In defects claims (read part one of this article here), the causal enquiry turns on a counterfactual: what would the claimant have done if properly advised? If the claimant establishes breach (namely that different advice should have been given), they must then prove that the different advice would have led them to renegotiate the price or walk away from the transaction. There are, however, a number of steps to get to that point.
Loss in these claims is ordinarily measured as diminution in value ("DIV") at the date of purchase, not the later cost of repairs.
That approach tracks a long line of authority. In Philips v Ward[1] the Court of Appeal limited recovery to the reduction in market value that would have resulted had competent advice been given. This approach has been reaffirmed in a number of cases[2].
The rationale is compensatory: damages should put the claimant in the position they would have been in had the duty been performed, not a better one. That is why the Courts are reluctant to award cost of cure if it exceeds the market impact of the defect at the relevant time: the comparison is between what the claimant paid and the actual value of the asset they acquired.
What advice should the defendant have given?
Where the evidence establishes that there was a clear defect that should have been reported, this is straightforward. In cases where the breach consists of a failure to recommend further investigation or to warn of risk, the precise terms of the warning that should have been given may assume greater significance, since the next stage (what would the claimant have done) will depend heavily on the advice that should have been given. So, it is important not to gloss over the stage of establishing exactly what the surveyor should have warned, including the possibility that competent advice or further investigation would have been reassuring.
What would the claimant have done?
The claimant must of course prove that correct advice would have made a difference: if the evidence shows that they would have proceeded at the same price regardless, the claim will fail.
It might be thought that if the claimant asserts that they would have sought to renegotiate the price, the analysis will be one of loss of a chance, but this is not an analysis that is generally undertaken. The parties will usually be expected to adduce valuation evidence to establish what the market value of the property would have been, i.e. the experts’ view of the likely outcome of an arms-length renegotiation, had reasonably competent advice been given by the defendant. In most cases that reduction, if any, will be the recoverable loss, namely DIV.
Claimants frequently assert that they would have walked away from the transaction, but in most cases, it makes no difference to the assessment of loss whether the claimant would themselves have negotiated a price reduction or whether they would have walked away. The question is one of diminution in market value, which is akin to a claim for overpayment.
Put another way, even if “but for” causation is shown (e.g. “I’d have walked away”), recoverability is assessed by way of DIV to constrain liability by reference to the scope of duty, namely what risk the surveyor undertook to protect the claimant from[3]. Fundamentally the Courts will usually conclude that the effect of the breach was that too much was paid for the property. The significance of the scope of duty analysis in “undiscoverable defect” cases is discussed below.
Recoverable loss
In respect of assessing DIV, the comparison will be between (i) the property’s market value assuming the advice given by the surveyor was competent (this is often the actual purchase price, but if the claimants have overpaid for the property even assuming it was not defective, the lower figure will be taken since the decision to pay over the odds was not caused by the breach of duty; conversely if they paid less than the property was worth, this reduces their actual loss and consequently their recovery) and (ii) its market value assuming competent advice had been given. The assessment is carried out as at the date of purchase.
Patent defects
Although conceptually the loss is measured by reference to DIV, cost of repair may be relevant to that analysis. Not every defect will result in a price reduction: the cost of replacing a section of render in the context of a high-end property for example, is likely to be de-minimis and unlikely to be grounds for a price reduction.
The desirability of the property is also a factor to consider; if the house was bought following very stiff competition and for well over the asking price, it may well be found that no reduction to the purchase price would have been agreed to unless there was a very serious (and costly) issue that should have been discovered, to reflect the commercial realities of the transaction.
Consideration must also be given to the level of likely reduction including issues of betterment. For example, a property with an obviously old roof will have been priced as such. If the surveyor advised full replacement within 5 years but the purchaser ended up having to replace it upon moving in, it is highly unlikely the Court will find they have suffered DIV equal to the full cost of replacement of the roof. There will be a significant element of betterment. Similarly, should necessary works be estimated at £16,550, it may well be that the Court will find DIV of £15,000, if that is it the most likely outcome of an arm's length price renegotiation.
Claimants attempting to recover their (higher) costs of repair often argue that DIV at the date of purchase is not an immutable rule. Whilst that is true, any departure from the rule tends to be very fact specific. In Moore v NatWest[4] for example, where the Court held that the defendant had not advanced credible figures for DIV, it adopted the claimant’s figures for cost of repair as the best reflection of the DIV given the evidential picture before it. Therefore, it did not reject the DIV analysis but adopted the costs of repair as the best evidence available of the amount by which the price would have reduced. Conversely, in McKinnon v E.surv Ltd [2003] EWHC 475, Ch, where a surveyor failed to identify a risk of further structural movement, but by the time of the trial it was clear that movement had ceased, the Court valued the property in the light of that knowledge, and not upon the assumption, which would have been made at the date of purchase, that there might be further movement.
Cases where the defendant should have advised further investigation
Assuming that the claimant can convince the Court that further investigations would have been undertaken had they been recommended, the next question is what any such further investigation would have revealed. In practical terms, this scenario will often be that a need for remedial work would have been discovered, often including an estimate of likely remedial costs. The analysis will proceed in the same way as compensation for a patent defect. As discussed above, not every quote for repair will automatically result in a price reduction: the extent of the required work in the context of the property’s overall value and normal expected maintenance costs will inform the evidence as to whether the defect has a material effect on value.
There are, however, some important caveats; if the claimant took no steps to arrange further investigations in relation to another potentially serious issue raised by the surveyor then they will likely face a struggle to convince the Court that they would have done so had such advice been given in respect of the defect in question.
Importantly, any additional investigations would have been limited to what would have been permissible in a pre-purchase scenario; a seller is not likely to allow widescale removal of plaster or other exploratory works that damage the fabric of the property. As such, it may be that further investigations would have resulted in a warning of a risk of defect rather than confirmation.
Cases where the defect could not have been discovered
In such cases, the assessment of DIV will reflect the degree of required warning in conjunction with the likely costs. This is why it is crucial to establish precisely what the non-negligent advice would have been.
Take for example a case in which it is found that a structural engineering report should have been recommended. One possibility is that expert SE evidence will establish that a reasonably competent SE would have reported no serious issues on the evidence available at the time of purchase. But if the SE’s advice would have been that a structural defect might exist but could not be definitively discovered or ruled out without extensive opening-up, is the “defect” which the valuation experts must consider in order to opine on DIV the full extent of the defect that could have been discovered after that extensive investigation, or some lesser figure to reflect the risk of its existing? This must surely depend on the degree of risk, because few sellers will be willing to offer swingeing discounts on the basis of a defect that may not be present at all.
In the light of the case law, we suggest that the answer depends on the extent of the risk, and whether, competently reported, it would have been such as to dissuade the claimant from the purchase altogether. In practice, thousands of houses are bought and sold every year despite the purchasers recognising that there may be undiscovered issues. Sometimes a price reduction may be agreed to reflect this risk; sometimes it will be thought too unlikely or insignificant to warrant such a reduction. The Court will therefore need to consider expert evidence as to what the claimant should have been advised about how likely the risk was to occur and the likely costs of remedying it if it did occur; the claimant’s evidence as to what they would have done if given that advice; and expert evidence as to the effect of that advice on the likely price negotiations.
An extreme example is Hart v Large[5], where the defendant surveyor had conducted a HomeBuyer’s Report survey (largely equivalent to what is now called a Level 2 survey) of an unusual cliff-top property which had been extensively renovated by the sellers. Given that the project had been overseen by and architectural firm, a Professional Consultants Certificate (“PCC”) ought to have been, but was not, available. The defendant warned that the absence of the PCC might leave the claimants with little recourse if there were hidden defects, but did not advise that the certificate was essential, nor did he advise that he could not see visible signs of damp proofing and that further investigation was required to establish that it was present.
Problems with dampness and water penetration began to occur soon after purchase. Ultimately the property was discovered to be riddled with defects and the claimants were advised that the only economic option was demolition and rebuilding. Many of the defects could not have been discovered without extensive opening-up and thus could not realistically have been discovered pre-purchase.
However, because of the extensive reconstruction that had been undertaken, coupled with the fact that the purchasers should have had the benefit of a PCC (which would have provided the purchasers with protection against hidden defects arising from the redevelopment works akin to a warranty), the judge found that the defendant's duty was extended to mirror the protection the PCC would have afforded. Accordingly, the judge assessed DIV by reference to the full costs of repair based on demolition and rebuilding. The Court of Appeal agreed, emphasising that because the surveyor should have advised that the PCC was essential to proceeding with the purchase, and had he done so the transaction would not have proceeded as a PCC was not in fact available, the risk of latent defects rested with him.
The Supreme Court in BPE Solicitors v Hughes-Holland[6] had previously reinforced that “scope of duty” is a limiting principle: namely that it is not enough to show the claimant would not have entered the transaction but for the negligence; the claimant must show the loss claimed is within the purpose of the defendant’s duty. The Court of Appeal in Hart held that the judge's reasoning was consistent with BPE because the judge had held that, in the specific circumstances, the purpose of the duty was to protect the claimants from hidden risks. Because absence of the PCC gave rise to a risk that the entire project had not been competently carried out, the consequences were far-reaching.
The Supreme Court in Manchester Building Society v Grant Thornton[7] (“MBS”) rejected the rigid advice/information distinction from SAAMCO, holding instead that the scope of a professional adviser's duty is governed by the purpose of the duty, judged objectively by reference to the reason why the advice was given. This reformulation is consistent with the reasoning in Hart, where the Court of Appeal clarified that where the surveyor's breach involves failing to give fundamental advice about the need for further investigation or protective measures (such as a PCC), the purpose of duty analysis may establish that the surveyor assumed responsibility for risks beyond those identifiable on inspection. On the facts, the Court of Appeal held that the surveyor's failure to advise on obtaining a PCC was so fundamental to whether the transaction should proceed, that he should bear the consequences of all defects, including latent defects he could not have spotted.
However, the Court was careful to emphasize this was an unusual case on the facts and gave rise to no departure from well-known principles governing measure of loss in negligent surveyor cases. The application of the MBS test will not, in most cases, lead to such extreme results. The breach will usually consist of failure to warn of the risk of a specific defect, and the loss will be the DIV referable to that breach. However, the framework provides principled support for such outcomes where the purpose of the surveyor's duty, objectively assessed, was to protect against the very risks that materialised – even if those risks included latent defects – provided, of course, that the claimant proves that they would not have chosen to take the risk on any terms.
Put another way, in most cases a purchaser accepts the risk that there may be defects that even a careful and competent surveyor cannot detect. The unusual aspects in Hart were i) the absence of a PCC which, importantly, could have protected the claimants from all such undiscoverable defects coupled with (ii) the extent of clues to widespread defects.
Moore and Hart are often cited by claimants, but they do not override the DIV and scope of duty principles; they illustrate that the Court can reach different conclusions in unusual factual/pleading contexts.
Conclusion
A surveyor’s liability is governed by the defined scope of their retainer, the condition of the property as it objectively presented at the time of inspection, and the standard of reasonable competence expected of their profession.
Where breach is established, the Court ordinarily assesses loss by reference to DIV at the purchase date, reflecting the principle that a surveyor’s duty is to provide competent advice within their mandate, not to guarantee the absence of defects. This distinction remains fundamentally important as the causation inquiry turns on a counterfactual evaluation of the advice that ought to have been given, the subsequent additional information that would likely have been discovered as a result of that advice (which may well be limited in a pre-contract context), and the consequential reduction to the purchase price that would probably have been agreed as a result (if any).
[1] See footnote 2, above
[2] Cases: Watts v Morrow [1991] 1 WLR 1421; Perry v Sidney Phillips & Son [1982] 1 WLR 1297; Philips v Ward [1956] 1 WLR 471 and others.
[3] SAAMCo - and MBS?
[4] [2018] EWHC 1805 (TCC)
[5] [2020] EWHC 985 (TCC); Large v Hart [2021] EWCA Civ 24
[6] [2017] UKSC 21
[7] [2021] UKSC 20
