PERRY v SCHERCHEN and Others [2001] EWCA Civ 1192

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ORDER OF MR JUSTICE ALLIOTT
[2001] EWCA Civ 1192Case No A2/2000/2370Venue Royal Courts of Justice, Strand, London WC2, Wednesday, 27th June 2001
Between
PERRYAppellantSCHERCHEN and OthersRespondent
Before
Lord Justice KennedyLord Justice ChadwickMr Justice RougierDR PAUL McCORMICK (Instructed by O'Hara Rice Scholes of Portsmouth) appeared on behalf of the AppellantMR CHARLES BOURNE (Instructed by Bennett and Ryan of Brentford, Middlesex) appeared on behalf of the RespondentDate 27 June 2001

LORD JUSTICE CHADWICK:

This

[1]is an appeal against part of an order made on 26th May 2000 by Mr Justice Alliott in proceedings brought by Mr Marco Perry against Mr David Scherchen and five other defendants for damages arising from unlawful eviction from a basement property at 1-7 Boundary Row, London SE1. The judge found the defendants liable to pay damages to the claimant; and awarded damages in the amount of £55,000. Mr Perry appeals on the basis that the amount awarded as damages was too low. He does so with the permission of this Court (Lord Justice Clarke) granted on 8th August 2000. There is no cross-appeal.[2]The background to the claim may be summarised as follows. The appellant had, for some six years prior to September 1998, carried on business as the operator of a recording studio, known as Bear Farm, at basement premises at 1-7 Boundary Row which he occupied as sub-tenant. He held that sub-tenancy from the second named defendant, Boundary Row Studios Ltd, a company controlled by the first named defendant, Mr Scherchen. The sixth defendant, Placenotch Ltd, was the immediate landlord of Boundary Row Studios Ltd. Placenotch Ltd itself held the building at 1-7Boundary Row under a lease originally granted by the Corporation of London. The fourth defendant, Supotco Ltd, was tenant of the other parts of the building under a lease from Placenotch. The third defendant, Wolter Dammers, was director of Supotco. The fifth defendant, Jim Cooke, was director of Placenotch and had some role in relation to the business side of creative activities carried on by Mr Dammers. The freehold was acquired from the Corporation of London in 1996 by an off-shore company, Partick Group Ltd, either alone or in conjunction with an English registered company, First Deal Ltd, for the purpose of redevelopment.[3]A rent review was due under the head lease with effect from December 1997. It seems to have become clear to Mr Cooke that the rent that would be payable following the rent review would make it uneconomic for Placenotch to continue as tenant under the head lease. It seems that, because the new freeholder was anxious to develop the property, it was happy for Placenotch to surrender and move out. Placenotch could not give vacant possession of the premises without obtaining possession from its own tenant. Supotco needed larger premises and was content to move. So also, it seems, was Mr Scherchen's company, Boundary Row Studios Ltd. Mr Perry, who had recently refurbished his basement premises at considerable expense and had entered into financial commitments in that connection, was unwilling to give vacant possession.[4]The date for the delivery of vacant possession - as agreed by Mr Scherchen, Mr Dammers and Mr Cooke, and the companies which they respectively controlled, on the one hand and the freeholders on the other hand - was the September 1998 quarter day. It is clear that, in the weeks leading up to that quarter day, that considerable pressure was put on Mr Perry to agree to vacate on that day. But he refused to do so. On 26th September 1998 - when Boundary Row Studios Ltd was, it seems, in arrears in payment of rent due under its lease - Placenotch purported to forfeit that lease and Mr Perry's sub-lease by what it described as peaceable re-entry. The locks on the basement were changed and a notice of forfeiture was attached to the front door.[5]The judge held that the purported forfeiture by re-entry was ineffective as a matter of law. There is no challenge to that finding. He went on to consider the defendant's subsequent conduct on the basis that Mr Perry continued to occupy the basement premises after 25th September 1998 as a sub-tenant under a tenancy which had the protection, prima facie, of Part II of the Landlord and Tenant Act 1954.[6]The judge described what happened next by reference to the witness statements which he set out at pages 11 to 21 of his judgment. In short, he found that the defendants embarked upon what he described as an aggressive and intimidating course of conduct in relation to Mr Perry which culminated in a wrecking exercise on 6th October 1998. The defendants' conduct was deliberately designed to make it impossible for Mr Perry to continue as occupant of the basement premises, running his business as a recording studio in those premises. The judge's conclusions are expressed at page 21H to 22C of the transcript of his judgment. He said:
"I find as a fact that the three individual defendants became increasingly apprehensive about their financial liability if the claimant's intransigence, as they saw it, in his determination to stay made it impossible for them to give up vacant possession at the due date. Persuasion had failed and the atmosphere became frigid with open hostility demonstrated to the claimant. I make no specific findings, save in respect of 25 September, 28 September, 29 September and 6 October 1998 when, on each occasion, the defendants, particularly on the last occasion, went far beyond what is acceptable under the rule of law:: it was an attempt to evict the claimant by unlawful force."
[7]The judge turned to consider the measure of damages. At the heart of his assessment of the damages was his finding, at page 25 B-C of his judgment, that - "the claimant's conduct after the shocking events of 6 October 1998 was irrational when he lingered on in the gutted basement when, ..... it was no longer possible to use the studio for its designed purpose."

The judge said this:

"What he should have done in mitigation of his damages was find and remove to other premises, there to recreate as best he could what he had achieved at 1-7 Boundary Row."
[9]The judge considered, first, the amount of general damages. He awarded £5,000 under this head, expressly to include aggravated and exemplary damages. In reaching that figure he took account of cases involving actual eviction from domestic dwellings which would have suggested general damages at a somewhat lower figure. The judge indicated that if those cases were to be considered a true analogy at all, he regarded the amounts as awarded there as too low. It is clear therefore that the figure of £5,000 which he awarded was, in his view, not less than figures which had been awarded in cases of unlawful domestic eviction; a wrongful act which many might see as deserving of greater condemnation than the unlawful eviction from business premises. It is important to keep in mind that this was not a case where the defendants were, in the event, able to profit from their wrong. In the result they did not succeed in evicting Mr Perry on or shortly after the September 1998 quarter day; so they were unable to give vacant possession to the freeholder as agreed. So the exemplary damages awarded by the judge could not take account of the profit which they themselves would have made if their unlawful acts had succeeded.[10]The question for this Court is not whether we would have awarded an amount in excess of £5,000 by way of general damages. The question is whether the amount awarded by the judge is so plainly too low that it must be regarded as outside the band in which he could properly make an award in the exercise of his discretion. In my view, the answer to that question is no. This is not a case in which this Court can properly interfere with an award of general damages made by the judge.[11]The judge awarded special damages on the basis that this was to be treated as an "interruption in business" case rather than as a "destruction of business" case. Although he does not say in terms that that was his approach, it is implicit in his judgment; in that it follows necessarily from his view - to which I have referred - that this was a case in which what the claimant ought to have done was to find and remove to other premises and recreate there, as best he could, what he had achieved at 1-7 Boundary Row. On that basis the judge awarded special damages under three distinct heads. First, the cost of cleaning or restoring the audio-recording equipment at the basement premises which, as he accepted, had become contaminated by dust as a result of events of 6th October 1998. The judge put the cost of cleaning and restoration of the equipment at £15,000 which was very close to the figure of £15,315 which had been advanced by the expert, Mr Way, upon whose evidence the claimant had relied. There is no challenge to that evidence of special damage. Second, the costs of relocation and re-establishment at other premises. Third, the loss of income during the period of relocation and re-establishment.[12]In order to assess damages under the second and third heads, the judge went on to consider what he described as the hardest task which he had been set: namely, to decide how long it would take for the claimant to move elsewhere and set up his studio to a comparable degree of expertise; what it would cost; and what profit the claimant would have lost in the interim. He said this at page 31 A-C of the transcript:
"The evidence on these topics came late in the day and some of the submissions which I returned unread came unacceptably late. It is not for the first time that the parties have adopted extreme positions. Mr Whittaker, for the claimant, whose brochure demonstrates he is at the very top of the market, contended that suitable alternative property was particularly difficult to find in the autumn of 1998. Mr Taylor for the defendants, insists that suitable premises were readily available then, not least from his employers, Sensible Music of Drury Road, London N7."
[13]After examining the evidence given by those two witnesses, Mr Whittaker and Mr Taylor, the judge reached three conclusions of fact. First, that Mr Perry could have found suitable alternative accommodation within three months. Second, that he could have established a new recording studio within that alternative accommodation within six months; making a period of nine months in all. Third, the costs of removal and re-establishment would have been £20,000. On the basis of that, damages were to be assessed in respect of interruption of business. The judge added to the costs of relocation £20,000, an amount of £15,000 in respect of the loss of income suffered by the claimant during the nine months that it would have taken to re-establish the business in alternative accommodation.[14]The evidence of Mr Donoghue, the accountancy expert called by the claimant, was that the average yearly income of the business over the three year period from March 1996 to March 1999 was £22,028 net profit before tax. On that basis, the judge - postulating a modest increase in profits in the additional period between October 1998 and July 1999 so as to achieve an annual income of £20,000 clear of tax - calculated the net loss of earnings over a nine-month period during which the claimant would have been interrupted in his business at £15,000. The three elements of special damage - £15,000 in respect of the cleaning of equipment, £20,000 in respect of relocation and re-establishment costs and £15,000 in respect of loss of income during the interim period comes to a total of £50,000. The judge added to that total the £5,000 of general damages to reach a figure of £55,000 in respect of damages to which he added interest.[15]As the judge indicated in the passage that I have already read, the evidence from Mr Whittaker and Mr Taylor was adduced at a late stage of the trial. Curiously, there is really no material in the transcripts with which we have been provided which throws any light on what actually happened during the last two days of the trial. The penultimate day of the trial was 19th April 2000. That was the Wednesday immediately before the Easter holiday. Mr Whittaker was called by the claimant on that afternoon. We were told that he was called because the judge was expressing interest in the relocation cost and in the question whether there was a possibility of relocation within a reasonable time. In response to that interest the claimant called Mr Whittaker. As a condition of allowing him to do so, the judge made it plain that he would hear evidence on behalf of the defendants, which could be called after the Easter break when the court resumed on 12th May 2000. At that stage it does not seem to have been known either who (if any one) would give evidence in response to the evidence of Mr Whittaker or what that evidence would be. Mr Whittaker gave evidence on the afternoon of 19th April 2000. It is plain from the questions put to him in cross-examination that one of the points that was going to be taken by the defendants was that suitable alternative premises could be found without difficulty. Mr Whittaker suggested it would take between six and eighteen months. That suggestion was clearly under challenge; but Mr Whittaker, himself, had no experience of seeking or finding such accommodation. He also put the cost of establishing from scratch a studio and equipping it to the standard of the Bear Farm Studio at Boundary Row at about £200,000.[16]When the court returned after the Easter break, on 12th May 2000, the defendants called Mr Claude Taylor to deal, in particular, with the question whether suitable alternative accommodation could be readily obtained. No witness statement from Mr Taylor had been produced over the Easter adjournment but a short statement of one page was provided very shortly before he commenced to give evidence at 10 o'clock on that day. The judge was conscious that - Dr McCormick, counsel for Mr Perry, would have had no opportunity to consider in advance what questions he would wish to ask by way of cross-examination because he had not seen a witness statement. The judge indicated that cross-examination could be deferred until that afternoon. The effect was that Mr Taylor was examined in-chief for a relatively short period during the morning and was then recalled in the afternoon for cross-examination. In addition to Mr Taylor's ev evidence the defendants put in a letter from a Mr Allen who was not called as a witness.[17]One of the grounds - indeed, the principal ground - of appeal before us is that the evidence of Mr Taylor should not have been admitted because it was too late and because no witness statement had been provied in advance - as, plainly, it shoulld have been. Alternatively, it is said, if the evidence were to be admitted in those circumstances, little or no weight should be given to it because there had been no proper opportunity to cross-examine. Third, that new evidence in the form of witness statements obtained in May 2001 from witnesses who were prepared to contradict Mr Taylor's evidence should now be admitted. The principal point challenged was whether Mr Taylor could be believed when he told the judge that suitable alternative accommodation was available almost immediately.[18]The judge, having heard evidence from Mr Whittaker and from Mr Taylor, came to the conclusion it would take about three months to obtain alternative accommodation. He plainly discounted Mr Whittaker's evidence that it would take six to eighteen months and it is difficult to avoid the conclusion that he must have been influenced in reaching that conclusion by the evidence of Mr Taylor, although he did not accept Mr Taylor's view that accommodation could be obtained almost immediately.[19]At opening of the appeal we were invited to admit the further evidence. There are considerable difficulties in admitting this further evidence in the circumstances that no application appears to have been made to the judge for an adjournment to enable counsel for Mr Perry to consider the evidence that Mr Taylor was about to give (or had given), to take instructions upon it and to seek to obtain evidence in rebuttal. This unsatisfactory position was compounded by the fact there was no clear pleadings on the point to which the evidence of Mr Taylor (or of Mr Whittaker) was directed. This, therefore, was a case in which counsel for Mr Perry could properly say that he was - at least to some extent - taken by surprise on 12th May; but, as against that, having been taken by surprise, he did not adopt the obvious course of asking the judge for an adjournment so he could overcome the surprise and prepare a proper cross-examination.[20]Dr McCormick has told us that, on 12th May 2000, the judge was anxious to complete the case and he, Dr McCormick, thought that any application for an adjournment of days, let alone weeks, would not be favourably received. On that basis it is said that this Court should hold that the judge came to the wrong conclusion in relation to the time it would take to re-establish the business in alternative accommodation; or, in the alternative, that the new evidence should now be admitted so that, if necessary, the matter could be remitted for further consideration at a new trial.[21]In my view, that would not be an appropriate course to take in this case.[22]In cases of this nature there is a choice between assessing damages on the basis of an interruption of the business or on the basis that the business has been destroyed. The damages that would be appropriate if the business had been destroyed cannot be less than the damages that would be appropriate if there is an interruption of business. To put the point another way: a person whose business has been interrupted but who can re-establish himself in the same business cannot expect to achieve more by way of compensation than a person whose business has been taken away from him altogether in circumstances in which there is no hope of re-establishment. The destruction of business provides, itself, a basis for an award of damages. It sets a ceiling on the damages that can be awarded in cases of this nature; even where the business is capable of being re-established after a period of interruption.[23]If the matter were to be dealt with in this case on the basis of destruction of the business then the appropriate test would be that identified by the House of Lords in the well-known case of Owners of the Dredger Liesbosch v Owners of the Steamship Edison [1933] AC 449 - see in particular the passage at pages 463 to 464 in the speech of Lord Wright. The facts in The Liesbosch were that, as a result of a collision, the vessel, a dredger, had suffered damage. The question was whether the measure of damages was simply the cost of going into the market and buying a new dredger to replace The Liesbosch , or whether it was some different measure. Lord Wright said this:
"The true rule seems to me that the measure of damages in such cases is the value of the ship to her owner as a going concern at the time and place of the loss. In assessing that value regard must naturally be had to her pending engagements, either profitable or the reverse. The rule, however, obviously requires some care in its application; the figure of damage is to represent the capitalized value of the vessel as a profit-earning machine, not in the abstract but in view of the actual circumstances."
[24]So, where one has the destruction of a business - or of the asset in the business by which profits are made - the right approach is to ask what loss has been suffered as a result of the destruction of the income stream which the business and the asset produced. In the present case, if an award were to be made on the basis of destruction of the claimant's business, the starting point would be the income stream which the business could have been expected to produce. On the basis of the evidence accepted by the judge this can be taken at £20,000 per annum. That figure must be capitalised. The relevant inquiry is what would a willing purchaser be prepared to pay for an undertaking, including the assets employed, which produces that income stream, having regard to all the benefits and uncertainties that are attached to this partiuclar enterprise. The usual method of arriving at a capitalised figure in cases of this nature is to apply a multiplier; sometimes expressed as a number of years' purchase. An alternative method is to apply a discount factor to a continuing income stream over the period for which it is expected to continue. In principle, either process should arrive at the same figure. The question in each case is what is the appropriate multiplier or discount factor. In the present case if a multiplier of, say, five were applied to an income stream of £20,000 the capitalised value of this business would be £100,000; if a multiplier of seven were adopted, the capitalised value would be £140,000.[25]Against that, it would be necessary to give credit for two factors. First, it would be necessary to give credit for monies received by way of compensation in proceedings between Mr Perry and the freeholders, under Part II of the Landlord and Tenant Act 1954, which resulted in the surrender of his sub-tenancy in return for a compensation payment of some £35,000. Secondly, it would be necessary to give credit for the fact that Mr Perry has retained the audio recording equipment which was in the basement premises on 6th October and which - upon any hypothetical sale -would undoubtedly have passed with the undertaking, because it was use of the audio recording equipment which was generating profits. Various figures for those items have been suggested. The compensation is said to have been subject to a deduction in respect of costs so as to bring it below £35,000. The residuary value of the assets employed in a repaired state is said to be between £40,000 and £60,000. In giving credit for the assets retained it is appropriate to take the assets in a proper state of the repair. The hypothesis upon which a destruction of business valuation would be made would be that the events of 6th October 1998 had not occurred, so the assets had not been depreciated by contamination by dust.[26]Doing the best I can, it seems reasonably plain that the credit to be given, in a case like this, against a valuation based on destruction of business would be in the region of £80,000 or more. It follows that unless one were satisfied that the multiplier to be applied was going to be in excess of 6.5, any figure which would result from valuing this business on destruction of business basis would be less than the amount of special damages which the judge actually awarded, namely £50,000. Because the loss on basis of destruction of business represents a ceiling on any award of damages which could be made, there could be no purpose, as it seems to me, in remitting this case to a judge to consider whether or not, with the benefit of new evidence, he would have come to a different conclusion in relation to the period of interruption. He could not have come to a conclusion which would have led him to award a figure in excess of £50,000 special damages.[27]This Court has to bear in mind that the overriding objective under the Civil Procedure Rules is to deal with cases justly. That requires dealing with them in a way which is proportionate to the amount of money involved and the financial position of each party and having regard to the need to allocate an appropriate share - but no more than appropriate share - of the court's resources to particular litigation while taking account of the need to allocate those resources to other cases.[28]For the reasons I have sought to explain, it seems to me no useful purpose could be served by admitting the new evidence which Dr McCormick has sought to put before us, because there is no basis upon which the admission of such evidence could lead to an award of damages higher than the award which the judge has made in this case. Accordingly, to accede to the suggestion that we should admit that evidence and re-visit the questions of fact which the judge decided in relation to the award of special damage would be to adopt a course which has no purpose.[29]For those reasons I would dismiss this appeal.

MR JUSTICE ROUGIER: I agree.

LORD JUSTICE KENNEDY: I also agree. Having found in favour of the claimant on the issue of liability, the judge and the court below was faced with serious difficulties in relation to the assessment of the damages. He awarded the sum of £5,000 in respect of general and exemplary damages. I was at one stage troubled as to whether that award was sufficient. But having looked at the material placed before us as well as that placed before the judge, I am satisfied it was in the bracket of awards available to him.

[32]As to what should be awarded to compensate the claimant for the damage to his equipment, the premises which he occupied and to the business which he conducted the judge was faced with the difficulty that the way in which he should approach the problem had not been properly set out, nor had he been given the sort of evidence one would expect him to have been given in order to assist him to arrive at an appropriate conclusion. As my Lord explained, in many such cases the appropriate method of approaching this problem would be to look to see what was the level of profitability of the business concerned and then to seek to capitalise that sum - that income stream - by applying an appropriate multiplier, possibly with the assistance of those who had business experience in the field in dealing with businesses of that kind and the amount of money they might fetch.[33]The judge had none of that sort of the material and he sought to do what he could with the material placed in front of him on the basis of evidence which was plainly extravagant.[34]For the reasons explained by my Lord at the end of this hearing I am satisfied it is not appropriate to interfere with the conclusions of the judge. Accordingly, l too would dismiss this appeal.

Order

Appeal dismissed with the costs subject to detailed assessment. Permission to appeal was refused

Cited in 1 later judgment