Skandia Property (UK) Ltd & Anor v Thames Water Utilities Ltd

Where an escape of water causes physical damage, damages ordinarily extend only to the reasonable cost of reinstating that damage. Recovery of expenditure on a more extensive replacement or improvement requires the claimant to establish that the expenditure was reasonable in the circumstances. A claimant cannot establish reasonableness merely by relying on expert advice. Expert evidence is significant where the claimant has supplied all material facts and reasonable investigations have been made, but assumptions about damage to accessible and inspectable property will rarely be reasonable. The claimant bears the onus of proving the relevant damage, causation and the reasonableness of expenditure incurred beyond physical reinstatement.

An escape of water from a pipe vested in Thames Water Utilities Ltd flooded the basement of premises owned by Vala Properties BV, a subsidiary of Skandia Property (UK) Ltd. The claim was brought under section 6(1) of the Water Act 1981.

The trial judge awarded £37,500 but rejected the substantial cost of installing a new Sika tanking system. He found that the flood had not damaged the pre-existing waterproofing arrangements and that the system installed after the flood was intended to secure a watertight building rather than reinstate damage caused by the escape. The appeal concerned whether that expenditure was recoverable as loss or damage caused by the escape of water.

1. Appeal dismissed. The trial judge was entitled to find that the escape of water had not damaged the pre-existing waterproofing arrangements and that the proposed Sika system was not reinstatement of physical damage caused by the flood.
2. Where an escape of water causes physical damage, the prima facie measure of loss is the reasonable cost of reinstating that physical damage. Expenditure beyond that cost may be recoverable only if the claimant proves that it was reasonable to incur it.
3. The assumption made by Vala and its experts that a comprehensive waterproofing system had been damaged was unreasonable. The relevant question was not whether the advice was professionally negligent, dishonest or improper. Reasonableness was relevant to causation and to whether the expenditure represented loss caused by the defendant.
4. It may be reasonable to assume physical damage where proper investigation is not reasonably possible, and reasonable investigation costs may be recoverable. However, an assumption of damage to accessible and inspectable property will rarely be reasonable. Expert advice is not conclusive, although it is a highly significant factor where the claimant has supplied all material facts and the expert has made reasonable investigations.
5. The claimant bore the onus of establishing the reasonableness of the assumptions made and the expenditure incurred. The appeal was dismissed with costs, and leave to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): The appeal from the judgment of Mr Recorder Playford QC, sitting as an Official Referee in the Queen’s Bench Division, was dismissed with costs.