Vasiliou v Hajigeorgiou

Loss caused by a breach must ordinarily be proved on the balance of probabilities. The subsequent measurement of hypothetical profits is a distinct exercise. The court makes a realistic and reasoned estimate, taking all significant contingencies into account.

A loss-of-chance discount is not mandatory. Where the court finds that a business would have traded profitably and determines the profits it would have earned, a further discount for the possibility of failure is counter-factual and may amount to double discounting. A separate discount is appropriate only where substantial uncertainties, including hypothetical acts of third parties or events outside the claimant’s control, create a real possibility of a materially less favourable outcome.

The defendant landlord appealed against an order of HHJ Dight assessing the claimant tenant’s lost restaurant profits at £422,186. The restaurant had been unable to trade because successive breaches of the covenant for quiet enjoyment made its lawful operation impossible.

In an earlier assessment, HHJ Levy QC had found that the claimant was capable of running a successful restaurant and that the restaurant would have traded successfully. Those findings, and the resulting profit assessment, formed the agreed basis for the later assessment. HHJ Dight also found that the claimant intended to operate the restaurant and that it would have succeeded.

The permitted appeal concerned whether the judge was nevertheless required to discount the calculated profits to reflect the possibility that the restaurant might not have achieved the projected success.

1. Appeal dismissed unanimously. The finding that the restaurant would have operated profitably was binding upon the defendant and was independently open to HHJ Dight on the evidence. The calculated figure of £422,186 was accepted as correct on the variables used.

2. A claimant ordinarily proves causation on the balance of probabilities. Once causation is established, the resulting loss is recoverable in full, subject to mitigation and remoteness. The loss-of-chance doctrine principally concerns causation where the claimed benefit depends upon hypothetical conduct by an unrelated third party. A real and substantial chance may then be valued rather than requiring proof that the third party would probably have acted as alleged.

3. The inability to operate the restaurant resulted directly from the landlord’s breach. The tenant’s competence and the likely commercial success of the restaurant therefore concerned quantum, not causation. Assessment of profits which would have been earned requires a realistic and reasoned evaluation of the hypothetical position. It does not require proof of a precise amount on the balance of probabilities.

4. Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486 did not require a further percentage reduction. Owners of the Ship “Front Ace” v Owners of the “Vicky 1” [2008] EWCA Civ 101 established that, once the court has found that an enterprise would have operated profitably and has determined the profit it would have made, no additional discount should be imposed for a counter-factual possibility of non-employment or failure.

5. First Interstate Bank of California v Cohen Arnold & Co [1996] C.L.C. 174 concerned uncertainty about the price obtainable in a falling market. It did not establish a universal requirement to discount a best estimate. Salford City Council v Torkington [2004] EWCA Civ 1646 showed that a discount may be required where substantial unknown factors outside the claimant’s control create a real possibility of a materially less favourable course of events. That approach is fact-specific.

6. The proposed discount would contradict the findings that the restaurant would have succeeded. Expressed in chance terms, the judges had assessed the prospect of profitable operation at 100%. A further reduction would therefore be counter-factual and could duplicate contingencies already reflected in the assessment.

1. Court of Appeal (Civil Division): The defendant’s appeal against the £422,186 assessment of lost profits was dismissed unanimously: [2010] EWCA Civ 1475.

2. Central London County Court, HHJ Dight: The judge assessed lost profits for the later period at £422,186, rejected the mitigation defence and valued the lease at £300,000. Only the lost-profit assessment was challenged on the permitted appeal.

3. Central London County Court, HHJ Levy QC: In the earlier claim, the judge found that the restaurant would have traded successfully but for the landlord’s breach and awarded £221,721 for lost profits, together with interest. No appeal was brought against that assessment.