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Cavendish Funding Ltd v Henry Spencer & Sons Ltd [1997] EWCA Civ 2564 (24th October, 1997)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/1997/2564.html
Cite as:
[1998] PNLR 122,
[1998] 06 EG 146,
[1997] NPC 150,
[1997] EG 146,
[1997] EWCA Civ 2564,
[1998] 1 EGLR 104
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CAVENDISH FUNDING LIMITED v. HENRY SPENCER and SONS LIMITED (Previously trading as COLLEY SAMPSON) [1997] EWCA Civ 2564 (24th October, 1997)
IN
THE SUPREME COURT OF JUDICATURE
CHANF
96/0507/B
COURT
OF APPEAL (CIVIL DIVISION)
ON
APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY
DIVISION
(Mr
Justice Evans-Lombe)
Royal
Courts of Justice
Strand
London
WC2
Friday,
24th October 1997
B
e f o r e :
LORD
JUSTICE EVANS
LORD
JUSTICE ALDOUS
and
LORD
JUSTICE WALLER
---------------
CAVENDISH
FUNDING LIMITED
Plaintiff
(Respondent)
-v-
HENRY
SPENCER & SONS LIMITED
(Previously
trading as COLLEY SAMPSON)
Defendant
(Appellant)
---------------
Handed
Down Judgment prepared by
Smith
Bernal Reporting Limited
180
Fleet Street London EC4A 2HD
Tel:
0171 421 4040 Fax: 0171 831 8838
(Official
Shorthand Writers to the Court)
---------------
MR
R STEWART
(MISS
S CARR
24.10.97 only) (instructed by Messrs Fishburn Boxer, London WC2) appeared on
behalf of the Appellant Defendant.
MR
N PATTEN QC
and
MR
J RAMSDEN
(instructed by Messrs Clifford Chance, London EC1) appeared on behalf of the
Respondent Plaintiff.
---------------
J
U D G M E N T
(As
Approved by the Court)
Crown
Copyright
Friday,
24th October 1997
LORD
JUSTICE ALDOUS :
The
Defendants, who at the relevant time traded as Colley Sampson, are a firm of
valuers and estate agents. They appeal against the Order of Evans-Lombe J of
2l March l996 which ordered them to pay to the Plaintiffs £1,049,853 by
way of damages and interest as compensation for their admitted negligent
valuation of a house. They contend that the Judge wrongly held that their
valuation caused the loss. Alternatively, the sum awarded was too high because
the Judge should have made a substantial deduction because of the Plaintiffs'
contributory negligence.
The
facts have been fully set out by the Judge. I therefore can limit this part of
my judgment to those facts needed to understand the submissions made on the
appeal.
The
Plaintiffs, now in administrative receivership, were a secondary bank set up by
a group of primary banks. Those primary banks had agreed to provide a
revolving credit facility of £20m. The idea was that, unless the majority
of the primary banks agreed, the Plaintiffs would apply all advances and
drawings in financing and refinancing the making of mortgage loans. The loans
would be short-term at relatively high rates of interest and losses would be
covered by pooled insurance from the Norwich Union. It was part of the
agreement for provision of the credit that the Plaintiffs would "ensure that
each mortgage loan applies in all material respects with the lending criteria"
and "ensure that the terms of the Operations Manual are complied with in all
material respects".
The
Operations Manual laid down in considerable detail what had to be done
including such things as the lending criteria to be adopted and the loan
application and provision procedures. Sub-section l.l contained the product
outline. It stated that the product was "high equity, non-status, short-term."
The loan period would be for a maximum period of six months, but at the
discretion of the Plaintiffs could be renewed at the end of the term for a
further six months. Loans were to be secured by way of first legal charge upon
properties situated in England and Wales. An arrangement fee was to be charged
with interest being charged at 4.5% above the Plaintiffs' base rate; six
months' interest being added to the loan and deducted from the advance with the
balance to be settled on repayment. The borrowers were defined in sub-section
1.4. The maximum acceptable ages of primary borrowers was said to be 54 for
males and 49 for females. Sub-section l.5 required disclosure of details of
the applicant's income which were to be self-certified by the applicant.
Sub-section l.ll laid down that the maximum loan to value ratio was 75%. High
value loans had to be referred to the Norwich Union as underwriters.
Sub-section 1.11 required all loans to be covered by the insurance and
therefore had to be written within the lending criteria in the insurance
policy. Any loans written outside those criteria had to have Norwich Union's
express consent. Under sub-section 2.3 the applications should be processed by
the Bank of Ireland Mortgage Services Ltd (BIMS) on behalf of the Plaintiffs
and in accordance with the manual. Control was to be maintained by the
Plaintiffs. As stated in sub-section 2.9, applications had to be processed
through a number of stages which included obtaining valuations and appointing a
solicitor from a panel. In the case of property valuated in excess of
£500,000 in London or £350,000 elsewhere, two surveyors were
necessary. The purpose of the valuation reports was to establish that the
property in question complied with the Plaintiffs' lending criteria and would
form good security for the advance requested. The amount to be lent was to be
computed as a percentage of the forced sale value as opposed to the open market
value of the property. The maximum percentage advance relative to value was set
out in Appendix 2 as 65% where the maximum loan amount was £800,000. Loan
amounts in excess of £800,000 were subject to referral and individual
consideration of percentage advance relative to value.
Pursuant
to the agreed arrangements the Plaintiffs held themselves out as being able to
provide loans in, for example, five days. As required the Plaintiffs used the
services of BIMS. They did what can be termed the "leg work", but the
important decisions were the responsibility of the Plaintiffs, in this case
Mr
Dexter who was one of their directors. Thus BIMS did the searches, obtained
the required valuations and when appropriate instructed a firm of solicitors
selected from the panel to carry out the legal formalities.
In
May l990 Mr and Mrs Marsden required finance. They approached the Plaintiffs
using a firm of mortgage brokers for a bridging loan. Their application was
for a loan of £750,000 secured against their house, Hatfield Manor, which
is a Grade I listed house of historical importance. Their loan application was
passed to BIMS on 30 May l990. As required in the Operations Manual, BIMS
instructed two surveyors to advise the Plaintiffs as to the value of the house
on the open market and what the property would fetch on a forced sale in four
months time.
Bernard
Thorpe advised that the house had an open market value of £1m and would
fetch on a forced sale £750,000. The Defendants concluded that it had an
open market value of £1,525,000 and on a forced sale would be worth
£1,342,000. Their valuation was consistent with an unsigned valuation of
an open market value of £1.5m that had been supplied to only the Yorkshire
Building Society. On l June l990 the Plaintiffs offered Mr and Mrs Marsden a
gross advance of £846,501 12p which after deduction of interest and the
arrangement fee provided a net advance of £750,000. The loan was to be
for six months secured by way of a first mortgage on the house. It was
accepted and the paperwork was completed. The Marsdens were unable to repay
the loan and on 28 January l99l the Plaintiffs' solicitors were instructed to
take proceedings to recover the amount due. An Order for possession was
obtained on l7 April l99l. On l2 April l99l administrative receivers were
appointed over the Plaintiffs. They instructed new solicitors, who obtained a
valuation from Messrs Jackson-Stops & Staff that the house was only worth
£150,000. That figure took into account the state of repair of the
property and the obligation which fell upon the owners to the building being
listed as Grade I. Upon receiving that valuation the receivers decided to
suspend the warrant of possession, believing, rightly or wrongly, that they
could expose themselves to liabilities, which exceeded the value of the house,
arising from the obligation to keep the house secure once possession had been
obtained and from the obligation imposed by reason of its being listed.
In
l994 the Plaintiffs commenced these proceedings alleging damage by reason of
the Defendants' negligent valuation. At first the Defendants denied the
valuation was negligent, but before trial they accepted that they had been
negligent and that at the relevant time an appropriate valuation would have
been in the order of about £250,000. Even so, they resisted the
Plaintiffs' claim upon the grounds that the valuation did not cause any damage.
Alternatively they alleged contributory negligence. Those were the matters
which came before the Judge and arose on this appeal.
Causation
Mr Stewart who appeared for the Defendants submitted that to succeed the
Plaintiffs had to establish both that they had relied upon the Defendants'
negligent valuation and that it was a material part of the cause of the damage.
He reminded us of a number of cases in which the Courts have held that the
Plaintiff had not established reliance. In
Berg
Sons & Co Ltd
v
Adams
(1992) BCC 66l the Defendants were held not to be liable for the damage that
had occurred because the Plaintiffs had not relied upon the certificate of the
auditors. The cause of the damage was the reckless conduct of the Plaintiffs.
In
Banques
Bruxelles Lambert SA v Eagle Star Insurance Co Ltd
(1995) 2 AER 769 Phillips J held that the lenders had not relied on the
valuation in that they had believed that they could go ahead upon their own
conclusion as to value. The Court of Appeal in
JEB
Fasteners Ltd v Marks Bloom & Co
(1983) l AER 583 held that, although the Plaintiffs had been aware of and had
considered the relevant accounts, they had not to any material degree affected
the Plaintiffs' judgment in deciding to take over the company. In those
circumstances the Judge was correct to decide that there had been no reliance
upon the accounts.
Mr
Stewart submitted that to succeed the Plaintiffs had to establish that they had
relied upon the Defendants' valuation believing it to be correct. Mr Patten QC
who appeared for the Plaintiffs, accepted that the Plaintiffs had to establish
that they relied upon the Defendants' valuation and that it was causative.
But, relying on the judgment of Millett LJ in
Bristol
West Building Society v Mothew
(1996) 4 AER 698 he submitted that the Plaintiffs did not have to establish
that they would not have made the loan if the valuation had been different.
I
do not believe there is any need to delve into the intricacies of the law of
causation and therefore for the purposes of this judgment I accept the law as
submitted by Mr Stewart. Thus to succeed the Plaintiffs had to establish that
they relied upon the Defendants' valuation in making their decision to lend to
Mr and Mrs Marsden in the sense that they would not have gone ahead without the
Defendants' negligent advice and that, if a non-negligent valuation had been
supplied, the Plaintiffs would not have made the loan. They also had to prove
that the advice was a material cause of the damage.
Having
analysed the evidence the Judge concluded:
"My
conclusion on the question of causation is that the Plaintiffs did place such
reliance on the Defendants' valuation, so that it played "a real and
substantial part in inducing" the Plaintiffs to make the loan: see per
Stephenson LJ in
JEB
Fasteners Ltd v Marks Bloom & Co
(1983) l AER at page 589. I arrive at that conclusion as a natural inference
from the unchallenged facts that the Marsdens made application to the
Plaintiffs for a loan offering as security the property, that in the process of
processing the Marsdens' loan application the Defendants were instructed to
value the property, that they did so in the terms of their valuation report of
l June, that simultaneously Messrs Bernard Thorpe were invited to value the
property in accordance with the Plaintiffs' operations manual and that their
report also dated l June was transmitted to the Plaintiffs who had been
provided with a copy of the Yorkshire Building Society's document also
appearing to give the property a value similar to that given by the Defendants,
and finally, that an offer of loan in the amount requested by the Marsdens was
made and was drawn down on 4 June which did not, on the Defendants' valuation
involve a substantial departure from the prescribed loan to value ratio. In
making the loan on security the Plaintiffs were plainly relying on a valuation
of that security. It seems to me to be a clear inference that in making this
loan they were relying on the Defendants' valuation possibly supported by the
Yorkshire Building Society document in preference to that of Messrs Bernard
Thorpe. I further conclude that at least on the balance of probabilities, in
the light of the provisions of the Plaintiffs' operations manual prescribing
loan to the value of security ratios that had the Plaintiffs been in possession
of a competent valuation that is one at approximately the same level as the
valuation given by Messrs Jackson-Stops & Staff in July l99l they would not
have made the advance which they made to the Marsdens. The fact that Messrs
Bernard Thorpe's valuation appears also to have been incompetent, though to a
lesser degree, does not affect this conclusion. Nor is the conclusion affected
by the fact that on other occasions the Plaintiffs appear to have made
substantial loans without any valuable security or on terms which offend
against their own operations manual. I have no evidence of the considerations
which may have led the Plaintiffs to do so in those cases. It is clearly open
to the Plaintiffs to vary their own internal rules where the commercial
circumstances of the case in question may make it sensible for them to do so.
In the case of the Marsdens' loan the Plaintiffs also departed from the strict
criteria governing the loan to value ratios prescribed by the operations manual
but there was not in the evidence any indication that the Plaintiffs would have
been likely to lend to the Marsdens substantially unsecured."
Mr
Stewart criticised the reasoning of the Judge on four grounds. First he
submitted that the Judge had not paid sufficient attention to the fact that Mr
Dexter had not given evidence. He was the key witness and there was no
explanation put forward as to why he had not been called. In the circumstances
Mr Stewart submitted that the Judge should have inferred from Mr Dexter's
absence that his evidence would have been adverse to and, in any case, would
not
have supported the Plaintiffs' case. Further he should not have accepted that
Mr Dexter would have acted in a sensible way. There was no evidence to show
that he had not decided to make the loan before the Defendants' valuation was
received and would have done so even if the Defendants' valuation had been
correct. He submitted that the correct approach was that advocated by the full
court of the Supreme Court of Victoria in
O'Donnell
v Reichard
(1975) VR 916. That was a case in which the Plaintiff was claiming damages for
psychiatric harm and the Defendants alleged that she was a malingerer. The
Plaintiff failed to call three doctors who had examined her and the Judge had
instructed the jury to disregard that fact. On appeal that instruction was
challenged. Gillard J said page 921:
"Looking
at the authorities from
Blatch
v Archer
,
supra, right up to
Earle's
case, supra, it may accepted that the effect of a party failing to call a
witness who would be expected to be available to such a party to give evidence
for such a party and who in the circumstances would have a close knowledge of
the facts on a particular issue, would be to increase the weight of the proofs
given on such issue by the other party and reduce the value of the proofs on
such issue given by the party failing to call the witness. It should be added
that direct evidence of availability of the witness is rarely adduced in
evidence. Generally speaking, the proof that a witness is available is a
matter of inference from all the circumstances. Sometimes evidence is given to
stifle criticism by showing that a witness is not available."
Newton
and Norris JJ said at page 929:
"It
is sufficient to say that in our opinion for the purposes of the present case
the law may be stated to be that where a person without explanation fails to
call as a witness a person who he might reasonably be expected to call, if that
person's evidence would be favourable to him, then, although the jury may not
treat as evidence what they may as a matter of speculation think that that
person would have said if he had been called as a witness, nevertheless it is
open to the jury to infer that that person's evidence would not have helped
that party's case; if the jury draw that inference then they may properly take
it into account against the party in question for two purposes, namely:
(a)
in deciding whether to accept any particular evidence, which has in fact been
given, either for or against that party, and which relates to a matter with
respect to which the person not called as a witness could have spoken; and
(b)
in deciding whether to draw inferences of fact, which are open to them upon
the evidence which has been given, again in relation to matters with respect to
which the person not called as a witness could have spoken."
For
myself I do not dissent from the view expressed by the Judges in
O'Donnell.
The Court should not speculate as to what a person would or would not have
said if he had been called as a witness. It is open to the Court to draw such
inferences, as on the facts before the Court, are appropriate. In doing so,
and in deciding whether or not to accept evidence that was given, it is
permissible to take account of a party's unexplained failure to call a witness
who on the face of it could have given direct evidence on the matters in
question. Beyond this, each case must depend upon its own particular facts.
In the present case the Plaintiffs alleged both reliance and causation. Both
were denied by the Defendants, but the only positive case pleaded by the
Defendants was that the Plaintiffs had relied upon the Bernard Thorpe
valuation. That positive case was not pursued and in those circumstances the
Judge was right not to infer that Mr Dexter would, if he had been called to
give evidence, have stated that he relied upon the Bernard Thorpe valuation.
To decide the issues of reliance and causation the Judge had to look at such
evidence as there was and, taking into account that he did not have the
advantage of evidence from Mr Dexter as to what was his attitude, he had to
decide whether the Plaintiffs had discharged the onus on them. In my view that
is what the Judge did.
Second,
Mr Stewart submitted that the documents before the Court could not be relied on
as establishing the truth of the statements made in them and without the oral
evidence of Mr Dexter there was no sufficient evidence that he had relied on
any valuation, let alone the Defendants' valuation. It cannot be disputed, nor
was it disputed, that the documents written by Mr Dexter were not evidence of
the truth of the statements in them. However that does not mean that they were
irrelevant. They showed how the transaction was made and the information
passing between the parties concerned with the loan. That history had to be
considered together with all the surrounding circumstances. For my part I do
not believe that the Judge's judgment is open to criticism upon this ground.
In fact I believe he accepted Mr Stewart's submission as correct.
Third,
Mr Stewart drew attention to the fact that Mr Dexter had not in all respects
carried out the requirements of the Operations Manual. First, Mr Marsden was
over 60, and second the lower of the two valuations was not used. The first
deviation is not of great weight in this case in view of the fact that the loan
was to be repaid by long term finance which appeared to be available. The
second was reported to the Norwich Union who appeared to accept the position.
It also throws no light on whether the Plaintiffs relied on the Defendants'
negligent valuation.
Fourth,
Mr Stewart relied on the fact that on two occasions the Plaintiffs had lent
without appropriate security to support his suggestion that Mr Dexter could
have decided to make the loan whatever the valuation. There is little evidence
before the Court on these transactions but in any case there does not appear to
be any close similarity of fact which would throw any light on what Mr Dexter
thought or might have thought. The Judge cannot be criticised for not relying
upon them in his judgment.
There
were factors before the Judge which could have been interpreted as pointing in
the Defendants' favour. However the procedure in the manual was followed as
the documents show. Further the history is only consistent with reliance and
causation.
Mr
and Mr Marsden completed an application form for a loan of £750,000 to be
secured by a first mortgage on the property. It contained errors, but they do
not appear to me to be relevant. A day later the Plaintiffs prepared a
quotation for the mortgage brokers which was based on a value of £1.5m,
stated to be subject to valuation. On the same day Mr Dexter wrote to the
Norwich Union who insured the Plaintiffs against loss stating:
"Re:
Client - Marsden
I
confirm your agreement, subject to valuation of a loan for c. £846,000 on
a property valued by the client at £1.5m and for mortgage purposes by the
Yorkshire Building Society who have indicated an "in principle" willingness to
lend.
You
have given us approval at a loan value ratio up to 60%, ie property valuation
down to £1.41m, as above subject to valuation."
That
letter was required by the Operations Manual as the amount to be advanced was
over £800,000.
The
Defendants' valuation was supplied on l June l99l as was that of Bernard
Thorpe. They must have been conveyed to Mr Dexter on that day because he wrote
to the Norwich Union on the l June in these terms:
"Re:
Client: Marsden
We
have carried out two valuations plus we have been given a copy of a valuation
carried out for the Yorkshire Building Society, the results are as follows:
Valuations
for us
Name
FSV LMV
Bernard
Thorpe £750,000 £1m
Colleys £1.342m
£1.525m
Valuation
for Yorkshire Buildg Socy -
£1.5m
On
this basis the Bernard Thorpe valuation appears out of line. We therefore
propose relying on the Colleys valuation which with a loan of c. £846,000
provides for an LTV of 63.1%.
From
a commercial viewpoint we would then approach Colleys in the first instance if
any losses result.
The
exit route appears covered as both the Yorkshire and the Bristol and West have
indicated in principle willingness to lend. You have confirmed willingness to
insure in the circumstances."
That,
as Mr Stewart pointed out, did not, in the absence of evidence from Mr Dexter,
prove the truth of what was stated. However it forms part of the history.
Further the logic of the letter is clear. It informs the Norwich Union that
reliance was being placed on the Defendants' valuation.
Mr
Stewart accepted that the offer which was made was calculated as 63% of the
Defendants' valuation, but submitted that that did not mean that the Plaintiffs
relied upon the Defendants' valuation. In theory that is right as the
Plaintiffs could have decided to make the loan whatever the valuation. However
that seems inherently unlikely as there was no evidence of any relationship
between Mr Dexter and the Marsdens and there is no evidence to suggest that
this was a case where an advance would have been made whatever the valuation,
particularly when the valuation by Colleys was grossly negligent. Most things
are possible, but Courts are concerned with probabilities and in particular
with the balance of probabilities.
On
the same day, the l June, Miss Lisa Daniel of BIMS, on the instructions of Mr
Dexter, completed the form to proceed with figures supplied by Mr Dexter. It
indicated that the initial underwriting was satisfactory, that a solicitor had
been instructed and the applicant advised. It stated that two valuations had
been obtained and that the loan valuation report was satisfactory so that the
solicitor should proceed with a maximum advance of £846,501-12p. with an
LTV of 63%.
Using
information given by Mr Dexter, Miss Daniel made the offer on l June to Mr and
Mrs Marsden. That was an offer to lend Mr and Mrs Marsden a gross advance of
just over £846,000 for six months which, with the payment of interest and
the balance of the arrangement fee, gave a net advance of £750,000. That
was to be secured by way of a first mortgage on Hatfield Manor. It was
accepted that the loan was calculated at about 63% of the forced sale valuation
provided by the Defendants.
That
sequence of events and the documents show, on the balance of probabilities,
reliance by the Plaintiffs on the Defendants' negligent advice and that the
advice was a significant cause of the damage. Two valuations were obtained.
They differed. As required by the Operations Manual the Plaintiffs reported to
their insurers and told them that they were going to rely upon the valuation of
the Defendants. That seems to have been accepted by the insurers. The
Plaintiffs advised BIMS to go ahead on the basis of the Defendants' valuation.
It seems incredible that Mr Dexter would have made the loan without relying on
a valuation and, in particular, if he had been advised that the house was only
worth about £250,000.
The
conclusion which I have reached is in my view inevitable when it is realised
that no document or evidence was produced to the contrary. The Judge came to
the right conclusion for the right reasons.
Contributory
negligence
Before
the Judge the Defendants put their case in a number of ways. On appeal they
limited their case to the allegations set out in paragraph 20(c) of the
Defence. In that paragraph it was alleged:
"(i) The
Plaintiff chose to ignore the lower valuation provided by Bernard Thorpe
without making an enquiries before making the loan as to the reasons for the
difference between that valuation and the one provided by the Defendants. No
prudent lender should have adopted such a course which was directly contrary to
the Plaintiffs' Operations Manual.
(ii) Had
prior enquiries been made of Bernard Thorpe prior to the loan being made, the
Plaintiff would or should have concluded that it should rely on the valuation
being the lower one provided to it."
That
was considered by the Judge. He said:
"The
question is, therefore, whether I can be satisfied that if, on the assumption
that, by reason of the marked difference between the valuations of the
Defendants and Bernard Thorpe the Plaintiffs were put on inquiry and ought as a
result to have reverted to their valuers for confirmation, whether they would
in fact have gone ahead and made the advance, on the further assumption that
the valuers would have reacted as they did in fact react when questioned by the
Plaintiffs about their valuations. The result would have been that the
Plaintiffs would have been deciding whether or not to lend £846,000 on the
basis of a valuation by Bernard Thorpe giving an open market value of £1m
and a forced sale value of £750,000 and a valuation of the Defendants
recently and reluctantly reduced from £1.5m to £1.2m which would have
thrown up a forced sale value of £1.05m. Bearing in mind that on this
issue the burden of proof rests on the Defendants in my judgment the Defendants
have failed to discharge that burden even without ascribing any weight to the
Yorkshire Building Society document. On this issue I bear in mind that the
Defendants elected to call no evidence and in particular not to call their
expert banking witness. It follows that in my judgment the Defendants have
failed to make out a case for the reduction of the Plaintiffs' damages by
reason of the Plaintiffs' contributory negligence."
The
judgment does not give any reason for rejecting the Defendants' submission
other than the Defendants had not discharged the onus on them. In particular
he does not come to any conclusion as to whether a prudent lender would have
taken steps to satisfy himself that the Defendants' valuation was satisfactory.
Apportionment
of liability in a case of contributory negligence is provided for in Section l
of the Law Reform (Contributory Negligence) Act l945.
"1 Apportionment
of liability in case of contributory negligence
(1) Where
any person suffers damage as the result partly of his own fault and partly of
the fault of any other person or persons, a claim in respect of that damage
shall not be defeated by reason of the fault of the person suffering the
damage, but the damages recoverable in respect thereof shall be reduced to such
extent as the court thinks just and equitable having regard to the claimant's
share in the responsibility for the damage:
Provided
that -
(a) this
subsection shall not operate to defeat any defence arising under a contract;
(b) where
any contract or enactment providing for the limitation of liability is
applicable to the claim, the amount of damages recoverable by the claimant by
virtue of this subsection shall not exceed the maximum limit so applicable.
(2) Where
damages are recoverable by any person by virtue of the foregoing subsection
subject to such reduction as is therein mentioned, the court shall find and
record the total damages which would have been recoverable if the claimant had
not been at fault."
The
Court's task is to decide whether any of the damage suffered by the Plaintiffs
was the result of the Plaintiffs' fault. In this case Bernard Thorpe valued
the house at £1m which was £500,000 less than the value of the
Defendants. Moreover, they deducted 25 per cent rather than (12.5) per cent
from the open market value in assessing the forced sale value. Were the
Plaintiffs at fault in going ahead with the loan without further enquiries?
Mr
Stewart submitted that the loan scheme being operated by the Plaintiffs was
based upon the loan advanced being secured by a first mortgage on a house whose
forced sale valuation was sufficient to ensure repayment. In this case the
difference between the valuations supplied could not be accounted for by
variation in opinion. It followed that a prudent lender, if he were going to
select the higher of the two values, should have realised that further
enquiries needed to be made. If so, such a lender would have consulted the
Defendants who would have revised their figures thereby indicating that only a
loan of between £600,000 and £700,000 was justified. (This was based
on figures they gave when they were approached later in l99l). Thus, he
submitted, the Plaintiffs were at fault for lending over £800,000.
Mr
Patten submitted the Plaintiffs could not be blamed for using the Defendants'
valuation rather than that provided by Bernard Thorpe. Despite the difference
in the valuations, the loss was caused by the Defendants' valuation, not by
anything the Plaintiffs had done. It was that valuation which had been relied
on and had been the cause of the loss, not anything done by the Plaintiffs.
The
Defendants did not call any expert evidence. The Plaintiffs' expert, Mr
Bryant, did not believe that the Plaintiffs were negligent. However he
accepted that in the absence of cover by the Norwich Union, it would have been
prudent to check the valuations with the valuers. If that be right, I believe
that the Defendants would, as they did subsequently, have reduced their
valuation. Even though it is now agreed that a proper valuation was no more
than £250,000, the Defendants have to accept that, even if they had been
asked to reconsider their
figure
they would not have reduced it below (£1.2m) as they did later.
In
my view the failure to review the valuations in the light of their differences
was negligent. The Plaintiffs did not act in the way a prudent lender would
have acted, particularly as they were selecting the higher of the two
valuations. It is reasonable to conclude because the Plaintiffs relied upon
the Defendants' valuation, which upon checking would have been reduced, at
least part of the damage was caused by their omission to check whether it was
correct. What would have happened is a matter of speculation, but I believe
that the damage was due, in part, to the Plaintiffs' fault and therefore it is
necessary to
decide
by how much it would be just and equitable to reduce the damages.
Bearing
in mind the grossly negligent advice given by the Defendants and that, if the
Defendants had been given the chance to review their valuation, their advice
would still have been grossly negligent, I believe it would be just and
equitable to reduce the damages by 25%. Therefore, I would vary the Judge's
Order to that extent.
LORD
JUSTICE WALLER :
I
agree.
LORD
JUSTICE EVANS :
I
also agree.
Order: appeal
allowed to the extent stated in judgment, i.e. judge's order varied so as to
allow for 25% contributory negligence and sum of £817,048.46 substituted
for the award below; no order as to the costs of the appeal. [Not part of
approved judgment]
© 1997 Crown Copyright