Negligence — Valuation for building society — Liability in tort — Whether valuer negligent — Damages for reduction in value — General damages for worry, distress and inconvenience
In October
1986 the plaintiffs purchased a dwelling-house for £56,000, partly financed by
a loan from a building society. The property was part of a terrace built by the
‘Bison’ system. At the request of the building society, the first defendant
provided a valuation report. An attempt to sell the property in 1988 failed
because defects were discovered by an intending purchaser. The first plaintiff
lost his job and failed to pay mortgage instalments resulting in the building
society obtaining possession in August 1990. It was eventually sold at auction
in March 1992 for £29,000; the building society claimed £67,397.59 from the
plaintiffs. The plaintiffs were put into temporary accommodation before
obtaining a council house tenancy. In the court below (see [1994] 1 EGLR 255)
the plaintiffs obtained judgment for £37,364.65 damages and £6,000 general
damages for inconvenience and distress for the negligence of the first
defendant in failing to observe that a concrete purlin, observable in the
roofspace, was unevenly positioned so that at one end was a gap of 40mm. The
defendants appealed against liability, on the ground that the judge made no
finding that the gap amounted to a serious defect, and against damages.
in damages. There was evidence that the imbalance of the purlin was
unacceptable and dangerous at the date of the trial in 1993, and that a
surveyor would have thought that at the date of the first defendant’s report in
1986. The judge was therefore not wrong in concluding that if the first
defendant had reported the gap the plaintiffs would not have gone ahead with
the purchase. Damages based on the true value of the house in 1986 were reduced
to reflect the likely value on that date of £29,000, rather than £20,000; the
general damages for inconvenience and distress were reduced to £4,000.
The following
cases are referred to in this report.
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
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 first to fifth defendants, Ian McDade ARICS, Roy Burgess FRICS,
Joseph Leckie FRICS FSVA, David Giles ARICS and John Crosbie FRICS (formerly
trading as Brendons), the sixth defendant, Britannia Brendons (a firm), and the
seventh defendant, Britannia Estate Agents Ltd, against a decision of Judge
Bowsher QC, an official referee, allowing a claim by the plaintiffs, David
Albert Ezekiel and Margie Chrysanthemus Ezekiel, for damages arising out of a
valuation report prepared by the first defendant: [1994] 1 EGLR 255.
John
Greenbourne (instructed by Cameron Markby Hewitt) appeared for the appellants;
Brian Leech (instructed by Burch Phillips & Co) represented the respondents.
Giving the
first judgment, NOURSE LJ said: This is an appeal, with the leave of
this court, against a decision of Judge Bowsher QC, dealing with official
referees’ business, given on December 13 1993 in an action for negligence
brought by the purchasers of a house who, it is accepted, relied on a valuation
report obtained by the building society which advanced them part of the
purchase price: cf Smith v Eric S Bush (a firm) [1990] 1 AC 831*.
*Editor’s
note: Also reported at [1989] 1 EGLR 169; [1989] 17 EG 68 & 18 EG 99.
In 1986 the
plaintiffs, Mr and Mrs David Ezekiel, acquired a freehold house at 40 Armytage
Road, Heston, Middlesex, at a price of £56,000, £16,000 of which was funded out
of the net proceeds of their former home and the balance of £40,000 by a
secured loan from the Halifax Building Society. The purchase was completed on
October 27 of that year. The house is one of the two middle houses in a terrace
of four on an estate near Heathrow Airport, where the first plaintiff worked.
The terrace was built in a large panel precast concrete Bison Unit system and
all the houses were originally owned by Hounslow London Borough Council.
However, no 40, although not the adjoining houses, had been purchased by a
former tenant of Hounslow under the right to buy provisions of the Housing Act.
The building
society stipulated that it should obtain a report and valuation on the house,
for which the plaintiffs were to pay. The same was duly made on August 29 1986
by the first defendant, Mr Ian McDade ARICS, an employee of the firm of
Brendons. It is agreed that if the first defendant is liable in negligence to
the plaintiffs, all the others, who include the former partners of Brendons,
are also liable, so that reference can be made throughout to the first
defendant alone. As part of his general observations, the first defendant
reported:
This building
is of non-traditional construction with the exterior panels being of reinforced
precast concrete with a lightweight inner skin. There is no evidence of any
serious defect in the examined areas of the premises and it has been modernised
and improved to good standard.
Later he added
a belief that the current price (£56,000) was realistic and fairly reflected
the present condition.
In February
1988, less than 18 months after the move to 40 Armytage Road, the first
plaintiff was made redundant. Arrears under the mortgage started to accrue and
in July of that year the plaintiffs put the house on the market at a maximum
asking price of £82,950. A year later, on July 12 1989, they received an offer
of £79,000 subject to contract from a Mr Farooq. A survey was obtained by Mr
Farooq and about a week later he telephoned the first plaintiff to say that he
was no longer interested and the deal was off. When the first plaintiff asked
Mr Farooq the reason for his withdrawal from the sale at the last moment, Mr
Farooq informed him that the house had defects and he advised him to take legal
advice. Mr Farooq also suggested that he should get in touch with Hounslow and
ask them to send him literature about properties of the Bison type of
construction.
Mr Farooq
withdrew from the purchase at the end of August 1989. On September 7 following
the building society issued proceedings against the plaintiffs in Brentford
County Court claiming possession of the house and arrears of £3,532.08. An
order for possession was made on March 14 1990, a warrant of possession being
executed in August of that year. I take up the story in the words of the first
plaintiff’s witness statement in these proceedings:
14. After the
Eviction Order was handed by me to the Council, I was given keys to 2 garages
in De Havilland Road, Heston to store our furniture and possessions to enable
my family to vacate 40 Armytage Road by 10th August 1990. The Homeless Persons
Section for the London Borough of Hounslow then housed my wife, 3 young
children and myself in bed and breakfast accommodation at 47 Lampton Road,
Hounslow. As we were all living in one room, my wife and I became even more
depressed about our situation and often wondered how we were going to cope.
15. By the
time of our eviction we had no spare money and had to sell our wedding rings
and whatever little jewellery we had to pay for our existence. We remained at
47 Lampton Road for a period of 8–10 weeks, until a Health Visitor called to
see us. The Health Visitor was alarmed that a family of 5 could be accommodated
in one room and she requested the Council to urgently rehouse us in temporary 2
bedroom accommodation. In or about October 1990 we moved from bed and breakfast
accommodation to 33 Derby Road, Hounslow. Unfortunately by this time, due to
poor storage conditions (which had not proved to be weatherproof), much of our
furniture and clothing was ruined.
16. Although
33 Derby Road, Hounslow was a 2 bedroom house, we all slept in the front room,
as this was the only room with a gas fire.
17. It was
not until August 1991 that my family and I were rehoused by the Council in a 3
bedroom house at 237 Great West Road, Hounslow, our present address.
18. Having
moved to 237 Great West Road, we once again found the house devoid of anything
we required. My wife and I have been compelled to borrow from friends and we
also managed to get the central heating installed on hire purchase. My wife and
daughter both suffer from asthma and my son was only 2 months old at the time,
and it was imperative that the house should be properly heated. We were unable
to obtain a grant from the Council to install central heating.
The house was
actively marketed by agents acting for the building society from November 1990
onwards, but when that had failed to produce a sale it was put up for auction
on March 13 1992 and sold for £29,000. In a letter dated June 18 1993 the
building society said that the problems in selling it included the form of
construction of the house, ie Bison concrete frame which had not been
strengthened. In October 1991 the building society claimed that the plaintiffs
owed it £67,397.59 plus some further legal fees, from which the £29,000, less
the expenses of the sale, must be deducted. The claim of the plaintiffs in this
action, as quantified before the judge, is for £37,364.65 plus general damages
for inconvenience and distress. Judge Bowsher gave judgment for the plaintiffs
against all the defendants for the amount claimed plus general damages of
£6,000, making a total of £43,364.65, together with interest of £14,958.35. The
defendants appeal against the judge’s decision on liability and both his awards
of damages.
In the light
of the arguments advanced in this court it is important
He said:
I bear in
mind that the report was a valuation report and not a structural survey. It is
important to distinguish between the duties of a surveyor making a valuation
report and the duties of a surveyor making a structural survey. There is a most
helpful practice note of the Royal Institution of Chartered Surveyors
describing what is required on a structural survey of residential property. By
contrast there is an RICS document entitled Guidance notes for valuers
first issued in December, 1985 …
The judge then
read certain extracts from the latter document, including one of the general
principles to be adopted, namely:
If the valuer
suspects that hidden defects exist, he may, if he thinks it necessary,
recommend that further investigation be carried out.
The judge said
it was common ground between the parties that in 1986 a surveyor making a
valuation survey of the house would be expected to make a ‘head and shoulders’
inspection of the roofspace, that is, he should find any trap door into the
roof and at least put his head and shoulders through the trap door and make a
visual inspection.
The judge then
described the alleged defect in the present case:
The technical
evidence in this case has concentrated on a heavy concrete purlin in the
roofspace. The agreed evidence is that that purlin was constructed with lugs at
each end and would have been lowered into place by a crane so that the lugs
fell into slots in other parts of the structure. It is also agreed that this
particular purlin was unevenly positioned so that at one end there was a gap of
40mm (just over 1.5 ins) between the bulk of the purlin and the main member of
the wall, and at the other end the gap was 10mm or less. The expert evidence
led on behalf of the plaintiffs was that this imbalance was dangerous, it ought
to have been noticed and reported on a valuation survey, and it was negligent
not to report it. That evidence was given by Mr Stephen Whitley [FRICS] …
The judge
proceeded to consider the first line of defence advanced by the defendant,
which was that a reasonably competent surveyor looking into the roofspace when
making a valuation survey could not have been expected to see the gap of 40mm.
He rejected the evidence of the defendant’s expert witness on that point and
referred to the head and shoulders inspection which he himself had made during
a view of the property. He concluded that any surveyor of reasonable competence
ought to have seen, noted and reported the gap at the end of the purlin. In
other words, he accepted Mr Whitley’s view that the first defendant had been in
breach of his duty in not having taken those steps. That conclusion is
manifestly one with which this court cannot interfere.
Next, the
judge considered whether a reasonably competent surveyor looking into the
roofspace ought to have concluded from what he saw that there was a possibility
of a serious defect in the house, so that it should not have been accepted as a
security for a loan or that a structural engineer should have been called in to
inspect it. Having referred to the view of the defendant’s expert witness that
the gaps at the end of purlins did not represent defects in construction and
that repairs carried out by Hounslow to the adjacent properties had
strengthened the support to no 40, he continued, in a crucial passage:
But all of
that is to a considerable extent beside the point. The questions are, what does
the potential buyer think about this property and what effect does that have on
its value? The proof of the pudding is in the eating. The plaintiffs had a
willing buyer at an acceptable price, Mr Farooq, who withdrew after a survey.
The plaintiffs failed to find another purchaser although they tried to do so.
The Halifax Building Society tried unsuccessfully to sell the property for 11
months from August 1990 to July 1991 and only succeeded in selling it after a
further eight months (after getting a structural engineers report) at auction
for far less than the plaintiffs paid for it.
Later the
judge said that he was forced to find that the first defendant had been
negligent in the conduct of the survey.
Pausing there,
I think it tolerably clear that in the last passage I have read the judge was
making a finding (‘the proof of the pudding etc’) that if the first defendant
had reported the gap at the end of the purlin in his report of August 29 1986
the plaintiffs would not have gone ahead with the purchase. But as Mr Brian
Leech, for the respondent plaintiffs, fully accepts, he was making a finding as
at 1986 on the basis of what had happened in 1989 and afterwards. And as Mr
John Greenbourne, for the appellant defendants, has urged upon us, it is
certainly not clear at any rate that a purchaser would have acted in 1986 as Mr
Farooq, and perhaps others, did in 1989 and afterwards.
The position
before the judge was this. There was evidence in the form of a circular letter
written by Hounslow in August 1984, I think to their former tenants who had
purchased houses in the Bison system build form of construction, but perhaps to
their existing tenants as well. That letter referred, in an entirely general
way, to the defects inherent in that form of construction and to advice which
had already been given by Hounslow to their tenants. Mr Whitley said in
evidence that, although he did not have a copy of that letter in his possession
at the time, it would have been known about locally in 1986. Mr Greenbourne has
objected that that evidence, which the judge accepted, was given in answer to a
single leading question put by the judge himself. However, the force of the
objection is reduced by the fact that the first defendant gave evidence to the
effect that he, too, was aware at the time that there were defects in the Bison
system as a whole, although not specifically related to low-rise buildings such
as 40 Armytage Road. Later he said that he was aware, in general, that there
had been problems in constructing these large panel systems on site.
That was
really the totality of the evidence about the position in 1986. Both expert
witnesses were agreed that since then it had become at least difficult and
perhaps impossible in practice to obtain mortgages on property constructed in
the Bison form. Mr Whitley suggested that in 1986 it was quite likely that not
all building societies would have accepted that form of construction as
representing a suitable security, but he gave no specific instances and the plaintiffs’
experience with the Halifax Building Society suggests the contrary.
Mr Greenbourne
submits that the judge’s crucial finding should be reversed by this court. He
says that the judge could only properly have found on the evidence that if the
first defendant had reported the gap at the end of the purlin, the plaintiffs
would still have gone ahead with the purchase. He relies on the fact that the
judge did not make a finding that the gap amounted to a serious defect.
I have found
this a difficult question on which my mind has fluctuated during the course of
the argument. In the end I have come to the conclusion that there was evidence
on which the judge’s crucial finding could be made. Although no finding was
made that the gap at the end of the purlin amounted to a serious defect, and
although the house had stood there for 30 years or so without appearing to be
in any way unsafe, the judge did have before him the evidence of Mr Whitley
that the imbalance in the positioning of the purlin was unacceptable and indeed
dangerous and he was entitled to think that if a surveyor said that in 1993,
another surveyor might well have said it in 1986. Then there was at least some
evidence that at that time surveyors in the locality would have known about,
and perhaps shared, a general concern over the Bison form of construction. All
in all I cannot say that the judge was not entitled to find that if the first
defendant had reported the gap the plaintiffs would not have gone ahead with
the purchase. Accordingly, though with some hesitation, I would affirm the
judge’s decision on liability.
I turn to the
questions of damages. Before the judge it was agreed that the plaintiffs were
entitled to the difference between the value of the house in 1986 in the
condition represented by the first defendant’s report and its actual value. It
was also agreed that the first of those values was the equivalent of what was
paid for the house, namely £56,000. So what the judge had to do was to assess
its actual value in 1986.
As to that, the
defendant’s expert believed that the maximum reduction in value that might have
occurred, taking into account the possibility of having to spend about £8,500,
would have been £12,000. In other words, he put a minimum value of £46,000 on
the house. However, for reasons into which I need not go, the judge had earlier
said that he approached the evidence of the defendant’s expert with
great caution and that he only accepted it where it was independently
supported.
On the other
side, Mr Whitley thought that the actual value of the house in 1986 was
£20,000. This is what the judge said about this question:
The best
evidence of the value of a property is usually what someone is prepared to pay
for it. What was paid for this property was £29,000 at auction on March 13
1992, six years after the date which I have to consider. Mr Whitley gave his
opinion that the value of the property in its true condition in 1986 was
£20,000. His reasoning was not based on any difference between 1986 and 1992
values, nor did he support his evidence with sales of comparable property, nor
did he put forward any calculation of what could be made out of an investment
in the property. Mr Whitley relied on his experience as a local estate agent as
well as a surveyor and he suggested that the price of £29,000 paid at auction
was attributable to ‘overzealous bidding’.
How the
auction price in 1992 relates to values in 1986 has not been considered in
evidence. I have evidence that the market price was at its peak in 1988 and
that at that time the plaintiffs received an offer for £79,000 for the property
in good condition. The property market has fallen since then, but I have no
evidence whether the fall is such that a price fetched at auction in 1992
should be regarded as equivalent to a price which the property might have been
expected to fetch at auction in 1986. It would not be right to assume that the
value in March 1992 was the same as the value to be expected in mid-1986. It is
possible that that might be the case, but I have no evidence to that effect.
The judge then
referred to the view of the defendant’s expert and to an offer made by Hounslow
in 1987 to undertake remedial work to the houses for £9,000 each. He concluded:
I do not
think it right to assess the reduction in value by reference to remedial work
which has not been carried out and which, even if carried out, would not remove
the question mark which stands over this property. The only other evidence
which I have as to value is the evidence of Mr Whitley. That evidence was not
strongly tested in cross-examination, perhaps because it was considered to be
reliable.
I therefore
assess the damages attributable to reduction in value at £36,000, that is the
difference between £56,000 and Mr Whitley’s valuation of £20,000.
I respectfully
think that on this question the judge allowed the sympathy for the plaintiffs,
which shows through every line of his judgment, to carry him too far. Mr
Whitley’s £20,000 not having been supported by any comparables, the only hard evidence
which the judge had before him was the £29,000 raised at auction in 1992.
Admittedly that was six years later, but it was the figure with which the judge
ought to have started and to have done his best. Even though the relation of
the 1992 price to 1986 values was not considered in evidence, the judge did
have evidence that the market was at its peak in 1988 and he knew that it had
fallen since then. In these circumstances, although there was no evidence that
the 1992 auction price ought to have been regarded as the equivalent of the
1986 auction price, an assumption that it would have been was, in my view,
clearly preferable to an acceptance of Mr Whitley’s unsupported figure of
£20,000, a figure which was in fact tested in cross-examination when counsel
then appearing for the defendant put the auction price of £29,000 to Mr
Whitley. Mr Whitley himself was not at the auction. How did he know, except by
way of a generalisation, that the price was attributable to overzealous
bidding? I do not think that Mr Whitley’s experience as a local estate agent
was, without more, a sufficient basis for the judge’s finding. I would
therefore reassess the judge’s first award of damages on the footing that the
actual value of the house in 1986 was £29,000 and not £20,000.
Finally, I
come to the plaintiffs’ claim for general damages for physical inconvenience
and discomfort caused by the first defendant’s negligence and for mental
suffering directly related to that inconvenience and discomfort: see Watts
v Morrow [1991] 1 WLR 1421*. Here Mr Leech accepts that the judge
proceeded in part on a wrong basis, in that he overlooked the fact that the
first plaintiff’s financial difficulties and falling into arrears with his
payments under the mortgage started before the house was put on the market and
not after it failed to sell. Nevertheless the plaintiffs have had a long period
in council accommodation, which they would not have had to undergo if they had
been able to sell to Mr Farooq in 1989. Their claim under this head is still a
valuable one and I would award them £4,000 in place of the £6,000 awarded by
the judge.
*Editor’s
note: Also reported at [1991] 2 EGLR 152.
I would allow
the appeal to the extent necessary to reflect a reduction in damages in the two
respects mentioned.
Agreeing, HENRY
LJ said: I agree with Nourse LJ’s judgment both as to the reasons given and
as to the hesitation expressed. On the issue of liability, I have ultimately
concluded that this is not a case where this court could properly interfere
with the judge’s findings of fact. I do not wish to add anything further.
Also agreeing,
SIR JOHN MEGAW said: I agree with the order proposed by Nourse LJ on
each of the issues before this court. I would not wish to add anything with
regard to the issues in relation to the quantum of damages. In relation
to liability, I would wish to add what I hope will only be a few sentences.
A complaint on
behalf of the appellant is the absence of any finding by the judge that there
was a ‘serious’ defect. That is, of course, perfectly true. But the judge did
hold, as I understand his judgment, that there was a defect which was
‘unacceptable’. It is clear from other passages in the judgment and from
passages that we have seen in the evidence that that word had been used by
counsel in their submissions to the judge as well as by the expert witnesses. I
refer, for example, to a passage in the judgment at p10, beginning at line 21*,
where the judge is citing from what Professor Malcolm Hollis, the expert for
the appellants, said in his written report, which he confirmed as being his
evidence in chief:
*Editor’s
note: Reported at [1994] 1 EGLR 255 at p257E.
Mr Whitley
states that Mr McDade’s head and shoulder inspection of the roof void should,
without question, have revealed the unacceptable joint of the concrete purlin.
This is a matter which is central to the case. In my view, the test is whether
the defective joint, if that joint is defective, was readily visible from a
head and shoulders inspection.
The judge’s
finding as to the defect existing and being unacceptable appears on the
following page of the judgment, p11, at line 18*:
*Editor’s note:
Reported at [1994] 1 EGLR 255 at p257G.
If I had had
to try this case by reference to photographs and conflicting oral evidence, I
would have been in some doubt. Having had a view, I am in no doubt. I entirely
accept the evidence of Mr Whitley that Mr McDade’s ‘head and shoulders’
inspection of the roofspace (if he made one) should have revealed the
unacceptable joint of the concrete purlin with the party wall to no 42 on the
front-roof slope.
By
‘unacceptable’ I understand the judge to have meant that there was a defect of
sufficient significance to have required that the valuer surveying should have
reported the existence of that defect. A copy of that report would have been
sent to the plaintiffs, who would then have known that the valuer was stating
that there was a defect which was unacceptable.
Apart from
that addition, I agree entirely with everything that has been said by Nourse LJ
in his judgment.
Appeal
allowed to the extent necessary to reflect a reduction in damages.
