In an important judgment, the Supreme Court dramatically reduced the level of damages awarded to a plaintiff from €11 million to €5.2 million. Delivering the Court’s unanimous judgment, Mr Justice O’Donnell held “It may be true that the loss of the plaintiff followed from the defendant’s negligence, but that does not mean that it was caused by it, in fact, or more importantly in law. The butterfly may beat its wings and cause an earthquake on the other side of the world, but this is not the principle on which loss is to be recoverable in law.

Background

In 1994, Rosbeg Partners (Rosbeg) purchased commercial property in an industrial estate in Dublin 12. LK Shields (LKS) acted as Rosbeg’s solicitors for the transaction. LKS failed to register a part of the property (Lot 3) in the Land Registry. This failure didn’t harm Rosbeg’s title over the land. However, registration would need to happen for a sale of the land to complete.

In or around 2006, Rosbeg decided to sell Lot 3 and a verbal offer of €6.5 million was made by the owner of an adjoining plot of land. This offer was rejected by Rosbeg. In September 2007, the adjoining owner increased his offer to €10 million, subject to contract.

Around that time, the parties became aware of LKS’ failure to register Lot 3. LKS remedied this failure and the land was finally registered by October 2008. However, in 2008 due to the downward spiral of property prices, the value of the property was dramatically reduced. As a result, the offer to Rosbeg was ultimately reduced to €6 million by October 2008.

High Court Award

Rosbeg initiated proceedings in the High Court seeking damages as a result of the loss it suffered which it claimed was caused by the failure of LKS to register the property. The question of LKS’ negligence was not in issue in the High Court; rather, the main issue the High Court had to address was the calculation of the damages due to Rosbeg.

By the time the action was heard in the High Court, the value of the property had plummeted to €1.5 million. The High Court was satisfied that Rosbeg had decided to sell the property for €10 million in 2007 and would have sold it at this time if the title had been registered. However, Rosbeg lost out on this opportunity because of LKS’ negligence in failing to register the title.

The High Court awarded Rosbeg €11.5 million which included €8.5 million (the difference in the value of the property between the date of the agreement to sell and the date of the trial) as well as damages for increased Capital Gains Tax and additional interest due to the bank which had financed the purchase of the property by Rosbeg in 1994.

The High Court award was upheld by the Court of Appeal.

Why the Supreme Court Reduced the Award

The matter came before the Supreme Court. The Supreme Court considered Rosbeg’s argument that LKS’ negligence directly caused it to suffer loss. However, it was held that even though the loss followed from the negligence, it did not mean that the negligence was the direct cause of it. O’Donnell J commented “it is a lot easier to make profits on paper than in real life, and particularly when the exercise is being carried out in retrospect.”

The Court identified two other causes, which led to Rosbeg’s loss - the collapse of the property market and the decision not to sell in October 2008. In October 2008, LKS had remedied the registration issue and Rosbeg had an option to sell Lot 3 at €6 million.

The Court held that €4 million was a more appropriate award of damages in respect of the fall in value of the property. This was the difference between the offers as they stood in October 2007 and October 2008. LKS ought not to be punished for the fall in property values between October 2008 (when it registered the property) and the High Court hearing. The total award made by the Supreme Court was €5.2 million, which included CGT and interest.

Why this case is important

This case is a welcome clarification on the law of the reasonable measure of loss and that a defendant is not automatically liable for every loss that follows from a negligent act.

Rosbeg Partners v LK Shields (a Firm) [2018] IESC 23