The risks of going large (again)
In our July 2020 article , we looked at the case of Hart and Hart v Large, which concerned a survey undertaken by Mr Large for the Harts.
The appeal of that case came before the Court of Appeal in December 2020, who decided to dismiss the appeal and uphold the High Court's judgment. Whilst this decision signifies a potential willingness by the Courts to depart from the usual measure of loss, the Court of Appeal stressed that this was an unusual case and that the findings should not give rise to a departure from the usual principles governing the measure of loss in claims against surveyors.
The High Court Case
The High Court case arose from a dispute between purchasers Mr and Mrs Hart and an experienced surveyor, Mr Large, whom they engaged to provide a RICS Homebuyer Report in relation to a newly refurbished property situated on a hill-top in Devon. The report highlighted only minor issues with drainage problems and concerns with some gutters and pipes. Mr Large valued the property at £1.2m and Mr and Mrs Hart purchased it for that price.
Following the purchase, the property suffered serious water ingress and damp issues. The Harts brought a negligence claim against Mr Large. They also sued the conveyancing solicitors and the architects who had supervised the reconstruction works on behalf of the previous owners. The High Court found Mr Large was negligent in that he:
- Failed to report that he could not see any damp-proofing where he should have expected to see it and wrongly assumed, without evidence, it was present; and
- Failed to recommend in his report that a Professional Consultant's Certificate (PCC) should be sought.
In its assessment of damages, the High Court diverged from the normal rule, established in the Watts v Morrow case, that damages should be assessed on the basis of the difference between the value of the property as described in Mr Large's report and its value in its actual condition. Instead, the judge awarded damages based on the costs of the remedial works required to remedy all the defects that would have been identified had Mr Large properly advised the claimants – in effect, the costs of remedying all defects with the property, including not only those he had identified in the report but also those he could not have been expected to identify . The judge awarded the Harts £750,000, which was reduced to £374,000 to take into account the out-of-court settlements with the architects and the solicitors. The award included £15,000 for inconvenience and distress which is a high sum for that type of loss.
The appeal was limited to the measure of damages applied by the High Court. Mr Large argued that the correct basis of the measurement of damages was the diminution of value. He argued that the principle in Watts v Morrow was such that, unless the surveyor provides a warranty as to the condition of the property, there is no basis for awarding damages to reflect the costs of repair.
Mr Large also argued that, were the decision to be upheld, this would radically alter the usual approach that Courts take in claims against surveyors.
The Court of Appeal highlighted "four critical findings" in the High Court's decision from which Mr Large could not escape:
- He was negligent in the advice he gave about damp and damp-proofing;
- He was negligent in failing to advise the Harts not proceed with the purchase without a PCC;
- Had Mr Large given the appropriate advice, the Harts would not have proceeded with the transaction; and
- Mr Large's negligence had deprived the Harts of "advice which was so fundamental to whether the transaction could go ahead that Mr Large should be held to bear the consequences of such advice not having been given."
On this basis, the Court of Appeal upheld the High Court's decision. Coulson LJ held that the measure of loss used by the High Court in this case was appropriate. He held that, whilst Mr Large could not have been expected to identify all of the damp-proofing defects, he should have seen enough to "give rise to a trail of suspicion which (taken together with the need for a PCC which would have covered all aspects of the rebuilding works in any event) ought in turn to have led him to give very different advice."
The Court placed great emphasis on Mr Large's failure to advise the Harts to obtain a copy of the PCC. Coulson LJ agreed with the judge at first instance that Mr Large should have advised that, without a PCC, the Harts should not continue with the purchase. The advice was so fundamental that Mr Large must bear the consequences of failing to give that advice. The fact he was held liable for some latent defects unconnected with damp-proofing which he could not have been expected to find was a direct consequence of his failure to advise that a PCC was necessary before the Harts purchased the property.
Mr Large's legal team sought also to rely on the principles in SAAMCO and Hughes-Holland. They argued that Mr Large was not an "advisor" in the sense of these authorities and that a surveyor in a house purchase could never be considered to be the advisor. Further, they argued that the "advice"/"information" categories were binary and there could never be any sort of hybrid situation. Coulson LJ firmly rejected these arguments and found that the "advice"/"information" categories are not rigid and could overlap. Further, he reasserted the factual findings of the High Court which concluded that this was not a mere "information" case. He concluded that, while this could be considered a hybrid case, it was in fact much closer to an advice case.
Coulson LJ agreed with the High Court's decision that any other measurement of loss would have been very low and would not have compensated the Harts for the losses for which Mr Large was responsible. The conventional method for assessing damages would have only compensated the Harts for the simple defects that Mr Large should have reported but missed.
Whilst this decision case poses some risk to surveyors, the Court of Appeal strongly emphasised the unusual facts of the case. Coulson LJ stated that the ruling was specific to this claim and did not represent a departure from the principles governing the measure of loss in negligent surveyor cases. Watts v Morrow is therefore very much still alive and well and will govern the way in which damages should be assessed in the vast majority of cases.
Surveyors should continue to keep their advice under review and ensure that anything that has not been inspected is noted on the report, with reasons why. Any surveyors asked to inspect a property that has recently be renovated should also give careful consideration to whether the client needs a PCC.