Damages for breach of duty — Date at which damages should be assessed in the case of the loss of the acquisition, through breach of duty, of an income-producing real property asset — Should damages be calculated by reference to value of property at date of breach or at some other time? — Interesting discussion by judge, in a case eventually settled, of the compensatory basis of damages for breach of duty, whether in contract or tort, and the exceptions to the rule that damages fall to be assessed as at date of breach — General principle that victim of a breach of contract or tort is to be put in the same situation by compensation as if the contract had been performed or the tort had not been committed — Rationale of the exceptions to the rule that damages should be assessed as at date of breach in that if the application of the rule would give rise to injustice the court has power to fix such other date as would be appropriate in the circumstances — It may be, for example, that owing to the absence of a market at the date of the breach, a claimant could not have mitigated his damage by purchasing a substitute at that date — Authorities, going back to Parke B in Robinson v Harman (1848), analysed
As agreement
was reached between the parties in this case and the action was discontinued,
this report is confined to the judgment given by R G Rougier QC, sitting as a
deputy judge of the Queen’s Bench Division, on a point of law which had arisen
in the proceedings and which is of general interest. It concerned the basis,
and in particular the date, at which damages would have had to be assessed if
the case had proceeded further and if liability for breach of duty had been
found. The plaintiffs were Mr Boleslaw Zakrzewski and his wife Molly Ringrose Zakrzewski
and the defendants were Chas J Odhams & Sons, a firm of solicitors.
Nigel Murray
(instructed by Jack Bernstein & Co) appeared for the plaintiffs; J T G
Philipson (instructed by Reynolds, Porter, Chamberlain) represented the
defendants.
Giving judgment,
Mr RICHARD ROUGIER QC said: At this stage in the case I have been asked to
decide what I cannot really call a preliminary point of law but an intermediate
point of law connected with the proper basis upon which damages should be
assessed if the matter ever got that far. It has been put to me by both learned
counsel that my decision, one way or another, might assist in shortening the
time which this case is taking, and since I am very gravely concerned at the
length of time that this case is occupying — a subject to which I shall return
later — I am happy to accede to learned counsel’s suggestion.
The question
is framed in these terms. In the case of a breach of duty of care arising from
contract or tort which causes foreseeable loss to the plaintiffs of the
acquisition of income-producing real property, are damages, in so far as they
are related to loss of capital
the date of the breach or on some other basis (the precise basis in the
alternative not for the purposes of this question being specified)?
I would begin
by expressing a certain measure of doubt as to whether it is settled law that
breach of a duty of care on the part of a solicitor, if established, gives rise
to a remedy both, or rather alternatively, in contract and/or in tort. It is
true that there are authorities which suggest that is so. But so far as my
limited researches have carried me it seems that there are also pronouncements
to the opposite effect, and I should have difficulty in regarding that question
as other than open. However, I take the view on the facts of this case, which I
must assume, that the distinction is probably not material, principally since
the breach of duty was discovered almost at once and damages flowed from that
point even though the amount of loss may have thereafter increased with the
passage of time.
Learned
counsel have helpfully referred me to a number of relevant authorities to
assist me in determining the question which has been posed. From those
authorities there is no difficulty, so it seems to me, in extracting what may
be called the general principle. That is perhaps most shortly expressed by
Parke B in Robinson v Harman (1848) 1 Exch 850 that the victim of
a breach of contract, or for that matter an act of negligence or a tort, is to
be put in the same situation with respect to damages as if the contract had
been performed or the tort had not been committed. From this has grown up what
has also been referred to as a general rule that damages fall to be assessed as
at the date of the breach of duty, and from now on I propose to refer to breach
of duty as if it applied both to contract and to tort.
But equally,
certain authorities which have been cited to me suggest that to that general
rule there exist a number of exceptions. For instance, in Ogle v Vane
(Earl) [1868] LR 3 QB 272 the plaintiffs forbore to go to the open market
to purchase replacement steel at the implied request of the defendants. In Otter
v Church, Adams, Tatham & Co [1953] Ch 280 ‘the solicitor’s
breach of duty could not reasonably have been discovered at a time when it
could have been rectified at a stroke of the pen’. In Johnson v Agnew
[1979] 2 WLR 487 the plaintiffs had a perfectly reasonable-looking claim for
specific performance which they were entitled to pursue rather than the
alternative claim in damages, and the fact that they were entitled to pursue it
would render it futile to expect them to go into the open market and buy a
replacement. In Dodd Properties Ltd v Canterbury City Council [1980]
1 WLR 433 it is noticeable that it was held as a fact by the Court of Appeal
that it did not make commercial sense for the plaintiffs to begin repairs at
once in view of the fact that there was a flat denial of liability by both
defendants and that the damage to the building was not such as to imperil its
condition still further. In Radford v De Froberville [1977] 1 WLR
1262 there was a failure to build a wall in accordance with a covenant taken
from the defendant and I think that case is properly to be regarded as on the
same footing as what I might call damage-and-repair cases.
Now from that
line of cases, which I call the exception cases, the first matter which occurs
to me is that the exceptions cover a variety of situations. It is not always
totally easy to extract a thread of common application to all, but I think it
may be done in this way: where the application of the general rule, that is to
say to assess damages at the date of the breach, would not produce the result
aimed at by Parke B in his judgment in Robinson v Harman, that is
to say would not put the victim in the same position as if the breach had not
occurred, then it seems to me only equitable that the court should look around
and determine some other date upon which damages should be assessed in order to
achieve the desired result. The real question, it seems to me, is whether the
list of exceptions, as exemplified by the authorities I have cited, and one or
two others which I have not, is exhaustive, or whether one proceeds upon the
principle that whenever some manifest injustice would be done to the plaintiff
by adopting the general rule, then one should regard such an instance as an
exception. In this context there was very much in the forefront of the
submissions of counsel for both sides the opinion of Lord Wilberforce in the
case of Johnson v Agnew — the reference I have already given, but
the page concerned is 499 just above letter ‘F’, where the noble law lord says:
The general
principle for the assessment of damages is compensatory, ie that the innocent
party is to be placed, so far as money can do so, in the same position as if
the contract had been performed. Where the contract is one of sale, this
principle normally leads to assessment of damages as at the date of the breach
— a principle recognised and embodied in section 51 of the Sale of Goods Act
1893. But this is not an absolute rule: if to follow it would give rise to
injustice, the court has power to fix such other date as may be appropriate in
the circumstances. In cases where a breach of a contract for sale has occurred,
and the innocent party reasonably continues to try to have the contract
completed, it would appear to me more logical and just, rather than tie him to
the date of the original breach, to assess damages as at the date when
(otherwise than by his default) the contract is lost. Support for this approach
is to be found in the cases.
Then the noble
law lord refers to Ogle v Vane (Earl), Hickman v Haynes (1875)
LR 10 CP 598, which is another case where there was a request by the defendants
to withhold delivery, and Radford v De Froberville, where
the defendants had covenanted to build a wall and damages were measurable at
the date of hearing rather than the date of the defendant’s breach, unless the
plaintiff ought reasonably to have mitigated the breach at an earlier date. The
selection of those three cases in itself I find of some significance.
Mr Philipson
in the course of his submission urged me to say that when Lord Wilberforce was
dealing with cases concerning a breach of a contract for sale he was limiting
the exceptions to those cases where the innocent party could reasonably
continue to try to reap the benefit of the bargain from that particular
contract, and that beyond that, so his submission goes, it is not open to me to
proceed. That is to say, the authorities do not permit me, in the case of a
loss of a contract for sale, to go further than that one exception. I pause
merely to say that I have taken the view, and I understand with some relief
that both learned counsel agree with me, that the principle which I ought to
adopt in this case where the sale was lost (if I find negligence) through the
negligence of the buyer’s agent, is no different from the more direct situation
where the sale is lost due to default by the seller.
Mr Murray, on
the other hand, submits that Lord Wilberforce’s concluding words in the
paragraph at ‘F’ (p 499) ‘. . . this is not an absolute rule: if to follow it
would give rise to injustice, the court has power to fix such other date as may
be appropriate in the circumstances’, in fact embody the general principle and
that thereafter Lord Wilberforce merely is selecting a particular and specific
example made relevant by the fact that it was the example which was contained
in the case with which he was dealing.
I have also
found of very great help a passage in the judgment of Oliver J in the case of Radford
v De Froberville [1977] 1 WLR 1262 at p 1272. There the learned
judge was dealing with the case of failure by a covenantor to erect a wall on
land which had been demised by the plaintiff, and the point in time at which
damages therefrom should be assessed. The learned judge said — and this is just
above letter ‘E’ on p 1272 — ‘As it seems to me references to the authorities
not only do not support any such universal principle as that contended for but
indeed demonstrate the absence of any general rule beyond the underlying
compensatory principle stated by Parke B.’
The reference, of course, again is Robinson v Harman.
What the
court does is to use its common sense in measuring, in the case of the
individual plaintiff and by reference to his particular circumstances,
what he has lost by the breach. No doubt the measure of damages and the plaintiff’s
duty and ability to mitigate are logically distinct concepts (see for instance
the speech of Lord Wright in the Liesbosch (Dredger) v SS Edison
(Owners) [1933] AC 449, 456 to 469). But to some extent, at least, they are
mirror images, particularly in cases of damages for breach of contract: for the
measure of damages can be, very frequently, arrived at only by postulating and
answering the question, what can this particular plaintiff reasonably do to
alleviate his loss and what would be the cost to him of doing so at the time
when he could reasonably be expected to do it?
What this is may vary with individual circumstances. It may be that
there is no exact substitute for what has been contracted to be supplied, so
that the plaintiff’s loss is to be measured by the cost of providing the next
best thing: see, for instance, Hinde v Liddell (1875) LR 10 QB
265 and Blackburn Bobbin Co v T W Allen and Sons Ltd [1918] 2 KB
467. It may be that the very commodity is
to be measured by the cost of obtaining it in the nearest available market.
Indeed, although the two concepts of measure and mitigation may be logically
distinct, I doubt whether, at any rate in the context of a contractual claim,
they can practically be treated separately because the inquiry as to what sum
would be required to put the plaintiff in the same situation as that in which
he would have been if the contract had been performed almost necessarily
involves an inquiry as to what sum would be reasonably required by him to
mitigate by putting himself into that position. And that necessarily involves
an inquiry into his individual personal circumstances.
The final
citation which I should like to make comes from para 722 of the 14th edition of
Dr H MacGregor’s volume on Damages where the learned author says:
The galloping
inflation of the 1970s has brought into sharp focus a new form of what is
essentially consequential loss. As has been seen, for the normal measure the value
of the land is taken, following general principle, at the time contractually
fixed for completion, but such a measure could be grossly unfair to a buyer if
prices had escalated between the contractual date for completion and the date
of judgment in his action for damages, as the award he obtains will fall far
short of giving him the means of acquiring an equivalent property. Of course he
cannot complain of this if he ought to have acquired an equivalent property
before the escalation of prices, but he may be able to show good reason why he
did not do so.
This passage
from the learned author of course, although not strictly speaking an authority,
carries the greatest weight.
In an attempt
to apply the reasoning to be extracted from these authorities, I have no doubt
that prima facie one should consider assessing damages at or shortly
after the time when Mr Zakrzewski discovered the alleged breach. Certainly from
that moment he was, in my judgment, under an obligation to do all that was
reasonable to mitigate his loss by going into the market and attempting to
purchase a reasonable substitute for his lost bargain. There is nothing
suggested in the evidence so far to indicate that there were factors which
would allow him to delay taking such a step nor, if his evidence be right, did
he attempt to delay. So far there is little difficulty. The crux of the matter
is this: if it is established that, for reasons beyond his control, namely, the
absence of a market and the effect of inflation by the time a market
reappeared, Mr Zakrzewski was unable to purchase a reasonable substitute, does
that set of circumstances come within the general words used by Lord
Wilberforce and involve injustice to the plaintiff in fixing the date of
assessment at the date of the defendant’s breach so as to compel me to decide
on an alternative and later date for the assessment of damages? There is an obvious analogy to cases
concerning a buyer’s remedies where a seller of goods has defaulted. There the
buyer is under a duty, if and when he can, to go out into the market and
purchase an alternative. But it is noticeable that both sections 50(3) and
51(3) of the Sale of Goods Act give as a prerequisite to that duty the
existence of an available market. In the case of a sale of real property, again
it is well established that where the seller defaults the buyer’s remedy, with
the exception of the somewhat esoteric rule in Bain v Fothergill (1874)
LR 7 HL 158, is the market price at the date of the breach less the contract
price. The possibility of resale and loss of profit thereby is not contemplated
(see Diamond v Campbell-Jones [1961] Ch 22). But here we have
something of a hybrid. It is the sale of an income-producing piece of real
property. I notice that Lord Wilberforce in deriving support for his general
principle did not, in my judgment, draw any distinction between the sale or
other disposition of land and the sale of property.
Having
considered all these various authorities I have come to the conclusion that
what is called the general rule, that is to say the rule whereby damages are
assessed as at the date of the breach, is in reality no more than the commonest
answer in fact to the question what method of assessment will put the
plaintiff in the same position as if the breach had not occurred. It is a rule,
therefore, of circumstance rather than law, and where on the facts, either
proved or for the purposes of this particular decision postulated, the application
of that general rule would not put the plaintiff in the same position as if the
breach had not occurred, for a variety of reasons, including those where he was
unable to mitigate through circumstances beyond his control, then I ought not
to follow that general rule and I ought to hold that the situation amounts to
another exception. In so doing I am uneasily conscious that to that limited
extent I am breaking new ground in that this particular set of circumstances
has not previously been considered. However, I see nothing in the authorities
to indicate that the list of possible exceptions is necessarily closed. I
propose to base my view by asking myself the question whether on the postulated
facts injustice would be done to the plaintiffs by assessing the damages as at
the date of the breach. My own view is it would. It follows, therefore, that
the answer to the question which has been posed is no, not at the date of
breach, provided I am satisfied that due to the absence of a market at the
relevant time the plaintiffs through no fault of their own could not reasonably
have bought a suitable alternative.
That ends my
judgment, as it were, on that particular issue. But while I am talking I would
like to say two more things, and I feel justified in saying them in the hearing
of the parties concerned. First of all, arising from the judgment I have just
given, I would merely say that I might take a great deal of persuasion — and I
say ‘might’ and I stress ‘might’ because, of course, I have not heard all the evidence
and I have not heard any of the argument — but it might be that I should take a
great deal of persuasion that on the evidence so far the plaintiffs — or rather
Mr Zakrzewski — had satisfied me that there was no available market for a
suitable replacement. The second thing is this: this is a case where a serious
allegation was made against a solicitor — if he will permit me to say so — of
long standing and where the other side are supported by public funds entirely.
It is a case which has now almost doubled its estimated time and which upon one
view of the facts, which I may yet come to, would seem to bring possibly little
joy to either of the parties concerned. I say that and I will sharpen what I
say to a more precise edge. I refrain from giving any preview about liability
except to say that if I were to find that the defendant had failed in his duty,
it is, on the evidence I have heard so far, a very possible view that I should
come to the conclusion that this entire transaction was not financially viable
from the start. I have already had evidence from which it seems to me plain, if
it be right (this is evidence which comes from the plaintiff himself and his
witness), that the outgoings would have exceeded the income of this hotel by a
considerable margin, thereby putting the plaintiffs in a position which would
have been financially unacceptable not only to themselves but, more important,
to their financial backers. If I take that view then I find it difficult,
subject to hearing the argument, to see how I could award anything but
extremely modest damages for any breach of duty. I have said it and I do not
propose to say any more. I propose to rise for a few minutes to give counsel
and their clients time, if they wish, to discuss the implications of my
judgment.
After a short
adjournment the parties reached an agreement and the judge gave leave to
discontinue the action in the terms endorsed on counsel’s briefs. A certificate
was given for legal aid taxation.
