Court revisits application of loss of chance principles
Moda International Brands Limited v Gateley LLP [23.05.19]
Following the recent judgment of the Supreme Court in Perry v Raleys [13.02.19], the question of standard of proof in loss of opportunity cases has troubled the court once again. The High Court has recently revisited the principles set down in Allied Maples Group Limited v Simmons and Simmons , and whether causation must be proven by a claimant on the balance of probabilities, or on a loss of a chance evaluation.
The claim concerned a property transaction entered into between the claimant (Moda) and Mortar Developments (Nottingham) Limited (Mortar). Richard Wilkinson acted as agent of Moda, giving instructions on its behalf.
Mr Wilkinson owned “the Odeon Site”, and was approached by Robert Monk of Mortar with a proposal to convert the site into a substantial residential development. The discussions resulted in an agreement that Mr Wilkinson/Moda would take 35% of the profit after development. A Declaration of Trust was drawn up to reflect the apportionment of future profits agreed between the parties.
Development appraisals projected substantial profits for the accommodation and for the retail scheme relating to the old cinema foyer (Angel Row). Projected profit for the entire development would be £2.8 million, but only £1.9 million without Angel Row.
Mr Monk wished to use the shares in Mortar to bring in investors and to charge the shares to fund the development of the site. A Participation Agreement was therefore proposed in substitution for the Declaration of Trust. Gateley was instructed on behalf of Moda and sent a draft Participation Agreement to Mr Wilkinson. There was no suggestion at that stage that Angel Row would be excluded.
Given that Mr Monk would have to find a commercial tenant for Angel Row, he was not prepared to share the profit for that part of the development. The parties exchanged various travelling drafts of the Participation Agreement, in the course of which Angel Row was carved out. However, Gateley failed to draw this to Mr Wilkinson’s attention.
Following execution of the Participation Agreement, Mr Wilkinson discovered that Moda would not enjoy any profits from Angel Row. He subsequently brought a claim against Gateley to recover the lost profits. The court found that Gateley was negligent in failing to advise Mr Wilkinson that the Participation Agreement excluded any share of the Angel Row profits, but it then had to determine whether that negligence had caused Moda to sustain a loss.
Allied Maples established that:
- The question whether a claimant would have been better off depends on what the claimant would have done upon receipt of competent advice and that must be proven by the claimant on the balance of probabilities (i.e. had Mr Wilkinson appreciated the true terms of the Participation Agreement, would he have sought to re-negotiate the agreement to bring Angel Row back into the calculation of development profit?).
- To the extent the supposed outcome depends on what a third party would have done, the court must undertake a loss of a chance evaluation.
Gateley argued that the second question of whether Mr Monk/Mortar would have agreed to share the profits in the Angel Row part of the development should also be assessed on the balance of probabilities. Gateley argued that it should not be considered on a loss of a chance basis because Mr Monk gave evidence at trial, such that it was not necessary for the court to speculate on how he/Mortar would have behaved.
The judge found that the fact that the third party gave evidence should not affect the court’s approach to assessing causation, although the credibility of that evidence may be relevant to the evaluation of the lost chance.
This case therefore reinforces the test laid down in Allied Maples, as re-affirmed earlier this year in Perry by the Supreme Court. It remains the case that whenever the court has to consider what would have happened in a hypothetical scenario based upon what a third party would have done, causation will be determined on a loss of a chance basis. This means that a claimant need only establish that there was a real possibility of a third party acting in a certain manner, which the court will then assess on a percentage basis when awarding damages.
The court’s endorsement of the Allied Maples principles may be unwelcome news to professional indemnity insurers who will remain exposed to evidentially weak claims. However, they may take some comfort from the fact that these same principles will help to limit the potential value of claims that are evidentially much stronger.