Negligence of solicitors–Client allowed to sell with vacant possession when tenants in occupation protected by Part II of Landlord and Tenant Act 1954–Assessment of damages–Client to be placed in as good a position as if contract correctly performed–Loss likely to flow from breach–Efforts to mitigate loss–Entirety of loss due to original wrong advice–Deputy judge’s order varied in quantum
This was an
appeal from a decision of Sir Douglas Frank QC, sitting as a deputy judge of
the Queen’s Bench Division, in an action for negligence arising from the sale
by the plaintiff, Derek Leonard Rumsey, to Portgate Securities Ltd of shops and
offices at 60, 60a and 61 High Street, Egham, Surrey, the action being against
Owen White & Catlin, solicitors. The proceedings before Sir Douglas Frank
were reported at (1977) 241 EG 611, [1977] 1 EGLR 62.
A L Price QC
and H A P Picarda (instructed by Hewitt, Woollacott & Chown) appeared for
the appellants (defendants); R L Johnson (instructed by Rooks & Co)
represented the respondent (plaintiff).
Giving
judgment, LORD DENNING MR said: This is a tangled story. It arises
unfortunately out of negligence on the part of a firm of solicitors. The
problem is damages.
In 1973 there
were three shops, 60, 60a and 61 High Street, Egham. The owner of them was a Mr
Rumsey. Early in 1973 when the property market was exceedingly ‘buoyant’ (as
the estate agents describe it) Mr Rumsey was minded to sell the three shops and
use the proceeds of sale to set up a factory at Basingstoke. He employed estate
agents who introduced a company, Portgate Securities Ltd, as purchasers. They
were one of the subsidiaries of the Stern group. Mr Rumsey instructed a firm of
solicitors, Owen White & Catlin, to draw up the contract of sale. It was
dated April 26 1973. It took this form: the purchase price was £120,000 payable
by four instalments of £30,000. The first instalment was payable at once on
April 26 1973 (£30,000), the next two instalments on July 26 1973 and October
26 1973. The last instalment was payable on the date of completion. The date of
completion was May 10 1974. Note the date. The contract contained the important
provision: ‘vacant possession shall be given on completion.’
The purchasers
duly paid the first three instalments of £30,000 each, making £90,000, by
October 26 1973. But then a difficulty arose about giving vacant possession.
The tenants in the shops were protected by the Landlord and Tenant Act 1954.
Each was entitled to a new lease unless there were grounds for getting him out.
The solicitors thought that Mr Rumsey had a right to get them out. Section
30(1)(f) of that Act enables a landlord to get a tenant out if he intends to
demolish or reconstruct the premises. But the solicitors made a serious
mistake. The only landlord who can avail himself of that provision is a
landlord who himself intends to demolish or reconstruct the premises. Here it
was plain that Mr Rumsey did not himself intend to demolish or reconstruct the
premises at all. So he could not himself get them out. Only the purchasers
could get them out–and then only after the purchase had been completed. It was
then and then only that they could say that they were landlords who intended to
demolish or reconstruct the premises. It was in December 1973 that the mistake
was discovered. The opinion of counsel was taken. It was then realised that Mr
Rumsey could not implement his obligation to give vacant possession on May 10
1974 unless the tenants could be bought out or got out in some way. One of the
tenants refused to be bought out. He was determined to stay. So Mr Rumsey was
unable to implement his contract–owing to his solicitors’ mistake.
In an attempt
to rectify the mistake the solicitors advised Mr Rumsey to try to make a
rearrangement with the purchasers Portgate Securities Ltd so as to convey the
shops to them forthwith and enable them to get the tenants out on the ground
that they intended to demolish the shops or reconstruct them. Such a
rearrangement was made. The solicitors advised Mr Rumsey to enter into a new
agreement. It was made on January 28 1974. On that day the title to the
property was at once conveyed to Portgate Securities Ltd. By the agreement it
was provided that vacant possession was to be obtained by June 7 1974 and the
fourth instalment of £30,000 was thus to be paid. The solicitors no doubt
thought to themselves, ‘If Portgate are the landlords, they can get the tenants
out and vacant possession should be able to be given without difficulty by June
7 1974.’ This rearrangement was
beneficial to Mr Rumsey in that he would get the full purchase price from the
purchasers. It would also be beneficial to the solicitors, because they would
have avoided the consequences of their own mistake. This rearrangement
contained, however, some dangers for Mr Rumsey. The purchasers insisted that
vacant possession must be given by June 7 1974. To protect the purchasers a
clause was included which provided that if Portgate did not get vacant
possession by June 7 1974, then they could call upon Mr Rumsey to repurchase
the property for the sum of £90,000. That was the sum they had already paid to
him. On the repurchase he would have to pay back the £90,000: and there were
stipulations by which he was to reimburse Portgate for the expenses and charges
which they had incurred.
That agreement
was made on January 28 1974. No doubt the solicitors thought that all would be
well. But it was not well. One of the tenants, a Mr Stanley, refused to go. He
objected. The matter went to the county court. The judge made an order that he
was to go. But at this point it was discovered that the solicitors had
overlooked something else. They had forgotten (in January 1974) that under the
Landlord and Tenant Act a tenant is given an additional three months: and, if
there is an appeal, he can stay in possession until the appeal is determined.
Owing to that oversight, it was impossible for the landlords to obtain vacant
possession by June 7 1974. They did not obtain vacant possession by that date.
So Portgate Securities, as they were entitled to do, called upon Mr Rumsey to
repurchase the property, to
By this time in June 1974 when the purchasers required Mr Rumsey to repurchase
the shops, the property market had fallen to the very bottom. The Stern Group
had collapsed. So had many other companies. The property was now worth only
£58,000. So here was Mr Rumsey committed to repurchase the property for £90,000
when it was worth only £58,000. He could not do it. He had not got that £90,000.
He had been committed elsewhere to his Basingstoke venture, and the like. So he
could not repurchase. Portgate remained the owners and claimed damages from
him. The solicitors did not acknowledge their mistakes. They actually sent him
their bill for all their costs. In answer he said: ‘It is you, the solicitors,
who have really landed me in all this trouble, and I want damages from you for
your negligence.’ He went to other
solicitors and claimed damages from Owen White & Catlin.
The case came
before Sir Douglas Frank in July of last year. It is now admitted that the
solicitors were negligent in April 1973 in letting Mr Rumsey undertake to sell
‘with vacant possession,’ when he could not give it because there were tenants
protected by the Landlord and Tenant Act.
Now what are
the damages to be? We have had a lot of
discussion. The principles are well established. They start with British
Westinghouse Electric & Manufacturing Co Ltd v Underground Electric
Railways Co of London [1912] AC 673. The general principle is that ‘he who
has proved a breach of a bargain to supply what he contracted to get is to be
placed as far as money can do it in as good a situation as if the contract had
been performed.’ So I ask myself, if the
contract of employment had been performed, that is, if the solicitors had given
Mr Rumsey the right advice and told him that he should only sell subject to the
tenancies; and that he should let the purchasers get the tenants out as they
could, what price would he have got for the property then? There was a good deal of discussion about
this before Sir Douglas Frank. Various figures were stated. £102,000 was
suggested on behalf of the solicitors. £105,000 was mentioned. Mr Rumsey’s
advisers said £120,000. Eventually the judge, after hearing all the evidence,
came to the conclusion that the figure of £112,000 was the right figure. I will
not go into all the arguments and the pros and cons. It seems to me that if
£120,000 (payable by instalments over a year) was the price that Portgate were
willing to pay for it with vacant possession at the end of a year, it is not
unlikely that £112,000 would be the price which might well have been obtainable
in April 1973 by a purchaser who was ready to pay that sum down and get the
tenants out himself. I would not interfere with the judge’s finding that, if
the solicitors had given proper advice, £112,000 would have been obtainable in
April 1973.
Going on with
the story, we know that Mr Rumsey had in fact received £90,000. He had not got
the property any longer–the property had been conveyed to the purchasers. So he
received £90,000 for the property for which he ought to have got £112,000. So
on that simple calculation he has lost £22,000. It seems to me that that is the
first head of damage. Then there arises this big problem: it is said by Mr
Rumsey that, owing to the fault of the solicitors, much damage has followed
because he has been exposed to a liability to Portgate Securities Ltd. They are
suing him for damages because he did not repurchase the property for the
£90,000 as he ought to have done and paying the costs and so forth. They are
suing him for damages because they say that, when he ought to have repurchased,
it was worth only £58,000: and they have lost the difference in value and all
the costs etc. Portgate have got this big claim against him. We are told that
Mr Rumsey has no defence to their claim except as to the amount of damages.
Portgate have actually got judgment for part of their claim, amounting to
£23,000. They want more and there is to be an inquiry as to damages. So he says
he is exposed to this liability to Portgate. The question is whether or not he
can recover it against the solicitors.
It seems to me
that we have to deal with this in accordance with the ordinary principles as to
the measure of damages for breach of contract. They have been stated in Koufos
v C Czarnikow Ltd [1969] 1 AC 350, and H Parsons (Livestock)
Ltd v Uttley Ingham & Co Ltd [1977] 3 WLR 990. The damages are
those which could reasonably be in contemplation at the time of the breach as
being not unlikely to flow as a consequence of the breach.
It seems to me
that, if the solicitors had had it in mind that Mr Rumsey could not give vacant
possession, they would reasonably have contemplated that the solicitors and Mr
Rumsey would try to make some rearrangement with the purchasers. That is
exactly what was done in January 1974. They did what seems to me to be entirely
reasonable. They made a bona fide attempt to save the situation. If only it had
been saved–by getting that other tenant out by June 7 1974–all would have been
well. The property would have been purchased for the £120,000, and the deal
would have gone through without question. It was a very good arrangement which
was reasonably in contemplation. But also it must have been in contemplation
that the new agreement might fall down and might not be fulfilled. That is
shown by the very terms of it: because it made provision as to what was to
happen if vacant possession were not given by June 7 1974. It said that Mr
Rumsey was to repurchase for £90,000. So they must have contemplated that it
was not unlikely that the agreement would not be fulfilled. Then it is said:
‘Oh, well; Mr Rumsey ought to have fulfilled the contract himself. His failure
to repurchase it for the £90,000 broke the chain of causation. It was his own
fault; he ought to have paid back that £90,000.’ The answer to that is that the solicitors and
everyone there knew that that was not a practical proposition. Reading through
the correspondence and the matters which have been put before us, it is quite
plain that the solicitors knew perfectly well that this money he was
getting–this £90,000–was to be used for his other venture in Basingstoke. So it
must have been within the reasonable contemplation of the parties that he might
not be able to repay that £90,000; and it must also have been within the
reasonable contemplation of the parties that it was not unlikely that that
would expose him to claims by Portgate.
As to the
undertaking in January 1974 (which really has caused a lot of the trouble) it
seems to me that it was an entirely reasonable step to take on the part of
everyone, but unfortunately it miscarried. In this context I would recall the
words in the case of Banco de Portugal v Waterlow & Sons Ltd
[1932] AC 452 at p 506 of Lord Macmillan. He said:
Where the
sufferer from a breach of contract finds himself in consequence of that breach
placed in a position of embarrassment the measures which he may be driven to
adopt in order to extricate himself ought not to be weighed in nice scales at
the instance of the party whose breach of contract has occasioned the
difficulty. . . . The law is satisfied if the party placed in a difficult
situation by reason of the breach of duty owed to him has acted reasonably in
the adoption of remedial measures and he will not be held disentitled to
recover the cost of such measures merely because the party in breach can
suggest that other measures less burdensome to him might have been taken.
So there it
is. Mr Rumsey was placed in a very difficult position in January 1974 by reason
of the unfortunate wrong advice by the solicitors in April 1973. He took
measures–very reasonable measures (in which the solicitors were advising
him)–to try to overcome the difficult situation which existed. In those
circumstances, the consequence of those measures, unfortunate as they are, is
that he has been landed with this big liability to Portgate Securities Ltd. It
seems to me that it must have been within the reasonable
consequence of this initial negligence.
Mr Price has
urged upon us very strongly that the January 1974 agreement was a new departure
altogether. It was a cut-off point, he said. Any consequences arising from that
agreement were the consequences of Mr Rumsey’s own failure to repay that
£90,000, he said. For the reasons I have given, I do not think it was a cut-off
point. I do not think there was a break in the chain of causation. All these
consequences flowed one after the other from the initial fault. So it seems to
me that Mr Rumsey not only gets his £22,000 but he ought to recover a further
sum such as would represent his proper liability to Portgate in the unfortunate
situation which has happened. I do not think it is possible to ascertain that
sum now. It is the subject of proceedings between Portgate and Mr Rumsey. It
may be that the property–I see there is a reference in the papers–has gone up
in value much above £58,000. Someone suggested that it has gone up to £100,000.
That increase in value may well go to diminish the claim by Portgate against Mr
Rumsey. So it may be that Portgate will not be awarded such a large sum against
Mr Rumsey as was at first suggested. At all events, I do not think that the
amount of the further sum can be resolved until after the proceedings between
Portgate and Mr Rumsey are disposed of. When that is done, this case should be
mentioned again or dealt with by a master in some other way so that the final
figure or judgment against the solicitors can then be ascertained. But at the
moment it seems to me that the proper figure should be not £54,000 as the judge
thought but £22,000 plus a further sum to be ascertained in a suitable manner
after the disposal of the proceedings against Mr Rumsey.
I would vary
the order of the judge accordingly.
Agreeing,
ROSKILL LJ said: I venture to add to my Lord’s judgment because of Mr Price’s
excellent argument.
There can be
no doubt that the defendants failed gravely and sadly in their duty to the
plaintiff. It is strange, to my mind, that that was challenged at the trial.
The learned deputy judge found that the solicitors had been negligent, as they
obviously were. The only question with which we are concerned is what the
proper damages are for that undoubted negligence. Mr Price put in the forefront
of his argument that there was either no damage or no appreciable damage
suffered because he claimed that one looked only at the position on the
relevant date and calculated the difference alleged in the value of this
property with and without vacant possession. Then one looked at the evidence of
the two valuers. One saw that on that evidence the two figures would very
nearly meet. So, basing himself on the Sale of Goods Act cases, he submitted
that there was no appreciable loss.
It would be
strange if that were the position, because the man in the street looking at the
facts here could not fail to reach the conclusion that Mr Rumsey has suffered a
very serious loss, and it would be curious, to say the least, if,
notwithstanding that obvious loss, the law denied him any relief.
Mr Price
founded his argument on a number of cases where solicitors have been in trouble
for negligent advice given to purchasers of property. For my part, I find no
help in those cases. One has in this case, the facts of which are now happily
undisputed although somewhat complicated, to resort to first principles in
order to ascertain what the right damages are. It has often been pointed out in
the House of Lords and elsewhere that there is no certain rule for the
assessment of damages which can be universally applied in all cases. Cases of
breach of contract vary enormously in their character both in the nature of the
contract and in the nature of the breach, and the court must always look at the
realities of the position and try as best it can to see what loss it is that
the innocent party has suffered subject, of course, to rules as to remoteness
of damage and as to mitigation of damage. But it is essential as my Lord has
said, to determine this case by reference to first principles of assessing
damages for breach of contract.
One finds
those first principles stated in classic terms by Lord Haldane, then Lord
Chancellor, in British Westinghouse & Manufacturing Co Ltd v Underground
Electric Railways Co of London Ltd [1912] AC 673 at p 689. He said: ‘The
fundamental basis is thus compensation for pecuniary loss naturally
flowing from the breach.’ Lord Reid said very much the same thing, as
my Lord has already mentioned, in Koufos v C Czarnikow Ltd [1969]
1 AC 350 at pp 382 and 383, where he said:
So the
question for decision is whether a plaintiff can recover as damages for breach
of contract a loss of a kind which the defendant, when he made the contract,
ought to have realised was not unlikely to result from a breach of contract
causing delay in delivery.
That case, of
course, was concerned with delay in delivery. His Lordship went on:
I use the words
‘not unlikely’ as denoting a degree of probability considerably less than an
even chance but nevertheless not very unusual and easily foreseeable.
The question
with which we are primarily concerned is one of causation. My Lord has stated
the facts, and I only repeat them to the extent necessary to explain what I am
about to say. The original agreement was entered into in April 1973. That was
when the breach of duty occurred. A subsequent agreement was entered into in
January 1974. It seems to me plain that when that second agreement was entered
into–I pass over the fact that Mr Rumsey was given no opportunity for
independent advice because that is not relevant–it was in the hope of
mitigating the damage for which the defendants must by then have known perfectly
well, although Mr Rumsey did not, they were going to be liable if this deal
fell through, because completion with vacant possession could not be given. It
had always been the position under the original April 1973 contract that that
£90,000, payable by those three first instalments, would have to be repaid if
completion with vacant possession were not given. The test of what is in the
contemplation of the parties is an objective test, and it must be taken to have
been both in the minds of Mr Rumsey and the solicitors at the time of that
April agreement that if vacant possession was not given that £90,000 would have
to be repaid. That position seems to me to remain entirely unaffected by what
happened the following January. That arrangement in effect was that the date
for completion, again with vacant possession, would be postponed, but on the
express terms this time that if it were not given the £90,000 would be repaid.
Thus it must be taken, I think, to be all part of one continuing transaction which
ought never in the first instance to have been entered into having regard to
the virtual certainty that Mr Rumsey was not going to be able to give vacant
possession. All this trouble arose because of a sensible agreement entered into
in January 1974 for the purpose of mitigating the damages for which the
solicitors were going to be liable.
Mr Price said
that the major part of the loss which arises from Mr Rumsey’s undoubted
liability to his purchasers, whatever it may be in terms of money, is too
remote to recover as damages from the solicitors. The argument runs thus. This
liability arose not from the original breach of duty in April 1973 but from Mr
Rumsey’s failure to comply with the January 1974 agreement in July 1974 because
he could not then complete with vacant possession. The argument has been most
attractively presented and at first I thought it had force, but the more I have
thought about it the more I realise that it contains a fundamental fallacy, in
that it ignores that one must regard the whole story as one continuous matter.
First, there was a breach of duty committed in April 1974; then an agreement
was entered into
place it would have been to the benefit of the defendant solicitors as well as
to the benefit of the plaintiff: and then there was the final failure to
complete with vacant possession in July 1974. I do not think it can be said
that there was a break in the chain of causation so that the ultimate liability
to Portgate arises from Mr Rumsey’s deliberate decision, no doubt brought about
by his then financial position, not to pay back the £90,000 and not from the
defendants’ breach of duty. It seems to me that that loss arose directly from
the original breach of duty.
My Lord
referred to the well-known speech of Lord Macmillan in the Waterlow
case, and I will not repeat it. The courts do not look favourably upon claims
by contract-breakers that they should not pay for what has so plainly arisen
from their own breach of contract merely because a plaintiff has suffered a
loss in trying to get himself out of trouble not of his own making. It seems to
me that it would be quite unrealistic to try to break this case down into
separate compartments and say that one part of the loss flows and the other
part of the loss does not. The entirety of the loss, in my view, flows from the
original wrong advice and the exposure of Mr Rumsey by that wrong advice to a
contract he should never have been allowed to enter into. At the outset of his
argument Mr Johnson said that given proper advice Mr Rumsey would have sold the
property for £112,000 with the tenants in possession. In fact he has received
£90,000 and has been exposed to the Portgate claim. If that argument is right,
then the damages are £22,000 plus £X. The ‘X’ is at present not ascertained.
That argument has the great merit of simplicity, and the more I have thought
about it the more I have realised that there is no answer to it.
There remains,
therefore, the problem of how the matter should be dealt with. I do not think,
with respect, that the learned deputy judge approached it in quite the right
way. He may have intended to have reflected in the figure of £54,000 some part
of the liability to Portgate, but he did not express it in a way in which
effect could be given to his intention, if that was his intention. It seems to
me that the right way of dealing with this, as my Lord has suggested, is to
give Mr Rumsey judgment now for £22,000, but the remainder of his entitlement
to damages seems to me to be incapable of precise assessment unless and until
Portgate’s claim against him has been quantified. The position at the moment is
that there is interlocutory judgment against Mr Rumsey for the sum of £23,000.
For my part, I do not see why that sum is not recoverable from the defendants.
I think it plainly is. How much more is recoverable must await the
determination of that other case. Therefore, subject to the views of my Lords,
I would make an order in some appropriate form that after that claim has been
determined in the Chancery Division would be the appropriate time to fix the
final sum for which the defendants are liable to the plaintiff. Having regard
to the decision of this court in Trans Trust SPRL v Danubian Trading
Co Ltd [1952] 2 QB 297 the present would not be the right time to make a
declaration as to an indemnity.
For those
reasons, which I have given at some length in deference to the learned deputy
judge, I would vary his order. But subject to that the appeal should be
dismissed.
SHAW LJ also
agreed.
The appeal
was dismissed and the respondent’s cross appeal allowed, with costs. Judgment
was given for the respondent for £22,000 and interest, together with an
additional sum to be ascertained finally after proceedings between Portgate
Securities Ltd and the respondent had been determined. Leave for the appellants
to appeal to the House of Lords was refused.
