Claimants cannot have their proverbial cake and eat it, so the Court of Appeal found by dismissing the appeal in Bacciottini & Anr v Gotelee and Goldsmith (A Firm) (2016). In circumstances where the claimants had successfully mitigated their position at a cost of just £250 and in a straightforward manner, the Court agreed that their claim for damages for diminution in value plus interest should fail.
The claimants (B) instructed solicitors (G) to act in a purchase of a residential property which they acquired in May 2007 for £600,000. The property comprised a cottage and other buildings in the grounds of a country house which had been sold separately. B intended to reside in and redevelop the property, although it did not have planning consent at the time. G incorrectly reported to B that the searches were clear when they were not - they contained a 1974 planning restriction providing that the property could only be occupied in conjunction with the occupation and ownership of the country house.
B initially submitted an informal planning application which covered the redevelopment of the property and removal of the restriction. Having received an indication that the joint application would not succeed, B made a separate application to remove the restriction at a cost of £250 and the restriction was lifted in November 2009.
Nevertheless, by the time of trial in September 2014 B alleged they had suffered a loss of £100,000 and interest representing the diminution in value of the property at the time of purchase as a result of the restriction (the original claim having been for some £300,000). Breach of duty was admitted by G but causation and loss remained in dispute. G asserted that B’s loss was £250, at most, being the cost of their application as a result of which B had ultimately received what they had bargained for - a property with clear title. To award further damages would, G submitted, overcompensate B. The trial judge agreed and awarded B only nominal damages of £250 (see the first instance judgment). B was also ordered to pay the majority of G's costs. B appealed.
The appeal decision
The Court of Appeal unanimously agreed that the trial judge had reached the right conclusion. Its reasons can be summarised as follows:
- Citing the core principle that damages should put an injured party back into the position he would have been in but for the defendant's negligence, the removal of the restriction effectively extinguished any loss which B may have suffered such that there was nothing for B to be compensated for: B had been put back in the position they would otherwise have been in.
- Subsequent events which post-dated the date of breach of duty or date the cause of action accrued could be taken into account. The Court rejected B's submissions that the loss was ‘fixed’ at the date of purchase or had to be assessed on a ‘capital loss' basis. The authorities made clear that the so-called "normal measure" of loss (diminution in value as at the time of the transaction) was not to be applied mechanistically but only if it would produce a fair result.
- In the alternative, and even if (contrary to the Court of Appeal's view) B was not under a duty to mitigate, the fact remained that they had taken steps to remove the restriction and thereby avoided their putative loss. Taking these steps was not an independent decision by B which was unconnected to the original breach of duty, but rather (to paraphrase the test in broad terms) arose out of the consequences of the breach. The fact that the loss was thereby avoided accordingly fell to be taken into consideration.
- Cases such as the present one have to be decided by reference to the facts and the need to secure a fair outcome.
- Although the Court of Appeal reached their decision by the application of ordinary principles of mitigation, the same conclusion would have been reached by saying that the measure of loss was the cost to B of removing (the eminently removable) defect, namely £250.
This decision is of interest not only to law firms and their insurers but to other professionals and insurers generally. Whilst the figures in issue may be modest and the damages ultimately awarded de minimis, the case provides a helpful restatement of some key principles which are often overlooked by eager claimants and their advisers:
- The measure of loss is not ‘fixed’ at the date of breach of duty or when the cause of action accrued: consideration also needs to be given to subsequent events such as mitigation and steps taken to avoid the loss.
- Claimants are under a duty to mitigate. It is, of course, well established that the duty to mitigate is not absolute and does not extend to lengthy, costly or uncertain litigation. However, here the mitigation in question was considered by the trial judge and Court of Appeal to be simple, obvious and cheap.
- The fact that there may also be a collateral reason for taking a step in mitigation does not make it a decision taken independent of the breach of duty so that it should not be taken into account in the assessment of damages. Here, two years had elapsed between completion and the removal of the restriction. The application was also beneficial to B’s development intentions. However, the Court of Appeal shared the trial judge’s view that this was irrelevant. The original breach of duty was not just context to B’s application - it was the reason and need for it and therefore it fell to be taken into account when assessing damages.
- Damages are compensatory. In the present case, as a result of the removal of the restriction, B had not suffered loss (beyond the £250 application cost).
There is reference to the trial judge ordering B to pay the majority of G’s costs which may have led to the appeal being as much about costs as damages. Reference is also made to previous attempts at mediation having failed. There is no explicit reference to Part 36 offers being made but they may also have been a relevant factor in play. As a general strategy, where breach of duty is conceded at an early stage and there are good grounds to defend a claim on causation and loss, an early and considered Part 36 offer can provide real costs benefits for professionals and their insurers where the case goes to trial and either a nominal or no award of damages is ultimately made.