Vendor and purchaser — Negligent misrepresentation — Damages — Subsidence — Measure of damages — Mitigation of damage — Profit made by purchasers of defective bungalow on resale — Whether under doctrine of mitigation of damage or on other principles purchasers’ profit should be applied to offset loss caused by vendors’ negligence — Questions of causality and continuous dealing — Review of authorities — Appeal from decision of county court judge who held that windfall from proceeds of resale wiped out purchasers’ loss
of liability arose on appeal but solely question of damages — Vendors had
negligently informed purchasers of bungalow that property had not to vendors’
knowledge been subject to subsidence and purchasers had relied on this
misrepresentation — The purchase was completed at the price of £53,250 —
Shortly after purchase evidence of subsidence appeared — Necessary repairs
would have cost an estimated £17,000 and required the vacation of the bungalow
for two or three months — Purchasers did not have sufficient money to do this
and they decided instead to build another residence in the existing garden — On
their third application planning permission was given for the building of one
bungalow and one chalet bungalow after the demolition of the existing property
— Eventually, more than 2 1/2 years after the completion of their purchase,
they sold the land with planning permission to developers for £76,094.47 — In
the meantime the purchasers had commenced an action for damages against the
vendors — After some abortive pleadings the effective claim made by the
purchasers was for £17,000, being the difference between the price paid,
£53,250, and the actual market value at the date of completion, £36,250 — The
county court judge held, as mentioned above, that the resale at a price much
above what the purchasers had paid nullified their prima facie right to
recovery
vendors’ case was put on two grounds — The first was that the purchasers owed
the vendors a duty to mitigate the loss and the result of this mitigation was
to be taken into account in computing the damages — The second was the broader
proposition that, whether the resale was a mitigation or not, when the
purchasers’ dealings were regarded as a whole, it was clear that they had
suffered no loss — The first proposition was firmly rejected by the Court of
Appeal — In their view the suggestion that the purchasers were under an
obligation to spend more than two years in applying for planning permission
and, having obtained it, were under a further duty to move out of their house
and buy something else had only to be stated to be dismissed — The second
proposition was more formidable and led Mustill LJ to review a number of
authorities and to consider first principles
below had relied on the decision in the Westinghouse case, where Viscount
Haldane LC in his classic speech distinguished between ‘continuous dealing’ and
‘an independent or disconnected transaction’ — Was the correct course in the
present case to look at the purchasers’ position as at the end of a continuous
chain of transactions consisting of purchase, resale and fresh purchase, in
which case it would be necessary to send the case back to the county court for
a further investigation of figures? — There had been a difference between
experts as to whether the cost of a
authorities cited in argument, in addition to the Westinghouse case, but none
of them presented a true analogy or provided a direct solution — Ultimately the
matter was primarily one of fact, although it involved an application of the
difficult concept of causality — Did the negligence which caused the damage
also cause the profit?
there was a linkage, in a loose sense causal, between the inducement of the
purchase by misrepresentation and the sale two and a half years later, as the
sale represented one of the options with which the purchasers were presented —
However, the purchasers bought the bungalow 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 that
this possibility was realised — This hardly qualifies as a direct causal
connection — When the purchasers unlocked the development value of their land
the truth was that they did so for their own benefit and not as a part of a
continuous transaction which began with the original purchase of the bungalow
and land — The proper measure of damages was, as put forward in the amended
claim, the difference between the contract price and the market value of the
property in its unsound condition, quantified as £17,000 — Appeal allowed
The following
cases are referred to in this report.
Andros
Springs (Owners) v World Beauty (Owners); World
Beauty, The [1969] 3 WLR 110; [1969] 3 All ER 158; [1969] 1 Lloyd’s Rep
350; [1970] P144, CA
Bellingham v Dhillon [1973] QB 304; [1972] 3 WLR 730; [1973] 1 All ER
20
British
Westinghouse Electric & Manufacturing Co Ltd v Underground
Electric Railways Co of London Ltd [1912] AC 673
Jamal v Moola Dawood Sons & Co [1916] AC 175
Joyner v Weeks [1891] 2 QB 31
Marder v Sautelle & Hicks [1988] 2 EGLR 187; [1988] 41 EG 87,
CA
Nadreph
Ltd v Willmett & Co [1978] 1 WLR 1537;
[1978] 1 All ER 746
Pagnan
(R) & Fratelli v Corbisa Industrial
Agropacuaria Limitada [1970] 1 WLR 1306; [1971] 1 All ER 165; [1970] 2
Lloyd’s Rep 14, CA
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
Stamforth v Lyall (1830) 7 Bing 169
This was an
appeal by Christopher Sydney Hussey and Veronica Anne Hussey from a decision by
Judge MacManus, at Brighton County Court, in favour of Wilfred Owen Eels and
Rachel Eels, defendants in an action by Mr and Mrs Hussey for damages in
respect of a negligent misrepresentation concerning the condition of a bungalow
at Farnham, Surrey, purchased by the appellants.
G W Roddick QC
and David Fisher (instructed by Stoneham Langton & Passmore) appeared on
behalf of the appellants; Michael Burton QC and Timothy Higginson (instructed
by Griffith Smith Dodd & Riley, of Brighton) represented the respondents.
Giving
judgment, MUSTILL LJ said: This appeal stems from a claim by Mr and Mrs
Christopher Hussey against Mr and Mrs Wilfred Eels to recover damages in respect
of a negligent misrepresentation. When the matter was before His Honour Judge
MacManus in the Brighton County Court he was called on to decide several
contested issues of fact and an interesting question of law concerning the
effect of the Unfair Contract Terms Act 1977 on condition 7 of the Law
Society’s General Conditions of Sale. None of these matters arise on the
present appeal. Liability is no longer in issue, and we are concerned only with
the conclusion of the judge that the action must be dismissed because the
plaintiffs have suffered no recoverable damage. I may, therefore, state the
facts very briefly.
For many years
until the beginning of 1984 the defendants had lived in a bungalow at Farnham,
Surrey. The nature of the underlying ground was such that the building suffered
from subsidence. At the end of 1983 the defendants commenced negotiations for
the sale of the bungalow to the plaintiffs, whose solicitors served the
customary inquiries before contract. Additional inquiry no 2 read as follows:
Please
confirm to the Vendor’s knowledge that the property has not been subject to the
following matters: . . . (c) subsidence.
The response
was: ‘Confirmed’. In due course the transaction went ahead, and on February 7
1984 the purchase and sale was completed at a price of £53,250.
The learned
judge has found that the untrue statement given on the defendants’ behalf in
the response to inquiry no 2 was made negligently and that the plaintiffs
relied on this statement when deciding to purchase the bungalow.
Resuming the
story, it was not long before the plaintiffs discovered that there was
something badly wrong with the house. They had wanted to carry out a roof
conversion but their builder advised them of the subsidence, and they formed
the view that they could not live there without measures to stabilise the
foundations. This would have required them to vacate the house for two or three
months and to pay a sum estimated at £17,000 as the cost of necessary work.
They did not have sufficient money to permit this to be done, so they decided
to build another residence in the existing garden. Accordingly, within a few
months of the purchase they made a planning application to erect another
building. This was refused on August 9 1984, essentially on the ground that
this would lead to overcrowding. A second application was refused six months
later. The plaintiffs then reformulated their application so as to permit the
erection of one new bungalow and one new chalet bungalow after the demolition
of the existing bungalow. This time the application was successful, permission
being granted on August 18 1986. The plaintiffs then set about finding buyers
for the land with planning permission, and by October 1986 they had sold it to
developers for a price of £76,094.47. The purchasers were going to pull down
the bungalow and build on the land, so the question of repair was no longer
relevant.
Meanwhile, in
January 1986 the plaintiffs had commenced their action in the High Court: it
was subsequently transferred to the county court. In its original and amended
form the statement of claim contained no particulars of damage. These were,
however, requested and in response the plaintiffs pleaded as follows:
The value of
the freehold land and bungalow known as Oakwood had it not suffered from
subsidence is £80,000. The plaintiffs in an attempt to mitigate their loss have
managed to sell the bungalow and land for a gross sale price of £78,500.
The cost of
the sale is £1,905.53. The cost of removal from the premises is £500. The net
price obtainable for the bungalow and land by the plaintiffs is therefore
£76,094.47. The net loss in value on the land to the plaintiffs is therefore
£3,905.53.
The plaintiffs
have adopted this course of action in preference to having remedial work
carried out on the premises to remedy the damage caused by the said subsidence
which would have cost in excess of £17,000.
Seventeen
months later, on July 12 1988, the plaintiffs amended the particulars to
increase the sound value of the land and bungalow to £90,000 and hence the ‘net
loss in value’ to £13,905.53. All this happened before the grant of planning
permission and the sale to the developers.
The trial
began on November 7 1988. On the first day the plaintiffs’ counsel (who had not
pleaded either the first or the amended set of particulars) applied to re-amend
so as to add the following paragraph:
Alternatively
the Plaintiffs’ claim is for the difference between the price paid of
£53,250.00 and the actual market value of the property at the date of completion
namely £36,250, the difference representing the cost of carrying out repairs to
the property to remedy the subsidence.
In addition,
the amendment deleted the second of the paragraphs from which I have quoted.
There is an unfortunate difference of recollection about whether the amendment
also involved the deletion of the first paragraph. The appeal bundle prepared
on behalf of the appellant plaintiffs contains a document purporting to be the
re-amended particulars which the learned judge gave leave to serve on the
second day of the trial: these do not show any deletion of the first paragraph,
but counsel maintained that this is a later copying error. On the other hand,
counsel for the defendants recalls that the re-amended pleading never showed
this paragraph as deleted. We cannot resolve this dispute. Three things are,
however, clear. (1) For the 18 months leading up to the trial the plaintiffs
had been advancing a case based on the proposition that they had sold to
developers in mitigation of damage. (2) By the end of the trial (as the judge’s
notes disclose) the plaintiffs were contending that the proper measure of
damage was ‘£17,000, being the difference between the sound value of the
property, less the price paid’. (3) Counsel were agreed that this would indeed
have been the proper measure of damage on the hypothesis that the plaintiffs
had remained in occupation. The sole question on damages was whether the effect
of the resale at a price much greater than had been paid was to nullify this prima
facie right of recovery. The judge answered this question in the
affirmative.
to counsel’s agreed note):
However the
matter does not end there due to a vitally important mitigation point. I am
persuaded by Mr Higginson that this is a classic Westinghouse case. Mr
Higginson also referred me to the case of Bellingham v Dhillon.
Damages accrue on the date of completion: the tortious measure applies. I do
not think, having considered Lord Denning’s judgment in Perry v Sydney
Phillips that these principles are affected or excluded. I am bound to hold
that the windfall accruing to the plaintiffs wipes out by far the loss that
follows. Thus, despite what I have found about the subsidence, the defendants
succeed.
In the course
of his argument in support of the notion thus briefly conveyed by the learned
judge, Mr Burton QC advanced two distinct propositions:
1 The plaintiffs owed a duty towards the
defendants to mitigate the loss resulting from their purchase of the house in
reliance on the misrepresentation; the sale to the developers was a performance
of this duty; the result of this mitigation was to be taken into account in
computing the loss.
2 Whether the resale was a mitigation or not, the
fact is that when the plaintiffs’ dealings are regarded as a whole it can be
seen that they have suffered no loss.
Very often it
happens that no distinction need be drawn between these two ways of approaching
the problem: they raise the same issues of fact and lead to the same
conclusion, and are often treated together under the same heading of
‘mitigation’. Nevertheless, I believe that Mr Burton was right to recognise the
distinction when advancing his clients’ case.
The first
argument depends upon proof that the plaintiffs were under a duty to resell the
house in mitigation. For the plaintiffs Mr Roddick QC takes the initial point
that there can never be a question of mitigating a loss which has already
crystallised, and that the loss has crystallised here in terms of the
conventional measure of damage for an unsatisfactory purchase made in reliance
on an actionable misrepresentation by the vendor. I feel some reservations
about this proposition. It is true that the question of a duty to mitigate
tends most often to arise in the context of a continuing loss. Thus, for
example, where a plaintiff is suffering a loss of business profits which will
go on until he does something to stop it, then if there is something which he
could reasonably do, and yet he fails to do it, the damages are computed as if
the loss had come to an end; conversely, if he does take action to prevent
further loss, all the consequences of his act are brought into account. It is
also true that superficially Mr Roddick’s proposition does appear at first
sight to gain support from the cases on failure to perform contracts for the
supply of goods or services for which there is an available market, where the
courts have tended to proceed directly to a conventional measure of damage
without investigating what the injured party has actually done after the
breach. (I say ‘at first sight’ because these conventional measures of damages
depend on the fiction that the innocent party has gone into the market to sell
against the defaulting buyer or to buy-in against the defaulting seller. The
loss is therefore ‘crystallised’, not in terms of the immediate consequences of
the breach, but of a deemed mitigation.)
Nevertheless, I would not be prepared without a very full review of the
authorities to underwrite a generalisation such as Mr Roddick proposes,
especially in the field of damages, where broad statements of principle tend to
be unreliable. (Indeed I believe that Pagnan (R) & Fratelli v Corbisa
Industrial Agropacuaria Limitada [1970] 1 WLR 1306 shows the generalisation
to be unsound.) This is of no moment
here, however, because whatever the true state of the law it is to my mind
clear that the defendants’ first argument fails at the outset. The breach
compelled the plaintiffs to choose between: (a) continuing to live in the
bungalow despite its serious faults; (b) repairing the bungalow; (c) selling
the bungalow and land and going to live elsewhere. If the plaintiffs had chosen
to pursue either of the first two options, it is inconceivable that they would
have been held to be in breach of any obligations towards the defendants; their
recovery of the estimated or actual cost of repair (as reflecting the
difference between the true market value and the price) would have followed as
a matter of course. Given therefore that alternatives (a) and (b) were
legitimate, the proposition that the defendants were under a duty to spend more
than two years in applications for planning permission, and that having
obtained it were under a further duty to move out of the house in which they
had hoped to live and to buy somewhere else, all for the benefit of the
defendants who had by their actionable wrong put them into this dilemma, need
only be stated to be rejected, and the rest of the argument falls with it.
The alternative
proposition is more formidable. Before considering its legal aspects, the
assertion that the plaintiffs made a profit out of the transaction needs to be
examined. In one sense of course it is right, since the plaintiffs ultimately
sold the property for twice what they had paid for it. This is, however,
misleading, for it ignores the general rise in the housing market in the
interval between purchase and resale, and it also terminates the analysis
halfway through. The plaintiffs were not property speculators but residents;
their object in reselling was not to realise a profit but to rid themselves of
an uninhabitable house so that they could acquire another. What they actually
did do after the sale to the developers was never explored at the trial, nor is
it possible on the judge’s findings to arrive at an assessment of the cost of
buying a comparable bungalow into which they could have moved after the resale.
If one of the experts was right, and the comparator would have cost about
£80,000, then over the whole run of transactions the plaintiffs would have
broken even. But if the other expert’s figure of £90,000 is preferred, the
plaintiffs would have made a substantial loss, for which on any view they ought
to be compensated.
Thus, if the
right approach in law is to look at the plaintiffs’ position at the end of a
chain of transactions consisting of purchase, resale and fresh purchase, the
case will have to be returned to the county court for a further investigation
of the figures.
Is this the
right approach in law? Undoubtedly, the
starting point is British Westinghouse Electric & Manufacturing Co Ltd
v Underground Electric Railways Co of London Ltd [1912] AC 673. The
respondents agreed to purchase from the appellants a series of turbo-alternator
sets intended to deliver electric power to the respondents’ railway. The sets
were deficient in output and the fuel consumption exceeded the guaranteed rate.
The respondents nevertheless kept the machines in use for a considerable time
while efforts were made to improve them, but upon this proving fruitless they
replaced them with Parsons machines, which had a greater output and lower
consumption than those purchased from the appellants. In the resulting
arbitration the respondents claimed two items of damage: the cost of obtaining
and installing the Parsons machines and the loss caused by the excess in
consumption while the appellants’ machines were in use. As to the latter claim,
there was no dispute in principle. As to the former, the arbitrator found that
the purchase of the Parsons machines was a reasonable and prudent course and
that it mitigated the loss and damage which would have been recoverable if the
respondents had continued to use the defective machines; he went on to find
that even if the machines supplied by the appellants had been up to contract
the Parsons machines would still have been superior in efficiency and economy,
so that it was to the respondents’ pecuniary advantage to have made the
replacement. In the House of Lords it was held that the arbitrator should be
directed to take the advantages of the new machines into account when assessing
the damages. Since the speech of Viscount Haldane LC (with which the other
members of the Appellate Committee agreed) is generally regarded as the leading
source of authority on this topic I must quote from it at a little length, but
it may be useful first to record the argument addressed on behalf of the
appellants which, after citing Joyner v Weeks [1891] 2 QB 31,
proceeded:
When once the
Court has arrived at the conclusion that the measure of damages is x, which in
that particular case was the cost of putting the premises into repair, no
outside circumstances will be taken into consideration for the purpose of
reducing x to x – a. But here the measure of damages never was x, but was x –
a, that is to say, the price of the new machines less the value of the
additional advantages derived from their use.
This I take to
be an epitome of the argument which was accepted by the House. It is also to be
observed that the arbitrator did not make any finding about the possibility
that the respondents could have purchased machines of equal output to those
which the appellants should have supplied: an omission which Viscount Haldane,
differing from Buckley LJ in the Court of Appeal, regarded as of no moment.
The following
extracts from the speech of Viscount Haldane serve to illustrate the grounds on
which the House remitted the dispute to the arbitrator:
. . . I think
that there are certain broad principles which are quite well settled. The first
is that, as far as possible, he who has proved a breach of a bargain to supply
what he contracted to get is to be placed, as far as money can do it, in as
good a situation as if the contract had been performed.
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 p 25), ‘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 had diminished his
loss, the effect in actual diminution of the loss he had suffered may be taken
into account even though there was no duty on him to act.
Then, after
citing Stamforth v Lyall (1830) 7 Bing 169, the Lord Chancellor
continued:
I think that
this decision illustrates a principle which has been recognised in other cases,
that, provided the course taken to protect himself by the plaintiff in such an
action was one which a reasonable and prudent person might in the ordinary
conduct of business properly have taken, and in fact did take whether bound to
or not, a jury or an arbitrator may properly look at the whole of the facts and
ascertain the result in estimating the quantum of damage . . .
I think the
principle which applies 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.
It will be seen
that the decision in the Westinghouse case had two aspects. First, the
conclusion that the benefits derived from the purchase of superior machinery
should be set against the two elements of loss. In retrospect it is hard to see
how the contrary could have been maintained. The purchase amounted to
mitigation in the narrower sense, designed to put a stop to the continuing
loss. To compensate the appellants for the cost of replacement while ignoring
the additional benefits which this replacement had brought would have been a
palpable injustice.
The second
aspect of the decision concerned the element of over-mitigation introduced by
the fact that the respondents had bought equipment with a greater output than
before — presumably at greater cost than if exactly equivalent replacements had
been obtained. Again, once it was found that the purchase had been reasonably
made, the conclusion in favour of the appellants now seems inevitable, given
that the act which constituted the mitigation and the act which was said to
constitute the over-mitigation were in the event the same. Thus, there was no
question of the case being concerned with a chain of disconnected transactions,
and so I cannot follow the learned judge in treating the present case as
directly governed by Westinghouse.
I must next
deal with three cases cited in argument, all of which are in the same line of
authority. The first was The ‘World Beauty’ [1970] P 144. A vessel
damaged in a collision was performing a charter at a high rate of freight and
was due in a few months’ time to embark on a long-term charter already fixed.
As a result of the collision the vessel was detained for repairs. So as to
avoid losing the first charter, the owners chartered-in a substitute, but made
a lower profit. They also arranged with the charterers under the second charter
to take the repaired ship before the contractual first date for delivery, 100
days earlier than she would have done if there had been no collision. In the
Court of Appeal it was held, first, that the owners of the colliding vessel
were not entitled to deduct from the damages the profits made during the 100
days, since these arose from the fact that the second charter was already in
existence and not from the collision, and, second, that a deduction should be
made for a sum representing the value of the acceleration of the profitable
second charter by 100 days.
This case
illustrates the principle that where steps are properly taken to mitigate a
continuing loss any gains brought about by the taking of such steps are to be
brought into account. Beyond this, I doubt whether The ‘World Beauty’ sheds
any light on the question now before us.
Again, in Bellingham
v Dhillon [1973] QB 304, the plaintiff suffered a continuing loss
through personal injury, because he lost the opportunity to lease a machine
which would have enabled his company to earn a continuing profit. More than
three years later he was able to buy the machine at a low price — so low that
the saving on the price exceeded the profit which would have been made from
operating the machine at the high rental which the plaintiff’s company would
have had to pay during the intervening years. The claim for loss of profit
failed. In my judgment this case establishes no new principle. The facts are
striking, since the purchase was made so long after the initial opportunity was
lost. But once it was accepted that the purchase was made in mitigation (see p
309 of the report: as it seems to me, the mitigation related to the future
continuing loss of profit, not to the loss already accrued), it was inevitable
in the light of Westinghouse that all the financial aspects of the
purchase should be taken into account.
Finally, there
was Nadreph Ltd v Willmett & Co [1978] 1 WLR 1537. Through
the negligence of their advisers the plaintiffs lost the tenancy which they had
granted to a third party and claimed against their advisers for the resulting
loss. It was held that in principle credit should be given for the potential
benefit of having the premises vacant and available for other purposes. The
decision stemmed from a preliminary issue so imprecisely drawn that it provides
no assistance in the present context: and indeed I doubt whether it was a case
on mitigation at all, as distinct from a straightforward working out of the net
consequences of an immediately accrued loss.
I now turn to
a pair of contrasting decisions in a different line of authority. The first is Jamal
v Moola Dawood Sons & Co [1916] 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 resell 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
Wrensbury said (at pp 179 – 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 Pagnan v Corbisa, supra, 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 August 22 1965. The sellers failed to
ship in time. On September 21 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 October 13 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
November 13 the parties agreed that the buyers would purchase the rejected
goods exsilo 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 as follows:
The purchase
of November 13 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
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 Moola Dawood, supra, and to a similar case, Salmon LJ said:
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 sections 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 damages 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 November 13 1965 was
certainly not inter alios acta; it was between the self-same buyers and
sellers who were parties to the contract of May 20 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 of damage but instead made a handsome profit in spite
of the sellers’ breach. . . .
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 profit and no loss. To
allow the buyers’ claim would in my view be contrary alike to justice, common
sense and authority.
I would
accordingly dismiss the appeal.
It seems to me
that Pagnan is as far away from the present case in one direction as Jamal
v Moola Dawood 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.
The two
remaining authorities to which I must refer were both concerned with negligence
in surveying before purchase. The first is Marder v Sautelle &
Hicks [1988] 41 EG 87* and the claim was for negligence in surveying prior
to purchase, which induced the plaintiff to buy a home in ignorance of its
unsound condition, at a price of £33,000. The trial judge found that the only
remedy open to the plaintiffs was to demolish and build, so that the current
value was the site value less the cost of demolition, yielding a figure of
£13,500. Judgment was thereupon given for the difference, namely £19,500. Very
soon after the trial the plaintiffs put the house on the market, and within four
months were able to find a buyer at £70,000. The defendant surveyors then
appealed, contending that the plaintiffs had in the event suffered no loss. The
appeal failed.
*Editor’s
note: Also reported at [1988] 2 EGLR 187.
Although Marder
v Sautelle & Hicks, supra, does bear a superficial resemblance to
the present case, I believe that it is of only limited materiality, since it is
evident that the only question argued on the appeal was whether the price
obtained in 1987 showed that the judge’s assessment in 1986 of the damages
suffered in 1979 must have been wrong. The court rejected this argument, since
there were a number of reasons — including a rise in the house property market,
and the possibility that the new purchasers had simply paid too much — why
there was such a striking difference in the figures. The possibility that the
sale in 1987 was part of a continuation dealing with the house which began with
the purchase in 1979 was evidently not canvassed in argument and must in any
event have been unsustainable on the facts.
By contrast, Perry
v Sidney Phillips & Son [1982] 1 WLR 1297 was a case where the
appellate court did take into account a sale after judgment. The purchase was
made in 1976. After the plaintiff took possession he found that the house
suffered from serious defects which the survey should have revealed. He could
not afford to do the repairs, and so remained in residence. The trial took
place in April 1981, and the judge awarded two items of damage: the cost of
repairs at 1981 prices and compensation for the inconvenience of having to live
in the defective house. After judgment the plaintiff found himself in financial
difficulties and had also taken new employment in another locality. He
therefore sold the house without ever carrying out the repairs. On appeal it
was conceded that the assessment of loss in terms of the cost of repairs could
not be sustained, and the court fell back on a more conventional comparison
between the price paid by the plaintiff and the actual value at the date of
acquisition.
Now it is true
that the court was not expressly asked to consider whether the price at which
the house was resold should form an element in the calculation. Nevertheless I
find it inconceivable that if the sequence comprising (a) purchase induced by
negligence, (b) reluctant continuation of residence without repair, and (c)
forced sale of the property at an enhanced price, led inevitably to the
conclusion that the plaintiff had suffered no loss, the idea that this might be
so would never have occurred to any member of the court in a case where the
trial judge’s basis of assessment was being examined and ultimately set aside.
The whole point of the case was that the plaintiff had actually suffered a loss
through the poor condition of the property, for which he was awarded damages.
The kind of notional loss for which the present plaintiffs claim was never in
issue.
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 two and a half 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.
Accordingly,
although I acknowledge that the plaintiffs had until the start of the trial
persisted in a claim which was inconsistent with the one which they introduced
by re-amendment, I consider that in fact and law their second thoughts were
correct, and that the proper measure of damage here is the difference between
the contract price and the market value of the property in its unsound
condition. I would therefore allow the appeal.
FARQUHARSON
LJ and SIR MICHAEL KERR agreed and did not
add anything.
The appeal
was allowed with costs. An application for leave to appeal to the House of
Lords and an application for a stay of execution were refused.
