Mr Justice MacDuff
1. This is an appeal, for which permission has already been granted, from an Order of Deputy Master Rose (the Master) whereby he allowed the Defendant’s application for permission to amend the Defence and Counterclaim. The short point raised in this appeal is whether that part of the Counterclaim in which the Defendant seeks damages of around £14 million pounds is or may be sustainable in law.
2. The background facts need to be briefly stated. This case began its life as an apparently straightforward possession case in the County Court. The Claimant is the landlord and the Defendant the regulated tenant of residential premises, namely 33A
3. Mrs Shaw moved in September 2001 but was then engaged in a lengthy dispute with the Claimant over the works at the new premises. In short, it is the Defendant’s case that the Claimant was in breach of its agreement to do those works expeditiously, to the standard and in accordance with the specification agreed between them and with reasonable skill and care. There were and remain many defects in the works as well as items requiring replacement or repair. The dispute went on for a very long time and has still not been resolved. As a consequence, the Defendant’s time and energy were devoted for several years, virtually full time, to dealing with this dispute, and she was unable to pursue her business interests at great loss to herself.
4. It seems that these proceedings were triggered by the Defendant’s failure to pay the agreed rent. Under the agreement, to which I have referred above, the Defendant should have paid increasing amounts of rent over the years, and should, by now, be paying the full registered rent. In fact she continues to pay a little over £4,000 per annum against a registered rent of some £22,000. It is claimed that the arrears stood at over £34,000 when these proceedings were issued in April 2009. Possession was claimed together with the alleged arrears of rent.
5. By way of Defence and Counterclaim, Mrs Shaw contends that the Claimant is estopped from claiming rent over and above the amount she currently pays; she counterclaims for breach of repairing and other covenants.
6. The particulars of breach of contract are set out extensively in the Amended Defence and Counterclaim and I do not need to repeat them here save to note that they include alleged breaches of both the agreement to do the works to the agreed standard and specification (an important part of the negotiations prior to the execution of the lease) and of the terms of the lease itself. It is sufficient to note at this point that it is alleged that there were and remain numerous items of disrepair within the premises.
7. It is not disputed between the parties that, when this case comes on for trial, it is open to the Defendant to argue the estoppel point, as well as other matters of defence (for example whether it is reasonable in all the circumstances for a possession order to be made). It is also agreed that, insofar as the Defendant seeks damages by way of counterclaim for breach of repairing covenant, breach of the right to quiet enjoyment and so on, she is entitled to do so. However, the Claimant contends that it is not open to her to pursue that part of her Amended Defence and Counterclaim by which she seeks damages for loss of business income and profits. That part of her claim cannot be sustained as a matter of law and the Master should not have permitted the amendment.
8. I need to say a few words about the history of the action. I need not set it out in detail; but I should mention a few of the main events. The case has had a chequered history partly because of the unfortunate way that Mrs Shaw has been represented in the past. She has been represented by different counsel and solicitors at different stages. On occasions when this case was listed in the County Court, those who represented her did not always appear to act in her best interests or to have a full understanding of the nature of her case. Recently she appeared before me on an application to stay this action and to adjourn the hearing of the appeal. On that occasion she was unrepresented. Fortunately, she has recently given direct instructions to Mr Martin Young of counsel, who has fully and skilfully represented her interests both before the Master and before me.
9. I need to note briefly that, in June 2009, two months after this claim had been issued, Mrs Shaw issued her own claim (9WL 02204) in the County Court. That claim has been called “the damages claim” because it was a separate claim by which Mrs Shaw originally claimed the substantial damages which lie at the heart of this appeal. In fact, when it was issued, the claim was not for £14 millions but for £39 millions. In respect of that action (which was issued against Eaton Square Properties as well as against other related Defendants) an application was made to strike out the Particulars of Claim on the same basis as is now advanced; that the claim for damages for lost business profits was misconceived and unsustainable at law.
10. There were a number of applications and hearings in the County Court in both actions, but matters came to a head on 25th March 2010 at a hearing before Mr Recorder Thomas QC. The damages claim was struck out; and this claim was transferred to the High Court. The striking out of the damages claim was not opposed by those who represented Mrs Shaw. But neither did they consent. It was clear, however, that the lack of opposition was not by way of a concession that the claim was ill-founded. It was indicated that the intention was to pursue an application to amend the Defence and Counterclaim in this action to include the damages claim within this case. That application to amend had already been filed in the County Court and was stood over for determination by the High Court; there was already in place – exhibited to the application – a draft of the proposed amendment. That draft is to be found at bundle 2, tab 14, page 478 (b2, tab 14, p478) and is substantially (though not entirely) the same as the amended pleading for which leave was granted by the Master.
11. I need to consider the facts which give rise to the damages claim; that is to say the facts upon which Mrs Shaw relies to pursue her claim for economic loss in the Amended Defence and Counterclaim. These facts may be gleaned from Mrs Shaw’s witness statement (b2, tab 19, p 545). I do not propose to set out the detail. I confirm that I have read the statement carefully. In a nutshell (albeit a relatively large nutshell) and insofar as relevant to this issue, Mrs Shaw states the following:
a) That she was a vigorous hard working and successful business woman with many achievements of note. She is a committed Christian and an active member of many worthwhile and prestigious organisations. Her success in the past has often been connected with her ability to sense a good business opportunity or – as she calls it – a “niche market”.
b) That in around 1994 she conceived the idea of a venture which was to be named “Illumination”. This was to be a business venture as well as a “mission and ministry”. The purpose of the project was to present the bible in an inspirational and unique way, with dramatisations involving the use of “in-house pyrotechnics, computer graphic visuals, video and sound to picture, laser projection and other elements to produce a unique spectacular show”. There is a fuller description at p 555.
c) That, in order to make a reality of the vision, a great deal of organisation, research and planning took place with demonstrations and an approach to other individuals and bodies to become involved. The starting date for the “pre-launch” of the project was set for about 2002; pp 555 -58
d) That a company Equate Services Ltd was acquired and / or designated for the purpose of being the vehicle for the Illumination project; it was a company which had not previously traded; the Defendant’s son, Philip Shaw was one of the two directors of the company and her aunt, Mrs Ward, who was a shareholder, had agreed to provide the considerable funding which would be required to set the project on its way.
e) That Mrs Shaw was to have no directorship or other interest in the company (save that she was a shareholder) which was to be operated by her son and others. But the intention was that she would receive consultancy fees and commission for the large quantum of work which she intended to invest in ensuring the success of the venture. Based upon projected turnover figures, it would be possible to calculate what she would earn in the future.
f) That in 2000, when plans were being finalised for the “pre-launch”, she was looking forward to two or so decades of prosperity with substantial earnings from this venture.
g) That it was about this time – just as contracts were being arranged for the pre-launch – she was informed by the Claimant that they needed access to her home because of the need to do extensive structural and other works.
h) That she then made the various agreements with the Claimant. That she agreed to move to the new premises. That the promised works were not done either adequately properly or at-all and that there were very substantial failures on the part of the Claimant. (I do not need to recite any more of the detail; for the purpose of this Judgment the summary set out in paragraphs 3 and 6 above is sufficient.) The Claimant’s failures were massive, extensive and recurring.
i) That, as a consequence, Mrs Shaw’s considerable energies were all channelled into dealing with her accommodation problems over the many months – and indeed years. As a further consequence, the Illumination project which relied heavily upon her personal commitment and hard work, had to be shelved; following the death of her aunt, the finance ceased to be available.
j) That the further consequence is that she has lost the massive stream of income which the project would have generated for her by way of consultancy fees and commission. This is the stream of income which she seeks to recover by way of damages from the Claimant.
12. In summary, the Claimant submitted before the Master – and submits before me – that this claim for loss of income does not disclose a cause of action; that there is no arguable case that the Claimant owed a duty of care to the Defendant to prevent her from suffering the losses she claims. The Claimant submits today that the Master was wrong to decide that such a claim was arguable.
13. There is no doubt that the Master applied the correct test: first that permission should be refused where the proposed amendments do not disclose a cause of action and would be susceptible to strike out under CPR 3.4; second where a claim has no proper or sufficient evidential basis to satisfy the court that the proposed claim has a reasonable as opposed to fanciful prospect of success. The test is the same as in respect of an application for summary judgment under CPR 24. As has been repeatedly said, the two different tests, whilst not identical, clearly have overlapping considerations.
14. On behalf of Mrs Shaw, Mr Young, in his careful and well structured argument, submitted that this issue is not suitable for summary determination but that the amendment should be allowed and the issue left to the trial judge. He referred to Cobbold v
15. As already mentioned, Mr Young also referred to the oft repeated citation of the words of Peter Gibson LJ in Cobbold v
16. Upon this issue, I agree with the Claimant’s submissions. I have to assume that Mrs Shaw’s evidence would be unreservedly accepted and that the factual averments in the Counterclaim would be made out. Applying those assumptions it is clear to me that her case upon this issue cannot get any stronger before a trial judge than it presently is before me. The question is whether, taking her evidence at its highest, the claim is arguable, whether one applies the strike out test under CPR 3.4 or the summary judgment test under CPR 24.
17. I now turn to consider the duty of care itself; a duty allegedly owed by the Claimant to protect the Defendant against pure economic loss. For reasons which it is not necessary for me to consider, it is common ground that, if this duty of care exists, it is a duty in tort and not in contract. The original version of the Amended Defence and Counterclaim pleaded that a duty of care in tort arose out of a contract said to be evidenced by correspondence between the parties (see paras 27 to 33; b2, tab 14, pp 484-486). That contract was said to have been made by an offer and acceptance in letters of 26.04.01 and 21.05.01 (“the May 2001 contract”); those two letters are at b1, tab 13, pp 154 and 160. Before the Master, it was submitted that there was an “assumption of responsibility” founded on that contract; that there was a concurrent similar duty in tort to that contained within the contract; see Robinson v PE Jones Contractors Ltd [2010] EWHC 102.
18. However, in response to a submission that those two letters, when properly considered, did not form a contract, Mr Young applied to enlarge the amendment to aver that, in the alternative, a duty of care in tort arose independent of any such contract. His amendment (which the Master allowed) is to be found at b2 tab 15; pp 535 – 536. Regardless of any contract there was a free-standing duty of care arising out of the relationship formed by the parties, the information passing between them and the other matters pleaded and relied upon.
19. In the event, the Master, in granting permission to amend, did so on the basis that those further amendments be incorporated into the pleading. In those circumstances, as he was subsequently to express himself satisfied that there was what I have called a free standing duty of care, it was not necessary for him to decide whether or not the May 2001 contract was indeed a contract arising out of the two letters; and he declined to do so.
20. In determining this appeal I am content to make that decision. It will not take a great deal of time, particularly as Mr Young, when I asked him for his submissions on the matter, realistically did not seek to argue the point. It is clear in my judgment that the second letter was, in reality, a counter offer. It was not an acceptance of the terms of the earlier letter. There was much to clarify and the second letter made proposals which were not mentioned in the first. There was patently no concluded contract. Additionally, as Mr Rosenthal submitted on behalf of the Claimant, if the second letter were construed as being capable of concluding a contract, it provided for Mrs Shaw to surrender her existing tenancy and for the Claimant to issue a new ten year lease. This would attract the provisions of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. If for any reason the Claimant had refused to issue the new lease, her remedy would have been under the original lease; she could not have relied upon this “contract” as a foundation for any claim. Nevertheless, it does seem to me that these two letters, forming part of a wider negotiation, are part of the background factual matrix against which the issue (whether there is a duty in tort owed by the Claimant to the Defendant) is to be decided.
21. The learned Master found, on the basis of Mrs Shaw’s evidence and the averments in the amended pleading that there was a duty of care in tort owed by the Claimant to the Defendant to protect her against pure economic loss. In this case there is no doubt that the Claimant as landlord owed a package of duties to Mrs Shaw. But the issue was and remains whether it owed her a duty in respect of pure economic loss unconnected with the landlord and tenant relationship. The line of authorities on the point may here be taken to start with the oft quoted case of Caparo Industries v Dickman [1990] 2 AC 605. The three part test is well known – whether the loss to the claimant (in this case the claimant on the counterclaim) is a reasonably foreseeable consequence of the Defendant’s acts or omissions; whether the relationship is one of sufficiently close proximity; and whether, in all the circumstances of the case, it is just and reasonable to impose a duty of care. This test was considered and developed in
22. It is also appropriate to consider Customs and Excise v Barclays Bank [2007] 1 AC 181. Here it was stated that there was no single test. As Mr Rosenthal submitted, the court should concentrate upon the circumstances of each case and the nature of the parties’ relationship in the context of the factual situation in which the duty is alleged to have arisen. He derives this submission – one with which I agree – from the speeches of Lord Bingham at page 192 paragraph 8 and Lord Mance at page 216 paragraph 93.
23. Deputy Master Rose, in a carefully crafted judgment, reached the conclusion that a duty of care was owed. He was satisfied that the Claimant here agreed to perform a service for the Defendant; also that the Claimant held itself out as possessing a special skill and knowledge in respect of those services. He also decided that it was arguable that there was evidence of reliance by Mrs Shaw upon which the duty of care could be founded; see paragraphs 33 and 34 of the Judgment – b1 tab 5 page 42J. To reach that point he referred to a number of places within the pleadings and the documents which showed that the Defendant had informed the Claimant (or the Claimant otherwise knew) of the business project, and the possible consequences of any disruption to her ability to work upon it (paras 36 to 37 at pages 42J to 42L). Additionally he relied upon the speech of Lord Goff in
24. On behalf of the Claimant it is submitted that the Master applied too wide a test. Adopting the summary of the current state of the law in Clerk and Lindsell on Torts (20th Edition at paragraph 8-100) it is submitted that where the duty cannot be said to co-exist with a concurrent contractual duty the less likely it is that the “assumption of responsibility” test will be helpful to the analysis. In a case of negligent provision of services the court is more likely to be helped by (i) the purpose of the service (ii) the knowledge of the alleged tort feasor and (iii) the reasonableness of the reliance or dependence of the other party. Thereafter it is proper to stand back and ask whether it would be fair and just in all the circumstances to make the one party liable for the economic losses of the other.
25. I am satisfied, on my reading of the authorities, that the learned editors of Clerk and Lindsell have accurately distilled the principles. In this case, there is no doubt that there is abundant material to show that the Claimant had knowledge of Mrs Shaw’s business activities and also her concerns that the move from the first to the second premises should not be disruptive of that business.
26. In my judgment it is clear that the purpose of the move and the associated work was to relocate the Defendant and to make the premises fit for her occupation. The purpose was not to further or assist her business. This was a residential tenancy not a business tenancy. If the works had been to a suite of offices, or to relocate her business address, the position would have been different. By way of analogy, I ask myself whether a builder engaged to build an extension to a house (in the absence of an express contractual clause) would be liable for the householder’s loss of business profits if he knew that shoddy workmanship or delay was likely to cause absence from work and likely reduction in income.
27. It is further submitted on behalf of the Claimant that the learned Master placed too much emphasis on the knowledge to be imputed to the Claimant; that he made an impermissible jump from that which the Claimant knew to a decision that the duty could arguably arise. It was submitted that knowledge of potential loss is just one factor. In itself it is not sufficient. In the Barclays Bank case, Lord Rodger made this very point; [2007] AC at p 205:
“…you do not come under a duty in tort to prevent causing me financial harm just because I tell you what is likely to happen to me if you do not take steps to prevent it”.
28. It seems to me that that submission is well made. Furthermore there is nothing pleaded or in the documents to support a proposition that the Claimant had knowledge that Mrs Shaw was proposing to rely upon the services in order to further and support her business project.
29. In my judgment, if one takes Mrs Shaw’s case at its highest, how can it be said that it was reasonable in all the circumstances for Mrs Shaw – in the absence of some express contractual term or undertaking – to rely upon the Claimant’s works to enable her to further her business project? I might rely upon my taxi driver to get me to the airport on time. I might tell him how important it is that I catch the aeroplane and that a large deal depends upon it. Without more, I cannot require him to compensate me for the pure economic loss that I suffer when – because of his fault – I suffer that loss.
30. In my judgment, the landlord here owed a duty to the tenant to do the works properly and in accordance with the specification. Insofar as it is proved that it did not do so, the tenant is enabled to get compensation, assessed in the traditional way, for damage flowing from the breach. But any economic loss which Mrs Shaw may be able to prove is unconnected with the relationship between them. It is and was the relationship of landlord and tenant – not a relationship of economic adviser or provider of services relevant to any business venture. There is nothing anywhere to show or suggest that the Claimant undertook so wide a duty – to take reasonable care to prevent Mrs Shaw from losing the opportunity to make the large sums of money which she claims the intended venture would have yielded; see Lord Hoffman in South Australian Asset Management Corporation v York Montague Ltd [1997] AC 191 at 211H.
31. Accordingly – and with some hesitation because I am conscious that this was the carefully considered Judgment of an experienced Master – I have concluded that he misdirected himself as to the relevant test and that this appeal should be allowed. In my judgment it is unarguable upon the facts – assumed, as I have said, to be wholly in Mrs Shaw’s favour – that the Claimant owed a duty in tort to the Defendant to protect her from pure economic loss. The nature of the relationship was one of landlord and tenant. The knowledge of the Claimant did not extend to knowledge of reliance. Reliance, in the circumstances, was not reasonable. And standing back, it would not be fair or just to hold the Claimant responsible for these alleged losses.
32. I should make it clear that in reaching this decision, I have carefully considered the arguments so ably advanced by Mr Young – in particular his submissions in paragraph 26 of his skeleton argument as well as the submissions made upon the authority of Transfield Shipping Inc v Mercator Shipping Inc [2009] 1 AC 61. Of course, I acknowledge that the move to the new premises bestowed a significant benefit to the Claimant whose responsibility it was that the first property had fallen into disrepair. This, I agree, was part of the factual matrix. The question needs to be considered in the context of (a) a landlord proposing a solution for a problem of its own making and (b) a tenant agreeing to a proposed solution which involved a move to new premises not immediately ready for occupation. But, as it seems to me, these matters were the driving force behind the agreement which incorporated the arrangements about refurbishment of the new premises and the substantial rent concessions. At the risk of repetition, they were made in the context of a residential tenancy swap, in a landlord and tenant relationship, and with the relevant “services” connected with making residential premises fit for occupation, unconnected with any business development.
33. This appeal must accordingly be allowed to the extent that the relevant paragraphs in the Amended pleading must be struck out. Insofar as the Master permitted amendments to the original pleading which are unconnected with the claim for economic loss, permission for those amendments may remain.
34. That, of course, is sufficient to dispose of this appeal. However, for the sake of completeness, I should mention two other matters raised by Mr Rosenthal in support of the appeal. He submitted that, if a duty of care arose, there was no evidence before the court upon which causation could be established. On the contrary, it was clear that Mrs Shaw would be unable to prove causation. This submission was founded on the fact that her aunt – who had agreed to provide funding – had died. However, as I understand it, the death did not occur until two or three years had elapsed from the date when Mrs Shaw alleged that Illumination would be up and running. By that time, as it seems to me, the relevant finance or much of it, might well have been provided and it may even be that the project by this time would have been capable of financing itself. Without going into the rival contentions in any detail, I was not persuaded by the Claimant’s argument – although I appreciate that that will be of little comfort to the Defendant. As to Mr Rosenthal’s final submission – that the claim for damages, if allowed, would have no reasonable prospects of success and should be categorised as “fanciful”, I have more sympathy. I do not propose to make any determination of this ground of appeal. I merely note that there is much force in the submissions made to the effect that the future of the project as a successful money making venture was speculative in the extreme. It may be noted that, after six or so years of planning, development and so on, not one contract had been signed and – as I read the evidence – the start up date was hardly any nearer than it had been in about 1997. There appears to have been considerable stalling between 1997 and 2001. If the claim had any provable value, it was the loss of a chance, likely to be assessed at a low figure indeed. Claims expressed in millions of pounds are fanciful.
35. In due course, I will entertain submissions as to the form of Order which should be made, costs and any other ancillary matters.
