COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
His Honour Judge Dight
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE PATTEN
LADY JUSTICE BLACK
|- and -
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
Mr Paul Marshall (instructed by Gilbert Turner Coomber) for the Respondent
Hearing date : 30th November 2010
Crown Copyright ©
Lord Justice Patten :
"8. The onus of proof is on the Claimant to establish, on a balance of probabilities, that he would have suffered the alleged loss, or indeed any loss, by reason of the breach of covenant.
9. Mr Clarke, for the Defendant, submitted that it is for the Claimant to establish, first, that his restaurant would have traded successfully, and the amount of likely loss of profit during the relevant period. It is common ground that in determining the likely loss of profits, I must have regard to the personal characteristics of the Claimant rather than an hypothetical restaurateur. Though the quantum of profits was a matter for the experts, the competence of the Claimant was a factor which required findings of fact."
"Having heard of the Claimant's record in Charlotte Street from a great number of witnesses, I am satisfied that his experiences during Period B did not mean that [he had] lost the abilities he had shown in Period A. I am further satisfied qua restaurateur, [that] he had the ability to succeed in Zorbas, and would on the balance of probability have succeeded but for the difficulties caused by the Defendant."
(i) the number of covers (i.e. customer capacity);
(ii) the number of cover turns per week; and
(iii) the average cover price.
"Before turning to Mr Djanogly's evidence, I will return to the questions for decision to which I referred early in this judgment on which I need to be satisfied before the claim can succeed. As to the first, I am quite satisfied that the Claimant is a person capable of running a restaurant successfully. By and large I found the Claimant to be a truthful witness. Despite his poor showing as a restaurateur in the months prior to Zorbas ceasing to trade, on the evidence as a whole I am satisfied he was then and is now capable of running a restaurant successfully. I am also satisfied that there is a sufficient concentration of persons of Cypriot origin to make a restaurant in the position of Zorbas successful both because of and in spite of the other three restaurants with which Zorbas will compete. I am also satisfied that, absent the circumstances of this claim, Zorbas would have traded successfully in the period for which damages are claimed."
" There is a central flaw in the Appellants' submissions. Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial). Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the Defendant's wrongful conduct, as distinct from things which have happened. In such a situation the law does not require a Claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss.
 The Claimant has first to establish an actionable head of loss. This may in some circumstances consist of the loss of a chance, for example, Chaplin v Hicks  2 KB 786, 80 LJKB 1292, [1911-13] All ER Rep 224 and Allied Maples Group Ltd v Simmons and Simmons  4 All ER 907,  1 WLR 1602,  NLJR 1646, but we are not concerned with that situation in the present case, because the judge found that, but for Mr Bomford's fraud, on a balance of probability Tangent would have traded profitably at stage 1, and would have traded more profitably with a larger fund at stage 2. The next task is to quantify the loss. Where that involves a hypothetical exercise, the court does not apply the same balance of probability approach as it would to the proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account. (See Davis v Taylor  AC 207, 212,  3 All ER 836,  3 WLR 801 (Lord Reid) and Gregg v Scott  UKHL 2,  2 AC 176, para 17,  4 All ER 812 (Lord Nicholls) and paras 67-69 (Lord Hoffmann)).
 The Appellants' submission, for example, that "the case that a specific amount of profits would have been earned in stage 1 was unproven" is therefore misdirected. It is true that by the nature of things the judge could not find as a fact that the amount of lost profits at stage 1 was more likely than not to have been the specific figure which he awarded, but that is not to the point. The judge had to make a reasonable assessment and different judges might come to different assessments without being unreasonable. An appellate court will therefore be slow to interfere with the judge's assessment. As Lord Wright said in Davis v Powell Duffryn Associated Collieries Ltd  AC 601, 616-617,  1 All ER 657, 111 LJKB 418:
"An appellate court is always reluctant to interfere with a finding of a trial judge on any question of fact, but it is particularly reluctant to interfere with a finding on damages which differs from an ordinary finding of fact in that it is generally much more a matter of speculation and estimate. No doubt, this statement is truer in respect of some cases than of others . . . . It is difficult to lay down any precise rule which will cover all cases, but . . . the court, before it interferes with an award of damages, should be satisfied that the judge has acted on a wrong principle of law, or has misapprehended the facts, or has for these or other reasons made a wholly erroneous estimate of the damage suffered.""
" There are many cases in which courts or arbitrators have to determine what rate of profit would have been earned but for a tort or breach of contract. As I see it, in a case of this kind, where the court has held that the vessel would have been profitably engaged during the relevant period, where there is a relevant market and where the court can and does make a finding as to the profit that would probably have been made (and has been lost), there is no place for a discount from that figure to reflect the chance that the vessel would not have been employed.
 It has not in my experience been suggested in the past that any such discount should be made. This situation is to be contrasted with a case in which it is not shown that the vessel would have been profitably employed but she might have been. It may be that in those circumstances it would be possible to approach the problem as a loss of a chance. However, I would not wish to express a firm view on that question in this case, where it does not arise on the facts. Here, given the exercise carried out by the experts and given the figure agreed by them, there is in my opinion no warrant for a reduction of 20%, either to reflect a risk that the vessel would not have been employed or for contingencies to reflect that the figure agreed might not be accurate."
(1) that it was not open to Mr Hajigeorgiou to argue at the assessment of damages hearing that the claimant did not have the ability to run a profitable restaurant at the premises;
(2) that the profits of the restaurant for the period from 30th April 2002 to 19th December 2003 were as determined by HHJ Levy QC in the judgment on quantum dated 21st June 2006; and
(3) that the loss of profits for the above period would form a basis for the assessment of damages for the period from 12th February 2004 to 11th April 2007.
"1) The learned judge failed correctly to identify the head of recoverable loss as one of the loss of the chance of profit and failed to realise that such loss could not be evaluated on a balance of probability.
2) Contrary to the principles summarised by Toulson LJ in Parabola Investments Ltd v Browallia Cal Ltd  EWCA Civ 486, paragraph , the learned judge failed to estimate "the loss by making the best attempt [he could] to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account" including the chance that the claimant would have made the profits projected by the expert [Mr Djanogly], by evaluating whether and to what extent to discount such projections so as to reflect the range of commercial risks that the claimant would not in fact achieve the projected profits."
"It is common ground that in assessing the lost profits in the 2nd Claim I am bound by the findings of His Honour Judge Levy QC and I should start from the conclusions which he reached in respect of the period immediately before that in respect of which I have to assess the lost profits. Mr Djanogly in providing his expert evidence in this case has not been asked to construct fresh accounts but has been asked to extrapolate from the accounts he constructed following judgment in the 1st Claim".
"In the ordinary way there will be no need to arrive at a best market price and then to discount it in order to value the lost chance of a sale. It is sufficient, having decided on the balance of probability that a worthwhile chance was lost, to make the best estimate that can be made, taking the rough with the smooth, of the price which would have been realised but for the defendant's wrongdoing. To discount this figure would be, in effect, to discount twice."
"It seems to me that stages 1, 2 and 3 above are all concerned with causation and they are separate from the fourth stage of the assessment of damages. Judging whether there is a real or substantial chance whether a hypothetical event would have occurred is a matter of judgment made after consideration of all the evidence where fanciful forecasts are rejected and only real chances can be considered. At the end of the day, having thus directed himself, the judge must make a decision as to what would have happened. There is no discounting involved in this exercise. He has a range of choices: he must choose one. It is, therefore, only at the assessment of damages stage that he asks himself what are the chances of that chance actually happening. The language suggests double discounting has taken place but the intellectual exercise does not."
"53. If I am wrong in that regard and the judge was correct to seek to award damages on the basis of the position as it would have been post-March 1988 had the warranties been fulfilled, I would nonetheless accept the submission of Mr Berragan that, in assessing the amount of that future loss, the judge was in error for making no sufficient allowance for the uncertainties of the position when he held that the length of time for which the defendants would have run the business and the income they would have received were matters "which I must assess by the conventional approach of applying a multiplier to a multiplicand, and do not involve the valuation of a chance".
54. Albeit, in the course of conducting the exercise thereafter, the judge referred to various possible contingencies and uncertainties to which he had regard in reaching the conclusions which he did as to the appropriate multiplier and multiplicand, he did so as part of the process of finding on the probabilities, the particular course which events would follow. He did not thereafter make any allowance, or reduction for the substantial possibility that events would follow a different course. The whole thrust of the judgment of Stuart-Smith LJ in the Allied Maples case is that where matters affecting the measure of loss are uncertain and, in particular, dependent on the hypothetical actions of third parties as well as the plaintiff, a balance of probability approach is inappropriate. The court is concerned to evaluate the chance that a particular course of events would have occurred and to look at the range of possibilities, making an appropriate discount in respect of the possibility that a less favourable result might follow. As made clear by Stuart-Smith LJ at 1614D:
"… the plaintiff must prove as a matter of causation that he has a real or substantial chance as opposed to a speculative one. If he succeeds in doing so, the evaluation of the chance is part of the assessment of the quantum of damage, the range lying somewhere between something that just qualifies as real or substantial on the one hand and near certainty on the other. I do not think that it is helpful to seek to lay down in percentage terms what the lower and upper ends of the brackets should be."
In my view this is such a case.
55. I do not say that, in assessing the likelihood of future loss on a 'loss of chance' basis in a case of this kind, it may not be (indeed it often will be) a proper approach to start with a broad multiplier/multiplicand calculation addressed to the course of events which the judge considers likely on the balance of probabilities. However, where there are substantial unknown factors operating in relation to the acts of third parties or other events outside the control of the claimant, which raise the real possibility that a far less favourable course of events will occur, then a substantial discount should be applied to reflect the claimant's true chances of achieving the level of profits claimed. That was not done here and it should have been. I reject Mr Berragan's submission that, on any view, the forces of 'lawful' competition would have taken over so as to eliminate any realistic chance of profitable trading, beyond the short space of six months. On a broad brush basis and accepting the judge's assessment of ongoing loss between February 1988 and April 1994 of £80,783 I consider that a discount of at least 50% would have been appropriate i.e. a reduction of approximately £40,400. However, in the light of the view which I take upon the first point of principle it is not necessary to say more."
Lady Justice Black :
Lord Justice Ward :