Hayes v Dodd [1988] EWCA Civ 8 (07 July 1988)

A couple purchased a motor repair business relying on their solicitors' negligent advice that a right of way existed. When the access was blocked, their business failed. The court assessed damages on a 'no-transaction' basis, awarding expenditure less recoveries, but disallowed damages for mental distress in commercial contracts.

Facts

Mr and Mrs Hayes, who ran a motor repair business in London, decided to expand by purchasing a workshop and maisonette in Tenterden. Access to the workshop was critical, available through either a narrow tunnel or a rear right of way. During pre-contract negotiations, correspondence indicated the rear access was disputed, but the defendant solicitors negligently advised the plaintiffs that the right of way was secure. Within days of completion in July 1982, the adjoining owner blocked the right of way. The plaintiffs attempted to run the business but closed it within a year. They eventually sold the maisonette in May 1986 for £38,000 and surrendered the workshop lease in 1987.

Issues

Basis of Damages Assessment

Whether damages should be assessed on a ‘no-transaction’ basis (comparing actual position with position if no transaction occurred) or a ‘successful-transaction’ basis (comparing actual position with position if transaction succeeded as expected).

Mitigation

Whether the plaintiffs acted reasonably in mitigating their loss given the extended period before disposing of the properties.

Mental Distress

Whether damages for mental distress are recoverable in a commercial contract case.

Judgment

The Court of Appeal upheld the ‘no-transaction’ method of assessment, as the plaintiffs would never have entered the transaction had they received proper advice. The court found the plaintiffs acted reasonably in attempting to sell both properties together and in their subsequent disposal efforts.

On mental distress, Staughton LJ stated:

It seems to me that damages for mental distress in contract are, as a matter of policy, limited to certain classes of case… But it should not, in my judgment, include any case where the object of the contract was not comfort or pleasure, or the relief of discomfort, but simply carrying on a commercial activity with a view to profit.

The court reduced the damages from £105,748.81 to £92,047.81, disallowing £3,000 for mental distress, adjusting for double-counting on plant interest, and crediting 80% of the increase in maisonette value (£10,400).

Implications

This case establishes important principles regarding the assessment of damages in professional negligence claims against solicitors. The ‘no-transaction’ method is appropriate where the claimant would not have proceeded at all with proper advice. Significantly, the case confirms that damages for mental distress are not recoverable in purely commercial contracts, being limited to contracts where the object was to provide peace of mind or freedom from distress. This restriction aligns with the policy of preventing excessive claims in commercial litigation whilst recognising legitimate claims where contracts specifically concern personal comfort or wellbeing.

Verdict: Appeal allowed in part. Damages reduced from £105,748.81 to £92,047.81. The appellant was ordered to pay one quarter of the respondents' costs in the Court of Appeal.

Source: Hayes v Dodd [1988] EWCA Civ 8 (07 July 1988)