England and Wales High Court (Chancery Division) Decisions

Frost v. James Finlay Bank Ltd & Cozens & Ors [2001] EWHC Ch 404 (25th June, 2001)

Case No: HC 9606145

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 25 June 2001

B e f o r e :

Mr James Dingemans (instructed by Freemans, Solicitors for the Claimant)
Mr Michael McParland (instructed by Collier Bristow, Solicitors for the Defendant [Bank])
Mr Jonathan Bellamy (instructed by Lynch Hall & Hornby, Solicitors for the Defendants [surveyor])

JUDGMENT

Hearing: Tuesday 03 April - Wednesday 11 April 2001

Judgment: Monday 25 June 2001 at 10.00am

1. This judgment determines three actions which were tried together before me over seven days from 3 to 11 April 2001. In the first action the claimant Sara Frost (now known as Sara Cameron but to whom I will refer as "Mrs Frost") sues James Finlay Bank Ltd ("the bank"). In the second, Mrs Frost sues the former partners in a firm of surveyors called the Scrase Hewlitt Partnership ("Scrase Hewlitt"). The third action was brought by the bank against Scrase Hewlitt. In each case the cause of action is in tort for negligence.
2. In January 1990 Mrs Frost was the owner of a long leasehold interest in a house at 7 Ingleby Drive, Harrow on the Hill, Middlesex ("the property"). The property, then thought to be worth some £500,000.00, was subject to two charges, one in favour of Eagle Star to secure a loan of £50,000.00 and accrued interest and the other in favour of Lloyds Bank to secure a loan of £60,000.00 and accrued interest. Apart from her interest in the property and some valuable chattels (a Rolls Royce car, jewellery, a collection of designer dresses and so forth) she was in straitened financial circumstances. The property had been the matrimonial home of herself and her first husband, Gerald Cameron, a successful business man who had died on 6 February 1976 at the early age of 57. Mrs Frost was left reasonably well provided for on his death. In March 1977 she formed a relationship with Stanley Frost ("Stanley") whom she married in the following year. At some point Stanley became the adoptive father to Harvey, the son of the first marriage, who was about six years old at the time of his father's death. It would appear that Mrs Frost's financial assets were, over the course of time, dissipated by Stanley. Stanley was a chartered accountant by profession but in business as an electrical wholesaler. In 1984 Stanley was made bankrupt and received a four year sentence of imprisonment for fraud. By 1989 the couple were living on State benefits. The property was by that time in joint names, having been so placed in 1977 when the couple first raised money on the property by borrowing from Eagle Star. Stanley's trustee in bankruptcy had claimed an interest in the property but this was bought off for some £100,000.00 with funds provided by Stanley's elderly aunt in the latter part of 1989.
3. Mrs Frost had come to the conclusion in 1989 that the property would have to be sold. She took the view, however, having consulted local estate agents, that a much better price would be obtained if the house were first refurbished. It had been built as part of a new development in the early 1970s and Mrs Frost and her first husband had been its first purchasers. It was now somewhat run-down and neglected, and many of its fittings no longer in style.
4. Against this background Mrs Frost applied to the bank for a facility of £250,000.00 over two years. £200,000.00 was to be drawn down to refinance the existing charges and to pay for the refurbishment, with £50,000 being retained by the bank to cover the interest, which would be rolled up during the term of the facility. Relying on a report from Scrase Hewlitt that the property was worth £550,000 in its current condition for loan purposes and which also reported that "it is not out of the question that in due course once the property market improves, this property in tip top condition could expect to obtain a valuation approaching £1,000,000.00", the bank agreed to grant the facility. On about 25 January 1990 Mrs Frost drew down the facility. After paying off the earlier charges and the bank's facility fee Mrs Frost was left with some £75,-80,000.00 in hand.
5. There is controversy, to which I shall have to return, as to how much of this money was spent by Mrs Frost on her planned refurbishment. It is clear, however, that some works were put in hand over the course of the following eighteen months or so. In particular large areas of the ground floor were paved in granite (apparently much in vogue at that time in this part of Harrow-on-the-Hill) and the kitchen enlarged and re-equipped. By April 1991 builders employed by Mrs Frost had begun work on the exterior. They reported to her that they had observed cracking in the structure of the property which they believed indicated a structural defect. This was reported to Mrs Frost's insurers, Ecclesiastical Insurance Group plc ("EIG"), who appointed Ellis & Buckle to act as loss adjusters. On the latter's advice Mrs Frost instructed consulting engineers to report on the problem. The firm she chose, which was not on EIG's panel, was Burt & Millea. They produced a preliminary report on 16 August 1991.
6. In the meantime Mrs Frost had applied for and obtained a further advance of £50,000 from the bank principally in order to cover interest accruing on the original advance in excess of the original facility. By January 1992 her total indebtedness to the bank amounted to some £288,285.00.
7. For the next six and half years Mrs Frost continued to live at the property, with Stanley and Harvey, while that debt increased. For a variety of reasons it did not prove possible either to put in hand a programme of repair to the structural defects or to sell the property. In early 1994 the bank formally claimed repayment of the monies then due under its legal charge (then claimed to be £372,248.57) and on 26 April 1994 appointed a Mr A J Miles, a chartered surveyor, to act as a Law of Property Act receiver and manager of the property. On 28 June 1995 the bank began possession proceedings against Mrs Frost, obtaining an order for possession on 17 November 1995. On 8 March 1996 Carnwath J ordered that the possession order be suspended for one year. This was to enable the necessary remedial works to be executed and the property sold and the bank's debt (then being claimed as approaching £500,000) repaid from the proceeds. In the meantime Mrs Frost had started (by a writ issued on 7 February 1996 and served on 4 June 1996) an action against EIG claiming damages for their failure timeously to accept her claim under her insurance policy and to authorise the necessary remedial works. EIG eventually (in March 1997) agreed to execute the remedial works and Mrs Frost's action against EIG was later (on 13 October 1998) compromised on terms that EIG would complete the remedial works, and pay her £140,000.00 damages and all her costs. By this time, however, it was too late to be able to resist any further the possession order. Extensions of the suspension granted by Carnwath J were obtained until June 1998 but an application for further suspension was refused by Master Bowman on 23 October 1998. The Frosts were by then no longer in physical occupation of the property, having moved out to permit the remedial works to be completed. The bank thereafter took steps to market and sell the property, eventually achieving a sale in September 1999 for £695,000.00. By that time Mrs Frost's debt to the bank had risen (depending on the way in which interest is calculated) to either some £800,000.00 or some £882,000.00 even after crediting the £140,000.00 received from EIG. As at the 1 April 2001 Mrs Frost's debt to the bank stood at either £172,731.05 or £285,829.02.
8. In raw and round terms, therefore, the price which Mrs Frost has paid for borrowing £200,000.00 from the bank in 1990 is that she has lost the equity she then had in the property and still owes the bank at least £172,731.00. Her life, ever since the discovery of the cracks in April 1991, has been a miserable, desperate and ultimately unsuccessful attempt to stave off complete financial disaster and the utter extinction of her former way of life. She has had to sell off the treasured relics of her first marriage, the Rolls, the jewellery, and the dresses. She now lives, in very reduced circumstances, with her son. She is still paying, by instalments, utilities bills in respect of the property.

Mrs Frost's claims against the bank and Scrase Hewlitt

9. Mrs Frost's claim against the bank is that her losses stem from the bank having advised or required her to insure with EIG. Prior to the grant of the bank's facility she had been insured with Eagle Star. Her case is that had she remained insured with Eagle Star, most if not all, of the subsequent problems which emerged would not have arisen. She alleges that the bank was negligent in advising or requiring her to change insurers because, at the material time, the bank was in possession of a report from Scrase Hewlitt the contents of which made it imprudent to change insurers. That report, which was dated 19 July 1989, contained the following passage:

"There is evidence of some minor movement to one side of the house with cracking to the brickwork around the window opening. It is possible that some localised stabilisation may be required, but we have no reason to anticipate significant problems."

It is contended that it was manifestly dangerous to change insurers in the light of a report containing that passage: a new insurer might seek to avoid liability altogether for non-disclosure, or to argue that damage from subsidence was the responsibility of the old insurer.

The principal issues raised by this claim are therefore:

(1) Did the bank advise or require Mrs Frost to change insurers?

(2) If so, did the bank owe her any duty of care in so advising or requiring?

(3) If so, was it in breach of that duty?

(4) If so, did that breach cause any and if so what damage to Mrs Frost?

(5) Is Mrs Frost's action against the bank statute-barred?

The bank has a counterclaim against Mrs Frost for the sums still outstanding. As to this, while Mrs Frost claims a general account, the principal issue is as to whether the bank is entitled to claim interest at the default rate of 14% under the facility letter.

10. Mrs Frost's claim against Scrase Hewlitt is founded on a conversation she alleges which she had with Mr Cozens, the partner in Scrase Hewlitt who inspected the property prior to making the 19 July 1989 report. In essence her claim is that she specifically raised with Mr Cozens the possibility of subsidence and received from him an unequivocal assurance that the property was structurally sound. The principal issues here are:

(1) Whether Mr Cozens did say what he is alleged to have said;

(2) If so, whether Mr Cozens owed her any duty of care in saying what he did;

(3) If so, whether he was negligent;

(4) If so, what damage (if any) was caused by that negligence;

(5) Whether the action is statute barred.

The bank's claim against Scrase Hewlitt

11. The bank's claim against Scrase Hewlitt is based on the passage in the 19 July 1989 report which I have quoted above. In essence the complaint is that Mr Cozens failed negligently to appreciate the real significance of the cracking mentioned in his report. The principal issue here is negligence, or not. There is no limitation issue, the bank's writ having been issued on 24 January 1996 (six years less one day from the date of drawdown under the facility).

The witnesses

12. I heard oral evidence from the following witnesses:

For Mrs Frost

(1) Mrs Frost;

(2) Mr Philip Wilson, a property developer customer of the bank and friend of Stanley, who introduced Mrs Frost to the bank;

(3) Harvey Frost;

(4) Natalie Colwill, a friend of Mrs Frost;

(5) Jacqueline Hibbert, a friend of Mrs Frost;

(6) Ossie Main, a friend of Mrs Frost;

(7) Mr Laurence Pitts BA (Hons), MRTPI., FRICS, a partner in Mayfords, Chartered Surveyors, who gave expert evidence in relation to Mrs Frost's claim against Scrase Hewlitt.

For the bank

(8) Mr James Ritchie Strachan ("Mr Strachan"), at the material time a director of the bank with over-all responsibility for its retail operations (including commercial lending);

(9) Mr John Hamilton Lamond ("Mr Lamond"), who was from March 1991 onwards was employed by the bank as a manager in its lending department with particular emphasis on recoveries;

(10) Mr John Mungo Ingleby ("Mr Ingleby"), who from 1988 to 1994 was the managing director of the bank;

(11) Mr Andrew Stuart McInroy ("Mr McInroy"), who was employed by the bank as a manager in its lending department from 1981 to February 1991;

(12) Mr Malcolm Macdonald ("Mr Macdonald"), who was a director of James Finlay Financial Services Limited (JFFS) a company which was at all material times until 1991 75% and thereafter 100% owned by the bank, and which itself had two wholly owned subsidiaries, James Finlay (Insurance Brokers) Ltd ("JFIB") and James Finlay (Insurance Services) Limited. In 1991 JFFS became a wholly owned subsidiary of the bank. Mr Macdonald was also a director of JFIB which itself carried on business under the name JFFS.

(13) Mr Miles;

(14) Mr Peter Beckett, a surveyor and estate agent from the Harrow on the Hill area, who gave evidence as to a visit he had paid to the property in about 1984.

(15) Mr Andrew Geoffrey Irvine ("Mr Irvine") a partner in Collyer-Bristow, the bank's solicitors in this action, who deposed to a conversation he had had with Mr Wilson in September 2000 in relation to the accuracy of an affidavit sworn by Mr Wilson on 2 February 1996 in the possession proceedings;

(16) Mr Clive Marjoram, BSc MRICS ("Mr Marjoram"), a chartered building surveyor, who gave expert evidence in relation to the bank's claim against Scrase Hewlitt.

For Scrase Hewlitt

(17) Robert G Cozens, the partner in Scrase Hewlitt who visited the property in July 1989, spoke to Mrs Frost, and made the 19 July report;

(18) Neil Miller BSc (Hons), FRICS, IRRV, a partner in Laurence Vackar Partnership, chartered surveyors and structural engineers, with particular expertise in valuation, who gave expert evidence.

13. The central issues of fact raised on the pleadings relate to events which took place in 1989 and 1990 and in particular to conversations which then took place between, principally, Mrs Frost and Mr Strachan, and Mrs Frost and Mr Cozens. Allegations in respect of these conversations first surfaced at a much later date. The passage of time will necessarily have dimmed memories, and dim memories have also been, almost inevitably, sharpened and re-shaped by the process of reconstruction and repetitive assertion which has been occasioned by the extensive litigation which has ensued. In addition, in the case of Mrs Frost, the intervening dark years of financial hardship and emotional stress have taken a psychological toll. At a number of points in her evidence, she attributed her lack of recollection to the psychological problems (depression and panic attacks) from which she suffered and for which she was under medication. I was satisfied, however, that her account of the relevant conversations was an honest one, in the sense that they had not been deliberately contrived by her as a false account. Whether it was accurate is quite another matter. Given the passage of time I have considered it more than usually necessary to have regard to the inherent probabilities, and the contemporary documentation, in assessing the accuracy of particular recollections.
14. A significant omission from the list of witnesses was Stanley. He and Mrs Frost are now divorced and she has (as has Harvey) reverted to the name of Cameron. Nevertheless it was clear that she had relied heavily on Stanley throughout the years of her indebtedness to the bank and in the subsequent and current litigation. His evidence would have been particularly material on a number of questions, in particular on how the bank's money had in fact been spent and on various aspects of the progress of the insurance claim. He was not, however, called as a witness despite his evident availability (he was present in court throughout the trial). Mr Dingemans (who appeared on behalf of Mrs Frost) explained that he could not be tendered as a witness of credit having regard to his previous conviction.

Did the bank advise or require Mrs Frost to change her insurers?

15. Mrs Frost was introduced to Mr Strachan by Mr Wilson who, in turn, had been alerted to her need to raise funds for refurbishment by Stanley. The introduction took place at a meeting on 29 June 1989 at the bank's London offices in Osnaburgh Street. Mrs Frost's present picture of her state of mind at that time is that she was almost crippled by anxiety as to whether her plan to borrow money and refurbish the property before selling was sensible, but that having discussed the proposal with Mr Strachan she was entirely reassured by him that she was doing the right thing. She was so struck by his reassurances and the charm of his manner towards her that she felt she could place herself entirely in his hands. This picture wholly accords with such view as I was able to form of her personality. She is a woman who both by nature and by nurture has been encouraged to expect to arouse male protective instincts. The untimely end of her first marriage, and Stanley's lamentable and disappointing shortcomings, left her more than usually vulnerable to feelings of dependence where reassurance came from an apparently solid source. In this case the source was a charming mature Scottish banker, introduced to her by Mr Wilson as "Jimmy", whom she almost immediately came to regard as her friend and saviour. Mr Strachan had no immediate reason to suppose that he was the object of such feelings. The proposition with which he was presented was relatively simple in banking terms, albeit somewhat out of the usual run of the bank's lending (which was more commercial). It was a proposal for short-term lending on the security of property which the customer was proposing to refurbish and sell. Mrs Frost's account that he told her that he thought her refurbishment plans sounded a good idea, and that, if the property were as beautiful as he had been told, the bank would be happy to lend money on it, can be accepted in general terms. Her conviction that he also told her to lay aside all her worries and to rely on his advice as to the benefits to be obtained from the proposed refurbishment, to the point of constituting himself her investment adviser, did not, however, persuade me.
16. The factual issue here on which the pleadings turn is whether at this meeting the question of insurance was raised and, if so, whether Mr Strachan either advised or required her to change her insurers. Mrs Frost's version of the conversation in this respect has varied. The high watermark of her case is represented by her witness statement in these proceedings, where she said:

"Jimmy said he would like me to change my insurance company. I was advised by the bank via Jimmy, to go to "his" brokers, James Finlay Financial Services Limited. Jimmy told me I could rely on them and they would advise me as to the best insurance company, because the bank required new insurers. I was persuaded to obtain new insurers and, of course, I followed the advice given to me."

In her oral evidence under cross-examination she put it rather differently. She no longer asserted that she had been required to change insurers. It had simply been suggested to her that she might like to use the services of the bank's brokers, and that she "got the feeling that it would be part of the loan". This account came closer to that contained in a witness statement made in the EIG proceedings on 17 September 1998 that:

"It was a condition of the Bank's facility that they were satisfied with the buildings insurance cover and Mr Strachan had advised me to use the Bank's insurance services as I would get better service. I followed the advice given to me and completed the Proposal Form from the Ecclesiastical Insurance Company."

17. Mr Strachan's original account was given in an affidavit sworn in the possession proceedings on 21 September 1995. He then said:

"During our discussion Mrs Frost told me that her existing insurers, Eagle Star, had refused to continue cover on the property. I offered to put her in touch with James Finlay Financial Services Limited which operates from the same building, but in separate offices, as the Bank. Mrs Frost accepted my invitation and I subsequently learned effected a policy with Ecclesiastical Insurance Group."

He was, however, subsequently persuaded that his recollection of what he had been told of Eagle Star's refusal to continue cover must have been a false one. His considered position before me was that, while Eagle Star had been referred to during the discussion, it was more likely that the reference would have been to the loan from Eagle Star than to the insurance position. He now doubts whether the subject of insurance was discussed at all at this meeting. He is adamant that he neither sought to persuade or encourage her to change insurers or to use the services of the bank or its subsidiary JFFS for that purpose.

18. So far as the formal position is concerned there is no doubt that it was not a term or condition of the proposed lending either that the insurers should be changed or that the services of JFFS should be employed. What the facility letter required was that:

"The lender shall require to be satisfied with the insurance cover of the Borrower and will utilise the services of its Insurance Services Division in this connection...."

This was, by 1989, standard practice within the bank. The reference to "its Insurance Services Division" was a reference to JFFS. The impression I received was that prior to the arrival of Mr Ingleby as managing director of the bank, the banking and insurance activities of the two parts of the Group business had been carried on in comparative isolation from each other. His policy had been to introduce practices designed to make the two parts of the business more aware of each other. Whatever the purposes implicit in such a policy, I am quite satisfied that Mr Strachan himself had a conscious and conscientious objection to making particular insurance arrangements a condition of a loan. The bank required to be satisfied as to the insurance, but it was otherwise entirely a matter for the customer as to with whom the insurance was effected. Others in the bank testified to Mr Strachan's known line on this matter.

19. The procedure in the bank in relation to the approval of loans was that an Advance Proposal Form would be completed for submission to members of the bank's credit committee. A copy of this form would be passed to JFFS so that it could satisfy itself as to the insurance. It was the practice of Mr Macdonald of JFFS then to make contact with the customer in order to check the existing insurance position. His evidence was that:

"if the customer did not have insurance cover or did not have a policy which met the Bank's requirements to use the opportunity of the telephone call to ask whether the customer wished to use the services of JFFS to effect insurance cover. I never exerted any form of pressure on a customer to use JFFS. I did no more than tell the customer of the help JFFS could provide."

20. Mr Macdonald did not recall making contact with Mrs Frost, but it appears certain from the documents that he made contact either with her or her solicitors, Carlson & Co, in the early part of August, and by 10 August 1989 was in a position to write to the latter with a recommended quotation for £500,000 cover (the figure advised by Scrase Hewlitt) from EIG. It is also reasonably clear that by this time Mr Macdonald had ascertained that the existing insurance was with Eagle Star, albeit at a lower level of cover. He enclosed a proposal form with his letter for an insurance with EIG. Mr Macdonald then heard nothing further about the matter until February 1990.
21. The delay in the meantime was the result of Mrs Frost having to take steps to clear the claims of Stanley's trustee in bankruptcy and to deal with a charge on the property enjoyed by Bank Leumi. These matters were not finalised until January 1990 by which time Mrs Frost was expressing herself as anxious to complete the loan as soon as possible.
22. By the time of completion on 25 January 1990 nothing further had been done about insurance. The bank's solicitors had assumed that the bank had already satisfied themselves of the position. Mr McInroy, the manager at the bank with responsibility for the transaction, has no independent recollection of how the situation came about. What can be inferred from the file is that the question of an insurance proposal form had already been chased up in mid January, when Mr Carlson had asked to be supplied with a further copy of a proposal form for completion by Mrs Frost. This request was only made (one can infer) because, by a letter dated 12 January 1990, Mr McInroy's assistant (Mr Wilkinson) had written to the bank's solicitors asking them to pursue Mr Carlson on the question of the return of the original proposal form. The bank's solicitors replied on 16 January reporting that:

"The solicitors acting for and on behalf of Mrs Frost have confirmed that they have contacted their client in relation to the Proposal Form but it would assist them if we would arrange for a further form to be sent to us so that they may if necessary attend upon Mrs Frost personally and make sure that the matter is dealt with."

On 7 February 1990 the bank's solicitors at Mr McInroy's request now again chased Mr Carlson on the question of insurance as a matter of urgency. Mrs Frost recalled in her evidence being visited by Mr Carlson with a proposal form completed by Mr Carlson, which she then signed. She said that she had on that occasion asked Mr Carlson whether she was doing the right thing in making a proposal to EIG and been told by him that one reputable insurer was as good as another. It is clear from the file that, on 9 February, Mr McInroy took steps pending receipt of the completed proposal form and its acceptance by EIG, to obtain immediate cover by instructing Mr Macdonald accordingly. It is a reasonable inference (and one I make) from his manuscript annotations to a letter of that date from the bank's solicitors, that before doing so he spoke on the telephone either to Mrs Frost or Stanley to satisfy himself that the proposal form was to be received and that he had authority to give instructions for the obtaining of immediate cover.

23. The signed proposal form was received by the bank under cover of a letter from the bank's solicitors dated 15 February 1990. It was submitted by JFFS to EIG on 22 February 1990 and accepted by the latter on 1 March 1990 subject to a requirement that EIG be permitted to carry out a "brief survey". The survey concerned took place on 26 April 1990.
24. I return to the question of what was said about insurance at the initial meeting with Mr Strachan. I consider it more likely than not that the question of insurance was raised. That would accord with the initial recollections of both Mrs Frost and Mr Strachan. It would also accord with the likelihood that there would have been some discussion between them as to what the bank would have to do before Mrs Frost could get the money. One requirement was that someone from the bank would visit the property (in the event it was Mr Strachan himself who did so and who once again impressed Mrs Frost with his charming compliments both of herself and of her house). Another was that Malcolm Macdonald would be in touch with her about the insurance. Given Mr Strachan's distaste for cross-selling, I am sure that he neither encouraged or advised her to change, or to consider changing, her insurers. It is conceivable that she herself raised a question about insurance since she was at the time in arrears with her premium under the Eagle Star insurance. If she did it is equally conceivable that Mr Strachan would have told her to have a word with Malcolm Macdonald when he made contact, and would have reassured her that he would be able to look after the question of insurance for her. The only finding of fact which I make is that Mr Strachan told her that the bank would have to be satisfied as to the insurance position and that she would in due course be hearing from the bank's brokers in the person of Mr Macdonald on the subject.
25. What happened, thereafter, was that Mrs Frost was offered the opportunity by JFFS of making a proposal to EIG for insurance and, under the guidance of her own solicitor, appears to have decided in principle to make such a proposal. There was nothing inherently irrational in such a decision. At the level of cover required Mr Macdonald's belief was that the EIG premiums would be lower than Eagle Star's (although he did not in fact investigate this). The bank, in the course of processing the transaction, simply assumed that the proposal was going to be made. It never asked JFFS to advise it on the adequacy of the existing Eagle Star policy. The correspondence between the bank's solicitors and Mr Carlson in January and February 1990 (the contents of which have to be inferred from the letters between the bank and its solicitors) must have read (to the recipient) as if, by that stage, the bank was insisting that it was a term of the facility that the proposal to EIG be completed by Mrs Frost. Neither Mrs Frost nor Mr Carlson had any reason to quarrel with that requirement. As Mr Carlson observed, one reputable insurer was as good as another.
26. My conclusion is that, although the bank did not advise her to change insurers, its actions led her reasonably to believe that she was required to do so as a condition of the facility. The route by which I have arrived at this conclusion raises a pleading point. The "requirement" relied on by Mrs Frost in the pleadings is alleged to have been the requirement imposed by Mr Strachan at the initial meeting. On this point I have found against her. Mr Dingemans submitted that this alternative route was open to him on the pleadings. I doubt that. In the course of his closing submissions he formulated an amendment which he sought permission, if necessary, to make to the particulars given under paragraph 16 of the re-amended Statement of Claim. That pleads negligence by the bank in

"failing to advise the plaintiff of the contents of the [19 July] report before the plaintiff accepted the loan and acted in January 1990 on advice given by the defendant at the meeting in central London in June or July 1989 particularised in paragraph 4 above to follow the recommendations of James Finlay Financial Services Limited on a change of insurers."

The amendment sought is to add the words "or through the defendant's requirements in correspondence and/or on the telephone in January 1990" and to make a corresponding addition to each of the succeeding sub-paragraphs where appropriate. This was opposed by Mr McParland on the ground that the case had not been foreshadowed in Mrs Frost's witness statement, that earlier notice of it might have enabled access to Mr Carlson's files to have been achieved, that (had it been pleaded) further information or interrogatories would have been sought, that this was a case where the goalposts had already been moved too often in the past, and that his whole case had been prepared on the basis that the relevant advice or requirement had been that of Mr Strachan at the initial meeting. While finding Mr McParland's exasperation at this late amendment entirely forgivable, I was not persuaded by his objections. With the exception of Mr Carlson's files, all of the evidence relevant to the point has emerged as a result of the preparation of the case on the original pleadings. They necessarily involve an inquiry as to the precise chain of events which led Mrs Frost to change her insurers. I do not think that a more timeous pleading of the point would have altered the way in which the case has in fact been prepared for trial. I would accordingly allow the amendment.

Did the bank owe Mrs Frost a duty of care in advising or requiring her to change insurers?

27. The extent to which a bank owes a duty of care to its customer is well settled by a number of authorities. There is, in general, no duty of care owed by a bank to its customer to consider the prudence of any lending to the customer or to advise the customer of the wisdom of the project for the purpose of which the bank is asked to lend money. As Scott LJ observed in Lloyds Bank v Cobb, 18 December 1991, unreported:

"In my judgment, the ordinary relationship of bankers and customers does not place on the bank any contractual or tortious duty to advise the customers on the wisdom of commercial projects for the purpose of which the bank is asked to lend money. If the bank is to be placed under such a duty, there must be a request from the customer, accepted by the bank, or some arrangement between the customer and the bank, under which the advice is to be given.

If a customer applies to the bank for a loan for the purposes of some commercial project, and the bank examines the details of the project for the purpose of deciding whether or not to make the loan, the bank does not thereby assume any duty to the customer. It conducts the examination of the project for its own prudent purposes as lender and not for the benefit of the proposed borrower. If the borrower chooses to draw comfort from the bank's agreement to make the loan, that is the borrower's affair. In order to place the bank under a duty of care to the borrower the borrower must, in my opinion, make clear to the bank that its advice is being sought. The mere request for a loan, coupled with the supply to the bank of the details of the commercial project for whose purposes the loan is sought, does not suffice to make clear to the bank that its advice is being sought."

Mr McParland for the bank found further support for this proposition in the judgment of Ralph Gibson J in Williams & Glyn's Bank v Barnes [1981] Com LR 205 in a passage not there reported but which can be found quoted at pages 17 to 18 of the transcript of a judgment of His Honour Judge Robert Taylor (sitting as a Deputy Judge in the Queens Bench Division) in Verity and Spindler v Lloyds Bank plc, 4 September 1995.

28. The same is true where the lending bank is proposing to take a mortgage on a property and has it valued for loan purposes. The mere fact that the bank obtains a valuation does not establish a duty of care on the bank to ensure that the property is or has been properly valued. As Lord Jauncey observed in Smith v Eric S Bush, Harris v Wyre Forest District Council [1980] 1 AC 831 at 872:

"The fact that A is prepared to lend money to B on the security of property owned by or to be acquired by him cannot per se impose upon A any duty of care to B. Much more is required. Were it otherwise a loan by A to B on the security of property, real or personal, would ipso facto amount to a warranty by A that the property was worth at least the sum lent."

29. On the other hand it is equally clear that if a bank in fact assumes an advisory role in relation to its customer, a duty of care will arise. Woods v Martins Bank [1959] 1 QB55 provides an illustration of this principle in operation, as does Verity and Spindler v Lloyds Bank plc to which I have referred above.
30. On the findings of fact I have made the bank did not "advise" Mrs Frost to change insurers. Insofar as anyone advised her in relation to the change of insurers it was Mr Macdonald of JFFS and her solicitor Mr Carlson. A question does arise as to the extent to which the bank assumed responsibility for the "advice" given by Mr Macdonald. I will return to this question. It is necessary first to examine the question whether there was any relevant assumption of responsibility by the bank implicit in its having "required" Mrs Frost to change insurers. In his closing submissions, Mr Dingemans put the matter in the following way:

"The authorities relied on by the Bank are an accurate statement of law in relation to lending - but do not, and have never, extended to the situation where there is an advice or requirement. The relevant authorities are summarised in Verity (pages 17-18). However, although it is not part of the ordinary business of a bank to advise on financial transactions, if they choose to do so the Bank will owe duties. Similarly it is not part of the ordinary business of a bank to operate as an insurance broker (requiring or advising on change of insurers) but if they choose to do so the Bank will owe duties to do so with reasonable care and skill."

31. The problem with that formulation, as it seems to me, lies in its conflation of "requirement" and "advice". If a bank is truly advising its customer to change insurers, one can readily see that it may owe a duty of care to the customer to bring to the customer's attention any fact known to the bank relevant to the prudence of the proposed change. If, however, the bank simply makes it a term of the proposed facility that the insurers are changed, I am unable to see why this should place on the bank an obligation to consider on the customer's behalf whether that is a prudent course for the customer to take, any more than it is its duty to consider the wisdom of any other of the terms of the facility from the customer's point of view. As explained in the judgment of Ralph Gibson J in Williams & Glyn's Bank v Barnes in the passage already cited:

"When a customer goes into a bank, such as this Plaintiff bank, and asks for a loan for a stated purpose, the bank will know that, if the taking of the money, and the application of it for the stated purpose, would be commercially or financially imprudent, a borrower may be severely damaged financially thereby ... The bank may have within its staff people with the necessary skills to evaluate the information so obtained, and to decide upon the apparent prudence of the transaction from the point of view of the customer and, therefore, the bank could consider the prudence of the transaction from the customer's point of view. Lastly, the customer in most cases would know that if the bank does consider the lending imprudent from the bank's point of view, or from the customer's point of view, the bank will say so because the bank will refuse to make the loan and, in explaining its decision, is likely to explain why it regards the transaction as ill-advised. Does this relationship impose upon a bank the duty to consider the prudence of lending from the customer's point of view, when the bank has not been asked, expressly or impliedly, to advise thereon; does the relationship impose the duty to tell the customer that the borrowing, and the application of the loan intended by the customer , are or may be imprudent, if the bank knows or ought to know that such borrowing and application are imprudent, and therefore may be the cause of financial loss to the customer? In my judgment, in such circumstances, no duty in law arises upon the bank either to consider the prudence of the lending from the customer's point of view, or to advise with reference to it. Such a duty could arise only by contract, express or implied, or upon the assumption of responsibility and reliance stated in Hedley Byrne or in cases of fiduciary duty. The same answer is to be given to the question even if the bank knows or ought to know that the borrowing and application of the loan, as intended by the customer, are imprudent."

32. So here, the mere fact that the bank knew or ought to have known of a fact which (I assume for this purpose) made it unwise for Mrs Frost to accept the terms of the facility does not necessarily involve the bank in the assumption of any responsibility for the consequences if all that it was doing was making the change of insurers a condition of the facility. The position would, however, be different if, in relation to its contractual requirement that the insurers be changed, the bank agreed to act or even insisted on acting as the customer's broker in effecting the new insurance. In those circumstances the bank would owe the customer all the duties ordinarily owed by an insurance broker to his client; and in the discharge of those duties I see no reason why the bank should be entitled to erect a Chinese wall between information in its possession qua potential lender and information coming to it as broker. The customer would reasonably assume that all relevant information would be available to the bank in its role as broker.
33. Did the bank in any relevant sense act as Mrs Frost's insurance broker? In formal terms the answer is negative. The broker of the new insurance was JFIB trading as JFFS. The facility letter, however, described JFIB as "its [i.e. the bank's] Insurance Division". Mr Macdonald agreed in cross-examination that the point of the policy of involving JFFS in the insurance aspects of the proposed transaction was:

"to offer individual clients of the bank, whether they were corporate or personal, the full facilities of the organisation. The facility which I was offering was an insurance broking service."

When Mrs Frost (or Mr Carlson) was contacted by Mr Macdonald in August 1989 and invited to use JFFS's services as broker, she was in my judgment entitled to assume that the services being offered were services being provided by the bank, and that all appropriate care and skill would be employed in their discharge. Accordingly, I conclude that the bank did assume the responsibility of a broker in the particular circumstances which developed.

Was there a breach of the duty of care?

34. On the approach I have taken the question is whether it was a breach of an insurance broker's duty of care and skill to accept instructions from Mrs Frost to obtain new insurance for her from EIG with the knowledge that there was existing cracking in the property as reported to the bank in the 19 July 1989 report. There is, I should emphasise, no question of JFFS having itself been negligent in this respect. Mr Macdonald was never privy to the 19 July report, that being so far as he was concerned, confidential to the bank. The question I have to determine is what his attitude should have been had he in fact been aware of the report.
35. In cross-examination Mr Macdonald was taken to the report, which he had not previously seen. He agreed that if he had been approached by a client and asked for advice in relation to the reported cracking, he would have advised that it be reported to the existing insurers. It was put to him that to take out a new insurance would lead to problems with the new insurers when the client himself became aware of the cracking. He agreed that this was possible, but adverted to the agreement which exists between insurers as to how to deal with the problem of subsidence claims. This was a reference to an agreement sponsored by the Association of British Insurers in 1994 under which (subject to certain conditions) there was agreement that the new insurer would meet the claim. Mr Macdonald was therefore constrained to agree that in 1990, in a case where there was existing cracking, a change of insurer might give rise to problems.
36. This seems to me no more than common sense. By the EIG policy, EIG agreed to indemnify Mrs Frost in respect of loss or damage to the property caused by an "insured event", and insured events included "subsidence or heave of the site on which the buildings stand or landslip". The proposal form for the insurance included a question (14) "Have the buildings to be insured ever suffered damage by subsidence heave or landslip or is there evidence of any such damage in the neighbourhood? If yes please give details?" The answer given was "Yes. One house in Ingleby Drive suffered subsidence which was repaired. This was some 10 or more years ago. There are 12 houses in Ingleby Drive". Armed with the 19 July report, a broker acting for Mrs Frost would have been bound to draw Mrs Frost's attention to the need to disclose its relevant content to the insurance company to minimise any risk of the insurer subsequently seeking to avoid the policy for material non-disclosure. Moreover, even if the view could be taken that no such disclosure to the new insurer was necessary, there would be an obvious risk that the new insurer might take the view that its liability was restricted by reference to the time, either of the occurrence of the relevant insured event or to the occurrence of the loss or damage caused by that event. The true construction of the EIG policy so far as that is concerned is by no means clear, as appears from an opinion of counsel (Mr Andrew Onslow) subsequently obtained by the bank. On any interpretation of the 19 July 1989 report, some loss or damage had already been caused to the property, possibly by an insured event which had already occurred.
37. I also derived some support from what I have described as the common sense of the matter from the evidence of Mr Miles. He agreed that it would be foolish to change insurers at a time when information was to hand that there was cracking at the property and that stabilisation might be required.

Did the breach cause any and if so what damage to Mrs Frost?

38. Mrs Frost's claim to have suffered any damage rests on the premise that, as a result of changing her insurers from Eagle Star to EIG, she can be seen to have suffered damage. In essence her case is that, had the property remained insured with Eagle Star, the insurance claim would have been satisfactorily settled either (a) within a period of about 18 months from first notification of the claim in May 1991 (i.e. about November 1992); or (b) within a reasonable time following receipt of a final report by the engineers Burt & Millea in September 1993 or (c) within a reasonable time after receipt of a "final report" from Peter Kelsey & Partners in September 1995.
39. Determination of this claim involves a close examination of the detailed history of the insurance claim and its eventual settlement. This does not lend itself readily to compression. Some of the material which needs to be examined goes also to the question of what Mr Cozens should have reported on in July 1989, and where appropriate I note this also in this section of the judgment. To render the whole intelligible, it is helpful to have a larger picture than I have yet conveyed of the layout of the property and the location of the various problems from which it came to be seen as suffering. It is also helpful to have some key dates in mind.
40. Key Dates:

I identify these as:

1991

1 May 1991: Stanley Frost reports the builders findings to JFIB

29 May 1991: Ellis & Buckle, Loss Adjusters acting on behalf of EIG report to EIG, recommending a reserve of £15,000.00.

August 1991: Burt & Millea, consulting engineers instructed by Mrs Frost, make preliminary report ("the B&M preliminary report");

1992

14 February 1992: Burt & Millea make a further report ("The B&M second report");

1993

July 1993: Burt & Millea make a further report ("the B&M third report").

1994:

25 April 1994: WS Atkins review the work carried out by Burt & Millea.

26 April 1994: Mr Miles is appointed to act as LPA receiver and manager of the property.

19 May 1994: Mr Miles obtains a desktop report from Oscar Faber Consulting Engineers Limited

27 September 1994: Peter Kelsey & Partners, consulting engineers, are appointed jointly by Ellis & Buckle and Mr Miles.

6 November 1994: Mr Miles reports on damage to roof of the flat.

1995

18 January 1995: EIG refuse to renew the insurance policy.

February 1995: First report by Peter Kelsey.

12 July 1995: Revised report by Peter Kelsey.

28 June 1995: Bank's action for possession.

2 November 1995: Second report by Peter Kelsey.

1996:

7 February 1996: Mrs Frost commences action against EIG.

10 April 1996: Peter Kelsey produces estimate of costs for remedial work.

May 1996: Third report by Peter Kelsey.

12 August 1996: Further survey by Peter Kelsey.

18 November 1996: Fourth report by Peter Kelsey.

1997

11 March 1997: EIG agree to carry out remedial works.

26 June 1997: Fifth report of Peter Kelsey.

1998:

January 1998: The remedial works go out to tender.

26 February 1998: Sixth report of Peter Kelsey.

30 March 1998: Remedial works commence.

November/December 1998: Remedial works completed.

1999

8 March 1999: Sixth report by Peter Kelsey.

21 September 1999: Property sold.

Description of the property and its problems

41. The buildings at the property comprise, principally, the main house which fronts onto the driveway. Also fronting on the driveway (but wholly detached from the main house and in fact attached to the corresponding element in the neighbouring property) is a separate garage and chauffeur's flat ("the flat"). To the rear of the main house is a swimming pool with associated amenities. At the rear of the main house attention needs to be focused on the southern flank wall (which includes at ground floor level windows to the lounge and dining rooms), the western ("rear") wall which includes a chimney stack, and the northern flank wall (which includes the window to the kitchen/breakfast room). The ground falls away at the rear of the property. There are retaining walls behind the swimming pool and also between the north western corner of the flat and the point at which the northern flank wall of the house joins the rear wall. The cracking which Mr Cozens noted in the 19 July report was cracking on one part (the dining room end) of the southern flank wall of the house. The cracking which alerted the builder's attention in May 1991 was cracking on the rear wall. Later reports identified cracking also on the northern flank wall. It is possible that the cracks in these walls had a common cause. The flat turned out to suffer what was almost certainly a separate problem, which in the fullness of time led to its being demolished and re-constructed. Over the years controversy reigned as to both as to the cause of the damage to the main house and whether its cure lay simply in repairs to the superstructure or whether additional support to the foundations was required. The eventual decision was that superstructure repairs alone were required, although it appears that this final specification was itself later varied to provide for a limited amount of underpinning.

Analysis of the delays:

42. May 1991 to April 1994 Ellis & Buckle, the loss adjusters appointed by EIG, responded promptly to the notification of the claim, advising Mrs Frost by letter dated 28 May 1991 that she would have to appoint a consulting engineer and that it was likely that a period of monitoring would have to be implemented in order to establish the overall pattern of movement. Mrs Frost decided not to appoint an engineer from the list provided by Ellis & Buckle, but decided instead to appoint Burt & Millea. Their August 1991 Report identified problems in three areas: the driveway, suffering from subsidence associated with trees (recommendation: careful pruning); the rear and flank walls of the house, suffering from subsidence (recommendation: trial pits to be dug to ascertain foundation soil conditions); and rear wall of the flat suffering from horizontal water and soil pressure: (recommendation: further investigations). It was not, however, until 4 December 1991 that Mrs Frost formally signed a memorandum of agreement between herself and Burt & Millea. Trial holes were excavated in December 1991. Burt & Millea's conclusions in February 1992 were (1) as to the house, that the subsidence was caused by the clay foundation having become softened by the presence of excess water believed to originate from either the swimming pool or leaking surface water drainage systems (2) as to the rear wall of the flat, a similar diagnosis was made and (3) as to the retaining wall, the possibility that it suffered from a design defect was mooted. The report made clear that the trial pits had not in fact been deep enough to expose the foundation soil and that further monitoring of the rear wall of the garage ( "a minimum of six months") was likely to be required.
43. The monitoring appears to have come to an end in May 1992 as a result of non-payment of Burt & Millea's fees. As at May 1992 the monitoring was showing no significant movement. Ellis & Buckle were refusing (and continued to refuse) to recommend payment of the fees without a full break-down. JFIB pressed Ellis & Buckle during the ensuing months on the question of the fees, eventually taking the matter up directly with EIG and securing their assistance in resolving the matter. By October 1992 Ellis & Buckle found themselves having to justify their handling of the matter to EIG. In a letter to EIG dated 28 October 1992 they re-iterated their view that Burt & Millea were overcharging. They stated their own view (supported to some extent by Burt & Millea's report) that the damage to the garage/flat was not the result of subsidence (and was therefore outside the policy), and stated their view that underpinning of the house was unnecessary (there being no continuing movement). By the year end, they were maintaining the view that the originally advised reserve of £15,000.00 (now a balance of £10,300 after payment of fees to date) would remain adequate, subject to review if works to the foundation should be agreed.
44. Monitoring continued during the first half of 1993 despite ongoing wrangling over Burt & Millea's fees. This was in part due to the fact that Ellis & Buckle were now proceeding on the footing (which was explained both to the bank, JFIB and the Frosts) that part of the problem lay outside the insurance policy. So far as the principal claim is concerned, my impression from the correspondence is that both EIG and Ellis & Buckle were at this stage anxious to achieve a final resolution of the problem but needed first to see Burt & Millea's final recommendations. On the correspondence it appears to have been Burt & Millea who were slow to respond. Eventually a joint meeting was held on site on 28 May 1993 attended by Mr Brown (EIG) Mr Petrie (Ellis & Buckle), Mr Strachan, Mr Macdonald, Mr Burt and Mr and Mrs Frost. The flavour (from Stanley's point of view) is conveyed by his contemporary note:

"Brown said that he could not proceed without all the necessary information and instructed Burt to proceed with digging bore holes. Brown said that this should have been done at the very beginning! Burt agreed but said that he was refused permission by Petrie. Petrie said he was carrying out Brown's instructions. Strachan said there was no point in Burt's comment and that he should now get on with the work!"

The upshot was that EIG agreed to pay for four bore holes at each corner of the house, drainage testing and testing of the swimming pool pipe works. Mr Burt continued to maintain a view that underpinning was likely to be necessary.

45. Burt & Millea produced a further report in July 1993, identifying the cause of the excess water in a combination of natural groundwater and leaking drains. They recommended drainage repairs, formation of holes in and a new drainage system for the retaining walls, and corrective structural repairs.
46. Ellis & Buckle wrote to Burt & Millea on 12 August 1993 indicating that EIG were agreeable to the latter's proposals. At this stage there seems to have been no reservation with regard to the claim in respect of the retaining wall. Nothing remained outstanding to be agreed save for the process of obtaining estimates for the proposed works. Matters did not, however, proceed smoothly forward. Burt & Millea now pointed to the fact that they were still owed money on outstanding invoices. This was a matter which appears not to have been focused on at the site meeting in May. It was not until 14 October that this matter was sorted out. On that date Ellis & Buckle reported to EIG, recommending direct payment of the invoices, and advising a revised balance of reserve of £24,000.00. On the same day they wrote to Burt & Millea, emphasising that they regarded the fees charged to date (in excess of £10,000.00 for purely investigative work) as excessive, and insisting that they have a clear and acceptable proposal in relation to future fees before proceeding further. Burt & Millea duly made such a proposal (a further £10,000) but it was rejected as unreasonable by both Ellis & Buckle and EIG. The latter determined, in late November 1993, that the way forward lay in the appointment of new engineers to carry on where Burt & Millea had left off.
47. Stanley was upset at this decision. He set great store by Burt & Millea, and believed that EIG's decision was simply part of a campaign of delaying tactics from which Mrs Frost had already suffered. Ellis & Buckle stuck to their guns, advising EIG that the Burt & Millea fees were unreasonably high. EIG agreed, themselves assessing those fees as some four times the expected level (see Mr Brown's letter of 31 January 1994). Mr Macdonald sought unsuccessfully to broker a compromise. Mr Burt encouraged Stanley to believe that only he could satisfactorily do the job, and insisting on his firm's copyright in its plans and reports. In an effort to persuade EIG that the fee proposals were reasonable Stanley sought alternative quotations. These did not yield the fruit for which he had hoped. The first (Brian Pyle Associates) indicated that they would be happy to do the work for 15% of the final contract sum (EIG's stipulation), but indicated that they did not think the Burt & Millea investigations were conclusive. The second, WS Atkins, cast some serious doubts on the Burt & Millea diagnosis, but provided some support on the fees question. WS Atkins opined that underpinning was likely to prove to be the only permanent solution. All this generated much correspondence, but no further progress on the ground.
48. My conclusion on this period is that the causes of the delay and recurrent periods of inactivity lay largely in the scepticism of Ellis & Buckle both as to the reasonableness of the fees being incurred by Burt & Millea and as to the quality of their expert conclusions. It was submitted by Mr Dingemans that objections of this kind were exactly the kind which might be expected from a new insurer facing a substantial claim shortly after having gone on risk, and that it should be inferred that the same problems would not have arisen had Eagle Star remained the insurer. I do not accept that. The claimant has had the benefit of full disclosure from EIG. There is no trace in its documentation from this period of its having struck any such attitude. The chemistry of the delays lay somewhere in the mixture of the personal attributes of Mr Burt and Mr Petrie (of Ellis & Buckle), with occasional dashes of Stanley. One of the problems was that it was not perceived at the outset by Mr Petrie as being a substantial claim, as the original reserve makes plain. He consequently perceived Mr Burt's charges for the purely investigative work as quite disproportionate, and his proposed fees for supervision of the contract outrageous. The two of them were destined to disagree. It is not necessary for me to decide who was right (I have of course heard from neither). What I find is that the attitude of Ellis & Buckle (and thence of EIG) was determined by a genuinely held suspicion that Mr Burt was simply trying to milk the situation. I find no basis for saying that EIG's attitude at this stage had been determined at all by the fact that it had only come on risk for the first time in 1990.

The period from the appointment of Mr Miles (April 1994 to July 1995.

49. On behalf of the Bank, Mr Miles had the same concern as Mrs Frost: to get effective repairs done so as to enable the property to be sold. Given WS Atkins reservations as to the Burt & Millea diagnosis, he commissioned a further report from Oscar Faber & Partners. They confirmed the doubts over the Burt & Millea diagnosis. Ellis & Buckle transferred their file to their specialist subsidence unit (represented by Mr Griffith). The upshot was a site meeting in July 1994 at which Mr Griffith's position was that the damage to the house could be dealt with by superstructure repairs to the brickwork, and that the damage to the flat/garage and retaining wall could be assumed to be caused by an uninsured risk. Mr Miles demurred to both stances, believing that a proper investigation of the foundations of the house should first be made.
50. In due course the agreed position of both Ellis & Buckle and Mr Miles was that a completely independent engineer should be appointed if only to "neutralise" the blighting effects of the earlier reports. This resulted, in September 1994, in the appointment of Mr Kelsey.
51. Mr Kelsey's initial report was dated 25 October 1994 and suggested that the problem was not subsidence, but heave. Digging of trial holes and monitoring thereafter proceeded. Mr Miles was hoping that the property could be placed on the market by Easter 1995. Mr Griffith was maintaining a subsidence theory, and that only brickwork repairs to the house would be necessary. Mr Kelsey's first full report was made on 24 February 1995. It contained trenchant criticisms of Burt & Millea's methodology, and reached the conclusion that the damage to the house was caused by clay heave, the result of rehydration of clay sub-soil which had previously lost moisture to a large tree felled in 1972. As to the garage, he concluded that only a small part of the damage had been the result of subsidence. His recommendations as to repair work would depend on whether subsequent movement remained below 1mm per annum. If it exceeded 3mm then he recommended foundation remedial works. On any view he recommended further monitoring until November 1995.
52. However EIG reverted to the question of pre-existing damage on 15 March 1995. Mr Kelsey was asked to produce reports and answer questions relating to pre-existing damage (which could only have been relevant only because of the date on which EIG first came on risk). At this point we also find EIG considering the possibility of raising a non-disclosure defence. The question of an apportionment between Mrs Cameron and Ecclesiastical was raised. The point concerned Mr Miles who warned of difficulties. The problems raised were such that continuing movement was now perceived on the bank's side as helpful to the claim since it reduced the significance of pre-inception damage.
53. Mr Kelsey was in a position to report further by 12 July 1995. At this point he re-issued an amended version of the February 1995 report. Mr Kelsey concluded that because "monitoring is showing a rate of uplift of about 6mm per annum which is very unusual 23 years after the trees were felled underpinning is justified". However substantial parts of the report were devoted to matters relating to pre-existing damage. Mr Kelsey costed option 1 (which he had rejected as a result of monitoring) and option 2. The costing of option 1 provided a basis from which EIG could continue to argue about apportionment for pre-existing damage. Mr Kelsey was not, however, then recommending continuing monitoring.

The period from July 1995 to March 1997.

54. By 5 September 1995 Mr Miles was saying that this was the "definitive report". However it gave substance to EIG's argument about pre-existing damage and Mr Miles was noting the point in discussions with Ellis & Buckle. On 8 September 8 1995 Mr Miles was stating that he was not going to "simply roll over" on this point - the loss adjusters were to expect a good argument. Thereafter, throughout the Autumn of 1995, it is clear that Ellis & Buckle and EIG were determined to exploit the pre-existing damage arguments to reduce EIG's exposure.
55. From Mrs Frost's point of view there appeared to be substantial cause for optimism on 4 December 1995 when EIG wrote to Mrs Frost stating that it intended to accept the claim. However, unknown to Mrs Frost, EIG intended to and thereafter did pursue substantial points on quantum of the claim. Ellis & Buckle confirmed this to Mr Miles on 14 December 1995.
56. At a meeting on 18 December 1995 there was again discussion of pre-existing damage but proposals were made for some repairs. There was recorded to be a reluctance on the part of EIG to `acknowledge the ABI agreement'. On 19 December 1995 Ellis & Buckle wrote without prejudice to Mr Miles pointing out the arguments EIG had and offering a compromise. Ellis & Buckle then commissioned further works from Mr Kelsey. The bank has submitted that these were simply continued monitoring to enable the solution to be determined. In my judgment, however, the true explanation is that Ellis & Buckle hoped that the results of the further monitoring would assist EIG's arguments in relation to pre-existing damage.
57. The period from December 1995 until March 1997 (when, under pressure of Mrs Frost's action and in the light of further reports from Peter Kelsey, EIG agreed to do remedial works) was occupied in attempts to arrive at compromise solutions, and in awaiting the results of further monitoring by Mr Kelsey. It is significant that this further monitoring in fact produced results which, according to Mr Kelsey's earlier advice, might have been expected to lead to a recommendation for underpinning. By November 1996, however, he was no longer making this unequivocal recommendation and was being instructed to undertake yet further monitoring in order to explore whether his earlier recommendations in relation to the flat could be revised in a manner favourable to EIG's position.

Conclusions.

58. It seems to me that the whole of this period of delay (i.e. that from the receipt of Mr Kelsey's July 1995 report to March 1997 a period of some 20 months) can fairly be attributed to the fact that EIG had, and were determined to exploit, arguments concerning pre-existing damage. Delays after March 1997 do not, however, seem to me to be so ascribable. The fact that work on the repairs did not thereafter commence until April 1998 and were not completed until the end of 1998 had nothing to do with the fact that EIG had only come on risk in 1990.
59. On that analysis, but for the period of delay attributable to the change of insurers it can be assumed that the works of repair would have been completed no later than April 1997, i.e. some 20 months earlier than the date when they were in fact completed. In fact there would have been a reasonably good prospect of the works being agreed and commenced in late 1995/early 1996 and completed by the end of 1996. I doubt whether a completion of the works in late 1996 as opposed to April 1997 would have made much difference to the ultimate timing of the sale of the property since I suspect that the view would have been taken that marketing the property in the spring and summer of 1997 would, on either hypothesis, have produced the best price.
60. In those circumstances Mrs Frost's prima facie measure of damage lies in the financial cost to her of that period of delay between April 1997 and December 1998. Since the cost to her lay in her continuing obligation to pay interest to the bank, the measure has to be related to the time at which the property would have been sold had the works been completed in April 1997 and the price it would then have achieved and the time at which and price for which it was in fact sold in October 1999. There will need to be an inquiry for this purpose.
61. It was argued on behalf of the bank that Mrs Frost had already been fully compensated for any delay by her recovery of £140,000.00 against EIG. This occurred in October 1998 when EIG compromised her claim against it by agreeing to pay this sum and her costs. This seems to have been an exceptionally good settlement to have achieved given the difficulties in claiming damages for consequential losses for failure to pay under an insurance policy: see The Italia Express [1992] 2 LL Rep 281 and Sprung v Royal Insurance (UK) Limited [1997] CLC 70. It seems to me clear that Mrs Frost must give credit for this recovery just as she must give credit for any increase in the value of the house during the relevant period. On the figures currently in evidence her debt to the Bank at 29 April 1997 appears to have stood at £641,700. Her debt at 21 December 1998 (when the final tranche of the £140,000 was received) was £699,668.00. These figures assume that the Bank was entitled to charge interest at 14%. If that is wrong the corresponding figures at the current rate of interest are £607,482 and £637,049. If the correct dates to take are the date of putative sale (say July 1997 as against October 1999) the figures are (at 14%) £666,582 and £882,455 and (at the lower rates) £628,147 and £795,285. These figures show a probability that she has suffered some loss, although its exact amount cannot be stated in the absence of evidence as to the date at which, and price for which, the property would have been sold had the works been completed by the end of April 1997.

Is Mrs Frost's action against the bank statute barred?

62. The writ against the bank was issued on 30 September 1996. Mrs Frost's cause of action against the bank accrued at the latest on 9 February 1990 when EIG went on, and Eagle Star came off, risk. Accordingly, in order to succeed, she has to rely either on Section 14A or on Section 32(1) (b) of the Limitation Act 1980 on the basis that the bank's breach of duty was "deliberate" within Section 32(2).
63. Section 14A provides, so far as material, as follows:-

"(3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4) below.

(4) That period is either-

(a) six years from the date on which the cause of action accrued: or

(b) three years from the starting date as defined by subsection (5) below, if that period expires later than the period mentioned in paragraph (a) above.

(5) For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4) (b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.

(6) In subsection (5) above "the knowledge required for bringing an action for damages in respect of the relevant damage" means knowledge both-

(a) of the material facts about the damage in respect of which damages are claimed; and

(b) of the other facts relevant to the current mentioned in subsection (8) below.

(7) For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.

(8) The other facts referred to in subsection (6)(b) above are-

(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and

(b) the identity of the defendant; and

(c) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.

(9) Knowledge that any acts or omission did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.

(10) For the purposes of this section a person's knowledge includes knowledge which he might reasonably have been expected to acquire-

(a) from facts observable or ascertainable by him; or

(b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;

but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice."

64. Mrs Frost's case was that she did not have the requisite knowledge until she received the July 1989 Report from the bank on 24 January 1994. It was submitted on behalf of the bank that she had the requisite knowledge from the moment at which the cracking was discovered in April/May 1991. It was argued that she should at that point have asked the bank for a copy of the report which, on the evidence, would then have been supplied to her. While accepting that she could have obtained a copy of the report at any time, I do not agree that this was a step which she could reasonably have been expected to take at that stage. At that stage she had no reason to suppose that the Bank's actions in causing her to change insurers had caused her any damage at all. But for the fact that the report contained matter which made it dangerous to change insurers, that change would have been harmless. She had no reason to suspect that she might have the cause of action which I have found she in fact had. That is not by itself a complete answer to the bank's claim, since in ascertaining what knowledge she might reasonably be expected to have acquired one is entitled in my judgment to have regard to all the claims which she might reasonably then have been considering. She subsequently made a claim against the bank for having failed to disclose the report to her (but has since dropped that claim); and she has of course made a claim against Scrase Hewlitt for negligent advice as to the structural soundness of the property. In relation to the former claim, now recognised to be unsustainable, I do not think that she should reasonably have been expected to acquire the information. In relation to the latter claim, if it was the case that Mr Cozens had given her an assurance that the property "was structurally sound and not suffering from subsidence" I think that she could reasonably have been expected to ask to see his written report, if not when the cracking was discovered, at least after Burt & Millea had made their preliminary report in August 1991. For reasons I give below, however, I do not accept Mrs Frost's account that she was given any such assurance. She had accordingly no reason to suppose that the report was of relevance to any claim she might have. Accordingly, in my judgment she can rely on Section 14A.
65. That conclusion renders it unnecessary for me to consider the position under Section 32 (1)(b), as interpreted in the relevant decisions in Brocklesby v Armitage & Guest [2001] 1 All E R 172, Liverpool Roman Catholic Archdiocese Trustees Inc v Goldberg [2001] 1 All E R 182 and Cave v Robinson Jarvis & Rolf [2001] EWCA CIV 245. In addition to these cases I simply record my doubt that the decision in Brocklesby is in fact authority for the proposition for which it was taken to stand in the Liverpool RC Archdiocese case and for which it was conceded as standing in Cave. The source of my doubt lies in the way in which the allegations of deliberateness and actual knowledge were pleaded in Brocklesby.

Contributory Negligence

66. In its pleadings the bank raised a number of matters in support of a claim that any loss or damage suffered by Mrs Frost was caused or contributed to by her own negligence (see paragraph 23 of the amended defence and counterclaim). In essence these consisted of allegations that she ought not to have embarked on her refurbishment claim without obtaining for herself a full structural survey, and that in doing so without such a survey she was not relying on the bank. In part these allegations were premised on a further allegation that she herself had known in 1989 that the house had an earlier history of cracking, and was part of a development known to have suffered from subsidence problems. On the facts I did not think that this further allegation was made out. So far as the wider criticisms were concerned, they might have been relevant to a plea of contributory negligence had Mrs Frost's own claim against the bank been put on the basis that, but for the bank's negligence, she would never have borrowed the money in the first place. In the event it was not put on that basis. Her claim, before me, has been limited to the loss occasioned to her by the change in insurers.

Other causation issues

67. For the same reason I regard as irrelevant various other matters of causation which were canvassed. Chief among these was the question of the extent to which Mrs Frost had in fact applied the loan from the bank in the refurbishment of the property. Given the family's parlous financial circumstances, and their historical enjoyment of a relatively sumptuous lifestyle, the suspicion existed that relatively little if any of the net proceeds of the loan had gone into the property. That suspicion was fed by a number of further facts. The whole of the facility was drawn down immediately although it does not appear that any works were commenced until some months later. Mrs Frost and Stanley were unable to provide any documentary evidence of the expenditure which had allegedly been made. The lack was explained by the fact that the builders had been paid in cash or (inconsistently) that the relevant documents had been destroyed when the roof of the flat had collapsed in the autumn of 1994. Their attempts to reconstruct the pattern of expenditure had considerable doubt cast on them by Mr Miles when he gave evidence. There is also the puzzle that Mrs Frost claimed that, following the discovery of the cracking in April 1991, no further works were done on the property. Yet, in the autumn of 1991 and in early 1992 she negotiated a further loan of £60,000 from National Westminster Bank, the purpose of which (she told me) was to help pay for the works to the property. That was not, in fact, what National Westminster Bank was told: it was told that the money was going into a fashion business then being started by Harvey. In evidence before me Harvey denied that this was the case. A company owned by Harvey was also the recipient of the balance (£10,000) of the further loan (£50,000) she negotiated from the Bank to cover outstanding interest.
68. The picture of the family's finances at this period is further occluded by the fact that Stanley's elderly aunt (who had facilitated the original borrowing by paying off Stanley's trustee in bankruptcy) had died leaving Mrs Frost half her net residue. Mrs Frost allowed this money (perhaps over £200,000) to pass to Stanley whom she felt to be the intended recipient. It seems to have slipped through Stanley's fingers with some rapidity: a second hand Porsche was bought for Harvey, and much was spent on a band which Harvey was managing.
69. Apart from illustrating the general financial fecklessness of Mrs Frost and Stanley, these various matters do not in my judgment affect Mrs Frost's present claim against the bank. I am satisfied that a significant amount of the money initially borrowed from the bank was spent, wisely or not, on refurbishment of the property. The money had run out, and the works had not been completed, when the cracking was discovered in April 1991. A different family, in different circumstances, might have dealt differently with the money inherited from the aunt, in particular using it to reduce the growing liabilities to the bank. I am not, however, persuaded that the fact that Mrs Frost did not take this course breaks the chain of causation between the bank's negligence and the loss she now claims.

The Bank's counterclaim

70. Subject to her entitlement to seek an account (which is not in issue: see Gomba Holdings Limited v Minories (No 2) [1993] Ch 171) the only issue under this head relates to the rate of interest charged by the bank during the period when the loan was in default.
71. The facility letter provided for a rate of interest of 12% per annum or the bank's base rate plus 3½% per annum (whichever was the higher): see Clause 1.5. Clause 4.6, however, provided that in the event of a demand for repayment being made "interest will continue to accrue on the capital sum outstanding at the rate of 2% above the rate stated in this letter of offer until repayment in full is received by the lender". In practice, because of the downward movement of interest during the period, the rate under Clause 1.5 became 12%, and the rate under Clause 4.6 14% per annum.
72. It is submitted on Mrs Frost's behalf that the fixed interest rate of 14% during the period of default should be struck down as a penalty. Reliance is placed on the fact that general interest rates during much of the period had fallen far below this figure. It is accepted that the same point can be made about the minimum 12% rate under the facility, but that (having agreed that rate) the penalty argument is not available to her in respect of the 12% rate. This seems to me illogical: by accepting the terms of the facility she agreed both rates.
73. The question of whether and in what matter the law in relation to penalties applies to default rates of interest has recently been considered in detail by Colman J in Lordsvale Finance plc v Bank of Zambia [1996] QB 757. His conclusion, after an extensive review of the authorities, was that a default rate, payable only prospectively from the date of default, would not be struck down as a penalty, at least where that rate was only modestly higher than the previous rate. In the present case the default rate of 14% is 1.66% higher than the previous rate of 12%. There is no sense in my judgment in which such an increase can be described as penal.

Mrs Frost's claim against Scrase Hewlitt

74. Mrs Frost's account is that, when Mr Cozens had finished his inspection, she sat him down in the kitchen over a cup of tea and then had a conversation with him which included a discussion about the susceptibility of the property to subsidence. Her most recent accounts of the conversation graphically depict her pointing out of the window to a nearby house (No 4), describing to Mr Cozens the subsidence history of that property, and seeking his reassurance as to her own. Her claim is that she received an unequivocal assurance that the property was structurally sound. Her witness statement also conveyed her impression that Mr Cozens was not really supposed to have been discussing the matter with her.
75. This account was not inherently implausible. Mr Cozens was not in a position to assert positively that the conversation had not taken place as described by Mrs Frost. He thought, however, that it was improbable that her account was accurate: if the conversation had covered the ground claimed for it, he would have had no reason not to have drawn her attention to the cracking which he had noted for the purposes of his report. Equally, if she had expressed real anxiety about subsidence, he would have reconsidered the conclusion which he had reached about the relative insignificance of the cracking which he had observed. So far, however, as direct recollection was concerned, Mr Cozens only positively disputed the evidence given by Mrs Frost and Harvey that Harvey was present at the time of the conversation.
76. In addition to Mr Cozen's own assessment of the probabilities, other factors tell against Mrs Frost's account. First, her assertion that the question of subsidence was at all on her mind sits oddly with her claim (made in another context) that she had no reason whatever to suppose that the property was susceptible to damage from such a cause. At one point in the history of her litigation with the bank she seems to have given her lawyers the impression that she had raised the whole question of subsidence with Mr Strachan and received his reassurance on the subject (see: the affidavit of Paul Joseph Alexander Grant dated 16 November 1995 sworn in the bank's possession proceedings at paragraph 4). This strongly suggests a state of mind all too ready to project into the past a much more recently acquired anxiety, and then to pin the blame on some authority figure from the past for having allayed that anxiety. Secondly, if the alleged reassurances had been given by Mr Cozens, one might have expected her to raise the subject in some way either when the cracking was first discovered, or after first seeing Mr Cozens' actual report in January 1994. It is of some significance that the initial complaints about Scrase Hewlitt (from August 1995 onwards) related to the contents of the report rather than to an alleged conversation with Mr Cozens. Thirdly, by December 1995, when the writ against Scrase Hewlitt was first issued, the attitude of EIG in relation to pre-inception damage provided a strong incentive for Mrs Frost to persuade herself that she had been reassured in 1989 that there were no structural problems with the property.
77. If one stands back for a moment and asks what is likely to have been on Mrs Frost's mind when she spoke to Mr Cozens in 1989, the answer is that by this time she had made up her mind as to the merits of the refurbishment project, and wanted to get on with it. Her anxiety at that time would have been whether any obstacle existed to the grant of the facility which she had negotiated with the bank. She would, accordingly, have been anxious to elicit from Mr Cozens whether there was going to be anything in his report likely to present such an obstacle. That fits with her recollection that Mr Cozens seemed reluctant to discuss with her matters which were confidential to the bank (in evidence she gave the analogy, possibly learned by her from her lawyers, of a potential insured being examined by the insurance company's doctor). It also fits with her general recollection that what Mr Cozens had to say did allay her anxieties.
78. Taking all these considerations into account it seems to me more likely than not that the reassuring noises made by Mr Cozens related to the impact which his report was going to have on the bank's decision to lend. It seems to me relatively unlikely that they were a response to a specific question about the structural soundness of the house, or its susceptibility to subsidence. It is still less likely, in my judgment, that such reassurances as were given amounted to positive advice (of a type on which Mrs Frost might reasonably rely) such as is now alleged by Mrs Frost. Accordingly, I do not accept the basic premise of her claim against Scrase Hewlitt. She has not satisfied me on a balance of probabilities that her account of her conversation with Mr Cozens was accurate. I have reached this conclusion after taking into account the limited corroboration of her account provided by Harvey.

The Bank's claim again Scrase Hewlitt.

79. In addition to the July 1989 report, the Bank received a further report in October 1991 from Ellis & Co (Estate Agents) Ltd ("Ellis & Co"). The Ellis & Co report was issued in connection with the bank's decision to lend the further £50,000.00 to Mrs Frost principally to cover interest under the original facility (see paragraphs 6 and 67 above). That report, although made after the discovery of the cracking by the builders in April 1991, made no reference whatsoever to any structural problems. Ellis & Co were originally parties to the bank's action against Scrase Hewlitt, but subsequently came to terms with the bank.
80. The bank's pleaded case against Scrase Hewlitt was that the July report was negligently made since:

"(1) "[it] failed to determine, detect, consider or report that the 'minor movement' and 'cracking to the brickwork' ... was evidence of a pattern of damage and distortion in and to the property which could only have been the result of foundation movement, (this being principally caused by clay heave);

(2) "[it] failed to consider the actual cause of the pattern of damage and distortion in and to the property when describing the property as being 'in basically sound condition'"

(3) "[it] failed to detect the presence of foundation movement related damage and distortion throughout the property and its various component parts";

(4) "[it] failed to pay any regard to the likely effect of foundation movement/subsidence related damage to the likely correct valuation of the property";

(5) "[it] should have advised that the condition of the property in July 1989 was either

(a) unsaleable, without substantial works of repair being undertaken; or

(b) unsaleable, if the works of repair had not been undertaken, without a very substantial reduction in the sale price of the property to take account of the unrepaired defects; or

(c) worth substantially less than £550,000.00"."

81. I have quoted directly from the pleading served by the bank on 4 July 1996 signed by Mr McParland. A reasonable expectation might have been that the bank was then, and at trial would be, able to support that pleading by expert evidence. Whatever expert evidence was then available to the bank, at trial it supported its case only by reference to a report from Mr Marjoram dated 27 March 2001, he having been first instructed on 19 March 2001. The ink was barely dry on his report at the commencement of the trial.
82. Mr Marjoram's thesis concentrated on what he perceived to be an internal contradiction within the July 1989 report. This had reported that the property was "basically in sound condition" and that "we have no reason to anticipate significant problems", but had, at the same time, said in relation to the observed cracking that "some localised stabilisation may be required". If, as Scrase Hewlitt had suggested in their pleading, this was a reference to the possible need for underpinning, that itself implied the existence of a significant defect which itself rendered incorrect the statement that the property was basically in sound condition. If, on the other hand, the reference to "localised stabilisation" was not a reference to underpinning, the report fell short in not having adverted to the possibility that underpinning might be required.
83. Mr Marjoram's conclusion was that Scrase Hewlitt ought to have recommended further investigation of the causes of the cracking which had been observed by Mr Cozens. He also concluded that, given the contents of the report as it stood, the bank ought itself to have sought clarification from Scrase Hewlitt. Mr Marjoram did not say that in placing a value on the property (of £550,000) for loan purposes, Mr Cozens had actually got it wrong. The closest he came to this was to say that the need for underpinning would have implied a significant defect "which was likely to materially affect the value of the [property]". Nor did he attempt to say that Mr Cozens had failed to notice matters which he ought to have noticed: in contrast to Mr Pitts (but with access to much of the same material) he gave his professional conclusion that "[i]t is impossible to conclude with any certainty the extent of cracking to the property in July 1989, except than by reference to the report dated 19 July 1989, prepared by Scrase Hewlitt". I should add that, on the whole of the evidence, that is my own conclusion.
84. In my judgment this evidence falls short of what is necessary to make out a case of negligence against Scrase Hewlitt. It demonstrates that the report did note the only matter then visible and did so in terms which should have alerted the bank to the possibility of a problem. It does not demonstrate that Mr Cozens' own conclusion that the problem was not a significant one was one which no reasonably competent surveyor could have formed in July 1989. As to that, there is no certainty even to this day that the cracking observed by Mr Cozens was caused either by the subsidence hypothesised by Mr Burt or the heave hypothesised by Mr Kelsey. Mr Miller produced an alternative theory under cross-examination that this particular cracking (between a door and window opening) was the result of thermal contraction and the deflection of the window lintels, the cure for which would, at worst, have been the insertion of an expansion joint. Even Mr Pitts, whose thesis depended on there having been much more extensive cracking at the time than that actually observed by Mr Cozens, agreed in evidence that a surveyor faced with just the one crack seen by Mr Cozens could legitimately have reported in the terms which Mr Cozens used.
85. Although it is not central to my conclusions on this part of the case, the significance in valuation terms of the cracking observed by Mr Cozens has to be seen in the context of the significance of the cracking which manifested itself two years later and which was much more readily perceptible as the result of foundational movement. The potential cost of putting that right was assessed by the loss adjusters at £15,000.00. Mr Cozens was looking at something less serious, and doing so in the context of a house worth some £550,000 on which the owner was proposing to spend £100,000 in works of refurbishment. I am not satisfied that further investigation of the matter in July 1989 would have led to a significantly different valuation conclusion or lending decision.