High Court of Justice (Queen’s Bench Division): Mr Justice Black

28 May 2010

Summary

The claimant was involved in a road traffic accident had failed to prove a future loss of earnings claim since his employment history could not be relied upon as to his employments and plans prior to the accident.

Detail

The claimant was riding his motor scooter when he was injured after the defendant suddenly did a u-turn across his path. The claimant sustained compound fractures to the tibia and fibula of his left leg. The fracture to his tibia took over three years to mend properly. He also suffered soft tissue injuries to his back and neck, as well as a blow to the head. In addition, the claimant argued that he had suffered a psychiatric injury. He had not worked since the accident.

The claimant underwent plastic surgery and several operations. The fracture failed to unite. He was advised that there was a risk of amputation and ostemyelitis and therefore a five-ring Ilizarov frame was fitted. Infections arose and during this period the claimant was in considerable pain. The claimant underwent physiotherapy. He was left with substantial scarring to his leg.

The claimant arranged an 8 week residential placement at a rehabilitation centre to assist his recovery.

The consultant psychiatrist for the claimant stated that the claimant had suffered an episode of post-traumatic stress disorder (PTSD) and that he was now suffering from dysthymic disorder. The court stated that the expert had been correct in diagnosing PTSD but that it was at the ‘mild end of the scale’.

The court considered the claimant’s current state of being socially isolated and having very little initiative or motivation. These were present at the time of the accident but the accident and subsequent injuries did make matters worse.

The claimant was awarded £24,000 for general damages.

The claimant’s loss of earnings claim was that he was about to take over his father’s handyman business when the accident occurred. He contended this job would have brought in £15,000 per year. However, the Inland Revenue found no record of any employment after 1990 and most of the claimant’s jobs prior to the accident had been on a part time basis and he had been paid in cash. The court took an average of £3,500 per year as the amount the claimant was likely to have received by way of earnings had the accident not occurred. However, this was then reduced by six months as the claimant was found to have delayed his recovery by postponing one of his operations. The court could find no mathematical basis on which to calculate a future loss of earnings claim. However, it did take into account the fact that the claimant was disadvantaged in obtaining work due to the injury to his leg and he was awarded £25,000.

The claimant also claimed for the cost of his stay at the rehabilitation centre. The defendant argued it should not have been residential, however, the court disagreed and permitted this expense. No further residential treatment though was held to be necessary.

The claimant required further assistance in obtaining work and was awarded £2,000.

Source: APIL Personal Injury, Law, Practice and Precedents. No. 4 of 2010

Bmibaby Limited’s (BMIB) decision to no longer base planes at Durham Tees Valley Airport (Airport) has led to the Court of Appeal[1] finding it in repudiatory breach of contract, and ordering it to pay damages to the Airport owners. However, even with this guidance, assessing damages in these types of cases will continue to be difficult.

BACKGROUND

BMIB is a low cost airline operating to various European destinations. Under an agreement dated 23 April 2003 (Contract) with British Midland Regional Limited (BMRL) (which traded as bmibaby until the subsequent incorporation of BMIB) it was agreed that bmibaby would operate from the Airport for a period of 10 years with a minimum of two aircraft based at the airport. The Contract was novated and varied on 23 December 2005 so that BMIB took over the outstanding obligations of BMRL under the Contract and revised terms were agreed. Despite financial support from the Airport, the proposed arrangement did not run smoothly and, in August 2006, BMIB decided to cease operating from the Airport after calculating that its operations there were incurring substantial losses.

THE ISSUES

Following the termination of BMIB’s operations, the Airport’s owners brought a claim seeking damages for breach of contract based on the failure to operate two aircraft for the agreed 10-year period. The damages claimed were based on the lost revenue from charges payable by departing passengers and from duty free and other sales, parking and catering.

The principal issue to be decided was whether the Contract imposed a legal obligation to base and fly two aircraft from the Airport for a period of 10 years from Summer 2004, or whether it merely gave a right to do so without obligation.

At first instance, the judge held that the Contract imposed an obligation to establish a two-aircraft operation, and to operate the aircraft in the sense of flying them commercially. However, he went on to dismiss the claim for damages on the ground that there was no objective criteria which would support an implied term relating to the number of required flights, and the assessment of damages would be impossible for the same reason. The Court of Appeal subsequently referred to this as a finding that the Contract was void for uncertainty i.e. the court was unable to identify the contractual obligation which had to be performed.

DECISION

The Court of Appeal agreed with the judge that the Contract imposed on the airline an obligation to establish a two-aircraft based operation, and did not merely give the airline a right to do so. It also agreed that the question of enforceability did need to be addressed before considering damages:

• for the Contract to be enforceable, the court had to be able to say whether any particular standard of performance was or was not a breach of contract
• if a breach existed, the court had to determine the appropriate measure of damages, but could not order an assessment of damages in respect of an unenforceable contract.
• In this case the Court of Appeal did not believe that the Contract was void for uncertainty: the Contract contained sufficient terms to establish whether BMIB’s conduct amounted to the required level of performance.

Having established enforceability, the Court of Appeal went on to consider the law on how damages should be assessed in a case such as this where the Contract contained a single obligation with discretion as to performance. Lord Justice Patten reviewed previous Court of Appeal authority and concluded:

• the assessment should not be limited to what was the minimum level of permitted performance, but should extend to a calculation of how the contract would have been performed at the relevant time had it not been repudiated. This will take into account the likely profitability of the contract and any other relevant facts that would have influenced the method of performance
• the judge conducting the assessment must assume that the defendant would not have acted outside the terms of the contract and would have performed it in his own interests having regard to the relevant factors prevailing at the time. The judge is not, however, required to make assumptions that the defendant would have acted uncommercially merely to spite the claimant.

Lord Justice Toulson commented that the question of how to assess damages for repudiatory breach of a contract which allows a measure of choice in performance to the party in breach could be difficult but agreed that “compensation is to be based on the probabilities of the case – on the remuneration which the claimant might reasonably be expected to receive – and not on the bare minimum necessary to have amounted to performance of the contract”. He noted that whilst assessment might be difficult this was no reason for the court not to make the best assessment it could.

COMMENT

The decision highlights the issues which can arise when there is a need to assess the damages flowing from breach of a contract which allows discretion as to performance. The Court of Appeal has now clarified that in such cases the damages will not be based on a minimum level of performance, but will have regard to an assessment of what would probably have happened had the breach not occurred. However, as the court recognised, even with this guidance the practical task of assessment is likely to be difficult.

[1] Durham Tees Valley Airport Ltd v Bmibaby Ltd & Anor [2010] EWCA Civ 485

Published by Walker Morris Legal Briefing – 25 May 2010

http://www.walkermorris.co.uk/content.aspx?id=1118

HM Revenue & Customs has scooped a record £92.3m in a criminal tax fraud investigation against two members of a 21-strong gang.

Assets including a luxury flat in Kensington worth £4.5m; a house in Harrow worth £2m; a house in Buckinghamshire worth £1.5m; a riverside flat in Battersea worth £500,000; two apartment tower blocks in Dubai worth £80m; and luxury cars have been restrained by the taxman, all of which were purchased by the gang after stealing £37.5m in a ‘missing trader’ VAT tax fraud.

Richard Meadows, assistant director of criminal investigations for HMRC, said: ‘This is the largest ever confiscation order secured by Revenue & Customs at the end of one of our most complicated investigations. I believe it to be one of the largest confiscation orders in the UK to date. The gang stole £37.5m in a VAT tax fraud using the cash to invest in luxury property in the UK and abroad.

‘We are determined to bring to justice the criminals behind this type of fraud and take away the proceeds of their crime. We have worked very closely with the West Midlands Regional Asset Recovery Team (RART) and law enforcement agencies across the world to bring this case to a successful conclusion.’

The two convicted fraudsters are both serving seven-year jail terms, but if they fail to repay the money within two months they face an additional 10 years in jail as well as having to repay the money.

Source - Accountancy Magazine – 12.07.10

Harewood House commenced legal proceedings to recover commission that it considered it was owed, by Dine Catering, following events that it had held at Harewod House.

Dine responded with  a £1m counterclaim and the team at Forths were instructed to consider the reasonableness of the same.

It was held, by Judge Langan QC, that Dine Catering Ltd should pay Harewood House £30,000 and, further, dismissed the counterclaim in its entirety.

Defence lawyers criticised the agency for wasting public funds after it withdrew its case against two Lincolnshire businessmen accused of swindling more than £150 million from hundreds of investors in an elaborate Ponzi scheme.

Lincoln Fraser, 39, and Jared Brook, 37, former directors of Imperial Consolidated Group, a Lincolnshire-based investment scheme that collapsed in 2002, were cleared of fraud yesterday after an eight-year battle that included two long trials.

The pair had already been acquitted last month of one charge of conspiracy to defraud after a nine-month trial, but had faced a retrial after the jury failed to reach a verdict on other charges of conspiracy and fraudulent trading. It would have been the second retrial after a jury failed to reach a verdict after a six-month trial in September 2008.

Mrs Justice Gloster, sitting at Blackfriars Crown Court, directed yesterday that the two men be acquitted of the remaining charges after the SFO said that it had decided it would be inappropriate to seek a second retrial. The SFO said that only an extraordinary case could justify a second retrial and that this was not such a case.The SFO, which opened the case after ICG went into administration in 2002, said that it had spent £10 million on the investigation and legal fees, although several people involved with the case said that the total cost to taxpayers was likely to be far higher.

Senior figures within the SFO are understood to have decided to cut their losses on a complicated case that was regarded as a hangover from a previous regime. A spokesman said that the agency would review its handling of the case to assess how it could better conduct such prosecutions in future. Richard Alderman, the SFO’s director, has pushed for more focused and speedier prosecutions since taking over in 2008.

Reversals

• The SFO has suffered a series of high-profile reversals in recent years. In 2008 the agency suffered a big hit after a judge threw out a case of alleged price-fixing against five drug companies after an eight-year investigation that cost £25 million. That followed heavy criticism of the SFO for abandoning an investigation into suspected corruption relating to BAE Systems’ dealings with Saudi Arabia.

Source – The Times Online – 05.07.2010

Headed by Forths director Anthony Flint, the team combines more than 60 years’ hands-on experience of such cases and is well equipped to provide the expert forensic accounting skills for which they call.

Anthony Flint comments: “Bringing together the wealth of serious injury experience at Forths within a single team will enable us to provide an even more focused and specialised service to our solicitor clients”.

“Having seen so many of these cases, our teams members are highly attuned to the key drivers in any given set of post-injury circumstances. They are acutely aware of how critical presenting the right financial information in the correct format can be. Forths already has an outstanding track record of success in serious injury cases, on which we hope to build with the formation of this new team”.

“Our new Serious Injury team will work collaboratively with solicitors to develop and present their clients’ cases in a positive and comprehensive manner, leaving no stone unturned”.

Forths Forensic Accountants is one of the UK’s leading niche Forensic Accountancy specialists. Established in 2002, the business has grown strongly year on year and now provides a wide range of forensic accountancy services to solicitors throughout the UK.

Author – Forths Forensic Accountants

In this context, he discussed the absolute imperative for all such assessing third parties to be totally non-partisan and noted the general view that he was getting from many practitioners that, in their opinion, often the practices adopted amounted to loss adjusting rather than a true independent assessment.

Richard noted, “It is obvious from my discussions with MASS members across the length and breadth of the country that the independence of some Forensic Accountants operating on this basis is under the microscope. There is a recognition that a true straight down the middle assessment adds value to the claims process but that Defendant biased assessments simply undermine their clients position”

Author – Forths Forensic Accountants

Further to the investigations of the Forths serious injuries team, a multi million pound settlement has been awarded to a motorcyclist who was catastrophically injured in a road traffic accident in France.

It had been accepted, by the forensic accountants appointed by the Defence, that the report of Forths was correct in its entirety, and in the joint statement the report prepared by Forths was adopted by both experts as being a correct interpretation of the losses sustained by the injured Claimant.

Anthony Flint, head of the Insurance Litigation Department at Forths commented:

“The detailed investigations undertaken by the serious injuries team at Forths were clearly vindicated by the agreement of our report by all parties in what was a complex matter involving a property development company in its initial years of trading.”

Author – Forths Forensic Accountants

Three men suspected of running one of Britain’s biggest Ponzi schemes were ordered to repay almost £115 million to investors yesterday.

Kautilya Pruthi, 39, Kenneth Peacock, 41, and John Anderson, 44, were told by the High Court to hand over their profits from an allegedly fraudulent investment scheme to the Financial Services Authority. The regulator has accused the trio of unlawfully accepting deposits without authorisation, in breach of City rules.

Mr Pruthi was ordered to repay £89.8 million, Mr Anderson £13.2 million and Mr Peacock £11.6 million. Overall, it is the biggest recovery the FSA has secured in a case of this kind.

The trio are also facing a criminal investigation by City of London Police after being arrested in May last year on suspicion of conspiracy to defraud, money laundering and fraud by misrepresentation. No charges have yet been brought.

They attracted hundreds of depositors between 2005 and 2008 through Business Consulting International, a Knightsbridge-based investment firm. Investors, many of whom were introduced through friends and family, were told the money would be used to provide loans to companies. They were promised high returns of up to 20 per cent a month.

However, Mr Justice Vos said: “The rates of return offered by the defendants were simply uncommercial and unsustainable.”

Yesterday’s judgment states Mr Pruthi began BCI in September 2005 and was joined by Mr Anderson and Mr Peacock two years later, who passed deposits to Mr Pruthi. They profited by paying investors lower rates than Mr Pruthi paid to them.

However, there was no evidence that Mr Pruthi ever made sufficient onward loans to fund the high interest rates he was offering, Mr Justice Vos said. “It seems that Mr Pruthi was, for a while at least, funding the payments of interest to old depositors by taking new deposits,” he said.The FSA began investigating BCI after a tip-off in August 2008. In November that year the regulator obtained an injunction freezing the trio’s assets and preventing them from accepting further deposits.

The FSA said that despite yesterday’s judgment, investors may not recover all of their losses.

Source – The Times Online – 01.07.10

The answer, quite simply, is that there’s nothing wrong with your normal accountants when they are preparing your year-end accounts, tax returns etc. That’s where their experience lies. And it’s that experience – coupled with their knowledge of your business – that enables them to prepare these documents correctly and submit them to the relevant parties.

Our experience as forensic accountants is somewhat different. We operate in the space between the legal and accountancy professions. We combine skills learned from our accountancy training with knowledge of the law as it applies to formulating quantum in a legal case.

Marrying these skills enables us to pull together rafts of relevant documentation into a reporting format a) that the Court will readily understand, and b) that fits the prevailing legal framework. This ensures the losses presented conform with rules established over years of quantum-based case law.

This doesn’t necessarily exclude input from your own accountant. They may be able to furnish us with important knowledge or information. But presenting losses in the cogent and accepted format we adopt plays a vital role in moving a case forward from a legal perspective and expediting settlement.

We often get involved in cases where an extended circular correspondence between the claimant, their insurers, and their accountants has gone precisely nowhere. The cost and frustration this causes could often have been avoided by drawing on the legal knowledge of a specialist forensic accountant.

There’s more to it than that, of course, but – in a nutshell – that’s why you need a forensic accountant!

Author – Forths Forensic Accountants