Demarco v Perkins [2006] EWCA Civ 188
On 4th February 1997 the Inland Revenue presented a bankruptcy
petition against Mr Anthony Demarco. Together with other creditors
his total indebtedness was £177,972. Mr Demarco was concerned that
the making of the bankruptcy order would impact on his involvement
as director of a family company. His solicitors suggested that he
seek advice from insolvency specialists and he therefore approached
Mr Perkins of Messrs Bulley Davey to advise him.
During the course of an initial meeting the parties discussed
obtaining an annulment of the bankruptcy order. For the purposes of
this report there were only two relevant means of achieving this:
either Mr Demarco paid off his debts in full (together with the
expenses of the sequestration); or he sought and obtained an
individual voluntary arrangement ('IVA'). The IVA could only be
obtained with the approval of Mr Demarco's creditors during the
course of the bankruptcy.
It was apparently agreed with Bulley Davey that Mr Demarco would
pursue the IVA route but for reasons which remain unclear no steps
to achieve that were ever put in place. Three years later Mr
Demarco obtained an automatic discharge from his bankruptcy. At
that point the IVA route was no longer available to him. Since at
that stage he still had insufficient funds with which to pay off
his creditors in full then there was therefore no possibility of
him obtaining an annulment of this bankruptcy.
Negligence on the part of the Defendants was admitted. The only
difficulty lay in determining how damages were to be assessed.
Mr Demarco argued that he should be restored to the position in
which he would have been had Bulley Davey fulfilled the terms of
their contract with him. Since it was no longer possible to obtain
an annulment of the bankruptcy through the IVA route then he sought
from them the whole sums which he required to pay his creditors in
order to obtain through that alternative route an annulment of his
bankruptcy.
Bulley Davey obviously experienced some difficulty in refuting
the logic of that approach and appear to have argued simply that
such damages should not be awarded because they were too
remote.
The Court of Appeal rejected that approach but nevertheless
refused to award Mr Demarco anything more than nominal damages.
These were assessed by examining what Mr Demarco had in fact
suffered in consequence of the Defenders' admitted negligence. What
he clearly had not suffered was the loss of the opportunity to have
the bankruptcy order annulled by payment of his creditors in full.
What he had, however, lost was the change of obtaining that
annulment via the IVA route. In awarding damages the court
attempted to value the loss of that opportunity on the basis that
even if it had proven to be successful Mr Demarco would still have
been left with the stigma (if such it was) of the IVA.
The case highlights the difficulties which might be encountered
in following otherwise standard legal principles such as that the
purpose of compensation is to place the injured party back in the
position in which they would have been but for the evident fault.
It demonstrates that, on occasion, the rigid application of such
principles might result in entirely inappropriate decisions.