Gardner v Marsh & Parsons

Damages for a surveyor’s negligent failure to report a property defect are ordinarily the difference, at the date of purchase, between the price paid and the property’s market value in its defective condition. Valuation assumes a hypothetical sale of the property as it then stood. It cannot assume that the actual vendor would first have repaired the defect.

A subsequent benefit reduces damages only where it is sufficiently connected with the wrong and forms part of a continuous dealing with its consequences. Repairs performed years later by a third party under an independent contractual obligation, following substantial intervening events, may be collateral and too remote to extinguish the purchaser’s crystallised loss.

The purchasers instructed the defendant surveyors to undertake a full structural survey of a maisonette. The survey negligently failed to identify signs of a serious structural defect. The purchasers completed the acquisition for £114,000, although the property’s value in its defective state was subsequently assessed at £85,000.

His Honour Judge Byrt QC in the Mayor’s and City of London Court awarded £29,000 as diminution-in-value damages. The freeholder had repaired the defect without cost to the purchasers in 1990, following prolonged negotiations and the threat of proceedings.

The surveyors appealed on two grounds. They argued that a hypothetical sale should account for the likelihood that the developer would have repaired the defect before completion. Alternatively, they contended that the later repairs had eliminated the purchasers’ loss.

1. Appeal dismissed by a majority. Hirst LJ and Pill LJ held that both grounds failed. Peter Gibson LJ agreed on valuation but would have allowed the appeal because the later repairs had eliminated the diminution-in-value loss.

2. On the first ground, all three Lord Justices held that the judge had adopted the correct valuation method. Under Philips v Ward [1956] 1 WLR 471 and the subsequent authorities, the property must be valued through a hypothetical sale in its actual defective condition at the date of purchase. It was impermissible to alter that hypothesis by assuming either that the actual developer would refuse the market price or that it would repair the defect before selling. The judge was entitled to accept the purchasers’ residual valuation evidence, particularly because the defendants had supplied no competing valuation on the correct basis.

3. Hirst LJ held that the treatment of a later benefit is primarily a question of fact. The relevant inquiry was whether the benefit formed part of a continuous dealing with the situation created by the wrong or arose through an independent or disconnected transaction. The broad proposition that every benefit obtained through reasonable and prudent action must reduce damages was inconsistent with the authorities concerning later transactions in goods and shares.

4. The repairs occurred five years after the negligent survey and only after discovery of the defect, failed sales, prolonged negotiations, party-wall procedures and arrangements with other occupiers. They were performed by the freeholder under obligations independent of the surveyors. Hirst LJ therefore regarded them as collateral and res inter alios acta.

5. Pill LJ agreed that the case fell on the Hussey v Eels [1990] 2 QB 227 side of the line. The benefit resulted from a third party’s performance of a separately negotiated contractual obligation after substantial intervening events. It was too remote to affect the damages recoverable from the surveyors.

6. Peter Gibson LJ dissented on that issue. In his view, the purchasers’ pressure upon the freeholder was successful mitigation which remedied the very defect causing the diminution in value. He considered that allowing the £29,000 award after the property had been repaired without cost produced double recovery.

1. Court of Appeal: By a majority, dismissed the surveyors’ appeal against the £29,000 diminution-in-value award. The first ground was rejected unanimously; the second was rejected by Hirst LJ and Pill LJ, with Peter Gibson LJ dissenting.
2. Mayor’s and City of London Court: His Honour Judge Byrt QC found the surveyors negligent and awarded £29,000, plus interest, for the difference between the purchase price and the property’s value in its defective condition.