Court refuses permission to appeal in Wine Enterprise Investment Scheme v Crowe UK costs ruling

The High Court has refused permission to appeal to both the liquidators of the Wine Enterprise Investment Scheme and their opponent, auditor Crowe UK, in a further ruling following the substantive judgement handed down in March in the long-running professional negligence claim over the firm's failure to detect the so-called Lilliput fraud.

Richard Spearman KC, sitting as a deputy judge of the Chancery Division, had earlier found Crowe liable for breach of duty but awarded damages of only around £130,000, later reduced for contributory negligence, against a claim that had sought a far larger sum across seven audit years. Both parties sought permission to appeal aspects of the outcome, and the deputy judge's latest judgement, following a hearing on consequential matters, addressed nine grounds advanced by the company and two by Crowe.

The company's central complaint concerned the scope of the case it had been permitted to run at trial. It argued that Crowe should have reported the discovered fraud directly to shareholders, or that shareholders would have learned of it through a statutory statement of reasons for resignation under sections 519 to 522 of the Companies Act 2006. The deputy judge had held at trial that these arguments required permission to amend the pleadings, which he refused, both because they constituted new and time barred causes of action and because they had no real prospect of success in any event. Refusing permission to appeal, he rejected the company's contention that he had overridden a shared understanding between the parties as to the scope of the pleaded case, finding instead that the evidence of Crowe's solicitor showed no such common ground had existed. He was similarly unpersuaded that his reliance on ICAEW guidance material found after closing submissions, without inviting further argument, had rendered the trial unfair, noting the weight placed on that material was limited and largely confirmatory of evidence already before the court.

On causation, the company sought to challenge findings about how shareholders would have reacted had they learned of the fraud, and Crowe's obligations under the Proceeds of Crime Act 2002 and defamation risk in framing any disclosure. The deputy judge described this as an attempt to reargue findings of fact reached after hearing extensive evidence, which an appellate court would be poorly placed to revisit. He also dismissed a challenge to his costs analysis for the liquidation itself, and a complaint that he had wrongly deprived the company of a full award of interest.

The company's most substantive costs challenge concerned the deputy judge's finding that Crowe should be treated as the successful party for the period before its Part 36 offer, despite Crowe having made no settlement offer during that time and having lost on the central liability issue. The deputy judge maintained that his approach followed established Court of Appeal authority on identifying the substantive winner, rejecting the company's reliance on Fox v Foundation Piling as having been displaced by later cases including Magical Marking v Ware & Kay.

Crowe's cross-appeal sought indemnity costs for both periods of the litigation, arguing the claim had been speculative and the company's conduct unreasonable, and that the Part 36 offer should have triggered indemnity costs once rejected. The deputy judge rejected the suggestion that he had wrongly treated weakness of the claim and rejection of the offer as cumulative rather than alternative grounds, finding his reasoning had properly addressed both periods and that his conclusions fell within the wide discretion afforded to a trial judge on costs.

Permission to appeal was refused to both parties on all grounds.