Daniel Toledano QC, Nehali Shah and Henry Hoskins, instructed by Reynolds Porter Chamberlain LLP, have successfully defended Ernst & Young against a professional negligence claim for £25m.
The claim was brought by the Bell Leisure Group, which purchased Esporta Health & Fitness Clubs in 2007 for £470m and later alleged that Ernst & Young had been negligent in carrying out financial and commercial due diligence work for them relating to the purchase.
In dispute were issues of breach, causation and loss. On breach, the central issues were whether Ernst & Young had exercised reasonable care, or whether their findings presented an overly positive outlook of Esporta’s financial and commercial prospects. The question of causation focused on whether the alleged breaches would have made any difference to the claimants’ decision to buy Esporta, or their ability to finance the purchase. As regards loss, the parties disputed the market value of Esporta at the time of the purchase, and hence whether the claimants had paid over the odds for the business.
Ernst & Young prevailed at trial on all three issues of breach, causation and loss. Phillips J held that Ernst & Young did not act negligently in any respect. The Judge found that the findings in Ernst & Young’s financial and commercial due diligence reports were entirely reasonable and complete and that the claimants’ criticisms had no merit. Phillips J also held that the alleged breaches would not have affected the claimants’ willingness or ability to complete the purchase, so causation was not made out. In any event, the Judge found that the price the claimants paid for Esporta was very close, if not equal, to its market value, so there was no loss.
Ernst & Young were awarded their costs in relation to the large majority of the proceedings to be assessed on the indemnity basis, and the remainder of their costs to be assessed on the standard basis. Phillips J held that indemnity costs were appropriate because, among other reasons, this was a speculative claim designed to put commercial pressure on a defendant with deep-pockets in order to force a settlement.
The full judgment can be found here.