Talisman Property Co (UK) Ltd v Norton Rose (A Firm)

Introduction

This is the assessment of damages in a professional negligence action by Talisman Property Co (UK) Limited (“Talisman”) against its former solicitors Norton Rose (“NR”).

The action arises out of admitted negligence by NR in connection with a lease renewal in relation to premises in Park Royal, Acton. The premises were let for 20 years expiring on 24^th December 2001. Talisman acquired the freehold reversion in July 2001. There is an issue as to identity of the tenant between Lewis DMR Ltd (“Lewis DMR”) and Wyko Industrial Services Limited (“Wyko”). Lewis DMR and Wyko are both companies in the same group and are subsidiaries of Wyko Group plc (“WG”). Lewis DMR was the legal assignee of the term but had been dormant since about 1998. The premises were occupied for the purposes of Wyko’s business. Wyko had been treated by the landlord as the tenant.

Prior to the acquisition of the reversion by Talisman Lewis DMR had served on its then landlord a notice under section 26 of the Landlord and Tenant Act 1954 requesting a new tenancy. The landlord had served a counter-notice stating that it intended to oppose the grant of a new tenancy on ground (f) of section 30(1). The effect of such a notice was to give the tenant a vested right to compensation on quitting. The amount of compensation was significant - £179,000. In June 2001 Lewis DMR made an application to Court for a new tenancy.

Another significant factor was that there were substantial breaches of the repairing covenants in the lease. The cost of repairing the premises was likely to exceed by a substantial amount the statutory compensation recoverable. On the other hand if the landlord genuinely intended to redevelop the damages recoverable for non repair would be limited and might be nil.

During the period whilst it was negotiating and immediately after it acquired the freehold Talisman considered its strategy with regard to the property. It had a number of meetings with its agents and with its lawyers to consider its options.

From a commercial point of view it preferred to have Wyko (which was trading profitably) as a tenant rather than Lewis DMR (which was dormant). Equally it wished to avoid, if possible, paying statutory compensation if no new tenancy was granted.

It is not wholly clear when Talisman abandoned the option of redeveloping the premises. Certainly they took no steps to put themselves in a position where they would be able to establish the necessary intention to the satisfaction of the court.

It is now accepted that on 28^th September 2001 Talisman instructed NR to serve on Wyko a notice under section 25 of the Act which did not oppose the grant of a new tenancy. It is equally accepted by NR that contrary to the express instructions a notice was served that expressly opposed the grant of a new tenancy on ground (f). It is accepted that the service of that notice was negligent.

Following the service of the wrong notice there were negotiations between the parties for a new lease. Those negotiations comprised in the main 3 meetings in December 2001, January 2002, and July 2002.

Whilst those negotiations were continuing Wyko issued its own proceedings under the Act. The two sets of proceedings were listed for a preliminary hearing in November 2002 to determine whether the tenant was Wyko or Lewis DMR.

Shortly before the hearing Wyko and Lewis DMR discontinued their respective proceedings with the result that the tenancies came to an end in February 2003 and no new tenancy was granted to either Wyko or Lewis DMR.

Wyko duly vacated the premises in February 2003. In subsequent negotiations Wyko agreed the level of compensation payable in respect of dilapidations. The sum of £179,000 in respect of the statutory compensation was set off in full against the sum agreed for dilapidations.

Talisman puts its claim against NR in two ways:

NR admits that it was negligent but contends that there was no loss. NR was so confident that it was right that at an early stage in these proceedings it made an application before Lindsay J for summary judgment and for the claim to be struck out. Lindsay J refused to strike out the claim and ordered it to go to trial.

Representation

Talisman were represented by Mr Bernard Livesey QC and Mark Loveday instructed by Messrs Vizards Livesey Cameron Walker. NR was represented by Mr Roger Stewart QC and Mr David Halpern instructed by Barlow Lyde & Gilbert.

Counsel produced detailed written skeleton arguments before the trial commenced and detailed written closing submissions before the final speeches. As the law involved in this case is by no means straightforward and – at least to some extent – in a state of development I am grateful for the full exposition in the skeletons.

Witnesses

5 witnesses gave evidence on behalf of Talisman - Mr O'Brien, a Litigation partner at Eversheds LLP practising in Birmingham and specialising in commercial property litigation; Mr Davidson, the Property Manager employed by Wyko, Mr Winton, a Director of Talisman and a Surveyor, Mr Parnell, the Property Manager with CHP – the in house management company of the group of companies including Talisman, and Mr Jansons, a partner in the firm of surveyors advising Talisman.

A number of witness statements were prepared on behalf of NR including a statement from Mr Davidson. When he gave evidence Mr Davidson confirmed that that statement was true. In any event Mr Stewart QC decided to call no evidence.

Each side instructed experts. However following their meeting the expert evidence was agreed and I was presented with the agreed conclusions.

The Facts

Talisman is, as its name suggests, a property Company. It is an associated company of the William Pears Group of Companies Limited. It manages its properties by CHP Management Ltd (“CHP”) – an in-house management company within the group.

Malcolm Parnell (“Mr Parnell”) was the employee within CHP as Commercial Estates Manager responsible for the day to day management and protection of Talisman’s interests. The Director responsible for strategy and more significant matters was Mr Adam Winton (“Mr Winton”).

Lewis DMR is a company that since 1986 manufactured electrical coils at the premises. It was acquired by WG in 1996. After a short time WG decided to consolidate all of its coil manufacturing in Newcastle. The business moved in 1998 and thereafter Lewis DMR ceased to trade.

Wyko adopted the trading name “Lewis BERL” for a part of its business and attached a nameplate on the outside of the premises. Wyko then went into exclusive occupation of the premises and carried on a variety of business activities there. Wyko preserved Lewis DMR solely in order to prevent another company using the trading name.

Paul Davidson (“Mr Davidson”) was the property manager employed by Wyko. His responsibilities included the management of the portfolio of the properties in respect of which Wyko has an interest. These include landlord and tenant issues and acquisitions and disposals.

Although he was involved in the negotiations for the new lease Mr Davidson agreed that he was not responsible for the ultimate decision whether Wyko left the premises in Acton or renewed the lease.

Lewis DMR’s accounts confirm that it was dormant for the relevant period. Wyko’s accounts show that its financial position deteriorated between 2000 and 2003. The position may be summarised in the following table:

By a lease dated 16^th February 2002 of business premises at 158 and 158X Duke’s Road, Park Royal, London W3 (“the premises”) were let for a term of 20 years expiring on 24^th December 2001. The lease provided for 5 yearly rent reviews. In fact the rent was last reviewed in 1991 at £107,500 p.a. The property consisted of a light industrial unit on an industrial estate in Park Royal.

The lease contained a number of what may be regarded as common clauses. These included covenants to repair, against alienation or parting with possession and a proviso for re-entry. It also contained what Counsel have referred to as a Jervis v Harris clause. Under such a clause if a tenant fails within 3 months to comply with a notice of disrepair served by the landlord, the landlord is entitled to enter the premises, carry out the repairs himself and recover the cost from the tenant.

The lease contains a covenant in clause 3(17)(b) against alienation and parting with possession in reasonably standard terms. It contains a proviso

Thus where the tenant is itself a subsidiary of a parent company this proviso expressly permits him to share or part with possession to another subsidiary. There is no requirement that the tenant remain in occupation of the premises in any shape or form.

In 1986 the term was formally assigned to Lewis DMR . On 4^th May 2000 the reversion expectant on the term was assigned to Clay Property Ltd (“Clay”).

A number of documents were relied on as being relevant to the identity of the tenant and questions of estoppel:

On 13^th July 1999 Wyko signed a standing order for the payment of the rent from the Lewis BERL bank account.

On 29^th November 2000 Cynthia Evans of Warner Estates plc (“Warner “) the parent company of Clay wrote to Mr Davidson in the following terms:

Mr Davidson replied to Warner on the same day on Wyko’s writing paper. He described himself as “Property Manager”:

On 19^th December 2000 Clay’s parent company wrote to Wyko enclosing insurance details for the premises. Those details – which were issued on 24^th November 2000 described Wyko as the Tenant or Head Lessee.

Thereafter Wyko was billed for, and paid, rent and outgoings in its own name. The records of the landlord were drawn up following the above acknowledgment to reflect the fact that Wyko was now the tenant.

Following the assignment of the reversion to Talisman there was further correspondence. On 27^th July 2001 Warner wrote to Mr Davidson at Wyko. The letter informed him of the sale and authorised him to make all further payments of rent to Talisman. On 31^st July 2001 CHP on behalf of Talisman wrote 2 letters – one to Lewis DMR and the other to Mr Davidson at Wyko. Those letters required payments of rents, insurance premiums and service charges to CHP

On 1^st March 2001 Lewis DMR served a notice requesting a new tenancy under section 26 of the Act. The notice specified 1^st February 2002 as the date on which the current tenancy terminated.

If and in so far as Lewis DMR was entitled to protection under the Act the effect of the notice was that it would not be possible for Clay to obtain an interim rent before the date specified in the notice. As it was appreciated that the rent of £107,000 was significantly less than the market rent, this would have the effect that the old rent of £107,000 would be payable until 5 weeks after the end of the contractual term.

There was – in fact – some doubt in the mind of Wyko’s solicitors in whose name the application should have been made. Its solicitor, Ms Ceri Mort of George Green & Co (“Geo Green”) served the request in the name of Lewis DMR but later had second thoughts and advised Wyko that “I believe that a notice should probably have been served in the same of Wyko. Perhaps we could discuss this further on the telephone”.

On 27 April 2001 Clay served a Counter Notice on Lewis DMR indicating that it would object to the grant of a new lease on the ground, specified in section 30 (1) (f) of the Act

“that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises ... and that he could not reasonably do so without obtaining possession of the holding”

It is common ground that there are two relevant consequences of the service of an opposed notice on the section 30 (1) (f) ground.

On 14^th June 2001 Geo Green on behalf of Lewis DMR made an application to the Central London County Court for a new tenancy. The application named Clay as the Respondent and proposed a new lease at a rent of £107,500 p.a with the other terms as in the existing lease.

In or about April 2001 Mr Winton became aware that some 6 properties including the freehold reversion of the premises were for sale. According to Mr Winton he quickly agreed a purchase price of £3,000,000 for all 6 units.

On or about 28^th April 2001 Mr Winton received a report from Mr Jansons, the senior partner in the firm of surveyors, Jansons, about the 6 units. The report suggests that the capital value of the 6 properties is of the order of £3,338,000. The report suggests a strategy for marketing the premises. It is clear that one of the options being considered by Mr Winton at that stage was the possibility of redevelopment of the premises.

On 22^nd May 2001 Mr Winton attended a meeting at NR. During the meeting he asked a number of pertinent questions about the position. These questions related in the main to the effect of Lewis DMR being dormant, what was needed to establish an intention to redevelop under section 30(1) (f), and as to whether he could still serve a schedule of dilapidations

On 31^st May 2001 NR gave full and detailed answers to the questions that were raised. There is no complaint about this advice. NR advised that section 42 of the Act enabled a group company (i.e. Wyko) to claim the new tenancy. They advised that it was likely that there would be a court hearing in the proceedings between 6 and 9 months after the service of the notice; they advised that ground (f) and a Schedule of dilapidations were “somewhat” inconsistent.

On 1^st June 2001 contracts for the purchase were exchanged. By 21^st June 2001 Mr Winton had received a report from Powell Williams Partnership (“PWP”) on the premises including a Condition Survey Report. In a Memorandum of that date Mr Winton stated that Talisman needed to get into a position to serve the Schedule of dilapidations on Wyko immediately on completion. The Memo went on to make express reference to the possible need to implement the Jervis v Harris clause as soon as possible.

On 2^nd July 2001 Mr Parnell wrote to PHP instructing them to prepare a full Notice of Repair to be served on the tenant Lewis DMR as soon as possible after completion. The letter makes the point that it may not be Talisman’s intention to redevelop.

The sale duly completed on 27^th July 2001. On 24^th July 2001 Talisman agreed to subsell 5 of the 6 units for £2,000,000. Completion of the sale of the other 5 units also took place on 27^th July 2001. On the same day Clay notified Mr Davidson of “Wyko Industrial Services” of the sale and authorising future payments of rent to Talisman.

As already noted Mr Davidson consulted Geo Green in relation to the service of the section 26 notice. He was initially advised that it would be better if it was served in the name of Lewis DMR because that was the name of the tenant “in the lease”. Mr Davidson was not too sure that the advice was correct but decided to follow it.

Following the receipt of the counter-notice Mr Davidson took further advice from Geo Green. On 23^rd May 2001 Ceri Mort provided a letter of advice setting out the need to apply to court, the entitlement to compensation on quitting and the rate of compensation. The letter deals also with section 18 of the 1927 Act and makes the point that for the tenant to take advantage of that clause the landlord must intend to demolish or reconstruct at the termination of the lease. The letter concludes by referring to the doubts about the identity of the tenant and states that a notice should probably have been served in the name of Wyko.

In order to preserve the position, as already noted, Mr Davidson instructed Geo Green to make an application for a new tenancy. Wyko was, in fact, uncertain at the time whether it wanted to move or not. It therefore started looking for alternative accommodation.

Because of the amount of money involved and because of the uncertainty as to the correct tenant Mr Davidson decided to take a second opinion. Accordingly sometime in June 2001 Wyko decided to take advice from the corporate lawyers - Eversheds. On 26^th June 2001 Saleem Fazal, an associate partner at Eversheds wrote a 2 page advice giving 5 pieces of advice. In summary he advised:

When he gave evidence Mr O’Brien - a partner in Eversheds - who became involved in advising Wyko from about October 2001 - expressed the opinion that item 4 of Mr Fazal’s advice was wrong. It was his view that on the facts of this case section 42 had no application. Furthermore Wyko had – on the facts – succeeded to the tenancy of Lewis DMR. I shall return to this area of law later in this judgment.

By about the end of September 2001 Mr Davidson received advice from the surveyors DTZ to the effect that the liability under the repairing covenants could amount to about £235,000.

Mr Davidson received further advice from Eversheds in October or November 2001. By then events had moved on and I shall return to it later.

There was a meeting at the defendant’s offices on the 6^th August 2001, attended by Mr Sinclair, a partner and Mr de St Croix a senior property litigation associate at NR; and by Mr Winton, Mr Kerstein a senior employee of CHP and Mr Jansons. Its purpose was to enable Talisman to consider with its solicitors its options in relation to dealing with the property and what the implications of following those options might be.

Notes of the meeting were prepared by both Mr Sinclair and Mr de St Croix. Furthermore they each provided detailed witness statements dealing with their recollection of the meeting. As already noted neither Mr Sinclair nor Mr de St Croix were in fact called to give evidence. In those circumstances I only read the witness statements to the extent that they were put to Mr Winton in cross-examination. In fact there was very little material difference between Mr Winton’s recollection of the meeting and that of Mr Sinclair and Mr de St Croix. It was thus not wholly surprising that Mr Stewart QC decided not to call them.

In an e-mail dated the 3^rd August Mr Sinclair had given Mr Winton some advice as to the termination date of the lease in the light of the section 26 notice. He made it clear that the meeting would have to consider the significance of the fact that Lewis DMR was dormant, rent being paid by Wyko, the grounds for opposing the grant of the new tenancy, what needs to be proved, compensation payable to the tenant, dilapidations and reinstatement payments.

When he gave evidence Mr Winton agreed that the purpose of the meeting was to agree a strategy. That strategy was going to be governed by various issues including that Wyko was likely to be a stronger covenant than Lewis DMR; that Talisman wished to avoid – if possible - paying compensation and wanted to obtain payment for dilapidations. There is some doubt as to whether Talisman also wanted vacant possession. Mr Winton had been advised that the premises might be more valuable with a tenant than with vacant possession. In those circumstances Mr Winton did not agree that he ever said he wanted vacant possession. He did, however agree that it was decided to serve a notice under section 40 of the Act to see who the tenant was. The rationale was to get Wyko to accept it was the tenant for a number of reasons. First there was concern that Lewis DMR might not honour an award of damages. Second the stronger the covenant the more valuable the property. There was – in addition – a discussion as to whether to serve an unopposed section 25 notice on Wyko. No conclusion was reached.

On 15^th August 2001 NR served on both Wyko and Lewis DMR a Schedule of Disrepair and gave them notice of the Jervis v Harris clause in the lease. The covering letter required them to carry out the work within 3 months and asked to be provided with a timetable for the work. The letters indicate that there is some confusion as to who is the tenant.

By the middle to the end of September Mr Winton said that he had decided that Talisman had no intention to redevelop the premises. He made the point that he had taken no steps towards redevelopment and it was probably too late by then to fit in with the likely timetable.

Miss Smyth – the solicitor at NR with day to day conduct of the matter - has a file note which suggests that she was told by Mr Parnell on 19^th September that the opposition was being pursued. However both Mr Winton and Mr Parnell suggested that this was not so. In any event no witness was called from NR and I do not regard the date when Talisman decided that they did not wish to redevelop as being crucial

There was a Case Management Conference in Lewis DMR’s application for a new tenancy due for hearing on 4^th October 2001. For tactical reasons Mr Parnell wished to keep the pressure on Wyko. On 28^th September he sent an E-Mail to Mr Winton. In it he pointed out that Lewis DMR needed to amend their application to substitute Talisman as the Respondent. That would give Talisman time to file an answer withdrawing if we wish that landlord’s opposition to a new tenancy. He also sought authority to instruct NR to serve an unopposed short dated section 25 notice on Wyko. Mr Winton authorised that course and it is now common ground that Mr Parnell duly instructed NR on 28^th September 2001.

Regrettably Miss Smyth failed to comply with the express instructions. On 2^nd October 2001 she sent a letter, without prejudice to the Lewis DMR proceedings, enclosing a notice to Wyko. The notice opposed the grant of a tenancy on ground (f) As she did not give evidence the reason why she served a notice in this form remains a mystery. It is also to be noted that NR did not admit that they were in breach until the service of the Defence in these proceedings. In his closing submissions Mr Livesey QC referred me to some documents that suggest that Miss Smyth may have been acting on the instructions of Mr St Croix. It is unnecessary to consider whether Mr Livesey QC is correct.

Wyko’s immediate response to the notice was to state that they were not willing to give up possession.

Both Mr Winton and Mr Parnell state that they did not appreciate that the wrong notice had been served until 6^th December 2001. There were clues in the intervening correspondence that might have led them to realise that something had gone wrong. However they both say that they failed to pick up the clues.

By the middle of October 2001 Talisman or its agents formed the view that Wyko were stalling. Meetings to discuss possible renewals and/or the repair schedule were cancelled by Mr Davidson at short notice. Furthermore there appeared to be no progress with the repairs.

Talisman instructed PWP to prepare a reduced schedule of repairs so that – if it was necessary to exercise its rights under the Jervis v Harris clause - the cost would be less than the compensation otherwise payable.

Accordingly on 16^th October 2001 Miss Smyth wrote a strong letter to Geo Green referring to the notice and making the point that the works should be finished by 15^th November. She threatened legal action including forfeiture. This led to a counter threat by Geo Green for an injunction on the ground that an intention to redevelop is inconsistent with a Notice to Repair. This letter was copied to Mr Parnell. He did not appreciate that it meant that Miss Smyth had served the wrong notice.

On 29^th October 2001 Mr Parnell sought further advice from Miss Smyth. He wanted to know whether statutory compensation would be payable if the ground of opposition was withdrawn. Miss Smyth advised (wrongly) that it was not. She confirmed this (wrong) advice in writing on 30^th October 2001. In her letter she said that provided the Reply is served on Lewis DMR before it withdraws its application for a new tenancy no statutory compensation is payable. It is not suggested that any loss was caused by this piece of bad advice. In fact on 19^th November 2001 Mr Dutton – the partner in charge of the property litigation team - wrote apologising for the error and setting out the true position.

On 31^st October 2001 Miss Smyth wrote to Geo Green.

On the same day she filed the answer in the Lewis DMR proceedings. The answer makes it clear that a new tenancy is opposed on the ground that Lewis DMR is not the tenant for the purpose of the Act and thus not entitled to a new tenancy. It makes it clear however that the ground of opposition in the original counter-notice is withdrawn.

Mr Davidson took further advice from Eversheds in October 2001. He was concerned that Talisman might carry out the threat to enter the premises under the Jervis v Harris clause. He also wanted advice on the conflicting messages being sent out by Talisman. He did not know if they wanted to oppose a new tenancy or not.

In any event the matter was dealt with Mr O'Brien – the head of Property litigation at Eversheds. Mr O'Brien is plainly a very experienced solicitor with 20 years experience of commercial property litigation. Between 60 and 70% of his practice is concerned with some form of landlord and tenant dispute.

Mr O'Brien was, of course, aware of the advice that had been given by Mr Fazal in June. When he discovered that Lewis DMR was not trading and not in occupation of the premises he took the view that the advice was wrong. He did not think that the case was within section 42. In particular it was his view that Lewis DMR would need to have some residual occupation before section 42 came into operation. He also thought that as Wyko was paying the rent and had been accepted as tenant by the landlord it was indeed the tenant.

He therefore advised Mr Davidson and Mr Lyne that the original section 26 notice was invalid and that Wyko was the tenant. He did not at that stage consider consulting Counsel.

On 15^th November 2001 Eversheds were instructed to take over the conduct of the litigation from Geo Green. On 29^th November 2001 Mr O'Brien of Eversheds wrote to Norton Rose. The letter makes a number of points:

It goes on to suggest as the proper course of action:

It then makes suggestions as to the repairs necessary.

In June 2001 Wyko received a letter from Jansons indicating that they were prepared to take a more flexible attitude towards the way forward and in principle would have no objection to the granting of a new lease.

Mr Davidson was aware of the counternotice that had been served. He was advised that it would bind the new landlord; he knew about the compensation provisions and had worked out that the compensation would be of the order of £179,000. He knew that the rent payable under the new lease was likely to be higher than the current passing rent of £107,500. He knew about the provisions in the Act relating to interim rent.

He was also aware or became aware of the potential liability for dilapidations and the possible effect of the Jervis v Harris clause. He was advised that the potential liability could be about £235,000. If there had been such a liability it would have been paid – even by Lewis DMR. It was not company policy to allow companies to go to the wall to avoid repairing obligations. It would have a disastrous effect with other landlords.

His commercial aim – at that stage – was to keep Wyko’s options open. WG had a number of other operations. He was prepared to move out or he was prepared to stay. Another alternative was to bring some of WG’s other operations to the premises.

In furtherance of this aim he agreed that he wanted to delay the court hearings. It was not in Wyko’s interest to hurry forward the negotiations. He therefore agreed that he had deliberately adopted delaying tactics and had cancelled meetings.

The first meeting took place on 6^th December 2001. When he went to the meeting he was of course aware that the opposed notice had been served on Wyko. He was also aware that the effect of the notice was to place Wyko in the same position as Lewis DMR with regard to the right to compensation.

He was asked a number of hypothetical questions on the assumption that an unopposed notice had been served. He agreed that Wyko would have been very anxious to secure the compensation if it left. He made the point though that he had robust advice from Mr O'Brien to the effect that Wyko was the tenant. He agreed that as quite a lot of money would have turned on who was the tenant he would have wanted a reasoned answer to the question. If he had been told the position was doubtful Wyko would have wanted to preserve its entitlement to the £179,000.

The meeting was attended by Mr Davidson, Mr Lyne and one other (GCS) on behalf of Wyko/Lewis DMR. It was attended by Mr Jansons, Mr Parnell and Mr Butler on behalf of Talisman.

As I have noted Mr Parnell told me that it was at this meeting that he first realised that the opposed notice had been served on 2^nd October 2001.

In any event both Mr Parnell and Mr Davidson agreed that the parties were a long way apart at the end of the meeting. A number of matters were discussed:

There were also discussions in relation to the lease of a smaller area at a premium. The parties were still far apart.

Following the meeting of 6^th December 2001 Talisman dispensed with the services of NR.

There was a further meeting on 18^th January 2002. A number of proposals were put forward. They are set out in paragraphs 25 to 27 of Mr Davidson’s third witness statement and recorded in his contemporaneous note. 3 options were put forward by Talisman and one by Wyko. Talisman’s options involved a rent of £175,000 with discounts for the first 5 years to reflect part (£100,000) of the compensation. Wyko’s counter proposal involved a rent of £160,000 or a sum to be fixed by an independent expert, the compensation to be set off against the rent spread over the first 3 years; there to be break clauses after 5, and 10 years and the tenancy should be protected save in relation to the compensation (Footnote: ¹) Mr Livesey QC asked both Mr Davidson and Mr Winton why no agreement was reached. In re-examination Mr Davidson said:

Mr Winton’s answer is too long to be set out in full. He made the point that Wyko were insisting on setting off the compensation against the rent. He agreed that he was only prepared to offer a discount worth about £100,000 rather than the full £179,000. In his view it would have reduced the capital value of the property by too much when combined with a break clause.

Mr Davidson’s view both as expressed in his witness statement and in evidence was that the parties were a long way apart. Indeed he said in his witness statement that the parties “walked away”.

The final meeting was held on 11^th July 2002. Mr Davidson did not attend that meeting but he deals with it in his witness statement based upon what he was told by Mr Lyne. In any event Mr Winton did not disagree with Mr Davidson’s evidence.

At that meeting Talisman offered a 16 year lease with a reduced rent in years 1 to 3 to reflect the statutory compensation – the reduction was only about £100,000 rather than the £179,000 compensation to which they might be entitled. Thereafter the rent was to be £162,500 subject to reviews. According to Mr Davidson this offer was not acceptable because the parties could not agree over a break clause. Wyko were looking for a short lease or for a lease with a break clause. In any event any such lease would have to take into account the statutory compensation. A further problem arose because Talisman were insisting that Wyko be responsible for the dilapidations.

As already noted the decision as to whether Wyko stayed or went was not taken by Mr Davidson. He was, however asked finally by Mr Livesey QC how important it was that Wyko/Lewis DMR had the right to £179,000 in the decision as to whether to go or stay. His answer was:

The negotiations set out above were conducted in tandem with the 1954 Act proceedings. It will be recalled that:

This offer was never accepted by Talisman. Thus on 30^th January 2002 Wyko made its own application for a new tenancy based on the opposed section 25 notice of 2^nd October 2002. In the application it sought an express declaration that it would be entitled to compensation in the event of its quitting the holding.

On 22^nd March 2002 Talisman filed an acknowledgment of service together with a detailed document setting out its case. In effect Talisman acknowledged the right to compensation if Wyko was the tenant. It sought the determination as a preliminary issue of the question of whether Wyko was the tenant.

The matter came before DJ Taylor on 12^th April 2002 and D J Lightman on 25^th June 2002. An order was made for the trial of the preliminary issue in the Wyko proceedings. That preliminary issue was listed for trial on 11^th November 2002.

Wyko filed evidence in support of the preliminary issue and Mr O'Brien instructed Mr Paul Clark to prepare a skeleton argument in support of Wyko’s case.

As often happens the prospect of a trial concentrated Wyko’s mind on their real objectives. They had at all times been looking for alternative accommodation. According to Mr Davidson it became increasingly clear that they would not be able to agree acceptable terms with Talisman as they were looking for a very short lease or a lease with a break clause after 5 years. It will be recalled that Wyko’s profits were falling in 2002. They were aware that they were entitled to compensation whoever was the tenant.

In the result they decided to leave the premises. On 7^th November 2002 both Wyko and Lewis DMR filed notices of discontinuance. On the following day a consent order was filed. Included within the consent order was a declaration that Wyko had become the tenant of the premises, directions for the determination of the interim rent and orders as to costs. It is to be noted that Talisman agreed to pay ²/₃ of the costs the preliminary issue to be set off against other costs of the proceedings payable by either Wyko or Lewis DMR.

On 19^th December 2002 there was a further consent order. Wyko agreed to pay interim rent at the rate of £146,000 per annum from 22^nd March 2002 till 8^th February 2003.

On 8^th February 2003 – that is to say 3 months after the consent order on 8^th November 2002, Wyko duly vacated the premises.

On 27^th June 2003 Talisman sold the premises to H& G Car Parks Limited for £1,600,000.

In March 2004 Talisman reached an agreement with regard to the dilapidations and the statutory compensation. In effect the parties agreed to compromise the dilapidations in the sum of £243,000. The statutory compensation of £179,000 was set off against this. After taking into account the respective liabilities for costs the sum of £79,000 was payable and duly paid by Wyko to Talisman.

It can thus be seen that Talisman’s initial investment has in any event proved successful. Talisman invested £3,000,000 and have received £3,679,000. It is however accepted by Mr Stewart QC that this profit in no way prevents the claim now being made.

Hypothetical questions

Because of the nature of the questions that I have to answer a number of witnesses were asked a number of hypothetical questions:

In paragraph 31 of his third witness statement Mr Davidson considered the question of what would have happened if an unopposed notice had been served on Wyko at the beginning of October 2002. He indicated that he thought it probable that he would have sought the advice from Eversheds as to the prospects of successfully arguing that Lewis DMR remained the tenant so as to preserve the right to compensation.

When he gave evidence the matter was further explored by Mr Stewart QC.

He was asked what his position would have been if Counsel had advised that Lewis DMR remained as tenant. He said in that event he would have maintained that position to the landlord. He was asked a series of questions about his attitude to an opposed notice

It will be recalled that that the views from the solicitors advising Wyko in relation to the status of Lewis DMR and/or Wyko were not unanimous. Miss Mort had initially taken the view that the correct tenant was Lewis DMR but had second thoughts by the end of September 2001. Mr Fazal advised in June 2001 that the notice served by Lewis DMR was valid because of section 42 of the Act. Mr O'Brien advised “in confident and robust terms” that the original notice was invalid and that the correct tenant was Wyko. He was sufficiently confident of his advice to have advised that the advice given by Miss Mort was negligent. He also felt able to write the letter of 29^th November 2001.

It is to be noted as an opposed notice had been served on Wyko, statutory compensation was payable in the event of vacation whoever was the tenant. Indeed it was to Wyko’s financial advantage to argue that it was the tenant as it put back the date from which an interim rent would be payable from 1^st March 2002 to 5^th April 2002.

The question therefore arose as to whether if an opposed notice had been served Mr O'Brien would have sought Counsel’s opinion. In cross-examination Mr O'Brien suggested that he would have consulted leading Counsel:

He then expressed the view that even if Counsel had advised that his view on section 42 was wrong he would still have taken the view that Wyko was the tenant because it had been accepted as a tenant to the exclusion of Lewis DMR. He then agreed that he would have necessarily asked Counsel to advise on that topic. If Counsel had advised that there was no estoppel he would not have written as he did at the end of November 2001. In re-examination by Mr Livesey QC he made a number of points about going to Counsel. He made the point that he was an experienced real estate litigator and might well have not gone to Counsel. He initially suggested that it was a question of fact as to who was the tenant; he then agreed that it involved an evaluation of the consequences of the facts. He then gave this answer:

His final piece of evidence was in relation to the question of whether the letter of 29^th November would have been written if an unopposed notice had been served:

Expert Evidence

As already noted the experts have compromised their views.

On the assumption that there was a 14 year term with a 10 year break clause they are agreed:

On the assumption that there was a 10 year term with a 5 year break clause they are agreed:

The market value of the freehold with vacant possession would have been £1,600,000 as at February 2003 and June 2003

It can thus be seen (for what it is worth) that the sums being offered by Wyko by way of rent were somewhat below the agreed market value.

The Law

There are a number of questions of law that need to be addressed

S. 42(2) provides as follows:

“Where a tenancy is held by a member of a group, occupation by another member of the group, and the carrying on of a business by another member of the group, shall be treated for the purposes of section 23 of the Act as equivalent to occupation or the carrying on of a business by the member of the group holding the tenancy; and in relation to a tenancy to which this Part of this Act applies by virtue of the foregoing provisions of this subsection -

…

(c)

an assignment of the tenancy from one member of the group to another shall not be treated as a change in the person of the tenant.”

In paragraph 35 of their opening skeleton argument Mr Halpern submits :

In his closing submissions Mr Livesey QC did not seek to answer these submissions at all. In my view it is plain that they are correct. There is nothing in the plain wording of section 42 that requires the tenant to retain possession either in whole or in part. Equally there is nothing that requires the tenant to carry on business at the premises. The effect of the section is to treat the business of the group member as the business of the tenant for the purpose of section 23. Thus if the group member is carrying on a relevant business the tenant is entitled to the protection of the Act and to apply for a new tenancy under section 24.

It follows, with respect that Mr O'Brien’s construction of section 42 was wrong and that of Mr Fazal was correct. That is not, of course the end of the matter because Mr O'Brien’s advice would be correct if Talisman was estopped from denying that Wyko was its tenant.

It is common ground that there was no assignment of the tenancy from Lewis DMR to Wyko. There was no application to Clay for Licence to Assign and no Deed of Assignment. It is common ground that any Assignment must be by Deed (Footnote: ²) In his skeleton argument Mr Halpern said it was also common ground that there was no surrender and re-grant. At one stage Mr Livesey QC seemed to be suggesting that Mr O'Brien believed that there was a surrender and re-grant but I am satisfied that Mr O'Brien did not intend to do so. In any event a regrant must be by deed and there was no deed here.

It is also common ground that the only relevant estoppel is “estoppel by representation” (Footnote: ³). Estoppel by representation is an equitable doctrine. Where a representor represents that a particular set of facts exists and the representee relies on this to his detriment, the representor may be estopped from denying the truth of the representation. This doctrine, unlike the common-law doctrine, requires representation and detriment.

I was referred by Mr Halpern and Mr Livesey QC to a number of cases where the doctrine has been considered in this field (Footnote: ⁴) I am grateful to them for the careful analysis to which they subjected them. I hope I shall be forgiven if I do not set out the analysis in full.

Mr Halpern submitted that they demonstrated that there must be something more than the taking of possession and the payment of rent so as to create a tenancy by estoppel. On the other hand Mr Livesey QC subjected the facts of the cases to a careful analysis in order to show what had influenced the court either in favour or against a tenancy by estoppel. I have to confess that I do not find the authorities of great assistance in relation to the very different factual situation that presents itself here.

The starting point as it seems to me is clause 3(17)(b) of the lease which – it is conceded – expressly permits occupation of the premises by an associated company such as Wyko. It follows that in this case the occupation by Wyko is wholly consistent with the lease. Equally the fact that all of Lewis DMR’s goods were removed is consistent with the terms of the lease.

Given that Wyko was in fact in sole occupation of the premises I agree with Mr Halpern that the payment of the rent and insurance premiums by Wyko is at best equivocal. I therefore agree that – on the facts of this case – something more is needed than occupation by Wyko and payment of rent.

The only additional feature is the letter written by Mr Davidson in reply to the enquiry from Warner Estates about a possible change of Name certificate. I agree with Mr Stewart QC that the reply has to be read in conjunction with the question. I have set out the reply above. I shall repeat it for convenience:

It is clearly an answer written by someone who is not a lawyer. It appears to suggest that as Lewis DMR is “part of Wyko” a change of name certificate is not required. The reference to “leased by us” has to be read in the context of what follows. In my view it is not an unequivocal representation that the tenancy has been in some way assigned to Wyko. It was no more than an assertion of law based on the fact that Wyko had bought out Lewis DMR. As Mr Halpern pointed out Clay would have been well aware that there had been no application for a licence to assign.

In all the circumstances I do not think that there was a sufficient representation by Wyko so as to give rise to an estoppel. I also agree that it is difficult to see what detrimental reliance Clay placed on the letter. Sending out demands for rent is in my view no detriment. It is also difficult to see any detriment in the record of the insurance details. Furthermore – as Mr Halpern points out – Clay, on advice, chose to serve the section 26 notice on Lewis DMR. It is difficult to see how Clay relied on the letter.

Thus in my view the traditional ingredients of estoppel by representation are not made out. In my view Lewis DMR at all time remained the tenant of the premises.

There is a significant measure of agreement between Mr Stewart QC and Mr Livesey QC as to the relevant law. It is agreed that the leading case is the decision of the Court of Appeal in Allied Maples Group v Simmons & Simmons (Footnote: ⁵). In the course of his closing submissions Mr Stewart QC took me to passages in the judgment of Stuart-Smith LJ at 1609H – 1611B, 1614C – H and in the judgment of Hobhouse LJ at 1621E - F

In paragraph 6 of his closing submissions Mr Stewart QC submitted that the effect of the decision could be summarised in this way:

Mr Livesey QC accepted the summary as accurate. More controversial however was the next paragraph of Mr Stewart QC’s submissions:

The lecture given by Neuberger LJ demonstrates some of the difficulties created by the decision in Allied Maples. In paragraph 35 of the lecture notes he says this:

The submission of Mr Stewart QC is in fact based on the discussion by Neuberger LJ of the decision in Dixon v Clement Jones (Footnote: ⁶) in paragraphs 36 and 37 of the Lecture Notes. Mrs Dixon lost the ability to sue her accountants due to her solicitors’ default. She was awarded 30% of the amount she would have recovered against her accountants if that claim had succeeded. The Court of Appeal upheld the award. In paragraph 36 Neuberger LJ discusses the actual approach of the Court of Appeal in the case. In paragraph 37 he says:

That paragraph leads Mr Stewart QC to submit that the court has a choice. Either the court assesses damages at the date of the breach – i.e. on 2^nd October 2001 when the opposed notice was served. In that event no question of set off arises. Alternatively the court takes into account the facts known as at the date of the trial. In that event it must set off against the award of damages for the chance that Talisman would have been better off a sum to represent the chance that Talisman might have been worse off. He submitted that one could not mix and match.

Mr Livesey QC did not accept this ingenious submission. First he submitted it would be wholly unrealistic for the Court to assess damages as at the 2^nd October 2001 and to ignore everything that happened thereafter. It would fly in the face of common sense to ignore the negotiations between December 2001 and November 2002, the fact that Wyko did in fact vacate, and the fact that compensation was in fact paid. He submitted that the Court would always look at the facts known as at the date of the hearing rather than assess the chance of their happening as at the date of the breach.

He further submitted that the suggestion of set off was intuitively wrong and unsupported by authority. The extra judicial views of Sir David Neuberger – even with the benefit of a discussion with Mr Stewart QC – were not authority. There was he submitted no authority to support Mr Stewart QC’s submission.

I prefer the submissions of Mr Livesey QC on this aspect of the case. I agree that it would be unrealistic to ignore the events that actually occurred after 2^nd October 2001. I am also for the reasons he gives not satisfied that it is appropriate to set off against Talisman’s damages a sum to represent the chance that Talisman might have been worse off.

In fact the discussion is largely academic on the facts of this case. In paragraph 13(c) of his closing submissions Mr Stewart QC asserts that there are 2 elements to the set off claim: - the right to receive dilapidations and the right to receive interim rent. Each of these elements deserve analysis. Dilapidations were payable either by Lewis DMR or Wyko. It is true that Lewis DMR was dormant and Mr Winton was concerned that it might not be good for any dilapidations’ liability. In fact however Mr Davidson readily agreed with Mr Stewart QC that WG and/or Wyko would not have let Lewis DMR go the wall. It would have damaged Wyko’s credibility with other commercial landlords. There is no reason to doubt this. It follows that the dilapidations claim would have been paid in any event and there is in fact no significant chance that Talisman would have been worse off in relation to the dilapidations.

Under the terms of the Act interim rent could have been claimed from 1^st March 2002 if Lewis DMR was the tenant and from 5^th April 2002 if Wyko was the tenant. In fact under the compromise agreed Wyko agreed to pay interim rent from 22^nd March 2002. For reasons I have given there was no significant risk that Lewis DMR would have been allowed to go to the wall rather than pay the interim rent. Thus the only loss caused by establishing that Wyko was the tenant is the loss of interim rent for the period between 1^st March 2002 and 22^nd March 2002 – a period of 21 days. This comes to a total of £2,215 at £38,500 per annum on the assumption that the chance of the loss was 100%.

Assessment of the claim.

In paragraphs 45 and 46 of the Re-Re-Amended Particulars of Claim Talisman contend that by reason of the discontinuance of the applications for a new tenancy and the vacation of the premises by Wyko in February 2003 Talisman became liable to pay Wyko statutory compensation. If an unopposed notice had been served no statutory compensation would have been payable. Hence it is alleged that the payment of the statutory compensation was caused by the service of the wrong notice.

This argument depends on establishing that Wyko was in fact the tenant and entitled to compensation. For the reasons I have set out above Wyko was not the tenant either by assignment or by estoppel. Lewis DMR at all times remained as tenant and thus entitled to any compensation payable under section 37(4) of the Act. That right arose as a result of the Counter notice served by Clay under section 26 of the Act and not the notice served by NR under section 25. It follows that this head of claim fails.

There is in fact a further difficulty with this head of claim even if, contrary to my view, Wyko became the tenant by estoppel. Talisman did not in fact pay the statutory compensation to Wyko. Rather they set off the statutory compensation against the claim for dilapidations. The real question is thus whether the overall settlement of the dilapidations/compensation claim is in fact worse than it would have been if an unopposed notice had been served. I shall address that question below.

In his opening submissions Mr Livesey QC put the matter thus:

In his opening submissions Mr Livesey QC submitted that the evidence would show that if Wyko had been served with an unopposed notice it would have offered to discontinue the Lewis DMR application to substitute Wyko as the applicant. He submitted that Talisman would have accepted the offer. In that event compensation would not have been payable. He submitted that this was a result that suited both Talisman and Wyko. As it was the objective on both sides to secure Wyko as tenant Mr Livesey QC submitted that it was difficult to see why that would not have happened. Thus he submitted that the chance of Talisman avoiding the payment of compensation was high.

The difficulty with that submission emerged clearly in cross-examination. It may well have been in Talisman’s interest to establish that Wyko was the tenant. Wyko was a better covenant than the dormant Lewis DMR. With Wyko as tenant Talisman could be reasonably confident of recovering whatever sum was due in respect of dilapidations whereas there was a risk that the dormant Lewis DMR might not pay. Mr Winton was not aware that the WG would not in fact have let this happen. If Lewis DMR was the tenant it had a vested right to compensation on quitting by virtue of the counternotice served by Clay.

If an opposed notice was served on Wyko it would be in exactly the same position as Lewis DMR. It too would have a vested right to compensation on quitting. Thus there would be no difference between Wyko and Lewis DMR. Furthermore as WG would not in fact have allowed Lewis DMR to go to the wall there was no financial disincentive to prevent the WG from arguing or accepting that Wyko was the tenant.

On the other hand if an unopposed notice had been served there would have been a marked difference between the position of Wyko and Lewis DMR. If Wyko was the tenant there would have been no compensation on quitting. If Lewis DMR remained tenant compensation was in the sum of £179,000. It would then have been very much in WG’s interest to argue that Lewis DMR remained as tenant.

In paragraph 7 of his closing submissions, however, Mr Livesey QC in effect repeated the submission. He analysed this in paragraphs 8 to 10 of his submissions. His argument may be summarised thus:

I cannot accept Mr Livesey QC’s submissions. In my view the chance of events happening in the way he suggested was in fact very low. There are a number of reasons for this:

The matter does not end there because it is still necessary to consider what is likely to have happened if an unopposed notice had been served. Mr Livesey QC submitted that it is likely that a new tenancy of some sort would have been entered into. He deals with the matter in detail in paragraph 11 of his closing submissions.

Mr Livesey QC first submitted that both Talisman and Wyko intended to enter into a new lease if appropriate terms could be agreed. I have no difficulty in accepting this submission. I am satisfied that the 3 meetings that took place were genuine negotiations. Mr Winton was concerned to maximise the value of the premises. He had been advised that the capital value would be increased if it was let on appropriate terms to Wyko. He had an incentive to agree appropriate terms. Mr Davidson told me and I accept that Wyko had a genuinely open mind as to whether to stay or go.

Mr Livesey QC then asked the question whether the statutory compensation was a material cause of the negotiations failing and submitted that it was. He relied on a number of factors – set out in subparagraphs g – l of paragraph 11 of his submission and invites me to conclude that it was. He reminded me of the very last answer given by Mr Davidson in his evidence:

I have no doubt that the existence of the statutory compensation paid an important part in the negotiations. It was clearly mentioned on a number of occasions. Indeed the offer of a reduced rent – albeit only to the extent of £100,000 – reflected the right to compensation. However that does not answer the question I have to address. In my view Mr Livesey QC has posed the wrong question. In my view the true question is whether the service of the opposed notice was a material cause of the negotiations failing.

Mr Livesey QC’s question assumes that if an unopposed notice had been served Wyko would have gone into the negotiations believing that there was no right to compensation if no new tenancy was agreed. For the reasons I have given that is not the case. Wyko would have gone into the negotiations knowing that there was a vested right to compensation if Lewis DMR was the tenant and that Counsel had advised that Lewis DMR was likely (but not certain) to be held to be the tenant.

Whilst I have no doubt that the negotiations were genuine in the sense I have described they were not conducted with any great vigour – only 3 meetings over a 7 month period. Mr Winton was only interested in a new tenancy if it increased the value of the premises over the vacant possession value. His attitude was purely commercial. He was not intending to keep the premises in the long term. Mr Lyne was only interested if the lease was adequately protected and had sufficient break clauses. These two objects proved irreconcilable when the parties knew that compensation would be payable on vacation. In my view they would have been equally irreconcilable in the slightly changed circumstances created by the service of an unopposed notice.

In my view it is fanciful to suggest otherwise.

Following the vacation of the premises there remained the question of the dilapidations and the set off of the compensation.

Mr Stewart QC seeks to deal with this in paragraphs 9 to 12 of his closing submissions. In paragraph 9 he presents an analysis based on the information known as at the date of the breach. For reasons already given I do not think it appropriate to assess damages as at the date of the breach.

In paragraphs 10 and 11 he puts forward 3 possible positions that the tenant might have taken. He submits that the likelihood is that Talisman’s position would have been the same or worse off and thus no damages are recoverable under this head.

In my view this analysis is flawed. It is unsupported by authority and does not address the real loss that Talisman suffered. I accordingly reject it.

The sum which Wyko agreed in respect of dilapidations was very close to the figure that Mr Davidson had been advised was appropriate. In those circumstances there is no reason to think that any other figure would have been agreed if an unopposed notice had been served.

The position with regard to the compensation is rather different. As a result of the service of the wrong notice Wyko had a vested right to compensation and Talisman had no choice but to allow it to be set off in full.

If an uncontested notice had been served Talisman would have had an argument in the negotiations that there was no right to compensation. It was not, in my view, a fanciful argument. It was an argument which I think would have failed but which I think had a respectable chance of success. Thus the effect of the service of the wrong notice was to cause Talisman to lose the opportunity of running that argument in the negotiations.

If Talisman had had that opportunity I am satisfied on balance of probabilities that it would have made use of it in the negotiations. As I have noted Mr Winton was motivated by commercial considerations. It was in his commercial interest to make use of the argument.

I am equally satisfied that there is a chance that Wyko would, on advice, have recognised that there was a litigation risk that it would be held that Wyko was the tenant so that no compensation was available for set off. There is equally a chance that they would have been prepared to compromise that litigation risk by accepting a lower set off in respect of the compensation.

In the light of the decision in Allied Maples I am required to assess that chance. The assessment of chances is not straightforward. As I have indicated I think that Wyko would have been advised that they were likely to win. Thus the assessment must be less than 50% of the compensation. On the other hand the material assembled for the County Court does show that the argument was respectable. There was a real risk that it could succeed. Doing the best I can I propose to assess the chance at 30%.

It follows in my view that Talisman are entitled to 30% of £179,000 or £53,700. In addition Talisman will be entitled to interest from the date of the agreement in relation to the compensation – 26^th March 2004.