Interesting case. Woud like to hear the outcome as well, though maybe its still in the court system.
I think the planning issue is indeed relevant.
I would argue as follows if i was speaking for the builder:
1. the building doesnt have permission;
2. it may have to be pulled down;
2. therefore it is worth nothing, it even has a negative value;
3. ok it was badly built,
4. but the mistakes of the builder have not caused the owner any additional loss over and above the loss he incurred to himself by getting an illegal structure constructed.