Legal Articles

Proper measure of the expenses of making good under the Party Wall Act

Posted on 12 March 2015

Abstract

This short article considers the Judgment of Her Honour Judge Taylor in the Central London County Court on 11 February 2014 in the case of Jack Breuer v Alba Leccacorvi. The Learned Judge concluded that compensation under Section 11(8) of the Party Wall Etc Act 1996 (i.e. expenses paid in lieu of the carrying out of work to make good damage) were payable under ordinary common law principles on the basis of diminution in value. This article challenges that Judgment. It argues that the particular wording of Section 11(8) which refers to “the expenses of such making good” clearly indicates that compensation is payable on the basis of the cost of rectification. Earlier case law has made it clear that common law remedies are supplanted by the statutory regime of the Act.

The Breuer case

In the Breuer Case, Her Honour Judge Taylor had to decide, firstly, whether the adjoining owner, Mrs Leccacorvi, intended to sell her property, which allegedly had been damaged by the building owner’s works. Secondly, if she did intend to sell, whether the amount payable in compensation for damage under section 7(2) should be assessed by reference to the diminution in value of her property, rather than the cost of carrying out the work.

The Judge found that Mrs Leccacorvi was a senior citizen and undecided what to do. The proper question, therefore, was

“In the event that she was undecided and had not told the surveyor she intended to undertake remedial works, whether the amount payable… should have been diminution in value rather than cost of repairs”.

The judge carefully considered both sections 7(2) and 11(8) of the Party Wall Act.

7(2) provides:-

“The building owner shall compensate any adjoining owner and any adjoining occupier for any loss or damage which may result to any of them by reason of any work executed in pursuance of this Act”.

11(8) provides:-

“Where the building owner is required to make good under this Act, the adjoining owner has a right to require that the expenses of such making good be determined in accordance with section 10, and paid to him in lieu of the carrying out of work to make the damage good”.

Section 2, sub-paragraphs 3 – 6, which describe party wall works permitted by the Act, refer throughout to the building owner’s obligation of

“Making good all damage occasioned by the work”.

The judge found that:-

The necessity for section 11(8) was that, in making good, it provided that the adjoining owner would not be obliged to accept the building owner’s contractors to carry out the work.
There was a distinction between the building owner’s obligation to make good in section 2, related to section 11(8) and his obligation under section 7(2) to compensate.
Compensation under section 11(8) (i.e. expenses paid in lieu of the carrying out of work to make good) must be payable under ordinary common law principles on the basis of diminution in value. There would be a significant risk of over-compensation if the cost of repair was the measure and was significantly higher than diminution in value.

A controversial decision

The fact that this decision has divided the party wall community and given rise to a good deal of argument and debate between lawyers, merely confirms that it is a closely argued and significant judgment which merits respect.

However, the purpose of this article is to suggest that the judgment might be incorrect on 2 principal grounds. Firstly as a contradiction of well-established practice and secondly, on a point of law.

Ordinarily, one would expect a lawyer to state the legal basis of argument first. However, this article merits a practical approach.

A contradiction to established practice

It is commonplace to speak of party wall law and practice in the same breath or in the same sentence. This is rightly so. Party wall law does not exist in a vacuum. The law and practice and procedure go hand in hand.

The intent of the Party Wall Act is to remove from the courts, so far as reasonably practicable, a tiny part of the administration of civil justice (that small part which relates to disputes over party walls and related matters, including relevant excavations) and to place it in the hands of party wall surveyors, pursuant to section 10 of the Act, so that they may administer it under the Act, based on their knowledge of the law and their practical experience of all things relating to party walls.

Of course, if party wall surveyors were not to apply the law correctly and were to create, in effect, a heresy, divergent from the main thread of the law, then it would be the role of the court in judgments on appeals from party wall awards, to correct such a heresy.

However, it is submitted that judge-made law will be slow to condemn established party wall practices which are based upon a reasonable interpretation of the Party Wall Act.

The following, by way of example, is a standard clause found in many party wall awards.

“THAT the Building Owner shall at his own expense make good forthwith all structural or decorative damage to the Adjoining Owner’s premises occasioned by the work, in materials to match the existing and to the satisfaction of the appointed surveyors. Such making good shall be executed upon completion of the works, or earlier if deemed necessary by the appointed surveyors. Alternatively, if required by the Adjoining Owner, the Building Owner shall pay a sum to be determined by the appointed surveyors, in accordance with the Act, in lieu of carrying out the work to make good the damage”.

Paragraphs such as this one reflect the Act. They do so in recognition of the fact that section 2, sub-paragraphs 3 to 6, provide for the Adjoining Owner to make good damage and section 11(8) provides that where the Adjoining Owner so chooses, he may be compensated instead by money as an alternative to rectification, “in lieu of the carrying out of work to make the damage good”.

Section 11(8) can reasonably be interpreted as saying that the financial equivalent to making good shall match (i.e. shall not be less than) the value or benefit to be derived from the making good had the Adjoining Owner permitted or selected that option. Section 11 (8) specifically states that the adjoining owner has a right to require that the expenses of such making good be determined in accordance with section 10 and paid to him in lieu of the work of making good. One might consider that this wording, in itself, was sufficiently clear, without requiring further interpretation.

Lawyers and party wall surveyors could properly argue over whether the alternative of expenses in lieu should be calculated as being limited to the cost at which the Building Owner could have undertaken the work or the best price at which the Adjoining Owner could have had the work undertaken by others. In cases where the Building Owner is a substantial developer who may have significant buying power in the construction industry and be able to achieve economies of scale, there could be a significant difference between the cost to the Building Owner and the best price otherwise available to the Adjoining Owner. Applying ordinary principles of mitigation, one might conclude that it is the cost at which the Building Owner could have done or procured the works which should represent the proper measure of compensation.

What is clear, however, is that paragraphs such as the above standard paragraph, do not contemplate that the Adjoining Owner’s financial relief should be limited to the diminution in value of his property.

Applying the law

In the case of Kaye v Lawrence [2011] EGLR 47, Mr Justice Ramsay stated two important points. The first was that in determining the word or phrase in a statute, the first question to ask always, is what is the natural or ordinary meaning of that word or phrase in its context in the statute? It is submitted that the ordinary meaning of section 11(8) is the interpretation stated above.

The second point made by Ramsay J was that the relevant authorities show that

“…when the provisions of the [Party Wal]l Act are operated, the common law rights are “supplanted” or “substituted” by the rights under the Act in relation to matters dealt with under the Act”. He went on to accept that although section 6(10) of the Party Wall Act preserves common law rights for injury, it does not do so for loss and damage, dealt with under section 7(2). He continued “I do not consider that there is a proper distinction between rights that only exist under the 1996 Act and rights that exist at common law and which are regulated by the 1996 Act. The Act creates new rights that do not exist at common law …”.

Kaye v Lawrence is one of the leading authorities in relation to the effect of the Party Wall Act.

It is the current law that the Party Wall Act operates to supplant the common law. In the light of this, it is strongly arguable that it is not right to apply the ordinary common law principles relating to the assessment of damages in cases of private nuisance, so as to determine the proper level of compensation applicable under section 11(8).

The purpose of this article is to state, emphatically, that one should not be entitled to circumvent the powerful effect of the judgment in Kaye v Lawrence and to look at the state of the Common Law relating to damages in nuisance as if, indeed, it had not been supplanted by the Party Wall Act.

Should this be wrong, then it is worth the briefest of glimpses into the supplanted Common Law.

Damages at common law

In the Court of Appeal’s judgment in the case of Robinson v P E Jones (Contractors) Limited, [2011] EWCA Civ 9 Lord Justice Jackson explained the difference between the law of contract and the law of tort as follows

“It remains the case that (a) contracts and (b), the law of tort are separate sources of obligations. Contractual obligations are negotiated by the parties and then enforced by law because the performance of contracts is vital to the functioning of society. Tortious duties are imposed by law (without any need for agreement by the parties) because society demands certain standards of conduct. There is no reason why the law of tort should impose duties which are identical to the obligations negotiated by the parties”.

If the statutory rights and duties under the Party Wall Act did not exist, then the sort of damage occasioned by party wall works and suffered by the adjoining owner would mainly be caused by the tort or civil wrong of nuisance (although the torts of negligence and trespass may also apply).

The judge in the Breuer case was quite right to state that the measure of damages in nuisance is diminution in value.

In the absence of a specific agreement between the two owners concerning how the expenses of making good should be calculated under section 10 for the purposes of s11(8), contract law has no application. It is, however, worth pointing out that in the law of contract, damages would be calculated on an entirely different basis to damages in nuisance.

As stated by the House of Lords in the leading case of Ruxley Electronics and Construction Limited v Forsyth [1995] 3WLR 118, in contract, damages are to be assessed so as to put the person suffering the loss in the position he would have been in if the contract had not been broken. Damages in contract can be assessed on three bases, two of which are the cost of reinstatement and diminution in value of the thing made defectively. Their Lordships quoted from an earlier case which said “There is no doubt that wherever it is reasonable for the employer to insist on reinstatement the courts will treat the cost of reinstatement as the measure of damage”.

As already noted, the measure of damages for nuisance at Common Law is diminution of value and the measure of damages under contract is irrelevant.

However, if the courts were to decide that (a) the common law had been supplanted by statute in assessing what shall be paid to the adjoining owner under s11(8) of the Party Wall Etc. Act but (b) despite the clear wording of 11(8) the measure of damages was not the cost of making good (as decided in the Breuer case), then the courts could do worse than to consider what Lord Mustill had to say in the Ruxley case about damages in contract. Lord Mustill strongly argued that the proper test of the level of damages is a test of “reasonableness” and this plays a central part in determining the level of compensation.

Lord Mustill stated

“In my opinion there would indeed be something wrong if, on the hypothesis that cost of re-instatement and depreciation in value were the only available measures of recovery, the rejection of the former necessarily entailed the adoption of the latter… There are not two alternative measures of damage, at opposite poles, but only one: namely the loss truly suffered”.

On that basis, surveyors assessing the expenses of making good in accordance with Section 10, for the purposes of Section 11(8), would be liberated to make an assessment of the loss truly suffered.

It is clearly incorrect, at an intellectual level, to apply the law of contract as discussed in the Ruxley case to statutory compensation. At best, it provides a useful comparative study.

That said, this article strongly proposes that the correct legal position is that the clear wording of s11(8) determines that the adjoining owner is entitled to expenses instead of rectification calculated on the basis of the expenses of making good. That precludes an assessment based on diminution in value.

Could it be said that the effect of the Breuer case is to recognise three possible situations under the Act?:-

the first where the making good required by section 2 is simply carried out by the building owner
the second where the adjoining owner elects not to have making good carried out but, instead, to receive the expenses of making good in lieu of the carrying out of the work, as stated at section 11(8), and
the third where an adjoining owner, like Mrs Leccacorvi, is simply undecided what to do?

Could it be that in the case of an undecided person, the compensation is modified from payment of the expenses of making good to just the diminution in value? It seems highly unlikely that this is so. The Act does not contemplate or expressly provide for a different measure of damages in the case of the undecided adjoining owner. It provides for only 2 scenarios – either making good, or an election that making good should not take place. The person who is undecided and does not permit or require making good, makes an election by default, not to have the making good carried out; so the measure of damages is assessed under Section 11(8) as the expenses of making good.