Court of Appeal clarifies causation and giving credit in negligence claim damages calculation

In this article Clyde & Co's Accountants’ Litigation and Regulatory team look at the Court of Appeal’s decision in Barrowfen Properties Limited v Girish Patel and others [2025] EWCA Civ 39 and its implications for calculating damages in negligence claims.

In Barrowfen Properties Limited v Girish Patel and others [2025] EWCA Civ 39, the Court of Appeal upheld a first instance decision of the High Court to reduce a Claimant’s damages for lost revenues from a property development, so as to give credit for an increase in the capital value of that development which it had obtained as a result of steps taken to mitigate its loss.

The decision confirms in the context of a negligence claim, the same approach established in this area in the context of contract law: the benefits which must be taken into account are those which are caused by the breach for which compensation is sought, or which are caused by the actions reasonably to be taken to mitigate the losses caused by those breaches of duty or negligence.

The Court of Appeal also addressed the correct sequencing for the application of a discount to damages for a loss of chance, finding that the benefit for which the Claimant should give credit should be deducted from the damages it claimed before rather than after applying the percentage discount for the loss of chance to earn those revenues.

Background

The claim arose out of a dispute between family members concerning the management and control of a company, Barrowfen Properties Limited (“Barrowfen”), whose shares were held on trust for the family.

Barrowfen owned a large, commercial property. It applied for permission to develop the property into a hotel, supermarket, retail units and student accommodation, but before permission was granted in 2014, the family dispute emerged. Mr Patel took a series of steps to attempt to maintain control of Barrowfen but in 2015, family members seized it from him. 

Mr Patel then caused a new company to be established to take assignment of a loan made to Barrowfen, resigned as a director of Barrowfen, and caused the new company to call in the loan, tipping Barrowfen into administration. In 2016, the same family members took Barrowfen out of administration. 

By this stage, however, the proposed supermarket tenant for the approved development had pulled out and Barrowfen considered that the original development including student accomodation was not now sufficient to maximise the value of the property. Barrowfen obtained permission for a revised development, now including residential apartments rather than student accommodation, which completed in 2021. The revised development cost more than the original, proposed development but was ultimately more profitable for Barrowfen.

Barrowfen sued Mr Patel for breaches of his director’s and fiduciary duties, and also Barrowfen’s solicitors. At first instance, the High Court found that Mr Patel had breached his duties to Barrowfen, and Barrowfen’s solicitors had acted negligently in failing to address conflicts of interest between the parties.

Causation and giving credit

Barrowfen claimed for the loss of a chance to earn rental revenues from the proposed development for the period of the delay between what would have been the likely completion of the original development (2016 or 2017) and the completion of the revised development in 2021. 

Barrowfen denied that it should give credit for any benefit resulting from the revised development being more valuable than the original development. It argued that the benefit was the result of having to raise additional finance for the revised scheme.

The High Court awarded damages in respect of the rental revenues, but reduced those damages to reflect the benefit received by Barrowfen in the form of the increased capital value of the revised development over that of the original development. The increased capital value was calculated as the increase in gross development value, minus the increased costs of development. The High Court applied the reduction for that benefit before applying the loss of chance percentage.

The High Court decided that Barrowfen’s claim must give credit for the increased capital value of the revised development, holding that the key issue was one of causation. The relevant issue was whether the negligence that caused the loss also caused the benefit, in the sense that the negligence was the “inception” of a “continuous transaction” of which the benefit was a part. In this regard, the High Court considered it important that Barrowfen was claiming loss of income in respect of delay, rather than claiming loss of profits or diminution in value. It was reasonable for Barrowfen to have concluded that the original development was no longer the best option, and to incur costs in pursuing the revised development. Implementing the revised development was part of the same course of conduct appropriate to respond by way of mitigation to the alleged breaches but credit must be given for the ensuing benefit, namely the increased capital value of the development. On the basis that Barrowfen had claimed, and had been awarded, damages in respect of the period of delay on the basis that the delay was caused by the Defendant, it would be unjust if Barrowfen did not have to credit for benefits it had received in the meantime: Barrowfen “cannot have it both ways”.

Barrowfen argued that the credit should be reduced by additional finance costs incurred since the completion of the revised development. The High Court rejected that argument on the basis that the causative effect of the breaches by Mr Patel and Barrowfen’s solicitors came to an end on completion of the development. At that point, Barrowfen could have made a number of commercial decisions as to what to do with the development, and costs incurred after that point were not part of the continuous course of conduct required to address the situation ensuing from the breaches.

Barrowfen contended on appeal that the High Court should not have valued the benefit on the assumption that Barrowfen would sell the property (i.e. on the basis of its gross development value). The Court of Appeal rejected that argument on the basis that the judge’s approach to valuing the benefit was “entirely conventional” and considered that the judge was right to take the benefit into account on the basis of causation.

Loss of chance

The Court of Appeal agreed that it was correct that the increase in the capital value of the development should be deducted from the damages for loss of rentals and costs before applying the loss of chance discount. If the Court were to apply the credit for the full amount of increased capital value after applying the loss of chance discount it would in effect be giving credit for a benefit which was not caused by the breaches of duty or steps taken in mitigation of the loss, which was wrong, as a matter of principle.

The difference this makes can be illustrated by considering a hypothetical example in which the damages suffered (before a 50% loss of chance discount) are £10 million, and the benefit received is £6 million. If the loss of chance discount were applied first (contrary to the decision in this case), there would be no damages recovery (£10m minus £5m minus £6m). On the basis of the decision in Barrowfen, the recovery would be £2m (£10m minus £6m minus £2m).

Conclusion

The decision emphasises the compensatory function of damages, and the close scrutiny the Courts will pay to the principles of causation and mitigation, and the Claimant’s pleaded case, in assessing damages in this context. Credit should be given for benefits which are causally connected to established breaches of duty or from steps taken to mitigate loss. 

On the application of a discount for loss of chance, we are reminded that the Court is looking to assess the loss of chance to make a particular gain: first identifying what that gain is, and second, calculating the chance of that gain. In dealing with the first part of that assessment, the overall gain which is lost is that which persists after appropriate credit has been given for any benefit arising from the alleged negligence or breach of duty. Accordingly, the discount for loss of the chance to attain that gain must be applied after credit has been given.