Earlrose Golf and Leisure Ltd & Anor v Fair Acre Investments Ltd

In assessing mesne profits by reference to open-market rental value, the tribunal should use comparable transactions close in time and characteristics to the subject property. Remote or unsupported comparables should carry no weight. Arm’s-length transactions concerning closely comparable land are ordinarily the best guide unless displaced by evidence. Appellate intervention in such an evaluative exercise is cautious, but is justified where material matters were ignored, immaterial matters considered, or the result was plainly wrong. Where precise valuation evidence is unavailable, the court may use a broad axe, but should not add artificial refinements to a figure reached by that method. The appeal was therefore allowed and the rental value reassessed.

Fair Acre succeeded at trial in a boundary dispute. An order dated 21 February 2006 directed an inquiry into mesne profits and interest for the appellants’ trespass on Fair Acre’s land between 1 June 2001 and 31 May 2006.

On 25 February 2009, Deputy Master Matthews assessed damages at £170,325, plus interest of £34,065. He fixed a base rental value of £5 per square foot and applied discounts for the higher part of the land, planning and covenant risks, and access difficulties.

The appellants challenged the base value. The central issue was whether the Deputy Master had properly evaluated the available comparable transactions when determining the open-market rental value at 1 June 2001.

1. Disposition. Lord Justice Rimer gave the judgment, with Mr Justice Kitchin and Lord Justice Jacob agreeing. The appeal was allowed. Paragraph 1 of the Deputy Master’s order was set aside and a substituted order was directed.
2. Appellate review. The valuation was an evaluative exercise analogous to the exercise of a discretion. The appellate court should intervene only where a material matter was omitted, an immaterial matter was taken into account, or the decision fell outside the scope of reasonable disagreement and was plainly wrong. The principles in Assicurazioni Generali SpA v Arab Insurance Group [2003] 1 WLR 577 and Datec Electronics Holdings Ltd and others v United Parcels Service Ltd [2007] 1 WLR 1325 supported that approach.
3. Comparable transactions. Rental value should ordinarily be determined by analogy with transactions involving property whose characteristics are close to those of the subject property and which occurred close to the valuation date. The tribunal must assess the assistance provided by each comparable and make appropriate adjustments for material differences, with expert evidence usually providing important assistance.
4. The 2008 Holloway Quarry and Gas Works transactions were unreliable for a June 2001 valuation. They involved materially different properties or uses, and the evidence did not support the assertion that 2008 values represented 2001 values. The principle that increasing temporal distance reduces reliability was supported by Segama NV v Penny Le Roy Ltd [1984] 1 EGLR 109. The Deputy Master was therefore wrong to rely on those transactions.
5. The British Waterways Board transactions were the best comparables. They concerned adjoining land forming part of the depot and used for the same purpose. There was no evidence that they were not arm’s-length transactions. An unsupported opinion that their rents were below market could not displace them; the approach in Trans-World Investments v Dadarwall [2008] 1 P&CR 314 was applied.
6. Because the court lacked the full expert evidence needed to select precisely between the comparable rents of £1.33 and £2.15 per square foot, it used a broad axe, adopting an average base value of £1.75 per square foot. The broad-axe approach was recognised in Watson, Laidlaw & Co Ltd v Pott, Cassels, and Williamson [1914] 31 RPC 104.
7. A 50 per cent discount for the higher part of Area B was applied. No separate discounts were made for access, planning and covenant risks, or the shorter notional term, because those refinements were unjustified or artificial when applied to a base figure reached by rough averaging.

1. Court of Appeal (Civil Division): On 3 December 2009, the court allowed the appeal, set aside paragraph 1 of the Deputy Master’s order and directed a substituted order. [2009] EWCA Civ 1295
2. High Court, Chancery Division: Deputy Master Matthews assessed trespass damages on 25 February 2009 at £170,325, plus interest of £34,065, using a base rental value of £5 per square foot. The assessment followed the 21 February 2006 order of Mr Launcelot Henderson QC directing an inquiry into mesne profits and interest.