Damages in negligent surveyor cases

A scenario

You want to purchase a particular property and instruct a surveyor to prepare a report before deciding whether or not to purchase that property. The report concludes that the property is structurally sound. You go ahead and purchase the property, relying on the advice contained within the surveyor’s report, only to find out (after moving in) that the property in fact suffers from defects or damage not disclosed in the survey.

The traditional position

The traditional position was that the measure of loss for a purchaser who bought a property in reliance on a negligent survey was the cost of remedying any undisclosed damages or defects.

The Court of Appeal in Phillips v Ward [1956] 1 WLR 471 changed the position when it held that the correct measure of loss in such cases should be the diminution in value corresponding to the purchase price, rather than the cost of remedying the damage. Accordingly, this case became authority for the proposition that the measure of loss arising from reliance by a purchaser of a negligent survey was the difference between the purchase price and its market value. Any loss was to be calculated as at the date of purchase, rather than the subsequent date of discovery of the damage or defects.

Moore & Another v National Westminster Bank

In Moore & Another v National Westminster Bank [2018] EWHC 1905 (TCC) Mr Moore and Ms Hegelund (“the Respondents”) bought a flat in order to let it. The purchase price was £135,000 and National Westminster Bank (“the Appellant”) supplied a loan in the sum of £81,000 secured as a mortgage over the property. The appellant was to supply a “Home Buyers Report”, but in error did not do so. As the respondents were offered the mortgage of £81,000, they understood that they had been given a favourable Home Buyers Report.

Following purchase, it was discovered that the property was in a poor state and needed extensive repair works, to the tune of £115,000. The respondents could not afford the repairs and issued a claim against the appellant bank for breach of contract. At first instance, after a two-day trial before Mr Recorder Willets, the judge found in favour of the respondents for breach of contract and awarded damages based on the cost of repair (£115,000) as the correct and fair measure of the loss.

On Appeal

The appellant bank appealed on the basis that the correct measure of loss was diminution in value, following Phillips v Ward [1956] 1 WLR 471. Furthermore, the appellant bank contended:
1) That the case was one of failure to provide a survey report, as opposed to a negligent survey report;
2) That there is a difference between the negligent surveyor cases (like Phillips) and cases where a purchaser can demonstrate that but for the surveyor’s negligence, he would not have bought the property; and
3) That the correct assessment of damages was the diminution in value approach.

Mr Justice Birss dismissed the appeal holding that:
1) the respondents would not have purchased the property but for the bank’s breach of duty;
2) The bank’s breach of duty caused the respondents loss; and
3) that the Recorder at first instance did not err in not applying the diminution in value approach to damages, as it was open to him to award damages on the cost of repair basis.

Conclusion

This decision confirms that while the diminution in value approach in Phillips v Ward remains good law, it will not always be applied mechanistically. Unless there is sound evidence to corroborate what the assessment of any diminution in value is to a property, courts are entitled to consider the cost of repair when deciding the measure of loss. On a practical level, it is also a salutary reminder to lenders as to the consequences that follow of failing to obtain a Home Buyers Report where the purchasers are led to believe that one was undertaken.

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