Practical Law

Party wall disputes may be common, but it is uncommon for them to reach the High Court. Therefore, practitioners will be surprised to see that one dispute between neighbours in North London (Lea Valley Developments Ltd and Mr Thomas Derbyshire) has yielded two useful TCC decisions relating to the Party Wall etc. Act 1996 (PWA 1996).

The Party Wall etc. Act 1996 (PWA 1996)

The PWA 1996 has often been criticised for a lack of clarity, and that lack of clarity has been compounded by the fact that there is precious little in the way of case law to assist neighbours, surveyors and lawyers in understanding how, in practice, its rules should be applied.

It is also an unusual piece of legislation in that it gives party wall surveyors a quasi-judicial role to decide:

• How a building owner should execute party wall works.
• The time and manner of the execution of those works.
• (Very widely) any other matter “arising out of or incidental to the dispute” between that building owner and his neighbour (the adjoining owner).

Save in the circumstances prescribed by the PWA 1996 when an award might be appealed to the County Court (under section 10(17)), a party wall surveyor’s award is conclusive and not open to scrutiny by the courts. However, a party wall surveyor is not to be treated as an arbitrator. The full extent and limits of a party wall surveyor’s authority has therefore been one issue in need of clarification.

The TCC’s decisions in the dispute between Lea Valley Developments Ltd and Mr Thomas Derbyshire, which concerned neighbouring properties in Muswell Hill in North London, have provided clarification on not one, but two separate points.

Does the PWA 1996 regime oust the High Court’s jurisdiction entirely?

As noted above, the PWA 1996 provides an entire regime for the resolution of any dispute that falls within the ambit of the statute, whether the dispute relates to a new building on the line of the junction between neighbouring properties, the repair, underpinning, raising or rebuilding of a party wall, or the carrying out of excavations close to neighbouring buildings.

In a matter to which the PWA 1996 applies, appropriate notices must be served and (in the event of a dispute arising or being deemed to have arisen), a party wall surveyor (or surveyors) will make a binding award dealing with the conduct of the works, any compensation payable to the adjoining owner and allocating the costs of the statutory process. An award may determine any matter arising out of or incidental to the dispute, according to section 10(12), and is conclusive other than when it is appealed under section 10(17).

Lea Valley Developments Ltd and Mr Derbyshire

The present dispute between Lea Valley and Mr Derbyshire related to the amount of compensation payable to Mr Derbyshire in circumstances where the works carried out by Lea Valley (including digging foundations, caught by section 6 of PWA 1996) caused so much damage to Mr Derbyshire’s property that the proper economic solution was for it to be demolished and rebuilt, rather than just repaired.

The question between the parties (and the party wall surveyors) was how that compensation should be calculated, but the first question for the court was whether it had the necessary jurisdiction to make that decision. If the PWA 1996 provides an entire regime for resolving disputes to which the Act applies, then (so Lea Valley argued) the courts have no jurisdiction to deal with disputes that arise in the course of that dispute.

Perhaps unsurprisingly, O’Farrell J disagreed. She held that the court has an inherent jurisdiction to provide declaratory relief, and it would take very clear wording in a statute for it to oust the inherent jurisdiction of the courts.  Unlike section 1 of the Arbitration Act 1996 (a statute passed in the same year), the PWA 1996 contains no such wording.

When might a party have recourse to the courts in relation to a party wall matter?

The decision in this case highlights that parties to a party wall dispute might still require intervention from the courts to resolve some issues, and that the jurisdiction of the courts is available to them.

There is, of course, the right to appeal a party wall award, which is expressly set out in section 10. This case confirms that a party can seek a declaration from the court when a dispute calls for it. Then, there are other remedies that a party might need to take advantage of, such as an adjoining owner seeking an injunction from the court or suing for breach of statutory duty, if their neighbour has failed to comply with PWA 1996 and causes, or risks causing, damage to their property.

So, what is the correct measure for assessing compensation where the PWA 1996 works have caused adjoining property to be demolished and rebuilt?

O’Farrell J considered that the court had jurisdiction to answer this question and that it was sensible for the court to deal with it. This was on the basis that it was preferable for the court to deal with the question in short order rather than having parallel processes both in court and between the party wall surveyors. That said, Mr Adrian Willamson QC (sitting as a deputy judge in the TCC), did not make the issue sound straightforward!

First (albeit not in a binding way), the court contended with a term of the party wall surveyors’ award, which (prior to the need to demolish and rebuild having been identified) required the building owner in express terms to:

“Make good all structural or decorative damage to the Adjoining Owner’s property occasioned by the works… If so required by the Adjoining Owner, make payment in lieu of carrying out the works to make damage good, such sums to be determined by the Agreed Surveyor.”

Mr Williamson QC held that this section of the award was not binding because it described something that was outside the statutory powers of the party wall surveyor (that is, it was ultra vires). The award related to works to which section 6 of PWA 1996 applied, and not section 2. Section 6 does not provide for making good damage caused by the works, so a dispute about making good damage caused by section 6 works was not something that the party wall surveyor could deal with.

As to the correct measure of damages, Mr Williamson QC decided that the common law basis for assessing damages should apply in the present case. That is, the injured party should be restored to the position they would have been in had the damage not been caused. The value attributable to that was the cost of reinstating the building to its original condition. In arriving at that conclusion, Mr Williamson QC drew parallels with the law of nuisance, reasoning that the cause of the damage was an action which (but for the operation of PWA 1996) would have constituted a legal nuisance.

Alternative methods for calculating damages and compensation

There are a number of ways in which damages can be assessed at law. First, there is the common law or tort basis described above. Then there is the contractual basis, which is intended to put the injured party in the position they would have been in had the contract been properly performed. It is difficult to see how the contractual measure could ever apply in a party wall case, when the method of carrying out the works is determined by the party wall surveyors’ quasi-judicial award.

Then, there is the loss-of-amenity basis, and calculation of damages by reference to the diminution in value of the injured party’s property occasioned by the other party’s actions.

The court dismissed Lea Valley’s argument that diminution in value was the correct measure in this case, but emphasised that there is no authority as to the proper construction of section 7 of the PWA 1996. The comparison drawn by Mr Williamson QC between damage caused by an action made permissible by the PWA 1996 and damages caused by an action which (but for the award) would have been a nuisance and trespass is attractive, but I am not sure that the court would necessarily come to the same conclusion in every case. A different set of facts, especially about the type of property that was damaged (and the condition it was in), might have yielded a different decision.