England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBENF 97/0193/1

Royal Courts of Justice

Strand, London WC2

Tuesday, 10th November 1998

B e f o r e :

LORD JUSTICE NOURSE

LORD JUSTICE WARD and

LORD JUSTICE MANTELL

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UMANG JASHBAI PATEL and

SUSAN PATEL Plaintiffs/Respondents

-v-

HOOPER & JACKSON Defendants/Appellants

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Handed down Judgment

Smith Bernal Reporting Limited

180 Fleet Street London EC4A 2HG

Tel: 0171 421 4040 Fax: 0171 831 8838

(Official Shorthand Writers to the Court)

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MR D WORSLEY (instructed by Messrs Lloyd Cooper, London W1) appeared on behalf of the Appellant Defendants.

MR A MARSDEN (instructed by Messrs Bankes Ashton, Bury St Edmunds) appeared on behalf of the Respondent Plaintiffs.

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J U D G M E N T

(As Approved by the Court)

Crown Copyright

Tuesday, 10th November 1998

LORD JUSTICE NOURSE:

This is a dispute about the amount of damages to be awarded against surveyors who made a negligent overvaluation of a house for mortgage purposes on which the purchasers also relied. The surveyors expressed the opinion that the value of the house was in the region of £90,000, whereas its actual value was £65,000. The purchasers say that the house was uninhabitable and, further, that they were unable to resell it. They never moved in and they retain it to this day. The surveyors now accept that they are liable to the purchasers for damages equivalent to the diminution in value plus stamp duty (a total of £25,250). Their principal complaint is that the judge in the court below, Mr Recorder Colin Reese QC, has awarded the purchasers further damages equivalent to an indemnity for past and future mortgage interest, endowment policy premiums and household insurance premiums. They say that that part of his award was contrary to principle and ought to be discharged.

The recorder gave a full and careful judgment, of which the transcript runs to some 67 pages. Because the issues have narrowed in this court the facts can be stated more briefly than they were stated by him. Many of them can be stated in his own words. The purchasers were the plaintiffs, Dr Umang Jashbai Patel and his wife, Mrs Susan Patel. In the spring and early summer of 1988 they were potential first-time purchasers house-hunting in South London. Mrs Patel was then expecting their first child, who was born on 9th November 1988. At that time the domestic property market was still active and house prices were increasing.

In due course the plaintiffs found 35 Selkirk Road, Tooting, London SW17, which was being offered for sale at a price of £95,500 for the freehold. They thought it was a house of the right type, in what was for them the right area and one which they could afford to purchase. They put in an offer of £95,000, subject to contract, and by a letter dated 4th June 1988 the vendor’s agents confirmed acceptance of that offer. The plaintiffs were offered a loan of £83,000 by the Britannia Building Society (“the society”), their intention being to pay the balance of £12,000 plus expenses out of their savings. They wished to have the house surveyed before committing themselves to the purchase. Their intention appears to have been to obtain a full structural survey, but the mortgage application was completed in such a way that what was requested was a report known as a "House Buyer’s Report and Valuation" (HBRV).

On 8th June 1988 the defendants, Hooper & Jackson, a firm of estate agents and chartered surveyors, were instructed by the society to make an HBRV of the house. The plaintiffs had no direct contact with the defendants, but the latter realised that they were providing professional services to the society and to the plaintiffs and that a mortgage advance of £83,000 was being requested in respect of a dwelling house where £95,000 had been offered for the freehold interest. Their fee of £230 was paid by the plaintiffs. The house was inspected by Mr P A Jackson ARICS of the defendants on 14th June and the HBRV was dated 17th June 1988. Contracts for the purchase were exchanged on the same day.

The recorder found that the defendants’ contractual (and concurrent tortious) duty to the plaintiffs was to exercise proper professional skill and care in reporting on the state of repair and condition of the house (taking into account certain limitations and assumptions stated in the conditions of engagement) and in reporting on its value. He found that the defendants were not in the position of advising either the plaintiffs or the society as to what course of action they should take; instead they were providing information for the purpose of enabling the plaintiffs and the society to decide whether or not they wished to go ahead with the proposed transaction. He held that a surveyor and valuer in the position of the defendants must be taken to have known, first, that the plaintiffs would rely on what he reported as to the state of repair and condition in deciding whether it was a property they would wish to acquire (on the assumption that the advised value appeared satisfactory in relation to the purchase price); secondly, that both the plaintiffs and the society would rely upon the advised value when assessing the commercial aspects of the proposed transaction.

The HBRV was prepared on a standard form issued by the Royal Institution of Chartered Surveyors with printed conditions of engagement. Towards the end and against the side heading "Summary and Recommendations" the following entry was made:

"The property has been constructed from traditional materials and has been neglected in the past with extensive repairs and renovations required. Internally the accommodation would benefit from upgrading and modernisation. In respect of the repairs items referred to within our report it is important that you obtain competitive quotes prior to exchange of contracts in order that you are fully aware of your liabilities at this stage. We would advise that the repair items referred to are not uncommon with a property of this age and construction."

Against the side heading "Valuation" the defendants stated their opinion that the present freehold open market valuation of the house with full vacant possession in its present condition was in the region of £90,000.

The recorder found that the plaintiffs read and relied on the HBRV in purchasing the house. He also found, first, that the HBRV did not accurately describe the state of repair and condition of the house as it should have been appreciated by a reasonably competent building surveyor and that it ought to have been described as a property which had been so neglected as to fall into the severely dilapidated category; secondly, that, although the advised value in the region of £90,000 would have been appropriate for the house in the condition described by the HBRV, the value which would have been put upon it by a reasonably competent building surveyor and valuer in June 1988, taking into account its actual and observable state of repair and condition, was £65,000.

The recorder’s decisions of fact and law as stated above are either now accepted by the defendants or (particularly in the case of the actual value of £65,000) have been forced upon them by this court’s refusal, on 5th February 1997, to grant leave to appeal on certain questions of fact. In order that the questions on damages may be fully understood, it is necessary for events subsequent to the completion of the purchase to be described in some detail.

After completion on 30th September 1988, the plaintiffs visited the now empty house with a number of others and formed the view that it was uninhabitable. They did not move into it and immediately instructed new surveyors, Carter Hope Associates (Southern) Ltd ("Carter Hope"), to inspect and report on its structural condition. Mr D J Whitehouse ARICS of Carter Hope inspected the house on 9th October 1988 and shortly thereafter prepared a full structural survey. The recorder found that the main matters to which Mr Whitehouse drew attention should all have been noted by Mr Jackson and reported upon in the HBRV. Mr Whitehouse’s report was supplemented by letters of 31st October and 17th November 1988. In the first of these he said that the cost of the essential repair works required was most likely going to be in the region of £25,000 exclusive of VAT and professional fees. In the second he said:

"I would confirm that in my opinion the extent of the defects that were found at the property when I carried out my Survey on the 9th October 1988, does really mean that the property is uninhabitable, certainly until the structural defects and damp problems are attended to."

Having formed the view that the house was uninhabitable, the plaintiffs decided that they could not and would not move in and live there before or after their first child was born. Once that view had been confirmed by Mr Whitehouse, and being unable to contemplate anything like an expenditure of £25,000 plus VAT and professional fees, the plaintiffs decided to remain in temporary accommodation and to offer the house for sale.

Offers in the region of £100,000 having been invited, in January 1989 an offer, subject to contract and survey, was made to purchase the house for £93,000. The plaintiffs accepted it. The proposed purchaser was a builder and the recorder suspected that he first instructed a building surveyor to carry out an inspection and that the building surveyor then recommended obtaining a consulting engineer’s report. In any event, the property was inspected by a member of a firm of consulting engineers, who, on 23rd March 1989, reported to the proposed purchaser that the property was in an extremely poor condition and was clearly in need of refurbishment throughout. In particular he advised that the main back wall must be rebuilt. The result was that the proposed purchaser withdrew his offer.

By a letter dated 28th July 1989 the plaintiffs’ solicitors formally notified the defendants of a possible claim. That led to the defendants’ making a further inspection of the property on 17th August 1989. By a letter of 23rd August they indicated their disagreement with Mr Whitehouse and the consulting engineer as to the severity and extent of structural damage to the rear of the property and rejected all liability to the plaintiffs.

The recorder summarised the personal circumstances of the plaintiffs from the time they completed the purchase up to and including the trial of the action in October 1995. At the time when the purchase was completed the first plaintiff was a senior house officer in the neurosurgical department of the Southern General Hospital in Glasgow. The recorder described how the plaintiffs moved from Glasgow to London in January 1989, where they remained until moving to Bury St Edmunds in February 1993. At some time in 1995 they moved to Middlesborough, where they still were at the time of the trial. In each location they had to move at least once and they lived throughout in rented accommodation, some of which was far from satisfactory. The recorder found that the plaintiffs had necessarily had to pay for alternative rented accommodation at the same time as they had paid the mortgage payments (and other unavoidable expenses) due in respect of 35 Selkirk Road. He found that over the years they had found it very difficult to make ends meet, particularly when interest rates were very high, and that they had not had the resources to be able to contemplate either renovating 35 Selkirk Road or purchasing another home of their own.

The recorder observed that it was not until June 1994, some five years after the defendants were formally notified of a possible claim, that this action was commenced. The plaintiffs were granted legal aid, subject to a limitation, in April 1991, the limitation being removed in December 1991. Meanwhile, in April 1991, there had arisen what the recorder described as an apparent complication when the firm of consulting engineers who had acted for the proposed purchaser in March 1989 wrote to the plaintiffs in connection with a subsidence claim which had been made by the owner of the adjoining property, 33 Selkirk Road. In January 1992, Mr G C Poole FRICS (the surveyor who gave expert evidence for the plaintiffs at the trial) carried out an inspection of the property and indicated his opinion that the single storey rear addition to 35 Selkirk Road had suffered significant settlement and subsidence damage since 1988.

The recorder also referred to a further and more serious complication in respect of cracking to the party wall between numbers 35 and 37 Selkirk Road, which first appeared at some date between 1990 and January 1992. That also was inspected and observed by Mr Poole and it appears that that also may have been caused by the post-1988 subsidence. In November 1992 one firm of auctioneers and estate agents valued the house for sale in the region of £30,000 and another at £25,000 to £30,000. The first firm strongly recommended the plaintiffs to submit it in one of their forthcoming auction sales. Neither the settlement of the rear addition nor the cracking to the party wall is something with which these proceedings are directly concerned. There are other High Court proceedings pending between the plaintiffs and their insurers in respect of those matters.

From about August 1992 there was a protracted period during which the possibilities of achieving a negotiated settlement between the plaintiffs and the defendants were explored. The recorder thought that the plaintiffs’ solicitors' attempts to promote an overall settlement were wholly understandable. In the event they proved unsuccessful. I will revert to that period in greater detail later.

The writ was issued and the statement of claim served on 13th June and 30th August 1994 respectively. Damages were claimed in the sum of £25,250 on a diminution in value basis, together with general damages for "inconvenience and discomfort" and special damages of £42,890.42 in respect mainly of the costs of the plaintiffs’ alternative accommodation from 30th September 1988 onwards and the costs of moving from each address to the next. During the trial, with the leave and at the suggestion of the recorder, the plaintiffs reamended their statement of claim to make an alternative claim for reimbursement of (inter alia) mortgage interest payments (£60,007.64), the premiums paid for an endowment policy (£9,350) and household insurance premiums.

The trial came on before the recorder as official referees’ business and took place over five days in October 1995, when judgment was reserved. On 3rd May 1996 the recorder handed down the draft of his written judgment, leaving over for future argument questions of interest and costs. He intimated that he would deal with those issues at the same time as he considered the up-to-date figures, which were to be included in the appropriately amended pleading. The matter came back before him on 28th May 1996, when counsel invited him to expand and clarify certain parts of the draft judgment. It was thereafter revised and a final judgment handed down on 14th June 1996. However, on 20th June, before the trial certificate had been signed and sealed, the House of Lords gave judgment in Banque Bruxelles Lambert SA v. Eagle Star Insurance Co Ltd [1997] AC 191 (" BBL"). On the following day the defendants made an application for the judgment to be reviewed in the light of that decision. The plaintiffs agreed and each side then put in further written submissions. On 9th August 1996 the recorder delivered his revised judgment. In an introduction to the judgment he said that, having read the speech of Lord Hoffmann in BBL and considered the written submissions, he had concluded that the result should remain as stated in his final judgment, although his reasoning had been revised in the light of various of Lord Hoffmann’s observations.

In addition to his decisions on liability and valuation, the recorder made three findings which were of great importance to the view which he took on damages. First, he found that the plaintiffs, if properly advised as to the true state of repair and condition of the property, would not have gone ahead with its acquisition. Secondly, he found that the plaintiffs were unable to sell the house between 1988 and the trial. The defendants are bound by the first of those findings. On 5th February 1997 this court granted them leave to appeal against the second. The plaintiffs do not accept that the second finding was made in such absolute terms. They contend that what was found was that the house was not readily saleable. While I doubt that the distinction is of any consequence, I reject that contention. I proceed on the footing that the second finding was as I have stated it to be.

Thirdly, the recorder was of the view that Mr Whitehouse’s evidence on what he saw, thought and reported in 1988 was in all material respects accurate evidence. In particular, he stated himself to be satisfied that the opinion expressed in the first sentence of Mr Whitehouse’s letter dated 17th November 1988 (see above) was an opinion which he himself genuinely held at the time. It is clear that that must be treated as a finding that the house was uninhabitable, certainly unless and until the structural defects and damp problems had been attended to.

The recorder awarded each of the plaintiffs general damages of £2,000 in recognition of their years of living in relative discomfort. In relation to the other components of his award he made an order in a form which was both complex and, in some respects as I believe, unprecedented. Perhaps the best introduction to it is to read a passage from towards the end of his judgment (p.61), which I have slightly edited in order to take account of his subsequent modifications:

"Accordingly, in my opinion, in the circumstances which have occurred the amount of the losses which the Patels have incurred as a result of their purchase of the Property fall to be calculated by adding together the following sums:

(1) [Acquisition costs of the house - no award made because the requisite further amendment to the statement of claim was disallowed.]

(2) £25,250 being the difference in value at the time of acquisition (plus Stamp Duty thereon). In order to facilitate their extrication from the transaction, the greater part of this sum, namely £18,000, must be utilised to reduce the mortgage advance from £83,000 to £65,000. Accordingly, the Patels must either authorise the Defendant firm to pay £18,000 direct to the Society or, upon receipt of the total sum they must make an immediate repayment of that sum to the Society. Subject to any restrictions arising from the Legal Aid position, the balance of £7,250 should be available to the Patels for them to expend in whatever way they decide.

(3) Mortgage interest payments on the sum of £83,000 from the date of the advance until judgment and continuing thereafter. As I have already indicated, the Defendant firm should be free to form its own view on the relative merits of immediate full repayment of the mortgage loan as opposed to leaving it in place (to the extent of £65,000) and accepting a continuing liability to indemnify the Patels in respect of interest payments.

(4) [Household insurance premiums.]

(5) Disposal costs, such as estate agents’ costs and charges and solicitors’ costs and charges of any proposed sale if and in so far as these might be borne by the Patels themselves rather than the Defendant firm.

In addition to the various amounts indicated above, the further possible item of loss which needs to be considered is the endowment assurance payments. The Patels took out an endowment assurance policy in order that they would have the necessary capital sum to repay the loan at the end of the term. In my opinion, if the Property is in fact sold in the near future, the Patels should be able to treat the endowment policy as a free-standing long-term investment, in which case the payments made do not need to be brought into account, if they wish so to do. On the other hand, if the Patels do not wish to continue with the policy then, once the mortgage has been repaid and the Society’s charge over the policy has been removed, they may elect to surrender the policy. Should they decide on that latter course then whilst the payments made will form part of the reclaimable expenses the Defendant firm will obviously be entitled to receive the surrender value.

Having been ordered to reimburse the losses actually incurred by the Patels up to the date of judgment and to indemnify them in respect of future losses (until extrication is achieved) it is, as I have previously stated, the Defendant firm that will be entitled to receive the net proceeds which are realised on any sale of the Property. Thus the amounts due under head (5) above will automatically be taken into account. The Patels must either authorise direct payment to the Defendant firm or, upon receipt of the proceeds of sale they must make an immediate payment of the net sum realised."

The recorder’s order dated 9th August 1996 starts by providing that the defendants shall pay to the plaintiffs the sum of £139,911 in respect of damages sustained up to 14th June 1996. Before us counsel were not confident that the arithmetic leading to that figure was correct, but they were confident that, if the basis of the order was held to be correct, the arithmetic could be confirmed or corrected by agreement. The order further provided that the figure of £139,911 was to be reduced by £14,200 in the event of the plaintiffs electing to treat the endowment policy as their own free standing long-term investment. The other provisions of the order, as I understand them, proceeded to implement the passage I have read from the recorder’s judgment. The defendants were ordered to pay the plaintiffs’ costs.

One of the objections taken by the defendants on their appeal to this court is that the recorder’s order is unworkable. That may be so, but they also take a simpler and more fundamental objection, which is that the powers of the court in a case of this kind are confined to making a once and for all award of damages. I agree. There is no power, for example, to make an order transferring the beneficial interest in the house from the plaintiffs to the defendants. I therefore start from the position that, whatever the outcome, the recorder’s order must be discharged and an award of damages made in conventional form.

What then is the correct measure of damages in this case? At the forefront of his submissions in this court Mr Worsley, for the defendants, cited the following passage from Jackson & Powell on Professional Negligence, 4th ed. (1997), para. 3-137:

"With Philips v. Ward [1956] 1 WLR 471, Perry v. Sidney Phillips & Son [1982] 1 WLR 1297 and Watts v. Morrow [1991]1 WLR 1421, the Court of Appeal has stated and re-stated that diminution in value is the proper measure of damage in respect of a negligent survey of a house for a private purchaser. This rule applies whether or not the purchaser has carried out repairs, whether or not the purchaser has retained or sold the property, and whether or not, if properly advised, the purchaser would not have bought the property. Unless and until the matter is considered by the House of Lords, that measure of damage will apply to virtually all cases arising out of domestic house surveys and/or valuations for prospective purchasers."

In my opinion that is a correct statement of the prima facie rule applicable to the present case. Although we, like the recorder, received extended arguments as to the effect of the decision of the House of Lords in BBL, a case concerned with the liability of negligent valuers acting for lenders, I am satisfied that it has had no effect on the prima facie rule applicable to the measure of damages in respect of negligent surveys of houses for private purchasers, especially where, as here, the surveyor is merely providing information for the purpose of enabling the purchaser to decide whether or not he wishes to go ahead with the proposed transaction. Indeed, it is evident that it did not occur to the learned authors of Jackson & Powell that the decision could have had any such effect.

So far I have referred only to the prima facie rule, which is now recognised by the defendants to entitle the plaintiffs to recover £25,000 plus £250 in respect of stamp duty. However, each case depends on its own facts and here it is said that there are special features which entitle the plaintiffs to additional damages. In particular, Mr Marsden, for the plaintiffs, has relied on their inability either to move into the house or to sell it.

As an introduction to the consequences of these special features, I refer to a well-known passage in the judgment of Romer LJ in Philips v. Ward [1956] 1 WLR 471, 478:

"It may well be that if, on learning of the real condition of the house, [the purchaser] had decided to leave and resell, he would have been entitled to recover from the defendant in addition to the £4,000 [diminution in value], his costs and expenses of moving in and moving out and of the resale. As, however, he elected to stay, after all the facts had become known to him, this point does not arise."

Those observations, though somewhat tentatively expressed, were accepted as correct by Ralph Gibson and Bingham LJJ in Watts v. Morrow [1991] 1 WLR 1421, 1435D and 1445B. I respectfully agree. Although in the present case the plaintiffs, not having moved in, did not move out, the same principle applies. The principle is that the purchaser is entitled, by way of additional damages, to the reasonable costs of extricating himself from the purchase. Here, the house having been uninhabitable except at a cost which they were unable to contemplate, the plaintiffs could only extricate themselves by selling it. In order to do that, they had to live elsewhere until such time as they were able to sell the house and acquire another in its place. In principle I see no reason why they should not be entitled to recover the costs of their alternative accommodation during that period.

That indeed was the basis on which the plaintiffs’ claim was originally put. It was only during the trial, and at the suggestion of the recorder, that an alternative claim was made for reimbursement of (inter alia) mortgage interest payments, endowment policy premiums and household insurance premiums. In preferring the latter basis, the recorder was much influenced by the decision of this court in Hayes v. James & Charles Dodd [1990] 2 All ER 815, where solicitors had negligently omitted to advise their purchaser clients that the property purchased did not enjoy a right of way over adjoining land which was critical to the success of the motor repair business they intended to carry on there. It was held that the purchasers were entitled to damages equivalent to the capital expenditure thrown away in the purchase, together with the expenses incurred by them. Those expenses included bank interest paid by the purchasers, on a loan raised in order to fund the purchase, during the period ending with the resale of the property some four or five years later.

Having read two passages in the judgment of Staughton LJ in that case at pp. 818I and 819H and a passage in the speech of Lord Hoffmann in BBL at [1997] AC 191, 218G, the recorder expressed the opinion that the present case was properly analogous to Hayes v. Dodd . He said (p.42):

"In my opinion this too is a case where the Plaintiffs should be entitled to recover all the money which they have spent [and, additionally, all the money which they may have to spend in the future] less anything which they subsequently recover, provided always that they have acted and continue to act reasonably in attempting to mitigate their loss . . . the key question which ought to be addressed in a case such as this is 'have the Patels acted reasonably when faced with the predicament in which they were placed?'"

The Recorder observed that Lord Hoffmann had quite clearly approved the result of Hayes v. Dodd . I agree with that observation and would add that the decision in that case is in any event binding on us for what it decided. There is, however, an important ground of distinction. If the purchasers had been advised that there was no right of way, not only would they not have purchased the property, they would not have purchased any other property in its place. As Staughton LJ put it at p. 818I:

"They would have bought no property, spent no money and borrowed none from the bank."

In the present case, on the other hand, the recorder found (p.56):

". . . if the Patels had been properly advised by the Defendant firm I think it probable that, in the Summer of 1988, they would have purchased some other apparently immediately habitable property in South London and doubtless, they would have taken on a similar sized mortgage."

The effect of that finding is that the plaintiffs would have expended a similar amount in mortgage interest payments and, it must necessarily follow, in endowment policy premiums and household insurance premiums. On that footing the recorder compensated the plaintiffs for expenditure which they would have incurred in any event. In my judgment he was wrong to do so. Instead, he ought to have compensated them for the costs of their alternative accommodation until such time as they were able to sell the house and acquire another in its place.

The house never having been sold, the real difficulty in the case is to decide by what date the plaintiffs were able to sell it or, to put it objectively, by what date they ought reasonably to have sold it. If, as the recorder correctly held, the plaintiffs' duty was to act reasonably in attempting to mitigate their loss, sooner or later they ought to have sold the house, not just in order to avoid the risk of a further depreciation in its value but also to put a term to the period during which the defendants would be liable to compensate them for the costs of their alternative accommodation. In this context I emphasise that it has not been suggested that the house was unsaleable in the sense that, if put up for sale by public auction, it would not have sold at any price. Indeed, it is clear that in November 1992 at least one firm of auctioneers and estate agents were of the view that a sale could have been effected.

It therefore becomes necessary to examine the plaintiffs' conduct subsequent to completion of the purchase, in order to decide whether it was reasonable, and if so for how long, for them not to put the property up for sale by public auction. I am in no doubt that they acted reasonably both in deciding to offer the house for sale by private treaty in January 1989 at an asking price in the region of £100,000 and in accepting the offer then made of £93,000 subject to contract and survey. But the position changed dramatically once that offer was withdrawn and not only Mr Whitehouse but also the consulting engineer had drawn attention to the extremely poor condition of the property. From the spring of 1989 onwards it was apparent that there was no reasonable prospect of obtaining a price sufficient to discharge the amount owing to the society under its mortgage. On one view the plaintiffs ought there and then to have sold the house at auction. It is possible that, had they done so, they would have obtained a price in the region of the £65,000 which the recorder found it had been worth some nine months earlier.

Did the plaintiffs act reasonably in not putting the house up for auction in the summer of 1989 or thereafter? The recorder's view was that the society would not have consented to a sale for less than the amount of its advance. He said (p.21):

"The Society has been and remains unwilling to permit a disposal for less than the £83,000 which it advanced and, accordingly, [the plaintiffs] have never been in a position to re-sell. The proposed sale to Mr Iqbal gave them, for a short time, a false hope but, once it fell through they appreciated the true position. Their predicament became worse as time went on because of the very significant fall in property values and because of the subsidence problem."

Having carefully considered the correspondence between the plaintiffs and their solicitors on the one side and the society on the other, I do not think that the society's attitude was accurately stated by the recorder. Although from May 1989 onwards requests were made for a moratorium or reduction in the mortgage payments, it was not until 22nd January 1990 that any reference was made to a sale of the property. In a letter of that date the society informed the plaintiffs that if they stopped payment altogether:

"then obviously the society would wish to take possession of the property and endeavour to achieve a sale but of course any short fall, on a subsequent sale, the society would look to you to make up the difference."

On 9th May 1990 the plaintiffs' solicitors informed the society:

"Our clients are now trying to market the property by putting it on auction but at the present time, as you are aware, the market is not favourable for sales whatever method is used and our clients are merely trying to mitigate their loss as they have been doing since the defects were made known."

There was no further exchange of significance until 17th November 1992, when the plaintiffs' solicitors wrote to the society enclosing a copy of the auctioneers and estate agents’ valuation in the region of £30,000 (see above). They said:

"We would be grateful if you could please refer this matter to your valuation department if necessary and your redemptions department to reach some agreement with ourselves as to whether you would allow any sale to proceed at all and waive the balance of the mortgage which would remain in view of the claim our clients have against the Society's valuer."

The society not having responded to that request, on 6th April 1993 the plaintiffs' solicitors wrote again:

"Our clients will have to make a decision as to what to do on selling the property, in view of the ongoing deterioration of the property and have been quite unable to do so all these years, because the Society would not be reasonable to allow them to mitigate by selling at what they could get for it. They could not sell unless they had an agreement that the sale price was the best expected and that some portion of the balance of mortgage would not be pursued in view of these unfortunate circumstances.

This is the reason why attempts at sale have been unsuccessful to date."

On 23rd June 1993 the society's chief solicitor replied:

"I suspect that the Society may expect the Mortgage on the above mentioned property to be repaid in full should the property be sold, if your Clients find themselves in a position where they are unable to sell the property at a price sufficient to redeem the Mortgage then surely the compensation claim by your Clients from the Valuers should be increased accordingly."

That is how the matter stood as between the plaintiffs and the society. As I understand the correspondence, the society's attitude was not that it was unwilling to permit a disposal of the house for less than the £83,000 which it had advanced, but that it was unwilling both to permit such a disposal and to agree that the plaintiffs should be released from liability to pay the whole or some part of the balance owing under the mortgage. That was an attitude which the society was entitled to adopt. Indeed, the recorder himself, while stating that the views expressed in the letter of 23rd June 1993 might have been thought unhelpful and unsympathetic at the time they were written, agreed that they did show a correct appreciation of the legal position.

While I am therefore satisfied that, if the plaintiffs had acknowledged their liability to pay the balance owing under the mortgage, the society would have consented to a sale, I have nevertheless come to the conclusion, on a view of the circumstances as a whole, that the plaintiffs acted reasonably in not putting the house up for auction either in the summer of 1989 or at any subsequent time before the end of June 1993. Although I have arrived at this conclusion with some hesitation, I will explain my reasoning as briefly as I can.

The starting-point is the defendants’ rejection on 23rd August 1989, in the face of views stated by Mr Whitehouse and the consulting engineer which were later accepted by the recorder, of all liability to the plaintiffs. I take up the story in the words of the recorder (p.22):

"The Patels explored the possibility that their household insurers (the Sun Alliance Insurance Group who issued a block policy to [the society]) might be prepared to accept a claim but, unsurprisingly in the circumstances, no liability was accepted. Some months then passed whilst the Patels (or their solicitors) considered the legal and financial position and obtained further advice from Carter Hope. Further correspondence in the summer of 1990 resulted in the Defendant firm notifying its Insurers and those Insurers engaging surveyors to carry out a further inspection of the Property. By November 1990, it was clear that liability and quantum continued to be disputed."

The recorder then referred to the complications over the subsidence, which came to light in April 1991, and the cracking to the party wall, which first appeared at some date between 1990 and January 1992. He referred to the reports which, by August 1992, the plaintiffs had obtained from Mr Poole and from Mr J W Dickson (the valuer who gave expert evidence for them at the trial). It was then that there followed the protracted period during which the possibilities for achieving a negotiated settlement were explored. Again, I take up the story in the words of the recorder (p.24):

"In August 1992, whilst continuing to dispute liability, loss adjusters acting for the Defendant firm put forward an offer to settle the claim. Copies of the Plaintiffs’ proposed expert evidence were forwarded to the Defendant firm. Attempts were made to involve the Society in what might fairly be termed an 'overall commercial settlement'. This was attempted on the basis that the Society, its selected insurers (ie Sun Alliance) and its selected surveyors (ie the Defendant firm) should jointly assist the Patels in relation to the Property, the likely realisable value of which in the Autumn of 1992, was no more than £30,000 or £40,000. The settlement scheme which the Patels’ solicitors were endeavouring to promote was one in which the Patels would look to the Defendant firm for damages calculated on what might be called the simple or classic Philips v. Ward basis, look to the Sun Alliance for the cost of making good the apparent post-1988 subsidence and look to the Society itself to waive that part of the mortgage debt which would be irrecoverable on any sale arranged in the short/medium term because of the significant drop in property prices. Given the recent emergence of the phenomenon 'negative equity' and the considerable uncertainty as to the way in which (in the context of professional negligence claims) the Courts would view it, the Patels’ solicitors' attempts to promote an overall settlement were, to my mind, wholly understandable . . . .

However, the Patels’ solicitors’ attempts to promote such a settlement were not successful. The Society’s solicitor replied . . ."

That was a reference to the society’s chief solicitor’s letter of 23rd June 1993. With the receipt of that letter it became clear that the negotiations had broken down.

In the extraordinarily complex circumstances described by the recorder, and in view particularly of the defendants’ failure to admit liability or even to put forward any offer to settle the claim before August 1992, I think that it was reasonable for the plaintiffs not to put the house up for auction until after their solicitors’ attempts to promote an overall settlement had proved to be unsuccessful. All parties concerned, including the defendants and their insurers, knew that the house was standing there empty and in a dilapidated condition. None of them suggested that it ought to be sold. In the circumstances, it could hardly be said that, while negotiations continued, the plaintiffs ought to have sold it on their own initiative. Conversely, once it became clear, on receipt of the society’s chief solicitor’s letter of 23rd June 1993, that the negotiations had broken down, the plaintiffs ought then to have put the house up for auction, acknowledging to the society that they would remain liable for the balance owing under the mortgage. It is reasonable to assume that a sale thus effected would have been completed by the end of September 1993.

For these reasons, I would hold that the plaintiffs are entitled to recover, by way of damages additional to the £25,250, the costs of their alternative accommodation between 30th September 1988 and 30th September 1993, in which I include the costs of moving from each address to the next. Although he did not make an award on that basis, the recorder helpfully stated (p.57) that the amount he would have been prepared to allow was £34,500. That was in respect of the full period up to October 1995. He did not go into that figure in detail, but made three brief observations in relation to it. It is to be hoped that counsel will be able, in the light of those observations, to agree what ought to be the corresponding amount for the period from 30th September 1988 to 30th September 1993. If agreement cannot be reached, we will decide the correct amount on the basis of brief written submissions to be put in after judgment has been delivered.

Finally, I refer to the recorder’s award of £2,000 general damages to each of the plaintiffs, against which the defendants have also appealed. The recorder stated the basis of his award to be as follows (p.57):

"However, so far as the alternative accommodation is concerned, for much of the last seven years what the Patels have been able to afford/obtain has been much less desirable accommodation than that which the Property would have afforded had it been in the condition described, had they moved in and then undertaken an ongoing redecoration/renovation programme of the sort Dr Patel had envisaged. I think the Patels’ years of living in 'relative discomfort' should be recognised by a modest award of general damages."

On the authorities (see in particular Watts v. Morrow ) the recorder was entirely justified in making that award and I would affirm it accordingly.

The recorder evidently had great sympathy for the plaintiffs in the predicament in which they found themselves. While sharing that sympathy to the full, I must emphasise that their predicament has been partly caused by events for which the defendants had no responsibility, in particular by the subsidence which has occurred since 1988 and the general decline in the market value of houses such as this.

In summary, I would, in addition to the £25,250, award the plaintiffs damages equivalent only to the costs of their alternative accommodation between 30th September 1988 and 30th September 1993. To that extent I would allow the defendants’ appeal. I would affirm the recorder’s award of general damages of £2,000 to each of the plaintiffs. To that extent I would dismiss the appeal.

LORD JUSTICE WARD:

I agree.

LORD JUSTICE MANTELL:

I also agree.

Order: appeal allowed in part; no order to be drawn up today; counsel to communicate with the court on outstanding matters.