SMITH & SMITH v PETER NORTH & PARTNERS [2001] EWCA CIV 1553

In a negligent survey claim, the prima facie measure of loss is diminution in the property's value, rather than the cost of repairing defects which already existed when the property was purchased. The rule is compensatory: damages must place the claimant in the position they would have occupied had the surveyor performed the retainer properly, without producing a better bargain.

The rule is not absolute, but the claimant must identify a proper evidential and legal basis for departing from it. A surveyor does not generally warrant that the property has no defects beyond those mentioned in the report. Commercial use, a retainer focused on repairs, and repairs which do not increase market value do not, without more, justify substituting repair costs for diminution in value. Such circumstances may support additional consequential loss.

The appellants purchased a Grade II listed timber-framed property after obtaining a survey from the respondent firm of chartered surveyors. They alleged negligent failure to report the property's structural condition and claimed, among other losses, at least £130,000 for repairs.

The Technology and Construction Court struck out the repair-cost claim and gave summary judgment that any loss was to be measured by diminution in value. The appellants challenged both the use of summary judgment and the measure of damages. They relied on the alleged repair-focused retainer, the property's intended use in a commercial equestrian operation, and the absence of any increase in market value following repairs. The central issue was whether those matters gave the repair-cost measure a real prospect of success.

1. Appeal dismissed. The Court of Appeal, comprising Lord Justice Jonathan Parker, Lord Justice Judge and Mr Justice Bodey, upheld the order of the Technology and Construction Court. The appeal was dismissed with costs, assessed at £9,000.
2. Summary judgment was procedurally proper. Under Civil Procedure Rules Part 24, the judge had to consider whether the pleaded repair-cost claim had any real prospect of success. That exercise did not require a mini-trial or findings on disputed facts. The judge was entitled to assess whether any evidential basis could support the proposed measure.
3. The applicable general rule was that damages for a negligent survey are ordinarily measured by the diminution in value of the property at the purchase date. This reflects the compensatory principle stated in Philips v Ward [1956] 1 WLR 471 and applied in Watts v Morrow [1991] 1 WLR 1421. The claimant must not obtain a better position than would have resulted from a proper report.
4. On the assumed facts, awarding at least £130,000 for repairs would have enabled the appellants to acquire property worth about £340,000 for a net outlay of about £200,000. That would substantially overcompensate them. The valuation evidence showed no diminution in value attributable to the surveyor's report.
5. Cases where the defendant's negligence physically damages or destroys the property, such as Harbutt's Plasticine v Wayne Tank & Pump Co Ltd [1970] 1 QB 447, were distinguishable. In those cases, proper performance would have left the claimant with property not requiring repair. That rationale did not apply where the defects pre-existed the survey.
6. Neither a repair-focused retainer nor intended commercial use displaced the general rule. In the absence of a warranty that no further repairs would be required, the retainer could not justify recovery of all repair costs. The surveyor gave no such warranty: Perry v Sidney Philips [1982] 1 WLR 1297. Commercial circumstances might support additional damages, as recognised in Patel v Hooper & Jackson [1999] 1 WLR 1792, but no basis existed for replacing the diminution-in-value measure.

• Court of Appeal (Civil Division): Appeal from the order of His Honour Judge Richard Seymour QC dated 27 April 2001 was dismissed. The court upheld the striking out of the repair-cost claim and the summary judgment on the appropriate measure of damages.
• Technology and Construction Court: The judge held that the diminution-in-value measure, rather than repair costs, applied to the negligent survey claim. The citation of the lower-court decision was not stated in the judgment.