Large v Hart: Surveyors’ negligence in property transactions and the path through (or around?) SAAMCo

Articles
09 Mar 2021
  1. On 15th January 2021, the Court of Appeal handed down its judgment on the appeal in Large v Hart [2021] EWCA Civ 24 (dismissing the appeal and upholding the decision of Roger Ter Haar QC sitting as a High Court Judge in Hart v Large [2020] EWHC 985 (TCC)). The Court was at pains to emphasize the unusual nature of the case but, as explained below, this decision is one of several recent cases which provides (depending on your point of view), qualifications to/a claimant-friendly explanation of/a way around the famous and restrictive doctrine in South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (“SAAMCo”), a doctrine more recently expounded in BPE v Hughes Holland ([2017] UKSC 21 (aka Gabriel v Little).
  2. Whilst this article focuses on professional liability rather than property law, property litigators need to be aware of the principles in terms of identifying and/or advising clients on potential professional negligence claims and non-contentious property practitioners likewise need to maintain awareness of the risks they (and their insurers) face.
  3. Hart v Large is also one of only a few reported cases on negligence in relation to Homebuyers reports, which were introduced in 2009 and follow a format designed by RICS (see RICS Homebuyer (Survey & Valuation) Service Professional Statement, 5th edition, June 2016; the case involved the previous RICS practice note, 4th edition from 2010).

Hart v Large [2020] EWHC 985 (TCC): the first instance decision

The facts        

  1. Mr Large was a surveyor who, Roger Ter Haar QC sitting as High Court Judge, found “was a conspicuously honest witness who, as I explain below, made genuine attempts to assist the Harts both before and after they bought the Property. I have to assess whether he fell below what I am satisfied were his usual high standards when advising the Harts in respect of the Property.”
  2. Property was a bungalow in Devon built in 1920s or 30s and substantially renovated in the period 2009 to 2011. The Harts purchased the Property in late 2011.  Mr Large suggested a Homebuyers report – being “confident it was satisfactory for this property”.  His fee was £600 (NB: the damages later awarded against him were £389,000, and that was after credit was given by the claimants for recoveries from other parties).
  3. Mr Large reported in Nov 2011 noting one ‘red light’ item (drainage) and one ‘amber’ item (rainwater pipes and gutters). he valued the Property at £1.2m with reinstatement cost of £440,000.
  4. Both Mr Large and the Harts’ solicitors, in one way or another, raised the possibility of the Harts obtaining a professional consultant’s certificate (“PCC”), backed up by insurance (alternative to NHBC), but did not firmly advise the Harts that such a certificate was a necessity prior to exchange and completion, which occurred in late Nov 2011.
  5. Soon after, problems began with water ingress. Extensive rectification works were required.  The Claimants brought claims in negligence against the architects instructed by the previous owners, against their own conveyancing solicitors and against Mr Large. The claims against both the architect and the solicitors settled prior to trial (NB: even after the recent appeal, contribution proceedings between Mr Large and the solicitors apparently continue).
  6. Against Mr Large, the Harts alleged that he was negligent in:

(1) failing to recommend a full building survey, rather than HomeBuyer report;
(2) failing to draw attention to the issues of water ingress / damp in the HomeBuyer report; and
(3) failing to firmly recommend that the Claimants obtain a PCC.

The Judge’s decision  

  1. The Judge found Mr Large to have been not negligent on point (1) above (indeed the claimants’ own expert said might not be negligent even though some would have recommended a building survey).
  2. The Judge considered the role of a surveyor in surveying a building which has been recently rebuilt and providing a Homebuyer report:
  3. In my view, the only ways that the surveyor can protect the prospective purchaser are (1) to spell out the limitation on the advice given; (2) to be particularly alert to any signs of inadequate design or faulty workmanship; and (3) to draw attention in appropriate terms to protections available to the purchaser, including (on the facts of this case) a Professional Consultant’s Certificate.”
  4. He then found Mr Large negligent on points (2) and (3) above because:

(regarding (2)) “192. …it is clear that generally there was no evidence of damp proof membranes. Generally, this was because the walls were rendered in such a way as to make it impossible to see whether there were or were not such membranes, although there were some locations where a damp proof membrane should have been visible but was not. However, these were isolated instances.

  1. The consequence was that Mr Large simply could not say whether there was or was not adequate damp proofing of the building. In section E4 of his report he did say that “the lower ground floor room would also have damp-proofing provision of the internal main walls which are built against the higher ground beneath the house. None of the damp-proofing detail can be seen”. Higher up in the same section he said “the timber framed wall areas are likely to be designed with suitable weatherproofing membrane, insulation and vapour control within the structure, but these are concealed; however, there are no apparent reasons to suspect any defects or deficiencies.” Thus, in both these instances, Mr Large was simply assuming that because these features should have been present they were…”
    (the Judge found that instead Mr Large should have described these features as ‘not inspected’)

(regarding (3)) “209. A fortnight after providing his report, Mr Large did advise that such a Certificate should be sought – see paragraph [83] above. In his email Mr Large advised that a building control Completion Certificate was an “essential document”. By contrast in respect of the Professional Consultant’s Certificate he said:

“It is not necessarily essential that a certificate is provided, but with a project of this size, stated as having been 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 on this from your legal adviser.”

  1. In giving evidence orally, Mr Large accepted that the fact that the property had been completely rebuilt under the supervision of well-known local architects was something he was bringing to bear in reporting. This made it particularly important to obtain a Professional Consultant’s Certificate…
    215. For the above reasons, I conclude that Mr Large was negligent in failing to recommend in his Report that a Professional Consultant’s Certificate should be sought and in failing to advise in terms in his 17th November email that like the Completion Certificate from building control, it was essential that a Professional Consultant’s Certificate should be sought
    .”

(and in conclusion) “216.  Thus I have concluded:

 (1)  that Mr Large should have reported that he could not see visible damp proofing at any relevant location and that further investigations were required, which in essence would require confirming the position with Harrison Sutton and Building Control, with the potential to undertake opening up, if those enquiries proved unsatisfactory (see paragraph 195 and 196 above);

 (2)  that Mr Large was negligent in failing to recommend in his Report that a Professional Consultant’s Certificate should be sought and in failing to advise in terms in his 17 November email that like the Completion Certificate from building control, it was essential that a Professional Consultant’s Certificate should be sought (see paragraph 215 above).”

  1. The Judge decided that the Harts would not have proceeded if properly advised; and that the solicitors’ apparent parallel negligence on the PCC issue did not break the chain of causation; and the architects in question would not have provided certificate if asked.
  2. Measure of loss was a particularly interesting feature of this judgment:
    a) Established principle, under Philips v Ward [1956] 1 WLR 471 and Watts and Morrow [1991] 1 WLR 1421, is that the awardable measure of loss to a purchaser relying on a negligent survey is the difference between price they paid for the property and its true value in its defective state. Mr Large contended that the true value for the purpose of the Watts v Morrow measure would be the value assuming only those defects which should have been reported under the Homebuyer report;
    b) The Harts argued for and were awarded a different measure of loss resulting in a much greater sum of damages, being the difference in value between the Property in the state reported by Mr Large and its value with all the defects which were in fact present, which they said would have ultimately been revealed had the PCC been asked for and refused, leading to a building survey and revealing all defects and requiring the Property to be rebuilt.
  3. The Judge’s decision on this aspect, in favour of the Harts, is set out (as to the principles) at paragraphs 247, 248, 252 to 254 and (as to the application of those principles) at 271, 272, 284 and 285 in the judgment. The key passages are:

“247. On the facts of this case, that approach would be likely to produce a gross injustice and far from putting the Harts into the position the Harts should have been in if there had been no breach of duty, adopting that approach would have the opposite effect: the problem here is that the competent surveyor producing a HomeBuyer’s Report could not say one way or the other whether the property was defective in respect of the most important elements so far as this property was concerned, namely damp proofing. Thus the logic of the approach urged upon me on behalf of Mr Large would lead to a very low award of damages.
248.  As Lord Hoffmann made clear in 
SAAMCO , the starting point is to ask what is the nature of the Claimants’ cause of action against the defendant surveyor? Whilst there were relatively minor defects to which I have held Mr Large should have drawn attention in his Report, the major findings of breach of his duty of care which I have made relate to a failure initially to recommend, and a later failure to recommend with sufficient emphasis, that obtaining a Professional Consultant’s Certificate was an essential precaution…
252.  The analysis in Lord Sumption’s judgment in Hughes-Holland of the advice/information dichotomy suggested by Lord Hoffmann in SAAMCO must be considered with particular care. Here what was needed by the Harts was clear and unequivocal advice that there were risks which simply could not be assessed and against which the Harts needed protection if they wished to proceed. Whilst this is not going so far as to say that Mr Large had “a duty to protect his client (so far as due care could do it) against the full range of risks associated” with the purchase of the Property, what they needed was advice which was so fundamental to whether the transaction should go ahead that Mr Large should be held to bear the consequences of such advice not having been given.
253.  For these reasons, in my judgment this is not a case where the usual Watts v Morrow approach is appropriate. On the contrary, I accept that the proper approach is that set out in paragraph 91(b) of Ms White’s submissions which I have set out at paragraph 237.  (“93.  The Harts’ case is therefore, that Mr Large should be liable for the diminution in value arising from the need to repair all of the defects. )
254.  To be clear, that means that damages are to be assessed by assessment of the difference in value between the Property with the defects as reported to the Harts in the Report, and its value with all the defects which in fact existed…”

Large v Hart [2021] EWCA Civ 24: the appeal decision

  1. The Court of Appeal disagreed with Mr Large’s characterisation of his work as ‘information-only’ and also decided that the categories of ‘advice’ and ‘information’ (per BPE v Hughes-Holland) were not mutually exclusive. What mattered was a consideration of the nature of the duty overall. This was closer to an advice case than an information case.  In any event, the Court adopted the rationale set out in Assetco PLC v Grant Thornton UK LLP [2020] EWCA Civ 1151, in which a differently-constituted Court of Appeal stated that the approach in SAAMCo was simply a tool by which a judge could assess the correct measure of loss; it was not a principle of law or a rigid classification to be followed in every case.
  2. Mr Large was not just obliged to inspect and report properly on the condition of the property; he had been obliged to make appropriate recommendations as to any further investigations which he thought necessary. The trial judge had found that there was a clear trail of suspicion which should have led the surveyor to advise that further investigations were necessary. In addition, because of the fundamental importance of the PCC, he should have advised the buyers that it was unwise to proceed at any price without it. This was not a typical negligent surveyor case, and the conventional measure of loss, namely, a comparison between the value of the property in the condition it was reported to be in and the condition it should have been reported to be in, was not applicable. The conventional measure of loss would not have compensated the buyers for the consequences of the crucial failings found by the judge. It could be said that that rendered the surveyor liable for latent defects which he could never reasonably have spotted, but that would be to overstate the position. Although the surveyor could not be expected to see all of the damp-proofing defects, he should have seen enough to raise a suspicion which, taken together with the need for a PCC, should have led him to give very different advice. On the particular facts of the case, the measure of loss applied by the judge was appropriate.
  3. The Court of Appeal considered that this conclusion was not contradicted by the authorities; on a proper analysis it was supported by Philips v Ward, Perry v Sidney Phillips & Son [1982] 1 W.L.R. 1297, and Watts v Morrow. Further, while in most negligent surveyor cases the surveyor was not generally liable for defects which he non-negligently failed to spot, the instant case was different because it was the surveyor’s negligence which meant that the buyers bought a property riddled with damp-proofing defects, some concealed but some not.

A trend to reinterpret/restrict/avoid SAAMCo?

  1. What the learned Judge did at first instance in Hart v Large was to apply SAAMCo and BPE v Hughes Holland ([2017] UKSC 21) and look primarily at the information/advice distinction rather than look at it through the prism of the principles established in Philips v Ward and Watts v Morrow. The Court of Appeal agreed with the Judge’s approach and indeed found that the result was, in any event, supported by Watts v Morrow.
  2. The Court of Appeal was at pains to point out, in Large v Hart, that the facts were relatively unusual for a surveyors’ negligence case. However, the approach to measure and quantification of loss in this case must also be appropriate in other cases where a surveyor has an advisory duty.  The previous reported cases (see e.g. the discussion in Jackson & Powell on Professional Liability at 10-169 to 10-186) generally concern failure to notice specific defects and so a failure of information rather than advice.  Although less common than standard overvaluation or failure to notice discrete defects, there must be many other circumstances in which a surveyor is obliged to advise on a course of action.
  3. Moreover, whilst having found that Mr Large was liable for ‘advice’ rather than (or in addition to) ‘information’ thereby being able to find for the Harts within the structures of the SAAMCo principles, the Court of Appeal again emphasized that SAAMCo is ‘no more than a tool’ and is not an immutable legal principle, relying on the other recent Court of Appeal authority of Assetco However, as I recently observed in my article Assetco v GT: A chink in SAAMCo’s armour?, the rationale set out in Assetco that SAAMCo was merely part of a ‘toolkit’ was, in my view, a departure from a strict following of SAAMCo and BPE v Hughes-Holland, and Large v Hart also appears to be such a departure.  In my other article, I argued that Lord Sumption in BPE v Hughes-Holland described SAAMCo as ‘simply a tool’ not in the sense of it being optional to use, but rather that in the sense that it had no ‘special magic’ and was simply (in the Supreme Court’s view) the application of logic.  The Supreme Court appears to have thought that SAAMCo always applies: the Court of Appeal has now, on at least two subsequent occasions, considered it to be optional.
  4. Readers should also be alert to the impending decision of the Supreme Court in Manchester Building Society v Grant Thornton UK LLP (Court of Appeal citation [2019] EWCA Civ 40; the Supreme court heard the appeal on 14th and 15th October 2020), another auditors’ negligence case (also referred to briefly in Large v Hart), which some in the profession think may result in further ‘watering down’ of SAAMCo/BPE v Hughes-Holland.
  5. Accordingly, there does now seem to be a move away from a strict application of the professional liability defendant-friendly SAAMCo principles towards a more nuanced and fact-driven approach that is largely likely to favour claimants, in my view. It will be very interesting to see what happens in the Manchester Building Society appeal and in cases in this area more generally, in the next few years.

James Hall. March 2021.

Author

James Hall

Call: 2000

Disclaimer

This content is provided free of charge for information purposes only. It does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

Contact

Please note that we do not give legal advice on individual cases which may relate to this content other than by way of formal instruction of a member of Gatehouse Chambers. However, if you have any other queries about this content please contact:

Sally Wollaston
Sally Wollaston Business Development and Marketing DirectorTel: +44 (0)20 7691 0124Mob: +44 (0)7780 701879