Action for breach of agreement to take a lease of land in a trading estate–Breach established and inquiry as to damages ordered–Difference in course of inquiry as to date at which damages should be assessed–Present summons to settle date–Normal rule that damages should be assessed as at date of breach not always applicable–Duty to mitigate damage–Innocent party must act reasonably to avoid loss–In present case damages fell to be assessed as at the date when the plaintiff lessors completed the reletting of the premises in substitution for the lease they had lost
This was a
summons taken out by the plaintiff, Techno Land Improvements Ltd, in the course
of an inquiry as to damages which had been ordered by Whitford J. He had found
the defendant, British Leyland (UK) Ltd, liable in damages for breach of an
agreement to take a lease of two lots in the Techno Trading Estate at Swindon
which was owned by the plaintiff. The present summons before Goulding J was
concerned solely with the determination of the date as at which the damages
payable by the defendant should be assessed.
O Swingland QC
and S J Sher (instructed by Stilgoes) appeared on behalf of the plaintiff; N T
Hague instructed by A B Lydyeard, legal department, British Leyland Motor
Corporation Ltd) represented the defendant.
Giving
judgment, GOULDING J said: I have before me an application by summons taken out
by the plaintiff in the course of an inquiry as to damages. To understand the
point at issue it will be necessary to relate briefly the history of the
dispute between the parties. The plaintiff, Techno Land Improvements Ltd, is
the owner of land developed for industrial purposes at Swindon known as the
Techno Trading Estate. By an agreement in writing dated June 25 1974 and made
between the plaintiff of the one part and the defendant, British Leyland (UK)
Ltd, of the other part, the defendant agreed to take a lease from the plaintiff
of two lots on the Techno Trading Estate known as unit 29 and unit 30. The
annual rent was to be £61,286 during the first five years and thereafter was
subject to provisions for quinquennial review. The lease was to be in an agreed
form and was to be granted for a term of 35 years from the date of the lease.
The plaintiff was to procure construction of the premises in accordance with an
agreed specification and agreed plans not later than September 29 1974 with
provision for an extension of time in certain specified events. The agreement
provided that the lease should be completed and taken up not later than 14 days
after practical completion of the premises as certified in writing by the
plaintiff’s architect. On July 8 1974 the defendant entered into occupation of
the premises. A person purporting to be the plaintiff’s architect subsequently
certified that the premises were practically completed on that date, but such
certificate was not given until September 19 1975.
Meanwhile
differences had arisen between the parties. The defendant complained that the
plaintiff had not completed the premises in accordance with the terms of the
contract and served a notice dated February 24 1975 with a detailed list of
outstanding items. That was not complied with, as the plaintiff denied any
default on its part. On April 29 1975 the defendant purported to rescind the
contract. On May 19 1975 it ceased to occupy the premises, and on September 29
1975 it gave notice to terminate at Christmas any periodical tenancy subsisting
between the parties. On October 10 1975 the plaintiff issued a writ claiming
specific performance and damages.
Meanwhile the
premises remained vacant. Early in 1976 the plaintiff found occupiers for the
premises. At first they went in under short-term licences. Such occupation
began as to unit 29 on January 6 1976 and as to unit 30 on January 8. On
January 27 the plaintiff informed the defendant that it had in the
circumstances elected to treat the defendant’s repudiation of the contract as
discharging the contract by breach, and that the plaintiff would accordingly
proceed for damages and not specific performance. Consistently with that
election the plaintiff amended its statement of claim on May 5 1977 so as to
claim only damages for breach of contract, and rent down to Christmas 1975. On
March 8 1976 the plaintiff let unit 30 to a company called Raychem Ltd for 25
years from January 8 1976 with an option for either side to determine the
letting at the end of the fifth year. The rent under that lease was £28,266 per
annum subject to review at five-yearly intervals. It took longer to effect a
permanent letting of unit 29. On September 19 1977 the plaintiff demised it to
another company, Roussel Laboratories Ltd, for 25 years from June 20 1977 at a
rent of £24,000 per annum similarly subject to review. The lessee had an option
to determine the letting at the end of the first three years.
Judgment in
the action was given by Whitford J on July 6 1978. He declared that the
plaintiff was entitled to damages from the defendant for breach of the
agreement of 1974 and ordered an inquiry as to damages. He also gave judgment
in the plaintiff’s favour for a sum of unpaid rent. In the course of the
inquiry as to damages a difference of opinion has arisen between the parties
regarding the date as at which they should be assessed. The summons now before
the court asks whether damages should be assessed as at January 6 1976 as
contended by the plaintiff or as at July 6 1978 as contended by the defendant.
The plaintiff’s date is that of the first occupation of part of the premises by
a licensee of the plaintiff. The argument before me has proceeded on the
footing that that was the date when the plaintiff effectively accepted
repudiation of the contract by the defendant. The later date suggested by the
summons is that of Whitford J’s judgment. However, in argument the defendant
has really claimed assessment as at September 19 1977, the date of the lease to
Roussel Laboratories Ltd, that being the date whereat the plaintiff completed
the reletting of the premises in substitution for the lease lost, as the
learned judge held, through the wrong-doing of the defendant.
The first
principle governing the assessment of damages for
Baron Parke in Robinson v Harman, 1 Exch 850 at p 855. He said:
‘The next question is what damages is the plaintiff entitled to recover? The rule of the common law is that where a
party sustains a loss by reason of a breach of contract he is, so far as money
can do it, to be placed in the same situation with respect to damages as if the
contract had been performed.’ That
principle is of course subject to the rules concerning remoteness of damages.
If it stood alone, it would be logical in my view to take into account in
estimating the plaintiff’s loss any relevant facts proved or admitted before
the court down to the date when the court by order actually quantifies the
damages, whatever their respective dates. The general rule does not require the
court to close its eyes to matters occurring after the breach of contract or
after the commencement of the action or even after a judgment has declared the
defendant’s liability without quantifying it, if they would enable the court to
fix the plaintiff’s actual loss more accurately. However, the general rule is
qualified by additional principles that have been developed, partly for reasons
of convenience and partly, I think, for reasons of history. The most recent
statement of the law is to be found in Johnson v Agnew, an
English appeal before the House of Lords not yet reported.* The action had been brought by a vendor of
land whose purchaser had failed to comply with a decree for specific
performance. In consequence of the purchaser’s default the vendor’s mortgagees
took possession of the property and sold it, thus rendering specific
performance impossible and remitting the vendor to the remedy of damages for
breach of contract. In the speech of Lord Wilberforce, which can be taken to
express the opinion of the House, since the other noble and learned Lords all
agreed with it, the following passage is found:
The general
principle for the assessment of damages is compensatory, ie that the innocent
party is to be placed, so far as money can do so, in the same position as if
the contract had been performed. Where the contract is one of sale, this
principle normally leads to assessment of damages as at the date of the
breach–a principle recognised and embodied in section 51 of the Sale of Goods
Act 1893. But this is not an absolute rule; if to follow it would give rise to
injustice the court has power to fix such other date as may be appropriate in
the circumstances. In cases where a breach of contract for sale has occurred
and the innocent party reasonably continues to try to have the contract
completed, it would to me appear more logical and just rather than tie him to
the date of the original breach, to assess damages as at the date when
(otherwise than by his default) the contract is lost. Support for this approach
is to be found in the cases. In Ogle v Earl Vane (1867) LR 2 QB
275; (1868) LR 3 QB 272 the date was fixed by reference to the time when the
innocent party, acting reasonably, went into the market; in Hickman v Haynes
(1875) LR 10 CP 598 at a reasonable time after the last request of the
defendants (buyers) to withhold delivery. In Radford v De Froberville
[1977] 1 WLR 1262, where the defendant had covenanted to build a wall, damages
were held measurable as at the date of the hearing rather than at the date of
the defendant’s breach, unless the plaintiff ought reasonably to have mitigated
the breach at an earlier date.
In the
present case if it is accepted, as I would accept, that the vendors acted
reasonably in pursuing the remedy of specific performance, the date on which
that remedy became aborted (not by the vendor’s fault) should logically be
fixed as the date on which damages should be assessed. Choice of this date
would be in accordance both with common law principle, as indicated in the
authorities I have mentioned, and with the wording of the Act ‘in substitution
for . . . specific performance.’ The
date which emerges from this is April 3 1975, the first date on which
mortgagees contracted to sell a portion of the property.
*Now reported
in [1979] 2 WLR 487; 1 All ER 883; 251 EG 1167, [1979] 2 EGLR 146.
As an appendix
to Lord Wilberforce’s observations I will read two short passages from the
judgment in Radford v De Froberville [1977] 1 WLR 1262, one of
the decisions that he referred to. Its subject matter was breach of a covenant
to build, and in particular to build a boundary wall on the covenantor’s own
land. Oliver J said at p 1285:
It is
sometimes said that the ordinary rule is that damages for breach of contract
fall to be assessed at the date of the breach. That however, is not a universal
principle and the rationale behind it appears to me to lie in the inquiry–at
what date could the plaintiff reasonably have been expected to mitigate the
damages by seeking an alternative to performance of the contractual obligation? In contracts for the sale of goods, for
instance, where there is an available market, the date of non-delivery is
generally the appropriate date because it is open to the plaintiff to mitigate
by going into the market immediately. Where there is no readily available
market a later date may be appropriate (see for instance Lesters Leather
& Skin Co Ltd v Home & Overseas Brokers Ltd (1948) 64 TLR
569 . . .).
At p 1286,
alluding to contracts that cannot be specifically performed, Oliver J said:
In such a
case, the plaintiff’s right to damages must be qualified by his duty to
mitigate. The question then, as it seems to me, comes down to one of the
reasonableness of the steps actually taken by the plaintiff, and, in my
judgment, the proper approach is to assess the damages at the date of the
hearing unless it can be said that the plaintiff ought reasonably to have
mitigated by seeking an alternative performance at an earlier date, in which
event the appropriate measure would seem to me to be the costs of the
alternative performance at that date.
Mr Swingland
for the plaintiff takes his stand on Lord Wilberforce’s preference for the date
when, otherwise than by the innocent party’s default, the contract is lost.
That date in the present case, he argues, was January 6 1976, when the
plaintiff put a licensee into occupation of part of the premises and thereby
accepted the defendant’s repudiation of the contract. Mr Hague for the
defendant, however, would concentrate attention on Lord Wilberforce’s mention
of the general compensatory principle and of fixing a date appropriate in the
circumstances. Here, he says, the plaintiff naturally and reasonably let the
premises as best it could. What could be more appropriate than to quantify the
plaintiff’s loss by examining its position when such reletting was completed
and the actual loss thus became ascertainable as a matter of fact?
For my part I
do not think that Lord Wilberforce was seeking to lay down a rigid rule that
must inevitably apply to the sort of case here under scrutiny. I mean a case
where there is a contract for the sale or for a lease of immovable property.
The purchaser or lessee refuses or persistently fails to complete the
transaction. The innocent vendor or lessor after a time elects not to press for
specific performance but to be content with damages at law. Subsequently,
without depreciatory haste or imprudent tarrying, he sells or lets the property
to someone else, thus fixing the amount of his actual loss once for all. If the
new sale or letting itself constitutes, or is co-incident in date with, the
innocent party’s election, the present question will not arise, and the case
will in principle be similar to Ogle v Earl Vane (1868) LR 3 QB
272 cited by Lord Wilberforce. But even if he necessarily or properly takes
some further time to resell or relet, why should not either side be entitled to
rely on the actual result for the purpose of ascertaining the loss? Two reasons, in addition to the importance of
the general principle as laid down by Mr Baron Parke, lead me to the conclusion
that either party is entitled to rely on it. First it is well settled that the
innocent party can recover no greater damages for breach of contract than the
loss he would have sustained had he acted reasonably to avoid or reduce loss.
In that sense he is said to have a duty to take reasonable steps to mitigate
his loss. It is likewise settled law that the defaulting party is liable for
the additional damage suffered should the innocent party’s reasonable steps to
mitigate the loss eventually aggravate it. Those rules seem to me to require
that the defendant have the benefit of successful mitigation when damages come
to be assessed. No authority has been cited to suggest that the victim of a
breach of contract can cut short his duty to mitigate his loss by the mere
commencement of an action for damages, and in my view it would be unreasonable
to allow him to do so. Mr Swingland indeed
becomes a gamble for the plaintiff. He may fail to prove actual loss as at the
date of trial and so lose his costs though he began the action quite
reasonably. I do not think such cases would be common, and in my view any
apparent injustice could be obviated by the exercise of judicial discretion
over costs.
Secondly,
there is good authority for the proposition that when a plaintiff in the course
of his business has taken action arising out of the transaction between him and
the defendant, which action has diminished his loss, the effect in actual
diminution of the loss he has suffered may be taken into account in
ascertaining damages even though there was no duty on the plaintiff to act.
That formulation of the law comes from the observations of Lord Haldane LC,
with whom the rest of the House of Lords agreed, in British Westinghouse
Electric and Manufacturing Co Ltd v Underground Electric Railways Co of
London Ltd [1912] AC 673 at p 689. Lord Haldane cited as an illustration of
the rule Staniforth v Lyall (1830) 7 Bing 169 where a shipowner
found a more profitable voyage after a breach of contract by his charterer. I
should also mention Oldershaw v Holt (1840) 12 Ad & E1 590
where the jury on a direction by Denman LCJ found that no damage had been
sustained by the plaintiff. The latter had recovered possession of his property
on the defendant’s failure to perform an agreement for a building lease and had
afterwards executed an agreement with a new tenant at a higher rent. The
principle of Oldershaw v Holt, as requiring an estimate of the
plaintiff’s real damage, was followed by Kennedy J in Marshall v Mackintosh
(1898) 78 LJ 750, another case where a landowner relet the property after
re-entering on breach of a building agreement. He re-entered on January 19 1897
and was unable to relet until the following June 24, and his damages were held
to be fairly represented by the reduction of rent under the new contract.
Similarly in Lazenby Garages Ltd v Wright [1976] 1 WLR 459 the
Court of Appeal, applying the general rule stated in section 50(2) of the Sale
of Goods Act 1893, gave no damages to the disappointed seller of a secondhand
motor car who had resold it at a higher price. A more directly relevant
decision is that of Bacon V-C in Noble v Edwardes (1877) 5 Ch D
378, afterwards reversed on grounds immaterial for present purposes. The
plaintiff there had sold land for £33,000. The defendant purchaser had refused
to complete. The plaintiff later sold the land to another for £25,000 and sued
for damages. The learned Vice-Chancellor said at p 392:
It must be
understood that the evidence before me, as far as my duty in assessing damages
is concerned, satisfies me that to the extent of £8,000 he is entitled to
recover. What, if anything, he may be entitled to beyond that must be the
subject of inquiry in chambers. There are some claims made by him which it is
necessary to say cannot be allowed. One of them has been mentioned, that is the
renewal of Daniel Smith & Co’s valuation. There may be others, but whatever
they are they will be investigated in chambers; but to the extent of £8,000 the
plaintiff is entitled to that sum in damages, and to the costs of the suit.
I find nothing
in York Glass Company v Jubb (1925) 134 LT 36, cited by Mr
Swingland, to cast doubt on my conclusions from the foregoing authorities. The
dispute as to the date for assessment of damages in that case turned on a
different point. Mr Swingland also referred to remarks made obiter by
the learned Vice-Chancellor in Wroth v Tyler [1974] Ch 30 and in Horsler
v Zorro [1975] Ch 302. Again I find there nothing inconsistent with the
principle expressed by Lord Haldane in the British Westinghouse case,
and indeed the dicta on common law damages at pp 56 and 57 of the report
of Wroth v Tyler encourage me in the view I have already taken.
Finally I do not think that either the Judicial Committee in Tai Hing Cotton
Mill Ltd v Kamsing Knitting Factory [1978] 2 WLR 62 or the Court of
Appeal in Malhotra v Choudhury [1978] 3 WLR 825 purported to
express any opinion on the sort of question that is now before me.
In the present
case the plaintiff was left by the defendant’s breach of contract with two
lots, unit 29 and unit 30, on its hands. It found short-term occupants for both
in January 1976, and the plaintiff’s first grant of a temporary licence on the 6th
of that month is agreed to have excluded further performance of the contract.
As I have said, a lease of unit 30 on a permanent footing followed quickly on
March 8 1976, but unit 29 was not so disposed of until September 19 1977. There
is no evidence that the plaintiff acted otherwise than reasonably in these
transactions. In my view, therefore, either party, for the reasons which I have
given, may insist on taking them into account in ascertaining the plaintiff’s
loss for the purpose of awarding damages.
Before leaving
the matter I should add two reservations to this judgment. First of all, I have
seen rival valuations obtained by the parties to assert or illustrate their
opposing contentions. A number of points may arise on the valuations, and some
of them have been touched upon in argument though without full debate. I
express no opinion on anything except the one question raised by the summons,
namely the choice of date for assessment of damages. Secondly, Oliver J said in
Radford v De Froberville, which I have already cited, at p 1286,
in allusion to times of financial instability that if the law is to bear any
relation to reality it must keep pace with the era in which we live. If that
athletic exercise is to be performed by means of judicial development of the
law, it may at some time be necessary to reconsider, and possibly to qualify,
the principle on which I have relied today. Suppose that a vendor sells a house
for £20,000 at a time when experts would put on it a market value of only
£18,000 and that he loses his good bargain by the purchaser’s refusal to
complete. Suppose further that it takes him a year to find a new purchaser and
that he then gets £20,500; but £20,500 is then no more than bare market value
through the continuing corruption of the currency, which has raised the price
of everything by about 15 per cent. It might seem hard to say in such
circumstances that the vendor has suffered no capital loss, but it might be
argued on the other hand that he will be sufficiently compensated by the
damages recoverable in respect of the year’s delay, rates of interest being
notoriously high in inflationary times. I have indicated my awareness of the
problem in deference to Oliver J’s admonition, but it has not been argued in
the present case and I express no opinion about it.
I shall
declare that for the purpose of the pending inquiry the damages, if any,
sustained by the plaintiff ought to be assessed as at September 19 1977, being
the date when the plaintiff completed reletting of the property. That does not
of course exclude from the computation special items, such as loss of current
rent, proved to have been sustained before that date.
It was
ordered that the plaintiff should pay the defendant the costs of the summons.
