The shining beacon

The principles underlying the award of damages for breach of a right to light are now reasonably well established, but their application and the resulting outcome is considerably more uncertain.

Principles on which damages are awarded: Wrotham Park damages

Most of the relevant cases in this area were decided under what is known as the "Lord Cairns Act" (Chancery Amendment Act 1858, now contained in the Supreme Court Act 1981). This gives the court the power to award damages in addition to, or in substitution for, an injunction.

The prevailing view used to be that the power to award damages under the Lord Cairns Act only arose where the court had jurisdiction to grant an injunction at the time the claim was issued. However, following Experience Hendrix v PPX Enterprises Inc (2003), it would seem that damages can be awarded even where the claimant would not be awarded an injunction.

The leading case in this area is Wrotham Park Estate Company Limited v Parkside Homes Limited (1974). The aim of what has become known as Wrotham Park damages (or "buy out" or "wayleave" damages) is to consider the sum that would have been arrived at in negotiations between the two parties as the price for the claimant to relax its rights, each making reasonable use of their respective bargaining positions, but without seeking a ransom.

Despite some debate as to the basis for such damages, it is largely accepted that they are designed to be compensatory, rather than restitutionary or punitive. The Wrotham Park decision was described by the House of Lords in Attorney General v Blake as "a shining beacon" showing that in contract as well as tort, damages are not necessarily confined to recoupment of financial loss, but can be measured by the benefit to the defendant from the breach.

Before looking at the latest decision of the Court of Appeal in Forsyth Grant v Allen, it may be helpful to draw together the principles derived from the earlier cases. These can be summarised as follows:

• The starting point for the Wrotham Park calculation will be what profit the developer expected to make from his operations. It is only the part of the development that infringes the claimant's right that is relevant for this purpose, not the profit from the whole scheme.
• The correct valuation date will usually be the date of the breach, although if there were good reasons, the judge could depart from the norm and select a different valuation date or direct that a post valuation event be taken into account.
• While the negotiations are by definition hypothetical, the negotiating parties must be assumed to be in the position of the actual parties at the relevant date and to be aware of such facts and circumstances as the actual parties would have been able to discover.
• The negotiations would have taken place before the infringement occurred.
• The actual conduct of the parties is irrelevant (although there is a suggestion to the contrary in Forsyth-Grant).
• As to the appropriate share of the profit which the negotiations could produce, the following principles are relevant:
  • The share awarded to the claimant must not be so large that the development (or relevant part) would not have taken place. It must also reflect the fact that the developer is taking all the risk and the other party is not.
  • The actual context, including the nature and seriousness of the breach, must be kept in mind.
  • The correct percentage is a matter for the court, not for expert evidence.
  • In Wrotham Park the court felt it right to act with "great moderation" and awarded 5% of the relevant development project. The figure in Tamares v Fairpoint (2007) was one third. It could tentatively be suggested that, in percentage terms, this award was high, especially given the modest infringement and is perhaps unlikely to be exceeded, save in an exceptional case.
• In AMEC Developments Limited v Jury's Hotel Management (2001) the court said that "in any negotiations, science and rationality get one only so far. At the end of the day, the deal has to feel right." This was repeated in Tamares. This observation will, no doubt, be viewed either as a source of frustration to those seeking certainty or as a "get out of jail free card" to those seeking to muddy the waters.

One tricky issue on which there is no direct authority is how the pot will be divided where there are a number of possible claimants. In the absence of agreement between the claimants, one approach would be to split the appropriate percentage between the parties by reference to the degree of infringement and their bargaining positions. An alternative approach would be to put a value on the respective parties' interests, for example as between a freeholder and a leaseholder, both of whom have established a right.

It is perhaps unfortunate that none of the most pertinent authorities has involved an examination of detailed expert evidence of the nature that would be required in a case involving a substantial City development. In AMEC (which concerned breach of a restrictive covenant by a hotel going over a building line and thereby achieving a greater number of bedrooms), one party called a valuation surveyor who broadly carried out a valuation of the larger and the smaller hotels. The other party called a quantity surveyor and accountant to look at the cost of building the additional rooms and these findings were worked into a discounted cash flow analysis. There was therefore a mismatch and the court had to do the best it could.

In Tamares, only one party put in expert valuation evidence and it was done the night before trial, which put the judge in some difficulty when evaluating the evidence. The reality is that in a project of any size, the developer will be expected to disclose evidence of its anticipated development profit from building the relevant part of the scheme. There are obviously a number of sensitive elements in a development appraisal. In the absence of any clear guidance, there is inevitably uncertainty as to how a court would interpret such evidence.

Forsyth-Grant v Allen

This is the latest case on awards of damages for infringement of a right of light. It is a decision of the Court of Appeal on appeal from the Southampton County Court.

The claimant alleged that the construction of two houses (perhaps aptly named Sunrise and Sunset) would infringe a right of light enjoyed by her hotel. She somewhat ambitiously sought an account of all the profits made by the defendant from the infringement of her right of light and, in the alternative, damages, including exemplary damages for the nuisance, again calculated by reference to the profit made by the defendant.

The Court of Appeal confirmed that, leaving aside injunctions, the remedy for the tort of nuisance is an award of common law damages. However, in certain cases where the financial loss suffered by the claimant would be nominal or non-existent, the court recognised that damages could be calculated by reference to what the defendant would have paid for the use of the claimant's rights or, in the case of trespass, by reference to the benefit received by the trespasser.

As indicated above, the court pointed out that while there has been some discussion as to the jurisprudential basis of these type of awards (in particular whether they are restitutionary), whatever the basis of calculation, they remain awards of damages.

In Forsyth-Grant however, the claimant sought an account of profits, which is an altogether distinct and different remedy. In such cases, the court will order the defendant to pay to the claimant the entirety of the profit earned by his unlawful conduct, whereas in the case of an award of damages, it will be a reasonable sum only for the use of the claimant's land or property.

The leading case regarding where an account of profits may be appropriate is the House of Lords' decision in Attorney General v Blake (2000). This case was very exceptional and must be understood in its context. In short, it was a claim by the Crown to strip from the defendant profits made for publishing a history of his activities as a spy for Russia and betrayer of the United Kingdom. Even the most indignant claimant would have to admit that an infringement of his right of light is not in the same league.

The damages in Forsyth-Grant were assessed on the basis of the loss actually suffered by the claimant, that is the capitalised diminution of the letting value of the affected rooms. On the evidence, this produced a higher figure than damages calculated on the Wrotham Park basis and was, therefore, the appropriate figure.

Things to consider

There are a few observations in the Court of Appeal judgments in Forsyth-Grant which do not sit easily with other authorities and may in due course be the subject of further comment:

• At first instance, the judge held that the claimant had acted unreasonably, such that the court would have refused an injunction and, therefore, that Wrotham Park damages were inappropriate. This was not challenged on appeal and the Court of Appeal did not express any view. The established principle is however that Wrotham Park damages do not turn on conduct.
• There is a suggestion that there was every reason not to give the claimant Wrotham Park damages because she had refused the developer's invitation to bargain. This is arguably irrelevant as Wrotham Park damages are predicated on a hypothetical negotiation and do not depend upon an actual negotiation between the parties.
• The Court of Appeal commented that a claimant would be entitled only to compensation for the loss actually suffered. It said that "the highest that it could be put on the authorities" is that "in appropriate cases" the claimant can obtain an award calculated by reference to the price which the developer might reasonably be required to pay for a relaxation of the claimant's rights to avoid an injunction. It is suggested that the consistent approach of the courts in such cases is that Wrotham Park based damages are the norm.

This analysis first appeared in Estates Gazette on 19 July 2008.