Agricultural holdings — Tenancy — Covenant to repair — Breach by tenant — Claim by landlord for damages — Assessment of damages — Whether damages should equal cost of repairs — Whether landlord proved damage
By an
agreement dated February 27 1970 the appellant tenant held an annual tenancy of
an agricultural holding protected by the Agricultural Holdings Act 1986. By the
terms of the tenancy the tenant agreed to repair buildings and fixtures,
maintain hedges, farm in accordance with the rules of good husbandry and
destroy weeds. Following the service of a schedule of disrepair in August 1994,
the respondent landlord brought proceedings in the county court claiming
damages. In July 1996 the county court judge found the tenant was in breach of
his covenants in failing to destroy weeds, failing to cultivate one field,
allowing deterioration of a barn and failing to maintain hedges and gates. At a
later hearing he assessed damages at £15,940, including VAT. The tenant
appealed contending, inter alia, that it was wrong to use the costs of
repairs as the measure of damages and that the landlord had not proved any
damage to its reversion.
is the test at common law in assessing damages for breach of a covenant to
repair. The county court judge had relied too much on the general principle,
that damage to the reversion can be measured from the cost of repairs, stated
in Jones v Herxheimer [1950] 2 KB 106. The permissible heads of
damages must, in principle, be arrived at by an objective test. No concluded
view was necessary as to whether the landlord intended to enter and make good
the wants of repair. It was wrong to treat undiscounted costs of repair as a
safe guide, especially where there is no finding that the landlord was going to
undertake the repairs. Although the evidence before the county court did not
include evidence of the diminution, if any, in the value of the reversion, the
judge was not bound to award no or nominal damages because the landlord had
failed to prove its losses. The allowable repair costs were discounted; £3,000
with no interest up to the date of the order was awarded.
The following
cases are referred to in this report.
Ashcroft v Curtin [1971] 1 WLR 1731; [1971] 1 All ER 1208, CA
Bonham-Carter v Hyde Park Hotel [1948] WN 89; (1948) 64 TLR 177; 92 SJ 154
Conquest v Ebbetts [1896] AC 490
Conquest v Ebbetts [1895] 2 Ch 377, CA
Crown
Estate Commissioners v Town Investments Ltd
(National Westminster Bank plc, third party) [1992] 1 EGLR 61; [1992] 08 EG
111
Culworth
Estates v Society of Licensed Victuallers
[1991] 2 EGLR 54; [1991] 39 EG 132; (1991) 62 P&CR 211
Doe d
Worcester School Trustees v Rowlands (1841)
9 Car & P 734
Drummond v S&U Stores Ltd [1981] 1 EGLR 42; [1981] EGD 369;
(1980) 258 EG 1293
Elite
Investments v TI Bainbridge Silencers (No 2)
[1987] 2 EGLR 50; (1987) 283 EG 747
Gooderham
and Worts v Canadian Broadcasting Corporation
[1947] AC 66; 63 TLR 73, PC
Hill v Barclay (1810) 16 Ves June 402; (1811) 18 Ves June 56; 2
Ves Jun Supp 451
Jones v Herxheimer [1950] 2 KB 106; [1950] 1 All ER 323, CA
Landeau v Marchbank [1949] 2 All ER 172
Maunsell v Olins [1975] AC 373; [1974] 3 WLR 835; [1975] 1 All ER 16;
[1975] 1 EGLR 7; (1974) 233 EG 591, HL
Portman v Latter [1942] WN 97
Radford v De Froberville [1977] 1 WLR 1262; [1978] 1 All ER 33;
(1977) 35 P&CR 316
Ruxley
Electronics and Construction Ltd v Forsyth
[1996] AC 344; [1995] 3 WLR 118; [1995] 3 All ER 268, HL
Salisbury
(Marquess of) v Gilmore [1942] 2 KB 38
Smiley v Townshend [1950] 2 KB 311; [1950] 1 All ER 530; [1950] EGD
139; (1950) 155 EG 110, CA
Vivian v Champion (1705) 2 Ld Raym 1125
This was an
appeal by the defendant, Gerald Edward Silk, against a decision of Mr Recorder
Burgess, in Winchester County Court, in a claim for damages by the plaintiff,
Crewe Services & Investment Corporation.
Clifford
Darton (instructed by Burley & Geach, of Petersfield) appeared for the
appellant; Stephen Jourdan (instructed by Brutton & Co, of Fareham)
represented the respondent.
Giving the
first judgment at the invitation of Lord Woolf MR, ROBERT WALKER LJ
said: This is an appeal from an order of Mr Recorder JP Burgess, made in
proceedings in Winchester County Court, after the judge had given two written
judgments: one on July 31 1996, after a two-day hearing in July 1996; and the
other on September 10 1996; after a further hearing on August 16. The order
under appeal is not in the core bundle and there seems to be some doubt as to
whether it has ever been perfected. That is regrettably only one of several
unsatisfactory features of the case.
The appellant,
Mr Gerald Silk — the defendant in the proceedings — is the tenant of Church
Farm, Prior’s Dean, Hampshire. It is a farm of a little over 150 ha, which was
let by a tenancy agreement dated February 27 1970. The farm was originally used
for stock but is now, and has been for many years, an arable farm. The parties
to the tenancy agreement were: (1) Sir William Jaffray Bart (who had just
attained full age under the transitional provisions of the Family Law Reform
Act 1969) as landlord; (2) Mr Silk as tenant; and (3) three brothers of Mr
Silk, who farmed in partnership with him, as guarantors. None of the guarantors
has been joined as a party in the proceedings.
The tenancy
agreement created a tenancy from year to year protected by (as it is now) the
Agricultural Holdings Act 1986, replacing the Agricultural Holdings Act 1948.
By clause 4 there were reserved to the landlord sporting rights and timber, but
no reliance was placed on that point either below or in this court. There were
numerous
clause 8(A)(i) (repair of buildings and fixtures); clause 8(B)(ii) (maintenance
of hedges); clause (B)(iv) (use of preservatives on buildings and structures);
clause 9 (to permit the landlord entry on notice for the purpose of carrying
out repairs, and to pay the cost), clause 14(i) (to farm in accordance with the
rules of good husbandry); and clause 14 (iii) (to destroy weeds).
In 1981 the
freehold reversion to the farm became vested in the plaintiff, Crewe Services
& Investment Corporation (Crewe), a body which has an address in Vaduz,
Liechtenstein, and so is presumably incorporated there. There is no evidence as
to whether Crewe owns other land, either tenanted or in hand, in the vicinity.
It is shrouded in a certain amount of mystery, as Liechtenstein bodies often
are.
On August 4
1994 (after its agent, Mr Craig Horton, had in June prepared and served a
schedule of disrepair and other matters of complaint) Crewe commenced
proceedings in Winchester County Court. Apart from some minor complaints not
relevant to this appeal, the particulars of the claim alleged breaches of the
covenants in clauses 8(A)(i), 8(B)(ii) and (iv), and 14(i) and (iii) of the
tenancy agreement. Crewe claimed damages and specific performance, but the
latter claim was abandoned, because of the principle in Hill v Barclay
(1810) 16 Ves June 402.
The amended
particulars of claim quantified the damages claimed at £32,484-odd, including
VAT of £4,838-odd. The largest items were about £15,000, plus VAT, for the
complete reroofing of a corrugated iron barn, and about £7,500, plus VAT, for
replanting and protecting (with a rabbit-proof wire fence) about 600m of hazel
hedge. There was also about £3,000, plus VAT, for oak gates and about £2,000,
plus VAT, for cutting and laying about 130m of overgrown hedge. The defence
denied all breaches and also denied any loss. There was a counterclaim that I
need not go into: it failed at trial.
There was, as
I have said, a two-day hearing in July 1996. The judge heard oral evidence from
Sir William Jaffray and Mr Horton, for Crewe, and from Mr Silk, Mr Iain Curry
(an agent engaged by Mr Silk) and others on the other side.
The judge
reserved judgment and sent his written judgment to the parties on July 31. The
judge ruled on liability only. He found that Mr Silk was in breach of covenant
in five respects, that is:
(i) failure to
destroy weeds (some fields were affected by bracken, brambles and so on);
(ii) failure
to cultivate one particular field, (OS 1600, which was not eligible for any
set-aside scheme);
(iii) allowing
deterioration of the barn (but not, the judge specifically held, so as to make
him liable for complete reroofing);
(iv) failure
to maintain hedges (but the judge expressed doubt about the need for
rabbit-proof fencing); and
(v) failure to
maintain gates.
The judge
ended his judgment with some observations as to the measure of damages. He
referred to Landeau v Marchbank [1949] 2 All ER 172 and Jones
v Herxheimer [1950] 2 KB 106 (cases which I shall have to return to). He
expressed the wish to hear further submissions as to quantum having regard to
his findings. Some remarks made by the judge at the resumed hearing suggested
that he had intended to permit further evidence to be adduced. But if he did,
he failed to make that clear to the parties. His reference to ‘further
submissions’ is hardly consistent with hearing further evidence, nor is the
fact that only one hour was allocated for the further hearing.
It took place
on August 16, at Bournemouth. Mr Clifford Darton (appearing below, as he has in
this court, for Mr Silk) applied for an adjournment so that he could appeal. An
adjournment was refused. Mr Darton explained to this court that he had already
obtained instructions to appeal, because he felt that the judge had already
made a fundamental error about quantum in directing a further hearing at which (as
Mr Darton understood it) the items claimed in the amended particulars of claim
were simply going to be considered seriatim, as with a Scott schedule.
There is a
transcript of what occurred at the resumed hearing and I have to say that it
does not make very edifying reading. Mr Snatt, the solicitor representing
Crewe, did treat it like a hearing on a Scott schedule, launching into the need
for rabbit-proof fencing to protect newly-planted hedges. Mr Snatt referred to
quotations from contractors as the only evidence. Mr Darton began by making
some general submissions, referring to the burden of proof and to section 18(1)
of the Landlord and Tenant Act 1927. The judge pressed him for comments on the
particular figures presented on behalf of Crewe. Counsel responded that the
evidence was closed and that it was not for the defendant to disprove the
plaintiff’s case.
Mr Darton also
submitted to the judge — and it is a point that has assumed some importance in
this court — that he had made no finding as to whether Crewe intended, if it
recovered damages, to lay them out by itself carrying out the necessary work.
Mr Horton had been asked about that in cross-examination and said that he had
no instructions. Mr Darton asked the judge, in his further judgment, to make a
finding on that point. The judge said that he was prepared to do so, but did
not think it really made a difference. In the event the judge did not, in his
further written judgment sent out on September 10 1996, make a finding on that
point, at any rate in clear terms. At an earlier stage the judge had said that
he did not intend to make any order in respect of the barn.
The further
judgment began with a reference to Emmet on Title, 19th ed para 26-188
and to Jones v Herxheimer. It continued:
In this case it
is obvious that the failure to maintain the gates and hedges, to spud up and
destroy weeds and to permit the roof of the barn to continue unrepaired has
caused the value of the reversion in the farm to deteriorate. If matters are
not put right the landlord will receive back at the end of the term a farm, the
value of which is considerably diminished to what it would otherwise have been.
Counsel for the tenant was concerned as to what would happen to the moneys
required to be paid under this judgment but a landlord has the right by clause
9 of the agreement between the parties, to go upon the premises to effect works
of reparation if he chooses to do so.
The judgment
then proceeded to consider specific items. The judge found that the
rabbit-proof fencing to protect young hedges was unnecessary, but instead he
allowed for 4,000 24inch spiral tree guards costing £1,880, including VAT, that
figure being based on the judge’s own researches.
Apart from the
rabbit-proof fencing the judge accepted the evidence (provided by contractors’
quotations) for planting and laying hedges and for gates. He accepted £160 for
weed destruction without, it seems, any specific evidence having been put
forward on that point. He allowed £2,000 for patching up the barn, based on a
cost of £1,875 for work previously done in 1991. That was despite the judge
having said, during the resumed hearing, that he was going to allow nothing for
the barn. The total award of damages was just under £14,000, including an
amount for VAT, plus interest at 7%, making £15,940.
Mr Silk
appeals to this court on quantum only, but it will be apparent from what I have
already said — and it is also apparent from the notice of appeal, which
contains 14 paragraphs of grounds of appeal — that the appeal raises questions
of principle as well as questions of detail. Despite the length of the grounds
of appeal the essential issues can, I think, be reduced to four:
(1) Was the
judge correct in his approach to the assessment of damages?
(2) Is Mr
Darton right in his submission that the plaintiff simply failed to prove any
recoverable loss at trial and should not now be given the opportunity of making
good its earlier failure?
(3) What
difference (if any) is made by (i) an open letter dated May 1 1997 sent by
Crewe’s solicitors, and (ii) an open offer of an undertaking made by Mr Stephen
Jourdan (counsel for Crewe) during the hearing in this court?
(4) So far as
it remains a live issue after the above points have been resolved, what force
is there in Mr Darton’s criticisms of particular items allowed by the judge —
especially the barn, the use of hazel for hedging, the spiral tree guards, the
weed destruction, the inclusion of VAT, and interest?
I will take
these points in order.
(1) Principles for assessment
of damages
This court has
had the benefit of the citation (either in the skeleton arguments or in the
course of oral argument) of much more authority than was cited to the judge.
Not all of it has been particularly helpful. In this field as in other fields
of the law relating to damages, general principles have to be carefully related
to the circumstances of the particular case: see the observations of Oliver J,
in Radford v De Froberville [1977] 1 WLR 1262 at p1269.
I start,
therefore, by noting that this is a case of a continuing annual agricultural
tenancy protected by the Agricultural Holdings Act 1986. It will continue
during Mr Silk’s life (he was 67 at the time of the hearing) unless he gives
notice to quit or the tenancy is terminated in circumstances falling within
section 26 of and Schedule 3 to that Act. Those circumstances include (in cases
C and D in Schedule 3) matters which might be thought capable of overlapping
with the subject-matter of these proceedings, but the fact is that (for
whatever reason) Crewe has not taken the course of seeking possession of the
farm by any route provided for in the Agricultural Holdings Act 1986. There is
clearly no love lost between the parties and Mr Darton has spoken of past
troubles and of an arbitration being undertaken but abandoned. Mr Jourdan has
spoken of the difficulties facing any landlord who seeks to obtain possession
by any route involving an application to the Agricultural Land Tribunal.
So the fact is
that Crewe owns the farm subject to a continuing, protected tenancy of very
unpredictable duration. There is no suggestion that planning permission is
about to be given for the farm to be turned into a housing estate or a motorway
service station or anything of that sort. The court is concerned with tenanted
agricultural land now used for arable farming. The only important building, for
present purposes, is the corrugated iron barn where Mr Silk and his partners store
grain. Mr Silk’s interest in keeping the barn water-tight is at least as great
as Crewe’s.
Mr Darton
submits, correctly, that the general principle as to damages for breach of a
repairing covenant during a continuing tenancy is to be found stated by the
Privy Council in Gooderham and Worts v Canadian Broadcasting
Corporation [1947] AC 66 at p83:
Where a claim
is made by a landlord against a tenant for breach of covenant, during the
currency of the tenancy, which is the present case, the measure of damages is
the diminution in the value of the reversion resulting from the breach
Similarly,
Lord Herschell said in Conquest v Ebbetts [1896] AC 490 at p494:
All the
circumstances of the case must be taken into consideration, and the damages
must be assessed at such a sum as reasonably represents the damage which the
covenantee has sustained by the breach of covenant.
That was a
case of a headlease and an underlease and in that context Lord Herschell said,
a little lower down, that the financial difference in the headlessees’
position,
represents
the diminution in the value of their reversion owing to the breach of covenant,
and on this basis the damages seem to me to have been properly assessed.
So in this
sort of case diminution in the value of the reversion is the test at common
law. Section 18(1) of the Landlord and Tenant Act 1927 does not really affect
the position, and I do not find it necessary to consider what was said as to
the burden of proof under section 18(1) in Crown Estate Commissioners v Town
Investments Ltd [1992] 1 EGLR 61. Nor is it necessary to consider the point
(not raised below or in this court) how far section 18 can apply to covenants
relating not to buildings, but to hedges and fields (cf Maunsell v Olins
[1975] 1 All ER 16).
The judge relied
strongly on the decision of this court in Jones v Herxheimer,
especially the following passage in the judgment of the court delivered by
Jenkins LJ at pp116–117:
We find
nothing in the earlier authorities to justify the conclusion, as a matter of
law, that in no case and in no circumstances can the fact that repairs are
necessary, and the cost of those repairs, be taken as at least prima facie
evidence of damage to the value of the reversion and of the extent of such
damage. There must be many cases in which it is in fact quite obvious that the
value of the reversion has, by reason of a tenant’s failure to do some
necessary repair, been damaged precisely to the extent of the proper cost of
effecting the repair in question. Nor do we understand the Lord Justices in Hanson
v Newman as purporting to lay down an invariable rule of law to the
effect that in all cases and in all circumstances the procedure of placing
values on the reversion repaired and the reversion unrepaired, and ascertaining
the difference, must necessarily be gone through in order to ascertain the
diminution in the value of the reversion attributable to the want of repair.
Nor do we regard McKinnon LJ in Salisbury (Marquess) v Gilmore as
intending to do anything more than to hold that, on the evidence tendered by
the plaintiffs in that particular case, the cost of effecting the repairs could
not be regarded as any index of the diminution (if any) in the value of the
reversion which the want of repair had occasioned.
Marquess of
Salisbury v Gilmore [1942] 2 KB 38 is an
authority illustrating the operation of section 18 in a case where the lease
had ended and the premises were to be demolished. It is not therefore in point
here.
Moreover Jones
v Herxheimer [1950] 2 KB 106 was also a case where the tenancy (of four
rooms in a dwelling-house) had come to an end, and the cost of putting the
rooms into a proper state was naturally taken as the measure of damage. The
case is also of interest for a passage near the beginning of the judgment at
pp112–113:
The statement
in the earlier part of the judgment of the county court judge that ‘no evidence
was given by the landlord of any damage to the reversion’, read literally and
out of its context, seems at first sight inconsistent with a decision in the landlord’s
favour. But it is plain from what follows that the county court judge did not
mean by this that there was no evidence on which damage to the reversion could
be held to have been proved, but only that the evidence for the landlord did
not refer in so many words to the question of damage to the reversion.
The
significance of the cost of repairs during the currency of the lease or tenancy
is well illustrated by the old case of Doe d Worcester School Trustees v
Rowlands (1841) 9 Car & P 734. It was tried with a jury which was
directed by Coleridge J, as follows (at pp739–740):
The true
question therefore is — to what extent is the reversion injured by the
non-repair of the premises? If the lease had ninety-nine years to run, it could
not make much difference in the value of the reversion whether the premises
were now in repair or not. This lease however will expire in about six years.
It appears also that this property originally consisted of a warehouse, a
stable, and gardens; and the plaintiffs say that the erection of the present
tenements was wrongful; but they (waiving that for the present) have sent
surveyors who make an estimate amounting to between £150 and £160.
And then a
little lower down:
The question
therefore that you have determine is — how much the reversion is injured by the
breach of this covenant …
The jury
awarded £40 damages.
The fact that
relatively minor wants of repair during the currency of a long lease do not
materially damage the value of the reversion, but might (despite section 18) be
used to harass tenants, was of course the policy behind the Leasehold Property
(Repairs) Act, 1938. This scope of that Act has been extended by amendment, but
it does not apply to agricultural tenancies.
Counsel also
referred to the decision of this court in Smiley v Townshend
[1950] 2 KB 311. In that case, the lease had come to an end, but the position
was complicated by emergency requisitioning legislation. The facts are not
therefore comparable. The case is of most interest for what Denning LJ said at
pp322–323:
In cases
where it is plain that the repairs are not going to be done by the landlord,
the cost of them is little or no guide to the diminution in value of the
reversion, which may be nominal: see Espir v Basil Street Hotel Ltd,
and James v Hutton. But in cases where the repairs have been, or
are going to be, done by the landlord, the cost may be a very real guide. That
is shown by the recent case of Jones v Herxheimer to which we
were referred. In cases where it is open to question whether the repairs will
be done by the landlord, as in the
scaled down according to the circumstances, remembering that the real question
is: What is the injury to the reversion? That is what the judge did here, as I
read his judgment: he used the cost merely as an aid in assessing the
diminution in value of the reversion. I do not think that I should myself have
given so much weight to the cost of repairs; or, at any rate, having regard to
the requisition I should have scaled down the figure considerably just as
damages for breach of covenant to keep in repair during the term are scaled
down according to the length of time unexpired: see Conquest v Ebbetts.
The reference
to Conquest v Ebbetts is to that case in the Court of Appeal*,
where Lindley LJ referred at p383 to a discount on the cost of repairs to allow
for the unexpired portion of the lease.
*Editor’s
note: sub nom Ebbetts v Conquest [1895] 2 Ch377 on appeal to
House of Lords, Conquest v Ebbetts [1896] AC 490
In the same
case Singleton LJ commented on the decision of Lynskey J. In Landeau v Marchbank:
In the course
of his judgment in Landeau v Marchbank the judge appears to have
said: ‘it seems to me that, having regard to those decisions, the fact that
repairs are necessary is not in itself even prima facie evidence of
damage to the value of the reversion. In certain circumstances it may be an important
factor, but of itself the fact that a certain amount of repair needs to be done
does not, in my view, necessarily mean that there is damage to the reversion’.
If I may respectfully say so, I agree with the judgment in that case except
that I would substitute the word ‘conclusive’ for the words ‘even prima
facie‘. Evidence of lack of repair is not conclusive evidence of damage to
the value of the reversion; but it may well be, and is generally held to be, prima
facie evidence of it.
That seems to
me, with respect, to be a fairly major qualification. Singleton LJ was in
substance disapproving of what Lynskey J had said.
Without going
further into the authorities I have to say that I am quite satisfied that the
judge fell into error in his approach to the assessment of damages. He relied
too much on the general principle stated in Jones v Herxheimer.
It is clear as a principle, but it must be related to the totally different
facts of that case. The judge also erred in referring to Crewe’s right of entry
for the purpose of carrying out repairs without making any finding, despite Mr
Darton’s request, as to the intentions of the individuals, whoever they are,
who take decisions on behalf of Crewe. From the evidence of Mr Horton at trial
it seems likely that at that time those who controlled Crewe had no intention
of carrying out work on the farm. Certainly there was no evidence to justify a
positive finding that there was such an intention. On the facts of this case,
therefore, it does not seem necessary to go into the possible significance of
an actual intention on the part of the landlord, to remedy wants of repair
during the currency of a lease or tenancy. Such action would (as Millett LJ
pointed out in the course of the argument), benefit the tenant as well as the
landlord. (That is illustrated, in this case, by the corrugated iron barn used
as a grain store; Mr Silk may not care about hedges or gates, but he does not
want the partners’ stock of grain to be spoiled.) However, as the court has
heard a good deal of argument on the point I will make some brief comments. It
is clear that the law has moved on: see Conquest v Ebbetts [1896]
AC 490 at pp493–494 from what Holt CJ said in Vivian v Champion
(1705) 2 Ld Raym 1125:
We always
enquire in these cases, what it will cost to put the premises in repair, and
give so much damages, and the plaintiff ought in justice to apply the damages
to the repair of the premises.
The
permissible heads of damage and the measure of damages must in principle be
arrived at by an objective test. That point is emphasised by, but does not
depend on, section 18 of the Landlord and Tenant Act 1927.
What Denning
LJ said in Smiley v Townshend (in the passage set out above), was
not necessary to the decision. It seems to have received less than the
wholehearted acceptance from this court in Culworth Estates v Society
of Licensed Victuallers [1991] 2 EGLR 54 at p56. It should perhaps now be
read in the light of what Lord Lloyd said in Ruxley Electronics and
Construction Ltd v Forsyth [1996] AC 344 at p372C:
the courts
are not normally concerned with what a plaintiff does with his damages. But it
does not follow that intention is not relevant to reasonableness, at least in
those cases where the plaintiff does not intend to reinstate.
Ruxley was not
a landlord and tenant case, but the principle stated by Lord Lloyd seems of
general application. However, it is not necessary to reach a concluded view.
(2) Proof of loss
Mr Darton
submits not merely that the judge was wrong in looking at the undiscounted cost
of repair as a guide, and was wrong about particular items of repair, but also
(and he puts this in the forefront of his case) that the plaintiff has simply
failed to prove its case. He cites Lord Goddard CJ in Bonham-Carter v Hyde
Park Hotel (1948) 64 TLR 177 at p178, cited by Edmund Davies LJ in Ashcroft
v Curtin [1971] 1 WLR 1731 at p1738:
Plaintiffs
must understand that, if they bring actions for damages it is for them to prove
their damage; it is not enough to write down particulars, and, so to speak,
throw them at the head of the court, saying: ‘This is what I have lost; I ask
you to give me these damages’. They have to prove it …
That is
plainly right as a matter of principle. The problem is in relating it to the
practicalities of the disposal of business in the county court. County court
judges constantly have to deal with cases that are inadequately prepared and
presented, either as to the facts or as to the law (or both), and they must not
be discouraged from doing their best to reach a fair and sensible result on
inadequate materials. Moreover, there is a strong public interest in
encouraging litigants not to incur the expense of a proliferation of expert
witnesses (in this case, actuaries and valuers have been mentioned) unless the
additional expense of time and money can be justified.
I am sure that
the judge was wrong to treat undiscounted costs of repair as a safe guide in
this case, especially as he did not find that the landlord was going to
undertake any repairs itself. I am sure that the judge would have been assisted
by evidence of the effect of disrepair (caused by a tenant’s breaches of
covenant) on the value of the freehold interest in the farm if it had been put
on the market, subject to and with the benefit of the tenancy, at the date of
the hearing. Evidence on those points could have been obtained from the two
agents who were called as witnesses, one on each side, without the need for new
experts. (In fact Mr Horton was asked about the value of the reversion, at the
end of his evidence in chief, but Mr Darton successfully objected to the
evidence on the ground that it was not in Mr Horton’s witness statement.)
I am, however,
by no means sure that the judge needed evidence, beyond what was before him,
for the simple proposition that a tenanted farm in a seriously bad state — and
it must be remembered that the judge rejected Mr Silk’s case that the breaches
were non-existent or trivial — is worth less than a tenanted farm where the
tenant has complied with all his obligations. The judge said at the end of his
second judgment that on the termination of the tenancy with the breaches
remaining unremedied, ‘an intending purchaser would insist that due allowance
from the purchase price be made for putting all these matters right’. By parity
of reasoning a purchaser would expect some allowance if he was buying the
freehold subject to a tenancy where there were continuing breaches. He would
not be satisfied with the bland assurance that all would be put right before
the end of the tenancy.
The true
position is (as Millett LJ observed in the course of argument) that general
damages are at large, and the judge must do the best he can, just as the jury
would have had to do when civil actions were heard by juries. I have already
referred to the old case of Worcester School Trustees, tried by
Coleridge J with a jury. Just the same approach can be seen in Portman v
Latter [1942] WN 97, in which Croom-Johnson J was unimpressed by all the
expert witnesses,
damages, in the particular circumstances of that case as they appeared in
evidence, at about three-fifths of the cost of the repairs. There the lease had
come to an end, but the premises could not be relet as a dwelling-house.
Where a
landlord claims damages for breach of a repairing covenant near the beginning
or in the middle of the term of a long lease (and on the assumption that he
gets leave under the Leasehold Property (Repairs) Act 1938 as amended) he will,
if he fails to lead evidence of diminution in the value of the reversion, run a
serious risk of the court concluding that there has been no significant
diminution. Where a tenant is defending such a claim towards the end of the
term of the lease he will, if he fails to lead evidence that the diminution is
much less than the costs of repairs, run a serious risk of the court accepting
that cost (or that cost only slightly discounted) as the best evidence of the
diminution. In most cases the evidence before the court (even if imperfect and
incomplete) will be more important than issues as to the burden of proof.
Looked at in
that way, this is a difficult intermediate case. The future duration of the
tenancy was and is imponderable. There was no evidence before the judge that
Crewe intended to carry out the work itself, and some evidence that it was not
in a position to do so. I think it is perhaps unfortunate that the judge felt
obliged to deprive himself of valuation evidence from Mr Horton on the ground
that it was not in his witness statement. Mr Darton was well aware of the
significance of this point (though I think Mr Jourdan went rather far in
describing it as an ‘ambush’ defence; to any competent lawyer it was
predictably the main issue in the case if Mr Silk failed on liability).
However, the judge made that ruling and so he had to do his best with the
material which was let in. As I have already indicated, I think the judge did
fall into error in the way in which he handled that material. But I would reject
Mr Darton’s submission that the judge was bound to award no damages, or only
nominal damages, because Crewe had failed to prove its loss.
(3) Events since trial
Mr Silk gave
notice of appeal on October 4 1996. For some months, it appears, nothing
further happened: that is to say Mr Silk did not pay the damages awarded, nor
did he carry out any further relevant works of repair; nor did Crewe take any
action (under clause 9 of the tenancy agreement or otherwise) to carry out
works itself. Then on May 1 1997 Crewe’s solicitors wrote an open letter. It
began by requiring Mr Silk to pay the damages awarded (no stay of execution had
been granted or indeed applied for). It also gave formal notice under clause 9
requiring Mr Silk to carry out the works in respect of which the judge had
found him to be in breach of covenant, and said that if Mr Silk did not comply,
Crewe would lay out the damages in having the works done. It proposed that the
appeal should be discontinued with no order as to costs, and the costs order
below undisturbed. Then the letter went on:
If not, we
have another proposal to make. It is that we should agree that the Court of
Appeal should set aside the Judge’s decision on quantum, and remit the action
to another judge for him to determine the quantum of damages which should be
awarded. Your appeal relates solely to quantum. You do not appeal from the
Judge’s finding on liability. It does seem to us that the Judge arguably went
wrong in at least three respects in assessing quantum.
(A) It seems
clear from the Judge’s remarks at the hearing on 16th August 1996, that he
thought that the further hearing was to be a full enquiry into damages, with
evidence called on both sides; see eg in the transcript, page 6 at letter D, 9
at letters B–E, page 10 at letter H. However he failed to communicate that
intention to either party.
(B) The Judge
said to Mr Darton, in the course of the hearing on 16 August 1996, that the
Judge did not intend to make any order in respect of the barn: page 8 of the
transcript at letter A. Because of that, Mr Darton made no submissions on the
barn. Despite that, the Judge did make an award of £2,000. That was, on the
face of it, clearly unfair to Mr Silk.
(C) The Judge
based his award in relation to tree guards on his own researches. While it is
arguable that he was entitled to take judicial notice of local agricultural
prices, and we reserve the right to argue that in the Court of Appeal, it
clearly is unusual for a Judge to obtain evidence of prices in that way.
In the
circumstances, the fairest way of dealing with the matter would be for the
Court of Appeal to set aside the Judge’s award on quantum, leaving undisturbed
his findings on liability, and to remit the matter to a different Judge to deal
with the assessment of quantum, with both parties at liberty to call any
further evidence on that issue, including valuation evidence.
Mr Silk’s
solicitors replied in an open letter dated May 15 1997 remitting the amount of
the judgment debt, subject to an undisputed set off. They described the
remainder of the letter of May 1 as disingenuous, on the footing that the
plaintiff had, it was said, failed to prove its claim and could have recovered
no more than nominal damages.
The court was
told on instructions that Mr Silk has now carried out some remedial work to the
barn. The court was also offered an undertaking by Crewe that if the appeal is
dismissed, the damages awarded by the judge (and now, subject to the set off,
in Crewe’s hands) will be laid out in remedial works on the farm (Crewe has a
right of entry for that purpose, quite apart from clause 9).
This court was
initially concerned as to why Mr Silk had rejected Crewe’s open offer. However,
Mr Darton persuaded us that the offer (whether or not disingenuous) was not one
which Mr Silk could not reasonably refuse. It would have left many points of
principle unresolved; it would have left the issue of costs unresolved (while
the costs continued to mount); and the judge rehearing the issue of quantum
would have had to be directed by this court either to let in fresh evidence
(which might be unfair to Mr Silk) or to exclude it (in which case the
rehearing would mean that still more judicial resources were being deployed to
resolve an issue which this court, having decided to hear the whole appeal, can
equally well decide itself).
I would not,
therefore, remit this case to be heard by another judge at Winchester County
Court. Nor would I attach any weight to the undertaking which Mr Jourdan
offered on behalf of Crewe in the course of the hearing in this court. No such
undertaking (or even statement of intention) was made to the judge. It is too
late for Crewe to offer it now: compare the undertaking offered to the Court of
Appeal and the House of Lords in Ruxley Electronics and Construction Ltd v
Forsyth [1996] AC 344 at p352, which was unacceptable for reasons stated
by Lord Lloyd at p373.
(4) Particular issues
So far I have
arrived at three conclusions: that in the circumstances of this case the judge
erred in principle in measuring damages by the undiscounted cost of
repairs; that it was not however a case in which he was bound to award only
nominal damages; and that the case should not be remitted for a rehearing of
issues as to quantum. Instead this court should, in my view, make its own
award, doing its best on the rather limited and unsatisfactory material before
it. Because the limited and unsatisfactory nature of the material is largely
the responsibility of the plaintiff (though contributed to by Mr Darton’s
successful objection to what would have been very relevant evidence) the court
should be inclined to give the benefit of the doubt to the defendant: that is,
if in doubt to apply a relatively severe discount to costs of repair, so far as
relied on as evidence of diminution in the value of the reversion.
This court
must therefore consider the various points of controversy dealt with at the end
of counsel’s skeleton arguments. But I think it right to do so in a very
summary manner.
(1) The barn.
Mr Jourdan accepts that the judge acted unfairly in stopping Mr Darton’s
submissions on the barn and then allowing £2,000. Especially as Mr Silk has
since carried out work on the barn (the water-tightness of which is very
important to him) I would not make any allowance in respect of repairs to the
barn.
(2) Hazel
hedges and laying hedges. There was evidence of the cost of these, and there
was evidence that they were something that a reasonable tenant would require.
The judge accepted that evidence (except as to rabbit-proofing fencing) and he
was entitled to do so.
(3) Tree
guards. The judge did err, although obviously with the best intentions, in
making his own researches. But no obvious injustice has been suffered.
(4) Weeds.
This item is almost de minimis when discounted. I think the judge was
entitled to rely on Mr Horton’s unchallenged evidence that he had included this
item in his schedule, and he must have had some basis for doing so.
(5) VAT. The
inclusion of VAT in assessing a landlord’s damages has been considered in two
cases: Drummond v S&U Stores Ltd (1980) 258 EG 1293*,
Glidewell J; and Elite Investments v TI Bainbridge Silencers (No 2)
[1987] 2 EGLR 50, Judge Paul Baker QC. Those cases show that it is an issue
which involves many imponderables on which (as Judge Baker said at p51):
*Editor’s
note: Also reported at [1981] 1 EGLR 42
one has to
look at the evidence as a whole.
Since those
cases the VAT position of landlords has been complicated by the option to waive
exemption introduced by the Finance Act 1989 (see now Value Added Tax Act 1994
section 51 and Schedule 10). The judge had no evidence or submissions
whatsoever about VAT, though this court was told on instructions that Crewe is
not registered for VAT purposes. In all the circumstances I think it would be
pointless to try to go further into a darkened maze. Instead I would take these
further uncertainties into account in the overall assessment of the appropriate
discount.
(6) Interest.
The judge allowed interest and he probably had discretion to do so. But if this
court is reconsidering the whole question of quantum I would respectfully adopt
the suggestion of Millett LJ that any discounting exercise should go back to
the date of the order, rather than the date of commencement of proceedings, so
obviating the need for any award of interest in respect of the period before
judgment.
On that
footing, the principal sum of damages awarded by the judge would be adjusted by
deducting £2,000, plus VAT, from £13,983, so arriving at £11,633. That is a
very poor guide to the diminution in value of the reversion to the farm, but it
is the best starting point that the court has. For my part I would discount it
by almost three-quarters, to allow for all the uncertainties already mentioned,
and vary the judge’s order to award damages of £3,000, with no interest up to
the date of the order.
MILLETT LJ and LORD WOOLF MR agreed and did not add anything.
Appeal
allowed.
