THE DEPUTY JUDGE:
1. On 2 December 2009 the claimant obtained summary judgment against the defendants for damages for breach of contract to be assessed. That judgment was obtained from Chief Master Winegarten. The Chief Master adjourned the issue as to the correct measure for assessment of damages. That issue has been before me. The claimant is Strategic Property Limited, which is represented by Mr Higgins. The defendants are Daragh O’se and Thomas Moriarty, who are represented by Mr Green.
Head Contract
2. On 23 June 2006, the claimant contracted with Telford Homes Plc (“Telford”) and another to purchase the leasehold property known as Plot 104, 14-26 Stanford High Street, London E15 (“the flat”) for £202,475. I shall call that contract “the head contract”.
3. The flat was one of a number being developed by
4. By clause 15(a) of that head contract, provision was made entitling the claimant to assign the benefit of that contract, subject to its having given, prior to a “trigger notice” calling for completion, notice stating that it had assigned or agreed to assign the head contract, specifying the assignee and his solicitors. Clause 15(b) provided that on service of such a notice of assignment of the benefit of the agreement, the claimant should be deemed to have assigned the benefit of the deposit to the assignee, and Telford would give credit for such deposit in the final completion statement.
5. In common with other contracts it had been making in relation to similar flats, the claimant sought to find, for profit, investors willing to be sub-purchasers of the flat.
Sub-contract
6. By a contract dated 31 July 2006, the claimant at clause 3.1 agreed to sell to the defendants its interest in the flat to the defendants for £222,500. At clause 3.2 the defined 10 per cent deposit of £22,250 was to be paid to the claimant’s solicitors as to the amount paid by the claimant as deposit under the head contract as agent for the claimant, and as to the balance (if any) as stakeholders. As can be seen there was a balance in this case, reflecting the fact that the purchase price under the sub-contract was greater than that under the head contract. By clause 3.3, it was provided that completion of the sale of the claimant’s interest in the flat should take place on the date on which completion was due to take place under the head contract, and the claimant agreed to procure that immediately on receipt of Telford’s notice triggering completion, which was defined in that sub-contract as the trigger notice, a copy would be forwarded to the defendants or their solicitors. At clause 3.4, it was provided that on completion, the claimant would procure the grant to the defendants by
7. It can be seen from comparison of the head contract and the sub-contract that the claimant planned to obtain on completion a profit in relation to the difference between the two prices of £222,500 and £202,475, thus a profit of £20,025. It was also receiving by the time of the sub-contract from the deposit under that contract, a £22,250 indemnity of the deposit it had paid under the head contract, and a further £2,002.50. The defendants duly paid their deposit under the sub-contract. Though, as I have noted, comparing the figures in the two contracts, shows the profit the claimant was anticipating making, in fact the copy of the head contract given to the defendants at the time of the subcontract had the price the claimant was paying redacted from the relevant schedule of the copy head contract.
8. For ease of discussion by me in the course of this judgment, I will call the head contract price £200,000 and the deposit £20,000 and the subcontract price £220,000 and the deposit £22,000.
Completion
9. Pursuant to a
10. I should note that Telford had, doubtless for commercial reasons, given the claimant time to obtain specific performance against flat owners and did not seek to rescind the flat head contracts whilst awaiting compliance by sub purchasers with provisions for specific performance. Though my next speculation does not inform my judgment, I assume that reasons for noncompletion have included financial embarrassment following the credit crunch and recession, and indeed linked to that, falls in the values of property between 2006 and the making of contracts and 2009 and the obligations to complete. Further, I am aware that during such time, many flats have been bought off plan by way of intended investments by Irish investors and that in this case both the claimant is an Irish company and the defendants live in
11. The sub-purchasers who belatedly complied with specific performance orders, doubtless did so to put right breaches of contract and the loss of their deposits. However, as I have said, some 26 of the sub-purchasers, including the defendants, failed to comply with the provisions for specific performance. That led the claimants to apply in the case of the defendants and, as I understand it, others of the non-complying sub-purchasers, on 17 November 2009, for an order lifting the stay of proceedings, discharging the Tomlin order and for damages to be assessed, in the case of the defendants, in the sum of £18,022.50. That sum was analysed in the statement of the claimant’s solicitors, Mr Freeman, made in support of the application. In brief terms, the calculation is the different between the flat head contract price and the subcontract price, which I have simplified, as I have said, for the purposes of this judgment at £20,000. Credit, though, was being given by the claimant through Mr Freeman for the difference between the two deposits which I have described. By a second statement in support of the application, Mr Freeman also offered on behalf of the claimant, a credit of £250 in relation to saved solicitors’ fees in relation to what would have been incurred had matters been properly completed.
12. Before Chief Master Winegarten, most of the application was conceded by the defendants. However, the defendants through evidence from their solicitors, resisted the claimant’s claim to damages in reference to its loss of profit, as opposed to damages sought in reference to the normal measure for damages claimed by a disappointed party to a conveyancing transaction, which is calculated in reference to the difference between the contract price and the market value of the property.
13. Mr Green informs me and Mr Higgins confirms, that Chief Master Winegarten indicated that he was minded to give permission to defend on the damages issue as to the proper amount of damages, but suggested in order to save costs of an appeal, that the issue as to the proper calculation of damages in such a case as this, should be referred to the judge. It is against that background that that matter has come before me.
14. Order 3 of the Chief Master provided for judgment for the claimants for damages for breach of contract to be assessed. Paragraph 3.1 of his order then gave the following directions, adjourning matters to the judge. Paragraph 3.1.1 of the order poses the question “whether the correct measure of assessment of damages in this action is to be calculated” and then there were further subparagraphs, 3.1.1.1 “as pleaded by the claimant in his application dated 17 November 2009” or, 3.1.1.2 “by reference to the difference between the contract price as stated in the contract between the claimant and the defendants and the open market value of the property to be ascertained as at 2 December 2009”, or 3.1.1.3 “on some other basis”.
15. The pleaded claim mentioned in paragraph 3.1.1.1 is the £18,022.50 which I have already described, subject to the later offer of a credit of £250 in relation to saved solicitors’ fees. The date for ascertainment of the difference posed in the question at paragraph 3.1.1.2, as the date of the order of the Chief Master, arises, and by agreement of the parties, in this manner. Ordinarily, damages calculated on such a difference are calculated at the date on which the purchaser in the case such as this, has failed duly to complete. However, in a case where, as here, the claimant vendor has reasonably sought first specific performance, but then at a later date for good reason has determined to elect instead to seek rescission of the contract, and that is allowed by the court, then the date for resolving the question of damages is the date of the order allowing rescission and damages for breach of contract. That follows from the decision as to when damages should be assessed in such a rescission case, of the House of Lords in Johnson & Anr v Agnew [1980] AC 367.
16. Following the Chief Master’s order on 2 December 2009 and on 8 December 2009,
The claimant’s submissions
17. Mr Higgins has of course noted the conventional method of valuation of damages for failure to complete a purchase of property where the damages are measured in reference to the difference between the contract price and the value of the land. He submits that the claimant’s case here is much more straightforward. He submits that arises because the subject matter of the subcontract was never the property itself which the claimant did not own and, he submits, never intended to own, but the contractual right under the head contract to call for the property to be vested in it or its assignees by
18. He contends that the failure by the defendants to complete made it impossible for the claimant to comply with its own obligations to complete the head contract, and that the right to call for the flat to be vested in it has now been lost because of the defendants’ failure to complete the subcontract which has in turn led Telford now to rescind the head contract. So, he submits, the consequences of the defendants’ failure to complete the subcontract has been that the claimant has lost its rights under the head contract and its deposit has been forfeited by
19. Underpinning those submissions is a brief paragraph in Mr Freeman’s first statement, paragraph 6. Mr Freeman first refers to the failure of the defendants to perform the subcontract and their unwillingness or inability specifically to perform the subcontract, despite the order for specific performance:
“As a result the claimant has been unable to complete under the head contract for purchase of the property.”
20. As I indicated during submissions, I consider that a brief and somewhat ambiguous statement. There was no legal reason why the claimant could not have completed its head contract timeously or during such extension as
21. Mr Higgins contends that basic compensatory principles apply to assessment of damages in case of failure to comply with orders for specific performance, and that the claimant should be put back in the position it would have been if the contract had been completed. In that case, as he submits, the claimant would have had the completion monies and been able to complete under the head contract and the benefit of the head contract would have passed to the defendants. He observes that that is what has happened in fact in those cases where completion has successfully occurred.
22. If that had happened, and as he submits, the claimant would accordingly have received the difference between the head contract price and the subcontract price. That is the profit in simple terms of £20,000 which I have noted. Mr Higgins submits that, in the event, the claimants have lost their deposit under the head contract and the right under clause 15 of that contract to assign the benefit of the head contract to a third party, and the profit I have described. Mr Higgins goes on to submit that in fact in relation to the deposit, the claimant has, of course, had the deposit from the defendants under the subcontract, which it can forfeit. It does not place any value on the loss of a contractual right to assign, so, Mr Higgins submits, the claimant is left in the position summarily to claim its lost profit less the credit it should give for the difference in the two deposits (and the fee saving).
The defendants’ submissions
23. Mr Green submits first that the head contract and the flat subcontract are two separate contracts with separate parties and obligations. As it happens, the claimant did not by way of assignment of the benefit of the flat head contract, proceed through a clause 15 notice, given prior to the trigger notice of
24. Mr Green submits secondly that the claimant has chosen not to complete the head contract and that, whilst Telford had postponed rescission of that contract until after the order of 1 December 2009, the claimant has suffered no real loss. The position, Mr Green acknowledges, might have been otherwise, if the claimant had completed the head contract and obtained the relevant leasehold interest in the flat. Then, Mr Green submits, its loss might have been calculated on the normal basis in practical terms, should the flat have been now worth less than £178,000. That figure, in simplistic terms, is the £200,000 price payable under the head contract, less the deposit obtained under the subcontract. An alternative would be to refer to £198,000, the difference between the sub-contract price and that deposit. Mr Green would accept it would be arguable on that basis of completion of the head contract, that breach of the sub-contract caused some real loss to the claimant.
25. Mr Green submits alternatively that the claim by a wronged party to a contract for the sale and purchase of property, can include a claim to loss of profit should circumstances bring the matter within the second rule in Hadley v Baxendale (1854) 9 Exch 341, as that well-known decision has been considered in later cases. In very simple terms, the first rule in Hadley v Baxendale deals with the ordinary case, and the second deals with a case where there are known special circumstances.
26. Mr Green submits that, whilst the defendants knew that if they failed to complete, the claimant would be left with its obligations under the head lease and might have to complete independently, that is without having immediately available, monies duly paid by the defendant under the subcontract. He concedes that the defendants would be taken to have known that the claimant, once it had completed, might make a loss on resale (if the market had gone in the wrong direction). Relevant loss in context and in accordance with the normal rule and thus the first rule in Hadley v Baxendale, would be the difference in the price paid by the claimant, thus the £200,000, and any loss suffered on a resale of the property which, given the credit needed to be given for the deposit, would be, as has been suggested, a sale at under £1780,000 or thereabouts.
27. Mr Green observes that had the claimant chosen to do so, they could have made a special provision in the sub-contract to claim loss of profit, should there be a failure to complete the sub-contract, which, as Mr Green formulates it, might have been a form of liquidated damages clause. The claimant’s reply
28. As it happens, as Mr Higgins tells me, Mr Green’s second rule in Hadley v Baxendale point was only raised in argument before the Chief Master, and not flagged up before. That led Mr Higgins to anticipate in his skeleton before me that case of the defendants. His reply submissions to that case set out in his skeleton and opening before me, are as follows. First, he refers me to the principles in Hadley v Baxendale as those have been developed. In the current edition of MacGregor on Damages at paragraphs 6-158 onwards, are set out the Hadley v Baxendale rules as they have been restated, first in Victoria Laundry v Newman [1949] 2 KB 528, second in The Heron II [1969] 1 AC 350 and, more recently and thirdly, in The Achilleas [2009] 1 AC 61. But those modifications do not, for purposes before me, both because this is a summary matter and generally, alter the continuing presence and application of the two Hadley v Baxendale rules in considering what is recoverable damages against a party in breach of contract and, for present purposes, a contract to purchase property.
29. Mr Higgins submits in reference to The Heron II that the test I should apply is whether the consequences of the defendants’ failure to complete the subcontract were of a kind which the defendants, when they made the subcontract, ought to have realised were “not unlikely to result from the breach”, the “not unlikely” being derived from the speech of Lord Reid in The Heron II. For those purposes, Mr Higgins submits, the defendants should be assumed to have known and therefore to have in their reasonable contemplation, matters which ought to arise “in the ordinary course of events” as well as those which they did in fact know, points drawn, in effect, from the speech of Asquith LJ in Victoria Laundry and is dealing with the first Hadley v Baxendale rule.
30. Mr Higgins submits that the defendants knew that the claimant was contractually bound to purchase under the head contract. They knew that this was a sale and a sub-sale arrangement in which the claimant would not acquire title to the flat itself in the ordinary course, in effect because on the completion date, title of the flat would be vested in the defendants as everything went through, and that, in that sense, the claimants were really acting as an intermediary between the defendants and Telford. He also submits that these defendants knew that the claimant was marketing this flat as well as many other flats in bulk as investment opportunities with, as he puts it, defendant investors being offered their choice of different types of flat within the development. I have to say on that last point I am unsure that I have, on a summary basis, evidence to support the fact that the investors did in fact know that many flats were being sold off the plan, but for the purposes of giving this judgment, I am prepared to infer that Mr Higgins is right in that regard.
31. Mr Higgins submits that the defendants must be taken to have known “in the ordinary course of things” that intermediaries such as the claimants are in it to make a profit, being in a sense, a similar point to that I have just last been considering, namely that the flat the defendants were contracting to purchase, was not the only flat which the claimants were selling. It is against that background that Mr Higgins submits in his skeleton argument, as I am going to cite in full, that it cannot have been “unlikely” that under these circumstances:
“a. [The claimant] would use the purchase price under the Contract to discharge its obligation to pay
b. If [the defendants] did not complete the Contract, [the claimant] would not be in a position to complete the Head Contract using the monies paid by [the defendants] and would either have to seek funding elsewhere or fail to complete the Head Contract;
c. If [the claimant] failed to complete the Head Contract,
d. If
e. The price which [the claimant] was paying under the Head Contract was less than the Contract price, hence the difference representing a profit to [the claimant], rather than a loss. It matters not how much that difference is. Once the particular loss is established as being within the reasonable contemplation of the parties, it is recoverable no matter how much it is. So it is foreseeable that [the claimant] would lose its profit on the back-to-back sale, that loss of profit is recoverable whether it is a 1% profit or a 100% profit.
f. Consequentially if [the defendants] failed to complete the Contract, [the claimant] would fail to complete the Head Contract and would lose both its rights under the Head Contract (through
32. Mr Higgins has in fact in his submissions submitted that this was not a classic “back to back sale” because at no time was it envisaged that the claimant would itself become the owner of the flat. I would observe that for summary purposes, I have not had explained to me why these contracts were of a different quality to standard back to back sales, where an intermediary contracts the purchase of property and sub-sells it, the contracts anticipating simultaneous completion.
Discussion
33. I do not hesitate to begin with a repetition of the normal measure of damages, if a party to a contract to purchase land, such as this flat, fails to complete. The wronged party is entitled to pursue, should it be occasioned, a loss shown by the difference between the contract price and the value of the property. Mr Green in context, helpfully if I might say slightly tritely, refers me to Halsbury’s Laws of England, volumes 12(1) (4th Edition, re-issue) paragraph 10-59, and volume 42, (4th Edition, re-issue) paragraph 255 and footnote 8, “The measure of damages is the difference between the contract price and the value of the property.” He refers equally to MacGregor on Damages at paragraph 22-034, “The normal measure of damages is the contract price less the market price at the time fixed for completion.” He notes what he described as a very useful summary also contained in the Law Society’s Conveyancing Handbook (16th Edition) at pages 809-810.
34. When it is the purchaser that is in breach of such a contract, the normal measure does come into play in essence if the purchaser has made a bad bargain. The court will compare the contract price with the value of the property. That is only likely to come into debate if the purchaser contracted to pay too much. Ordinarily, the court is not troubled with that point, or with any need for expert evidence, as any difference between the two figures is likely, in the ordinary case, to fall well within the 10 per cent deposit which will have been forfeited. So it is here that the issue, in my judgment, could only be likely to become relevant if the flat is worth, or was worth at the relevant date, less than £198,000. I repeat, that is the £220,000 sub-contract price, less the £22,000 deposit collected from the defendants under the sub-contract.
35. I accept that, perhaps less usually because of the long period between the 2006 purchase off plan of the flat and the 2009 trigger notice giving rise to the completion date, that there will have been more chance in this case that there could have been a larger than usual movement in the property market, even though I do not expect the parties to the July 2006 sub-contract here can quite have anticipated any more than the rest of us, the credit crunch and recession that was to arise between contract and the date for completion here. Further as I have noted, there may have been fiscal advantages to the investment, which may have commercially informed it more than close regard to market value.
36. Where it is the vendor that is in breach of such a contract, the normal measure can come into play in the case of a rising rather than falling market. In simple terms, the wronged purchaser in that circumstance has lost the opportunity to get the benefit of his contract price, namely the property that should have been in his hands at the date of the completion. Indeed, it may cost the purchaser more to buy a similar property if he is forced through the vendor’s breach to go into the market. Again, the normal measure may well come into play in such circumstances.
37. It does appear to me that if the wronged purchaser or the wronged vendor are seeking in a given case to recover a particular loss of profit, that will normally involve that wronged party bringing matters within the second rule in Hadley v Baxendale and identifying a relevant special circumstance. In the case of a breach of contract by the vendor of the property, it may be recalled that a given property can be unique. Further, the development of property can take time and of course need planning permission, and involve serious expenditure. A given purchaser of particular property may have become involved with plans to profit from his intended purchase. In context, one can anticipate readily a claim by a wronged purchaser, for example for loss of profit, maintained under the second rule in Hadley v Baxendale.
38. One example of a purchaser’s claim for loss of profit is Seven Seas Properties Limited v Al-Essa & Anr (No.2) [1993] 1 WLR 1083, a decision of Gavin Lightman QC (as he then was) sitting as a Deputy Judge. In particular, the claimant sought to recover the loss of profit on a missed sub-sale said to have been caused by the vendor, who was in breach of the relevant contract. Mr Lightman QC dismissed the claim. For the purposes of this judgment, I will cite what he said at 1087H –1088G, in relation to the law when dealing with a claim for a loss of profit on a missed sub-sale:
“I now turn to the law. The relevant legal principles appear to me as follows. First of all, under the first head of the rule in Hadley v Baxendale a plaintiff is entitled to recover all damages which may fairly and reasonably be considered as arising naturally, ie according to the usual course of things, from the breach of contract. In the case of a breach by a vendor under a contract for sale, losses occasioned to the purchaser under and by reason of the existence of a sub-contract entered into by him will not without more fall within this head. The court will not take into account the existence of such sub-contract whether to increase or decrease the award of damages and the same principle applies whether the contract is for the sale of goods or the sale of land: see Brading v McNeill [1946] Ch 145. No doubt it is for this reason the plaintiffs in this case quite properly disavow any reliance on the first head and rely solely on the second head of the rule.
Secondly, a plaintiff is entitled to recover by way of damages all loss which at the date of contract the defaulting party was on notice might be occasioned by the breach such that he may fairly be held, in entering into his contract, to have accepted the risk. A party for this purpose is on notice of facts (i) which were actually known by him, (ii) which were known by his agent and which was his agent’s duty to communicate to him, and (iii) which he should reasonably have deduced from (i) and (ii). He will only be held to have accepted the risk if he was on notice of the purpose and intent of the plaintiff in entering into the contract with him and the consequent exposure of the plaintiff to the risk of damage of the character in question in the event of the defendant’s breach: see Treitel on Contract (8th Edn, 1991) pps 860-862 and the cases cited and in particular Finlay & Co Limited v NV Kwik Hoo Tong HM [1929] 1 KB 400. This is only just, for a party to a contract should not be exposed to risks of liability going beyond the first branch of the rule but arising out of the special susceptibility to damage of the plaintiff unless he has had the opportunity to make an informed decision whether or not by entering into the contract to accept such risk, and whether to negotiate some exclusion from such liability.
Third, applying these principles to a claim by a plaintiff to recover from a defendant vendor losses arising under a sub-contract, the plaintiff must establish that the defendant was on notice of the existence at the date of the contract of the purpose and intent on the part of the vendor to enter into the sub-contract and that its fulfilment depended on the performance by the defendant of his contractual obligations to the plaintiff. It is not sufficient for the plaintiff to establish that the conclusion of a sub-contract was an available option: consider Diamond v Campbell-Jones [1961] Ch 22. He must show that he or the circumstances ‘signalised’ (in the language of Cheshire and Fifoot on Contract (11th Edn, 1986) p 588) such to be his purpose or intent in entering into the contract with the defendant. If such notice or acceptance of risk is established, the plaintiff is entitled to recover loss of profit in respect of such sub-contract and an indemnity in respect of liabilities arising from such breach…”
39. Mr Green in fact cited to me the decision of Buckley J in Diamond v Campbell- Jones [1961] Ch 22, to which Mr Lightman QC had referred in making that third point. In that case the disappointed purchaser had sought loss of profit he intended to make on the relevant property in
“In my judgment, neither the fact that No. 44, Green Street was ripe for conversion, nor indeed the fact that everybody recognised this, was sufficient for imputing to the vendors knowledge that the purchaser was a person whose business it was to carry out such conversions, or that he intended, or was ever likely, to convert the house himself for profit. In this connection I would point out that when using the expression “on the cards” in the Victoria Laundry case, the Court of Appeal is referring not to possible circumstances which might be relevant to assessing the loss likely to arise from a breach of contract, but to the reasonable probability of a possible loss arising from a given state of knowledge, that is to say, an established state of knowledge of actual relevant circumstances. For these reasons, in my judgment, the plaintiff is not entitled to damages measured by reference to the profit obtainable by converting the property. The damages should be assessed in accordance with the principle normally applicable to cases of breach of contract for the sale of land, where the breach does not arise from a defect in the vendor’s title, that is, by reference to the difference between the purchase price and the market value at the date of the breach of contract.”
40. In the case of a breach by a purchaser of a contract for the purchase of land, it is less readily conceivable that the vendor would have a loss of profit claim, given that the vendor retains the land and any loss he might suffer, not embraced by the deposit, would be that which flows from the normal, as it were, Hadley v Baxendale rule number one, measure of loss. He can sell on the land and, if he obtains less than the contract price, and less than that which is covered by the deposit, that will be his measure of damages.
41. Nonetheless, if there were special circumstances of which the purchaser was aware at the date of contract suggesting loss of profit might be occasioned by reason of his breach of contract and which was a liability for which he could fairly be held in entering into a contract to have accepted the risk of liability, then under the second rule in Hadley v Baxendale, he may be liable for such loss of profit. In this paragraph I am effectively paraphrasing the special circumstances which give rise to loss of profit claims in such contracts, as summarised in the head-note of Mr Lightman QC’s judgment in the Seven Seas Properties case.
42. It appears to me that the claimant here has failed to identify in this case any such special circumstances which could impose a liability on the defendants in relation to lost profit which the defendants could fairly be held, in entering into the subcontract, to have accepted the risk of responsibility. Here, the defendants were making a £220,000 sub-purchase contract for the flat. At the time of that sub-purchase contract in July 2006, an informed solicitor acting for them and therefore I infer the solicitors that were acting for them, could have advised as follows, if their clients, the defendants, were not duly to complete the purchase of this flat and therefore the following risks should the defendants fail to complete.
43. Should they not complete following the
44. If there were a breach, the claimant would be likely to try to sell on, whether to make a profit or to recover as much as it could from the flat. It would only be if something had so badly happened to the market, that the deposit did not cover the difference between the £220,000 and the price obtained by the claimant, that there was any likelihood of a liability for damages on the standard measure. The defendants’ solicitors so advising at the time of the contract, would have no reason to advise the defendants that the claimants would, in breach of its contract relating to the head contract, not complete it and itself act in breach of contract. That solicitor would doubtless, if the defendants did not know themselves, advise that the claimants were in business to turn some form of profit and so the redacted figure in the flat head lease contract for the price, suggests that the claimant was making some sort of turn on the flat. But the advice to the defendants would be simple and straightforward in context: if you do not complete, the claimant will seek to recover its profit by seeking the difference between the £220,000, your subcontract price, and what it can get for the land. That would cover it against any profit element there was in the £220,000. A damages claim might follow if the deposit did not cover that difference. There would be no reason for defendant flat purchasers to consider on advice that there would be any reason not to apply the standard measure of damages should they default in completing their purchase.
45. The subcontract in this case did not purport to indemnify the claimant against the claimant’s breaches of its own head contract. Such a provision would occasion any lawyer considerable surprise and might, on a summary basis, pose more questions than it answers. Further, as Mr Green has noted, the subcontract did not purport to recite in any manner that the claimant intended a £20,000 profit on the flat through the subcontract, and make a provision in consequence that, should the defendants fail duly to complete the subcontract, it should indemnify in summary measure, the claimants against that lost £20,000. That would be a form of liquidated damages, as to which the defendants might question whether that involved a penalty should the flats still have relevant value in the hands of the claimants.
46. In my view, Mr Green was correct in submitting to me that the loss of profit here, or the proximate cause of the loss of profit here, by the claimant was its own breach of contract. It could have sought properly to recover its profit by duly completing its obligations under its contract and then turning round and saying to the defendants, “I am entitled to recover the difference between the £220,000 subcontract price and the market value of the property at this stage, to the extent that such is not covered by the deposit”, which should protect it from concern, should there have been a substantial fall in the value of the flat.
47. In my judgment, Mr Higgins’ submissions where seeking in effect to place the profit between the two contracts under the first ground in Hadley v Baxendale are simply misconceived, but the attempt secondly, in his skeleton, to place in reply to Mr Green’s raising the point about the second rule in Hadley v Baxendale, the matter within the second Hadley v Baxendale rule, founders, in essence, in consideration of those parts of his ‘not unlikely’ submissions that I provided earlier should be underlined in this judgment.
48. First within paragraph 20(b) of his skeleton at to what is said not to be unlikely where the defendants are concerned at the date of the contract, I do not accept that they could reasonably foresee that the claimant would fail to complete the head contract. One anticipates parties will complete contracts, not act in breach of them. Secondly, in reference to his paragraph 20(f), I do not consider it foreseeable by the defendants, if properly advised, that if they failed to complete the contract, the claimant would fail to complete the head contract and thus lose the undisclosed profit on the re-sale. To the contrary, as I have sought to indicate, the defendants could reasonably foresee that it would complete, and if they did not complete the subcontract, they would lose their deposit and, if there had been a particularly bad bargain reflected in the falls in property prices, that there might be a claim for damages on the normal measure of damages.
Conclusion
49. For the reasons I have discussed, the correct measure of damages for breach of contract to purchase a flat such as this are not those pleaded by the claimant in its application dated 17 November 2009. Had the claimant duly completed its purchase of the flat under the flat head contract, then the measure of damages for breach by the defendants of its subcontract may well have been the second formulation posed by Chief Master Winegarten, namely the normal measure of the difference between the contract price (of £220,000) and the open market value of the property. For reasons I indicated earlier, that would have been appropriately assessed at 2 December 2009 in a case such as this where the claimant has reasonably first sued for specific performance and only on failure of the defendants to be willing or able to comply with the order for specific performance, leading the claimant then to elect to seek the discharge or rescission of the contract and assessment of damages. As it is, for the reasons I have been considering, the claimant simply did not complete the head contract.
50. It seems to me in consequence, though I do not think this is really foreshadowed by the Chief Master’s order 3.1.1.3, that on the evidence I have heard, the correct measure of assessment of damages in this action would be to consider whether any damages can be said to have been suffered by the claimants, given they never bought the flat and have not, on the face of it, lost anything on it, not least as Telford does not appear to have been pursuing them at the moment for relevant damages.
51. By reason of the matters that I have been considering, I consider that the appropriate course for me, subject to further submissions Mr Higgins and Mr Green may make, is simply to stay this assessment of damages, giving Mr Higgins liberty to apply to restore matters should the claimants reformulate a claim for damages which is effectively arguable. In fact, in real prospect and arguability terms, it appears to me on a summary basis that it is more surprising that it is Mr Green that is on the receiving end of the application rather than Mr Higgins being on the receiving end of an application to strike out.
52. For all those reasons, and bearing in mind the overriding objective, my view is that I should stay this assessment.
