England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE ORDER OF HHJ OVEREND

		The Royal Courts of Justice The Strand London WC2A Friday 26th January 2001

1. LORD JUSTICE POTTER: This an appeal in proceedings arising out of a claim by the appellant against her former solicitors who acted for her in a dispute with her landlords in relation to the premises in which she lived. The landlords claimed forfeiture for non payment of rent and service charges and the appellant counterclaimed for breach of covenant in respect of which she had withheld rent over a considerable period.
2. It is an appeal, with permission granted by the Court of Appeal after an oral hearing, from an order made by His Honour Judge Overend, sitting as a judge of the High Court on December 18th 1998, following a trial on liability and quantum. The judge held the respondents liable to the appellant and awarded her damages of £10,000, with costs, up to 12th May 1998; the appellant to pay the respondents' costs thereafter.
3. The sum of £10,000 awarded was made up of two elements, a capital element which related to the sum the appellant had had to pay her landlord as a result of the respondents' negligence and an interest element, which related to interest payments for which she was liable to her building society on the monies she had to borrow to pay the landlord, in circumstances where the respondents were aware that such borrowing would be necessary in respect of any sum she was ordered to pay the landlord.
4. The appellant sought permission to appeal on a number of grounds in respect of her damages award. Permission to appeal was granted in terms contained in the Court of Appeal judgment dated 2nd November 1999, which limited the grounds so as to encompass two points. However, what were stated at that time to be two points, may best be encapsulated in the form of three questions which have emerged as the questions in issue on the appeal. (1) Was the judge correct to deal with the interest element of the plaintiff's loss at trial as an additional element in the damages award, rather than assessing the capital loss to the plaintiff at the date of the respondent's negligence, with a conventional award of interest under the statute upon such sum to the date of trial? (2) Was the judge correct to calculate the interest element in round figures, by taking as his basis of calculation a figure of 8% simple interest applied to the sum which the claimant borrowed from her building society to pay off her liability to the landlord? (3) Did the judge fail to afford the appellant a proper opportunity to address him on the questions in (1) and (2) having indicated in his judgment that he would hear argument on the question of interest?
5. The material facts in this appeal date back to the early 1980s. In 1982 the appellant acquired the residue of a long lease of a residential flat, 43 Kings Court North, Kings Road, London SW3 ("the property"). The purchase was completed with the aid of a 100% mortgage advance of £20,000-odd from the Cheltenham & Gloucester building society.
6. Her immediate landlord under the lease was a company called Nessdale Limited. The lease contained an obligation to pay service charges as well as rent. The landlord was liable to maintain the fabric of the building and provide hot water. By late 1983 the property had begun to suffer from dilapidations caused by the ingress of water and, in addition, the hot water system was failing to perform its function adequately. In 1984 and 1985 the landlord carried out some works on the building but failed to rectify the problems. At this time the appellant was married to Mr Andrew Quist, a lawyer qualified in Ghana. The couple had a son and lived at the property following their marriage.
7. Advised by Mr Quist, the appellant withheld payment of the service charges falling due under the lease in the hope that this would induce the landlords properly to perform their obligations. Between 1985 and 1987, the appellant was living and studying in Manchester. The property was then occupied by her sister and a friend who paid her sufficient sums to cover the mortgage outgoings. It was impossible to let the property on the private market because of the water problem and other repair problems. From 1987, Mr Quist was employed by the respondents, who were the then partners in Seifert Sedley Williams, a firm of solicitors. He was employed as an unadmitted litigation assistant concerning with matrimonial matters. On 27th May 1998 the landlord commenced proceedings for forfeiture in the West London County Court on the grounds of non payment of rent and service charges, which by that time amounted on the landlord's case to £4,914 inclusive of mesne profits.
8. On 5th July 1988, the respondents served notice that they were acting as the appellant's solicitors, which they did through Mr Quist. The Cheltenham & Gloucester building society was also joined as a defendant to protect its security.
9. On 21st October a defence and counterclaim was served on behalf of the appellant and on 7th November the appellant's case was amended into its finally pleaded form. In 1989 the landlords made an application for an interim payment. The appellant responded by an affidavit which set out detailed particulars of the special damages claim which she asserted against the landlords. Thereafter the matter proceeded until summer of 1991, when it was warned for trial at the end of September. In the same month, approval was granted to the making of interim individual voluntary arrangements in respect of the partners of Seifert Sedley Williams who, in consequence, ceased to practise on 23rd October 1991.
10. On September 30th 1991, the West London County Court issued a consent order based on an agreement which Mr Quist had reached for the appellant until the landlord's acting by its solicitors and the building society by their solicitors.
11. That agreement had been reached without the knowledge or consent of the appellant. However, it was of course binding upon her.
12. The substance of the agreement reached was that the appellant accepted that the landlords were entitled to the sum of £8,836, plus £4,784.91 interest continuing at £3.63 per day, until payment in respect of the outstanding rent and service charges, and that she agreed a value of the appellant's counterclaim at £4,000, the argument providing for cross orders and for costs. The landlord was to have its costs, less the taxed costs of the appellant up to May 1990, when an offer to settle on such terms had been made by the landlord.
13. By consent, there was also a judgment for possession pursuant to the forfeiture claim, but not to be enforced so long as the appellant or the building society paid the sums due within the time provided.
14. That of course was done. After October 1991, Mr Quist continued to deal with the matter as an employee of solicitors to whose employment he moved after the dissolution of Seifert Sedley Williams. In fact no set-off of costs ever took place because Mr Quist negligently failed to take the steps required to have the appellant's bill taxed having taken the relevant papers with him to his new firm.
15. The judge found in favour of the appellant on liability holding that Mr Quist, acting in the course of his employment, had settled the dilapidations proceedings without her consent and that the appellant had lost the chance of obtaining a better result in the County Court had the matter proceeded to trial.
16. He said the best result which might have been obtained was one in which the award on the counterclaim for damages was equal to the claim for outstanding rent and service charges, and therefore no sums would have been payable either way.
17. If that was so, the appellant would have paid nothing, whereas she had in fact had to pay out £9,621. 88 which could only be done by adding to the capital advance under her mortgage. In fact the amount required to be paid was paid by the building society, which thereafter debited interest, at the rate provided for in the mortgage, thus adding to the appellant's loss, in that she was unable to pay off her mortgage prior to trial. At this point, I pause to say that, in the action for negligence tried before the judge below, there were other and various matters complained of and bases of claim put forward by the appellant against the respondents in respect of which the appellant was unsuccessful. But it is not necessary to refer further to those matters here, in the light of the limited permission to appeal which was granted to the appellant.
18. The judge addressed the question of the appropriate award of damages in the following passage of his judgment:

"Accordingly Miss Amonoo succeeds on liability. Her damages are to be calculated on the basis of the loss of that substantial chance (see Allied Maples -v- Simmons & Simmons [1995] 1 WLR 162) [The chance referred to was the chance of obtaining a situation where she had to pay over nothing at all].

The consequences of a balanced outcome would likely have been judgment for the plaintiff on the claim and judgment for Miss Amonoo on the counterclaim. But thus there would be no net order for payment against Miss Amonoo and no reason for the Cheltenham & Gloucester building society to make any payment that reflected a set-off of £9,621.88 or any accrued interest to the date of payment. At that stage, there would be no debiting of Miss Amonoo's account with a capital sum, although Cheltenham & Gloucester Building Society would probably have debited their costs in any event. Cheltenham & Gloucester Building Society were charging about 8% interest. So that since 1991, they have charged Miss Amonoo in the order of £5,000 interest on the advance of £9,000, making a total bill to her of approximately £14,000, resulting from negligence of Mr Quist.

Mr Quist, of course, knew at all times that the figure of £9,000 odd would be added to Miss Amonoo's mortgage account for he was in constant touch with them and indeed signed the consent order on their behalf. The figures are approximate because the court is concerned with assessing a chance and not the actual figures. It is the figure of about £14,000 that needs to be discounted for the purpose of assessing Miss Amonoo's damages in these negligence proceedings."

19. On this appeal before us the appellant has appeared in person to argue her own case, which she has done with skill, intelligence and restraint, having assisted the Court by submission of a very clear and helpful skeleton argument.
20. Mr Campbell has appeared for the respondents and has similarly been of great assistance in something of a dialogue with the court relating less to matters of principle than the detail of the interest calculations, both sides being anxious that, if the court is in favour of the appellant's arguments upon interest, the matter should be finally settled here rather than being returned to the judge for calculation on the basis of further material.
21. In the event, therefore, the three questions which I posed at the outset may be dealt with quite briefly: (1) The judge found that, at the time when the settlement was made, and the claimant's loss was thereby incurred, Mr Quist was well aware that the only source of the funds to meet the deficit between the landlord's claim for rent and the claimant's counterclaim for dilapidations was and would be the building society, who would inevitably charge her interest, at the rate provided for in respect of her mortgage advance. That being so, such interest charges as were subsequently made were plainly within the second limb of the rule in Hadley & Baxendale and were therefore recoverable as part of her claim for damages.
22. Furthermore, if it was correct for the judge, as he did in fact, to assess the appellant's damages on the basis of loss of her chance to obtain a better settlement (perhaps I should say to obtain a better result at trial) than the settlement reached, and neither side has argued the contrary, then it was a proper approach to take as a starting point for the loss calculation, the best outcome which might have been achieved by the settlement and then to discount from that sum to allow for the chance that such an outcome was uncertain.
23. The only question mark over the judge's approach in that regard which has arisen in the course of the appeal is one which is probably not covered by the terms of the leave to appeal; however, I shall deal with it nonetheless. It seems the "best outcome" at trial, which the judge envisaged as a starting point for his calculations in relation to the appellant's lost chance, was the "balanced" outcome of a set off £9,621.88, which would have yielded a nil balance and thus no need for the loan from the building society.
24. The question therefore arises: why did the judge, when calculating his damages award, reduce the figure of £9,621 to £9,000, and make an interest calculation based on £9,000, rather than using the higher figure? The difference of £621-odd, was not insignificant, bearing in mind the length of time over which interest fell to be calculated and added.
25. The answer seems to me to be clear from the judgment, in which the judge stated that the figures he was using were approximate because he was concerned with assessing a chance and not the actual figures, and thus round figures were appropriate.
26. It seems to me that that was a legitimate line for the judge to take. Had he stated in terms that, on his assessment of the claimant's chances, she had a particular percentage chance of achieving a precise balance between a claim and counterclaim at trial, then there could have been no good reason for him not to apply that stated percentage to the nil balance figure of £9,621.88 in order to avoid double discounting.
27. However, it is plain that the judge thought it right to reach his conclusion by means of an "order of things" calculation, using round figures, in the light of a general uncertainty as to the true likelihood of what would have happened had the forfeiture proceedings been tried. In that respect I do not think it would be right to disturb the principal figure of £9,000 which he took for his interest calculation.
28. I turn now to question (2). In making his calculations as to interest the judge arrived at a figure of £5,000 on the basis of a "Summary of mortgage account", produced by the building society from its records, and submitted to the judge by the appellant, to demonstrate the interest payments she had made, and in respect of which she claimed. It seems she left the arithmetic to the judge. Unfortunately, while the judge seems to have been correct in his view that the interest rate broadly charged over the whole period was 8% (yielding the figure of simple interest of about £5,000 which he adopted) he appears to have overlooked the fact, which was apparent from the statement, that interest was added to the principal at each year's end and thus the appropriate calculation of the interest paid by the appellant was one which reflected the compounded rate charged to her. It is clear that the judge intended, as in my view he was entitled to do, to calculate the damage figure to include the interest actually payable, since Mr Quist was aware of the need for a building society advance and the basis on which it would be made. Thus, as it seems to me, the judge should have included a higher sum than £5,000, which, following a request by this Court, has been calculated by the respondents to be £6,838.61, that calculation rounded down being based on the rounded down principal figure of £9,000 on which the judge thought it right to base his calculations. That yields a true "best result" not of £14,000 but of £15,838, which I shall treat as £15,840, to which the discount necessary under the loss of chance assessment must be applied.
29. The discount represented by the judge's award was in the event ten-fourteenths of the 'best result', which he had posited. On that basis the appropriate figure for damages should not be £10,000, as awarded by the judge, but £11,314.
30. I turn, briefly, to question (3). At the end of the written judgment handed down by the judge, he stated:

"I will listen to argument on interest, should it arise, and costs."

31. It seems to me quite plain that he was thereby referring to the question whether any interest fell to be awarded under 35A of the Supreme Court 1981 for which a formal claim had been made in the particulars of claim. In an exchange with counsel for the respondents, the judge indicated, and counsel agreed, that such an award was inappropriate because the appellant had had the benefit of an interest award included in her damages claim based upon the interest actually paid by her to the building society. That was plainly correct. However, unfortunately, as is also plain from the transcript of the post-judgment exchanges, the appellant was afforded no real opportunity to address the judge on the question of interest, as she wished to do. Had she been so permitted, it may well be that her submissions would have caused the judge to reconsider his award of damages on the grounds of the error as to simple or compound interest to which I have earlier referred.
32. Whether or not that is so, we must deal with the judge's reasoning as contained in his judgment which, as I have indicated, recognises, in principle, the appellant's right to damages by way of broad indemnity for her liability to the building society in respect of interest, but in practice does not vindicate that right. I would allow the appeal to the extent already indicated; that is to say, by changing the judgment sum from £10,000 to £11,314.
33. LORD JUSTICE JONATHAN PARKER: I agree.
Order: No order as to costs.