An unexpected witness statement coupled with limited evidence of negligence or loss demonstrated the risk of making a speculative negligence claim. The unsuccessful claimant was hit with punitive costs by the judge who said that they were trying to put commercial pressure on their accountant to settle out of court.
The claim was brought by Bell Leisure. It had agreed to buy Esporta Health & Fitness Clubs when it appointed Ernst & Young to provide ‘top-up’ due diligence. Ernst & Young reported that Esporta’s forecasts were too optimistic and slashed the health club management’s growth predictions. Bell went on to complete the purchase, but later claimed that Ernst & Young’s advice was negligent. They said they would have withdrawn their offer or reduced the purchase price if they had been properly advised.
In Court, the case was compromised when Bell Leisure’s main witness admitted under cross-examination that he would “look like an idiot” if he had renegotiated the price for the acquisition.
In the end Bell lost its claim on every count. The judge said that Ernst & Young’s findings were reasonable. He concluded that Bell would have gone ahead with the purchase in any event, and that the purchase price was close to the market value, so there was no evidence that Bell had made a financial loss.
The judge ordered Bell to reimburse most of Ernst & Young’s costs in full. The judge said that this was because the claim was speculative and designed to put pressure on a defendant with deep pockets to settle out of court.
“Whilst this case was eventually won on all points, it goes to show how important witness statements can be in deciding a negligence claim,” said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “The case will be reassuring for professional firms worried that they may be hit with spurious negligence claims just because they carry significant professional indemnity insurance.”