Darby & Darby (A Firm) v Joyce

In professional negligence, loss is not allocated by a rigid distinction between “no-transaction” and “successful-transaction” cases. The court asks whether the defendant can reasonably be regarded as having assumed responsibility for the loss and whether it was within the parties’ contemplation.

A client who, after clear advice and warnings, knowingly rejects advice to stop works pending consent may cause later injunction proceedings and their costs. The solicitor remains liable for losses caused by the initial failure to advise, including wasted expenditure incurred before clear advice to stop. Ordinary mortgage and insurance costs of occupying the property are not recoverable where equivalent costs would probably have been incurred for another property.

Helen Joyce instructed Darby & Darby to act on her purchase of Tamarisk. The solicitors failed to advise her about restrictive covenants controlling exterior alterations and use of the property. After works began, the beneficiaries of the covenants demanded that the works stop. Darby continued to act despite the potential conflict of interest and gave unclear advice before later advising Joyce to stop all works.

Joyce signed an undertaking but continued with some works. Injunction proceedings followed. The recorder found negligence, concluded that Joyce would not have purchased had she been properly advised, awarded damages of £186,007.94 and directed an account of works costs. Darby appealed on causation and quantum. The central issues were whether Joyce’s later conduct caused the injunction costs and which losses fell within Darby’s responsibility.

Majority: Rimer LJ, with Tomlinson LJ agreeing.

1. The appeal was allowed. The initial failure to advise about the covenants, the failure to identify the conflict of interest, and the inadequate handling of the dispute were negligent. However, by 21 December 2007 and, unequivocally, on 9 and 10 January 2008, Darby had advised Joyce to stop all works pending agreement and had warned her of the risk of injunction proceedings and costs. Joyce understood the advice, rejected it and continued with works. Her conduct was therefore the cause of the later injunction proceedings and their costs, which were not recoverable from Darby.
2. The recorder had not applied a presumption that Joyce would have withdrawn from the purchase. He had reached that conclusion on the balance of probabilities, taking account of the importance of the proposed works and intended use of the property. There was no appellate error in upholding the finding that she would not have purchased had she been properly advised.
3. In assessing professional-negligence damages, the distinction between “no-transaction” and “successful-transaction” cases was not determinative. The relevant inquiry was whether the loss was of a kind for which Darby could reasonably be regarded as having accepted responsibility and whether it was within the parties’ contemplation, applying the approach in South Australia Asset Management Corp v York Montagu Ltd [1997] AC 191.
4. The injunction costs, the loss on the distressed resale, mortgage payments and insurance premiums were set aside. The mortgage and insurance liabilities represented the ordinary cost of occupying Tamarisk, which would probably have been incurred for another property. The resale loss and the cost of stripped fixtures were not losses for which Darby had assumed responsibility.
5. Wasted expenditure on the works remained recoverable. But for the initial negligence Joyce would not have purchased Tamarisk or carried out the works, and before 21 December Darby had not clearly advised her to stop. The account of labour and materials costs was upheld. Joyce was also entitled to damages representing any difference between the purchase price and the market value subject to the covenants at purchase, with that issue remitted to the recorder.

Dissent: Longmore LJ. He agreed that the resale loss was irrecoverable but would have upheld the award of the injunction costs, because they flowed from both the initial failure to advise and Darby’s continuing equivocation about stopping work.

1. Court of Appeal (Civil Division): On 20 May 2014, the majority allowed Darby’s appeal, set aside most heads of damages, upheld the account of works costs and remitted the diminution-in-value issue to the recorder.
2. Exeter County Court: On 27 March 2013, Mr Recorder Mitchell found Darby liable in professional negligence, awarded damages of £186,007.94 and directed an account of the cost of works.