DeMarco v Perkins and Bulley Davey – the Court’s approach to assessment of loss

Introduction

DeMarco v Perkins and Bulley Davey [2006] All ER D 150 is a professional negligence case in which, as a result of the respondent insolvency practitioner’s negligence, the bankrupt appellant lost the chance to obtain an IVA and thereby an annulment of his bankruptcy. He was subsequently discharged from bankruptcy. The Court of Appeal recently considered Mr DeMarco’s claim that he should be entitled to the cost of obtaining an annulment by a different means. This would have involved paying debts of approximately £170,000. The key issue considered by the Court was whether Mr DeMarco was entitled to this sum or whether, instead, his damages should be limited to an award for stigma/loss of reputation.

Background

The recent decision of the Court of Appeal in DeMarco v Perkins and Bulley Davey is notable because of the Court’s approach to assessment of loss. The appellant, Mr DeMarco, was adjudged bankrupt in March 1997. The respondents were retained to act on his behalf with regard to obtaining an IVA and a subsequent annulment of his bankruptcy order. They failed to advise him that it was necessary to seek the annulment prior to discharge from bankruptcy. Mr DeMarco was discharged automatically in March 2000 and therefore lost the opportunity to seek an annulment via an IVA. If Bulley Davey had not been negligent, Mr DeMarco would have been an annulled bankrupt, rather than a discharged bankrupt.

Mr DeMarco argued that the only way to compensate him for the respondents’ negligence was to pay off all his pre-bankruptcy debts. By doing this he would be able to obtain an annulment by a different means and would become an annulled bankrupt. His debts were such that he claimed in the region of £170,000.

Bulley Davey argued that his claim was really a loss of reputation claim and that, in reality, there is very little difference in terms of reputation between a discharged bankrupt and an annulled bankrupt. Accordingly, his damages should be nominal.

Court of Appeal’s judgment

The Court of Appeal agreed with the trial judge that Mr DeMarco should not be entitled to special damages so as to enable him to achieve an annulment of his bankruptcy. In doing so, the Court adhered to the principles set out in the well-known case of South Australia Asset Management Corporation v York Montague Limited [1996]. In that case Lord Hoffman stated:

“Normally the law limits liability to those consequences which are attributable to that which made the act wrongful.”

Applying this approach to Bulley Davey, the “wrongful act” was the failure to warn the appellant that he could exit the bankruptcy through an IVA, rather than by discharge, only if he put an acceptable proposal to his creditors before discharge. The respondents should, therefore, be liable only for the foreseeable consequences of not putting an acceptable proposal to the creditors within the proper time. The consequence of this is that Mr DeMarco was discharged after 3 years and his post-bankruptcy debts were eradicated. He is, however, left with the stigma of being a discharged bankrupt. This is the consequence of “attributable to that which made the act wrongful”. It is on that basis only that damages should be paid.

In awarding a mere £6,000 for stigma/loss of reputation, the Court considered the judgment of Lord Steyn in Farley v Skinner [2002], in which he clearly stated that damages for intangible losses (distress and stigma included) should be “restrained and modest”.

Comment

Bulley Davey is a case where the respondent insolvency practitioners were clearly in breach of the duty of care they owed to their client. It is equally clear that Mr DeMarco did not get the IVA and subsequent annulment that he sought the respondents’ assistance to obtain. It is a case where the Court could easily have chosen to award Mr DeMarco the damages he sought, on the basis that it would be unjust for him not to be compensated for the respondents’ wrongdoing. Yet the Court chose instead to apply the law strictly, and looked to frontier cases such as SAAMCO and Farley v Skinner. This can be viewed as a positive – and encouraging – decision for the respondent professional and his advisors.