Demarco v Perkins

Damages for negligent failure to secure a bankruptcy annulment are confined to loss actually caused by the breach. Where an IVA was the only available route, the claimant loses the chance of obtaining annulment through that route, not the cost of paying debts in full under a different route that was never available. Non-pecuniary damages may be awarded for the continuing difference in status, but should remain modest. Proven pecuniary loss is required.

Mr Anthony Demarco sued his insolvency advisers, Mr Michael Perkins and Bulley Davey, for failing to advise that an IVA had to be established before his automatic discharge from bankruptcy on 26 March 2000. The trial judge found breach of duty, assessed the lost chance of annulment through the IVA route at 85 per cent, rejected the claimed cost of annulment under section 282(1)(b) of the Insolvency Act 1986, and awarded £1,700 general damages plus interest.

The claimant appealed on the measure of loss. The central issues were whether he could recover the cost of annulment by a route that had never been available, and whether the award for continuing non-pecuniary loss was adequate.

1. Appeal allowed in part. The claim for the cost of annulment under section 282(1)(b) of the Insolvency Act 1986 was rightly rejected.
2. The actionable loss was the 85 per cent chance of obtaining annulment through an IVA, the only available route. The claimant had never been able to pay his bankruptcy debts in full, so he had lost no chance of annulment under section 282(1)(b).
3. The retainer concerned annulment through the IVA route, not annulment irrespective of route. Funding payment of all debts would place the claimant in a position different in kind from that which proper performance could have achieved and would confer an unexpected windfall.
4. The lost chance had to be valued by comparing the claimant’s position had it been retained with his present position. Any unavoidable cost of taking advantage of the chance had to be taken into account.
5. No pecuniary loss had been proved. Non-pecuniary damages were available but should be modest. The trial judge had failed to give proper weight to the potential IVA cost. The £2,000 figure was increased to £6,000, reduced by 15 per cent to £5,100, with interest recalculated.

• Court of Appeal (Civil Division) [2006] EWCA Civ 188: allowed the appeal in part.
• Queen’s Bench Division, Nottingham District Registry: HHJ Inglis found liability, rejected the special-damages claim, and awarded £1,700 plus interest.