Factual and Procedural Background
The Defendant has been the owner of freehold premises at a location in North London since 1995. The Property, situated in an area with a significant Greek Cypriot community, included a ground floor intended for use as a Greek restaurant and two upper floors let as residential flats. The Plaintiff, a restaurateur with prior experience but who had declared bankruptcy in 1991, entered into a lease agreement for the ground floor and rear yard in 2001, converting it into a restaurant at his own expense.
In late 2001 and early 2002, structural and regulatory issues arose, including the removal and delayed replacement of fire escape balconies, which obstructed the restaurant's rear fire exit and rendered it unusable until December 2003. Additional problems with blocked drainage pipes caused water leakage and health hazards, further preventing the restaurant from operating legally from February 2004 onward.
The Plaintiff commenced proceedings against the Defendant in August 2002 ("the first claim") alleging breaches of the landlord's covenant of quiet enjoyment. The Defendant counterclaimed for damages related to alleged negligent works by the Plaintiff, but this counterclaim was struck out. The first claim trial limited to liability was heard by HH Judge Levy QC, who found the Defendant liable and directed an assessment of damages for lost profits from April 2002 to December 2003.
Damages assessment involved expert evidence on the Plaintiff's ability to run a successful restaurant and the quantification of lost profits based on variables such as customer capacity, turnover, and average prices. The judge found the Plaintiff capable and likely to succeed, awarding damages accordingly.
Subsequently, the restaurant remained unusable due to ongoing issues, leading to a second claim in May 2006 for damages related to breach of covenant and nuisance from February 2004 to April 2007. The lease was repudiated by the Plaintiff in 2007, and damages for the unexpired lease term were also to be assessed.
HHJ Cowell appointed a single expert to assess lost profits for the second claim, considering several scenarios regarding refurbishment and trading. At the hearing before HHJ Dight, the main issues were lost profits, lease valuation, and mitigation. Despite concessions from the Defendant, he challenged the Plaintiff's intention and ability to trade successfully. HHJ Dight found in favor of the Plaintiff, rejecting mitigation defenses, assessing lost profits at £422,186, and valuing the lease at £300,000.
The Defendant appealed the assessment of lost profits on several grounds, with permission granted only on the issue of whether the judge erred by failing to apply a discount reflecting the chance that the Plaintiff might not have achieved the projected profits.
Legal Issues Presented
- Whether the judge erred in failing to identify the head of recoverable loss as a loss of a chance and in not applying a discount to the assessment of lost profits to reflect the risk that the Plaintiff might not have achieved the projected profits.
- Whether, as a matter of law, damages for lost profits must be discounted to account for commercial risks and uncertainties even where the judge has found the Plaintiff would have been successful.
Arguments of the Parties
Appellant's Arguments
- The judge failed to treat the lost profits as a loss of chance and should have applied a discount to reflect the possibility that the Plaintiff might not have attained the projected profits.
- Both judges erred as a matter of law by not considering and making an allowance for the chance of restaurant failure despite findings that the Plaintiff would have been successful.
- The failure to apply such a discount was contrary to established principles, including those summarized by Toulson LJ in Parabola Investments Ltd v Browallia Cal Ltd.
- The absence of professional representation for the Defendant at the assessment hearing before Judge Dight further necessitated a proper legal direction on this issue.
Respondent's Arguments
- Any discount for loss of chance was excluded by the factual findings of both judges that the restaurant would have been a successful operation.
- The assessment of damages was correctly based on the assumption of a successful restaurant, making any further discount inappropriate.
- The legal authorities relied upon by the Appellant do not mandate a discount where the court has made a positive finding of profitability.
- The appeal ground is effectively a challenge to findings of fact which were either conceded or supported by evidence and thus not open to legal challenge.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Chaplin v Hicks [1911] 2 KB 786 |
Loss of chance principle: damages for loss of opportunity assessed by reference to percentage chance of success. |
Distinguished from the present case where the court found the Plaintiff would have succeeded, so no discount for chance was appropriate. |
| Kitchen v Royal Air Forces Association [1958] 1 WLR 563 |
Loss of chance in litigation context. |
Referenced as an example of loss of chance cases; not directly applicable here. |
| Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 |
Established that causation issues involving third party actions can be determined on a real and substantial chance basis. |
Clarified that loss of chance doctrine relates to causation, distinguished from quantum assessment in this case. |
| Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486 |
Assessment of damages involving hypothetical events requires evaluation of chances rather than strict balance of probabilities. |
Confirmed that quantification of loss may involve estimating chances, but where profitability is found, no further discount is required. |
| Owners of the Ship "Front Ace" v Owners of the "Vicky 1" [2008] EWCA Civ 101 |
No discount from profit figure where court has found profitable engagement on balance of probabilities. |
Applied to reject discounting lost profits where court found restaurant would have been successful. |
| First Interstate Bank of California v Cohen Arnold & Co [1996] C.L.C. 174 |
Damages based on loss of chance to sell property at a particular price; discount applied to reflect chance of achieving that price. |
Distinguished as involving uncertainty of third party actions and market conditions, not applicable where profitability was found. |
| Salford City Council v Torkington [2004] EWCA Civ 1646 |
Damages assessment should include allowance for uncertainties and commercial risks when future loss depends on third party actions. |
Held to be fact-specific; discounting appropriate where prospects uncertain, but not where profitability is established. |
| Davis v Taylor [1974] AC 207 |
Principles on assessment of damages involving speculation and estimate. |
Referenced in Parabola Investments for context on damage assessment methodology. |
| Gregg v Scott [2005] UKHL 2 |
Clarification on loss of chance and damage assessment. |
Referenced in Parabola Investments; supports refined approach to quantifying hypothetical loss. |
| Davis v Powell Duffryn Associated Collieries Ltd [1942] AC 601 |
Reluctance of appellate courts to interfere with damages assessments involving speculation. |
Supported deference to trial judge's damage calculation in this case. |
Court's Reasoning and Analysis
The court carefully reviewed the factual findings from the previous trials, particularly those by HH Judge Levy QC and HHJ Dight, who had both found that the Plaintiff was a competent restaurateur and that the restaurant would have been successful but for the Defendant's breaches of covenant. The court emphasized the distinction between causation and quantum in loss of chance cases.
It was noted that loss of chance doctrine primarily addresses causation—whether the breach deprived the claimant of a real and substantial chance of a favorable event occurring—and that once causation is established, the assessment of damages involves quantifying loss based on the judge's findings.
The court rejected the Appellant's argument that a further discount should have been applied to the damages awarded to reflect the possibility that the Plaintiff might not have achieved the projected profits. The court held that where the judge has made a positive finding of profitability and success on the balance of probabilities, no additional discount for chance is appropriate.
Authorities such as Owners of the Ship "Front Ace" and Parabola Investments were applied to support this approach, emphasizing that the assessment of damages in such cases involves a reasoned evaluation of variables rather than a balancing of probabilities, and that appellate courts should be slow to interfere with such assessments.
The court also distinguished cases where discounts for loss of chance are appropriate—namely, where the loss depends on uncertain actions of third parties or market contingencies—from the present case, where the Plaintiff’s success was found as a matter of fact.
Accordingly, the court found no error of law in the approach taken by Judge Dight and upheld his findings of fact, which were not challenged on appeal.
Holding and Implications
The court DISMISSED the Defendant’s appeal against the assessment of lost profits.
The direct effect of this decision is that the Defendant remains liable to pay damages for lost profits as assessed by the trial judge without any reduction for the risk that the Plaintiff might not have achieved the projected profits. No new legal precedent was established; the decision reaffirms established principles distinguishing causation from quantum in loss of chance cases and confirms that a positive finding of profitability precludes additional discounting for commercial risks.