Mortgage – Breach of contract – Home buyer’s report — Appellant bank offering mortgage to respondents without producing requested home buyers report – Respondents purchasing property but finding it in need of repair – Respondents claiming against appellant for breach of contract – Appellant appealing against award of damages representing cost of repair – Appeal dismissed
The respondents purchased a buy to let flat in Bideford. The purchase price was £135,000, partly made up by a loan of £81,000 from the appellant bank secured on a mortgage over the property. In their mortgage application, the respondents indicated they wished the appellant to produce a “Home Buyers Report”, a more extensive kind of survey of the property than a simple valuation. In error the appellant did not carry out the necessary survey to produce such a report but made a mortgage offer, as a result of which the respondents understood they had been given a favourable home buyers report. In fact, the property needed extensive repair works. The cost of that work was even higher because the property was Grade II listed in a conservation area. The respondents did not have sufficient funds to undertake all the repairs.
The respondents brought a claim against the appellant for breach of contract. The judge found that the cost of the repairs would be £115,000. There was no challenge to that finding on appeal. Moreover, there was no appeal from the finding that £135,000 was the most that would be paid for the property in reasonable condition. The judge found in favour of the respondents for breach of contract. As regards the quantum of damages, the respondents contended that the correct measure of damages was the cost of repair (i.e. £115,000) because if they had received a home buyers report, it would have alerted them to the problems and they would not have bought the property. The cost of repair was the correct and fair measure of their loss. The appellant contended that by analogy with the so-called “negligent surveyor” line of authorities starting from Phillips v Ward[1956] 1 WLR 471,Perry v Sidney Phillips& Son [1982] 2 EGLR 125 and Watts v Morrow[1991] 2 EGLR 152, the correct measure of damages would be a sum equal to the diminution in value of the property and not the cost of repair. The evidence of its expert was that the diminution in value was £15,000.
The judge awarded £115,000 in damages, concluding that: (i) the case was one of failure to provide a report rather than provision of a negligent report; (ii) there was a difference between negligent surveyor cases such as Philipsv Wardetc and “transaction” cases in which the respondent would not have entered into the purchase transaction at all but for the breach; and (iii) the true extent of the loss was the cost of repair and to conclude otherwise would undercompensate the respondents. The appellant appealed on the sole issue of the judge’s award of the cost of repair.
Held: The appeal was dismissed.
(1)The transaction/negligent surveyor distinction was a distinction without a difference. Just as in the cases of a negligent surveyor’s report, the appellant ought to have provided a survey to the respondents which would have indicated that the property had serious defects. On the evidence, it would have said that a value could not be put on the property without further survey work. Just as in the cases from Phillips v Ward onwards, if the appellant had done what it ought to have done, the respondents would have been provided with a survey which warned them about the true state of the property at least in so far as the surveyor could tell. They could have decided to pull out of the transaction or negotiate a lower purchase price. The fact that the respondents would have decided not to buy the property was not a distinction. The fact remained that they did buy it, and as an asset it had a value. It was irrelevant that they might wish to spend £115,000 to put it into a reasonable state. So treated, as a matter of principle, neither of the judge’s first two reasons would justify awarding damages on a cost of repair basis as opposed to a diminution in value basis, assuming each was ascertainable.
(2) As to whether the true extent of the loss was cost of repair rather than diminution in value, the judge had rightly recognised that diminution in value was not an invariable rule and that diminution in value could in a proper case be determined by the cost of repair. Given the state of the evidence, the judge was entitled to take the view that the cost of repair represented the only practical indicator of what the diminution in the value of the asset was. That approach made sense in the particular circumstances of this case given the extensive defects, the fact that the repair costs were about 85% of the most the property could be worth in reasonable condition, the rejection of the appellant’s expert’s opinion that the diminution in value was as little as £15,000 and the evidence from the respondent’s expert that he could not give a valuation. The fact the expert could not give a valuation did not preclude the judge from taking the approach he did. It had been open to the judge to take a different approach and come up with a different figure for the diminution in value, lower than the cost of repair, and awarded that. However, the fact he did not do that did not undermine the judge’s decision. He was entitled to find that the damages were £115,000: County Personnel v Alan Pulver[1986] 2 EGLR 246 and Steward v Rapley[1989] 1 EGLR 159 considered.
(3) It was common, in assessing damages based on valuation, for the paying party to take a polarised view and not advance an intermediate position, even as a fall back. Such a tactic could backfire. Here, the judge was clearly entitled to take the view that £15,000 was not a fair assessment of the diminution in value and was too little. The only other concrete sum he had to go on was £115,000. Another judge in that situation might arrive at an intermediate sum doing the best he or she could. However, if the appellant was not prepared to propose an intermediate sum, the judgment was not undermined by not taking such an intermediate approach.
Lee Finch (instructed by DMH Stallard) appeared for the appellant; Emily Betts (instructed by Wright Hassall) appeared for the respondents
Eileen O’Grady, barrister
Click here to read transcript: Moore and another v National Westminster Bank
