Negligent advice — Mitigation of loss — Causation — Barrister negligently advising landlords that lessee entitled to new leases — Proceedings compromised and leases granted — Assessment of damages — Whether property being correctly valued on investment basis — Whether judge adopting proper approach to allowance for leases sold — Appeal and cross-appeal dismissed
The appellants were, respectively, a firm of solicitors and a barrister who had advised the respondents in respect of the leases of three flats in a building of which they owned the freehold. Upon the expiry of the leases, the lessee claimed the right to new leases pursuant to section 42 of the Leasehold Reform, Housing and Urban Development Act 1993. Although the respondents initially disputed that right by way of counternotices, proceedings were compromised on the basis that the counternotices were of no effect, and the lessee was entitled to new leases of two of the flats. Subsequent proceedings, in which the lessee contended that new counternotices were also invalid, were settled, with the respondents agreeing to grant long leases of the two flats for a premium of £190,000 each.
The respondents brought negligence claims against the appellants. The second appellant admitted negligence in having failed to advise the respondents that the lessee had no right to acquire new long leases because each had been granted for a term of less than 21 years and, therefore, did not constitute qualifying leases for the purposes of the 1993 Act. On the measure of damages, the respondents claimed that the property should be valued on an “investment basis”, assuming a sale in the open market to a hypothetical purchaser that was interested in acquiring the property for retention and letting. The second appellant contended that the valuation should have been by reference to the “post-negligence valuation” because, on the agreed figures, the market value of each flat with vacant possession was higher than the value to be assessed by capitalising the rent from an assured tenancy.
The High Court, accepting the respondents’ evidence that the property was purchased to provide income, took the view that their interest should be valued on the investment basis. However, it also held that the investment value had to be increased to £235,125 per flat, being the amount that the leasehold valuation tribunal (LVT) would have determined as the premium for the flats had the matter had been heard on the basis of valid counternotices: [2004] EWHC 1205 (Ch); [2004] PLSCS 138. The appellants appealed and the respondents cross-appealed.
Held: The appeal and cross-appeal were dismissed.
The diminution-in-value approach to the assessment of damages was a prima facie rule that governed the ordinary run of cases. Any departure from that approach had to be justified by the evidence and internally consistent. The appellants had failed to show that the normal diminution-in-value basis for assessment of damages was inapplicable on the facts of this case: Watts v Morrow [1991] 2 EGLR 152; [1991] 43 EG 121 considered.
The judge had adopted the correct approach to the allowance to be made for the value of the leases sold to the lessee. The reasonable consequence of the admitted negligence of the second appellant was that the respondents had to go through the statutory procedure prescribed by the 1993 Act. It was fair and reasonable to expect that that procedure would have resulted, in the absence of agreement, in the matter being determined by the LVT as the judge had decided.
David Hodge QC (instructed by Weightmans) appeared for the appellants; Mark Wonnacott (instructed by Davenport Lyon) appeared for the respondents.
Eileen O’Grady, barrister
