The claimants were trustees of a settlement. They owned a property comprising a number of shops and flats. The primary purpose of the trust was to provide income rather than capital growth.
The claimants sought to obtain vacant possession of the individual flats with a view to re-letting them on short-term tenancies. Problems and subsequent legal proceedings arose in respect of a small number of flats and the claimants sought the advice of the defendants.
Upon the advice of the defendants the claimants compromised certain claims that were made against them. The advice which led the claimants to accept those claims was in fact wrong. The result of the wrong advice was that the claimants had agreed to grant long leases in respect of two flats.
The claimant’s brought proceedings against the defendants in respect of the negligent advice. The second defendant admitted negligence in respect of the first advice and the hearing was concerned solely with the assessment of damages against the second defendant for the admitted negligence.
The judge made a total award of £252,995.36.
The second defendant appealed and the claimants cross-appealed against the assessment of damages.
The Claimants case was based on the dimunition in the value of their interest in the property as the date of assessment. The date of assessment was the date when the second defendant’s negligence caused the claimants to acknowledge the need to grant two new long leases.
The claimants based their assessment of market value on what was described as the “investment” basis – they assumed a sale in open market, at the date of assessment, to a hypothetical purchaser, interested in acquiring the property for retention and letting, as an investment.
The second defendant argued that the assessment should be on a "post-negligence valuation" basis, which involved identifying the value of the flats if sold off individually on long leases. Any other basis of assessment would overcompensate the claimants for the loss they had suffered, because in the real world they would still have the ability to sell the flats off individually on long leases and keep the full vacant possession value of each.
Reference
The court held that the second defendant’s approach represented a departure from the conventional "diminution in value" approach, which relied on a comparison of market values at a particular date. Any such departure would need to be justified by the evidence.
The court’s view was that the second defendant had failed to show that the normal basis for assessment of damages was inapplicable on the facts of the case. However, even if he had been able to, it would be necessary that the alternative approach was internally inconsistent. In this respect it could not be right to compare a pre-negligence assessment based on market value with a post negligence assessment based on some other approach.
*Full case details
28 June 2005, Court of Appeal, Civil Division, Lord Justice Carnwath, Lord Justice Neuberger [2005] EWCA 775
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Postscript
This case is a reminder that the courts will not look kindly upon attempts to get round the standard diminution in value approach for assessing loss. The second defendant’s failure to provide evidence to justify a different approach meant that his claim had to fail.
