Redbus LMDS Ltd. v Jeffrey Green and Russell (a firm)

Where costs incurred in earlier litigation are claimed as damages for professional negligence, the costs should generally be assessed on the standard basis. The claimant bears the burden of showing that an item, although disproportionate, was reasonably incurred. Judicial comity may justify following first-instance authority on the point. Negligent drafting is not merely incidental to loss where it enables an opposing party to raise issues that cause recoverable litigation costs. The court may assess the proportion of costs attributable to those issues using a broad-brush, two-stage approach.

Redbus claimed damages from its former solicitors, Jeffrey Green and Russell, who admitted negligent drafting of a licence agreement. Ambiguities concerning termination and sub-licensing led to litigation with the licensor. Redbus succeeded on the drafting issues and sought to recover the resulting costs, including enforcement costs.

The defendants argued that the negligence was not the effective cause of loss because the sub-licence was unauthorised and allegedly breached the Companies Act 1985. They also argued that any damages should be limited to costs recoverable on the standard basis and to the proportion properly attributable to the drafting issues.

1. Causation. The admitted negligent drafting enabled the licensor to take the two drafting points in the earlier litigation. Those points were actually taken and caused loss. The chain of causation was not broken by the sub-licence, whether or not its grant involved a breach of Companies Act 1985, section 320.
2. Basis of assessment. The court adopted Pearce v European Reinsurance as its starting point. Following the approach in British Racing Drivers’ Club v Hextall Erskine & Co, Yudt v Leonard Ross & Craig and Mahme Trust v Lloyds TSB, and applying judicial comity, costs claimed as damages were to be assessed on the standard basis. Proportionality under the CPR did not justify departing from that approach. The claimant generally had to establish that a disproportionate item was nevertheless reasonable.
3. Enforcement costs. The liquidation and proof costs of £3,111.35 were sufficiently connected with the negligence and were recoverable. Their possible occurrence in any event did not break causation.
4. Proportion. The assessment involved two stages: first, the proportion of the Patent and Licence actions attributable to issues on which Redbus succeeded; secondly, the proportion of those successful issues attributable to the drafting issues. The court assessed both stages at 75%.
5. Disposition. Redbus’s damages were assessed at 75% of 75% of £192,954.89, namely £108,537.13.