Stratton & Anor v Patel & Anor

In February, March and July 2014 I heard evidence and submissions in this case over 8 days. I handed down judgment on the 1^st August 2014. The judgment is reported under the Neutral Citation Number [2014] EWHC 2677 (TCC). For a detailed recital of the facts in this case, reference should be made to that judgment.

On the 12^th September 2014 I heard argument on costs. I handed down judgment in respect of costs on the 7^th October 2014. In that judgment I recorded as follows:

“The claim arises partly out of a fire which occurred on the 22^nd February 2010 causing damage to the demised premises which rendered the premises unusable, but also out of leaks at and into the premises through the roof and blockage of an internal drain. All of these problems were caused by the manner in which the Third Party carried out a contract between itself and the Defendant for redevelopment of the parts of the Defendant’s building which were not demised to the Claimants.

In summary the claims put forward by the Claimants were as follows:

(1)

Damages in the amount of the cost of remedial works (finally estimated at about £310,000 for all works other than works to the kitchen plus just under £100,000 in respect of the kitchen);

(2)

Alternatively an order for specific performance in respect of those works;

(3)

Loss of profits in an amount of £180,000 plus continuing losses;

(4)

Exemplary damages;

(5)

Damage to goodwill in the sum of about £30,000;

(6)

Costs of re-launching the restaurant premises.

In the event, I accepted that the Claimants were entitled to have the premises including the kitchen back into a useable state of repair, albeit I adjourned the assessment of damages to see whether the Defendant complies with an undertaking to carry out those works. If and to the extent that the Defendant does not do so (and I have no reason to suppose that he will not) then not only will the Defendant be liable for the consequences of his breach of undertaking, but substantial damages may well be awarded for the costs of these works. If, as is to be expected, the Defendant does comply with his undertaking, damages under this head are likely to be nil.

I rejected the claims for los of profits, loss of goodwill and exemplary damages.

It remains to be seen whether the Claimants will relaunch the business.”

By Order dated the 7^th October 2014 I ordered, inter alia:

“The assessment of the quantum of damages (if any) under the following heads is adjourned with liberty to the Claimants to apply to fix a date for the assessment:

1.1

The quantum of any residual reinstatement works to the premises

1.2

The quantum of any residual reinstatement works to or supply of the kitchen equipment and customer serving and accommodation facilities

1.3

The quantum of any business re-launch expenses and loss of income during the re-launch period and the period to be paid if any.”

By the 7^th October 2014 the scope of the works to be carried out had not been agreed. The parties came back before me on the 19^th December 2014. On that day I accepted the Defendant’s undertaking to carry out remedial works. Paragraph 1 of the Undertaking provided that the Defendant undertook:

“On condition that the Claimants shall provide all reasonable access and cooperation, to procure that the reinstatement works described in the schedule hereto and any agreed variation thereto agreed between Mr. Birchall and Mr. Moor are diligently carried out.”

Mr. Birchall is a surveyor retained by the Defendant, and Mr. Moor is a surveyor retained by the Claimants.

Remedial works have now been carried out and, as I set out below, are largely complete.

The Claimants complain about the time it has taken for the works to be carried out and contend that the Defendant is in breach of the undertaking given by him.

In January 2016 correspondence addressed to the Court alerted me that there were disputes between the parties on a number of issues. Through my clerk I directed on the 25^th January 2016 that the parties should serve submissions identifying what orders or directions were sought.

On the 12^th February 2016 the Claimants served what they described as “Preliminary Submissions” in which they sought the following directions:

“(a)

The Claimants’ expert Mr. Greg Moor be permitted to file and serve a statement report with regard to the progress report of Mr. Birchall dated 12.02.16 by 26.02.16.

(b)

The Parties file and serve witness statements of fact relied upon with regard to the Assessment of Damages by 5.00 p.m. on the 11.03.16.

(c)

That there be disclosure of all such documents upon which each party relies with regard to the Assessment of Damages by 5.00 p.m. on 01.04.16 and inspection if so sought by 22.04.16.

(d)

Permission to the Claimants to obtain a detailed report from the Claimants’ Accountants RDP Newmans detailing the Claimants losses of income from 01.08.14 to include details of the expenses and loss of income arising during any re-launch period, such report to be filed and served by 18.03.16.

(e)

The parties shall file and serve Skeleton Arguments by 08.04.2016.

(f)

The matter be listed for Assessment of Damages hearing with a time estimate of 1-2 days on the first open date after 08.04.2016.

(g)

Alternatively that the matter be set for case management directions on the first open date after 28.02.16 with a time estimate of 2 hours.”

The Claimants sought orders as follows:

“(h)

The Defendant is in breach of his Undertaking in failing to carry out the remedial works, whether in accordance with the Agreed Specification of Works and/or by 12.02.2015 alternatively within a reasonable time;

(i)

That the Defendant is in breach of Paragraphs 1 and/or 3 and/or 4 of the Order dated 01.08.2014 in that he failed:

(i)

To take all necessary steps and to carry out the detailed works set out in the Agreed specification to reinstate the Claimants’ restaurant premises;

(ii)

To take all necessary steps and carry out all such works to reinstate the Claimants’ installed and free standing kitchen equipment and customer serving and accommodation facilities

Whether by 12.02.2015 or within a reasonable time;

(j)

That upon the court determining that the re-launch period for the Claimants’ business is a minimum of 8 weeks, the Defendants pay to the Claimants damages together with interest thereon, as follows:

(i)

The sum of £241,329.23 being the Claimants’ loss of income from 01.08.2015 until 04.02.16.

(ii)

A sum to be assessed for the Claimants’ loss of income from 13.02.15 until payment.

(iii)

A sum to be assessed being the cost of residual reinstatement works pursuant to paragraph 2.1 of the Order dated 01.08.2014.

(iv)

A sum to be assessed being the cost of the residual reinstatement works or supply of kitchen equipment pursuant to paragraph 2.2 of the Order dated 01.08.2014.

(v)

A sum to be assessed being the Claimants’ re-launch expenses.

(vi)

The sum of £40,456.55 being the Claimants’ loss of income during the re-launch period or such other sum as the Court may determine.

(vii)

The Defendant shall pay the Claimants’ cost of the proceedings for the Assessment of Damages.”

On the 12^th February 2016 Kidd Rapinet wrote to the Court. In that letter they contended that there had been a settlement between the parties and concluded in paragraph 5 of the letter:

“By way of further directions, we would seek your confirmation that:

(a)

No further progress reports are required from the experts;

(b)

Following agreement between the experts that the reinstatement works had been completed, handover took place on 15 December 2016;

(c)

The Claimants have now relaunched their business;

(d)

The parties have reached agreement as to full and final settlement and are bound by the terms of that agreement; and

(e)

Our client, the Defendant, has complied with the terms of his Undertaking throughout and, barring payment of any further reasonable fees from Mr. Moor (an invoice is awaited in this regard), the Defendant is now ready to be discharged from his Undertaking.”

A date for a directions hearing before me was fixed for the 22^nd April 2016. Shortly before that hearing, the Defendant issued an Application Notice supported by a witness statement from Mr. Philip Thomas Jackson, a solicitor at Kidd Rapinet.

Paragraphs 2 and 3 of Mr. Jackson’s statement read as follows:

“Post trial the Claimants have chosen to pursue directions and additional claims arising from or incidental to the Defendant’s reinstatement works. These are now termed “the Claimants’ post-trial claims”. The Defendant is making an application in respect of the following:

I To strike out the Claimants’ post-trial claims;

II Alternatively, summary judgment thereon;

III The Defendant seeks to be discharged from his Undertaking to the Court herein;

IV Alternatively the Defendant requests that the following be dealt with as Preliminary Issues:

(i)

The nature and effect of the Defendant’s Undertaking to the Court – it is the Defendant’s case that this undertaking does not confer upon the Claimants any rights to damages. [On the facts the Defendant strenuously denies any breach of Undertaking. He prays in aid both the contents of the report dated 12 February 2016 of his expert Mr. Richard Birchall and also the report dated 3 March 2016 from the Claimants’ expert Mr. Gregory Moor.]

(ii)

The Claimants’ claim for loss of profits is no less than an attempt to relitigate the finding at paragraph 434 of the Judgment of Roger ter Haar Q.C. sitting as a Deputy High Court Judge in the High Court of Justice delivered on 1 August 2014. This held that the Claimants were not running a profit-making business.

(iii)

Insofar as the Claimants may have had any claims for damages respecting relaunch costs, outstanding works or matters incidental thereto these were settled and comprehensively so on 3 February 2016.

(iv)

In any event the Defendant:

(a)

Has already paid or agreed to pay a sum in respect of relaunch expenses and has voluntarily provided the Claimants with a rent-free and insurance-free period – the combined effect of which far exceeds the amount of any possible claim in respect of relaunch; and

(b)

Has/is timeously and competently attending to all snagging items arising from the reinstatement works aforesaid.”

On the 22^nd April I directed that the Defendant’s application dated the 19^th April 2016 be listed before me for hearing on the 1^st July 2016. This is one of two judgments handed down dealing with the Defendant’s application.

In the other judgment I set out my reasons for rejecting the Defendant’s contention that there has been a settlement of any of the issues, thus dealing with paragraph (IV)(iii) of the application.

I can deal with this shortly.

There was placed before me a report from Mr. Moor, the Claimants’ Surveyor, dated the 30^th June 2016 in paragraph 3 of which Mr. Moor says:

“Further to receipt of notice of completion of the works following the end of the Defects Rectification Period, a joint inspection was undertaken on the 23 June 2016 with Mr. Birchall to confirm that all remaining works had been completed. There was agreement that all works were complete with the exception of two items:

(i)

a residual issue with the Air Handling Unit (AHU) controller and

(ii)

lack of clarity in the labelling of the electrical consumer unit.”

Mr. Hutchings on behalf of the Defendant did not suggest that Mr. Moor’s record of what had been agreed between the surveyors was inaccurate.

At the date of the hearing before me, although the remaining works appeared to me to be minor, the Defendant had not yet completed the works, and, accordingly discharge of the undertaking was not then appropriate. I understand the then remaining works have now been completed.

It will still be necessary to consider whether there could be a discharge of the undertaking where there has been past breach of that undertaking (as claimed by the Claimants and denied by the Defendant). As the question of whether there has been a breach of undertaking has yet to be decided, I decline to discharge the undertaking at this stage.

This deals with paragraphs (III) and (IV)(iv)(b) of the Application.

For the avoidance of doubt: it presently seems unlikely that if those remaining items are completed the Claimants will have any extant claim for “residual reinstatement costs”, but I make no finding on that matter.

There is no doubt that it is open to the Claimants to claim these, as they are matters expressly kept open in paragraphs 1.2 and 1.3 of my order of the 7^th October 2014.

Insofar as it was suggested that these had been settled, as I have said above, I have rejected that argument in a separate judgment.

It is contended by the Defendant that he has already paid or agreed to pay a sum in respect of relaunch expenses and has voluntarily provided the Claimants with a rent-free and insurance-free period – the combined effect of which far exceeds the amount of any possible claim in respect of relaunch.

There is evidence before me which confirms that this is factually correct. However there is no evidence before me that the sum paid by the Defendant – a cheque for £22,333.13 handed over on the 15^th December 2015 – was accepted in full and final settlement of relaunch expenses. Accordingly, it seems to me open to the Claimants to contend that their actual relaunch expenses exceeded that sum, and on that basis I decline to strike out that part of the Claimants’ claim. However, it does seem to me that given that the figure was seemingly agreed between the experts, the Claimants should think carefully before expending further fees on putting forward this head of claim.

In respect of loss of income during the re-launch period, it is contended first that I decided in my principal judgment that the Claimants’ restaurant business was unprofitable. It is true that I did so, but I was not then considering a period after remedial works had been carried out. At that stage the Claimants would have the benefit of newly refurbished premises and the possibility of trading in a different economic climate from that prevailing in the period which I was considering for the purposes of my judgment.

Thus in my view it is open to the Claimants to contend that although on my findings the restaurant was unprofitable before the fire, it would have been profitable by the time that the remedial works were completed.

I return below to the subject of what other losses it is possible for the Claimants to recover. However in respect of the relaunch period, it is in my view open to the Claimants to contend that there was a loss during that period.

In formulating that claim, the Claimants appear to have taken the view that they are entitled to loss of income without giving any credit for expenses of generating that income. Whilst I can see that that argument might flow from the expression “loss of income” in paragraph 1.3 of my order of the 7^th October 2014, that was not my intention, nor, in my view, is it the true effect of the Order. The reference is to net loss of income: but in saying that I am not pre-judging in any way what expenses should or should not be taken into account.

As recorded above, it is the Defendant’s suggestion that in calculating the loss of income account should be taken of the facts that the Defendant has granted the Claimants rent-free and insurance-free periods. This appears to be factually correct, but I cannot say that those concessions would necessarily eliminate the losses which the Claimants would otherwise have suffered.

The Defendant puts his case forward firstly as a strike out application: for the reasons given above I do not regard these heads of claim (i.e. re-launch expenses and loss of income during the re-launch period) as being unarguable, and accordingly I decline to strike out those claims. Secondly, the Defendant seeks a determination of the amounts due as a preliminary issue (contending that the result of such a preliminary issue would be an award of nothing to the Claimants). As to that, the Claimants have not yet put in the evidence upon which they would wish to rely, and the matter does not seem to me suitable for a preliminary issue.

Accordingly as regards these heads of claim I reject paragraphs (IV)(ii) and (iv)(a) of the Application.

The Defendant seeks an order striking out all the Claimants’ claims for loss of profits. Having dealt with any loss of income in the re-launch period, I think it helpful to set out the other periods of lost income which the Claimants have either previously put forward or now put forward:

Category (1) was a pleaded claim which I considered and dismissed in my judgment, and there is no attempt now by the Claimants to reopen my decision in that regard.

In my view, category (2) was within the claims pleaded and considered by me in my judgment. Whilst the pleadings and submissions did not expressly isolate this period, and I did not deal with it expressly in my judgment, in my view my judgment is to be taken as implicitly rejecting any such claim on the basis that I was not satisfied that there would be any loss of profits in that period.

The claim for loss of income by the Claimants covers the period from 1^st August 2015 until the works were completed (see item (j)(i) of the proposed orders set out at paragraph 9 above). Insofar as that period covers the period which I then considered reasonable for works to be executed – namely 2 months for initial investigations and 6 months to execute the works (see paragraph 316 of my judgment of the 1^st August 2014) – it seems to me either that was a claim which was before me and rejected on the basis that the restaurant would not have made any profit during that period, or, perhaps more accurately, it was a claim which was not expressly placed before me as distinct in principle, but which had it been separated out in that way, I would have rejected on that basis.

For the Claimants it is submitted that the effect of recent authorities is that where application of cause of action or issue estoppel would work unfairness and injustice the court should not apply either. Reference is made in that regard to the decision of the Supreme Court in Virgin Atlantic Airways v Zodiac Seats UK [2013] UKSC 46; [2014] A.C. 160 at paragraphs 25, 32, 52 and 62. I do not intend in this judgment to enter into any lengthy discussion of the present scope of these doctrines or the overlap between these doctrines and the court’s power to strike out a claim for abuse of process. For my purposes I apply what Lord Sumption said at paragraph 26:

“Where the existence or non-existence of a cause of action has been decided in earlier proceedings, to allow a direct challenge to the outcome, even in changed circumstances and with material not available before, offends the core policy against the re-litigation of identical claims.”

In my view the application of that principle excludes both Category (1) and Category (2) damages.

That leaves Category (3). I should say at the outset that the Defendant does not accept that he was in any way in breach of the Undertaking: he contends that he acted diligently but unforeseen circumstances hindered progress and completion of the works. This is hotly contested by the Claimants. I do not rule on the merits of those contentions, but consider the matter on the basis of the uncontested fact that the works took considerably longer than 8 months and that, on the Claimants’ case, that delay was a consequence of the Defendant’s breach of undertaking.

The first way in which the claim might be put forward would be simply that during this extended period the Defendant’s original breaches of the Lease are to be taken to have continued. I do not think that that is a satisfactory or acceptable basis for the claim to be maintained. I have ruled upon any claims arising out of the original breaches of the lease.

My initial thoughts were that the same reasoning would preclude all claims for damages for breach of the lease. However upon reflection it seems to me that it is at least arguable that a failure to execute the agreed works diligently would amount to a fresh breach of the repairing obligations in the Lease. I do not at this stage do any more than rule that such a claim is arguable, and decline to strike out that part of the claim which the Claimants wish to pursue. In my view that would be a fresh cause of action upon which I have not yet ruled either explicitly or implicitly.

In addition, the Claimants say that the claim for Category (3) losses can be pursued by way of a claim for damages for breach of undertaking. A claim for damages for breach of the undertaking appears to me to be conceptually a different cause of action which was not the subject of my principal judgment.

Before addressing the relevant law, it is in my view important to emphasise certain matters of context. The Defendant before me was very anxious to take control of the execution of the remedial works. What I did in my judgment was, in effect, to accept an offer by the Defendant to carry out the works. The precise terms of what works would then be carried was the subject of considerable discussion and eventual agreement between the parties.

Insofar as the claim is for damages for breach of undertaking simpliciter, the claim faces considerable difficulty. There is a substantial body of authority which suggests that a court can award damages in respect of breach of an undertaking or injunction amounting to a contempt of court, but the weight of the authority appears to be that that does not extend to a power to compensate individuals by an order for damages: see the very full analysis of the authorities by Teare J. in JSC BTA Bank v Ablyazov [2016] EWHC 230 (Comm).

However there is a class of cases where a party’s agreement to an undertaking takes effect not only as an undertaking to the Court enforceable through contempt proceedings, but also as an arrangement having contractual effect.

This in Re Hudson [1966] 1 Ch. 209, Buckley J. said at pages 214 to 215:

“…an undertaking to the court, unless the circumstances are such that it has some collateral contractual operation between the parties concerned, confers no personal right or remedy upon any other party. The giver of the undertaking assumes thereby an obligation to the court but nobody else.

….

Where the giving of an undertaking to the court forms part of a bargain between the parties to litigation, the giver of the undertaking may assume not only an obligation to the court but also a contractual obligation to the other party to the bargain to observe or implement the undertaking ….”

In my judgment, it is arguable that the undertaking given by the Defendant falls into this exceptional case, particularly because of the detailed negotiations which took place as to the scope of the works to be executed.

Accordingly, for this additional reason I decline to strike out the claim for Category (3) loss of profits.

I do not make any findings as to the precise scope of any such agreement, particularly as to the Claimants’ argument that there was an agreement to complete the works by February 2015. Such issues, as well as the case that the works were not pursued with due diligence, as well as any resulting loss of profits are matters to be resolved by this Court. I shall invite submissions as to the appropriate directions to that end.

I invite submissions from the parties as to the terms of an order to give effect to this judgment as well as to directions towards a final determination of the matters in issue in these proceedings.