Negligence — House Buyer’s Report and Valuation — Action by buyers of house against firm of surveyors instructed by building society — Condition of electrical wiring — Liability established — Main question related to measure of damages — Normal measure following a negligent valuation difference between what purchaser paid for the property and its value at the date when he obtained it — This approach not, however, invariable — Diminution in value rule not appropriate in present case — Question as to what reduction plaintiffs would have persuaded the vendors to make if properly advised as to the true condition of the electrical wiring
report was made on the RICS House Buyer’s Report and Valuation form and gave a
general description of the house as ‘a very substantial property which appears
basically sound and constructed with quality materials’ — Twelve
recommendations were made for works of repair at further investigation — The
report gave no warning or qualification in regard to the electricity supply and
stated that ‘Electrical wiring is in PVC cable,’ which suggested that the
wiring was modern and gave no cause for concern — In fact, only some of the
wiring was PVC covered; much of it was not and was, indeed, dangerous — A board
in a somewhat inaccessible position exhibited junction boxes of which nearly
half had cables not covered with PVC — Some primitive loose wiring was
connected to lights on doors to clothes cupboards — The combined message of
these indications to the ordinarily careful and skilful surveyor would have
been at the very least that further questions should be asked about the wiring
— A marginal note of a general kind that adequacy of installations could only
be ascertained by a specialist test was not sufficient — The liability of the
defendants was established
paid by the plaintiffs for the property was £200,250, which included fixtures
and fittings — What was the measure of damages?
The normal rule, established by such cases as Philips v Ward, Ford v White & Co
and Perry v Sidney Phillips & Son was that when property is purchased in
reliance on negligent advice from a surveyor the damages should be based on the
difference between what the plaintiff paid for the property and its value when
he obtained it — But, as Bingham LJ pointed out in County Personnel (Employment
Agency) Ltd v Alan R Pulver & Co, this rule is not invariably applicable —
Its application in the present case could have had the result, for which indeed
the defendants argued, that the plaintiffs were entitled to no damages at all,
as they did not buy above the market value (as agreed between the experts) —
The plaintiffs, after some initial hesitation in the pleadings, submitted that
damages should be awarded to them for the loss of the chance to renegotiate the
selling price if armed with the information from a proper survey that the
electrical wiring was defective or at least suspect — The judge held that the
plaintiffs were entitled to damages to compensate them for loss of the
opportunity to negotiate that reduction — If it can be proved that a purchaser,
properly advised, would have been able to buy at a price below the market price
or (as in the case of the present plaintiffs) even further below the market
price, compensation should be given for that loss of opportunity
necessary to consider what was the likely reduction that the plaintiffs would
have been able to persuade the vendors to make if the purchasers had been
advised as to the true state of the electrical wiring — The difference between
the experts showed that such an assessment was somewhat speculative, but the
judge accepted a suggestion from one of the defendants that he would have
expected a renegotiation to have achieved a reduction of £1,500 — The judge
thought that this was somewhat generous to the plaintiffs, but held on that
evidence that the plaintiffs, if properly advised, would have bought the
property for £1,500 less than they paid for it — Damages of £1,500 together
with interest awarded
The following
cases are referred to in this report.
County
Personnel (Employment Agency) Ltd v Alan R
Pulver & Co [1987] 1 WLR 916; [1987] 1 All ER 289, [1986] 2 EGLR 246,
CA
Ford v White & Co [1964] 1 WLR 885; [1964] 2 All ER 755;
[1964] EGD 283; (1964) 190 EG 595
Perry v Sidney Phillips & Son [1982] 1 WLR 1297; [1982] 3 All
ER 705; [1982] EGD 412; (1982) 263 EG 888, [1982] 2 EGLR 135, CA
Philips v Ward [1956] 1 WLR 471; [1956] 1 All ER 874, CA
In this action
Mr and Mrs Howard sued the firm of Horne & Sons, surveyors and estate
agents practising in Hounslow and surrounding areas, for alleged negligence and
breach of duty in carrying out a House Buyers Report and Valuation of a house
called the North Wing, 44 Lower Cookham Road, Maidenhead, Berkshire. The report
was made on the instructions of the Bradford & Bingley Building Society.
Charles Joseph
(instructed by Willmett & Co, of Reading) appeared on behalf of the
plaintiffs; David Trotter (instructed by Lloyd Cooper) represented the
defendants.
Giving
judgment, JUDGE BOWSHER said: In early 1986, the second plaintiff was
pressing her husband to buy a house named the North Wing, 44 Lower Cookham
Road, Maidenhead, Berkshire. She wanted more room for her family, but her
husband was rather hesitant to undertake a move from a house which had cost him
about £50,000 into a house costing about £200,000. The second plaintiff knew
about the house because the woman of the house was a friend of a friend. The
house was never put on the open market and the plaintiffs bargained for it
privately.
The house is a
substantial house, built in the late 19th century, standing in an attractive
area. The first plaintiff, who is a car dealer, first viewed the property in
about February 1986. The asking price was £205,000. On that first view, he
asked the vendors if they would take £200,000. They refused, but offered a
price of £202,500. The plaintiffs did not accept or reject that price, but did
instruct the defendants to make a survey.
The defendants
are surveyors practising in Hounslow and the surrounding areas. Sometimes they
undertake surveys in the Maidenhead area. The defendants act for the Bradford
& Bingley
buy the property. The building society instructed the defendants to make a
valuation of the property for their purposes. The plaintiffs wanted more in the
way of a survey and, through the building society, they asked the defendants to
provide them with what Mr M Rixon [FRICS], of the defendants, described as a
‘House Buyer’s Report’. Mr Rixon said that that was something less than a full
structural survey.
The precise
definition of what the defendants undertook to do for the plaintiffs remains
unclear. However, it is clear that certain terms relied on by the defendants as
limiting their liability were never incorporated into any contract between the
plaintiffs and the defendants. What the defendants proffered to the plaintiffs
is clear from the terms of their report.
On June 25
1986, Mr Rixon of the defendants inspected the property, and he sent to the
plaintiffs a report bearing the same date on the Royal Institution of Chartered
Surveyors’ form of House Buyers Report and Valuation (2nd ed). In the
introduction to the report it is said:
The
inspection is to provide a report on the general state of repair of the
property described below. It is not a structural survey, but a report by a
chartered surveyor on those matters expressly set out in this report, together
with valuation advice.
In that
report, the defendants described the property as: ‘A very substantial property
which appears basically sound and constructed with quality materials.’ The defendants made 12 recommendations for
works of repair or further investigation and stated that, taking those matters
into account, the market value was £195,000.
The defendants
gave no warning or qualification with regard to the electricity supply, and on
the contrary stated: ‘Electrical wiring is in PVC cable’. This case has been
conducted on the basis that that statement would mean to the plaintiffs that
the wiring was modern and that there was no cause for concern about it.
The statement
about the wiring was qualified by a marginal note:
Services:
These have only been inspected visually where they were accessible and tests
have not been applied. Standards and adequacy of installations can only be
ascertained as a result of a test by an appropriate specialist.
It is common
ground that the statement about the wiring was wrong. Some of the wiring, in
particular the wiring to the kitchen, was PVC covered but much of the rest was
not and was indeed dangerous. Acting on advice, the plaintiffs had the whole
system rewired at a cost of £5,618 and incurred further costs of £893.65 in
making good after rewiring. The plaintiffs acted entirely properly and
reasonably in having the work done. There is some disagreement among the
experts as to the reasonableness of the charges but it is unnecessary for me to
consider that issue.
Two questions
arise for consideration. Are the defendants liable to the plaintiffs? If so, what is the measure of damage?
Photographs
taken at the premises record certain features which would show to anyone with a
reasonable awareness of building features (whether a surveyor or not) that the
wiring at the property might, or might not, be a mixture of old and new. There
was a 5 amp power socket which appeared to be connected to PVC wiring. Some
wiring went through old steel conduits. There was what appears to be a 2 amp
socket in a skirting board. There was an old-style switch near a hot-water tank
and an old steel mains switch. Some primitive loose wiring fed lights on doors
to clothes cupboards.
I find that
the cumulative message of all these matters to the ordinarily careful and
skilful surveyor would have been that at the very least questions should be asked
about the wiring. I was not impressed by points made about the wiring which was
certainly in part and probably wholly the property of Southern Electricity
Board in the vicinity of the meter. But a most important part of the evidence
concerned a board on which were mounted a number of junction boxes. Most of
those junction boxes had PVC cable at one side and some other cable at the
other. That board was in a position which was not easily accessible in a small
tunnel through which one could crawl under the floor. Mr Rixon, of the
defendants, did in fact crawl through this space and did see the board with the
aid of a torch, but he did not see or appreciate that nearly half the cables on
the board were not covered with PVC. It was not easy for Mr Rixon to make a
proper examination, but I find that in the light of what was easily seen in the
rooms of the house, he should have made sure that he overcame the difficulties
of bad light and dust so as to identify what was the wiring on that board
before telling the prospective purchasers, wrongly, that the wiring was in PVC
cable.
I find that
the defendants were in breach of contract with the plaintiffs and were also in
breach of the duty of care in tort towards them.
I turn to
consider the measure of damages.
In the
statement of claim (not pleaded by Mr Charles Joseph who appeared for the
plaintiffs at the trial) the damages claimed were the total costs of rewiring
and consequential damage. From the outset, Mr Joseph conceded that that claim
was unsustainable in the light of the authorities, and in particular Perry
v Sidney Phillips & Son [1982] 1 WLR 1297.* That concession was in my view wholly right.
Reasons why the costs of repair may or may not be a useful guide to the measure
of damage were given by Morris LJ in Philips v Ward [1956] 1 WLR
471 at p 473. The claim as originally pleaded would have been sustainable only
if the defendants had warranted that the wiring in the property was PVC cable,
and plainly no such warranty was given by the defendants. It is important to
bear in mind that the vendors did not give any such warranty either. Mr Joseph
did, however, have some difficulty in formulating his claim. In opening, Mr
Joseph asked for leave to amend to claim the diminution in value, being the
difference between the price paid and the true value of the property, namely,
|
Price paid |
£200,250 |
|
True value |
£197,000 |
|
£3,250 |
I directed that the proposed amendment should be put in writing. Two
drafts were put forward successively claiming £3,000 diminution in value
without explanation of the basis of the claim, and then a written draft was
tendered reverting to the basis put forward in opening. I gave leave for an
amendment of the statement of claim in those terms.
*Editor’s
note: Also reported at (1982) 263 EG 888, [1982] 2 EGLR 135
However, it
appeared from Mr Joseph’s closing speech that what he was really contending for
was damages for loss of a chance to renegotiate the selling price armed with
the information that the wiring was defective or at least suspect. Mr Trotter,
on behalf of the defendants, was content that the plaintiffs’ case should be
put forward on that basis.
It seems to me
that in principle the plaintiffs are entitled to formulate their claim in that
way if the evidence supports it.
Perry v Sidney Phillips & Son [1982] 1 WLR 1297 was a case in
which the plaintiff was misled by a negligent surveyor’s report into paying
more for a property than it was actually worth. At p1304G Oliver LJ said:
I therefore
am of the same view as Lord Denning MR that the right measure of damage is the
measure suggested in both Philips v Ward [1956] 1 WLR 471 and Ford
v White [1964] 1 WLR 885, which is simply the difference between what
the plaintiff paid for the property and its value at the date when he obtained
it.
In the same
case, Kerr LJ approved a similar statement by Pennycuick J in Ford v White
& Co.
On the basis
of that authority, Mr Trotter, on behalf of the defendants, argued that the
plaintiffs were entitled to no damages because they were not misled by the
report into buying above the market value. The factual basis for this
submission was that it was agreed between experts that the defendants’
valuation was about right for the property in the state which he described,
disregarding fixtures and fittings, and there was contained in the price paid
by the plaintiffs an element attributable to fixtures and fittings valued by
the first plaintiff at about £5,000 to £7,000. The price paid by the plaintiffs
in the end was £200,250, inclusive of fixtures and fittings, and, submits
counsel for the defendants, if the fixtures and fittings element is deducted,
the price paid is less than the valuation given in the negligent report;
therefore the plaintiffs were not misled and suffered no damage. I agree with
that submission as to the facts but not as to the conclusion.
For the
plaintiffs on the other hand, it was submitted that they did suffer damage in
that they lost the opportunity to rely on the defective wiring in bargaining
about the price.
The plaintiffs
did use what was in the report to bargain the price down from £202,500 to
£200,250, a reduction of £2,250. That reduction was achieved on the basis of
the 12 recommendations in the report. Mr Howard admits that he knows nothing
about property
reduction he could.
It is not
clear what would have been the cost of complying with all the 12
recommendations, but it would certainly have been substantially more than the
reduction of £2,250. Mr Howard had a budget of £10,000 for improvements to the
property, but these included matters outside the 12 recommendations, and on the
other hand he did not intend to put all the 12 recommendations in hand at once.
If the report
had made reference to the true state of the electric cabling, I have no doubt
that Mr Howard would have used that information to secure a further reduction
in the price. In the absence of evidence from the vendors, it is difficult to
ascertain what reduction is likely to have been obtained.
It is a
considerable tribute to Mr Howard’s powers as a negotiator that in a strongly
rising market he was able, at the end of June 1986, after receiving the
defendants’ report, to negotiate a reduction of a price offered in February
1986. He demonstrated that ability again in July 1987 when he sold the house
privately at a price of £275,000, inclusive of curtains and carpets, at a time
when, according to Mr Paul Coombe [FRICS] (the expert called for the
defendants), the market value of the house was £235,000, exclusive of fixtures
and fittings.
In the
circumstances, I think it likely that Mr Howard would have negotiated a further
reduction in the price he paid for the house if he had been told the true state
of the wiring by the defendants.
I also take
the view that the plaintiffs are entitled to damages to compensate them for
loss of the opportunity to negotiate that reduction. I reject Mr Trotter’s
submissions as to the effect of Perry v Sidney Phillips & Son.
Oliver and Kerr LJJ stated the measure of damages where the plaintiff was
persuaded by negligent advice to buy property at more than its true market
value. They did not say that it was only in those circumstances that any damages
at all should be payable to a purchaser who acted in reliance on a negligent
surveyor’s report.
Usually, where
property has been bought in reliance on negligent advice from a surveyor, the
damages will be calculated by reference to the diminution in value, but that is
not an invariable rule. If it be proved that the plaintiff, if properly
advised, would have been able to buy at a price below the market value (or, in
this case, even further below the market value) then he should be compensated
for the loss of that opportunity.
In a
solicitor’s negligence action, County Personnel (Employment Agency) Ltd
v Alan R Pulver & Co [1987] 1 WLR 916 at p 925*, Bingham LJ stated
eight principles to be applied in assessing damages. The first three of those
are of particular relevance in this case and are:
(1) The overriding rule was stated by Lord
Blackburn in Livingstone v Rawyards Coal Co (1880) 5 App Cas 25,
39, and has been repeated on countless occasions since: the measure of damages
is
that sum of
money which will put the party who has been injured, or who has suffered, in
the same position as he would have been if he had not sustained the wrong for
which he is now getting his compensation or reparation.
. . .
(2) On the authorities as they stand, the
diminution in value rule appears almost always, if not always, to be
appropriate where property is acquired following negligent advice by surveyors.
Such cases as Philips v Ward [1956] 1 WLR 471; Pilkington
v Wood [1953] Ch 770; Ford v White & Co [1964] 1 WLR
885 and Perry v Sidney Phillips & Son [1982] 1 WLR 1297, lay
down that rule and illustrate its application in cases involving both surveyors
and solicitors.
(3) That is not, however, an invariable approach,
at least in claims against solicitors, and should not be mechanistically
applied in cases where it may appear inappropriate . . .
*Editor’s
note: Also reported at [1986] 2 EGLR 246 at p 249 H.
Bingham LJ
gave examples of cases where the diminution in value rule was not appropriate
in actions against solicitors, and the present case is an example of a case
where it is not appropriate in an action against a surveyor.
I turn to
consider what on the probabilities would have happened if the defendants’
report had been made carefully rather than negligently. I accept the evidence
of Mr Keith Thompson, chartered surveyor, of Hunt & Nash, called as an
expert on behalf of the plaintiffs, that a reasonably competent and careful
surveyor would have reported that although some wiring had been replaced by
modern wiring, there was evidence of old wiring in use and it would be
advisable to instruct an electrician to make a survey and to do whatever work
was recommended by the electrician.
When asked
what he would have done if he had been given such advice, Mr Howard expressed
doubts as to what might have been his likely course of action. He then said
that he would have got a quotation or had the matter investigated.
Having regard
to what he did in relation to the recommendations which were in the report, I
am in no doubt that Mr Howard would have found an electrician who was a friend
of a friend or a friend of a business associate to look at the house and give a
price for putting the wiring right, and having got that price he would have
used it to try to get the price of the house reduced. He said in evidence that
if he had known that he would be faced with costs of £5,000 to £6,000 he might
not have bought the house. I am sure that he would have had doubts, but given
his wife’s wish to have the house and the rising market, I am also sure that he
would have bought in any event.
It is now
necessary to consider what is the likely reduction that the plaintiffs would
have persuaded the vendors to make if the plaintiffs had been told of the true
state of the electric wiring.
Mr Thompson,
the plaintiffs’ expert, said that if the plaintiffs had been fully advised of
the facts with regard to the wiring, he would expect that they could have
negotiated a reduction in price of £2,500 to £3,000. On the other hand, Mr
Coombe, the defendants’ expert, who lives locally in Bourne End and has his
office in High Wycombe and is clearly in touch with the local market, said that
a prudent purchaser, if he knew of the defects, would have tried to negotiate a
reduction in price. But a prudent vendor in those market conditions would have
rejected the attempt. Mr Rixon himself said that he would have expected a
renegotiation to have achieved a reduction of £1,500. I regard that statement
as somewhat generous towards the plaintiffs, but since it was made by the
partner of the defendants most concerned in this matter, I think that I should
accept it.
On that
evidence, I find that on the balance of probabilities the plaintiffs, if properly
advised, would have bought the property for £1,500 less than they in fact paid
and they are entitled to recover damages in that amount together with interest.
