Bluestorm Ltd v Portvale Holdings Ltd

An otherwise valid claim for contractual damages cannot be dismissed merely because the claimant has behaved inequitably. Such conduct may justify refusing equitable or discretionary relief. A tenant’s refusal to pay service charges may substantially cause a landlord’s failure to perform repairing obligations, even where other factors contribute. Loss caused by non-payment may be recoverable where the circumstances of breach and the resulting loss were within the parties’ contemplation. Closely connected claims may be set off in equity where justice requires it.

Portvale Holdings Ltd was liable for ground rent and maintenance contributions relating to flats at Embassy Court, Brighton. It counterclaimed for damages alleging that the building’s disrepair had reduced the value of its leasehold interests.

The Brighton County Court dismissed the counterclaim on principle, relying on Portvale’s conduct and its contribution to the failure to remedy the disrepair. Portvale appealed. The Court of Appeal considered causation, contractual foreseeability, equitable set-off, and an alternative argument based on the wording of the repairing covenant.

Dispositive reasoning

1. Damages and inequitable conduct. Buxton LJ held that the county court had been wrong to dismiss an otherwise valid damages claim merely because Portvale had behaved inequitably. That consideration could justify refusing equitable or discretionary relief, but damages were neither. The appeal was nevertheless dismissed on the alternative reasoning.
2. Set-off and causation. The self-help set-off relied on by Portvale was equitable in origin and nature. The court could therefore refuse equitable assistance in view of Portvale’s conduct. Portvale’s non-payment was a substantial cause of Bluestorm’s inability to fund and perform the repairing obligations. Sole causation was unnecessary. The fact that other tenants also withheld payment did not break the causal chain, because the evidence showed that their conduct was caused by Portvale’s stance. Bluestorm had acted reasonably in not undertaking major works without the contributions which Portvale had made clear would not be paid. The causation principle was supported by Wardlaw v Bonnington Castings [1956] AC and the special-damage reasoning in Wadsworth v Lydall [1981] 1 WLR.
3. Foreseeability. In a continuing contractual relationship, contemplation of loss may be assessed by reference to the circumstances in which the breach occurred. The relevant questions were whether those circumstances could have been contemplated and whether the loss caused by the breach was within the parties’ contemplation. On these facts, the resulting loss was foreseeable. The court relied on the approach discussed in Wadsworth v Lydall and Parsons (Livestock) v Uttley Ingham [1978] QB 791.
4. Equitable set-off. The claims were effectively back-to-back. Applying the approach in Hanak v Green [1958] 2 QB 9 and National Westminster Bank v Skelton [1993] 1 WLR, the essential requirements of justice in the relationship between the claims made set-off inevitable. The court could consider the new argument on appeal because the issues were purely legal. Portvale remained liable for the service charges, and its counterclaim was reduced to nil by the corresponding claim.

Alternative lease construction

The court did not need to decide whether the lease made payment of maintenance contributions a condition of the landlord’s repairing liability. Buxton LJ tentatively considered that the proviso could have partial effect where non-payment was directly connected with the breach. Maurice Kay LJ declined to decide the point and regarded Yorkbrook Investments v Batten [1985] 2 EGLR 100 as binding. Sir Martin Nourse would distinguish that authority on the facts, treating a fixed intention not to pay as disentitling the tenant from claiming the benefit of the landlord’s obligation. The appeal was dismissed unanimously. The appellant was ordered to pay the respondent’s costs in full, and the stay was lifted.

• Court of Appeal (Civil Division): Portvale’s appeal was dismissed. The county court order stood, costs were awarded to Bluestorm in full, and the stay was lifted.
• Brighton County Court, His Honour Judge Kennedy QC: judgment was entered for Bluestorm for arrears, while Portvale’s counterclaim for damages for disrepair was dismissed on principle. The county court judgment had no citation stated in the judgment.