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The High Court in Moda International Brands Ltd v. Gateley LLP and another  EWHC 1326 (QB) confirmed that, in a professional negligence claim for loss of chance, a claimant is not required to prove its loss on the "balance of probabilities", even in circumstances where there is evidence provided in respect of that loss. The court should evaluate the claimant's loss, which usually depends on hypothetical actions of a third party, on the basis of "loss of chance". This is the first case directly concerning this point.
Moda International Brands Ltd (Moda) issued a professional negligence claim against Gateley LLP (Gateley) for loss of chance. The factual background is complex, but a brief summary of the key facts are as follows.
Mortar Developments (Nottingham) Limited (Mortar) and Moda agreed to enter into a property transaction for a residential development of land held by Moda. Mr Wilkinson, not connected with Moda, acted as Moda's agent and gave instructions on its behalf. Mr Moore of Gateley, a friend of Mr Wilkinson, was instructed on behalf of Moda to execute the transaction. There were a number of agreements between the parties. The key agreement was the participation agreement which recorded the parties' intentions in respect of the apportionment of profits from the development. It was Moda's and Mr Wilkinson's intention that the agreement reached was that Moda would receive 35% of the net profits. However, following discussions between Mr Moore and Mortar's representative, Mr Monk, the participation agreement was amended without Moda's or Mr Wilkinson's knowledge, resulting in Moda receiving 35% of the net profits of the site, but excluding the profits generated from the land known as "Angel Row". The participation agreement dated 28 November 2012 was executed by Mortar and Mr Monk on 18 November 2012, but it was never executed by Moda.
Having found that there was no agreement between Moda and Mortar that the profit of the Angel Row unit would be excluded, the High Court held that Gateley was in breach of contract and negligent for failing to take reasonable steps to ensure that the participation agreement reflected Moda's instructions that it was entitled to 35% of the profits of the whole development. In breach of its duties, Gateley failed to advise Moda of the meaning and effect of the terms of the participation agreement and failed to ensure that Moda understood the same. In particular, Gateley failed to advise that the effect of the participation agreement was that Moda would not get a share of the profits for Angel Row. Further, Gateley failed to provide a copy of the finalised, amended participation agreement to Moda or Mr Wilkinson.
Freedman J held that Moda was not in breach of its duty to mitigate its loss by failing to seek rectification of the participation agreement. As established in the authorities, Moda was not required to commence hazardous litigation. In the circumstances the rectification application was not only likely to fail, but Gateley had not given an indemnity.
The next question was whether Moda would have accepted not receiving 35% of the profit for the Angel Row unit on receipt of advice from Gateley as to the true meaning and effect of the terms of the participation agreement. If not, what would Mortar and Mr Monk have done? The burden of proof was on Moda to prove that, on receipt of proper advice from Gateley, it would have insisted on receiving 35% of the profits from Angel Row, or it would not have entered into the participation agreement. Usually, in assessing damages for loss of chance cases, there are a number of hypothetical actions of third parties for which there is no evidence. However, this was an odd case. Freedman J had heard evidence from Mr Monk as to what Mortar may have done if Moda had become aware of the true meaning of the participation agreement. He held that, given Moda's and Mortar's desire to complete the development, there was a "real and substantial" possibility that Mortar would have agreed to grant Moda all, or at least part, of the 35% of the profits in respect of Angel Row.
In respect of calculating the loss, Freedman J rejected the assertion that, because the court had the necessary evidence from Mortar, the burden on Moda was to prove its loss on the "balance of probabilities" (i.e. that it was more probable than not that the participation agreement would have proceeded on the basis of a 35% profit share from the whole development). If it could not provide this, the damages would be nil. However, applying Allied Maples Group Ltd v. Simmons & Simmons  EWCA Civ 17, Freedman J confirmed that, despite Mr Monk's evidence, the court should evaluate the loss on a "loss of chance" basis. Therefore, in applying Perry v. Raleys Solicitors  UKSC 5, the burden on Moda was to prove that there "was a real and substantial chance, and not a speculative one" that Mortar would have agreed to share 35% of the profits from the whole development, had Moda been properly advised of the effect of the participation agreement.
Where there is a real and substantial chance of a scenario occurring, the court cannot reject the case, even if there is speculation about the level of damages and, furthermore, even if there is not sufficient evidence to satisfy the balance of probabilities test. This assessment requires the court to evaluate the chance of a number of potential scenarios eventuating. Where there are several potential scenarios, the court can assess separate probabilities, add them together and average them out. In this case, Freedman J identified and evaluated the chances of the following potential scenarios:
The effect of the first two scenarios meant that there was an 80% chance that there would be a loss arising out of Gateley's breach of contract and/or negligence – therefore, satisfying the loss of chance burden. The cumulative effect of these scenarios was an agreed profit share of 22.75% from the Angel Row unit.
This is the first case which deals precisely with the appropriate test for calculating damages in a loss of chance claim, in circumstances where the court has the necessary evidence on the hypothetical actions of a third party. The High Court affirms that the test remains one of demonstrating a "real and substantive" chance of an event happening.
This appears to be the correct outcome. It gives claimants assurance that they are not at risk of no damages being awarded in circumstances where a third party, which would be expected to give evidence, fails to do so. This could result in unjust decisions because of witness unavailability. Further, even with the evidence from a third party, it is still evidence provided in hindsight.