Moda v Gateleys: Testing the Boundaries of Loss of Chance Claims

21.01.20

Introduction

An attempt was made in a recent English High Court professional negligence case to circumvent the normal rules for loss of chance claims. The decision provides some helpful insight into the correct approach to assessing loss of chance claims involving the hypothetical actions of the third party.

Loss of Chance

Where a claimant seeks damages for the loss of an opportunity to secure some asset that has been lost, the rules on loss of chance will normally apply. Those rules dictate that it is not always necessary to prove on a balance of probabilities that a loss has been sustained.

In such cases, the claimant will still have to first prove on a balance of probabilities what he or she would have done, had they enjoyed the benefit of the lost opportunity. However, where the lost benefit depends, in part, on the hypothetical actions of a third party, the claimant does not have to prove on a balance of probabilities what that third party would have done. Instead, the claimant is only required to show that the chance of the third party taking the relevant steps was “real or substantial”.

Provided that this relaxed test can be satisfied, causation will be established. The likelihood that the third party would actually have acted as the claimant maintains will then inform the court’s assessment of the value of the lost opportunity. For example if the claimant proved there was a 49% chance that an investment would have yielded a profit of £10,000, the value of the lost opportunity might reasonably be assessed at £4,900. If, however, a balance of probabilities test applied, the claimant would have failed to prove it was more likely than not that they would receive anything.

The Facts of the Case

In Moda International Brands Ltd v (1) Gateley LLP and (2) Gateley Plc [2019] EWHC 1326 (QB) the claimants, Moda, blamed their solicitors for a loss of profits arising from the proposed conversion of a former Odeon cinema in Nottingham into student accommodation. Moda claimed that they had lost the opportunity to negotiate a share of the profits, after their solicitors failed to advise them of a proposed amendment to the joint venture agreement which would deny them a share of the profits from one of two plots of land under development. As a result, Moda did not have an opportunity to resist the amendment. The solicitors’ omission came to light several years later, when Moda’s request for a 35% share of the profits from the second plot was refused.

The Issues

Unsurprisingly, the court agreed with Moda that the solicitors were in breach. However, the decision raised interesting questions about what Moda had to do to establish that the solicitors’ negligence had caused a loss. It was accepted that Moda had to establish: (1) how they would have attempted to negotiate the profit-sharing clause, had they received appropriate advice from Gateleys; and (2) how the other developer would have responded.

It was agreed between the parties that to succeed, Moda had to prove on a balance of probabilities that they would have insisted upon a share in the profits arising from both plots of land. However, there was disagreement on the standard of proof to be applied to evidence about how the other developer would have responded.  Moda argued that this was a claim for a loss of chance and if they could show there was a “real and substantial chance” of the other developer agreeing to share the profits from the second site, causation would be established.

The solicitors disagreed, arguing that the doctrine of loss of chance should not apply because they had cited the other developer’s principal and his evidence that he would not have agreed with Moda removed the uncertainty which the doctrine of loss of chance was intended to deal with. There was therefore no justification for relaxing the ordinary rules of causation. Whether the other developer would have agreed should be judged, argued the solicitors, on the balance of probabilities.

The Outcome

The solicitors’ attempt to get around the law on loss of chance was unsuccessful. The court held that the law on loss of chance was not just a means of bridging an evidential divide, left by an absent third party witness. The rationale for loss of chance has more to do with the inherent unreliability of evidence about hypothetical actions and responses, particularly when given by third parties. The strong implication is that witnesses can only really speculate in answer to such questions and judges should be careful not to put too much stock in their answers.

The judgment also emphasises that there is a “distinction between the level of engagement of a third party and a party in litigation” and that third party witnesses are often of less assistance to the courts when giving evidence. It was perhaps significant that the third party witness in Moda was himself a reluctant and unhelpful participant in the trial and the court did not find his evidence credible.

Having concluded that the solicitors acted negligently and that the law on loss of chance ought to apply in the normal way, the judge in Moda found that there was a real and substantial chance of the other developers agreeing a profit-sharing clause that was more advantageous to Moda, so causation was established. He then considered how best to quantify the claim and held that, when quantifying a lost opportunity, more than one potential outcome should be calculated. He recognised three potential outcomes in the case before him, two of which would have resulted in losses to Moda. The combined total of those losses, discounted to reflect the percentage chance of occurrence in each case, formed the sum which the court awarded in damages to Moda.

In the end, given the court concluded that the third party witness lacked credibility, it was well for the solicitors that the court applied a loss of chance approach. Had it applied a balance of probabilities test, it is quite possible that they would have been liable for 100% not 65% of the claimed loss.

Analysis

Moda tested the boundaries of the law on loss of chance claims. The decision confirms that the rules on loss of chance cannot be avoided, simply by citing witnesses who can give evidence about what they consider the outcome would have been. That evidence might, of course, be very significant in the court’s determination of such a claim, but it will always be assessed in terms of the law on loss of chance.

Whether this decision will benefit claimants or defenders in future will vary from case to case. The consistent application of the rules on loss of chance will be helpful to those pursuing uncertain claims, who would otherwise struggle to prove causation and loss on a strict balance of probabilities. By the same token, however, a loss of chance assessment will dilute the potential value of a more promising claim, which might otherwise have been established on a balance of probabilities. The key take-away from Moda is perhaps that there will likely always be some deduction to reflect the inherent uncertainty of predicting any particular outcome.