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Cost of Repair or Diminution?

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By DAC Beachcroft


Published 18 October 2018


A growing number of claimants are trying to use a recent appeal case to claim that repair costs are the appropriate measure of damage in cases where a surveyor has failed to identify defects in a pre-purchase valuation or survey. 

Although the case,  Moore & Hegelund v National Westminster Bank , says no such thing, it does illustrate the crucial role that strategy and credible expert evidence plays in claims of this type. 



Mr Moore & Ms Hegelund purchased a Buy to Let flat in Bideford for £135,000, with mortgage assistance from the bank. They specifically requested that a RICS HomeBuyer Report ("HBR") be arranged and, despite paying the bank for the HBR, the bank failed to commission one and simply made the advance to allow the purchase to complete.

Following purchase, significant defects requiring extensive repairs came to light, exacerbated by the fact that the building in which the flat was located was Grade II listed and situated in a conservation area. Having spent £35,000 on remedial works before running out of money, the purchasers brought a claim against the bank alleging breach of contract in failing to procure a HBR which, if obtained, would have revealed the defects and resulted in the purchase being abandoned.


First Instance Decision

Recorder Willetts, sitting in the Birmingham County Court, found the bank in breach of contract. That was the easy bit. When it came to loss, matters became a little more complicated.

Against a total repair cost of £115,000, the purchasers argued that this was the only fair means of compensating them as, but for the bank's breach, they would not have bought the flat. The bank, in contrast, argued that it has been settled law; since Phillips v Ward [1956] 1 WLR 471; that the correct measure of loss is diminution in value. The bank also relied on expert valuation evidence which opined that diminution in value was only £15,000.

The Judge rejected the bank's arguments, concluding that there was a material difference between a failure to procure a report and a negligent report such that the Phillips v Ward line of authority could be distinguished. Considering that to award anything other than the full cost of repair would undercompensate the purchasers, damages of £115,000 were awarded.



The bank appealed the decision, asserting that the Judge had been wrong to depart from a diminution in value approach. Applying the correct approach, the bank argued that the only evidence before the court on the issue of diminution was the £15,000 figure advanced by their expert. 

That latter submission was based on the fact that the purchasers' surveying expert had told the trial Judge that if he had carried out the HBR he would not have put a value on the flat pending completion of the further specialist investigations that were, in his view, so patently required. At trial this expert therefore did not proffer any evidence on the crucial issue of what the flat was worth, warts and all.

In a Judgment handed down by Mr Justice Birss ("MJB") on 17 July 2018, the bank's primary submission was unequivocally accepted; the appeal Judge stating that "in my judgment this principle [diminution in value] is plainly applicable in this case and the judge was wrong to approach the matter by distinguishing it".

MJB found that two of the points of distinction made by the trial Judge; that this was not a negligent survey case and that the purchasers would not have bought the flat if they had received a HBR; were wholly irrelevant.

However, the bank's joy proved short lived. MJB went on to analyse the first instance judgment and the relevant law, before reaffirming that the damages award of £115,000 should stand. That view was reached against a conclusion that the trial Judge's decision could be supported on one of two bases; either that assessing diminution based on the available evidence was so speculative that remedial costs were the only reliable barometer or, that by doing the best one could, diminution was represented by the cost of repair.

MJB clearly disliked the bank's criticism of the purchasers' expert; in particular his unwillingness to commit to any particular figure when pressed to express a view as to the flat's value, in its defective state, at the date of purchase. MJB also took firmly on board that the trial Judge was singularly unimpressed by the bank's expert and clearly felt that it was untenable to suggest that the flat was only worth £15,000 less than the purchasers had paid.

MJB therefore reached the conclusion that " 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 " in circumstances where there was no evidence from one party and no credible evidence from the other. 



As will be self-evident, this appeal does not open the door to damages being assessed by reference to repair costs; rather it reaffirms the long standing position that wherever someone purchases property that, but for negligent advice, they would not have done the measure of damages is to be assessed by reference to diminution in value.

That is not stopping some claimant solicitors seeking to suggest otherwise, although once that fact is pointed out it may produce claims that assessing diminution is far too speculative. In the vast majority of cases that argument should simply not be allowed to fly.

Whilst cost of repairs will undoubtedly have a part to play in that assessment process, they rarely result in diminution being anywhere close to the overall remedial bill. Previous authorities have always recognised that diminution might amount to the full costs of repair, but that door is almost always capable of being closed by credible and realistic expert evidence. That is particularly so if the evidence recognises that valuation is, after all, an art not a science and exhibits some degree of flexibility in the conclusions reached.

Two further issues merit comment as they clearly influenced judicial thinking. First, it was noted that the bank had taken every conceivable point, some of which were described as unsustainable. The old adage of not taking a bad point (as it risks diluting the impact of a good one) springs to mind. Second, there was criticism of the bank's lack of a fall-back position; essentially having no alternative case as to what diminution ought to be if their expert's opinion was rejected (which it whole heartedly was). MJB commented that such a strategy could, and in this case did, backfire.