Stephens & Anor v Cannon & Anor

A court may decide a disputed factual issue by reference to the burden of proof only in the exceptional case where, despite striving to do so, it cannot reasonably make a finding. The court must give reasons which show both its endeavour to decide the issue and why it could not do so. The degree of explanation required depends on the circumstances, but must permit the parties and an appellate court to understand the result.

Where expert valuation evidence conflicts, the court must analyse the material differences and decide the probable value if it reasonably can. It is not confined to choosing one expert’s figure, although it must not make an unprincipled division between them. A clause making overage rights subject to a bank charge may regulate priority without changing the contractual calculation of overage.

The sellers contracted to sell land to the buyers. The buyers were to obtain planning permission, build a dwelling, sell the property and pay the sellers half of the excess sale proceeds above £1 million, subject to stated sale costs. A supplemental agreement provided that the buyers’ overage obligations would take effect after discharge of a Bank of Ireland charge.

The buyers did not build or sell the dwelling. They accepted liability in damages. Master Price awarded the sellers £220,478 after adopting the buyers’ expert valuation of the hypothetical sale price by reference to the sellers’ burden of proof. He also rejected the buyers’ construction that their bank borrowing was deductible in calculating overage. The sellers appealed the valuation decision and the buyers cross-appealed on construction and costs.

1. The sellers’ appeal was allowed. The valuation element of the damages award was set aside and remitted to a High Court judge of the Chancery Division. The buyers’ construction cross-appeal failed. The separate costs cross-appeal became academic, because costs were to be determined afresh on the remittal.

2. A court may resort to the burden of proof only where, after genuine endeavour, it cannot reasonably decide the disputed factual issue. This is an exceptional state of agnosticism, not one confined to any particular kind of evidence. The court must make its endeavour and the reasons for its inability to decide sufficiently apparent to the parties and to an appellate court. That conclusion was supported by Rhesa Shipping Co SA v Edmunds [1985] 1 WLR 948 and by the duty to give intelligible reasons stated in English v Emery Reimbold and Strick Ltd [2002] 1 WLR 2409, including under Article 6 of the European Convention on Human Rights 1950.

3. The master had neither shown that he had tried to resolve the valuation dispute nor explained why resolution was impossible. The experts’ £400,000 difference arose from numerous identifiable differences about the comparable properties. The master should have addressed those differences and determined the probable value if possible. He was also wrong to treat himself as confined to selecting one of the two valuations; a principled intermediate valuation was open if justified by the evidence.

4. The supplemental agreement did not alter the basis on which overage was calculated. Condition 7 allowed only half the legal and estate agency fees as deductions. Read against the negotiations and the later deed of covenant, the references to repayment and net proceeds after discharge of the bank charge gave the bank priority over the sellers’ overage rights. They did not permit deduction of the buyers’ borrowing or development expenditure before calculating overage.

• Court of Appeal (Civil Division): In [2005] EWCA Civ 222, the court allowed the sellers’ appeal, dismissed the buyers’ construction cross-appeal, set aside the damages and costs orders, and remitted valuation and costs for rehearing.

• High Court of Justice, Chancery Division (Master Price): By order dated 29 June 2004, the master assessed damages at £220,478 plus interest. He rejected the buyers’ construction of the overage condition, adopted the buyers’ valuation after resorting to the burden of proof, and awarded the sellers their costs on the standard basis.