Recovering costs as damages

The recent decision in Herrmann v Withers LLP raises several textbook issues which arise in claims against professionals. The analysis of how to assess damages where a mitigation defence is successful is of particular interest.

The Herrmanns wanted to buy a house in Kensington which was marketed as having access to a communal garden. They instructed Withers LLP to act for them on the transaction. Their solicitor concluded that the owner of the house was entitled to access to the garden under the Kensington Improvement Act 1851. This was a reasonable conclusion but the issue was not clear-cut. In 2009, once the Herrmanns had bought the house, objections to access were raised by the garden committee. The Herrmanns began proceedings to assert their right, but in 2010 the court held that they were not entitled to access to the garden under the Act.

Professional negligence action

The Herrmanns then began proceedings against Withers. The judge held that Withers had been negligent in advising in unequivocal terms. They should have warned that there was scope for argument as to whether they would be entitled to use the garden. He accepted the Herrmanns’ evidence that they would not have bought the house had they been aware of this uncertainty.

Withers argued successfully that the Herrmanns had failed to mitigate their loss. The garden committee offered them a licence to use the garden but, instead of negotiating with the committee, they chose to litigate over whether they had a right of access under the Act. The judge held that they should have pursued the committee’s proposals and that, had they done so, they would probably have been granted a 50-year licence for £25,000 in 2009.

Failure to mitigate and assessment of damages

The judge held that the award of damages should compensate the claimants for the loss they would have suffered had they mitigated. This loss included £65,000 in respect of the difference between the value of the house with a statutory right and its value with a 50-year licence, plus related stamp duty and interest. It also included the cost of the licence and the legal costs, estimated at £10,000, which the Herrmanns would have incurred in negotiating with the committee. A Farley v Skinner award of damages for loss of amenity and disappointment was appropriate although the £50,000 claimed was way off target. £2,000 was sufficient, particularly given that the Herrmanns could have gained access to the garden in 2009.

Assessment on standard or indemnity basis?

The Herrmanns were also entitled to recover damages in respect of legal costs reasonably incurred by them up until the end of May 2009 when they decided to persist in their unsuccessful action against the committee. The judge concluded that these costs should be assessed on the indemnity basis and that the standard assessment approach adopted in 1996 in British Racing Drivers’ Club Ltd v Hextall Erskine & Co is no longer appropriate. Following the introduction of the concept of proportionality under the CPR, costs will not necessarily be recoverable on the standard basis even if they were reasonably incurred. Once the new broader brush proportionality test is introduced next year as part of the Jackson reforms, recovery on the standard basis will be even less predictable. It will become harder in these circumstances to argue that assessment on the standard basis fully compensates the claimant.