Keydon Estates Ltd v Eversheds LLP

In a claim arising from negligent legal advice, diminution in value is the prima facie measure of loss, but it is not an inflexible rule. The court may adopt another factual method where diminution in value would produce substantial injustice, provided the award avoids overcompensation and double recovery. Where the solicitor knew that the transaction was intended to secure an income stream, the court may assess the loss by comparing the actual outcome with the likely result of applying the claimant’s money to the best reasonably available alternative investment. Damages may be assessed at the date of judgment where that better reflects the compensatory principle.

Keydon acquired a commercial property as an investment after Eversheds negligently advised that a sublease had not assigned the headlease and released the original tenant from its rent covenant. The original tenant later obtained an arbitral ruling that it was released, and Eversheds admitted negligence.

The only issue was the measure of recoverable damage. Eversheds argued for diminution in value, calculated by comparing the property’s value with vacant possession and the price paid. Keydon argued that its loss should instead reflect the income stream it would probably have obtained from another investment had it received correct advice.

1. Measure of damages. The court applied the compensatory principle in Livingstone v Rawyards Coal Co [1880] 5 App Cas 25. The claimant was to be placed, so far as money could do so, in the position it would have occupied absent the negligence.
2. The court adopted the analysis in Greymalkin Ltd v Copleys (a firm) [2004] PNLR 44. The distinction between negligent information and negligent advice as to whether a transaction should be undertaken determines the scope of recoverable consequences. Causation and the kind of loss for which the defendant assumed responsibility must still be established.
3. Diminution in value is ordinarily the appropriate measure in negligent property transactions, but it must not be applied mechanically. The court may make a broader factual assessment where the property is unusual, was acquired for a known particular purpose, or the ordinary measure would produce injustice. Any alternative measure must avoid overcompensation and double recovery.
4. Applying South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 and the approach in East v Maurer [1991] 1 WLR 461, the court assessed the actual loss and then asked what loss was attributable to the negligent information. On the evidence, Keydon would have invested its available funds in the best alternative commercial property reasonably available in April 2002 or shortly afterwards.
5. The appropriate assessment date was the date of judgment. Keydon’s loss was the difference between the likely result of that alternative investment and what had actually transpired. The court therefore rejected the diminution-in-value calculation and broadly accepted Keydon’s alternative approach, subject to a 5 per cent adjustment for the probable inferiority of the alternative investment.
6. Keydon recovered £310,294.31 to date, less £900 received from use of the car park. An inquiry was directed into loss arising from the loss of the original tenant’s repairing covenant. The £2,000 costs incurred in County Court proceedings were irrecoverable because they were not caused by the negligent purchase advice. The claim broadly succeeded, with further argument on the order and costs.