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England and Wales High Court (Chancery Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Stadium Capital Holdings (No.2) Ltd v St Marylebone Property Company & Anor [2011] EWHC 2856 (Ch) (08 November 2011) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2011/2856.html Cite as: [2012] 4 EG 108, [2011] EWHC 2856 (Ch), [2012] 1 P &CR 7 |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
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| Stadium Capital Holdings (No.2) Limited |
Claimant |
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| - and - |
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| St Marylebone Property Company PLC Clear Channel UK Limited |
Defendants |
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Ms Janet Bignell (instructed by Mills & Reeve LLP) appeared for the first Defendant
The second Defendant did not appear and was not represented
Hearing dates: 26th-28th and 31st October 2011
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Crown Copyright ©
Mr Justice Vos:
Introduction
Chronological background
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.
i) TCP Construction's building costs of £19,090.ii) Network Rail's invoice in respect of safety charges amounting to £2,855.07.
"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".
"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".
The Claimant's witness
Marylebone's witnesses
Stadium's expert
Marylebone's expert
The law on damages for trespass
"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).
"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).
"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".
"[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".
"[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).
"[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.
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).
"[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).
"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".
The principles applicable
The competing positions of the parties
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.
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.
What damages for trespass are appropriate in this case?
Conclusion
