Trespass — Mesne profits — Specified apartments in hotel — Whether wholesale prices payable by tour operators less expenses represented reasonable rent.
By a lease
dated June 5 1970 the plaintiff was granted for a premium of $300,000 a 99-year
term of 30 specified apartments in an hotel. On November 25 1974 the plaintiff
was ejected by the defendant owner. Following proceedings to recover
possession, the defendants did not give up possession until April 12 1990. For
this period of trespass the plaintiff sought mesne profits on the basis
of two alternative calculations, one based on published room rates gave
$8,164,590 and the other, based on average revenue less expenses, gave
$3,373,838. The Court of Appeal of the Bahamas determined the mesne
profits at $1,800,000. The defendants appealed.
property is entitled to be paid by way of mesne profits a reasonable
rent for the wrongful use of his property by the trespasser. Applying the user
principle derived from Stoke-on-Trent City Council v W&J Wass Ltd
[1988] 1 WLR 1406, the defendants must pay the going rate for the use of the 30
apartments. It was appropriate to take the wholesale rates paid by tour
operators for the period. It was irrelevant that the plaintiff would have been
unable to let the apartments to tour operators for 365 days in the year.
Deductions should then be made for ground rent and for the cost of maintaining
the common areas.
The following
cases are referred to in this report.
Brynowen
Estates Ltd v Bourne unreported October 21
1981, CA
McArthur
& Co v Cornwall [1892] AC 75
Ministry
of Defence v Ashman (1993) 66 P&CR 195;
[1993] 2 EGLR 102; [1993] 40 EG 144
Penarth
Dock Engineering Co Properties Ltd v Pounds
[1963] 1 Lloyd’s Rep 359
Phillips v Homfray (1871) LR 6 Ch App 770
Stoke-on-Trent
City Council v W&J Wass Ltd [1988] 1 WLR
1406; [1988] 3 All ER 394; (1988) 87 LGR 129, CA
Swordheath
Properties Ltd v Tabet [1979] 1 WLR 285; [1979]
1 All ER 240; (1978) 37 P&CR 327; [1979] 1 EGLR 58; [1979] EGD 330; 249 EG
439, CA
Whitwham
v Westminster Brymbo Coal & Coke Co
[1896] 2 Ch 538
This was an
appeal by the defendants, Inverugie Investments Ltd, from a decision of the
Court of Appeal of the Bahamas which had allowed an appeal by the plaintiff,
Richard Hackett, from the decision of Mr Registrar Strachan deferring the
damages payable.
Leo Price QC
(instructed by Simon Muirhead & Burton) appeared for the appellant; John
Mowbray QC (instructed by Sharp Pritchard) represented the respondent.
Giving the
opinion of the Board, Lord Lloyd of Berwick said: This is in form an ordinary claim for mesne
profits, that is to say a claim for damages for trespass to land. But the facts
are unusual, since the land consists of 30 specified apartments in a much
larger hotel. The hotel is owned by the defendants, Inverugie Investments Ltd.
The plaintiff, the late Mr Richard Hackett, was the lessee of the apartments
under a lease dated June 5 1970 for a term of 99 years. On November 25 1974 Mr
Hackett was ejected by the defendants. On March 6 1975 he brought proceedings
for possession. Those proceedings culminated on December 19 1984 when the Board
dismissed Inverugie’s appeal
Hackett. Despite a further order granted by Malone J on June 23 1986 requiring
Inverugie to give up possession forthwith, they did not do so until April 12
1990. The trespass thus lasted for a continuous period of 15½ years. The
question for decision is the appropriate measure of damages.
Mr John
Mowbray QC made clear to the Board, as he had already made clear in the courts
below, that Mr Hackett is claiming a reasonable rent for the apartments
throughout the period of the trespass. This is the basis on which damages for mesne
profits are awarded every day in the county courts. Mr Hackett is not asking
for an account of profits, perhaps because the hotel was running at a loss, as
the defendants have maintained throughout. He is not asserting a restitutionary
claim, as an independent cause of action. So the point which divided the Court
of Appeal in Ministry of Defence v Ashman [1993] 2 EGLR 102, and
the interesting theoretical questions discussed in Part VII of the Law Commission
Paper No 132 do not arise for decision. They have not been argued. Mr Leo Price
QC, for Inverugie, accepts that Mr Hackett is entitled to a reasonable rent.
Accordingly, on the arguments presented, no issue of legal principle arises.
The problem is how a reasonable rent should be calculated.
In the
ordinary case where the plaintiff is the landlord of domestic premises, and the
defendant is or was the tenant, this creates no difficulty. The reasonable rent
is almost always the rent reserved under the expiring lease. The difficulty in
the present case arises because the facts are the other way round. It is the
tenant who is the plaintiff, and the defendants who are the reversioners under
the lease.
The hotel in
question is known as the Silver Sands Hotel. It is situated on Grand Bahama. It
consists of two main blocks and a third smaller block. There are 164 apartments
in all. It was developed in the late 1960s by Myra Investments Ltd. The 30
apartments demised to Mr Hackett were spread over the two main blocks. The
consideration for the lease was $300,000. Thereafter Myra continued to manage
the 30 apartments on Mr Hackett’s behalf. However, on June 29 1972 Myra’s
mortgagee called in the mortgage. There was a sale to Gleneagles Investment Co
Ltd in October 1974, followed by a further sale to Inverugie in November 1974.
The published
room rate for the high or winter season was $22.50 per day in 1974. By 1990 it
had risen to $80 per day. But most of the apartments were taken by tour
operators at a much reduced rate. The average occupancy was said to be 35%–40%.
The case came
before Mr Registrar Strachan on June 29 1990. Mr Hackett’s claim was put
forward on the basis of two alternative calculations. A calculation based on
the published room rate less Mr Hackett’s share of operating expenses gave a
figure of $8,164,590. Another calculation, based on average revenue per
apartment less operating expenses, gave a figure of $3,373,838.
The registrar
rejected both calculations. He held that the justice of the case could best be
met by taking Mr Hackett’s original investment of $300,000 at 12½% simple
interest over the whole period of 15½ years. In this way he awarded damages of
$577,500. According to the registrar this was the equivalent of a net rate of
$3 per apartment per day.
Mr Hackett
appealed, and Inverugie cross-appealed. In the Court of Appeal Campbell JA took
as his starting point the gross revenue of the hotel over a period of 15 years
and one month. He allowed three and a half months for the periods during which
the apartments would have had to be unoccupied for refurbishing. From this he
calculated the notional gross revenue of the 30 apartments on the basis of 100%
occupancy, giving a figure of $3,872,790. (For convenience and simplicity their
lordships throughout ignore the fact that six of the 30 apartments were sold in
about 1980.) Campbell JA then deducted: (1) a proportion of the total expenses
relating to the 30 apartments, amounting to $1,832,721; and (2) ground rent
under the lease amounting to $226,800, leaving a balance of $1,813,269. In
taking this approach Campbell JA relied on a decision of the Board in McArthur
& Co v Cornwall [1892] AC 75.
Melville P
agreed with Campbell JA save that he rounded down the figure to $1,800,000.
Rowe JA
adopted a radically different approach. He rejected McArthur & Co v Cornwall
as irrelevant. He followed a line of cases starting with Phillips v Homfray
(1871) LR 6 Ch App 770, and including Whitwham v Westminster Brymbo
Coal & Coke Co [1896] 2 Ch 538; Penarth Dock Engineering Co
Properties Ltd v Pounds [1963] 1 Lloyd’s Rep 359; Swordheath
Properties Ltd v Tabet [1979] 1 WLR 285* and Brynowen Estates Ltd
v Bourne unreported October 21 1981 CA. Their lordships would quote the
following passages from Rowe JA’s judgment to explain his approach:
*Editor’s
note: Also reported at [1979] 1 EGLR 58.
Inverugie has
by trespass made use of Hackett’s apartments and Hackett is entitled to receive
by way of damages such sum as should reasonably be paid for the use. I
therefore agree with the learned Registrar that in assessing damages in the
instant case profitability is not a relevant circumstance …
Inverugie was
in physical possession of the Hackett apartments for 365 days in each year of
the trespass and is liable in trespass to pay to Hackett the reasonable rent
for the apartments whether or not Inverugie wished to rent them or was able to
let them. The guest who from time to time paid for the privilege of occupation
of the Hackett apartments was not the trespasser to whom Hackett will look for
compensation in damages and I repeat that whether an apartment was occupied or
unoccupied Inverugie has an obligation to pay damages to Hackett …
On this my
approach, the total amounts actually earned by Inverugie for the operation of
the Silver Sands Hotel are irrelevant for the purpose of assessing the damages
due to Hackett. An examination of Inverugie’s accounts … would be equally
irrelevant.
Turning to the
facts he said:
It seems to
me, based on the findings of fact by the learned Registrar, that the reasonable
rent which could be obtained for the Hackett apartments in summer and in winter
were the rates which tour operators were prepared to pay and that these rates
when properly negotiated would be thirty-five percent lower than the published
seasonal rate. This is the rate, which in my opinion, ought to be applied to
the Hackett apartments for the 15.16 years of the trespass without any
deduction for gaps in the actual occupancy of the apartments.
Having made
certain deductions from the gross rental value of the 30 apartments, he arrived
at a figure of $2,437,843.
Inverugie now
appeal from the majority decision. Mr Price hesitates to support the case put
forward in the court below that, as the hotel was running at a loss, the
damages should be nominal. But he submits nevertheless that the award is
inflated. The majority have failed to calculate the expenses correctly, and
have thus arrived at a figure which is too high. Mr Mowbray, on the other hand,
submits that, subject to one qualification, the correct approach was that
adopted by Rowe JA, and that the award is thus too low. But Mr Hackett does not
cross-appeal. He is content with the figure reached by the majority, which is
thus, as Mr Mowbray says, a very ‘safe’ award.
Before stating
their own conclusions on the facts, their lordships should say a brief word on
the law. The cases to which they have already referred establish, beyond any
doubt, that a person who lets out goods on hire, or the landlord of residential
property, can recover damages from a trespasser who has wrongfully used his
property whether or not he can show that he would have let the property to
anybody else, and whether or not he would have used the property himself. The
point is well expressed by Megaw LJ in Swordheath Properties Ltd v Tabet
at p288 as follows:
It appears to
me to be clear, both as a matter of principle and of authority, that in a case
of this sort the plaintiff, when he has established that the defendant has
remained on as a trespasser in residential property, is entitled, without
bringing evidence that he could or would have let the property to someone else
in the absence of the trespassing defendant, to have as damages for the
trespass the value of the property as it would fairly be calculated; and, in
the absence of anything special in the particular case it would be the ordinary
letting value of the property that would determine the amount of the damages.
It is
sometimes said that these cases are an exception to the rule that damages in
tort are compensatory. But this is not necessarily so. It depends how widely
one defines the ‘loss’ which the plaintiff has suffered. As the Earl of
Halsbury LC pointed out in The Mediana [1900] AC 113 at p117, it is no
answer for a wrongdoer who has deprived the plaintiff of his chair to point out
that he does not usually sit in it or that he has plenty of other chairs in the
room.
In Stoke-on-Trent
City Council v W&J Wass Ltd [1988] 1 WLR 1406 Nicholls LJ, as he
then was, called the underlying principle in these cases the ‘user principle’.
The plaintiff may not have suffered any actual loss by being deprived of
the use of his property. But under the user principle he is entitled to recover
a reasonable rent for the wrongful use of his property by the trespasser.
Similarly, the trespasser may not have derived any actual benefit from
the use of the property. But under the user principle he is obliged to pay a
reasonable rent for the use which he has enjoyed. The principle need not be
characterised as exclusively compensatory, or exclusively restitutionary; it
combines elements of both.
If this is the
correct principle, how does it apply to the facts of the present case? Mr
Mowbray argues that it makes no difference whether there were 30 apartments, or
only one. If there had been only one, Inverugie would have been obliged to pay
a reasonable rent for the use of the apartment for 365 days in the year, even
though the apartment might not be taken by a tour operator, or otherwise
occupied, for more than 35% of the time. The same must apply, says Mr Mowbray,
to each of the 30 apartments.
Mr Price
argues that the unusual facts of the present case take it outside the normal
rule. Inverugie is an hotel operator. If one assumes that the parties had
negotiated a notional rent for the 30 apartments as a whole, they would have
taken account of the average occupancy. What has to be valued is the chance of
Inverugie making a profit from the letting of the 30 apartments to tour
operators, not the rent which an individual operator would pay per apartment.
On the basis of $3 per day per apartment — the figure calculated by the
registrar — an hotel proprietor would not have been prepared to pay more than
$400 per apartment per year. In this way Mr Price arrives at $159,360 as the
appropriate measure of damages.
The point is
not altogether easy. But their lordships have concluded that Mr Mowbray’s
argument is to be preferred. If a man hires a concrete mixer, he must pay the
daily hire, even though he may not in the event have been able to use the mixer
because of rain. So also must a trespasser who takes the mixer without the
owner’s consent. He must pay the going rate, even though in the event he has
derived no benefit from the use of the mixer. It makes no difference whether
the trespasser is a professional builder or a do it yourself enthusiast.
The same
applies to residential property. In the present case Inverugie have had the use
of all 30 apartments for 15½ years. Applying the user principle, they must pay
the going rate, even though they have been unable to derive actual benefit from
all the apartments for all the time. The fact that Inverugie is an hotel
operator does not take the case out of the ordinary rule. Mr Hackett is not
asking for an account of profits. The chance of making a profit from the use of
the apartments is not the correct test for arriving at a reasonable rent.
It follows
that their lordships cannot agree with the judgment of the majority in the
court below. McArthur & Co v Cornwall is not in point since
the assessment of damages in that case was not for wrongful occupation of land
but for conversion of produce. Their lordships find themselves in full
agreement with the approach adopted by Rowe JA.
What then is a
reasonable rental value for the 30 apartments for 365 days a year? Rowe JA
might have taken the published rates for each of the apartments. But as has been
seen, he took instead the ‘wholesale’ rate paid by tour operators, that is to
say, the published rate less 35% in the winter, and 65% in the summer. Their
lordships see no reason to take a different view. For the reasons already
explained, it is wholly irrelevant that Mr Hackett would not himself have been
able to let the apartments to tour operators for 365 days in the year.
The final
question is what, if any, deductions should be set off against the reasonable
rental value of the 30 apartments. Mr Mowbray concedes that Inverugie are
entitled to set off the sums which would have been payable under the lease. The
relevant provisions are to be found in the fourth schedule to the lease dated
June 5 1970. Rowe JA deducted $226,800 for ground rent and $950,331 for the
cost of maintaining and refurbishing the common areas, making $1,177,131 in
all. Mr Mowbray agrees that these were correct deductions. Rowe JA also
deducted $974,574 for electricity and Mr Hackett’s share of the cost of
interior maintenance and repairs. This appears to have been conceded below. But
Mr Mowbray does not accept this deduction. Mr Price submits that Rowe JA was
right to make this deduction, and should also have deducted $387,279 for 10%
management commission and $1,832,721 for Mr Hackett’s share of the general
expenses of running the hotel.
For the
reasons given by Rowe JA, he was plainly right not to deduct anything for
general expenses. They are not a set off against rent. The same applies to the
management commission. The position with regard to electricity and the cost of
interior maintenance and repairs is not so clear. But it matters not. For even
if $974,574 was correctly deducted, the final figure on Rowe JA’s approach
comes to well in excess of the $1,800,000 awarded by the majority. Inverugie
have thus failed to show that the figure should be reduced.
Accordingly
their lordships will humbly advise Her Majesty that the appeal should be
dismissed. The appellants must pay the respondent’s costs before the Board. The
orders for costs in the courts below will stand.
