Talisman Property Co (UK) Ltd v Norton Rose (a firm) [2006] EWCA Civ 1104

Case No B6/2005/2731[2006] EWCA Civ 1104
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
HH JUDGE BEHRENS SITTING AS A
DEPUTY JUDGE OF THE CHANCERY DIVISION
HC 04 CO1587
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Friday 28 th July 2006
Before
CHANCELLOR OF THE HIGH COURTLORD JUSTICE CARNWATHLORD JUSTICE MOSES
Between
TALISMAN PROPERTY CO (UK) LIMITEDAppellantNORTON ROSE (A FIRM)Respondent
Mr Bernard Livesey QC (instructed by Messrs Vizards Livesey Cameron Walker) for AppellantMr Roger Stewart QC & Mr David Halpern (instructed by Messrs Barlow Lyde & Gilbert) for Respondent
Judgment

Introduction

[1]This is an appeal from an assessment of damages in a professional negligence action brought by Talisman Property Co. (UK) Limited (“Talisman”) against its former solicitors, Norton Rose (“NR”). Talisman sought damages for loss of a chance. The judge heard evidence as to what witnesses would or would not have done in circumstances with which in fact they were not confronted. The witnesses had to speculate. The judge had to assess the value of their speculation. He did so and awarded Talisman damages of £53,700 plus interest. Talisman’s appeal is focused upon what it contends to be the judge’s failure properly to assess the witnesses called by Talisman to make good its assertions as to what it lost as a result of NR’s admitted negligence.

The Facts

[2]The negligence arose in relation to negotiations concerning the renewal of a business lease in Park Royal, Acton. Those premises were let for 20 years for a term expiring on 24 December 2001. Talisman is a property company; NR was instructed to act on Talisman’s behalf in relation to the purchase of a freehold interest in an industrial estate in Acton. Negotiations concerned the one unit (“the property”) which was not immediately re-sold. The tenant, by an assignment, was Lewis DMR Ltd (“Lewis”). In 1996 Lewis was acquired by the Wyko Group plc which owned Wyko Industrial Services Ltd (“Wyko”). The assets of Lewis were transferred to Wyko and Lewis became dormant. Wyko went into exclusive occupation of the premises and carried on the business which had previously been carried on there by Lewis. On 1 March 2001 Wyko arranged for service by and in the name of Lewis on the owner of the freehold interest, Clay Property Ltd (“Clay”), of a notice requesting that a new lease be granted pursuant to Section 26 of the Landlord and Tenant Act 1954 (“the 1954 Act”). On 27 April 2001 Clay served a counter-notice on Lewis indicating that it would object to the grant of a new lease on the ground specified in Section 30(1)(f) of the Landlord and Tenant Act 1954, namely that Clay intended to demolish or reconstruct the premises and could not reasonably do so without obtaining permission of the holding. On 14 June 2001 Lewis made application to the Central London County Court for a new lease.[3]In June 2001 Talisman purchased the freehold interest in the property. It was anxious to grant Wyko a lease, since Wyko’s covenant was, obviously, of far greater value than that of the dormant Lewis. There were, however, certain important obstacles to the fulfilment of that wish. For the purposes of this appeal it is essential to bear in mind the nature of those obstacles.[4]Firstly, the effect of Clay’s service of the counter-notice on Lewis, objecting to the grant of a new lease (an opposed notice) was to entitle the tenant to statutory compensation on quitting the holding, pursuant to Section 37(2) of the 1954 Act. The tenant was entitled to this statutory compensation whether it quitted because the landlord’s objection was upheld or whether it simply decided not to stay. Once the proposed notice had been served, the tenant was entitled to compensation even if the landlord changed its mind and indicated, subsequently, that it would not object to renewal. The formula for assessing the amount of statutory compensation, in the instant case, led to an amount in the sum of £179,000. But, if the tenant decided to renew the lease and did not quit the premises it was not entitled to statutory compensation. Secondly, if the landlord did secure possession on the ground of demolition and or reconstruction, the tenant would usually escape liability under the lease for dilapidations, because the landlord would have suffered no loss in taking back the premises in a dilapidated state. The dilapidations to the unit in question were substantial and liability was ultimately compromised in respect of those dilapidations in the sum of £243,000.[5]The third difficulty in the way of Talisman’s plans to secure Wyko as tenant lay in relation to the identity of the tenant of the unit. At the time Talisman embarked upon the plan to secure Wyko as tenant, there was doubt as to whether Lewis or Wyko was the tenant. This was of vital importance. If Lewis was not the tenant, because it had become dormant, and Wyko had carried on its business and paid rent, insurance and outgoings in its own name, then the counter-notice served by Clay on Lewis was invalid. If that counter-notice was invalid, because it was not served on the tenant, then Talisman would not be liable for the statutory compensation. Thus it is, perhaps, inaccurate to describe the third feature as a difficulty. It was only a difficulty if it turned out that Lewis was the tenant.[6]Talisman’s strategy to achieve its objective of Wyko becoming a tenant was to clarify the identity of the tenant and persuade those acting on behalf of Wyko that Wyko was, in reality, the tenant. Once that had been established, Talisman’s plan was to serve an unopposed notice pursuant to Section 25 of the 1954 Act. Talisman would thus secure Wyko as a tenant. It was not Talisman’s intention to keep the property. Once it had secured Wyko as the tenant it would have had an opportunity to sell the property with the benefit of the strong Wyko covenant.[7]Accordingly, Talisman instructed its solicitors, NR, to serve an unopposed notice on Wyko. But it did not. Negligently, as NR admits, and unknown to Talisman, it served an opposed notice on 2 October 2001. It opposed the renewal of the lease on the same ground as that relied upon against Lewis (i.e. Section 30(1)(f)). On 4 October 2001 Wyko served a counter-notice under Section 25(5) indicating that it was not prepared to give up possession and seeking a new tenancy.[8]The negligent service of the opposed notice was disastrous to the successful resolution of Talisman’s plan to secure Wyko as a tenant without having to pay statutory compensation. If Wyko turned out to be the tenant, rather than Lewis, Talisman incurred liability for compensation. If Lewis was the tenant, since Clay had served an opposed counter-notice, it was entitled to statutory compensation. Thus, the Wyko Group could not lose. Any negotiations would have to proceed on the basis that one or other of its subsidiaries was entitled to the statutory compensation. Thus, Talisman had lost the opportunity of persuading Wyko that it was the tenant and had unwittingly become liable to pay compensation even if Lewis was not the tenant.[9]Talisman contends it lost the chance of avoiding the payment of compensation and of achieving a new lease with Wyko. The value of the new lease to Talisman represented both a capital element and a rent element. The loss of chance was based, accordingly, on two heads of loss representing the statutory compensation and the property loss.[10]Following the negligent service of the opposed notice on 2 October 2001 and Wyko’s service of the counter-notice on 4 October 2001, the following events occurred. On 18 October 2001, Talisman was substituted as defendant in the Lewis proceedings in place of Clay and on 31 October 2001 served its Answer in the Lewis proceedings, opposing the grant of a new tenancy on the basis that Lewis was not the tenant. On the same date NR wrote to Wyko’s solicitors, at that time George Green & Co. (“Geo Green”), seeking to withdraw its ground of opposition and saying that it would not oppose the application for the grant of a new tenancy to Wyko.[11]Geo Green was not sure whether Lewis was the tenant. It appears that Wyko had sought initial advice from Eversheds as to the true identity of the tenant of the property in around June 2001, although formal notice of change of solicitors was not given until early November 2001. Mr Fazal of Eversheds advised that Lewis was the tenant. In October 2001, after service of the Section 25 notice, dated 2 October 2001, the head of property litigation and real estate litigation, a partner in Eversheds, Gary O’Brien, took over conduct of the county court proceedings on behalf of both Lewis and Wyko. At the same time NR was still recording the strategy of its client, Talisman, to avoid having to pay Lewis statutory compensation and withdrawing its opposition on the ground of redevelopment (see letter dated 30 October 2001).[12]On 29 November 2001 O’Brien of Eversheds wrote on behalf of Talisman making two important points:- i) The tenant of the property was Wyko, and ii) The service of the opposed notice on Wyko irrevocably committed Talisman to the payment of compensation.[13]By the time negotiations were under way in December 2001, it became apparent that the indefeasible entitlement of Wyko to compensation was an important bargaining factor in the negotiations. From the point of view of the Wyko Group it made no difference whether Wyko or Lewis was entitled to statutory compensation. Both Wyko and Talisman wanted Wyko to be the tenant named in the lease. Eversheds were concerned that Lewis should discontinue the litigation and continued to press Talisman that Wyko was the tenant. It persisted in that contention, in correspondence between January and February 2002 and pending the trial of the issue in the Central London County Court as to whether Wyko or Lewis was the tenant. Litigation was discontinued in November 2002 and on 8 February 2003 Wyko quitted the premises. It was entitled to the statutory compensation of £179,000 but agreed the sum of £243,000 for dilapidations. Wyko paid Talisman £79,000.

The Judgment

[14]The judge had to grapple with a number of issues, from which, as a result of his comprehensive and clear judgment, we are spared. For the purposes of this appeal it is necessary to record that he found as a matter of law that, notwithstanding that Lewis had become dormant and Wyko was undertaking its business at the premises, the effect of Section 42 of the 1925 Act was that Lewis continued to be the tenant. Since Wyko was carrying on the business of Lewis, Lewis was to be treated as the tenant. There was nothing in Section 42 which required the tenant to retain possession either in whole or in part. It mattered not that Lewis was dormant.[15]The judge also held that no tenancy arose by way of estoppel. The only relevant estoppel was estoppel by representation and Clay, in sending out demands for rent to and accepting rent from Wyko had not relied to its detriment on Wyko’s written assertion that it was the tenant. In those circumstances the judge held that Lewis remained the tenant of the premises.[16]There is no appeal from that decision. But it is an important step in an essential feature which led to the judge’s conclusion. The claimant’s primary case before the judge was that it had lost the chance of negotiating an agreement with Wyko whereby Wyko accepted that it was the tenant. But for the service of the opposed notice and the failure of the negotiations in consequence of the opposed notice, there was a good prospect that an agreement would have been reached with Wyko. Talisman would thus have avoided liability to pay compensation and gained a tenant of good covenant, increasing both the capital value of its interest in the property and an increase in rent.[17]Talisman’s claim rested on the hypothesis that Wyko would have negotiated on the basis that Wyko was the tenant but Lewis was not. Thus the loss of negotiating chance proceeded on the basis of the following hypotheses:- i) that Wyko would have believed that it was the tenant and Lewis was not; ii) that during the course of the negotiation it remained of the view that, because it was the tenant, Lewis had no right to statutory compensation; iii) that an unopposed notice had been served; and iv) accordingly, Wyko had no right to statutory compensation.[18]The judge recorded that Mr Davidson, Wyko’s property manager, had well in mind the importance of the statutory compensation of £179,000 to which Lewis was entitled. The judge reached the conclusion that, had an unopposed notice been served, it would have been in Wyko’s interest to assert that Lewis was the tenant and had an indefeasible entitlement to the statutory compensation. It would not have been in Wyko’s interest to assert that it was the tenant. In those circumstances the judge concluded that there was “a high probability” that counsel would have been instructed to advise. Had counsel been instructed to advise he would have advised that, contrary to Mr O’Brien’s opinion, Lewis was the tenant and Wyko was not. In those circumstances Talisman would not have brought negotiations for a fresh tenancy with Wyko as tenant to a successful conclusion. He concluded that Talisman’s only loss was a percentage representing the litigation risk that Wyko might be held to be the tenant on the hypothesis that counsel would have advised of such a risk in the course of advising that Lewis was, in law, the tenant. He assessed that risk at 30%. In those circumstances he awarded Talisman 30% of the £179,000 statutory compensation, namely £53,700, but nothing attributable to the loss of the chance of reaching agreement as to a tenancy with Wyko.[19]The essential issue arising on the appeal from the judgment relates to the judge’s conclusion that Wyko would have sought the advice of counsel and would thus not have negotiated on the basis that Wyko was the tenant but Lewis was not. Both sides agree that that conclusion, namely that counsel would have been consulted, is crucial to the assessment of the loss of the negotiating chance which Talisman asserts.[20]If Talisman is not able to establish that the judge erred in concluding that Wyko would have asked counsel to advise, then both sides agree that the appeal must fail. Neither side suggested that the judge’s approach to assessing loss of a chance, based on the principles identified in Allied Maples Group v Simmons & Simmonds [1995] 1 WLR 1602, was in error. The appeal turned on the evidential basis for the judge’s conclusion that Wyko would have consulted counsel. It is, therefore, necessary to examine the evidence which went to Wyko’s approach to the true identity, in law, of the tenant of the property.[21]Talisman called both Mr Davidson, the property manager for Wyko, and Mr O’Brien, the head of property litigation at Eversheds. Both were asked to consider the hypothesis that NR had served an unopposed notice on Wyko, in accordance with Talisman’s instructions. It will be necessary to analyse, in some detail, what they told the judge. The judge based his conclusions that Wyko would have consulted counsel on his assessment of their evidence. Talisman had contended, by the close of the evidence, that O’Brien had formed a clear view that Wyko rather than Lewis was the tenant. He had persisted in that view. Since he was a very experienced litigation solicitor, within a large international commercial firm, it is unlikely that he would have consulted counsel. He would have continued to advise Mr Davidson that Wyko was the tenant and, in those circumstances, had an unopposed notice been served, he would have continued to make the offer made in the letter, dated 29 November 2001, namely that Wyko should be regarded as the tenant. In those circumstances no compensation would have been payable.

The judge concluded that:

[22]- “The chance of events happening in the ways he (Mr Livesey QC for Talisman) suggested was in fact very low. There are a number of reasons for this: 1. Mr Davidson made it clear that Wyko was very alive to the question of the statutory compensation. The sum involved was large - £179,000. Wyko was facing a larger dilapidations claim and was anxious to set the compensation off against it if it vacated. I accept this evidence. It accords with commercial common sense and is well supported by the evidence of the actual negotiations. 2. If an unopposed notice had been served Mr Davidson would have been well aware that if Wyko was the tenant he would lose the right to compensation. There was in fact very little advantage to Wyko to argue that Wyko was the tenant and every advantage to argue that Lewis DMR had remained as tenant. 3. Mr Davidson had received conflicting advice from his solicitors as to who the tenant was. Mr Fazal had advised it was Lewis DMR; Miss Mort had advised that it was Lewis DMR and then said she was not sure; Mr O’Brien had advised robustly that it was Wyko. I have set out above in some detail some of the answers that were given in relation to the question of whether counsel would have been instructed. In view of the fact that £179,000 turns on the question I think there is a high probability that counsel would have been instructed to advise on the identity of the tenant.” (paragraph 158)[23]The judge then considered what counsel would have advised. He concluded that he would have advised that Mr O’Brien’s view of Section 42 was clearly wrong, that his view that Wyko had become tenant by estoppel or otherwise was probably wrong. He continued:- “If counsel had advised along those lines Mr Davidson would have appreciated that there was a good prospect of establishing that Lewis DMR remained as tenant but there was a litigation risk that the argument might not succeed. In those circumstances it is to my mind inconceivable that Mr O’Brien would have been instructed to make the offer that was contained in the letter of 29th November 2001. It would have been wholly against Wyko’s commercial interests and objectives. ”[24]The judge then went on to consider whether there would have been a new tenancy. It is apparent from his judgment that the crucial feature he identified which caused the negotiations to fail was the service of the opposed notice, since Wyko would have sought the advice of counsel and realised that the group had an indefeasible right to statutory compensation. The judge said:- “Mr Livesey QC’s question assumes that if an unopposed notice had been served Wyko would have gone into the negotiations believing that there was no right to compensation if no new tenancy was agreed. For the reasons I have given that is not the case. Wyko would have gone into negotiations knowing that there was a vested right to compensation if Lewis DMR was the tenant and that counsel had advised that Lewis DMR was likely (but not certain) to be held to be the tenant. Whilst I have no doubt that the negotiations were genuine in the sense I have described they were not conducted with any great vigour – only 3 meetings over a 7 month period. Mr Winton was only interested in a new tenancy if it increased the value of the premises over the vacant possession value. His attitude was purely commercial. He was not intending to keep the premises in the long term. Mr Lyne was only interested if the lease was adequately protected and had sufficient break clauses. These two objects proved irreconcilable when the parties knew that compensation would be payable on vacation. In my view they would have been equally irreconcilable in the slightly changed circumstances created by the service of an unopposed notice. In my view it is fanciful to suggest otherwise.” In my view it is fanciful to suggest otherwise.”[25]Thus, the conclusion that Wyko would have sought the advice of counsel, would have learnt that Lewis was the tenant and that the Group was entitled to compensation was central to the judge’s rejection of the way Wyko put its claim for loss of the chance of negotiation. The evidence of Mr Davidson and Mr O’Brien[26]This appeal has focused on the judge’s assessment of the evidence of Mr Davidson, Wyko’s property manager, and of its adviser, Mr O’Brien. For the reasons I have identified, Talisman had to establish that Wyko would have relied upon Mr O’Brien’s view that Lewis was not the tenant, but that Wyko was and there was no entitlement to statutory compensation. It had to establish that Mr O’Brien would have persisted in that view, and not sought the advice of counsel, notwithstanding that once an unopposed notice had been served, it was in the Group’s interest to establish that Lewis was the tenant and that Wyko was not. Only in that way could the Group maintain its right to statutory compensation. As the judge said, it made no commercial sense for Wyko to persist in asserting that it was the tenant once it had been served with an unopposed notice.[27]Mr Livesey QC submits that if an unopposed notice had been served, Wyko would have continued to rely upon Mr O’Brien’s view that Wyko was the tenant despite the commercial sense of asserting that Lewis was the tenant. Startling though this proposition appears, at first blush, he says that the evidence given by both Mr Davidson and Mr O’Brien established those propositions. Furthermore, neither witness had any motive to favour Talisman over NR. Neither had any hope of advantage by giving evidence favouring one side rather than the other. Both had to speculate on what the position would have been had an unopposed notice been served. Neither, submitted Mr Livesey QC, supported the conclusion that counsel would have been asked to advise.[28]It is, accordingly, necessary to analyse what both said.

Mr Davidson

[29]Mr Davidson, the property manager of Wyko, in his witness statement prepared for the proceedings in the county court, asserted that he firmly believed that Wyko was the tenant and Lewis was not. In his witness statement for the trial he said that Wyko regarded itself as the tenant. It would have sought advice from Eversheds as to the prospect of successfully arguing that Lewis was the tenant.[30]In cross-examination Mr Stewart QC, on behalf of NR, tested Mr Davidson as to the likelihood that Wyko would have sought the advice of counsel, had an unopposed notice been served. Mr Davidson recalled that Mr O’Brien’s advice was “fairly robust” and he did not think that the question of going to counsel had ever been asked. Mr Stewart suggested to him that the overwhelming likelihood is that, had an unopposed notice been served it would have made no difference to the negotiations in fact carried out between Mr Davidson and Talisman. Mr Davidson responded:- “I think the fact that we had the second opposing notice, we were on stronger ground in our negotiations, if I can put it that way and were quite happy to be bullish knowing that that was in the bag, as it were. If we had an unopposed notice I think we would have been less sure and it would have been down to the result of the earlier proceedings as to which way we had gone…I think our view would have been to have tried (to maintain that Lewis was the tenant) but I think that Eversheds would fairly quickly have said to us, “No, Wyko are the tenants. We have proved that and that is how we should proceed.”” The judge then suggested that since so much money was involved Wyko would have suggested checking whether counsel agreed with Mr O’Brien and Mr Davidson accepted that that might well have been the case. He said:- “I think, depending on his (Mr O’Brien’s) reaction then we would or would not have gone to counsel, yes.”[31]In re-examination Mr Livesey sought to clarify what Mr Davidson meant by that answer. Mr Davidson referred to Mr O’Brien’s view as being consistently strong. Mr Livesey asked:- “You say, “Depending on his reaction.” If his reaction was and remained consistently strong, would you have gone to counsel?” Mr Davidson replied:- “I’m not sure that we would, no. I think on his advice, if he had not been sure of the situation and was in any way unsure as to how to advise us, then he would have advised us to go to counsel.” Mr Livesey:- “But if his advice had been firm, would you?” Mr Davidson:- “Probably not.” The judge:- “Even though £179,000 turned on it and even though other solicitors had given you different advice? That is what I was putting to you earlier.” Mr Davidson:- “Yes. I think if he had been sure of his ground we probably would not.”[32]This evidence established, as the judge recorded, that Mr Davidson had well in mind that the Group would benefit by £179,000 if Lewis was the tenant. But, the evidence also showed how dependent Mr Davidson was upon Mr O’Brien. He did not think it likely that the advice of counsel would have been sought if Mr O’Brien remained firm in his evidence. Thus Mr O’Brien’s evidence about his response, should an unopposed notice have been served, was of the greatest importance.

The evidence of Mr O’Brien

[33]In his written statement the strength of his conviction that Wyko and not Lewis was the tenant was marked. His view was that it was not arguable that Lewis was the tenant. He did not think that Section 42 of the 1954 Act assisted Lewis’s position. He was the author of the letter dated 29 November 2001. His written evidence was that his view would not have changed had Wyko been served with an unopposed notice; he would not have advised Wyko to consider running the argument that Lewis was the tenant.[34]Geo Green, Wyko’s previous solicitors, were, in his view, negligent to have served the request for a new tenancy, pursuant to Section 26 of the 1954 Act, in the name of Lewis. He was of the view that Wyko could have sued them had there been an adverse order for costs in the Central London County Court proceedings and a difference between the period in respect of which interim rent was payable. In the Wyko proceedings in the County Court he had asserted that Geo Green’s opinion and advice were incorrect.[35]Mr O’Brien was, of course, cross-examined by Mr Stewart QC on behalf of NR. It was pointed out to him that earlier advice from Mr Fazad of Eversheds had been that Lewis was the tenant. Mr O’Brien responded that, once he had taken over, he had established far more facts and was of the opinion that there was no other arguable point of view than that Wyko was the tenant. He took the view that the payment of rent was critical and it was what he described as “the subsequent set of dealings” which had prompted the “very clear view” he had expressed in the letter to NR dated 29 November 2001. He accepted that lawyers could have different views about Section 42. But he took the view that the acceptance of rent and subsequent dealings established that Wyko was the tenant. He did not, accordingly, rely on Section 42.[36]Later, in cross-examination, he accepted that if an unopposed notice had been served on Wyko the advantage would have lain in asserting that Lewis was the tenant but he said:- “You first have to be able to make the argument.” He accepted, for a second time, that he would have gone to counsel had he taken the view that Section 42 was of assistance but he continued:- “Certainly, we would have painstakingly looked at the whole thing because obviously you do not go to counsel for no purpose. But I just do not see how you could credibly assert that Wyko had not been accepted as the tenant to the exclusion of its predecessor company.”[37]There then followed a passage which Mr Stewart QC, on behalf of NR, submitted was of considerable importance. It showed, so he contended, that Mr O’Brien did accept that he would have gone to counsel not only in relation to Section 42, which he regarded as of no assistance, but also in relation to the issue of estoppel. It will be recalled that, by the time of the trial, the only two candidates for the source in law of Wyko’s tenancy were either Section 42 or estoppel. The passage reads as follows:- Mr Stewart:
“…you are saying you would have accepted counsel’s views on Section 42 but would still have considered that Wyko was the tenant because of the operation of an estoppel. Is that right?”

Mr O’Brien:

“That is the way I would have analysed it in the hypothesis that you are putting to me.”
Mr Stewart:
“You would also necessarily in those circumstances have gone to counsel on that question, as to whether or not the facts you had uncovered generated an estoppel.”
Mr O’Brien: “Certainly.” Mr Stewart: Mr O’Brien: Mr Stewart: Mr O’Brien:[38]Had matters stood there it is plain that Mr Stewart had gone a long way in establishing Mr O’Brien would have consulted counsel had an unopposed notice been served. But there was room for ambiguity. Mr O’Brien’s basis for saying that Wyko was the tenant was not estoppel but rather the fact that rent and other payments had been paid by Wyko and accepted by Clay. The matter did not conclude there. Mr O’Brien was pressed by the judge and accepted that if there had been sufficient doubt he would definitely have gone to leading counsel. In re-examination Mr O’Brien identified the key questions as to who was paying the rent and who the landlord was treating as the tenant. He said that his view that Wyko was the tenant was very strong:- “I did not see how it could be argued any other way than that Wyko had completely taken over.” He was then asked again whether he would have gone to counsel and replied:- “No, I’ve been a real estate litigator for more than 20 years; if I think I’ve carefully come to a conclusion based upon substantial instructions to me by a client on matters of who is in occupation, which are matters of fact, then no, I would not go to counsel.” The judge pointed out that it was not a matter of fact but Mr O’Brien responded that it was an evaluation of the consequences of facts and continued:- “If there had been any kind of evidence that Lewis was doing some kind of business activity at the premises, so that you could hang some kind of argument on a Section 42 point, I would have gone to leading counsel on that question. If we were having to think about estoppel, I would have undoubtedly have gone to leading counsel on that question. But in circumstances where rent was being – I am beginning to repeat myself. But where rent was being paid, the landlord we are dealing with, Wyko, even…” Later he repeated that he had a substantial amount of evidence that Wyko was the tenant and there was no reason to question that conclusion. He continued:- “So why therefore would we suggest to clients, who are coming to you because they are thinking about rationalising their business, that we therefore need to go to an additional layer of legal advice and the consequent expense?”[39]That evidence, in re-examination, powerfully suggests that in Mr O’Brien’s mind the foundation for the opinion that Wyko was the tenant was neither Section 42 nor estoppel. It was no doubt that which triggered further cross-examination by Mr Stewart QC. He cannot have been satisfied with the answers which he had already obtained. During the course of that further cross-examination Mr O’Brien referred to, what he described as, “Three chunks of Woodfall”. Mr Livesey QC has now tracked down what was probably the relevant part of Woodfall at paragraphs 6.037 in the edition noted up to September 1995. This refers to creation of a tenancy by conduct, springing from a consensual arrangement between two parties. But that could have been of no assistance in establishing that Wyko was the tenant; in the light of Section 42 of the 1954 Act the acceptance of rent is nothing to the point. But the references to Woodfall demonstrate that Mr O’Brien was, indeed, relying upon a third basis, other than Section 42 and estoppel, as the foundation for his strongly held opinion that Wyko was the tenant.

The approach to hypothetical evidence

[40]It is plain that the judge did not accept that, had an unopposed notice been served, Wyko would have merely relied upon Mr O’Brien’s evidence and would not have sought to assert that Lewis was the tenant. The foundation of the judge’s view was, as I have recalled, the commercial sense in Wyko seeking to establish that Lewis was the tenant. Unless it did so the Group would lose the statutory compensation of £179,000. It would, surely, not have given up attempts to maintain a right to the statutory compensation without at least seeking the advice of counsel. All the more so since Geo Green, its former solicitors had been in doubt, and Mr Fazal of Eversheds had previously advised that Lewis was the tenant. It would have lacked all commercial sense for Wyko to have meekly accepted the advice of Mr O’Brien and submitted to the loss of the Group’s entitlement to statutory compensation, particularly since Mr Davidson had well in mind the significance of that sum.[41]There is no doubt but that the judge was entitled to reject the confident assertion of Mr O’Brien that he would not have advised Wyko to seek the advice of counsel and the evidence of Mr Davidson that he would have relied upon the opinion of Mr O’Brien, provided that it was strongly maintained. It should be remembered that both of those witnesses were being asked to give evidence on the basis of hypothetical facts which had not in fact occurred. They were being asked to speculate. The judge was entitled to reject the fruit of that speculation since he, himself, was being asked to speculate and assess the loss of a chance.[42]That that was a legitimate approach was endorsed by this court in Alliance & Leicester Building Society v Robinson (transcript of 4 May 2000). That was yet another case in which a building society sought damages for negligence against solicitors in connection with advances made to a building development company. The judge had concluded that the transaction would have gone ahead even if material facts, which ought to have been disclosed, had been. Two witnesses called by the society contended that, had there been proper disclosure, they would not have endorsed the loan. Chadwick LJ pointed out that, in the absence of any policy or guidelines, the evidence of those two witnesses was speculative. The judge was entitled to conclude that their evidence smacked of “hindsight and justification”. It lacked all commercial reality (see paragraphs 32 and 33 of Chadwick LJ’s judgment). The judge was entitled to reach that conclusion in the light of hearing and seeing those witnesses:- “He is not bound to accept that the witnesses would have done what they now say they would have done. He tests that against the circumstances as they actually were. And he can make his own assessment of what the person he has seen and heard in the witness box would have been likely to do in those circumstances.”[43]The position of Mr Davidson and Mr O’Brien was not, however, the same as those two witnesses from the building society who had to explain why it was they had endorsed the loan the society made. In the instant case neither Mr Davidson nor Mr O’Brien had any interest in the outcome of the litigation against NR. They had no motive for tilting towards one rather than the other party. The only possible reason for Mr O’Brien to persist in his view that counsel would not have been consulted was confidence in the correctness of his own views and, humanly, a certain amour propre.

Analysis of the judge’s conclusion

[44]The judge was entitled to reach his own conclusion in the light of the commercial circumstances. As I have said, Wyko would have had every reason to argue that Lewis was the tenant if an unopposed notice had been served. To that end, it would have had every reason to dispute Mr O’Brien’s view, and in order to do that, seek the advice of counsel. But in reaching that conclusion the judge made no reference to the lack of any interest either Mr Davidson or Mr O’Brien would have had in supporting Talisman’s case against NR. Apart from emphasising the commercial interest Wyko would have had in establishing that Lewis was tenant, he provides no reason for rejecting Mr O’Brien’s assertion that he would not have sought the advice of counsel.[45]The judge recorded sections of Mr Davidson’s evidence in which, in cross-examination, he accepted that he would have wanted a proper reasoned legal answer and that he would have wanted to maintain an entitlement to statutory compensation if he possibly could. But he does not record Mr Davidson’s evidence that he would have relied upon Mr O’Brien and probably not have sought the advice of counsel had Mr O’Brien persisted in his strong view that Wyko was the tenant.[46]In relation to Mr O’Brien’s evidence he recalls Mr O’Brien’s acceptance that he would have sought the advice of counsel in relation to Section 42 and in relation to estoppel. He then records, without further comment, that he would not have changed his view had the notice been unopposed and that since no-one was challenging him on it, he had no reason to take further advice.[47]The judge’s conclusion as to what was likely to have happened seems to have been that there was a very low chance of Wyko not seeking the advice of counsel. In paragraph 158 he describes the chance of events happening in the way submitted as being “very low”. At 158.3 he refers to a “high probability” that counsel would have been instructed to advise. But by the time he considers whether agreement would have been reached as to a new tenancy between Talisman and Wyko, he rejects any possibility that Wyko would have gone into negotiations believing that there was no right to compensation. As I have already recalled, at 163 he said:- “Mr Livesey QC’s question assumes that if an unopposed notice had been served, Wyko would have gone into the negotiations believing there was no right to compensation if no new tenancy was agreed. For the reasons I have given that is not the case.”[48]Thus the judge seems to have travelled from a position where there was only a very low chance of counsel’s advice not being sought to a position where there was no chance at all that that advice would have been sought.

Conclusions

[49]This court must be wary of substituting its own view of the hypothetical facts for that of the judge. The judge’s conclusions as to the speculation of witnesses is a conclusion of fact. Nevertheless, it must be stressed that in the instant case, the judge’s conclusion was not based upon any assessment of the credibility or reliability of the witnesses, Mr Davidson and Mr O’Brien. He makes no comment whatever about their credibility or their reliability. To that extent this case is quite different from the decision of this court in Alliance & Leicester Building Society which triggered the comments of Chadwick LJ. The judge’s conclusion did not depend upon a realisation that the witnesses were seeking to justify previous decisions. Mr Davidson had nothing to justify. Wyko had walked away and the Group had successfully maintained its right to the statutory compensation. Mr O’Brien had only his pride to preserve. But the greater his need to preserve his pre-eminence in the field of property law and litigation, the more it demonstrates how confident he would have been in the views he had expressed and the less the likelihood that he would have felt the need to advise seeking the opinion of counsel. The judge’s decision contains no acknowledgment whatever of the position of those two witnesses.[50]The judge was not, in my view, entitled to rule out altogether the chance that Mr O’Brien would have stuck to his guns and that Mr Davidson would have relied upon Mr O’Brien’s advice. After all, Mr O’Brien was regarded as a specialist in the field of property litigation. Mr Davidson had sought his advice for that very purpose and had given evidence that he would have relied upon that advice. There was no reason to doubt that that was so. Thus despite the commercial imperative to maintain that Lewis was the tenant, there were strong grounds for accepting Mr Davidson’s evidence that he would have relied upon Mr O’Brien.[51]There were also strong grounds for accepting Mr O’Brien’s evidence that he believed he was right. He had throughout persisted in the view that Wyko was the tenant. Indeed, he had continued to maintain that view even after it did not matter, namely after an opposed notice had been sent to Wyko. He never wavered.[52]It is one thing for the judge to reach a different view, namely that there was a chance that Wyko would have sought the advice of counsel, notwithstanding Mr O’Brien’s view, but quite another to reach the conclusion that there was no chance whatever of Wyko not seeking the advice of counsel.[53]There was controversy between counsel as to whether a finding that there was a high probability that counsel would have been asked to advise was equivalent to a finding that there was a no more than a fanciful chance that counsel would not have been asked to advise. I do not think that resolution of that controversy will assist. Read as a whole, it is clear that the judge thought there was no chance that Wyko would not seek the advice of counsel.[54]In my view he was wrong to do so. He could not do so without explaining why he rejected O’Brien’s and Davidson’s evidence as to what they would have done had an unopposed notice been served. He would have had to explain whether he was rejecting Mr Davidson’s evidence that he would have relied upon Mr O’Brien and not sought the advice of counsel provided that Mr O’Brien’s advice remained firm. He would have to explain why he rejected Mr O’Brien’s evidence that he maintained his view that Wyko was the tenant throughout and, absent any challenge, could see no reason to seek the advice of counsel. No one suggested that Mr O’Brien’s view had been challenged other than by the previous advice given by Geo Green which Mr O’Brien regarded as negligent and the advice from a more junior member of Eversheds, Mr Fazal. I conclude that, absent some reason for rejecting their evidence completely, which has not been recorded, it was not open to the judge to conclude that there was no chance that Wyko would accept the advice of Mr O’Brien.[55]The question then remains as to the assessment of the chance that counsel’s advice would not have been sought. Predictably, Mr Stewart QC contends that that chance was very low; so low as to be regarded as fanciful. Mr O’Brien would have taken leave of his senses, he submits, not to have advised seeking the advice of counsel when as much as £179,000 turned on whether Lewis was the tenant or not. Mr Livesey QC contends, that there was a high chance that counsel would not have been instructed in the light of the persistence and strength of Mr O’Brien’s view and his approach as a senior and experienced advisor in property disputes.[56]Once the conclusion that there was no chance that Wyko would not seek the advice of counsel is rejected, it seems to me there is no evidential basis for distinguishing between the two counter submissions. Either Wyko would have sought the advice of counsel or it would not. Viewed in that way the proper conclusion on all the evidence is that there was a 50% chance that Wyko would seek the advice of counsel and a 50% chance that it would not. The appropriate assessment of the chance that it would not have done so is 50%.

The effect on damages

[57]There are two heads of loss as I have already recorded. NR suggests that if the court takes the view that there was a 50% chance that counsel’s advice would not have been taken, it would be wrong to award 50% of the statutory compensation. There still remains a chance that even if Wyko had not gone to counsel, it would not have accepted O’Brien’s advice and persisted in contending that Lewis was the tenant. The chance of that must be multiplied to the chance of not going to counsel and thus less than 50% should be applied to the figure of the statutory compensation £179,000. In my view there is no evidence that Wyko, if it had not gone to counsel, would not have followed O’Brien’s view. I see no basis for discounting the figure for loss of compensation by more than 50%.[58]The second head of loss, namely the property loss, comprises the capital element of £17,000 and a loss of rent element of £90,658.90 making a total of £107,658.90. There is controversy as to the date from which new rent would have run. This court does not have sufficient material to resolve that controversy. The judge did not resolve it. The only record of an agreed market rent refers to £174,500 per annum. There is no finding as to when the new lease was likely to have taken effect. NR contends that the correct figure is not £90,658.90 but rather £73,400 because the interim rent would have been paid from a later date than that for which Talisman contends. I think the only fair thing to do is to roughly split the difference and award as a loss of rent element £80,000 to which should be added the capital element of £17,000 making a total of £97,000. In relation to that head of damages Talisman accepts that allowance should be made for two contingencies. Firstly, the chance that agreement would not have been reached and secondly, the chance, already assessed, that Wyko would not have gone to counsel. Those chances have to be multiplied. I would assess the chance of agreement not being reached had Wyko not gone to counsel and negotiated in the belief that it was not entitled to assessment as 30%. In those circumstances the property loss should be assessed as follows:- £97,000 x 50% (the chance of not going to counsel) x 70% (the chance of reaching agreement) = £33,950[59]In those circumstances I would allow the appeal and award Talisman £123,450, (89,500+33,950).[60]I agree.

Chancellor of the High Court:

[61]I also agree.

Cited in 1 later judgment