BARROWFEN PROPERTIES LIMITED v GIRISH DAHYABHAI PATEL & Ors

This judgment resolves reserved issues arising from an earlier liability judgment ([2021] EWHC 2055 (Ch)) in which the claimant, Barrowfen, succeeded against the first defendant (Mr Girish Patel) and the second defendant (Stevens & Bolton LLP). The central legal principles applied were loss of a chance (as a matter of causation and quantification), the treatment of collateral benefits/res inter alios acta, the requirement to give credit for capital appreciation, and the proper scope of valuation assumptions (investor-agnostic v investor-specific).

The court held that the increase in developer's profit (£2,508,182) arising from the Revised Development Scheme formed part of the same continuous transaction and was not a collateral benefit; Barrowfen must give credit for that sum. The court refused to reduce that credit by future finance costs or opportunity costs of equity over the life of the investment, because the appropriate valuation adopted by the expert valuers was investor-agnostic (assuming sale at practical completion) and Barrowfen remained free to realise the asset after completion. The court confirmed that the deduction for capital appreciation must be made before applying the loss-of-a-chance percentage. The court also allowed a correction to award £28,000 damages against Mr Patel for the Bedford rectification costs. Interest on loss was awarded at base rate plus 2% and the court applied the loss-of-a-chance percentages and cumulative approach in assessing final sums.

Background and procedural posture

The judgment follows a prior reserved judgment on liability, causation and most quantum ([2021] EWHC 2055 (Ch)), where Barrowfen succeeded against Mr Patel and Stevens & Bolton (S&B) and provisional damages of £1,388,768.05 were awarded. The present judgment determined: (1) the Financial Costs Issue (whether credit for increased developer's profit should be reduced by financing costs/opportunity costs and related standby/collateral fees); (2) the Loss of Chance Issue (interaction of chance percentages with deductions); (3) the Cumulation Issue (whether Company Claims and Administration Claim can be cumulative); (4) certain liability/award corrections against Mr Patel; and (5) the compass and rate of interest.

Nature of the claim and relief sought

• Barrowfen claimed damages and equitable compensation for breaches by Mr Patel (director's duties) and by S&B (professional/fiduciary duties), including lost rental income, additional costs and other heads. Relief sought included final quantification, interest, and correction of the earlier judgment to reflect omitted items of award.

Issues framed by the court

• Whether Barrowfen should give credit for the increased developer's profit from the Revised Development Scheme and, if so, whether that credit should be reduced by (a) the increased finance costs over the life of the investment, (b) opportunity costs of additional equity, and (c) fees retrospectively agreed with related companies.
• Whether the deduction for capital appreciation should be applied before or after the loss-of-a-chance percentage.
• Whether the Company Claims and the Administration Claim are cumulative and if so how percentage chances combine.
• Whether a separate award should be made against Mr Patel for the Bedford rectification costs and whether loss-of-a-chance methodology should have been applied to Mr Patel's liability.
• The principal sums on which interest should be awarded and the rate.

Court's reasoning and conclusions

• The court accepted the expert evidence that the Revised Development Scheme produced a greater absolute developer's profit but was less profitable by measures of return on capital and equity; the increased profit derived from additional capital employed. The court nonetheless found that the increased developer's profit was part of the continuous transactional consequences of the defendants' breaches and was not a collateral (res inter alios acta) benefit requiring exclusion.
• The court accepted expert evidence that including future finance costs and notional equity costs across a 25-year hold would eliminate the apparent profit uplift. However, the court held that the expert valuers used an investor-agnostic approach (assuming sale at practical completion) and that Barrowfen was not locked into holding the asset; future finance costs beyond completion were not properly part of the credit calculation. Consequently, Barrowfen could not deduct long-term finance/opportunity costs or retrospective inter-company fees (which the court found had not become binding before judgment) from the developer's profit credit.
• The court concluded the deduction for capital appreciation must be applied before the loss-of-a-chance percentage, following authority and logic adopted in Hartle v Laceys and Ministry of Defence v Wheeler. The loss-of-a-chance percentages earlier found (60% for the Company Claims; 80% for the Administration Claim) were therefore applied to net figures after credit.
• The court accepted a cumulative application of percentage chances to avoid double-counting and to reflect contingent sequences of events, awarding 32% (i.e. 80% of 40%) of the Administration Claim where appropriate.
• The court corrected the earlier judgment to award £28,000 against Mr Patel for Bedford rectification costs and declined the submission that loss-of-a-chance principles should not apply to awards against Mr Patel given the pleaded case and how counsel presented damages at trial.
• Barrowfen was held to be entitled to claim interest as damages on the gross income losses (in effect the lost opportunity to reinvest income), and interest was awarded at base rate plus 2% on the relevant chance-weighted principal sums. The parties were left to agree the dates/amounts or return for consequential issues.

Judgment for the claimant. The court confirmed and finalised the provisional awards: Barrowfen is entitled to damages/equitable compensation of £1,388,768.05 in respect of the Company Claims against both Mr Girish Patel and Stevens & Bolton LLP, and £316,792.03 in respect of the Administration Claim against both defendants; it corrected the judgment to award an additional £28,000 against Mr Patel for the Bedford rectification costs. The court held that the additional developer's profit (£2,508,182) must be given as credit (it was part of the continuous transaction and not a collateral benefit); future finance and opportunity costs over a holding period and retrospective inter-company fees were rejected as offsets to that credit. The court applied loss-of-a-chance percentages after deducting the capital appreciation and awarded interest at base rate plus 2% on the relevant chance-weighted principal sums. The reasoning rests on principles of loss of chance as part of causation/quantification, treatment of collateral benefits, adoption of investor-agnostic valuation for credit purposes, and the pleaded case and presentation of damages at trial.