Case No: B2/2002/0592
Neutral Citation Number: [2002] EWCA Civ 1655
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BRIGHTON COUNTY COURT
HH Judge Michael Kennedy QC
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 13th November 2002

Before :

LORD JUSTICE BROOKE
LORD JUSTICE KAY
and 
LORD JUSTICE DYSON
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Between :

	ADRIAN ALAN LIMITED	Claimant/
Respondent	
	-	and –
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	FUGLERS (a Firm)	Defendants/Appellants	

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John Stevenson (instructed by Bosley & Co) for the Respondent
Paul Parker (instructed by Reynolds Porter Chamberlain) for the Appellants

Hearing dates : 12th-13th November 2002
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JUDGMENT : APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)

Lord Justice Brooke : 
1.	This is an appeal by Fuglers, who are a firm of solicitors and the defendants in this action, and a cross-appeal by the claimants Adrian Alan Ltd (“AAL”), who are former clients of that firm, from the judgment of Judge Michael Kennedy QC at the Brighton County Court on 7th March 2002 following the trial of this action.  In his judgment the judge held that AAL were entitled to repayment of £23,911.25, being fees they paid to Fuglers, in circumstances I will describe.  He also held that they were entitled to recover £10,000 as damages for professional negligence in relation to the way Fuglers handled an appeal which AAL sought to bring from an adverse judgment of Arden J in an action in which Fuglers had been acting as their solicitors.  On the other hand, the judge dismissed AAL’s claim for the recovery of £3,000, being a sum they had paid by way of costs to the other side in connection with that appeal after it had been abandoned.  Fuglers now appeal against the first and second of these decisions.  AAL cross-appeals against the third, and also seeks to recover a larger sum as damages in respect of the second.
2.	At the centre of the matters which give rise to this appeal are two men, Mr Michael Landon (a former employee of Fuglers who was to be imprisoned for dishonesty) and Mr Adrian Alan (an antique dealer in Brighton and the moving spirit behind AAL), and a court case concerned with a pair of 150-year old French candelabra.  I will describe the two men first.
3.	Mr Landon was struck off the roll of solicitors in 1979.  In 1981 a firm called Barber Young was granted permission by the Law Society to employ him from year to year, and after two years this temporal condition was removed.  In 1993 he moved to Fuglers where he remained until his sudden disappearance in February 1998. He was later to reappear at a police station in the company of a solicitor, and his prosecution, conviction and imprisonment for offences of dishonesty duly followed.  Although he wrote a letter from prison to Mr Fugler, neither party called him at the trial and the judge placed no weight at all on the contents of this letter.
4.	There was no evidence before the judge which related to the disciplinary offence or offences for which Mr Landon had been struck off the roll.  The judge suggested, although he made no findings on the matter, that they may not have been offences of dishonesty in the light of the Law Society’s later willingness to allow him to be employed by solicitors’ firms.  There was also no evidence about the terms, as to supervision or otherwise, on which the Law Society allowed him to be so employed, and the judge said he did not know the terms of the authority with which Fuglers allowed him to act for their clients or whether they permitted him to use their firm’s notepaper.
5.	In September 1993 Fuglers had three partners and three consultants.  In April 1995 one of the partners left, and in February 1998 a second partner left, although he was immediately replaced.  Between 1995 and 1998 the number of consultants was reduced from three to one.  At the trial the judge did not hear oral evidence from any partner in the firm.  Mr Fugler, who was the only partner throughout the period of Mr Landon’s employment in the firm, signed a witness statement in connection with these proceedings but did not attend to give oral evidence.  The judge was clearly unimpressed by the quality of the medical evidence adduced to him as to the reasons why Mr Fugler was not fit enough to attend court.  Although he admitted his witness statement he did not give it much weight in so far as its contents differed from evidence given by other witnesses.  He said he could not determine whether Mr Landon was employed by Fuglers as a generous act of support for a fallen professional colleague or because the firm was willing to take advantage of an apparently experienced former solicitor by employing him cheaply.
6.	In the event, a Mr Vidler was the only representative of Fuglers to give oral evidence.  The judge described him as “untrained save by experience”.  He came to Fuglers in 1991 after four years with another firm, and he professed some experience in drawing bills of costs.  He performed a variety of duties for the firm.  The judge concluded from Mr Vidler’s evidence that Mr Landon was unsupervised and was given a pretty good run of the office.  He was allowed to bill his services to clients as he chose, and he was happy to exploit Mr Vidler’s willingness to help him.
7.	Mr Alan, for his part, had his own solicitors in Brighton when he first met Mr Landon early in 1993 on a social occasion.  Mr Landon was in Brighton in the company of a lady who knew Mr Alan and his wife, and he rapidly ingratiated himself.  He told Mr Alan he was a solicitor and that he knew and acted for people whom Mr Alan knew.  He said he was an experienced litigator in complex matters, and he suggested to Mr Alan that he would find it convenient to use a competent, experienced solicitor with offices close to his new business premises in London.
8.	Mr Alan was persuaded to transfer some ongoing litigation to Mr Landon and to continue to use Mr Landon as his solicitor when he moved to Fuglers later in 1993.  This firm did not send Mr Alan a client care letter, and Mr Alan continued to assume that he was instructing a qualified solicitor.
9.	The judge found as a fact that Mr Landon habitually referred to himself as Mr Alan’s solicitor in the presence of Mr Alan’s staff and colleagues.  He also showed Mr Alan a visiting card on which his name appeared under the firm’s name, address and logo and the word “Solicitors”.  The judge found that Mr Landon continued to represent himself to Mr Alan as a solicitor.  In these circumstances he held that Fuglers were responsible for the continuing effect of Mr Landon’s original misrepresentation and for Mr Landon’s breach of warranty of authority.  The judge said that it was never an express term of Mr Alan’s instructions that they should only be carried out by a solicitor, but that Mr Landon clearly represented himself as such in Mr Alan’s presence to his friends and colleagues.
10.	The first part of the appeal arises out of the judge’s finding that AAL was entitled to recover sums totalling £20,350, together with VAT, which that company paid to Fuglers between 1994 and 1997 on solicitors’ bills rendered in connection with four pieces of litigation.  These included all steps taken in connection with the candelabra litigation up to and including the trial at first instance.  Disbursements, including counsels’ fees, were not included in the claim, which was a simple claim for the recovery of monies paid under a mistake of fact, namely that Mr Landon was a solicitor.
11.	In holding that AAL was entitled to recover this sum, the judge relied on the reasoning contained in the judgment of Schiemann LJ, with whom Butler-Sloss LJ agreed, in Pilbrow v Pearless De Rougemont & Co [1999] 3 All ER 355.  In that case the claimant had sought an appointment with a solicitor about a family matter, and the receptionist referred him to an employee of the firm who dealt with most of the firm’s family business,  She was, however, not a solicitor.  As in the present case the firm failed to send the claimant a client care letter or to inform him of the true status of the person he consulted.  Although the claimant’s case, albeit lost, was conducted competently, this court upheld a circuit judge’s refusal to allow the firm to recover its fees.  The relevant parts of Schiemann LJ’s judgment, at pp 359h-360a and 360f-361a, read as follows:
“The crucial initial question is whether the contract between Mr Pilbrow and the firm under which the firm was suing for its fees was a contract to provide legal services or a contract to provide legal services by a solicitor.  The fact that he was under the impression that Miss Lee-Haswell was a solicitor and that she did not know this, is entirely attributable to the firm, the way its receptionist acted and the firm’s failure to send an appropriate client care letter.  The firm must take responsibility for this.  In my judgment, in the circumstances of the present case the initial contract was one to provide legal services by a solicitor.  The firm did not perform that contract at all.  No legal services were provided by any solicitor.  Not until all the legal services had been performed did Mr Pilbrow know that the provider was not a solicitor.”
“Although the matter was not clearly argued thus in the courts below, as it seems to me, the present case presents once more the old problem of deciding whether what has happened is defective performance of a contract or non-performance of a contract.  The courts have not evolved a conceptual tool which enables one to place every situation automatically in one category or the other.  To a degree the point is one of impression.  I am satisfied in the present case that the plaintiffs have failed to perform their contract and the defendant is entitled to regard it as discharged by the plaintiffs’ breach.  This case is not properly to be analysed as a case of defective performance of a contract for legal services with a term that these should be performed by a solicitor.  I categorise it as one of non-performance of a contract to provide legal services by a solicitor.  In my judgment a firm of solicitors which is asked for a solicitor and, without telling the client that the adviser is not a solicitor, provides an adviser who is not a solicitor, should not be entitled to recover anything.  I would come to the same conclusion in relation to a case where a person goes into a doctor’s surgery, asks for a doctor and the receptionist refers him to a nurse who thereafter, perfectly competently, handles his problems.  These situations are not to be equated with situations where a drinker asks for a pint of one make of bitter but is mistakenly provided with a pint of another make and does not discover the difference until he has drunk the glass dry.
On the basis that the contract has been discharged by the plaintiff’s breach and that the defendant has accepted this position, it is unnecessary to explore the situation in relation to misrepresentation and the Misrepresentation Act 1967 and I refrain from doing so.
The defendant does not seek restitution of the £800 which he has already paid.  This seems a realistic approach and relieves the court of the necessity of deciding whether or not such a claim for restitution could succeed.”
12.	Mr Parker, who appeared for Fuglers, tried hard to distinguish this case.  He suggested, for instance, that AAL had not entered into an express retainer with Fuglers to the effect that legal services would only be provided by a solicitor.  He said that the judge had found that Mr Alan had got what he had paid for and that he could not now judge whether or not Mr Landon was an experienced litigator in complex matters, as he had claimed to be.  The few letters he had seen were competent and to the point, and he had instructed counsel of appropriate call and experience.
13.	Mr Parker did not attempt to challenge the judge’s finding of fact to the effect that Mr Landon had fraudulently deceived Mr Alan into believing that he was a qualified solicitor or the judge’s mixed finding of fact and law to the effect that when he moved to Fuglers, that firm was vicariously liable for the continuing dishonest representation.  He suggested, however, that AAL’s remedy sounded only in damages, and that they could not show they had suffered any loss even though they would never have instructed Fuglers at all if they had known the true position.
14.	In my judgment, we should follow the reasoning of this court in the earlier case.  In that case the client did not receive what he thought he was receiving because of a mistake within the solicitors’ firm.  In the present case deliberate deceit was the cause.  Any possible injustice this approach might be thought to create would be immediately tempered by a defence of change of position when the client claimed restitution for fees he had paid in the mistaken belief he was instructing a solicitor.  If such a defence was put forward, the court would consider its merits and endeavour to do justice on the restitutionary claim along the lines indicated by Lord Goff in Lipkin Gorman v Karpnale Ltd [1991] AC 549 at pp 579E-580H.
15.	The defence in this case, which was not settled by Mr Parker, did not include such a plea.  We do not know what facts would have been relied on, and I decline to speculate on its fate if it had been put forward.  At the very least it is hard to see why any element of the payment that represented a reward for Mr Landon’s services should not have been repaid to his infuriated client once he realised how he had been deceived.  Mr Parker tried valiantly to argue that we should decide the appeal as if a “change of position” defence had been included in the pleading.  He showed us, for instance, how he had advanced an argument at the trial to the effect that the claimants could not show that his clients had been unjustly enriched by what had happened.
16.	In my judgment this will not do.  If a defence of change of position is to be relied upon in defence to a restitutionary claim it must be fairly and squarely put forward in the defendant’s statement of case so that its factual merits can be explored at the trial.  This did not happen in this case, and it is now far too late to introduce it.
17.	For these reasons I am satisfied that the judge reached the correct result on the first issue, and I would dismiss the appeal in this regard.
18.	I now come to the litigation which gave rise to the second and third of the issues we have to resolve.  In October 1986 a pair of candelabra were stolen from the country home of the claimant, the Viscomtesse de Preval, in France.  In May 1995 the Viscomtesse brought this action against the claimant, maintaining that a pair of candlesticks they had submitted for sale at Sotheby’s were in fact her stolen candlesticks. 
19.	At the trial of the action in January 1997 Arden J rejected both AAL’s defences and directed that judgment be entered for the Viscomtesse.  Their first defence was that Mr Alan had bought the candlesticks in question in New York in 1994, two years before the Viscomtesse’s candlesticks were stolen, so that they could not be her candlesticks.  Their second defence was that even if these were her stolen candlesticks, they had acquired them in good faith more than six years before she brought her action, so that her claim was statute barred.
20.	On the first of these issues Arden J made unappealable findings of fact in favour of the Viscomtesse.  She found that the stolen candlesticks were uniquely identifiable, for reasons she explained fully in her judgment, and that the candlesticks put in for sale at Sotheby’s were identical with those described by the Viscomtesse and her witnesses, save that they had been cleaned, a helmet had been fixed, and certain appurtenances had been removed.
21.	She found that Mr Alan had bought them from a gallery in New York not in 1984 but at some date between the date of the theft and the middle of 1989.  In so far as Mr Alan and his witnesses had testified to the effect that he had acquired them in 1984, she did not accept their evidence.  Towards the end of her judgment she set out relevant findings of fact in summary form.
22.	So far as the limitation defence was concerned, she said she had to consider the evidence as to Mr Alan’s state of mind when he made the purchase.  The onus lay on him to prove that he acted in good faith.  In this context she observed that there was no challenge to the reputation of the New York vendors.  She also said that Mr Alan twice attempted to sell the candelabra by public auction through a leading auction house, which was consistent with his good faith.
23.	However, she was critical of the fact that no attempt was made to investigate his state of mind at the date of purchase further than the comparatively brief comments he included in his witness statement.  She accepted that it was never put to him in cross-examination that he did not act in good faith when he made the acquisition, and she reached a conclusion adverse to him on the limitation issue in these terms:
“Having reached the conclusion that the defendant’s evidence as to the date of the acquisition cannot be accepted, and having rejected Mr Alan’s evidence on other points, and having regard to the lack of documentary evidence, I am unable to place reliance on the other parts of his evidence relating to the same transaction which I am asked to accept as discharging the onus placed on the defendant by the Limitation Act 1980, section 4.  In my judgment, it has not been shown on a balance of probabilities that the error as to date is a matter which is properly treated as just an isolated mistake, or that, despite the mistake, Mr Alan had no doubt that the Cheriff Galleries had title to the candelabra to sell to him.  Accordingly I find that the defendant has not discharged the onus of showing that its acquisition was a purchase in good faith for the purpose of section 4 of the Limitation Act 1980 and that the defence must likewise fail.”
24.	Judge Kennedy QC said that Mr Alan was stunned by what he saw as the injustice of Arden J’s decision.  The adverse publicity had harmed him, and he intended to appeal.  A consultation was arranged for him to meet leading counsel on 12th February 1997 and Mr Alan said he encouraged him as to the prospects of appeal.  The defendants, however, disclosed a draft opinion from leading counsel, which had possibly been faxed to their firm for typing, which told a rather different story.
25.	This advice was concerned only with the merits of an appeal on the limitation point.  A list was made of five occasions on which Arden J did not accept Mr Alan’s evidence.  Mention was also made of the judge’s observations about the lack of documentary evidence adduced by Mr Alan in support of his case.  The judge had made inferences of fact from her findings as to the history of the matter given by Mr Alan and his witnesses, and unless her findings about that history could be successfully challenged, the inferences could not be shot down.  Leading counsel reluctantly concluded that the prospects for Mr Alan on an appeal were limited.  On the other hand he said that there was an argument to the contrary that the judgment had not been fairly reached and that it was wrong.  This argument revolved round the Viscomtesse’s unwillingness to allege bad faith against Mr Alan.  Since good faith in the statute was a matter of honesty, and dishonesty was not relied upon, once the court found against the claimant’s legal argument that the error in the date ipso facto amounted to a failure to discharge the onus of proving that the candlesticks were acquired in good faith, Mr Alan was entitled to succeed.  This was described as an argument which could certainly be advanced, although leading counsel did not believe it would succeed.
26.	Although the judge described this advice as cautionary to the point of discouragement, junior counsel was instructed to draft a notice of appeal along the lines suggested, and on 20th February 1997 Mr Landon told the Viscomtesse’s English solicitor that his client proposed to appeal and that a notice of appeal was in the course of preparation.  Thereafter there was an element of mystery about what happened.  Mr Vidler remembers taking the notice of appeal to the Civil Appeals Office but he also remembers that he did not pay a fee.  If the notice of appeal was ever lodged there, nothing else was done to prosecute the appeal.  At some point the notice of appeal reached the other side in some form or other, because their solicitor remembered seeking counsel’s advice in conference about the likely merits of the appeal.
27.	The history then became more and more bizarre.  On 24th April 1997 Mr Landon told the Viscomtesse’s solicitors that the appeal was being abandoned.  He did not tell Mr Alan who thought it was being pursued.  The Viscomtesse’s solicitors had prepared their bill of costs which amounted to more than £73,000, and they said they would shortly provide a suggested assessed figure for the costs of the appeal.  In June Mr Landon discussed the (in fact non-existent) appeal with his client.  He gave him the impression that the other side wished to discuss a settlement, and Mr Alan decided that he would abandon the appeal in return for only having to pay £40,000 towards the claimant’s costs.  Mr Landon then reported to him that the deal was on, provided Mr Alan paid him the £40,000 at once.  Mr Alan did so.  The money did not reach the Viscomtesse or her solicitors.
28.	In due course Mr Alan received from Mr Landon an acknowledgment of the receipt of this money, couched in terms which were untrue.  Meanwhile the Viscomtesse’s solicitors proceeded to have their costs taxed, unknown to Mr Alan, and Mr Landon dispatched Mr Vidler to try to challenge elements of her bill.  The judge described graphically the final months of Mr Landon’s involvement with Fuglers.  At one point he described him as going into “teeming and lading and embezzlement overdrive”.  He eventually diverted £38,000 belonging to another client to pay the Viscomtesse’s solicitors money on account of their costs, and when he disappeared in February they were claiming a further £44,095 together with £3,000 for the costs of the non-existent appeal.  These sums Mr Alan had to pay in order to stave off enforcement proceedings.
29.	In these circumstances the judge had to value what, if anything, Mr Alan’s company lost through Fuglers not carrying out his instructions to pursue an appeal,  He said that to some extent this exercise was speculative.  The correspondence showed no attempt to bargain or inclination to do so on either side.  He thought that if the appeal had been in being, the Viscomtesse’s family would initially have opposed it, subject to their being reluctant to spend more on the litigation.  They might have gone to the length of a respondent’s notice.  Almost certainly they would have reacted in such a way as to increase Mr Alan’s apprehension of even more adverse and public judgments in the Court of Appeal.  Mr Alan had voiced this apprehension to his own leading counsel, and it had informed his decision to compromise, as he thought, by agreeing to pay only £40,000 towards the claimant’s costs.  After considering the likely merits, the judge said that he was quite unable to value Mr Alan’s loss of a chance of any advantage from a real appeal, had there been one.  In the event he considered that Mr Alan had a 50-50 chance of knocking perhaps as much as £20,000 off the Viscomtesse’s costs bill at first instance if he had shown himself pursuing an appeal.  He therefore awarded him £10,000 damages as the value of this lost chance.
30.	As to the £3,000 which AAL seeks to recover, this sum was paid to Fuglers (and thence to the Viscomtesse’s solicitors) to avoid enforcement proceedings after Mr Landon’s disappearance from the scene.  Mr Landon had agreed on his client’s behalf to pay this sum by way of costs in respect of the “abandoned appeal”.  The judge said that this bill had never been taxed.  The solicitor had merely assessed his file.  There was little to hint at real expenditure on his firm’s costs for an appeal.  On its own, it would fall to be reduced somewhat on taxation.  On the other hand, Mr Alan did not challenge this sum.  He paid it rather than seek taxation.  Had there been a real appeal the judge believed that the other side’s costs of such an appeal, at the stage of any compromise, would clearly have been much higher than £3,000, and Mr Alan would then have had to pay at least £3,000 as part of the compromise.  On this basis the judge did not consider he had suffered any additional loss, and he disallowed this claim.
31.	Both parties challenged the award of £10,000 as damages for not prosecuting the appeal.  Mr Alan said it should have been higher.  Fuglers said that no award should have been made.  Nobody suggested that the judge had misdirected himself as to the legal approach he should adopt when making this award, which was essentially a jury award.  For what it was worth, there was evidence before the judge that about two months before the trial started the Viscomtesse’s family had instructed their English solicitor to achieve a settlement on the best terms available so long as the candelabra were returned to them.  On the other hand, their solicitor told the judge that his clients’ attitude had hardened since obtaining a successful judgment (although there were always risks in any litigation), and a written statement by the Viscomtesse was adduced in evidence under the Civil Evidence Act to the same effect.
32.	The parties’ conflicting arguments were based on their conflicting views on the apparent strength of the arguments set out in the draft notice of appeal, which was before the judge.  Mr Parker submitted that the appeal was hopeless, and that permission to appeal would not have been granted under the new CPR appeal regime.  Mr Stevenson, on the other hand, who appeared for AAL, took a rosier attitude towards its prospects than that adopted by leading counsel whom his client had consulted after the trial.  It must be remembered, however, that his client had been anxious to settle the matter on the best terms available because he feared unwelcome publicity if he lost the appeal.  Moreover, his approach to a possible settlement would have been informed by the views of leading counsel at the time, and not by Mr Stevenson’s views five years later.  I am therefore not willing to hold that the judge awarded too little.
33.	As to the argument that the judge awarded too much, Mr Parker, needless to say, relied on the arguments which had attracted Arden J.  Mr Alan and his witnesses had not been believed when they placed the date of his acquisition of the candelabra before the date of the theft, and in the absence of fuller explanation of what was in his mind when he bought them in New York the judge was not willing to accept that he had bought them in good faith.
34.	On the other hand, the draft notice of appeal puts forward arguments which in my judgment should have given the Viscomtesse’s lawyers some cause for thought before they encouraged their client to adopt a completely rigid approach to the idea of compromising the appeal.  It was not being suggested that Mr Alan had acted in bad faith, and even if leading counsel considered that the appeal would not succeed, the arguments in paragraphs 2 and 3 of the notice, at any rate, should have given the other side some pause for thought.  After all, when conducting litigation against a private limited liability company, a successful claimant is always likely to harbour some concern that its costs may not be recoverable in full (or at all) however successful it may be.  Although counsel was said to have advised the Viscomtesse that he did not think the appeal stood great prospects of success, her solicitor could not remember the basis of his reasoning, and he accepted that any appeal might have some value, if one was going to be cautious.
35.	In those circumstances I find it quite impossible to hold that the judge was wrong when he decided that there was a 50-50 chance that the Viscomtesse would have been willing to reduce her claim for costs by £20,000 (less than one third of the total) in the interests of an early settlement of the appeal.  The judge has great experience of litigation and the conduct of litigants, and this was essentially, as I have said, a jury question.  On this issue I would dismiss both the appeal and the cross-appeal.
36.	AAL’s claim for the recovery of the £3,000 was based on the proposition that Fuglers had agreed on his behalf to pay £3,000 towards the Viscomtesse’s costs of an appeal which had never been instituted.  The defence was premised on the fact that the appeal had been instituted, and that £3,000 was a reasonable figure in respect of AAL’s liability for the costs of the appeal.  This defence failed on the facts, since the judge found as a fact that nothing was done about the appeal.  Indeed, he described it later as a “non-existent appeal”.  Although the Viscomtesse’s solicitor said that Notice of Appeal was served on his firm in February 1997, the judge either overlooked or rejected this evidence, and Mr Parker did not refer us to it when resisting the cross-appeal.
37.	On the basis that there is an unappealed finding of fact that no steps at all were taken to pursue the appeal, and that the judge did not find that the notice of appeal had been served on the other side, there was no basis for any legal liability falling on AAL to pay any costs relating to the appeal.  Mr Landon had agreed a sum of £3,000 without any authority whatsoever, and although AAL eventually paid this sum, when threatened with execution, I see no reason why they should not be entitled to its return.
38.	I have not overlooked the fact that after making his £10,000 award on the second issue, the judge then suggested that AAL would have had to pay at least £3,000 as the cost of achieving the probable settlement.  I regard this as a very unsatisfactory way of dealing with this sum, since the judge had already completed his findings on the second issue before turning to consider the merits of the third.  The long and short of the matter is that Mr Landon comprehensively deceived his client about what he was doing on his behalf after February 1997, and that in the circumstances justice demands that this sum of £3,000 should be returned to him.
39.	For these reasons I would dismiss the appeal and direct that the claimants are entitled to recover £3,000, together with interest, on the cross-appeal.
Lord Justice Kay: 
40.	I agree.
Lord Justice Dyson:
41.	I also agree.