Landlord and Tenant Act 1954, Part II — Negligence of solicitors — Failure to apply to the court for a new tenancy within the time-limit of four months required by section 29(3) of the Act — Quantification of damages — Goodwill — Valuation of leases with no profit rents — Mitigation of loss — Whether ‘continuous transaction’ as defined in the authorities — Appeal by solicitors as to amount of damages dismissed
in this case consisted of a shop on the ground floor, trading under the name of
‘Fresh Foods’, and a three-bedroomed flat on the first floor — The appellant
solicitors admitted the breach of duty of care alleged but challenged the
damages awarded by Judge Butler QC, sitting as a judge of the High Court —
During the negotiations which followed the notice of termination of tenancy
under section 25 the landlords had said that they would be prepared to grant a
lease of 14 years at an initial rent of £5,575 pa and to relax a restrictive
user clause — They also indicated that they might, for a higher rent, agree to
the subletting of the flat above the shop — The landlords’ attitude hardened,
however, when it became known that, through the solicitors’ negligence, the
tenants had lost the right to apply to the court for a new tenancy — They were
still willing to grant a tenancy, but only for five years, only if arrangements
were made to contract out of the security of tenure of the 1954 Act, and with
restrictions on user and a prohibition against subletting — A new lease on
these terms was subsequently granted to the respondents — In an action by the
respondents against the solicitors the judge awarded the respondents £56,000,
being the difference between £14,000, as the value of the new lease accepted by
the respondents, and £70,000, the value of a 14-year fully protected lease
under the Act — The judge had arrived at these figures after hearing
conflicting evidence from valuers on each side — The solicitors appealed
was argued for the appellants that, as the landlords were willing to grant a
new lease, the respondents had not been entitled to damages for loss of
goodwill; that, as the new lease for 14 years under the 1954 Act which the
respondents had lost would have been a lease at a full market rent, there would
have been no profit rent and so the deprivation of it would have caused them no
loss; and that the respondents had taken steps to mitigate their own loss,
although not bound to do so, and that the effect of this should be taken into
account in assessing loss — This last point referred to a small supermarket
which the respondents had purchased some 18 months after the appellants had
failed to make the statutory application — This supermarket was more than twice
the size of the old shop, which the respondents closed down — They would
probably have purchased it even if they had obtained the 14 years’ protected
lease — The purchase was successful and in due course probably most of the
respondents’ old customers came back into the fold
Appeal were not persuaded by these arguments — The argument about the profit
rent of leasehold interests neglected the premium element which forms part of
the value of premises which are particularly attractive, by reason of their
nature or situation, for a particular trade — The mitigation of loss point was
more difficult, but, in the light of British Westinghouse Electric &
Manufacturing Co
question was whether the respondents’ acquisition of the supermarket premises
was part of a continuous transaction beginning with the negotiations for the
renewal of the respondents’ lease of the shop — The Court of Appeal’s answer
was ‘no’ — The acquisition of the supermarket was a fortuitous occurrence; it
was not related to the appellants’ breach — Appeal and a cross-appeal by the
respondents dismissed
The following
cases are referred to in this report.
British
Westinghouse Electric & Manufacturing Co Ltd v Underground
Electric Railways Co of London Ltd [1912] AC 673; (1912) 81 LJKB 1132; 107
LT 325
Hussey v Eels [1990] 2 WLR 234; [1990] 1 All ER 449; [1990] 1 EGLR
215; [1990] 19 EG 77, CA
This was an
appeal by Clifford Cowling & Co, a firm of solicitors, from a decision of
Judge Butler QC, sitting as a High Court judge, awarding damages of £56,000 to
the plaintiffs (the present respondents), Alan James Hodge and his wife, Angela
Susan Hodge, for negligence in dealing with proceedings for a new tenancy under
Part II of the Landlord and Tenant Act 1954. There was a cross-appeal by the
respondents, based on the proposition that the evidence established that the
lease of the ‘Fresh Foods’ shop, which the respondents actually obtained, had
no market value at all.
Oliver
Ticciati (instructed by Blake Lapthorn, of Fareham) appeared on behalf of the
appellants; Gordon Bennett (instructed by Frere Cholmeley) represented the
respondents.
Giving
judgment, GLIDEWELL LJ said: In December 1982 the plaintiffs, Mr and Mrs
Hodge, purchased the leasehold interest in shop premises in Hartley Wintney in
Hampshire, an attractive and prosperous village. The shop was trading under the
name ‘Fresh Foods’. The premises comprised the shop on the ground floor and a
three-bedroomed flat on the first floor. The vendor held a lease of the
premises for 14 years from January 1 1972, of which at the time of the
plaintiffs’ purchase just over three years remained. The lease came within, and
thus had the protection of, Part II of the Landlord and Tenant Act 1954.
After their
purchase of the premises Mr and Mrs Hodge lived in the flat with their two
children, and built up a successful small grocery retail business. On June 7
1985, solicitors for their landlord served on them a notice to terminate their
tenancy under section 25 of the 1954 Act. The notice terminated the tenancy at
the expiry of the lease, ie December 31 1985. However, in an accompanying
letter the landlord’s solicitors said that the landlord would be willing to
grant a new lease of the premises for seven years at a rent of £5,000 pa, but
would consider a lease for a longer term, up to 14 years, at a higher initial
rent and with rent reviews.
A few days
after receiving this notice, Mr and Mrs Hodge instructed the defendants, who
are solicitors, to advise them and to act on their behalf in relation to the
negotiations for, and the obtaining of, a new lease. The defendants on July 2
1985 served a counternotice under the 1954 Act saying that the plaintiffs were
not willing to give up possession. Negotiations then started. The existing
lease contained a restrictive user clause. The landlord said that it would be
prepared to grant a new lease for 14 years, which would of course itself be
subject to the protection of the 1954 Act, at an initial rent of £5,250 pa with
five-year rent reviews. Moreover it would be prepared to amend the user clause
so as to provide that the user could be altered with the landlord’s consent,
such consent not unreasonably to be withheld, at an initial rent of £5,575 pa.
The negotiations also envisaged the possibility that the landlord might agree,
in return for a yet higher rent, to the subletting of the flat above the shop.
In order to
retain the benefit of the right to apply for a new tenancy under the Act of
1954, it was necessary for the defendants, on behalf of Mr and Mrs Hodge, to
make an application to the court within four months of the service of the
original notice to terminate, ie by October 7 1985. The defendants failed to
make such an application in time, or at all. Accordingly the plaintiffs’
statutory right to a new tenancy was lost. Not unnaturally, the attitude of the
landlord to the negotiations for a new lease then hardened. The landlord
remained willing to grant to the plaintiffs a new lease of the premises, but in
the event was only willing to grant a lease for five years, at a rent of £5,000
pa, with the restrictive user clause and a prohibition against subletting, and,
most importantly, with a clause providing that the new lease was not subject to
the provisions of the Landlord and Tenant Act 1954. This new lease was
eventually granted to the plaintiffs in June 1986, but ran from the date of the
termination of the old lease, ie from January 1 1986. Throughout 1986 and into
1987, Mr and Mrs Hodge remained in occupation of the premises and continued to
run the business.
In this action
the plaintiffs claim damages for breach by the defendants of their professional
duty of care. The damages claimed in the statement of claim are expressed to be
for:
1 loss of security of tenure;
2 loss of the opportunity to increase their
income by extending the shop; and
3 loss of the greater value of the lease and
of the goodwill of the business which would have stemmed from a 14-year
protected lease.
By their
defence the defendants admitted that they were guilty of breach of their duty
of care, but denied that the plaintiffs had suffered any loss or damage and put
the amount of the damages, if any, in issue. These issues raised by the defence
were tried by His Honour Judge Butler QC, sitting as a judge of the High Court,
in June 1989.
The evidence
for the plaintiffs was that of Mr Hodge himself and of Mr G S Knowles FSVA, a
director of Christie & Co, business agents and valuers, of Winchester. On
behalf of the defendants Mr R A Eggleton of Robert Manden & Co, business
transfer agents of Farnham, gave evidence.
Mr Hodge’s
evidence, which the judge accepted as truthful, was that if he and his wife had
been granted a 14-year lease with the protection of the 1954 Act and the
ability to sublet, it was their intention to take three steps:
(i) to extend the hours of
opening of the shop, so that it would be open from ‘Eight till Late’;
(ii) to carry out structural
alterations to the premises so as to incorporate into the shop a rear room, and
thus extend the area available for trading; and
(iii) to sublet the flat and
to buy a suitable house in which to live.
As a result of
obtaining a lease for only five years, they were not able to fulfil the second
and third parts of this plan. The capital cost of the works necessary to extend
the shop was not justified by the five-year lease, and they were not able to
sublet the flat. They could, however, and did, adopt the ‘Eight till Late’
policy for the opening hours of the shop. The result of this alone was that the
turnover and thus the profits of the ‘Fresh Foods’ business expanded very
considerably in the year 1986 and early in 1987.
Mr Knowles was
instructed to value the business carried on by the plaintiffs, including the
lease, on two bases:
(i) as it would have been if
the plaintiffs had obtained a 14-year lease, with rent reviews but with the
protection of the Landlord and Tenant Act 1954, but otherwise with the terms
and conditions of the original lease;
(ii) With the benefit of the
five-year lease they obtained, not having the protection of the 1954 Act.
His valuation
on the first basis was £90,000 and on the second basis £18,500.
Of the second
valuation he said:
Although we
have been requested to provide a valuation of the short leasehold interest and
business, from our experience it would be extremely unlikely that in the real
world a purchaser would be found for this interest, simply because of the short
duration of the then proposed term . . . In preparing our valuation we used, by
analysis, the price-earning ratio of the business referred to . . . but
discounted the amount to allow for the short duration of the lease and earning
potential of the business.
Mr Eggleton
prepared valuations on the same basis. He was, however, asked to prepare his
valuations as at a number of different dates which included October 1985 (the
date of the breach by the defendants of their duty of care) and June 1986 (when
the plaintiffs signed their new lease of the premises). Mr Eggleton was of the
view, with which Mr Knowles agreed, that the values at those two dates would
have been the same, and thus it does not matter which was the correct date for
valuation. In Mr Eggleton’s view the value of the business and premises at
either of those dates with the 14-year lease would have been £52,500, and with
the restricted five-year lease, £10,000.
Mr Ticciati,
for the defendants, sought to persuade the judge that, although Mr Eggleton had
been asked to value on the basis put forward, the plaintiffs had in reality
suffered no loss and thus should be awarded only nominal damages. His arguments
were essentially those he advanced before us, to which I shall refer later.
The judge
rejected the argument which would have resulted in a nominal award. He adopted
the provisionally agreed figure of £14,000 for the value of the existing lease
and chose an intermediate figure, namely £70,000, as the value of the business
with a 14-year protected lease. Thus he was of the view that the plaintiffs had
suffered a loss of £56,000 which, with interest, was the measure of their
damage. Against this award the defendants now appeal.
Mr Ticciati
advances his submissions to us under two main heads. His first argument is that
damages are to be assessed as at the date of breach by the defendants (October
1985), without regard to what at that date might happen in the future. The
judge had based (by agreement) his valuation on June 1986, but, as I have
already said, the valuers took the view that there was no difference between
the figures for that date and for October 1985, which, for my part, I regard as
being the correct date for the assessment of damages. Mr Ticciati accepts that
if the plaintiffs’ landlord had been unwilling to grant a new lease at all, the
plaintiffs would have lost the goodwill that they had built up in the business.
They would then have been entitled to compensation for that loss. However, he
argues that as the landlord was willing to grant a new lease, the plaintiffs
preserved the goodwill they had built up by October 1985. Thus, they were not
entitled to any damages for loss of goodwill. The only damages to which in
theory they were entitled were for any loss they might have suffered in the
value of the lease. But a new lease for 14 years would have been granted at a
rack-rent, with periodic rent reviews, and so would be at the full market rent
of the property. Thus there would be no profit rent in such a lease, and the
plaintiffs’ deprivation of such a lease had not caused them any loss.
The answer to
this submission is, in my view, two-fold. First, the evidence given by the
valuers in this case, which accords with normal valuation principles, was to
the effect that the owner of a leasehold interest in property holds a capital
asset which may have a value made up of two elements:
(i) the value of the ‘profit
rent’, if the current rent is less than could be obtained on the open market,
so that a purchaser of the lease would be willing to pay a premium for that
lesser rent; and
(ii) if the premises are particularly
attractive by reason of their nature or situation for a particular trade, a sum
which represents the price which a purchaser is willing to pay in order to
occupy those particular premises, with the benefit of the security given by the
combination of the lease and the Act of 1954.
That second
element may, of course, not be present where in the locality there are a number
of similar premises available, any one of which would be suitable for the
tenants’ needs. But the evidence in this case was that the plaintiffs’ original
premises in Hartley Wintney with the benefit of a protected 14-year lease
probably would command a premium for this second reason, although Mr Knowles
was unable to place a value upon it.
It is,
however, clear from the evidence of Mr Knowles and Mr Eggleton that the major
part of the value which they placed on the business with the benefit of a
14-year protected lease was that of the goodwill. In arriving at his valuation,
Mr Knowles had expressly taken into account the expansion in trade, and thus
the increase in the goodwill, which he expected to follow if the plaintiffs had
been able to carry all their plans, to which I have referred above, into
effect. It was their inability to do so which in his view played the major part
in restricting the value of the business.
I would adopt
as a definition of goodwill the following sentence from vol 35 of Halsbury’s
Laws of England, 4th ed, para 1106:
The goodwill
of a business is the whole advantage of the reputation and connection formed with
customers, together with the circumstances, whether of habit or otherwise,
which tends to make that connection permanent.
Such goodwill
may derive from two sources, namely the goodwill which is attached to the
carrying on of the business in the premises, and which will tend to remain with
the premises whoever is the proprietor of the business, and the goodwill which
is personal to the proprietor himself, and which will cease to be attached to
the business when he leaves it. In the case of a professional practice most, if
not all, of the goodwill is in the latter category. But in the case of a retail
business much of it will often be in the former category, attached to the
premises, and thus forming an asset of the proprietor of the business which is
available to him to sell. If, as in the present case, there is evidence which
is accepted that at the date of valuation the proprietor of the business has
plans which he intends to carry into effect which will in the near future
increase the trade of the business and thus the value of the goodwill, and if,
by the act of another, he is deprived of the opportunity to take those steps
and is thus deprived of the increase in the goodwill, I can see no logical
reason why an action for damages against the person who, by his negligence, has
prevented him from taking those steps should not result in compensation for the
loss of the increased goodwill. The likelihood that the trade and thus the
goodwill will be increased is, of course, a matter for evidence. But, as I have
said, the judge here accepted the evidence given by Mr Hodge. Upon this basis I
am of the view that the first point made by Mr Ticciati is not a valid one and
that the judge was right to base the award upon the difference between the
value of the business if the 14-year protected lease had been granted and the
value with the five-year restricted lease.
This
conclusion is, however, subject to consideration of Mr Ticciati’s second point,
to which I now turn. There was, in the High Street of Hartley Wintney, not very
far from the plaintiffs’ old shop, a small supermarket which was rather more
than twice the size of ‘Fresh Foods’. Early in 1987 the freehold of these
premises was acquired by a company who offered a lease of them to the
plaintiffs. The plaintiffs decided to accept the offer and entered into
occupation of the new premises, which they run as ‘Hartley Fair’, in June 1987.
As I have said, the shop area is more than twice the size of ‘Fresh Foods’. The
plaintiffs had to pay a premium for the new lease, and they spent a
considerable sum of money on refitting the new shop. When this was complete
they started trading and this enterprise has been very successful. They run
‘Hartley Fair’ as a supermarket-type shop, selling both groceries and
convenience goods, ie goods other than foodstuffs.
Mr Hodge’s
evidence, which the judge accepted, was that even if they had obtained the
14-year protected lease of ‘Fresh Foods’, he and his wife would most probably
still have taken the lease of ‘Hartley Fair’ and run it as they are doing. He
said that if they had done so, they would either have converted the ‘Fresh
Foods’ shop into a specialist shop selling particular types of foodstuffs only
or would have sought to assign it and to sublet the flat above.
In fact, when
the plaintiffs opened their business at ‘Hartley Fair’, they closed the
business of ‘Fresh Foods’ and the shop part of the premises remained empty
thereafter. They took the view that with the three-and-a-half years that
remained of their lease it would not be possible for them to assign, and it was
not economically practicable to try to build up a new and different business
themselves in those premises. Mr Hodge was asked how many of his previous
customers had come to shop at his new supermarket. ‘Hartley Fair’. He answered
that although a large proportion had probably done so, there were many who had
not. The judge said: ‘He accepts however he may by now have got most of his
original customers back into the fold.’
Mr Ticciati’s
submission is that by obtaining the lease of ‘Hartley Fair’ and building up a
business there which is substantially larger and more profitable than that
carried on at ‘Fresh Foods’, Mr and Mrs Hodge have, by their own endeavours,
ensured that the goodwill which they otherwise might have lost as a result of
the defendants’ negligence has not been lost at all. Thus, Mr Ticciati argues,
on their own evidence they have suffered no damage. Mr Ticciati accepts that
the plaintiffs were under no obligation to mitigate their loss by acting as
they have done. In other words, if they had not taken the lease of ‘Hartley
Fair’, he could not have argued that they should have done so, so as to avoid
the loss of goodwill. Nevertheless, his submission is that since for their own
purposes they have taken those steps, the defendants are entitled to be given
credit for the plaintiffs’ salvaging of what would otherwise have been their
loss of goodwill.
Where a
plaintiff, who has suffered or is likely to suffer loss as a result of some
breach by a defendant, takes steps which he was not as a matter of law required
to take, which nevertheless eradicate or reduce the loss he has suffered,
difficult questions arise as to whether and how far this reduction of loss is
to be taken into account in calculating the damages for which the defendant is
liable. The classic statement of principle in relation to such a case is to be
found in the speech of Viscount Haldane LC in British Westinghouse Electric
&
[1912] AC 673. At p 689 he said:
I think that
there are certain broad principles which are quite well settled. The first is
that, as far as possible, he who has proved a breach of a bargain to supply
what he contracted to get is to be placed, as far as money can do it, in as
good a situation as if the contract had been performed.
The
fundamental basis is thus compensation for pecuniary loss naturally flowing
from the breach; but this first principle is qualified by a second, which
imposes on a plaintiff the duty of taking all reasonable steps to mitigate the
loss consequent on the breach, and debars him from claiming any part of the
damage which is due to his negligence to take such steps. In the words of James
LJ in Dunkirk Colliery Co v Lever, ‘The person who has broken the
contract is not to be exposed to additional cost by reason of the plaintiffs
not doing what they ought to have done as reasonable men, and the plaintiffs
not being under any obligation to do anything otherwise than in the ordinary
course of business.’
As James LJ
indicates, this second principle does not impose on the plaintiff an obligation
to take any step which a reasonable and prudent man would not ordinarily take
in the course of his business. But when in the course of his business he has
taken action arising out of the transaction, which action has diminished his
loss, the effect in actual diminution of the loss he has suffered may be taken
into account even though there was no duty on him to act.
At p 690 he
said:
I think that
this decision illustrates a principle which has been recognised in other cases,
that, provided the course taken to protect himself by the plaintiff in such an
action was one which a reasonable and prudent person might in the ordinary
conduct of business properly have taken, and in fact did take whether bound to
or not, a jury or an arbitrator may properly look at the whole of the facts and
ascertain the result in estimating the quantum of damage . . . . The subsequent
transaction, if to be taken into account, must be one arising out of the
consequences of the breach and in the ordinary course of business.
We were also
referred to the recent decision of this court in Hussey v Eels
[1990] 2 WLR 234*. In that case the plaintiffs had purchased a bungalow as a
result of a misrepresentation by the vendor that the building was not subject
to subsidence. The cost of the work necessary to stabilise the foundations was
beyond the plaintiffs’ means. Eventually the plaintiffs were granted planning
permissions for the demolition of the bungalow and the erection of two new
bungalows on another part of the plot. In October 1986 they sold the land with
the benefit of the planning permissions, and after receiving the purchase price
bought another home for themselves elsewhere. The question at issue was whether
the sale price of the land with the benefit of the planning permissions had to
be taken into account in assessing the damages, or whether the true measure of
damage was the value of the land with the original bungalow as it would have
been at the date when the plaintiffs purchased it if it had been in good
condition, and its actual value at that date, the difference being represented
by the estimated cost of putting that house into sound condition. This court
held that the latter was the true measure of damages and that the resale price
of the land with the two planning permissions did not have to be taken into
account.
*Editor’s
note: Also reported at [1990] 1 EGLR 215.
Mustill LJ, in
a judgment with which Farquharson LJ and Sir Michael Kerr agreed, considered
the relevant authorities starting with the British Westinghouse case. He
concluded, at p 246, as follows:
I have dealt
with the authorities at some length, because it was said that in one direction
or another they provided a direct solution to the present problem. For the
reasons already stated, I do not see them in this light. Ultimately, as with so
many disputes about damages, the issue is primarily one of fact. Did the
negligence which caused the damage also cause the profit — if profit there
was? I do not think so. It is true that
in one sense there was a causal link between the inducement of purchase by
misrepresentation and the sale 2 1/2 years later, for the sale represented a
choice of one of the options with which the plaintiffs had been presented by
the defendants’ wrongful act. But only in that sense. To my mind the reality of
the situation is that the plaintiffs bought the house to live in, and did live
in it for a substantial period. It was only after two years that the
possibility of selling the land and moving elsewhere was explored, and six
months later still that this possibility came to fruition. It seems to me that
when the plaintiffs unlocked the development value of their land they did so
for their own benefit, and not as part of a continuous transaction of which the
purchase of land and bungalow was the inception. Accordingly, . . . I consider
that in fact and law . . . the proper measure of damage here is the difference
between the contract price and the market value of the property in its unsound
condition.
Applying these
authorities to the present case, the question the judge had to answer was this,
did the plaintiffs’ acquisition of the ‘Hartley Fair’ premises arise out of the
consequence of the defendants’ breach of their duty of care, or to put it as
Mustill LJ did, was it part of a continuous transaction of which the
negotiations for the renewal of the lease of the ‘Fresh Foods’ premises and the
defendants’ conduct in relation to those negotiations was the inception? In my view, the answer to this question,
however framed, can only be ‘no’. The fact that the ‘Hartley Fair’ premises
came on the market approximately 18 months after the defendants failed to make
the necessary statutory application for the new lease of the ‘Fresh Foods’
premises was purely fortuitous. In no sense was the plaintiffs’ acquisition of
the larger premises related to, or connected with, the defendants’ breach. It
was an acquisition which resulted from Mr and Mrs Hodge seizing an opportunity
offered to them and using it to their own advantage, just as the plaintiffs in Hussey
v Eels ‘unlocked the development value of their land . . . for their own
benefit’.
Although the
judge was apparently not referred to the British Westinghouse case, and
could not have been referred to Hussey v Eels, since that case
had not yet been before this court, he concluded that the fact that the
plaintiffs expanded their trade and the question whether their former customers
moved to the ‘Hartley Fair’ supermarket were not relevant to the question he
had to decide. In my judgment, he was correct in so concluding.
Mr Ticciati
advances his argument on his second point in an alternative, slightly
different, form. He submits that although the defendants have, by their
negligence, deprived the plaintiffs of an asset, ie the greater value of the
‘Fresh Foods’ business as it would have been with a 14-year renewable lease, by
acquiring the ‘Hartley Fair’ business in June 1987 and closing down the ‘Fresh
Foods’ business, the plaintiffs would themselves have destroyed that asset.
Thus they are in a sense the authors of their own loss. This argument to my
mind is fallacious. It is incorrect to suggest that the plaintiffs would, if
they had acquired a 14-year renewable lease of the ‘Fresh Foods’ premises, have
destroyed their asset. Instead they would have exploited it in whatever seemed
the best way then available to them, including the ‘transfer’ of some of the
trade of that business to the ‘Hartley Fair’ business. The defendants by their
breach have deprived the plaintiffs of the opportunity to exploit their asset
in this way.
For these
reasons I would reject Mr Ticciati’s argument on his second point and would
dismiss the appeal.
It remains to
consider the cross-appeal. This is based on the proposition that the evidence
established that the lease of the ‘Fresh Foods’ premises, which the plaintiffs
actually obtained, had no market value at all. On this question Mr Knowles said
in his evidence-in-chief that he held the view that the ‘Fresh Foods’ business
was unsaleable, but that it was not inconceivable that a small chain of
multiples might purchase it and he did not disagree with Mr Eggleton’s suggestion
to this effect. The judge expressed his conclusion on this issue as follows:
As to the
value of the lease that was obtained, I arrive at the sum of £14,000. I do this
because it is the figure suggested and provisionally agreed before trial at a
meeting between Mr Knowles and Mr Eggleton, and there has been no real
departure from that figure in the evidence I have heard from them. I accept, as
was said both by Mr Knowles and by Mr Eggleton, that the prospects of finding a
purchaser were low. This, as it seems to me, was taken into account in arriving
at the figure of £14,000. So the difference is £56,000. That is the true
measure of damage.
In my
judgment, there was evidence upon which the judge was entitled to come to the
conclusion expressed in that passage and there is no valid reason why we should
dissent from it. I would therefore dismiss the cross-appeal also.
Agreeing, BINGHAM
LJ said: The task which faced the judge in this case was to assess the sum
which would compensate the plaintiffs for the admitted negligence of the
defendants as their solicitors, ie to put the plaintiffs in the same position
financially as if the defendants had made application to the court in time and
a 14-year tenancy protected under the 1954 Act had been duly granted.
To perform
this task it was necessary to compare the position of the plaintiffs as it in
fact was with the position the plaintiffs should have been in. No assistance is
gained by considering features of the plaintiffs’ position which were the same
in fact as they would have been if the defendants had not been negligent. Thus
it does not advance the comparison to observe that under the tenancy which
should have been granted the plaintiffs would have been able to carry on their
grocery business at the old shop, since under the tenancy actually granted the
plaintiffs were still able to do so. Nor (without
acquired a tenancy of the new shop premises, since on the evidence that is
something they could and would have done even if they had been granted the
protected tenancy of the old shop which they should have been granted.
The real
difference to be evaluated is between the short unprotected tenancy of the old
shop which the plaintiffs actually acquired and the longer protected tenancy
which they should have acquired. Since a rack-rent was payable under the
tenancy granted and would have been payable under the tenancy which should have
been granted, counsel for the defendants argued that the value of each tenancy
was nil and the difference between them accordingly also nil.
The judge
rejected that argument and in my view rightly so. The plaintiffs had a business
which they ran from the old shop. Because it was a successful business it was a
saleable asset. But the value of the asset was greatly affected by a
purchaser’s prospects of being able to conduct the business for a period of
years after purchase. A retail business has little or no value if there are no
premises from which it can be conducted and its value is correspondingly
diminished if there may within a relatively short period of time be no premises
from which it can be conducted. The defendants’ entirely understandable but
unfortunate error had the result that the value of the plaintiffs’ business as
an asset was greatly reduced below the value it would have had with the
protected tenancy the plaintiffs should have obtained. Whatever terminology was
used, that is the loss to which the valuers’ estimates were directed and the
judge’s approach was in principle correct.
Counsel for
the defendants made an alternative and at first sight more compelling
submission. He argued:
(1) that in assessing damages it is proper to
take account of events occurring after the cause of action arises which replace
prediction of what is likely to happen with evidence of what did happen;
(2) that in this case the plaintiffs’ real claim
related not to the value of the protected tenancy as such but to the goodwill
of the business of the old shop;
(3) that in 1987 the plaintiffs closed the
existing business in the old shop on acquiring their tenancy of the new and on
the evidence would have done so even if they had acquired the long protected
tenancy of the old shop premises which they should have acquired; and
(4) that the plaintiffs should not be compensated
for loss of the goodwill of the old shop because (a) they had continued to
enjoy that goodwill until 1987; (b) the goodwill had then been substantially
transferred to the new shop; and (c) the business of the old shop would then
have been closed even if the defendants had not been negligent.
To some
extent, proposition (1) is undoubtedly correct. The court does not shut its
eyes, for example, to evidence of how a disease or injury has progressed after
a cause of action has arisen or ignore acts by a plaintiff which may have
mitigated his damage. Thus if, in the present case, the landlords of the old
shop had chosen (although entitled to do otherwise) to grant the plaintiffs a
14-year tenancy of those premises without excluding the 1954 Act, that would
plainly have had a dramatic effect on the plaintiffs’ claim; and the
plaintiffs’ claim is not to be assessed on the incorrect factual assumption
that the landlords granted no new tenancy at all because we know that, although
they need not have done so, they did, and damages would not be compensatory if
this were ignored. This is a field, as Mustill LJ suggested in Hussey v Eels
[1990] 2 WLR 234 at p 238G, where it is wise to eschew broad statements of
principle, but I would for purposes of this appeal be willing to accept
(without deciding) that in assessing damages account should be taken of the fact,
if it were shown to be a fact, that the plaintiffs had, by their own voluntary
act unconnected with the defendants’ negligence, chosen to destroy their asset
represented by their business in the old premises and that they would have
acted in exactly the same way even if they had obtained the protected tenancy
which they should have obtained. It might also be proper to take account of the
fact, if it were shown to be a fact, that the plaintiffs acted in a manner
which, although independent of the defendants’ negligence, had the effect of
mitigating their loss. But I cannot accept any of these factual premises as
established on the facts here.
The plaintiffs
acquired the tenancy of the new shop in 1987. They would have done that anyway,
even if they had had the tenancy of the old shop they should have had. They
then closed the business at the old shop. They would have done that anyway. But
there is a vital difference. With 3 1/2 years of a 5-year unprotected tenancy
left it was not thought worth spending money on the old shop or developing a
new business there and the business was scarcely saleable, if saleable at all,
with so short a period of tenancy to run. Had the plaintiffs had the tenancy of
the old shop which they should have had, their conduct would have been quite
different. They would have closed the shop temporarily pour mieux sauter.
Quite what they would have done it was in the event unnecessary for them to
decide, but Mr Hodge was emphatic in his evidence that in such a position he
would have put the shop to profitable use, whether by running a business
complementary to his business in the new shop or by assignment or subletting.
The judge plainly accepted what Mr Hodge said. The suggestions that the
plaintiffs would, whatever had happened, have destroyed the valuable asset they
owned in the old shop on acquiring the new, or that that business was
effectively transferred so as to deprive the old business of value, are in my
view inconsistent with the evidence and with the probabilities.
For reasons
which Glidewell LJ has given, the learned trial judge was on the evidence right
to value the tenancy which the plaintiffs did acquire at £14,000. I agree that
the appeal and the cross-appeal should be dismissed.
SIR DAVID
CROOM-JOHNSON also agreed and did not add anything.
The appeal
and cross-appeal were dismissed with costs; order given for legal aid taxation;
application for leave to appeal to House of Lords refused.
