Mulvenna v Royal Bank of Scotland Plc [2003] EWCA Civ 1112

Case No A3/2003/0091Neutral Citation Number EWCA [2003] Civ 1112
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEENS BENCH DIVISON
Mr Justice Maddocks
Venue Royal Courts of JusticeDate Friday 25 th July 2003
Strand,
London, WC2A 2LL
Before
LORD JUSTICE WALLERLORD JUSTICE CARNWATHSIR ANTHONY EVANS+
Between
MulvennaAppellantRoyal Bank of Scotland plcRespondent
(Transcript of the Handed Down Judgment ofSmith Bernal Wordwave Limited, 190 Fleet StreetLondon EC4A 2AGTel No: 020 7421 4040, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr Anthony Elleray QC (instructed by Albinson Napier solicitors) for AppellantMr Mark Cawson QC (instructed by Cobbetts solicitors) for Respondent
JudgmentAs Approved by the CourtCrown Copyright ©
[1]This appeal is concerned with the question whether Mr Terrence Mulvenna (TM)’s claim against the Royal Bank of Scotland (RBS) should be summarily dismissed. By a judgment dated 18th July 2002 District Judge Needham decided that it should not and that the case should go to trial, and he refused permission to appeal. HH Judge Howarth granted permission to appeal, and by a judgment dated 19th December 2002 HH Judge Maddocks allowed the appeal and dismissed the action. Jonathan Parker LJ applying CPR 52.13 [ the rule relating to second appeals]refused permission to appeal on paper. Rix LJ on 16th April 2003 on the renewed application granted permission to appeal clearly troubled about the fact that the District Judge having dismissed RBS’ application, the appeal from HH Judge Maddocks was in reality TM’s first appeal, and indeed troubled by the fact that the judge having accepted that RBS were in breach of contract had dismissed the claim on the basis that TM could not establish any damages and could not establish causation.[2]The approach of the court to an application for summary disposal of a case under the CPR has been considered recently in the House of Lords. Lord Hope in Three Rivers DC v Bank of England [2001] 2 All ER HL 513 at 541 having cited dicta of Lord Woolf in Swain v Hillman [2001] 1AllER 91 at 92 and 94-95, and May LJ in Purdy v Cambran (unreported) 17th December 1999: court of appeal (civil division) transcript no. 2290 of 1999, said this:- “[94] For the reasons which I have just given, I think that the question is whether the claim has no real prospect of succeeding at trial and that it has to be answered having regard to the overriding objective of dealing with the case justly. But the point which is of crucial importance lies in the answer to the further question that then needs to be asked, which is - what is to be the scope of that inquiry? [95] I would approach that further question in this way. The method by which issues of fact are tried in our courts is well settled. After the normal processes of discovery and interrogatories have been completed, the parties are allowed to lead their evidence so that the trial judge can determine where the truth lies in the light of that evidence. To that rule there are some well-recognised exceptions. For example, it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks. In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of court as soon as possible. In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based. The simpler the case the easier it is likely to be take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents without discovery and without oral evidence. As Lord Woolf said in Swain v Hillman, at p 95, that is not the object of the rule. It is designed to deal with cases that are not fit for trial at all.”[3]It is clear that District Judge Needham and HH Judge Maddocks had the above principles in mind. But a vast amount of material was placed before the court in order to enable the Bank to argue whether there was the agreement alleged by TM to exist as between TM and the Bank, and to enable an assessment to be made as to whether factually TM could make out the case that he sought to make out on causation. Included in that material were notes made by bank staff of meetings as though that was evidence on which the court should rely in preference to the evidence of TM.[4]There maybe circumstances in which a court considering a summary disposal may be prepared to examine quite extensive amounts of material in order to see whether a summary disposal is possible where the alternative is many months of trial and the Three Rivers case was such a case, but on the whole it is quite inappropriate to face the court with a welter of material and ask the court on an application for summary judgment to hold a case unarguable on its facts. The evidence of a claimant on an application for summary judgment by a defendant should not be rejected unless it can be clearly and easily shown that it is not reasonably capable of belief. That is a very high threshold. It will rarely be reached if it is necessary to conduct a minute examination of correspondence and minutes[5]As to whether he identified the appropriate point and /or came to the right answer I will return. But HH Judge Maddocks was right in this case not to seek to resolve factual issues, and to see whether there could be identified a point which did not turn on disputed facts by reference to which the Bank were entitled to say that however the evidence turned out at a trial they would succeed. That is the approach that I would intend to take.[6]I intend therefore to set out the case that TM asserts that he would establish on the facts at the trial if there was one, and to consider simply whether even on that case RBS would succeed in defeating the claim for damages that TM makes.[7]I believe TM’s case can be put quite shortly. He asserts that he will establish the following:-(i) A lengthy background of relations with the Bank when they willingly loaned him or companies in which he had an interest monies to develop properties, with a successful, by which I mean a profitable outcome;(ii) A problem with borrowing arranged for one company (Counterfeature Limited) in 1992, but despite a reneging on that borrowing, the Bank allowing an increase in his personal overdraft to enable the development to take place; this lead to TM being put in the hands of RBS’s Specialist Lending Services Department (SLS) until a refinancing arrangement could be worked out. The object of any refinancing arrangement was to achieve a situation where he could be returned to “the mainstream banking operation” (see the statement of Miss Hope at paragraph 3);(iii) As part of the refinancing arrangement the Bank by letter on 10th February 1995 to TM at his company Financial Management Systems Limited (FMS) confirmed that if TM was returned to mainstream banking it would consider lending to enable TM or one of his companies to develop what was called HMR/PMR. The letter said:- “Further to our meeting I write with regard to the development of Heaton Moor Road through Financial Management Systems Limited. Whilst I am not in position to provide a formal offer letter agreeing to the future financing of the development, I can confirm that, in principle, the Bank would look to assist subject to normal Bank criteria, at that time, being met.”(iv) Also as part of the refinancing the Bank agreed that TM’s current account would be recredited with excess interest or charges raised in reference to “unauthorised” borrowing or unpaid cheques or referrals (the Refund Agreement). [The Bank contend that this agreement was not made in these terms, but accept that for summary judgment purposes it can be assumed.](v) The significant terms of the refinancing arrangement were confirmed by a letter signed by the Bank and were as follows:- “1. The Overdraft Limit is £80,000. For the purpose of calculating the amount outstanding under the Facility the total of cleared credit balances on account 14306118 in your name will be netted against the total of the cleared debit balances on any such accounts. 2. The Facility will be used for the purposes of your business. 3. (a) The Facility is repayable upon demand in accordance with normal banking practice. (b) Without prejudice to its overriding right to call for repayment on demand it is the Bank’s present intention that the Facility be available until 31st October 1995 and will be reviewed on that date but may be extended by mutual agreement. The Bank will always give notification of its intention to place a restriction on your ability to make further drawings on the Facility. 4. Interest will be charged at 21/2% per annum over the Bank’s Base Rate, (which is currently 6.75%) subject to a minimum charge of 61/4% per annum. You will be given at least one month’s notice of any change in this margin over Base Rate. Interest will be calculated both before and after demand, decree or judgment on a daily basis on the cleared debit balance and will be applied quarterly on the penultimate business day of March, June, September and December. 5. An arrangement fee of £1,000 is payable and will be debited to your account on 3rd March 1995, or shortly thereafter.”(vi) If the Bank had refunded the correct figure in March 1995 under the Refund Agreement, the overdraft figure of £80,000 would have been exceeded, but TM asserts the Bank would have agreed the facility at £90,000, and that would have returned him to normal mainstream banking arrangements.(vii) If normal mainstream banking arrangements had been in place, TM would have brought the HMR/PMR development back to the Bank and the Bank would (as it had indicated in principle) have provided borrowing to the extent of £500,000 for that development;(viii) Being unable to bring the HMR/PMR scheme to fruition lead TM and his partner Mr Lamb to dispose of HMR on the best terms available making a profit of only some £8,000, whereas fruition would have entailed profits in the region of £400,000.(ix) The Bank failed to refund the correct figure until 1998. The Bank then did lend for the PMR project alone, but the delay in refunding caused the delay in that development leading to loss of rents for the period of delay.(x) Thus TM claims as damages for breach of the obligation to refund, the loss of profits that would have been made on HMR/PMR and/or the losses for the delay on PMR.[8]TM asserts in a draft amended pleading that the following were implied terms of the refinancing arrangement:- “(4) The Defendant would permit the Claimant adequate overdraft facilities on the terms of the overdraft facility letter other than as to limit and in excess of the limit, insofar as the balance of his residual borrowing following first the effecting of the transfers set out in Schedule 4 to him and secondly fulfilment by the Defendant of the Refund Agreement; neither the Claimant nor the Defendant could know the precise level of adequate overdraft, which ahd been estimated by the Claimant as hereinbefore alleged since April 1994 at £80,000, until the transfers were effected and the Defendant had calculated and made the refund; (5) The Defendant would in principle seek to assist in the future finance of HMR/PMR on normal banking criteria; (6) The Defendant would deal with the Claimant as in normal banking relation with it, rather than as the subject of specialised lending. The terms of subparagraph (4) was implied as a matter of necessity or business efficacy since the adequacy of the overdraft could not be agreed and/or ascertained until the parties had effected the transfer and the Defendant had calculated and made the refund. The term at subparagraph (5) was concluded or evidenced by the letter of 8th February 1995 (paragraph 18 above). The terms at subparagraph (6) above was implied of necessity or of business efficacy, as such was the purpose of the refinancing.”[9]Mr Cawson QC submits that the amended pleading for which permission has not been granted should be ignored. He makes that submission on the basis that permission has not been sought and on the basis that if it was the court would not allow the amendment to plead the suggested terms. In my view the term sought to be implied as (4) could never be contemplated. It suggests by implication an obligation to agree to vary the express terms of the facility letter. The term (5) is said to have been concluded by the letter of 8th February which I would take to refer to the letter of 10th February. There is no room for imposing any obligation beyond the language of that letter. As regards term (6) the implication could not go beyond the express terms; the object of the refinancing agreement if it was complied with was to bring TM back into mainstream banking and remove him from SLS. It was not and could not be an implied term that TM would be treated as in normal banking relations with the Bank even if there was non-compliance. Mr Elleray QC in his submissions to us placed little reliance on the suggested proposed amendments. That was clearly right since in so far as the amendments were seeking to go beyond the express terms of the refinancing agreement, they would not be allowed on any application to amend.[10]It is the terms of the refinancing arrangement together with the letter of 10th February and the terms of the refunding agreement against which TM’s claim must be considered.[11]There are as I see it two hurdles for TM to overcome if he is to succeed in his claim. They can be examined under the heads of causation and remoteness though the two concepts do overlap. I will examine the first aspect under the heading causation.

Causation

[12]There are two links in the chain of causation necessary for TM to establish if he is to recover loss of profits for HMR/PMR or PMR which I have underlined in my recital of TM’s case in paragraph 6 above. They both depend on the Bank being prepared to do things in relation to which they had no contractual obligation. That brings into play consideration of the following principle:- “The principle is that where the defendant has the option of performing a contract in alternative ways, damages for breach by him must be assessed on the assumption that he will perform it in the way most beneficial to himself and not in that most beneficial to the plaintiff.” McGregor para 386.[13]One question is exactly what that principle means – does it mean that for the purposes of assessing damages a contract breaker is entitled to insist on having been entitled to perform in a way which would have been contrary to his commercial interests during the currency of the contract ? Is the principle confined to cases where post breach or repudiation a contract breaker can insist that he would have only done that which he was contractually bound to do? How does the principle apply to a situation in which it is not the actual breach of contract in relation to which damages are being assessed to which the principle is being applied, but to the possible consequences for example of a past breach?[14]We were referred to Lavarack v Woods of Colchester Limited [1967] 1QB 278 and to passages in Mcgregor onDamages 16th edition particularly paragraphs 386 to 388. The position in Lavarack v Woods was that the plaintiff had been wrongfully dismissed. The bonus scheme from which he had benefited while employed had been cancelled but some employees still employed had received a rise in salary. He claimed, in relation to the period for which he would have been employed but for his dismissal, the salary which the employers were contractually bound to pay plus a sum to which his salary would probably have been increased on cancellation of the bonus scheme if he had continued to be employed. Lord Denning MR would have awarded damages in relation to the probable increases in salary but Diplock LJ and Russell LJ would not. Diplock LJ took the principle from Scrutton LJ in Abrahams v Reiach (Herbert) Limited [1922] 1KB 477. In an action for breach of contract “the defendant is not liable in damages for not doing that which he is not bound to do”. He cited various authorities and summarised the position at page 294 and 295 as follows:- “…..if the contract is broken or wrongly repudiated, the task of the assessor of damages is to estimate as best he can what the plaintiff would have gained in money or money’s worth if the defendant had fulfilled his legal obligations and had done no more. Where there is an anticipatory breach by wrongful repudiation, this can at best be an estimate, whatever the date of the hearing. It involves assuming that what has not occurred and never will occur has occurred or will occur, i.e. that the defendant has since the breach performed his legal obligation under the contract, and if the estimate is made before the contract would otherwise have come to and end, that he will continue to perform his legal obligations thereunder until the due date of its termination. But the assumption to be made is that the defendant has performed or will perform his legal obligations under his contract with the plaintiff and nothing more. What these legal obligations are and what is their value to the plaintiff may depend upon the occurrence of events extraneous to the contract itself and, where this is so, the probability of the recurrence is relevant to the estimate. ….. …………………. The events extraneous to the contract upon the occurrence of which the legal obligations of the defendant and the plaintiff thereunder are independent may include events which are within the control of the defendant: for instance, his continuing to carry on business even though he has not assumed by his contract a direct legal obligation to the plaintiff to do so. Where this is so, one must not assume that he will cut off his nose to spite his face and so control these events as to reduce his legal obligations to the plaintiff by incurring greater loss in other respects. That would not be the mode of performing the contract which is “the least burthensome to the defendant,””[15]Russell LJ at 298 summarised the position as follows:- “A plaintiff in an action for damages for wrongful dismissal can rely only on the fact that the defendant was obliged to carry out the contract sued upon. His prospects in terms of money or money’s worth resulting from the carrying out of the contract may be conditioned by the estimated impact of external events on the results of the carrying out. But it has never been held that the plaintiff can claim any sum on the ground that the defendant might after the repudiation date have voluntarily subjected himself to an additional contractual obligation in favour of the plaintiff. That is not the law, nor, with respect, do I think it would be in accordance with the sense of the matter so to hold: an employer whose attitude to the employee has reached the stage that he is prepared to sack him out hand is, so to say the least, an unlikely source of future generosity. I cannot find any support for the contrary propositions in the additional authority to which the Master of the Rolls makes reference.”[16]The cases, cited in McGregor in the paragraphs referred to exemplifying the principle, concern(a) damages for contracts for the sale of goods where there has been a failure to deliver, and where the court assesses damages on the basis of the lowest quantity of goods which the defendant could have delivered e.g. Re Thornett & Fehr [1921] 1KB 219;(b) in an action for wrongful dismissal, a refusal to award damages for the loss of an opportunity to appear at a famous theatre as the defendant had an option as to the theatres at which the plaintiff should appear Withers v General Theatre Corporation [1933] 2KB 536 CA;(c) the assessment of damages for repudiation of a charter party on the assumption that the charterers would have used all the lay time available to them so as to produce, since the freight was fixed, the least profitable result for the owners Spilliada Maritime Corporation v Louis Dreyfus Corporation [1983] Com.L.R. 268.[17]On the other hand in Paula Lee v Robert Zehil & Co [1983] 2 AllER 390 where a sole distributor, for the sale of the plaintiff dress manufacturers’ range of garments, had undertaken to purchase 16000 garments each season, had repudiated the contract with 2 years to run, Mustill J held that the defendants were not entitled to have damages assessed on the basis of a purchase of the plaintiffs’ cheapest garments. He held that while there was a freedom to chose and damages were to be assessed by the method of performance least unfavourable to the defendant, nevertheless the freedom of choice was limited to those methods of performance which could in all the circumstances be regarded as reasonable, and the parties could not have contemplated the ordering of all the same garments since one range would have been unsaleable and would have alienated the defendants wholesalers and killed the market.[18]The editors of McGregor also pass two other comments worthy of note. First they say:- “And if in Chaplin v Hicks [1911] 2KB 786 the defendant himself had been the person who was to judge the beauty contest, he could hardly have argued successfully that, in the circumstances that had happened, he would not have “opted” to give the plaintiff a prize.” And by a note they say:- “All these cases of defendant’s option are, naturally enough, contract cases. But problems raising the same issue can be mentioned in tort, e.g. the defendant’s servant negligently injures the plaintiff on her way to a beauty contest judged by the defendant or to an interview with the defendant for a lucrative post.”[19]My view is that the principle is concerned with assessing damages, and the benefit which the principle has in mind is a benefit which a defendant is entitled to look to for that purpose without regard to whether if the contract was actually being performed that is the way it would have been operated. In Spiliada if the contract were being performed the charters would not actually have used all the lay time available; in Withers it would have been in the commercial interest of the employer to put the actor in the most famous theatre and he would probably have done so for at least some of the period of employment. But in the assessment of damages the defendant has the benefit of not being obliged contractually to do these things. However a contract breaker cannot go outside the four walls of the contract. To do what the distributor in Paula Lee was trying to do would have been to do that.[20]Furthermore the principle does apply to consequences said to flow from the breach of contract. Withers is an example of that.[21]It seems to me that TM cannot in fact get over either of the hurdles identified by my underlining. In my view it is not arguable that the Bank would be acting outside the four corners of the facility in refusing a loan which it had at most obligated itself to consider in principle. It is thus entitled to have damages assessed on the basis that it was not obliged to make the loan. But this is not the key point in my view in this case. For one thing it will not of course affect TM’s ability to go to another lender. His inability to do that however is affected by the next point which in my view is key.[22]The Bank at all times treated TM as not complying with the facilities granted. Indeed it is the whole basis of TM’s claim that he could not put up the scheme relating to HMR/PMR either to the Bank or for that matter to a third party while the Bank so treated him. Unless the Bank were under an obligation to treat him otherwise than they did, there can be no claim. The question is whether there is any arguable case that but for the Bank’s breach he would have been within the facility, or any arguable case that they were contractually bound to extend the facility so as to bring him within it. It is common ground that even with a refund properly made by the Bank he was not within the facility. It is in my view unarguable that the Bank were contractually bound to extend the facility. The fact that he may have come within £10,000 of the appropriate level could have imposed no obligation on the Bank to change the level of the facility. The Bank are thus entitled on the basis of the above principle to insist on damages being assessed on the basis of the contract they made as opposed to the contract TM suggests he had a chance of persuading them to make..

Remoteness

[23]In the light of the above conclusions I will take this aspect shortly. The judge applied the reasoning of Lord Hoffmann in Banque Bruxelles SA v Eagle Star [1997] AC 191. He cited passages from pages 210-213 but the essence of the reasoning of Lord Hoffmann appears from the passage at page 220 as follows:- “The appearance of a cap is actually the result of the plaintiff having to satisfy two separate requirements: first, to prove that he has suffered loss, and secondly, to establish that the loss fell within the scope of the duty he was owed.” The judge held that the loss of the development if caused by the banks failure to make the new loan, fell wholly outside the scope of the duty under the refund agreement which was confined to refunding the money.[24]I prefer to approach what is in reality the same point by reference to the cases on remoteness. Normally a failure to pay money gives rise to no damages other than a possible obligation to pay interest for late payment. It may however be possible for some more extensive liability to be imposed. If that liability is to be imposed it must be by virtue of special circumstances being drawn to the attention of the payer of the money. But simply drawing the attention of the payer of the money to special circumstances, does not necessarily impose a liability on the payer to be responsible for damages flowing from the special circumstances to which attention has been drawn. The editors of McGregor consider this problem in paragraphs 272-274. They draw attention to the fact that there was a time when it was thought that if the special circumstances drawn to the attention of a party were to give rise to a claim in damages there had to be a term of contract dealing with those circumstances. That was shown to be wrong by Lord Upjohn in Czarnikow v Koufos [1969] 1AC 350 at 421-422. The matter was however further explored by Robert Goff J as he then was in The Pegase [1981] 1 Lloyds Reports 175. In that case Robert Goff J said at page 185:- “In the light of decided cases, the test appears to be: have the facts in question come to the defendant’s knowledge in such circumstances that a reasonable person in the shoes of the defendant would, if he had considered the matter at the time of making the contract, have contemplated that, in the event of a breach by him, such facts were to be taken into account when considering his responsibility for loss suffered by the plaintiff as result of such breach. The answer to that question may vary from case to case, taking into consideration such matters as, for example, the nature of the facts in question and how far they are unusual, and the extent to which such facts are likely to make fulfilment of the contract by the due date more critical, or to render the plaintiff’s loss heavier in the event of non-fulfilment.”[25]In paragraph 274 McGregor summarised the position as follows:
“However a defendant will still only be liable for damages resulting from special circumstances when those special circumstances have been brought home to him in such a way as to show that he has accepted, or is taken to have accepted, the risk. Not only must the parties contemplate that the damage resulting from the special circumstances may occur. But they must further contemplate that the defendant is taking the risk of being liable for such consequences should they occur.”
[26]It is thus an oversimplification to simply pose the question whether a loss if HMR/PMR could not be developed was within the contemplation of the parties when the refund argument was made. If TM was to succeed at the trial he would have to demonstrate that in addition to the special circumstances being drawn to the attention of the Bank, when the Bank agreed to refund, it accepted the risk, that if it did not do so it would be responsible for any loss of profits on HMR/PMR. That might just be an arguable proposition in relation to a failure to refund which had the effect of preventing TM coming back into mainstream banking. It is totally unarguable that the Bank should contemplate that a simple failure to refund would make them responsible for the risk of such losses.

Conclusion

[27]I would dismiss the appeal from HH Judge Maddocks. It is perhaps right to say that I do so on this basis. The only claim to damages appears to be by reference to HMR/PMR or PMR alone. Thus there appears to be no point in a trial relating to the question whether the Bank was under any liability at all. I would be prepared to hear argument as to whether the limitation on the strike out should relate to the damages claim alone or whether it is right to strike out the whole action.[28]I agree.

Sir Anthony Evans

[29]I agree with Waller LJ that this appeal must be dismissed, at least with regard to the disputed damages claim. I do so with some hesitation, because the legal issues of causation and remoteness with which it is primarily concerned are notoriously fact-sensitive, and it is only in exceptional circumstances, in my view, that the Court should to accede to an application for summary dismissal of a claim where these issues arise.[30]Some hundreds of pages of documentary evidence and what are described as “skeleton” arguments have been placed before us, but it is axiomatic that the Court should not be invited to conduct a mini-trial on issues of fact such as these. The correct approach, in my view, is to consider the application by reference to facts which either are admitted between the parties or are alleged by the claimant and accepted as correct, for the purposes of the application, by the defendant by whom it is made. I do not think that it is suggested in the present case that the allegations are “fanciful” in the sense described by Lord Hope in Three Rivers RDC v. Bank of England [2001] 2 All ER (HL) 513 in the passage cited by Waller LJ (above).[31]The relevant allegations are these. The breach of contract alleged by the claimant is that the defendant bank failed to credit to his current account the full amount of the excess interest and other charges previously made which the bank agreed to refund to him, under the complex of arrangements made, orally and in writing, on 24 February 1995. The relevant damages claim is for loss of the profits which the claimant alleges he would have made on the development schemes for the HMR and PMR properties, if the bank had funded the schemes as, he says, they had agreed ‘in principle’ to do. But they were under no legal liability to provide further finance. The claimant says that they would have done so, if he had been able to make an application which the bank would consider in accordance with ‘normal banking criteria’. He was prevented from doing this, he says, because his current account remained in overdraft beyond the agreed £80,000 limit, and that was mostly (though not entirely) due to the bank`s failure to make the full refund.[32]His claim therefore involves an assumption that the bank would have been prepared to increase the agreed overdraft limit, or otherwise accommodate the fact that even with a full refund the overdraft would have remained in excess of £80,000, by some £5,000 or even more.[33]The authorities to which we were referred in connection with the legal issues of ‘causation’ and ‘remoteness’ demonstrate that the concept of reasonable foreseeability is not a complete guide to the circumstances in which damages are recoverable as a matter of law. Even if the loss was reasonably foreseeable as a consequence of the breach of duty in question (or of contract, for the same principles apply), it may nevertheless be regarded as “too remote a consequence” or as not a consequence at all, and the damages claim is disallowed. In effect, the chain of consequences is cut off as a matter of law, either because it is regarded as unreasonable to impose liability for that consequence of the breach (The Pegase [1981] 1 Lloyds Reports 175 Robert Goff J.), or because the scope of the duty is limited so as to exclude it (Banque Bruselles SA v. Eagle Star [1997] AC 191), or because as a matter of commonsense the breach cannot be said to have caused the loss, although it may have provided the opportunity for it to occur (Galoo Ltd. V. Bright Grahame Murray [1994] 1 WLR 1360).[34]A similar rule of law, in my opinion, underlies the judgment in Lavarack v. Woods of Colchester Ltd.[1967] 1 QB 278. The rule is that in assessing damages it is assumed that the defendant would have performed the contract in the manner most beneficial to himself: McGregor on Damages (16th.) para.386. It was held in Lavarack that the rule applies even when as a matter of probability or of chance (per Lord Denning MR in his dissenting judgment) the defendant would have behaved outside his contractual obligations in a way that benefited the claimant. However, the rule has exceptions. It will not be assumed that the defendant would have cut off his nose to spite his face (per Diplock LJ ). Sometimes the facts will show that the interests of third parties were also involved (Bold v. Brough, Nicholson and Hall [1964] 1 WLR 201.[35]It may be that the rule would not apply in the present case, if the claimant were able to prove not merely that the defendants would have provided further finance for the properties, but also that it would have been in the defendant’s own interest to do so. It would have meant that the developments could be completed and the properties sold, so enabling them to realise their existing investments and earn further profits, for themselves as well as for the claimant. The defendants are a public company, and it seems remarkable that a rule of law should require the courts to assume that they would not have acted in the best interests of themselves and their shareholders, when assessing the damages for which they are liable as contract breakers.[36]If these further facts were clearly alleged by the claimant, and if there was any realistic chance of their being proved in this case, it would be wrong, in my judgment, to dismiss the action at this stage. However, neither of these conditions is satisfied. Even if the facts alleged in paragraph 18 of the Particulars of Claim are assumed to be correct, they do not bring this claim outside the scope of the general rule. Order; appeal dismissed; costs to be dealt on paper next week. (Order does not form part of the approved judgment)

Cited in 7 later judgments