Ted Lowery on when repair costs trump diminution in value as a determinant of damages
Martin Moore and Camilla Hegelund vs National Westminster Bank  EWHC 1805 (TCC)
Before Mr Justice Bi
In the Birmingham District Registry and Appeal Centre
Judgment delivered 17 July 2018
Mr Moore and Ms Hegelund applied to NatWest for a mortgage in order to purchase a flat in Bideford, Devon, and requested that the bank prepare a home buyer’s report – a more extensive survey of the property than a simple valuation report. The bank subsequently made a mortgage offer of £81,000 and the purchasers assumed that a favourable home buyer’s report had been obtained, but this was not the case.
The purchasers bought the flat for £135,000 but having soon realised that the property needed extensive repair work they commenced proceedings against the bank for breach of contract seeking damages of £115,000, comprising the anticipated cost of repairs. By analogy with the “negligent surveyor” authorities, the bank contended the proper measure of damages was a sum equivalent to the diminution in value of the property, which their expert put at £15,000. At trial the purchasers’ expert did not offer a comparable figure on the basis that he felt unable to say what the valuation of the property ought to have been without the benefit of a detailed survey.
In a judgment dated 6 December 2017 the county court found that the bank had been in breach of contract and awarded the purchasers the £115,000 claimed as the cost of the repairs. The county court judge considered he was not bound to assess damages by reference to the diminution in value on the basis that the negligent surveyor cases could be distinguished where: no (negligent) survey report had been provided; that this was a “transaction” case in which the purchasers would not have bought the property had a report been provided; and that the true extent of the loss was the cost of repair. The bank appealed against the finding on the measure of the damages.
Should the purchasers’ damages have been assessed by reference to the cost of repair?
The judge thought the county court’s distinction between negligent surveyor cases and transaction cases was artificial. The judge said the fact was that the purchasers had bought the property and the property had a value that had been diminished. The judge analysed the relevant authorities and noted two principles: first, that assessment of damages by reference to the diminution in value is the usual approach but is not an invariable rule, and second, that the diminution in value can be determined by the repair cost if it is appropriate to do so.
The judge then reviewed the manner in which the county court had approached the assessment of damages. He said that ultimately, the question concerned what the court was able to do given the state of the evidence. Here the judge thought the county court was entitled to adopt the approach that the cost of repair represented the only practical indicator of the diminution in value of the property. The judge thought this approach made sense given the extensive defects, the fact that the repair costs were about 85% of the value of the property if it were in a reasonable condition, and the county court’s unwillingness to accept that the diminution value was as little as £15,000 as contended by the bank. Taking these circumstances into account, the judge concluded that the county court was entitled to find that the damages were £115,000.
The diminution in value test is well established but as this judgment shows, particular circumstances may justify the assessment of damages by reference to the cost of repairs. In this case one of the contributing circumstances was the bank’s failure to offer a compromise sum. The county court had been confronted with only two figures for damages. As the judge observed in his closing comments, the bank’s case had in effect been that the purchasers’ figure of £115,000 was wrong but the only alternative non-zero figure offered by the bank was £15,000. The bank had at no stage offered an intermediate compromise figure, so the only viable sum available to the county court – assuming £15,000 was perceived to be too low – was the £115,000 claimed by the purchasers.
The judge commented that another option available to the county court would have been to arrive at its own intermediate figure doing the best it could on the basis of the evidence available. However, that was not obligatory and the county court could not be criticised for failing to produce its own figure and instead opting for the higher of the figures proposed by the parties.
Ted Lowery is a partner in Fenwick Elliott