Adam Rosenthal KC appears in High Court appeal on quantifying damages for trespass. 05 December 2024
Restaurant EC3 Limited v Tavor Holdings Limited [2024] EWHC 3104 (Ch)
This was an appeal against a winding up order made by the Insolvency and Companies Court Judge in the High Court in respect of Restaurant EC3 Limited, the tenant of the restaurant premises formerly known as Simpsons in Cornhill in the City of London.
The landlord (the Respondent to this appeal) Tavor Holdings Limited had issued a winding up petition in relation to substantial arrears of rent which had accrued during and after the Covid pandemic. Before issuing the winding up petition, the landlord had forfeited the lease by peaceable re-entry, relying on rent which accrued subsequently (which was not the subject of the winding up petition or the preceding statutory demand).
After the winding up petition was issued, the tenant brought Part 7 proceedings, contending that the landlord was not entitled to forfeit and, in the alternative, seeking relief from forfeiture. The tenant also claimed damages for trespass / breach of the landlord’s covenant of quiet enjoyment. The damages sought by the tenant comprised trading and other losses associated with the forced closure of the restaurant and also what were described as “mesne profits” comprising damages at a rate equivalent to the passing rent under the lease for the period the tenant was out of possession.
When the winding up petition was heard, the tenant company resisted the petition on various grounds, including the existence of a genuine and substantial cross claim for damages, relying on the claim pleaded against the landlord in the Part 7 proceedings. The ICC Judge concluded that there was no genuine and substantial claim against the landlord in respect of trading losses because, as a result of a Part 18 Request in the Part 7 proceedings, the tenant had admitted that the restaurant business was not run by the tenant but rather a connected company. Permission to appeal against that aspect of the ICC Judge’s decision was refused.
However the tenant company relied also on the claim for “mesne profits”, contending that it would reduce the debt substantially (which reduced debt, the tenant contended, it would be able to pay in a reasonable time). The ICC Judge also rejected this argument on the ground that if (which was assumed for the purpose of this argument) the landlord had wrongfully forfeited the lease, it would be necessary to take account of the rent which the tenant would have been liable to pay if the tenant had remained in possession and therefore the damages under this head would be £0. Therefore, there was no genuine and substantial cross claim. In the absence of satisfactory evidence of an ability to pay the full petition debt, the ICC Judge made a winding up order.
The tenant was granted permission to appeal in respect of the determination that the tenant did not have a real and substantial cross claim which would be capable of reducing the petition debt. The appeal was heard by Miles J. and in a judgment handed down on 3 December 2024, he dismissed the appeal. In doing so, the Judge considered the nature of damages for trespass (which were described in the tenant’s claim as “mesne profits” although strictly, mesne profits is the term used for damages payable to a landlord by a tenant who wrongfully holds over on the termination of the lease). The Judge concluded that in light of the analysis of “user damages” in tort by Lord Reed in One Step (Support) Ltd v Morris-Garner [2018] UKSC 20, such damages are properly to be regarded as compensatory (and suggestions to the contrary e.g. in Ministry of Defence v Ashman (1993) 66 P & CR 195 were not followed).
As such, the Judge accepted the landlord’s argument that the ICC Judge below was right to conclude that damages payable by a landlord to a tenant who is liable to pay a rack rent ought to reflect the rent which would have been payable to the landlord during the period the tenant was out of possession. This accorded with the outcome in the Privy Council case of Inverugie Investments Ltd v Hackett [1995] 1 WLR 713. It was made clear that cases concerning damages payable by a landlord for wrongful eviction to a residential tenant (such as Smith v Khan [2018] EWCA Civ 1137) did not affect this conclusion because those cases assessed damages by reference to a “tariff” which took account not just of the value of the right to use and occupy the premises but also inconvenience and stress caused by being evicted from a dwelling.
The Judge noted that this was an unusual case because ordinarily a commercial tenant would suffer losses aside from the use and occupation of the commercial premises, such as trading losses where the landlord’s eviction has caused the tenant to cease operating its business. Here the claim for those damages failed because the tenant did not carry on the restaurant business at the premises. It was also noted that where a commercial tenant alleges that the landlord has wrongfully taken possession, e.g. by purporting to forfeit without being entitled to do so or where the tenant seeks relief from forfeiture, it is open to the tenant to apply for an injunction to be readmitted to the premises to mitigate ongoing losses. That is not a course that the tenant in this case chose to take.
Ultimately, in relation to a claim for damages for trespass based on the market letting value of the premises, it is necessary, in order to reflect the compensatory principle (and avoid over-compensating the tenant or punishing the landlord) to take account of the rent which the tenant would have been obliged to pay during the period of the trespass. If the rental value for that period is the same as the passing rent, this head of damages will result in no loss being suffered. Conversely if the market rent has increased, the tenant will recover, as damages for trespass, the difference between the rent under the lease and the market rent.
Adam Rosenthal KC appeared with Jonathan Titmuss of Gatehouse Chambers for the landlord / respondent, instructed by Memery Crystal.
A link to the judgment is here.
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