We are pleased to welcome again Anis Waiz, solicitor at Ozon Solicitors Limited as he continues his critical review of current case law. In this post, Anis considers Hooper & Anor v Oates [2013] EWCA Civ 91 (20 February 2013).
1. Introduction
This case raised an interesting point as to the assessment of damages for breach of contract in respect of a sale of a property. In essence the issue was whether damages were to be measured by reference to the value of the property at the date of the breach of contract, or its value at a later date.
The case proves a very useful resume of contractual damages.
2. Background
The Hoopers owned a property Cheshire. In February 2008 they agreed to sell it to Mr Oates for £605,000 with completion being set for June 2008. A notice to complete was served upon Mr Oates which he failed to comply with. The Hoopers accepted the repudiation and were anxious to sell the property given that it was subject to a mortgage. Despite efforts the property remained on the market after 14 months. In October 2009 the property was let to tenants.
The tenants vacated in late 2010 and the property was again put on the market. However, the property did not sell and the Hooper’s moved back into the property.
In the meantime the value of the property had fallen substantially.
3. The Proceedings
The Hoopers issued proceedings seeking damages and for forfeiture of the deposit paid. Despite defending the proceedings the Court held that Mr Oates had been in breach of contract. The deposit was forfeited and Mr Oates was bound to pay the remainder of the deposit, together with damages, to be assessed by the court.
4. Expert Evidence
On the determination of damages the expert evidence of the valuer was as follows:-
4.1. The property was valued at the date for completion in the sum of £600,000.
4.2. By October 2008 £545,000
4.3. By September 2010 (the date of the valuation) £495,000.
The Court held that the damages should be assessed by reference to the last valuation and thus allowing for the deposit, the damages would be £110,000 (£605,000 less £495,000). The net amount awarded being £49,500 (£110,000 less the deposit of £60,500).
As to the issue as to whether the damages should be assessed by reference to the value of the property at the breach date or at a later date the Court observed that the normal rule was to take the value at the breach date, but that there were exceptions to that rule. The latter date more accurately reflected the overriding rule as to compensating the wronged party, on the basis that departure from the general rule was demanded by fairness.
5. The Issues
Before the Court of Appeal the issue raised was whether a claim for damages for breach of contract was to be measured by reference to the value of the property at the date of the breach of contract, or rather by reference to its value at a later date, after Mr and Mrs Hooper had given up trying to sell the property.
Counsel for Mr Oates submitted that the starting point when dealing with damages for the sale of land was the contract price less the market price at the contractual time fixed for completion (see paragraph 22-034 McGregor on Damages, 18th edition). McGregor dews an analogy with the sale of goods.
Lord Justice Lloyd in the Court of Appeal noted the following points:-
5.1. Chitty on Contracts, (31st edition) paragraph 26-014:
"The normal rule is that damages should be assessed as of the time of breach. However, the rule is applied with a good deal of flexibility, in particular when the claimant has deferred reacting to the breach for a good reason. The rule is thus closely linked to the question of mitigation and will be considered in that context.
5.2. At paragraph 26-086 dealing with mitigation, the learned authors note “The general rule is that damages for breach of contract should be assessed as at the date when the cause of action rose, viz. the date of the breach (which rule usually applies where substitute performance is readily available in the market) ‘but this is not an absolute rule: if to follow it would give rise to injustice the court has power to fix such other date as may be appropriate in the circumstances.”.
5.3. The learned authors of Chitty draw a comparison with The Sale of Goods Act 1979 (section 50 dealing with damages and the issue of an available market (see section 50 (3)).
5.4. There were a number of older authorities dealing with damages when a party had failed to complete (Laird v Pim (1846) 7 M&W 474 Noble v Edwards (1877) 5 Ch D 379 and Keck v Faber (1915) 60 SJ 253)). However, those authorities were not decisive as to the correct date of assessment.
5.5. Lord Justice Lloyd considered Johnson v Agnew [1980] AC 367. That case swept aside the old rule to that if a vendor had obtained an order for specific performance with which the purchaser would not comply, and then sought damages instead, the vendor was not entitled to damages at all, and had to be content with the retention of any deposit. The House of Lords had to decide upon what basis the damages should be assessed. Lord Wilberforce noting the position of damages at common law stated:
"The general principle for the assessment of damages is compensatory, i.e. that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed. Where the contract is one of sale, this principle normally leads to assessment of damages as at the date of the breach, a principle recognised and embodied in section 51 of the Sale of Goods Act 1893. But this is not an absolute rule; if to follow it would give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances.
In the present case if it is accepted, as I would accept, that the vendors acted reasonably in pursuing the remedy of specific performance, the date on which that remedy became aborted (not by the vendors’ fault) should logically be fixed as the date on which damages should be assessed."
5.6. Techno Land Improvements Ltd v British Leyland (UK) Ltd [1979] 2 EGLR 27 was a claim for damages for breach of a contract to take a lease of land in an industrial estate. Referring to Johnson v Agnew, Goulding J held :
For my part I do not think that Lord Wilberforce was seeking to lay down a rigid rule that must inevitably apply to the sort of case here under scrutiny. I mean a case where there is a contract for the sale or for a lease of immovable property… First it is well settled that the innocent party can recover no greater damages for breach of contract than the loss he would have sustained had he acted reasonably to avoid or reduce loss. In that sense he is said to have a duty to take reasonable steps to mitigate his loss. It is likewise settled law that the defaulting party is liable for the additional damage suffered should the innocent party’s reasonable steps to mitigate the loss eventually aggravate it. Those rules seem to me to require that the defendant have the benefit of successful mitigation when damages come to be assessed”.
5.7. Lord Justice Lloyd noted Dampskibsselskabet "Norden" A/S v Andre & Cie S.A. [2003] 1 Lloyd’s Rep 287 and the issues of there being an available market in the context of a forward freight agreement repudiated by one party some three months into its twelve month duration. Toulson J noted “The availability of a substitute market enables a market valuation to be made of what the innocent party has lost, and a line thereby to be drawn under the transaction. Whether the innocent party thereafter in fact enters into a substitute contract is a separate matter. He has, in effect, a second choice whether to enter the market similar to the choice which first existed at the time of the original contract, but at the new prevailing rate instead of the contract rate (the difference being the basis of the normal measure of damages”).
6. The Decision
The Court of Appeal held that :-
6.1. The availability of a market is a relevant factor in relation to the date for assessment of damages for breach of a contract for the sale of land where the buyer fails or refuses to complete the purchase.
6.2. It is hardly ever the case that there is a readily and immediately available market for the sale or purchase of land, in the sense that the seller can go out into the market on the date of breach, or the next day, and find a purchaser who can and will proceed to contract at once.
6.3. Despite counsel for Mr Oates arguing that pursuant to Johnson v Agnew, the breach date rule should apply unless the vendor has sought specific performance and has had to abandon that, for whatever reason and has opted for damages, Lord Wilberforce’s speech did not lead to the conclusion that that is the only type of case in which a later date may be relevant.
6.4. The breach date is the right date for assessment of damages only where there is an immediately available market for the sale of the relevant asset or, in the converse case, for the purchase of an equivalent asset. This is most unlikely to be the case where the asset in question is land.
6.5. If the defaulting party is the buyer, much will depend on what the seller does in response to the breach, If he resells, the buyer may be able to show that, in so doing, the seller failed to take reasonable steps to mitigate his loss, for example by taking too long, or failing to follow proper professional advice, or in some other way. Absent any feature of that kind, the eventual resale price is likely to be the figure to be set against the contract price for assessment of the damages, not because it represents the market value at the date of the breach, but because it shows what loss the seller has suffered, uncomplicated by issues of remoteness or failure to mitigate.
6.6. If the property market has declined during that time, it is of no avail for the defaulting buyer to say that this should not be laid at his door. If he had completed the contract, he would have suffered that decline in value, so this is part of the loss for which the seller needs to be compensated.
6.7. If the vendor does not resell, and takes no steps to do so, then it may be that the date of the breach is to be taken as relevant, or a date soon after that, when he is shown, or taken, to have decided to retain the property.
6.8. In this case the Hoopers decided not to resell after taking reasonable steps to find a buyer. Therefore there was no basis of policy or principle, in such a case, for imposing on the vendor the value as at the breach date rather than the later date when, after taking steps with a view to mitigating his loss, they finally decided to retain the property upon the failure of their attempt to mitigate.
6.9. There was no suggestion that the Hooper’s failed to take reasonable steps to mitigate their loss. Such issues would have to have been pleaded and explored in evidence. Therefore the appropriate date is the date when they brought to an end their reasonable attempts to resell and took the property back for their own use. The value as at that date, according to the expert evidence, was £495,000.
7. Conclusion
At first sight this case appears to be an application of basic principles as to damages. However, clearly the Court of Appeal noted the flexibility of the law when assessing damages. Key as ever is the issue of mitigation by a vendor faced with a defaulting purchaser.
The last words go to Lord Justice Lloyd who noted “The sale of land invariably requires time, under the procedures and legislation prevailing in England and how long it requires will depend in part on economic circumstances at the time. The definition of market value itself, to which I have referred above, involves an assumption that the property has been exposed to the market for a reasonable time, which is likely to be for more than a month and may well be several months or longer. If the comparison sought to be made is between the contract price and the market value as at the breach date, then the assessment of that market value, by an expert valuer on established principles, would have to assume a prior period of marketing, which, by definition, will not and could not have happened”
Kind regards
