Negligence — Damages — Measure of damages for negligence of solicitors in dealing with application for a new tenancy under the Landlord and Tenant Act 1954 — Time lost in negotiations for new tenancy — Rising market for rents of business premises — Tenant claimed a loss of £17,500, being the difference over a 5-year period between the rent she paid and the rent she would have paid if the negotiations had not been delayed — Solicitors contended that by taking a 7-year period and making certain assumptions it could be shown that the tenant had suffered no loss at all, but had on the contrary been benefited by their breach of duty — Held that the fallacy underlying this line of reasoning was that it would be possible to show that the tenant would or would not have suffered a loss according to the particular date chosen in the future at which the calculation was made — The trial judge (Leonard J) was correct in taking the 5-year period as appropriate and comparing what the tenant actually got with what she would have got if the solicitors had not been negligent — Appeal dismissed
This was an
appeal by the defendants, Williams & Co, a firm of solicitors (the
plaintiff’s former solicitors) from a decision of Leonard J awarding the
plaintiff, the respondent to this appeal, a sum of £17,500 by way of damages
for the appellants’ alleged negligence.
Jonathan R
Gaunt (instructed by Ince & Co) appeared on behalf of the appellants; J R
Cole (instructed by David Alterman & Sewell) represented the respondent.
Giving the
first judgment at the invitation of Ackner LJ, OLIVER LJ said: This is an
appeal from an order of Leonard J in the Queen’s Bench Division on December 10
1982, giving judgment for the plaintiff for a sum of £17,500 by way of damages
together with interest and costs.
The action was
one in which the plaintiff sued her former solicitors for negligence in the
conduct of her affairs, and it raised a difficult, though interesting, question
with regard to the measure of damages. It was and is the defendants’ contention
that, far from the plaintiff having suffered any damage to the extent of
£17,500, or indeed any other figure, the result of the defendants’ breach of
duty, which was not in issue at the trial, was that she was actually better off
than she would have been if they had carried out their duties properly and that
the learned judge should, therefore, have awarded only nominal damages for what
turned out in the event to be no more than a technical breach of their
contractual duty to take reasonable care.
The salient
facts are these. The plaintiff is a businesswoman who carries on a successful
business as a dress shop in premises which consist of the ground floor and
basement of 36 South Molton Street, London W1. Those premises she held
originally under a lease dated April 13 1972 which created a term of five years
from March 25 1972 at a rent of £4,500 a year. The terms of the lease are
immaterial except that it included a tenant’s repairing covenant relating to
the exterior, but subject to a proviso which excluded liability for structural
defects. The only significance of this in the present context is that, in the
event, it proved a point for argument which enabled the plaintiff’s agent, a Mr
J S Prevezer [FRICS], to prolong negotiations with the landlords for the grant
of a new lease. Towards the end of the plaintiff’s term she anticipated that
negotiations would have to take place for a renewal of the lease and she
instructed the defendants to act for her, and indeed she was right.
On November 24
1976 the landlords, the London Transport Executive, served notice under the
provisions of the Landlord and Tenant Act 1954 terminating the plaintiff’s
tenancy on June 24 1977. In response to that the plaintiff, by the defendants,
gave notice on January 13 1977 that she was unwilling to give up possession and
she invited the landlords’ proposals for a new lease. The response to that was
a proposal from the landlords to grant a new three-year term at an annual rent
of £27,500.
That was, no
doubt, conceived of as no more than the opening of a negotiation, and on March
2 1977 the plaintiff applied to the Westminster County Court for the grant of a
new tenancy, proposing, perhaps rather optimistically, an annual rent of
£5,500. At about this time she instructed Mr Prevezer, a surveyor, to negotiate
with the landlords on her behalf. He regarded the rent claimed by the landlords
as unreasonable, but he was very much aware that there was an upward trend in
business rents in the area and, accordingly, that the longer the negotiations
took, the higher the rent was likely to be when a new lease was granted. On the
other hand, so long as the negotiations were kept going and — this is important
— in the absence of an application by the landlords for payment of an interim
rent, the plaintiff would be entitled to occupy at what, on current figures,
was an absurdly low rent. Under section 24A of the 1954 Act (added by the Law
of Property Act 1969), however, the landlords could, at any time, apply for an
interim rent which would date back to the determination of the tenancy if the
application were made before that or from the date of the application if made
thereafter. Such a rent would be likely to be somewhere between 10% and 30%
below the rent likely to be fixed for a new lease on the conclusion of the
negotiations.
Obviously,
therefore, until notice was given to fix an interim rent under section 24A, it
would pay the plaintiff to prolong the negotiations but, so soon as such notice
was given, everything pointed to the necessity to conclude the negotiations as
soon as possible before market rents rose any further. Mr Prevezer, therefore,
set about keeping the negotiations going, using for the purpose the question of
liability for dilapidations under the repairing covenant to which I have
already referred.
On April 22
1977 the landlords’ solicitors wrote to the defendants, enclosing a landlords’
answer to the plaintiff’s application in the Westminster County Court, and they
gave notice under section 24A of their intention to seek an interim rent of
£27,500. That intimation seems to have been, for some curious reason, entirely
overlooked by the defendants. Mr Prevezer had inquired already in March 1977
whether such an application had been made and asked to be informed as soon as
such an application was made. Unhappily, the defendants did not inform him and,
although he made the same inquiry from time to time, he received a negative
answer from the defendants. Thus, Mr Prevezer, in total ignorance that notice
had been given, was deliberately deferring the negotiations for a new lease. On
December 18 1978, however, as a result of a conversation with the surveyor to
the landlords, he learned for the first time, to his consternation, that notice
had been given over a year and a half ago.
On March 13
1979 he was instructed by the defendants to get on with the negotiations for a
new lease and he lost no time in doing so. The relevant conditions of the
market were these, according to the expert evidence. In June 1977, when the
plaintiff’s original term expired, the valuation of the rental value was
£20,000 per annum. At June 1979 that had risen to £26,500. In the result Mr
Prevezer was able to negotiate a new lease for a term of seven years from June
1977 at a rent of £19,000 a year for the first two years and a rent of £26,500
for the remaining five years of the term. There was evidence that, if
negotiations had in fact taken place in 1977, the landlords would have accepted
a rent of £20,000 as appropriate and, at that time, the normal term would have
been for five years. The plaintiff in fact claimed that, had the negotiations
taken place then, she would have obtained a five-year term at £19,000 per annum
and she accordingly claimed damages of £22,500. That is three years during
which she had to pay an excess rent of £7,500. The learned judge, however,
appears to have accepted that, if a five-year term had then been negotiated, it
would have been at £20,000, and he found as a fact that, but for the negligence
of the defendants, she would have renewed for that term and at that rent. So
her loss was three times £6,500, which is £19,500 in all over the three years
less a credit of £2,000 for the two years in fact negotiated at a rent of
£19,000. It was on that basis that the figure of £17,500 for which he gave
judgment was calculated.
Now, it is
common ground that the plaintiff, as a business tenant in an established
business, could, if her lease had expired in June 1982, have renewed at the
market rent then prevailing, which is agreed to have been £40,000. It is also
agreed that the appropriate rent, if a renewal had taken place for a five-year
term in June of this year, would have been £45,000. So the market has still
been rising and the learned judge inferred that, when she comes to renew in
June 1984, it will have risen even further.
The
defendants’ argument before the learned judge was that it was wrong to look at
the plaintiff’s position as if everything had been frozen, as it were, at June
1982, when there would have expired the five-year term which she ought to have
been granted in 1977 if the defendants had not been negligent. Account had to
be taken, it was argued, of the agreed rental value of the premises at that
date so that, although she would have had for three years the benefit of a rent
of £20,000 instead of the £26,500 which she was in fact paying, nevertheless
she would, if she had then renewed the lease, have had to pay £40,000 per annum
for a new five-year term, whereas she was for the next two years paying only
£26,500. Thus, the argument proceeded, the true calculation was as follows.
From June 1977 to June 1979 she paid £19,000 per annum, making a total of
£38,000 in all. From June 1979 to June 1984 she would have paid £26,500 per
annum, making £132,500 in all, a total over the whole period of £170,500. If
the defendants had not been negligent, she would have got a lease for five
years from 1977 to 1982 at a total rental payment of £100,000. But in 1982 she
would have had to renew at £40,000 per annum, so that the rental payments for
the next two years would have been £80,000. Thus, over the period 1979 to 1984
her actual position is that she will have had to pay £9,500 less than she would
have had to pay apart from the defendants’ negligence.
Now, you
cannot, Mr Gaunt argues, simply stop the clock at 1982 and ignore the fact
that, having regard to the five-year term which she was granted in fact in
1979, the plaintiff had in 1982 an asset with a premium value inasmuch as she
had two further years to run at a rent which was now well below the market
value which she would otherwise have had to pay.
The learned
judge accepted, and clearly he rightly accepted, the principle that the
plaintiff must, in assessing her loss, give credit for an associated gain.
Having referred to the decision of Forbes J in Bellingham v Dhillon &
Co [1973] QB 304 and that of Whitford J in Nadreph Ltd v Willmett
& Co [1978] 1 WLR 1537, he said this:
On the
principle enunciated in those cases I conclude that I ought to look at any
benefits acquired by the plaintiff as a result of the lease negotiated in 1979
but notionally commencing in 1977, and set them off against the loss suffered
by the plaintiff as a consequence of the defendants’ negligence. There can, in
my judgment, be no argument but that the benefits are sufficiently closely
related to the head of damage claimed in the present case. Therefore, in my
view, it is right to make the deductions contended for by Mr Gaunt, which
reduced the figure claimed by the plaintiff from £22,500 to £17,500.
Now, Mr Gaunt
claims that the learned judge was wrong to stop there. He should, he argues,
have gone on to make a further deduction representing the value in 1982 of the
lease which Mr Prevezer had in fact obtained for the plaintiff. Had he done
that, Mr Gaunt submits, it would have been evident that, although the learned
judge had before him no actual evidence of the premium value of the lease at
that time, that value would have at least extinguished the loss suffered by the
plaintiff up to June 1982. No doubt that is right, as a matter of arithmetic, if
it is correct to stop the clock not at 1982 but at 1984. But, as the learned
judge pointed out in his judgment, there was a further element to be taken into
account, namely that the plaintiff’s right of renewal under the Landlord and
Tenant Act 1954 was postponed for a further two years, and postponed against
the background of a rising market. An agreed valuation tentatively assessed the
market rent for June 1983 at a figure of £45,000, which I have already given,
and in his judgment the learned judge said this:
Having heard
Mr Cole’s submission this morning, I am satisfied that the plaintiff has
suffered a loss which is capable of quantification as a result of the
defendants’ admitted negligence. That loss comes about because the effect of
the Landlord and Tenant Act 1954 is to ensure that almost certainly the
plaintiff would get a new lease at the conclusion of her existing one. The new
lease would be normally approximately on the same terms as its predecessor
except as to the important question of rent. In the still continuing
inflationary situation in which we find ourselves the rent would naturally
continue to some extent to increase. There must come a point eventually, one
supposes, when the plaintiff would, for some reason or another, not want to
renew her lease, but in the meantime because of the negligence of the
defendants she is effectively always renewing two years later than she would
have been if they had not acted as they did.
Then, a little
later, he continued:
So,
effectively, the plaintiff is always going to have, if she continues, her rent
fixed at a rate which is appropriate for two years further on than it would
have been but for the defendants’ negligence. I have already referred to the
fact that the normal arrangement with regard to commercial premises was that
the lease was granted for a period of five years.
It is, I
think, clear that the learned judge’s view was that any rental or premium
advantage which might exist under the terms of the plaintiff’s actual lease
between 1982 and 1984 was cancelled out by the disadvantage which she would
suffer when she came to renew in 1984. He put it thus:
The fact that
the plaintiff suffered a loss can be demonstrated in another way. If she had
renewed in 1977, she would have got a five years lease at £20,000 a year,
making a total of £100,000 which she would have to pay. That would have taken
her to June, 1982. She would then have got a further five years, according to the
agreed valuation, at £40,000 a year, making another £200,000 and a total of
£300,000. Then if one looks, so far as one can, at the position as it was, she
should have paid by now a total of £170,500 in respect of the lease negotiated
by Mr Prevezer. Then to bring the position into line with the circulation which
I have just been setting out, one must provide for a further three years from
1984 to bring it up to June 1987. The agreed figure for 1983 was said to be in
the region of £45,000 a year. It is reasonable, therefore, for me to deduce
from the figures in this case that a figure of about £50,000 would be
appropriate for a renewal in 1984. Therefore one adds a further £150,000 to the
previous figure, making a total of £320,500, which is £20,500 more than my
previous calculation. One can multiply examples, and there is no need certainly
to go further than that, but it is a way of demonstrating that in fact the
plaintiff has suffered a loss. The difficulty is quantifying it in terms of
money. The gap will continue to increase if inflation continues. Mr Gaunt’s
argument with regard to the position in 1982 and 1984 overlooked, in my view,
the fact that however far you extend consideration of the problem there is
bound to be a loss to the plaintiff. She has got out of step with the natural
course of renewals which would have been available to her, so that she is
always renewing two years later than she would have done.
What Mr Gaunt
says about this is that, if it is wrong, as the learned judge impliedly holds
that it is, to stop the calculation at 1984, it is equally wrong and unfair to
the defendants to stop it, as the learned judge did, at June 1987, which is,
again, an arbitrary and artificial date; and he has produced a graph which
shows that, in the cycle of expiries and renewals, there will always be a loss
at the putative renewal dates so long as one assumes a continually rising
market, though the amount of the loss is entirely speculative in the absence of
evidence that the market is going to continue to rise and of the rate of such
rise. The learned judge was, he submits, not justified in assuming that there
would still be a rising market in 1987 or in making any predictions about the
likely amount of such rise.
The fact is,
as it seems to me, that it is possible to demonstrate that the plaintiff will
or will not have suffered a loss according to the date in the future at which
one chooses to regard her position, and Mr Cole submitted that one is on safer
ground in asking the simple question: What did the plaintiff actually get and
what should she have got if the defendants had not been negligent? Well, she should
a rent of £19,000 and three years at £26,500. If one is to continue that
calculation by extrapolating into a cycle of renewals under the 1954 Act, in
regard to each of which it is accepted that a five-year term is the appropriate
term, you cannot, he says, rationally draw the line at any particular point,
but must make certain assumptions about the future.
In my
judgment, that must be right, and the basic question seems to me to be simply
this. Was the learned judge right to infer from such evidence as he did have
before him that, on a balance of probabilities, any temporary premium advantage
which the plaintiff might have in 1982 from the increase in market rents in
that year was counterbalanced by the disadvantage of a rising market and the
postponement of her right to renewal for two years? In my judgment, he was so justified. The
plaintiff was carrying on a successful business and the inherent likelihood was
that she would want to renew her lease at whatever was the appropriate market
rent at the time of renewal. The evidence showed that in each year the market rent
had risen: thus, from £20,000 in 1977 it was £24,000 in 1978, £26,500 in 1979,
£40,000 in 1982 and a likely £45,000 in 1983. Overall, she was likely to be at
a permanent disadvantage in renewing two years later than she would otherwise
have done, and any advantage which might accrue in the latter part of each
successive five-year term was likely to be eliminated if not exceeded by the
disadvantage which she would suffer in the earlier part of the next succeeding
term.
In my
judgment, the learned judge was entirely justified, on the facts found by him
and the agreed evidence as to rental values in concluding that the temporary
rental advantage over the period 1982 to 1984 could not properly be isolated
and treated as a deduction from the undoubted original loss of £17,500 which
the plaintiff suffered up to 1982 as a result of the defendants’ negligence.
I would,
therefore, dismiss the appeal.
Agreeing,
ACKNER LJ said: If the lease which was eventually granted to the plaintiff had
been for five years there would have been no difficulty. The rent payable under
that lease would then have been compared with the rent which would have been
payable under the lease which should have been granted to the plaintiff if
there had been no negligence and the resulting difference would represent the
damage. The complication arises because Mr Gaunt is able to draw attention to
the fact that a seven-year grant and not a five-year grant was achieved and, in
regard to the last two years, he is able to establish that there is a significant
difference between the rent reserved and the market rent. He therefore says the
court must have regard to the premium value which must be said to exist in the
fagend of the last two years of that lease.
The answer is
that, if you are going to consider those two years, you must do so
realistically, looking at the whole commercial context. The probabilities were
not that this lady was going to give up her business in 1982 and dispose of her
lease, and therefore the premium value which might theoretically have been
achieved was neither here nor there. But, says Mr Gaunt, one must have regard
to the fact that, at least for those two years, if she stayed, she was going to
pay that much less than the market rent. Again, this, in my judgment, overlooks
the reality of the position. If the lady was to stay, as was the probability,
then it is common ground that she could have obtained a lease for five years as
from 1982 at £40,000 a year. That being the commercial context, it is quite
wrong, if one is going to look beyond the first five-year cycle, not then to
look at the next five-year cycle but to stop part way through it, namely after
the first two years of that cycle.
For the
reasons given by the learned judge and referred to by my lord, it is quite
clear that, if one looks at the second five-year cycle, having regard to the
inflationary trends, this so-called advantage of having the two years at a
lower rent than the market rent is wiped out. In those circumstances, it seems
to me that the learned judge was perfectly right to apply his mind to the
comparison between the two five-year situations and not to stop at 1984.
I accordingly
agree with my Lord that this appeal be dismissed.
The appeal
was dismissed with costs.
