Easements — Right to light — Damages — Development infringing right to light of adjoining building — Damages awarded in lieu of injunction — Applicable principles for calculating damages by reference to loss of ability to prevent infringement
The defendant redeveloped a site in central London by demolishing a single-storey, flat-roofed building and erecting in its place a three-storey, T-shaped building with a pitched roof. The claimant, which owned an unoccupied office building on the adjacent land, brought proceedings alleging an infringement of its right to light. The court found an infringement of the right to light in respect of two windows that illuminated stairs leading to the basement of the claimant’s building, but declined to grant a mandatory injunction requiring the demolition of the offending parts of the defendant’s building on the ground that such an injunction would cause loss to the defendant out of all proportion to that suffered by the claimant. The judge held that the small injury to the |page:27| claimant’s right to light could be compensated adequately by damages in lieu. At a further hearing to assess damages, it was accepted that damages should be assessed by reference to the loss of the claimant’s ability to prevent the infringement. An issue arose as to the appropriate method of quantifying such damages. The valuation process required each party to put forward an expert’s report calculating the changes that needed to be made to the defendant’s development if the right to light were not to be infringed. The claimant produced a further expert valuation as to loss, derived from the estimated profits on the relevant part of the development on the basis of each of the right-to-light experts’ reports, producing figures of £163,000 for the claimant and £186,000 for the defendant.
Held: Damages of £50,000 were awarded. (1) In assessing damages for loss of the ability to prevent an infringement of a right to light before any infringement took place, the overall principle is that the court should determine what would constitute a fair result of a hypothetical negotiation between the parties, normally as at the date of the breach. In doing so, the court should take into account the context, including the nature and seriousness of the breach, and the fact that the right to prevent a development (or part of it) gives to the owner of the right a significant bargaining position. Such an owner would normally expect to receive some part of the likely profit from the development or the relevant part of it; the court should award a sum that takes into account a fair percentage of that profit, although, where there is no evidence of the likely profit, the court can instead do its best by awarding a multiple of the damages for loss of amenity. In any event, the size of the award should not be so large that the development or relevant part would not have taken place had such a sum been payable. Finally, the court has to consider whether the “deal feels right”. (2) The claimant and the defendant, as hypothetical reasonable commercial people, would take the halfway point between the two figures provided by the expert valuer for loss, based upon the rival right-to-light experts’ reports, producing a figure of £174,500. They would then agree upon a one-third split at £58,166. Bearing in mind the relatively modest nature of the infringement and the necessity of reaching a sum that would not put the defendant off the relevant part of the development, that figure would then be reduced to £50,000 as a fair result. Although that award was substantially more than the sum available for loss of amenity, the deal felt right in terms of the price of avoiding an injunction.
The following cases are referred to in this report.
AMEC Developments Ltd v Jury’s Hotel Management (UK) Ltd (2001) 82 P&CR 22; [2001] 1 EGLR 81; [2001] 07 EG 163
Bracewell v Appleby [1975] Ch 408; [1975] 2 WLR 282; [1975] 1 All ER 993; [1976] 1 EGLR 119; (1974) 237 EG 731
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
Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd [2006] EWCA Civ 430; [2006] 2 EGLR 29; [2006] 25 EG 210
Stokes v Cambridge Corporation (1961) 13 P&CR 77; 180 EG 839, LT
Tamares (Vincent Square) Ltd v Fairpoint Properties (Vincent Square) Ltd [2006] EWHC 3589 (Ch); [2006] 3 EGLR 87; [2006] 41 EG 226
Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798; [1974] 2 All ER 321; (1973) 27 P&CR 296; 229 EG 617, Ch
This was a hearing to assess damages in lieu of an injunction in proceedings by the claimant, Tamares (Vincent Square) Ltd, against the defendant, Fairpoint Properties (Vincent Square) Ltd, for infringement of a right to light.
Mark Wonnacott (instructed by Ashfords, of Exeter) appeared for the claimant; Philomena Harrison (instructed by Davenport Lyons) represented the defendant.
Giving judgment, Mr Gabriel Moss QC said:
Introduction
[1] In my original reserved judgment of 4 September 2006, reported at [2006] EWHC 3589 (Ch); [2006] 41 EG 226*, on the question of liability, I found that the defendant was liable to the claimant for infringing a right to light to two windows that illuminate some stairs leading to the basement of the claimant’s building.
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* Editor’s note: Also reported at [2006] 3 EGLR 87
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[2] I declined to grant an injunction and left over the question of the assessment of damages in lieu of an injunction. This is the reserved judgment relating to the assessment of damages in lieu of injunction.
Approach to damages in lieu of injunction
[3] There is no dispute between the parties that the correct measure of damages is the greater of: (a) damages for loss of amenity to the dominant owner; and (b) damages to compensate for loss of the ability to obtain an injunction.
[4] There is no agreement as to the quantum of compensatory damages for loss of amenity in the present case, but I need not decide between the rival figures (£3,030 and £608.09) because, on any view, they are very small and bound to be no greater than damages for loss of the ability to prevent the infringement.
Right to light experts
[5] Expert reports were put in in relation to the changes that needed to be made to the development if the right to light was not to be infringed. This was a step in trying to work out the value of the right to prevent the infringement.
[6] At the end of the day, however, since both reports are plausible, there is no need in this context to decide between them, and I was not pressed to do so. That is because the working out of the damages in respect of the loss of the right to prevent the infringement involves my finding the result of a hypothetical negotiation between the parties, normally as at the date of the breach: see Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd [2006] EWCA Civ 430† (see [17] and following) and, as part of that hypothetical negotiation, I am content to accept the position that each side would have produced arguments based upon its own expert’s opinion and that those two opinions would have differed to the extent that they do in the present case.
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† Editor’s note: Reported at [2006] 2 EGLR 29
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[7] The valuation evidence, which I will return to below, paradoxically suggests that the claimant’s right to light expert evidence produces a worse result for the claimant than the evidence of the defendant’s right to light expert. In reality, however, as long as both right to light expert opinions are reasonable, a hypothetical negotiation would not resolve the difference, but would probably split the difference in the valuations that were produced on the basis of these opinions, assuming that the valuations produced by them are not too far apart, as is the case here.
[8] The right to light experts each suggest a very small figure for compensatory damages, namely £3,030 maximum (claimant) and £608.09 (defendant). In the present case, these cannot be greater than the damages in lieu of injunction, so it is not necessary for me to decide between these two figures.
Expert valuation evidence
[9] The claimant produced expert valuation evidence the night before the start of the assessment hearing and cross-examination of the expert valuer was put off until the second day of the assessment. However, the defendant did not seek an adjournment or to put in its own valuation expert evidence.
[10] I accept the evidence of Mr Donald Jessop, the expert valuer, who appears to be well qualified and entirely credible in relation to the matters properly within his province, namely such matters as the likely building costs, the selling prices and the amount of profit to be made. The estimates of profits on the relevant part of the development were £163,000 on the claimant’s expert right to light evidence and £186,000 on that of the defendant. |page:28|
[11] However, matters such as what percentage of the profit the hypothetical negotiation would actually arrive at and what is a reasonable share of the profit are a matter for me and not for the expert. I do not in the slightest blame Mr Jessop for expressing an opinion on these further matters in the present case, since he was expressly asked to do so by those instructing him and he genuinely thought that he was providing helpful material for the court.
Case law
[12] Counsel informed me that the only reported High Court decision on the assessment of damages in a right to light case is Carr-Saunders v Dick McNeil Associates Ltd [1986] 1 WLR 922*, a decision of Millett J (as he then was). At p931, Millett J makes it clear that, in the hypothetical negotiation, the person whose right to light was being infringed would not be satisfied with a modest sum for loss of amenity, but “would have a bargaining position”. He held that the same approach ought to be adopted to the assessment of damages in lieu of an injunction in the case of a right to light as was adopted in cases relating to damages for each of the restrictive covenants and obstructions to a right of way. In relation to this point, he cited the following two cases.
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* Editor’s note: Also reported at [1986] 2 EGLR 181
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[13] In Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798†, Brightman J dealt with a claim for damages where the plaintiffs sought a “substantial proportion” of the development value of the land, which was put at no less than £140,000. Brightman J rejected this argument for two reasons. The first was that the covenant that was being breached had “no commercial or even nuisance value”. The second reason was that the breach of covenant that had actually taken place was over a very small area and the effect of the breach upon the land benefiting from the covenant was “insignificant”.
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† Editor’s note: Also reported at (1973) 229 EG 617
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[14] The fact that Brightman J took into account the effect of the breach upon the retained land shows that some account must be taken of the context and the effect of the breach upon the land benefited by the right. However, at p815, Brightman J, having stated the two reasons why he would not award a “substantial proportion” of the development value, went on to consider what part of the profit he should award. He makes it clear that the hypothetical negotiation includes a consideration of what profit the developer is expected to make and “would then reasonably have required a certain percentage of that anticipated profit”. Brightman J considered that his task was to work out what would be a “fair percentage”.
[15] On the facts of that particular case, he considered that the court should act with “great moderation”. The facts in that particular case that influenced him were that the plaintiffs were aware that the land was being offered for sale for development and that they would not consent to any such development. Had the plaintiffs made their position clear prior to the purchase, it was “highly unlikely” that the developer would have paid what it did, at least unconditionally. In those particular circumstances, Brightman J considered it fair to award 5% of the developer’s anticipated profit.
[16] There is no equivalent set of facts in the present case that would require the court “to act with great moderation”. A figure of 5% would therefore be likely to be low in the present case.
[17] The other case relied upon by Millett J was the easement case of Bracewell v Appleby [1975] Ch 408‡, a decision of Graham J. At p420, Graham J again focused upon a percentage of the profit being made. He held that the circumstances were very different from those in Wrotham Park and he attempted to arrive at a “fair figure” for the case before him.
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‡ Editor’s note: Also reported at [1976] 1 EGLR 119
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[18] For the purposes of the hypothetical negotiation, he arrived at a figure that would not be so high as to deter the defendant from building at all. In that case, the defendant was not a speculative builder and in fact wanted to live in the property himself. Graham J said that he would be prepared to pay “what is relatively to his notional profit quite a large sum for the right of way in question and to achieve the building of his new home”. Graham J also referred to the fact that property values were rising. On those facts, he awarded the neighbouring five owners £400 each, making a total of £2,000, out of the “notional profit” overall of £5,000. The share of the profit was therefore 40%. Those special circumstances are not present in the case before me and I would regard 40% as likely to be too high in the present case.
[19] In Carr-Saunders itself, at p931, the hypothetical negotiation involved taking account of the bargaining position and the amount of profit. However, in that case, there is no evidence of the amount of profit that the defendant was expecting to make from its development. The evidence concerned general loss of amenity. At p932, Millett J appears to have taken £3,000 as the absolute minimum figure on the basis that that approximately represented the loss of amenity. He then awarded £8,000 without any detailed calculation.
[20] The method used by Millett J was to start with the loss of amenity and then build upwards, in effect guessing at the boost given to the claimant by his bargaining position in the absence of evidence relating to the profit being made from the development. In a case such as the present, where the amount of the likely profit has been the subject of expert evidence, the correct approach seems to be to start with the approximate figures suggested for loss of amenity as the context, but then to take sufficient account of the expert evidence relating to the value, in terms of a share of the potential profit, of the bargaining position.
[21] Some further assistance in the process can be derived from AMEC Developments Ltd v Jury’s Hotel Management (UK) Ltd [2001] 1 EGLR 81, a decision of Mr Anthony Mann QC (as he then was). At p87, he sets out a number of factors in the hypothetical negotiation. One factor is that one has to bear in mind the context and what figure the defendant would realistically pay to be able to carry out the development. Mr Mann finished his list of relevant factors (at p87) as follows:
As important as any of the above factors is this. In any negotiation, science and rationality gets one only so far.
At the end of the day, the deal has to feel right.
Relevant principles
[22] I would deduce the following principles from these cases in relation to the assessment of damages for loss of the ability to prevent an infringement of a right to light at the point just before any infringement takes place:
(1) the overall principle is that the court must attempt to find what would be a “fair” result of a hypothetical negotiation between the parties;
(2) the context, including the nature and seriousness of the breach, must be kept in mind;
(3) the right to prevent a development (or part) gives the owner of the right a significant bargaining position;
(4) the owner of the right with such a bargaining position will normally be expected to receive some part of the likely profit from the development (or relevant part);
(5) if there is no evidence of the likely size of the profit, the court can do its best by awarding a suitable multiple of the damages for loss of amenity;
(6) if there is evidence of the likely size of the profit, the court should normally award a sum that takes into account a fair percentage of the profit;
(7) the size of the award should not, in any event, be so large that the development (or relevant part) would not have taken place had such a sum been payable;
(8) after arriving at a figure that takes into consideration all the above and any other relevant factors, the court needs to consider whether the “deal feels right”.
View of the expert valuer and the parties’ contentions
[23] The expert valuer, Mr Jessop, suggested that, in a negotiation between commercial parties, the claimant would obtain 37.5% of the profit because that is the profit that the valuer would consider |page:29| the defendant, as developer, was making on the relevant part of its development. Mr Jessop was not, however, suggesting that there is any market practice of 37.5% and, therefore, his view on this does not really assist. However, since the claimant presses the 37.5% figure, I will consider it in more detail.
[24] I can understand that the claimant might want to argue in a negotiation, if it were aware of the defendant’s profit margin, that it wanted the same percentage of the profit to release its right to prevent the infringement to its right. However, that is not the same as saying that that would be the end result of the negotiation. No doubt, the defendant, for its part, would argue that its percentage profit on the relevant part of the development had no necessary connection with the correct price to be paid for the release of the claimant’s right to light.
[25] The percentage profit made by the defendant appears to be, in any event, an arbitrary figure to take for this purpose. If, for example, the developer was making a 100% profit on the relevant part of the development, it would be very strange for the party whose right was being infringed to obtain 100% of the profit as the price for the infringement, since that would make that part of the development unworthwhile for the developer.
[26] Ms Philomena Harrison, for the defendant, as her first submission, invited me to assess damages merely at the same level as the damages for loss of amenity in view of the trivial nature of the infringement. This is a reference to [32] of my earlier judgment. However, the word “trivial” was used in that context to describe the real-world situation in which the staircase would probably be lit by artificial light at all times. As I pointed out in my judgment, I am required, on the present state of the case law, to ignore that real-world situation and look only at the natural light position, in which context I held that there was a “real injury” to the right to light. I cannot consistently with the case law apply the natural light approach to liability but switch to the real-world approach in order to assess damages.
[27] Moreover, on the authorities, I need to take sufficient account of the bargaining position by awarding some part of the likely profit.
[28] Ms Harrison’s alternative submission was to assess damages by taking, not a percentage of the profit made but an uplift from the damages for loss of amenity, as was done in Carr-Saunders above.
[29] I cannot accept that approach either for the present case. As Mr Mark Wonnacott, for the claimant, pointed out, between commercial parties, the party whose light is being infringed will, if there is evidence of the likely profit, look for a percentage of the profit being made from the infringement. The loss of amenity may be minimal and yet the profit may be very substantial. The claimant in such a situation, which is being compensated not for the loss of amenity, but for the loss of the right to stop the infringement, is bound to focus mainly upon achieving a percentage of the profit being made from the infringement of its rights. In Carr-Saunders, there was no evidence as to the amount of the profit and, therefore, a percentage approach could not be applied.
[30] Mr Wonnacott, for his part, asked me to ignore completely the limited nature of the loss of amenity on the basis that it is completely irrelevant to the hypothetical negotiation between the parties.
[31] I cannot accept that submission. Although I fully accept that commercial parties will look mainly to a share of the profit, I do not accept that they would ignore the context in which the negotiation takes place. In a case such as the present, they would take into account the limited nature of the infringement.
Hypothetical negotiation
[32] Mr Wonnacott helpfully referred me to a couple of documents from the original trial that he submitted assist in what a fair approach might be to the hypothetical negotiation in this case.
[33] The defendant’s then right to light expert, a Mr Ian Absolon, on 26 February 2004, writing to J Carter Esq, the right to light expert of the claimant’s predecessor in title, appended a calculation of a potential buy-out of a right to light in which he assumed that the share of the profit paid in compensation would be one-third. This was in relation to the building of an extra storey to the defendant’s building, which it was agreed would undoubtedly infringe the claimant’s right to light.
[34] The use of a third share perhaps illustrates expectations in a negotiation of this kind, and seems to accord with common sense, which requires the proposed share of profit not to be so high as to put the developer off the relevant part of the development. It must be remembered that if a developer agrees to pay one-third of an expected development profit regardless of whether or not it is actually made, it will be taking a risk and the other party will not be. This helps to explain the reasonableness of the one-third:two-thirds split rather than say a 50:50 or 40:60 split in a commercial context. The one-third approach can also be derived by analogy from the approach of the Lands Tribunal in the compulsory purchase decision of Stokes v Cambridge Corporation (1961) 13 P&CR 77*.
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* Editor’s note: Also reported at (1961) 180 EG 839
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[35] Second, a document of the defendant in relation to the same proposal indicated that the claimant’s predecessor in title was, through its agent, suggesting £100,000 as the price of releasing its right to light, whereas the defendant was suggesting that £20,000 was more “equitable”. Mr Wonnacott pointed out that £60,000 is the halfway point between the two figures.
[36] However, I do not think that I can simply adopt these figures as the likely negotiating positions in this case, or assume that they would reach the exact halfway point. There are some potentially significant differences between that proposal and the actual infringement that I have found. In particular, although Mr Wonnacott suggested that the area proposed to be added was not very different from the area that might have to be deducted on the basis of the infringement that I have found, there is a significant difference, in my judgment, between a proposal to build an extra storey and a situation where a part of the existing plan creates an infringement of a relatively minor nature. I do not therefore think that I can gain any safe guidance from the rival figures mentioned in this document. Moreover, the defendant did not, in fact, agree to negotiate on the basis that the other party had a sensible negotiating position at £100,000.
Conclusion
[37] I consider that the parties as hypothetical reasonable commercial people would take the halfway point between the two figures given by the expert valuer for loss based upon the rival right to light expert reports, namely £174,500. They would then agree prima facie a one-third split of that profit at £58,166 (ignoring the pence). However, taking into account the context of the relatively modest nature of the infringement of the right in the present case and the need not to have a sum that would put the defendant off the relevant part of the development in that context, they would reduce that calculation to £50,000 as a “fair” result.
[38] I then ask myself the question: “Does the deal feel right?” It is very substantially more than any sum available for the loss of amenity, but in terms of the price of avoiding an injunction for infringing the claimant’s rights it does feel “right”. I would add that a figure above £50,000 in this case would not feel right to me, even if justifiable by the criteria set out above.
Damages of £50,000 awarded.
