Mallon v Halliwells

This is an appeal from the decision of HHJ Raynor QC sitting in the Technology and Construction Court in Manchester dismissing the claim brought by the appellant/claimant, Mr Frank Mallon, against Halliwells LLP in administration for damages for professional negligence: see [2011] EWHC 3673 (TCC). This being an appeal, I shall not refer to a number of facts which are no longer in issue.

Mr Frank Mallon is a consulting engineer with long experience of property development schemes. It was accepted that Halliwells, a firm of solicitors, had acted negligently in preparing an agreement for the development of a site owned by a company in which Mr Mallon had an 80 per cent interest, a company which I shall for convenience call Aztec. It was agreed that the development of the site would be carried out by a joint venture company owned as to 50 per cent by Pierse Contracting Limited and as to 50 per cent by Brickpaper Limited, a company in which Aztec had a 40 per cent interest. It was orally agreed that on completion of the development, the sale of all the flats and car parking spaces and the discharge of any secure charges on the land (the “preconditions”) Brickpaper would sell the freehold and Mr Mallon personally would be entitled to the proceeds of sale. Negligently Halliwells failed to include a clause to that effect in the necessary agreements in April 2005. Mr Mallon was not aware of the omission of a clause until July 2008. If the clause had been included Mr Mallon could have sold the contractual right to the proceeds of sale whether or not the preconditions had been met.

Although there was some flawed expert evidence about the value in April 2005 of the contractual right to the proceeds of sale, the judge reached no conclusion as to what the value would have been. He decided that the value of the claimant's loss was not to be assessed as at 2005 but as at autumn 2008. The judge's conclusion that the value of the claimant's loss was not to be assessed as at 2005 but only as at autumn 2008 is the subject matter of the first ground of appeal.

As at autumn 2008, although the development had been completed by October 2007, 23 of the 108 flats remained unsold, as also 76 of the car parking spaces. The secured indebtedness to the Royal Bank of Scotland amounted to £3 million. There was at least one other substantial secure charge in the sum of about £0.75 million but that sum was disputed by Mr Mallon. It followed that the preconditions had not been met. In the words of the judge:

Mr Mallon claimed that he had had the contractual right to the proceeds of sale he would have been able to negotiate with the developer Pierse in about December 2008 for a sum to compensate him for giving up that right. The judge concluded in paragraph 101 that in the absence of evidence from any Pierse witness and of any objective evidence of the worth of the right to the proceeds of sale at that time, the outcome of any such negotiations was a matter of pure speculation. The judge concluded that he was not persuaded that in 2008 or thereafter Mr Mallon had any real substantial chance of obtaining any significant (as opposed to nominal) sum for the sale of what would have been but for the respondent's negligence a contractual right to the proceeds of sale. This conclusion is the subject matter of the second ground of appeal. I turn to the first ground of appeal: the loss should have been valued as at April 2005.

It is submitted that the fact that Mr Mallon did not know that he did not have the right to the proceeds of sale and did not seek to sell the right is irrelevant. The loss, it is submitted by Mr Singer, should be assessed as at April 2005 when, but for the solicitor's negligence, he would have acquired the right. Mr Mallon must show that the respondent’s admitted negligence caused him loss as at April 2005. Mr Mallon suffered no financial loss at that time because he did not try to sell the right at that time; indeed he did not try to sell the right until the autumn of 2008. Damages for breach of contract or a tort are principally designed to compensate a person for a loss which he has actually suffered as a result of the contractual breach or tort. If he has not suffered a tort then he is only entitled to nominal damages for the breach or tort. If authority is needed for that proposition it can be found in a case cited in the respondent's skeleton argument at paragraph 10. In that paragraph Mr Phipps, from whom we have not heard any oral argument, quotes the decision of Kennedy v Van Emden [1996] PMLR 409 at 414, where Nourse LJ said “compensation is a reward for real not hypothetical loss”. Mr Mallon did not suffer a loss in 2005 and ground 1 therefore fails.

I turn to the second ground of appeal: the loss as at autumn 2008 and thereafter. It is submitted the judge was wrong not to give the right to the proceeds of sale some value in 2008 and wrong to describe the value of that right as speculative. It is submitted that the judge ought to have given a value to the right. It must be remembered, as I have already said, that any purchaser of the right to the proceeds of sale would not have been entitled to the proceeds until the remaining 23 of the 108 flats and 76 of the car parking spaces were sold, the Royal Bank of Scotland had been paid some £3 million (and that is overlooking the other charge) and a purchaser of the freehold found.

Mr Singer took us both to the evidence of Mr Nesbitt, the respondent's expert, and to the judgment. Mr Phipps in his skeleton argument sets out in paragraph 17 the financial position. It is not in dispute that as at August 2008 the debts secured on the reversionary freehold interest in the site were about £3 million, omitting the money owed to Pierse. Mr Phipps also points out that the aggregate value of the unsold properties and the freehold reversionary interest was in the region of £2,361,000; thus the judge reached the conclusion in paragraph 84 that on any view the development was in negative equity even ignoring the Pierse charge. Mr Singer submits, however, that on the evidence someone might have bought this contractual right to the proceeds of sale.

Mr Nesbitt was asked to address the question:

The judge then, in paragraph 76, quotes a significant portion of his evidence, and in particular paragraph 6.1:

“6.1

On the question of impact of the charges on an investor’s view of the value for the right to receive the freehold interest, it is my view that a valuer would not make that judgement and could not provide an opinion of value.

i.

The investor would consider an option or a conditional contract to acquire the right to the unencumbered freehold interest as at August 2008, at a sum to reflect that 23 units were unsold assuming they could be sold over a period of 3 years

ii.

The investor would consider an option or a conditional contract to acquire the right to the unencumbered freehold interest as at August 2008, at a sum to reflect that 23 units were sold, but could be sold over a period or 3 years but subject to the clearing of all charges which were outstanding on the development.

iii.

An investor/speculator would, considering the market as at August 2008, not wish to acquire the right to receive the value of the freehold reversion interest on the basis that the market in August 2008 was too volatile and that the value of the remaining interests for the unsold apartments, car parking spaces and freehold was not significantly above what was owed, therefore the risk of receiving nothing was too great a risk to take.”

It is clear that in (iii) Mr Nesbitt is saying "the risk of receiving nothing was too great a risk for an investor to take". However, in cross-examination, which is set out in paragraphs 77 through to 83, he did accept that the contractual right to the proceeds of sale could have a value to an investor with cash. He accepted that there was someone who might be prepared to buy for cash, albeit that the investment had the potential to lead to nothing at all. Again he said, as set out in paragraph 81, that it was not implausible that a cash buyer was available. It is submitted by Mr Singer that the judge ought to have given a value to the contractual rights in the light of the evidence that someone might pay something for it. Mr Singer suggested a figure of 50 per cent of the unencumbered freehold value, which would have been a figure in the region of some £120,000. The judge did not accept that argument.

The judge considered the arguments and, as I have already said, reached the conclusion in paragraph 101, in effect assessing the value of this right to the proceeds of sale as speculative. He went on to say this in 102 and 103:

“102.

Similarly, with regard to the loss of the chance that some other investor might have been prepared to pay an amount which the claimant would have been prepared to accept for an assignment of the right. Of course it is always possible that someone might have been prepared to pay something for the right had the claimant attempted to sell it to someone other than Pierse, but I have no idea at all what amount might have been offered, still less any basis for concluding that the claimant would have been prepared to accept any offer made in the autumn of 2008.

103.

In reaching this conclusion I have had full regard to the evidence of Mr Nesbitt. I do not believe on the totality of the evidence, both written and oral, that he was indeed of the opinion that there was a real chance of finding a buyer who was prepared to pay any substantial sum for the encumbered right, still less to buy it at a discount of 50 per cent or more of its unencumbered value of £226,000. On the contrary, he went out of his way to make it clear more than once that he was unable to put a value on the asset in its encumbered state as at August 2008, and I take his considered opinion to be that stated in paragraph 6.1(iii) of his supplemental valuation notes.”

He went on to say in paragraph 104 that he was unable to place any weight on the evidence which contradicted the opinion set out in paragraph 6.1 (iii) to which I have already referred. The judge concluded in paragraph 105 that Mr Mallon had failed to prove that he had suffered any substantial as opposed to nominal damage as a result of the defendant's negligence and that the action therefore failed. In my view, the judge was fully entitled to reach the conclusion that he could not put any value on the asset, even taking into account that someone might pay something for it. It was for Mr Mallon to put a value on the contractual right and this he failed to do, and for these reasons I would dismiss the second ground and therefore the whole appeal.

I agree. The appellant sought to argue that but for the respondent's negligence he held an asset which could have been realised at any time after April 2005; therefore, he submitted, the asset should have been valued as at April 2005. Ordinarily that would be a perfectly sound argument. However, the purpose of an award of damages is to compensate the loser, not to provide him with a windfall on hypothetical facts. The judge found, as it seems to me was inevitable on the evidence, that under no circumstances would the appellant have sought to realise the value of his asset before he actually did, namely in August 2008. Accordingly, the judge found the appropriate date for valuation was August 2008. The appellant has failed to persuade me that the judge was wrong to adopt that date.

As to ground 2, the appellant argues that the judge ought not to have concluded that as at August 2008 the asset had no discernible value, a valuation being an entirely speculative exercise for the reasons identified by my Lord, Hooper LJ. It is clear to me that before reaching the conclusion he did the judge carefully and extensively examined all of the relevant evidence at paragraphs 63 to 84 and 95 to 105 of his judgment and cannot, in my judgment, be criticised for reaching the conclusion he did. I agree that the appeal should be dismissed.

I agree with both judgments.