A Victory for the principled development of the law

10 February, 2011
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The Mill Wheel on the Mall Walk in Longford, via the Longford Town Council websiteIf you trespass on my land, and make a profit from that trespass, what should the measure of damages be? It is a very important question, but the answer is disputed, and it had not been directly discussed at Irish law, so far as I know, until it was recently addressed by McMahon J in Victory v Galhoy Inns [2010] IEHC 459 (16 December 2010).

Trespass is a civil wrong (a tort), and the aim of damages for such wrongs is to compensate the plaintiff for the loss caused by the wrong: to put the plaintiff “in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation” (Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, 39 (Lord Blackburn); Smith New Court Securities v Scrimgeour Vickers [1997] AC 254, [1996] UKHL 3 (21 November 1996); Carey v Independent Newspapers [2003] IEHC 67 (7 August 2003)). However, the law has recognised that where a defendant has made a profit from a civil wrong, the damages can be directed instead to stripping the profits from the defendant. For example, in Hickey v Roches Stores (High Court, unreported, 14 July 1976) (pdf) Finlay P held

Where a wrongdoer has calculated and intended by his wrongdoing to achieve a gain or profit which he could not otherwise achieve and has in that way acted mala fide then irrespective of whether the form of his wrongdoing constitutes a tort or a breach of contract the Court should in assessing damages look not only to the loss suffered by the injured party but also to the profit or gain unjustly or wrongly obtained by the wrongdoer.

So far as breach of contract is concerned, English law reached the same conclusion in AG v Blake [2001] 1 AC 268, [2000] UKHL 45 (27 July 2000). As for tort, Laffoy J in Conneran v Corbett [2006] IEHC 254 (31 May 2006) accepted the jurisdiction to award restitutionary damages, but did not need to express any view on the circumstances in which a claim for restitutionary damages would succeed, as she held that the plaintiffs had not, on the evidence, established mala fides on the part of the defendants in the sense envisaged by Finlay P in Hickey v Roches Stores. The issue is fully discussed by the Law Reform Commission in its Consultation Paper (1998; see chapter 8 ) and Report (LRC 60-2000; see chapter 6) on Aggravated, Exemplary and Restitutionary Damages.

In the context of the tort of trespass, the appropriate measure of damages is an amount of damages equivalent the fair and reasonable price which would be payable to allow the act in question (see, eg, Wrotham Park Estate Company v Parkside Homes [1974] 2 All ER 321, [1974] 1 WLR 798; Bracewell v Appleby [1975] 1 All ER 993; Swordheath Properties v Tabet [1979] 1 WLR 285; Stoke on Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406; Jaggard v Sawyer [1995] 1 WLR 269, [1994] EWCA Civ 1 (18 July 1994); Experience Hendrix plc v PPX Enterprises [2003] FSR 853; Horsford v Bird [2006] UKPC 3 (17 January 2006) Lunn Poly Ltd v Liverpool & Lancashire Properties (2006) 25 EG 210, [2006] EWCA Civ 430 (15 March 2006); Field Common v Elmbridge Borough Council [2008] EWHC 2079 (Ch) (27 August 2008); Devenish Nutrition v Sanofi-Aventis [2009] 3 All ER 27, [2008] EWCA Civ 1086 (14 October 2008). The tort of conversion is similar (see Kuwait Airways Corp v Iraqi Airways Co [2002] 2 AC 883, [2002] UKHL 19 (16 May 2002) [77] (Lord Nicholls)). However, it is disputed in the authorities as to whether this measure of damages is properly characterised as compensatory, or restitutionary, or whether it stands alone (see, eg, Inverugie Investments v Hackett [1995] 1 WLR 713 (PC); Pell Frischmann Engineering v Bow Valley Iran & Ors (Rev 2) [2009] UKPC 45 (26 November 2009)).

The first Irish consideration of this line of authority came with the decision of McMahon J in Victory v Galhoy Inns. The defendants ran a nightclub, and they used an exit through a rarely-used archway on the plaintiffs’ property as an emergency exit from the nightclub. When the plaintiffs objected to this usage, the defendants argued that they had a right of way through the archway, or that the plaintiffs had acquiesced in that usage. These defences failed. McMahon J held that the defendants did not have a right of way over the plaintiffs’ property, and one could not be spelled out by extending any previous such rights. Indeed, McMahon J went further, re-iterating that when a right of way exists over private property in favour of other property, it is very restrictive on the property over which the right of way runs, and so this interference cannot be further extended without the express agreement of the owner of that property. McMahon J also held that the plaintiffs had not acquiesced in the defendants’ using the emergency exit route. Discussing Wilmot v Barber[1880] 15 ChD 96 (Fry J) and Shaw v Applegate [1977] 1 WLR 970 (CA), he held that the “level of inactivity required to deprive the person who wishes to assert his right is high and must be so reprehensible that it approaches dishonesty” (para 34). The plaintiff may have been passive, but he had limited knowledge or appreciation of what was going on, and his actions could not be “described as something approaching dishonesty” (para 35). As a consequence, the defendants were trespassing, and the plaintiffs sought an injunction or damages.

McMahon J declined to award the injunction, but relied on Wrotham Park Estate Company v Parkside Homes [1974] 2 All ER 321, [1974] 1 WLR 798 (Brightman J) and Bracewell v Appleby [1975] 1 All ER 993 (Graham J) to award €150,000:

40. … although the plaintiffs never sought to sell the right of way over their land to the defendant, their interest now seems to be more in getting compensation for the intrusion rather than restoring the status quo. Their interest in the properties affected is purely commercial, unlike the situation in Bracewell where the amenity value of the plaintiff’s house was at issue. Moreover, there was evidence before the court, which I accept, that the plaintiffs indicated to the defendant that they would have to pay for the intrusion.

41. In Conneran & O’Reilly v Corbett [2006] IEHC 254 (31 May 2006), Ms Justice Laffoy had to address the quantification of damages where the plaintiff had successfully sued the defendant for interference with an easement to receive and make deliveries over a particular route on private property. …

42. Although the absence of evidence did not give Laffoy J the opportunity to apply the approach adopted in the Snell and Prideau case [Snell & Prideau v Derton Mirrors [1995] 1 EGLR 259 (CA)], which in turn owes its origin to the Wrotham case, it is clear that it commended itself to her as an appropriate approach to adopt in a case such as that which was before her. It is the approach that I consider appropriate also in the case before this Court. …

43. With regard to the intrusion of the defendant onto the plaintiffs’ property and its entitlement to use the archway as an emergency exit passage in the event of a fire in the pub/nightclub, I am satisfied that damages for this incursion onto the plaintiffs’ property should be calculated by reference to the principles established in the English cases of Wrotham, Bracewell and AG v Blake [[2001] 1 AC 268, [2000] UKHL 45 (27 July 2000)], mentioned above, and approved in obiter dictum by Laffoy J in Conneran (supra). …

45. From the above authorities I find that the damages to be awarded in a case like this are to be measured in the following way: first, one must assess the diminution in value of the plaintiffs’ property if the defendant is now allowed to use the disputed route as a emergency fire exit: in other words I must calculate the difference in value between the plaintiffs’ property without this burden and the property with this burden. Second, the plaintiffs are entitled to an enhancement by virtue of the leverage which they are entitled to exert in a commercial situation like that before the court. The amount of this leverage may be related to the value of the exit to the defendant’s enterprise, and in particular to the profits which the enterprise generates for the defendant. …

50. Bearing this evidence in mind and the principles which I must apply, I have come to the following conclusions as to what is an appropriate sum to award the plaintiffs in the instant case. First, I accept the evidence of Mr. Quinn that the difference between the plaintiffs’ property in an open market with and without the burden is € 40,000. Clearly, the plaintiffs are entitled to this sum. Second, I am of the view that the plaintiffs are entitled to a sum by way of enhancement or leverage, bearing in mind the lucrative nature of the defendant’s operation. I think that a fair sum under this heading, bearing in mind all the above circumstances, is €110,000.

This is an interesting and important decision, in that, whatever about Conneran v Corbett, this judgment means that Irish law has unequivocally accepted the Wrotham Park measure of damages. I look forward to more discussions about whether it is compensatory, restitutionary, or at large. In the meantime, McMahon J’s judgment is certainly a victory for common sense as well as for the principled development of the law.

Irish Law, Restitution