Harrison & Ors v Shepherd Homes Ltd & Ors

A builder’s contractual obligation to complete a house in a good and workmanlike manner may extend to design and to completion so that the house is fit for habitation. Such obligations survive conveyance unless clear words provide otherwise. Under section 1(1) of the Defective Premises Act 1972, fitness for habitation is a threshold measure of the required work, so liability requires unfitness for habitation. For defective premises, reinstatement is generally recoverable only where reasonable. It is unreasonable where the cost is out of all proportion to the benefit; diminution in value will then ordinarily be appropriate. Modest damages may also be awarded for physical inconvenience and discomfort, but not for distress or disappointment alone. Notice requirements may be satisfied by adequate oral notice, constructive notice or waiver by election.

The claimants were freehold owners of houses constructed by Shepherd Homes Ltd on a former landfill site at Eden Park, Hartlepool. They alleged defective piling, cracking and ground movement. Claims were brought in contract, under section 1 of the Defective Premises Act 1972, and under section 2 of the Buildmark cover. The NHBC defendants were not involved in the trial.

The court determined liability and quantum in ten lead claims, intended to assist resolution of claims concerning other properties. The principal issues were the construction and survival of the sale contracts, statutory liability, notice under the Buildmark cover, the meaning of fitness for habitation, and the proper measure of damages.

1. Contractual obligations. Clause 7.1 required the whole of the Works to be completed in a good and workmanlike manner. It applied to design as well as construction where the builder undertook both functions, and required proper skill and care. The requirement that the Works be made ready for occupation required the houses to be fit for habitation. If those obligations had not been express, equivalent terms would have been implied under section 13 of the Supply of Goods and Services Act 1982 and at common law.
2. Entire agreement and merger. The entire agreement clause addressed collateral terms, representations and agreements. It did not exclude the statutory or common-law implied terms. Clear and unequivocal words would have been needed to exclude valuable contractual rights. The obligations under Clause 7.1 did not merge in the conveyance. Accrued rights and unperformed obligations survived completion.
3. Statutory controls. Alternatively, if the defendants’ construction of Clauses 7.1, 7.5, 8 and 10 had been correct, those terms would have been unfair under the Unfair Terms in Consumer Contracts Regulations 1999 and unreasonable and unenforceable under the Unfair Contract Terms Act 1977.
4. Defective Premises Act. The court was bound by Alexander v Mercouris [1979] 1 WLR 1270. Section 1(1) imposed a single duty: work had to be done in a workmanlike or professional manner with proper materials so that the dwelling would be fit for habitation when completed. Fitness for habitation was a measure of the standard, and not an independent additional duty. Significant foundation defects could make a dwelling unfit even where visible damage was cosmetic.
5. Notice and liability. The oral notification given by Mr Simpson was sufficient in the circumstances. SHL also had constructive notice of development-wide foundation defects and had waived reliance on the notice requirement by unequivocal conduct. SHL was liable under the Buildmark cover and the 1972 Act in every lead claim, and additionally in contract except for the claims by subsequent purchasers.
6. Damages. The cost of repiling was unreasonable because the damage was principally cosmetic, the probability of significant future movement was low or extremely remote, and the cost was out of all proportion to the loss. Diminution in value, minor remedial costs, future losses and modest damages for physical inconvenience and distress directly related to sensory defects were appropriate. Damages for loss of amenity based on a contract for pleasure or peace of mind were unavailable, and general worry, anxiety and litigation distress were not recoverable.
7. The parties were directed to draw up the necessary order. Some remedial-work and external-area quantum issues remained to be determined.

First-instance decision. No appellate history is stated in the judgment.