Negligence — Damages — Costs — Appeal by defendant solicitors against the computation of damages and against an order to pay the costs of the second defendants, a firm of surveyors, in an action by advertising agents for negligence — Appeal arose from a decision of Mr John Gorman QC, sitting as a deputy High Court judge, who found the solicitor defendants liable for negligence and ordered them to pay substantial damages to the plaintiffs; the claim against the surveyors was dismissed — Plaintiffs had instructed the surveyors to find suitable office premises to rent and had retained the solicitors to act in connection with the acquisition — The trouble arose when the plaintiffs’ receiver (the company having gone into liquidation) discovered that the ground floor of the premises acquired was subject to a planning condition restricting part to use for offices for the printing trade only — The receiver found it impossible to dispose of the lease and it was eventually surrendered to the landlords for a payment — A crucial finding was that if the plaintiffs had known of the restriction they would never have taken a lease of the premises — There was no appeal by the solicitor defendants against the finding of negligence, but they submitted that the judge below had assessed the damages partly on the wrong basis and also that they ought not to have been ordered to pay the costs of the surveyors — It was accepted that in calculating the damages the plaintiffs were bound to give credit, inter alia, for the beneficial occupation of the premises which they had enjoyed for some 18 months — |page:139| The main dispute was as to the correct valuation of this occupation — The judge below had arrived at it on the basis of the difference between the improved rental value of £118,000 per annum and the unimproved rental value of £88,000, ie £30,000 per annum — Defendant solicitors contended that the plaintiffs should give credit for the difference between the improved rental value of £118,000 and the contractual rent actually payable to the landlords of £35,000, ie a difference of £83,000 — Held by the Court of Appeal that the defendants’ submission was correct, rejecting an argument that this was in effect giving them the benefit of the favourable rent which the plaintiffs had negotiated with the landlords — The court dismissed the defendant solicitors’ appeal against the order that they, not the plaintiffs, should pay the defendant surveyors’ costs and refused a suggestion that these costs should be apportioned — Appeal allowed to the extent proposed in relation to damages, but dismissed in relation to costs.
No cases are referred to in this report.
This was an appeal by Bulcraig & Davies, a firm of solicitors, against the decision of Mr John Gorman QC, sitting as a deputy judge of the Queen’s Bench Division, in so far as the decision concerned the computation of damages and the order that the appellants should pay the costs of the second defendants, John D Wood & Co, in the action brought by the plaintiffs, GP & P Ltd, for negligence. The plaintiffs’ claim against John D Wood & Co had been dismissed.
The decision of the deputy judge was reported at [1986] 2 EGLR 148; (1986) 280 EG 356.
W A Blackburne QC and John V Martin (instructed by Barlow Lyde & Gilbert) appeared on behalf of the appellant; Elizabeth Appleby QC and J Chichester (instructed by William F Prior & Co) represented the respondent plaintiffs.
Giving judgment, SIR NICOLAS BROWNE-WILKINSON V-C said: This is an appeal from a decision of Mr John Gorman QC, sitting as a deputy judge of the Queen’s Bench Division. The learned deputy judge held the first defendant, the solicitors, Bulcraig & Davies, liable in professional negligence and ordered them to pay damages in the sum of £195,621, together with interest of £137,572.49 and costs. There was also before the deputy judge a claim against the second defendant, John D Wood (the well-known surveyors), alleging that that firm had been professionally negligent. The deputy judge dismissed the plaintiff’s claim against the second defendant and ordered the first defendant to pay the costs of the second defendant.
There is no appeal by the first defendant against the deputy judge’s finding that it was liable in negligence. The only two grounds of appeal by the first defendant are: (1) that the deputy judge’s computation of the amount of damages was in one respect on the wrong basis; and (2) that the deputy judge erred in ordering the first defendant to pay the costs of the second defendant.
The background facts are these. The plaintiff was a firm of advertising agents which was carrying on business from offices in Hans Crescent, Knightsbridge. The offices had an area of 6,259 sq ft and the plaintiff was paying a rent at the rate of £6.50 per sq ft. The lease was due to expire in June 1978, and the landlords had served the requisite notices under the Landlord and Tenant Act 1954. Accordingly, the plaintiff needed alternative premises. The judge found that its requirements were for premises approximately twice as large as its existing premises. In the circumstances the plaintiff retained the second defendant as surveyors to locate suitable office premises. The plaintiff also retained the first defendant to act on its behalf in the acquisition of new premises. The second defendant sent particulars of the premises which are the subject-matter of the present action to the plaintiff. Those premises are 127-130 Long Acre, Covent Garden, London. Those premises amounted to some 16,800 sq ft of office space on the ground, first and second floors, together with a basement of some 8,450 sq ft, which could be used for storage only. The rent being asked was remarkably moderate, namely £1.50 per sq ft. But the premises were in need of redecoration and refurbishment. The plaintiff negotiated, with the assistance of its advisers, to take a 15-year lease of those premises, and it was agreed it should take such a lease at the rent of £35,000 per annum. The first defendant acted in negotiating the terms of the lease and carrying out its ordinary duties as solicitors.
On May 17 1978 completion of the transaction took place on the basis of undertakings. The actual lease was not granted until August 14 1978. Between July 1978 and the end of January 1979 the plaintiff carried out very substantial works of refurbishment on the Long Acre premises at a cost in the region of £350,000. It started to pay rent to the landlords as from July 15 1978. The plaintiff went into occupation of part of the premises, the second floor, in October 1978 and went into full occupation of the whole of the premises on February 5 1979. From July 15 1978 onwards, right down to the date of the surrender of the lease (which I will shortly mention) the plaintiff paid rent for the premises at the rate of £35,000 per annum.
On April 8 1980 a receiver was appointed of the plaintiff company’s business, and it went into liquidation on October 8 1980. It was then that the trouble, which has given rise to the present litigation, emerged for the first time. The receiver appointed a planning specialist to investigate the position. He discovered that as to the ground floor of the Long Acre premises the planning permission was subject to a condition restricting use of part of it to use for offices only in connection with the printing trade. Until that was discovered neither the plaintiff, nor indeed its landlord, nor the first and second defendants were aware of that fact.
The consequences of the restriction on the planning permission were that the receiver had considerable difficulty in disposing of the lease and indeed found it impossible to do so. He took the decision in December 1980 to surrender the lease to the landlords. That surrender took place and the plaintiff received £145,812 from the landlords as consideration for the surrender.
The plaintiff started proceedings against the first and second defendants, claiming that the first defendant had been negligent in failing to discover the existence of the restriction on the planning permission and making similar allegations against the second defendant, the surveyors. The deputy judge held, as I have said, the first defendant (the solicitors) liable in negligence for its failure to discover the condition, but dismissed the claim in negligence against the second defendant. Those are the background facts and I will now turn to the specific ground urged in the appeal relating to the deputy judge’s assessment of the damages payable by the first defendant.
The cardinal fact, which in my judgment is of decisive importance in this case, is the finding by the deputy judge that if the plaintiff had been informed, as it should have been, by the first defendant of the existence of the condition restricting the planning consent, the plaintiff would not have taken the lease nor would it have refurbished the premises at the great cost that it did. That was the plaintiff’s own case to the deputy judge, and he accepted it.
As to the basis of computation of damages, the parties were agreed both before the deputy judge and before this court on two matters: (1) that the damages should be computed on the basis of the out-of-pocket expenditure by the plaintiff which had been wasted by taking the lease and effecting the improvements when, if it had known the true circumstances, it would not have done either of those acts; (2) that in calculating the amount of recoverable damages the plaintiff was bound to give credit against that gross expenditure both for the sum received on the surrender of the lease to the landlords and, more pertinently for present purposes, for the benefit enjoyed by the plaintiff by reason of its occupation of the premises for a considerable period. The deputy judge found the plaintiff’s expenditure out of pocket to be £386,433. From that figure he deducted the £145,812 received by the plaintiff on the surrender of the lease, thereby reducing the plaintiff’s loss to £240,621.
The major dispute between the parties was as to the quantification of the second matter that had to be credited against the expenditure by the plaintiff, namely the benefit enjoyed by the plaintiff by reason of its occupation of the premises.
A number of points arose on that question. First, the deputy judge had to determine the period during which the plaintiff was enjoying beneficial occupation of the Long Acre premises. He determined that the period started on February 5 1979 and ended at the beginning of August 1980 being, as I understand it, the date on which the receiver would have been able to sell the lease if there had been no planning restriction as to the use of the ground floor. That is a perod of 18 months. I express no view as to whether that was or was not the right period. It has been accepted by the parties, and there is no appeal against the deputy judge’s determination that that was the relevant period.
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Next on this aspect of the case the judge had to determine whether the value of the occupation should be assessed by reference to the open market rent of the premises from time to time after February 5 1979 or at the rental value fixed on February 5 1979. He held that the latter was correct: there is no appeal against that.
He had next to determine whether the hypothetical rental had to be assessed on the basis that there was a restriction on use or not. He held that the beneficial occupation had to be fixed on the basis of a rent taking into account the existence of the planning restriction. I again express no view on the correctness of that; there is no appeal against his decision on that point.
Having decided those points on the basis of expert evidence the deputy judge held that the rental value of the premises on the open market on February 5 1979, taking into account the existence of the planning restriction and also taking into account the improvements done to the premises, was a rental at the rate of £118,000 per annum, which he called ‘the improved rental value’. Again there was no appeal as to that figure.
On those figures it was the defendant’s contention that in assessing damages there had to be brought into account against the gross expenditure incurred by the plaintiff on the lease and the premises the value of the plaintiff’s beneficial enjoyment of the premises for the period of 18 months. The defendant said that the value of that beneficial enjoyment for that period was to be assessed at the improved rental value, that is to say a rental at the rate of £118,000 per annum, less the rent which the plaintiff actually had to pay to the landlords under the lease, namely a rent at the rate of £35,000 per annum.
The plaintiff, on the other hand, while accepting that the value of that beneficial enjoyment had to be brought into account, contended that the benefit should be assessed on a different basis. It relied on the fact that the contractual rent of £35,000 per annum for the premises was substantially below the open market letting value of the premises, even without the improvements, that is to say the unimproved rental value of the premises as at February 5 1979 was in itself substantially above £35,000 per annum. The deputy judge found that the unimproved rental value at the relevant date was £88,000 per annum. He held in favour of the plaintiff’s contention and held that in computing the value to the plaintiff of its beneficial occupation of the premises (for which it had to give credit) the sum for which credit had to be given was the difference between the improved rental value, that is to say £118,000 per annum, and the unimproved rental value, £88,000 per annum, that is to say a figure of £30,000 per annum. On that basis he fixed the amount which had to be brought into account for the period of 18 months of beneficial occupation at the figure of £45,000, and reduced the damages otherwise payable by £45,000. After making certain other minor adjustments, he therefore entered judgment for the plaintiff for the figure that I have mentioned.
The defendant on this head of the appeal says that the plaintiff was bound to give credit for a substantially larger sum, namely the difference between the contractual rent payable to the landlords of £35,000 per annum and the improved rental value of £118,000 per annum.
It is difficult, especially in a case which has become as complicated in its concepts as this one, to do justice to the deputy judge’s reasons in seeking to summarise them. Broadly, his reasoning for his conclusion was as follows. In his view the plaintiff had to give credit only for the value of its occupation of the premises so far as that value was attributable to the expenditure on the improvements. He held that the plaintiff should not be bound to give credit for the value of the occupation of the premises so far as that value was attributable to the expenditure on the improvements. He held that the plaintiff should not be bound to give credit for the value of the occupation of the premises which was attributable to the fact that the open market rental value in its unimproved condition, namely £88,000 per annum, was substantially greater than the contractual rent payable under the lease of £35,000 per annum. That element of benefit, thought the deputy judge, flowed from the favourable bargain which the plaintiff had managed to achieve with its landlords and was in no way attributable to the expenditure on the premises, which expenditure was being recouped to the plaintiff by way of damages. The deputy judge accepted the plaintiff’s submission that to make the plaintiff give credit for the difference between the rent payable under the lease and the improved rental value would be to allow the defendant to profit from its own wrong, which he held would be to assess damages on a wrong principle. He therefore took the view that the right approach was to require the plaintiff to give credit only for that part of the rental value of the premises occupied which was attributable to the making of the improvements, that is to say to make it give credit for the difference between the improved and the unimproved rental value.
Miss Appleby in her very able argument has supported the deputy judge’s reasoning. I am unable to accept that reasoning. As I have said, to my mind the fundamental point in this case is the finding that if the defendant had performed its duty and informed the plaintiff of the true planning position, the plaintiff would not have gone on with any part of the transaction, either to carry out the improvements or indeed to take the lease at all. It was on that basis and that basis only that the damages fell to be quantified by reference to the expenditure thrown away. Therefore, to my mind, the damages must be directed to putting the plaintiff in the position in which it would have been if it had not taken the lease at all.
It there had been no lease at all, the plaintiff would not have had any bargain, let alone a favourable bargain, with the landlords as to the occupation of the premises. If there was no bargain and no lease it would not have been entitled to occupy these premises at £35,000 per annum or any other rent. It would have been faced with a position where it had to accommodate itself elsewhere at an open market rent. Therefore, in my judgment, the right approach in seeking to see what sum the plaintiff ought to bring into account as against its claim for expenditure wasted is to discover the rental payable on the open market for the premises in their improved condition, being the premises which it actually occupied. To do that would be to debit the plaintiff with the improved rental value of the premises, less the rent it actually paid out to the landlords. In my judgment that is the true reflection of the benefit it received, bearing in mind the finding that it would not have taken the lease had it known the true position.
In my judgment, the submissions of Miss Appleby and the deputy judge’s reasoning are flawed in that they assume that, if the true facts had been made known to the plaintiff, the plaintiff would have continued to enjoy the favourable contract rent under its bargain with the landlords. But the finding that it would not have taken the lease had it known the true position is quite inconsistent with that approach. As to the deputy judge’s view that to make the plaintiff give credit for the unimproved market rental would be to allow the defendants to profit from their own wrong, for myself I have never heard of that doctrine previously being applied in connection with the assessment of damages and we were not referred to any authority in support of its relevance. In the assessment of damages the only concern is to assess the loss suffered by the plaintiff. I find it hard to see how damages can be increased above the loss actually suffered by a plaintiff.
In my judgment the argument on the assessment of damages generally in this case has become unnecessarily complicated largely because of the way in which the case was pleaded. In the statement of claim the claim for gross expenditure included rent paid by the plaintiff down to February 5 1979, but did not claim, by way of out-of-pocket expenditure thrown away, the rent paid after February 5 1979. Miss Appleby explained that this was because in the plaintiff’s view the rent payable after February 5 1979 was not wasted expenditure. But given that if the plaintiff had known the true facts it would never have taken this lease at all, to my mind the approach suggested by Miss Appleby is not a legitimate one. The claim being that the lease would not have been taken, it necessarily follows that all rent payable under the lease was out-of-pocket expenditure wasted. If, as in my judgment it should have been, the actual rent paid under the lease throughout its continuance had been claimed as damages, I think none of the difficulties which have been discussed in this court and before the learned judge would have arisen. There would be no doubt that such a claim for rent would have been unanswerable. The only question then would have been: what value was attributable to the plaintiff’s occupation of the premises? If the matter had been pleaded in that way, the answer, I would have thought, would have been beyond doubt, namely, the open market value of its occupation of the premises, that is to say the improved market rental.
Miss Appleby has pressed us with a number of arguments based on the hardship of this conclusion to the plaintiff. They are indeed arguments ad misericordiam. She first urged that the lease of Long Acre being of a substantially larger area than that being enjoyed in Hans Crescent or being looked for by the plaintiff provided too large a space, and by reason of the first defendant’s negligence the plaintiff has been led into taking too large an area which it only did because of the low rent available. Such a submission is to my mind inconsistent with the deputy judge’s findings of fact that the plaintiff company
was expanding rapidly, and indeed when it moved into the Long Acre premises it occupied the whole of the office space available.
The second plea ad misericordiam was that the plaintiff company took the lease and invested in improvements by way of a long-term capital investment, and that it had lost the value of that investment in the circumstances. But there were, I confess, times during the argument when I felt it was being suggested that it was the first defendant’s duty not simply to draw attention to the flaw in the planning position but positively to provide premises which had no condition attached to the planning consent. That plainly, of course, was not its duty. Even if the first defendant had carried out its duty to the full, there was no way in which the plaintiff company could have made a basically sound investment in these premises, since there was the flaw in the planning position. I cannot, therefore, see how it could be said that the plaintiff had made a loss on the investment in the Long Acre premises. Such a sound investment was never available. The only way in which it can be put, and there may be force in this, is that if it had not tied up its money in investing, mistakenly, in the Long Acre premises, there would have been other ways in which the money could have been used profitably, and that opportunity had been lost. No such claim was referred to in the pleadings or considered before the deputy judge, and it would be too late, even if Miss Appleby had applied so to do, to consider it in this court.
The fact of the matter in my judgment is that in the way the matter was pleaded the finding that the plaintiff company would never have taken these premises if it had known the true position and would therefore have been forced to find accommodation elsewhere on the open market shows that the deputy judge’s decision on the point is not right, and that the appellant’s contention is correct. On this aspect of the case, therefore, I would allow the appeal and reduce the gross damages payable by a sum representing the difference between the contract rent of £35,000 per annum and the improved rental value of £118,000 per annum over a period of 18 months. Counsel will, no doubt, in due course tell us what that amount should be.
The second aspect of the appeal is as to costs. As I have said, the deputy judge ordered the first defendant to pay the second defendant’s costs. The first defendant obtained leave to appeal from the deputy judge against that order.
The plaintiff started its action against both defendants simultaneously. The defence of the second defendant, which was the last defence to be served, in para 6 pleaded as follows: that shortly after a particular date Mr Procter (the chairman of the plaintiff company) and Mr Burford (a partner in the first defendant):
. . . agreed that the first defendant would deal with conveyancing matters only and that matters such as planning would be left to the second defendant and to Alexander, Reece & Thompson, a firm of surveyors engaged by the plaintiff in connection with the acquisition of the lease. The first defendant cannot give further particulars of the agreement or the occasion on which it was made.
The defence denied liability.
The pleading in para 6 plainly indicated that the first defendant was contending that it was not liable, as solicitors would normally be, for failure to draw attention to a detectable flaw in the planning position because there was a special agreement under which the second defendant was to undertake those functions. That plea rested on an alleged conversation between Mr Burford (who has since died) and Mr Procter. No Civil Evidence Act notice was served until the first day of trial. On the third day of the trial, just before the cross-examination of Mr Procter, the first defendant abandoned the allegation in para 6 of the defence. However, the first defendant did not admit liability as such. After the deputy judge had delivered judgment the first defendant submitted either that it should not pay any of the costs of the second defendant or, at least, that there should be an apportionment of those costs, ie the first defendant should pay the costs of the second defendant down to the abandonment of the para 6 claim but the costs thereafter should be payable by the plaintiff and not by the first defendant. The deputy judge dismissed both those applications and ordered the first defendant to pay the whole of the second defendant’s costs. His grounds for ordering the payment of the whole costs were contained in a separate judgment in which he said he accepted a submission that they were under a duty of care separate and independent from that of the solicitors, and indicated that if the matter had rested there he would have accepted the argument of the first defendant that these were not alternative claims and, as a result, that the plaintiff would have had to pay the costs of the unsuccessful action against the second defendant. However, he was very much influenced by the pleading in para 6 (to which he referred) and expressed his conclusions by saying:
In those circumstances there clearly was a defence by the first defendants which justified the plaintiffs in maintaining the action against the second defendants in the light of that special defence. I do find that it was a reasonable course for the plaintiffs to take.
Mr Blackburne, with his usual engaging frankness, accepts that that is pure discretion and that we cannot interfere with it unless there is either a misdirection by the judge on the point or the result which he reached is plainly unreasonable. For myself, I think the judge was plainly entitled to reach that conclusion. So long as para 6 was in issue, there plainly was a real quandary facing the plaintiff as to whether or not the undoubted damage that it had suffered by the breach of somebody’s duty was to be legally the responsibility of the solicitors or the surveyors. I can see no ground for interfering with the deputy judge’s discretion to the extent that he declined to order the plaintiffs to pay all the costs of the second defendants.
Though it was not raised on the notice of appeal, we permitted Mr Blackburne also to appeal against the second of the deputy judge’s decisions, namely the refusal to apportion the costs. The deputy judge was faced with the argument that once the special plea in para 6 had been abandoned on the third day of the trial, thereafter for the plaintiff to continue with the action as against the second defendant was unreasonable and that, accordingly, the first defendant should not be required to pay those later costs. The deputy judge on that issue said:
I am not impressed by that argument, especially in the context of the first defendant’s track record in relation to this particular allegation. It seems unrealistic to me that, when all the costs of getting the parties before the court had been incurred, the plaintiffs, faced, as I have said, in the defence with a moving target, should be penalised by an advocacy decision halfway through their case in the light of the movements of the first defendants. It seems to me that the substantial question is whether the plaintiffs were justified in bringing the second defendants as defendants to this court in the light of what appeared to be the position on the documents and appeared to be the defence of the first defendants, and in my view they were.
Only the trial judge can appreciate the way in which a case has developed, the steps which have occurred and the attitudes adopted by the parties. It is a dangerous process (even if I felt tempted to do so) on appeal to try to disentangle the detail of the matter. In my judgment, the deputy judge’s approach to that matter could be attacked only if it could be shown that he was wrong in taking the view that it was unrealistic to expect the plaintiff to discontinue at that stage as against the second defendant. I certainly cannot reach that conclusion. Indeed for myself, on the limited facts known to me, I would have thought that the deputy judge was quite right. True it is that once para 6 has gone, the special reason to which the deputy judge had previously referred had also gone. But in the course of litigation matters are not as clear as they sometimes seem with hindsight. Moreover, I think that if a plaintiff (as this plaintiff has) has reasonably brought the defendant in the first place, a tactical decision by the first defendant in the course of the trial would not normally mean that to continue against the second defendant would be unreasonable. I believe the deputy judge was fully entitled on the facts, which he knew better than me, to reach his conclusion that it was not an appropriate case for apportionment. I would dismiss the appeal on that aspect of the case.
Agreeing, NOURSE LJ said: The learned deputy judge gave a very careful judgment in which he decided many points. There has been an appeal on only one of substance, and since we differ from him on that point I will add some observations of my own.
In her primary argument Miss Appleby seeks to draw a distinction between the costs of the acquisition and refurbishment, which she says were wasted, and the rent payable under the lease, which she says was not wasted because the plaintiff got value for it through its occupation of the premises. While that was fundamental to the approach of the plaintiff’s valuer, Mr John Trustram Eve, in making his second or open market valuation, it is clear to me that it is inconsistent with the case which has throughout been put forward by the plaintiff and which was accepted by the learned deputy judge. That case is that if it had known about the planning restriction on the ground floor the plaintiff would not have taken these premises. Not only would it not have gone ahead with the refurbishment it would never have taken a lease in the first place. The plaintiff’s case has never been, as Miss Appleby’s primary argument and Mr Trustram Eve’s open market valuation would necessarily have it, that it would|page:141| have taken a lease of the premises but not refurbished them. Nor, with respect to the alternative argument which Miss Appleby sought to put forward this morning, has the plaintiff’s case ever been that, if it had known of the restriction, it would have sought smaller accommodation elsewhere.
The true view is that on the plaintiff’s case, as it has throughout been put, it is not only the costs of the acquisition and refurbishment but also the rent which were wasted, in the sense that they were expenditure which would not have been incurred if there had been no negligence. I also accept Mr Blackburne’s basic submission that if the rent had been regarded, as it ought to have been, as part of the plaintiff’s gross expenditure, rather than as an element in the computation of benefit for which it had to give credit, the necessary distinction between expenditure and benefit would have been maintained. The gross expenditure would have included both the costs of the acquisition and refurbishment and the rent. Against that the plaintiff is required to give credit to the first defendant for a number of items, including the only one which is now in dispute, namely the value of its occupation of the premises between February 1979 and August 1980. That can only be the equivalent of the improved rental value of £118,000. The plaintiff cannot, however, be required to give the full credit because, having expended £35,000 a year in rent as the price of its occupation, it has not enjoyed the full benefit. Accordingly, the £35,000 is deducted from the £118,000, and you arrive at the basis for calculation of the credit for which the first defendant has successfully contended on this appeal.
If you look at it in that way, the unimproved rental value is seen to be a complete red herring. It is no part of the calculation at all. But the fact that it is a red herring has not prevented it from being the villain of the piece. It is not for us to reopen the figure of £88,000, although it does seem a little surprising when the evidence showed that the premises were put on the market at a rent of £75,000 about a year before May 1978, when the plaintiff finally agreed to take them, by which time it had been reduced to £35,000. That was May 1978. Even allowing for the fact that this is a part of London where rents rose very considerably during the material period, it is rather surprising to find that the valuation evidence supported an unimproved rental value of £88,000 in February 1979, a mere nine months later.
I have called it the villain of the piece because it is the figure of £88,000 from which the plaintiff’s complaint really stems. It is that figure which has caused it to say, erroneously in my view, that the first defendant has been seeking to take the theoretical profit resulting from the plaintiff’s bargain with the landlords. It is true that it has taken a benefit, in the sense that the value of the plaintiff’s occupation was inflated by this surprising rise in rental value over the material period. But once the plaintiff debits the first defendant with the costs of the improvements, it has no alternative but to credit it with the improved market value of the premises which was current during the period of its occupation.
In all the circumstances, it seems to me that there is no logical answer to the first defendant’s case on this item of damage, and for these reasons, as well as for those given by the Vice-Chancellor, I also would decide that point in favour of the first defendant. I do not wish to add to his reasoning on the question of costs. Accordingly, I, too, would allow the appeal to the extent indicated by him.
Also agreeing, NICHOLLS LJ said: I add a few words on the principal point raised by this appeal only because we are differing from the deputy judge. He valued the benefit obtained by the plaintiff from its occupation of the property as its offices for the 18-month period in question at £45,000. That sum represented not the rental value of the property at that time (£118,000 per annum), less rent paid at the rate of £35,000 per annum, but only the enhancement (£30,000 per annum) in rental value attributable to the plaintiff’s expenditure. The enhancement comprised the difference between £118,000, being the rental value of the premises as improved, and £88,000, being the rental value of the premises at the relevant time if they had not been improved.
The main thrust of Miss Appleby’s argument was that it would be wrong to charge the plaintiff with having received as a benefit from its occupation a rental value over and above the enhancement in the rental value attributable to the plaintiff’s expenditure. She submitted that it would be wrong to charge the plaintiff with any further benefit because that would be to give the first defendant the benefit of the beneficial bargain made by the plaintiff with its landlord: the further benefit put forward by the first defendant being the difference between the rental value of the premises being occupied by the plaintiff, if they had not been improved by the plaintiff (£88,000), and the rent actually paid under the lease (£35,000). It was submitted that it would be wrong to give the first defendant the benefit of that bargain, because that would enable the first defendant to profit from its own wrongdoing.
I, too, am unable to accept this submission. I can see no place in this case for any application of the principle or maxim that a defendant cannot be permitted to take advantage of his own wrong. Nor do I see how the first defendant’s case is one which involves it doing so. Reduced to its essentials, the plaintiff’s case is that by the first defendant’s negligence it was led into an unprofitable transaction, a transaction it would not have embarked upon if the first defendant had properly advised it. The plaintiff claims damages on that footing. Thus, in calculating the plaintiff’s financial loss, the basic comparison required is between (a) the plaintiff’s financial position as it turned out in the events which happened and (b) what the plaintiff’s financial position would have been had it not acquired the lease and spent money on improvements. That comparison in this case involves considering on one side all the expenditure incurred by the plaintiff which it would not have incurred if it had not entered into this transaction. That expenditure includes the cost of acquisition, the cost of improvements and the money paid under the lease by way of rent. On the other side the plaintiff did obtain some benefit from all this expenditure. In addition to the price received on the surrender of the lease the plaintiff had the use of the premises as its offices for 18 months. The benefit of that use is to be assessed, prima facie at all events, at the current market rental value of the premises in question. I do not see how, in seeking to uphold that approach, the first defendant is seeking in some way to take advantage of its own wrong. What it is doing is requiring the plaintiff to bring into the computation of its loss one of the benefits which the plaintiff obtained under the impugned transaction at its full current value.
I can see no reason why the first defendant should not do this. In principle it seems to me that this is neither unfair nor unreasonable. If, as it was entitled to do, the plaintiff chose, in effect, to repudiate the transaction, overall unprofitable, into which it was led by the first defendant’s negligence, then the benefits enjoyed by the plaintiff under the lease are to be given their full value in carrying out the comparison exercise. That value cannot be equated, where the benefit consists of use of property, with the rent payable under the lease, when ex hypothesi that lease would not have been entered into on the footing on which the plaintiff is claiming damages.
I agree that, for these reasons and those given by my lords, this appeal should be allowed to the extent proposed, so far as it relates to damages, but that, for the reasons given by the Vice-Chancellor, this appeal should be dismissed so far as it relates to costs.
The appeal was allowed to the extent proposed by the Vice-Chancellor in relation to damages, but dismissed in relation to the payment of the second defendants’ costs.
