Demarco v Perkins [2006] EWCA Civ 188

A2 2005 1297[2006] EWCA Civ 188
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN’S BENCH NOTTINGHAM DISTRICT REGISTRY
HIS HONOUR JUDGE INGLIS
Venue Royal Courts of JusticeDate Monday, 23 January 2006
Strand
London, WC2
B E F O R E:
LORD JUSTICE CLARKE
(The Master of the Rolls)
LORD JUSTICE TUCKEY
LORD JUSTICE JONATHAN PARKER
Between
ANTHONY RICARDO DEMARCOAppellant- v -
Between
MICHAEL PERKINSRespondentBULLEY DAVEY (A Firm)Respondent
(DAR Transcript ofSmith Bernal Wordwave Limited190 Fleet Street, London EC4A 2AGTel No: 020 7404 1400 Fax No: 020 7831 8838Official Shorthand Writers to the Court)
MR J EVANS-TOVEY (instructed by Wilkin Chapman Epton Blades, Bank Street, Lincoln, LN2 1DR) appeared for AppellantMR N BRIGGS (instructed by Messrs CMS Cameron McKenna, Wapping Road, Bristol, BS1 4RW) appeared for Respondent
J U D G M E N T

LORD JUSTICE JONATHAN PARKER:

This

[1]is an appeal by Mr Anthony Demarco, the claimant in the action, against an order made by HHJ Inglis, sitting as a High Court Judge in the Queens Bench Division, Nottingham District Registry, on 13 May 2005. In the action, Mr Demarco seeks damages for negligence against Messrs Bulley Davey, a firm of chartered accountants specialising in insolvency work which was retained by Mr Demarco, and against Mr Michael Perkins, a partner in that firm. Mr Perkins is the first defendant in the action; the firm Bulley Davey is the second defendant. The judge found that Mr Perkins and the firm were liable to Mr Demarco for breach of their implied contractual duty of care, and by his order he awarded Mr Demarco damages of £1725 representing a principal sum of £1700 plus interest of £25.[2]The judge granted Mr Demarco permission to appeal, limited to the issue as to the measure or value of Mr Demarco’s recoverable loss. There is no cross appeal by the respondent defendants, but they have issued a Respondent’s Notice inviting this court to uphold the judge’s order on additional grounds.[3]Given the limited scope of the appeal, the background facts, as admitted or found by the judge, can be shortly stated.[4]On 4 February 1997 the Revenue presented a bankruptcy petition against Mr Demarco based on a debt of some £163,322.15. There was one other creditor, London and Edinburgh Insurance Co, in the sum of £14,650. On 26 March 1997 a bankruptcy order was made on the Revenue’s petition. Mr Demarco’s total indebtedness was £177,972, and the deficiency as regards creditors (on the basis of the information provided by Mr Demarco to the Official Receiver) was £98,628.[5]Mr Demarco was concerned that the making of the bankruptcy order would prevent him continuing as a director of a family company called Mancetter Developments Limited (“the Company”), in which he had an 8 per cent shareholding, the majority shareholding being held by his father. His solicitors advised him to seek advice from insolvency specialists, and he accordingly retained Bulley Davey to advise him. This was the first contact between Mr Demarco and Bulley Davey.[6]On 30 April 1997 Mr Demarco met Mr Perkins, and the possibility of obtaining an annulment of the bankruptcy order was discussed. Section 282(1) of the Insolvency Act 1986 gives the court a discretion to annul a bankruptcy order where it appears to the court that, on any grounds existing at the time the order was made, it ought not to have been made (paragraph (a)) or where (so far as material), the debtor pays off all his bankruptcy debts, plus the expenses of the bankruptcy, in full (paragraph (b)). It is not in dispute that neither of those grounds was available. As to paragraph (a), the bankruptcy order was regularly made. As to paragraph (b), it is not in dispute that Mr Demarco was not then, and is not now, in a position to pay off his bankruptcy debts, plus the expenses of the bankruptcy, in full. It is accordingly common ground that the only other possible route to an annulment of the bankruptcy order was via an individual voluntary arrangement (“IVA”), pursuant to section 261(1)(a) of the 1986 Act. That subsection has since been amended, but as it stood at the time it provided (so far as material) as follows: “… where the creditors’ meeting summoned under section 257 [i.e. the meeting of creditors to consider a proposed IVA] approves the proposed individual voluntary arrangement … and the debtor is an undischarged bankrupt the court may … (a) annul the bankruptcy order by which he was adjudged bankrupt; ...” (My italics)[7]The requirement in section 261(1)(a) that the debtor be an undischarged bankrupt is of crucial importance in the instant case, as will appear.[8]Subsection (2) of section 261 provides (by paragraph (a)) that an application for an annulment may be made at any time after the expiry of 28 days from the date when the report of the creditors’ meeting is made to the court: in effect, from the date on which the IVA is established.[9]Section 279(2)(b) of the 1986 Act provides that (save in certain cases, of which Mr Demarco’s case was not one), a bankrupt is discharged from bankruptcy on the expiry of 3 years from the commencement of the bankruptcy. So Mr Demarco was due to be discharged from bankruptcy automatically on 26 March 2000. This in turn meant that any annulment pursuant to section 261(1)(a) had to occur, and hence the IVA had to be established, no later than 25 March 2000; otherwise, as the judge put it at paragraph 15 of his judgment, “the opportunity would be lost for ever”.[10]The only other sections of the 1986 Act to which I need refer are sections 264(1)(c) and 276, which give the court a discretion to make a bankruptcy order on the petition of the supervisor of an IVA, or of a person bound by it, where the debtor has failed to comply with his obligations under it.[11]Although not admitted in the pleadings, it was admitted by the defendants in a letter from their solicitors CMS Cameron McKenna dated 2 July 2004 that they were retained to act in securing an annulment; that is to say, in the circumstances, securing an annulment pursuant to section 261(1)(a) through what I will call ‘the IVA route’.[12]On 21 May 1997, Mr Perkins was appointed as Mr Demarco’s trustee in bankruptcy.[13]Regrettably, as the judge found, the defendants breached their implied contractual duty of care in failing to realise, and to advise Mr Demarco, that 26 March 2000 was the cut-off date for the IVA route. Had they been aware of that, they would (as he held at paragraph 15 of his judgment) “have advised [Mr Demarco] of it and would also have brought to their own activities and to communications with others a greater degree of urgency than they displayed”. The judge went on to hold (in the same paragraph) that the defendants should have warned Mr Demarco of the significance of 26 March 2000 as the cut-off date by no later than 26 January 1999, when a meeting took place between Mr Demarco and Mr Arnott, Mr Perkins’ assistant. The judge also held (in paragraph 27 of his judgment) that although Mr Demarco’s initial motivation in seeking an annulment of the bankruptcy order had been to enable him to continue with his activities as a director of the Company, by 26 January 1999 his directorship was no longer important to him and his motive in continuing to seek an annulment was the prospect of becoming a discharged bankrupt and the effect which that would have on him in the future. As indicated earlier, there is no appeal against these findings by the judge.[14]On 26 March 2000, the third anniversary of the bankruptcy order, Mr Demarco was automatically discharged from bankruptcy. As from that date, the IVA route was no longer available. Nor was Mr Demarco in a position to obtain an annulment under section 282(1)(b) by paying off his bankruptcy debts and the expenses of the bankruptcy. So as from 26 March 2000 (and subject only to the amount of any award of damages in this case) an annulment of the bankruptcy was no longer a possibility.[15]Having made the findings to which I have referred, the judge then had to address the question of damages. He began by assessing the chances of an annulment being achieved via the IVA route, had the defendants not breached their duty of care. This required an assessment of two matters: first, the likelihood of an IVA being put in place in time, and secondly the risk of the IVA failing, and hence of a bankruptcy order being made on the petition of the supervisor or of a person bound by it, pursuant to sections 264(1)(c) and 276.[16]As to the first matter, the judge found (in paragraphs 29 and 30 of his judgment) that the chances of an IVA not being established in time were “minimal”, and that no reduction in the damages should be made on account of the possibility that the proposal for an IVA might not have been approved by the creditors (in effect, by the Inland Revenue). As to the second matter, the judge found (in paragraph 67 of his judgment) that the risk that the IVA might fail, leading to a further bankruptcy order, was no more than 15 per cent; and hence that the damages to be awarded in respect of the defendants’ breach of duty should be reduced by that percentage.[17]Once again, there is no appeal against the judge’s findings on either of those two matters.[18]The judge then turned to the question of the measure and quantum of damage; a question which he regarded as not an easy one.[19]At this point, I must refer to the Particulars of Loss and Damage pleaded by Mr Demarco under paragraph 28 of his Amended Particulars of Claim.[20]By those Particulars Mr Demarco pleads that he: “… continues to suffer the stigma of bankruptcy, and the associated loss and damage in both his business and his personal affairs, whereas he should have obtained an annulment, and thereby brought such stigma loss and damage to an end, not later than 25 March 2000”.[21]Mr Demarco goes on to claim damages under three heads, as follows:(1) “for the cost of obtaining an annulment”;(2) “for the loss and damage sustained by reason of not having obtained an annulment, during the period from 25 March 2000 to the date when the annulment is obtained”; and(3) “further or alternatively, for the recovery so far as may be appropriate of charges made by Mr Perkins and/or the firm which were wholly wasted and/or may be duplicated as and when a new Trustee has been appointed”.[22]The damages claim was refined by a Revised Schedule of Loss served by Mr Demarco in March 2005 pursuant to an order of the court dated 17 February 2005.[23]In paragraph 7 of the Schedule it is alleged that the bankruptcy order “can still be annulled pursuant to section 282(1)(b) of the [1986] Act” if Mr Demarco pays the bankruptcy debts (or such proportion of them as the creditors will accept) and the expenses of the bankruptcy. Paragraph 8 pleads that the creditors approved in the bankruptcy were the Revenue (in the sum of £163,322.15) and London & Edinburgh Insurance Co (in the sum of £14,650), a total of some £177,972.15. Paragraph 9 pleads that the Revenue is not willing to accept anything less than the full amount of its debt; paragraph 10 pleads that the London & Edinburgh Insurance Co is willing to accept £1,465 in satisfaction of its debt. Paragraph 11 pleads (based on information provided by the defendants) that the bankruptcy expenses amounted to £33,951.79, and that a sum of £12,666.41 remains in the hands of the trustee as being available for payment to creditors.[24]By paragraph 14 of the Schedule Mr Demarco claims special damages in the sum of £154,521.92 as representing the cost of obtaining an annulment under section 282(1)(b). That sum is made up as follows. Allowing for London & Edinburgh Insurance Co’s willingness to accept only 10 per cent of its debt, the bankruptcy debts are brought into account in the total sum of £164,787.15. A deduction of £12,666.41 is then made, representing the sum in hand for payment to creditors, together with a further sum of £7,200 representing the payments which Mr Demarco would have had to make under an IVA, giving a net total of £144,920.74. A further deduction is then made in respect of the estimated costs of obtaining an annulment via the IVA route in the sum of £9,601.18, giving the final total of £154,521.92.[25]Paragraph 14.9 claims general damages for “the stigma of the bankruptcy order not being annulled”.[26]The defendants responded to Mr Demarco’s schedule by serving one of their own. As to the claim for the damages representing the cost of an annulment under section 282(1)(b), in paragraph 9 of their schedule the defendants admit that Mr Demarco “has a chance that the court will annul if all the debts are paid”. However, they go on to deny that Mr Demarco is entitled to recover such costs by way of damages. Paragraph 12 of the defendants’ schedule reads as follows:
“It is the Defendants’ case that the lost claimed is too remote and/or has not been caused by the actions or inactions of the Defendants. It is denied that the costs of annulment pursuant to section 282(1)(b) is the proper measure of any loss suffered.”
[27]The defendants also deny that Mr Demarco is entitled to damages for alleged “stigma loss”.[28]Before the judge, Mr Jason Evans-Tovey, appearing for Mr Demarco (as he does in this court), submitted that Mr Demarco is entitled to damages in an amount which will put him in the position he would have been in had the defendants not breached their contractual duty of skill and care. Such an amount would comprise(1) the sum of £154,520.92, being the amount required (as per the Revised Schedule of Loss) to enable Mr Demarco now to obtain an annulment of the bankruptcy order by paying in full his bankruptcy debts and the expenses of the bankruptcy;(2) general damages to compensate him for the damage to his reputation and credit and the consequential losses which flowed from the making of the bankruptcy order; and(3) statutory interest.[29]As to (1), the cost of obtaining an annulment, he pointed out (correctly) that a bankruptcy order may be annulled under section 282(1)(b) “at any time”, and he submitted that there were plain benefits to Mr Demarco in having the order annulled in that (among other things) he would be enabled to revert to his pre-bankruptcy state and credit reference agencies would need to amend their records. He submitted, relying on the decision of Oliver J in Radford v. De Froberville [1977] 1 WLR 1262 at 1270 that Mr Demarco is entitled to damages to afford him what he contracted for, albeit that in the event that could only be achieved in a different way (i.e. under section 282(1)(b)). He submitted that the IVA route should be regarded as subordinate to the overriding aim of obtaining an annulment, and that the instant case could be regarded as analogous to the ‘betterment’ cases, in which the claimant ends up with something better than he had before.[30]As to (2), general damages, he submitted that Mr Demarco would have to suffer the status of being a discharged bankrupt until such time as an annulment were obtained. Under this head he sought both non-pecuniary and pecuniary damages: the former as compensation for damage “felt” by Mr Demarco, and the latter as compensation for damage to his reputation and credit. He accepted that Mr Demarco could not prove special damage by reason of ‘stigma’, but submitted that general damage should be presumed.[31]As to the defendants’ contention that the damages claimed were too remote, Mr Evans-Tovey submitted that the defendants were retained to try to ensure that the stigma of bankruptcy was removed by an annulment of the bankruptcy order, and that it was a natural consequence of the defendants’ breach of duty that Demarco would suffer specific and general loss.[32]For the defendants, Mr Nicholas Briggs (who also appears in this court), relying on Hadley v. Baxendale [1854] 9 Exch 341 and subsequent authorities, submitted to the judge that the damages sought (and in particular the cost of obtaining an annulment under section 282(1)(b): head (1) above) are too remote in that they were never in contemplation at the date of the defendants’ retainer. He submitted that the idea that Mr Demarco could have all his bankruptcy debts paid in full and thus be able to hold himself out as having done so was never a possibility, pointing out that in the course of cross-examination Mr Demarco had admitted as much. (In the event, as I noted earlier, this was not, and is not, in dispute).[33]Mr Briggs submitted that for the court, by its award of damages, to require the defendants to fund the payment of Mr Demarco’s bankruptcy debts in full would place Mr Demarco in a better position than he could ever have been in, but for the defendants’ breach of duty. He further submitted that in any event an annulment under section 282(1)(b) is wholly different in nature from an annulment via the IVA route, which was the only available route.[34]Relying on South Australia Asset Management Corporation [1997] AC 191 (“SAAMCO”), Mr Briggs submitted that Mr Demarco’s inability to obtain an annulment under section 282(1)(b) was due to his own impecuniosity, rather than to any breach of duty by the defendants; and that, accordingly, the cost of obtaining such an annulment was not a loss flowing from the defendants’ breach of duty and was not recoverable.[35]Relying on Ruxley Electronics & Construction Ltd v. Forsyth [1996] AC 344 (“Ruxley”), Mr Briggs submitted that, quite apart from his other arguments, an award of damages representing the cost of obtaining an annulment under section 282(1)(b) would in any event result in an award which would be out of all proportion to the end sought to be achieved in terms of monetary compensation.[36]In Ruxley the plaintiffs contracted with the defendant to build a swimming pool on his property. The contract specified that the pool should have a diving area of a particular depth. The depth of the diving area of the pool when constructed was less than that, but that defect had no adverse effect on the value of the defendant’s property. The estimated cost of rebuilding the pool to the requisite specification was in excess of £21,000. The plaintiffs sought payment of the contract price for the construction of the pool; the defendant counterclaimed for damages representing the cost of reinstatement. The judge gave judgment for the plaintiffs on their claim, but awarded the defendant general damages on his counterclaim in the sum of £2,500. The Court of Appeal allowed the defendant’s appeal, holding that the award of damages should be such as to place him in the same position he would have been in had the contract been performed. The House of Lords allowed the plaintiffs’ appeal, holding that where the expenditure was out of all proportion to the benefit to be obtained the appropriate measure of damages was not the cost of reinstatement but the diminution in the value of the work occasioned by the breach, even if that would result in a nominal award; and that since there was no dispute over the amount awarded by way of general damages, the judgment of the trial judge should be restored.[37]As to the claims for general damages, Mr Briggs pointed out to the judge that no pecuniary damage had been proved and submitted that none should be presumed. As to non-pecuniary damage, Mr Briggs submitted that if any award were made it should be a modest one, in the £100s rather than the £1,000s.[38]I can now return to the judgment on the damages issue.[39]In paragraph 75 and 76 of his judgment

the judge rejected Mr Briggs’ arguments based on remoteness and on Ruxley, saying this:

“75. The claimant submits, and I agree, that it is not the case of remoteness. The defendants’ duty was to take steps that, as I have found, would have achieved for the claimant a particular status, that of someone who had been made bankrupt but his bankruptcy had been annulled. Failure to achieve that status is a natural consequence of failing to take the effective steps leading to it so that the cost now of achieving that status is the measure of loss naturally following from the breach, if that status as contemplated can now be achieved. “76. I do not think that purpose or motive is relevant to quantify the damage that has been suffered nor that Ruxley helps the defendants since the defendants achieved nothing at all in performance of the contract and I do not take the case of Ruxley as authority for the general proposition that where compensation would be disproportionately large the court in contract cases can generally search round for a more modest measure.”
[40]Then, after summarising Mr Evans-Tovey’s arguments,

the judge continued as follows (in paragraphs 82 to 85 of his judgment):

“82. I have considered these arguments and I do not find the outcome as being without difficulty. What I do not feel able to do is to concentrate, as asked, upon the outcome of annulment separately from the IVA. What the claimant engaged the defendant to use care and skill in trying to achieve was a particular status for him. Instead of being a discharged bankrupt he would in the end be someone whose debts had not been discharged by bankruptcy but debts the liability for which had been eliminated by an IVA. He would not simply be someone whose bankruptcy had been annulled. “83. Both a bankruptcy and an IVA are registered, though over different periods and on different registers. Both, however, proclaim that the debtor is someone who could not and did not pay his debts. In answer to the question: have you ever been bankrupt or made a composition of your creditors, the answer in each case would have to be yes. “84. It seems to me that the claimant is now seeking to be put in a position that is different in kind from the position he would have been in but for the breach of contract. It has not been possible at any time after 25 March 2000 to put him in that position or anything like it. Therefore, putting him in the position now that he could never have been in is not compensation to which, in my judgment, he is entitled. It would involve the payment of debts that were never expected to be paid. There is no alternative basis for financial loss proposed and in those circumstances the claim based on the costs of obtaining an annulment now fails. “85. If I am wrong about that I would, subject to a 15 per cent reduction, have awarded the claimant £154,521.92 in accordance with paragraph 14 of the claimant’s schedule. Though not formally admitted, the computation of the net cost of obtaining an annulment now after deducting the concession the insurance company creditor is apparently prepared to make, the assets in the hand of the first defendant as trustee in bankruptcy and what would have been paid by the claimant into the IVA seems to me to be the right compensation. For the reasons I have given, however, I do not award it.”
[41]The judge then turned to the claim for general damages. After referring to a number of authorities which had been cited to him, the judge concluded that general damages for anxiety and distress suffered by a claimant by reason of his having been made bankrupt could be the subject of an award of damages. In paragraph 89 of his judgment, he likened that situation to one where the claimant has been the subject of a criminal conviction. He continued:
“[Mr Demarco] now has the status of being a discharged bankrupt. He would not have had that status [sc. but for the defendants’ breach of duty] but would have had the status of having made a composition with his creditors through an IVA, which he does not now have.”
[42]In paragraph 90 of his judgment, the judge said this: “90. There may be some force in Mr Perkins’ view given to me from the witness box that in some people’s eyes there is not a great deal of difference between the two. But I think there is a difference that can be measured and that is not just because of the obvious subjective feeling that Mr Demarco himself has about his status. Moreover, and importantly, this status of being a discharged bankrupt is a continuing one as it will never leave him. Nonetheless, I think the award must be modest. Bearing in mind that the status is, however, permanent, I would award £2,000 but that must be discounted by the 15 per cent that I have already identified, so the award of general damages will be £1,700”.[43]The judge then considered the evidence which Mr Demarco had adduced a pecuniary loss, caused by his status as a discharged bankrupt, saying this (in paragraphs 91 and 92 of his judgment): “91. Under the head of general damages evidence was advanced, at least in writing, on various matters. Mr Demarco said that he wishes to emigrate to Australia but there is in fact no evidence of the effect on his chances of being able to do so at his age and with his status as a discharged bankrupt as opposed to an IVA status. He wishes for the purposes of a business project to find a business partner but feels he may be inhibited in that. At one stage, two applications for a credit card were refused, although he now has one. Mancetter’s relations with its bankers were affected after the claimant’s discharge by their attitude towards the company because he was a discharged bankrupt running it. He was declined the opportunity to negotiate for the purposes of a nightclub that he thinks probably was because he was a discharged bankrupt. “92. In none of these cases a financial loss has been proved or even now asserted. This is an area which in any event is likely to throw up genuine problems of remoteness as well as uncertainty to the point where an award would be speculative. They are not put forward as financial loss items nor do I think that compensation for loss of reputation is the right approach. I prefer to adhere to the approach set out above, which I think is consistent with the approach of McKinnon J in Rey that the compensation is for the awareness and the fact of the status that he has as a discharged bankrupt compared with the status that would have been the position had the bankruptcy been annulled under the scheme that was proposed”.[44]The judge’s reference at paragraph 92 of his judgment to Rey is a reference to the decision of McKinnon J in Rey v Graham & Oldham [2000] BPIR 354. In that case, the debtor’s solicitors negligently failed to obtain an adjournment of the hearing of a pending bankruptcy petition, as a result of which a bankruptcy order was made. Some 3 months later the order was rescinded. The debtor claimed damages against the solicitors for distress and inconvenience. McKinnon J awarded £1,500, discounted by 20 per cent to reflect the chance of an adjournment not being granted, giving a final figure of £1200. At p.370E-F of the report he said this:
“It seems to me that the approach in Heywoodv Wellers is applicable to this case and that a personal bankruptcy is somewhat akin to a criminal conviction. Scott Baker J, in the Ricardo McLeish case, awarded £6,000 for mental distress where a plaintiff remained convicted for more than two years of assaults upon police officers and being in possession of an offensive weapon. It seems to me that an appropriate award for mental distress and inconvenience in respect of a personal bankruptcy which lasted from 6 September until 8 December 1994, that is just over three months, should be modest. It is not as serious as a criminal conviction. It seems to me that an award of £1,500 would be appropriate.”
[45]In the instant case the judge awarded Mr Demarco damages in the sum of £2,000, discounted by 15 per cent (making £1700), to which was added interest in the sum of £25 making a total sum of £1,725; and by the order under appeal he entered judgment in favour of Mr Demarco for that amount.[46]By his grounds of appeal Mr Demarco contends that the judge misunderstood and misapplied the common law rules as to measure of damage. He contends that the judge failed to take proper account of the fact (as he would have it) that it is for a claimant to judge what performance he requires under a retainer, and that in the instant case Mr Demarco required that his bankruptcy be “wiped clean”. He contends that it is no answer to his claim for special damages based on the cost of obtaining an annulment that it is based on the costs of obtaining an annulment by another route (i.e. under section 282(1)(b)). He contends that the judge wrongly treated the IVA that would have resulted from successful use of the IVA route as somehow precluding Mr Demarco from obtaining special damages representing the costs of obtaining an annulment, and that the judge was wrong in law in holding that Mr Demarco was not entitled to special damages when special damage had been sustained and in failing to put Mr Demarco, so far as money could do it, in the same situation as if the defendants had properly discharged their duty of care.[47]As to general damages, Mr Demarco contends that the judge ought to have awarded general damages in relation to the period from the date when the bankruptcy would have been annulled under the IVA route “and a notional date when, with the award of special damages, it would have been annulled if [Mr Demarco] had monies to make up the 15 per cent shortfall”. In the alternative, he contends that the award of £2,000 for non-pecuniary loss was too low, and that the judge should have award some general damages for pecuniary loss, reflecting in each case continuing stigma for the remainder of Mr Demarco’s life.[48]By their Respondents’ Notice the defendants, in relation to the claim for special damages representing the cost of obtaining an annulment under section 282(1)(b), support the judge’s reasons and conclusion, and seek to resurrect their arguments based on Ruxley and on remoteness. On the issue of general damages, they merely support the judge’s reasons and conclusions.[49]In this court each counsel has substantially repeated the submissions which he addressed to the judge.[50]Mr Evans-Tovey submits that the purpose of the defendants’ activities under their retainer was the annulment of the bankruptcy order, and that benefit was lost due to their breach of duty.[51]As to the special damages claim, he submits that the judge ought to have awarded the sum contended for: £154,571.92. He submits that such an award would place Mr Demarco, so far as money can do it, in the same position as he would have been in but for the defendants’ breach of duty. The true measure of the damage suffered by Mr Demarco, he submits, is the market value of the benefit of which he has been deprived; that is, the cost of obtaining an annulment via the only route now available, viz. under section 282(1)(b). It matters not, he submits, that it is not now possible to place Mr Demarco in exactly the same position as he would have been in but for the defendants’ breach of duty. He points out that in the calculation of the costs of obtaining an annulment under section 282 1(b) a deduction has been made representing the costs of complying with the proposed IVA.[52]He submits that Mr Demarco should not have to suffer any further deduction representing the ‘value’ of the IVA, since the instant case is analogous to a ‘betterment’ case, in which the claimant incidentally obtains an additional benefit. In the alternative, if in principle credit might have to be given for the ‘value’ of the IVA no such credit should be given in the instant case since the defendants adduced no evidence as to ‘value’ of the IVA; alternatively, only a small sum should be deducted.[53]Mr Evans-Tovey repeats his submissions that it is for the claimant to judge what performance he requires under a retainer, and (relying on Radford) that it is no answer to Mr Demarco’s special damages claim that the annulment is to be achieved by a different route. He also submits that Mr Demarco had a reasonable expectation of obtaining that annulment.[54]As to the claim for general damages, Mr Evans-Tovey seeks to rely on the following facts (among others):• that the defendants knew that Mr Demarco wanted an annulment so that he would not have to describe himself as a former bankrupt;• that the defendants must have known that, if an annulment under section 261(1)(a) was not available, the only route to an annulment was under section 282(1)(b);• that the defendants knew that Mr Demarco did not have sufficient funds at his disposal to enable him to obtain an annulment under section 282(1)(b);• that once it became clear to the defendants that it was too late to obtain an annulment via the IVA route, the defendants investigated the possibility of an annulment under section 282(1)(b) and attempted to persuade the Revenue to agree to a reduction in their debt;• that the use of section 282(1)(b) only ceased to be a possibility once the Revenue had refused to do so, requiring payment of its debt in full; and• that the defendants advised Mr Demarco that an annulment would “wipe clean” the bankruptcy.[55]As to the claim for general damages of a ‘non-pecuniary’ nature, Mr Evans-Tovey submits that such damages are in principle recoverable where a material element in a retainer was the provision of peace of mind and the avoidance of distress (a proposition with which Mr Briggs does not take issue). He goes on to submit that, whereas the judge’s award of £2,000 was designed to compensate Mr Demarco for future stigma, the judge, having awarded the special damages claimed, should have made a further reward representing general damages relating to the period from the date should have been annulled via the IVA route and “a notional date when, with the award of special damages, it would have been annulled”.[56]As to the claim for general damages of a pecuniary nature, Mr Evans-Tovey submits that such damages are in principle recoverable and should have been awarded in respect of the period described above. He submits that in so far as pecuniary damage is not proved, it should be presumed.[57]In the alternative, in the event that Mr Demarco is held not to be entitled to damages in respect of the cost of obtaining an annulment under section 282(1)(b), he submits that the judge should have awarded a sum for general damages for past and future pecuniary loss since the bankruptcy in a sum well in excess of £2,000; and that the judge’s award of only £2,000 is wholly inadequate to compensate Mr Demarco for future stigma, bearing in mind that Mr Demarco is only 55 years old and is likely to continue in business for at least another 15 years. He submits that in reaching the figure of £2,000 the judge failed properly to take into account the investment which he would have had to make in the proposed IVA in order to achieve his desired result of an annulment by that route; an investment which could have amounted to some £30,000 to £40,000. Set against that figure, the judge’s figure of £2,000 as representing (in effect) the value of such an annulment to Mr Demarco can be seen to be manifestly inadequate. He submits that Rey was a different case, in that the stigma of bankruptcy only lasted some 3 months, whereas in the instant case the stigma of being a discharged bankrupt will continue for the rest of Mr Demarco’s life. He submits that this stigma consists not only of Mr Demarco’s subjective feelings but also includes the objective effect which the status of being an undischarged bankrupt may have on his personal and commercial life in the future.[58]He submits that in all the circumstances the amount awarded should run well into five figures.[59]In his written skeleton argument in relation to the special damages claim, Mr Briggs points out that it was throughout accepted by Mr Demarco that it was never contemplated at any stage of the retainer that he would be in a position to pay his debts in full; and that although Mr Demarco signed a witness statement setting out various heads of pecuniary loss, at trial he declined to pursue them. As a result, the judge found (in paragraph 92 of his judgment, quoted earlier), that under none of the various heads had financial loss been “proved or even now asserted”. Mr Briggs has also referred to a passage in his cross-examination of Mr Demarco in which Mr Demarco accepted that in the context of the register of individual insolvents it would have made no difference to him whether he was a discharged bankrupt or whether his bankruptcy had been annulled following an IVA.[60]As to Mr Demarco’s special damages claim, Mr Briggs submits that if Mr Demarco has lost anything he has lost a marginal difference between exiting a bankruptcy by automatic discharge and exiting it via the IVA route. He submits that to the man in the street the difference (so far as there is one) is too small to recognise. He submits that the purpose of an award of damages in a case such as the present is to compensate the claimant, not to punish the defendant; and that the award sought under the special damages claim would place Mr Demarco in a far better position than he could ever have been in but for the defendants’ breach of duty. He submits that such an award would amount to just the kind of “uncovenanted profit” to which Oliver J referred in Radford (at p.1270): it would be a windfall. He submits that the instant case is to be distinguished from the ‘betterment’ cases. This, he says, is not a case of getting a new house where the old one has been burnt down: rather it is a case of getting a whole new housing estate. Moreover, he submits, there is no certainty that Mr Demarco will apply the damages claimed (if awarded) in paying off his bankruptcy debts.[61]He submits that in any event the special damages claimed are too remote. He cites the familiar passage in Hadley v. Baxendale at p.354 to the effect that damages for breach of contract should be limited to “such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it”. In the instant case, he submits, the only loss which could have been reasonably contemplated at the time the retainer was entered into was the continuation of some ephemeral stigma. He point out that by the time the defendants were retained Mr Demarco was already bankrupt and had therefore already acquired the stigma of bankruptcy.[62]He further submits, relying on SAAMCO, that the scope of Mr Demarco’s recoverable loss is restricted by the scope of the defendants’ duty. The consequence of the defendants’ breach of duty which is attributable to that breach of duty is the continuing stigma of being a discharged bankrupt as opposed to a debtor who has had to enter into an IVA in order to avoid bankruptcy.[63]As to the claim for general damages, Mr Briggs submits (as noted earlier) that no pecuniary loss was proved or even asserted. As to non-pecuniary loss, he points out that Mr Demarco did not claim that he had suffered actual distress or inconvenience. In the circumstances, he submits, the judge was right to make only a modest award of damages. He submits that the judge’s figure of £2,000 was generous, and that he could properly have awarded only nominal damages.[64]Relying on McKinnon J’s dictum in Rey, and on a dictum of Lord Scott in Farley v. Skinner [2002] AC 732 at para 110 in the context of a claim for damages for discomfort from aircraft noise, Mr Briggs submits that any award of general damages in the instant case should be modest, and that the judge was right to approach the claim on that basis. As to the investment which Mr Demarco would have been required to make in the proposed IVA, Mr Briggs points out that, quite apart from the commercial value, or lack of it, of an annulment by the IVA route, that was what Mr Demarco specifically wanted. He submits that we should not interfere with the judge’s award of general damages.[65]I turn first to what has been termed ‘the special damages claim’; that is to say the claim for damages representing the cost of obtaining an annulment under section 282(1)(b) by payment in full of Mr Demarco’s bankruptcy debts and the expenses of the bankruptcy (a claim which, as noted earlier, is quantified at £154,521.92).[66]In my judgment the judge was plainly right not to make such an award.[67]In the first place, I agree with the judge that it is not so much a question of the damage claimed being too remote; rather, the question is whether the damage claimed can be said to represent damage suffered by Mr Demarco at all, let alone damage for which the defendants are liable.[68]The loss which Mr Demarco has suffered was not the loss of the chance of obtaining an annulment of his bankruptcy under section 282(1)(b) - there never was such a chance. Mr Demarco (as he has throughout accepted) has never been in a position to pay off his bankruptcy creditors. The only chance that Mr Demarco has lost was the chance of obtaining an annulment of his bankruptcy via the IVA route, as being (given Mr Demarco’s financial circumstances) the only available route to an annulment. The judge assessed that chance at 85 per cent, and there is no appeal against that assessment. That, in my judgment, is the only loss which Mr Demarco has suffered, so far as the possible annulment of his bankruptcy is concerned; and since that loss was caused directly by the defendants’ negligence, he is entitled to hold the defendants liable to compensate him for that.[69]An alternative way of making much the same point would be to say that, given that the defendants were engaged to attempt to achieve an annulment via the IVA route as being the only available route, the special damage claimed is not in any sense “attributable to” the defendants’ breach of contract (see SAAMCO at p.213C per Lord Hoffman).[70]In any event, even if Mr Demarco, being (let it be assumed) in a position to pay off his bankruptcy creditors and the expenses of the bankruptcy and thus to obtain an annulment under section 282(1)(b), had failed to achieve such an annulment due (let it be assumed) to the failure of the defendants to advise him of the existence of some statutory time limit, in any assessment of the damage suffered by Mr Demarco as a result of losing the chance of obtaining an annulment by that route he would in my judgment have to bring into account the cost which he would inevitably have had to bear as the price of taking advantage of that chance.[71]Hence the correct measure of damage, in my judgment, is the value to Mr Demarco of an 85 per cent chance of obtaining an annulment of the bankruptcy via the IVA route. How, then, is that value to be assessed? The chance of obtaining an annulment via the IVA route has no market value, nor does it have any intrinsic or inherent monetary value. The only way to value it, in my judgment, is to compare Mr Demarco’s position had he had that chance with his present position, having been deprived of it, and to attempt to put a monetary value on the difference between the two; in other words, to make an award of general damages, as the judge duly did (an award to which I return in a moment).[72]Mr Evans-Tovey invites us, in effect, to treat the instant case as if it involved a contract to supply a particular item (viz. an annulment) where the suppliers (viz. the defendants) have failed to deliver that item and are consequently liable for cost to the claimant of acquiring it by some other available means (viz. by paying off his bankruptcy creditors). In my judgment, that analogy is fallacious. The subject-matter of the retainer in the instant case (if the analogy can be pursued that far) was not an annulment per se but an annulment via the IVA route, as being the only available route. Since 26 March 2000 there has been no other available means of delivering that item, in the sense of achieving that result.[73]I accordingly agree entirely with the judge when he says (in paragraph 84 of his judgment, quoted earlier) that “the claimant is now seeking to be put in a position that is different in kind from the position he would have been in but for the breach of contract”; and that “putting him in the position now that he could never have been in is not compensation to which … he is entitled” in that “it would involve the payment of debts that were never expected to be paid”.[74]Mr Briggs submitted that there can be no guarantee that if such damages were awarded Mr Demarco would apply them in paying off his bankruptcy creditors, however it is fair to say that that has throughout been Mr Demarco’s expressed intention, and Mr Evans-Tovey informed us that he was willing to give an undertaking to that effect. However, the fact is that to award the special damages claimed would be to provide Mr Demarco with a massive and wholly unexpected windfall - just the kind of “uncovenanted profit” to which Oliver J referred in Radford.[75]I turn, therefore, to the claim for general damages. As to the claim based on alleged pecuniary loss, as the judge pointed out at paragraph 92 of his judgment, “no financial loss has been proved or even now asserted”.[76]As to the claim for non-pecuniary loss, I fully accept that an award of general damages in a case such as this is pre-eminently a matter for the judge at first instance, who has seen and heard the witnesses and has acquired a feel for the case. I further agree with the judge that such an award should be modest. That said, however, there is in my judgment force in Mr Evans-Tovey’s submission that it would on the face of it be an odd result if a failure to achieve an annulment which might have cost Mr Demarco as much as £40,000 could properly be compensated by an award of only £2,000 by way of damages.[77]In my judgment, the judge failed to take proper account of this factor in reaching his £2,000 figure. I would substitute for his figure of £2,000 a figure of £6,000. After applying the 15 per cent discount, the sum awarded by way of general damages would be £5,100. That will lead to a recalculation of the interest figure.[78]I would accordingly, allow the appeal to that extent only.

LORD JUSTICE CLARKE MR: I agree.

LORD JUSTICE TUCKEY: I also agree.

Order

Appeal allowed in part.

Cited in 1 later judgment