Neutral Citation Number: [2008] EWHC 915 (Ch)
Case No: HC06C01580
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 29/04/2008

Before:

MR JUSTICE DAVID RICHARDS
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Between:

	4 Eng Limited	Claimant	
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	1.	Roger Harper
2.	Barry Alexander Simpson	Defendants	

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Clive Freedman QC and Ian Smith (instructed by Reid Minty LLP) for the Claimant
Tom Leech (instructed by Daniel Berman & Co) for the First Defendant
Nigel Hood (instructed by Byrne & Partners) for the Second Defendant

Hearing dates: 2, 3, 4, 7, and 8 April 2008
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Judgment

The Hon. Mr Justice David Richards: 

1.	Summary judgment was entered in this action on 3 May 2007 against the defendants on a claim in deceit, with damages to be assessed. This is the judgment on the assessment of damages.
2.	The facts relevant to the fraud practised by the defendants on the claimant may be summarised as follows. The defendants owned and managed Ironfirm Limited which traded under the name Excel Engineering (Excel) and provided engineering services. Its principal customer was Mars UK Limited (Mars). By a contract dated 29 June 2001, the defendants sold the entire issued share capital of Excel to the claimant 4 Eng Limited (4 Eng). 4 Eng had been established by David Shepherd and Ian Tapping as the vehicle for acquiring companies in the engineering sector. Excel was its first, and as a result of the true state of Excel, its only acquisition.
3.	The contract provided for a total price of £1.2 million of which £550,000 was payable on completion and the balance by instalments over three years. The instalments were not in the event paid. Following completion, it soon became apparent to Mr Shepherd and Mr Tapping that there were problems in Excel and as a result of their painstaking investigations over a period of at least four years it was revealed that the defendants had over a long period engaged in the systematic bribery of employees of Mars which had resulted in payments by Mars to Excel on inflated or bogus invoices amounting to some £1.8 million. By the terms of the contract the defendants represented that they were not aware of any reason which would cause Mars to terminate its requirements for Excel’s products. As the defendants knew, because of the bribery this and other representations were completely untrue. Instead of buying a company worth £1.2 million, 4 Eng had acquired a company which, as a result of the defendants’ corrupt system, was potentially liable to Mars for a large amount and liable also to lose its principal source of business. In short, the defendants had succeeded in defrauding first Mars and then 4 Eng.
4.	On 8 December 2005 each of the defendants was convicted at Reading Crown Court on charges of conspiracy to corrupt and conspiracy to defraud in relation to Excel and Mars and sentenced to six and a half years’ imprisonment. The conviction of the defendants clearly established the corruption for which they were responsible and in which, through them, Excel had participated. This in turn established that there was, as long suspected, a large potential liability of Excel to Mars. Excel was insolvent and on 9 January 2006 went into administration. On 13 July 2006 it went into creditors’ voluntary liquidation.
5.	On the application for summary judgment, Briggs J held that the claim in deceit was established against both defendants, based on their knowledge of the falsity of a number of express representations contained in the share sale agreement on which 4 Eng had relied in agreeing to purchase Excel. 4 Eng’s alternative claims for breach of warranty were, at its request, stayed pending completion of the assessment of damages on the claim in deceit.
6.	The losses for which 4 Eng claims damages arise under five heads: 
(1) Purchase price paid to the defendants: £550,000. 
(2) Costs and expenses of the acquisition: £72,371.50. 
(3) Liabilities incurred by 4 Eng after acquisition for salaries, pension payments and national insurance contributions: £384,651.08. 
(4) Liability for cost of investigation into the fraud: £711,200. 
(5) Loss of opportunity to purchase and profit from another company, Tarvail Limited: £10,218,320 (less certain deductions).
7.	Subject to some concessions to which I will refer, the defendants disputed 4 Eng’s claim in its entirety. They did not call any evidence but they challenged 4 Eng’s case and tested its evidence by cross examination of its witnesses. The principal witness for 4 Eng was Mr Shepherd, who was extensively cross-examined. I have no difficulty in accepting him as an entirely honest witness. He is clearly intelligent and well-organised and he gave his evidence with great care. He had a good recollection of relevant events, but equally was willing to accept that with the passage of time there were matters, mainly of detail, which he could not remember.
8.	4 Eng also called two managers from the Lloyds Bank group, which provided finance for the acquisition of Excel and would have been asked to provide finance for an acquisition of Tarvail; Stephen Rees-Williams, a director of the company acting as agents for the vendors of Tarvail; and David Tapp, one of the two principal directors and shareholders of Tarvail. They were all honest and reliable witnesses. Very shortly before the hearing, Lloyds Bank were able to locate three files of documents relating to 4 Eng and its actual and potential acquisitions, and these were produced at the start of the hearing.
9.	Before dealing with the heads of losses, I will set out some background to the formation of 4 Eng and the involvement of Mr Shepherd and Mr Tapping. Mr Shepherd is a chartered mechanical engineer and most of his working life has been spent in engineering. For some years he was employed by companies in the Smiths Industries group, a large listed group in the medical sector. He was there responsible for substantial engineering projects and worked closely with the finance department on forecasts and management accounts. When he left Smiths Industries, he wished to attempt to fulfil his ambition of building up a significant group of engineering businesses.
10.	Mr Shepherd met Mr Tapping in 1999 or 2000. Mr Tapping also had experience in senior management roles in engineering. He shared Mr Shepherd’s ambitions and together they developed a business plan for building a group of engineering companies, based on the acquisition of existing businesses. I will refer later to the business plan in more detail. Mr Shepherd and Mr Tapping undertook a great deal of research and investigation into potential acquisition targets and identified Excel and Tarvail as prime candidates. Their plan was initially to acquire both almost simultaneously and, as I shall come to later, they conducted negotiations with the owners of both companies, and reached agreement on price and basic payment terms in the course of 2000. Their experience in progressing and concluding the purchase of Excel made them realise that it was not feasible to proceed immediately to an acquisition of Tarvail but that a short break of about three months between the two was necessary. They incorporated 4 Eng in February 2001 to be the acquiring company and ultimately the holding company of the group they hoped to create. On 29 June 2001 the contract for the acquisition of Excel was made. In the event, the rapid discovery of problems at Excel, although not by any means their full scale, led them first to delay, and then to abandon, the plans to acquire Tarvail.
First head of loss: price paid for Excel
11.	In accordance with the terms of the agreement to acquire Excel, a sum of £550,000 was paid on completion to the defendants as vendors. Mr Shepherd and Mr Tapping subscribed £50,000 in total for shares in 4 Eng, but otherwise the funds necessary for the purchase were raised through Excel and lent to 4 Eng. As this involved the provision by Excel of financial assistance for the acquisition of its own shares which would otherwise be prohibited by section 151 of the Companies Act 1985, the procedure set out in sections 155 et seq, involving a statutory declaration by the directors and a report by the auditors, was followed.
12.	Lloyds TSB Bank provided a five-year term loan of £150,000 and an overdraft facility of £100,000 to Excel, all of which was immediately drawn. Lloyds TSB Commercial Finance Limited (LTSBCF), provided a revolving debt facility, secured by an assignment of book debts. Under the terms of the facility, LTSBCF would pay 75 per cent of the face value of assigned debts. On 29 June 2001, a sum of £362,000 was advanced under this facility. Lloyds TSB Bank and LTSBCF (together, Lloyds) therefore provided finance totalling £612,000 to Excel.  In addition, Mr Shepherd and Mr Tapping lent a total of £100,000 to Excel.
13.	All these funds were initially paid to the client account of Davis & Partners, the solicitors acting for 4 Eng on the acquisition. From these funds, £550,000 was paid to the defendants and £74,871.50 was applied in the payments of professional fees, stamp duty and other costs. Of the balance of £137,128.50, a sum of £6,000 was paid to an account in 4 Eng’s name and the remaining £131,128.50 was paid into Excel’s account. Excel was liable to Lloyds TSB Bank, LTSBCF, Mr Shepherd and Mr Tapping in a total sum of £712,000 on the loans and advances made by them, and 4 Eng was liable to Excel on an inter-company loan of £580,871.50.
14.	Following the acquisition, an agreement was made between Excel and 4 Eng for a management charge of £29,000 per month to be paid by Excel to 4 Eng. It was intended that the remuneration, including pension contributions, of Mr Shepherd and Mr Tapping should be paid by 4 Eng out of these charges. In fact, it quickly became clear that Excel was financially in no position to pay management charges. Instead they were set off against 4 Eng’s liability on the inter-company loan. This was agreed on 8 November 2001. As recorded in the minutes of a board meeting of Excel on 1 July 2004, the inter-company loan had by this means been fully discharged by February 2003. 
15.	I should mention here that the documents prepared and signed in June 2001 at the time of the purchase of Excel also included reference to a management service charge payable by Excel to 4 Eng of £80,000 (or £100,000). Mr Shepherd is certain that this management charge was never agreed or intended and believes its inclusion in the documents must have been a mistake as a result of a misunderstanding by the solicitors. It was not in fact paid or taken into account and I am satisfied that it was a mistake. 
16.	On the face of the documents and as a matter of legal analysis of the various transactions, 4 Eng paid £550,000 to the defendants which was funded by a loan to 4 Eng from Excel which in turn was repaid by means of set-off against the management charges. 4 Eng has realised nothing from its investment in Excel. This establishes a prima facie loss of £550,000 to 4 Eng as a result of being induced by the defendants’ deceit to enter into the contract to purchase Excel. 
17.	In their points of dispute on the damages claim, the defendants expressly did not admit (a) that 4 Eng was unable to sell its shares in Excel at any time before it went into administration in January 2006 and (b) that the shares in Excel were worthless as a result of the fraud practised by the defendants on Mars, and positive averments were pleaded on this latter point. Briggs J addressed these matters on the summary judgment application. At para 53 of his judgment he said:
“In the present case the defendants, in my judgment, have no real prospect of showing that the valuation of what the claimant received under the transaction should be carried out as at the date of the agreement. This is because, first, it is evident that the true nature and full extent of the fraud took some considerable time to emerge after the acquisition, even though aspects of it started to manifest themselves immediately; and, second, because the very fact that aspects of an unquantifiable and, at the early stage, indefinable fraud did start to emerge immediately rendered the company effectively unsaleable by the claimant at least until the fraud had been full identified and was capable of accurate disclosure to any purchaser. That did not emerge (in full at any rate) until the hearing of the criminal trial in 2005, by which time, on the evidence, the company was valueless. Furthermore, the defendants have chosen to address the value of the asset acquired i.e. Excel in evidence from a valuer solely as at the date of the purchase. Since, in my judgment, there is no real prospect that that will be the correct date the court is without evidence as to the company’s value at any other date sufficient to displace the very clear evidence that, at least by the time when the investigation of the fraud had reached a stage of certainty which would enable the affairs of the company to be properly described to any intending purchaser, the company had become, to all intents and purposes, valueless.”
18.	The defendants have adduced no evidence on the assessment of damages, so that this finding of Briggs J is in my judgment binding on them. In the skeleton argument of their counsel for the present hearing, it was accepted that 4 Eng had no real prospect of selling the shares in Excel at any time before it went into administration. It is not therefore now suggested that there is any value for which 4 Eng must give credit in respect of the value of the shares in Excel.
19.	In their points of dispute, the defendants denied the claim for loss of £550,000 in its entirety on the grounds that 4 Eng did not fund the purchase of Excel and incurred no losses or liabilities as a consequence. Alternatively, the claim was denied except to the extent of £50,000 as the total amount of 4 Eng’s contributions to the purchase price. In the skeleton argument of their counsel, the defendants accepted that 4 Eng was entitled to damages of £44,000 being the amount paid towards the purchase price out of its own resources i.e. out of the capital of £50,000 subscribed by Mr Shepherd and Mr Tapping. It was submitted that 4 Eng did not provide the balance of the purchase price and has, therefore, suffered no additional loss. It was submitted that “in substance” 4 Eng had itself provided none of the funding for the acquisition, beyond £44,000, and that the purchase price was funded by Excel out of the loans and payments made to it. Perhaps recognising that this did not reflect the legal position of 4 Eng and Excel as set out in the loan agreements, resolutions and documents prepared in compliance with sections 155 et seq of the Companies Act 1985, it was submitted that the court should look at “the reality of the position”. It was further submitted that 4 Eng did not repay the inter-company loan from Excel which was, it was said, written off.
20.	These submissions are not well-founded. Unless the loan from Excel to 4 Eng evidenced by the various documents was a sham, 4 Eng paid £550,000 to the defendants and incurred a liability on the loan to Excel. Equally, the fact that Excel had itself borrowed the funds to make the loan does not mean that the reality and substance of the matter was other than as recorded in the documents. As to writing off the loan, it is clear on the evidence of Mr Shepherd and the documents that it was not written off but was discharged by set off against the agreed management charges. It was not suggested that the agreement for management charges was either a sham or involved artificially inflated charges. In those circumstances 4 Eng fully repaid the loan and has consequently suffered this loss of £550,000.
Second head of loss: acquisition costs
21.	4 Eng paid a total of £72,371.50 (originally pleaded as £74,871.50) in respect of professional costs and stamp duty for the acquisition of Excel. In their points of dispute, the defendants did not admit these costs but put 4 Eng to proof of them and, in any event, denied liability on the same grounds as advanced in relation to the purchase price. The amount and payment of these costs were established by Mr Shepherd’s evidence and 4 Eng is entitled to recover them as damages.
Third head of loss: post-acquisition liabilities
22.	This head relates to 4 Eng’s liability for remuneration payable to Mr Shepherd and Mr Tapping. Immediately following and as a result of the acquisition of Excel they entered into service agreements with 4 Eng. They are dated 2 July 2001 and replaced agreements signed in error on 29 June 2001. Under these agreements salaries were payable to each of them at a rate of £50,000 per annum together with pension contributions at a rate of 17.5 per cent of gross annual salary.  The intention was to fund these payments out of the monthly management charges payable by Excel, but, because Excel never had the funds available to pay the charges, 4 Eng received no payments and was therefore unable to pay the agreed remuneration to Mr Shepherd and Mr Tapping. The liability to them therefore remains.
23.	After 26 April 2004 the salaries became payable by Excel in place of 4 Eng. The claim is therefore for a total of £275,000 due to Mr Shepherd and Mr Tapping as salaries for the period 2 July 2001 to 26 April 2004, together with National Insurance contributions totalling £30,535.70 which will become payable as and when the salaries are paid. The defendants make the point that there is no present liability to pay National Insurance contributions and there never will be such a liability unless the damages recovered are in fact paid out to Mr Shepherd and Mr Tapping by way of salary. They might choose to extract these sums from 4 Eng in some other way. In the particular circumstances of this case where the creditors, Mr Shepherd and Mr Tapping, control the claimant, I would regard it as more appropriate for the court to order that the defendants to indemnify 4 Eng against any such liability, rather than award damages in respect of this potential loss. It was not suggested that the court lacked jurisdiction to make this order.   
24.	The claim in respect of pension contributions does not stop at 26 April 2004. 4 Eng’s case is that the arrangement whereby Excel became liable for the salaries after 26 April 2004 did not affect 4 Eng’s liability for pension contributions. 4 Eng accepts that this claim ceases as at 9 January 2006 when Excel went into administration and Mr Shepherd and Mr Tapping ceased to work for Excel or, on a full time basis, for 4 Eng. This liability would therefore be £79,116.16 (54 months from July 2001 to December 2005 at a monthly cost of £1,458.33 for both directors, and £376.34 for 1 to 8 January 2006).
25.	The defendants argue that 4 Eng’s liability for the pension payments ceased when it ceased on 26 April 2004 to be liable for the salaries. They rely on the terms of the service agreements which provide that “service shall be pensionable and shall be on the basis of 17.5% of total remuneration.” This was an incident of the directors’ service and if their service was with Excel for which Excel was paying, there was no basis in the service agreements for 4 Eng to continue to be liable for the pension contributions. Subject to special arrangements agreed between the parties, I would accept this submission. The minutes of the board meeting of 4 Eng held on 26 April 2004 recorded that in order to minimise costs and to protect its creditors, the directors had not drawn salaries but had drawn down against their loans to Excel. As the loans had been repaid it was resolved that “the Directors shall now draw salaries from Ironfirm until it is in a position to pay up management fees to 4 Eng”. This in my judgment reads not as a transfer of the directors’ employment to Excel but as a variation, intended to be temporary, substituting Excel for 4 Eng as the party liable to pay salaries until Excel was in a position to pay management fees. In evidence, Mr Shepherd said that the directors continued to regards 4 Eng as responsible for the pension contributions because they saw no reason to discharge it. On the basis of the board minute and Mr Shepherd’s evidence, I find that 4 Eng continued until 9 January 2006 to be liable to pay the pension contributions.   
26.	Although all liability in respect of these sums was denied in their points of dispute, the defendants accepted at the hearing that they were liable in respect of the lost salaries, provided that 4 Eng makes no recovery in respect of the lost opportunity to purchase Tarvail. 4 Eng accepts that if it succeeds in respect of its Tarvail claim, the loss in respect of its liability for the salaries, national insurance contributions and pension contributions is not recoverable.   
Fourth head of loss: costs of fraud investigation
27.	The uncovering of the extent and detailed facts of the defendants’ fraudulent and corrupt activity was a complex and time-consuming task. Mr Shepherd gave vivid evidence, which I accept, of the formidable problems facing him and Mr Tapping in this respect. The defendants had gone to considerable trouble to cover their tracks. The monies extracted from Mars over a period of at least 8 or 9 years were spread over a very large number of orders and invoices (“thousands and thousands”), most of them on small jobs for small amounts. Some of the transactions were entirely fictitious but many involved inflation of genuine transactions. It involved 20 or more employees of Mars, listed as non-existent employees of Excel, and it involved invoices rendered by about 12 non-existent companies. The defendants’ methods had changed from time to time. Discovery of the facts required each relevant transaction to be linked through a series of Mars purchase orders, Excel delivery notes, Excel sales invoices and so on. The description of the relevant work was often very vague. This process was made even more difficult and time-consuming because the pre-2000 computer system was not accessible and it required inspection of very large numbers of hard copy documents. Although evidence of fraud was discovered at an early stage, the real breakthrough did not come until November 2003 when Mr Shepherd and Mr Tapping discovered shadow accounts on Excel’s computerised accounts system.
28.	When evidence of fraud started to emerge soon after the acquisition, Mr Shepherd and Mr Tapping realised that, in addition to their ordinary work as directors of Excel managing and developing its business, there would be a significant commitment of time and resources to discovering the nature and extent of the fraud. Their ordinary duties were in any case more difficult than anticipated because, quite apart from their corrupt practices, the defendants had disguised the extent of Excel’s ordinary liabilities so that Excel was in any case in a very serious financial position.
29.	Mr Shepherd and Mr Tapping appreciated that much of the work on the fraud investigation would have to be done out of usual working hours, both for reasons of confidentiality and because their usual working hours would largely be devoted to managing the business. The financial position of Excel was such that neither it nor 4 Eng could afford either to engage outside professional accountancy services, or to take on appropriate accountancy staff, to undertake the investigations. Their enquiries showed that such services from an outside firm would cost about £200 per hour. At a board meeting of 4 Eng on 26 September 2001 they resolved to undertake the investigations themselves at a rate payable to them of £100 per hour. The resolution provided that 4 Eng was liable to pay this amount to them and would be entitled to charge 50 per cent to Excel. Mr Shepherd explained that they considered this to be a fair and proper rate taking account on the one hand of the rate at which they were to be paid under their service contracts and on the other hand of the rate at which external accountants would charge. The investigatory work lasted until        late 2004 but no claim is made for any time spent after 26 April 2004 when Excel assumed responsibility for their salaries. Starting on about 26 September 2001, Mr Tapping maintained a contemporaneous, continuous and detailed computerised log of the time spent by Mr Shepherd and himself on the investigation. The time amounts to 7,112 hours over nearly 3 years. 4 Eng claims £711,200 as the amount which it is accordingly liable to pay them.
30.	This was not the way in which the claim was originally framed. Until very shortly before the hearing, the claim was for damages for disruption to business. The amount claimed was £279,879.04, the product of 7112 multiplied by the hourly employment costs to 4 Eng of Mr Shepherd and Mr Tapping. A proposed amendment to put forward as its primary claim the sum of £711,200 was first indicated to the defendants on Friday 28 March 2008 with the case listed to start the following Tuesday, and was the subject of an application to amend made at the hearing. I indicated that I would deal with the application in this judgment, but heard submissions on the merits of both formulations of the claim.
31.	Mr Shepherd’s evidence as to the reason for this late amendment was that he had only recently located the board minute recording the resolution to pay him and Mr Tapping at a rate of £100 per hour for these extra duties. It had always been 4 Eng’s position in this case that such a resolution had been passed on 26 September 2001: see, for example, para 124 of Mr Shepherd’s third witness statement made in September 2007. He explained in his evidence that 4 Eng was advised that, as the board minute could not be found, the claim should be framed on the basis of the remuneration costs under the employment contracts of Mr Tapping and himself. I accept this evidence, which provides a reasonable explanation for the change in the claim.
32.	Mr Leech submitted that the amendment should not be permitted. The claim was originally framed with the knowledge of the facts, if not the documentary evidence, to support the higher figure and the claimant chose not to claim it, as Mr Shepherd’s witness statement made clear. 4 Eng should not be permitted to resile from this election or, as it was put, concession. The amendment was made very late. The defendants did not have time to obtain expert evidence as to the likely cost of the investigation by professional accountants, so as to demonstrate that the revised figure was too large to be recoverable. This was not a line of enquiry which they considered useful when the much lower sum of £279,879 was being claimed.
33.	I consider that the amendment should be allowed. It is not suggested that the board minute is anything other than a genuine contemporaneous record of an agreement in fact made. The defendants have points of the number of hours recorded by Mr Tapping, but they were of course points which arose on the claim as originally pleaded. As to the cost of an investigation by an accountancy firm, it is irrelevant because 4 Eng and Excel never had the funds to engage accountants, and the contrary is not suggested. The defendants are able to challenge the number of hours and the hourly rate of £100, which determine the size of the amended claim, without any expert evidence. I should here mention that there was no suggestion that the hourly rate of £200 for an outside investigation was wrong, a matter on which some evidence could have been obtained in a very short time. I do not think that 4 Eng had made a concession as regards a claim at £100 per hour but, even if its un-amended pleading could be construed as a concession, I would not in the circumstances outlined above regard it as a reason for refusing the amendment.
34.	It was not said that the costs of an investigation into the fraudulent conduct of the defendants was not in principle a recoverable head of loss but a number of points were made in opposition to this claim. First, as the resolution of 26 September 2001 made clear, 4 Eng anticipated that the costs would be recoverable from the defendants. It was submitted that it was an attempt to boost the damages which would be sought and, if permitted in this case, the persons in control of a potential claimant could always in effect vote themselves remuneration and then seek its recovery. At least, 4 Eng should not be entitled to recover more than amount which can be objectively justified, which in this case is the hourly rate payable under their employment contracts. I reject this submission. Once it is accepted that an investigation was necessary – it could, of course, have been avoided if the defendants had disclosed their activities – and that neither 4 Eng nor Excel could afford to pay an accountancy firm or other investigators, it was inevitable that Mr Shepherd and Mr Tapping would have to undertake it. Mr Leech rightly accepted that the investigation was outside the terms of their employment contracts. No objection can therefore be taken to a requirement by Mr Shepherd and Mr Tapping for payment to them for the additional work. As the work would be in addition to their ordinary working hours, there is in my view no reason why they should not charge more for their time than the rate of remuneration under their employment contracts. I have referred above to Mr Shepherd’s evidence as to how he and Mr Tapping arrived at £100 per hour and, in my judgment, it was a reasonable rate.
35.	Secondly, it was suggested by the defendants in their opening that in view of the large number of hours said to have been worked “there must be more than a suspicion of exaggeration”. The spreadsheet record kept by Mr Tapping gave very little detail of the work actually done, and for many days gives no description at all, thereby making it difficult to test the accuracy of the figures. Mr Tapping did not give evidence, although available to so, and it was submitted that the court should not accept the record in the spreadsheet as established on the evidence. Some more detailed points were made in support of this submission. First, a contemporaneous Lloyds TSB Bank note dated 19 May 2004 of a conversation with Mr Tapping records that “they have clocked up 6776 hours which they have costed at £50 per hour”. This shows, it was said, that the number of hours had not reached 7112 by 24 April 2004 and that the agreed rate was £50, not £100. Secondly, there is an entry for 28 September 2004 which states “7,000 hours on the case on same day we met with Page.”
36.	Mr Shepherd’s evidence on the number of hours spent on the investigation and their recording in the spreadsheet was investigated in cross examination. Having heard Mr Shepherd’s evidence, I am satisfied that the spreadsheet is a reliable record of the hours spent. In view of the way in which Mr Shepherd and Mr Tapping worked closely together, Mr Shepherd was well placed to give evidence as to the recording of time spent. Some of it was hearsay, but in the circumstances that does not materially detract from its quality. Moreover, the statement of truth for 4 Eng’s points of damages, which alleges 7112 as the number of hours spent, was signed by Mr Tapping.  The bank’s internal note of 19 May 2004 provides support for the case that a very large amount of time had been spent on the investigation. The discrepancy in the precise numbers of hours does not mean that the figure of 7112 was either not recorded for the period to 26 April 2004 or was wrong. In view of the record in the fraud diary, it is more likely that a mistake was made, probably by Mr Tapping in the conversation with the bank manager. The figure of £50 per hour is readily explicable because the bank’s note was concerned with Excel, which was being charged by 4 Eng at a rate of £50 per hour, although none of that has been paid. Again, the reference in the narrative part of the fraud diary to 7000 hours in September 2004 does not in my view undermine the details of the spreadsheet which show that Mr Shepherd and Mr Tapping had spent 7112 hours on the investigation by 24 April 2004.
37.	It may be that an outside firm would not have needed as many as 7112 hours to conduct the investigation, but given a higher charge-out rate the overall cost may not have been less, and might have been more, than the sum due to Mr Shepherd and Mr Tapping. In any case, it is not to the point, in view of the inability of 4 Eng and Excel to pay an outside firm.
38.	Thirdly, it was submitted that 4 Eng should be entitled to recover at the rate of only £50 per hour because the minute of the resolution on 26 September 2001 is not clear and the bank’s note of 19 May 2004 stated that the work was costed at £50 per hour. I reject also this submission. The minute in my view is entirely clear: 4 Eng is liable to pay Mr Shepherd and Mr Tapping at a rate of £100 per hour and is entitled to recover half that amount from Excel. The reference to £50 in the bank’s note is not surprising because it was a note relating to Excel, not 4 Eng.
39.	A fourth submission, which does in my view have substance, relates to some of the hours recorded in the spreadsheet. Hours are allocated to four columns: Mr Shepherd, Mr Tapping, “staff” and “archiving”. Figures of £100 are given for the first two, but staff and archiving are shown as £26 and £35 respectively. For the purposes of the claim the hours allocated to staff and archiving have been claimed at £100 per hour. An obvious inference from the spreadsheet might be that staff and archiving referred to time spent by persons other than Mr Shepherd and Mr Tapping. Mr Shepherd’s evidence, which I accept, is that they record time spent by Mr Tapping and himself in discussions with staff and in archiving. That leaves the sums of £26 and £35 to be explained. Mr Shepherd could give no explanation except that Mr Tapping must have made a mistake. It is, however, an odd mistake to make: Mr Tapping knew that the agreed rate was £100 per hour, so from where did he get the figures of £26 and £35? This is a matter on which Mr Tapping’s evidence might have shed light. I am not satisfied on the evidence that the hours recorded under those headings are chargeable at more than £26 and £35 respectively. If the figure claimed is recalculated on this basis, I was told by Mr Freedman that it results in a total claim of £624,888. Assuming no objection by the defendants to the calculation, I will award damages in that amount under this head.
40.	This is an award to compensate 4 Eng for the liability incurred to Mr Shepherd and Mr Tapping. It is not an award of damages for disruption to the business through loss of management time, of the type recognised in a number of authorities recently reviewed by the Court of Appeal in Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3. In such cases, the claimant must prove significant disruption to its business, but if it does so the court will generally infer that revenue would otherwise have been generated at least equal to the cost of employing the diverted staff for the relevant time.
Fifth head: loss of the chance to acquire Tarvail
41.	4 Eng’s case is that, if it had not been induced by the defendants’ fraudulent misrepresentations to buy Excel, it would have bought the shares in Tarvail owned by Mr Tapp and Mr Rogers, which were entitled to all the votes at general meetings and to five-sixths of all dividends. Its case is that under 4 Eng’s ownership its business would have performed as well as it in fact did from July 2001 to trial, for the most part under the continued control of Mr Tapp and Mr Rogers. It was thereby deprived of very substantial income and capital profits. This is by a long way the largest head of claim. It has given rise to a number of issues, of both law and fact. I will deal first with the legal issues.
Tarvail: legal issues
42.	The guiding principle to the award of damages in tort, both generally and specifically as regards fraud, is contained in the celebrated passage from the speech of Lord Blackburn in Livingstone v Rawyards Coal Co (1880) 5 App. Cas. 25 at 39:
“I do not think there is any difference of opinion as to its being a general rule that, where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation. That must be qualified by a great many things which may arise - such, for instance, as by the consideration whether the damage has been maliciously done, or, whether it has been done with full knowledge that the person doing it was doing wrong. There could be no doubt that there you would say that everything would be taken into view that would go most against the wilful wrongdoer - many things which you would properly allow in favour of an innocent mistaken trespasser would be disallowed as against a wilful and intentional trespasser on the ground that he must not qualify his own wrong, and various things of that sort.”
The entirety of that passage was cited by Lord Browne-Wilkinson in Smith New Court Securities Ltd v Citibank NA [1997] AC 254 at 262-263.
43.	The defendants accept that in principle damages for the loss of an alternative purchase, if caused by the defendants’ fraudulent misrepresentation and the claimant’s reliance on it, are recoverable in an action for deceit. The Court of Appeal so held in East v Maurer [1991] 1 WLR 461. In that case the plaintiffs were induced by the fraudulent misrepresentations of the first defendant to purchase a hairdressing business from him. The business failed, notwithstanding the reasonable endeavours of the plaintiff. The plaintiffs were entitled to recover damages for: the cost of the business, less the amount realised on its later sale; the costs of acquisition and sale and of improvements to the business premises and equipment; and trading losses of the business. They were also entitled to damages for loss of profits which could have been made in an alternative hairdressing business which would have been bought if they had not been induced to purchase the defendant’s business. As Beldam LJ said at p 466 H:
“But as to the statements of principle to which I have referred, it seems to me clear that there is no basis upon which one could say that loss of profits incurred whilst waiting for an opportunity to realise to its best advantage a business which has been purchased, are irrecoverable. It is conceded that losses made in the course of running the business of a company, are recoverable. If in fact the plaintiffs lost the profits which they could reasonably have expected from running a business in the area of a kind similar to the business in this case, I can see no reason why those do not fall within the words of Lord Atkin in Clark v. Urquhart [1930] AC 28, 68, ‘actual damage directly flowing from the fraudulent inducement.’”  
In the Smith New Court case at p 282, Lord Steyn observed that East v Maurer:
“shows that an award based on the hypothetical profitable business in which the plaintiff would have engaged but for deceit is permissible: it is classic consequential loss.”
44.	The defendants make a number of submissions. First, they say that 4 Eng’s claim in this case involves an impermissible attempt to rely on two distinct strands of authority: damages for loss directly caused to the claimant and damages for a loss of chance. In my judgment, a combination of such claims involves no error of principle. If the loss of the chance is damage directly caused by the defendants’ deceit, it is as much within the scope of damages for deceit as payments or liabilities in fact made or incurred by the claimant or as damages for the loss of profits in a hypothetical alternative business established on the balance of probabilities as in East v Maurer. That decision pre-dated the decision of the Court of Appeal in Allied Maples Group Ltd v Simmons & Simmons [1995]  1 WLR 1602 by over four years. It does not seem to me to be an objection that the loss is assessed as a loss of chance, not as a loss established on the balance of probabilities. It is true that it does not previously appear to have been decided that damages for loss of a chance are recoverable for deceit, but there is in my judgment no objection in principle. If damages for loss of a chance are recoverable in negligence, why should they not also be recoverable in deceit?
45.	Secondly, while accepting that damages for the profits that would have been earned in an alternative business are recoverable, the defendants submit that damages for a loss of capital profits, i.e. the increase in the value of the alternative business between the date of assumed acquisition and the date of its presumed disposal, which will be the date of trial if not earlier, are too remote and are not recoverable.
46.	The forseeability of a head of loss is irrelevant in the award of damages for deceit, as the House of Lords established in Smith New Court. A loss is too remote only if it is not in the eyes of the law directly caused by a defendant’s deceit. Once it is accepted that the claimant would have purchased an alternative business, and is entitled to recover damages for the loss of profits which would have been earned during the period of ownership, why should the claimant not also recover for the loss of the capital profit in the rise of the value of the business? If the claimant had not been induced by the defendants’ deceit to purchase their business, the claimant would have purchased an alternative business from which it would have benefited in two ways: first, it would have received profits from it while owning it and, secondly, it would have been able to sell the business at a profit over the price it had paid for it. Both are losses suffered by him as a direct result of the defendants’ deceit.
47.	Thirdly, the defendants submit that damages are not ordinarily recoverable for both a capital and an income element of the same loss. They rely on the following passage from the judgment of Mustill LJ in East v Maurer at p 468:
“In my judgment the best course in a case of this kind is to begin by comparing the position of the plaintiff as it would have been if the act complained-of had not taken place with the position of the plaintiff as it actually became. This establishes the actual loss which the plaintiff has suffered and often helps to avoid the pitfalls of double counting, omissions and impermissible awards of both a capital and an income element in respect of the same loss: see Cullinane  v. British "Rema" Manufacturing Co. Ltd. [1954] 1 Q.B. 292, although even then mistakes are sometimes hard to avoid.” 
48.	They rely also on the decision of the Court of Appeal in Cullinane v British “Rema” Manufacturing Co Ltd [1954] 1 QB 292. The claim was for damages for breach of a contractual warranty that a piece of equipment would operate at a specified rate. It in fact operated at a lower rate, reducing the profits which the buyer could earn from its use of the equipment. The estimated useful life of the equipment was ten years and the claim was tried three years after purchase. The plaintiff recovered damages for the lost profits over the three years to trial. It failed on appeal in its additional claim for the capital cost of purchasing and installing the equipment after deduction of the residual value of the equipment and associated works. The reason that it was not entitled to recover both heads of loss is stated by Evershed MR at p 302:
“It seems to me, as a matter of principle, that the full claim of damages in the form in which it is pleaded was not sustainable, in so far as the plaintiff sought to recover both the whole of his original capital loss and also the whole of the profit which he would have made. I think that that is really a self-evident proposition, because a claim for loss of profits could only be founded upon the footing that the capital expenditure had been incurred.”
The plaintiff could recover either one head or the other, but not both.
49.	The reasoning in Cullinane is not applicable to the facts of this case. The claim for capital loss as it relates to Tarvail is not for a loss of capital in acquiring Tarvail. It is the reverse. It is for a loss of the opportunity to make a capital profit as a result of the acquisition of Tarvail which would be in addition to the income profits which 4 Eng would have derived from Tarvail during its period of ownership. The inability to acquire Tarvail which resulted from the defendants’ deceit deprived 4 Eng of both those income profits and a capital profit realisable by it on a sale as at the date of trial. Unlike Cullinane they are cumulative, not alternative, losses. The fact that the capital value of Tarvail is estimated by reference to anticipated future earnings is irrelevant. It is not the capital value of past earnings; if it were, there would of course be double recovery. Past earnings are used by the valuer only for the purpose of establishing maintainable earnings for the future, thereby providing the figure to which the p/e ratio can be applied. The income profits assumed to have been extracted by 4 Eng during its period of ownership are not reflected at all in the capital value of Tarvail.
50.	In applying the warning against impermissible awards of both a capital and an income element of the same loss to the facts of East v Maurer, Mustill LJ refers to the fact as found that without the fraudulent misrepresentation the plaintiff would have bought a different business and continues at p468E:
“Thus, by the time the writ was issued they would have had the capital asset constituted by the new business, plus the profits made by that new business in the intervening period. One may assume the value of this capital asset to be the same as the value which the plaintiffs placed on the Exeter Road business, namely £20,000.” 
This passage does not suggest that the plaintiff could not have recovered as a matter of principle damages for any capital profit as at the date of trial. It was because of the assumption that the value would be the same as that placed on the business she was induced to buy that, there was no capital loss to recover.
51.	In my judgment, therefore, 4 Eng is in principle entitled to recover damages for both for the loss of income profits during its period of presumed ownership of Tarvail until trial and for the loss of a separate capital profit as at the date of the trial, representing the difference between the value of Tarvail as at that date and its original cost.
52.	Assuming that in principle damages for the lost opportunity to acquire Tarvail were recoverable, the defendants submitted that the date of assessment should not be the trial but should be either the date on which the opportunity was lost or, if later, the date on which 4 Eng was able to extricate itself from the Excel transaction. In support of choosing the date of loss of the opportunity, it was submitted that the loss to be compensated is the loss of the opportunity to acquire Tarvail. As Tarvail would have been acquired at its market value, 4 Eng has suffered no loss at all. In my view, this is misconceived. The lost opportunity was not just the acquisition of Tarvail but the opportunity, as was intended, to run it and make profits by it. It is the loss of the opportunity to make such profits, both by way of income and capital appreciation that 4 Eng has suffered. It was on that basis that damages were recoverable for lost profits in East v Maurer.
53.	On this point, Mr Leech relied on Jenmain Builders Ltd v Steed & Steed [2000] Lloyds Rep PN 549, where the claimant was held by the Court of Appeal to be unable to recover damages for the loss of an opportunity to buy a property at market value. For the reason given by Chadwick LJ in para 35 of his judgment, that case is distinguishable because the claimant could go into the market and purchase an alternative development property. In the present case, 4 Eng was unable to purchase Tarvail because the purchase of Excel induced by the defendants’ deceit prevented them from doing so.
54.	The alternative date for assessment of the loss is, the defendants submit, the date on which 4 Eng was able to extricate itself from the Excel transaction. At a late stage, the defendants have accepted that this did not occur until 9 January 2006 when Excel went into administration. It is submitted that on that date 4 Eng was freed from the consequences of the defendants’ deceit.
55.	The date on which the claimant is or could be extricated from the transaction induced by the deceit is important in a case where it relates to readily marketable assets. The usual rule would be that the loss is fixed as at the date of the transaction because the claimant could immediately have sold the asset and any deferment in a sale in his own choice. This will not be the case, even with readily marketable assets, where the claimant is in effect locked into the transaction. In such a case, the appropriate date for assessment of the loss is the date on which he could extricate himself from the transaction: Smith New Court. I could follow the defendants’ submission if on 6 January 2006 4 Eng recovered substantial funds which it could then invest in an alternative acquisition. In fact, of course, Excel was insolvent and 4 Eng recovered nothing. It was no more able then to make an alternative acquisition than it had been in the past or would be in the future. The consequences of the defendants’ deceit did not stop then but continued until trial. The choice of 6 January 2006 would be arbitrary and unconnected with 4 Eng’s loss.
56.	A final issue of principle raised by the defendants is the basis on which 4 Eng is required to establish the loss of the opportunity to acquire Tarvail. In Allied Maples Ltd v Simmons & Simmons the Court of Appeal held that a claimant must establish on the balance of probabilities how it would have acted. 4 Eng must therefore show on the balance of probabilities that, if given the opportunity, it could and would have purchased Tarvail. Where the loss of opportunity is dependent also on the conduct of third parties, the claimant normally has to show that there was a real and substantial chance that the third party would have acted to confer the relevant benefit. At p 1615D Stuart-Smith LJ said:
“But, in my judgment, the plaintiff must prove as a matter of causation that he has a real or substantial chance as opposed to a speculative one. If he succeeds in doing so, the evaluation of the chance is part of the assessment of the quantum of damage, the range lying somewhere between something that just qualifies as real or substantial on the one hand and near certainty on the other. I do not think that it is helpful to seek to lay down in percentage terms what the lower and upper ends of the bracket should be.”
57.	Mr Leech submitted that the position was different where the claimant called, or was able to call, the third party. In such a case, the court could assess the likelihood that the third party would have acted as the claimant contends, just as well as in the case of the claimant himself. As 4 Eng had called Mr Tapp, the court should decide whether Tarvail would have been sold to 4 Eng, or at least whether Mr Tapp would have agreed to sell his shares in Tarvail, on the balance of probabilities. Mr Leech relied on the decision of HHJ Hodge QC in Stone Heritage Developments Ltd v Davis Blank Furniss (31 May 2006, unreported) in which it was held that where all of the available evidence was before the court, the court should apply the balance of probabilities. The decision in the case was partly reversed on appeal, at [2007] EWCA Civ 765, but this issue was not considered by the Court of Appeal.
58.	The state of evidence in this case is such that the court must in any event, in my judgment, apply the approach established in Allied Maples. Although Mr Tapp gave evidence, and it is reasonable to assume that Mr Rogers would have taken the same decisions and adopted the same approach as Mr Tapp, there are other witnesses who did not give evidence nor would appear to have been available to do so. The ultimate decision of Mr Tapp and Mr Rogers would have been affected in very important respects by the advice of their solicitors and accountants and by the attitude of Mr Dalton and Mr Ede, directors who worked full time in the business. Without evidence from these people, there is no basis for applying the balance of probabilities. I prefer to express no view on whether, if all the evidence relevant to the conduct of Mr Tapp and Mr Rogers had been available, the balance of probabilities would have been the right test to apply to the issue as to whether Mr Tapp and Mr Rogers would have sold Tarvail to 4 Eng.
Tarvail: issues of fact            
59.	4 Eng’s case that it would have purchased Tarvail as an alternative to Excel raises the following issues of fact. First, on the assumption that Mr Tapp and Mr Rogers would have been willing to sell their shares in Tarvail on terms acceptable to 4 Eng, would 4 Eng have purchased it and could it have funded the purchase? This is the issue on which 4 Eng must establish its case on the balance of probabilities. Secondly, would Mr Tapp and Mr Rogers have agreed to sell their shares in Tarvail on terms acceptable to 4 Eng. For the reasons given above, this requires the court to estimate the chances that they would have so agreed. On both issues, there is more substantial evidence, based on actual events, to support 4 Eng’s case than is often found in hypothetical cases.
Could and would 4 Eng have acquired Tarvail?
60.	Mr Shepherd was clear in his evidence that he and Mr Tapping were very seriously interested in acquiring Tarvail and would have acquired it, if the acquisition of Excel had not occurred. It was pointed out for the defendants that Mr Tapping had not given evidence of his interest, but Mr Shepherd’s evidence related to both of them and there is no basis for thinking that Mr Tapping’s view of Tarvail was any different from that of Mr Shepherd.
61.	In support of 4 Eng’s case that it could and would have purchased Tarvail, it relies on the following principal matters. First, the development by Mr Shepherd and Mr Tapping of their proposals for acquisitions by 4 Eng, as demonstrated by their written business plan, identified Tarvail, with Excel, as their priority acquisition targets. The business plan was finalised in 2000 and shown first to venture capitalist firms and then to Lloyds to persuade them to provide funding. Funding discussions with venture capitalists did not proceed far, because they required Mr Shepherd and Mr Tapping themselves to invest more than they were, or felt able to, do.
62.	The first part of the business plan sets out in general terms ambitious plans to build up by acquisition a group of engineering businesses with 4 Eng as its holding company. The proposal involved building on the success of acquired businesses to fund further acquisitions. The business plan records that:
“To-date we have researched 120 companies. Of these, around 40 have been examined in detail, 20 companies have been short-listed and about 10 are considered warm or hot for acquisition. Three out of the ten companies would make a good “core” proposition. Of these, one, (Excel Engineering) has very special characteristics and is the keystone to this proposition.”
63.	Although the business plan there states that three companies would make good core companies, paragraph 4.1 under the heading “The core companies” states “We have identified two core companies in this proposal – Excel and Tarvail”. The plan includes detailed assessments and analyses of those two, but no other, companies, and their financial results in the previous five years and forecasts for their results for the next five years on the basis that both companies were acquired. The business plan includes also an analysis of the funding required for both acquisitions.
64.	The strong and detailed level of interest in acquiring Tarvail shown by the business plan is borne out by the negotiations for its acquisition conducted in the autumn of 2000. In answer to an advertisement, Mr Shepherd contacted Stephen Rees-Williams of Avondale Group Limited, the selling agents retained by the principal shareholders of Tarvail. Mr Rees-Williams arranged a meeting between Mr Shepherd, Mr Tapp, Mr Rogers and himself to discuss a sale of Tarvail. There were subsequent meetings between the principals. Offers, subject to contract and due diligence, were made in writing on 27 October, 30 October, 3 November and 5 November 2000. The terms put forward were changed to reflect points raised by Mr Rees-Williams on behalf of the vendors. The terms set out in the offer of 5 November 2000 were, as regards the total price and the dates and amounts of the instalments, acceptable to the vendors. There were further discussions between Mr Shepherd and Mr Tapp in February and March 2001, with a view to progressing the acquisition. There was no change proposed to the terms set out on 5 November 2000, and Mr Shepherd said that he would produce draft heads of agreement. He never in fact did so, a fact relied on by the defendants which I deal with later.
65.	In October 2000, 4 Eng approached Lloyds for funding for the acquisition of both Excel and Tarvail. A meeting to discuss the proposal, attended by Mr Shepherd, Mr Tapping, their solicitor, Mark Chapman of Lloyds TSB Bank and Nigel Jackson of LTSBCF was  held on 18 December 2000. Mr Shepherd and Mr Tapping reported that heads of agreement would soon be signed for Excel and that “Tarvail are keen to proceed and have been chasing last week.” An internal credit proposal document produced by Lloyds and dated 22 December 2000 refers to Excel and Tarvail as the two initial target companies. In early January 2001 an internal Lloyds TSB analyst’s report was produced. Although critical of the large-scale ambitions set out in the business plan, the analyst’s report focused on Excel and Tarvail and stated that “the business plan relating to the first two activities is credible”. In due course, Mr Shepherd and Mr Tapping decided to pursue first the acquisition of Excel, to be followed after a short period by Tarvail. Lloyds was asked and agreed to provide the funding for the acquisition of Excel. 
66.	Events at Excel meant that Lloyds was not requested to provide funding for a subsequent acquisition of Tarvail. The issue is whether Lloyds would have provided funding for Tarvail instead of Excel. The evidence of Mr Jackson, of LTSBCF, is that provided there were the same security and preconditions as applied to its funding of Excel, he can see no reason why LTSBCF would not have provided a revolving debt facility. Evidence was also given by David Squibb, of Lloyds TSB Bank. He did not become involved with 4 Eng or Excel until August 2001, but subject to the same conditions he too can see no reason why Lloyds TSB would not also have provided loans on the same terms as it did for the acquisition of Excel.
67.	A number of matters were relied on by the defendants to show that 4 Eng would not have acquired Tarvail in place of Excel. First, they point to the delay from early 2001 in progressing the acquisition of Tarvail. I accept Mr Shepherd’s explanation that the process of acquiring Excel was more protracted than they had envisaged and that they concluded that the sensible course was to proceed first with Excel and, after a short period of about three months, move on to Tarvail. It may also be that funding both acquisitions simultaneously posed a greater challenge than originally anticipated. These are not telling factors when considering whether 4 Eng would have pursued the acquisition of Tarvail in place of Excel. Reliance is also placed on the failure to progress the acquisition of Tarvail after Excel was acquired at the end of June 2001. The rapid discovery of some fraud and corruption at Excel, as well as its financial position which was worse than understood, readily explains why no progress was then made as regards Tarvail.
68.	Secondly, the defendants suggest that 4 Eng would not have been able to finance the acquisition of Tarvail alone. Because the business plan states that Excel “has very special characteristics and is the keystone of this proposition” and because its assets were greater than Tarvail’s, albeit its profitability was less, it was submitted that 4 Eng could not acquire Tarvail without first acquiring Excel. 4 Eng pleads in its points of damages that it planned to use profits and cash-flow from Excel and the bank financing in Excel’s name to assist in the purchase of Tarvail. Lloyds TSB’s internal credit proposal dated 22 December 2000 stated that Mr Chapman “will be looking to issue a formal offer on Excel together with agreement in principal on Tarvail. The Excel purchase can stand-alone although Tarvail must be considered as conditional on prior or contemporaneous completion of Excel.”  
69.	Unless 4 Eng could not raise the funds needed to acquire Tarvail alone, none of these matters shows that 4 Eng would not or could not have acquired Tarvail in place of Excel. The total price agreed for Tarvail, £950,000, was less than the total price of £1.2 million for Excel, but the sum payable on completion would have been £650,000 not £550,000. The question is therefore whether 4 Eng could have raised £650,000 and the acquisition costs of about £72,000. There is no reason to think that Lloyds TSB Bank would not have advanced £250,000 by way of term loan and overdraft facilities as it did with Excel. LTSBCF would have provided a revolving debt facility of up to 75 per cent of Tarvail’s book debts. Its book debts as shown in its balance sheet as at 31 March 2001 were £292,000, of which 75 per cent is £219,000. Lloyds would therefore have provided £469,000, leaving Mr Shepherd and Mr Tapping to raise a further £253,000. As at 31 March 2001, Tarvail had cash of £85,562, but it may be unwise to assume that it would have been available for the purchase, in view of the additional debt being taken on by Tarvail specifically for the acquisition. For the acquisition of Excel, Mr Shepherd and Mr Tapping raised £150,000 which as to £100,000 was lent to Excel and as to the balance was provided as capital to 4 Eng. The acquisition of Tarvail would have required them to raise a further £103,000, assuming the cash in Tarvail was not used.
70.	The evidence of the assets of Mr Shepherd and Mr Tapping takes the form of a schedule exhibited to Mr Shepherd’s witness statement. Both had houses but as they would have been subject to second charges in favour of Lloyds TSB Bank to secure the overdraft and term loan, they would not have been available to secure further borrowing. Mr Shepherd had cash at bank of £45,000, investments of £8,000, pension and life assurance policies valued at £50,000 and “family assets” which included liquid assets of £15,000 and a one-third share amounting to £105,000 in shares and liquid assets. The one-third share was not held on trust for Mr Shepherd. The assets belonged to his father but they were regarded as family assets which could be and were used to provide assistance to family members. The totality of these assets were in fact used to provide £75,000 for the acquisition of Excel and I am satisfied that it is likely that a further £50,000 – odd would have been available for Tarvail.
71.	The schedule discloses significantly more assets for Mr Tapping: £185,000 in cash, £25,000 in shares and unit trusts, £233,000 in property (apart from his house) and pension and life policies valued at £100,000. These figures show ample resources needed to raise the extra funds, including the provision of some of Mr Shepherd’s share if that were necessary. The defendants relied on the absence of direct evidence from Mr Tapping to submit that weight should not be placed on this evidence as to his assets. I do not accept the submission. The figures were supplied to Mr Shepherd by Mr Tapping. I have accepted Mr Shepherd as a truthful witness and there is nothing at all in the case to suggest that Mr Tapping is not also reliable. Mr Tapping was in court during the case and I have no reason to believe that he would allow evidence which he would know to be untruthful to go uncorrected. Further, so far as I am aware, the defendants did not seek any disclosure of documents relating to Mr Tapping’s assets.
72.	I am therefore satisfied that the extra funds needed at completion of a purchase of Tarvail could and would have been raised.       
73.	The third matter on which the defendants rely relates to a contract between Tarvail and Glaxo which was due for renewal in early 2002. It was a measured term contract which provided for small works to be done at rates fixed under the contract. The preponderance of Tarvail’s work was with Glaxo which according to the particulars of sale prepared by Avondale accounted for about 85 per cent of its revenue. Although only about 20 per cent of the revenue from Glaxo was generated by the contract, it was very important because it meant that Tarvail’s personnel were constantly on site and readily available to undertake further work outside the contract terms. With the contract coming up for removal within less than a year of purchase by 4 Eng, the defendants suggest that Mr Shepherd and Mr Tapping would not have committed to the purchase of Tarvail without protection against its loss, probably in the form of the deferred consideration being by way of earn-out, i.e. payable if and only to the extent that revenue from Glaxo reached certain pre-determined levels. Alternatively, 4 Eng might not have purchased Tarvail at all until satisfied that the contract would be renewed.
74.	The defendants rely in support of this on certain references in the documents. In the notes prepared by Mr Shepherd of the meeting with representatives of Lloyds on 18 December 2000, it is recorded that:
“Due to the large contributions of Mars (Excel) and Glaxo (Tarvail), vendor warranties (against loss of or significant reductions in sales) will be applied and the vendor company Directors will also be retained as consultants for 3 years specifically to ensure that the business is retained.”
In fact, however, the only warranty as regards Mars business for Excel, which was similar in importance to Glaxo’s business for Tarvail, was that the vendors “are not aware of any reason which would cause Mars Confectionary Limited to reduce or terminate its requirements for the products of the Company or transfer its operations to another location”. As I will indicate later, I consider that 4 Eng would have required a warranty in those or similar terms and that Mr Tapp and Mr Rogers would have given it.
75.	The defendants rely also on the internal Lloyds credit proposal dated 22 December 2000, which stated as regards both Excel and Tarvail that “critical to the plan, key elements of existing Management teams are to be retained with earn-out terms included in the purchase agreement.” The defendants accept that these are the bank’s words, but they are likely to be based on the business plan which at para 6.5 dealing with Excel stated that the purchase price under negotiation was £1.2 million including “a 3-year earn-out”. However, the contract to acquire Excel did not include earn-out provisions in the sense of payments linked to results, as opposed to deferred instalments, and it was never contemplated that it would do so. The same is true of the terms of the offer for Tarvail contained in Mr Shepherd’s letter of 5 November 2000. This document can provide no support for the suggestion that Mr Shepherd and Mr Tapping would have required earn-out or other such provision to protect against a loss of the contract with Glaxo.
76.	Lloyds TSB has disclosed a note prepared by Mr Squibb, as relationship manager for Excel as a customer, of his first meeting with Mr Shepherd and Mr Tapping on 29 August 2001. The note includes the following:
“The next target is Tarvail; a small business based in Dartford wedded to Glaxo Smith Klein Beecham. The difficulty with this acquisition is that Tarvail have a term contract with Glaxo that expires next year and at this stage Ironfirm cannot predict whether this will be renewed. The present owner is currently unwilling to accept an ‘earn out’ to ensure consideration is linked to retaining Glaxo, however, time is running out and despite advertising he has not found another buyer for the company.
Ironfirm therefore believe he will be forced to accept this kind of offer or they will perhaps pursue an alternative strategy through established contacts Excel have with Glaxo.”
77.	Neither Mr Squibb nor Mr Shepherd had any recollection of the discussion at this meeting, but there is no reason to think that the note does not broadly reflect the discussion. Although not produced immediately after the meeting, because Mr Squibb was seeing many customers who were new to him, it was produced soon after it. At about this time, Mr Shepherd and Mr Tapping had lunch with Mr Tapp and Mr Rogers, and what is recorded in Mr Squibb’s note is probably in part based on what Mr Tapp and Mr Rogers said at this lunch. Certainly they were opposed to any agreement which might mean that they would not be paid the full purchase price, so an earn-out would not have been acceptable.
78.	The reference to “an alternative strategy through established contacts Excel have with Glaxo” suggests that Mr Shepherd and Mr Tapping would use their contacts to assess the prospects that the contract would be renewed. They could, moreover, gain substantial comfort from other factors: the period between an acquisition of Tarvail, likely to have been no later than June 2001 and perhaps earlier, and the renewal date in 2002; Mr Tapp’s continued and active involvement in the business after the acquisition; and the continued employment of Mr Dalton and Mr Ede who had day to day control of the contract and the daily contacts with Glaxo personnel. I am satisfied that Mr Shepherd and Mr Tapping would not have been deterred from purchasing Tarvail by the risk of non-renewal of the contract, and would not have insisted on either an earn-out provision or some form of absolute warranty. 
79.	In a letter dated 6 November 2001 to Mr Tapp, Mr Rees-Williams reported that his efforts to get a response from Mr Shepherd and Mr Tapping had come to nothing, adding:
“I’m sure that they will eventually come up with an offer but it will be heavily linked to a renewal of your Contract with Glaxo and I have serious reservations as to the strength of the offer, given the amount of time that has elapsed.”
I accept Mr Shepherd’s evidence that the reference to any offer being heavily linked to a renewal of the Glaxo contract does not reflect any conversation he had with Mr Rees-Williams or Mr Tapp. Mr Rees-Williams could not remember being told this by Mr Shepherd, and his comment is likely to have been influenced by the recent feedback from possible purchasers to which he later refers in the letter. By this time Mr Shepherd and Mr Tapping were absorbed with dealing with the problems at Excel, and the acquisition of Tarvail was no longer on the cards.
80.	My conclusion is that 4 Eng has established on the balance of probabilities that it would have been able and willing to purchase Tarvail, on the payment terms set out in its offer of 5 November 2000 and with no warranty or other protection as regards the business with Glaxo beyond a warranty in terms similar to that given by the defendants on the sale of Excel.
Would Mr Tapp and Mr Rogers have sold Tarvail to 4 Eng?
81.	The question is then to assess the chances that Mr Tapp and Mr Rogers would have sold their shares in Tarvail to 4 Eng. 4 Eng rely on a number of matters as showing that there is a high degree of likelihood that they would have done so. First, they wanted to sell. They had engaged Avondale to market Tarvail. In his evidence, Mr Tapp made clear their wish to sell: Mr Rogers wished to enjoy retirement and, while Mr Tapp was interested in continuing to work in the business for some time after a sale, he wanted to sell if the price was right. Secondly, Mr Tapp and Mr Rogers liked Mr Shepherd and Mr Tapping and their commitment to the business. Thirdly, they accepted the terms offered in the letter dated 5 November 2000 and reflected in draft heads of agreement sent on their behalf by Avondale in August 2001. Mr Rees-Williams advised them to accept the terms, because there was little other interest and the terms met the requirements as to the total price and the deferred consideration not being performance-related. In the experience of Mr Rees-Williams, once the price and payment terms had been agreed, agreement on other terms usually follows. As he put it is “the largest share of what has to be done”. Fourthly, there were no other offers in late 2000 or in 2001. Fifthly, during 2001 Mr Rees-Williams on behalf of Mr Tapp and Mr Rogers pressed Mr Shepherd and Mr Tapping to progress the deal.
82.	These are strong indications that Mr Tapp and Mr Rogers were seriously interested in selling Tarvail to 4 Eng on the agreed terms contained in the letter dated 5 November 2000 and cumulatively provide a solid basis for concluding it is likely that they would have done so, in the absence of any considerations to the contrary.
83.	The defendants rely on a number of matters. First, while Mr Tapp gave evidence, Mr Rogers did not do so, and it was submitted that there must be room for some doubt as to whether his approach would have been the same as Mr Tapp’s. There is, however, no basis in the documents or in the evidence of Mr Tapp and Mr Rees-Williams to suggest that his approach would be any different. On the contrary, Mr Tapp gave evidence that they thought alike and had the same basic aim of selling the company as a going concern.
84.	Secondly, it was suggested that Mr Tapp and Mr Rogers would not have been prepared to give even a very limited warranty such as given by the defendants on the sale of Excel, that they were not aware of any reason which would cause Mars to reduce or terminate its business with Excel. Mr Tapp’s oral evidence was that he and Mr Rogers had not given a warranty of this sort on the sale of Tarvail in 2006, but when asked whether he would have been prepared to say that he was not hiding anything in relation to Glaxo, he replied “There was nothing to hide. We were upfront right from day one” and said that giving a written confirmation “wouldn’t have posed a problem at all”. I can see no reason why, as willing sellers, Mr Tapp and Mr Rogers would not have given this warranty, limited as it is to their actual knowledge, nor any reason why they might have been advised against doing so. They would surely know that a refusal to give such a warranty would create suspicions in the mind of the buyer, which in the case of 4 Eng would I think have prevented the sale. The fact that the measured terms contract was due for renewal in 2002 would not pose a problem, because it was a fact well known to Mr Shepherd and Mr Tapping which could have been included in a disclosure letter in the usual way or even as an express qualification to the warranty.
85.	Thirdly, it was submitted that Mr Tapp or Mr Rogers would or might not have agreed to the provision by Tarvail of the financial assistance for the purchase of its shares required by 4 Eng’s financing plans. As with the acquisition of Excel, the assistance would have required approval in accordance with sections 155-158 of the Companies Act 1985. In cross-examination the detail of these proposals in the form of a hypothetical example was put to Mr Tapp. It was evident that he had not previously examined them and certainly never taken advice on them. In answer to the question whether he would have been prepared to agree to these terms, he replied without qualification, in the negative. Mr Tapp was not told that the statutory approval procedure would require a positive accountants’ report and, in re-examination, he said that provided his solicitors advised him that he would not be exposed at all, in any form or fashion, he would have gone along with it. He went on to say that his only concern was to guarantee that under no circumstances would he and Mr Rogers not be paid.
86.	No case was made that Tarvail would in fact have had any difficulty in complying with the statutory procedure for approval of the financial assistance. Once advised by solicitors and accountants, I do not think there would have been any real prospect that Mr Tapp and Mr Rogers would refuse to give their approval. There are no grounds for doubting that it could lawfully be approved and, without such financial assistance, 4 Eng could not have purchased Tarvail.
87.	There is, in my judgment, more substance in the remaining two matters advanced by the defendants. Those relate to the position of Mr Dalton and Mr Ede and to the security which Mr Tapp and Mr Rogers may have required for the deferred consideration.
88.	Mr Dalton and Mr Ede worked full-time in the business and were responsible for the day to day management of its contracts. They were also directors and between them held ordinary shares which carried no votes but entitled them to one-sixth of any dividends which were paid. It was common ground that they were of vital importance to the success of the business and that 4 Eng would have been very anxious to retain their services. I doubt whether 4 Eng would have purchased Tarvail unless sure that they would remain. It was therefore imperative to obtain not only their agreement to the sale as directors of Tarvail but also, more importantly, their agreement to remain with it. When Tarvail was sold in 2006 they became directors of Southern Bear plc, the acquiring company, and received shares in it, listed on the alternative investment market of the Stock Exchange. They had between 2002 and 2006 received substantial sums by way of dividend from Tarvail.
89.	Neither side called Mr Dalton and Mr Ede to give evidence. The likelihood is, in my judgment, that Mr Dalton and Mr Ede would have agreed to remain with Tarvail, provided they retained their shares or an equivalent financial interest in it. As Mr Shepherd said, people do not lightly leave their jobs where there is no obvious alternative and Mr Shepherd and Mr Tapping would have been very concerned to retain them. There is no support for the defendants’ suggestion that in 2001 they would have made their own bid for Tarvail or for the Glaxo work. It is of course possible, but I think no more, that they would have sought to negotiate better terms which might or might not have been agreed. It is also possible that they would simply have refused to agree to the sale, threatening to resign if it proceeded. Unless resolved to everyone’s satisfaction, 4 Eng would have been then unlikely to purchase the shares of Mr Tapp and Mr Rogers.
90.	As to security for the deferred consideration, it is, I find, clear that this would have been a matter of concern to Mr Tapp and Mr Rogers. Mr Tapp was very clear in his oral evidence that he did not wish to run risks on this. Having said that, his disposition was to think that agreement could have been reached:
“Well, it was obviously something we could have sat down and discussed. Whether we would have had any agreeable outcome or not, I can’t say. But I’m sure we could have – you know, had we had a conversation, if Mr Shepherd and Mr Tapping wanted to purchase Tarvail, Bernie and I wanted to sell, so somewhere along the line it’s reasonable to assume that we would have come to an agreeable conclusion. What that would have been, who knows.”
91.	In my judgment, Mr Shepherd and Mr Tapping would have had to offer personal guarantees of the deferred consideration and would have been prepared to do so. Well-advised by their solicitor, Mr Tapp and Mr Rogers would have sought reassurance that the personal assets of or available to Mr Shepherd and Mr Tapping would provide adequate backing for the guarantee. Those assets would have been reduced by the additional funds needed for the purchase of Tarvail. I consider it likely to a reasonably high degree that the assets would have been considered by them to be sufficient and, as Mr Tapp put it, they would have come to “an agreeable conclusion”.
92.	Taking account of all the relevant factors to which I have referred I would estimate the chances that Mr Tapp and Mr Rogers would have sold their shares in Tarvail at 80 per cent.
4 Eng’s loss
93.	The next issue is to consider the losses suffered by 4 Eng as a result of not being able to purchase the shares of Mr Tapp and Mr Rogers in Tarvail in 2001. There is no reason to suppose that it would not still own Tarvail, so the right approach is to assess, first, the income which it would have derived from Tarvail from its acquisition in 2001 to the date of trial and, secondly, what the capital value of those shares would be at that date. There are in evidence the audited accounts of Tarvail for each of the relevant years up to and including the year to 31 March 2007. There is also in evidence the report of a single joint expert of David Djanogly FCA on these issues, together with supplemental reports addressing questions raised by the parties. Mr Djanogly was not required by either side to give oral evidence.
Loss of income from Tarvail
94.	The results as shown by the accounts reflect the ownership and control of Mr Tapp and Mr Rogers, with Mr Dalton and Mr Ede, of the business. Although Tarvail was acquired by Southern Bear plc in November 2006, the results for the year to 31 March 2007 are very largely dependent on the business done and contracts made while still under the control of Mr Tapp and Mr Rogers. There are no results available for the year to 31 March 2008, so Mr Djanogly has proceeded on the basis that the results for that year are the same as those for the previous years. There is therefore no boost to the figures attributable to the ownership of Southern Bear.
95.	I have serious misgivings as to whether it is appropriate to use the 2007 results for 2008. There was an increase of 97 per cent in turn over from 2006 to 2007, with a 67 per cent increase in operating profit. Mr Djanogly comments in his report that 2007 “appears exceptional in any event”. In a share placing document issued by Southern Bear plc in August 2007 the performance of Tarvail for the year to 31 March 2007 was said to be exceptional as a result of two significant contracts and it was stated that sales in 2008 were expected to be lower as there was no guarantee that Tarvail would win comparable large contracts. The right course, in my judgment, is to assume that the results for 2008 were the maintainable earnings calculated by Mr Djanogly.
96.	Based on these figures for gross revenue and deductions shown in the accounts for the years ended 31 March 2002 (pro-rated from 29 June 2001) to 31 March 2007 and extrapolated to 31 March 2008, Mr Djanogly calculates the operating profit for the period as a total of £5,045,591. From those figures Mr Djanogly has added back the directors’ remuneration (for Mr Tapp, Mr Rogers, Mr Dalton and Mr Ede) shown as a deduction in the accounts and then deducted as an expense remuneration for Mr Dalton and Mr Ede. Subject to the figures taken for 2007/2008, there is no issue on those adjustments and it produces an adjusted net profit for the whole period of £5,835,061.
97.	A deduction is then required for interest charges on the term loan, overdraft facility and revolving debt facility which would have been provided by Lloyds. On the basis that the term loan ran its full course of five years, the defendants deduct a total of £130,000 for interest, based on figures in the business plan. Mr Shepherd gave evidence that he and Mr Tapping would have sought to repay these loans and facilities as soon as possible. The term loan could be prepaid without a penalty and, given the strong results in fact achieved by Tarvail, he estimated that the interest charges would have been a total of £70,000. I accept Mr Shepherd’s evidence.
98.	The next issue is what, if any, deduction there should be for a management charge payable to 4 Eng. It is, I think, safe to assume that there would have been a management charge. Remuneration was payable by 4 Eng to Mr Shepherd and Mr Tapping which in fact ran at a rate of about £123,000  for both of them from 2001 to 2004. 4 Eng would need to meet other expenses and it would be entitled to charge a reasonable market rate for the services of Mr Shepherd and Mr Tapping. As explained below, a larger management charge than could be justified on that basis would not, to the extent of any excess, be a deductible expense for tax purposes. I have heard no evidence on the size of management charge which could be justified. I doubt very much whether a charge of £29,000 per month could have been justified. The defendants put forward a charge of £24,000 per month as the maximum reasonable charge and I will accept that figure. 
99.	In the period from 2002 to 2006 Mr Dalton and Mr Ede were paid substantial dividends. The total amount is not known, but it appears that they received £187,000 for the years ended 31 March 2003 to 2006 and, but for the acquisition of their shares by Southern Bear plc, would have been entitled to over £96,000 for the year to 31 March 2007. The parties were content to proceed on the basis, as seems right to me, that at least the same amounts would have had to be paid to them over the same period if 4 Eng had acquired Tarvail. If in any period there were insufficient profits to pay the sum for that year by way of dividend on their ordinary shares, another means would have been found to pay it, for example as a bonus. As a genuine reward paid to full-time employees, a bonus would not in those circumstances be a disguised, and hence illegal, dividend. This figure is a minimum only. They would have retained their shares and would have received one-sixth of any dividends.
100.	In figures put by Mr Leech to Mr Shepherd in cross examination, it was suggested that cash available for payment in one way or another to 4 Eng would have been reduced by £20,000 pa for investment in plant and equipment. Mr Shepherd rejected this suggestion by reference to Tarvail’s accounts which, apart from one purchase of an asset (probably a car), showed minimal investment of this sort. I accept that a figure for investment in plant and equipment should not be taken into account.
101.	The incidence of tax requires consideration. Mr Shepherd accepted in evidence that some corporation tax would have been payable by Tarvail, but considered that it could be mitigated by, in particular, increases in the management charge. The statutory framework provides that a company pays corporation tax on its profits: sections 6 and 8 of the Income and Corporation Taxes Act 1988. This is not affected by membership of a group of companies, save as regards matters such as group relief which do not arise in this case. In computing profits, disbursements and expenses are deducted only if “wholly and exclusively laid out or expanded for the purposes” of the business: section 74(1)(a) ICTA 1998. This is applied to payments of disbursements and expenses to the extent that they can be so described.
102.	Accordingly a management charge would be allowable to the extent it could be considered a proper sum for the services provided. By contrast, if and to the extent that it was used as a means of absorbing profits and paying them to its holding company, it would not be allowed as a deductible expense for these purposes.
103.	It follows that the profits of Tarvail, computed after deduction of expenses meeting the wholly and exclusively test, would have been subject to corporation tax at a rate of 30 per cent. Dividends could be paid out of post-tax profits. For present purposes, it may be assumed that virtually all available profits would have been distributed by way of dividend.
104.	An issue which arises for consideration is the account, if any, to be taken of any tax payable by 4 Eng. If dividends had been paid to 4 Eng, they would not have been subject to corporation tax: section 208 ICTA 1988. The underlying rationale for this is that the dividends would have been paid out of post-tax profits. If the damages are subject to tax in the hands of 4 Eng, this is truly the reverse of the rule in British Transport Commission v Gourley [1956] AC 185 where damages will be reduced to take account of taxation where (a) the sums for whose loss damages are awarded would have been subject to tax and (b) the damages are not subject to tax. In order to compensate 4 Eng for the loss of tax-free dividends, in circumstances where the damages will be subject to tax, the damages must be grossed up to take account of the tax. This does not apply to the damages to the extent that they compensate 4 Eng for loss of net management charges, which would have been subject to tax in 4 Eng’s hands.
105.	Both sides agree that whether the damages are taxable may not be a straight forward question and neither side has put forward a clear submission either way. The approach set out by Diplock LJ in London & Thames Haven Oil Wharves Ltd v Attwool [1967] Ch 772 that damages received by a trader are taxable if they compensate for a loss of income which would have been credited to income suggests that the damages are likely to be subject to tax. The exemption in section 208 does not seem to provide a solution because it applies specifically to dividends paid by a UK-resident company. To meet the uncertainty inherent in this issue, 4 Eng offers an undertaking that if all sums by way of damages, interest and costs are paid to it, it will seek a ruling from HMRC as to its liability to tax on these damages and, if either no tax is payable or tax is payable in a smaller sum than the grossed-up element ordered by the court, it will return the sum paid on account of tax or the excess. This offers a practical way forward and on that basis I shall order that the damages attributable to the loss of dividends from Tarvail should be in a grossed-up amount. 
Capital loss
106.	There remains the claim in respect of the capital value of Tarvail as at 31 March 2008. For the purposes of assessing the value of Tarvail, Mr Djanogly considers the price/earnings method to be the most appropriate as Tarvail would in his view have been purchased for its potential earnings stream. Neither side takes issue with this approach nor with his choice of a price/earnings ratio of 3.75 for valuation as at 2008. Mr Djanogly has calculated maintainable earnings of Tarvail for the purpose of the valuation and applied his chosen ratio to a weighted average of the maintainable earnings for the three years to 31 March 2007. He arrives at a valuation of £4,383,259 which has not been challenged on grounds of methodology or calculation. By way of cross-check, Southern Bear plc purchased Tarvail for £3.6 million in November 2006, on the basis of results which did not include the steep rise in profits experienced in the full year to 31 March 2007. The defendants challenge the absence of any remuneration for directors other than Mr Dalton and Mr Ede in the calculation of maintainable earnings. Mr Djanogly has taken a deliberate decision and explained his reason as being that from 2004 Mr Dalton and Mr Ede took on day to day responsibility for running Tarvail. I consider that I should accept Mr Djanogly’s evidence that this is the right approach. From the valuation of £4,383,259 must be deducted the purchase price on original acquisition, £950,000, and acquisition costs of £72,000, making a figure of £3,361,259.
Reduction for contingencies
107.	In considering the damages to be awarded for the loss of both income profits and a capital profit on Tarvail, the court must consider the commercial contingencies which might have resulted in lower profits for Tarvail under 4 Eng’s ownership than those in fact achieved under the continued ownership of Mr Tapp and Mr Rogers. If there is some real prospect that the profits might have been lower, a discount should be applied. This is a separate exercise from estimating the chance that 4 Eng would have acquired Tarvail. Even in cases where it is established on a balance of probabilities that an alternative business would have been acquired some discount may well be appropriate as regards the profits: see, for example, East v Maurer. The present case is unusual, however, both because the alternative business in question is clearly identified and because the profits for the relevant period are known and certain. The only question is whether there is some real prospect that the profits would have been less under 4 Eng’s ownership.
108.	I can see no good reason to think that the outgoings would have been greater than they were. There must be some question as to whether Tarvail would have achieved the same level of turnover under 4 Eng’s ownership as it did under the ownership of Mr Tapp and Mr Rogers. They were its founders who had built up the business and who were well known to and doubtless trusted by Glaxo and its other customers. While in most circumstances a sale by people in that position could well justify a significant discount, there are strong countervailing considerations. First, Mr Tapp was anxious to remain actively involved in the business, for at least a year after its acquisition by 4 Eng. Secondly, Mr Dalton and Mr Ede are presumed for these purposes to have remained with Tarvail. Thirdly, Mr Tapp in his own evidence rather downplayed any significance in the personal involvement of Mr Rogers and himself. By 2001 they had taken a back seat on a day to day basis and Mr Dalton and Mr Ede, along with Mr Tapp and Mr Rogers had a personal relationship with Glaxo. When asked about the significance of their personal reputation with Glaxo, he replied:
“Yes, we – it’s like anything else, when you start it from nothing, you have to put yourself into it and you get the work based upon yourself. As the company grows you become less and less of a figure, to the extent where probably at the end of the day nobody even knows who you are.”
Additionally, much of the increase in turnover from 2002 resulted from an increase in production by Glaxo at its plant at Dartford which would have occurred irrespective of the identity of Tarvail’s owners. Nor does it appear that securing the two new profitable contracts in 2006/2007 was particularly the result of the effects or contacts of Mr Tapp or Mr Rogers. 
109.	In my judgment, some discount should be made for two contingencies, each of which is more than fanciful. First, there might have been a decline in turnover as a result of Mr Tapp and Mr Rogers ceasing to own and ceasing therefore to being identified with Tarvail, particularly after Mr Tapp ceased or greatly reduced his work for Tarvail. Secondly, there is a risk that at some point Mr Dalton and Mr Ede would have left to form their own business or work for a competitor, perhaps taking at least some of the Glaxo business and in any case weakening Tarvail’s position with Glaxo. As against that, even if they did leave, Mr Shepherd and Mr Tapping would have had time to establish good links with Glaxo. I conclude that overall there should be a discount of 20 per cent to Tarvail’s profits and hence also to the valuation of Tarvail as at 31 March 2008.
Double recovery
110.	Having held that 4 Eng is entitled to substantial damages for the loss of the chance to acquire and own Tarvail, it is necessary to consider which of the other heads of loss should be disallowed in order to prevent double recovery. The sum of £550,000 paid to the defendants on completion of the purchase of Excel and the acquisition costs amounting to £72,371.50 are recoverable. They were funds paid out by 4 Eng and there is no double counting because the claim in respect of Tarvail gives credit for the purchase price and costs which would have been paid on its acquisition. Subject to one point, an award of damages in respect of the remuneration payable to Mr Shepherd and Mr Tapping should not be made because such remuneration would have been payable if 4 Eng had acquired Tarvail. The qualification is that the chance of acquiring Tarvail has been estimated at 80 per cent and therefore 20 per cent of the remuneration should be recovered. The cost of the fraud investigation was incurred by 4 Eng as a result of the defendants’ deceit and would not have been incurred if the defendants had not been guilty of deceit and if 4 Eng had acquired Tarvail. An award of damages for these costs does not therefore involve double recovery. 4 Eng rightly accepts that in computing its claim for the loss of income from Tarvail it must give credit for the management charges which it received from Excel by way of set off against the inter-company loans. Again this is subject to the qualification that the credit should be for 80 per cent of the management changes in keeping with the value of the lost chance at 80 per cent.
111.	I will therefore award damages as follows (a) £550,000, being the sum paid on completion of the purchase of Excel to the defendants; (b) £72,371.50 in respect of the acquisition costs; (c) £624,888 in respect of the costs of the investigation into the defendants’ fraud and corruption; (d) damages for loss of a chance as regards Tarvail, representing the loss of income to 4 Eng from 29 June 2001 to the date of trial, which for convenience may be taken as 31 March 2008 and the loss of capital profit on an investment in Tarvail as at 31 March 2008. I will invite the parties, if possible, to agree the amount of this last item of damages, applying the principles set out in this judgment.