Vasiliou v Hajigeorgiou

This is an appeal by the defendant, Mr Hajigeorgiou, against paragraph 2 of the order of HHJ Dight dated 11^th January 2010 by which he assessed the claimant Mr Vasiliou’s claim for loss of profits in the sum of £422,186.

In order to understand the basis for this order it is necessary to refer in some detail to the extensive litigation between the parties which led up to the order under appeal.

The appellant has since 1995 been the owner of freehold premises at 29 Green Lanes, Palmers Green, N13 (“the Property”). When acquired it was in poor condition and was subject to repair notices served under the provisions of the Housing Acts. The Property is in an area of North London in which there is a large and long-established Greek Cypriot community. Many of the nearby premises are occupied and run as Greek restaurants. The respondent had prior to 1991 run a profitable and successful Greek restaurant called Chez Zorba in Charlotte Street. But in 1991 he had run into financial difficulties in connection with the extension of his business and this resulted in his bankruptcy.

In January 2001 the appellant agreed to allow him access to the ground floor of the Property in order to carry out work to convert it into a restaurant. This was in anticipation of the grant of a lease of the ground floor and rear yard which took place on 14^th May 2001. The lease was for a term of 15 years from 25^th December 2000 at a rent of £13,600 per annum subject to review every five years.

No premium was paid for the lease but the respondent carried out the works of conversion at his own expense which included the erection of a single storey extension in the rear yard to accommodate WCs for the use of customers in accordance with the planning permission which was obtained for a change of use to a restaurant. The works were completed in about October 2001.

The two upper floors of the Property were let by Mr Hajigeorgiou to residential tenants. Each of the flats had an old wrought iron balcony connected to an iron staircase which provided a form of fire escape. By 2001 the balconies and the staircase were all in a serious state of disrepair and were the subject of further statutory notices served by the local authority.

In November 2001 they were removed by Mr Hajigeorgiou but not immediately replaced. However, in about April 2002, replacement balconies were delivered to the Property and left in a position in the yard which obstructed the rear fire exit to the restaurant. This constituted a serious contravention of the relevant health and safety regulations and rendered the restaurant unusable. The obstruction was not removed until December 2003.

As a consequence of this, the respondent commenced proceedings against the appellant in the Edmonton County Court on 1^st August 2002 alleging breaches of the landlord’s covenant of quiet enjoyment. I shall call this the first claim. It was subsequently transferred to the Central London County Court. The appellant counterclaimed in these proceedings for £85,000 in respect of works to the Property which he alleged that the respondent had carried out negligently but this was struck out for failure to provide further and better particulars and was never tried.

While the restaurant remained out of use due to the problems caused by the new balconies, further difficulties occurred. In April 2003 the tenant of one of the flats informed Mr Hajigeorgiou that the down pipes leading from the kitchens and bathrooms of both flats were blocked. Mr Hajigeorgiou instructed a plumber (a Mr Gypsiotis) to rectify the problem. He dealt with it, or attempted to deal with it, by diverting the relevant down pipes into the open rainwater outlet on the roof of the respondent’s rear extension. This meant that waste from the flats began to flow straight on to that roof. Late in November 2003 the appellant’s builders erected scaffolding at the front and rear of the Property in order to deal with the outstanding Housing Act repair notices. Part of the scaffolding rested on the roof of the rear extension. The builders also used the roof as access in order to carry out the works of repair to the rest of the Property.

On 19^th December 2003 the obstruction to the respondent’s rear fire exit was removed so that trading could then have re-commenced. But in February 2004 water began to penetrate through the roof of the rear extension caused, it was alleged, by damage due to the appellant’s contractors. This was foul water from the flats above due to the inadequate work of Mr Gypsiotis. It meant that customers of the restaurant would be unable to use the WCs; the leak was a health hazard; and consequently no further trading was legally possible.

The last of these problems was identified during the trial of the first claim which took place over some 10 days before HH Judge Levy QC. That trial was limited to the issue of Mr Hajigeorgiou’s liability for breach of covenant. He found that the restaurant was ready to be opened by October 2001 but was prevented from trading by the appellant’s breach of covenant. He therefore directed an assessment of damages in respect of the period from 30^th April 2002 to 19^th December 2003. The claim was for lost profits.

In October 2004 Mr Hajigeorgiou’s builders attempted to deal with the problems caused by water leaking into the rear extension. The down pipes were diverted into a new pipe across the roof but the problem continued. In January 2005 the scaffolding to the rear of the Property was removed, which expert evidence later indicated was essential if proper repairs to the roof were to be carried out. But the restaurant remained unusable and in May 2006 the respondent commenced a new action (“the second claim”) seeking damages for breach of covenant and/or nuisance in respect of the problems of water penetration since February 2004.

The assessment of damages in respect of the first claim took place before Judge Levy QC over a number of days commencing on 6^th February 2006. The judge was faced with having to decide what level of profits (if any) Mr Vasiliou would have made had he been able to trade from April 2002 to December 2003. In his judgment he identified the issues to be decided in these terms:

“8.

The onus of proof is on the Claimant to establish, on a balance of probabilities, that he would have suffered the alleged loss, or indeed any loss, by reason of the breach of covenant.

9.

Mr Clarke, for the Defendant, submitted that it is for the Claimant to establish, first, that his restaurant would have traded successfully, and the amount of likely loss of profit during the relevant period. It is common ground that in determining the likely loss of profits, I must have regard to the personal characteristics of the Claimant rather than an hypothetical restaurateur. Though the quantum of profits was a matter for the experts, the competence of the Claimant was a factor which required findings of fact.”

The judge heard evidence from a number of witnesses about the respondent’s abilities as a restaurateur based on the Charlotte Street restaurant he ran in the 1980s. He said that this demonstrated that Mr Vasiliou was in that period a confident restaurateur with the knowledge and ability to succeed. But the question was whether he had lost that knowledge and ability since then. The appellant called witnesses who said that the new restaurant (called Zorbas) was unattractive and that the respondent lacked the competence to make a success of it. The judge set out his findings on this issue in paragraph 85 of his judgment. The reference to period A is the period when Chez Zorba was being run up to 1991. Period B is the intervening period between the respondent’s bankruptcy in 1991 and the opening of Zorbas in late 2001:

“Having heard of the Claimant’s record in Charlotte Street from a great number of witnesses, I am satisfied that his experiences during Period B did not mean that [he had] lost the abilities he had shown in Period A. I am further satisfied qua restaurateur, [that] he had the ability to succeed in Zorbas, and would on the balance of probability have succeeded but for the difficulties caused by the Defendant.”

That left the judge to deal with the amount of the profit that would have been earned had the restaurant been able to trade. This was dealt with as a matter of expert evidence. The task of the experts was to assess what, in their opinion, would be the level of profitability which the restaurant could be expected to achieve over the relevant period on the assumption that it operated successfully. Their figures were therefore based on a comparison with the turnover and profit margins of other similar restaurants, although the precise models and methodology differed.

It is unnecessary for the purposes of this appeal to examine where the differences lay or how the judge resolved them. What is relevant is that the calculations of both experts depended inevitably on a number of key variables, namely:

From this the judge had to assess the expected turnover and the gross and net profit figures after taking into account overheads and expenses. He had then to decide what rate of growth was appropriate for a new restaurant business.

Judge Levy went through this exercise with enormous care and in some considerable detail in his judgment. He preferred the evidence of the respondent’s expert, Mr Djanogly FCA, to that of Mr Negus FRICS (the appellant’s expert) on a number of material issues. Again, the detail does not matter. He reached the conclusion that the average cover price for weekday lunches was £17 and £25 for other meals; that the number of covers was 60; that, although the optimum number of cover turns for a successful restaurant was 8.7, the respondent would not have reached that stage in the period under consideration and that the appropriate multiplier was therefore 6.6. On this basis he awarded Mr Vasiliou the sum of £221,721 by way of damages for loss of profit. To this a further £60,352 was added by way of interest.

Judge Levy made no discount in his award for the possibility that the respondent’s restaurant might not have been a success or might not have traded as profitably as the other comparable restaurants used by Mr Djanogly as the basis of his profit calculations. That would have been inconsistent with his earlier finding (referred to above) that Mr Vasiliou was an accomplished restaurateur who, but for the appellant’s breaches of covenant, would have traded successfully. To emphasise that this was the premise upon which the assessment was carried out, the judge said in paragraph 108 of his judgment that:

“Before turning to Mr Djanogly’s evidence, I will return to the questions for decision to which I referred early in this judgment on which I need to be satisfied before the claim can succeed. As to the first, I am quite satisfied that the Claimant is a person capable of running a restaurant successfully. By and large I found the Claimant to be a truthful witness. Despite his poor showing as a restaurateur in the months prior to Zorbas ceasing to trade, on the evidence as a whole I am satisfied he was then and is now capable of running a restaurant successfully. I am also satisfied that there is a sufficient concentration of persons of Cypriot origin to make a restaurant in the position of Zorbas successful both because of and in spite of the other three restaurants with which Zorbas will compete. I am also satisfied that, absent the circumstances of this claim, Zorbas would have traded successfully in the period for which damages are claimed.”

The general rule is that the claimant must prove that the defendant’s breach caused the loss which he seeks to recover by way of damages. That must be proved on the balance of probabilities. When that is done the loss is recoverable in full subject only to questions of mitigation or remoteness. In some cases, however, where the claimant’s ability to have made the profit which it claims depends on the actions of unrelated third parties, there may be room for arguing that the court should approach the issue of causation by taking into account the chances of those events having occurred.

In the classic loss of a chance case the most that the claimant can ever say is that what he (or she) has lost is the opportunity to achieve success (e.g.) in a competition (Chaplin v Hicks [1911] 2 KB 786) or in litigation (Kitchen v Royal Air Forces Association [1958] 1 WLR 563). The loss is by definition no more than the loss of a chance and, once it is established that the breach has deprived the claimant of that chance, the damage has to be assessed in percentage terms by reference to the chances of success. But there will be other loss of chance cases where the recoverability of the alleged loss depends upon the actions of a third party whose conduct is a critical link in the chain of causation. The decision of this court in Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 has established that causal issues of that kind can be determined on the basis that there was a real and substantial chance that the relevant event would have come about.

To that extent the Allied Maples approach may assist a claimant by providing an alternative way of putting his case on damage which avoids the possibility of total failure inherent in the judge being asked to decide whether, on the balance of probabilities, the causal event would have occurred. But caution needs to be exercised in identifying the contingency which is said to represent the lost chance. The loss of a chance doctrine is primarily directed to issues of causation and needs to be distinguished from the evaluation of factors which go only to quantum.

So in the first claim the respondent’s case on causation was straightforward. The appellant’s breach of covenant had made the operation of the restaurant a legal impossibility. As a result, it did not trade. There was therefore no doubt at all that the breach had caused the loss subject only to the quantification of that loss. The issues raised about the respondent’s competence and the restaurant’s prospects of success were not matters that went to causation at all. They were relevant at most to the assessment of how profitable (or not) the restaurant would have been had it been able to operate. If it would have been a commercial failure Mr Vasiliou could have received no more than nominal damages for the breach.

Judge Levy, in the passages I have quoted from his judgment, found as a fact that Zorbas would have been a successful restaurant and therefore assessed its lost profits on that basis. His analysis of the variable factors I have outlined which formed the agreed components of that calculation involved taking into account the time needed to establish a reputation and other everyday contingencies but did not involve a more general discount of the kind described in Allied Maples to take account of the statistical possibility of failure. That was excluded by his finding that the restaurant would have been a success.

Where the quantification of loss depends upon an assessment of events which did not happen the judge is left to assess the chances of the alternative scenario he is presented with. This has nothing to do with loss of chance as such. It is simply the judge making a realistic and reasoned assessment of a variety of circumstances in order to determine what the level of loss has been. This process was described by Toulson LJ in Parabola Investments Ltd v Browallia Cal Ltd & Others [2010] EWCA Civ 486 in these terms:

“[22] There is a central flaw in the Appellants' submissions. Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial). Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the Defendant's wrongful conduct, as distinct from things which have happened. In such a situation the law does not require a Claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss.

[23] The Claimant has first to establish an actionable head of loss. This may in some circumstances consist of the loss of a chance, for example, Chaplin v Hicks [1911] 2 KB 786, 80 LJKB 1292, [1911-13] All ER Rep 224 and Allied Maples Group Ltd v Simmons and Simmons [1995] 4 All ER 907, [1995] 1 WLR 1602, [1995] NLJR 1646, but we are not concerned with that situation in the present case, because the judge found that, but for Mr Bomford's fraud, on a balance of probability Tangent would have traded profitably at stage 1, and would have traded more profitably with a larger fund at stage 2. The next task is to quantify the loss. Where that involves a hypothetical exercise, the court does not apply the same balance of probability approach as it would to the proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account. (See Davis v Taylor [1974] AC 207, 212, [1972] 3 All ER 836, [1972] 3 WLR 801 (Lord Reid) and Gregg v Scott [2005] UKHL 2, [2005] 2 AC 176, para 17, [2005] 4 All ER 812 (Lord Nicholls) and paras 67-69 (Lord Hoffmann)).

[24] The Appellants' submission, for example, that “the case that a specific amount of profits would have been earned in stage 1 was unproven” is therefore misdirected. It is true that by the nature of things the judge could not find as a fact that the amount of lost profits at stage 1 was more likely than not to have been the specific figure which he awarded, but that is not to the point. The judge had to make a reasonable assessment and different judges might come to different assessments without being unreasonable. An appellate court will therefore be slow to interfere with the judge's assessment. As Lord Wright said in Davis v Powell Duffryn Associated Collieries Ltd [1942] AC 601, 616-617, [1942] 1 All ER 657, 111 LJKB 418:

“An appellate court is always reluctant to interfere with a finding of a trial judge on any question of fact, but it is particularly reluctant to interfere with a finding on damages which differs from an ordinary finding of fact in that it is generally much more a matter of speculation and estimate. No doubt, this statement is truer in respect of some cases than of others . . . . It is difficult to lay down any precise rule which will cover all cases, but . . . the court, before it interferes with an award of damages, should be satisfied that the judge has acted on a wrong principle of law, or has misapprehended the facts, or has for these or other reasons made a wholly erroneous estimate of the damage suffered.””

In the assessment proceedings in the first claim Judge Levy reached a view about the prospects of success for the restaurant and then proceeded to carry out this sort of exercise in relation to the issues about cover turns and increases in profitability. As Toulson LJ, I think, makes clear, that process is not the kind of exercise contemplated as the second stage in Allied Maples and does not require a discount to be made for the possibility of failure which, on the judge’s own findings, was non-existent.

This is, I think, made clear in the judgment of Sir Anthony Clarke MR in Owners of the Ship “Front Ace” v Owners of the “Vicky 1” [2008] EWCA Civ 101 where he said this:

“[72] There are many cases in which courts or arbitrators have to determine what rate of profit would have been earned but for a tort or breach of contract. As I see it, in a case of this kind, where the court has held that the vessel would have been profitably engaged during the relevant period, where there is a relevant market and where the court can and does make a finding as to the profit that would probably have been made (and has been lost), there is no place for a discount from that figure to reflect the chance that the vessel would not have been employed.

[73] It has not in my experience been suggested in the past that any such discount should be made. This situation is to be contrasted with a case in which it is not shown that the vessel would have been profitably employed but she might have been. It may be that in those circumstances it would be possible to approach the problem as a loss of a chance. However, I would not wish to express a firm view on that question in this case, where it does not arise on the facts. Here, given the exercise carried out by the experts and given the figure agreed by them, there is in my opinion no warrant for a reduction of 20%, either to reflect a risk that the vessel would not have been employed or for contingencies to reflect that the figure agreed might not be accurate.”

The task of the judge is to decide what profit could have been made. Once he does this any further discount is inappropriate. Judge Levy decided that he was assessing the profits of a successful restaurant. The only issue was how successful.

I have spent a little time analysing what was decided in the first claim and the principles to be applied because they dictated the scope of the issues in the second claim. There was no appeal against Judge Levy’s decision on liability or his assessment of damages. In April 2007 the restaurant premises remained out of use and the respondent’s solicitors wrote to the appellant’s solicitors purporting to accept their client’s repudiation of the lease. On 10^th May the keys were handed back and the particulars of claim in the second claim were amended to reflect this. On 6^th September 2007 the respondent accepted that the lease had been terminated by his repudiation and an order was made by consent on that date. This provided for judgment to be entered for Mr Vasiliou for damages to be assessed (a) for the respondent’s breach of the covenant of quiet enjoyment for the period from 12^th February 2004 to 11^th April 2007 and (b) for the respondent’s wrongful repudiation of the lease. The second head of damages was to be assessed by reference to the value of the unexpired term of the lease at the date of repudiation assuming an open market assignment and that the demised premises were in good repair and trading commercially as a licensed restaurant.

On 2^nd November 2007 HHJ Cowell gave directions in respect of the assessment. These included giving Mr Hajigeorgiou permission to amend his defence setting out his case on causation; mitigation; and quantum including that the claim should be reduced on the ground that Mr Vasiliou did not intend to trade the premises as a restaurant. Directions were also given about expert evidence on the issues of loss of profit and the valuation of the lease. The respondent submitted that since Judge Levy had preferred the evidence and methodology of Mr Djanogly to that of Mr Negus, it would be appropriate for Mr Djanogly to act as a single expert in relation to the issue of loss of profits. He would be asked to extrapolate a calculation of lost profit from his assessment for the earlier period making whatever adjustments were necessary for the passage of time and any changes in local trading conditions.

The appellant’s position was set out in the skeleton argument of his counsel (Mr Clarke) prepared for the hearing. The appellant wished to appoint his own expert to deal with the issue of loss of profits. If the judge was minded to appoint a single joint expert then he contended that it should not be Mr Djanogly because he had given evidence for Mr Vasiliou in the first claim. It was, however, expressly conceded:

Judge Cowell made an order appointing Mr Djanogly as a single expert. He prepared assessments of profits on three alternative hypotheses: (i) that there had been no refurbishment of the premises (Scenario A); (ii) that Mr Vasiliou had refurbished the restaurant before re-commencing trade (Scenario B); and (iii) that he refurbished the restaurant at the beginning of 2005 and recommenced trade as a fish restaurant.

At the hearing before Judge Dight the principal issues were the calculation of lost profits; the valuation of the lease; and the question of mitigation. Notwithstanding the concessions made at the directions hearing, Mr Hajigeorgiou (who now appeared in person assisted by a Mackenzie friend) challenged Mr Vasiliou about his intention to open a restaurant and his ability to make it a success. No application was made to withdraw the concessions and some of those issues were in any event res judicata in the light of the earlier findings made by Judge Levy. But Judge Dight listened to Mr Vasiliou’s evidence in cross-examination and made findings of his own that the respondent’s intention to run the restaurant continued throughout the period covered by the second claim and that the restaurant would have been a success. He also rejected the suggestion that Mr Vasiliou would have changed course and converted the business into a specialist fish restaurant.

On the basis of these findings and the earlier concessions, he then proceeded to deal with the three issues I have referred to. He rejected the defence based on failure to mitigate. He assessed loss of profits in the sum of £422,186 on the basis of Mr Djanogly’s Scenario B; and he valued the lease in the sum of £300,000.

Mr Hajigeorgiou sought permission to appeal on a number of grounds in respect of the assessment of lost profits. There is no challenge to the judge’s valuation of the lease. Some of the grounds raised issues about remoteness and mitigation but others were a challenge to the expertise and independence of Mr Djanogly and the accuracy of his calculations. At an oral hearing Rimer LJ refused permission to appeal on all grounds except one. This has been re-formulated by Mr Riza QC in these terms:

“1)

The learned judge failed correctly to identify the head of recoverable loss as one of the loss of the chance of profit and failed to realise that such loss could not be evaluated on a balance of probability.

2)

Contrary to the principles summarised by Toulson LJ in Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486, paragraph [23], the learned judge failed to estimate “the loss by making the best attempt [he could] to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account” including the chance that the claimant would have made the profits projected by the expert [Mr Djanogly], by evaluating whether and to what extent to discount such projections so as to reflect the range of commercial risks that the claimant would not in fact achieve the projected profits.”

Judge Dight summarised his approach to the assessment of lost profits for the second period as follows:

“It is common ground that in assessing the lost profits in the 2^nd Claim I am bound by the findings of His Honour Judge Levy QC and I should start from the conclusions which he reached in respect of the period immediately before that in respect of which I have to assess the lost profits. Mr Djanogly in providing his expert evidence in this case has not been asked to construct fresh accounts but has been asked to extrapolate from the accounts he constructed following judgment in the 1^st Claim”.

This is clearly a reference to the concessions made at the directions hearing and Mr Riza accepted in terms that his client was bound by Judge Levy’s findings that the restaurant would have been profitable. What Judge Dight did was to examine the cover rate and other variables used by Mr Djanogly to produce his calculation for the 2004-2007 period in the light of the arguments raised about how quickly the restaurant could have reached its optimum turnover and what the level of its expenses would have been. Apart from the general challenge to Mr Djanogly’s expertise (which is not part of this appeal), the judge’s determination of the issues about the variables is not criticised. Mr Riza accepted that the figure of £422,186 was a correct assessment of profits based on these items. The narrow point taken in the permitted ground of appeal is that the judge, having calculated with Mr Djanogly’s help, what the level of profits for the restaurant as a successful venture would have been, should then have discounted that figure by a percentage designed to recognise the chance that success at this or any other level might not have been achieved.

The respondent’s answer to this is that any such reduction is excluded by the findings of both Judge Dight and Judge Levy that the restaurant would have been a successful operation. But Mr Riza says that this is irrelevant. Although he is not able to challenge those findings, both judges were wrong as a matter of law not to consider and make an allowance for the chance that the restaurant might have failed. He submitted that although this point was not raised at either of the assessment hearings, both judges were obliged to conduct the assessments in accordance with the law and to direct themselves accordingly. This applies in particular to the hearing before Judge Dight when Mr Hajigeorgiou had no professional representation.

Paragraph 23 of the judgment in Parabola Investments does not assist Mr Riza for the reasons I have given. Toulson LJ was saying no more than that the assessment of imponderables in the quantification of damages does not have to be carried out on the balance of probabilities. It is a more refined process than that. But that does not exclude the making of a finding about profitability which will in terms dictate the shape of the computation which follows. In such a case the decision of this Court in Owners of the Ship “Front Ace” v Owners of the “Vicky 1” is, I think, authority which precludes any further discount for the loss of a chance which is counter-factual.

Mr Riza’s argument seems to be that the imposition of such a discount is somehow mandatory. He relies on two other decisions of this Court to support this. The first in point of time is First Interstate Bank of California v Cohen Arnold & Co [1996] C.L.C. 174 where the claimant sought damages based on a negligent statement about a borrower’s net worth. Had the statement been accurate it would, it said, have sold its security earlier and so reduced its eventual loss.

The Court of Appeal treated the case as a conventional application of Allied Maples to the causative question of whether and, if so, at what price the bank would have sold its security had it known the truth about the borrower’s lack of creditworthiness. The chance had to be calculated not merely by reference to what the bank would have decided to do but also by reference to the prospect of it being able to sell the property for more than it did. The judge had found on the balance of probabilities that the bank would and could have sold the property earlier for £3 million but the Court of Appeal held that, on the evidence, it was by no means certain that this price would have been achieved. It held that the bank had only a 66.66% chance of achieving £3 million at the relevant time and reduced its damages accordingly.

The trial judge (Jacob J) had found that £3 million was the best price reasonably obtainable for the property when the tort took place but did not carry out any real estimate of what prospects there were of obtaining that price in a falling market. The case is not therefore concerned with issues of causation as such but only with the evaluation of the chance for purposes of quantification. Had the judge been properly able to make a finding that the property could have sold for a specific amount at the relevant time no further discount would have been necessary. Sedley J makes this point in his judgment (at page 185) where he says:

“In the ordinary way there will be no need to arrive at a best market price and then to discount it in order to value the lost chance of a sale. It is sufficient, having decided on the balance of probability that a worthwhile chance was lost, to make the best estimate that can be made, taking the rough with the smooth, of the price which would have been realised but for the defendant's wrongdoing. To discount this figure would be, in effect, to discount twice.”

Ward LJ analyses in more detail the various stages of the process outlined in Allied Maples where the claim is based on the loss of a chance. What he described as stages 1-3 are the Court’s determination of whether there was a real and substantial chance of the third party acting in a particular way so as to bring about the profit which is alleged to have been lost. Stage 4 is the evaluation of that chance. At page 182 he said this:

“It seems to me that stages 1, 2 and 3 above are all concerned with causation and they are separate from the fourth stage of the assessment of damages. Judging whether there is a real or substantial chance whether a hypothetical event would have occurred is a matter of judgment made after consideration of all the evidence where fanciful forecasts are rejected and only real chances can be considered. At the end of the day, having thus directed himself, the judge must make a decision as to what would have happened. There is no discounting involved in this exercise. He has a range of choices: he must choose one. It is, therefore, only at the assessment of damages stage that he asks himself what are the chances of that chance actually happening. The language suggests double discounting has taken place but the intellectual exercise does not.”

Mr Riza relies on this passage as assisting his case but in my judgment it does not. As explained earlier, the issue of how successful the restaurant would have been was not an issue of causation. It was relevant only to quantum. Judge Dight and Judge Levy were satisfied that the restaurant would have been profitable and calculated the damages accordingly. One can express this in terms of them assessing the chances of success at 100% but either way there is no room for a further discount. The calculation of profits which they made was not determined as the best level of profits reasonably obtainable. It was the amount which on their findings he would have earned.

The other case relied on by Mr Riza is Salford City Council v Torkington [2004] EWCA Civ 1646. This was a claim for damages for misrepresentation and breach of a collateral warranty by the Council to the effect that they would not allow another grocer’s shop to be opened on an estate in competition with that of the claimants. The promise was broken as a result of which the claimants’ business failed. In proceedings by the Council to recover arrears of rent under the lease of the shop, the claimants counterclaimed for damages.

The Court of Appeal directed that the proper method of assessing damages was to take the value of the claimants’ business at the point when it was reasonable for them to cease trading and to compare that with what the value would have been at that date had the undertaking been observed. But Potter LJ did go on, obiter, to discuss an alternative method of calculating further loss of profit:

“53.

If I am wrong in that regard and the judge was correct to seek to award damages on the basis of the position as it would have been post-March 1988 had the warranties been fulfilled, I would nonetheless accept the submission of Mr Berragan that, in assessing the amount of that future loss, the judge was in error for making no sufficient allowance for the uncertainties of the position when he held that the length of time for which the defendants would have run the business and the income they would have received were matters “which I must assess by the conventional approach of applying a multiplier to a multiplicand, and do not involve the valuation of a chance”.

54.

Albeit, in the course of conducting the exercise thereafter, the judge referred to various possible contingencies and uncertainties to which he had regard in reaching the conclusions which he did as to the appropriate multiplier and multiplicand, he did so as part of the process of finding on the probabilities, the particular course which events would follow. He did not thereafter make any allowance, or reduction for the substantial possibility that events would follow a different course. The whole thrust of the judgment of Stuart-Smith LJ in the Allied Maples case is that where matters affecting the measure of loss are uncertain and, in particular, dependent on the hypothetical actions of third parties as well as the plaintiff, a balance of probability approach is inappropriate. The court is concerned to evaluate the chance that a particular course of events would have occurred and to look at the range of possibilities, making an appropriate discount in respect of the possibility that a less favourable result might follow. As made clear by Stuart-Smith LJ at 1614D:

“… the plaintiff must prove as a matter of causation that he has a real or substantial chance as opposed to a speculative one. If he succeeds in doing so, the 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 brackets should be.”

In my view this is such a case.

55.

I do not say that, in assessing the likelihood of future loss on a ‘loss of chance’ basis in a case of this kind, it may not be (indeed it often will be) a proper approach to start with a broad multiplier/multiplicand calculation addressed to the course of events which the judge considers likely on the balance of probabilities. However, where there are substantial unknown factors operating in relation to the acts of third parties or other events outside the control of the claimant, which raise the real possibility that a far less favourable course of events will occur, then a substantial discount should be applied to reflect the claimant's true chances of achieving the level of profits claimed. That was not done here and it should have been. I reject Mr Berragan's submission that, on any view, the forces of ‘lawful’ competition would have taken over so as to eliminate any realistic chance of profitable trading, beyond the short space of six months. On a broad brush basis and accepting the judge's assessment of ongoing loss between February 1988 and April 1994 of £80,783 I consider that a discount of at least 50% would have been appropriate i.e. a reduction of approximately £40,400. However, in the light of the view which I take upon the first point of principle it is not necessary to say more.”

I have some concerns that questions of causation and quantification overlap in these paragraphs but Potter LJ is really saying no more than that in the evaluation exercise at the quantum stage a discount should be applied if the claimant’s prospects of achieving a partial level of profit are uncertain. The application of a discount is therefore fact specific. It does not apply regardless of the circumstances. The difficulty for the appellant is that he challenged Mr Vasiliou’s competence as a restaurateur and his prospects of success before both Judge Levy and Judge Dight and was unsuccessful on both occasions. Far from being a question of law, the particular ground of appeal amounts to no more than a challenge to Judge Dight’s findings of fact on an issue which was conceded in advance of the trial and which was, in any event, decided in favour of the respondent on the evidence.

Nothing in the authorities we have been referred to discloses any error of law in the approach of Judge Dight and his findings of fact are not open to challenge given the concessions made. They were in any event open to him on the evidence available.

I would therefore dismiss the appeal.

I agree

I also agree.