Landlord and tenant – Residential tenancy – Disrepair – Economic loss – Defendant tenant agreeing to move to different premises on terms that claimant landlord carrying out certain works to new premises – Long-running dispute over defects in the works – Claimant seeking possession for rent arrears – Defendant seeking to counterclaim for damages for economic loss caused by abandonment of business venture owing to time taken up by dispute – Permission given to amend counterclaim – Claimant’s appeal allowed
The defendant was the regulated tenant of residential premises let by the claimant. By 2000, the property was in need of substantial repair and maintenance works. In order that these could be carried out, the parties agreed that the defendant would move to another of the claimant’s properties, which she would hold on a similar tenancy. Since the defendant was relocating for the claimant’s convenience, it was also agreed, following extensive negotiations, that the claimant would carry out various works of repair and decoration, and install various fixtures and fittings, before the defendant moved in.
The defendant moved into the new premises in 2001. A lengthy dispute with the claimant followed regarding the agreed works. These were defective in various respects and certain items needed replacing or repairing; the defendant maintained that the claimant was in breach of its agreement to do the works expeditiously, to the agreed specification and with reasonable skill and care.
The defendant continued to pay rent at the rate of £4,000 pa, that being a concessionary rate agreed for the first years of the tenancy, rather than increasing her payments up to the full registered rent of £22,000 as had been agreed. In 2009, the claimant brought proceedings against the defendant for possession on the ground of rent arrears of £34,000. By her defence and counterclaim, the defendant argued that the claimant was estopped from claiming rent above the rate she currently paid.
The defendant was also given permission to amend her defence and counterclaim to add a claim for damages of £14m against the claimant. She claimed that the dispute over the works had taken up most of her time and energy over several years, with the result that a business project that relied on her personal commitment had had to be abandoned; she sought to recover the income that she claimed she would have received from it.
The claimant appealed from the decision to permit the amendment. It contended that the damages claim for pure economic loss was not sustainable as a matter of law.
Held: The appeal was allowed.
Permission for amendments should be refused where: (i) the proposed amendments did not disclose a cause of action and could be struck out under CPR 3.4; and (ii) the claim had no proper or sufficient evidential basis to satisfy the court that it had a reasonable prospect of success. The test was the same as on an application for summary judgment under CPR 24.
Even assuming that the defendant’s evidence would be accepted unreservedly at trial, and that the factual averments in her counterclaim would be made out, her claim was not arguable as a matter of law. The alleged duty of care, to protect the defendant from pure economic loss, would have to arise in tort, out of the relationship between the parties, rather than in contract. The existence of any such duty depended on the three-part test established by the authorities, namely that: (i) the loss to the defendant was a reasonably foreseeable consequence of the claimant’s acts or omissions; (ii) the relationship between them was of sufficiently close proximity; and (iii) it was just and reasonable to impose a duty of care: Caparo Industries plc v Dickman [1990] 2 AC 605 and Henderson v Merrett Syndicates Ltd (No 1) [1995] 2 AC 145 applied. Although the claimant had been aware of the defendant’s business activities and that the move to the new premises would be disruptive, knowledge of the potential loss was not sufficient. The purpose of the move and associated work was not to further or assist the defendant’s business but to relocate her and make the new premises fit for her residential occupation. The claimant had not undertaken a duty of care to prevent the defendant from losing the opportunity to make money from her intended business venture. It was not reasonable for the defendant, in the absence of some express contractual term or undertaking, to rely on the claimant’s works to enable her to further her business project.
The defendant, as tenant, would be entitled to compensation, assessed in the traditional way, for any breach of the claimant’s duty as landlord to peform the works properly and in accordance with the agreed specification. She was not entitled to recover for economic loss unconnected with the relationship of landlord and tenant between the parties. The claimant did not owe a duty to the defendant in respect of pure economic loss unconnected with that relationship. It was not fair, just or reasonable to hold the claimant responsible for those alleged losses. The relevant parts of the amended pleadings should be struck out accordingly.
Adam Rosenthal (instructed by Boodle Hatfield) appeared for the claimant; Martin Young (instructed under the direct access scheme) appeared for the defendant.
Sally Dobson, barrister
