England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE CCRTF 95/0657/B

(His Honour Judge Byrt) )

Royal Courts of Justice

Strand

London WC2

Wednesday, 13th November 1996

B e f o r e:

LORD JUSTICE HIRST

LORD JUSTICE PETER GIBSON

LORD JUSTICE PILL

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(1) JAMES PIERS GARDNER

(2) PENELOPE HELEN GARDNER

Respondents

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(1) MARSH & PARSONS (a firm)

SEAN DYSON

Appellants

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(Handed Down Judgment of Smith Bernal

Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

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MR. J. BRUNNER Q.C. (Instructed by Messrs Lloyd Cooper, London, W1) appeared on behalf of the Appellants/Defendants.

MR. J. PALMER (Instructed by Messrs Stephensen Harwood, London, EC4) appeared on behalf of the Respondents/Plaintiffs.

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J U D G M E N T

(As approved by the Court )

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Crown Copyright

This is an appeal against the decision of his Honour Judge Byrt QC in the Mayor's and City of London Court on 27th February 1995.

In or about June 1985 the plaintiffs Mr James Piers Gardner and Mrs Penelope Helen Gardner were interested in buying the maisonette on the third and fourth floors of No 8 Royal Crescent London W 11 at the price £114,000 subject to a satisfactory survey. They instructed the first defendant Marsh & Parsons to carry out a full structural survey of the property, and this was undertaken by the second defendant Mr Sean Dyson RICS. Unfortunately Mr Dyson carried out this survey negligently, as the judge held and as is no longer disputed, in that he failed to spot a serious structural defect of which there were tell-tale signs in the decoration of one of the rooms. The judge assessed the damages under this head at £29,000 plus interest, and it is against this award that the defendants presently appeal. An additional small amount of damages also awarded is not challenged.

No 8 Royal Crescent is a grade II (Starred) listed building on the east side of Royal Crescent. In 1985 it was converted by Guidedale Ltd, who carry on business as residential and commercial property developers, into four dwellings, namely a maisonette on the basement and ground floors, two flats on the first and second floors, and the maisonette with which we are presently concerned, on the 3rd and 4th floor. Originally the building was a typical five storey terrace house. Guidedale had employed a full professional team to carry out and market the development, including consulting constructional engineers, Glasspool and Thaiss.

In 1985 the plaintiffs were living in Strasbourg but expected to return to the UK in or about 1988. At this time the property market was rising rapidly and they were anxious to gain a foothold in the U.K. market by purchasing a property in London to let with a view to selling it in due course, and then buying another property with the combined proceeds of their English and French properties. They viewed the maisonette on 4th June 1985, and put in an offer for £114,000 on 7th June 1985 which was accepted by Guidedale, whereupon they instructed the first defendants to carry out the structural survey.

Mr Dyson's report was dated 15th June 1985, contracts were exchanged on 5th July 1985 and the purchase of the long lease was completed on 11th September 1985, the plaintiffs having obtained a mortgage from a building society in the sum of £50,000. The plaintiffs' lease, and also those of the other tenants, contained a covenant under which Guidedale were responsible for structural repairs. It is common ground that at the time of Mr Dyson's survey the maisonette suffered from the structural defect, which was not discovered until three years later in 1988, when the plaintiffs were attempting unsuccessfully to sell the maisonette.

Originally the floors, which are of timber joists, were supported centrally on a trussed timber pine wall, which transferred the load from the floors to the party walls. The alterations, which included the adding of a floor at roof level, caused the spine wall to carry additional loads, and also affected its trussed structure; in consequence the first floor joists had to support the full load of the spine wall above the first floor, and became overstressed by a factor of about two and a half, and therefore sagged, creating cracking in the maisonette and in the first and second floor flats. The necessary remedial works, which were carried out by Guidedale in response to demands by the plaintiffs and the other tenants in 1990, consisted of the insertion of a steel beam below the spine wall in the ceiling space of the first floor flat, which belonged to a Miss Solomonides, who had exchanged contracts with Guidedale for the purchase of a long leasehold interest on 1st July 1985 with completion scheduled for 29th July 1985.

The judge's findings on negligence were set out at pp 18 - 19 of his judgment as follows:-

"We know in this case, because of what is accepted by both parties, that the structural engineers did not get it right. The purpose of the plaintiffs instructing Mr. Dyson was precisely to check out the opinions, the calculations and the recommendations of any structural engineer the builder might have engaged. I accept that Mr. Dyson would not have had the experience effectively to challenge the details of his calculations. But the obligation was upon him to press upon such a structural engineer and/or those others to whom he would have reported and advised the tell-tale signs he would have seen from the rucking of the wallpaper in the drawing room, to have put his point of view, as that of an experienced structural surveyor, to the structural engineer so as to persuade him to re-evaluate his assessments. There is no evidence that Mr. Dyson did that, and in his failure to do it I think he fell down on his duty to these clients, the plaintiffs, who were relying upon him to take a line, independent from that of the developer from whom they were buying the lease....

If he had seen the rucking of the wallpaper and linked it with the other structural danger spots - namely, the sagging floor, the breaking into the spine wall and the alterations carried out to the fourth floor - if those had been put together with the rucking wallpaper, I am satisfied that he would have discharged his responsibilities to the plaintiffs and the probabilities are that the structural engineer would have uncovered or discovered the defects in his own calculations.

If in fact he had not been able to persuade the structural engineer as to the faults in his calculations, I am satisfied that, within that situation, Mr. Dyson would have been under an obligation to have entered a caution in his report to the plaintiffs and have afforded them the opportunity of instructing a structural engineer or of looking elsewhere for a property. Accordingly, on that basis, I find that the first and second defendants are liable to the plaintiffs in negligence for Mr. Dyson's failure to warn of the structural defect."

On quantum the judge assessed the measure of damages as the difference between the value of the property without the defects and its value with the defects at the date of purchase, in accordance with a long line of authority, starting with Philips -v- Ward [1956] 1 WLR 471, and culminating in the very recent Court of Appeal decision in Oswald -v- Countrywide Surveyors Ltd [1996] 37 EG 140. He accepted the evidence of the plaintiff's expert, Mr I.D. Taylor ARICS, who is a director of Chesterton, and head of their Residential Professional, Investment and Development Department in the UK, that the open market value of the flat in its structurally defective condition in July 1985 was £80,000, which the judge adjusted to £85,000 to allow for some small concessions made by Mr Taylor during cross-examination.

The defendants had contended that this conventional approach was fundamentally flawed on its special facts of the present case, on the footing, supported by both their experts Mr M H Fawcett FRICA and MR R W C Horner FRICS, that, if the defect had been discovered in 1985 and had been drawn to the attention of Guidedale, they would forthwith have remedied it at their own expense prior to selling any of the units into which the building had been divided, including of course the plaintiffs' maisonette; consequently there would have been no diminution in the maisonette's value and no entitlement to more than nominal damages.

The judge dealt with this contention as follows:-

"I am satisfied that Mr. Taylor's approach is a perfectly reasonable means of calculating a rather difficult calculation, namely the market value of this property in the condition that it was. Market value is an objective assessment, that is the price paid by a willing purchaser to a willing vendor negotiating at arm's length. In my judgment, the willing vendor is not the developer in this or any particular case but a hypothetical vendor with a property on his hands which he wishes to sell. Mr. Palmer's submission predicates that the plaintiffs were in a negotiating position in which they never had a chance to be. Secondly, if Mr. Palmer is correct when he says that in each instance when you seek a market valuation you have to explore all the surrounding circumstances in order to ascertain the valuation figure, it would form a major exception to the general rule adumbrated in the cases I am referred to, and there is no reference to any such exception and no like case quoted. The fact is that the plaintiffs in this case paid for the property more than they should have done having regard to what they acquired for their price. The sole question is: how much more did they pay?"

By their first ground of appeal the defendants reiterate this point and submit the judge was wrong.

The defendants' second ground of appeal is that, even if they are wrong on the first point, the plaintiffs avoided their loss by reason of the repair undertaken by Guidedale in 1990.

The judge rejected this submission as follows:-

"The court is constrained to make an assessment of the loss recorded at the date of the breach. In this case, the damages to be assessed have to be assessed as at July 1985, and in my judgment it is not relevant that the risk is subsequently eliminated at the cost of someone else."

I shall deal with each of these grounds in turn, but first it is convenient to sketch in the subsequent history between 1985 and 1990.

As already noted, it was not until 1988 the structural defect was discovered. It came to light as a result of two very adverse reports prepared by the surveyors retained by two prospective purchasers, both of whom backed out in consequence. The remedial work was carried out almost two years later, having been begun in September and completed in October 1990. Meantime the plaintiffs, who co-ordinated the exercise, entered into tortuous and prolonged quadripartite negotiations with the other tenants, with Glasspool and Thaiss, and with Guidedale, who originally denied responsibility, and only agreed to carry out the work after the threat of legal proceedings. Meantime party wall awards were required in respect of both adjoining occupiers, the notices being served on 16th May 1990, and the awards being forthcoming respectively in June and July 1990. Furthermore Miss Solomonides required an indemnity, which the plaintiffs granted, for any expense arising from the structural work, and her removal from her flat, together with her re-housing and storage expenses. I shall in future refer to these matters collectively as "the intervening events".

Turning now to the first ground of appeal, it is not in dispute that the applicable legal principles are laid down in the line of authorities mentioned above.

In Philips -v- Ward (Supra) a surveyor negligently valued a property which the plaintiff had purchased. Denning LJ. stated as follows at p 473:-

"I take it to be clear law that the proper measure of damage is the amount of money which will put Mr. Philips into 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 Co. [1912] AC 673, at 689 per Lord Haldane L.C. Now if Mr. Ward 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."

Morris LJ. delivered a concurring judgment.

Romer LJ. stated at p 477:-

"It appears to me that in order to arrive at a correct solution of the problem in this case one has to compare the position into which the plaintiff was put by the defendant's failure to perform his duty with the position in which he would have been had the defendant performed it; and in so far as the first position is more unfavourable to the plaintiff than the second, and the difference can be assessed in terms of money, then prima facie that assessment is the measure of the defendant's liability to the plaintiff."

In Perry -v- Sidney Phillips [1982] 1 WLR 1297, where the facts were similar, Lord Denning MR said at p 1301.

"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 report. 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 for negligence. It was so decided by this court in Philips v. Ward [1956] 1 WLR 471, followed in Simple Simon Catering Ltd. v. Binstock Miller & Co. (1973) 117 S.J. 529. ..."

Oliver LJ. and Kerr L.J. delivered concurring judgments

In Watts -v- Morrow [1991] 4 AER 937, again on similar facts, Ralph Gibson LJ. stated at p 950:-

"The task of the court is to award to the plaintiffs that sum of money which will, so far as possible, put the plaintiff into as good a position as if the contract for the survey had been properly fulfilled: see Denning L.J. in Philips v. Ward [1956] 1 All ER 874 at 875, [1956] 1 WLR 471 at 473. It is important to note that the contract in this case, as in Philips v. Ward , was the usual contract for the survey of a house for occupation with no special terms beyond the undertaking of the surveyor to use proper care and skill in reporting upon the condition of the house.

The decision in Philips v. Ward was based upon that principle; in particular, if the contract had been properly performed the plaintiff either would not have bought, in which case he would have avoided any loss, or, after negotiation, he would have paid the reduced price. In the absence of evidence to show that any other or additional recoverable benefit would have been obtained as a result of proper performance, the price will be taken to have been reduced to the market price of the house in its true condition because it cannot be assumed that the vendor would have taken less.

The cost of doing repairs to put right defects negligently not reported may be relevant to the proof of the market price of the house in its true condition: see Steward v. Rapley [1989] 1 EGLR 159; and the cost of doing repairs and the diminution in value may be shown to be the same. If, however, the cost of repairs would exceed the diminution in value, then the ruling in Philips v. Ward , where it is applicable, prohibits recovery of the excess because it would give to the plaintiff more than his loss. It would put the plaintiff in the position of recovering damages for breach of a warranty that the condition of the house was correctly described by the surveyor and, in the ordinary case, as here, no such warranty has been given."

Bingham LJ. as he then was, and Sir Stephen Brown P. agreed.

In his submission on the first ground, Mr Adrian Brunner QC invited us to interpret the judge's findings on negligence quoted above as follows:-

"The Judge held:

(i) that Mr. Dyson should have advised Glasspool & Thaiss of the tell-tale signs of the rucking of the wallpaper and attempted to persuade them to re-evaluate their assessments relating to the spine wall;

(ii) had Mr. Dyson done so, the probabilities were that Glasspool & Thaiss would have discovered the defects in their calculations and in that event Mr. Dyson would owe no further duty to the Gardners. It is implicit from the finding that the Judge considered that once the engineers were aware of the problem then such remedial work as was necessary would be carried out;

(iii) that it was only in circumstances where Mr. Dyson had failed to persuade the engineers of their error that he had a duty to report further to the Gardners by way of a caution which would have enabled them to instruct their own structural engineer or to look elsewhere."

Let me say at once that I am unable to accept this interpretation. The judge himself referred to Mr. Dyson's "failure to warn" and I have no doubt that the plaintiff's retainer of Marsh and Parsons was to undertake the survey and to report to the plaintiffs themselves, as stated by the former in their letter dated 14th June 1981 accepting the retainer:-

"Thank you for your instructions to undertake a structural survey of the above property and we will let you have a formal report as soon as possible."

I am sure that the judge did not intend to state otherwise, though no doubt Mr Dyson would have been in touch with Glasspool and Thaiss as well.

The crux of Mr Brunner's main submission was that it is an inevitable inference that, had the structural defect been drawn to Guidedale's attention in June 1985, they would forthwith have carried out the necessary repairs, being faced with the choice between undertaking a comparatively modest repair costing no more than £4000, and facing a heavy loss; and that thereafter, before the conclusion of the plaintiffs' purchase, negotiations would have ensued which, having regard to the property boom of which both were well aware, would have resulted in an agreement for no more than a nominal discount, it being unthinkable that Guidedale would have agreed to a reduction of the magnitude put forward by Mr Taylor.

Mr Brunner accepted that there was no evidence from Guidedale or from Glasspool and Thaiss to support his submission, but invited the court to draw the appropriate inference. He submitted that by contrast Mr Taylor's approach was artificial and unsound, and that the judge should not have adopted it.

I am unable to accept this submission, substantially for the reasons given by the judge as quoted above, and supported by Mr Edwin Johnson on behalf of the respondents.

In my judgment it is intrinsic to the principles laid down in the Philips -v- Ward line of cases that, in assessing the market price of the property in its defective condition, a hypothetical sale of the property in that state is assumed to have taken place. Mr Brunner proceeds on the opposite assumption, namely that in the particular circumstances of this case no sale would have taken place until after the defect had been remedied, leading to the negotiations he envisages and the resultant nominal discount which he foreshadows. This to my mind is basically unsound.

I should mention that in support of this contention Mr Brunner sought to draw comfort from the passage quoted above from Ralph Gibson LJ.'s judgment in Watts -v- Morrow . But that passage must be read in its context, and I am satisfied that Ralph Gibson LJ.'s sole purpose was to make clear that, in the absence of specific evidence of any additional recoverable benefit, the purchaser is not entitled to recover more than the difference between the price paid and the market price of the property in its defective condition, and in particular that he is not entitled (as the appellant sought to do in that case) to recover the cost of the repairs if they exceed that difference.

A further flaw in Mr Brunner's argument is that his scenario does not square with the actual facts of the case, seeing that the plaintiffs did in fact purchase the maisonette while still in its defective state, which was a natural consequence flowing from Mr Dyson's negligence.

In my judgment this is a straightforward Philips -v- Ward type of case from which it follows that the judge's approach was soundly based.

I should add that, quite apart from this decision in principle, I do not think that the inference which Mr Brunner invited us to draw was supported by the evidence.

Following the judgment the appellants requested the judge to elaborate his findings, and on 11th April 1995 he responded as follows:-

"I have been asked to find as a question of fact whether the hypothetical proposal relating to valuations, advanced in argument by Mr. Palmer in his submissions and through his various valuation witnesses in the course of the evidence was realistic and practical. If I were to attempt such a finding I would have to hedge it round with so many qualifications and caveats, some of which were dependent upon evidence which was not in fact given, that I do not think it really would be of any value to the Court of Appeal.

There were certain parts of that proposal which I do not think were challenged by Mr. Johnson; and in that they were not challenged, certainly I would happily endorse them as findings of fact. Here I am thinking of the fact that the works concerned could have been carried out for approximately £4000, and further, as I think I mentioned in my judgment, if the defendants had had vacant possession when they carried out the works, the works could have been done much more simply and easily.

But as I made plain in argument this morning, difficulties arise because we do not know the developer's approach to this matter, as to whether he would have been willing to carry out the rectifications for the plaintiffs in advance of completion or as to whether he would have just said, ´No, I am not prepared to do any of this work. If you don't like it go elsewhere. I am certainly not prepared to drop my price'. We do not know what his reaction would be.

Equally we do not know what the attitude of Miss Solomonides would have been. She was the occupier of the first floor flat. She had exchanged contracts on 1st July and her completion date was on 29th July. Had this scenario started off on 5th July, at a date when the plaintiffs exchanged their contract, one just does not know how much of the remedied works the developer could have done in the time she made available. In all the circumstances, I do not think I can usefully make any specific findings of fact about any of those matters and I must leave Mr. Palmer to argue his interesting point of law on the basis of the evidence which has been adduced and the findings that I have already made in my judgment."

This was an assessment of the evidence on the primary facts made by a judge who heard the witnesses, and I for my part do not think this court can properly interfere, let alone interpose findings or inferences which the judge himself was not prepared to make or draw.

Finally on this part of the appeal I turn to Mr Taylor's valuation, which the judge accepted subject to his small adjustments, but which the appellants criticise as basically unsound. The judge dealt with this as follows:-

"The plaintiffs relied upon the evidence of Mr. Taylor, another senior director with Chestertons, as to valuation. He carried out his calculations on the basis of a residual valuation, using a computer programme well-recognised by developers, as the plaintiffs say, for both large and small residential developments. It is based on construction costs, other remedial works, takes into account the legal fees, the structural engineer's fees, party wall awards, sale, agents' and legal fees. When first Mr. Taylor calculated the residual valuation, he did so on the basis of a profit of 15 per cent on costs. The result of his calculation was a market valuation, on the 5th July, of the property in the condition that it was, not of £114,000 as paid by the plaintiffs, but only £80,014."

The judge then explained the small adjustments and proceeded:-

"Making those corresponding adjustments, my assessment of the market valuation, in accordance with the evidence that Mr. Taylor gave, is approximately £85,000. Subtracting that sum from £114,000, one has a difference amounting to £29,000. The plaintiffs say that this represents the damages they are entitled to. If the figure seems to be high, Mr. Taylor points out that the property in effect was unmortgageable in the condition that it was in. As a result of that, when looking for a purchaser of property in that condition, one was looking for a purchaser who did not need a mortgage but had cash and who was prepared to make a speculative buy. He said that that necessarily directed you to a very limited market."

The defendants' valuers approached the problem from an entirely different angle, as shown for example by Mr Fawcett's report:-

"With regard to the lack of internal structural support, I consider it reasonable to assume that if this point had been brought to the attention of the plaintiff by either Mr. Dyson, the plaintiff's solicitors or through any other source, then the outcome would have been the same in 1985 as happened in 1988. That is, the problem would have been rectified at the expense of others. No works were required to the plaintiffs' accommodation and the structural work was undertaken in another part of the building.

In reality sales are concluded over a period of time within which problems are resolved. It would not be necessary to have the works completed but only that there was an agreement to do so for the price to be unaffected. It is in my opinion reasonable to assume that if the defendant had recommended the services of a structural engineer who in turn recommended further structural work, this would have been considered favourably by the developer notwithstanding that no objection had been made by the local authority building inspector. The cost of undertaking this work would have been in the order of £2,500, a relatively small sum in relation to the total sale price of the flats."

As already demonstrated, this basis of valuation was incorrect, so the judge had before him no rival valuation prepared on the correct basis. In these circumstances it was perfectly proper for him to accept Mr Taylor's valuation.

The first ground of appeal therefore fails.

On the second ground (avoidance of loss) it is convenient first to summarise the relevant authorities on which both sides rely.

In the leading case of British Westinghouse -v- The Underground Electric Railways [1912] AC 673 the House of Lords held unanimously that where a railway company had installed improved turbines, in replacement of defective turbines which had been supplied to them in breach of contract, the pecuniary advantage derived therefrom was a relevant consideration in the assessment of damages, since the purchase of the improved turbines was a reasonable and prudent course for them to have taken in mitigation of damages.

Giving the leading speech, with which the other members of the Appellate Committee agreed, Lord Haldane LC. stated:-

"The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. In the words of James L.J in Dunkirk Colliery Co. v. Lever (1878) 9 Ch D.20, at p.25, ´The person who has broken the contract is not to be exposed to additional cost by reason of the plaintiffs not doing what they ought to have done as reasonable men, and the plaintiffs not being under any obligation to do anything otherwise than in the ordinary course of business.'

As James L.J. indicates, this second principle does not impose on the plaintiff an obligation to take any step which a reasonable and prudent man would not ordinarily take in the course of his business. But when in the course of his business he has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act."

Having cited a number of earlier authorities, he proceeded:-

"I think the principle which applies here is that which makes it right for the jury or arbitrator to look at what actually happened, and to balance loss and gain. The transaction was not res inter alios acta , but one in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach. Apart from the breach of contract, the lapse of time had rendered the appellants' machines obsolete, and men of business would be doing the only thing they could properly do in replacing them with new and up-to-date machines.

The arbitrator does not in his finding of fact lay any stress on the increase in kilowatt power of the new machines, and I think that the proper inference is that such increase was regarded by him as a natural and prudent course followed by those whose object was to avoid further loss, and that it formed part of a continuous dealing with the situation in which they found themselves, and was not an independent or disconnected transaction."

In Hussey -v- Eels 1990 2 QB 227, the plaintiffs purchased a bungalow in reliance on answers to pre-contractual enquiries which included a misrepresentation that the building had not been the subject of subsidence. The plaintiffs could not afford the necessary repairs to the foundations, and ultimately obtained planning permission to re-develop the land, which they then sold to developers for a substantial sum. The question arose whether what, if any, profit they made on the re-sale could be brought into account in assessing the damages.

The Court of Appeal (Mustill and Farquharson LJJ. and Sir Michael Kerr) held that it could not.

Giving the leading judgment, with which Farquharson L.J. and Sir Michael Kerr agreed, Mustill L.J. expressed his conclusion as follows:-

"I have dealt with the authorities at some length, because it was said that in one direction or another they provided a direct solution to the present problem. For the reasons already stated, I do not see them in this light. Ultimately, as with so many disputes about damages, the issue is primarily one of fact. Did the negligence which caused the damage also cause the profit - if profit there was? I do not think so. It is true that in one sense there was a causal link between the inducement of the purchase by misrepresentation and the sale 2½ years later, for the sale represented a choice of one of the options with which the plaintiffs had been presented by the defendants' wrongful act. But only in that sense. To my mind the reality of the situation is that the plaintiffs bought the house to live in, and did live in it for a substantial period. It was only after two years that the possibility of selling the land and moving elsewhere was explored, and six months later still that this possibility came to fruition. It seems to me that when the plaintiffs unlocked the development value of their land they did so for their own benefit, and not as part of a continuous transaction of which the purchase of land and bungalow was the inception."

Mustill L.J.'s review of the earlier authorities, which began with a discussion of the Westinghouse case, included two cases which he described as follows:-

"I now turn to a pair of contrasting decisions in a different line of authority. The first is Jamal v. Moolla Dawood, Sons & Co. [1916] 1 AC 175 where the claim was for a failure by a buyer to accept shares under a contract of sale for delivery on a specified date. Two months after that date the sellers began to re-sell the shares on a rising market. It was held that the profit thus accruing should not be deducted from the damages for non-acceptance, which were to be ascertained as at the date of the breach. Delivering the opinion of the Board, Lord Wrenbury said, at pp 179,180:

´The question therefore is the general question and may be stated thus: In a contract for sale of negotiable securities, is the measure of damages for breach the difference between the contract price and the market price at the date of the breach - with an obligation on the part of the seller to mitigate the damages by getting the best price he can at the date of the breach - or is the seller bound to reduce the damages, if he can, by subsequent sales at better prices? If he is, and if the purchaser is entitled to the benefit of subsequent sales, it must also be true that he must bear the burden of subsequent losses. The latter proposition is in their Lordships' opinion impossible, and the former is equally unsound. If the seller retains the shares after the breach, the speculation as to the way the market will subsequently go is the speculation of the seller, not of the buyer; The seller cannot recover from the buyer the loss below the market price at the date of the breach if the market falls, nor is he liable to the purchaser for the profit if the market rises.... The seller's loss at the date of the breach was and remained the difference between contract price and market price at that date. When the buyer committed this breach the seller remained entitled to the shares, and became entitled to damages such as the law allows. The first of these two properties, namely, the shares, he kept for a time and subsequently sold them in a rising market. His pocket received benefit, but his loss at the date of the breach remained unaffected.'

This case was discussed in the R. Pagnan & Fratelli case [1970] 1 WLR 1306, the facts of which were as follows. Corbisa sold to Pagnan a quantity of maize on c.i.f. terms; with extensions, the shipment period ended on 22 August 1965. The sellers failed to ship in time. On 21 September 1965 the parties met and the buyers agreed to accept a consignment on a named vessel if satisfied with its condition on arrival at Venice. Upon arrival part was found to be in bad condition, and the buyers rejected it. Meanwhile they had obtained on 13 October a decree sequestrating part of the cargo for the recovery of freight and premiums advanced and for reimbursement of damages for non-fulfilment. The sellers repaid the advances, and the sequestration was lifted pro tanto, leaving 700 metric tons under sequestration in relation to the claim for damages. On 13 November the parties agreed that the buyers would purchase the rejected goods ex silo Trieste, at a price which the arbitrators found was unduly depressed by reason of the sequestration: so much so that it was below the market price. The arbitrators also found:

´The purchase of 13 November 1965 formed part of a continuous dealing with the situation in which the buyers found themselves, and was not an independent or disconnected transaction. By such purchase the buyers diminished and mitigated any loss which they might have suffered': see p.1309D.

On this basis the arbitrators dismissed the claim. The buyers appealed by case stated. Roskill J. upheld the award, as did the Court of Appeal. After referring to Jamal v. Moolla Dawood, Sons & Co. [1916] 1 AC 175 and to a similar case, Salmon L.J. said at pp. 1314-1315:

´The principle of law is that where a buyer wrongfully neglects or refuses to accept and pay for the goods or a seller wrongfully neglects or refuses to deliver the goods to the buyer, the innocent buyer or seller as the case may be may maintain an action for damages for breach of contract. The measure of damage in each case is the estimated loss directly and naturally resulting in the normal course of events from the breach of contract. Where there is an available market for the goods, the measure of damage is prima facie to be ascertained by the difference between the contract price and the market price at the date of the breach: see section 50 and 51 of the Sale of Goods Act, 1893. The two authorities relied on by Mr. Goff do no more than illustrate instances in which the prima facie rule relating to the measure of damage applies. In such cases the innocent party is not bound to go on the market and buy or sell at the date of the breach. Nor is he bound to gamble on the market changing in his favour. He may wait, if he chooses; and if the market turns against him this cannot increase the liability of the party in default; similarly if the market turns in his favour, the liability of the party in default is not diminished. Normally if the innocent party goes on to the market and buys or sells after the date of the breach, this is res inter alios acta so far as the party in default is concerned. The present case, however, is quite different. The purchase of 13 November 1965 was certainly not inter alios acta ; it was between the self-same buyers and sellers who were parties to the contract of 20 May 1965 and it related to the self-same goods that were the subject-matter of that contract. Moreover, as already stated, the tribunal found that it was not an independent or disconnected transaction but formed part of a continuous dealing between the parties; and these findings of fact cannot be challenged in this court. Accordingly the prima facie rule for ascertaining the measure of damages cannot apply because the buyers suffered no loss or damage but instead made a handsome profit in spite of the sellers' breach.'

Salmon L.J. concluded, at p.1316:

´But the buyer cannot have his cake and eat it, as these buyers are seeking to do. They went through the motions of rejecting the goods in October 1965. Indeed they did, in law, reject them. They did so, however, in the confident expectation that, as a result of their rejection and the sequestration order, they would be able to negotiate a new agreement under which they would acquire the goods at a price favourable to themselves. This they did by their purchase of November 13. The price was substantially below the market price and their resulting profit certainly exceeded the difference between the May contract price as varied and the prevailing market price at all relevant times. Damages for breach of contract are awarded for loss suffered. Here the buyers suffered no loss. It is only by looking in isolation at the sellers' failure to deliver sound goods that the buyers' claim is even arguable. This failure cannot in my view properly be looked at in isolation because together with the purchase of November 13 which arose out of the situation in which the buyers found themselves, it formed one continuous dealing between the same parties in respect of the same goods. As a result of this dealing, looked at as a whole, the buyers, notwithstanding the sellers' breach, made a profit and no loss. To allow the buyers' claim would in my view be contrary alike to justice, common sense and authority. I would accordingly dismiss the appeal'

It seems to me that the Pagnan case is as far away from the present case in one direction as the Jamal case is in the other. In Pagnan, not only had the tribunal made a finding of continuity, but the bare narrative shows that such a finding was inevitable. From the moment of breach the sellers were at a disadvantage which the buyers were able to exploit by successful measures leading to the ultimate repurchase. In no sense could the buyers be said to have purchased the same cargo from the same seller as a bargain for their own account quite separate from anything that had gone before.

In reality I believe that neither Pagnan nor any of the other cases cited in argument presents a true analogy here. The plaintiffs are not claiming a conventional prima facie measure of damages, as with a sale of goods or shares: they really suffered the loss claimed, for they would have had to pay the cost of repairs if they had remained permanently in residence; On the other hand the later transaction did not flow inexorably from the first, as was the case in Pagnan."

Earlier in his judgment, with reference to the question whether the plaintiffs had been under a duty to mitigate, Mustill L.J. left open the question whether there could be any question of mitigation in cases where the loss has already crystallised, in contrast to cases where there is a continuing loss (as for example in the Westinghouse case), stating that he would not be prepared without a very full review of the authorities to underwrite any generalisation, "especially in the field of damages where broad statements of principle tend to be unreliable".

Finally in Jones v. Just (1868) LR 3 QB 197, it was held that a normal measure of damages applied where the plaintiff bought first quality hemp and second quality hemp was delivered, although the plaintiff had resold the delivered hemp at substantially the price at which the first quality hemp had stood at the time of delivery, the market price having meantime risen. This was the judgment of a strong court (Lord Cockburn, C.J., Blackburn and Mellor JJ) delivered by Mellor J., in which at page 200 they approved the direction of the trial judge to the jury that if they found for the plaintiffs, "the damages should be measured by the rate which the hemp was worth when it arrived compared with the rate which the same hemp would have realised had it been shipped in the state in which it ought to have been shipped" thus, (in Mellor J's words) "in effect, giving the plaintiffs the benefit of the rise in the market".

Mr Brunner submitted that, the plaintiffs having themselves adopted the reasonable and prudent course of instigating the repairs, and those repairs having been undertaken with the result that the defect was rectified, the plaintiffs had suffered no loss, and were no worse off, seeing that the premises had been restored to their full value well before the date of trial. He stressed that these repairs remedied the very defect which Mr Dyson had originally failed to spot, and submitted that there was therefore a direct connection between Mr Dyson's negligence in 1985 and the remedial work undertaken in 1990. He further submitted that, as a general rule, where the plaintiff has in fact avoided his loss in whole or in part, whether or not under a duty to mitigate, by reasonable and prudent action, the resultant benefit must be taken into account. He recognised at the conclusion of his argument that this formulation is difficult to reconcile with the cases referred to above dealing with sale of goods or shares, but submitted that they formed a special class outside the general rule.

Mr Johnson, founding his argument on Hussey -v- Eels , submitted that where as a result of the defendant's negligence a plaintiff suffers loss in the form of diminution of value of the property, that loss is not avoided by the subsequent conduct of the plaintiff unless such conduct flows inexorably from the original transaction, and can properly be seen as part of a continuous course of dealing with the situation in which the plaintiff originally found himself.

Here, he submitted, the action of the landlords in repairing the property was collateral, and res inter alios acta ; moreover, it did not flow inexorably from the original transaction (ie. Mr Dyson's negligent valuation) and was in no sense part of a continuous course of dealing, in view of the long lapse of time and of the nature and magnitude of the intervening events.

In evaluating these arguments I bear very much in mind Mustill LJ.'s salutary warning against laying down potentially unreliable statements of principle in the field of damages, and I respectfully adopt his approach, namely that the issue is primarily one of fact, and that the relevant considerations are mutatis mutandis those cited by him in his conclusion, which seem to me in line with Westinghouse (see especially the final two paragraphs quoted above from Lord Haldane's speech). It follows that I accept Mr. Johnson's analysis and reject Mr. Brunner's broad brush formulation, not least because of its inconsistency with the cases dealing with sale of goods or shares cited above, which cannot in my view be segregated from the main stream of authority.

In my judgment, having regard to the intervening events and to the long interval of time, the repairs executed in 1990 were not part of a continuous transaction of which the purchase of the lease as a result of Mr. Dyson's negligence was the inception. Furthermore, these repairs undertaken by Guidedale at the plaintiff's insistence were res inter alios acta and therefore collateral to Mr. Dyson's negligence.

I should add by way of postscript that I do not think this conclusion is affected by the decision of this court in Hodge v. Clifford Cowling [1990] 46 E.G. 120, which came to our attention after the conclusion of the hearing, and in which Hussey v. Eels was applied (see per Glidewell L.J. at p.92).

For these reasons the appellants' second ground also fails, and consequently I would dismiss this appeal.

Two points were taken by Mr. Brunner Q.C. on this appeal: (1) His Honour Judge Byrt Q.C. erred in accepting the valuation approach by Mr. Taylor, the Plaintiffs' expert, it being inconceivable that any properly advised vendor would have sold the maisonette in 1985 for £85,000; (2) the Judge erred in not finding that the loss incurred by the Plaintiffs in purchasing a property for a price in excess of its true value by reason of the unreported structural defect was avoided by the remedying of the defect by the freeholder and its structural engineers at the instigation of the Plaintiffs.

On the first point Mr. Brunner, whilst accepting that the value of the property is the price paid on a hypothetical sale between a willing vendor and a willing purchaser, submitted that the vendor developer would not have been a willing vendor at the price of £85,000. That submission proceeds on a mistaken appreciation of the valuation exercise. In my opinion the same principles apply, whether the valuation is, as in this case, for the purpose of assessing damages or for some statutory or other purpose (in the absence of specific statutory provisions requiring a different hypothesis). I venture to repeat what I said in Walton v C.I.R. [1996] STC 68 at pp. 85,6 (in the context of a valuation for capital transfer tax purposes):

" Second, it is agreed that the valuation required by s.38 [Finance Act 1975] is on the basis of a hypothetical sale in the open market. Although the statute says nothing about a willing seller or a willing buyer, the concept of the open market automatically implies a willing seller and a willing buyer, each of whom is a hypothetical abstraction. However the willing buyer "reflects reality in that he embodies whatever was actually the demand for that property at that time" (see IRC v Gray ... [1994] STC 360 at 372 per Hoffmann L.J.). Whilst both the seller and the buyer are assumed to be willing, neither is to be taken to be over-eager..... The statute assumes a sale. That means that however improbable it is that there would ever be a sale of the property in the real world, nevertheless the sale must be treated as capable of being completed.... It also means that the vendor, if he is offered the best price reasonably obtainable in the market, cannot be assumed to say that he will not sell because the price is too low as inadequately reflecting some feature of the property nor can the purchaser be assumed to say that he will not buy because the price is too high."

It is therefore in my view impermissible to postulate that on the hypothetical sale by the hypothetical vendor of the property he would have refused to sell for £85,000 because he thought the price should be higher. If that was the best price obtainable, that is what he must be taken to accept. No less impermissible is it to change the hypothesis by postulating that the property is in a different condition by reason of the vendor or the freeholder being prepared to do the repairs first.

For these and the reasons given by Hirst L.J. the first point taken by the Appellants must be rejected.

The second point taken by Mr. Brunner raises a question of some difficulty in circumstances unlike those in any case to which we have been referred. I shall first recite the essential circumstances:

1. The Plaintiffs, acting on the negligent advice of the Defendants, in 1985 purchased a property for £114,000, when its true value, had the structural defect been known was £85,000.

2. The structural defect became known in 1988, as a result of two abortive attempts by the Plaintiffs in June and October 1988 to sell the property.

3. The Plaintiffs were instrumental in procuring the remedying in 1990 of the structural defect by the freeholder by threatening in 1989 an action under the Defective Premises Act 1972, as a result of which the freeholder's structural engineers paid for the remedying of the defect.

4. Accordingly, at the time this action commenced in 1991, the defect, the existence of which had caused the property to be worth £29,000 less in 1985 than it would have been if the defect had been remedied before the contract to sell the property to the Plaintiffs, had been remedied at no cost to themselves and the Plaintiffs had the structurally sound property which in 1985 the Defendants had represented it was and which they thought they had bought. In the Judge's words, "the plaintiffs have a rectified building worth the equivalent of what they had paid for it without any extra cost."

The question is whether in such circumstances the law allows the Plaintiffs to recover the £29,000 loss which they initially sustained on the purchase. On this aspect of the appeal we are not concerned with any other loss which the Plaintiffs may have suffered consequent upon the negligence. In appropriate circumstances it may be that a plaintiff would recover both the costs and expenses of an abortive sale and also a sum equal to the profit on a lost bargain. I have considerable sympathy with the Plaintiffs for the distress and inconvenience they are likely to have suffered, but that is beside the point in issue.

Although the claims of the Plaintiffs are both in contract and tort against the First Defendants and in tort alone against the Second Defendant, it has not been suggested that in this case there is in the result any difference between the contractual and the tortious measure of damages. The basic principle applicable in assessing damages is that there must be measured the sum of money which would put the innocent party in the same position as he would have been in if the contract had been performed or if he had not sustained the wrong. In the light of the decisions of this court in Philips v Ward [1956] 1 W.L.R. 471 and Perry v Sidney Phillips & Son [1982] 1 W.L.R. 1297 prima facie the proper measure is the difference between the price paid by the plaintiff and the market value at the time of purchase of the property, as it should have been described. However at the date of trial the court may have to consider whether in the light of the circumstances then existing that represents what the plaintiff has actually lost. The law does not permit the plaintiff to recover more than is seen to be his actual loss and the rules of mitigation may deprive the plaintiff of all or part of the damages for loss which otherwise he might have recovered.

The first rule of mitigation is that the plaintiff must take all reasonable steps to mitigate his loss. It follows that he cannot recover for avoidable loss (though he may recover for loss incurred in reasonable attempts to avoid loss). The plaintiff also cannot recover for avoided loss at any rate where certain conditions are satisfied. This rule of mitigation is summarised in McGregor on Damages, 15th ed. (1988) para. 280 in this way:

"The third rule is that, where the plaintiff does take steps to mitigate the loss to him consequent upon the defendant's wrong and these steps are successful, the defendant is entitled to the benefit accruing from the plaintiff's action and is liable only for the loss as lessened; this is so even though the plaintiff would not have been debarred under the first rule from recovering the whole loss, which would have accrued in the absence of his successful mitigating steps, by reason of these steps not being ones which were required of him under the first rule."

Thus if the plaintiff in fact avoids or mitigates his loss, he cannot recover for the loss thereby avoided even though the steps he took were more than could reasonably be required of him under the duty to mitigate his loss.

The leading authority is British Westinghouse Electric Ltd. v Underground Electric Railways Ltd. [1912] AC 673. In that case turbines were supplied by a manufacturer to a railway company. They did not accord with the contract for their supply. 4 years after taking delivery of the first turbine the railway company purchased replacement turbines of greater efficiency and power from another supplier which caused the railway company to make a profit. The House of Lords held that even though the replacement turbines were superior to those which should have been supplied in accordance with the contract the profit should have been taken into account in assessing the damages. Viscount Haldane L.C. expressed the relevant principle as being : "when in the course of business [the plaintiff] has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act" (p.689). At p.690 he made it clear that the mitigating action must be "one which a reasonable and prudent person might in the ordinary course of business have taken," and must be "one arising out of the consequences of the breach and in the ordinary course of business." He described (at p.691) the purchase from the new supplier of the replacement turbines as "not res inter alios acta, but one in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach", and he said (at p.692) that the increase in the power of the replacement turbines "formed part of a continuous dealing with the situation in which they found themselves, and was not an independent or disconnected transaction".

Viscount Haldane's remarks with the repeated references to the course of business must be read and understood in their context of a case relating to a breach of a contract between trading companies. They do not entail that the rule of mitigation relating to avoided loss cannot apply in other contexts such as where a tort has occurred and where the innocent party is not carrying on business. I would draw attention to the fact that neither a lapse of time of several years before the turbines were replaced, nor the purchase by the railway company of the replacement turbines from a third party prevented the advantages derived from the use of the replacement turbines from being taken into account and that the replacement with more powerful turbines was still described as part of a continuous dealing with the situation in which the innocent party found itself. That decision can therefore be seen to establish the principle that where an advantage accrues to a plaintiff from taking action to mitigate his loss, that advantage must be taken into account in assessing the loss, if any, to be recovered.

The principle thereby established has frequently been applied. It was expressly applied by this court in Pagnan v Corbisa Ltda. [1970] 1 W.L.R. 1307. In that case buyers justifiably rejected goods on the ground of their defective quality. Negotiations between the parties ensued and after some months the buyers finally accepted the same goods from the sellers at a reduced price. It was held that the prima facie rule for ascertaining the measure of damage in s.51(3) Sale of Goods Act 1893 could not apply in the circumstances because the buyers had in reality suffered no loss or damage. Salmon L.J. (at p.1315) said that the buyers in accepting the same goods at a reduced price did not do so with the motive of mitigating damages. He continued:

"But their motive or intention does not matter. No one can doubt that they took a reasonable and prudent and, I would add, an astute course, quite naturally arising out of the circumstances in which they were placed by the sellers' breach. It was a course, as the tribunal found, which formed part of a continuous dealing with the situation in which they found themselves and was not an independent or disconnected transaction. And it in fact extinguished the loss which they would otherwise have suffered... As a result of this dealing, looked at as a whole, the buyers, notwithstanding the sellers' breach, made a profit and no loss. To allow the buyers' claim would in my view be contrary to justice, common sense and authority."

In reaching that conclusion in a case involving the sale of goods where there was an available market, this court distinguished cases where the prima facie rule of s.51(3) (viz. the measure of damages is to be ascertained by the difference between the contract price and the market price of the goods when they ought to have been delivered) and the corresponding rule in s.53(3) ibid., where the buyers are at fault, are applied. It also distinguished the cases where the same principles are by analogy applied to the sale of shares for which there is an available market. The assumption underlying the prima facie rule is that the innocent party can and should act immediately upon the breach and buy or sell the goods (or shares) in the available market. The same assumption cannot be made in the case of negligence or some other breach of contract or tort affecting the sale or purchase of land, where the right of action may not be known until long after the arising of the cause of action and there is unlikely to be an available market in the Sale of Goods Act sense. The reason why the British Westinghouse principle does not apply to profits subsequently received by the innocent buyers or sellers is that the profits are independent of any act of mitigation (see McGregor op. cit. paras. 336-340, Benjamin on Sale of Goods 4th ed. (1992) para. 16-046 and the similar statement by the same author in Chitty on Contracts 27th ed. (1994) para. 26-056). Thus where buyers in breach of contract do not accept goods but the sellers choose not to resell the goods on the date of the buyers' breach and retain the goods until a later sale, just as the sellers could not make the buyers liable for additional loss had the market fallen after the date of the breach, so the sellers are entitled not to account for any profit they make on the later sale. The decisions to retain and subsequently sell the goods are independent of the breach. The Sale of Goods Act rules were based on cases decided prior to the 1893 Act, such as Jones v Just (1868) L.R. 3 Q.B. 197, to which Hirst L.J. referred in his judgment. That case is silent on the reasoning underlying the acceptance by the Court of Queen's Bench (which included Blackburn J.) of the correctness of the direction of Blackburn J. as the trial judge to the jury which in effect gave the innocent buyers, to whom damaged hemp had been delivered, the benefit of the rise in the market between the date of breach and the subsequent sale by the buyers. But it may be inferred that similar reasoning applies, viz. that the benefit does not arise from any act of mitigation and so is irrelevant in assessing damages (see McGregor op. cit. para. 379, Benjamin op. cit. para. 16-046 and Chitty op. cit. para. 26-056). Similarly advantages gained by a plaintiff from another independent transaction, such as an insurance contract entered into before the breach or wrong, cannot be taken into account (see, for example, Bradburn v The Great Western Railway Co. (1874) L.R. 10 Ex.1). As is said in McGregor op. cit. para. 328, in the nature of things, actions taken before breach cannot be within the British Westinghouse principle, since the action must arise out of the consequences of the breach of duty.

Two cases are relied on in particular by Mr. Johnson for the Plaintiffs. One is Daisley v B.S. Hall & Co. [1974] E.G. 184, on the basis of which the Judge decided the present case. In that case a surveyor in 1968 negligently failed to warn the plaintiff, the intending purchaser of a house, of the risk to the house caused by a shrinkable subsoil and the presence of poplars close to the house. Bristow J. found that applying the Philips v Ward measure of damages the loss was £1,750. The plaintiff had, on advice in 1969, removed the poplars and the risk of damage became negligible by the date of the trial in 1972. Bristow J. refused to reduce the damages to take account of that fact. He said (at p.195):

"What is sauce for the goose is sauce for the gander, and if [the plaintiff] would never be entitled to recover more than £1,750 as Philips v Ward appears to me clearly to establish, it must follow that he will never be entitled to recover less".

Whilst Philips v Ward establishes that the measure of damages is the price paid less the market value of the property at the date of the breach, even though the cost of repairing the property may be greater or smaller than that, it does not follow that the rules of mitigation can never apply to such a case. That would be contrary to the British Westinghouse principle. Indeed as Mustill L.J. pointed out in Hussey v Eels [1990] 2 Q.B. 227 at p.233, any generalisation that where a loss has crystallised in terms of there being a conventional measure of damages at the date of breach, there can be no mitigation is shown by the Pagnan case to be unsound. For my part I cannot see why the advantage accruing from the action of the plaintiff in that case to mitigate his loss, viz. the elimination of the risk to the house by the felling of the poplars, should be left out of account in arriving at the award of damages and there is nothing in Philips v Ward to compel such a result. In my judgment the Daisley case was wrongly decided.

The second case relied on by Mr. Johnson is Hussey v Eels . In that case the defendant vendors of a property on which there was a bungalow made a misrepresentation to the plaintiffs that the building had not been the subject of subsidence. In reliance thereon the plaintiffs purchased the property in February 1984. They lacked the means to pay the cost of repairs. They applied for planning permission to build two buildings elsewhere on the land and in October 1986 sold the property with planning permission to developers at a profit of £25,000. In their action for damages for misrepresentation the trial judge dismissed their claim on the ground that the profit had wiped out the initial loss. But this court allowed the appeal of the plaintiffs. The argument of the defendants to which most attention was paid by Mustill L.J. (giving the only reasoned judgment of the court) was that when the plaintiffs' dealings were regarded as a whole it could be seen that they had suffered no loss. He considered the authorities from British Westinghouse to Pagnan and said that none presented a true analogy. He continued (at pp.239,240):

"The plaintiffs are not claiming a conventional prima facie measure of damages, as with a sale of goods or shares: they really suffered the loss claimed, for they would have had to pay the cost of repairs if they had remained permanently in residence. On the other hand the later transaction did not flow inexorably from the first, as was the case in Pagnan".

After further explanation why none of the authorities provided a direct solution to the problem in the case before him, Mustill L.J. said this (at p.241):

"Ultimately, as with so many disputes about damages, the issue is primarily one of fact. Did the negligence which caused the damage also cause the profit - if profit there was? I do not think so. It is true that in one sense there was a causal link between the inducement of the purchase by misrepresentation and the sale 2½ years later, for the sale represented a choice of one of the options with which the plaintiffs had been presented by the defendants' wrongful act. But only in that sense. To my mind the reality of the situation is that the plaintiffs bought the house to live in, and did live in it for a substantial period. It was only after two years that the possibility of selling the land and moving elsewhere was explored, and six months later still that this possibility came to fruition. It seems to me that when the plaintiffs unlocked the development value of their land they did so for their own benefit, and not as part of a continuous transaction of which the purchase of land and bungalow was the inception."

Mr. Johnson, basing himself on Mustill L.J.'s words, submitted that when the plaintiff suffers loss in the form of a diminution in value in consequence of the purchase of a property in reliance on the negligence advice of a surveyor, that loss is not subsequently avoided by a subsequent action of the plaintiff affecting the amount of the diminution in value or remedying the defect unless that subsequent action of the plaintiff (1) flows inexorably from the original transaction, (2) can properly be seen as part of a continuous course of dealing with the situation in which the plaintiff finds himself as a consequence of the negligence, and (3) goes to the same loss.

I preface my comments on this submission by observing that there is a danger in elevating a particular description of a factual situation in a judgment in a particular case to a general principle.

The first condition suggested by Mr. Johnson is taken from what Mustill L.J. said when distinguishing Pagnan from the case before him. I cannot accept that thereby he was laying down a condition for the application of the principle of British Westinghouse , nor has he been understood by any text-book writer as so doing. I would add that in Pagnan the subsequent purchase only flowed inexorably from the original transaction in the sense that it formed part of a continuous dealing with the situation in which the buyers found themselves; the buyers chose to sell as one of the options open to them.

The second condition is again a statement of the factual situation described in British Westinghouse and Pagnan. It serves to illustrate what in my judgment is a more general principle. As is stated in McGregor, op. cit. at para. 336, the basic rule is that the benefit to the plaintiff, if it is to be taken into account in mitigation of damage, must arise out of the act of mitigation itself. Similarly in Benjamin op. cit. 16-046:

"The benefit to the plaintiff must arise out of his attempts to mitigate his potential loss resulting from the breach: if it arises from his actions which were independent of his mitigating steps, it should not lead to a reduction in his damages".

(See also Chitty op. cit. para. 26-055.) In Hussey v Eels the obtaining of planning permission and the sale with that permission meant that the benefit arose from actions independent of mitigation. As one commentator (A.J. Oakley (1980) 49 C.L.J. at p.396) has observed, the key to the conclusion reached by this court in that case appears to have been the fact that the plaintiffs had had to wait a considerable time and engage in a considerable effort in order to obtain the planning permission which was a prerequisite of any resale. Mr. Oakley suggested that the result reached in Hussey v Eels was likely to prove to be the exception rather than the rule and that it was probable that a profitable resale by a party claiming damages would normally have to be taken into account when those damages were being assessed. I agree that Hussey v Eels was an exceptional case, turning on its special facts. Similarly in Hodge v Clifford Cowling & Co. [1990] 2 E.G.L.R. 89 (in which through the defendant solicitors' negligence the plaintiff tenants lost the right to apply to the court for a new tenancy, but subsequently purchased other larger premises from which they traded) this court held that, like the planning permission in Hussey v Eels , that purchase was a fortuitous opportunity the advantages of which the plaintiffs were entitled to keep. Bingham L.J. at p.93 accepted that if it were shown to be a fact that the plaintiffs acted in a manner which, although independent of the plaintiffs' negligence, had the effect of mitigating their loss, it might be proper to take account of that fact.

As for the third condition, I accept that the action must go to the same loss in the sense that (to use the words of Mr. Johnson's own premise) it must affect the amount of the diminution in value or remedy the defect.

The common sense of the situation in the present case is that once the Plaintiffs were aware that they had purchased a structurally defective property of less value than the price they had paid as a result of the Defendants negligence, they sensibly and promptly took steps to eliminate their loss by procuring the remedying by the freeholder of the defect. That seems to me plainly an act of mitigation resulting in a benefit to the Plaintiffs which eliminated their loss. I repeat what the Judge said, that they have a rectified property worth the equivalent of what they had paid for it without any extra cost to them. The significant point is that this occurred as a result of the pressure applied to the freeholder by the Plaintiffs. To take an example suggested by Mr. Brunner, if the Plaintiffs had sued both the freeholder under the Defective Premises Act 1972 and the Defendants in negligence in the same action they could not expect to recover damages in full from the freeholder as well as damages in full from the Defendants. Once the property had been put in repair at no cost to the Plaintiffs, in my judgment they cannot be allowed to obtain double recovery by an award of damages against the Defendants. To adapt the words of Salmon L.J. in Pagnan, to allow the Plaintiffs' claim would be contrary to justice, common sense and the British Westinghouse principle.

For my part, therefore, I would allow this appeal on Mr. Brunner's second point.

PILL LJ:

On the first point in the appeal, I agree with Hirst LJ and Peter Gibson LJ. Mr Taylor adopted the residual method of valuation because he considered that potential purchasers seeking a house to live in would not have been prepared to purchase a property with the structural defect which was present. The residual valuation was based upon the calculation a property developer would make with the object of obtaining a return on an investment in the property. The judge was entitled to accept Mr Taylor’s evidence as to the appropriate method of valuation and as to the figure which, subject to adjustment, was reached.

I find the second point more difficult. If the plaintiffs succeed, there is double recovery in the sense that they retain damages based on the failure of the chartered surveyor to detect a structural defect in 1985 which was rectified in 1990 without cost to them. It is common ground that while the approach to the question whether damages are payable in a particular case must be principled, there are dangers in elevating a decision of fact into a statement of principle. There are dangers in attempting statements of principle in this branch of the law and cases will often be determined upon questions of fact. In the present case, for example, had the plaintiffs found it necessary to sell the property, with defect, for the best price they could obtain in 1988 there is no doubt that they could have obtained damages upon the Philips v Ward basis. Had there been such a dramatic improvement in the property market that they could have sold the property at a substantial profit even with the defect, they would not ordinarily have had to set off that profit against the Philips v Ward loss. The windfall would have resulted from the state of the market. On the other hand, had the tortfeasor himself rectified the defect before completion in 1985, it would have been difficult to sustain a Philips v Ward claim. Whether that claim can be sustained depends on the actual sequence of events and the facts found. In the event, the tortfeasor seeks to take advantage of action taken under a contractual obligation in a contract to which he was not a party. Had the sale to the plaintiff been of the freehold, no such contractual obligation would have arisen and the sequence of events must have been different

In Admiralty Commissioners v Chekiang (Owners) [1926] AC 637 Lord Sumner stated at p 643 that “The measure of damages ought never to be governed by mere rules of practice, nor can such rules override the principles of law on this subject”. The defendants rely upon the statement of principle by Viscount Haldane LC in British Westinghouse Electric Ltd v Underground Electric Railways Ltd [1912] AC 673: “When in the course of business [the plaintiff] has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act” (p 689). At the end of his speech Lord Haldane stated that the increase in the power of the replacement turbines in that case “formed part of a continuous dealing with the situation in which they [the plaintiffs] found themselves, and was not an independent or disconnected transaction”.

That there may be situations in which what may be regarded as double recovery can occur is clear. In Bradburn v Great Western Railway Co (1874) LR 10 Ex 1, an injured plaintiff who was unable to work and sustained damage, did not have to deduct a payment to him under a policy of insurance against accidents. Pigott B stated, at p 3:

“The plaintiff is entitled to recover the damages caused to him by the negligence of the defendant and there is no reason or justice in setting off what the plaintiff had entitled himself to under a contract with third persons, by which he has bargained for the payment of a sum of money in the event of an accident happening to him. He does not receive the sum of money because of the accident but because he has made a contract providing for the contingency; an accident must occur to entitle him to it, but it is not the accident, but his contract, which is the cause of him receiving it.”

Bradburn was applied in the House of Lords, by a majority, in Parry v Cleaver [1973] AC 1 where it was held that a police pension should be ignored in assessing the financial loss of a police constable injured in a road accident.

The facts in Bradburn and in Parry are of course very different from those in the present case but at common law the same principles should govern questions of mitigation and remoteness whatever the context. The cases do illustrate that there may be exceptions to the broad general principle which governs the assessment of damages namely that “A successful plaintiff is entitled to have awarded to him such a sum as will, as far as possible, make good to him the financial loss which he has suffered and will probably suffer as a result of the wrong done to him for which the defendant is responsible”. (Lord Reid in British Transport Commission v Gourley [1956] AC 185 at p 212). Lord Reid added that the general principle was subject to one qualification namely that “A loss which the plaintiff has suffered, or will suffer, or a compensatory gain which has come or will come to him following on the accident, may be of a kind which the law regards as too remote to be taken into account”.

Gourley was also a personal injury case and the issue was whether the tax position should be taken into account in the assessment of damages. At p 214 Lord Reid stated:

“I do not think that it is possible to formulate any principle by which it can be determined what is and what is not too remote. Mayne on Damages, 11th ed, p 151, refers to “matter completely collateral”, and for a general description of what is too remote I cannot find better words, but I do not think that every case can be solved merely by applying those words to it.”

Earl Jowitt stated, at p 199: “In all such cases the real issue seems to be whether the facts relied upon as affecting the measure of damages are too remote to be taken into consideration."

Lord Pearson dissented in Parry, believing that the tax position should have been taken into account. In his review of the authorities upon the proper method of assessing damages, Lord Pearson cited at p 50 the judgment of Andrews CJ in Redpath v Belfast and County Down Railway [1947] NI 167 where a voluntary fund was established to relieve the distress of passengers injured on the railway. Andrew CJ stated at p 272:

“The important consideration, to my mind, common to all these cases, is that the circumstance relied upon in mitigation of damages arose independently of the cause of action, and was not naturally attributable to it. Whilst admittedly a sequence it was not a consequence. It arose really as a result of a novus actus interveniens, and was not the outcome of the relations between the plaintiff and the defendants which gave rise to the cause of action. The defendants’ wrongful act may in each case have been a causa sine qua non but in no true sense was it the causa causans of the circumstances relied upon in mitigation of damages. In the present case the causa causans of the fund was not the accident but the bounty or charitable motives of the subscribers.”

The defendants submit that the plaintiffs having required the freeholder to meet his contractual obligation to them to rectify the defect, a reasonable action in the circumstances, they can, in the words of Lord Haldane in British Westinghouse , take into account the “diminution of the loss” resulting from that action. In British Westinghouse , Lord Haldane distinguished Bradburn, which he described as a case from a quite different class, on the ground that “the reason for the decision was that it was not the accident but a contract wholly independent of the relation between the plaintiff and the defendant, which gave the plaintiff his advantage.” However, in my view, Lord Haldane had in mind the Bradburn class of case when categorising the plaintiffs’ conduct in British Westinghouse , to which the principle he stated applied, as forming “part of a continuous dealing with the situation with which they found themselves and was not an independent or disconnected transaction.” That expression distinguished the approach in British Westinghouse from that in Bradburn. The expression has been repeated in later cases including Pagnan and Fratelli [1970] 1 WLR 1306 (per Salmon LJ at p1315) and Hussey v Eels [1990] 2 QB 227 (per Mustill LJ at p 241).

The facts in Hussey have been set out by Hirst LJ and Peter Gibson LJ, and Hirst LJ has set out the relevant parts of the judgments in both cases. In holding that the negligence which caused the damage did not also cause the profit, Mustill LJ in Hussey referred to the lapse of time between purchase and sale and to the fact that the plaintiffs unlocked the development value of the land. That was done for their own benefit and not as part of a continuous transaction of which the purchase following misrepresentation was the inception. In distinguishing British Westinghouse , Mustill LJ said (at p 236D) that “there was no question of [that] case being concerned with a chain of disconnected transactions.”

In my judgment, the present case, on its facts, is on the Hussey side of the line. Hirst LJ has described the intervening events. Years after the defendants’ negligence, the freeholders performed their obligation to the plaintiffs under a contract which the plaintiffs had negotiated with them. That had the effect of rectifying the damage resulting from the defendants’ negligence. The benefit came by reason of the performance of a contractual obligation by a third party. The plaintiffs had to undertake protracted negotiations with that third party and other third parties, the other tenants in the building. Before that obligation was performed by the freeholder, there was a considerable lapse of time in the course of which the plaintiffs, because of the structural defect, were unable to sell the property when they wished to do so in 1988. In my judgment, the facts relied upon as affecting the measure of damages are too remote to be taken into consideration and, on the facts, the judge was entitled to find for the plaintiffs as he did. On the sequence of events as it occurred, and not as it might have occurred, I do not regard the decision reached by the judge as contrary either to principle or to common sense.

I would dismiss the appeal.

Order: Appeal dismissed with costs .