Hampshire County Council v Supportways Community Services Ltd.

Following the handing down of judgment in this appeal on 18^th July, there were three issues which divided the parties. The appropriate order for costs and whether there should be leave to appeal to the House of Lords, are, of course, familiar issues for decision after judgment in this court. The third issue, however, was more unusual, and, because of the pressure of other commitments on members of the court when the argument was concluded, we have taken a little time to consider it. That third issue is whether, as the Company requests, we should direct an inquiry as to damages as left open in paragraph 48 of our judgments.

So far as permission to appeal to the House of Lords is concerned, I am satisfied that it should be refused. Mr Knafler contended that issues of some importance were raised in this appeal; if that is so, they are certainly not of sufficient importance to justify our granting permission to appeal. If a petition were presented to the House of Lords, it would be a matter for their Lordships whether they wish to hear the appeal. I turn to the Company’s claim for an inquiry as to damages.

The Company’s contention is based on the following series of propositions. First, Mitting J decided that the Council had failed to carry out the 2004 review in accordance with clause 11.3. Secondly, the Council abandoned its appeal on that issue (at least if we found for it on the issues on which it did in fact succeed). Thirdly, and accordingly, at least in the absence of any good reason to the contrary, the Company is entitled to damages for breach of clause 11.3, because it lost the opportunity of being offered a new contract by the Council on terms based on a review which accorded with clause 11.3. Fourthly, the appropriate and normal course to take in these circumstances is to order an inquiry as to damages.

A number of arguments have been raised by the Council as to why we should not order an inquiry. First, it is said that the abandonment of the appeal against the Judge’s finding that there was a breach of clause 11.3 was conditional, not only on the Council succeeding on the points on which it has succeeded in this court, but also on there not being any other claim against the Council. I do not agree. That was not my understanding of the basis upon which the Council’s abandonment of its appeal against the finding of breach was made. My clear understanding was set out in the opening part of paragraph 21 of my judgment, which was sent out in draft to the parties in advance of handing down in the normal way, and not challenged.

Secondly, it is said that the Company cannot recover any damages, because, even if it established that the 2004 review was not carried out in accordance with clause 11.3, and that the review should have been carried out on a basis more favourable to the Company, it remains the case that the Company had no right to require the Council to enter into a new contract with it. Thirdly, it is said that, if the review had been carried out in accordance with clause 11.3, it would not have produced a result significantly more favourable to the Company than the 2004 review actually produced. Fourthly, it is said that, even if these arguments are wrong, the Council would not have been prepared to enter into a new contract with the Company in any event.

These three points may well have force, but it does not seem to me that, even taken together, they are sufficiently strong to establish that there is no realistic prospect of the Company recovering any damages if we were to order an inquiry. As I see it (and it is right to emphasise that this is a provisional view because we heard no detailed argument on the point) an inquiry would have to decide the basis upon which the review should have been carried out, what such a review would have produced, whether that review would, on the balance of probabilities, have resulted in the Council entering into a new contract with the Company, whether that contract would have been profitable to the Company, and if so how that profitability translates into damages. In particular, at least as at presently advised, I do not think that this would be a case where the Company could base its claim on loss of a chance, because the issue concerns what the very parties to this litigation, namely the Council and the Company, would have done (see Allied Maples Limited –v- Simmons and Simmons [1995] 1 WLR 1602). As the Judge said, and as was and is common ground between the parties, and as it appears to me, any claim for damages would be highly speculative in light of the various hurdles which would have to be crossed by the Company, but it does not seem to me that it could be said that any inquiry has no realistic prospect of producing a positive result for the Company.

Fifthly, the Council argues that the Company effectively abandoned its claim for damages. Subject to the sixth point, that does not seem to me to be a good argument. In its final form, the Company’s claim did include, as one of the heads of relief sought, a claim for damages. Further, as Mr Knafler showed us, evidence was adduced on behalf of the Company to support a claim for damages. It may be said that the evidence was pretty general and sweeping in its effect, but it remains the case that the Company did put forward a claim for damages.

The sixth point made on behalf of the Council arises from the fact that following the judgment of Mitting J, the Council did in fact carry out a fresh review (“the second review”), which resulted in a decision not to enter into a new contract with the Company. At first sight, this seems to give rise to two separate reasons for concluding that the Company’s claim for damages must fail. First, following the decision of the Judge that there had been a breach of clause 11.3 and that the Company was entitled to specific enforcement of its right under that provision, the Company could have elected between specific performance or damages; indeed, it would seem that the right to elect would continue until such time as specific performance had actually taken place (see Johnson –v- Agnew [1980] AC 37). Not merely did the Company opt for specific performance, but it obtained specific performance, because, even though it now transpires that it was not obliged to do so, the Council carried out a fresh review. It would therefore seem to be too late for the Company to go back on its election, and to seek damages. Secondly, and quite apart from this, given that a fresh review was carried out, and resulted in the Council deciding not to enter into a new contract with the Company, it would seem that the Company could recover no damages for the anterior breach of clause 11.3, because it can now be seen that, even if the 2004 review had been carried out in accordance with clause 11.3, the Company would still not have obtained a new contract.

Having initially been of the opinion that, for these two reasons, the fresh review carried out by the Council did disentitle the Company from seeking an inquiry as to damages, I have reached a different conclusion. The essential reason for this is that the Company does not accept that the second review was carried out in accordance with clause 11.3. The fact that there may be something in this contention is supported by the fact that the Company not merely issued judicial review proceedings to challenge the validity of the second review, but successfully defeated an attempt by the Council to strike out those proceedings. As Mr Knafler was realistically inclined to accept, the effect of our decision must be that the judicial review proceedings are now bound to fail, essentially for two reasons. First, the second review was not one to which the Company was entitled; secondly, even if it was a review to which the Company was entitled, it was not susceptible to judicial review. However, the essential point is that the Company alleges apparently in good faith and with some prospect of success, that the fresh review was invalid.

In these circumstances, if we order an inquiry as to damages, one of the arguments advanced by the Council would be that the existence of the second review means that the Company is not entitled to damages, essentially for the two reasons discussed above (namely the Company cannot go back on its election to seek specific performance, and the second review resulted in no new contract for the Company). The Company would seek to meet that argument by contending and seeking to establish that the second review was not carried out in accordance with clause 11.3. If the Company fails to establish that, then its claim for damages would, as I see it, be dismissed. If, however, it establishes that the second review did not comply with clause 11.3, then (depending, no doubt at least in part, on the extent to which the review fell short of the requirement of clause 11.3) the second review and its result may be of assistance to the Council, but it would be unlikely to determine conclusively the damages issue against the Company.

In these circumstances, it seems to me that we cannot properly reject the Company’s application for an inquiry as to damages. However, that does not mean that we should order an inquiry as to damages without any conditions. Before considering whether, and if so what, conditions to attach to the order for an inquiry as to damages, I turn to consider the issue of costs.

I have not so far considered the question of costs, because it seems to me that the appropriate order for costs must depend in part on whether or not we accede to the Company’s application for an inquiry as to damages. If we did not so accede, then the proceedings would have resulted in a complete failure for the Company, and save for a small discount in favour of the Company to take into account the fact that it had established a breach of clause 11.3, it would seem to me that the Company would have to bear the costs here and below.

However, given that the Company has succeeded to the extent of obtaining an inquiry to damages, the question of costs appears to me to be rather more difficult. On the one hand, the Company has obtained some possible benefit from the proceedings; I refer to “possible” benefit because it may very well transpire that the inquiry as to damages produces no, or alternatively nominal, damages which would effectively represent complete failure from the Company’s perspective. Even though the Company may eventually obtain damages pursuant to the inquiry, it seems to me that, viewed in the round, the Council has been more successful in these proceedings than the Company, particularly if one considers the question of success on an issue-related basis. The only significant point on which the Company succeeded below was that the 2004 review was not carried out in accordance with clause 11.3, a point not debated on appeal. The primary relief which the Company sought was a fresh review, and we have held that they are not entitled to this either in private law or in public law. The Company’s application for damages was very much a fall back position, as is demonstrated by the acceptance by all sides of the fact that damages will be an inadequate and uncertain remedy and may well produce nothing.

In these circumstances, the proper award of costs is not entirely easy. I have reached the conclusion that the appropriate order for costs is that the Council should have 50% of its costs of the proceedings below and 90% of its costs of the appeal, and that the balance of the costs here and below should be determined by the court which decides the question of damages. If the Company recovers no, or only nominal, damages, then I would have thought it very likely that it would have to bear the balance of the costs which are to be reserved; if it obtains substantial damages, then it may well be that it should recover some or all of those costs.

Finally, I revert to the order for the inquiry into damages, and in particular whether any conditions should be attached to it. In my judgment, bearing in mind the history of these proceedings, it would be wrong to permit the Company to proceed with its inquiry as to damages unless and until it has paid to the Council the costs which I would award. As the assessment of those costs may take some time, it seems to me that the appropriate order is that the inquiry as to damages should be stayed until an appropriate sum of money (on account of the costs awarded in the Council’s favour) has been paid into court, or into an appropriate bank account agreed by the parties. That sum is to be agreed between the parties or, failing such agreement, to be determined by this court in accordance with written submissions made by the parties. If that sum is not paid into court by a specific date (I have in mind 1 October 2006 but would welcome any submissions on the point), then the order for an inquiry as to damages would be rescinded.

I agree.

I also agree.