Development agreement — Breach of covenant to develop in accordance with agreement — Whether defendant developer liable for breach of covenant — If defendant liable whether plaintiffs entitled to nominal damages only or to substantial damages equivalent to such sum as might have been obtained had modification of the covenants been agreed to
In 1980 the
plaintiffs, Surrey County Council and Mole Valley District Council, were
respectively the registered proprietors of two adjoining parcels of land at the
Ridgeway, Fetcham, Leatherhead, Surrey, the total area of which was 12.33
acres. Following the issue of a development brief inviting prospective
developers to make offers for the site, a contract was entered into dated
November 26 1980 between the plaintiffs, as vendors, and the defendant, Bredero
Homes Ltd, as purchaser. The contract was completed by two transfers dated
January 2 1981 each containing covenants in identical terms by the defendant
with the respective councils ‘to commence the development of the land hereby
transferred in accordance with the planning permission issued by Mole Valley
District Council reference number MO/80/1214 and dated 11th December 1980
within six months from the date hereof and thereafter to diligently pursue the
development of the land hereby transferred to its completion complying with the
said planning permission and the scheme approved by the transferor and the
County Council of Surrey for the development of the land hereby transferred and
adjoining land acquired . . . by a transfer of even date herewith’. Planning
permission MO/80/1214 provided for the development of the site with 72 detached
bungalows and houses in six different designs. Following an application by the
defendant, planning permission was granted on June 29 1983 under reference
MO/83/0368. The effect of this new permission was to raise the total number of
dwellings to be built on the site from 72 to 77. In due course the defendant
completed the development of the last 3.64 acres of the site in accordance with
the second planning permission and not in accordance with the original
permission. The plaintiffs contended that there had been a breach of the
respective covenants in the two transfers and that the defendant had carried
out a more advantageous development; although the plaintiffs neither desired
nor sought any injunctive relief to compel the defendant to develop the estate
in accordance with the covenants, they sought damages equal to the payment that
might have been extracted from the defendant in return for agreed modifications
of its covenants in such a way as to permit the development which has in fact
been carried out. The defendant admitted the breach of covenant and contended
that the modified development did not make the development more valuable to it,
but if that were wrong it denied that the plaintiffs were entitled to recover
anything more than nominal damages.
nominal damages. Contrary to the general principle on which damages for breach
of contract are to be assessed, what the plaintiffs were seeking to do was not
to restore themselves to the position in which they would have been if the
covenants had been performed but were seeking to obtain a share of the profit
which the defendant was said to have made by reason of the covenants not being
performed. This was contrary to the general principle that, in assessing
damages for breach of contract, the court is concerned with the plaintiffs’
loss and not with the defendant’s profit. The decisions in Wrotham Park
Estate Co Ltd v Parkside Homes Ltd and Johnson v Agnew did
not prescribe a new rule for the assessment of damages at common law which is
to be used, in appropriate cases, as an alternative to the rule stated in Robinson
v Harman. The decision in Wrotham Park was a decision on the
award of damages under Lord Cairns’ Act and nothing else and had not been
transmitted into a decision on common law damages by virtue of the observations
of Lord Wilberforce in Johnson v Agnew.
damages could not be awarded in equity for the breach of the covenants. The
defendant had disposed of all the houses on the site before the writ in the
action was issued and could not therefore have complied with any mandatory
injunction requiring the site to be redeveloped in accordance with the original
planning permission. The injunctive relief sought by the plaintiffs upon
amendment at the invitation of the court was not such an order as the court
would ever be prepared to make. There never was a case for an injunction or for
specific performance at the date of the writ and it inevitably followed that
there was no jurisdiction to award damages in equity in lieu of the equitable
relief.
The following
cases are referred to in this report.
Bain v Fothergill (1874) LR 7 HL 158, HL
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
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
Ferguson v Wilson (1866) 2 Ch App 77
Hipgrave v Case (1885) 28 ChD 356
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
Penarth
Dock Engineering Co Properties Ltd v Pounds
[1963] 1 Lloyd’s Rep 359
Proctor v Bayley (1889) 42 ChD 390
Radford v De Froberville [1977] 1 WLR 1262; [1978] 1 All ER 33;
(1977) 35 P&CR 316
Robinson v Harman (1848) 1 Exch 850, [1843-60] All ER Rep 383, 18 LJ
Ex 202, 13 LTOS 141
Sotiros
Shipping Inc v Sameiet Solholt (‘The
Solholt‘) [1981] 2 Lloyd’s Rep 574; [1953] 1 LLoyd’s Rep 605, CA
Strand
Electric and Engineering Co Ltd v Brisford
Entertainments Ltd [1952] 2 QB 246; [1952] 1 All ER 796, CA
Stoke-on-Trent
City Council v W&J Wass Ltd [1988] 1 WLR
1406; [1988] 3 All ER 394; (1988) 87 LGR 129, CA
Tito v Waddell (No 2) [1977] Ch 106; [1977] 2 WLR 496; [1977] 3
All ER 129
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 a
trial of two issues as to whether the defendant, Bredero Homes Ltd, was liable
to the plaintiffs, Surrey County Council and Mole Valley District Council, for
breach of covenant and if so liable as to whether the plaintiffs were entitled
to substantial rather than nominal damages arising out of the breach of
covenant in two transfers dated January 2 1981.
Sir William
Goodhart QC and Bernard Weatherill (instructed by Howell-Jones & Partners,
of Kingston upon Thames) appeared for the plaintiffs; Colin Rimer QC and
Nicholas Peacock (instructed by Turner Kenneth Brown) represented the defendant.
Giving
judgment, FERRIS J said: This action raises an interesting point on the
measure of damages applicable to a breach of a covenant to develop land in a
particular way.
The facts are
fairly straightforward and are not in dispute. 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 a
highway known as The Ridgeway, Fetcham, Leatherhead, Surrey. The total area of
these 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. To this end a
development brief was prepared inviting prospective developers to make offers
for the site. The brief stipulated that offers:
shall take
the form of a financial offer for the land linked with a submitted design for
the layout and buildings. The successful offer will be the one reflecting, in
the Councils view, the best balance between the financial offer and the
submitted design.
The offer
which found favour with the councils was an offer from the defendant, Bredero
Homes Ltd (‘Bredero’), the financial terms of which included a purchase price
of £1.52m. This offer led to a contract dated November 26 1980 between the two
councils, as vendors, and Bredero, as purchaser. This contract was completed by
two transfers both dated January 2 1981, one being made by the district council
and the other by the county council. In the transfer made by the district
council, Bredero covenanted with the council:
To commence
the development of the land hereby transferred in accordance with the planning
permission issued by Mole Valley District Council reference number MO/80/1214
and dated 11th December 1980 within six months from the date hereof and
thereafter to diligently pursue the development of the land hereby transferred
to its completion complying with the said planning permission and the scheme
approved by the transferor and the County Council of Surrey for the development
of the land hereby transferred and adjoining land acquired by the transferee
from the said County Council by a transfer of even date herewith.
The transfer
made by the county council contained a covenant by Bredero in identical terms,
but with additional words expressing the covenant to be entered into in
pursuance of section 5 of the Surrey County Council Act 1958. These additional
words, taken with section 5, are said to make positive covenants enforceable
against successors in title of Bredero, but nothing turns on this for present
purposes.
The scheme
referred to in the two covenants has not been identified in this action and it
can be ignored. The planning permission MO/80/1214 was granted pursuant to the
application of Bredero. It provided for the development of the land with 72
detached bungalows and houses in six different designs. The layout of the
estate and the numbers and positions of the bungalows and houses of each design
were specified in the application and in drawings referred to in the planning
permission.
Bredero duly
commenced the development of the estate in accordance with the planning
permission referred to. In the course of the development Bredero applied for
and obtained a number of further planning permissions which modified permission
1214 referred to in the covenant. Most of these permissions made insubstantial
variations in permission 1214. It is not suggested that development in
accordance with these insubstantial variations gave rise to any claim for
damages for breach of covenant.
In December
1982, however, it came to the notice of the district council that Bredero was
contemplating a further variation in the development which, if carried out,
would be more advantageous to Bredero than the development provided for by
permission 1214. On December 9 1982 the clerk and chief executive of the
district council wrote to Bredero in the following terms:
I understand
from the Planning Officer that you are considering making an application for
planning permission to develop the remainder of the site to a greater density
than that permitted under planning permission MO/80/1214 dated 11th December,
1980. Whilst the Council’s Planning Committee will, of course, consider any
planning application on its merits, I would point out that the undertaking of a
different development to that permitted under the 1980 planning permission is
at variance with the covenant contained in clause 2 of the transfer of the land
to your Company.
If planning
permission is granted, I assume you will be making formal application to the
Council’s Lands Officer who would be pleased to discuss the variation of the covenant.
No reply to
that letter appears to have been received. Bredero did, however, apply for a
fresh planning permission in respect of 3.64 acres of the estate. The remainder
of the estate had, it seems, by this time been developed in accordance with permission
1214, as varied by the immaterial modifications, which I have mentioned. This
fresh planning permission was granted on June 29 1983 under reference
MO/83/0368. The effect of this new permission was to raise 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. Subsequently Bredero completed
the development of the last 3.64 acres of the estate in accordance with the
fresh planning permission 0368 and not in accordance with planning permission
1214.
In subsequent
correspondence and negotiations the district council acted on behalf of
themself and the county council. The two councils took the view that there had
been a breach of the covenants on the part of Bredero contained in the two
transfers. Neither council desired or sought any injunctive relief to compel
Bredero to develop the estate in accordance with its covenants. Neither council
claims to have suffered any damage to any adjoining land owned by them. They
both took the view that in developing the last 3.64 acres in accordance with
planning permission 0368, Bredero had carried out, in breach of covenant, a
more advantageous development than that which was permitted by planning
permission 1214 and the covenants contained in the transfers. They have sought,
and now seek, damages equal to the payment that might have been extracted from
Bredero in return for agreed modifications of its covenants in such a way as to
permit the development which has in fact been carried out. The councils do not
allege that they have suffered any other loss.
As appears
from the events as I have described them, Bredero never sought an agreed
modification of its covenants. It accepts that it is in breach of covenant. It
denies that the modifications in the development provided for by permission
0368 made the development more valuable to it and it says that it would not
have been prepared to pay for a modification of its covenants. But, even if it
were wrong in these matters, it denies that the councils are entitled to
recover anything more than nominal damages.
The parties
having taken up their stand on this last issue as a matter of principle, the
two councils commenced this action by writ issued on March 25 1988. Bredero is
the only defendant to the action. It is accepted that by the date of the writ
Bredero had disposed of all the houses on the estate to third parties. None of
these third parties has been joined as a defendant. The claim of the two
councils against Bredero as set out in the statement of claim endorsed on the
writ was exclusively for damages and for interest pursuant to section 35A of
the Supreme Court Act 1987.
By an order of
Master Munrow made on December 18 1990, it was ordered that the following
issues be tried at the trial of the action before any question or issue as to
the amount of any damages recoverable by the two councils is tried, namely:
(a) whether the Defendant is liable to the
Plaintiffs for breach of covenant as alleged in paragraph 8 of the Statement of
Claim;
(b) whether if the Defendant is so liable to the
Plaintiffs, the Plaintiffs are entitled to damages assessed on the basis
pleaded in the second sentence of paragraph 9 of the Statement of Claim;
It is these
issues which are before me for trial. Having regard to Bredero’s admission that
it is in breach of covenant, the question which I have to consider is whether
the two councils are entitled (a) to nominal damages only, which is what
Bredero contends; or (b) to
obtained if Bredero had sought a modification of its covenants entitling it to
develop in accordance with planning consent 0368 instead of in accordance with
planning consent 1214. If I decide the matter in favour of substantial damages
the actual quantification of those damages will be referred to an inquiry.
It was common
ground between the parties that the usual principle on which damages for breach
of contract are to be assessed is that stated in these terms by Parke B in Robinson
v Harman (1848) 1 Exch 850 at p855:
The rule of
the common law is, that where a party sustains a loss by reason of a breach of
contract, he is, so far as money can do it, to be placed in the same situation,
with respect to damages, as if the contract had been performed.
This rule has
been repeatedly approved and applied by the House of Lords and by lower courts.
Mr Colin Rimer QC, on behalf, of Bredero took me to a number of cases where
this had been done.
Sir William
Goodhart QC, on behalf of the two councils, did not dispute that this rule
embodies the normal basis on which damages for breach of contract are to be
assessed. He submitted, however, that the rule does not represent the only
measure of such damages. As an example of a case where another measure has been
adopted he cited Radford v De Froberville [1977] 1 WLR 1262,
where the owner of one parcel of land whose neighbour was in breach of a
covenant to build a wall on the boundary between the two plots recovered the
cost of erecting the requisite wall on his own land and was not limited to
recovery of the diminution in the investment value of his property caused by
the absence of a wall. Sir William also referred to the type of case discussed
in Chitty on Contracts, 26th ed, vol 1, at paras 1802-1803, where in
certain cases of breach of contract the injured party can recover the amount of
his own expenditure incurred in performance of his own obligations in
anticipation that the party in breach would perform his obligations too.
The authority,
said to represent a departure from the general rule, on which Sir William
primarily relied was Wrotham Park Estate Co Ltd v Parkside Homes Ltd
[1974] 1 WLR 798. In that case a developer acquired land which was affected by
a covenant not to develop the land for building purposes except in strict
accordance with a layout plan to be first submitted to and approved in writing
by the vendor or its surveyor, such plan to indicate thereon the roads, sewers
and drains to be constructed. The plaintiff was the successor in title of the
original covenantee and the developer was the successor in title of the
original covenantor. Although there was no privity of contract between them the
covenant was enforceable by the plaintiff against the developer in equity. The
developer developed part of the land with a housing estate without submitting a
layout plan to the plaintiff. Subsequently the plaintiff commenced proceedings
against the developer and the purchasers of the houses, who were also bound by
the covenant, seeking, inter alia, a mandatory injunction for the
demolition of the buildings erected in breach of covenant. On this claim the
judge, Brightman J, concluded as follows:
I cannot
close my eyes to the fact that the houses now exist. It would, in my opinion,
be an unpardonable waste of much needed houses to direct that they now be
pulled down and I have never had a moment’s doubt during the hearing of this
case that such an order ought to be refused. No damage of a financial nature
has been done to the plaintiffs by the breach of the lay-out stipulation. The
plaintiffs’ use of the Wrotham Park Estate has not been and will not be
impeded. It is totally unnecessary to demolish the houses in order to preserve
the integrity of the restrictive covenants imposed on the rest of area 14.
Without hesitation I decline to grant a mandatory injunction. But the fact that
these houses will remain does not spell out a charter entitling others to
despoil adjacent areas of land in breach of valid restrictions imposed by the
conveyances. A developer who tries that course may be in for a rude awakening.
Brightman J
then turned to the question of damages. He said:
I am able
under the jurisdiction which originated with the Chancery Amendment Act 1858
(Lord Cairns’ Act) to award damages in substitution for an injunction. But
before I discuss quantum of damages I must answer the question, damages against
whom? For I apprehend that I am not able
to award damages against a defendant except as a substitute for an injunction
that I could have granted against the same defendant. Parkside has parted with
the ownership of the allotment site except the roads. I am able to grant a
mandatory injunction to compel Parkside to remove the roads, at any rate once
the houses have gone. I can, therefore, award damages against Parkside in
substitution for that injunction. I am not able to award damages against
Parkside as a substitute for an injunction to remove the houses because I
cannot order Parkside to demolish them. But I can award damages against each of
the purchasers in substitution for any mandatory injunction that I could have
granted against the same purchaser.
It is to be
observed that the jurisdiction originally conferred by Lord Cairns’ Act is now
conferred by section 50 of the Supreme Court Act 1981. At p 812 Brightman J
came to consider the question of damages. He said:
The basic
rule in contract is to measure damages by that sum of money which will put the
plaintiff in the same position as he would have been in if the contract had not
been broken. From that basis the defendants argue that the damages are nil or
purely nominal, because the value of the Wrotham Park Estate as the plaintiffs
concede is not diminished by one farthing in consequence of the construction of
a road and the erection of 14 houses on the allotment site. If, therefore, the
defendants submit, I refuse an injunction I ought to award no damages in lieu.
That would seem, on the face of it, a result of questionable fairness on the
facts of this case. Had the offending development been the erection of an
advertisement hoarding in defiance of protest and writ, I apprehend (assuming
my conclusions on other points to be correct) that the court would not have
hesitated to grant a mandatory injunction for its removal. 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?
Common sense would seem to demand a negative answer to this question.
He considered
a number of cases, not involving breach of contract, where compensation for
various forms of wrongful conduct had been assessed by reference to what would
have been a reasonable price for a licence to do what had been done. He stated
his conclusion at p 815 as follows:
In the
present case I am faced with the problem what damages ought to be awarded to
the plaintiffs in the place of mandatory injunctions which would have restored
the plaintiffs’ rights. If the plaintiffs are merely given a nominal sum, or no
sum, in substitution for injunctions, it seems to me that justice will
manifestly not have been done. As I have said, the general rule would be to
measure damages by reference to that sum which would place the plaintiffs in
the same position as if the covenant had not been broken. Parkside and the
individual purchasers could have avoided breaking the covenant in two ways. One
course would have been not to develop the allotment site. The other course
would have been for Parkside to have sought from the plaintiffs a relaxation of
the covenant. On the facts of this particular case the plaintiffs, rightly
conscious of their obligations towards existing residents, would clearly not
have granted any relaxation, but for present purposes I must assume that it
could have been induced to do so. In my judgment a just substitute for a
mandatory injunction would be such a sum of money as might reasonably have been
demanded by the plaintiffs from Parkside as a quid pro quo for relaxing the
covenant.
He went on to
quantify this sum by reference to the facts of the case before him. Sir William
Goodhart submitted that the court should adopt a similar approach in this
present case. He accepted that he had not sought any form of injunction. That
was relief which the councils had never wanted and had never sought. Sir
William said it should not make any difference to the court’s jurisdiction that
the plaintiffs were not seeking relief which they did not want and which, if
they had asked for it, would have been likely to be refused on the same grounds
as those upon which injunctive relief was refused in the Wrotham Park
case. Sir William also made it clear that his claim was for damages at common
law, rather than in equity. The present action is between the original parties
to the relevant covenants and the claim is a simple common law claim. In Wrotham
Park the only remedy available to the plaintiff was equitable relief,
whether by way of injunction or damages, because the covenant was enforceable
against the defendants only in equity, not at common law. Sir William submitted
that this circumstance explained why Brightman J expressed himself to be
exercising the equitable jurisdiction to award damages in lieu of an
injunction. He had no power to award damages at common law. In this case,
however, the court does have that power. In this connection I was referred to Johnson
v Agnew [1980] AC 367* where, at p 400, Lord Wilberforce, with whom the
rest of their lordships agreed, dealt with the question of damages. He posed
two questions, the first of which was whether Lord Cairns’ Act provided a
different measure of damages from the common law. He answered this question as
follows:
Since the decision
of this House, by majority, in Leeds Industrial Co-operative Society Ltd
v Slack [1924] AC 851 it is clear that the jurisdiction to award damages
in accordance with section 2 of Lord Cairns’ Act (accepted by the House as
surviving the repeal of the Act) may arise in some cases in which damages could
not be recovered at common
damages for breach of a restrictive covenant to which the plaintiff was not a
party. To this extent the Act created a power to award damages which did not
exist before at common law. But apart from these and similar cases where
damages could not be claimed at all at common law, there is sound authority for
the proposition that the Act does not provide for the assessment of damages on
any new basis. The wording of section 2 ‘may be assessed in such manner as the
court shall direct’ does not so suggest, but clearly refers only to procedure.
*Editor’s
note: Also reported at (1979) 251 EG 1167, [1979] 2 EGLR 146.
He then
referred to certain authorities and concluded:
On the
balance of these authorities and also on principle, I find in the Act no
warrant for the court awarding damages differently from common law damages.
In the light of
what was said by Lord Wilberforce in these two passages Sir William submitted
that the Wrotham Park case is now to be regarded as authority on the
assessment of damages generally, not merely on the assessment of damages in
equity.
Mr Rimer, on
behalf of Bredero, submitted that the damages sought by the two councils are
not recoverable in English law. He based himself firmly upon the general rule,
stated in Robinson v Harman, in terms which I have already read
and repeatedly affirmed in courts of all levels, including the highest. This,
he submitted, was the only true measure of the damages to be awarded for breach
of contract in English law. If, in accordance with what Lord Wilberforce said
in Johnson v Agnew, the measure of damages in equity is the same
as that at common law in cases when the equity and common law provide a remedy
in damages, then Wrotham Park may be wrongly decided. He submitted that
it is not necessary for me to consider in the present case whether or not this
is so because Wrotham Park was a case where the only remedy was in
equity and it was also a case where a claim for an injunction had been made and
persisted in and where the court had accepted that it had jurisdiction to grant
an injunction. None of these features is present in this case. If Wrotham
Park is correct when applied to its own circumstances, it cannot be
elevated into a general authority on the assessment of damages at common law by
reliance upon what Lord Wilberforce said in Johnson v Agnew,
where Wrotham Park was not cited.
Mr Rimer’s
submission was that, in accordance with the principle stated in Robinson
v Harman, the position of the two councils has to be considered by
reference to what it would have been if the covenant had been performed. Making
this comparison the two councils have suffered no loss. No property of theirs
has been diminished in value. It cannot be said that Bredero’s breach of
covenant has destroyed the value of the covenants. If the two councils had
sought equitable relief by way of injunction or specific performance at the
appropriate time they would have been likely to obtain it. Mr Rimer submitted
that the covenants are positive covenants and that specific performance rather
than an injunction would have been the appropriate relief. I was not convinced
by this, but it makes no difference in principle to his submissions. If and so
far as the value of the covenants, which the council obtained, has been
diminished, this has occurred because of the deliberate decision of the
councils not to seek specific performance or an injunction. It is not, itself,
the result of Bredero’s breach of covenant.
What the
councils are now seeking to do, said Mr Rimer, is not to restore themselves to
the position in which they would have been if the covenants had been performed.
They are seeking to obtain a share of the profit which Bredero is said to have
made by reason of the covenants not being performed. This is contrary to the
general principle that, in assessing damages for breach of contract, the court
is concerned with the plaintiffs’ loss and not with the defendants’ profit, the
latter being wholly irrelevant: see Sotiros Shipping Inc v Sameiet
Solholt: The Solholt [1983] 1 Lloyd’s Rep 605 at p 608.
In my
judgment, Mr Rimer’s submissions must be correct unless it can be said that the
Wrotham Park case, taken in conjunction with Johnson v Agnew,
has prescribed a new rule for the assessment of damages at common law which is
to be used, in appropriate cases, as an alternative to the rule stated in Robinson
v Harman. It clearly cannot be regarded as a subrule, derived from Robinson
v Harman, and Sir William Goodhart did not submit that it could.
In giving his
decision in Wrotham Park, Brightman J drew an analogy with certain
earlier authorities. The first was Whitwham v Westminster Brymbo Coal
& Coke Co [1896] 2 Ch 538, where trespass in the form of unauthorised
tipping of colliery waste was remedied by an award of damages equivalent to a
licence fee rather than an amount equal to the diminution in the capital value
of the land. The next case was Watson Laidlaw & Co Ltd v Pott
Cassels & Williamson [1914] 31 RPC 104, when a party infringing the
plaintiff’s patent was ordered to pay a sum equivalent to a licence fee. A
similar result was reached in Strand Electric & Engineering Co Ltd v
Brisford Entertainments Ltd [1952] 2 QB 246, where a defendant had
detained and used for his own profit chattels owned by the plaintiff for the
purpose of hiring them out.
In none of
these cases was the plaintiff claiming damages for breach of contract. In Penarth
Dock Engineering Co Properties Ltd v Pounds [1963] 1 Lloyd’s Rep
359, where a similar principle was applied, it seems that there was a breach of
contract, but there was also a trespass and the Court of Appeal applied the
decision in Whitwham’s case. There have been a few cases since 1974 in
which Wrotham Park has been applied, but of these Bracewell v Appleby
[1975] Ch 408 was a trespass case and Carr-Saunders v Dick McNeil
Associates Ltd [1986] 1 WLR 922* concerned a nuisance consisting of
obstruction to the plaintiff’s right of light. In none of these cases,
therefore, did the measure of damage applied compete with such a
well-established principle as that stated in Robinson v Harman
or, so far as I can see, conflict in any way with the usual principles for the
assessment of damages in cases of the particular type in question. In the
Canadian case of Arbutus Park Estates Ltd v Fuller (1976) 74 DLR,
3rd series, 257, Wrotham Park was applied in the assessment of damages
for breach of a restrictive covenant, but that was a case in which a mandatory
injunction was sought, and refused only on discretionary grounds and the award
of damages was made under Lord Cairns’ Act, which is apparently applicable in
British Columbia. The Arbutus Park case appears, therefore, to be on all
fours with Wrotham Park.
*Editor’s
note: Also reported at [1986] 2 EGLR 181.
There are,
however, two cases in which the Wrotham Park decision has been
discussed, which I must consider in greater detail. The first of these is Tito
v Waddell (No 2) [1977] Ch 106. The material part of the judgment
in that case is that in which Sir Robert Megarry V-C discussed the remedy of
the plaintiffs for breach by the British Phosphate Commissioners of their
covenant to replant with trees and shrubs land from which phosphate had been
extracted. The primary contention of counsel for the plaintiffs was that the
damages would be the cost of doing the work of replanting; his secondary
contention was that there should be awarded by way of damages a sum equivalent
to that which the commissioners would have paid in order to be relieved from
their obligation to replant. It was accepted that this sum would inevitably be
less than the cost of replanting. On the primary submission, Sir Robert Megarry
discussed at some length the consideration which he considered to be relevant
in order to determine whether the damages should be the cost of replanting or
the diminution in the market value of the plaintiffs’ land caused by failure to
replant. On the secondary submission he referred to Wrotham Park and Bracewell
v Appleby and continued (at pp 335-6):
I find great
difficulty in seeing how these cases help [counsel for the plaintiffs]. If the
plaintiff has the right to prevent some act being done without his consent, and
the defendant does the act without seeking that consent, the plaintiff has
suffered a loss in that the defendant has taken without paying for it something
for which the plaintiff could have required payment, namely, the right to do
the act. The court therefore makes the defendant pay what he ought to have paid
the plaintiff, for that is what the plaintiff has lost. The basis of
computation is not, it will be observed, in any way directly related to wasted
expenditure or other loss that the defendant is escaping by reason of an
injunction being refused: it is the loss that the plaintiff has suffered by the
defendant not having observed the obligation to obtain the plaintiff’s consent.
Where the obligation is contractual, that loss is the loss caused to the plaintiff
by the breach of contract. In the present case, the loss caused to the
plaintiffs by the British Phosphate Commissioners’ failure to replant is the
diminution in the value of their land resulting from that failure, or if it is
established that the land would be replanted, the cost of replanting. In the
latter case, no doubt, the British Phosphate Commissioners might well have been
willing to pay something to be released from their obligation to replant,
though that something would probably be rather less than the total estimated
cost of replanting. But the point is that not unless the British Phosphate
Commissioners would be liable to replant or pay damages equal to the cost of
replanting would there be any liability from which the British Phosphate Commissioners
would seek release on the basis of paying a sum equal to the discounted cost of
replanting. If Mr Macdonald establishes that liability, he does not need his
less favourable secondary contention: if Mr Macdonald fails to establish that
liability, there is no foundation on which to base his secondary contention. Of
course, until it has been determined whether or not some burden exists, the
person who would be subject to that burden may always be willing to pay
something to be relieved of the risk: but I do not think that this can affect
the measure of damages in the case which determines that the burden does exist.
In any case, the two authorities in question seem to me to be a long way away
from a case where the issue is not one of invading the property rights of
another without consent, but of breach of a contract to replant his land.
Sir William
Goodhart naturally relied upon the first of these paragraphs as recognising and
restating as a general principle what had been decided in Wrotham Park
and Bracewell v Appleby. He attached importance to the words ‘If
the plaintiff has the right to prevent some act being done without his consent’
as embracing both the type of case where, as in Wrotham Park, there is
an express reference to the obtaining of consent in the words creating the
obligation, and a case such as Bracewell v Appleby, where the
need for consent arises only from the fact that without consent the defendants’
act constitutes a wrong.
What was said
by Sir Robert Megarry in the paragraph relied upon was, I think, obiter
because he proceeded to deal with the quantification of damages on the basis of
choosing between the cost of replanting and the diminution in value of the
plaintiff’s land. Moreover, it seems to me that the two councils in this case
face difficulties not unlike those which Sir Robert Megarry discussed in the
second of the two paragraphs which I have read. If one excludes the possibility
that the councils might, if they had acted in time, have obtained relief by way
of specific performance or an injunction, Bredero would not, in practice, have
been likely to pay a significant sum in return for a modification of its
obligations unless it is liable to pay substantial damages for breach of these
obligations. The argument then appears to depend upon the assumption of the
very thing which it is intended to prove. I hope it is not unfair to suggest
that the argument amounts to saying that the court ought to award damages equal
to the cost of purchasing a release because if a release were not purchased the
court would award these very damages.
The second
authority commenting upon Wrotham Park which requires discussion is Stoke-on-Trent
City Council v W&J Wass Ltd [1988] 1 WLR 1406. In that case, so
far as material, the city council claimed damages for the infringement by the
defendant of the council’s right to hold a statutory market. The council could
not establish that they had suffered any quantifiable loss in the form of loss
of stallage or other dues, but, relying on the principle that the levying of an
unlawful same-day market within 6 2/3 miles of a franchise or statutory market
is actionable at the suit of the market owner without proof of loss, they
claimed damages calculated by reference to the licence fee which they could
reasonably have required the defendant to pay in return for consent to operate
its market up to the time that continuance was restricted by injunction. The
defendant contended that, at most, only nominal damages could be recovered by
the city council.
Nourse LJ approached
the matter on the basis that the levying of an unlawful market is a tort,
probably a nuisance rather than a trespass, and that under the general rules
applicable to actions in tort the best that the city council could recover was
nominal damages. But he recognised that there were exceptions to the general
rules, which he proceeded to examine ‘in order to see whether a further
exception ought to be made in this case’: see p 1410. He then discussed the
authorities which had been referred to by Brightman J in Wrotham Park
and also some other cases of the same kind. As to the Wrotham Park case
itself he said:
[That]
decision is in my opinion one which stands very much on its own. The conclusion
of Brightman J may, I think, be more fully explained as follows. An injunction
is frequently granted to enforce an express negative covenant, especially a
restrictive covenant affecting land, without proof of loss to the plaintiff.
Injunctions could therefore and would have been granted in that case but for
the social and economic reasons against ordering the demolition of 14 houses.
If injunctions had been granted, the loss to the defendant purchasers would
have been enormous. If, on the other hand, injunctions were not granted and no
damages were awarded, the purchasers would have been left in undisturbed
possession of the correspondingly enormous fruits of their wrongdoing.
Accordingly, if the plaintiffs had not been awarded substantial damages,
justice manifestly would not have been done. If this analysis is correct, the
practical result of the Wrotham Park decision was something akin to an
award of exemplary damages for breach of contract, albeit that their amount
bore no relation to the loss which would have been suffered by the defendant
purchasers if they had had to demolish their houses. In saying this, I do not
wish to suggest that that case was wrongly decided. Indeed, I regard the result
as having been entirely appropriate and I see no reason why it should not serve
as a precedent for other cases of the same kind. I merely wish to emphasise
that it stands a long way away from the present problem and does not assist in
its solution.
Nourse LJ then
dealt with the other exceptions and came to the conclusion that none of them
justified the making of a further exception in relation to markets.
Nicholls LJ
recognised as an established principle, which he called ‘the user principle’,
that a person who wrongfully uses another’s property without causing the latter
any pecuniary loss will, in general, be liable to pay, as damages, a reasonable
sum for the wrongful use he has made of the other’s property. He treated the
authorities relied upon by Brightman J in Wrotham Park, and certain
other authorities, as examples of the application of the user principle. He
declined to extend the user principle to the disturbance of market rights. In
his main discussion of these matters he made no reference to the Wrotham
Park case itself, but he mentioned that case at the very end of his
judgment at p 1420, saying that it took the matter no further so far as the Stoke
on Trent case itself was concerned. Mann LJ agreed with the judgments of
both Nourse LJ and Nicholls LJ.
In my
judgment, what emerges from the Stoke on Trent case which is potentially
material to the present case is that Nourse LJ explained the Wrotham Park
case as being an award of damages in lieu of an injunction which could and
would have been granted but for social and economic reasons, expressly
disclaimed any suggestion that the decision was wrong and stated that he saw no
reason why it should not serve as a precedent ‘for other cases of the same
kind’. The other two members of the court cannot, I think, be said to have
taken any different view of Wrotham Park.
Having now
discussed Wrotham Park and the cases which have followed it at some
length I have to say that, in my judgment, nothing is to be found in any of
them which justifies the view that Wrotham Park, taken with Johnson
v Agnew, has prescribed a new rule for the assessment of damages at
common law. In my view, Wrotham Park was a decision on the award of
damages under Lord Cairns’ Act and nothing else and has not been transmuted
into a decision on common law damages by virtue of the observations of Lord
Wilberforce in Johnson v Agnew.
Moreover, I do
not accept Sir William Goodhart’s submission that damages at common law for
breach of covenant are in other types of cases assessed in accordance with
principles which differ from the rule stated in Robinson v Harman.
As I have mentioned, Sir William cited Radford v De Froberville
as being such a case. But, in my judgment, the issue in that case was not
whether Robinson v Harman or some other principle was applicable,
but whether the principle of Robinson v Harman required that the
plaintiffs’ loss is always to be assessed by reference to the diminution in
value of his own land or, in an appropriate case, permitted that loss to be
assessed by reference to a cost which the plaintiffs had incurred or would
undoubtedly incur in making good the defendants’ default. It seems to me that
in deciding in favour of the second of these alternatives Oliver J was applying
the rule in Robinson v Harman, not departing from it.
The second
type of case in which, according to Sir William, the court applies a rule
different from that in Robinson v Harman is that in which the
plaintiff recovers by way of damages wasted expenditure which he incurred in
reliance upon his expectation that the defendant would perform his part of the
bargain. This type of case is discussed in Chitty on Contracts, vol 1 at
paras 1802 and 1803. But it does not seem to me that this is truly a departure
from the ordinary rule. If the injured party can show that he has suffered a
loss of bargain he will usually recover that loss and he cannot recover in
addition to it the expenditure which he himself has laid out in order to obtain
the bargain. But if for any reason he cannot establish a loss or a gross profit
on the transaction, or if he is prevented from recovering that profit by the
rule in Bain v Fothergill (1874) LR 7 HL 158 (now, of course,
abolished), he will be entitled to recover the amount of his own expenditure
incurred in order to obtain that profit because, in all the circumstances, that
expenditure will be the amount required to put him as nearly as possible into
the position in which he would have been if the contract had been performed. (I
assume, of course, that the amount of expenditure will not be such that it
exceeds the potential gross profit on the transaction. Where it does, a
different calculation will need to be made, as discussed in Chitty.)
The conclusion
which I reach, therefore, on the claim for damages at common law advanced on
behalf of the plaintiff is that substantial, as distinct from nominal, damages
are not recoverable by the plaintiffs at common law.
During the
course of argument there was debate as to whether the result might be different
if damages could be awarded in equity instead of at common law. This led to
discussion whether, on the pleadings as they stood at the beginning of the
trial, a claim to damages in equity was open to the plaintiffs. Thereafter Sir
William Goodhart applied for leave to amend the plaintiffs’ prayer for relief
by adding a claim for
(1) An Order that the Defendant do use its best
endeavours to take down and remove or to procure the taking down and removal
from the Fetcham Gap South site in Fetcham Surrey of all or any buildings and
boundary features erected thereat and which do not comply with the scheme of
development permitted by Planning Permission MO/80/1214 and do as soon as
practicable thereafter take such steps as shall be required in order fully to
implement the said scheme.
and by amending
the simple claim for ‘damages’ so that it became a claim for ‘damages at common
law or alternatively in equity’.
In fairness to
Sir William it is right to say that he made this application with a marked lack
of enthusiasm and only in response to encouragement from the bench. Indeed, he
even volunteered that, if leave to amend were granted, the plaintiffs would
undertake not to pursue the claim for mandatory relief embodied in the new
prayer. In effect, therefore, the claim for injunctive relief was advanced merely
in case it was necessary to advance such a claim in order to obtain damages
under Lord Cairns’ Act, now section 50 of the Supreme Court Act 1981.
Mr Rimer
resisted this amendment on the ground that the new claim was doomed to failure
and that leave ought not to be given to make a futile amendment. He did not
suggest that the amendment would give rise to any embarrassment to his clients
or necessitate an adjournment or substantially prolong the trial. In the
somewhat unusual circumstances I decided to give leave for the amendment to be
made without expressing any view at that stage on Mr Rimer’s contention that
the new claim was doomed to failure. I did this because it seemed to me to be
more convenient and satisfactory to deal with the claim for damages in equity
in my substantive judgment. Accordingly, I now turn to this claim.
Section 50 of
the Supreme Court Act 1981 provides that ‘where . . . the High Court has
jurisdiction to entertain an application for an injunction or specific
performance’ it may award damages in addition to, or in substitution for, an
injunction or specific performance. As a note in vol 2 of the Supreme Court
Practice 1991 states, this section has substantially re-enacted section 2 of
Lord Cairns’ Act. But in 1866, not very long after that Act was passed, it was
held by a Court of Appeal, of which Lord Cairns was himself a member, that the
Act was not applicable if the plaintiff in a suit in equity had no equitable
right at the time the proceedings were commenced: see Ferguson v Wilson
(1866) 2 Ch App 77. Accordingly, where specific performance has become
impossible because the land which is the subject matter of the contract has
been sold to a third party, damages in lieu of specific performance are not
available in equity either: see Hipgrave v Case (1885) 28 ChD
356. Correspondingly where there is no case for an injunction a court of equity
cannot award damages in substitution for an injunction: see Proctor v Bayley
(1889) 42 ChD 390.
In the present
case, as I have already said, Bredero had disposed of all the houses on the
estate before the writ in this action was issued. Bredero could not, therefore,
comply with a mandatory injunction requiring the estate to be redeveloped in
accordance with planning permission 1214 even if the court would otherwise have
been prepared to grant an injunction. It was for this reason that Sir William
Goodhart formulated the injunctive part of his amended relief in terms of a
requirement that Bredero should use its best endeavours to procure a particular
result. The only means whereby Bredero could in fact achieve this result would
be by repurchasing demolishing and reconstructing the houses developed in
accordance with planning permission 0368, which would depend upon such unlikely
or uncertain factors as the concurrence of the present numbers of the houses
and the financial resources of Bredero. In my judgment, the injunctive order
sought as part of the amended relief is not such an order as the court would
ever be prepared to make. In truth, therefore, there never was a case for an
injunction or for specific performance at the date of the writ or probably for
a substantial period of time before that. In fairness to Sir William Goodhart I
record that his reluctance to make the amendment was at least in part
attributable to his recognition that this is so.
In my
judgment, it inevitably follows that there is no jurisdiction to award damages
in equity. This is the basis on which Mr Rimer argued that the amended claim
was futile because it was doomed to failure. I have to agree that this is the
case.
In the result
I hold that the plaintiffs cannot recover substantial, as distinct from
nominal, damages either at common law or in equity. I reach this conclusion
with a measure of regret because, like Brightman J in the Wrotham Park
case, I find it unsatisfactory that, assuming that the defendant has profited
from its breach of covenant, the plaintiffs will receive no compensation and
the defendant will be left in undisturbed possession of the fruits of its
wrongdoing. Had relief by way of injunction still been available, as it was in
the Wrotham Park case, I am practically certain that I would have
refused injunctive relief. But I am equally certain that I would have followed
the course taken in Wrotham Park and directed an inquiry as to damages
on the basis that they should be the amount which the two councils might
reasonably have charged for a variation of the covenants. I would have left it
to a higher court to consider, if Bredero had so contended, whether Wrotham
Park was rightly decided. As it is, however, there is a vital distinction
between this case and the Wrotham Park case and the course which was
taken there is not open to me.
I invite
submissions from counsel as to the precise answers which I ought to give in
relation to the issues described in the master’s order which is referred to
earlier in this judgment and as to the disposal of the action as a whole.
