REPUBLIC
OF TRINIDAD AND TOBAGO
CvA.
No. 171 of 1997
IN
THE MATTER OF THE ESTATE OF BEESHAM RAMDIN, (DEC'D)
BETWEEN
NAVAL
RAMDIN
ANIL
RAMDIN
VEERAN
RAMDIN
APPELLANTS
AND
D.
OMAH MAHARAJ (Dec'd) substituted
by
Varuna Omah Maharaj
and
Shandilya Kamini Gopeesingh
RODERICK
R. ROOPCHAND
RESPONDENTS
Panel:
R. Hamel-Smith, J.A.
R. Nelson, J.A.
A.
Lucky,
J.A.
Appearances:
Messrs.
N. Bisnath and D. Clarke for appellants
Mr. S. Marcus, S.C. and Mrs. M. Rajnauth-Lee for respondents
Date: May
14, 2001
JUDGMENT
Delivered
by R. Hamel-Smith, J.A.
This appeal is the culmination of a long and drawn out feud over the
estate of the appellants' father, Beesham Ramdin ("Ramdin"). It is the
sequel to an action that was started in 1978 ("the 1978 action")
between the appellants and the executors of his will. Ramdin died in 1967 at a
relatively young age. He left a comparatively small estate comprising a parcel
of land with a dwelling house. There were some furnishings and appliances in it.
He also had a small shareholding in a paper napkin company and the proceeds of
an insurance policy.
By
his will he appointed the respondents his executors and guardians of his three
sons, the appellants. They applied for probate and that was duly granted in
February 1970. The will was a simple one. The will provided that the paltry sum
of $5.00 be given to Ramdin's estranged wife and the balance of the estate to
his sons in equal shares.
Difficulties
arose however and as a result the estate was never fully administered. At the
time of filing the 1978 action the realty was still vested in the executors and
the furnishings remained in their possession and control. The proceeds of the
policy were accounted for and the company in which Ramdin held shares had the
factory relocated elsewhere and continued operations there.
The
respondents attempted to sell the realty in 1973. A buyer was found but due to a
disagreement between the respondents the sale did not materialize. In fact, the
intended purchaser instituted legal proceedings against them in 1974 for
specific performance. That action was still pending when the 1978 action was
filed. By that time the house had gone to rack and ruin and the furnishings were
either lost or destroyed.
In
the 1978 action, the appellants sought an order for an account to be rendered by
the respondents. They alleged that the respondents as executors had failed to
fully administer the estate and, by their wilful default, were responsible for
the loss of the house and furnishings. As a result they asked the court for an
order that the estate be administered and an account on the footing of wilful
default be rendered in respect of the house and furnishings.
There
is no need to revisit the evidence but the gist of the trial judge's (Edoo J)
decision, was that as long as the estate was not fully administered the
responsibility to maintain the property, i.e. the house and the furnishings,
rested with the respondents as trustees. He found that they had failed in this
duty and ordered the account to be taken on the footing of wilful default.
Such
an account is generally ordered where a trustee fails to do something that he
was duty bound to do (passive breach of trust). This is in contrast to what is
called an active breach of trust where the trustee does an unauthorized act. In
the latter instance, a common or ordinary account is ordered as opposed to one
on the footing of wilful default. There is good reason for the distinction in
the type of accounts because where the order is on the footing of wilful default
the trustee is generally required to replace the asset at today's cost. In this
case, the order did not require the respondents to replace the particular assets
in specie. Rather, it directed them to pay compensation based on the replacement
value of the house and furnishings at the date of recoupment.
The
judge also directed an account for the rental value of the premises and the
value of Ramdin's interests in the company to be taken by the Registrar. As
regards the rental value, he directed that it be determined from 1968 excluding
the lower floor of the house and from 1970 including the lower floor, to the
date of recoupment. He also directed that the appellants were entitled to
whatever interest the testator had in the company at the date of his death.
This
part of the order does not indicate that the account to be rendered was to be on
the footing of wilful default. In fact, when the Court of Appeal determined the
appeal from Edoo J's order Gopeesingh JA noted the difference in the two
accounts ordered to be taken (see 45 WIR at p 349). The appellants contend
however that what Gopeesingh J.A. said was obiter
and that the only issue on appeal was whether the respondents were guilty of
wilful default or not. That appeal was dismissed. They contend that Edoo J
intended that all the accounts be on that footing and that this Court was not in
a position to raise that as an issue. I shall however return to this aspect of
the matter later on.
The
account was duly taken before the Registrar. After hearing evidence on both
sides, he determined the amounts payable as follows:
(i)
the replacement value of the property at 6 Carmody
Street
was put at $1,172,000.00. VAT of 15% ($175,800.)
was
added to that sum;
(ii)
the replacement value of the furnishings was determined
in
the sum of $169,299.98 inclusive of VAT ($25,395.00 );
(iii)
the gross rental value was put at $2,232,970.00 less 15%
outgoings of
$334,966.00 leaving a net rental value of $1,898,024.00;
(iv)
the shares were agreed at $1701.00.
Both
sides were dissatisfied with the account. They appealed to a Judge in Chambers.
Warner J. (as she then was) varied the Registrar's decision as follows:
(a)
the replacement value of the property was reduced to $801,000.00;
(b)
VAT on the property and furnishings was disallowed;
(c)
the appeal was dismissed with costs.
(d)
the appellants were ordered to pay the respondents one quarter of their
costs of the cross appeal.
Both
parties lodged appeals against that decision. For the appellants, the following
grounds were argued:
(a)
the learned judge erred in law in rejecting the valuation report and
evidence of Anthony Campbell as to the replacement value of the dwelling house
and relying on the affidavit of Anil Ramdin;
(b)
the judge erred in law in further reducing the valuation of the property
by deducting the cost of certain items referred to in the evidence of Anthony
Campbell, notwithstanding her rejection of Campbell's valuation;
(c)
the judge erred in refusing to allow VAT in respect of the replacement
value of the dwelling house and furnishings;
(d)
the judge erred in law in holding that the appellants were not entitled
to interest on the rental value of the property; and
(e)
erred in not allowing costs on a common fund basis.
For
the respondents, it was contended that the account should be further varied as
follows:
(a)
the sum awarded as to the rental value of the premises be reduced on the
ground that there was no evidence to support the finding that any part of the
property possessed potential for use as commercial premises;
(b)
the sum awarded in respect of the replacement value of the furnishings
be reduced as same was excessive and unreasonable.
It
seems to me that what has created the difficulty in this case is the order that
the replacement value of the house and furnishings be paid to the appellants.
Had the Judge ordered the respondents to replace those assets I seriously doubt
that much difficulty would have been encountered. The respondents would have had
to find the money to put back a house of similar design at today's cost;
likewise, the furnishings. They would have been responsible for paying the
builder and the supplier of materials and at the end of the day the appellants
would have had a house fully furnished. It seems therefore that the term
'replacement value' has led to the real difficulty in this case.
The
main issue for resolution is to determine the proper approach in arriving at the
replacement value of the lost assets. In other words, what sum of money must the
respondents pay to the appellants that will be a true reflection of their loss?
I would have thought that both sides would have appointed an independent
valuator or asked the Court to do so and that valuation would have been final.
But it seems that in litigation that is wishful thinking. As a result, no
definite plan of what the house looked liked was agreed upon. A valuation of the
house done in 1964 by the late Louis Kenny was about the only guide to go on,
save for some rough sketches that were found. As regards the furnishings, as
Warner J commented, no attempt was made to account for the age and condition of
the items in question or to seek out a second hand market to determine price. In
the end, both the Registrar and judge found themselves faced with a rather
difficult task.
In
determining the replacement value of the house it is evident that consideration
will have to be given to the fact that since there is no secondhand market for
replacing a house the costing of materials will of necessity be based on prices
for new items. The effect of this would be that in the final analysis the
appellants would receive compensation based on 'new for old'.
It
was accepted on both sides that the house at the time of the death of Ramdin was
some 33 years old but, according to Louis Kenny, in fair condition. It is that
house in that condition at that time which had to be valued as if it were being
replaced at 1996 prices. The appellants contended that to determine that value
one had to put a value on what it would cost to build a new house similar to the
one that was lost. On the other hand, the respondents proceeded, initially, on
the premise that the value of the house at the time when it should have been
handed over to the beneficiaries (circa 1971) had first to be determined and
then 'updated' to the date of recoupment. It
is not in issue that the date of recoupment was 1996.
In
the course of the hearing the respondents produced a further valuation more or
less in line with the appellants' approach, save that the figure arrived at was
much lower than the appellants'. The appellants' method was obviously the more
preferable, but, because of the conflicting valuations, a choice had to be made
between them. It was not an arbitrary choice by any means. The real difficulty
lay in the absence of any specifications or precise plans of the house by which
to gauge the replacement cost.
As
regards the furnishings, the more likely rule of thumb to determine the
compensation would be the cost of replacement at the date of recoupment of
similar items that were lost. Unlike a house, they are chattels and there may be
a secondhand market for them. The difficulty in this case is that there is no
evidence from either side of the availability of a secondhand market. The
difficulty encountered by both the Registrar and Warner J was how best to
determine the actual computation of that replacement cost in the prevailing
circumstances.
Both
sides had a starting point. There was a list of the furnishings and the value
attributed to the furnishings in 1967 for the purposes of estate duty was
$12,545.00. The respondents, in order to arrive at the replacement value in
1996, adopted the approach of taking that value and up-dating it to 1996. The
defect in that approach is that while the figure arrived at may be the notional
value, it may not represent the true replacement cost. In other words, if the
trustees had to go into the market to find a replacement, the cost may be
considerably more. The appellants, on the other hand, contended for a more
robust approach. They argued that the replacement cost could be determined by
taking the cost of new similar top quality
items in 1996. The difficulty with that argument is that they would be getting
'new for old'.
As
regards the rental value, the short argument of the respondents was that the
rental of the house had to be assessed on the basis of residential use only as
there was no potential for commercial use of the lower floor and, in any event,
prior approval for change of user would have been required before the lower
floor could be assessed on that basis. The appellants contended that the lower
floor had been used for commercial purposes and that entitled them to have it
assessed on that basis.
There
were other subsidiary issues, such as the entitlement to interest and the proper
order as to costs, but these will be dealt with later in the judgment.
.
It
is not in doubt that where a trustee is guilty of wilful default the court may
require him to restore to the trust the assets of which he deprived it at the
cost or replacement on the date of judgment or recoupment. Increases in market
values between the date of the breach and recoupment are therefore for his
account. Re: Massingberd's Settlement (1890) 63 LT 296,
demonstrates this stringent approach of equity in requiring restitution of the
asset. There, the trustees were held bound to replace stock wrongly sold by
paying whatever was necessary at the time of payment to purchase that amount of
stock and not merely to pay the value of the stock at the life tenant's death.
This is unlike damages for tort where it is generally assessed at the date of
deprivation. In spite of this difference, the principles fundamental to damages
are no different, namely, the defendant's wrongful act or default must cause the
damage complained of, and the plaintiff is to be put 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 (see
Target Holdings Ltd v Redferns & anor [1995] 3 All ER 785 HL).
While
the common law rules of foreseeability and remoteness of damage may not apply,
equity seems to require that there be some causal connection between the breach
of trust and the loss to the trust estate for which compensation is recoverable,
viz. the fact that the loss would not have occurred but for the breach. In this
appeal, Edoo J found that the respondents were in default in maintaining the
house and furnishings, so the causal connection between the breach and the loss
was made. It is not clear however, as far as the rentals value is concerned,
because of the nature of the account ordered, whether the casual connection has
been made but I shall return to this later.
Counsel
for the appellants was not able to unearth any authority to show that Warner J
erred in her approach to establish the replacement value. He did refer to
several cases before her to support the appellants' method of approach. I need
only refer to one or two that deal with general principles and provide some
guidance but are not conclusive in relation to the difficult issue of
determining 'replacement cost'. The cases referred to were Dominion Mosaics & Tile Co.
Ltd. v Trafalgar Trucking Co. Ltd. [1990] 2 All E.R. 246 and Harbutt's
Plasticine v Wayne Tank & Pump Co. Ltd. [1971] 1 All E.R. 225.
In Dominion Mosaics, the
Court of Appeal held that the principle governing the measure of damages was
resitutio in integrum. Whether that was achieved by assessing the diminution in
value of the damaged object (a building and a carpet machine) or the cost of
reinstatement, depended on the circumstances of the particular case. As regards
the loss of the machine, the Court held that the principle did not mean
restoring to the plaintiffs the amount they had paid for it (a special sale
price of 13,500 pounds) but putting them in a position in which they had been
before the fire, i.e. as owners of a machine which would cost 65,000. pounds to
buy a new one, notwithstanding they did not purchase a new one. That sum
represented what they had in effect lost as a result of the breach.
It is useful to note that the Court observed that the defendant had not
suggested an intermediate figure for the value of the machine. Since there was no
second hand market for such a machine and it was irrelevant that the machine had
not been replaced, the plaintiffs
were entitled to damages of 65,000 pounds for their loss. As regards the
building, the defendants contended that the plaintiffs were entitled only to the
diminution in value of the damaged premises and not the cost of rebuilding or
the cost of obtaining other premises which was cheaper than rebuilding. That was
rejected. The fact that the building was business premises and thus income-earning
was a critical factor in not limiting the appropriate measure of damages for
their destruction to the diminution in their value as a result of the fire but
extended to the cost of acquiring new premises. The ratio for this was that
since the plaintiffs required premises to carry on business, it was reasonable
to purchase new premises that would mitigate the damage caused by loss of
profits while rebuilding.
The Court of Appeal followed the decision in Harbutt. There, Lord Denning, M.R. (at p.236) stated:
"The
destruction of a building is different from the destruction of a chattel. If a
secondhand car is destroyed, the owner only gets its value because he can go
into the market and get another secondhand car to replace it. He cannot charge
the other party with the cost of replacing it with a new one. But when this mill
was destroyed, the plaintiffs had no choice. They were bound to replace it as
soon as they could, not only to keep the business going but to mitigate the loss
of profits…. . They replaced it
in the only possible way, without adding any extras. I think they should be
allowed the cost of replacement. True it is they got new for old, but I do not
think that the wrongdoer can diminish the claim on that account. If they had
added extra accommodation or made extra improvements they would have to give
credit…."
In Dodd Properties (Kent) Ltd. v
Canterbury City Council [1980] 1 All E.R. 928 at 938, Donaldson L.J.
added to what May J. had said:
"In the case of tort causing damage to real
property, the object is achieved by the application of one or other of two quite
different measures of damage or… a combination of the two. The first is to
take the capital value of the property in an undamaged state and to compare it
with its value in a damaged state. The second is to take the cost of repairs or
reinstatement. Which is appropriate will depend on a number of factors, such as
the plaintiff's future intentions as to the use of the property and the
reasonableness of those intentions. If he reasonably intends to sell the
property in its damaged state, clearly the diminution in capital value is the
true measure of damage. If he reasonably intends to continue to occupy it and to
repair the damage, clearly the cost of repairs is the true measure. And there
may be in between situations"(emphasis
added).
Finally,
in Ruxley
Electronics & Construction Ltd v Forsyth [1995] 3All ER
268, HL where the appellants had contracted to build a swimming pool for the
respondent to a depth of 7 foot 6 ins but built it to a depth of 6 foot only,
the judge at first instance refused to award the cost on reinstatement in lieu
of diminution in value (which was nil) but instead awarded a nominal sum as
general damages. The Court of Appeal allowed the plaintiff's appeal but the
House of Lords restored the judge's award. It held that where it would be
unreasonable for the plaintiff to insist on reinstatement because the expense of
the work involved would be all out of proportion to the benefit to be obtained,
then the plaintiff was confined to the difference in value. But the plaintiff's intention,
or lack of it, to reinstate was relevant to reasonableness and hence to the
extent of the loss which was sustained. If the plaintiff did not intend to
rebuild he had lost nothing except the difference in value. If, however, the
diminution in value was nil, it was not correct to award the cost of
reinstatement as an alternative to the difference in value, since it could not
be right to remedy the injustice of awarding too little by unjustly awarding too
much.
As
Lord Jauncey of Tullichettle said (at 274)
"damages are designed to compensate for an
established loss and not to provide a gratuitous benefit to the aggrieved party,
from which it follows that the reasonableness of an award of damages is to be
linked directly to the loss sustained."
Lord
Mustill (at 277) in concurring with their Lordships on the question of
reasonableness said this:
".. the test of reasonableness plays a central
part in determining the basis of recovery, and will indeed be decisive in a case
such as the present when the cost of reinstatement would be wholly
disproportionate to the non-monetary loss suffered by the employer. But it would
be equally unreasonable to deny all recovery for such a loss. The amount may be
small, and since it cannot be quantified directly there may be room for
difference of opinion about what it should be. But in several fields the judges
are well accustomed to putting figures to intangibles, and I see no reason why
the imprecision of the exercise should be a barrier, if that is what fairness
demands…. There is no need to
remedy the injustice of awarding too little by unjustly awarding far too
much. (emphasis added)
The
distinction between compensation based on diminution in value as opposed to cost
of replacement does not arise in this case but the fact that the house was not
an income-earning one may be quite relevant. Also, in arriving at the final
compensation there must be room for some give and take, depending on the type of
asset involved. And (as per Donaldson LJ.in Dodd) there will be in
between situations and credit must be given where there are improvements.
It
must therefore be a relevant consideration that the house at the material time
was some 33 years old and there was no evidence to show that major repairs had
ever been undertaken. As regards the furnishings, given the fact that Ramdin had
purchased the house in 1957 and died in 1967, it would be a reasonable inference
that the majority was probably purchased during those ten years. One could infer
therefore that the furnishings were not more than 10 years old and probably
some, at least, were roughly between, say, 4 and 10 years old.
The
House.
As
regards the house, the Registrar rejected the respondent's method of
calculation. He held that the compensation had to be based on the replacement
cost in 1996. That did not advance the case since it simply reflected what Edoo
J. had ordered. The real difficulty was how to arrive at that cost. The
Registrar accepted the valuation of the house done by Campbell for the
appellants. The sum of $1,172.000.00 was based on what it would cost to build a
new house of more or less what he considered a similar design. While that seems
a reasonable approach the Registrar first had to be satisfied that the design
was indeed as near as possible to the ruined house. The only material available
to both sides was contained in Kenny's valuation report. He had measured the
house at 4756 sq. feet. With a valuation of $1.1m, that would put the cost of
rebuilding at more or less $250 per sq. foot. At that time the house was roughly
33 years old but in the opinion of Kenny, it was in a fair condition. Kenny
described the layout of the house. It was said to have five bedrooms but one
bathroom so that was the starting point for Campbell's exercise as far as design
was concerned.
Thompson's
valuation had a different approach. Louis Kenny had valued the house at
$19,000.00 and Thompson used this as his starting point. According to him, he
up-dated this value, assuming, as he said, that the house would "not
necessarily retain its 1967 quality, durability, etc." and
"as if it continued to exist
at a date in 1996 when the recoupment was to be effected."
He arrived at a value of $110,000.00. He explained that in his view the
passage of time would have had an effect on the building so that when "you
come to compensate at this date (1996) the sum payable works out to be perhaps
the exact 1967 value or not much more". .
This
method was obviously flawed because it appeared to be up-dating the value of an
asset on the assumption that it was deteriorating with the passage of time. The
purpose of the exercise was to determine what it would cost to replace the house
at it stood in 1967, not what it would have been worth had it continued to
exist. No doubt, the respondents were concerned about the weakness of this
approach and they obtained another valuation from the firm of Hart and Leonard
in 1996. That report adopted an approach (at least according to counsel for the
respondents) based on the concept of
compensating for the 1967 value at the date of recoupment as distinct from
replacing with a new building. One cannot always rely on the transcript to
reproduce faithfully the precise submission, so I shall leave the meaning of
that concept to counsel. Leonard explained, however, that the exercise was done
with a view to arriving at the cost of the building as it would have been in
1967. He was obviously putting a replacement cost to a similarly designed house
as the one there in 1967. He put that cost at $519,000.00 or $110. per sq. foot.
His approach cannot be faulted but the appellants argued that his value was on
the low side.
The
approach of Leonard was criticised by the appellants on the ground that it was
deficient as regards the actual size of the demolished building. The Registrar,
in rejecting the valuation, stated that it
"missed the mark in seeking to reconstruct the 1967 house at current market
rates to the same scope and specification as existed prior to demolition. What
they attempted to do was to put today's values to the building as it existed in
1967". Warner J did not agree with the Registrar. She said that he
appeared to have misunderstood Leonard's approach. He probably did. Warner J
nevertheless expressed the view that the theory of reconstructing a similar
house at today's prices was closer to the mark than the Registrar appears to
have appreciated.
It is difficult to disagree with Warner J. Her view seems to be borne out
by the fact that Campbell's approach, which the Registrar had no difficulty
accepting, was similar to Leonard's. Campbell based his value of $1,172,000.00
on what it would cost to build a (similar) house in 1996. He, too, did not have
exact specifications and floor plans to work with and in order to arrive at a
similar design he looked at a picture and some sketches of the original building
and attempted to replace what he saw "as
near as possible". In doing so, however, he added several new features
to the building.
This
caused Warner J. to reject the Campbell valuation as "too high". Similarly, because of certain deficiencies in
Leonard's valuation, such as attempting to replace the walls with concrete
noggin that was no longer available, and the shortfall in the size and pitch of
the roof, she considered his valuation "too low".
In
arriving at an in between value, a
value she considered a fair replacement cost, she opted for the
valuation propounded by the second appellant in his affidavit ($894,000) and
deducted the cost ($91,000) of the additional features introduced by Campbell.
The appellants submitted that Warner J. erred in making use of the appellant's
valuation as it was not challenged by the respondents and never relied upon by
the appellants themselves and, in any event, was wrong to deduct the additional
features from the cost.
There
can be no doubt that the purpose of the second appellant's affidavit was to
challenge the replacement cost proposed by the respondents and to put forward a
more realistic replacement cost of the house for the court's consideration. The
second appellant had deposed to the fact that he had consulted a valuator and,
in respect of the house, established a value of $894,000.
On
the facts of this case I can find no fault with Warner J's findings. The
approach of both Leonard and Campbell in respect of the replacement cost was, in
my view, a reasonable and fair one in the circumstances. Both parties were faced
with the difficult task of attempting to redesign a building that no longer
existed in order to arrive at what it would cost to replace it. It was
sufficiently established that Campbell had added features not originally there
and Leonard had fallen short with his specifications. An in between solution was a reasonable and practicable way of
resolving the issue. Warner J was therefore justified in using the value
propounded by the second appellant.
The
appellants have not advanced any good reason why Warner J was not entitled to
rely on what the second appellant had deposed to in his affidavit. It was their
evidence and if Campbell's report had not been obtained, the appellants would
have had to lead evidence to support their case. It might have been necessary to
call the very valuator he had consulted to support the cost. But the fact that
there was no challenge to the affidavit evidence was, in my view, immaterial.
The sole purpose of it was to counter the respondents' figures and demonstrated
that the appellants were prepared to accept $894,000.00 as the replacement cost.
The second appellant deposed that he had consulted a valuator to arrive at what
he considered a proper cost of replacing the house and, according to his
attorney, the figures were arrived at after considered
evaluation. It is true that he was not an expert but that was a question of
weight and there was always the possibility that the Court could reject
Campbell's report, which did happen.
According
to the rubric in Order 38/2/6 in The Supreme Court Practice (1999 Ed) when an
affidavit has once been filed by any party (except in bankruptcy proceedings),
the opposite party is entitled to use statements therein as admissions by the
deponent. He is also entitled to cross-examine on it notwithstanding the party
filing it makes no use of it. The respondents had made no objection to it,
either on the ground of hearsay or as to its accuracy and it was tantamount to
an admission on the part of the appellants that that was the replacement cost
they would accept, at least at that time. I therefore see no good reason why the
trial judge could not use the intermediate figure propounded by the appellants
in the affidavit and would accordingly dismiss this ground of appeal.
The
other ground of appeal is that while Warner J. accepted the second appellant's
replacement cost, she nevertheless deducted the cost of the additional features
which Campbell had included in his design and costing. The appellants submit
that she was wrong to do so. I disagree. It is more likely than not that the
second appellant, while he did not identify the name of the valuator, did
consult Campbell before deposing to his affidavit. But even if he did not, at
the end of the day Campbell, in order to prepare his valuation, had to take
instructions from the appellants. Why would they instruct Campbell to include
the additional features in his valuation and not include them in their
valuation? On a balance of probabilities it is more likely than not that the
appellants had factored them into their valuation as well. Accordingly, I would
also reject this ground of appeal.
The Furnishings.
As regards the furnishings, the Registrar accepted as reasonable the
approach of Cremona-Simmons with respect to the replacement cost. He obtained
his prices by going from store to store and noting the prices of new similar
items. He said that he visited top-of-the-line furniture shops and the prices
were based on top quality new items for use, in what he considered, an executive
house. The total amount was $169,292.98 to which VAT of 15% was added.
Thompson
did not carry out such an exercise. Like Cremona-Simmons, he had never seen the
items but using the value placed on them for the purposes of probate ($12,540)
he simply up-dated that value to what it could have been in 1996 on an
assumption that the deceased may not have taken care of the items The Registrar
rightly rejected this method. It was wrong firstly, to base the value on such an
assumption and it was the replacement cost of the items as they were in 1967
that had to be determined, not the up-dated value. The clock, so to speak, had
stopped ticking in relation to these items and the replacement cost in 1996 had
to take into account their age and condition at the time of the loss.
Warner
J, in agreeing with the Registrar, approached the issue on the basis that the
items had to be replaced at current prices. She did so because it appeared to
her that the respondents advanced no evidence of the age or condition of the
items that were lost and in the absence of such evidence she accepted the
approach of the Registrar as a reasonable one in a difficult situation.
Cremona-Simmons'
method, which the Registrar accepted, was, in her view, a more reliable one than
that of Thompson who did not know the age or condition of the items and for
whatever reason, assumed that the deceased did not keep them in good condition.
Warner J was prepared to resolve any doubt in favour of the appellants and in
the absence of any intermediate figure, she agreed with the Registrar's
decision.
Warner
J. no doubt was faced with a difficult task but I can find no fault with her
reasoning on this issue. As she correctly pointed out, the onus was on the
respondents to determine the replacement cost on a sound basis. If they wished
to minimise the loss it was necessary for them to determine as best as possible
the age and condition of the items and to obtain a valuation that reflected
those features. To simply take the probate value in 1970 and up-date
it, not only without knowing the condition and age but proceeding on a
wholly unjustified assumption that the deceased may not have taken good care of
the items, could not be a fair and reasonable approach. That said, it cannot be
ignored that the exercise was not a one sided affair. The appellants could not
simply submit that because of the failure of the respondents to determine the
age and condition it followed, ipso facto, that their value had to be accepted.
It would be wrong to give them new for old.
They, too, had to furnish particulars of the age and condition of the items in
support of their exercise. They did not. To the contrary, they claimed the cost
of new top quality items instead.
Given
the difficult circumstances, I think that a fair and just approach would be to
begin with the replacement cost of new similar items in 1996. Using that as the
starting point, and in order to allow for the fact that the appellants were now
getting, in effect, new for old, a benefit that was never intended, and on the
assumption that most of the items at the time of death were probably less than
10 years old, a deduction of 25% from the total value put forward by Cremona-Simmons
should be made. That would leave a net replacement value of $ 101,575 and in
keeping with the Registrar’s judgment, there would be interest on that sum at
6% from the date of his order.
Rental Value.
I
now turn to the issue of the rental value. The Registrar and Warner J. construed
the order of Edoo J to mean that rental for the lower floor was to be valued on
the basis of commercial use. This quite likely came about because the appellants
contended that the testator operated a small factory on the lower floor while he
lived there. The respondents submitted that they were wrong to so construe it
because the house was in a residential area and it was not in dispute that there
were covenants in the lease that restricted the user to residential. Before it
could be used as commercial premises, they argued, permission had to be obtained
from the relevant planning authority. They submitted that the fact that the
testator had used the lower floor to operate a domestic factory did not
automatically change the residential nature of the premises. These arguments
were rejected and in the final analysis an award for rental value was made in
respect of the lower floor on the basis of commercial use.
Before
dealing with this aspect of the matter, I turn to what I consider a more
critical issue that was raised by this Court. The order of Edoo J did not
expressly state that the account for rental value was to be on the footing of
wilful default. The appellants have argued that Edoo J intended such an account
and that both sides had proceeded on that basis. I do not share the view that
parties can proceed on the basis of intention. The terms of the order confer the
jurisdiction on the Registrar to take the account. As it stood therefore, it
seems to me that the Registrar could not take the account of rental value on the
footing of wilful default. If anything, that account had to be on a common
account. This marked difference in accounts was not lost on the Court of Appeal
where Gopeesingh J.A. said that it was evident from the terms of the order that:
"the
only account ordered to be taken on the footing of wilful default relates to the
property …and the furniture and household effects therein. In relation to the
rental value …and the value of the testator's shares in the …company, it
should be observed that an ordinary account was directed to be taken."
It
is of some importance that the relevant part of the order in relation to the
rental value and shares was amended in writing but only to indicate that the
account was to be taken by the Registrar. No
attempt was made to amend that part of the order dealing with the taking of the
account to show that it was to be on the footing of wilful default. What adds to
the uncertainty is that the account for the value of the shares would have had
to be on the same footing when in fact there was never any dispute about them on
the pleadings. As the order stands therefore it seems to me that the Registrar
could not have proceeded to take an account on the footing of wilful default in
respect of the rental value and shares. If it were on a common account the
appellants would have to show that they had committed a breach of trust and not
simply failed to do something they should have done. They have not done this.
What
is the court to do? Should it deprive the appellants of the rental value
altogether because of the defect in the order? Or should the court treat the
order as implying that the account had to be on the footing of wilful default?
It is fairly obvious that the respondents never raised the issue either
at the appropriate time (i.e. at the first appeal) or at all. Given their
approach to the taking of the actual accounts it cannot therefore be said that
they considered the account to be otherwise than on the footing of wilful
default. Had this Court not drawn the flaw in the order to their attention, no
complaint would have ever arisen, of that I am certain. The respondents, in
their supplemental arguments, have themselves expressed reservations as to the
propriety of this Court construing the terms of the order differently at this
late stage. In fairness to them, they do not contend that it ever dawned on them
to construe the order otherwise than on the footing of wilful default. On the
pleadings, the appellants did allege that the respondents had failed to let the
house (paragraph 6) and it is fairly obvious that Edoo J made his order for
rental value on this basis. Any order therefore would have to be on the footing
of wilful default, notwithstanding what Gopeesingh JA said on appeal.
My
brother, Nelson, JA has expressed a contrary view but in the circumstances of
this case I think that fairness alone justifies allowing the account on the
footing of wilful default. The question of wilful default does not arise in
respect to the value of the shares since that value was agreed between the
parties, so any adjustment to the order is confined to the rental value.
What
then is the fair rental value for the premises and should the lower floor be
assesed on the basis of commercial use? On the first issue, both sides produced
valuations but the Registrar and Warner J. accepted the appellants' own. They
rejected the respondents' which was done by Mr. Thompson. He valued the premises
on the basis of residential use only but it was based on the assumption that the
building was in a state of disrepair. This, of course, was contrary to the
findings of Louis Kenny in 1964 that it was in ‘fair’ condition. Thompson
was aware of the Kenny report but nevertheless proceeded on that assumption. He
may not have been aware that Edoo J. took into account that part of the
insurance proceeds due to the estate would be used to effect minor repairs to
the house before it was rented. That was a hypothetical assumption but it meant
that any valuation had to be on the basis that the house was in a state of
repair, albeit minor repair as opposed to major repairs. Thompson's assumption
was therefore misconceived. He confessed to the additional difficulty of not
being able to find houses in the area that were rented in order to determine
comparable rentals.
Cremona-Simmons,
on the other hand, was successful in locating several owners who had rented
their houses from time to time so his valuation of the upper floor was based on
'reality' to a certain extent (see schedule 6 and 8 of his report). His value
was based on furnished premises. He
said that as far as he was aware the premises in 1967 were furnished. The order
gave no indication that the rental was to be assessed on that basis. As regards
the lower floor, he arrived at his value on the basis of commercial use.
Both the Registrar and Warner J. accepted the valuation of Cremona-Simmons.
Warner J simply accepted that the Registrar's approach was correct, save that
she was of the view that the valuation of Thompson was superficial and that the
appellants were not entitled to have VAT added on to the rental value.
In
principle, I agree with the Registrar that Thompson's report was not as thorough
as it should have been, leaving it somewhat unreliable. I see nothing
objectionable to the method adopted by Cremona-Simmons. It is an attractive and
useful method of arriving at rental value in a particular area, more so when the
exercise is being carried out several years later. In those circumstances, the
Registrar's decision to accept his report was a reasonable one. Cremona-Simmons
put the gross rental value of the premises (excluding the lower floor) at
$1,709,250. From that a deduction of 15% for outgoings, maintenance and repairs had to be made, leaving a net
rental value of $1,452,863.50.
Cremona-Simmons,
however, valued the rental of the lower floor on the basis of commercial use.
The respondents contend that it had to be on the basis of residential use only.
In his judgment, without advancing any reasons, Edoo J. stated that the
appellants were entitled to the rental value of the premises. In determining the
period from which such value was to be assessed he took into account the fact
that Mrs. Ramdin had vacated the premises by the middle of 1968 and that the
factory had been removed by the latter part of 1969. He made allowances for
carrying out minor repairs and having the premises fit for occupation. He then
arrived at the specific date from which the rental value would be calculated. I
quote the terms of the order as the wording is quite deliberate. It says:
"….
that an account be taken by the Registrar
of:-
(i) the rental value of the said property from a date
in the latter part of 1968 (but excluding the lower floor from the period
commencing in the latter part of 1968 to the beginning of 1970) to the date of
recoupment".
It
is fairly obvious from the terms of the order that the rental for the premises,
excluding the lower floor, was to be valued from the latter part of 1968. It
made provision for that value to be adjusted in 1970 when the lower floor became
available. If Edoo J intended that the lower floor was to be valued
independently of the upper and on the basis of commercial use he would have
expressly said so. In my view, therefore, what was required to be done was a
valuation of the rental the premises would fetch between late 1968 and the
beginning of 1970 sans the lower floor
and, from 1970 onwards, inclusive of the lower floor. There is nothing in the
order to suggest that the rental was to be on the basis of commercial user. It
is certainly more consistent with residential user.
These
premises were always considered residential. I do not think that is in issue. It
is true that while the testator lived there he carried on a small factory below
the house. He was free to carry out whatever activity he wished to pursue on his
premises, subject, of course, to the terms of his lease. Even if he were in
breach of those terms it was a matter between him and his landlord. The fact
that he operated the factory without interruption did not mean that he was not
in breach of his lease but neither did it automatically mean that the premises
lost its residential status vis-a-vis the lease and were now partly residential
and partly commercial. This was an artificial separation that existed in the
appellants' mind only. The premises remained residential and commercial use was
prohibited by the terms of the lease.
Further,
the testator obviously operated the factory there by choice. One seldom, if
ever, is bothered by a nuisance that is self-inflicted. After his death,
however, it is highly unlikely, if only from a commonsensical point of view,
that a tenant would be found who would be prepared to put up with a factory
below his house, more so when the rental demanded was on par with other
executive type houses in the area. Such a combination would have no attraction
to the type of high profile tenants sought by the appellants, namely professors
from the nearby university. Any
rental on such a basis would therefore be illusory and artificial.
It
is more than likely, given the deliberate language used in the order, that Edoo
J never intended such a combination. In my view, therefore, the appellants'
contention cannot be supported. What was required was simply an adjustment to
the rental value of the premises in 1970 to include the two rooms on the lower
floor, not a separate and independent valuation of the lower floor. The
appellants did not do such an exercise, with the result that a proper assessment
has not been arrived at.
Thompson's
valuation of the lower floor was on the basis of residential user and that is
all the evidence there is to determine the rental value. Although rejected by
the Registrar, it is the only useful guide there is. Failing that, the
appellants would stand deprived of that part of the rental altogether. The
rental value for the relevant period amounts to $181,200 and when 15% is taken
away for repairs and other outgoings,
a net amount of $154,050 is arrived at. In the circumstances of this case, I
would add that sum to the rental value of the upper floor thereby producing a
result of $1,606,913.50. The
appellants would be entitled to interest on this sum at the rate of 6% per annum
from the date of the Registrar's judgment.
Interest.
The
appellants claim that they are entitled to interest for each year on the rental
value from 1968 in respect of the upper floor and from 1970 for the lower floor.
The respondents maintain that that was a matter for Edoo J and he did not award
interest. Accordingly, they argue, this Court cannot now make any such award.
The Registrar and Warner J appear to have agreed with the respondents'
submission. I have no doubt however that this Court has the power to award
interest in an appropriate case at this late stage notwithstanding the failure
of a trial judge to do so (see Re
Barclay (1899) 1Ch. 674). The authorities however appear to reserve the
power to make such an award in cases where the trustee has retained money due to
the beneficiaries or trust. It cannot be said that the respondents have retained
money belonging to the appellants; it is more a failure to rent the premises
from which money would have been received and this would not be sufficient to
invoke the rule in Re
Barclay.
In
any event, if it were permissible to award interest I think that in the
circumstances of this case an award would not have been justified. Ramdin died
in 1967 and by 1971 the respondents had obtained the grant of probate. If it
were permissible for them to rent the premises, then from 1971 onwards they
could have done so. They however agreed to sell the premises in 1974, a fact
known to Edoo J. at the time. Any tenancy would have had to be determined to
make way for the purchaser. By the time the 1978 action was commenced, the
house, by then some 43 years old, had already gone to rack and ruin. It was no
longer there, making rental of it impossible.
The effect
of Edoo J's order was to replace the asset at the 1996 cost. By making that
order he correctly assumed that the asset no longer existed. Accordingly, the
appellants, without incurring any expense in major repairs, have had the asset
restored, so to speak, by getting new for old. An award for rental value during
those years would be contrary to that assumption since an award would have to be
on the assumption that the house still existed when it did not.
It
is true that a reserve of 15% of the annual rental was made by Cremona-Simmons
for repairs and outgoings but that
figure was more artificial than real, given the age of the house. It certainly
did not reflect the cost of major repairs that would of necessity have had to be
done at some stage. In my view the appellants were more than adequately
compensated by being awarded the replacement cost that obviated any need for
major repairs. The rental value in the circumstances of this case could only be
an unexpected windfall.
In
light of what I have said it may very well be that Edoo J had good reason for
not awarding interest. Given his careful approach to each item under claim, if
he intended to award interest he would have expressly said so.
Any claim therefore to an award of interest annually on the rental value
from 1968 would not be justified. I would accordingly dismiss this ground of
appeal. Of course, this is not to deny the appellants interest on the rental
value from the date of the Registrar's judgment.
Value Added Tax.
The
Registrar added VAT to the replacement cost of the house and furnishings. Warner
J. did not agree and removed the VAT. In the absence of any authority to the
contrary, I agree with her. The award is for compensation to be paid on the
basis of replacement value and in those circumstances liability for the payment
of VAT does not arise. In theory,
one could argue that if the exercise is to determine replacement cost that must
of necessity include an amount to cover VAT. That may be so but if VAT were to
be awarded there would be no corresponding liability to pay it over to the
Revenue. I agree that Warner J was right to disallow the addition of VAT
altogether.
Final Account.
The accounts will therefore be adjusted to read as follows:
Replacement value of house:
$ 801,000.00
Replacement value of furnishings:
$
101,575.00
Rental Value:
$1,606,913.50
Shares (agreed)
$
1,701.00
$2,511,189.50
The
appellants are entitled to interest at the rate of 6% per annum from the date of
the Registrar's order on the account.
Costs.
The
final issue is on the question of costs. The appellants say that the costs
should be on a common fund basis in keeping with the order of Edoo J. The
Registrar refused to follow suit with respect to the costs of the inquiry. He
advanced no reasons for doing so. Edoo J had heard extensive argument on the
issue before making his order in the form that he did. That order still stands
and in my view, the hearing before the Registrar was in effect an extension of
that trial. If simply for consistency alone, there is good reason to vary the
basis on which the Registrar ordered costs to be taxed. I will allow this ground
of appeal and order that the costs of the appellants before the Registrar be
taxed on a common fund basis.
In
the final analysis, the appellants have not succeeded on the main issues in
their appeal. The sole issue resolved in their favour is the question of costs
before the Registrar. In those circumstances, I would order that they pay the
respondents 90% of the costs of the appeal. The respondents have succeeded on
their cross appeal, namely, the
reduction of the rental values and the value of the furnishings. I would
therefore order that the appellants pay the respondents' costs of the cross appeal. In both instances, the costs are certified fit for
counsel.
.
R. Hamel-Smith
Justice of Appeal
I
have read in draft the judgment of Hamel-Smith JA and agree with it and the
orders he proposes to make.
A.
Lucky
Justice
of Appeal.
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