England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BRADFORD COUNTY COURT
HIS HONOUR JUDGE SPENCER QC
0HX00487

		Royal Courts of Justice Strand, London, WC2A 2LL
		18/03/2014

Lord Justice Briggs :

1. This is an appeal from the order made on 23^rd March 2013 by Judge Spencer in the Halifax County Court, after the five day trial of a claim and counter-claim in July 2012, and a reserved judgment handed down in December 2012.
2. The claim, by Mr. and Mrs. Buckle, was for £2,652 payable by the defendant Mr. Anselm as tenant of premises in Booth Town, Halifax, being the cost of works to comply with requirements of the Fire Authority, payable under an indemnity in the lease of the premises ("the Lease"), granted by the Buckles to Mr. Anselm on 24^th October 2003.
3. Mr. Anselm's counter-claim was for damages for breach by the Buckles of clause 15 of a business sale agreement ("the Agreement") pursuant to which the Lease was also granted, by which they undertook to complete works to the premises ("the Specified Works") as set out in a letter from Mr. Anselm's solicitors dated 18^th September 2003, within six months of the contractual completion date, with provision for a retention of £6,000 out of the purchase price, payable to the Buckles on delivery to Mr. Anselm's solicitors of invoices for work completed. Mr. Anselm alleged that the Specified Works had not been carried out or, in certain respects, executed to the requisite standard, and that the consequential exposure of the property to water ingress and damp had caused him substantial losses, not limited to the cost of having to carry out the works himself in the future, but extending to the loss of opportunity to establish a profitable kitchen design business in part of the property, and to derive rents from sub-letting other parts to residential occupiers.
4. The main plank in the Buckles' defence to counter-claim was that the slightly unusual wording of clause 15 of the Agreement imposed no obligation on them to carry out the Specified Works at all. This the judge rejected. He went on to find that substantial parts of the Specified Works had either not been carried out at all, or not to the required standard. The order under appeal gave judgment on the Buckles' claim (which had not been seriously challenged), judgment to Mr. Anselm on the counter-claim for damages to be assessed, which included the cost of carrying out the works specified in a schedule to the Order, the value of Mr. Anselm's lost opportunity to generate rental income at the premises between April 2004 and March 2007, and any loss of profit caused to Mr. Anselm by having to carry out the Specified Works himself. The assessment of damages, and (apart from a specific item) the costs of the claim and counter-claim remain to be determined.
5. Mr. Anselm appeals about three specific matters in respect of which he says that the Judge's order fell short of his entitlement. Each is entirely self-contained, and I can therefore deal with them separately, under the headings:

(1) Electrical works

(2) Mitigation

(3) Remoteness.

Electrical Works

6. The letter of 18^th September 2003 by reference to which clause 15 of the Agreement identified the Specified Works, so far as is relevant, reads as follows:

"Further to previous correspondence, the Schedule of Condition has now been prepared and I enclose one copy. I understand that my client (Mr. Anselm) has forwarded a further copy to your client direct.

Our respective clients have spoken and I understand that your client is prepared to undertake to carry out the following works to the property:

(1) …

(6) Upgrade the electrical wiring as required by an electrician's report to be prepared.

Your client has agreed to carry out this work within a reasonable timescale and I would suggest that a period of six months from completion would be appropriate. It is hoped however that the work to the extension roof, the roof lights, slates and guttering can be carried out before the onset of winter. My client has asked the surveyor who prepared the Schedule of Condition to provide an estimate as to the cost of these works and it is suggested that a retention equivalent to that amount be retained on my client account on completion."

7. On 23^rd September 2003 Mr. Anselm's solicitors sent a further letter, the relevant part of which is as follows:

" My client has received estimates for the work highlighted in my letter. The work to the roof and the roof lights is £1,600.00, works to the windows £500.00, work to the extension roof £1,000.00 and re-pointing works £2,000.00. The electrical works are estimated at around £500.00 and it is therefore suggested that the retention should be £6,000.00. I understand that my client has passed these costings on to yours."

8. Clause 15 of the Agreement, headed "Retention", provided:

"It is hereby agreed that on contractual completion the Buyer's solicitors shall retain the sum of £6,000 pending the Seller completing the works to the Property detailed in a letter from the Buyer's solicitors to the Seller's Solicitors dated 18^th September 2003 within six months of contractual completion date such retention to be released either all or in part on delivery to the Buyer's solicitors of invoices for work completed."

9. It was common ground, at trial and on appeal, that the reference in sub-paragraph (6) of the 18^th September letter to "an electrician's report to be prepared" was a reference to a report to be commissioned by the Buckles, rather than by Mr. Anselm himself, after completion. The Schedule of Condition which accompanied that letter had been prepared by Mr. Anselm's surveyor, a Mr. Denton. Under "electrical services" it referred to certain obvious defects in the electrical system at the premises, but recommended that the entire electrical installation be checked by a qualified electrician. It was evident, reading the Schedule of Condition, the 18^th September and 23^rd September letters from Mr. Anselm's solicitors together, that the estimate of £500 for the electrical works had been provided by Mr. Denton. It was not the result of any checking of the installation by a qualified electrician and was, therefore, little more than a shot in the dark, used as a contributory item in the identification of a suitable retention.
10. No electrical report was thereafter commissioned by the Buckles, nor were any substantial electrical works carried out, although the system received a small but unspecified amount of attention. The judge found, on the basis of the evidence of a single joint electrical expert, a Mr. Sykes, that if such a report had been commissioned by the Buckles on or shortly after completion, it would have recommended a complete re-wiring of the premises.
11. Nonetheless, the judge declined to make any award of damages in respect of the electrical works, on the ground that, in his view, the Agreement committed the Buckles only to £500 worth of work. He said that clause 15 of the Agreement and the letter of 18^th September might, had they stood alone, have obliged the Buckles to carry out a complete re-wiring of the premises but that the £500 estimate provided by Mr. Anselm prior to completion meant that, on the true construction of the Agreement:

"What he (Mr. Buckle) was letting himself in for was the £500 worth of work in the estimate which was provided to him."

12. It is possible that the lapse of time between the end of the trial and the preparation of the reserved judgment led the Judge into thinking, erroneously, that an estimate obtained for his purposes after completion by Mr. Anselm from a firm called BW Electrical had in fact been obtained before completion, sent to the Buckles, and formed the basis of the £500 estimate. It is in fact clear, as Mr. Fryer-Spedding for the Buckles very properly conceded, that the BW Electrical report had been obtained after completion, and had nothing to do, either with the £500 estimate provided before completion, or with the Buckles' obligation to obtain an electrical report, and then comply with its recommendations, after completion.
13. In my judgment, once that factual error is corrected, the Judge's conclusion that the Buckles' obligation in relation to electrical works was limited to £500 becomes unsustainable. Clause 15 of the Agreement, read with the letter of 18^th September to which it refers, unmistakably required the Buckles to do whatever upgrading to the electrical wiring that an electrician's report which they were subsequently to obtain showed was required. The fact that in a later letter not referred to in clause 15 Mr. Anselm's solicitors had identified for the purposes of proposing a suitable retention, a £500 sum for electricals, on the basis of Mr. Denton's estimate, is neither here nor there. Since the Judge found that a report prepared in accordance with their obligation on the Buckles' instructions would have called for a complete re-wiring (which, as is common ground, would cost several thousand pounds) means that, on the only tenable construction of the Agreement, the Buckles are liable for the whole of what that rewiring will now cost.
14. Thus the first ground of Mr. Anselm's appeal must in my judgment succeed.

Mitigation

15. It will be recalled that the Buckles' repairing obligations pursuant to clause 15 of the Agreement should have been performed by them within six months of completion, which occurred on or about 24^th October 2003. The works had not been done (or satisfactorily done) by the time of the trial more than eight years later, and Mr. Anselm claimed consequential losses (in terms of sub-letting and damage to his intended business) for the whole of that period, in amounts which dwarfed the likely cost of the Specified Works. Mr. Anselm had, initially through his solicitors, sought to persuade the Buckles to do the works. Later he had sought the assistance of the local Housing Authority, which served a repair note in relation to the premises in October 2005, leading to some works being done in 2006.
16. The Judge held that, although it was reasonable for Mr. Anselm to wait until November 2006, in particular to see whether the intervention of the Housing Authority would provide the necessary pressure on the Buckles to do the works, it was unreasonable for Mr. Anselm not to have carried out the works at his own expense, beginning in November 2006, and completing them by the end of February 2007. For that reason he concluded, and ordered, that Mr. Anselm should have no claim for consequential losses after 1^st March 2007. The judge's reasoning was that Mr. Anselm appeared to be under no financial constraints such as would have impeded him carrying out the Specified Works at his own expense, and that the terms of the Lease (which imposed upon him an obligation to put and keep in repair) permitted him to do the works upon the premises, of which he had exclusive occupation, without the need to obtain the Buckles' consent as his landlords.
17. Mitigation had been pleaded against Mr. Anselm in the Buckles' Defence to Counter-claim, in the following terms:

"Further it is averred that the Defendant has failed to mitigate any loss that it is found that he has suffered in that he has failed to carry out any works to the Premises and recoup any sums from the retention held pursuant to clause 15 of the Written Agreement."

For good measure, the pleading continued at paragraph 31 to rely upon the fact that Mr. Anselm was required by the Lease to keep the Premises in good repair, and was in breach of those obligations.

18. In his written opening submissions at trial, Mr. Fryer-Spedding (who had not been the pleader) introduced his client's case on mitigation in the following terms:

"Cs submit that D clearly failed to mitigate any loss he did truly suffer. Most obviously he could reasonably have used the retention of £6,000 to fund the outstanding Works."

During cross-examination of Mr. Anselm, Mr. Fryer-Spedding pursued this theme in exactly those terms, to which Mr. Anselm responded that he had been advised by his solicitors that he was not at liberty to use the retention as funding for carrying out the repairs himself, and that a request by his solicitors to the Buckles that he should be permitted to do so had been met by their refusal.

19. This largely put paid to the Buckles' case on mitigation at trial. It was not assisted by the fact that, by 2006, there was only £4,500 in the retention account, and that it is now clear that the Specified Works would have cost very much more than that in any event.
20. Nothing daunted, Mr. Fryer-Spedding pursued his case of failure to mitigate in written closing submissions, submitted after the end of the hearing. Acknowledging Mr. Anselm's evidence to the effect that he was unable to have recourse to the retention monies without the Buckles' consent (which he criticised as inconsistent with Mr. Anselm's solicitors' threat that he would do so) Mr. Fryer-Spedding continued:

"The Claimants submit that on any sensible analysis a person in the Defendant's position who considered that he was suffering grave loss as a result of comparatively minor outstanding works would simply have done those works and then offset the cost against the retention monies and future rent instalments. These were works that the Defendant himself had costed in advance of the 2003 transaction at only £6,000. In this connection it is relevant to note that the Defendant had been at some pains to demonstrate that he had ample resources to carry out his business development plans at all material times before he became involved in litigation (see appendix 10 to Mr. McManus' report)."

21. The reference to Mr. McManus was to Mr. Anselm's accountancy expert, who had indeed demonstrated that, in 2003-4, Mr. Anselm had the financial resources with which to carry out the residential flat development and kitchen showroom installation which he complained of having been prevented from doing by reason of the Buckles' breach of clause 15 of the Agreement. But that material showed only that, by late 2006, Mr. Anselm had about £10,000 on current account on a balance which appeared to be reducing at the time. Mr. Anselm was not cross-examined on the basis that he had failed to mitigate by not using his own financial resources, and no opportunity had been given to him to explain whether his dwindling cash resources needed to be conserved or used for other purposes. Furthermore, the evidence demonstrated that it would have taken nearly a year's set-off against rent to generate even £6,000 to fund the Specified Works, and that any such set-off would have been resisted by the Buckles. Furthermore, I consider it clear that the terms of clause 15 of the Agreement would indeed have prohibited Mr. Anselm from exercising a self-help remedy against the retention, and prohibited his solicitors, who held the money, from permitting him to do so for as long as the Buckles continued to deny that they were in breach of clause 15.
22. The judge's reasons for concluding that Mr. Anselm had failed to mitigate his loss, from and after November 2006, had nothing to do with any supposed right to help himself to the retention. They were, as I have said, based merely upon his rights as tenant to do the works, and his apparent financial resources with which to carry them out. The judge made no analysis of the extent to which Mr. Anselm's originally available resources (in 2003-4) were still available in late 2006.
23. In his submissions to us, Mr. Fryer-Spedding again very properly acknowledged that the basis upon which the judge found against Mr. Anselm on failure to mitigate was not a case he had put at trial, either in submissions or in cross-examination. Nonetheless, he submitted that the judge was right, objectively speaking, in the conclusion which he reached, and that his finding should not be disturbed.
24. I disagree. Where failure to mitigate is relied upon in answer to a claim for damages for breach of contract, it is for the defendant to the claim (here the Buckles) both to plead and prove a case to that effect. The case which they pleaded and sought to prove was that Mr. Anselm should have used the retention money to carry out the repairs. This case was easily rebutted at trial, and the Judge placed no reliance upon it. Instead, he concluded against Mr. Anselm on a basis of his own which had been neither pleaded, put to Mr Anselm nor proved. The result was not fair to Mr. Anselm, and I have not in any event been persuaded that it was unreasonable for him not to expend what, at the time, looked like being the bulk of his available cash resources on carrying out works which the Buckles had undertaken to have carried out at their expense, even though I agree with the Judge and with Mr. Fryer-Spedding that nothing in the lease required Mr. Anselm to obtain the Buckles' consent to what were, in substance, works of repair rather than improvement or alteration. It is now known that the true cost of the Specified Works substantially exceeded the £6,000 retention, and it is by no means clear that Mr Anselm would have been able to afford them if he had embarked upon them in late 2006. He was given no opportunity to address the question whether he could prudently have afforded to pay for them from his own resources at that time, since it was not suggested during the trial that he should have done so.
25. For those reasons, Mr. Anselm succeeds on his second ground of appeal. The limitation upon his recovery of consequential losses imposed as from 1^st March 2007 should be removed. No alternative date by way of limitation of recovery of consequential loss has been pleaded, proved, or even submitted to be appropriate, not least because it appears that Mr. Anselm's cash resources thereafter rapidly decreased.

Remoteness

26. In terms of the amounts sought by way of damages, much the largest part of Mr. Anselm's claim to have suffered consequential loss related to the effect of the continuing dampness in the property (attributable to the Buckles' breach of clause 15 of the Agreement) upon his ability to establish a kitchen sales business on the premises. Mr. Anselm did in fact fit out part of the ground floor of the property as a kitchen showroom during 2004. Nonetheless, his claim, from start to finish, was that the Buckles' failure to carry out the Specified Works prevented him implementing a business plan upon which he had resolved by the time of the making of the Agreement, namely that his kitchen sales business should aim at the higher and (for him) more lucrative end of the market. He did not at any stage make it part of his claim, or suggest, that the Buckles' failure to carry out the Specified Works had caused any adverse effect on the profitability of the relatively down-market kitchen sales business which he did in fact establish from the showroom which he fitted out in 2004.
27. It was common ground at trial (as the Judge recorded) that this part of Mr. Anselm's claim was, in substance, for the loss of a chance, that is, to establish a much more profitable type of kitchen business than that which in fact he established. It was therefore for Mr. Anselm to plead and prove, on the balance of probabilities, that had he been unimpeded by the disrepair and in particular damp at the property caused by the Buckles' continuing breach of clause 15, he would indeed have sought to establish a kitchen sales business at the property aimed not merely at the budget end, but at the higher end of the market as well.
28. The Judge rejected this head of loss altogether. He found that, as a matter of fact, Mr. Anselm had no intention at the time of the Agreement to establish himself any higher up the kitchen sales market than he later did. Relying mainly on the fact that this head of claim had not emerged at all until included in Mr. McManus' report in February 2012, he concluded, at paragraph 71 of the judgment:

"In the light of the foregoing I do not accept that at the time when the contracts were made the Defendant had a settled intention to use the Premises as a showroom/sales outlet for high end kitchen units."

29. In paragraph 72 the Judge continued with an analysis of the question whether loss of that kind was too remote, prefaced by his opening words:

"If I were wrong about the foregoing…"

In my judgment, taking those two paragraphs together, the Judge plainly found that Mr. Anselm failed on causation in relation to this head of his claim. He considered remoteness only on the alternative, and strictly unnecessary, hypothesis that Mr. Anselm might have had the requisite intention at the time when it mattered: i.e. before in fact he established a kitchen sales business from a showroom aimed at the budget end of the market, in 2004.

30. Mr. Anselm's appeal in relation to this head of his alleged loss has from start to finish been confined to an assertion that the Judge got the law wrong on remoteness. His finding of fact about the absence of the requisite intention on Mr. Anselm's part has not been, and in reality could not have been, challenged. The Judge was well able to asses Mr Anselm's credibility on this point, having seen and heard him in he witness box. In the result, I consider that the appeal based upon an error of law about remoteness entirely misses the point.
31. Mr. Glover sought valiantly to keep this potentially valuable part of his client's appeal afloat by submitting that there was to be found embedded in Mr. Anselm's claim to have been deprived of the chance of establishing a high-end kitchen sales business, a claim that the Buckles' breach of clause 15 in any event caused a foreseeable loss of profitability of his budget market kitchen sales business. The Judge should, he said, have addressed that as an alternative or fall-back basis of loss of profit, in particular by reference to evidence in Mr. McManus' report, to the effect that the disrepair of the property had caused a two-month delay in the fitting out of the showroom.
32. I disagree. Having closely reviewed Mr. Anselm's pleadings and evidence, I am satisfied, as was the judge, that no such alternative claim had ever been put forward. On the contrary, when permission to appeal along these lines was sought from the Judge, he said:

"I take the view that the parties put before me all the evidence they wished me to hear on damages. I do not see that there is scope in any future hearing for the claimant (he meant Mr Anselm) to advance an alternative case as to what he might have got by way of profit in an ordinary kitchen sales business, and as to whether such a kitchen sales business would require a showroom of the sort he said was necessary for his quality work.

I take the view that litigation has to be dealt with in one go. If one fails on one aspect one does not, so to speak, have the entitlement to introduce one's alternative case, which has not before then been flagged up."

33. I agree. It is instructive to look at Mr. Anselm's pleaded case in this respect. In paragraph 26 of his Counter-claim served in 2010, his Particulars of Loss and Damage included an unspecified "loss of trade in terms of his kitchen sales business". This was followed by the service of Mr. McManus' report together with a Provisional Schedule of Loss settled by counsel which, under the heading Consequential Loss claimed that the defendant lost the chance of earning:

"(i) In his kitchen design business; and

(ii) In sub-letting part of the leased premises for residential occupation.

As to each of these elements the defendant relies on the forensic accountancy report of Mr. Paul McManus."

34. Mr. McManus' report begins, at paragraph C6, by setting out the basis of the claim for consequential losses in the following terms:

"It is the basis of Defendant's case that if the premises had been made damp-proof and watertight; firstly, he would have been able to install a more expensively fitted out showroom and aim for the higher end kitchen customer (as he originally intended), and secondly complete a residential development which would have given him sub-letting rental income."

Section D, directed to the loss of profits of the kitchen business, contained a most impressive comparison between the likely profitability of a business aimed at the higher end of the market and the business which Mr. Anselm in fact established, aimed at the lower end. The whole purpose of the comparison was to demonstrate that the one was more profitable than the other, and that the measure of Mr. Anselm's loss under this head was the very substantial difference in profitability between the two.

35. It is true that, in paragraph D11, Mr McManus included a paragraph which explained that Mr. Anselm had opened his kitchen showroom at the premises about two months later than planned, but even this paragraph was aimed single-mindedly at showing what loss of profitability a delayed opening would have caused to a business and showroom aimed at the higher end of the market.
36. In his own witness statement, Mr. Anselm explained in detail how he had planned to operate at the top end of the market, and how the damp at the premises made it impracticable to install a high-quality showroom, due to the susceptibility of high-quality units to damage from damp, compared to the greater resistance to damp of cheaper chipboard units protected by epoxy resin. But the judge rejected his evidence that he had any such intention in 2003.
37. The result is that, although Mr. Glover laboured hard to persuade us that the judge's analysis of remoteness was wrong, by reference to the well-known leading authorities on the subject, nothing in this part of Mr. Anselm's appeal came anywhere near demonstrating that the judge was wrong to find that, in respect of this head of his claim, Mr. Anselm simply failed to establish causation. I would therefore dismiss his appeal under this third ground.

Lord Justice Pitchford

38. I agree.

Lord Justice Rimer

39. I also agree.