Negligence — Duty of care — Liability — Valuation of unusual house for insurance reinstatement purposes — Appeal from decision of Schiemann J — Whether valuers owed a duty of care to purchasers although instructions given by bank — Whether reliance placed on valuation — Scope of reinstatement — Measure of damages if liability established — Division of opinion in Court of Appeal — None of three judges agreed wholly with others — Majority in favour of dismissing appeal, Dillon LJ dissenting — Despite differences of importance, leave to appeal to House of Lords refused
question, Heastige House, Ansty, Dorset, was of unusual construction, built
principally of brick and flint but with some original cob walls and having a
thatched roof — It was formed by conversion of a number of cottages together
with additions, one result of the construction being that it was impossible to
get internally from one end of the house to another — The house was listed
Grade II — It was not an architectural gem, there being in Dorset a large
number of houses of broadly similar size and construction, but it was a very
pleasant house — The plaintiff purchasers paid £110,000 for it in 1984 — The
issues in the present case arose from instructions given by the Royal Bank of
Scotland to the defendant firm of surveyors and valuers to carry out a
valuation for mortgage purposes — The bank’s interest was that of mortgagees —
The plaintiffs were the mortgagors, who wished to obtain a loan of £30,000
towards the purchase price of the property — The defendant firm had carried out
previous surveys of the property and, indeed, the individual partner who
carried them out also carried out the present disputed valuation — Originally
the plaintiffs had complained against the bank and against their own solicitor,
as well as against the defendant firm, but it was agreed at the trial that the
case against these other parties should be dismissed
defendants knew that a copy of their valuation report was likely to be supplied
to the plaintiffs, who had to pay the valuation fee — The instructions given to
the defendants by the bank were to carry out a valuation for mortgage purposes
— The instructions asked the valuers, inter alia, to state their opinion of the
value of the house with vacant possession and also the value for insurance
reinstatement purposes, to which the answers were £110,000 and £175,000 — The
loan sought and approved as amply secured was £30,000 — Some 18 months later a
fire occurred which almost wholly destroyed the house — The plaintiffs claimed
that the insurance valuation was negligently less than the proper figure for
reinstatement, which was of the order of £300,000 — The plaintiffs’ action was
dismissed by Schiemann J, who held that the defendants owed no duty of care to
the plaintiffs and that, if there had been such a duty, the defendants were not
in breach of it — The plaintiffs appealed
produced the somewhat unusual result of differences between all three members
of the Court of Appeal — Staughton LJ, who gave the first judgment, held that
the defendants had owed no duty of care to the plaintiffs; Taylor LJ held that
there was a duty of care but no breach of it; Dillon LJ held that there was a
duty of care and there was a breach of it — In the result the appeal was
dismissed — Both Staughton and Taylor LJJ expressed a view as to the damages to
which the plaintiffs would have been entitled if liability had been
established, although such quantification was in their judgment academic —
Staughton LJ put it at £250,000 and Taylor LJ at £292,388, in both cases
reduced by the amount of the insurance moneys to which the plaintiffs were
entitled — Dillon LJ, in whose case the quantification was not in intention
academic, put it, like Taylor LJ, at £292,388, less the amount of the insurance
moneys
crucial failure of the lords justices to agree, there were in the judgments, in
addition to the authorities considered, discussions and analyses to be noted of
the basic ingredients of the tort of negligence — These included an examination
of the elements of a duty of care, proximity, foreseeability and the justice
and reasonableness of imposing such a duty; the different possible meanings of
reinstatement; reliance and causation; and the correct measure and quantification
of damages — It is obvious that there were matters here for consideration by
the House of Lords, but leave to appeal was not given on this occasion
The following
cases are referred to in this report.
Caparo
Industries plc v Dickman [1990] 2 WLR 358;
[1990] 1 All ER 568, HL
Dodd
Properties (Kent) Ltd v Canterbury City Council
[1980] 1 WLR 433; [1980] 1 All ER 928; [1980] EGD 229; (1979) 253 EG 1335,
[1980] 1 EGLR 15, CA
Donoghue v Stevenson [1932] AC 562, HL
Hollebone v Midhurst & Fernhurst Builders Ltd [1968] 1 Lloyd’s Rep
38
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
Reynolds
& Anderson v Phoenix Assurance Co Ltd
[1978] 2 Lloyd’s Rep 440
Ross v Counters [1980] Ch 297; [1979] 3 WLR 605; [1979] 3 All ER
580
Smith v Eric S Bush (a firm); Harris v Wyre Forest District
Council [1989] 2 WLR 790; [1989] 2 All ER 514; [1989] 1 EGLR 169; [1989] 17
EG 68 & 18 EG 99, HL
Sykes v Midland Bank Executor & Trustee Co Ltd [1971] 1 QB
113; [1970] 3 WLR 273; [1970] 2 All ER 471, CA
This was an
appeal by the plaintiffs, Elyot Beaumont and his wife, Yolande Catherine
Beaumont, from the dismissal by Schiemann J of their action, reported at [1988]
2 EGLR 171; [1988] 29 EG 104, against the defendants, Humberts (a firm)
alleging negligence against the defendants in carrying out a valuation for
mortgage purposes of Heastige House, Ansty, Dorset.
Colin
Ross-Munro QC and Jervis Kay (instructed by Sheridans) appeared on behalf of
the appellants; Robert Moxon Browne QC and Martin Porter (instructed by
Wansbroughs, of Bristol) represented the respondents (defendants).
Giving the
first judgment at the invitation of Dillon LJ, STAUGHTON LJ said: The
plaintiffs in this action sue as trustees. In that capacity they bought
Heastige House in Dorset for £110,000 early in 1984. They arranged insurance
for the sum of £175,000, that being the reinstatement value advised by Mr David
Thomas [BA
the house was very largely destroyed. It is said on their behalf that the cost
of reconstruction, so as to produce a house that was almost identical to that
which existed before the fire, was more than £300,000. No reconstruction or
repair has yet taken place.
De facto it was Mr Beaumont who was the purchaser and owner of the house and
the person insured; when I refer to Mr Beaumont it will mean either him or the
trustees, as appropriate. When he contemplated buying the house, he arranged
for a mortgage loan of £30,000 from the Bank of Scotland (‘the bank’). They
became the second defendants. His solicitor was Mr Ambler, who later became the
third defendant. In the event Mr Beaumont’s claims against the bank and Mr
Ambler were abandoned at a late stage in the trial. His only remaining claim,
against Humberts, is for the tort of negligence in advising as to the
reinstatement value of the house. After a lengthy trial, Schiemann J held that
this claim also failed. Mr Beaumont now appeals.
The character
of Heastige House is of fundamental importance to this dispute. I cannot do
better than set out the description of it given by the trial judge, which has
not been criticised in this court.
Heastige House
was a village house set back a little from a country road in Dorset, built
principally of brick and flint but with some original cob walls and having a
thatched roof. Originally there were perhaps three or four cottages with a barn
at one end. What was seen before the fire was a conversion of these buildings
into one, together with an addition at the south end constructed about 25 years
ago. Elements of the house possibly date back as much as 300 years.
The cottages
originally were essentially workmen’s cottages. The exterior of those cottages
before the fire was probably much as it was in the last century. The house
divides notionally into a central part, a north wing and a south wing. The
central part has an elevation to the road which consists of a thick wall which
has settled over the centuries and is some 4 in or so out of true. The
drawing-room was situated in this central part. One of its walls was the thick
wall facing the road. Parallel to this was the rear wall of the drawing-room,
also a thick original wall. Behind that rear wall were a series of back
additions to the erstwhile cottages which had been incorporated in the house.
Then there were thick cross-walls at either end of the drawing-room in which
the fireplaces were set. The fireplaces were beneath very large chimney stacks,
in part old, in part consisting of modern concrete blocks. The ceiling of the
drawing-room had been raised so as to give a more generous height. The rooms in
the north wing still have low ceilings. Above the ceiling of the drawing-room
was what has been referred to in this case as ‘the void’. It was effectively a
roof space lit by two windows on the front elevation approached from a
staircase which had been created in one of the back additions. The result of
these series of conversions was that there was no way in which one could get
from one end of the present house to the other . . . .
The windows
of the void were virtually at floor level. The main walls of most of the
building are of considerable thickness, 3 ft or more in places. They are tied
from front to back with eight metal ties in a steel framework designed to stop
them settling any more. The underlying settlement is probably of considerable
age but there is no indication that there has been any recent marked movement.
The present house stems from the major renovation carried out in the 1960s.
This work was well done in good materials. Although the basic structures of the
main walls and the roof were before the fire (and, to an extent, still are),
with the exception of the south wing, very old, the defects of age were
contained by the substantial remedial works carried out some years ago.
The house was
listed Grade II, but I am satisfied that there are in Dorset a large number of
houses of broadly similar size and construction. It could not claim to be an
architectural gem, although there is no doubt that it was a very pleasant
house. The curtilage of the house included a garage, quite substantial walls
surrounding the totality of the property and a driveway.
As appears
from that description, there were three staircases in the house and no means of
communication between the upper floors of the three sections. The void which
formed the upper floor of the central section was, we are told, used for
storing furniture. It cannot have been very convenient for that purpose, or for
any other, since we are also told that the roof trusses were only about 2ft
above the floor. The material described as ‘cob’ which has been used in some
parts of the house was a mixture of mud and cow dung, once favoured as a building
material but not in use today, at any rate in Dorset. One other feature to be
added to the judge’s description is that in the drawing-room there were three
window-seats; these no doubt depended for their existence on the thickness of
the main walls.
On September
30 1983 Mr Beaumont instructed his solicitor, Mr Ambler, to arrange for a
survey of the property. He also wrote:
. . . the
question of insurance, as this is a thatched roof property, will have to be
gone into very carefully. My feeling is that we should perhaps have cover at
£170,000 but there are certain insurance companies or associations used by
owners of thatched roof homes who give very reasonable rates.
Mr Thomas, a
surveyor, carried out the survey, and reported to Mr Beaumont. As it happened
he had surveyed the house for a previous client in August 1972. On that
occasion he had advised as follows:
Fire
insurance
The total
floor area of the living space and office accommodation at the North end of the
house is in the order of 4,250 sq ft. The cost of rebuilding, inclusive of
architectural fees, will be near £10 per square foot so that a total
reconstruction will amount to £42,500.
By contrast in
1983, when Mr Thomas was acting for Mr Beaumont, he was not asked to advise on
any valuation for fire insurance and did not do so. There was some
correspondence between them as to details of the structural survey, and the fee
for it was paid. On January 6 1984 contracts were exchanged for the purchase of
the house at £110,000.
The question
of a loan from the bank then arose. On February 8 1984 Mr Beaumont wrote to his
accountant:
The house has
been surveyed by Humberts at a cost of £356.50. I am obviously not keen to pay
for yet another survey, and would hope that the enclosed survey information
would satisfy any party concerned, and think you will agree that it is very
comprehensive.
On February 27
he wrote to Mr Thomas:
You may be
receiving additional minor queries from the Royal Bank of Scotland in relation
to the survey on the above property. I would indeed be grateful if you would
assist them with their enquiries.
Then Mr Thomas
received instructions to carry out an inspection and submit a valuation direct
from the bank. Those instructions were in what appears to be a standard form.
He was asked to comment on the value of the house for mortgage purposes; it was
explained that the purchase price was £110,000 and the loan contemplated
£30,000; he was to submit an account for his fee to Mr Beaumont. In addition
there was this paragraph:
While it is
not our normal practice to issue copies of survey reports to clients we assume
you have no objections to this, if our client were to request a copy. We would
make it clear in these situations that your report was prepared for mortgage
purposes only and is not to be used as a basis of arriving at a purchase price.
On March 29 Mr
Thomas sent his report to the bank. It was on the bank’s printed form headed
‘Report and Valuation for Mortgage Purposes.’
Three printed questions were answered as follows:
Q State whether you consider the property to
form suitable security for normal mortgage purposes for a 90% loan . . .
A Considered an inappropriate question for this
type and value of property — it is a suitable security for a substantial loan.
The loan proposed of £30,000 is very amply secured.
Q Value with vacant possession in present
condition
A £110,000
Q Value for insurance reinstatement purposes
A £175,000
The bank
placed a stamp on the report received from Mr Thomas and claims to have
forwarded a copy of it to Mr Ambler. The stamp purported to disclaim
responsibility for the contents in some degree. While there were live
proceedings between Mr Beaumont on the one hand and the bank and Mr Ambler on
the other, there were issues as to the effect of this stamp, whether a copy of
the report did indeed reach Mr Ambler, and whether he should have warned Mr
Beaumont about the stamp. However, the claim against the bank and Mr Ambler was
eventually abandoned, as I have already said. So it is no longer necessary to
consider those issues. The claim is only against Mr Thomas and his partners in
tort. He did not place any stamp on the report or rely on any relevant disclaimer.
Meanwhile, Mr
Ambler had set about arranging insurance. He wrote to Mr Beaumont on March 30
enclosing proposal forms and saying that he had confirmed cover on the
telephone to some insurance brokers for £170,000. That was the figure which Mr
Beaumont himself had suggested in the previous September. Mr Beaumont completed
the proposal forms. In one of them there was this question:
15. Values to
be insured.
(a) Buildings (including outbuildings)
NB It is important to insure for the full cost
of reinstating the building in similar style and materials to the existing.
Under-insurance will reduce the amount of recovery in the event of a claim.
Against that
Mr Beaumont wrote ‘£170,000’. This appears to have been the proposal form
relating to the insurance that was in fact effected.
Mr Thomas
submitted a second account to Mr Beaumont in the sum of £92 including value
added tax; and it was paid.
Then on April
9 the bank wrote to Mr Beaumont:
We note that
you are making your own arrangements regarding house buildings insurance and
would advise that our valuer has placed a reinstatement value of £175,000 on
the property. The sum insured on the relative property should be for at least
this figure and as we require cover to be in force prior to release of the mortgage
moneys you should make the policy document available to your solicitor as soon
as possible.
Two days later
Mr Beaumont wrote to his solicitor:
Please note
insurance is apparently required at £175,000 . . .
Insurance was
effected for that amount on May 2 1984. The policy provided that the buildings
included garages, outbuildings, walls, gates and such like. It also contained
this clause:
If the Sum
Insured on Buildings at the time of loss or damage is less than the cost of
reconstructing the Buildings in the same form, size, style and condition as new
the amount payable in respect of any claim will be reduced proportionately.
That clause
would be of little or no importance in the case of a total or near-total loss;
recovery would be limited to the sum insured and averaging would be of little
significance. But the clause is said to provide guidance as to what is meant by
reinstatement.
As is now
common, the policy also contained provision for monthly adjustment of the sum
insured to reflect changes in the House Rebuilding Cost Index. I am not sure
whether such adjustment continued, when the policy was renewed from time to
time, without interruption. But there is no need to consider that question, as
the figures are agreed. The sum insured of £175,000 had become £193,007 by
October 12 1985, when the fire occurred. For that reason Mr Thomas is not
reproached for failing to allow for future inflation in the sum which he
assessed as reinstatement value; it is hard to see how he could, unless he was
clairvoyant or a skilled economist. It is not inflation which is said to have
undermined the validity of the figure which Mr Thomas provided; it is said to
have been too low at the time when he provided it.
The fire
destroyed substantially the whole of the house, but not some parts of the
outbuildings. We were told that the insurers have paid £174,339.99. However,
the evidence that this was the full extent of their liability is confined to an
obscure letter from their loss adjusters, which was admitted under the Civil Evidence
Act. It is at least arguable, on that evidence alone, that the sum for which
they were liable was £191,679.43 — very nearly the adjusted sum insured. If
this issue turns out to be material, it is suggested that it should be referred
to a master for assessment. The relevant figure would, in my view, be the sum
recoverable from the insurers if the work had actually been done, in case there
is any difference.
The issues
It will be at
once apparent that this is no ordinary case. Mr Beaumont is an intelligent and
sophisticated businessman and not a humble purchaser of a house of modest value
such as was contemplated by Lord Griffiths in Smith v Eric S Bush
[1989] 2 WLR 790* at p 811. There are issues of some complication and
difficulty. I shall consider them under the following heads:
(a) duty of care,
(b) breach of duty,
(c) causation,
(d) damages.
*Editor’s
note: Also reported [1989] 1 EGLR 169.
(a) Duty of care
The liability
to a house purchaser of a surveyor or valuer engaged by a mortgagee has
recently been considered by the House of Lords in Smith’s case. It is
undesirable and unnecessary to add in this case to the volume of law on
negligent advice and economic loss. The parties are agreed, on the basis of Smith’s
case, that for a duty of care to be established (i) there must be sufficient
proximity between the task of the surveyor or valuer and the affairs of the
mortgagor, (ii) it must be foreseeable that the mortgagor is likely to suffer
damage if the surveyor or valuer is negligent, and possibly (iii) it must be
just and reasonable to impose liability.
It is
proximity which is the crucial element in the present case. The word has
replaced neighbour, the concept of Lord Atkin in Donoghue v Stevenson
[1932] AC 562, where it was no doubt derived from the 20th chapter of Exodus.
It describes not physical closeness but a degree of connection between the
conduct of one person and that of another. In Smith’s case (at p 816)
Lord Griffiths found proximity from the surveyor’s knowledge of the
overwhelming probability that the purchaser would rely on his valuation and
from the fact that the surveyor obtained the work only because the purchaser
was willing to pay the fee. Here there is a further element of proximity, in
that Mr Thomas had previously acted for Mr Beaumont in this very transaction
under a contract between them. But in the course of the argument it became
clear that knowledge of likely reliance was the factor in dispute between the
parties. We were referred to the case of Caparo Industries plc v Dickman
[1990] 2 WLR 358 at p 405, where Lord Jauncey of Tullichettle required more
than a possibility of reliance — it should be probable, if not highly probable.
There is no
direct evidence that Mr Thomas in fact knew that Mr Beaumont was likely to rely
on his reinstatement value; Mr Thomas was never asked. The question then is
whether such knowledge can be inferred from other evidence or (which is in
practice much the same thing) whether he ought to have known.
The answer is
by no means easy. It is clear enough that if Mr Thomas had given a
reinstatement value of, for example, £300,000 instead of £175,000, Mr Beaumont
would have insured for that amount. But that is because he would have been
required to do so by the bank, if he was to obtain the loan. It is another
question whether Mr Beaumont, if he had believed Mr Thomas to be unreliable or
if Mr Thomas had never been asked by the bank for a reinstatement value, would
have obtained one himself from another source. In cross-examination Mr Beaumont
said that, on completion, he would have had a proper reinstatement valuation if
he had felt that one was required. The judge did not accept that evidence.
The judge’s
conclusion is criticised, on the ground that he may have based it on his
finding that there was
absolutely
nothing in the correspondence to suggest that Mr Beaumont had it in mind to
have an independent valuation made for his own purposes at any time.
Whether that
was a sufficient ground for rejecting Mr Beaumont’s evidence, there was
certainly other evidence which would justify the judge’s conclusion. First,
there is the fact that Mr Beaumont did not ask Mr Thomas for any valuation when
he gave instructions for the structural survey. Second, his letter of February
8 1984 showed reluctance to incur another fee for further advice. Third, he was
content to make his own estimate of £170,000 for reinstatement value on
September 30 1983. Fourth, he wrote on February 27 1984 that Mr Thomas might be
receiving ‘additional minor queries’ from the bank. Fifth, I cannot see a great
deal of sense in postponing a definitive solution of the insurance figure until
completion. So far as I recall, Mr Beaumont is not said to have known that Mr
Thomas would be asked about it until the bank’s letter of April 9 1984, by
which time he had already filled up a proposal form. In my judgment, there was
ample evidence to support the judge’s conclusion that Mr Beaumont would not
have obtained an independent valuation; and we would not be justified in
departing from it. It may be that Mr Beaumont was relying on Mr Thomas to give
careful advice to the bank in some respects — for example, not to derogate from
the sale value of the property or its condition. But I do not see that he was
relying on Mr Thomas to advise on an appropriate figure for reinstatement
value.
I am not sure
whether it is logically possible for Mr Thomas to have known that Mr Beaumont
was going to rely on his valuation, or that Mr Thomas ought to have known that,
if in fact Mr Beaumont was not going to rely on it. In case there is such a
possibility, I turn to consider the position of Mr Thomas. Not all the facts
which I have mentioned in the previous paragraph were known to him. He did,
however, know that Mr Beaumont had not asked him for any valuation; he knew
that Mr Beaumont regarded the bank as likely to raise ‘additional minor
queries’; he may well have regarded his advice to the bank as essentially
ancillary to the advice he had already given to Mr Beaumont; and he knew that
Mr Beaumont was a company director, a man of substance, capable of taking
decisions for himself. Against that, he had been warned by the bank that a copy
of his report might be forwarded to Mr Beaumont. I agree with the judge’s
conclusion when he said:
I do not
consider that Mr Thomas contemplated or should have contemplated, that Mr
Beaumont was relying on him to provide Mr Beaumont with an accurate
reinstatement figure.
In the
circumstances, I hold that Mr Thomas did not owe Mr Beaumont a duty of care
when giving advice to the bank. However, as
remaining issues.
(b) Breach of duty
What Mr Thomas
did was to take the habitable area of the house as 4,250 sq ft and multiply
that by a figure of £40 per sq ft making a total of £170,000. To that he added
£5,000 for the garage, which produced his total of £175,000. He sat back, so to
speak, to look at that figure (like a judge assessing damages for personal
injury or imposing a number of consecutive sentences for crime); he thought it
was high for a building bought at around £100,000, but came to the conclusion
that it was right.
The figure of
4,250 sq ft was derived not from measurement in 1984 but from his earlier
report in 1972. It was one of three figures that he might have taken: 6,100 sq
ft was the total floor area by external measurement (including the thickness of
the walls); 5,160 sq ft was the total internal floor area; 4,250 sq ft was the
internal floor area disregarding what Mr Thomas regarded as useless space, such
as the void on the first floor of the centre section and what the judge
described as ‘higgledy-piggledy back additions behind the drawing-room rear
wall’. It did not follow, as I see it, that Mr Thomas would have rebuilt the
house without a first floor to the centre section. He was not engaged in the
task of preparing a plan and specifications for a new house, which would no
doubt have been time-consuming, expensive and in all probability unnecessary.
He merely estimated the cost of a building with the same habitable floor space
and the same style and general shape. Some of the materials would have been the
same, such as brick and flint walls; but they would not be three feet thick or
contain cob. One of the three staircases would be omitted. When Mr Thomas was
asked about the window seats, it would seem that he was prepared to make some
accommodation for them by thicker walls where appropriate.
There are, I
suppose, at least three possible interpretations of reinstatement. The first is
an exact copy, including cob in the walls and one wall 4in out of true. Nobody
contends that this is what Mr Thomas should have estimated for. Among other
reasons it would have involved the north and central sections having no
foundations, which would have been contrary to the building regulations of the
20th century. It may be that an exact copy would be appropriate if one were
dealing with a Grade I listed building or historic monument such as Hampton
Court or Uppark; but not Heastige House.
Or Mr Thomas
could have estimated for a replacement, which was as nearly as practicable an
exact copy of the existing house, with three staircases, the void on the first
floor of the central section, and the higgledy-piggledy back additions. It is
argued on behalf of Mr Beaumont that this is what Mr Thomas should have done.
There is, however, this finding of the judge, which has not been challenged:
It is quite
clear that no one at any stage in the last 300 years would have instructed an
architect to produce from ground level a house laid out and looking precisely
like this but its shape has been determined by the exigencies of carrying out a
series of conversions over the centuries.
The third
possibility is that which Mr Thomas adopted, a sensible reconstruction in the
same style and general shape with the same habitable accommodation, but
redesigned in parts ‘to make it more liveable and more convenient’, as the
judge said.
The problem
seems to me to turn on the terms of the instructions which Mr Thomas received.
He was required to provide the ‘value for insurance reinstatement purposes’. He
was not referred to the terms of any particular insurance policy; the precise
wording used is different in different policies, and it is not usual for a
surveyor or valuer to have regard to one form of words rather than another.
We were
referred to some authorities. In Dodd Properties (Kent) Ltd v Canterbury
City Council [1980] 1 WLR 433* at p 441 (at first instance) Cantley J held
that even a person who has been wronged must act reasonably and is not entitled
to insist on a complete and meticulous restoration. In Reynolds &
Anderson v Phoenix Assurance Co Ltd [1978] 2 Lloyd’s Rep 440 at p
453, Forbes J used the word ‘substantially’. And Macgillivray on Insurance
(8th ed) para 1681 uses the same word. But the contest in the past has for the
most part been between reinstatement on the one hand and loss of value on the
other (see for example Hollebone v Midhurst & Fernhurst Builders
Ltd [1968] 1 Lloyd’s Rep 38), rather than as to the precise meaning of
reinstatement.
*Editor’s
note: Also reported at (1978) 248 EG 229, [1978] 2 EGLR 25, DC.
Mr Eric
Wallace [BSc CEng MICE MBIM MIConstM], an expert valuer called on behalf of
Humberts, described the approach that Mr Thomas adopted as shrewd and said that
he would have adopted it himself. The judge considered Mr Wallace to be an
honest witness and generally careful, with formidable qualifications.
Against that,
Mr Ross-Munro QC for Mr Beaumont relied on part of the evidence of Mr Thomas
himself in cross-examination:
Q If you go to page 5 in that policy, you will
see that there are some definitions for the purpose of that policy. Do you
see? A. Yes.
Q And it has a definition of reinstatement
value: ‘The full cost of reconstruction of all the property insured in the same
form, size, style and condition as when new including costs as detailed in
Paragraph B.’ Now would that be roughly
as you would understand reinstatement — value for insurance reinstatement? A. In form, size, style and condition — I
would say yes, my Lord.
There were two
further answers in the same sense during the course of Mr Thomas’ evidence,
which lasted well over two days.
There are a
number of puzzling features of this evidence. First, do ‘the same form, size,
style and condition’ point to what is as nearly as practicable an exact copy,
rather than the sensible reconstruction method of Mr Thomas? If so, why did Mr Thomas not adopt the former
approach when making his valuation? And
why did Mr Wallace consider that the approach of Mr Thomas was shrewd and one which
he would have adopted himself? Is it the
task of a witness to explain the meaning of words in an insurance policy, or
for that matter in written instructions from the bank, or is this for the court
to determine as a matter of law? I have
spent some time on this aspect of the evidence as Mr Ross-Munro attached very
great importance to it. But I cannot in the end conclude that Mr Thomas
intended to accept that he was required to estimate for what would be as nearly
as practicable an exact copy. Schiemann J did not overlook this evidence; he
expressly mentioned it in his judgment.
In the result
the judge concluded that:
in the
context of this case, the general approach of Mr Thomas was not negligent. It
may have been wrong, though I am not persuaded that it was wrong. But his
approach was neither idiosyncratic nor negligent.
I wholly agree
with that conclusion. It seems to me that if the bank wanted an estimate for
what would be as nearly as practicable an exact copy, the bank should have
asked for it in plain terms. (In fact the bank had no particular reason to want
that and could reasonably be content with the method adopted by Mr
Thomas.) Mr Beaumont cannot complain
that Mr Thomas answered the bank’s question in a sense which, at the least, it
might reasonably bear.
There was one
respect in which Mr Thomas made an error, as the judge found. He should have
taken a figure of £15,000 for the outbuildings and the walls of the curtilage,
rather than just £5,000 for the garage. However, it is accepted that a surveyor
or valuer may be wrong by a margin of 10 per cent either way without being
negligent. (That in itself seems, in my uninstructed opinion, a high standard
to impose; but it is, as I have said, accepted.) The error of £10,000 was less than 10 per
cent of the figure of £175,000 provided by Mr Thomas. So he was not negligent.
That makes it
unnecessary to consider at this stage whether rebuilding of what would as
nearly as practicable be an exact copy could have been achieved in April 1984
for £175,000, or for no more than 10 per cent in excess of that figure. The
judge, as I read his judgment, found that it could not have been, but the point
was raised by a respondent’s notice. I shall have to return to it under the
topic of damages.
(c) Causation
In the event
it turned out that there was no issue under this head. The judge found that, if
the bank had not obtained advice as to reinstatement value from Mr Thomas, Mr
Beaumont would not have obtained a value for himself, with the result that the
property would have remained insured for £170,000. In consequence the judge
held that Mr Beaumont suffered no damage, even (apparently) on the hypothesis
that the actual valuation by Mr Thomas was negligent. At one time it seemed to
me arguable that, as the judge held, Mr Beaumont’s loss would have been the
difference between what he would have received from his insurers if Mr Thomas
had given no advice at all and what he should actually have received in the
events that happened. However, Mr Moxon Browne for Humberts declined to argue
that the judge was right on this point. He accepted that if Mr Thomas owed a
duty of care and was negligent, Mr Beaumont’s loss was the difference between
what he would have recovered if Mr Thomas had advised a non-negligent figure
and what he can actually recover from his insurers.
(d) Damages
The evidence
was directed at rival estimates for the reconstruction or repair of the
property. These had to be adjusted for a number of reasons and in a number of
respects. Value added tax was payable on repair work but not on rebuilding.
Estimates had to be calculated as at the date of the fire to find the cost to
Mr Beaumont, but as at April 1984 to find what sum Mr Thomas should have
advised as the reinstatement value. Any sum which should have been inserted in
an insurance policy in April 1984 would have been increased by the adjustment
for inflation at the time of the fire. And the margin of 10 per cent within
which a surveyor or valuer is not negligent has to be allowed.
The judge
found that Mr Thomas could have achieved a reinstatement on a replica basis for
less than £190,000 after the fire. That was within the sum for which the
property was actually insured, after increase by adjustment for inflation. The
figure was based on a quotation by small local builders known to Mr Thomas —
but I suppose known or ascertainable by other professionals in Dorset — after
various adjustments. It was largely supported by an elemental cost analysis of
Mr Wallace as at September 1986.
However, the
judge also found that the insurers could not have insisted on the employment of
small local builders, and he arrived at a figure of £250,000 as a sum which
would fairly have been recoverable if the sum insured were sufficient. In doing
so he must have made substantial adjustments to the tender of £318,000, as at
June 1987 but excluding professional fees, produced on behalf of Mr Beaumont.
The judge did not explain his calculations in full; they evidently included
allowances for betterment and inflation and probably other reductions for the
amount of external work and the detailed nature of the specification. He may
also have settled on a compromise, to some extent, between the cheaper small
builders on the one hand and Mr Beaumont’s tender on the other. I do not see
that the judge’s figure of £250,000 can be said to be wrong.
On the same
material the judge concluded that Mr Thomas would not have been negligent if he
had assessed the cost of rebuilding as nearly as practicable an exact replica
at £250,000. That figure may well be after a 10 per cent deduction, so that the
true figure may be £275,000. If Mr Beaumont had insured for £250,000, the sum
insured at the time of the fire would have been £275,824 after adjustment for
inflation. He would have been able to recover in full the judge’s figure of
£250,000 for the cost of rebuilding as nearly as practicable an exact replica
at the time of the fire; although there was some residual value in the house or
outbuildings, the loss amounted to 90 or 95 per cent. So the damages would have
been £250,000 less whatever sum Mr Beaumont was in fact entitled to recover
from his insurers and less also a sum for the additional premium that he would
have had to pay, which I understand to be agreed at £500.
As it is, I
would dismiss the appeal.
TAYLOR LJ said: I have had the advantage of reading the judgments of Dillon
LJ and Staughton LJ. They are not in agreement on any of the main issues.
Regretfully, therefore, I cannot agree with both and in the result I do not
agree on all issues with either.
This claim
arises out of a valuation of Heastige House in Dorset for insurance
reinstatement purposes given by Mr Thomas of the defendant firm to the Bank of
Scotland on March 24 1984. The bank’s interest was as mortgagee. The
plaintiffs, of whom Mr Beaumont was the effective party, were the mortgagors.
Mr Beaumont’s case is that although Mr Thomas received his instructions from
the bank, he owed a duty of care to the plaintiffs. They relied upon his
valuation in the sum of £175,000, which Mr Beaumont says was inadequate and
negligent. The house burnt down and, allegedly as a result of Mr Thomas’
negligence, the insurance moneys recoverable by the plaintiffs are insufficient
to rebuild the house as it was.
Duty of
care
The first
question is whether Mr Thomas owed any duty to the plaintiffs. Following Smith
v Eric S Bush [1989] 2 WLR 790 at p 816 A-B and Caparo Industries plc
v Dickman [1990] 2 WLR 358 at p 365 A-C, there is no doubt that a duty
of care in tort regarding negligent advice arises only where three elements are
established.
(1) It is foreseeable that if
the advice is negligent the recipient is likely to suffer damage.
(2) There is a sufficiently
proximate relationship between the adviser and the recipient plaintiff, and
(3) It is just and reasonable
to impose liability.
In Caparo,
after identifying those essentials, Lord Bridge went on at p 358B:
But it is
implicit in the passages referred to that the concepts of proximity and
fairness embodied in these additional ingredients are not susceptible of any
such precise definition as would be necessary to give them utility as practical
tests, but amount in effect to little more than convenient labels to attach to
the features of different specific situations which, on a detailed examination
of all the circumstances, the law recognises pragmatically as giving rise to a
duty of care of a given scope.
Lord Oliver,
at p 379D, said:
‘Proximity’
is, no doubt, a convenient expression so long as it is realised that it is no
more than a label which embraces not a definable concept but merely a description
of circumstances from which, pragmatically, the courts concluded that a duty of
care exists.
In Smith
v Eric S Bush Lord Griffiths dealt specifically with the relationship of
a surveyor instructed by a building society or local authority and the
purchaser. At p 816B, after referring to the three necessary elements, he said:
In the case
of a surveyor valuing a small house for a building society or local authority,
the application of these three criteria leads to the conclusion that he owes a
duty of care to the purchaser. If the valuation is negligent and is relied upon
damage in the form of economic loss to the purchaser is obviously foreseeable.
The necessary proximity arises from the surveyor’s knowledge that the
overwhelming probability is that the purchaser will rely upon his valuation,
the evidence was that the surveyors knew that approximately 90 per cent of
purchasers did so, and the fact that the surveyor only obtains the work because
the purchaser is willing to pay his fee. It is just and reasonable that the
duty should be imposed for the advice is given in a professional as opposed to
a social context and liability for breach of the duty will be limited both as
to its extent and amount. The extent of the liability is limited to the purchaser
of the house — I would not extend it to subsequent purchasers. The amount of
the liability cannot be very great because it relates to a modest house. There
is no question here of creating a liability of indeterminate amount to an
indeterminate class. I would certainly wish to stress that in cases where the
advice has not been given for the specific purpose of the recipient acting upon
it, it should only be in cases when the adviser knows that there is a high
degree of probability that some other identifiable person will act upon the
advice that a duty of care should be imposed.
Earlier in his
speech, Lord Griffiths said (p 811B):
It must,
however, be remembered that this is a decision in respect of a dwelling house
of modest value in which it is widely recognised by surveyors that purchasers
are in fact relying on their care and skill. It will obviously be of general
application in broadly similar circumstances. But I expressly reserve my
position in respect of valuations of quite different types of property for
mortgage purposes, such as industrial property, large blocks of flats or very
expensive houses. In such cases it may well be that the general expectation of
the behaviour of the purchaser is quite different. With very large sums of
money at stake prudence would seem to demand that the purchaser obtain his own
structural survey to guide him in his purchase . . .
The present
case does not concern a valuation at the lower end of the market. Nor, however,
was it in the ‘very expensive’ category alongside blocks of flats and
industrial properties to which Lord Griffiths referred. It is important,
therefore, to look at all the specific circumstances, the probabilities and the
expectations of the parties.
Mr Thomas
became involved because Mr Beaumont had instructed him to do a structural
survey, but not a valuation, of the property in September 1983. He had in fact
surveyed the property 11 years earlier for a different client. When Mr Beaumont
applied for a mortgage, the bank needed to have a valuation. For that, Mr
Beaumont was going to have to pay, as is normal. He was reluctant to incur the
expense of another full survey, so he suggested that the bank go to Mr Thomas,
in whom at that time he had confidence. He wrote personally to Mr Thomas
indicating that he (Mr Thomas) ‘may be receiving additional minor queries’ from
the bank and saying he would be grateful if Mr Thomas would assist in that
regard. When Mr Thomas was instructed by the bank, he was told it was assumed
he would have no objection to disclosure of his report to the clients, ie Mr
Beaumont, to whom the account for his fee should be sent.
Thus, Mr
Thomas knew he had been brought in because of his previous professional
relationship with Mr Beaumont. He knew Mr Beaumont would become aware of his valuation
because:
(a) he was having to pay for it,
(b) the bank had indicated it was likely the
report would be disclosed to Mr Beaumont, and
(c) Mr Beaumont would clearly be told the
valuation because he would be required by the bank to insure for not less than
that sum.
In view of the
terms in which Mr Beaumont had written to Mr Thomas, it must have seemed
unlikely that he would have obtained a
the surveyor upon whom he had recently placed reliance? It is true that before Mr Thomas put in his
report Mr Beaumont had, off his own bat, arranged insurance in the sum of
£170,000, but in reliance on the report the cover was increased to £175,000. If
the non-negligent figure should have been higher and Mr Thomas had advised it,
no doubt Mr Beaumont would have insured, and been required to insure by the
bank, for the higher figure.
In my
judgment, the test of proximity here is whether when Mr Thomas gave his
valuation it was clear that, because of the close relationship stemming from
the history I have recited, Mr Beaumont was likely to rely and act upon that
valuation. In my view, although thrift may have made Mr Beaumont content to
back his own hunch that £170,000 was a sound insurance figure rather than
voluntarily to seek a valuation, once he knew of and had to pay for the bank’s
valuation from his own surveyor it was (in Lord Griffiths’ words) ‘an
overwhelming probability’ that he would rely upon it. These considerations go
to foreseeability but they also show the close proximity between mortgagor and
surveyor in this particular case. There was no question here of the bank’s
getting a valuation from a surveyor unknown to Mr Beaumont who might or might
not, therefore, have placed reliance upon it. Here there had been a contractual
relationship between Mr Thomas and Mr Beaumont over the structural survey and
in a sense the valuation had come as an addendum to that survey, paid for by Mr
Beaumont, albeit solicited by the bank and reaching Mr Beaumont via the bank.
In those
circumstances, adopting the pragmatic approach described by Lord Bridge and
Lord Oliver in Caparo, I agree with Dillon LJ that the necessary
proximity was established and that Mr Thomas owed a duty of care to the plaintiffs.
Breach of
duty
Mr Thomas was
not asked to give his valuation on the basis of any particular policy of any
particular insurance company. Nor did the bank’s printed form of ‘Report and
Valuation for Mortgage Purposes’ require or provide for any explanation of the
valuation. There was simply a printed question — ‘value for insurance
reinstatement purposes’ — against which Mr Thomas answered with the figure
‘£175,000’. The question, therefore, is what in these circumstances the phrase
‘insurance reinstatement purposes’ meant.
It is common
ground that at one extreme the phrase cannot have required rebuilding precisely
to the condition of the house before the fire. It may be that if a standard,
ready-made conservatory burns down, reinstatement could and should require that
a new replica, identical in every detail, be installed. Here, however, there
can have been no requirement to rebuild a wall 4 in out of true or install
lintels at the odd angles caused in the original by settlement. The building
regulations would require foundations to be put in where none existed in the
original. Moreover, it would not be possible whatever materials were used, to
recreate the patina which wear and age gives to a house matured over centuries.
At the other
extreme, reinstatement cannot mean rebuilding simply to give the same amount of
accommodation. To provide for modern brick walls or a slate roof could not be
what was meant by reinstatement in relation to this house. Between these
extremes, what was the standard of verisimilitude to be achieved on a
rebuilding, departure from which by the valuing surveyor could be classed as
negligence? I do not think this can be
stated with precision. It was argued for Mr Beaumont that reinstatement must be
as nearly identical to the original as possible. But it was not suggested, for
example, that wall cavities should be filled with cob (as in the original) even
though this would be physically possible. Nor was it argued that to replace a
concealed oak beam by a modern steel truss would be objectionable. Once the
standard drops from replacing exactly everything which can be so replaced to
replacing exactly only those parts where a change would be significant, the
degree of discretion is enlarged. ‘Reasonably’ and ‘substantially’ are words which
have been used in this context by Cantley J and Forbes J respectively in the
cases cited by Staughton LJ. It becomes a matter of judgment as to what
approximations are justifiable. Between reputable surveyors there would be
scope for disagreement on whether a proposed rebuilding followed the original
too slavishly or departed from it too freely. Within this middle ground it
would not be right, in my judgment, to stigmatise any particular stance as
negligent.
On behalf of
Mr Beaumont, much was made of the test incorporated in the Prudential Insurance
Company policy actually taken out by the plaintiffs, ie ‘reconstruction . . .
in the same form, size, style and condition as when new . . .’. That test is
more suited to a modern dwelling than a period property like Heastige House. To
reconstruct ‘as when new’ is not what Mr Beaumont wants. He claims to be
entitled to reconstruction ‘as when old’. However, on one interpretation, Mr
Thomas’ proposals would accord with the test. The form (ie materials, thatch,
brick and flint etc) were to be as before. The style and condition were to be
as before. The main issue is as to size. The void and ancillary additions at
the back were not to be replaced, but the floor area for living accommodation
was to be the same size at 4,250 sq ft. Mr Thomas’ approach was supported in
evidence by Mr Wallace, an experienced valuer who impressed the learned judge.
Mr Wallace would have adopted a similar solution.
I agree with
Staughton LJ’s analysis of this part of the case. I do not consider it
negligent to omit provision for replacing the thick walls, save where window
seats require them, or to omit provision of the void, which was not habitable
space. I have had more difficulty with regard to the ‘higgledy-piggledy back
additions’, but looking at the concept as a whole, I am not prepared to hold
that Mr Thomas’ approach was negligent. The problem of valuing for
reinstatement a house of this special kind did not admit of a precise,
incontrovertible answer. Had either the bank or Mr Beaumont wanted to make sure
that the valuation provided for as near a replica rebuild as could physically
be achieved, that should have been made clear to Mr Thomas. Accordingly, I
agree with Staughton LJ that there was no breach of duty.
Damages
In these circumstances
the issue of damages becomes academic. Were it necessary to assess them, I
would agree with Dillon LJ that, for the reasons he gives, the figure should be
£292,388, less the insurance moneys to which the plaintiffs are entitled under
the policy.
I would,
however, dismiss the appeal.
DILLON LJ said: The first defendants, Humberts, were asked by the Bank of
Scotland on March 23 1984, and agreed, to make a valuation for insurance
reinstatement purposes of Heastige House. The valuation was made by Mr Thomas,
a partner in the firm’s Blandford office. He must have realised that the
request was made by the bank to his firm because he had recently carried out a
structural survey of Heastige House for Mr Beaumont, of which the bank had
received a copy from Mr Beaumont. He had been asked by Mr Beaumont on February
27 to assist the bank with the bank’s enquiries in relation to the survey of
the property; so he knew that Mr Beaumont knew that the bank was instructing
him.
He knew from
his letter of instructions from the bank that Mr Beaumont was wanting to borrow
£30,000 from the bank on the security of a mortgage of Heastige House and that
Mr Beaumont was to pay for his valuation and report to the bank. He knew also
that a copy of his valuation and report to the bank might be supplied by the
bank to Mr Beaumont, albeit with a warning that it was prepared for mortgage
purposes only and was not to be used as a basis of arriving at a purchase
price. More important, he appreciated, as he admitted in evidence, that in one
form or another his insurance reinstatement figure would be passed on to Mr
Beaumont to enable him to comply with his obligation to the bank to insure the
premises. He knew that it was common for mortgages to provide, as did the
bank’s form of mortgage, that the borrower should insure the premises to their
full replacement value; he commented that that was part of the security.
Mr Beaumont
had not indeed at any time himself asked Mr Thomas for an insurance valuation
of Heastige House, on a reinstatement or any other basis, but in the
circumstances of this case there was, in my judgment, nothing whatsoever to
suggest to Mr Thomas that Mr Beaumont, having been given the figure of Mr
Thomas’ insurance reinstatement valuation, would go off to some other valuer to
get a rival quotation for himself as a cross-check on Mr Thomas’ valuation.
On these
facts, I have no doubt that the criteria in Smith v Eric S Bush
[1989] 2 WLR 790 are satisfied and Mr Thomas owed a duty of care to Mr Beaumont
as well as to the bank.
It was
submitted that all that was said in Smith v Eric S Bush, and the
case decided at the same time of Harris v Wyre Forest District
Council, only applies to purchases, financed by mortgage, of properties at
the lower end of the housing market by ‘ordinary’
that such a purchaser would rely on his valuation for the mortgagee and would
not get another valuation from another valuer; but it was submitted that the
mortgagee’s surveyor was not required to make any such assumption if the
purchaser was a more sophisticated person buying a considerably more expensive
house. But I see no need to explore those distinctions in the present case,
where Mr Thomas was first instructed by Mr Beaumont rather than by the bank.
The obvious reason why Mr Beaumont got the bank to instruct his own surveyor,
Mr Thomas, rather than instructing some other surveyor of the bank’s choice,
was that Mr Beaumont did not want to pay the bills of two surveyors. The
position of proximity which Mr Thomas accepted when he agreed to accept the
bank’s instructions is thus essentially the same as the position in Smith
v Eric S Bush, and the consequence is that Mr Thomas owed a duty of care
to Mr Beaumont as well as to the bank in making his valuation.
The judge held
that Mr Thomas owed no duty of care to Mr Beaumont in making the valuation
because the course of business between Mr Beaumont and Mr Thomas was that when
the former wanted the latter to do something for him, he asked him, and he did
not ask him to do a valuation (although he had asked him to assist the bank
with their enquiries). The judge also found as a fact — and I would not
interfere with his finding — that Mr Beaumont would not have commissioned his own
insurance valuation had one not been forthcoming via the bank. But these points
are in no way inconsistent with Mr Beaumont’s relying on Mr Thomas’ valuation,
when the amount of it, as a reinstatement valuation, was sent to him by the
bank, and thus in no way inconsistent with Mr Thomas’ duty to appreciate that
Mr Beaumont was likely to rely on his valuation.
On the
footing, therefore, that Mr Thomas owed a duty of care to Mr Beaumont as well
as to the bank in making his insurance reinstatement valuation at the bank’s
request, I pass to the question whether Mr Beaumont relied on Mr Thomas’
valuation. He did not rely on it in the sense that but for Mr Thomas’ valuation
he would have obtained his own. He did, however, rely on it in that at the
bank’s request, founded on the valuation, he increased his insurance on
Heastige House from £170,000 to Mr Thomas’ figure of £175,000. Moreover it is
clear that if Mr Thomas had given an insurance reinstatement valuation figure
of £270,000 or somewhat more, as the plaintiffs say he should have done if he
had not been negligent, the bank would have required replacement insurance
cover in that figure and Mr Beaumont would have arranged that cover and paid
the necessary premiums. If, therefore, Mr Thomas was negligent, Mr Beaumont was
left insured in a lower figure than would otherwise have been the case when
Heastige House was gutted by fire. Prima facie negligence on the part of
Mr Thomas in making his valuation was likely to cause Mr Beaumont loss —
subject only to the separate point, to which I come later, that in the event
the insurance moneys available under the cover effected in reliance on Mr
Thomas’ valuation were enough, it is said, to cover the cost of reinstatement.
There is no
doubt that in any action for damages against a professional man for negligent
advice reliance by someone within the duty of care on the advice and likelihood
of that person relying on that advice has to be established: see per
Lord Jauncey in Smith v Eric S Bush at p 822D and per Lord
Bridge of Harwich in Caparo Industries plc v Dickman [1990] 2 WLR
358 at p 367H. Essentially, however, the relevance of the ‘reliance’ is that if
neither the plaintiff nor any other relevant person had relied on the relevant
advice, then the plaintiff will have failed to show that the negligent advice
was causative of the act or omission which caused him damage: compare Sykes
v Midland Bank Executor & Trustee Co Ltd [1971] 1 QB 113 at pp 124E
to 125D per Harman LJ and at pp 127B to 128D and 130D per Salmon LJ. But
the reliance does not have to be reliance by the plaintiff himself; in Ross
v Caunters [1980] Ch 297 it was held that a solicitor in preparing a
will for a testator owed a duty of care not only to the testator but also to
the beneficiaries under the will and so was liable in damages to a beneficiary
whose gift under the will was defeated because of the negligent absence of
proper advice by the solicitor to the testator as to the manner in which the
will should be attested. The beneficiary had not relied on the solicitor’s
advice, or absence of advice, knowing nothing of it, but the testator had.
In the light
of these considerations, there was, in my judgment, sufficient reliance on Mr
Thomas’ valuation, primarily by the bank and derivatively by Mr Beaumont who
was required to insure for the sum required by the bank, and did so and would
have insured for a higher sum if so required, to satisfy that requirement of
the tort of negligence, and to establish causation if the valuation is held to
have been made negligently and damage is held to have resulted through the
property having not been insured for a sufficient sum.
I come then to
the crucial question whether Mr Thomas was negligent.
Reinstatement
insurance, for which Mr Thomas valued, must mean the same as ‘full replacement
value’, which was the phrase in the mortgage to the bank executed by Mr
Beaumont. The phrase in the policy with the Prudential Assurance Co Ltd which
Mr Beaumont effected is more detailed; special condition 2 of the policy
provides under the heading ‘Full Value’ that:
the Sum
insured is declared by the Insured to represent not less than the full cost of
reconstructing the Buildings in the same form, size, style and condition as
new.
There was also
an under-insurance clause, providing for proportionate reduction of any claim.
Other insurance companies use other wording. Mr Thomas did not value with his
eye on any particular insurance company’s form; he did not know what company
would be used. He agreed, however, in his evidence that the wording of the
Prudential condition conveyed his understanding of the word ‘reinstatement’. I
agree with that.
Mr Thomas made
his calculation on internal measurements. He worked on the basis of 4,250 sq ft
of useful floor space and produced what the plaintiffs called a ‘redesign’ of
the building. The judge found, and this is not challenged, that for £170,000
one could have produced a very satisfactory house, such as Mr Thomas envisaged,
of considerably greater value than the amount paid by Mr Beaumont for Heastige
House.
The internal
measurements agreed between the experts were, however, 4,656 sq ft excluding
the ‘void’ over the drawing-room, which was usable in its condition at the time
of Mr Beaumont’s purchase for storage only, and 5,160 sq ft including the void.
The void thus represented 500 sq ft. The difference between Mr Thomas’ figure
of 4,250 sq ft and the figure of 4,656 sq ft excluding the void was mainly
because Mr Thomas envisaged replacement of the outside walls by walls 15 in
thick instead of the previous very thick walls, filled with cob, of some 3 ft 2
in thickness, and consequently he rationalised the back passage and the small
extensions used latterly as a boiler-room and utility room built on at some
time off that passage.
Since Mr
Thomas took a multiplier of £40 per sq ft, it is obvious that difference in
floor area can produce very substantial differences in the valuation figure
arrived at. Beyond that, as Mr Thomas was assuming a simpler ‘redesigned’ house
than the actual Heastige House as Mr Beaumont bought it, it is likely that his
construction costs would have been less than would have been required for a
‘replication’ of the house as Mr Beaumont had bought it.
Mr Thomas did
not regard himself as free to value for reinstatement by the building merely of
a valuable modern house appropriate for the site. He accepted that the
reinstated house should follow the general pattern of the previous house, with
a thatched roof, walls of flint banded with brick and with layout, doors and
windows generally as before. He was guided in particular by the modern
construction in traditional style of the south wing of Heastige House in the
1960s.
It was
accepted by both sides that any ‘redesign’ or ‘replication’ for the
reinstatement of Heastige House would have to comply with current byelaws and
building regulations and would thus, for instance, have to have proper
foundations, instead of resting on the earth, as the main part of the original
Heastige House had. It was also accepted by the plaintiffs that it was not
necessary to use antiquated building materials — though the outside wall should
be rebuilt to the previous 3 ft 2 in depth, it was not necessary to fill it
with cob rather than anything else. In the case of Reynolds v Phoenix
Assurance Co Ltd [1978] 2 Lloyd’s Rep 440 Forbes J referred at p 453, in an
insurance reinstatement context, to parties being entitled, if it is not a mere
eccentricity, to reinstate the building ‘substantially as it was before the
fire, but with appropriate economies in the use of materials’. I do not regard
it as eccentric or unreasonable for Mr Beaumont to want Heastige House to be
reinstated substantially as it was before the fire in the way he does.
That is not
the test, however, that Mr Thomas applied. As one sees from the judgment of
Schiemann J, Mr Thomas did not envisage a precise rebuilding. He considered
what the sort of floor area the average (or perhaps reasonable) person would
seek to reproduce if the house were destroyed and he considered what features
such a person would wish to replace. He thus produced a result which was,
within its own terms, sensible and reasonable and would have produced a
pleasant house. But it was not, in my judgment, reinstatement. Many sensible
and reasonable things could be done with the site, without being reinstatement.
I do not see why Mr Beaumont should be deprived of a reinstatement of his boiler-room
and utility room as they were before the fire.
In my
judgment, therefore, Mr Thomas did not do or even set out to do what he had
been asked to do, namely to provide an insurance reinstatement valuation.
Moreover he did not explain to the bank or to Mr Beaumont what he had actually
done. He left them in the belief that his figure was a reinstatement figure
when it was not — it was necessarily lower.
In so doing,
he was, in my judgment, negligent, and so, subject to proof of damage, the
plaintiffs must succeed against the first defendants.
The judge took
the proper aim of an award of damages for negligent misrepresentation to be to
restore the plaintiff to the position in which he would have been if the
negligent misrepresentation had never been made. It is common ground that that
was a misdirection. It was a correct direction in the case from which the judge
took it because what was in issue there was compensating the plaintiff for what
he had actually done in reliance on the misrepresentation, but that is not this
case. In the present case, the plaintiff’s position as a result of Mr Thomas’
valuation has to be compared with what it would have been if the valuation had
been a good (ie correct) valuation — see Perry v Sidney Phillips
& Son [1982] 1 WLR 1297* at p 1302E per Lord Denning MR.
*Editor’s
note: Also reported at (1982) 263 EG 888, [1982] 2 EGLR 135.
Subject to one
final adjustment he made, to which I shall come, the judge took as the reinstatement
value of Heastige House at March 1984 for insurance purposes on the replication
basis for which the plaintiffs contend a sum of £300,000. He arrived at that
figure from an estimate obtained by the plaintiffs from a firm of builders,
Burt & Vick Ltd; he regarded that estimate as genuine and not fanciful. He
had, however, to make a considerable number of adjustments to the Burt &
Vick figure, partly because the Burt & Vick estimate was made on current
values well after the fire, and not in March 1984 when Mr Thomas was making his
valuation, partly because the Burt & Vick estimate did not include
architect’s or quantity surveyor’s fees, which were not in Burt & Vick’s
province, and partly because the estimate included certain matters of betterment
and certain matters which would be the subject of contents rather than
buildings insurance and did not include certain walls and outbuildings which
were not affected by the fire but would have to be included in a buildings
valuation. The plaintiffs say that in making his adjustments, which he did not
explain in detail, to the Burt & Vick tender so as to reach his figure of
£300,000, the judge made an error of £15,000; his figure should have been
£315,000. The plaintiffs suggest that the mistake lay in dealing with the walls
and outbuildings including the garage in the curtilage of Heastige House, which
the judge had said elsewhere in his judgment should have been valued for
insurance by Mr Thomas at £15,000, rather than at the £5,000 which Mr Thomas
took for the garage alone. I do not know precisely how the judge reached his
figure of £300,000; it was not incumbent on him to give any fuller explanation
than he did. But there were so many adjustments to be made, some of which were
a matter of judgment, that I am not persuaded that the judge made any such
mistake or omission as the plaintiffs contend. Accordingly, I would take the
judge’s figure of £300,000 for a starting point as the figure which Mr Thomas
should have specified as the insurance reinstatement value of the property in
March 1984.
It is,
however, common ground between the parties that on any such valuation there is
a 10 per cent margin of error either way before the valuer can be held to have
been negligent. It is obvious that there must be such a margin because of the
large number of uncertainties and as the valuer is proceeding without a
detailed bill of quantities. The figure of £300,000 thus comes down to
£270,000.
The judge made
a final adjustment to reduce the figure to £250,000. This seems to have been
because the judge believed that Mr Thomas, with his long experience of small
local builders who were good craftsmen and of competent architects and
surveyors who would not charge full scale fees, could have got the work done
more cheaply than Burt & Vick, or builders of their class, would have
charged. Again the explanation of the £250,000 in the judgment is not wholly
clear. Such a reduction appears to me, however, to be inconsistent with the
judge’s finding on the final page of his judgment that the insurance company
could not have insisted, and therefore it seems to me Mr Thomas could not have
insisted, on Mr Beaumont employing the sort of builders Mr Thomas had in mind,
such as Mr Guppy and the Harrises, because they were in a pretty small way of
business. I would, therefore, adjust the figure of £300,000 to £270,000 but no
further. Mr Thomas was negligent in that he advised the much lower figure of
£175,000.
It is common
for insurance policies on buildings to include an indexation clause to increase
the sum assured every year to guard against inflation and rising building
costs. Mr Beaumont’s policy had such a clause, and by virtue thereof the sum
insured had by the time of the fire risen from £175,000 to £193,000. Had the
insurance been initially for £270,000, the sum insured by the time of the fire
would have been £297,888. But that is still less than the then cost of
reinstatement, calculated from the Burt & Vick tender.
Two further
deductions fall to be made from the £297,888, one of £5,000 because the
destruction by the fire was not 100 per cent and the insurance company reserved
a token £5,000 as representing boundary walls and outbuildings which were not
affected by the fire and the other of £500 because Mr Beaumont would have had
to pay an extra £500 in premium if Mr Thomas had recommended the higher cover.
The £297,888 thus comes down to £292,388.
The measure of
damages is thus, in my judgment, £292,388 less the total that Mr Beaumont has
actually received or is entitled to under the policy actually effected for the
initial £175,000. How much he has received, however, and how much more, if any,
he is entitled to is not clear on the papers before us. The latest letters from
the insurers’ loss adjusters are extremely obscure. Also it is not clear
whether and to what extent the insurance company applied the principle of
averaging against Mr Beaumont under the under-insurance clause in the policy.
It is, however, unnecessary to pursue these aspects — which might have
necessitated directing an inquiry — since Staughton and Taylor LJJ take the
view that Mr Thomas was not in breach of duty.
There is one
final matter I should mention. On the final page of his judgment the judge
stated that Mr Thomas could have achieved a reinstatement on a replica basis of
Heastige House for less than £190,000 after the fire, and he considered that
the insurers would have met such a bill. That is arrived at, however, by making
adjustments to the estimate of Mr Guppy and by the use of builders in a pretty
small way of business whom the insurers could not have insisted on Mr Beaumont
employing. It is thus an irrelevant finding unless it can be said that Mr
Beaumont was bound to employ Mr Guppy or his like to mitigate his damages. In
my judgment, it would be unreasonable for the court to require Mr Beaumont to
employ a builder in such a small way of business as Mr Guppy or the Harrises on
such a large contract, merely in order to mitigate his damages. I do not regard
the insurance moneys actually available as enough to cover the cost of
reinstatement.
I would for my
part allow this appeal, but since Staughton and Taylor LJJ take a different
view the appeal will be dismissed.
The appeal
was dismissed with costs. Application for leave to appeal to the House of Lords
was refused.
