Negligence – measure of damages

Citation

Waterson, G. and Lee, R. (2000), "Negligence – measure of damages", Property Management, Vol. 18 No. 4. https://doi.org/10.1108/pm.2000.11318dab.003

Negligence – measure of damages

Negligence – measure of damages

Portman Building Society v. Bevin Ashford (a firm) and Others (2000) 07 EG 131

This case follows the now familiar line of facts concerning property transactions made in the late 1980s and early 1990s. In July 1990 a husband and wife acquired a property for £218,000 with a 75 per cent mortgage from Portman Building Society and a second charge in favour of the vendor of the property. The purchasers defaulted on the payments, the building society repossessed the property and sold it in August 1993 for £110,000. The difference in this case was that one partner of the defendant firm of solicitors was acting for the vendor and a second solicitor in the same firm was acting for the purchasers and the building society. When the property was sold the building society brought an action against the solicitors alleging negligence, breach of fiduciary duty and breach of trust in failing to inform the building society that the purchasers were taking out a second mortgage contrary to what they had said on the application form for the loan. The solicitors accepted liability in respect of the failure of the person acting for the purchasers in not reporting the proposal for a second mortgage.

At first instance it was held that the solicitors were also liable in respect of the partner acting for the vendor, as he did so contrary to the building society's standing instructions. It was also decided that had the building society known the true facts they would have concluded that the purchasers were not persons to whom it would wish to make a loan. The building society was therefore entitled to recover the whole of its loss of £74,323.92.

The appeal concerned the measure of damages. The defendants contended that damages should have been assessed as at the date of the breach; that credit should have been given for the proceeds of a mortgage indemnity guarantee policy; and that the measure of damages should have been nominal only. The plaintiff cross-appealed on the grounds that the costs of the in-house lawyer and the fees of the estate agent which was part of a subsidiary company should not have been disallowed by the trial judge.

The normal rule for the assessment of damages is in contract, as at the date of breach; in negligence, the date when the claimant first suffered the loss. However, as counsel for the plaintiff argued, this is only a prima facie rule that should not be applied "mechanistically" in circumstances where assessment at some other date more accurately reflects the overriding compensatory principle. In this case their Lordships agreed that the argument put forward by the appellant that damages should have been assessed as at the date of the wrong failed because the society had the opportunity to extract itself from the situation almost immediately by taking possession of the property and selling it. Such an argument could only succeed they said, if one presupposes that the building society ought to have discovered the breach of duty, and the evidence did not support such a finding. Although the building society had known of the second mortgage in 1990, it did not know, and could not reasonably have known, that it occurred through a breach of duty by the solicitor. If a negligent solicitor fails to reveal an actual or potential fraud on the part of the borrowers or to pass on information that shows that the transaction is not in fact viable then the lender is entitled to recover all of its loss.

Their Lordships had no difficulty in rejecting the second ground of the appeal, holding that moneys recovered under a mortgage indemnity guarantee policy do not normally have to be brought into account in assessing damages: Bristol & West Building Society v. May & Merrimans (No. 2) (1998) 1 WLR 336.

With respect to recovery of internal costs, their Lordships stated that there is clear authority that, in principle, the claimant is entitled to recover particular disbursements to third parties and also the costs of its in-house lawyers: Attorney General v. Shillibeer (1849) 4 Ex 606, Galloway v. London Corporation (1867) LR 4 Eq 90, Henderson v. Merthyr Tydfil Urban District Council (1900) 1 QB 434, Lord Advocate v. Stewart (1905) 36 SCR 945 and Re Eastwood (1975) Ch112. On behalf of the appellants it had been argued that the in-house lawyer's fees should not be recoverable because the building society had not had to employ any extra staff as a result of this case nor had its trading potential been harmed as a result of the resources being devoted to dealing with the repossession and arrears on the property. In this case their Lordships held that the actual costs incurred by the building society in dealing with its lawyers could be substantiated and thus the trial judge had been wrong in concluding that this could not be recovered as legal costs or disbursements. In fact, as Otton LJ pointed out, the in-house costs were considerably less than they would have been if the matters had been handled by independent solicitors. Consequently the appellants had got off lightly.

Although the estate agents were a trading arm of a wholly-owned subsidiary of the building society, their fees were similarly recoverable and introduced by adding the words: in the words of the court:

Payment was made to Ridgeway (the estate agent) as a separate legal entity for the services rendered. In my view that sum is recoverable just as much as payments to the selling agents as well as disbursements incurred by Ridgeway.

The appeal was dismissed and the cross-appeal allowed in part.