Pearce v (European Reinsurance Consultants and Run-Off Ltd & Ors

On a strike-out or summary-judgment application, the court must assume the pleaded facts are true and ask whether the claim has a real prospect of success. A loss may fall within the scope of a professional duty where the pleaded facts suggest that the duty was deliberately or materially diverted from its proper purpose. Whether litigation costs are recoverable as damages is fact-sensitive and should not be determined summarily where the applicable assessment rules and the reasons for earlier reductions remain unclear. A claim for distress alone is unsustainable, but the pleaded facts may support general damages for reputational or credit loss.

The claimant alleged that the defendants had mishandled the valuation of his shares in a quasi-partnership company and had contributed to bankruptcy proceedings brought against him. He claimed damages against the third defendant, the company’s auditors and valuers, including the alleged loss in share value, unrecovered bankruptcy costs, financing losses, inconvenience and distress.

The third defendant applied under CPR Part 3.4(2)(a) and Part 24.2 to strike out the claim or obtain summary judgment. For the application, the pleaded duties and breaches were accepted. The central issues were whether the pleaded losses were legally recoverable and whether the costs and other heads of loss could be disposed of summarily.

1. Application largely refused. The court proceeded on the assumption that the pleaded allegations were true and that the pleaded duties and breaches were sustainable. The claim could not be said to be bound to fail or to have no real prospect of success merely because the claimant might have alternative remedies concerning the share transfer.
2. The claim for the alleged loss in share value was not a claim for reflective loss. It was advanced on the basis that a proper valuation under the articles would have produced a higher transfer price. The possible right to set aside the transfer did not deprive the claimant of a damages claim against the valuer. The claimant would, however, have to establish the relevant counterfactual, including whether the purchase would have occurred at the higher valuation.
3. The scope-of-duty question concerning bankruptcy costs was fact-sensitive. The pleaded case was that the valuer had allowed its role to be perverted in order to assist the company and its controller in bankrupting the claimant. It could not be determined at this stage that bankruptcy costs were outside the kind of loss for which the alleged duties were owed.
4. The question whether costs recovered or assessed in the bankruptcy proceedings barred a damages claim against the valuer raised unresolved issues concerning the standard and indemnity bases, proportionality under CPR Part 44.4(1) and (2), and CPR 48.8. The court required fuller factual investigation, including why particular costs were reduced or disallowed. The issue was therefore unsuitable for summary determination.
5. The pleaded claim for damages for distress was struck out, applying Johnson v Gore Wood. The claimant could nevertheless recast that head as general damages for loss of reputation or credit arising from the bankruptcy order, consistently with Quartz Hill Gold Mining Co. v Eyre.

First-instance decision. The judgment does not state any subsequent appellate history.