What is the correct measure of damages when a negligent survey results in costly repairs for property buyers? Emily Betts discusses a ‘negligent surveyor’ case where the respondents were able to recover the full cost of repair because the appellant bank’s evidence at trial, on the diminution in value, was rejected.
Moore and another v National Westminster Bank Plc [2018] EWHC 1805 (TCC), [2018] All ER (D) 129 (Jul)
What are the practical implications of this case?
The court found that the principle for assessment of damages in ‘negligent surveyor’ cases applied by analogy in a case where a bank had failed, in breach of contract, to provide a survey at all. The distinction between a negligent survey and no survey was a distinction without a difference, and damages should be assessed on the basis of diminution in value, subject to this not being an ‘inflexible rule’, and in certain circumstances, the cost of repair could be used to calculate the diminution in value. However, in this case, the claimants/respondents were able to recover the full cost of repair because the defendant/appellant bank’s evidence at trial on the diminution in value had been rejected, and no intermediate position had been advanced.
Accordingly, practitioners should:
- be aware that claimants bringing a breach of contract claim alleging a breach of duty in relation to a survey (whether a failure to provide, or otherwise) may now be limited to recovering diminution in value
- ensure they advance a primary and intermediate position on quantum to best protect their client’s interests, as well as considering the appropriate expert evidence to adduce in order to do so
What was the background?
The respondents were a married couple who bought a flat in Bideford in order to let it. The purchase price was £135,000, of which £81,000 was a loan from the appellant bank secured by a mortgage over the property. In their mortgage application, the respondents indicated they wished the bank to produce a Home Buyer’s Report (HBR), which is a more extensive kind of survey of the property than a simple valuation.
In error, the bank did not carry out the necessary survey to produce a HBR. Nevertheless, the bank produced a standard valuation and made a mortgage offer to the respondents, which indicated that the bank was prepared to lend the sum to help the respondents buy the property for the purchase price. When this was offered, the respondents understood they had been given a favourable HBR. In fact, it turned out that the property was in a poor state and needed extensive repair works. The cost of that work was enhanced because the property was Grade II listed and in a conservation area. The respondents’ evidence at trial was that the works would cost £115,000.
The respondents brought a claim for breach of contract for failure to provide an HBR. At the trial, the appellant bank denied any contractual relationship existed at all, denied breach and denied causation.
The judge found in favour of the respondents for breach of contract.
The judge also dealt with the quantum of damages. The respondents contended that the correct measure of damages was the cost of repair (ie £115,000) because if they had received an HBR as they ought to have done, it would have alerted them to the very real problems with the property and they would not have bought it. The cost of repair was the correct and fair measure of their loss.
The appellant contended that the true principle for assessment of damages was found by analogy with ‘negligent surveyor’ cases in a line of Court of Appeal authorities—Phillips v Ward [1956] 1 All ER 874, Perry v Sidney Phillips [1982] 3 All ER 705, and Watts v Morrow [1991] 4 All ER 937. The appellant submitted that these cases show that the correct measure of damages in the present case would be a sum equal to the diminution in value of the property, and not the cost of repair.
On the facts, the appellant relied on the evidence of an expert, Mr Davies, that the diminution in value of the property was £15,000. The respondents’ expert, Mr Northridge, did not agree. His evidence was that he could not have given a valuation of the property in an HBR because he would have identified the problems and further detailed survey work would have been required. A figure of £20,000 was mooted by Mr Northridge, not as a valuation, but rather simply as the mathematical result of subtracting the costs of repair of £115,000 from £135,000.
The judge rejected Mr Davies’ evidence that the diminution in value was £15,000, preferring the evidence of Mr Northridge. Further, he found he was not bound by the authorities to order ‘diminution in value’, and awarded £115,000 in damages. There was also a further award of consequential losses, but they were not challenged on appeal.
In what the judge described as a supplemental judgment dealing with consequential matters, including the appellant’s application for permission to appeal, the judge said:
‘I preferred the evidence of Mr Northridge to that of Mr Davies for the reasons I gave. Accordingly, if I was wrong not to apply Watts v Morrow there would be no basis for an award less than the cost of repair in any event. There being no contrary evidence on the cost of remedial works required, and therefore the court would be left with no other practical indicator as to what would amount to a reasonable estimate of the diminution in value but the quantified cost of repair, which in my judgment would lead to the same conclusion (the Steward v Rapley approach).’
Steward v Rapley [1989] 1 EGLR 159 was a case where the view of the claimant’s expert was that the diminution in value was represented by the cost of repair. The Court of Appeal held that this did represent the proper measure of damages on the facts of that case.
The appellant then appealed on the sole issue of the judge’s award of the costs of repair.
What did the appeal court decide?
On appeal, Birss J considered the principle in the ‘negligent surveyor’ cases, and dismissed the first two reasons given below for distinguishing the principle:
- the fact that this was a failure to provide a report, rather than the provision of a negligent report, was ‘a distinction without a difference’ and the surveyor’s negligence principle applied
- the fact that the respondents in this case would have decided not to buy the property was also not a basis for distinguishing the principle, as that had been expressly taken into account in Philips
Birss J moved on to consider the judge’s third reason, which was that the true extent of the loss was the cost of repair, rather than diminution in value. He held:
- it was legitimate and appropriate to take into account the ‘supplemental judgment’ (although it was not accurate to describe it as such) in order to understand the judge’s full reasons for his decision, as long as it was not contradictory
- the two relevant principles were that:
- diminution in value is not an invariable rule, and
- diminution in value can, in a proper case, be determined by the cost of repair (as in Steward)
- accordingly, the judge’s decision could be supported on two different bases—one, that working out the diminution in value in this case would be too speculative and so cost of repair is recoverable, and the other, that doing the best one can, the diminution in value is represented by the cost of repair
Accepting the appellant’s point that, as a matter of common sense, even with all the defects, the property must have a value higher than £20,000, it did not follow that whatever value the property has, it must be anything like the figure contended for by the appellant in argument (somewhere above £80,000).
Rejecting the appellant’s point that since the respondents’ expert was not able to say what the diminution in value was, the respondents have failed to prove a critical aspect of their case. The clear evidence from the respondents’ expert was that he could not give a valuation. The respondents could hardly be criticised for that.
Given the state of the evidence, the judge was entitled to take the view that the cost of repair represented the only practical indicator of what the diminution in the value of the asset was. That approach made sense in the particular circumstances of the case given the extensive defects, the fact that the repair costs were about 85% of the most the property could be worth in reasonable condition, the rejection of the appellant’s expert’s opinion that the diminution in value was as little as £15,000, and the evidence from the respondents’ expert that he could not give a valuation. The fact that the respondents’ expert could not give a valuation did not preclude the judge from taking the approach he did.
It was open to the judge to have taken a different approach, and it was also open to the judge to have come up with a different figure for the diminution in value, lower than the cost of repair, and awarded that. However, the fact he did not do that did not undermine the judge’s decision. The judge was entitled to find that the damages were £115,000.
Birss J ended with a salutary warning about failing to advance an intermediate position:
‘It is a common occurrence in assessing damages based on valuation that the paying party takes a polarised view and does not advance an intermediate position, even as a fall-back. Receiving parties do this as well, but in my experience paying parties do it more often…The imperatives of advocacy often drive parties to adopt this tactic, but it can backfire. From his judgment it is obvious that the judge was sure that £15,000 did not represent a fair assessment of the diminution in value, and was too little. The judge was clearly entitled to take that view. The only other concrete sum he had to go on was £115,000. On other occasions a judge in that situation might arrive at an intermediate sum, doing the best he or she can. However, if the appellant was not prepared to propose an intermediate sum, I do not believe that the judgment is undermined for not taking such an intermediate approach.’
Emily Betts acted for the successful claimant in this case and was instructed by Wright Hassall LLP.