Shi v Jiangsu Native Produce Import & Exprt Corp

The defendant company (I will call them “JNP China”) is registered in China. It is an importer and exporter of goods. In October 1990 it incorporated a UK subsidiary company, JNP UK Limited (“JNP UK”). Mr Shi has been employed by JNP China since 1988 in various capacities. He was transferred to the United Kingdom in May 1991 and became first the business manager and later the managing director of JNP UK until July 2002 when JNP UK was wound up.

Mr Shi’s case, as set out in his amended Particulars of Claim dated 20 March 2008, is as follows. It was a term of his employment with JNP China that he would be paid an annual salary by JNP UK of £15,000 from May 1993 until April 1997 while he was business manager, and a salary of £30,000 thereafter while he was the managing director, and that if JNP UK failed to pay, then JNP China would make good any default. JNP UK failed to pay instalments of salary in the total sum of £120,843 during the period May 1993 to July 2002. In July 2002 it was agreed that JNP China would pay Mr Shi a monthly salary of £2,500. In breach of that obligation, JNP China failed to pay any salary at all. By April 2008 the arrears, so it was claimed, were £172,500.

Thus, in his amended Particulars of Claim, Mr Shi claimed arrears of salary of £120,656 in respect of the period May 1993 to July 2002; £172,500 in respect of the period from August 2002 to April 2008: a total sum of £293,343. He also claimed £20,643 in respect of various items of out of pocket expenses and maintenance, such as professional fees and council tax, which he said had been paid by him on behalf of JNP China and JNP UK between July 2002 and April 2008, and £127,938 in respect of his share of an investment by JNP UK in a Chinese company called Wuxi Huamao Chemical Company. As at March 2008 this total money claim was quantified therefore in the sum of £441,924.

In October 1993 JNP China purchased 6 Hurstwood Road, London NW11 (“the property”) for the use of JNP employees. It was agreed with JNP China that Mr Shi would be allowed to reside in the property rent-free while he was running JNP UK. Mr Shi offered to buy the property on about 12 July 2002 for £325,000. The history of what became an abortive transaction is no longer relevant; suffice it to say that Mr Shi contended that a binding contract of sale had been concluded and JNP China disputed this. In these proceedings Mr Shi claimed various relief in relation to the property, including specific performance of what he contended to be a contract for the sale of it. The claim in relation to the property was dismissed by HHJ Ryland on 25 July 2008. Mr Shi has not been given permission to appeal against any of the judge’s decisions in relation to the property and I say no more about that part of the case.

The judge also dismissed his money claims. Mr Shi has been given permission to appeal against the judge’s decision in relation to his claim for salary and expenses by Jacob LJ. JNP China’s pleaded case in relation to the money claims is as follows.

It was not a term of Mr Shi’s employment with JNP China in 1993 that he would be paid a salary by JNP UK of £15,000 per annum or £30,000 per annum, or that JNP China would pay in the event of default by JNP UK. Mr Shi was in de facto control of JNP UK and decided what salary and expenses he should be paid. JNP China denied that there had been any failure to pay salary or expenses by JNP UK or that, if there had been any such breach, it was under an obligation to make good any shortfall. It also denied that it agreed to pay a monthly salary to Mr Shi following the winding up of JNP UK. If there were any arrears then Mr Shi was put to proof as to the amount.

JNP China also pleaded a counterclaim on the following basis. Mr Shi was put to strict proof that he had a contractual right to reside in the property. The defence case was that JNP China agreed to allow Mr Shi and other JNP employees to reside in the property without charge whilst they remained in its employment. Mr Shi therefore had a bare licence to occupy the property. This licence was terminated on 14 July 2003 by letter dated 16 June 2003. By reason of Mr Shi’s failure to vacate the property JNP China claimed mesne profits from 14 July 2003 and continuing at the monthly rate of £1700.

The judge held that Mr Shi’s licence to occupy the property was terminated on 14 July 2003 and that Mr Shi remained in occupation thereafter as a trespasser. The judge, however, dismissed the counterclaim for mesne profits. JNP cross-appeals on this point.

The judge dealt with this issue at paragraph 13 of his judgment as follows:

“I have also looked with great care at the claims made by the Claimant for sums of money which he says the Defendant owes him. I am not satisfied on the basis of the Claimant’s evidence that the English company owes him any monies. Nor am I satisfied that the Defendant agreed to guarantee any debts owed by JNP to the Claimant. Neither am I satisfied that the Defendant agreed to pay £2500 per month to the Claimant after JNP was wound up. In a schedule of money claimed dated 20 March 2008 the Claimant raised for the first time a claim for out of pocket and daily expenses and maintenance from July 2002 and also sums in respect of monies invested in JNP in China together with an assumed figure for growth over the years. Those matters have not been pleaded and there has been no permission to amend the pleading to add them. I consider that they amount to another attempt to vary the amount of the figures sought by the Claimant. I am not satisfied that his oral evidence supports the claims for arrears and other figures. He has been unable to produce any satisfactory documentary evidence before me which satisfies me that he is owed such sums. The figures he has put forward vary over the years and I am not satisfied that on occasions in the past he was merely putting forward estimated figures which transpired to be inaccurate upon closer scrutiny. It follows that I do not find his money claims substantiated and I shall dismiss them.”

At paragraph 5 of his judgment the judge had given his assessment of Mr Shi as a witness. He said:

“I was not impressed by the credibility of his evidence. Both in its written and oral form it seemed to me to change remarkably frequently, even giving him all credit for the matters which I have above set out. There was a great deal of melodrama about his evidence, which I also found unconvincing even after making all allowances. Where his evidence conflicts with any first hand account given to me by Mr Fu and/or contained in a contemporaneous document, I prefer the evidence of Mr Fu and the contents of such document to the evidence of the Claimant.”

As the judge said in paragraph 13, Mr Shi had put forward varying money claims at different times. Thus, on 31 January 2003, he wrote to JNP China saying that the debt owed by it to him was £19,893. This included arrears of “wages to be paid by JNP” up to February 2003 of £8,576. On 24 February 2003 he wrote saying that there were arrears of salary owed by JNP UK in excess of £5,000. On 18 May 2003 he claimed £192,127 arrears of salary and expenses. In a statement dated 8 July 2003 in support of an application for an injunction he said that JNP China owed him £160,000.

In the report prepared by Mr Shi for the purposes of the winding of JNP UK he stated that the amount due to him in respect of unpaid salary was £2,975.18. In the Particulars of Claim of September 2003 the claim was quantified at £155,843, which included £108,343 in respect of the period up to the winding up of JNP UK.

In a skeleton argument prepared by Mr Shi’s counsel for this appeal it is submitted that the judge was wrong to dismiss the claim in respect of the period before JNP UK was wound up. Once Mr Shi had established that he was employed by JNP China and not JNP UK, and that only part of his salary had been paid, the onus shifted to JNP China to prove that the salary had been paid in full. Any of his salary paid by JNP UK was paid to Mr Shi on behalf of JNP China. It fell to JNP China to prove that the salary had been paid and that JNP China failed to discharge that evidential burden.

As regards the period after JNP UK had been wound up, it is said in the skeleton argument that, since the judge accepted that from July 2002 Mr Shi was employed by JNP China, he ought to have held that it was an implied term of the contract of employment that JNP China, as employer, would pay Mr Shi’s salary. Since Mr Shi had established the contract of employment, the onus was on JNP China to prove that the salary had been paid in full. JNP China failed to discharge this burden of proof.

Today Mr Shi appears before us as a litigant in person ably assisted by his daughter. I have no hesitation in rejecting the points made by counsel in his skeleton argument. It was clear from the defence that JNP China disputed the money claims in their entirety. Its case was that in the period up to July 2002 when JNP UK was wound up the payment of Mr Shi’s salary and the reimbursement of his expenses was the responsibility of that company and not of JNP China, and that JNP China had not agreed to make good any default by the UK company. Its case, in respect of the period after JNP UK had been wound up, was that it, JNP China, had not agreed to pay Mr Shi £2,500 per month. It must have been clear to those representing Mr Shi that it was for the claimant to prove his claim, as indeed it was. No burden of proof fell on JNP China. That is the short answer to Mr Shi’s appeal as developed in counsel’s skeleton argument.

Mr Shi has addressed us this morning at some length on the facts of the case. On 28 August 2002 a written agreement was entered into between him and one of the companies in the JNP Group whereby he was appointed to be in charge of the UK Liaison Office. It provided amongst other things:

“During the stay in the UK, Mr Shi will be responsible for all expenses himself and will be responsible for any legal obligation himself. The parent company will support the Liaison Office in the aspect of business properly, and in the meantime the Liaison Office will pay US $5,000 every year to the parent company was a return at least for three years since 2003.”

Mr Shi told us that this agreement was made in the expectation and on the basis that a contract would be concluded for his purchase of the property. As I have said, that purchase did not take place. It might have been possible for Mr Shi to advance a case in respect of the period after the purchase transaction aborted in quantum meruit but that would have had to be pleaded and details of the work done particularised and quantified. We are told by Mr Dovar, who appears for the respondent, that such a claim would have been resisted on the basis that Mr Shi did little or no work for JNP China during this period. At all events, such a claim has not been pleaded and it is now too late to put the case on that basis. To return to the way in which the claim was put before the judge, no argument has been advanced to us which leads me to conclude that the judge’s conclusion at paragraph 13 of his judgment was wrong. The judge was entitled to hold that Mr Shi had not proved his case; the claim had fluctuated greatly and without explanation from time to time. The judge saw and heard Mr Shi give evidence and he found, as he was entitled to do, that his evidence lacked credibility. I would therefore dismiss the appeal.

At paragraph 10 of his judgment the judge said that he did not accept that the claimant’s right to occupy the property “somehow runs in tandem with his continued employment by the defendant”. He said that “it started off as a licence and remains such until its determination by reasonable notice”. Reasonable notice was given on 16 June when he was given 28 days’ notice to vacate. Thereafter he remained in occupation as a trespasser. The judge therefore made an order for possession.

He then turned to the claim for mesne profits. As pleaded in the counterclaim, JNP China alleged that, by reason of Mr Shi’s failure to vacate the property, it had suffered loss and damage in the form of loss of rental/mesne profits. It quantified its loss in the sum of £1700 per month from 14 July 2003 and continuing. There was before the judge a joint experts’ report from a valuer which set out his opinion of the weekly rental value of the property during the years 2003 to 2008 inclusive. On the basis of that report, the total rent that would have been payable between 14 July 2003 and 5 September 2008 was £114,345.

Having referred to Ministry of Defence and Ashman [1993] 25 HLR 514, Ministry of Defence v Thompson [1993] 25 HLR 552 and Swordheath Properties Ltd v Tabet [1979] 1 WLR 285, the judge said this at paragraph 12:

“I consider that there are exceptional circumstances in this case. The first is the fact that the Claimant is and remains an employee of the Defendant. The second is that he was permitted by the Defendant at all times to occupy the property rent free. No rental was ever imposed or sought to be imposed by the Defendant, even after it had terminated his licence. Third, it has delayed for many years in obtaining any possession to which it might be entitled. Fourth, I accept that the Claimant believes and believed at all material times (wrongly according to my findings) that he had a right to occupy the premises as a consequence of being told so by a representative of the Defendant. I accept that proposition since I do not consider that the Claimant would have voluntarily done repairs to the property unless he thought he had a right to occupy it. Fifth, I accept that the Claimant has, in all probability, no where else where he can move to. Finally I consider that the fact that the Defendant is a Chinese corporation which has wound up its UK subsidiary is of relevance to the question of exceptional circumstances. Doing that leads me to the conclusion that the proper figure for such mesne profits/rental is what the Defendant at all times sought to have the Claimant pay for his occupation of the property, which is nil. I propose to dismiss that part of the Defendant’s counterclaim.”

In the Ministry of Defence v Ashman the defendants were given notice to quit accommodation but unlawfully remained in occupation. The plaintiff claimed possession and mesne profits. The main issue was how the mesne profits were to be assessed. Hoffmann LJ said at page 519:

“A person entitled to possession of land can make a claim against a person who has been in occupation without his consent on two alternative bases. The first is for the loss which he has suffered in consequence of the defendant’s trespass. This is the normal measure of damages in the law of tort. The second is the value of the benefit which the occupier has received. This is a claim for restitution. The two bases of claim are mutually exclusive and the plaintiff must elect before judgment which of them he wishes to pursue. These principles are not only fair but, as Kennedy LJ demonstrated, well established by authority.”

Kennedy and Hoffmann LJJ said that on the facts of that case the landlord had elected for the restitutionary remedy and said that the only question was the value of the benefit received by the defendant. As to that, Hoffmann LJ said:

“The open market value will ordinarily be appropriate because the defendant has chosen to stay in the premises rather than pay for equivalent premises somewhere else. But such benefits may in special circumstances be subject to what Professor Birks, in his Introduction to the Law of Restitution has conveniently called subjective devaluation. This means the benefit may not be worth as much to the particular defendant as to someone else. In particular, it may be worth less to a defendant who has not been free to reject it. Mr and Mrs Ashman would probably have never occupied the premises in the first place if they had to pay £472 a month instead of the concessionary licence fee of £95. Mrs Ashman would certainly not have stayed in the premises at the market rate if she had any choice in the matter. She stayed because she could not establish priority need to be rehoused by the local authority until the eviction order had been made against her. Once the necessary proceedings had been taken she was able to obtain local authority housing at £145 per month.

In my judgment, therefore, the special circumstances in this case are created by the combination of two factors. First, the fact that the Ashmans were occupying at a concessionary licence fee. Second, the fact that Mrs Ashman had, in practice, no choice but to stay in the premises until the local authority were willing to rehouse her. The first factor is important because I think if the Ashmans had voluntarily paid the ordinary market rate, they could not claim their premises had become worth less to them because they could not find anywhere else to go.

The second factor is important because I do not think the defendant can say the premises were worth less to him than suitable accommodation he could realistically obtain. In the circumstances of this case the value to Mrs Ashman was no more than she would have had to pay for suitable local authority housing, if she could have been immediately rehoused. Allowing subjective devaluation in circumstances like this will not cause any injustice to a landlord …”

Hoffmann LJ returned to the subject in Ministry of Defence v Thompson. He said:

“The principles in Ashman may, in my judgment, be summarised as follows: first, an owner of land which is occupied without his consent may elect whether to claim damages for the loss which he has been caused or restitution of the value of the benefit which the defendant has received.

Secondly, the fact that the owner if he had obtained possession would have let the premises at a concessionary rent, or even would not have let them at all, is irrelevant to the calculation of the benefit for the purposes of restitutionary claim. What matters is the benefit the defendant has received.

Thirdly, a benefit may be worth less to an involuntary recipient than to one who has a free choice as to whether to remain in occupation or move elsewhere.

Fourthly, the value of the right of occupation to a former licensee who has occupied at a concessionary rent and who has remained in possession only because she could not be rehoused by the local authority until a possession order has been made, would ordinarily be whichever is the higher of the former concessionary rent and what she would have paid for local authority housing suitable for her needs if she had been rehoused at the time when the notice expired.”

It is clear that the judge in the present case assessed the claim for mesne profits on the footing that the defendant had elected to advance the claim in restitution. It is only in relation to such a claim that the question arises whether the benefit to the claimant in occupying the premises may in special circumstances be subject to “subjective devaluation”. These considerations have no part to play in the quantification of damages for trespass. The judge did not explain why he assessed the mesne profits as if JNP China had elected to claim in restitution. In my judgment the judge was wrong to carry out his assessment on that basis. The counterclaim clearly pleaded the claim as one for damages and not as a claim in restitution. It follows that the foundation for the judge’s conclusion that there were exceptional or special circumstances which justified assessing the mesne profits at nil did not exist. The mesne profits should have been assessed in a sum representing the loss suffered by JNP China as a result of being deprived by Mr Shi of vacant possession of the property. I see no reason not to assess those damages in the sum of £114,345 in accordance with the experts’ report.

That is sufficient to dispose of the cross-appeal but I should go on to express my view of the judge’s approach to the claim as if it had been advanced in restitution. I would accept the submission of Mr Dovar that the judge clearly misunderstood and misapplied the “subjective devaluation” principle in this case. As Hoffmann LJ said in Ashman, the open market value will usually be the appropriate measure of the value of the benefit to the person who is in wrongful possession of the premises, but there may be special circumstances where the benefit of the occupation may not be worth as much to the occupant as to someone else. He gives the example of the person who would not have stayed in the premises at the market rate if he or she had had any choice in the matter. It is clear in this case that Mr Shi did have a choice to move to alternative accommodation. It seems that he refused to do so because he was annoyed at the way JNP China had behaved. The judge seems to have thought that, in deciding whether there were special circumstances which justified assessing the value of the benefit of the accommodation to Mr Shi as less than to an ordinary occupier, he could take account of any unusual circumstances in a general sense. In my view, that was the wrong approach. The special circumstances which justify a reduction from the open market rental value can only be circumstances which result in the value of the premises to the occupant being less than it would be to a typical potential occupant of the premises.

I turn briefly to the exceptional circumstances relied on by the judge. The fact that Mr Shi was and remained an employee of JNP China was not a relevant special circumstance. It did not impact on Mr Shi’s right to reside. It could not have affected the value to him of the benefit of the occupation of the property. The fact that Mr Shi was permitted to occupy the property rent-free was not of itself a special circumstance affecting the value of the benefit of the occupation following the termination of the licence. As Hoffmann LJ made clear, the value of the right of occupation to a former licensee who has occupied at a concessionary rent is not a special circumstance without more. It may become a special circumstance when taken in conjunction with the fact that the occupant has no choice but to stay in the premises until he or she has been rehoused in cheaper accommodation, but Mr Shi did not assert that he had no choice but to stay in the premises until he was rehoused in less expensive accommodation.

I do not consider that delay in seeking possession is a special circumstance which can attract the subjective devaluation principle. The only relevance of delay would be if the claim were barred by the Limitation Act 1980. It might also be relevant to any award of interest. In my judgment, none of the remaining factors relied on by the judge was a relevant special circumstance. Neither the fact that Mr Shi wrongly believed that he had a right to remain in the property, nor the fact that he had no other available accommodation, nor the fact that JNP China is a Chinese company which wound up its UK subsidiary could operate to reduce the value of the benefit of continuing occupation of the property to Mr Shi. In my judgment, if the counterclaim was considered as a claim in restitution there was no basis for treating the value of the benefit of occupation to Mr Shi as being less than the market value.

For the reasons already given, I would asses that value at £114,345 and allow the cross-appeal.

I agree. Despite Mr Shi’s valiant attempts, I am of the opinion that the judge cannot be shown to have been wrong in law in concluding that there was no money owing to Mr Shi from the respondent, JNP China, as the judge said at paragraph 13. Accordingly, the appellant’s appeal, limited as it was by the terms of the grant of permission to appeal to that issue, must fail. For the reasons given by Dyson LJ, likewise I am satisfied for the reason given by him that the respondent’s cross-appeal, on the question of compensation for Mr Shi’s occupation of the premises since July 2003, must succeed. The judge was wrong in law and the arguments addressed by Mr Shi on that point do not suffice to demonstrate otherwise.

I agree with both judgments.