Pirhayati v Rowshanian

Judgment

Lord Justice Wall :

Introduction

On 9 November 2005, after considering the applications on paper, Mummery LJ directed that “these linked applications would be more conveniently dealt with at an ex-parte oral hearing for directions”. That hearing took place before me sitting alone on 27 February 2006 as the first matter in a heavy list. Both parties were represented. Mr. David Giles, for the claimant, produced a helpful chronology and summary of issues, together with a summary of orders sought by the claimant in this court should permission to appeal be granted and the appeal allowed. Mr. Giles also produced a skeleton argument and an addendum to it. Mr. Charles Davies, for the defendant, produced summary submissions, a chronology, a skeleton argument and a supplemental skeleton argument.

The facts

The issues in the case

For the defendant, in a pleading which Judge Rich subsequently described as “convoluted” and which extended to 34 paragraphs, various counterclaims were made. These were, however, the subject to an interlocutory application made to His Honour Judge Knight QC and by a minute of order dated 9 March 2005, the defendant’s counterclaim and several paragraphs of the points of defence were struck out. I shall need to examine this aspect of the case in a little more detail in due course. Judge Rich summarised the position by recording that the defendant claimed damages for use and occupation from March 2001 (when the claimant went into occupation) on the basis that it was an express and / or implied term of the agreement between the parties that a payment for use and occupation would be made by the claimant.

The principle that a sum for use and occupation of the premises was payable was not disputed by the claimant, although his case was that he had paid the rent due to Happybadge from the defendant under the lease down to the date of the expiry of the defendant’s contractual term.

However, in addition to damages for use and occupation, the defendant claimed payments from the claimant for the period commencing 25 December 2004 (the contractual date for the expiry of the defendant’s lease) for as long as the claimant remained in occupation, in an amount equal to the amount which the defendant was liable to pay to Happybadge. These sums were calculated as a minimum estimate of £65,000 per annum (the previous contractual rate) but might well increase. As at the date the matter was before Judge Rich, the claimant’s case was that, as he remained in possession of the premises, he had been continuing to pay Happybadge at the rate of £65,000 per annum, no higher payment having been determined or agreed. The judge therefore worked on the contractual rate of £65,000 per annum. Indeed, he said that, on the evidence, he had no basis for arriving at a higher figure that the contractual rent.

Judge Rich’s judgment

The judge then dealt with an argument from the defendant to the effect that he was entitled to be paid £180,000 (the full purchase price of the lease) as a valuation of the right to occupy under the lease. However, as the judge pointed out, what the claimant was entitled to under the agreement was not only the right to occupy under the lease, but title to the lease itself, with the concomitant rights under LTA 1954. The judge was, accordingly, unable to accept that “such decapitalisation of the premium, even after allowance for statutory compensation under (LTA 1954) is a proper basis for assessing the value of the use and occupation over the period of the tenancy, at least without evidence in support”.

The judge then dealt with a further claim made by the defendant for “the open market letting value of the property to the claimant over the whole period of the claimant’s occupation, credit being given for the payments he had made in respect of the landlord’s rent and the purchase price as aforesaid”. Accepting that, in principle, market rent was the proper basis for assessing the value of use and occupation, the judge rejected the claim on two bases: (1) that he did not know what was meant by “market letting value to the claimant”; and (2) that such value could only be proved by valuation evidence, which the defendant had not elected to call.

The judge then turned to the claimant’s case. He held that the claimant’s claim for the return of the money paid, including the claim for damages for eviction, ignored the fact that consideration given for the lease “did not wholly fail”. The claimant had remained in occupation, as if under the lease, for the whole of the unexpired term. On this basis he distinguished a case cited to him by Mr. Giles, Wright v Collis (1848) CB 150 in which there was an agreement for the purchase of a lease between A and B, B believing that he had the power to grant it. A entered into possession and occupied for about two years, paying rent, before it transpired that B was not in a position to grant the lease. A was held to be entitled to recover the money he had paid towards the lease as money paid on a consideration which had wholly failed.

In the instant case, the judge took the view that the claimant had in fact enjoyed all the benefits for which he contracted to pay £180,000 down to the date on which the term of the lease expired. What he had lost by the defendant’s failure to assign the lease were the rights which he would have gained under LTA 1954. Those rights, the judge found, would have amounted to £83,000, being twice the rateable value of the premises. In fact, the landlord had agreed to pay the defendant the sum of £100,000 for his LTA 1954 rights (see paragraph 12 above), and the judge accordingly valued them at that figure. It followed, on this reasoning, that the claimant would only have recovered that sum (£100,000) if he had paid the outstanding balance of the purchase price (£80,679). His measure of damage was thus the difference between the two (£19,321). However, it was necessary to bring into account the sum of £19,233 (the 108 days as calculated in paragraph 17 above). The claimant was, accordingly, entitled to recover the difference between these two figures, namely £88.

On the basis of this award, the judge made no order as to the costs of the assessment of damages, save that the defendant was to have his costs “for 29 March 2005” (sic) to be assessed if not agreed. In the addendum to his skeleton argument, Mr. Giles points out that on 16 September 2005 the judge varied his costs order to provide that the parties were each to bear their own costs of the assessment of damages proceedings.

The claimant’s attack on the judgment

“…...if the purchaser pays the purchase money and enters into possession of the land but, before the conveyance is executed, he is evicted in consequence of a defect in the vendor’s title, he can recover the purchase money.”

Mr. Giles argued that the judge’s analysis was wrong because the effect of it was to enable the defendant to retain the benefit of the part payments that he had bargained to receive, plus title to the lease and the compensation for its termination. This had left the claimant out of pocket to the extent that he had made substantial part payments for the lease. It was, therefore, wrong to assess damages by reference to a factor over which the claimant had no control, namely the lease’s value.

Mr. Giles further argued that the judge’s decision was wrong because it confined the claimant to damages for loss of his bargain. The claimant did not have to put his case in that way and did not do so. Instead of claiming damages for loss of bargain he sought the return of his part payment. The claimant was entitled to recover as damages the expenditure thrown away by entering into the agreement, and in the context of this case that meant recovery of the part payment.

Mr. Giles argued that there could be a total failure of consideration even where the payer had received some benefit. The test was whether the benefit received by the payer was the benefit bargained for. In the present case, the benefit identified by the judge as having been received was occupation of the premises for the whole of the period of the unexpired term of the lease (March 2001 to December 2005) and the opportunity to trade from the premises. However, that benefit, Mr. Giles argued, was different in kind from what was bargained for and what the payments were paid towards acquiring, namely ownership of the defendant’s lease.

Mr. Giles argued further that the claimant was obliged to pay the rent to the landlord and make other payments to the defendant for occupying and trading from the premises. But over and above making those payments, the claimant made payments towards the purchase price of the lease, and it was the return of those payments which he claimed, not the payments of rent to the landlord or other payments to the defendant.

It followed, Mr. Giles argued, that the judge was wrong to distinguish the case of Wright v Collis (supra). where a premium paid specifically for the execution of a lease was held recoverable as being paid for a consideration that had wholly failed when the landlord failed to execute it although the claimant had been in occupation of the land for about two years paying the rent.

As far as the order for costs was concerned, Mr. Giles submitted that the judge had decided that since the claimant had been awarded damages less than £3000 he was not entitled to his costs. There was no rule in the CPR to that effect. This claim had been assigned to the Multi-Track, so other than the court’s general discretion as to costs, there was no rule that provided that if the claimant was awarded damages of £88 he was not entitled to his costs. Moreover, the claimant’s damages had been assessed at over £19,000. It was only when the defendant’s damages for use and occupation were set off against the claimant’s damages that the net figure for damages became £88.

The merits of the claimant’s permission application

It seems to me that the judge was right to say that if the lease had been assigned by the defendant to the claimant, and had the claimant paid the full price, the claimant would have been entitled to the LTA 1954 compensation. But to get that compensation, he would have had to have paid the balance of the purchase price. The judge was plainly therefore entitled to deduct the latter from the former when assessing the claimant’s measure of damages. The judge was equally entitled, in my view, to bring into the equation the 108 days.

In my judgment, therefore, the judge’s approach, was correct. It follows that the claimant’s application for permission to appeal must be refused.

As to the judge’s costs order, the claimant has, in my judgment, achieved all he could reasonably expect to achieve by the variation which the judge made on 16 September 2005. Costs are always a matter of judicial discretion. The judge’s final conclusion appears to have been that neither party had “won”; that neither party had made an effective Part 36 offer, and accordingly that each should bear their own costs. That was a perfectly rational and proper approach, and one which accords with proportionality. I do not see any prospect of an appellate court reversing that approach. In my judgment, therefore, the claimant’s costs appeal would also have no reasonable prospect of success, and the application for permission in this regard will also be refused.

The defendant’s application for permission to appeal

As to the rate of the damages during the continuation tenancy, the judge had held that an interim rent had not yet been determined, and that, on the evidence, he had no basis for arriving at a higher figure than the contractual rent of £65,000. The judge should have made provision in his order for the parties to return to court (in default of agreement) once the interim rent was fixed, if it was fixed at a higher rent than £65,000.

Mr. Davies pointed out that the defendant’s Amended Points of Defence had envisaged a situation in which the interim rent was fixed at a higher rate than £65,000, and had argued that in the event that the landlord’s charges increased, for example to £75,000 or £80,000 or other amount per year, the defendant would be entitled to be compensated by the claimant at the increased rate. The defendant had requested an order in this form in his skeleton argument prepared for the trial. In fact, the interim rent was fixed at £75,000 by a consent order made on 13 June 2005. That figure was also: (a) the level of rent in the draft lease which it was proposed the claimant should take in July 2004; (b) the level of use and occupation charges which the claimant agreed to pay to Happybadge in a consent order of 22 June 2005; and (c) the level of mesne profits payable by the claimant to Happybadge under the order of 12 January 2006.

Mr. Davies submitted it was unjust that the claimant should be required to pay the defendant damages during the continuation tenancy at the rate of £65,000, when the defendant was liable to Happybadge during the same period at the rate of £75,000 (and had paid Happybadge that rent at that rate).

Mr. Davies next addressed the question of damages for the claimant’s occupation of the premises after the end of continuation tenancy. He argued that the judge had declined to award the defendant damages in this regard because he wrongly held that Judge Knight had struck this claim out. Mr. Davies argued that Judge Knight’s order of 9 March 2005 was not intended to have this effect, since paragraph 4 of his order permitted the defendant to claim damages for use and occupation, without any temporal or other limitation, as had Judge Cooke’s order of 7 January 2005.

Judge Knight’s intention, Mr. Davies argued, was to debar only the references to a claim for loss of profit – that is to say a different claim. He argued that the transcript of the hearing before Judge Knight did not support the view that he had intended to debar this claim. The transcript showed that he struck out paras 22 and 23 (inter alia) of the Points of Defence and Counterclaim without addressing their contents on the (erroneous) basis that they were outside the ambit of Judge Cooke’s order.

Mr. Davies argued that the claim was pleaded in the defendant’s Amended Points of Claim, and was thus an issue properly before the Court. There had been no application to strike it out, no objection of any kind taken to it in correspondence, and no objection was taken to the pleading in the claimant’s skeleton for trial.

If, contrary to these submission, the court were to hold that Judge Knight intended to strike out this claim, permission was sought to appeal against his order out of time. Permission was not sought earlier, Mr. Davies argued, because it was reasonably believed until trial that his order did not debar the claim. The claim, Mr. Davies argued, was good in law, since a party may claim damages for use and occupation despite the termination of his lease. The defendant should be awarded damages at the rate of £75,000 p.a., or the matter should be remitted to the court below, as in the case of the rate of damages during the continuation tenancy.

Striking out the claim, Mr. Davies argued, had resulted in a windfall to the claimant, since he had enjoyed the profits from the shop for some years without accounting for them to the defendant as the parties had intended. The defendant had been severely hampered in this action by his lack of funds. There would have been no prejudice to the claimant if this claim had been allowed.

Mr. Davies next dealt with the settlement with Happybadge. He argued that the consent order of 12 January 2005 between the defendant and Happybadge permitted the latter to deduct “payment for use and occupation” until vacant possession was given up from the sum of £100,000 payable in respect of termination of the business tenancy. As indicated, Happybadge had now obtained judgment against the claimant for use and occupation and mesne profits at the rate of £75,000 per annum. In February 2006, Happybadge had paid the balance of the settlement money - totalling £77,802.22 (£100,000 less rent at the rate of £75,000 p.a. of £22,191.78 due from the defendant for the period 25 December 2004 to 12 April 2005) - to the defendant’s solicitors, following the conclusion of its action for possession against the claimant.

As a result, Mr. Davies argued, there was a discrepancy between the sum of £22,191.78 deducted by Happybadge and Judge Rich’s award to the defendant of £19,233 in respect of the same period. The defendant was thus £2,958.78 out of pocket in this regard. The defendant’s intended appeal on the question of damages after 12 April 2005 would in any event retain its significance on the question of costs on the basis that Judge Rich should have found for the defendant on these matters at trial and therefore should have awarded the defendant his (substantial) costs of the action.

On the question of costs, if any of the defendant’s grounds of appeal were successful, he would seek consequential costs orders, including an order that the claimant pay him (inter alia) all the very substantial costs documented in the papers.

The defendant’s pleaded case

The minute of the order agreed between counsel, in addition to identifying individual paragraphs of the pleading which are to be struck out, states in term in paragraph 1 that “all the paragraphs comprising the “Counterclaim” therein, be struck out”, and adds for good measure that: -

“To the extent that the same has not already been struck out pursuant to paragraph 1 above, the defendant’s application for permission to amend the Points of Defence and Counterclaim is dismissed.”

This was duly done, and the final version of the Amended Points of Defence is in my papers. After from an elaborate traverse of the claim, the defence seeks to set off against any liability to the claimant the defendant’s claim for use and occupation, which is pleaded in detail. For the period commencing 25 December 2004, the claim is for “an amount equal to the amount of rent or use and occupation charges which are or become payable by the defendant to (Happybadge) over the same period.” That figure was expressed currently to be £65,000 per annum but if the amount increased, the defendant sought to be compensated at the increased rate (for example £75,000 or £80,000 per annum.

The pleading accepts that given the amounts paid to date by the claimant towards the purchase price and by way of landlord’s rent, the claimant was in credit by some £2,321. However, the pleading argued that if repayment of all or any part of the amounts already paid to the defendant by the claimant was ordered or made, that would require a corresponding adjustment of the amount of outstanding use and occupation charges.

Further or alternatively, the defendant claimed the open market letting value of the property to the claimant over the whole period, with credit being given for the payments he had made in respect of the landlord’s rent and the purchase price.

Discussion

The second point relates to the amount of the “interim” rent. Agreement as to retrospective interim rent at £75,000 per annum as opposed to £65,000 was reached between Happybadge and the defendant and embodied in a consent order dated 22 June 2005, which was of course after Judge Rich had made his order in the proceedings between the claimant and the defendant on 10 June 2005. The judge was aware of that possibility, and dealt with it – see paragraph 17 above. The claimant was not a party to the proceedings between Happybadge and the defendant, nor is there any evidence to suggest that he was privy to the negotiations in any way. The defendant, on the other hand, would have been acutely aware of the outcome of the proceedings between himself and the claimant.

The fact that the claimant appears to have negotiated a fresh lease for a substantial term with Happybadge at a rental of £75,000 per annum does not seem to me to be an argument for fixing the claimant with an increased interim rent of £75,000. I do not know what factors informed the claimant’s negotiations, and very different considerations could well have influenced the negotiations which arrived at that figure from those considerations which could be taken into account for the purpose of assessing the interim rent. I do not, moreover, think the judge was wrong on 10 June 2005 to work on the figure of £65,000: to put it at its lowest, he was entitled to take that course, in the light of the evidence (or, more accurately, the absence of evidence) available to him. Further, I am sympathetic to his decision not to reopen the matter in September 2005. In the light of the matters I have mentioned, reopening the case on this narrow issue would have been potentially unfair on the claimant, likely to lead to significant amount of cross-examination, expert evidence and argument, and would have been wholly disproportionate to the amount involved

As to the application for permission to appeal out of time against Judge Knight’s order striking out the counterclaim, I have already identified the basis upon which Judge Rich rejected the defendant’s claim. Judge Rich identified the material in the struck out paragraphs as claiming “additional rent under the agreement, or a share of the profits under the agreement in so far as they had not already been paid”. There was also a claim for the loss which it was apprehended the defendant would suffer if he was unable to give the landlord vacant possession as agreed under the LTA 1954 proceedings.

It would, in my judgment, be quite wrong to allow the defendant permission to appeal out of time against Judge Knight’s interlocutory order striking out his counterclaim. The defendant has not demonstrated a particularly good record in relation to obedience to court orders during the course of these proceedings, as the early paragraphs of this judgment demonstrate. He has, however, had the benefit of legal representation. Counsel settled the relevant pleading. There was full argument before Judge Knight on 9 March 2005, and no timeous application was made for permission to appeal against his order striking out the counterclaim. The application is not only out of time: it post-dates the hearing for which the pleading was prepared. Furthermore, in my judgment, the defendant has not been prejudiced. The judge, in my view, has taken account of, and adjudicated on, all the defendant’s legitimate claims.

On 16 September 2005, the judge rejected the defendant’s application to vary his order of 10 June 2005 in relation to the assessment of the damages for use and occupation. In my judgment, as I have already indicated, he was, to put it at its lowest, entitled to do so. He amended his costs order to make no order as to costs. That was also something he was entitled to do. In my view, the judge has done broad justice. The claimant has occupied the premises and traded in them (with only two brief gaps) throughout, and remains in occupation under a fresh lease from Happybadge. The argument that there had been a total failure of consideration does not get off the ground. The claimant should have had the benefit of the LTA 1954 compensation, but he would only have received it had he paid for the lease in full. The sum outstanding on the purchase thus fell to be set off against the LTA 1954 compensation. Also to be taken into account was the rent payable from the termination of the contractual lease to the date to the LTA 1954 termination. Any suggestion that this should be more than 108 days was not brought to the judge’s attention at the time, and there does not seem to be any evidence that the judge was alerted to it on 16 September 2005. Equally, it seems to me that the judge was entitled to adhere to the £65,000 per annum rent.

Concluding remarks