Alexander Langsam V Beachcroft LLP Paul Murray V Simon Hodson

Page 1 Alexander Langsam v Beachcroft LLP Paul Murray v Simon Hodson Case No: A3/2011/ 2405 (Main Appeal) A3/2011/2380 (Costs Appeal) Court of Appeal (Civil Division) 4 October 2012 [2012] EWCA Civ 1230 2012 WL 4050254 Before: Lady Justice Arden Lord Justice Longmore and Lord Justice Patten Date: 04/10/2012 On Appeal from the High Court of Justice (Chancery Division) Roth J [2011] EWHC 1451 (Ch) Hearing dates: 28 May — 31 May 2012 Representation Mr John Wardell QC & Mr Rupert Reed (instructed by Britannia Hotels ) for the Appellant (Main Appeal)/Respondent (Costs Appeal). Mr Stephen Moriarty QC & Mr Derrick Dale QC (instructed by Reynolds Porter Chamberlain LLP ) for the Respondents (Main Appeal)/Appellants (Costs Appeal). Judgment Lady Justice Arden: 1 This appeal by Mr Alexander Langsam arises out of a claim for professional negligence against the respondents, Beachcroft LLP (“Beachcrofts”), based on alleged excessively cautious advice on the settlement of a claim in proceedings for professional negligence against Mr Langsam's former accountants, Hacker Young. The settlement took place three days before the trial of those proceedings was due to start. Beachcrofts' case is in essence that they had followed advice from leading counsel. He was not a party to the proceedings. Beachcrofts also counterclaimed for their outstanding fees under a conditional fee agreement. Roth J rejected both the claim and the counterclaim. Beachcroft's appeal against the costs order made by the judge on dismissal of their counterclaim, but not against the judge's order for its dismissal. The parties are represented in this court by the same counsel as appeared for them below, namely Mr John Wardell QC and Mr Rupert Reed for Mr Langsam, and Mr Stephen Moriarty QC and Mr Derrick Dale QC for Beachcrofts, and the individual partners who have been joined. Background to the Professional Negligence Claim Against Hacker Young 2 Mr Langsam is a substantial businessman with interests in hotels. Many of his business interests were, until 2004, held in a 50:50 partnership with a Mr Michael Morton. Mr Langsam obtained confirmation from the Inland Revenue (“the Revenue”) in 1999 that he was not domiciled in the United Kingdom for tax purposes on the basis that he had maintained his domicile of dependence in Austria due to his father's domicile there. On the strength of this, Mr Page 2 Langsam and Mr Morton entered into an equity release arrangement (“ERA”), involving a loan of £40m from Bank Leumi, in 2000. This arrangement involved the bank lending sufficient monies to the partnership to enable Mr Langsam and Mr Morton to withdraw equity and to invest the funds so released. The advantage of this to Mr Langsam was that, as a non-domiciled person (“a non-domiciliary”), he was able to place the released sums at interest out of the jurisdiction and would only be taxed on the remittance basis. If the funds remained in the partnership, they would be subject to UK corporation tax. The interest that the bank charged on the loans to the partnership to enable the ERA to take place was also eligible for UK tax relief. 3 Mr Langsam had been advised by Hacker Young in connection with his negotiations with the Revenue to obtain non-domiciliary status. He claimed subsequently in proceedings for negligence against them that Hacker Young should have realised that he was entitled to that status much earlier than they did and that he had in consequence suffered loss. Hacker Young did not contest liability. Mr Langsam considered that he should have been advised that he was entitled to non-domiciliary status in March 1996, and that he would have obtained this status from the Revenue in October 1996, so that his loss started from that date (“the start date”). 4 Mr Langsam served his proceedings against Hacker Young in November 2002. He instructed Mr Peter Southeran of Beachcrofts to act for him. Since his claim for loss depended on the attitude of third parties, such as his bank, his gross loss, which I will call “the headline figure”, had to be calculated on the basis of the loss of a chance of entering into an ERA in 1996. This headline figure had thus to be discounted for a large number of known risks (which I will call “litigation risks”) such as the fact that non-domiciliary status would not have been achieved by March 1996, the date for which Mr Langsam contended. 5 In due course, Beachcrofts engaged leading counsel. Leading counsel previously instructed had retired from practice some eight months before the trial. Beachcrofts obtained instructions from Mr Langsam to instruct in his place Mr Edward Bartley Jones QC. I will make the same reservation as the judge that, as Mr Bartley Jones is not a party to these proceedings, the judge's findings do not bind him and were made without his having the chance of putting his own account to the court. Conduct of the Litigation Against Hacker Young Early days 6 Mr Southeran gave detailed advice without reference to counsel on 9 April 2001 and again on 12 July 2001 and 15 June 2005, including advice on quantum. In the last of those letters, he specifically associated himself with the advice given by leading counsel. Mr Southeran clearly thought that it was part of his responsibility to compile loss schedules. When the case was approaching trial, it was clear that, while Mr Langsam was advised that his claim on the basis of the October 1996 start date had a value of some £2.7m, Hacker Young took the view that the correct start date was October 1997 and that the value of the claim was some £1.2m. 7 In the run-up to trial, it emerged that the main issues between the parties, so far as relevant on this appeal, were: (1) the correct start date (“the start date issue”); (2) whether Mr Langsam was truly entitled to non-domiciliary status (“the domicile issue”); (3) whether the partnership could have raised sufficient funds to release £18m to each partner (“the lending issue”); and (4) whether Mr Morton should be called as a witness and if so what evidence he would give (“the Morton issue”). 8 On the lending issue, there was a difference of view between the parties' banking experts as to whether the whole of the required £36m could have been raised by the partnership in October 1996. There was a further issue as to interest with which this court is not concerned and with which therefore I shall not deal. 9 Mr Langsam's closest associate was Mr Robert Ferrari, Finance Director of Britannia Hotels Group, Mr Langsam's principal hotel company. The flagship hotel was Britannia International Hotel in London's Docklands district. 10 As to the Morton issue, Mr Southeran had pointed out to Mr Ferrari in November 2005 that no decision had been taken as to whether to approach Mr Morton to find out whether he would have Page 3 agreed to an ERA in October 1996. This had not previously been covered in his statement. Mr Langsam had replied angrily that Mr Morton did not wish to be called. The judge found that Mr Langsam instructed Mr Southeran on 9 December 2005 that Mr Morton's evidence could significantly damage his case, but not, as Mr Langsam alleged at the trial of these proceedings against Beachcrofts, that he (Mr Langsam) then agreed to Mr Morton being called. I shall need to refer to this matter further below. Part 36 offer 11 On 10 January 2006 Hacker Young made a Part 36 offer in the sum of £500,000 plus costs. At this stage Mr Bartley Jones had received the papers but had not advised. Mr Harald Loeffler, a solicitor with Beachcrofts, produced some calculations showing that the valuation of Mr Langsam's claim was between £2m and £3m. Mr Loeffler sent these figures to Mr Southeran at 8.33pm on Saturday 14 January 2006. Mr Southeran took it on himself to form a view about quantum when, on Mr Langsam's case, he should also have made the points available to leading counsel. He had made no calculation of interest. 12 It was Mr Southeran who initially advised Mr Langsam on the appropriate response to the Part 36 offer. He regarded the offer as derisory. Advice given on 18 January 2006 13 This was a conference with Mr Bartley Jones, attended by Mr Southeran, Mr Langsam and Mr Ferrari. Counsel had not at this stage studied the figures. This was the first conference with Mr Bartley Jones. 14 Mr Bartley Jones advised that the Part 36 offer was too low and that Hacker Young were down for the costs anyway. Mr Bartley Jones ran through the issues. On liability Mr Bartley Jones advised that Mr Langsam had a UK domicile of choice before 1959. 15 Mr Bartley Jones dealt with the other issues. In the course of his advice he referred to the fact that Mr Michael Warburton, Mr Langsam's accountancy expert, had advised that Mr Langsam had a good prima facie case for showing that by October 1996 he should have established his Austrian domicile with the Revenue. Another issue discussed was the Morton issue. Mr Bartley Jones advised that success was not guaranteed. Mr Bartley Jones advised that on the evidence, Mr Langsam had approximately a 75% chance of succeeding on the October 96 date. 16 It was decided at that meeting to instruct Mr Warburton as a matter of urgency to try to reconcile the figures on quantum.

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