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Professional Negligence: When the claim depends on hypothetical actions of a third party

Posted on 05 July 2019

Professional Negligence: When the claim depends on hypothetical actions of a third party

In a recent negligence case against a firm of solicitors, the High Court decided that where the claim depended on the hypothetical actions of a third party, it was appropriate to assess the claimant's case on the "loss of chance" basis rather than on the balance of probabilities.

Brief summary of facts

In 2010 the claimant, Moda International Brands Ltd ("Moda"), formed a joint property venture with Mortar Developments (Nottingham) Ltd ("Mortar") to redevelop an old cinema in Nottingham into purpose built student accommodation. Moda and Mortar agreed that a special purpose vehicle ("SPV") deal structure would be used to share the profits from the site.

In August 2010, the parties entered into a declaration of trust, which granted Moda a 35% stake in the profits under the SPV. However, in August 2012, Moda and Mortar decided to amend the apportionment of interest under the SPV and so Moda instructed its solicitors, Gateley LLP ("Gateley"), to work on the deal structure. Over the course of the next few months the terms were agreed between the parties, but unfortunately, unbeknown to Moda, Gateley included a term in the revised agreement, which excluded Moda from some of its share of the profits.

In August 2015, Mortar refused to pay the excluded element of Moda's share (which amounted to roughly a third of the profits) and so Moda claimed against Gateley for negligently drafting the revised agreement.

Proceedings

Freedman J decided that Gateley had indeed acted negligently when drafting the agreement but that two main issues of causation arose, namely:

  1. If Gateley had drawn Moda's attention to the provision excluding profits, how would Moda have reacted to this?
  2. If Moda had challenged the provision, then how would Mortar have reacted?

Accordingly, the corresponding legal question was in circumstances where Moda's loss depended on the actions of a third party to the proceedings (namely Mortar), was it appropriate to decide causation on the balance of probabilities or on the loss of a chance basis?[1] Freedman J considered the recent loss of chance authorities (most notable of which was the Supreme Court decision of Perry v Raleys [2019]) which confirmed that whilst the balance of probabilities test would apply to the first question, in respect of the second question the loss of a chance analysis would apply.

Third Party evidence

Interestingly, Mortar's owner, who had been summoned by Gateley to give evidence on the second question, asserted that it would have insisted upon keeping the provision in the revised agreement. As such, Gateley argued that whilst the balance of probabilities applied to the first question, the second question was not hypothetical (in light of Mortar's evidence) and that the court had sufficient evidence to decide the case on the usual balance of probabilities, rather than loss of a chance.

Freedman J rejected Gateley's argument and found that the loss of chance approach should apply to the second question. Further, Freedman J's view was that there was a real and substantial chance that Mortar would have agreed to share the profits and so damages were awarded on the loss of a chance basis.

Comment

In cases where the claimant's loss depends on the actions of a third party, it need only show that there was a real or substantial chance that but for the defendant's negligence, the claimant would have avoided the loss. The loss of a chance test is therefore a lower threshold for the claimant to establish than the balance of probabilities, which requires a more than 50% likelihood.

Moda International has clarified that, where a third party is called to give evidence on what that third party would have hypothetically done, the evidence provided will assist the court in determining the strength, or the weakness, of the chance. Factors such as the balance of the parties' bargaining power and the evidence showing how strongly they felt at the time will be taken into account when assessing the chance.

This means that, even if the third party is adamant about what they would have done in a hypothetical scenario, the loss of a chance basis is still most likely to be utilised. Freedman J did helpfully suggest that the balance of probabilities may be used (in very limited circumstances) if, for example, the third party in question was really equated to that of a party (perhaps if it provided disclosure, had been generally cooperative throughout proceedings and provided compelling and extensive witness evidence).

For claimants looking to maximise their damages, the balance of probabilities assessment may be preferable, as it results in either a full or nil recover rather than (on the loss of a chance basis) a proportionate % reduction of the total damages in accordance with the strength (and therefore likelihood) of the chance. As such, this case raises interesting tactical considerations for claimant's who may wish to construe third party evidence as equating to party evidence.

In some respects however, this decision is of some comfort to claimants, as the loss of a chance basis exposes the defendant to liability in circumstances where the lost chance would otherwise be too remote on the balance of probabilities (i.e. less than 50% likely).

 

 

[1] The loss of chance basis requires the claimant to prove that the underlying claim has a real or substantial prospect of success – if the claimant can prove it has lost a real chance then the court will assess that prospect and deduct the likely damages the claimant would have recovered to reflect the uncertainties of recovering it.

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