Forfeiture — Arrears of rent — Damages — Council claiming forfeiture of lease and arrears of rent — Tenant counterclaiming damages for misrepresentation and breach of collateral warranty — Whether judge erring in law in assessing loss on continuing basis — Appeal allowed
The respondents had taken an assignment of the lease of shop premises in 1981. At the time, the business was run down with little of its lease term remaining. However, the respondents took the view that the development of a nearby estate would revive the business. The appellant council assured the respondents that the one shop on the estate (the estate shop) would not be trading as a grocer’s shop and thus competing with their business. The respondents relied upon that assurance when taking the assignment. They later sought, and were granted, a new six-year lease from February 1982, despite the fact that the estate shop had opened as a grocery.
The respondents also intended to operate an off-licence. The appellants assured them that the lease of the estate shop did not permit use as an off-licence. There was, in fact, no restriction on user, and the estate shop was subsequently granted permission to operate as an off-licence in competition with the respondents. Further, in 1994, the council granted a 99-year lease of two other shops, without any restriction as to user. A further off-licence permission was granted. The combined competition led to the deterioration of the respondents’ business, and, in 1988, they ceased trading. They abandoned the premises, although liability for the rent continued to accrue.
The appellant council claimed forfeiture of the lease, together with arrears of rent and mesne profits. The respondents counterclaimed for damages for breach of collateral undertakings, which, they argued, had led them to take the assignment and the six-year lease. The judge awarded damages on the basis that, but for the appellants’ breaches, the respondents would have traded profitably for a further six years until 1994 and then sold their business profitably.
The appellant appealed to the Court of Appeal. The question was whether the judge should have measured the respondents’ loss on the basis of a continuing assessment, or whether he should have drawn a line in 1988 when the respondents actually lost the business.
Held: The appeal was allowed.
The judge had been wrong to deal with the matter as he had. He had been dealing with the claim of parties who, on the faith of a contractual warranty, had acquired business premises as an investment, albeit for operation as a business. The respondents had not relied upon any additional feature, special characteristic, or future intention made known to them at the time of their proposed acquisition, and which might lead them to assume that the business would be continued and/or disposed of on other than ordinary commercial considerations.
The damages that could be recoverable were those that were within the reasonable contemplation of parties in that situation. The cut-off point for any claim for loss of profits and the point at which damages fell to be assessed on a valuation basis was the point at which it was reasonable for the respondents, who were fully appraised of the adverse effects of the breach of warranty, to decide to cease trading and to dispose of the business.
The normal contractual measure of damages should be adopted, based upon the value of the benefit of which the respondents had been deprived as a result of the breaches of warranty. On the facts, the reality was that, from mid-1987, the respondents had contemplated disposing of their business rather than continuing it. In those circumstances, the approach of the judge involved compensating the respondents for loss of future trade that they had no intention of carrying on.
Neil Berragan (instructed by Salford City Council) appeared for the appellant; Alan Gourgey QC and Ian Foster (instructed by Berg & Co, of Manchester) appeared for the respondents.
Eileen O’Grady, barrister
