The first instance decision in Hart v Large last year caused concern to the surveying profession and their insurers due to the assessment of loss and the deviation from the usual assessment of damages in a claim arising out of a negligent survey.

The matter moved swiftly to the Court of Appeal. Whilst the appellant surveyor’s appeal was unanimously rejected, their Lordships’ comments provide at least some crumbs of comfort against the fears of floodgates opening but surveyors still need to take care to minimise their risks.

Background

In late 2011, the Claimants were considering the purchase of a cliff-top bungalow in Devon for a price of £1.24m. The property had been extensively rebuilt and extended between 2009 and 2011.

The Defendant surveyor recommended a Homebuyer report to the Claimants, which he duly prepared in November 2011 (“the Report”). The Report valued the property at £1.2m and, in the main, gave it a clean bill of health.

Following provision of the Report, but prior to purchase, the Claimants raised with the Defendant whether a Professional Consultancy Certificate (“PCC”) ought to be obtained before completion given the extensive building works that had been carried out. The Defendant advised that a PCC was not strictly necessary, but that given the extent of the works, requesting one would not be unreasonable. He also said that if one was not available, there would be little recourse should unseen deficiencies with the building works exist and/or subsequently emerge.

The Claimants completed their purchase on 23 November 2011 for £1.2m, following which numerous problems with the property came to light including water ingress and damp. It ultimately transpired that the building works had been done so badly that the only sensible course was for the property to be demolished and rebuilt.

Proceedings were issued against the Defendant, the conveyancer and the architect (who had been retained by the vendor of the property in connection with the works). By the time the claim came before the Court in February 2020, the claims against the conveyancer and architect had been compromised.

First instance decision

The claim against the Defendant came before the TCC (Roger Ter Haar QC) and judgment was handed down on 22 May 2020. The Defendant was accused of negligently: (i) recommending a Homebuyer report when a Building Survey was necessary, (ii) failing to identify significant damp problems at the time of inspection, and (iii) failing to unequivocally advise that a PCC be obtained.

Liability

In respect of (i), the Court held that, on the facts, the Defendant was not negligent to recommend a Homebuyer report; but it did remind all surveyors that they had a continuing obligation until purchase to consider the appropriateness of the level of survey being undertaken.

However, the Court found the Defendant negligent in respect of (ii) and (iii). In relation to the second allegation, the Defendant had reported that no the damp proof course could be seen due to the walls being rendered, but as there was no evidence of dampness it was not a concern. The Court concluded that this was insufficient and that the Defendant ought to have advised that further investigations were required given that he could not see any visible damp proofing in areas where he ought to have reasonably expected to see such evidence.

As for the third allegation, the Court found that the Defendant should have advised that a PCC was essential prior to completion due to the extensive building works that had been carried out and the fact that the property did not have the benefit of a NHBC warranty.

Causative Loss

The Court found that had the Claimants known of the extent of water ingress / damp issues prior to purchase, they would not have bought the property. Further, that had the architects been asked to provide a PCC, they would have declined and, as a result, the Claimants would equally have refused to complete.

The Defendant invited the Court to assess damages on the basis of Watts v Morrow i.e. the difference between the value of the property without defects and the value of the property with knowledge of the defects that ought to have been identified upon inspection. The Court rejected such assessment on the basis that it would not adequately compensate the Claimants.

Instead, the Court referenced South Australian Asset Management Corp v York Montague Ltd (SAAMCO), and decided that the starting point was to consider what the cause of action against the Defendant was. It determined that the main allegation against the Defendant was the failure to insist that a PCC be obtained; an omission which fell within the category of negligent ‘advice’ (BPE v Hughes Holland) as opposed to negligent ‘information’ (SAAMCO).

As such, the Court found that the Defendant should be responsible for all losses caused by the inadequacy of the advice. Such resulted in a damages outcome representing the difference between the value of the property with no defects, and the value of the property with all defects that actually existed (even those a surveyor could not have seen at the time), amounting to £750,000. Damages for distress and inconvenience of £15,000 were also awarded. The Court then deducted £374,000, the damages already recovered from the conveyancer and architect, to arrive at an award of £389,000.

Court of Appeal

The appeal solely focussed on the decision involving the assessment of loss; permission to appeal against the finding of breach and causation having been refused. The appeal came before the Court of Appeal in December 2020 and judgment was handed down on 15 January 2021.

The Court of Appeal held that there were four inescapable findings against the Defendant: (i) that he ought to have advised further investigations in relation to damp proofing, (ii) that he ought to have advised that obtaining the PCC was crucial, (iii) that had either piece of advice been given, the Claimants would not have purchased the property without such further enquiries beingconcluded satisfactorily, and (iv) that in failing to provide the advice, the Defendant had deprived the Claimants of advice which was so fundamental to the transaction proceeding that the Defendant ought to bear the full consequences of his negligence.

In consequence, the Court of Appeal upheld the first instance decision and, in doing so, stressed that due to the importance of the PCC, the Defendant ought to have advised the Claimants that in the absence of it being provided, the Claimants ought not to purchase the property. As such, the lower court was entitled to award damages on the basis of the Defendant’s failure to provide that advice.

Contribution proceedings are ongoing between the Defendant and the conveyancer.

Comment

Whilst the approach taken to loss in this case (by both the TCC and Court of Appeal) departs from the usual assessment of loss in defect claims against surveyors, the Court of Appeal was at pains to state that it was very much fact specific; pointing out that the:

“failure to advise about a fundamental need for a PCC, for example, meant that this was a very different case to the typical negligent surveyor claim” and that this was an unusual case where the measure of loss “was appropriate for this case because of the particular findings of negligence and causation that he [the Judge] has made”.

So whilst the decision remains to appear to be at odds with the well-established authorities on loss; the Court of Appeal was very careful to make clear that this was largely due to the unique underlying circumstances and that, in the vast majority of ‘defect’ claims, loss will continue to be assessed by reference to the principles in Watts v Morrow.

That said, in the vast majority of defect claims we see the aggrieved owner will always assert that if advised as they ought to have been, they would not have proceeded with the original purchase; either at the agreed price, or at all. It is not, therefore, too much of a stretch to anticipate that future claimants will adopt the ‘at all’ approach and claim that losses should be assessed by reference to this Court of Appeal decision.

The question is, will that wash? The answer, in our view, should be no unless (like the Harts) the problem with the property is as fundamental as it was in this case and where, given the significant works had been undertaken, professional certification was essential. But that is unlikely to stop claimed losses being advanced on a ‘warts & all’ basis, wherever there are latent defects present if (1) a trail of suspicion existed justifying a recommendation for further investigations and (2) those investigations would have unearthed the defect.

Whilst surveyors can do little to prevent claimants pleading ‘advice’ case losses in the future, there are steps they can take to minimise the risk of those claims being successful. Obviously, whenever a newly built or materially altered property is involved, all surveyors would be wise to ensure that prospective purchasers are left in no doubt that they must insist on having appropriate professional certificates and/or warranties in place prior to commitment to purchase.

More than that, however, we think the professional would be well advised to revisit their service level agreements and standard terms of engagement (particularly important was the era of the Home Standard Survey is about to begin) to ensure that maximum protection is secured. This should involve making the scope of their responsibilities, the assumptions they will be making, and the limitations on both their inspection obligations and their overall liability absolutely clear.

And finally, a word about the choice of survey product. In our experience prospective purchasers are often driven by cost and thus tend to favour a Homebuyer type offering (soon to be a Level Two report). Of course, the customer’s choice must prevail although surveyors need to ensure that such choice is a transparently informed one for which the surveyor accepts no responsibility if that choice is not in line with what would be the most suitable product for the property in issue.