Court of Appeal upholds decision to reduce damages to reflect benefit claimant received as a result of steps taken to mitigate its loss

Where a company was delayed in developing a commercial property due to its director's breaches of fiduciary duty and its solicitors' negligence, the Court of Appeal upheld a decision reducing the company's damages to reflect the benefit it had received as a result of steps taken to mitigate its loss – namely the increased capital value of the revised development scheme the directors had decided to put in place: Barrowfen Properties Ltd v Patel [2025] EWCA Civ 39.

The decision is a helpful illustration of the courts' approach to the difficult question of when benefits attained by a claimant following a breach do (or do not) need to be taken into account in assessing damages. It shows that the principles established in the leading cases in this area, which were decided in a contract law context, apply equally when assessing damages for negligence or breach of fiduciary duty. The key question will be what was caused by the breach or the steps taken to mitigate the loss arising from it – as opposed to the claimant's own independent business decisions.

The decision also demonstrates the complexities that can arise in calculating damages for a loss of a chance where the claimant's loss depends on matters that were not within its control – such as, in this case, whether the company would have been able to complete the relevant property development sooner if it had not been for the breaches of duty.

Here, the Court of Appeal upheld the High Court's decision that the benefit obtained by the claimant (the increased capital value of the revised development) should be deducted from the lost revenue before (rather than after) applying the percentage to reflect the lost chance. At the permission stage, however, it was suggested that the defendants should be given the opportunity to challenge the relevant Court of Appeal authority on this point in the Supreme Court, so it will be interesting to see if the defendants seek to take this aspect further.  

Background

The underlying dispute arose out a battle for control for the claimant company ("Barrowfen") between the first defendant, Girish Patel, who was managing director of Barrowfen until December 2015, and members of his family, Suresh (his brother) and Prashant (his nephew). The second defendant, S&B, were instructed by Girish to act as solicitors for Barrowfen.

Barrowfen's main asset was a large commercial property in Tooting in South London (the "Property"). Barrowfen had applied for permission to develop the Property (including the construction of a hotel, supermarket, retail units and student accommodation). The application (in amended form) was approved in 2014 (the "Amended Original Development"). However, before approval had been granted, Prashant and Suresh raised concerns about Girish's management of Barrowfen. Ultimately, in December 2015, Suresh and Prashant wrested management of Barrowfen from Girish's sole control.

Girish then put into motion a complex plan to take back control. He incorporated a new company – the third defendant ("Barrowfen II") – which took assignment of a substantial loan that had been made to Barrowfen. Having resigned as a director of Barrowfen, Girish then caused Barrowfen II to call in the loan, which triggered Barrowfen to go into administration. Girish's intention appears to have been to acquire the Property from the administrators.

The plan was ultimately unsuccessful and Prashant and Suresh were able to take Barrowfen out of administration and regain control in September 2016. By that point, however, the anchor tenant for the Amended Original Development had pulled out and Barrowfen ultimately pursued a Revised Development (with residential units rather than student accommodation), which was completed in April 2021. The Revised Development was more costly than the Amended Original Development but (as the judge found) was ultimately more profitable for Barrowfen.

Barrowfen sued Girish for breaches of his director's and fiduciary duties, and S&B for negligence in failing to advise Barrowfen properly in relation to Girish's conflict of interest.

The High Court (Mr Justice Leech) found that Girish had dishonestly breached his duties to Barrowfen and that S&B had acted negligently (though not dishonestly). He held that:

1. but for the initial breaches of duty, Suresh and Prashant would have taken control of Barrowfen by May or September 2014, in which case there was a 60% chance that they would have successfully pushed forward and completed the Amended Original Development by the end of August 2016; and
2. but for the later breaches (relating to the plans to regain control), Barrowfen would have avoided administration and pressed on with the Amended Original Development, in which case there was an 80% chance it would have been completed by the end of December 2017.

Barrowfen's claim was therefore for the loss of a chance to obtain monthly rentals from the Property for the period of delay. The judge quantified the net rentals that would have been obtained as (approximately) £4.1 million if the Amended Original Development had completed in August 2016 or £2.7 million if it had completed in December 2017.

In calculating damages, however:

1. He reduced Barrowfen's damages to reflect the increased capital value of the Revised Development as compared to the Amended Original Development, which he calculated as £2.5 million, and without taking into account Barrowfen's future financing costs. Barrowfen appealed on this point.
2. He made the deduction in respect of increased capital value before applying the loss of chance percentage, rather than after. S&B cross-appealed on this point.

Decision

The Court of Appeal dismissed both the appeal and cross-appeal on these issues, unanimously agreeing with the approach adopted by Mr Justice Leech. Snowden LJ gave the leading judgment, with which Newey and Lewis LJJ agreed.

Credit for the increased capital value

Snowden LJ provided a helpful overview of the general principles in relation to compensation, mitigation and accounting for benefits received as a result of mitigating steps as established in the leading contract law cases British Westinghouse v Underground Electric [1912] AC 673 and The New Flamenco (Fulton Shipping v Globalia) [2017] UKSC 43 (considered here). While those were breach of contract cases, Snowden LJ noted that there was no suggestion that a different approach should apply in cases of breach of fiduciary duty or professional negligence as was the case here.

Snowden LJ agreed with the judge that the key question was one of causation. Summarising the principle, he said: "the benefits that must be taken into accounts are those which are caused by the breach of duty or negligence for which compensation is sought, or which are caused by the actions reasonably taken to mitigate the losses caused by those breaches of duty or negligence."

In the present case, the primary claim for damages was for loss of the chance of receiving income from the Property. The High Court had found that, as a result of the delays caused by the breach, Suresh and Prashant had reasonably taken the view that the Amended Original Development was no longer commercially desirable and it was appropriate for Barrowfen to incur costs in formulating and implementing the Revised Development.

In those circumstances, the implementation and completion of the Revised Development formed part of the same continuous course of conduct to deal with the situation caused by the breaches. It followed that credit must be given for the benefit received as a result, ie the increased capital value of the Revised Development as compared to the Amended Original Development. 

In assessing the amount that credit, the judge had adopted a capital valuation as at the time of completion of the Revised Development Scheme. Barrowfen argued that this was incorrect, since it had no intention to sell the property. Accordingly, it contended, its continuing costs of borrowing and lost investment income (as a result of capital being tied up in the Revised Development Scheme) should be applied to offset the increased capital value. In effect, it argued that the Revised Development had actually left it worse off in the long run than if it had carried out the Amended Original Development.

Snowden LJ roundly rejected this argument, agreeing with the judge's view that "the causative effect of the breaches of duty by Girish and S&B came to an end on the completion of the development". In short, on completion of the Revised Development, it was open to Barrowfen to retain or sell the property, and this was its own commercial choice. It followed that the costs incurred after that point were "no longer part of a continuous course of conduct to deal with situation in which it found itself as a result of the breaches". Barrowfen was not entitled to recover the adverse consequences of its further commercial decisions as regards the Property from the defendants.

Application of loss of chance percentages

In finding that the credit of £2.5 million for increased capital value should be applied before applying the loss of chance multiplier, the judge had found that there was no relevant distinction between the present case and Hartle v Laceys [1999] Lloyd’s Rep PN 315. In that case, in awarding damages for the lost chance of selling a property free of a restrictive covenant, the Court of Appeal had held that the actual sale price obtained for the property should be deducted from the potential higher sale price before applying the relevant percentage to reflect the chance of achieving that higher price. That reflected the fact that the claimant had lost a chance of achieving the higher price, but did not lose the property itself.

In granting permission to appeal, Lewison LJ had expressed the view that he could see no basis for distinguishing Hartle v Lacey, and did not think that an appeal had any real prospect of success, but since the court in that case had found the point difficult he considered that S&B should be given the opportunity to raise the issue in the Supreme Court. On that basis, Barrowfen objected that the Court of Appeal should simply dismiss this aspect of the cross-appeal, and leave S&B to apply to the Supreme Court for permission to appeal. However, the Court of Appeal did not take that course and heard argument on the point.

Ultimately, however, it agreed with the judge's approach that, on the facts of this case, it was necessary to apply the credit before applying the loss of chance multiplier.

This flowed from an analysis of the counterfactuals in which there had been no breaches of duty or negligence. The High Court had found that the cumulative chance that Barrowfen would have carried out the Amended Original Development was 92% - calculated as a 60% chance that it would have completed by August 2016, and if not then an 80% chance (ie 80% of a 40% chance, or 32% overall) that it would have completed by December 2017.

That meant there was, however, an 8% chance that Barrowfen would not have completed the Amended Original Development at all. In those circumstances, the probability was that the Revised Development would have proceeded eventually. There was therefore an 8% chance that the increase in capital value would have occurred anyway and could not be said to have been caused by the breach.

Arithmetically, if the court were to apply the credit for the increased capital value after applying the loss of chance multiplier, as contended by S&B, it would in effect be giving credit for the benefit even in circumstances where it was not caused by the breach. That was not correct as a matter of principle, and the cross-appeal was accordingly dismissed.

Snowden LJ also agreed with the judge that the case was indistinguishable from Hartle v Lacey. He noted that the key to the court's reasoning in that case was the "characterisation of the case as one in which the negligence of the defendant caused the claimant to lose the opportunity to get the difference been the higher price of the intended sale to the developer and the lower price of the sale that actually took place later."

In this case, the £2.5 million credit represented the difference between the developer's profit that Barrowfen would have been made if it had carried out the Amended Original Development and the developer's profit it actually made. In Snowden LJ's view, this equated to the difference between the lost and actual sale values that were in issue in Hartle v Lacey. Accordingly, as in that case, a percentage factor had to be applied to reflect the chance that this profit would have occurred.