England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		26/05/2004

The Honourable Mr Justice Peter Smith :

INTRODUCTION

1. This is the assessment of damages of part of a claim in this action. The hearing before me related entirely to part of the claim brought against the Second Defendant, a barrister. The claims against the First Defendant, a firm of solicitors (and the balance of the claim against the Second Defendant) were stayed generally with liberty to restore. That was done by an order of Chief Master Winegarten on 21^st August 2003. The effect of this order, in my view, complicated matters unnecessarily as will appear from this Judgment.
2. In my judgment, when there are actions of professional negligence against solicitors and barristers (or other professionals for that matter) it is an unwise path generally to attempt to separate off some of the issues, however well intentioned that might be. When the overall question of negligence of two separate parties has to be considered (including of course potential contribution proceedings) it is dangerous to hive off one particular issue because it will regularly be the case that issues that arise on that part might well have an impact elsewhere. As will be seen from this Judgment, that is precisely what has happened in this case. Generally parties should ensure that all factual issues between them should be heard as far as possible by one tribunal at one stage, so as to avoid the difficulty of possible conflicting factual judgments arising at different hearings.
3. In the event, I was required to decide only one of the three allegations of negligence made against the Defendants and then only that against the Second Defendant, with the remaining other two allegations as against him and the entirety of the three allegations as against the First Defendant having been stayed.
4. The assessment arose out of the order of 21^st August 2003, under which the Second Defendant admitted he was negligent in respect of allegation 7 (1) of the Particulars of Claim, in that he negligently:-

"... failed to advise the Claimants that Mrs Tuttle [the Tenant] had no right to acquire new long leases of the three flats at and known as flats 228, 234 and 236 Muswell Hill Broadway, London NW10 because the leases were each granted for a term of less than twenty-one years and, as a result, were not qualifying leases for the purposes of the Leasehold Reform, Housing and Urban Development Act 1993 ["The 1993 Act"]".

5. The judgment against the Second Defendant was in tort.

BACKGROUND

6. The Claimants were the freehold owners of buildings at and known as 206-238 Muswell Hill Broadway, London N10 (the "Property"). The Claimants were trustees of a settlement which Mr Stuart Glyn a chartered surveyor was the settlor. I understand from his evidence that the beneficiaries under the trust are his children. He was and is a chartered surveyor with considerable experience and although ultimately all decisions were made by the Trustees they have always not surprisingly consulted him.
7. The Claimants acquired the Property in 1979, and transferred it to the Trust in 1996. Mr Glyn said in evidence this was for the purposes of providing an income for the beneficiaries under the trust and was not primarily concerned with capital growth.
8. The Property comprises two Edwardian buildings, which as constructed had shops on the ground floor and in the middle a small entrance lobby and stair well to flats on the three floors above. Neither had a lift. The first of the blocks comprises of numbers 206 to 220 and the second comprises of 222 to 238 Muswell Hill Broadway. The Claimants always regarded them as one unit together. Mr Tobin a partner in Strettons who gave evidence on behalf of the Claimants considered that the two parts put together comprised in the Property were attractive because there were very few un-fragmented blocks (i.e. blocks where the Landlord would be able to let the entirety of the flats out on (for example) assured short hold tenancies ("AST's") for all the properties comprised in the Building). As Mr Tobin observed in cross examination, the attractiveness of that is that the Landlord retains control over the whole block and can make decisions as he thinks as regards the general maintenance, insurance and refurbishment of the block free from any restrictions that might be encountered if there are tenants in the building who have long leases and thus must be the subject of service charge recovery, which is an entirely different and more complicated requirement.
9. Whilst he considered the Property as a whole as being attractive, he acknowledged in cross examination that the two constituent parts of the property could have been readily divided and created two smaller units. This is of significance in respect of part of the arguments of Mr Walker who appears for the Second Defendant in this assessment.
10. At the time of the acquisition the flats were, as I understand it mostly subject to a number of leases for approximately twenty years falling into possession in 2001. Mr Glyn in his witness statement said that the investment strategy had always been to try to obtain vacant possession in 2001 and that this strategy was partly successful. They obtained vacant possession of all but three of the flats which were in residential use. I should say that two of the flats (numbers 210 and 212 are used for commercial purposes, in the case of number 212 in association with the ground floor). The failure occurred in relation to number 230, which was and remains subject to a tenancy protected under the Rent Act 1977 and numbers 228 and 234 where Mr Tuttle was the lessee. She also was the lessee of number 236, but she later gave up her claim to a new long lease of that flat.

THE PROBLEM

11. On 2^nd November 2000, Mrs Tuttle served notices under section 42 of the 1993 Act claiming to exercise the right to acquire a new lease of each flat at a premium. She proposed paying a £70,000 (Seventy Thousand Pound) premium for a new long lease of each flat.
12. On 20^th December 2000, the First Defendants in this action served counter notices on behalf of the Claimants pursuant to section 45 of the 1993 Act, giving notice that the Claimants did not admit that Mrs Tuttle had the right to acquire new long leases of the three flats, because she did not satisfy the Residence Condition. Pursuant to that objection proceedings were issued in the Clerkenwell County Court on 12^th February 2001, seeking possession against Mrs Tuttle on the basis that she had no right to acquire the leases of any of the three flats under the 1993 Act.
13. Those proceedings came on to be heard at a disputed trial on 8^th July 2001. The Second Defendant instructed by the First Defendants and representing the Claimants advised compromise of those proceedings and a compromise was entered into, which led to a court order, compromising the dispute on the following terms:-

i) Mrs Tuttle was not entitled to acquire a new lease of number 236 (so possession of that was recovered).

ii) The Claimants' Counter Notices in respect of 228 and 234 were of no effect.

iii) The Claimants were required to serve fresh Counter Notices on or before 30^th July 2001, thereby admitting that Mrs Tuttle was entitled to acquire new leases of the two flats.

iv) Mrs Tuttle would pay £15,000.00 (Fifteen Thousand Pounds) towards the Claimants' costs.

14. Unfortunately, nobody noticed that the term of years referred to in Mrs Tuttle's leases had been backdated. Thus whilst the lease demised a term exceeding twenty-one years, she had not been granted a term exceeding twenty one years when calculated from the date of the grant of the lease, which is the relevant date of the commencement of the granted term. This is a requirement from section 7 (1) (a) of the 1993 Act.
15. As a result of the consent order, the consequences were in my view, that the Claimants admitted or were estopped from denying that Mrs Tuttle had a long lease within the meaning of the 1993 Act with all the rights and benefits attached to such a lease, including the right to acquire a new lease at a premium. In other words it would act as an admission as if contained in a Counter Notice under section 45 (5).

PROCEDURE UNDER THE 1993 ACT

16. If a Landlord fails to serve a Counter Notice then the tenant has the right to apply to court under section 49 for an order determining in accordance with his proposals the terms of the acquisition.
17. The terms of the new lease are set out in section 56 and are in substitution for the existing lease, subject to paying a premium calculated in accordance with schedule 13 for a lease at a peppercorn rent for a term of ninety years. Where the terms are in dispute either party can apply under section 48 to the Leasehold Valuation Tribunal ("LVT") to determine that dispute. The premium payable is assessed in accordance with schedule 13 and is assessed as being the aggregate of the diminution of the Landlord's interest, the Landlord's share of the marriage value and an amount of compensation payable for compensation arising out of the grant of a new lease. The relevant valuation date for the purpose of the exercise under schedule 13 is the value of the various interests at the date when all the terms of acquisition are either agreed or determined by the LVT.
18. By reason of this admitted act of negligence the Claimants were obligated to grant Mrs Tuttle the long leases upon the terms to be agreed or determined in accordance with the 1993 Act.

SUBSEQUENT ACTS ON CONSENT ORDER

19. Pursuant to the Consent Order, on 26^th July 2001, the First Defendants on behalf of the Claimants served fresh Counter Notices admitting the claim to the new lease of the two flats as contemplated by the compromise. However, on 18^th January 2002, Mrs Tuttle issued proceedings in Clerkenwell County Court seeking a declaration that those Counter Notices were invalid and an order requiring the new leases to be granted on the terms contained in her initial Notices. Her argument was that the Counter Notices were invalid, and that because of this the Claimants were obliged to grant new leases to be determined by the Court in accordance with her proposed terms, namely in particular, at a premium of £70,000.00 (Seventy Thousand Pounds).
20. Those proceedings were compromised on 18^th December 2002, whereby the Claimants agreed to grant long leases of flats 228 and 234 for a premium of £190,000.00 (One Hundred and Ninety Thousand Pounds) each (total £380,000.00 (Three Hundred and Eighty Thousand Pounds)). Significantly, another flat (number 226) was disposed of in November 2002 on a long lease in exchange for a premium of £278,000.00 (Two Hundred and Seventy-eight Thousand Pounds). This was an arms length transaction at open market value ("OMV"). It follows self evidently that the premium payable by Mrs Tuttle was below OMV of the flats if sold on the open market. Neither expert in this case suggests any of the flats in the Property have any different value from each other.
21. That compromise was made as a result of advice given by Christopher Pymont QC in November 2002. The advice is given entirely in relation to the Counter Notices and the possibility of challenging Mrs Tuttle's original notice on the basis that a £70,000.00 (Seventy Thousand Pounds) premium was not realistic.
22. The form of the Notices is the subject matter of the third allegation against both Defendants, namely that they settled and served Counter Notices which were invalid, in that they did not comply or arguably did not comply with section 43 of the 1993 Act. The First Defendants' Defence is in effect to blame the Second Defendant as a specialist counsel who was retained to draft the relevant Counter Notices. The Second Defendant denies that he was negligent as regards settling the Counter Notices on the basis that they were invalid or arguably were invalid.
23. That issue was not before me, it having been stayed, as I have said.

NON-MITIGATION

24. Shortly before the trial, the Second Defendant informed the Claimants that he intended to argue at the trial that the Claimants had not mitigated their loss properly, in that they should not have compromised the claims of Mrs Tuttle, but instead should have proceeded with a determination of the premium to be paid by the LVT. Had that happened (subject to recompensing the Claimants for the costs incurred in that exercise) the Claimants would have obtained, it is submitted by the Second Defendant, full market value for the interest of the Claimants in the flats, so that they would have suffered no loss by reason of the issue 1 allegation of negligence, namely the concession of Mrs Tuttle's rights. The argument is that the flats should be valued at their vacant possession value before the negligent act and had the value been determined at the LVT it would have been determined on the same basis under schedule 13 of the 1993 Act, so that no loss would have ensued.
25. It is therefore suggested that the act of negligence under item 1 was not causative of the loss complained of, but rather that the loss was occasioned by an extraneous act, namely the compromise of the proceedings brought by Mrs Tuttle.
26. Of course, if that compromise was advisable because of a doubtful notice, which had been negligently drafted by the Second Defendant and that issue were before me, this submission would never have been made. However, the issue concerning the validity of the Notices and whether or not the Second Defendant (and for that matter the First Defendants) were negligent in the creation of those Notices in a way which made them invalid or arguably invalid is not before me. I do not see how I can determine whether or not those Notices were valid, or whether they were invalid or arguably invalid by reason of negligence on the part of one or other of the Defendants, or even by reason of information provided by the Claimants. No evidence has been led in respect of those Notices, save that there were sufficient doubts over them so as to leave Mr Pymont QC to advise the compromise. I am unable to determine any issue in relation to the Notices. I am unable therefore to say whether or not the Notices were invalid and if they were invalid or arguably invalid, whether that was by reason the negligent act of the First Defendants, or the Second Defendant or both of them, or neither of them, or whether it was even by an act on the part of the Claimants.
27. The consequence of Mr Walker's submission therefore is that the Claimants suffered a loss on the two flats by accepting £190,000.00 (One Hundred and Ninety Thousand Pounds) (instead of OMV determined by the LVT) not by reason of the Second Defendant's negligence, but by reason of their decision to enter into the compromise, which is extraneous to this act of negligence alleged against the Second Defendant. He submits that this is the consequence of the application of South Australia Asset Management Corporation –v- York Montague Ltd. ("SAAMCO") [1997] AC 191. In particular he relies upon the now well-known speech of Lord Hoffman at pages 212 to 213. In effect he says that the loss sustained by the Claimants is entirely analogous to that of the climber who suffers an injury, which has nothing to do with his knee. Thus the doctor who negligently failed to diagnose the fitness of the knee is not liable for that, but would of course have been liable if it was the knee, which caused the injury. Thus he says, even if the Second Defendant's advice had been correct the injury would have still been sustained as it had not been caused by the doctor's bad advice.
28. Mr Wonnacott who appears for the Claimants submits that that is not the correct analysis. He submits that the Second Defendant had started the train in action by his negligent advice to compromise, which created the rights. He is therefore liable for all losses, which were sustained that arise from actions taken as a consequence of that negligent advice. He referred to the Court of Appeal decision in the "Oropesa" [1943] P 32. In that case two steam vessels collided. The Master of one of the badly damaged ships sent fifty of his crew in boats to the other ship and about an hour and a half after the collision decided himself to go to that ship and confer with her Master on measures to be taken. He transferred in another lifeboat, which he embarked with sixteen men. The weather was rough and before the lifeboat could reach the other ship it capsized and sank with nine of the occupants drowning. The badly damaged vessel subsequently sank and its owners sued the owners of the other ship. In addition, the parents of one of the deceased sailors joined as plaintiffs. They recovered against the other shipowners. It was argued that the drowning was not caused by the collision and therefore no liability should ensue. That was rejected by the Court of Appeal in this context, as referred to on page 39 by Lord Wright, where he said:-

"If the master and the deceased in the present case had done something which was outside the exigencies of the emergency, whether from miscalculation or from error, the plaintiffs would be debarred from saying that a new cause had not intervened. The question is not whether there was new negligence, but whether there was a new cause. I think that is what Lord Sumner emphasized in The Paludina. To break the chain of causation it must be shown that there is something which I will call ultroneous, something unwarrantable, a new cause which disturbs the sequence of events, something which can be described as either unreasonable or extraneous or extrinsic."

The court concluded on what they described as "The real difficulty…of fact" (page 40) that they were not prepared to say that in all the circumstances the fact that the deceased's death was due to his leaving the ship in the lifeboat and its unexpected capsizing prevented it from be a direct consequence of the casualty.

29. The Oropesa was referred to in the judgment of Lord Hoffman at page 218, where he said this:-

"The second category of cases relied upon by the plaintiffs concerns the question of whether the plaintiff's voluntary action in attempting to extricate himself from some financial predicament in which the defendant has landed him negatives the causal connection between the defendant's breach of duty and the subsequent loss. These cases are not concerned with the scope of the defendant's duty of care. They are all cases in which the reasonably foreseeable consequences of the plaintiff's predicament are plainly within the scope of the duty. The question is rather whether the loss can be said to be a consequence of the plaintiff being placed in that predicament. The principle which they apply is that a plaintiff's reasonable attempt to cope with the consequences of the defendant's breach of duty does not negative the causal connection between that breach of duty and the ultimate loss. This is the principle of which, in the sphere of physical damage, The Oropesa [1943] P. 32 is perhaps the best known example".

30. I accept Mr Walker's submissions. It does not seem to me that the difficulties that arose over the Counter Notices (however they arose) can be said to be a reasonable attempt to cope with the consequence of the Defendants' breach of duty. They are as Mr Walker submits, matters which would have happened whether or not the correct advice had been given, in accordance with page 212 of Lord Hoffman's judgment. It will be appreciated that the "no transaction issue" cannot be used as a basis for deflecting that, which is what Mr Wonnacott is really submitting. The difficulties arise over the Notices not the Second Defendant's negligent advice.
31. This is reinforced by an analysis of the potential reason why the Notices were bad. Mr Wonnacott was constrained to concede that if the Notices were bad because of his client's actions, they could not justify a claim based on the settlement of the issue of those notices. If the Second Defendant negligently caused the Notices to be arguably defective, then it is that act which caused the compromise. That is the matter which is stayed under paragraph 7 (3) of the Particulars of Claim. If the Notices are arguably defective, but not by reason of any negligent act, either on the part of the Claimants or the Defendants then in my view, the loss would still not be recoverable for breach of the primary allegation of negligence before me. That is not part of coping with the consequence of the act. It would be something that would be completely different and the difficulty of the validity of the Notices has had, led the Claimants to settle the settle the Tuttle dispute not the negligent act of conceding entitlement.
32. It follows therefore that in calculating the Claimants' loss (as set out below) it is insufficient to give credit merely for £190,000.00 (One Hundred and Ninety Thousand Pounds) for the two flats. The proper figure for which credit must be given is the figure at which the LVT would have valued the flats. That might be in July 2001 or December 2002. I will deal with this further in the Judgment below.
33. The Claimants can of course lift the stay to seek to recover the damages measured by the difference between the amount that they must give credit for at this stage and the amount they received from Mrs Tuttle. That seems to me to be logical and correct, because that loss flows from the Notices and not from the advice to concede the status.
34. With that preliminary determination, I now go on to assess the evidence and the competing arguments.

EVIDENCE

35. Mr Stuart Glyn gave evidence and his evidence was not particularly challenged. His evidence was as I have said, that the Property was purchased in 1979 and transferred into the trust in 1986, with a view to try and obtain vacant possession. He said in his evidence that both Defendants knew that and that they were employed to pursue that end. On cross examination however, it was clear that he had no direct evidence to show that the Second Defendant was aware of that as an express requirement. I do not have any evidence from the Second Defendant, nor was I provided with any evidence in relation to his instructions and the advice he gave that might have assisted that beyond the Schedule of Notices which he drafted which suggested that as regards certain leases he must have had within the contemplation of his retainer a possibility of obtaining possession.
36. Mr Walker submits that the Second Defendant was retained solely in relation to the two disputed flats and he cannot be liable for any consequence beyond that. I do not accept that. First, as a matter of sense the Second Defendant has to take a client as he finds him. In the present case the Second Defendant plainly knew that the Claimants owned the Property i.e. the two buildings. He plainly knew that they held it for investment purposes, because of the nature of the Notices which he would be instructed to settle, in my opinion. Even if I am wrong in that respect, I do not think it matters. He was retained to advise in relation to the Property. What use the Claimants put the Property to i.e. investment or realisation is neither here nor there. If the evidence shows that negligent advice in respect of the two flats will have an impact on the Property as a whole, in respect of which he is retained, it is reasonably foreseeable when he discharges his duty in respect of those flats, that it might impact on the entirety of the Claimants' relevant portfolio, i.e. the Property. This might even in my opinion be the case, if for example, the Second Defendant were retained by a large landlord to draft a particular Notice which could be used generally. Even if I therefore find that the Second Defendant was not expressly aware of the strategy to obtain vacant possession then he was nevertheless instructed by the Claimants as owners of the Property and bears the consequences of any loss that might be occasioned to the Claimants as owner of the Property, even if the advice is limited to the two flats.
37. I also accept Mr Glyn's evidence (this too was not challenged) that the sale of number 226 for £278,000.00 (Two Hundred and Seventy-eight Thousand Pounds) in November 2002 was not inconsistent with the Claimants' policy of retention. I am satisfied that the sale arose from the need identified in his evidence and would not have occurred but for the frustration of their policy by reason of the loss of the two Tuttle flats. Although an experienced surveyor, he was quite candid in admitting that he too had missed the length of term that Mrs Tuttle held, but he right observed, adopting a well known phrase "one does not hire a dog and bark one's self". The Defendants were paid to advise and if necessary correct in effect any errors he made.
38. The evidence of Mr James Glyn was agreed and he was not called as a witness.
39. The Second Defendant called no factual witness evidence.

EXPERT EVIDENCE

40. The Claimants called Mr Tobin a Director in Strettons Ltd. The Second Defendant called Mr Buchanan a Director in Chestertons. I found both of them being straightforward and professional in the delivery of their evidence. The issues are largely one of impression, a frequent occurrence in valuation cases. As a result of agreements made between the experts the cross examination (and particularly that of Mr Buchanan) was brief.
41. Mr Tobin did not consider value in the Claimants' interest in the Property or the flats on an open market value ("OMV") basis, not because he discounted it, but (somewhat surprisingly) because he was not asked to do it. In cross examination he accepted that OMV was a perfectly acceptable method of valuing the Property and the flats and could not be discounted.
42. He valued the Claimants' interest in the Property as an Investment Property on the basis that all the flats were rented. The reason he did that is a reflection on what he was told was the underlying purpose of the acquisition. There is a difference between what he is saying in paragraph 6.1 of his report, where he suggested that the trustees were not concerned with obtaining present income and the evidence of Mr Glyn. I do not think that difference is significant, and it was not explored in cross examination. I accept Mr Glyn's evidence.
43. It seems to me that having accepted Mr Glyn's evidence as set out earlier in this Judgment as to the purpose for acquisition and the use to which the Property was put by the Claimants, then the Claimants' interest in the Property should be valued on the same basis. I conclude therefore, that the best and most reasonable basis for valuing the Property is the investment basis.
44. Of course where capital receipts have been received, for example on the sale to Mrs Tuttle and on the sale of number 226, which were on a different basis the sums received should be correspondingly credited, if the damages are awareded on that basis. Thus the amount credited for the sale of number 226 would be its actual price received, namely £278,000.00 (Two Hundred and Seventy-eight Thousand Pounds).
45. Having rejected the credit put forward by the Claimants of £190,000.00 (One Hundred and Ninety Thousand Pounds) £190,000.00 (One Hundred and Ninety Thousand Pounds) each for the two Tuttle flats, I now consider what should be credited instead. In this context, I should refer to agreements between the two experts. Both agree, as of July 2001 (the date of the negligence) the OMV for the flats was £247,500.00 (Two Hundred and Forty-seven Thousand, Five Hundred Pounds). They also agree that the OMV of a flat in December 2002 was £278,000.00 (Two Hundred and Seventy-eight Thousand Pounds).
46. What must be credited is the amount that the LVT would have determined as being the premium had that been the only debate between the Claimants and Mrs Tuttle. That figure, in my judgment would not be the OMV. The valuation exercise carried out by the LVT is not to determine the OMV. It is to determine the diminution in value of the landlord interest as determined in accordance with paragraph 3, the landlords share of marriage value as determined in accordance with paragraph 4 and any amount of compensation payable to the landlord under paragraph 2. Mr Buchanan, in clarifying his report by his letter of 7^th May 2004 (item 3) set out how the LVT in his opinion would be likely to determine the premium payable upon the exercise of the rights. The first point is to consider whether or not there would be a discount for rights under an assured tenancy. It seems to me no other conclusion is possible. The consequence of the consent order, as I have said, is to constitute Mrs Tuttle as an assured tenant with all the rights attaching to it. It follows therefore that I reject Mr Walker's submissions that credit should be given on an OMV basis. If therefore the date for giving of credit is December 2002 I determine that the credit that should be given for Mrs Tuttle's two flats should be the OMV (£278,000.00 (Two Hundred and Seventy-eight Thousand Pounds)), less 10% for the rights of the assured tenant (£27,800.00 (Twenty-seven Thousand, Eight Hundred Pounds)), valuing the freeholders interest at £250,200.00 (Two Hundred and Fifty Thousand, Two Hundred Pounds). The freeholder is also entitled to a percentage of the marriage value, representing 50% of the difference between the OMV and the freeholders interest, namely £27,800.00 (Twenty-seven Thousand, Eight Hundred Pounds), giving a credit of £13,900.00 (Thirteen Thousand, Nine Hundred Pounds) making a figure of £264,100.00 (Two Hundred and Sixty-four Thousand, One Hundred Pounds) as opposed to the OMV of £278,000.00 (Two Hundred and Seventy-eight Thousand Pounds). That is Mr Buchanan's calculation.
47. I do not however accept that if I am ascertaining the loss as at July 2001, it is right to require the Claimants to bring into account a figure based on December 2002. It seems to me that the LVT, but for the Notices, would not have determined the premium payable as late as December 2002. It is more realistic to assume that the figure would have been determined fairly soon after July 2001. Another way of looking at it is that the Claimants has to bring to account, as at July 2001, on this basis, what they would have notionally received had there been an LVT valuation at that date. Therefore if July 2001 is the date for assessing the damages the figure should be £235,125.00 (Two Hundred and Thirty-five, One Hundred and Twenty-five Pounds), which I calculate as being £247,500.00 (Two Hundred and Forty-seven Thousand, Five Hundred Pounds) (agreed OMV) less 10% of rights for AT (£222,750.00 (Two Hundred and Twenty-two Thousand, Seven Hundred and Fifty Pounds)) plus 50% of the marriage value giving a figure by my calculation of £235,125.00 (Two Hundred and Thirty-five Thousand, One Hundred and Twenty-five Pounds), which multiplied by two would be £470,250.00 (Four Hundred and Seventy Thousand, Two Hundred and Fifty Pounds).
48. I will say something more about the actual date for assessment of damages further in this Judgment. As regards the third flat, whichever date is taken, (and assuming it should be brought into account on an OMV basis) in my Judgment it should be brought into account at the actual figure realised for the asset, namely £278,000.00 (Two Hundred and Seventy-eight Thousand Pounds).

DATE OF ASSESSMENT OF DAMAGES

49. The prima facia date is clearly July 2001. At that date the Second Defendant's negligent action caused the Claimants to acknowledge wrongly that Mrs Tuttle was entitled to the two leases. Thus subject to the quantification of the Claimants' loss they had by that time suffered damage; see for example Bell –v- Peter Browne [1990] 2 Q.B. 495.
50. What is the justification for moving from that date? The only perceived justification so far as I can see is that the leases were granted to Mrs Tuttle in December 2002 at a premium of £190,000.00 (One Hundred and Ninety Thousand Pounds). That is not a basis for moving the natural date for assessment of the damages for the following reasons. First, I have already rejected that transaction as the basis for credit. Second, I accept Mr Wonnacott's submission that this is a reversal of the SAAMCO principle, because it requires credit/debit for a post-negligence change in the market. In effect the Second Defendant wishes to have it both ways, namely to have the Property valued in July 2001 at a lower rate, but to maximise the credits by valuing a notional credit at later date. That would only be correct if an actual transaction is given credit for and that is the case in respect of number 226. I do not see therefore, any justification for moving the date for assessment of the damages from July 2001, that is the date when the loss was sustained when the negligent act committed the Claimants to granting leases, which they never wanted to grant.
51. It follows therefore, on my analysis set out above that the amount that should be brought into account for the Tuttle leases is £470,250.00 (Four Hundred and Seventy Thousand, Two Hundred and Fifty Pounds). In addition, the £278,000.00 (Two Hundred and Seventy-eight Thousand Pounds) should also be brought into account so that the total amount should be credited on this analysis is £748,250.00 (Seven Hundred and Forty-eight Thousand, Two Hundred and Fifty Pounds).

SPLIT THE DIFFERENCE

52. Mr Walker submits that the Property should be divided. The Tuttle leases and the Rent Act tenancy are in one part and that therefore the assessment of loss should be limited to this part. There is, he submitted, no basis for suggesting that the unaffected part of the Property will suffer any disadvantage from the long leases granted in the affected part.
53. This point did not feature in any evidence. It was not pleaded. It was first suggested in Mr Walker's skeleton argument. No figures were provided in Mr Buchanan's supplemental report delivered on Monday, which just dealt with separation and not the consequences. Mr Wonnacott complained that Mr Tobin was ambushed in the witness box with this point. That may be true, but in my judgment he coped with it. It seems to me that it is self evident that the Claimants had an attractive investment in the Property. It is self evident to me that that is far more attractive with twelve flats, than six (a severed part). To reduce the attractive nature by half causes an injustice to the Claimants. They acquired both parts and it was both parts together which on this analysis made them attractive. There will be difficulties in severance and of course the Claimants are faced with a differing regime as regards service and other obligations in respect of one. It seems to me that the severance argument has no merit and I reject it.
54. Having already concluded that the Claimants' interest should be measured on an investment basis as at July 2001 (rejecting OMV basis and rejecting an alternative date) I now turn to examine evidence as to the value of the Claimants' interest in the Property as a whole.

PRE-NEGLIGENCE VALUATION OF THE PROPERTY

55. As I have said in this Judgment when setting out the description of the Property, there were in effect twelve flats and a number of lockup shops. The lockup shops have been disregarded by both valuers in the valuation exercise before me. The same stance has been taken in respect of the two flats, which are occupied in effect for business purposes, leaving ten flats. One further flat (number 230) was, as I have said, occupied under a tenancy protected under the Rent Act 1977, so would never have fallen within the expectations of the Claimants' regime. Had the Claimants not been negligently advised their case therefore is that they would have had nine flats available for letting under AST's.
56. Both experts agreed that the monthly income from an AST for each flat would be £1,646.00 (One Thousand, Six Hundred and Forty-six Pounds). In his first report Mr Tobin calculated the capital value of the Property as being £2,367,363.00 (Two Million, Three Hundred and Sixty-seven Thousand, Three Hundred and Sixty-three Pounds). He arrived at that figure by taking the income from 7 AST's (£1,646 x 7 x 12 (months)) being £138,264.00 (One Hundred and Thirty-eight Thousand, Two Hundred and Sixty-four Pounds), the income from Mrs Tuttle on the same basis (£39,504 (Thirty-nine Thousand, Five Hundred and Four Pounds)) and the income from the regulated tenancy (£5,040.00 (Five Thousand and Forty Pounds)) giving a total annual income of £182,808.00 (One Hundred and Eighty-two Thousand, Eight Hundred and Eight Pounds). In his opinion the yield would have been 12.95 giving a return of capital at 7.75%. Accordingly, he applying the YP of 12.95 arrived at the figure of £2,367,363.00 (Two Million, Three Hundred and Sixty-seven Thousand, Three Hundred and Sixty-three Pounds).
57. As a result of the negligence two AST's have been lost, therefore also taking into account the sale of number 226, the income received would be (£1,646.00 x 6 x 12 = £118,512.00 (One Hundred and Eighteen Thousand, Five Hundred and Twelve Pounds)) 2 x 0 for Mrs Tuttle's flats, a nominal £150.00 ground rent from number 226 and the same figure £5,040.00 (Five Thousand and Forty Pounds) for the regulated tenancy at number 230. That gave, according to his report a total annual income of £123,700.00 (One Hundred and Twenty-three Thousand, Seven Hundred Pounds), but he reduced the yield because of the mixed tenure of the flats to 8.75 (YP 11.45) giving a capital value of £1,416,365.00 (One Million, Four Hundred and Sixteen Thousand, Three Hundred and Sixty-five Pounds).
58. In addition he credited the proceeds of sale of flat 226 and £190,000.00 (One Hundred and Ninety Thousand Pounds) x 2 for the two Tuttle flats (total £658,000.00 (Six Hundred and Fifty-eight Thousand Pounds). That left a net loss figure, according to his first report of £292,998.00 (Two Hundred and Ninety-two Thousand, Nine Hundred and Ninety-eight Pounds).
59. Mr Buchanan agreed the same figure for AST's, but considered that Mrs Tuttle would have assured tenancies and he would expect the rent to be lower for assured tenancies as opposed to AST's. He therefore calculated the income from Mrs Tuttle as being £35,553.00 (Thirty-five Thousand, Five Hundred and Fifty-three Pounds), but otherwise applying the same agreed yield as Mr Tobin (which he did not dispute) he came to an investment value in his report of £2,316,198.00 (Two Million, Three Hundred and Sixteen Thousand, One Hundred and Ninety-eight Pounds) before negligence.
60. As he acknowledged in cross examination, the only difference between Mr Tobin and Mr Buchanan as regards the investment valuation was the different treatment of Mrs Tuttle's leases, and the income produced by them.
61. As regards post negligence he considered that a figure of 8.25% was more appropriate, which produced a YP of 12.12 giving an investment value figure of £1,499,244.00 (One Million, four Hundred and Ninety-nine Thousand, Two Hundred and Forty-four Pounds), but otherwise agreed with Mr Tobin's calculations and the net losses,.
62. However, in addition, he brought into account the LVT value of the two premiums. As I have set out above the LVT value based on values at July 2001 would amount to £470,250.00 (Four Hundred and Seventy Thousand, Two Hundred and Fifty Pounds). He therefore give credit for that figure plus flat number 226 of £748,250.00 (Seven Hundred and Forty-eight Thousand, Two Hundred and Fifty Pounds). Taking those figures into account the actual loss he submitted in his first report was reduced to £68,704.00 (Sixty-eight Thousand, Seven Hundred and Four Pounds).
63. Mr Tobin produced a further report on 20^th April 2004. This addresses solely (apart from minor typing errors) a post negligence valuation of the Property but disregarding the sale of flat number 226 in its entirety. The difference is that there are then seven AST's instead of six. Applying the same YP he produced a net figure of £1,637,910.00 (One Million, Six Hundred and Thirty-seven Thousand, Nine Hundred and Ten Pounds). He also corrected a minor error in his before sales valuation by applying a YP multiplier of 12.9 (the correct one) as opposed to 12.95 in his earlier report giving a before sales capital value of £2,358,223.00 (Two Million, Three Hundred and Fifty-eight Thousand, Two Hundred and Twenty-three Pounds).
64. By going through this exercise the capital receipt for number 226 drops out and is replaced with a comparable AST income. This has the effect of increasing the damages marginally to £340,303.00 (Three Hundred and Forty Thousand, Three Hundred Pounds and Three Pounds).
65. Mr Buchanan in his second report dated 2^nd May 2004, did not disagree with Mr Tobin's amended valuations on the assumption that the Claimants would not have sold number 236 if they had been able to recover possession of numbers 228 and 234.
66. Shortly before the trial Mr Tobin and Mr Buchanan agreed the post-negligence YP at 8.5%. That gave a figure of £1,685,208.00 (One Million, Six Hundred and Eighty-five Thousand, Two Hundred and Eight Pounds) for the capital value of the Property, but disregarding the sale of number 226. Mr Buchanan also made a minor adjustment to his pre-negligence valuation and put forward a different figure of £2,307,255.00 (Two Million, Three Hundred and Seven Thousand, Two Hundred and Fifty-five Pounds). That difference as I have already observed related solely to the question of the valuation of Mrs Tuttle's AT's.
67. I am not convinced that Mrs Tuttle's AT's would have produced a lesser rent. I accept Mr Tobin's evidence in preference to that of Mr Buchanan's. It seems to me that an AT giving greater security and length of occupation than an AST would attract a higher rental. I therefore conclude that the capital value of the Property before the negligent act was £2,358,223.00 (Two Million, Three Hundred and Fifty-eight Thousand, Two Hundred and Twenty-three Pounds) in accordance with Mr Tobin's report.
68. The consequence of in effect bringing number 226 into account as an investment rather than as a capital sale means that the deduction (on a YP of 8.5 as agreed) means that it is given a capitalised value of £232,283.00 (Two Hundred and Thirty-two Thousand, Two Hundred and Eighty-three Pounds).
69. That is of course less than the price obtained for the flat in November 2002. There are two reasons in my Judgment why it is more appropriate to bring the flat into account on that basis. First, as I have already determined the Claimants' interest should be regarded as investment and valued at that basis. Second, the Claimants' value on that basis should be assessed as at July 2001 and at that time the flat would not have achieved £278,000 (Two Hundred and Seventy-eight Thousand Pounds), but would have been expected to achieve the income levels which both experts have agreed. Third, it seems to me adopting Mr Wonnacott's submission elsewhere that to require the Claimants to bring it in at a different value and on a different basis is contrary in effect to the principle of SAAMCO.
70. I therefore conclude that it is right to assess the value post-negligence on the basis of seven not six flats.
71. On the agreed percentage of 8.5% giving a YP of 11.77% both experts acknowledge that the residual value upon two long leases would be £1,685,208.00 (One Million, Six Hundred and Eighty-five Thousand, Two Hundred and Eight Pounds).

LOSSES OF CAPITAL NATURE

72. I accordingly determine that the Claimants had an intact block worth £2,358,223.00 (Two Million, Three Hundred and Fifty-eight Thousand, Two Hundred and Twenty-three Pounds) and they had a block afterwards worth £1,685,208.00 (One Million, Six Hundred and Eighty-five Thousand, Two Hundred and Eight Pounds), giving a net figure of £673,015.00 (Six Hundred and Seventy-three Thousand, and Fifteen Pounds).
73. There then falls to be deducted from that figure the LVT values of the flats as determined as at July 2001 (£470,250.00 (Four Hundred and Seventy Thousand, Two Hundred and Fifty Pounds)) giving a figure for damages for capital loss in my Judgment £202,765.00 (Two Hundred and Two Thousand, Seven Hundred and Sixty-five Pounds).

EXPENDITURE LOSS

74. The Claimants seek costs and expenses under two bases. First, they seek the costs that they incurred unnecessarily in prosecuting the section 46 proceedings against Mrs Tuttle. In the Particulars of Claim the amount claimed is £30,158.44 (Thirty Thousand, One Hundred and Fifty-eight Pounds, Forty-four Pence). Credit has to be given against that for two figures. First they concede Mrs Tuttle was awkward and would not necessarily have given up the fight in some way or another so they might well have incurred irrecoverable costs of around £5,000.00 (Five Thousand Pounds). Second, they give credit for the £15,000.00 (Fifteen Thousand Pounds), which she actually paid. Mr Walker attacked various of these heads, such as the bill for Olswangs of £1,000.00 (One Thousand Pounds), which the Claimants abandoned. Mr Wonnacott in his written closing submissions provided a net figure of £5,598.94 (Five Thousand Five Hundred and Ninety-eight Pounds, Ninety-four Pence). I do not consider that figure unreasonable and I award that sum to the Claimants in damages as well, making a total of £208,363.94 (Two Hundred and Eight Thousand, Three Hundred and Sixty-three Pounds and Ninety-four Pence) (say £208,365.00 (Two Hundred and Eight Thousand, Three Hundred and Sixty-five Pounds)).
75. The next head of costs arises out of the costs the Claimants incurred in the second proceedings. The figures are set out in schedule two of the Particulars of Claim. The total amount claimed is £56,347.00 (Fifty-six Thousand, Three Hundred and Forty-seven Pounds). On the question of quantum there is a difficulty because the figures were not accepted by the Second Defendant and at the hearing before me the Claimants were unable to prove what actual costs they had incurred to their new solicitors. Most of the costs identified in the second schedule relate to interim bills. None of them is detailed and Mr Walker's criticisms of that evidence were justified. I was unwilling to allow that to go by default, nor did it seem to me to be cost effective or proportionate to adjourn the trial. I accordingly determined that the Claimants would be entitled to recover the reasonable costs of schedule two (if appropriate) and leave that determination over to a costs judge.
76. There is an issue of principle however. Mr Walker submits that these costs are not only excessive, but flow from a challenge to the Notices not from the act of negligence. They arise once again he submits out of any alleged 7 (3) negligence and not the negligence before me. I agree with his submission. I have already set out the reason why earlier in this Judgment.
77. It follows therefore that the costs as claimed are not recoverable as a matter of principle under paragraph 7 (1). However, the Claimants are entitled to a figure for costs (which Mr Walker conceded) as being a reasonable sum that they would have incurred in having the two Tuttle flats valued before the LVT. He submitted that would be a relatively modest amount and be nothing like as large as the figures in schedule two. There is of course no evidence of that. I am not in a position to determine what would be a reasonable amount, save on a rough and ready basis. I will determine in order to achieve finality the amount of costs at £5,000.00 (Five Thousand Pounds). If either party disagrees with that then I will direct there to be an inquiry either before a Master or a Taxing Judge of what would be a reasonable amount of costs the Claimants would have incurred in prosecuting the valuation issue before the LVT.
78. If my proposed figure is accepted the amount of damages is £213,365.00 (Two Hundred and Thirteen Thousand, Three Hundred and Sixty-five Pounds).

INTEREST

79. The Claimants sought a rate of 8% under the Judgment Act Rate, but Mr Wonnacott in his closing submissions accepted that 6.5% would be more appropriate and I will award interest in the figure of 6.5% from 18^th July 2001, being the date upon which damages have been assessed. I will leave the parties to work out the actual figure, but accordingly, subject to the matters set out above I assess the damages against the Second Defendant as being £213,365.00 (Two Hundred and Thirteen Thousand, Three Hundred and Sixty-five Pounds) together with interest at the above mentioned rate.