The question of whether or not a claimant must give credit in a professional negligence claim is one that usually arises in the context of mitigation of loss.
In our related article about the duty to mitigate in professional negligence claims, we explain that the courts will not generally allow a claimant to recover compensation for losses which it could reasonably have been expected to avoid, or which have been caused or exacerbated by the unreasonable actions of the claimant.
At first blush, such principles seem relatively clear and instinctively fair, although their application in practice can be both challenging and uncertain. But it is the position of a claimant which not only suffers a loss, but also enjoys a financial benefit or gain in the wake of a professional’s negligence that is of present interest.
This might foreseeably occur either in addition to mitigating some of the losses that the claimant could otherwise have suffered, or in circumstances where the claimant has been unable to do so. Should a claimant then be required to give credit for that gain when determining the level of damages to which it is entitled, or would this convey a benefit on the negligent defendant of which it is simply not deserving?
It is these questions that are the focus of this article, in which we shall endeavour to explain the legal principles that apply in cases of financial gain, having regard to the key case authorities in this area and the judicial pronouncements that they have generated.
The purpose of compensation
When considering issues of quantum in professional negligence claims, an instructive starting point is often to consider the fundamental purpose of a damages award. It is not, as some might imagine, to punish the defendant. Nor is it to reward the claimant. Rather, it is to put the claimant in the position that it would have been had the negligence not occurred.
Relevant common law authorities
Against this backdrop, it is both interesting and informative to consider the different circumstances in which benefits have arisen in the past and the need to give credit for them has been asserted by the defendant and determined by the courts.
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British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd (1912)
In this seminal case, the claimant had supplied and installed for the benefit of the defendant a number of steam turbines, pursuant to a contract between them. However, the turbines did not meet the agreed specifications and were materially defective.
The defendant utilised the turbines for several years, during which time it suffered substantial losses as a result of their inefficiency. However, it then resolved to replace the turbines with those from a different manufacturer, which were of a much better specification than the turbines supplied by the claimant and which provided greater capacity and efficiency.
A dispute arose between the parties as to which of them should be liable for the financial consequences flowing from these events. The claimant asserted that the defendant was liable for the balance of the contract price due to it, while the defendant asserted that the claimant should pay to it (i) the additional costs that the defendant would have incurred due to the defects in the turbines over their 20-year lifespan; or alternatively (ii) the additional costs incurred while operating the original turbines, together with the cost of the replacement turbines.
Having first made certain findings of fact, the arbitrator sought guidance from the Divisional Court on (i) the claimant’s submission that the arbitrator was entitled to find that the ‘commercial life’ of its turbines had expired by the time they were replaced and that no damages were recoverable from it thereafter; (ii) the defendant’s submission that the cost of the replacement machines were recoverable from the claimant as a cost for mitigation.
In the Divisional Court, and later the Court of Appeal, it was held that the claimant’s submission was unsound, while the defendant’s submission was well founded. However, the claimant then appealed to the House of Lords.
In his leading judgment, Viscount Haldane observed as a matter of principle that when in the course of business a man has taken action arising out of the transaction which has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act.
On the facts of this case, he further observed that the transaction was not res inter alios acta, but one in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach.
He therefore determined that the award based on the findings of the courts below could not stand and must be returned to the arbitrator, with a declaration that the findings of fact which confirmed the pecuniary advantage that the defendant derived from the superiority of the substituted turbines and which underpinned the claimant’s contention that the ‘commercial life’ of the claimant’s machines had expired at the date of the purchase, were to be considered by the arbitrator in assessing the damages, and that the defendant’s submission was wrong.
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Hussey & Another v Eels & Another (1989)
In this case, the claimants had purchased a bungalow from the defendant in 1984 at a price of £53,250. Prior to exchange of contracts, and in response to an enquiry from the claimants’ solicitors, the defendants had stated that the property had not been subject to subsidence. However, shortly after moving into the property, the claimants discovered that it was suffering from subsidence and that the cost of repair would be in excess of £17,000.
The claimants decided that the best course of action was to demolish the property in its entirety and they applied successfully for planning permission to build two new bungalows on the site. They also commenced proceedings against the defendants for negligent misrepresentation. However, in 1986 and before trial, the claimants were able to re-sell the property to a developer for £78,500.
At trial the claimants claimed damages of £17,000, representing the difference between the value of the property with and without the occurrence of subsidence. In response, the defendants asserted that the claimants should give credit for the profit generated from the re-sale and that, having done so, the claimants had suffered no loss.
At first instance, the trial judge accepted the defendants’ assertion and dismissed the claim. However, on appeal by the claimants to the Court of Appeal, it was held that the profit achieved from the re-sale did not nullify the claimants’ right to recover damages from the defendants.
Giving the leading judgment, Mustill LJ stated that in essence, the question to be answered was whether the negligence which caused the damage also caused the profit. In this case, and as a matter of fact, he concluded that it did not. In this instance the claimants had unlocked the development value of the property for their own benefit and not as part of a continuous transaction of which the purchase of the property was the inception.
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Fulton Shipping Inc of Panama v Globalia Business Travel S.A.U. (2014)
Here the claimant ship owners had chartered a vessel (registered as the ‘New Flamenco’) to the defendants until 28 October 2007. According to the claimant, it had subsequently agreed with the defendant to extend the charterparty until 2 November 2009, although this was later denied by the defendant, which redelivered the vessel to the claimant on 28 October 2007.
Shortly before redelivery of the vessel was expected, the claimant entered into a memorandum of sale for the vessel with a third party, in the sum of US$23,750,000. The claimant later commenced arbitration proceedings against the defendant for damages of €7,558,375, representing the claimant’s loss of net profit from the extended charterparty. In response, the defendant argued that the claimant must give credit for the difference between the sale price of the vessel that the claimant had achieved in October 2007 and her market value in November 2009 at the end of the extended charterparty, which was US$7 million.
The arbitrator decided the issue in favour of the defendant, finding that the sale of the vessel in October 2007 was in reasonable mitigation of damage. The claimant then appealed.
Sitting in the High Court, and having undertaken a detailed review of the authorities, Popplewell J listed the various legal principles that he had discerned. Amongst many others, he observed that while causation between the breach and the benefit was generally a necessary requirement for credit to be given, it was not always sufficient and considerations of justice, fairness and public policy also had a role to play.
In this instance, the judge concluded that the difference in the value of the vessel was not caused by the defendant’s breach of the charterparty, which had merely provided the context or occasion for the claimant to realise its capital value. Moreover, this was the kind of transaction that was open to the claimant to enter into irrespective of the defendant’s breach of the charterparty. He, therefore, held that no credit had to be given by the claimant.
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Barrowfen Properties Ltd v Girish Patel & Others (2025)
This more recent, and rather more complicated professional negligence claim, arose from a dispute between family members, some of whom were beneficial owners of the claimant company.
Shorn of all but essential detail, the claimant was the freehold owner of a commercial property in Tooting in London. In October 2014, and before the outbreak of family hostilities, the claimant secured planning permission to construct a hotel, a supermarket, other retail units and student accommodation on the property.
Thereafter, a dispute arose in relation to the management and control of the claimant, which later gave rise to claims for breach of fiduciary duty against the first defendant (a director of the claimant) and a claim of negligence against the second defendant (a firm of solicitors acting for the claimant).
After control of the claimant was regained by the claimant’s existing directors in 2016, the proposed development of the property was reassessed. This eventually resulted in planning permission being obtained in June 2018 for both an amended and an enlarged development scheme comprising of a hotel, a supermarket, other retail units and residential apartments, which was due to be completed by April 2021.
At trial the judge concluded that but for the breach of fiduciary duty by the first defendant, and negligence by the second defendant, the existing directors of the claimant would have probably proceeded with the original development proposal. As it was, the claimant had lost the chance to do so and with it, the monthly rental income that the property would have generated during the period from August 2016 to April 2021 (alternatively, from December 2017 to April 2021).
In response, and amongst other matters, the second defendant submitted that the claimant should give credit for the increased developer’s profit generated by the revised scheme, which the judge quantified at c.£2.5 million.
At first instance, the judge concluded that claimant did have to give credit. In doing so, he observed that the authorities to which he had referred in his judgment presented two relevant propositions. The first was that the relevant question was whether the negligence which caused the loss also caused the profit, in the sense that the latter was part of a continuous transaction of which the former was the inception. The second was that the question was primarily one of fact.
Although both parties subsequently appealed, the claimant did not challenge the judge’s decision that it had to give credit. Rather, it appealed the judge’s computation of that credit and, more specifically, the judge’s assumption that the claimant would sell the property, which was contrary to the uncontested evidence that had been given by one of the claimant’s existing directors. Had the judge found that the property would have been retained, the claimant contended that he should either not have taken into account increased future rental income from the property or have taken additional account of future finance costs, either of which would have eradicated the increased developer’s profit of c.£2.5 million.
In his leading judgment in the Court of Appeal, Snowden LJ expressed the view that the judge had been correct to consider that the increased developer’s profit should be brought into account, in the same way that the increased profits from the replacement machines was required to be brought into account in British Westinghouse (above).
However, in rejecting the claimant’s appeal, Snowden LJ concluded that the judge had correctly quantified the increased developer’s profit and that it would be wrong to adopt the methodology advocated by the claimant. That was because once the development of the property had been completed, the claimant had successfully mitigated its loss and the causative effect of the breaches of duty complained of had come to an end. Moreover, the claimant was not bound to continue to incur the future finance costs associated with the property, or to forego any future investment opportunities for its equity share capital, and its decision to retain the property had been its own independent commercial choice.
The legal principles to be applied
From this line of case authorities, it should be apparent that when determining whether a financial benefit or gain is to be brought into account for the purposes of quantifying loss in a professional negligence claim, the courts are likely to apply a range of legal principles. However, the assessment is most likely to be approached as a matter of causation and by analysing the proximity of the relationship between the wrongdoing complained of and the financial gain subsequently enjoyed. The greater the separation between these events, the less likely it is that the claimant will be obliged to give credit.
However, it is also apparent that in each case the analysis will be a factual one, based on the available evidence. Accordingly, caution should be exercised when relying on the outcome of one case to predict the outcome of another. Moreover, and despite the additional clarity of the relevant legal principles provided by the case authorities, there still remains ample scope for uncertainty. That is because different claims are almost always based on different underlying facts, all of which, some of which or none of which might ultimately prove material.
Further assistance
As professional negligence solicitors, we act for clients nationwide, to resolve claims against a wide range of professionals, including claims against solicitors, accountants, insurance brokers and surveyors.
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