VIEW FROM THE BAR The calculation of damages for breach of contract can involve some spectacularly difficult issues.
Let’s say, for example, that I agree to sell you some butter; my supplier lets me down and I cannot perform my side of the contract: your loss is the sale price, which I must ordinarily return. But what if you needed the butter for a cake you were making to further your attempt to appear on The Great British Bake Off, which you cannot then enter, thus losing out on a valuable opportunity: what then is your loss? How do you value the chance you have lost, particularly when I allege that you are useless at making cakes, and would not have made it on to GBBO anyway?
A recipe for disagreement
This problem frequently arises in the context of land development agreements, where one party contracts to endeavour to do something, which will then enable the other party to do something else. So typically the developer promises to do its best to obtain planning permission, following which the landowner promises to sell its land to the developer. Planning permission is not granted; the landowner blames the developer, and sues it for the lost opportunity to sell the land; the developer contends that planning permission would never have been granted even if it had used its best endeavours, and so there is no loss.
A recent example of how the court approaches loss of chance cases is provided by the decision of the deputy judge last November in Brooke Homes (Bicester) Ltd v Portfolio Property Partners Ltd [2021] EWHC 3015. The facts of the case are complex (the hearing was held over nine days, and the judgment ran to 426 paragraphs), but can be simplified as follows.
The claimant, Brooke, is a developer, while the defendant, PPP, held various options to acquire development land intended for an ecotown near Bicester. The parties entered into an agreement under which they agreed to use all reasonable endeavours to enter into a final binding agreement acting in good faith, including the entry into a conditional sale agreement for an initial 100 acres of the land in question. Ultimately, the matter did not progress, and Brooke sued PPP among other things for breach of the agreement, seeking damages exceeding £600m (consisting primarily of the loss of profit it claimed it could have achieved by acquiring, developing and selling the land).
The judgment is informative for its elucidation of the types of endeavour which might be said to satisfy an obligation to use all reasonable endeavours; for its explanation of the ramifications of the obligation to act in good faith; and for its discussion of the extent to which either party might have regard to its own commercial interests in fulfilling those obligations. But it is its analysis of the approach to the valuation of a lost chance that is perhaps most useful.
Brooke complained that PPP was in breach of the obligation to use all reasonable endeavours, in that it did not advance the negotiations towards completion. This is a familiar complaint, particularly in the context of property transactions, where periods of inactivity by one party are said to constitute foot dragging, while the accused party is often able to put forward various excuses showing why it behaved as it did. Ultimately, the judge agreed with Brooke, holding that PPP had indeed failed to use all reasonable endeavours in that it did not produce a sale plan.
In addition, PPP had breached an exclusivity agreement by negotiating with third parties. As the judge held, PPP had unilaterally decided it was in its best commercial interests to seek to depart from the agreements.
Having identified the breach, the judge then dealt with the question of causation, and whether a balance of probabilities test should apply, such that Brooke had to establish that but for the breach it would have entered into an agreement, or whether the correct approach was to treat the case as a loss of opportunity, with the relevant question being whether there was a real and substantial chance of some benefit being lost.
Ultimately, the judge favoured the loss of a chance approach. That was because this was not a case where the uncertainty as to what would have happened had PPP not been in breach lay in the past, and could therefore be measured by reference to the balance of probabilities. Instead, the uncertainty was as to what might have happened in the future, and therefore proportionate damages were appropriate. Moreover, it was not appropriate to approach matters on the basis of the balance of probabilities, since the uncertainty arising did not just depend on what Brooke would have done (which would have favoured an all or nothing decision, based on the balance of probabilities), but also on what PPP and various third parties would have done.
By contrast, as the judge said, where a claimant can adduce evidence as to what it would have done, the court will expect it do so and will assess matters on the balance of probability basis; but beyond and outside that the courts will be willing to approach the matter more pragmatically and flexibly.
Generally speaking where the assessment requires consideration of a combination of a claimant and a third party’s actions it should be assessed on a loss of chance basis. The rationale for the distinction is that a claimant may be expected to adduce persuasive evidence about its own conduct (even though hypothetical), whereas proof of a third party’s hypothetical conduct may often be more difficult to adduce.
The key ingredients
And so to the actual result. The judge’s decision meant the correct approach to take was to assess matters on a loss of opportunity basis, since the assessment requires consideration of not just what Brooke would have done, or indeed what PPP would have done, but also what third parties would have done.
This means the question was focused on whether or not Brooke had lost the chance of securing a conditional sale agreement on beneficial terms. That led into a detailed consideration of what was likely to have happened, in relation to which the judge found that there was a 60% chance that Brooke would have acquired no more than the right to develop 500 units, from which its apportioned profit would have been £13.4m.
Guy Fetherstonhaugh QC and Elizabeth Fitzgerald are barristers at Falcon Chambers
