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Cite as: [2002] EWCA Civ 210

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Jaura v Ahmed [2002] EWCA Civ 210 (21st February, 2002)

		Neutral Citation Number: [2002] EWCA Civ 210
		Case No: A2/2001/1128

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN’S BENCH DIVISION
(MANCHESTER DISTRICT REGISTRY)
DISTRICT JUDGE JONES

Royal Courts of Justice
Strand,
London, WC2A 2LL

21st February 2002

B e f o r e :

LORD JUSTICE POTTER
LORD JUSTICE MUMMERY
and
LORD JUSTICE RIX
____________________

	SALEEM JAURA	Appellant
	- and -
	SAEEDA AHMED	Respondent

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
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____________________

Lucy Wilson-Barnes (instructed by Messrs Pannone & Partners) for the Appellant
Daniel I Frieze (instructed by Messrs Berg & Co) for the Respondent
____________________

HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
____________________

Lord Justice Mummery :

This is an appeal, with the permission of the judge, from an order made by District Judge Jones in the Queen’s Bench Division (Manchester District Registry) on 5 March 2001, following a hearing on 10 and 11 July 2000 and the handing down of three written judgments dated 17 August 2000, 18 January 2001 and 5 March 2001. Pursuant to an order made by consent by HHJ Fawcus on 16 November 1999, the District Judge assessed the damages recoverable by Mr Saleem Jaura on a counterclaim by him against Mrs Saeeda Ahmed for wrongful termination of a lease of business premises. There is an appeal by Mr Jaura and a cross appeal by Mrs Ahmed.

Factual Background

On 22 January 1991 Mrs Ahmed and her husband Nazeem (who has since died) granted a lease to Mr Jaura of business premises at 16-18 Sherbourne Street, Manchester for a term of 22 years from 21 January 1991 at an annual rent Ł15,000, reviewable after 7 years and at subsequent five yearly intervals. At the same time Mr Jaura purchased from them a wholesale stationery business carried on under the name “Inkspots” in close association with a clothing company called Pinwise Limited from the premises in Sherbourne Street. The total price was Ł76,000, made up as to Ł42,000 for goodwill, Ł26,000 for stock and Ł8,000 for fixtures and fittings. Mr Jaura obtained a loan of Ł50,000 from Allied Irish Bank to help finance the purchase. This was re-financed by the National Westminster Bank in September 1991.

By 1994 the business was faced with reduced profits. Mr Jaura had difficulty in paying the rent and in servicing the bank loan. He decided to sub-let the premises. In September 1994 he sub-let two floors of the premises to a firm of solicitors, Rafiq & Co, for a term of three years from 1 September 1994 at an annual rent of Ł15,000. There was increased pressure to derive income from sublettings after a fire at the premises in February 1995. In June 1995 he sublet another part of the premises to Saunders & Co, a firm of solicitors, at a rent of Ł150 per week (Ł7,500 per annum). Mr Jaura also had discussions with Mr Rasool, a director of Cotton Works Clothing Limited, for the grant of a sublease of the rest of the premises for a term of three years from September 1995 at an annual rent of Ł9,600. The judge rejected Mrs Ahmed’s contention that the subleases and the proposed sublease were unlawful and held that it was a foreseeable consequence of the wrongful termination of the lease that Mr Jaura would be deprived of the income from sublettings of the premises.

The Inkspots business failed. In August 1995 Mrs Ahmed forfeited the lease for alleged non-payment of rent. The premises were peaceably re-entered while Mr Jaura was away on family affairs in Pakistan. The locks were changed and the premises were re-let. As at August 1995, which the parties agree was the relevant date for the assessment of damages, the lease had an unexpired term of 17 ˝ years. Proceedings were commenced by Mrs Ahmed for arrears of rent. Mr Jaura counterclaimed for damages for wrongful termination of the lease. The claim for rent was dismissed by consent. Damages on the counterclaim were ordered to be assessed. The claims relevant to this appeal fall under four heads: the loss of anticipated profit rental from sublettings; the capital value of the lease; wasted expenditure on fixtures and fittings; and interest incurred by Mr Jaura in respect of the bank loan, which, to the knowledge of Mrs Ahmed, was obtained by Mr Jaura to finance the purchase. It is convenient to deal with each head of damage in turn rather than by reference to whether the grounds are raised in the appeal or in the cross appeal.

A. Anticipated Profit Rents from Premises

The judge awarded a total of Ł24,700 plus interest to be assessed. This sum was calculated by taking the total of the rents receivable by Mr Jaura under the subtenancy to Rafiq & Co for the balance of two years remaining ( Ł30,000), under the subtenancy to Saunders & Co for the balance remaining from its term of one year (Ł5,500) and under the proposed subtenancy to Cotton Works Clothing Limited over a period of two (not three) years from August 1995 (Ł19,200) and deducting from the grand total of Ł54,700 the rent which he would have had to pay under the lease over the same period (Ł30,000).

Mrs Ahmed appeals against this assessment, contending that the damages for lost profit rent should be reduced to Ł5,500 by disallowing the claim for Ł19,200 in respect of the anticipated loss of rental from Cotton Works Clothing Limited for the period September 1995 to September 1997. The judge was criticised for acting on the evidence of Mr Jaura and Mr Rasool, whom he had failed to mention was a friend of Mr Jaura, about the negotiations for a sublease. The judge’s assessment of Mr Jaura as a witness was that his evidence was at times exaggerated and at times plainly untrue. Mr Rasool’s evidence took the form of a witness statement dated 2 May 2000 and his letter dated 21 March 1997 referring to an agreement to take a lease of part of the premises for an initial period of three years at a rental of Ł9,600 per annum. The letter, which was not mentioned in the witness statement, was addressed “To Whom It May Concern”. Mr Rasool did not attend to give oral evidence at the trial in July 2000. It was submitted that the witness statement was not admissible or, if admissible (as had been conceded below), should have been given little weight.

I would not disturb the findings of the judge on this head of damage. He was entitled to admit Mr Rasool’s witness statement under section 2 (4) of the Civil Evidence Act 1995 and CPR Part 32.1 and 32.5, regardless of the absence of a notice. The witness statement was not inconsistent with the contents of the earlier letter and there was other evidence, including oral evidence from Mr Jaura, by which the judge could assess Mr Rasool’s evidence. The weight to be attached to the evidence was a matter for the judge and it cannot realistically be contended that there was no evidence to support the judge’s findings or that his conclusion was against the weight of the evidence.

B. Capital Value of Lease

The judge awarded the sum of Ł12,250 plus interest to be assessed. Mrs Ahmed appeals, contending that nothing should be awarded under this head as it duplicates the award for loss of anticipated profit from sublettings and is inconsistent with the judge’s conclusion that no damages should be awarded for loss of the opportunity to assign the lease in August 1995. It was argued that the benefit of the subleases was the only value properly attributable to the lease.

I agree that the appeal against the award of Ł12,250, additional to the damages for the anticipated loss of profit rent, should be allowed. In theory a lease with 17 ˝ years to run could have a capital value in August 1995 in addition to the value of the rents from the short term subleases. The normal measure of damages where the tenant is wrongfully evicted from premises is the value of the unexpired term at the date of wrongful eviction, calculated by reference to the rental value of the premises, less the contractual rent payable under the lease. But the evidence does not support the judge’s finding that the lease had a value of Ł12,250 in August 1995, additional to the rent yielded by the subtenancies over the period of two years from August 1995. Expert evidence was adduced from Mr Ravenhill on behalf of Mr Jaura and from Mr Hawke on behalf of Mrs Ahmed. The judge said that he preferred the approach of Mr Ravenhill to that of Mr Hawke (who placed a nil value on the lease in paragraph 10 of his report in May 2000) and awarded “Ł12,250 as being the value to the defendant of the loss of being able to assign the lease.” It appears, however, from Mr Ravenhill’s report of 19 May 2000 and his revised valuation in Appendix 5 to the experts’ joint statement of 27 June 2000, that the figure of Ł12,250 mentioned by him was the result of his calculation of the value as at August 1995 of the profit rent over a period of two years. It was not a valuation of the unexpired term remaining after the expiration of the subtenancies in September 1997. The judge erroneously duplicated damages by awarding both a sum for the loss of profit rent over a period of two years from August 1995 and also a lump sum for the value of the unexpired term as at August 1995 based on an income stream from the premises over a period of the same duration.

C. Expenditure on Fixtures and Fittings.

The judge awarded Ł9,910 plus interest to be assessed in respect of fixtures and fittings remaining in the premises and lost by Mr Jaura as a result of re-possession of the premises. The calculation of the loss was based on the depreciated figure for fixtures and fittings (Ł15,394) shown in the accounts of Inkspots for June 1995. Mr Jaura appeals, contending that the judge should have awarded the further sum of Ł7,285 (Ł6,200 plus VAT) for expenditure on conversion of the ground floor by ISA Building Contractor, even though this sum does not appear in the business accounts. Mr Jaura’s evidence was that the omission of this figure from the accounts was the result of his failure to notify the accountant of expenditure on the conversion of the ground floor of the premises, for which he had obtained an estimate from ISA Building Contractor on 21 August 1994. It was submitted that the judge’s rejection of this item was based on a misunderstanding of the evidence and a failure to appreciate that the sum of Ł6,200 plus VAT referred to in the evidence was the same as the sum of Ł7,285. The complaint was that the judge dealt with this aspect of the case in his first judgment in a manner which indicated that he thought the sum of Ł7,285, the spending of which had not been proved, and the sum of Ł6,200 plus VAT, of which he seemed to accept that about half (Ł3,000) had been spent, were two different sums, when in fact they were one and the same sum. It was contended that this “arithmetical error” was central to the judge’s rejection of Mr Jaura’s evidence about the expenditure. In consequence his finding of fact was incorrect and inconsistent.

I would uphold the judge’s finding on this head of damage. He was entitled to reject the claim for expenditure of Ł7,285 on the basis that Mr Jaura was an unreliable witness and was unable to substantiate his claim by any invoice, bank statement, cheque stub or entry in the accounts. It is impossible to criticise the judge’s conclusion as being against the weight of the evidence. I would also reject the contention that the judge misunderstood the figures in the evidence. Although his reasoning on this point could have been more clearly expressed in his first judgment, I am satisfied that the judge correctly understood the evidence and made a finding which was open to him on that evidence. The expenditure of Ł3000, which the judge did accept, was included in his award of Ł9,910.

D. Interest.

The judge awarded simple interest on the damages under section 35A of the Supreme Court Act 1981. Although the order is silent on the rate, it is agreed that the effect of the order is to entitle Mr Jaura to interest on the damages at the rate of 8%. He disallowed Mr Jaura’s claim for damages referable to interest at the same rate and on the same terms as he has been liable to pay on the bank overdraft. The judge held that Mrs Ahmed knew that Mr Jaura had incurred an overdraft in order to finance the purchase of the lease and of the business. Mr Jaura contended that he was entitled to recover that loss, as the wrongful termination of the lease deprived him of the rents from the subtenancies, which he could have used to service the overdraft. Instead, he incurred a liability for accumulating interest on his overdraft. The judge held that this item was not recoverable, as he had already been compensated for this loss by the award of interest on the lost profit rent. He also held that the failure to service the overdraft was attributable to Mr Jaura’s impecuniosity and his failure to mitigate his loss by starting up a fresh business. The claim for damages under this head was not pressed on the appeal. Instead the case has been argued as one in which it is proper to award a higher rate of interest to reflect the commercial rate of interest (between 10.25% and 11.25%) that he was having to pay the bank on the overdraft in the period when, but for the wrongful termination of the lease, he would have been receiving the rents from the subtenants and could have serviced the overdraft . On this point I have read and agree with the judgment of Rix LJ.

Lord Justice Rix

I agree, and only wish to deal in this judgment with the question of the rate of interest.

In her submissions on behalf of Mr Jaura on his appeal, Ms Wilson-Barnes began by advancing a two-prong argument to the effect that he could recover (a) as a separate head of damage, the actual cost of his borrowings either on the quantum of damages awarded as a whole, or at least on that part of it represented by the award in respect of profit rents; alternatively (b) in the court’s discretion, statutory interest under section 35A of the Supreme Court Act 1981 at an enhanced rate on the award of damages so as to compensate him for the actual cost of his borrowings pro tanto.

In the course of her submissions, however, Ms Wilson-Barnes came ultimately to rely exclusively on the latter alternative. Among other difficulties of advancing an appeal by reference to a separate head of damage was not perhaps so much the judge’s reference to Mr Jaura’s impecuniosity or a failure on his part to mitigate his loss by starting up a fresh business, but the fact that Mr Jaura’s notice of appeal and her own skeleton argument only dealt with the question of statutory interest.

Before the judge it had been submitted that Mr Jaura should be awarded not only an enhanced rate of interest to reflect his borrowing costs, but interest on a compound basis. The judge rejected the claim for compound interest. In this court, Ms Wilson-Barnes accepts, correctly in my judgment, that compound interest is not available.

The underlying facts appear to have been these. In January 1991 when Mr Jaura purchased the Inkspots business for Ł76,000 from the Ahmeds he took a ten-year loan of Ł50,000 from Allied Irish Bank (“AIB”). Mrs Ahmed, as the judge found, “[a]t the time when the contract was made…undoubtedly knew that the defendant was borrowing money to purchase the business and the premises”. Indeed, it was Mr Jaura’s evidence that Mr Ahmed had offered to arrange a loan for Mr Jaura himself. The terms on which that original loan was taken from AIB are not known, but that does not matter for in September 1991 Mr Jaura switched his banking to the National Westminster Bank (“NWB”). At that time he borrowed a further Ł10,000 in order to buy more stock. His borrowings of Ł60,000 were divided between an overdraft of Ł30,000 on current account and a business development loan of Ł30,000. Mr Jaura said that he was advised at that time that this was the most cost effective way of borrowing the money. The interest rates applicable appear to have been 3.5% above base rate on the overdraft and a fixed 14.5% on the loan. By the time of the forfeiture in August 1995 Mr Jaura had an overdraft of Ł3,125 and a debit on his loan account of some Ł45,000. There appears therefore to have been some switching of borrowings from his current account to his loan account, but the interest rate on both was the same, namely 4.5% over base, or 11.25% in all. Mr Jaura said that this switching was done at the suggestion of the bank, on the basis that it would be cheaper for him. From 1996 NWB transferred the debits on both accounts to its bad debt ledger, and interest continued to accumulate. The balance as of May 2000 was some Ł110,000.

Before the judge it had been submitted that he should in his discretion award statutory interest at the rate applicable on Mr Jaura’s borrowings, at least on the profit rents which he would have received but for the forfeiture. In rejecting the additional submission that interest should be compounded, the judge said nothing specific about the rate. In his order the judge merely stated “interest to be assessed”, thereby recognising that he had not determined the point for himself. However, the parties have come to this court on the basis that, subject to the result of this appeal, a rate of 8%, ie the judgment rate, would be applied.

Chitty on Contracts, 28^th ed, 1999, Vol I, at para 146 contains the following:

“In business contexts, the rate of interest should reflect the current commercial rate. The approach of the Commercial Court is to award interest at a rate which broadly represents the rate at which the successful party would have had to borrow the amount recovered over the period in question.”

The history in the business context of the movement in recent decades away from a purely conventional rate to one which more closely reflects the claimant’s costs of borrowing has been set out in McGregor on Damages, 16^th ed, 1997, at paras 672/675. See also the note in Civil Procedure, Autumn 2001, Vol I at para 7.0.15. Thus a rate of 1% above base rate prevailing from time to time has become the practice of the Commercial Court, albeit this is only a presumption and can be varied up or even down to meet the fairness of the parties’ particular situation. Although the modern approach has been spearheaded by the Commercial Court, it has been applied more generally. In Tate & Lyle Food and Distribution Ltd v. Greater London Council [1982] 1 WLR 149, a case concerning a claim in negligence and nuisance against statutory authorities responsible for dredging in the Thames, Forbes J said this (at 154B/F):

“…I think the principle now recognised is that it is all part of the attempt to achieve restitutio in integrum. One looks, therefore, not at the profit which the defendant wrongly made out of the money he withheld – this would indeed involve a scrutiny of the defendant’s financial position – but at the cost to the plaintiff of being deprived of the money which he should have had. I feel satisfied that in commercial cases the interest is intended to reflect the rate at which the plaintiff would have had to borrow money to supply the place of that which was withheld. I am also satisfied that one should not look at any special position in which the plaintiff may have been; one should disregard, for instance, the fact that a particular plaintiff, because of his personal situation, could only borrow money at a very high rate or, on the other hand, was able to borrow at specially favourable rates. The correct thing to do is to take the rate at which plaintiffs in general could borrow money. This does not, however, to my mind, mean that you exclude entirely all attributes of the plaintiff other than that he is the plaintiff. There is evidence here that large public companies of the size and prestige of these plaintiffs could expect to borrow at 1 per cent. over the minimum lending rate, while for smaller and less prestigious concerns the rate might be as high as 3 per cent. over the minimum lending rate. I would think it would always be right to look at the rate at which plaintiffs with the general attributes of the actual plaintiff in the case (though not, of course, with any special or particular attribute) could borrow money as a guide to the appropriate interest rate.”

In Shearson Lehman v. Maclaine Watson (No 2) [1990] 1 Lloyd’s Rep 441 at 452 Webster J cited the passage above from Tate & Lyle v. GLC with approval, but found that in the absence of any evidence at all on appropriate interest rates he would apply a presumption in favour of 1%. Shearson Lehman was of course a major financial trader.

In Brown v. KMR Services [1995] 2 Lloyd’s Rep 513 and Deeny v. Gooda Walker (No 3) [1996] LRLR 168 interest was awarded to Lloyd’s names at 2% above base rate, on the basis that this “represented what individual Names were likely to have to pay when borrowing money” (per Phillips J at 175).

In Jackson v. Royal Bank of Scotland (CA, 28 June 2000, unreported) the judge had awarded 6% over base rate in favour of the claimant, but the court of appeal considered that his discretion had been exercised erroneously on two grounds: first, he had had no general evidence as to the borrowing rates available to small business men, and secondly he had failed to take account of the fact that only Ł14,000 had been borrowed at 6% over base whereas the balance of the judgment sum of nearly Ł79,000 had been borrowed on a business loan account at only 4% over base. In the circumstances the court awarded interest at 3%. Potter LJ said (at page 21 of the transcript):

“However, the judge was wrong thereby to assume (if he did so assume) that the business loan account was appropriate evidence of the rates of borrowing generally available to traders such as Samson to replace the monies lost to it while awaiting the award of damages. Nor is any such evidence available to us. However, bearing in mind the concession made before the judge that, in all the circumstances of the case, it was an appropriate case in which to award 2 or 3% over base overall, I would award interest upon damages at the rate of 3% over base rate.”

On behalf of Mrs Ahmed, Mr Frieze has submitted that a “broad brush” approach should be applied; and that a rate of 8%, reflecting 2% above base, over the total of the relevant period would answer that need, especially as damages are payable without regard to the claimant’s tax position and that tax would in all likelihood be payable in respect of the profit rents.

A schedule of base rates for the relevant period has been handed to us and we have been encouraged to fix a rate ourselves, without the need for remission or further assessment. This schedule shows that in August 1995, at the beginning of the period, base rate was at 6.75%, as indeed is confirmed by Mr Jaura’s bank statements. At the end of the relevant period, which I take to be the date of the judge’s order below on 5 March 2001, base rate was at 5.75%. In between base rate has fluctuated between a high of 7.5% reached between 4 June and 7 October 1998 and a low of 5% which obtained between 10 June 1999 and 7 September 1999. Even applying Mr Frieze’s rule of thumb of 2% above base, 8% over the whole of the period would be too little. However, in my judgment the appropriate rate should be 3% over base from time to time. I strongly suspect that even that figure does insufficient justice to Mr Jaura, but I do not think that this court has enough evidence to support the case that the rate charged to Mr Jaura (4.5% above base) was typical of small businessmen in his position. Even so, there is evidence that Mr Jaura was alive to the opportunity of achieving the most economic borrowing rate available to him, and was prepared to transfer banks and switch his borrowing structure to achieve the best rate. In the circumstances I am confident that a rate of 3% above base does no injustice whatever to Mrs Ahmed.

It is right that defendants who have kept small businessmen out of money to which a court ultimately judges them to have been entitled should pay a rate which properly reflects the real cost of borrowing incurred by such a class of businessmen. The law should be prepared to recognise, as I suspect evidence might well reveal, that the borrowing costs generally incurred by them are well removed from the conventional rate of 1% above base (and sometimes even less) available to first class borrowers.

It seems to me that this court should take no regard of Mr Jaura’s possible tax position in regard to that element in the damages award representing rent. That is because nothing is known about his tax position – other than that his business had failed at the relevant time, so that it may be unlikely that his tax liability would be of any material consequence.

I would therefore award Mr Jaura statutory interest at 3% over base prevailing from time to time on damages in the total sum of Ł34,610 from the date of wrongful forfeiture in August 1995 until judgment on 5 March 2001. Thereafter, interest accrues at the judgment rate of 8%. I am confident that the parties will be able to calculate the appropriate sum of statutory interest, and I would urge them to do so promptly so that it can be inserted in the order ultimately made by this court.

Lord Justice Potter

I agree with the judgment of Mummery LJ and Rix LJ.

Order: Appeal allowed.