Property purchased for income stream — Negligent advice from solicitor — Assessment of damages — Whether confined to diminution in value — Whether correct measure based on loss of opportunity to obtain similar income stream from alternative property — Claim allowed
The claimant was a small commercial property investment company. It retained the defendant firm of solicitors to advise on the purchase of the freehold reversion of a commercial office building, that was subject to a 25-year lease, dated 1997, in favour of WPD. WPD had, in turn, sublet to its subsidiary for a term expiring at the same time as the headlease. An issue arose over the enforceability of WPD’s covenant to pay rent under the lease; there was a question as to whether the grant of the sublease for the remainder of the lease term might operate as an assignment of the 1997 lease. Ultimately, the defendant advised the claimant that the underlease did not so operate, and that, accordingly, WPD was not released from its obligations under the 1997 lease and remained liable on the covenants that it contained.
The subsidiary subsequently went into administration. WPD refused to make payments of rent to the claimant under the 1997 lease, claiming that the underlease had operated as an assignment. WPD succeeded in a subsequent arbitration on that matter.
The claimant then brought proceedings against the defendant for negligence and breach of contract. The defendant admitted negligence, but a dispute arose as to the correct basis for assessing damages. The defendant contended that these should be confined to the diminution in value of the property as a result of its advice having been incorrect. The claimant argued that damages should be based upon the amount of income that it had lost in respect of the property, including both the loss of income stream that had actually occurred at the date of judgment plus any future income. It based that claim upon the assertion that, had it been correctly advised, it would have purchased a different property from which to obtain such an income, and that the defendant’s negligence had lost it that opportunity. It was common ground that the defendant had known from the outset that the claimant was proposing to acquire the property, not to occupy, but as an investment from which a secure rental income would be generated.
Held: The claim was allowed.
The evidence showed that if the claimant had not proceeded with the purchase of the property, it would have invested the same money in another property that met as many of its purchase criteria as was possible. Comparable properties had been available at the time of purchase or shortly thereafter. In the circumstances, the diminution-in-value rule should not be applied when assessing the damage suffered by the claimant. That rule was not of universal application, but it could be departed from if the facts of the case demonstrated that its application would cause injustice to the injured claimant. The claimant’s alternative method of assessment would be broadly accepted, subject to a caveat that the court should be astute to ensure, so far as possible, that the adoption of the alternative method did not produce overcompensation or double recovery. The appropriate point at which damages fell to be assessed was the date of judgment. The correct approach was to reach a factual conclusion as to what use the claimant would have made of the money that, on receipt of correct advice as to the effect of the sublease on the 1997 lease, it would have refrained from spending on the purchase of the property. In assessing damages, the starting point was the loss incurred in respect of the property actually purchased, with appropriate adjustments to recognise that the loss for which compensation was being awarded was not the loss of income stream from that property, but the loss of a similar alternative income stream. The claimant was also entitled to be compensated for the loss of WPD’s covenant to keep the property in good repair: Greymalkin Ltd v Copleys [2004] EWCA Civ 1155; [2004] PNLR 44, Livingstone v Rawyards Coal Co (1880) LR 5 App Cas 25 and South Australia Asset Management Corporation v York Montague Ltd [1996] 2 EGLR 93; [1996] 27 EG 125 considered.
John Martin QC and Graeme McPherson (instructed by Manches) appeared for the claimant; David Hodge QC (instructed by Weightmans) appeared for the defendant.
Sally Dobson, barrister
