Causation - remoteness of loss - summary judgment

Mulvenna v Royal Bank of Scotland plc [2003] EWCA Civ 1112

In this case, Mr Mulvenna brought an appeal against a decision summarily dismissing his claim against the Royal Bank of Scotland.

His appeal was ultimately dismissed.

However, the case is of interest both procedurally, in relation to summary judgment applications and substantively, in relation to issues of causation and remoteness of loss.

For the purposes of the appeal, the court dealt with the case which Mr Mulvenna asserted that he would establish at trial.

The court took this approach in order to consider whether even on his asserted case, the bank would succeed in defeating his claim for damages.

It was Mr Mulvenna's case that he encountered difficulty with the bank, leading to his being dealt with by the bank's specialist lending services department until a refinancing arrangement could be agreed.

The aim of the refinancing arrangement was to enable him to return to the mainstream banking operation.

As part of the refinancing arrangement, the bank informed Mr Mulvenna that if he returned to the mainstream banking operation, it would look to assist in principle, subject to normal bank criteria, with funding for two development properties (A and B).

As part of the refinancing arrangement, the bank was alleged to have entered into a refund agreement whereby it agreed to re-credit his current account with excess interest or charges raised in reference to unauthorised borrowing.

Additionally, the bank provided him with an overdraft limit of 80,000 repayable on demand.

He asserted that even if the bank had refunded the correct figure under the refund agreement in March 1995, the overdraft figure of 80,000 would have been exceeded.

However, he claimed that despite this fact, the bank would have agreed an increase of his overdraft to 90,000 and would have returned him to normal mainstream banking operations.

He asserted that, on being restored to mainstream banking, he would have been provided with funding for the two properties by the bank.

He claimed that the bank was in breach of contract in that it failed to refund the correct amount under the refund agreement until 1998.

Thereafter the bank lent money for the development of property B.

Until then, in the absence of funding for the developments, he had been forced to dispose of property A at the best terms available.

He claimed damages for the loss of profits that would have been made on the development properties A and B and or the losses for the delay in the ultimate completion of the development of property B.

Therefore, his claim involved an assumption that the bank would have increased his overdraft and returned him to mainstream banking even though, if the refund agreement had been properly applied, his overdraft would still have exceeded the 80,000 limit.

His claim also involved an assumption that the bank would have agreed to make the loan for financing the development properties, even though it had only agreed to consider the provision of finance in principle and subject to normal bank criteria being met.

Consequently, in order to establish causation, he had to establish that the bank was prepared to do things in relation to which it had no contractual obligation.

This necessitated consideration of the principle that 'where the defendant has the option of performing a contract in alternative ways, damages for breach by him must be assessed on the assumption that he will perform it in the way most beneficial to himself and not in that most beneficial to the plaintiff' (see McGregor on Damages, paragraph 386).

Lord Justice Waller stated that the principal was concerned with assessing damages and 'the benefit which the principal has in mind is a benefit which a defendant is entitled to look to for that purpose, without regard to whether if the contract was actually being performed that is the way it would have been operated'.

In these circumstances, the bank was entitled to say that damages ought to be assessed on the basis that it was not obliged to provide finance for the development properties and that it was not obliged to increase Mr Mulvenna's overdraft level in excess of 80,000.

The bankers were entitled to 'have damages assessed on the basis of the contract they made as opposed to the contract that M suggests that he had a chance of persuading them to make'.

The Court of Appeal also dealt with the question of the remoteness of Mr Mulvenna's claim.

Normally a failure to pay money gives rise to no damages other than a possible obligation to pay interest for late payment.

However, a defendant may also be liable for damages resulting from special circumstances when those special circumstances are drawn to his attention and he accepts the risk of being liable for such consequences should they occur.

In this case the Court of Appeal found it totally unarguable that the bank should contemplate that a simple failure to comply with the refund agreement would make it responsible for the risk of the losses claimed in relation to the development properties.

From a procedural perspective, this case reinforces the position that on the whole, it is normally inappropriate to swamp a court with documentation in order to seek to persuade it that a case is unarguable on its facts.

The evidence of the respondent to a summary judgment application should not as a matter of general principle be rejected, unless it can clearly and easily be shown that it is not reasonably capable of belief.

As stated by Lord Justice Waller, this is a very high threshold to establish and will rarely be reached if it is necessary to conduct a minute examination of correspondence and minutes.

The Court of Appeal dismissed the appeal on the issues of causation and remoteness.

On the question of causation, the court explained that irrespective of whether the contract may have been performed in an alternative manner, a defendant is entitled, on the question of the assessment of damages, to have loss assessed on the basis of the legitimate performance that would have been most beneficial to himself.

As to remoteness, the decision of the court serves to re-emphasise that it is an oversimplification of the law merely to assume that if loss relating to special circumstances was within the contemplation of the parties, then it is recoverable.

In order to recover in these circumstances, it is additionally necessary to establish that the defendant has accepted the risk of being liable for such loss.

By Simon Sugar, barrister, 36 Bedford Row, London