B e f o r e :
LORD JUSTICE ACKNER
and
LORD JUSTICE FOX
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C. & P. HAULAGE (A Firm)
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(Plaintiffs) Respondents
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v.
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GORDON MIDDLETON
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(Defendant) Appellant
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(Transcript of the Shorthand Notes of the Association of Official Shorthandwriters Ltd., Room 392, Royal Courts of Justice, and 2 New Square, Lincoln's Inn, London, W.C.2).
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MR. D. LAMMING (instructed by Messrs. Woolley & Weston) appeared on behalf of the (Plaintiffs) Respondents.
MR. A.J. KEOGH (instructed by Messrs. Hanbury Gery Brooks & Weston) appeared on behalf of the (Defendant) Appellant.
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HTML VERSION OF JUDGMENT
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LORD JUSTICE ACKNER: This appeal, which has been admirably argued on both sides, arises out of these facts. Mr. Middleton is an automobile engineer and repairer. He had been up to the end of 1948 working from a garage, part of his own home. The local authority, however, objected to this use being made of domestic property, and they gave him the appropriate notice to desist. He thereupon urgently looked round for other accommodation.
C. & P. Haulage, the respondents in this case, a firm which carried on the business of plant hire, well known to Mr. Middleton, he having done work for them and they having hired machinery to him. Knowing one of the partners, he discussed the terms upon which he might use a yard they had, which had a covered workshop, and which was only used for storage. Eventually they entered, on or about the 15th December, into an agreement. This is essentially contained in a document which emanated from the respondents, the material terms of which read as follows:
"Before offering you the use of our yard at Winton Approach we would like you to agree to the following:
1) The use of the yard to be reviewed every six months.
2) We require spare keys to any locks which you may wish to fix on outer doors.
3) We require to know whom besides yourself will be working in the yard.
4) We would not accept any liability for any injury or accident while on our premises.
5) Any fixtures you put in are left.
6) The rates and electricity to be paid by you via
C & P. The bills will be seen by you."
The agreement itself does not in fact refer to what payment should be made, but the learned county court judge accepted that there would in due course be an agreement as to the payment. The learned judge concluded - and this is not challenged; in fact it was accepted before him - that the agreement amounted in law to a licence. It was not a lease. The payment had still to be discussed.
Mr. Middleton moved in and began to use the premises for commercial purposes but not until towards the end of 1978. He had to carry out quite a considerable amount of work to make the premises suitable for his purpose. A wall had to be built enclosing the premises, locks had to be fitted, and electricity had to be laid on.
On the 16th June he was still in occupation. The learned judge concluded - and again this is not challenged - that the licence was for six months with renewal every six months. It could thus be terminated every six months, and he took the view - and this has not been challenged - that a reasonable notice prior to its termination of one month at least would have been necessary.
Accordingly, when the 16th June went by, no notice having been given, a second period of six months then started, with the result that Mr. Middleton was at least sure of the licence continuing until the 15th December, 1979.
Unfortunately there was some misunderstanding or trouble on the 5th October, by which time the premises were completed and were being used for the garage work, when the senior partner of the firm had some difficulty in getting oil from a drum which had been moved without his permission. He became very angry, and told Mr. Middleton to get out. The locks were changed. Mr. Middleton did not take the sensible course of consulting solicitors, who undoubtedly would have advised him to apply for an injunction and appropriate further relief. He accepted the position. He managed to climb in and, with help, moved his essential equipment out of the premises. He went back to his own garage. He told the council about his predicament, and they were very sympathetic. He was allowed to stay where he was - which meant of course he did not pay any rent because it was his property - and he was allowed to remain using the premises, despite the council's previous objection, for a period of a year. The council clearly behaved both generously and reasonably.
The proceedings in this case was in fact begun by C. & P. Haulage. They brought proceedings on the basis of cheques which had been provided by Mr. Middleton and which had not been paid. Mr. Middleton had stopped payment because of his grievance with regard to being summarily ejected from the premises after paying a considerable amount on effecting the improvements to which I have made mention. That of course was no answer to the claim on the cheques, and judgment was duly signed.
A defence and counterclaim had been put in which contained Mr. Middleton's claim for the reimbursement of his expenditure on the premises, and it is in relation to that counterclaim that this appeal arises from the decision of His Honour Judge Eric Stockdale given on the 13th September, 1982 at the Watford County Court. In those proceedings, of course, Mr. Middleton was in effect the plaintiff suing C. & P. Haulage, the firm, for damages for breach of contract, the contract being the licence agreement to which I have referred. His claim amounted to £l,767.51, which covered labour and material used in building the wall, to which I have referred, laying on the electricity and moving or transferring a telephone.
There is no dispute, and Mr. Keogh frankly accepted that at the outset of this appeal, that under the agreement Mr. Middleton could not take out of the premises at the termination of the agreement any fixtures. There was the specific provision in paragraph 5 that they were to be left. He secondly accepted that the agreement could have been lawfully terminated ten weeks later, on the 15th December, 1979, than the date upon which it was unlawfully and summarily determined on the 5th October.
The learned judge concluded that since in those ten weeks Mr. Middleton had been able to return to his own garage and pay no rent, he had suffered no damage, and he accordingly gave judgment against Mr. Middleton. The learned judge accepted that in putting new locks on the premises on the 5th October and making it impossible for Mr. Middleton to return and use the yard and premises that was a breach of contract by C. & P. Haulage.
At the outset of this appeal we raised that point that, having established a breach of contract, Mr. Middleton was entitled to judgment. If he could prove no damages beyond nominal damages, then the judgment would have to be limited to nominal damages. Accordingly, when this matter was further considered, the notice of appeal was amended to take this point, and Mr. Lamming very sensibly accepted that there was no answer to the proposition that the learned judge should in fact have entered judgment for Mr. Middleton, although, on the basis of the learned judge's decision, only for nominal damages of £10.
The appeal here has not been concerned with that criticism of the learned judge. The submissions made by Mr. Keogh are essentially the same submissions which he made before the learned county court judge. They are to the effect that Mr. Middleton, having expended this sum of money, was entitled to recover that sum of money back by way of damages for breach of contract.
The learned judge approached the case essentially on this basis, that the accepted principle in relation to the assessment of damages for breach of contract was to put the plaintiff in the same position, as far as one could, as he would have been in if the contract had been performed; and in order to evaluate whether if the contract had been performed what was the nature, if any, of the damage that he should be entitled to claim, one had to look at the consequences of the breach of contract.
The consequences of this breach of contract were that so far from Mr. Middleton suffering any damage as a result of being excluded from the premises ten weeks earlier than would lawfully have been the case, thanks to the tolerance of the planning authorities he had in effect been saved the payment, which was likely to be between £60 and £100 a week, which he would have had to have paid for the use of C. & P. Haulage's premises. He accordingly came to the conclusion that if he was to award the damages claimed, he would be putting Mr. Middleton in a better position than would have been the case if the contract had been lawfully determined.
The case which was at the forefront of Mr. Keogh's submissions before the learned judge and before us as well is that of Anglia Television Ltd. v. Reed (1972) 1 Queen's Bench 60. There the defendant, a well known actor, contracted with the plaintiffs, Anglia Television Ltd., to play the leading man's part in a television play which they were producing. A few days afterwards the defendant repudiated the contract. Anglia Television could not get a substitute, accepted his repudiation and abandoned the production. They sued him for nearly £3,000 total wasted expenditure. In the judgment of Lord Denning, M.R., at page 63, this was said:
"Mr. Butler, for Mr. Reed" - that is, the actor - "has referred us to the recent case of Perestrello & Companhia Limitada v. United Paint Co. Ltd., The Times, April 16, 1969, in which Thesiger J. quoted the words of Tindal C.J. in Hodges v. Earl of Litchfield (1835) 1 Bing. N.C. 492, 498:
'The expenses preliminary to the contract ought not to be allowed. The party enters into them for his own benefit at a time when it is uncertain whether there will be any contract or not.'
Thesiger J. applied those words, saying: 'In my judgment pre-contract expenditure, though thrown away, is not recoverable.'
I cannot accept the proposition as stated. It seems to me that a plaintiff in such a case as this has an election: he can either claim for loss of profits; or his wasted expenditure. But he must elect between them. He cannot claim both. If he has not suffered any loss of profits - or if he cannot prove what his profits would have been - he can claim in the alternative the expenditure which has been thrown away, that is, wasted, by reason of the breach. That is shown by Cullinane v. British 'Rema' Manufacturing Co. Ltd. (1954) 1 Q.B. 292, 303, 308."
Lord Denning was not contemplating what has been referred to subsequently as the "bad bargain" case, a case in which a plaintiff has entered into a loss-making contract or, I would include, an otherwise disadvantageous contract. He was considering a case where it would not be possible to establish any loss of profits because the situation could not be prophesied had the defendant complied with his contractual obligations. Mr. Reed in the Anglia Television case had not taken part in the film; the film had never been made. It was therefore quite impossible to assess whether the film, had it been made, would have been a success and would have earned a profit. Therefore Anglia Television were thrown back on limiting their claim to the expense thrown away.
As I have indicated from the excerpt from the judgment of Lord Denning, he referred to and relied upon the Cullinane case. Referring to page 308, to which the learned Master of the Rolls made reference, there is this statement to be found in the judgment of Lord Justice Jenkins:
"The general principle applicable to the case is, I apprehend, this: the plant having been supplied in contemplation by both parties that it should be used by the plaintiff in the commercial production of pulverized clay, the case is one in which the plaintiff can claim as damages for the breach of warranty the loss of the profit he can show that he would have made if the plant had been as warranted. Where damages are awarded on that basis the object in view, as indeed in any other assessment of damages, is to put the plaintiff in the same position, so far as money can put him in the same position, as if the contract had been duly complied with or the subject-matter of the contract had conformed to any warranty given."
That is not the approach which Mr. Middleton seeks. He is not claiming for the loss of his bargain, which would involve being put in the position that he would have been in if the contract had been performed. He is not asking to be put in that position. He is asking to be put in the position he would have been in if the contract had never been made at all. If the contract had never been made at all, then he would not have incurred these expenses, and that is the essential approach he adopts in mounting this claim; because if the right approach is that he should be put in the position in which he would have been had the contract been performed, then it follows that he suffered no damage. He lost his entitlement to a further ten weeks of occupation after the 5th October, and during that period he involved himself in no loss of profit because he found other accommodation, and in no increased expense - in fact the contrary-because he returned immediately to his own garage, thereby saving whatever would have been the agreed figure which he would have to have paid C. & P. Haulage.
We have had our attention invited to two cases which deal with the sale and purchase of land, and, speaking for myself, I do not think they bear on the particular question which we have to consider. Those cases were Wallington v. Townsend (1939) 1 Chancery Division 588 and Lloyd v. Stanbury (1971) 1 WLR 535.
The case which I have found of assistance - and I am grateful to counsel for their research - is a case in the British Columbia Supreme Court in (1978) 4 Western Weekly Reports 105. Mr. Justice Berger, in a very careful and detailed judgment, goes through various English and American authorities and refers to the leading textbook writers, and I will only quote a small part of his judgment. At the bottom of page 115 he refers to the work of Professor L.L. Fuller and William R. Perdue, Jr., in "The Reliance Interest in Contract Damages" and their statement at page 79:
"We will not in a suit for reimbursement for losses incurred in reliance on a contract knowingly put the plaintiff in a better position than he would have occupied had the contract been fully performed." Mr. Justice Berger then refers to a case in 1949, L. Albert & Son v. Armstrong Rubber Co., in which L. Hand C.J., speaking for the Circuit Court of Appeals, Second Circuit, "held that on a claim for compensation for expenses in part performance the defendant was entitled to deduct whatever he could prove the plaintiff would have lost if the contract had been fully performed".
What Mr. Justice Berger had to consider was this:
"The parties entered into a contract whereby the plaintiff would cut timber under the defendant's timber sale, and the defendant would be responsible for hauling the timber away from the site of the timber sale. The plaintiff claimed the defendant was in breach of the contract as the defendant had not supplied sufficient trucks to make the plaintiff's operation, which was losing money, viable, and claimed not for loss of profits but for compensation for expenditure. The defendant argued that the plaintiff's operation lost money not because of a lack of trucks but because of the plaintiff's inefficiency, and further, that even if the defendant had breached the contract the plaintiff should not be awarded damages because its operation would have lost money in any case."
This submission was clearly accepted because the plaintiff was awarded only nominal damages, and Mr. Justice Berger said this at page 117:
"The law of contract compensates a plaintiff for damages resulting from the defendant's breach; it does not compensate a plaintiff for damages resulting from his making a bad bargain. Where it can be seen that the plaintiff would have incurred a loss on the contract as a whole, the expenses he has incurred are losses flowing from entering into the contract, not losses flowing from the defendant's breach. In these circumstances, the true consequence of the defendant's breach is that the plaintiff is released from his obligation to complete the contract - or in other words, he is saved from incurring further losses. If the law of contract were to move from compensating for the consequences of breach to compensating for the consequences of entering into contracts, the law would run contrary to the normal expectations of the world of commerce. The burden of risk would be shifted from the plaintiff to the defendant. The defendant would become the insurer of the plaintiff's enterprise. Moreover, the amount of the damages would increase not in relation to the gravity or consequences of the breach but in relation to the inefficiency with which the plaintiff carried out the contract. The greater his expenses owing to inefficiency, the greater the damages.
The fundamental principle upon which damages are measured under the law of contract is restitutio in integrum. The principle contended for here by the plaintiff would entail the award of damages not to compensate the plaintiff but to punish the defendant."
It is urged here that the garage itself was merely an element in Mr. Middleton's business; it was not a profit-making entity on its own. Nevertheless, if as a result of being kept out of these premises Mr. Middleton had found no other premises to go to for a period of time, his claim would clearly have been a claim for such loss of profit as he could establish his business suffered.
In my judgment, the approach of Mr. Justice Berger is the correct one. It is not the function of the courts where there is a breach of contract knowingly, as this would be the case, to put the plaintiff in a better financial position than if the contract had been properly performed. In this case the plaintiff, if he was right in his claim, would indeed be in a better position because, as I have already indicated, had the contract been lawfully determined as it could have been in the middle of December, there would have been no question of his recovering these expenses.
This is a case, let it be stressed, where there was no question ultimately of the plaintiff being able to establish that he was a tenant; but had he been a tenant, then the compensation for the improvements which he had carried out would have been regulated by the 1927 Act. That would have involved him in complying with the various conditions which the Act lays down before a valid claim for compensation for improvements can be made; but even when such a claim is open to a tenant, there is a ceiling put to what can be recovered, namely the net addition to the value of the holding which may be far less than the money actually expended on the improvements.
So the approach which the learned county court judge was asked to follow, and which we have also been invited to follow, would not only put this licensee in a better position as a result of the breach than if the licence had been lawfully determined, but would put him in a better position than if he had achieved the superior status in law of being a tenant and not a licensee.
I do not consider that the plaintiff is entitled in an action for damages for breach of contract to ask to be put in the position in which he would have been if the contract had never been made where it is easy to assess what his position would have been if the contract had been performed.
Accordingly, save in the respect to which I have already made reference, namely that there should be judgment for the appellant for nominal damages of £10, I would dismiss the appeal.
LORD JUSTICE FOX: I agree. We were referred on behalf of the appellant to Lloyd v. Stanbury (1971) 1 WLR 535 and to the comments upon it by Lord Denning, M.R. in Anglia Television Ltd. v. Reed (1972) 1 Queen's Bench 60. In Lloyd v. Stanbury there was a contract for the sale of land. In anticipation of the contract and before it was actually concluded the purchaser incurred expense in moving his caravan on to the site and of getting his furniture there as well. The seller broke the contract and failed to convey. The land had not increased in value, so the purchaser could not claim a loss of profit. It was held that he could recover the cost of moving his caravan and his furniture on to the site. Lord Denning in the Anglia Television case at page 64 said this of Lloyd v. Stanbury:
"That decision is in accord with the correct principle, namely, that wasted expenditure can be recovered when it is wasted by reason of the defendant's breach of contract."
The present case seems to me to be quite different both from Anglia Television Ltd. v. Reed and from Lloyd v. Stanbury in that while it is true that the expenditure could in a sense be said to be wasted in consequence of the breach of contract, it was equally likely to be wasted if there had been no breach, because the respondents wanted to get the appellant out and could terminate the licence at quite short notice. A high risk of waste was from the very first inherent in the nature of the contract itself, breach or no breach. The reality of the matter is that the waste resulted from what was, on the appellant's side, a very unsatisfactory and dangerous bargain. I agree with my Lord that the appeal must be dismissed.
(Order: Appeal dismissed save that judgment be entered for the appellant for nominal damages of £10. Costs in this court. No order for costs below)
