Negligence — Structural survey — Action against surveyors — At the trial the defendants admitted that the survey had not been carried out in accordance with the required standard, so that no issue remained on this question — Remaining issues were whether any cause of action vested in the plaintiff company as such; whether, if so, the company had relied on the defendants’ reports; and, if these defences failed, what was the proper sum to be awarded as damages — The
instructions for the survey had been given by Mr and Mrs Miro before the incorporation of the plaintiff company, which they set up on their solicitor’s advice to acquire the ownership of the subject flat for their intended occupation — The defendants’ initial reports, given orally by telephone and also by telex, stating that the flat was in good condition and that there were no major structural defects, were received before the company was incorporated — In fact, subsequently, important defects in the brickwork of the flat, and flats below it, were discovered
submitted by the defendants that the plaintiff company had no cause of action
against them as the company had not been in existence when the reports
complained of had been made — The reports had been made to Mr and Mrs Miro and
it was they who took the decision to act on them — The judge, who pointed out
that the cause of action was in tort, not contract, rejected this submission,
holding that the reports had been made to the Miros’ solicitor with the
intention that he should pass them on to the Miros both as individuals and as
agents for the company when it came into existence — The judge also rejected
the submission that the company had not acted on the reports — The solicitor
who acted for both the Miros and the company made it clear that he had not been
willing to exchange contracts until he received what he considered a
satisfactory report of the survey
difficult and important issue was as to the actual quantum of damage — The law
as to the correct measure of damages was clear from the decisions in Philips v Ward and Perry v Sidney Phillips
& Son — It was the difference between the value of the property in the
condition described in the report and its value as it should have been
described — The difficulty lay in the application of this measure to the
particular circumstances — There was considerable conflict in the evidence of
the expert valuers called on each side — After reviewing this evidence the
judge set out his findings in 13 propositions and gave his reasons for
preferring the evidence of the defendants’ valuer in regard to the effect of
the structural defects on the market value of the flat — This part of the
judgment is likely to be of considerable interest to valuers — In the end the
judge held that the difference in value due to the defects amounted to £15,000
(the difference between £230,000 and £215,000) and assessed the damages at this
amount
The following
cases are referred to in this report.
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
This was an
action by Miro Properties Ltd, plaintiffs, against J Trevor & Sons,
surveyors, of London W1 and SW7, defendants, claiming damages for alleged
negligence in the survey of flat 53, Albert Hall Mansions, Kensington Gore,
London SW7.
Martin Bowdery
(instructed by Stein Swede Jay & Bibring) appeared on behalf of the
plaintiffs; Ian Ridd (instructed by Barlow Lyde & Gilbert) represented the
defendants.
Giving
judgment, Mr RECORDER BERNSTEIN QC said: This is a claim for damages by a
company now known as Ashbrook Ltd (but at all relevant times known as Miro
Properties Ltd) against J Trevor & Sons, a well-known firm of surveyors,
practising in the West End of London. The claim arises in this way. In the
earlier part of 1983, Mr and Mrs Miro ran a reinsurance business in many parts
of the world. They had houses in Dallas and in Bermuda and they stayed a good
deal in London. They decided to acquire a flat in London so that they did not
need to stay in hotels. They instructed Mr Melvyn Stein, their solicitor, and
on his advice steps were taken to incorporate a company in the Isle of Man, to
be called Miro Properties Ltd, so that that company could become the owner of
the flat that Mr and Mrs Miro wished to have available for their occupation.
Mr Stein
instructed the defendants to carry out a full structural survey on behalf of
Miro Properties Ltd. In due course, Mr M C Keeley BSc ARICS, on behalf of the
defendants, carried out a survey, probably on July 20 1983. He did not at once
send to Mr Stein a report of the survey, and on July 28 1983 Mr Stein spoke to
him and told him that the survey report was wanted urgently. Mr Stein, in evidence,
told me that by this time there was some pressure on his clients to exchange
contracts as another purchaser had been found. Mr Keeley said that something
had gone wrong in the arrangements for typing the report, but he told Mr Stein
that, broadly, the property was in good condition and there were no major
structural defects. Mr Stein asked him to confirm the position by way of telex
that day. Mr Stein told him that he (Mr Stein) would not exchange contracts,
though it was becoming urgent, until a satisfactory report had been received.
On July 29 Mr
Keeley sent a telex reporting the position, much longer than the short
description I have mentioned, though not as long as the full report which came
later. Mr Stein, having received this telex on July 29, transmitted it to his
then clients, Mr and Mrs Miro, in Dallas. Three days later, on August 1 1983,
three things happened (I am not putting them in order of time because it is
common ground between counsel that the order of events is not conclusive).
First, the plaintiff company was incorporated. On the same day Mr Stein spoke
to Mr and Mrs Miro on the telephone in Dallas and they instructed him — they
already having received a copy of Mr Keeley’s telex — to exchange contracts;
and, on that, contracts were exchanged. Some time after that, the defendants
rendered their invoice for the fee for the survey. The invoice was rendered to
the plaintiff company. The purchase was completed on August 1 1983.
Mr and Mrs
Miro never, in fact, moved in to live together in the flat because at around
this time their marriage was in difficulties. In the result, Mrs Miro planned
the modernisation of the flat. Work actually began in July or August 1984. It
had to stop for some weeks while various inspections and reports were made because,
during the course of the refurbishment work, it was discovered that there were
some major defects in the brickwork, not only of this flat but of the flats
below it. The total cost of the refurbishment, Mrs Miro told me, was about
£130,000.
Mrs Miro first
stayed in the flat in December 1984, although the refurbishment was still not
complete. In July or August 1985 a proposed sale at £478,000 went off,
allegedly because the structural defects had still not been remedied.
Ultimately, the flat was sold in December 1985 or January 1986 for £410,000.
On September
12 1985 the plaintiff company issued a writ and, after a long delay, on July 20
1986 the statement of claim was served. The statement of claim was grossly
inaccurate as to dates and Mr Stein told me that this was because the
conveyancing file relating to this matter had been lost. When it came to light
early in 1988 — or it may have been late 1987 — a draft amended statement of
claim was sent by the plaintiff company’s solicitors to the defendants and in
due course I gave leave for the amendment and for an amendment of the defence.
At the opening
of the trial, the defendants — this having been foreshadowed earlier in
correspondence — withdrew their defence by admitting that the survey was not
done in accordance with the standard required by law of a survey. The trial
then proceeded on three issues: first, did the fact that the plaintiff company
was not incorporated at the date of the telephone conversation in which Mr
Keeley gave a general assurance about the condition of the flat on July 28
1983, nor was it incorporated at the date of the telex report of July 29,
prevent a cause of action vesting in the plaintiff company? Second, did the plaintiff company, in fact,
rely upon either of those matters — the telephone assurance of the 28th or the
telex? Third, if both those defences
failed, what was the proper sum to be awarded to the plaintiff company in
respect of the failure of the defendants to discover defects in the structure
which they admittedly ought to have discovered in performance of their duty?
I deal with
these in turn. As regards the first issue — the defence that the plaintiff
company was not incorporated before August 1 and therefore there was no cause
of action — it is common ground that no claim is made in this action in
contract. The only possible liability of the defendants is in tort. Mr Ridd,
for the defendants, in an argument distinguished more by ingenuity than by
merit, said that since the plaintiff company did not exist at the time of the
representations there could be no communication to the plaintiff company until
it existed, and the decision to go ahead was taken before the company existed.
Therefore, the company cannot establish the communication to it of the
negligent misstatement because Mr and Mrs Miro had acted on the misstatement by
instructing Mr Stein to exchange contracts before the company received the
information. He
and was not made by the company. I am unable to accept those arguments. In my
view, the reports made by Mr Keeley were communicated to Mr Stein with the
intention that he should pass them to Mr and Mrs Miro, both as individuals and
as agents of the company when the company came into existence. Mr Stein did so
communicate the substance of the reports before the exchange of contracts, and
the defendants are as liable as they would have been if the company had been
incorporated immediately before, rather than shortly after, those
communications were made. I find against the defendants on that issue.
Second, did
the plaintiff company in fact act on the telex?
I accept Mr Stein’s evidence, as set out both in his written statement
and in his oral evidence, that he was not willing to exchange or to allow his
clients to exchange, whether the clients be the company or Mr and Mrs Miro
(and, indeed, the clients were, in turn, Mr and Mrs Miro and then the company),
until he had received what he considered to be a satisfactory report from Mr
Keeley of the survey. In my judgment, the matter can be tested in this way.
Suppose that on August 1, after the company had been incorporated but as Mr
Stein was about to set out to complete the purchase, Mr Keeley had telephoned
him and had said:
I have been
thinking about this overnight and I have decided that there is a grave omission
in my report. I have noticed, for example — I did not notice it at the time but
it came to me in my bath — that there was a tell-tale in this flat, and that,
tied up with one or two other minor, apparently trivial, indications, makes me
now think that there is a major structural defect in this flat.
I have no
doubt that, if such a conversation had taken place, Mr Stein would have put off
completion. What would have happened after that, one can only speculate on. But
it seems to me that that test makes it plain that the company, just as much as
Mr and Mrs Miro, acted upon the representation contained in the oral report and
the telex report. I find against the defendants on that issue.
That brings me
to the issue which I have found most difficult, which is that of quantum. What
damage did the plaintiff company suffer by reason of the defendants’ admitted
negligence? Fortunately there is no
issue between the parties as to the law. I have been referred — not at length
because both counsel and I are familiar with them — to two decisions. In Philips
v Ward [1956] 1 WLR 471, the Court of Appeal, presided over by
Denning LJ (as he then was), held that the proper measure of damages in a case
of a negligent and inaccurate report by a surveyor was the difference in money
between the value of the property in the condition described and its value as
it should have been described. Other matters, such as the cost of repair and
additional expenditure of that kind, were irrelevant. Again, in Perry v Sidney
Phillips & Son [1982] 1 WLR 1297, the Court of Appeal, presided over by
Lord Denning (as he had by then become), held that since the plaintiff had been
misled by the defendants’ negligent survey report into paying more for the
property than it was actually worth, the proper measure of damages was the
difference in price between what the plaintiff paid for the property and its
market value as it should have been described at the time of purchase, together
with interest on that difference. So, the basis on which damages are to be
assessed is plain.
Two expert
valuers gave evidence before me. They agreed only to this extent: that some
damage was suffered. But the question is, how much? First, Mr I Glazier. He gave evidence for the
plaintiff. He has unrivalled knowledge of the sales of flats in Albert Hall
Mansions because, since June 1983, he had worked (though he has recently
stopped) in the Knightsbridge office of Druce & Co, the agents who manage
these flats on behalf of the landlords. Until recently he managed their office
which is in Albert Court, immediately opposite Albert Hall Mansions. He told me
that 90% of the sales of flats in Albert Hall Mansions were conducted directly
or indirectly through that office. He inspected the subject flat in June or
July 1983, his firm having been instructed by the then owner, Sir George
Middleton, to dispose of it. Instructions, however, had been given not to Mr
Glazier but to his predecessor. The price that Druces were instructed to seek
was £255,000. Mr Glazier’s views, as expressed in his proof, were that the
market value of the flat, if it had not suffered from the undisclosed defects
out of which this claim arises, was the price in fact realised — that is,
£230,000. In para 11 of his written report, which was put in evidence, he said:
Due to the
nature of the flat with known defects, I am of the opinion that market demand
for the flat would have been mainly restricted to a residential
speculator/developer who undoubtedly would have required at least a 20% to 25%
reduction in the acquisition price from the defect free open market purchase
price.
Then he said
it must also be emphasised that the residential dealer would also require a
reduction in purchase price in order to cover such expenses as interest on
capital to the time of disposal, probably after the defects would have been
remedied. In conclusion, in para 11 he says:
. . . most
owner/occupiers or more importantly any residential speculator would have
required a minimum of a 20% reduction in the acquisition price together with
incidental costings, for example, interest on capital in order to entice them
to acquire an unmodernised flat with major structural faults.
His valuation
of the then unmodernised flat but with known structural defects would have been
£170,000.
His answers in
cross-examination were not altogether consistent. He said that a high
proportion of occupiers were from overseas. A prospective occupation purchaser,
who saw Acrow props in the hall windows would probably not be further
interested in the flat. A developer or speculator would look for a 20% to 25%
margin where there was no defect. With the defects, he would look to the higher
end of the range. If the remedial work to the balcony had a low priority in the
landlord’s works, that would affect the purchaser’s mind because it would
increase his interest costs.
The expert
evidence for the defendants was given by Mr MacLean Watt, a chartered surveyor
and the partner in Cluttons responsible for London residential properties.
Though he has great experience of residential property and his office is in
Fulham Road, he has had virtually no dealings with Albert Hall Mansions.
Indeed, he has never been into flat 53: a fact which, surprisingly, emerged
only in cross-examination. In his experience, when old, unrefurbished flats in
the old Key Flat blocks — of which Albert Hall Mansions is one — became vacant
and were offered for sale, they were bought by small developers who could
refurbish and reap the benefits of the presentation of the refurbished flat for
sale. If an owner-occupier were prepared to undertake the works of
refurbishment, he put himself in the same position. A purchaser for his own
occupation of a flat in need of refurbishment would pay the same price as a
developer-purchaser. Every agent in London had on his books a list of small
residential developers. The purchaser of the unrefurbished and defective flat
53 in 1983 would probably have been a small developer. Some of them bought
without having the property surveyed. There were so many of them in the market
at that time that, if one sought a discount because of the defects, the vendor
could look for another who did not seek a discount, and the probability was
that he would find one. So, the existence of the defects would not reduce the
price obtained by more than a modest amount, such as the additional service
charge likely to result from the remedying of the defects.
On a balance
of probabilities, I find the following facts:
1 The highest bidders in the market in July
1983 for an unrefurbished flat with no structural defects were likely to be
developers.
2 There were, however, some purchasers in the
market for occupation rather than for resale. The plaintiff company was one of
this relatively unusual class.
3 A bidder for the flat in July 1983 would have
become aware of the defects.
4 If the bidder, before the defects were known,
was a prospective occupier, he would have withdrawn upon becoming aware of the
defects.
5 So the highest bidder for the flat, once the
defects became known, would have been a developer.
6 The magnitude, cost and duration of the
remedial works could not be clearly ascertained because, to begin with, they
involved premises outside the flat itself.
7 The management of the block was in disarray
and this might well delay the execution of remedial works.
8 A developer bidding for the flat and having
discovered the defects would seek a reduction in the purchase price on account
of it. The reduction that he would seek would be substantially greater than his
estimate of the additional service charge likely to result from the remedial
work.
9 A financial risk to the developer would
result from the possibility that the time required to get the management
company to carry out the remedial work would exceed the time required to
refurbish the flat, so that his ultimate marketing would be crabbed by the
presence of the defect and/or by the disturbance resulting from the remedial
work. (Since Mrs Miro may not be fully conversant with colloquial English, I
had better change the word ‘crabbed’: ‘so that his ultimate marketing would be
impaired by the presence of the defect and/or by the disturbance resulting from
the remedial work’.)
10 The period likely to be required from
exchange of contracts to completion of the refurbishment was nine to 12 months.
If the defect were remedied by the landlords within nine months, it would cause
the purchaser no loss at all. If it were not remedied within 12 months it would
cause him loss in that he would either have to delay selling the flat or he
would have to accept a lower price for it because the defects were not yet
remedied.
11 His calculation of the reduction in the price
he was willing to pay would be an assessment of what financial incentive would
persuade him to accept this financial risk.
12 The financial context in which he made this
assessment was that he would be paying something of the order of £200,000 for
the property; he would have to expend a substantial further sum on
refurbishment; his borrowing costs at current rates would be of the order of 11
1/2% to 12 1/2% pa which, even on £200,000, would be about £2,000 per month.
13 Any developer bidder would know that there
were many other residential developers at that time in the market for
development opportunities of this kind and that he would directly or indirectly
be bidding against like developers. So much for those findings of fact.
The core of Mr
Glazier’s opinion, as put to me in Mr Bowdery’s submissions, was that the
structural defects, by taking the occupation purchasers out of the market, left
only the developer-purchasers, whose bids were 20% to 25% below what an
occupation purchaser would pay.
Mr MacLean
Watt, on the other hand, said that even without the defects, the probable
purchaser would be a developer-purchaser rather than an occupation-purchaser.
Mr Glazier’s
knowledge of this block of flats is far greater than that of Mr MacLean Watt,
who has never been inside flat 53 and has had no relevant dealings with any of
the flats. Nevertheless, on this crucial point I prefer the evidence of Mr
MacLean Watt. My reasons are:
(a) The evidence that most of the purchasers in
recent years had been wealthy overseas buyers who wanted flats fitted to a high
standard and ready for occupation makes me doubt the existence of a large
number of possible occupation purchasers for a flat which, though free from the
defects, was unrefurbished and which therefore required works taking nine to 12
months to complete and works which, in the meantime, would require much
superintendence.
(b) Mr Glazier accepted that there were some
purchasers in the market who wanted an unrefurbished flat for their own
occupation. The existence at the time of the plaintiff company as the actual
purchaser lends some support to this view. But I cannot accept the existence of
two different markets for the same unrefurbished property with the price level
in one 20% to 25% below the price level in the other. In my judgment, the two
markets overlap without any great gulf between them.
(c) The absence in Mr Glazier’s report of a clear
indication of his view that two such widely separated markets existed for a
flat free from defects. The absence also of any clear evidence to support the
existence of two widely separated markets.
(d) The absence from his report, as Mr Ridd
pointed out, of any indication that Mr Glazier had studied the provisions of
the lease dealing with the responsibility for structural repairs or that he
appreciated that a purchaser taking an assignment of the lease would have a
right to require the management company to remedy the structural defects and a
right to damages if they failed to do so.
(e) I doubt the likelihood that a
vendor-occupier, upon the structural defects being discovered, would continue
with the sale but would accept £170,000 instead of £230,000 or, indeed, the
£255,000 that he had started with. He could, instead, take steps to have the
defects remedied by the management company and then sell it. As Mr MacLean Watt
points out in his report, in practice he will continue in occupation, rather
than sell at a price which is not a true market price. To accept £170,000 would
mean accepting a drop of one-third from the original figure of £255,000 for
defects that might well be put right in a short time.
(f) I reject the view that a developer-purchaser
would not purchase without a reduction of 20% to 25% in the purchase price.
That percentage, I accept, represents the margin of profit on which the
developer normally works in his development of defect-free properties. That
percentage has no connection with the financial incentive that I have referred
to in my findings of fact. A developer-purchaser who buys a defect-free flat
may well achieve a 20% to 25% profit in that by refurbishing the flat he brings
it up from a developer’s market to an occupier’s market, in which the price
level exceeds by 20% to 25% the developer’s total cost. The initial price that
he pays for the unrefurbished property is such that there does not exist a
significant number of occupation purchasers willing to accept the task, the
problems and the delayed occupation inherent in refurbishment. So, although the
experts agreed that the defects produced a diminution in value, I reject the
view that the defects put the flat into a wholly different market.
Mr Bowdery
contended that if I rejected that view, a permissible approach would be to base
the calculation of damage upon the delay likely to be caused to a
developer-purchaser by the existence of the defects. I see much force in this.
Mr Bowdery referred me to Mrs Miro’s evidence that the cost of six weeks’ delay
was £2,857 — equivalent to about £450 a week.
Mr Ridd for
the defendants submitted that the onus was on the plaintiff to put before the
court either a figure that could be accepted or some machinery by which a
figure could be calculated. The market value in the state shown by the survey
was agreed at £230,000. The other figure required was the market value in the
state in which the property should have been described. The only factor which
could bring the agreed cost of the additional contribution to repairs — namely,
something around £1,500 — up to £60,000 was the extent to which the defects
impinged upon the enjoyment and occupation of the flat. Mr Glazier had not put
before the court any material from which a figure could be calculated. He had
not given evidence of the reduction that a purchaser would require if the
remedial work had not been done before the refurbished flat was offered for
sale on the market. The court was not entitled to supply the gaps in the expert
evidence.
Certainly the
evidence before me does not make the task of assessing damages easy. In my
judgment, the difficulty flows mainly from the inherent difficulties of the
situation. The usual method of assessing the market value of a property such as
this flat is to look for market transactions in comparable flats and
extrapolate from the data thus obtained. Comparables of this kind can be found
for the flat free of the defects, but the flat with the structural defects is
truly a unique property and in my judgment the comparable method of valuation
does not assist in assessing its value.
The evidence
establishes that any bidder, on becoming aware of the defects, would seek to
negotiate a reduction in the price on account of them. I reject the view, as is
plain from what I have already said, that the vendor would grant a reduction of
anything like £60,000; but I equally reject the view that the vendor would only
concede an amount equal to the estimated increase in service charge
contribution attributable to the remedial work. This increase is now estimated to
be about £1,500, but, of course, it was unascertained and almost impossible to
estimate on the facts known to the parties at the relevant time — that is, on
August 1 1983.
In my
judgment, the prospective purchaser would demand a substantial reduction and
the vendor, faced with these defects and all the difficulties that remedying
them might involve, would not feel himself in a sufficiently strong bargaining
position to stand firm on his price of £230,000. They would negotiate. Making
the best estimate I can, I find that the reduction at which they would have
arrived by reason of the defects is £15,000 and that accordingly the market
value of the property, in the state in which it should have been described, was
£215,000.
I therefore
assess the damages suffered by the plaintiff by reason of the defendants’
admitted negligence at £15,000.
