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Calculating damages in concurrent contract and tort claims: Contemplate loss or lose it

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11/02/2016

In Wellesley Partners v Withers [1], the Court of Appeal recently provided clarity for those cases where concurrent claims in tort and contract are inconsistent, due to the different respective tests for calculating damages. The case also gives useful guidance on potentially recovering damages for ‘loss of chance’. Gwendoline Davies and Louise Norbury-Robinson explain and explore the practical implications.

Remoteness: Contract v Tort

The Court of Appeal has confirmed that, where concurrent liability in tort and contract exists, a claimant is not entitled to choose whichever test for calculating damages appears to be the most advantageous to its case. Instead, the contractual test will be applied, rather than the arguably wider and more objective test applicable to claims in tort. The rationale for this decision is as follows.

  • In contract, a relationship exists between the parties and, as part of that relationship, the parties assume a responsibility to each other.
  • The scope of that responsibility will depend on, subjectively, what was in their reasonable contemplation at the time the contract was made. (That is, the contractual ‘remoteness’ test).
  • Contrast this with the test for tort cases, where the loss simply has to be ‘reasonably foreseeable’.
  • The Court of Appeal concluded that, where the facts giving rise to a claim in contract also give rise to a parallel claim in tort, there is in existence a contractual relationship between the parties over and above the relationship which may exist in a standalone claim in tort. It therefore follows that the parties should not be bound by a wider responsibility for loss beyond that which was contemplated by the parties at the time they entered their contractual relationship.

Loss of Chance

The Court of Appeal also confirmed that there is a two-stage test which must be met in order for a claimant to recover damages in respect of a ‘loss of chance’. In doing so the court has made a clear distinction between the test of causation and the quantification of loss.

In Wellesley the claimant argued that, as a result of the defendant’s breach, it had been deprived of the chance to enter into a profitable business arrangement with a third party. The claimant sought to recover loss of profit.

To establish causation, the court stated that the claimant must prove, on the balance of probabilities, that: a) it would have been in a position to enter into the business arrangement had the opportunity arisen; and b) there was a real and substantial chance that such an opportunity would have arisen.

However, even once causation is established, it does not automatically follow that all lost profits claimed in relation to the lost opportunity will be recoverable. Rather, the court can reflect the likelihood of the opportunity arising when quantifying the level of recoverable damages.

Practical Implications

  • A tougher test? Commonly, the contractual remoteness test is deemed to be more difficult to satisfy than the tortious test and is a heavily litigated area, often due to the lack of available evidence as to what was actually (or reasonably) contemplated by the parties at the time the contract was made. However, parties can avoid any doubt as to what was in their contemplation by ensuring that, when contracting, they consider and, where commercially appropriate, document (without limitation) any specific potential risks and/or losses it envisages may result as a consequence of breach by the other party. This may be especially important where there is an unusual or special motivation behind a contractual arrangement which, upon breach, would result in a loss, such as a consequent arrangement with a third party or other lucrative business opportunity.
  • A unique loss? In Wellesley the lost business opportunity was of a very particular type, unique to the claimant’s specific situation and arising solely as a result of the connections of an individual within the claimant company. However, this was of little consequence to the court. The fact that the business opportunity was consistent with the claimant’s general nature of business was sufficient, regardless of the circumstances in which it arose [2]. Therefore if a rare or unique opportunity is lost as a result of the action or omission of others, such losses may still be recoverable.
  • Not just professional negligence. Whilst the Wellesley decision is framed in the context of professional negligence, in which it is common for the facts giving rise to breach of contract also to amount to breach of a duty of care, the decision can be applied more widely, wherever there are concurrent claims in tort and contract arising from the same facts.

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[1] Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146
[2] Ibid. para 85

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