Lunn Poly Ltd & Anor v Liverpool & Lancashire Properties Ltd & Anor

Damages awarded instead of an injunction may be assessed on a compensatory, negotiating or account-of-profits basis. Negotiating damages are ordinarily valued at the date of breach by reference to the circumstances then existing. Their quasi-equitable character nevertheless permits the court, for good reason, to select another valuation date or consider a later event.

A defendant denied a permanent injunction can normally enforce the claimant’s cross-undertaking in damages. An inquiry may be refused in special circumstances where enforcement would be inequitable. Relevant matters include whether the interim restraint protected a right established at trial and whether the defendant’s unreasonable conduct brought the injunction upon itself.

The tenant of a shopping-centre unit held a lease that included an existing fire door. The landlords bricked up that door during redevelopment works, thereby breaching the covenant for quiet enjoyment. The tenant obtained an interim injunction but, after a speedy trial, was awarded damages instead of a permanent injunction.

His Honour Judge Norris QC directed that damages be assessed through hypothetical negotiations for release of the tenant’s right. He excluded from those negotiations the risk that the lease might be forfeited. He also refused the landlords an inquiry under the tenant’s cross-undertaking in damages. Separate appeals concerned the basis upon which costs of the forfeiture-related proceedings should be assessed.

The principal questions were whether the forfeiture risk had to be reflected in the hypothetical negotiations and whether the refusal of an inquiry was a permissible exercise of discretion.

1. The substantive appeals were dismissed. Damages awarded instead of an injunction under section 50 of the Supreme Court Act 1981 are quasi-equitable. The court is not confined to one method of assessment. The normal methods are traditional compensation for loss, a reasonable payment negotiated for release of the right, and an account based on the defendant’s profit.

2. Negotiating damages are compensatory and are normally assessed at the date of breach. Circumstances existing on that date will ordinarily be considered, while later events will ordinarily be irrelevant. These are presumptions rather than absolute rules. For good reason, the court may select a different valuation date or direct that a specified later event be considered.

3. The judge was entitled to exclude the apparent risk of forfeiture from the hypothetical negotiations. Relief from forfeiture was overwhelmingly likely, the forfeiture issue was unrelated to relocation of the fire door, and the same judge had already determined the forfeiture proceedings. Introducing the risk would have produced disproportionate technicality and artificiality without reflecting a material commercial risk.

4. A defendant restrained by an interim injunction can normally expect an inquiry under the claimant’s cross-undertaking if no permanent injunction is granted. An inquiry may nevertheless be refused where special circumstances make enforcement inequitable. The governing question is whether the interim injunction should have been granted in light of all the facts eventually known to the trial judge.

5. The refusal of an inquiry was within the judge’s discretion. The interim injunction restrained conduct that was unlawful and protected a right established at trial. The landlords had brought the injunction upon themselves through unreasonable and high-handed conduct, and they avoided a permanent injunction only after materially moderating their position. The tenant’s own unreasonable conduct did not require an inquiry, particularly because it had already resulted in an indemnity costs order. The cross-undertaking should not ordinarily be enforced punitively.

6. The costs appeals were resolved by consent. The costs of the waiver, relief and forfeiture proceedings were to be assessed on the indemnity basis required by the lease.

• Court of Appeal (Civil Division): In [2006] EWCA Civ 430, dismissed the appeals concerning negotiating damages and the cross-undertaking. It resolved the costs appeals by consent in favour of indemnity assessment.

• High Court, Chancery Division, Birmingham District Registry: His Honour Judge Norris QC held that blocking the fire door breached the covenant for quiet enjoyment. He awarded damages instead of a permanent injunction, excluded the forfeiture risk from the hypothetical negotiations and refused an inquiry under the cross-undertaking. No citation is stated.