Rosbeg Partners v LK Shields: “the philosophic doctrine of causation and the juridical doctrine of responsibility for the consequences of a negligent act are not congruent”

In Rosbeg Partners v LK Shields Solicitors, the Supreme Court allowed LK Shields appeal against the High Court’s calculation of damages for its professional negligence in failing to register Rosbeg’s ownership of a site. The Court stated that;

where the negligence is in failing to do something which can yet be done, then, at least prima facie, the measure of damages, is first, the cost of substitute performance of the duty, and second, any foreseeable loss in value caused by the delay in doing so [34].

 

Background

In 1994, LK Shields acted as solicitors for Rosbeg in its purchase of a number of parcels of land. LK Shields does not dispute that it failed to have Rosbeg registered as owner of one of those parcels of land, nor that it was negligent in that failing. In 2008, Rosbeg agreed to sell that parcel of land to a third party for €10 million. But due to delay caused by Rosbeg not being registered as owner the purchaser refused to proceed with the sale. By the time that the registration of ownership was resolved, in October 2018, the the prospective purchaser had reduced its offer to €8 million. Rosbeg refused to sell for that price, believing the value of the property to be higher.

Rosbeg issued High Court proceedings against LK Shields seeking damages for loss suffered due to professional negligence. By the time of trial, the High Court accepted that the property had a value of €1.5 million. The trial judge (Peart J) found that Rosbeg was not foolhardy or irresponsible in its negotiations to mitigate its losses and awarded Rosbeg €11 million in damages (including consequential losses). LK Shields appealed that judgment to the Court of Appeal.

Dismissing the appeal, the Court of Appeal accepted that the trial judge’s finding that Rosbeg had an agreement to sell the property for €10 million was an inference of fact, but it determined that it was prevented by Hay v O’Grady from interfering with those findings, CoA [41]. LK Shields applied to the Supreme Court for leave to appeal that judgment.

The Supreme Court held that LK Shields had raised questions of general importance and granted leave on four questions:

(i) Whether the Court of Appeal in reviewing the decision of the High Court, and in particular in considering that the test for reviewing inferences drawn by a trial court, from oral evidence or otherwise, is to consider whether there was evidence from which those inferences could be drawn, (paragraphs 41 and 52,53 judgment CA) applied a standard of appellate review which was too low;

(ii) Whether the concept of a completed transaction as discussed in Kelleher v O’Connor [2010] IEHC 313 is applicable in a case such as this, and if so whether it was properly applied;

(iii) Whether the High Court was correct in the manner it assessed the damages where the negligence involved a failure to do something within a reasonable time, but which remained capable of being done, and was done;

(iv) Whether the application of an objective standard to the question of causation and/or mitigation of damages required anything more than the conclusions of the High Court in this case.

 

Supreme Court

O’Donnell J wrote the judgment for a unanimous five judge panel. On the four questions, it held:

(i) Hay v O’Grady [1992] 1 IR 210

23 The Court of Appeal, while acknowledging the force of the defendant’s arguments nevertheless considered that on a faithful application of the well known principles of Hay v O’Grady [1992] 1 IR 210, that on balance, and not without some doubt, there was sufficient evidence before the High Court to justify the conclusions of that court in fact. I respectfully agree. The division of functions between appellate courts and trial courts means that appellate courts must respect and give due deference to a trial court’s fact finding function. The corollary of this of course, which is perhaps less often adverted to, is the importance of the trial court approaching that task rigorously, conscientiously, and testing its preliminary conclusions, with an appropriate degree of scepticism, and thereafter setting out the facts found and the inferences drawn in a way which permits review. However, in this case, I agree that the conclusions on issues of fact made in the High Court judgment are beyond challenge at an appellate level. There was evidence upon which the trial judge could arrive at the critical conclusion that Rosbeg intended to sell at a price of €10 million in late 2007, and some evidence, that it would have been able to do so. The question however remains whether on such facts the defendant’s admitted negligence gave rise to a loss in excess of €11 million.

 

(ii) Kelleher & Anor v O’Connor [2010] IEHC 313

I do not think that that case is directly relevant to this case. It distinguishes between different situations where solicitors are negligent in conveyancing matters. The court must consider [in this case] the position which would arise if the solicitor had not been negligent [29].

 

(iii) Was the High Court correct in the manner it assessed damages?

On legal causation, O’Donnell J stated:

The butterfly may beat its wings and cause an earthquake on the other side of the world, but this is not the principle on which loss is to be recoverable in law [31].

 

O’Donnell J cited a passage from Lord Sumpiton in Hughes-Holland v BPE 3 All ER 969, a case with similar circumstances, which he said neatly expressed the correct general approach:

Courts of law, said Lord Asquith in Stapley v Gypsum Mines Ltd [1953] 2 All ER 478, 489, ‘must accept the fact that the philosophic doctrine of causation and the juridical doctrine of responsibility for the consequences of a negligent act are not congruent’. What Lord Asquith meant by the philosophic doctrine of causation, as he went on to explain, was the proposition that any event that would have not have occurred but for the act of the defendant must be regarded as the consequence of that act. In the law of damages, this has never been enough. It is generally a necessary condition for the recovery of a loss that it would not have been suffered but for the breach of duty. But it is not always a sufficient condition. The reason, as Lord Asquith pointed out, is that the law is concerned with assigning responsibility for the consequences of the breach, and a defendant is not necessarily responsible in law for everything that follows from his act, even if it is wrongful. A variety of legal concepts serves to limit the matters for which a wrongdoer is legally responsible. Thus the law distinguishes between a mere precondition or occasion for a loss and an act which gives rise to a liability to make it good by way of damages: Galoo Ltd (in liquidation) v Bright Grahame Murray (a firm) [1995] 1 All ER 16. Effective or substantial causation is a familiar example of a legal filter which serves to eliminate certain losses from the scope of a defendant’s responsibility. It is an aspect of legal causation. So too is the rule that the defendant cannot be held liable for losses that the claimant could reasonably have been expected to avoid: Koch Marine Inc v d’Amica Societa di Navigazione arL (“The Elena d’Amico”) [1980] 1 Lloyd’s Rep 75. But the relevant filters are not limited to those which can be analysed in terms of causation. Ultimately, all of them depend on a developed judicial instinct about the nature or extent of the duty which the wrongdoer has broken.

 

(iv) Whether the application of an objective standard to the question of causation and/or mitigation of damages required anything more than the conclusions of the High Court in this case.

On this question, O’Donnell J distinguished between negligence in failure to perform a duty which can be performed at a later date and negligence which leads to damage which cannot be remedied [34]. The circumstances of this case falls into the former, but the High Court calculated damages as though it fell into the latter. Therefore O’Donnell J found that it would have been permissible for the Court of Appeal to reexamine at the High Court’s calculation of damages.

Applying the principles identified in answering those questions, O’Donnell J stated that the correct measure of damages is the difference between the High Court’s findings on the value of the site when the sale was agreed in 2007 and the date at which the issue of registration was resolved, October 2008 [36].

O’Donnell reduced the award of damages to €5,246,500, while allowing the parties liberty to make submissions on the calculation of interest and Capital Gains Tax.

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