Damages — Breach of covenant — Whether covenantees entitled to damages related to additional profits made by covenantor following breach
By a contract
dated November 26 1980 the defendant agreed to purchase two parcels of land of
some 12.33 acres from the plaintiffs, Surrey County Council and Mole Valley
District Council, at a price of £1.5m. The contract was completed by two
transfers dated January 2 1981, each containing covenants in a similar form
that the defendant would commence development of the land in accordance with a
planning permission for the erection of 72 houses issued by the second
plaintiff on December 11 1980 and would diligently pursue the development
complying with the planning permission. On June 29 1983 the second plaintiffs
granted the defendant a further planning permission related to 3.64 acres of
the land, which had the effect of increasing the number of permitted houses
from 72 to 77. The defendant completed the development in accordance with the
later planning permission and not in accordance with the first permission. The
plaintiffs, who did not seek an interlocutory injunction, or an injunction at
trial, restraining breach of covenant, claimed damages for breach of covenant
related to the additional profits made by the defendant. That claim was
rejected by Ferris J who awarded nominal damages. The plaintiffs appealed.
contract is an award of damages, and damages at common law are intended to compensate
the victim for his loss, not to transfer to the victim, if he has suffered no
loss, the benefit which the wrong-doer has gained by his breach of contract.
Accordingly, the plaintiffs were only entitled to nominal damages and not to
damages related to the additional profits earned by the defendant as a result
of the breach of the covenant. The decision in Wrotham Park Estates Co Ltd v
Parkside Homes Ltd was not applied because in that case Brightman J refused
to grant an injunction requiring the removal of houses erected in breach of a
covenant and damages were awarded in equity under Lord Cairns’ Act.
The following
cases are referred to in this report.
Anglia
Television Ltd v Reed [1972] 1 QB 60; [1971]
3 WLR 528; [1971] 3 All ER 690, CA
Bracewell
v Appleby [1975] Ch 408; [1975] 2 WLR 282;
[1975] 1 All ER 993; [1976] EGD 190; (1974) 237 EG 731, [1976] 1 EGLR 119
British
Westinghouse Electric & Manufacturing Co Ltd v
Underground Electric Railways Co of London Ltd [1912] AC 673; (1912) 81
LJKB 1132; 107 LT 325
Carr-Saunders
v Dick McNeil Associates Ltd [1986] 1 WLR
922; [1986] 2 All ER 888; (1986) 53 P&CR 14; [1986] 2 EGLR 181; 279 EG 1359
Griffiths
v Kingsley-Stubbs Unreported June 3 1986
Hadley v Baxendale (1854) 9 Exch 341
Jegon v Vivian (1871) LR 6 Ch App 742
Johnson v Agnew [1980] AC 367; [1979] 2 WLR 487; [1979] 1 All ER 883;
(1979) 38 P&CR 424; [1979] EGD 969; 251 EG 1167, [1979] 2 EGLR 146, HL
Lever v
Goodwin (1887) 36 ChD 1
Penarth
Dock Engineering Co Properties Ltd v Pounds
[1963] 1 Lloyd’s Rep 359
Phillips v Homfray (1871) LR 6 Ch App 770
Robinson v Harman (1848) 1 Exch 850; [1843-60] All ER Rep 383; 18 LJ
Ex 202; 13 LTOS 141
Stoke-on-Trent
City Council v W&J Wass Ltd [1988] 1 WLR
1406; [1988] 3 All ER 394; (1988) 87 LGR 129, CA
Strand
Electric & Engineering Co Ltd v Brisford
Entertainments Ltd [1952] 2 QB 246; [1952] 1 All ER 796, CA
Tito v Waddell (No 2) [1977] Ch 106; [1977] 2 WLR 496; [1977] 3
All ER 129
Walford v Miles [1992] 2 AC 128
Wallington
v Townsend [1939] Ch 588; [1939] 2 All ER
225
Watson,
Laidlaw & Co Ltd v Pott, Cassels, Williamson
1914 SC HL 18; [1914] 31 RPC 104
Whitwham v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538
Wrotham
Park Estate Co Ltd v Parkside Homes Ltd
[1974] 1 WLR 798; [1974] 2 All ER 321; (1973) 27 P&CR 296
This was an
appeal from the decision of Ferris J, who on November 21 1991 awarded the
plaintiffs, Surrey County Council and Mole Valley District Council, nominal
damages in a claim against the defendant, Bredero Homes Ltd, for breach of
covenants in transfers of land.
Sir William
Goodhart QC and Bernard Weatherill (instructed by Howell-Jones & Partners)
appeared for the appellants; Colin Rimer QC and Nicholas Peacock (instructed by
Turner Kenneth Brown) represented the defendant.
Giving the first
judgment, DILLON LJ said: This is an appeal by the plaintiffs, Surrey
County Council and Mole Valley District Council, against a decision of Ferris J
given on November 21 1991, after the hearing of issues directed by an earlier
order. By his decision the learned judge awarded the plaintiffs nominal damages
against only the defendant, Bredero Homes Ltd, for breaches of virtually
identical positive covenants contained in transfers by the plaintiffs to the
defendant of certain land in Surrey in 1981.
The facts are
straightforward and not in dispute. I can take them from the judgment of the
learned judge.
In 1980,
Surrey County Council and Mole Valley District Council were respectively the
registered proprietors with absolute title of two adjoining parcels of land
lying to the west of the Ridgeway, Fetcham, Leatherhead, Surrey. The total area
of the two parcels was some 12.33 acres. The land had originally been acquired
by the councils or their predecessors for road purposes but, by 1980, it was no
longer required for these purposes and the two councils decided to act together
in offering the entire site for development as a housing estate.
The defendant
made an offer which included a purchase price of £1.5m. This led to a contract,
dated November 26 1980, between the two plaintiffs as vendors and the defendant
as purchaser. This contract was completed by two transfers both dated January 2
1981 — one being by Mole Valley District Council and the other by Surrey County
Council. The transfer made by Mole Valley District Council contained a covenant
by the defendant with that council:
To commence
the development of the land hereby transferred in accordance with the planning
permission issued by Mole Valley District Council,
date hereof and thereafter to diligently pursue the development of the land
hereby transferred to its completion complying with the said planning
permission.
The transfer
by Surrey County Council was in substantially the same terms. The planning
permission MO/80/1214, there referred to (‘the first planning permission’) was
granted on the application of the defendant. It provided for the development of
the land, ie both parcels taken together, by the erection of 72 detached
bungalows and houses in six different designs according to a layout as shown in
certain drawings.
The defendants
started work on the development in accordance with the first planning
permission. There were certain minor alterations by way of modification of that
planning permission, but these do not matter.
A bit later,
however, the defendant applied for and obtained, on June 29 1983, from Mole
Valley District Council as the planning authority, a planning permission which
has the effect of raising the total number of dwellings to be built on the
estate from 72 to 77, the main changes being a reduction in the number of
four-bedroom houses and an increase in the number of three-bedroom houses — the
size and arrangement of plots being amended, but the layout of roads and verges
remaining unchanged. This planning permission (the ‘later planning permission’)
was given the reference number MO/83/0368 and it related to 3.64 acres of the
land.
The defendant
then completed the development of those final 3.64 acres in accordance with the
later planning permission and not, as had been covenanted, in accordance with
the first planning permission.
The plaintiffs
object to the development of the final 3.64 acres, in accordance with the later
planning permission, not on planning grounds, but on the grounds that the later
permission enabled the defendant to build 77 rather than 72 houses and
bungalows on the two adjoining parcels. There is no objection on planning
grounds, not surprisingly, since it was Mole Valley District Council which
granted the later planning permission.
The objection
is on the ground that it is a more profitable planning permission for the
defendant than the first planning permission, because more houses can be built.
As a legal basis it is said by the plaintiffs and conceded by the defendant
that in building 77 houses in all under the later planning permission, rather
than 72 under the first planning permission, the defendant has acted in breach
of the covenants in the transfers.
The plaintiffs
therefore seek damages. They have never sought an interim injunction to
restrain the defendant from developing the land otherwise than in accordance
with the first planning permission. They never sought an injunction at the
trial requiring the defendant to pull down the completed houses. They
recognised that there was never any practical possibility of such an injunction
being granted. There was a formal amendment of the relief sought at the trial
to raise in form a claim for an injunction, but that was not pursued. The
plaintiffs have merely sought damages which have been described as ‘damages at
common law’, as opposed to ‘damages in equity under Lord Cairns’ Act’. The
plaintiffs accept that they have not suffered any damage at all of the nature
of damage to adjoining property owned or occupied by them. What they claim as
damages is essentially the profit made by the defendant by breaking the
covenants and building 77 houses and not just 72 — or, since the plaintiffs
wish to be modest in their demands in putting forward a somewhat revolutionary
development of the law of damages, such a part of the profit as would reflect
the reasonable premium that the defendant should have paid them for contractual
permission by way of relaxation of the covenants to build the 77 houses rather
than 72.
Indeed, the
plaintiffs say, and I have no reason to doubt, that their sole purpose in
imposing the covenants at all — to commence and pursue the development to its
completion in accordance with the first planning permission — was that the
defendant would have to apply for and pay for a relaxation if it wanted to
build anything more.
It is, of
course, clear that had the contracts been worded otherwise there could have
been provision for the payment by the defendant of an additional price of a
specified amount or fixed by an appropriate formula for each extra house or
bungalow, if they or their successors in title built more than 72 houses or
bungalows on the land within a specified period, but that is not the contract
that was made.
In putting
forward the claim for damages with which we are concerned, the plaintiffs rely
very strongly on the decision of Brightman J in Wrotham Park Estate Co Ltd
v Parkside Homes Ltd [1974] 1 WLR 798, to which I shall have to come.
The starting
point, however, in my judgment is that the remedy at common law for a breach of
contract is an award of damages and damages at common law are intended to
compensate the victim for his loss, not to transfer to the victim, if he has
suffered no loss, the benefit which the wrong-doer has gained by his breach of
contract. Thus it is stated in Chitty on Contracts 26 ed, vol 1, para
1771:
Damages for a
breach of contract committed by the defendant are a compensation to the
plaintiff for the damage, loss or injury he has suffered through that breach.
Similarly
Viscount Haldane LC, said in British Westinghouse Electric &
Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd
[1912] AC 673 at p689:
The
fundamental basis is thus compensation for pecuniary loss naturally flowing
from the breach.
Lord
Wilberforce said, in Johnson v Agnew [1980] AC 367* at p40OH:
The general
principle for the assessment of damages is compensatory.
*Editor’s
note: Also reported at (1979) 251 EG 1167, [1979] 2 EGLR 146.
Each of these
three statements is accompanied by a statement to the effect that the innocent
party is to be placed, so far as money can do so, in the same position as if
the contract had been performed. That follows the wording of the statement of
the rule of the common law by Baron Parke in Robinson v Harman
(1848) 1 Ex 850 at p855. That rule has been referred to in argument in the
present case as the ‘conventional’ rule.
Sir William
Goodhart QC, for the plaintiffs, has pointed out that the conventional rule is
not of universal application in that there are cases in which the plaintiff is
awarded not what is required to place him in the same situation as if the
contract had been performed, but what is required to recoup to him the
expenditure which he has incurred which has been wasted because the contract
has not been performed: see, for instance, Wallington v Townsend
[1939] Ch 588 and Anglia Television Ltd v Reed [1972] 1 QB 60.
The principle
is still compensation for loss. The difference is merely that there are cases
where the contract has so palpably not been performed at all that it would be
unreal to assume that it had been performed and impossible to calculate damages
on such an unreal assumption.
Every student
is taught that the basis of assessing damages for breach of contract is the
rule in Hadley v Baxendale (1854) 9 Ex Ch 341, which is wholly
concerned with the losses which can be compensated by damages. Such damages
may, in an appropriate case, cover profit which the injured plaintiff has lost,
but they do not cover an award to a plaintiff who has himself suffered no loss,
of the profit which the defendant has gained for himself by his breach of
contract.
In the field
of tort there are areas where the law is different and the plaintiff can
recover in respect of the defendant’s gain. Thus in the field of trespass it is
well established that if one person has, without leave of another, been using
that other’s land for his own purposes he ought to pay for such user. Thus,
even if he had done no actual harm to the land he was charged for the user of
the land. This was applied originally in wayleave cases where a person had without
authority used his neighbour’s land for passage: see, for instance, Jegon
v Vivian (1871) LR 6 Ch App 742 and Phillips v Homfray
(1871) LR 6 Ch App 770.
The same
principle was applied where the defendant had trespassed by tipping spoil on
the plaintiff’s land: Whitwham v Westminster Brymbo Coal & Coke
Co [1896] 2 Ch 538.
The same
principle was applied to patent infringement by the House of Lords in Watson
Laidlaw & Co Ltd v Pott Cassels Williamson [1914] 31 RPC 104.
The infringer was ordered to pay by way of damages a royalty for every
infringing article because the infringement damaged the plaintiff’s property
right, that is to say his patent monopoly. So in a case of detinue the
defendant was ordered to pay a hire for chattels he had detained: Strand Electric
& Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB
246.
Those cases do
not apply in the present case as the defendant has made no use of any property
of either plaintiff.
The cases have
been taken still further in some fields of tort, particularly concerned with
intellectual property, where it is well established that the plaintiff can
choose to have either damages or an
instance, Lever v Goodwin (1887) 36 ChD 1 per Cotton LJ at
p7. This is in line with the long-established common law doctrine of waiving
the tort.
The liability
in the present case is solely in contract and not in tort.
I come then to
the Wrotham Park case. In that case the predecessor in title of the
plaintiffs had, in 1935, sold some land to a predecessor in title of the
defendants, subject to a restrictive covenant restricting building to a
particular layout. That covenant was duly registered under the Land Charges Act
1925. In 1971 the land was sold to the defendant, who had no actual knowledge
of the restrictive covenant and proceeded to build 14 houses on the land in
breach of the covenant. In early 1972 the plaintiffs, as successors in title to
the benefit of the covenant, issued their writ against the defendant claiming
an injunction to restrain building in breach of the covenant, and demolition of
anything built in breach. The plaintiffs made no application for an interim
injunction. By the time the action came on for trial in July 1973, the 14
houses had all been completed and sold to purchasers with the benefit of
indemnity insurance policies. At the trial Brightman J held that the plaintiffs
were indeed entitled to the benefit of the covenant and the defendant was bound
by it.
For obvious
reasons however — that he could not shut his eyes to the fact that the houses
existed and it would be an unpardonable waste of much needed houses to direct
that they be pulled down — he refused to grant a mandatory injunction. He
commented that no damage of a financial nature had been done to the plaintiffs
by the breach of the covenant and proceeded to consider what damages, if any,
he should award under the jurisdiction which had originated under Lord Cairn’s
Act to award damages in substitution for an injunction.
It was
submitted to him that the damages should be nil or purely nominal because the
value of the Wrotham Park estate was not diminished by one farthing in
consequence of the breach of covenant. But the judge concluded that such a
result would be of questionable fairness.
He said at
p812H of the report:
If, for
social and economic reasons, the court does not see fit in the exercise of its
discretion, to order demolition of the 14 houses, is it just that the
plaintiffs should receive no compensation and that the defendants should be
left in undisturbed possession of the fruits of their wrongdoing?
He then
referred to the wayleave cases and Whitwham v Westminster Brymbo Coal
& Coke Co and the other cases which I have mentioned where the same
principle has been applied.
He concluded
that the appropriate course was that the defendant should pay by way of damages
the sum which the plaintiffs might hypothetically have been willing to pay —
though actually they would never have been willing to relax the covenant to
permit the defendant to do what it wanted to do on the land. He fixed that at a
small percentage of the defendant’s anticipated profit from building the 14
houses on the land.
The difficulty
about the decision in the Wrotham Park case is that in Johnson v Agnew,
Lord Wilberforce, after citing certain decisions on the scope and basis of Lord
Cairn’s Act, which were not cited to Brightman J stated in the clearest terms,
at p400G of the report, that on the balance of those authorities, and on
principle, he found in the Act no warrant for the court awarding damages
differently from common law damages.
Sir William
Goodhart submits that it follows from that analysis by Lord Wilberforce, in Johnson
v Agnew, that the damages awarded by Brightman J in the Wrotham Park
case were indeed damages assessed on recognised common law principles which
should, so he says, be applied in the present case.
I doubt,
however, whether that does follow from Lord Wilberforce’s analysis in Johnson
v Agnew. As I read his judgment Brightman J was not seeking to analyse
the scope or basis of the court’s jurisdiction under Lord Cairn’s Act. He
merely concluded that, as Parliament had expressly empowered the court to grant
damages in lieu of an injunction, Parliament must have intended that in every
case the court must be able to award such damages as would achieve a fair
result between the parties and would not be limited to awarding nominal damages
only. He sought to apply that conclusion.
That involves
a conclusion by the judge that Lord Cairn’s Act affected a substantive change
in the law of damages and was not a merely procedural statute as Johnson
v Agnew has held. It is unnecessary to refer further in this judgment to
the Wrotham Park since that was under Lord Cairn’s Act and stands or
falls by that; whereas, the present case is not, and makes no pretence of
being, under that Act. I should however mention in passing that we were
referred to a number of cases where the measure of damages chosen by Brightman
J in the Wrotham Park case was applied by other judges. For instance Bracewell
v Appleby [1975] Ch 408*; Carr-Saunders v Dick McNeil
Associates Ltd [1986] 1 WLR 922† and
Griffiths v Kingsley-Stubbs, decided by this court on June 3
1986, but unreported. All those were cases where the plaintiff’s cause of
action lay in tort, either trespass or nuisance, where the defendant had
interfered with the plaintiffs property rights. The decisions and awards of
damages are amply justified by the common law principles in tort of the
wayleave cases and Whitwham v Westminster Brymbo, already
mentioned.
*Editor’s
note: Also reported at (1974) 237 EG 731, [1976] 1 EGLR 119.
† Editor’s
note: Also reported at [1986] 2 EGLR 181.
Given that the
established basis of an award of damages in contract is compensation for the
plaintiff’s loss, as indicated above, I have difficulty in seeing how Sir
William Goodhart’s suggested common law principle of awarding the plaintiff,
who has suffered no loss, the gain which the defendant has made by the breach
of contract, is intended to go. Is it to apply, for instance, to shipping
contracts or contracts of employment or contracts for building works?
Sir William
suggested, in his and Mr Weatherill’s skeleton argument, that the conventional
measure fails to do justice and a different measure should be applied where the
following conditions are satisfied: (a) the breach is deliberate, in the sense
that the defendant is deliberately doing an act which he knows or should know
is plainly or arguably in breach of contract; (b) the defendant, as a result of
the breach, has profited by making a gain or reducing a loss; (c) at the date
of the breach it is clear or probable that damages under the conventional
measure will either be nominal or much smaller than the profit to the defendant
from the breach; and (d) if the profit results from the avoidance of
expenditure, the expenditure would not have been economically wasteful or
grossly disproportionate to the benefit which would have resulted from it.
He suggested
in that paragraph in the skeleton argument that the underlying principle might
be that the conventional measure of damages might be overridden ‘in certain
circumstances’ by the rule that no one should benefit from his deliberate
wrongdoing. In the course of his submissions Sir William limited his
formulation and, while retaining conditions (a), (b) and (c), substituted for
condition (d) the following:
Damages for
loss of bargaining power can be awarded if, but only if, the party in breach
could have been restrained by injunction from committing the breach of contract
or compelled by specific performance to perform the contract. Where no such
possibility existed there was no bargaining power in reality and no right to
damages for loss of it. Hence damages for loss of bargaining power cannot be
awarded where there is for example a contract for the sale of goods or
generally a contract of employment.
I find
difficulty with that because, in theory, every time there is a breach of
contract the injured party is deprived of his ‘bargaining power’ to negotiate
for a financial consideration a variation of the contract which would enable
the party who wants to depart from its terms to do what he wants to do. In addition
it has been held in Walford v Miles [1992] 2 AC 128 that an
agreement to negotiate is not an animal known to the law and a duty to
negotiate in good faith is unworkable in practice — and so I find it difficult
to see why loss of bargaining or negotiating power should become an established
factor in the assessment of damages for breach of contract.
Beyond that,
since we are looking for the measure of damages at common law for breach of
contract, apart from Lord Cairn’s Act, I do not see why that should vary
depending on whether the party in breach could or could not have been
restrained by injunction from committing the breach or compelled by specific
performance to perform the contract. Injunctions and specific performance were
not remedies in the common law courts and were granted by the Court of
Chancery, which, before Lord Cairn’s Act, had no power to award damages, just
because the common law remedy of damages was not an adequate remedy.
We were
referred, in the course of Sir William’s argument, to a number of other cases
and, in particular, to passages in the judgment of Sir Robert Megarry VC, in Tito
v Waddell (No 2) [1977] Ch 106 and to the decision of this court in Stoke-on-Trent
City Council v W&J Wass Ltd [1988] 1 WLR 1406. In the latter
case this court upheld the general principle that in tort a plaintiff recovered
damages
in the wayleave cases and Whitwham v Westminster Brymbo
should not be extended to cover infringement of a market right of the plaintiff
council by the holding by the defendant of an unauthorised market where the
plaintiffs could not show they had suffered any actual loss by the
infringement. What was sought in that case was damages calculated by reference
to a notional licence fee that the plaintiff council might have charged for
permitting the defendants’ infringement but that was refused. I need not refer
to the cases further.
As I see it,
therefore, there never was in the present case, even before the writ was
issued, any possibility of the court granting an injunction to restrain the
defendant from implementing the later planning permission. The plaintiff’s only
possible claim from the outset was for damages only, damages at common law.
The plaintiffs
have suffered no damage. Therefore, on basic principles, as damages are awarded
to compensate loss, the damages must be merely nominal.
For these
reasons, which substantially accord with those of Ferris J, I would dismiss
this appeal.
Agreeing, STEYN
LJ said: The issue in this appeal was defined by Sir William Goodhart QC,
appearing for the appellants, as the correct measure of damages in a case where
the following three circumstances are satisfied: (a) there has been a
deliberate breach of contract; (b) the party in breach has made a profit from
that breach; and (c) the innocent party is in financial terms in the same
position as if the contract had been fully performed. It is an important issue,
with considerable implications for the shape of our law of obligations, and I
therefore add a few remarks of my own.
Dillon LJ has
reviewed the relevant case law. It would not be a useful exercise for me to try
to navigate through those much-travelled waters again. Instead, it seems to me
that it may possibly be useful to consider the question from the point of view
of the application at first principles. An award of compensation for breach of
contract serves to protect three separate interests. The starting principle is that
the aggrieved party ought to be compensated for loss of his positive or
expectation interests. In other words, the object is to put the aggrieved party
in the same financial position as if the contract had been fully performed. But
the law also protects the negative interest of the aggrieved party. If the
aggrieved party is unable to establish the value of a loss of bargain he may
seek compensation in respect of his reliance losses. The object of such an
award is to compensate the aggrieved party for expenses incurred and losses
suffered in reliance of the contract. These two complementary principles share
one feature. Both are pure compensatory principles. If the aggrieved party has
suffered no loss he is not entitled to be compensated by invoking these
principles. The application of these principles to the present case would
result in an award of nominal damages only.
There is,
however, a third principle which protects the aggrieved party’s restitutionary
interest. The object of such an award is not to compensate the plaintiff for a
loss, but to deprive the defendant of the benefit he gained by the breach of
contract. The classic illustration is a claim for the return of goods sold and
delivered where the buyer has repudiated his obligation to pay the price. It is
not traditional to describe a claim for restitution following a breach of
contract as damages. What matters is that a coherent law of obligations must
inevitably extend its protection to cover certain restitutionary interests. How
far that protection should extend is the essence of the problem before us. In
my view Wrotham Park v Parkside Homes is only defensible on the
basis of the third or restitutionary principle: see MacGregor on Damages
15th ed, para 18, and Professor P B H Berks, Civil Wrongs: A New World
Butterworths Lectures, [1990-1991] 55 at p71. The appellants’ argument that
Wrotham Park can be justified on the basis of a loss of bargaining
opportunity is a fiction. The object of the award in Wrotham Park was
not to compensate the plaintiff for financial injury, but to deprive the
defendants of an unjustly acquired gain. While it must be acknowledged that Wrotham
Park represented a new development, it seems to me that it is based on a
principle of legal theory, justice and sound policy. In the respondent’s
skeleton argument some doubt was cast, by way of alternative submission, on the
correctness of the award of damages for breach of covenant in Wrotham Park.
In my respectful view, it was rightly decided and represents a useful development
in our law. In Tito v Waddell (No 2) [1977] 1 Ch 107 at
pp335C to 336C, the Vice-Chancellor interpreted Wrotham Park and the
decision in Bracewell v Appleby [1975] Ch 408, which followed Wrotham
Park, as cases of the invasion of property rights. I respectfully agree. Wrotham
Park is analogous to cases where a defendant has made use of the aggrieved
party’s property and thereby saved expenses: see Penarth Dock Engineering Co
Properties Ltd v Pounds [1963] 1 Lloyd’s Rep 359. I readily accept
that the word ‘property’ in this context must be interpreted in a wide sense. I
would also not suggest that there is no scope for further development in this
branch of the law.
But in the
present case we are asked to extend the availability of restitutionary remedies
for breach of contract considerably. I question the desirability of any such
development. The acceptance of the appellants’ primary or alternative
submissions, as outlined by Dillon LJ, will have a wide-ranging impact on our
commercial law. Even the alternative and narrower submission will, for example,
cover charter parties and contracts of affreightment where the remedy of a
negative injunction may be available. Moreover, so far as the narrower
submission restricts the principle to cases where the remedies of specific
performance and injunction would have been available, I must confess that that
seems to me a bromide formula without any rationale in logic or common sense.
Given a breach of contract, why should the availability of a restitutionary
remedy, as a matter of legal entitlement, be dependent on the availability of
the wholly different and discretionary remedies of injunctions and specific
performance? If there is merit in the
argument, I cannot see any sense in restricting a compensatory remedy, which
serves to protect the restitutionary interests to cases where separate remedies
of specific performance or injunction, designed directly and indirectly to
enforce payment, are available.
For my part, I
would hold that if Sir William’s wider proposition fails then the narrower one
must equally fail. Both submissions hinge on the defendant’s breach being
deliberate. Sir William invoked the principle that a party is not entitled to
take advantage of his own wrongdoing. Despite Sir William’s disclaimer it seems
to me that the acceptance of the propositions formulated by him will inevitably
mean that the focus will be on the motive of the party who committed the breach
of contract. That is contrary to the general approach of our law of contract
and, in particular, to rules governing the assessment of damages. In my view,
there are also other policy reasons which militate against adopting either Sir
William’s primary or narrower submission. The introduction of restitutionary
remedies to deprive cynical contract breakers of the fruits of their breaches
of contract will lead to greater uncertainty in the assessment of damages in
commercial and consumer disputes. It is of paramount importance that the way in
which disputes are likely to be resolved by the courts must be readily
predictable. Given the premise that the aggrieved party has suffered no loss,
is such a dramatic extension of restitutionary remedies justified in order
confer a windfall in each case on the aggrieved parry? I think not. In any event such a widespread
availability of restitutionary remedies will have a tendency to discourage
economic activity in relevant situations. In a range of cases such liability
would fall on underwriters who have insured relevant liability risks.
Inevitably underwriters would have to be compensated for the new species of
potential claims. Insurance premiums would have to go up. That, too, is a
consequence which militates against the proposed extension. The recognition of
the proposed extension will, in my view, not serve the public interest. It is
sound policy to guard against extending the protection of the law of
obligations too widely. For these substantive and policy reasons I regard it as
undesirable that the range of restitutionary remedies should be extended in the
way in which we have been invited to do so.
The present
case involves no breach of fiduciary obligations. It is a case of breach of
contract. The principles governing expectation or reliance losses cannot be
invoked. Given the fact of the breach of contract the only question is whether
restitution is an appropriate remedy for this wrong. The case does not involve
any invasion of the plaintiff property interests even in the broadest sense of
that word, nor is it closely analogous to the Wrotham Park position. I
would, therefore, rule that no restitutionary remedy is available and there is
certainly no other remedy available.
I would
dismiss the appeal.
Also agreeing ROSE
LJ said: I also agree with the reasons given in both the previous
judgments.
A feature which
to my mind is capable of distinguishing the present case from Wrotham Park
Estates Co Ltd v Parkside Homes [1974] 1 WLR 798 is not just that
damages were sought there in equity and here in contract at common law but the
different conduct of the
In Wrotham
Park the plaintiffs objected to building works in breach of covenant as
soon as they learnt of them and, within a month, issued a writ seeking
restraining and mandatory injunctions. They would not have granted any
relaxation of the covenants even if this had been sought. From first to last
they objected to what the defendants did. I find it unsurprising that, in
consequence, Brightman J awarded them substantial damages in equity as an alternative
to a mandatory injunction. He did so in order to achieve a just result (see
p815D).
In the present
case, from first to last, the plaintiffs have neither objected, nor wished to
object, to what the defendants have done. The fact that the plaintiffs granted
planning permission for development in breach of the covenant is immaterial,
for they had to comply with their statutory duties as planning authority.
Having written to the defendants in December, 1982, drawing attention to the
covenant and indicating a willingness to discuss its variations, the second
plaintiffs did nothing to seek to enforce the covenant for the very good reason
that they did not wish to do so, there being no harm to their adjoining land.
They issued their writ seeking damages more than five years later in March,
1988. It seems to me that that history of events is fatal to the plaintiffs’
attempted reliance on Wrotham Park Estate, where, in my respectful view,
Brightman J correctly answered the particular question which confronted him. It
is, in my judgment, wholly unlikely that he would have given the same answer
if, in that case, the plaintiff’s response to the defendant’s breach of
covenant had been that of the plaintiffs in the present case. Equitable relief,
whether by way of injunction or damages in lieu, would, as it seems to me, have
been inconceivable.
In the light
of what Lord Wilberforce said, in Johnson v Agnew [1980] AC 367,
at p400B to G, I see no reason why in the present case the plaintiffs should be
in any stronger position as to damages because they are suing the original
covenantor, rather than a successor who bought with notice of the covenant.
Accordingly,
and for the reasons given by my lord, I, too, would dismiss this appeal.
Appeal
dismissed with costs.
