can you recover all your legal costs of mitigating a loss?
In a professional negligence claim, a claimant
has a duty to try to mitigate (or limit) his loss before seeking to
claim any damages against a professional. But how far should you go
and will you be able recover the costs of mitigating your loss? The
last thing you want is to spend a lot of money on legal costs
trying to mitigate your loss and then find you can't recover those
costs. The recent case of Herrmann v Withers LLP provides
useful guidance.
the facts
In this case, Mr and Mrs Herrmann, who were
American, wanted to buy a property in Kensington, 37 Ovington
Square, for £6.8 million. The sales particulars stated that the
property had access to a communal garden, which was an important
factor to Mr and Mrs Herrmann as they wanted some green space, so
they instructed Withers LLP to act as their solicitors in the
purchase.
As part of this, enquiries were made into
access arrangements to the garden. Withers were not happy with the
sellers' response so researched the matter themselves. They
concluded that the owners of the property were entitled to access
under the Kensington Improvement Act 1851 on the basis that every
property that fronted the street in the Square was entitled to
access to the communal garden. However, the matter was not at all
clear cut and once Mr and Mrs Herrmann had moved into the property
in June 2008, objections were raised when they used the garden by
the committee who ran it.
Therefore, Mr and Mrs Herrmann instructed
solicitors in October 2008 to assert their access rights to the
garden under the 1851 Act. After several months of solicitors'
correspondence and in an attempt to avoid legal proceedings, the
committee made an offer to Mr and Mrs Herrmann of a licence to use
to garden for a fee of £25,000 for 50 years. The offer was dated 13
May 2009. Mr and Mrs Herrmann rejected this offer and commenced an
expensive legal action in an attempt to mitigate their losses. The
matter went to court in 2010 however, the court found against Mr
and Mrs Herrmann. They then sued Withers for professional
negligence and sought to recover their losses.
These included damages for diminution in value
of the property for not having access to the garden, £25,000 for
the licence fee plus the legal costs of dealing with this, their
legal costs in taking the committee to court which were
considerable, and damages for loss of amenity and
disappointment.
the decision
The court found in the Herrmanns' favour. The
solicitor in question was negligent. She should have advised Mr and
Mrs Herrmann that the position regarding use of the communal garden
was not clear cut. Mr and Mrs Herrmann told the court that if they
had known this, they would not have bought the property at all and
the judge accepted their evidence. They had clearly suffered a loss
- diminution in value of the property which was assessed at £65,000
plus related stamp duty and interest. Additionally, they were
entitled to the licence fee of £25,000 and the £10,000 legal costs
that would have been incurred in negotiating and agreeing the
licence.
The bone of contention in the case however,
concerned mitigation of loss. Withers successfully argued that Mr
and Mrs Herrmann had failed to mitigate their losses by not
accepting the committee's offer of a licence. Mr and Mrs Herrmann
chose to litigate the dispute instead, which incurred substantial
costs rather than negotiating with the committee. The judge said
this was wrong. He concluded that they should have accepted the
committee's offer and if they had done this, they would have been
granted a licence thereby mitigating their loss.
As a result, they were only entitled to
recover a small proportion of their legal costs up to the end of
May 2009, ie shortly after the offer of 13 May 2009 was made and
not after that. However, the judge decided that they were entitled
to recover these costs on the indemnity basis, rather than on the
standard basis, ie they would recover nearly all their costs and
not just approximately 65/70% of them. In addition, they were
entitled to a small award for loss of amenity and disappointment of
£2,000 (rather than the £50,000 they claimed).
comment
This case is a timely reminder to claimants
that, whilst they have an obligation to mitigate their losses and
will be entitled to recover the reasonable costs of mitigation,
these costs do not include undertaking uncertain or risky
litigation, particularly when there is a good and reasonable offer
on the table. As the judge pointed out, to litigate when there was
no evidence the Herrmanns were bound to win, was not a
reasonable stance to take.
Claimants would be advised therefore, to
consult a lawyer before undertaking expensive steps to mitigate a
loss if they want to be confident of being able to recover these
costs in a future claim against a professional.
This case however, also brings good news for
claimants as it confirms that legal costs reasonably incurred to
mitigate a loss, will be recoverable on an indemnity basis now,
which puts a claimant in a far better position that had previously
been the case.
