Sonia Nolten provides a useful insight into Party Wall disputes where there is limited authority and guidance from the Courts

Practitioners in the damage field will be aware that, while party wall awards are a common element of construction works, there is little authority either as to the interpretation of the Party Wall Act 1996, or as to the proper scope of party wall awards. A recent decision of the High Court, Lea Valley Developments Limited v Thomas William Derbyshire [2017] EWHC 1353 (TCC), provides some much needed clarity on both issues.

The Claimant company was the freehold owner of a property in Muswell Hill. It decided to carry out construction works including notifiable excavation works under s.6 of the Act. The Claimant entered into a Party Wall Award with the Defendant, which included a requirement that the Claimant should: “make good all structural or decorative damage to the [Defendant’s] property occasioned by the works….if so required by [the Defendant] make payment in lieu.”

The works caused damage to the Defendant’s property, which it was agreed meant that the property had to be demolished and rebuilt, at a cost of between £1 and £2 million. Faced with this substantial bill, the Claimant obtained evidence that the diminution in value to the Defendant’s property was far lower (in the order of £500,000 – £1m). The Claimant commenced Part 8 proceedings for a declaration that diminution in value was the appropriate measure of loss. The Defendant contended that the Award, which referred to “making good” damage, was to be construed as requiring compensation to be assessed on the basis of reinstatement.

The Judge did not accept the Defendant’s construction of the Award, for two reasons. First, “making good” could not be construed as synonymous with “demolishing and rebuilding”. Second, the Award did not state how “payment in lieu” was to be assessed.

The Judge also held that this clause of the Award was ultra vires. The works carried out by the Claimant fell within section 6 of the Act (excavation works). There is no provision in s.6 for making good damaged occasioned by excavation works. As such, the clause (which had been based on the wording of s.2) should not have been included.

The right to compensation for damage caused by s.6 works derived not from s.2, but from s.7, which provides that: “the building owner shall compensate any adjoining owner…for any loss or damage which may result…by reason of any work executed in pursuance of this Act.” The Judge accepted the Claimant’s submission that common law principles apply to the assessment of damages under s.7; but for the Act many of the activities permitted by it would amount to nuisance, and one would therefore expect similar principles to apply. If “loss and damage” had meant something different from their usual meaning, Parliament would have said so.

However, the Judge refused to make a declaration that diminution was the appropriate measure of loss under s.7. Depending on the circumstances, either diminution or the cost of reinstatement might be appropriate and there was no rule of law that damages had to be assessed on one basis or the other. Even when diminution was deemed to be the appropriate measure, the cost of reinstatement was often a useful guide to determine what the diminution in fact was.

The case provides a number of useful “take-aways” for practitioners dealing with party wall awards. When the award is made they should consider carefully which section the works fall under, and the wording used, in order to be sure that the award is enforceable, and does not offer false comfort to either party. When seeking compensation pursuant to s.7, it will be important to make a case for the measure of damage sought based on the circumstances of the particular case.

Sonia’s article was originally produced as part of Plexus Law’s ‘Legal Watch: Property Risks & Coverage’ document in August 2017