Vasiliou v Hajigeorgiou – discount on loss of profit claim inappropriate  EWCA Civ 1475
The Court of Appeal reviewed the circumstances in which it is appropriate to apply a loss of chance approach to the assessment of damages, and in particular to claims for loss of profit. It will usually be the correct approach where the claimant’s ability to have made the profit claimed depended upon the actions of third parties.
The loss of chance approach helps a claimant by providing an alternative way of putting its case on damage, which avoids the possibility of total failure inherent in the judge being asked to decide the issue on the balance of probabilities. However, the doctrine is primarily directed to issues of causation and not to those which go only to quantum. Where the court is assessing quantum, it may be appropriate to apply a loss of chance discount but only where the claimant’s prospects of achieving a level of profit are uncertain because of the hypothetical acts of third parties.
In this case, disruption caused by contractors employed by the defendant owner of the premises caused the closure of the claimant restaurateur’s newly established restaurant, Zorbas. At first instance, he recovered £422,186 in respect of the lost profits that would have been earned had the restaurant been able to trade. The defendant appealed.
The judge below found as a fact that Zorbas would have been a successful restaurant and assessed its loss of profits on that basis. The defendant argued that the judge should have made a discount in his award for the possibility that the restaurant might have failed, applying the loss of chance approach endorsed by the Court of Appeal last year in Parabola Investments Ltd v Browallia Cal Ltd. The Court of Appeal rejected the appeal. The issue of how successful the restaurant would have been was not an issue of causation but was relevant only to quantum. Once the judge had made a finding on the balance of probabilities that the restaurant would have been successful, any further discount would have been inappropriate. When assessing quantum, the only issue for the judge to determine was how successful the restaurant would have been.
The confusion regarding the application of loss of chance principles to the assessment of damages should be reduced if not removed by the careful analysis in this unanimous judgment. It is a stark illustration of the problem facing a defendant once the judge has decided a single issue of fact relevant to quantum on the balance of probabilities. The defendant had challenged the claimant’s competence as a restaurateur and his prospects of success below and had no grounds for appealing the judge’s finding of fact that Zorbas would have been a successful restaurant. A discount could not apply in those circumstances.
The Court of Appeal took a similar approach at the end of last year in Law Debenture Trust Corporation plc v Elektrim SA. It held that, where the court had to assess what a banker would have concluded as to the valuation of certain shares, it was not appropriate to apply loss of a chance principles. If something of value has been lost, the court must do its best to estimate that value and should not too readily decide that it is a matter of chance what the true value of something as concrete as a share is likely to be. It does not follow that, merely because the court has to assess what a third party would be likely to have done, the case must be regarded as a loss of a chance case.
Where the acts of third parties are more central to the case and less predictable, a loss of chance approach will be correct. A good example of this is Joyce v Bowman Law Ltd. A dilapidated cottage was advertised for sale with an option for the buyer to purchase the lower end of the garden for £20,000 within 12 months if the vendor’s planning application to erect one dwelling on the land was unsuccessful. In fact the option was a seller’s option and not a buyer’s option, a fact his solicitor should have appreciated, and Mr Joyce claimed against him for the loss of profit he could have made from developing the property.
In assessing damages, the judge identified four events which he was satisfied were not speculative and attributed the following percentage chances of success to them:
- Mr Joyce being granted a buyer’s option (85 per cent);
- Mr Joyce exercising the option (100 per cent);
- Mr Joyce being able to obtain planning permission (40 per cent);
- Mr Joyce obtaining the funding for the development (85 per cent).
Although in Hanif v Middleweeks it was held to be permissible not to take an entirely mathematical approach where factors affecting cumulative future events overlap or are affected by the same consideration, the judge opted for the mathematical approach here, feeding in some overlaps between the chances, eg, the second chance was assessed at 100 per cent because it assumed that the first chance