Watts & Anor v Morrow

Factual and Procedural Background

This appeal arises from a judgment following a trial before His Honour Judge Bowsher, Q.C., concerning a negligent survey report provided by the Defendant, a building surveyor, in August 1986 regarding a property the Plaintiffs intended to purchase as a second home. The Plaintiffs relied on the Defendant's report to buy the property at a price of £177,500. Subsequent to purchase, significant defects not identified in the report were discovered, necessitating costly repairs. The Plaintiffs claimed damages for the cost of repairs, interest, and general damages for distress and inconvenience. Liability was contested at trial but is not challenged on appeal; the appeal concerns only the quantum of damages awarded. The trial judge awarded damages based on the cost of repairs (£33,961.35), interest, and £8,000 for distress and inconvenience. The Defendant appeals contending the damages should be limited to the diminution in value (£15,000), that the distress award was erroneous or excessive, and that the interest rate was too high.

Legal Issues Presented

1. Whether damages for negligent survey advice should be assessed by reference to the cost of repairs or by the diminution in value of the property.
2. Whether damages for distress and inconvenience are recoverable in this class of contract and, if so, whether the award made was excessive.
3. Whether the interest rate awarded on damages was appropriate.

Arguments of the Parties

Appellant's Arguments

• The proper measure of damages is the diminution in value of the property, not the cost of repairs, relying on established precedent such as Philips v. Ward.
• The award for distress and inconvenience was legally incorrect or excessive as general damages for mental distress are not recoverable in this type of contract except in limited circumstances.
• The interest rate of 15% was excessive compared to customary short-term investment rates and the judge erred in awarding a flat 15% rate.
• The trial judge disregarded the long-standing legal principle that damages should not exceed the diminution in value, thereby granting a windfall to the Plaintiffs.
• Cases where the diminution in value rule was not applied, such as Hipkins v. Cotton and Syrett v. Carr & Neave, were wrongly decided.

Respondents' Arguments

• There is no absolute rule limiting damages to diminution in value; in cases where the purchaser would not have entered into the contract if properly advised, the cost of repairs is the appropriate measure.
• Damages for distress and inconvenience are recoverable as the contract provides for peace of mind and freedom from distress, citing cases such as Perry v. Sidney Phillips, Jarvis v. Swans Tours, and Jackson v. Horizon Holidays.
• The amount awarded for distress and inconvenience was justified by the physical discomfort and disruption suffered during prolonged repair works.
• The interest rate of 15% is appropriate and justified given the circumstances and the delay in payment of damages.
• The Plaintiffs incurred substantial losses beyond mere diminution in value, including costs associated with attempting to extricate themselves from the transaction and additional losses if the property had to be resold.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court undertook a detailed examination of the measure of damages appropriate in negligent surveyor cases. It reaffirmed the principle established in Philips v. Ward that damages are principally the difference between the price paid and the true market value of the property in its actual condition, rather than the cost of repairs. The Court rejected the argument that the cost of repairs should be recoverable simply because the Plaintiffs chose to retain and repair the property rather than resell it. This is because awarding the cost of repairs beyond diminution in value would place the Plaintiffs in a better position than if the Defendant had properly performed the contract, effectively granting a benefit akin to a warranty which was never given.

The Court also analyzed the Plaintiffs’ claim for damages for distress and inconvenience. It held that damages for mental distress are generally not recoverable in contracts unless the contract’s object is to provide pleasure, relaxation, or peace of mind. A surveyor’s contract does not fall within this exceptional category. However, damages for physical discomfort and inconvenience resulting directly from the breach, and mental suffering linked to that physical discomfort, are recoverable. The Court found the original award excessive and substituted a more modest figure reflecting the limited physical discomfort endured by the Plaintiffs during repair works.

Regarding interest, the Court held that the trial judge’s discretion to award interest at 15% was not erroneous. Although this rate exceeds customary short-term investment account rates, it is within the judge’s discretion and supported by precedent.

Overall, the Court emphasized the compensatory nature of damages in contract law, aiming to restore the claimant to the position they would have been in had the contract been properly performed, without conferring any unwarranted advantage.

Holding and Implications

The Court ALLOWED THE APPEAL IN PART as follows:

• The judgment awarding damages based on the cost of repairs (£33,961.35) was set aside and replaced with an award of damages limited to the diminution in value of the property (£15,000) plus interest at 15% from the date of payment until judgment.
• The award for distress and inconvenience was reduced from £8,000 total (£4,000 each) to £1,500 total (£750 each), reflecting a modest sum appropriate for physical discomfort suffered.
• The interest rate of 15% on damages was upheld as within the trial judge’s discretion.

The Court’s decision confirms the primacy of the diminution in value rule in negligent surveyor claims absent any warranty or special contractual terms, limiting recovery to actual financial loss rather than repair costs. It also clarifies that damages for distress in such contracts are recoverable only to the extent linked to physical discomfort caused by the breach. The ruling reinforces the compensatory principle in contract damages and restricts claims that might otherwise confer a windfall on plaintiffs. No new precedent was established beyond the application and reaffirmation of existing principles.