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Judgments - Farley v. Skinner

HOUSE OF LORDS

Lord Steyn Lord Browne-Wilkinson Lord Clyde Lord Hutton Lord Scott of Foscote

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

FARLEY

(APPELLANT)

v.

SKINNER

(RESPONDENT)

ON 11 OCTOBER 2001

[2001] UKHL 49

LORD STEYN

My Lords,

    1. The central question is whether a buyer, who employed a surveyor to investigate whether a property in the countryside was seriously affected by aircraft noise, may in principle recover non-pecuniary damages against the surveyor for the latter's negligent failure to discover that the property was so affected. The trial judge answered this question in the affirmative. A two-member Court of Appeal disagreed on it. The point was then re-argued before a three-member Court of Appeal. By a majority the Court of Appeal reversed the decision of the trial judge and ruled that there was no right to recover non-pecuniary damages in such cases. The second Court of Appeal was deluged with authorities. So was the House on the present appeal. The hearings of what was a comparatively simple case took up an exorbitant amount of time. This circumstance underlines the importance, in the quest for coherent and just solutions in such cases, of simple and practical rules.

I. Riverside House, aircraft noise and the surveyor

    2. In 1990 the plaintiff, a successful businessman, contemplated retirement. He owned a flat in London, a house in Brighton and a property overseas. He wanted to buy a gracious country residence. He became interested in a beautiful property known as Riverside House in the village of Blackboys in Sussex which was situated some 15 miles from Gatwick International Airport. The property is in the heart of the countryside. There is a stream running through the middle of it. The property has a croquet lawn, tennis court, orchard, paddock and swimming pool. Although the attractive house required modernisation and refurbishment, it appeared to be ideal for the plaintiff. There was, however, one question mark over the transaction. For the plaintiff a property offering peace and tranquillity was the raison d'être of the proposed purchase. He wanted to be reasonably sure that the property was not seriously affected by aircraft noise.

    3. The plaintiff engaged as his surveyor the defendant, who had been in practice as a sole practitioner for some years. The surveyor had to investigate the usual matters expected of a surveyor who inspects a property. In addition the plaintiff also specifically asked the surveyor to investigate, amongst other things, whether the property would be affected by aircraft noise. The plaintiff told the surveyor that he did not want a property on a flight path. The surveyor accepted these instructions.

    4. On 17 December 1990 the surveyor sent his report to the plaintiff. From the plaintiff's point of view it was a satisfactory report. About aircraft noise the surveyor reported:

    "You have also asked whether we felt the property might be affected by aircraft noise, but we were not conscious of this during the time of our inspection, and think it unlikely that the property will suffer greatly from such noise, although some planes will inevitably cross the area, depending on the direction of the wind and the positioning of the flight paths."

Comforted by this reassuring report the plaintiff decided to buy the property. The purchase price was £420,000 (which included £45,000 for chattels). The purchase was completed on 28 February 1991.

    5. In the next few months the plaintiff caused the house to be modernised and refurbished at a total cost of about £125,000. During this period he was unaware that there was a significant problem associated with aircraft noise. On 13 June 1991 the plaintiff and his partner (who had a 32.74% beneficial interest) moved in. Since 1991 they had lived there three to four days a week for seven to nine months of the year.

    6. After he moved in the plaintiff quickly discovered that the property was indeed affected by aircraft noise. In fact, the property was not far away from a navigation beacon (the Mayfield Stack) and at certain busy times, especially in the morning, the early evening, and at weekends, aircraft waiting to land at Gatwick would be stacked up maintaining a spiral course around the beacon until there was a landing slot at the airport. Aircraft frequently passed directly over, or nearly over, the position of the house. The impact of aircraft noise on the tranquillity of the property was marked. The property was undoubtedly affected by aircraft noise.

    7. It is common ground that the plaintiff's enjoyment of the property was diminished by aircraft noise at those times when he was enjoying the amenities of the property outdoors and aircraft were stacked up, maintaining their spiral course around the beacon, waiting for a landing slot at the airport. Nevertheless, after initial vacillation, the plaintiff decided not to sell the property and he does not presently intend to do so.

II. The proceedings in the High Court

    8. In due course the plaintiff claimed damages against the surveyor. The action came for trial before Judge Peter Baker QC sitting as a judge of the Queen's Bench Division in May 1999. The action was resolutely defended by the surveyor on all aspects of the claim. The judge accepted the plaintiff's account of his instructions to the defendant. I have already set out the instructions. The judge had to consider whether the defendant had been negligent. It was clear that the surveyor could have discovered the true position by checking with Gatwick. He did not do so. The judge found that the surveyor had been negligent and that, if the surveyor had carried out his instructions properly, the plaintiff would not have bought the property. The judge's conclusions on this aspect are not challenged on the appeal before the House.

    9. The principal claim was one for a diminution of value of the property by reason of the negative effect of aircraft noise. The judge found that the purchase price coincided with the open market value of the property after taking into account aircraft noise. He accordingly dismissed the principal claim. There is also no challenge to this part of the judgment at first instance.

    10. The judge then had to consider the plaintiff's claim for non-pecuniary damage. He accepted the evidence of Mr Attwood, a sound expert. The report of this expert summarised the general effect of the aircraft noise on Riverside House as follows:

    "On a subjective basis, the aircraft noise, with its particular character, is out of keeping with the nature of the area around the house. The grounds are in a very beautiful setting with many specimen trees and with a stream running through the middle. The outlook is also very beautiful. Essentially, this house and garden are in the heart of the countryside. The noise from the aircraft, flying overhead, represents a very significant intrusion into the peace of this setting.

    It is the opinion of the author that the aircraft noise represents a very significant nuisance to anyone trying to enjoy the amenity of the grounds at Riverside House."

The judge approached the claim in accordance with the law as stated in Watts v Morrow [1991] 1 WLR 1421. He upheld the plaintiff's claim.

    "Here I think one must bear in mind that this was a specific contract dealing, inter alia, with noise so far as the defendant is concerned, and I was impressed by the account that Mr Farley gave of a number of matters. Firstly, he is particularly vulnerable because he has a habit, practice, of being an early riser and of wishing, when clement weather conditions prevail as even in this country [they] occasionally do, to sit outside on his terrace, or wherever, and enjoy the delightful gardens, the pool and the other amenities which is made pretty intolerable, he says, and I accept from his point of view between, say, the hours of 6 o'clock and 8 o'clock in the morning which is the time when he would be minded to do this.

    Likewise, pre-dinner drinks are not made the better for the evening activity in the sky not far away. That he is not a man, if I may say so, with excessive susceptibilities is shown by the fact that he did his best to grit his teeth and put up with it but, as he ultimately said, "Why should I when I had endeavoured to cover this particular point in the instructions that I had given to a professional man whom I had paid to do this?" He finds it a confounded nuisance, and this is a matter that, of course, he will be stuck with. It is not a case of something like drains or dry rot or what have you that he can do anything about. Short of buying Gatwick and closing it down, this is a matter that will continue." (Emphasis added).

For what he described as the discomfort that had been sustained by the plaintiff the judge awarded £10,000.

    11. Immediately after this judgment was given counsel for the defendant invited the judge to deal specifically with one of his arguments, viz that the plaintiff's claim must be rejected because he had decided not to move house. The judge dealt with this point as follows:

    "Bingham LJ said in Watts v Morrow [1991] 1 WLR 1421, 1445:

    'If, on learning of the defects which should have been but were not reported, a purchaser decides, for whatever reason, to retain the house and not move out and sell, I would question whether any loss he thereafter suffers, at least in the ordinary case, can be laid at the door of the contract-breaker.'

    Dealing with that, in my judgment this is not an ordinary case because if you look how matters worked out, Mr Farley, not knowing at the time of the defect of which he should have been informed, on my judgment, thereafter incurred vast expense in altering the house to get it to a much higher standard. I think the sum of £100,000-odd was mentioned. It was a very large sum. It seems to me, he not learning of the matters which I find [in] my judgment in this case until much later than he incurred that expense, it seems to me it would be putting too high a burden to say that he should then have decided to move and to get away from the nuisance, if I may so describe it. That nuisance being, for obvious reasons, not one that one can do anything about. It is not a structural defect that can be remedied, and that therefore he made the best of a bad job and stayed. I think in my judgment with the greatest deference, what Bingham LJ was saying was, in my view obiter. He should not be penalised for not having done that. Thank you for reminding me of that matter."

The judge's decision on the claim for non-pecuniary damages therefore stood.

III. The proceedings in the Court of Appeal

    12. The surveyor appealed to the Court of Appeal. In November 1999 the matter came before Judge and Hale LJJ. The issue was whether as a matter of law the judge was entitled to make the award of non-pecuniary damages. The members of the court disagreed. Judge LJ thought that the judge's decision was correct and he would have dismissed the appeal. Hale LJ took the opposite view and would have allowed the appeal. For her the insuperable obstacle was that the surveyor had not guaranteed a result but had only undertaken a duty to exercise reasonable care. In the result the matter had to be re-argued.

    13. In March 2000 the matter came before a three-member Court of Appeal [2000] Lloyd's Rep PN 516. In separate judgments the majority (Stuart-Smith and Mummery LJJ) held that the award of non-pecuniary damages was contrary to principle and allowed the appeal. In a detailed and powerful judgment Clarke LJ dissented. Stuart-Smith LJ concluded that the judge made the award on the ground that the breach of contract caused physical inconvenience and discomfort to the plaintiff. He found that the evidence did not justify this conclusion. He further held that the case fell beyond the reach of the exceptional category where the very object of the contract is to provide pleasure, relaxation, or peace of mind. He did so essentially for two separate reasons. First, in his view the particular obligation to investigate aircraft noise was "simply one relatively minor aspect of the overall instructions" (p 521). Secondly, there was not "an obligation to achieve a result" (p 523) but a mere obligation to exercise reasonable care. Mummery LJ agreed with Stuart-Smith LJ and reinforced his reasoning by reference to policy considerations of incommensurability, subjectivity and difficulties of proof involved in claims for mental distress flowing from breach of contract.

IV. The law

    14. The judgments in the Court of Appeal and the arguments before the House took as their starting point the propositions enunciated by Bingham LJ in Watts v Morrow [1991] 1 WLR 1421. In that case the Court of Appeal had to consider a claim for damages for distress and inconvenience by a buyer of a house against his surveyor who had negligently failed to report defects in the house. Bingham LJ observed, at p 1445:

    "(1) A contract-breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party. This rule is not, I think, founded on the assumption that such reactions are not foreseeable, which they surely are or may be, but on considerations of policy.

    (2) But the rule is not absolute. Where the very object

    of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead. If the law did not cater for this exceptional category of case it would be defective. A contract to survey the condition of a house for a prospective purchaser does not, however, fall within this exceptional category.

    (3) In cases not falling within this exceptional category,

    damages are in my view recoverable for physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience and discomfort. If those effects are foreseeably suffered during a period when defects are repaired I am prepared to accept that they sound in damages even though the cost of the repairs is not recoverable as such. But I also agree that awards should be restrained, and that the awards in this case far exceeded a reasonable award for the injury shown to have been suffered." (Numbering introduced).

As Stuart-Smith LJ pointed out in the present case [2000] Lloyd's Rep PN 516, 519-522, the propositions of Bingham LJ have often been cited and applied.

    15. But useful as the observations of Bingham LJ undoubtedly are, they were never intended to state more than broad principles. In Broome v Cassell & Co Ltd [1972] AC 1027 Lord Reid commented, at p 1085:

    "experience has shown that those who have to apply the decision [Rookes v Barnard [1964] AC 1129] to other cases and still more those who wish to criticise it seem to find it difficult to avoid treating sentences and phrases in a single speech as if they were provisions in an Act of Parliament. They do not seem to realise that it is not the function of . . . judges to frame definitions or to lay down hard and fast rules. It is their function to enunciate principles and much that they say is intended to be illustrative or explanatory and not to be definitive."

Bingham LJ would have had this truth about judicial decision making well in mind. So interpreted the passage cited is a helpful point of departure for the examination of the issues in this case. Specifically, it is important to bear in mind that Watts v Morrow [1991] 1 WLR 1421 was a case where a surveyor negligently failed to discover defects in a property. The claim was not for breach of a specific undertaking to investigate a matter important for the buyer's peace of mind. It was a claim for damages for inconvenience and discomfort resulting from breach. In Watts v Morrow [1991] 1 WLR 1421 therefore there was no reason to consider the case where a surveyor is in breach of a distinct and important contractual obligation which was intended to afford the buyer information confirming the presence or absence of an intrusive element before he committed himself to the purchase.

V. Recovery of non-pecuniary damages

    16. The examination of the issues can now proceed from a secure foothold. In the law of obligations the rules governing the recovery of compensation necessarily distinguish between different kinds of harm. In tort the requirement of reasonable foreseeability is a sufficient touchstone of liability for causing death or physical injury: it is an inadequate tool for the disposal of claims in respect of psychiatric injury. Tort law approaches compensation for physical damage and pure economic loss differently. In contract law distinctions are made about the kind of harm which resulted from the breach of contract. The general principle is that compensation is only awarded for financial loss resulting from the breach of contract: Livingstone v Rawyards Coal Co (1880) 5 AppCas 25, 39, per Lord Blackburn. In the words of Bingham LJ in Watts as a matter of legal policy "a contract breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party" (my emphasis). There are, however, limited exceptions to this rule. One such exception is damages for pain, suffering and loss of amenities caused to an individual by a breach of contract: see McGregor on Damages, 16th ed, para 96, pp 56-57. It is not material in the present case. But the two exceptions mentioned by Bingham LJ, namely where the very object of the contract is to provide pleasure (proposition (2)) and recovery for physical inconvenience caused by the breach (proposition (3)), are pertinent. The scope of these exceptions is in issue in the present case. It is, however, correct, as counsel for the surveyor submitted, that the entitlement to damages for mental distress caused by a breach of contract is not established by mere foreseeability: the right to recovery is dependent on the case falling fairly within the principles governing the special exceptions. So far there is no real disagreement between the parties.

VI. The very object of the contract: The framework

    17. I reverse the order in which the Court of Appeal considered the two issues. I do so because the issue whether the present case falls within the exceptional category governing cases where the very object of the contact is to give pleasure, and so forth, focuses directly on the terms actually agreed between the parties. It is concerned with the reasonable expectations of the parties under the specific terms of the contract. Logically, it must be considered first.

    18. It is necessary to examine the case on a correct characterisation of the plaintiff's claim. Stuart-Smith LJ [2000] Lloyd's Rep PN 516, 521 thought that the obligation undertaken by the surveyor was "one relatively minor aspect of the overall instructions." What Stuart-Smith and Mummery LJJ would have decided if they had approached it on the basis that the obligation was a major or important part of the contract between the plaintiff and the surveyor is not clear. But the Court of Appeal's characterisation of the case was not correct. The plaintiff made it crystal clear to the surveyor that the impact of aircraft noise was a matter of importance to him. Unless he obtained reassuring information from the surveyor he would not have bought the property. That is the tenor of the evidence. It is also what the judge found. The case must be approached on the basis that the surveyor's obligation to investigate aircraft noise was a major or important part of the contract between him and the plaintiff. It is also important to note that, unlike in Addis v Gramophone Co Ltd [1909] AC 488, the plaintiff's claim is not for injured feelings caused by the breach of contract. Rather it is a claim for damages flowing from the surveyor's failure to investigate and report, thereby depriving the buyer of the chance of making an informed choice whether or not to buy resulting in mental distress and disappointment.

    19. The broader legal context of Watts v Morrow [1991] 1 WLR 1421 must be borne in mind. The exceptional category of cases where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation is not the product of Victorian contract theory but the result of evolutionary developments in case law from the 1970s. Several decided cases informed the description given by Bingham LJ of this category. The first was the decision of the sheriff court in Diesen v Samson 1971 SLT (Sh Ct) 49. A photographer failed to turn up at a wedding, thereby leaving the couple without a photographic record of an important and happy day. The bride was awarded damages for her distress and disappointment. In the celebrated case of Jarvis v Swans Tours Ltd [1973] QB 233, the plaintiff recovered damages for mental distress flowing from a disastrous holiday resulting from a travel agent's negligent representations: compare also Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468. In Heywood v Wellers [1976] QB 446, the plaintiff instructed solicitors to bring proceedings to restrain a man from molesting her. The solicitors negligently failed to take appropriate action with the result that the molestation continued. The Court of Appeal allowed the plaintiff damages for mental distress and upset. While apparently not cited in Watts v Morrow [1991] 1 WLR 1421, Jackson v Chrysler Acceptances Ltd [1978] RTR 474 was decided before Watts v Morrow. In Jackson's case the claim was for damages in respect of a motor car which did not meet the implied condition of merchantability in section 14 of the Sale of Goods Act 1893. The buyer communicated to the seller that one of his reasons for buying the car was a forthcoming touring holiday in France. Problems with the car spoilt the holiday. The disappointment of a spoilt holiday was a substantial element in the award sanctioned by the Court of Appeal.

    20. At their Lordships' request counsel for the plaintiff produced a memorandum based on various publications which showed the impact of the developments already described on litigation in the county courts. Taking into account the submissions of counsel for the surveyor and making due allowance for a tendency of the court sometimes not to distinguish between the cases presently under consideration and cases of physical inconvenience and discomfort, I am satisfied that in the real life of our lower courts non-pecuniary damages are regularly awarded on the basis that the defendant's breach of contract deprived the plaintiff of the very object of the contract, viz pleasure, relaxation, and peace of mind. The cases arise in diverse contractual contexts, eg the supply of a wedding dress or double glazing, hire purchase transactions, landlord and tenant, building contracts, and engagements of estate agents and solicitors. The awards in such cases seem modest. For my part what happens on the ground casts no doubt on the utility of the developments since the 1970s in regard to the award of non-pecuniary damages in the exceptional categories. But the problem persists of the precise scope of the exceptional category of case involving awards of non-pecuniary damages for breach of contract where the very object of the contract was to ensure a party's pleasure, relaxation or peace of mind.

    21. An important development for this branch of the law was Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344. The plaintiff had specified that a swimming pool should at the deep end have a depth of 7 feet 6 inches. The contractor failed to comply with his contractual obligation: the actual depth at the deep end was the standard 6 feet. The House found the usual "cost of cure" measure of damages to be wholly disproportionate to the loss suffered and economically wasteful. On the other hand, the House awarded the moderate sum of £2,500 for the plaintiff's disappointment in not receiving the swimming pool he desired. It is true that for strategic reasons neither side contended for such an award. The House was, however, not inhibited by the stance of the parties. Lord Mustill and Lord Lloyd of Berwick justified the award in carefully reasoned judgments which carried the approval of four of the Law Lords. It is sufficient for present purposes to mention that for Lord Mustill, at p 360, the principle of pacta sunt servanda would be eroded if the law did not take account of the fact that the consumer often demands specifications which, although not of economic value, have value to him. This is sometimes called the "consumer surplus": see Harris, Ogus and Philips, "Contract Remedies and the Consumer Surplus" (1979) 95 LQR 581. Lord Mustill rejected the idea that "the promisor can please himself whether or not to comply with the wishes of the promisee which, as embodied in the contract, formed part of the consideration for the price". Lords Keith of Kinkel and Bridge of Harwich agreed with Lord Mustill's judgment and with Lord Lloyd of Berwick's similar reasoning. Labels sometimes obscure rather than illuminate. I do not therefore set much store by the description "consumer surplus". But the controlling principles stated by Lord Mustill and Lord Lloyd are important. It is difficult to reconcile this decision of the House with the decision of the Court of Appeal [2000] Lloyd's Rep PN 516 in the present case. I will in due course return to the way in which the majority attempted to distinguish Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344. At this stage, however, I draw attention to the fact that the majority in the Court of Appeal, at p 521, regarded the relevant observations of Lord Mustill and Lord Lloyd as obiter dicta. I am satisfied that the principles enunciated in Ruxley's case in support of the award of £2,500 for a breach of respect of the provision of a pleasurable amenity have been authoritatively established.

VII. The very object of the contract: The arguments against the plaintiff's claim

    22. Counsel for the surveyor advanced three separate arguments each of which he said was sufficient to defeat the plaintiff's claim. First, he submitted that even if a major or important part of the contract was to give pleasure, relaxation and peace of mind, that was not enough. It is an indispensable requirement that the object of the entire contract must be of this type. Secondly, he submitted that the exceptional category does not extend to a breach of a contractual duty of care, even if imposed to secure pleasure, relaxation and peace of mind. It only covers cases where the promiser guarantees achievement of such an object. Thirdly, he submitted that by not moving out of Riverside House the plaintiff forfeited any right to recover non-pecuniary damages.

 
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