England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
MERCANTILE LIST
(Her Honour Judge Alton)

		Royal Courts of Justice Strand London WC2 Friday, 9th March 2001

Friday, 9th March 2001

1. LORD JUSTICE CHADWICK: This is a renewed application for permission to appeal against an order made on 16th November 2000 by Her Honour Judge Alton, sitting as a judge of the High Court to hear the Mercantile List in Birmingham, in an action brought by the applicant, Sensormatic Ltd, against Ciro Citterio Menswear Plc.
2. The applicant, Sensormatic, is a supplier of security systems for use in retail outlets. The defendant, Ciro Citterio Menswear, was described by the judge as a well-known and successful company operating a substantial number of retail outlets selling clothing. The claim was brought on 42 separate agreements for the installation of the applicant's equipment in the defendant's shops. The judge held that the defendant was in default under the agreements - in that the defendant's refusal or failure to pay rental instalments due under the agreements was wrongful and unjustified - and that, accordingly, the applicant was entitled to terminate those agreements; as it had done. She awarded a total of £69,000 odd in respect of arrears of unpaid rental instalments, a further sum of £45,000 odd for the use of the equipment after the termination date and until the actual repossession of the equipment and a further £34,000 odd in respect of spares and accessories supplied by the applicant to the defendant which had not been paid for. With interest on those sums, the amount of the judgment was £187,000 or thereabouts. Neither the applicant nor the defendant seeks to appeal in relation to the damages awarded under those heads.
3. The applicant's claim included a further head of damage in respect of unaccrued rental charges; that is to say, in respect of the rental charges which would have become payable under the agreements during the remaining term of the agreements if the agreements had not been terminated as a consequence of the defendant's breach.
4. The claim was based, primarily, on clause 3.10 of the agreements. That clause provided for the payment of a liquidated sum on breach. It was in these terms:

"Where termination has been effected by [the applicant], [the defendant] shall forthwith pay [the applicant] compensation and all liquidated damages to the total amount of unaccrued rental payable during the minimum hire period less an amount equal to a rebate calculated at the rate of 5% per annum on such unaccrued rental charges together with damages for any loss suffered by [the applicant]."

5. The amount claimed under that head - calculated in accordance with that clause - was put at some £463,000 in the statement of claim. But the judge held that clause 3.10 was in the nature of a penalty and, as such, was unenforceable. The applicant does not seek to appeal against that finding.
6. The judge then went on to consider an alternative claim for unliquidated damages in respect of the lost future rental payments. In principle, that was a claim for the loss of an income stream against which there would have to be set the benefits of early recovery of the equipment and whatever savings there might be in not having to service the agreements. The judge said this at the bottom of page 51 in the transcript of her judgment:

"That leads me on to the further question, namely how to deal with the alternative claim to damages which is also pleaded solely by reference to the advance rental. As said, it is not disputed that, when calculating the loss in cases of premature determination of a commercial rental agreement due to the hirer's payment default, the starting point for calculating losses must be the amount of rentals which the company would have received but for the early termination over the minimum period which would have elapsed before the hirer could have lawfully terminated. That would be here between approximately October 1997 and January 2000 - each agreement having a slightly different term reflecting the slightly different instalment dates.

However, when applying the fundamental purpose of an award of loss due to breach, that is to place the injured party into the same financial position as he would have been in but for that breach, allowance must be given in appropriate cases against the total amount otherwise due under the contract for any savings or benefits which the claiming party may have derived from the premature determination. Otherwise, to award damages by reference simply to the gross amounts he would ultimately have received may result in him being placed in a better financial position than if the contract had been performed. "

7. As a statement of principle, that seems to me incontrovertible. The loss to the hirer in circumstances such as this is calculated by setting against the loss of the future income stream -- however that loss may be quantified -- the benefits which the hirer gets from not having to continue to perform the hire contract, including whatever benefits there are in the early recovery of the hired property.
8. The problem for the judge was that there was no evidence before her which would enable her to assess which I have just identified. There was, of course, the provision in clause 3.10 for a discount of 5% per annum. But whether or not that was the appropriate discount rate to take in the circumstances which existed at the time when the agreements were terminated, was a matter completely upon which evidence was required; and there was no evidence on the point. Nor was there any evidence as to what benefits or savings the hirer would or would not have obtained as a result of early termination. In those circumstances, the judge, as she was plainly entitled to do, reached the conclusion that she could not make an assessment of damage under that head on the material that was then available to her.
9. The special feature of this case is that that was a problem which had been foreseen. At pages 45 to 46 of her judgment the judge said this:

"When the case came before me on 7th April 2000, questions arose as to the formulation of the claimant's claim to damages as an alternative to the liquidated damages claim, which was measured simply by reference to the unaccrued rental charges. The defendant was concerned that, if the claimant was to seek to argue any other or more detailed case, then they should be required to give advance warning of that fact. In consequence, it was ordered that, should the claimant wish to plead a positive case regarding loss and damage, the claimant must serve a draft amended statement of case and supporting documentation by 26th April 2000, it being envisaged that if the claimant did serve any further draft pleadings, any objection thereto or permission to amend could be dealt with on the PTR. In fact, the claimant did not serve any further statement."

10. The judge went on:

"So, it would appear that there was no further opportunity for amendment taken and the claimant's claim is therefore pleaded squarely by reference to the unaccrued rentals, although it is accepted and asserted that a discount of 5% per annum should be allowed under whichever head the claimant is considered."

11. The problem, therefore, that was likely to arise in the event that the claimant failed on its claim based on the liquidated damages clause had been identified on 7th April 2000, well in advance of the trial. The claimant had had the opportunity -indeed more than the opportunity because it was the subject of an order - to put in a statement of case if it wanted to rely on any other material in support of its claim for damages. It had decided not to do so. That was a matter which was clearly in the judge's mind when she considered a late request for the matter to be adjourned for an assessment of damages; alternatively, that there should be an order that there be an inquiry as to damages.
12. The judge said this at the bottom of page 56 of her judgment:

"Thus, whilst satisfied that the claimant has suffered losses beyond nominal damages, I have no adequate evidence upon which I can establish what that loss is. Despite Mr Underwood's" [counsel for the claimants] "last alternative argument that in such circumstances this court should adjourn for an assessment of loss, I conclude that it would not be right or fair or in accordance with the overriding objectives so to do, having regard to my above observations."

13. The observations that she is referring to there are plainly the observations at pages 45 to 46 which I have already set out.
14. Permission to appeal is sought on two grounds. The first is that the judge was wrong to hold that it was for the claimant to prove the amount of its damage. It is said that the claimant had established that the value of the lost income stream was some £450,000; and that the only question was how much should be deducted from that to represent the benefits of early repossession of the equipment and the savings in not having to administer and service the contracts. It is said that the judge ought to have held that that deduction was for the defendant to establish.
15. In my view those submissions are misconceived. First, the claimant had not established the value to be attributed to the loss of the income stream. That was something which had to be established by expert evidence. The judge was asked to make a discounted cash flow valuation, as at the date of the termination of the agreements, of the right to receive a future income stream. But there was no basis upon which she could assume that that valuation should be on the basis of discount at the rate of 5% per annum merely because 5% was the figure referred to in the clause which she had held to be a penalty clause. Secondly, that it was for the applicant to establish either that it had received no benefit from the early termination of the agreement - for example, because the repossessed equipment was of no value to it and there were no savings which could be made as a result of not having to service the equipment under the contracts - or to put forward some figure which was a proper estimate of what those savings were.
16. If the applicant had put forward a case (supported by evidence) in relation to either of those two elements, then the defendant would have had the opportunity to challenge the figures and to put forward alternative figures, if it had wanted to. There would then have been some evidence upon which the judge could rely. But, as the judge held, the obligation to establish the loss fell on the claimant. It was an obligation which had been identified on 7th April 2000; and it was an obligation which the claimant had made no attempt to discharge. There is no real prospect that this court would hold that she was wrong to take that view.
17. The second ground which is relied upon as a reason for the grant of permission to appeal is that the judge's refusal to make an order for the assessment of damages was perverse, having regard to the overriding objective.
18. It is important to emphasise that it is no part of the role of this court - and, a fortiori, no part of its role when considering whether to grant permission to appeal - to reach a conclusion whether it would have exercised the discretion in the way that the judge did. The question on an appeal would be whether the judge can be said to have exercised her discretion on a wrong principle or in such a way that the result can be regarded as perverse. She was entitled to have - indeed she was bound to have - regard to the overriding objective under CPR 1.1. The overriding objective is that of enabling the court to deal with cases justly. That includes having regard, so far as practicable, to the appropriate share to be allocated out of the court's resources to the litigation in hand while taking into account the need to allot resources to other cases.
19. In the present case it is plain that the judge took the view that, the matter having been the subject of an order on 7th April 2000 with which the claimant had chosen not to comply, it was not appropriate to give the claimant a second opportunity to advance its claim to unliquidated damages. The claimant had, in effect, elected to stand on its claim based on clause 3.10; and to forego the opportunity to adduce evidence in support of a claim to unliquidated damages. Other judges might have taken a different view; but that was a decision that she was entitled, in the exercise of her discretion, to reach.
20. This court must respect a judge's powers to manage cases in their own specialist courts. The result may seem in the present case harsh; but the risk that that would be the result is a risk which this claimant must be taken to have accepted with its eyes open when it decided not to comply with the order of 7th April 2000. I can see no real prospect that, in those circumstances, the Court of Appeal would think it right to interfere with the discretion which the judge exercised.
21. For those reasons, this application must be refused.
Order: Application refused. (ORDER DOES NOT FORM PART OF APPROVED JUDGMENT)