On 18 April 2018 the Irish Supreme Court delivered an important judgment in respect of the calculation of damages in professional negligence claims against solicitors in the context of a fluctuating property market. The Supreme Court reduced the level of damages awarded against the firm of solicitors from €11million to €5.2million.
This will be a welcome development for insurers not only due to the reduction in quantum but because of the assessment of the reasonable measure of loss and the clear statement that a defendant is not automatically responsible in law for everything that follows from a negligent act. As Mr. Justice O’Donnell stated in his judgment “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.”
In February 1994 the defendant solicitors acted for the Plaintiff company, “Rosbeg”, in the purchase of a commercial property comprising five lots with separate titles. Title to one of the lots was never registered by the solicitors.
In early 2006, the owner of an adjoining property, Mr. Pino Harris, made an offer of €6.5m to Rosbeg to purchase the lot in question. Rosbeg rejected the offer as property prices were still rising and a recent valuation of the property estimated its value at €10m (which could rise to €15m). In September 2007 Mr. Harris made an offer of €10million subject to contract. It subsequently came to light that the title was not registered and Mr. Harris told Rosbeg to come back to him when the title issue was resolved. The registration of title was completed in October 2008 by which time property values had fallen hugely.
The High Court and Court of Appeal
It was not disputed in the High Court that the solicitors were negligent for failing to register the title. The High Court was satisfied that Rosbeg had decided to sell for €10million and would have sold the property at that time if the title had been registered but lost the opportunity to sell the property in 2007 because of the solicitors’ breach of duty in failing to register the title. The High Court awarded damages of €11.5million which was calculated by deducting the market value of the property at the time of the hearing of €1.5million from the €10million offered in September / October 2007 in addition to bank interest and CGT liabilities.
The Court of Appeal dismissed the appeal of the solicitors who then appealed to the Supreme Court.
The Supreme Court
The Supreme Court ultimately allowed the appeal and more than halved the level of damages awarded.
Mr. Justice O’Donnell in the Supreme Court noted that cases such as this one, where the loss claimed is close to the maximum that could ever conceivably be claimed, should be approached “by applying common sense and some degree of scepticism” and commented that “When dealing with calculations of loss, it is also important for courts to recognise that 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…”
Rosbeg had argued in the High Court that the sale was lost as a result of the defendant’s negligence and that this loss was direct and foreseeable. Mr. Justice O’Donnell agreed that it could be argued that the loss followed from the defendant’s negligence but held that it was incorrect to say that that the negligence was the “direct” or “factual” cause of the loss and rather there were other identifiable causes of the loss, most obviously the collapse in the property market, in addition to the approach of the Plaintiff to the negotiations.
He considered the recent UK Supreme Court decision of Hughes-Holland v BPE, in which Beale & Company successfully acted for the defendant solicitors and their insurers, and he followed the same approach outlined by the UK Supreme Court stating that “a defendant is not necessarily responsible in law for everything that follows from his act, even if it is wrongful.”
While it was accepted that the defendants acted negligently for failing to register the title, the registration was eventually completed in October 2008 and Mr Justice O’Donnell held that “where the negligence is in failing to do something which can yet be done,…the measure of damages, is first, the cost of substitute performance of the duty, and second, any foreseeable loss in value caused by the delay in doing so.”
On that basis he found that the reasonable measure of damages was the difference in value between October 2007 when a sale was probable and October 2008 when the registration was complete i.e. the difference in value between the date when the works ought to have been done and the point when the problem could be remedied. Thus although property prices might continue to fall, once the defect was remedied, any further loss in value could not be blamed on the negligence of the professional.
As to the calculation of the damages, the Supreme Court held that the loss in value attributable to the defendant’s negligence was €4million being the difference between the offer of €10million in September 2007 and an offer of €6million made in July 2008 and subsequently rejected. The final award was €5,246,500 allowing for CGT, interest and the cost of registration.
As noted above the Supreme Court judgment is good news for insurers of professionals and is particularly relevant as many insurers are still dealing with ongoing high value claims relating to the fallout from the collapse in the property market. The decision is a clear acknowledgment that even where a professional is found to be negligent, it does not follow that the negligent act is the sole cause of the loss and that the professional must be responsible for all losses that flow from that act but that other contributory causes and factors, such as a volatile property market and including the actions of the Plaintiff, must be taken into account in determining the reasonable value of damages to be awarded.