It is clear, and it was not argued to the contrary, that the ruling in Philips v Ward may be applicable to the case where the buyer has, after purchase, extricated himself from the transaction by selling the property. In the absence of any point on mitigation, the buyer will recover the diminution in value together with costs and expenses thrown away in moving in and out and of resale: see per Romer LJ in Philips v Ward [1956] 1 WLR 471, 478. I will not here try to state the nature or extent of any additional recoverable items of damage.
Watts v Morrow goes onto say that:
It is also clear, and again there was no argument for [the plaintiffs] to the contrary, that, if the plaintiff would have bought the house anyway, if correctly advised, the ruling in Philips v Ward is applicable: the fact that after purchase he discovers that the unreported defects will cost more than the diminution in value does not entitle him to recover the excess. That is, again, because, if the contract had been performed properly, he would have negotiated and, absent proof of a different outcome, would have done no better than reduction to the market value in true condition." (My emphasis)
- In Dalton v Dama Pty Ltd (1984) BCLRS 143, Davies J, sitting as an additional judge of the Supreme Court of the Australian Capital Territory, said (at 148):
In a case where negligent advice is given and has been acted upon in the purchase of a home, the ordinary principle is that the plaintiff is entitled to the difference between the value of the house in its reported condition and its value in its true state, that is to say, ordinarily the difference between the price paid for the home and its true value. Especially is this appropriate in a case where the repairs, if done, will improve the home and put it into a state better than it appeared to be in when acquired."
- In Rentokil Pty Ltd v Channon (1990) 19 NSWLR 417 a house after purchase was found to be riddled with termites, despite there having been an inspection and a report by the defendant, before purchase, saying there were no termites. The house could not be repaired. The diminution of value method was held to be appropriate. An issue arose as to the date values should be assessed. Usually it is the date of purchase. But this is not universal. At 432 Meagher JA observed:
[O]ne certainly finds that in England a subrule has emerged to the effect that in the case of damages against the provider of a negligent report or valuation, the normal measure of damages is the diminution in value of the property in question as at the date of breach. This was decided by the English Court of Appeal in Perry v Sidney Phillips & Son [1982] 1 WLR 1297; [1982] 3 All ER 705; see per Lord Denning MR (at 1302; 708) per Oliver LJ (at 1303-1304; 709-710) and per Kerr LJ (at 1305-1306; 711-712).
- Meagher JA goes onto say:
The matter is not directly covered by Australian authority. However, presumably the logical basis of the subrule is that on the plaintiff's discovery of the breach he is in a position to sell the property in question and re-purchase another, claiming any diminution in value from the defendant. However, in the present case, that logic would not have worked. The plaintiff did not have the money to re-purchase another block of land, and was not confident of her ability to borrow sufficient money to enable her to do so; moreover, she could have no confidence in the defendant's reimbursing her with compensation for the diminution in value of her land, since until the actual morning of the trial it stoutly maintained its denial of liability. In these circumstances, it seems to me not unreasonable for her to ask for the diminution in value of the property to be assessed as at the date of the hearing."
- Hansons Properties Pty Ltd v Geraghty BC9101302 (unreported, 20 December 1991, Wood J) was a claim against a solicitor whose negligent advice caused the client to take as mortgage security property whose value was well short of what the client was entitled to have. There was a difference in outcome between the diminution in value and what his Honour called the "reinstatement" approach. At 56-57 his Honour said:
While the "diminution in value" approach often achieves an identical result to the "reinstatement" approach, particularly in "sale" cases, it will not always produce a just result in other cases. A good example of the "diminution in value" approach in a simple "sale" case is Ford v White and Co, where it was held that the plaintiffs were entitled to the difference between the true market value of land and the price they had paid for it (which turned out to be nil).
- L Shaddock and Associates Pty Ltd v Parramatta City Council [1981] HCA 59; (1981) 150 CLR 225 is an example of the "reinstatement" approach ….the High Court assessed the plaintiff's damages on the basis that if the correct advice had been given, it would not have bought the land (being development land) at all. It was therefore entitled to the reinstatement of its purchase money, and also its expenses of acquiring and retaining the land, which would not have been incurred if it had not bought it.
It is clear from the authorities on the "reinstatement" approach that the question of what the plaintiff would have done if the tort or breach had not been committed is a question of fact which must be established by evidence. (See Gates v City Mutual Life Assurance (1986) 160 CLR 1 at 13; Kyogle Shire Council v Francis (1998) 13 NSWLR 396 at 417 per Clarke JA).
- In Kyogle SC, Kirby A-CJ was prepared to infer in the absence of evidence that the plaintiff would have bought other land to subdivide and sell, but Clarke JA, with whom Mahoney JA agreed, said that evidence was required.
In "sale" cases, the "diminution in value" approach and the "reinstatement" approach can often have the same result. If the correct advice had been given, the plaintiff would have bought the property for a lower price, or perhaps not bought it at all. Awarding him the diminution in value will put him in the position he would have been in, had the tort not occurred, in either case, because he is free to resell it at the reduced value. However, the "diminution in value" approach will not always achieve a just result where the facts become a little more complicated. In Kyogle SC, the plaintiff bought land with the intention of subdividing it and selling it for a profit, relying on negligent advice that it was subdivisible.
- In Sved v Council of the Municipality of Woollahra (1995) 86 LGERA 222; Aust Torts Reports 81-328; NSW ConvR 55-736, Giles J awarded the cost of reinstatement, which was less than the sum which would have been derived from the diminution in value rule. 35 His Honour said (at 236; 62,228; 55,693-55,694):
The inescapable fact is that they purchased the properties, and it may be that in the particular circumstances restoration of their positions is possible, and more appropriate, by damages such as the cost of rectification.
- Justice GiIes further concluded that:
I do not think that there is an inflexible rule that in cases such as the present the damages are measured by the difference between the price paid for the property and its true value. That there may be a different basis of assessment of damages if the circumstances so warrant is, it seems to me, recognised in cases such as L Shaddock and Associates Pty Ltd v Parramatta City Council (No 1), Kyogle Shire Council v Francis (1988) 13 NSWLR 396, Hansons Properties Pty Ltd v Geraghty (Wood J, 20 December 1991, unreported) and Rentokil Pty Ltd v Channon (1990) 19 NSWLR 417."
- In Kyriakou v Hughes (1984) Aust Torts Reports 80-646, the diminution in value method as explained in Ford v White was applied.
- In HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640; Kyriakou at 68,724; Thomas at [20]. 37 ……….where the plaintiffs establish they would, but for the negligence, have not bought the property:
(a) the usual method of assessment of damages is the "diminution in value" method;
(b) where there is evidence the purchaser intended to subdivide and sell blocks or buildings at a profit, but cannot do so, the "reinstatement" method may be appropriate; and
(c) where the purchaser has limited funds and intends at the time of purchase to live in the property in the long term, the "reinstatement" approach may be appropriate.