Interleasing (UK) Ltd v Morris

A contractual retention mechanism requiring a written opinion from experienced counsel operates as a filter or certificate for a notified warranty claim pending final adjudication. Unless the agreement makes it necessary, no term is implied that the opinion must be based on true facts or proper instructions, and the court should not conduct interlocutory litigation about those matters. The required bona fide statement may be implicit. A reasonable chance of success means a real, more-than-fanciful prospect capable of reasoned assessment, not a better-than-even chance or a claim a reasonable person would choose to pursue. Counsel may rely on solicitors’ instructions and expert material absent a glaring error. The certified and pleaded claims need share the essential cause of action, while factual refinements remain permissible. Instructions are not automatically disclosable merely because the opinion refers to them.

A share sale agreement required part of the consideration to be held in a retention account against warranty claims. Under paragraph 10.4 of Schedule 9, the claimant relied on a written opinion of counsel of more than ten years’ call concerning a net asset value warranty claim based on alleged overvaluation of goodwill, and £3,369,000 was retained. The defendant counterclaimed for release of the money, alleging that the opinion had been based on incomplete or improper instructions and seeking disclosure of those instructions.

Lightman J struck out the alleged implied term, refused disclosure, and rejected challenges to the opinion’s sufficiency. The defendant appealed. The issues included the construction and effect of the certification mechanism, the meaning of its requirements, the identity required between the notified and pleaded claims, and whether the privileged instructions were relevant.

The appeal was dismissed unanimously. The order of Lightman J was upheld, with costs summarily assessed at £20,000. Permission to appeal to the House of Lords was refused.

1. Effect of the opinion. Paragraph 10.4 of Schedule 9 created a contractual filter or certificate intended to regulate retention of part of the consideration before the underlying warranty dispute had been finally determined. No term was necessary requiring counsel to receive true facts or proper instructions. Such a term would conflict with the scheme, which contemplated disputed facts and timely proceedings followed by final determination at trial.
2. Interlocutory challenge and disclosure. At the interlocutory stage the court’s role was to ask whether the opinion, on its face, fulfilled the contractual requirements, rather than investigate the truth of the facts or the propriety of the instructions. Applying the approach in The Queen v Secretary of State for Transport ex parte Factortame [1997] 9 ALR 591, the relevant issue was compliance with paragraph 10.4. The instructions were not relevant merely because counsel referred to them, although a different case might arise where an opinion simply incorporated unstated facts from the instructions. It was therefore unnecessary to decide waiver of privilege.
3. Bona fides. The agreement did not require an express statement that the claim was bona fide. The opinion’s statement that there was no reason to question the claimant’s bona fides, read with its conclusion that the claim had a reasonable prospect of success, was a clear and unequivocal verification.
4. Reasonable chance of success. The contractual threshold meant a real prospect of success, more than fanciful and capable of reasoned assessment. It did not require a greater-than-even prospect, nor depend on whether a reasonable person would pursue the claim, since that decision also depends on costs, timescale, amount at issue and recoverability.
5. Basis and identity of the claim. Counsel could accept factual material supplied by solicitors and expert accountants, absent a glaring error, and was not required to investigate every core fact personally. The notified and pleaded claims needed to share the essential cause of action, not every factual detail. The variations concerning the goodwill of the N&M Business were factual refinements of the same net asset value warranty claim.

Jones v Sherwood Services Ltd [1992] 1 WLR 277, British Shipbuilders v VSEL Consortium Plc [1997] 1 Lloyd's Law Reports 106, and Veba Oil v Petrotrade [2002] 1 All ER 703 were distinguishable because they concerned different questions or failures to comply with specified expert requirements. Jacob J added that he saw no proper basis for criticism of counsel’s opinion.

• Court of Appeal (Civil Division): Appeal dismissed. The order of Lightman J was upheld; costs were summarily assessed at £20,000 and permission to appeal to the House of Lords was refused.
• High Court (Chancery Division): On 30 May 2002, Lightman J struck out the pleaded implied term, refused disclosure of the instructions to counsel, and rejected challenges to the sufficiency of the opinion.