Hotel – Commercial loan – Possession proceedings – Respondent solicitor giving incorrect advice to appellants in possession proceedings – Appellants claiming damages for loss of property, business and home – Judge finding in appellants’ favour on causation but concluding that business bound to fail in any event – Whether judge correct on causation – Whether judge erring in awarding nominal damages only – Appeal and cross-appeal dismissed
The appellants owned and ran a country house hotel. The property was subject to a 25-year legal charge with a commercial bank loan of £335,000 on terms that repayment of capital would be deferred and with monthly interest at 2% over its base rate, subject to a minimum of 9% (around £4,300 per month). In the event of a default in the payment of interest, the outstanding loan and all accrued interest would be repayable forthwith on written demand.
The bank became concerned about the viability of the business and, in March 1994, closed the appellants’ current accounts and withdrew their credit and debit card facilities. It also maintained that they were in default of interest payment obligations under the commercial loan and demanded repayment of the principal and interest due. In July 1994, the bank instituted possession proceedings against the appellants, who were wrongly advised by the respondent solicitor that they were in default of the loan agreement and had no defence to the possession proceedings. In fact, they were not in default owing to the deferred capital repayment arrangements and an interest holiday that was allowed by the bank.
The appellants accepted the respondent’s advice and, in November 1994, they consented to a possession order suspended on condition that they cleared their bank overdraft and paid around £2,800 per month towards interest due under the reinstated loan. The business did not improve and the hotel closed. In October 1995, the bank obtained possession and sold the hotel, in January 1996, for £252,000, significantly less than the sum that was owed.
The appellants subsequently claimed damages in negligence against the respondent for loss of their hotel, business and home. The county court found in favour of the appellants on the issue of causation but held that the business had been doomed to fail in any event and rejected their claim for loss of up to 10 years’ profits and the alternative claim for loss of a chance to trade out of their difficulties. The judge held that the only measure of the loss, if any, was the net value of the hotel and business at the date of their dispossession, which, as it was less than their equity in the hotel, entitled them only to nominal damages. The appellants appealed and the respondent cross-appealed on the issue of causation.
Held: The appeal and cross-appeal were dismissed.
There was no hard and fast rule in negligence case that the measure of the loss would always be identified by reference to, and quantified as at, the date of the breach of duty. It turned on the facts and the application of common sense, an essentially evaluative role for the judge of first instance: Galoo Ltd v Bright Grahame Murray (a firm) [1994] 1 WLR 1360 and Smith New Court v Securities Citibank NA [1997] AC 254 applied.
The ordinary measure of damages in an action against a solicitor for negligence in conducting litigation was the value of the chance of a better outcome than the one that occurred. If there was no such chance, no damages would be awarded.
In the instant case, it was plain from the way in which the appellants’ case was put to the judge and on appeal that the issues of causation and quantum were interdependent. There was no doubt that the judge had given full consideration to the prospects of the appellants being able to trade out of their own financial problems and the recession, both as a conventional claim for damages on the balance of probabilities and as one for loss of chance. On the evidence before him, the judge did not consider that either of those formulations of the claim had been established. If that view, which was supported by the evidence, was correct, it was difficult to see what conclusion he could have reached other than that the business was already doomed in 1995.
Robert Akenhead QC (instructed by the Bar Pro Bono Unit) appeared for the appellants; Bernard Livesey QC and Benedict Hubble (instructed by Morgan Cole, of Cardiff) appeared for the respondent.
Eileen O’Grady, barrister