PROVING THINGS 215: CLAIM £8.7 MILLION IN DAMAGES BUT RECOVER NOTHING: NOT SO MUCH A CASE OF EXPERT SHOPPING BUT EXPERTS ON SHOPPING CENTRES

We have looked before at the judgment of HHJ Hodge (sitting as a High Court judge) in Ahuja Investments Ltd v Victorygame Ltd & Anor (CONTRACT – Purchase of commercial investment property) [2021] EWHC 2382 (Ch).  It is worth noting that this is another example of a case where the judge found that a claimant had not established that they had suffered any loss.  It is a case that highlights the danger of a claim in damages being reliant wholly on expert evidence.  If that evidence is not accepted then the claim fails.

THE CASE

The claimant claimed over £8.7 million pounds of damages following its purchase of a shopping centre from the defendant.  It was alleged that false statements were made about the length of the leases for the shops in the centre. The defendant counterclaimed for rectification.  The key issue in the case was whether, if the tenants had longer leases, the value of the shopping centre would be lower.  Both parties called expert evidence on this point. The judge preferred the expert evidence called by the defendant.

THE JUDGMENT ON THIS ISSUE

The judge found that the length of the leases that the tenants in question had made no difference to the value of the shopping centre.  The defendant’s expert gave evidence that the a longer lease of 15 years would not affect the price paid.

I accept this hypothesis. With this type of retail property, and this class of occupational tenant (of unknown covenant strength), I find (consistently with Miss Morris’ expert evidence) that a prospective purchaser would derive no real security, or comfort, from a longer lease of 15 years.

1. 1. I agree with Miss Morris’s analysis of the evidence at paragraph 7.49, and the reasoning at paragraph 7.50, of her report. I therefore accept Miss Morris’s professional opinion (expressed at paragraph 1.18 of her report) that “the Market Value of the freehold interest in the Property, as at the Valuation Date, would not be affected if the leases of the ground floor of the Property were granted for terms of 15 years from 20 February 2015 rather than for the terms in fact granted“. I reject Mr Wolfenden’s assessment that the added security of 15 years’ leases, even with provision for three yearly rental increases of at least 10%, had any effect in increasing the open market value of the property. Mr Holland contends that Miss Morris is trying to ride two horses – or, swapping metaphors, to have her cake and eat it too – by arguing for a low yield (and thus a high number of years’ purchase) despite emphasising the poor covenant strength of the occupational tenants. However, I consider that this misses the points that Miss Morris makes within paragraph 7.50 of her report that a hypothetical purchaser would appreciate both that: (1) the property has historically been fully let, and many of the tenants have been in occupation for long periods, so the landlord would have confidence that they would renew at lease expiry; but (2) if any of the units should fall vacant, the owner would have been able rapidly to re-let the vacant unit.

1. 1. So far as the market value of No 67 is concerned, I have no hesitation in preferring Miss Morris’s valuation figure of £2,900,000 to Mr Wolfenden’s figure of £2,200,000. Her valuation was informed, and supported, by Mr Monga’s rental bid for No 67 in January 2016 (about which Mr Wolfenden had known nothing). In cross-examination (at pages 38-44 of the transcript of Day 7) Mr Wolfenden grudgingly accepted that Miss Morris’s valuation assumptions about No 67 were “not unreasonable” and that the same would apply to her yield of 6.5% for No 67 should the court adopt her yield of 6% for No 65 (as I have). As for the residual valuation of No 67, applied by Miss Morris “by way of a check”, despite Mr Wolfenden’s view (at paragraph 9.35 of his report) that he would consider a developer’s profit “of not less than 20% to be acceptable for this development”, this was based upon his view that “the challenge would be to find a sufficient number of tenants to fill the new units”. This overlooks the evidence that, historically, No 65 has been fully let. In my judgment, Miss Morris’s allowance of 10% developer’s profit on costs was fully supported and justified by her evidence and reasoning at page 124 of the transcript of Day 7.

1. For all of these reasons, I accept Miss Morris’s evidence: (1) that the true open market value of the property, as at 1 March 2016, was £18,200,000 and therefore Ahuja did not pay more for the property than it was actually worth, and (2) that the property would not have been worth any more had the ground floor leases of No 65 been for terms of 15 years from 20 February 2015. It follows that whether one applies the tortious, or the contractual, measure of damages, Ahuja has not demonstrated that it has suffered any loss. Had the fraudulent misrepresentation been actionable, Ahuja has suffered no damage. Nor has it proved that it has suffered any damage as a result of the breach of Victorygame’s breach of contract.