Stadium Capital Holdings (No.2) Ltd v St Marylebone Property Company & Anor [2011] EWHC 2856 (Ch)

Case No HC08C02437[2011] EWHC 2856 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 08/11/2011
Before
MR JUSTICE VOS
Between
Stadium Capital Holdings (No.2) LimitedClaimantSt Marylebone Property Company PLCDefendantsClear Channel UK LimitedDefendant
Mr John Furber QC (instructed by Thrings LLP) appeared for ClaimantMs Janet Bignell (instructed by Mills & Reeve LLP) appeared for first Defendant for The second Defendant did not appear and was not representedHearing Hearing dates: 26 th-28 th and 31 st October 2011
Judgment

Introduction

[1]This is the third instalment of a long-running battle concerning an advertising hoarding (the “Hoarding”) located on the West side of Finchley Road, London NW3. The Claimant, Stadium Capital (No 2) Holdings Limited (“Stadium” or the “Claimant”), is the owner of a cleared development site known as Midland Crescent, Finchley Road, London NW3 (the “Site”), and the first Defendant is St Marylebone Property Company plc (“Marylebone”), which is the owner of the adjoining 3 storey building at 279A Finchley Road, London NW3. More important to this dispute than the 3 storey building owned by Marylebone is the flank wall (the “Wall”) of that property facing due South and clearly visible to the stream of oncoming traffic heading from central London for the M1 and other major trunk roads. The Hoarding over which this dispute has raged was erected at second floor level attached to the Wall and projecting into the airspace of the owners of the Site (now the Claimant).[2]Stadium’s claim for damages for trespass against Marylebone was tried by Sir Donald Rattee, who gave judgment for Stadium on 15th October 2009, and awarded it damages in the sum of £313,972.70. That sum was the entirety of the licence fee received by Marylebone from the second Defendant, Clear Channel UK Limited (“Clear Channel”) for the use of the Hoarding for advertising purposes between 23rd January 2005 and 2nd October 2008 (the “Period”).[3]The Court of Appeal allowed Marylebone’s appeal against Sir Donald Rattee’s assessment of damages, and held that he ought to have acceded to Marylebone’s late application for an adjournment of the issue of quantum on 15 July 2010, made shortly before the judgment was delivered. The Court of Appeal held also that the Judge did not have sufficient material before him to reach an appropriate conclusion on quantum, and that he had made an award that was “at the very top end of the basis of awarding damages on a restitutional basis”. The Court of Appeal did not, however, think it appropriate to decide on what basis damages payable to Stadium should actually be assessed and that task has been left to me. I have, however, had the benefit of evidence and argument that was not before Sir Donald Rattee or the Court of Appeal, and that was directed specifically at the assessment of damages.[4]The case raises the question of how damages for trespass should be assessed, where the defendant has made a profit from his trespass and where, in any hypothetical negotiation that might have taken place as to an appropriate payment for such usage, the landowner holds the trump card of being able to refuse permission and thereby prevent any money at all being made from the trespass.[5]Stadium initially put its claim on two bases. First it claimed what is, in all but name, an account of the profits that Marylebone made in the sum of £313,972.70 less some minor discounts for its expenses. Secondly, Stadium claimed that its damages should be assessed by reference to a hypothetical licence fee which should take into account its ability to use its land in such a way as to make it impossible for Marylebone to use the Wall to display advertisements. At the start of the second day of the trial, Stadium abandoned its claim for an account of profits, and accepted that damages should be assessed on the basis of a hypothetical negotiation of the fee that would have been paid for the grant of a notional licence to use the airspace. The devil, however, is in the detail, since the parties take very different views as to the result of such a hypothetical negotiation.[6]Before dealing with those differences, I should briefly set out the chronological background to this dispute.

Chronological background

[7]On 7th September 1956, the then owner of the Site gave the then owners of 279A Finchley Road a licence to erect a hoarding on the Wall, over-sailing the Site.[8]In 1975, Marylebone became the registered leasehold proprietor of 279A Finchley Road, and of the Wall.[9]On 27th November 1975, planning consent was granted for the installation of an advertising hoarding on the Wall at first floor level. That permission was expressed to expire on 31st November 1980 (sic). It will be observed that the Hoarding was at second floor level.[10]On 31st July 2001, the London Borough of Camden (“Camden”) refused planning permission for a 96 sheet advertising hoarding at street level on the Site.[11]On 9th November 2001, the Planning Inspector allowed an appeal against Camden’s refusal to grant planning permission for a 96 sheet advertising hoarding at street level on the Site, allowing consent for a temporary 2 year period.[12]On 25th March 2003, Marylebone entered into a licence agreement with Clear Channel in respect of the Hoarding for a period of 5 years from 29th September 2003 (the “CC Licence”). The licence fee payable by Clear Channel to Marylebone was £80,000 per annum for the period to 28th September 2006, and £90,000 per annum for the period from 29th September 2006 to 28th September 2008.[13]On 5th January 2004, Camden renewed the planning permission for the 96 sheet advertising hoarding on the Site for a further 2 years from that date.[14]On 15th March 2004, BRB (Residuary) Limited, the then owners of the Site (“BRB”) entered into an agreement with Maiden Outdoor Advertising Limited (“Maiden”) for a 96 sheet hoarding on the Site for 5 years at £40,000 per annum from 1st October 2003 to 30th September 2008. There was a redevelopment break clause in the agreement.[15]On 23rd December 2004, BRB’s solicitors gave one month’s notice to Marylebone requiring the removal of “both [the Hoarding] and [the associated] bill posting platform”. The notice is marked with a stamp suggesting it was received on 4th January 2005.[16]On 23rd January 2005, when the notice expired, the presence of the Hoarding and platform constituted a trespass on the airspace of the Site, according to the findings of Sir Donald Rattee.[17]On 1st February 2005, Marylebone responded to BRB’s solicitors by claiming that it had acquired the airspace by adverse possession.[18]On 17th October 2005, BRB’s solicitors wrote to Marylebone drawing its attention to the 1956 licence granted by BRB to Marylebone and, for the avoidance of doubt, withdrawing the permission granted and requiring the removal of the advertising hoarding within 28 days of the date of the letter.[19]On 1st November 2005, Marylebone’s solicitor wrote to BRB saying that “any license [sic] (which is not admitted) that may have been granted in 1956 terminated at the latest on the date when my client company acquired the leasehold interest. My client company has been in possession of the air space occupied by the advertising hoarding ever since, as of right, and has exercised rights of access thereto”.[20]On 8th February 2008, Stadium was incorporated.[21]On 28th March 2008, BRB transferred the freehold of the Site to Stadium.[22]On 8th May 2008, Marylebone entered into a further licence agreement with Clear Channel in respect of the Hoarding. The licence fee payable by Clear Channel to Marylebone was £55,000 per annum for the period to 28th September 2011.[23]On 30th May 2008, Stadium’s solicitors wrote to Marylebone giving 14 days notice to remove the Hoarding. Also on 30th May 2008, Stadium offered without prejudice to allow Clear Channel to lease the 96 sheet hoarding site, and to erect and lease a new free-standing 48 sheet hoarding at the same height as the Hoarding.[24]On 4th June 2008, Stadium wrote to Titan Outdoor Advertising Limited (“Titan”, which had by then taken over Maiden) saying that Stadium was not bound by BRB’s licence in respect of the 96 sheet hoarding on the Site, and demanding that it remove the 96 sheet hoarding within one month. At the same time, Stadium proposed without prejudice terms for the 96 sheet hoarding to remain in place as long as vacant possession was obtained by 30th September 2008, on the basis that Stadium could buy the steel frame for the 96 sheet hoarding from Titan. Mr Antony Spencer, managing director of Stadium (“Mr Spencer”), told me in evidence that Titan accepted these terms.[25]On 7th July 2008, Stadium and Clear Channel entered a 2 year agreement with Clear Channel in respect of the 96 sheet hoarding for a rent of £100,000 per annum. In addition, Stadium and Clear Channel agreed by a side letter from Clear Channel headed “subject to contract and without prejudice” but countersigned by Mr Spencer on behalf of Stadium, as follows:- i) Clear Channel would use reasonable endeavours to obtain Marylebone’s agreement to a tripartite agreement for a 2 year term for Clear Channel to use the Hoarding for a rent of £50,000 per annum less any rent payable by Stadium to Marylebone for the use of its Wall, with Clear Channel having a tenancy of Stadium’s airspace. Mr Spencer told me that he would have been prepared to pay Marylebone the whole of the £50,000 rent if it had been prepared to settle its claims on the title to the Site that was preventing him developing it. ii) Clear Channel would, if no agreement were reached by 1st October 2008, remove the Hoarding from the Wall. iii) If no agreement were reached, and if Stadium obtained the necessary consents for a new 48 sheet free-standing hoarding in front of the Wall (planning permission and consent under a demarcation agreement from Network Rail to vary its restrictive covenant preventing building within 10 metres of the boundary), both by 1st October 2008, Stadium would grant Clear Channel a 2 year tenancy for that new 48 sheet hoarding at £50,000 per annum.[26]On 4th August 2008, BRB assigned its rights in respect of the Hoarding to Stadium for £1.[27]On 27th August 2008, Stadium issued these proceedings.[28]On 2nd October 2008, Clear Channel removed the Hoarding and the associated scaffold platform in front of it.[29]On 2nd December 2008, Master Price made a consent order approving the discontinuance of these proceedings against Clear Channel with no order as to costs.[30]On 11th December 2008, a new stand-alone 48 sheet hoarding was erected on the Site at 2nd floor level without the benefit of any planning permission. It was some 5 metres from the Wall at the rear of the Site and some 1 metre from the Wall at the front of the Site. The total costs associated with this erection totalled nearly £22,000 made up approximately as follows (half paid by Clear Channel and half by Stadium):- i) TCP Construction’s building costs of £19,090. ii) Network Rail’s invoice in respect of safety charges amounting to £2,855.07.[31]On 15th October 2009, Sir Donald Rattee awarded Stadium damages for trespass in the sum of £313,972.70, the gross proceeds of the CC Licence during the Period.[32]On 15th July 2010, the Court of Appeal (Sullivan, Patten LJJ and Peter Smith J) allowed Marylebone’s appeal on quantum and ordered that damages should be assessed by a High Court Judge of the Chancery Division, that the costs of the trial should remain as ordered, and the costs of the appeal should be in the assessment.[33]Peter Smith J said the following at paragraphs 12-15:- “12. We come to the position before us, however, that, for one reason or another which I do not think it is appropriate for us to go into, the judge was not clearly given enough material to come to an appropriate conclusion. It is, my view, that when one looks at the judgment awarded it is at the very top end of the basis of awarding damages on a restitutional basis. In other words, to attract this kind of award it would have to be regarded as the most serious justification for restitutional damages.13. It seems to us that the judge perhaps ought to have considered the application for an adjournment in the light of the paucity of the material before him, and he ought to have thought it more appropriate for the arguments to be properly deployed on the very difficult question of assessing damages to trespass. I do not think it is appropriate to go into the different bases, but trespass is an unusual tort in that, first of all, it is accepted that it is actionable per se without damage and, second, there has been a development over a series of cases of awarding damages not on the basis of the land to be used by the plaintiff but the basis upon which the defendant has used the land, and this starts basically with the decision in Penarth Dock Engineering Co Ltd v Pounds [1963] 1, where Lord Denning MR says precisely that. The test of the measure of damages is not what the plaintiff had lost but what benefit the defendant obtained by having the use of the berth. This introduces a flexible basis for assessment because it requires the court to look at the use that was made. It is fair to say, in the cases that we have been taken through, that the vast majority of those resolve it by charging a reasonable fee for the occupation of the land by the trespasser; but, in the light of these authorities, which end up in Attorney General v Blake[2001] 1 AC 268, my view is that this area is flexible, and in an appropriate case it is possibly arguable that the measure of damages can represent 100%. It is equally possible that the measure of damages could be [calculated] by the amount of expenditure the wrongdoer incurs in obtaining the benefit, and in between it is possible that damages could be assessed by a license fee that would be artificially negotiated by the parties in the lines of Wrotham Park above and succeeding authorities.14. In my view, although the judge, as I say, was bereft of any great assistance on this, it is possible that he ought nevertheless, despite the fact that he had experienced leading counsel in front of him have considered whether in the case on material before him the appropriate award was the largest award that he could possibly have awarded for trespass in this case. Regretfully, I think that despite the lack of material before him the judge should have hesitated, and in my view the judge, although I accept that this is done with the benefit of hindsight, he ought to have acceded to the application and directed a split trial, even though the application was made as late as the time when he was delivering his judgment.15. It seems to me, therefore, that we should allow the appeal on that basis. I do not think it is appropriate to decide upon what basis the damages should be assessed. It seems to me that that should be entirely open, and it is open to the appellant to seek to argue a deduction or a fee based on reasonable negotiations. Those negotiations, hypothetically, of course might lead, with the appropriate evidence, to a share in the profits as the basis for the fee; equally, it is still open in my view to the respondent, if it can do so, to suggest that the appropriate level of damages for trespassing ought to be taken entirely out of the headline profits from the appellants”.[34]Patten LJ gave the second judgment (though the transcript indicates in error that it was Sullivan LJ) saying:- “17. I agree with the judgment which has been delivered. The judge awarded the claimant in this case what he believed was, on the evidence before him, the totality of the defendant's profit from the use of the claimant's airspace. Although awarded as damages, an order in that sum appears to me to be indistinguishable from the result of an account of profits, which Lord Nichols in his speech in Attorney General v Blake regarded as an exceptional remedy and one which could not be made at common law in the form of an award of damages. All the [decided] cases to which we have been referred in the area of trespass, which proceed to award damages on what can generally be described as a restitutionary basis, proceed on the footing of the so-called user principle, ie a hypothetical license fee, which by definition will not produce a figure equal to 100% of the profits of the unlawful venture. The judge was therefore, in my judgment, wrong in principle simply to have accepted the headline figure which he did”.[35]Against the above background, the only issue that I have to determine is the proper quantum of the damages for trespass that Stadium should recover as a result of the Hoarding infringing its airspace on the Site during the Period.

The Claimant’s witness

[36]Mr Antony Ian Spencer is the managing director and 100% owner of Stadium. He has many property interests, and the group of companies in which Stadium is a part was intimately involved in the relocation of Arsenal Football Club’s stadium. I found him a reasonably careful witness, who did not exaggerate his position, and tried to deal with questions accurately.[37]He told me that, before Stadium bought the Site, he made a number of investigations to try to understand what litigation he was buying. He took legal advice on the issue revealed in the estate agents’ particulars, namely that Marylebone claimed a “prescriptive right to the advertising hoarding on the flank wall”. The price Stadium had paid for the Site took into account the potential litigation.[38]Mr Spencer said he had spoken to Mr Bernard Herman of Marylebone, who explained that he had a “right to a view” from 279A Finchley Road, and that he would take Stadium all the way to court, if Stadium tried to develop the Site, which was what Mr Spencer always wanted to do. BRB had taken legal advice and considered putting a hoarding in front of Marylebone’s Hoarding. Mr Spencer said that BRB was Stadium’s partner in this litigation, in that it was sharing in the proceeds of any damages that are awarded. Mr Spencer wanted to know if Marylebone had a legal document giving him a “right to a view” or “air rights”. He was worried that it might, because Mr Herman had told him that Marylebone wanted £1.9 to £2.0 million if Stadium wished to buy the right to the Hoarding and to develop.[39]Mr Spencer was cross examined at some length about the arrangements he made with Clear Channel after Stadium had bought the Site in March 2008. In essence he explained that the deal Stadium did with Clear Channel was entered into to try to avoid this litigation, and later to compromise it. Mr Spencer was also asked about the need to obtain consent from Network Rail for the new scaffolding that he wanted to erect for the hoarding that Stadium ultimately placed in front of the Hoarding. He explained that there was no great difficulty in obtaining that permission, which was handled mainly by a Mr McCormack in Stadium’s office.

Marylebone’s witnesses

[40]Mr Bernard Herman and Mr Yusuf Dedat, the accountant responsible for the preparation of Marylebone’s accounts, were due to give evidence, but ultimately did not do so because Stadium abandoned its first method of assessing damages, and their evidence went only to the ‘account of profits’ approach.

Stadium’s expert

[41]Mr Anthony Michael Lorenz is a commercial property consultant, who has no formal qualifications. Moreover, he has had no significant experience in dealing with the practical or commercial issues arising from advertising hoardings. In his report (as amended in evidence in chief), he sought to provide an answer to the question of what proportion of the income to be derived from the CC Licence would have been provided to the owner of the Site in a hypothetical open market negotiation in January 2005 between the Site owner and the Wall owner. He reached the conclusion that the Wall owner would have negotiated to retain only £42,000 from the gross Licence fee of £313,972, being some 13.4%.[42]Mr Lorenz’s report relied on the fact that the Wall owner required consent from the Site owner to use its airspace where the sign projected into it, and to erect, maintain and change the signage and the platform that was used to access the Hoarding. In practice, therefore, Mr Lorenz concluded, the Wall owner “cannot derive any income without the [Site] Owner’s consent”.[43]Mr Lorenz envisaged an initial 50/50 offer from the Wall owner, followed by the Site owner saying that he had no need for the Wall, as he could erect scaffolding on the Site and obscure any Hoarding on the Wall. Taking into account, the cost of erecting a new scaffold at £22,000 and the likelihood that the hoarding operator might pay that sum, possible planning advice at £4,000, and fines at £2,500, he concluded that the Site owner would offer the Wall owner figures of around £15,000, then £25,000, followed by a final offer of £35,000 (which he increased to £42,000, when he realised that the costs were £22,000 rather than £15,000) .[44]In oral evidence, Mr Lorenz placed huge emphasis on the ‘trump card’ that he said the Site owner held in these hypothetical negotiations. In essence, his point was that, if the Wall owner did not like the Site owner’s modest offer, he would get nothing.[45]I am bound to say that I did not find Mr Lorenz’s evidence impressive. I am sure he believed that what he was saying was logical and even defensible, but it was hardly persuasive. As he was cross examined, it became increasingly apparent that he had no real knowledge of the factors that affected the erection of hoardings at all. On the first day he gave evidence, it appeared that almost everything he had ascertained was derived from what Mr Richard Fidler, Stadium’s solicitor, and perhaps Mr Spencer had told him. He corrected that evidence on the following day saying he had recalled the identities of the 3 independent people he had spoken to in order to obtain the relevant expertise. Whatever the true position, in my judgment, Mr Lorenz was much over-stating the ease with which a new hoarding could be erected in front of the Hoarding, and under-stating the benefit to the hypothetical Site owner of taking a share in what was an already negotiated lucrative income stream from the CC Licence.[46]Mr Lorenz knew nothing when he wrote his report of the restrictive covenant on the Site or of the process by which consent had to be obtained from Network Rail before any structures could be erected. He said, remarkably I thought, that he would not expect people thinking of negotiating a wayleave agreement to take professional advice, and denied that the comparables advanced by Mr Thomas had any relevance at all.[47]Overall, I found his evidence of very limited assistance, save that he highlighted the obvious point that the Site owner could have said to the Wall owner in the hypothetical negotiations that he would walk away and try to erect his own hoarding and take all the available profits for himself. This was really the entire focus of Mr Lorenz’s evidence.

Marylebone’s expert

[48]Mr Timothy Thomas MRICS, the expert instructed by Marylebone, is an experienced expert in the management of outdoor media assets. His firm, the Thomas Partnership, only accepts instructions from landowners, but not from outdoor media contractors, but he claims to be the only chartered surveyor operating solely in that very specific niche area. He gave his oral evidence with balance and I was considerably assisted by it.[49]Mr Thomas approached the matter in a quite different way from Mr Lorenz, and asked himself a rather different question. In his report, he asked what was the “licence fee that would have been payable as a result of the hypothetical negotiation to grant a licence to [Marylebone] enabling the [Hoarding] to overhang into the airspace of the [Site owner] and have that [Hoarding] serviced”. He assumed that the negotiation would have taken place between late December 2004 and 23rd January 2005, and would have concerned a “wayleave type agreement”. He concluded in his report that the annual licence fee that BRB would have been negotiated was in the range of 10-20% of the revenue to be received by Marylebone from the CC Licence. Moreover, if the negotiation had been with a commercially more astute party than BRB, or if BRB had adopted an uncharacteristically aggressive commercial approach, the hypothetical licence fee could have been up to 50% of the expected revenue.[50]Mr Thomas explained that the Site was valuable as it was one of the first such sites after leaving the City of Westminster, which operates strict planning controls, and how there were very few such sites in the affluent area of Finchley Road.[51]Mr Thomas also explained how a “48 sheet format” for a hoarding is in fact 3.1 metres high and 6.2 metres wide. It is the most common roadside format, with some 28,000 of these hoardings in the UK. The reference to sheets comes from the old days, when hoardings were pasted onto boards, and a 48 sheet hoarding required the pasting of 48 sheets.[52]Mr Thomas referred in his report to 11 comparable wayleave agreements where he has either personally negotiated a release or which concerned properties under his management, mainly in the last 10 years. The fees paid for access and/or airspace were between £1 and 50% of the “panel rental value”. The average of the 10 percentage fees was 37.5%. Though that average was not referred to in evidence, it became clear that such a figure was of no real relevance because those comparables that had been negotiated at a figure less than 50% had some exceptional element. As Mr Thomas accepted, most cases ended up with a 50/50 split of the income from the advertising operator.[53]In considering the hypothetical negotiation at paragraph 9 of his report, Mr Thomas placed reliance on the particular characteristics of BRB – that it is not a dynamic company; that its role is to dispose of land and buildings that are surplus to the requirements of the railway; and that it contracted for the use of outdoor media assets with one company, namely Maiden.[54]Mr Thomas also looked at the respective bargaining positions of the parties, and took into account the fact that the retention of the Hoarding on the Wall, as opposed to building a new free-standing scaffold, avoided the need to undertake new works, to seek planning permission, and to obtain consent from Network Rail. The CC Licence was on very favourable terms, realising twice as much as the £40,000 that BRB was obtaining from Maiden for the 96 sheet hoarding on the Site at ground level. Mr Thomas was not aware of any other 48 sheet panel generating as much as the CC Licence in 2005/2006. Mr Thomas would not have been optimistic about obtaining planning permission for a new free-standing hoarding in front of the Hoarding. And he placed emphasis on the differences between BRB and Stadium, relying particularly on the fact that Stadium negotiated a fee for its 96 sheet hoarding at £100,000 per annum, shortly after it acquired the Site.[55]In oral evidence, Mr Thomas’s balance and judgment became clear. He readily accepted that his reliance on the fact that BRB as one of the putative negotiating parties had been abandoned by Marylebone’s counsel in opening argument, and that he needed to consider the position of a hypothetical negotiating party in the position of the Site owner. Moreover, he acknowledged when he was taken through the comparables that he had referred to in his report that a figure of 50% was generally negotiated. He was able to rebut Mr Lorenz’s unjustified criticism of his comparables. First, he explained how in almost every case, it would have been economic (by comparing the cost of erecting a new hoarding to the actual return) for the site owner to erect a free-standing hoarding in front of the wall owner’s hoarding. Secondly, he was able to say from his personal experience with most of the 11 sites that, in the vast majority of them, it would have been feasible to erect a further hoarding entirely on the adjoining owner’s property. Though the rentals achieved on the comparables were nowhere near the high figures in this case, I found the proportions negotiated by site owners to be of important relevance to the likely outcome that might have been achieved in the hypothetical situation that needs to be considered in this case. Mr Thomas’s evidence about the comparables were unaffected by his consideration of the personal characteristics of BRB.

The law on damages for trespass

[56]As the argument in this case developed, it became apparent that there was really not much between the parties as to the appropriate principles. There have been numerous cases in several different areas in recent years concerning what have become known colloquially (but not wholly correctly) as Wrotham Park damages (after Brightman J’s decision in Wrotham Park Estate Company v Parkside Homes [1974] 1 WLR 798). But most of these cases are simply applications of well-known principles. There have not, however, been many cases that address the question of how the court should deal with the existence of a trump card in the hypothetical negotiation, which it is now common ground between the parties that the court should consider. The recent case of Pell Frischmanninfra, to which I shall come shortly, was however such a case.[57]Without any disrespect to the submissions of counsel, therefore, I intend to limit my recitation of authority to the most important cases from which real principles can be derived.[58]In Swordheath Properties v Tabet [1979] 1 WLR 285, Megaw LJ (with whom Browne and Waller LJJ agreed) referred to Lord Denning MR’s judgment in Penarth Dock Engineering Co. Ltd v Pounds [1963] 1 Lloyds Rep 359, and continued:
“In his decision in that case, so far as the question of damages arose, the Master of the Rolls had no hesitation in saying that the plaintiffs, even though they would not themselves have made use, bringing in financial return, of the dock on which the trespass was committed, were nevertheless entitled to damages for that trespass, calculated by reference to the proper value to the trespassers of the use of the property on which they had trespassed, for the period during which they had trespassed. It appears to me to be clear, both as a matter of principle and authority, that in a case of this sort the plaintiff, when he has established that the defendant has remained as a trespasser in residential property, is entitled, without bringing evidence that he could or would have let the property to someone else in the absence of the trespassing defendant, to have as damages for the trespass the value of the property as it would fairly be calculated; and, in the absence of anything special in the particular case it would be the ordinary letting value of the property that would determine the amount of the damages”
(emphasis added).[59]The pair of cases of Ministry of Defence v. Ashman [1993] 2 EGLR 102, and Ministry of Defence v. Thompson [1993] 2 EGLR 107, have undoubtedly raised some conceptual problems. But in the light of subsequent authority, it seems to me that I have no need to grapple with those in this case.[60]The House of Lords in A-G v. Blake [2001] AC 268 considered the question afresh. Lord Nicholls gave a speech with which Lords Goff, Browne-Wilkinson and Steyn agreed (Lord Hobhouse dissented). Lord Nicholls said this in relation to interference with rights of property at pages 278 to 280:- “So I turn to established, basic principles. I shall first set the scene by noting how the court approaches the question of financial recompense for interference with rights of property. As with breaches of contract, so with tort, the general principle regarding assessment of damages is that they are compensatory for loss or injury. The general rule is that, in the oft quoted words of Lord Blackburn, the measure of damages is to be, as far as possible, that amount of money which will put the injured party in the same position he would have been in had he not sustained the wrong: Livingstone v. Rawyards Coal Co (1880) 5 App Cas 25, 39. Damages are measured by the plaintiff’s loss, not by the defendant’s gain. But the common law, pragmatic as ever, has long recognised that there are many commonplace situations where a strict application of this principle would not do justice between the parties. Then compensation for the wrong done to the plaintiff is measured by a different yardstick. A trespasser who enters another’s land may cause the landowner no financial loss. In such a case damages are measured by the benefit received by the trespasser, namely by his use of the land. The same principle is applied where the wrong consists of use of another’s land for depositing waste, or by using a path across the land or using passages in an underground mine. In this type of case the damages recoverable will be, in short, the price a reasonable person would pay for the right of user: see Whitwham v. Westminster Brymbo Coal and Coke Co [1896] 2 Ch 538, and the “wayleave” cases such as Martin v. Porter (1839) 5 M & W 351 and Jegon v. Vivian (1871) LR 6 Ch App 742. A more recent example was the non-removal of a floating dock, in Penarth Dock Engineering Co. Ltd. v. Pounds [1963] 1 Lloyd’s Rep 359. … More difficult is the alignment of this measure of damages within the basic compensatory measure. Recently there has been a move towards applying the label of restitution to awards of this character: see, for instance, Ministry of Defence v Ashman 66 P & CR 195, [1993] 2 EGLR 102, 105, and Ministry of Defence v Thompson[1993] 2 EGLR 107, [1993] 40 EG 148. However that may be, these awards cannot be regarded as conforming to the strictly compensatory measure of damage for the injured person's loss unless loss is given a strained and artificial meaning. The reality is that the injured person's rights were invaded but, in financial terms, he suffered no loss. Nevertheless the common law has found a means to award him a sensibly calculated amount of money. Such awards are probably best regarded as an exception to the general rule. Courts of equity went further than the common law courts. In some cases equity required the wrongdoer to yield up all his gains. In respect of certain wrongs which originally or ordinarily were the subject of proceedings in the Court of Chancery, the standard remedies were injunction and, incidental thereto, an account of profits. These wrongs included passing off, infringement of trade marks, copyrights and patents, and breach of confidence. Some of these subjects are now embodied in statutory codes. An injunction restrained the continuance of the wrong, and the wrongdoer was required to account for the profits or benefits he had obtained from breaches or infringements which had already occurred. The court always had a discretion regarding the grant of the remedy of an account of profits, and this remains the position. Further, the circumstances in which an account of profits is available under the statutes vary … Considered as a matter of principle, it is difficult to see why equity required the wrongdoer to account for all his profits in these cases, whereas the common law's response was to require a wrongdoer merely to pay a reasonable fee for use of another's land or goods. In all these cases rights of property were infringed. This difference in remedial response appears to have arisen simply as an accident of history …” (emphasis added).[61]Lord Nicholls said this in relation to damages under Lord Cairns’ Act at page 281:- “I must also mention the jurisdiction to award damages under s.2 of the Chancery Amendment Act 1858, commonly known as Lord Cairns' Act. This Act has been repealed but the jurisdiction remains. … Thus, in the same way as damages at common law for violations of a property right may by measured by reference to the benefits wrongfully obtained by a defendant, so under Lord Cairns' Act damages may include damages measured by reference to the benefits likely to be obtained in future by the defendant. This approach has been adopted on many occasions. Recent examples are Bracewell v Appleby[1975] Ch 408, [1975] 1 All ER 993 and Jaggard v Sawyer[1995] 2 All ER 189, [1995] 1 WLR 269, both cases concerned with access to a newly-built house over another's land. The measure of damages awarded in this type of case is often analysed as damages for loss of a bargaining opportunity or, which comes to the same, the price payable for the compulsory acquisition of a right. This analysis is correct. The court's refusal to grant an injunction means that in practice the defendant is thereby permitted to perpetuate the wrongful state of affairs he has brought about. But this analysis takes the matter now under discussion no further forward. A property right has value to the extent only that the court will enforce it or award damages for its infringement. The question under discussion is whether the court will award substantial damages for an infringement when no financial loss flows from the infringement and, moreover, in a suitable case will assess the damages by reference to the defendant's profit obtained from the infringement. The cases mentioned above show that the courts habitually do that very thing”.[62]In Lunn Poly Limited v. Liverpool & Lancashire Properties Limited [2006] EWCA Civ 430, the Court of Appeal considered a case where a landlord bricked up an existing fire door, and the tenant obtained an interlocutory injunction entitling it to reinstate the fire door and restraining the landlord from interfering with it. The landlord claimed forfeiture for an entirely separate alleged breach of covenant. The judge held that the tenant had breached the covenant not to part with possession, but that the tenant should have relief from forfeiture, and that the landlord had been in breach of its covenant for quiet enjoyment in respect of the fire door. The judge did not grant permanent injunctive relief and decided that damages should be assessed under Lord Cairns' Act at a figure that would have been arrived at as a result of hypothetical negotiations between willing parties in the position of the landlord and the tenant for the “sale” of the tenant's right to prevent the landlord from blocking the existing fire door and relocating it. The basis of negotiation was that the parties were not to be assumed to take into account the fact that the tenant risked losing its lease as a result of forfeiture proceedings. The appeal on the assessment of damages was dismissed. Neuberger LJ (with whom Scott Baker and Auld LJJ agreed) said this:- “[14] The first question raised on this appeal by the landlords is not whether the judge was right to award damages on such a negotiating, as opposed to the more familiar and traditionally compensatory, basis. It is a much narrower point, namely whether the judge was right to conclude that, in the hypothetical negotiations, the parties should not be assumed to take into account the fact that the tenant was at risk of losing its lease altogether as a result of forfeiture proceedings based upon the breach of covenant, which had occurred by 22 October 2004, the date upon which the landlords had bricked up the existing fire door. … [16] However, the point is before us, and must be considered, and, as has been said in argument, it may well be a point of some significance more generally. The landlords' argument, as advanced by Mr Edward Bartley-Jones QC, is simple. It is this. The sum payable under the Act is to be assessed, and therefore the hypothetical negotiations are assumed to take place, at the date that the wrong (that is, the bricking up of the existing fire door) occurred, and one must therefore assume that the circumstances that actually prevailed at that date were indeed in existence. Accordingly, since there was, as at 22 October, a breach of covenant giving rise to the possibility of a forfeiture claim, that can and should be taken into account when considering the hypothetical negotiations as at that date. [17] The first question is whether it is right to proceed on the assumption that the hypothetical negotiations take place at the date of breach. In that connection, it seems to me that both authority and principle do indeed suggest that, in a case in which an injunction to enforce a contractual term is refused on the basis that the claimant should be satisfied by an award of damages under the Act, the normal date upon which such damages should be assessed is the date of breach: see para 18-18 of Snell's Equity (31st ed). … [19] There is no doubt that, where one is required by a contract or a statute to assess damages by reference to what hypothetical willing parties might agree as at a certain date, which is really a way of defining market value, one has to take circumstances as they are as at the date of valuation. In such a case, it would be illegitimate to take into account events that occurred after the valuation date, because, ex-hypothesi, such events could not affect the minds of the hypothetical parties or the state of the market as at the valuation date. (It should be emphasised that this does not mean that actual transactions that occurred after the valuation date cannot be taken into account as comparables: that is a quite different matter.) … [21] … Damages under the Act are, of course, quasi-equitable in nature: they are awarded in lieu of equitable relief albeit that their direct origin is statutory. None the less, that does not mean that damages can be assessed in any old way. The approach to assessing damages under the Act must not be arbitrary, nor should it be indefensibly consistent with the approach to assessment of damages and valuations in other fields, nor be unpredictable and therefore likely to lead to litigation. [22] The court is not limited to any specific basis for assessing damages in lieu of an injunction under the Act. However, principle and practice suggest that the normal three bases are:(a) traditional compensatory damages, that is, a sum that compensates the claimant for past, present and future losses as a result of the breach but not for the loss of the covenant;(b) negotiating damages, that is, a sum based upon what reasonable people in the position of the parties would negotiate for a release of the right that has been, is being, and will be breached; and(c) an account, that is, a sum based upon an account, namely on the profit that the defendant has made, is making and will make as a result of the breach. [23] In relation to these three types of assessment, one would generally expect the normal approach adopted by the courts to be applied. Thus, one would normally expect that damages under (a) and (b) would be assessed at the date of breach, that any such damages would not be punitive, and that damages under (b) would be assessed by reference to facts as they were at the valuation date. For a recent example, see Peter Smith J's points 1 to 4 in World Wide Fund for Nature (formerly World Wildlife Fund) v World Wrestling Federation Entertainment Inc [2006] EWHC 184 (Ch) (WWF), in [174]. [24] However, there are no absolute rules. Thus, as at present advised, I can see no reason why, when applying the Act, the court should not be able to order the defendant simply to pay over to the claimant a proportion of a capital sum that it made as a result of selling its interest with the benefit (as it were) of the breach of the claimant's rights. In a sense, that could be characterised as a form of account, but it serves to emphasise that there is no absolute rule that damages in a case such as this cannot be assessed upon the basis of events that arise after the breach occurs, or even after the injunction is refused”.[63]After referring to what Mr Anthony Mann QC had said inAMEC Developments Ltd v Jury's Hotel Management (UK) Ltd (2001) 82 P&CR 22 at paragraphs 11-13, Neuberger LJ continued in Lunn Poly as follows:- “[29] In my view, the proper analysis is as follows. Given that negotiating damages under the Act are meant to be compensatory, and are normally to be assessed or valued at the date of breach, principle and consistency indicate that post-valuation events are normally irrelevant. However, given the quasi-equitable nature of such damages, the judge may, where there are good reasons, direct a departure from the norm, either by selecting a different valuation date or by directing that a specific post-valuation-date event be taken into account. [30] In the present case, I consider that the judge was fully entitled to conclude that the hypothetical negotiators should not proceed on the assumption that:(a) as at the date of their negotiations, the lease was liable to forfeiture; and(b) the tenant's negotiating position was accordingly weakened by the fact that the lease might be forfeited. [31] If the landlords' contention is correct, much time would be devoted to considering elaborate arguments as to the way in which each party to the hypothetical negotiations in October 2004 would put its case in relation to the possibility, and likely course, of forfeiture, waiver and relief proceedings when negotiating the price that the tenant would hope to extract from the landlords for agreeing to the relocation of the fire door. It seems disproportionate, almost absurd, to introduce so much technicality, artificiality and complexity into the negotiations when one knows perfectly well what the outcome of the actual forfeiture waiver and relief proceedings was, given the self-evidently small, if any, weight to be given to the risk of forfeiture. … [33] As to principle, I have already mentioned that the negotiating assessment exercise under the Act is not by any means necessarily subject to the sort of rigid rules that the landlords' argument suggests…. [35] In addition, the factor that the landlords wish to have taken into account is not merely extraneous to the issue of the subject of the hypothetical negotiations, but it relates to the specific parties, namely the actual landlords and the actual tenant. I should not be taken as suggesting that that would therefore disqualify the factor from being taken into account in a classic contractual or statutory valuation. However, the fact that it is not merely extraneous, but a factor that relates to the actual parties rather than representing an external feature, which would affect any hypothetical negotiating parties, renders it easier to justify its being excluded as a factor from the hypothetical negotiations. For instance, if the actual tenant had been abroad and out of contact at the valuation date, it could not sensibly be suggested that this would mean that the landlords could justify only a nominal payment on the basis that the hypothetical tenant could not have negotiated more” (emphasis added).[64]In Sinclair v. Gavaghan [2007] EWHC 2256, having reviewed the authorities in a trespass case, Patten J said this at paragraphs 16 and 17:- “[16] … What therefore needs to be determined is:(i) What the acts of trespass were;(ii) What were their purpose and effect in relation to the development of the Yellow Land; and(iii) What alternatives did the Defendants have to using the Red Triangle in order to carry out those works. (i) What the acts of trespass were; (ii) What were their purpose and effect in relation to the development of the Yellow Land; and (iii) What alternatives did the Defendants have to using the Red Triangle in order to carry out those works. 17. On the basis of these findings the court must then assess what payment would have been agreed for the temporary use of the Claimant’s land. It is not of course open to the Defendants as part of this exercise to say that they would (if confronted with a demand for payment) have avoided making any use of the Claimant’s land. The purpose of the assessment is to calculate a sum which compensates the Claimants for the financial benefits which the Defendants actually made from using the Red Triangle. But the alternative possibilities open to the Defendants are of course highly relevant as factors which would have influenced the hypothetical negotiations. Clearly the Defendants would not have been prepared to pay and the Claimants would not have been able to demand a fee which was disproportionate to the actual financial advantages of using the Red Triangle as opposed to postponing the works or creating an alternative access point” (emphasis added).[65]In Field Common Limited v. Elmbridge Borough Council [2009] 1 P&CR 1, Warren J reviewed the authorities comprehensively and concluded as follows at paragraphs 77:- “[77]I have spent some time on at least some of the authorities even though the principles stated are not disputed. I have done so because it is important to understand how the hypothetical negotiation approach has come about in order to see what it is that is sought to be achieved. This approach has developed as a way of assessing, in some cases, what is fair compensation for the Claimant to receive for the unauthorised use of his land by the Defendant. It is not, of course, necessary to adopt this method of assessment in all cases. Thus, in cases where a landlord seeks mesne profits in an ordinary case of holding over without consent, the basis of assessment is generally the open market rental value of the property. To take another example, the approach of the majority in Ashman (apparently approved, apart from labelling, by Lord Nicholls in A-G v Blake) clearly restricted the Claimant to a sum representing the value of her occupation to Mrs Ashman herself. There was no mention of negotiation and no reference to Wrotham Park. Similarly, in the wayleave cases, it is not apparent that any hypothetical negotiation was considered: rather, it was a question of identifying what a reasonable fee would be. [78] However, in the cases where the hypothetical negotiation has been adopted, it has been the case that the value of the benefit to the particular Defendant can be seen to be the value of the benefit which any person in the position of the Defendant would receive. That may not be so in all cases. Where it is not so, a hypothetical negotiation may not give the right answer. Or, if that approach nonetheless has to be applied, it will be important to recognise that it is designed to establish the value of the wrongful use to the Defendant and not some objective figure as between hypothetical persons negotiating for a hypothetical license: after all, even if damages are to be seen as compensation for loss of an opportunity to negotiate, that negotiation would be one between the actual parties, albeit that they are to be treated as parties willing to deal with each other with a view to reaching a reasonable result. By way of analogy, suppose that it had been appropriate to establish Mrs Ashman's liability by reference to a hypothetical negotiation between her and the Ministry of Defence. The Ministry, taking a reasonable position and not taking advantage of its negotiating position, would not be able to insist on what it asserted was the open market rent: instead, it would be restricted to recovery of an amount which it was reasonable for Mrs Ashman herself to pay as described by the majority. [79] I pause here to emphasise, because it is easily lost sight of, that the benefit enjoyed is to be distinguished from the fruits of the enjoyment. Thus, in the wayleave cases, the benefit enjoyed is the actual use of the land which is to be contrasted with the profit which the trespasser has been able to make as a result of his trespass. Similarly, in Inverugie Investments Ltd v Hackett, the Defendants had actual enjoyment of the 30 apartments for which they had to compensate the Plaintiff; there was a readily ascertainable going rate for such enjoyment against which the Defendants were not entitled to pray in aid in their defence the absence of profit or the incurring of a loss” (emphasis added).[66]Finally in Pell Frischmann Engineering v. Bow Valley Iran [2010] BLR 73, the Privy Council considered expressly the value of the ‘trump card’ held by one party to a putative negotiation in a case where a contractual right and confidential information was being bought out. Lord Walker delivered the opinion of the Board, and summarised some general principles as follows at paragraph 48:- “48. These instructive judgments are not completely consistent among themselves (especially as to the circumstances in which the court will award an account of profits, alias restitutionary damages, which is not an issue in the present appeal). But they establish the following general principles (much more fully developed in the judgments themselves):(1) Damages (often termed “user damage”) are readily awarded at common law for the invasion of rights to tangible moveable or immoveable property (by detinue, conversion or trespass): Stoke at pp1410-1412; Experience Hendrix at paras 18 and 26.(2) Damages are also available on a similar basis for patent infringement and breaches of other intellectual property rights of a proprietary character: Stoke at p1412; General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1975] 1 WLR 819.(3) Damages under Lord Cairns’s Act are intended to provide compensation for the court’s decision not to grant equitable relief in the form of an order for specific performance or an injunction in cases where the court has jurisdiction to entertain an application for such relief: Lord Nicholls in Blake at p281. Most of the recent cases are concerned with the invasion of property rights such as excessive user of a right of way (Bracewell v Appleby [1975] Ch 408, Jaggard). The breach of a restrictive covenant is also generally regarded as the invasion of a property right (Peter Gibson LJ in Experience Hendrix at para 56) since a restrictive covenant is akin to a negative easement. (It is therefore a little surprising that Lord Nicholls in Blake, at p283, referred to Wrotham Park as a “solitary beacon” concerned with breach of contract; that case was concerned with the breach of a restrictive covenant to which neither the plaintiff nor the defendant was a party; but the decision of the House of Lords in Blake decisively covers what their Lordships have referred to as a non-proprietary breach of contract.)(4) Damages under this head (termed “negotiating damages” by Neuberger LJ in Lunn Poly at para 22) represent “such a sum of money as might reasonably have been demanded by [the claimant] from [the defendant] as a quid pro quo for [permitting the continuation of the breach of covenant or other invasion of right]” (Lunn Poly at para 25).(5) Although damages under Lord Cairns’s Act are awarded in lieu of an injunction it is not necessary that an injunction should actually have been claimed in the proceedings, or that there should have been any prospect, on the facts, of it being granted: Millett LJ in Jaggard at p285 (but cf at p291); Lord Nicholls in Blake at p282; Chadwick LJ in World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2008] 1 WLR 445, para 54. This point was not raised in argument in the appeal but is pertinent since there was such a long delay before PFE issued the order of justice commencing these proceedings. 49. Several of the recent cases have explored the nature of the hypothetical negotiation called for in the assessment of Wrotham Park damages. It is a negotiation between a willing buyer (the contract-breaker) and a willing seller (the party claiming damages) in which the subject-matter of the negotiation is the release of the relevant contractual obligation. Both parties are to be assumed to act reasonably. The fact that one or both parties would in practice have refused to make a deal is therefore to be ignored: Wrotham Park at p815, Jaggard at pp282-283. This point is material in the present case since on the concurrent findings of the courts below Dr Frischmann, the directing mind of PFE, was a very determined (even a recklessly determined) negotiator (see especially the judgment of the Royal Court at paras 110-111 and 411-412). 50. Another issue is how far the court is entitled, in its assessment of Wrotham Park damages, to take account of events occurring after the time at which the hypothetical negotiation takes place (and in particular, to take account of how profitable the outcome has been for the contract-breaker). This issue sometimes tends to get confused with the wider issue of whether the court is awarding compensatory or restitutionary damages. Their Lordships consider that the right approach is that of the Court of Appeal in Lunn Poly, in which Neuberger LJ observed, after citing the judgment of Mr Anthony Mann QC in AMEC Developments Ltd v Jury’s Hotel Management (UK) Ltd (2001) 82 P & C R 22, paras 11-13: [see citation above] 51. In a case (such as Wrotham Park itself) where there has been nothing like an actual negotiation between the parties it is no doubt reasonable for the court to look at the eventual outcome and to consider whether or not that is a useful guide to what the parties would have thought at the time of their hypothetical bargain. But in this case the parties clearly expected, as is apparent from their negotiations, that the contract with NIOC would be much more profitable than it turned out to be. For that reason, it is unnecessary to give a detailed account of the actual outcome. The Court of Appeal summarised the outcome (para 254 (ii)) by observing that even on PFE’s case BVE’s eventual profit was between $1m and $1.8m. 52. Instead, PFE has argued, the damages should reflect the actual negotiations which took place (and were very nearly brought to a conclusion) at the end of June 1997. BVE was, as already mentioned, willing to pay $3m on the conclusion of a service contract with NIOC and further sums of $2m, $2.5m and $2.5m linked to “early production” and “first production” as defined in the contract, the last payment also being conditional on the inclusion in the project of a submarine pipeline. BVE has argued that this offer ceased to have any relevance as soon as PFE lost exclusivity. PFE’s position was that its loss of exclusivity was irrelevant, because the nearer BVE and Bakrie came to signing a deal with NIOC, the more valuable became PFE’s power of veto (even if its value was by then only nuisance value). 53. In their Lordships’ opinion neither of these extreme positions is correct. By the beginning of July 1997 PFE had not merely lost exclusivity but had irretrievably become persona non grata with NIOC; it had nothing to assign to BVE and Bakrie, either in terms of legal rights or in terms of commercial goodwill; its endorsement carried no weight with NIOC. It retained contractual rights to prevent BVE and Bakrie entering into direct negotiations with NIOC, and from using confidential information for that purpose, but those rights were of a negative nature. They did not reflect or enhance the value of PFE’s interest in the project because PFE no longer had any such interest. A willing seller, acting reasonably, would have recognised that an excessively “dog in the manger” attitude would be counterproductive. At the same time BVE and Bakrie, as willing buyers acting reasonably, would have accepted that even negative rights must be bought out at a proper price, and that unless they were bought out, the project could not proceed at all. … Conclusions as to damages for breach of contract 55. Their Lordships see some force in PFE’s submission that the Court of Appeal’s assessment of Wrotham Park damages was rather confused and inconsistent. It started from three principles set out in paras 243 to 245 of its judgment: that the assessment should be made as at 28 July 1997; that it should be on the basis that PFE had lost exclusivity and that therefore the buy-out agreement that PFE and BVE were on the point of reaching was of no relevance; and that damages should be assessed as a single global figure. The first and third points, as already noted, are common ground (although PFE argues that the Court of Appeal did not follow its own direction as to global assessment). But the second point is, their Lordships consider, put too high. The negotiated buy-out figure was no longer conclusive, or anything like conclusive, but it was going too far to say that it was of no relevance. It was still relevant as contemporaneous evidence of BVE’s and Bakrie’s view of the likely profitability of the Balal project, and the amount that they were prepared to pay to participate in it. 56. The Court of Appeal then discussed (paras 249 and 250) the value of the confidential information on its own. This passage is, with respect, rather confused, as appears from the opening sentence of para 251, which their Lordships regard as a puzzling non sequitur:
“For these reasons, the starting point in this case can legitimately be taken as being the cost of producing the information.”
That was an error of principle. The critical point was that the confidentiality agreements gave PFE a power of veto which stood between its erstwhile collaborators and what they saw as a valuable opportunity. The Court of Appeal did not satisfactorily explain why it considered that the amount of the damages (£500,000) awarded by the Royal Court for breach of confidence (alone) was too high, or its own conclusion (paras 255-257) that £500,000 was the appropriate global figure for the entire damages. 57. These paragraphs suggest that the Court of Appeal saw the breaches of clauses 3 and 6 of the confidentiality agreements as adding something, but not anything very significant, to the total damages. This was perhaps reflective of the Court’s view (para 193 of its judgment, quoted in para 42 above) that the release of the obligations was “nothing more than an inevitable and necessary concomitant” of the loss of exclusivity. That too was an error of principle. It brushed aside the continuing importance of those obligations, even though their value to PFE was a negative nuisance value. It significantly understated the commercial value of PFE’s veto. 58. For these reasons their Lordships consider that the Court of Appeal, like the Royal Court, erred in principle in its approach to the assessment of damages, and that the sum of £500,000 awarded by each court is significantly too low. Their Lordships are reluctant to refer back the assessment of damages. These proceedings have already been protracted and costly enough. It is better for the Board to make its own award, relying on the concurrent findings in the courts below. The award of damages is best made in United States dollars, the currency of the international oil trade in which all the negotiations between all parties were conducted. Taking into account all the factors already mentioned, their Lordships conclude that the appropriate figure is $2,500,000, with simple interest at the rate and from the date directed by the Royal Court. All the respondents to the appeal are to be jointly and severally liable for the damages and interest”.

Conclusions as to damages for breach of contract

[67]I should perhaps mention, as one of the judges sitting in the Jersey Court of Appeal in the Pell Frischmann case ([2008] JLR 311), that Lord Walker was not entirely correct to suggest at paragraph 56 that the Court of Appeal had in some way disregarded “[t]he critical point … that the confidentiality agreements gave PFE a power of veto which stood between its erstwhile collaborators and what they saw as a valuable opportunity”. In fact, the Court of Appeal had expressly taken that into account in assessing damages at paragraph 254 (paragraph 37 of the JLR report) where it said:
“In assessing the just sum that Bow Valley should pay to Pell Frischmann by way of Wrotham Park damages, we have taken the following matters into account:- … (iii) Bow Valley must pay a reasonable price for buying out clauses 3, 4 and 6 of the BVCA. Whether or not the confidential information should be valued at a greater figure than the sum of its parts, the just buy-out figure that Pell Frischmann could have reasonably demanded for the use of the confidential information and the release from clause 3 and 6, must be greater than the value of the confidential information alone. The question is how much greater.Pell Frischmann had the ability to charge some kind of ransom for the buy-out of the restrictions in clauses 3 and 6. Pell Frischmann could, on one analysis, have made any demand it chose for this buy-out – and we have found that it would probably have done so making an actual buy-out deal impossible. But we do not believe that Pell Frischmann could reasonably have demanded a very large additional price for the release from clauses 3 and 6”
(emphasis added).[68]Be that as it may, however, the Privy Council sets out most useful guidance on the proper approach in a case of this kind where a ‘trump card’ is held by one of the parties, and it is plain that it thought that the courts below had undervalued the importance of that trump card in that case.

The principles applicable

[69]In the light of these authorities, it seems to me that, in a trespass case of this kind, “hypothetical negotiation damages” of the kind described in these cases are obviously appropriate. That negotiation is taken to be one between a willing buyer and a willing seller at an appropriate time (in this case accepted to be when the trespass began). Events after the valuation date are generally ignored. The fact that one party might have refused to agree is irrelevant. But the fact that one party held a trump card and could have stopped the defendant obtaining any benefit is a relevant matter. The value of the benefit of the trespass to a reasonable person in the position of the particular defendant is what is being sought. In other words, the price which a reasonable person would pay for the right of user, or the sum of money which might reasonably have been demanded as a quid pro quo for permitting the trespass.

The competing positions of the parties

[70]Both experts have attempted to assist in the determination of the proper compensation. Mr Lorenz was looking at the matter as a pure split of the proceeds of the CC Licence, which I do not think was precisely what is required, whilst Mr Thomas was correctly addressing his mind to the “licence fee that would have been payable as a result of the hypothetical negotiation to grant a licence to [Marylebone] enabling the [Hoarding] to overhang into the airspace of the [Site owner] and have that [Hoarding] serviced”. Mr John Furber QC, counsel for Stadium, submitted that this was a distinction without a difference, and that may be true in this particular case, but it will not always be so. I would prefer to regard the matter in the way that Mr Thomas has put it. What is being compensated for is the trespass into the Site owner’s airspace.[71]It is clear from the authorities that I have mentioned that personal characteristics of the parties are to be disregarded in the postulated hypothetical negotiation. Both sides fell into this error in different respects. As I have said, Mr Thomas’s report took into account matters connected with the personal characteristics of BRB as the actual Site owner at the time of the putative negotiation. Conversely, Mr Furber made his submissions sound as if I had to assume a hypothetical Site owner with the aggressive commercial characteristics of Stadium. Whilst I should assume that all reasonable points will be taken in the negotiation, I cannot assume that a reasonable hypothetical Site owner has either the easygoing characteristics of BRB any more than the exceptionally aggressive approach of Stadium. The personal characteristics of the parties, as opposed to the objective facts with which they were faced, are to be ignored. It was the personal factors affecting BRB that led Mr Thomas to reach a figure of 10-20% as opposed to the figure closer to 50% which was thrown up by the comparables to which he referred.[72]Both sides ultimately disclaimed any reliance on the events of 2008, as they had to in accordance with the dicta in Lunn Poly and other cases to which I have referred. But, despite this acknowledgement, Stadium placed emphasis on the fact that, in 2008, it was able actually to build a new free-standing hoarding in front of the Wall between May and December 2008, and make the entirety of the future profit for itself. And Ms Janet Bignell, counsel for Marylebone, concentrated on the fact that no planning permission was obtained for the relocated hoarding, and still it took 7 months (perhaps with some preparation time) to get it in place. But there was some benefit for Ms Bignell in this debate because it resulted in Mr Furber conceding, as he had to do, that the reasonable hypothetical Site owner cannot be assumed to be a law-breaker, so that I must assume that the Site owner in January 2005 would have anticipated that he needed planning permission before he could erect a new relocated free-standing hoarding (despite the fact that Stadium actually erected its free-standing hoarding in 2008 without planning permission).[73]I am quite satisfied that the after occurring events themselves are, on the authorities I have cited above, not relevant to the exercise I am undertaking. The important things are the risks as they would have been perceived by hypothetical reasonable parties undertaking the negotiation in January 2005.[74]Stadium submits that the most relevant factors that should be taken into account are:- i) The Site owner held the trump card that it could stop the Wall owner from obtaining the revenue from the CC Licence. This trump card was described at some stages of the argument as the ability to build a free-standing hoarding in front of the Hoarding. That was not the trump card as I see it. It would have been well known to both reasonable hypothetical negotiating parties that the Site owner might or might not lawfully be able to build such a relocated hoarding. What they also knew, however, was that the Site owner could stop the Wall owner retaining the Hoarding on the Wall. It is that trump card to which the hypothetical parties would have had regard. ii) The Site was a cleared site with an established use for advertising purposes. It had planning permission for a 96 sheet hoarding. And the Site owner had an established relationship with Maiden, an advertising contractor. This, argues Mr Furber, puts the Site owner in this case, in a completely different position from the site owners in Mr Thomas’s comparables, where, for example, Travis Perkins (as the site owner in two cases) had an established business of its own and was not particularly interested in the incidental advertising revenue. This factor is, again, not quite as Mr Furber sought to describe it. In fact, Stadium had purchased the Site to develop it, as Mr Spencer admitted. The advertising use was incidental, and by no means its primary objective except in the very short term. iii) The fact that there was a far larger amount of money at stake from the CC Licence than there was in any of Mr Thomas’s comparables. It was, therefore worth the time and money of the hypothetical Site owner to take steps to try to secure a much larger share of that income for himself. This is, in my judgment, a fair point, although it might not be sufficient to dislodge the relevance of the comparables. iv) The Site owner would have thought he could obtain the necessary permission for a free-standing hoarding in about 3 months, and could use that likelihood in his negotiations.[75]These points add up, in Mr Furber’s submissions to a situation where a figure far larger than Mr Thomas’s 50% being secured by the Site owner. In short, he submits there would be no reason to settle for less than the bulk of the proceeds that could be obtained from Clear Channel. All that the Site owner would be expected to concede would be the costs of the free-standing scaffolding, some legal and other costs associated with obtaining permissions (assessed by Mr Lorenz at £42,000), and an income loss over the 3 months needed to secure the permissions, being £20,000 (one quarter of £80,000). That, said Mr Furber provides a likely discount of £62,000, amounting to some 20% of the total rent of £313,972.70. Mr Furber submitted that I could properly settle for a 25% deduction, awarding damages of 75% of £313,972.70.[76]Marylebone, on the other hand, argues that the following factors should be taken into account:- i) the existing history of the properties and the parties up to 23 December 2004; ii) the fact that there was a short negotiating window; iii) the fact that both parties stood to gain by negotiating for the retention of the Hoarding without more, and the Hoarding would not interfere with any preliminaries to the development of the Site; iv) that both parties stood to gain by leaving the lucrative CC Licence in place, and avoiding new negotiations; v) that the Hoarding was already in place, and there was no potential for physical damage to the Site by retention of the Hoarding; vi) that the Site owner could not simply use the Wall itself without permission; vii) that the Wall was a good advertising site and had long established user; viii) that the Site owner had an existing agreement with Maiden for its 96 sheet hoarding for £40,000 per annum, running up to 30th September 2008, with an express temporary planning permission until 2006, which had been hard to obtain; ix) that no enforcement action had been taken against the Hoarding despite the Inspector having seen it when permission was sought for the 96 sheet hoarding; x) that the Site conditions were not straightforward, which did not make it easy to obtain planning permission and Network Rail’s consent under the restrictive covenant, and such consents could take some time to obtain.[77]In essence, Marylebone submitted that it was bringing to the party a valuable established flank wall site, which was likely to benefit from deemed planning consent, and a valuable contract with Clear Channel that was worth far more than the Site owner had been able to negotiate for a hoarding double the size on the same site. The CC Licence was easy money for the Site owner on stream immediately, and whilst the Site owner might threaten to put up its own free-standing hoarding, it would be practically difficult and unattractive. It might take 10 months to obtain planning permission on appeal, and large amounts of income would be lost in the meantime.

What damages for trespass are appropriate in this case?

[78]Reasonable parties negotiating such a licence fee in the weeks leading up to the 23rd January 2005 would, in my judgment, have consulted experts on the value of such wayleave agreements, and would no doubt have become aware of the kind of comparables mentioned by Mr Thomas. They would have known, as Mr Thomas told me, that many such negotiations ended up in a 50/50 split of the income to be expected from the rental payable by the advertising operator. They would have been fully aware that Stadium had a trump card in that it could have put a stop to the use of the Hoarding as an advertising site by seeking an injunction to stop the trespass. They would also have known that the Site owner could try to erect another hoarding in front of the Hoarding, and thereby obtain 100% of the available income for itself (subject to its costs and expenses).[79]Reasonable parties would have been aware of the difficulties and inconveniences of either course, and in particular of the need for planning permission for a free-standing hoarding, which was by no means certain to be granted. I do not accept Mr Thomas’s evidence that planning permission was not likely to be granted, but I do accept that obtaining such permission was uncertain and time consuming. I have no doubt that reasonable negotiating parties would have expected an appeal to be necessary and would not have assumed that all necessary permissions (planning and Network Rail) could have been in place in much less than 10 months. Moreover, the costs of this exercise were much under-estimated by Mr Lorenz, in my view. He took inadequate account of the costs of legal fees, surveyors’ fees and management time. Whilst Network Rail’s consent was most likely to be granted, it too would have been expected to take some time. The parties would have been aware of the direct costs of erecting a new hoarding, which was agreed at £22,000.[80]Reasonable hypothetical negotiating parties would have been fully alive to the fact that the CC Licence represented a lucrative deal, which might be frustrated or renegotiated if the licence were not granted, or if the Site owner made too much fuss. There is no doubt that rental would be lost whilst permissions were obtained to put a new hoarding in place, and there was always the possibility that the licence fee might reduce if there was too much delay. As I put it in argument, this was very much a case of a bird in the hand being worth two in the bush.[81]In my judgment, none of the factors emphasised by the parties in their submissions, even the trump card held by Stadium, was overwhelming. They all have to be balanced in a putative negotiation between reasonable parties.[82]I have weighed all the relevant factors that I have mentioned that would have affected a hypothetical negotiation between the Site owner and the Wall owner in late 2004 and the weeks leading up to 23rd January 2005. I have taken full account of the trump card held by the Site owner. It seems to me, however, that that trump card was balanced by the uncertainties, costs and delays associated with the Site owner’s possible applications for permissions from the planning authorities and Network Rail for a relocated hoarding on the Site. Whilst Mr Lorenz spoke of the culture of the time as having been to put up the hoarding first and seek planning permission later, I must look at what reasonable parties would do; and reasonable site owners would not act illegally. The uncertainties, costs and delays made it significantly more attractive for the Site owner to settle for an immediate share of the proceeds of the existing and lucrative CC licence. I was particularly impressed by Mr Thomas’s evidence to the effect that what he has found “with landowners is that they would rather have a percentage of a secure income than the whole of a risky income”.[83]I have considered the appropriate share that would have been negotiated carefully. I am aware that Mr Thomas put 50% at the top of his range, but I also take into account that that is what he himself seems normally to have negotiated. The Site owner would surely have made much of his trump card and how he could build his own hoarding, and of the exceptionally large return from the CC Licence. But the Wall owner would have known that that it would take quite a while to erect a new hoarding and it would be subject to such uncertainty that it was only a moderate threat. Both sides brought important benefits to the negotiation: the Wall owner had an established site which had not been challenged for years, and the Site owner had the right to stop the Wall owner making any money at all. In reality, however, reasonable businessman are normally reluctant to destroy the source of income before they are sure they can replace it. Assuming, as I must, that the parties would have reached agreement, it seems to me that both sides would have had strong pressures to reach a reasonable compromise, and I do not think any of the factors on either side would have pushed the ultimate conclusion very far from the 50% mark.[84]I have concluded, therefore, after a careful review of the evidence on both sides, that the required hypothetical negotiation in this case would have resulted in the negotiation of a licence fee payable to the Site owner amounting to 50% of the expected net revenue from the CC Licence. I propose, therefore, to award that sum by way of damages. So far as I am aware that sum will be 50% of the sum of £313,972.70, amounting to £156,986.35. I will hear counsel on the arithmetical accuracy of this figure.

Conclusion

[85]For the reasons I have tried to give, the damages that ought to be awarded for Marylebone’s trespass into the airspace of the Site between 23rd January 2005 and 2nd October 2008 is to be calculated on the basis of a hypothetical negotiation between reasonable persons in the position of the Site owner and the Wall owner. On the evidence now before the court, none of which was before Sir Donald Rattee, I have determined that the proper damages that Stadium should recover for the trespass are to be assessed in the sum of £156,986.35.

Cited in 5 later judgments