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Getting away with it? Injunctions, damages and the developer 1
Getting away with it? Injunctions, damages and the developer
Jonathan Small QC Falcon Chambers
It often falls to a developer, and those advising the developer, to consider property claims made by neighbouring owners which would have the effect of limiting or even preventing the development. The happy developer will negotiate those claims away. But sometimes those claims lie dormant until the development has started or even completed; claimants sometimes refuse to engage in realistic, commercial negotiations and occasionally the developer decides to lay low and face the claim when and if it comes. This paper considers whether or not neighbouring owners who can successfully bring a property claim against a developer will succeed in obtaining a court injunction to stop the development or, if it has started or completed, to dismantle the offending parts of the development. Recent cases appear to show a greater willingness on the part of the courts to grant such injunctions. If injunctions are not granted then the claimant will often be entitled to damages in lieu of an injunction. This paper also considers how such damages are assessed.
The typical claims The question of whether the court should award an injunction or damages in lieu of an injunction arises in a variety of property scenarios. The development might offend the restrictive covenant, such as one not to breach
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a building line 1 or not to use the premises for certain purposes e.g. a riding school^2. Infringements of neighbouring rights of light provide a steady source of litigation raising these points. The infringement of more fundamental property rights e.g. trespass (by a landlord blocking up a tenant’s fire door 3 or unlawful use of a right of way 4 ) and nuisance (e.g. caused by a motor racing circuit^5 ) may also give rise to such considerations. However here we are concerned with injunctions. A straightforward trespass case (where there is a permanent or fixed invasion of someone else’s property) would normally give rise to a claim for a possession order, rather than an injunction. The right to a possession order gives rise to different considerations from those I discuss below.
Obviously the complaining neighbour will get nowhere if the relevant property right cannot be established. Accordingly this paper takes as read that the claimant will be able to establish that the development will include an actionable infringement of the relevant property right, be it a restrictive covenant, right of light or the like.
Timing of the inquiry The basic rule is that if someone enjoys a property right he is entitled to have this enforced. Accordingly, if he fears that his rights are about to be infringed he can apply, as soon as circumstances justify such reasonable fear, for an injunction. The injunction he seeks in his claim form will be for a final injunction i.e. one which the court would make having heard all the
(^1) As in Amec Developments v Jury’s Hotel [2001] 1 EGLR 81. (^2) As in Gafford v Graham [1999] 3 EGLR 75. (^3) See Lunn Poly v Liverpool & Lancashire Properties [2006] 2 EGLR 29. (^4) Jaggard v Sawyer [1995] 1 WLR 269 (^5) Watson v Croft Prom- Sport [2009] 2 EGLR 57.
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pay any damages to the developer if, after a full trial, the court decided that no injunction should be granted at all.
Accordingly the usual context in which a court decides whether or not to grant a final injunction is that the development has been commenced and possibly completed and there has already been an infringement of the claimant’s property rights. This is because, as a matter of practicalities, it has not been possible to organise a full trial prior to the offending work commencing and the claimant has been understandably reluctant to seek an interim injunction to stay the developer’s hand in the meantime.
However in the most case on the subject, the scenario was rather different. In CIP Property v Transport for London^8 , the owner of property above Tottenham Court Tube Station had put in an application for planning permission to carry out development once Crossrail had successfully been brought to Tottenham Court Road. Planning permission had not yet been granted and, if the scheme went ahead at all, it was envisaged that there would be various changes to the scheme which, in any event, could not commence until the completion of Crossrail, in 2017 at the earliest. Neighbouring owners claimed rights of light which they said the development applied for would infringe. Negotiations had apparently carried on but had come to nothing, when the neighbours wrote on an ‘open’ basis claiming an infringement to their rights of light and threatening injunctive proceedings. The resulting claim was roundly rejected by the High Court on the basis that the Court only grants injunctions in advance of infringements to people’s rights where that infringement is immediate. Whether or not the
(^8) [2012] EWHC 259 (Ch).
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neighbour had rights of light (which was a question in dispute), there were no grounds for granting an injunction where the threatened injunction was 5 years away and may never even materialise.
Whether to award injunction or damages in lieu
The very first thing which must be decided at the full trial is that the case is fit for the award of an injunction or damages in lieu (in place) of an injunction, in the exercise of the court’s discretion. An injunction is an equitable remedy and if the developer can show that the circumstances are such that a court of equity should not interfere at all with what has occurred, then the claimant will obtain neither injunction nor damages in lieu of an injunction. The sorts of equitable defences which a developer might be able to raise in a given case are excessive delay on the part of the claimant in seeking a remedy or effective consent to what has occurred. This paper proceeds on the basis that no such equitable defences are available to the developer and so he must face either an injunction to cease or to reverse his development or damages in lieu of an injunction.
In these circumstances the Court of Appeal, in Regan v Paul Properties^9 , has recently emphasised that a claimant who establishes that his rights have been infringed is prima facie entitled to an injunction, rather than damages in lieu. In Watson v Croft the Court of Appeal went so far as to say that damages in lieu of an injunction should only be awarded in exceptional circumstances, where the grant of an injunction would be oppressive to the defendant.
(^9) [2007] Ch 135.
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whereas the claimant would be well advised to ensure that all negotiations are conducted strictly on a “without prejudice” basis; (ii) whether or not the developer has gone ahead and built anyway, irrespective of the claimant’s remonstrations 14 ; the fact that the developer has attempted to engage in constructive dialogue to describe and possibly minimise the impact of plans may^15 or may not^16 assist; certainly a constructive response by the claimant will not assist the developer^17. (iii) the fact that the developer took advice and genuinely believed that there was no infringement to his neighbour will not necessarily save him^18 (iv) whether or not compliance with an injunction would involve an unpardonable waste of resources (pulling down an entire development) as against little or no damage suffered by the complainant^19 ; there will always be cases where the fait accompli simply cannot be ignored and where, at least in hindsight, the claimant should have sought an interim injunction^20 ;
(^13) Gafford v Graham but see c.f. Watson v Croft. (^14) Mortimer v Bailey ; Regan v Pau; HXRUK II v Heaney [2010] 3 EGLR 15. (^15) Midtown (^16) HXRUK II , where an open offer was made, the complainant often did not or was dilatory in responding to correspondence and did not, until proceedings were served on him, follow up his threat to seek an injunction 17 18 Mortimer v Bailey 19 Regan v Paul^ but cp^ Jaggard v Sawyer^ and the first instance decision of^ Tamares (No1) 20 Wrotham Park v Parkside Homes^ [1974] 1 WLR 798. See also Jaggard v Sawyer but cp Mortimer v Bailey on the relevance of seeking an interim injunction
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Recent examples Although it is helpful to consider the recent approach of the courts to specific facts the Court of Appeal has said, time and again, that each case involves an exercise of judicial discretion turning on its own facts and therefore it is unsafe to take comfort from the attitude of the court in any one case 21. This is undoubtedly so as the ambit of judicial discretion is wide and another judge could quite properly arrive at a different decision on exactly the same set of facts.
Regan v Paul Mr Regan lived in a residential flat in Brighton with his family. The developer, Paul, began developing neighbouring premises to include a penthouse flat. The proposed penthouse flat would seriously affect Mr Regan’s rights of light in his living room. The injunction was applied for some 6 months after work started and part way through the construction of the penthouse suite. The developer had obtained and proceeded upon rights of light advice to the effect that Mr Regan would suffer only minimal loss of light. At trial it was established that he would suffer substantial loss of light although this only translated into a diminution in value of his flat of £5, whereas the cut-back necessary to the penthouse suite so far constructed would be between £12,000 and £35,000 resulting in an estimated loss of value of £175,000 to the developer. The Court of Appeal overturned the trial judge and ordered an injunction, Mummery LJ emphasising that the developer had continued in the face of protestations and taken a “calculated risk”. The fact that they had relied upon incorrect expert advice “should not prejudice the position of Mr Regan, against whose conduct no criticism can
(^21) In particular per Millett LJ in Jaggard v Sawyer at 288.
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The developer developed neighbouring property by building two new floors which interfered with Mr Heaney’s rights of light in respect of his neighbouring, recently restored commercial office space. Although Mr Heaney remonstrated before and during the development, he did not ever commence proceedings. Instead, after the development had been completed, the developer commenced proceedings for a declaration to the effect that Mr Heaney was not entitled to any remedy. Mr Heaney counterclaimed for an injunction in those proceedings. The developer knew all along that Mr Heaney’s rights would be infringed. Judge Langan QC nevertheless granted an injunction on the basis that (i) the infringement was not a trivial one, (ii) the infringement was deliberate and carried on in the knowledge that it was actionable, (iii) the infringement was committed with a view to profit and (iv) the infringement was not necessary but could easily, if somewhat less profitably, have been carried out by reducing the dimensions of the offending storeys. The judge concluded by saying “it would be wholly wrong for the court effectively to sanction what has been done by compelling the defendant to take monetary compensation that he does not want”.
Quantum of damages in lieu of an injunction Although the origin of such damages is equitable, nowadays the jurisdiction to award such damages appears in section 50 of the Superior Courts Act
- Having regard to the equitable nature of such damages, the courts have emphasised the flexibility of approach open to their assessment. However the normal 3 bases of assessment are (a) traditional compensatory damages for loss (eg loss of amenity or diminution of value) (b) negotiating damages (ie a sum based upon what reasonable people in the position of the parties would
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negotiate for a release of the claimant’s rights) and (c) a sum based upon an account of the profits the developer is likely to make.^24
In cases such as ours the contest is likely to be between (a) and (b). An account of profits (ie all the profit) for the building of offending parts of a structure would require very special circumstances indeed: it is not easy to envisage a situation where the court considered it appropriate to deprive the developer of all the relevant profit but then did not award an injunction against him.
In the normal case where the court is considering awarding compensatory damages and negotiating damages, the court could be expected to award the greater of the two.^25
As far as negotiating damages are concerned, the court is in the business of ascertaining such sum of money as might reasonably have been demanded by the claimant from the developer as a quid pro quo for permitting the part of the development which would otherwise offend the claimant’s rights. 26
Typically, the first step is to ascertain the likely profit to be obtained from the development and then to see what proportion of this the parties might have agree should be paid over. In practice percentages ranging from 5%^27 to 40% 28 have been awarded. Since by definition the damages are supposed to be small (see the Shelfer test above), the figure should not be too high.
(^24) See per Neuberger LJ in Lunn Poly v Liverpool & Lancashire [2006] 2 EGLR 29 (^25) Conceded in Tamares (No.2 ) [2007] 1 WLR 2167 (^26) Adapting the language of Brightman J in Wrotham Park Estate Co v Parkside Homes [1974] 1 WLR 798 at 815D 27 Wrotham Park
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(4) The owner of the right with such bargaining position will normally be expected to receive some part of the likely profit from the development (or relevant part); (5) 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; (6) 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; (7) 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; (8) 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”.
Role of the valuer in the assessment of negotiation damages
The role of the expert falls into two broad categories
First, the court will need to know what the level of profits will be. By the time of the trial, in a straight forward case (eg building houses which the developer had no right to build) these may well be known. Of course the parties to any negotiation would not know the relevant figure and whether or not it is appropriate to work with the known figure will depend upon the
(^32) By Mr Gabriel Moss QC sitting as a deputy judge in Tamares (No.2); adopted by Judge Langan QC in HXRUK
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circumstances^33. In any event it is not always easy to say what the profits of an as-built scheme are, particularly if it is not yet completed or has not yet been let etc. However in many cases, the relevant profit figure will be uncertain, even after the event, since it will involve hypothesising the difference in profit between the as-built scheme and the scheme which might have been built if the developer had respected the claimant’s rights.
However, the cases show that the court is not necessarily concerned to decide what the profit level is. Since the court is postulating negotiations, the uncertainty will often be embraced: the court will have in mind the credible positions taken by the parties during the negotiations. Accordingly, as ever, the expert for any party needs to put forward a credible case which the court accepts would carry weight in any negotiations.
The second area where the court may be assisted by expert evidence is in the reasonableness of the negotiated amount as representing a figure which the parties might have arrived at themselves. However in the Tamares (No.2) cases, the judge suggested^34 that such an expression of opinion by the expert would not be helpful, since it was a matter for the court. In so far as the court was warning off experts giving their opinion as to what the level of damages should be I would not disagree (for that is a matter exclusively for the court in the exercise of judicial discretion); but for my part, I would suggest that it is potentially helpful to have the view of the valuer on the outcome of any such postulated negotiations and the influencing factors, assuming that the expert witness had sufficient experience and expertise to back up an opinion.
(^33) See the discussion of Neuberger LJ in Lunn Poly v Liverpool & Lancashire [2006] 2 EGLR 29 at [25] to [29] 34 Paragraph 11
