Harrison and Others v Shepherd Homes Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Aikens,Lord Justice McFarlane,Lord Justice Hughes |
| Judgment Date | 05 July 2012 |
| Neutral Citation | [2012] EWCA Civ 904 |
| Date | 05 July 2012 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A1/2011/2123 |
[2012] EWCA Civ 904
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LEEDS DISTRICT REGISTRY
MR JUSTICE RAMSEY
8T-00168
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Hughes
Lord Justice Aikens
and
Lord Justice Mcfarlane
Case No: A1/2011/2123
Mr Andrew Bartlett QC & Mr Robert Stokell (instructed by Tilly Bailey & Irvine LLP) for the Respondent
Mr Roger Stewart QC (instructed by Weightmans LLP) for the Appellant
Hearing dates : 3rd of May 2012
Synopsis
This appeal concerns the proper measure of damages to be awarded to property owners when their homes have suffered damage as a result of negligent design and construction of piling, which supported their homes. Eden Park, Hartlepool, is an estate of 94 new houses which were built by the appellants ("SHL") between 2002–2004. The estate plan provided for six different types of house. All are detached and were designed so that they could be sold as high-quality "executive homes". The estate was built on a former landfill site, so that it was necessary to use extensive piling in the construction of the houses. In fact the company engaged to design and construct the piling, Encia Remediation Limited, ("Encia"), failed to use reasonable care in the design and installation of the piling. The result was that some piles associated with some houses settled. As a result at least 57 of the 94 houses on the estate suffered significant cracking. This was in most cases not structural but it was sufficiently serious for it, broadly, to render the houses either unmortgageable or unsaleable save at very low prices. Between 2005 – 2007 there was litigation between SHL and Encia in which the latter eventually accepted that it had not exercised care and skill in the design and installation of the piling used on the estate.
Then, in 2008, the current proceedings were brought by the owners 71 houses. I will call the current respondent house owners collectively "the houseowners". Subsequently, it was decided that there should be a trial of 10 sample "lead cases", which were selected by the parties in the hope that this would provide a sufficient range of types of house, defects and consequent damage so that the result of the test cases would enable the other claims to be settled amicably. That is, in fact, what has happened in all but one case. The defendants were SHL, the builders, and also the National House Building Council ("NHBC") and NHBC Building Controlled Services Limited. The latter two took no part in the trial or on this appeal and I do not need to spend time on explaining why they were brought into the proceedings.
The allegations of the houseowners were that: (i) all the houses suffered from significant cracking which was progressive and rendered the houses unmortgageable and/or unsaleable; (ii) all the houses needed underpinning and the claimants were entitled to claim that cost even though, (as was admitted), it would exceed the value of the houses in their undamaged state; and (iii) they were entitled to claim further damages based on a "diminution in value" of the houses and further costs or damage, once the properties had been underpinned.
There was a five week trial before Ramsey J in July 2010. In the course of the trial the judge heard expert evidence on valuation (Mr Watson for the houseowners and Mr Lewis for SHL) and on structural engineering (Mr Taylor for the houseowners and Mr Johnson for SHL). The judge also went to view the houses concerned. He reserved his judgment and handed it down on 11 July 2011. The present appeal is against his order of 11 July 2011.
In his judgment the judge considered first the evidence and principles in general; then he applied his findings and conclusions to each of the ten houses concerned. On the general principles he concluded that SHL was liable to the houseowners (a) in contract; (b) under the Defective Premises Act 1972 and (c) pursuant to Section 2 of the "Buildmark Cover" which provides that the builder, SHL, will have liability for "Defects" and "Damages" in the first two years after the house has been built. Those conclusions are not appealed.
As to the damages recoverable by the houseowners, the judge concluded: (1) it was not reasonable for the houseowners to receive damages based on the full cost of repiling the houses and the necessary costs associated with doing that work. Instead the correct measure of damages was an award for the diminution in value of the houses suffered as a result of the defective piling. (2) Two different methods for valuation of the houses were used; that used by Mr Lewis was called the "capital comparison" and that used by Mr Watson "investment return". The first is that most usually used in valuing residential houses but Mr Watson used the second because he thought there were insufficient comparables to use the usual method. That method produced a value of the property concerned based on the return to a "buy to let" investor. The judge concluded that both methods were equally valid and applicable and could appropriately be used: [282]. (3) Two out of the ten properties were probably mortgageable albeit with difficulty; two were probably unmortgageable; the remaining six might or might not be mortgageable—to varying degrees. (4) As regards the first of those categories, Mr Lewis's "capital comparison" method was the more appropriate approach. For the second category, Mr Watson's "investment method" was the more appropriate: [292]. (Mr Lewis accepted that the investment method was appropriate if the property was unmortgageable). As regards the properties in between, they were to be valued using a mixture of both methods. (5) For the mortgageable properties the judge rejected Mr Lewis' figures on diminution in value. SHL contends on appeal that the judge also rejected those of Mr Watson and used his own. That is contested by the houseowners. (6) For the unmortgageable properties the judge accepted Mr Watson's revised inputs: [306]-[316]. (7) The houseowners could recover the cost of both current minor remedial work but also the cost of carrying out two lots of remedial work over the course of the next 20 years. The figures were set out in the judge's order of 8 September 2011.
In the period between the end of the hearing in July 2010 and the time when judgment was handed down, one of the houses on the estate, 47 Meadowgate Drive, (which was not one of the ten houses the subject of the trial) was put on the market by a person who had bought the house at auction just before the end of the hearing before the judge. Both parties requested and were permitted to put in further evidence from the valuation experts on what they said were the conclusions that could be drawn from the figure at which the house was being marketed for sale: see [285] to [289] of the judgment. Subsequently, in February 2011, that house was sold, for £170,000 for which a loan of £150,000, secured by a mortgage, had been obtained. SHL wished to put before the judge a further statement from Mr Lewis relating to this actual sale. The judge refused permission to do so. This refusal is challenged in one of the grounds of appeal.
The grounds of appeal for which Tomlinson LJ gave permission concern four principal areas. (1) The judge's decision to create an intermediate category of houses that were neither "probably mortgageable" nor "probably not mortgageable" but were in a "twilight zone" between those two categories. (2) The figure (or percentage) used by the judge for the diminution in value award for those properties found to be "probably mortgageable" including those in the "twilight zone". (3) The judge's decision to grant an additional head of damages equal to the cost of remedial work to be done on the houses, immediately in the first place and then twice more in the course of the next 20 years, on top of the damages based on diminution in value. (4) The judge's refusal to admit the further evidence from Mr Lewis concerning the actual sale of 47 Meadowgate Drive in February 2011. I will set out in more detail the judge's findings and the arguments of the parties as I consider each head of appeal.
(1) The creation of an intermediate category of houses between those that were "probably unmortgageable" and those that were "probably mortgageable".
The judge found, at [276], that the worst of the lead properties (plot 15) had a "low probability" of significant foundation movements in the future. For the second worst, plot 20, he concluded that there was only a "remote probability" of such movement. But for all the other eight plots he considered that the probability of movements in the foundations was "extremely remote". Such movement would require only cosmetic repair, in particular the re-pointing of brickwork and internal redecoration.
The judge also decided that the valuation of each property in its damaged state depended directly on whether a purchaser could obtain a loan secured by a mortgage on the property. That in turn would depend, not on what the judge found to be the case in his judgment, but on reports which gave engineering and valuation advice to a...
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