Professional Negligence and Liability
Chapter 2
DAMAGES
I. INTRODUCTION
2.1 There is in damages for professional negligence a major watershed which must be addressed at the start. Cases where there is personal injury or death lie on one side of the divide, the rest lie on the other. This makes for a fundamental distinction between medical negligence where personal injury and death are the order of the day and all other areas of professional negligence, making up the great mass of such claims, upon which personal injury and death very rarely impinge, the injury being almost invariably economic. Cases in the limited first category are dominated by damages for lost earning capacity, for medical expenses and costs of care, and for pain, suffering and loss of amenities; Roberts v. Johnstone 1 can be taken as a typical example. These heads of damage have marginal relevance2 for the central second category and therefore this does not seem to be the appropriate place to consider them; this is particularly so since they have built up an enormous weight of case law which, if given full rein, would swamp this chapter.3 They are therefore excluded from the text. 2.2 Most claims for professional negligence are brought against professionals by their clients and therefore arise out of contract. The tort of negligence is also available to the client, it now being accepted that there is a concurrent liability in tort,4 and in addition there are situations in which third parties can, without a contractual relationship with the professional, nevertheless sue in tort.5 These are the recognised common law claims and are the primary concern of this chapter.6 It was for a time fashionable to attempt, in the context of solicitors’ negligence, to turn to equity and claims for breach of fiduciary duty or for breach of trust in the hope of achieving a greater recovery than would appear to be available at law where the proposed transaction would still have been entered into even if the solicitor had not been negligent. Such claims, which in any event have had a downturn of success,7 are excluded from detailed treatment in this chapter as they have been covered in the preceding one.8 Nonetheless since these claims, if successful, lead, like damages, to monetary awards, a further short word about them may not be inappropriate. For brevity only fiduciaries, and not trustees, will be considered. 2.3 Certainly since the landmark case of Nocton v. Ashburton 9 fiduciaries have been subject to claims for equitable compensation.10 These take two forms. This is because, as Millett LJ made clear in Bristol and West Building Society v. Mothew,11 the distinguishing obligation of a fiduciary being the obligation of loyalty and fidelity, negligence is not enough to bring about a breach of fiduciary duty.12 Hence, the claim for compensation may be based solely upon breach of the fiduciary’s equitable duty of skill and care or upon the more serious breach of fiduciary duty.13 Equitable compensation under the first form of claim resembles common law damages to which the common law rules of causation, remoteness and measure of damages must apply by analogy.14 By contrast, the claim for equitable compensation under the second form takes on the characteristics of fraud in equity so that, as in actions of deceit at common law, foreseeability should not be a requirement nor contributory negligence a defence. Beyond these two forms of equitable compensation there is a third possibility: again in the words of Millett LJ in Bristol and West Building Society v. Mothew,15 there is left “those duties which are special to fiduciaries and which attract those remedies which are peculiar to the equitable jurisdiction and are primarily restitutionary or restorative rather than compensatory”. It is here that a claimant’s hopes of improving upon his common law remedy are highest as he may achieve restitution or restoration of monies without having to show foreseeability or even causation.16 Since this third type of claim, which so far has not had much of a success, is grounded in restitution, now a recognised remedy of wide proportions, it is not ripe for consideration here. 2.3.1 A novel form of compensation which now needs to be noticed briefly17 is that of compensation pursuant to the Human Rights Act 1998 for an unlawful interference with a right granted by the Convention for the Protection of Human Rights and Fundamental Freedoms. That such compensation is now available in English law is apparent from the judgment of Sullivan J in R (Bernard) v. Enfield LBC.18 In Bernard, the claimants were husband and wife. They had six children and the wife was severely disabled and confined to a wheelchair. The council house provided to them was inappropriate to her condition, as it was too cramped and did not have wheelchair access. Sullivan J held19 that the claimants were entitled to such damages as were necessary to afford the claimant “just satisfaction” within the meaning of section 8(3) of the 1998 Act.20 The claimants were awarded damages in the sum of £10,000.21 Human Rights Act damages were also awarded in Marcic v. Thames Water Utilities at first instance,22 where the judge held that the appropriate measure should reflect the difference between the hypothetical situation of the claimant in the absence of infringement of his rights and his actual situation given those infringements. The Court of Appeal in that case, although it did not need to decide the issue, was not persuaded that the judge had been wrong in assessing the loss as he had done.23 However, a definitive ruling on the point was never given because the House of Lords overturned the finding of the trial judge that there had been a breach of Mr Marcic’s human rights.24 The leading case is now R (on the application of Greenfield) v. Secretary of State for the Home Department 25 where Lord Bingham emphasised that the court had to be satisfied that an award of damages was necessary to afford just satisfaction and that an award was just and appropriate, taking account of the principles applied by the European Court of Human Rights in relation to the award of compensation under article 41 of the European Convention on Human Rights.II. THE PRINCIPLE OF COMPENSATION
2.4 At the heart of a claim for damages for professional negligence lies the principle of compensation. Compensation is the hallmark of damages, compensation for the loss, injury or damage suffered. The classic formulation, to which the courts always return, in professional negligence cases and all others, is that of Lord Blackburn in Livingstone v. Rawyards Coal Co 26 where he defined the measure of damages as: “that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation”.27 This has been cited and has been approved so many times and at all levels, and in the context of both claims in contract and claims in tort, that references are supererogatory.28 2.5 At this point it is important to ensure that Lord Blackburn’s classic formulation is not called into question by what was said in the House of Lords by Lord Hoffmann in his speech, with which all their lordships concurred, in the now famous South Australia Asset Management Corporation v. York Montague Ltd,29 referred to in this work by the simpler and familiar appellation of SAAMCO. The Court of Appeal had described Lord Blackburn’s principle as “the necessary point of departure” in arriving at the correct measure of damages, but Lord Hoffmann disagreed. He said: “I think that this was the wrong place to begin. Before one can consider the principle on which one should calculate the damages to which a plaintiff is entitled as compensation for loss, it is necessary to decide for what kind of loss he is entitled to compensation.”30 It is thought that this approach, which is by no means new,31 does not entail the rejection of Lord Blackburn’s formulation as the starting point for the assessment of damages. Rather, Lord Hoffmann is concerned with the ascertainment of the scope and hazard of the defendant’s duty; the ascertainment of this he regards as an exercise preliminary to the ascertainment of the damages to which the breach of the duty gives rise. Because of this it has been decided to place the whole discussion of SAAMCO and its substantial aftermath, including now the further Supreme Court decision in BPE Solicitors v. Hughes-Holland,32 and Manchester Building Society v. Grant Thornton,33 and Khan v. Meadows 34 in the previous, opening chapter, of this work, dealing with the issue as being one concerning the extent of duty rather than the extent of damages.35 2.6 While the general principle and its classic formulation apply equally to claims in contract and to claims in tort, there is nevertheless an important difference here between the two which needs to be highlighted. Whereas with tort Lord Blackburn’s rule results in putting the claimant in the position he would have been had the tort not been committed, with contract the rule results in putting him in the position he would have been, not if the contract had not been made, but if the contract had been properly performed. In shorthand, the contrast is between the protection of the reliance interest and the protection of the expectation interest; the contracting party is entitled to the benefit of his bargain whereas there is no bargain available to the victim of a tort. Thus there lurks a certain ambiguity in Lord Blackburn’s formulation when applied to contract, and for contract it may be clearer to use the also oft-cited formulation of Parke B in Robinson v. Harman 36 which specifically speaks of the claimant being entitled to be placed in the position he would have been if the contract had been performed.37 At the same time a claimant suing in contract is also given the option of claiming on the reliance basis rather than on the expectation basis. It is said that he has an unfettered choice of either basis38 and therefore may ask to be put in the position he would have been in had the contract never been made. Yet it is established that he cannot pursue this course where he has made a bad bargain39 and that he cannot split his claim between the two bases of computation.40 Indeed the only situation in which a claimant is likely to utilise the alternative basis is where he has difficulties in proving his loss of bargain and profit.41 2.7 While it is important to be aware of these variations as they could prove to be of relevance in a particular case, the truth is that in the field of professional negligence there tends to be no significant difference between the measure of damages in contract and the measure in tort or between the two alternative measures in contract. This is because the professional is not warranting a result, not guaranteeing an expectation.42 His duty—or at least the duty with which this text is concerned—is simply to use reasonable care; this is the relevant obligation and it is imposed on him both by his contract and by tort. A claimant’s loss is likely to be the same whether looked at as arising from expectation defeated or reliance thwarted through failure to exercise due care.43 We are far away from the idea of the benefit of a bargain which is much more in evidence in, and much more relevant for, the commercial field, particularly in the law of sale, be the sale one of land or chattels, ships or shares. 2.8 Expectation and reliance thus form the two alternative bases of compensation in professional negligence claims, although in this field these alternatives generally lead to a common result. There is no third basis in restitution. To say that damages afford restitution, or restitutio in integrum, to a claimant is in a sense correct but this is merely restating the expectation and reliance measures in a different way.44 Now that we have a law of restitution, since the recognition of restitution as an independent subject by the House of Lords,45 it is sensible to confine that term to the reversal of a defendant’s enrichment, where unjust, and not to apply it, where not needed, to describe the recovery, in contract or tort, of a claimant’s losses. And one danger of permitting the term restitution to be used to describe the recovery of losses, as opposed to the relinquishment of benefits, is that it may nurture a belief that there is a third basis for damages. Thus in Swindle v. Harrison 46 Evans LJ makes a distinction between damages which put the claimant in the position he would have been in had he not sustained the wrong and damages which put him in the position in which he was when the wrong was committed,47 and calls the latter damages on the restitutionary basis.48 The truth, however, is that a claimant is never entitled to be put in his position, as such, before the wrong; the effect on him of the wrong must be taken into account. It may be that, if he had not sustained the wrong, he would not have altered his position, in which case he will be entitled, subject to the rules of remoteness, mitigation and the like, to have that position restored. But these are still damages on the reliance, even on the expectation, basis, not on the spurious restitution basis.49 2.9 Once the manner in which the rule or principle of compensation operates has been identified, it can be applied to the facts of any professional negligence case so as to calculate what the claimant has lost.50 Statements like those of Sir Thomas Bingham MR in Reeves v. Thrings & Long 51 do not take one very far or assist in arriving at concrete solutions. While he there correctly said that “the assessment of damages is ultimately a factual exercise, designed to compensate but not over-compensate the plaintiff for the civil wrong he has suffered,”52 he added: “While this is not an area free of legal rules it is an area in which the legal rules may have to bow to the peculiar facts of the cases. It would in my view be dangerous to state principles in ignorance of the figures to which they would be applied.” But if legal rules have to bow to the facts of the case one does not know where one is. Rather the facts and figures of the case will influence the way in which the legal rules are applied. More to the point is Sir Thomas Bingham MR’s comment in County Personnel v. Alan R Pulver & Co 53 that the normal rule for the date of the assessment of damages, which is the date of breach, “should not be mechanistically applied in circumstances where assessment at another date may more accurately reflect the overriding compensatory principle”.54 In other words, the application of the legal rule or principle of compensation may require, in the particular circumstances, a preparedness to adopt a certain flexibility and to use good sense, but the result should still reflect the rule or principle.III. EXCEPTIONS TO THE COMPENSATION PRINCIPLE
2.10 There are four types of damages which do not concern themselves with precise compensation or with compensation at all: liquidated damages, nominal damages, exemplary damages and, as a latter day addition, restitutionary damages. Of these, liquidated damages are indeed intended to afford compensation but the compensation is unlikely to be precise compensation. To avoid the problems involved in the assessment of the damages occasioned by a breach of contract, the parties may agree in advance upon the amount that shall be payable if that breach comes about, and the major issue in the cases is whether the agreed amount is a genuine pre-estimate of loss, or otherwise commercially justifiable and reasonable, when it is recoverable, or a penalty, when it is not. Liquidated damages seldom if ever feature in professional negligence claims—they are more appropriate for construction contracts, charterparties, contracts restricting trade, sale or resale—and therefore they require no treatment here.55 Similarly, nominal damages need only a passing word. If no loss is proved by the claimant or if he fails to persuade the court that his loss is a recoverable loss, he is still to be awarded nominal damages if his claim is in contract; but this effectively avails him nothing as such an award does not bring with it an entitlement to costs.56 However, claims for substantial exemplary damages or restitutionary damages can be envisaged and therefore deserve some further examination, even if this examination merely serves to dismiss both forms of damages from the professional negligence scene.1. Exemplary damages
2.11 There is a series of cumulative reasons why exemplary damages, intended for punishment, have no place in professional negligence. Even when exemplary damages were at their full flood in the days before the House of Lords called for restraint in Rookes v. Barnard 57 in 1964, they were alien to such claims. For being designed for conduct sufficiently outrageous to merit punishment—conduct disclosing malice, insolence, cruelty, fraud and the like—they were entirely inappropriate for mere negligence. Even negligence of the grossest kind was not considered to be conduct sufficiently heinous to attract exemplary damages. Counsel for the claimants in AB v. South West Water Services 58 indeed contended that exemplary awards had in the past been made for negligence59 but the Court of Appeal was not prepared to accept this.60 Since the House of Lords decision in Kuddus v. Chief Constable of Leicestershire Constabulary 61 it is no longer a requirement that a claimant should be able to establish that exemplary damages had been awarded prior to 1964 for a cause of action of the kind he pursues. On that point AB v. South West Water Services Ltd 62 has been overruled in favour of an approach concentrating on the features of the misconduct alleged. However, since Rookes v. Barnard 63 exemplary damages have been effectively limited to situations where there is either oppressive conduct by government servants or conduct deliberately calculated to result in profit; neither category is germane to the defendant whose professional conduct is negligent.642. Restitutionary damages
2.12 The term restitutionary damages has made a very late appearance upon the legal scene; the view taken here is that the term is a misnomer since the type of recovery envisaged can be easily contained within restitution without invoking the terminology of damages. Damages should be kept as far as possible within the confines of compensation for loss and not be allowed to become confused with unjust enrichment. However it may be that the term is here to stay.65 In the battle against unjust enrichment, restitution takes two forms: the common case is of recovery of a benefit that the claimant has conferred on the recipient, the uncommon case is of recovery of a benefit which comes to the recipient from elsewhere without any participation of the claimant. It is with the latter that the so-called restitutionary damages are concerned; they seek to wrest a benefit from a defendant which is unmatched by a loss to the claimant. The archetypal case, which has a long history but never with a restitutionary damages categorisation, is of enrichment by the tortious taking and use of property.66 It might then be thought that this type of claim would not make an appearance where professional negligence is in issue, whether the claim is also in tort, in the absence of a contract, or, as is much more common, for negligent breach of contract. One does not associate negligent conduct of a professional nature with profit to, or enrichment of, the negligent party and certainly no cases of this nature based upon negligence, upon negligent as opposed to deliberate and intentional conduct, have appeared. Indeed where breach of contract rather than tort is concerned, no cases of restitution of profits had appeared in any contractual context, even where the breach was deliberate and intentional,67 until the appearance of Attorney-General v. Blake, first in the Court of Appeal68 and then in the House of Lords.69 2.13 The Court of Appeal, following the lead of the academic world and the Law Commission,70 adopted the term “restitutionary damages” and said: “In our opinion the time has come to accept…[the] view…that the law is now sufficiently mature to recognise a restitutionary claim for profits made from a breach of contract in appropriate circumstances.”71 Two situations were identified as requiring the award of restitutionary damages, being where the contract breaker has obtained his profit either from what the court called a skimped performance or by doing the very thing which he has contracted not to do.72 Neither of these situations is germane to professional negligence but there may be others which could be.73 Nevertheless there still remains the essential requirement that the professional’s negligent breach of contract must have enriched him, must have achieved a profit for him, and with negligence such an outcome is highly improbable though no doubt illustrations could be devised. A more sure way of excluding the entire body of professional negligence from claims for restitutionary damages would be to allow such claims only against those whose obtaining of a profit had been through deliberate and intentional conduct. Yet although the two situations identified in Blake as appropriate for restitutionary damages involved deliberation and intention, the Court of Appeal was not prepared to distinguish between breaches that were deliberate and cynical and those that were not, partly because the distinction was thought to be a difficult one in practice and partly because of the rule that a defendant’s motives are generally irrelevant for breach of contract.74 It is thought however both that the difficulties of the distinction are overestimated—courts every day have to decide in other areas whether acts are or are not deliberate—and that a defendant’s motives, even if irrelevant for contract, are highly relevant for restitution. Restitution, or restitutionary damages, should be available only where the defendant’s breach of contract is deliberate, where it is committed with the very view and purpose of making a profit, for it is this which makes the enrichment unjust; and it is to be hoped that the courts will so hold if and when the matter arises for decision. Only if the negligence were to move over the border into deceit and fraud, where indeed the desire to attain a profit is more likely to be on the cards, should the prospect of restitution, or restitutionary damages, be contemplated. 2.13.1 The judicial credence thus given to restitutionary damages has proved to be short-lived. For the House of Lords approached the matter very differently. The case concerned an attempt by the Crown to wrest from the spy George Blake the very substantial royalties he would receive from an autobiographical book published in breach of a confidentiality agreement entered into by him when employed as a member of the Secret Intelligence Service. The Court of Appeal had only expressed a view that restitutionary damages were available in these circumstances, since it held for the Crown on its primary public law claim, but the House of Lords, rejecting the public law claim, had to decide the matter and its decision was that the Crown was indeed entitled, not however to restitutionary damages but to an account of profits. Lord Nicholls, with whose speech Lord Goff and Lord Browne-Wilkinson agreed, said: “My conclusion is that there seems to be no reason, in principle, why the court must in all circumstances rule out an account of profits as a remedy for breach of contract. I prefer to avoid the unhappy expression ‘restitutionary damages’.”75 Lord Steyn spoke only of “a restitutionary law remedy”76 and Lord Hobhouse, dissenting, did not wish “to introduce restitutionary rights beyond those presently recognised by the law of restitution” into commercial situations.77 The way is therefore now open to discard the unfortunate concept of restitutionary damages and deal with all cases where the benefit to the defendant exceeds the loss to the claimant by way of an account of profits or, in an appropriate case, by an award of damages which compensates for the loss of the opportunity to procure a fair price for a breach of contract infringing a claimant’s proprietary rights.78 If this happens, it would lead to the elimination of this subsection of this chapter entirely.79IV. COMPENSATION AND NON-PECUNIARY LOSS
2.14 Lord Blackburn’s formulation of the principle of full compensation—that damages are designed to put the party who has suffered loss or damage into the position he would have been in had he not suffered the wrong80—is geared to pecuniary losses. It is not entirely appropriate for non-pecuniary losses for with these money cannot turn back the clock so as to restore the claimant and remove the distress and suffering that has come his way; awarding damages is simply the best that the law can do. However, while both pecuniary and non-pecuniary losses are generally recognised as giving an entitlement to damages, in the field of professional negligence, other than medical negligence which, as we have indicated, is outside our remit,81 losses of a non-pecuniary nature take a back seat to pecuniary losses. Indeed in most cases they have no seat at all. It therefore seems sensible to consider the ambit of recovery for non-pecuniary losses first so that they may be put on one side and concentration devoted to the difficult issues surrounding pecuniary losses. 2.15 The central reason for non-pecuniary losses making a very limited appearance in negligence cases is that the courts have taken the view that it is generally inappropriate in a commercial contract to award damages for mental distress and disappointment.82 This was for long the law83 and, although there was a time in the 1970s and 1980s when it looked as if the courts were taking a more sympathetic view, the pendulum swung firmly back with the two Court of Appeal decisions of Hayes v. James and Charles Dodd,84 where a solicitor negligently advised on the purchase of business premises, and Watts v. Morrow,85 where a surveyor negligently advised on the purchase of a house. Bingham LJ said categorically in Watts 86 that “a contract-breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party”.87 This can be very unfortunate for claimants. Thus in Hartle v. Laceys,88 where the sale of a commercial property went disastrously wrong because of the defendant solicitor’s negligence, thereby ruining the client and having a traumatic effect on his life over eight years as he moved from financial independence to living on social security, the Court of Appeal, though sympathetic, was unable to award any damages for these distressing consequences. The plight of Lloyd’s Names who attempted to obtain redress from their managing and underwriting agents was no doubt in many cases similar. 2.16 There has long been a recognised qualification to the rule of no recovery for distress or disappointment.89 In Watts 90 Bingham LJ put it thus: “where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead.” That formulation was no doubt intended to embrace such cases as Heywood v. Wellers,91 where the defendant solicitors, instructed by the claimant to stop a man’s molestation of her, so mishandled the proceedings that the molestation went on; damages for her resulting mental distress were given.92 Indeed, the door has now been opened more than a little wider by the House of Lords in Farley v. Skinner.93 Retained by the claimant to survey a house and asked specifically to state whether the property was affected by aircraft noise, the defendant in Farley negligently failed to discover that the house was so affected. Reversing the Court of Appeal the House of Lords held that where the provision of a pleasurable amenity had been a major or important object of the contract a claimant could recover for his disappointment at the loss of that amenity even if it was of no economic value but only of importance to him in ensuring his pleasure, relaxation or peace of mind. In so deciding the House of Lords considered it immaterial that the surveyor had not guaranteed that result but had only undertaken to exercise reasonable skill and care. It also held that the principle was not confined to circumstances where a claimant had suffered physical inconvenience and discomfort.94 Farley v. Skinner was applied by the Court of Appeal in Milner v. Carnival plc,95 a case which saw a couple awarded £8,500 for distress and disappointment following a cruise that did not match up to their expectations. 2.16.1 That their decision in Farley is of general importance in the professional negligence field is apparent from the fact that the House of Lords held that the case of Knott v. Bolton 96 had been wrongly decided. In that case the claimant had retained an architect to design a house and had included in his instructions the requirement for a wide staircase and gallery area to complete an impressive entrance hall. He sought an award of damages for his distress and disappointment at the unimpressive staircase which he obtained, but no such award was allowed by the Court of Appeal which held that the central object of the contract was to design a house and not to provide pleasure to its occupants. Such a case would, it appears, now be decided differently. On the other hand, it is not thought that a different result would now be reached in a case like Watts 97 so far as the recovery of damage for distress and disappointment is concerned. That decision was not overruled by the House of Lords, which took the trouble in Farley to point out that it arose out of an ordinary surveyors’ contract where there was no distinct contractual obligation to procure a pleasurable amenity. Presumably, the engagement of a surveyor, at least in the ordinary case, would not be characterised, post-Farley, as one where a major or important object of the contract was the provision of a pleasurable amenity.98 Whether or not a contract can be so characterised is, it appears, now the touchstone here. It is submitted, however, that the test in that respect must be an objective one, in accordance with normal contractual principles, and a contract is unlikely to be characterised as one where the provision of a pleasurable amenity is the object, or an important object, unless contracts of that kind can properly be so described, or unless, on the particular facts, it is within the contemplation of the parties that the contract is intended to have such an object.99 2.17 In Farley v. Skinner 100 the House of Lords applied its earlier decision in Ruxley Electronics and Construction Ltd v. Forsyth 101 where a swimming pool had been built which was shallower than it should have been but was nevertheless perfectly safe and of no lesser value. The owner was denied the cost of reinstatement, as economically wasteful, but was allowed a modest sum for the non-pecuniary loss of satisfaction of a personal preference and of expectation of performance. Such an award, which is similar to, but not necessarily co-incident with, an award for distress and disappointment, is likely to be recoverable where a professional is in breach of a contractual obligation connected with the provision of a pleasurable amenity and where without the non-pecuniary loss the claimant would be confined to an award of nominal damages. It is most likely to arise in claims against architects or other professionals active in the construction field. 2.18 Though recovery for mental distress on its own remains limited, there is no such limitation where non-pecuniary losses of a physical nature arise. The claimant may have fallen physically ill, or even have been physically injured, or he may have incurred physical inconvenience and discomfort.102 Such consequences, however, are unlikely to follow from breaches of contract by many categories of professional person; this will be so with accountants, insurance brokers and Lloyd’s agents. The home ground of recovery here is where solicitors are involved, with surveyors taking second place. Thus the courts have been prepared to give damages against solicitors for the deterioration of a client’s physical and nervous condition during the period of delay in hearing his personal injury action, the delay being due to the solicitor’s negligence.103 A solicitor may even be bound to compensate his client for causing him purely psychiatric injury. The point was considered in McLoughlin v. Jones 104 where the judge determining a preliminary issue had held that the claimant’s psychiatric illness was not a reasonably foreseeable consequence of alleged negligence by his solicitor said to have led to his wrongful conviction and subsequent imprisonment. The Court of Appeal allowed the claimant’s appeal to the extent of holding that it was arguable that the scope of the defendant’s duty encompassed such harm: it directed a full trial of all the relevant issues. Next, while a solicitor does not generally physically injure his clients, he can nevertheless be liable for their physical injury where his negligence allows them to be kidnapped105 or causes their claim against a third party for personal injury to be struck out for want of prosecution.106 Similarly, surveyors have been held liable where clients have been injured on their premises by reason of defects which the structural survey should have revealed.107 Finally, where claims by claimants for physical inconvenience and discomfort have appeared, surveyor defendants have been as much in evidence as solicitor defendants. The inconvenience and discomfort has generally been caused by the claimants living in grossly inadequate, inferior or defective accommodation which they would not have had to do but for the defendant’s negligence. They have successfully claimed for this loss against either their solicitor108 or their surveyor.109 In Farley v. Skinner 110 the House of Lords touched on the question of what might amount to physical inconvenience and discomfort. The judgments suggest that sensory disturbance of a sufficient magnitude would itself be sufficient; certainly it appears that if necessary the House would have been prepared to allow the appeal on the basis that the nuisance of aircraft noise amounted to physical inconvenience and discomfort. It had been conceded in that case that aircraft noise could cause physical discomfort. What is perhaps striking about the decision is the low level of disturbance that was taken to amount to physical inconvenience and discomfort. 2.19 In the case where the professional is liable for physical injury to the person, the normal rules for assessing quantum in personal injury claims will apply so that, if the injury should be a serious one, the amount awarded on account of the non-pecuniary loss could be high; for catastrophic injuries the tariff has now moved over £300,000. By contrast, the courts have said that awards on account of physical inconvenience and discomfort should be modest,111 restrained112 and not extravagant.113 Awards to a claimant may only be in hundreds of pounds114 and several thousands of pounds would appear to be today’s limit.115 The position is much the same with mental distress when, exceptionally, damages are allowed for this head of non-pecuniary loss.116 On the other hand, in Farley v. Skinner 117 the judge’s award of £10,000, although characterised118 as at the very top end of what could possibly be awarded, was not interfered with by the House of Lords.V. CATEGORIES OF PECUNIARY LOSS
2.20 Pecuniary losses are what claims for professional negligence are primarily about. In categorising such losses a useful and important distinction can be made between normal losses and consequential losses. Normal losses are the losses which each claimant in a like situation will suffer while consequential losses are losses which are special to the circumstances of the particular claimant. The distinction is not to be equated with that between the first and second rules in Hadley v. Baxendale 119; consequential losses frequently fall within the first rule.120 The pattern of normal loss and consequential loss is commonly found in contracts of sale, hire and lease, in employment contracts, contracts of carriage and building contracts, and also in torts affecting property and deceit.121 However, when it comes to professional negligence, whether the claim be in contract or in tort, there is great difficulty in identifying what is the normal loss because of the heterogeneity of circumstances involved in the cases. What is the normal loss when an auditor negligently fails to uncover a weakness in a company’s trading position or a sharp decline in its assets? What is the normal loss when the underwriting and managing agent of a Lloyd’s Name negligently exposes him to too great a risk without reinsurance? What is the normal loss when a solicitor gives negligent advice on a point of law or allows his client’s action to become statute-barred? 2.21 There is however one category of case, and one which covers a wide swathe, where one can identify with comparative ease the normal loss. This concerns the purchase of property, generally of land by sale or lease, where the purchaser has been negligently advised in relation to the purchase by surveyor, valuer or solicitor. The discussion of normal losses, and the problems in identifying them correctly, will concentrate on this type of situation.1. Normal losses
2.22 Where a client has purchased property in reliance upon a faulty and negligent survey of his surveyor or valuation of his valuer or where a solicitor has given wrong advice or made inadequate investigations on property which his client is purchasing, the property is likely to turn out to be of less value than had been anticipated. In such circumstances the normal loss is the amount that the client has paid for the property less its actual value in its existing state, and this amount forms the normal measure of damages.122 This should be true both for surveyors and valuers, where the defects in the property are likely to be physical, and for solicitors, where the defects are generally not physical.123 However, the first cases addressing the problem stated the normal measure differently, putting it as the expected value of the property less its actual value.124 While in these cases this appears to have made no practical difference because the expected value of the property and the price paid for it were the same, it would have led to an erroneous result had expected value and price paid diverged. For this way of stating the normal measure confused giving the claimant the benefit of his bargain with his solicitor, surveyor or valuer, to which he is entitled, with giving him the benefit of his bargain with his seller, to which as against solicitor, surveyor or valuer he is not. The error was exposed, for solicitors, in Ford v. White and Co 125 where the claimant claimed damages measured by the difference between the value of the purchased land subject to a restriction against building and its value free of the restriction but was held limited to the difference between the restricted value and the purchase price, which was in that case nil.126 Some time later the error was exposed, for surveyors, in Perry v. Sidney Phillips & Son 127 where the Court of Appeal were in no doubt that the measure of damages was the price paid for the house, bought by the claimant in reliance upon the defendant surveyor’s negligent report, less its actual value at the time of purchase. In Ford v. White and Co 128 Pennycuick J, by using extreme figures, gave a dramatic illustration of the difference between the true normal measure and the false.129 An art expert, consulted by a client about a picture on sale for £100, negligently advises him that the picture is an old master worth £50,000. The client buys it at the asking price but is able to sell it for only £5, its true worth. Pennycuick J asked whether the measure of damages should be £95 or £49,995 and concluded, rightly, that it should be £95. 2.23 Where in reliance upon a faulty and negligent valuation by his valuer the client has not purchased the property but has lent money on the security of the property, the same sort of error has appeared. It did so in the Court of Appeal in Swingcastle v.Gibson 130 where the lenders, who had sold the property for more than they had lent, were held entitled to add to the loan the very high contractual interest which had accrued and to claim the amount by which loan plus contractual interest exceeded the sale price. The House of Lords reversed this decision,131 Lord Lowry pointing out that “the fallacy of the lenders’ case is that they are trying to obtain from the valuer compensation for the borrowers’ failure and not the proper damages for the valuer’s negligence”.132 The normal loss would simply be constituted by the amount by which the actual value of the property fell below the amount lent; whether or not regarded as part of the normal loss, statutory interest could be added to this but not the higher contractual interest. 2.24 Just as the purchaser of property is not entitled to recover the difference between its expected value and its actual value, he is similarly not entitled to recover the cost of repairs to the property which will bring it up to its expected value. Indeed the one ought to follow from the other but that the cost of such repairs is not recoverable was not finally established, in the context of surveyors’ negligence, until Watts v. Morrow. 133 In that case a husband and wife had purchased a country house, in reliance upon a surveyor’s report which failed to reveal substantial defects, for a price which was greater than its true value, and proceeded to effect repairs to remedy the defects, which repairs cost over twice the difference between the price paid by the claimants and the true value of the property based upon the unchallenged evidence of the claimants’ expert. Bingham LJ pointed out that, if the claimants were to end up with the house plus the cost of repair by way of damages, they would have obtained the house for substantially less than the value of the house in its true condition. “Even if”, he said, “the defendant had properly performed his contract this bargain was never on offer. The effect of the award is not to put the plaintiffs in the same position as if the defendant had properly performed but in a much better one.”134 And Ralph Gibson LJ said similarly: “Recovery of the cost of repairs after having gone into possession…is not a position into which the plaintiff could have been put as a result of proper performance of the contract.”135 2.25 Yet there is no suggestion that the expected or represented value was greater than the price paid by the claimants in Watts v. Morrow 136—it may be assumed that the two were thought to be the same, with the claimants having made neither a good nor a bad bargain—so that declining to award the cost of repairs was not necessary in order to ensure that the claimants obtained only the benefit of their bargain with the defendant surveyor and not the benefit of their bargain with their vendor. The difference between the two measures advocated, viz., price paid less actual value and cost of repairs, arose from the fact that the repair cost exceeded, and substantially exceeded, what was put forward as representing the diminution in value, effectively price paid less actual value. It is thought that in these circumstances there may be a good case for awarding the cost of repair, although this would be a move from compensating for a normal loss to allowing for a consequential loss, and therefore appropriate for consideration later.137 Assume a newly married couple buying their first home. Had they been properly informed by their surveyor of the parlous condition of their chosen house, it is highly unlikely that they would have bought it after negotiating a reduced price as they would have no desire to live in a home full of defects. They would not have bought it at all but, having done so in reliance upon their surveyor’s report, why should they be required to suffer all the irritation, stress and loss of time in selling and starting all over again in a search for a substitute home? Allowing them the cost of repairs in no way gives them a profit since the damages will be expended on the repairs and the house will be worth, assuming a level market, precisely what they paid for it. The thinking behind the judgments in Watts v. Morrow 138 may require reconsideration. It may be that it was appropriate for the particular case where the claimants were both well off and buying a second home, but it is interesting to see that the decision was distinguished, and cost of repairs of a prestige company headquarters awarded, in the unreported case of Zeneca plc v. King Sturge.139 Furthermore, the immutability of the Watts v. Morrow rule has been thrown into further doubt by the Court of Appeal’s decision in Large v. Hart.140 In that case a surveyor who was negligent not just in failing to bring defects to the attention of claimants but also in failing to advise them to undertake further investigations and not to proceed unless they had an architect’s certificate, was held liable for a diminution in value measure which embraced not just the defects which the surveyor negligently failed to report but the entire consequences of the purchase including by reason of latent defects which a competent surveyor could never have been expected to identify. The Court of Appeal arrived at such a result having deployed SAAMCO reasoning about the scope of the duty undertaken and the loss within the scope of the duty and the case illustrates the proposition that such reasoning can lead the courts to revisit and modify long-established rules as to how loss in such cases should be assessed. It remains to be seen whether in other cases reasoning of that kind will be used further to undermine Watts v. Morrow. 2.26 A somewhat different dichotomy of potential recovery finds illustration in Duncan Investments Ltd v. Underwood 141 where an ambiguity in the meaning of actual value had to be resolved before arriving at the normal loss. A portfolio of properties was bought by the claimant in reliance on the defendant estate agent’s negligent advice as to the prices which the individual properties would realise. The value of the properties if sold individually was substantially greater than if sold en bloc and the Court of Appeal, reversing the court below, took the former value since the parties had only had that value in mind; the defendants had advised on individual prices and knew that the claimant proposed to sell the properties individually. This led to a lower figure for normal loss; indeed if the court had allowed the higher figure contended for by the claimant, it would effectively have been giving him the better part of the benefit of his bargain with his seller which, as has been seen,142 is misconceived.2. Consequential losses
2.27 Consequential losses are made up of all losses beyond the normal loss. Since the normal loss has been examined in the context of purchase of property where the purchaser has been negligently advised or misinformed in relation to the purchase by surveyor, valuer or solicitor,143 it may be instructive to look at some illustrations of consequential loss in the very same type of case. 2.28 Where the purchaser would not have acquired the property but for the professional’s negligent misinformation or advice, he has been held entitled to recover, in addition to the normal loss,144 the cost of extricating himself from the transaction. This may be seen as a consequential loss and it is often a loss of some significance. An important illustration of such costs, but in the context of solicitors’ rather than surveyors’ negligence, is Hayes v. James and Charles Dodd,145 a case often contrasted with the surveyor’s case of Watts v. Morrow 146 which has been dealt with under normal loss.147 A claimant husband and wife bought property on which to run a business. The defendant, their solicitor, had assured them, wrongly, that there was access to the property at the rear. Such access was vital to the success of the business and the lack of it meant eventual failure and closure. The claimants were held entitled to recover for the capital expenditure thrown away in the purchase; this was held to include bank interest on a loan raised to fund the purchase.148 An important feature of the case is that not only would the claimants, if properly advised, have refused to buy the property but also they would not have bought an alternative property. By contrast, in Patel v. Hooper & Jackson 149 where another property would have been acquired by the claimant purchasers of a house, they were held entitled as a consequential loss to the cost of alternative accommodation until resale—the claimants had never moved into the house, which they alleged to be uninhabitable, and had not sold it by the time of trial—but not to reimbursement of mortgage interest payments or of endowment policy and household insurance premiums. These costs would have been incurred in respect of the alternative house the claimants would have purchased and therefore did not constitute a consequential loss arising from the defendants’ default. See also Funnell v. Adams & Remer (A Firm) 150 where the claimants sought the costs of extricating themselves from a lease containing a rent review clause which, due to the negligence of the defendant solicitors, resulted in a significantly higher rent than would otherwise have been payable. The defendants claimed that the costs of extrication were not recoverable as the claimant’s business was flawed and that the claimants would have had to abandon the lease in any event. Wilkie J said: “The act of extricating oneself by taking reasonable steps from a predicament does not, merely by virtue of that, break the chain of causation… That, however, cannot undermine the primary principle that there has to be a causal link between the loss suffered and the fault giving rise to the claim. To do otherwise would be to place the Claimants in a better position than they would have been in had the negligence not occurred in that they would be compensated for a loss which they would still have suffered even if the Defendant had not been negligent.” 2.29 The possibility of the recovery of the costs of extrication from the transaction has been recognised in other cases. Thus if the client, discontented with the defective state of the house which he has purchased in reliance upon his surveyor’s negligent survey, decides to sell it, it is accepted that the expenses of moving in and out, and of reselling and repurchasing, are recoverable in addition to the normal loss.151 On the other hand, it is thought that, while it remains the law that the cost of putting the property into the condition as represented by the surveyor is not recoverable even where the represented value is no higher than the price paid by the purchaser for the property,152 it would be inappropriate to consider as a consequential loss of the negligent breach of contract the expenses of moving in and out, and of alternative accommodation, during repair, for which expenses there should therefore be no recovery as such.153 2.29.1 Loss of profits, a common recoverable consequential loss in the general run of damages cases, is much less likely to feature as an item of recovery in matters of professional negligence. Staughton LJ commented in Hayes v. James and Charles Dodd 154 that the trial judge had been right not to award the claimants damages in respect of the profit they would have made had they been able to run their business successfully,155 and this is confirmed by Stanley Kenneth Oates v. Anthony Pitman & Co 156 where the property had been bought by the claimants to carry on a business of holiday lettings, a use for which the defendant solicitors had failed to discover there was no planning permission. No loss of profit arose from the purchase itself, and if the property had not been bought no business could have been started and no profits made. See too Jenmain Builders Ltd v. Steed & Steed,157 where the solicitor’s negligence had lost the claimant property developers the opportunity of purchasing a property and their damages were held to be limited to the difference between the market value of the property and the price at which they could have bought, which on the evidence available was nil, and did not include the development profit that they would have made. 2.29.2 However, there is no absolute rule that profits may not be recovered, and much will turn upon a close analysis of what transaction might have taken place but for the negligence in question. Thus, in Jenmain a further rationale given by Chadwick LJ for the denial of any recovery for lost profits was the lack of evidence that the developer could not have deployed its capital elsewhere so as to make a similar profit to that it had hoped to derive from development of the property whose purchase had been frustrated. Absent such evidence the court was entitled to assume that the loss of the opportunity to purchase the particular property had not caused any loss of profits. Although the claimant in Jenmain had not laid proper foundations for his claim, the reasoning of Chadwick LJ on this point suggests that a claim for loss of profits might lie, or at least that it would surmount such a preliminary objection, if a claimant can adduce evidence that the transaction he would have engaged in but for the negligence would have been profitable, or more profitable, than the position in which he in fact found himself. Of course, the evidence might suggest that the claimant would have entered the same transaction on the same terms, or that he would have entered into no transaction, in which cases there could be no claim to a loss of profits, but if there is evidence that he would have entered into the same transaction on more profitable terms, or that he would have entered into a different, profitable, transaction, then there would at least be the starting point for a claim. Thus, in East v. Maurer,158 in a context other than professional negligence, a claimant recovered as consequential losses the profits that she would have made in an alternative hairdressing business which she would have purchased had it not been for the defendant’s fraudulent misrepresentation. Of course, in a case of professional negligence there may be many other reasons why lost profits may not be recoverable, not least because they may not lie within the scope of any duty of care owed by the defaulting professional, or on account of problems of causation, or because they are simply too remote.159 However, it is submitted that on the right facts such loss and damage ought to sound in damages and, in the course of giving judgment on a preliminary issue as to limitation in Havenledge v. Graeme John, Richards J was satisfied that it was at least arguable that a company which had purchased a nursing home built over mine workings should be able to recover against its solicitor (who had not obtained a coal mining report) the profits which it might have made had it acquired an alternative nursing home instead (which it said it would have done had the mine workings been reported to it).160 In Keydon Estates Ltd v. Eversheds LLP 161 a similar approach was taken, to the extent that Evans-Lombe J allowed the claimant, an investor in commercial property, to recover damages reflecting the difference between the losses incurred on its investment in the property affected by a solicitor’s negligence and the income stream that it might have derived had it invested its capital in an alternative property. Consequential losses based on profits which would have been made by a developer were recovered in an action against a licensed conveyancer in Paul Joyce v. Bowman Law Ltd.162 In that case the negligence had caused a developer to lose the chance of developing certain land and the developer was awarded the value of that lost chance taking account of the profit which might have been made had the land been developed. Such losses were held to be recoverable because they were within the contemplation of the parties and thus within the second rule in Hadley v. Baxendale. In Kirkton Investments Ltd v. VMH LLP 163 the Outer House of the Court of Session upheld a claim by a property developer against solicitors to damages reflecting the lost chance of completing a development and selling profitably prior to a market downturn. In contrast, the same court in Phimister v. DM Hall LLP 164 would have denied recovery of lost development profits if a surveyor had been held negligent because such a loss was not foreseeable to the surveyor who had been instructed to value property on the open market for residential purposes and did not know of the pursuer’s intentions to develop it. Another English case in which a claimant succeeded was John Grimes Partnership Ltd v. Gubbins,165 in which an engineer had negligently caused the delayed completion of a housing development and had to compensate the developer for lost profits forgone in a falling market. That case was followed in turn in Leggett & Ors v. Giambrone Law LLP,166 in which purchasers of off-plan apartments in an Italian development recovered damages reflecting the lost opportunity to invest their capital more profitably elsewhere. 2.30 Sometimes the consequential losses are in place of, rather than additional to, the normal loss. In Ladenbau (UK) v. Crawley & De Reya 167 the defendant solicitors had failed to notice, on property which the claimants were buying for resale, an encumbrance by way of a mistaken entry in the register of common land. This delayed the resale, which was at a handsome profit, until the register was eventually amended whereas, had the encumbrance been known from the start, the register could have been amended in time for the resale to go through on schedule. Here the consequential loss consisted of the interest on the claimants’ mortgage loan and on their profit from the resale from the originally agreed completion date for the resale to the date when such completion became possible.168 In Patel v. Daybells 169 a sports club was purchased by a company in circumstances where the vendor failed to discharge a subsisting charge. The defendant, solicitors for the company, objected that the only loss recoverable was the diminution in value of the club referable to the presence of the charge, which, as the charge had subsequently been discharged, was nil. Gray J disagreed with that submission and, although his observations were obiter, he held that had liability been established he would have been prepared to depart from the “diminution in value” rule so as to award the claimants compensation for such of their losses occasioned by the delay in selling the club as were attributable to the continued existence of the charge. In Murray v. Lloyd 170 the client’s purchase of a leasehold property had been made, on her solicitor’s advice for tax purposes, in the name of an offshore company. The result of this was that her right to apply for a statutory tenancy was lost as she was unable, without her landlord’s consent, which was refused, to have the tenancy assigned to her. Since, but for her solicitor’s negligent advice, she would have purchased the lease in her own name, she was entitled to be put in the position she would have been if that had happened; this involved giving her the cost of acquiring similar rights of occupation elsewhere. Again this was a consequential loss where there was no normal loss. Indeed in each of these last two cases the purchase price was unaffected by the negligence—and the claimants would have acquired the property in any event—thereby removing the normal loss and the normal measure of damages from the scene. 2.30.1 Consequential losses are of infinite variety and cannot all be catalogued here.171 All that is of concern here is the description and definition of consequential loss. Establishing the existence of a consequential loss does not establish or guarantee its recoverability. It may, for instance, find itself shipwrecked on the rocks of legal causation or of remoteness or scope of duty,172 a fate hardly likely to befall the normal loss. Again, the consequential loss may be there but be irrecoverable because it could and should have been avoided through mitigating steps by the claimant; this indeed can from time to time be true also of the normal loss. Pilkington v. Wood,173 where property had been bought with a defect in title which the buyer’s solicitor had failed to discover, well illustrates both a claimant’s failure to recover certain consequential losses because too remote and his success in resisting the defendant’s contention that mitigation principles prevented recovery of the normal loss.1743. The date for assessment
2.31 The general rule is that damages fall to be assessed at the date when the cause of action accrues,175 in contract at the date of breach, in tort at the date when the negligence results in damage; in most cases of professional negligence where there is concurrent liability in contract and tort, this will prove to be the same date as the date of breach will also be the date of the transaction or other event causing loss. However, as Lord Browne-Wilkinson pointed out in Smith New Court Securities Ltd v. Citibank,176 “recent decisions have emphasised that this is only a general rule: where it is necessary in order adequately to compensate the plaintiff for the damage suffered by reason of the defendant’s wrong a different date of assessment can be selected”. More particularly, Lord Steyn in the same case said:“It is right that the normal method of calculating the loss … is the price paid less the real value of the subject-matter of the sale. To the extent that this method is adopted, the selection of a date of valuation is necessary. And generally the date of the transaction would be a practical and just date to adopt. But it is not always so. It is only prima facie the right date. It may be appropriate to select a later date. That follows from the fact that the valuation method is only a means of trying to give effect to the overriding compensatory principle.”177