered had caused immediate actual damage. The quantification of such loss was a matter for inquiry, just as in Baker and Moore.
72. Turning to Bell, Mr Salzedo said that Nicholls LJ also presumed (at [1990] 2 QB 495, 502F) that the solicitors' failure to procure a document recording the wife's agreement to account for a share of the proceeds was itself prejudice sufficient to constitute damage that completed the tort; and the fact that the solicitors' omission was remediable by the subsequent lodging of a caution did not undo the causing of such damage. Nicholls LJ also held, at 503G, that the plaintiff had, at the time of the transaction, at least suffered damage measured by reference to the cost of putting the transaction right. In the present case, the transaction could not be put right, because there was no possibility of doing so after 2 April 1998: Mr Bradbury could not then acquire a company with the characteristics that Pegasus should have had but did not. It was by then too late. But the principle remains the same and Nicholls LJ's observations support the conclusion that damage was suffered in the present case too.
73. Mr Salzedo referred us to this court's decision in McCarroll v. Statham Gill Davies, 1 April 2003, unreported, in which at paragraphs [21] to [23] Pill LJ, having referred to Moore and Knapp, said that a similar principle applied in the case before the court. Pill LJ also referred to, and cited, the passage from Saville LJ's judgment in First National that I have cited. The result of the respondents' negligence was that the agreement the appellant had entered into was less favourable to him than it should have been. Pill LJ continued:

'21 … A monetary value could have been put upon the loss at that time though the extent of the loss would have depended on subsequent events and an accurate quantification of loss would have been likely to become clearer with the passage of time. The contract into which he entered was of less commercial value than it would otherwise have been, the risk of instant expulsion constituting actual loss.

22. While the amount of loss may be contingent upon future events, there was an actual loss when the agreement was made. The appellant was only a partner-at-will and one who lost the right to the group's name if he was expelled from the group. If, upon a consideration of the evidence, negligence was established but it was not established that an agreement more favourable to the appellant could have been achieved, the claim would fail on causation but it does not follow that actual loss does not exist upon the making of the agreement, on the assumption, which it is agreed should be made for present purposes, that a breach of duty and causation can be established. What Mr Arnold described as a "true contingency", whether the appellant would in the event be expelled from the group, is not an event necessary to establish a loss; loss occurs upon the signing of an agreement which, assuming the negligence alleged, is commercially less favourable than it should have been in that the risk of instant expulsion, with its consequences, was present.'

74. Mr Salzedo then moved to the category 3 cases, of which Sephton was a prime example. They are cases in which the claimant does not enter into any transaction as a consequence of the defendant's alleged negligence. He put Wheatley into this category, a submission supported by Lord Mance in Sephton and perhaps by Lord Hoffmann. He said that, despite their doubts about it, the House of Lords had not overruled Wheatley and so that it remains binding upon us for whatever it decided. Whatever that was, it was not a decision that afforded any help to the present claimants.
75. Mr Salzedo's submission was, in short, that this was a case in which, as in the reported 'wrong transaction' cases, it was open to the judge to infer that actual damage was occasioned to Mr Bradbury by reason of E&Y's failure to advise him timeously that he needed a company with particular characteristics that Pegasus did not have – namely, either an existing set of subsidiaries or at least a minuted resolution of an intention to form such subsidiaries in the future.
76. As to whether Pegasus had itself suffered like damage, Mr Salzedo submitted that there is an element of illogicality in Pegasus's claim. It was only Mr Bradbury who needed advice as to the appropriate corporate structure required for his particular commercial purposes. He needed that advice so that he could not only obtain his roll-over relief but also procure that Pegasus would not suffer the Adverse Consequence. Pegasus itself did not need such advice. So far as Pegasus itself was concerned, it could have avoided the Adverse Consequences by subsequently setting up subsidiaries. The only problem with that was that it would result in Mr Bradbury losing his roll-over relief. The avoidance of the Adverse Consequence was exclusively a Bradbury problem. Yet the claimants advance the assertion that E&Y were also negligent in failing to advise Pegasus about the need for it to incorporate subsidiaries by 2 April 1998 or at least by then to form an intention to form such subsidiaries afterwards. Mr Salzedo's submission was that, taking the claimants' claim at face value, despite its illogicality, the answer to the question whether Pegasus had, like Mr Bradbury, also suffered damage by 2 April 1998 must be the same, and for the same reasons.

Did E&Y owe Pegasus a duty of care?

77. Mr Salzedo pointed out that the pleaded assertion as to E&Y's duties towards Pegasus was that at all times following its incorporation E&Y acted as corporate tax advisers to Pegasus. The claimants disclaim, however, that any formal retainer was entered into. The assertion that E&Y owed a duty of care to Pegasus is also complicated by the fact that between 26 March and 2 April 1998 there was no contact of any sort between E&Y and anyone on behalf of Pegasus. The only case now advanced is that during that period of silence, E&Y in some manner assumed a responsibility to act for Pegasus on a voluntary basis even though during that period there was no occasion to give any advice of any sort to Pegasus, the matter of its structure being one that was exclusively of concern to Mr Bradbury. He submitted that there was and is no basis on which this court can conclude that Pegasus has any realistic prospect of proving at a trial that E&Y made any such assumption of responsibility.

Discussion

78. So far as concerns the last point, whether E&Y owed any duty of care to Pegasus during the crucial few days, I agree with the judge that Pegasus has no realistic prospect of proving that case at trial. As I have said, Mr Davies retreated from the argument that something might turn up either on disclosure or at the trial, and claimed that the material at present before the court is sufficient to show that there is here an issue that merits a trial. I am not persuaded. No retainer was entered into, there was no contact between E&Y and anyone on Pegasus's behalf during the relevant days and there was anyway no need for advice to be given to Pegasus on matters relating to its structure, such advice being exclusively a matter for Mr Bradbury. The suggestion is that, during those days of deafening silence, E&Y voluntarily assumed an obligation to tender (presumably gratuitous) advice to Pegasus that it did not in fact give and that Pegasus anyway did not need. Accountants do not conduct their business like that. Before taking on a client and assuming the risks of advising it, they ordinarily require a formal retainer. Nothing like that happened here and there is no factual basis for any finding of an assumption of responsibility by E&Y towards Pegasus. This part of the claimants' case has no realistic prospect of success at trial. I would dismiss the appeal against the judge's order on the summary judgment application. That means it is unnecessary to consider E&Y's conditional cross-appeal.
79. As for Mr Bradbury's appeal, I consider that the judge came to the correct decision on that too. Having referred fairly fully to the authorities in summarising the submissions, I can express my reasons relatively briefly.
80. It may well be that as at 2 April 1998 Mr Bradbury's shares in Pegasus were worth exactly what he had just paid for them. He controlled Pegasus and could probably the following day have liquidated it and repaid himself all the money he had just put into it (I will ignore any costs of such an operation). On one view, therefore, he was no worse off immediately after the transaction than he was before. That view is, however, an incomplete one. Pegasus had been established within a particular, and tight, timetable as a qualifying company through which Mr Bradbury could achieve his roll-over relief. Indeed, it has enabled him to achieve it. But the alleged flaw in the advice that E&Y gave relating to its incorporation, of which Mr Bradbury complains, is that they did not advise him that a more elaborate corporate structure was required. In particular, they failed to advise him that Pegasus should, by 2 April 1998, either already have several subsidiaries in place; or, failing that, should by then at least have resolved to incorporate such subsidiaries for the purpose of carrying on qualifying trades. Only if E&Y had given such advice, and it had been carried out (as I presume it would), could Mr Bradbury be confident of being able to avoid the Adverse Consequence.
81. It is correct that even without such a structure, there was no certainty that Mr Bradbury would suffer the Adverse Consequence. He could have sought to ensure that all Pegasus's purchases of qualifying trades were by way of asset purchases rather than share purchases. There must, however, be an uncertainty that he could achieve that in the case of every acquisition; and, to the extent that it could not, the risk of the Adverse Consequence remained. The alleged flaw in E&Y's advice was therefore a material one, which immediately reduced Mr Bradbury's flexibility. It left him in a materially worse commercial position than he ought to have been in by inhibiting the way in which he might go about acquiring qualifying trades. He was so disadvantaged immediately upon the completion of the transaction. He was so disadvantaged not because his shares in Pegasus were then worth less than he paid for them; but because those shares did not give him the control of a company with characteristics that would be proof against the Adverse Consequence. That was what he claims he was entitled to but did not get. As Mr Bradbury asserts, E&Y therefore breached their duty of care towards him. Moreover, once 6 April (and perhaps also 2 April) 1998 was passed, the defect was incapable of cure. Mr Bradbury was not thereby inevitably doomed to suffer the Adverse Consequence; but he was thereby tied into a commercially disadvantageous straitjacket.
82. Did E&Y's alleged failure cause Mr Bradbury actual damage for the purpose of completing the tort of negligence that forms the basis of his claim? Despite Mr Davies's submission to the contrary, I read paragraph 111 of the judge's judgment as a clear finding that it did. The judge was there concluding that the fact that Mr Bradbury emerged from the transaction without getting what he ought to have got constituted the suffering of relevant damage. Starting with Baker, there is a clear line of Court of Appeal authority that damage sufficient to complete the tort of negligence will or may be caused in a 'wrong transaction' case by the fact that, as a result of the defendant's negligence, the claimant has not received what he ought to have received. It is, in particular, not necessary to show that the claimant is immediately put into a position in which he is financially worse off than he would have been had the defendant not been negligent. That is apparent from Baker and it is a principle that I would not regard as in any way surprising. If a professional defendant is instructed by his client to achieve result X and he negligently achieves result Y that is equally valuable in monetary terms but does not give the client what he ought to have received, it would be surprising if he could answer the client's claim by saying he had suffered no financial loss. It appears that the contrary notion did not occur to this court in Baker.
83. Having said that, I agree with Mr Davies that the 'wrong transaction' cases do not represent any exception from the general tort principle that actual damage must be suffered before the tort is complete. In each of the 'wrong transaction' cases, however, (Baker, Moore, Bell, Knapp) the court found that such damage was suffered. I agree also that there is no presumption that the non-delivery by the defendant of what the claimant ought to have received means that relevant damage has been suffered. But as Lord Hoffmann pointed out in Sephton, it may in such cases be relatively easy to infer that such damage has been suffered; and in all the cases to which we were referred, the court did draw such an inference. The fact that it did so in each such case is, in my view, not surprising. A client who expects (or is entitled to expect) that the transaction will include a particular, and material, feature is likely be incensed when it does not and will regard the professional as having failed him in a material way. The willingness of the courts to infer that such failures constitute actual damage sufficient to complete the tort is readily understandable. We were not referred to any reported 'wrong transaction' case in which the court declined to find that damage had been suffered.
84. Against this background, I found it surprising that Mr Davies characterised Mr Salzedo's submissions as remarkable. If anyone was seeking to break new ground in this case, it was in my view Mr Davies. The present case is no different in kind from any of Baker, Moore, Bell and Knapp. Mr Davies' point that as at 2 April 1998 the immediate disadvantage which E&Y's alleged negligence had visited upon Mr Bradbury represented no more than the possibility or risk of future loss could have been, and was, made in each of those four cases. In Baker, the plaintiff and the Bodmans might have occupied the house in happy harmony and then agreed to sell and move, in which event the plaintiff might well have ended up with a larger share of the net proceeds than if she had instead sold the long lease of the first floor that she ought to have had. In Moore, Mr Fenton might have remained a loyal employee and not set up in competition. In Bell, the plaintiff's former wife might have honoured her promise to pay him her share of the proceeds. In Knapp, the house might not have suffered any fire damage during the currency of the voidable policy. Yet these considerations did not prevent the court in every case from finding that the defendant's failure to achieve for the claimant what the claimant was entitled to amounted to actual damage sufficient to complete the tort.
85. There was some discussion in the argument about the quantification of, or the ability to quantify, the damage suffered in a typical 'wrong transaction' case. The cases show that it might well prove to be a difficult exercise, at any rate if carried out an early stage. The court's observations in both Baker and Moore show what a difficult exercise the task might have been in those cases, the court saying that it would or might depend on evidence as to the attitudes of third parties. But difficulties of quantification have never been allowed to stand in the way of a right to an assessment if damage has been suffered. If a loss has been suffered, the court will always take on the task of its quantification. The quantification of Mr Bradbury's loss, if carried out at an early stage, would undoubtedly have been very difficult, but the court would have done the best it could. Insofar as Mr Davies relied on Saville LJ's statement of principle in First National as to the nature of the damage that has to proved, I do not see where it takes him. That statement expressly recognised that the damage suffered in Bell satisfied the principle and was directed at 'wrong transaction' cases generally, Moore having been cited to the court, and itself including a full account of Baker. There is no logical basis for a suggestion that the damage suffered by Mr Bradbury in this case does not equally satisfy the principle.
86. In my judgment the judge came to the right answer on the preliminary issue as to whether Mr Bradbury's claim was time-barred. I would dismiss Mr Bradbury's appeal.

Sir John Chadwick :

87. I agree.

Sir Mark Potter P :

88. I also agree.