pnBlawg

the professional negligence blog

A collaboration between Rebmark Legal Solutions and 1 Chancery Lane

Crystal ball gazing: how does a judge assess loss of chance?

You can prove that a past event has happened but you cannot prove that a future event will happen. When the actions of a third party are relevant all that can be done is to evaluate the chance of that event happening. So when a claimant has proved as a matter of causation a real or substantial chance rather than a speculative chance of an event or events happening how does a court evaluate that loss of chance? In Joyce v Bowman Law Ltd [2010] EWHC 251 (Ch) J bought a property which was advertised with an option for the buyer to purchase the lower end of the garden if the seller’s application for planning permission was unsuccessful. J was keen to develop the land. He instructed B to act for him. Unfortunately the contract for sale contained a seller’s option, not a buyer’s option. B admitted negligence. J claimed loss of profit of £400,000: he would have developed the property and the additional land by building a large house. J argued that all the uncertainties concerning negotiating an option in the proper form, funding the redevelopment and obtaining planning permission should be reflected in a single percentage of 75%. He would recover damages of £300,000 on this basis. B argued that none of the consequential losses were recoverable as a matter of law, either because they were not within the scope of B’s duty of care, were not caused by the negligence or were too remote. B also argued that J had failed to mitigate his loss by building a smaller new house. It was held that J could only recover damages for his loss of profit if he could bring himself within the second limb of Hadley v Baxendale by showing that B had knowledge of the special circumstances which were liable to cause more loss. The judge found that B knew of J’s intention to make a profit from developing the property. It did not matter that B was not aware of the precise scale of the intended development; the knowledge was sufficient to give B knowledge of special circumstances outside the "ordinary course of things" of such a kind that a breach in those special circumstances would be liable to cause J loss. How did Mr Justice Vos assess the loss of chance? He found that the chances of: J being granted a suitably watertight buyer’s option were 85%; J exercising his option 100%; J being able to obtain planning permission or his plans 40%; and J obtaining funding for the development 85%. Multiplying these percentages gives a figure of 29%. On a finding of a loss of profit of £130,000 the Judge awarded damages of £37,700. In Tom Hoskins plc v EMW Law [2010] EWHC 479 (Ch) Mr Justice Floyd approached the task a little differently. This was a professional negligence claim against solicitors handling the sale of a portfolio of public houses and a brewery. The main issue was that E’s negligence caused T to complete transactions late and on relatively unfavourable terms. Although there were multiple contingencies (agreement to the terms, attempts to re-negotiate or extend the date for completion) the Judge considered it was wrong to apply a mechanistic approach of multiplying percentage by percentage. By way of illustration if the Judge had thought there was a 20% chance of the purchaser agreeing to provide a director’s guarantee and an 80% chance of completion occurring at the end of October that would produce a loss of chance of 16%. However this did not reflect the true chances of the deal being done. The Judge evaluated the overall chances of completion by the end of October at 50%. In Harding Homes v Bircham Dyson Bell [2015] EWHC 3329 (Ch) B acted for H in connection with a bank loan to finance a residential development. B included an all-monies clause by mistake in the guarantee. When H defaulted the bank demanded that the shareholders pay the sum due of £5.9m. Counsel for B argued that as the contingencies were truly independent so that the chances of one contingency happening were unrelated to the chances of the other contingencies happening the court should apply a mechanistic approach. Mrs Justice Proudman cited the decision in Tom Hoskins and decided that she should look at the chances of various contingencies happening in the round, not by applying percentage upon percentage. Although in the end it was irrelevant because the Judge found that causation was not made out and only nominal damages were awarded.   A mechanistic approach seems attractive: sequential logical steps with a percentage at each step then calculate the product of those figures. However it can skew the loss of chance and lead to a figure that does not truly reflect the overall chance that without the negligence the claimant would have negotiated or achieved a better outcome. After all damages are supposed to be compensatory in nature.

No dual test for remoteness, says the Court of Appeal

The test for remoteness in tort is damage that is reasonably foreseeable. However the test for remoteness in contract is damage that ought to be in the reasonable contemplation of the parties. There are differences between the two. Damage can be reasonably foreseeable (in which case it satisfies the remoteness test in tort) but also highly unusual or unlikely, such as a particularly lucrative contract (in which case it does not satisfy the remoteness test in contract). So where there are two concurrent causes of action, such when a professional is sued, which test should be applied to the damages claimed?   In Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146 a three-judge Court of Appeal has held that, where the claimant has concurrent causes of action in both negligence and breach of contract against the defendant, it is the more restrictive contractual test for remoteness that will apply to any losses.     The facts concerned negligence in the drafting of a partnership agreement. The Defendant was supposed to draw up the agreement to provide for the investors’ capital to be locked in to the partnership for at least 42 months, to give the partnership time to work. In fact the agreement provided that investors could withdraw capital at any time during the first 42 months. An important investor withdrew a large sum of money during that time. The claim was that but for the negligence that allowed the investor to withdraw capital, there would have been enough money to enable the partnership to open a New York trading office which would have generated lucrative profits. At first instance, Nugee J held that the losses claimed were not recoverable under the contractual test for remoteness but were recoverable under the more generous tortious test, and that the Claimant was entitled to choose which test to apply when bringing the claim. Accordingly the claim succeeded. The Court of Appeal upheld the judgment but on different grounds. It held that when there are concurrent causes of action in contract and in tort, the contractual test for remoteness applies and the tortious test does not. However it also found that on the facts, the losses claimed ought to have been within the reasonable contemplation of the parties and so were recoverable notwithstanding that the more generous test of remoteness did not apply. The Court recognised that the decision might throw up some anomalies. It may give a client who receives free legal advice from a solicitor (who therefore does not have a contract with the solicitor) a more generous right to damages than someone who does have a contract. It may also mean that a client who sues a solicitor and a barrister for negligence may have a more generous claim against the barrister (with whom he does not have a contract) than he does against the solicitor (with whom he does have a contract). Roth J stated that he imagined that in such a situation, the contractual test for remoteness would apply but that this would have to be left to another case to be decided. In any event the case is a welcome clarification of the law.            

No duty owed by a valuer for a developer’s loss of profit or loss of a chance on subsequent sale

Freemont (Denbigh) Ltd v Knight Frank LLP [2014] All ER (D) 165 (Oct)    On 14 October 2014 Stephen Smith QC sitting as a Deputy High Court Judge in the Chancery Division handed down judgment on five preliminary issues concerning a multi-million pound dispute over an allegedly negligent valuation of a development site.    HELD, although a valuer owes concurrent duties in contract and tort to a developer, the developer's claim for loss of profit or loss of chance of a subsequent sale, were outwith the scope of the valuer’s duty.    The Facts    The Defendant valuer Knight Frank LLP (“KF”) had been instructed to value a plot of land, approximately 17 acres in size, on the outskirts of Denbigh, North Wales. The landowner was seeking finance to develop the land.   The valuation report was prepared for the purpose of supporting the landowner’s application for finance from the proposed lender. The valuer was aware of this purpose. The valuation was subsequently relied upon by the Claimant, Freemont (Denbigh) Limited (“Freemont”), as a minimum price to accept when selling the land.   A number of offers to purchase the land were made to Freemont. These fell below KF’s minimum valuation and so were rejected. The failure to obtain an offer in excess of the minimum valuation caused a delay in the sale of the land and as a result, the land fell into disrepair and significantly reduced in value.   Loss claimed   Freemont claimed that it suffered loss of profit (by not accepting one of the developer's offers) and claimed damages for the same, together with damages for all subsequent marketing costs and costs of future disposal of the Development (giving credit for any future sale). Further or alternatively, Freemont claimed that it had suffered the loss of a chance to sell the Development.    The Decision    Stephen Smith QC gave judgment on five preliminary issues directed by Master Price on 12 August 2013. The common law position on the duty of care owed by a valuer was summarised as follows:   (1)   A duty of care in tort is likely to be owed to the person for whom the report was prepared (even though a contractual duty may also be owed to the same party);    (2)   The duty of care in tort is likely to be limited to the purposes for which the report was prepared;    (3)   A duty of care in tort may also be owed by a valuer valuing premises for mortgage purposes (at least if they are modestly valued residential premises), to the purchaser of those premises, if        a.     The valuer knows that his report is likely to be shown to the purchaser, and      b.    The purchaser intends to use the premises for his own residential purposes, and not let them, and      c.     The valuer knows that his report is likely to be relied upon by the purchaser for the purpose of deciding whether to purchase the premises; but    (4)   A duty of care in tort is unlikely to be owed by a valuer instructed to produce a report for a lender for security purposes, to an investor who relies on the report for other purposes.   Of the above four propositions, the first three were well-settled. The fourth however, could not be regarded as settled before the Court of Appeal’s decision in Scullion v Bank of Scotland plc [2011] 1 WLR 3212. In Scullion, Lord Neuberger MR held that a valuer acting for a lender did not owe a duty of care to a borrower where the loan was for a buy-to-let investment property.   Applying the reasoning of Lord Neuberger in Scullion, Stephen Smith QC held that questions regarding the valuation of the land for sale purposes were “tricky” and he rejected Freemont’s contention that KF knew or ought reasonably to have known that it would rely on the report when considering whether to sell the land in the future. In this instance therefore, the duty of care extended only to the provision of a report for the purposes of securing finance. KF had not negligently valued the land at such a low figure that Freemont had been unable to obtain the financing it had negotiated (paragraph 148).   This case is welcome news for valuers and their insurers and shows that the Court will look to the purpose behind the valuation report and that reliance upon the report will be limited to the purpose of the valuation report.

Judgment on TOWIE nightclub due

Judgment is due at 2pm this Monday (20 October) in a claim for assessment of business interruption and associated losses following a 2009 fire at the premises of the Sugar Hut nightclub in Brentwood, famous as the main venue of The Only Way is Essex (TOWIE).  I acted for the defendant insurance broker in the assessment of damages hearing, which took 3 days in the commercial court before Bernard Eder J earlier this month. Judgment is awaited. The claim was pleaded in excess of £1.3m.

Equitable Compensation: AIB v Mark Redler in the Supreme Court

On 5 June 2014 the Supreme Court heard the appeal in AIB v Mark Redler. (Lord Neuberger, Lady Hale, Lord Wilson, Lord Reed, Lord Toulson) AIB v Mark Redler [2013] EWCA Civ 45 is often wrongly categorised as one of the recent spate of section 61 relief cases. It was a breach of trust case and although section 61 was pleaded in the defence it was not pursued. The solicitors accepted that they had been both negligent and unreasonable. No fraud was involved.  The solicitors acted for the borrowers and the bank in connection with a remortgage transaction of £3.3m. The bank required that the existing mortgage in favour of Barclays be discharged from the advance. The Barclays’ charge secured borrowings on two accounts. The solicitors obtained a figure to discharge the mortgage but failed to notice that it only related to one account. They paid £1.23 million to Barclays and the rest of the advance was paid to the borrowers. A further £300,000 should have been paid to Barclays. They borrowers defaulted. AIB’s charge was only registered two years later and as a second charge behind that of Barclays. HHJ Cooke determined two preliminary issues at trial: did the solicitors act in breach of trust by releasing the advance monies before obtaining a first charge; and if so, what remedy was the bank entitled to? He found that there was a breach of trust and that the proper measure of equitable compensation was the amount paid by the bank to discharge the Barclays mortgage when the property was sold, £300,000 and interest. AIB argued in the Court of Appeal that they were entitled to have the entire trust fund reconstituted less recoveries, i.e. the position it was in immediately before the breach occurred. LJ Patten considered that then equitable principles of compensation “have the capacity to recognise what loss the beneficiary has actually suffered from the breach of trust and to base the compensation recoverable on a proper casual connection between the breach and the eventual loss.” The Judge’s order in relation to the amount of compensation was affirmed. The Supreme Court has been asked to determine whether AIB is entitled to equitable compensation for the whole loan or whether the Court of Appeal’s analysis limiting the remedy to the amount of the bank’s actual loss was correct. We await the judgment with interest.

Conflicting medical evidence: solicitors' duties in CICA claims

In Boyle v Thompsons Solicitors [2012] EWHC 36 (QB) Mr Justice Coulson considered the scope of a solicitor’s duty in resolving conflicts of expert medical evidence. The claimant (“Mrs B”) claimed damages from the defendant solicitors (“the Solicitors”) for their allegedly negligent conduct of her compensation claim to the Criminal Injuries Compensation Authority (“CICA”).   The CICA claim related to injuries sustained as a result of an assault on Mrs B by her former partner in November 2001. Mrs B applied to the CICA for compensation and in 2003 it made a final award of £5,150. This figure proved to be unacceptable to Mrs B and she instructed the Solicitors to lodge an appeal on her behalf. By the time of the appeal hearing in 2006, Mrs B had taken early retirement on medical grounds. The principal issues in the appeal became the extent to which her PTSD was permanent (which meant she could never work again) and whether the PTSD was solely due to the November 2001 assault.   The appeal was not straightforward because the medical evidence was contradictory. There was evidence from Dr T, Mrs B’s treating psychiatrist, to the effect that the PTSD was permanent and was solely caused by the November 2001 assault. However there was also evidence from an independent psychologist, M suggesting that the PTSD was not permanent and could not be solely attributed to the assault. Furthermore Mrs B had been the victim of a number of assaults, of which only the November 2001 passed the CICA threshold test and thus qualified for compensation. In addition Mrs B had a history of depression.   The CICA Panel rejected Mrs B’s appeal, deciding (amongst other matters) that the cause of Mrs B’s PTSD was multi-factorial, that the PTSD was not permanent and that it was not the cause of her retirement.     Mrs B sued the Solicitors. Notwithstanding that the Solicitors had asked M, the psychologist, to reconsider her opinions in the light of Dr T’s views, Mrs B argued in effect that they should have made further approaches to M, the psychologist, in an attempt to “beef up” her evidence in relation to the permanent nature of the PTSD and its causation.   In finding that the solicitors were not negligent, Mr Justice Coulson noted an important feature of the CICA scheme, namely that applicants were required to disclose all medical reports obtained. He considered that the solicitors had acted appropriately in asking M to reconsider her views in the light of Dr T’s evidence. It was an unrealistic criticism of the solicitors that they should have done something more about the difference in views between M and Dr T. It was not for the solicitors to “manipulate the evidence of the independent expert, particularly in a CICA claim..” where all reports had to be disclosed to the Panel. In the circumstances the solicitors did all that they reasonably could and Mrs B’s claim was dismissed.   As a postscript, the judgment also contains an useful analysis of quantum, where the underlying action concerns a CICA claim.      

Engineers liable for market fall

    The claimant company (“JGPL”) in John Grimes Partnership Ltd v Gubbins [2013] EWCA Civ 37 provided consulting engineering services. It was engaged by Mr Gubbins, a farmer and property developer, to design a road and drainage scheme for his residential development and to obtain the necessary statutory approval by March 2007.  JGPL failed to complete its work by the agreed deadline and Mr Gubbins was ultimately forced to instruct alternative engineers. The necessary approval was only obtained in June 2008, approximately 15months late and in the meantime the value of the development declined by about 14%.   JGPL brought a claim for unpaid fees against Mr Gubbins. Mr Gubbins counterclaimed for his losses suffered as a result of a decline in the development’s market value. In the county court, the judge held that the 15months delay was caused by JGPL’s breach of contract and Mr Gubbins was entitled to damages to be assessed in respect of his losses associated with the decline in the market over the period of delay. JGPL appealed.   The Court of Appeal dismissed JGPL’s appeal. The court considered that the only live issue was whether Mr Gubbins’ loss was too remote and that this issue fell to be determined by reference to well-established authority, including Hadley v Baxendale and The Heron II. Thus, “…if the type or kind of loss was, at the time of contract, reasonably foreseeable, by the defendant as not unlikely to result from his breach (had he contemplated a breach), then such a type or kind of loss is not too remote...” (per Sir David Keene at paragraph 17). The court recognised that an exception to the usual Hadley v Baxendale approach is where on examination of the contract and commercial background, the court considers that the standard approach would not reflect the expectation or intention reasonably imputed to the parties.   The county court judge had found both that JGPL knew that the property market could go up and down and that this was not one of those unusual cases falling outside the standard approach. It is perhaps not surprising that the Court of Appeal therefore considered that Mr Gubbins’ counterclaim was recoverable. The fact that JGPL had no control over the property market did not, in the Court of Appeal’s view, take the case outside the standard Hadley v Baxendale approach. Furthermore it regarded the SAAMCO decision as providing little guidance in the present situation because it was not a delay case but one where the breach of contract was the giving of a negligently high valuation.   In the light of this decision, consulting engineers engaged in similar circumstances would be well-advised to check the precise terms of their engagement letters!  

The Supreme Court of Ireland reviews SAAMCo

In the Republic of Ireland this week the Supreme Court is being asked to consider one of the country’s largest lender cases of recent years: KBC Bank Ireland Plc v BCM Hanby Wallace (http://www.courts.ie/__80256F2B00356A6B.nsf/0/01F5B8435ABFB92080257A06003D46C3).   In March 2012 Mr Justice McGovern held that the Defendant firm of solicitors had not merely breached its duty in not obtaining security with respect to a number of loans but had gone so far as to actively deceive the Bank on this issue.   Moreover, McGovern J accepted the Bank’s contention that if it had been aware that the security it required had not been put in place, it would not have entered into the transactions or lent the sums involved and that damages should be assessed on the basis of a "no transaction" case. He therefore awarded the Bank over €17 million.   In doing so, his rationale at first blush appears to contradict what Lord Hoffmann said in SAAMCo, about there being no distinction between “successful transaction” and “no transaction” cases (see South Australia Asset Management Corp v York Montague Ltd at [1997] A.C. 191 at 218C-G). McGovern J sought to distinguish SAAMCo on the basis that the breaches of duty in this case constituted active deception rather than mere omissions. It is questionable whether this is a sound basis for distinction, particularly as it was a point taken of the Court’s own motion.   It will be interesting to see whether the Supreme Court upholds the decision in KBC and, if so, what influence this will have on the assessment of damages in lender claims in England and Wales.