Negligence — Surveyors — Survey report — Valuation approach where no comparables of property as it should have been described — Whether purchase price best evidence of market value — Whether deductions for repair cost increases and for betterment
Following an inspection in December 1987,
S provided a survey and report on a timber-framed farmhouse which the
respondents were then wishing to purchase. The report pointed out a number of
problems with the property, recommended that about £25,000 should be set aside
for roof and other repairs and valued the property in the region of £215,000.
In the court below it was held that S was negligent in failing to report that
there was an infestation of death watch beetle which was or might be active.
Damages of £64,000 were awarded. The vendor stated that the property had been
valued at £245,000, but by reducing the price to £225,000 he was making a
reduction of £20,000; the respondents purchased the property for £225,000. The
appellants, for whom S worked, appealed the award of damages contending that:
(1) the judge was wrong to consider the purchase price and not the valuation of
S; (2) he was not entitled to adjust the 1993 repair costs put in evidence by
the respondents back to 1987 or 1988 prices; or (3) to adjust the repair figures
to allow for benefit as there had been no expert evidence directed to the
question of betterment.
measure of damages is the difference between the value of the property in the
condition described in the surveyor’s report and its value as it should have
been described. Where, as in this case, there is no comparable evidence to
value the property as it should have been described, in order to arrive at a
valuation, it may be necessary to postulate a theoretical purchaser prepared to
buy the property and to undertake the necessary repairs, in which case the cost
of repairs will plainly be a relevant factor as was recognised in Steward
v Rapley [1989] 1 EGLR 159 at p165K-L. The judge was not bound by S’s
valuation and was entitled to accept that the price actually paid for the
property was the best evidence of market value. He had evidence enabling him to
adjust the 1993 repair costs back to the costs in 1988. In making deductions
for betterment, the judge had carried out a factual exercise on the evidence
which was before him, which would have included the cross-examination of the
respondents’ witness; he was entitled to do that.
The following cases are referred to in
this report.
Philips v Ward [1956] 1 WLR 471; [1956] 1
All ER 874, CA
Steward v Rapley [1989] 1 EGLR 159; [1989]
15 EG 198
Watts v Morrow [1991] 1 WLR 1421; [1991]
4 All ER 937; [1991] 2 EGLR 152; [1991] 43 EG 121; 26 Con LR 98
This was an appeal by Countrywide
Surveyors Ltd against an award of damages made in a judgment of Judge Richard
Havery QC, sitting as an official referee, given on October 7 1994 in an action
by the respondents, Martin and Carole Ann Oswald, for negligence.
Richard Seymour QC (instructed by Sharpe
Pritchard) appeared for the appellants; John Lewis Powell QC and Nicholas
Francis (instructed by Gepp & Sons, of Chelmsford) represented the
respondents.
Giving judgment, Kennedy LJ said: This is a
defendants’ appeal from a decision of Judge Havery QC, sitting as an official
referee, who, on October 7 1994, ordered that judgment be entered for the
plaintiffs against the defendants for damages in the sum of £64,000 together
with interest and costs. The defendant/appellants no longer dispute liability
but they contend that the award of damages should have been nominal.
In late 1987 the plaintiff/respondents
were considering buying a new house, namely Bell Farm, Wickford, Essex, an old
timber-framed farmhouse. They instructed Abbotts (East Anglia) Ltd to carry out
a survey and valuation. On December 4 1987 Mr Michael Smith, a Fellow of the
Royal Institution of Chartered Surveyors, went on behalf of Abbotts to visit
the property. Abbotts later became part of the defendant company, hence the
name of the defendants in the present litigation.
The report, which Mr Smith had prepared,
pointed out a number of problems, including problems with the roof, bulging
walls, problems with the water table and so forth, but it did not say that
there was evidence of infestation by death watch beetle, which was or might
well
critical because the potential purchasers were left with the impression that,
if they could find the purchase price and set aside about £25,000 for roof and
other repairs which would soon be needed, they would have an acceptable
dwelling. Mr Smith’s valuation of the property was ‘in the region of £215,000’.
Mr and Mrs Oswald carefully considered Mr
Smith’s report and, as the judge found, Mr Oswald discussed the report with Mr
Smith on the telephone. Mr Smith suggested trying to get the vendor to make
some contribution to the cost of repairs to the roof. Mr Oswald then showed the
report to the vendor, Mr Ray, who said that the property had been valued at
£245,000 and that by accepting £225,000 he was making a reduction of £20,000,
so he refused to go below that price. At that time the price of houses was
rising steadily, and Mr and Mrs Oswald decided to complete the purchase at
£225,000. At trial the judge found (and there is now no challenge to this
finding) that if Mr Smith had not been negligent, if his report had given the
warning which it ought to have given in relation to death watch beetle, Mr and
Mrs Oswald would not have bought Bell Farm.
When Mr and Mrs Oswald moved into the
house they were plagued by death watch beetle. After two seasons they moved
into a flat above Mr Oswald’s business in London, in October 1989, and remained
there until August 1993 when they moved back to Bell Farm. At the time of the
trial (in the summer of 1994) the necessary repairs had not been carried out,
but the judge found that they would take six months to complete, after which Mr
and Mrs Oswald would be left with a somewhat better property than that
described by Mr Smith in his report of December 4 1987.
The approach to be adopted when assessing
damages for negligence by a surveyor was set out by the Court of Appeal in Philips
v Ward [1956] 1 WLR 471. The court said that the normal measure of
damages is the difference between the value of the property in the condition
described in the surveyor’s report and its value as it should have been
described. That was reaffirmed by the Court of Appeal in Watts v Morrow
[1991] 1 WLR 1421*, and it is quite clear that the trial judge was well aware
of those authorities when giving judgment in this case. Where it is possible
easily by reference to other properties to provide expert evidence as to the
value of the property in question as it should have been described, then
evidence as to the cost of repairs is, as it seems to me, unlikely to be
relevant. But if there are no comparables, then it may be necessary to adopt a
different approach in order to arrive at a valuation of the property as it
should have been described. That is particularly likely to be the case if a
surveyor was negligent in failing to warn a prospective purchaser of the
existence or potential existence of a serious defect. In order to arrive at a
valuation it may be necessary to postulate a theoretical purchaser prepared to
buy the property and to undertake the necessary repairs, in which case the cost
of the repairs will plainly be a relevant factor as was recognised in Watts
v Morrow and in the earlier case of Steward v Rapley
[1989] 1 EGLR 159†, especially in a passage in the judgment of Nicholls LJ at
p163K–L.
*Editor’s note: Also reported at [1991] 2
EGLR 152
†Editor’s note: Also reported at [1989] 15
EG 198
The diminution in value may not be the
same as what it would have cost to put right the serious defect at or about the
time of sale because the repair work may result in the property being better
than as it was in fact described. Conversely, the theoretical purchaser may
need to be tempted if he is to become involved by some additional payment to
compensate him for the inconvenience of living in a house undergoing repairs,
or to provide a profit element at the end.
The defendants in this case did not call
evidence in relation to damages, but the plaintiffs adduced evidence from Mr
Philip Hyde, also a Fellow of the Royal Institution of Chartered Surveyors. He
said (and the judge accepted) that in this case there were no comparables
against which to value the property as it should have been described. The judge
therefore accepted that the value of the house as it should have been described
would reflect the cost of repairs. But Mr Hyde’s evidence as to the cost of
repairs related to the date of his report in February 1993, so the judge made
two adjustments: the first designed to express the cost of repairs in terms of
1987 to 1988 prices, and the second discounting the cost of repairs to allow
for betterment.
It is against that background that Mr
Richard Seymour QC, on behalf of the appellants, advances what are, in effect,
three grounds of appeal. They are, first of all, that the judge was wrong to
take as his starting point the £225,000 actually paid for Bell Farm rather than
Mr Smith’s valuation of it at £215,000; second, that the judge was not entitled
to adjust Mr Hyde’s figures (as he did) to arrive at 1987 or 1988 prices rather
than 1993 repair prices; third, that the judge was not entitled to adjust the
repair figures as he did to allow for betterment.
Ground 5 in the grounds of appeal is no
longer pursued and what I have said in fact covers grounds 1 to 4.
Before I turn to look at those three
grounds of appeal separately, it is important to remember that under Ord 58, r
4 of the RSC there was a right of appeal from the judge to this court on a
question of law, but no right of appeal on a question of fact without the leave
of the judge or of this court. The judge refused to grant leave to appeal and
this court has never been asked to do so. We have, therefore, no jurisdiction
to reconsider any decision of the judge on a question of fact.
Mr Seymour contends in relation to his
first ground that the judge attributed the respondents’ decision to pay
£225,000 to Mr Smith’s valuation of it at £215,000, rather than treating the
excess amount paid as unrelated to any default on the part of the appellants.
During the course of his submissions he submitted that the upper limit which
the judge should have taken in relation to the value of this property was the
figure put upon it by the valuer regardless of the market value, because the
valuer had in fact been instructed not only to survey it, but also to value it.
In my judgment, that is simply incorrect.
What the judge had to ascertain was the value of the property in the condition
described in Mr Smith’s report, using the words of Denning LJ (as he then was)
in Philips v Ward [1956] 1 WLR 471 ‘the value of it in its
assumed good condition’. He was not bound by Mr Smith’s assessment of the value
of the property and he was entitled to prefer, as he did, the price which the
house actually commanded in the market place with both the vendor and the
purchaser being aware of Mr Smith’s valuation. As the judge said in the course
of his judgment:
… the price they paid, £225,000, is in my
judgment the best evidence of the value of the house in a market of purchasers
notionally relying on Mr Michael Smith’s report.
That was, as it seems to me, a conclusion
which was open to the judge. It was a question of fact and it is not a conclusion
with which I would interfere, even if this court were in a position to
interfere with it, which, for the reasons I have already explained, seems to me
not to be the case.
I turn next to Mr Seymour’s second ground
of appeal in which he contends that the judge, in the absence of evidence, was
not entitled to adjust Mr Hyde’s figures for the cost of repairs in 1993 to
produce equivalent figures for 1987 to 1988. Reading the grounds of appeal and
the skeleton argument prepared by Mr Seymour, this did seem to me a live point.
It is only fair to Mr Seymour to say that, when he came to make his oral
submissions to us, the point in fact faded away, and rightly so, because the
short answer to this point is that the judge had before him evidence from Mr
Peter Millard frics, a quantity
surveyor called by the plaintiffs, who said that tender prices for specialist
contractors were 21% higher in 1993 than they had been in 1988, and the judge,
as he was entitled to, simply accepted that evidence and acted upon it.
That enables me to turn to Mr Seymour’s
contention that the judge should not, without expert evidence to assist him,
have been prepared to adjust Mr Hyde’s figures to allow for betterment. The
contention seems to be that figures which were put forward in argument were
treated as being judicially acceptable and should not have been so treated
without there being actually placed before the judge, on behalf
judicially acceptable allowance for betterment. In other words, the judge
should not have been prepared to adjust the figures placed in front of him. As
I understand the argument, that would have been the position even if experts
had been called to deal with the question of betterment on both sides, and had
failed to put forward on either side a conclusion which the judge found to be
wholly acceptable.
The overall answer to that submission, in
my judgment, is to be found, first of all, in the judge’s finding that the
plaintiffs ‘clearly have suffered a substantial loss’. In those circumstances
it was not open to the judge to come to the conclusion that there should be no
award to compensate the plaintiffs for that loss, and what the judge had to do
on the evidence before him was to evaluate it. The difficulty lay, of course,
in deciding, without any expert evidence from the defendants, to what extent
the 1988 costs of repair should be discounted, because, if repairs were carried
out, they would have put the property in a better condition than the property
described in Mr Smith’s report.
For my part I doubt if, in the end, it
assists at all to stress the burden of proof as the appellants have done, both
in their notice of appeal and in their skeleton argument. If there was to be a
burden placed on anyone, it was, as it seems to me, an evidential burden placed
on the appellants to show that there should be some discounting of the 1988
repair figures, rather than for the plaintiffs to actually volunteer a specific
discount.
What the judge did was to look carefully
at the specification and the estimates for each item. It was a carefully
carried out process, as one can see from that section of his judgment. No doubt
he was assisted by cross-examination of the plaintiffs’ expert witness. We do not
know to what extent that took place, but it seems obvious that Mr Hyde must
have been asked whether or not his figures made any allowance for betterment
and, indeed, if he accepted (as no doubt he did) that they did not, the
position was then that the question of betterment either was explored or at
least could have been explored. At any rate, it would have been aired with that
witness. Equally there seems to be little doubt but that it would have been
aired to some considerable extent in counsel’s submissions to the judge who had
before him the evidence of Mr Hyde — the specification and the figures put
forward as being the costs of repair. When the judge found an item which, in
his judgment, contained an element of apparent betterment, he discounted that
item for that element to the extent that seemed to him to be appropriate. For
example, half of the cost of redecorating was discounted in that way. For my
part, I cannot see what more could have been done or why he should not have
done precisely as he did.
Mr Seymour complains that the learned
judge acted without positive evidence of loss. He had positive evidence of loss
from Mr Hyde. He submits that there should also have been positive evidence of
the extent of betterment. I for my part do not accept that there was not some
evidence of betterment in the circumstances to which I have referred, and, with
that evidence available, it seems to me that the judge was entitled to proceed
as he did. Items which Mr Smith had discovered and reported upon were carefully
discounted in full, and in fact the judge made 14 separate discounts which
reduced by about three-eighths the total tender figure. It was, as it seems to
me, a factual exercise which the judge was entitled to carry out.
In my judgment, the third ground of
appeal which has been advanced before us has no more substance in it than the
preceding two and I would therefore dismiss this appeal.
Hobhouse LJ and Sir John Balcombe agreed and did not add anything.
Appeal dismissed with costs.