Assessment of damages in lieu of injunction – Respondent building hotel 4m beyond line imposed by restrictive covenant – Claimant seeking damages under Lord Cairns’ Act – Conflicting evidence over number of extra rooms gained as a result of breach – Whether gain to be assessed on incremental or pro rata basis – Assumptions to be made when considering hypothetical negotiation of price for release
In or about February 1998, the respondent (Jury) began the construction of an eight-storey, 265-bedroom hotel on a site in Manchester adjacent to land belonging to the claimant (Amec). The following month, when the footprint of the building was quite clear and some foundations had been laid, Amec pointed to a breach of a restrictive covenant imposed by a deed made in 1989. Referring to a plan that allowed for an open strip along Jury’s side of the boundary, the covenant restricted building beyond a line shown between points A and B (the A-B line). It was eventually agreed that if the hotel were to be completed as planned, its eastern wall would stand 3.9m beyond the A-B line, thus increasing the ground floor area that would otherwise have been available by approximately 11%.
The parties sought the determination of the court, under its jurisdiction dating from the Chancery Amendment Act 1858 (Lord Cairns’ Act), of the proper sum payable to Amec by way of damages in lieu of an injunction. While the hearing was pending, work continued on the hotel, which opened for business with 265 rooms on 1 May 1999. Amec sought one-half of an alleged gain to Jury of £2.319m, that figure being based oupn the assertion that a hotel built to conform to the restriction (the smaller version) would have had 25 rooms less than the actual version. Jury contended for a figure of one-half of £281,000, and sought to show that, with minor sacrifices in design, a 265-room hotel could have been built if the architects had worked within the constraints of the covenant. There was a conflict of expert evidence at various points, and the judge found that neither party had advanced a convincing case for their respective views as to the capacity of the smaller version (the capacity issue).
Held: The amount payable was assessed at £375,000.
1. In the absence of any allegation that the Amec site had suffered a loss in value, it was accepted that the proper approach was that taken in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, as approved in Jaggard v Sawyer [1995] 1 EGLR 146 and further explained in A-G v Blake [2000] 3 WLR 625. The task of the court was to ascertain the sum that might reasonably have been demanded by Amec as a quid pro quo for releasing the restriction, upon the assumption that the parties, in their negotiations, had each been making reasonable use of their respective bargaining positions without holding out for unreasonable amounts. However, that approach did not preclude the court from looking at the eventual gain, as evidence of what the parties would have contemplated at the time of the hypothetical negotiations. It was implicit in the authorities relied upon that the correct date for the imagined negotiations was a date before the start of building works.
2. Despite the unresolved conflict of evidence on the capacity issue, there was sufficient material to allow for the assumption that Jury would have brought to the negotiations a strong case for its ability to extract some extra rooms from the smaller version. It was also sensible to assume that the agreed gain would have been worked out upon an incremental basis, rather than by attempting a pro rata reduction of the turnover achieved with 265 rooms. It could further be assumed, as a matter of common sense, that Jury, having paid only £2.65m for the whole plot, would not have paid a sum approaching £2.3m for the right to build on a 4m strip. In any negotiation, science and rationality got one only so far. At the end of the day, the deal had to feel right. For the foregoing reasons, it could be said that the parties would have been looking at a gain that was closer to Jury’s figure than that contended for by Amec.
Jonathan Brock QC (instructed by Halliwell Landau, of Manchester) represented the applicant; John Cherryman (instructed by Hammond Suddards Edge) represented the respondent.
Alan Cooklin, barrister
