Harrison and others v Shepherd Homes Ltd

Contractor – Negligence – Defective premises – Court awarding damages against developer to owners of defective premises as result of negligent design and construction of piling – Whether judge awarding proper measure of damages – Appeal dismissed The appellant developer built an estate of 94 new detached houses between 2002 and 2004 designed as high-quality executive homes. The properties were subject to contracts of sale and were covered by a buildmark warranty scheme operated by the National House Building Council (NHBC). The estate was built on a former landfill site so that it was necessary to use extensive piling in the construction of the houses. The contractor engaged to design and construct the piling failed to use reasonable care in its design and installation so that some piles settled and some houses suffered significant cracking which was sufficiently serious to render the houses either unmortgageable or unsaleable, save at very low prices. In 2007, the contractor accepted that it had not exercised care and skill. In 2008, the respondent house owners, in ten test cases, brought proceedings against the appellant seeking damages. The judge concluded that the appellant was liable to the respondents in contract, under the Defective premises Act 1972 and pursuant to section 2 of the “Buildmark Cover” which provided that the appellant would be liable for defects and damages in the first two years after the houses had been built: [2011] EWHC 1811 (TCC). Those conclusions were not appealed. However, as to the damages recoverable by the respondents, the appellant appealed against: (i) the judge’s decision to create an intermediary category of houses that were neither “probably mortgageable” nor “probably not mortgageable” but were in a twilight zone between those two categories; (ii) the percentage used by the judge for the diminution in value award for those properties found to be “probably mortgageable” including those in the twilight zone; (iii) the judge’s decision to grant an additional head of damages equal to the cost of remedial work to be done on the houses on top of the damages based on diminution in value; and (iv) the judge’s refusal to admit further evidence concerning the actual sale of one of the houses. Held: The appeal was dismissed. (1) The judge had correctly not been dogmatic in deciding whether a particular house was “probably mortgageable” or not. The fact that, in eight of the ten test cases, the chances of movement were remote was not the only relevant factor. The judge had accepted that even potentially mortgageable houses would all need to be subject to a structural engineer’s report, the terms of which would be crucial to the question whether a mortgage could be obtained. The particular terms of a particular engineer’s report might well determine the likelihood of a particular house being mortgageable. Accordingly, the judge had been correct to take account of that uncertainty by approaching the question of damages for diminution in value on a “gradated” basis. (2) In the light of the judge’s acceptance that the capital comparison method for assessing diminution in value was correct for houses that were “probably mortgageable”, he had to make his own decision on what that percentage should be, using that comparison method. The judge had considered all the evidence about the houses, collectively and individually, with the experts’ views well in mind. In all the circumstances, the appellant had failed to convince the appeal court that the figure of 32.5% chosen by the judge was outside the reasonable band within which he could have assessed the percentage for diminution in value. (3) The judge had rejected the respondents’ primary case that they were entitled to recover the cost of piling so that the basic measure of damages was bound to be that of the diminution in value of the houses affected. The judge had to arrive at a figure for diminution in value based on what he knew at the time of writing his judgment. He was clearly aware that he must not award “double recovery” but also decided that he was not in a position to decide whether the defective piling would give rise to the need of further remedial works or what the cost might be. Given all those factors, the judge must have appreciated that he needed to make an award for diminution of value, excluding the cost of any further necessary remedial work which would be the subject of further work by the experts. In the particular circumstances of this case, the judge’s approach was proper and could not be criticised. (4) The judge had been entitled to refuse to admit the further evidence concerning the sale of one of the houses on the estate. By itself, the evidence would have added little to what the judge already knew and the circumstances of that sale had been unusual potentially giving rise to arguments about whether it could be regarded as typical. There had to be a limit to the litigation process and the judge had already been generous in admitting evidence on events after the trial concerning that sale. In any event, on the evidence, the judge had effectively taken the matter into account. Roger Stewart QC (instructed by Weightmans LLP) appeared for the appellants; Andrew Bartlett QC and Robert Stokell (instructed by Tilly Bailey & Irvine LLP, of Hartlepool) appeared for the respondents. Eileen O’Grady, barrister