MR JUSTICE WILKIE :
- In this case the claimants claim damages from the defendant, a firm which, at the material time, acted as their solicitors, for negligence, alternatively breach of contract, arising out of the entering by the claimants of a commercial lease.
- It is not disputed that the defendant was negligent. The issues with which I have to deal concern the appropriate approach to calculating quantum, causation, and the calculation of quantum itself.
- I have heard two witnesses of fact, the first named claimant and Christine Wright, the claimants' accountant. I have also heard expert evidence from valuers, namely Mr Philip Manning for the claimants and Mr Richard Stapleton for the defendant.
Background
- The claimants have carried on a business of tree surgeons and landscape gardeners working for local authorities and wealthy private owners since 1991. They have, by all accounts, been successful having exhibited at Chelsea Flower Show and Hampton Court Flower Show. In the period up until October 1997 they carried on their business from a succession of premises held on licence, latterly based in a yard at Northease Manor Farm near Lewes. By 1997 their business had grown so that they ran 5 vehicles, employed half a dozen people and had outgrown or were about to outgrow their then premises.
- In 1997 they looked for and identified replacement premises at North Quay Newhaven, the landlords being British Railways Board (BRB). In October 1997 the defendant was instructed to act for the claimants in connection with the negotiation of that lease. The negotiations were tricky and lengthy and did not result in a lease being entered until 13 October 1998.
- The premises comprised about 3,300 sq metres and was a long thin strip of land near the railway with access at one end. It was rough, badly fenced and covered with rubbish. The lease was to be of 25 years, a lease of an unusually long period for BRB to grant. The lease was subject to 5 yearly rent reviews rent to be fixed at the rent which the premises might reasonably be expected to let in the open market between a willing landlord and a willing tenant having regard to the terms of the lease other than those relating to the amount of rent and assuming that the tenant observed and performed all the covenants and conditions. The user under the lease was for storage and offices in connection with the claimants' business of landscape garden, constructing and supplies of material thereto.
- The lease contained at clause 4.31 terms concerning "new works". Under it the tenant was obliged to perform and complete certain works which were described in sub clauses. In the initial draft there were three such sub clauses relating to (1) Removal of the earth mound located at the north end of the site within the first 5 years of the occupation, (2) Replacing existing and new fencing along non railside boundaries…within the first 6 months of occupation and (3) Resurfacing an area of 1000 sq metres of the site with a 100 mm layer of MOT type 1 within the first year of occupation. The initial rent under the lease was £2800 per annum. The evidence is that this was £500 less than the initial rent sought by BRB, £3,300, but was negotiated by the first claimant by reason of the requirement of the tenant to remove the very substantial amount of waste over the first 5 year period. Although the lease commencement date, 13th October 1998, was the same as the date for the commencement of payment of rent, there was an informal agreement that, by reason of the other works which had to be performed under clause 4.31 in its initial form, there was a six month rent holiday.
- In the course of the negotiations the claimants indicated that they wished to perform further new works for the purposes of their business. They sought permission from the landlord to be allowed to do so. By letter from the BRB solicitors dated 9 October 1998 BRB indicated its agreement but required that the works should be included in clause 4.31 as "new works" and required the amendment of clause of 4.31 to add as sub clauses .4 to .7 the following:
".4. Erecting a frizomat shed of approximately 247 sq metres with eaves height 3.5 metres.
.5. Erecting a mobile office of approximately 51 sq metres.
.6 Erecting two temporary storage buildings of approximately 42 sq metres each.
.7 Installation of an Entec sewage treatment plant."
- The defendant obtained the agreement of the claimants to the inclusion of these additional four sub clauses to clause 4.31. It negligently failed to give any advice about the effect of including those new works in that clause and did not object to them or advise the claimants to do so. As a result the works were included in clause 4.31.
- That was a significant failure on the part of the defendant. Clause 4.31 imposed obligations upon the tenant to perform "new works" rather than merely giving them permission to do so if they so chose. Accordingly, the inclusion of these four additional items of new work, which the claimants wished to have the freedom to perform for the purpose of their own business, became an obligation which they were obliged under the terms of the lease to perform. Furthermore, the fact that it became an obligation upon them impacted upon the rent review clause. The rent review clause identified a number of items to be disregarded in assessing the open market rent at the time of the rent review. That included at 3.4.3
"any effect on rent of any lawful improvement carried out by the tenant or any person deriving title under the tenant otherwise than in pursuance of fulfilment of an obligation to the landlord".
Thus, if the additional four pieces of new work had been carried out by virtue of a permission granted by the landlord, as the claimants had envisaged, the lawful improvement to the land resulting from those works would not have been reflected in the rent review. Unfortunately, the fact that the new works were included in clause 4.31, which imposed obligations upon the tenant, meant that the improvement in the land effected as a result of these works did fall to be reflected in the rent review. Accordingly, by virtue of this the claimants were, in effect, paying for substantial works of improvement the benefit of which would be taken by the landlord as being reflected in the higher rent to be charged after the rent reviews. The negligence, admitted by the defendant, was their failure to pick this up and to advise the claimants of this consequence and to advise them that they ought not to agree to the new works being included in clause 4.31. Furthermore, the experts are agreed that it is "very unlikely" that the claimants would have agreed to the lease in those terms if they had known that the new works identified in clause 4.31.4 to 7 would be rentalised as part of any rent review and that it is "very likely" that the landlord would have agreed to a lease which excluded the new works which fell within 4.31.4 to 7.
- The claimants entered the lease and moved into the premises. By mid 1999, for a number of reasons, the position of the claimants' business was sufficiently serious that they decided to draw up a business plan and cash flow projection for the year 2000. In that document they described the company's history and the problems which had arisen in recent times and identified a number of steps to be taken to alleviate those problems. One of those steps was to sublet part of the premises. In order to do so they instructed Graves Son and Pilcher who, upon looking at the head lease, identified the problem that the new works undertaken for the purpose of the business were to be included for the purpose of the quinquennial rent review. This problem was one of the matters which informed the decision to write the business plan already referred to.
- Eventually, having considered all the options and all the factors, and having received an offer by Tarmac, in 2001, to take an assignment of the lease at a good price, the claimants decided to extricate themselves from the lease by assigning it. That proved to be a lengthy process but in due course in October 2002 the lease was assigned to Tarmac who paid a premium of £45,000.
The claim
- It is common ground that the conventional approach to the measure of damages arising from negligent advice by a professional advisor is to put the claimant back in the position he should have been in if the breach had not occurred. In a case such as this, had the negligence not occurred, it is common ground that the claimant would have had a 25 year lease with a rent review clause which did not catch the additional new works identified in clause 4.31.4 to 7. It is common ground that the sum which would have been likely to have emerged from the rent review including reference to those additional works would have been of the order of £24,000 per annum. There is a dispute between the respective experts what the outcome of the rent review would have been had those additional new works been excluded from the equation. Mr Stapleton for the defendant says it would have been £18,000 per annum whereas Mr Manning for the claimants says it would have been of the order of £12,600 per annum. The conventional approach to measuring damages in such a case would be to calculate the difference in value to the claimants of a 25 year lease where the rent review clause respectively did and did not catch the additional new works.
- It is also common ground that it may be that the facts of a particular case make it inappropriate for such an approach to be taken. What happened in this case is that the claimants extricated themselves from the predicament in which they found themselves by reason of the defendant's admitted negligence and in so doing they say that their loss is the sum which they have wasted in entering the lease, carrying out the works under the lease, and in extricating themselves from the lease, giving credit for that which they have obtained as a result of the lease namely the £45,000 premium paid by Tarmac upon the assignment.
- Authority for the proposition that this can be an appropriate measure of damages is to be found in South Australia Asset Management Corporation and York Montague Ltd 1997 AC 191 at 218H to 219E in the speech of Lord Hoffmann in which he says amongst other things:
"The second category of cases relied upon by the plaintiffs concerns the question of whether the plaintiff's voluntary action in attempting to extricate himself from some financial predicament in which the defendant has landed him negatives the causal connection between the defendant's breach of duty and the subsequent loss. These cases are not concerned with the scope of the defendant's duty of care. They are all cases in which the reasonably foreseeable consequences of the plaintiff's predicament are plainly within the scope of the duty. The question is rather whether the loss can be said to be a consequence of the plaintiff being placed in that predicament. The principle which they apply is that a plaintiff's reasonable attempt to cope with the consequences of the defendant's breach of duty does not negative the causal connection between that breach of duty and the ultimate loss…"
Lord Hoffmann then referred by way of illustration to McElroy Milne v Commercial Electronics Ltd 1993 1 NZLR 39 and concluded at 291D:
"All the reasonably foreseeable consequences of that situation were therefore within the scope of the duty of care. The only issue was whether the client's delay in selling the property negatives the causal connection between that situation and the ultimate loss. The Court of Appeal decided this question on orthodox lines by asking whether the client had reacted reasonably to his predicament. County Personnel (Employment Agency) Ltd v Allan R Pulver and Co 1987 1 WLR 916 and Hayes v James and Charles Dodd 1992 AER 815 are examples of similar principles of causation being applied by the Court of Appeal in England."
- The claim has been framed primarily on the basis that the measure of damages is the cost of extrication from the predicament and coupled with costs wasted by embarking on a venture which had to be aborted at an early stage. Both parties agree that this is the appropriate measure of loss.
- The claimants had alternatively claimed loss and damage being the difference between what they would have received for assigning the lease in 2002 had the defendant not been negligent and the value of the lease as assigned by them, together with the costs of moving into the property, executing the lease and moving out again. The parties are agreed that this is not the appropriate measure of loss in this case.
- The defendant contends that, applying the approach upon which each party is agreed, the claimant has suffered no loss whatever. That is because it contends that the abandonment by the claimants of the venture of conducting the business from the premises at Newhaven, by assigning the lease and moving to smaller premises, would have happened even if the defendant had not been negligent. It contends that the real reason for the claimants taking that course of action was the underlying performance of the business which made the tenancy unviable, whatever its terms as to rent review, coupled with the claimant's erroneous assumptions when they took the lease as to the likely level of rent, even if the lease had been drawn up as it ought to have been had the defendant not been negligent. It is said there was a serious under estimate by, at the least, 100%. In those circumstances, the defendant contends that the losses suffered by the claimants would have arisen regardless of the defendant's negligence. The defendant relies on a passage in the South Australia Asset Management Corporation case at p. 214 C to E in which Lord Hoffmann says:
"There seems no reason of policy which requires that the negligence of the doctor should require the transfer to him of all the foreseeable risks of the expedition. I think that one can to some extent generalise the principle upon which this response depends. It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortuous duty arising from the relationship between them."
- The claimants do not accept this is as a general proposition. They contend that where, as here, by virtue of the defendant's negligence the claimants are placed in a predicament out of which they take reasonable steps to extricate themselves, the duty of care is, by virtue of the passage to which I have referred above, extended to the reasonable foreseeable consequences of that course of action being adopted. As long as it was reasonably foreseeable that, following upon the negligence, they would take that course then that loss is recoverable.
- In my judgment the defendant's contention is correct. The act of extricating oneself by taking reasonable steps from a predicament does not, merely by virtue of that, break the chain of causation. Accordingly, if the consequences flowing from that course of action were reasonably foreseeable then they are, in principle, recoverable. That, however, cannot undermine the primary principle that there has to be a causal link between the loss suffered and the fault giving rise to the claim. To do otherwise would be to place the claimants in a better position than they would have been in had the negligence not occurred in that they would be compensated for a loss which they would still have suffered even if the defendant had not been negligent.
• Valuation
- I now turn to the dispute between the valuers on the rent which would have emerged from the rent review had clause 4.31 been agreed in its original terms.
- As indicated above, the valuers are agreed that the open market rental value of the lease as at 13 October 2003 (the date of the first rent review), assuming that the works identified in clauses 4.31.4 to 7 must be rentalised as part of any rent review, is £24,000. They disagree on the other rental values they were asked to give. On the open market rental value of the site as at 13 October 1998, the commencement date of the lease, assuming that the claimants were not under an obligation to carry out any of the works listed in clause 4.31 to the lease, the respective values were: Mr Manning £3,300 (the unadjusted rent under the lease); Mr Stapleton £14,700. In valuing the open market rental of the lease as at 13 October 2003, assuming the new works identified in clause 4.31.4 to 7 did not fall to be rentalised as part of any rent review, Mr Manning valued the rent at £12,600, Mr Stapleton at £18,000.
- Mr Stapleton's initial valuation for the 2003 rental for the land plus buildings was £26,000. He calculated this by taking as his starting point the rental value of the land which he said was £18,000. To that he added a further £8,000 per annum as the net increase in rental value attributable to the buildings the subject of 4.31 4 to 7. He calculated that figure by taking his estimate of the market rental value of the shed and office as £13,000 and deducted from that the sum of £5,000 representing the land rent for the sq metreage required to site and service that building, which he says is 3 times the area covered by the building.
- He identified six neighbouring plots of land which produced evidence of eight transactions between 1994 and 2002. He noted that the level of rents were rising in the area and, by 1999, rents per acre of those sites were in excess of £20,000 per annum. In his view the rental value of the land in 1998 would have been between £18,000 and £20,000 per acre. The site is 0.815 acres. Therefore in 2003 he valued the land without the buildings as £18,000 based on a rental value of £22,000 per acre. This was on the assumption that the works described in 4.31.1 to 3 had been completed and the site therefore cleared, surfaced and fenced. He applied his comparables by making some deduction for the fact that the site was significantly smaller than the comparable sites, its shape was irregular and it had only a limited access to North Quay Road. He discounted the rental value for these factors to come to a figure in 1998, per acre, of £18,000 which for the area of this site gave a rental value of £14,700. Mr Stapleton commented that BRB in agreeing a rent of £2,800 in 1998, taking as its start point £3,300, demonstrated an ignorance of the market and a significant undervaluation of the site.
- Mr Manning was also aware of the same comparables but, in addition, had regard to transactions involving pieces of land under an acre, one of which was an irregular shaped site and another of which required to be cleared. The rents in respect of those two transactions were very significantly less than the rents in respect of the others. Those were, however, not for long term leases but for a tenancy at will, in the one case, and a three year lease in the other. It was his view that the differences between the current site and the other comparables were such as to make those comparables of little use. This was a significantly smaller site than the others, was of an awkward, irregular shape and did not have a long access frontage to North Quay Road. He accepted that the other two comparables were not for long leases but, in his judgment, one of them the Onyx site did offer a reasonable basis for comparison.
- It was his judgment that in 1998 the rent for which the land was to be leased, £3,300, was the appropriate market rental. The £500 reduction was sensible in relation to the works of clearance from the site which had to be done over the 5 years prior to the first rent review and the 6 months rent holiday reflected the obligation on the tenant to perform the other works required within the first 6 months of the lease. He did not, therefore, agree with Mr Stapleton that the rent of £3,300 was far below the market rental for such a site in that area. In assessing the rental value of the site as open land in October 2003 as £12,000 he took a figure of £3 per sq yard which he says is comparable with the Onyx site which he says is the closest available comparable.
- There is, therefore, a stark difference between the valuations of Mr Stapleton and Mr Manning. It is obvious that the size and configuration of this site is very significantly different from the size and configuration of the sites relied upon by Mr Stapleton. On the other hand it is clear that both the Onyx and the Connex transactions, the former of which Mr Manning to an extent relies on, were for much shorter and less secure leases than the subject. It follows that, in assessing the rental value of this site in October 2003 as a cleared site without the buildings, I have to look elsewhere for what other evidence there is that may corroborate one or other of the contending views.
- One piece of evidence is the 1998 lease itself. In my judgment that must be of significance. The evidence of Mr Funnell was that this was a difficult transaction to get BRB to agree. They were not, in my judgment, cavalier about their own interests. I therefore reject the contention of Mr Stapleton that £3,300 represents a gross under estimate of the rental value of the site at that time in a state after the clause 4.31.1 to 3 works had been completed. The concessions which Mr Funnell won, in terms of reducing the rent for the first 5 years and agreeing a rent holiday, were hard won in long negotiations In my judgment that is good evidence of the value of this particular piece of land at that time.
- The second piece of evidence is that when Tarmac took the assignment it agreed to pay a rent of £20,000 to BRB for the site buildings. That agreement was, however, for the one year leading up to the 2003 rent review. This piece of information is of limited use. I do not know what the other terms of the lease were to be, or how they were changed from the lease the claimants had with BRB. In any event, at best, all it shows is that the agreed figure of £24,000 per annum envisaged for October 2003 is within the correct ball park.
- The third piece of evidence is a sub lease of part of the site which Tarmac, in September 2004, agreed with PHS All Clear Ltd for a term expiring on 11 October 2023 for general storage and parking at an initial rent of £17,500 per annum until October 2006 rising to £20,000 per annum until 7 October 2008 when there would be 5 yearly upward only rent reviews. The area sub let was approximately 1,330 sq metres and it was occupied by the buildings erected pursuant to clause 4.31 4 to 7. Mr Manning uses this in the following way. He takes as his starting point the £24,000 agreed to be the rental values of the whole site including the buildings. He takes the rent agreed in September 2004, discounted marginally to reflect the position in October 2003, for the part of the land including the buildings and ascribes the difference between that and £24,000 as representing the rental value without buildings of the remainder of the site. On that basis he arrives at a per sq metre valuation which, when multiplied by the total area of the site, gives a figure of approximately £11,500. He says that this is broadly consistent with his valuation of £12,600.
- Mr Stapleton criticises this approach. He says that the starting point has to be the value of the land which is enhanced simply by the cost of constructing the buildings. The difficulty with his approach is that he has taken the value of the buildings as being £8,000. Taking his figure for the value of the land of the whole site at £18,000 and working out what the land rental value is of the portion the subject of the sub lease gives rise to a rent of £7,300. This falls short of the actual rent agreed by just under £10,000. Accordingly his approach fails to explain how it is that a building worth £8,000 has been valued as just under £10,000. He says that this must be because the particular tenant values the land at greater than its market rental and, as evidence of this, points to the concentrated use to which that tenant has put the site since occupying it.
- In my judgment, of these three extra pieces of evidence, two of them point strongly in the direction of Mr Manning's view being the correct one. It is based on actual transactions that are separated in time over a period of 6 years in respect of this actual land. In each case the evidence is much more consistent with the approach of Mr Manning being correct rather than Mr Stapleton. Mr Stapleton had to resort to explanations which point to the parties involved being ignorant of, or failing properly to apply, market value when agreeing these particular terms. For these reasons and because I accept that Mr Manning is correct in saying that the other comparables really are of no help whatsoever, in my judgment Mr Manning is correct in saying that the likely level of rent in the October 2003 rent review, had the lease reflected what it ought to have done absent the defendant's negligence, would have been of the order of £12,600.
Causation
- The question whether the defendant's admitted negligence has caused the claimant's loss is in issue. It has to be approached in a number of stages.
- The first stage is to decide whether the decision of the claimants to extricate themselves from the lease was a reasonable response to their predicament. There is no dispute but that it was. It is clear from the evidence of Mr Funnell and from the documentation that the decision to extricate themselves from the lease was not a snap decision. Rather, different options were considered, explored and, to an extent, implemented. In the end the offer from Tarmac to take an assignment for the lease for an attractive premium was such that it was reasonable for the claimant to take it thereby extinguishing the need to cater for the unexpectedly high level of rent they would have to meet from the date of the rent review.
- The second issue is whether the decision to extricate themselves from the lease was triggered by the bad news about the rent review clause or whether the business was failing in its new setting and the rent review clause was either not a part of that decision, or only an insignificant feature of it.
- The defendant contends that the evidence of the "business plan" of December 1999, and the trading accounts from 1997 to 2002 show a business that was not thriving, did not have a pattern of growth in terms of turnover, occasionally made a significant profit but more often made scarcely any profit at all and had to be supported by the injection of capital from private funds. It is submitted that the decision to pull out of the premises from which they had been operating since October 1998 was a reflection of their general trading performance rather than a specific concern about the terms of the lease upon which they occupied their premises.
- Mr Funnell in his evidence denies this. He says that the forward strategy of the business had been always been to have a stable base over a period of 25 years, to use that to expand the business and in due course, perhaps after 10 years or so, to consider selling the business as an ongoing concern. An important element of that was to be that they would have the benefit of the works which they had put in train at the premises for the purpose of business. In effect that was denied them by the terms of the lease and, furthermore, the expectation that there would be a fixed annual cost of some £14,000 more than they had anticipated from the date of the rent review was a body blow which, however they sought to work round it, was the trigger for their decision to abandon the lease and accept the assignment. The cash flow difficulties described in the 1999 document had caused them to sublet part of the premises. It was in the course of that exercise that the rent review cause problem emerged and this triggered the long hard look at the business evidenced by the business plan drawn up between July 1999 and December 1999.
- I accept his evidence that it was the bad news about the rent review clause which triggered consideration whether they should carry on at the premises or abort. In my judgement the clearest evidence of that is that on 12 July 1999 there is a memo on the letting agent's file which reveals the giving to Mr Funnell of the bad news. Within a matter of days, and, in my judgment, as a response to that bad news, the question of their abandoning the premises or soldiering on was very much at the forefront of Mr Funnell's thinking. It is clear from a letter of 16 July 1999, four days later, that, in the course of those four days, the initial response had been to abandon, an alternative property had been identified but then second thoughts had prevailed and a decision was taken to stay put. From that time until the Tarmac offer it is clear that Mr Funnell was considering all his options but, in my judgment, it is plain that this whole process was triggered by the bad news on the rent review clause. Accordingly, I conclude that the cause of the decision to assign the lease and abandon the concept of the business operating from that size of premises with that level of security was triggered by the bad news about the rent review clause and the unexpectedly high rent which would be payable from the time of the first five year rent review.
- The next question is whether, in truth, the decision to terminate the lease was caused by the negligence of the defendant or by the unrealistic expectations of the claimants when they entered the lease in the first place.
- The evidence of Mr Funnell was that he realised that there was to be a rent review after 5 years. He says that he had been told by the BRB people with whom he dealt that it was anticipated that the rent would go up by about 10%. He was sufficiently cautious not to rely on that. His evidence is that he anticipated that at an absolute maximum the rent would go up to £6000 on the review.
- I have concluded that Mr Manning is correct when he says that the rental value at the first rent review date, on the assumption that the defendant had not been negligent, would have been be £12,600..
- The evidence of Mr Funnell, and the evidence of the letting agent's file, is that Mr Funnell was being advised that as at that date the rental value encapsulating the works of improvement he had performed was close to £15,000 per annum. Mr Funnell had reported to the letting agent that the BRB had informed him that they anticipated at the rent review a rental value of £10 per sq metre, that is to say in excess of £30,000 per annum. Mr Funnell says that the advice which he received, and upon which he acted, was that at the rent review date the likely level of rent on the basis of the current lease would be £20,000 or thereabouts.
- Mr Funnell accepted in evidence that, if Mr Stapleton were right and the lease as it should have been would, at the review date, have attracted an annual rent of £18,000, then that would have been an increase which the business could not have sustained and they would have had to abort the lease. On the other hand he said that there was sufficient financial leeway in the business to have sustained a level of rent upon rent review at the £12,000 or thereabouts which Mr Manning advised. This, of course, would be double what he says he had anticipated would be the absolute maximum rent to be payable after the rent review before he realised the true effect of the rent review clause.
- In my judgment I have to try to assess whether the claimants have established that, faced with such a rent increase, they would have continued with the lease and sought to expand the business. In my judgment they would have. The major plank in their plan was that the terms of the lease were such that they would enjoy the value of the buildings and installations which they installed at the premises. This would provide an on going profit rent and would be the basis of their aim to build up a business to sell on in about ten years. Even if the rent after the rent review had been higher than they had assumed five years before, that plan would still be intact. That was different from the situation in which they found themselves in which that profit rent element was entirely removed and they were having to pay twice over for the improvements they had made. It is clear that the claimants were intent, if they could, on seeing their plan through, albeit being flexible in how they went about it, in the light of changing circumstances. Their business plan, drawn up in the light of a number of difficulties, maintains the essential plan as their goal. I can see no reason to doubt the truth of Mr Funnell's evidence that such a level of rise in rent, even though unexpected, would have been borne by the business and that the plan would have continued but for the defendant's negligence.
- Accordingly I reject the defendant's contention that there is no causal link between the defendant's negligence and the losses suffered by them in abandoning the lease and moving to smaller premises.
Quantum
- The claimant claim the costs thrown away in acquiring the lease and performing the works at the yard which had to be abandoned before the first rent review occurred and in moving out. That is itemised both in the pleading and in a schedule to the pleading. The schedule comprises eighteen items. I consider these in turn:
1. The claimant claims £90,901.57p for works done under clauses 4.31 of the lease. The defendant resists this claim in its entirety in so far as it relates to work done under clause 4.31.1-3. It is said that, by the terms of the lease, the entirety of the benefit of these works had been obtained by the claimants during the first 5 years of the lease as reflected in the rent reduction of £500 for the whole term and the rent free period of 6 months. I reject that argument. The claimants were to have the benefit of the works for the whole of the term and were denied it by having to abort after 4 years by reason of the defendant's negligence. In my judgment they are entitled to claim as a loss the costs to them of performing all the works under clause 4.31, but they must be subject to a discount to reflect the fact that they had the benefit of those works during the first 4 years of the 25 years of the term. In my judgement that is not to be calculated on a purely arithmetical basis because I accept the argument that almost from the outset the claimants were denied the ability to plan and run their business on the basis that they had a long term stable site for business expansion. For almost the entirety of their occupation they were operating on a short term basis. Taking that into account I discount the sum I award in respect of this claim by 12.5%
This claim is broken down in a number of respects. There is a claim for invoiced materials, equipment, hire costs, professional fees and local authority fees of £44,874.38p. Those have been recorded carefully in the claimant's Sage business accounting software under the heading Yard Costs. Mr Stapleton, for the defendant, has checked the invoices reflected in that document and has been able to identify all the invoices save for three totalling £800. In my judgment the claimants have proved, on the balance of probabilities, that they did expend those sums in respect of performing the works under clause 4.31 of the lease and those sums are recoverable subject to discount as a loss occasioned by this negligence.
They also claim a 50% uplift of £22,437.19p said to be the uplift which they charge their customers whenever they use materials bought or equipment hired for the purpose of performing their contracts. In my judgment that sum is not recoverable as a loss incurred. They were not in the business of selling that type of material and so have not lost the opportunity to profit by its provision.
The third element is the cost of labour. There is a record of labour being used for these capital works set out in the same nominal ledger under the same system as contains the material and equipment hire costs. Mrs Wright, the accountant, explains that she required her client specifically to identify labour for this purpose so as to avoid any suggestion that they were inappropriately claiming labour costs against income whereas those labour costs were properly attributable to capital expenditure. To this extent recording labour costs in that way was disadvantageous to the claimants and, in my judgment, must have operated as a brake to exaggerating the labour element in performing the capital works. I therefore accept as accurate the 138.5 man days recorded at the time in their business accounting software.
In that software the sum claimed for the man days is £60 per day being the sum paid to the employees. The claim made, however, is for those man days to be compensated for at the rate of £140 which is the rate at which the claimant charges out labour to its own customers. The evidence is, and I accept, that within that charge there is a profit element of £32 per man day. The remainder is the overhead cost to the claimant of employing those employees. In my judgment the claimant is entitled to claim the cost, including overhead cost of employing persons to perform this capital work, but is not entitled to compensation for the profit element. Again Mr Funnell's evidence is that no work was turned away during this period. The work in hand was delayed. So there is no loss of opportunity which falls to be compensated to the full extent of £140 per day. The sum which does fall to be compensated is £14,958, that is 138.5 days at £108 per day. The total loss under i) is £59,832.38. Applying the 12.5% discount referred to above the award I make under this heading is £52,353.33.
2. There is a claim for re-surfacing of 2,500 sq metres of the site. Mr Funnell's evidence is that this cost is, effectively, his hours working to re-surface this considerable area of the site. He has charged £140, the same day rate as he would charge his clients. At this rate the sum claimed represents about 70 working days. Mr Stapleton has allowed £1500 which at the rate of £60 per day is 25 working days. There is no hard evidence on either side to support their contentions, merely the educated guesswork respectively of Mr Funnell, who said he performed the work, and Mr Stapleton, who adopts an approach based upon his assessment of the number of days necessary to perform work of that scale. I am not prepared to accept completely Mr Funnell's assessment of 70 days but nor do I accept Mr Stapleton's assessment is realistic. In my judgment, doing the best that I can, I award 50 days at £108 per day, namely 5,400.
3. Security fencing additional to fencing required under clause 4.31. The claim is for £1680. That comprises two invoices and labour incidentals. I am satisfied that this work was done and that the invoices for the sums claimed are genuine and attributable to that work. As for labour and incidentals the sum claimed for these two elements comes to just under 6 man days. I award 6 days at £108 per day to cover these two items totalling £648. Those three items total £1,037.44 .
4. Bulk storage bay said to have been constructed in mid 1999. I accept that this was built using the materials identified and invoiced for. The labour and incidentals element is £1388.25p. At £108.0 per day that equates to just under 14 man days. Mr Stapleton has assessed that the work would have taken 8 man days and I am prepared to accept his estimate on this item as realistic. Accordingly, I award 8 man days at £108 per day which is £864. The total under this heading is £1,675.75.
5. Alarm upgrade £562.25 is agreed.
6. The claimant claims £8,000 as the labour element at £140 per day of the cost of moving into the site in 1998. That equates to just over 57 man days. It is said that this claim includes the hire of some skips and vehicle hire in addition to labour costs but there is no supporting documentation in respect of this claim. The defendant contests this claim as it is pointed out the Claimants would have had the cost at some stage of moving out of the previous premises which were already too small. Thus it is said to be a loss which does not arise from the defendant's negligence. I agree and I make no award under this heading.
7. Items 7, 8, 9 and 10 are the costs of assignment in 2002. The claimant is bringing into account in the defendant's favour the entirety of the £45,000 received as premium on this assignment. There now appears to be no dispute either as to the fact that these costs were incurred or as to the accuracy of the sums therefore I allow them in full that is to say: under item 7 £5000, under item 8 £2,828.01, under item 9 £4034 and item 10 £2692.
11. The claimant claims £2,800 as the costs of sourcing the original location and initial lease negotiations in 1997 to 1998. This is entirely the time of Mr Funnell and equates to 20 man days at £140 per man day. In my judgment this is not a sum which ought to be allowed at all as specifically attributable to this particular lease. Mr Funnell is the partner and administrator of the business and in the absence of cogent evidence the business absorbs this kind of managerial work regardless of its successful or unsuccessful outcome. The claim as it is framed is entirely speculative and comes nowhere near the level of specificity required to admit a claim of this type. In this respect it is to be distinguished from the work Mr Funnell is said to have performed effectively as an additional member of the workforce performing manual work. The defendant relies in support of this contention on the authority of Tate and Lyle v GLC [1982] 1WLR 149 at 152 C-H. I make no award under this head of claim.
12. Items 12 and 13 relate to the costs associated with taking out and paying the interest on a loan to enable the claimants to finance the works performed at the Newhaven premises. There is now no dispute that these sums were expended for that purpose. In so far as 4 of the payments are in respect of interest on a loan taken out to allow the claimants to perform the works claimed under earlier heads, the defendant says that to award them would amount to double counting as I would be awarding interest on the damages awarded under these heads in any event. I agree with that argument and make no separate award in respect of these sums. Other than that I make the award claimed: in respect of claim 12 £1131.25 the costs of a business plan produced for obtaining the loan and under claim 13 £889 for an arrangement fee and a settlement fee.
14. The claim in respect of the hire of skips and so on for the move out of the premises is contested, though not as a matter of principle. The point is made that the invoices in respect of which these sums are claimed were dated many months before the actual date on which the lease was assigned. Mr Funnell says that the negotiations to assign the lease did take a long time and that the work of vacating the premises was going on piecemeal for months. This is why the invoices pre date the event which that work anticipated. I accept that explanation and I make this award in full of £3226.36.
15. There is in addition a claim for £18,720 being 117 days at £160 per day for labour costs involved in the move. Once again this was by and large Mr Funnell's own time. In this case I am prepared to accept that it has been established that he did carry out work specifically addressed to this event which has been wasted and is a head of damage. I do not accept his estimate in its entirety as it is vague and unsupported. Doing the best I can I assess the number of days work at 80 days to be compensated for at the rate of £80 per day. That is the strict labour cost because there are no overheads to claim for the proprietor such as there are for the employees. The award I make is £6400.
16. This is a claim of £4000 for loss of material which had to be disposed of prior to the move into smaller premises instead of being sold or used in other work. In my judgment this head of loss is not proved. It is entirely speculative. The materials themselves cost nothing. The business did not, nor given the user covenant could it, involve retail sale of such material. All that can be said is that some of it had to be got rid of before it was in a fit state to be incorporated in the form of compost or wood in works to be performed in the future. Whilst not in principle unclaimable, in my judgment is has not been proved beyond a purely speculative exercise and I make no award.
17. Additional rent of £2731 paid during the period of October 2002 until October 2003 is claimed. This is not opposed in principle nor is it disputed as to fact and I make an award of this sum.
18. A net sum of £1755 is claimed in respect of additional rent and rates incurred between 1998 and 2002. This compares the rent and rates paid at the Newhaven premises compared to the rent and rates which would have been paid at the previous site and giving credit for the sums paid to the claimant for subletting. In my judgment this modest sum cannot be claimed as no account has been made for the fact that the claimants did for some 4 years have the advantage of the larger site which must in my judgment over top the net sum claimed. I make no award under this head.
Summary
- 1. £52,353.33
2. £5,400
3. £1,037.44
4. £1,675.75
5. £562.25
6. Nil
7. £5,000
8. £2,828.01
9. £4,034
10. £2,692
11. Nil
12. £1,131.25
13. £889
14. £3,226.36
15. £6,400
16. Nil
17. £2,731
18. Nil
Total: £89,960.39
Less £45,000 from the assignment,
Award £44,960.39.
- Accordingly I give judgment to the claimants in the sum of £44,960.39p. Matters of interest and costs may be the subject of agreement between the parties but if not I will hear oral representations on these issues.
