Negligence — Structural survey — Preliminary issue in action against surveyors — Present proceedings did not determine the question of liability but only the basis on which, assuming that liability was established, damages should be assessed — Although not entirely clear from the pleadings, it was plain during the hearing that the plaintiffs’ case was put in two alternative ways, (1) as a claim for loss and damage under various heads, such as the cost of building works and professional fees in making the property a desirable purchase for its existing use, and (2) as the difference between the price paid by the plaintiffs and the market value at the date of purchase of the property in its actual state — Under the second alternative the plaintiffs claimed certain consequential losses in addition
the property in question the plaintiffs entered into two contracts, the first
for the purchase of the freehold reversionary interest for £195,250 and the
second for the surrender of the tenant’s interest for £30,000, a total of
£225,250 — In the particulars of their alternative claim they put the actual
value, with the existing defects, at £172,000, a difference of £53,250 —
Although some of the documents before the court indicated an intention to
purchase for investment, it appeared that the plaintiffs’ primary purpose was
development, ie a future sale — Subsequently the plaintiffs granted a lease of
the property for £17,500 per annum and sold it subject to the lease for
£360,000
of a detailed review of authorities the judge began with the classic statement
of the measure of damages in contract by Alderson B in Hadley v Baxendale and
considered among other cases Philips v Ward and Perry v Sidney Phillips & Son —
He referred in the course of his review to questions as to whether the cost of
repairs or the difference between the price paid and the correct value should
be the measure of damages for a negligently conducted survey and whether costs
might nevertheless be relevant where the main test was the differential
valuation
the judge concluded that in the absence of special circumstances the measure of
damages in a case such as the present was the difference between the market
value of the property in its actual state and the price actually paid (assuming
that the plaintiffs established at the trial that they paid the price in
reliance on the defendants’ survey report) — However, relying on such cases as
Treml v Ernest W Gibson & Partners, he held that this measure of
damages did not rule out the recovery of certain consequential losses in
addition — He mentioned, in particular, expenses reasonably incurred in
investigating the true state of the premises; costs incurred (whether building
costs or professional fees) for temporary works to prevent a nuisance or
danger; and damages for inconvenience suffered by the plaintiffs —- These were,
of course, all matters for proof at a trial.*
*Editor’s
note: The action was in fact settled on the third day of the hearing of the
main trial by a payment of £60,000 and costs.
The following
cases are referred to in this report.
Ford v White & Co [1964] 1 WLR 885; [1964] 2 All ER 755;
[1964] EGD 283; 190 EG 595
Hadley v Baxendale (1854) 9 Exch 341
Hood v Shaw [1960] EGD 238; (1960) 176 EG 1291
Koufos v C Czarnikow Ltd [1969] 1 AC 350; [1967] 3 WLR 1491; Sub
nom
Koufos v Czarnikow (C) Heron II, The [1967] 3 All ER 686; Sub nom
Czarnikow
(C) v Koufos 2 Lloyds Rep 457, HL
Lawrence v Hampton & Sons [1964] EGD 428; (1964) 190 EG 107
Morgan v Perry (1973) 229 EG 1737
Perry v Sidney Phillips & Son [1982] 1 WLR 1297; [1982] 3 All
ER 705; [1982] EGD 412; (1982) 263 EG 888, [1982] 2 EGLR 135, CA
Philips v Ward [1956] 1 WLR 471; [1956] 1 All ER 874, CA
Simple Simon
Catering Ltd v J E Binstock Miller & Co [1973] EGD 901; (1973) 228 EG 527,
CA
Treml v Ernest W Gibson & Partners [1984] EGD 922; (1984) 272
EG 68, [1984] 2 EGLR 162
Victoria
Laundry (Windsor) Ltd v Newman Industries
[1949] 2 KB 528; [1949] 1 All ER 997; (1949) 65 TLR 274, CA
The plaintiffs
in this action, Broadoak Properties Ltd, property developers, claimed damages
against Young & White, a firm of surveyors, for alleged negligence in a
structural survey report in respect of a property at 2 West Street, Chichester,
West Sussex.
Nigel Pitt
(instructed by George Ide Phillips, of Chichester) appeared on behalf of the
plaintiffs; Robert Moxon-Browne (instructed by Hewitt Woollacott & Chown)
represented the defendants.
Giving
judgment, JUDGE FOX-ANDREWS QC said: In this action the plaintiffs are claiming
damages against the defendants, a firm of surveyors, in respect of a written
structural survey report given by them on January 22 1985 in respect of
premises known as 2 West Street, Chichester, West Sussex.
The nature of
the plaintiffs’ claim against the defendants is set out in their statement of
claim. The principal amendments to it were made on June 23 1986. However, on
January 8 1988 I gave the plaintiffs leave to reamend para 13 of their
statement of claim by the variation of the figures £221,500, £150,000 and
£65,000 to ‘up to £237,000’, ‘up to £172,000’, and ‘up to £65,000’. Within a
short time thereafter I gave leave to the plaintiffs to re-reamend para 13 by
the variation of ‘up to £237,000’ and ‘up to £65,000’ to ‘up to £225,250’ and
‘up to £53,250’. On November 29 1987 I ordered that there should be a trial of
a preliminary issue.
Before
considering the terms of that preliminary issue it is important to see how the
plaintiffs put their case against the defendants. By para 3 the plaintiffs
allege that the defendants well knew that the plaintiffs required the report
for the purposes of considering whether to purchase the property for the
purpose of refurbishing the property and reletting it at a market rent and
selling at a profit and, if so, at what price and upon what terms.
Para 4 sets up
an express or implied term which may fairly be summarised as a duty to take
reasonable care in carrying out the survey and reporting thereon.
Para 6 alleges
that the defendants represented that:
(a) the property consisted of a terraced corner
shop unit with offices over;
(b) that if repairs listed as 1 to 35 in the
report, estimated at approximately £6,000, were carried out, the property would
be a desirable purchase for the use then existing.
Para 7 relates
to inducement in respect of the representations so far as the defendants’
intentions and knowledge were concerned.
By para 8 it
is alleged that the defendants were under a duty of care in the making of the
representations.
By para 9 the
plaintiffs allege that in reliance of representations they acquired the vacant
freehold for £225,250.
There is no
dispute, and I so find, that on March 29 1985 the plaintiffs entered into two
contracts. The first was with the owners of the freehold premises. The
plaintiffs agreed to acquire their reversionary freehold interest for £195,250.
The second was with the tenant of the premises, a Mr Jack Bryman, in whom was
vested the residue of a term of 21 years from June 24 1967. Mr Bryman agreed to
surrender his interest to the plaintiffs for £30,000.
Para 10, which
is extensively particularised, is in these terms:
in breach of
their said duty of care the defendants are guilty of negligence in making the
said representations and in so surveying and reporting upon the said property
the defendants acted negligently and in breach of the said term of the
contract.
By para 11 it
was alleged that the representations were false, inaccurate and misleading. The
particulars were, first, that there were no offices over the shop unit and the
shop was not a corner shop unit; second, that the true cost of making the
property a desirable purchase for its existing use vastly exceeded £6,000.
Para 12
alleges that as a result of the said negligent representations made by the
defendants the plaintiffs have suffered loss and damage. It is to be noted that
there is no allegation that such loss or damage was suffered as a result of the
failure of the defendants to exercise reasonable care in carrying out the
survey and reporting thereon. I was, however, invited during the course of the
hearing to give my decision on the basis that it had been more widely pleaded.
The various
heads of damage will be noted. They relate to the actual costs that the
plaintiff incurred in building works and professional fees in making the
property a desirable purchase for its existing use, for interest, loss of
profit and management time.
Para 13, which
was not expressed as an alternative to para 12, was in these terms (as re-reamended):
Further, the
said property was in fact worth less than the price that an intending purchaser
would have paid in reliance of the said report.
|
Particulars |
|
|
Value on basis of defendants’ report up to |
£225,250 |
|
Actual value up |
£172,000 |
|
Difference |
£53,250 |
It was made clear in the course of the hearing that in fact the
claim in para 13 was alternative to para 12 but to it should be added some of
the claims appearing in para 12. I shall consider this aspect somewhat more
fully later on.
The
preliminary issue that I ordered at the request of the parties was for a
determination of the basis upon which, assuming the plaintiffs establish
liability, damages should be assessed.
The matter
came on for hearing before me on January 7 1988. Although at various times
during the hearing it was indicated by the plaintiffs that they would seek
leave to amend paras 12 and 13 of their statement of claim in order to
rationalise their claims no such application was in fact made. Further, it
became clear, notwithstanding the underlying assumptions upon which the
preliminary issue was to be determined, that in certain respects the
assumptions were challenged. A typical example related to para 3 of the
statement of claim. The plaintiffs called evidence in support of the allegation
therein contained without objection from the defendants and the defendants
cross-examined that evidence both as to knowledge and purpose, broadly without
objection by the plaintiffs. I was asked to make all such findings within
certain limits as would assist the parties. Although the position is not
entirely satisfactory, it seems to me that the task of the court in these
circumstances is to do all it can to afford assistance to the parties. What is
essential is that the parties should appreciate the basis upon which the court
makes its determinations and/or alternative determinations.
A good
starting point is to consider what is the measure of damages for breach of
contract. In Hadley v Baxendale (1854) 9 Exch 341, Alderson B
said at p 354:
Where two
parties have made a contract which one of them has broken, the damages which
the other party ought to receive in respect of such breach of contract should
be such as may fairly and reasonably be considered either as arising naturally
ie according to the usual course of things, from such breach of contract
itself, or such as may reasonably be supposed to have been in the contemplation
of both parties, at the time they made the contract, as the probable result of
the breach of it. Now, if the special circumstances under which the contract
was actually made were communicated by the plaintiffs to the defendants and
thus known to both parties, the damages resulting from the breach of such a
contract, which they would reasonably contemplate, would be the amount of
injury which would ordinarily follow from a breach of contract under the
special circumstances so known and communicated. But, on the other hand, if
these special circumstances were wholly unknown to the party breaking the
contract he, at the most, could only be supposed to have had in his
contemplation the amount of injury which would arise generally, and in the
great multitude of cases not affected by any special circumstances, from such a
breach of contract
McGregor on
Damages, 14th ed at paras 187 et seq and Chitty
on Contracts — General Principles, 25th ed at paras 1692 et seq
consider how these principles have subsequently been interpreted and restated
particularly in the cases of Victoria Laundry (Windsor) Ltd v Newman
Industries [1949] 2 KB 528 and Koufos v C Czarnikow Ltd (The
Heron II) [1969] 1 AC 350.
The conclusion
reached by Chitty is that:
the combined
effect of these cases may be summarised as follows: a type or kind of loss is
not too remote a consequence of a breach of contract if, at the time of
contracting (and on the assumption that the parties actually foresaw the breach
in question) it was within their reasonable contemplation as a not unlikely
result of their breach.
I propose to
adopt and apply this restatement.
If the
determination is to be made on the assumption that the matters pleaded in the
statement of claim are true, and in particular the contents of para 3, the
matter is comparatively straightforward. But in the course of the hearing
issues arose whether the particular consequences of the breach as pleaded in
para 12 were at the time of the contract within the contemplation of the
parties. Further, the plaintiffs wished to widen the question for determination
to extend to the question whether loss and damage as pleaded in para 12 were
caused by the negligent survey and report. I indicate how I deal with these matters
in the course of this judgment.
The contract
was made orally between the plaintiffs and the defendants on December 17 1984
and confirmed by the plaintiffs’ letter of the same date. It is not alleged
that the contract was varied at any time between December 17 1984 and January
22 1985. Nor is it alleged that after January 22 1985 there was any continuing
or fresh contractual relationship between the parties. The material date
therefore for determining what was in the contemplation of the parties is December
17 1984 or at the latest January 22 1985.
It is the
defendants’ case that at that date it was within the contemplation of the
parties only that the plaintiffs would buy the premises with the existing
tenant, as an investment, and that therefore it followed on the authorities
that the proper measure of damage was that pleaded in para 13, not that pleaded
in para 12. For the plaintiffs it was contended that what was in the
contemplation of the parties were the matters set out in para 3 of the
statement of claim or alternatively, if that were not so, nevertheless a not
unlikely result of a breach by the defendants of their contract were the losses
as set out in para 12. On this issue I have the evidence of Mr Fassam, the
managing director of the plaintiffs, and certain agreed documents. The
defendants were content to rely on this evidence for the purpose of
establishing what was in the contemplation of the parties at the time of the
making of the contract.
I should
consider certain matters that were put before me, although only those up to
December 17 1984 or possibly January 22 1985 would appear relevant to this
issue.
Although the
plaintiffs have an impressive parentage, their financial base was relatively
small. At all material times they could fairly be described as property
developers and not property investors. By investors I mean persons who invest
moneys in properties with the expectation that with the benefit of enhanced
rentals from rent review awards their investments will prove increasingly
rewarding. The lease in question had been at rent of £5,750. At the first rent
review in June 1982 the rent had increased to £9,000. The next review was in
June 1987. The lease imposed full repairing insurance covenants on the tenants.
By development I mean a company which acquires properties in order to improve
them and then sell on. A company may combine development and investment in a
particular property. That is to say they may improve it but retain it for
investment purposes. As regards documents passing between the plaintiffs and
the defendants prior at least to February 1985, there was nothing to suggest
that the object of the plaintiffs was the acquisition of 2 West Street for
development purposes.
At one stage
it appeared from a document produced by the plaintiffs that they had
provisionally agreed with Mr Bryman for the surrender of his lease, well before
the defendants inspected the premises and subsequently reported on them, but
had not informed the defendants of this fact. I would have considered that unreasonable
conduct upon the part of the plaintiffs and it would have adversely affected
the credit of Mr Fassam. I am, however, satisfied that document 107 in the
bundle should refer to February 4 and not as it does to January 4. As a result
of this error being cleared up, my earlier doubts as to the weight that should
be attached to Mr Fassam’s evidence and to his business mores are dispelled. I
find him to be a witness of truth and a principled business man. I am satisfied
that prior to December 17 1984 and indeed prior to January 22 1985 Mr Fassam
had not discussed with Mr John Butt [BSc ARICS] of the defendants what the
plaintiffs’ intentions were in respect to 2 West Street if they acquired the
premises. He had not expressed an intention to seek a surrender of the tenant’s
interest. I shall have to consider the relationship of Mr Fassam and Mr Butt
and what Mr Butt knew of the plaintiffs’ activities later in this judgment.
On October 17
1984 the freeholder’s agents had given details of 2 West Street to Mr Butt on
the basis of an investment. They indicated that the estimated rental value was
£11,500 as against the presently reviewed rent of £9,000. On October 19 1984 on
the plaintiffs’ instructions, Mr Butt offered £150,000 ‘for the benefit of the
freehold investment subject to contract and subject to structural survey’ and a
copy of the offer in those terms was sent to the plaintiffs. A copy of the
freeholders’ agents’ valuation dated October 19 1984 was put before me. It is
not clear when or how this document came into the possession of either party.
There is no evidence that the contents of the document were known to either
party before March 29 1985 and it would have been strange if they had. Such
evidential value, if any, as it has is that the agents were recommending
marketing the property at £195,000 as an investment with the view of achieving
£175,000 for the freehold interest subject to the occupational lease. Against
that background it is hardly surprising that the offer of £150,000 was not
accepted.
On October 31
1984 the defendants were reporting on the situation at 2 West Street and were
suggesting a property in Gosport as an investment.
On November 2
the defendants wrote to the freeholder’s agents with an offer of £167,500, in
which letter they stated:
My client’s
main concern is the very low initial rent for the position in West Street when
compared with yields in the prime areas of East and North Street; together with
a projected reversionary rental value.
That offer
being rejected, the defendants wrote again on November 14, offering £175,000
subject to contract for the benefit of the freehold investment. Subsequently,
when a competitor, ultimately ascertained as Refuge Investments Ltd, made an
offer of £195,150, the defendants on behalf of the plaintiffs increased their
offer to £195,250. In reporting this by letter to the plaintiffs the defendants
used again the expression ‘for the benefit of the freehold investment’. Mr
Fassam says that at this stage the proposition was on a development basis and
that he was pinning his hopes on getting the tenant out. However, I find that
nothing was said by Mr Fassam to the defendants on this basis. The offer of
£195,250 was provisionally accepted. When this was reported orally to the
defendants Mr Fassam wrote to the defendants on November 30 saying:
provided that
the lease and contract show no nasties then I will be instructing your firm to
carry out a structural survey on the building. Many thanks for introducing this
property to me and I am sure it will prove to be a superb investment.
There was put
before me a further document dated December 3 1984 from the freeholder’s
agents. I make the same comments on this document as I did on the agents’
valuation of October 19. Again, for what it is worth, these agents were
reporting on the property value as an investment.
On December 20
1984 Mr Butt wrote an internal memorandum to his valuation colleague in which
he said the defendants were acting in respect of an acquisition of a freehold
investment. There is no suggestion that this document was seen by the
plaintiffs at any material time.
On January 14
1985 Mr John M Grant [ARICS] [of the defendants] and Mr Fassam attended at 2
West Street. Mr Fassam had previously visited the premises on one occasion. On
January 14 Mr Fassam walked over the premises for about half an hour to an
hour. In cross-examination he was asked questions about the user to which the
premises were being put and as to their condition. In part these questions
appear to have been directed to whether the plaintiffs had relied upon the
defendants’ representations as set out in para 6 of the statement of claim. As
the plaintiffs were not prepared to deal with those departures from the
preliminary issue that was ordered I disregard the answers and assume in so far
as material that the representations were made and were subsequently relied
upon.
On January 22
1985 Mr Grant’s lengthy report was sent to the plaintiffs. Since I must assume
that the defendants were at fault in the respects set out in the particulars
contained in para 10 of the statement of claim, it is unnecessary to consider
that report or its failings in detail. Suffice it to say that two of the
principal complaints made by the plaintiffs are that the report was silent on
death watch beetle problems and on the state of the front elevation. In his
report Mr Grant listed at items 2-35 various repairs that were needed to be
carried out. Item 1 was in these terms:
Obtain
documentary proof of woodworm treatment to all timbers and carry out the necessary
impregnation. If the treatment has already been carried out obtain assurance
that the guarantee passes with the property.
At p 13 his
conclusions were:
We are of the
opinion that bearing in mind the age of the property, if the above repairs
estimated at approximately £6,000 are carried out to the property, subject to
statutory consent to them it would be a desirable purchase for the use now
existing.
(My emphasis
added.)
Certain minor
qualifications were then made.
Mr Grant
continued:
We have
examined the copy of the lease dated August 4 1977
— which the
plaintiffs had sent to the defendants on December 17 —-
and would
advise you to obtain a copy of the Schedule of Conditions completed when the
lease was taken and then have prepared an Interim Schedule of Dilapidation
for service on the Tenant.
(My emphasis
added.)
On January 23
1985 the plaintiffs wrote to Mr Grant asking for the identification of those
items of repair and redecoration which would be the responsibility of the
tenant if an interim schedule were served. On January 25 the plaintiffs wrote
to their solicitors asking them to deal with various matters raised by the
defendants including matters relating to the lease. On January 28 Mr Grant
replied to the plaintiffs’ letter of January 23 essentially stating that all
items of disrepair listed by them should be in the interim schedule.
On or shortly
before February 4, as a result of a direct approach by Mr Fassam to Mr Bryman,
an almost immediate provisional agreement was reached that Mr Bryman would
surrender his lease for £28,000.
On the
defendants’ recommendations the plaintiffs sought directly for a report on the
electrical installation of the premises which they received on February 26. The
report indicated defects in the existing installation. Apparently the
plaintiffs also sought and obtained a report on the plumbing and drainage.
Although I have not seen the report, certain documents, eg 182 item 7B, suggest
that the report was not wholly favourable.
Although there
is little evidence of it, it appears that there was a short-lived gazumping.
There is no evidence to which I should pay regard as to why the new competitors
withdrew so quickly. In the intervening period, however, the plaintiffs
increased their offer to the tenant from £28,000 to £30,000. The purchase
contracts as previously indicated were signed on March 29. Even if the
defendants became aware of the buying out of the tenant’s interest, they did so
only at a very late stage and their advice was never sought on that.
The plaintiffs
prepared to remedy the defects in the premises and to improve them,
particularly by the provision of a new staircase, but I am not called upon to
form any view as to what the cost of the remedial and improvement works would
have been. In the plaintiffs’ report dated April 2 1985 to their bankers, they
assessed what they described as ‘Refurbishment Costs’ at £29,204 including
interest for 4 1/2 months. I have no evidence which enables me to judge, nor am
I required to do so, whether these figures were accurate or whether the works
could have in fact been done in the three months which they estimated.
On May 20 1985
the plaintiffs wrote to the defendants complaining of errors in their report.
In that letter they stated:
Your initial
report suggests that the property could be refurbished for £6,000, however it
now looks as though between £35,000 and £40,000 will need to be spent on the
property to bring it up to a reasonable standard.
In their reply
of June 13 the defendants said:
No indication
was given within these instructions that the Company were in any way proposing
to carry out major works of refurbishment or restoration to the property and
indeed as I understand, no indication was given by you personally to our Mr
Grant at the time you met him at the property on the date of his inspection. On
that date the property was subject to the lease and a copy you kindly supplied
to us (sic). The lease itself would appear to have imposed upon the
tenant full repairing obligations with regard to the building. We now
understand that the residuary leasehold interest has been acquired, that
property is now in hand and that works of restoration are progressing. You will
be aware that we were not a party to any discussion with regard to release from
or variation of the tenants’ obligations.
On June 14 the
plaintiffs replied:
My
instructions to John Butt of December 17 1984 were for your company to carry
out a full structural survey. The fact that at the time the building was
tenanted should have no bearing on the quality of the survey, only as to whose
responsibility it was to pay for any necessary work. I fail to see what
influence Broadoaks’ intention to buy out the tenant and refurbish the property
could have on Mr Grant’s ability to carry out a full structural survey.
On April 8
1986 the plaintiffs leased the premises to Monsoon Fashions Ltd at a rent of
£17,500 per annum. On April 10 1986 the plaintiffs transferred the property
subject to Monsoon’s lease to M & G Life Assurance Co Ltd for £360,000.
Not surprisingly,
since the matter was not an issue before me, the precise costs of the works
undertaken by the plaintiffs did not emerge. By the further and better
particulars served on June 18 it was alleged that the plaintiffs had spent
£62,757.67 together with £9,413.65 VAT on building and refurbishment costs. So
far as the claim against the defendants is concerned, the plaintiffs set out in
a schedule works totalling £48,786.67 together with VAT of £7,318 and then
deducted £6,000. It is to be noted that works for both plumbing and electricity
are included. In this sub-trial it does not fall for consideration whether any,
and if so what, of those works were in fact in respect of improvements.
I am satisfied
on Mr Fassam’s evidence that there was a reasonably close relationship in 1984
between Mr Fassam and Mr Butt. Letters are to be found sent by the plaintiffs
in May 1984 indicating the then intentions of the plaintiffs, which did not
include property and investment. I am satisfied that although the defendants
will not have seen those particular letters they will have been aware either by
letter or by word of mouth from Mr Fassam that the plaintiffs’ primary interest
in 1984 and early 1985 was in development and not investment.
Even if such
intentions had not been expressly communicated to them, the defendants ought
reasonably to have had in their contemplation before they surveyed the premises
that, after receipt of the full structural survey report, the plaintiffs might
well only be interested in committing themselves to an acquisition of the
premises if they could buy out the tenant’s interest notwithstanding the
plaintiffs never mentioned this possibility. Thus, so far as breach of contract
is concerned, the measure of damage will be the same whether the facts set out
in the statement of claim are assumed to be true or on the findings that I have
made. So far as the representations are concerned, for the reasons already
given I make no findings of fact and therefore assume that such representations
were made, were relied on and were negligent. Whether these matters would in
fact be established at trial will in due course be determined.
So far,
however, as the representations in para 6(a) and (b) were concerned, I do not
find the assumptions I am required to make make any difference to the measure
of damage. As to (b), on the assumptions I make, the defendants in listing 35
matters needing repair were merely repeating in a different form their
negligent views as to the extent of disrepair in the premises. In respect of
the specific matters they listed it is not alleged that the cost of £6,000 was
erroneous. The assumed negligence is in the inadequacy of the list of defects,
not in its erroneous pricing. I have to assume that the defendants were
negligent in failing to advise that VAT would be payable on some of the
repairs. It may prove to be a relatively easy matter to establish the falsity
of that assumption at trial, since the plaintiffs were a property development
company. It is likely to be held that the £6,000 did not relate in any event to
plumbing, drainage or electrical defects.
Both on the
assumptions I am required to make and on my findings of fact, the facts that
the premises were tenanted and that the tenant might remain were irrelevant so
far as the standard of skill required from the defendants in the carrying out
of their surveys is concerned.
In Philips v
Ward [1956] 1 WLR 471 the judge at first instance said:
I direct
myself that the proper measure of damage in this case is the difference between
the value of the house and farm in the condition described in the report and
their value as they should have been described.
In the Court
of Appeal Morris LJ said at p 475:
In my
judgment, the damages to be assessed are such as could fairly and reasonably be
considered as resulting naturally from the failure to report as he should have
done.
He upheld the
trial judge.
Denning LJ at
p 473 said:
the proper
measure of damage is therefore the difference between the value in its assumed
good condition and the value in the bad condition which should have been
reported to the client.
Romer LJ’s
judgment on this point may reasonably be regarded as being the difference
between the price paid and the market price on the basis of the actual defects
if known.
In Ford v
White & Co [1964] 1 WLR 885 (a solicitors’ negligence case)
Pennycuick J said:
In the simple
case the purchase of property in excess of its market value as a result of
wrong advice, the measure of damage must be the difference between (1) the
market value of the property at the date of purchase and (2) the price actually
paid.
Later he said:
A sees a
picture on sale at £100. He consults an art expert, who negligently advises him
that the picture is an old master worth £50,000. A buys the picture [for £100],
but cannot in fact find a purchaser willing to pay more than £5 for it. Is the
measure of damage £95 or £49,995? I
should have thought obviously the former.
In the Court
of Appeal decision in Simple Simon Catering Ltd v Binstock Miller
& Co (June 25 1973) Lord Denning MR, after setting out the passage to
which I have just referred but omitting the word ‘obviously’, said:
In short the
expert does not warrant that his advice is correct. He is not liable as upon a
warranty. He is only liable for the damage done by reason of his negligent
advice. The same appears from an earlier case in this Court of Philips v
Ward [1956] 1 WLR 471.
In the Estates
Gazette report of this case (1973) 228 EG 527 the principles, as one would
expect, are correctly stated, but words are attributed to Lord Denning MR after
the Pennycuick J extract which do not in fact appear in his judgment.
The last
leading case relating to surveyors’ negligence in recent years is Perry
v Sidney Phillips & Son reported at [1982] 1 All ER 1005 at first
instance and [1982] 3 All ER 705 in the Court of Appeal. At first instance it
was held that the proper measure of damage was the cost of repairs. Between
trial and appeal the plaintiff sold the house without doing repairs. On appeal
the plaintiff for obvious reasons abandoned his claim for assessing damages on
the basis of the cost of repairs. Only Kerr LJ directly dealt with this at p
711 when he said:
So the
question of doing repairs, and of the actual cost of the repairs, has never
arisen. In these circumstances this appeal has proceeded on both sides on the
basis that the costs of the repairs, let alone the question as at what date,
did not arise. For myself, I am not in any way expressing any dissent from the
approach of the deputy judge, but I would say that I would reserve my view as
to whether in a case like this the approach by way of cost of repairs is
necessarily right. We have not heard the point argued and it does not arise for
decision.
However, Lord
Denning MR at p 708 made it clear that he considered that the principles laid
down in Philips v Ward and Simple Simon Catering applied
invariably where the purchase of a house was concerned. He said in terms:
The buyer is
not entitled to remedy the defects and charge the costs to the surveyors.
The judgment of
Oliver J was directed to the issue which arose on appeal, namely the date on
which the difference in price had to be assessed.
The authors of
Jackson and Powell on Professional Negligence, 2nd ed, at para 3.62 say:
‘thirdly it is submitted the difference in value, or, as preferably described,
overpayment is not invariably the appropriate measure of damage’. They refer to
Perry’s case. This proposition was stated in the context of the position
where a person has completed the purchase of a property in reliance upon a
negligent survey.
I find that in
the absence of special circumstances the rule ought to be invariable. There
should be certainty in this branch of the law. In the absence of special
circumstances, the measure of damage I find is the difference between the
market value of the property at the date of purchase in its actual state and
the price actually paid, assuming the
survey report. I do not find it a special circumstance that the plaintiff
establishes that he would not have purchased had he known the true position.
See Lawrence v Hampton & Sons (1964) 190 EG 107.
If the
plaintiffs establish at trial that they purchased (1) the freehold reversion
for £195,250 and (2) the leasehold interest for £30,000 in reliance upon the
defendants’ survey report, then I find that I am satisfied that the plaintiffs
would not have purchased 2 West Street but instead would have purchased another
property for development had they had an accurate report on the former. It is
argued by the plaintiffs that the leading decisions supporting the basic
principle have been concerned with houses purchased as residences. Simple
Simon’s case was of course in respect of commercial premises. The
plaintiffs intended to convert premises into a restaurant but, it is to be
noted, for their own occupation. In any event it is not unlikely, I find, that
when a person buys a dwelling, particularly in London, he will, instead of
residing in it himself, improve it and sell it for a profit.
I am not
satisfied either on the assumption of fact that I am required to make or on my
findings of fact that the facts of this case constitute special circumstances
or entitle the plaintiffs to have their damages measured on a cost of repairs
basis. Thus the claim appearing in para 12 (a) of the statement of claim fails.
Although para
13 of the statement of claim was not amended, the case was argued before me on
the basis that, if the proper measure of damage was the difference in price,
nevertheless the plaintiffs would still be entitled to recover under some of
the various heads of damage claimed in para 12 (b) to (h). I consider these
heads on that basis.
Any remaining
doubts that may have existed as to whether damages for inconvenience could be
recovered where damages were measured on a different price basis were dispelled
in Perry’s case. Jackson and Powell helpfully collect together in
section 3.98 in their book cases in which certain consequential losses have
been held additionally recoverable. My attention has been drawn to a number of
cases and in particular to the decision of Popplewell J in Treml v Ernest
W Gibson & Partners (1984) 272 EG 68, [1984] 2 EGLR 162. In addition to
the difference in price the judge allowed various consequential losses. Thus
the costs of builders and engineers concerned in shoring up the premises
because of their dangerous state were allowed. In order to pay the builder for
these temporary works the plaintiff increased his mortgage and it was held that
the additional interest was recoverable. It is not clear, however, whether this
was an agreed item. In Morgan v Perry (1973) 229 EG 1737 it
appears that the costs of investigating defects were held recoverable. I have
not seen a copy of that report. I have, however, a report of the decision of
Paull J in Hood v Shaw (1960) 176 EG 1291. He allowed in addition
to the difference in price the sum of £100 in respect of surveyor’s fees. It is
unclear from the report what work was done for these fees. It is, however,
likely that they were for investigating the problem.
Against that
background I find that if and in so far as expenses were reasonably incurred in
investigating the true state of the premises this will be a recoverable head of
damage. If and in so far as moneys were spent, eg on the front wall in respect
of temporary works (whether building or professional costs) to prevent a
nuisance or danger, these will be recoverable. Reasonable management time
expended in respect of such investigation and temporary works will likewise be
recoverable.
But in so far
as the rest of the claims are concerned, I find that they are irrecoverable.
The plaintiffs will of course recover interest from the date of purchase on the
difference in price, but the rest of the claims would, I find, be recoverable
only if the defendants had warranted that the premises were in the state that
they had represented.
