WRIGHT v WILSON
Party wall award - Compensation – Diminution in Value - Measure of Damages – Tort –
Pure Economic Loss – Surveyor’s Jurisdiction – Party Wall etc. Act 1996, ss. 7(2)
Court 17, Rolls Building, London
Mr Justice Akenhead
29 November 2012
Laura Collignon for the “Appellant”, Miss Wright
Nick Isaac for the “Respondent”, Mr Wilson
Instructing Solicitor: Matthew Hearsum, Morrisons Solicitors LLP
INTRODUCTION
1.
The scope of the statutory indemnity under section 7(2) of the Party wall etc. Act 1996
(“the 1996 Act”) is an issue of much discussion, but on which there are no decided
cases that are binding authority. Owing to the famed common-sense of the surveying
profession, pragmatic and practical solutions to almost all problems are found, and it
is unlikely that such a case will reach an appellate court any time soon.
2.
With this in mind, a moot on the issue took place before Mr Justice Akenhead, the
Judge in charge of the Technology and Construction Court, to enable arguments to be
put by counsel and judicially considered.
3.
The facts on which the moot are based are entirely fictional and any resemblance to a
real case is purely coincidental. His Lordship’s decision is in no way legally binding,
and must not be considered as the giving of legal advice or a legal opinion. It is,
however, a useful example of judicial thinking on the issue.
FACTS
4.
Miss Wright is the freehold owner of Whiteacre. Mr Wilson is the freehold owner of
Blackacre.
5.
Whiteacre and Blackacre are a pair of substantial semi-detached houses in London.
They are of conventional construction with solid brick external walls under timber
framed and slate covered roofs and are separated by a solid brick party wall which, in
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common with the external walls, sits on a conventional stepped brick footing
foundation. The soil conditions are poor and periodic subsidence is known to occur.
6.
Miss Wright wanted to construct a basement extension underneath the entire footprint
and garden of Whiteacre. She instructed an architect to prepare an application for
planning permission and a consulting engineer to prepare the necessary structural
calculations and drawings.
7.
Planning permission was granted and Building Regulations Consent given. Miss
Wright’s design team then advised her that she would need to comply with the 1996
Act by serving notices and obtaining an award authorizing the works.
8.
On 02 August 2012 Miss Wright’s party wall surveyor, Mr Grey, served notices under
section 6(5) in respect of the excavation works. By counter-notice dated 09 August
2012 Mr Wilson dissented to the works and appointed Mr Grey as the Agreed
Surveyor.
9.
Mr Wilson, wanting to be more informed about what was proposed, searched on
Google for information about basement excavations. He found several websites stating
that the way in which Miss Wright was proposing to construct the basement was very
likely to inhibit his future ability to develop Blackacre and could depress its market
value.
10. The proposed works would transfer the load of the party wall down onto Miss Wright’s
land only, effectively creating a cantilever foundation in Miss Wright’s sole ownership.
That being the case Mr Wilson had no right to undertake works to strengthen or
underpin the wall. This effectively “capped” the load that the party wall could bear to
its current capacity.
11. The result was that further development of Blackacre, for example a mansard loft
conversion (which would add extra weight to the party wall), may not be possible save
at uneconomical expense. Further, the proposed works would substantially increase
the cost of constructing a similar basement extension under Blackacre, perhaps to a
level where the cost would prohibit such works being economically viable.
12. Mr Wilson discovered that there were alternate and more satisfactory methods of
constructing Miss Wright’s basement that would not affect future development of
Blackacre.
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13. Mr Wilson approached Mr Grey and asked him to take these matters into account
when making his award, and only authorize the works to Whiteacre using one of the
possible alternative basement constructions.
14. Mr Grey issued his award on 04 October 2012. He recognized that Mr Wilson did have
future development rights that would be infringed, but determined that instead of
amending the proposed basement works he awarded Mr Wilson compensation under
s. 7(2) instead.
15. Mr Grey had received unchallenged expert advice that the value of the property in light
of the difficulties in future development was diminished from £1.3 million to £1
million He therefore assessed compensation for the infringement of the future
development rights at £300,000.
16. Neither Mr Wilson nor Miss Wright were happy with the Award, and both issued
appeals under section 10(17) of the 1996 Act.
17. The two appeals were listed for a joint case management conference. At the CMC the
District Judge expressed concern that there were important issues of law on which
there was no clear authority, which would lead to a great deal of cost being incurred in
resolving the two appeals. By consent the District Judge ordered that the proceedings
be transferred to the Technology and Construction Court.
CASE FOR THE APPELLANT
18. Miss Collignon, counsel for Miss Wright, argued three points:a.
That the loss claimed is what is known to lawyers are pure economic loss, and
is therefore not recoverable;
b. That the loss is too speculative, and so in real terms is no loss at all; and
c.
That if the above two points were wrong, then an quantum of damages should
be based on the legal principles of loss of chance
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19. In relation to the first point, the 1996 Act authorized what would otherwise be a tort (a
civil wrong); it therefore follows that the correct measure of loss under s. 7(2) was the
tortious measure; that is, the loss had to put the claimant in the position he would
have been in had the tort no taken place.
20. In these circumstances the loss claimed will usually take one of two forms; loss of outof-pocket expenditure or loss or a potential gain. In both cases there is a requirement
for physical damage before the right to compensation arises.
21. On the second point, Miss Collignon argued that the type of loss claimed was far too
speculative, and might not be suffered at all, because a potential purchaser may not
ever have any intention of undertaking any works.
22. His Lordship observed that a better point might be that this is in fact a question of
evidence; unless the Respondent could bring clear evidence that on the balance of
probabilities that there was a real and substantial chance then it would be too
speculative. For example, if a substantial number of other houses in the road had loft
conversations (or even basement extensions) then the surveyors, or the Court on
appeal, could justifiably infer that there was a high probability that a similar
development would take place to the subject property at some point in time.
23. On her third point, Miss Collignon submitted that if she was wrong on the above, and
compensation was payable, the quantum of the award must be scaled according to how
clear the intention (and therefore the loss of chance) is. If the Respondent could
demonstrate a clear and present intention, then the award of compensation would be
at the higher end. However, here there is no clear intention, and it could only attract a
modest award, reflecting the loss of what is, in fact, a small chance.
CASE FOR THE RESPONDENT
24. Mr Isaac responded that the first issue his Lordship should consider is whether it was
open to Mr Grey to do as he did; that is, to allow works that have damaging
consequences, rather than impose a suitable alternative that did not have damaging
consequences.
25. It is consistent with the approach of the 1996 Act that the surveyors should do what
they can to permit development, but only in such a way that it does not diminish either
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physically or in terms of value the adjoining property. It is open to the surveyors to say
that the building owner should do the works using this method rather than that
method where there is a le legitimate reason, such as maintaining the utility of the
adjoining building.
26. Mr Isaac submitted that the premise of the 1996 Act is to balance on one hand the
rights and desire of the Building Owner to develop the property as he thinks fit and on
the other hand the right of the adjoining owner not to have their property deleteriously
affected. In every case one has to consider all the circumstances and what works it
would be reasonable to carry out. Using this balance it is already quite common for
proposed works to be adjusted to lessen the risk of structural damage to the adjoining
owners’ property.
27. Turning to the submissions made by Miss Collignon, Mr Isaac responded that the
suggesting that physical damage was a condition precedent of pure economic loss was
wrong in almost every way.
28. Mr Isaac drew the analogy of a broken leg; if I force you to wear callipers in future,
limiting your enjoyment, it cannot be right that you cannot claim damages simply
because you cannot point to a broken leg. The effect is the same; a loss of future
enjoyment, with or without the physical damage.
29. However, Mr Isaac submitted that the issue does not get that far, because it is open to
the surveyors’ tribunal to dictate one development option over another. This is
especially so where the cost of imposing an alternative solution is modest.
30. Even if the above were not correct, then physical damage is present in any event;
underpinning the party wall will inevitably involve interfering with the adjoining
owners land, at least to the land below half of the party wall.
31. Mr Isaac submitted that the statutory test was only one of causation only; if the loss is
the result of the notifiable works then that is sufficient for the loss to be recoverable.
There is no need to import principles from other areas of law, because the 1996 Act
does not include such requirements.
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OTHERS
32. The Court also heard from others, including David Bowden, William Minting, Andy
Scofield, Andrew Smith and Peter Warman
JUDGMENT
33. The first issue that fell for consideration is the extent of the application of section 7.
His Lordship found that the scope of section 7 is very broad, and is not limited to work
in a particular section, but can cover any work that is permitted by the 1996 Act.
34. The second issue was the correct meaning of the phrase “loss and damage”. His
Lordship thought that, as set out in Kaye v Lawrence what the Act is doing is
providing a complete code. It suspends the common law in as far as, if the 1996 Act is
repealed the position would revert back to the pre-1996 Act common law) and replaces
it with a statutory compensation scheme.
35. His Lordship found that section 7(2) imposes a simple casual connection test; that is,
all that is required is a causal link between the damage and the works work executed in
pursuance of the 1996 Act, much in the same way as the Water Acts; you do not have
to show that the other party was negligent, or that the loss was foreseeable, or that
there was a duty of care. All that you need show is merely that the damage was caused
by their notifiable works.
36. That being the case, the phrase “loss or damage” should be given a wide meaning, and
there is no scope to import or imply the principles of the law of torts. Put simply, if
Parliament has intended the test in section 7(2) to be qualified so that to cover only
loss that is reasonably foreseeable, or recoverable under the law of negligence or
nuisance, then it would have done so. That Parliament did not expressly provide a
qualification means that they did not intend a qualification.
37. His Lordship repeated that the 1996 Act provides its own code under which the
building owner may undertake what might otherwise be unlawful, and part of that
code is that the building owner must compensate the adjoining owner for any loss or
damage that flows from the exercise of that right.
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38. However, his Lordship considered that there may be some limitation on the liability in
as far as some types of loss may be too indirect to have been caused by the notifiable
works. As a general principle, the more remote the loss and damage is, the more likely
it is that it does not result from the works in pursuance of the 1996 Act.
39. It was argued by Miss Collignon that the loss claimed was too remote, as it was
properly a claim for a potential loss of opportunity that may not ever have arisen. His
Lordship thought is a forceful argument, but found that it was not correct, as the
damage to the capital value of the property does not occur on some unspecified future
sale, but the moment the relevant works causing the damage are stated, as the
property no longer has the flexibility it once had.
40. The third and final issue that fell for consideration was whether it was appropriate in
the circumstances for Mr Grey to allow Miss Wright to go ahead with the works and
provide compensation, rather than alter the works to remove the issue altogether.
41. His Lordship thought that there was a lot of force in Mr Isaac’s submission that one
avoids the issue of compensation and loss entirely by modifying the works so as not to
inhibit future development of the adjoining property, in this case by providing neutral
and mutual underpinning.
42. His Lordship found that whether it would be reasonable to award compensation in lieu
of the works will depend on the facts of each case. The surveyors would need to have
very clear evidence as to the potential increase in cost of the works as against the
potential diminution in value to the adjoining property before they could make a
decision.
43. Where, as here, the works could be modified for comparatively little cost, as against a
potentially very large diminution in value, it would be better for Mr Grey to have
awarded that the works be modified, rather than compensation.
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