Surveyor liability for hidden defects

The decision in Hart v Large is potentially alarming for surveyors and their insurers as the surveyor was found liable for diminution in value of £374,000; a figure which reflected defects that a reasonably competent surveyor would not have observed during the non-intrusive inspection.

Background

The Claimants agreed to purchase a bungalow, with sea views on a cliff top location, for

£1,240,000 in late October 2011. The house had recently been substantially extended.

The Defendant surveyor recommended and conducted a Homebuyer Survey, highlighting that the drainage and sewerage disposal arrangements required further investigating and recommending that both Building Regulation certification and guarantees be checked by the solicitors. In response to further queries, the Defendant advised the Claimants that an Architect’s Certificate was not considered essential, but that it would be reasonable to request one to certify that the work had been supervised, and to provide recourse against the architect in the event of problems.

Following completion at a reduced price of £1.2M numerous problems with the property emerged. The Claimants pursued claims against their solicitors, the Defendant, and the architects who had supervised the work for the vendor. By trial only the claim against the surveyor was live.

Liability Decision

The trial judge found that:

1. The Defendant was not negligent - on the facts - to have recommended and conducted a Homebuyer Survey (rather than a Building Survey). However, the Judge made clear that a surveyor is under a continuing obligation to consider if a Homebuyer Survey is appropriate, including to up to the point of responding to queries after completion of the report.

2. On the major issue with the property – dampness – the Defendant had reported that none of the damp proofing detail could be seen, but there were no signs of dampness, albeit the front door was swollen and sticking slightly.

The Judge found that there were already significant issues with dampness by the date of the Defendant’s inspection (but which the vendors had sought to disguise), and that parts of the damp proof membrane ought to have been visible. The Defendant should have recommended further investigation, and given greater emphasis to the issues with the front door.

3. On the facts (including the Defendant’s reliance upon an architect having been involved), he ought to have insisted that an Architect’s Certificate should be obtained.

Causative Loss

The Judge found that the Claimants would have pulled out, had the Defendant recommended further investigation on the damp proofing and that an Architect’s Certificate be obtained.

On loss, the Judge rejected the argument - relying on SAAMCo1- that loss should be restricted to the difference between the property’s value without defects, and its value with the defects the Defendant ought to have spotted. The Judge considered that such approach was unjust, as a competent surveyor could not have said if there was adequate damp proofing, and an Architect’s Certificate is designed to protect against latent defects. The Judge commented that:

“Whilst this is not going so far as to say that [the Defendant] had “a duty to protect his client (so far as due care could do it) against the full range of risks associated” with the purchase of the Property, what they needed was advice which was so fundamental to whether the transaction should go ahead that [the Defendant] should be held to bear the consequences of such advice not having been given”

After accounting for an earlier settlement with the solicitors, the Defendant was ordered to pay diminution in value of £374,0002. The Claimants were also awarded £7,500 each for distress and inconvenience, to reflect that they had been living in a leaking house, and endured intrusive remedial work, for over 8 years.

Comment

Did the Judge’s decision depart from the usual approach to loss (the difference between the property’s value without defects, and its value with the defects which ought to have been reported on)?

The answer is Yes and No. A strict analysis of SAAMCo, and the earlier defect authorities such as Philips v Ward [1956] 1 WLR 471 and Watts v Morrow [1991] 1 WLR 1421, supported the Defendant’s contention at trial that liability should be limited to those defects which could reasonably have been identified from the inspection (whether obvious or via the ‘trail of suspicion’ concept).

However, the Judge appears to have departed from that position having regard to the distinction between SAAMCo, an ‘information’ type case, and the more recent BPE v Hughes Holland ([2017] UKSC 21, an ‘advice’ type case. In effect, the Judge clearly considered that had the Defendant insisted on an Architect’s Certificate being produced (which he felt the Defendant had negligently failed to do) the true extent of the problems would have been identified. Hence the conclusion that the Defendant ought to be liable for the full extent of the defects that would have been unearthed if the Claimants had been advised properly on the course of action they should take.

This will inevitably cause all future claimants to frame their claims in such a way as to take full advantage of this decision, i.e. that the failure was not merely one of failing to spot a particular issue (information) but of failing to contemplate a risk of a far wider problem that would justify comprehensive further investigations (advice). But will that obvious tactic result in future defect claims being significantly more costly to resolve?

The answer is probably unless steps are taken to minimise that risk before the market returns to some form of normality. Those steps would in our view include:

• Taking care to ensure clients are aware of the different types of survey available, and that the suitability of the survey chosen is kept under review – even having default positions such that requests for HomeBuyer type reports are automatically declined if the building falls anywhere close to the ‘difficult’ category on grounds of age, value, form of construction, etc;
• Wherever there is the faintest whiff of a trail of suspicion to be followed, the surveyor should identify it and make a positive recommendation that it should be followed via further specialist investigations or enquiries;
• Whenever dealing with a new build, or a recently extended / refurbished property (particularly if the works were significant in scale or structural significance) surveyors should insist on a satisfactory Architect’s Certificate being obtained prior to commitment to purchase.
• Surveyors must be even more alert to the risk of hidden defects, and should ensure that their reports include appropriate disclaimers, and make recommendations that relevant issues be investigated further.

In the past surveyors have often faced criticism, both from clients and Judges alike, for failing to make a judgment call and dismiss (based on reasoned evidence) potential defects and instead just not expressing a professional opinion and hiding behind a recommendation for further investigation.

This decision, in our view, highlights the pitfalls of being bold and could well result in a more cautious approach in the future; recommending investigations that the surveyor does not genuinely think are essential. As always, there is a balance to be struck but we would certainly advocate a more cautious approach, hopefully not at the risk of diluting the HomeBuyer format to the point of its value being questioned.

South Australian Asset Management Corp v York Montague Ltd [1997] AC 191

£750,000 diminution in value, less £376,000 settlement with the solicitors