Eaton Mansions (Westminster) Ltd v Stinger Compania De Inversion S.A.

This appeal raises two short but important points of law which have arisen in the course of proceedings between a landlord and its tenant for damages for trespass to parts of the landlord’s premises not included within the tenant’s demise. They are:

There has been protracted litigation between the parties on the issue of trespass but the facts and procedural history relevant to this appeal can, I think, be summarised quite shortly. The claimant, Eaton Mansions (Westminster) Limited (“EML”), is the head lessee of a block of mansion flats known as Eaton Mansions at Cliveden Place, London, SW1. Its lease was granted on 23^rd June 1978 for a term of 75½ years from 24^th June 1978. The freehold of the building is owned by the Grosvenor Estate. The defendant, Stinger Compania de Inversion SA (“Stinger”), was at all material times the lessee of two flats in the building (flats 8 and 10) under separate leases also granted on 23^rd June 1978 for terms of 75½ years less 5 days from 24^th June 1978. Neither lease included any part of the roof of the building or the chimney stack.

The headlease of Eaton Mansions contains a covenant by EML not to make external alterations to the building without the consent of the Grosvenor Estate and it is common ground that the covenant extends to any air conditioning equipment placed on the roof for the benefit of the tenants of individual flats. But for a number of years prior to the events with which this action is concerned such equipment has been in situ on the roof (presumably with the consent of the Grosvenor Estate) and EML has not charged its tenants for the use of the roof space.

Flats 8 and 10 are on the third and fourth floors of the building and both are what are described as front flats. Flat 10 is therefore directly above flat 8. Stinger is a Panamanian company, the shares of which are held by a Cayman Islands trust of which Mr Hamid Jafar (“Mr Jafar”) is the protector. His evidence on the assessment of damages was that the trust was set up for the benefit of his family but the deputy judge (Mr Edward Bartley-Jones QC) found that he was the person who made the decisions in respect of the trust’s ownership of the two flats.

The leases of flats 8 and 10 were acquired by Stinger in 1979 and work then commenced to convert them into a single flat on two floors. Mr Jafar told the judge that he regarded it as essential for the flat to have effective air conditioning. He had lived in London during the summer of 1976 and had found the lack of air conditioning intolerable. There was also evidence from the expert witnesses called on both sides that air conditioning would be an important feature for most purchasers of flats in the building. EML’s case on the assessment was that the trespass occasioned by the installation of air conditioning by Stinger had as its primary objective the increase of the capital value of the flats. But the judge rejected this and accepted that the comfort of Mr Jafar and his family rather than the value of Stinger’s investment was the motive for installing the equipment.

In 1980 Stinger, with the consent of EML, placed three air conditioning units with associated pipework on the roof. By 1998 these had increased to six units. The additional units were not consented to by EML in advance but the evidence was that they remained there until 2006 without objection. In 2006 EML needed to carry out repairs to the roof and told Mr Jafar and the other tenants that the units would have to be re-located. By this time Mr Jafar had decided to turn the two flats back into separate units and to refurbish them for his two sons. The judge found that this was a major project (involving expenditure of about £1m on each flat) which commenced in 2006. The existing air conditioning units were removed from the roof as requested but Stinger anticipated replacing them in due course with new equipment.

In June 2007 the first act of trespass complained of occurred. Two condenser units were placed on the roof and linked to the chimney flues down to flats 8 and 10 by breaking into the external brickwork of the chimney stack. These two units were extremely large and very much bigger than anything which had hitherto been placed on the roof. So large were they that they required a crane to hoist them into place and were then still visible from the street. They were installed in breach of planning control and would never have been consented to by the Grosvenor Estate. The Grosvenor Estate had expressly excluded the installation of air conditioning from the consent which it gave in 2006 to the refurbishment work to the flats.

The judge made findings as to whether the decision to install the 2007 units was taken deliberately in the knowledge that EML’s consent would not be forthcoming. In his judgment, at the trial on liability, Wyn Williams J had said that their installation was in flagrant disregard of the need to obtain the consent of the Grosvenor Estate. But the judge on the assessment acquitted Stinger of any intention to (as he put it) bully EML by producing a fait accompli. There had been discussions with EML’s managing agents which led Stinger’s architect to believe that the replacement units would be acceptable. The reality was that EML had no objection to the installation of units similar in size to the ones previously removed. But it did not and could not consent to units which required (but had not been given) planning permission and which would not meet with the approval of the Grosvenor Estate.

In February 2008 the 2007 units (but not the associated pipework) were removed and discussions continued with EML about what could be placed on the roof. By this time Stinger’s plans had changed and it had been decided to sell the flats once refurbished. Mr Jafar, honestly as the judge found but in fact mistakenly, believed that EML was seeking to charge Stinger a premium for installing replacement units on the roof even though no similar charges had been imposed on other tenants. In December 2008 he decided to resolve the impasse in the negotiations by instructing contractors to enter on to the roof and to install two new units which they attached to the condensers which had been put in place in 2007 but not subsequently removed. The result was to give each flat a functioning air conditioning system.

Wyn Williams J described the action taken in December 2008 as high handed and unreasonable. Mr Bartley-Jones said that the aim on this occasion was to bully EML into submission with a fait accompli which was followed up with the threat of proceedings by Stinger against EML for loss resulting from its inability to market the flats due to EML’s unreasonable refusal to allow the replacement units to be installed. In the end, however, such proceedings did not materialise and it was EML which issued its claim form on 22^nd April 2009 seeking an injunction and damages for trespass. On 11^th March 2010 Stinger completed the sale of the two underleases and the claim continued as one for damages alone. On 9^th July 2010 Wyn Williams J on an application under CPR Part 24 gave judgment for EML for damages to be assessed: [2010] EWHC 1725 (Ch). Stinger’s appeal against this judgment on liability was dismissed by the Court of Appeal on 18^th May 2011: [2011] EWCA Civ 607.

The assessment hearing took place in July 2012 and a reserved judgment was handed down on 27^th November 2012. The two flats had been let for a year following the completion of the refurbishment works in 2009. As I have indicated, they were then sold. The existence of the ongoing dispute with EML about the right to position the air conditioning equipment on the roof was disclosed to the purchaser of the two flats. But the judge found that neither the 2009 rents nor the purchase price on the sale in 2010 had been increased because of the presence of the disputed equipment on the roof which provided air conditioning to the two flats. Since the purchase the new owner appears to have obtained planning permission for air conditioning equipment and the consent of both EML and the Grosvenor Estate to it being positioned there. But the detail of that is irrelevant to this appeal. It is common ground that the trespass continued until completion of the sale of the flats on 11^th March 2010 which is the end of the period in respect of which EML was awarded damages.

EML accepts that it has suffered no direct loss from the trespass except for the cost of removing the trespassing equipment from the roof which amounts to some £1,716. But it seeks substantial damages for trespass calculated by reference to what the Court assesses that Stinger would have agreed to pay at the commencement of the period of trespass for permission to place the air conditioning equipment on the roof. Although, as an alternative, EML sought restitutionary damages in an amount equal to the increase in value of the flats attributable to their unauthorised use of the roof space to house the air conditioning equipment, this claim was ruled out by the judge’s finding that the trespass had not in fact enabled EML to dispose of the underleases at a higher value and permission was refused to challenge these findings on this appeal. The issue on the first substantive ground of appeal is therefore whether, in the hypothetical negotiations for a licence fee, the parties are to be assumed to have been negotiating in respect of the limited period of trespass up to 11^th March 2010 which in fact occurred or for some more substantial grant of permission unrelated to this finite period. EML’s case before the judge was that the parties should be assumed to have been negotiating for a consent which would have subsisted for the duration of the underleases because at the relevant time in 2007 it was clear that Mr Jafar, and therefore Stinger, wanted to obtain a right to install permanent air conditioning in the flats which would later be sold on that basis. They were not interested in a temporary permission which they could not pass on to a purchaser and what EML lost through the trespass was the opportunity of negotiating a price for such a permanent permission which would have been (EML contend) a substantial six figure sum. It is, I think, common ground that a temporary unassignable consent subsisting only until the date of the sale in 2010 would have had a very limited value which the judge assessed in the sum of £6,000.

As part of the argument on this point we were referred to a number of authorities on negotiating damages but it is, I think, only necessary to refer to a limited number of statements of principle.

The convenient starting point is the speech of Lord Nicholls in Attorney-General v Blake[2001] 1 AC 268 which contains a useful summary of the circumstances in which the court will assess damages either in tort or in contract on some alternative basis to the usual compensatory measure based on direct loss. The claim which succeeded in that case was for an account of profits made by the defendant from his breach of confidence. But Lord Nicholls’ survey of the different contexts in which the court has departed from a purely compensatory measure of damages includes (relevantly for present purposes) claims in trespass and awards of damages under s.2 of the Chancery Amendment Act 1858 (Lord Cairns’s Act) in lieu of an injunction. These passages appear at pages 278D-G and 281C-H as follows:

As I pointed out in Sinclair v Gavaghan[2007] EWHC 2256 (Ch), the position in the two above-mentioned contexts is not identical. In most cases where damages are granted in lieu of an injunction (such as for breach of a restrictive covenant) the amount awarded will be intended to compensate the claimant for the permanent loss or infringement of his legal rights. Cases of trespass may or may not fall within that category. In a boundary dispute, the refusal of an injunction will result in the claimant forfeiting the use of part of his land. But in other cases (like the present one) the trespass may not be permanent in duration. Sinclair v Gavaghan was just such a case. The defendant had made use of what the judge found at trial was part of the claimant’s land (the Red Triangle) in order to gain a more convenient means of access to the land he was developing. Once the development was complete the trespass ceased. Having referred to the decision in Wrotham Park Estate Co. Ltd v Parkside Homes Ltd [1974] 1 WLR 798where Brightman J awarded damages under Lord Cairns’s Act for breach of a restrictive covenant in a sum equal to 5 per cent of the developer’s anticipated profit, I said this:

In that case the expected use of the Red Triangle to obtain access to the development was never intended by the defendant to be other than temporary so that there was no difficulty in treating the negotiations for the licence fee as conducted on that basis. There was no room for attributing to the parties in the hypothetical negotiations a position or intention different from the one which they in fact had at the commencement of the trespass. But, submits Mr Arkush for EML, in the present case Stinger did not put the units on the roof for a limited period. They were intended to be there to provide air conditioning for the foreseeable future (subject to the duration of the underleases) and Stinger would have wished to negotiate for that and no lesser type of right.

At one stage in the argument it seemed that EML sought to rely on the general principle that in the hypothetical negotiations (as in any other historic valuation) no account is to be taken of post-valuation events. Mr Arkush referred us to the decision of this court in Lunn Poly Ltd v Liverpool and Lancashire Properties Ltd [2006] EWCA Civ 430 where the issue was whether in the calculation of negotiating damages (in lieu of an injunction) for blocking up a fire door by a landlord in breach of a covenant in a lease the court should treat the negotiations for a consent as taking into account the fact that, at the date of the breach, the tenant had committed breaches of its own covenants for which the landlord was entitled to forfeit the lease but without taking into account the fact that the tenant subsequently obtained relief from forfeiture.

Neuberger LJ, differing in this respect from what Mr Anthony Mann QC had decided in AMEC Developments Ltd v Jury's Hotel Management (UK) Ltd (2001) 82 P&CR 22, considered that, as a general rule, post-valuation events should not be taken into account:

This view has been subsequently approved by Lord Walker in the Privy Council case of Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd[2011] 1 WLR 2370 at [50].

But the issue in this case is not whether a post-valuation event should be taken into account in the sense of being something which is assumed to be known to the parties in the hypothetical negotiations for the licence fee. It is the much more fundamental question of what is to be taken to be the subject matter of those negotiations. Mr Lundie for Stinger submits that the court has to have regard to the actual period of trespass and to treat the parties as having negotiated on that basis because to do otherwise would disconnect the licence fee and therefore the damages from the legal wrong for which they are intended to provide compensation. In this case, Stinger would be required to pay for rights which their trespass never gave them and for a loss which EML never suffered.

I think this is clearly right. Although the hypothetical negotiations for a licence fee have been adopted as a convenient means of valuing the benefit to the trespasser (and, in that sense, the loss to the claimant) which results from the defendant’s tortious conduct, its accuracy depends upon the negotiations centering on the period and extent of the trespass which actually occurred. The nature and duration of the trespass is not a valuation event in the sense in which that term was used in Lunn Poly but rather it is what dictates and shapes the nature of the valuation exercise. It is therefore wrong to say that the parties would not have known at the commencement of the trespass how long it would last. The valuation construct is that the parties must be treated as having negotiated for a licence which covered the acts of trespass that actually occurred. The defendant is not required to pay damages for anything else.

EML’s argument that Mr Jafar would not have been interested in a licence which subsisted only until 2010 is doubtless true. But since Stinger’s trespass gave it no more than that, there is no other basis for valuing the gain which Stinger actually achieved. It was common ground between the expert valuers that such a licence would have been revocable, unassignable and of no value to a purchaser. It fell to be valued accordingly. If, despite its fragility, it did create value for Stinger then that would have to be taken into account. As it is, no-one suggests that the judge’s figure of £6,000 was inaccurate for the advantage which Stinger, on his findings, actually obtained.

Mr Arkush submitted that the valuation should have been much higher because Mr Jafar would have been prepared to pay a substantial sum of money for a permission which Stinger could in effect sell to any purchaser of the flats. Again, this may be right. But EML’s claim in damages is not for its loss of opportunity in being able to negotiate such a licence fee for the grant of such a right. EML was not willing at the date of trespass to grant a permanent licence not least due to the problems about planning permission and with the Grosvenor Estate. More importantly, neither did Stinger de facto obtain such a right. In 2010 its trespass ceased and the purchasers had to negotiate their own permission. EML therefore has no claim for the loss of opportunity to negotiate a substantial licence fee. It is limited to recovering what Stinger would have paid for the rights which it illegally obtained.

It is said that this point is not covered by authority but it seems to me to follow inevitably from the requirement that the damages awarded should be compensation for the loss suffered in the sense of what the tortfeasor has gained from his trespass. That point was clearly recognised by this court in its judgment inEnfield LBC v Outdoor Plus Ltd & Anor[ 2012] EWCA Civ 608 where Henderson J says at [47]:

For these reasons, I consider that the judge was right in the award of damages which he made.

Aggravated damages may be awarded in cases of trespass where the defendant’s conduct has been high-handed, insulting or oppressive: see Horsford v Bird[2006] UKPC 3.

The judge was asked, but declined, to award aggravated damages to EML. His refusal was based not on the ground that Stinger’s conduct was insufficient to justify such an award but, rather, because an award of aggravated damages is designed to compensate the successful claimant for distress and injury to feelings caused by the defendant’s conduct which, in the case of a company, was not a possibility.

But for the decision of Caulfield J in Messenger Newspapers Group Ltd v National Graphical Association (1982)[1984] IRLR 397, it seems to be settled law at first instance that aggravated damages cannot be awarded absent some subjective feelings on the part of the claimant which have been injured by the defendant’s conduct. This focus on the effect of the defendant’s conduct on the claimant’s feelings would seem to exclude a claim by a company. But in Messenger Caulfield J awarded both aggravated and exemplary damages to a company whose premises were unlawfully picketed by the defendant union. He said:

Although the judge was obviously concerned to compensate the company for losses caused by what he regarded as an aggravated form of unlawful conduct by the union, he failed, in my judgment, properly to grapple with the essential objection to an award to a company of compensatory damages for injured feelings and his stated justification for the award is much more relevant to the claim in that case for exemplary damages. Having stated the objection to an award in paragraph 78, he provides no real answer to it.

The decision in Messenger on aggravated damages has not been followed by other judges at first instance; most notably by Gray J in Collins Stewart Ltd v The Financial Times Ltd (No. 2) [2006] EMLR 5 at [30]-[32] and by Tugendhat J in Hays plc v Hartley[2010] EWHC 1068 (QB) at [24] and Metropolitan International Schools Ltd v Designtechnica Corp [2010] EWHC 2411 at [14]. We should, in my view, take the opportunity to hold that it was wrongly decided. Aggravated damages are not recoverable by a limited company for the reasons I have stated.

I would therefore dismiss this appeal.

I agree.

I also agree.