QUANTIFYING THE VALUE OF A LOST CHANCE

Transcription

1 QUANTIFYING THE VALUE OF A LOST CHANCE SIMON BERRY QC 9 Old Square 1. INTRODUCTION - What is a lost chance? - How much of a lost chance must there be? - How do you assess the lost chance? - Can account be taken of post lost chance events? 2. WHAT IS A LOST CHANCE? 2.1 Chaplin v. Hicks [1911] 2 KB 786 CA : - D theatrical agent organized a newspaper competition, offering 12 acting engagements as the prize. - C was in the last 50 competitors selected from a pool of 6,000 applicants. - D failed to give C the opportunity of participating in the final stage of the selection process. - C succeeded in establishing that this failure constituted a breach of the rules of the competition and, at first instance, was awarded damages to represent her loss of the chance of selection for engagement. - D appealed, contending that C was entitled to only nominal damages. Per Fletcher Moulton LJ AI think that, where it is clear that there has been actual loss resulting from the breach of contract, which it is difficult to estimate in money, it is for the jury to do their best to estimate; it is not necessary that there should be an absolute measure of damages in each case@. [pp795]. 1

2 Per Vaughan Williams LJ - giving the leading judgment of the court. AI agree that the presence of all the contingencies upon which the gaining of prize might depend makes the calculation [of damages] not only difficult but incapable of being carried out with certainty or precision: I only wish to deny with emphasis that, because precision cannot be arrived at, the jury has no function in the assessment of damages@. 2.2 More recently, the question of loss of a chance has been considered by the House of Lords in Davies v. Taylor [1974] AC 207 HL - C claimed loss of dependency under the Fatal Accidents Act 1846 in relation to the death of her estranged husband. - The House of Lords rejected C=s appeal on the grounds that she had only a speculative and not a substantial prospect of continuing dependency. Per Lord Reid AWhen the question is whether a certain thing is or is not true - whether a certain event did or did not happen - then the court must decide one way or the other. There is no question of chance or probability. Either it did or it did not happeny If the evidence shows a balance in favour of it having happened, then it is proved that it did in fact happen@. AYou can prove that a past even happened, but you cannot prove that a future event will happen and I do not think that the law is so foolish as to suppose that you can. All that you can do is to evaluate the chance. Sometimes it is virtually 100%: sometimes, virtually nil. But often it is somewhere in between. And if it is somewhere in between I do not see much difference between a probability of 51% and a probability of 49%@. 2.3 In Allied Maples v. Simmons & Simmons [1995] 1 WLR 1602 the Court of Appeal considered the question of loss of a chance and enunciated some general principles. - C instructed D solicitors in C=s take-over of the assets of a company. - D=s first draft of the agreement between C and the company contained a warranty on the part of the company that no contingent liabilities existed in relation to those assets. D allowed that warranty to be deleted from the final agreement. - After the take-over had been completed, substantial contingent liabilities emerged in relation to the assets C had purchased. 2

3 - C claimed that D had given them negligent advice in relation to the effect of the deletion of the warranty. The issues in C=s claim were:- i. Whether, if D had properly advised C, C would have taken steps to obtain alternative protection from the vendor company in relation to contingent liabilities? ii. Whether, if C had insisted on such protection, the vendor company would have acceded to such a request? Stuart-Smith LJ drew the important distinction between (i) causation and (ii) Awhere causation ends and quantification of damage begins@. As regards the former, the question is one of "historical fact" which must be established on the balance of probabilities eg. did the negligent advice cause D to purchase a property which he would not otherwise have purchased. However, if the question is not one of causation, but rather the quantification of damage, and the quantification of C=s loss depends upon one or more uncertain events, then the question is not one of balance of probabilities, but of the court=s assessment of the risk or the prospect of that event or those events occurring. [pp1610b] (a) If negligence by omission eg. to provide proper equipment, to give proper instructions or competent advice, then: - Acausation depends, not upon a question of historical fact, but on the answer to the hypothetical question, what would the plaintiff have done@ if D had not committed the omission? [pp1610d] - Aalthough the question is a hypothetical one, it is well established that the plaintiff must prove on balance of probability that he would have taken action to obtain the benefit or avoid the risky if he does establish that, there is no discount because the balance is only just tipped in his favour@. (b) If C=s loss depends upon the hypothetical action of a 3 rd party (either in addition to action of the claimant or independently of it) then: Athe evaluation of the chance is part of the assessment of the quantum of damage, the range lying somewhere between something that just qualifies as real or substantial on the one hand and near certainty on the other. I do not think that it is helpful to seek to lay down in percentage terms what the lower and upper ends of the bracket should be@. [pp1614d]. 3

4 D=s submission was rejected that C could only succeed if it was proved that the chance of success was higher than 50%: Athere is no reason in principle why it should be soy It is clear from Davies v. Taylor that, provided the plaintiff=s chance is substantial, it may be less than 50%@. [pp1612a]. 2.4 An important distinction is to be noted. Where the question turns on what C, rather than a third party, would have done, then that question must be determined on the balance of probabilities. It is not enough that C can show that he may have acted in a particular way. He must show that he would have acted in that particular way. 2.5 Harrison v. Bloom Camillin [2000] Lloyd=s LR PN 89: - D solicitors negligently failed to effect good service of a writ in C=s primary negligence action within the limitation period with the result that C=s claim in the primary litigation was dismissed. Held in the action against the negligent solicitors by Neuberger J: (1) The court can take into account the possibility that an action might have settled. (2) The task of establishing its settlement value was likely to be very similar to the exercise of assessing the measure of damages on the footing that the action would have proceeded to trial; this was because the claimant=s loss in the latter instance was not the damages he might have recovered at trial, but represented the value of the lost opportunity, with all its uncertainties, of recovering damages in the original action. (3) In an appropriate case it was open to the Court to apply different discounts to different claims and different heads of damage, and also different discounts as to questions of, say, (i) establishing liability, (ii) causative effect and (iii) extent of loss. (4) The proper approach to an issue of law which would have arisen in the original action was the same as in relation to an issue of fact or opinion; and although the court should be more ready to determine that a claimant would have failed or succeeded on an issue of law, 4

5 it was still right in principle in an appropriate case (but not where there has been an authorative determination) to assess damages on a Aloss of a chance@ basis even if the issue was one of law. (5) In considering whether the original action would have proceeded in any event, the proper approach for the court, if it found that legal aid had been, or would have been, obtained dishonestly, was to treat a claimant as if in fact he did not have or would not have had the legal aid; 3. HOW MUCH OF A LOST CHANCE? 3.1 In Allied Maples v Simmons & Simmons it was held that the chance must be real or substantial as opposed to a speculative one. It might, therefore be nil; but it can also be 100%: see the cases cited in Professional Negligence and Liability at paras and 2.86]. 3.2 Kitchen v. Royal Air Force Association [1958] 1 WLR 563 CA - D solicitor failed to issue a writ against a tortfeasor within the limitation period. - As a result C=s claim under the Fatal Accidents Act was statute-barred. The Court of Appeal firmly rejected the argument that C must establish on the balance of probabilities that she would have won an action against the tortfeasor. Per Lord Evershed MR [pp 575]. AThe question is, has the plaintiff lost some right of value, some chose in action of reality and substance? In such a case, it may be the duty of the court to determine that value as best it can@. Per Parker LJ [pp 576]. AIf the plaintiff can satisfy the court that she would have had some prospect of successy then it would be for the court to evaluate those prospects, taking into account the difficulties that remained to be surmounted@. 5

6 3.3 Note too Lloyds Bank v. Parker Bullen (A Firm) [2000] Lloyds LR 51 - C granted CML a,6.25 million overdraft upon the security of a 99-year lease held by CML. - D, C=s solicitors, negligently prepared their report on CML=s title. - It later emerged that CML=s lease was unmarketable and worthless. At the same time, CML ran into financial difficulties. - It was finally agreed between the parties that onerous conditions would be removed from the lease, in return for which C would write off a proportion of the overdraft and enter into a concession agreement in relation to the interest upon the remainder. - C claimed (inter alia) that D=s negligence had lost C the chance to negotiate the restructuring of the loan from the position of strength which would have been provided by an adequately secured mortgagee. Per Longmore J The chance that C lost Awhile by no means so speculative that it ought not to be considered at all, [was]y a chance which I shall value at 15%@. 4. ASSESSING THE LOST CHANCE 4.1 First Interstate Bank of California v. Cohen Arnold (a Firm) [1996] 1 PNLR 17 CA - D accountants negligently informed C bank that the guarantor of one of C=s clients= was of a high net worth. - C extended their loan to the client on the strength of this information. - After C=s client defaulted on the loan, it emerged that its guarantor was of negligible net worth. Held : Following Allied Maples the correct approach was to :- a. Ascertain on the balance of probabilities what action C would have taken if D had not been negligent. b. Decide whether the chance that C has lost by D=s negligence is a real or a substantial chance, rather than a speculative one. c. Assess the percentage chance that C has lost. As to c. : "Doing the best I can on the material before us" Nourse LJ at 25D) "at 6

7 the end of the day it is a matter of impression" Ward LJ at 30G). 4.2 Mount v. Barker Austin (a Firm) [1998] PNLR 493 CA - D solicitors failed to progress C=s negligence claims against his former solicitors who had failed to progress an action against a 3 rd party with the effect that both of C=s claims were dismissed for want of prosecution. - C claimed that D=s negligence caused C to lose the chance of success in his primary litigation against the 3 rd party. Per Simon Brown LJ [pp ]. i. AThe legal burden lies on the plaintiff to prove that in losing the opportunity to pursue his claim (or defence or counterclaim) he has lost something of value i.e. that his claim (or defence) had a real and substantial rather than merely a negligible prospect of success@ ii. AThe evidential burden lies on the defendants to show thaty [the primary] litigation was of no value to their client, so that he lost nothing by their negligence in causing it to be struck out@. iii. iv. This burden will be heavier where D has failed to advise C on the hopelessness of his case. AIf and insofar as the court may now have greater difficulty in discerning the strength of the plaintiff=s original claim (or defence) than it would have had at the time of the original action, such difficulty should not count against [C]@. v. AIf and when the court decides that the plaintiff=s chances in the original action were more than merely negligible it will then have to evaluate them. That requires the Court to make a realistic assessment [of the chance]@ vi. AGenerally speaking, one would expect the court to tend towards a generous assessment [of C=s chances in the original action] given that it was D=s negligence which lost the plaintiff the opportunity of succeeding in full or fuller measure@. 4.3 Pearson v. Sanders Witherspoon & Another [2000] PNLR 110 CA - D1 were C=s solicitors. They negligently conducted C=s case against Ferranti with undue delay. In response to this, C transferred his instructions to the second Defendant firm of solicitors. - D2 obtained judgment against Ferranti, but by then it had been placed in 7

8 administrative receivership. The judgment was therefore worthless (as to which see also Professional Negligence and Liability at para 2.82). - C claimed that the negligence of Ds caused him to lose the opportunity to recover substantial damages against Ferranti. - Negligence was found against the first but not the second Defendant. Per Ward LJ When assessing C=s chances of success, Athe Court=s task is to do its best to place the chance within its proper range@. The Court should have regard to: Aall matters which were material to the assessment of each risk. [The trial Judge] should have weighed the chances in as much detail as the facts permitted. The picture will inevitably be composed by a mixture of strokes of the broad brush as well as of the fine detail. He must apply both and, standing back, view the picture as a whole@. 4.4 Hartle v. Laceys (a firm) [1999] Lloyd=s LR PN 315 CA (Deductions for monies actually earned) - C entered into restrictive covenants in relation to its registered land. The covenantee failed to register the covenant. - C entered into negotiations for the sale of the land. D solicitors negligently failed to appreciate that the land could at that time be sold free of the covenants, and informed the covenantee of C=s proposed sale. The covenantee registered the restrictive covenant. - C=s potential purchaser pulled out of negotiations, citing the covenant issue as one of their reasons for withdrawing from the transaction. - C claimed that D=s negligence had caused C to lose the sale to their potential purchaser. They later sold at a lesser price. Ward LJ identified the candidates for the correct approach as being as follows: AIf >a= is the lost sale proceeds and >b= the actual proceeds, are the damages properly to be awarded (a x 60%) B b or (a B b) x 60% Ward LJ chose the second possibility : "the difference between the price he lost the chance of achieving and the actual selling price, that difference being reduced by the [appropriate] per cent to reflect the value of the chance" 8

9 This was because : "The unfairness of the former solution can be tested in this way. Assume we had found an 80 per cent chance of a sale. 80% of,375,000 is,300,000. Assume the property was sold 12 months later for,300,000. It cannot be right that the loss of such a high chance does not sound in damages" See also MOD v Wheeler [1998] 1 WLR 637 CA in which the same approach was adopted. 4.5 If there are a series of contingencies, the percentage chances must be applied cumulatively. Thus, in Ministry of Defence v Wheeler [1998] 1 WLR 637 CA, which was a case where the chance of lost future employment had to be assessed, the Court was confronted with three chances : that the applicant would return to work on the first day that she could after the birth of her child; that she would have remained for a relevant period of five years; that she would have remained after the relevant period of five years. If the chances were respectively, 50%, 50% and 50% then the lost chance would be 12.5%. The Court was anxious to make it clear that the "natural inclination" to take the view that, having found that the first chance in a series is one percentage, then therefore, subsequent chances must be less than that percentage, should be resisted. 4.6 See too Doyle v Wallace [PLQR] 1998 Q146 and Langford v Hebran [2001] All ER (D) 169. The approach in the latter case, where there were four chances (or scenarios) was as follows: (a) stated the base figure for scenario 1 from the evidence at trial; (b) applied the scenario 1 percentage reduction to arrive at the loss for scenario 1; then (c) stated the base figure for the next (and each successive) scenario; then (d) deducted from it the full base figure for the preceding scenario(s); then (e) applied the appropriate percentage chance of that individual scenario happening; then (f) added together the individual scenarios. In respect of future losses alone, the court then (in part) adopted the defendant s argument for future losses, by making a global reduction to reflect the fact that none of the scenarios might have happened. 9

10 See too the useful Article at [2001] 151 NLJ See also Stovold v Barlows [1996] 1 PNLR 91 CA at 104 in which Stuart-Smith LJ applied a global approach to a double contingency. So too did Ouseley J in Finley v Connell [2002] LLR.PN POST LOST OF CHANCE EVENTS 5.1 This question was considered in Charles v Hugh Jones & Jenkins [2000] 1 WLR 127 CA 5.2 D solicitors had negligently failed to comply with the procedural timetable laid down in respect of C=s personal injuries claim. As a result, C=s action was automatically struck out on 1 July D admitted liability in negligence. - The judge at first instance found that, absent D=s negligence, C=s personal injury claim would have been heard in January Nevertheless, he took into account a medical report obtained in January 1997 on the grounds that if D had acted properly, they would have obtained that report before January Indeed, more generally, regard can be had to later events. Per Swinton Thomas LJ i. AI accepty that the judge had to consider the position as it would have been in January HoweverY the judge was entitled in coming to his conclusions in relation to that matter to take into account what has happened since@. [pp1286h]. ii. Swinton Thomas LJ placed emphasis on the Australian case of Johnson v. Perez (1988) 166 CLR 351, in which Mason CJ stated:- a. Athe fact that the respondent=s damages are to be assessed as at the time each action was dismissed for want of prosecution does not mean that evidence is excluded of events occurring after the dismissal@. b. Such evidence would:- - Aassist the court in placing itself in the position of the trial judge at the notional trial when a judgment was to be made of the likely losses that would be suffered by the respondent in the future and for which [D] was to be held responsible@. 10

11 See Wills v. Commonwealth (1946) 73 CLR 105, 109. Awhere actual facts are known, speculation as to the probability of those facts occurring is surely an unnecessary second best Y where the extent and character of what would at one time be described as prospective [loss] depends upon the happening or non-happening of a particular event and that event has, in fact, happened, it is unnecessary to speculate as to whether or not that event might happen and, if so, when@. - Aassist the court in piecing together the case that could have been put on C=s behalf if D had not been negligent in the conduct of that litigation.@ c. AOf course, difficult questions may arise as to whether a particular disability was known or foreseeable at that earlier time, but that does not detract from the basic principle. 5.3 Swinton Thomas LJ also relied on Nikolaou v. Papasavas, Phillips & Co (1989) 166 CLR 394, 399 in which it was said that in assessing the quantum of the award that C is likely to have received in the primary action, Ait may be appropriate to consider evidence that has emerged after a final judgment should have been obtained if that evidence speaks to the condition of C at that time and would assist the court in evaluating the case that C could have madey That evidence would be useful in the historical task of determining just what the plaintiff has lost by the solicitor=s negligence@. 5.4 AIf a condition has manifested itself prior to the notional trial but the prognosis was somewhat uncertain at that trial date, in my judgment the judge is entitled to, and indeed should, take into account what has in fact occurred@. [pp1290h]. 5.5 AI would be prepared to accept that if some entirely new condition which can be attributed to the accident manifests itself for the first time after the notional trial date it may be that it has to be ignored. I would wish to reserve any final opinion in relation to that@. [pp1290g]. Sir Richard Scott V-C concurred with Swinton Thomas LJ=s reasoning. In particular, he too left open the question whether subsequent events, which did not cast light on issues which would have been perceived to be in point at the notional trial date but which would affect the loss, could be taken into account. 11

12 6. SOME QUESTIONS:- 1. Is the notional trial date the date upon which the primary action would have come to trial had D solicitor acted with reasonable competence and proper dispatch, or is it instead the very latest date upon which the matter could have come to trial? In Hunter v Earnshaw [2001] PNLR 982 Garland J held that damages fall to be assessed as at the strike out date of the proceedings which had been commenced by the negligent defendant solicitors and further held that damage accruing after that date was not recoverable. 2. If D=s negligence consists in failing to present C=s claim at all, the court hearing C=s current claim may have information as to the defence (if any) of the D to the primary litigation. In this situation, how can the court assess C=s chances of success in the primary litigation? 3. To what extent can D solicitor rely on his knowledge of matters damaging to C=s credibility (see e.g. Pearson v. Sanders Witherspoon at pp128, in which C was found to have lied for personal gain)? 8 Simon Berry QC