Sensormatic Limited v Ciro Citterio Menswear Plc

Damages for premature termination of a commercial rental agreement must reflect the claimant’s actual loss. The value of the lost future income stream must be established, and appropriate benefits or savings from early termination, including early recovery of the equipment, must be taken into account. The claimant bears the burden of proving the resulting loss. A liquidated-damages clause held to be a penalty cannot supply an evidential basis for valuing unliquidated damages. An appellate court should not interfere with a case-management discretion merely because it might have exercised the discretion differently. Intervention requires a wrong principle or a perverse result.

The claimant supplied security systems under 42 commercial rental agreements. The defendant defaulted in payment, and the claimant terminated the agreements and recovered judgment for arrears and other sums. The trial judge held that the contractual provision for unaccrued rentals was a penalty and therefore unenforceable.

The claimant’s alternative claim for unliquidated damages based on lost future rentals could not be assessed because no adequate evidence established the value of the income stream, the appropriate discount rate, or the benefits and savings arising from early termination. The judge refused an adjournment or inquiry into damages. The claimant sought renewed permission to appeal, arguing that the defendant should prove the appropriate deductions and that refusal of further time was perverse.

Disposition. Lord Justice Chadwick refused the renewed application for permission to appeal.

1. Measure of loss. The fundamental purpose of damages for breach is to place the injured party in the financial position it would have occupied if the contract had been performed, without producing a better position. In a commercial rental case involving premature termination for payment default, the loss of the future income stream must therefore be assessed together with the benefits and savings resulting from termination, including the value or other benefit of early recovery of the equipment.
2. Burden of proof. The claimant had to establish the amount of its loss. It had to provide evidence both of the discounted cash-flow value of the future rentals and of the benefits or savings arising from early termination. The 5 per cent figure in the contractual penalty clause could not be assumed to be the appropriate discount rate. The defendant would have had an opportunity to challenge the claimant’s evidence and advance alternative figures, but the initial evidential burden remained on the claimant.
3. Review of discretion. The Court of Appeal was not to substitute its own view for the trial judge’s discretionary case-management decision. It could intervene only if the discretion had been exercised on a wrong principle or in a way that made the result perverse. The judge was required to apply the overriding objective in Civil Procedure Rules 1998, r 1.1, including proper regard to the allocation of court resources.
4. Application. The claimant had been given, by an order made well before trial, the opportunity to plead and support a positive case on its unliquidated damages. It chose not to comply and effectively elected to rely on the unenforceable liquidated-damages claim. The judge was entitled to refuse a second opportunity by adjournment or inquiry. The outcome might appear harsh, but there was no real prospect of appellate interference.

Order: application refused.

1. Court of Appeal (Civil Division): On 9 March 2001, the renewed application for permission to appeal was refused: [2001] EWCA Civ 382.
2. Queen’s Bench Division, Birmingham District Registry, Mercantile List: Her Honour Judge Alton’s order of 16 November 2000 held that the liquidated-damages clause was a penalty, refused the alternative claim for unliquidated damages for lack of evidence, and declined an adjournment or inquiry into damages.