Case No: QBENF 98/1163 A2
 
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM NEWPORT COUNTY COURT 
(HHJ MOSELEY)

Royal Courts of Justice
Strand, London, WC2A 2LL

Thursday 16th March 2000

B e f o r e :

LORD JUSTICE ROCH
LORD JUSTICE BROOKE
and 
MR JUSTICE FERRIS
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	ROBERT ANTONY Hodge & ANR		Appellant	
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	NEWPORT BOROUGH COUNCIL	Respondent	

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
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Mr John Macdonald, QC & Miss Sara Hargreaves (instructed by  Granville West Chivers & Morgan for the Appellant)
Mr Nigel Macleod, QC & Mr Jonathan Karas (instructed by  Newport Borough Council for the Respondent)
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Judgment
As Approved by the Court

Crown Copyright ©

Lord Justice Roch:
This is an appeal from the judgment of HHJ Hywel Mosely, QC dated the 9th July 1999 in which he dismissed the appellant’s claim against the respondent local housing authority for damages for an alleged breach of the respondent’s duty under s. 562(3) of the Housing Act, 1985.  The judge dismissed the appellants’ claim on two grounds: first, that they were not persons to whom the respondents owed the duty under s. 562(3); second, the respondents were not in breach of that duty, in any event.

The appellant’s action was a test case on which eleven other cases raising the same issues depended.  

On the 1st December 1984, the Housing Defects Act, 1984, became law.  Subsequently that Act became Part 16 of the Housing Act, 1985.  The reason for the enactment of the 1984 Act was that local housing authorities had, in their housing stock, several types of houses, usually of a prefabricated design and designed either in the 1930’s, 1940’s or 1950’s which were, because of shortcomings in their design, inherently defective.  The Act gave the Secretary or State power to designate such types of houses as “defective dwellings”, see now s. 528 of the 1985 Act.  The power to designate was to be exercised if it appeared to the Secretary of State that buildings in the proposed class were defective by reason of their design or construction and, by virtue of these circumstances having become generally  known, the value of some or all of the dwellings concerned had been substantially reduced.  A dwelling which was included in a class so designated was “a defective dwelling”.  Once the Secretary of State had made such a designation, Local Housing Authorities had statutory obligations to bring those designations to the attention of council house tenants and to persons who had bought their houses from the local authority before what was called “the cut off date”, being the 26th April 1984, and to other persons who had bought such houses from persons who had bought them from the local authority provided their purchase was prior to the cut-off date.  Those persons were potentially “persons eligible for assistance”.  That phrase was defined by s. 527 of the. Act.  That definition required the person to satisfy the conditions in s. 531 of the Act.  Assistance could take one of two forms, either a reinstatement grant or, if the council had sold the house to the former tenant, by way of repurchase.  Such persons had a period of 10 years from the 1st December 1984 in which to seek assistance.  

In addition, the local housing authority, under s. 563 of the Act had a duty , where a person was to acquire the freehold or a long tenancy of a defective dwelling on a disposal by the authority, to give that person notice in writing specifying the qualifying defect and stating that such person would not be eligible for assistance under the scheme.  Section 563(2) placed on the authority a duty, before they conveyed the freehold or a long tenancy in a defective dwelling in pursuance of a contract to a person on whom a notice under s-s (1) of s. 563 had not been served, to give such person notice in writing specifying the qualifying defect, stating that he would not be eligible for assistance and informing him of his powers given by s-s (3) of the section to delay completion of the conveyance for a period of 6 months and to withdraw from the transaction.

Mr & Mrs Hodge are the owners and occupiers of 88, Ringwood Hill, Newport.  That is a house of the Schindler and Hawksley SGS type.  That house is one of approximately 200 houses of that design and construction built in Newport as the Ringwood Estate in 1955 and 1956.  That type of house was one type of house designated as defective by the Secretary of State under what is now s. 528 of the Housing Act, 1985 on the 1st November 1984.  That designation came into operation on the 1st December 1984, the date that the 1984 Act took effect.  Such houses look like traditional brick built houses, but they incorporate in their construction reinforced concrete columns the embedded steel of which is ineffectively protected against corrosion by the surrounding concrete. 

On the 24th January 1985 the respondents published a Housing Defects Notice in the press under the heading “Assistance for Eligible Private Owners of Prefabricated Reinforced Concrete Dwellings Designed Before 1960”.  The notice then listed 22 types of dwelling which the Secretary of State had designated.  One of those was the “Schindler and Hawksley SGS”.  The notice then contained this statement:

"Only Airey, Cornish Unit and Unity of these types are believed to exist in the Borough of Newport."

The cut off date which under s. 528(2)(b) meant the date by which, in the opinion of the Secretary of State, the knowledge that buildings of a proposed class were defective by reason of their design or construction became generally known, was extended to the 1st April 1985.

The effect of designation by the Secretary of State of Schindler and Hawksley SGS type houses was that no mortgage lending institution would lend on the security of such a house.  There is, therefore, virtually no market for such houses because no potential purchaser can obtain a mortgage.  Further those who entered into mortgages before obtaining knowledge of the construction defects, found themselves caught in a mortgage trap from which they could not escape without remedying the defects, the cost of which they were unable to meet. 

The appellants were among those who found themselves in this predicament.  The house which the appellants own was sold by the respondents to a Mr and Mrs Page on the 10th April 1972.  On the 15th October 1982 Mr and Mrs Page sold the house to a Miss Vincent.  Both those sales were before the “cut-off date”.  As a consequence once the 1984 Act was passed Miss Vincent became a person eligible for assistance under the scheme.  There was no dispute that Miss Vincent would have been able to satisfy the requirements of s. 527 and the conditions of eligibility now to be found in s. 531 of the 1985 Act.

On the 12th March 1987 Miss Vincent contracted to sell the house to Mr and Mrs Hodge for £24,000 and the sale was completed on the 20th March 1987.  Neither Miss Vincent nor the appellants was aware at the time of the sale that the house was of the Schindler and Hawksley SGS type, nor that there were fundamental defects in its design and construction.  It was an agreed fact between the appellants and the respondents that on the assumption that the defects had been known in the market in March 1987 the value of the house in the open market with that knowledge would have been £7,075.  The appellants purchased the house with the assistance of a loan secured by a mortgage from a building society amounting to £22,800, being 95% of the purchase price.  The appellants are still paying instalments under that mortgage.

The claim brought by the appellants against the respondents was for damages for breach of statutory duty, the statutory duty being that alleged to be owed to them under s. 562(3) of the 1985 Act.  It is useful to set out the relevant parts of s. 562, which read:

"(1)	A local Housing Authority shall within the period of three months beginning with the coming into operation of

(a)	a designation under s. 528 ............ or

(b)	a variation of such a designation, publish in a newspaper circulating in their district notice suitable for the purpose of bringing the effect of the designation or variation to the attention of persons who may be eligible for assistance in respect of such of the dwellings concerned as are situated within their district.

(2)	No such notice need be published by a local housing authority who are of the opinion

(a) that none of the dwellings concerned are situated in their district, or

(b) that no one is likely to be eligible for assistance in respect of the dwellings concerned which are situated in their district.

(3)	If at any time it becomes apparent to a local housing authority that a person is likely to be eligible for assistance in respect of a defective dwelling within their district, they shall forthwith take such steps as are reasonably practicable to inform him of the fact that assistance is available."

In 1989 a surveyor for the Halifax Building Society raised with the respondents the question whether the houses at Ringwood were of the Hawksley SGS type.  Reference by the respondents to its archives revealed a contract dated the 1st March 1955 between the respondents’ predecessor the County Borough of Newport and AW Hawksley Ltd which made it clear that there were within the Borough of Newport 100 Hawksley SGS houses.  The judge came to the conclusion that the council had been careless in not having discovered that vital information prior to March 1987 when the appellants had bought the freehold of their house from Miss Vincent.  The judge also came to the conclusion that s. 562(3) did create, in a suitable case, a private law cause of action in favour of the persons falling within the ambit of its protection.  In arriving at that conclusion the judge was much influenced by the provision in s. 572(1)(d) of the Act.  Neither of those findings or conclusions by the judge has been challenged by the respondents in this appeal.  There has been no cross-notice.

Mr MacLeod, QC for the respondents submitted that the question is whether as a matter of statutory construction the appellants were within the class of persons whom Parliament intended to protect by enacting s. 562(3).  Mr MacLeod relied upon a passage in the speech of Lord Browne-Wilkinson in X (Minors) -v- Bedfordshire County Council [1995] 2 AC 633 at 731D when in considering the first of four different categories of private law claims for damages namely:

“(a) actions for breach of statutory duty simpliciter (i.e. irrespective of carelessness)”,  Lord Browne-Wilkinson said:

"The principles applicable in determining whether such statutory cause of action exists are now well established, although the application of those principles in any particular case remains difficult.  The basic proposition is that in the ordinary case a breach of statutory duty does not, by itself, give rise to any private law cause of action.  However a private law cause of action will arise if it can be shown, as a matter of construction of the statute, that the statutory duty was imposed for the protection of a limited class of the public and that Parliament intended to confer on members of that class a private right of action for breach of statutory duty."

Mr MacLeod went on to submit that here the limited class were those “likely to be eligible for assistance” and the appellants were not within that class.  Consequently there could be no question of them having an enforceable cause of action for damages for breach of statutory duty.  An examination of the scheme of the Act makes it clear that the appellants are not within the class of persons to whom a duty is owed.  In s. 531 one of the conditions that had to be satisfied so that a person became eligible for assistance under s. 527 was that there had been no disposal for value by any person of a relevant interest (freehold or long tenancy, s. 530) in the dwelling on or after the cut-off date (i.e. 1st April 1985).

The purpose of s. 562 is that information should be provided in order to enable those who may be eligible for assistance or who are likely to be eligible for assistance to apply for assistance.  The appellants do not come within that class by reason of the conditions in s. 531.  Mr & Mrs Hodge bought the freehold of their home after 1st April 1985.

Mr MacLeod referred us to other provisions in Part XVI of the Act to demonstrate that Parliament intended assistance to be given only to a limited class of persons.  Parliament did not intend property developers to benefit but only individuals who bought their council houses.  Parliament did not intend that assistance in the form of restoration grants or repurchases should be given to persons buying after the 1st April 1985: the only duty being imposed on local housing authorities after that date was to give written notice of the defects and the absence of eligibility for assistance to those who, after that date, were intending to buy or were in the process of buying the freehold or a long tenancy of their council houses from the authority.  Moreover, the assistance provided was to be claimable only in a period of 10 years from the 1st December 1984.

Mr MacLeod argued that had Parliament wished to protect persons such as Mr and Mrs Hodge, who purchased a house of a type designated as defective unwittingly, Parliament could have done so and would have done so by the use of clear words.  Parliament considered that by the “cut-off date” it would have become generally known what types of house were designated as defective, and in the open market, as opposed to purchasers direct from the local housing authority, that general knowledge would afford sufficient protection.

Mr Macdonald, QC for the appellants told us that he relied on Category A of the four categories identified by Lord Browne-Wilkinson in X Minors -v- Bedfordshire County Council [above], that is to say actions for breach of statutory duty simpliciter.  Mr Macdonald accepted that the duty placed on the respondents by s. 562(3) was a duty to inform Miss Vincent, that is to say the person likely to be eligible for assistance.  Mr Macdonald submitted that it did not follow that that duty was owed only to Miss Vincent, or put another way, if that duty to inform Miss Vincent was not discharged that only Miss Vincent could sue for loss caused by the failure to discharge it.  Miss Vincent could not bring proceedings against the respondents for the undoubted failure to take steps to inform her because having sold the freehold of her house to the appellants, she had suffered no loss.  The persons suffering the loss caused by the respondents’ failure to do that which s. 562 required them to do were the appellants and Parliament must have intended them to have a remedy.  Mr Macdonald supported this part of his argument by referring us to the House of Lords’ decision in White & Anr -v- Jones & Anr [1995] 2 AC 207.  Here the responsibility to inform Miss Vincent that assistance was available which would have lead her to obtain a restoration grant was placed upon the local housing authority.  That authority would have known that loss would be caused if they failed to discharge their duty.  That loss has fallen on the appellants, the unwitting purchasers of a defective house.  That loss would have fallen on Miss Vincent if she had retained the house until after the 1st December 1994, the end of the 10 year period without knowing that the house was of a defective type.  In those circumstances, Miss Vincent would have had an action for damages against the respondents for breach of s. 562(3).  It was illogical and inequitable to read the Act in such a way as to deprive the appellant’s of that remedy.

Mr Macdonald further submitted that s. 572 which gives the County Court jurisdiction to entertain proceedings for the recovery of damages in the event of obligations not being performed, does not limit the persons who may bring such proceedings.  The lack of any alternative remedy for persons in the appellants’ position, pointed strongly to Parliament intending that such persons should be able to sue for compensation for the local housing authority’s failure to do that which s. 562 required them to do.  Parliament intended that defective houses should be restored or repurchased so that the loss which would otherwise arise from the defects would fall in the main on the local authorities who had built and sold the houses and not on unwitting purchasers.

Despite the cogent and powerful submissions of Mr Macdonald and the sympathy that one inevitably has for the appellants, the conclusion that I have reached is that the judge’s decision on this issue was correct.  What is being relied on on behalf of the appellants is a breach by the respondents of a duty imposed on them by s. 562(3) of the Act.  This is not an action based on a common law duty of care arising either from the imposition of a statutory duty or from performance of it.  Consequently, the question of the persons to whom the duty is owed is to be determined by construing the statute and not by asking whether the appellants are persons whom the respondents could have foreseen as suffering loss and damage if the respondents did not exercise proper skill and care.

A reading of the Act, and in particular of s. 562, makes it clear that the duties to give notice and provide information are imposed to enable those eligible for assistance to apply for assistance within the 10 year period.  Information is not to be given for the purpose of preventing a defective house being sold on without the vendor or the purchaser knowing of the defects.  The Act suggests that Parliament believed that after the cut-off date the categories of defective houses would be generally known or at least generally known to surveyors and valuers, and that that knowledge would afford sufficient protection to potential purchasers.  Parliament intended eligibility for assistance to end if there was a sale after the cut-off date.  This, in my judgment, makes it clear that the duty under s. 562 was not owed to persons such as the appellants who bought such houses after the cut-off date when such houses were already in private hands.  Moreover, if such houses were still owned by the local housing authority then the duties under s. 563 and not those under s. 562 were applicable.

In view of the conclusion I have reached on the first ground on which the judge decided the case against the appellants, it is not necessary for me to reach a concluded view on the second ground, that there was no breach of duty.  The judge found that there was no breach of duty because at the time the appellants bought their house in 1987 it had not become apparent to the local housing authority that a person was likely to be eligible for assistance in respect of a defective dwelling within their district.  As I understand the judge’s judgment he was of the opinion that the word “apparent” should be read subjectively and not objectively.  He was assisted to that view by the words “it becomes”.

I have doubts as to the correctness of this reading of the sub-section.  The opening words of the s-s “If at any time” shows that something which is apparent from the outset will activate the duty.  Next the correct reading of the sub-section may well be that it is the eligibility for assistance to which the sub-section is referring rather than the defective character of the dwelling.  Parliament could well have assumed that a local housing authority, once the Secretary of State had designated the types of houses which were defective, would know whether they had or did not have such houses within their area.  But the principal potential difficulty with the judge’s reading of the sub-section on this point, is his interpretation of the word  “apparent”.  In my view, it is eminently arguable that something is or becomes apparent when it is there to be seen, and that a local housing authority cannot say that something was not apparent or did not become apparent to it because it carelessly failed to see the obvious; that such a reading, would be putting too great a premium on local housing authorities adopting the habits of an ostrich.  However, as it is not necessary to decide this point I would leave it open.
For these reasons I would dismiss this appeal.

Lord Justice Brooke:

I agree that this appeal should be dismissed for the reasons given by Roch LJ, with which I agree.

If it had been necessary for us to make a ruling on the second ground on which the judge decided the case against the appellants, I am doubtful whether I would have been as sympathetic at Mr Macdonald’s argument on that ground as Roch LJ would have been disposed to be.  There is no need, however, for us to decide the point.  Like Roch LJ, I will therefore say no more about it.

Mr. Justice Ferris:

Notwithstanding the sympathy which I naturally feel for Mr. and Mrs. Hodge in the predicament in which they find themselves and which was not of their making, I agree that this appeal must be dismissed for the reasons given by Roch LJ.  As the case appears to govern a number of further cases I add some words of my own.

The legislature might have dealt with the problem of defective dwellings by providing a general right for the owners of such dwellings to receive assistance by way of reinstatement grant or by way of repurchase.  But it did not in fact proceed in this way.  Instead it provided an elaborate scheme for defining precisely who should be eligible for assistance.  Any scheme which defines those who are eligible necessarily defines also, albeit by implication or in silence, those who are not eligible.  Amongst those who are not eligible for assistance under what is now Part XVI of the Housing Act 1985 are

(i)	a company or trustees for a company (s.527(a));
(ii)	a person who previously had a relevant interest in a defective dwelling but disposed of that interest without making a claim for assistance; and
(iii)	a person who acquired a relevant interest in the defective dwelling on a disposal for value occurring more than twelve months after the cut-off date (s.531(3)(a)).

In the present case Miss Vincent would have been eligible for assistance down to 12th March 1987, when she contracted to sell 88 Ringwood Hill to Mr. and Mrs. Hodge and thereby disposed of the relevant interest in that property which she previously owned.  She did not know that she was eligible because she did not know that the house was defective, but this ignorance did not prevent her ceasing to be eligible for assistance on making  that disposal.  If she had received the information mentioned in s.562(3) she would have known about her eligibility and would almost certainly have claimed assistance.  Fortunately for her she suffered no loss because she sold her house to Mr. and Mrs. Hodge, who also knew nothing of its defective construction, for its full value.

However Miss Vincent’s good fortune is matched by the ill fortune of Mr. and Mrs. Hodge because it is clear that, despite the fact that they had paid what the house would have been worth if it had been free from defects, they never became eligible for assistance.  This is because they did not satisfy either of the alternative sets of conditions for eligibility set out in s.531.  The fact that they took under a disposal made by Miss Vincent after the cut-off date prevented them from satisfying the first set of conditions.  The fact that that disposal was made more than twelve months after the cut-off date prevented them from satisfying the second set of conditions.  All this is accepted on their behalf.

The way in which the second set of conditions is formulated demonstrates, in my view, that the legislature was aware that, despite the provisions of  s.562, there would be cases in which a person acquires a defective dwelling after the cut-off date without being aware of the defects, even though the cut-off date was itself to be the date by which, in the opinion of the Secretary of State, the defective condition of the designated dwellings would have become generally known.  Instead of providing a general remedy for all those who, without fault on their part, have purchased a defective dwelling in ignorance of its defective condition, the legislature stipulated that those who purchased after the cut-off date must satisfy all the conditions set out in s.531(3), including the requirement that they acquired a relevant interest within twelve months after the cut-off date.  The legislature thus left unremedied the predicament of those who, like Mr. and Mrs. Hodge, purchased a relevant interest after the twelve months had elapsed.  I doubt whether it is right to describe this as a lacuna in the legislation.  Rather it is the inevitable result of the division of the owners of defective dwellings into those who are eligible for assistance and those who are not eligible.

The argument for Mr. and Mrs. Hodge on this appeal, as it had been before the judge, was that they can escape the consequences of not being eligible for assistance because the Newport Borough Council failed to give Miss Vincent the information referred to in s.562(3).  If the Council had given her this information Miss Vincent would either have applied for assistance herself or have passed it on to Mr. and Mrs. Hodge when they negotiated their purchase.  If she had done the latter, it is inconceivable that Mr. and Mrs. Hodge would have purchased at the full price and it is quite likely that they would not have purchased at all.

I have no difficulty in accepting the argument down to that point.  The Council clearly owed a duty to Miss Vincent under s.562(3) and if it was in breach of that duty (as I assume that it was for the purposes of the present argument) there could be no doubt that Miss Vincent would have had a cause of action against it.  But the difficulty which lies in the way of Mr. and Mrs. Hodge is that the duty imposed by s.562(3) is a duty to inform those who appear to be eligible for assistance of the fact that assistance is available.  The purpose of this duty can only be to ensure that, so far as practicable, a person eligible for assistance claims that assistance.  Mr. and Mrs. Hodge could only succeed if the duty were treated as one to give notice of the availability of assistance to a person who is eligible for it not in order to provide an opportunity for assistance to be claimed but in the hope or expectation that the facts underlying the eligibility will be passed on to prospective purchasers who will thereby be deterred from proceeding with their intended purchase.  It seems to me to be highly improbable that the legislature would have intended to provide protection to unidentified future purchasers by this circuitous and uncertain route.  I cannot see how a duty which would avail Mr. and Mrs. Hodge can be spelled out of s. 563(2) by any legitimate process of statutory construction.

I do not think that there is a parallel between this case and the decision of the House of Lords in White v Jones [1995] 2 AC 207.  That was a decision on the scope of the common law duty of care owed by a solicitor.  The present case depends entirely on the construction of the statute.

There is, I think, a further consideration to be borne in mind.  If the argument for Mr. and Mrs. Hodge were right the consequence would be that persons whom the legislature has said are not to be eligible for assistance are to receive compensation of an amount equivalent to what they would have received if they were eligible.  Moreover, as the judge observed in his judgment, if that argument was right companies or trustees for companies would be entitled to compensation in the circumstances which have arisen in this case, even though they could not have received assistance if the Council had fully performed its duty under s.562(3).

In view of my conclusion on the main argument, which assumes that the Council was in breach of its duty under s.562(3), I am content to leave open the question whether the words “becomes apparent” are to be construed subjectively or objectively.  I would observe, however, that what has to become apparent is not that a particular house is defective but that a particular person is eligible for assistance.  Eligibility for assistance is quite a complex matter which depends on the existence of particular facts some at least of which may not be within the knowledge of the relevant housing authority.  If “becomes apparent” is to be construed objectively, so that the careless failure of the Council in this case to appreciate that its houses at Ringwood Hill were within the Secretary of State’s designation puts the Council in breach of its duty under s.562(3), it might be difficult to avoid a conclusion that an honest but mistaken view of the facts relating to a person’s eligibility for assistance would likewise put the Council in breach.  That is not a conclusion which I would accept with equanimity but, as I have said, I am content to leave the point open.

Order: Appeal dismissed with costs.
(Order does not form part of the approved judgment)