England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE LAWRENCE COLLINS)

		Royal Courts of Justice Strand London, WC2
		13th December 2004

1. LORD JUSTICE WARD: I will ask Lord Justice Jonathan Parker to give the first judgment.
2. LORD JUSTICE JONATHAN PARKER: This is an appeal by Greymalkin Ltd, the claimant in a negligence action against its former solicitors Messrs Copleys, from an order made on 24 May 2004 by Lawrence Collins J. Before the judge liability was admitted. Accordingly, the only issues which fell for his decision related to damages. By his order, the judge awarded the appellant damages in the sum of £45,000 with interest pursuant to section 35A of the Supreme Court Act 1981 in the sum of £36,665.75.
3. Copleys acted as the appellant's solicitors on the subpurchase by the appellant on 10 June 1993 of a property known as the Garden House Hotel, Hunstanton, Norfolk at a price of £240,000. Copleys knew that the appellant was purchasing the property with a view to converting it into flats and bed-sitting rooms for resale. They negligently failed to inform the appellant that three subsisting charges on the property would not be overreached on completion of its subpurchase, and that on completion it would accordingly take the property subject to those charges. In effect, Copleys negligently failed to inform the appellant of a defect in the title to the property. They informed the appellant of the true position in February 1994. In the meantime, some development work had been carried out on the property and a certain amount of other expenditure had been incurred relating to the property. In 1996 the three outstanding charges were discharged at no cost to the appellant by the insurers of the solicitors who had acted for the intermediate purchaser (that is to say, the appellant's vendor).
4. Before the judge, the appellant claimed damages in excess of £600,000, including direct expenses on the property totalling some £115,000 (including £75,000 allegedly paid to a builder called Hill Rivers (Anglia) Ltd and to subcontractors for work done on the property). The appellant contended that by the time the defect in title was rectified (in 1996) the property had substantially deteriorated, and the work done to it between June 1993 and February 1994 had to be redone. The damages claim was, it seems, recast shortly before the commencement of the trial, and in paragraph 38 of his judgment the judge commented that at no time was the damages claim put on a clear basis.
5. In the result, the judge found (in paragraph 85 of his judgment) that, but for Copleys' negligence in failing to inform the appellant of the defect in title, the appellant would not have completed its purchase of the property. On that basis, the judge went on to award the appellant damages on what has been referred to in the authorities as the 'diminution in value' basis: that is to say, he awarded the appellant a sum representing the difference between the value of the property without the charges as at the date of completion (i.e. its value with the title which the appellant thought it was getting) and its value as at that date subject to the three charges (i.e. its actual market value at that date, taking into account the defect in title). He found, relying on the evidence of Mr Adams-Cairns of FPD Savills, the single expert valuer jointly instructed by the parties, that the former value was £130,000 and the latter value was £85,000: a difference of £45,000. Hence his award of £45,000 by way of damages, with interest.
6. It is also to be noted, because Mr Geraint Jones QC (for the appellant) has relied upon it in the course of his oral submissions this morning, that in the course of his report Mr Adams-Cairns placed the market value of the property in February 1994 at around £72,500.
7. The judge refused the appellant permission to appeal against the award of damages. The appellant applied to this court for permission to appeal, putting forward a number of grounds. Refusing permission on the papers, Chadwick LJ concluded that it was open to the judge to assess damages on the 'diminution in value' basis, and that he was not persuaded that an appeal from the judge's assessment of damages would have any real prospect of success. However, by his order dated 23 September 2004 following an oral hearing, Chadwick LJ granted the appellant permission to appeal limited to one issue only, viz:

"... whether, in the compensation he awarded to the Claimant [the appellant], the learned Judge ought to have included or allowed for expenditure thrown away in the period between June 1993 and February 1994, before the Defendant informed the Claimant of the true position as to its defective title."

8. In the course of his judgment granting permission to appeal on that issue, Chadwick LJ said (in paragraph 11) that the only basis on which the judge's assessment of damages could be challenged was that the judge failed to take into account the need to compensate the appellant for losses arising from its purchase which were incurred during the period when it did not know of the defect in title and was therefore not in a position to take any steps to deal with it.
9. Before I turn to those parts of the judge's judgment which bear upon the one issue on which permission to appeal has been granted, it is pertinent to note the judge's conclusions (in paragraph 86 of his judgment) that the 'diminution in value' basis of assessing damages was the appropriate one; and that "there is no alternative basis of assessment which can do justice in this case". The judge continued:

"I accept that in an appropriate case the court may award the costs incurred in removing the defects together with compensation for losses owing to their existence. In this case there is no separate cost of remedying the defect in 1996 since it was paid for by Thain & Co's [the solicitors for the intermediate purchaser] insurers, the direct expenses in maintaining the property until the defect [was remedied] must have been modest (although there is very little evidence of what they were), and the financial loss (if any) caused by title not being perfected until 1996 is not quantified and must be highly speculative. Nor is an extrication basis of assessment appropriate. In this case, there was no extrication. Greymalkin retained the property and, for the reasons I have given in connection with causation, the cost of maintaining it until 2000 cannot be regarded as costs of extrication."

10. Moreover, in paragraph 87 of his judgment the judge said this:

"It is not suggested in this case that it would make any difference to the valuation whether the exercise is undertaken as at June 1993 or February 1994. As I have said, Mr Adams-Cairns valued the property as at June 1993 at £130,000 'at best', and 'found no evidence or justification to support the sub-sale figure of £240,000.'"

11. As to expenditure incurred by the appellant in the relevant period (i.e. between June 1993 and February 1994), the judge turned (in paragraph 92 of his judgment) to the appellant's contention that during that period the builders and subcontractors were paid about £135,000 for work done to the property. After commenting that the documentation supporting this contention was "very slight", the judge found that on balance it was probable that about £35,000 only was spent in paying builders and subcontractors for work done to the property during the relevant period.
12. In paragraph 97 of his judgment the judge said this:

"On the limited available evidence my conclusion is that at all material times the property was in a poor state of repair, with dry rot problems."

13. The judge then referred to correspondence which confirmed that a problem with vandalism had been identified by 1992, and that dry rot had been identified by April 1993. He continued:

"Some work on the development had begun by February 1994, but thereafter no work was done except that necessary to protect the property from vandalism."

14. As already noted, the judge did not include any compensation in respect of such expenditure in his award of damages.
15. Various other specific items of expenditure were identified by the appellant as being expenditure incurred during the relevant period which ought to be reflected in the award of damages, none of which was in the event so reflected. The judge deals with these in paragraph 98 of his judgment and some of these items formed the subject of argument on this appeal, as I shall explain in a moment.
16. Under sub-paragraph (1) in paragraph 98, the judge considered expenditure on professional fees of architects, valuers and engineers amounting to about £10,000. The precise figure (as it appears from a schedule submitted by the appellant at the trial) was £9,058. As to this expenditure, the judge said this in paragraph 98(1):

"They are claimed as wasted expenses. The architect's and engineer's fees make up all but about £750 of the total, and appear to have been for services which would have enhanced the value of the property, and were not wasted."

17. The next sub-paragraph of paragraph 98 to which I need turn is sub-paragraph (3), which relates to insurance costs of £878 for the period June 1993 to December 1993. As to this item of expenditure, the judge said:

"... I accept Copleys' submission that this item cannot be claimed on any basis. It is not a loss. Greymalkin had full benefit from this insurance, which covered the period to December 30, 1993, before the problem came to light."

18. Next I turn to sub-paragraph (6) of paragraph 98 of the judge's judgment, which concerns a cost of £7,500 incurred in works to the roof, windows and guttering at the property. As to this item, the judge said:

"... there is no evidence that the amount settled for £10,000 was wasted. £2,500 relates to work for Mr Morgan [that is a part owner of the appellant], and it is conceded that this is not recoverable."

19. The next sub-paragraph to which I must turn is sub-paragraph (7), where the judge said this:

"Hill Rivers (Anglia) Ltd and subcontractors from October 1993 to June 1994 of about £135,000: I have already concluded that on balance it is probable that £35,000 was spent on the property in that period."

That is a reference to a finding which the judge made in paragraph 92 of his judgment, where (as I have already indicated) he found that it was probable that about £35,000 was spent on the property during the relevant period.

20. Lastly, so far as paragraph 98 is concerned I turn to sub-paragraph (9), which relates to payments allegedly made to a Mr Quayle for acting as project manager in the development of the property. As to this expenditure, the judge said this:

"If Greymalkin is contending that this expenditure was wasted, I accept Copleys' submission that it has failed to identify what the expenditure was for, and why it was wasted."

21. In addition to his arguments on these particular sub-paragraphs (to which I shall refer in a moment), Mr Jones also contends that the judge erred in failing to award compensation in respect of the interest and finance charges incurred by the appellant. He advances this argument on the footing that the judge had found that, but for the negligence of Copleys, the appellant would not have completed its purchase.
22. I turn therefore to the arguments which Mr Jones has addressed to us this morning.
23. He began his submissions by addressing the question of interest. He submitted that the judge ought to have awarded interest first of all on the entirety of the purchase price paid by the appellant and not merely the figure representing the diminution in value (that is to say, the £45,000 which formed the principal amount of the judge's damages award). He submits that the appellant is entitled to be compensated for the borrowing charges which it incurred in funding the purchase to the extent of the £130,000 which, on the judge's finding, represented the market value of what the appellant actually got when it completed its purchase. He bases this submission, as he bases all his submissions, on what he described as this "core finding" in paragraph 85 of the judgment that, had Copleys not been negligent, the appellant would not have completed its purchase, and accordingly would not have found itself in the position of having to develop and maintain the property.
24. In addition, as I understand his submissions, Mr Jones submits that the appellant is entitled to an award representing the interest which it had to pay on funds borrowed in order to pay builders for work carried out on the property. He bases this claim to interest also on the core finding to which I have referred earlier, submitting that, but for Copleys' negligence, the appellants would not have been in the position of developing the property and ergo of incurring the finance charges in question.
25. Turning then to the various heads of expenditure itemised by the judge in paragraph 98 of his judgment, Mr Jones submits firstly that the judge was in error in omitting from his award of damages any item reflecting the professional fees of £9,058. He submits that it is common sense that the costs of retaining an architect and surveyor will not enhance what he describes as the "bricks and mortar valuation" of the property in question. He also points to the fact that the judge accepted the evidence of Mr Adams-Cairns that when the property was sold in February 1994 its market value at that date was only £72,500.
26. Although the judge did not expressly refer to that evidence, it is (Mr Jones submits) implicit in his acceptance of the other values which Mr Adams-Cairns put forward that he must also have accepted the accuracy of this figure. But all this goes to show, submits Mr Jones, that the costs incurred by the appellant (referred to in sub-paragraph (1) of paragraph 98) were costs which it would not have had to incur had Messrs Copleys not been negligent. Accordingly, he goes back once again to the core finding which forms the basis of all his submissions this morning.
27. As to sub-paragraph (3) of paragraph 98, dealing with insurance costs, Mr Jones submits that this cost is not to be regarded as not being a loss simply because insurance cover was purchased at a premium. Once again, Mr Jones seeks to underpin his submissions by reference to the judge's core finding that but for the negligence the appellant would not have owned the property at all, and hence would not have been faced with the cost of having to insure it. He accordingly submits that the judge's conclusion "It is not a loss" was simply wrong, in that it failed to reflect the true position as the judge had found it to be in paragraph 85 of his judgment.
28. Turning next to sub-paragraph (6) of paragraph 98 (this is the payment of £7,500 in respect of work to the roof, to the windows and to the guttering), Mr Jones once again submits that the project would not have gone ahead had the true position been appreciated at the date of completion. He submits that the judge was in error in concluding that there was no evidence that this expenditure was wasted, since the only reasonable inference is that this expenditure was, on the basis of the judge's core finding, wasted expenditure.
29. As to sub-paragraph (7) (the payment of £35,000 to the builders in the period in question) again Mr Jones relies on Mr Adams-Cairns' valuation of the property in February 1994 at £72,500. He submits that the only conclusion which one can draw from the reduction in the value of the property between June 1993 and February 1994 is that the expenditure incurred on the property resulted in no benefit accruing to the appellant; in other words, that it was all wasted expenditure.
30. Turning finally to sub-paragraph (9) of paragraph 98, Mr Jones submits once again that (bearing in mind the judge's core finding, in paragraph 85 of his judgment, that the purchase would not have been completed but for the negligence of Messrs Copleys) the judge was in error in not concluding that this was wasted expenditure and that accordingly compensation in respect of it should have been included in his award of damages.
31. I turn first to Mr Jones' arguments as to interest. I can for my part see no basis upon which the judge can be said to have erred in failing to include in his award of damages an item reflecting the interest on the £130,000 paid by the appellant, representing what was (on Mr Adams-Cairns' valuation, accepted by the judge) the true market value of the property at the date of completion with the title as it in fact existed. It seems to me, indeed, that it would have been contrary to principle for the judge to have awarded damages on the 'diminution in value' basis and, at the same time, to award damages representing interest or finance charges paid by the appellant in respect of that part of the consideration which represented the true value of what it received at completion.
32. Similarly, I can for my part see no basis upon which the judge can be said to have been in error in failing to award interest on sums borrowed or finance charges incurred by the appellant in raising funds to pay the builders for work carried out on the property. It seems to me that the award of interest under the Supreme Court Act on the difference in the two values plainly compensated the appellant in respect of his retention of the property post-completion. Accordingly, I can for my part see no basis for the submissions that the judge was in error in not awarding interest in addition to that which he awarded under the Supreme Court Act.
33. Turning then to paragraph 98 of the judge's judgment and the various sub-paragraphs on which we have heard argument, as a general comment it seems to me that the position here is as follows. It was for the appellant to prove its loss. To the extent that the judge was not satisfied on the evidence before him that the appellant had succeeded in doing so, it seems to me that the appellant is in great difficulties in challenging the judge's award of damages and his findings in that respect.
34. As to sub-paragraph (1) of paragraph 98 (the professional fees), the judge took the view that these fees were incurred in advancing the development of the property and were not a wasted expense. I can for my part see no basis upon which this court could possibly interfere with the judge's conclusions in that respect.
35. As to sub-paragraph (3) of paragraph 98 relating to the insurance costs, again it seems to me that the judge's conclusion "It is not a loss" is plainly correct. Insurance cover was purchased for the sum of £878 for the relevant period, or at least part of it. It does not seem to me that there is any rational basis upon which the judge should have included in the award of damages an element of compensation in respect of this cost.
36. As to the works to the roof, window and guttering referred to in sub-paragraph (6) of paragraph 98 of the judgment, this again seems to me plainly to be expenditure which would inevitably have had to have been incurred on the property, and I can again see no basis upon which the judge can be said to have fallen into error in failing to include compensation in respect of it in his award of damages.
37. The same considerations apply, in my judgment, to sub-paragraph (7) of paragraph 98, that is to say the £35,000 spent on the property in the relevant period. Mr Jones informed us that Mr Adams-Cairns was not subjected to any cross-examination on the question of a possible enhancement of the property by the carrying out of the works in question, nor (it appears) was he instructed to offer any expert opinion on that issue. It appears from the one page of his report which we have seen that he simply expressed his opinion as to the market value of the property as at June 1993 and February 1994. It seems to me, once again, that it was for the appellant to prove its case in this respect and manifestly it has failed to do so. I cannot see any basis upon which the judge's conclusion that the £35,000 should not form part of his award of damages can be faulted.
38. Finally, I turn to sub-paragraph (9) of paragraph 98, the payments to the project manager. Again, it seems to me that the appellant has simply failed to prove the loss which it is claiming in this respect. I can see no basis upon which the judge's conclusion not to include any item of compensation in this respect can be challenged.
39. In the end, it seems to me, as I said at the beginning of my consideration of Mr Jones' submissions, the real problem which he faces is that his client failed to establish on the evidence the losses for which it is now seeking to claim compensation. The judge was, in my judgment, fully entitled to reach the conclusions he did and I would, for my part, dismiss this appeal.
40. LORD JUSTICE MAURICE KAY: I entirely agree.
41. LORD JUSTICE WARD: So do I.

ORDER: Appeal dismissed with costs assessed in the sum of £9,778.

(Order not part of approved judgment) ______________________________