The recent news involving Manchester City is one of those rare occasions when a commercial legal dispute becomes front-page news and the wider public takes a genuine interest in civil law.
As both a lifelong Bolton Wanderers fan and a Manchester-based lawyer, I have naturally been following developments.
I have taken a particular interest in the recent reports concerning the alleged financial losses that other clubs might claim to have suffered as a result of any proven breach of the rules by Man City (Manchester City charges: How much did their rule breaking cost your team? – BBC Sport).
It is rare indeed for these types of “loss of chance” arguments to make the headlines and it therefore feels like it would be totally remiss of me not to take the opportunity to leverage the current interest in the case to discuss “loss of chance” cases more generally.
Whether you are pursuing a potential claim under a construction contract or are a football club arguing that you have suffered substantial financial losses due to rule breaches, the underlying legal principles are likely to be very similar.
The principles of breach of contract
The starting point under English law is that damages for breach of contract are intended to compensate the innocent party for the loss it has suffered, rather than to punish the party in breach.
The usual measure is the claimant’s “expectation loss”. This seeks, so far as money can do, to place the claimant in the position they would have been in had the contract been performed properly.
In other words, the claimant is awarded the value of the benefit it reasonably expected to receive from the contract.
Damages for “loss of a chance” are a form of expectation damages.
Ordinarily, a claimant must prove on the balance of probabilities – that it is more likely than not – the defendant’s breach caused them to suffer loss. The claimant must also provide a proper evidential basis on which that loss can be assessed.
Contractual damages are subject to several important limiting principles:
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Remoteness: A claimant can generally recover losses that arise naturally from the breach or that were reasonably within the contemplation of the parties, when they entered into the contract, as a probable result of a breach.
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Causation: Losses are recoverable only if the claimant can establish the necessary causal connection between the breach and the loss.
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Mitigation: A claimant cannot recover losses that it could reasonably have avoided by taking appropriate steps following the breach.
How, then, do these principles apply to a loss of chance claim?
What is a loss of chance?
Loss of chance claims arise where the outcome depended on an uncertain hypothetical event, often a decision that would have been made by a third party, and it is impossible to prove precisely what would have actually happened.
The courts have therefore adopted a different approach to certain aspects of proof.
Where the claimant’s loss depends on the hypothetical actions of a third party, the claimant does not necessarily have to prove that the third party would, on the balance of probabilities, have acted in the claimant’s favour. Instead, the claimant must instead establish that there was a real and substantial chance of that favourable outcome. A chance that is merely speculative will not be enough.
An important distinction must be drawn between the claimant’s own hypothetical conduct and that of a third party. The court will generally require the claimant to prove, on the balance of probabilities, what it would itself have done. Historical facts must also be established in the usual way.
However, when considering what a third party would have done in hypothetical circumstances, or might do in the future, the court may assess the percentage chance of the third party acting as the claimant alleges.
A similar approach can arise in professional negligence claims involving “lost litigation”. The claimant may need to demonstrate that the underlying claim had a real and substantial prospect of success, rather than proving with absolute certainty that it would have won.
If the threshold is met, the court will value the opportunity that has been lost. This will often involve calculating the amount the claimant would have recovered if the favourable outcome had occurred and then discounting that amount to reflect the possibility that it would not have occurred.
So, for example, if a claimant lost the opportunity to obtain a benefit worth £1 million and the court assessed the chance of obtaining that benefit at 30%, the starting point for valuing the lost chance would be £300,000. That figure would remain subject to the ordinary legal rules concerning causation, remoteness, mitigation and proof of loss.
The leading authority remains Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602. That case established that, where the claimant’s loss depends on the hypothetical actions of a third party, the claimant need only establish a real or substantial chance, not necessarily a probability that the third party would have acted favourably.
A construction example
Consider a hypothetical loss of chance claim arising under a construction contract.
A developer engages a contractor to design and build a retail unit. The contract requires the unit to be handed over by 1 January, enabling the developer to finalise a pre-let agreement with a prospective tenant and then enter into a lease.
The contractor completes the project six months late. During the period of delay, the prospective tenant withdraws from the negotiations and leases a rival unit nearby. The developer brings a claim against the contractor for the rental income it says it has lost.
The contractor argues that, even if the unit had been completed on time, the prospective tenant might not have signed the lease. The tenant had also been negotiating with the rival developer.
The decision whether to enter into the lease was ultimately that of a third party: the prospective tenant. The developer might therefore frame its claim as one for the loss of a chance to secure the letting.
The court would first need to decide whether the contractor was responsible for the delay and whether the delay caused the developer to lose a real and substantial commercial opportunity.
If that threshold were met, the court would assess the likelihood that the lease would have been concluded but for the contractor’s delay. If the court valued that chance at 30%, it might award 30% of the recoverable financial benefit that would have resulted from the letting, subject to the other rules governing damages.
The principal requirements would include:
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A breach of contract: In this example, culpable delay by the contractor.
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A lost opportunity: The developer lost the opportunity to conclude the lease.
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Dependence on a third party: The outcome depended on the prospective tenant’s decision.
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A real and substantial chance: The opportunity must be genuine rather than speculative. Evidence showing draft Heads of terms and correspondence of the negotiations with the tenant might help establish this.
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A proper basis for valuation: The court must assess the likelihood that the opportunity would have materialised and discount the damages accordingly.
The level of damages in such a case could well be significant.
This is one reason why contractors often prefer delay liabilities to be addressed by an agreed liquidated damages regime (which will normally be the employer’s sole remedy for delay).
Back to the football!
Let’s return to football and use my beloved Bolton Wanderers as the purely hypothetical example.
The first point to make is that Bolton and Manchester City do not have a conventional bilateral contract with each other. Their legal relationships and obligations arise within the framework of the Premier League’s rules and the agreements under which clubs participate in the competition. What follows is therefore deliberately speculative. I am not a sports lawyer, and the precise legal basis on which one club might pursue a claim against another, or against a governing body, would require careful legal analysis.
I should also point out that Manchester City has denied wrongdoing and have issued an appeal of the Premier League’s findings.
With all that said, Bolton was relegated from the Premier League at the end of the 2011/12 season, having finished 18th out of 20 clubs.
That season, City beat Bolton 3–2 at Bolton’s ground, with goals from David Silva, Gareth Barry and Edin Džeko. City also won the return fixture 2–0, taking the maximum six points from Bolton.
Bolton was then relegated by a single point on the same afternoon as Sergio Agüero scored the famous stoppage-time goal that secured City’s first Premier League title (i.e. “Agueroooooo”).
A hypothetical argument might be that a club’s unlawful financial advantage enabled it to assemble a stronger squad and achieve results that it would not otherwise have achieved. If the club had complied with the rules, the argument goes, results across the league and therefore the final table could/would have been very different. That would not mean simply assuming that City would have lost both matches against Bolton or transferring six points to Bolton’s overall total.
The counterfactual would in reality be much more complicated. It would involve the hypothetical performances and decisions of numerous clubs throughout the season.
Bolton would therefore need to secure compelling expert evidence, potentially involving statistical modelling and counterfactual league simulations.
It would have to demonstrate a real and substantial, not merely a fanciful chance that it would have avoided relegation in a competition conducted on the relevant lawful basis.
However, if, for example, that chance was assessed at 30%, the argument might be that the recoverable value of the lost opportunity should be calculated by applying that percentage to the total alleged financial losses caused by relegation. The precise calculation would, of course, remain subject to questions of causation, remoteness, mitigation and the proper legal basis of the claim.
You do not need to be a lawyer to recognise the legal and evidential difficulties inherent in this type of claim.
A loss of chance claim on Bolton’s behalf would assume that, when presented with a fair and level playing field, Bolton would actually have helped themselves. As any long-suffering Bolton fan will tell you, that is a significant assumption. Bolton has elevated snatching defeat from the jaws of victory to an art form!
Nevertheless, the doctrine of loss of chance in law exists to avoid the potential injustice of an all-or-nothing outcome. Where a claimant establishes that the defendant’s wrongdoing caused it to lose a real and substantial opportunity, the court may assess the value of that opportunity and award damages reflecting the likelihood that it would have actually materialised.
Mark Christie is a Partner in the Construction team at Clarke Willmott specialising in both contentious and non-contentious construction law. Mark is also a qualified Adjudicator.