Negligence — Mortgage valuation report — Whether valuer negligent in failing to report missing chimney-breast — Whether damages based on diminution in value should assume all defects in building would be known to hypothetical purchaser
In 1985 the
plaintiffs purchased an end-of-terrace former bakery for £15,750 with the
assistance of a mortgage obtained from Leeds Permanent Building Society. Prior
to the purchase the society commissioned the defendant firm of valuers and
surveyors for a fee of £30 to provide a valuation report. In an accompanying
letter the defendants pointed out that the inspection on which it was based was
a limited one carried out on behalf of the society to consider whether the
property was suitable for mortgage purposes; they stated that it may be prudent
to obtain a more detailed report. The more detailed report would have been the
Royal Institution of Chartered Surveyors House Buyers Report and Valuation,
which would have cost far more. In the court below the judge held that the
defendants were negligent because the report writer failed to notice that, in
removing a chimney-breast in the kitchen, builders had failed to provide
adequate support for the brickwork of the chimney-stack above; something which
could seen by opening a cupboard. The defendants appealed contending that: (1)
the judge had imposed too high a standard and that it was not within the duty
of a surveyor carrying out a mortgage valuation to make the sort of detailed
inspection necessary to discover whether there was adequate support to the
chimney brickwork; and (2) in assessing damages it was wrong to take into
account the defects in the house which the surveyor who carried out the
mortgage survey had not, and was not expected to, report on. The plaintiffs
cross-appealed in relation to the defendants’ further ground of appeal that
damages for repairs should be disallowed.
the surveyor failed to exercise such care as was reasonable in all the
circumstances in failing to observe and draw attention to the potential fault
in the structure of the house resulting from the absence of a chimney-breast
was a pure question of fact; it did not involve any point of general principle
as to whether surveyors carrying out mortgage valuations are under a general
duty to open cupboards. The judge was accordingly entitled to prefer the
evidence of the plaintiffs to that of the defendants. Had the surveyor
discovered the defective chimney-breast, that would have alerted him to the other
defects in the building. A comprehensive survey would therefore have been
likely and a hypothetical purchaser would have offered a price for the building
in its actual condition having been informed of all the defects likely to
affect its valuation. Damages had therefore been properly assessed as the
difference between the value of the building in its assumed condition and the
value in the bad condition with all defects which would have been in a
comprehensive report. However, the judge had wrongly included £2,434 for
repairs in addition to the diminution in value; this sum was deducted from the
damages, although the diminution was increased by £1,000. Leave to appeal a
decision of an official referee should be made in accordance with RSC Ord 58 r
4(b) and Ord 59 r 14(4) in the first instance to the court below.
The following
cases are referred to in this report.
Philips v Ward [1956] 1 WLR 471; [1956] 1 All ER 874, CA
Smith v Eric S Bush (a firm) [1990] 1 AC 831; [1989] 2 WLR 790;
[1989] 2 All ER 514; (1989) 87 LGR 685; [1989] 1 EGLR 169; [1989] 17 EG 68
& 18 EG 99, HL
Virgin
Management Ltd v De Morgan Group plc (1994)
68 BLR 26
Watts v Morrow [1991] 1 WLR 1421; [1991] 4 All ER 937; [1991] 2
EGLR 152; [1991] 43 EG 121; 26 Con LR 98
This was an
appeal by the defendants, Goldings (a firm), from the decision of Judge
Morrison, sitting as an official referee in Boston District Registry, allowing
a claim for damages by the plaintiffs, Peter William Sneesby and Lesley
Michelle Sneesby, against the defendants.
Rupert Jackson
QC and Michael Patchett-Joyce (instructed by Mills & Reeve, of Norwich)
appeared for the defendant appellants; Timothy Elliott QC and Stephen Dennison
(instructed by Trumans, of Grantham) represented the respondent plaintiffs.
Giving the first
judgment at the invitation of Sir Thomas Bingham MR, HOFFMANN LJ said:
This is an appeal by a firm of surveyors and one of their partners against a
judgment of Judge Morrison, sitting as an official referee, holding them liable
for negligence in carrying out a survey of the plaintiffs’ house. The survey
was commissioned by the building society which was proposing to lend the
purchase price to the plaintiffs on mortgage. But since Smith v Eric
S Bush (a firm) [1990] 1 AC 831* it has been established that a surveyor
engaged by a building society may owe a duty of care in tort to a purchaser who
relies upon his report. There is no dispute that such a duty was owed in this
case. The principal question is whether the surveyor failed to take the
necessary care.
*Editor’s
note: Also reported at [1989] 1 EGLR 169.
The
plaintiffs, Mr and Mrs Sneesby, bought 51 Albert Street, Grantham, on January
18 1985. It was a small end-of-terrace house, formerly a bakery, for which they
paid £15,750. It was their first venture into house purchase and the house of
their second choice, the first having been abandoned when a survey indicated
that there might be rising damp and other defects which would require
attention. The Sneesbys had no capital and could not afford to buy a house
which would need money spent on it.
The house had
three floors and an attic above. The owners, Mr and Mrs Kearney, had recently
had it modernised and redecorated with the assistance of a home improvement
grant from the local authority. The estate agent’s particulars read as follows:
This spacious
end of terrace house has been subject in recent years to a complete
refurbishment scheme and is in excellent order throughout. The modernisation
work has included a new tiled and felted roof, a damp-proof course, windows
throughout (double-glazed), timber treatment, rewiring and plumbing. It offers
spacious accommodation on four floors with well fitted kitchen and bathroom
with separate shower cubicle. The flexible living
fireplace and the property has the further benefit of full gas-fired central
heating.
We, as
agents, strongly recommend internal viewing to fully appreciate the standard of
modernisation work and the spaciousness of the accommodation offered.
The Sneesbys,
having seen the house and liked it, applied to Leeds Permanent Building Society
for a mortgage. The society was obliged, under section 25 of the Building
Societies Act 1962, to satisfy itself of the adequacy of the security and, for
that purpose, to obtain a written report from an expert surveyor. It therefore
commissioned the defendant firm, Goldings, to undertake such a survey for a fee
of £30, which was paid by the Sneesbys. The report was disclosed by the
building society to the Sneesbys under cover of a letter which pointed out its
limited purpose. The letter says:
The
inspection on which the report and valuation is based is a limited one and has
been carried out on behalf of the society so that we can consider whether or
not the property is suitable for mortgage purposes. In the circumstances you
may feel it prudent to obtain a more detailed report if you have not already
done so.
The more
detailed report to which the letter refers is offered by members of the Royal
Institution of Chartered Surveyors under the name House Buyers Report and
Valuation. It costs more and is far more thorough and informative. It is
however also undertaken by a surveyor in general practice who is not
necessarily a specialist structural engineer. If this degree of expertise is
required, the purchaser must commission a full structural survey, which is the
highest in the hierarchy of reports.
The mortgage
valuation ordinarily involves no more than a relatively brief inspection
(according to the evidence, taking on average about half an hour) in the course
of which the surveyor inspects what he can readily see of the external and
internal condition of the property. It is however common knowledge that,
despite the advice to obtain a more detailed report such as the building society
gave in this case, many purchasers of cheaper houses rely upon the mortgage
valuation report.
The guidelines
which Leeds Permanent Building Society has issued to its staff and panel
surveyors recognise this fact and give examples of matters which should be
drawn to the attention of both the society and the purchaser. The society is of
course interested in those matters which affect the suitability of the property
as its security or which may require a retention from the amount advanced. For
example, woodworm, rising damp, minor roof repairs or major repointing of
brickwork are listed among the items which would warrant a retention. There is,
however, another category of lesser defects which the guidelines say should be
brought to the attention of the purchaser by inclusion in the report. These
include internal redecoration, minor pointing of brickwork, replacement of
isolated timbers affected by wet rot and the replacement of guttering. I
mention these items because they show, first, that the society draws to the
attention of the surveyors the fact that the purchaser may well be relying upon
their report and, second, that the items given by way of example show that,
although the inspection is to be a brief one, it has to be carried out with a
practised and expert eye.
In Smith
v Eric S Bush Lord Templeman stated the duty which in such circumstances
the surveyor owed to the purchaser in terms which both sides in these
proceedings have accepted. He said [at p850]:
The valuer is
and, in my opinion, must be a professional person, typically a chartered
surveyor in general practice, who, by training and experience and exercising
reasonable skill and care, will recognise defects and be able to assess value.
The valuer will value the house after taking into consideration major defects
which are, or ought to be obvious to him, in the course of a visual inspection
of so much of the exterior and interior of the house as may be accessible to
him without undue difficulty. This appears to be the position as agreed between
experts in the decided cases which have been discussed in the course of the
present appeal. In Roberts v J Hampson & Co [1988] 2 EGLR
181, Ian Kennedy J after hearing expert evidence, came to the following
conclusions concerning a valuation commissioned by the Halifax Building
Society. I have no doubt the case is of general application. The judge,
referring to the Halifax Building Society valuation, as described in the
literature and as described by expert evidence, said, at p185:
‘It is a
valuation and not a survey, but any valuation is necessarily governed by
condition. The inspection is, of necessity, a limited one. Both the expert
surveyors who gave evidence before me agreed that with a house of this size
they would allow about half-an-hour for their inspection on site. That time
does not admit of moving furniture, or of lifting carpets, especially where
they are nailed down. In my judgment, it must be accepted that where a surveyor
undertakes a scheme valuation it is understood that he is making a limited
appraisal only. It is, however, an appraisal by a skilled professional man. It
is inherent in any standard fee work that some cases will colloquially be
‘winners’ and others ‘losers’, from the professional man’s point of view. The
fact that in an individual case he may need to spend two or three times as long
as he would have expected, or as the fee structure would have contemplated, is
something which he must accept. His duty to take reasonable care in providing a
valuation remains the root of his obligation. In an extreme case … a surveyor might refuse to value on the
agreed fee basis, though any surveyor who too often refused to take the rough
with the smooth would not improve his reputation. If, in a particular case, the
proper valuation of a £19,000 house needs two hours’ work, that is what the
surveyor must devote to it. The second aspect of the problem concerns moving
furniture and lifting carpets. Here again, as it seems to me, the position that
the law adopts is simple. If a surveyor misses a defect because its signs are
hidden, that is a risk that his client must accept. But if there is specific
ground for suspicion and the trail of suspicion leads behind furniture or under
carpets, the surveyor must take reasonable steps to follow the trail until he
has all the information which it is reasonable for him to have before making
his valuation.’
Then Lord
Templeman goes on:
In his
reference to ‘a scheme valuation’ the judge was alluding to the practice of
charging scale fees to purchasers and paying scale fees to valuers.
The valuer
will not be liable merely because his valuation may prove to be in excess of
the amount which the purchaser might realise on a sale of the house. The valuer
will only be liable if other qualified valuers, who cannot be expected to be
harsh on their fellow professionals, consider that, taking into consideration
the nature of the work for which the valuer is paid and the object of that
work, nevertheless he has been guilty of an error which an average valuer, in
the same circumstances, would not have made and as a result of that error, the
house was worth materially less than the amount of the valuation upon which the
mortgagee and the purchaser both relied.
The survey in
this case was made by Mr Ian Shaw [FRICS] a partner in Goldings, who wrote his
report on a standard form provided by the building society. Under the heading
‘Structure and Condition’ it said, ‘Internal condition of repair: satisfactory.
External condition: satisfactory’. The only defects to which the report drew
attention was the fact that there was no ventilation in one of the basement
rooms and that an extractor fan was needed in the bathroom. Neither of these
points is material to the present appeal.
The
plaintiffs’ complaint is that Mr Shaw failed to draw attention to a large
number of defects which did in fact exist. There is a schedule enumerating 23
such defects annexed to the statement of claim. Some of these were more serious
than others and the judge found that the bulk of them were of relatively minor importance.
The cause of the more significant defects was the extremely shoddy way in which
the work of modernisation had been carried out. One example was that an
aperture for a set of double-glazed doors had been cut into the partition wall
separating two rooms on the first floor. Instead of providing a lintel to
bridge the gap and to support the floor above, the builder had inserted a 4in
× 3in piece of wood, which was
hopelessly inadequate. The result was that the floor sagged and the pressure
caused the doors to stick. Another defect was that the builders had taken away
a partition wall which supported one side of the staircase, so as to create the
open plan effect to which the agents’ particulars referred, but failed to
secure the staircase properly. It was not attached to the other wall, the gap
being covered by wallpaper, and the newel post was inadequate. But the most
serious defect was that, in order to make room for a cooker and cupboards in
the kitchen, the builders had removed the chimney-breast, but failed to provide
adequate support for the brickwork of the chimney-stack above. Instead of
replacing the chimney-breast with a rigid load-bearing beam, they had put an
old
to the wall. The door was then plastered over and the cooker and cupboards
placed in front. This makeshift arrangement very soon proved inadequate. Pieces
of plaster started to fall into the cooking and, as an emergency measure, the
Sneesbys had to take down the cupboards and hire a pair of acrow props to
support the chimney-stack. These were subsequently replaced by permanent work
in the form of two brick piers carrying a concrete joist, which was undertaken
by a firm called Pumphreys at a cost of £2,434.76.
In the course
of his survey Mr Shaw had noticed (as everyone agreed that he would be bound to
notice) that there was a chimney-breast in the living room, but none in the
equivalent position in the kitchen below. This could be accounted for in two
possible ways: there might never have been a chimney-breast in the lower room
or there might have been one which had been removed. The defendants’ witness,
Mr Peter Graves, who was the senior valuation officer of the building society
called on the defendants’ behalf, said that, if he had been doing the survey:
I would have
noticed the chimney-breast had been removed. I would have had a look in the
room upstairs quite clearly to see if there was any distress to the
chimney-breast.
The
defendants’ expert, Mr Anthony Towell [FRICS] gave this evidence:
Q: Mr Towell,
I think I am right that you would have appreciated if you had carried the
survey out it was quite likely the chimney-breast had been removed.
A: Yes.
Q: Once you
appreciated the chimney-breast had been removed you would have also
appreciated, would you not, that the supporting brickwork, the brickwork above
which needed to be supported and you could not express yourself in any positive
way, satisfied or dissatisfied with the method of support until you had some
understanding as to how it was provided?
A. I would,
as I said earlier I would have been looking at the performance of the building.
I am not looking at the engineering design of the building because there are
many buildings you can look at even on a full structural survey and at the end
of the day not know exactly how they are put together. I am looking at the
performance. I am thinking how it could be constructed. It could be supported
by a beam and I am saying, ‘How is that floor above?’ No undue vibration. I am
saying, ‘How is that stack above.’ Firm, solid, no sign of any distress. I
would not have had any need to have looked further at that time.
So Mr Shaw
says that he, having recognised the possibility that the chimney-breast might
have been removed, checked the structure around the chimney-breast in the room
above to see if there were any signs of movement and, not finding any, did not
think it necessary to pursue the matter any further. In this respect he was, as
I have said, supported by his expert, Mr Towell, and by Mr Graves.
The evidence
was however that if one looked up the hood of the cooker one of the angle-irons
could actually be seen. Furthermore, the cupboards fastened to the wall had no
backs and if one opened a cupboard door another angle-iron could be seen. Mr
and Mrs Sneesby noticed them quite soon after moving in. Mr Sneesby’s evidence
on this point, on day one, was as follows:
Q. Could you
see that bracket or not by looking up underneath the cooker hood?
A. Yes. You
could see all of it.
Q. Did you, in
fact, see it while the units were still in place?
A. Yes.
JUDGE
MORRISON: Why did you come to look?
A. I noticed
the chimney-breast in the dining room and when I walked down into the kitchen I
just wondered where the other one was.
Q. You were
curious, you mean, because there was a chimney-breast in the dining room?
A. Yes.
The judge
thought, relying upon the evidence of the plaintiffs’ expert, Mr David N Booth
[ARICS], that Mr Shaw should have shown a similar curiosity. Mr Booth said that
in his view a reasonable surveyor, seeing the absence of the chimney-breast
below, would have looked to see, so far as he could, whether there was in fact
a beam or lintel over where the old chimney-breast had been. This would only
have involved looking up the cooker hood and, if necessary, opening a cupboard.
If he had done so, he would have seen the angle-irons. It is accepted that once
he had actually seen the angle-irons he would have been alerted to the
possibility that the structure was unsafe and would have recommended that the
matter be investigated by a structural survey. The defendants’ expert, Mr
Towell, said, on day seven:
Q. It does not
necessarily involve looking in detail does it, Mr Towell? Open the door of a
cupboard to see what you can see?
A. One would
not need to open doors of cupboard units on a valuation. On an intermediate one
I would expect a surveyor to open cupboard units and check the cupboard units
out. At that time, seeing metal angles no doubt that surveyor would then say
further investigation. But that is another form of survey.
It is also
accepted that if the Sneesbys had received such a report they would not have
bought the house at all.
The judge’s
reasoning was as follows:
[Mr Shaw]
complains that he is unfairly charged by the plaintiffs, because he says that
although there was no evidence before his eyes of a chimney-breast, he had no
reason to suppose that there was any likely or potential instability in the
structure above it, having observed, and I accepted that he observed, that
there was no cracking or other deflection or deformity above to be seen on
visual examination in the dining room or the sitting room, and no distress of
the decoration. However, he was on notice. It was not there and I take the view
that a competent surveyor, being on notice that it was not there and realising
the significance of this, would at least have tried to ascertain what was
there, if anything, in substitution and if he had looked he would have been
able to find the answer. For the answer, albeit concealed in the sense of not
being immediately visible, was there for him to see just as it was for Mrs Sneesby
and Mr Sneesby. If he had looked under the protruding hood over the cooker
… the first thing he would have seen
would have been at least one old angle-iron. I am sure if he had seen that he
would have said to himself, ‘That’s funny. Is it a sufficient means of
support?’ If he had wished to go further, all he had to do and, in my judgment,
should have done would have been to open the door of one or other of the
kitchen cupboards and he would then have been able to see more angle-iron
although not the door above.
Mr Rupert
Jackson QC, for the appellants, says that that is imposing too high a duty on a
surveyor carrying out a mortgage valuation. He says it blurs the distinction,
which is so vital in the marketplace, between a mortgage valuation and a house
buyer’s report. As Mr Towell said in his evidence, it is not the duty of a
surveyor carrying out a mortgage valuation to look up cooker hoods or open
cupboards. It is not, he says, what you are paid to do.
There was some
conflict of evidence on the matter of cupboards. Mr Graves said that it was his
practice to look into cupboards fixed to external walls and Mr Booth
recommended the same. But accepting, for the sake of argument, that there is
normally no duty to peer into cupboards, it does seem to me that it may in
particular circumstances be necessary to do so in order to answer a question
which has been raised by something else one has seen. As Ian Kennedy J said in
the passage which I have already quoted, if there are specific grounds for
suspicion and the trail of suspicion leads behind furniture or under carpets,
the surveyor must take reasonable steps to follow the trail until he has all
the information which it is reasonable for him to have before making his
valuation.
In this case
Mr Shaw recognised the need to check that the removal of the chimney-breast had
not affected the structural safety of the house. He did this by looking for
movement in the structure above. It is, however, fair to say that the
refurbishment of the house had taken place relatively recently and it was
accepted in the evidence that the absence of distress at the time of the
inspection is not necessarily a guarantee of the safety of the structure. What
else could he have done? Another thing he could have done, at the cost of no more
than a few seconds of his allotted half an hour, was to look at the site of the
chimney-breast itself to see what was there. The defendants say that there was
a high chance that if he had done so, he would not have seen
otherwise concealed. Furthermore, in this case Mr Shaw knew that the work had
been carried out with the aid of an improvement grant by the local authority
and he was entitled to expect that the local authority surveyor would have
inspected the work at its completion to satisfy himself that it had complied
with the building regulations. There is also evidence that some months earlier
another surveyor on behalf of Halifax Building Society had carried out a mortgage
valuation and had also made no reference to the structure above the
chimney-breast.
It seems to me
that very little weight can be placed upon either the improvement grant
inspection or the earlier survey. There is no evidence of exactly what works
were authorised under the improvement grant and nothing about when, or how,
that inspection was carried out. The witnesses agreed that the fact that the
work had been done with an improvement grant did not in any way relieve the
surveyor undertaking the mortgage valuation from his duty to do so with
reasonable care. As for the earlier surveyor, we have nothing except the
written report. He was not called as a witness and we do not know how he
approached the valuation.
In the end the
point is, in my judgment, an extremely narrow question of fact which does not
involve any point of principle or general practice as to whether surveyors
carrying out mortgage valuations are under a general duty to open cupboards or
not, but simply whether, upon the facts of this case and in the light of the
circumstances as they appeared to Mr Shaw on that day, a reasonable surveyor
would have had a look to see what had happened to the old chimney-breast. On
this point the judge preferred the expert evidence of the plaintiffs to that of
the defendants and, in my judgment, he was entitled to do so.
This does not
involve any slur upon the professional reputation of Mr Shaw. In one respect he
may be said to have been unlucky in that there happened to be available to his
inspection telltale signs of the inadequacy of the structure which in many
cases, or perhaps most cases, would not have been there. Perfectly competent
professional men may take risks in carrying out their work without it involving
any general reflection on their competence. The law says, however, that if that
risk is one which, according to its own standards, a reasonable surveyor would
not have taken, then it must be borne by the surveyor or his insurance company
rather than by the plaintiffs. I would therefore uphold the decision of the
learned judge on the question of liability.
That leaves
two points on the measure of damages. It is accepted that the proper measure of
damages is that formulated by Denning LJ in Philips v Ward [1956]
1 WLR 471, namely the difference ‘between the value [of the house] in its
assumed good condition and the value in the bad condition which should have
been reported to the client’. In carrying out this exercise the judge had taken
the difference between the market value of the house as it would have been on
the basis of the condition being satisfactory, as reported in Mr Shaw’s report
and its value with all the defects as they actually existed at the time.
Mr Jackson
says that this is wrong. The judge found that it would not have been reasonable
to expect the surveyor to have noticed the other defects on their own. For
example, the absence of a lintel over the glass doors on the first floor had
been concealed by polystyrene tiles and wallpaper. The judge held that that was
a blatant defect not reasonably discoverable on inspection. The only defect
which he held should have been discovered was the chimney-breast. So Mr Jackson
says that the house should have been valued on the footing that the
chimney-breast was defective, but that it was otherwise in good order, as
reported.
I do not think
that that is right. The formulation is the difference between its market value
in good condition and its market value on the basis that the surveyor had made
a proper report to the client. In this case the effect of a proper report would
have been that a purchaser buying the house would first have commissioned a
structural survey into the chimney-breast. That would in turn have revealed the
inadequacy of the work. In my view, the judge was entitled to find that anyone
who discovered that the support for the chimney-stack consisted of an old door
held on angle-irons would be alerted to the possibility that there might be
other examples of shoddy workmanship in the property. He would not therefore
have purchased without first commissioning at any rate an intermediate report,
namely the House Buyers Survey and Valuation. That, in turn, would have
revealed all the other defects of any significance to the valuation.
Mr Jackson
says that while that might be a correct inference in the case of some
purchasers, the evidence in this case was perfectly clear that if the valuation
had drawn attention to the defect of the chimney-stack the Sneesbys would not
have bought at all. It follows therefore that nothing except the defect of the
chimney-stack would have come either to their attention or to that of the
building society. In my judgment, however, for the purposes of ascertaining the
diminution in value it is irrelevant whether the Sneesbys would have bought.
Valuation involves determining what, on given assumptions, would have been paid
by a hypothetical purchaser to a hypothetical vendor in the open market. For
that purpose it must necessarily be assumed that a sale would have taken place
and one has therefore simply to ask what inquiries and investigations would, in
real life, have attended such a sale. It seems to me, that the judge was right
in holding that in real life such a sale would necessarily have involved a more
comprehensive survey of the house, which would have revealed those defects
affecting its value. I therefore reject that criticism of the method by which
the judge arrived at the diminution in value.
Finally, the
judge included in the damages which he gave the amount which the Sneesbys had
to pay to Pumphreys for the permanent support work which they constructed in
the kitchen. That was, as I have mentioned, the sum of £2,434.76. Mr Jackson
says that a plaintiff is not entitled to compensation both for the diminution
in value and for the cost of the repair work. The principle laid down in Philips
v Ward, and followed by this court in Watts v Morrow [1991]
1 WLR 1421*, is that a plaintiff is not entitled to be paid the costs of
repairs. There are cases in which plaintiffs have, in addition to the
diminution in value, been awarded the cost of emergency work not affecting the
value of the property, such as the cost of hiring the acrow props in this case.
Mr Jackson does not concede that these sums are recoverable, but, in view of
the small amounts involved, has not attempted to challenge them. He does say,
however, that Pumphreys’ bill was for permanent work and that should not have
been included. In my view, that must be right. The work which they did was
simply repair work, which is excluded by the principle in Philips v Ward.
*Editor’s
note: Also reported at [1991] 2 EGLR 152.
By
cross-appeal, however, the plaintiffs submit that, if they are not entitled to
compensation for what they paid Pumphreys, there ought to be an increase in the
damages which they receive for the diminution in value. The basis for this
claim is the way in which the judge explained his reasoning at p37 of the
transcript. He was faced with two rival figures offered by the experts for the
diminution in value. One was the defendants’ expert, Mr Robert Brownlow
[FRICS], who said that it was £4,000, and the other was the plaintiffs’ expert,
Mr Booth, who said it was £7,000. He preferred the evidence of Mr Booth and
said:
I conclude
that Mr Booth’s figure is very much more adequately rationalised than is Mr
Brownlow’s, despite his experience, but I further conclude that taking into
consideration expenditure by the plaintiffs on the property, that has to reduce
the amount which would otherwise have been awarded. The net result I conclude,
doing the best I can, is that there is to be awarded to the plaintiffs under
this heading the sum of £6,000.
It appears
from that that the judge reduced the figure by £1,000 in order to allow for the
fact that he had awarded the plaintiffs compensation under the heading of
repairs including payment of Pumphreys’ bill. Once that is struck out from the
calculation of damages then, on the judge’s reasoning, he ought to have fixed
the diminution in value at £7,000, namely the figure put forward by Mr Booth,
whose evidence the judge preferred. I think that that is right and therefore
the plaintiffs, although not entitled to the £2,434 which
£1,000.
In other
respects, I would dismiss this appeal.
Agreeing, BELDAM
LJ said: Since the decision in Smith v Eric S Bush it is
accepted that a surveyor, in preparing a mortgage report and valuation, owes a
duty not only to the building society or other lender to whom the report will
be sent, but to exercise reasonable care and skill in the interests of the
purchaser or borrower. His duty is to take care that the property provides an
adequate security for the building society lender and also that the purchaser
and borrower does not assume an onerous and extensive obligation to the lender
on the strength of a valuation which is unjustified by the condition of the
property.
In this
appeal, the appellants do not dispute that Mr Shaw, who the learned judge
described as an extremely experienced surveyor with a practised eye, owed a
duty to Mr and Mrs Sneesby to exercise that degree of reasonable care and skill
in preparing his valuer’s report and mortgage valuation at 51 Albert Street,
Grantham. Nor do they deny that Mr and Mrs Sneesby were entitled to rely on
that report to reveal any serious defects which were, or ought to have been,
obvious to a skilled surveyor when he inspected the property. The appellants
challenge the judge’s finding that Mr Shaw was, in the circumstances of this
case, in breach of his duty to the plaintiffs because he ought to have
discovered a concealed defect; that is, that the chimney-breast in the dining
room on the first floor above the kitchen was inadequately supported and had
been left in that condition when the chimney-breast beneath it in the kitchen
had been removed.
The
appellants’ case at the trial was that although Mr Shaw saw that there was no
chimney-breast in the kitchen and appreciated that it might have been removed,
he took the precautions which a prudent surveyor would have taken to satisfy
himself that the chimney-breast on the first floor was adequately supported.
This he did by checking the upstairs chimney-breast for signs of stress and
movement and he found none; and it is agreed that there were none. Any obvious
signs of the amateur bodging which subsequently were revealed in the kitchen
were at that time concealed and, as the appellants say, he had no reason to
suspect the stability of the structure.
The judge
found that while there were no such obvious signs, Mr Shaw was on notice that
there was no support for the chimney-breast in the kitchen below and, being on
notice, a surveyor of Mr Shaw’s undoubted skill and experience ought at least
to have tried to ascertain what there was in the kitchen in substitution for
the original support. If he had looked, he would have been able to find the
answer under the hood of the cooker. It is not seriously challenged that if a
surveyor of Mr Shaw’s experience had looked up the cooker hood, what he would
have seen would have caused him to extend his examination by opening the
kitchen cupboards next to the cooker hood. The angle-irons there visible would
have caused him to advise that at least that part of the house should be structurally
surveyed. So the judge held that Mr Shaw was in breach of duty to Mr and Mrs
Sneesby, whom he knew would rely upon him in reaching a decision whether to go
ahead with their purchase of no 31, by failing to look up the cooker-hood and
to make the further examinations which that would have led him to make.
Mr Jackson has
argued most persuasively that for a valuation report the judge had set too high
a standard of care. On the basis of the expert evidence before him, a prudent
and skilful surveyor could reasonably have relied solely on the absence of
signs of stress in the unsupported chimney-breast and could reasonably have
concluded that the chimney-breast was supported by corbelling back into the
brickwork.
I was not
persuaded by Mr Jackson’s argument. It was for the judge, taking into account
all the circumstances, including the expert evidence, to say whether it was
consonant with the exercise of reasonable care and skill for a skilled surveyor
to rely solely on the examination of the upstairs chimney-breast for signs of
stress and movement. There was evidence from the expert called on behalf of Mr
and Mrs Sneesby, Mr Booth, that that was an inadequate way to check whether the
chimney-breast was sufficiently supported, though it was an indication that
there had been no movement or stress in that part of the structure. The action
which the learned judge found should have been taken, and which, if taken,
would have disclosed the serious defect in the support of the upstairs
chimney-breast, was simple and brief; and an inquiry of the vendor might well
have settled whether the chimney-breast in the kitchen had been removed or
whether the presence of the chimney-breast on the first floor alone was part of
the original construction of the house.
I do not feel
that by upholding the judge’s decision this court would be setting too high a
standard for a mortgage report and valuation or, in Mr Jackson’s words,
blurring the distinction between the three types of report recommended by the
Leeds and, no doubt, by many other building societies. I would, however, point
out that the guidelines which were in evidence in this case issued by Leeds
Permanent Building Society do not convey to me the impression that the
recommended report and mortgage valuation is as limited in scope as the
witnesses for the defendants in the court below suggested. The guidelines refer
not only to an examination which includes the structure and condition of the
premises, though the examination of the structure is clearly a limited
examination, but also refer to the internal and external condition of the
property. They recommend that the more obvious defects, even though they may be
considered fairly trivial in structural terms, are those which an applicant is
likely to have noticed and they should be mentioned if for no better reason
than to demonstrate that an inspection has been properly carried out. It seems
implicit there that a properly carried out inspection would in fact discover
that kind of defect.
Further, under
item 8, there is a heading, ‘Work recommended as a condition of mortgage’, and
it refers to essential repairs and those which fall into three categories: (a)
prior to completion of the mortgage; (b) by way of a retention; and (c) by way
of an undertaking. Examples are given under each of those headings of the kind
of matters which might be referred to in the report. But it is also suggested
that recommendations under (c) (that is, those which might be required by way
of an undertaking from an intended purchaser) which are comparatively minor
works of a non-urgent nature, ought simply to be brought to the attention of
the purchaser by inclusion in the report; and one can well understand why that
recommendation is made. The purchaser is, after all, making probably the
largest investment of his life. The home is a security for himself and for his
family and, as Lord Griffiths pointed out in Smith v Eric S Bush,
the vast majority of purchasers of modest houses do not go to the expense of
obtaining their own structural survey; they rely on the valuation to reveal any
obvious serious defects and take a chance that there are no hidden defects
which might be revealed by a more detailed structural survey. Accordingly, I
see no reason to think that in the present case the learned judge imposed an
unreasonably high standard for a mortgage report and valuation.
As to damages,
I desire only to add that I agree that the measure of damages is the difference
in value of the property as reported and its value with the manifest defects
which subsequently came to light. A prospective purchaser willing to continue
to negotiate a purchase price, if alerted by the mortgage valuation report,
would in all probability commission a house buyer’s report, which would have
brought to light many of the more serious defects in the works of renovation
which had been so glowingly described in the agents’ particulars. In any
negotiations, these would have been a potent negotiating factor in the hands of
the purchaser and would in all probability have been reflected in the market
price of the property.
Accordingly, I
do not accept Mr Jackson’s submission that the reduced value of the property
should be calculated solely by taking account of the cost of putting right the
only defect which could properly be regarded as one which Mr Shaw ought to have
discovered on his inspection and have included in his mortgage report and
valuation. That submission is made upon the basis that that is the only defect
which would have been disclosed to Mr and Mrs Sneesby who, the judge held, would
not have proceeded with the purchase had it
cannot depend upon whether the prospective purchaser is a person who is willing
to pursue the purchase in the face of that defect or one who is put off
entirely from purchasing the property.
Accordingly, I
agree with the basis of the judge’s valuation and, subject to the points made
by Hoffman LJ, I agree that the damages should be valued in the manner he
suggests. Otherwise, I agree that this appeal should be dismissed.
Also agreeing,
SIR THOMAS BINGHAM MR said: I agree with the judgments which Hoffman and
Beldam LJJ have given and with the order which they propose. I wish to make
observations on one aspect of this case only.
Put into my
own words and not the words of counsel, I think the first question arising for
decision in this case is whether Mr Shaw failed to exercise such care as was
reasonable in all the circumstances in failing to observe and draw attention to
the potential fault in the structure of the house resulting from the apparent
absence of a chimney-breast at ground level in the kitchen. That is, as I
think, a pure question of fact.
That being so,
the appeal is covered by Ord 58, r 4(b), which provides that an appeal shall
lie to the Court of Appeal from a decision of an official referee with the
leave of the official referee or the Court of Appeal. Since leave is necessary,
I direct attention to Ord 59, r 14(4), which provides that:
Wherever
under these rules an application may be made either to the court below or to
the Court of Appeal, it shall not be made in the first instance to the Court of
Appeal, except where there are special circumstances which make it impossible
or impracticable to apply to the court below.
I would make
three points on the wording of that rule. First of all, it is mandatory in its
terms and provides that application shall not be made in the first
instance to the Court of Appeal. Second, it requires special circumstances
before such an application may be made to the Court of Appeal in the first
instance. Third, those special circumstances must be such as to make it
impossible or impracticable to apply to the court below. Those are, I would
suggest, strong words. In practice, the wording of this rule has been somewhat
watered down, as described in the commentary to the White Book in para 59/14/7
on p1016 of the current edition, as a result of cases in which time for
application for leave has expired before the application for leave is initiated.
In such a situation the court below still has jurisdiction to grant leave, but
cannot grant an extension of time. The Court of Appeal has baulked at requiring
two applications, one to the court below for leave and one to the Court of
Appeal for an extension of time, and it would indeed be inconsistent with
modern notions of procedural economy to insist on two applications where one
composite application will do. I fear, however, that this sensible procedure,
as described in the commentary, may have distracted attention from the
governing rule.
I would wish
to emphasise that where any party, including a party seeking to appeal against
an official referee’s factual finding, requires leave to appeal against a
decision of the lower court, it is his obligation under the rules: (a) to
recognise that he needs leave; (b) to make timeous application for leave to the
court below and, if that leave is refused; (c) then, and only then, to seek
leave to appeal from this court. There is, in my judgment, a sound rationale
for this procedure. It is not simply a case of having rules for the sake of
rules. Where a party seeks leave to appeal on a question of fact, it will be
necessary for the party applying to explain to the court below, usually the
trial judge, what the question of fact is. That is likely to lead to exchanges
between the court and counsel or solicitors which will, in the ordinary way, be
recorded and may very well be of significance to the Court of Appeal. Where, as
is often the case, the application rests on the way a judge has treated certain
evidence or a certain witness, or on his failure to refer to certain evidence
or a certain witness, or on some alleged misapprehension by the judge of the
effect of evidence, or on some expression in the judgment said to betray
misunderstanding of the evidence, the matter may very often be made much
clearer one way or the other if it is raised with him on an application for
leave. I would therefore wish to make clear that the practice ordained by Ord
59, r 14(4) is one to be honoured in the observance and not only in the breach.
In this case,
the defendants failed to make application to the court below timeously or at
all, perhaps mistaking the substance of their first ground of appeal as one of
law. Whatever the position in any future case, I would in this case grant leave
on this issue and any necessary extension of time. Had timeous application been
made to the court below, leave to appeal might or might not have been granted.
That is something we cannot know. But if leave to appeal had been refused in
the court below and the application had been repeated in this court, I think it
likely — not certain, but likely — that the court, applying the approach in Virgin
Management Ltd v De Morgan Group plc (1994) 68 BLR 26, would have
granted leave; that is, I think it probable that this court, on preliminary
consideration, would have considered the applicants’ appeal on the factual
question to have a reasonable prospect of success.
There was, on
any showing, strong evidence from very well qualified surveyors in support of
the defendants’ case. The expert witness on whom the judge principally relied
could be said, and was in part held, to have applied too exacting a standard.
There is no reason to doubt that Mr Shaw is, in general, a careful,
conscientious and competent surveyor, and he has, happily, retained the
confidence of his client. For the reasons Hoffmann and Beldam LJJ have given, I
do not dissent from the trial judge’s decision, but it was one that could have
gone the other way. This was, in my judgment, an appeal which the court would
have thought it right to allow to be argued.
On the other
two issues I have nothing to add.
Appeal
dismissed with costs.
