Hajigeorgiu v Vasiliou

This is a renewed application for permission, Lloyd LJ having refused permission on the papers on 29 March 2010. The applicant, represented before me by Mr Alper Riza QC, is the defendant, Nicos Hajigeorgiu. The respondent is the claimant, Vassos Vasiliou. The proposed appeal is against an assessment of damages made by His Honour Judge Dight by his order dated 11 January 2010 in the Central London County Court.

The background is that on 31 October 1995 the applicant acquired shop and upper floor premises at 29 Green Lanes, Palmers Green in the London Borough of Enfield. They were in poor condition. In January 2001, in anticipation of a grant by the applicant to him of a lease of the ground floor shop premises and yard at the rear, Mr Vasiliou started work on the conversion of the shop into a restaurant, his works including the erection of a single storey extension in the yard that was a condition of the planning consent for the conversion to a restaurant use. The applicant granted Mr Vasiliou the lease on 14 May 2001. It was for a term of 15 years from 25 December 2000 at an annual rent of £15,600 subject to review after five years. Mr Vasiliou completed the conversion works by October 2001. They had been carried out with the applicant’s consent but without any formal licence or building control permission. The restaurant was to be called ‘Zorbas’. The applicant let the two upper floors of the building as separate flats on long leases.

By a claim started on 1 August 2002, Mr Vasiliou sued the applicant for breach of his covenant for quiet enjoyment. His case was that an obstruction to the fire exit placed by the applicant in the yard to the rear of Zorbas rendered the restaurant unusable. By a judgment on liability in April 2004, His Honour Judge Levy QC gave judgment against the applicant for damages to be assessed for the period 30 April 2002 to 19 December 2003, when the obstruction was removed. The ssessment took place before Judge Levy in February 2006, when it was agreed that the measure of damages was Mr Vasiliou’s lost profit that he would, but for the breach, have made at Zorbas, a trade that would have been based on a clientele of Greek Cypriot origin.

Judge Levy gave his reserved judgment on 21 June 2006. His subsequent order of 19 July 2006 awarded damages of £241,841.90 against the applicant, reflecting lost profit at a rate of £377 a day. Judge Levy found that Mr Vasiliou was well capable of running a restaurant successfully and that there was a sufficient concentration of people of Greek Cypriot origin in the area to make Zorbas successful.

Mr Vasiliou started a second action against the applicant on 17 May 2006. That led to Judge Levy’s consent order dated 7 September 2007 for damages to be assessed under three heads: (i) for breach of the applicant’s covenant for quiet enjoyment in the 2001 lease for the period 12 February 2004 to 11 April 2007; (ii) for wrongful repudiation by the applicant of the 2001 lease; and (iii) on the basis of the assignment value of the unexpired term of the lease under an arm’s length open market transaction on the assumption that the premises were in good repair and trading normally as a licensed restaurant. In the event, it appears they were only assessed under heads (i) and (iii).

The assessment took place before Judge Dight over four days in July 2008 and four days in October 2009, his reserved judgment following on 11 January 2010. Down to the commencement of the October hearings, the applicant was represented by the same solicitors and counsel who had acted for him in the first action. During the October 2009 hearings, he represented himself, assisted by a retired barrister as a McKenzie friend. It is that assessment that has led to this renewed permission application.

The second action had arisen out of actions or omissions on the part of the applicant that continued to render Zorbas unusable as a restaurant, in particular by resulting in the ingress of water and waste from the upper parts of the building into the rear extension that Mr Vasiliou had built (a toilet block) so rendering unusable both it and the restaurant. On 11 April 2007 Mr Vasiliou accepted what he claimed was the applicant’s repudiatory breach of the lease, on 10 May 2007 he vacated Zorbas and returned the keys and on 15 May 2007 he amended the claim to allege that the lease had been so terminated, which the applicant admitted on 6 September 2007.

So far as necessary for him to do so, Judge Dight found that as at 12 February 2004, the date from which damages fell to be assessed, (i) Mr Vasiliou had the ability to trade Zorbas successfully, (ii) he had the intention to trade it successfully, but (iii) the applicant had prevented him from doing so. Judge Levy had made like findings in the first claim in relation to the prior period with which he was concerned; and the applicant accepted the first two propositions for the purposes of the second claim. In paragraphs 48 to 54, Judge Dight rejected as hopeless the applicant’s case on mitigation.

As regards the assessment of lost profits, Judge Dight relied on the evidence of a court appointed joint expert, Mr Djanogly, who had given evidence as an expert called by Mr Vasiliou in the first action and who, for the purposes of the second action, extrapolated the calculations he had produced for the purposes of the first action. In paragraph 58 Judge Dight recorded that it as common ground that, in assessing the lost profits, he was bound by Judge Levy’s findings in the first claim and that he should start from the conclusions that he had reached in respect of the period immediately before that in issue before Judge Dight. Judge Dight considered the evidence relating to the lost profits claim and adopted one of the calculations demonstrated by Mr Djanogly in his report, namely £422,186 (paragraph 82). That was for the period down to 11 April 2007, when Mr Vasiliou accepted the applicant’s repudiation of the lease.

Judge Dight then turned to the assignment value of the lease for the purposes of head (iii) of the damages and valued it at £300,000 (paragraph 100).

There are 11 grounds of appeal which to some extent overlap. In his oral submissions, Mr Riza treated them as collectively raising three main grounds but since he did not present any re-formulation of them, I regard it as most convenient to deal seriatim with each of the 11 grounds, which formally remain those for which the applicant seeks permission.

Ground 1 asserts that the judge did not consider whether the claim for lost profits was a claim in respect of the kind of damage for which the contract breaker ought fairly to be regarded as having accepted responsibility. The argument is based on observations in the speeches, particularly that of Lord Hoffmann, in the decision of the House of Lords in Transfield Shipping Inc v Mercator Shipping Inc [2009] AC 61, to which Judge Dight was not referred. I do not question the principle raised by this ground but regard its claimed application to the present case, one directed at excusing the applicant from answerability for Mr Vasiliou’s inability in consequence of his breaches to run Zorbas as a profitable restaurant, as a bid to make a case that has no prospect of success on appeal. Nor did I understand Mr Riza to maintain otherwise, or to support this ground of appeal, in his oral submissions.

I so conclude because the whole point of the applicant’s grant of the lease to Mr Vasiliou was to enable him to run a restaurant; and, viewed as at the time of its grant in 2001, it was as foreseeable as the rising of the sun that breaches by the applicant of his landlord’s obligations that prevented Mr Vasiliou from running Zorbas as a restaurant would be likely to result in a loss of profit to Mr Vasiliou. I can see no reason why such a head of loss should not be recoverable. On the contrary, it appears obvious that it should. Nothing said in the Transfield case, which concerned a very different commercial situation, undermines the award by the judge of compensation for lost profits.

Nor, it seems, was this point taken at the trial. The defence to the lost profits claim put in issue whether Mr Vasiliou would in fact have run the restaurant during the relevant period and asserted also that his omission to take steps to mitigate his claimed loss in respect relied upon was the true cause of his loss. The judge made the findings (following like findings by Judge Levy) that I have recorded about the running of the restaurant and rejected the mitigation point. There is, in my judgment, nothing in ground 1, which, as I say, I anyway do not understand to be pursued.

Ground 2 asserts that the quantum of the award was wholly disproportionate to the applicant’s benefit under the lease, a rent of £15,600 a year reviewable after five years. Reference is made to paragraphs 21 and 22 of Lord Hoffmann’s speech in Transfield, but I do not read them as supporting the proposition. If anything, once it is accepted that a loss of profits was the kind of damage for which the applicant assumed responsibility, paragraph 21 undermines the proposition. Once again, no such point was apparently taken below and I am not persuaded that it has any substance to it. The size of the award reflects the assessed magnitude of the applicant’s breach and it is not open to the applicant to say that such size should be tempered because he was only receiving what he now asserts was a relatively modest rent for the premises. I did understand Mr Riza to seek to support this ground of appeal, but I am not persuaded that there is any substance in it.

Ground 3 repeats the point that the judge should have considered whether Mr Vasiliou was entitled to consequential damages at all, to which the answer is that such damages were in principle recoverable. It then asserts that the damages were fixed by reference to the profits of other Greek restaurants in the area and that the applicant could not fairly have assumed a liability for lost calculated by reference to the profits of such other restaurants. It is said that if he had assumed such a liability, the rent would have been a lot higher than £15,600. This appears to raise another new point, this time based on what appears to be the fallacy that the lost profits were measured by reference to the profits of other restaurants. Whatever assistance the judge may have derived from a consideration of such profits, he was using them to assess the loss of profits that Mr Vasiliou would have made at Zorbas. That loss was within the scope of responsibility that the applicant assumed when he let the premises to Mr Vasiliou. There is nothing additional in ground 3.

Ground 4 raises a point that I also regard as without substance. It is to the effect that, because during an earlier period of his commercial career Mr Vasiliou became bankrupt (a bankruptcy from which he was discharged in 1993), ‘the loss of substantial profits owing to a breach was not the only possibility since he was also not exposed to the risk of losing money as he had done before.’ I do not understand the sense of that, any more than I understand how it is said to be supported by the observations of Kerr J in Bailey & Co Ltd v. Balholm Securities Ltd [1973] 2 Lloyd’s Law Reports 404, at 416, a case about commodity futures. The problem with this ground of appeal is that it runs into a clear finding by Judge Dight, akin to the findings of Judge Levy before him, that Mr Vasiliou had both the intention and the ability to trade Zorbas successfully. Moreover, as Judge Dight noted in paragraph 10 of his judgment, the applicant’s own former counsel had expressly admitted that had Zorbas opened during the period of assessment, it would have been profitable. This ground of appeal appears to be an unfounded attempt to challenge the adverse findings of fact made against the applicant. There is nothing in it.

Ground 5 asserts that the judge did not make a proper investigation of the assumptions upon which the lost profits calculation was made or satisfy himself that they were reasonable. It is said that the assumptions were provided by Mr Djanogly, who had no expertise in the restaurant trade, and were based on findings made by Judge Levy based on the same expert’s evidence. I am not satisfied that there is any substance in this ground either.

Mr Djanogly was, as he admitted, not an expert in the business of running restaurants, but when acting as an expert in the first action he had been provided with information about the restaurant business by a colleague and also had information about other Greek restaurants in the area. As he was appointed by the court as a joint expert for the purposes of the second action, it does not seem to me that it can now be open to the applicant to question his expertise for the particular task he was required to perform in the second action. In carrying out that task, he was not required to start from scratch, but had simply been asked ‘to extrapolate from the accounts he constructed following judgment in the 1^st Claim’ (paragraph 58 of Judge Dight’s judgment, and see also paragraph 65). In paragraph 58 Judge Dight also recorded it as common ground that he was bound by Judge Levy’s findings in the first claim and that he should start from the conclusions that he had reached in respect of the period immediately preceding that in issue in the second claim.

In paragraph 59 Judge Dight recorded how Mr Vasiliou asked Mr Djanogly to prepare sets of calculations based on two different assumptions (scenarios A and B), and how the applicant asked him to prepare a set based on a third assumption (scenario C), namely that Mr Vasiliou would have refurbished the premises at the beginning of 2005 and recommenced trade thereafter not as a Greek restaurant but as a specialist fish restaurant. Judge Dight found that there was no possibility of scenario C occurring but the applicant’s request reflects his acceptance of Mr Djanogly as sufficiently expert for the purposes of the proceedings as to be able to apply his expertise to the posited scenario.

In my judgment, there is no scope now for what is in substance a challenge to Mr Djanogly’s status as an expert in the proceedings, or for a challenge to the assumptions that he used for the purposes of his report. I see no trace of a challenge of this sort recorded in the judge’s judgment; and if the applicant was dissatisfied with Mr Djanogly’s appointment as a joint expert, it was open to him to seek to appeal against the order so appointing him, one made on 2 November 2007 by His Honour Judge Cowell following a contested hearing, whereas he did not.

This ground of appeal was, in part, sought to be supported by Mr Riza’s oral submissions. His point was that a critical assumption on the basis of which Mr Djanogly and the judge proceeded was that Zorbas would, had it traded, have been successful even though there were already more than three successful Greek Cypriot restaurants in the immediate vicinity and more than five successful such restaurants within half a mile: the point made was that the competition was too great to enable Zorbas also to succeed. Mr Vasiliou’s response, which the judge accepted, was to the contrary, namely that he ‘put [the] restaurant in the middle of that. I knew ethnic Greek restaurants work better in clusters – the busier the better.’ That was the evidence of someone who had been a successful restaurateur in the past. Mr Riza submitted that the judge’s acceptance of that evidence was perverse and that the applicant should be entitled to challenge it on appeal. There was, in my judgment, nothing perverse about the finding and I see no scope for a successful challenge to it on appeal.

Ground 6 raises as what I understand to be its main point that Judge Dight adopted the wrong approach to the assessment of the lost profits. It is said that he should have approached it ‘as an exercise in evaluating loss of an opportunity to trade rather than a speculative estimation of what he could have made.’ This ground of appeal, upon which Mr Riza focused a material part of his oral submissions, has caused me more concern. The inference from Judge Levy’s judgment in the first action is that he approached, or may have approached, the quantification of Mr Vasiliou’s loss as something that had to be proved on the balance of probability (paragraphs 7 and 8 of his judgment), and it is unclear to me that Judge Dight approached it on any different basis.

He appears to have assessed the lost profit damages on the basis that (i) he was satisfied that Mr Vasiliou would have been able to run Zorbas successfully during the relevant period and that (ii) the profits projected by Mr Djanogly over that period would have been the measure of his loss. Having held that the applicant’s breach of covenant caused Mr Vasiliou to lose the opportunity of making profits from running Zorbas during the relevant period, the assessment of that loss was not, however, something that could be measured on the balance of probability. The judge’s task was arguably to assess the chance that Mr Vasiliou would have made profits of the order projected by Mr Djanogly, which would in practice require him to consider whether, and if so to what extent, to discount such projections so as to reflect the range of commercial risks that Mr Vasiliou would not in fact achieve the projected profits: see the principles summarised by Toulson LJ in Parabola Investments Limited v. Browallia Cal Limited [2010] EWCA Civ 486, paragraph [23]. It is not apparent to me that Judge Dight engaged in any such exercise. If he did not, that was arguably an error. Mr Riza satisfied me that this element of ground 6 raises an arguable ground of appeal and I will give permission to appeal on that ground although I will ask Mr Riza to re-cast it so as to identify more clearly than it does at present the particular point that I have identified.

Ground 7 raises the point that Mr Vasiliou did not mitigate his loss by giving notice to leave the restaurant premises and continue his business elsewhere. Complaint is made that no discount in the damages recoverable was allowed under this head. The reason that none was allowed is because this is another new point not taken below. If it had been taken, it would have required a judicial assessment of whether Mr Vasiliou ought so to have mitigated his loss and of any appropriate allowable discount. Judge Dight was not given the opportunity to consider any such matters or to make such an assessment. The only case in mitigation that was advanced was to the effect that Mr Vasiliou should himself have carried all the necessary remedial works, a case the judge rejected, a rejection that is not criticised. As this point was not taken below, it cannot be taken now. Judge Dight made no error in not having regard to a defensive point that the applicant perhaps could have taken but did not.

Ground 8 is based on the same alleged omission by the judge to consider Mr Vasiliou’s failure to seek alternative accommodation, but this time it is deployed in support of the assertion that the claim was an opportunistic one rather than one for genuine losses. It has no prospect of success on appeal for essentially the same reasons that ground 7 does not, coupled with the fact that the findings of fact made by Judge Dight are solidly against it.

Ground 9 asserts that the compensation for lost profits that the judge awarded Mr Vasiliou put him in a better position than if the breach had not occurred. If the award did have that consequence, it would have been erroneous. The ground 6 point, on which I have given permission, may enable the applicant to show that the damages award was more generous than it should have been. But no attempt has been made to show that there is any separate substance to this ground.

Ground 10 challenges the fitness of Mr Djanogly to be a joint expert, the complaint being that in the first claim he had acted just for Mr Vasiliou. As I have indicated, if a point was to be taken as to Mr Djanogly’s fitness to act as a joint expert on this ground, it should have been advanced at the contested hearing over his appointment on 2 November 2007. If it was then advanced, it did not succeed yet there was no challenge by way of an appeal against the order appointing him and it is too late to re-open the point now. If it was not advanced, the case for raising the point afresh at this stage is even weaker. Mr Riza raised this point as one providing a proper ground of appeal but, after brief discussion in argument, I understood him to recognise that it is without substance.

Ground 11 goes to the judge’s valuation of the lease. Three experts, of whom two gave oral evidence, had produced different valuations. The complaint is that Mr Vasiliou’s expert, following representations from Mr Vasiliou, revised the views that he had agreed with another expert, Mrs Warr King. It is said that the judge ought not to have allowed that to happen, as paragraph 86 shows that he did; and in paragraph 100 he accepted the revised conclusion.

I consider that there is no substance in this either. What happened may be unusual and perhaps also unsatisfactory, but there is no reason in principle why an expert cannot depart from views previously agreed and espouse different ones. His change of view may of course need some explaining, but if it is explained (as the judge, in paragraph 98, held it was) and the judge regards the revised view as one he can and should adopt, I see no reason why he should not do so. I would think that an expert would have a duty to the court to voice any such revised view that he may form.

The outcome is that I refuse permission to appeal on all grounds apart from Ground 6, as to which I would ask Mr Riza to produce for my consideration a revised ground identifying more clearly the particular point that I have identified as being properly arguable.