Large v Hart – Assessing loss in surveyors negligence claims

In the recent case of Large v Hart [2021]¹, the Court of Appeal considered the correct measure of loss in a surveyor’s’ professional negligence claim.  At first glance, the case suggests a departure from well-established principles of assessing loss; ultimately, however, it is evident from the judgment that much turned on the unusual facts of the case.  In most cases, the traditional approach to assessing loss (diminution of value) still stands.

In this article, David McArdle considers the background to the case, the judgment of the Court of Appeal and its impact on surveyors’ future exposure to professional negligence claims.

The facts

In 2011 the Claimants, Mr and Mrs Hart (“the Harts”) purchased a property situated on a cliff above a beach in Devon (“the Property”). It was rebuilt and extended during the period 2009-2011 under the lead of architects Harrison Sutton.  Michelmore Solicitors were retained as conveyancing solicitors.  Mr Large was engaged to survey the Property and produce a RICS HomeBuyer report.

The HomeBuyer report identified some drainage issues and concerns with the pipes and gutters, but no serious issues were raised.  However, numerous exchanges that took place in November 2011 between the Harts, the architects, the solicitors and Mr Large revealed a general unease about the prospective purchase and, in particular, the quality of the rebuilding work.

The solicitors’ conveyancing documentation raised the possibility of obtaining a professional Consultancy Certificate (“PCC”), which is appropriate where the property concerned does not have the benefit of an NHBC guarantee but has been built under the supervision of an architect or other construction professional, as was the case here. The solicitors failed to advise Mr and Mrs Hart that a PCC was required, and Mr Large made no reference to it in his report. Mr and Mrs Hart raised the issue of a PCC with him, to which Mr Large responded:

“It is not necessarily essential that a (PCC) is provided, but with a project of this size, stated as being managed by an architectural firm, it would not be unreasonable to ask for this. If such a certificate is not available, there may be little practical recourse if it were found that unseen deficiencies exist. You should seek advice from your legal adviser.”

The purchase of the Property completed on 23 November 2011 for £1.2 million. It subsequently became clear that the rebuilding works had been carried out so badly that the property would have to be demolished and reconstructed.

In November 2017 Mr and Mrs Hart issued proceedings against the architects, the solicitors and Mr Large. The claims against the architects and the solicitors were settled before trial.

The TCC

At first instance, the TCC concluded:

1. Mr Large was not negligent in failing to advise a full Building Survey (as opposed to a Homebuyer’s report).  However;
2. He was negligent for failing to identify and report the extensive damp at the Property. Whilst there was no evidence of damp at the time of Mr Large’s inspection, he noted in his report that he could not see whether damp-proof membranes had been installed and he should therefore have advised that further investigations were required.
3. Crucially, Mr Large should have recommended that a PCC be obtained prior to purchase of the Property, particularly as this was a newly reconstructed property. Without it, the Harts had no contractual rights against the contractors engaged in the build.

Mr Large argued that damages should be assessed by calculating the extent to which the defects which should have been identified would have reduced the purchase price below £1.2 million, following the usual Watts v Morrow² [1991] approach.   The Court noted that this would not have put the Harts into the position they would have been in had they been made aware that there were risks beyond those that Mr Large could assess and would have resulted in a very low sum of damages. The Court adopted a different approach, focusing on Mr Large’s negligent failure to recommend to the Harts that they obtain a PCC.  Had they requested a PCC, the architects would not have provided it and the purchase would have fallen through. The Harts would then have incurred no loss at all.  As such, Mr Large was responsible for all losses incurred.

The TCC awarded damages of £750,000, being the difference between the value of the property as stated in the HomeBuyer report and its value with all the defects that in fact existed. This was reduced to £374,000 to reflect settlement reached with the architect and the conveyancing solicitors. The Court also awarded £15,000 for distress and inconvenience.

The Court of Appeal

Mr Large appealed on the correct measure of assessing loss.

The Court of Appeal made much of the particular facts in this case: the criticality of obtaining a PCC given the extensive rebuilding works, the suspicions that were creeping into Mr Large’s mind in November 2011 and the exceptionally exposed nature of the site.

The Court paid heed to the TCC’s finding that Mr Large should have advised the Harts that, unless there was a PCC, they should not purchase the property. The case is not a typical surveyors’ negligence case given that the failure to advise about the PCC was fundamental to the decision to purchase the Property in the first place. Mr Large was therefore responsible for all and any consequences of the Harts entering into a transaction they would not have entered had they been properly advised.  In so far as that approach rendered Mr Large liable for latent defects that he could not have been expected to identify in his inspection of the property, that must be correct as a direct consequence of his failure to advise the PCC.

The Court of Appeal agreed with the TCC that the conventional Watts v Morrow measure of loss (comparison between the value of the property in the condition that was reported and the value it should have been reported to be in) was not applicable as it would not have compensated the Harts for the failings that were found.

The TCC’s calculation of loss was appropriate and correct. Mr Large’s appeal was dismissed.

Comment

This was not just a ‘run of the mill’ case about a failure to spot, and draw attention to, defects that the surveyor should have  picked up on a HomeBuyer survey. Rather, it was about a failure by the surveyor to explain the limitations of a HomeBuyer survey (because there were material risks which he was unable to assess) and the need for the Harts to take further action in the form of further investigations and obtaining a PCC. The key point is that Mr Large failed to say what he should have said to the Harts about the PCC; had he done so the transaction would not have gone ahead. Had the Court applied a conventional measure of damages, this would not have compensated them for the losses they incurred.

The case confirms that the traditional measure of assessing loss in surveyors’ claims remains good law in the majority of cases. The judgment does, however, show that in some cases the diminution of value test will not go far enough. Where there is a failure to give advice and where, had that advice been given, a transaction would not have gone ahead at all, then the measure of loss will be different. In such circumstances it is entirely reasonable that the negligent defendant should be responsible for all losses flowing from such a breach.

[1] Large v Hart & Hart [2021] EWCA Civ 24
[2] Watts v Morrow [1991] 1 W.L.R. 1421