Barrowfen Properties Ltd v Patel & Ors

Factual and Procedural Background

The appeals arise from three judgments by Judge Leech: the Main Judgment on liability, causation, and quantum delivered on 21 July 2021; the Reserved Matters Judgment on reserved issues delivered on 22 June 2022; and an ex tempore Interest Ruling at a consequentials hearing on 24 May 2023.

The Claimant company ("Company A") appeals against the decision in the Reserved Matters Judgment which reduced its award of equitable compensation for breach of fiduciary duty against the First Defendant ("Defendant 1") and damages for negligence against the Second Defendant firm of solicitors ("Company B") by approximately £2.5 million. This reduction reflected the increased capital value of a revised development scheme completed at a freehold commercial property owned by Company A in The City (the "Property").

Company B cross-appeals on two grounds: (i) whether the Judge erred in deducting the increased capital value before applying a loss of chance percentage to the compensation calculation, rather than after; and (ii) whether part of the Judge's award of interest was incorrect.

Defendant 1 did not participate in the appeals, with interests largely aligned to Company B.

The background involves a complex family dispute over the management and control of Company A, owned equally by three trusts/companies controlled by Defendant 1's family members. Defendant 1 acted as managing director under delegated authority. The principal asset is the Property, acquired in 1984, with initial planning permission granted for a development scheme (the "Amended Original Development Scheme").

Disputes arose among family members from 2013, including attempts by Defendant 1 to retain control and prevent appointment of additional directors. Defendant 1 engaged Company B as solicitors. Allegations included dishonest breaches of fiduciary duty by Defendant 1 and negligence by Company B for failure to advise on conflicts of interest.

The Judge divided the claims into "Company Claims" relating to manipulation of the company register and prevention of director appointments, and the "Administration Claim" concerning a plan by Defendant 1 to put Company A into administration to acquire the Property through a related company ("Company A II").

Following administration and court directions, control of Company A was returned to other family members, who then proposed a Revised Development Scheme, which was more expensive and required additional financing and equity investment. The Revised Development Scheme was completed in April 2021, replacing the earlier scheme.

At trial, the Judge found Defendant 1 had dishonestly breached duties and Company B had acted negligently but not dishonestly. The Judge assessed loss of chance percentages relating to control of Company A and commencement of the Amended Original Development Scheme, and calculated damages for lost rental income and costs.

The Judge also considered the increased developer's profit from the Revised Development Scheme compared to the Amended Original Development Scheme, concluding that Company A must give credit for this benefit as part of a continuous transaction caused by the breaches.

The Reserved Matters Judgment addressed further arguments on the credit for increased developer's profit and the timing of deductions and loss of chance application, confirming the approach taken in the Main Judgment. The Interest Ruling dealt with the period for which interest as damages should run and resolved disputes over interest payments and calculations.

Legal Issues Presented

1. Whether the award of equitable compensation and damages should be reduced to reflect the increased capital value of the Revised Development Scheme completed at the Property.
2. Whether the deduction for increased developer's profit should be made before or after applying the loss of chance percentage in calculating damages.
3. Whether the interest as damages should run until completion of the Revised Development Scheme or until the Reserved Matters Judgment date.
4. Whether the Judge erred in ordering payment of a specific sum of interest beyond the previously agreed statutory interest.

Arguments of the Parties

Appellant's Arguments (Company A)

• The Judge wrongly assumed a notional sale of the Property when assessing benefits from the Revised Development Scheme, despite uncontested evidence that Company A intended to hold the Property as a long-term investment.
• The assessment should have accounted for future financing costs over the expected 25-year life of the development, which would negate the increased developer's profit credited against damages.
• The correct approach was to evaluate benefits and disbenefits of mitigation over the full holding period, consistent with established case law.
• The Judge’s approach conflicts with case law on betterment, which permits not giving credit for notional capital gains where there is no plan to sell the asset.
• The Judge improperly treated Company A’s decision to hold the development as a separate transaction, contrary to the finding that the Revised Development Scheme formed part of a continuous transaction caused by breaches.
• The measure of loss awarded (lost net rental income) is inconsistent with the Judge's refusal to assess damages on the basis that the Revised Development Scheme would be held as a long-term investment.

Cross-Appellant's Arguments (Company B)

• The Judge erred in deducting the credit for increased developer's profit before applying the loss of chance percentage; the deduction should be after.
• The Judge was wrong to order payment of £520,014 in interest, as it was calculated incorrectly by applying percentages to the principal rather than the interest as damages, and by assuming receipt of income after completion of the Revised Development Scheme.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673	Principles of mitigation of loss and credit for benefits obtained from reasonable mitigation steps.	The Court applied the principle that damages must reflect both losses caused by the breach and benefits obtained from mitigation, treating the Revised Development Scheme as a reasonable mitigation step requiring credit for benefits.
Fulton Shipping Inc v Globalia Business Travel SA [2017] 1 WLR 2581	Requirement to give credit for benefits caused by the breach or mitigation, focusing on causation rather than similarity of benefit and loss.	The Court adopted the causation approach, holding that benefits must be causally linked to the breach or mitigation; applied to reject Company A's argument that future financing costs should offset the increased developer's profit.
Hartle v Lacey [1999] Lloyd's Rep PN 315	Assessment of damages for loss of chance, including order of deduction and application of percentage chance.	The Court followed the approach that deductions for actual benefits should be made before applying the loss of chance percentage, confirming the Judge’s method of calculation.
Primavera v Allied Dunbar [2003] PNLR 12	Distinction between collateral benefits and benefits caused by the breach.	The Court relied on the principle to determine that the increased developer's profit was not collateral but part of a continuous transaction caused by the breach.
Needler Financial Services v Taber [2002] 3 All ER 501	Determining whether profit is part of a continuous transaction caused by breach of duty.	The Court adopted the guidance that the increased developer's profit was part of a continuous transaction initiated by the breaches.
Harbutt's Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447	Betterment principle and exceptions where no credit is required for replacement assets.	The Court distinguished this case, holding it inapplicable as the situation did not involve repair or replacement of damaged property but loss of opportunity and mitigation by a revised development.
Lagden v O'Connor [2004] 1 AC 1067	Application of betterment and credit for benefits derived from mitigation.	The Court applied the principle that benefits obtained from mitigation must be credited unless there was no choice but to incur the loss, supporting the Judge's approach.
The Baltic Surveyor [2002] 1 Lloyd's Rep 623	Analysis of betterment and credit for monetary or measurable benefits.	The Court considered betterment principles and supported credit for measurable benefits from mitigation, consistent with the Judge's findings.
Thai Airways International v KI Holdings [2016] 1 All ER (Comm) 675	Clarification of monetary benefit in mitigation and credit for such benefits.	The Court examined the nature of benefits to be credited, supporting the view that measurable monetary benefits from mitigation must be accounted for.
Novoship (UK) Ltd v Mikhaylyuk [2013] EWHC 89 (Comm)	Post-judgment interest on pre-judgment interest awards under Judgments Act 1838 and CPR 40.8(2).	The Court referenced this authority in deciding that post-judgment interest on the interest as damages award could run from the earlier judgment date.
Ministry of Defence v Wheeler [1997] 1 WLR 637	Assessment of damages for lost opportunity considering entire picture including capital appreciation.	The Court applied the principle that the value of lost opportunity must be assessed by comparing lost income with capital appreciation, supporting the Judge's approach.

Court's Reasoning and Analysis

The Court thoroughly analysed the principles of mitigation, causation, and loss of chance in the context of breach of fiduciary duty and negligence.

It confirmed that damages are compensatory and must reflect both losses caused by breaches and benefits obtained from reasonable mitigation steps, referencing the foundational case British Westinghouse. The Revised Development Scheme was found to be a reasonable mitigation step taken by Company A to reduce losses resulting from delays caused by Defendant 1 and Company B.

The Judge's approach to crediting the increased developer's profit as part of a continuous transaction caused by the breaches was upheld. The Court rejected Company A's contention that future financing costs over the expected 25-year holding period should offset this benefit, reasoning that once the development was complete, the decision to hold or sell the Property was an independent commercial choice, not causally linked to the breaches.

The Court emphasised the importance of causation in determining which benefits must be credited, relying on Fulton Shipping to distinguish benefits causally linked to the breach or mitigation from collateral benefits arising independently.

Regarding the application of loss of chance percentages, the Court agreed with the Judge's method of deducting the increased developer's profit before applying the percentage. This approach aligns with the reasoning in Hartle v Lacey, ensuring that only the proportionate loss caused by the breach is compensated.

On the interest as damages, the Court clarified the distinction between interest as damages (compensating for loss of use of money) and statutory interest under the Judgments Act 1838. It found that the Judge correctly awarded interest as damages until the Reserved Matters Judgment date, and statutory interest thereafter until payment, but concluded that the Judge's order for additional interest payments was excessive and should be reduced accordingly to avoid double recovery.

Holding and Implications

The Court DISMISSED Company A's appeals against the credit for the increased developer's profit and the application of loss of chance percentages, affirming the Judge's approach as legally correct and factually supported.

The Court DISMISSED Company B's appeal regarding the timing of the deduction of the credit but ALLOWED its cross-appeal on the interest award to the extent of reducing the additional interest payment ordered to avoid double recovery.

The direct effect is that Company A's damages award stands with the specified adjustments to interest payments. No new precedent was established, but the judgment reinforces established principles on mitigation, causation, and loss of chance in breach of fiduciary duty and negligence claims, particularly in complex commercial development contexts.