England and Wales Court of Appeal (Civil Division) Decisions

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Cite as: [1993] 25 EG 141, [1993] EGCS 77, [1993] 3 All ER 705, [1993] EWCA Civ 21, [1993] WLR 1361, [1993] 1 WLR 1361

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JISCBAILII_CASE_TORT

		BAILII Citation Number: [1993] EWCA Civ 21
		No. CHANF 92/0241/B

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
(MR. JUSTICE FERRIS)

Royal Courts of Justice
Strand, London, W.C.2.

7th April 1993.

B e f o r e :

LORD JUSTICE DILLON
LORD JUSTICE STEYN
and
LORD JUSTICE ROSE

____________________

COUNTY COUNCIL OF SURREY & Anor
Appellants
- v -
BREDERO HOMES LTD.

____________________

BR>Computer Aided Transcript of the Stenograph Notes of:
John Larking, Chancery House, Chancery Lane, London, WC2.
Telephone: 071 - 404 7464
Official Shorthand Writers to the Court
____________________

SIR WILLIAM GOODHART, Q.C. and MR. B. WEATHERILL (instructed by Messrs. Howell Jones & Partners) appeared on behalf of the Appellants.
MR. C. RIMER, Q.C. and MR. N. PEACOCK (instructed by Messrs. Turner Kenneth Brown) appeared on behalf of the Respondents.
Computer Aided Transcript of the Stenograph Notes of:
John Larking, Chancery House, Chancery Lane, London, WC2.
Telephone: 071 - 404 7464
Official Shorthand Writers to the Court
J U D G M E N T
____________________

HTML VERSION OF JUDGMENT
____________________

LORD JUSTICE DILLON: This is an appeal by the plaintiffs, the Surrey County Council and the Mole Valley District Council, against a decision of Mr. Justice Ferris given on the 21st November, 1991, after the hearing of issues directed by an earlier order. By his decision the learned Judge awarded the plaintiffs nominal damages only against the defendant, Bredero Homes Ltd., for breaches of virtually identical positive covenants contained in transfers by the plaintiffs to the defendant of certain land in Surrey in 1981.

The facts are straight forward and not in dispute. I can take them from the judgment of the learned Judge.

In 1980, the Surrey County Council and the Mole Valley District Council were respectively the registered proprietors with absolute title of two adjoining parcels of land lying to the west of the Ridgeway Fetcham at Leatherhead in Surrey. The total area of the two parcels was some 12.33 acres. The land had originally been acquired by the Councils or their predecessors for road purposes but, by 1980, it was no longer required for these purposes and the two Councils decided to act together in offering the entire site for development as a housing estate.

The defendant made an offer which included a purchase price of £1½ million. This led to a contract, dated 26th November, 1980, between the two plaintiffs as vendors and the defendant as purchaser. This contract was completed by two transfers both dated 2nd January, 1981 -one being by the Mole Valley District Council and the other by the Surrey County Council. The transfer made by the Mole Valley District Council contained a covenant by the defendant with that Council: "To commence the development of the land hereby transferred in accordance with the planning permission issued by Mole Valley District Council, reference MO/80/1214 and dated 11th December, 1980, within six months from the date hereof and thereafter to diligently pursue the development of the land hereby transferred to its completion complying with the said planning permission".

The transfer by the Surrey County Council was in substantially the same terms. The planning permission MO/80/1214, there referred to,

"the first planning permission", was granted on the application of the defendant. It provided for the development of the land, i.e. both parcels taken together, by the erection of 72 detached bungalows and houses in six different designs according to a layout as shown in certain drawings.

The defendants started work on the development in accordance with the first planning permission. There were certain minor alterations by way of modification of that planning permission but these do not matter.

A bit later, however, the defendant applied for and obtained, on the 29th June, 1983, from the Mole Valley District Council as the planning authority, a planning permission which has the effect of raising the total number of dwellings to be built on the estate from 72 to 77, the main changes being a reduction in the number of four bedroom houses and an increase in the number of three bedroom houses - the size and arrangement of plots being amended, but the layout of roads and verges remaining unchanged. This planning permission, the "later planning permission", was given the reference number MO/83/0368 and it related to 3.64 acres of the land.

The defendant then completed the development of those final 3.64 acres in accordance with the later planning permission and not, as had been covenanted, in accordance with the first planning permission.

The plaintiffs object to the development of the final 3.64 acres, in accordance with the later planning permission, not on planning grounds, but on the grounds that the later permission enabled the defendant to build 77 rather than 72 houses and bungalows on the two adjoining parcels. There is no objection on planning grounds, not surprisingly, since it was the Mole Valley District Council which granted the later planning permission.

The objection is on the ground that it is a more profitable planning permission for the defendant than the first planning permission because more houses can be built. As a legal basis it is said by the plaintiffs and conceded by the defendant that in building 77 houses in all under the later planning permission, rather than 72 under the first planning permission, the defendant has acted in breach of the covenants in the transfers.

The plaintiffs therefore seek damages. They have never sought an interim injunction to restrain the defendant from developing the land otherwise than in accordance with the first planning permission. They never sought an injunction at the trial requiring the defendant to pull down the completed houses. They recognized that there was never any practical possibility of such an injunction being granted. There was a formal amendment of the relief sought at the trial to raise in form a claim for an injunction, but that was not pursued. The plaintiffs have merely sought damages which have been described as "damages at common law", as opposed to "damages in equity under Lord Cairns' Act". The plaintiffs accept that they have not suffered any damage at all of the nature of damage to adjoining property owned or occupied by them. What they claim as damages is essentially the profit made by the defendant by breaking the covenants and building 77 houses and not just 72 - or, since the defendants wish to be modest in their demands in putting forward a somewhat revolutionary development of the law of damages, such a part of the profit as would reflect the reasonable premium that the defendant should have paid them for contractual permission by way of relaxation of the covenants to build the 77 houses rather than 72.

Indeed, the plaintiffs say, and I have no reason to doubt, that their sole purpose in imposing the covenants at all - to commence and pursue the development to its completion in accordance with the first planning permission - was that the defendant would have to apply for and pay for a relaxation if it wanted to build anything more.

It is of course clear that had the contracts been worded otherwise there could have been provision for the payment by the defendant of an additional price of a specified amount or fixed by an appropriate formula for each extra house or bungalow, if they or their successors in title built more than 72 houses or bungalows on the land within a specified period, but that is not the contract that was made.

In putting forward the claim for damages with which we are concerned, the plaintiffs rely very strongly on the decision of Mr. Justice Brightman in Wrotham Park Estate Co. Ltd. -v- Parkside Homes Ltd. [1974] 1 W.L.R, 798, to which I shall have to come.

The starting point, however, in my judgment is that the remedy at common law for a breach of contract is an award of damages and damages at common law are intended to compensate the victim for his loss, not to transfer to the victim, if he has suffered no loss, the benefit which the wrong-doer has gained by his breach of contract. Thus it is stated in Chitty on Contracts, 26th Edition, Volume 1, paragraph 1771:

"Damages for a breach of contract committed by the defendant are a compensation to the plaintiff for the damage, loss or injury he has suffered through that breach".

"The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach".

Lord Wilberforce said, in Johnson -v- Agnew [1980] A.C, 367 at 400H:

"The general principle for the assessment of damages is compensatory".

Each of these three statements is accompanied by a statement to the effect that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed. That follows the wording of the statement of the rule of the common law by Baron Parke in Robinson -v- Harman [1848] 1 Ex. 850 at 855. That rule has been referred to in argument in the present case as the "conventional" rule.

Sir William Goodhart, Q.C., for the plaintiffs, has pointed out that the conventional rule is not of universal application in that there are cases in which the plaintiff is awarded not what is required to place him in the same situation as if the contract had been performed, but what is required to recoup to him the expenditure which he has incurred which has been wasted because the contract has not been performed; see, for instance, Wallington -v- Townsend, [1939] Ch., 588, and Anglia Television Ltd., -v- Reed, [1972] 1 Q.B., 60.

The principle is still compensation for loss. The difference is merely that there are cases where the contract has so palpably not been performed at all that it would be unreal to assume that it had been performed and impossible to calculate damages on such an unreal assumption.

Every student is taught that the basis of assessing damages for breach of contract is the rule in Hadley -v- Baxendale, [1854] 9 Ex., 341, which is wholly concerned with the losses which can be compensated by damages. Such damages may, in an appropriate case, cover profit which the injured plaintiff has lost, but they do not cover an award to a plaintiff who has himself suffered no loss, of the profit which the defendant has gained for himself by his breach of contract.

In the field of tort there are areas where the law is different and the plaintiff can recover in respect of the defendant's gain. Thus in the field of trespass it is well-established that if one person has, without leave of another, been using that other's land for his own purposes he ought to pay for such user. Thus even if he had done no actual harm to the land he was charged for the user of the land. This was applied originally in wayleave cases where a person had without authority used his neighbour's land for passage. (See, for instance, Jegon -v- Vivian, L.R. 6 Ch. App. 742, and Phillips -v- Homfray, L.R. 6 Ch. App., 770).

The same principle was applied where the defendant had trespassed by tipping spoil on the plaintiff's land - Whitwham -v- Westminster Brymbo Coal and Coke Company [1896] 2 Ch., 538.

The same principle was applied to patent infringement by the House of Lords in Watson Laidlaw & Co. Ltd. -v- Pott Cassels and Williams [1914] 31 RPC, 104. The infringer was ordered to pay by way of damages a royalty for every infringing article because the infringement damaged the plaintiff's property right, that is to say his patent monopoly. So in a case of detinue the defendant was ordered to pay a hire for chattels he had detained - Strand Electric and

Engineering Co. Ltd. -v- Brisford Entertainments Ltd. [1952] 2 Q.B., 246.

Those cases do not apply in the present case as the defendant has made no use of any property of either plaintiff.

The cases have been taken still further in some fields of tort, particularly concerned with intellectual property, where it is well- established that the plaintiff can choose to have either damages or an account of profits made by the defendant by his wrongful acts. See, for instance, Lever -v- Goodwin, 36 Ch. D. 1 per Cotton, LJ at page 7. This is in line with the long-established common law doctrine of waiving the tort.

The liability in the present case is solely in contract and not in tort.

I come then to the Wrotham Park case. In that case the predecessor in title of the plaintiffs had, in 1935, sold some land to a predecessor in title of the defendants, subject to a restrictive covenant restricting building to a particular layout. That covenant was duly registered under the Land Charges Act, 1925. In 1971 the land was sold to the defendant, who had no actual knowledge of the restrictive covenant and proceeded to build 14 houses on the land in breach of the covenant. In early 1972 the plaintiffs, as successors in title to the benefit of the covenant, issued their writ against the defendant claiming an injunction to restrain building in breach of the covenant, and demolition of anything built in breach. The plaintiffs made no application for an interim injunction. By the time the action came on for trial in July, 1973, the 14 houses had all been completed and sold to purchasers with the benefit of indemnity insurance policies. At the trial Mr. Justice Brightman held that the plaintiffs were indeed entitled to the benefit of the covenant and the defendant was bound by it.

For obvious reasons however - that he could not shut his eyes to the fact that the houses existed and it would be an unpardonable waste of much needed houses to direct that they be pulled down - he refused to grant a mandatory injunction. He commented that no damage of a financial nature had been done to the plaintiffs by the breach of the covenant and proceeded to consider what damages, if any, he should award under the jurisdiction which had originated under Lord Cairns' Act to award damages in substitution for an injunction.

It was submitted to him that the damages should be nil or purely nominal because the value of the Wrotham Park estate was not diminished by one farthing in consequence of the breach of covenant.

But the judge concluded that such a result would be of questionable fairness.

He said at page 812 H of the report:

"If, for social and economic reasons, the court does not see fit in the exercise of its discretion, to order demolition of the 14 houses, is it just that the plaintiffs should receive no compensation and that the defendants should be left in undisturbed possession of the fruits of their wrongdoing?"

He then referred to the way-leave cases and Whitwham -v- Westminster Brymbo Coal and Coke Co., and the other cases which I have mentioned where the same principle has been applied.

He concluded that the appropriate course was that the defendant should pay by way of damages the sum which the plaintiffs might hypothetically have been willing to pay - though actually they would never have been willing to relax the covenant to permit the defendant to do what it wanted to do on the land. He fixed that at a small percentage of the defendant's anticipated profit from building the 14 houses on the land.

The difficulty about the decision in the Wrotham Park case is that in Johnson -v- Agnew, Lord Wilberforce, after citing certain decisions on the scope and basis of Lord Cairns' Act, which were not cited to Mr. Justice Brightman, stated in the clearest terms, at page 400 G of the report, that on the balance of those authorities, and on principle, he found in the Act no warrant for the Court awarding damages differently from common law damages.

Sir William Goodhart submits that it follows from that analysis by Lord Wilberforce, in Johnson -v- Agnew, that the damages awarded by Mr. Justice Brightman in the Wrotham Park case were indeed damages assessed on recognized common law principles which should, so he says, be applied in the present case.

I doubt, however, whether that does follow from

Lord Wilberforce's analysis in Johnson -v- Agnew. As I read his judgment Mr. Justice Brightman was not seeking to analyse the scope or basis of the court's jurisdiction under Lord Cairns' Act. He merely concluded that, as Parliament had expressly empowered the Court to grant damages in lieu of an injunction, Parliament must have intended that in every case the Court must be able to award such damages as would achieve a fair result between the parties and would not be limited to awarding nominal damages only. He sought to apply that conclusion.

That involves a conclusion by the judge that Lord Cairns' Act affected a substantive change in the law of damages and was not a merely procedural statute as Johnson -v- Agnew has held. It is unnecessary to refer further in this judgment to the Wrotham Park since that was under Lord Cairns' Act and stands or falls by that; whereas, the present case is not, and makes no pretence of being, under that Act. I should however mention in passing that we were referred to a number of cases where the measure of damages chosen by Mr. Justice Brightman in the Wrotham Park case was applied by other judges. For instance Bracewell -v- Appleby [1975] Ch. 408, Carr-Saunders -v- Dick McNeil Associates Ltd. [1986] 1 W.L.R. 922, and Griffiths -v- Kingsley-Stubbs, decided by this Court on the 3rd June, 1986, but unreported. All those were cases where the plaintiff's cause of action lay in tort, either trespass or nuisance, where the defendant had interfered with the plaintiffs property rights. The decisions and awards of damages are amply justified by the common law principles in tort of the way-leave cases and Whitwham -v- Westminster Brymbo, already mentioned.

Given that the established basis of an award of damages in contract is compensation for the plaintiff's loss, as indicated above, I have difficulty in seeing how Sir William Goodhart's suggested common law principle of awarding the plaintiff, who has suffered no loss, the gain which the defendant has made by the breach of contract, is intended to go. Is it to apply, for instance, to shipping contracts or contracts of employment or contracts for building works?

Sir William suggested, in his and Mr. Weatherill's skeleton argument, that the conventional measure fails to do justice and a different measure should be applied where the following conditions are satisfied: (a) the breach is deliberate, in the sense that the defendant is deliberately doing an act which he knows or should know is plainly or arguably in breach of contract; (b) the defendant, as a result of the breach, has profited by making a gain or reducing a loss; (c) at the date of the breach it is clear or probable that damages under the conventional measure will either be nominal or much smaller than the profit to the defendant from the breach, and (d) if the profit results from the avoidance of expenditure, the expenditure would not have been economically wasteful or grossly disproportionate to the benefit which would have resulted from it.

I find difficulty with that because in theory every time there is a breach of contract the injured party is deprived of his "bargaining power" to negotiate for a financial consideration a variation of the contract which would enable the party who wants to depart from its terms to do what he wants to do. In addition it has been held in Walford -v- Miles [1992] 2 A.C. 128, that an agreement to negotiate is not an animal known to the law and a duty to negotiate in good faith is unworkable in practice - and so I find it difficult to see why loss of bargaining or negotiating power should become an established factor in the assessment of damages for breach of contract.

Beyond that, since we are looking for the measure of damages at common law for breach of contract, apart from Lord Cairns' Act, I do not see why that should vary depending on whether the party in breach could or could not have been restrained by injunction from committing the breach or compelled by specific performance to perform the contract. Injunctions and specific performance were not remedies in the common law courts and were granted by the Court of Chancery, which, before Lord Cairns' Act, had no power to award damages, just because the common law remedy of damages was not an adequate remedy.

We were referred, in the course of Sir William's argument, to a number of other cases and, in particular, to passages in the judgment of Sir Robert Megarry, Vice-Chancellor, in Tito -v- Waddell, [1977] Ch. 106, and to the decision of this Court in Stoke on Trent City Council -v- W. & J. Wass Ltd. [1988] 1 W.L.R. 1406. In the latter case this Court upheld the general principle that in tort a plaintiff recovered damages equivalent to the loss he had suffered and held also that the "user" principle in the way-leave cases and Whitwham -v- Westminster Brymbo should not be extended to cover infringement of a market right of the plaintiff Council by the holding by the defendant of an unauthorised market where the plaintiff could not show he had suffered any actual loss by the infringement. What was sought in that case was damages calculated by reference to a notional licence fee that the plaintiff Council might have charged for permitting the defendants' infringement but that was refused. I need not refer to the cases further.