The Message: The amount of compensation awarded by a court may be far less than a claimant expected.
The Case: The High Court has determined the level of damages payable to a party for wrongly being excluded from a development project (Sutcliffe v Lloyd, 09.06.08).
Mr Sutcliffe assisted Mr Lloyd initially in relation to the proposed development of a site in Leamington Spa into flats. Sutcliffe was led to believe by Lloyd that he would be responsible for carrying out the works and would share in the profit earned by the development. He invested his time and efforts into securing planning consent on that basis. However, Lloyd then proceeded with the development without Sutcliffe, and without making any payment to him.
The High Court held that Lloyd had wrongfully reneged on his promise to allow Sutcliffe to participate in the development. It then had to decide the sum of damages.
The court had to take into account what representations had been made to Sutcliffe and the extent of the detriment he had suffered as a result of relying upon the representations. Other relevant factors that needed consideration were the extent to which Lloyd had acted unconscionably and the degree to which Sutcliffe had contributed to the project.
Sutcliffe claimed £220,000, as this was an equal share with Lloyd of the difference between the price paid for the property and its value following planning permission to develop it into nine flats. This was on the basis that it was Sutcliffe who had selected, co-ordinated and supervised the professional team that had put together a high-quality residential scheme and secured planning permission for it.
Lloyd said nothing was due, as the scheme had not proved successful and his company, which had bought the property and undertaken the scheme, was probably insolvent.
The court held that Mr Sutcliffe's claim was quantified on the wrong basis, as it related to the value of the land before redevelopment, rather than the share of the profit he would have received once it was developed. It also ignored the risks he would have undertaken if he had remained involved.
The court also disagreed with Lloyd's case, as he was partly responsible for the scheme's lack of success, having substantially changed it and made it larger and more expensive.
There was no clear evidence as to the likely profitability of the original scheme, although Sutcliffe claimed he would have made a profit of £350,000 if this had proceeded.
The court took account of the fact that Sutcliffe would have had to invest £800,000 in relation to carrying out the works and that, as a result of not being involved, he was able to undertake other profitable work. It noted that he had not funded the development or had to undertake any of the risks, and could not therefore justify any claim to an equal share of any likely commercial profit.
The court had particular regard to the fact that Lloyd had received £35,000 for finding the site and acquiring it at a considerable discount. It thought Sutcliffe should be similarly compensated for his role in improving the planning permission, and that £25,000 was a fair sum to reflect his contribution.
This result must be a huge disappointment for Sutcliffe and he is likely to have come out of this litigation far poorer than when he began it.
Summing up: Sutcliffe v Lloyd
- Sutcliffe and Lloyd worked together on a residential property development, buying land and obtaining planning permission.
- Sutcliffe launched a claim for £220,000 in damages after Lloyd proceeded without him.
- The court accepted that Sutcliffe had been wrongfully excluded from the development.
- However, various factors led to Sutcliffe being awarded just £25,000 instead of the £220,000 he had claimed.
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