PROVING THINGS 120: PROVING DAMAGES: THE DANGERS OF NOT HAVING A CREDIBLE “FALL BACK” POSITION

In  Moore & Anor v National Westminster Bank [2018] EWHC 1805 (TCC) Mr Justice Birss dismissed an appeal by the defendant against an award of £115,000 in damages.  It is a case about the appropriate assessment of damages when the defendant forgot to obtain a valuation. However it is also important in relation to how a judge should approach issues of damages where there is no clear evidence of the value of property. Equally importantly is the question, primarily for defendants, of having no appropriate “fall back” position.

“It is a common occurrence in assessing damages based on valuation that the paying party takes a polarised view and does not advance an intermediate position, even as a fall back…The imperatives of advocacy often drive parties to adopt this tactic but it can backfire.”

THE CASE

The claimants purchased a house, they had a mortgage with the defendant. They requested that the defendant carry out a “Home Buyers Report” into the condition of the house. The defendant failed to carry out the report. The defendant made a mortgage offer which the claimants took to mean that the bank had received a favourable Report.  In fact the property was in a poor state and required extensive repair.  The house cost £135,000. The cost of repairs was £115,000.   The judge did not accept the evidence of the defendant’s expert that the diminution in value of the property was £15,000. The claimants’ expert was unable to give a valuation. The trial judge awarded £115,000 in damages based on the cost of repair. The defendant appealed the award of damages.

THE DEFENDANT’S CONDUCT OF THE CASE

Mr Justice Birss noted:”

“At the trial the appellant took every conceivable point, both evidential and technical, denied any contractual relationship existed at all and took other points which the judge described as unsustainable.”

THE JUDGMENT ON APPEAL

The  defendant’s appeal was dismissed.  The trial judge had rejected the “diminution in value” approach.  However the property was difficult to value in its current state.  The judge’s approach was appropriate on the facts of this case.

 

    1. The appellant submits that the judge implicitly accepted that property was worth more than £20,000 because he implicitly accepted that the diminution in value, whatever it was, must have been less than £115,000. That is because in paragraph 42(iii) the judge said:
“in any event the approach urged on me by the defendant would leave the claimants inadequately compensated for a transaction they would, in my judgment, not have entertained but for the defendant’s breach of contact.”
    1. The appellant submits the “approach” referred to is the diminution in value methodology in general and so necessarily this is a finding that the diminution in value is lower than the cost of repair. If that was what paragraph 42 (iii) meant then I agree with the appellant that it would undermine the judge’s reasoning. It would also mean that the appellant’s further submission, that paragraph 8(iii) of the judge’s second judgment actually contradicted paragraph 42(iii) of the first judgment, was correct.
    2. I do not believe that the appellant is right about paragraph 42(iii). It is not what the judge meant. The sub-paragraph follows from sub-paragraph (ii) in which the judge makes the point that he has preferred Mr Northridge’s approach to that of Mr Davies. Mr Davies’ approach was that the diminution in value was £15,000. In sub-paragraph (iii) the judge is explaining that in his judgment awarding £15,000 would inadequately compensate the respondents. It is not an implicit finding that whatever the diminution in value figure is, it must be less than £115,000.
    3. The appellant also submits that as a matter of common sense the property must have a value higher than £20,000 even with all the defects and therefore whatever the diminution in value is, it must be less than £115,000 and thus the award overcompensates the respondents. Furthermore since the respondents’ expert was not able to say what the diminution in value was, the respondents have failed to prove a critical aspect of their case.
    4. I accept the appellant’s point on common sense that the property must have a value of some kind. Although he did not say so, that may be why the judge did not approach the matter by addressing the respondents’ case that the property was unsaleable. If he had made a finding that it was truly unsaleable or had a negative value as in County then that might have justified awarding the cost of repair but it is not what the judge did.
    5. However despite the common sense, it does not follow that whatever value the property has, it must be anything like the figure contended for by the respondents in argument (somewhere above £80,000) or even necessarily more than £20,000. Although the respondents were wrong in the submission that the judge had found the property could not be sold, it would not be at all surprising that it was difficult to sell in the circumstances of this case.
    6. I do not accept the appellant’s point that there was a defect in the respondents’ evidence of diminution in value. The clear evidence from the respondent’s expert was that he could not give a valuation. The respondents can hardly be criticised for that.
    7. The question is – what was the judge to do given the state of the evidence? In my judgment the judge was entitled to take the view that the cost of repair represented the only practical indicator of what the diminution in the value of the asset was. That is how he expressed himself in the second judgment at paragraph 8(iii). That approach made sense in the particular circumstances of this case given the extensive defects, the fact that the repair costs are about 85% of the most the property could be worth in reasonable condition, the rejection of the appellant’s expert’s opinion that the diminution in value was as little as £15,000, and the evidence from the respondent’s expert that he could not give a valuation. The fact the respondent’s expert could not give a valuation did not preclude the judge from taking the approach he did.
    8. It was open to the judge to have taken a different approach and it was also open to the judge to have come up with a different figure for the diminution in value, lower than the cost of repair, and awarded that. However the fact he did not do that does not undermine the judge’s decision. The judge was entitled to find that the damages were £115,000.
    9. Finally I will say this. It is a common occurrence in assessing damages based on valuation that the paying party takes a polarised view and does not advance an intermediate position, even as a fall back. Receiving parties do this as well but in my experience paying parties do it more often. So in this case even on appeal the appellant’s case really was that the sum of £115,000 was wrong and the only viable alternative non-zero sum which could be awarded was £15,000. Although in paragraph 11 above I set out an intermediate submission of the appellant that the possible diminution could be about £50,000, even that concrete suggestion was not in the appellant’s skeleton argument (nor in the skeleton below). I infer that no intermediate sum was suggested at trial. My impression of the appeal hearing was that if I had not asked counsel for a figure, none would have been advanced. The imperatives of advocacy often drive parties to adopt this tactic but it can backfire. From his judgment it is obvious that the judge was sure that £15,000 did not represent a fair assessment of the diminution in value and was too little. The judge was clearly entitled to take that view. The only other concrete sum he had to go on was £115,000. On other occasions a judge in that situation might arrive at an intermediate sum doing the best he or she can. However if the appellant was not prepared to propose an intermediate sum, I do not believe that the judgment is undermined for not taking such an intermediate approach.
Conclusion
  1. The appeal is dismissed.