Knight & Anor v Haynes Duffell, Kentish & Co (a firm)

In assessing damages for professional negligence based on a lost litigation chance, the court must assess the real prospects of success on the evidence. It must not discount the chance merely because another judge might take a different view of the law. A deduction for litigation risk requires facts and evidence supporting that risk.

Where money is held by solicitors on trust pending completion of an underlying transaction, payment out before the agreed conditions are fulfilled is a breach of trust. If the transaction remains incomplete, the appropriate remedy is reconstitution of the trust fund. Interest may run from the date of the wrongful payment where the claimant was deprived of the money.

The claimants had recovered damages from their former solicitors for professional negligence and breach of contract. The negligence had allowed an earlier action against solicitors who had allegedly paid money out of a client account in breach of trust to be struck out for want of prosecution.

The deputy High Court judge assessed the lost chance of success in the original action at 55 per cent, rejected a separate claim concerning the proposed assignment of a co-investor’s claim from his trustee in bankruptcy, and awarded interest only from 17 April 1993. The claimants sought permission to appeal on those issues and appealed the interest award. The respondent sought permission to challenge the findings on breach of trust and the measure of loss.

1. Respondent’s applications. Permission to appeal on breach of trust and the measure of loss was refused. The money paid by the claimants was held on trust pending the simultaneous provision of the B shares, completion of the purchase of the business assets, and assignment of the trading name. Payment without the assignment was therefore a breach of trust.
2. The principle in Target Holdings Ltd v Redferns [1996] 1 AC 421 did not require compensation to be measured by the value of the trading name. That principle applied where the underlying transaction covered by the trust had been completed. Here it had not. The remedy was reconstitution of the trust fund.
3. Loss of chance. The judge was entitled to stand back and assess the original action as a whole. He erred in allowing for the possibility that a different judge might take a different view of the law. The law was clear, and that consideration had depressed the assessment. The chance of success was substituted from 55 per cent to 75 per cent.
4. A court may allow for risks attendant on litigation only where facts and evidence support the deduction. The same requirement applied to a claimed chance that a trustee in bankruptcy would assign a co-investor’s claim, and on what terms. The evidence did not establish a substantial chance of assignment or acceptable terms. Permission to appeal on that issue was refused.
5. Interest. The deputy judge also erred in principle in assessing the interest issue. The claimants had been deprived of their money from the end of April 1990, when it was unlawfully paid out. Interest at the judgment rate was therefore appropriate from that date. Lords Justices Kay and Jonathan Parker agreed with Lord Justice Aldous. The claimants’ appeal was allowed for that purpose and the respondent was ordered to pay 95 per cent of the appellants’ costs.

• Court of Appeal (Civil Division): The claimants’ appeal from the judgment of His Honour Judge Howarth, sitting as a deputy High Court judge, was allowed in part. Permission to appeal on the respondent’s additional grounds and on the claim concerning assignment of the co-investor’s claim was refused.
• High Court, Chancery Division, Manchester District Registry: Judgment dated 13 March 2002 awarding the claimants £135,844.58 in damages and interest. The lost chance was assessed at 55 per cent, and interest was awarded only from 17 April 1993.