Sodi-Tech EDM Limited & Anor v DJM Law Limited

The claim is a professional negligence action against the solicitors for failing to advise on sections 190 and 195 of the Companies Act 2006 in connection with the sale of a company property and the subsequent unfair prejudice petition. The defendant admitted breach of duty but disputed causation, mitigation and the amount of loss. The principal contested issues were the proper quantification of the claimants' mitigation expenditure (including the premium paid to acquire a 50% shareholding) and the scope of expert valuation evidence required to determine whether a minority discount applied and the effect of the buy-back on the claimants' overall position.

The court held that an amendment to a Part 18 response (new [4d]) addressing the claimants' factual justification for the mitigation payment should be permitted: it did not introduce a new cause of action, was not late in the relevant sense, and the claimant would be open to cross-examination on the new pleading. The court further directed that expert evidence was reasonably required and that the parties' experts should answer the valuation questions formulated by the claimants (including open market valuations on specified counterfactuals and valuations of the claimants' shareholdings before and after settlement).

Background and parties:

• The claimants are Sodi-Tech EDM Limited and Mr Peter Capp (director and shareholder). The defendant solicitors acted for the claimants in a transaction by which the company sold property to Mr Capp and his SIPP without the resolutions required by ss.190 and 195 Companies Act 2006. A co-shareholder, Mr Uwe Moeller, later issued an unfair prejudice petition which was settled by a Tomlin order on 22 April 2021 under which Mr Moeller's shares were purchased and his costs paid.

Nature of the claim and relief sought:

• The claimants sued for professional negligence, alleging breach in failing to advise on ss.190 and 195 CA 2006 and claiming losses including (a) a premium alleged to have been paid for Moeller's shares (£471,750 difference between £1,887,000 paid and an asserted true market value of £1,415,250), (b) costs incurred in defending the petition and related matters, and (c) costs ordered payable under the settlement.

Procedural posture:

• The defendant conceded breach but denied causation and contended that mitigation, contributory negligence and valuation questions meant no loss was sustained. The defendant served a Part 18 request seeking particulars of the asserted true market value. The claimants sought permission to amend their Part 18 Response to change their factual explanation for accepting the settlement figure in light of differences between a draft and final expert valuation. The parties disputed the scope of expert valuation evidence to be permitted.

Issues framed by the court:

Whether permission should be granted to amend the Part 18 Response by including the proposed new paragraph [4d];

What expert valuation questions are reasonably required under CPR r.35 to resolve the pleaded issues, in particular (i) whether a minority discount applied to a 50% shareholding, and (ii) the open market values of the shareholdings on the relevant dates and counterfactuals.

Court’s reasoning and conclusions:

• The court applied the CPR and authorities on amendments (including Pearce, CNM Estates, Scott v Singh and Elite Property Holdings) and the guidance on expert evidence (British Airways v Spencer). It distinguished factual particulars from evidence and emphasised that the Pleadings must contain concise statements of the facts relied on while evidence may develop those factual explanations.
• New [4d] was not a new cause of action and related to the claimants' factual justification for their mitigation expenditure; permitting it would avoid a discrepancy between pleaded material and the evidence the second claimant intended to give at trial. The amendment did not offend coherence or the real prospect threshold and the claimant would be open to cross-examination on the new pleading.
• On expert evidence, the court held that valuation expert evidence was necessary to determine the net effect of the mitigation expenditure: both the valuation of Moeller's shareholding and the value of the claimants' shareholdings pre- and post-acquisition were necessary to assess the credit the defendants should receive for mitigation. Limiting experts to the defendant’s narrower questions risked failing to provide the trial judge with the information required to calculate loss.
• Accordingly, the court granted permission to amend and directed that experts answer the claimants’ proposed questions concerning open market valuations under specified counterfactuals as necessary to resolve mitigation and loss.

First instance: Permission to amend the claimants' Part 18 Response by including new paragraph [4d] was granted and the parties' valuation experts were directed to answer questions in the form proposed by the claimants. Rationale: the amendment did not introduce a new cause of action, was coherent with the pleaded mitigation case, the claimant would be exposed to cross-examination and expert evidence on valuation was necessary to determine the net effect of the mitigation expenditure and the appropriate credit for the benefit obtained.