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Rights to Light: The Assessment of Damages in Lieu of an Injunction

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31st May 2016

Introduction

1. An easement is appurtenant to land and not a personal right of the owner. As such, the easement can be exercised by anyone who is entitled to use the land and it can be enforced by anyone in possession of the land.
2. In general, the cause of action where there is a disturbance of an easement is nuisance.

Injunction and Damages in Lieu

3. Where a claimant has established that the defendant’s activities constitute a nuisance, prima facie the remedy to which he is entitled (in addition to damages for past nuisance) is an injunction to restrain the defendant from committing such nuisance in the future; of course, the precise form of any injunction will depend very much on the facts of the particular case: see Coventry v Lawrence [2014] UKSC 13 per Lord Neuberger at [101].
4. In Shelfer v City of London Electric Lighting Co (No.1) [1895] 1 Ch 287 ?A.L. Smith LJ held that it was a “good working rule” that:
   • If the injury to the plaintiff’s legal rights is small,
   • And if is one which is capable of being estimated in money,
   • And if is one which can be adequately compensated by a small money payment,
   • And the case is one in which it would be oppressive to the defendant to grant an injunction
     then damages in substitution for an injunction may be given.
5. In Coventry v Lawrence the Supreme Court held that the court’s power to award damages in lieu of an injunction involved a classic exercise of discretion, which should not, as a matter of principle, be fettered, although the prima facie position was that an injunction should be granted. As to the four tests set out Shelfer, their application should not be such as to fetter the exercise of the court’s discretion. However, it would, in the absence of additional relevant circumstances pointing the other way, normally be right to refuse an injunction if those four tests were satisfied. But the fact that those tests were not all satisfied would not mean that an injunction should be granted.

The assessment of damages

6. The general principle regarding assessment of damages is that they are compensatory for loss or injury. The general rule is that the measure of damages is to be, as far as possible, that amount of money which will put the injured party in the same position he would have been in had he not sustained the wrong. Damages are measured by the claimant’s loss, not the defendant’s gain.
7. In Attorney-General v Blake [2001] 1 AC 268 Lord Nicholls summarised the circumstances in which the court will assess damages either in tort or in contract on some alternative basis to the usual compensatory measure based on direct loss. He said at 281C-H:”…in the same way as damages at common law for violations of a property right may by measured by reference to the benefits wrongfully obtained by a defendant, so under Lord Cairns’s Act damages may include damages measured by reference to the benefits likely to be obtained in future by the defendant. This approach has been adopted on many occasions. Recent examples are Bracewell v Appleby [1975] Ch 408 and Jaggard v Sawyer [1995] 1 WLR 269, both cases concerned with access to a newly-built house over another’s land.”The measure of damages awarded in this type of case is often analysed as damages for loss of a bargaining opportunity or, which comes to the same, the price payable for the compulsory acquisition of a right. This analysis is correct. The court’s refusal to grant an injunction means that in practice the defendant is thereby permitted to perpetuate the wrongful state of affairs he has brought about. But this analysis takes the matter now under discussion no further forward. A property right has value to the extent only that the court will enforce it or award damages for its infringement. The question under discussion is whether the court will award substantial damages for an infringement when no financial loss flows from the infringement and, moreover, in a suitable case will assess the damages by reference to the defendant’s profit obtained from the infringement. The cases mentioned above show that the courts habitually do that very thing.”
8. Where the invasion of the proprietary right has been constituted by erecting a building and will continue in the future because injunctive relief to have the building pulled down is unavailable damages are frequently assessed by compensating the claimant whose proprietary rights have been invaded for the loss of a bargaining opportunity.

The case law

9. In Carr-Saunders v Dick McNeil Associates Ltd [1986] 1 WLR 922 Millett J makes it clear that in the hypothetical negotiation, the person whose right to light was being infringed would not be satisfied with a modest sum for loss of amenity, but “would have a bargaining position”. He held that the same approach ought to be adopted to the assessment of damages in lieu of injunction in the case of the right to light as was adopted in cases relating to damages for breach of restrictive covenants and obstructions to a right of way. In relation to this point he cited the following two cases.
10. In Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, Brightman J dealt with a claim for damages where the plaintiffs sought a “substantial proportion” of the development value of the land which was put at no less than £140,000. Brightman J rejected this argument for two reasons. First, the covenant that was being breached had “no commercial or even nuisance value”. The second reason was that the breach of covenant which had actually taken place was over a very small area and the impact of the breach on the land benefitting from the covenant was “insignificant”. The fact that Brightman J took into the account the effect of the breach on the retained land shows that some account must be taken of the context and the effect of the breach on the land benefitted by the right. However, having stated the two reasons why he would not award a “substantial proportion” of the development value, Brightman J went on to consider what part of the profit he should award. He makes it clear that the hypothetical negotiation includes a consideration of what profit the developer expected to make and “would then reasonably have required a certain percentage of that anticipated profit”. Brightman J considered that his task was to work out what would be a “fair percentage”.
11. On the facts of that particular case he considered that the court should act with “great moderation”. The facts in that particular case that influenced him were that the plaintiffs were aware that the land was being offered for sale for development and that they would not consent to any such development. Had the plaintiffs made their position clear prior to the purchase, it was “highly unlikely” that the developer would have paid what it did, at least unconditionally. In those particular circumstances, Brightman J considered it fair to award 5% of the developer’s anticipated profit.
12. The other case relied on by Millett J was the easement case of Bracewell v Appleby [1975] Ch 408. In that case, Graham J again focused on a percentage of the profit being made. He held that the circumstances were very different from those in Wrotham Park and he attempted to arrive at a “fair figure” for the case before him. For the purposes of the hypothetical negotiation, he arrived at a figure which would not be so high as to deter the defendant from building at all. In that case, the defendant was not a speculative builder and in fact wanted to live in the property himself. Graham J said that he would be prepared to pay “what is relatively to his notional profit quite a large sum for the right of way in question and to achieve the building of his new home”. Graham J also referred to the fact that property values were rising. On those facts, he awarded the neighbouring five owners £400 each, making a total of £2,000, out of the “notional profit” overall of £5,000. The share of the profit was therefore 40%.
13. In Carr-Saunders itself, the hypothetical negotiation involved taking account of the bargaining position and the amount of profit. However, in that case there was no evidence of the amount of profit that the defendants were expecting to make from their development. The evidence concerned general loss of amenity. Millett J appears to have taken £3,000 as the absolute minimum figure on the basis that that approximately represented the loss of amenity. He then awarded £8,000 without any detailed calculation. The method used by Millett J was to start with the loss of amenity and then build upwards, in effect guessing at the boost given to the claimant by his bargaining position in the absence of evidence relating to the profit being made from the development.
14. Where the amount of the likely profit has been the subject of expert evidence, the correct approach seems to be to start with the approximate figures suggested for loss of amenity as the context, but then to take sufficient account of the expert evidence relating to the value, in terms of a share of the potential profit, of the bargaining position.
15. Some further assistance on the process can be derived from Amec Developments Ltd v Jury’s Hotel Management (UK) Ltd [2001] 1 EGLR 81. In that case the deputy High Court judge set out a number of factors in the hypothetical negotiation. One factor is that one has to bear in mind the context and what figure the defendant would realistically pay to be able to carry out the development. The judge finished his list of relevant factors as follows: “As important as any of the above factors is this. In any negotiation, science and rationality gets one only so far. At the end of the day, the deal has to feel right.”
16. In Tamares (Vincent Square) Limited v Fairpoint Properties (Vincent Square) Limited [2007] EWHC 212 (Ch) Gabriel Moss QC, sitting as a deputy High Court judge, reviewed the aforementioned authorities and deduced the following principles:
    • The overall principle is that the court must attempt to find what would be a “fair” result of a hypothetical negotiation between the parties.
    • The context, including the nature and seriousness of the breach, must be kept in mind.
    • The right to prevent a development (or part) gives the owner of the right a significant bargaining position.
    • The owner of the right with such a bargaining position will normally be expected to receive some part of the likely profit from the development (or relevant part).
    • If there is no evidence of the likely size of the profit, the court can do its best by awarding a suitable multiple of the damages for loss of amenity.
    • If there is evidence of the likely size of the profit, the court should normally award a sum which takes into account a fair percentage of the profit.
    • The size of the award should not in any event be so large that the development (or relevant part) would not have taken place had such a sum been payable.
    • After arriving at a figure which takes into consideration all the above and any other relevant factors, the court needs to consider whether the “deal feels right”.
17. Mr Moss QC held that the parties as hypothetical reasonable commercial people would take the halfway point between the two figures given by the expert valuer for loss based on the rival right to light expert reports, namely £174,500. They would then agree prima facie at a one-third split of that profit at £58,166. However, taking into account the context of the relatively modest nature of the infringement of the right in that case and the need not to have a sum which would put the defendant off the relevant part of the development in that context, they would reduce that calculation to £50,000 as a “fair” result.
18. Most recently, in HKRUK II (CHC) Ltd v Heaney [2010] EWHC 2245 (Ch), HHJ Langan QC, sitting as a judge of the High Court, adopted Mr Moss QC’s summary of the relevant principles.
19. In that case, the anticipated profit from the whole development was £6,908,000. The profit would inevitably have been less if the claimant had been forced to reduce the areas of the sixth and seventh floors (so as not to infringe the defendant’s easement of light). The judge described the profit differential of £1,408,000, calculated by the defendant’s expert, as “credible” and, in rejecting counsel’s ‘bid’ for £500,000, said that an award of more than one-third of the profit differential would be “extravagant”. He considered the following factors relevant in arriving at the figure on which the parties would have settled at the end of the hypothetical negotiation. (1) The claimant had obtained a reduction of £350,000 in the purchase price to take account of the lights issue, so to that extent was resting on a cushion which could be regarded as expendable. It would, however, have wished to retain at least some of that cushion. (2) The claimant had budgeted for £200,000 as the price of settling all lighting issues and, in the event, the defendant had turned out to be the only dominant owner with a claim. (3) In view of the price reduction, the claimant could be expected to go beyond the budgeted figure in order to obtain a settlement of the issue before starting work. (4) The uplift on £200,000 should be modest, because the defendant’s seeming reluctance to commence proceedings would have made it unlikely that he would have pushed unduly hard in negotiations. Taking these matters into account, HHJ Langham arrived at a figure of £225,000. He concluded “The evidence in the case is not such as would enable any judge to produce a scientifically justifiable figure. This makes all the more important the last part of the process, which is to stand back and ask myself whether the sum which I have mentioned ‘feels right’ – or, put another way, whether it looks either extravagant or mean. To my mind, £225,000 survives this final test.”
20. The assessment of damages is not a science and, as the cases discussed above illustrate, can be a difficult task. The HKRUK case demonstrates that the position adopted by a party when it discovers that its rights may be infringed may influence the award. It is vital that both parties in such any dispute take legal advice at an early stage.

By Jonathan Upton

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