[COURT OF APPEAL]

COUNTY PERSONNEL (EMPLOYMENT AGENCY) LTD.

v. ALAN R. PULVER & CO. (A FIRM)

Solicitor - Negligence - Landlord and tenant - Duty to explain effect of covenants - Unusual clause in sublease - Rent review by reference to increase in headlease rent - Failing to explain effect and inherent risks to client - Whether negligence

Damages - Measure of damages - Solicitor's negligence - Client entering into unfavourable underlease due to solicitor's negligent advice - Client unable to sell underlease and business due to uncertainty in rent review clause - Underlease subsequently surrendered on payment of premium - Assessment of damages

The plaintiff company instructed the defendant solicitors to act for them in negotiating the underlease of two ground floor rooms to be used as business premises. The underlease as finally granted was at a rent of £:3500 per annum with a rent review clause which provided for the rent to be increased on the same dates and by the same percentages as the increase of rent under the headlease, and protection under the Landlord and Tenant Act 1954 was excluded. However, the defendants failed to ascertain the rent payable under the headlease or to warn the plaintiffs of any risks involved in the rent review clause, nor did they advise the plaintiffs to have the property valued before entering into the underlease. In 1983 the plaintiffs attempted to sell the underlease and the goodwill of the business and received an offer of £:17000, but the sale fell through partly because of the uncertainty in the rent review clause. In 1984 the rent review clause came into effect when the rent under the headlease was increased. Applying the same percentage increase the

plaintiffs' rent was increased to £:9022 per annum although the open market rental value of the underlease was only £:2600. The plaintiffs subsequently surrendered the underlease on the payment of £:16000 plus a sum representing the increased rent payable since the rent review date. In an action for negligence against the defendants, the plaintiffs claimed the sums paid on surrendering the underlease and the £:17000 lost on the prospective sale. The judge dismissed the action on the ground that there was no negligence on the defendants' part.

On the plaintiffs' appeal: -

Held, allowing the appeal, (1) that in exercising reasonable professional judgment a solicitor was expected to be alert to risks which might elude an intelligent layman and to advise the client of those risks or explore the matter further; that the rent review clause in the plaintiffs' underlease was sufficiently unusual to have put the defendants on inquiry so that they had been negligent in failing to ascertain the rent payable under the headlease and in failing to advise the plaintiffs that the risk of disadvantage could not, on the wording of the clause, be eliminated; and that, accordingly, the defendants were liable to the plaintiffs in damages (post, pp. 922D-E, 927B-F).

Sykes v. Midland Bank Executor and Trustee Co. Ltd. [1971] 1 Q.B. 113, C.A. applied.

(2) That the overriding rule in assessing damages was to ascertain the sum that would place the injured party in the same position as he would have been if he had not sustained the wrong; that, accordingly, no basis for assessing damages for negligent advice would be applied automatically so as to defeat that rule and, in applying the rule, it was necessary to select a date that would reflect accurately the loss sustained which was usually but not necessarily the date of the breach of duty; that, therefore, the case would be remitted to the master for an assessment of damages on the basis that the plaintiffs were entitled to the sums they had paid to extricate themselves from the underlease unless it could be shown that it was not a reasonable attempt to mitigate their loss, but that they would only be entitled to damages for the loss of the prospective sale if they could show that if properly advised they could have negotiated an underlease of the same premises without the unfavourable clause (post, 925B-D, F-G, 926B-F,927B, H-928B).

Dicta of Lord Blackburn in Livingstone v. Rawyards Coal Co. (1880) 5 App.Cas. 25, 39, H.L.(Sc.) and Megaw L.J. in Dodd Properties (Kent) Ltd. v. Canterbury City Council [1980] 1 W.L.R. 433, 451, C.A. applied.

Decision of Mr. Robert Wright Q.C. sitting as a deputy judge of the Chancery Division reversed.

The following cases are referred to in the judgment of Bingham L.J.:

Bowdage v. Harold Michelmore & Co. (1962) 183 E.G. 233

Braid v. W.L. Highway & Sons (1964) 191 E.G. 433

Dodd Properties (Kent) Ltd. v. Canterbury City Council [1980] 1 W.L.R. 433; [1980] 1 All E.R. 928, C.A.

Ford v. White & Co. [1964] 1 W.L.R. 885; [1964] 2 All E.R. 755

Hadley v. Baxendale (1854) 9 Exch. 341

Ladenbau (G. + K.) (U.K.) Ltd. v. Crawley & de Reya [1978] 1 W.L.R. 266; [1978] 1 All E.R. 682

Livingstone v. Rawyards Coal Co. (1880) 5 App.Cas. 25, H.L.(Sc.)

Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp [1979] Ch. 384; [1978] 3 W.L.R. 167; [1978] 3 All E.R. 571

Miliangos v. George Frank (Textiles) Ltd. [1976] A.C. 443; [1975] 3 W.L.R. 758; [1975] 3 All E.R. 801, H.L.(E.)

Perry v. Sidney Phillips & Son [1982] 1 W.L.R. 1297; [1982] 3 All E.R. 705, C.A.

Philips v. Ward [1956] 1 W.L.R. 471; [1956] 1 All E.R. 874, C.A.

Pilkington v. Wood [1953] Ch. 770; [1953] 3 W.L.R. 522; [1953] 2 All E.R. 810

Simple Simon Catering Ltd. v. Binstock Miller & Co. (1973) 228 E.G. 527, C.A.

Sykes v. Midland Bank Executor and Trustee Co. Ltd. [1971] 1 Q.B. 113; [1970] 3 W.L.R. 273; [1970] 2 All E.R. 471, C.A.

The following additional cases were cited in argument:

Boyce v. Rendells (1983) 268 E.G. 268, C.A.

Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd. v. Pontypridd Waterworks Co. [1903] A.C. 426, H.L.(E.)

Carradine Properties Ltd. v. D.J. Freeman & Co., The Times, 19 February 1982, C.A.

Forster v. Outred & Co. [1982] 1 W.L.R. 86; [1982] 2 All E.R. 753, C.A.

Goody v. Baring [1956] 1 W.L.R. 448; [1956] 2 All E.R. 11

Lake v. Bushby [1949] 2 All E.R. 964

APPEAL from Mr. Robert Wright Q.C. sitting as a deputy judge of the Chancery Division.

By statement of claim dated 27 March 1984 the plaintiffs, County Personnel (Employment Agency) Ltd., claimed against the defendant solicitors, Alan R. Pulver & Co., damages for negligence in the sums of £:16000 paid to the landlords to accept the surrender of the lease of ground floor premises at 109, Queen Street, Maidenhead, £:2761 being rent paid for the premises from Christmas 1983 to 24 June 1984 in excess of the rate originally agreed by the plaintiffs, and £:17000 being the sum for which the plaintiffs could have disposed of their business had it not been for the defects in the underlease arising from the defendants' negligent advice. On 15 July 1985 Robert Wright Q.C. sitting as a deputy judge of the Chancery Division dismissed the plaintiffs' action.

By notice of appeal dated 9 August 1985 the plaintiffs appealed. The grounds of appeal were, inter alia, that the judge's finding of fact that the defendants did explain the rent review clause to the plaintiffs was contrary to the evidence and any inference to that effect was not justified by the evidence as a whole or the matters specifically relied on by the judge.

The facts are stated in the judgment of Bingham L.J.

Jonathan Gaunt for the plaintiff company.

Ivan Krolick for the defendant solicitors.

BINGHAM L.J. delivered the first judgment. This is an appeal against a decision of Mr. Robert Wright Q.C. sitting as a deputy judge of the Chancery Division. On 15 July 1985 he dismissed the claim made by the plaintiffs against the defendants, their former solicitors, for damages for negligence. The plaintiffs challenge that decision, although the live issues have been considerably narrowed on appeal.

The facts can for present purposes be summarised relatively briefly. Mrs. Valerie Feldman and Mrs. Kathleen Balfe had worked together in an employment agency in Windsor. They decided to go into business on their own account through the medium of a company to be incorporated. For this purpose they required business premises. Having answered a newspaper advertisement, they were shown, by a Mr. Cook trading as Home Counties Businesses, two rooms on the ground floor of 109, Queen Street, Maidenhead. For these rooms Mr. Cook asked for an annual rent of £:3500 inclusive. Mrs. Feldman and Mrs. Balfe expected that their business would cover such a rent, and informally agreed to take a lease of the rooms at that rent for a 15-year term with five-yearly rent reviews. It does not appear that Mr. Cook had, initially, any interest in the premises at 109, Queen Street, but he set about negotiating the terms of a headlease of the whole building to himself with a view to sub-letting the ground floor rooms to Mrs. Feldman and Mrs. Balfe or their company when formed.

On 21 December 1978 Mrs. Feldman instructed Mr. Rose of the defendants to act in the matter. He was a managing clerk employed by the defendants, and a trusted friend and adviser of Mrs. Feldman. She told him of her plans and asked him to act in connection with the grant of a proposed underlease of the ground floor rooms. He accepted those instructions.

Either on that day or 22 December, Mrs. Feldman collected from Mr. Cook's solicitors and delivered to Mr. Rose for his consideration a draft of the underlease proposed by Mr. Cook. Unfortunately no copy of that document in its original form is still extant, and Mr. Rose died in February 1979. It is common ground that the draft underlease was for a term of 15 years with provision for rent reviews (upwards only) in the fifth and tenth years, but the evidence before the deputy judge and before us leaves unclear the precise effect of the rent review clause at that stage. Two pieces of evidence suggest that the underlessee's proposed rent may have been tied to a percentage of the mesne lessor's rent under the headlease. The first piece of evidence is a manuscript note of Mr. Rose in these terms:

"£:3500 comm'c'ing rent, 5 years. Thereafter %age of whole rent + rates + w.r. and ins'ce and cl'ng and lighting stairs & passageway."

The other is an inquiry made by Mr. Rose of Mr. Cook's solicitors on 9 January 1979:

"What is to be the percentage of the landlord's rent of the whole building, as reviewed in due course, which the tenant will pay? It must be borne in mind that the rental payable pursuant to the underlease includes general and water rates. It therefore seems relevant that the underlessees should know the present rent payable under the headlease (which knowledge cannot affect this transaction) so that they might be advised fully as to their position under clause 1 of the underlease."

Before the date of this inquiry Mr. Rose had received a copy of the headlease of the whole building from Mr. Cook's solicitors. This was for a 15-year term with rent reviews in the fifth and tenth years. The clause was in a familiar form with provision for notice and counter-notice and independent determination in default of agreement.

The rent could be revised upwards only, so as to accord with the open market rental value of the premises on the review dates.

Only three points need be noted on the headlease. First, the rent payable under the headlease was cut out from the copy sent to Mr. Rose. This is why he inquired what the rent was. Second, there was a covenant against assigning or subletting without the headlessor's written licence, such licence not to be unreasonably withheld. Third, the lessee covenanted that on any subletting the sublessee's right to security of tenure under the Landlord and Tenant Act 1954 should be effectively excluded.

On 10 January 1979 Mr. Rose wrote to Mrs. Feldman concerning the draft underlease, of which Mrs. Feldman as well as he had copies. He told her that he had received a copy of the headlease with the rent cut out and he advised her on the rent review clause in the underlease, indicating that in one respect (not now material) it appeared to be favourable to her. He suggested that he should take Mrs. Feldman through the headlease and the underlease "so that You might clearly understand Your obligations in the matter both on behalf of the company and so far as concerns Kathy and Yourself, as guarantors." He thought that a suitable time for such a meeting might be after the result of inquiries and searches had been received.

Mr. Cook's solicitors answered the inquiry I have quoted above by saying: "The wording has now been revised."

This was, it seems, a reference to a revised draft underlease which Mr. Cook's solicitors sent to Mr. Rose on 9 January, their letter crossing with Mr. Rose's inquiries. Whatever the rent clause may have said before, it now provided for a

"yearly rent of £:3500 inclusive of general rates and water service charges ('the initial rent') for the first five years of the term created by the headlease (or such lesser period thereof as shall remain at the commencement of the term hereby created) and thereafter paying for the periods set out in the headlease an amount equivalent to the initial rent increased by the same percentages as the Landlord's rent has been increased under the terms of the head- lease."

On 24 January 1979 Mrs. Feldman and Mr. and Mrs. Balfe attended at the defendants' offices. Mr. Rose went through the underlease and the headlease with them. He dictated a letter to Mr. Cook's solicitors in their presence. The attendance lasted about one hour. What Mr. Rose said on that occasion, and whether it was sufficient to discharge the duty of care which the defendants by Mr. Rose owed to the plaintiffs, are the questions which lie at the heart of this appeal. But before considering those matters in detail I should briefly complete the narrative.

The plaintiffs were allowed into possession of the ground floor rooms on 19 February 1979 and the lease and counterpart were exchanged very shortly thereafter. In May 1979 the defendants received from Mr. Cook's solicitors a certified copy of the headlease, showing the rent of the whole building under the headlease to have been £:2250 per year exclusive of rates (as compared with £:3500 inclusive for the ground floor rooms only in the underlease). Problems then arose because the headlessor had not given consent to the sub-letting of the ground floor rooms, his sticking point being that Mr.

Cook had not excluded the right to security under the Act of 1954 in the underlease. The sub-letting was therefore in breach of covenant and rendered Mr. Cook's interest under the headlease (and thus the plaintiffs' interest under the underlease) liable to forfeiture. Resolution of these problems took a very long time, during which the plaintiffs were advised by the defendants in a manner of which no complaint is now made. Eventually a new underlease (running from the same date and otherwise unchanged) was executed, security having been excluded and the headlessor having given his consent. This was in July 1982. By that time the plaintiffs, despairing at the time taken to finalise the new underlease and other matters, had instructed other solicitors, Messrs. Aubrey Croysdale and Stern, to act for them.

Towards the end of 1983 the plaintiffs wished to dispose of the sublease and the goodwill of the business. An offer of £:17000 was obtained. But this offer fell through, partly because there was no security and partly (it seems) because of uncertainty surrounding the whole question of rent review.

In the spring of 1984 the first rent reviews were negotiated. The rent under the headlease, originally fixed at £:2250 exclusive (found to be the true open market rental) was by agreement increased to £:5800. The yearly rent payable pursuant to the underlease, originally agreed at a level at least three times higher than the market rent for the two ground floor rooms, Rose "by the same percentages as the landlord's rent has been increased under the terms of the headlease" to £:9022. At open market value the yearly rent would, on the evidence, have been £:2600 inclusive. The plaintiffs refused to pay this rent, and eventually the mesne lessor (an assignee of Mr. Cook) accepted a surrender of the sub-lease on payment of £:16000 plus a sum of £:2761 representing the increased rent payable since the rent review date under the headlease. The plaintiffs claim that sum, plus £:17000 lost on the prospective sale of the underlease and goodwill, as damages for negligence against the defendants.

The deputy judge concluded that the defendants, by Mr. Rose, had been negligent in failing to advise the plaintiffs that the security provisions of the Act of 1954 would have to be excluded and the consequences of that exclusion, and in failing to advise the plaintiffs not to enter into the original underlease until the licence of the head landlord had been obtained. But he held that no damage flowed from those failures. These conclusions have not been challenged on this appeal. It is, therefore, enough to say that they appear to be plainly correct, as the parties have accepted.

The plaintiffs' allegations of negligence (so far as relevant to this appeal) were that the defendants, through Mr. Rose (1) failed to ascertain the initial rent under the headlease or warn the plaintiffs of the risks entailed in taking the original sub-lease without knowing the amount of that rent; (2) failed to advise the plaintiffs to obtain valuation advice upon the initial rent under the headlease and under the underlease compared with market value; and (3) failed to advise the plaintiffs about the operation of the rent review clause in the underlease and the undesirability of entering into such a clause. These allegations were directed to the period January to February 1979, before the plaintiffs entered into the underlease, and in particular to the meeting on 24 January 1979 when Mr. Rose took Mrs. Feldman and Mrs. Balfe through the headlease and the underlease.

The deputy judge found that the rent review clause in the underlease was most unusual, a finding on which the plaintiffs strongly rely. [His Lordship cited the judge's analysis of the evidence and continued:] The principles of law governing the decision on liability in this case were not in serious issue between the parties. The starting point is Salmon L.J.'s observation in Sykes v. Midland Bank Executor and Trustee Co. Ltd. [1971] 1 Q.B. 113, 125:

"In my view, it is quite impossible to lay down any code setting out the duties of a solicitor when advising his client about a lease. A great deal depends upon the facts of each particular case. A solicitor's duty is to use reasonable care and skill in giving such advice as the facts of the particular case demand."

Attention was also drawn to a sentence in the judgment of Harman L.J. in the same case, at p. 124:

"When a solicitor is asked to advise on a leasehold title it is, in my judgment, his duty to call his client's attention to clauses in an unusual form which may affect the interests of his client as he knows them."

It seems obvious that legal advice, like any other communication, should be in terms appropriate to the comprehension and experience of the particular recipient. It is also, I think, clear that in a situation such as this the professional man does not necessarily discharge his duty by spelling out what is obvious. The client is entitled to expect the exercise of a reasonable professional judgment. That is why the client seeks advice from the professional man in the first place. If in the exercise of a reasonable professional judgment a solicitor is or should be alerted to risks which might elude even an intelligent layman, then plainly it is his duty to advise the client of these risks or explore the matter further.

Mr. Krolick for the defendants quite rightly emphasised two matters, which should be constantly borne in mind. The first is that the defendants, through no fault of their own, have lost the benefit of Mr. Rose's evidence, and have had to conduct their defence to this claim without access to all the relevant documents. This being so, and with the relevant oral evidence of fact relating to matters six years earlier, much has had to depend on inference. The second is the danger of hindsight. It is easy to be mesmerised by the figures which resulted from the rent review in 1984. That would be wrong. The correct approach is to view matters as they should have presented themselves to a reasonably careful and competent solicitor in January and February of 1979.

There were, on the facts of the present case, three things which should have impinged on the mind of a reasonably careful and competent solicitor practising in this field. First, Mr. Cook or his solicitors did not wish the plaintiffs and the defendants to know the rent being paid for the whole building under the headlease. This was not in itself shocking or sinister. There could have been a perfectly good reason for it. It did, nonetheless, appear to be a fact. Secondly, Mr. Cook (trading as Home Counties Businesses) was taking a headlease of the whole premises with a view to subletting part. That again was not in itself surprising. He may simply have wanted the use of the upper part of the building. But he was likely to try and make a

profit if he could. Third, this was a most unusual clause. These things, and particularly the third, should, I think, have caused a reasonably careful and competent solicitor to think about this clauses rather more carefully than would have been appropriate had the clause been in a familiar standard form. It would have been appropriate to consider whether there was anything in the terms of this clause which might prove disadvantageous to the client.

On such consideration it should have been obvious that the clause required the client, on both rent reviews, to pay the same percentage increase as was made between two other parties to a figure of which Mr. Rose and the plaintiffs were unaware. If it were safe to assume that the initial levels of both the (unknown) headlease rent and the underlease rent were in accord with open market levels that arrangement might just be acceptable. The headlease rent would necessarily be higher than the underlease rent. The mesne lessor would therefore have an incentive to hold out for the lowest percentage increase possible. He could never make an increased profit by allowing his own rent to rise. But very little reflection would show that the position might be very different if either of these assumptions could not be safely made. If the headlease rent were below the market level, the percentage uplift to be applied to it at the first rent review would be greater than the percentage uplift experienced in rents generally, with the result that the plaintiffs' rent would be increased by more than any general increase in rents warranted. If the agreed underlease rent were above the open market level, the excess might be exponentially increased during the 15-year term of the lease, even if the initial headlease rent were at the open market level. If perchance the initial headlease rent for the whole building were below the underlease rent for the ground floor rooms, then the mesne lessor would have no incentive to hold out at the rent reviews for the lowest rent increase obtainable because the greater his own rent the greater the profit rental he could exact from the plaintiffs. These reflections involve no element of valuation, on which a solicitor is plainly unfitted to advise. They are reflections which, in my judgment, would and should occur to a reasonably careful and competent solicitor called upon to consider and advice on this clause against the background I have described. Having done so, he would and should have advised the plaintiffs that it was, on existing information, impossible to say how the clause would operate in practice, but that its operation might to a greater or lessor extent be disadvantageous to the plaintiffs; that unless both initial rents were known and investigated and found to be at open market levels, the risk of disadvantage could not, on the proposed wording, be eliminated; and that, as matters stood, the plaintiffs should not consider entering into a lease which contained this clause. Distasteful though it is to make a finding of negligence against a dead man who cannot defend himself, the inescapable fact is that Mr. Rose did not give this advice or anything like it and, in my view, he was negligent in failing to do so.

It follows that I cannot agree with the approach of the deputy judge to this matter. I accept the inference which he drew "that Mr. Rose would have explained its effect, namely that the original rent would be reviewed upwards in step with the increases in market value in the headlease." This explanation was not itself entirely accurate, if the headlease rent was below the open market level, but more

importantly, it did nothing to alert Mrs. Feldman to the possible risks I have mentioned. The deputy judge found that Mr. Rose gave no further or fuller explanation, but I (unlike the judge) think he was bound in law to do so. I cannot accept the distinction drawn between legal consequences and financial implications, because in this case the significance of the legal consequences lay in the financial implications. Even accepting that Mrs. Feldman was not a naive innocent in the commercial world, I regard this as a classic case in which the professional legal adviser was bound to warn his client of risks which should have been apparent to him but would, on a simple reading of the clause, have been most unlikely to occur to her.

It was argued for the defendants that if, contrary to their primary submission, Mr. Rose was negligent at all, no damage flowed from that negligence. This submission rested on the conduct of the plaintiffs in instructing other solicitors, Messrs. Aubrey Croysdale and Stern, before the second underlease was granted. That, it was said, broke the chain of causation; any damage which the company plaintiffs might be shown to have suffered flowed from the negligence of these new solicitors and not the defendants. It is quite true that when the new solicitors were instructed they knew, as the defendants in February 1979 had not known, the rent under the headlease. But the defendants had known that rent in May 1979, two-and-a-half years before they ceased to act. They advised on the new underlease in October 1980. The deputy judge held that the defendants were not at that stage at fault in failing to review the whole transaction. That finding was not challenged on appeal. The decision was then made to seek a new underlease, the headlessor's consent having been obtained and the security of tenure provisions excluded. The new solicitors were instructed to implement that decision, not to review it. There is nothing in the facts as found to support the conclusion that anything done or omitted by the new solicitors broke the chain of causation between the defendants' negligence and whatever damage the plaintiffs suffered.

The deputy judge accepted Mrs. Feldman's evidence that if she and Mrs. Balfe had known of the financial implications of the rent review clause the plaintiffs would not have proceeded. Having, however, concluded that there was no effective negligence by Mr. Rose, the deputy judge made no finding on damages. In this court it is accepted that we cannot carry out a detailed inquiry into damages. But we have been asked to rule on the principles to be applied in assessing damages and this we agreed to do.

The plaintiffs claim as damages the three sums which I have already mentioned: the capital sum of £:16000 paid to the mesne lessor in consideration of his accepting a surrender of the underlease in June 1984; £:2761 arrears of rent paid to the mesne landlord as part of that settlement; and £:17000 lost on the prospective sale of the underlease and the goodwill of the company's employment agency business. It is to be observed that these figures exclude any element attributable to the first five-year period of the underlease, during which it may fairly be said that the rent paid by the plaintiffs in excess of the open market rent was the result of their willingness to pay the rent asked. It plainly had nothing to do with the operation of the rent review clause.

The defendants attacked this method of calculating the claim as being bad in principle. It was said that the correct measure of damage (whether in contract or in tort) for negligent advice is the difference between (a) the open market value of the asset acquired as it actually was, and (b) whichever is lower of the price paid and the open market value of the asset in the state in which, as a result of the negligent advice, it was thought to be. I shall for convenience call this "the diminution in value rule." In the defendants' submission the diminution in value rule is to be applied as at the date of breach of contract or entry into the transaction and account should not in general be taken of events which occur later.

The principles to be applied in assessing damages in this case are, in my judgment, these:

(1) The overriding rule was stated by Lord Blackburn in Livingstone v. Rawyards Coal Co. (1880) 5 App.Cas. 25, 39, and has been repeated on countless occasions since: the measure of damages is

"that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation."

As Megaw L.J. added in Dodd Properties (Kent) Ltd. v. Canterbury City Council [1980] 1 W.L.R. 433, 451:

"In any case of doubt, it is desirable that the judge, having decided provisionally as to the amount of damages, should, before finally deciding, consider whether the amount conforms with the requirement of Lord Blackburn's fundamental principle. If it appears not to conform, the judge should examine the question again to see whether the particular case falls within one of the exceptions of which Lord Blackburn gave examples, or whether he is obliged by some binding authority to arrive at a result which is inconsistent with the fundamental principle."

(2) On the authorities as they stand the diminution in value rule appears almost always, if not always, to be appropriate where property is acquired following negligent advice by surveyors. Such cases as Philips v. Ward [1956] 1 W.L.R. 471; Pilkington v. Wood [1953] Ch. 770; Ford v. White & Co. [1964] 1 W.L.R. 885 and Perry v. Sidney Phillips & Son [1982] 1 W.L.R. 1297, lay down that rule and illustrate its application in cases involving both surveyors and solicitors.

(3) That is not, however, an invariable approach, at least in claims against solicitors, and should not be mechanistically applied in circumstances where it may appear inappropriate. In Simple Simon Catering Ltd. v. Binstock Miller & Co. (1973) 228 E.G. 527 the Court of Appeal favoured a more general assessment, taking account of the "general expectation of loss." In other cases the cost of repair or reinstatement may provide the appropriate measure: the Dodd Properties case [1980] 1 W.L.R. 433, 456 per Donaldson L.J. In other cases the measure of damage may properly include the cost of making good the error of a negligent adviser: examples are found in Braid v. W. L. Highway & Sons (1964) 191 E.G. 433, and G. + K. Ladenbau (U.K.) Ltd. v. Crawley de Reya [1978] 1 W.L.R. 266.

(4) While the general rule undoubtedly is that damages for tort or breach of contract are assessed as at the date of the breach (see, for

example, Miliangos v. George Frank (Textiles) Ltd. [1976] A.C. 443, 468 perLord Wilberforce), this rule also should not be mechanistically applied in circumstances where assessment at another date may more accurately reflect the overriding compensatory rule. The Dodd Properties case [1980] 1 W.L.R. 433, both affirms this principle and illustrates its application.

(5) On the facts of the present case the diminution in value rule would involve a somewhat speculative and unreal valuation exercise intended to reflect the substantial negative value of this underlease. It would also seem likely to lead to a total claim well above the figure the plaintiffs claim. By contrast, there is firm evidence that £:18761 is what it actually cost the plaintiffs, as a result of an arm's length negotiation after expiry of the first five years of the underlease, to extricate themselves from the consequences of the negligent advice they had received. Unless (which seems unlikely) it can be shown that payment of this sum did not represent a reasonable attempt by the plaintiffs to mitigate the loss they had suffered, this figure would represent a fair assessment of one head of the loss.

(6) Even after an appropriate measure has been found to reflect damage recoverable under the first limb of the rule in Hadley v. Baxendale (1854) 9 Exch. 341, there will be cases in which a plaintiff will not be adequately compensated unless he receives damages to reflect his loss under the second limb also. In claiming £:17000 for loss of its prospective sale of the lease and the goodwill of the business the plaintiffs advance the present as such a case. It must, however, be accepted on the findings of the deputy judge that if they had not been negligently advised the plaintiffs would not have entered into this underlease at all. This being so, damage cannot be assessed with reference to a specific gain which the plaintiffs could only have made if they had entered into this underlease, unless it be proper on the facts to conclude that properly advised, the plaintiffs would probably have been able to negotiate the grant of this underlease but without the offending clause. Even then the offer of £:17000 would call for closer scrutiny.

(7) It may alternatively be proper to conclude when the facts are investigated that even if the plaintiffs, properly advised, would not have taken an underlease of 109, Queen Street, they would nonetheless have taken a lease of other premises from which to conduct their employment agency business. On their initial introduction to Mr. Cook, Mrs. Feldman and Mrs. Balfe were shown other premises in Maidenhead and it may be that they would have accepted the other premises had the Queen Street transaction fallen through. Had they done so and had the plaintiffs conducted their business from the other premises, it may be correct to infer that goodwill would have been established and (perhaps) a saleable lease obtained. But it would be proper to approach this assessment in a cautious and conservative manner: the premises chosen were clearly thought to be the more promising for purposes of the business it was proposed to conduct; it does not follow that the business could have been conducted as successfully from other premises; the value of the plaintiff company's potential goodwill would have to be looked at in the light of its accounts; there might be no prospect of obtaining a significant premium on sale of a lease at open market rent; and the speculative nature of the assessment should be borne in mind.

(8) Any damages awarded would no doubt attract an award of interest in the usual way.

I would accordingly allow the appeal and remit the case to a Chancery master for the assessment of damages in accordance with the principles stated.

STEPHEN BROWN L.J. I agree that the appeal should be allowed for the reasons given by Bingham L.J., and I further agree that the issue of damages should be remitted to a Chancery master for assessment in accordance with the principles which he has stated.

SIR NICOLAS BROWNE-WILKINSON V.-C. I also agree and only add a few remarks on two points. First on the issue of liability for negligence. In addition to those matters referred to by Bingham L.J., in my judgment the rent review clause was in itself so unusual that any careful solicitor would have considered its repercussions very carefully. Its effect was to make the rent payable under the underlease wholly dependent on the proper operation of the rent review clause in the headlease. The rent review clause in the headlease required the service of a counter-notice by the tenant, time being of the essence, if the revised rent proposed by the headlandlord in his notice was not to become binding. The hazards involved in the operation of such rent review machinery are notorious. Even if the machinery were properly operated, under this clause the underlessee had no say whatsoever in the negotiations or fixing of the rent payable under the headlease on a review.

Faced with such a clause, a solicitor properly discharging his duty to his client would have had to consider very carefully its repercussions. If very careful consideration had been given to this clause, Mr. Rose would very soon have discovered the actual hazard which has caused damage in this case, which Bingham L.J. has illustrated. Having discovered that he would have had to warn the client plaintiffs of the risks involved in accepting such a clause, at least without knowing the rent payable under the headlease.

In the circumstances, it seems to me that Mr. Rose was most clearly put on inquiry as to the effect of this clause. He neither pursued the necessary inquiries nor gave adequate warning of the hazards to the client.

As to measure of damages, in my judgment the diminution in value rule is wholly inappropriate to the quantification of damages in this case. The diminution in value rule is concerned with a case where the client has purchased for a capital sum a property having a capital value. Such client thinks that it has certain features which render it more valuable. Due to the shortcomings of his professional adviser he is not aware of the fact that it lacked these features. The measure of damage is the difference, put broadly, between its actual value and the value it would have had had it possessed the features which he thought it had. The essence of such a rule is to compare two actual values. In the present case the plaintiffs were buying an asset which, as they thought, could have no capital value; they were buying an underlease at a rack market rent which would have no capital value. As a result of the negligence by the solicitors the plaintiffs have exposed themselves to a long-standing liability requiring them to pay substantial sums out of pocket. To apply any test of capital diminution

in such circumstances would be wholly artificial. The loss suffered is the liability to pay a sum over a period of time. The plaintiffs managed to extricate themselves from such liability by the down payment of a capital sum. In my judgment, the capital sum they had to pay is the true measure of damage under that head.

I agree with Bingham L.J. in saying that the price paid to the landlord to accept a surrender is the right measure of damage under that head.

For those reasons, and for all the other reasons given by Bingham L.J., I agree that the appeal should be allowed on liability and the case remitted to a Chancery master for assessment of damages in accordance with the principles stated in Bingham L.J.'s judgment.

Solicitors: Fairchild Greig & Wells; Reynolds Porter Chamberlain.

S. H.