England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice, Strand, London WC2A 2LL
		8 February 2007

Introduction

1. In my original reserved judgment of 4 September 2006 reported at (2006) 41 EG 226 on the question of liability I found that the Defendants were liable to the Claimants for infringing a right to light to two windows which illuminate some stairs leading to the basement of the Claimant's building.
2. I declined to grant an injunction and left over the question of assessment of damages in lieu of an injunction. This is the reserved judgment relating to the assessment of damages in lieu of injunction.

Approach to damages in lieu of injunction

3. There is no dispute between the parties that the correct measure of damages is the greater of (a) damages for loss of amenity to the dominant owner, and (b) damages to compensate for loss of the ability to obtain an injunction.
4. There is no agreement as to the quantum of compensatory damages for loss of amenity in the present case, but I need not decide between the rival figures (£3,030 and £608.09) because, on any view, they are very small and bound to be no greater than damages for loss of the ability to prevent the infringement.

The right to light experts

5. Expert reports were put in in relation to the changes that needed to be made to the development if the right to light was not to be infringed. This was a step in trying to work out the value of the right to prevent the infringement.
6. At the end of the day, however, since both reports are plausible, there is no need in this context to decide between them and I was not pressed to do so. That is because the working out of the damages in respect of the loss of the right to prevent the infringement involves my finding the result of a hypothetical negotiation between the parties, normally as at the date of the breach: see Lunn Poly Ltd v Liverpool and Lancashire Properties Ltd [2006] EWCA Civ 430 (paragraph 17 and following) and, as part of that hypothetical negotiation, I am content to accept the position that each side would have produced arguments based on its own expert's opinion and that those two opinions would have differed to the extent that they do in the present case.
7. The valuation evidence, which I will return to below, paradoxically suggests that the Claimants' right to light expert evidence produces a worse result for the Claimants than the evidence of the Defendants' right to light expert. In reality, however, as long as both right to light expert opinions are reasonable, a hypothetical negotiation would not resolve the difference, but would probably split the difference in the valuations which were produced on the basis of these opinions, assuming that the valuations produced by them are not too far apart, as is the case here.
8. The right to light experts each suggest a very small figure for compensatory damages, namely £3,030 maximum (Claimants) and £608.09 (Defendants). In the present case, these cannot be greater than the damages in lieu of injunction, so it is not necessary for me to decide between these two figures.

Expert valuation evidence

9. The Claimants produced expert valuation evidence the night before the start of the assessment hearing and cross-examination of the expert valuer was put off until the second day of the assessment. However, the Defendants did not seek an adjournment or to put in their own valuation expert evidence.
10. I accept the evidence of Mr Jessop, the expert valuer, who appears to be well qualified and entirely credible in relation to the matters properly within his province, namely such matters as the likely building costs, the selling prices and the amount of profit to be made. The estimates of profits on the relevant part of the development were £163,000 on the Claimants' expert right to light evidence and £186,000 on that of the Defendants.
11. However, matters such as what percentage of the profit the hypothetical negotiation would actually arrive at and what is a reasonable share of the profit are a matter for me and not for the expert. I do not in the slightest blame Mr Jessop for expressing an opinion on these further matters in the present case, since he was expressly asked to do so by those instructing him and he genuinely thought that he was providing helpful material for the Court.

The case-law

12. Counsel informed me that the only reported High Court decision on the assessment of damages in a right to light case is Carr-Saunders v Dick McNeil Associates Limited [1986] 1 WLR 922, a decision of Millett J. (as he then was). At page 931, Millett J makes it clear that in the hypothetical negotiation, the person whose right to light was being infringed would not be satisfied with a modest sum for loss of amenity, but "would have a bargaining position". He held that the same approach ought to be adopted to the assessment of damages in lieu of injunction in the case of the right to light as was adopted in cases relating to damages for each of restrictive covenants and obstructions to a right of way. In relation to this point he cited the following two cases.
13. In Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, Brightman J. dealt with a claim for damages where the plaintiffs sought a "substantial proportion" of the development value of the land which was put at no less than £140,000. Brightman J. rejected this argument for two reasons. The first reason was that the covenant that was being breached had "no commercial or even nuisance value". The second reason was that the breach of covenant which had actually taken place was over a very small area and the impact of the breach on the land benefiting from the covenant was "insignificant".
14. The fact that Brightman J. took into the account the effect of the breach on the retained land shows that some account must be taken of the context and the effect of the breach on the land benefited by the right. However, at page 815, Brightman J., having stated the two reasons why he would not award a "substantial proportion" of the development value, went on to consider what part of the profit he should award. He makes it clear that the hypothetical negotiation includes a consideration of what profit the developer expected to make and "would then reasonably have required a certain percentage of that anticipated profit". Brightman J. considered that his task was to work out what would be a "fair percentage".
15. On the facts of that particular case he considered that the court should act with "great moderation". The facts in that particular case that influenced him were that the plaintiffs were aware that the land was being offered for sale for development and that they would not consent to any such development. Had the plaintiffs made their position clear prior to the purchase, it was "highly unlikely" that the developer would have paid what it did, at least unconditionally. In those particular circumstances, Brightman J. considered it fair to award 5% of the developer's anticipated profit.
16. There is no equivalent set of facts in the present case which would require the court "to act with great moderation". A figure of 5% would therefore be likely to be low in the present case.
17. The other case relied on by Millett J. was the easement case of Bracewell v Appleby [1975] 1 Ch. 408, a decision of Graham J. At page 420, Graham J. again focussed on a percentage of the profit being made. He held that the circumstances were very different from those in the Wrotham Park case and he attempted to arrive at a "fair figure" for the case before him.
18. For the purposes of the hypothetical negotiation, he arrived at a figure which would not be so high as to deter the defendant from building at all. In that case, the defendant was not a speculative builder and in fact wanted to live in the property himself. Graham J. said that he would be prepared to pay "what is relatively to his notional profit quite a large sum for the right of way in question and to achieve the building of his new home". Graham J. also referred to the fact that property values were rising. On those facts, he awarded the neighbouring five owners £400 each, making a total of £2,000, out of the "notional profit" overall of £5,000. The share of the profit was therefore 40%. Those special circumstances are not present in the case before me and I would regard 40% as likely to be too high in the present case.
19. In the Carr-Saunders case itself, at page 931, the hypothetical negotiation involved taking account of the bargaining position and the amount of profit. However in that case there is no evidence of the amount of profit that the defendants were expecting to make from their development. The evidence concerned general loss of amenity. At page 932, Millett J. appears to have taken £3,000 as the absolute minimum figure on the basis that that approximately represented the loss of amenity. He then awarded £8,000 without any detailed calculation.
20. The method used by Millett J. was to start with the loss of amenity and then build upwards, in effect guessing at the boost given to the claimant by his bargaining position in the absence of evidence relating to the profit being made from the development. In a case such as the present, where the amount of the likely profit has been the subject of expert evidence, the correct approach seems to be to start with the approximate figures suggested for loss of amenity as the context, but then to take sufficient account of the expert evidence relating to the value, in terms of a share of the potential profit, of the bargaining position.
21. Some further assistance in the process can be derived from Amec Developments Ltd v Jury's Hotel Management (UK) Ltd [2001] 1 EGLR 81, a decision of Mr Anthony Mann QC (as he then was). At page 87, he sets out a number of factors in the hypothetical negotiation. One factor is that one has to bear in mind the context and what figure the defendant would realistically pay to be able to carry out the development. Mr Mann QC finished his list of relevant factors (at page 87) as follows:-

"As important as any of the above factors is this. In any negotiation, science and rationality gets one only so far. At the end of the day, the deal has to feel right."

The relevant principles

22. I would deduce the following principles from these cases in relation to the assessment of damages for loss of the ability to prevent an infringement of a right to light at the point just before any infringement takes place:

(1) The overall principle is that the Court must attempt to find what would be a "fair" result of a hypothetical negotiation between the parties;

(2) The context, including the nature and seriousness of the breach, must be kept in mind;

(3) The right to prevent a development (or part) gives the owner of the right a significant bargaining position;

(4) The owner of the right with such a bargaining position will normally be expected to receive some part of the likely profit from the development (or relevant part);

(5) If there is no evidence of the likely size of the profit, the Court can do its best by awarding a suitable multiple of the damages for loss of amenity;

(6) If there is evidence of the likely size of the profit, the Court should normally award a sum which takes into account a fair percentage of the profit;

(7) The size of the award should not in any event be so large that the development (or relevant part) would not have taken place had such a sum been payable;

(8) After arriving at a figure which takes into consideration all the above and any other relevant factors, the Court needs to consider whether the "deal feels right".

The view of the expert valuer and the parties' contentions

23. The expert valuer, Mr. Jessop, suggested that in a negotiation between commercial parties, the Claimants would obtain 37.5% of the profit because that is the profit that the valuer considered the Defendants as developers were making on the relevant part of their development. Mr Jessop was not however suggesting that there is any market practice of 37.5% and therefore his view on this does not really assist. However, since the Claimants press the 37.5% figure, I will consider it in more detail.
24. I can understand that the Claimants might want to argue in a negotiation, if they were aware of the Defendants' profit margin, that they wanted the same percentage of the profit to release their right to prevent the infringement to their right. However, that is not the same as saying that that would be the end result of the negotiation. No doubt the Defendants for their part would argue that their percentage profit on the relevant part of the development had no necessary connection with the correct price to be paid for the release of the Claimants' right to light.
25. The percentage profit made by the Defendants appears to be, in any event, an arbitrary figure to take for this purpose. If, for example, developers were making a 100% profit on the relevant part of the development, it would be very strange for the party whose right was being infringed to obtain 100% of the profit as the price for the infringement, since that would make that part of the development unworthwhile for the developer.
26. Ms Harrison for the Defendants as her first submission invites me to assess damages merely at the same level as the damages for loss of amenity in view of the trivial nature of the infringement. This is a reference to paragraph 32 of my earlier judgment. However, the word "trivial" was used in that context to describe the real world situation where the staircase would probably be lit by artificial light at all times. As I pointed out in my judgment, I am required on the present state of the case-law to ignore that real world situation and look only at the natural light position, in which context I held that there was a "real injury" to the right to light. I cannot consistently with the case-law apply the natural light approach to liability but switch to the real world approach in order to assess damages.
27. Moreover, on the authorities I need to take sufficient account of the bargaining position by awarding some part of the likely profit.
28. Ms Harrison's alternative submission was to assess damages by taking, not a percentage of the profit made but an uplift from the damages for loss of amenity, as was done in the Carr-Saunders case above.
29. I cannot accept that approach either for the present case. As Mr Wonnacott for the Claimants points out, between commercial parties, the party whose light is being infringed will, if there is evidence of the likely profit, look for a percentage of the profit being made from the infringement. The loss of amenity may be minimal and yet the profit may be very substantial. The Claimants in such a situation, who are being compensated, not for the loss of amenity, but for the loss of the right to stop the infringement, are bound to focus mainly on achieving a percentage of the profit being made from the infringement of his rights. In the Carr-Saunders case there was no evidence as to the amount of the profit and therefore a percentage approach could not be applied.
30. Mr Wonnacott for his part asked me to ignore completely the limited nature of the loss of amenity on the basis that it is completely irrelevant to the hypothetical negotiation between the parties.
31. I cannot accept that submission. Although I fully accept that commercial parties will look mainly to a share of the profit, I do not accept that they would ignore the context in which the negotiation takes place. In a case such as the present they would take into account the limited nature of the infringement.

The hypothetical negotiation

32. Mr Wonnacott helpfully referred me to a couple of documents from the original trial which he submitted assist in what a fair approach might be to the hypothetical negotiation in this case.
33. The Defendants' then right to light expert, a Mr Ian Absolon, on the 26 February 2004, writing to J Carter Esq, the right to light expert of the Claimant's predecessors in title, appended a calculation of a potential buy-out of a right to light in which he assumed that the share of the profit paid in compensation would be one third. This was in relation to the building of an extra storey to the Defendants' building which it was agreed would undoubtedly infringe the Claimants' right to light.
34. The use of a third share perhaps illustrates expectations in a negotiation of this kind, and seems to accord with common sense, which requires the proposed share of profit not to be so high as to put the developer off the relevant part of the development. It must be remembered that if a developer agrees to pay a third of an expected development profit regardless of whether it is actually made or not, he is taking a risk and the other party is not. This helps to explain the reasonableness of the one third/two thirds split rather than say a 50/50 or 40/60 split in a commercial context. The one-third approach can also be derived by analogy from the approach of the Lands Tribunal in the compulsory purchase decision of Stokes v Cambridge Corporation (1961) 13 P& C R 77.
35. Secondly, a document of the Defendants in relation to the same proposal, indicated that the Claimant's predecessors in title were through their agent suggesting £100,000 as the price of releasing their right to light whereas the Defendant was suggesting that £20,000 was more "equitable". Mr. Wonnacott points out that £60,000 is the halfway point between the two figures.
36. However, I do not think I can simply adopt these figures as the likely negotiating positions in this case, or assume that they would reach the exact half way point. There are some potentially significant differences between that proposal and the actual infringement that I have found. In particular, whilst Mr Wonnacott suggests that the area proposed to be added was not very different from the area which might have to be deducted on the basis of the infringement that I have found, there is a significant difference in my judgment between a proposal to build an extra storey and a situation where a part of the existing plan creates an infringement of a relatively minor nature. I do therefore not think that I can gain any safe guidance from the rival figures mentioned in this document. Moreover, the Defendant did not in fact agree to negotiate on the basis that the other party had a sensible negotiating position at £100,000.

Conclusion

37. I consider that the parties as hypothetical reasonable commercial people would take the half-way point between the two figures given by the expert valuer for loss based on the rival right to light expert reports, namely £174,500. They would then agree prima facie at a one-third split of that profit at £58,166 (ignoring the pence). However, taking into account the context of the relatively modest nature of the infringement of the right in the present case and the need not to have a sum which would put the Defendants off the relevant part of the development in that context, they would reduce that calculation to £50,000 as a "fair" result.
38. I then ask myself the question: "Does the deal feel right?". It is very substantially more than any sum available for the loss of amenity, but in terms of the price of avoiding an injunction for infringing the Claimant's rights it does feel "right". I would add that a figure above £50,000 in this case would not feel right to me, even if justifiable by the criteria set out above.

This is the official judgment of the court and I direct that no further note or transcript be made.

(signed) …………………………… 8 Feb 2007

Mr. G.Moss QC, sitting as a deputy judge of the High Court