The Court of Appeal recently handed down judgment in Bacciottini and another v Gotelee and Goldsmith (a firm) [2016] EWCA Civ 170.

Bacciottini turned out to be one of those cases that was far more simple than it first appeared (and in the end became all about the costs of the litigation which, as usual had taken on a life of its own). Davis LJ’s judgment goes ‘back to basics’ on the correct measure of loss for professional negligence damages and approaches issues of mitigation from a refreshingly commonsense perspective.

The Claimants’ solicitors failed to advise them that the property the Claimants were purchasing was subject to a planning restriction. Breach of duty was eventually admitted in this regard. However, once the property had been bought and the restriction was discovered, the Claimants successfully applied to have the restriction removed. They were successful in their application which had cost the princely sum of £250.

The Claimants initially sought to recover some £300,000 in damages as a result of the negligence. In the event, this was reduced to £100,000 which reflected expert evidence on the difference in the value of the property at the time of the purchase with and without the planning restriction.

HHJ Simon Barker QC sitting as a judge of the Chancery Division awarded the Claimants just £250 at first instance. He found that this figure represented the Claimants’ loss when properly applying the principles of mitigation. The Claimants appealed.

Davis LJ provides an overview of (some of) the plethora of authority in this area. One senses his reluctance to recount all of the cases that touch on this issue. He rightly says such cases are ‘legion’, but to go through at least a select bunch was an ‘unavoidably necessary’ task.

The starting point for cases of this sort (dubbed ‘capital loss’ cases by Counsel for the Appellants) is said to be Philips v Ward [1956] WLR 471:

‘The general principle of English law is that damages must be assessed at the date when the damage occurred, which is usually the same day as the cause of action arises…’

This principle needs to be balanced against the fact that the ordinary measure of damages, as set out un-controversially in Livingstone v Rawyards Coal Co (1880) 5 App Cas.25 is:

‘…that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been if he had not sustained the wrong for which he is now getting his compensation…

The principle of compensation was further elaborated on by Nourse LJ in Kennedy v Van Emden [1996] PNLR 409:

the damages are to be assessed in the real world. Compensation is a reward for real, not hypothetical loss. It is not to be made an occasion for recovery in respect of a loss which might have been, but has not been, suffered.’

The ultimate question was framed succinctly by Mr Geoffrey Vos QC sitting as a Deputy Judge of the High Court in Pankhania v London Borough of Hackney [2004] EWCH 323 (Ch):

The question really is whether, in all the circumstances of the case, the normal measure [i.e. the rule in Philips] properly reflects the overriding compensatory rule…’

Davis LJ dismissed the appeal for the following reasons:

  1. By reason of the subsequent removal of the restriction the appellants suffered no loss (bar the £250).
  2. It is wrong to treat Philips as creating a kind of immutable principle in relation to what are styled ‘capital loss’ cases. The principle that losses crystallize on the same day that the cause of action accrues is not to be applied ‘invariably or mechanistically’ and it should only be applied as the ‘normal measure’ where it produces a ‘fair result’.
  3. Subsequent events can (and indeed in this case, should) be taken into account when calculating loss. Philips was simply a case where such considerations did not arise.
  4. The Appellants were under a duty to mitigate their loss by taking steps to remove the restriction (as they did). Any sensible property owner would have taken this course of events; the procedure was ‘simple, obvious and cheap.’
  5. Even if there was no duty to mitigate by acting in the manner in which the Claimants in fact acted, the fact remained that they did take steps to reduce their losses (and by a huge amount). To fail to take this into account would result in vast overcompensation and would be contrary to justice, common sense and the principles of mitigation as set out in British Westinghouse Electric & Manufacturing Co. Ltd v Underground Electric Railways Co. of London [1912] AC 673.

In commenting on the principles of mitigation Davis LJ found it unhelpful to think of whether the original breach ‘caused’ the act of mitigation. Bacciottini was a clear-cut case in which the steps take by the Claimants to minimize their loss were directly linked to the breach. The steps taken to lift the restriction were clearly not a collateral transaction independent of the original breach.

Even if Davis LJ had not reasoned using mitigation principles to limit the Claimants’ losses he was clear that, in practical terms, the same conclusion is reached by saying that the measure of loss is the cost of lifting the restriction (or, removing the defect). What is essential in each case is consideration of the ‘factual context to the determination of the proper measure of damages…and the need to secure a fair outcome.’

This was one of those cases for which the answer just feels obviously right.I hear you all cry, ‘but of course the Claimants weren’t entitled to £100,000 when they paid just £250 to fix a simple defect thereby suffering no loss!!!’.

The reasoning for why it was right had become somewhat lost in the sea of cases involving similar issues. This quagmire resulted in a seemingly over-complicated, but really just unnecessarily over-developed area of law, where each case really turns on its own facts following a proper consideration of where the justice lay.

Sometimes, when an answer feels that obvious, it is: A salutary lesson for practitioners.