Negligence — Claim against building surveyor — Appeal against assessment of damages by Judge Bowsher QC in Official Referee’s Court — No appeal on liability — Important discussion of measure of damages for negligence in carrying out the structural survey of a house — Whether basis should be difference of value or cost of repairs — Prima facie rule laid down in Philips v Ward applies — Position where cost of repairs exceeds difference of value — Plaintiff not in general entitled to recover more than his loss — Surveyor does not as a rule give a warranty that the condition of the house was correctly described — Damages for ‘distress and inconvenience’ should be modest in amount and only for distress and inconvenience caused by physical consequences of breach of contract — Syrett v Carr & Neave wrongly decided — Appeal on damages allowed
held in the present case that the surveyor had been negligent in his survey of
the house purchased by the plaintiffs in reliance on his report — The
plaintiffs wanted a trouble-free house but found before long that it had
serious defects, not mentioned in the report, calling for substantial
expenditure — They purchased the house for £177,500 — At the trial of the
action the value of the house in its defective condition was established to be
£162,500, a difference of £15,000 — Judge Bowsher, however, awarded the
plaintiffs £33,961.55 on the basis of cost of repairs — (He assessed interest
at 15%, payable on either basis of assessment) — He also awarded the plaintiff
husband and wife £4,000 each for distress and inconvenience — In reaching his
decision Judge Bowsher relied largely on the reasoning set out in his previous
decision in Syrett v Carr & Neave — He said that the plaintiffs would have incurred
considerable loss and costs if they had decided to cut their losses by
reselling — He held that in the very difficult situation in which they found
themselves they had acted reasonably in deciding to repair the premises rather
then resell
of Appeal, particularly in the leading judgment of Ralph Gibson LJ, the basis
of assessment of damages in the case of the negligent survey of a private house
was subjected to a most rigorous and searching examination — The main points
were briefly as follows:
plaintiff the sum of money which will, so far as possible, put him in as good a
position as if the contract for the survey had been properly fulfilled —
Although the measure of damages cannot be governed by an inflexible rule
applicable to all cases, in the case of the purchase of houses by private
buyers Philips v Ward laid down a prima facie rule for securing the object, namely,
the payment of damages equal to the difference between the value of the
property in the condition described in the negligent report and the value as it
should have been described — If the cost of repairs would exceed the difference
of value, the ruling in Philips v Ward, where it applies, prohibits recovery of the excess because it
would give the plaintiff more than his loss — It would, in fact, give him
damages for breach of a warranty that the condition of the house was correctly
described by the surveyor
does not cover the circumstances; for example, the damages recoverable where
the plaintiff extricates himself from the transaction by resale are not
necessarily limited to the difference of value plus expenses
would not have bought the property does not of itself make the difference of
value rule inapplicable
Syrett v Carr & Neave were wrongly decided
followed by a decision to carry out repairs, does not alter the proper measure
of damages
a purchaser who buys a house in reliance on a negligent report, and who must
have the defects repaired in order to live in the house, which he wishes to do,
is deprived of the right to recover the cost of repairs — This may be
unfortunate but in the absence of a warranty there is no basis in such a case
for awarding the cost of repairs
inconvenience’ was made on the wrong basis and was in any case much too large —
The ordinary surveyor’s contract does not undertake to provide ‘peace of mind
and freedom from distress’ — The plaintiffs were not entitled to recover
general damages for mental distress unless due to physical discomfort or
inconvenience resulting from the breach of contract — Even then, only a
‘modest’ sum is appropriate
aside the judgment for £33,961 for cost of repairs and substituted £15,000,
being the difference of value, with interest at 15% from the date of payment
until judgment — As regards the award for ‘distress and inconvenience’ the
court substituted for each plaintiff £750 instead of £4,000
was allowed to the extent mentioned in the judgment of Ralph Gibson LJ. Applications
for leave to appeal to the House of Lords were refused
The following cases are referred to in
this report.
Addis v Gramophone Co Ltd [1909] AC 488
Bigg v Howard Son & Gooch [1990] 1
EGLR 173; [1990] 12 EG 111
Bliss v South East Thames Regional Health
Authority [1987] ICR 700
British Westinghouse Electric &
Manufacturing Co Ltd
v Underground Electric Railways Co of London Ltd [1912] AC 673; (1912)
81 LJKB 1132; 107 LT 325
Chekiang, The [1926] AC 637
County Personnel (Employment Agency) Ltd v Alan R Pulver & Co
[1987] 1 WLR 916; [1987] 1 All ER 289; [1986] 2 EGLR 246, CA
Cross v David Martin & Mortimer
[1989] 1 EGLR 154; [1989] 10 EG 110
Dodd Properties (Kent) Ltd v Canterbury City Council
[1980] 1 WLR 433; [1980] 1 All ER 928; [1980] EGD 229; (1979) 253 EG 1335,
[1980] 1 EGLR 15, CA
Groom v Crocker [1939] 1 KB 194; [1938]
2 All ER 394, CA
Hayes v James & Charles Dodd [1990]
2 All ER 815
Heywood v Wellers [1976] QB 446; [1976] 2
WLR 101; [1976] 1 All ER 300, CA
Hipkins v Jack Cotton Partnership [1989]
2 EGLR 157; [1989] 45 EG 163
Hobbs v London & South Western Railway
(1875) LR 10 QB 111
Jackson v Horizon Holidays Ltd [1975] 1
WLR 1468; [1975] 3 All ER 92, CA
Jarvis v Swans Tours Ltd [1973] QB 233;
[1972] 3 WLR 954; [1973] 1 All ER 71
Livingstone v Rawyards Coal Co (1880) 5 App
Cas 25, HL
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
Pinnock v Wilkins unreported, January 23
1990
Roberts v J Hampson & Co [1989] 2 All
ER 504; [1988] 2 EGLR 181; [1988] 37 EG 110
Steward v Rapley [1989] 1 EGLR 159;
[1989] 15 EG 198
Susquehanna, The [1926] AC 655
Svrett v Carr & Neave [1990] 2 EGLR
161; [1990] 48 EG 118
This was an appeal, on damages only, by
the defendant, Mr Ralph Morrow FRICS, from the decision of Judge Bowsher QC,
sitting as an official referee, in the action by the plaintiffs, Ian Roscoe
Watts and his wife, Lesley Mary Samuel Watts, concerning the survey report made
by the defendant on Nutford Farm House, Blandford, Dorset. The decision by
Judge Bowsher is reported at [1991] 1 EGLR 150.
Rupert Jackson QC and Iain Hughes
(instructed by Pinsent & Co) appeared on behalf of the appellant; Philip
Naughton QC and Jonathan Acton Davis (instructed by Goodman Derrick & Co)
represented the respondents.
Giving the first judgment at the
invitation of Sir Stephen Brown P, RALPH GIBSON LJ said: This is an
appeal by the defendant, Mr Ralph Morrow FRICS, a building surveyor, against
the judgment obtained by the plaintiffs, Mr and Mrs Watts, on November 9 1990,
after trial of the action by His Honour Judge Bowsher QC. The action arose out
of a negligent survey report by the defendant made in August 1986 upon Nutford
Farm House, Blandford in Dorset, which the plaintiffs were proposing to buy and
thereafter bought. The judgment awarded £33,961.35 for the cost of certain
repairs to the house, with £12,839.87 for interest, and £8,000 (£4,000 for each
plaintiff) for ‘distress and inconvenience’ with interest of £477.81. At the
trial liability was in issue but the defendant’s appeal is on damages only. He
contends, first, that the judge was wrong in law to award damages based upon
the cost of repairs and that the award should have been, on the basis of
diminution in value or excess purchase price paid, in the sum of £15,000;
second, that any award for distress and inconvenience was wrong in law,
alternatively that the award of £8,000 was excessive; and, third, that the award
of interest was based upon an excessive rate.
The case raises questions of general
importance both for surveyors of houses and for those who buy houses in
reliance upon survey reports. The defendant contends that the learned judge has
disregarded the rule which, since 1956 at least, has been generally held to
apply to such cases as this. The plaintiffs assert that there is no such rule
or, if there is, that it is wrong to apply it in this case. It is necessary to
set out the facts in some detail.
Summary of the facts
(i)
Mr Watts is a stockbroker employed by Barclays de Zoete Wedd UK Equities
Ltd. Mrs Watts, a solicitor, is a director of Kleinwort Benson Ltd, merchant
bankers. In 1986 they were married and living in a house in Cloudesley Road,
Islington. They decided to look for a country house for use at weekends and
holidays.
(ii)
Their case at trial was that they both wanted a house which would be, so
far as possible, trouble free and into which they could move without the need
for any substantial works of repair. It was to be a second home for use at
weekends and holidays. Each had a substantial income but considered that,
although they could buy a new house within a budget of £170,000, they could not
afford to buy a house which required the carrying out of any expensive repairs.
Further, they did not have the time or energy to get involved in doing up a
house which required extensive repairs or improvements.
(iii)
Mr Watts found and ‘fell in love with’ the house. It was a larger house
than Mrs Watts had expected to buy but, as she said, ‘it was very beautiful, a
house with a heart, and difficult to resist’, built in the 18th and 19th
centuries. The house is substantial with 0.75 acre of garden and 3 acres of
paddock. It is near the River Stour and the vendor was willing to let the
purchaser have some fishing rights.
(iv)
The asking price of the house was £175,000. There was another
prospective purchaser. The plaintiffs decided to offer £177,500. That was
acceptable to the vendor. Before entering into a contract to buy, the
plaintiffs decided to get a full and detailed survey to ensure that there were
going to be no unexpected costs.
(v)
Mr Watts instructed the defendant in August 1986. The defendant was
asked to provide a full structural survey of the house. Mr Watts told Mrs
Morrow, who received the instructions, that he wanted to be sure that the
£177,500 offered was the right price in the current market.
(vi)
On August 26 the defendant sent to Mr Watts his structural report on the
property. The fee charged was £400 plus disbursements and VAT. The report was
detailed and long. It mentioned many defects and made recommendations for repairs,
but the plaintiffs found it reassuring. The general criticism made of the
report, which the learned judge held to have been made out, was that, as a
recurring theme, the defendant pointed out a defect in the house and then gave
a reassurance that the defect could be dealt with as a part of ordinary ongoing
maintenance and repair. The ‘conclusion’, which summarised the tone of the
report although not all its detail, was as follows:
Despite earlier minor settlement I found
the overall dwelling-house to be sound, stable and in good condition. Attention
is particularly required to the sometime eradication of wood borer in roofing
timbers, and to minor works of eradicating continued dampness in ground-floor
walls. Ideally some insulation would be introduced to upper ceiling areas, but
in general, the defects referred to within this report can normally be
identified as being associated with regular maintenance required of a building
of this age and type.
The foul drainage arrangements, while
apparently adequate, and [sic] not ideal, and some further rationalisation and
improvement of this may be required in the sometime future, but with attention
given to the various aspects referred to within this report, which could well
be attended to on an ongoing basis, I am satisfied that a comfortable and
largely trouble-free dwelling of considerable charm can be attained.
Nothing was said in the report about the
value of the house.
(vii)
On receiving the report the plaintiffs read it with care and, as the
judge held, reasonably concluded that there was nothing to suggest that any
major repairs would be required in the foreseeable future and that nothing was
required which could not wait until between them they had funds to spare for
such work. Mr Watts by telephone asked the defendant whether the price of
£177,500 was fair and whether the repairs which the defendant had recommended
would result in substantial expenditure. The defendant replied that the
valuation was fair and that no repairs would be substantial in terms of cost.
That reply was not relied upon as constituting a warranty, whether express or
implied.
(viii)
In reliance upon the report the plaintiffs decided to buy the house. The
contract was made on October 15 1986 at the price of £177,500. It was agreed
that completion would be deferred and it took place on April 10 1987 with the
assistance of a mortgage loan from Kleinwort Benson to the plaintiffs on
ordinary commercial terms.
(ix)
Defects were discovered in the house beyond those of which warning was given
in the defendant’s report. After taking possession in 1987 Mr Watts asked Mr
White, a builder, for a quotation for work which included the remedying of
certain defects identified by the defendant, namely the roof flashing and
defective windows. On examining the house for those purposes, Mr White informed
Mr Watts of other defects and Mr Peter Wadey FRICS was then instructed to carry
out a full structural survey. His report, dated August 3 1987, included the
following: (a) that the roof was due for renewal with felting, rebattening and
retiling; (b) the chimneys and main walls required repointing in places; (c)
lead flashings needed to be installed; (d) window casements and frames
generally needed to be upgraded and replaced; (e) the first-floor timbers
needed specialist woodworm treatment and refixing of firring pieces with
extensive renewal of floor boarding. He reported other defects as well which
were not relied upon against the defendant at the trial.
(x)
If Mrs Watts had known of the defects described in Mr Wadey’s report she
would not have gone ahead with the purchase. If Mr Watts had known of those
defects he would either not have agreed to buy the house or would have agreed
to buy only if he had been able to negotiate a substantial reduction in the
price based on quotations for the work recommended to roof, to floors and to
windows.
(xi)
Upon receipt of Mr Wadey’s report it was obvious to Mr Watts that
building costs running into many thousands of pounds would have to be done
urgently. He obtained advice as to his right to claim redress in law for the
failure of the defendant to describe the condition of the roof accurately. A
formal letter before action was sent. Liability was denied.
(xii)
Mr Watts then asked the builder to prepare an estimate for the repairs
described in Mr Wadey’s report. In September and October Mr White carried out
the work to the roof and on November 3 1987 he was paid £11,212.50 for that
work.
(xiii)
On November 11 1987 the writ was issued and in March 1988 the statement
of claim was served. The main allegation was that the defendant had negligently
failed to observe and advise the plaintiffs that the house was in a defective
condition. The loss and damage alleged were, first, the difference between the
price paid and the value of the house and, in addition, the cost of repairs, of
alternative accommodation, of furniture removal and storage, for loss of use of
the property and for the cost in investigation of the defects. There was no
allegation of negligent valuation.
(xiv)
Between April and October 1988, for a period of six months, the other
works, in respect of which claims were made at the trial, were carried out.
Because claims in the action were to be made in respect of the work, it was
carried out under separate quotations. The times of doing the work and the
amounts paid were:
(a)
replacing the first-floor flooring £6,840.01: before May 20 1988;
(b)
first-floor windows £7,196.70: before July 9 1988;
(c)
exterior brickwork £4,507.42: before September 9 1988;
(d) flooring £4,204.72: before October 28 1988.
Those sums, together with the cost of the
roof repairs, make up the total of £33,961 awarded as special damages.
(xv)
The cost of carrying out those repairs was paid by the plaintiffs by
borrowing money. It was the plaintiffs’ case that, when the defendant was
instructed and made his negligent report, and when the plaintiffs entered into
the contract to purchase in October 1986, although the plaintiffs were both
high earners, they were ‘strapped for cash’, and hence the importance to them
of knowing what the likely financial burdens would be from buying the house.
However, between 1986 and 1988 the earned income of both plaintiffs
substantially increased. Mrs Watts in 1986 received a salary of £41,000 and a
bonus of £6,000 paid in January 1987. Her salary for 1987 was £70,000 and her
bonus in January 1988 was £40,000. As to Mr Watts, he earned ‘very
substantially more during 1987 and subsequent years than . . . anticipated at
the time of purchase’. In consequence, the plaintiffs were able to finance the
cost not only of the repairs in respect of which the sums listed above were
paid but also other repairs (of which the defendant was not said negligently to
have failed to inform the plaintiffs) and, in addition, to ‘decorate and
refurbish’ the house to a high standard. Mr Watts pointed out that ‘this
process of refurbishment was considerably delayed by the need to undertake the
repairs which had neither been foreseen nor budgeted for’. The sum expended on
all the repairs, decoration and refurbishment was in excess of £150,000.
(xvi)
The circumstances which gave rise to the claim for damages for
‘distress, worry, vexation and inconvenience’ were described by Mr Watts as
follows:
The quality of our life was very seriously
affected. We had bought the house on the basis . . . that apart from regular
maintenance, the property would not require attention. In the event, for eight
months we spent almost every weekend staying in a building site. The conditions
were quite deplorable. At various times there was scaffolding around the
entirety of the house, the first-floor floor boards and the first-floor windows
were removed in sequence. There was constant dirt and dust permeating the air.
Moving our possessions from room to room in accordance with the builder’s
requirements was a recurrent nightmare and our possessions and furniture became
dirty. From time to time there was no internal sanitation and we could not
bathe. [We] were forced to spend extended periods out of our first-floor
bedroom, living and sleeping in the unheated, undecorated attic rooms. We were
most reluctant to entertain our friends and were completely unable to entertain
clients.
Throughout the period of building works
[we] continued to spend weekends at the house. As there was no supervising
architect or surveyor . . . the only supervision was that provided by me. I
believed it to be essential that I spent as much time as possible with the
builders to provide them with an incentive to get on with it, to ensure that
the work was done to the requisite standard and to provide guidance with the
numerous minor problems which arose. I met the builder at the property
virtually every weekend.
Our summer holiday in 1988, which we had
planned to spend in the house, was spent in a hotel in the Western Isles at an
unplanned cost of £880. Both [of us] were employed in extremely stressful
occupations in the City . . . Weekend relaxation was essential to us both in
terms of our physical well-being and our capacity to perform our jobs to the
requisite standard. The denial of that relaxation by virtue of the building
works caused us both great distress. I believe that it was, at the very least,
a contributory cause to the unfortunate breakdown of our marriage, which
culminated in our separation late in 1989.
The plaintiffs were divorced in April
1990 having separated early in 1989. Mr Watts still owns and occupies the
house. Mrs Watts lives in the house in Islington.
(xvii)
As to the ground of liability, the judge held that the plaintiffs had
reasonably concluded from the defendant’s report of August 1986 that no major
repairs would be required in the foreseeable future and that nothing was
required which could not wait until the two plaintiffs between them had the
funds to spare for such work. There was, of course, no finding that the
defendant had warranted the absence of any need for major repairs. No such
warrant was alleged.
(xviii)
As to the difference in value, it was the unchallenged evidence of Mr
Wadey, who gave evidence for the plaintiffs at the trial, that in October 1986,
the date of the contract to purchase, the value of the house in its true
condition was £162,500. It has been common ground in this court that in
reliance on the defendant’s advice, the plaintiffs paid for the property
£15,000 more than the property was worth in its true condition.
The judge’s grounds of decision
The judge accepted the evidence of the
plaintiffs. As to the measure of damages for the consequences of the negligent
advice, the judge accepted that the damages were to be assessed either on the
cost of repairs or on the difference in value. He directed himself by reference
to the principles stated by Bingham LJ in County Personnel (Employment
Agency) Ltd v Alan R Pulver & Co [1987] 1 WLR 916* at p 925,
namely (in brief summary) that the ‘diminution in value’ rule is almost always
appropriate where property is acquired following negligent advice by surveyors;
but that that is not an invariable approach and should not be mechanistically
applied in cases where it may appear inappropriate. He observed that the
circumstances of the present case were remarkably similar to the facts in Syrett
v Carr & Neave [1990] 2 EGLR 161, a case also decided by him. The
learned judge then, after reference to the receipt by the plaintiffs of Mr
Wadey’s report on August 3 1987, stated the ground of his decision in
accordance with his reasoning in Syrett as follows:
If the plaintiffs had then sought to cut
their losses by reselling, they would have incurred very considerable costs in
reselling (in the shape of agents’ and solicitors’ fees and stamp duty) and in
finding a new property if that had been their chosen course of action.
In addition, they might have incurred a
very substantial loss on the resale in very different market conditions and
when they were selling what would have become a suspect house, and they would
have had to devote much time to the sale of the house. In the very difficult
position in which they found themselves, I find that they acted entirely
reasonably in deciding to repair the premises rather than resell.
*Editor’s note: Also reported at [1986] 2
EGLR 246.
He therefore held that the plaintiffs
were entitled to recover damages assessed as the cost of repair of the premises
as to those items of which complaint had been made, namely £33,961.35. It is to
be noted that there was nothing in the plaintiffs’ pleaded case as to what
costs they would have incurred upon reselling.
As to the claim for general damages for
distress and inconvenience the judge rejected the submission for the defendant,
based upon Hayes v James & Charles Dodd [1990] 2 All ER 815
CA, that such damages are not recoverable in this class of case. That case, he
held, did illustrate features for which damages of that sort should not be
awarded. He noted the reference to the physical consequences of the breach of
duty as justifying an award in the judgment of Kerr LJ [in Perry v Sidney
Phillips & Son [1982] 3 All ER 705†
at p 712 as cited by Staughton LJ in Hayes v Dodd at p
823G]. As a matter of policy, in Staughton LJ’s view [at p 824A], damages for
mental distress in contract are limited to certain classes of case including ‘.
. . where the contract which has been broken was itself a contract to provide
peace of mind or freedom from distress . . .’: see per Dillon LJ in Bliss
v South East Thames Regional Health Authority [1987] ICR 700 at p 718.
The judge held that, on the authorities cited, in appropriate circumstances a
negligent surveyor of a residential property, which he has undertaken to survey
for a prospective purchaser of the property who intends to live there, may be
liable to his client in damages to compensate him or her for inconvenience and
distress arising out of living in the property but not out of litigation
about it. The judge commented that a prospective buyer of a house goes to a
surveyor not just to be advised on the financial advisability of one of the more
important transactions of his life but also to receive reassurance that when he
buys the house he will have ‘peace of mind and freedom from distress’.
† Editor’s note: Also reported at (1982)
263 EG 888, [1982] 2 EGLR 135.
As to the amount of damages, they should
be on a scale which is not excessive but modest: see per Lord Denning MR
in Perry v Sidney Phillips & Son [1982] 1 WLR 1297 at pp
1302, 1303. The judge then set out the description of the distress and
inconvenience which the plaintiffs suffered in the house, limited to weekends,
in the terms set out in the proof of Mr Watts repeated in para (xvi) above. The
judge declined to allow the £880, the cost of the holiday in 1988, as special
damages, but held that it was to be taken into account in assessing general
damages for distress and inconvenience. He rejected the contention that, since
the plaintiffs had voluntarily undertaken works going far beyond the works the
subject of the action, therefore their alleged distress and inconvenience
should be discounted. The answer of Mr Watts had been that, once it became
necessary to do certain works, other works naturally followed: for example,
once the floor had to come up it was only natural and sensible that the wiring
and under-floor plumbing also should be dealt with, even though those matters
would not normally have been considered for some years. The judge held that
answer of Mr Watts to be sensible and well founded. The judge also considered, although
the point had not been argued for the plaintiffs, whether the breakdown of the
plaintiffs, marriage could be taken into account and held that, as a matter of
policy, it could not be. The judge then held that the totality of the distress
and inconvenience, assessed on a modest scale, should be set at £4,000 for each
plaintiff.
As to interest, the judge was invited by
counsel for the plaintiffs to allow interest at 15% on the award in respect of
damages based on the cost of repairs. The contention for the defendant was that
interest should be at the short-term interest account rates. Judge Bowsher,
without giving any detailed reasons, held that the appropriate rate of interest
was 15% on the £33,961.35 calculated from the dates of payment by the plaintiffs
and 2% on general damages.
The contest on the main issue: diminution
in value or cost of repairs?
Before describing the submissions which
have been made on this appeal it is necessary to refer to the decisions of this
court in Philips v Ward [1956] 1 WLR 471 and Perry v Sidney
Phillips & Son [1982] 1 WLR 1297 to which detailed reference has been
made in the submissions of counsel. In Philips the plaintiff, in
reliance upon a negligent report by a surveyor, purchased in June 1952 for
£25,000 an Elizabethan manor house farm consisting of a house, two cottages and
some land. The surveyor failed to report that the timbers of the house were
badly affected by death-watch beetle and worm so that the only course was to
replace the roof by a new roof and to rebuild the timbers etc. The market value
of the property in its actual condition was £21,000. After moving into the
house with his family the plaintiff found that it would require an additional
expenditure of £7,000 at 1952 prices to put the property into the condition in
which it had been described in the report. The plaintiff claimed, among other
heads of claim, the cost of repairs ruling at the date of trial. The official
referee awarded £4,000, namely the difference between the value of the property
as it should have been described and its value as described. This court
(Denning, Morris and Romer LJJ) held that the proper measure of damages was the
difference in money between the value of the property in the condition
described and its value as it should have been described, namely £4,000. It is
necessary to set out some passages in the judgments. It has been common ground
on this appeal that the diminution in value rule is more accurately to be
expressed as the difference between the price paid and the value in its true
description at least where no point is taken, as in this case, that the
plaintiff chose to pay above market value.
Denning LJ at p 473 said:
I take it to be clear law that the proper
measure of damage is the amount of money which will put Mr Philips into as good
a position as if the surveying contract had been properly fulfilled: see British
Westinghouse Electric & Manufacturing Co Ltd v Underground Electric
Railways Co [1912] AC 673, 689, per Lord Haldane LC. Now if [the
surveyor] had carried out his contract, he would have reported the bad state of
the timbers. On receiving that report, Mr Philips would either have refused to
have anything to do with the house — in which case he would have suffered no
damage — or he would have bought it for a sum which represented its fair value
in its bad condition — in which case he would pay so much less on that account.
The proper measure of damages is therefore the difference between the value in
its assumed good condition and the value in the bad condition which should have
been reported to the client.
We were referred to the cases where a
house is damaged or destroyed by the fault of a tortfeasor. These cases are, I
think, different. If the injured person reasonably goes to the expense of
repairing the house, the tortfeasor may well be bound to pay the cost of
repair, less an allowance because new work takes the place of old: see Lukin
v Godsall (1795) Peake Add Cas 15 and Hide v Thornborough
(1846) 2 Car & Kir 250. In other cases, the tortfeasor may only have to pay
the value of the house: see Moss v Christchurch Rural District
Council [1925] 2 KB 750. It all depends on the circumstances of the case:
see Murphy v The County Council of Wexford [1921] 2 Ir R 230. The
general rule is that the injured person is to be fairly compensated for the
damage he had sustained, neither more nor less.
Later in his judgment at p 474 Denning LJ
said:
So also in this action, if Mr Philips
were to recover from the surveyor the sum of £7,000, it would mean that Mr
Philips would get for £18,000 (£25,000 paid less £7,000 received) a house and
land which were worth £21,000. That cannot be right. The proper amount for him
to recover is £4,000.
Morris LJ at p 475 said:
In my judgment, the damages to be
assessed were such as could fairly and reasonably be considered as resulting
naturally from the failure of the defendant to report as he should have done .
. . It is said . . . that [the official referee] was not warranted in
proceeding on the basis . . . of the difference between the value of the
property as it was described in the defendant’s report and its value as it
should have been described. In my view, however, that was the correct basis on
the facts of this case.
Romer LJ, after giving the same reasons
for holding that the diminution in value was the correct measure of damages,
said at p 478:
It may well be that if, on learning of
the real condition of the house, he had decided to leave and resell, he would
have been entitled to recover from the defendant, in addition to the £4,000,
his costs and expenses of moving in and moving out and of the resale. As,
however, he elected to stay, after all the facts had become known to him, this
point does not arise.
In the case of Perry in 1982 the
surveyor failed to observe serious defects, including a leaking roof and a
septic tank with an offensive smell. The plaintiff could not afford major
repairs and executed only minor repairs himself. At the date of the trial the
plaintiff was still occupying the house as his home. The judge awarded damages
assessed in respect of repairing the defects as at the date of trial in 1981.
Between the date of the trial and the hearing of the appeal the plaintiff sold
the property for £43,000. He had paid £27,000 in 1976 in reliance upon the
negligent report. It was acknowledged by the plaintiff that sale of the house
without repairs having been executed made it difficult to support the award
based upon the cost of repairs and his contention was that damages should be
assessed on the basis of the difference in market value of the property as
between its value taking into account the defects for which the judge found
liability established and its value in the condition which the defendants
reported it to be either on the basis of values at the date of the report or at
the date of judgment.
Lord Denning at p 1301, after reference
to the measure of damages for breach of contract to build a house, or to do
repairs to it, or in respect of damage done to it (Dodd Properties (Kent)
Ltd v Canterbury City Council [1980] 1 WLR 433*), continued:
. . . where there is a contract by a
prospective buyer with a surveyor under which the surveyor agrees to survey a
house and make a report on it — and he makes it negligently — and the client
buys the house on the faith of the report, then the damages are to be assessed
at the time of the breach, according to the difference in price which the buyer
would have given if the report had been carefully made from that which he in fact
gave owing to the negligence of the surveyor. The surveyor gives no warranty
that there are no defects other than those in his report. There is no question
of specific performance. The contract has already been performed, albeit
negligently. The buyer is no entitled to remedy the defects and charge the cost
to the surveyor. He is only entitled to damages for the breach of contract or
for negligence. It was so decided by this court in Philips v Ward
[1956] 1 WLR 471, followed in Simple Simon Catering Ltd v Binstock
Miller & Co (1973) 117 SJ 529.
*Editor’s note: Also reported at (1979)
253 EG 1335, [1980] 1 EGLR 15.
Oliver LJ at p 1304C said:
The position as I see it is simply this,
that the plaintiff has been misled by a negligent survey report into paying
more for the property than that property was actually worth. The position, as I
see it, is exactly the same as that which arose in Philips v Ward
. . . and in the subsequent case of Ford v White & Co [1964]
1 WLR 885.
At p 1304F Oliver LJ continued:
I see nothing . . . which justifies the
proposition . . . that damages are to be assessed on the basis of some
hypothetical value at the date of the trial because
not to cut his loss by reselling it . . . the right measure of damage is the
measure suggested in both Philips v Ward . . . and Ford v White
& Co. . . . which is simply the difference between what the plaintiff
paid for the property and its value at the date when he obtained it.
Kerr LJ at p 1306 reserved his view as to
whether in a case like this the approach by way of cost of repairs is
necessarily right since the point had not been argued.
Mr Jackson, in support of the contention
that the judge was wrong in law in failing to apply the diminution in value
rule, submitted that this case on the facts cannot be validly distinguished
from, and should therefore be decided in accordance with, the decision of this
court in Philips by awarding no more than the sum of £15,000, together
with interest. Philips was, he submitted, a decision in which, upon
analysis of the ordinary relationship between the purchaser of a dwelling-house
and the surveyor advising him as to the condition of that house, this court was
applying, and not failing to apply, what has been called the ‘overriding rule’
of restitution in relation to damages, that is as stated by Lord Blackburn in Livingstone
v Rawyards Coal Co (1880) 5 App Cas 25, or as stated by Lord Haldane LC
in British Westinghouse Electric & Manufacturing Co Ltd [1912] AC
673, to which Denning LJ referred in his judgment in Philips. That was
recognised by this court in County Personnel v Pulver where, in a
passage cited by Judge Bowsher in his judgment in this case*, Bingham LJ said,
after reference to the overriding rule of restitution, at p 925F:
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 . . .
*Editor’s note: The passage cited by
Judge Bowsher was from his own earlier judgment in Syrett v Carr
& Neave [1990] 2 EGLR 161 at pp 164K-165J.
In commenting upon the judge’s findings
of fact with reference to the plaintiffs’ decision not to resell but to carry
out repairs, Mr Jackson submitted that, since on the plaintiffs’ expert
evidence the value of the house in its true condition in August 1987 was
£185,000 (£7,500 more than the plaintiffs had paid in April 1987), the plaintiffs
could have sold, have paid the sums wasted on fees etc, and have been in the
same financial position in August 1987 as immediately before exchange of
contracts. This point was made, as I understood the argument, not in order to
justify application of the diminution in value rule (which was submitted to be
correctly applied irrespective of the financial consequences on resale), nor to
criticise the finding that it was reasonable for the plaintiffs not to resell —
it was conceded that it was reasonable if the plaintiffs wished so to act for
their own purposes — but to demonstrate the consequences of the application of
the rule to either course of conduct which the plaintiffs might have chosen to
follow.
Mr Jackson drew to the court’s attention
a large number of cases decided since Philips in which the diminution in
value rule had been applied. He submitted that in those cases where the
diminution in value rule had not been applied, and where there was no
justification on the facts for not applying it, the decisions were wrong,
including, in his submission, Hipkins v Jack Cotton Partnership
[1989] 2 EGLR 157, Scott Baker J, and Syrett v Carr & Neave
[1990] 2 EGLR 161, Judge Bowsher.
For the plaintiffs, Mr Naughton submitted
that the judge was right in his conclusion for the reasons given by him. The
judge had correctly applied the overriding rule of restitution. This court, it
was said, in Philips had not laid down any particular rule which the
judge was required to follow so as to prevent application of that overriding
rule: he referred to the Chekiang [1926] AC 637 and to the Susquehanna
[1926] AC 655 for support for the proposition that a rule cannot be laid down
which will apply to the measure of damages in cases of a particular category if
application of the rule in a particular case in that category will result in
departing from the rule of restitution.
The substance of Mr Naughton’s submission
on the facts of this case was that the plaintiffs had bought the house in
reliance upon the report of the defendant as to its condition; the house was
not in the condition described; in consequence the plaintiffs spent £33,961 to
put the house in the condition in which, on reading the defendant’s report,
they believed the house to be; and, therefore, if the damages be limited to
£15,000, in accordance with the diminution in value rule, the overriding rule
of restitution is not satisfied.
Mr Naughton was willing to concede that
the principle in Philips, in so far as it can be regarded as a prima
facie rule for the measure of damages in a claim against a negligent
surveyor, is applicable in, but, he said, only in, a case where it is clear
that the plaintiffs would have bought the house anyway, ie even if it had been
accurately described by the surveyor. He referred to and relied upon Hayes
v Dodd [1990] 2 All ER 815 CA, a case of negligent advice by solicitors
as to the existence of a necessary right of way for the use of land for a motor
repair business by the clients who bought that land. Properly advised, the
clients would not have bought the premises. Staughton LJ referred to such a
case as a ‘non-transaction case’ and contrasted it with a case where the
claimant would still have bought the property if he had been correctly advised
as to its condition, which he referred to as a ‘successful transaction’ case.
In that case, the plaintiffs recovered damages on the basis that it was a ‘no
transaction’ case and damages were awarded in the amount of the capital
expenditure thrown away in the purchase of the business and the expenses
incurred in extricating themselves from the purchase. He relied also on Steward
v Rapley [1989] 1 EGLR 159 CA where, he submitted, in a claim against a
negligent surveyor, Staughton LJ again held that, in a ‘no transaction’ case,
the cost of repairs as contrasted with the diminution in value may be the
appropriate measure of damage.
Mr Naughton made detailed submissions
designed to show that, if these plaintiffs, on discovering the defects missed
by the defendant, had decided to sell the house, the damages which they would
have suffered, and which would have been recoverable from the defendant, would
have been substantial and probably greater than the £33,961, the cost of
repairs. In outline, those damages, it was said, would have included at least
£8,733 for agent’s commission and solicitor’s fees on resale; removal costs;
solicitor’s fees and stamp duty on a replacement purchase; the loss on resale,
which would have been £17,250; the costs of seeking an alternative property;
the increase in cost of the replacement house in the sum of at least £25,800,
being 15% on £172,000; and the wasted cost of borrowing the purchase price of
the house, which Mr Naughton put at £1,000 per month from completion in April
1987 until resale at earliest some months after August 1987 when Mr Wadey’s
report was received. The points made by reference to these potential losses on
resale were, as I understood the argument, primarily intended to answer the
submission made by Mr Jackson; then, first, to show that the award of the cost
of repairs at £33,961 is thus shown to be moderate and not excessive; second,
that the nature and extent of such damages upon resale had been left out of
account in the reasons given by the members of this court in Philips;
and, third, by demonstrating the unreality of any suggestion that the
plaintiffs could sensibly have chosen to sell the house instead of deciding to
repair it, to make good the judge’s ruling that the plaintiffs are entitled to
recover the cost of repairs because, as in Syrett, the plaintiffs had
had no real opportunity of cutting their losses by reselling.
I have given no more than a brief summary
of Mr Naughton’s argument in which he referred to a number of cases and to the
comments made in text-books. The argument followed the reasoning in Judge
Bowsher’s judgment in Syrett and the suggestion made in Professional
Negligence, Dugdale and Stanton, 2nd ed, 1988, para 20.34, where it was
submitted that if, being correctly advised, the plaintiff would have withdrawn,
the natural measure of his loss is to indemnify him against the losses incurred
as a result of acquiring the property; that the correct measure of damage,
despite the decision in Philips, is the cost of repair provided that it
is ‘reasonable for him to retain the property and to incur the cost of
repairs’; and that such an award does not ‘amount to a surveyor warranting the
quality of the building, it merely reflects the losses which the plaintiff
incurs and needs to be indemnified against’.
The reasoning of Judge Bowsher in Syrett’s
case, and the argument based upon the alleged potential unfairness of the
application of the diminution in value rule, particularly in cases of the
purchase of dwelling-houses by purchasers of limited means, makes it necessary
to try to test the ruling in Philips by reference to basic principles in
a variety of possible situations. In the end, I have reached the conclusion
that the defendant is right in his contentions on this issue and that, on the
facts of this case, the financial loss of the plaintiffs is in law limited to
the diminution in value of £15,000 with interest therein. My reasons are as
follows.
The task of
the court is to award to the plaintiffs that sum of money which will, so far as
possible, put the plaintiff into as good a position as if the contract for the
survey had been properly fulfilled: see
case, as in Philips, was the usual contract for the survey of a house
for occupation with no special terms beyond the undertaking of the surveyor to
use proper care and skill in reporting upon the condition of the house.
The decision in Philips’ case was
based upon that principle: in particular, if the contract had been properly
performed either the plaintiff would not have bought, in which case he would
have avoided any loss, or, after negotiation, he would have paid the reduced
price. In the absence of evidence to show that any other or additional
recoverable benefit would have been obtained as a result of proper performance,
the price will be taken to have been reduced to the market price of the house
in its true condition because it cannot be assumed that the vendor would have
taken less.
The cost of doing repairs to put right
defects negligently not reported may be relevant to the proof of the market
price of the house in its true condition: see Steward v Rapley
[1989] 1 EGLR 159 CA; and the cost of doing repairs and the diminution in value
may be shown to be the same. If, however, the cost of repairs would exceed the
diminution in value, then the ruling in Philips, where it is applicable,
prohibits recovery of the excess because it would give to the plaintiff more
than his loss. It would put the plaintiff in the position of recovering damages
for breach of a warranty that the condition of the house was correctly
described by the surveyor and, in the ordinary case as here, no such warranty
has been given.
It is clear, and it was not argued to the
contrary, that the ruling in Philips may be applicable to the case where
the buyer has, after purchase, extricated himself from the transaction by
selling the property. In the absence of any point on mitigation, the buyer will
recover the diminution in value together with costs and expenses thrown away in
moving in and out and of resale: see Romer LJ in Philips. I will not
here try to state the nature or extent of any additional recoverable items of
damage.
The damages recoverable where the
plaintiff extricates himself from the transaction by resale are not necessarily
limited to the diminution in value plus expenses. The consequences of the
negligent advice and of the plaintiff’s entering into the transaction into
which he would not have entered if properly advised, may be such that the
diminution in value rule is not applicable. An example is the case of County
Personnel v Pulver [1987] 1 WLR 916 CA, a case of solicitors’
negligence, where the plaintiff recovered the capital losses caused by entering
into the transaction.
It is also clear, and again there was no
argument for the plaintiffs to the contrary, that, if the plaintiff would have
bought the house anyway, if correctly advised, the ruling in Philips is
applicable: the fact that after purchase he discovers that the unreported
defects will cost more than the diminution in value does not entitle him to
recover the excess. That is, again, because, if the contract had been performed
properly, he would have negotiated and, absent proof of a different outcome,
would have done no better than reduction to the market value in true condition.
It was rightly acknowledged for the
plaintiffs that proof that the plaintiff, properly advised, would not have
bought the property does not by itself cause the diminution in value rule to be
inapplicable. It was contended, however, that it becomes inapplicable if it
also proved that it is reasonable for the plaintiff to retain the property and
to do the repairs. I cannot accept that submission because:
(i)
the fact that it is reasonable for the plaintiff to retain the property
and to do the repairs seems to me to be irrelevant to determination of the
question whether recovery of the cost of repairs is justified in order to put
the plaintiff in the position in which he would have been if the contract, ie
the promise to make a careful report, had been performed. The position is no
different from that in Philips: the plaintiff would either have refused
to buy or he would have negotiated a reduced price. Recovery of the cost of
repairs after having gone into possession, that is to say in effect the
acquisition of the house at the price paid less the cost of repairs at the
later date of doing those repairs, is not a position into which the plaintiff
could have been put as a result of proper performance of the contract. Nor is
that cost recoverable as damages for breach of any promise by the defendant
because, as stated above, there was no promise that the plaintiff would not
incur any such cost.
(ii)
In the context of the contract proved in this case, I have difficulty in
seeing when or by reference to what principle it would not be reasonable for
the purchaser of a house to retain it and to do the repairs. He is free to do
as he pleases. He can owe no duty to the surveyor to take any cheaper course.
The measure of damages should depend, and in my view does depend, upon proof of
the sum needed to put the plaintiff in the position in which he would have been
if the contract was properly performed, and a reasonable decision by him to
remain in the house and to repair it, upon discovery of the defects, cannot
alter that primary sum which remains the amount by which he was caused to pay
more than the value of the house in its condition.
(iii)
If the rule were as contended for by the plaintiffs, what limit, if any,
could be put on the nature and extent of the repairs of which the plaintiff
could recover the cost? Mr Naughton
asserted that the cost of repairs awarded in this case was no more than putting
the house in the condition in which, on reading the report, they believed the
house to be. That, however, contains no relevant standard of reasonableness
because, again, the defendant did not warrant that description to be true. To
argue that to award damages on that basis is not to enforce a warranty never
given but merely to ‘reflect the losses which the plaintiffs have incurred’
seems to me to be a circular statement.
(iv)
I have considered whether the reasonableness of the amount which a
plaintiff might recover towards the cost of repairing unreported defects in
excess of the diminution in value might be determined by reference to the
amount which the plaintiff could recover if he sold the property: ie the
diminution in value plus any other recoverable losses and expenses. Such a
limit was not contended for by Mr Naughton. It has the apparent attraction of
enabling a plaintiff who chooses to retain the property to recover as much as
he would recover if he chose to sell it. It seems to me, however, to be
impossible to hold that such is the law in the case of such a contract as was
made in this case. The plaintiff must, I think, prove that the loss which he
claims to have suffered was caused by the breach of duty proved and he cannot
do that by proving what his loss would have been in circumstances which have
not happened.
It is necessary to test the conclusion
which I have reached as set out above by examining the cases of Hipkins
and Syrett, which Mr Jackson submitted were wrongly decided.
In Hipkins Scott Baker J held that
application of the diminution in value rule would manifestly not do justice in
that particular case. On applying that rule the damages would have been £8,900
with interest from the summer of 1981. The cost of repairs which the plaintiff
was held reasonably to have carried out in 1985, after advice in 1982 to ‘wait
and see’, was £14,211. I accept that, if I am right in the conclusion which I
have described above, there is no valid ground of distinction reported in Hipkins
and that, therefore, the award on the facts found should have been £8,900 with
interest.
Next, in Syrett the reasoning of
Judge Bowsher may be summarised, I think, as follows. He held that it was to be
inferred that in Philips the purchaser, on discovering the defect on
moving in, had the choice between selling the property at its true value,
making the loss which was less than the then cost of repairs, or of doing the
repairs. To award in those circumstances the cost of doing the repairs would
have been to give him a benefit to which he was not entitled in the absence of a
warranty from the surveyor as to the state of the property. There was, however,
no such giving of a benefit to which the plaintiff was not entitled on the
facts in Syrett, because instant resale would not, at that date, have
left the purchaser with a loss less than the cost of repairs and, more
important, the purchaser had no reason to make an instant sale of the property
because she did not know of the defect until two years after moving in.
Similarly in Perry, the unreported defects were discovered soon after
moving in and, in that case also, the plaintiff had a choice of either cutting
his loss by reselling or of undertaking the necessary repairs. Since, however,
the plaintiff in Syrett was unaware of the unreported defects until two
years after the purchase, she was entitled to the cost of repairs because she
had not had an opportunity of cutting her losses about the date of purchase and
had acted reasonably throughout.
With respect to the learned judge, I do
not find that reasoning to be convincing and, in my view, the decision in Syrett
was wrong. It is true that both in Philips and in Perry the
plaintiff, on discovering the unreported defects, had the choice of selling or
undertaking the necessary repairs. This court held that, whichever choice was
made, the primary sum for damages was the diminution in value together with any
expenses etc caused by the breach. There is, however, nothing to suggest that
it was the existence of that choice or opportunity at any particular time which
caused the proper measure of damages to be stated as the diminution in value.
Since that statement was expressly explained by reference to putting the
plaintiff in the position in which he would have been if the contract had been
properly performed, and since that concept is not affected by the subsequent
date of discovery of breach, the fact that in Syrett the claimant did
not discover the breach until two years after purchase seems to me to be
irrelevant to the measure of damages as based upon the diminution in value. I
would, however, reserve with reference to this point the question as to the
date at which the diminution in value is to be calculated. Upon discovering the
breach the plaintiff can decide whether on that ground to sell. In Philips,
the measure of damages was stated by Morris LJ as the difference between the
value of the property as it was described in the negligent report and its value
as it should have been described in 1952. If the unreported defects had been
discovered three years later, and if the value of the property in either state
had increased by 25% as a result of inflation of house prices, it seems to me
to be arguable that this measure of damage should be taken as the difference
between the values so increased: ie £5,000, being £31,250 less £26,250. No such
point was raised in this case.
Next, as to the grounds of decision in Syrett,
if (in the case of the ordinary contract) an award of the cost of repairs to a
plaintiff who discovers the defects on moving in is to give to him a benefit to
which he is not entitled (and I agree that it is — see Philips), it is
no less the giving of a benefit to which the plaintiff is not entitled to award
him the cost of repairs when he discovers the defects years after moving in:
the principle that an award of the cost of repairs is a benefit to which the
plaintiff is not entitled depends upon the terms of the contract between the
plaintiff and the surveyor and not upon the time of discovery of the unreported
defects.
Lastly, in Syrett the opportunity
to ‘cut losses’ at about the date of sale, which it was held was denied to the
claimant in Syrett, is, as I understand it, the opportunity to decide to
sell and to suffer the loss of the diminution in value which would be
recoverable. If the plaintiff decided instead to do the repairs he would incur
any additional cost over this diminution in value as a result of his own
decision; but, if he did not discover the defects until two years later, having
been deprived of that earlier opportunity, he becomes, it is said, entitled to
the full cost of repairs and not, be it noted, only the amount by which the
cost of repairs may be shown to have increased since the date of purchase. As I
have said above, however, the opportunity to sell on discovery of the defects
was not the reason for holding in Philips that the measure of damages
was the diminution in value: that holding resulted from the application of the
basic principle of restitution to the terms of the contract between the
claimant and the surveyor. Delay in discovery of the defects does not affect
that application of that principle. A decision to remain and to carry out
repairs after such delayed discovery cannot, in my judgment, alter the proper
measure of damages.
One further matter must, I think, be
examined. It is, I think, clear law that where a claimant is caused to enter
into a transaction in consequence of negligent advice, as in the case of a
surveyor employed under the ordinary contract, the claimant may be entitled to
all the losses incurred as a result of entering into the transaction where he
would not have entered into the transaction if properly advised and the losses
are caused by entry into the transaction and by extrication from it. An example
in the case of a solicitor’s advice is, as I have mentioned above, County
Personnel v Pulver. Can the claim of these plaintiffs to the cost of
repairs properly be put on the same basis: ie as damages caused by entering
into a transaction in reliance on the bad advice and, if not, why not? On this part of the argument, Mr Naughton
referred to a number of matters and, in particular, to the fact that it is in
many cases unrealistic to measure the damages of the purchaser by reference to
the value of the property where it is not his intention to resell the house but
to live in it and resale is impossible for means unconnected with value in the
market. If the buyer is caused to buy a house by a negligent report which does
not warn him of the existence of defects, and which he must cause to be
repaired in order to live in the house in the condition in which he expected it
to be, why is not the cost of repairs a loss resulting from entering into the
transaction just as much as the payments recovered in the case of County
Personnel v Pulver? Since
such a buyer has no intention of selling — he is repairing his home, not an
article of commerce — any addition to the value of the house, it was said, will
not be at once realised and he is not in truth thereby getting any advantage
beyond what he reasonably thought he was getting when he relied upon the
surveyor’s advice.
I recognise the force of these points so
far as concerns the position of such an unfortunate claimant. From his point of
view, it would, indeed, be better if the surveyor could be treated as having
warranted that no repairs, beyond those described as indicated in the survey
report, would be required within some period of time. No such warranty,
however, was given in this case, or said to have been given, and, in the
absence of such a warranty, there is no basis for awarding the cost of repairs.
I would, therefore, hold that the
judgment for £33,961, the cost of repairs, must be set aside and that, in
substitution therefor, judgment should be entered for financial loss in the sum
of £15,000 with interest at 15% from the date of payment until judgment. I
understand it to be common ground that payment is to be taken as having been
made as to £1,500, from the date of payment of the deposit of £17,750 on the
making of the contract, and as to the balance of £13,500 at the date of completion,
based upon the proportion of the excess payment of £15,000 to the total sum
agreed to be paid. If I am wrong in my understanding I would wish to hear
counsel upon that matter. I shall deal later in this judgment with my reasons
for confirming the rate of interest at 15% as awarded by the judge.
General damages: the award for ‘distress
and inconvenience’
For the defendant, Mr Jackson submitted
that, on the facts of this case, the plaintiffs were entitled to no award under
this head but that, if any sum were due, the award was plainly excessive and
far greater than sums commonly awarded, in accordance with Perry, as
‘modest’ compensation. His contention was that, in a contract of this nature,
general damages are not recoverable for mere mental distress and are
recoverable only for the enduring of physical discomfort and inconvenience in
the measuring of which regard may properly be had to the mental reaction to
such physical discomfort. He further criticised the judge’s conclusion on this
part of the case on the ground that the judge did not make any finding as to
the nature or extent of any physical discomfort which had been caused by the
defendant’s breach of contract as contrasted with physical discomfort caused by
the plaintiffs’ decision to carry out substantial additional repairs and
refurbishment.
Mr Naughton submitted that it was decided
by the decision of this court in Perry that damages for mental distress
can be recovered against a negligent surveyor in the ordinary case and that
such a contract is in the same category as contracts for the provision of a
holiday: see Jarvis v Swans Tours Ltd [1973] QB 233 and Jackson
v Horizon Holidays Ltd [1975] 1 WLR 1468. The misery and discomfort
experienced by the claimants in the position of these plaintiffs is not, he
said, linked to the cost of the works carried out or to the time taken to
complete them. The hardship should be seen as subjective and that is best
assessed by the judge who heard the evidence. The fact that this was the second
home for hard-working and stressed individuals should be seen as increasing the
proper compensation and not as reducing it. Further, the fact that the house
was expensive, and that the use of it for relaxation could be regarded as
costing the interest on the price paid, would justify a larger award in
comparison with an award in respect of a cheaper house.
As to the law, it is, in my judgment,
clear that the plaintiffs were not entitled to recover general damages for
mental distress not caused by physical discomfort or inconvenience resulting
from the breach of contract. It is true that in Perry Lord Denning
justified the award of damages for anxiety, worry and distress (ie ‘modest
compensation’) by reference to the holiday cases of Jarvis and Jackson
and to Heywood v Wellers [1976] QB 446, a solicitor’s case. I do
not, however, accept that Perry is authority for that proposition. It
is, I think, clear that, in that case, the award of damages (which was upheld)
was for ‘vexation, that is the discomfort and so on suffered by the plaintiff
as a result of having to live for a lengthy period in a defective house which
for one reason or another was not repaired over the period between the
acquisition by the plaintiff and the date of the trial’: see per Oliver
LJ at p 1304H. Further, in Perry Kerr LJ at p 1307 said:
. . . it should be noted that the judge
has awarded these [damages for vexation and inconvenience] not for the tension
or frustration of a person who is involved in a legal dispute in which the
other party refuses to meet its liabilities. If he had done so, it would have
been wrong, because such aggravation is experienced by almost all litigants. He
has awarded these damages because of the physical consequences of the breach
which were all foreseeable at the time.
Mr Jackson’s submission is, I think,
correct. In Bailey v Bullock [1950] 2 All ER 1167, Barry J, in a
case of solicitor’s negligence, held
solicitor’s failure to get possession of premises for his client, but not
damages for annoyance and mental distress. So holding he relied upon the
judgment of Scott LJ in Groom v Crocker [1939] 1 KB 194, at p 224
CA, where Addis v Gramophone Co Ltd [1909] AC 488 was held to be
a conclusive authority against general damages for injury to reputation or
feelings. Barry J contrasted that decision with that of Hobbs v London
& South Western Railway (1875) LR 10 QB 111, where damages for physical
inconvenience were upheld for breach of a contract of carriage.
In Jarvis, it was held that the
old authorities excluding damages for disappointment of mind were out of date
and that damages for mental distress can be recovered in contract in a proper
case. One such proper case was held there to be breach of a contract for a
holiday or of a contract to provide entertainment and enjoyment. Breach of a
contract of carriage, where vexation may be caused, was distinguished from
breach of a contract for a holiday where the provision of pleasure is promised.
Again, in Heywood v Wellers
[1976] QB 446, damages were awarded against a negligent solicitor for failure
to obtain protection for his client against molestation, and in particular for
the client’s distress, because the solicitors were employed to protect the
client from molestation which was causing distress. In Hayes v Dodd
[1990] 2 All ER 815 CA Purchas LJ at p 826, with reference to a claim to
damages for mental distress in a claim against a surveyor, said:
I agree with the approach adopted by
Staughton LJ reflecting, as it does, the judgment of Dillon LJ in Bliss
v South East Thames Regional Health Authority [1987] ICR 700 at 718,
namely that damages of this kind are only recoverable when the subject-matter
of the contract or duty in tort is to provide peace of mind or freedom from
distress.
If, then, the plaintiffs, for breach of a
contract of this nature, are entitled to damages in respect only of physical
discomfort or inconvenience resulting from the breach, it is clear, as in Perry,
that such damages are recoverable where, as contemplated by the defendant, the
plaintiffs move into the property and live there in physical discomfort because
of the existence of unreported defects such as an evil-smelling cesspit or a
leaking roof. But what of physical discomfort caused not by the defects but by
the process of repairing them in a case where, as here, the surveyor has not
warranted that there are no defects?
Thus, in this case, there was no discomfort caused by any defect in the roof:
it was replaced before it leaked or collapsed. Mr Jackson, rightly, I think,
did not contend that damages for physical discomfort are not recoverable where
caused by the carrying out of repairs to negligently unreported defects even
though the surveyor is not in law liable for the cost of those repairs. The
concession seems to me to be rightly made provided it is shown that the parties
contemplated that, upon the plaintiff’s occupying the house as his home in
reliance upon the report, he would in fact have to live there while the repairs
are done and it is reasonable for him to do so. We do not have to decide
whether, if the plaintiff has to rent other accommodation during the carrying
out of repairs, such costs will be recoverable in the absence of any
contractual warranty as to the existence of defects requiring repairs, and I
would reserve my decision upon it.
In his judgment, Judge Bowsher, after
reference to Hayes v Dodd and to Perry, held that a
negligent surveyor of a residential property, which he has undertaken to survey
for a prospective purchaser who intends to live there, may be liable to his
client in damages to compensate him for ‘inconvenience and distress arising out
of living in the property, not out of litigation about it’. Judge Bowsher
continued that that seemed to him to be the case whether the position be
rationalised by reference to ‘special relationship’ or ‘a contract to provide
peace of mind or freedom from distress’. A prospective buyer of a house goes to
a surveyor, said Judge Bowsher, not just to be advised on the financial
advisability of one of the more important transactions of his life but also to
receive reassurance that, when he buys the house, he will have ‘peace of mind
and freedom from distress’.
It is clear, I think, that the judge was
regarding the contract between these plaintiffs and the defendant as a contract
in which the subject-matter was to provide peace of mind or freedom from
distress within the meaning of Dillon LJ’s phrase in Bliss cited by
Purchas LJ in Hayes v Dodd. That, with respect, seems to me to be
an impossible view of the ordinary surveyor’s contract. No doubt house-buyers
hope to enjoy peace of mind and freedom from distress as a consequence of the
proper performance by a surveyor of his contractual obligation to provide a
careful report, but there was no express promise for the provision of peace of
mind or freedom from distress and no such implied promise was alleged. In my
view, in the case of the ordinary surveyor’s contract, damages are recoverable
only for distress caused by physical consequences of the breach of contract.
Since the judge did not attempt to assess the award on that basis this court
must reconsider the award and determine what it should be.
For my part, I accept that the award was
excessive even if the judge had directed himself correctly. It was very
substantially more than the awards made in similar cases apart from the award
by the same judge in Syrett. The other cases to which we were referred
for this purpose included the following and I have listed the amount of the
award together with the amount adjusted for inflation since the date of the
award: Roberts v J Hampson & Co [1989] 2 All ER 504*: £1,500
(£1,890); Cross v David Martin & Mortimer [1989] 1 EGLR 154:
£1,000 (£1,260); Steward v Rapley [1989] 1 EGLR 159: £2,000
(£2,520); Bigg v Howard Son & Gooch [1990] 1 EGLR 173: £1,600
(£1,744); Hipkins v Jack Cotton Partnership [1989] 2 EGLR 157:
£750 (£877). In the first three cases the award stated was to two plaintiffs.
In each case the award was in respect of a period of inconvenience and
discomfort in the claimants’ home.
*Editor’s note: Also reported at [1988] 2
EGLR 181.
The judge accepted the evidence of the
plaintiffs in full. The period of physical discomfort caused by the carrying
out of work extended over eight months. It started in September 1987, when work
to the roof began, and was completed in October. The time taken in performing
that work is not more exactly proved. Scaffolding was around the house. Work in
respect of unreported defects began again in 1988 and was done under separate
quotations before the several dates stated in para (xiv) above ending in
October 1988. The periods of physical discomfort were limited to visits to the
house at weekends, most but not all weekends over the relevant time. Some of
the matters complained of were clearly not caused by the breach of contract —
for example, the interference with the use of bath and WC caused by work to the
plumbing which the plaintiffs chose to carry out at the same time as repair to
the flooring.
Further, as explained in the judgment,
the plaintiffs, finding that they had sufficient money to do so, decided to
carry out work going far beyond the works the subject of the action. The judge
held that the distress and inconvenience alleged by the plaintiffs was not to
be discounted at all because he accepted, as sensible and well founded, the
explanation by Mr Watts of his decision. For my part, while I have no doubt
that it was a sensible and well-founded decision for Mr Watts to do all the
other work which he had decided to do at the same time as the repairs in
respect of unreported defects, it does not seem to me thereby to be
demonstrated that the physical discomfort and inconvenience throughout the
period of work was caused by the failure to report those defects. It is clear
that by 1987 the plaintiffs’ earnings had risen and were rising. They decided
that they would decorate and refurbish the house to a high standard. The need
to do the repairs to unreported defects was not the reason why all the work was
done when it was done. Indeed, the need to carry out the unreported defects was
seen by Mr Watts as delaying the process of refurbishment in the course of
which the repairs of many other defects, of which there was no failure to give
warning, were carried out. It is difficult, in my judgment, to be confident as
a matter of probability that such physical discomfort as there was over the
period of six months in 1988 was caused by the breach of contract of the
defendant as contrasted with the decision of the plaintiffs to refurbish and
redecorate the house. It is not clear to me that in any real sense the
plaintiffs had to live in the house at weekends: their decision to do so
appears to have resulted largely from their view that it was necessary for them
to supervise personally all the work which they were having done.
The judge, however, accepted the
plaintiffs’ evidence and was not caused to doubt that all their complaints were
caused by that breach of contract. It does not seem that the factual basis for
the plaintiffs’ claims to general damages was examined in any close detail at
the trial. The right course, in my view, is for this court, accepting and
applying the principle that damages for mental distress resulting from the
physical consequences of such a breach of contract should be modest, to accept
the judge’s finding that, during the weekends over a period of eight months,
there was discomfort from the physical circumstances of living in the house
caused by the presence
defects. I reject the suggestion that, in comparing the proper awards in other
cases of discomfort in a plaintiff’s only home, there should be allowed, in
respect of discomfort at weekends in an expensive second home, a comparatively
larger sum. The proper approach is to fix a modest sum for the amount of
physical discomfort endured having regard to the period of time over which it
was endured. I would not take into account, as did the judge, in fixing the
general damages, anything in respect of the plaintiffs’ expenditure on a
holiday in Scotland. There was no claim to loss of use. Any vexation in respect
of taking a holiday away from the second home is not associated with physical
discomfort in that home.
I would award to each plaintiff, since it
has not been suggested that there is any basis for distinguishing between them,
general damages in the sum of £750.
The award of interest
In my judgment, there is no ground for
interfering with the judge’s decision that interest at the rate of 15% should
be awarded on the damages for financial loss. Mr Jackson’s submission was that
the rate customarily awarded is the short-term investment account rate:
reference was made to the Supreme Court Practice, vol 1, para 6/2/16 at
subpara (4); and that the judge erred in awarding a flat rate of 15% which was
the same as the Judgment Act rate.
The award of interest at 15% was, in my
judgment, within the judge’s discretion and it is not shown that he misdirected
himself or went wrong in principle in taking that rate. The facts that that
rate was the same as the judgment rate and was higher than the short-term
interest account rates over the relevant period do not cause to be wrong the
selection of that rate as the appropriate rate on the facts of this case: see
the judgment of Nicholls LJ in Pinnock v Wilkins CA (unreported,
January 23 1990).
I would, accordingly, allow this appeal
to the extent described above.
Agreeing, BINGHAM LJ said: Since
we are in part differing from the learned trial judge, who considered the
matter with great care, I shall briefly give my own reasons.
(1) Diminution in value or cost of repairs?
The restitutory or compensatory principle
which underlies the award of damages in contract is not open to question. Since
it is ultimately a question of fact what sum of money is necessary to put a
particular plaintiff in the position he would have been in if the particular
defendant had properly performed the contract in question, I would accept Mr
Naughton’s contention that the measure of damages cannot be governed by an
inflexible rule of law to be applied in all cases irrespective of the
particular facts and regardless of whether such measure gives effect to the
underlying principle. But this does not mean that there may not be sound prima
facie rules to be applied in the ordinary run of cases. Examples may be
found in sections 51(3) and 53(3) of the Sale of Goods Act 1979: these are only
prima facie rules, but they reflect the same underlying principle and
they govern cases to which they are not shown to be inapplicable. In the
present field, by which I mean the purchase of houses by private buyers in reliance
on a negligent survey of structure or condition, Philips v Ward
[1956] 1 WLR 471 has been generally thought to lay down, and in my view did lay
down, a prima facie rule for measuring damages. The crucial question is
whether that prima facie rule was, as the judge held, inapplicable to
the facts of the present case.
I do not think so. In Philips v Ward,
as in the present case, the cost of repairs exceeded the diminution in value.
The Court of Appeal there pointed out that if the plaintiff received the house
(for which he had paid £25,000) and £7,000 (the cost of repairs) he would in
effect have obtained the house for £18,000. But the value of the house in the
defective state in which it had actually been was £21,000, and had the
defendant properly performed his contract the plaintiff could not have bought
at any lower price. An award of £7,000 would not, therefore, have put him in
the same position as if the defendant had properly performed his contract. It
would have improved his position to the extent of £3,000 and thus put him in an
advantageous position that he could never have enjoyed had the defendant
properly performed.
The same simple approach applies here.
The plaintiffs paid £177,500, the value of the house as it was represented to
be. The value of the house in its actual condition was £162,500, a difference
of £15,000. The actual cost of repairs was (in rounded-up figures) £34,000. If
the plaintiff were to end up with the house and an award of £34,000 damages he
would have obtained the house for £143,500. But even if the defendant had
properly performed his contract this bargain was never on offer. The effect of
the award is to put the plaintiffs not in the same position as if the defendant
had properly performed but in a much better one.
I would be willing to accept, as Romer LJ
did in Philips v Ward, that if, on learning of the true state of
the house, the plaintiffs had at once moved out and sold, they might well have
been able to recover the costs thrown away in addition to the diminution in value.
But these plaintiffs, no doubt for good reason, did not do that. They stayed
and did the repairs. But the quantum of their claim would in theory be the same
whether they had actually done and paid for the repairs or not, and if they had
not the figures demonstrate a clear windfall profit. If, on learning of the
defects which should have been but were not reported, a purchaser decides (for
whatever reason) to retain the house and not move out and sell, I would
question whether any loss he thereafter suffers, at least in the ordinary case,
can be laid at the door of the contract-breaker.
In the course of interesting and
wide-ranging argument, a number of hypothetical situations were suggested in
which the prima facie rule might be ousted or call for variation. I
think it is wise to leave such cases for decision until they arise. I can see
nothing in the present case to take it outside the prima facie rule in Philips
v Ward, and that is enough to resolve this issue in the defendant’s
favour.
(2) Damages for distress and inconvenience
A contract-breaker is not, in general,
liable for any distress, frustration, anxiety, displeasure, vexation, tension
or aggravation which his breach of contract may cause to the innocent party.
This rule is not, I think, founded on the assumption that such reactions are
not foreseeable, which they surely are or may be, but on considerations of
policy.
But the rule is not absolute. Where the
very object of a contract is to provide pleasure, relaxation, peace of mind or
freedom from molestation, damages will be awarded if the fruit of the contract
is not provided or if the contrary result is procured instead. If the law did
not cater for this exceptional category of case it would be defective. A
contract to survey the condition of a house for a prospective purchaser does
not, however, fall within this exceptional category.
In cases not falling within this
exceptional category, damages are, in my view, recoverable for physical
inconvenience and discomfort caused by the breach and mental suffering directly
related to that inconvenience and discomfort. If those effects are foreseeably
suffered during the period when defects are repaired I am prepared to accept
that they found in damages even though the cost of the repairs is not recoverable
as such. But I also agree that awards should be restrained and that the awards
in this case far exceeded a reasonable award for the injury shown to have been
suffered. I agree with the figures which Ralph Gibson LJ proposes to
substitute.
(3) Interest
Since the award of interest on damages is
intended to compensate a plaintiff for being kept out of money lawfully due to
him, there is much to be said for applying a rate of interest which reflects
the cost or value of money over the relevant period rather than a flat rate
fixed under the Judgment Act which has remained fixed over a number of years
despite fluctuations in interest rates during that time. But the choice of an
interest rate is discretionary and the judgment of Nicholls LJ in Pinnock
v Wilkins (unreported, January 23 1990) precludes the argument that
choice of the Judgment Act rate of 15% is a challengeable exercise of
discretion. On this point the judge’s ruling cannot be disturbed.
Also agreeing, SIR STEPHEN BROWN P
said: The measure of damages in this case is governed by the principle clearly
stated in Philips v Ward [1956] 1 WLR 471 and reaffirmed in Perry
v Sidney Phillips & Son [1982] 1 WLR 1297. I agree that the appeal
should be allowed on this head as proposed by Ralph Gibson LJ and Bingham LJ.
I further agree that the quantum of
damage awarded for ‘distress and inconvenience’ was greatly excessive and that
the sums proposed by Ralph Gibson LJ should be substituted. As to the appeal on
the question of the rate of interest, I also agree that this was within the
judge’s discretion and should not be disturbed.
I therefore agree that the appeal should
be allowed to the extent proposed by Ralph Gibson LJ and Bingham LJ.
The appeal was allowed to the extent
indicated; plaintiffs to pay defendant’s costs of the appeal on quantum up to
and including June 21 1991; application by the defendant for leave to appeal to
the House of Lords on the question of interest only refused; application by the
plaintiffs for leave to appeal to the House of Lords refused.