Olafsson v Foreign & Commonwealth Office

In assessing damages, a claimant is not required to undertake uncertain and potentially expensive litigation against a third party merely to mitigate loss caused by the defendant’s negligence. This is particularly so where the defendant refuses an indemnity and the proposed proceedings may fail. The court may determine reasonableness without resolving every hypothetical issue or predicting the result of foreign enforcement proceedings. The relevant question is whether the claimant’s decision, viewed in light of the available legal advice and evidence, was reasonable. Knowledge of proceedings does not necessarily amount to due service under the Lugano Convention, and an order dispensing with service is not equivalent to the document instituting proceedings.

The claimant sued the Foreign and Commonwealth Office for negligence after an attempt to serve Icelandic libel proceedings failed to comply with Icelandic law. Liability was admitted. The claimant sought damages for the lost default judgment and costs, enforcement expenses, related costs and inconvenience.

The central issue was whether he acted reasonably by pursuing the FCO for the loss of the original judgment, rather than obtaining a second English default judgment and attempting enforcement in Iceland. The parties agreed that issues concerning the amount and reasonableness of legal fees should be referred to a costs judge.

1. Mitigation of loss. The claimant had not acted unreasonably by declining to obtain and enforce a second default judgment. The duty to mitigate did not require him to embark on uncertain litigation against a third party, particularly where the FCO had refused an indemnity and the proposed litigation would be costly.
2. The principle in Pilkington v Wood [1953] Ch 770 applied. A claimant need not undertake complicated or difficult third-party proceedings merely to protect a negligent defendant from the consequences of its own carelessness.
3. The court preferred the claimant’s expert evidence that enforcement of a second default judgment in Iceland was most unlikely. It was unnecessary, however, to reach a firm conclusion about the likely outcome. It was sufficient that the outcome was uncertain, the cost substantial and the proposed proceedings liable to cause further delay.
4. Under article 27(2) of the Lugano Convention, knowledge of proceedings was not equivalent to due service. An order dispensing with service could not be treated as equivalent to the claim form. The reasoning in Isabelle Lancray SA v Peters und Sickert KG, reported at 1990 ECR I-02725, supported that conclusion.
5. A second default judgment would still have been given in default of appearance because the defendant had failed to acknowledge service or serve a defence. His procedural applications and appeals did not alter that position. The court also considered the effect of articles 46 and 48 of the Convention, but the possible exercise of the power to dispense with documents was speculative.
6. The claimant’s position was therefore reasonable. The agreed issues and the reasonableness of the legal fees were to be dealt with by a costs judge.

The judgment describes the procedural history of the underlying Icelandic libel proceedings:

• High Court: Mackay J held that the original service was ineffective, but subsequently dispensed with service under CPR 6.9.
• Court of Appeal: The appeal was dismissed on 3 March 2008: [2008] 1 WLR 2016.
• House of Lords: A petition for leave to appeal was refused on 16 June 2008.