Can a claimant recover the costs of a mitigation strategy without giving credit for the enhanced capital value it produces? And at what point does a defendant’s liability cease for the ongoing financing costs of a retained asset? In Barrowfen Properties Ltd v Patel & Ors [2025] EWCA Civ 39, the Court of Appeal clarified that where a claimant voluntarily elects a more valuable mitigation scheme, it must account for the resulting betterment.
Appositely, the heart of the dispute concerned a property in Tooting, London. The Claimant, Barrowfen, suffered losses arising from breaches of fiduciary duty and professional negligence by the Defendants. These breaches delayed the commencement of a planned property development, causing the loss of the opportunity to earn rental income. To mitigate this loss, Barrowfen abandoned its original plan, which it deemed no longer commercially viable, and pursued a “Revised Development Scheme”. Upon completion, this revised scheme yielded a property with a significantly enhanced capital value, generating a notional “developer’s profit” (betterment) of £2.5 million. Barrowfen resisted giving credit for this £2.5 million benefit. It contended that because it intended to retain the property as a long-term investment rather than sell it, the capital gain was illusory. It further argued that the financing costs associated with holding the property over its 25-year investment lifecycle would exceed the developer’s profit, resulting in a net loss.
The Court of Appeal (Snowden LJ, with whom Lewis and Newey LJJ agreed) rejected these submissions. The Court held that the capital gain was a “measurable benefit” arising directly from the act of mitigation and must be credited against the claim. Furthermore, the decision to retain the property was an independent commercial choice which broke the chain of causation, effectively absolving the Defendants of liability for subsequent financing costs.
Mitigation and the “continuous course of conduct”
Snowden LJ anchored his analysis in the “avoided loss” principle of British Westinghouse [1912] AC 673. His Lordship reasoned that the construction of the “Revised Development Scheme” constituted a “continuous course of conduct” undertaken specifically to mitigate the loss of rental income (at [98]).
The Court distinguished the present facts from The New Flamenco (Globalia Business Travel SAU v Fulton Shipping Inc) [2017] UKSC 43. In Fulton, the shipowner’s sale of the vessel was a strategic decision triggered by the occasion of the breach, but not legally caused by the mitigation of the lost income stream. The sale was a collateral transaction involving a capital asset, distinct from the income loss; i.e. a collateral betterment. By contrast, Snowden LJ found that Barrowfen’s capital benefit was intrinsic to the mitigation scheme itself. The decision to build the Revised Scheme was not an independent gamble or a collateral speculation; it was the very method chosen to replace the lost income. Thus, the chain of causation remained intact, compelling the Claimant to account for the benefit.
This conclusion is plainly correct. Had the Court permitted Barrowfen to recover the construction costs while disregarding the resulting value, the Claimant would have been unjustly enriched, effectively securing a higher property value at the Defendant’s expense. By characterising the mitigation scheme as a single indivisible economic event, the judgment ensures that the Claimant must also give credit for the value created in the compensation for loss, rather than subsidising its accumulation of capital.
Voluntary betterment and the causal guillotine
The judgment is particularly instructive on the temporal limits of liability. Snowden LJ rejected Barrowfen’s attempt to set off future financing costs against the capital gain, applying a strict “guillotine” to the chain of causation. His Lordship affirmed that the “causative effect” of the breach “came to an end on the completion of the development” (at [99]). At that moment, the asset was built and available for rent; the loss of opportunity was fully mitigated. Consequently, Barrowfen’s subsequent decision to retain the property - and thereby incur decades of financing costs - was characterised as an “independent commercial choice” (at [102]-[103]). Since the company was free to sell the asset and realise the capital profit immediately, its voluntary decision to hold the property as a long-term investment broke the chain of causation.
This analysis was fortified by Snowden LJ in the distinction drawn with Harbutt’s “Plasticine” Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447. Unlike the claimant in Harbutt, who had “no choice” but to rebuild a destroyed factory to save its business, Barrowfen was not compelled by necessity. It had simply lost an opportunity and voluntarily selected a larger and more valuable “Revised Scheme” to mitigate that loss. Citing Lord Hope in Lagden v O’Connor [2004] 1 AC 1067, Snowden LJ held that where a claimant has a choice in mitigation and opts for a more valuable route, “a case will have been made out for a deduction” (at [114]).
It is suggested that Snowden LJ’s reasoning is doctrinally sound because it implicitly draws a cordon sanitaire between two distinct categories of risk: mitigation risk and investment risk. The identification of the former firmly anchors the decision in the orthodox principles of British Westinghouse (the duty to mitigate) and Fulton Shipping (causation). As the authors of the delay, the Defendants were rightly liable for the mitigation risks inherent in the construction and, by the same token, entitled to credit for the resulting betterment. By contrast, the Defendants did not compel Barrowfen to assume the role of landlord for twenty-five years. By electing to retain the asset, Barrowfen effectively wagered that the rental yield would exceed the cost of capital over the long term. That is an inherent investment risk. To hold the Defendants liable for such financing costs would be to require them to subsidise the Claimant’s independent commercial speculation. The judgment rightly declines to extend the tortfeasor’s liability into the realm of the claimant’s portfolio management.
