Veitch & Anor v Avery

This is an appeal by Mr and Mrs Stuart Veitch, the claimants/appellants, on issues of causation and quantum from an order of His Honour Judge Overend of 12^th May 2005, awarding them £5 by way of nominal damages for negligent advice of their former solicitor, Mr Philip Avery, the defendant/respondent, in connection with a possession action against them by Barclays Bank (“the Bank”) as legal chargee of their hotel, Dunsford Mill in Devon. There is also a cross-appeal by Mr Avery on the issue of causation.

In the early 1990s Mr and Mrs Veitch owned and ran Dunsford Mill as a country house hotel. They did so with other members of their family, all of them without wages other than drawings for basic expenses, but with some financial help from time to time from Mr Veitch’s father. The hotel was subject to a 25 year legal charge with the Bank supporting an agreement for a commercial loan of £335,000 from the Bank on terms that repayment of capital was deferred and with monthly interest at 2% over its base rate, subject to a minimum of 9% – then about £4,300 per month. In the event of a default in the payment of interest, the agreement provided that the outstanding loan and all accrued interest became repayable forthwith on written demand. In addition, the Bank allowed Mr and Mrs Veitch overdraft facilities on their current account with it.

From December 1990 until March 1994 the Bank apparently granted Mr and Mrs Veitch “an interest holiday” under the loan agreement, and, pursuant to it, they paid no interest during that period. However, by early 1994 the Bank had become concerned about the viability of the business. It had been barely profitable. Discussions with the Bank about a further loan of £25,000 by way of contribution to the cost of a conservatory extension to enhance profitability had stalled, and eventually came to nothing for want of a matching contribution from Mr and Mrs Veitch. And, in February 1994, matters were made worse by the Hotel having to close for over a month because of flood damage. Not surprisingly, the business’s current account overdraft with the Bank had come under strain, rising above its limit to about £30,000.

In March 1994 the Bank closed Mr and Mrs Veitch’s current account and withdrew their credit and debit card facilities. It also maintained that they were in default of their interest payment obligations under the commercial loan, and demanded repayment of a sum, as later amended, of over £330,000 representing principal and interest due. In the event, as the Judge was to hold, they were probably not in default because of the arrangement for deferred repayment of capital and the interest holiday allowed by the Bank.

Mr Veitch’s response to all this was one of indignation, which rapidly turned to aggression. He wrote abusive and threatening letters to the Bank, and complained about its treatment of him and his wife in letters to the Fraud Squad and the Banking Ombudsman.

In July 1994, the Bank instituted possession proceedings against Mr and Mrs Veitch. They sought advice from Mr Avery. He wrongly advised them that they were in default under the loan agreement and that they had no defence to the possession proceedings. They accepted his advice and, as a result, did not defend them. And, on 11^th November 1994, they consented to an order for possession of the hotel, suspended on condition of their clearing the current account overdraft balance and paying about £2,800 a month towards the interest due under the loan (considerably less than the contractual rate of interest of about £4,300) which had been reinstated.

However, although Mr Veitch (his marriage to Mrs Veitch by this time had run into difficulties) attempted to continue to run the hotel business, it does not appear to have generated enough income to enable him to make the regular payments to the Bank required by the consent order. He made only one payment – in April 1995. He did not feel he should approach his father for help, given the threat to the security of any advance that he might make posed by the suspended possession order. And, for whatever reason, Mr Veitch Senior did not offer any such support. However, in April 1995, he cleared the current account overdraft, which by then had risen to over £36,000, leading the Bank to restore the use of the current account, but only on condition that Mr Veitch kept it in credit. It is plain that, given all the circumstances and without further financial support, continuation of the business was not viable on that banking basis, and in the same month Mr Veitch came to the conclusion that he had no alternative but to close the hotel.

In October 1995 the Bank obtained possession of the hotel, and in January 1996, it sold it for £252,000, significantly less than the sum of over 330,000 then due to it.

In July 1997 and November 2000 Mr and Mrs Veitch respectively issued proceedings against Mr Avery in the Plymouth County Court, claiming – as eventually pleaded - damages in negligence for loss of their hotel, their business and their home, alternatively for loss of a chance of being able to retain them. After a long and unfortunate history, the matter came before His Hon Judge Overend in January 2004 on an issue of liability only. In a reserved judgment on 30^th January 2004, he held that Mr Avery’s advice that they had been in default and to consent to the suspended possession order was negligent (“the liability judgment”).

In a subsequent hearing on the issues of causation and quantum before Judge Overend in early 2005, Mr and Mrs Veitch’s case was that Mr Avery’s negligence in causing them wrongly to consent to the suspended possession order led to their loss of the hotel, the business and their home and some ten years of profitable trading that would have culminated in an increased capital value of the hotel as a running concern at the date of the quantum hearing, alternatively for the loss of a chance of trading through the recession to achieve that outcome.

In his judgment of 24^th April 2005 (“the causation and quantum judgment”) the Judge found in favour of Mr and Mrs Veitch on the issue of causation, holding that Mr Avery’s error, in failing to advise them to defend the possession proceedings and in advising them to consent to the suspended order of possession, had put them into a vulnerable position leading to their loss of the hotel. As to quantum, he held that the business had, since early 1994, been “doomed to failure in any event”, thus rejecting their claim of the loss of up to ten years’ profitable running of the hotel business and the alternative claim of loss of a chance to have traded out of their difficulties so as to achieve that outcome. He held that the only candidate for the measure of the loss, if any, was the net value of the hotel and business at the date of their dispossession in October 1995, which, as it was less than their equity in it, entitled them to only nominal damages.

As to causation, the point taken by Mr Bernard Livesey QC on behalf of Mr Avery in its cross-appeal is that the conduct of Mr and Mrs Veitch, not that of Mr Avery, caused their loss of the hotel in October 1995. His submission was that the cause of the October 1995 possession order was Mr and Mrs Veitch’s failure to comply with the condition in the November 1994 suspended possession order, not Mr Avery’s negligent failure to advise them to defend the possession proceedings or his advice to consent to the suspended possession order.

This was a point that Mr Livesey had taken before the Judge. The Judge’s response to it, at paragraph 25 of his judgment, was as follows:

For the reason given by the Judge, I consider that a tenable conclusion on the evidence before him, which, it is to be remembered, is one as to causation, not of a failure of a so-called duty to mitigate; see the brief, but helpful, review by Toulson J, as he then was of the relationship between causation and mitigation of damage in Standard Chartered Bank v Pakistan National Shipping Corporation & Ors (No 3) [1999] 1 Lloyd’s Rep 747, at pp 758-759. Accordingly, I would dismiss Mr Avery’s cross-appeal on causation.

The essential questions for the Judge were whether the evidence before him established 1) a loss, on a balance of probabilities, of a viable trading hotel business for a period of up to ten years after the Veitchs’ loss of possession in 1995; 2) or a loss of a chance to trade out of their difficulties for some or all of that period; or, failing both, 3) the value to them, if any, of their loss of the hotel as a property in October 1995. In truth, the third question did not pose any difficulty because, as I have indicated, it was common ground that their net equity in the hotel at the time of its loss of it was significantly less than its value. The first two questions were the only ones really in play, not only as to whether either had been established, but, if so, as to the point in the spectrum of proof required, where one shaded into the other.

Given the accepted, though variously expressed, jurisprudential notion of “a chance” for this purpose as a “real” or “significant” or “substantial”, as distinct from a “fanciful”, “speculative” or “negligible”, possibility, the line may not always be easy to draw, as well described in McGregor on Damages, 17^th ed., Para 8-027, and may be below 50%: see in particular, Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, CA, per Stuart-Smith LJ, at 1614C-G, and Hobhouse LJ at 1620H.

In the circumstances of this case, if the claim engages the loss of chance principle, the question is not as to the likely outcome of the possession claim if Mr and Mrs Veitch had defended it, but the “prospects” for their retention of their hotel, business and home, if they had done so; see Clement v Dixon Jones [2005] PNLR 6, CA, per Rix LJ, at paras 27 and 42. That is a consideration, determination of which turns on a large number of uncertainties going, in particular, to whether there was any real prospect of the Veitchs retaining possession of the hotel, as a going concern or otherwise, for long after a hypothetical disputed action in 1994 whatever its outcome. One of the relevant factors would have been the high probability of the Bank pressing on, regardless of the outcome of such litigation, to dispossess them in further, properly constituted proceedings.

The evidence, on which the Judge considered the alternative bases of Mr and Mrs Veitch’s claim of loss of the hotel in October 1995 as a going concern or chance of a going concern, included informal and incomplete management accounts, conflicting oral evidence of accountants called by each side, Mr Barnes, for Mr and Mrs Veitch, and Mr Marshall, for Mr Avery, and the evidence of a jointly instructed valuation expert, Mr Knowles.

In a joint memorandum of Mr Barnes and Mr Marshall, produced before the hearing, they rehearsed their differences, but acknowledged the scope for uncertainty in the following passage:

However, when they came to give evidence on the issue, they were sharply divided on the prospect of Mr and Mrs Veitch having been able to trade out of their difficulties, had they not lost the hotel in October 1995.

Mr Barnes’ evidence was that the hotel business, from the start had been under-capitalised and that it had been insolvent since February 1994. However, he produced two relevant projections on the hypothesis that Mr and Mrs Veitch could have successfully resisted the possession proceedings and have avoided loss of possession in October 1995. The first was based on no material increase of the hotel’s facilities by way of a conservatory extension or otherwise, which he agreed showed a bleak outlook because of the business’s existing insolvency and their inability to service the existing loan of over £330,000. The other, which assumed a conservatory extension, produced more optimistic, but clearly dubious, figures, which Mr Marshall’s evidence, in the Judge’s view, undermined.

Mr Marshall’s analysis of the figures provided by Mr Veitch was that the business would have suffered the same fate as many other hotels and restaurants at the time, in a sector hard-hit by the recession. He said that, even with a conservatory extension and with or without help from Mr Veitch’s father, the business would have failed because of lack of sufficient profitability to meet interest, never mind capital, repayments coupled with, at that time, a substantial drop in the capital value of the hotel.

The Judge, in paragraphs 78 to 81 of his judgment, preferred the evidence of Mr Marshall to that of Mr Barnes where they were in conflict, and concluded, albeit in a judgment that was somewhat confusingly structured, that the business in 1994/5 had been “doomed to failure”:

The Judge also concluded, having heard evidence from Mr Veitch and Mr Veitch’s father, and having seen from the documentary material before him the bad relationship, as it had rapidly become, between Mr Veitch and the Bank, that there was little likelihood of any further significant support from his father or the Bank. Because the possibility of support from both of them formed an important part of the submissions of Mr Robert Akenhead QC in support of Mr and Mrs Veitch’s appeal, I should give some detail of the Judge’s reasoning on each.

As to help from Mr Veitch’s father, his analysis in paragraphs 78 and 84 – 86 of his judgment, was that, on a balance of probabilities, the money would not have been forthcoming, or, even if it had been, it would not have made any difference. He said, at paragraphs 84 – 86:

In my view, the Judge was entitled to approach this aspect of the evidence on the basis of a balance of probabilities and not to consider it, in the alternative under the heading of loss of chance, since the son and father were for practical purposes a unity and closer to the second category of causation/quantification considered by Stuart-Smith in Allied Maples, at 1610D-H, namely where the question is “what would the plaintiff have done” about it. His reasoning, on that basis, appears to be well supported by the evidence indicating a reluctance on the part of Mr Veitch to put at risk any money that his father might have been prepared to put into the conservatory venture and a real doubt as to whether the father would or could have come to the rescue, if asked.

As to the attitude of the Bank, the Judge was clearly and understandably satisfied, on the evidence before him of the parlous state of Mr and Mrs Veitch’s finances and the bad blood between Mr Veitch and the Bank, that the Bank was unlikely to relent in its reluctance to restore full banking facilities and in its endeavour to minimise further loss to itself by avoiding further involvement in the hotel venture. He said, at paragraphs 82- 83 of his judgment:

That left the Judge with the evidence of Mr Knowles, the jointly instructed valuation expert, that the hotel, whether valued in 1995 as a going concern or on a bricks and mortar basis was worth less than the amount Mr and Mrs Veitch then owed to the Bank. His maximum relevant valuations as at that date, properly analysed, were respectively £270,000 and £200,000 against a bank debt of over £331,000. He also produced a much higher figure for 2004 of over £500,000 without a conservatory extension, and in the region of £1 million with it.

On the basis of all that evidence, the Judge found that the business, by 1994/1995, had been “doomed to failure”, and – it followed – that there had been no prospect, whether viewed on a balance of probabilities or loss of a chance, of Mr and Mrs Veitch establishing any other measure of damages than the loss to them of a “bricks and mortar” value of the hotel at the date of their dispossession in October 1995.

Mr Akenhead put Mr and Mrs Veitch’s case on appeal as follows. The Judge should have considered it as one of probability, but for Mr Avery’s negligence, that they would have been able to continue trading and living at the hotel for some years to come, or as a loss of a chance to do so, because they would have been able:

to negotiate with the Bank from a position of strength that a good defence to possession proceedings would have given them for a resumption of a supportive banking relationship for the foreseeable future; and/or

to secure time, by successfully defending the Bank’s possession proceedings, to enable them to trade out of their difficulties.

Mr Akenhead submitted that the Judge should, therefore, have assessed Mr and Mrs Veitch’s damages as the loss of the value to them of the hotel as a going concern and as a home at some date up to the time of the quantum hearing some ten years later. Alternatively, he argued, the Judge should have considered, but did not consider, it as a loss of a chance to achieve the same outcome, so as to produce a discounted actual loss at the appropriate later date rather than a simple “transactional” comparison of the value of the hotel and business in 1995 when they were dispossessed with what they owed the Bank at that time.

It follows from what I have said that the core of Mr Akenhead’s submissions on both causation and quantum is that, if the Judge had analysed the matter properly when considering causation, he should and would have identified their true loss as of a continuing nature, albeit subject to a possible discount for uncertainty, rather than a single transactional loss. Put another way, he said that ownership of an asset with a negative equity may still have a potential for generating an earning stream productive of a net profit and that, accordingly, for the Judge to focus on the equity in the property in 1994/95, was a fundamental error. He maintained that, by the loss of it, Mr and Mrs Veitch were “locked-out” of running their business, a state of affairs for which loss of chance or opportunity damages represented the closest true remedy, citing Stuart-Smith LJ’s third class of case for such an approach in his judgment in Allied Maples at 1611A-B, where a claimant’s loss depends on the hypothetical action of a third party, with or independently of his own action.

Mr Akenhead drew from the evidence before the Judge an optimistic picture for Mr and Mrs Veitch’s hotel business but for the failure to defend the possession proceedings and the suspended possession order leading to an immediate order. His starting point was that that order sealed its fate. But for that, they could have continued the business. Its liabilities at that stage were relatively small; all it needed was the ability to generate enough cash to meet its trading needs; there was a likelihood – which he put at well over a 50% chance – that the Bank would have taken the commercially sensible decision to revive the borrowing and banking facilities; Mr Veitch’s father, in the absence of an order for possession, would probably have provided further financial support; and if they had continued to trade up to the date of trial in 2004/5 Mr and Mrs Veitch would have enjoyed a continuous income stream and would have benefited from a significant increase in the property value of the hotel, amounting then, on the evidence of the joint expert, Mr Knowles, to a surplus in the region of £470,000, i.e. net of repayment of borrowings including cost of the hypothetical extension, of about £600,000.

By way of a fall-back submission, Mr Akenhead invited the Court to “forget the business, and apply a bricks and mortar” valuation to the hotel at the date of the quantum hearing in 2005, less the loan and interest on it due to the Bank, albeit that even that approach assumes, against the odds, that Mr and Mrs Veitch would, but for Mr Avery’s negligence, have been able to retain possession of the hotel property for any significant length of time after their dispossession in October ten years before.

Mr Livesey, in response, made two main submissions.

First, he maintained that, where as here, the claim is for loss of an asset, as a matter of principle, the quantum of the loss should be assessed as at the date of the breach or of the loss. In the instant case, that meant in 1994 when Mr Avery gave his negligent advice, or, at the latest, in October 1995 when the possession order was made absolute, on either of which dates, according to Mr Knowles the value of the hotel was significantly less than the Bank’s loan on which it was secured.

Secondly, Mr Livesey argued, in support of the Judge’s reasoning, that, on the evidence, this was not a case for a loss of revenue or of profits claim dressed up as one of loss of chance or opportunity, still less for combining some such claim with the general or “transaction date rule”. He pointed to one of the important advantages of that rule, highlighted by Lord Browne-Wilkinson in Smith New Court v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 256, at 266C-F, as the avoidance of difficulties in identifying the causes of changes in value over a long period of time. Those in play here over the ten or so years from 1994/5 included: whether Mr Veitch’s father might have come to their rescue; whether the Bank would have resumed support of them; and whether, in any event, they could have traded out of their troubles and, if so, how long it might have taken and to what extent. He added, however, that, on the evidence, the Judge was entitled to find that any such enquiry went beyond speculation to the disadvantage of Mr and Mrs Veitch, because on the expert evidence, if nothing else, the business from 1994/1995 had been doomed to fail.

It is clear on the authorities, that there is no hard and fast rule in negligence cases that the measure of the loss is to always be identified by reference to, and quantified as at, the date of the breach of duty. It depends; it turns on the facts and the application to them of common-sense, an essentially evaluative role for the judge of first instance, as Glidewell LJ indicated in Galoo Ltd v Bright Grahame Murray, [1994] 1 WLR 1360, at 1374G-1375A, when answering the question. “How does the court decide whether the breach of duty was the cause of the loss or merely the occasion for the loss?” See also per Lord Browne-Wilkinson in Smith New Court, in the passage relied upon by Mr Livesey, at 266C-G:

It is plain from the way in which Mr and Mrs Veitch’s case was put to the Judge and on this appeal that the issues of causation and quantum are inter-dependent. On the evidence before the Judge as to the value of the hotel as a going concern at the Veitchs’ dispossession in October 1995, its sale value to them in 1994/5 was less than their bank borrowings to support it. The critical question is whether he should have got to that point – or, as suggested by Mr Akenhead, stopped there - without considering and finding that, but for that dispossession, they would have had a chance of trading themselves out of their difficulty and some years of profitable living in and running the hotel coupled with the “the prize”, some ten years later of a dramatically more valuable property, whether or not by that stage, still a running concern.

Although, as I have said, the Judge’s judgment was not well structured, there is no doubt that he gave full consideration to that part of the claim turning on the prospects in 1994/5 of Mr and Mrs Veitch being able to trade their way out of their own financial problems and the recession, both as a conventional claim for damages on the balance of probabilities and as one for loss of a chance. For the reasons he gave, he did not, on the evidence before him, consider either of those formulations of the claim had been established, that is, to any percentage level of probability or chance. (Footnote: ¹) What other conclusion could he have reached if it was correct on his view of the evidence that in 1994/5, the business was already “doomed to failure”?

That view was, as I have indicated, well supported, not only by Mr Marshall. It was also evident, as the Judge found, from the evidence of Mr Barnes when considered against his failure to take account, in his projections, of the burden of debt to the Bank with which Mr and Mrs Veitch were already saddled and the evidence of unlikelihood of further support from the Bank and of any significant injection of capital from Mr Veitch Senior.

There were also, as Mr Akenhead acknowledged, a series of successively dependent questions going to the prospects of Mr and Mrs Veitch’s survival at the hotel: 1) whether, in any event, the Bank would have issued further properly constituted proceedings for possession in the likely event of their not being able to meet re-imposed interest charges on the mortgage loan; 2) whether they could ever have traded successfully and, if so, 3) at what level and for how long. In my view, the Judge’s conclusion that the hotel business, and hence their home, was doomed to failure in 1994/5, and the well-based evidential reasons he gave for it, undermine any basis for Mr Akenhead’s complaints that he failed to give proper consideration to those questions in determining whether there was at least a chance of their salvaging something of their property and business if they had been able to trade on for any significant period.

That being so, there was nothing left for the Judge but to consider the value, if any, to Mr and Mrs Veitch of what they lost in 1995 as a result of Mr Avery’s negligence, namely, their hotel, business and home, no longer a going business concern, against mortgage debts exceeding the property’s then market value.

I should not conclude this judgment without recording that Mr Akenhead applied for permission to amend the claim to add a further allegation of negligence against Mr Avery and to call fresh evidence in support of it. The Court refused both applications. It took the view that the nature of the further allegation, if it were to proceed and succeed, would unseat the basis of the case on which the Judge has found negligence, and would require re-opening of the whole issue of liability in the court below. Subject to any such amendment, the matter is now before this Court only on the consequential and quite separate issues of causation and quantum. It was, in the Court’s view, far too late in these already protracted and disproportionately expensive proceedings to allow Mr and Mrs Veitch to re-open the case on liability in this way.

Accordingly, for the reasons I have given, I would dismiss the appeal and the cross-appeal.

The ordinary measure of damages in an action against a solicitor for negligence in conducting litigation is the value of the chance of a better outcome than the one which eventuated. If there was in reality no such chance, there will be no damages. It follows that a claim such as the present one cannot survive a finding that, even if the negligent admission of liability had not been made and a triable defence been entered, there was still no chance that the business would have pulled through. Unwelcome as Judge Overend’s finding has been to Mr Veitch, since it controverts all that he understandably believes he could have achieved with his Bank’s help, for the reasons given by Lord Justice Auld it was a perfectly tenable finding on the evidence before him.

For all the reasons given by Lord Justice Auld I agree therefore that the appeal has to fail, and the cross-appeal too.

I also agree.