In a recent High Court case the Courts demonstrated that they were willing to make a decision that dis-applied logic where it was in the interests of fairness to do so.

In the case of Pegasus v Ernst Young [2012] the High Court was asked to consider whether an assignor and, therefore an assignee could maintain a claim for consequential losses. Proceedings had been brought against Ernst Young for negligence in relation to tax advice given on a capital gains scheme. Pegasus later fell into liquidation and transferred the cause of action, along with other assets to Inhealth UK Holdings Ltd for a nominal value. Pegasus then applied to substitute the Inhealth UK Holdings Ltd for itself as the claimant in the action.

Ernst Young attempted to resist the application claiming that there was no case for Inhealth UK Holdings Ltd to proceed with. Pegasus could no longer show they had suffered a loss as they no longer held the assets in which the losses were reflected. Once the assignment of the assets and cause of action had taken place the assignor had no losses to claim. The assignee could not claim for any greater loss than could have been recovered by Pegasus which meant that the claim could not be sustained.

The High Court followed the cases of GUS Property Management v Littlewoods and Technotrade v Larkstore. The assignor is treated as having suffered a loss if a wrong was committed that was capable of causing a loss to arise. The assignee should therefore be entitled to recover the losses that flowed from the original negligence. It was held by the court that a purely logical decision would allow these losses to disappear completely into a ‘black hole’. The losses claimed would have been recoverable if the assignment had not taken place, so to apply logic would be contrary to common sense and lead to an unjust outcome. Mr Justice Mann concluded that ‘There is no reason in legal principle why the law should treat the transfer of affected property as the same as the loss being removed by a third party.’

This case is one of several in recent times that illustrate the courts ability to apply the law on causation of loss so that a fair decision is made where loses have been assigned to a third party.

Pegasus v Ernst Young [2012] EWHC 738