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Paul Denham v Mansur Nowman (2001)


No liability yet existed as between the third defendant accountants and the first to third claimants, as they had yet to suffer any loss as the result of allegedly negligent misrepresentations as to the financial position of the second defendant.


Application by the third defendants, a firm of accountants ('the firm'), for the summary dismissal of the claim against them pursuant to CPR Part 24. The first defendant ('N') was a director of the second defendant tour operator ('SRTT'). The first claimant ('D') alleged that in 1999 he was persuaded by N to participate in a new tour business to be operated by the newly-created fourth claimant ('ST'), which participation took the form of his subscription, through the second and third claimants, for the entire issued share capital of ST. D further alleged that he agreed to enter into the new venture in reliance, inter alia, upon representations from the firm as to the financial worth of SRTT, which in fact negligently and grossly understated the liabilities of SRTT. By this action the first to third claimants alleged that they had suffered loss as a result of the negligent misrepresentations by the firm, in that: (i) in response to conditions imposed by the Civil Aviation Authority: (a) N had given a personal guarantee in respect of ST's liabilities; and (b) the second and third claimants purchased a performance bond and also gave an undertaking in respect of the due performance of ST's liabilities; and (ii) the second and third claimants transferred substantial sums to ST to meet its supposed operating costs, most of which, it transpired, had subsequently been removed by N in order to meet the liabilities of SRTT. The firm contended that the action was bound to fail as a matter of law, since either the first to third claimants had suffered no loss (the guarantee, bond and undertaking not having yet been called on) or, even if they had, it was not loss for which the firm was responsible.


(1) None of the first to third claimants was presently any worse off as a result of having given the guarantee, bond and undertaking than they were before they gave them. No loss would be sustained by them unless and until a call was made under those documents. It was inappropriate to allow the action to continue as a claim for an indemnity in respect of any liability that might arise, since any indemnity would, at the present stage, necessarily relate to uncertain future losses. (2) Whatever the terms on which ST had been funded, something of value must have been acquired by the first to third claimants in return for their investment. The claim was not properly framed as one to recover the entirety of the sums invested by way of damages. (3) If ST was worth less than it otherwise would have been as the result of the misapplication of its funds by N, that was not something for which the firm could be held accountable.
Application granted. Action dismissed as against the third defendant.

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19 Feb 2001

Chancery Division
John Martin QC

LTL 26/2/2001 : [2001] Lloyd’s Rep PN 623


Practice areas
Company, Partnerships & LLPs
Professional Negligence