Measure of damages for negligent surveys
Measure of damages for negligent surveys
Paul Murrells
Keywords Law, Negligence, Surveying,Valuation
For more than 40 years,case law has made clear that the proper measure of damages in respect of a negligent survey of a house for a private purchaser is diminution in value. This is despite various attempts to challenge the ruling and strong criticism by consumer associations that the law was unreasonable. It is hardly surprising that various trial judges, with great sympathy for the predicament of some house purchasers, have endeavoured by other means to increase awards of damages. It is left to the Court of Appeal to correct the position. This article considers the most recent case on the point of law.
Patel and Patel v. Hooper and Jackson[1]
On 10 November 1998, the Court of Appeal gave Judgment in the above case. The presiding Judge was Lord Justice Nourse who gave the judgment with which his fellow Lord Justices agreed.
35 Selkirk Road, Tooting, London SW17
In the spring/early summer of 1988, Dr and Mrs Patel ("the Patels") were first time buyers. The property market was active and house prices were increasing. The asking price for this property was £95,500. The Patels' offer of £95,000 was accepted.
In what appeared to be a tight timetable, a House Buyer's Report and Valuation ("the HBRV") was completed by a representative of the Defendant firm on 14 June 1988. This was subject to the standard Conditions of Engagement. The Summary and Recommendations section of the HBRV (Paragraph 33) read as follows:
The property has been constructed from traditional materials and has been neglected in the past with extensive repairs and renovations required. Internally, the accommodation would benefit from upgrading and modernisation. In respect of the repairs item referred to within our Report, it is important that you obtain competitive quotes prior to exchange of contracts in order that you are fully aware of your liabilities at this stage. We would advise that the repair items referred to are not uncommon with a property of this age and construction.
The defendants then stated that in their opinion the present freehold open market value of the property with full vacant possession in its present condition was in the region of £90,000.
The Patels read and relied on the HBRV in purchasing the property. On or very shortly after 17 June 1988,they exchanged contracts for purchase of the property at an undisclosed price,but presumably £95,000. Completion of the purchase took place at the end of September 1988, with the assistance of a mortgage loan from the Britannia Building Society ("the society") of £83,000. The society arranged the HBRV on the Patels' behalf.
Events following completion
Having collected the keys,the Patels visited the property. Even before going in, a discussion with a neighbour caused them concern. An inspection of the property with family and friends showed that the property was uninhabitable. Their solicitors immediately notified the society. The Patels did not move into the property. Mrs Patel was expecting their first child. The Patels had never lived in the property although it still belonged to them at the time of the Court of Appeal hearing.
Carter Hope reports
New surveyors were instructed immediately by the Patels and a report and supplemental letters were prepared by David Whitehouse, then an ARICS, in October and November 1988. The crux of Mr Whitehouse's reports was as follows:
... I would confirm that in my opinion the extent of the defects that were found at the property when I carried out my survey on 9 October 1988 does really mean that this property is uninhabitable, certainly until the structural defects and damp problems are attended to. The condition of the sanitary ware and services also needs attention and, of course, other defects such as woodworm and rot would need to be rectified before one would be able to consider that the property was"habitable".
While remaining in temporary accommodation, the Patels offered the property for sale. In March 1989, a consulting engineers' report was obtained from Durley Hill on behalf of a prospective purchaser. As a result of this report, such purchaser withdrew. The Patels continued paying the mortgage on the property, as well as rent on the alternative accommodation in which they were living. Dr Patel's hospital appointments moved him around England and Scotland.
Subsequent events
Court proceedings were not commenced by the Patels until June 1994. Extensive efforts were made to negotiate a settlement involving the society and the property's insurers. By way of further complication, subsidence claims were made by adjoining property owners. The trial of the Patels' claim against the Defendants took place in October 1995, with final judgment being given by Recorder Colin Reese QC ("the Recorder") on 9 August 1996. Earlier draft judgments had been released to the parties and submissions made on questions of interest and costs. Further delay had been caused by the House of Lords giving judgment in June 1996, in a well-known case relating to the measure of damages for negligent valuations[2]. This is known commonly as "BBL".
The Recorder's judgment
The Recorder was satisfied that if the Patels had received the sort of report and valuation which they ought to have received, they would not have proceeded with the purchase. The Recorder stated that the property was so neglected as to fall into the category of "severely dilapidated". Taking account of the property's actual and observable state of repair and condition, he held that the open market value of the property at the date of inspection should have been £65,000, being£25,000 less than the valuation given in the HBRV.
On Appeal, the Defendants accepted they were liable to the Patels for £25,250, being diminution in value of the property and stamp duty on the purchase. However, the Defendants contended they were not liable to pay further damages equivalent to an indemnity for past and future mortgage interest (£60,000 at judgment) and endowment policy premiums (£9,350) and household insurance premiums. That was contrary to principle, so, the Defendants argued, this part of the Recorder's award should be discharged. At trial, the Recorder had recommended that the Patels amend their statement of claim so as to provide for these amounts. Such an award was complex and, in some respects, unprecedented. In addition, £2,000 was awarded to each of Dr and Mrs Patel by way of distress and inconvenience for the years of living in relative discomfort.
The Recorder had made three findings which were of great importance to the view he took on damages:
- 1.
if properly advised as to the true state of repair and condition of the property, the Patels would not have gone ahead with the purchase;
- 2.
the Patels were unable to sell the property between purchase and trial. The true value of the property was totally inadequate to discharge the mortgage debt as the value was falling during the early 1990s; and
- 3.
the evidence given by Mr Whitehouse, of Carter Hope, as to his inspections in October/November 1988, was accurate. The property was uninhabitable,certainly until the structural defects and damp problems had been attended to.
The Recorder ordered that the Defendants should pay the Patels £139,911 in respect of damages sustained up to 14 June 1996. This was subject to a possible reduction in the event of the Patels electing to treat the endowment policy as their own long-term investment.
Once and for all awards of damages
In cases of this kind, the Court's powers are confined to the making of a once and for all award. An award of damages in a conventional form had to be made.
The Court of Appeal judgment referred to a well-known section from Jackson & Powell on professional negligence[3] as follows:
With Philips v. Ward[4], Perry v. Sidney Phillips & Son[5] and Watts v. Morrow[6],the Court of Appeal has stated and restated that diminution in value is the proper measure in damage in respect of a negligent survey of a house for a private purchaser. This rule applies whether or not the purchaser has carried out repairs, whether or not the purchaser had retained or sold the property, and whether or not, if properly advised, the purchaser would not have bought the property. Unless and until the matter is considered by the House of Lords, that measure of damage will apply to virtually all cases arising out of domestic house surveys and/or valuations for prospective purchasers.
The judgment in BBL had no effect on the measure of damages in respect of negligent surveys of houses for private purchasers. BBL concerned the liability of negligent valuers acting for lenders. In the Patels' case, the surveyor was merely providing information for the purpose of enabling the Patels to decide whether or not they wished to go ahead with the proposed transaction.
Although the diminution rule is the starting point, each case must be considered on its own facts. Special features entitle plaintiffs to additional damages, in this case the Patels' inability either to move into the property or to sell it.
Applying the Court Authorities referred to in Jackson & Powell, a plaintiff was entitled, by way of additional damages, to reasonable costs of extricating himself from the purchase. Here, the property having been uninhabitable except at a cost which the Patels could not afford, they could only extricate themselves by selling and buying another property in its place. Accordingly, it was reasonable for the Patels to recover the costs of alternative accommodation during that period until the property was sold and another acquired.
In reaching his decision,it was clear that the Recorder had been influenced by the decision in Hayesv. James & Charles Dodd[7]. Here, solicitors had negligently omitted to advise their purchaser clients that the property purchased did not enjoy a right of way over adjoining land which was critical to the success of the business they intended to carry on there. It was held that the purchasers were entitled to damages equivalent to the capital expenditure thrown away in the purchase, including bank interest on a loan raised to fund the purchase.
However, there was an important ground of distinction between the Hayes' case and the Patels' case. The Patels would have purchased another property, no doubt, with a similar sized mortgage. Accordingly, mortgage repayments would have been incurred in any event and also endowment premiums and household insurance premiums.
By what date should the property have been sold?
It will be remembered that the property remained unsold at the time of the Appeal hearing. There was evidence that in November 1992, a sale could have been effected at a value of around £30,000. Should the Patels have put the property up for sale by auction in 1989? The society would not have agreed a sale at less than the mortgage advance. The Court of Appeal held that the Patels acted reasonably in not putting the property up for sale by auction either in 1989 or at any time before the end of June 1993. This was when the Patels' solicitors received a detailed response from the society as to the Patels' responsibility to pay the balance under the mortgage.
Another reason for the Court of Appeal ruling that it was reasonable for the Patels not to put the property up for auction until July 1993 was because the Defendants had not admitted liability or even, through loss adjusters acting for them, put forward any offer to settle before August 1992.
Court of Appeal judgment
Additional to the £25,250 damages agreed by the Defendants, the Court of Appeal ruled that the Patels were entitled to the costs of alternative accommodation between 30 September 1988(date of purchase) and 30 September 1993. This assumed that a sale effected by the end of June 1993 would have been completed by the end of September 1993. The costs of moving from each address to the next were to be included in this amount. The Court hoped the parties would be able to agree an appropriate figure, based on this ruling. Such sum would be considerably less than the cost of mortgage repayments and insurance premiums. The award of £2,000 general damages to each of the Patels for "relative discomfort" was confirmed.
While acknowledging sympathy for the predicament in which the Patels found themselves, the Court pointed out this had been caused partly by events over which the Defendants had no control. Subsidence occurred to the property after 1988 and there had been a general decline in the market value of such properties.
