HT-2022-000092 - [2024] EWHC 3184 (TCC)

Losses (Issues 6, 21 and 22)

Given my findings above, these issues fall away. However, I will address the submissions made by the parties briefly.

Broadly speaking, Darcliffe’s case is that, if they had been properly advised, they would not have proceeded with this development at all. In fact, they say, they did purchase the Site and develop it: but, in order to do so, they had to incur substantial remediation costs, which they claim. Alternatively, they seek damages on the basis established in the well-known case of Perry v Sidney Phillips & Son [1982] 1 W.L.R. 1297, 1302:

“…you have to take the difference in valuation. You have to take the difference between what a man would pay for the house in the condition in which it was reported to be and what he would pay if the report had been properly made showing the defects as they were. In other words, how much more did he pay for the house by reason of the negligent report than he would have paid had it been a good report?”

It seems to me that, in principle, damages on a Perry v Sidney Phillips basis are recoverable. If, on this assumption, Glanville had properly performed their obligations, this loss would not have been incurred. I do not think that the primary basis of claim is sustainable, being closer to a claim arising from a breach of warranty.

However, Glanville submit that credit must be given for fact that, in the event, the houses developed on the Site were sold for more than Darcliffe had originally forecast. Thus, they submit, there was a single transaction, in which the unanticipated remediation costs must be reduced by the (equally unanticipated) revenues. They say that the starting point is the net loss made by Darcliffe (circa £2m, and subject to a reduction for the monies recovered from GWL, thus reducing the loss to a very small sum).

To resolve this question, it is necessary to consider the law in relation to collateral benefits and mitigation.

The starting point is that there can be no recovery generally for loss which has been avoided by ordinary or reasonably necessary means. The law is summarised thus in McGregor on Damages 22nd Ed.:

“10-111 The first subdivision of the rule can often be very simple to apply. Frequently a claimant will have taken the required reasonable steps of mitigation and thereby have avoided such part of the loss as was reasonably avoidable. No difficulty arises in such circumstances. But the claimant may have gone further and, by sound action, may have avoided more consequences than the dictates of the law required of them. In such circumstances the position has been definitively stated by Viscount Haldane LC in the leading case of British Westinghouse Co v Underground Ry. He put the rule thus:

“When in the course of his business he [the plaintiff] has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act.”

Later in his speech he said similarly:

“Provided the course taken to protect himself by the plaintiff in such an action was one which a reasonable and prudent person might in the ordinary conduct of business properly have taken, and in fact did take whether bound to or not, a jury or an arbitrator may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage.”

He emphasised, however, that:

“… the subsequent transaction, if to be taken into account, must be one arising out of the consequences of the breach and in the ordinary course of business.”

Where steps are taken by the claimant after the wrong which reduce their loss, the important practical question is to ascertain (i) which, if any, of the steps taken come within and satisfy Viscount Haldane’s formulation, (ii) what subsequent transactions of the claimant are to be regarded as arising out of the consequences of the wrong and also, (iii) in the case of contract, which steps arise in the ordinary course of business. This question, which might be more neatly stated as whether the claimant’s conduct was ordinary or reasonably necessary, will be considered in due course; it represents the core of the problem of mitigation by way of avoided loss.”

However, it is important to note that, to engage this principle, the benefits to be taken into account must arise out of the consequences of the breach. This point was emphasised in the recent decision of the Supreme Court in Stanford International Bank Ltd (in liquidation) v HSBC Bank plc [2023] A.C. 761, per Lord Leggatt JSC at paragraph 55:

“55.

SIB's argument is thus flawed because it disregards the net loss rule. This is the basic rule that applies in awarding damages for breach of contract or in tort that losses and gains arising from the breach must be netted off against each other and only any net loss awarded as damages. The leading authority for the rule as it applies to claims for breach of contract is British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, where the House of Lords held that savings made by the claimant from installing more efficient turbines to replace turbines supplied by the defendant which did not comply with the contract had to be taken into account in computing damages. Viscount Haldane LC said, at p 691, that “the principle which applies here is that which makes it right … to look at what actually happened, and to balance loss and gain”. Among many authorities for the net loss rule as it applies to claims based on negligence in tort, a good example is Hodgson v Trapp [1989] AC 807, 819, where Lord Bridge of Harwich said:

“My Lords, it cannot be emphasised too often when considering the assessment of damages for negligence that they are intended to be purely compensatory. Where the damages claimed are essentially financial in character … the basic rule is that it is the net consequential loss and expense which the court must measure. If, in consequence of the injuries sustained, the plaintiff has enjoyed receipts to which he would not otherwise have been entitled, prima facie, those receipts are to be set against the aggregate of the plaintiff's losses and expenses in arriving at the measure of his damages. All this is elementary and has been said over and over again”.”

In this case, the benefits sought to be taken into account do not arise out of the consequences of the breach. Darcliffe sold the houses on the Site, once complete, as they had always planned to do. These sales, and the prices obtained, did not arise out of the breach.

Glanville also submitted that the losses claimed were irrecoverable because they fell within the second limb of the rule in Hadley v Baxendale (1854) 9 Ex. 341, i.e. that they did not arise naturally, i.e. according to the usual course of things from such breach of contract itself and were not such as might reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it. I do not agree: it seems to me that, if Darcliffe had succeeded in establishing causation and reliance, the damages claimed would fall within the first limb of that rule.