UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2010] UKUT 98 (LC)

LT Case Number: ACQ/360/2008

 

COMPENSATION – disturbance – warehouse – distribution business displaced from Olympic site – relocation to premises further away from customers – loss of customers – preliminary issue – whether claimant failed unreasonably to mitigate its loss by moving where it did when it did – held claimant had failed to mitigate loss

 

 

                            TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

                                                                             

                                                                             

                                 IN THE MATTER OF A NOTICE OF REFERENCE

 

 

BETWEEN                                 SCOTIA PLASTIC BINDING

                                                      LIMITED (in administration)                                Claimant

 

                                                                           and

 

                                                      LONDON DEVELOPMENT                           Respondent

                                                                      AGENCY                                                              

 

 

                                                             Re: Unit 2 Lea Works

                                                                     Carpenters Road

                                                                     London E15 2ED

 

 

                                                           Before: The President

 

 

                                  Sitting at 43-45 Bedford Square, London WC1B 3AS

                                                            on 6 and 7 April 2010

 

 

 

 

Lawrence Jones instructed under direct professional access for the claimant

Melissa Murphy instructed by Eversheds for the acquiring authority

 

 

The following cases are referred to in this decision:

 

Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111

Appleby & Ireland v Hampshire County Council [1978] RVR 156

 

The following further cases were referred to in argument:

 

The Sivand [1998] 2 Lloyd's Rep 97

Harvey v Crawley Development Company [1957] P & CR 141

 

 

                                           DECISION ON A PRELIMINARY ISSUE

Introduction

1.           The claimant in this reference held a seven year lease dated 25 March 2003 of a warehouse building, Unit 2, Lea Works, Carpenters Road, Stratford E15 2ED.  The rent was £52,000 with three-yearly rent reviews.  The property was included in the London Development Agency (Lower Lea Valley, Olympics and Legacy) Compulsory Purchase Order 2005.  The CPO was made on 16 November 2005 and was eventually confirmed on 21 December 2006.  Before the CPO was confirmed, however, on 31 March 2006 the acquiring authority, the LDA, purchased the claimant’s interest in the property by agreement.  The price was a peppercorn, and the agreement provided for a disturbance payment in accordance with sections 52 and 52A of the Land Compensation Act 1973, with provision, in the event that the parties were unable to agree the amount, for determination of the amount by the Lands Tribunal as though the interest had been compulsorily acquired.  The agreement also contained a lease of the premises to the claimant for the period to 29 June 2007, the tenant having the right to end the lease at any time on 10 days notice.  In the event the claimant ended the lease and moved from the property on 15 June 2006.

2.           The freehold of the property was vested in James Hay Pension Trustees Limited, a pension trust company, the trustees of which were the directors of the claimant company.  By an agreement of the same date as that for the purchase of the leasehold interest the LDA bought the freehold of the property from the pension trust company.  At or about the same time the pension trust company acquired Units 9 and 22, Optima Park, Thames Road, Crayford, Kent DA1 4QX.  It granted to the claimant a 10 year lease of Unit 9 from June 2006 at a rent of £24,212 per annum and a 7 year lease of Unit 22 from June 2006 at a rent of £68,633 per annum.  The claimant moved to this relocation property on or about 15 June 2006.  It ceased to occupy Unit 9 a few months later, and the unit was then leased to another tenant.  The claimant was later placed in administration and ceased trading in April 2009.

3.           The present claim is the disturbance claim provided for by the agreement of 31 March 2006.  Notice of reference was given on 7 July 2008.  The disputed elements of the claim are those relating to loss of profits.  The business of the claimant was that of a specialist supplier of document binding and laminated consumables to corporate print rooms.  The great majority of its business was with firms in the City and West End of London and the rest, about 20%, was with firms in Canary Wharf.  The essence of the business was the prompt delivery to the customer of the requisite materials from its warehouse premises. 

4.           The reference property was 4.5 miles by road to the City (Bank station).  The relocation property at Crayford is 15.1 miles to the City and requires a river crossing – by the Blackwall Tunnel, the Dartford Tunnel, the Woolwich Ferry or the Rotherhithe Tunnel, which are often congested at peak times.  The claimant says that as the result of the move its profits fell in two respects: firstly because of the increased costs arising from the greater delivery distances, and secondly due to the loss of business of clients in the City for whom it was unable to provide such an efficient and reliable service as it had previously done because of delivery problems.  It says that it is entitled to compensation for these losses.  The LDA contend that there were numerous suitable properties to which the claimant could have relocated much closer to its customers and, if it had done so, its losses would have been either eliminated or substantially reduced.

5.           On 15 January 2009 I ordered that the question “Whether in all the circumstances the claimant failed unreasonably to mitigate its loss by moving to Crayford, Kent, when it did” should be decided as a preliminary issue.  This is the decision on that issue.

The approach in law

6.           In Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 at 126 A-H Lord Nicholls of Birkenhead identified three conditions that had to be satisfied for an award of compensation for disturbance to be made:

“…First, it goes without saying that a prerequisite to an award of compensation is that there must be a causal connection between the resumption or acquisition and the loss in question…

The adverse consequences to a claimant whose land is taken may extend outwards and outwards a very long way, but fairness does not require that the acquiring authority shall be responsible ad infinitum.  There is a need to distinguish between adverse consequences which trigger a need for compensation and those which do not.  A similar problem exists with claims for damages in other fields.  The law describes losses which are irrecoverable for this reason as too remote…That is the second condition.

Fairness requires that claims for compensation should satisfy a further, third condition in all cases.  The law expects those who claim recompense to behave reasonably.  If a reasonable person in the position of the claimant would have taken steps to eliminate or reduce the loss, and the claimant failed to do so, he cannot fairly expect to be compensated for the loss or the unreasonable part of it.  Likewise if a reasonable person in the position of the claimant would not have incurred, or would not incur, the expenditure being claimed, fairness does not require that the authority should be responsible for such expenditure.  Expressed in other words, losses or expenditure incurred unreasonably cannot sensibly be said to be caused by, or be a consequence of, or be due to the resumption.”

7.           This third condition – the duty on the part of the claimant to mitigate his loss – was the subject of consideration in the Lands Tribunal decision in Appleby & Ireland v Hampshire County Council [1978] RVR 156, where at 161 the Member (R C Walmsley FRICS) adopted three rules from McGregor on Damages.  Both parties in the present case accept this as a correct statement of the law.  The rules (see now the 18^th Edition (2009) Chapter 7), adapted to the language of compensation, are as follows:

(1)        The first and most important rule is that the claimant must take all reasonable steps to mitigate the loss consequent upon the dispossession and cannot recover compensation for any such loss which he could thus have avoided but has failed, through unreasonable action or inaction, to avoid.  Put shortly the claimant cannot recover for avoidable loss.

(2)        The second rule is the corollary of the first and is that where the claimant does take reasonable steps to mitigate the loss to him consequent upon the dispossession he can recover for loss incurred in so doing; this is so even though the resulting loss is greater than it would have been had the mitigating steps not been taken.  Put shortly, the claimant can recover for loss incurred in reasonable attempts to avoid loss.

(3)        The third rule is that where the claimant does take steps to mitigate the loss to him consequent on the dispossession and these steps are successful, the acquiring authority are entitled to the benefits accruing from the claimant’s actions and are liable only for the loss as lessened.  Put shortly the claimant cannot recover for avoided loss.

8.           It is the first two rules on which the parties respectively rely.  The claimant, relying on the second rule, says that in moving to Crayford it did take reasonable steps to mitigate its loss and such loss as it incurred in consequence of doing so is recoverable.  The LPA’s case, relying on the first rule, is that the claimant failed to take reasonable steps to mitigate its loss in that it should have moved to a property closer to its customers, so that any loss that it incurred as a result of moving to Crayford rather than to more suitably located premises is not recoverable.

Witnesses

9.           Evidence was given for the claimant by Christopher Buckingham, a director of Scotia Plastic Binding Ltd; Raymond Barry Selwyn BSc, MRICS, FNARA, a director of Lamberts, Charted Surveyors; and Nicholas Miles Sullivan BA, DipLA, MRICS, of Dobbin & Sullivan, Chartered Surveyors and Commercial Estate Agents of Stratford, London E15.  Mr Buckingham gave evidence on the nature of the claimant’s business and the circumstances surrounding the move to Crayford.  Mr Selwyn had been instructed by the claimant on 21 February 2006 to act for it in connection with its disturbance claim and he gave evidence as to the pursuit of this claim.  Mr Sullivan was instructed by the claimant to offer advice on relocation and to consider the relocation options, and he gave evidence on his discussions with Mr Cottage, the LDA’s agent, and the availability and suitability of alternative premises.

10.        For the respondent evidence was given by Colin Michael David Cottage BSc, MRICS, IRRV,  Member (Partner) of Glenny LLP, Chartered Surveyors and Property Consultants active in East, North and South-East London, Essex, Hertfordshire and Kent, who had provided the LDA with advice in relation to compensation and property values at the Olympic Park Site in Stratford from early 2004, had been involved in the acquisition of a significant number of properties there and had supplied businesses affected by the Olympic CPO with details of potentially suitable alternative premises.  He gave evidence as to his dealings with the claimant from December 2004, the reference property and the relocation property, the history of the claimant’s property search, the claimant’s property requirements and alternative premises which he considered would have met those requirements.

Certain facts and other matters

11.        Many factual and other matters were either agreed or not in dispute, and in addition to the evidence of the witnesses and the documentary material that they produced there was an agreed statement of facts.  I record in particular the following in addition to those matters I have mentioned above.

12.        The reference premises comprised a 1970s semi-detached warehouse building with a service yard and a gross internal area of 814.21 sq m (8,764 sq ft) and a mezzanine floor of 555.68 sq m (5,981 sq ft).  The relocation premises at Crayford consisted of two modern industrial units constructed in 2006, Unit 9, 194.46 sq m (2,093 sq ft) and Unit 22, 639.41 sq m (6,882 sq ft), the two units totalling 833.87 sq m (8,975 sq m).

13.        It was accepted by the claimant that the claims of the pension trust company in respect of the freehold interest on the one hand and the claimant in respect of the leasehold interest on the other required to be dealt with separately and were not inter-related.  The fact that the claimant was the tenant of the pension fund company at Carpenters Road and became its tenant at Crayford was thus immaterial, and the claimant accepted at the hearing that its needs could have been met by leasehold property that was not owned by the pension trust company.

14.        Mr Cottage produced details of 20 premises, which he suggested would have been suitable for the claimant and available to them.  The claimant did not accept that any of them were both suitable and available.  To limit the amount of time taken, Miss Melissa Murphy, who appeared for the respondent, appropriately concentrated on three of them, and there is no need to consider the rest.  The three properties were:

(a)         Gemini Business Park, Armada Way, Beckton, London E6. The distance by road to the City is 8.5 miles.  This was a development of 31 new units, constructed by the LDA specifically for businesses dispossessed of land and buildings as a result of the Olympics CPO.  Units ranged in size from 465 sq m (5,000 sq ft) to 932 sq m (10,040 sq ft).  They were available on both a virtual freehold basis (999 year lease at a peppercorn rent and a premium of £1,399 per sq m (£130 per sq ft)) and on a leasehold basis at an annual rent of £91.50 per sq m (£8.50 per sq ft).  Initial details of the scheme were available from August 2005, a developer partner had been secured by the end of 2005, and the joint venture agreement was completed in May 2006.  The units were available for occupation in early 2007.

(b)        Unit 38, Leyton Industrial Village, Argall Avenue, Leyton, London E10.  The distance by road to the City is 5.5 miles.  Unit 38 comprised three new industrial units with a total GIA of 540 sq m (5,813 sq ft) and an eaves height of 5.8 m (19 ft).  They were available to let by way of a full repairing and insuring lease at a rent of £107.60 sq m (£10 per sq ft).  They were marketed by Glenny from July 2005 until July 2006 and were completed in July 2006.

(c)         Alpine Way, London Industrial Park, Beckton, London E6.  The distance by road to the City is 7.0 miles.  They consist of refurbished 1970s industrial units with GIAs between 920 sq m (9,902 sq ft) and 1015 sq m (10,931 sq ft).  Rents quoted were £70-75.35 per sq m (£6.50-7.00 per sq ft).  It was marketed by Glenny from early 2004.  The last three units became under offer in late October 2005.

15.        Details of relocation needs were provided by Mr Sullivan on a standard form provided by Glenny.  It was headed “Client Requirement Summary”.  It included the following:

1.      Name of organisation:  Chris Buckingham and Martin Ball

2.      Address:  Unit 2, Lea Works, Carpenters Road, Stratford E15

4.      Existing Tenure:  Freehold

5.      Preferred Tenure:  Freehold

6.      Location:  E15 and surrounding postcodes.  Possibly SE3, 7, 10, 13 & 18.

7.      Freehold/Leasehold budget:  £500,000 - £800,000

8.      Business type: Document binding & storage & distribution

9.      Property type:  Single storey warehouse with ancillary offices.

10.    Size of buildings/land required: 4,000 – 7,000 sq ft.

16.        In September 2005 the claimant identified premises that appeared to it to be suitable at Kingside Business Park, Ruston Road, Woolwich, and on 3 October 2005 Mr Cottage wrote to Mr Sullivan saying that “the LDA would seek to encourage Scotia Plastics to relocate its business if suitable alternative premises have been identified and notwithstanding the fact that an immediate agreement of values may not be possible, the LDA is be prepared to make an advance payment to Scotia Plastics to assist it with its move.”  On 19 October 2005 Mr Cottage wrote again attaching heads of terms for the acquisition of the claimant’s property and saying that he envisaged that the acquisition would be “simultaneous with your client’s purchase of its identified relocation property” at Ruston Road.

17.        In November and December 2005 Mr Sullivan sent out a circular headed “Client’s Urgent Relocation Requirement”.  It identified the requirement as follows:

“Size:         5,000-10,000 sq ft

Use:            B8 (20 + jobs)

Location:    E Post Codes, SE Post Codes + Areas of Kent Bounded by the M25.

Quality:      Anything Considered

Tenure:       Freehold Only

Timing:      Urgent”.

It asked for details to be sent to Mr Sullivan.

18.        A meeting was held on 17 November 2005 between Mr Buckingham and Mr Martin Ball (Mr Buckingham’s co-director) and their advisers, a Mr Balcombe of Balcombe Group Plc, Mr Michael Nathan of Finers Stephens Innocent LLP solicitors, and Mr Sullivan.  Under the heading “Negotiations with LDA” the minutes recorded that Mr Sullivan had received a revised offer of £900,000 from Glenny in respect of the freehold interest, that the total estimated payment was approximately £970,000 excluding disturbance compensation relating to relocation of the business, and that LDA had also agreed that the company could continue operating from the existing premises under a nil rent licence for a maximum of six months.  Under the heading “New Premises” it was recorded that “The premises which were under negotiation at Ruston Road had fallen through” but that Mr Sullivan would go back to Glenny to see about reopening the deal; and that Mr Sullivan would continue to look for another relocation site and a wider area than previously would be considered.  Under the heading “Disturbance Compensation Issues” the following appeared:

“3.2.  It was noted that a new location might have a knock-on effect on transport overheads, and that could result in a loss of profits claim at a later stage.”

19.        On 23 November 2005 Mr Cottage wrote to Mr Sullivan alerting him to the fact that Glenny’s Welling office had been instructed to market Unit 3, Capital Industrial Estate, Belvedere and that they believed that “it may meet your client’s requirements”.  In the event the claimant did not pursue this, and in due course the Crayford property was acquired.

Further evidential matters

20.        Mr Buckingham said that in or about June 2005 he called Mr Sullivan, having previously made his firm’s acquaintance during the sale of another property in the area, to ascertain what he as a local surveyor knew about the proposed Olympic site development.  Mr Sullivan told him that he had been in communication with LDA’s agents Glenny on behalf of some other local companies on the matter.  Mr Buckingham asked Mr Sullivan to act on the claimant’s behalf and explore the possible options if relocation was inevitable.  A meeting took place in August 2005 with Glenny at the premises, and it was clear that Glenny were keen to progress the acquisition of the property as soon as possible.

21.        Mr Buckingham referred to the meeting on 17 November 2005 between himself and his professional advisers (including his solicitor and Mr Sullivan and Mr Selwyn), at which Mr Sullivan reported that there was a lack of suitable properties in the area, with a particular shortage of B8 warehouse premises and it was agreed as a consequence that the area of search should be widened.  The point was made that being forced further away from the company’s client base might have a direct impact on profitability.

22.        In November Mr Sullivan emailed Mr Buckingham to say that Glenny had told him that they had taken on a property, Unit 3 Capital Estate, Belvedere, that might be suitable for the claimant’s needs.  Mr Buckingham said that the claimant did not move forward with this property.  Glenny drew attention to another new trading estate at Woolwich Arsenal, but in the event the warehousing component had already been taken.  A nearby site on the edge of Crayford, 1.2 miles further out from the Belvedere site came up, and after viewing it the claimant instructed Mr Sullivan to negotiate for it.

23.        Details of the Optima Park properties were supplied to Mr Cottage at his request, Mr Buckingham said, after instructions had been given to the LDA’s solicitors to act in relation to the Carpenters Road property.  The claimants obtained provisional quotations for the new unit fit-outs, and towards the end of March 2006 Mr Cottage agreed an up front payment of £260,000 to enable the sale, purchase and fit-out to proceed.  At a meeting in April between Mr Selwyn, Mr Cottage and himself, Mr Buckingham said, they discussed the need for an additional van to serve the premises, and Mr Cottage gave the go-ahead to purchase one.  At no time did Mr Cottage suggest that Optima Park might not be an acceptable location.  The move was made in June 2006.

24.        In May 2007 the claimant’s year-end accounts showed a significant drop in profit since the move.  It was only after this that Mr Cottage suggested for the first time that a closer relocation could have been made, thereby limiting the losses.  Scotia ceased trading in April 2009.

25.        Mr Buckingham said that the foundation of the Scotia business was the ability to service corporate print rooms throughout the City and West End with a very fast delivery service.  It was the lack of suitable properties that meant that it was forced to move further away than it would have hoped to do.

26.        In a supplementary statement Mr Buckingham drew attention to the fact that in April 2007 the contraflow system through the Blackwall Tunnel, which had operated for 30 years, had been discontinued with what were reported to be adverse effects on congestion and traffic flow.  The effect of this, he said, was to cause delays to the claimant’s deliveries to the City.

27.        In cross-examination Mr Buckingham was asked about a letter dated 25 November 2004 from Mr Sullivan to Glenny which had raised the question of the claimant’s relocation, saying that it wished to move from Carpenters Road “for operational reasons”.  Mr Buckingham said that the operational reasons were simply the uncertainty in the area.  They wanted to know what the future held, and Mr Sullivan was seeking to find out the likelihood of the LDA acquiring the property.

28.        Mr Selwyn said that he had meetings with Mr Cottage on 13 and 27 March 2006, and at the latter meeting the advance payment of £260,000 was agreed.  A further advance payment of £13,471.45 was agreed and paid on 22 August 2006.  It did not include anything for loss of profits.  In May 2006 Mr Cottage had told him that the LDA was appointing forensic accountants to deal with the loss of profits claim.  The claimants accordingly appointed a forensic accountant, Mr Ross McLaverty of Horwath Clark Whitehill (now Baker Tilly), and he produced a claim for relocation costs on 12 September 2006.  He produced a further report on 14 August 2007, by which time the claimant had been in its new premises for over a year and the actual scale of the losses was becoming apparent.  Following this a meeting was held on 18 October 2007 between the forensic accountants and Mr Selwyn and Mr Cottage, and at this meeting it was suggested for the first time on behalf of the LDA that the claimant should have moved to premises nearer to central London.

29.        Mr Selwyn said that he believed that the LDA through its advisers had actively encouraged the claimant to move, and at no time prior to October 2007 was it suggested that they should move closer to central London.  There were more than 300 businesses displaced from the Olympic site, all competing for alternative premises, and in the circumstances the claimant’s efforts to take early action were a proper and reasonable attempt to mitigate the losses to its business.

30.        Mr Sullivan said that he had first been consulted by the directors of the claimant after Mr Ball had received a letter dated 6 July 2004 from the LDA which confirmed that Unit 2 Lea Works fell within the proposed Olympic zone.  He gave advice about relocation, and opened discussions with Glenny on the potential sum that might be achieved from a disposal of the subject property.  He agreed with the directors of Scotia the criteria for a relocation property and these were set out in the completed form that he sent to Mr Cottage.  In September 2005 he received an offer for the subject premises and terms were agreed subject to contract on 19 October 2005.

31.        Relocation options that Mr Sullivan and Scotia considered were new units constructed by the IO Group at Woolwich Arsenal, Units 1 and 2 Kingside Business Park , SE18, details of which had been provided by Glenny, a unit on the Capital Industrial Estate at Belvedere, Kent, again marketed by Glenny, and the Crayford premises.  Terms were agreed for Units 9 and 22 Optima Business Park in January 2006 and the legal aspects of the acquisition of Unit 2 Lea works progressed alongside the purchase of the relocation premises.  At no time during the course of his involvement, Mr Sullivan said, did anyone from Glenny or the LDA express any disquiet about the location of Optima Park.

32.        In a supplementary report Mr Sullivan commented on each of the 20 alternative locations that Mr Cottage had put forward.  The apparent purpose of these comments was to suggest that none of the alternative premises compared favourably with the claimant’s existing premises or those at Crayford, but he made clear in cross-examination that he was not saying that there was no other property to which the claimant could have relocated.  He accepted that there were units at Gemini Business Park that would have been physically suitable but he discounted them for what he said was a limited risk that they might not become available in time.  He accepted also that Unit 38 at Leyton Industrial Village was not to be discounted in terms of size, and there also the concern was one of timing.  As far as Alpine Way was concerned he agreed that the units there were not to be discounted on the ground of size, but he said that there would not have been time for the claimant to negotiate with the LDA an advance payment before they became under offer in October 2005.

33.        Mr Cottage said that it was for the claimant to decide the timing of its relocation, subject to its duty to mitigate its losses, but in his view there was no compelling reason for the claimant to relocate as early as it did.  Despite initial fears that there would be insufficient space to relocate all the businesses that would be affected by the Olympic CPO, in practice the vast majority found suitable alternative premises.  In selecting new premises he would expect the claimant to have regard to the needs of its business and the potential impact that the location of such premises might have on its profitability.  The claimant was in receipt of professional advice and so should have been aware of its duty to mitigate.  It was not for an acquiring authority or its advisers to dictate to a claimant where it should relocate, and it would have been impracticable and unreasonable for the LDA to have done so.  Although the relocation property was situated outside the postcode areas referred to in the original search criteria, Mr Cottage said, on the strength of the information available to him at the time there was no reason for him to believe that the claimant would suffer the significant losses that it was now claiming.

34.        Mr Cottage said that he had identified 20 properties that would have been suitable for the claimant’s relocation and available in the period between July 2005, when it was announced that London had secured the Olympic Games, and July 2007, the longstop date specified in the relocation agreement.  Ten of these had been available had been available at the time of the meeting of the claimant and its advisers on 17 November 2005.  The LDA wanted to have acquired as many business premises as possible before the July 2007 vesting date, but when it might do so did not matter provided that it was before that date.  If the claimant had moved 12 months later than it did that would have met the LDA’s agenda.  The freeholder’s claim, however, was treated differently because there was a drive by the freeholder to acquire a freehold property before 31 March 2006 to gain a tax advantage for the pension fund.

35.        As far as the new van was concerned, Mr Cottage said that, while it was certainly discussed, he did not think that he had given any assurance about it.  He made clear when advance payments were made in May and August 2006 that no element of loss of profits was included.  It would have been contrary to his normal practice to give the go-ahead to particular expenditure, and in any event at that time he knew little about the fundamental nature of the business.  He was not aware how important the City was to the business.  He did not know where its market lay.

Conclusions

36.        The basis of the claimants’ claim is that relocation to Crayford harmed the business and caused it loss, both because of the additional transport costs that it had to bear and because the greater journey times for deliveries adversely affected its ability to provide a fast and reliable delivery service to print rooms in the City and West End.  Of Lord Nicholls’s three conditions the claimant asserts that the first, causation was satisfied, and it implies that the claim was not too remote, thus satisfying the second condition.  The preliminary issue is in relation to the third condition, whether, in the light of its duty to take all reasonable steps to mitigate the loss consequent upon the acquisition of its leasehold interest, the claimant acted reasonably in relocating to Crayford when it did.  Resolution of this issue depends, in my judgment, on the answers to three questions.  The first is whether it was reasonably foreseeable that a move to Crayford would cause loss to the business.  If it was not reasonably foreseeable, clearly the claimant would have been under no duty to mitigate by seeking other premises that would reduce or eliminate such loss.  If it was reasonably foreseeable, the second question is whether there were suitable alternative premises available to the claimant at the relevant time in locations that would have avoided or diminished the adverse effect.  If there were such premises, the third question is whether there were nevertheless other considerations that meant that in deciding to move to Crayford when it did the claimant was acting reasonably.  I will deal with these questions in turn.

37.        It is certainly the case that in relation to the first head of loss, the increased cost of transport, such loss was reasonably foreseeable.  Indeed it was expressly foreseen by Mr Buckingham and Mr Ball and their advisers at the meeting on 17 November 2005.  There is less direct evidence about the second head of loss, the loss of profits due to the defection of customers dissatisfied with unreliable deliveries.  It is material to consider this because, even if the loss was unforeseen and unforeseeable it would not necessarily be too remote, and the reasonableness of the claimant’s actions would have to be judged in relation only to the avoidance of the first head of loss, the increased costs of transport.

38.        Mr Buckingham emphasised that the foundation of the Scotia business was the ability to service corporate print rooms with a very fast delivery service, and it seems to me inescapable that it would be unreasonable for a businessman in his position not to consider how the greater distance, the need to cross the river and the increased journey times from Crayford might affect the foundation of the business.  In my judgment a reasonable businessman in his position would have realised that there were substantial risks that if it moved to Crayford Scotia would not be able to provide the same reliability of service as it had previously done, with the result that customers might defect, causing a loss of profits.

39.        I turn then to the second question, the availability of alternative suitable premises.  Mr Jones submitted in opening that the period during which the availability of alternative premises fell to be considered was the period from July 2005 when the claimant instructed Mr Sullivan to search for replacement premises and March 2006 when the agreement was signed.  In closing he suggested that the period ought to be considered as starting in October 2005 because, he said, it was only then that the claimant decided to move.  There was, however, no evidence whatever that the claimant only decided to move in October 2005, and in any event it had clearly accepted in July the inevitability of being displaced and was actively seeking alternative premises.  The relevant time for consideration of the availability of alternative premises was indeed, in my judgment, July 2005 to March 2006.

40.        In my judgment all the three alternative premises relied on by the LDA were available to the claimant and suitable for its needs (those at Gemini Business Park, Beckton; Unit 38, Leyton Industrial Village; and Alpine Way, London Industrial Park, Beckton).  Gemini Business Park was an LDA development specifically designed for the relocation of businesses displaced from the Olympic site.  Mr Sullivan accepted that some at least of the units would have been suitable to accommodate the claimant’s business.  I am satisfied that this was the case.  The reason Mr Sullivan discounted Gemini Business Park was, he said, that, although the details of the scheme had been available and known to him in August 2005, construction did not start until 2006 and there was a limited risk, as he put it, that a unit would not be available to the claimant by the date in July 2007 when the claimant would be displaced.  That risk, it seems to me, would not simply have been limited, but remote, and I accept the Mr Cottage’s evidence that it would have been impossible for LDA from a public relations viewpoint to fail to have the replacement accommodation available in time with the consequence that displaced businesses would be forced to close.  I accept also Mr Cottage’s evidence that the buildings were not complex to construct, so that there would be no difficulty in getting them constructed in time.  Moreover I see no reason to think that someone in the position of the claimant might reasonably have thought otherwise.

41.        Unit 38, Leyton Industrial Village, was initially discounted by Mr Sullivan on the ground that it was not constructed until July 2006 and was too small.  However, he accepted that the building was high enough to accommodate a mezzanine floor if that were needed and that, since the units were marketed from July 2005 and there was no evidence that their construction would be delayed, the risk involved in waiting for them would be even less than with Gemini Business Park.  I do not think that someone in the position of the claimant might reasonably have thought that Unit 38 was not physically suitable or that there was a significant risk that it might not become available in time.  The premises were, moreover, particularly well located, being only 5.5 miles from the City.

42.        Alpine Way, London Industrial Park, was discounted by Mr Sullivan on the basis that the units were larger than the ground floor of the reference property and larger than the replacement property, but they fell within the size range in the circular that he had sent out to agents and the rent would have been less than that for the Crayford premises.  Mr Sullivan also discounted them because they were put under offer during the claimant’s period of search.  In fact they only became under offer at the end of October 2005, and would thus have been available to the claimant before then.  The suggestion that there would not have been time to negotiate an advance payment seems to me of no substance, since the LDA made plain that they were very keen to facilitate relocation and would make an advance payment even though values had not been agreed.

43.        I am satisfied, therefore, that there were premises that during the period July 2005 to March 2006 would have been available to the claimant to contract for and that would have been suitable for its needs – a number of units at Gemini Business Park, Unit 38 at Leyton Industrial Village and three units at Alpine Way, all north of the river – and someone in the position of the claimant could not reasonably have thought that no such suitable alternatives existed.  Although Mr Buckingham said that he had driven round looking at some of the premises from the outside, he could not recall which premises these were.  No explanation was offered of why all the premises that the claimant did actively pursue – Ruston Road, Woolwich, the Capital Industrial Estate in Belvedere, and the premises that it took in Crayford – were all south of the river.  To the extent that one reason may have been the wish to provide the pension trust company with replacement freehold premises at an early date, that would not justify Scotia’s relocation to inappropriate premises, and it was not suggested that it did.

44.        The claimant’s contention that the relocation to Crayford was in reasonable mitigation of its loss has essentially three elements.  The first is that it received encouragement from the LDA to relocate as soon as possible.  Reliance is placed in particular on the letter of 3 October 2005 from Mr Cottage to Mr Sullivan, in which it was said that “the LDA would look to encourage Scotia Plastics to relocate its business if suitable alternative premises have been identified”.  This clearly falls far short of an encouragement to relocate to premises that might be less than suitable or within any particular timescale, and there is nothing in the evidence that suggests that encouragement of that sort was given.  While details of premises south of the river were provided to the claimant by Glenny this was clearly done in response to the claimant’s assessment of its needs and did not imply any acceptance on the part of the LDA that this was a proper assessment from the point of view of the business. 

45.        Secondly it is said that the claimant had a real and reasonable fear that it might not be able to relocate, so that it was justified in taking premises that in March 2006 it could be certain that it would be able to move into within a short period of time.  It needed certainty, particularly in a market in which prices were moving upwards.  There was evidently a concern on the part of Mr Buckingham that a freehold property should be acquired by the pension trust company before the end of the financial year 2005-06, and it appears from the relocation particulars that were supplied to the LDA and from Mr Sullivan’s circular, neither of which made any distinction between Scotia and the pension trust company, that the search was for freehold premises (which would meet the needs of the pension trust company) rather than for leasehold premises to accommodate the claimant’s business.  Whatever the claimant’s concerns, however, the fact is that, as I have concluded above, there were suitable alternative premises that either existed (Alpine Way) or were shortly to be completed (Unit 38, Leyton Industrial Village) or which could have been expected to be completed before the claimant was dispossessed (Gemini Business Park). 

46.        Thirdly it is said that the LDA through Mr Cottage gave the go-ahead to the purchase of an additional van and the employment of an additional driver and thereby acknowledged the reasonableness of the claimant’s decision to relocate to Crayford.  It is said (although the facts are in issue) that the go-ahead was given at a meeting on 4 April 2006, following the submission of formal claim on 24 March 2006 that included an amount of £124,580.62 for the additional costs of the van and the driver and that it was not until much later, when the claim had increased substantially, that the issue of the reasonableness of the relocation was raised.  Both Mr Buckingham and Mr Selwyn, who were present at the meeting, said that Mr Cottage had given the go-ahead to the purchase of the van.  Mr Cottage said that he could recall that the item relating to the van had been among the matters discussed but he did not think that he would have purported to approve a prospective expenditure of this sort.  There were no records of the meeting and at this distance in time it is impossible to resolve what was in fact said, but I do not think that it is necessary to do so.  Mr Cottage was not in a position to form a view at that time about the reasonableness of Crayford as a new location for the claimant’s business.  There was no reason why he should have understood the extent to which the business was dependent on reliable deliveries so that a move to Crayford might adversely impact on profits through loss of business.  The claimant, however, clearly did understand this, and it was for it to mitigate its potential losses with this consideration in mind.

47.        My conclusion, therefore, is that in all the circumstances the claimant failed unreasonably to mitigate its loss by moving to Crayford when it did.  The preliminary issue is thus decided in favour of the respondent.  Directions for the further conduct of the proceedings will be given in due course.

48.        The parties are now invited to make submissions on costs, and a letter concerning this accompanies this decision, which will become final when the question of costs has been determined.

                                                                                    Dated 12 April 2010

 

                                                                                    George Bartlett QC, President