Stephens & Anor v Cannon & Anor

Factual and Procedural Background

This appeal and cross-appeal concern the assessment of damages owed by the buyers to the sellers following a contract for the sale of land and buildings known as Surrey Hills. The contract, dated 5 December 2000, included an overage condition obliging the buyers to obtain planning permission, construct at least one dwelling, sell the property, and pay the sellers a share of the profit exceeding £1,000,000. Although planning permission was obtained in February 2001, the buyers never constructed the dwelling and remained in occupation of the existing buildings.

The sellers initiated proceedings seeking specific performance of the construction and sale obligations or damages in lieu. The buyers admitted liability for damages, and the case proceeded to an assessment of damages before Master Price. The master awarded damages of £220,478 plus interest to the sellers and costs on the standard basis. Both parties appealed aspects of the master's decision, including the valuation of the property with the hypothetical dwelling, the construction of the overage condition, and the award of costs.

Legal Issues Presented

1. Whether the court is entitled to resolve a disputed factual issue by resort to the burden of proof where expert evidence conflicts and no clear preference emerges.
2. Whether the overage condition should be construed to allow deduction of sums borrowed under charge by the buyers before calculating overage payable to the sellers.
3. Whether the master erred in his valuation of the property inclusive of the hypothetical dwelling, specifically in adopting the lower expert valuation.
4. Whether the master properly exercised his discretion in awarding the sellers all their costs of the claim.

Arguments of the Parties

Sellers' Arguments

• The damages awarded were too low because the master accepted too low a valuation for the property with the new dwelling.
• The master abdicated his judicial responsibility by failing to reach a definitive conclusion on the property's value, improperly resorting to the burden of proof.
• The master should have preferred the joint expert’s valuation over the buyer’s sole expert.
• The award of costs to the sellers should be upheld as reasonable.

Buyers' Arguments

• The master correctly construed the overage condition not to allow deduction of sums borrowed under charge before calculating overage.
• The master correctly adopted the valuation of their instructed expert after finding the sellers failed to discharge the burden of proof.
• The master’s award of costs to the sellers was appropriate and should not be disturbed.
• It would make commercial sense for borrowings not to reduce the overage threshold.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Rhesa Shipping Co. SA v Edmunds [1985] 1 WLR 948	Permissibility of deciding a case by reference to burden of proof when evidence is unsatisfactory and a finding cannot reasonably be made.	The court cited it to confirm that resort to burden of proof is exceptional but allowed when a court cannot reasonably decide a disputed factual issue.
Morris v London Iron and Steel Co. Ltd [1988] QB 493	Tribunal entitled to dismiss claim when probabilities are equally balanced and burden of proof not discharged.	Supported the proposition that resort to burden of proof is permissible in exceptional cases and detailed reasons for such decisions need not be extensive.
Sewell v Electrolux Ltd (1997)	Judicial duty to make findings on central issues and subsidiary issues necessary to resolve the case.	Cited to distinguish inadequate use of burden of proof from proper judicial decision-making; emphasized that burden of proof should not be used perfunctorily.
Ashraf v Akram (1999)	Acceptability of dismissing claims by reference to burden of proof in exceptional factual disputes where evidence is intractable.	Used to illustrate a case where resort to burden of proof was justified due to evidential deadlock.
English v Emery Reimbold and Strick Ltd [2002] 1 WLR 2409	Requirement that judgments provide sufficient reasoning to enable parties and appellate courts to understand the basis of decisions.	Reinforced the need for clear explanation of reasoning when deciding factual disputes, particularly when resorting to burden of proof.
Lloyds TSB Bank v Hayward (2002)	Judges must strive to make findings on disputed issues and explain reasons if unable to do so.	Emphasized the obligation to tackle disputed factual issues directly and provide reasons for findings or inability to find.
Cooper v Floor Cleaning Machines Ltd and Crompton (2003)	Burden of proof should be a last resort; judges should raise the possibility with counsel before relying on it.	Highlighted procedural requirements before resorting to burden of proof and cautioned against its use in routine factual disputes.

Court's Reasoning and Analysis

The court carefully analysed the construction of the overage condition and the Supplemental Agreement, concluding that the overage calculation was not intended to be reduced by sums borrowed under charge. The master’s interpretation that the bank’s security had priority but did not alter the overage calculation was upheld as consistent with the contract language, surrounding correspondence, and subsequent deed of covenant.

Regarding the valuation dispute, the court scrutinised the master’s approach to conflicting expert evidence. The master found the experts’ valuations (one joint expert and one buyer-instructed expert) widely divergent and was unable to prefer one over the other. He thus resolved the issue by applying the burden of proof against the sellers, who bore the onus of demonstrating a higher valuation, and accepted the lower figure.

The court acknowledged the difficulty of valuing a non-existent dwelling and the complexity of the expert evidence. However, it found that the master had not demonstrated that he had made sufficient efforts to resolve the valuation conflict or explained why a finding was impossible. The master appeared to limit himself to choosing between two discrete figures without considering intermediate valuations or adjudicating on specific disputed valuation factors. The court concluded that the master abdicated his judicial duty by resorting prematurely to the burden of proof without adequately striving to make a reasoned finding.

The court further noted that the master failed to invite submissions from counsel before resorting to the burden of proof, contrary to established authority. Consequently, the court allowed the appeal on valuation, set aside the damages award, and ordered a rehearing before a High Court judge with fresh expert evidence and no constraints on valuation figures.

As a result, the court also set aside the master’s costs order, directing that costs be reconsidered de novo by the High Court judge. The cross-appeal issues on costs and overage construction were otherwise resolved in line with the master’s reasoning.

Holding and Implications

The court ALLOWED the sellers' appeal on the issue of valuation, SET ASIDE the damages award, and ORDERED a rehearing of the valuation issue before a High Court judge of the Chancery Division. Each party may adduce new expert evidence, unrestricted by prior valuations.

The court UPHELD the master's construction of the overage condition rejecting the buyers' argument that borrowed sums under charge should reduce the overage calculation.

The court SET ASIDE the master's costs order and directed that costs be reconsidered afresh by the High Court judge, rendering the buyers' cross-appeal on costs academic.

This decision clarifies the exceptional and rigorous requirements for a court to resolve disputed factual issues by resort to the burden of proof: the court must demonstrate a genuine endeavour to make findings and provide reasons why it cannot do so. It underscores the necessity of judicial engagement with expert evidence and careful explanation of reasoning in complex valuation disputes. No new precedent was established beyond these reaffirmations of established principles.