Lane v O'Brien Homes

Where a contractual restriction on development is breached, damages may be assessed by reference to the price that might reasonably have been negotiated for release from the restriction. The assessment is not confined to a small percentage of the developer’s potential profit. The hypothetical negotiation is conducted at the time when release would have been sought, ordinarily when the breach occurred or became imminent, rather than when the contract was made. This assessment is distinct from damages for loss of a chance and does not require a separate calculation of the value of a benefit and the probability of obtaining it. The same approach may apply where the restriction arises from a collateral contract rather than a term in the principal sale contract.

The claimant sold land including her home to the defendant developer. Correspondence formed a collateral contract that no more than three new houses would be built. The defendant later obtained planning permission for a fourth house.

The Brighton County Court found liability and awarded £150,000. Permission to appeal on liability was refused, but permission was granted on whether the damages had been assessed on an appropriate basis. The central issue was whether damages should be nominal, limited to a small percentage of anticipated profit, or assessed by reference to the value of releasing the defendant from the development restriction.

1. The appeal was dismissed. The trial judge had not adopted an impermissible basis for assessing damages.
2. The applicable approach was that in Wrotham Park Estate Company v Parkside Homes [1974] 1 WLR 798. Damages represented the sum that might reasonably have been demanded in a hypothetical negotiation for release from the contractual prohibition. The court rejected the submission that such damages must be limited to a small percentage of the purchaser’s potential profit.
3. The hypothetical negotiation had to be assessed at the time when release from the restriction would have been sought. Here that was when planning permission for four houses had been obtained, or when the defendant’s intention to breach had become sufficiently clear. At that point the claimant’s contractual benefit was more valuable and the defendant’s incentive to pay was substantially greater than at the time of the sale.
4. The assessment was not a two-stage loss-of-chance exercise. The judge’s reference to the value of a “chance” was inapt, but his reasoning was understood as valuing the lost bargaining position.
5. The fact that the obligation arose under a collateral contract did not alter the approach. The hypothetical negotiation proceeded on the basis that a contractual prohibition existed, rather than on the uncertain possibility that it might be enforceable. The practical possibility of transferring the fourth plot to another developer could be considered, but it was unlikely to have materially affected the negotiation on these facts.
6. The assessment was not a precise mathematical exercise. The evidence concerning the fourth plot’s increased site value and the overall benefit available to the defendant provided sufficient support for the award of £150,000. The court was not persuaded that the assessment was wholly erroneous.

• High Court (Queen’s Bench Division): Permission to appeal on liability was refused. Permission was granted on the damages issue, and the appeal against the £150,000 award was dismissed.
• Brighton County Court: On 1 November 2002, His Honour Judge Michael Kennedy QC found liability and awarded the claimant £150,000 in damages.