UK: Damages: Calculating Diminution In Value

Last Updated: 7 May 2008
Article by Giles Tagg and Peter Mansfield

The Technology & Construction Court (TCC) has recently considered the issue of how to calculate diminution in value, in the context of a professional negligence claim against a structural engineer.

The claimant relied upon the engineer's report when purchasing a property. The TCC found that, as a matter of legal principle, there is nothing inherently wrong in using a date later than the date of the breach in question in order to calculate diminution in value. The guiding principles in ascertaining the diminution in value figure are that the date of the valuation used has to be:

  • reasonable

  • a date that gave rise to a loss that was directly linked to the breach

  • a date that resulted from no break in the chain of causation

  • a date that was not attributable to any failure on the part of the claimant to mitigate its loss

Usually, applying the above criteria will result in using the date at the point of breach. However, in certain circumstances that will not be the case.

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Full Article

The Technology & Construction Court (TCC) has recently considered the issue of how to calculate diminution in value, in the context of a professional negligence claim against a structural engineer.

The claimant relied upon the engineer's report when purchasing a property. The TCC found that, as a matter of legal principle, there is nothing inherently wrong in using a date later than the date of the breach in question in order to calculate diminution in value. The guiding principles in ascertaining the diminution in value figure are that the date of the valuation used has to be:

  • reasonable

  • a date that gave rise to a loss that was directly linked to the breach

  • a date that resulted from no break in the chain of causation

  • a date that was not attributable to any failure on the part of the claimant to mitigate its loss

Usually, applying the above criteria will result in using the date at the point of breach. However, in certain circumstances that will not be the case.

Background

The claimants, Mr & Mrs Charlton, were in the process of purchasing an end-terrace house in Knutsford, Cheshire, during early 2000. The mortgage company required investigation by a structural engineer into cracking to the rear of the property. Accordingly, the claimants retained the defendant, Northern Structural Services, to undertake a structural inspection. This occurred during May 2000 and the defendant reported that there were signs of structural movement in the premises. To remedy the problem, the defendant recommended the removal of any large trees within at least 4 meters of the house.

Subsequently, the claimants completed the house purchase and removed the trees in line with the defendant's advice. However, over the next couple of years, further cracking became apparent. In August 2001, the claimants instructed a different structural engineer to investigate the extent and cause of the cracks. They were advised that the house was suffering from clay heave, occasioned by the removal of trees. The clay subsoil around the house had been dried out by the trees, but when the trees were extracted the subsoil became rehydrated leading to structural movement. A period of monitoring was recommended. This monitoring was concluded in March 2004, by which time the indication was that structural movement had virtually ceased.

The claimants brought proceedings against the defendant in May 2006. The claimants accepted that remedial work to the house was inappropriate. It was not necessary as the movement had stabilised and the premises were structurally sound. In addition, rectification works could themselves cause further damage through differential settlement. Therefore, the claimant sought damages for the diminution in value to the premises, resulting from the stigma of the house being susceptible to structural problems that could not be remedied. The claimants relied on a valuation carried out in Autumn 2007 that recorded a £20,000 diminution in value.

Technology & Construction Court Decision

HHJ Thornton QC of the TCC ruled that:

1) The defendant had negligently failed to identify the nature of the subsoil around the house. As a result the defendant failed to pinpoint the cause of the cracking and negligently recommended that all trees in the near vicinity be removed. When this recommendation was acted upon, it resulted in damage to the property; namely, the appearance of further cracks.

2) The claimants were awarded £20,000 compensation for diminution in value (together with £5,000 for inconvenience and distress). This diminution figure was arrived at on the basis of the claimant's expert valuer's evidence, which stated that the house was worth £20,000 less as at Autumn 2007 than it would have been had the trees not been removed causing damage and uncertainty.

Analysis

In the central passage relating to diminution in value HHJ Thornton QC stated:

"There is nothing inherently wrong in principle in valuing a diminution in value loss at a later date than the date of breach. The guiding principles are that the based date of the valuation must be one which is reasonable, is one which gives rise to a loss which is directly linked to the breach, is one which results from no break in the causal chain and is one which does not arise and is not attributable to any failure to mitigate".

This paragraph belies the key point of interest in this case: the diminution in value figure was arrived at using Autumn 2007 values. This is an unusual approach. Ordinarily, the date used is the one at which the breach took place and retrospective valuation evidence is used to calculate the diminution as at that date. Indeed, in this case the defendant contended that the valuation should be at 2000 values, when the claimants' reliance on the defendant's negligence occurred. What special considerations led to a 2007 date being used in this case?

The following points are notable:

i) The defendant argued that the increased diminution in value resulting from a calculation based upon 2007 (rather than 2000) figures was attributable to the claimants' failure to mitigate their loss and to pursue their claim without delay. The judge did not accept this. He acknowledged that a significant period of crack monitoring had been necessary and that it was understandable that the claim had proceeded slowly given the claimants' means.

ii) The defendant did not adduce any retrospective valuation evidence. Therefore, even if he had wanted to use a 2000 diminution in value figure, the judge was unable to do so. His decision, therefore, was to adopt the 2007 date and this enabled him to arrive at a fair and non-arbitrary figure.

Given the above, in the circumstances of this case, it was deemed reasonable for diminution to be assessed using 2007 values. It seems unlikely that this approach to calculating diminution in value will be widely applied. The fact-specific nature of this case led to a later than usual date being used to assess diminution. This methodology is unlikely to become the norm. One of the ways that defendants can seek to protect themselves against this possibility is by adducing retrospective expert surveyors' evidence at trial.

Further Reading: Charlton and another v Northern Structural Services Ltd [2008] EWHC 66 (TCC)

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 01/05/2008.

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