Liverpool and Lancashire Properties Ltd and Another v Lunn Poly Ltd and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NEUBERGER,LORD JUSTICE SCOTT BAKER,LORD JUSTICE AULD |
| Judgment Date | 15 March 2006 |
| Neutral Citation | [2006] EWCA Civ 430 |
| Docket Number | A3/2005/2397, A3/2005/2398 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 March 2006 |
[2006] EWCA Civ 430
Lord Justice Auld
Lord Justice Scott Baker
Lord Justice Neuberger
A3/2005/2397, A3/2005/2398
A3/2005/2400
IN THE SUPREME COURT OF JUDICAT
IN THE COURT OF APPEAL (CIVIL DIVISI
ON APPEAL FROM CHANCERY DIVISION, BIRMINGHAM DISTRICT REGIS
(HIS HONOUR JUDGE NORRIS
Royal Courts of Justice
Strand
London, WC2
MR E BARTLEY-JONES QC (instructed by Messrs Wacks Caller, Steam Packet House, 76 Cross Street, Manchester M2 4JU and Messrs Bower Cotton Partnership LLP, London EC4Y 8BH) appeared on behalf of the Appellants
MR S E (instructed by Messrs Wright Hassall, 9 Clarendon Place, Leamington Spa, CV32 5QP) appeared on behalf of the Respondent
Judgement
1. This is an appeal from His Honour Judge Norris QC, sitting in the Birmingham District Registry as a Deputy High Court Judge. The appeal raises three issues, although the third is now agreed. The issues are:
a) the basis of assessment of damages in lieu of a final injunction;
b) whether the judge was entitled to refuse the defendants an inquiry as to damages on the cross-undertaking; and
c) the basis of assessment of costs.
The facts
Liverpool & Lancashire Properties Limited were the freeholders of a shopping centre, Ellesmere Centre, Walkden, Greater Manchester ("the centre") until 21 March 2005, when they transferred their interest to an associated company, Derwent Holdings Limited. There is no need to differentiate between these two defendant companies for present purposes, and I shall call them "the landlords". Unit 28 in the centre is subject to a lease granted in 1993 for a term of 25 years subject to 5-yearly rent reviews. The lease was vested in Lunn Poly Limited until it was assigned to a company in the same group. Both companies are included in the expression "the tenant".
The lease contained the sort of provisions one would expect to see in a lease granted some 12 years ago of a unit in a shopping centre. Those provisions included:
a) a covenant by the landlords for quiet enjoyment;
b) a qualified reservation in favour of the landlords permitting alteration of the common parts of the centre;
c) a covenant by the tenant not to share occupation or possession of the unit;
d) a covenant by the tenant to comply with requirements of the fire authority and of the landlords relating to fire precautions;
e) a covenant by the tenant to pay the landlords' costs on an indemnity basis in relation to notices and proceedings concerned with forfeiture;
f) a proviso for re-entry in favour of the landlords in the event of the tenant being in breach of covenant.
By 2002 the centre was run down, and the landlords developed proposals to improve it. Those proposals involved substantial works to the structure and common parts of the centre. At the end of July 2003 the landlords gave the tenant notice of the intended works, which included plans. Those plans clearly show that they included blocking up an existing fire door, which the tenant not merely had the right to use under the lease, but which was included in the demise. The plans also clearly involved the construction of a new fire door in a different location. The notice envisaged the works involved being carried out by the tenant, pursuant to the fire officer's requirements.
5. The landlords' works to the centre started in early September 2003. By January 2004 the works had got close to the unit. In late February 2004, the landlords wrote to the tenant stating that the relocation of the fire door should be very shortly undertaken by the tenant. The tenant responded by denying it had agreed relocation of the fire door, let alone at its expense. Discussions ensued during the first half of March. Those discussions did not reach agreement, but they proceeded on the basis that the existing fire door would be relocated. When the landlords wrote seeking to finalise agreement, the tenant replied indicating that it wanted "a suitable financial incentive". This demand, according to the judge, "irritated the [landlords] and led to the parties indulging in increasingly intemperate correspondence and increasingly unreasonable behaviour".
Even this correspondence proceeded on the assumption that the existing fire door would be relocated. The substantial issue between the parties was about terms. The pressure was on the landlords, as the tenant's refusal to agree relocation of the fire door, until terms had been agreed, was apparently costing the landlords about £45,000 per month due to the consequent delay in completing the works to the centre.
At 6 o'clock in the morning of 22 October 2004, having warned the tenant of their intention to do so, two weeks, and then again one week, earlier, the landlords bricked up the existing fire door. Later the same day the tenant applied without notice for, and obtained, an interlocutory injunction from HHJ McKenna entitling it to reinstate the existing fire door and restraining the landlords from interfering with it. That injunction was continued by HHJ Taylor on 29 October. The injunction was obtained and continued on the basis of procedural irregularities and pursuant to material non-disclosure, most notably the failure to reveal that the tenant had no assets and that it was in breach of covenant. However, on the return date of the interlocutory injunction on 4 November 2004, Judge Norris QC continued the injunction, despite the irregularities and non-disclosure, on the basis that the non-disclosure, although intentional, was a result of a misjudgement as opposed to a deliberate intention to mislead, and that it had not harmed the landlords.
At the hearing on 4 November, the judge ordered a speedy trial which took place over a period of three days a week later. Apart from the tenant's claim for an injunction requiring the landlords to reinstate the existing fire door and not to interfere with it, the judge also had two claims relating to the landlords' forfeiture of the lease. This forfeiture arose from a notice served by the landlords as recently as 3 November 2004 pursuant to s 146 of Law of Property Act 1925. In that notice, the landlords contended that the tenant was in breach of covenant in that it had parted with possession and/or occupation of the unit to an associated company (as was indeed the case, and had been the case for some time) . That company was the eventual assignee of the lease.
On 8 November, the tenant issued proceedings seeking a determination that the landlords had waived the right to forfeit the lease, or, if there had been no such waiver, seeking relief from forfeiture. On the following day the landlords issued proceedings seeking possession of the unit.
After the three day hearing, the judge gave a full and careful reserved judgment on all the claims on 22 December 2004. He decided that the breach of covenant alleged in the section 146 notice was made out, that the landlords had not waived the right to forfeit and were consequently entitled to an order for possession, but that the tenant should be accorded relief from forfeiture on terms that the it paid the costs of the section 146 notice and executed any document needed to regularise the position with regard to the breach.
On the tenant's claim for an injunction, the judge held that the landlords were not entitled to block up, or require the blocking up of, the existing fire door. Consequently he held that, by bricking up the existing fire door on 22 October 2004, the landlords were in breach of their covenant for quiet enjoyment. However, in his discretion, he refused the tenant an injunction, concluding that it was an appropriate case for damages in lieu of an injunction under Lord Cairns's Act (i.e. the Chancery Amendment Act 1858, hereinafter "the Act", although such damages are actually now provided for by section 50 of the Supreme Court Act 1981). The judge ordered the tenant to pay the costs of the October hearings on an indemnity basis, and of the waiver, forfeiture and relief proceedings on the standard basis.
The judge's reasons, as set out in his judgment, for refusing a permanent injunction as sought by the tenant, were as follows:
a) While the tenant had not acquiesced, it had stood by while the works to the centre were carried out, knowing of the landlords intention to relocate the fire door without seeking interlocutory relief;
b) The tenant had made it clear that it was prepared to agree to the relocation of the fire door for a "financial incentive";
c) The impact of relocation of the fire door on the tenant would not be "too disruptive", whereas the impact on the landlords of not being able to relocate the fire door would be "significant";
d) The tenant would not be losing its fire escape route, as the landlords were prepared to construct a new one at a convenient location;
e) The parties had been negotiating for eight months on the basis that the fire door would be relocated.
No point is taken by the tenant on the judge's decision not to grant an injunction – quite rightly, in my view. The judge reserved certain issues for further argument, which he heard and then resolved in a judgment handed down on 10 June 2005. The first issue determined in his judgment of that date involved the way in which damages pursuant to the Act were to be assessed. He agreed that such damages should be fixed at a figure which would be arrived at as a result of hypothetical negotiations between willing parties in the position of the landlords and the tenant for the "sale" of the tenant's right to prevent the landlords blocking...
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