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By D
08/07/2010

Damages or Restitution

Shi v Jiangsu Native Produce Import & Export Corp [2009] EWCA Civ 1582 (06 October 2009)

While perusing our new copy of Legal Action here at Nearly Legal Towers we came across the above case which we had not previously spotted so it is presented here with some embarrassment.

S was an employee of JNP which is the British arm of a Chinese import/export company. He was business manager and then later managing director. As well as a salary, S was given the use of a property in London without payment of rent.

There were a number of ancillary claims between the parties. Those relating an alleged contract for S to buy the property were not the subject of appeal. The claim for salary and other expenses which was the subject of appeal is not dealt with here.

The key subject of the appeal was S’s status at the property and a claim by JNP for mesne profits from the date of termination of S’s employment until his final eviction. HHJ Rylands, sitting at the Central London Civil Justice Centre held that S was a bare licensee of the property and his right to occupy came to an end once his employment had ended and he had been given reasonable notice by JNP. He therefore held that S was a trespasser from the date of 14 July 2003 on the bsis that he had been given 28 days notice to leave by way of a letter dated 16 June 2003. This was not the subject of an appeal. HHJ Rylands dismissed the counter-claim by JNP for mesne profits from the same date and this was the subject of a cross-appeal.

HHJ Rylands assessed the claim for mesne profits on the basis of the decision in Ministry of Defence v Ashman [1993] 25 HLR 514. In this case a distinction was drawn between a claim for mesne profits which was by way of tortuous damages for trespass or by way of a claim that for restitution of the benefit derived by the defendant. A claim for restitution can be reduced by way of subjective devaluation in special circumstances. This occurs where the benefit is not worth as much to the particular defendant as it might have been to someone else. In other words, given that JNP were charging S a rent of nil the benefit to him was also nothing and a claim for restitution entitled JNP to recover nothing.

The Court of Appeal disapproved the line of reasoning adopted of HHJ Rylands. JNP had not specifically stated they were seeking a claim in restitution and he had given no reasons why he had elected to treat their claim as a claim in restitution. The counter-claim was also clearly pleaded as being for damages. Therefore HHJ Rylands had no good reason to conclude that there were any exceptional or special circumstances which justified assessing mesne profits at nil and he should have awarded JNP damages assessed at the sum of money they lost by S’s failure to give them vacant possession.

The Court also considered what would have been the result if they had considered damages by way of restitution. It held that HHJ Rylands had misunderstood subjective devaluation and that this was an exceptional doctrine that only applied in a few cases.

As Hoffmann LJ said in Ashman, the open market value will usually be the appropriate measure of the value of the benefit to the person who is in wrongful possession of the premises, but there may be special circumstances where the benefit of the occupation may not be worth as much to the occupant as to someone else. He gives the example of the person who would not have stayed in the premises at the market rate if he or she had had any choice in the matter. It is clear in this case that Mr Shi did have a choice to move to alternative accommodation. It seems that he refused to do so because he was annoyed at the way JNP China had behaved. The judge seems to have thought that, in deciding whether there were special circumstances which justified assessing the value of the benefit of the accommodation to Mr Shi as less than to an ordinary occupier, he could take account of any unusual circumstances in a general sense. In my view, that was the wrong approach. The special circumstances which justify a reduction from the open market rental value can only be circumstances which result in the value of the premises to the occupant being less than it would be to a typical potential occupant of the premises.

Accordingly the Court found that, even had it been right to assess the mesne profits by way of restitution the outcome would have been the same.

D is a solicitor specialising in landlord and tenant matters with a London firm.

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