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Case No: QBENF 98/1164 A2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM NEWPORT COUNTY COURT (HHJ MOSELEY)
Royal Courts of Justice
Strand, London, WC2A 2LL
Thursday 16th March 2000
B e f o r e :
LORD JUSTICE ROCH
LORD JUSTICE BROOKE
and
MR JUSTICE FERRIS
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|
MARY
ELIZABETH BERRY
|
Appellant
|
|
-
and -
|
|
|
NEWPORT
BOROUGH COUNCIL
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Respondent
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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - -
Mr John Macdonald, QC & Miss Sara Hargreaves (instructed by
Granville West Chivers & Morgan for the Appellant)
Mr Nigel Macleod, QC & Mr Jonathan Karas (instructed by Newport
Borough Council for the Respondent)
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE ROCH:
The issue in this case was the correct measure of damages to be recovered by a
council tenant who had purchased the freehold of a council house from the local
housing authority with the benefit of a discount where the local authority has
been in breach of their duty under s. 563(1) of the Housing Act, 1985, to give
the purchasing tenant notice that the house is a defective dwelling and that
the purchasing tenant will not be eligible for relief under the scheme in Part
XVI of the Act. Liability was not an issue before the judge.
The judge found that the claimant, Mrs Berry, was entitled to the sum of
£6,765 together with statutory interest, that sum being the difference
between the price Mrs Berry paid for her house, namely £10,250 and the
price which she would have had to pay had it been known that the dwelling was
in a defective condition, namely £3,485. Mrs Berry bought her house from
the respondents under the "right to buy" provisions in Part V of the 1985 Act.
As a person with a right to buy, Mrs Berry was entitled to a discount in
accordance with s.129 and Sch 4 of the Act. In Mrs Berry's case, that discount
was 59% of the open market value of her house, which was £25,000.
Mrs Berry's case was one of eight cases in which this was the issue. These
claims arose because of the legislation passed in 1984 and 1985 to deal with
the problem of council houses which were by reason of their design likely to be
defective. The Housing Defects Act, 1984, which is now Part XVI of the Housing
Act, 1985, became law on the 1st December 1984. The reason for its enactment
was that local housing authorities had, in their housing stock, several types
of house, usually of a prefabricated design, which were, because of
shortcomings in their design, inherently defective. The Act gave the Secretary
of State power to designate such types of houses as "defective dwellings", see
now s. 528 of the 1985 Act. Once the Secretary of State had made such a
designation, local housing authorities had statutory obligations to bring that
designation to the attention of council house tenants and to persons who had
bought such houses from the local authority either directly or indirectly
before what was called "the cut-off date", the 26th April 1984, later extended
to the 26th April 1985. Those persons were potentially persons "eligible for
assistance". Assistance could take one of two forms, either a reinstatement
grant, or if the council had sold the house to the person eligible for
assistance, by way of repurchase. A reinstatement grant could be as much as
90% of the cost of repair. Repurchase could be for 95% of the open market
value of the house on the assumption it was not defective. Such persons had a
period of 10 years from the 1st December 1984 in which to seek assistance.
The facts of Mrs Berry's case are clearly and succinctly set out in the judge's
judgment in this way:
"Mrs Elizabeth Berry is the owner of a dwelling house at 39, Ringwood Hill,
Newport. That is a former council house of which Newport Borough Council was
formerly the owner. Mrs Berry purchased it on the 7th March 1988 with the
benefit of a 59% discount. The open market value of the house, assuming good
repair, was £25,000. With the benefit of her 59% discount Mrs Berry paid
£10,250. Unknown to both parties at the time of sale the house was of the
Hawksley SGS type, which incorporate in their construction reinforced concrete
columns containing embedded steel which is ineffectively protected by the
surrounding concrete. The embedded steel is prone to rusting and pursuant to
the provisions now contained in section 528(1) of the Housing Act, 1985, such
houses have been designated by the Secretary of State for Wales as defective
houses. Under s. 563(1) the council owes a duty to a purchaser to whom it
sells such a dwelling to give that purchaser notice prior to sale specifying
the defect and bringing to the attention of the purchaser the fact that the
purchaser will not be eligible for assistance under the Act. The council
concedes that in breach of duty it failed to give Mrs Berry such notice. It
also concedes that under s. 563(1) Mrs Berry enjoys a cause of action against
the council for damages for breach of statutory duty. The only issue between
the parties is what the measure of damages should be."
The following matters were agreed before the judge: First, that Mrs Berry's
claim for breach of statutory duty was akin to a claim in tort. Second, as a
consequence the damages to which Mrs Berry is entitled are to be assessed on
common law principles. Third, the basic common law principle for the award of
damages in tort is that damages are compensatory: damages should be awarded so
as to put the claimant, so far as that is possible by an award of money, in the
same position as she would have been in had the breach of duty not occurred.
Mr Macdonald, QC for the appellant submitted to this Court that the judge had
been wrong to follow the approach adopted by the Courts in cases of negligent
valuations of properties. The judge should have looked for the compensation
which Parliament intended a person to whom the local authority had failed to
discharge their duties, to receive.
Mr Macdonald pointed to the provisions of the Act that in an assistance case by
the way of repurchase, the repurchase is to be at 95% of the open market value
and not at the discounted price indicating Parliament's intention that the
purchaser of a defective council dwelling should be compensated on the basis
that the sale had taken place with the property warranted as not defective. If
the assistance was by way of a reinstatement grant then the local housing
authority would bear 90% of the cost of correcting the defect, which in this
case would have been £41,835.70 being 90% of £46,483. There was no
reason for any differentiation to be made in the case of a person who purchased
from the local housing authority after the cut off date, and the cases of those
who purchased prior to the cut-off date and who therefore were entitled to
assistance by way of reinstatement grant or repurchase.
In an alternative submission Mr Macdonald argued that Mrs Berry should have
recovered the open market value of the house without the defect at the date of
purchase, £25,000, less the market value of the house with its defective
designation known, namely £8,500, that is to say £16,500 and
interest.
Mr MacLeod, QC for the respondents adopted the conclusion and reasoning of the
judge.
In Philips -v- Ward [1956] 1WLR 471 the plaintiff in reliance upon a
negligent report by a surveyor purchased a property in June 1952 for
£25,000. The market value of the property in its actual condition was
£21,000. The surveyor had failed to report defects in the property which
would require an additional expenditure of £7,000 at 1952 prices to put
right. The Official Referee awarded the plaintiff £4,000 being the
difference between the value of the property as it should have been described
and its value as described by the surveyor. At page 473 Denning LJ said:
"I take it to be clear law that the proper measure of damage is the amount of
money which will put Mr Philips in as good a position as if the surveying
contract had been properly fulfilled, see British Westinghouse Electric and
Manufacturing Co. Ltd -v- Underground Electric Railways Company [1912] AC 673, 689, per Lord Haldane LC. Now if the surveyor had carried out his
contract, he would have reported the bad state of the timbers. On receiving
that report, Mr Philips would either have refused to have anything to do with
the house - in which case he would have suffered no damage - or he would have
bought it for a sum which represented its fair value in its bad condition - in
which case he would pay so much less on that account. The proper measure of
damages is therefore the difference between the value in its assumed good
condition and the value in the bad condition which should have been reported to
the client. We were referred to the cases where a house is damaged or
destroyed by the fault of a tortfeasor. These cases are, I think, different.
If the injured person reasonably goes to the expense of repairing the house,
the tortfeasor may well be bound to pay the cost of repair, less than an
allowance because new work takes the place of old .............. In other
cases, the tortfeasor may only have to pay the value of the house ........ It
all depends on the circumstances of the case ....... The general rule is that
the injured person is to be fairly compensated for the damage he has sustained,
neither more nor less."
In Perry -v- Sidney Phillips and Son [1982] 1 WLR 1297 another case in
which a surveyor failed to observe serious defects in a property he was
surveying and where the plaintiff purchaser was unable to afford major repairs
Lord Denning MR at page 1301 said:
"Where there is a contract by a prospective buyer with a surveyor under which
the surveyor agrees to survey a house and make a report on it - and he makes it
negligently - and the client buys the house on the faith of the report, then
the damages are to be assessed at the time of the breach, according to the
difference in price which the buyer would have given if the report had been
carefully made from that which he in fact gave owing to the negligence of the
surveyor. The surveyor gives no warranty that there are no defects other than
those in his reports. There is no question of specific performance. The
contract has already been performed, albeit negligently. The buyer is not
entitled to remedy the defects and charge the cost to the surveyor. He is only
entitled to damages for the breach of contract or negligence."
At page 1304 Oliver LJ said:
"The position as I see it is simply this, that the plaintiff has been misled by
a negligent survey report into paying more for the property than that property
was actually worth. ....... The right measure of damages is the measure
suggested in both Philips -v- Ward ....... and Ford -v- White and
Co. ....... which is simply the difference between what the plaintiff paid
for the property and its value at the date when he obtained it."
In County Personnel (Employment Agency) Ltd -v- Alan R Pulver & Co.
[1987] 1 WLR 916 at page 925 Bingham LJ said:
"On the authorities as they stand the diminution in value rule appears almost
always, if not always, to be appropriate where property is acquired following
negligent advice by surveyors."
In South Australia Asset Management Corporation -v- York Montague Ltd
[1997] AC 191 three cases involving over valuations of property by valuers in
which the persons suffering loss, in these cases mortgagees, sued the defendant
valuers for damages for negligence and breach of contract. In his speech Lord
Hoffmann pointed out that the correct measure of compensation had to be
determined by a consideration of the kind of loss in respect of which the duty,
either contractual or tortious which had been breached by the defendant was
owed. Lord Hoffmann went on to consider how the scope of the duty was to be
determined at page 212C of the report. He said:
"In the case of a statutory duty, the question is answered by deducing the
purpose of the duty from the language and context of the statute: Gorris
-v- Scott [1874] LR 9 Ex 125. In the case of tort, it will similarly
depend upon the purpose of the rule imposing the duty."
Later in his speech at page 216 D Lord Hoffmann said:
"The measure of damages in an action for breach of a duty to take care to
provide accurate information must also be distinguished from the measure of
damages for a breach of a warranty that the information is accurate. In the
case of breach of a duty of care, the measure of damages is the loss
attributable to the inaccuracy of the information which the plaintiff has
suffered by reason of having entered into the transaction on the assumption
that the information was correct. When one therefore compares the loss he has
actually suffered with what his position would have been if he had not entered
into the transaction and asked what element of this loss is attributable to the
inaccuracy of the information. In the case of a warranty, one compares the
plaintiff's position as a result of entering into a transaction with what it
would have been if the information had been accurate. Both measures are
concerned with the consequences of the inaccuracy of the information but the
tort measure is the extent to which the plaintiff is worse off because the
information was wrong whereas the warranty measure is the extent to which he
would have been better off if the information had been right."
The judge cited that second passage from the speech of Lord Hoffmann in his
judgment adding these words:
"In my judgment these principles are as applicable to this breach of statutory
duty as they are to a breach of a duty of care."
Mr Macdonald's submission is that at this point the judge misdirected himself
and as a consequence of the misdirection failed to answer the first question
which arose by deducing the purpose of the duty in s. 563 from the language and
context of the Statute. Had he done so, the judge would have seen that
Parliament intended Mrs Berry to be compensated on one of the two basis
advanced by Mr Macdonald in his submissions.
I am unable to accept these submissions by Mr Macdonald. The judge at the
opening of the fifth paragraph of his judgment said:
"So the issue is by what sum is the plaintiff Mrs Berry worse off by reason of
the council's breach of duty."
The scope of the statutory duty was to inform the person entitled to receive
the information of the fact that the house was one which had been designated
defective prior to that person buying the house. It was not a duty not to sell
such a house nor was it a duty to warrant that all houses being sold by the
local authority under the right to buy scheme were free of defects. The
defects were not caused by any breach of duty by the local authority, and
certainly not by the breach of their duty under s. 563. On the other hand, Mrs
Berry's act in purchasing the house at £10,250 was caused by the
authority's failure to comply with their duty under s.563(1). As Lord Denning
MR said in Perry -v- Sidney Philips & Son [above] had the duty been
discharged, Mrs Berry would either have declined to go on with the purchase of
the house or she would have bought it at a substantially lower price, namely
its value in the open market as a house known to be of a type designated
defective by the Secretary of State, discounted by 59%.
This second possibility was the basis on which the judge awarded Mrs Berry
damages. As the case was one where Mrs Berry had bought the house and, in her
statement of claim did not seek rescission of that sale, the judge was right to
do so. For those reasons I would dismiss this appeal.
LORD JUSTICE BROOKE:
I agree.
39, Ringwood Hill, Newport had been Mrs Berry's home for 29 years before she
exercised her right to buy it under the "right to buy" legislation. It was a
Hawksley SGS type house and had been a Hawksley SGS type house ever since she
started to live in it all those years ago.
Under the "right to buy" legislation, Mrs Berry was able to buy a house whose
market value was £25,000 for only £10,250. The judge found that
because of the blight put on the house by the news that it was a Hawksley SGS
type house, she should have paid only £3,485. The judge has compensated
her for the difference between the price she paid (£10,250) and what he
long term home was actually worth (£3,485).
I can see nothing unjust about the measures of damages which the judge adopted
in this case. He followed long-established principles. I, too, would dismiss
the appeal.
MR JUSTICE FERRIS: I also agree
Order: Appeal dismissed. Respondents to have their costs of the
appeal to be set off against sum they have to pay the Appellant. Detailed
assessment of Appellants costs.
(Order does not form part of the approved judgment)
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