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Not all breaches lead to loss – a cautionary tale

18.01.21

YJB Port Ltd v M&A Pharmachem Ltd & Anor [2021] 42 (Ch)

“The bitter truth for an innocent party is that some breaches by its counterparty, however unscrupulous or unethical, result in no loss that can be recovered by an award of compensatory damages; cf. injunctive relief or gain-based damages. Damages are awarded for the breach itself not the manner of the breach”

These words should be posted at eye level for all lawyers, they should be in the notes whenever a new client is taken on and they should lead us all to an early and thorough analysis of the value of any potential claim.  A failure to do so is a gross disservice to our clients.

The judgment of Mr Stephen Houseman QC in YJB Port Ltd v M&A Pharmachem Ltd & Anor (quoted above) provides a helpful reminder that proving causation of loss arising from proven breaches is essential to succeeding in a claim for compensation. Loss arising from threatened breaches is not recoverable.

Paragraphs 61 to 68 of the judgment provide a neat summary of the issues around causation and I paraphrase them below.

1. The relevant breach must be an ‘effective’ or ‘dominant’ cause of loss suffered by the innocent party, rather than merely creating an opportunity for the loss to be sustained;
2. It is often important to consider the impact of the claimant’s own post-breach, or post-discovery conduct on the losses which they suffer;
3. Where there is more than one cause of the loss both cooperating and both of approximately equal efficacy the court does not need to choose between competing causes;
4. In some situations, apportionment of causal effect may be appropriate;
5. In other circumstances the ‘fair wind’ principle may be deployed to determine evidential difficulties in favour of the innocent party but there are limits to this approach ‘a fair wind, but not a free ride’; and
6. Ultimately there is a great deal of common sense involved in the analysis.

The passage quoted at the start of is Judge’s conclusion on this point.

In this particular case no loss could be shown to have been caused by the breaches which had been found of the agreements between the parties.  The Claimant therefore received £3 in nominal losses amounting to £1 per proven breach.

At the time of writing it is not known what, if any, without prejudice correspondence had passed between the parties and therefore how the award compares with any offers particularly of a part 36 nature.  There are plenty of examples in case law of claimant’s proving breach but receiving no damages or nominal damages and having to pay hefty costs bills sometimes on an indemnity basis: Burges & Anor v Lejonvarn [2018] EWHC 3166 (TCC).  Marathon Asset Management LLP v Seddon [2017] EWHC 300

The message for all of us is to keep front and centre in our thinking and our advice what the claim is worth, it profits none of us to win the battle but lose the (costs) war.

Commentary by Lydia Banerjee