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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Grange v Quinn [2013] EWCA Civ 24 (29 January 2013) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2013/24.html Cite as: [2013] EWCA Civ 24

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER COUNTY COURT
MR RECORDER MACDONALD

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/01/2013

Lady Justice Arden:

OUTLINE OF THIS APPEAL

1. This appeal concerns (1) the principle by which a party to a contract, in this case a tenant under a lease of commercial premises, may recover from the other party a sum paid by him that has been lost as a result of that party's breach, and (2) the requirement under the Civil Procedure Rules to deal with a matter justly on appeal, including when a new point can be taken on appeal.
2. In brief, the appellant, Mrs Grange, was formerly the tenant of premises leased to her by the respondents, the Quinns. In these proceedings, Mrs Grange seeks to recover from the respondents the premium that she paid on executing the lease for the acquisition of the goodwill of a business which the respondents had carried on there, as damages for eviction in breach of the terms of her lease six months into the start of her six year term.
3. One can well understand why Mrs Grange should want to claim the premium back in these circumstances. However, in my judgment she has no legal right to do so in the circumstances, and, for my own part, I would dismiss this appeal.
4. In summary, my reasons, which I will amplify later, are as follows:

• The premium in the present case was paid in consideration of the sale of the goodwill and the execution of the lease. It does not fall to be treated as if it were rent payable over the term of the lease.

• The premium is only recoverable if it constitutes recoverable wasted expenditure, which does not apply in this case.

• Expenditure lost as a result of the terms of the bargain and/or as adverse trading of the appellant's business, and not as a result of the wrongful eviction, is not recoverable.

• The recorder was entitled to hold that the lessors had shown that the expenditure was lost as a result of unprofitable trading and not as a result of eviction.

• This court should not accept the appellant's invitation to take the point that the evidence as to the financial position of her business, which evidence was common ground at trial in the court below, contained material errors. Mrs Grange did not take this point until this court alerted her to it after the conclusion of the hearing of the appeal. To accept this invitation would be liable to prejudice the respondents.

HOW THIS JUDGMENT IS ORGANISED

5. I start by setting out the background to Mrs Grange's claims (paragraphs 6 to 9 below), and then summarise the judgment of Mr Recorder MacDonald (paragraphs 10 to 15). I then discuss the issues on this appeal in the following order:

(a) Appellant's primary case: Woodburn report irrelevant, paragraphs 16 to 22 below. I reject this case.

(b) Recovery of the premium as wasted expenditure, paragraphs 23 to 33 below. I also reject this case.

(c) Application of the principles to the facts of this case as it was argued before the recorder, paragraphs 34 to 44 below. I consider that the recorder was entitled to come to the conclusion to which he came on the case as argued before him.

(d) Discovery by the court of errors in the Woodburn report after the appeal hearing, paragraphs 46 to 47 below. The principal error is to treat the period of actual trading as longer than it was by approximately one month and the figures for projected period of trading were therefore drawn up on the wrong basis.

(e) Effect of the discovery of a serious mathematical error in the Woodburn report, paragraphs 49 to 66 below. I do not consider that this court should act on this discovery as it raises issues of fact which the respondents have not had an opportunity of rebutting.

BACKGROUND TO THE APPELLANT'S CLAIMS

6. The material facts may be shortly stated:

i) On 4 July 2008, Mrs Grange took a lease of premises at 44, Osbourne Street, Bredbury, Stockport SK6 2BT, where the lessors, Mr and Mrs Quinn, had previously run a sandwich shop. They lived upstairs.

ii) Apart from the express covenant for quiet enjoyment, the material terms of the lease were as follows:

The commencement date was 14 July 2008;

The term was six years;

The initial rent was £5,200 per annum, payable quarterly in advance with upwards-only reviews every two years, the first such review in July 2010 being limited to £7,800 pa. The tenant also had to pay the cost of the buildings insurance for the premises;

There was a full repairing covenant;

All the fixtures and fittings belonged to the landlords.

iii) The lease does not refer to a premium. The parties made an oral agreement whereby Mrs Grange paid £9,950, described by the parties as a premium. The contemporaneous correspondence shows that this sum was paid for the lessors' interest in the business, or what the particulars of sale called "business/lease/fixtures and fittings…plus stock at value". The finding of fact was that this sum was paid "for the goodwill of the business as it existed in July 2008" (judgment, paragraph 13).

iv) The Quinns wrongfully evicted Mrs Grange six months into her six year term. The recorder found that both parties were honest witnesses, but that the breaches of covenant established by the lessors (such as failing to keep the windows clean) were not sufficiently serious to constitute a breach by Mrs Grange of the terms of the lease. In any event, the lessors failed to give notices terminating the lease in accordance with section 146 of the Law of Property Act 1925. They had also waived any breach by accepting a payment of rent.

7. The only issue on this appeal (apart from costs) is the correct relief consequent on the finding below that the eviction had been in breach of the terms of the lease.
8. It is important to see how Mrs Grange's claim evolved prior to trial. Mrs Grange's original claim was for damages for loss of profits. The parties appointed a joint expert, Mr Woodburn, to opine on the amount of those profits. His report was expressed to be unfavourable to Mrs Grange. In short:

i) Mr Woodburn's report found that, based on the actual and projected profits of the sandwich shop, the business had no value at the date of eviction. According to Mr Woodburn, the takings fell by about a third during the period when Mrs Grange was tenant of the sandwich shop. The profit earned in this period, before depreciation of goodwill, fixtures and fittings and (the report said) deduction of any salary for Mrs Grange, was £1,123, giving an annualised profit of only £1,758.

ii) Using this annualised figure for profits over the balance of the term, Mrs Grange would have earned profits of £10,548 before tax over the six years of the lease. This sum included both the actual period of trading up to the date of eviction and the period between that date and the end of the lease. The sum of £10,548 was £598 more than the premium which Mrs Grange had paid the respondents to acquire the lease and the business.

iii) The annualised figure of £1,758 and thus the figure of £10,548 did not tell the whole story about the financial position of the business: Mr Woodburn's calculations made a limited provision for repairs over the six year term, and no provision for:

a) any increase in the rent following a review,

b) the cost of buildings insurance, the cost of the required repainting of the premises near the end of the term,

c) the wages of Mrs Grange.

In addition, Mr Woodburn had had to make assumptions, based on his experience and opinion, as to the amount of certain expenses (eg motor insurance) because he had no information as to the actual amount of certain expenses. Furthermore, he made no provision for wages for Mrs Grange.

9. It was in the light of the Woodburn report that Mrs Grange elected to abandon her claim for loss of profits and to claim instead repayment of the sum of £9,950. She made an alternative claim for £9,120.83, being that part of the premium of £9,950 attributable to the balance of the term at the date of the eviction.

JUDGMENT OF MR RECORDER MACDONALD

10. This case came on for trial before Mr Recorder Macdonald, sitting in the Manchester County Court. At trial, Mrs Grange did not challenge the report of Mr Woodburn. Mr Woodburn was not called as a witness. His report was treated as common ground.
11. The recorder rejected Mrs Grange's primary and alternative claims.
12. The recorder found:

"[There is] an accountant's report prepared by Mr Paul Woodburn, instructed as a single joint expert. I have read his report and it has been referred to by the parties, but he has not given oral evidence…

So far as is material, he said this, on page 105 of the trial bundle, in a section headed "Summary" at paragraph 2.1:

"I have calculated the profit of the business for the period from 4^th July to 24^th January 2009, a period of 7 months and 20 days, to be £1,123 and it is summarised in a table later in the report. This profit equates to an equivalent annual profit of £1,758."

He goes on to say:

"I estimate that the loss of profits over the period of the lease to be £9,425. Based on the figures above and the assumption that the claimant would be involved in the operation of the business on a day to day basis, I do not consider there to be any value to the goodwill of the business. The projected profit of £1,758 is significantly less than the amount the claimant would be able to earn performing a similar role as an employee in another business. As noted above, I do not consider there to be any value in the goodwill of the business. The lease contains provisions to oblige the claimant to return fixtures and fittings to the defendant at the end of the lease, implying that the business does not own the fixtures and fittings included in the property. I would expect the business to hold only minimal levels of stock."

In summary, therefore, he says:

"At the date of cessation of the business and the date of the proposed trial, I would not consider there to be any material value in the business." (judgment, paragraphs 6 and 16)

13. The recorder did not critically examine the reasoning in the Woodburn report because he was not required to do so. As the recorder goes on to explain, the parties were agreed as to the bottom line in the Woodburn report, namely that at the date of eviction there was no value in the business:

"The deal between the parties was that [Mrs Grange] would pay a premium of £9,950 for the goodwill of the business as it existed at July 2008. As a result of the events which occurred, the unchallenged evidence of the accountant is that in January 2009 that business had no value." (judgment, paragraph 31)

14. On the basis of that common ground, the recorder proceeded to consider the question of relief for the breach by the Quinns of the covenant for quiet enjoyment. He continued, immediately after the passage quoted in the preceding paragraph, as follows:

"Therefore it would not be unjust enrichment for the defendants to keep the premium, nor would it be just for the entire premium to be repaid to [Mrs Grange]. [Mrs Grange] got what she paid for, which was the goodwill of the business as it existed and the right to a six-year lease….[A]t the time of the eviction, [Mrs Grange] had a business which was valueless on the unchallenged evidence of the accountant and which made a total profit in six months of trading of £1,123. There is no evidence as to what might have happened in the future. I note that the purchase of goodwill is inherently a wasting asset. [Mrs Grange] would never have got back her £10,000. She would have got back from this business whatever profit she could make and whatever she could sell it for, having generated her own goodwill and building on the goodwill she purchased." (judgment, paragraphs 31 and 32).

15. The recorder held in summary that Mrs Grange was not entitled to any substantive damages, but he awarded her "nominal" damages of £300:

"The overall conclusion, in my judgment, is this: that the defendants are liable for unlawful eviction, but the claimant, as a result of the financial position of her business, has suffered no significant loss. The purpose of damages is not to punish the defendant, save in exceptional circumstances. It is to compensate the claimant for that which she has lost and so I have to assess what figure would do that. I consider that an award of nominal damages would be appropriate. I take into account the fact that the claimant had paid rent of £433.33 and that the lease had been forfeited not very long afterwards. I take into account also the fact that the claimant would have suffered the distress and inconvenience of simply finding that the premises had been forfeited and the doors locked against her. Doing the best I can to assess a reasonable figure of damages in those circumstances, I find for the claimant and award her damages in the amount of £300." (judgment, paragraph 33)

DISCUSSION

(a) Appellant's primary case: Woodburn report irrelevant

16. The primary submission of Miss Eleanor d'Arcy, for Mrs Grange, is in effect that there is a rule of law that on breach of the covenant of quiet enjoyment by the lessor the premium should be repaid. She submits that Mrs Grange lost the premium by reason of the Quinns' breach of contract. Recovery of the premium would not, as the recorder thought, be penal to the lessors.
17. Miss d'Arcy thus submits that the Woodburn report is irrelevant as a matter of law: see Lock v Furze (1866) L.R.1 C.P. 441 and Sampson v Floyd (1989) 2 EGLR 49. In the first case, the tenant discovered that the landlord had no power to grant the lease, and claimed damages for breach of the lease. It was common ground that the premium paid on taking a lease should be repaid. The issue was whether the tenant should also receive damages in the amount of the difference in value between the lease originally agreed to be granted to him and the shorter lease granted to him when it was discovered that the original lease could not be granted. In Sampson, this court upheld the decision of the judge that, on wrongful termination of a lease entered into for the purposes of running a business carried on there, the tenant could recover the premium and the costs of acquiring the business from the landlord as damages for wrongful eviction.
18. Miss d'Arcy recognises by her alternative claim that in fact in the present case the lease ran for one-twelfth of the term. She submits that, if she is wrong on her primary case, Mrs Grange is as a matter of law entitled to the return of a time apportioned amount of the premium, namely 11/12 of £9,950, namely £9,120.
19. In my judgment, Miss d'Arcy's primary case, built as it is on the assumption that the premium is rolled-up rent which can be apportioned over the period of the lease to the performance of the lessors' covenant to permit quiet enjoyment, is contrary to the facts as found. The recorder held that the premium was paid for goodwill and for entering into the lease. What the premium was paid for is a question to be determined in the light of the parties' agreement: there cannot be a rule of law that the premium should always be recoverable in full or for the unexpired period of the term as if it were a rolled-up payment of rent.
20. Even if the premium was, in this case, an advance payment of rent, the parties agreed that it would be paid in full on entry into the lease, not over the period of the lease. I do not see on what basis it can be treated as apportioned to the due performance of the covenant for quiet enjoyment over the six years of the lease, and Miss d'Arcy has not produced any authority for that proposition.
21. In his judgment below, Jackson LJ accepts Miss d'Arcy's primary case. He relies on Sampson v Floyd. In that case, the issue that arises on this appeal did not arise. The purchase price in question was actually paid for the lease, not the business, and, more importantly, there was no suggestion that the lessee's business was unprofitable. The significance of those matters can be seen in the next section of this judgment.
22. Accordingly, for the reasons given in this judgment, I would respectfully disagree with Jackson LJ that the award of the time-apportioned amount of the premium accords with principle and precedent in this case.

(b) Recovery of the premium as wasted expenditure

23. There is accordingly nothing in my judgment to distinguish the premium in this case from any other expenditure which a victim of a breach of contract incurs in anticipation of enjoying the benefits of the contract, in this case, the lease. The question therefore was whether, in determining the compensation to which Mrs Grange was entitled, the recorder was entitled to take into account the fact (as he found it to be) that Mrs Grange would never have recovered the premium out of the profits of the sandwich shop business even if there had been no wrongful eviction.
24. In her submission on wasted expenditure, Miss d'Arcy relies on Anglia Television Ltd v Reed [1972] 1 QB 60, where this court ordered a contract-breaker to repay pre-contractual expenditure incurred on the faith of performance of the contract which was later made. She importantly submits that the onus of proving that expenditure was already lost was on the contract-breaker: see C.C.C. Films (London) Ltd v Impact Quadrant Films Ltd [1985] 1 QB 16, where an innocent party was able to recover expenditure wasted after the making of the contract through the contract-breaker's breach of the contract. At page 40, Hutchinson J held:

"I am, of course, not bound by any of these cases, but plainly they are of great persuasive authority. I am impressed by, and respectfully adopt, the reasoning of Learned Hand CJ in L Albert & Son v Armstrong Rubber Co and I do so the more readily because, as I have already mentioned, that case and Bowlay Logging Ltd v Domtar Ltd were relied on by Ackner LJ in C & P Haulage v Middleton in a different context without eliciting from the Lord Justice any adverse comment on this point. Even without the assistance of such authorities, I should have held on principle that the onus was on the defendant. ….It appears to me to be eminently fair that in such cases, where the plaintiff has by the defendant's breach been prevented from exploiting the chattel or the right contracted for and, therefore, putting to the test the question of whether he would have recouped his expenditure, the general rule as to the onus of proof of damage should be modified in this manner."

25. The thrust of the submissions of Miss Suzanne Mansfield, for the respondents, is that Mrs Grange suffered no loss. Miss Mansfield submits that, if Mrs Grange is awarded damages in the amount of the premium, she will in fact be over-compensated. Mr Woodburn's report showed that in reality the business had no value. The court cannot know whether the acquisition of the lease and the sandwich shop business had been a good bargain. In any event, the law does not permit the court to compensate Mrs Grange for entering into a bad bargain.
26. Where a contract is broken, the innocent party generally claims the profits that he or she would have made if the contract-breaker had duly performed his side of the bargain. But, as Miss d'Arcy accepts in her first skeleton argument, the innocent party can opt, as here, to claim expenditure incurred on the faith of the contract and thus wasted: see Treitel, The Law of Contract, 12 ed (2007) §20-23, Anglia Television Ltd v Reed, above, and see McRae v Commonwealth Disposals Commission (1952) 84 CLR 377 at [27], a decision of the High Court of Australia. Such damages are sometimes referred to as "reliance damages".
27. The point at issue between the parties at this juncture is therefore whether damages for wasted expenditure are or are not compensatory. In my judgment, like awards of damages in contract generally, they are clearly compensatory. Wasted expenditure is a recognised form of loss, but damages claimed on this basis may only compensate the innocent party for his or her loss. They cannot put the innocent party into a better position than he or she would have been if the contract had been properly performed: C&P Haulage v Middleton [1983] 1 WLR 1461. Therefore, if the expenditure was wasted for some other reason, the contract-breaker will not have to pay damages in the amount of that expenditure.
28. The hardship to the innocent party is modified to this extent, and to this extent only. Where the contract-breaker's breach of contract prevents the innocent party from showing that his or her business would have been profitable, the burden of showing that it would not have been profitable, and thus that the wasted expenditure would not have been recouped, is in general split between the parties. This was established in C.C.C.Films (London) Ltd v Impact Quadrant Films Ltd, above. As a result of this split:

? The innocent party must show on a balance of probabilities that he or she has expended money in reliance on the contract; and

? If the contract-breaker wishes to show that the money so expended was lost for some reason other than the breach of contract, the burden in general falls on him or her to show, again on a balance of probabilities, that this was the case.

29. These principles reflect Miss Mansfield's submission that it is not the function of reliance damages to reallocate the bargain that the parties struck. The court does not know whether the parties placed the right value on the assets that were acquired at the time of their acquisition. The seller of a business does not guarantee the profitability of the business sold, or agree to compensate the purchaser if the business turns out to be unprofitable. Mrs Grange cannot shift on to the Quinns the loss caused by her own trading or poor bargain.
30. These principles are also consistent with the Restatement (Second) of the Law of Contracts (1981), published by the American Law Institute, which may be assumed to set out the better view as to the law as applied in the various states of the Unites States of America:

"§349 Damages based on Reliance Interest

As an alternative to the measure of damages stated in §347, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed."

31. Furthermore, damages for breach of the covenant for quiet enjoyment in a lease are determined in the same way as damages for breach of any other contract: see, for example, Hill and Redman's Law of Landlord and Tenant at [2988] (footnotes omitted):

"The damages in an action for breach of the covenant for quiet enjoyment are assessed in accordance with ordinary contractual principles (including the ordinary principles as to foreseeability). Thus, the tenant is entitled to be put in the same position as he would have been in if the contact had been performed and the breach had not occurred. Ordinarily, the damages will be assessed as at the date when the breach occurs. The damage will normally be measured by the loss of convenience resulting from the breach. If the lessee is evicted owing to the invalidity of the lease, he can recover the value of the term, and the pecuniary loss he has suffered by the action to evict him; that is, the cost of defending the action, and any sum recovered against him in the action as mesne profits… If he has been compelled to leave the demised premises, the tenant can recover as special damages the expense of removal, since this is loss which naturally flows from the breach of covenant. …in a commercial context substantial damages may also be awarded including, where appropriate, loss of profit, loss of opportunity to trade as well as special damages. In just such a case involving the lease of a restaurant, where the landlord had, by his breaches of the covenant for quiet enjoyment, prevented the tenant from trading, the tenant was entitled to an award of damages representing his loss of profits resulting from the breach. There was no justification for applying a discount to reflect the possibility that the business might fail where, on the facts, there was no likelihood of failure."

32. The principles set out in the first two sentences of this citation are exactly the principles applied by each of the five members of the court on appeal from the Court of Common Pleas in Lock v Furze: see, for example, per Blackburn J at 454:

"Upon the whole, I am of opinion that the true measure of damages for the breach of a contract such as this, is, what has the plaintiff lost by the breach of the contract? and that there is no difference in this respect between a contract for the sale of real property and a contract for a chattel."

33. Accordingly these principles apply to Mrs Grange's claim to recover the premium in this case. The next question is whether these principles were correctly applied by the recorder.

(c) Application of the principles to the facts of this case as it was argued before the recorder

34. As to the position before the recorder, the recorder made a clear finding that Mrs Grange would not recover the premium over the term of her lease. As I have explained, at paragraph 32 of his judgment the recorder held:

"The claimant [Mrs Grange] would never have got back her £10,000."

35. He gave six reasons for this conclusion in paragraphs 32 and 33 of his judgment:

i) The business was "valueless on the unchallenged evidence of the accountant";

ii) There was no evidence of what might have happened in the future;

iii) Goodwill was inherently a wasting asset;

iv) Mrs Grange "would have got back from this business whatever profit she could make and whatever she could sell it for, having generated her own goodwill and building on the goodwill she purchased." By implication from the claim for relief, the sandwich shop business made no significant profit.

v) The lease "might have a negative value". Mrs Grange had to pay rent for the full term even though she was not making a significant profit. Mrs Grange also would have had to comply with the full repairing and insuring covenant, which "may very well have cost her sums in excess of those which she could have made from this business".

vi) This was not simply a case of Mrs Grange having lost an opportunity to develop a business. "The unlawful forfeiture of the lease also prevented the possibility of future claims against her in respect of rent and repairing liability".

36. The recorder, therefore, concluded that "as a result of the financial position of her business, [Mrs Grange] has suffered no significant loss" (judgment, paragraph 33).
37. Miss d'Arcy submits that the Woodburn report shows that Mrs Grange would have recovered the premium over the term of the lease since the business would have made a small profit of £598 over the whole of that period after deduction of the premium. The answer to that submission is in my judgment three-fold: first, that profit was irrelevant because Mrs Grange did not challenge the overall conclusion in the Woodburn report that the business had no value. There is no suggestion in the recorder's judgment that this was some limited concession which left the respondents in a position where they still had to discharge the onus of proof. Second, the profit of £598 over six years was too small to have any impact on the value of the business. Third, no account was taken of certain expenditure, including Mrs Grange's wages. In my judgment, there was no reason to distinguish between this expenditure and any other expenditure in establishing whether the premium could be recouped.
38. Mrs Grange could easily have challenged the Woodburn report at trial if she wished to do so in any one of a number of ways:

i) Mr Woodburn in his report specifically invited the parties to consider the assumptions which he had made and to revert to him if any significant matters arose;

ii) Mrs Grange could have produced her business projections at the time of the acquisition of the lease and business showing that it would be profitable.

39. I therefore do not accept the point made by Gloster J below (paragraph 122 of her judgment) that the eviction by the Quinns made it impossible for the claimant to show that she would have made profits from the business had the lease continued. That submission was not made at trial or on appeal. The actions of the Quinns prior to eviction did not prevent Mrs Grange from trading as she wished.
40. In my judgment, the recorder was entitled to come to the conclusions as to damages in paragraphs 32 and 33 of his judgment. The relevant question was whether Mrs Grange would have walked away at the end of her lease with a profit over and above the amount of the premium. The Woodburn report said that the business was valueless. The Woodburn report made it clear that that the figures in it did not tell the whole story: it referred to the fact that assumptions had had to be made and that for instance no provision had been made for increases in rent or the wages of Mrs Grange. The recorder drew the conclusion that there was no likelihood of a trading profit overall or of a capital return. In my judgment, given the limitations attending the figures given by Mr Woodburn and the fact that Mrs Grange did not choose to challenge the Woodburn report, the report gave rise to an inference of fact from which the recorder was entitled to draw this conclusion. Accordingly in my judgment the recorder was not in error to find that Mrs Grange would not have recovered the premium over the term of the lease.
41. Moreover, the finding which the recorder made was a positive one. He did not simply hold that he was not satisfied that the business would have been profitable over the period of the lease. It was that Mrs Grange would never have made sufficient profits to recover the premium. In those circumstances, the Quinns had clearly discharged the onus of proof on them.
42. Put another way, Mrs Grange can recover compensation only for loss attributable to the Quinns' breach. The law starts from the proposition that her business would be profitable, and it is up to the landlord to produce evidence to displace this starting point. However, in this case, the parties had produced the Woodburn report. This was not challenged at trial. The recorder made findings of fact on the basis of it. Mrs Grange does not seek to have those findings set aside on appeal on the ground that there was no evidence to support them. Thus, to the extent of those findings, subject to any new ground of appeal (a point which I consider below), those findings must stand for the purposes of this appeal.
43. The recorder awarded the sum of £300 to Mrs Grange. He took account of (a) the fact that Mrs Grange had paid rent of £433.33 for the period 14 January to 14 February 2009, and that the lease had been forfeited not very long afterwards, and (b) the distress and inconvenience she suffered as a result of the unlawful eviction. The respondents do not challenge their liability for this sum, and accordingly this court should not in my judgment disturb it.
44. Before moving to the impact of discovery of the mathematical error in Mr Woodburn's report to which this court has drawn attention, I must deal with two subsidiary submissions made by Miss d'Arcy, neither of which, in my judgment, has any impact on the outcome of this appeal:

i) Miss d'Arcy submits that the item "wages" included a salary that Mrs Grange paid to herself so that her profits from the business were in fact higher than shown. There is, however, no finding to this effect and accordingly in my judgment this point is not open to her on this appeal.

ii) Miss d'Arcy submits that the recorder made no allowance for the benefit which the Quinns derived from obtaining vacant possession of the premises. Miss d'Arcy submits that they started to trade again. However, there was no direct evidence as to whether their takings exceeded their costs following re-taking possession. More importantly, this point was not taken below. It cannot in the circumstances be taken on this appeal.

45. Next I turn to examine the effect of this court's detection of errors in the Woodburn report subsequent to the appeal hearing.

(d) Discovery by the court of errors in the Woodburn report after the appeal hearing

46. At the conclusion of the oral hearing of this appeal, written submissions were directed on the principles governing awards to compensate for wasted expenditure. After those submissions were filed, a member of this court spotted a serious mathematical error in Mr Woodburn's report. In essence, Mr Woodburn treated the period during which Mrs Grange had traded from the premises as seven months 10 days, not six months 20 days as it was in fact. This led to consequential errors in his calculations. On the face of it, if this error had not been made, Mrs Grange's returns of the sandwich business over the full term of the lease might have been sufficient to enable Mrs Grange to recover the premium.
47. We cannot know for certain what the end result of correction of the error would have been because, if the Woodburn report had been challenged below, there might have been evidence as to the true amount of the expenses for which assumed figures had been used, or as to the expenses for which no figure had been included, such as increased rent. It is by no means certain that the evidence would have shown that there was, after all value in the business or in the lease which would have led to a different result before the recorder.
48. I now turn to apply consider this case in the light of the above sequence of events.

(e) Effect of the discovery of a serious mathematical error in the Woodburn report

49. The position at trial was that the findings of the Woodburn report were common ground. Neither party challenged them.
50. It is open to a party to make an application to take a new point on appeal. The application can be made in the grounds of appeal.
51. I do not consider that Mrs Grange's existing grounds of appeal extend to the errors discovered in the Woodburn report for three reasons:

i) Mrs Grange was not aware of any such error until after the hearing of the appeal.

ii) The basis of those grounds is that the recorder erred in law or fact. The recorder clearly did not err if the matter was not challenged before him and the grounds do not state that it is intended on appeal to challenge the matter in question.

iii) An appellant who desires to take a new point on appeal has to make that point clear and to explain why she should be permitted to take this course (compare the discussion in the White Book at 52..3.20). It is not made clear in this case and there is no explanation why permission should be given. An intention to take a point not taken below on appeal must be fairly disclosed to the court as the application for permission to appeal is generally made, as in this case, without notice to the respondents.

52. Miss d'Arcy does not make any application to take a new point on this appeal even in her latest submissions. Miss d'Arcy's position is that the court should take the errors into account in support of her proposition that the lessors did not discharge the onus of proof of showing that Mrs Grange would not have been able to trade profitably and recover her expenditure.
53. In my judgment, this argument is wholly circular. The court cannot take the defects in the Woodburn report into account unless Mrs Grange succeeds in demonstrating that she should be able to take this new point. The court's function is to hold the balance between the parties. It cannot simply dispense with the need for Mrs Grange to show that she can take the new point.
54. In any event Miss Mansfield objects to any account being taken of the errors in the Woodburn report on the basis that the findings in that report were common ground at trial. Moreover, in his report, Mr Woodburn had specifically invited the parties to raise any point of disagreement with him as to the assumptions he made. Neither party took that course. As I have shown, the judgment of the recorder states that the overall conclusion in the Woodburn report was unchallenged.
55. I do not consider that Mrs Grange could now successfully apply to take this new point. The overriding objective in the Civil Procedure Rules is that the court must deal with a case justly. That applies to an appeal, but, when the case is on appeal, there is an additional perspective to determining what is fair: if a new point is raised only on appeal, this court must in determining what is required for the just disposition of a case take into account what has happened in the court below, and, importantly, the question of prejudice to the other party.
56. In this situation there is clearly liable to be prejudice to the respondents in allowing this point to be taken at this stage. They could have called other evidence to show that Mrs Grange would not have been able to recover the premium had they known that they intended to challenge the report of Mr Woodburn: Miss Mansfield submits that, if the new point is permitted to be raised, it is inevitable that the case will have to be remitted to the county court with directions for a supplemental report from Mr Woodburn and possibly also directions for disclosure of items in Mrs Grange's accounts so that expenditure can be accounted for or verified. The respondents might also have adduced evidence as to the allowance to be made against gross profits for the reasonable cost of Mrs Grange's services: there is at least an arguable case that this cost should have been deducted. On this basis, the lessors would suffer prejudice if the point is raised now. At the least they would suffer the expense of a further hearing.
57. In my judgment, this court should not allow the appellant to raise this issue now. Even apart from the Civil Procedure Rules, it is the well-established practice of this court not to allow a new point to be taken on appeal without permission, and that permission will not be given where the issue is one of fact which cannot justly be dealt with on appeal: see White Book 2012 at 52.8.2. In The Tasmania (1890) 15 App Cas 223 Lord Herschell held:

"My Lords, I think that a point such as this, not taken at the

trial, and presented for the first time in the Court of Appeal,

ought to be most jealously scrutinised. The conduct of a cause

at the trial is governed by, and the questions asked of the

witnesses are directed to, the points then suggested. And it is

obvious that no care is exercised in the elucidation of facts not

material to them.

It appears to me that under these circumstances a Court of

Appeal ought only to decide in favour of an appellant on a

ground there put forward for the first time, if it be satisfied

beyond doubt, first, that it has before it all the facts bearing

upon the new contention, as completely as would have been the

case if the controversy had arisen at the trial; and next, that no

satisfactory explanation could have been offered by those

whose conduct is impugned if an opportunity for explanation had been afforded them when in the witness box."

58. The point is also illustrated by Filobake v Rondo Ltd [2005] EWCA Civ 563 at [58] to [69], cited by Gloster J in paragraphs 104 and 105 of her judgment below.
59. In Crane T/A Indigital Satellite Services v Sky In-Home Ltd [2008] EWCA Civ 978 at [22], I held:

"The circumstances in which a party may seek to raise a new point on appeal are no doubt many and various, and the court will no doubt have to consider each case individually. However, the principle that permission to raise a new point should not be given lightly is likely to apply in every case, save where there is a point of law which does not involve any further evidence and which involves little variation in the case which the party has already had to meet (see Pittalis v Grant [1989] QB 605). (If the point succeeds, the losing party may be protected by a special order as to costs.) Sometimes a party will seek to raise a new point because of some other development in the law in other litigation, which he could not fairly have anticipated at the time of the trial..."

60. Similarly, where fresh evidence is sought to be adduced on appeal, one of the relevant considerations is whether the evidence could have been adduced below: see White Book 52.11.2.
61. Here the future profitability of Mrs Grange's business was clearly a question of fact. Mr Woodburn has never been asked to explain the mathematical error or any other criticism of his report. This court cannot be satisfied that if the matter was fully investigated there would not be other adjustments going the other way that would have to be made and which would not alter the ultimate conclusion in the Woodburn report. Therefore this court cannot deprive the respondents of the possibility of investigating that matter if it is minded to give judgment against them. Mrs Grange had after all been content hitherto to concede that her business had no value at the date of eviction.
62. The rules about taking new points on appeal and adducing fresh evidence on appeal are really rules for enforcing the efficient conduct of proceedings by parties at trial. This is in the interest of litigation generally and for the public benefit. In this case there is no reason why Mrs Grange could not have taken below the new point uncovered by the court that she seeks to adopt. Gloster J makes the point that the principal error was clear from the face of the report. In my judgment, far from reinforcing Mrs Grange's case for saying she should be able to take a point not taken below, the fact that the error is a patent one is a factor against the grant of the leave. If it was patent, the case for saying that the point should have been taken below is even stronger.
63. A party has no right to have his or her case determined free from the established rules of evidence or other rules of substantive rules of law. The position in this case is no different from the case where a party is prevented from pursuing a claim because (say) of a time bar point. If he or she has a remedy it will then only be against the professional advisers if there was negligence in not taking the point earlier.
64. An alternative possibility would be for the court to allow the point to be taken on terms that Mrs Grange pays the costs that have been wasted here and below. I would reject this possibility on the grounds that unless there is a further trial it would be unfair to order the Quinns to repay the premium without their having had the opportunity of showing that, even if the errors which have been detected in the Woodburn report are corrected, the position would still be that Mrs Grange would not be able to show a trading and/or capital profit over the period of the lease which would have enabled her to recover the amount of the premium.
65. I would also reject the idea that this court should remit the case for a fresh trial on terms that the appellant would be ordered to pay the costs to date. Both parties are agreed in this case that it would be disproportionate to remit this claim for a new trial, given the costs of doing so.
66. I observe from the judgment of Gloster J below that Gloster J and I are largely agreed as to the law on wasted expenditure but that she would allow the appeal on the basis of the defects in Mr Woodburn's report that she has discovered and spelt out in her judgment. For the reasons given above, I respectfully differ from her on this point. I conclude for the reasons given in this judgment that Mrs Grange should not be allowed to take that new point on appeal. Still less should the court take the point for her benefit without any application by her for permission to raise a new point on which it heard submissions by both parties and made an order in her favour.

ORDER ON THIS APPEAL

67. I would for my part dismiss this appeal. However, in the light of the two judgments which follow, this appeal will have to be allowed on the basis proposed by Jackson LJ and Gloster J, with submissions to follow on the question of costs.

Lord Justice Jackson:

68. I have read with admiration the comprehensive judgments of Arden LJ and Gloster J, but my view of this case is slightly different.
69. I gratefully adopt the summary of the facts set out in the judgment of Arden LJ.
70. Although there were earlier indications to the contrary, it is now clear that a lease may be brought to an end by repudiation and acceptance: see Woodfall's Law of Landlord and Tenant, Sweet and Maxwell 2012, paragraph 17.314. In the present case the defendants' conduct in unlawfully and permanently evicting the claimant was a repudiation which necessarily brought the lease to an end without any need for acceptance.
71. Unlawful eviction of a tenant by a landlord is not a tort. It is a breach of contract, for which the tenant is entitled to claim damages: see Perera v Vandiyar [1953] 1 WLR 672. In that case the plaintiff was the weekly tenant of a flat within the protection of the Rent Restriction Acts. The landlord cut off the electricity and gas supply to the flat with the result that the plaintiff and his family were forced to live elsewhere for a period. The plaintiff recovered special damages of £3 10s and general damages of £25 for inconvenience. The Court of Appeal set aside an additional award of punitive damages which had been made by the county court judge. Lord Evershed MR said at page 675:

"In my judgment, the plaintiff has not proved any separate tort. I am not satisfied that there is a tort of eviction. In so far as eviction is achieved, it seems to me prima facie to be a breach of contract."


Birkett and Romer LJJ agreed.

72. The present problem is how damages should be assessed in a case where the landlords have brought a six year lease to an end by unlawfully evicting the tenant after only six months. A critical factor is that the tenant had paid £9,950 to acquire the lease and the goodwill of the sandwich business carried on at the demised property.
73. The recorder in the county court assessed damages at £300. In this court Arden LJ would uphold that award for reasons which she has explained in her judgment. Arden LJ attaches particular significance to the unprofitable nature of the business carried on at the property. Gloster J on the other hand would allow the tenant's appeal and substitute an award of £9,079. She does not accept that the defendants have proved the lease was valueless. In Gloster J's view, the defendants have failed to prove that the claimant would not have recouped her initial investment of £9,950 if she had been permitted to trade at the sandwich shop for the full six years. Given that stark difference in approach, it is helpful to look at this case more broadly.
74. The law of damages is one of the few remaining fiefdoms of the common law. Judges develop the rules governing assessment of damages to meet changing social circumstances and changing patterns of business activity. They carry out this task with only modest intervention by Parliament.
75. The basic principle governing the law of damages was stated by Lord Blackburn in Livingstone v Rawyards Coal Company (1880) 5 App Cas 25. This was a case where, on the particular facts, the assessment of damages presented some problems. Lord Blackburn therefore went back to first principles. At page 39 he said:

"I do not think there is any difference of opinion as to its being a general rule that, where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation."

76. This passage has been quoted with approval many times over the last 130 years both by first instance judges and by appellate courts, when they have been called upon to assess damages in novel situations. Lord Hoffmann made certain comments on that passage in Banque Bruxelles Lambert v Eagle Star Insurance [1997] AC 191 at 211. As stated by Mr Harvey McGregor QC (McGregor on Damages, 18^th edition, 2009, paragraph 1-022), those comments do not detract from the fact that Lord Blackburn's principle is the point from which one starts. It is equally applicable in both contract and tort.
77. The courts have developed a myriad of rules for giving effect to Lord Blackburn's principle in particular situations. It is important that these rules be followed, both because precedent so requires and because the law needs to be clear and certain.
78. The factual situation with which we are confronted in this case is not a novel or unusual one. It is very close to the facts of Sampson v Floyd [1989] 2 EGLR 49, an authority upon which Miss d'Arcy for the claimant relies. In that case the plaintiff purchased from the defendant a nineteen year lease of a chalet, a restaurant and a 'help yourself food supply' on land owned by the defendant. The purchase price was £10,000. The plaintiff duly ran his business on this site for just over three months, but then was unlawfully evicted by the defendant. Judge Bracewell QC, sitting in the Barnstaple County Court, awarded as damages (a) the purchase price of £10,000 and (b) the conveyancing costs which the plaintiff had incurred in purchasing the lease.
79. The Court of Appeal, comprising Butler Sloss LJ and Sir George Waller, upheld that decision. Sir George Waller said at page 50:

"The learned judge was finding that it was eviction as a result of the conduct of the defendant. She found that that eviction was permanent and she awarded damages accordingly. …

The judge found that the plaintiff was out of pocket to the extent of the £10,000 he had paid for the lease and the conveyancing fees in addition. So the first two heads of damage by the learned judge are perfectly correct in my judgment."

80. Butler Sloss LJ said:

"The measure of damages in this case was, rightly in my view, the whole of the purchase price of the lease entered into only a few months before these actions took place, together with the expenses such as the conveyance."

81. The rule which the Court of Appeal applied in Sampson may be formulated as follows: if A purchases from B a lease of B's property and B unlawfully evicts A at an early stage of the lease, the normal measure of damages is the price which A paid for the lease plus (where appropriate) any incidental expenses. That rule seems to me to be simple and clear. It gives effect admirably to Lord Blackburn's principle in the particular situation which we are now considering. It is not inconsistent with Perera v Vandiyar (an authority upon which Miss Mansfield relies), since the plaintiff in Perera was a weekly tenant. He had not purchased a long lease of the property from which he was evicted.
82. In a case such as Sampson the purchase price reflects the value that both parties put upon the lease which B has sold to A and has then unlawfully taken away again. Alternatively, in the pithy language of Sir George Waller, the purchase price represents the extent to which A is out of pocket as a result of acquiring the lease and then being evicted. The premium which A has paid to acquire the lease is of a different character from the "wasted expenditure" incurred by the plaintiffs in Anglia Television v Reed [1972] QB 60 and CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB16. It is the agreed price of an asset which B has sold to A and has then taken back for his own use.
83. Parties need to be able to assess their rights and liabilities without incurring massive legal fees and expert costs as has occurred in this case.
84. In the course of her judgment Gloster J quotes paragraph 2-040 of McGregor on Damages, 18^th edition, 2009. In that paragraph Mr Harvey McGregor QC is discussing the extent to which a claimant who has made a bad bargain can recover the purchase price which he has paid to the defendant. Mr McGregor suggests that possibly the purchase price paid by the claimant falls into a different category from other heads of wasted expenditure and that this item might possibly be treated more sympathetically. In my view the purchase price does indeed fall into a special category. If A purchases from B an asset for £9,950 and soon afterwards snatches it back again, it is hardly a good defence for B to say that the asset was worth much less than £9,950.
85. In my view, the same approach should be adopted in the present case as was adopted in Sampson. It is not necessary to embark upon detailed calculations in order to see whether the claimant paid too much for the lease and goodwill of the sandwich shop. The starting point for assessing damages is the purchase price which the claimant paid, namely £9,950. It would be manifestly unjust if the defendants could evict the claimant after only six months and still keep the purchase price.
86. One difference between the present case and Sampson is that in the present case 10% of the lease period had expired at the time of the unlawful eviction. In Sampson only 1% of the lease had expired, which was de minimis. On the basis of Gloster J's calculations, I agree that the claimant should give credit of £871 for the benefit which she has received before the unlawful eviction.
87. In my view, this appeal should be allowed and there should be judgment for the claimant in the sum of £9,079. An award of damages in that sum meets the justice of this case. It accords with both principle and precedent. Also it reflects the way in which the claim was pleaded and presented at trial.

Mrs Justice Gloster:

Introduction

88. In respectful dissent from the judgment of Arden LJ, I would allow this appeal. Because I have approached the matter somewhat differently from Jackson LJ, who also agrees that this appeal should be allowed, I set out below my own reasons for reaching that conclusion.
89. The defendants have been found, in breach of contract, wrongly to have evicted the claimant from sandwich shop premises after she had occupied them for a period of only six months 10 days of a six-year lease for which, together with the business, the fixtures and fittings, and a 12 month non-competition covenant, she had paid a premium of £9,950. The result of the defendants' breach of contract is that the defendants have kept the premium, notwithstanding that the claimant has only had effectively one half year's benefit from the six-year lease and her purchase of the business, and that the defendants have got their business and their property back, freed from the obligations of the restrictive covenant and the lease. In those circumstances, the objective observer might legitimately take the view that if the law provided no adequate redress to the claimant in such a situation, the law was unfair.

What the appellant is entitled to argue on this appeal

90. First, I take the view that it is open, on this appeal, for the appellant, Mrs. Grange ("the claimant"), to challenge the entire basis of the Recorder's approach to the calculation of the quantum of damages. She is not, in my judgment, constrained to accept either what I regard as his erroneous findings of fact, as set out in paragraphs 32 and 33 of his judgment, or his approach to the calculation of damages.
91. The claimant's grounds of appeal directed at the quantum issues were drafted in the following wide terms:

"3. The learned judge erred in law in awarding the Appellant nominal damages in the sum of £300.00. The Appellant will contend that, had the learned judge found that there was an implied term in the Sale Agreement and that breach of the same constituted a repudiatory breach, the correct measure of damages which the learned judge should have awarded to the Appellant was:

(i) Damages in the sum of £9,950.00 being her reliance loss as a result of her expenditure of the premium for the business, the goodwill and the Lease ('the Premium') which she had paid on 4^th July 2008 and which was wasted as a result of the Respondents' repudiatory breach; or

(ii) Alternatively, damages in the sum of £9,120.83 being the Appellant's reliance loss as a result of her expenditure of the Premium which she had paid on 4^th July 2008 in the sum of £9,950.00 with a 1/12 discount to reflect the six months of the Lease that elapsed before the Respondents' repudiatory breach.

Further and/or in the alternative to the above, if the Court decides that the learned judge did not err in law as set out above, the decision of the learned judge to award only nominal damages to the Appellant as a result of her unlawful eviction by the Respondents was wrong as a matter of law because:

4. The Appellant's pleaded case necessarily included an allegation that the Respondents had breached the covenant of quite enjoyment of the Lease itself. In the alternative therefore, if the learned judge was correct in not finding the Implied Term, the learned judge was wrong as a matter of law and fact in concluding that the Appellant had suffered no significant loss as a result of the unlawful eviction;

5. Because of the above errors of law, the learned judge was also wrong when he considered an irrelevant matter in deciding the proper measure of damages. The learned judge relied on Mr. Woodburn's report in holding that the Appellant had suffered no significant loss. The learned judge ought not to have taken Mr. Woodburn's report into account when deciding the proper measure of damages;

6. The learned judge erred in law when he awarded the Appellant nominal damages in the sum of £300.00. the Appellant will contend that the proper measure of damages which the learned judge ought to have awarded to her as a result of the breach of the covenant of quiet enjoyment was either the measure of the Respondents' unjust enrichment as a result of the unlawful eviction and/or the Appellant's reliance loss. The correct measure of damages which the learned judge should have awarded to the Appellant was either:

(i) Damages in the sum of £9,950.00 being the measure of the Respondents' unjust enrichment and/or the expenditure which the Appellant had made on the Premium on 4^th July 2008 and which was wasted as a result of the unlawful eviction; or

(ii) Alternatively, damages in the sum of £9,120.83 being the Premium which the Appellant had paid on 4^th July 2008 in the sum of £9,950.00 with a 1/12 discount to reflect the six months of the Lease that elapsed before the unlawful eviction."

92. In granting permission to appeal on the quantum issue, Lewison LJ said:

"The ground of appeal relating to the quantum of damages for unlawful eviction has a real prospect of success in the light of the decision in Lock v Furze (1866) LR 1 CP 441 and Sampson v Floyd [1989] 2 EGLR 4 (neither of which appear to have been drawn to the Recorder's attention). …"

93. Apart from the fact that neither Lock v Furze nor Sampson v Floyd was cited to the Recorder, it appears that he was only very briefly addressed by counsel for the claimant in relation to a claim for damages based on wasted expenditure and/or reliance loss and not at all by counsel for the defendants on that topic. Such limited argument as there was, was oral, was not supported by written argument and was presented after closing submissions had concluded and immediately before judgment was given. In particular, the Recorder was not referred to any of the relevant authorities or textbooks addressing the concept of reliance damages, including those referred to in the judgment of Arden LJ. In those circumstances, it is not surprising that the Recorder's judgment, in so far as it dealt with quantum, did not address the correct principles of law to be applied to the facts of the case, or, in the context of a wasted expenditure/reliance loss claim, the issue as to which party had the burden of proof to establish the relevant matters on the evidence.
94. In those circumstances, I am of the view that the claimant is entitled on this appeal to challenge any aspect of the Recorder's conclusions in relation to quantum, not merely his approach as a matter of law to the method of calculation, but also his reliance upon the expert's report, and his purported findings of fact based on what he, in my judgment wrongly, concluded from the expert's report.

The correct principle to apply to the calculation of damages for wrongful eviction

95. Authorities such as Sampson v Floyd show that one of the accepted measures of damage for wrongful eviction of a lessee from leased premises is the whole of the purchase price of the lease, even where the lease had been entered into some months before the eviction. In Sampson v Floyd, the Court of Appeal accepted, apparently without argument, or any discussion of the relevant principles, the decision of the trial judge to this effect, on the basis, as Sir George Waller stated, that the purchase price reflected the extent to which the plaintiff was out of pocket. The case is cited by the editors of Woodfall, Landlord and Tenant (2012) at paragraph 11.302, as an example of the type of damages that are recoverable on the application of the general principle, which they formulate, that, where there has been a breach of a covenant for quiet enjoyment:

"the measure of damages for breach of a covenant of quiet enjoyment is the amount of damage sustained, but limited to such matters as may be supposed to have been within the contemplation of the parties when the contract of tenancy was made. "

96. I agree with Jackson LJ that Sampson v Floyd can be characterised as a case where the Court of Appeal simply applied the general principle as stated by Lord Blackburn in Livingstone v Rawyards Coal Company (1880) 5 App Cas 25, 39, and applicable to both contractual and tortious claims, that the court will put the party who has suffered loss:

"in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation."

But, as pointed out in paragraphs 1-023 to 1-024 of McGregor on Damages, 18^th edition, 2009 (the subsequent paragraphs to the one referred to by Jackson LJ in paragraph 9 of his judgment), Lord Blackburn's formulation of the general principle has to be approached with some caution in the contractual context. Thus, as the author suggests, in a contractual claim: (a) Lord Blackburn's rule is better re-stated as one whereby the court puts the claimant into the position he would have been in, had the contract not been broken or alternatively had been performed; in such a claim, a claimant is normally not entitled to be put in the position he would have been in, had he never entered into the contract at all (see paragraph 1-023); and (b) the general rule is any event subject to further important limits which cut down a claimant's recoverable damages, such as, for example, the rule that a claimant cannot recover more than what he would have recovered, had the contract been properly performed (see paragraphs 1-024 and 2-034); in other words, he cannot necessarily recover his wasted expenditure, when he has made a bad bargain; C & P Haulage v Middleton [1983] 1 WLR 1461.

97. However, in my judgment, the principle applied, but not discussed in any detail, by the Court of Appeal in Sampson v Floyd is, on analysis, in fact an application of the principle that, in some circumstances, rather than formulating his damages claim as a claim for loss of bargain, a claimant is entitled to claim damages on the alternate basis of a claim for out-of-pocket expenses expended in his part performance of the contract; see the discussion at paragraph 2-020 of McGregor on Damages. As the author points out, in such circumstances the claimant is effectively claiming:

"not to be put into the position he would have been in had the contract been performed, but to be put in the position he would have been in had it never been made, which is a normal measure of damages akin to that in tort. In such cases expenses incurred in preparation or in part performance will be properly recoverable and will not involve any inconsistency of compensation."

98. So a claim, by way of damages, for an amount equal to the whole of the purchase price of, or premium for, a lease, as claimed in Sampson v Floyd, and indeed in Lock v Furze, is, in effect, a claim for wasted expenditure incurred by the plaintiff in part performance of his obligations under the lease. Such a claim is to be contrasted with the alternate measure of damages for wrongful eviction, where a lessee claims loss of bargain - normally the value of the unexpired term of the lease as at the date of eviction (i.e. breach), calculated by rental value less contractual rent, referred to in paragraph 23-015 of McGregor on Damages as "the normal measure of damages" for eviction; see also paragraph 519, Halsbury's Laws of England, volume 27(1).
99. In those circumstances, in agreement with the approach of Arden LJ, and contrary to the view of Jackson LJ, it seems to me that the court is required to approach the claim for damages in the present case on the basis that it is indeed formulated as a claim for wasted expenditure, incurred in part performance of, or reliance upon, the contract, and thus is subject to the limitations of a claim formulated in such a way.
100. The most comprehensive analysis, in this jurisdiction, of the claim for damages for wasted expenditure in respect of payment of the contractual price is CCC Films v Impact Quadrant Films Ltd [1985] 1 QB 16. In that case, the plaintiff had paid US$ 12,000 to the defendant as consideration for the grant of a licence to exploit, distribute and exhibit three films in various countries. The full consideration for the grant of the licence had been paid by the plaintiff and the taped recordings of the films were formally delivered to the plaintiff, but then handed back to the defendant for transmission by the defendant to Munich. In breach of contract, the defendant sent the tapes by ordinary post, and they never arrived at their destination. Without these tapes, the plaintiff was unable to make effective use of the licence. It claimed as damages for breach of the contract the US$ 12,000 expended by it in purchasing the licence, but adduced no evidence that it would have lost profits, or that, but for the breach, it would have recouped its expenditure on the grant of the licence. Nor did the defendant adduce any evidence that, without the breach, the plaintiff would have failed to recoup its expenditure. Hutchison J held that, although a claim for wasted expenditure was likely to be motivated by an inability to prove loss of profits, a plaintiff was entitled to choose between loss of profits and wasted expenditure (see pages 32A-D); he further held that, although damages for wasted expenditure were unavailable if the expenditure would not have been recouped had the contract been properly performed, the burden was on the defendant to show that this was so and thereby to displace the plaintiff's prima facie right to claim for his wasted expenditure. Accordingly, as the defendant had failed to discharge this burden, the plaintiff was entitled to recover the US$ 12,000 by way of damages. Hutchison J recognised that Anglia Television v Reed [1972] 1 QB 60 CA was a decision consistent with his own holding (at pages 38E-F), but relied principally on the express holdings in the Canadian case, Bowlay Logging v Domtar [1978] 4 WWR 105, and in two American cases, one of which, L Albert & Son v Armstrong Rubber Co 178 F (2d) 182 (1949) had long been authority in the United States of America. While stating that, even without the assistance of such authorities, he would have held on principle that the onus was on the defendant, he expressly adopted the reasoning of Learned Hand CJ in L Albert & Son, in the following passage:

"It is often very hard to learn what the value of the performance would have been; and it is a common expedient, and a just one, in such situations to put the peril of the answer upon that party who, by his wrong has made the issue relevant to the rights of the other."

This analysis is supported in McGregor on Damages, 18^th Edition, at paragraphs 2-035-036, which I gratefully adopt.

101. Jackson LJ, at paragraph 82 of his judgment expresses the view that:

"The premium which A has paid to acquire the lease is of a different character from the "wasted expenditure" incurred by the plaintiffs in Anglia Television v Reed [1972] QB 60 and CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB16. It is the agreed price of an asset which B has sold to A and has then taken back for his own use."

For this reason he considers that it is not necessary for the court to embark on a consideration of the question whether the damages claimed were in fact irrecoverable, on the grounds that the expenditure would not have been recouped had the contract been properly performed; his approach is simply that the parties themselves have set a value on the lease and the business acquired, namely the premium paid and that this figure prima facie (subject to a deduction to reflect the credit which the claimant has received in respect of her six months occupation) is the appropriate figure to award by way of damages. With respect, although I agree with his comment that, in a case of this sort, parties need to be able to assess their rights and liabilities without incurring massive legal fees and expert costs, I do not agree with his implied proposition that it is not open to a defendant in such circumstances to contend that the wasted expenditure on the premium for the lease and the business is irrecoverable as damages, because it would never have been recovered over the lifetime of the contract, if it had not been repudiated. First, it seems to me that a direct analogy can be drawn with the purchase price paid for the grant of the licence in CC Films (London) Ltd and the premium paid to acquire the business and the lease in the present case. Both were monies expended by the claimant in performance or part performance of its or her obligations under the contract; a distinction can be made in relation to the wasted expenditure in Anglia Television v Reed, which was expenditure incurred prior to the conclusion of the contract are not in discharge of the plaintiff's obligations thereunder. Second, and in any event, it appears to me, that, consistently with principle, the authorities clearly demonstrate^[1] that where a claim for damages for wasted expenditure, or money spent in reliance on the contract, is being made, the court does indeed have to have regard to the question whether permitting such recovery would wrongly enable a claimant to recover more than he would have done had the contract been properly performed and run to its contractual endpoint. Indeed this is consistent with the rationale for requiring the claimant in the present case to give credit for the benefit of the six months occupation of the premises, and operation of the business, which she enjoyed prior to the eviction. For this reason I consider that this court is required to consider what the evidence adduced before the Recorder in the court below established, and, perhaps more importantly, what it did not establish; and also to consider, in particular, whether the defendants had discharged the burden of displacing the claimant's prima facie right to claim for her wasted expenditure.

102. What emerges clearly from Hutchison J's judgment is that what the defendant has to demonstrate, in order to discharge the evidential onus on it, is that the claimant would not have recouped its wasted contractual expenditure from the gross returns that would have been generated from the contract, if it had been allowed to run its course. That is implicit from the following passages in his judgment (pages 32D-33B, and 40B-E):

"It is, I think, important in this context to distinguish between the term 'loss of profit' and the term 'recovery of expenditure.' When Lord Denning M.R. speaks in Anglia Television of the plaintiffs not having suffered loss of profits or of its being impossible for them to prove what their profits would have been, he is referring, I believe, to profits after recoupment of expenditure - net profits. The plaintiffs in Anglia Television were by the defendant's breach deprived of putting to the test whether and to what extent they would have (a) recouped their expenditure and (b) gone on to make a net profit and of how much. It may well be that they could have led some evidence as to the probabilities in relation at least to the first of these matters. They had a script and no doubt they had budget and profit forecasts which could have been reinforced by evidence as to their experience with other similar projects. It seems that they did not adduce any such evidence any more than did the plaintiffs in the present case, though Mr. Brauner, with his vast experience in the film industry and the advantage of having viewed these films, could, no doubt, have given some general evidence as to his expectations. Nevertheless, the difficulties of proof would clearly be enormous and it is hard to envisage how the plaintiffs could in the present case in practice have proved a claim based on loss of profits.

It is, however, common ground that a claim for wasted expenditure cannot succeed in a case where, even had the contract not been broken by the defendant, the returns earned by the plaintiff's exploitation of the chattel or the rights the subject matter of the contract would not have been sufficient to recoup that expenditure. There is direct recent authority for that proposition, which, as I say, is accepted by both counsel, in the decision of the Court of Appeal in C & P Haulage v Middleton [1983] 1 WLR 1461. That was a case in which the plaintiffs sought to maintain a claim for the cost of work to premises from which he was later unlawfully evicted. The evidence established that the plaintiff was actually better off as a result of being evicted than he would have been had he been permitted to remain until the time when he could lawfully have been required to leave.

…

Even without the assistance of such authorities, I should have held on principle that the onus was on the defendant. It seems to me that at least in those cases where the plaintiff's decision to base his claim on abortive expenditure was dictated by the practical impossibility of proving loss of profit rather than by unfettered choice, any other rule would largely, if not entirely, defeat the object of allowing this alternative method of formulating the claim. This is because, notwithstanding the distinction to which I have drawn attention between proving a loss of net profit and proving in general terms the probability of sufficient returns to cover expenditure, in the majority of contested cases impossibility of proof of the first would probably involve like impossibility in the case of the second. It appears to me to be eminently fair that in such cases where the plaintiff has by the defendant's breach been prevented from exploiting the chattel or the right contracted for and, therefore, putting to the test the question of whether he would have recouped his expenditure, the general rule as to the onus of proof of damage should be modified in this manner.

It follows that, the onus being on the defendants to prove that the expenditure incurred by the plaintiffs is irrecoverable because they would not have recouped their expenditure (and that onus admittedly not having been discharged), the plaintiffs are entitled to recover such expenditure as was wasted as a result of such breach or breaches of contract as they have proved." [Emphasis supplied.]

103. Support for the proposition that the defendant must prove that the gross returns which the claimant expected to generate from exploiting or using the subject matter of its contract with the defendant would not be sufficient to have recouped the claimant's expenditure is to be found at paragraph 26-075 of Chitty on Contracts 30^th Edition.

"Ceiling on recovery if claimant's activity would have been unprofitable. As with the case of performance expenditure discussed above,³⁷⁷ the defendant may show³⁷⁸ that the claimant entered into the contract as part of a commercial or profit-making activity and that he would have made an overall loss on that activity. The defendant must show that, from the gross return which the claimant expected to receive from exploiting or using the subject matter of the contract with the defendant,³⁷⁹ he would not have recouped all of the expenditure incurred in reliance on the contract. Where the defendant can prove that, even if he had completely performed that contract, the claimant's gross return from his exploitation would not have covered that expenditure, the claimant's claim for wasted expenditure can succeed only to the extent that it would have been recouped.³⁸⁰ [Emphasis supplied.]

^{_________________}

³⁷⁷ Above, para.26-073. (The discussion in that paragraph applies to the present paragraph, subject to the proviso that the latter is not limited to the profitability of the contract in question, but applies to the profitability of the activity in question.)

³⁷⁸ The onus of proof is on the defendant: CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB 16 (above, para.26-073).

³⁷⁹ The relevant gross return is that expected from the claimant's whole undertaking, of which the contract with the defendant forms an essential part: C & P Haulage v Middleton [1983] 1 WLR 1461. This point is implicitly recognised in Cullinane v British "Rema" Manufacturing Co Ltd [1954] 1 QB 292.

³⁸⁰ The CCC Films case [supra]; C & P Haulage v Middleton [supra]."

104. The Court of Appeal decision in Filobake v Rondo Ltd [2005] EWCA Civ 563 is an example where the principle of recovery of wasted contractual expenditure was recognised, but received short shrift, because it was advanced too late. The claimant, having failed to prove loss of profits at trial, attempted to amend its case, at the start of the appeal, to plead wasted expenditure damages in the alternative.
105. The Court refused to allow any such amendment at such a late stage. Its reasons for refusing to do so have some bearing on whether the defendants have indeed discharged the burden of proof in the present case. The relevant paragraphs of the judgment of the Court are the following:

"58. We would therefore dismiss the appeal against the judge's finding that Filobake had proved no part of its loss of profits claim. Against that possibility, Mr Marks applied at the opening of the appeal to amend the Particulars of Claim and the Grounds of Appeal to assert, as an alternative to the loss of profits claim, a claim for costs and expenditure wasted in and by its purchase of the equipment. The quantum of that claim was made up of return of the purchase price; and the items of wasted expenditure already identified as the second and third items in the original damages claim in paragraph 49 above.

59. This new claim was drawn from the line of jurisprudence based on the decisions of this court in Cullinane v British "Rema" Manufacturing Co [1954] 1 QB 292 [Cullinane] and Anglia Television v Reed [1972] 1 QB 60 [Anglia]. To assert it at this very late stage required the permission of the court, for which Mr Marks applied. That application plainly raised very difficult issues, quite apart from the question of whether the claimants were right in the conclusions that they drew from Cullinane and Anglia. We deal first with the considerable problems posed by those cases, not in order to resolve them, which we could hardly do on the material before us, but to demonstrate that Filobake's application would, if successful, plainly require the remission of the case; and that such remission would almost certainly result in a return to this court, if not indeed to the House of Lords, not only to resolve uncertainties in the very sparse authority available on the Cullinane principle, but also to determine how that authority fits into the particular facts of this case .

60. We start with the 'Cullinane' principle. The actual issue in Cullinane itself was the disentanglement of a claim that was based at one and the same time on loss of profits expected from the operation of equipment and loss of the capital value and installation expenses relating to that equipment. This court held that at least on the facts of that case the overlap between the two claims meant that to allow them both would grant double compensation. That, however, was as far as Cullinane went. It was left to Lord Denning, Master of the Rolls, in Anglia [1972] 1 QB 60 at pp 63H-64A to state the law more generally:

'It seems to me that a plaintiff in such a case as this has an election: he can either claim for loss of profits; or for his wasted expenditure. But he must elect between them. He cannot claim both. If he has not suffered any loss of profits-or if he cannot prove what his profits would have been-he can claim in the alternative the expenditure which has been thrown away, that is, wasted, by reason of the breach.'

Filobake said that that was its case. It could not prove what its profits would have been, so it could fall back on claiming the expenditure that flowed from what, on the hypothesis on which this part of this judgment proceeds, had been Rondo's breach in selling what was effectively a useless equipment.

61. Rondo's principal, though not its only, reply was based on C&P Haulage v Middleton [1983] 1 WLR 1461 [Middleton], where, in the context of the Cullinane jurisprudence, this court drew attention to two elementary principles of the law of damages: that an award of damages should not place the claimant in a better position than he would have been in had the contract been performed; and that any award, be it in terms of loss of profits or of wasted expenditure, must quantify only damage that has been caused by the breach. It was said that Filobake's decision to purchase the equipment had been, in the colloquial language adopted in Middleton, a bad bargain. On the judge's findings Filobake would have lost money on the enterprise even if the equipment had operated fully as promised; or, to put the same point under a different legal characterisation, its loss, at least in terms of wasted expenditure, had been caused not by the breach but by its foolish decision to try to expand its business by buying the equipment.

62. In response to that, Mr Marks relied on the decision of Mr Justice Hutchison in CCC Films (London) Ltd v Impact Quadrant Films Ltd [CCC] [1985] 1 QB 16 at 40D, picking up what had been said by Lord Denning, Master of the Rolls, at p64E in Anglia, that once a breach of contract was established the burden passed to the contract-breaker to prove that it would not have caused loss. We would accept that that proposition, which has been approved by commentators (McGregor on Damages, 17^th edition (2003), para 2-035), represents the law. But Filobake's attempt to deploy it here, by saying that the defendant had not essayed such proof, is forensically very unpromising. The defendant did not set about proving that issue at the trial because no-one told them that it had to. It is very unfair to try to place that burden on Rondo now, by amendment after the trial. And, as we shall demonstrate when we address the substance of this application in paragraphs 66 and 67 below, on the facts as found by the judge that burden, even though not known of at the time, has in fact almost certainly been discharged by the defendant.

63. At best, therefore, this amended claim would have to go back for further hearing. When it did so, a series of problems would immediately present themselves.

64. First, Filobake relied on the conclusion of Mr Justice Hutchison in CCC at p 32A-D that the plaintiff always has "an unfettered choice" whether to frame his claim in terms of loss of profits or of wasted expenditure. But that goes no further than to say that he has a choice between the two bases. That is not what Filobake seeks. In its pleading, and in its submissions before us, the claimant was quite clear that it advanced those two measures as alternatives, as demonstrated by its strenuous support before this court for the profits basis that was rejected by the judge. There is no case that supports that step. It is quite true that in CCC the very experienced judge permitted amendment to claim wasted expenditure at a very late stage of the trial, but that was a case in which, although a claim for loss of profits had been pleaded, it had been withdrawn at the opening of the trial: see [1985] 1 QB at p 29D. And there are formidable objections to running the two claims in the alternative, not the least being that, as we have seen, on the issue of the outturn of the contract the burden under a lost expenses claim rests with the defendant; whereas under a lost profits claim the claimant bears the burden of establishing his loss. That conjunction is at least potentially embarrassing for the defendant.

65. Second, and to some extent linked to the former point, Lord Denning, Master of the Rolls, in Anglia spoke of recovery for wasted expenditure being available "in cases such as the present" where the claimant has not suffered any loss of profits or "cannot prove what his profits would have been". In Middleton Lord Justice Ackner, at 1465H, interpreted that formulation as contemplating a case where "it would not be possible to establish any loss of profits because the situation could not be prophesied had the defendant complied with his contractual obligations" [emphasis supplied]. It is not clear how far that limitation on the principle extends. It has not, so far as we are aware, been tested in any other case. What it does at least demonstrate, however, is that this court in Middleton had in mind a very different case from the present. Here, the claimant has not taken the position that it cannot prove his loss of profits, but rather has set itself, however unsuccessfully, to do just that.

66. These are issues that it is quite inappropriate to introduce into the case at this late stage. But if we revert to the substance of the present case it rapidly becomes clear that, without an impermissible re-opening of the factual enquiry as it was before the judge, Filobake cannot in any event succeed on a wasted costs basis. Mr Marks argued that all that he had to establish in order to come potentially within the Cullinane rule, and thus throw the burden upon the defendant under CCC, was that with proper equipment Filobake would have made some sales, however sparse. Despite the judge's findings on the evidence that was actually put before him, it was self-evident that some such sales would have occurred. We cannot agree with that formulation, for which there is no authority. The question under Middleton is whether the plaintiff would have incurred a loss on "the contract as a whole": see per Mr Justice Berger J in Bowlay Logging v Domtar [1978] 4 WWR 105 at p117, cited by Lord Justice Ackner at p 1467D. To avoid a loss on the contract as a whole the claimant must at the least achieve sufficient income to discharge the interest on the purchase price. In the face of the judge's finding that the future volume of sales had not been proved at all, it is simply not possible to assume that nonetheless there must have been the prospect of sufficient sales to cover the purchase price of the equipment.

67. That was also the reason why, as we pointed out in paragraph 52 above, the judge was justified in rejecting the claim for wasted expenses as it was before him. In the context of the new basis of damages, the losing nature of the contract equally precludes the claim made there for loss of expenditure. What, however, of the return of the purchase price? Some difficulty is caused in that connection by the exposition of the nature of the "Cullinane" claim given by Sir Raymond Evershed, Master of the Rolls, in Cullinane itself, at 303. A purchaser faced with useless equipment:

'may say, when he discovers its incapacity, that it was not what he wanted, that it is quite useless to him, and he may claim to recover the capital cost that he has incurred. … A claim of that kind puts the plaintiff in the same position as though he had never made the contract at all'

68. It might be said (though it was not said to us) that if Filobake is entitled to be put in the same position as though it had never made the contract at all, it is at least entitled to return of the purchase price, however much the wasted collateral expenditure was caused not by the breach but by the bad bargain. We certainly do not intend to enter upon that enquiry, which so far as we can see has never been addressed in the fifty-one years for which whatever Cullinane does decide has been the law. The answer, at least on the facts of this case, may possibly be that the result adumbrated by Sir Raymond Evershed, Master of the Rolls, is the same as would be produced if the contract had been repudiated by rejection of the goods; and Filobake, having lost its right to reject by its own acts, cannot restore the equivalent of that right under the guise of a damages claim. But that such issues even potentially arise further demonstrates that this amendment is quite inept.

Conclusion

69. The application to amend opens up a morass of difficulties, which it would be unfair to impose on the defendant at this stage of the case, and disproportionate to impose on a further trial court. Unless the claimant could make progress on the issue raised in paragraph 68 above (an enterprise that would at the least require a return to the court the below, almost certainly to be followed by a further outing in this court), the application would in any event avail it not at all. We reject it on that series of grounds."

106. But in my judgment, for the reasons given below, the facts of the present case are very different from those in Filobake. Nor can it be said that the claim in the present case for wasted expenditure was raised at an unacceptably late stage.
107. Interestingly, in McGregor on Damages, at paragraph 2-040, Mr Harvey McGregor QC comments that, even in the circumstances of Filobake, where the evidence demonstrated the losing nature of the contract, there may be a question as to whether the claimant should, nonetheless, have been entitled to recover its purchase price:

"In any event, as a matter of substance the losing nature of the contract here could be shown, even with the burden of proof of this on the defendant, and claims for wasted expenditure are not available, as we have seen, to the bad bargainer. What is more difficult, however, to decide is whether the claimant should still have been entitled to recover its purchase price. The Court of Appeal, intent on refusing the amendment sought, was not prepared to go into this beyond saying that, the claimant having here lost its right to reject the equipment, it would be wrong to permit it to restore the equivalent of that right under the guise of the damages claim. Perhaps the loss of the purchase price can be considered as all part and parcel of the bad bargain. Yet in a more sympathetic context this aspect of the claim needs to be given further thought."

108. On my analysis of the evidence, however, the defendants have not discharged the burden upon them of demonstrating that the contract was so unprofitable that there could have been no recovery of the premium out of the gross returns of the business, so there is no need to consider this interesting question. On Jackson LJ's approach, on the other hand, he apparently answers the question raised in McGregor on Damages in the passage quoted above, by deciding that, even where the defendant has discharged the burden of demonstrating that the contract was a bad bargain, the claimant is entitled to recovery of the wasted purchase price or premium. The simplicity of this approach has considerable attraction. Why, for example, should a residential lessee who has paid well over the market price for a seven year lease of residential premises, because, say, of their special attributes or locality for his personal purposes, be denied the return of his premium when wrongfully evicted after only 3 months' occupation, just because his contingent rental and dilapidations liabilities as at the date of breach would require him to pay a reverse premium to dispose of the lease, well in excess of the amount of the premium which he paid? Why does it matter, in relation to his claim for damages against the wrong-doing lessor, that, in one sense, the lessee would be being relieved of a "bad bargain", if he were permitted to recover? But without argument directed to the point, and in particular the relationship between such a claim for damages and a restitutionary claim, and a full review of the Court of Appeal and other authorities referred to in this judgment, I would be reluctant to express any concluded view on this issue, particularly in circumstances where, in my judgment, it is not necessary to do so.

What did the claimant claim in this case?

109. Although the report of the jointly instructed expert, Mr. Paul Woodburn ("the Report"), is undated, it is clear from the chronology of the case (see paragraphs 54 and 55 of Miss Mansfield's skeleton for trial) that, after receipt of the report, the claimant abandoned her previous claim for loss of goodwill and loss of profits and re-amended her Particulars of Claim to claim damages "in the form of the purchase price that the Claimant paid for the business" …; see paragraph 24 of the Re-amended Particulars of Claim. It was also clear from the respective skeleton arguments for trial, that Miss d'Arcy was contending that the claimant was entitled to the return of the purchase price (or 11/12^th of the purchase price to reflect a deduction for the 6 months during which she had occupied the premises) on the basis of an election to claim wasted expenditure, and that Miss Mansfield, on behalf of the defendants, appreciated that such was the claim.
110. Thus the trial clearly proceeded on the basis that the claim for damages was a claim for wasted expenditure, notwithstanding.

What did the evidence establish in this case?

111. In my judgment, the evidence before the trial judge, and in particular the report of the jointly instructed expert, Mr. Paul Woodburn BCom, FCA ("the Report"), did not establish that, if the claimant had been permitted to run the business for the remainder of the contractual term of the lease, she would not have recouped her expenditure on the premium of £9,950.00 either from the gross returns generated from the business, or indeed from an assignment and sale of the lease and the business, with the consent of the defendants pursuant to clause 4(18) of the lease.
112. The first point to note is that the Report was not directed at the question whether, if the claimant had been permitted to run the business for the remainder of the contractual term of the lease, she would have recouped her expenditure on the premium of £9,950.00 from the gross returns generated from the business. That is perhaps not surprising given that, at the stage the Report was written, the claimant's claim was a loss of bargain claim (i.e. for loss of goodwill and loss of profits), not a wasted expenditure claim. On the contrary, what the Report "assessed", no doubt pursuant to the instructions which Mr Woodburn had been given, was (a) "the claim for loss of earnings as a result of [the] closure" of the Claimant's business; see paragraph 1.5 of the Report; (b) the "loss of profits [of the business] over the period of the lease"; see paragraph 2.3; and (c) the "value of the business" or "value to the goodwill of the business" as at the date of cessation; see paragraphs 2.4 – 2.6.
113. The second point to note is that Mr Woodburn concluded that the net profit for the period during which he, incorrectly, asserted that the claimant occupied the premises (viz. from 4 July 2008 to 24 January 2009) was £1,123, This figure included a deduction made by Mr Woodburn of £1,391 from the net profit for the period of £2,514 (a figure which was based on the claimant's own accounting records), by way of additional adjustments. These additional adjustments to the overhead expenditure as shown in the claimant's own records, reflected what Mr Woodburn considered were necessary additional monthly provisions by way of deductions from the gross profits. These included further provisions in respect of: light, heat and building insurance - see paragraphs 3.14 to 3.17; motor expenses - see paragraphs 3.28 to 3.29; repairs and renewals in respect of the premises and fixtures and fittings - see paragraphs 3.20 to 3.25; and accountancy and professional fees - see paragraphs 3.14 to 3.17. So Mr Woodburn did indeed include in his assessment of the net profits which were being made relatively substantial (in the context of the small turnover of the business) additional monthly provisions in respect of repair and renewal liabilities and building insurance.
114. The third point to note is that there were fundamental arithmetical and factual errors in Mr Woodburn's Report which were, or should have been, obvious on their face to the reader^[2]:

i) First, he wrongly referred to the period of the claimant's occupation of the premises as being from 4 July 2008 to 24 January 2009. In fact there was no dispute on the evidence before the Court that, although the lease was dated 4 July 2008, the term of the lease was 6 years from 14 July 2008 and that the claimant had started trading at the premises on that date, not on 4 July 2008; see, for example, paragraph 10 of the Re-Amended Particulars of Claim, which was admitted in the Defence; paragraph 1 of the defendants' witness statement; paragraph 5 of Miss d'Arcy's written submissions for trial. The initial mistake in this respect appears to have been made in the instruction letter given by the claimant's solicitors to Mr Woodburn dated 21 April 2010, but it was perfectly obvious from the terms of the lease itself the date from which the term commenced.

ii) Second, irrespective of this point, in doing his calculation of the profit of the business (before amortisation of good will and depreciation of fixtures and fittings), as set out in Table 1, paragraph 4.1 of the Report, he based his calculations on the wrong assumption that the period of occupation and trading was a period of "seven months and 20 days" (see for example, paragraphs 2.1 and 4.1). Even on the basis of his own incorrect assumption that trading had started on 4 July 2008 (as opposed to the actual start date of 14 July 2008), the relevant period was in fact a period of six months and 20 days, not seven months and 20 days. And given that the start date for his calculations should have been 14 July 2008, in fact the relevant period was one of six months and 10 days. As a consequence, in Table 1, as set out in paragraph 4.1, he wrongly calculated his further adjustments for monthly overheads in respect of the period, on the basis of a seven month 20 days period, as opposed to a six month 10 days period; thus the figures show that he incorrectly used a multiplier of 7.666 in respect of his monthly adjustments in respect of heat, light and insurance, repairs and renewals and motor expenses, when in fact he should have used a multiplier of 6.3. Similarly, in Table 2, as set out in paragraph 4.2, he wrongly annualised the profit of £1,123 for the purposes of calculating the net profits for the full term of the lease, on the basis that it represented the profit for a period of seven months and 20 days as opposed to representing a profit for a period of six months and 10 days; again the figures show that he incorrectly used a denominator of 7.666 to reach the annual equivalent, when in fact he should have used a denominator of 6.3.

115. Given the real sensitivity of Mr Woodburn's calculations to such errors, it is worth setting out revised figures calculated on the basis of the correct arithmetical assumptions. They show a very different picture.

i) Table 1: revised "Further adjustments" based on a multiplier of 6.3 to show net profit for period of trading:

Net profit for the period based on accounting records: £2,514

Further adjustments:

Original^[3] Revised^[4]

a) Light, heat and insurance: 540 356

b) Motor expenses 153 126

c) Repairs and renewals 378 296

d) Accountancy/professional fees 294^[5] 242

e) Depreciation of freezer 26^[6] 21

____________________

(1391) (1041)

Adjusted profit (1,123) 1473

ii) Table 2: Loss of profits over the period of the lease: As shown above, Mr Woodburn should have assessed the profits for the period 14 July 2008 to 24 January 2009 at a figure of £1473. If that figure is then annualised using the correct denominator of 6.3, as opposed to the incorrect denominator of 7.666 used in Table 2, the annual equivalent should have been £2806 (£1,473 / 6.3 x 12) as opposed to Mr Woodburn's figure of £1758; that in turn would have resulted in a six-year profit figure of £16,836 as opposed to Mr Woodburn's figure of £10,548; and likewise, in turn, in a "loss of earnings" figure over the period of the lease, giving credit for the profit earned in respect of the period of occupation, of £15,363 (as opposed to Mr Woodburn's figure of £9,425).

iii) Even if one does not recalculate the figures in respect of the overstated adjustments, simply recalculating the annualised figure for profits based on the correct trading period of 6 months 10 days, the result is an annual equivalent profit of £2,139, a six-year profit figure of £12,834, and a "loss of earnings" figure giving credit for the profit earned in respect of the period of occupation, of £11,711 as opposed to Mr Woodburn's figure of £9,425.

116. The fourth point to make about the Report is that, while it is clear that the profit calculations do not include any provision for amortisation of good will (i.e. the premium of £9,950), some considerable provision is indeed made for building insurance, repairs and renewals. Whilst it is correct that Mr Woodburn's figures do not make provision for any increased rental following a rent review, the review in July 2010 was effectively capped at the lesser of £7,800 and current market rental, and likewise the review in July 2012 could not have exceeded current market value. Perhaps more importantly, the Report makes quite clear that was up to the parties to revert to Mr Woodburn in the event that either party considered that further amendments or additions needed to be made in respect of his assumptions or in respect of any further liabilities; see paragraphs 4.4 and 4.5 of the Report.
117. The fifth point to note is that Mr Woodburn did not address the question as to whether the lease itself had any value, given that, with the consent of the landlord, the user could be changed and, in any event, that the lease could be assigned or transferred to a suitable purchaser pursuant to clause 4(18) of the lease.
118. The sixth point to note is that, although the landlord's fixtures and fittings (which appear to have been of modest value), had been listed in an inventory, no attempt was made by Mr Woodburn to quantify or calculate what should be the provisions for the replacement or renewal costs of such items beyond the £60 per month figure included in paragraph 3.24 of the Report.

The decision of the Recorder on quantum

119. The Recorder dealt with the question of quantum at paragraph 32 and 33 of his judgment as follows:

"32. I have to consider, therefore, what order to make in circumstances where my finding are that the defendants had no justification whatsoever for forfeiting this lease and behaved improperly in forfeiting this lease. They unlawfully forfeited this lease, unlawfully evicted the claimant and breached the covenant of quiet enjoyment. However, at the time of the eviction, the claimant had a business which was valueless on the unchallenged evidence of the accountant and which had made a total profit in six months of trading of £1,123. There is no evidence of what might have happened in the future. I note that a purchase of goodwill is inherently a wasting asset. The claimant would never have got back her £10,000. She would have got back from this business whatever profit she could make and whatever she could sell it for, having generated her own goodwill and building on the goodwill she had purchased. As I have said, if this business had been making a significant profit then there would no doubt have been a significant loss of profit claim in this action. However, the claimant ought also to consider that this lease might have had a negative value. In circumstances where she was not making a significant profit, she would have had an obligation to continue to pay the rent for the full term of the lease and she would have had a full repairing and insuring covenant which may very well have cost her sums considerably in excess of those which she could have made from the business. Therefore, it is not simply a case of her having lost an opportunity to develop the business. The unlawful forfeiture of the lease also prevented the possibility of future claims against her in respect of rent and repairing liability.

33. The overall conclusion, in my judgment, is this: the defendants are liable for the unlawful eviction, but the claimant, as a result of the financial position of her business, has suffered no significant loss. The purpose of damages is not to punish the defendant, save in exceptional circumstances. It is to compensate the claimant for that which she has lost and so I have to assess what figure would do that. I consider that an award of nominal damages would be appropriate. I take into account the fact that the claimant had paid rent of 433.33 and that the lease had been forfeited not very long afterwards. I take into account also the fact that the claimant would have suffered the distress and inconvenience of simply finding the premises had been forfeited and the doors locked against her. Doing the best I can to assess a reasonable figure for damages in those circumstances, I find for the claimant and award her damages in the amount of £300."

120. Because he had not been addressed on the relevant authorities relating to claims for wasted performance expenditure, the Recorder did not approach the issue of quantum on the basis that it was for the defendants to establish, on the balance of probabilities, that the claimant would not have recouped any of the premium of £9,950 from the gross earnings of the business. He did not appreciate that the Report was not directed at this issue. He did not, no doubt because the Report went unchallenged, and there was no cross-examination of Mr Woodburn, examine the figures in Mr Woodburn's report with the necessary critical eye to ascertain precisely what they did establish. If he had done so, he would have seen, as I have attempted to demonstrate above, that, when the necessary arithmetical corrections had been made, the evidence showed that there was every reason to suppose that the cost of the premium could have been amortised over the period of the lease - in other words, that the claimant would have notionally got all her money back in respect of the premium which she had paid for the lease and the business. Correctly calculated by reference to an actual occupation period of six months 10 days, the six-year estimated profit figure of £16,836 would have been more than sufficient to provide for amortisation of the premium, on the assumption that it would have been amortised rateably over the six years. Indeed, on the basis of the arithmetically correct profit calculations, there would have been a surplus of £6,886.
121. However, even on the basis of Mr Woodburn's own calculations, there was a surplus of £598. In my judgment, therefore, even on the basis of the arithmetically flawed calculations in the Report, there was no evidential basis for the Recorder's purported finding that "The claimant would never have got back her £10,000." As I have said, the Report was not addressing a wasted expenditure claim.
122. Not only does the reasoning in paragraph 32 of his judgment suggest a confusion on his part as between gross earnings and net profits, but, more importantly, it was not legitimate for the Recorder:

i) given that, as he himself said at paragraph 32D, there was "no evidence of what might have happened in the future";

ii) in the absence of any evidence as to the quantification of the claimant's contingent liabilities in respect of the repairing, insuring, and renewal covenants or indeed the cost of any repairs or renewals to the premises or the fixtures and fittings, which might have been necessary; and

iii) in circumstances where considerable adjustments to the profit figures had already been made by Mr Woodburn in the Report to make provision for such matters, with an invitation for further debate;

to speculate as to whether "this lease might have had a negative value" or that the claimant's liabilities under the repairing and insurance covenants "may very well have cost her sums considerably in excess of those which she could have made from this business". The fact of the matter was that the defendants had, by their actions, made it impossible for the claimant to show that she would have made profits from the business had the lease continued. In those circumstances, the burden on them to establish, in response to the claimant's wasted expenditure claim, that she would never have recovered any part of her premium over the six-year period of the lease was a heavy one. Speculation by the court that there was a possibility of the lease and the business having a negative value was not an appropriate substitute for proper evidence directed at the actual issue in contention. For example, it would have been open to the defendants to have adduced evidence establishing, as at the date of eviction, the quantum of the claimant's contingent liabilities in respect of the repairing, insuring, renewal covenants, or the amount of any reverse premium that, on the defendants' case, the claimant would have had to pay to have obtained an assignment or surrender of the lease as at that date. In the absence of such evidence, there was, in my judgment, no proper or supportable basis for his finding that "the claimant would never have got back her £10,000."

123. Finally, there was no principled or rational basis for the Recorder's award of £300 damages. As a matter of law, the claimant was not entitled to damages for distress or inconvenience; see Branchett v Beaney [1992] 3 All ER 910. However these were factors he seems to have taken into account. In all those circumstances, I take the view that this Court is entitled to look at the question of quantum afresh.

The further submissions made by counsel in response to a request by the court to address the errors in the Report

124. In the claimant's further submissions in relation to the errors in the Report, Miss d'Arcy: (a) maintained her submissions that the Report was irrelevant; (b) in the alternative submitted that the errors further strengthened her previous submission that the Report did not discharge the defendants' evidential burden of establishing that the claimant would not have recouped the premium over the period of the lease; and (c) submitted that, in any event, the case should not be remitted back to the County Court as that would be disproportionate given the amount of the claim, the costs incurred to date and the financial position of the claimant.
125. In the defendants' further submissions in relation to the errors in the Report, Miss Mansfield submitted:

i) that the court should omit from its considerations the "apparent error in the stated profit period contained within Mr Woodburn's report" on the grounds that: (a) it was "neither a matter before the learned Recorder at first instance nor made the subject of this Appeal"; (b) that the claimant's submission was that the Report was not relevant; and (c) that the Report was "not material" because of the defendants' reliance "upon the value of the business at the date of cessation"; and

ii) in the alternative, if contrary to the defendants' primary contention, the court were minded to take the error into account, then it "should seek to balance the potential impact of the stated trading period against the potential shortcomings in the accounting data used by Mr Woodburn" in the calculation of the gross profit for the period; the defendants' case in any event was "that the gross profit figure of £1,123 was taken at its highest, and was a 'best case scenario'"; that there were "several liabilities noted [in the Report] which could not be accounted for or verified by Mr Woodburn. Any one of the items specified, such as the cost of mandatory public liability insurance, could have a significant impact upon the gross profit calculated."; that, accordingly, "the Appellate Court is entitled to draw an inference of fact (as permitted under CPR 52.11(4)), that on the balance of probabilities the gross profit for the period of tenancy was overstated in any event, thereby ameliorating the impact of any error in the quantification of the stated period as 7 months and 20 days.";

iii) that, as submitted by Miss d'Arcy, it would disproportionate if the matter had to be remitted back to Manchester; it would be "uncertain, due to the parties' precarious financial positions, whether the attendant disbursement fees could be met".

126. I do not accept Miss Mansfield's further submissions. In my judgment this court is entitled to take the patent errors in the Report into account on this appeal, notwithstanding that the figures were not challenged at trial. As I have already concluded above, given the widely drawn terms of the claimant's grounds of appeal, she is entitled before this court to challenge any aspect of the Recorder's conclusions in relation to quantum; i.e. not merely his approach as a matter of law to the method of calculation, but also his reliance upon the expert's report at all (given the issue to which it was directed), and his purported findings of fact based on what he concluded from the Report. As Miss d'Arcy submitted, the errors further strengthened her basic submissions that the Report was irrelevant and, in any event, provided no sound evidential basis upon which the defendants could rely to discharge their evidential burden of establishing that the claimant would not have recouped the premium over the period of the lease. Moreover, there is no justification for this court drawing any inference of fact pursuant to CPR 52.11(4)), as submitted by Miss Mansfield, that "on the balance of probabilities the gross profit for the period of tenancy was overstated in any event". To do so would amount to an impermissible speculation by the court as to the issue which it was always incumbent upon the defendants to prove at trial, namely that the claimant would never have recovered her premium over the period of the lease.

Disposition

127. As I have already said, in my judgment the defendants have not discharged the burden on them of establishing on the evidence that the claimant would never have recovered the premium from the gross earnings of the business, or indeed from a sale of the lease and the business to an assignee approved by the defendants under clause 4(18) of the lease. First, the Report was not actually directed to providing an expert opinion on this issue; second, if, and to the extent that, the evidence contained in the Report, and Mr Woodburn's opinion is relevant to the court's determination of the issue, the figures contained in the Report need to be heavily qualified to take account of the arithmetical errors made by Mr Woodburn; and third, whether viewed on the basis of the original or the corrected figures, the evidence in the Report is not sufficient to establish that the claimant would not have recovered her wasted expenditure from the gross earnings of the business or from a sale of the lease and the business.
128. I consider that the appropriate quantum of the claimant's claim is the amount of the premium of £9,950, less a figure representing that proportion of the premium attributable to her use of the premises and operation of the business for a period of six months 10 days, which represents the benefit she has derived from the contract. This approach would appear to be consistent with principle; see, for example, Chitty on Contracts, 31^st edition, Volume 1, paragraph 29-062. Such a calculation reflects the fact that a claimant cannot recover all of the money paid under a contract as damages for wasted expenditure, in circumstances where he has received some of the performance for which he has paid.
129. On that basis I calculate that the correct sum for the defendants to pay by way of damages is the sum of £9,079, which is the amount of the premium, less £871. This latter figure represents the proportion of the premium attributable on an even, straight-line basis to the six month 10 days period during which the claimant occupied the premises and operated the business; i.e. £9,950 / 6 = £1,658. 33 x 6.3 / 12 = £871. I would accordingly substitute the sum of £9,079 in place of the sum of £300 damages awarded by the Recorder.

Restitutionary claim for unjust enrichment on the basis of a partial failure of consideration

130. No argument was advanced to this court or the court below by Miss d'Arcy to the effect that a claim lay in restitution for repayment of part of the premium, on the basis of a partial failure of consideration or on unjust enrichment grounds. This issue would, for example, have involved discussion as to whether the contract between the parties could be regarded as divisible, even though the consideration had been expressed as a lump sum, and as to whether the court could, and should, apportion the consideration over the period of the lease; see generally Chitty, op cit at paragraph 29-065.
131. Because the authorities raise difficult questions of principle, and because the point was not argued, I do not consider that it would be appropriate for this court to consider whether an alternative restitutionary claim for money had and received, on the basis of a partial failure of consideration or otherwise, would have been available to the claimant.

Note 1   Subject to the question raised in McGregor on Damages, at paragraph 2-040 as cited below.    [Back]

Note 2   This court was informed by counsel, in response to a request from the court after the hearing of the appeal, that the errors in the Report were not spotted at trial and were therefore not brought to the Recorder's attention. Although invited to make further submissions on the errors, neither counsel in their further submissions chose to address the arithmetical consequences of the errors.    [Back]

Note 3    If a monthly figure, based on a multiplier of 7.666.    [Back]

Note 4    If a monthly figure, based on a multiplier of 6.3.    [Back]

Note 5    On the assumption that this is a figure for 7 months 20 days, I have proportionately reduced this to the corresponding figure for 6 months 10 days to obtain the revised figure.    [Back]

Note 6    See footnote 5.    [Back]