A new frontier in the boundary between professional and private life – solicitors’ undertakings
When issuing proceedings to recover possession of property from a trespasser, a property owner will also often want to include a claim for mesne profits, these being the damages for use and occupation of the property. However, there may be circumstances where such a claim is not pursued at the same time and, instead, the priority is simply to obtain an order for possession as quickly as possible.
What if, at a later date, for whatever reason, the property owner changes its mind and subsequently decides that it does wish to seek an order for payment of mesne profits? Can it do so in a separate later action, having already obtained a possession order? This was the gist of the issue that the Court of Appeal had to decide upon in the recent case of Peter Farrar v Leongreen Limited EWCA Civ 2211 when considering the application of the legal doctrine of res judicata.
Before considering the facts of the case in detail, it is helpful to review briefly the principle of res judicata. The main definition of res judicata is:
… a decision, pronounced by a judicial tribunal having jurisdiction over the cause and the parties, that disposes once and for all the matter(s) so decided, so that except on appeal it cannot be relitigated between the parties or their privies" (Res Judicata, 4th edition, (Spencer-Bower & Handley, 2009).
Privies are those who have a legal or beneficial interest in litigation, for example, personal representatives or trustees in bankruptcy.
In Virgin Atlantic Airways Ltd v Zodiac Seats UK Limited  UKSC 46, the leading recent judgment on res judicata, Lord Sumption sitting in the Supreme Court described the doctrine as:
…a portmanteau term which is used to describe a number of different legal principles with different juridicial origins”.
The thrust of the doctrine is to prevent a party from re-litigating an issue or a defence which has already been determined (known as cause of action estoppel or issue estoppel) or which could have previously been litigated. The latter principle had been established in the case of Henderson v Henderson (18430 3 Hare 100) and ensured, as a matter of important public policy, the finality of judgments so as to prevent the waste of judicial resources on repeated hearings of the same issues. The Virgin Atlantic case gave some welcome clarification to the term with the leading judgment of Lord Sumption (with which all members of the Supreme Court agreed) identifying the six principles which make up the doctrine. That said, it remains a principle which can cause a degree of confusion in its’ application as is not always easy to identify where one concept begins and another ends.
In Farrar, the appellant trespasser, Mr Farrar, was appealing against an order made in the Central London County Court to pay mesne profits for the period from 21 November 2012 to 26 March 2014 to the respondent, Leongreen Limited, in respect of his unlawful occupation of a residential flat in Artillery Mansions, Victoria Street, London. The appeal was the culmination of rather protracted litigation arising from a slightly complicated factual background.
Mr Farrar had been in occupation of the flat since 1 March 2008 originally under a common-law tenancy for one year (although Mr Farrar claimed that this was a sham arrangement to conceal the fact he was allowed to use the flat for free) granted by the owners at the time, Galleondeal Limited. Upon, expiry of the term, he remained in occupation as a trespasser without payment of the monthly rent of £5,200. In November 2012, Galleondeal granted Leongreen a long lease of the property at which point Mr Farrar continued to occupy as a trespasser.
Accordingly, just a couple of weeks later in December 2012, Leongreen issued proceedings seeking an order for summary possession of the flat. It could, at that time, have also included a claim for mesne profits. However, given Leongreen’s limited period of ownership, the amount of any such claim would have been relatively small and priority was instead given to obtaining an order for possession using the summary procedure set out in Part 55 of the Civil Procedure Rules. It assumed, given the lack of any viable defence to the claim, that possession of the property would be recovered quickly, which further undermined Leongreen’s desire to pursue a claim for mesne profits. Furthermore, such a claim would require additional evidence to be obtained in support of the letting value of the property. Not only would this incur further unjustifiable costs, given the value of the claim, but it was likely to delay matters unnecessarily. The decision was made, therefore, not to seek mesne profits although in correspondence Leongreen (and Galleondeal who had a more significant claim covering the period from 2009 to 20012) did both expressly reserve the right to do so at a later date.
Mesne profits are damages for trespass. Liability to pay mesne profits arises when a former tenant holds over after termination or expiry of its tenancy and stops when it gives up possession of the land. The principle behind mesne profits is that a trespasser is not allowed to use another person's land without compensating the landowner. The landowner does not need to have suffered any loss. The amount of mesne profits for which the trespasser is liable is the amount equivalent to the ordinary letting value of the property.
Accordingly, in joint proceedings issued in August 2014, both Galleondeal (which was owed mesne profits for the period from 2009 to 20012) and Leongreen, sought an award of mesne profits relating to their respective periods of ownership and damages referable to the state and condition of the property. Their claim was successful but only after a 3-day trial before HHJ Walden-Smith in November 2015. Whilst Leongreen’s claim for possession of the flat was ultimately successful, the proceedings were drawn out and the case took far longer than anticipated. An order for possession was finally obtained on 24 February 2014 but Mr Farrar did not vacate the flat until a month later on 26 March 2014. During this time, Leongreen had obviously been deprived of the right to any income to the flat and its claim for mesne profits had increased considerably as it now covered a 16-month period of trespass.
In his defence to Leongreen’s claim, Mr Farrar had relied upon various principles relating to res judicata and abuse of process as identified in the Virgin Atlantic case to argue that Leongreen had lost the right to claim mesne profits. HHJ Walden-Smith rejected the argument that the claim should have been brought when Leongreen first issued proceedings for a possession order in December 2012. She also held that there was no abuse of process by virtue of Leongreen only seeking an order for possession in the first proceedings and instigating a separate action later for mesne profits. Despite court directions requiring Mr Farrar to make an application to strike out the claim as an abuse of process by a specified date, he had failed to do so. Such applications will be viewed more favourably by the Court if made promptly. In fact, Mr Farrar had sought to strike out the claim at the start of the trial. HHJ Walden-Smith declined to hear the application at the start of the trial but agreed to consider submissions after evidence had been given. The Court’s jurisdiction to strike out a claim at or after trial is limited and she held that there were no exceptional circumstances to justify strike out at that late stage.
Whilst leave to appeal was not given in relation to these findings, it was, however, granted in respect of HHJ Walden-Smith’s rejection of Mr Farrar’s reliance upon the second and third principles identified by Lord Sumption in the Virgin Atlantic case (see box).
As mentioned above, the second principle provides that where a claimant succeeds in a first action and does not appeal the outcome, he may not bring a subsequent action on the same cause of action. The third principle is that of the doctrine of merger which treats a cause of action as having been extinguished once judgment has been provided (with the claimant’s only right being the judgment itself). The question in Farrar was what was the cause of action?
It was Mr Farrar’s case that the cause of action in both sets of proceedings (i.e. the claim for possession and the claim for mesne profits) was the same, namely it lay in trespass and, therefore, it was not open to the judge to award mesne profits given that Leongreen had already obtained an order for possession based on this cause of action. It could (and should) have claimed for mesne profits in those proceedings. He relied upon two authorities: Conquer v Boot  2KB 336 and Serrao v Noel (1885) 15 QBD 549 CA the latter being a case referred to by one of the judges in Conquer v Boot. However, his position in respect of both principles was fundamentally undermined by acceptance of the argument that each day of unlawful occupation of the flat as a trespasser constituted a fresh, separate cause of action giving rise to a claim for mesne profits for that period.
The Court of Appeal noted this and took little time to quickly distinguish Conquer v Boot from the facts of Farrar. In that case, the claimant had succeeded in an earlier claim based on the defendant’s breach of contract in failing to build a bungalow “in a good and workmanlike manner” and had been awarded damages in respect of approximately 17 items. He had then brought an identical claim in respect of an additional 14 items of faulty work and was awarded further damages. The defendant had successfully appealed in reliance upon res judicata as the claimant had already obtained a remedy for that particular breach of contract. Lord Justice Sales, who gave the leading judgment in Farrar, noted that Conquer:
was concerned with successive claims for different damages in relation to the very same cause of action, constituted by a breach of contract. It is, therefore, clearly to be distinguished from the appellant’s case, in which the respondent in its second action seeks to rely upon causes of action which are different from the cause of action on which the respondent sought to rely in the first action”
In effect, whilst the wrongful act might in respect of both claims was the same, namely Mr Farrar’s unlawful occupation of the property, this in itself was not the cause of action and there was a distinction to be made between an action for recovery of land as against a trespasser and an action for damages for trespass. Again, in the words of Lord Justice Sales:
In the first action, the respondent’s claim was limited to a claim for possession, which only involved the respondent in having to show that it had good cause of action as at the date that the date of the order for possession…. It did not maintain any claim in relation to any cause of action regarding the previous period of trespass..”
Turning to Serrao v Noel, Lord Justice Sales noted that the precise status of the case was not entirely clear. Despite this, he considered the judgment in some detail, ultimately concluding that the case serves as an illustration of the fifth principle (which prevents a party re-litigating an issue or a defence which could have previously been litigated), rather than assisting Mr Farrar in his reliance upon the second principle.
Once it was evident that the Court did not consider the cause of actions in the respective proceedings to be the same, it followed that Mr Farrar’s reliance upon the third principle (namely the cause of action being extinguished once judgment is given) would also inevitably be rejected. The grant of the possession order in February 2014 extinguished the claim for possession but it did not extinguish the claim for mesne profits as this arose from a different cause of action.
This decision is not necessarily surprising but it does provide useful clarification. Had Mr Farrar’s appeal been successful it would have created the undesirable situation whereby a landlord could use Part 55 Part II of the Civil Procedure Rules to obtain an accelerated possession order in respect of an Assured Shorthold Tenancy (subject to satisfying the specified procedural conditions) with freedom to pursue a debt claim separately - as there is no restriction on bringing two separate claims in this way - whereas this would not be possible for a claimant in a possession claim against a trespasser. Such a distinction would lack any logic and would be unwelcome in practice.
As was argued by counsel for Leongreen, although the description ‘a claim in trespass’ might apply to both a claim for possession and a claim for damages, they are distinguishable. She identified that one deals with regularising the position with regard to the future use of land, whilst the other has a compensatory element in respect of past use. As a result, they require a different approach in terms of evidence. In a possession action, the owner needs to show better title or a right to occupy; in the damages claim, the issue is the valuation of the occupation. They also have differing limitation periods which also hints at their being different causes of action. A claim for mesne profits is statute barred after 6 years by virtue of Section 2 of the Limitation Act 1989. On the other hand, action could still be taken against a trespasser who remained in unlawful occupation for this period of time.
It is a reassuring decision for property owners who are becoming increasingly restricted, for various reasons, in the remedial action they can take with regard to the use and occupation of their property. They can take comfort from the fact that they can act swiftly to recover possession against trespassers without having to pursue a claim for mesne profits at the same time when it may not be convenient or cost effective to do so. Their priority is often simply to recover possession as quickly as possible to prevent the risk of damage and so as to have the freedom to deal with the property as they so choose. More often than not, this will involve protecting the income stream by seeking to re-let without delay.
Finally, res judicata is also an important legal principle that should not be overlooked by litigators. This case serves as a useful reminder to claimants to consider all remedies at the time of issuing proceedings or run the risk of a strike out application if any attempt is made to plead an issue or cause that has either already been litigated or should have been raised in earlier proceedings. It was noted in this case that Leongreen had expressly reserved its right to pursue the claim for mesne profits which was no doubt also a sensible step to have taken.
This article first appeared in the March issue of the Property Law Journal, published by Legalease Ltd.
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