HKRUK II (CHC) Ltd v Heaney

Where a defendant has unlawfully interfered with a right of light, the dominant owner has a prima facie entitlement to an injunction. Damages may be substituted only in the exceptional circumstances identified in Shelfer v City of London Electric Lighting Company and reaffirmed in Regan v Paul Properties DPF No 1 Ltd. The four Shelfer criteria are cumulative, and satisfying the first three is insufficient without oppression or another special circumstance. The court may consider both conventional damages and a release-fee award when deciding whether a small payment would provide adequate compensation. Where damages are awarded, the court assesses a fair result from a hypothetical negotiation, considering the seriousness of the infringement, the right-holder’s bargaining position and the likely profit, while adopting a realistic date and assuming reasonable conduct.

The claimant’s redevelopment of Toronto Square interfered with an easement of light benefiting the defendant’s former Yorkshire Penny Bank building. The parties accepted that the interference was actionable and that the defendant was entitled to a remedy. The claimant sought declarations and argued that damages were appropriate. The defendant counterclaimed for a mandatory injunction requiring the offending upper floors to be cut back, alternatively damages.

The central issues were whether the court should grant an injunction or award damages, and, if damages were appropriate, how a release-fee award should be quantified.

1. Remedy. The defendant was prima facie entitled to a mandatory injunction. Under Shelfer v City of London Electric Lighting Company, as explained in Regan v Paul Properties DPF No 1 Ltd, damages in substitution require the cumulative satisfaction of four considerations: the injury is small; it is capable of monetary estimation; a small payment would adequately compensate; and an injunction would be oppressive or other special circumstances justify withholding it.
2. The injury was not small. Although the affected area was a small proportion of the building and the property was commercial, the interference materially affected important rooms and the character and use of the restored building. The claimant had knowingly pursued an actionable infringement for profit and could have built smaller upper floors. It would therefore be wrong to compel the defendant to accept money against his wishes.
3. The monetary-estimation criterion was satisfied. The adequate-compensation criterion was not. The court could consider both common-law damages and damages in lieu of an injunction under Senior Courts Act 1981, section 50. The proposed release-fee award of £225,000 was not a small payment. The claimant accordingly failed to displace the prima facie right to an injunction.
4. Quantum, alternatively. A release-fee award is assessed by attempting to identify a fair result from a hypothetical negotiation. Relevant matters include the seriousness of the breach, the right-holder’s bargaining position, a fair share of the likely profit, the amount necessary to permit the development to proceed, and whether the result feels right. The negotiation should be placed in the real world, with both parties assumed to act reasonably. In this case the appropriate date was around March 2008, when a reasonable developer would have wished to decide whether to proceed, modify the scheme or abandon it.
5. The injunction was to follow. The parties were directed to make submissions on its terms and on costs.