Talisman Property Co (UK) Ltd v Norton Rose

Negligence — Solicitor — Assessment of damages — Notice under section 25 of Landlord and Tenant Act 1954 wrongly relying upon ground (f) — Liability to pay statutory compensation — Identity of tenant — Whether chance that party in occupation would be found to be tenant — Whether chance that under correct section 25 notice no statutory compensation would have been payable — Assessment of chance In July 2001, the claimant company acquired the freehold reversion to industrial premises that were subject to a lease, the contractual term of which expired on 24 December 2001. L Ltd, the legal assignee of the term, had been dormant since around 1998. W Ltd, a company in the same group as L Ltd, occupied the premises for the purposes of its business. Prior to July 2001, L Ltd had served on the previous landlord a request for a new tenancy under section 26 of the Landlord and Tenant Act 1954; the landlord had served a counternotice opposing the grant of a new tenancy under ground (f) of section 30(1) of the 1954 Act. The effect of that notice was to give the tenant, on quitting, a vested right to statutory disturbance compensation of around £179,000. The tenant’s repairing covenants had been substantially breached, the cost of which exceeded the statutory disturbance compensation. In September 2001, the claimant instructed the defendant solicitor to serve a notice, under section 25 of the 1954 Act, that did not oppose the grant of a new tenancy, on W Ltd terminating the tenancy. The defendant negligently served a section 25 notice that expressly opposed the grant of a new tenancy under ground (f). In November 2001, the tenant’s solicitor asserted that W Ltd was the tenant and that the section 25 notice committed the claimant to pay W Ltd statutory compensation. Following negotiations, the tenants served notices of discontinuance of their applications for new tenancies, and the tenancy came to an end in February 2003; no new tenancy was granted either to L Ltd or to W Ltd. The claimant settled its claim for dilapidations against W Ltd by setting off in full the statutory compensation. It subsequently claimed damages against the defendant for negligence in sending an incorrect section 25 notice to W Ltd. It contended that W Ltd was the tenant and that it was obliged to pay the statutory compensation resulting from the defendant’s negligence. It also claimed that it had lost the opportunity of reducing the liability to pay compensation to nil because, had an unopposed notice been served, negotiations for a new tenancy would have succeeded. Held: The claimant was entitled to damages of £53,700, amounting to 30% of the statutory compensation of £179,000. Having regard to section 42(2) of the 1954 Act, and the position of associated companies, L Ltd had at all times remained the tenant of the premises; W Ltd could not be treated as the tenant by way of an estoppel by representation. It was unrealistic to ignore the events that had occurred after October 2001, the date of the negligent breach of contract. It was inappropriate to set off against the damages a sum to represent the chance that the claimant might have been worse off because L Ltd might not have paid the dilapidations claim and/or the interim rent. The payment of the statutory compensation was not caused by the negligent section 25 notice; the obligation to pay the compensation arose under the counternotice served by the previous landlord to the section 26 notice served by L Ltd. However, because an uncontested notice had not been served in October 2001, the claimant had lost the chance of arguing that the tenant had no right to statutory compensation, and that W Ltd would have recognised the litigation risk and that it would be held that W Ltd was the tenant so that no compensation would then have been available for set off against the dilapidations claim. That chance was 30%. The following cases are referred to in this report. Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602; [1995] 4 All ER 907, CA Crago v Julian [1992] 1 WLR 372; [1992] 1 All ER 744; (1992) 63 P&CR 356; [1992] 1 EGLR 84; [1992] 17 EG 108; (1992) 24 HLR 306, CA Dixon v Clement Jones [2004] EWCA Civ 1005; [2005] PNLR 6 First National Bank plc v Thompson [1996] Ch 231; [1996] 2 WLR 293; [1996] 1 All ER 140, CA Jervis v Harris [1996] Ch 195: [1996] 2 WLR 220; [1996] 1 All ER 303; [1996] 1 EGLR 78; [1996] 10 EG 159, CA Official Trustee of Charity Lands v Ferriman Trust Ltd [1937] 3 All ER 85, KB Rodenhurst Estates Ltd v WH Barnes Ltd [1936] 2 All ER 3, CA Stratford-upon-Avon Corporation v Parker [1914] 2 KB 562 Williams v Heales (1874) LR 9 CP 177 This was the hearing of an application by the claimant, Talisman Property Co (UK) Ltd, for the assessment of damages following the admission of liability for the service of a negligently drawn notice under section 25 of the Landlord and Tenant Act 1954. Bernard Livesey QC and Mark Loveday (instructed by Vizards Livesey Cameron Walker) appeared for the claimant; Roger Stewart QC and David Halpern (instructed by Barlow Lyde & Gilbert) represented the defendant. Giving judgment, Judge Behrens said: 1. Introduction [1] This is the assessment of damages in a professional negligence action by Talisman Property Co (UK) Ltd (Talisman) against its former solicitor Norton Rose (NR). [2] The action arises out of admitted negligence by NR in connection with a lease renewal in relation to premises in Park Royal, Acton. The premises were let for 20 years expiring on 24 December 2001. Talisman acquired the freehold reversion in July 2001. There is an issue as to the identity of the tenant between Lewis DMR Ltd (Lewis DMR) and Wyko Industrial Services Ltd (Wyko). Lewis DMR and Wyko are both companies in the same group and are subsidiaries of Wyko Group plc (WG). Lewis DMR was the legal assignee of the term, but it had been dormant since around 1998. The premises were |page:146| occupied for the purposes of Wyko’s business. Wyko had been treated by the landlord as the tenant. [3] Prior to the acquisition of the reversion by Talisman, Lewis DMR had served on its then landlord a notice under section 26 of the Landlord and Tenant Act 1954 (the 1954 Act) requesting a new tenancy. The landlord had served a counternotice stating that it intended to oppose the grant of a new tenancy on ground (f) of section 30(1). The effect of such a notice was to give the tenant a vested right to compensation on quitting. The amount of compensation was significant: £179,000. In June 2001, Lewis DMR made an application to court for a new tenancy. [4] Another significant factor was that there were substantial breaches of the repairing covenants in the lease. The cost of repairing the premises was likely to exceed, by a substantial amount, the statutory compensation recoverable. On the other hand, if the landlord genuinely intended to redevelop, the damages recoverable for non-repair would be limited and might be nil. [5] During the period while it was negotiating, and immediately after it acquired, the freehold, Talisman considered its strategy with regard to the property. It had a number of meetings with its agent and with its lawyer to consider its options. [6] From a commercial point of view, it preferred to have Wyko (which was trading profitably) as a tenant rather than Lewis DMR (which was dormant). Equally, it wished to avoid, if possible, paying statutory compensation if no new tenancy were granted. [7] It is not entirely clear when Talisman abandoned the option of redeveloping the premises. Certainly, it took no steps to put itself in a position in which it would be able to establish the necessary intention to the satisfaction of the court. [8] It is now accepted that, on 28 September 2001, Talisman instructed NR to serve on Wyko a notice, under section 25 of the 1954 Act, that did not oppose the grant of a new tenancy. It is equally accepted by NR that, contrary to the express instructions, a notice was served that expressly opposed the grant of a new tenancy on ground (f). It is accepted that the service of that notice was negligent. [9] Following the service of the wrong notice, there were negotiations between the parties for a new lease. Those negotiations comprised in the main three meetings in December 2001, January 2002 and July 2002. [10] While those negotiations were continuing, Wyko issued its own proceedings under the 1954 Act. The two sets of proceedings were listed for a preliminary hearing in November 2002 to determine whether the tenant was Wyko or Lewis DMR. [11] Shortly before the hearing, Wyko and Lewis DMR discontinued their respective proceedings, with the result that the tenancies came to an end in February 2003 and no new tenancy was granted to either Wyko or Lewis DMR. [12] Wyko duly vacated the premises in February 2003. In subsequent negotiations, it agreed the level of compensation payable in respect of dilapidations. The sum of £179,000 in respect of the statutory compensation was set off in full against the sum agreed for dilapidations. [13] Talisman has put its claim against NR in two ways: 1. It asserts that Wyko was in fact the tenant, with the result that it was caused to pay the statutory compensation of £179,000 as a result of the negligence. 2. It asserts that it lost the chance of reducing the liability to pay compensation to nil. It also asserts that had an unopposed notice been served, the negotiations for a new tenancy would have succeeded, with the result that it would have received more than the interim rent that it actually received and the capital value of the premises would have been enhanced. [14] NR admitted that it was negligent but contended that there was no loss. It was so confident that it was right that, at an early stage in these proceedings, it made an application before Lindsay J for summary judgment and for the claim to be struck out. Lindsay J refused to strike out the claim and ordered it to go to trial. 2. Representation [15] Talisman was represented by Mr Bernard Livesey QC and Mr Mark Loveday, instructed by Vizards Livesey Cameron Walker. NR was represented by Mr Roger Stewart QC and Mr David Halpern, instructed by Barlow Lyde & Gilbert. [16] Counsel produced detailed written skeleton arguments before the trial commenced and detailed written closing submissions before the final speeches. As the law involved in this case is by no means straightforward and is, at least to some extent, in a state of development, I am grateful for the full exposition in the skeletons. 3. Witnesses [17] Five witnesses gave evidence on behalf of Talisman: Mr Gary O’Brien, a litigation partner at Eversheds LLP practising in Birmingham and specialising in commercial property litigation; Mr Paul Davidson, the property manager employed by Wyko; Mr Adam Winton, a director of Talisman and a surveyor; Mr Malcolm Parnell, the property manager with CHP Management Ltd (CHP), the in-house management company of the group of companies including Talisman; and Mr (??) Jansons, a partner in the firm of surveyors advising Talisman. [18] A number of witness statements were prepared on behalf of NR, including a statement from Mr Davidson. When he gave evidence, Mr Davidson confirmed that that statement was true. In any event, Mr Stewart decided to call no evidence. [19] Each side instructed experts. However, following their meeting, the expert evidence was agreed and I was presented with the agreed conclusions. 4. Facts 4.1 Background Talisman [20] Talisman is, as its name suggests, a property company. It is an associated company of the William Pears Group of Companies Ltd. It manages its properties by CHP, an in-house management company within the group. [21] Mr Parnell, commercial estates manager, was the employee within CHP responsible for the day-to-day management and protection of Talisman’s interests. The director responsible for strategy and more significant matters was Mr Winton. Wyko/Lewis DMR [22] Lewis DMR is a company that, since 1986, has manufactured electrical coils at the premises. It was acquired by WG in 1996. After a short time, WG decided to consolidate its coil manufacturing in Newcastle. The business moved in 1998 and, thereafter, Lewis DMR ceased to trade. [23] Wyko adopted the trading name Lewis BERL for a part of its business, and attached a nameplate on the outside of the premises. Wyko then went into exclusive occupation of the premises and carried on a variety of business activities there. Wyko preserved Lewis DMR solely in order to prevent another company from using the trading name. [24] Mr Davidson was the property manager employed by Wyko. His responsibilities included the management of the portfolio of the properties in respect of which Wyko has an interest. These include landlord and tenant issues, acquisitions and disposals. [25] Although he was involved in the negotiations for the new lease, Mr Davidson agreed that he was not responsible for the ultimate decision as to whether Wyko left the premises in Acton or renewed the lease. [26] Lewis DMR’s accounts confirm that it was dormant for the relevant period. Wyko’s accounts show that its financial position deteriorated between 2000 and 2003. The position may be summarised in the following table: 2000 2001 2002 2003 £000 £000 £000 £000 Profit after tax 5,980 4,579 1,410 (2,505) Dividend 7,000 7,000 2,000 0 Net assets 3,636 1,215 625 (1,877) |page:147| 4.2 Lease [27] By a lease dated 16 February 2002, business premises at 158 and 158X Duke’s Road, Park Royal, London W3 (the premises), were let for a term of 20 years expiring on 24 December 2001. The lease provided for five-year rent reviews. In fact, the rent was last reviewed in 1991 at £107,500 pa. The property consisted of a light industrial unit on an industrial estate in Park Royal. [28] The lease contained a number of what may be regarded as common clauses. These included covenants to repair, covenants against alienation or parting with possession and a proviso for re-entry. It also contained what counsel have referred to as a Jervis v Harris* clause. Under such a clause, if a tenant fails within three months to comply with a notice of disrepair served by the landlord, the landlord is entitled to enter the premises, carry out the repairs and recover the cost from the tenant. —————————————————————————————————- * Editor’s note: Reported at [1996] 1 EGLR 78; [1996] 10 EG 159 —————————————————————————————————- [29] The lease contains a covenant in clause 3(17)(b) against alienation and parting with possession in reasonably standard terms. It contains a proviso: PROVIDED ALWAYS that the tenants may share the occupation or part with the possession of the demised premises to an associated or subsidiary company but no tenancy shall be created thereby. [30] Thus, where the tenant is itself a subsidiary of a parent company, this proviso expressly permits it to share or part with possession to another subsidiary. There is no requirement that the tenant should remain in occupation of the premises in any shape or form. [31] In 1986, the term was formally assigned to Lewis DMR. On 4 May 2000, the reversion expectant on the term was assigned to Clay Property Ltd. 4.3 Occupation by Wyko [32] A number of documents were relied upon as being relevant to the identity of the tenant and questions of estoppel: [33] On 13 July 1999, Wyko signed a standing order for the payment of the rent from the Lewis BERL bank account. [34] On 29 November 2000, Ms Cynthia Evans, of Warner Estates plc (Warner), the parent company of Clay, wrote to Mr Davidson in the following terms: I have been trying to get confirmation in writing to confirm Why You are Trading as [Wyko]. Although your Lease is in the name of [Lewis DMR] we have no record of a change of Name Certificate. After speaking to you yesterday I expected to receive a fax from you, But I have not received anything yet. [35] Mr Davidson replied to Warner on the same day on Wyko’s writing paper. He described himself as “Property Manager”: I hereby confirm that the above property is leased by us. As previously explained, Wyko bought Lewis DMR as an acquisition, so there is no “change of name” certificate. Lewis DMR have been part of Wyko Industrial Services since September 1996. [36] On 19 December 2000, Clay’s parent company wrote to Wyko enclosing insurance details for the premises. Those details – which were issued on 24 November 2000 – described Wyko as the tenant or headlessee. [37] Thereafter, Wyko was billed for, and paid, rent and outgoings in its own name. The records of the landlord were drawn up following the above acknowledgment to reflect the fact that Wyko was now the tenant. [38] Following the assignment of the reversion to Talisman, there was further correspondence. On 27 July 2001, Warner wrote to Mr Davidson at Wyko. The letter informed him of the sale and authorised him to make all further payments of rent to Talisman. On 31 July 2001, CHP, on behalf of Talisman, wrote two letters: one to Lewis DMR and the other to Mr Davidson at Wyko. Those letters required payments of rents, insurance premiums and service charges to CHP. 4.4 Service of notice under section 26 of the 1954 Act [39] On 1 March 2001, Lewis DMR served a notice requesting a new tenancy under section 26 of the 1954 Act. The notice specified 1 February 2002 as the date upon which the current tenancy terminated. [40] If and in so far as Lewis DMR was entitled to protection under the 1954 Act, the effect of the notice was that it would not be possible for Clay to obtain an interim rent before the date specified in the notice. Since it was appreciated that the rent of £107,000 was significantly less than the market rent, this would have the effect that the old rent of £107,000 would be payable until five weeks after the end of the contractual term. [41] There was, in fact, some doubt in the mind of Wyko’s solicitor, in whose name the application should have been made. Its solicitor, Ms Ceri Mort, of George Green & Co (Geo Green), served the request in the name of Lewis DMR but later had second thoughts and advised Wyko that: “I believe that a notice should probably have been served in the same of Wyko. Perhaps we could discuss this further on the telephone.” [42] On 27 April 2001, Clay served a counternotice on Lewis DMR, indicating that it would object to the grant of a new lease on the ground, specified in section 30(1)(f) of the Act: that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises… and that he could not reasonably do so without obtaining possession of the holding [43] It is common ground that there are two relevant consequences of the service of an opposed notice upon the section 30(1)(f) ground. 1. Pursuant to section 37(2) of the 1954 Act, the tenant is entitled to statutory compensation upon quitting the holding – and this is so whether it has quitted because the landlord’s objection had been upheld (by the court) or because it has simply changed its mind about staying – and the tenant does not lose the right to compensation even if the landlord changes its mind and subsequently indicates to the tenant that it will not object to the renewal of the lease. Statutory compensation is ascertained by applying a formula (in this case) of two times the annual rateable value for the premises. In the case of the Lewis DMR/Wyko premises, statutory compensation would therefore amount to the sum of £179,000. On the other hand, if the tenant were to renew (and therefore does not quit the premises), it is not entitled to statutory compensation. 2. Should the landlord secure possession on the demolition/reconstruction ground, the tenant can usually escape any liability for dilapidations under the lease. This is, of course, because the landlord has suffered no loss by taking back, in a dilapidated state, premises that it is about to demolish anyway. It would be nonsense if it were to be charged for putting the premises into proper condition only for them to be rendered valueless by structural alteration or demolition. It is also the effect of section 18(1) of the Landlord and Tenant Act 1927. The Wyko premises were in a fairly dilapidated condition, and the liability was estimated at a figure in the region of around £500,000. In fact, they were ultimately compromised in the sum of £243,000. [44] On 14 June 2001, Geo Green, on behalf of Lewis DMR, made an application to the Central London County Court for a new tenancy. The application named Clay as the respondent and proposed a new lease at a rent of £107,500 pa with the other terms as in the existing lease. 4.5 Acquisition of the reversion by Talisman [45] In or around April 2001, Mr Winton became aware that some six properties, including the freehold reversion of the premises, were for sale. According to Mr Winton, he quickly agreed a purchase price of £3m for all six units. [46] On or around 28 April 2001, Mr Winton received a report from Mr Jansons, the senior partner in the firm of surveyors, Jansons, about the six units. The report suggests that the capital value of the six properties is in the order of £3.338m. The report suggests a strategy for marketing the premises. It is clear that one of the options being considered by Mr Winton at that stage was the possibility of redevelopment of the premises. |page:148| [47] On 22 May 2001, Mr Winton attended a meeting at NR. During the meeting, he asked a number of pertinent questions about the position. These questions related in the main to the effect of Lewis DMR being dormant, what was needed to establish an intention to redevelop under section 30(1)(f), and as to whether he could still serve a schedule of dilapidations. [48] On 31 May 2001, NR gave full and detailed answers to the questions that were raised. There is no complaint about this advice. NR advised that section 42 of the 1954 Act enabled a group company (that is, Wyko) to claim the new tenancy. It advised that it was likely that there would be a court hearing in the proceedings between six and nine months after the service of the notice; they advised that ground (f) and a schedule of dilapidations were “somewhat” inconsistent. [49] On 1 June 2001, contracts for the purchase were exchanged. By 21 June 2001, Mr Winton had received a report from Powell Williams Partnership (PWP) on the premises, including a condition survey report. In a memorandum of that date, Mr Winton stated that Talisman needed to get into a position to serve the schedule of dilapidations on Wyko immediately upon completion. The memo went on to make express reference to the possible need to implement the Jervis v Harris clause as soon as possible. [50] On 2 July 2001, Mr Parnell wrote to PWP instructing it to prepare a full notice of repair to be served on the tenant, Lewis DMR, as soon as possible after completion. The letter makes the point that it might not be Talisman’s intention to redevelop. [51] The sale duly completed on 27 July 2001. On 24 July 2001, Talisman agreed to subsell five of the six units for £2m. Completion of the sale of the other five units also took place on 27 July 2001. On the same day, Clay notified Mr Davidson of “Wyko Industrial Services” of the sale and authorising future payments of rent to Talisman. 4.6 Initial advice received by Wyko [52] As already noted, Mr Davidson consulted Geo Green in relation to the service of the section 26 notice. He was initially advised that it would be better if it was served in the name of Lewis DMR because that was the name of the tenant “in the lease”. Mr Davidson was not too sure that the advice was correct but decided to follow it. [53] Following the receipt of the counternotice, Mr Davidson took further advice from Geo Green. On 23 May 2001, Ms Ceri Mort provided a letter of advice setting out the need to apply to court, the entitlement to compensation upon quitting and the rate of compensation. The letter deals also with section 18 of the 1927 Act and makes the point that for the tenant to take advantage of that clause, the landlord must intend to demolish or reconstruct at the termination of the lease. The letter concludes by referring to the doubts about the identity of the tenant and states that a notice should probably have been served in the name of Wyko. [54] In order to preserve the position, as already noted, Mr Davidson instructed Geo Green to make an application for a new tenancy. Wyko was, in fact, uncertain at the time whether it wanted to move. It therefore started looking for alternative accommodation. [55] Because of the amount of money involved and because of the uncertainty as to the correct tenant, Mr Davidson decided to take a second opinion. Accordingly, sometime in June 2001, Wyko decided to take advice from the corporate lawyer Eversheds. On 26 June 2001, Mr Saleem Fazal, an associate partner at Eversheds, wrote a two-page advice giving five pieces of advice. In summary, he advised: 1. Talisman was bound by the counternotice served by Clay. 2. If no application to court were made, the tenancy would end on 28 February 2002. If Wyko vacated, it would be entitled to compensation. This was so even if an application were made to court and Talisman withdrew the ground of opposition. 3. There was a potential liability for dilapidations. There was a potential defence if, at the date of the end of the lease, the landlord intended to redevelop. 4. The notices served by Lewis DMR and the counternotice served by Clay were both valid because of section 42 of the 1954 Act. 5. If Wyko definitely wanted to vacate and could do so by 28 February 2002, it should make no application to court, and vacate and claim the compensation. If Wyko was unsure whether it wanted to vacate, it should make an application to court. This had to be instituted by 29 June 2001. [56] When he gave evidence, Mr O’Brien, a partner in Eversheds who became involved in advising Wyko from around October 2001, expressed the opinion that item 4 of Mr Fazal’s advice was wrong. It was his view that, on the facts of this case, section 42 had no application. Furthermore, Wyko had, on the facts, succeeded to the tenancy of Lewis DMR. I shall return to this area of law later in this judgment. [57] By about the end of September 2001, Mr Davidson received advice from the surveyor DTZ to the effect that the liability under the repairing covenants could amount to around £235,000. [58] Mr Davidson received further advice from Eversheds in October or November 2001. By then, events had moved on and I shall return to it later. 4.7 Advice received by Talisman [59] There was a meeting at the defendant’s offices on 6 August 2001, attended by Mr David Sinclair, a partner, and Mr John de St Croix, a senior property litigation associate at NR; and by Mr Winton, Mr Kerstein, a senior employee of CHP, and Mr Jansons. Its purpose was to enable Talisman to consider with its solicitor its options in relation to dealing with the property and what the implications of following those options might be. [60] Notes of the meeting were prepared by both Mr Sinclair and Mr de St Croix. Furthermore, they each provided detailed witness statements dealing with their recollection of the meeting. As already noted, neither Mr Sinclair nor Mr de St Croix were in fact called to give evidence. In those circumstances, I read the witness statements only to the extent that they were put to Mr Winton in cross-examination. In fact, there was very little material difference between Mr Winton’s recollection of the meeting and that of Mr Sinclair and Mr de St Croix. It was thus not wholly surprising that Mr Stewart decided not to call them. [61] In an e-mail dated 3 August, Mr Sinclair had given Mr Winton advice as to the termination date of the lease in the light of the section 26 notice. He made it clear that the meeting would have to consider the significance of the fact that Lewis DMR was dormant, rent was being paid by Wyko, the grounds for opposing the grant of the new tenancy, what needed to be proved, the compensation payable to the tenant, dilapidations and reinstatement payments. [62] When he gave evidence, Mr Winton agreed that the purpose of the meeting was to agree a strategy. That strategy was going to be governed by various issues including that Wyko was likely to be a stronger covenant than Lewis DMR and that Talisman wished to avoid – if possible – paying compensation and wanted to obtain payment for dilapidations. There is some doubt as to whether Talisman also wanted vacant possession. Mr Winton had been advised that the premises might be more valuable with a tenant than with vacant possession. In those circumstances, Mr Winton did not agree that he had said that he wanted vacant possession. He did, however, agree that it was decided to serve a notice under section 40 of the 1954 Act to see who was the tenant. The rationale was to get Wyko to accept that it was the tenant for a number of reasons. First, there was concern that Lewis DMR might not honour an award of damages. Second, the stronger the covenant, the more valuable the property. There was – in addition – a discussion as to whether to serve an unopposed section 25 notice on Wyko. No conclusion was reached. 4.8 August and September [63] On 15 August 2001, NR served on both Wyko and Lewis DMR a schedule of disrepair and gave them notice of the Jervis v Harris clause in the lease. The covering letter required them to carry out the work within three months and asked to be provided with a timetable for the work. The letters indicate that there is some confusion as to who was the tenant. |page:149| [64] By the middle to the end of September, Mr Winton said that he had decided that Talisman had no intention of redeveloping the premises. He made the point that he had taken no steps towards redevelopment and it was probably too late by then to fit in with the likely timetable. [65] Ms Smyth, the solicitor at NR with day-to-day conduct of the matter, has a file note that suggests that she was told by Mr Parnell, on 19 September, that the opposition was being pursued. However, both Mr Winton and Mr Parnell suggested that this was not so. In any event, no witness was called from NR and I do not regard the date when Talisman decided that it did not wish to redevelop as being crucial. [66] There was a case-management conference in Lewis DMR’s application for a new tenancy due for hearing on 4 October 2001. For tactical reasons, Mr Parnell wished to keep the pressure on Wyko. On 28 September, he sent an e-mail to Mr Winton. In it, he pointed out that Lewis DMR needed to amend its application to substitute Talisman as the respondent. That would give Talisman time to file an answer withdrawing it if it wished that landlord’s opposition to a new tenancy. He also sought authority to instruct NR to serve an unopposed short-dated section 25 notice on Wyko. Mr Winton authorised that course and it is now common ground that Mr Parnell duly instructed NR on 28 September 2001. 4.9 October 2001 [67] Regrettably, Ms Smyth failed to comply with the express instructions. On 2 October 2001, she sent a letter, without prejudice to the Lewis DMR proceedings, enclosing a notice to Wyko. The notice opposed the grant of a tenancy on ground (f). As she did not give evidence, the reason why she served a notice in this form remains a mystery. It is also to be noted that NR did not admit that it was in breach until the service of the defence in these proceedings. In his closing submissions, Mr Livesey referred me to some documents that suggest that Ms Smyth may have been acting on the instructions of Mr de St Croix. It is unnecessary to consider whether Mr Livesey is correct. [68] Wyko’s immediate response to the notice was to state that it was not willing to give up possession. [69] Both Mr Winton and Mr Parnell state that they did not appreciate that the wrong notice had been served until 6 December 2001. There were clues in the intervening correspondence that might have led them to realise that something had gone wrong. However, they both said that they failed to pick up the clues. [70] By the middle of October 2001, Talisman or its agent formed the view that Wyko was stalling. Meetings to discuss possible renewals and/or the repair schedule were cancelled by Mr Davidson at short notice. Furthermore, there appeared to be no progress with the repairs. [71] Talisman instructed PWP to prepare a reduced schedule of repairs so that – if it was necessary to exercise its rights under the Jervis v Harris clause – the cost would be less than the compensation otherwise payable. [72] Accordingly, on 16 October 2001, Ms Smyth wrote a strong letter to Geo Green referring to the notice and making the point that the works should be finished by 15 November. She threatened legal action including forfeiture. This led to a counter-threat by Geo Green for an injunction on the ground that an intention to redevelop is inconsistent with a notice to repair. This letter was copied to Mr Parnell. He did not appreciate that it meant that Ms Smyth had served the wrong notice. [73] On 29 October 2001, Mr Parnell sought further advice from Ms Smyth. He wanted to know whether statutory compensation would be payable should the ground of opposition be withdrawn. Ms Smyth advised (wrongly) that it was not. She confirmed this (wrong) advice in writing on 30 October 2001. In her letter, she said that provided that the reply was served on Lewis DMR before it withdrew its application for a new tenancy, no statutory compensation would be payable. It is not suggested that any loss was caused by this piece of bad advice. In fact, on 19 November 2001, Mr Dutton, the partner in charge of the property litigation team, wrote apologising for the error and setting out the true position. [74] On 31 October 2001, Ms Smyth wrote to Geo Green: We refer to the Notice served on your client Wyko… Our client having reconsidered the position, does not now consider that it will be able to substantiate the ground of opposition set out in the Notice… we confirm it withdraws its ground of opposition. [75] On the same day, she filed the answer in the Lewis DMR proceedings. The answer makes it clear that a new tenancy is opposed on the ground that Lewis DMR is not the tenant for the purpose of the 1954 Act and thus not entitled to a new tenancy. It makes it clear, however, that the ground of opposition in the original counternotice is withdrawn. 4.10 Further advice given to Wyko [76] Mr Davidson took further advice from Eversheds in October 2001. He was concerned that Talisman might carry out the threat to enter the premises under the Jervis v Harris clause. He also wanted advice on the conflicting messages being sent out by Talisman. He did not know whether it wanted to oppose a new tenancy. [77] In any event, the matter was dealt with Mr O’Brien, the head of property litigation at Eversheds. Mr O’Brien is plainly a very experienced solicitor with 20 years’ experience of commercial property litigation. Between 60-70% of his practice is concerned with some form of landlord and tenant dispute. [78] Mr O’Brien was, of course, aware of the advice that had been given by Mr Fazal in June. When he discovered that Lewis DMR was not trading and not in occupation of the premises, he took the view that the advice was wrong. He did not think that the case was within section 42. In particular, it was his view that Lewis DMR would need to have some residual occupation before section 42 came into operation. He also thought that since Wyko was paying the rent and had been accepted as tenant by the landlord, it was indeed the tenant. [79] He therefore advised Mr Davidson and Mr Lyne that the original section 26 notice was invalid and that Wyko was the tenant. He did not at that stage consider consulting counsel. [80] On 15 November 2001, Eversheds was instructed to take over the conduct of the litigation from Geo Green. On 29 November 2001, Mr O’Brien, of Eversheds, wrote to NR. The letter made a number of points: 1. The tenant was Wyko and not Lewis DMR. 2. The service of the section 25 notice opposing the tenancy on ground (f) irrevocably committed Talisman to the payment of compensation. [81] It went on to suggest as the proper course of action: 1. Lewis DMR should discontinue its proceedings and pay the costs of the proceedings. 2. The interim rent application was a nullity. There could be no interim rent until 5 April 2002. Talisman should accordingly discontinue the interim rent application. [82] It then made suggestions as to the repairs necessary. 4.11 Negotiations for a new lease June to December 2001 [83] In June 2001, Wyko received a letter from Jansons indicating that it was prepared to take a more flexible attitude towards the way forward and, in principle, would have no objection to the granting of a new lease. [84] Mr Davidson was aware of the counternotice that had been served. He was advised that it would bind the new landlord; he knew about the compensation provisions and had worked out that the compensation would be in the order of £179,000. He knew that the rent payable under the new lease was likely to be higher than the current passing rent of £107,500. He knew about the provisions in the 1954 Act relating to interim rent. [85] He was also aware, or became aware, of the potential liability for dilapidations and the possible effect of the Jervis v Harris clause. He was advised that the potential liability could be around £235,000. Had there been such a liability, it would have been paid, even by Lewis DMR. It was not company policy to allow companies to go to the wall |page:150| to avoid repairing obligations. It would have a disastrous effect upon other landlords. [86] His commercial aim, at that stage, was to keep Wyko’s options open. WG had a number of other operations. He was prepared to move out or he was prepared to stay. Another alternative was to bring some of WG’s other operations to the premises. [87] In furtherance of this aim, he agreed that he wanted to delay the court hearings. It was not in Wyko’s interest to hurry forward the negotiations. He therefore agreed that he had deliberately adopted delaying tactics and had cancelled meetings. 4.12 Meeting on 6 December 2001 [88] The first meeting took place on 6 December 2001. When he went to the meeting, he was of course aware that the opposed notice had been served on Wyko. He was also aware that the effect of the notice was to place Wyko in the same position as Lewis DMR with regard to the right to compensation. [89] He was asked a number of hypothetical questions on the assumption that an unopposed notice had been served. He agreed that Wyko would have been very anxious to secure the compensation if it left. He made the point, though, that he had had robust advice from Mr O’Brien to the effect that Wyko was the tenant. He agreed that, since quite a lot of money would have turned upon who was the tenant, he would have wanted a reasoned answer to the question. Had he been told that the position was doubtful, Wyko would have wanted to preserve its entitlement to the £179,000. [90] The meeting was attended by Mr Davidson, Mr Lyne and one other (GCS) on behalf of Wyko/Lewis DMR. It was attended by Mr Jansons, Mr Parnell and Mr Butler on behalf of Talisman. [91] As I have noted, Mr Parnell told me that it was at this meeting that he first realised that the opposed notice had been served on 2 October 2001. [92] In any event, both Mr Parnell and Mr Davidson agreed that the parties were a long way apart at the end of the meeting. A number of matters were discussed: 1. Talisman made it clear that it was not opposed to the grant of a new lease to Wyko (preferably with a guarantee from the parent). Wyko made it clear that it was not sure of its position and was reviewing its options. Wyko made it clear that it was aware of its rights in relation to compensation of approximately £180,000. 2. There was a discussion about leasing part only of the premises. 3. Talisman proposed a 15-year term of the whole at a rent of £195,000 without a break clause and five-year upward reviews. 4. Wyko offered a 15-year term with a tenant’s-only break clause after five years at a rent of £145,000 pa. [93] There were also discussions in relation to the lease of a smaller area at a premium. The parties were still far apart. [94] Following the meeting of 6 December 2001, Talisman dispensed with the services of NR. 4.13 Meeting of 18 January 2002 [95] There was a further meeting on 18 January 2002. A number of proposals were put forward. They are set out in paras 25 to 27 of Mr Davidson’s third witness statement and recorded in his contemporaneous note. Three options were put forward by Talisman and one by Wyko. Talisman’s options involved a rent of £175,000 with discounts for the first five years to reflect part (£100,000) of the compensation. Wyko’s counter-proposal involved: (i) a rent of £160,000 or a sum to be fixed by an independent expert, the compensation to be set off against the rent spread over the first three years; (ii) break clauses after five and 10 years; and (iii) the tenancy being protected save in relation to the compensation*. Mr Livesey asked Mr Davidson and Mr Winton why no agreement had been reached. In re-examination, Mr Davidson said: MR LIVESEY: It was not acceptable – tell us why? MR DAVIDSON: I think we were still a small distance apart on the rent but certainly Talisman were not happy with the five yearly break clauses. HHJ BEHRENS: Wait a moment. MR DAVIDSON: Or, if we had a break clause that the lease would be excluded from the security of tenure provisions. —————————————————————————————————- * Editor’s note: Mr Davidson explained that he accepted that Wyko should be enetitled to compensation once only —————————————————————————————————- [96] Mr Winton’s answer is too long to be set out in full. He made the point that Wyko was insisting upon setting off the compensation against the rent. He agreed that he was prepared only to offer a discount worth around £100,000 rather than the full £179,000. In his view, it would have reduced the capital value of the property by too much when combined with a break clause. [97] Mr Davidson’s view, both as expressed in his witness statement and in evidence, was that the parties were a long way apart. Indeed, he said in his witness statement that the parties “walked away”. 4.14 Meeting of 11 July 2002 [98] The final meeting was held on 11 July 2002. Mr Davidson did not attend that meeting, but he deals with it in his witness statement based upon what he was told by Mr Lyne. In any event, Mr Winton did not disagree with Mr Davidson’s evidence. [99] At that meeting, Talisman offered a 16-year lease with a reduced rent in years one to three to reflect the statutory compensation – the reduction was only around £100,000 rather than the £179,000 compensation to which the tenant might be entitled. Thereafter, the rent was to be £162,500 subject to reviews. According to Mr Davidson, this offer was not acceptable because the parties could not agree over a break clause. Wyko was looking for a short lease or for a lease with a break clause. In any event, any such lease would have to take into account the statutory compensation. A further problem arose because Talisman was insisting that Wyko be responsible for the dilapidations. [100] As already noted, the decision as to whether Wyko stayed or went was not taken by Mr Davidson. He was, however, asked finally by Mr Livesey how important it was that Wyko/Lewis DMR had the right to £179,000 in the decision as to whether to go or stay. His answer was: MR DAVIDSON: It was important, definitely and I suspect if that had not been on the table we would have reached an agreement for a new lease. 4.15 1954 Act proceedings [101] The negotiations set out above were conducted in tandem with the 1954 Act proceedings. It will be recalled that: 1. On 14 June 2001, Lewis DMR had issued an application for a new tenancy. 2. On 31 October 2001, Talisman had filed an answer abandoning its opposition on ground (f) but maintaining that Wyko was the tenant and thus had no locus standi to make the application. It further made an application for an interim rent, effective from 1 March 2002. 3. On 29 November 2001, Mr O’Brien, of Eversheds, had written to Talisman acknowledging that Wyko was the tenant and suggesting that both sides abandon their applications. [102] This offer was not accepted by Talisman. Thus, on 30 January 2002, Wyko made its own application for a new tenancy based upon the opposed section 25 notice of 2 October 2002. In the application, it sought an express declaration that it would be entitled to compensation in the event of its quitting the holding. [103] On 22 March 2002, Talisman filed an acknowledgment of service together with a detailed document setting out its case. In effect, Talisman acknowledged the right to compensation if Wyko were the tenant. It sought the determination as a preliminary issue of the question of whether Wyko was the tenant. [104] The matter came before District Judge Taylor on 12 April 2002 and District Judge Lightman on 25 June 2002. An order was made for the trial of the preliminary issue in the Wyko proceedings. That preliminary issue was listed for trial on 11 November 2002. [105] Wyko filed evidence in support of the preliminary issue and Mr O’Brien instructed Mr Paul Clark to prepare a skeleton argument in support of Wyko’s case. |page:151| [106] As often happens, the prospect of a trial concentrated Wyko’s mind on its real objectives. It had at all times been looking for alternative accommodation. According to Mr Davidson, it became increasingly clear that it would not be able to agree acceptable terms with Talisman because it was looking for a very short lease or a lease with a break clause after five years. It will be recalled that Wyko’s profits were falling in 2002. It was aware that it was entitled to compensation whichever was the tenant. [107] In the result, it decided to leave the premises. On 7 November 2002, Wyko and Lewis DMR filed notices of discontinuance. On the following day, a consent order was filed. Included within the consent order was a declaration that Wyko had become the tenant of the premises, directions for the determination of the interim rent and orders as to costs. It is to be noted that Talisman agreed to pay two-thirds of the costs of the preliminary issue to be set off against other costs of the proceedings payable by either Wyko or Lewis DMR. [108] On 19 December 2002, there was a further consent order. Wyko agreed to pay interim rent at the rate of £146,000 pa from 22 March 2002 until 8 February 2003. [109] On 8 February 2003, that is to say three months after the consent order on 8 November 2002, Wyko duly vacated the premises. [110] On 27 June 2003, Talisman sold the premises to H&G Car Parks Ltd for £1.6m. [111] In March 2004, Talisman reached an agreement with regard to the dilapidations and the statutory compensation. In effect, the parties agreed to compromise the dilapidations in the sum of £243,000. The statutory compensation of £179,000 was set off against this. After taking into account the respective liabilities for costs, the sum of £79,000 was payable and duly paid by Wyko to Talisman. [112] It can thus be seen that Talisman’s initial investment has in any event proved successful. Talisman invested £3m and has received £3.679m. It is, however, accepted by Mr Stewart that this profit in no way prevents the claim now being made. 5. Hypothetical questions [113] Because of the nature of the questions that I have to answer, a number of witnesses were asked a number of hypothetical questions. 5.1 Mr Davidson [114] In para 31 of his third witness statement, Mr Davidson considered the question of what would have happened had an unopposed notice been served on Wyko at the beginning of October 2002. He indicated that he thought it probable that he would have sought advice from Eversheds as to the prospects of successfully arguing that Lewis DMR remained the tenant so as to preserve the right to compensation. [115] When he gave evidence, the matter was further explored by Mr Stewart: MR STEWART:… [To the witness] Can I ask you this. First of all, it would have been obvious to you if there had been an opposed notice that quite a lot of money turned on the correct entitlement to statutory compensation? MR DAVIDSON: Yes. MR STEWART: And that is a question to which, I would suggest, you would want a proper reasoned legal answer? MR DAVIDSON: Yes. [116] He was asked what his position would have been had counsel advised that Lewis DMR remained as tenant. He said that, in that event, he would have maintained that position to the landlord. He was asked a series of questions about his attitude to an opposed notice. MR STEWART: First of all, can I suggest this. Had an opposed notice not been served in relation to the WYKO position, you would still have wanted to keep your options open for as long as possible, would you not? MR DAVIDSON: Yes, probably. Yes, we would. MR STEWART: You would still have wanted to maintain the argument that you were entitled to statutory compensation if you possibly could? MR DAVIDSON: Yes. MR STEWART: You would still have wished to minimise insofar as you could do so legally your obligation to pay dilapidations? MR DAVIDSON: Yes. MR STEWART: You would still have wished to pay very great attention to the needs of your group, to WYKO, as to whether it needed this space or not? MR DAVIDSON: Yes. MR STEWART: And you would still, I suggest, have been wanting to negotiate hard as to the terms on which you took any space as to rental and break clauses and so forth? MR DAVIDSON: Yes. 5.2 Mr O’Brien [117] It will be recalled that the views from the solicitor advising Wyko in relation to the status of Lewis DMR and/or Wyko were not unanimous. Ms Mort had initially taken the view that the correct tenant was Lewis DMR but had had second thoughts by the end of September 2001. Mr Fazal advised, in June 2001, that the notice served by Lewis DMR was valid because of section 42 of the 1954 Act. Mr O’Brien advised “in confident and robust terms” that the original notice was invalid and that the correct tenant was Wyko. He was sufficiently confident of his advice to have advised that the advice given by Ms Mort was negligent. He also felt able to write the letter of 29 November 2001. [118] It is to be noted that, since an opposed notice had been served on Wyko, statutory compensation was payable in the event of vacation, whichever was the tenant. Indeed, it was to Wyko’ s financial advantage to argue that it was the tenant as it put back the date from which an interim rent would be payable from 1 March 2002 to 5 April 2002. [119] The question therefore arose as to whether, if an opposed notice had been served, Mr O’Brien would have sought counsel’s opinion. In cross-examination, Mr O’Brien suggested that he would have consulted leading counsel: MR STEWART: One obvious thing that you would have done in relation to that is you would have had a client who would have had the letter from one of your associate partners in June taking a different view of Section 42 from that which you hold, and one which – as I understand it – you maintain is one which different lawyers could take different views about. MR O’BRIEN: On Section 42, clearly. MR STEWART: I would suggest to you that you would in those circumstances quite possibly have gone to counsel about the matter. Do you agree? MR O’BRIEN: Undoubtedly we would have done in those circumstances. MR STEWART: You would obviously have taken into account what counsel this was when it came through. MR O’BRIEN: Yes. MR STEWART: You would also presumably have, once you had had such advice, discussed it with Mr Davidson and weighed up the pros and cons and character of whatever action you were going to take. MR O’BRIEN: Yes. [120] He then expressed the view that even if counsel had advised that his view on section 42 was wrong, he would still have taken the view that Wyko was the tenant because it had been accepted as a tenant to the exclusion of Lewis DMR. He then agreed that he would necessarily have asked counsel to advise on that topic. Had counsel advised that there was no estoppel, he would not have written as he did at the end of November 2001. In re-examination by Mr Livesey, he made a number of points about going to counsel. He made the point that he was an experienced real estate litigator and might well have not gone to counsel. He initially suggested that it was a question of fact as to who was the tenant; he then agreed that it involved an evaluation of the consequences of the facts. He then gave this answer: MR O’BRIEN: Yes. But that in itself would not have been a question which would have prompted me to go to counsel. If there had been any kind of evidence that Lewis was doing some kind of business activity at the premises, so that you could hang some kind of argument on a Section 42 point, I would have gone to leading counsel on that question. If we were having to think about estoppel, I would undoubtedly have gone to leading counsel on that question. But in circumstances where rent was being – I am beginning to repeat myself. But where rent was being paid, the landlord we are dealing with, WYKO, even… [121] His final piece of evidence was in relation to the question of whether the letter of 29 November would have been written if an unopposed notice had been served: |page:152| MR LIVESEY: So what I am seeking to understand from you is; in relation to the letter dated 29 November, if the notice had been unopposed, would that letter still have been written? Would you have done anything differently? HHJ BEHRENS: Well, paragraph 2 would not have been the same, would it? On page 466, paragraph 2 could not have been the same? MR LIVESEY: No, no, no. That apart. The question about compensation, you would not be saying anyway, whichever way it goes, there is a compensation payable to either of them and it does not matter. But so far as paragraph 1 and your proposal for the proper course of action, on the basis of your conviction that you have told us about as to who was the tenant. MR O’BRIEN: Well, I would not have done anything differently because at that stage WYKO was still anxious to be the tenant because it wanted to be in the position where it had at least the opportunity to renew its lease because its options needed to be kept open for as long as they found it convenient and therefore I would continue to have taken the same view on the information I had that WYKO was the tenant. You would have had a different question about who was entitled to the compensation and you would not have had the potential set off between the compensation and the ultimate dilapidations liability. And those would have been factors to take into account in what they wanted to do with the premises, but I could not have changed my view on what the facts amounted to. And no one was challenging me on it, so I had no reason to take further advice on the point. 6. Expert evidence [122] As already noted, the experts have compromised their views. 1. On the assumption that there was a 14-year term with a 10-year break clause, they are agreed that: (1) the market rent would be £164,000 pa (£5.50 psf) as at April 2002 and February 2003; (2) the value of the freehold subject to the lease would have been £1.875m as at February 2003 and June 2003. 2. On the assumption that there was a 10-year term with a five-year break clause, they are agreed that: (1) the market rent would be £174,500 pa (£5.85 psf) as at April 2002 and February 2003; (2) the value of the freehold subject to the lease would have been £1.86m as at February 2003 and June 2003. 3. The market value of the freehold with vacant possession would have been £1.6m as at February 2003 and June 2003. [123] It can thus be seen (for what it is worth) that the sums being offered by Wyko by way of rent were somewhat below the agreed market value. 7. Law [124] There are a number of questions of law that need to be addressed. 7.1 Section 42 of the 1954 Act Section 42(2) provides as follows: Where a tenancy is held by a member of a group, occupation by another member of the group, and the carrying on of a business by another member of the group, shall be treated for the purposes of section 23 of this Act as equivalent to occupation or the carrying on of a business by the member of the group holding the tenancy; and in relation to a tenancy to which this Part of this Act applies by virtue of the foregoing provisions of this subsection – … (c) an assignment of the tenancy from one member of the group to another shall not be treated as a change in the person of the tenant. [125] In para 35 of his opening skeleton argument, Mr Halpern submitted: The first part of sub-section (2) makes it clear that Wyko’s occupation and business user are referable to Lewis’s for the purpose of Part Two of the Act. There is no requirement that both companies need carry on business, nor that both companies need be in occupation. Whilst it is arguable that any request for a new tenancy will not be valid unless the proposal is capable of maturing into a new lease, this has to be read subject to s42(2). In other words, provided that there is an associated company which will occupy the premises for the purposes of its business, it does not matter that the company which is formally the tenant is dormant. [126] In his closing submissions, Mr Livesey did not seek to answer these submissions at all. In my view, it is plain that they are correct. There is nothing in the plain wording of section 42 that requires the tenant to retain possession either in whole or in part. Equally, there is nothing that requires the tenant to carry on business at the premises. The effect of the section is to treat the business of the group member as the business of the tenant for the purpose of section 23. Thus, if the group member is carrying on a relevant business, the tenant is entitled to the protection of the 1954 Act and to apply for a new tenancy under section 24. [127] It follows, with respect, that Mr O’Brien’s construction of section 42 was wrong and that of Mr Fazal was correct. That is not, of course, the end of the matter because Mr O’Brien’s advice would be correct if Talisman was estopped from denying that Wyko was its tenant. 7.2. Tenancy by estoppel [128] It is common ground that there was no assignment of the tenancy from Lewis DMR to Wyko. There was no application to Clay for licence to assign and no deed of assignment. It is common ground that any assignment must be by deed: see Crago v Julian [1992] 1 WLR 372* and section 52(1) and (2)(d) of the Law of Property Act 1925. In his skeleton argument, Mr Halpern said that it was also common ground that there was no surrender and regrant. At one stage, Mr Livesey seemed to be suggesting that Mr O’Brien believed that there was a surrender and regrant but I am satisfied that Mr O’Brien did not intend to do so. In any event, a regrant must be by deed and there was no deed here. —————————————————————————————————- * Editor’s note: Also reported at [1992] 1 EGLR 84; [1992] 17 EG 108 —————————————————————————————————- [129] It is also common ground that the only relevant estoppel is “estoppel by representation”: see the categorisation by Millett LJ in First National Bank plc v Thompson [1996] 1 All ER 140, at p144. Estoppel by representation is an equitable doctrine. Where a representor represents that a particular set of facts exists and the representee relies upon this to its detriment, the representor may be estopped from denying the truth of the representation. This doctrine, unlike the common law doctrine, requires representation and detriment. [130] I was referred by Mr Halpern and Mr Livesey to a number of cases where the doctrine has been considered in this field: Official Trustee of Charity Lands v Ferriman Trust Ltd [1937] 3 All ER 85, Rodenhurst Estates Ltd v WH Barnes Ltd [1936] 2 All ER 3, Stratford-upon-Avon Corporation v Parker [1914] 2 KB 562 and Williams v Heales (1874) LR 9 CP 177. I am grateful to them for the careful analysis to which they subjected them. I hope that I shall be forgiven if I do not set out the analysis in full. [131] Mr Halpern submitted that they demonstrated that there must be something more than the taking of possession and the payment of rent so as to create a tenancy by estoppel. On the other hand, Mr Livesey subjected the facts of the cases to a careful analysis in order to show what had influenced the court either in favour or against a tenancy by estoppel. I have to confess that I do not find the authorities of great assistance in relation to the very different factual situation that presents itself here. [132] The starting point, as it seems to me, is clause 3(17)(b) of the lease, which, it is conceded, expressly permits occupation of the premises by an associated company such as Wyko. It follows that, in this case, the occupation by Wyko is wholly consistent with the lease. Equally, the fact that all of Lewis DMR’s goods were removed is consistent with the terms of the lease. [133] Given that Wyko was, in fact, in sole occupation of the premises, I agree with Mr Halpern that the payment of the rent and insurance premiums by Wyko is at best equivocal. I therefore agree that, on the facts of this case, something more is needed than occupation by Wyko and payment of rent. [134] The only additional feature is the letter written by Mr Davidson in reply to the enquiry from Warner Estates about a possible change of name certificate. I agree with Mr Stewart that the |page:153| reply has to be read in conjunction with the question. I have set out the reply above. I shall repeat it for convenience: I hereby confirm that the above property is leased by us. As previously explained, Wyko bought Lewis DMR as an acquisition, so there is no “change of name” certificate. Lewis DMR have been part of Wyko Industrial Services since September 1996. [135] It is clearly an answer written by someone who is not a lawyer. It appears to suggest that, because Lewis DMR is “part of Wyko”, a change of name certificate is not required. The reference to “leased by us” has to be read in the context of what follows. In my view, it is not an unequivocal representation that the tenancy has been in some way assigned to Wyko. It was no more than an assertion of law based upon the fact that Wyko had bought out Lewis DMR. As Mr Halpern pointed out, Clay would have been well aware that there had been no application for a licence to assign. [136] In all the circumstances, I do not think that there was a sufficient representation by Wyko so as to give rise to an estoppel. I also agree that it is difficult to see what detrimental reliance Clay placed upon the letter. Sending out demands for rent is, in my view, no detriment. It is also difficult to see any detriment in the record of the insurance details. Furthermore, as Mr Halpern pointed out, Clay, on advice, chose to serve the section 26 notice on Lewis DMR. It is difficult to see how Clay relied upon the letter. [137] Thus, in my view, the traditional ingredients of estoppel by representation are not made out. In my view, Lewis DMR at all times remained the tenant of the premises. 7.3. Loss of a chance [138] There is a significant measure of agreement between Mr Stewart and Mr Livesey as to the relevant law. It is agreed that the leading case is the decision of the Court of Appeal in Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602. In the course of his closing submissions, Mr Stewart took me to passages in the judgment of Stuart-Smith LJ, at pp1609H-1611B and 1614C-H, and in the judgment of Hobhouse LJ, at p1621E-F. [139] In para 6 of his closing submissions, Mr Stewart submitted that the effect of the decision could be summarised in this way: 6. In relation to “loss of a chance” claims, it is not thought that the following propositions of law are likely to be controversial in a forum below the House of Lords: a. That the burden is upon the Claimant to establish that it has lost a real (and not simply fanciful) “chance” – if it does not do so, no damages are payable; b. That the Claimant must establish, on the balance of probabilities, what its own course of action would have been in a hypothetical situation if the lost “chance” depends upon the same; c. It should be emphasised that the Claimant has to establish both of the above matters; d. That where the value of a “chance” depends upon the actions of third parties in a hypothetical situation, the court may assess the same in percentage terms (subject, of course, to the proviso that it must be satisfied that there was a real chance as set out in a. above.) [140] Mr Livesey accepted the summary as accurate. More controversial, however, was the next paragraph of Mr Stewart’s submissions: 7. A more difficult question arises as to the date at which loss should be assessed. The general rule is that damages should be assessed as at the date of the breach – County Personnel v Pulver [1987] 1 WLR 916. In that event, one looks objectively at the facts as known to the parties at that date in assessing the value of the lost chance. This approach is supported by extra-judicial comments made by Neuberger LJ in a lecture which he gave to the Professional Negligence Bar Association – copy attached and which the Defendant would adopt. If, however, damages are to be assessed at a later date, it is certainly relevant to look at facts after the date of breach it is necessary to assess both the chance that a better outcome would have occurred and the chance that a worse outcome would have happened – in accordance with the standard approach that both negative and positive results have to be taken into account when assessing damages. [141] The lecture given by Neuberger LJ demonstrates some of the difficulties created by the decision in Allied Maples. In para 35 of the lecture notes, he said: …There are also difficulties where the question turns, as it so often does, on what both the Claimant and the third party would have done – eg would they have agreed a reduction in price or settled a case. Deciding what two parties would have agreed is difficult enough: if one has to decide what one person would have agreed on the balance of probabilities, but then assess damages by reference to the chances of what the other party would have agreed, a judge may be placed in an almost impossible situation. [142] The submission of Mr Stewart is, in fact, based upon the discussion by Neuberger LJ of the decision in Dixon v Clement Jones [2004] EWCA Civ 1005; [2005] PNLR 6, in paras 36 and 37 of the lecture notes. Mrs Dixon lost the ability to sue her accountant owing to her solicitor’s default. She was awarded 30% of the amount that she would have recovered against her accountant had that claim succeeded. The Court of Appeal upheld the award. In [36], Neuberger LJ discussed the actual approach of the Court of Appeal in the case. In para 37, he said: … Dixon gives rise to another apparent conundrum. At the risk of oversimplifying, if Mrs Dixon would have recovered £200,000 if she had succeeded against her accountants, her 30% prospect would have justified her recovering £60,000 from the solicitors. However it can be said with some apparent force that this overlooks the costs element. If she had proceeded with the claim against the accountants there is a 70% chance she would have lost, in which it may be said that there should be set off against the £60,000 a sum equal to 70% of the aggregate of her costs and her accountants assessed costs: as this 70% figure was likely to exceed £60,000 it would seem to follow that she recover no damages from her solicitors. The answer to this seems to be that one has to assess the valuation of the claim as an asset lost as a the date of the negligence of the solicitors in that case. [143] That paragraph led Mr Stewart to submit that the court has a choice. Either the court assesses damages as at the date of the breach, that is on 2 October 2001, when the opposed notice was served. In that event, no question of set-off arises. Alternatively, the court takes into account the facts known as at the date of the trial. In that event, it must set off against the award of damages for the chance that Talisman would have been better off a sum to represent the chance that Talisman might have been worse off. He submitted that one could not mix and match. [144] Mr Livesey did not accept this ingenious submission. First, he submitted that it would be wholly unrealistic for the court to assess damages as at 2 October 2001 and to ignore everything that had happened thereafter. It would fly in the face of common sense to ignore the negotiations between December 2001 and November 2002, the fact that Wyko did in fact vacate, and that compensation was in fact paid. He submitted that the court would always look at the facts known as at the date of the hearing rather than assess the chance of their happening as at the date of the breach. [145] He further submitted that the suggestion of set-off was intuitively wrong and unsupported by authority. The extra judicial views of Sir David Neuberger – even with the benefit of a discussion with Mr Stewart – were not authority. There was, he submitted, no authority to support Mr Stewart’s submission. [146] I prefer the submissions of Mr Livesey on this aspect of the case. I agree that it would be unrealistic to ignore the events that actually occurred after 2 October 2001. I am also, for the reasons that he gives, not satisfied that it is appropriate to set off against Talisman’s damages a sum to represent the chance that Talisman might have been worse off. [147] In fact, the discussion is largely academic on the facts of this case. In para 13(c) of his closing submissions, Mr Stewart asserted that there are two elements to the set-off claim: the right to receive dilapidations and the right to receive interim rent. Each of these elements deserve analysis. Dilapidations were payable either by Lewis DMR or Wyko. It is true that Lewis DMR was dormant and Mr Winton was concerned that it might not be good for any dilapidations’ liability. In |page:154| fact, however, Mr Davidson readily agreed with Mr Stewart that WG and/or Wyko would not have let Lewis DMR go the wall. It would have damaged Wyko’s credibility with other commercial landlords. There is no reason to doubt this. It follows that the dilapidations claim would have been paid in any event, and there is, in fact, no significant chance that Talisman would have been worse off in relation to the dilapidations. [148] Under the terms of the 1954 Act, interim rent could have been claimed from 1 March 2002 had Lewis DMR been the tenant and from 5 April 2002 if Wyko had been the tenant. In fact, under the compromise agreed, Wyko agreed to pay interim rent from 22 March 2002. For the reasons that I have given, there was no significant risk that Lewis DMR would have been allowed to go to the wall rather than pay the interim rent. Thus, the only loss caused by establishing that Wyko was the tenant is the loss of interim rent for the period between 1 March 2002 and 22 March 2002: a period of 21 days. This comes to a total of £2,215 at £38,500 pa on the assumption that the chance of the loss was 100%. 8. Assessment of the claim 8.1 Actual effect of the service of the wrong notice. [149] In paras 45 and 46 of the re-reamended particulars of claim, Talisman contended that, by reason of the discontinuance of the applications for a new tenancy and the vacation of the premises by Wyko in February 2003, Talisman became liable to pay Wyko statutory compensation. Had an unopposed notice been served, no statutory compensation would have been payable. Hence, it is alleged that the payment of the statutory compensation was caused by the service of the wrong notice. [150] This argument depends upon establishing that Wyko was in fact the tenant and entitled to compensation. For the reasons that I have set out above, Wyko was not the tenant either by assignment or by estoppel. Lewis DMR at all times remained as tenant and thus was entitled to any compensation payable under section 37(4) of the 1954 Act. That right arose as a result of the counternotice served by Clay under section 26 of the 1954 Act, and not the notice served by NR under section 25. It follows that this head of claim fails. [151] There is, in fact, a further difficulty with this head of claim even if, contrary to my view, Wyko had become the tenant by estoppel. Talisman did not, in fact, pay the statutory compensation to Wyko. Rather, it set off the statutory compensation against the claim for dilapidations. The real question is, thus, whether the overall settlement of the dilapidations/compensation claim is in fact worse than it would have been had an unopposed notice been served. I shall address that question below. 8.2 Loss of chance [152] In his opening submissions, Mr Livesey put the matter thus: Following the amendment, there are two heads of loss which are claimed: i. The loss of the chance of avoiding payment of compensation in the sum of £179,000; ii. The loss of the financial benefit which would have accrued to the claimant had a lease been made with Wyko. The prospect of receiving substantial statutory compensation, which was given to Wyko by service of an opposing notice, gave it “an incentive to quit”. This incentive was a material factor leading to the non-renewal. The non renewal therefore led to (1) Loss of capital value: as a result of agreement between the experts this is now in the sum of between £17,000 and £32,000; plus (2) Loss of interim rent: from the 8th February 2003 to 6th June 2005: this is in sum of between £77,742.46 and £90,658.90. 29 November offer and its consequences [153] In his opening submissions, Mr Livesey submitted that the evidence would show that had Wyko been served with an unopposed notice, it would have offered to discontinue the Lewis DMR application to substitute Wyko as the applicant. He submitted that Talisman would have accepted the offer. In that event, compensation would not have been payable. He submitted that this was a result that suited both Talisman and Wyko. Since it was the objective on both sides to secure Wyko as tenant, Mr Livesey submitted that it was difficult to see why that would not have happened. Thus, he submitted that the chance of Talisman avoiding the payment of compensation was high. [154] The difficulty with that submission emerged clearly in cross-examination. It may well have been in Talisman’s interest to establish that Wyko was the tenant. Wyko was a better covenant than the dormant Lewis DMR. With Wyko as tenant, Talisman could be reasonably confident of recovering whatever sum was due in respect of dilapidations, whereas there was a risk that the dormant Lewis DMR might not pay. Mr Winton was not aware that WG would not in fact have let this happen. If Lewis DMR were the tenant, it had a vested right to compensation on quitting by virtue of the counternotice served by Clay. [155] If an opposed notice were served on Wyko, it would be in exactly the same position as Lewis DMR. It, too, would have a vested right to compensation on quitting. Thus, there would be no difference between Wyko and Lewis DMR. Furthermore, as WG would not in fact have allowed Lewis DMR to go to the wall, there was no financial disincentive to prevent WG from arguing or accepting that Wyko was the tenant. [156] On the other hand, had an unopposed notice been served there would have been a marked difference between the position of Wyko and Lewis DMR. If Wyko were the tenant, there would have been no compensation on quitting. If Lewis DMR remained as tenant, compensation would be in the sum of £179,000. It would then have been very much in WG’s interest to argue that Lewis DMR remained as tenant. [157] In para 7 of his closing submissions, however, Mr Livesey in effect repeated the submission. He analysed this in paras 8 to 10 of his submissions. His argument can be summarised thus: 1. Mr O’Brien had formed a clear view that Wyko rather than Lewis DMR was the tenant. He had expressed that view robustly even though it disagreed with the view of Mr Fazal. He was also prepared to say that Geo Green was negligent. He was a very experienced litigation solicitor with a large international commercial firm. In those circumstances, it is unlikely that he would have consulted counsel. 2. Accordingly, Mr O’Brien would have continued to advise Mr Davidson that Wyko was the tenant and would still have been instructed to write a letter in similar terms to that sent on 29 November 2001. 3. The offer contained in the letter of 29 November 2001 would have been accepted by Talisman, with the result that no compensation would have been payable. There would have been either a new tenancy or vacation of the premises by Wyko. Neither event gives rise to a claim for compensation. |page:155| 4. He submitted that the chance of this happening was high. [158] I cannot accept Mr Livesey’s submissions. In my view, the chance of events happening in the way that he suggested was in fact very low. There are a number of reasons for this: 1. Mr Davidson made it clear that Wyko was very alive to the question of the statutory compensation. The sum involved was large – £179,000. Wyko was facing a larger dilapidations claim and was anxious to set off the compensation against it if it vacated. I accept this evidence. It accords with commercial common sense and is well supported by the evidence of the actual negotiations. 2. Had an unopposed notice been served, Mr Davidson would have been well aware that if Wyko were the tenant he would lose the right to the compensation. There was, in fact, very little advantage to Wyko to argue that Wyko was the tenant and every advantage to argue that Lewis DMR had remained as tenant. 3. Mr Davidson had received conflicting advice from his solicitor as to who the tenant was. Mr Fazal had advised that it was Lewis DMR; Ms Mort had advised that it was Lewis DMR and then said that she was not sure; Mr O’Brien had advised robustly that it was Wyko. I have set out above in some detail some of the answers that were given in relation to the question of whether counsel would have been instructed. In view of the fact that £179,000 turns on the question, I think that there is a high probability that counsel would have been instructed to advise on the identity of the tenant. 4. Had counsel been asked to advise, I think it likely that he would have advised that: (1) Mr O’Brien’s view of section 42 was clearly wrong. There was no authority to support it. There was nothing in the landlord and tenant textbooks that supports it. It involves reading into section 42 words that are not there. There is no justification so to do. (2) Mr O’Brien’s view that Wyko had become the tenant by estoppel or otherwise was probably wrong. I shall not rehearse the arguments for this because I have set them out above. (It will be apparent that I think the arguments succeed.) However, I would have expected counsel to have sounded a note of caution about this aspect of the case. I would have expected him to make the point that it was arguable that Wyko had become the tenant and that there was a litigation risk that the argument could succeed. 5. Had counsel advised along those lines, Mr Davidson would have appreciated that there was a good prospect of establishing that Lewis DMR remained as tenant, but there was a litigation risk that the argument might not succeed. 6. In those circumstances, it is to my mind inconceivable that Mr O’Brien would have been instructed to make the offer that was contained in the letter of 29 November 2001. It would have been wholly against Wyko’s commercial interests and objectives. 7. It is, in fact, not wholly clear that Talisman would have accepted such an offer had it been made. One of the curiosities in this case was that even though Mr Winton maintained that it was in Talisman’s commercial interests to have Wyko as its tenant, Talisman did not in fact accept the offer that was made in the letter. Rather, it chose to challenge – perhaps not very actively – the proceedings instituted by Wyko with the result that Talisman was ultimately ordered to pay two-thirds of the costs of them. Mr Winton explained that he did this so as not to prejudice his claim against NR. It may be that had there been no such claim, the offer would have been accepted. Would there have been a new tenancy? [159] The matter does not end there because it is still necessary to consider what was likely to have happened had an unopposed notice been served. Mr Livesey submitted that it is likely that a new tenancy of some sort would have been entered into. He dealt with the matter in detail in para 11 of his closing submissions. [160] Mr Livesey first submitted that both Talisman and Wyko intended to enter into a new lease if appropriate terms could be agreed. I have no difficulty in accepting this submission. I am satisfied that the three meetings that took place were genuine negotiations. Mr Winton was concerned to maximise the value of the premises. He had been advised that the capital value would be increased if it were let on appropriate terms to Wyko. He had an incentive to agree appropriate terms. Mr Davidson told me, and I accept, that Wyko had a genuinely open mind as to whether to stay or go. [161] Mr Livesey then asked the question of whether the statutory compensation was a material cause of the negotiations failing, and submitted that it was. He relied upon a number of factors – set out in subparas g-l of para 11 of his submission – and invited me to conclude that it was. He reminded me of the very last answer given by Mr Davidson in his evidence: Q. How important was it getting £179,000 to the decision whether to go or stay? A. It was important, definitely and I suspect if that had not been on the table we would have reached an agreement for a new lease. [162] I have no doubt that the existence of the statutory compensation played an important part in the negotiations. It was clearly mentioned on a number of occasions. Indeed, the offer of a reduced rent – albeit only to the extent of £100,000 – reflected the right to compensation. However, that does not answer the question that I have to address. In my view, Mr Livesey posed the wrong question. In my view, the true question is whether the service of the opposed notice was a material cause of the negotiations failing. [163] Mr Livesey’s question assumes that had an unopposed notice been served, Wyko would have gone into the negotiations believing that there was no right to compensation should no new tenancy be agreed. For the reasons that I have given, that is not the case. Wyko would have gone into the negotiations knowing that there was a vested right to compensation if Lewis DMR was the tenant and that counsel had advised that Lewis DMR was likely (but not certain) to be held to be the tenant. [164] Although I have no doubt that the negotiations were genuine in the sense that I have described, they were not conducted with any great vigour – only three meetings over a seven-month period. Mr Winton was interested in a new tenancy only if it increased the value of the premises over the vacant possession value. His attitude was purely commercial. He was not intending to keep the premises in the long term. Mr Lyne was interested only if the lease was adequately protected and had sufficient break clauses. These two objects proved irreconcilable when the parties knew that compensation would be payable on vacation. In my view, they would have been equally irreconcilable in the slightly changed circumstances created by the service of an unopposed notice. [165] In my view, it is fanciful to suggest otherwise. 8.3 Set-off of the compensation [166] Following the vacation of the premises, there remained the question of the dilapidations and the set-off of the compensation. [167] Mr Stewart sought to deal with this in paras 9 to 12 of his closing submissions. In para 9, he presented an analysis based upon the information known as at the date of the breach. For reasons already given, I do not think it appropriate to assess damages as at the date of the breach. [168] In paras 10 and 11, he put forward three possible positions that the tenant might have taken. He submitted that the likelihood was that Talisman’s position would have been the same or worse and thus no damages are recoverable under this head. [169] In my view, this analysis is flawed. It is unsupported by authority and does not address the real loss that Talisman suffered. I accordingly reject it. [170] The sum that Wyko agreed in respect of dilapidations was very close to the figure that Mr Davidson had been advised was appropriate. In those circumstances, there is no reason to think that any other figure would have been agreed had an unopposed notice been served. [171] The position with regard to the compensation is rather different. As a result of the service of the wrong notice, Wyko had a vested right to compensation and Talisman had no choice but to allow it to be set off in full. [172] Had an uncontested notice been served, Talisman would have had an argument in the negotiations that there was no right to compensation. It was not, in my view, a fanciful argument. It was an argument that I think would have failed but that I think had a respectable chance of success. Thus, the effect of the service of the wrong notice was to cause Talisman to lose the opportunity of running that argument in the negotiations. [173] Had Talisman had that opportunity, I am satisfied, on the balance of probabilities, that it would have made use of it in the negotiations. As I have noted, Mr Winton was motivated by commercial considerations. It was in his commercial interest to make use of the argument. [174] I am equally satisfied that there is a chance that Wyko would, on advice, have recognised that there was a litigation risk that it would be held that Wyko was the tenant so that no compensation would be available for set-off. There is equally a chance that it would have been prepared to compromise that litigation risk by accepting a lower set-off in respect of the compensation. [175] In the light of the decision in Allied Maples, I am required to assess that chance. The assessment of chances is not straightforward. As I have indicated, I think that Wyko would have been advised that it was likely to win. Thus, the assessment must be less than 50% of the compensation. On the other hand, the material assembled for the county court does show that the argument was respectable. There was a real |page:156| risk that it could succeed. Doing the best that I can, I propose to assess the chance at 30%. [176] It follows, in my view, that Talisman is entitled to 30% of £179,000, or £53,700. In addition, Talisman will be entitled to interest from the date of the agreement in relation to the compensation, namely 26 March 2004. Claim allowed