Subrogated Claims Update: Taylor v Jones – Party Walls and Betterment

Alex Howells, Senior Associate in the Insurance & Recoveries team, reviews the Court of Appeal’s judgment in Taylor v Jones & another [2024] EWCA Civ 170.

Background

The appellant, Mr Jones, undertook excavation works (“the Works”) near the wall at the end of his rear garden. That wall also served as the rear wall of two neighbouring mews properties owned by the respondents, Mr and Mrs Jones and Mr Spriggs. The wall was a party wall for the purposes of the Party Wall etc. Act 1996 (“the Act”) and Mr Jones had served the appropriate notices on the respondents pursuant to the Act prior to commencement of the Works.

s7( 2 ) of the Act states:

“The building owner [Mr Jones] shall compensate any adjoining owner [the respondents] and 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.”

Following the Works and subsequent investigations, two categories of damage became apparent:

1. The rear wall of the respondents’ properties dropped by 2mm, which in turn caused the internal walls and floor slabs to drop by a more significant 40mm (“the Category 1 Damage”).
2. There was a large crack present in both the respondents’ properties at the level of the damp proof course. The effect of this was that the rear wall of the respondents’ properties was unsupported by the foundations along a length exceeding six metres. It was also found that extensive voids had developed beneath the floor slabs and internal masonry walls of the respondents’ properties (“the Category 2 Damage”).

Under s10(11) of the Act, a surveyor issued awards finding Mr Taylor responsible for the full extent of damage to the respondents’ properties and awarding the respondents the full cost of repairs together with loss of rent and various fees.

Mr Taylor appealed the surveyor’s award to the County Court under s 10(17) of the Act, where, following a full hearing on the issues with expert evidence, HHJ Backhouse upheld Mr Taylor’s liability but reduced the amount he was required to pay the respondents in damages and ordered him to pay 75% of the respondents’ costs.

Mr Taylor then appealed to the Court of Appeal on two grounds:

1. It was wrong in principle and / or irrational for him to bear the majority of the respondents’ costs; and
2. The judge had erred in holding him liable for the cost of repairing the Category 2 Damage.

The Court of Appeal decision

The court confirmed that compensation payable under the Act should be determined by applying common law principles. It referred to the wording under s7(2) requiring the building owner to compensate the adjoining owner for “any loss or damage” which “may result by reason of” any work executed in pursuance of the Act as the “language of causation”.

In assessing the second ground of appeal (whether the judge erred in holding Mr Taylor liable for the Category 2 Damage), the court identified five questions which should be considered:

1. What damage was caused by the Works?
2. How should the respondents be compensated for the “relevant damage” (diminution in value or the cost of repair)?
3. What work needed to be done in order to repair the “relevant damage”?
4. Should any deduction or allowance be made for “betterment”?
5. What was the cost of carrying out the relevant repairs?

The court held that this case turned on the third question.

The expert evidence in the County Court was that the Category 1 Damage was caused by the Works, but the Category 2 Damage pre-existed the Works and was not caused by them. Instead, the Category 2 Damage was likely caused by desiccation from trees and vegetation and / or settlement of the sub-base. The Works simply revealed the existence of the Category 2 Damage.

The Court of Appeal therefore held that the “relevant damage” caused by the Works under the Act was limited to the Category 1 Damage.

Although the experts had agreed that no engineer would agree to a scheme of repairs for the Category 1 Damage which did not first allow for underpinning of the unsupported wall (to address the Category 2 Damage), underpinning was not required to repair the “relevant damage” caused by the Works and Mr Taylor was not liable for the cost of remedying it. The court therefore unanimously allowed the appeal on the second ground.

On the first ground of appeal concerning the costs order made by HHJ Backhouse, the court held that the costs of the County Court hearing would have to be revisited given its findings on the second ground of appeal.

Betterment

In its judgment, the court also addressed whether any deduction or allowance should be made for “betterment”, in that the repairs would give the respondents something better than they had before the damage occurred. In answering this question, the court held that:

• The law on betterment is “relatively well settled” with reference to the judgments in Harbutt’s Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 (“Harbutt’s”) and Sartex Quilts & Textiles Ltd v Endurance Corporate Capital Ltd [2020] EWCA Civ 308, [2020] Bus LR 1729 (“Sartex”).
• Although Harbutt’s involved a claim in contract, there was “no reason to think that any different principles apply in assessing damages for tort.”
• Harbutt’s established “the principle that if the owner of destroyed property (reasonably) rebuilds it, he does not have to give credit for the fact that he gets a new property instead of an old one. The same must apply where the owner of damaged property (reasonably) repairs the damage.” Although any repair will involve replacing old materials with new, in practice you cannot do anything else and a defendant is not entitled to an allowance for that.
• Whether a claimant must give an allowance for betterment depends on whether they have a choice in the matter and in this regard there are three classes of case:

1. where a claimant chooses to carry out improvements not needed for reinstatement;
2. where a claimant does not have a choice but derives a money benefit from an improvement; and
3. where a claimant does not have a choice but derives a non-money benefit from an improvement.

• In cases involving the third class (non-pecuniary benefit), “to make a deduction for betterment from the damages awarded would be unjust, as it would force the claimant to pay for an advantage which it has not chosen and which makes it no better off in money terms” (per Leggatt LJ in Sartex).
• The burden of proving that damages should be reduced on the basis a claimant will save money as a result of reinstatement lies on the party seeking to reduce the damages.

Comment

This judgment provides helpful clarity from the Court of Appeal, which we do not often see dealing with cases involving the Act, confirming that common law principles will apply to damages awarded under the Act.

As someone who deals with property damage claims, my eyes were however drawn to the court’s findings on betterment, which will not be limited to claims under the Act.

Whilst the court described the law on betterment as “relatively well settled”, it is very common for defendant parties in property damage claims to seek allowances for betterment in cases where claimants or their insurers have no choice but to repair damage. It is also common for defendant parties to attempt to distinguish Harbutt’s from property damage claims involving torts (such as negligence) on the basis that Harbutt’s was a claim involving breach of contract.

The court’s judgment helpfully clarifies that the principle arising from Harbutt’s applies in relation to property damage repairs and to tortious claims. Claimant parties seeking damages for the cost of repairs should therefore carefully scrutinise whether it is appropriate to give credit for betterment where that is “an advantage which it has not chosen and which makes it no better off in money terms.”