Factual and Procedural Background
The Claimant, Company A, commenced proceedings on 30 June 2004 against three Defendants concerning alleged defects in the design and construction of refurbishment works at a property located at Flat 5, 21 Dean Street, in The City. The freehold owners of the property were Company B. The First Defendant, Company C, was the head lessor and had agreed to grant a long lease to Company A and to procure the refurbishment works. The Second Defendant, Company D, were the architects employed to design, inspect, and administer the refurbishment works. The Third Defendant, Company E, was employed to carry out the refurbishment works. Additionally, there were Part 20 claims, including one by Company E against a sub-contractor, Company F, responsible for glazing installation.
Company A's principal complaint was that the refurbishment works were incomplete and defective, claiming damages for breach of contract and/or statutory duty under the Defective Premises Act 1972 against each Defendant, with differing sums claimed. A significant part of the claim involved alleged loss of use of the property due to defects, including defective gas installation, water ingress, inadequate heating, electrical faults, and inadequate safety provisions, which rendered the property unfit for human habitation until remedial works were completed.
Following initial procedural delays, the court was asked at a Case Management Conference to order the trial of preliminary issues, most of which were refused except for the issue concerning Company A's loss of use claims. Written submissions were provided by all parties, and the court outlined the preliminary issue and assumed facts to be considered.
Legal Issues Presented
- Assuming the facts pleaded by Company A are correct, do the points raised by the Second Defendant in their defence provide a complete legal defence to Company A's loss of use claims as pleaded?
- Are the claims for loss of use damages, including general damages calculated by reference to interest on the purchase price of the property, recoverable in law?
- Are the smaller claims for special damages, such as service charges and utilities incurred during the period of non-occupation, recoverable?
Arguments of the Parties
Appellant's Arguments (Company A)
- Claims for loss of use include general damages calculated by applying the judgment interest rate to the balance of the purchase price, as compensation for being unable to use the property.
- The smaller claims for special damages, such as utilities and service charges, were incurred without benefit due to the property's unfitness for habitation.
- Reliance on legal authorities suggesting that consequential losses, including loss of use during repairs, are recoverable.
- Argued that the general damages claim is not for actual interest paid but a theoretical compensation for loss of use.
Defendants' Arguments
- Denied that the costs claimed represent consequential loss as such costs would have been incurred regardless of defects.
- Asserted that claims for general damages based on interest on the purchase price are not recoverable, particularly as Company A is a limited company and not a natural person.
- Distinguished the loss of use claims from previous shipping and commercial cases, emphasizing the non-depreciating nature of the property and the lack of continuous use.
- Contended that smaller claims for special damages might be recoverable but are subject to causation, proof, and mitigation.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| McLoughlin v Jones [2002] 2 WLR 1279 |
Guidelines on the use of preliminary issues in litigation. |
Informed the court's decision to hear the loss of use claims as a preliminary issue. |
| Bayoumi v Protim Services Ltd (1996) 30 HLR 785 |
General damages for loss of use under the Defective Premises Act 1972 can be modest awards compensating loss of enjoyment. |
Supported the principle that general damages for loss of use are recoverable but typically modest sums. |
| Calabar Properties Ltd v Stitcher [1984] 1 WLR 287 |
Claims for loss of use calculated by reference to capital or rental value rejected; running costs claims dismissed where alternative accommodation claimed. |
Used to reject Company A's claim for general damages based on purchase price interest. |
| Wallace v Manchester City Council [1998] 41 EG 223 |
Followed Calabar's approach on loss of use claims. |
Reinforced the rejection of loss of use claims based on capital value. |
| Applegate v Moss [1971] 1 QB 406 |
Measure of damages where property is irreparable; awarded damages based on property value plus interest. |
Distinguished as not relevant to temporary loss of use claims; concerned with total loss, not loss of use. |
| Electricity Supply Nominees v National Magazine Co [1999] 1 EGLR |
Measure of tenant's loss due to landlord's failure to provide services; not a loss of use case. |
Rejected as irrelevant to loss of use claims. |
| The Greta Holme [1897] AC 596 |
Damages for loss of use of property by reference to hire value. |
Considered but distinguished due to differences in asset type and use. |
| The Mediana [1900] AC 113 |
Broad principle on damages for loss of use but requiring proof of harm. |
Noted for context; damages may be nominal if no real loss proved. |
| The Hebridean Coast [1961] AC 545 |
Damages for loss of use of non-profit earning ships require proof of harm; interest on value awarded only if no other proof. |
Highlighted judicial caution about awarding damages based solely on interest on capital value. |
| Admiralty Commissioners v Owners of Steamship Chekiang [1926] AC 637 |
Damages for loss of use of vessels depend on facts; interest as measure of damages is uncertain. |
Supported the principle that such damages are fact-dependent and not a rule of law. |
| Birmingham Corporation v Sowsbery [1969] 113 SJ 877 |
Loss of use damages for a vehicle applying shipping case principles but with reservations. |
Distinguished due to depreciating asset nature; not applicable to property. |
| Alexander v Alpe Jack and Rolls Royce [1996] RTR 95 |
Loss of use claims for private cars require proof of inconvenience or substitute costs. |
Used to emphasize need for factual basis for loss of use claims; no award without proof. |
| Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104 |
Damages measured by defendant's gain when claimant's loss cannot be measured. |
Referenced in relation to valuation of loss of use but found inapplicable here. |
| A-G v Blake [2001] 1 AC 268 |
Damages as price a reasonable person would pay for right of user where loss cannot be measured by claimant's loss. |
Considered but found not to support Company A's claim based on purchase price interest. |
Court's Reasoning and Analysis
The court analyzed the nature and basis of Company A's loss of use claims, distinguishing between two smaller claims for special damages (utilities and service charges) and a larger claim for general damages calculated by applying an 8% judgment interest rate to the purchase price balance.
The court accepted the assumed facts that the property was defective and unfit for habitation for a defined period, but noted the absence of claims for alternative accommodation, lost rent, or actual interest payments. Company A did not intend to occupy the property full-time, further undermining the loss of use claim.
Regarding the smaller claims for special damages, the court found no legal principle barring recovery, provided causation, proof, and mitigation are established. These claims represent actual costs incurred without benefit due to the property's unfitness.
Conversely, the court held the general damages claim for loss of use, calculated by reference to interest on the purchase price, to be invalid in principle and without realistic prospect of success. The court reasoned that general damages for loss of use in building cases have traditionally been modest and awarded only to natural persons for loss of enjoyment, not companies. The claim contradicted established authority, including the Court of Appeal's rejection of similar claims in Calabar Properties.
The court distinguished shipping and commercial cases relied upon by Company A, noting that such cases involve depreciating assets used continuously to generate income, unlike the property in question, which was not a depreciating asset nor intended for continuous use.
Consequently, the court concluded that the general damages claim based on interest on the purchase price was an inappropriate measure of loss in these circumstances and was not supported by precedent or principle.
Holding and Implications
The court DISMISSED Company A’s claim for general damages for loss of use calculated by reference to interest on the purchase price of the property, holding it invalid in principle and without a realistic prospect of success.
The smaller claims for special damages relating to service charges and utilities may be recoverable in principle, subject to causation, proof, and mitigation.
The decision directly affects the parties by limiting recoverable damages to those supported by legal principle and precedent, particularly excluding large general damages claims based on capital sums for loss of use by a corporate claimant. No new precedent was established beyond the application of existing case law.