Negligence — Structural survey — Damages — Purchase of long lease of maisonette — Landlord remedying defect at plaintiffs’ instigation — Whether damages payable on Philips v Ward principles — Whether plaintiffs suffered any loss
In June 1985
the plaintiffs instructed the defendant firm to make a structural survey of a
maisonette. The survey report was negligent in failing to disclose a serious
structural fault. Following the report, the plaintiffs acquired a long lease of
the maisonette paying a premium of £114,000 with the assistance of a building
society loan of £50,000. The structural defect was discovered in 1988, when the
plaintiffs were trying to sell the maisonette; it was remedied by, and at the
expense of, the landlord in 1990 following negotiations and the threat of
proceedings. In the court below the judge awarded £29,000 damages as the
difference between the value of the property without the defects and its value
with the defects at the date of the purchase. The defendants appealed against
the award of damages on the grounds that: (1) had the defect been discovered in
1985 the landlord would have remedied the defect before purchase; and (2) the
landlord did in fact remedy it at the plaintiffs’ instigation and therefore
they suffered no loss.
and Pill LJJ: (1) It could not be inferred that had
the defect been discovered at the time of purchase, the landlord would have
remedied it before the plaintiffs purchased the maisonette. The plaintiffs did
purchase it in its defective state as a result of the defendants’ negligence.
It is intrinsic to the principles in the Philips v Ward [1956] 1
WLR 471 line of cases that, in assessing the market price of the property in
its defective condition, a hypothetical sale of the property in that state is
assumed to have taken place. (2) The repairs executed in 1990 by the landlord
were not part of a continuous transaction of which the purchase of the lease as
a result of the negligence was the inception. The repairs were res inter
alios acta and therefore collateral to the negligence.
Gibson LJ dissenting on the second ground of
appeal: If the plaintiff in fact avoids or mitigates his loss, he cannot
recover for the loss thereby avoided even though the steps he took were more
than could reasonably be required of him under the duty to mitigate his loss.
When the plaintiffs realised they had purchased a defective property, they took
steps to eliminate their loss by requiring the landlord to remedy the defect;
that was an act of mitigation which eliminated the plaintiffs’ loss: see British
Westinghouse Electric & Manufacturing Co Ltd v Underground Electric
Railways Co of London Ltd [1912] AC 673.
The following
cases are referred to in this report.
Admiralty
Commissioners v SS Chekiang (The Chekiang)
[1926] AC 637
Bradburn v Great Western Railway (1874) LR 10 Exch 1
British
Transport Commission v Gourley [1956] AC
185; [1956] 2 WLR 41; [1955] 3 All ER 796, HL
British
Westinghouse Electric & Manufacturing Co Ltd v
Underground Electric Railways Co of London Ltd [1912] AC 673; (1912) 81
LJKB 1132; 107 LT 325
Daisley v BS Hall & Co (1972) 225 EG 1553
Hodge v Cowling (Clifford) & Co [1990] 2 EGLR 89; [1990] 46 EG
120, CA
Hussey v Eels [1990] 2 QB 227; [1990] 2 WLR 234; [1990] 1 All ER
449; [1990] 1 EGLR 215; [1990] 19 EG 77, CA
Jones v Just (1868) LR 3 QB 197; 9 B&S 141; 37 LJQB 89; 18 LT
208; 16 WR 643
Oswald v Countrywide Surveyors Ltd [1996] 2 EGLR 104; [1996] 37 EG
140
Pagnan
(R) & Fratelli v Corbisa Industrial
Agropacuaria Limitada [1970] 1 WLR 1306; [1971] 1 All ER 165; [1970] 2
Lloyd’s Rep 14, CA
Parry v Cleaver [1970] AC 1; [1969] 2 WLR 821; [1969] 1 All ER 555;
[1969] 1 Lloyd’s Rep 183, HL
Perry v Sidney Phillips & Son [1982] 1 WLR 1297; [1982] 3 All
ER 705; [1982] 2 EGLR 135; [1982] EGD 412; (1982) 263 EG 888, CA
Philips v Ward [1956] 1 WLR 471: [1956] 1 All ER 874, CA
Redpath v Belfast & County Down Railway [1947] NI 167
Walton v Inland Revenue Commissioners [1996] 1 EGLR 159; [1996] 21
EG 144; [1996] STC 68
Watts v Morrow [1991] 1 WLR 1421; [1991] 4 All ER 937; [1991] 2
EGLR 152; [1991] 43 EG 121, CA
This was an
appeal by the defendants, Marsh & Parsons and Sean Dyson arics, from a decision of Judge Byrt QC
in Mayor’s and City of London Court on February 27 1995, whereby he had given
judgment to the plaintiffs, James Piers Gardner and Penelope Helen Gardner, in
their action for damages for negligence against the defendants.
Giving the
first judgment, Hirst LJ
said: This is an appeal against the decision of Judge Byrt QC in the Mayor’s
and City of London Court on February 27 1995.
In or about
June 1985 the plaintiffs Mr James Piers Gardner and Mrs Penelope Helen Gardner
were interested in buying the maisonette on the third and fourth floors of 8
Royal Crescent, London W11, at the price £114,000 subject to a satisfactory
survey. They instructed the first defendant, Marsh & Parsons, to carry out
a full structural survey of the property, and this was undertaken by the second
defendant, Mr Sean Dyson arics.
Unfortunately Mr Dyson carried out this survey negligently, as the judge held
and as is no longer disputed, in that he failed to spot a serious structural
defect of which there were tell-tale signs in the decoration of one of the
rooms. The judge assessed the damages under this head at £29,000 plus interest,
and it is against this award that the defendants presently appeal. An
additional small amount of damages also awarded is not challenged.
8 Royal
Crescent is a Grade II (Starred) listed building on the east side of Royal
Crescent. In 1985 it was converted by Guidedale Ltd, who carry on business as
residential and commercial property developers, into four dwellings, namely a
maisonette on the basement and ground floors, two flats on the first and second
floors, and the maisonette with which we are presently concerned, on the third
and
Guidedale had employed a full professional team to carry out and market the
development, including consulting constructional engineers, Glasspool &
Thaiss.
In 1985 the
plaintiffs were living in Strasbourg but expected to return to the UK in or
about 1988. At this time the property market was rising rapidly and they were
anxious to gain a foothold in the UK market by purchasing a property in London
to let with a view to selling it in due course, and then buying another
property with the combined proceeds of their English and French properties.
They viewed the maisonette on June 4 1985, and put in an offer for £114,000 on
June 7 1985 which was accepted by Guidedale, whereupon they instructed the
first defendant to carry out the structural survey.
Mr Dyson’s
report was dated June 15 1985, contracts were exchanged on July 5 1985 and the
purchase of the long lease was completed on September 11 1985, the plaintiffs
having obtained a mortgage from a building society in the sum of £50,000. The
plaintiffs’ lease, and also those of the other tenants, contained a covenant
under which Guidedale were responsible for structural repairs. It is common
ground that at the time of Mr Dyson’s survey the maisonette suffered from the
structural defect, which was not discovered until three years later in 1988,
when the plaintiffs were attempting unsuccessfully to sell the maisonette.
Originally the
floors, which are of timber joists, were supported centrally on a trussed
timber pine wall, which transferred the load from the floors to the party
walls. The alterations, which included the adding of a floor at roof level,
caused the spine wall to carry additional loads, and also affected its trussed
structure; in consequence the first-floor joists had to support the full load
of the spine wall above the first floor, and became overstressed by a factor of
about two and a half, and therefore sagged, creating cracking in the maisonette
and in the first and second floor flats. The necessary remedial works, which
were carried out by Guidedale in response to demands by the plaintiffs and the
other tenants in 1990, consisted of the insertion of a steel beam below the
spine wall in the ceiling space of the first-floor flat, which belonged to a
Miss Solomonides, who had exchanged contracts with Guidedale for the purchase
of a long leasehold interest on July 1 1985 with completion scheduled for July
29 1985.
The judge’s
findings on negligence were set out in his judgment as follows:
We know in
this case, because of what is accepted by both parties, that the structural
engineers did not get it right. The purpose of the plaintiffs instructing Mr
Dyson was precisely to check out the opinions, the calculations and the
recommendations of any structural engineer the builder might have engaged. I
accept that Mr Dyson would not have had the experience effectively to challenge
the details of his calculations. But the obligation was upon him to press upon
such a structural engineer and/or those others to whom he would have reported
and advised the tell-tale signs he would have seen from the rucking of the
wallpaper in the drawing room, to have put his point of view, as that of an
experienced structural surveyor, to the structural engineer so as to persuade
him to re-evaluate his assessments. There is no evidence that Mr Dyson did
that, and in his failure to do it I think he fell down on his duty to these
clients, the plaintiffs, who were relying upon him to take a line, independent
from that of the developer from whom they were buying the lease …
If he had
seen the rucking of the wallpaper and linked it with the other structural
danger spots — namely, the sagging floor, the breaking into the spine wall and
the alterations carried out to the fourth floor — if those had been put
together with the rucking wallpaper, I am satisfied that he would have
discharged his responsibilities to the plaintiffs and the probabilities are
that the structural engineer would have uncovered or discovered the defects in
his own calculations.
If in fact he
had not been able to persuade the structural engineer as to the faults in his
calculations, I am satisfied that, within that situation, Mr Dyson would have
been under an obligation to have entered a caution in his report to the
plaintiffs and have afforded them the opportunity of instructing a structural
engineer or of looking elsewhere for a property. Accordingly, on that basis, I
find that the first and second defendants are liable to the plaintiffs in
negligence for Mr Dyson’s failure to warn of the structural defect.
On quantum
the judge assessed the measure of damages as the difference between the value
of the property without the defects and its value with the defects at the date
of purchase, in accordance with a long line of authority, starting with Philips
v Ward [1956] 1 WLR 471, and culminating in the very recent Court of
Appeal decision in Oswald v Countrywide Surveyors Ltd [1996] 37
EG 140*. He accepted the evidence of the plaintiff’s expert, Mr ID Taylor arics, who is a director of Chesterton,
and head of their Residential Professional, Investment and Development
Department in the UK, that the open market value of the flat in its
structurally defective condition in July 1985 was £80,000, which the judge
adjusted to £85,000 to allow for some small concessions made by Mr Taylor
during cross-examination.
*Editor’s
note: Also reported at [1996] 2 EGLR 104
The defendants
had contended that this conventional approach was fundamentally flawed on its
special facts of the present case, on the footing, supported by both their
experts Mr MH Fawcett frica and
Mr RWC Horner frics, that, if the
defect had been discovered in 1985 and had been drawn to the attention of
Guidedale, they would forthwith have remedied it at their own expense prior to
selling any of the units into which the building had been divided, including of
course the plaintiffs’ maisonette; consequently there would have been no
diminution in the maisonette’s value and no entitlement to more than nominal damages.
The judge
dealt with this contention as follows:
I am
satisfied that Mr Taylor’s approach is a perfectly reasonable means of
calculating a rather difficult calculation, namely the market value of this
property in the condition that it was. Market value is an objective assessment,
that is the price paid by a willing purchaser to a willing vendor negotiating
at arm’s length. In my judgment, the willing vendor is not the developer in
this or any particular case but a hypothetical vendor with a property on his
hands which he wishes to sell. Mr Palmer’s submission predicates that the
plaintiffs were in a negotiating position in which they never had a chance to
be. Second, if Mr Palmer is correct when he says that in each instance when you
seek a market valuation you have to explore all the surrounding circumstances
in order to ascertain the valuation figure, it would form a major exception to
the general rule adumbrated in the cases I am referred to, and there is no
reference to any such exception and no like case quoted. The fact is that the
plaintiffs in this case paid for the property more than they should have done
having regard to what they acquired for their price. The sole question is: how
much more did they pay?
By their first
ground of appeal the defendants reiterate this point and submit the judge was
wrong.
The
defendants’ second ground of appeal is that, even if they are wrong on the
first point, the plaintiffs avoided their loss by reason of the repair
undertaken by Guidedale in 1990.
The judge
rejected this submission as follows:
The court is
constrained to make an assessment of the loss recorded at the date of the
breach. In this case, the damages to be assessed have to be assessed as at July
1985, and, in my judgment, it is not relevant that the risk is subsequently
eliminated at the cost of someone else.
I shall deal
with each of these grounds in turn, but first it is convenient to sketch in the
subsequent history between 1985 and 1990.
As already
noted, it was not until 1988 the structural defect was discovered. It came to
light as a result of two very adverse reports prepared by the surveyors
retained by two prospective purchasers, both of whom backed out in consequence.
The remedial work was carried out almost two years later, having been begun in
September and completed in October 1990. Meantime the plaintiffs, who
co-ordinated the exercise, entered into tortuous and prolonged quadripartite
negotiations with the other tenants, with Glasspool & Thaiss, and with
Guidedale, who originally denied responsibility, and only agreed to carry out
the work after the threat of legal proceedings. Meantime party wall awards were
required in respect of both adjoining occupiers, the notices being served on
May 16 1990, and the awards being forthcoming respectively in June and July
1990. Furthermore Miss Solomonides required an indemnity, which the plaintiffs
granted, for
together with her rehousing and storage expenses. I shall in future refer to
these matters collectively as ‘the intervening events’.
Turning now to
the first ground of appeal, it is not in dispute that the applicable legal
principles are laid down in the line of authorities mentioned above.
In Philips
v Ward (supra) a surveyor negligently valued a property which the
plaintiff had purchased. Denning LJ stated as follows at p473:
I take it to
be clear law that the proper measure of damage is the amount of money which
will put Mr Philips into as good a position as if the surveying contract had
been properly fulfilled: see British Westinghouse Electric and Manufacturing
Co Ltd v Underground Electric Railways Co [1912] AC 673, at 689 per
Lord Haldane LC. Now if Mr Ward had carried out his contract, he would have reported
the bad state of the timbers. On receiving that report, Mr Philips would either
have refused to have anything to do with the house — in which case he would
have suffered no damage — or he would have bought it for a sum which
represented its fair value in its bad condition — in which case he would pay so
much less on that account. The proper measure of damages 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.
Morris LJ
delivered a concurring judgment. Romer LJ. stated at p477:
It appears to
me that in order to arrive at a correct solution of the problem in this case
one has to compare the position into which the plaintiff was put by the
defendant’s failure to perform his duty with the position in which he would
have been had the defendant performed it; and in so far as the first position
is more unfavourable to the plaintiff than the second, and the difference can
be assessed in terms of money, then prima facie that assessment is the measure
of the defendant’s liability to the plaintiff.
In Perry
v Sidney Phillips & Son [1982] 1 WLR 1297, where the facts were
similar, Lord Denning MR said at p1301:
… where there
is a contract by a prospective buyer with a surveyor under which the surveyor
agrees to survey a house and make a report on it — and he makes it negligently
— and the client buys the house on the faith of the report, then the damages
are to be assessed at the time of the breach, according to the difference in
price which the buyer would have given if the report had been carefully made
from that which he in fact gave owing to the negligence of the surveyor. The
surveyor gives no warranty that there are no defects other than those in his
report. There is no question of specific performance. The contract has already
been performed, albeit negligently. The buyer is not entitled to remedy the
defects and charge the cost to the surveyor. He is only entitled to damages for
the breach of contract or for negligence. It was so decided by this court in Philips
v Ward [1956] 1 WLR 471, followed in Simple Simon Catering Ltd v Binstock
Miller & Co (1973) 117 SJ 529 …
Oliver LJ and
Kerr LJ delivered concurring judgments.
In Watts
v Morrow [1991] 4 All ER 937*, again on similar facts, Ralph Gibson LJ
stated at p950c:
*Editor’s
note: Also reported at [1991] 2 EGLR 152
The task of
the court is to award to the plaintiffs that sum of money which will, so far as
possible, put the plaintiff into as good a position as if the contract for the
survey had been properly fulfilled: see Denning LJ in Philips v Ward
[1956] 1 All ER 874 at 875, [1956] 1 WLR 471 at 473. It is important to note
that the contract in this case, as in Philips v Ward, was the
usual contract for the survey of a house for occupation with no special terms
beyond the undertaking of the surveyor to use proper care and skill in
reporting upon the condition of the house.
The decision
in Philips v Ward was based upon that principle; in particular,
if the contract had been properly performed the plaintiff either would not have
bought, in which case he would have avoided any loss, or, after negotiation, he
would have paid the reduced price. In the absence of evidence to show that any
other or additional recoverable benefit would have been obtained as a result of
proper performance, the price will be taken to have been reduced to the market
price of the house in its true condition because it cannot be assumed that the
vendor would have taken less.
The cost of
doing repairs to put right defects negligently not reported may be relevant to
the proof of the market price of the house in its true condition: see Steward
v Rapley [1989] 1 EGLR 159; and the cost of doing repairs and the
diminution in value may be shown to be the same. If, however, the cost of
repairs would exceed the diminution in value, then the ruling in Philips
v Ward, where it is applicable, prohibits recovery of the excess because
it would give to the plaintiff more than his loss. It would put the plaintiff
in the position of recovering damages for breach of a warranty that the
condition of the house was correctly described by the surveyor and, in the
ordinary case, as here, no such warranty has been given.
Bingham LJ as
he then was, and Sir Stephen Brown P agreed.
In his
submission on the first ground, Mr Adrian Brunner QC invited us to interpret
the judge’s findings on negligence quoted above as follows:
The Judge
held:
(i) that Mr
Dyson should have advised Glasspool & Thaiss of the tell-tale signs of the
rucking of the wallpaper and attempted to persuade them to re-evaluate their
assessments relating to the spine wall;
(ii) had Mr
Dyson done so, the probabilities were that Glasspool & Thaiss would have
discovered the defects in their calculations and in that event Mr Dyson would
owe no further duty to the Gardners. It is implicit from the finding that the
Judge considered that once the engineers were aware of the problem then such
remedial work as was necessary would be carried out;
(iii) that it
was only in circumstances where Mr Dyson had failed to persuade the engineers
of their error that he had a duty to report further to the Gardners by way of a
caution which would have enabled them to instruct their own structural engineer
or to look elsewhere.
Let me say at
once that I am unable to accept this interpretation. The judge himself referred
to Mr Dyson’s ‘failure to warn’ and I have no doubt that the plaintiffs’
retainer of Marsh & Parsons was to undertake the survey and to report to
the plaintiffs themselves, as stated by the former in their letter dated June
14 1981 accepting the retainer:
Thank you for
your instructions to undertake a structural survey of the above property and we
will let you have a formal report as soon as possible.
I am sure that
the judge did not intend to state otherwise, though no doubt Mr Dyson would
have been in touch with Glasspool & Thaiss as well.
The crux of Mr
Brunner’s main submission was that it is an inevitable inference that, had the
structural defect been drawn to Guidedale’s attention in June 1985, they would
forthwith have carried out the necessary repairs, being faced with the choice
between undertaking a comparatively modest repair costing no more than £4,000,
and facing a heavy loss; and that thereafter, before the conclusion of the
plaintiffs’ purchase, negotiations would have ensued which, having regard to
the property boom of which both were well aware, would have resulted in an
agreement for no more than a nominal discount, it being unthinkable that
Guidedale would have agreed to a reduction of the magnitude put forward by Mr
Taylor.
Mr Brunner
accepted that there was no evidence from Guidedale or from Glasspool &
Thaiss to support his submission, but invited the court to draw the appropriate
inference. He submitted that by contrast Mr Taylor’s approach was artificial
and unsound, and that the judge should not have adopted it.
I am unable to
accept this submission, substantially for the reasons given by the judge as
quoted above, and supported by Mr Edwin Johnson on behalf of the respondents.
In my
judgment, it is intrinsic to the principles laid down in the Philips v Ward
line of cases that, in assessing the market price of the property in its
defective condition, a hypothetical sale of the property in that state is
assumed to have taken place. Mr Brunner proceeds on the opposite assumption,
namely that in the particular circumstances of this case no sale would have
taken place until after the defect had been remedied, leading to the
negotiations he envisages and the resultant nominal discount which he
foreshadows. This, to my mind, is basically unsound.
I should
mention that in support of this contention Mr Brunner sought to draw comfort
from the passage quoted above from Ralph Gibson LJ’s judgment in Watts v
Morrow. But that passage must be read in its context, and I am satisfied
that Ralph Gibson LJ’s sole
additional recoverable benefit, the purchaser is not entitled to recover more
than the difference between the price paid and the market price of the property
in its defective condition, and in particular that he is not entitled (as the
appellant sought to do in that case) to recover the cost of the repairs if they
exceed that difference.
A further flaw
in Mr Brunner’s argument is that his scenario does not square with the actual
facts of the case, seeing that the plaintiffs did in fact purchase the
maisonette while still in its defective state, which was a natural consequence
flowing from Mr Dyson’s negligence.
In my
judgment, this is a straightforward Philips v Ward type of case
from which it follows that the judge’s approach was soundly based.
I should add
that, quite apart from this decision in principle, I do not think that the
inference which Mr Brunner invited us to draw was supported by the evidence.
Following the judgment the appellants requested the judge to elaborate his
findings, and on April 11 1995 he responded as follows:
I have been
asked to find as a question of fact whether the hypothetical proposal relating
to valuations, advanced in argument by Mr Palmer in his submissions and through
his various valuation witnesses in the course of the evidence was realistic and
practical. If I were to attempt such a finding I would have to hedge it round
with so many qualifications and caveats, some of which were dependent upon
evidence which was not in fact given, that I do not think it really would be of
any value to the Court of Appeal.
There were
certain parts of that proposal which I do not think were challenged by Mr
Johnson; and in that they were not challenged, certainly I would happily
endorse them as findings of fact. Here I am thinking of the fact that the works
concerned could have been carried out for approximately £4,000, and further, as
I think I mentioned in my judgment, if the defendants had had vacant possession
when they carried out the works, the works could have been done much more
simply and easily.
But as I made
plain in argument this morning, difficulties arise because we do not know the
developer’s approach to this matter, as to whether he would have been willing
to carry out the rectifications for the plaintiffs in advance of completion or
as to whether he would have just said, ‘No, I am not prepared to do any of this
work. If you don’t like it go elsewhere. I am certainly not prepared to drop my
price’. We do not know what his reaction would be.
Equally we do
not know what the attitude of Miss Solomonides would have been. She was the
occupier of the first floor flat. She had exchanged contracts on 1st July and
her completion date was on July 29. Had this scenario started off on July 5, at
a date when the plaintiffs exchanged their contract, one just does not know how
much of the remedied works the developer could have done in the time she made
available. In all the circumstances, I do not think I can usefully make any
specific findings of fact about any of those matters and I must leave Mr Palmer
to argue his interesting point of law on the basis of the evidence which has
been adduced and the findings that I have already made in my judgment.
This was an
assessment of the evidence on the primary facts made by a judge who heard the
witnesses, and I for my part do not think this court can properly interfere,
let alone interpose findings or inferences which the judge himself was not
prepared to make or draw.
Finally on
this part of the appeal I turn to Mr Taylor’s valuation, which the judge
accepted subject to his small adjustments, but which the appellants criticise
as basically unsound. The judge dealt with this as follows:
The
plaintiffs relied upon the evidence of Mr Taylor, another senior director with
Chestertons, as to valuation. He carried out his calculations on the basis of a
residual valuation, using a computer programme well-recognised by developers,
as the plaintiffs say, for both large and small residential developments. It is
based on construction costs, other remedial works, takes into account the legal
fees, the structural engineer’s fees, party wall awards, sale, agents’ and
legal fees. When first Mr Taylor calculated the residual valuation, he did so
on the basis of a profit of 15% on costs. The result of his calculation was a
market valuation, on the July 5, of the property in the condition that it was,
not of £114,000 as paid by the plaintiffs, but only £80,014.
The judge then
explained the small adjustments and proceeded:
Making those
corresponding adjustments, my assessment of the market valuation, in accordance
with the evidence that Mr Taylor gave, is approximately £85,000. Subtracting
that sum from £114,000, one has a difference amounting to £29,000. The
plaintiffs say that this represents the damages they are entitled to. If the
figure seems to be high, Mr Taylor points out that the property in effect was
unmortgageable in the condition that it was in. As a result of that, when
looking for a purchaser of property in that condition, one was looking for a
purchaser who did not need a mortgage but had cash and who was prepared to make
a speculative buy. He said that that necessarily directed you to a very limited
market.
The
defendants’ valuers approached the problem from an entirely different angle, as
shown for example by Mr Fawcett’s report:
With regard
to the lack of internal structural support, I consider it reasonable to assume
that if this point had been brought to the attention of the plaintiff by either
Mr Dyson, the plaintiff’s solicitors or through any other source, then the
outcome would have been the same in 1985 as happened in 1988. That is, the
problem would have been rectified at the expense of others. No works were
required to the plaintiffs’ accommodation and the structural work was
undertaken in another part of the building.
In reality
sales are concluded over a period of time within which problems are resolved.
It would not be necessary to have the works completed but only that there was
an agreement to do so for the price to be unaffected. It is in my opinion
reasonable to assume that if the defendant had recommended the services of a
structural engineer who in turn recommended further structural work, this would
have been considered favourably by the developer notwithstanding that no
objection had been made by the local authority building inspector. The cost of
undertaking this work would have been in the order of £2,500, a relatively
small sum in relation to the total sale price of the flats.
As already
demonstrated, this basis of valuation was incorrect, so the judge had before
him no rival valuation prepared on the correct basis. In these circumstances it
was perfectly proper for him to accept Mr Taylor’s valuation.
The first ground
of appeal therefore fails.
On the second
ground (avoidance of loss) it is convenient first to summarise the relevant
authorities on which both sides rely.
In the leading
case of British Westinghouse Electric & Manufacturing Co Ltd v Underground
Electric Railways of London Ltd [1912] AC 673 the House of Lords held
unanimously that where a railway company had installed improved turbines, in
replacement of defective turbines which had been supplied to them in breach of
contract, the pecuniary advantage derived therefrom was a relevant
consideration in the assessment of damages, since the purchase of the improved
turbines was a reasonable and prudent course for them to have taken in
mitigation of damages.
Giving the
leading speech, with which the other members of the Appellate Committee agreed,
Viscount Haldane LC stated:
The
fundamental basis is thus compensation for pecuniary loss naturally flowing
from the breach; but this first principle is qualified by a second, which
imposes on a plaintiff the duty of taking all reasonable steps to mitigate the
loss consequent on the breach, and debars him from claiming any part of the
damage which is due to his neglect to take such steps. In the words of James LJ
in Dunkirk Colliery Co v Lever (1878) 9 Ch D 20, at p25, ‘The
person who has broken the contract is not to be exposed to additional cost by
reason of the plaintiffs not doing what they ought to have done as reasonable
men, and the plaintiffs not being under any obligation to do anything otherwise
than in the ordinary course of business.’
As James LJ
indicates, this second principle does not impose on the plaintiff an obligation
to take any step which a reasonable and prudent man would not ordinarily take
in the course of his business. But when in the course of his business he has
taken action arising out of the transaction, which action has diminished his
loss, the effect in actual diminution of the loss he has suffered may be taken
into account even though there was no duty on him to act.
Having cited a
number of earlier authorities, he proceeded:
I think the
principle which applies here is that which makes it right for the jury or
arbitrator to look at what actually happened, and to balance loss and gain. The
transaction was not res inter alios acta, but one in which the person
whose contract was broken took a reasonable and prudent course quite naturally
arising out of the circumstances in which he was placed by the breach. Apart
from the breach of contract, the lapse of time had rendered the appellants’
machines obsolete, and men of business would be doing the only thing they could
properly do in replacing them with new and up-to-date machines.
The
arbitrator does not in his finding of fact lay any stress on the increase in
kilowatt power of the new machines, and I think that the proper inference is
that such increase was regarded by him as a natural and prudent course followed
by those whose object was to avoid further loss, and that it formed part of a
continuous dealing with the situation in which they found themselves, and was
not an independent or disconnected transaction.
In Hussey
v Eels [1990] 2 QB 227*, the plaintiffs purchased a bungalow in reliance
on answers to precontractual inquiries which included a misrepresentation that
the building had not been the subject of subsidence. The plaintiffs could not
afford the necessary repairs to the foundations, and ultimately obtained
planning permission to redevelop the land, which they then sold to developers
for a substantial sum. The question arose whether what, if any, profit they
made on the resale could be brought into account in assessing the damages.
*Editor’s
note: Also reported at [1990] 1 EGLR 215
The Court of
Appeal (Mustill and Farquharson LJJ and Sir Michael Kerr) held that it could
not.
Giving the
leading judgment, with which Farquharson LJ and Sir Michael Kerr agreed,
Mustill LJ expressed his conclusion as follows:
I have dealt
with the authorities at some length, because it was said that in one direction
or another they provided a direct solution to the present problem. For the
reasons already stated, I do not see them in this light. Ultimately, as with so
many disputes about damages, the issue is primarily one of fact. Did the
negligence which caused the damage also cause the profit — if profit there was?
I do not think so. It is true that in one sense there was a causal link between
the inducement of the purchase by misrepresentation and the sale 21/2
years later, for the sale represented a choice of one of the options with which
the plaintiffs had been presented by the defendants’ wrongful act. But only in that
sense. To my mind the reality of the situation is that the plaintiffs bought
the house to live in, and did live in it for a substantial period. It was only
after two years that the possibility of selling the land and moving elsewhere
was explored, and six months later still that this possibility came to
fruition. It seems to me that when the plaintiffs unlocked the development
value of their land they did so for their own benefit, and not as part of a
continuous transaction of which the purchase of land and bungalow was the
inception.
Mustill LJ’s
review of the earlier authorities, which began with a discussion of the Westinghouse
case, included two cases which he described as follows:
I now turn to
a pair of contrasting decisions in a different line of authority. The first is Jamal
v Moolla Dawood Sons & Co [1916] 1 AC 175 where the claim was for a
failure by a buyer to accept shares under a contract of sale for delivery on a
specified date. Two months after that date the sellers began to re-sell the shares
on a rising market. It was held that the profit thus accruing should not be
deducted from the damages for non-acceptance, which were to be ascertained as
at the date of the breach. Delivering the opinion of the Board, Lord Wrenbury
said, at pp179, 180:
‘The question
therefore is the general question and may be stated thus: In a contract for
sale of negotiable securities, is the measure of damages for breach the
difference between the contract price and the market price at the date of the
breach — with an obligation on the part of the seller to mitigate the damages
by getting the best price he can at the date of the breach — or is the seller
bound to reduce the damages, if he can, by subsequent sales at better prices?
If he is, and if the purchaser is entitled to the benefit of subsequent sales,
it must also be true that he must bear the burden of subsequent losses. The
latter proposition is in their Lordships’ opinion impossible, and the former is
equally unsound. If the seller retains the shares after the breach, the
speculation as to the way the market will subsequently go is the speculation of
the seller, not of the buyer; the seller cannot recover from the buyer the loss
below the market price at the date of the breach if the market falls, nor is he
liable to the purchaser for the profit if the market rises … The seller’s loss
at the date of the breach was and remained the difference between contract
price and market price at that date. When the buyer committed this breach the
seller remained entitled to the shares, and became entitled to damages such as
the law allows. The first of these two properties, namely, the shares, he kept
for a time and subsequently sold them in a rising market. His pocket received
benefit, but his loss at the date of the breach remained unaffected.’
This case was
discussed in the R Pagnan & Fratelli case [1970] 1 WLR 1306, the
facts of which were as follows. Corbisa sold to Pagnan a quantity of maize on
cif terms; with extensions, the shipment period ended on 22 August 1965. The
sellers failed to ship in time. On 21 September 1965 the parties met and the
buyers agreed to accept a consignment on a named vessel if satisfied with its
condition on arrival at Venice. Upon arrival part was found to be in bad
condition, and the buyers rejected it. Meanwhile they had obtained on 13
October a decree sequestrating part of the cargo for the recovery of freight
and premiums advanced and for reimbursement of damages for non-fulfilment. The
sellers repaid the advances, and the sequestration was lifted pro tanto,
leaving 700 metric tons under sequestration in relation to the claim for
damages. On 13 November the parties agreed that the buyers would purchase the
rejected goods ex silo Trieste, at a price which the arbitrators found was
unduly depressed by reason of the sequestration: so much so that it was below
the market price. The arbitrators also found:
‘The purchase
of 13 November 1965 formed part of a continuous dealing with the situation in
which the buyers found themselves, and was not an independent or disconnected
transaction. By such purchase the buyers diminished and mitigated any loss
which they might have suffered:’ see p1309D.
On this basis
the arbitrators dismissed the claim. The buyers appealed by case stated.
Roskill J upheld the award, as did the Court of Appeal. After referring to Jamal
v Moolla Dawood, Sons & Co [1916] 1 AC 175 and to a similar case,
Salmon LJ said at pp 1314–1315:
‘The
principle of law is that where a buyer wrongfully neglects or refuses to accept
and pay for the goods or a seller wrongfully neglects or refuses to deliver the
goods to the buyer, the innocent buyer or seller as the case may be may
maintain an action for damages for breach of contract. The measure of damage in
each case is the estimated loss directly and naturally resulting in the normal
course of events from the breach of contract. Where there is an available
market for the goods, the measure of damage is prima facie to be ascertained by
the difference between the contract price and the market price at the date of
the breach: see section 50 and 51 of the Sale of Goods Act, 1893. The two
authorities relied on by Mr Goff do no more than illustrate instances in which
the prima facie rule relating to the measure of damage applies. In such cases
the innocent party is not bound to go on the market and buy or sell at the date
of the breach. Nor is he bound to gamble on the market changing in his favour.
He may wait, if he chooses; and if the market turns against him this cannot
increase the liability of the party in default; similarly if the market turns
in his favour, the liability of the party in default is not diminished.
Normally if the innocent party goes on to the market and buys or sells after
the date of the breach, this is res inter alios acta so far as the party
in default is concerned. The present case, however, is quite different. The
purchase of 13 November 1965 was certainly not inter alios acta; it was
between the self-same buyers and sellers who were parties to the contract of 20
May 1965 and it related to the self-same goods that were the subject-matter of
that contract. Moreover, as already stated, the tribunal found that it was not
an independent or disconnected transaction but formed part of a continuous
dealing between the parties; and these findings of fact cannot be challenged in
this court. Accordingly the prima facie rule for ascertaining the measure of
damages cannot apply because the buyers suffered no loss or damage but instead
made a handsome profit in spite of the sellers’ breach.’
Salmon LJ
concluded, at p1316:
But the buyer
cannot have his cake and eat it, as these buyers are seeking to do. They went
through the motions of rejecting the goods in October 1965. Indeed they did, in
law, reject them. They did so, however, in the confident expectation that, as a
result of their rejection and the sequestration order, they would be able to
negotiate a new agreement under which they would acquire the goods at a price
favourable to themselves. This they did by their purchase of November 13. The
price was substantially below the market price and their resulting profit
certainly exceeded the difference between the May contract price as varied and
the prevailing market price at all relevant times. Damages for breach of
contract are awarded for loss suffered. Here the buyers suffered no loss. It is
only by looking in isolation at the sellers’ failure to deliver sound goods
that the buyers’ claim is even arguable. This failure cannot in my view
properly be looked at in isolation because together with the purchase of
November 13 which arose out of the situation in which the buyers found
themselves, it formed one continuous dealing between the same parties in
respect of the same goods. As a result of this dealing, looked at as a whole,
the buyers, notwithstanding the sellers’ breach, made a
alike to justice, common sense and authority. I would accordingly dismiss the
appeal.
It seems to
me that the Pagnan case is as far away from the present case in one
direction as the Jamal case is in the other. In Pagnan, not only
had the tribunal made a finding of continuity, but the bare narrative shows
that such a finding was inevitable. From the moment of breach the sellers were
at a disadvantage which the buyers were able to exploit by successful measures
leading to the ultimate repurchase. In no sense could the buyers be said to
have purchased the same cargo from the same seller as a bargain for their own
account quite separate from anything that had gone before.
In reality I
believe that neither Pagnan nor any of the other cases cited in argument
presents a true analogy here. The plaintiffs are not claiming a conventional
prima facie measure of damages, as with a sale of goods or shares: they really
suffered the loss claimed, for they would have had to pay the cost of repairs
if they had remained permanently in residence. On the other hand the later
transaction did not flow inexorably from the first, as was the case in Pagnan.
Earlier in his
judgment, with reference to the question whether the plaintiffs had been under
a duty to mitigate, Mustill LJ left open the question whether there could be
any question of mitigation in cases where the loss has already crystallised, in
contrast to cases where there is a continuing loss (as for example in the Westinghouse
case), stating that he would not be prepared without a very full review of the
authorities to underwrite any generalisation, ‘especially in the field of
damages where broad statements of principle tend to be unreliable’.
Finally in Jones
v Just (1868) LR 3 QB 197, it was held that a normal measure of damages
applied where the plaintiff bought first quality hemp and second quality hemp
was delivered, although the plaintiff had resold the delivered hemp at
substantially higher than the price at which the first quality hemp had stood
at the time of delivery, the market price having meantime risen. This was the
judgment of a strong court (Lord Cockburn, CJ, Blackburn and Mellor JJ) delivered
by Mellor J, in which at p200 they approved the direction of the trial judge to
the jury that if they found for the plaintiffs, ‘the damages should be measured
by the rate which the hemp was worth when it arrived compared with the rate
which the same hemp would have realised had it been shipped in the state in
which it ought to have been shipped’ thus, (in Mellor J’s words) ‘in effect,
giving the plaintiffs the benefit of the rise in the market’.
Mr Brunner
submitted that, the plaintiffs having themselves adopted the reasonable and
prudent course of instigating the repairs, and those repairs having been
undertaken with the result that the defect was rectified, the plaintiffs had
suffered no loss, and were no worse off, seeing that the premises had been
restored to their full value well before the date of trial. He stressed that
these repairs remedied the very defect which Mr Dyson had originally failed to
spot, and submitted that there was therefore a direct connection between Mr
Dyson’s negligence in 1985 and the remedial work undertaken in 1990. He further
submitted that, as a general rule, where the plaintiff has in fact avoided his
loss in whole or in part, whether or not under a duty to mitigate, by
reasonable and prudent action, the resultant benefit must be taken into
account. He recognised at the conclusion of his argument that this formulation
is difficult to reconcile with the cases referred to above dealing with sale of
goods or shares, but submitted that they formed a special class outside the
general rule.
Mr Johnson,
founding his argument on Hussey v Eels, submitted that where as a
result of the defendant’s negligence a plaintiff suffers loss in the form of
diminution of value of the property, that loss is not avoided by the subsequent
conduct of the plaintiff unless such conduct flows inexorably from the original
transaction, and can properly be seen as part of a continuous course of dealing
with the situation in which the plaintiff originally found himself.
Here, he
submitted, the action of the landlords in repairing the property was
collateral, and res inter alios acta; moreover, it did not flow
inexorably from the original transaction (ie Mr Dyson’s negligent valuation)
and was in no sense part of a continuous course of dealing, in view of the long
lapse of time and of the nature and magnitude of the intervening events.
In evaluating
these arguments I bear very much in mind Mustill LJ’s salutary warning against
laying down potentially unreliable statements of principle in the field of
damages, and I respectfully adopt his approach, namely that the issue is
primarily one of fact, and that the relevant considerations are mutatis
mutandis those cited by him in his conclusion, which seem to me in line
with Westinghouse: see especially the final two paragraphs quoted above
from Lord Haldane’s speech. It follows that I accept Mr Johnson’s analysis and
reject Mr Brunner’s broad brush formulation, not least because of its
inconsistency with the cases dealing with sale of goods or shares cited above,
which cannot, in my view, be segregated from the main stream of authority.
In my
judgment, having regard to the intervening events and to the long interval of
time, the repairs executed in 1990 were not part of a continuous transaction of
which the purchase of the lease as a result of Mr Dyson’s negligence was the
inception. Furthermore, these repairs undertaken by Guidedale at the
plaintiff’s insistence were res inter alios acta and therefore
collateral to Mr Dyson’s negligence.
I should add
by way of postscript that I do not think this conclusion is affected by the
decision of this court in Hodge v Clifford Cowling & Co [1990]
46 EG 120*, which came to our attention after the conclusion of the hearing,
and in which Hussey v Eels was applied: see per Glidewell
LJ at p92.
*Editor’s
note: Also reported at [1990] 2 EGLR 89
For these
reasons the appellants’ second ground also fails, and consequently I would
dismiss this appeal.
Disagreeing, Peter Gibson
LJ said: Two points were taken by Mr Brunner QC on this appeal: (1) Judge
Byrt QC erred in accepting the valuation approach by Mr Taylor, the plaintiffs’
expert, it being inconceivable that any properly advised vendor would have sold
the maisonette in 1985 for £85,000; (2) the judge erred in not finding that the
loss incurred by the plaintiffs in purchasing a property for a price in excess
of its true value by reason of the unreported structural defect was avoided by
the remedying of the defect by the freeholder and its structural engineers at
the instigation of the plaintiffs.
On the first
point Mr Brunner, while accepting that the value of the property is the price
paid on a hypothetical sale between a willing vendor and a willing purchaser,
submitted that the vendor developer would not have been a willing vendor at the
price of £85,000. That submission proceeds on a mistaken appreciation of the
valuation exercise. In my opinion the same principles apply, whether the
valuation is, as in this case, for the purpose of assessing damages or for some
statutory or other purpose (in the absence of specific statutory provisions
requiring a different hypothesis). I venture to repeat what I said in Walton
v Inland Revenue Commissioners [1996] STC 68* at pp 85f, 86 (in the
context of a valuation for capital transfer tax purposes):
*Editor’s
note: Also reported at [1996] 1 EGLR 159
Second, it is
agreed that the valuation required by s 38 [Finance Act 1975] is on the basis
of a hypothetical sale in the open market. Although the statute says nothing
about a willing seller or a willing buyer, the concept of the open market
automatically implies a willing seller and a willing buyer, each of whom is a
hypothetical abstraction. However, the willing buyer ‘reflects reality in that
he embodies whatever was actually the demand for that property at that time’
(see IRC v Gray … [1994] STC 360 at 372 per Hoffmann LJ).
Whilst both the seller and the buyer are assumed to be willing, neither is to
be taken to be over-eager … The statute assumes a sale. That means that however
improbable it is that there would ever be a sale of the property in the real
world … nevertheless the sale must be treated as capable of being completed …
It also means that the vendor, if he is offered the best price reasonably
obtainable in the market, cannot be assumed to say that he will not sell
because the price is too low as inadequately reflecting some feature of the
property nor can the purchaser be assumed to say that he will not buy because
the price is too high.
It is
therefore, in my view, impermissible to postulate that on the hypothetical sale
by the hypothetical vendor of the property he would have refused to sell for £85,000
because he thought the price should be higher. If that was the best price
obtainable, that is what he must be taken to accept. No less impermissible is
it to change the hypothesis by
vendor or the freeholder being prepared to do the repairs first.
For these and
the reasons given by Hirst LJ the first point taken by the appellants must be
rejected.
The second
point taken by Mr Brunner raises a question of some difficulty in circumstances
unlike those in any case to which we have been referred. I shall first recite
the essential circumstances:
1. The
plaintiffs, acting on the negligent advice of the defendants, in 1985 purchased
property for £114,000, when its true value, had the structural defect been
known was £85,000.
2. The
structural defect became known in 1988, as a result of two abortive attempts by
the plaintiffs in June and October 1988 to sell the property.
3. The
plaintiffs were instrumental in procuring the remedying in 1990 of the
structural defect by the freeholder by threatening in 1989 an action under the
Defective Premises Act 1972, as a result of which the freeholder’s structural
engineers paid for the remedying of the defect.
4.
Accordingly, at the time this action commenced in 1991, the defect, the
existence of which had caused the property to be worth £29,000 less in 1985
than it would have been if the defect had been remedied before the contract to
sell the property to the plaintiffs, had been remedied at no cost to themselves
and the plaintiffs had the structurally sound property which in 1985 the
defendants had represented it was and which they thought they had bought. In
the judge’s words, ‘the plaintiffs have a rectified building worth the
equivalent of what they had paid for it without any extra cost’.
The question
is whether in such circumstances the law allows the plaintiffs to recover the
£29,000 loss which they initially sustained on the purchase. On this aspect of
the appeal we are not concerned with any other loss which the plaintiffs may
have suffered consequent upon the negligence. In appropriate circumstances it
may be that a plaintiff would recover both the costs and expenses of an
abortive sale and also a sum equal to the profit on a lost bargain. I have
considerable sympathy with the plaintiffs for the distress and inconvenience
they are likely to have suffered, but that is beside the point in issue.
Although the
claims of the plaintiffs are both in contract and tort against the first
defendants and in tort alone against the second defendant, it has not been
suggested that in this case there is in the result any difference between the
contractual and the tortious measure of damages. The basic principle applicable
in assessing damages is that there must be measured the sum of money which
would put the innocent party in the same position as he would have been in if
the contract had been performed or if he had not sustained the wrong. In the
light of the decisions of this court in Philips v Ward [1956] 1
WLR 471 and Perry v Sidney Phillips & Son [1982] 1 WLR 1297* prima
facie the proper measure is the difference between the price paid by the
plaintiffs and the market value at the time of purchase of the property, as it
should have been described. However at the date of trial the court may have to
consider whether in the light of the circumstances then existing that
represents what the plaintiff has actually lost. The law does not permit the
plaintiff to recover more than is seen to be his actual loss and the rules of
mitigation may deprive the plaintiff of all or part of the damages for loss
which otherwise he might have recovered.
*Editor’s
note: Also reported at [1982] 2 EGLR 135
The first rule
of mitigation is that the plaintiff must take all reasonable steps to mitigate
his loss. It follows that he cannot recover for avoidable loss (though he may
recover for loss incurred in reasonable attempts to avoid loss). The plaintiff
also cannot recover for avoided loss at any rate where certain conditions are
satisfied. This rule of mitigation is summarised in McGregor on Damages,
15th ed (1988) para 277 in this way:
(3) The third
rule is that, where the plaintiff does take steps to mitigate the loss to him
consequent upon the defendant’s wrong and these steps are successful, the
defendant is entitled to the benefit accruing from the plaintiff’s action and
is liable only for the loss as lessened; this is so even though the plaintiff
would not have been debarred under the first rule from recovering the whole
loss, which would have accrued in the absence of his successful mitigating
steps, by reason of these steps not being ones which were required of him under
the first rule.
Thus if the
plaintiff in fact avoids or mitigates his loss, he cannot recover for the loss
thereby avoided even though the steps he took were more than could reasonably
be required of him under the duty to mitigate his loss.
The leading
authority is British Westinghouse Electric Co Ltd v Underground
Electric Railways of London Ltd [1912] AC 673. In that case turbines were
supplied by a manufacturer to a railway company. They did not accord with the
contract for their supply. Four years after taking delivery of the first
turbine the railway company purchased replacement turbines of greater
efficiency and power from another supplier which caused the railway company to
make a profit. The House of Lords held that even though the replacement
turbines were superior to those which should have been supplied in accordance
with the contract the profit should have been taken into account in assessing
the damages. Viscount Haldane LC expressed the relevant principle as being : ‘…
when in the course of business [the plaintiff] has taken action arising out of
the transaction, which action has diminished his loss, the effect in actual
diminution of the loss he has suffered may be taken into account even though
there was no duty on him to act’ (p689). At p690 he made it clear that the
mitigating action must be ‘one which a reasonable and prudent person might in
the ordinary conduct of business properly have taken’ and must be ‘one arising
out of the consequences of the breach and in the ordinary course of business’.
He described (at p691) the purchase from the new supplier of the replacement
turbines as ‘not res inter alios acta, but one in which the person whose
contract was broken took a reasonable and prudent course quite naturally
arising out of the circumstances in which he was placed by the breach’, and he
said (at p692) that the increase in the power of the replacement turbines
‘formed part of a continuous dealing with the situation in which they found
themselves, and was not an independent or disconnected transaction.’
Viscount
Haldane’s remarks with the repeated references to the course of business must
be read and understood in their context of a case relating to a breach of a
contract between trading companies. They do not entail that the rule of
mitigation relating to avoided loss cannot apply in other contexts such as
where a tort has occurred and where the innocent party is not carrying on
business. I would draw attention to the fact that neither a lapse of time of
several years before the turbines were replaced, nor the purchase by the
railway company of the replacement turbines from a third party prevented the
advantages derived from the use of the replacement turbines from being taken
into account and that the replacement with more powerful turbines was still
described as part of a continuous dealing with the situation in which the
innocent party found itself. That decision can therefore be seen to establish
the principle that where an advantage accrues to a plaintiff from taking action
to mitigate his loss, that advantage must be taken into account in assessing
the loss, if any, to be recovered.
The principle
thereby established has frequently been applied. It was expressly applied by
this court in R Pagnan &Fratelli v Corbisa Industrial
Agropacuaria Limitada [1970] 1 WLR 1306. In that case buyers justifiably
rejected goods on the ground of their defective quality. Negotiations between
the parties ensued and after some months the buyers finally accepted the same
goods from the sellers at a reduced price. It was held that the prima facie
rule for ascertaining the measure of damage in section 51(3) Sale of Goods Act
1893 could not apply in the circumstances because the buyers had in reality
suffered no loss or damage. Salmon LJ (at p1315) said that the buyers in
accepting the same goods at a reduced price did not do so with the motive of
mitigating damages. He continued:
But their
motive or intention does not matter. No one can doubt that they took a
reasonable and prudent and, I would add, an astute course, quite naturally
arising out of the circumstances in which they were placed by the sellers’
breach. It was a course, as the tribunal found, which formed part of a
continuous dealing with the situation in which they found themselves and was
not an independent or disconnected transaction. And it in fact extinguished the
loss which they would otherwise have suffered … As a result of this dealing,
looked at as a whole, the buyers, notwithstanding the sellers’ breach, made a
profit and no loss. To allow the buyers’ claim would in my view be contrary
alike to justice, common sense and authority.
In reaching
that conclusion in a case involving the sale of goods where there was an
available market, this court distinguished cases where the prima facie
rule of section 51(3) (viz the measure of damages is to be ascertained
by the difference between the contract price and the market price of the goods
when they ought to have been delivered) and the corresponding rule in section
53(3) ibid, where the buyers are at fault, are applied. It also
distinguished the cases where the same principles are by analogy applied to the
sale of shares for which there is an available market. The assumption
underlying the prima facie rule is that the innocent party can and
should act immediately upon the breach and buy or sell the goods (or shares) in
the available market. The same assumption cannot be made in the case of
negligence or some other breach of contract or tort affecting the sale or purchase
of land, where the right of action may not be known until long after the
arising of the cause of action and there is unlikely to be an available market
in the Sale of Goods Act sense.
The reason why
the British Westinghouse principle does not apply to profits
subsequently received by the innocent buyers or sellers is that the profits are
independent of any act of mitigation: see McGregor op cit paras 336-340,
Benjamin on Sale of Goods 4th ed (1992) para 16-046 and the similar
statement by the same author in Chitty on Contracts 27th ed (1994) para
26-056. Thus where buyers in breach of contract do not accept goods but the
sellers choose not to resell the goods on the date of the buyers’ breach and
retain the goods until a later sale, just as the sellers could not make the
buyers liable for additional loss had the market fallen after the date of the
breach, so the sellers are entitled not to account for any profit they make on
the later sale. The decisions to retain and subsequently sell the goods are
independent of the breach. The Sale of Goods Act rules were based on cases
decided prior to the 1893 Act, such as Jones v Just (1868) LR 3
QB 197, to which Hirst LJ referred in his judgment. That case is silent on the
reasoning underlying the acceptance by the Court of Queen’s Bench (which
included Blackburn J) of the correctness of the direction of Blackburn J as the
trial judge to the jury which in effect gave the innocent buyers, to whom damaged
hemp had been delivered, the benefit of the rise in the market between the date
of breach and the subsequent sale by the buyers. But it may be inferred that
similar reasoning applies, viz that the benefit does not arise from any
act of mitigation and so is irrelevant in assessing damages: see McGregor op
cit para 379, Benjamin op cit para16-046 and Chitty op cit
para 26-056. Similarly advantages gained by a plaintiff from another
independent transaction, such as an insurance contract entered into before the
breach or wrong, cannot be taken into account: see, for example, Bradburn v
Great Western Railway (1874) LR 10 Exch 1. As is said in McGregor op cit
para 328, in the nature of things, actions taken before breach cannot be
within the British Westinghouse principle, since the action must arise
out of the consequences of the breach of duty.
Two cases are
relied on in particular by Mr Johnson for the plaintiffs. One is Daisley v
BS Hall & Co (1972) 225 EG 1553, on the basis of which the Judge
decided the present case. In that case a surveyor in 1968 negligently failed to
warn the plaintiff, the intending purchaser of a house, of the risk to the
house caused by a shrinkable subsoil and the presence of poplars close to the
house. Bristow J found that applying the Philips v Ward measure
of damages the loss was £1,750. The plaintiff had, on advice in 1969, removed
the poplars and the risk of damage became negligible by the date of the trial
in 1972. Bristow J refused to reduce the damages to take account of that fact.
He said (at p1557):
What is sauce
for the goose is sauce for the gander, and if [the plaintiff] would never be
entitled to recover more than £1,750, as Philips v Ward appears
to me clearly to establish, it must follow that he will never be entitled to
recover less …
While Philips
v Ward establishes that the measure of damages is the price paid less
the market value of the property at the date of the breach, even though the
cost of repairing the property may be greater or smaller than that, it does not
follow that the rules of mitigation can never apply to such a case. That would
be contrary to the British Westinghouse principle. Indeed as Mustill LJ
pointed out in Hussey v Eels [1990] 2 QB 227, at p233, any
generalisation that where a loss has crystallised in terms of there being a
conventional measure of damages at the date of breach, there can be no
mitigation is shown by the Pagnan case to be unsound. For my part I
cannot see why the advantage accruing from the action of the plaintiff in that
case to mitigate his loss, viz the elimination of the risk to the house
by the felling of the poplars, should be left out of account in arriving at the
award of damages and there is nothing in Philips v Ward to compel
such a result. In my judgment, the Daisley case was wrongly decided.
The second
case relied on by Mr Johnson is Hussey v Eels. In that case the
defendant vendors of a property on which there was a bungalow made a
misrepresentation to the plaintiffs that the building had not been the subject
of subsidence. In reliance thereon the plaintiffs purchased the property in
February 1984. They lacked the means to pay the cost of repairs. They applied
for planning permission to build two buildings elsewhere on the land and in
October 1986 sold the property with planning permission to developers at a
profit of £25,000. In their action for damages for misrepresentation the trial
judge dismissed their claim on the ground that the profit had wiped out the
initial loss. But this court allowed the appeal of the plaintiffs. The argument
of the defendants to which most attention was paid by Mustill LJ (giving the
only reasoned judgment of the court) was that when the plaintiffs’ dealings
were regarded as a whole it could be seen that they had suffered no loss. He considered
the authorities from British Westinghouse to Pagnan and said that
none presented a true analogy. He continued (at pp239, 240):
The
plaintiffs are not claiming a conventional prima facie measure of damages, as
with a sale of goods or shares: they really suffered the loss claimed, for they
would have had to pay the cost of repairs if they had remained permanently in
residence. On the other hand the later transaction did not flow inexorably from
the first, as was the case in Pagnan.
After further
explanation why none of the authorities provided a direct solution to the
problem in the case before him, Mustill LJ said (at p241):
Ultimately,
as with so many disputes about damages, the issue is primarily one of fact. Did
the negligence which caused the damage also cause the profit — if profit there
was? I do not think so. It is true that in one sense there was a causal link
between the inducement of the purchase by misrepresentation and the sale 21/2
years later, for the sale represented a choice of one of the options with which
the plaintiffs had been presented by the defendants’ wrongful act. But only in
that sense. To my mind the reality of the situation is that the plaintiffs
bought the house to live in, and did live in it for a substantial period. It was
only after two years that the possibility of selling the land and moving
elsewhere was explored, and six months later still that this possibility came
to fruition. It seems to me that when the plaintiffs unlocked the development
value of their land they did so for their own benefit, and not as part of a
continuous transaction of which the purchase of land and bungalow was the
inception.
Mr Johnson,
basing himself on Mustill LJ’s words, submitted that when the plaintiff suffers
loss in the form of a diminution in value in consequence of the purchase of a
property in reliance on the negligent advice of a surveyor, that loss is not
subsequently avoided by a subsequent action of the plaintiff affecting the
amount of the diminution in value or remedying the defect unless that
subsequent action of the plaintiff: (1) flows inexorably from the original
transaction; (2) can properly be seen as part of a continuous course of dealing
with the situation in which the plaintiff finds himself as a consequence of the
negligence; and (3) goes to the same loss.
I preface my
comments on this submission by observing that there is a danger in elevating a
particular description of a factual situation in a judgment in a particular
case to a general principle.
The first
condition suggested by Mr Johnson is taken from what Mustill LJ said when
distinguishing Pagnan from the case before him. I cannot accept that
thereby he was laying down a condition for the application of the principle of British
Westinghouse, nor has he been understood by any text-book writer as so
doing. I would add that in Pagnan the subsequent purchase only flowed
inexorably from the original transaction in the sense that it formed part of a
continuous dealing with the situation in which the buyers found themselves; the
buyers chose to sell as one of the options open to them.
The second
condition is again a statement of the factual situation described in British
Westinghouse and Pagnan. It serves to illustrate what, in my
judgment, is a more general principle. As is stated in McGregor op cit at
para 336, the basic rule is that the benefit to the plaintiff, if it is to be
taken into account in mitigation of damage, must arise out of the act of
mitigation itself. Similarly in Benjamin op cit 16-046:
The benefit
to the plaintiff must arise out of his attempts to mitigate his
potential loss resulting from the breach: if it arises from his actions which
were independent of his mitigating steps, it should not lead to a reduction in
his damages.
See also Chitty
op cit para 26-055. In Hussey v Eels the obtaining of
planning permission and the sale with that permission meant that the benefit
arose from actions independent of mitigation. As one commentator (AJ Oakley
(1980) 49 CLJ at p396) has observed, the key to the conclusion reached by this
court in that case appears to have been the fact that the plaintiffs had had to
wait a considerable time and engage in a considerable effort in order to obtain
the planning permission which was a prerequisite of any resale. Mr Oakley suggested
that the result reached in Hussey v Eels was likely to prove to
be the exception rather than the rule and that it was probable that a
profitable resale by a party claiming damages would normally have to be taken
into account when those damages were being assessed. I agree that Hussey
v Eels was an exceptional case, turning on its special facts. Similarly
in Hodge v Clifford Cowling & Co [1990] 2 EGLR 89 (in which
through the defendant solicitors’ negligence the plaintiff tenants lost the
right to apply to the court for a new tenancy, but subsequently purchased other
larger premises from which they traded) this court held that, like the planning
permission in Hussey v Eels, that purchase was a fortuitous
opportunity the advantages of which the plaintiffs were entitled to keep.
Bingham LJ at p93 accepted that if it were shown to be a fact that the
plaintiffs acted in a manner which, although independent of the plaintiffs’
negligence, had the effect of mitigating their loss, it might be proper to take
account of that fact.
As for the
third condition, I accept that the action must go to the same loss in the sense
that (to use the words of Mr Johnson’s own premise) it must affect the amount
of the diminution in value or remedy the defect.
The common
sense of the situation in the present case is that once the plaintiffs were
aware that they had purchased a structurally defective property of less value
than the price they had paid as a result of the defendants negligence, they
sensibly and promptly took steps to eliminate their loss by procuring the
remedying by the freeholder of the defect. That seems to me plainly an act of
mitigation resulting in a benefit to the plaintiffs which eliminated their
loss. I repeat what the judge said, that they have a rectified property worth
the equivalent of what they had paid for it without any extra cost to them. The
significant point is that this occurred as a result of the pressure applied to
the freeholder by the plaintiffs. To take an example suggested by Mr Brunner,
if the plaintiffs had sued both the freeholder under the Defective Premises Act
1972 and the defendants in negligence in the same action they could not expect
to recover damages in full from the freeholder as well as damages in full from
the defendants. Once the property had been put in repair at no cost to the
plaintiffs, in my judgment, they cannot be allowed to obtain double recovery by
an award of damages against the defendants. To adapt the words of Salmon LJ in Pagnan,
to allow the plaintiffs’ claim would be contrary to justice, common sense and
the British Westinghouse principle.
For my part,
therefore, I would allow this appeal on Mr Brunner’s second point.
Agreeing with
Hirst LJ that the appeal should be dismissed Pill LJ said: On the first point in the appeal, I agree
with Hirst LJ and Peter Gibson LJ. Mr Taylor adopted the residual method of
valuation because he considered that potential purchasers seeking a house to
live in would not have been prepared to purchase a property with the structural
defect which was present. The residual valuation was based upon the calculation
a property developer would make with the object of obtaining a return on an
investment in the property. The judge was entitled to accept Mr Taylor’s
evidence as to the appropriate method of valuation and as to the figure which,
subject to adjustment, was reached.
I find the
second point more difficult. If the plaintiffs succeed, there is double
recovery in the sense that they retain damages based on the failure of the
chartered surveyor to detect a structural defect in 1985 which was rectified in
1990 without cost to them. It is common ground that while the approach to the
question whether damages are payable in a particular case must be principled,
there are dangers in elevating a decision of fact into a statement of
principle. There are dangers in attempting statements of principle in this
branch of the law and cases will often be determined upon questions of fact. In
the present case, for example, had the plaintiffs found it necessary to sell
the property, with defect, for the best price they could obtain in 1988 there
is no doubt that they could have obtained damages upon the Philips v Ward
basis. Had there been such a dramatic improvement in the property market that
they could have sold the property at a substantial profit even with the defect,
they would not ordinarily have had to set off that profit against the Philips
v Ward loss. The windfall would have resulted from the state of the
market. On the other hand, had the tortfeasor himself rectified the defect
before completion in 1985, it would have been difficult to sustain a Philips
v Ward claim. Whether that claim can be sustained depends on the actual
sequence of events and the facts found. In the event, the tortfeasor seeks to
take advantage of action taken under a contractual obligation in a contract to
which he was not a party. Had the sale to the plaintiff been of the freehold,
no such contractual obligation would have arisen and the sequence of events
must have been different.
In Admiralty
Commissioners v SS Chekiang (The Chekiang) [1926] AC 637 Lord Sumner
stated at p643 that:
The measure
of damages ought never to be governed by mere rules of practice, nor can such
rules override the principles of law on this subject.
The defendants
rely upon the statement of principle by Viscount Haldane LC in British
Westinghouse Electric Co Ltd v Underground Electric Railways of London
Ltd [1912] AC 673 at p689:
when in the
course of his business [the plaintiff] he has taken action arising out of the
transaction, which action has diminished his loss, the effect in actual
diminution of the loss he has suffered may be taken into account even though
there was no duty on him to act.
At the end of
his speech Lord Haldane stated that the increase in the power of the
replacement turbines in that case
formed part
of a continuous dealing with the situation in which they [the plaintiffs] found
themselves, and was not an independent or disconnected transaction.
That there may
be situations in which what may be regarded as double recovery can occur is
clear. In Bradburn v Great Western Railway (1874) LR 10 Exch 1,
an injured plaintiff who was unable to work and sustained damage, did not have
to deduct a payment to him under a policy of insurance against accidents.
Pigott B stated at p3:
The plaintiff
is entitled to recover the damages caused to him by the negligence of the
defendant and there is no reason or justice in setting off what
which he has bargained for the payment of a sum of money in the event of an
accident happening to him. He does not receive the sum of money because of the
accident but because he has made a contract providing for the contingency; an
accident must occur to entitle him to it, but it is not the accident, but his
contract, which is the cause of him receiving it.
Bradburn was applied in the House of Lords, by a majority, in Parry v
Cleaver [1970] AC 1 where it was held that a police pension should be
ignored in assessing the financial loss of a police constable injured in a road
accident.
The facts in Bradburn
and in Parry are of course very different from those in the present case
but at common law the same principles should govern questions of mitigation and
remoteness whatever the context. The cases do illustrate that there may be
exceptions to the broad general principle which governs the assessment of
damages namely that ‘A successful plaintiff is entitled to have awarded to him
such a sum as will, as far as possible, make good to him the financial loss
which he has suffered and will probably suffer as a result of the wrong done to
him for which the defendant is responsible’: Lord Reid in British Transport
Commission v Gourley [1956] AC 185 at p212. Lord Reid added that the
general principle was subject to one qualification namely that: ‘A loss which
the plaintiff has suffered, or will suffer, or a compensatory gain which has
come or will come to him following on the accident, may be of a kind which the
law regards as too remote to be taken into account’.
Gourley was also a personal injury case and the issue was whether the tax
position should be taken into account in the assessment of damages. At p214
Lord Reid stated:
I do not
think that it is possible to formulate any principle by which it can be
determined what is and what is not too remote. Mayne on Damages, 11th ed, p151,
refers to ‘matter completely collateral,’ and for a general description of what
is too remote I cannot find better words, but I do not think that every case
can be solved merely by applying those words to it.
Earl Jowitt
stated, at p199:
In all such
cases the real issue seems to be whether the facts relied upon as affecting the
measure of damages are too remote to be taken into consideration.
Lord Pearson
dissented in Parry, believing that the tax position should have been
taken into account. In his review of the authorities upon the proper method of
assessing damages, Lord Pearson cited at p50 the judgment of Andrews LCJ in Redpath
v Belfast & County Down Railway [1947] NI 167 where a voluntary fund
was established to relieve the distress of passengers injured on the railway.
Andrew LCJ stated at p172:
The important
consideration, to my mind, common to all these cases, is that the circumstance
relied upon in mitigation of damages arose independently of the cause of
action, and was not naturally attributable to it. Whilst admittedly a sequence
it was not a consequence. It arose really as the result of a novus actus
interveniens, and was not the outcome of the relations between the
plaintiff and the defendants which gave rise to the cause of action. The
defendants’ wrongful act may in each case have been a causa sine qua non,
but in no true sense was it the causa causans of the circumstances
relied upon in mitigation of damages. In the present case the causa causans
of the Fund was not the accident, but the bounty or charitable motives of the
subscribers.
The defendants
submit that the plaintiffs having required the freeholder to meet his
contractual obligation to them to rectify the defect, a reasonable action in
the circumstances, they can, in the words of Lord Haldane in British
Westinghouse, take into account the ‘diminution of the loss’ resulting from
that action. In British Westinghouse, Lord Haldane distinguished Bradburn,
which he described as a case from a quite different class, on the ground that:
‘The reason of the decision was that it was not the accident, but a contract
wholly independent of the relation between the plaintiff and the defendant,
which gave the plaintiff his advantage’. However, in my view, Lord Haldane had
in mind the Bradburn class of case when categorising the plaintiffs’
conduct in British Westinghouse, to which the principle he stated
applied, as forming ‘part of a continuous dealing with the situation with which
they found themselves, and was not an independent or disconnected transaction’.
That expression distinguished the approach in British Westinghouse from
that in Bradburn. The expression has been repeated in later cases
including Pagnan v Corbisa Industrial Agropacuaria [1970] 1 WLR
1306 (per Salmon LJ at p1315) and Hussey v Eels [1990] 2
QB 227 (per Mustill LJ at p241).
The facts in
Hussey have been set out by Hirst LJ and Peter Gibson LJ, and Hirst LJ has
set out the relevant parts of the judgments in both cases. In holding that the
negligence which caused the damage did not also cause the profit, Mustill LJ in
Hussey referred to the lapse of time between purchase and sale and to
the fact that the plaintiffs unlocked the development value of the land. That
was done for their own benefit and not as part of a continuous transaction of
which the purchase following misrepresentation was the inception. In
distinguishing British Westinghouse, Mustill LJ said (at p236D) that
‘there was no question of [that] case being concerned with a chain of
disconnected transactions’.
In my
judgment, the present case, on its facts, is on the Hussey side of the
line. Hirst LJ has described the intervening events. Years after the
defendants’ negligence, the freeholders performed their obligation to the
plaintiffs under a contract which the plaintiffs had negotiated with them. That
had the effect of rectifying the damage resulting from the defendants’
negligence. The benefit came by reason of the performance of a contractual
obligation by a third party. The plaintiffs had to undertake protracted
negotiations with that third party and other third parties, the other tenants
in the building. Before that obligation was performed by the freeholder, there
was a considerable lapse of time in the course of which the plaintiffs, because
of the structural defect, were unable to sell the property when they wished to
do so in 1988. In my judgment, the facts relied upon as affecting the measure
of damages are too remote to be taken into consideration and, on the facts, the
judge was entitled to find for the plaintiffs as he did. On the sequence of
events as it occurred, and not as it might have occurred, I do not regard the
decision reached by the judge as contrary either to principle or to common
sense.
I would
dismiss the appeal.
Appeal
dismissed with costs.
