Wasps Football Club, Trustees of v Lambert Smith Hampton Group Ltd., Court of Appeal - Commercial Court, May 06, 2004, [2004] EWHC 938 (Comm)

Resolution Date:May 06, 2004
Issuing Organization:Commercial Court
Actores:Wasps Football Club, Trustees of v Lambert Smith Hampton Group Ltd.
 
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Neutral Citation Number: [2004] EWHC 938 (Comm)

Case No: 2002 FOLIO 219

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 06/05/2004

Before :

THE HONOURABLE MR JUSTICE LANGLEY

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Between :

| |IVOR ALEXANDER MONTLAKE, PETER GEORGE YARRANTON AND DONALD WILLS (as trustees |Claimants |

| |of WASPS Football Club) | |

| |- and - | |

| |LAMBERT SMITH HAMPTON GROUP LIMITED |Defendant/Part 20 Claimant |

| |- and - | |

| |NICHOLSON GRAHAM & JONES |Part 20 Defendant |

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Mr D. Railton QC and Mr J. Chapman (instructed by Messrs Nicholson Graham & Jones) for the Claimant

Mr S. Berry QC and Mr E. Johnson (instructed by Messrs Williams Holden Cooklin Gibbons) for the Defendant/Part 20 Claimant

Mr D. Waksman QC (instructed by Messrs Nicholson Graham & Jones) for the Part 20 Defendant

Hearing dates: 17th February –16th March 2004.

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Judgment

The Honourable Mr Justice Langley :

THE CLAIM AND ITS BACKGROUND

  1. This claim is brought by the Trustees of Wasps Football Club, the well-known rugby union club (“Wasps”). The Defendant company (“LSH”) is a company of surveyors and valuers. The Part 20 Defendant (“NGJ”) is a firm of solicitors. NGJ acted for Wasps at the material times.

  2. The claim by Wasps against LSH is for damages for breach of contract and negligence arising out of a valuation of Wasps’ ground at Sudbury, Wembley. The valuation in question was dated 6 March 1996. I shall refer to it as the March 1996 Ground Valuation. It is also referred to in some documents as the third valuation. It valued the ground at £832,500

  3. In September 1995 the Rugby Football Union (“the RFU”) decided that the game in England could go professional. Wasps wanted to do so, if it could. To do so required a substantial injection of funds, particularly to secure playing and coaching contracts but also to provide a ground suitable for the professional game. The first professional season was to be the 1996/7 season. Wasps contemplated a flotation on the AIM market. In the event funds came through an agreement with Mr Christopher Wright the Chairman of Chrysalis Group and the AIM flotation of a company called Loftus Road Plc in the summer and autumn of 1996. Mr Wright’s commercial plan was for the Wasps first (professional) team to play at Loftus Road and share the ground and facilities there with the soccer club, Queen’s Park Rangers (QPR) in which Mr Wright also acquired an interest. The mechanism to achieve this was that all Wasps assets and liabilities including the ground were transferred by a Business Transfer Agreement dated 10 July 1996 to Wasps Rugby Football Club Limited (“WRFCL”) in exchange for 100% of the shares in WRFCL. The ground was transferred to WRFCL at the valuation of £832,500. This transfer was followed, on 5 August 1996, by a share exchange agreement by which Wasps acquired 4,899,999 shares at 50p per share (and one preference share referred to as “the golden share”) in Loftus Road Plc in exchange for all the shares in WRFCL. On 24 October 1996 Loftus Road Plc was successfully floated on the AIM market at a subscription price of 72p per share (67p to members of Wasps).

  4. Unknown to Wasps, on 12th July 1996, Loftus Road Plc received a valuation of the Sudbury ground by DTZ Debenham Tie Lung (Mr Wolfenden). This valuation had been sought for inclusion in the prospectus for the flotation of Loftus Road. It valued the ground at £5.7m.

  5. In early 1997 LSH advised Loftus Road Plc in connection with the possible sale of the ground with residential planning permission. An application was submitted on 6 July 1998 for residential development of 7.5 acres of the ground. It was rejected by Brent Council. The company appealed. A planning inquiry was held in May 1999. The Inspector reported on 27 July 1999. He allowed the appeal and granted outline planning permission subject to various conditions and a Section 106 planning agreement.

  6. Loftus Road Plc sold the ground with the outline planning permission pursuant to a contract dated 23 December 1999 with a developer, Alfred McAlpine Homes Holdings Limited. The gross price was £11.9m and the net proceeds after allowance for costs, including professional fees and section 106 costs, were £8.9m.

  7. It is Wasps’ case that LSH were negligent in making the March 1996 Ground Valuation, and alleged associated representations, because LSH failed to make proper planning enquiries, failed to appreciate that there were prospects of obtaining residential planning permission for the ground and so substantially undervalued it. The value of the ground in March 1996 is alleged, on the basis of Wasps’ valuation expert’s report (Mr Lomax) to have been £3.420m. Shortly before the trial began LSH admitted that they were negligent in preparing the March 1996 Ground Valuation because the valuation should have been an open market valuation (OMV) and not a depreciated replacement cost (DRC) valuation, and because they failed to make proper planning enquiries of Brent Council prior to preparing the valuation and undervalued the ground. It is admitted that there were prospects of obtaining residential planning permission but contended they were nonetheless poor. LSH’s expert (Mr Pryor) values the ground in March 1996 at £1.534m or £1.164m according to whether or not a restrictive covenant supposedly limiting the use of the ground to recreational purposes was to be ignored or taken into account in the valuation.

  8. It is Wasps’ primary case that had they been advised properly about the value of the ground and the prospects of obtaining planning permission they would not have disposed of the ground but kept it and, in effect, reaped the reward which came the way of Loftus Road Plc in 1999. That is all very much in dispute. So is the scope of any duty owed by LSH to Wasps.

  9. LSH (but not Wasps) has brought a claim against NGJ. NGJ acted for Wasps in the disposal of the ground in 1996. LSH alleges negligence against NGJ in various respects and claims a contribution in respect of any liability LSH may have to Wasps.

    THE ISSUES

  10. In broad terms the main issues which arise in the action are:

    i) Whether any loss alleged by Wasps falls within the scope of the duty which LSH owed to Wasps. LSH contends that the sole purpose of the March 1996 Ground Valuation was to provide figures for any Capital Gains Tax (CGT) liability to be calculated on the transfer of the ground for the proposed flotation by Wasps and as Wasps make no claim in respect of CGT and the Loftus Road transaction was not then in contemplation, LSH has no liability.

    ii) At what amount would a non-negligent valuation have valued the ground.

    iii) Whether any misrepresentation as to value was made to Wasps by Mr Mark Rigby in respect of which LSH is liable in damages. Mr Rigby was both a member of a number of Wasps’ Committees, including the Executive Committee, and a director of LSH. He is now (with effect from January 2004) the Chief Executive Officer of LSH.

    iv) What would Wasps have done had they received a non-negligent valuation; in particular would they have excluded the ground from the transaction with Mr Wright in 1996 and sold it later with the benefit of outline residential planning permission.

    v) How are Wasps’ damages to be assessed. In particular have Wasps suffered any loss at all granted the consideration received from the transaction with Mr Wright; is the question to be judged by the balance of probabilities or the loss of a chance; and how should the consideration in fact received be valued and credited.

    vi) Whether Wasps were contributorily negligent or failed to mitigate their loss.

  11. In broad terms, the main issues in the Part 20 proceedings are whether NGJ should have advised Wasps:

    vii) To obtain an open market valuation of the ground and to consider excluding the ground from the transaction with Mr Wright or retaining an interest in any sum which might be obtained from its subsequent disposal;

    viii) That the March 1996 ground valuation was expressed to have been prepared on a mistaken basis as to the terms of a restrictive covenant to which the ground was subject;

    ix) That the golden share entitled Wasps to exercise a right of veto in respect of the sale of the ground by Loftus Road Plc.

    PARTIES, PLAYERS AND WITNESSES

  12. Wasps is and was an unincorporated association with a number of Committees. The ultimate governing body at the time was the Club Council. Beneath that was the Executive Committee (later called the Policy, Finance and Advisory Committee). Other Committees which feature in the story were the Ground Development Committee and the Way Forward Committee formed to address the professional era.

  13. It is notable that in the course of the events giving rise to these proceedings whilst various members of Wasps have found themselves on what might be termed different sides all of them from whom the court has heard have readily acknowledged the enormous hard work and devotion to the interests of the Club the others demonstrated in what were demanding circumstances. They were plainly right to do so. It is, I think, of some relevance that despite the personal and professional skills of those concerned in the management of...

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