On 23 March 2012 Mr Justice Mann sitting in the Chancery Division considered an appeal by Ernst & Young against a Master's earlier decision. Pegasus v Ernst & Young  EWHC 738 (Ch).
The case concerned tax advice from Ernst & Young which meant that Pegasus had suffered higher CGT liability and other losses. However, by the time of the application to amend the name of the Claimant, Pegasus had transferred relevant assets including the cause of action to another company called IHUK before going to liquidation as part of a reorganisation (rather than a commercial sale). Ernst & Young opposed the application to amend and therefore they were effectively applying to strike out on the basis of alleging that since Pegasus no longer had the relevant assets on which the cause of action was based then it was not open to the new company to pursue the claim.
Mr Justice Mann firmly rejected Ernst & Young's appeal, stating "Black holes are to be (as all black holes should be) avoided where possible". He referred to the reasoning in the well known decision of GUS Property Management LTD v Littlewoods 1982 S.C. (H.L.) 157 when the Court had described a similar argument that the loss may have disappeared as being "absurd" IHUK could continue to pursue the claim.
The decision is also relevant to claimant lenders where professional negligence claims are pursued concerning securitised mortgages. Defendants have alleged that even where the claimants include the lender and the securitisation vehicle that no loss can be shown to have been suffered by either of the claimants. The recent decision of Paratus AMC Limited v Countrywide  EWHC 3307 (Ch) has shown that the courts will be highly reluctant to consider arriving at a decision which would mean that losses have fallen into a blackhole.