Negligence — Solicitors’ advice — Loss of statutory tenancy — Liability for negligence not now in issue — Question only as to measure of damages for loss of statutory tenancy — No previous reported case discovered as to the assessment of damages in similar circumstances
entered into an agreement for the purchase of the lease of a house for a term
of 15 years expiring in June 1991 — On the advice of the defendants, given on
tax grounds, the assignment of the lease was made not to the plaintiff herself
but to a company registered in the British Virgin Islands — At the time the
plaintiff was advised that she was entitled to occupy the property as her own
and that the lease could be assigned to her personally at any time in the
future — The advice unfortunately was incorrect — In 1986 the landlord’s
consent to assignment, required by the lease, was refused on the not surprising
ground that the assignment to her would confer on her statutory rights under
the Rent Acts which the company could not enjoy — The results of the incorrect
advice were that the plaintiff was unable to secure an assignment to herself,
that her rights of occupation would terminate on the expiration of the lease in
1991, and that neither she nor the company lessee would acquire any right to
security of tenure under the Rent Acts
brought an action claiming loss and damage due to the negligence of the first
defendant, acting in partnership with the other defendants, in breach of their
duty to act with
protecting her interests in regard to the purchase — As already mentioned, the
only question before the judge was as to the assessment of damages — The
plaintiff claimed damages of £115,000; the defendants contended that she was
entitled to nominal damages only
good deal of common ground between the parties as to essential evidence — There
was a difference between the plaintiff’s expert and the defendants’ expert as
to the freehold value of the house with vacant possession; the former said
£460,000 and the latter £400,000 — The judge preferred the former — Both
experts agreed, and the judge accepted, that the effect of the existence of a
statutory tenancy would be to produce a 25% discount of the vacant possession
value — The plaintiff argued that she had lost the benefit of the rights of
occupation which she would have enjoyed and that the value of those rights
should be calculated by reference to the discount which would have been
available to her as a statutory tenant — The judge did not consider that the
decision in Tanner v Tanner or sections 27 and 28 of the Housing Act 1988 added anything
to the plaintiff’s case
that the plaintiff’s claim was fallacious, the defendants contended that the
statutory tenancy to which the plaintiff would have become entitled would have
had no value in the circumstances of the case — It would have had no value
because a statutory tenancy is personal and non-assignable — As to the
suggestion that what the plaintiff had lost was the opportunity to purchase the
freehold of the property at a discount or to receive a payment from the
landlord to give vacant possession, it was objected that in view of the
landlord’s unwillingness to do either of these things, she would not have had
any such opportunity to lose — The judge rejected these arguments
took as his starting point the broad principle that the measure of damages was
the sum required to put the plaintiff as the injured party in the same position
as she would have been in if she had not suffered the wrong for which
compensation had to be awarded — Damages should therefore be assessed by
reference to what it would cost her to acquire what she had lost, ie the cost
of acquiring similar rights of accommodation on similar terms in similar
alternative accommodation — The expert evidence showed that if the plaintiff
were able to find a freehold owner of a similar property in the area willing to
grant her a lease on terms similar to those which she would have enjoyed as a
statutory tenant, the effect of such a lease would have been to depreciate the
freehold value of the property (£460,000) by 25%, namely £115,000 — £115,000
was the measure of the plaintiff’s loss — Judgment accordingly
The following
cases are referred to in this report.
Clark v Kirby-Smith [1964] Ch 506; [1964] 3 WLR 239; [1964] 2 All
ER 835; [1964] 2 Lloyd’s Rep 172
Tanner v Tanner [1975] 1 WLR 1346; [1975] 3 All ER 776, CA
In this action
the plaintiff, Lucinda Murray, sued the defendant solicitors, Christopher E
Lloyd, Christopher H Lovell and Peter G Jackson, of Theodore Goddard, St
Helier, Jersey, Channel Islands, for negligence in connection with advice given
to the plaintiff on the acquisition of a leasehold interest in 19 Ovington
Street, London SW3, a property on the Cadogan Estate.
Grahame Aldous
(instructed by Jaques & Lewis) appeared on behalf of the plaintiff; Andrew
Simmonds (instructed by Cameron Markby Hewitt) represented the defendants.
Giving
judgment, MR JOHN MUMMERY said: In 1981 the plaintiff engaged the defendant
solicitors to advise and act for her in the purchase of the leasehold interest
in 19 Ovington Street, London SW3, a property on the Cadogan Estate. The
property was held under a lease for a term of 15 years which will expire in
June 1991 and is subject to a prohibition against assignment without the
previous consent in writing of the landlord, such consent not to be
unreasonably withheld.
The plaintiff
entered into an agreement for the purchase of the lease for £50,000 and on July
27 1981 the lease was assigned. On the advice of the defendants it was arranged
that the assignment should be in the name of Fizz Investments Ltd, a company
registered in the British Virgin Islands, instead of in the name of the
plaintiff. This was done in an attempt to save United Kingdom tax. The
plaintiff then went into occupation of the property and still lives there.
At the time of
negotiating the purchase the plaintiff was advised by the first defendant that
she would be entitled to occupy the property as her own, with all the benefits
of ownership in her own name and that the lease could be assigned to her
personally at any time in the future. Unfortunately, this advice was incorrect,
as was discovered in 1986 when the landlord’s consent to assignment of the
lease to the plaintiff was requested and refused. I am told that refusal was on
the basis that an assignment from Fizz Investments Ltd to the plaintiff would
have the effect of conferring on the plaintiff rights under the Rent Acts.
The position
is that:
(1) the plaintiff is unable
to procure the assignment of the lease to herself;
(2) her right to occupy the
property will terminate on the expiration of the lease in 1991; and
(3) neither she nor Fizz
Investments Ltd will be able to acquire at the expiration of the lease any
statutory rights of occupation of the property or protection under the Rent
Acts.
In these
circumstances the plaintiff has instituted proceedings claiming that she has
suffered loss and damage caused by the negligence of the first defendant,
acting in partnership with the other defendants, and in breach of an implied
term that they would act with due skill, care and diligence in attending her
requirements and protecting her interests in relation to the purchase.
Liability for
negligence is not now in issue. On May 25 1989 the defendants’ solicitors wrote
a letter to the plaintiff’s solicitors informing them that ‘for the purpose of
this action alone, liability is not in dispute. Loss and/or damage are,
however, denied’.
The only
question that remains to be decided is the assessment of damages. On this point
the parties are far apart. On the one hand, Mr Aldous, who appeared for the
plaintiff, contended that his client is entitled to damages of ‘at least
£115,000’ for the loss of the benefit of the rights of occupation of the
property which she would have enjoyed if the defendants had advised her
carefully and correctly and had arranged for the property to be purchased in,
or to be capable of assignment into, her own name. On the other hand, Mr
Simmonds, who appeared for the defendants, contended that, on a proper
appreciation of the pleaded loss and damage and the evidence adduced by the
plaintiff, I should award her only nominal damages. This clash of contentions
calls for a close examination of the pleadings and the evidence.
As to the
evidence, there is much common ground between the parties:
(1) The plaintiff’s right to
occupy the property will come to an end when the lease expires in 1991. The
landlord will then be entitled to possession of the property.
(2) If the lease had been
assigned into the name of the plaintiff instead of the name of Fizz Investments
Ltd, as advised by the defendants, the plaintiff would have been entitled, at
the expiration of the lease, to enjoy the rights of a statutory tenant. She
could have used the property as her home in London for the rest of her life.
(3) Those statutory rights
would not, however, have been assignable by the plaintiff or otherwise
realisable by her on the open market. The benefit of those rights would have
been personal to her.
(4) The landlord would not
have been willing either now or in 1991 to make a payment to the plaintiff to
vacate the property or to offer to sell her the freehold of the property at a
discount on account of any statutory tenancy arising in her favour.
(5) The tax-saving aspect of
the assignment into the name of Fizz Investments Ltd is irrelevant to the
assessment of damages. The defendants are not now relying on any tax benefits
obtained to secure a reduction in the damages payable by them.
(6) Any valuation of the
freehold and leasehold interests in the
basis of what the position was in 1981 or what the position will be in 1991.
The only
conflict of fact is on the question of the valuation of the freehold of the
property with vacant possession. In his detailed report, the plaintiff’s
expert, Mr George Pope [ARICS] of John D Wood & Co, expressed the opinion
that the value of the property, freehold and with vacant possession, is
£460,000. The valuation of the defendants’ expert, Mr J M Foley of Bernard
Thorpe & Partners, is £400,000.
Having heard
cross-examination of both experts, I prefer the evidence of Mr Pope. He was an
impressive witness. His written report and oral evidence were based on wide
experience and detailed valuations of comparable properties in the same street.
He has been involved in selling residential properties in the
Chelsea/Knightsbridge area for the last 18 years. Neither Mr Foley nor his firm
have similar experience in this area. Mr Foley accepted that the property would
be worth between £460,000 and £470,000 with vacant possession if certain
substantial repair works mentioned in his report were done. His evidence on
this point was unsatisfactory. Mr Foley is not a building surveyor and
apparently relied on the comments of a colleague as to the costings of repairs.
I have no hesitation in finding as a fact that the freehold value of the
property with vacant possession is £460,000.
As to the
effect of the existence of a statutory tenancy on this valuation, both Mr Pope
and Mr Foley were agreed that the appropriate discount would be 25% of the
vacant possession value. In his oral evidence, Mr Foley said that the 25%
figure was almost a standard rule-of-thumb discount available to a sitting
statutory tenant as between a willing landlord and tenant. On that basis the
discount available to a statutory tenant of this property would have been
£115,000 and it is this figure which the plaintiff claims as damages for the
loss suffered by her in consequence of the defendants’ negligence.
The
plaintiff’s case, as pleaded in the further and better particulars of the
statement of claim and later repeated in correspondence, is that she has lost
the benefit of rights of occupation of the property which she would have
enjoyed and that the value of those rights should be calculated by reference to
the discount which would have been available to her as a statutory tenant of
the property. The argument is that she could have obtained the benefit of this
discount either on a purchase of the freehold from the landlord or,
alternatively, as an amount which the landlord would have been willing to pay
her to give vacant possession.
Neither
counsel has unearthed any reported case in which the court has been faced with
the problem of assessing damages in this type of case for loss of a statutory
tenancy.
Mr Aldous
referred me to one authority, Tanner v Tanner [1975] 1 WLR 1346,
in which the Court of Appeal assessed compensation for the loss of the benefit
of a contractual licence to occupy a house in circumstances in which the court
below had made an order for possession on the mistaken basis that the
contractual licence had been effectively revoked. Following the order for
possession, the plaintiff formerly in occupation had been rehoused by the local
authority. As the order for possession ought never to have been made, the Court
of Appeal concluded that it ought to award some compensation for the loss of
the licence. Lord Denning MR at p 1351B approached the case as one in which the
plaintiff who had obtained possession had unjustly benefited from his unlawful
revocation of the licence and ought to give restitution to the dispossessed.
Brightman LJ on p 1352E stated that compensation ought to be awarded on the
basis of what would reasonably be expected to be paid for the surrender of the
contractual licence. In my judgment, this decision is of little assistance on
the question of the assessment of damages in this case.
Mr Aldous also
refers me to sections 27 and 28 of the Housing Act 1988, which contain
provisions governing recovery of damages for unlawful eviction and which define
the measure of damages recoverable for the loss of rights of occupation. In
particular, it is provided in section 28 that the basis for the assessment of
damages recoverable under section 27 is the difference in value between (a) the
value of the interest of the landlord in default determined on the assumption
that the residential occupier continues to have the same right to occupy the
premises as before that time and (b) the value of that interest determined on
the assumption that the residential occupier has ceased to have that right. The
section goes on to direct that, for the purposes of those valuations, certain
assumptions are to be made, including the assumption that the landlord in
default is selling his interest on the open market to a willing buyer. I derive
no assistance from provisions which have been enacted to deal with the specific
case of the protection of residential occupiers from unlawful eviction.
Mr Simmonds,
for the defendants, forcefully submitted that the reasoning behind the
plaintiff’s calculation of damages is fallacious. He submitted that it is for
the plaintiff to plead and prove that she suffered loss of the kind and quantum
pleaded, that damages should be for actual and not notional loss and that the
plaintiff has failed to prove that she has suffered the loss claimed because
the statutory tenancy to which she would have become entitled would have had no
value in the circumstances of this case. The argument is that it would have had
no value because a statutory tenancy is personal and non-assignable. As to the
plaintiff’s pleaded claim that what she has lost is the opportunity to purchase
the freehold of the property from the landlord at a discount or to receive a
payment from the landlord to give vacant possession, the position is that, in
view of this landlord’s unwillingness to do either of those things, she would
not have had any such opportunity to lose.
Mr Simmonds
did not go so far as to deny that the plaintiff has suffered any damage. He
said he did not have to go that far. He only had to meet the case pleaded
against the defendants, and that case had not been established by the evidence.
He submitted that I should, therefore, award only nominal damages, which, in
the absence of evidence of damage, was the course taken in Clark v Kirby-Smith
[1964] Ch 506 at p 512 in relation to a claim for damages for loss of a right
to a new tenancy under Part II of the Landlord and Tenant Act 1954. Mr Simmonds
did, however, accept that, subject to the question of costs, it was open for
the court in an appropriate case simply to enter judgment for damages to be
assessed, to indicate the proper basis on which the assessment should be made
and then adjourn the matter for the filing of further evidence and decision at
a later date. At one point in the hearing, I considered this course because I
doubted whether the evidence before the court enabled me to assess the damages
recoverable by the plaintiff. I have, however, come to the conclusion that I
can and should make a decision now on the question of damages.
In my
judgment, the plaintiff has established by the evidence that she is entitled to
damages in the sum of £115,000.
The starting
point is that the object of any award of damages is to give a plaintiff
compensation for damage, loss or injury suffered. The measure of damages is, in
general, the sum required to put an injured party in the same position as he
would have been in if he had not suffered the wrong for which compensation is
being awarded. With this in mind, I approach the question of assessment in the
following way.
In the present
case, if the plaintiff had not been given negligent advice, the assignment
would have been in her name and she could have become a statutory tenant on the
expiration of the lease in 1991. She would then have enjoyed security of tenure
of the property at a relatively low rent. As matters have turned out, however,
she cannot now acquire those benefits which would have been of value to her. The
plaintiff gave evidence that her intention had been to stay living in the
property. She likes the house and the area. The probabilities are (and it is
common ground that) if the assignment of the lease had been in her name, she
would on the expiration of the lease have become a statutory tenant. As it is,
in 1991 she will lose her home and will have to find somewhere else to live.
The fact that if she had become a statutory tenant the landlord would have
neither sold her the freehold at a discount nor paid her a sum to give up
vacant possession does not alter the position that she has irretrievably lost
the opportunity of becoming a statutory tenant of the property and will have to
move from where she would otherwise have been entitled to remain.
It has always
been plain on the pleadings that the loss claimed by the plaintiff is the loss
of the benefit of the statutory rights of occupation. The quantification of
that loss is a matter of evidence. Even though the evidence before me does not
establish that she has suffered loss of an opportunity to purchase the freehold
at a discount or to obtain a lump sum for giving vacant possession, it does
establish that she has lost the opportunity to become a statutory tenant of the
property.
In my
judgment, damages are to be assessed by reference to what it would cost the
plaintiff to acquire what she has lost, ie the cost of
accommodation. I conclude from the evidence of both experts that if the
plaintiff were able to find a freehold owner of property of similar type, size
and value in this area, who was willing to grant her a lease on terms similar
to those which she would have enjoyed as a statutory tenant, the effect of such
a lease would be to depreciate the freehold value of the property by £115,000.
The probabilities are that, in those circumstances, the plaintiff would have to
pay at least that sum in order to acquire the rights which she has lost the
opportunity of acquiring in this property. I accept the submission of Mr Aldous
that, as he put it, the plaintiff is entitled to ‘at least £115,000’ for the
loss she has suffered. She may have suffered other items of loss such as the
prospective costs of removal, but they are neither pleaded nor proved and I do
not take account of those.
It is for
these reasons I assess the damages at £115,000.
