Hayes & Anor v Dodd

Where negligent professional advice caused a claimant to enter a transaction that would otherwise never have been made, damages may be assessed on a no-transaction basis. The claimant may recover expenditure and consequential losses, less subsequent recoveries, subject to reasonable mitigation. Diminution in value and the date-of-breach approach should not be applied mechanically. Package transactions may require realistic apportionment and rough adjustments for overpayment, interest and resale credits. Damages for mental distress remain confined to contracts concerned with peace of mind, comfort, pleasure or relief of discomfort. They are not generally recoverable for distress arising from a commercial venture.

The respondents bought a leasehold workshop and yard, together with a maisonette, after their solicitors advised that a critical rear right of way was secure. The adjoining owner blocked the access shortly after completion, and the business failed. Liability was admitted, but the respondents appealed only on quantum from Hirst J’s award, stated as £105,748.81 including interest.

The Court of Appeal considered the appropriate basis of assessment, mitigation, apportionment of the purchase price, bank interest, credit for the later sale of the maisonette, and damages for mental distress arising from the commercial transaction.

1. Disposition. The appeal was unanimously allowed to the extent that the damages were reduced and reassessed at £92,047.81 including interest. The appellant was ordered to pay one quarter of the respondents’ Court of Appeal costs; costs below stood as ordered.
2. Basis of assessment. Lord Justice Staughton delivered the principal reasoning, with which Sir George Waller and Lord Justice Purchas agreed on the material issues. The solicitors’ breach was failure to exercise reasonable skill and care, not breach of a warranty that the right of way existed. Proper advice would have led the respondents not to enter the transaction. The appropriate comparison was therefore their actual position with the position in which they would have bought nothing. They could recover expenditure less subsequent recoveries, subject to reasonable mitigation, but not the profits of a successful business. The diminution-in-value approach was not an invariable rule in claims against solicitors, particularly where the property was difficult to sell and the breach took time to emerge. Staughton LJ left open, without deciding it, whether a claimant might elect between the no-transaction and successful-transaction methods.
3. Mitigation and valuation. The respondents acted reasonably in attempting to sell the properties together and in retaining the lease while negotiations continued. Rent, rates, insurance, travel, redundancy, conveyancing and related expenses were therefore recoverable. The vendors’ artificial apportionment of the package price was not conclusive for the damages claim. The court could adopt a realistic apportionment. The judge’s rough reduction of bank interest to 80 per cent was permissible, but interest on the plant loss duplicated interest already allowed on the bank borrowing.
4. Resale credit. Because the damages included 80 per cent of the bank financing, the defendants were entitled to credit for 80 per cent of the maisonette’s £13,000 increase in value, namely £10,400.
5. Mental distress. Staughton LJ and Purchas LJ followed the restricted approach in Bliss v South-East Thames Regional Health Authority. Distress damages may arise where the contract’s object is peace of mind, comfort, pleasure or relief of discomfort. They were unavailable here because the transaction was undertaken to carry on a commercial activity for profit. Perry v Sidney Phillips & Son was treated as involving distress caused by physical consequences of the breach, not ordinary commercial frustration or litigation anxiety.

1. Court of Appeal (Civil Division) allowed the appeal to the extent of substituting damages of £92,047.81: [1988] EWCA Civ 8.
2. High Court of Justice, Queen’s Bench Division, Hirst J awarded damages for the respondents’ losses, including interest and £3,000 for mental distress. Liability had been admitted.