England and Wales High Court (Technology and Construction Court) Decisions

In the High Court of Justice
Official Referees' Business

		12 August 1998

Measure of damages for breach of landlord's covenant to use reasonable endeavours to supply services by way of lifts and air conditioning. Whether diminution of rental value recoverable. Whether valuation evidence admissible.

The text of the judgment approved by His Honour Judge John Hicks QC is as follows:

Introduction

1. On a no doubt valuable site in Soho, comprising seven floors of 66 to 70 Broadwick Street and 10 to 16 Carnaby Street, there are substantial commercial premises known as National Magazine House. They are occupied for the purposes of its business by the eponymous Defendant company as lessee under an Underlease from the Plaintiff, Electricity Supply Nominees Ltd. The term is one of 25 years from 18 September 1978. The rent is subject to review every five years on the basis of a letting in the open market. There are lifts and an air conditioning installation, and this litigation centres for present purposes on the quality of the service provided by those two systems. (It also includes a dispute concerning the fire alarm system, but that does not impinge upon the issues which I have to consider at this stage and accordingly I need not mention it further.)
2. By clause 3(2)(a)(v) of the Underlease the Defendant covenanted to pay by way of service charges a percentage of the expense incurred by the Plaintiff in supplying the services specified in the Sixth Schedule, which were lift services, and the whole of that incurred in supplying those specified in the Seventh Schedule, which included air conditioning. By clause 4(2) the Plaintiff covenanted, with qualifications not material to the issues before me, to "use its reasonable endeavours ... to provide and carry out or procure the provision or carrying out as economically as may be reasonably practicable ... of the ... services ... specified in the ... Sixth and Seventh Schedules hereto".
3. The Plaintiff sues the Defendant for breach of covenant in failing to pay sums due by way of service charge. The Defendant counterclaims for damages for breach of clause 4(2) in relation to the provision of lift and air conditioning services. The nature of its case is that there was an excessive rate of breakdowns and occasions of defective operation of the lifts and that the environmental conditions in the building have for extensive periods been outside the limits which should have been provided by the air conditioning system.
4. The Third Parties have been joined by the Plaintiff as parties to that counterclaim on the basis of their alleged obligations under contracts relating to the premises, as to the First Third Party to operate and maintain (inter alia) the air conditioning system from 1978 to 1993, as to the Second Third Party to maintain the lifts from 1979 and as to the Third Third Party to manage and supervise these and other properties from 1983.
5. The material parts of the plea of loss and damage arising from the alleged breaches in relation to the lifts, as re-amended, are as follows:

30. ... the Defendant has suffered loss and damage in that the demised premises have been rendered materially less valuable to the Defendant. In particular, the demised premises have been rendered materially less suitable for occupation by the Defendant ... .

31. The Defendant contends that the loss of the value to it of the demised premises, as pleaded in paragraph 30 above ... ought to be measured by reference to the difference between (i) the rent paid by the Defendant for the demised premises and (ii) the rental value of the demised premises in their actual (and defective) state and condition. ... .

6. The plea of loss and damage arising from the alleged breaches in relation to the air conditioning system, as set out in paragraphs 47, 47A and 48, differs in some detailed respects, but I need not set it out here because essentially the same issues arise for present purposes on both pleas.
7. As will appear more fully below, the issues before me concern the propriety of that measure of damages. In the case of both the lifts and the air conditioning system the Defendant also pleads that no service charge, or a reduced charge only, was exigible by reason of the allegedly defective service provided. That claim is not directly in issue at this stage, but its existence should not be forgotten in considering what is the proper measure of damages.

The issues

8. By paragraph 5 of my order of 7 May 1998 it was directed that there be a trial of the issue whether, assuming the truth of the facts alleged by the Defendant, damages are recoverable on the basis alleged in paragraphs 31 and 48 of the [re-amended] Defence and Counterclaim. That trial took place before me on 13 and 14 July 1998 and I reserved judgment.
9. That issue arises directly between the Defendant and the Plaintiff alone, but since the Plaintiff seeks to recover from the Third Parties any damages which it may be ordered to pay to the Defendant the Third Parties attended the trial and added their submissions, those submissions not surprisingly being generally in support of the Plaintiff's position.
10. Although the issue to be determined was formally defined as set out in paragraph 8 above it appeared in the course of argument that on the one hand wider or ancillary questions were being raised, while on the other hand the distance between the positions of the parties might not be as great as appeared at first sight. In the former category were discussions of general principle as to the measure of recoverable damage, particular heads of damage advanced by the Plaintiff or Third Parties as recoverable in place of that claimed by the Defendant and the admissibility of expert valuation evidence. In the latter was the fact that Mr Morgan, for the Plaintiff, seemed to accept at one stage that a percentage of rental value might be a legitimate method of arriving at general damages in a case of this kind, prompting me to enquire whether anything was left between him and Mr Berry, for the Defendant, except the expert evidence point.
11. In the end, however, it was apparent that matters were not quite as simple as that, and I hope it will make for clarity if I approach under the following headings and in the following order the questions which emerged:

General principles

Features specific to this case

Possible measures of damage

Expert evidence

Scope of judgment.

General principles

12. It is not in dispute as I understand it, and certainly should not be, that the starting point must be the words of Baron Parke in Robinson v Harman (1848) 1 Exch 850 at page 855:

The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same position with respect to damages, as if the contract had been performed.

13. Moving from that most general of statements to the more specific, but still wide, field of landlord's obligations, I come next to Hewitt v Rowlands (1924) 93 LJKB 1080. There the landlord had covenanted to keep a cottage dry and the outside in repair. The contractual tenancy had been terminated but the tenant remained in possession as a statutory tenant under the Rent Acts. The cottage was damp and in disrepair. The tenant obtained judgment for damages to be assessed but the District Registrar had taken the view that since he was a statutory tenant he was entitled only to expenses actually incurred in doing the repairs which the landlord ought to have done. The Divisional Court held that he was wrong, as did the Court of Appeal, which remitted the case to him for reconsideration, with directions as to the way in which he ought to proceed. As to that Bankes, LJ, with whom Atkin and Scrutton LJJ agreed, said:

Prima facie the measure of damage for breach of the obligation to repair is the difference in value to the tenant during [the relevant] period between the house in the condition in which it now is and the condition in which it would be if the landlord ... had fulfilled his obligation to repair. (Page 1082)

14. Since the Plaintiff and Third Parties were concerned to diminish the relevance and importance of Hewitt v Rowlands, if not to brush it aside altogether, I should explain my own understanding of its bearing on the issues before me. In the first place, and most simply and obviously, it is binding on me. Secondly, apart from its formal standing as a precedent, the participation of Atkin and Scrutton LLJ entitles it to command the highest respect. Thirdly, since the Court of Appeal was not itself assessing damages or confirming or varying the amount of an assessment, but rather giving directions as to the basis on which it should be conducted, its judgment is necessarily concerned with principle and measure rather than simply with permissible modes of quantification. Fourthly, since it has never been disapproved or overruled by a court competent to do so and is as binding on the Court of Appeal itself as on courts of first instance, I should so far as possible interpret subsequent references consistently with it, and if and in so far as any may be irreconcilable disregard them. Fifthly, the above citation, itself governed by the words "prima facie", must be set in the context of the facts then before the court, including the facts that the tenant was in actual occupation throughout the relevant period, that the consequences of the breaches were of a continuing nature affecting the benefit of that occupation to him, and that he had carried out no repairs and had no obligation to carry them out (whether in the strict sense or by reason by what is loosely called the "duty" to mitigate), nor any intention of doing so. Sixthly, there is nothing in it pointing to any particular method of quantifying the "difference in value" referred to, still less imposing any single or universal one.
15. I was referred to a number of other authorities, which so far as of general interest I approach in the light of the above considerations, but any examination of their facts or citation from judgments is best conducted at appropriate points in my treatment of the features specific to this case below. Like Hewitt v Rowlands they for the most part concern repairing obligations rather than covenants of the kind before me; it was no part of the case of the Plaintiff or Third Parties that that distinction of itself deprived the repairing cases of value, indeed they relied on several of them, and they are not therefore in a position to discount Hewitt v Rowlands on that ground. I agree, although I must in due course consider how the terms of the covenant here affect the direct applicability of formulations addressed to other circumstances.

Features specific to this case

16. In this section I am concerned not with such highly general characteristics as the fact that this is a landlord and tenant case, which have been allowed for above, nor at the other extreme with the detail which will have to be taken into account if damages fall to be quantified, but with an intermediate category of features which may provide clues to ways in which the principles can be systematically worked out in a variety of concrete situations, in particular that which obtains here.
17. The features of that kind which I propose to consider are the following:

The presence - as here - or absence of occupation by the tenant

The prospects or otherwise - here none is suggested - of disposal of the term

The remediability - as here - or otherwise of the alleged breaches

The characteristics of the tenant - here a limited company

The use made of the premises - here the carrying on of the tenant's business

The nature of the landlord's obligation - here that set out in paragraph 2 above

The incidence of the alleged breaches - here a matter of some complexity better left to discussion than inadequately summarised.

18. I need say little about the fact that the Defendant is in occupation, since that was also the situation in Hewitt v Rowlands and most, if not all, of the other cases cited to me and may, in that sense, be regarded as the norm. Clearly the position of a tenant who has sub-let or wishes to do so will be affected by the fact or prospect of claims by sub-tenants or by depression of obtainable rents, but that is not this case, although I see no difficulty in principle in regarding consequences of that kind as quantifying the "difference in value" to such a tenant of the tenancy. As to the position of a tenant who leaves the premises vacant, Mr Morgan submitted that on the Defendant's formulation the damages would be the same and that that must be wrong, since in truth such a tenant has suffered no loss. Mr Pymont, for the Second Third Party, carried that argument further by submitting that the damages recoverable should be diminished to the extent to which the tenant does not take full advantage of the facilities of the premises. Neither of those objections impresses me. I do not understand Mr Berry to contend that his formulation would be appropriate if premises were vacant, and I certainly have no need to decide and no intention of deciding what the position would be in that event. It is of course a material consideration in assessing the arguments for and against a proposed rule to ask whether it can be made fair or workable only by the imposition of apparently arbitrary limitations or exceptions, but there would be nothing surprising or arbitrary about treating vacancy as a special case, if (which I repeat I do not decide) that were judged right. As to under-use or lack of need, again that is not suggested here and I do not have to deal with it or propose to do so; the authorities on such situations are confined to residential occupation and difficult to reconcile, Taylor v Knowsley Borough Council (1985) 17 HLR 376 (which was cited to me) being one way and McCoy v Clark (1982) 13 HLR 89 (which was not) apparently the other.
19. I can be even briefer about the fact that the Defendant has no apparent intention of disposing of the term. Again, that is the situation treated as normal in all the other cases cited to me. If a term with a capital value is disposed of or held for the purposes of disposal the "difference in value" to the tenant resulting from the landlord's breach may well be measured by the realised or prospective reduction in proceeds caused by that breach, but the fact that that is not a suitable measure here does not require the abandonment of difference in value altogether or entail that there is no measure of it appropriate to the present circumstances.
20. Similar considerations apply to the fact that the breaches here are remediable. That is the usual situation; where it does not obtain the loss to the tenant will extend for the full term and that may be an alternative reason to that discussed in the last paragraph for looking to diminution in capital value as a measure of damages, but where the breach is remediable and there is no actual or prospective disposal the loss is temporary and requires to be quantified on that basis.
21. I bear in mind the significance of all these three features in considering passages from the judgments of Stephenson and Griffiths LJJ in Calabar Properties Ltd v Stitcher [1984] 1 WLR 287 pressed upon me by counsel for the Plaintiff and the Third Parties. That was a case of disrepair of a flat held on a long lease at a ground rent. It had a number of curious features. The trial judge had awarded as general damages a sum for "disappointment, discomfort, loss of enjoyment and bouts of ill-health" during five years' occupation and, "as the diminution in the value of the flat" the cost of internal repair and decoration carried out by the tenant (not the cost of making good the external disrepair constituting the landlord's breach, which was dealt with by an order for specific performance), less an allowance for betterment. There was no claim for the cost of the alternative accommodation to which the defendant lessee and her husband had moved when the flat became uninhabitable, but the judge in effect considered and rejected such a head of damages as his reason for refusing to award what he regarded as a "comparable" claim for the rates, rent and running costs of the flat while it was uninhabitable. He also rejected as a head of damages a claim for loss of use during the same period based on capital or rack rental value. The Court of Appeal dismissed an appeal against the rejection of those two heads of damage and affirmed the judge's award, albeit expressing the view (i) that the cost of the alternative accommodation would have been recoverable, if claimed, and (ii) that the deduction of the allowance for betterment (which was not appealed) was wrong.
22. The lessee's loss in Calabar Properties clearly fell into two parts requiring separate treatment: that when she remained in possession and that when the flat became uninhabitable and she moved out. As to the former the trial judge's undisturbed award seems, apart from the deduction for betterment, to have been orthodox in its result, although oddly expressed. The cost of repairs and decoration actually paid for by the lessee was in truth a straightforward head of special damage. A general award for "discomfort and inconvenience", or equivalent expressions, is a common and accepted way of quantifying the diminution in value to a residential tenant who remains in occupation, as will be seen later. The oddities lay in classifying the special damages as compensation (and ostensibly the only compensation) for that diminution and in not making clear when dealing with them on that basis the distinction between the periods in and out of occupation.
23. For the period of greatest loss, indeed, when the flat was uninhabitable, the lessee effectively recovered nothing, and reasoning which leads to such a result demands careful scrutiny. In principle there is no apparent difficulty; the lessee had plainly lost, during that period, the whole of the value to her of her occupancy rights under the lease. Three ways of quantifying that loss were canvassed: (i) the continuing expense for which no consideration was being given, (ii) assessment by reference to capital or rack rental values, and (iii) the cost of alternative accommodation. The trial judge rejected all three - (ii) as being too remote and (i) as being a surrogate for the unpleaded (iii), which he held himself bound to exclude on authority. The Court of Appeal considered (iii) to be appropriate, overruling or distinguishing the case by which the judge thought himself bound, but was not prepared to allow it to be claimed for the first time at that late stage. It dismissed (i) in the most cursory terms as an illegitimate alternative to (iii), and that is best considered later. It is the passages relating to (ii) on which the Plaintiff and Third Parties chiefly rely.
24. Stephenson LJ, in answer to the lessee's submission on (ii), first upheld an objection that it involved "using [the lessee's valuer's] undisclosed report and his evidence as a basis for assessing damage [without] giving [the plaintiff lessors' counsel] the opportunity of calling evidence on valuation" (page 293C). He considered that objection to be itself fatal (page 293D), but continued (the emphases are mine, for convenience of later reference):

The second objection is that to submit that what the defendant has lost by the plaintiffs' breach of covenant is the consequent diminution in the value of the flat as a marketable asset is to ask the court to take a wholly unreal view of the facts. The reality of the defendant's loss is the temporary loss of a home ...

If she had bought the lease as a speculation intending to assign it, to the knowledge of the plaintiffs, the alleged diminution in rental (or capital) value might be the true measure of her damage. But she did not; she bought it for a home, not a saleable asset, and it would be deplorable if the court were bound to leave the real world for the complicated underworld of expert evidence on comparable properties and values, on the fictitious assumption that what the flat would have fetched had anything to do with its value to her or her husband. I do not think we are bound by Hewitt v Rowlands ... or any other decision to do something so absurd, and [this] second objection must, in my opinion, rule out any damages for difference of rental value.

[After considering Hewitt v Rowlands] ... In my judgment, there is nothing in that case which supports [the lessee's counsel's] claim to any such additional sum as he claims for diminution in value to the tenant or which would disable the judge from measuring that diminution ... by the amounts he has awarded as general and special damages - and by the reasonably incurred costs of alternative accommodation ... . (pages 293D, F, 295E)

25. The "first objection" was of course specific to the procedural history of the action and presents no general problem, but I confess to finding some difficulty in the reasons for accepting the second unless, as is not ascertainable from the report, they were addressed to the particular way in which the lessee's submissions were formulated. (I have particularly in mind the references to "capital values". One might have supposed that they must have been introduced only to be annualised, on the basis that no-one could seriously have suggested the capital value itself as the measure of a temporary loss, but a number of references in the judgments put that in doubt.) Thus, unless the contrary was conceded, it is not clear why the concept of quantifying the value to a lessee of quiet enjoyment (with all the attendant amenities and standards of comfort to which she was contractually entitled) in terms of a weekly, monthly or annual sum of money to which rack rental values would be at least a guide, should be treated as equating the premises exclusively with "marketable assets". In an open market rack rents are evidence not only of the return available to investors but also of the value which prospective tenants attach to that enjoyment. Nor, absent some argument which advanced or at least accepted the validity of the assumed dichotomy, do I understand why a long leasehold residence cannot be both "a home [and] a saleable asset"; unless owner-occupiers regarded such properties in both lights they could never contemplate moving. Saleability is not of importance only to those who buy "as a speculation". Moreover the reference to saleability and the treatment of "rental (or capital)" values as equivalent read as if the lessee was asking for loss of capital value as such (which would obviously be wrong for temporary breaches), rather than using it to derive an annualised equivalent (which would not be open to that objection). Finally, this claim was of course "additional" to those for the period during which the lessee was in occupation, and rightly so; it was not, or should not have been, additional to alternative ways of quantifying the loss for the period of uninhabitability, and only one such way need have been adopted. The question was not whether the judge was "disabled" from awarding the cost of alternative accommodation (as, ironically, he had just been held to be on the pleadings) but whether he and the Court of Appeal were disabled from holding the annual value of the subject premises to be at least a permissible alternative, if not the primary measure.
26. The chief concern of Griffiths LJ, who agreed with the reasons given by Stephenson LJ, was to dispel "the widely held belief that ... damages ... for breach of a landlord's repairing covenant ... must always be assessed by reference to the diminution in the open market value of the premises and ... can never include the cost of alternative accommodation whilst the repairs are being carried out" (page 297E). That concern, however, as so expressed, is very far from justifying the reverse proposition that the former mode of assessment is never permissible. In the later passages in which Griffiths LJ does reject "market value" he seems clearly to be referring to capital sums, not weekly, monthly or annual figures:

If however the defendant did not wish to sell the flat but to continue to live in it after the plaintiffs carried out the necessary structural repairs it was wholly artificial to award her damages on the basis of loss in market value, because once the plaintiffs had carried out the repairs and any consequential redecoration of the interior was completed there would be no loss in market value. (page 298A)

[After referring to Hewitt v Rowlands] Whatever Bankes LJ meant by "the difference in value to the tenant" the one thing he cannot have meant in the circumstances of that case was the diminution in the market value of the tenancy, for it was a statutory tenancy which the tenant could not sell, and thus it had no market value. (Page 299C)

May LJ simply agreed with both judgments.

27. I do not regard the Calabar Properties case as compelling me to depart from what seem to me to be clear principles. It does not purport to overrule Hewitt v Rowlands, and could not have done so. The passages relied upon were dealing with the situation of a residential tenant forced out of occupation by the uninhabitability of her home, which is not the case before me, and there are several indications in both of the reasoned judgments that what the Lords Justices believed themselves to be dealing with and rejecting was a claim to reduction in capital value for temporary loss of occupation pending the making good of a remediable breach. As will be seen, and as Mr Morgan conceded, there is ample precedent for the use of a proportion of rack rental value as a permissible means of quantifying the damage suffered by an occupying tenant of premises in disrepair.
28. I take the next two features - the facts that the tenant is a trading company and that it uses the premises for business purposes - together, since although they are in theory distinct it would entail either pointless repetition or artificial distinctions to treat them separately on the facts of this case. In contrast to the features considered earlier these are not ones shared with many of the reported cases, nearly all of which were concerned with individuals in residential accommodation. There are two principal aspects of the distinction to be considered. The first is that a company is not capable of suffering personal discomfort or distress. The second is that a commercial tenant may suffer loss of profits.
29. The Plaintiff and Third Parties invite me, in effect, to ignore the first aspect and to rule that damages here must be assessed in the same way as if the Defendant were a residential tenant, and specifically by the award of a lump sum for "inconvenience" or the like, not further analysed or explained. That is put in two ways. The first is that common expressions such as "discomfort and distress" can be generalised, for application to companies, by omitting words with anthropological connotations and confining oneself to such terms as "inconvenience" and "disruption". The second is that a company tenant can recover directly for the personal discomfort and distress of its staff and customers.
30. Taking the second suggestion first, it is not in dispute that the general rule is that a claimant can recover only for his own loss. There are some exceptions, and Mr Lewison prayed in aid the analogy of the "spoilt holiday" cases, but I see no reason why there should be any such exception for a tenant's staff and customers. Even if there were, it would be of no assistance to the Plaintiff or Third Parties unless the rule went further and not merely allowed such a head of damages but excluded all others. I am clear that there is no such rule. No claim of the kind is at present pleaded, and this suggestion was principally advanced by the First Third Party; the Plaintiff is not, as I understand it, in any way committed to consenting to an amendment by the Defendant taking that suggestion up, and were leave for such an amendment to be sought I should be surprised if it were not vigorously resisted as raising an unsustainable claim.
31. The first suggestion proves either too little or too much. If inconvenience and disruption are to be understood so widely as to comprehend anything which diminishes the value to the tenant of its occupation of the premises under the lease then the proposition that they define the tenant's damage is true but vacuous, and in particular gives no guidance as to how that damage is to be quantified. If, on the other hand, inconvenience and disruption are to be understood in some limited sense, confined to consequences closely akin to a residential tenant's personal distress and discomfort, then three other objections arise. The first is that there is no intelligible way of defining limits of that kind in relation to a corporate entity. The second is that to use a phrase like "discomfort and distress" as a convenient way of describing how the diminution in value of a residential tenancy primarily manifests itself does not displace the more general principle, even in residential cases, still less provide any reason for imposing any such limitation elsewhere. The third is, again, that even in residential cases where this terminology has been used that has not been found inconsistent with the widespread adoption of a proportion of rental value as a measure of damages.
32. I therefore consider that the submissions described in paragraph 29 above are to be rejected if approached as a question of principle. Is there any authority which compels a different conclusion? The Plaintiff and Third Parties relied chiefly on two cases. One is Wallace v Manchester City Council (Court of Appeal transcript, 7 July 1998). It concerned breaches of repairing covenants by the local authority landlord of a house let to a secure weekly tenant. The County Court Judge had awarded £3,500 damages for "distress, inconvenience and disruption", declining to make a separate and additional award for "diminution in the value of the tenancy ... in relation to the rent paid". The Court of Appeal dismissed the tenant's appeal. Morritt LJ, with whom Kennedy LJ agreed, after reviewing the authorities, said:

23. I have dealt at length with the cases ... because of the importance of the point raised on this appeal to District and County Court Judges throughout England and Wales. I can express my conclusions more shortly in the form of a series of propositions. First, the question in all cases of damages for breach of an obligation to repair is what sum will, so far as money can, place the tenant in the position he would have been in if the obligation to repair had been duly performed by the landlord. Second, the answer to that question inevitably involves a comparison of the property as it was for the period when the landlord was in breach of his obligation with what it would have been if the obligation had been performed. Third, for periods when the tenant remained in occupation of the property ... the loss to him requiring compensation is the loss of comfort and convenience which results from living in a property which was not in the state of repair it ought to have been in ... . [The fourth proposition concerns tenants not remaining in occupation.]

24. .... This case is concerned with the proper application of the third proposition ... . Thus the question to be answered is what sum is required to compensate the tenant for [her] distress and inconvenience ... . Such sum may be ascertained in a number of different ways, including but not limited to a notional reduction in the rent. Some judges may prefer to use that method alone ..., some may prefer a global award for discomfort and inconvenience ... and others may prefer a mixture of the two ... . But, in my judgment, they are not bound to assess damages separately under heads of both diminution in value and discomfort because in cases within the third proposition those heads are alternative ways of expressing the same concept.

25. ... a judge who seeks to assess the monetary compensation to be awarded for discomfort on a global basis would be well advised to cross-check his prospective award by reference to the rent payable for the period ... .

33. So far from discrediting my own conclusions Wallace, in my understanding, supports them. In the first place it was a typical county court residential case, and the reference to "District and County Court Judges" reinforces the conclusion that Morritt LJ's propositions must be understood in that context. Thus, while the first is completely general and the second applicable to all breaches of repairing covenants the third is plainly specific to residential tenancies. Secondly, even in the residential sphere, the legitimacy of assessing damages by reference to a "notional reduction in rent" is recognised (I shall return to the significance of the word "notional"). Thirdly, it is clear that the acceptance of discomfort and the like as appropriate descriptions of the tenant's loss in residential cases is founded on their being equivalent in that context to diminution of value - "alternative ways of expressing the same concept". Fourthly global sums are not at large; they should be "cross-checked" against rental values.
34. The second case is Credit Suisse v Beegas Nominees Ltd [1994] 4 All ER 803. That involved, exceptionally, a non-residential letting, the tenant being a bank. The landlord was alleged to be in breach of a covenant to repair the structure, including walls. Most of the substantial judgment is concerned with issues of liability, both as to the construction of the repairing covenant and as to the physical condition of the premises, but having found breaches resulting in water penetration Lindsay J turned to the assessment of damages under three heads, the only one relevant to the issues before me being that described by him as "general damages for inconvenience", as to which he said:

As to this, the plaintiff points to the inconvenience suffered by customers and, more particularly, by staff of the bank. [He assessed the period at nearly two years.] Mr Gaunt, for the plaintiff, seeks to use the landlord's own expert's views as a guide, that expert ... having suggested that the premises were halved in rental value by reason of their state or, upon some assumptions little related to reality, that the premises were reduced by some 20% in rental value. Mr Gaunt modestly claimed only the lesser basis of 20%. However his modesty, I apprehend, was not true modesty but was arrived at from an awareness that the drop of 50% in value would produce a figure that would seem to be hopelessly high for general damages of the kind in question. In my judgment, the 20% basis is also unacceptable; I am unconvinced one can evaluate inconvenience to a tenant in occupation by reference simply to the diminution in prospective letting value to some hypothetical other tenant. General damages are notoriously at large but, doing the best I can to have regard to the inconvenience suffered by staff and customers in these expensive and prestigious premises over the period I have described, I fix general damages at £40,000. (Page 827j)

The reference to "the landlord's own expert's views" seems to have been to a report in proceedings by the landlord against other parties in which the landlord was concerned to maximise the damage caused by the disrepair. The inference is that there was no valuation evidence called on either side in the action before Lindsay J and open to cross-examination.

35. Regretfully, I do not find the Credit Suisse case of great assistance - largely, I think, because of the way in which the point seems to have arisen and been dealt with, evidentially and in argument, as a small element in a long trial. The references to the inconvenience suffered by customers and staff, which seem to have originated in the way the plaintiff put its case, are too brief and general to show how and on what basis that element affected the outcome and little weight, if any, was placed upon them in support of the arguments for the Third Parties canvassed in paragraph 30 above. In the absence of any direct or credible valuation evidence Lindsay J had little or no alternative to arriving at a global sum, "doing the best I can", as he put it. It appears, in fact, to have equated to 10% of the rent at the level which prevailed for most of the relevant period, although there was a rent increase towards the end of that period which if taken into account would somewhat reduce the overall percentage. For reasons similar to those informing my comments on the Calabar Properties case I am, with respect, not clear why valuation evidence is to be understood as concerning only "some hypothetical other tenant".
36. I conclude that there is nothing in the authorities to require that in the case of a letting to a trading company damages for breach of a landlord's covenant to repair must take the form of an unexplained global sum for inconvenience and disruption, or otherwise to displace my conclusion in paragraph 32 above that the submissions described in paragraph 29 should be rejected.
37. The second aspect to be considered of the feature that this was a letting to a trading company (see paragraph 28 above) is that such a tenant may suffer a loss of profits in consequence of landlord's breaches of covenant. In contrast to its approach to the first aspect the Plaintiff, at least, treated this as a material distinction between this and a residential letting, in the sense that Mr Morgan included loss of profits as one of his list of recoverable heads of damage. It will be best to defer dealing with that suggestion until I reach the section of this judgment entitled "Possible measures of damage".
38. The next feature specific to this case is the nature of the landlord's obligation. The terms of that obligation have been set out in paragraph 2 above. Valuable as authorities on breach of repairing covenants are in some respects it is clear that there are crucial differences between an obligation to repair or maintain and that with which I am concerned. Every breakdown is a breach of an unqualified obligation to maintain a system in working order, as every item in a fair and accurate schedule of dilapidations records a breach of a covenant to keep in good repair. That cannot be said of the Plaintiff's obligation here; indeed it is almost, if not completely, accurate to reverse the proposition and say that no one breakdown or fault in the lift or air conditioning systems is of itself proof, or even evidence, of breach. I can conceive of two ways in which a claimant might engage to establish breach of an obligation of this kind. The first would be to adduce direct evidence of the "endeavours", or lack of endeavours, used by the covenantor, to show that they were inadequate or absent. That does not seem to be contemplated by the Defendant here, although the Plaintiff may well wish to adduce evidence of its endeavours in order to persuade the court that they were reasonable. The other possible approach by a claimant, and the one adumbrated by the Defendant's pleadings as now amended, is to seek to show that the overall level of faults and breakdowns is above, and the resultant level of service below, any state of affairs consistent with performance of the obligation. It is inherent in both approaches that individual faults or breakdowns, and their consequences, are relevant as part of a statistical whole rather than for their own sake.
39. These truths, as I believe them to be, have implications for the way in which damages fall to be established and assessed. In particular they invalidate some of the arguments advanced to attack a valuation approach or to propound alternatives. Thus Mr Pymont, in his written submissions for the Second Third Party, objected to any attempt to assess damages without "material to show the precise effect of the breaches on [the Defendant] and its enjoyment of the premises". That is no doubt literally true, if "breaches" is understood in the sense explained in paragraph 38 above. But, as the word "precise" rather suggests, and as the oral submissions along this line developed on behalf of several of the parties made explicit, "breaches" was in fact being elided with "breakdowns" or "faults" to support a fallacious argument that the only damage recoverable was that for specific loss or expense traced to specific events (although presumably only in some instances, since there was of course no abandonment of the contention that the obligation was less onerous than a strict one to maintain). The same comments apply to Mr Hamilton's written submission for the Third Third Party that the proper method of assessment is to "quantify the effect of proven breaches of covenant on the Defendant's occupation by reference to factual evidence of that effect".
40. Closely linked with that feature, and to some extent anticipated in my discussion of it, is the last on my list - the incidence of the alleged breaches. Although a covenant to use best, or reasonable endeavours to achieve a result is different in kind from a covenant to achieve that result it is possible to imagine circumstances in which the issue, in either event, is whether an isolated disaster amounts to breach. Thus a lease of premises below the flood level of nearby water might contain a landlord's covenant to prevent flooding or one to use best or reasonable endeavours to do so. If there is a flood and the premises' defences are inadequate that is either a breach or not; the standard to be applied in determining that question will vary with the terms of the covenant but the answer must be either yes or no, and if it is yes the damages recoverable will be the same, and assessed in the same way, whatever the obligation. The present facts are, however, at or near the other end of the spectrum of possibilities. It seems self-evident, and is indeed the Plaintiff's own case, that up to a certain level faults or breakdowns in the lift and air conditioning systems would be perfectly consistent with reasonable endeavours on its part. It is the overall volume, and perhaps also the pattern, of faults and breakdowns which is alleged by the Defendant to constitute the breaches, and if breach is established on that basis the method of assessing damages must be one which enables the consequences of that state of affairs to be compared with one consistent with at least minimal acceptable performance.

Possible measures of damage

41. The issue, as directed, is strictly whether damages are recoverable on the basis at present pleaded. I must return, in the section on "Scope of judgment", to the question how far that limits any formal answer or declaration, but I should certainly canvass the possibilities more widely in giving my reasons for any conclusion which I may reach.
42. Mr Berry apprehended that there were certain deficiencies in his pleaded formulation in (e.g.) paragraph 31 of the Counterclaim, as quoted in paragraph 5 above, and produced an alternative form on which, as I understand it, he invited me to rule, although there was no application for leave to amend. It is in the following terms (as slightly adapted by me to fit into its place in the pleading):

31. ... difference between:

(i) what the Defendant agreed to pay by way of rent (whether original or reviewed); and

(ii) what would have been agreed to be paid by way of rent in respect of the same lease (whether original or reviewed, depending on the period of breach in question) had the relevant obligations in respect of lifts and air conditioning been known to be such that due performance of them would have produced such level of service as is found to have been provided (to the extent that such was in breach of covenant).

For these purposes, the starting point is that (i), having been agreed in open market, is the market rate and not some excessive rate.

43. The use of rent in this context is attacked root and branch by the Plaintiff and Third Parties. In order to assess the validity of that attack it is necessary in the first place to distinguish between rent as such and rent as a measure of value. From the point of view of the tenant the benefit contracted for is possession of the premises and enjoyment of all the amenities which accompany possession and are secured by the landlord's covenants. It is that benefit which is diminished by breach and requires to be restored by damages. The rent is not that benefit but the "price" or consideration (or part of the consideration, if there is a premium) paid for it. Reduction of rent is therefore not damages for breach but a different form of relief, namely abatement of price. Whether the remedy of abatement is ever available to a tenant is not a question which I have to answer, because no such remedy is claimed here and Mr Berry, despite some apparent flirtation with the notion in his written submissions, expressly disavows any intention of claiming it. Nor, in my view rightly, does he now contend that a reduction in rent can as such be the appropriate measure of damages. It is on the basis that the Court of Appeal's dismissal of what I have called method (i) in my account of the Calabar properties case in paragraph 23 above rests on the rejection of that measure that its decision in that respect can, I think, best be understood (see the report at page 291G). So far as the Plaintiff and Third Parties are making any of those points, therefore, they are pushing at an open door.
44. If that were all there was to be said, however, it would leave unexplained the fact, already mentioned, that damages for breach of landlords' covenants to repair small residential properties are commonly arrived at by taking a proportion of the rental value. I need not cite authorities; it is sufficient to refer to my own experience in the County Court, to the reported cases referred to with approval in Wallace (see paragraph 32 above) and to collected notes in such publications as the Legal Action Group's Law and Practice. The explanation, as already suggested in paragraph 25 above, is quite simply that in a free market the considerations moving in each direction can be taken to be accorded comparable values by the contracting parties - "comparable" rather than exactly equivalent because if the parties are on an equal footing and both are satisfied with the bargain each values what he receives rather more highly than what he gives. Hence rack rents are some evidence, and often sufficiently good evidence, of the value of fully enjoyed occupation to tenants, in which case consideration of diminution of that value can properly start from there and may often helpfully be approached in terms of its proportional reduction. That is also, as I understand it, the sense in which Morritt LJ approved a "notional" reduction in the rent as a means of assessment of damages for disrepair in Wallace (see paragraphs 32 and 33 above). The exceptions prove the rule, in the sense of illustrating its underlying rationale and the limits of its proper application, so that neither ground rents (as in the Calabar Properties case) nor rents depressed below market levels by statutory intervention (as in Chiodi v De Marney [1988] 2 EGLR 64) provide adequate guides to the value of a tenant's beneficial occupation, although in my experience even the latter (suitably geared up in the light of local knowledge) may be better than nothing as a starting point in the somewhat rough and ready realities of County Court litigation.
45. I therefore reject the proposition that rental values are by their nature incapable of having evidential value in assessing the damages recoverable for any breach which may be proved of the relevant covenants here. That does not, however, of itself validate the particular formulation advanced by the Defendant, which needs closer examination. There is first the general point that for the reasons given in paragraph 43 above it is better not to express either line of the subtraction sum simply as "rent"; it is the value of beneficial occupation to the tenant over the relevant period which is in question, and rents are simply evidential of that value. ("Rental value" or "annual value" are perhaps the nearest short phrases to what is wanted, although neither is ideal, the former because of the remaining overtones of "rent" and the latter because it seems to tie the concept to a particular period - why not monthly, weekly or daily value?) Subject to that point it seems to me that on the information at present before me, and without in any way prejudging what will appear on the evidence given at trial, the Defendant may well not find it difficult to establish that the benefit to it of occupation with due performance of the Plaintiff's covenants would have been worth at least the amount of the rent payable.
46. As to the lower line of the subtraction, however, the problems are not simply formal, since the other parties raise what seem to me to be much more formidable specific objections to the use of a notional rent of the kind postulated in Mr Berry's reformulation. In the first place to postulate a variety of rents assuming different levels of obligation is not doubt feasible, but I am not clear whether, even in principle, one could frame, as if in advance, a covenant which if complied with would produce precisely the situation in fact reached by way of breaches by the Plaintiff. Secondly, although I have rejected any approach which involves quantifying the damage breakdown by breakdown, nevertheless the evidence may well establish that over different periods of time of varying lengths there were greater or less departures from the required standards, or failure levels not amounting to breach at all, whereas Mr Berry's reformulation seems to require a single level of notional rent fixed for the whole of each review period. It seems to me that something closer to the formulation quoted in paragraph 5 above may after all be better. None of this is intended to prejudge the question whether expert valuation evidence is admissible, which I propose to address separately later.
47. Before I leave the Defendant's proposed measure of damages to consider those advocated by other parties I should deal with some miscellaneous criticisms of it. Mr Morgan submitted that "a tenant pays for occupation, not for an asset" and Mr Lewison, quoting from the judgment of Mr Recorder Sedley QC in Hussein v Mehlman [1992] 2 EGLR 87, that "rent is paid for the occupancy, ... damages for the inconvenience". In so far as those submissions suggest that rent is consideration only for the bare right not to be dispossessed and not for the whole bundle of benefits and rights to which the tenant becomes entitled I reject them, nor do I believe that Mr Sedley intended any such implication; the words quoted are simply part of his reasons for rejecting a claim to what he regarded as, in effect, an abatement of rent.
48. There were many complaints that the Defendant has not pleaded any facts linking the alleged breaches with the alleged diminution in value by way of such intermediate stages as the effect of the breaches on the physical state of the premises, the comfort and convenience of occupants and visitors or the efficient conduct of the Defendant's business. It may well be that on the one hand the Defendant will not without pleading and proving such matters have any sufficient basis for expert evidence or submissions as to the financial consequences of any breaches which it may prove, or that on the other hand the other parties are entitled to obtain particulars of the Defendant's case in these respects and to apply for appropriate sanctions in case of non-compliance. Those, however, are matters for the parties to consider for themselves; there have not as yet been any applications for such particulars. Questions of what kind do not affect the outcome of the issues before me.
49. Finally there were submissions that damages on the basis contended for by the Defendant would over-compensate it. No doubt expectations on both sides as to the prospective financial outcomes of different approaches are much involved in the motivations for the arguments addressed to me, but I must assess those arguments on their merits, not by speculating as to the motives behind them. The rule in Robinson v Harman, from which I start, and its application in Hewitt v Rowlands both preclude over-compensation if properly understood and applied. As to more specific points Mr Lewison's and Mr Hamilton's written submissions express fears or assertions, in effect, that the Defendant's approach assumes an unqualified obligation to provide the services in question. Not so; the rent (assuming that the Defendant establishes that it is an acceptable measure of the value of the beneficial occupation for which it was the consideration) was arrived at on the basis of the qualified covenant actually given by the Plaintiff, not of a hypothetical unqualified covenant.
50. I therefore see no reason of principle why the Defendant's pleaded measure of damages, reformulated to take account of this judgment, should over-compensate it. That is not to say that care will not be needed to ensure that the appropriate comparison is being made in every respect, especially if expert evidence is called. It is a matter for consideration, for instance, whether it is sensible to prepare, let alone adduce, expert evidence before the facts on which the witnesses would be invited to express an opinion have been found. A particular feature, not I think canvassed in argument, which might lead to over-assessment if not properly taken into account is the interrelation between the counterclaims for damages which are the subject of the issue before me and the pleas by way of defence or counterclaim relating to service charges, as mentioned in paragraph 7 above. It is again a matter for consideration whether those pleas would better be resolved and their financial outcome settled before moving on to damages under paragraphs 31 and 48 of the Counterclaim.
51. I turn to measures advanced by other parties, prefacing more detailed comments by two preliminary reflections. The first is that neither in terms of general onus nor in terms of the issue directed to be tried is there any obligation on them to propound or make good any other specific measure. The second is that since there may be more than one legitimate measure the existence of some other possibility does not necessarily entail rejecting the Defendant's.
52. For the sake of completeness I recall that in paragraph 39 above I have already rejected all measures, if any such are propounded, which involve attributing specific items of loss or expense to specific failures of service.
53. Mr Morgan, in his written submissions, advanced a list of ten "recoverable heads of damage". They were not by any means all intended to apply to the present action and most of them do not do so, either because they are applicable only to an unqualified covenant to maintain and repair or because they involve consequences which have not arisen, such as actual or attempted sale or sub-letting. Two remain for consideration. The first is "inconvenience and discomfort". I have dealt with that in paragraphs 29 to 35 above.
54. The other is loss of profits. Although on Mr Morgan's list it was not argued for by him or by anyone else with any vigour, certainly not as excluding any other in the sense of being the only legitimate head for a trading company; it was tacitly assumed, I think rightly, that it would be exclusive in the other sense of being an alternative method of quantifying loss to those primarily advanced on one side or the other, not an additional and cumulative head. In the circumstances I do not feel called upon to reach any concluded decision about it. My provisional view is that if contemplated by the parties within the second limb of Hadley v Baxendale (1854) 9 Ex 341 loss of profit would be recoverable, but as a measure of the diminution in value of the tenancy to the tenant, not in addition to any other measure of that diminution.

Expert evidence

55. Among the general directions issued in the action and the third party proceedings on 2 May 1997 was one giving leave to call a number of expert witnesses, including one valuer for each party. I do not recall whether that direction was opposed by any party at the time, but it was not appealed, nor has there been any formal application to vary it. On the hearing of the issue, however, the Plaintiff and the First Third Party submitted that valuation evidence was inadmissible, and the point was fully argued. In the circumstances I think I should deal with the matter as if application had been made on notice to revoke the leave for valuation experts.
56. Such an application requires consideration in two stages. The first involves a question as to the law of evidence: is such evidence admissible? If not, leave should be revoked as of right. The second raises a question of case management: even if admissible, should such evidence be excluded in the court's discretion in the interests of the fair, economical and expeditious administration of justice? I address those two stages in that order.
57. Admissibility can for present purposes be reduced to relevance; no argument was advanced that valuation evidence, if relevant, falls within some distinct exclusionary rule of law. In principle it seems to me that the expert opinion of valuers is plainly relevant to the issue how far the value of the Defendant's tenancy has been diminished by any breaches by the Plaintiff which may be proved. My response is essentially one of first impression and I do not believe that I shall improve upon it by elaboration. Nor did I understand the submissions to the contrary to rest on principle; they relied simply on authority. I therefore turn at once to the authorities cited, which are cases already referred to for other reasons.
58. In the Calabar Properties case the slighting reference by Stephenson LJ to "the complicated underworld of expert evidence on comparable properties and values" is clearly related to the immediately following "what the flat would have fetched" and thus to a submission about capital values. That reference appears in paragraph 24 above and my comment on the whole passage of which it is part in paragraph 25. The only direct statement about the place of expert evidence generally is that by Griffiths LJ:

... each case depends upon its own circumstances and Hewitt v Rowlands should not be regarded as authority for the proposition that it is in every case necessary to obtain valuation evidence. (Page 299E)

That speaks for itself; it simply warns against acceptance of any universal rule that expert evidence must always be called and that without it damages cannot be assessed. It plainly does not support any general rule of exclusion.

59. I have already, in paragraphs 34 and 35 above, quoted from and commented upon the judgment of Lindsay J in Credit Suisse. Although he understandably deprecated the cogency of the hearsay report which was the nearest approximation to properly adduced and tested expert evidence before him there is nothing in what he says which amounts to a ruling on the admissibility of such evidence in general.
60. Finally, in Wallace, Morritt LJ said, immediately before the extract from paragraph 25 of his judgment quoted in paragraph 32 above:

25. ... I would agree with the observations of Stephenson and Griffiths LJJ in Calabar Properties Ltd v Stitcher that expert valuation evidence is not of assistance when assessing the damages in accordance with my third proposition. The question is the monetary value of the discomfort and inconvenience suffered by the tenant. That is a matter for the judge. As Kennedy LJ observed in the course of argument there is no market in out of repair council houses on which expert evidence could be either admissible or helpful.

61. That was part of what was, as I have already indicated, clearly intended as general guidance to judges deciding typical County Court residential cases, as is confirmed and emphasised by the references to discomfort and to council houses. It was not in my understanding intended to be, and should not be taken as, a general ruling as to the admissibility of expert evidence in other types of case.
62. It might be argued that just as there is no market in out of repair council houses so there is none in offices with sporadically defective lifts or air conditioning. There is, however, a market for offices generally, in which it may well be (that being itself a matter for expert evidence) that there are sub-markets for different levels of landlords' commitment to the provision of such services, ranging from an unqualified warranty of certain standards, through a simple obligation to maintain and repair on notice and a covenant to use best endeavours or one to use reasonable endeavours, down to a situation in which there is a lift or air conditioning system which the tenant may use while it is working but no obligation on the landlord except to expend on repair and maintenance such sums as it may choose to collect from the tenant. No doubt other variations are possible, and perhaps common. It seems to me clear that expert evidence as to the effect of such regimes on rental values may be relevant and helpful. To decide in the abstract whether the step or interpolating in such a scale the value of premises where particular breaches or a particular level of deficiency of provision has been established is also one on which a valuer can assist, or whether it must be reserved to the unaided wisdom of the judge, seems to me an arid and unnecessary exercise; I would leave it to the trial judge.
63. I conclude that expert valuation evidence is relevant and admissible. As to the case management question there are very good reasons why valuation evidence should be discouraged or even prohibited in the small residential disrepair cases contemplated in Wallace. On the one hand the expense of such evidence would be wholly disproportionate to the amounts at stake. On the other hand the judges trying such litigation commonly have great experience in the field and access to digests of comparable cases. The situation here is very different. The amounts at stake are large and although the costs must also be very high, judging by the lavish scale of representation of the parties, a valuation expert on each side (the Plaintiff and Third Parties are of course fee to share, if they choose) cannot be a proportionately great addition to what will be spent in any event. The trial judge can be expected to have experience of Official Referee litigation in general, but will by no means necessarily, or even probably, have the shades of West End rental values at his finger-tips to the degree of detail required for the exercise in prospect.
64. While the question can and should be kept under review I therefore see no ground at present for revoking the leave for expert valuation evidence granted on 2 May 1997, and in the exercise of my discretion I decline to do so.

Scope of judgment

65. The issue, as directed, poses a single question which could no doubt be answered simply yes or no. At one point, at least, in the argument it seemed to be suggested on behalf of one or more of the parties supporting a negative answer that that was my only choice. I am clear that I am not so confined and can make a declaration or declarations giving effect in greater or less detail to the conclusions which I have reached above. There is, however, a question as to how far it is wise or useful to go in that direction.
66. There was a time when the appellate courts discouraged the trial of separate issues as misguided attempts at short cuts which all too often had the opposite effect of increasing delay and expense. That criticism may have overlooked the fact that the sample which the appellate courts saw was skewed by the very fact of the appeal, itself a significant consumer of time and money, while the unappealed cases in which the technique had been successful passed unnoticed. However that may be, the practice of the Official Referees has for many years been to exercise with some freedom the power of directing the trial of issues, and Lord Woolf's report now encourages all courts to be equally liberal. It may be that that will necessitate greater attention to the framing of both questions and answers in such a way as to minimise the risk of consequent waste of the kind which the traditional approach feared.
67. What I have in mind in the present case is that if my answer is too brief and general it will carry matters so little further forward as to have wasted the time and expense involved in the trial, while if it is too detailed it may be cover aspects of the case which on the findings of the trial judge cease to be material, or invite appeals which for that or other reasons need never have arisen. I therefore invite submissions on the handing down of this judgment as to the form of the answer to be entered to give effect to its conclusions.
68. I shall also need to be addressed on costs and on further directions for the future conduct of the proceedings. On the former point I shall need to consider whether, so far as any costs of the hearing may become payable to the Plaintiff or the Third Parties, those costs should extend to separate representation, given the apparent identity of interest between them all on the issue tried.

12 August 1998 The above judgment was handed down and it was directed, inter alia, that an appointment be obtained for consideration of the terms of the formal judgment to be entered on the disposal of the trial of the issues dealt with.

8 October 1998 Leave was given to re-re-amend the Defence and Counterclaim and it was directed that judgment be entered in the form, inter alia, of a declaration in the following terms:

Assuming the truth of the facts alleged by the Defendant, the measure of damage for breach of clause 4(2) of the Lease by reason of the matters complained of in paragraphs 27 and 43 of the Re-re-amended Defence and Counterclaim is the resulting diminution in value to the Defendant of its occupation of the premises for the relevant period, evidence of the rent payable under the Lease being admissible (but not conclusive) as to such value had there been no breach and the evidence of valuation experts being relevant and admissible as to such value following such breaches as may be found.