The calculation and recovery of damages for loss of a chance to make a profit can be extremely complicated.
The Court had to decide how to compensate a purchaser who had lost the possibility to fully develop a property due to his solicitor’s negligence Mr Joyce purchased a cottage in West Sussex for £360,000 in 2005. He purchased with a view to redeveloping the cottage into a much bigger house and he simultaneously entered into an option with the vendor to buy some additional land for £20,000 if the vendor did not secure planning permission for it within a year. The Defendant, a firm of licensed conveyancers, acted as his legal adviser on the purchase.
Due to the negligence of the Defendant, the option which was drafted by the vendor’s solicitors only provided for the vendor to be able to exercise it so Mr Joyce could not require the vendor to sell the additional land to him. Due to subsequent bad relations between the parties, the vendor refused to sell him the additional land even though planning permission had not been obtained.
Mr Joyce did not proceed with any works or seek to sell the cottage and build elsewhere. He claimed damages of some £600,000 on the basis he had needed the additional land to build a much bigger and more valuable house. The Defendant denied that any damages were recoverable on the basis that the proposed development was never achievable and/or that the loss claimed was too unforeseeable.
The Court was very critical of the Defendant for not having read the option agreement properly, if at all, and for not keeping attendance notes of its instructions. The Court stated that it did not consider that a professional service could be offered if important instructions and events were not properly recorded.
The Court had to first consider whether the loss claimed was recoverable from the Defendant or whether it was too unforeseeable? Was the proposed redevelopment within the contemplation of the parties at the time of the purchase? If it was not, the loss would be too remote to be recoverable. However, the Court held that the loss was recoverable as the Defendant was aware of Mr Joyce’s intention to redevelop and of the importance of the additional land in this respect. It would have known that negligence on its part might lead to such a loss.
The Court then had to consider what would have happened if the Defendant had not been negligent? What were the chances of Mr Joyce having been able to exercise the option and develop the land as he claimed?
After hearing detailed expert planning and witness evidence, the Court held that there had been an 85% chance of Mr Joyce securing a watertight and exercisable option to buy the additional land if correctly advised and that there would have been a 40% chance of then securing planning permission for the redevelopment and an 85% chance of securing the funding to then proceed. Multiplying these percentages together resulted in a 29% overall chance of the redevelopment actually proceeding and, on the basis this would have produced a profit of £380,000, the damages recoverable would be £110,200, being 29% of this.
However, the Court had a sting in the tail for Mr Joyce. It held he had a duty to mitigate his loss and could have carried out a smaller redevelopment without having to use the additional land. This smaller redevelopment would have produced a profit of about £250,000 so the overall loss was only £130,000 and the Court awarded him 29% of this, being £37,700.
The damages recovered were, therefore, only a small fraction of Mr Joyce’s original claim due to all the uncertainties and his failure to reduce his loss by carrying out a smaller redevelopment. If the Defendant protected its position as to costs by making a reasonable settlement offer, then Mr Joyce may not recover anything at all if he is liable for the Defendant’s costs of the trial.