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Cite as: [2010] EWHC 2453 (Ch), [2011] 2 All ER 38

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Neutral Citation Number: [2010] EWHC Civ 2453 (Ch)
Claim No. 7BM 30101

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

8th October 2010

B e f o r e :

MISS GERALDINE ANDREWS QC
(sitting as a Deputy High Court Judge)

____________________

MR AUSMAN RAMZAN
Claimant
-and -

BROOKWIDE LIMITED
Defendant

____________________

John Stenhouse (instructed by Silks Solicitors) for the Claimant
David Mitchell (instructed by Bude Nathan Iwanier) for the Defendant

Hearing Dates: Monday 19th and Wednesday 21st July 2010

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Miss Geraldine Andrews Q.C.:

    INTRODUCTION

  1. In March 2008, following the trial on liability only ( [2010] EW Misc 13 (EWCC) ), I handed down a judgment in which I held that the Defendant, Brookwide Ltd., was liable to the Claimant in damages for the continuing (and continuous) infringement of his rights to enjoy the use of his property since 23rd May 2001, which was the date on which the Claimant acquired the beneficial interest in the property from the trustee in bankruptcy of his father, Mr Mohammed Ramzan. It now falls to me to assess those damages, which for the reasons set out in my earlier judgment include exemplary damages falling within the second of the three categories set out in Lord Devlin's speech in Rookes v Barnard [1964] AC 1129. Brookwide did not appeal against my decision that in principle this was a case in which to award exemplary damages.
  2. It became clear in the course of argument that this case raises a number of legal issues which are potentially of wider interest, and on which there is little in the way of authority, or even guidance. In the light of this, and bearing in mind the magnitude of the sums at stake, with the assent of both counsel I exercised my power under section 42(2) of the County Courts Act 1984 to transfer the case into the High Court.
  3. BACKGROUND

  4. The property in question was a room on the first floor of No.125 Alcester Road, which was a "flying freehold", that is, it was physically constructed within No.123 Alcester Road but could only be accessed from No.125. At all material times No.125 was in use as an Indian restaurant, known as "the Jewel in the Crown" and the room (to which I shall refer, as I did in my earlier judgment, as "the store room") had been used for storage, mainly of equipment associated with that business. Access to the store room was through another room at the rear of the first floor which was used as an office. The only fire exit from the first floor was via a door in the exterior wall of the store room, which led out to an old-fashioned cast iron fire escape. The restaurant had a function room on the first floor, with a seating capacity of 60. For Health and Safety reasons, that room could only be used if the first floor fire escape was functional. The main stairs did not provide an acceptable alternative.
  5. Brookwide is part of a group of property investment companies belonging to the Noe family. It is a wholly-owned subsidiary of Agra Limited, and it has some directors in common, including Mr Salaman Noe, who is the managing director of both companies. After their acquisition by Agra in 1988 as part of a portfolio of properties, Nos. 123 and 125 Alcester Road were managed by a firm of commercial property consultants named Lee Baron. The managing director of Lee Baron was Mr Salaman Noe's son Leo, who was also a director of Agra. Mr Mohammed Ramzan, the Claimant's father, was the lessee of No.125 from mid-1989 until he purchased the freehold from Agra on March 31st 1992.
  6. On 29th April 1999, workmen engaged on behalf of Agra and Brookwide in a project to convert the first and second floors of No.123 Alcester Road into self-contained flats demolished the dividing wall, entered the store room, and thereafter bricked up and made good both the doorway leading from the store room into the office, and the fire exit door. By this means, the store room was subsumed into No.123 Alcester Road and isolated from No.125. It is now a permanent part of Flat No.1 on the first floor of No.123. The access to the fire escape was completely cut off. The workmen subsequently severed the stairs on the fire escape and removed the lower part of the staircase, rendering it impossible to use. All this was done with reckless disregard of the interests of the true owner of the store room and with a view to promoting the interests of Brookwide, which wished to exploit the combined space for its own personal gain. Had it not been for the misappropriation of the store room, there would probably have been insufficient space to create a viable flat in that location. According to Mr Landy of Lee Baron, the store room took up approximately 55% of the floor space in the flat. That also accords with my recollection of the plans that were in evidence at the trial on liability.
  7. At the time of this incident Brookwide was the registered proprietor of the freehold property registered under Title Number WM278950, which included the store room, though it should not have done. This came about because, when Mr Mohammed Ramzan purchased the freehold of No.125 Alcester Road from Agra in 1992, the plan annexed to the Transfer mistakenly delineated the segregation between Nos 123 and 125 Alcester Road on the basis of a straight division along the party wall. The plan therefore did not accurately reflect the configuration of the two properties at first floor level. The mistake was perpetuated in the new title deeds and plan relating to No.125 Alcester Road. Two years later, in May 1994, Agra transferred the freehold of a number of properties under Title no WM 278950, including No.123 Alcester Road, to Brookwide. There was no evidence of any consideration passing to Agra. Since the title plan to Title No.WM278950 wrongly depicted the store room as part of the land registered under that Title, Brookwide became the registered proprietor of the store room by mistake, around 5 years before the room was forcibly subsumed into No. 123 Alcester Road.
  8. Thus at all material times Agra, and subsequently Brookwide, held the store room on trust for the beneficial owner. Initially that was Mr Mohammed Ramzan. However, he was adjudicated bankrupt on 10th September 1997 and his interest in No.125 Alcester Road (including his beneficial interest in the store room) automatically vested in his trustee in bankruptcy. That was the situation at the time of the expropriation. The Claimant subsequently purchased No.125 Alcester Road from the trustee, and he became the beneficial owner of the store room on 23rd May 2001, when No 125 Alcester Road was conveyed to him.
  9. The Court now has to assess the damages arising from the expropriation of the store room. In paragraph 11 of the Order dated 28th April 2008 that was drawn up on terms agreed by counsel for both the parties following the trial on liability, damages were awarded in principle under three broad heads:
  10. a. Damages for past and continuing trespass, breach of trust and denial of title by Brookwide from 23 May 2001 and continuing;
    b. Damages representing all profits obtained by Brookwide from leasing out the Room as part of the property demised by Brookwide at 123 Alcester Road to tenants for profit; and
    c. Exemplary damages for the wrongful and continuing appropriation of the Room by Brookwide.

    DAMAGES FOR TRESPASS, BREACH OF TRUST AND DENIAL OF TITLE

  11. The object of an award of damages for any tort is to put the injured party, so far as possible, in the position in which he would have been if the wrong had not been committed. This case has the rather unusual additional feature that the expropriator of the property held it in trust as a result of a mistake for which its immediate predecessor in title (and parent company) was responsible. If a trustee profits from his breach of trust, he will be required to disgorge any profits he receives, and there are a number of authorities that would be relevant to the question of whether or not he is entitled to take into account the cost to him of making those profits. The fact that there is a parallel liability for breach of trust is a relevant consideration when, in due course, I come to consider the question of double recovery, but in the event it has proved unnecessary for me to consider those authorities.
  12. In a case where the defendant wrongfully deprives the claimant of his land, the claimant will be entitled to claim damages, known as "mesne profits" for loss arising from the wrongful period of occupation by the defendant. If the court declines to order recovery of the land, the claimant will be entitled to its value in addition to mesne profits up to the date on which the value is awarded. That is the situation in this case.
  13. A. THE VALUE OF THE LAND –DAMAGES IN LIEU OF RECOVERY OF THE LAND

  14. The first head of damages claimed, and the one about which there was ultimately the least controversy, is damages in lieu of reinstatement.
  15. In Horsford v Bird [2006] UKPC 6, a case which provides the nearest analogy to the present case that Counsel were able to find, the defendant had erected a boundary wall and fence in the wrong place, which resulted in the misappropriation of some 455 square feet of his neighbour's land. The judge had refused to grant a mandatory injunction restoring the status quo, just as in the present case I refused an order for reinstatement by rectification of the land register. Most of the appeal in Horsford v Bird was taken up with the issue whether an award of aggravated damages was appropriate, which is not relevant to the issues I have to decide. However, the Privy Council also considered how the basic award of damages in that situation was to be assessed, and their approach affords valuable assistance in the present case.
  16. The Privy Council accepted that the proper starting point was the value of the land encroached upon, which was assessed at $30 per square foot, totalling $13,650: but they said that the judge was right to take into account the extent to which the piece of land encroached upon had enhanced the amenities of the respondent's own house. By building his wall on the appellant's land and thereby (permanently) incorporating a piece of the appellant's land into his garden, the respondent had given the expropriated land a value to himself considerably in excess of its value simply as 455 square feet of an undeveloped plot. The Privy Council decided that the proper question to ask was how much the appellant could reasonably have sought from the respondent as the price of the land incorporated wrongly into his garden. They held that the value to the respondent of the land as part of his garden would have been at least double its value as an undeveloped plot -$27,300.
  17. This particular aspect of the award of damages in Horsford v Bird reflected a recognition that, because an injunction was not granted, and by virtue of the judge's decision to award damages in lieu, the trespasser had in effect become the lawful owner of the expropriated property and the trespass came to an end with the judgment – see paragraph 11 of their Lordships' opinion. Of course in that case, unlike the present case, liability and quantum were determined at the same hearing.
  18. Brookwide did not seek to argue by analogy with Horsford v Bird that the trespass ended in 2008 when I refused to order reinstatement. Indeed, I was not referred to that authority at the trial on liability. I made the finding in paragraph 123 of my earlier judgment that Brookwide was under a continuing liability to pay damages and/or account for profits. Consistent with that finding, the court order consequential on that judgment contains a declaration that Ausman Ramzan remains the true beneficial owner of the land and awards damages for a continuing trespass without a cut off date. The sealing of that order precludes any re-opening of the judgment: see Parabola Investments Ltd v Aria Investments Ltd and others [2009] EWHC 1492 (Comm). However, it seems to me that in principle any continuing trespass by Brookwide must come to an end, at the latest, when I order the value of the store room to be paid to Ausman Ramzan.
  19. Mr David Mitchell, who appeared on behalf of Brookwide on this assessment, submitted that the Court should make an order (conditional upon the payment of the damages representing the capital value) that Mr Ramzan should transfer all his interest in the store room to Brookwide. In my judgment, even if I had the power to make such an order, it would be unnecessary for me to exercise it. Once the value of the land has passed to Mr Ramzan it is obvious that he can no longer claim to have a continuing beneficial interest in it. He would therefore have no ground for claiming an ongoing trespass or breach of trust, and on payment of the value, the registered Title deeds and the plans will finally reflect the true legal and beneficial ownership. If Brookwide wishes to give any reassurance to a future purchaser of the flat or of No.123 Alcester Road, it need do no more than refer them to this judgment.
  20. In Horsford v Bird the trespasser was not exploiting the expropriated land for profit, but the Privy Council still concluded that he would have paid more for the land than someone else would, because it would enhance his garden. Given the lengths to which Brookwide went to ensure that it swiftly gained permanent control over the store room, it is reasonable to infer that if it had been forced to go through the proper channels, Brookwide would have paid more for the expropriated land than a third party who was not in possession of No.123 Alcester Road would have been prepared to pay. The land was of particular value to Brookwide because it could not construct a flat in that location without it. However, in the event I did not need to investigate what price it would have been reasonable for the Claimant to have asked Brookwide to pay for the land, because, before they were due to give their evidence, the parties' expert valuers agreed that the value of the expropriated land is and was at all material times £55,000. I was told of that agreement on the morning of the second day of the trial. The experts therefore did not give evidence, and their expert reports were not referred to thereafter.
  21. I was not given any details of how the experts reached the agreed valuation figure, save that when the Court was told that they had reached agreement, Mr John Stenhouse, who represented the Claimant (as he had at the trial on liability) stated that it was assessed on the basis of the difference between the present value of No. 125 Alcester Road with the store room and the fire escape, and its present value without them. However they reached it, that figure is the capital sum that represents, as the Privy Council put it, the price that Mr Ausman Ramzan could reasonably have sought from Brookwide for his beneficial interest in the store room. Although Mr Mitchell's opening submissions relied to some extent upon a view that Brookwide's expert had previously expressed that the capital value of the store room without the fire escape was £2,500, those submissions (and that valuation) were overtaken by the experts' agreement and ceased to be relevant to anything that I had to decide. In the event, there was no evidence before the Court that the capital value of the store room, with or without the fire escape, was anything other than £55,000, and that is the figure that I shall award under this head of damages.
  22. B. MESNE PROFITS

  23. In Swordheath Properties v Tabet [1979] 1 WLR 285, Megaw LJ approved a passage in Halsbury's Laws of England which stated:
  24. "Where the defendant has by trespass made use of the plaintiff's land the plaintiff is entitled to receive by way of damages such sum as should reasonably be paid for the use. It is immaterial that the plaintiff was not in fact thereby impeded or prevented from himself using his own land either because he did not wish to do so or for any other reason".

    At p.288E he set out the approach to be adopted by a court assessing damages for trespass as follows:

    "The plaintiff, when he has established that the defendant has remained on as a trespasser in residential property, is entitled, without bringing evidence that he could nor 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 damages."
    (emphasis added)

  25. The Court of Appeal considered that case in Ministry of Defence v Ashman (1993) 25 HLR 513, which was followed by a differently constituted Court of Appeal some three weeks later in Ministry of Defence v Thompson (1993) 25 HLR 552. Both cases involved wives of serving officers in the Armed forces whose marriages had broken down, and whose husbands had left them living as trespassers in married quarters. Both courts included Hoffmann LJ, who gave the leading judgment in Thompson. In the Ashman case, Kennedy LJ said that in most cases the measure of damages to be paid by the trespasser in residential property will be calculated by reference to the ordinary letting value of the property in which the defendant remained, as happened in Swordheath. He described the approach in Swordheath as "somewhat analogous to quasi-contractual restitution", and explained that in an ordinary case, the proper letting value of the property on the open market for the relevant period would also be the value to the trespasser of its use. In the Ashman case, however, because the property was not normally let out on the open market and the trespasser was only in occupation because she had nowhere else to go, the value to the trespasser was different. Thus Kennedy LJ held that the injured party was entitled to what the trespasser would have to pay for suitable alternative accommodation. Interestingly, that was more than she would have had to pay the Ministry by way of rent for the property itself.
  26. Hoffmann LJ agreed with that approach, but went somewhat further in his analysis. He said that a person entitled to possession of land can make a claim against a person who has been in occupation without his consent on two alternative bases. The first is the loss which he has suffered in consequence of the defendant's trespass. This is the normal measure of damages in the law of tort. The second is the value of the benefit which the occupier has received. This is a claim for restitution. The two bases of claim are mutually exclusive, and the plaintiff must elect before judgment which of them he wishes to pursue. Lloyd LJ, who dissented, held that there was no basis for a claim in restitution and that the claimant was only entitled to the figure it would have charged the trespasser for occupation of those premises. He characterised that figure as the measure of the claimant's actual loss (rather than just the value of the benefit to the defendant).
  27. In Thompson, the facts of which were almost identical to Ashman, Hoffmann LJ (with whom Megaw LJ and Glidewell LJ agreed) repeated what he had said in Ashman about the right of the owner of land which is occupied without his consent to elect between claiming damages for the loss which has been caused and claiming restitution of the value of the benefit which the defendant has received. He added that the fact that the owner, if he had obtained possession, would have let the premises at a concessionary rent, or even would not have let them at all, is irrelevant to the calculation of the benefit for the purposes of a restitutionary claim. What matters is the benefit the defendant has received. The owner was not in any way prejudiced by being afforded a restitutionary claim since, if his loss were greater than the benefit to the defendant, for example, if he would have re-let the property at a higher market value, he could claim that loss by way of damages instead of claiming the benefit.
  28. When Hoffmann LJ spoke of the claimant electing between claiming damages for the loss which has been caused by the trespass or restitution of the value of the benefit which the defendant has received, he was obviously addressing the situation where the two measures produce different results – i.e. where the benefit to the defendant of the use of the land is greater or smaller than the loss actually suffered by the claimant. In many cases, however, as Kennedy LJ expressly recognized in Ashman, the two will coincide, because the true measure of the claimant's loss may be the same as the benefit to the defendant. When that happens, e.g. where the measure of the claimant's loss is the amount the defendant would reasonably have had to pay him for use of the property, and the defendant is the only potential licensee, there is no choice for the claimant to make.
  29. Paragraph 34-049 of the current (18th) edition of McGregor on Damages states:
  30. "It may be that the courts have now reached something of a hybrid solution, one which gives the claimant the best of both worlds. He will be able to claim full market value by way of damages in the normal case, or extract by way of restitution any greater benefit that the defendant may have achieved."

    However, there may be limits to the ability of the claimant to extract the greater benefit. In the very recent case of Stadium Capital Holdings v St Marylebone Properties Co Plc.[2010] EWCA Civ 952 the Court of Appeal took the view that an award of 100% of the gross profits earned from the exploitation of the land by the trespasser is at the very top end of the range of awards of damages on a restitutionary basis, to be reserved for the most serious cases.

  31. The case concerned a trespass to the claimant's airspace by the erection of a commercial advertising hoarding without permission, which had generated significant revenue for the trespasser. The trial judge had refused a very late application by the defendant (made after he had reserved his judgment) to adjourn the question of quantum, and went on to award damages on the basis of the entire fee income obtained by the trespasser over the 3-year period of the trespass. The defendant had only raised two arguments on quantum, neither of which sought to challenge the appropriateness of using the gross profits earned by the trespasser as the basis for the award of damages. Its counsel did not suggest that the appropriate measure to have taken was the cost of a hypothetical reasonable license fee or that, at the very least, the expenses incurred by the trespasser in generating the revenue from the advertising hoardings should be taken into account when computing the benefit.
  32. Despite the way in which the matter had been argued below, the Court of Appeal allowed the appeal and remitted the case to the trial judge for determination of quantum. The Court of Appeal felt that, with the benefit of hindsight, he should have acceded to the application for a split trial, in order that arguments could be properly deployed on what was described by Peter Smith J. (who gave the leading judgment) as "the very difficult question of assessing damages for trespass". He observed in paragraph 13 that the law had developed away from awarding damages on the basis of how the subject land could have been used by a claimant to the basis upon which the defendant had actually used the land and the benefit thereby obtained. This introduces a flexible basis for assessment, because it requires the court to look at the use that was made of the land. Whereas in many cases it would be appropriate to award damages based on a hypothetical reasonable licence fee negotiated for the use of the land, (and that was the basis adopted in the vast majority of the cases to which the Court of Appeal had been referred), in some cases it might be more appropriate to award the profits earned by the trespasser net of the expenses incurred in earning them, and in others it might even be appropriate to award 100% of his gross profits.
  33. Mr Mitchell sought to rely heavily upon this case, but I find it of very limited assistance. The Court of Appeal deliberately eschewed laying down any definitive methodology for assessing the damages. It affords no particular guidance, save to stress that the court should not simply award the headline figure of gross profits without investigating the possible alternatives and choosing the measure that is most appropriate. Stadium Capital Holdings is certainly not authority for the proposition that it is wrong in principle to award restitutionary damages for trespass on the basis of a sum equivalent to 100% of the gross profits earned by the trespasser from the exploitation of the land. On the contrary, in paragraph 14 of the judgment Peter Smith J. expressly recognized that in an appropriate case that could be the right measure of damages. Each case will turn upon its own facts.
  34. The Court of Appeal in Stadium Capital Holdings was only considering the range of awards of damages on a restitutionary basis. It is important not to overlook the fact that the restitutionary basis is an alternative to the so-called "traditional basis", and that the basic measure of the claimant's loss and damage in an action for mesne profits remains the value to him of the property as it would fairly be calculated and/or such sum as should be reasonably paid to him for its use. This means that in some cases the hypothetical license fee may be the appropriate measure under either of the alternative bases. It also means that there may be cases in which the actual rent received by the trespasser is the appropriate measure of damages on the traditional "loss" basis. For example, if the defendant rents out the property whilst he is a trespasser, the rent he receives may be the best evidence of the open market value, and thus provide a means of measuring the fair value of the use of the property over the period of trespass. In such a case, although the trespasser would end up disgorging the whole of the benefit he has obtained, there is no unfairness, because the rent is the true measure of the loss to the claimant. Things would be different if the defendant enhanced the value of the land whilst he was in adverse occupation of it, and in consequence it commanded a higher market rent than the claimant could have received.
  35. Likewise there will be many cases where, on the facts, the claimant's loss (in the form of the sum that should be reasonably paid for the use of the land) is properly measured by what the claimant ought reasonably to charge the defendant (as opposed to a hypothetical licensee) for his occupation of the land and what the defendant ought reasonably to pay for it. This was recognized by Lloyd LJ in his dissenting judgment in Ashman, and there is nothing in principle in what he said on that point that conflicts with the reasoning of the majority. Indeed that was the approach adopted in Swordheath. It is also implicit in the approach to mesne profits adopted by the Privy Council in Horsford v Bird. In that case, the award for mesne profits over the period of trespass was assessed at a percentage of the capital value of the expropriated land (7½% per annum) from the date of the initial trespass to the date of judgment. There is no explanation as to why that percentage was chosen: it was simply stated by Lord Scott to be a rate that their Lordships thought would represent reasonable mesne profits.
  36. Despite the absence of reasoning for this approach, I find it significant that the damages were expressed as a percentage of the capital value, which itself was measured on the basis of what the true owner could reasonably have asked the trespasser to pay for the land. In my judgment, in a case of permanent expropriation, as opposed to temporary deprivation of use, it would be unrealistic to measure the claimant's loss on the basis of a hypothetical license fee, since in reality if the trespasser had negotiated with the owner for the use of the land instead of taking it without asking, there would have been no license. Instead, the trespasser would have bought the land outright, and the owner would have received its capital value sooner. Therefore, in a case of that nature it makes sense to measure the mesne profits as a percentage of the capital value, because what the owner has lost is a sum equivalent to the net yield or rate of return from that capital sum during the period of trespass. I say net yield, because any income earned on the capital sum would have been taxed in the hands of the Claimant. The approach is analogous, though not identical, to that adopted when awarding interest on damages, another situation in which the injured party receives a capital sum later than he would (or should) have done.
  37. Mr Mitchell submitted that the measure of the Claimant's actual loss on the traditional basis was the market rental of the store room as a store room. However, the Claimant was entitled to elect to put his claim on a restitutionary basis, and to claim the greater benefit gained by the Defendant from the use of the room over the period of trespass. Mr Mitchell's primary submission was that the Court should calculate the restitutionary damages on the basis of a hypothetical licence fee to be paid by Brookwide for use of the store room, even though there was little or nothing by way of evidence to assist the Court in determining what a reasonable fee would be. Alternatively, if the Court were to look at Brookwide's actual gain, he submitted that it would be wrong to require Brookwide to account for the gross profits earned from use of the land. Any restitutionary damages based on the actual benefit to Brookwide should be calculated on the basis of the net income it received after taking into account its expenditure, including management charges and the cost of repairs to the flat and upkeep of the common parts. However, Mr Mitchell very fairly acknowledged that in the light of the terms of the Court Order assented to by his predecessor, and the fact that his client was a trustee, there might be some difficulties with that particular line of argument. His final submission, which potentially had the greatest impact on the Claimant's potential recovery, was that if the Claimant did elect to claim on the restitutionary basis, and however the damages were measured on that basis, he would be precluded from claiming any consequential losses. This is a point to which I shall return later in this judgment, and it is a matter of considerable importance, as the claims for consequential losses are by far the largest heads of damages.
  38. I was told by Mr Mitchell that, according to the Defendant's expert, the market rental of the store room as a store room, i.e. as a room at the back of the first floor of an Indian restaurant that was still an integral part of No.125 Alcester Road, was de minimis -£190 per annum or £1,170 for the whole of the relevant period since 23rd May 2001. Although the matter was not technically in evidence, I am prepared to take judicial notice of the fact that the market rental of the store room as a store room was likely to have been a low figure. Yet, as in Horsford v Bird, it is obvious that this would not be an appropriate measure of the loss actually suffered by the Claimant by reason of the fact that his land was being used by the Defendant as part of a flat next door which it was renting out for profit. This is a case in which the only person who would have been interested in using the store room was Brookwide, and it did not want to use the room for storage or to gain access to it through the restaurant. A reasonable payment for the occupation of the store room by Brookwide as an integral part of No.123 Alcester Road is not the same thing as what the Claimant could have charged for renting out the store room as part of his own premises at No.125 Alcester Road. Brookwide would have had to pay the Claimant far more for the use of the land than the going rate for rental of the land as a store room accessible only from No 125. Therefore, I do not accept Mr Mitchell's starting premise that the basic measure of the Claimant's loss in this case on the traditional basis is the market value of the store room as a store room.
  39. Nor do I accept that an award of damages based on the reasonable sum that should be paid by the defendant for the use of the store room is necessarily always to be characterised as a restitutionary measure. As I have already said, there are cases in which the actual loss to the claimant can and should be properly measured by reference to what the defendant would pay for its occupation or use, even if someone else would have paid less, or would not have wanted the land at all. That sum is the appropriate measure of mesne profits calculated on the traditional basis adopted in cases such as Swordheath v Tabet. It may or may not coincide with the benefit to the defendant of the use of the land.
  40. Moreover, what the defendant would pay for the occupation of the land over the period of trespass (or what the claimant could reasonably ask him to pay for it) will not necessarily be a hypothetical license fee. There may be cases in which the trespasser would have bought the land rather than renting it. I have already mentioned that in Horsford v Bird, which was such a case, the Privy Council calculated the loss to the injured party on the basis of a percentage return to the plaintiff on the capital value of the strip of appropriated land based on what the defendant would pay for it. The Privy Council characterised that compensation as mesne profits, and approached the matter by looking at the claimant's loss, rather than at the benefit enjoyed by the defendant. In my judgment, that would also be the appropriate approach to adopt in this case. In my view it would be artificial and unrealistic to embark upon trying to work out a fair license fee for the use of the room during the period of trespass in a case where, in reality, the parties would not have negotiated a license.
  41. Taking the same approach as the Privy Council, and assessing the quantum of mesne profits on a yearly basis as a percentage of the capital value of the land, which has been agreed to be £55,000, then even a more modest return than the 7.5% awarded in Horsford v Bird, say of 4.5%, (which is lower than the average percentage of interest over the relevant period calculated at commercial rates) would produce a figure of £2,475 per annum. It was not suggested that the agreed capital value would have been any different in 2001 from the agreed value in 2010 – on the contrary, the experts' agreement as noted down by me was that the value of £55,000 was its value "at all material times". Whilst in the absence of any better evidence I could have adopted the same percentage figure as the Privy Council, (especially since the period of expropriation in Horsford v Bird coincided with part of the period in this case) I consider it would be fairer to Brookwide to take that lower percentage of return in order to reflect a number of factors, including the fluctuations in interest rates over the period in question, the fact that any profit would be net of tax, and the impact of the recent economic downturn. This produces a figure of £23,210.64 to the date of this judgment.
  42. That figure is higher than the gross profits realised by Brookwide over the relevant period, which have been calculated at a total of £19,741.60 up to the date of trial. Thus, contrary to what might have been anticipated at the outset of this case, the direct loss suffered by the Claimant calculated on the traditional basis has turned out to be greater than even the highest possible measure of damages on the restitutionary basis. Mr Stenhouse made it plain in his final speech that if put to his election, the Claimant would choose to adopt whichever measure of damages produced the highest figure of total compensation.
  43. It is fair to say that the possibility that mesne profits might be calculated on the basis of a percentage return on the agreed capital value of the expropriated land was not at the forefront of the Claimant's legal argument at trial, even though Mr Stenhouse did rely upon Horsford v Bird in which that approach was adopted. Consequently, after I had reached the provisional conclusion that it was the correct approach to take in this case, I gave both Counsel the opportunity to make further written submissions about it. Mr Stenhouse, not surprisingly, was in favour of my taking that approach. Mr Mitchell, equally unsurprisingly, sought to persuade the Court that it was more appropriate to award restitutionary damages based upon the net (or even gross) profits earned by his client. He submitted that taking the Horsford v Bird approach to the quantification of mesne profits in the present case was wrong in principle.
  44. Mr Mitchell first argued that the present case was the reverse of the position in Horsford v Bird, because "the land in that case was more valuable to the trespasser, whereas in the present case the land was more valuable to the dispossessed (as is apparent from the Claimant's election)". That is a circular argument. It is only if one adopts the same approach as the Privy Council in Horsford v Bird that one reaches a calculation that proves (in the light of hindsight) that the mesne profits were in fact more than the profit made by Brookwide from exploiting the land. One cannot logically reason backwards from this outcome that it is wrong in principle to adopt the approach in Horsford v Bird. Moreover in my judgment the question whether it is or is not appropriate to calculate mesne profits on the basis of a percentage of the capital value cannot depend on whether the land is more valuable to the trespasser than it is to the dispossessed. Rather, it depends on whether the amount that the owner of the land could reasonably ask the trespasser to pay for its use and occupation would be an amount by way of rent or license fee, or whether the case is one of permanent expropriation, in which damages are awarded in lieu of restoration of the land to its lawful owner. In the present case, which falls into the latter category, it is absurd to conceive of Brookwide ever paying a licence fee for the use and occupation of the store room, because Brookwide wanted to amalgamate the room with its own land to build a flat. It was equally absurd to conceive of the trespasser in Horsford v Bird paying rent to his neighbour for the expropriated strip of land that was now part of his garden. Far from being the reverse of the position in Horsford v Bird the situation in the present case is strikingly similar.
  45. Mr Mitchell alternatively submitted that there was no evidence that the Defendant would have purchased the land for £55,000. The Claimant had not put his case on that basis, and had never sought to adduce evidence as to the increase in value of the Claimant's land by reason of the inclusion of the store room. On the contrary, he had elected to consider the matter from the position of the diminution in value of his land caused by the removal of that room and the fire escape. Mr Mitchell submitted that this was important, because the figure of £55,000 represented the diminution in value of the Claimant's premises by reason of the fact that he could no longer use the function room. However, and regardless of how it may have been calculated, that is not what the agreed capital figure does represent. What the experts were asked to do, and did, was to decide the capital value of the expropriated land – i.e. the amount that the Claimant could reasonably have asked Brookwide to pay for that land (to compensate him for the fact that they were never going to give it back, not to compensate him for any other consequence of its removal). I was told at the time that they did this by comparing the value of the land with the store room and the fire escape with the value of the land without them. On that wholly unexceptionable approach, the diminution in the value of the Claimant's land by the removal of the store room and fire escape and the enhancement in value of that land by their presence must be the same £55,000. That sum is what the experts are agreed the Claimant could reasonably have asked the Defendant to pay for the expropriated land, no more and no less. In consequence of that agreement it does not matter what the Defendant would in fact have been prepared to pay or even what the Claimant would have asked it to pay, because the experts have decided that the fair price would be £55,000. It really does not matter how the experts reached that figure: what matters is that they agreed it. Neither I nor the parties can go behind that figure.
  46. In any event, I have no reason to suppose that the fact that the Claimant could no longer use the function room played any part in the calculation of the figure that the experts agreed. The claim for loss of profits from the function room on the first floor, which was a claim for consequential loss, should have had no bearing at all on the exercise the experts were carrying out. There was no evidence that it did. I was not told that it did when I was told about the agreement. Therefore Mr Mitchell's argument that by using the agreed figure as the multiplicand the Court would be adopting the premise that the Claimant could not run his business from the function room, or to put it another way, that an annual figure of 4.5% of £55,000 represents the sum necessary to "rent" for the Claimant a function room on the first floor of his premises, does not get off the ground. It is based on the premise that the capital valuation somehow took the loss of profits from the function room into account, when there is no reason to suppose that to be the case. So too is his related argument that to award mesne profits calculated on this basis as well as consequential loss of profits would amount to double recovery. The premise is either false or, if even it is true, there is no evidence to support it, and the basis upon which the experts reached the figure of £55,000 cannot be re-opened. Either way these arguments must fail.
  47. Finally on this point Mr Mitchell submitted that even if the Horsford v Bird approach were to be adopted, the 4.5% should be applied to a capital value of £2,500, which he submitted was the value of the store room without the fire escape, leading to a claim for mesne profits of just over £1,000. In my judgment, that argument is not open to Mr Mitchell on the evidence. Once the experts had agreed on the value of the store room at £55,000 for the purposes of the award of damages in lieu of restitution, all other arguments about its value were superseded. There was no evidence adduced at trial that the value of the store room without the fire escape was any different from its value with it, let alone that its value to the Claimant on any basis was £2,500. Therefore I am not persuaded by Mr Mitchell's further submissions that my provisional view was wrong. I shall award mesne profits, representing the actual loss to the Claimant, on the basis of applying an annual percentage of 4½% to the agreed capital value of the expropriated property, which amounts in total to £23,210.64.
  48. Given my decision on the appropriate calculation of the mesne profits, it is unnecessary for me to deal in detail with the various arguments pertaining to the calculation of the alternative restitutionary claim, which were largely concerned with whether Brookwide should have to disgorge its gross profits from exploiting the land or whether there should be some discounting for its expenditure on the flat or the block of which it formed a part. However in deference to the arguments of Counsel, and in case this matter goes further, I shall briefly indicate my decision on those issues.
  49. Mr Mitchell contended that any profit that Brookwide should have to disgorge must be its net profit after taking into account the running costs and expenditure including the cost of repairs to the flat and expenditure on the common parts, and 10% management charges. Moreover, that net figure should be apportioned to reflect the fact that the room was only part of the flat, and the rest of the floor space was Brookwide's own property all along. I had no difficulty in rejecting the last of these arguments since, but for the store room, there would have been no flat and therefore no receipt of rentals at all.
  50. Mr Stenhouse pointed out that the management fees were being charged by the very people who were responsible for taking the store room in the first place. The Defendant's argument meant that in effect the Claimant was being asked to pay for costs which the Defendant had chosen to expend. Moreover, there was no proof that the expenses were necessarily incurred in order to earn the profit. Each successive tenant of the flat was in receipt of housing benefit, and therefore he contended that the amount of rent received by Brookwide had nothing to do with its condition or maintenance. Finally, the wrongdoer in the present case was a trustee of the land it expropriated, and thus should be made to disgorge all the profits without taking account of any expenses incurred in earning them. It is right to say that it was Brookwide's position as trustee, rather than the action for mesne profits, that I had in mind when I stated in paragraph 123 of the judgment on liability that Brookwide would be liable to account to Mr Ausman Ramzan for the profits made from leasing the store room (albeit with the important caveat that the Claimant would not be entitled to double recovery for the same loss).
  51. In my judgment this would have been an appropriate case in principle for awarding Brookwide to disgorge its gross profits, and not just because Brookwide was a trustee. The situation in this case is potentially very different from that with which the Court of Appeal was concerned in the Stadium Capital Holdings case. That case went back to the trial judge for determination of the mesne profits and the outcome is unknown as at the date of this judgment. If the defendant in that case had entered into a licence for use of the air space, it may well have paid the claimant a fee that was considerably less than the full amount of the profit it either expected to or did realise in consequence of the commercial exploitation of that air space. Provided that someone pays the owner of land a fair license fee or rental for his occupation of it, he is entitled to keep any profits that he earns from the lawful exploitation of the land for his own benefit whilst he remains in occupation. Peter Smith J. also envisaged that the parties might have negotiated a license fee based upon a share of the profits. However, that was a case of temporary trespass, where an arms' length commercial bargain for payment of something less than the anticipated advertising income seemed likely. The present case involved the outright and cynical expropriation of someone else's property and its amalgamation with the wrongdoer's own property in order that the wrongdoer could make a profit out of the use of the combined land. That profit, moreover, was one that he would have been unable to realise at all but for the expropriation and amalgamation of the claimant's property. This was an even worse situation than the one in Horsford v Bird, because the defendant in that case only benefited from the enhanced value to his house of having a larger garden. He was not using that land commercially to make a profit for himself.
  52. Thus, if ever a case fell within the category described by the Court of Appeal in Stadium Capital Holdings as "the most serious", this is it. There would be ample justification in the peculiar circumstances of this case for awarding damages for trespass on a basis that would be the equivalent of an account of profits, without taking into account any expenditure incurred in earning those profits. This conclusion is reinforced by the fact that Brookwide was a trustee of the land, although it seems to me that there is much to be said for the view that the culpability of the trespasser in these circumstances would have been no different if it had not been a trustee, and that the measure of restitutionary damages should be the same in both cases.
  53. I should add for the sake of completeness that, in any event, even if this had been a case in which it would have been appropriate to deduct the expenditure incurred in earning the profits, the evidence adduced by Brookwide failed to establish the necessary connection between the incurring of the expenditure and the earning of the profits. The rental income (largely, if not exclusively, financed by the payment of housing benefit) could not have been and was not affected by any work done to maintain the flat or the common parts. Brookwide did not need to engage managing agents, but chose to do so. In any event I see no justification for Brookwide claiming an entitlement to offset, against the profits to be disgorged, the management fees they chose to pay the very agents whose contractors carried out the expropriation on their behalf.
  54. C. CONSEQUENTIAL LOSSES: COSTS OF REINSTATEMENT OF THE FIRE ESCAPE AND LOSS OF PROFITS FROM THE USE OF THE FUNCTION ROOM

  55. Mr Mitchell submitted that the Claimant could not recover his consequential losses as well as restitutionary damages in the form of the gross profits earned by Brookwide from the commercial exploitation of the expropriated land. The fact that the traditional basis of calculating the Claimant's direct loss has produced a higher figure than the restitutionary basis has deprived Mr Mitchell's submission of any practical effect. However, that submission was plainly correct. A claimant cannot claim restitution of the defendant's benefit in lieu of claiming his own direct losses, and then in addition claim his consequential losses. The election that he must make is between claiming all his damages by reference to his actual loss, on the one hand, and claiming that the defendant should disgorge the benefit that he has obtained by using the land, on the other.
  56. Therefore in this case, if the Claimant had chosen to claim the profits made by Brookwide as restitutionary damages for trespass, he would have been unable to claim the cost of reinstatement of the fire escape or the alleged loss of profits on the function room. The decisions of the Court of Appeal in Ashman and Thompson are binding on me, but even if I were under no such constraints I would have reached the same conclusion independently. If the figure for mesne profits had been less than the gross profits earned by Brookwide, Mr Stenhouse would have had to have elected to recover the lower figure as damages for trespass in order to claim the other heads of damages. However, given that the damages for trespass are higher, it is unnecessary to consider this matter further. Of course, the Claimant may still have been able to claim the Defendant's profits because of the breach of trust, subject to the question of double recovery.
  57. I therefore now turn to consider the two heads of damages claimed as consequential losses. McGregor recognizes that consequential losses are recoverable on the same basis as in cases of misappropriation of goods. Reference is made in the commentary at paragraph 34-052 to the case of Barclays Bank v Jones [2008] EWHC 2079 (Ch) In that case, the defendant refused to vacate a single room in the claimant's flat, and since this prevented the claimant from letting the whole flat, damages were assessed on the whole of the rent thus lost by the claimant. In the present case, the most significant harm caused by the misappropriation of the store room was the cutting off, and then the removal of, the fire escape. Without a fire escape, it was impossible for the restaurant to use the upstairs function room and to earn any profit from doing so. That type of loss would have been reasonably foreseeable and it was not argued to the contrary. Therefore, on the face of it, in order to put Ausman Ramzan in the position in which he would have been in 2001 if the store room and thus the fire escape had not been blocked off from No.125, he should be entitled to the reasonable cost of reinstatement of the fire escape and to any proven loss of profits.
  58. Mr Mitchell submitted that the Claimant could have either the agreed diminution in value of the land, £55,000, or the cost of a new fire escape but not both. I was initially concerned that there might be a double recovery were I to award the costs of reinstatement of the fire escape as well as the agreed capital value of the expropriated land (based on the difference between the value of No.125 Alcester Road without the store room and fire escape and its value with them both). However, on further reflection I accept Mr Stenhouse's submission that the Claimant would not be adequately compensated for the permanent loss of the fire escape if he simply received the current capital value of the expropriated land. The measure of the depreciation in value of the Claimant's land after part of that land has been taken away, is not the same thing as the cost of replacing what has been taken away. I could not restore the expropriated land to the Claimant and so he is entitled to the capital value of that which was forcibly taken from him; but since the expropriation of the land also meant he no longer had a viable means of exiting the first floor premises in case of emergency, he must also be entitled to the reasonable cost of putting in a new fire escape as a separate head of damages.
  59. On the agreed evidence of the expert valuers, had the Claimant sold No.125 Alcester Road as it now is at any time after he became its owner in May 2001 and prior to the trial, he would have received £55,000 less for it than he would have done had it remained in its original form, with the store room and fire escape. Mr Stenhouse correctly pointed out that it would have been no defence to an action for damages measured by the £55,000 diminution in capital value to argue that, because the Claimant had failed to install a new fire escape before he sold the land, he could not claim the full loss of capital value caused by not having a store room and first floor fire escape. This demonstrates that the cost of putting in a new fire escape does not overlap with the damages representing the price of the expropriated land but is an additional and separate head of loss.
  60. I reject Mr Mitchell's argument that in order to recover under this head, the Claimant must prove that he would install a new fire escape. No authorities were cited to me in support of that proposition and, as Mr Stenhouse pointed out, the point was never even pleaded, though I would not have dismissed it on that technical ground alone if it had had any merit. As I stated earlier in this judgment, damages for tort are designed to put the injured party in the position in which he would have been if the wrong had not been committed. If the wrong had not been committed the Claimant would still have had a fire escape. That item had a value, independent of the value of the land to which it was attached. The best measure of that value is the agreed cost of putting in a replacement. The Claimant is therefore entitled to compensation for the loss of the fire escape, regardless of his intentions and regardless of whether he is able to effect reinstatement (this may depend on whether planning permission can be obtained). Occasionally in contract cases, the costs of replacing an item that was not delivered or repairing an item that was delivered in a damaged condition will not be awarded because on the facts it would have been unreasonable for the injured party to replace or repair it, as the case may be. However, this is a claim brought purely in tort, and in any event it would not be unreasonable to replace the fire escape. The nature of the loss falls within normal principles of causation and remoteness, and there is no issue as to mitigation. The costs of the installation of a new fire escape have been agreed by the experts at £72,570 plus VAT and that is the sum I shall award under this head.
  61. Turning to the claim for loss of profits, by May 2001 the Claimant, Ausman Ramzan, had joined his father in running the restaurant business, in an informal partnership that still subsists. The restaurant has been running continuously despite the changes in fortunes of its original proprietor, Mr Mohammed Ramzan, and the business has survived despite the ups and downs of the economy. The blocking off and removal of the fire escape clearly had a direct impact upon the ability to earn profits from the commercial exploitation of the first floor function room. That type of loss was a reasonably foreseeable consequence of the isolation of the first floor fire escape from No. 125 and the action taken shortly afterwards to sever the staircase, and Mr Mitchell did not seek to contend otherwise.
  62. It soon became apparent that the claim for loss of those profits was easily the most substantial element of the Claimant's claim. Unfortunately it was also the least well prepared.
  63. Mr Mohammed Ramzan gave evidence, which I accept, that prior to the expropriation of the store room in 1999, the function room had been a popular venue. The function room was the only one of its kind in Moseley at the time. One of the attractions for customers was that his restaurant had a late night drinks licence (though they were also able to bring their own alcohol in if they preferred). The booking fee was £200 for six hours. Set meals for functions varied from £10 to £15 per head depending on the choice.
  64. The Claimant's expert accountant Mr Snedker did not produce an expert report in proper form in accordance with the requirements of the CPR, although this does not appear to have been his fault. He originally based his evidence upon conversations he conducted over the telephone with Mr Mohammed Ramzan. The Claimant's solicitors do not appear to have had any, or any significant involvement in obtaining this crucial expert evidence. Mr Snedker initially believed that his task was to work out the loss of earnings to the business as a whole from cessation of trade; but for that misunderstanding he would have asked to look at the accounts for the business to give him a better idea of the impact on the figures of the closure of the function room. When it was pointed out to Mr Snedker in cross-examination that the downstairs restaurant had never stopped trading, he revised his figures to take this into account. His view was that if the restaurant figures were extrapolated they showed that the business was only just breaking even. Mr Snedker's figures for the profit derived from use of the function room were initially based on assumptions as to the average number of bookings per month (5) and the assumption that the function room would be on average 95% full when let for a function.
  65. Unfortunately no business accounts were produced in evidence. Mr Stenhouse said that they were never asked for: but it was incumbent on the Claimant to prove his case, and those documents would have been extremely pertinent to the claim for loss of profits. However the Claimant did adduce the booking records for the function room in 1994, 1995, 1997 and 1998. These showed that the function room did steady business. It was used on several days each week although not every day. On average there were bookings for 8898 people each year and the number of bookings was higher than Mr Snedker's assumption of only 5 per month. In the last year prior to the expropriation, 1998, the number of people using the function room had increased from 8343 to 10,902. The assumption that the function room would be on average 95% full when let for a function was unjustified; the average would be somewhat lower than that. However as Mr Snedker's revised calculation was based on actual figures, that may not matter too much. Unfortunately, there was no record of bookings in the first three months of 1999, but Mr Mohammed Ramzan's evidence was that the function room was still in use at the time of the misappropriation of the store room, and I believed him. There was no reason to suppose that bookings had suddenly dried up – on the contrary, there appeared to be an upward trend in the figures for 1998. After the expropriation, the restaurant was unable to use the function room because there was no upstairs fire escape, and as Mr Mohammed Ramzan explained, it could not cater for large numbers downstairs.
  66. Fortunately for the Claimant, the records of bookings for the function room gave Mr Snedker something more tangible on which to work. Having taken this information into account, Mr Snedker concluded that the function room was making a net profit in the region of £31,915 per annum before the access to the fire escape was blocked off. The additional income from the function room was pure profit because the restaurant absorbed all the other overheads. Mr Snedker accepted that there was some margin for error and that much depended on the reliability of his various assumptions. However he was not prepared to accept that the figures for business in the period from 1994 to 1998 would give no indication of the likely turnover in the event that the function room had been in use in 2001 and thereafter.
  67. I am satisfied on the balance of probabilities that the function room would have generated significant profits during the whole of the period in question, (and indeed that the function room would have been in profitable use from April 1999 to May 2001 if there had been no expropriation). However I find the evidence of the costs attributable to that aspect of the business, particularly the staffing costs, unsatisfactory. Mr Snedker's average profit figure is probably too high. I have rounded it up to £32,000 and discounted by 25%, on the basis that the costs would have been higher than Mr Snedker has assumed, and to take account of fluctuations in trade and other imponderables that might have had an adverse impact on the ability to turn a profit. Doing the best I can on the evidence that was produced, I am satisfied that the Claimant has established that the function room would have produced an average profit of £24,000 per year and that is the figure I will award under this head for the relevant period. Since damages for loss of profits are taxable in the hands of the recipient I need not make any deduction for tax. The amount of damages falling under this head is £225,073.50 (comprising 9 years x £24,000 to 23rd May 2010 and 138 days at a daily rate of £65.75, namely £9073.50).
  68. Mr Mitchell submitted that the Court should approach the matter as if Mr Ausman Ramzan were opening up the function room for business as a fresh business in 2001. In my judgment, that approach is misconceived. It is based on a false factual premise. Although this Claimant's claim only relates to the profits that were lost during his period of ownership of the misappropriated land, and he acquired it two years after the expropriation, the question the Court has to determine is what loss he suffered in consequence of the trespass and breach of trust. If the expropriation had not occurred, the fire escape would have remained functional, and the function room would have been trading continuously from 1999 onwards despite Mr Mohammed Ramzan's bankruptcy, so that when Mr Ausman Ramzan acquired the land in 2001 he would not have been faced with starting up a new venture on the first floor of the restaurant.
  69. Mr Mitchell further submitted that Ausman Ramzan was only entitled to half of any lost profits as damages because he ran the business in partnership with his father, and his evidence was that they shared the profits equally. The claim was not brought on behalf of the partnership and Mohammed Ramzan was not a party to it, so Ausman Ramzan could not recover 100% of the lost profits as damages. In my judgment, that submission is also premised upon a fundamental misconception. The person with the cause of action in trespass is Ausman Ramzan. The land that was trespassed upon was his land, not the partnership's land. There was no reason to join Mr Mohammed Ramzan as a party to the action, because this was not a claim by the partnership, nor could it have been. The question I have to decide is what loss and damage was suffered by Ausman Ramzan in consequence of the trespass, on usual principles. He has established, on the balance of probabilities, that the removal of the fire escape from his land caused a loss to a profit-making venture through the exploitation by him of other parts of his land, namely, the hiring out of the function room. Ausman Ramzan was and is entitled to claim all the profits that he would have generated, subject of course to his liability to account to his father for his share of those profits in due course. The fact that Mr Ramzan ran the business as a partnership does not mean that Brookwide can escape its liability to compensate him for the whole of the losses he suffered in consequence of its trespass.
  70. Had I reached a different conclusion on the partnership point, I would have exercised my discretion to permit the claim to be made without the formality of joining Mohammed Ramzan as a party to the action. The rules of procedure are not to be used as a technical means of defeating an otherwise meritorious claim. That would not be in accordance with the overriding objective. It was plain that none of the types of mischief against which the rules on joinder of partners were aimed was present in this case.
  71. D. DAMAGES FOR BREACH OF TRUST

  72. Although paragraph 11(b) of the Order of 28th April 2008 requires the Defendant to pay damages in an amount equivalent to its profits from renting out the property (which, as I have said, is £19,741.60) my earlier judgment made it clear that this was subject to any double recovery. Mr Stenhouse submitted that there was nothing wrong in principle with ordering a wrongdoer to pay damages for trespass and also to account for the profits he has made in breach of trust, even if the trespass and breach of trust were one and the same act. An order made against a fiduciary, including a trustee, to disgorge profits gained from a breach of fiduciary duty or breach of trust is not aimed at compensation of the injured party, but is designed to send out a deterrent message. Mr Stenhouse is right about that objective – for example, a director of a company who makes a secret profit from exploiting a corporate opportunity may have to disgorge that profit notwithstanding that the company would have been unable to take up the opportunity or would have been disinterested in doing so.
  73. Nevertheless paragraph 11(b) of the Order, which neither party can go behind, refers to the profits earned by Brookwide as "damages", and damages are compensatory in nature. For the reasons already explored, they are not awarded as restitutionary damages for the trespass, but they are the appropriate measure of damages for the breach of trust. Consequently since Brookwide is liable to pay £19,741.60 under paragraph 11(b) of the Order in my judgment it would be a double recovery if the Claimant also received the full amount of the mesne profits, and that would result in the Claimant being overcompensated for his loss. I will therefore order that the sum of £19,741.60 be taken into account and offset against the mesne profits figure awarded under paragraph 11(a) of the Order, i.e. the £23,210.64. That means that the mesne profits figure will be reduced to £3,469.04 to take account of the award of £19,741.60 under this head of damages.
  74. EXEMPLARY DAMAGES

  75. The leading case on exemplary damages is Broome v Cassell [1972] AC 1027. In the earlier case of Rookes v Barnard [1964] AC 1129 Lord Devlin said at p.1228 that in a case in which exemplary damages are appropriate, a jury should be directed that if, but only if, the sum which they have in mind to award as compensation is inadequate to punish him for his outrageous conduct, to mark their disapproval of such conduct and to deter him from repeating it, then it can award some larger sum. He stressed that awards should be "moderate", and should not amount to greater punishment than would be likely to be incurred if the conduct were criminal. In Broome v Cassell Lord Hailsham added that a jury should always be warned that they need not award anything, and must not do so unless they are satisfied that a purely compensatory award is inadequate. He went on at p.1060B:
  76. "It follows that whatever they do award should only be a sum which has taken into account the award of damages already notionally allowed as compensation, including, where appropriate, the "aggravated" element required by a defendant's bad conduct, and should never exceed the amount by which the required penalty (if that is the right word) exceeds the required compensation".

  77. Lord Hailsham went on to explain at 1073 that the word "exemplary" better expresses the policy of the law as expressed in the cases. It is intended to teach the defendant and others that "tort does not pay" by demonstrating what consequences the law inflicts rather than simply to make the defendant suffer an extra penalty for what he has done, although that does, of course, precisely describe its effect. The whole process of assessing damages where they are "at large" is essentially a matter of impression and not addition. Lord Hailsham included warnings about double counting by adding a pure fine to what has already been awarded as solatium without regarding the deterrent or punitive effect of the latter, but it is important to bear in mind that he was addressing a context (defamation) in which aggravated damages might be awarded. In the present case I have already ruled that it was inappropriate to award aggravated damages.
  78. Lord Reid makes it clear in Broome v Cassell that the three categories in which exemplary damages may be awarded are categories in which the damages could not be justified as compensatory (see p.1086). At page 1089 he sets out the steps to be taken: the tribunal will fix in their minds what sum would be proper as compensatory damages, then ask whether that sum is or is not adequate to serve the purpose of punishment or deterrence. If it is adequate they must not add anything. If they think it is insufficient they should add to it enough to bring it up to a sum sufficient as punishment.
  79. What is said in both cases about directions to the jury is also applicable where, as in the present case, it is for the judge to decide upon the award of exemplary damages. I shall therefore direct myself in accordance with the above guidance given by the House of Lords. Mr Mitchell submitted that in a case falling within the second category in Rookes v Barnard, where the wrongdoer calculates that the profit to be gained by his misconduct will outweigh any compensation he has to pay, the policy of awarding exemplary damages will be sufficiently met by requiring him to disgorge that profit, and that if I were to make Brookwide disgorge its gross profits the exemplary damages should be assessed at nil. There is some support for that approach in the commentary in McGregor on Damages at Chapter 11, paragraph 11-050. However I am not persuaded that in a case such as the present the award of exemplary damages is simply designed to operate as an indirect method for extracting profits tortiously obtained by the defendant and thus to prevent his unjust enrichment. If the claimant elects to claim damages for trespass on the restitutionary basis he may well achieve that in any event. In a case like this, which is one of the worst examples of its kind, forcing the wrongdoer to disgorge what turned out to be a modest profit is unlikely to provide a sufficient deterrent in itself.
  80. Among the matters to be taken into consideration when determining the amount of any exemplary damages are the means of the parties: a small exemplary award might not serve its purpose if the defendant is very rich. In the present case, Brookwide is part of a group of companies involved in the business of property investment. Brookwide and its associated companies pay their parent company Agra Ltd some £18 million per annum, and the documents disclosed by Brookwide suggest that Brookwide alone contributes £60,000 to Agra's income of around £350,000 per week from its subsidiaries. The money is also paid offshore, no doubt for reasons of tax efficiency. Although, in the event, Brookwide made comparatively little profit over nine years from the flat created using the store room that it misappropriated, it seems clear that requiring it to disgorge that profit is unlikely to provide a sufficient deterrent against repeating its objectionable behaviour in other properties. £20,000 to Brookwide is a drop in the ocean.
  81. The conduct of the defendant is also material to the assessment. My findings in the judgment on liability speak for themselves and I need not repeat them here. They were strong findings and they were not appealed. A genuine apology may significantly ameliorate the punishment. In the present case, however, Brookwide has shown no contrition whatsoever for what it did and the individual who was responsible for the expropriation, Mr Natanson, lied in the witness box to try and cover up what he had done. The fact that he was subsequently discharged from his duties is no substitute for a proper apology, and that has never been forthcoming.
  82. The starting point is whether the award of damages by way of compensation for the trespass and breach of trust (including the damages for consequential losses) is adequate to punish Brookwide for its conduct and to act as a sufficient deterrent. The award of damages is not insubstantial, and certainly it is far greater than Brookwide would have anticipated having to pay at the time of the expropriation – that is the very reason why this was a case falling within the relevant category allowing the Court to award exemplary damages. Not only is the combined sum awarded in respect of capital value and mesne profits far in excess of the gross profit earned by Brookwide, the damages awarded to compensate the consequential losses caused by the removal of the fire escape will mean that the amount that Brookwide has to pay will be £368,812.29 even before taking interest into account. Although Brookwide has had to disgorge its gross profit, that has been subsumed into the overall figure for compensation without double-counting. Is that, plus the effect of the criticism in my earlier judgment and in this judgment sufficient to deter Brookwide from repeating that behaviour and to punish it for what it did? In my judgment, it is not.
  83. For some defendants it is possible that having to pay compensation which unexpectedly turns out to be in the order of £369,000 would give them serious pause for thought before doing it again, but I am far from persuaded that it would make any difference to Brookwide's attitude. Brookwide would probably regard the fact that the expropriation happened to preclude the Claimant from earning such significant sums from the hire of the function room as a matter of chance, a scenario that was unlikely ever to be repeated. Even if it were, the chances that the aggrieved party would be willing to take on an opponent of Brookwide's size, financial backing, and acumen would be regarded as slender. It is very likely that Brookwide was surprised when Mohammed and Ausman Ramzan commenced proceedings against it and was even more surprised when they saw the litigation through to the end. My strong impression of Brookwide and the group to which it belongs, based on all the evidence in this case, is that they would not hesitate to do anything that would promote their own self-interest, even if occasionally it might mean having to pay someone significant compensation if they overstepped the line. The fact that they bricked up the dividing wall, cut through the fire alarm wires, and effectively made the expropriation of the store room a fait accompli before taking any steps to check the legal position with the Land Registry probably says everything that one needs to know about the attitude of the individuals behind Brookwide. The size of the compensation (and having to give up all its profits) would not in itself deter Brookwide from doing the same thing again if it felt it could get away with it. Having said that, I must bear in mind that the award of exemplary damages must be "moderate", though that is to be assessed in the overall facts of the case and in the light of the conduct and the need to mark disapproval, as Peter Smith J said in Design Progression Ltd v Thurloe Properties Ltd. [2005] 1 WLR 1. Therefore the amount of exemplary damages should not exceed a sum which in my view would suffice, in addition to the compensation, to teach Brookwide the necessary lesson that conduct of this type will not be tolerated and does not pay.
  84. I have considered the level of awards made in other cases but they afford little guidance. In the Design Progression case the award was £25,000 for a claim against the landlord for blocking an assignment of the tenant's lease, and in unlawful eviction cases prior to the introduction of the statutory compensation scheme under the Housing Act 1988, awards in the region of what would be the equivalent of £30,000 to £35,000 in today's money were not uncommon. However cases of the deliberate expropriation of property are among the most serious type of trespass, and are so rare that the only example found in the case law despite counsel's best endeavours is Horsford v Bird. There was no award of exemplary damages in Horsford v Bird, possibly because the expropriation in that case appears to have been the result of a mistake in measuring where the boundary was. Mr Stenhouse submitted that the award could take the form of a percentage of the total compensation awarded, and referred to a case of a fraud on insurers in which exemplary damages of 50% of the compensatory damages were awarded. He suggested that an award of 1/3 of the total damages might be appropriate in a case of this nature.
  85. Although I was at one time attracted by the idea of taking the approach of awarding a percentage of the compensatory damages, on reflection it seems to me that an award in the region of £100,000 or any figure above this would probably be excessive, particularly given the significant amount of the compensation before exemplary damages are awarded. Taking all the relevant considerations into account, it seems to me that the appropriate figure by way of exemplary damages in the present case, where the misconduct was so serious that a strong deterrent message is justified, should be £60,000. Although that figure is three times the actual profit made from the wrongdoing, on the evidence before the Court it is only one week's average contribution by Brookwide to Agra's income. I also do not believe it to be out of line with the level of fine that might be imposed in a criminal case for theft by a trustee of the beneficiary's land.
  86. In summary, the Defendant Brookwide is liable to pay damages in the following categories and amounts:
  87. Under Paragraph 11a of the Order
    1. £55,000 in respect of the capital value of the store room;
    2. Mesne profits in a sum representing a return of 4½% per annum on the capital value of £55,000 over the period of the trespass, ending with the date on which judgment is handed down; that is, £23,210.64. However, in order to avoid double recovery the sum of £19,741.60 awarded under Paragraph 11b of the Order is to be deducted from that sum.
    3. £72,570 plus VAT (in total £85,269.75) in respect of the cost of restoring a fire escape on the first floor of No.125 Alcester Road;
    4. £ 225,073.50 for the loss of profits from the function room during the relevant period, ending with the date on which judgment is handed down

    Under Paragraph 11b of the Order
    £19,741.60
    However that sum shall be offset against the figure for mesne profits awarded under Paragraph 11a so as to preclude double recovery.
    Under Paragraph 11c of the Order
    Exemplary damages in the sum of £60,000.

    INTEREST

  88. So far as interest is concerned, it is accepted by Mr Stenhouse (in my judgment, rightly) that no pre-judgment interest should run on the cost of the restoration of the fire escape, which is assessed at today's prices. The capital value of the land, £55,000 is to be received in 2010 as damages in lieu of reinstatement, on the basis that the trespass has continued until this judgment is handed down. Moreover, given that the mesne profits have been awarded on the basis of a percentage rate of return on that capital sum, on the hypothesis that if Brookwide had gone about things properly they would have bought the land instead of simply helping themselves to it, it would be inappropriate to award interest on the capital sum for the period of the trespass as well as the mesne profits. The Claimant is already compensated for not having had the value of the land in 2001 by the award of mesne profits. However interest will be awarded on the mesne profits, the loss of profits on the function room and the damages for breach of trust under s.35A of the Senior Courts Act 1981. The question whether interest should run on exemplary damages is more difficult, but given that they are not compensatory in nature and will only be payable upon the handing down of this judgment I am not prepared to award interest on the £60,000 for any period pre-judgment.
  89. The rate of interest is discretionary. Of course commercial interest rates have fluctuated considerably over the period in question, which is more than 9 years. Mr Stenhouse submitted that the rate of 8%, which is still the prescribed judgment rate, is also the appropriate rate to award for the period prior to judgment. However the object of an award of interest is to compensate a claimant for being kept out of the money that should have been paid to him as damages. It is clear that the Claimant would not have earned a rate of 8% by investing the money, nor would he have had to borrow at 8% for the whole of the period since May 2001, or anything like it. That is why the judgment rate is hardly ever found to be an appropriate rate to award on damages for the period before judgment, and why in my judgment it would be an inappropriate rate in the present case. In my experience it is most common in commercial disputes to measure the compensation by reference to what it would have cost the injured party to borrow an equivalent sum from a financial institution. It obviously costs individuals more to borrow than the favourable rates that might be granted, for example, to a public listed company.
  90. A typical commercial rate is 2% over base. In May 2001 the base rate was 5.25%, so 2% over base would have been 7.25%, but in March 2009 the base rate was only 0.5% so 2% over base would have been 2.5%. So far as the damages for mesne profits and breach of trust are concerned, strictly speaking it may be more appropriate to consider the rate that could have been achieved by investing the money rather than the rate it would have cost the Claimant to borrow the money, but at the end of the day this is unlikely to make a significant difference. Moreover, some of the elements of damages would have been paid at different times within the relevant period – for example, the profits made by the Defendants from renting out the flat were earned on a monthly basis and they obviously could not be disgorged until they were earned. In the light of this additional complication, Mr Mitchell's concession that he would accept an average rate of 6% per annum over the entire period seems to me to be not only sensible but fair.
  91. I shall therefore award simple interest on the sum of £248,284.14 (being the total of the mesne profits, loss of profits and damages for breach of trust) for the period of 9 years and 138 days at a rate of 6% per annum. That is £14,897.05 per annum and £40.81 per day for 9 years and 138 days. I have calculated this at £134,073.36 for the 9 years and £5,631.78 for the 138 days giving a grand total of £139,705.14. I shall not overburden this already lengthy judgment with consequential matters such as costs, permission to appeal and a stay of execution. I shall give my ruling on those matters separately in writing after judgment is handed down.


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