Quid Pro Quo

Our specialist commercial insurance litigators often deal with matters involving property disputes between neighbouring property owners. Commonly this might involve a scenario where the owner of Property A alleges that the owner of Property B has built something which has encroached onto Property A, and that as such their property rights have been infringed.

Specialist expert evidence as well as very detailed witness evidence of fact is normally required to establish such claims, given that boundaries between properties can be difficult to determine – especially when the offending structure is alleged to be “over sailing” a boundary, by a matter of inches.

Where there is sufficient evidence of property infringement, courts tend to be reluctant to order the removal of offending structures, especially if the offending structure is a home. In those circumstances the claimant would seek injunctive relief - and damages sought in these types of claims can be considerable.

Unlike breach of contract claims (where damages are assessed based on putting the claimant in the position he would have been in had the contract been performed), in claims for damages in lieu of injunctive relief courts can award what are known as “negotiating damages”.

One recent case we dealt with involved the owner of retail premises who had obtained all relevant permissions and approvals from the local authority.

Our client had also utilised the services of professional surveyors, architects and building contractors to plan and undertake development works. These works included the development of the retail premises and construction of some maisonettes above and behind those retail premises.

The claimant was the owner of neighbouring retail premises and shortly after completion of the works, obtained a report from a local surveyor, which concluded that the development had encroached over the claimant’s land.

The surveyor made particular reference to a flank wall, cladding, eaves, gutters and downpipes, roof, surface and foul drainage and windows (when open). The surveyor alleged our client was breaching the boundary between the properties which allegedly constituted a trespass and detrimentally affected the value of the claimant’s property. The claimant sought the removal of the offending structure and/or in the alternative sought an award of damages circa £100,000, in lieu of injunctive relief.

Such damages arise pursuant to Section 2 of the Chancery Amendment Act 1858 (also known as Lord Cairns’ Act) and have become known as “Wrotham Park” damages following the case of Wrotham Park Estate Company Limited v Parkside Homes Limited [1974] 1 WLR 798.

The Wrotham Park case - violation of property rights and damages assessment

The Wrotham Park case concerned the building by the defendant of a number of houses on a plot of land, in breach of a restrictive covenant. The claimant (a country estate which benefitted from the restrictive covenant to ensure that the land would not be developed) sued the defendant for breach of covenant.

This was despite the fact that the claimant did not suffer any financial loss because of the development as there was no measureable diminution in the value of the claimant’s land. Instead, the claimant sought a sum that it might reasonably have demanded for relaxation of the covenant, or put another way the sum the defendant would have paid for the right to develop.

The court declined to award an injunction, ordering the defendant to demolish the houses and instead awarded damages of £2,500 as a substitute for an injunction. The damages represented a sum of money the claimant might have hypothetically negotiated with the defendant in agreement for the release of the restrictive covenant.

Wrotham Park damages were subsequently reconsidered in a case involving damages following a breach of confidentiality agreement. In Pell Frischmann Engineering Limited v Bow Valley Iran Limited and Others [2009] UKPC 45 Privy Council Appeal No 0020 of 2009 the Privy Council laid down clear guidance on how Wrotham Park damages would be assessed and awarded;

1. Damages awarded are intended to compensate the claimant for the court's decision not to grant relief in the form of an order for specific performance or an injunction.
2. The court will award an amount of damages which represents the sum that the claimant might reasonably have demanded from the defendant as compensation for allowing it to breach the relevant contractual provision. The court assesses this by reference to a "hypothetical negotiation" carried out between the parties at the date of breach.
3. At the "hypothetical negotiation" both parties are assumed to act reasonably and the fact that the parties would never have reached a deal in reality, is irrelevant.
4. Although these damages are awarded in place of relief e.g. an injunction, it is not a prerequisite to their being awarded that either (i) the claimant applied for the injunction in the case or (ii) there was any prospect of such application succeeding.

Guidance was also provided by the Privy Council in relation to the hypothetical negotiation referred to.

Such a negotiation is deemed to represent a negotiation between a willing buyer (the contract breaker / trespasser) and a willing seller (the party seeking damages).

Both parties are assumed to act reasonably, so it is irrelevant that in reality one of the parties may have refused to make a deal.

In our recent case, the claimant was a high net worth individual with a large portfolio of properties and an alleged history of bringing similar claims against neighbouring property owners who had also recently completed development works of their own properties.

The claimant was reluctant to settle the claim unless he received a payment of or around £100,000, which we considered unjustified, given the circumstances.

We reminded the claimant’s legal advisors that it was irrelevant that their client was an unwilling seller and that the courts would consider any damages award on the basis of the hypothetical negotiation.

A surveyor was appointed on joint basis to undertake a site inspection, consider the plans, and provide evidence on liability and quantum.

Having considered the insured’s development and the potential impact that the development had on the claimant’s land, the Wrotham Park damages guidance was carefully considered.

The guidance was utilised to assess a sum the claimant might have reasonably negotiated with our client prior to the alleged trespass, in allowing the insured to build the development in that location.

The objective hypothetical negotiation criteria defeated the subjective opinion of the claimant who reluctantly conceded the point and accepted our Part 36 offer, valued at 75% less than the damages claimed. The claim was subsequently settled with significant quantum savings.

Whilst each case will turn on its own facts, the Privy Council guidance on Wrotham Park damages is a useful guide. Wrotham Park can assist parties, having considered the available evidence, to narrow the issues and contemplate settlement on a sensible quid pro quo basis.