The Court of Appeal reviews the Loss of Chance doctrine

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The Court of Appeal reviews the Loss of Chance doctrine

Published 10 febrero 2017

The Court of Appeal has reviewed the loss of chance doctrine in two recent decisions. The first, McGill, is an example of the Court's willingness to find in the claimant's favour in a tortious claim where the claimant's loss of chance was less than 50%. The second, Lewis Silkin, is an example of the Court's reluctance to allow a claimant to recover unusual or unlikely losses in a contractual claim against a professional. It held the loss of chance element of the damages claim was too remote.

Anthony McGill ("McGill") v The Sports and Entertainment Media Group ("SEM")

Mc Gill, a licensed football agent, entered into an oral contract with McCann, a professional footballer, to act exclusively as McCann's agent in negotiating a transfer deal from Aston Villa to Bolton Wanderers (BW).

Before the transfer was completed, SEM, a rival agent, persuaded McCann to breach his contract with McGill and SEM completed the transfer on substantially the same terms. McGill alleged that he was deprived of the £300,000 transfer commission paid by BW to SEM.

McGill brought claims against SEM and BW alleging, among other things, that they induced McCann to breach the oral contract. McGill had settled a breach of contract claim against McCann in 2009 for £50,000 but the broad wording of this settlement did not preclude the claim against the defendants.

The High Court accepted that there was a binding oral contract and that SEM had induced McCann to breach this contract. However, the judge concluded that McGill had failed to prove on a balance of probabilities that McCann would have signed a written agency agreement with McGill by the close of the transfer deal (as required by the FA Regulations) and in the absence of this, McGill would not have been allowed to receive the commission under the FA Regulations.

McGill appealed to the Court of Appeal arguing that the High Court had applied the wrong causation test. He relied on a "loss of opportunity" reference in the re-amended particulars of claim which played no part in the High Court trial and argued that the correct approach was to assess the value of his lost chance of being paid a fee under a FA compliant written agreement. This chance was real and substantial and his loss should, therefore, be assessed on a percentage basis.

The Court of Appeal agreed that the correct approach was to apply the loss of chance doctrine. It followed the principles in the two leading judgments on loss of chance, Allied Maples Group Limited v Simmons and Simmons [1995] and Wellesley Partners LLP v Withers [2015], being:

  • Where the claimant's loss depends, not on what he would have done, but on the hypothetical acts of a third party, the claimant first needs to prove that there was a real or substantial (rather than speculative) chance that the third party would have acted so as to confer the benefit in question.
  • Having established that there was a real or substantial chance, the claimant will need to show that, on the balance of probabilities, the defendant's actions have caused it to lose that chance.
  • If causation is proved, the lost chance is then quantified as a percentage of the damages to be awarded. Stuart-Smith LJ in Allied Maples said on percentage terms that "the range [lay] somewhere between something that just qualifies as real or substantial on the one hand and near certainty on the other."
  • Allowing McGill's appeal, the Court of Appeal agreed that McGill's loss depended on the hypothetical actions of a third party (i.e. McCann) and it concluded that there was a real or substantial chance that McCann would have signed a FA compliant written contract with McGill had SEM not induced McCann to breach his contract. Accordingly, Mr McGill was entitled to recover damages as a percentage of the commission he lost.
  • The case has been referred back to the High Court for the percentage to be assessed. Since the Court of Appeal did not disturb the High Court's finding of fact that McGill had not shown on a balance of probabilities that McCann would have entered into a FA compliant agreement with him, the percentage applied will not exceed 50%. Indeed the "real or substantial" threshold is lower than the "balance of probability" threshold of 50% or more and means that claimants can recover even where there is a less than 50% chance that it would have obtained the benefit in question.

Timothy Wright v Lewis Silkin LLP

Mr Wright, instructed the defendant solicitors, Lewis Silkin (LS) in May 2008 to draft Heads of Terms relating to his proposed employment as CEO for Deccan Chargers (DC), an Indian company. His employment commenced in June 2008 but ended in January 2009.

Mr Wright brought an unfair dismissal claim against DC and sought payment of a severance payment of £10m. DC challenged the jurisdiction of the English court which, whilst unsuccessful, disrupted and slowed the English proceedings. The court awarded damages of £10.3m in July 2012 but by this time, DC was in serious financial difficulties and the claimant was unable to successfully enforce his judgment in India.

The claimant then brought a professional negligence claim against LS alleging, inter alia, that LS failed to advise him to include an exclusive English jurisdiction clause.

At first instance, Hamblen J held that the failure to include an exclusive jurisdiction clause was negligent and, had the English action proceeded more swiftly, judgment would have been given in June 2011 (rather than July 2012) and the claimant would have had a 20% chance of recovering the severance payment from DC without the need for enforcement proceedings. The claimant was awarded damages of £2.04m, being 20% of the £10m severance payment plus litigation costs of £40,000 which he would have avoided.

In the Court of Appeal, Jackson LJ said Hamblen J's assessment of the 20% lost chance was "correct" but he concluded that "the claimant's loss of a 20% chance of recovering the severance payment was too remote and/or outside the scope of duty which LS owed in relation to the jurisdiction issue." He referred to the Court of Appeal's decision in Wellesley Partners v Withers which was handed down 4 months after Hamblen J's decision. This held that where there are concurrent contractual and tortious duties to take care when carrying out a client's instructions, the stricter contractual test for remoteness of damage should apply (i.e. whether the loss was damage of a kind that the parties had in mind at the time of contracting).

Applying the contractual remoteness test, Jackson LJ concluded that the claimant's inability to enforce the English judgment due to DC's financial circumstances was not the type of loss that either party reasonably contemplated when LS was instructed in May 2008. Furthermore, the 20% lost opportunity to enforce the judgement fell outside the scope of duty owed by LS. Accordingly, the Court of Appeal set aside the £2m damages. However, Jackson LJ allowed the £40,000 wasted costs because these costs would have been avoided had LS properly drafted the exclusive jurisdiction clause and they were not, therefore, too remote.

What are the implications of these decisions for professionals?

Both of these decisions fell within the principles laid down in Allied Maples and Wellesley Partners so, whilst they do not create new law, they are helpful in showing how the courts apply the principles in practice.

For professional defendants, the main take away is that where a claimant's loss depends on the hypothetical acts of a third party, the claimant only needs to show that that there was a real or substantial chance that, but for the defendant's breach of duty, the claimant would have obtained a benefit or avoided a loss. The test of causation is lower than the balance of probabilities test and even a 20% chance may be sufficient to satisfy the real or substantial threshold.

In practice, most professional/client relationships are contractual in nature, and the decision in Lewis Silkin (following Wellesley Partners) confirms that the courts will apply the contractual test of remoteness of damage (which is more stringent than the tortious test) to such claims. Accordingly, the claimant will still need to show - on a balance of probabilities - that the professional caused the loss of chance and, importantly, that the damage suffered was of a kind contemplated by the parties as being recoverable as a result of a breach of contract. If these tests are not satisfied, then the claim will fail.

Authors

Richard Highley

Richard Highley

London - Walbrook

+44 (0)20 7894 6470

Francesca Muscutt

Francesca Muscutt

London - Walbrook

Key Contacts

Richard Highley

Richard Highley

London - Walbrook

+44 (0)20 7894 6470

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