England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
(HIS HONOUR JUDGE GOLDSTEIN)

		Royal Courts of Justice Strand London WC2 Friday 26th January 2001

Friday 26th January 2001

1. LORD JUSTICE JUDGE: I will ask Lord Justice Mance to give the first judgment.
2. LORD JUSTICE MANCE: This comes before the Court as an application for permission to appeal in respect of both a finding of breach of a lease and damages. As Lord has just indicated, we are minded to refuse permission to appeal in respect to all aspects except the general quantum of damages where, in the course of argument, the point has been identified as being whether there was a real evidential basis to support the figure of £37,500, even assuming that the judge's approach to oppression and Mr Elison's evidence is unchallengeable.
3. The matter arises from an alteration made by the appellant to supermarket premises of which the appellant was lessee from the respondent under a long lease. That lease ran for 35 years from 26th March 1987 initially at £99,000 a year, a rental which, by 1999, had increased to some £160,000 a year. The alteration consisted of the creation without any consent on the part of the respondent of a new door in the external wall of the supermarket premises looking out on to the main part of the shopping centre. The purpose of this new door was to serve as a fire door, in particular to provide that facility for a franchisee of the appellant, a shoe shop, whose shop was being moved to a new part of the premises. That was taking place in the context of a large scale restructuring of the premises, the primary purpose of which was to enable the appellant's supermarket to be converted from a Kwik Save to a Somerfield supermarket. It appears that Somerfield had just taken over Kwik Save and that this was part of what has been described as a "massive rolling programme" of refitting stores with approximately eight refits taking place in any one week in various parts of the country.
4. Two issues arise, as I have already indicated. Firstly, was this alteration a breach of the lease? To consider that issue further, I read clause 3(10), which is headed "Not to make alterations or permit waste":

"Not to erect, or suffer to be erected, any new buildings on the Demised Premises or any part thereof nor to make any alterations in the external construction, height elevations or architectural appearance of the said buildings, nor without the consent of the landlord which shall not be unreasonably withheld or delayed to make any structural alteration or addition whatsoever in or to the buildings or structures for the time being comprised in the Demised Premises, nor without such consent as aforesaid to cut or remove the main walls, stanchions, beams, supports or timbers of the said buildings, unless for the purpose of remedying and making good any defect therein, or to do or suffer in or upon the Demised Premises any wilful or voluntary waste or spoil, PROVIDED ALWAYS that these presents shall not prevent the Tenant from erecting internal non-structural partition walls within the demised premises without obtaining the landlord's prior approval."

5. The appellant's case is that the alteration did not fall within the first part of the clause so it was not absolutely prohibited. Rather, it was one in respect of which consent was not to be unreasonably withheld within the next parts of the clause. The respondent accepted before the judge that, if it fell within the next parts of clause, then consent could not unreasonably have been withheld, or at least that no financial consequences flowed.
6. The respondent, claimant below, contended, however, that it fell within the first half of the clause. The relief claimed on that basis was originally pleaded as an injunction, but shortly before the trial on 2nd March the respondent, in the light of the witness statement of a Mr Ellison served by the appellant, wrote a letter of 24th February saying that it would be inviting the court to use its jurisdiction to award damages in lieu of the injunction claimed.
7. The argument on construction starts with the proposition, no doubt correct, that the clause should be construed as a whole and according to its context and purpose. Even so, there is very little from which to gain further information about the context and purpose of the clause except the lease itself. It is submitted that looking at the clause as a whole the initial part should be confined, to matters which Mr Riddle, for the appellant, described as aspects of kind and appearance, in order to avoid a conflict with the subsequent parts.
8. However, it seems to me that it is equally possible to construe the subsequent parts as applicable only in circumstances not falling within the first part. There is nothing in the first part which, in terms, limits its application to alterations affecting, or to use Mr Riddle's words, substantially affecting the nature or appearance of the building. The first part applies to alterations in the external construction, height elevations or architectural appearance of the buildings. Mr Riddle submits that elevation here refers to the appearance as one looks at the building, in this case from the front. I would accept that, but he then goes on to submit that it means that the building is not to be longer or higher. I cannot accept that. Height is separately mentioned in the first part of the clause. Elevation, it seems to me, refers to the facade presented by the building, and the clause, on the face of it, refers to any or at least any substantial alteration in the facade. It seems to me that a new door in the front of the building, looking out on to the main part of the shopping centre, was clearly an alteration in the elevation in that sense, and was a breach of the first part of the lease accordingly. The photograph available appears to me confirmation of this. The attention may also constitute an alteration to the external construction, but I accept that that is more questionable, and do not decide the matter on that basis.
9. The subsequent parts in the lease refer, in my judgment, to matters such as structural alterations or work of cutting or removing, which do not constitute a breach of the first part so construed. There is no inconsistency or indeed overlap. I would therefore refuse permission to appeal on the issue of construction.
10. Turning to the second issue, the question is whether the judge was right to award damages in lieu of an injunction in the sum of £37,500 or whether the appellants have a real prospect of establishing the contrary in respect of the issues in relation to which, as I have already indicated, we have decided not to give permission. The appellants say that the sum was a "staggeringly large sum".
11. It was, and is, common ground below that the measure of damages which the judge had to apply was the price that the respondents, as landlords, could reasonably have claimed and obtained by agreement, or alternatively no doubt by court award, for relaxing the covenant. The appellants suggest that the judge erred in a number of respects. The first is that he considered that before awarding damages he should be satisfied that the criteria in the case of Shelfer v. City and London Electric Lighting Company [1895] 1 Chancery Reports 287, were satisfied. Those are criteria or, more accurately, a good working rule for determining when, in equity, damages might be awarded in lieu of an injunction. They are four: firstly, if the injury to the plaintiff's legal rights is small; secondly, if it is one which is capable of being estimated in money; thirdly, it is one which can be adequately compensated by a small money payment; and, fourthly, the case is one where it would be oppressive to the defendant to grant an injunction. Provided those four separate criteria are all satisfied, then damages in substitution for an injunction may be given. The judge said that he considered that this was a good working rule which he should apply, and said that he was satisfied that it would be oppressive to the appellant to grant an injunction.
12. Originally, as I have said, an injunction was all the respondent claimed. The witness statement from Mr Ellison, the appellant's property manager, which led the respondents to change position, gave as the total cost of the alterations to the supermarket, its restructuring from Kwik Save to Somerfield, including the re-location on the franchisee, as some £850,000 and recounted a fire officer's advice that "this door is required for both occupiers to ensure excessive travel distances would not be encountered in an emergency evacuation situation".
13. For my part I do not see that the judge can be criticised for satisfying himself in this way that it would have been appropriate for equitable damages to have been granted, quite apart from any agreement between the parties.
14. It is not clear that there was even an informal agreement that equitable damages could be awarded, but, assuming that there was an agreement that they could be awarded without satisfying the Shelfer criteria, still it seems to me that the judge was fully entitled to consider whether those criteria were satisfied. That was part of the claimant's case. That was indeed the reason why the claimant abandoned its pursuit of an injunction, and the judge was entitled to consider that case on the material put before him. Whether it would be oppressive to require removal of the fire door was clearly a matter which could have a bearing on the amount which the appellant, defendant below, would notionally have been prepared to pay for release of the absolute prohibition in the lease.
15. In so far as it, therefore, played any part in the judge's thinking that it would be, on the measure of damage, oppressive to the appellants to have to remove the door, it seems to me that part was a legitimate part.
16. Then it is said that the judge was wrong to reject the evidence of Mr Ellison. Mr Ellison gave oral evidence, not mentioned in his witness statement, that it would only have cost some £4,500 to construct an alternative means of fire escape, as against £2,000 said to be the cost of the actual offending door. However, a large number of adverse comments could fairly be made upon that oral evidence. It was made for the first time in cross-examination. It was unsupported by any documentary evidence. It was indeed difficult to reconcile with the fire officer's report which I have read, and, furthermore, and just as relevantly, it was very difficult to reconcile with the fact that on 20th July 1999 the appellant's solicitors wrote to the respondent's solicitors seeking a relaxation of any prohibition contained in the lease referring to the fire officer's report, and emphasising the need for the relaxation without any suggestion that there was an alternative means of dealing with the problem which would cost very little extra.
17. Then it is right to say that Mr Ellison was not in any way an expert in fire safety and could not give any real detail of any alternative, and that his evidence was subject to criticism in other respects going to his general credibility. He was not merely the property manager of the holding company of the appellant's, but he had to agree that he had instructed the appellant's solicitors to inform the respondent that no structural works had been done in circumstances where he knew perfectly well that at the very lowest he did not know whether they had been or not. In other words, he was someone who was not undisposed to serve his employer's interests in a way which was somewhat disingenuous. The judge, it seems to me, in those circumstances, was fully entitled to form an adverse view of Mr Ellison's evidence about the alternative means of fire escape, and about the ease and the cost with which any alternative means might have been provided.
18. The judge also referred to the fact that the appellant was defending these proceedings as a fact which itself might speak for itself in the absence of contrary explanation. Against that, Mr Riddle points out that the proceedings embraced the point of principle on construction and not merely damages, so that may not itself be as cogent a consideration as the judge myself thought. Despite that, however, it seems to me that there was ample material to justify the judge's rejection of Mr Ellison's last minute suggestion.
19. Then I come to the point on which we have given the permission to appeal, and that is that even so there was no evidential basis to support the £37,500.
20. Mr Cohen, the respondent's managing director, claimed before the judge that he would have demanded a substantial part of what he assessed, though apparently without any direct material, as the extra profit rent which the appellant was making through permitting the franchisee to occupy its part of the premises. He assessed that apparently at an extra profit of around £10,000 a year or more, and he said he would have started by demanding that figure for the construction of the fire door which was a feature which was required in order to earn that extra profit. The judge, understandably, rejected that as a considerably exaggerated figure. It is right, however, to add that Mr Cohen himself had referred to it as a top figure, and had acknowledged that the parties would, in probability, have met somewhere lower.
21. The judge in fact took a figure of 30 per cent of Mr Cohen's figure. He took £3,000 a year. It is said that this was pure guess-work and that he had no material justifying any figure at all. There was, during the course of the proceedings, considerable discussion at various points about the right course to take following the respondent's indication that it no longer sought an injunction and following, I should add, the judge's refusal to allow a surveyor called by the respondent on factual matters, a Mr Jones, to be converted into an expert. That discussion appears in the transcript at pages 52, 55 to 56 and 80.
22. Neither party was really urging an adjournment, and the judge was certainly not keen on one, for understandable reasons. The claimant's attitudes below was that the judge should do the best he could on the material before him unless he felt that he could not really arrive at any figure, in which case he should adjourn. The appellant, defendant below, took the attitude that the judge should look at the material before him and conclude that there was nothing to establish any damage and should accordingly award no damages at all.
23. As regards adjournment, the defendant said at one point, at page 56, "if the claimant does not produce all the evidence he relies on he really cannot come back for a second bite of the cherry", but a little lower down on the same page, when asked by the judge what he would have done in Mr John's position, Mr Riddle said, very frankly, that he thought he would in the circumstances, bearing in mind that his claim had been all along for specific performance or a mandatory injunction, have said:

"As the facts have come out, your Honour is not minded to grant the relief, and in those circumstances damages would be appropriate and there should be an enquiry as to damages. That is the way I would put it if that is how it had happened."

24. However, that was more by way of criticism of the claimant's attitude, as I see it, than by way of endorsement of the suggestion that there should be some adjournment.
25. Therefore on both sides effectively the judge was being asked primarily to do the best he could on limited material in circumstances where it would have been costly to adjourn to require expert evidence and to have a further hearing.
26. The fact that at quite short notice the matter of damages had to be addressed can, I think, fairly be attributed to the appellant's service of Mr Ellison's evidence, which does raise matters (relating to the scope and importance of the development and of the fire door) which were not pleaded. In those circumstances I think that the judge, understandably, sought to do the best he could. He had before him material which underlined the local and national importance of what Somerfield were seeking to do. He had the current rent before him, a very substantial current rent. He had before him the considerable urgency with which these works were being undertaken, and the short scale of the operation. He had before him the individuals. He could form his own view of Mr Cohen in particular, the claimant's managing director, who would have been party to any negotiations and would clearly, however, be looking to extract the maximum he could. He had before him evidence from the appellant, and Mr Ellison in particular, their property manager.
27. It seems to me that the judge was better placed in all respects than we are now in seeking to pitch the level of the figure at which he arrived at an appropriate level.
28. I must confess that my own initial impression, having heard the argument, was, and remains, that this may well be a larger figure than I might, on the material now available, myself have been inclined to award. However, as I have said, this was a figure arrived at, firstly, in circumstances to some extent brought about the appellant; secondly, in circumstances where neither side was really urging the judge to adjourn; and, thirdly, in circumstances where the judge was better placed than I am now to arrive at a correct figure.
29. I would not, in those circumstances, disturb the judge's conclusion that looking at it as a matter of rental, £3,000 a year, with an appropriate capitalisation, was the appropriate figure, or looking at it in terms of capital sum, that the sum of £37,500 was appropriate.
30. Some criticism was levied in support of the application for permission at the way in which the judge arrived at the lump sum. However, it seems to me that he clearly capitalised that figure based on evidence which had been given by Mr Jones. It is said in counsel's skeleton and grounds that Mr Jones was not called as an expert. That is right, but this part of his evidence was given without objection and was indeed relied upon by both counsel in the course of submissions. If one looks at the evidence of Mr Jones at page 51A to B and then the references in final speeches at page 77A to B and 78B, that appears.
31. In those circumstances, so far as we granted permission to appeal, I would dismiss the appeal. In relation to all the other points, I would refuse permission to appeal.
32. LORD JUSTICE JUDGE: I agree. Like my Lord, when I first read the papers, the judge's assessment of damages at £37,500 seemed, and after hearing the argument this morning it still seems, to me to have been more generous than I should have been inclined to be.
33. The question, however, is whether the award fell outside the wide ambit of judgment vested in a trial judge assessing damages, and thus properly susceptible to interference by this Court.
34. After reflecting, I do not think that the award in this case was, or that we should interfere with it. The judge had a close understanding and feel for the case after he had heard all the evidence, certainly infinitely greater than any that we can have from reading the papers.
35. I should add one foot note. I hope that no one will ever consider citing the decision that we should not interfere with the judge's assessment as providing any sort of guidance for the appropriate level of damages for breach of a covenant similar or identical to the one under consideration in this case. It does not. This is a decision on the specific facts of this individual case, no more.
36. In the result the appeal will be dismissed, and the application in relation to the other matters refused.
ORDER: Appeal dismissed and application refused with costs, assessed in the sum of £5,000 pounds.