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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> London Borough of Enfield v Outdoor Plus Ltd & Anor [2012] EWCA Civ 608 (09 May 2012) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2012/608.html Cite as: [2012] EWCA Civ 608

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
His Honour Judge Seymour
HQ09X01140

		Royal Courts of Justice Strand, London, WC2A 2LL
		09/05/2012

Mr Justice Henderson:

Introduction and background

1. This appeal raises questions about the right approach to an award of damages for trespass to land, in circumstances where the purpose of the award is to compensate the claimant for loss of use of the land by reference to the fee which would have been agreed between the parties, in a hypothetical negotiation, as representing the proper value to the trespasser of its use of the land during the period of the trespass.
2. In April 2004 the first defendant, Outdoor Plus Limited ("Outdoor"), was invoiced for the erection of a backlit advertising hoarding beside the North Circular Road at 67 Bowes Road, London, N11 ("No. 67"). The intention was to place the whole of the hoarding within the curtilage of No. 67, which was owned by a Mr Mukesh Shah ("Mr Shah") and two other members of his family. This intention was reflected in a written licence agreement ("the First Licence") entered into on 21 May 2004 between Mr Shah and a company associated with Outdoor called Graefield Limited ("Graefield"), whereby Mr Shah licensed Graefield to erect and maintain a hoarding at No. 67 for three years in return for an index-linked annual rent of £11,000.
3. For reasons which remain obscure, but probably as a result of some mistake or carelessness by the contractors employed to erect the hoarding, it is now common ground that the three steel supports or stanchions for the hoarding were in fact placed on some adjoining waste land in the ownership of Enfield Borough Council ("the Council"), just across and parallel to the boundary with No. 67. It seems that part of the wooden fence which had previously marked the boundary was removed in order to allow the work to be done, although the original concrete posts to which the fence had been attached were left in place. The relevant part of the wooden fence was then replaced a little further within the curtilage of No. 67.
4. Although the supports were placed on the Council's land, the hoarding panel itself (which at this date was of "landscape" format, and measured approximately 6 metres x 3.5 metres) oversailed No. 67 and did not encroach over the boundary. In other words, the back of the panel ran along, but did not cross, the boundary, and the points where the panel was attached to the supports therefore lay on the boundary itself. The extent of the encroachment was approximately 60 centimetres or 2 feet, consisting of the concrete footings for the stanchions together with the stanchions themselves and their steel footplates.
5. Over the next few years various developments and changes to the position on the ground took place, of which it is sufficient for the purposes of this appeal to note the following.
6. By August 2004 the hoarding and the benefit of the First Licence had been assigned to Outdoor (under its then name of Supreme Outdoor Limited). It seems that Outdoor had in fact begun to derive income from letting the hoarding in April 2004, and it continued to do so until 2007 when it entered into the co-operation agreement mentioned in paragraph 12 below.
7. Complaints about the hoarding on planning and amenity grounds were made to the Council by some neighbouring residents in 2004 and 2005, but following desultory investigation no action was taken. The Council did not appreciate at this stage that the hoarding encroached onto its land.
8. In August/September 2006 the hoarding was replaced with a new and larger Mega 6 backlit panel or lightbox, which measured approximately 7 metres x 5.3 metres in a vertical or "portrait" format, with the bottom of the panel about 1.5 metres above ground level. The work, which was carried out by Outdoor's contractors, required new concrete footings to be put in place of the old ones and new steel stanchions to be erected, but the extent of the trespass remained materially unchanged and the whole of the new lightbox continued to oversail No. 67.
9. On 14 September 2006 Mr Shah and Outdoor entered into a new written agreement ("the Second Licence"), which gave consent for the erection and maintenance of the Mega 6 hoarding at No. 67 for three years from 1 November 2006 at an annual index-linked rent of £15,000. Apart from those changes, the wording of the Second Licence was almost identical to that of the First Licence.
10. No planning permission had been sought or granted for the new hoarding, and its erection generated a further complaint from a neighbour which led to a visit to the site on 12 October 2006 by a Council planning officer, Mr Roger Bryan. This was not his first visit to the site, as he had photographed the previous hoarding in September 2005. In his report dated 19 October 2006, Mr Bryan noted that the new hoarding was much larger than its predecessor, and that the site had no planning history. He therefore recommended that steps be taken to secure its removal. He was also concerned that the site might be owned by Transport for London, as the hoarding stood just in front of a TFL footbridge, so he asked the Council's legal department to carry out a Land Registry search.
11. On 24 October 2006 the legal department informed Mr Bryan that the land on which the hoarding stood was in fact owned by the Council, and was held for allotment purposes. This appears to have been the first occasion when the Council became aware of the trespass, although no steps were taken to determine its precise extent.
12. On 12 July 2007 Outdoor entered into a co-operation agreement with the second defendant, J C Decaux (UK) Limited ("Decaux"), granting Decaux the exclusive right to use fourteen advertising panels in various locations, including the Mega 6 hoarding at 67 Bowes Road, for five years from 10 September 2007 at a guaranteed minimum fee of £65,000 per annum per panel. The final letting of the hoarding by Outdoor expired on 26 August 2007. According to the evidence of Mr Jonathan Lewis, who had joined Outdoor in November 2005 and was its managing director, the hoarding at Bowes Road was one of the lower value sites in the package. In the event, Decaux never generated enough revenue from it for more than the minimum fee to become payable to Outdoor.
13. In November 2007 the Council concluded a comprehensive survey of advertising sites in the borough which it had commissioned in April of that year, with a view to tackling the problem of illegal hoardings. Experience had shown that this problem was difficult to manage, because of lack of resources and the size of the road network in the borough. In the light of this survey, a planning enforcement officer of the Council wrote to Outdoor on 7 November 2007 giving 21 days' notice to remove three hoardings, including that at No. 67, on the stated ground of lack of express or deemed planning consent, and inviting a response supported by evidence within the same period if the absence of planning consent was challenged. No mention of trespass was made in this letter.
14. On 11 December 2007 Mr Lewis replied on behalf of Outdoor, asserting that all three panels had the benefit of planning consent "as there have been panels in situ at each of these locations for more than 10 years". No supporting evidence for this assertion was provided, although Mr Lewis expressed willingness to provide it should it be required. The Council then seems to have let the matter drop again.
15. In August 2008, however, the Council tried a new tack. It instructed solicitors, Saunders Solicitors LLP, who wrote to the head of Decaux's legal department, Mr Julian Cole, on 26 August, alleging trespass for the first time in relation to the Mega 6 hoarding, and repeating the earlier allegation of lack of planning consent. The letter demanded a schedule of the profits made by Decaux from its use of the site, and sought proposals to compensate the Council for the use of its land without consent, as well as for removal of the hoarding within seven days. Enclosed with the letter were a number of recent photographs of the site, one of which clearly showed the stanchions on the "wrong" side of the old concrete fence posts on the boundary with No. 67.
16. Decaux passed this letter to Outdoor, who promptly instructed solicitors (Trowers & Hamlins) to investigate the matter. On 1 September 2008 Trowers & Hamlins replied to the Council's solicitors, repeating Outdoor's earlier assertion that the site had been used for an advertising hoarding for more than 10 years, and denying trespass on the basis that the hoarding stood within the registered title to No. 67.
17. On 9 September 2008 Saunders Solicitors wrote to Trowers & Hamlins, taking issue with Outdoor's contentions in relation to both planning and trespass. A substantially accurate description of the trespass was given (with the benefit of a site inspection), and Outdoor was invited to supply detailed information relating to the commercial use of the site within 7 days on a voluntary basis, failing which the Council said it would have to consider legal action.
18. Further inconclusive correspondence ensued, in which the Council (now represented by D M H Stallard LLP, following a move to that firm by the partner with conduct of the matter at Saunders Solicitors) maintained its position, while Trowers & Hamlins raised a fresh defence of adverse possession (thereby impliedly accepting that the hoarding might indeed encroach onto the Council's registered title). Evidence in support of this defence was promised, but never materialised.
19. Meanwhile, the Council instructed one of its employed surveyors, Mr Stephen Jarman, to go and inspect the site, which he did on 16 October 2008. Nearly a year later, on 2 October 2009, he produced a written report of his inspection which established the extent of the trespass in terms which are now agreed. For their part, Outdoor and Decaux must also have carried out site visits, and before long they evidently formed the view, without making any formal admissions, that the prudent course would be to remove the hoarding. This was done, by contractors instructed by Outdoor, on 31 January 2009. Mr Lewis said in cross-examination that this step was taken when "finally we were satisfied by the physical evidence and the photograph evidence that we had inadvertently gone onto Enfield's land".

The present action

20. On 18 March 2009 the Council started the present action in the London Mercantile Court of the Queen's Bench Division of the High Court. So far as material, the Council claimed damages for trespass in respect of the two hoardings at the Bowes Road site. The primary claim was for damages "representing the benefits accruing to [the defendants] by reason of their unlawful use, and to be calculated on the basis of [their] profits from the use thereof and/or on the likely charges for the use of the Bowes Road site for the purpose of erecting an advertising hoarding thereon". There were also further or alternative claims for exemplary damages (on the alleged basis of a calculation by the defendants that the profits to be made by their trespass would probably exceed any damages they would be required to pay the Council) and, in restitution, for an account of the profits made by each defendant from its exploitation of the site.
21. In their defence, the defendants denied trespass and alleged (among other matters) that, if they had known the site belonged to the Council, or if the Council had alleged trespass earlier, they would not have used the Council's land, and Outdoor would either have erected the hoarding on land belonging to No. 67 (as it always thought it had), or would have moved (or removed) the hoarding.
22. In a response dated 4 November 2010 to a request by the defendants seeking clarification of the Council's pleaded case on damages, the Council said that the calculation of damages in cases of the present type "is both flexible and in a state of evolution"; that damages may be awarded against the trespasser on a restitutionary basis, a compensatory basis, or a combination of the two; and that the court will have regard to all the circumstances of the case in deciding which basis of assessment to adopt. The authorities cited in support of these contentions were the unreported decision of this court in Stadium Capital Holdings Ltd v St Marylebone Property Co Plc [2010] EWCA Civ 952; Penarth Dock Engineering Co Ltd v Pounds [1963] 1 Lloyd's Rep 359; Ministry of Defence v Ashman [1993] 66 P & C R 195; and Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798. Reference was also made to the unreported decision of Patten J (as he then was) in Sinclair v Gavaghan [2007] EWHC 2256 (Ch) as authority for the proposition that the financial benefits which have accrued to the wrongdoer as a result of the trespass are at least potentially relevant to either basis of assessment.
23. Meanwhile, by a consent order agreed between the parties in July 2010, but not sealed until 8 October 2010, the defendants had admitted trespass at the Bowes Road site. The admission by Outdoor was that from 21 May 2004 to 3 February 2009 inclusive it had committed a continuing trespass to the Council's land at the Bowes Road site; that it had done so for the purposes of advertising by putting up and displaying advertising posters; and that the trespass was limited to 600 mm or less. The admission by Decaux was that from 10 September 2007 to 3 February 2009 inclusive it too had committed a continuing trespass to the Bowes Road site; that it had done so for the same purpose; and that the trespass was limited to the extent of 600 mm as identified by Mr Jarman in his report. In addition, Outdoor admitted that it was liable to the Council for national non-domestic rates for the site from 1 April 2005 until 1 August 2007, while Decaux admitted that it was liable for rates for the site from 1 August 2007 until 3 February 2009.
24. In the light of these admissions, directions for trial of the issue of quantum were ordered by consent on 30 September 2010. The directions provided for the joint instruction by the parties of a single expert witness, who was to be a surveyor with expertise in valuing outdoor advertising hoardings. The expert so instructed was Mr Duncan Goodyear, a director of ASM Chartered Surveyors of 6 South Molton Street, London W1. In the joint letter of instruction to him dated 29 March 2011, he was asked to give his formal written opinion of the hypothetical licence fees that would have been agreed between two properly advised commercial parties:

a) for a licence to operate a lawfully constructed 48 sheet advertising hoarding at the Bowes Road site for the period from 21 May 2004 to 31 August 2006; and

b) for a licence to operate a lawfully constructed Mega 6 advertising hoarding at the same site from 1 September 2006 to 3 February 2009.

25. In his report dated 10 June 2011 Mr Goodyear referred to a number of comparables from the North Circular Road of which he had personal knowledge, and stated that in his opinion the hypothetical licence fees for the two transactions he had been asked to consider were £9,250 and £23,000 per annum respectively.
26. It is important to note that Mr Goodyear's instructions, and therefore his opinion, related to a hypothetical licence fee for the whole of the hoarding, on the assumption that it stood on a site in single ownership. Unsurprisingly, the split ownership of the site in the present case was unprecedented in Mr Goodyear's experience, and he knew of no comparables for such a situation. He was subsequently asked by the defendants to clarify how he would apportion the fees of £9,250 and £23,000 per annum between Mr Shah and the Council, but in the light of objections from the Council he declined to do so unless and until the court directed him accordingly. I will return later to the oral evidence that Mr Goodyear gave when he was asked to address this question at the hearing.
27. The trial of the action took place before His Honour Judge Seymour QC, sitting as a judge of the High Court, over three days between 13 and 15 June 2011. The Council was represented by Mr Kelvin Rutledge of counsel, and the defendants by Miss Zia Bhaloo QC. In a reserved judgment which he handed down on 6 July 2011, the judge awarded the Council nominal damages of £2 against each of Outdoor and Decaux. He ordered the Council to pay the defendants' costs, for the most part on an indemnity basis, with interest at the rate of 5% above base rate from 12 November 2009 pursuant to CPR 36.14(2). He ordered the Council to pay £100,000 on account of costs by 20 July 2011, and refused the Council's application for permission to appeal.
28. The Council now appeals to this court, with permission granted by Rix LJ on paper on 13 September 2011.

The law

29. In my judgment this is not a case that calls for a detailed review of the law on damages for trespass to land. I say this for two reasons. First, there did not appear to be any real disagreement between the parties about the general principles which the court should apply. The disagreement was rather about the application of those principles to the unusual facts of the present case. Secondly, and in any event, the authorities on the hypothetical negotiation basis of assessing damages have recently been subjected to detailed and careful review in two authorities at first instance, in terms which both sides were content to accept as broadly accurate. The first review was by Warren J in Field Common Ltd v Elmbridge Borough Council [2008] EWHC 2079 (Ch), [2009] 1 P & CR 1, at [57] to [92]. The second review was by Vos J in Stadium Capital Holdings Ltd v St Marylebone Property Co Plc [2011] EWHC 2856 (Ch), [2012] 1 P & CR 7, at [56] to [69].
30. Judgment in the latter of these cases was delivered on 8 November 2011, some five months after the judgment in the present case. It was a sequel to the earlier unreported decision of the Court of Appeal, mentioned in paragraph 22 above, where this court had held, reversing Sir Donald Rattee, that the trial judge did not have sufficient material before him to reach an appropriate conclusion on quantum, and therefore ordered a retrial of the assessment of damages. The case is of particular interest, not only for the review of the law by Vos J, but also because it provides by far the closest analogy to the facts of the present case in the authorities which we were shown. It concerned an advertising hoarding, attached at second floor level to a three-storey building in the ownership of the defendant, which projected into the airspace of the claimant which owned the adjacent site on the west side of Finchley Road, London NW3. It was only the hoarding itself, and not its means of support, which oversailed the claimant's land.
31. It is convenient to begin by citing the statement of the applicable principles which Vos J derived from his review of the authorities at [69]:

"In the light of these authorities, it seems to me that, in a trespass case of this kind, "hypothetical negotiation damages" of the kind described in these cases are obviously appropriate. That negotiation is taken to be one between a willing buyer and a willing seller at an appropriate time (in this case accepted to be when the trespass began). Events after the valuation date are generally ignored. The fact that one party might have refused to agree is irrelevant. But the fact that one party held a trump card and could have stopped the defendant obtaining any benefit is a relevant matter. The value of the benefit of the trespass to a reasonable person in the position of the particular defendant is what is being sought. In other words, the price which a reasonable person would pay for the right of user, or the sum of money which might reasonably have been demanded as a quid pro quo for permitting the trespass."

32. Vos J began his review of the authorities with the decision of this court in Swordheath Properties Ltd v Tabet [1979] 1 WLR 285, which was also cited to us by Mr Peter Knox QC on behalf of the Council. The proposition for which that case is authority is accurately stated in the headnote, namely:

"that where a [claimant] established that a defendant had occupied residential premises as a trespasser, then without adducing any evidence that he could or would have let those premises to someone else had the defendant not been in occupation, he was entitled to damages for trespass which, in a normal case, would be calculated by reference to the ordinary letting value of the premises."

See the judgment of Megaw LJ, with whom Browne and Waller LJJ agreed, at 287H – 288F.

33. This principle was reaffirmed by the House of Lords in Attorney General v Blake [2001] 1 AC 268, where Lord Nicholls (giving the leading speech with which Lords Goff, Browne-Wilkinson and Steyn agreed) said at 278F:

"A trespasser who enters another's land may cause the landowner no financial loss. In such a case damages are measured by the benefit received by the trespasser, namely, by his use of the land. The same principle is applied where the wrong consists of use of another's land for depositing waste, or by using a path across the land or using passages in an underground mine. In this type of case the damages recoverable would be, in short, the price a reasonable person would pay for the right of user: see Whitwham v Westminster Brymbo Coal and Coke Co [1896] 2 Ch 538, and the "wayleave" cases such as Martin v Porter (1839) 5 M & W 351 and Jegon v Vivian (1871) LR 6 Ch App 742. A more recent example was the non-removal of a floating dock, in Penarth Dock Engineering Co Ltd v Pounds [1963] 1 Lloyd's Rep 359."

34. After observing that this principle was established and not controversial, Lord Nicholls went on to say at 279D:

"More difficult is the alignment of this measure of damages within the basic compensatory measure. Recently there has been a move towards applying the label of restitution to awards of this character: see, for instance, Ministry of Defence v Ashman [1993] 2 EGLR 102, 105 and Ministry of Defence v Thompson [1993] 2 EGLR 107. However that may be, these awards cannot be regarded as conforming to the strictly compensatory measure of damage for the injured person's loss unless loss is given a strained and artificial meaning. The reality is that the injured person's rights were invaded but, in financial terms, he suffered no loss. Nevertheless the common law has found a means to award him a sensibly calculated amount of money. Such awards are probably best regarded as an exception to the general rule."

35. In Sinclair v Gavaghan, loc. cit., Patten J had to assess damages for trespass to land. The trespass was to a small triangular piece of land (referred to as "the Red Triangle") in the ownership of one of the claimants, which the defendants had used to gain access to the Yellow Land beyond, which they were developing. After referring to Attorney General v Blake, and to the well-established Wrotham Park jurisdiction to award damages in lieu of an injunction on the basis of a hypothetical negotiation to buy out the claimant's right which has been infringed, Patten J continued at [16] in a passage upon which both sides placed reliance:

"16. One obvious and important difference between cases such as Wrotham Park and the present one is that the court was there assessing compensation to be awarded in lieu of an injunction and therefore to compensate the Claimant for a continuing and permanent invasion and loss of its rights. Without a notional relaxation of the covenant, the developer had no right to build at all. In this case, the award of damages is limited in time to the period from when use of the Red Triangle began until at latest, the grant of the interim injunction on 6 January 2006. In principle, however, I can see no reason why the model developed in cases such as Wrotham Park should not be adapted and applied to the present case provided that one bears in mind the more limited nature of the exercise and takes into account the considerations which would have been relevant to negotiations for the limited permission being sought. This approach is consistent with the decision in Ashman (as approved in Blake) that the court is seeking to ascertain the value to the Defendants of their unauthorised use of the Claimants' land. What therefore needs to be determined is:

(i) What the acts of trespass were;

(ii) What were their purpose and effect in relation to the development of the Yellow Land; and

(iii) What alternatives did the Defendants have to using the Red Triangle in order to carry out those works.

17. On the basis of these findings the court must then assess what payment would have been agreed for the temporary use of the Claimants' land. It is not of course open to the Defendants as part of this exercise to say that they would (if confronted with a demand for payment) have avoided making any use of the Claimants' land. The purpose of the assessment is to calculate a sum which compensates the Claimants for the financial benefits which the Defendants actually made from using the Red Triangle. But the alternative possibilities open to the Defendants are of course highly relevant as factors which would have influenced the hypothetical negotiations. Clearly the Defendants would not have been prepared to pay and the Claimants would not have been able to demand a fee which was disproportionate to the actual financial advantages of using the Red Triangle as opposed to postponing the works or creating an alternative access point."

36. After reviewing the evidence, including evidence of alternative means of access to the Yellow Land available to the Defendants, Patten J concluded at [39] that the most the Defendants were buying "was a more convenient way of delivering materials to the site during the period when the access road was being constructed in late 2005", and that they "were not in the position of having to obtain the notional licence in order to carry out the works at all". The parties would therefore have known in any hypothetical negotiations (see [42]) that the Defendants "could (if necessary) avoid using the Red Triangle although it would be less convenient to do so and might on occasions make deliveries more complicated and perhaps more expensive". On this footing, Patten J said at [43]:

"The Defendants by their limited use of the Claimants' land obtained a more convenient way of servicing their development in the pre-contract period but they did not achieve anything more and in my judgment they would not have paid or been asked by any reasonable landowner in the Claimants' position to pay more than a relatively modest sum for that privilege. No actual damage was occasioned to the Claimants' land and the payment involved would have been little more than a recognition of their rights as landowners … Taking all the factors I have indicated into account the licence fee would not in my judgment have exceeded the sum of £5,000 and the damages will be assessed in that sum."

The decision of Judge Seymour

37. In the light of the principles referred to above, the judge's conclusion that the Council was entitled to only nominal damages from each defendant seems at first sight a surprising one. After all, trespass is actionable without proof of loss; the trespass in the present case continued for the best part of five years; it enabled each defendant to carry on a profitable business of letting the hoardings; and a hypothetical negotiation for an appropriate fee appears to provide a well-established basis for assessing substantial damages. It is therefore instructive to see how the judge reached his conclusion.
38. In the section of his judgment headed "The law as to the assessment of damages in trespass", running from paragraphs [68] to [76], the judge cited at length from Ministry of Defence v Ashman, Attorney General v Blake, Wrotham Park, Sinclair v Gavaghan and the decision of the Court of Appeal in Stadium Capital Holdings. These citations included all of the principles necessary for resolution of the case, although the judge did not of course have the benefit of the most recent review of the cases by Vos J.
39. The critical passage in the judgment is the next one, headed "Consideration", which runs from paragraphs [77] to [94]. The judge began by observing that, although trespass to land is actionable without proof of loss, such damages are likely to be only nominal without proof of actual loss. The authority cited in support of this proposition, which the judge said seemed to him to be "sound in principle", was a note to paragraph 19-63 of Clerk & Lindsell on Torts, 20^th edition (2012), and three cases there cited. This was in my view a dangerous place to start from, given the clear emphasis in cases like Swordheath Properties and Attorney General v Blake on the value of the use of the land to the trespasser, and the exception which damages calculated on such a basis represent to the normal compensatory measure of damages. However, nothing much may turn on this, because the judge went on to acknowledge that the main focus of the authorities cited to him was on situations where the defendant had obtained a benefit from the trespass. He said, rightly, that the burden of pleading and proving the financial benefit to the defendant falls upon the claimant, and that where the defendant's use of the land has generated profits there is a substantial body of support in the authorities for the proposition enunciated by Lord Nicholls in Attorney General v Blake that "the damages recoverable will be the price a reasonable person would pay for the right of user". The judge went on to observe, again correctly, that an assessment based on gross receipts would be wrong in principle, and that the relevance of the actual profits made by the defendant was merely "that it is something to which it may be appropriate to have regard in determining what a reasonable price for the grant of a right of user would have been" (para [82]).
40. The judge then said that he was "not altogether persuaded" that it would ever be appropriate to look with the benefit of hindsight at what the profits actually were, rather than to consider prospectively what the wrongdoer expected they would be. He said, rather oddly to my mind, that the actual outcome of the adventure upon which the trespasser is engaged is likely to depend upon factors unrelated to the trespass, "and to assess damages by reference to the outcome has the practical effect of making the claimant a co-venturer with the defendant" (ibid). As a matter of authority, it is in my judgment clear that regard may properly be had to the actual profits derived from the trespass, and where the actual outcome is known at the date of the trial, the court should not deprive itself of the benefit of that information: see, for example, Sinclair v Gavaghan at [15], and Pell Frischmann Engineering v Bow Valley Iran [2009] UK PC 45, [2011] 1 WLR 2370, at [51] per Lord Walker JSC delivering the judgment of the Board. Again, however, it is not clear that this error had any practical influence on the judge's decision, because he went on at [84] to state the critical question as being whether either or both of Outdoor and Decaux derived any financial benefit from the admitted trespasses, and, if so, what it was.
41. The judge then reviewed the evidence of Mr Goodyear, and criticised the Council's reliance on his evidence of what a reasonable licence fee for the two hoardings would have been. The judge recorded that in his closing submissions for the Council Mr Rutledge had accepted that the Council was only entitled to damages representing one half of those fees, in recognition of the fact that neither hoarding was wholly on the Council's land. The judge then said at [87] that the fundamental difficulty with the Council's case, even as thus modified, "was that it took no account of what were the actual facts of the present case". In the judge's view, it was wholly unnecessary to instruct Mr Goodyear to advise about a reasonable licence fee for the hoardings, because if one wished to know what an appropriate fee was, it was only necessary to look at the First or Second Licence. "The simple fact was", he said, "that Mr Goodyear had been asked the wrong questions".
42. This criticism was in my view unjustified, for two reasons. First, Mr Goodyear had been asked the only question upon which he could properly give evidence, namely what a reasonable licence fee would have been for the two hoardings on the assumption that they stood wholly on the Council's land. Secondly, the licences negotiated between Outdoor and Mr Shah could not be taken as conclusive for this purpose, because there was no evidence that Mr Shah had the benefit of professional advice, and Mr Goodyear had pointed out in his report that there was no standard form of agreement, and they were often very one-sided documents signed by landowners who lacked competent advice.
43. The judge then said that when Mr Goodyear was asked the right questions, namely what would have been a reasonable licence fee for the part of the hoardings which encroached on the Council's land, "he found himself in an impossible position, with which one can only sympathise". Mr Goodyear had no personal experience of such a situation, and all he could do was to speculate about how a negotiation might have been undertaken. The judge thought that any value in such speculation disappeared "when it became clear that what he was speculating about was a situation in which the two relevant landowners would split a fee agreed with the organisation wishing to erect a hoarding". In the judge's view, Mr Goodyear was in effect speculating "about how much out of the amounts in fact paid to Mr Shah ought properly to have been paid to Enfield Council".
44. It is at this point, in my judgment, that the judge's analysis began to go seriously adrift. Not only was he wrong to discount Mr Goodyear's evidence that in such a situation the landowners would probably have agreed to split the appropriate fee 50/50 – a point to which I will return later – but he was diverted into considering, and accepting, a submission advanced by Miss Bhaloo QC to the effect that neither Outdoor nor Decaux derived any benefit from the admitted trespasses, because they could in fact have erected the whole of each hoarding within the boundary of No. 67. In so finding, he dismissed as unrealistic various possible objections to such an operation which had been voiced by Mr Goodyear, and correctly pointed out that the agreements with Mr Shah had presupposed that the hoardings could lawfully and effectively be placed on his land.
45. The judge then continued:

"91. Thus I conclude on the evidence that Outdoor was contractually entitled, as against Mr Shah, to have each of the First Hoarding and the Second Hoarding erected wholly on No. 67; that there was no positive evidence that it was practically impossible for the First Hoarding or the Second Hoarding to have been erected wholly on No. 67; that there was no advantage, in terms of increased visibility of the First Hoarding or the Second Hoarding, or otherwise, in either of them being placed partly on the Vacant Area [i.e. on the Council's land], rather than wholly on No. 67; and that the income derived by Outdoor and Decaux from the First Hoarding and the Second Hoarding being placed partly on the Vacant Area was not increased over what it would otherwise have been had the First Hoarding and the Second Hoarding been erected entirely on No. 67.

92. It is impossible to envisage, sensibly, circumstances in which the question could have arisen of Outdoor seeking to negotiate a licence with Enfield Council to permit the First Hoarding or the Second Hoarding to be placed partly on the Vacant Area. If the issue of possible trespass had arisen before erection of the First Hoarding or the Second Hoarding, given the terms of the First Licence and the Second Licence, Outdoor and Mr Shah would simply have agreed to the relevant hoarding being erected wholly on No. 67. Mr Lewis told me, and I accept, that when the allegations of trespass concerning the Second Hoarding were made he discussed the removal of the Second Hoarding wholly onto No. 67 with Mr Shah, and Mr Shah was agreeable. Why should Outdoor have paid Enfield Council anything to achieve that which Mr Shah was already committed by contract to permit, and in respect of which he had an entitlement to be paid significant sums?

93. In the result, therefore, Enfield Council failed to discharge the burden upon it of showing that Outdoor or Decaux derived any financial benefit from the admitted trespasses. It also failed to prove what reasonable fees for licences to commit the admitted trespasses would have been.

94. It would seem to follow that the only entitlement of Enfield Council in respect of the admitted trespasses is to be paid nominal damages … There will be judgment for Enfield Council against each of Outdoor and Decaux for £2."

46. It is clear from this passage that the essential reason why the judge held that the Council was entitled to only nominal damages was that, had the issue of trespass arisen, Outdoor and Mr Shah would simply have agreed to the hoarding being erected within the boundary of No. 67 in accordance with the terms of the First or Second Licences. Since that is what would have happened, the judge found it impossible to envisage any negotiation for a licence to authorise the trespass having taken place. He also seems to have considered that Outdoor would not have agreed to pay the Council anything in a hypothetical negotiation, because Outdoor was already committed to paying Mr Shah a substantial annual fee for erecting the hoarding on his land.
47. The fundamental fallacy in this reasoning, in my judgment, is that it addresses the wrong question. The judge asked himself, in effect, what would actually have happened if the question of possible trespass had been appreciated by the parties before the erection of the first hoarding, and his answer to this question was that no trespass would in fact have occurred because the hoarding would then have been placed wholly within No. 67. But that, with respect to the judge, is to misunderstand the nature of the exercise which the court has to perform in cases of the present type. The starting point is the admitted trespass which took place for nearly five years, and the function of the hypothetical negotiation is to ascertain the value of the benefit of that trespass to a reasonable person in the position of Outdoor or Decaux. As Vos J said in Stadium Capital Holdings at [69], the value of that benefit is "the price which a reasonable person would pay for the right of user, or the sum of money which might reasonably have been demanded as a quid pro quo for permitting the trespass". For that purpose, it has to be assumed that the hypothetical negotiation would have resulted in an agreement, even if the parties might in fact have refused or been unwilling to agree. It also has to be assumed that the actual trespass which has occurred would in fact take place, because the whole point of the exercise is to reach a reasonable measure of compensation to the claimant for that trespass. This point was made with great clarity by Patten J in Sinclair v Gavaghan at [17], which the judge cited, but of which he seems to have lost sight when formulating his conclusions.
48. In the final sections of his judgment, the judge dealt with, and rejected, the Council's claims for exemplary damages and an account of profits. There is no appeal against the judge's conclusion on either of these points, so I need say no more about them.

Discussion

49. It will already be apparent that I am unable to agree with the process of reasoning which led the judge to his conclusion. Nevertheless, Miss Bhaloo QC submitted for the defendants that the judge was entitled to conclude as he did. In particular, she submitted that he was right to take into account the fact that the hoarding could have been moved onto Mr Shah's land, and she relied on Sinclair v Gavaghan as authority for the proposition that the alternative courses of action open to the defendants were highly relevant as factors which would have influenced the hypothetical negotiation. Under some pressure from the court, she accepted that the purpose of the hypothetical negotiation was to compensate the Council for the admitted trespass which had actually taken place, and that the negotiation had to be assumed to have resulted in an agreement. She maintained, however, the submission which had found favour with the judge, that in fact neither Outdoor nor Decaux derived any benefit from the trespass, because (put shortly) the defendants held a trump card. They had the contractual right to place the entirety of the hoarding within No. 67, and (as the judge found on the balance of probabilities) there was never any practical obstacle to that being done. Thus, she argued, the Council was never in a position to hold out for more than a nominal fee to authorise the admitted trespass. Furthermore, since the hypothetical negotiation would have taken place before the erection of the first hoarding, Outdoor would not even have been obliged to incur the cost of dismantling it and re-erecting it within No. 67.
50. These submissions were skilfully and persuasively advanced by Miss Bhaloo QC, and in some respects I can accept them. Thus I agree, if it is relevant, that the hoarding could have been erected wholly within No. 67, and that the judge was entitled to find that the suggested obstacles to doing this had not been substantiated. I also agree with her that the lack of planning consent for the hoarding, of which Mr Knox QC for the Council sought to make much in both his written and oral submissions, even though the point had not been taken below, would not materially assist the Council, even if it were open to the Council to rely upon it. But I remain wholly unconvinced that the approach adopted by the judge was a legitimate one. The first objection to it, which I have already noted, is that it undermines the basic assumptions upon which the hypothetical negotiation is predicated, and loses sight of the need to compensate the Council for the trespass which actually took place. The second objection, which I need to explain in a little more detail, is that it misunderstands the relevance of alternative courses of action open to the trespasser.
51. I fully accept that any ability on the part of a trespasser to achieve the object of the trespass by alternative means is a factor which must be taken into account in the hypothetical negotiation. The alternative must, however, be one which is consistent with the trespass and which can co-exist with it. An alternative cannot be taken into account if it would eliminate the trespass itself, because that would again negate the very basis of the exercise. In Sinclair v Gavaghan there was no conceptual difficulty about taking into account the alternative means of access to the Yellow Land which were available to the defendants, because they were true alternatives to the more convenient route through the Red Triangle, and the defendants could therefore pray them in aid when notionally negotiating a fee for use of the Red Triangle access. By contrast, what the defendants wish to do in the present case is to rely on the possibility of placing the hoarding entirely within No. 67, not as an alternative to the admitted trespass, but as a means of eliminating it. Such a procedure cannot be legitimate, because it would subvert the basis of the negotiation.
52. For these reasons, I am satisfied that the judge's conclusion cannot stand. The next question is what this court ought to do, bearing in mind that neither side asks for a retrial or for the case to be remitted to the judge for further findings to be made.
53. In the first place, I feel no doubt that this is a case where the hypothetical negotiation approach is the right one to adopt. It is not a suitable case for the award of mesne profits, for the simple reason that there is no established market rate for the letting of part of a hoarding which straddles the land of two owners. Nor is it a suitable case for an award of restitutionary damages consisting of, or akin to, an account of profits. Although the circumstances of the case are unusual, it has no exceptional features which could justify going beyond the usual measure of damage in cases of this type, as elucidated by the House of Lords in Attorney General v Blake. Indeed, I am a little surprised that it was not common ground from the outset (as it was before Vos J in Stadium Capital Holdings) that the hypothetical negotiation measure should be applied.
54. Secondly, we have the benefit of the unchallenged evidence of Mr Goodyear about the hypothetical licence fees which would have been agreed between two properly advised commercial parties for the two hoardings, on the assumption that they were in single ownership. In his oral evidence, Mr Goodyear was asked to consider how his figures should be apportioned to reflect the actual circumstances of the present case. On the assumption (which I have held to be correct) that the position on the ground could not be changed by erecting the hoardings wholly within No. 67, Mr Goodyear said on no fewer than three occasions that the fees would have been split 50/50. So, for example, when Mr Goodyear was being questioned by Mr Rutledge for the Council, we find the following exchange took place:

"Q. … But let us exclude that possibility, let us assume they cannot put it wholly on Mr Shah's land, the only place they can site this board is straddling the boundary, 600mm encroachment onto the London Borough of Enfield's land, it cannot go up unless they give their consent, are they not in an extremely strong negotiating position?

A. Yes, if that is the only option.

Q. If that is the only option. How would you apportion the fee in those circumstances?

A. 50/50.

Q. Why 50/50?

A. Because the panel and the foundations are part of one, they need to exist together."

55. I see no reason to disagree with Mr Goodyear's assessment of the position, and unlike the judge I would not dismiss his evidence on this point as groundless speculation. On the contrary, it seems to me to be the only solid evidence the court has to go upon. I would therefore hold that the result of the hypothetical negotiation would have been an agreement by the defendants to pay the Council one half of the notional licence fees identified by Mr Goodyear in his report, that is to say half of £9,250, or £4,625, per annum for the first hoarding from 21 May 2004 to 31 August 2006 inclusive, and half of £23,000, or £11,500, per annum for the Mega 6 hoarding from 1 September 2006 to 3 February 2009 inclusive. The annual fees should in my view be treated as payable quarterly in advance, and they should bear interest at 1% above base rate from the dates when they became payable.
56. Finally, Mr Knox QC argued that, whatever the position may have been beforehand, the defendants should pay damages at the full rate of £23,000 a year from 26 August 2008 onwards, i.e. the date of the letter from Saunders Solicitors which first put the defendants on clear notice of the alleged trespass. I reject this submission, because the nature of the trespass remained unchanged after that date, and I can see no reason to depart from the 50/50 split which the parties would notionally have agreed upon immediately before the trespass began in 2004.
57. I would accordingly allow the appeal, discharge the award of nominal damages, and replace it with an award of damages calculated in the manner I have indicated.

Lord Justice Tomlinson:

58. I agree.

Lord Justice Mummery:

59. I also agree.