England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Claim No: HC-2014-001190 Royal Courts of Justice Strand, London, WC2A 2LL
		30 September 2016

RICHARD SPEARMAN Q.C.:

Introduction and nature of the dispute

1. Among the attractions at Marine Parade in Great Yarmouth are three family entertainment centres ("FECs"): Circus Circus, located at No 21; the Golden Nugget, located at Nos 22-23; and the Flamingo, located at adjacent premises at No 17. For many years prior to 2007, the first two (together "CCGN") were operated by companies owned or controlled by John and Kim Thurston. In that year, the Flamingo came on to the market, and Mr and Mrs Thurston approached the Claimant ("Barclays") for a loan of £1.8m to enable their trading company, Thurston UK Limited ("the Borrower") to buy the Flamingo and to pay for alterations to all three FECs to enable them to be joined together. Barclays loaned the monies, and the acquisition and alterations went ahead. However, the combined business got into financial difficulties. On 8 October 2010, Barclays served a formal demand for repayment of the Borrower's debt, on 12 October 2010 the Borrower was placed in administration, and on 16 March 2011 the FECs were sold for the sum of £1.35m, which left Barclays substantially out of pocket.
2. Barclays now seeks to recover its losses, or part of them, by proceedings for professional negligence against the Defendant ("Christie"). The claim is based on the provision to Barclays of two valuation reports each dated 27 February 2007. By the first ("the CCGN Report"), Christie placed a value of £2.7m on CCGN; by the second ("the Flamingo Report"), Christie placed a value of £1.5m on the Flamingo. Barclays contends that the true values were about £2.1m and £1m respectively, that these were both negligent over-valuations by Christie, and that it is entitled to recover damages from Christie because it loaned monies to the Borrower in reliance on these valuations which, in the circumstances summarised above, it subsequently failed fully to recover.
3. Christie denies that it was negligent, and contends that, if that is wrong, Barclays contributed to any losses which it may have sustained because the loan was imprudent.
4. There are issues as to the correct measure of any loss which Barclays has sustained.
5. At one stage, it formed part of Christie's case that Barclays failed to mitigate its loss, and a significant part of the opening arguments and the evidence was devoted to that issue. However, that argument was abandoned after the conclusion of the oral evidence.
6. Ms Rushton appeared for Barclays and Ms Mirchandani appeared for Christie. I am grateful to both of them for their comprehensive written and oral submissions. These were much longer than would otherwise have been the case because, regrettably, there are many issues, some involving only hundreds or even tens of pounds, on which these substantial commercial parties were unable to find a means to compromise. The number of matters which I was asked to resolve inevitably affects the length of this judgment.

The witnesses of fact

7. The Claimant relied on the witness statements and the oral evidence of:

(1) Philip Watkins, an insolvency practitioner and partner in FRP Advisory ("FRP"), and formerly a partner in Vantis plc ("Vantis"). While at Vantis, in late 2009 he was instructed by Barclays and the Borrower to carry out an independent review of the Borrower and its associated enterprises. Later, while at FRP in 2010, he was appointed as one of the joint administrators of the Borrower and associated companies. Mr Watkins' evidence was mainly directed to the steps taken by the administrators to realise assets, and he was called largely if not entirely to deal with Christie's contentions that Barclays had failed to mitigate its losses (which appeared to rest largely on the notion that Barclays was liable for alleged shortcomings of the administrators in this regard). Its relevance substantially fell away once Christie abandoned that part of its case. However, when questioned (partly by reference to contemporary documents) about the extent to which efforts to realise assets had been hampered by disruptive or deterrent actions which were or appeared to have been instigated by the Thurstons he gave answers which, while making clear that he had no direct knowledge of these matters, left me with the clear impression that the Thurstons had indeed acted in the manner suggested. His witness statement provided the following summary of the principal conclusions contained in the independent review produced by Vantis in 2009:

i. The Borrower and its immediate associated companies were highly geared and unable to service their current debt and therefore Vantis could not recommend any further lending by Barclays.

ii. One company in the group, First Bet Limited, was balance sheet insolvent and under-capitalised following trading losses, and therefore Vantis could not recommend any further lending by Barclays.

iii. In the event that further funding could not be obtained by the group then in view of hire purchase funders, and potentially HMRC, Mr and Mrs Thurston should consider taking immediate steps to file for administration of the Borrower, with consideration also being given to taking the same steps with regard to Circus Leisure Limited, Golden Nugget (Great Yarmouth) Limited and First Bet Limited.

iv. Barclays should consider improving its security by taking a chattel mortgage over the unencumbered arcade equipment at the Great Yarmouth Arcades ("the Arcades").

(2) Helen Balchin, a senior recoveries manager employed by Barclays, who gave evidence about the recoveries made by Barclays and the manner in which they had been applied by Barclays. This included evidence that, following a review in or around 2012 of the sale of the interest rate hedging product which Barclays required the Borrower to agree to as one of the conditions of the borrowing which forms the subject of the present claim, it was determined that the Borrower was entitled to redress in the total sum of £439,608.72. This sum was not paid directly to the Borrower, but was applied by Barclays to repay part of its indebtedness.

(3) David Sturt, an associate credit director employed by Barclays, who explained the general credit sanction process in Barclays Larger Deals Team ("LDT") in early 2007, and who provided a review of the documents relating to the borrowing which forms the subject of the present claim. Although Mr Sturt worked in the LDT at the time, Mr Sturt had no involvement in the material events, including the credit sanction decision, save that the documents showed that he had reviewed a facility letter which was sent out in February 2007 (although he could not specifically recall doing this some 9 years after the event). The decision itself was taken by Mr Anthony Cox of LDT, who has since left Barclays. In the absence of Mr Cox, Mr Sturt was called to give evidence by Barclays as to what an average credit sanctioner in the LTD in February 2007 with comparable experience to that of Mr Cox ("the Hypothetical Sanctioner") would have done if he had been presented with evidence that the true market value of the Arcades was not £4.2m as advised by Christie but was instead £3.2m (this being Barclays' case at the time Mr Sturt made his witness statement). Mr Sturt's evidence was as follows:

"In my view, had the Hypothetical Sanctioner known the true combined market value of the Great Yarmouth Arcades, he would not have sanctioned the Treasury Loan of £1.9 million. As set out above … the total lending by the Bank to the Company (including the Treasury Loan) was to be £2,703,000. On the basis of a combined security value of £3.2 million (as opposed to £4.2 million) the Bank's total lending would have had a loan to value ratio of approximately 84% (£2,703,000 million divided by £3.2 million x 100). This was 17% more than the 67% loan to value ratio limit set out in Mr Cox's sanction decision.  Therefore this would not have been sufficient security for the Bank's total lending to the Company." 

(4) Mr Mark Dembicki, a bank manager employed by Barclays, who was its relationship manager with the Borrower from January 2007 until 8 October 2010. He gave a detailed account of the history of his dealings with the Thurstons, based in large part on the contents of contemporary documents which I rehearse below. His witness statement included evidence to exactly the same effect as Mr Sturt's evidence quoted above, as well as the following further evidence (at [186]-[188]):

"The sole purpose of the Treasury Loan was to enable the Company to purchase the Flamingo. The purchase price of the Flamingo was £1.6 million and a further sum of £200,000 was required in order to make the necessary alterations and improvements to combine the Flamingo with the Circus Circus Arcade and the Golden Nugget Arcade.

In these circumstances, it is also highly unlikely that the Bank would have considered and agreed to a loan application for a lesser sum of money or that the Company would have sought a loan for a lesser sum. This is primarily because the Company did not have sufficient funds available to it at that time, and those funds would have needed to be in the region of £559,000, to contribute towards the purchase price of the Flamingo.

If the purchase of the Flamingo was no longer viable, the Bank would not have lent to the Company by way of an equity release in respect of 21-23 Marine Parade and, in any event, it is highly unlikely that any such loan application would have been made by the Company as its sole motivation for seeking a loan from the Bank in 2007 was to enable the purchase of the Flamingo."

8. The Defendants relied on the witness statements and the oral evidence of Bela Chauhan, who is now a MRICS, and Karl Hines, who is and was at all material times a MRICS. They were involved in providing the impugned valuations, and I return to their evidence below.
9. As I have said on other occasions, in any case involving such a lapse of time as has occurred in the present case there is a heightened risk that witnesses may be honest but mistaken about what took place, and may give evidence about what they would like to think happened rather than what they can truly recollect. These factors make the appraisal of their evidence more difficult. At the end of the day, the best guide to the truth is often to be found not so much in the demeanour of the witnesses, or even concessions made in cross-examination, but in the contemporary documents and in an objective appraisal of the probabilities overall. These matters were discussed more fully in a passage in the judgment of Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Limited, Credit Suisse Securities (Europe) Limited [2013] EWHC 3560 (Comm). Leggatt J considered not only the fallibility of memory but also the difficulties to which the process of civil litigation gives rise, before concluding at [22] as follows:

"In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth."

10. For these reasons, as a general starting point, although not in respect of every aspect of the evidence, I have thought it right to place more weight on the documentary evidence than on the recollections of the witnesses, all of whom seemed honest to me.

The history of borrowing

11. Mr and Mrs Thurston and the Borrower became customers of Barclays in 1982. In addition to the Borrower, the Thurstons owned and controlled two other companies, Circus Leisure Limited and Golden Nugget (Great Yarmouth) Limited, and one property title of Nos 21, 22 and 23 Marine Parade was registered in the name of each of these three companies. However, all the trading operations were conducted through the medium of the Borrower. Further, each property was subject to an all monies charge in favour of Barclays, and each company gave an unlimited guarantee of the others' liabilities and was subject to a debenture to Barclays. Accordingly, for purposes of the present claim, the existence of the two non-trading companies can be ignored.
12. A letter from Barclays dated 26 August 2003 to the directors of the Borrower records the terms on which Barclays was prepared to offer the Borrower a loan of up to £300,000 to refinance Nos 22 and 23, Marine Parade. The loan was an interest only loan, but it was repayable in full within 6 months of it being taken up. Minutes of the Board of directors held on 28 August 2003 record that the loan "is in the interests of and for the benefit of the Company". These Minutes are on Barclays' stationery, and it would appear that Barclays required them to be signed as a condition of the loan. At all events, it seems clear that the basis of the loan was that it would be used for purposes of the Borrower, and it was secured by existing charges over Nos 22 and 23. Paragraph 12 of the letter set out a number of circumstances in which Barclays could ask for repayment of the loan. One of those circumstances was if "you have misrepresented any information which you have provided to us in connection with this loan".
13. By letter dated 4 March 2004, the repayment date of that loan ("the 2003 Mortgage") was extended to 31 September 2004, and that repayment date was further extended by a series of further letters. In the result, Barclays did not require the Borrower to repay the 2003 Mortgage at any time before it served the letter of demand dated 8 October 2010.
14. In connection with the 2003 Mortgage, Barclays obtained from chartered surveyors called Aldreds a valuation dated 27 August 2003 of Nos 22 and 23 and of the operation of the business which traded as the Golden Nugget from the ground floor of those combined premises (above which was some living accommodation described as "a proprietor's flat" and offices). This gave an open market value in the region of £1.15m.
15. On 23 September 2004, the Borrower's accountants ("Wilshers") wrote to Mr Humphries of Barclays' "Northern Medium Business Team". The letter records that Mr and Mrs Thurston were considering the possibility of buying the Flamingo, which had come on to the market with an asking price of £2.2m. The letter rehearsed the financial information relating to the Flamingo which Wilshers had obtained. The author of the letter expressed the view that the asking price "is possibly on the high side".
16. On 17 November 2004, GVA Grimley produced a valuation of the Flamingo, sections 13-16 of which are included in the trial papers. Sections 14.1 and 14.6 of this report expressed the view that the market value of the freehold, equipped as an operational entity and having regard to trading potential, was £2m. It is apparent from paragraph 14.6 that this valuation was based on applying a multiplier of 5 to net adjusted profit. Among other things, paragraph 14.6 states: "Using a multiplier of 5 and the net profit gives the following values: for 2004, £2.2 million; 2003, £2.35 million; 2002-2004 £2.13 million; and 2003-2004, £2.3 million. Assuming 2005 as a whole will be 11% down on 2004 gives a value of £2 million and 2003-2005 £2.08 million and 2003-2005 (sic) £2.09 million". Paragraph 14.6 further states "We are of the opinion that this freehold property would have a Market Value assuming vacant possession and the business has been closed in the region of £700,000". This document was prepared for the 2007 owner of the Flamingo in connection with the borrowing that he needed to purchase the Flamingo in 2005, and he later made these sections available to Mr and Mrs Thurston. These sections were also provided to Christie, which had them on file.
17. On 4 August 2005, Mr and Mrs Thurston signed a guarantee for £50,000 in favour of Barclays in respect of the indebtedness of another of their companies, First Bet Limited.
18. On 26 October 2006, the Borrower requested an increased overdraft. This triggered the creation of a "Zeus" application remarks form by the Thurstons' Relationship Manager, Mark Dembicki. The section entitled "Reason for application" referred to the fact that the Borrower had a £50,000 VAT bill to pay shortly, and also stated: "Whilst I have requested this increase through to a review in April 07, this will be the catalyst for me to fully review all facilities now as I am looking to re-structure the existing overdrafts for Circus Leisure and the Golden Nugget, which effectively act as loans, together with some of the Thurston UK o/d hardcore to commercial mortgage". Nothing was inserted in the section entitled "Compliance with previous conditions of sanction".
19. On 11 December 2006, Mr Dembicki created another Zeus form in respect of the Borrower. This stated that the "Reason for application" was "Updating report and request for re-structure of borrowing together with further £50k increase re: planned capital expenditure … over the next 6 months". The section entitled "Compliance with previous conditions of sanction" stated "Complied". Under "Conduct of account", Mr Dembicki stated "… I am proposing to switch hardcore borrowing over the various companies to a new commercial mortgage in Thurston UK Ltd totalling £400k". The section entitled "Security" stated (among other things): "Whilst 21 Marine Parade valued at £950k and 22/23 valued at £1.15m customer believes that values now in the region of £3-£4m" and "Other assets include property in Spain worth £420k with £40k mtge plus a further Spanish property worth £900k which is unencumbered but we did lend £300k by way of comm. Mtge to Thurston UK Ltd which assisted with purchase. This property is currently being marketed, with sale proceeds to be used to clear the £300k comm. Mtge".
20. On 18 December 2006, Barclays provided the Borrower with an overdraft facility of £200,000. This was repayable on demand, and was subject to review on 30 April 2007.
21. On 11 January 2007, Barclays offered to loan £400,000 to the Borrower "to refinance existing borrowing in the names of Circus Leisure Limited, The Golden Nugget (Great Yarmouth) Limited and to partially refinance part of the overdraft in the name of [the Borrower]" ("the 2007 Loan"). Repayment was due in full within 10 years of any part of the loan being taken up, and in accordance with the following schedule: "Seasonal repayments of Capital & Interest totalling £9,260.89 in the months of April, May, June, July, August and September, commencing April 2007". Interest was fixed at 7.10% for 10 years, provided the loan was taken up by 18 January 2007. The security for the loan comprised existing unlimited guarantees from Mr Thurston, The Golden Nugget (Great Yarmouth) Limited and Circus Leisure Limited, the last of which was supported by an existing legal charge over 21, Marine Parade. It was a condition of the loan that, upon drawdown, the overdrafts in the names of those companies should be repaid. Mr and Mrs Thurston accepted that offer on behalf of the Borrower on 12 January 2007.
22. On 22 January 2007, Barclays produced a Summary Credit Analysis Report in respect of the Thurstons' group of companies. According to this, the total group facilities limits amounted to £1,116,141, the companies' facilities comprised in respect of the Borrower a £200,000 overdraft, commercial mortgages of £303,000 and £400,000, and a £10,000 company Barclaycard limit and in respect of First Bet Limited an overdraft of £50,000. The total group security amounted to £2,255,000, of which £1,150,000 related to the Borrower and £950,000 related to Circus Leisure Limited.
23. On 26 January 2007, Mr Dembicki completed another Zeus form. The "Reason for Application" section stated: "Request for new commercial mortgage of £1.8m to assist with the purchase of a further amusement arcade (Flamingo) for £1.6m and £200k re: improvements and alterations to the property". It recorded that Mr Thurston considered that £1.6m was a "far more realistic" price than the £2.2m which had been sought in 2004. It further stated: "The Flamingo arcade is currently generating turnover of £450k (exc Vat) which is in line with expectations as the arcade has approx. 50% of the floor area of the existing two Thurston arcades which are running at just under £900k t/o p.a. We currently have valuations of the existing arcades totalling £2.25m, however, these were last updated in 2003. Current value estimated to be in excess of £3.0m so total security with the new arcade of say £4.0m giving LTV of at least 67% overall".
24. The section entitled "Serviceability/source of repayment" stated: "Borrowing has increased over the past two years as a result of the cost of converting part of the premises re First Bet Ltd which was borne by Thurston UK Limited, together with purchase of 22 machines … at cost of £7k each – these machines have been funded through overdraft … Without any further cap ex beyond the £50k … planned, funds can now be diverted towards repaying the loan with repayments of £9,315 per month April-Sep for 10 years. Both customer and accountant feel that this repayment schedule is comfortable, now that there is no other significant capex due. New commercial mortgage would be serviced from a combination of the new arcade and existing however customer would prefer a two year capital repayment holiday to allow time to get the new arcade fully integrated, which also allows sufficient time for the sale of the property in Spain".
25. The section entitled "Compliance with previous conditions of sanction" stated "Complied". The section entitled "Security" included the same text concerning the value of 21, 22, and 23 Marine Parade and the same text concerning property in Spain as had been included in the Zeus form dated 11 December 2006 and the following (among other things): "We also hold an unlimited guarantee from John Thurston. PDH (ino J & K Thurston) recently valued at £950k with o/s mtge of £600k Woolwich".
26. The section entitled "Recommendation including any conditions" stated: "Recommended on the basis of overall serviceability from the three consolidated arcades, good security cover and likelihood of lump sum reductions from sale of Spanish property in the near future".
27. On 29 January 2007, Anthony Cox sent Mr Dembicki a memorandum recording the terms on which further lending had been sanctioned. The document begins as follows:

"Mark, thank you for this application which we have discussed. New facilities sanctioned subject to the following conditions:

1) Satisfactory prof. valuation of the security portfolio including new acquisition. Valuer to confirm value of Flamingo on acquisition and post refurb spend … Copies of valuations to us.

2) Loan of £1.9M to be available which includes re-scheduling £100k of hardcore o/d. Term of 17 years including 2 yr CRH.

3) Second charge on PDH to be taken to support Thurston's PG.

4) Special Condition:

A reduction in company borrowing of £300k is to be achieved within 12 months of initial loan drawdown from sale of property in Spain.

5) Max LTV of 67% or lower dependent on valuations.

6) Min. of £1.6m of loan to be hedged for min. 10 years.

7) Keyman cover of min. £250k each to be pursued for John and Kim Thurston".

28. On 8 February 2007, Mr Dembicki wrote to Mr and Mrs Thurston as directors of the Borrower setting out the terms on which Barclays was willing to offer a Treasury Loan Facility ("the Treasury Loan") of £1.9m to the Borrower. The loan had to be drawn down in one amount by 30 April 2007, and had to be repaid (together with interest) by 180 instalments of £16,776.59 commencing 25 months after first drawdown with interest to be debited to a current account until 24 months after drawdown and to a loan account thereafter. The security required was essentially as stated in Mr Cox's memorandum, with the addition of a new debenture from Golden Nugget (Great Yarmouth) Limited. It included a legal charge over the leasehold premises of the Flamingo. It provided that: "The Borrower shall ensure that the maximum total borrowing of Thurston UK Limited shall not at any time exceed 67% of the Property Value of the four properties held (Loan to Value Percentage)". The four properties were 17, 21, 22 and 23 Marine Parade. The conditions were as set out in Mr Cox's memorandum, with the addition of a requirement for a new debenture to be executed in respect of Golden Nugget (Great Yarmouth) Limited. Mr and Mrs Thurston accepted the offer on 19 February 2007.
29. On 7 March 2007, Mr Dembicki completed a Zeus form in respect of a request by Mrs Thurston for a temporary increase of the Borrower's overdraft limit to £200,000. This was recommended "on basis of overall asset position of Kim Thurston and trading record of arcade". A similar, but fuller, form was also completed on 15 March 2007.
30. On 9 March 2007, Mr Dembicki wrote to the Thurstons' solicitors concerning the proposed second charge over their home in England. He explained that it was a condition of the Treasury Loan that the Borrower's indebtedness to Barclays should be reduced by £300,000 following the sale of property in Spain, and he confirmed that upon that reduction in borrowing the proposed second charge would be released.
31. On 15 March 2007, Mr Dembicki completed a Zeus form in respect of a temporary increase of £160,000 in the overdraft limit of the Borrower to cover the payment of the deposit on the Flamingo, pending drawdown of the 2007 Loan on completion of purchase. He recommended this on the same basis as he recommended the 2007 Loan.
32. By letters dated 22 March 2007, accepted on behalf of the Borrower by Mr and Mrs Thurston on 26 April 2007, the terms of the 2003 Mortgage and the 2007 Loan were varied so that the same security was provided for them as for the Treasury Loan.
33. On 12 August 2008, Barclays loaned the Borrower a further £100,000, repayable by 24 June 2013, which was to be used by the Borrower to set up a "Subway" franchise.
34. On 6 January 2009, Mr Dembicki produced a summary of a meeting with Mr Thurston. This recorded that the Borrower was forecasting a loss of £3,000 for the full year to 30 April 2009 on turnover of £978,000 "which is well below the £1.5m of t/o that was originally predicted for the combined arcades business when purchased in 2007". The reasons for this were stated to be "bad weather over the summer months for the last 2 years, introduction of smoking ban and probably the greatest impact has been caused by the change in legislation in Sep 07 reducing the stakes and prizes on a number of machines". The proposed solutions for this predicament included: "Renewal of facilities for a further 6 months, with £75k increase in overdraft to £275k for Thurston Ltd. Request extension to the capital repayment holiday on the £1.90m Treasury loan, for a further 12 months beyond April 2009 when the current 24 months CRH expires".
35. On 29 January 2009, the overdraft limit of the Borrower was increased to £275,000.
36. On 25 May 2009, Mr Dembicki produced a summary of a meeting with Mr and Mrs Thurston. Among other things, this recorded that the Borrower's requirements for the coming 12 months were for a £325,000 overdraft limit as well as a £50,000 commercial mortgage; that the expected net proceeds of sale of the Spanish property were likely to be about £250,000; and that the Thurstons were looking to put the balance which would be outstanding on the 2003 Mortgage on to the Borrower's overdraft.
37. On 5 July 2009, Mr Dembicki completed a Zeus form which contemplated (a) increasing the Borrower's overdraft limit to £300,000; (b) continuing the Borrower's capital repayment holiday to April 2011; (c) reversing loan repayments which had been made in recent months using £55,000 which had been received as a deposit on the sale of the Spanish property, and using that £55,000 to reduce the 2003 Mortgage; and (d) that the net proceeds of sale of the Spanish property "should be just about sufficient to clear the £303k comm mtge". The section entitled "Security" recorded: "Total value for the arcades owned £4.2m including … the … Flamingo".
38. In July 2009, the overdraft limit of the Borrower was increased to £300,000.
39. On 6 October 2009, (a) the terms and conditions of the Treasury Loan were varied so as to provide that repayment of the loan was suspended with effect from 20 August 2009, that repayment was to recommence on 20 May 2010, and that repayment was to be made by 167 instalments of £14,321.54 payable monthly from 20 May 2010, and (b) the terms and conditions of the 2003 Mortgage were varied so as to provide for repayment in full of the sum of £300,000 by a single payment by 31 October 2010.
40. Later in October 2009, the overdraft facility of First Bet Limited was increased to £75,000.
41. On 4 December 2009, the Borrower was identified by Barclays as a higher risk case, and Barclays' Business Support personnel were asked to assist with managing the risk.
42. On 17 December 2009, Mark Townsend, a Business Support director, completed a Zeus form which rehearsed the reasons why the Thurstons' businesses had got into difficulties. These included an estimated 21% reduction in revenue in the sector following changes in the law, capital expenditure required to comply with changes in the law, a general recession which had reduced consumer spending on leisure and gaming, problems with the business of First Bet Limited, and capital expenditure by the businesses which had not been of use in maximising revenue. The comments under the heading "Management" included the following: "They appear to have little regard for the implications of their investment spend on operational cash flow and need to be reined in from their apparent spending spree". The recommendations included: "Whilst there is no doubt that the value of our security has been affected by trading and economic conditions, there is a very dependent link between the property and the business in maintaining this value. The property would simply have very little alternative use given its location … Thus for now, it is in our best interest to continue to support the business until a comprehensive IBR is concluded."
43. On 27 January 2010, Mr Townsend completed a further Zeus form which stated under the heading "Objective" that Barclays' should "Exit" and commented: "As the business is unsustainable at current levels, it seems that a sale is inevitable. There are serious concerns over management abilities which does not promote any debt forgiveness possibilities". The comments under a later section included the following:

"There was no due diligence done on the Flamingo at the time it was purchased. There was thus very little tangible evidence to support the trading assumptions presented at the time. There is also a clear disparity between EBITDA levels of what was owned and what was being purchased if compared to the account records in our possession. Similarly, the valuation mythology (sic) employed by Christie in 2007 overlooks return on investment in deriving valuation and simply applies a multiple of turnover. This multiple of 3 times was based on research presented in the valuation report. It is not sure how a 3 times multiplier was arrived at as their own research indicates multiples of 2.5 times and 2.2 times in the same area and 1 times in Norfolk … The original terms of sanction were for Edward Symmons to undertake the valuation due to their presence and knowledge in the area. This was later changed to Christie by Zeus request on grounds of cost.

Commentary within the original Zeus at the time funds were lent highlight property in Spain worth £420k with mortgage of £40k, further unencumbered property in Spain valued at £900k and two investment properties owned by Kim Thurston in the UK valued at £500k with mortgages of £310k. Upon exploring sources of much needed capital apparently evident from our records, it transpires that the £420k Spanish property has equity of £150k (client value) and has already been on the market for 18 months, the £900k Spanish property was actually a development property secured by nominal deposit and subject to future development finance, and the two investment properties, whilst in Kim's name, belong to their two kids who used a £25k inheritance to secure B2L finance, as they were still minors at the time. Consequently, the comfort we thought was present in personal assets does not exist".

44. I consider that it is unnecessary to rehearse the history of borrowing any further for purposes of the present judgment. In due course, as mentioned above, Barclays served a formal demand for repayment, and the Borrower was placed in administration.

The issues about quantum

45. When the FECs were sold in March 2011 for £1.35m, Barclays received total net proceeds of £1,168,572.52. Part of those proceeds was used to discharge the overdraft, and about £269,000 was used to pay off the then remaining balance of the 2007 Loan. It is common ground that Barclays need not give credit for the sum of about £269,000 which was applied to that pre-existing mortgage, as that was secured lending. However, Barclays also contends that it should not have to give credit for the first £100,000 of the sums which were applied to the overdraft, on the basis that this also represented pre-existing secured lending. Barclays gives credit in this claim for the remainder of the proceeds of sale, although none were in fact applied to the Treasury Loan account.
46. Barclays claims capital losses of £758,361.44 plus compound interest at LIBOR amounting in total to £264,161.75 down to 6 May 2016, or a total of £1,022,523.19. It says this is less than the limit to its loss arising from the decision in South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 ("SAAMCO"), which would be £1.1m according to Barclays' expert evidence – the difference between the value placed on the FECs by Christie of £4.2m and Barclays' claimed value of £3.1m.
47. Christie agrees that Barclays' net recovery from the sale of the FACs was £1,168,572.52 and that Barclays does not need to give credit for the sum of about £269,000 which was credited against the 2007 Loan. However, all other aspects of Barclays' claim are disputed. Christie argues, first, that, based on a deficiency in security, Barclays' total loss is £200,000, and that this is the limit on its loss arising from the SAAMCO case. This figure is derived from the evidence of Christie's valuation expert, which is that the value of the Flamingo was £1.5m (the same valuation figure as was reached by Christie) and the value of CCGN was £2.5m (i.e. £200,000 less than Christie's figure). It argues, second, that, depending on which of two alternative bases of calculation are adopted, Barclays' actual loss is either £442,887 or £625,522. It argues, third, that Barclays' loss should be calculated on the basis that, if the FECs had been valued at £3.1m (the figure Barclays contends to be correct), then Barclays would still have been prepared to loan either 67% or 70% of that sum, and (on the assumption that the Thurstons would still have been willing and able to buy the Flamingo) this approach is said to yield losses of either £118,615 or £210,977.
48. Christie's various different ways of calculating Barclays' losses are riddled with alternatives, and are detailed over 5 pages of small font text in an "Updated Counter Schedule of Loss" which is annexed to Ms Mirchandani's written closing submissions. This is accompanied by 20 pages of interest rate calculations and one page of mortgage repayment calculations which are also annexed to those closing submissions. Ms Rushton's submissions on loss, in both her opening and closing submissions, are also extensive, although she was able to reduce Barclays' quantification of actual loss to a table covering only a single page. In fairness to both sides, the length of these submissions is partly attributable to the long and complex history of borrowing, including arguments concerning the extent to which that borrowing was secured, because these matters give rise to issues such as (a) whether Barclays loaned £1.8m or £1.9m in reliance on the impugned valuations, (b) whether and to what extent Barclays recouped the amount of the loan before the Arcades were sold, and (c) the extent to which Barclays should give credit to Christie for the sums it recovered due to that sale.
49. I shall return to the issues raised by these rival contentions later in this judgment.

The claim in outline

50. Barclays' main contentions are as follows:

(1) The only competent way of carrying out the valuations would have been by assessing earnings before interest, tax, depreciation and amortisation ("EBITDA") of a reasonably competent operator ("REO") of both CCGN and the Flamingo, and then arriving at a capital value for each by applying a multiplier derived from considering the sales prices in relation to EBITDA of comparable FEC sales.

(2) There was no good reason why Christie did not carry out the valuations on this basis, and it was negligent of it not to do so. In particular, Christie had evidence of turnover and expenses for both CCGN and the Flamingo for 2 or 3 years, and a number of sources of information as to appropriate EBITDA multipliers.

(3) The approach adopted by Christie was to apply a multiplier to turnover, based on the owner's accounts, and then to add £150,000 in each case for the office, storage or residential accommodation on the upper floors. Turnover is a much cruder and much less reliable indicator of value in comparison to EBITDA, because what matters for purposes of value is profitability and there is no consistent relationship between turnover and profit. Further, Christie had no proper basis for adopting a multiplier of 3, and Christie's valuation of the upper floors was not dependable.

(4) The inspection of the sites was carried out and the reports were drafted, with limited supervision from Mr Hines, by Ms Chauhan. Ms Chauhan had graduated in 2006, and did not become qualified as a chartered surveyor until more than two years later, and she had insufficient experience of valuing FECs. In any event, the inspections and the reports were carried out to a poor standard.

(5) For purposes of valuation, no or very little weight should be given to the fact that, subject to contract, the Borrower had agreed to buy the Flamingo for £1.6m.

(6) The appropriate EBITDAs are £361,776.50 for CCGN and £154,756 for the Flamingo, and the appropriate multipliers are, respectively, 5.5 and 5.75. Barclays' final position is that (including in both instances the upstairs accommodation) the true value of CCGN was £2,114,770 and that the true value of the Flamingo was £989,847, in each case well outside what the experts have agreed (and what Barclays invites the Court to accept) is the appropriate margin of error, namely 15%. Accordingly: (a) this calls into question Christie's competence and the care with which Christie carried out the valuations, and (b) this opens the door to the fundamental inquiry, namely whether Christie's practices and work product failed to meet the standard of a reasonably competent valuer.

51. Christie's main responses are as follows:

(1) The true value of CCGN was about £2.5m, and the true value of the Flamingo was about £1.5m. In comparison with Christie's valuations, these values are within the applicable margin of error, which is 15% in the present case, and accordingly the valuations were not negligent, and no other issues require to be addressed.

(2) If, contrary to the above, the valuations were outside the applicable margin of error, they were nevertheless not negligent. The EBITDA multiplier method of valuation was not the only appropriate method, and Christie acted reasonably in using an alternative method based on turnover multiplier, in circumstances where there was a lack of good comparable evidence for EBITDA multiplier purposes.

(3) Any negligence which may be established did not cause Barclays loss. In short, Christie's contends that Barclays did not rely on the valuation reports, or that, if Barclays did rely on the valuation reports, it was not reasonable for it to do so.

(4) The correct measure of Barclays' loss is as summarised in paragraph 47 above.

(5) Further, if Barclays' loss falls to be calculated in accordance with Barclays' actual loss, it is right that credit should be given for pre-existing lending which was adequately secured, but adequacy of security should be assessed by reference to the actual monetary value achieved at the date of enforcement in March 2011.

(6) Barclays contributed to any losses which it may have sustained by its own negligence. In particular, the Treasury Loan would not have been sanctioned if Mr Cox had been informed that the Thurstons had used the £300,000 secured by the 2003 Mortgage not to benefit the Borrower but instead to buy property in Spain.

Legal framework

52. The authorities concerning negligent valuation were reviewed in Merivale Moore Plc & Anor v Strutt & Parker (A Firm) [2000] PNLR 498 by Buxton LJ at 515-516:

"It has frequently been observed that the process of valuation does not admit of precise conclusions, and thus that the conclusions of competent and careful valuers may differ, perhaps by a substantial margin, without one of them being negligent: see for instance the often quoted judgment of Watkins J in Singer & Friedlander Ltd v John D. Wood [1977] 2 EGLR 84 at 85G; and the House of Lords in the Banque Lambert case [1997] AC 191 at 221F–G. That has led to the courts adopting a particular approach to claims of negligence on the part of valuers.

In the general run of actions for negligence against professional men

"it is not enough to show that another expert would have given a different answer … the issue … is whether [the defendant] has acted in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession: Zubaida v Hargreaves [1995] 1 EGLR 127 at 128A– per Hoffmann LJ, citing the very well-known passage in Bolam v Friern Hospital Management Committee [1957] 1 WLR 582 at 587."

However, where the complaint relates to the figures included in a valuation, there is an earlier stage that the court must be taken through before the need arises to address considerations of the Bolam type. Because the valuer cannot be faulted in any event for achieving a result that does not admit of some degree of error, the first question is whether the valuation, as a figure, falls outside the range permitted to a non-negligent valuer. As Watkins J put it in Singer & Friedlander, at 86A:

"There is, as I have said, a permissible margin of error, the 'bracket' as I have called it. What can properly be expected from a competent valuer using reasonable care and skill is that his valuation falls within this bracket."

A valuation that falls outside the permissible margin of error calls into question the valuer's competence and the care with which he carried out his task: ibid. But not only if, but only if, the valuation falls outside that permissible margin does that inquiry arise. That is what I take to have been the view of Balcombe LJ, with whom the remainder of the members of this court agreed, in Craneheath Securities v York Montague [1996] 1 EGLR 130 at 132C , when he said:

"It would not be enough for Craneheath to show that there have been errors at some stage of the valuation unless they can also show that the final valuation was wrong."

As it was put by HH Judge Langan QC in Legal & General Mortgage Services v HPC Professional Services [1997] PNLR 567 at 574F, in an analysis that I have found helpful, once it is shown that the valuation falls outside the "bracket":

"the plaintiff will by that stage have discharged an evidential burden. It will be for the defendant to show that, notwithstanding that the valuation is outside the range within which careful and competent valuers may reasonably differ, he nonetheless exercised the degree of care and skill which was appropriate in the circumstances."

Various further considerations follow. First, the "bracket" is not to be determined in a mechanistic way, divorced from the facts of the instant case. We were shown a list of figures giving either the bracket determined, or the percentage divergence from the true value found nonetheless not to have been negligent, in a series of recent cases. I did not find that of assistance, save as a graphic reminder that it is not enough for a plaintiff simply to show that the valuation was different from the true value. Second, if it is shown even at the first stage that the valuer did adopt an unprofessional practice or approach, then that may be taken into account in considering whether his valuation contained an unacceptable degree of error. I think that that is what is meant by Mr Robin Stewart QC in his judgment in Mount Banking Corp v Cooper [1992] 2 EGLR 142 at 145D. Third, where the valuation is shown to be outside the acceptable limit, that may be a strong indication that negligence has in fact occurred. That is said in Mount Banking at 145J. The judgment in that case was commended in general terms by Balcombe LJ in Craneheath, but it is not clear how far that commendation extended to all the specific elements in it. Some caution at least has to be exercised in this respect, because the question must remain, in valuation as in any other professional negligence cases, whether the defendant has fallen foul of the Bolam principle. To find that his valuation fell outside the "bracket" is, as held by this court in Craneheath and also, I consider, by the House of Lords in Banque Lambert, a necessary condition of liability, but it cannot in itself be sufficient.

Fourth, Mr Goldsmith strongly argued that since it fell to the plaintiff to establish that the valuation was outside the range that could be reached by any competent surveyor, the plaintiff must adduce (expert) evidence of what that range was. Such evidence has certainly been before the court, in specific terms, in a number of the cases: see for instance Singer & Friedlander; Banque Lambert before Phillips J [1994] 2 EGLR at 118B; and Nykredit v Edward Erdman [1996] 1 EGLR 123 at 123A. Where such evidence is available the judge's task in determining whether the actual result of the valuation fell outside the range to be expected of a competent valuer is clearly substantially eased. I am however not prepared to hold in general terms, or at least not prepared to hold on the basis of the issues debated in this appeal, that the adduction of such evidence is a necessary precondition to a finding of negligence on the part of a valuer. As at present advised, I think that it is still open to the judge in a suitable case to hold that the valuation is so far removed from what was the true value of the property that it must be regarded as a valuation that was outside the limits open to a competent valuer, without specific professional evidence being given of what those limits were."

53. The standard of care and the question of range were further considered in Capita Alternative Fund Services (Guernsey) Ltd & Anor v Drivers Jonas (A Firm) [2011] EWHC 2336 (Comm) by Eder J at [140]-[146].
54. With regard to the standard of care, Eder J said:

"140. Whether in the context of the Claimants' claims in contract or in tort, there was broad agreement as to the relevant general applicable principles:

i) The relevant duty is to exercise reasonable care and skill in all work carried out.

ii) Not every error will amount to a breach of duty.

iii) In order to succeed, the Claimants must show that the advice and/or valuations provided by the Defendants were such that an ordinarily competent valuer and commercial investment adviser could not have provided them exercising reasonable skill and care.

iv) The standard of care expected is properly defined as "that degree of skill and care which is ordinarily exercised by reasonably competent members of the profession". That standard will not be relaxed for a valuer or adviser with limited experience of, for example, a certain type of property or a certain type of task. Moreover, if a professional holds itself out as having a particular skill, it is to be judged by the standards of people holding that skill.

v) In the present case, the Defendants were a firm of chartered surveyors and property consultants offering a range of consultancy services including commercial property investment and valuation advice. As a minimum, by agreeing to act as they did, they held themselves out as being competent to perform the appraisal, assessment and valuation of an undeveloped FOC for EZPUT purposes. Thus, their work falls to be judged by reference to an ordinarily competent valuer and commercial investment adviser competent to advise on EZPUTs and FOCs ("ordinarily competent valuer and commercial investment adviser").

141. It is important to note and indeed to emphasise that, as was again common ground, the question whether or not the Defendants were in breach of duty must be considered at the time ie in early 2001. There was some evidence during the trial concerning subsequent events. This evidence was relied upon in particular by the Defendants to explain some at least of the reasons why Dockside did not succeed and, on one view at least, such evidence is potentially relevant to quantum. However, there is no doubt that these subsequent events and any suggestion of hindsight are irrelevant to the question of breach.

142. The classic statement of the required standard of care for professional men and women is "the Bolam test" which derives from the clinical negligence case of Bolam v Friern Hospital Management Committee [1957] 1 W.L.R. 582 / [1957] 2 All ER 118 at 121. First the judge defined what "negligence" meant:

"Before I turn to that, I must tell you what in law we mean by "negligence." In the ordinary case which does not involve any special skill, negligence in law means a failure to do some act which a reasonable man in the circumstances would do, or the doing of some act which a reasonable man in the circumstances would not do; and if that failure or the doing of that act results in injury, then there is a cause of action. How do you test whether this act or failure is negligent? In an ordinary case it is generally said you judge it by the action of the man in the street. He is the ordinary man. In one case it has been said you judge it by the conduct of the man on the top of a Clapham omnibus. He is the ordinary man."

Then the judge looked at what amounted to "professional negligence":

"But where you get a situation which involves the use of some special skill or competence, then the test as to whether there has been negligence or not is not the test of the man on the top of a Clapham omnibus, because he has not got this special skill. The test is the standard of the ordinary skilled man exercising and professing to have that special skill. A man need not possess the highest expert skill; it is well established law that it is sufficient if he exercises the ordinary skill of an ordinary competent man exercising that particular art…….in the case of a medical man, negligence means failure to act in accordance with the standards of reasonably competent medical men at the time. That is a perfectly accurate statement, as long as it is remembered that there may be one or more perfectly proper standards; and if he conforms with one of those proper standards, then he is not negligent."

The judge went on to consider the "standard" by reference to peer opinion:

"…a mere personal belief that a particular technique is best is no defence unless that belief is based on reasonable grounds. That again is unexceptionable. But the emphasis which is laid by the defence is on this aspect of negligence, that the real question you have to make up your minds about on each of the three major topics is whether the defendants, in acting in the way they did, were acting in accordance with a practice of competent respected professional opinion…. if you are satisfied that they were acting in accordance with a practice of a competent body of professional opinion, then it would be wrong for you to hold that negligence was established…

….he is not guilty of negligence if he has acted in accordance with a practice accepted as proper by a responsible body of medical men skilled in that particular art. …..Putting it the other way round, a man is not negligent, if he is acting in accordance with such a practice, merely because there is a body of opinion who would take a contrary view. At the same time, that does not mean that a medical man can obstinately and pig-headedly carry on with some old technique if it has been proved to be contrary to what is really substantially the whole of informed medical opinion."

143. In the present context, the Defendants emphasised that the court retains the right to subject any "body of opinion" view to logical analysis and to hold that the body of opinion is not reasonable or responsible. This has been re-stated more recently by the House of Lords in another clinical negligence case, Bolitho v City & Hackney HA [1998] AC 232:

"[Counsel for the claimant] submitted that the judge had wrongly treated the Bolam test as requiring him to accept the views of one truthful body of expert professional advice even though he was unpersuaded of its logical force. He submitted that the judge was wrong in law in adopting that approach and that ultimately it was for the court, not for medical opinion, to decide what was the standard of care required of a professional in the circumstances of each particular case.

My Lords, I agree with these submissions to the extent that, in my view, the court is not bound to hold that a defendant doctor escapes liability for negligent treatment or diagnosis just because he leads evidence from a number of medical experts who are genuinely of opinion that the defendant's treatment or diagnosis accorded with sound medical practice."

144. It was an important part of the Claimants' case that one of the Defendants' many alleged failures was a failure to carry out any consumer spend analysis i.e. a CACI report. In particular, the Claimants' case was that the obtaining of such a report was not merely a practice accepted as proper by a responsible body of men/women but the universal market practice, such that failure to obtain such a report was incompetent. In that context, the Defendants submitted that the last extract from Bolam and the above citation from Bolitho were particularly pertinent."

55. With regard to the question of range, Eder J said:

"145. Before considering the evidence relating to valuation, it is necessary to consider the question of "range". In this context, there is a relatively large body of authority that addresses the approach to be adopted by the Court when considering the question of negligent valuation. These authorities are not always easy to reconcile. Lewison J considered the issue in Goldstein v Levy Gee [2003] PNLR 35 and his approach has subsequently been followed in at least two further cases: Dennard v PricewaterhouseCoopers LLP [2010] EWHC 812 (Ch) and K/S Lincoln v CB Richard Ellis Hotels Ltd [2010] PNLR 31 (TCC). From these, the following propositions can be drawn:

i) The process of valuing real property has strong subjective elements; it is an art not a science and not every error of judgment amounts to negligence. This leads to the concept of 'the bracket', or "the permissible margin of error": see per Watkin J. in Singer & Friedlander v John D Wood & Co [1977] 2 EGLR 84 at 85G-H and 86.

"Pinpoint accuracy in the result is not, therefore, to be expected by he who requests the valuation. There is, as I have said, a permissible margin of error, the 'bracket' as I have called it. What can properly be expected from a competent valuer using reasonable care and skill is that his valuation falls within this bracket."

ii) It is a necessary pre-condition to liability that the final valuation figure is shown to be "wrong", that is, 'outside the bracket': see per Buxton LJ in Merivale Moore plc v Strutt & Parker [2000] PNLR 498 at 515-517.

"A valuation that falls outside the permissible margin of error calls into question the valuer's competence and the care with which he carried out his task: ibid. But not only if, but only if, the valuation falls outside that permissible margin does that enquiry arise...To find that his valuation fell outside the "bracket" is, as held by this court in Craneheath and also, I consider, by the House of Lords in Banque Lambert, a necessary condition of liability, but it cannot in itself be sufficient."

iii) Where the Court is considering whether a valuation in itself is negligent, the claimant must normally show, not only that the valuer fell in some way below the standards to be expected of a reasonably competent professional, but also that the valuation fell outside the range within which a reasonably competent valuer could have valued the asset. If the valuation is within the range, then the valuation will not be found to have been negligent even if some aspect of the valuation process can be criticised as having fallen below reasonably competent standards.

iv) In each case the Court must assess what it regards as being the competent valuation and what it regards as the being the size of the permissible range. In each case, both are findings that will depend on the particular facts of the case. The assessment of range should not be approached mechanistically.

v) Where the valuation is made up of a number of different aspects, a different methodology may have to be adopted in relation to different aspects because of the nature of the particular valuation process with which the Court is dealing. In general, the bracket should be assessed by arriving at a bracket for each of the variables rather than only for those variables that are alleged (or found) to have been negligently assessed: see Vos J in Dennard at paragraph 91 following Lewison J's interpretation of Merivale Moore at paragraph 63 of his judgment in Goldstein.

vi) As summarised in K/S Lincoln v CB Richard Ellis at paragraph 183, for a standard residential property, the margin of error may be as low as plus or minus 5 per cent; for a valuation of a one-off property, the margin of error will usually be plus or minus 10 per cent; if there are exceptional features of the property in question, the margin of error could be plus or minus 15 per cent, or even higher in an appropriate case. However, a range of 14.5% to 23% has been described as "absurd" (see Staughton LJ in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd [1996] 1 EGLR 119 @ pp 120/121).

vii) Even if the valuation is outside the range, the professional may escape liability if he can prove that he exercised reasonable skill and care. If the valuation is found to fall within the range, the claimant will still be entitled to succeed if it can demonstrate that it has suffered loss as a result of negligent advice given in the course of, or in addition to, the valuation process.

146. Whatever the range may be, the Court must still form a view as to what the correct valuation would have been (i.e. the figure which it considers most likely that a competent valuer would have put forward). If that "correct valuation" falls outside the appropriate range of the actual valuation, damages will be assessed by reference to that figure. It follows that in such circumstances the damages should not be limited to the excess over the highest valuation which would not have been negligent. The reason for this approach was explained by Lord Hoffman in Banque Bruxelles S.A v Eagle Star [1997] AC 198, at p221E-222A. This approach has been criticised. In particular, it has been suggested that this method of assessing damages diverges from the normal rule (at least in contract cases) that the party in breach of contract is assumed to have performed the contract in the manner most favourable to himself and that the application of this method may give rise to a conclusion which is not "comfortable": see Lewison J in Goldstein at paragraph 46 of his Judgment. However, as acknowledged by Lewison J, the ruling of the House of Lords is clear and is supported by a line of authority."

56. So far as quantification of loss is concerned, in LSREF III Wight Ltd v Gateley LLP [2016] EWCA Civ 359, [2016] PNLR 21, Lewison LJ said at [25]-[28]:

"25. The basis for quantification of recoverable loss suffered as the result of lending money upon negligent advice is now very well settled. The ground breaking decisions of the House of Lords in South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 and Nykredit Mortgage Bank Plc v Edward Erdman Group Limited [1997] 1 WLR 1627 establish that, at least in relation to negligent valuation advice, the court must undertake two successive tasks. The first is to ascertain whether the lender has suffered any loss from entering into the transaction. For that purpose it generally adopts the accounting analysis laid down in Swingcastle Limited v Alastair Gibson [1991] 2 AC 223, by comparing the lender's outlay plus its cost of funds since lending with the amount recovered or (if the security is yet to be realised) recoverable by the enforcement of its security rights. This is the lender's transactional loss. The second stage is to ascertain what part of that loss is properly attributable to the adviser's negligence, and this depends upon ascertaining to what extent the value of the security falls short of that which it would have been if the valuer's advice had been correct.

26. The two stage process is best summarised in the following passage from Lord Nicholls' speech in the Nykredit case at page 1631H, where he described the first stage calculation of the transactional loss as "the basic comparison" and the second stage as the estimation of the "deficiency in the security":

"For what, then, is the valuer liable? The valuer is liable for the adverse consequences, flowing from entering into the transaction, which are attributable to the deficiency in the valuation. This principle of liability, easier to formulate than to apply, has next to be translated into practical terms. As to this, the basic comparison remains in point, as the means of identifying whether the lender has suffered any loss in consequence of entering into the transaction. If he has not, then currently he has no cause of action against the valuer. The deficiency in security has, in practice, caused him no damage. However, if the basic comparison throws up a loss, then it is necessary to inquire further and see what part of the loss is the consequence of the deficiency in the security.

Typically, the answer to this further inquiry will correspond with the amount of the loss as shown by the basic comparison, for the lender would not have entered into the transaction had he been properly advised, but limited to the extent of the overvaluation. This was the measure applied in the present case. Nykredit suffered a loss, including unpaid interest, of over £3m. Of this loss the amount attributable to Erdman's incorrect valuation was £1.4m, being the extent of the over-valuation."

27. In the case of a claim against valuers, it is easy to describe the deficiency of the security, as did Lord Nicholls in the passage quoted above, as "the extent of the overvaluation". That means, of course, the amount by which the property was overvalued at the date when the valuation was provided. Generally speaking, this calculation therefore has to be performed as at the date of the transaction, rather than as at the date of the trial, so as to exclude that which is in principle irrelevant, namely rises and falls in the market for that property following the valuation date.

28. …

29. But these considerations do not require that stage 1 of the process be carried out as at the date of the transaction. On principle, and as a matter of commonsense, the court will not wish to blind itself from knowledge of relevant facts which have occurred thereafter. By "relevant" I mean facts which demonstrate what, if any, has been the lender's transactional loss. As Lord Nicholls said in the Nykredit case, there will be cases where a deficient security (i.e. one worth less than the valuer or solicitor's advice suggested that it was worth) is nonetheless sufficient to fund a full repayment of the lender's advance and cost of funds. In many cases the borrower will simply not default, so that a deficient security causes the lender no loss whatever.

30. Generally speaking, the lender's transactional loss will be most easily identified once it has crystallised by realisation of the security and the application of the proceeds of its sale to the reduction of the outstanding debt …"

57. In Platform Home Loans Ltd v Oyston Shipways Ltd and Others [2000] 2 AC 190, the House of Lords restored the award of damages which had been made by the trial judge, Jacob J. The approach of Jacob J, which was approved by the House of Lords, is explained as follows in the speech of Lord Millett at 212-213:

"My Lords, in 1990 the appellant advanced £1,050,000 on the security of land valued by the respondents at £1.5m. The advance represented 70 per cent. of valuation. The judge found that the land had been negligently overvalued, and that the true value of the land at the date of the advance was only £1m. In 1994, following a catastrophic collapse of the property market, the appellant realised its security for £435,000, thereby incurring a loss of £615,000. After taking into account interest paid by the appellant and payments received from the borrower together with a sum of £40,000 which the appellant conceded was deductible because of a failure on its part to mitigate its loss, the overall loss on the transaction amounted to £611,748. The amount of the overvaluation (£500,000) was less than this, and accordingly this latter sum would have represented the amount of damages recoverable by the appellant in the absence of contributory negligence on its part: see Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 and Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627.

The judge made two findings of contributory negligence. He found that the appellant was negligent in making the loan without having obtained from the borrower information required by its own form. The judge also found that the appellant was imprudent in advancing as much as 70 per cent. of valuation. He did not make any finding on the amount which a prudent mortgage lender would have advanced, whether 65 per cent. or 60 per cent. of valuation, but he expressed himself in terms which showed that, of the two items of contributory negligence, he considered the overlending to be much the more potent cause of loss.

Having found that the appellant had itself contributed to the loss, the judge applied a broad brush to the assessment of damages. Taking both findings of contributory negligence together, he assessed their combined contribution to the loss at 20 per cent. There is no appeal from this assessment, though it is to be observed that, in respect of the second and more serious finding of contributory negligence, there was no need to apply a broad brush; the consequences of advancing too high a proportion of valuation can be precisely calculated. 5 per cent of £1.5m is £75,000; for every 5 per cent of valuation which the appellant advanced in excess of what was prudent it increased its loss by that amount.

Having thus found that 20 per cent of the loss or damage (£611,748) which the appellant had suffered as a result of the transaction was the result of its own fault, the judge awarded damages of £489,398. This figure represented 80 per cent of £611,748 and, being less than the amount of the overvaluation, represented a loss which was entirely within the scope of the respondents' duty of care."

58. According to Ms Mirchandani's closing submissions, the decision of the House of Lords in Platform Home Loans Ltd v Oyston Shipways Ltd and Others [2000] 2 AC 190 is also authority that, in her words, "it is only if the actual loss claimed is lower than the so-called 'SAAMCO-capped loss' that the Court will then go on to consider contributory negligence". However, I do not consider that this is correct. Indeed, in that case itself the actual loss claimed was higher than the so-called "SAAMCO-capped loss" (i.e. the amount of the overvaluation), and yet Jacob J went on to consider contributory negligence. In the event, Jacob J held that the recoverable loss should be reduced below the amount of the overvaluation, and his decision was upheld by the House of Lords. The correct analysis is that contributory negligence falls to be considered regardless of whether the actual loss claimed is greater or smaller than the amount of the overvaluation, and that the recoverable damages are limited to the lesser of (i) that part of the actual loss claimed which is due to the fault of the negligent valuer or (ii) the amount of the overvaluation (less, where the negligence of the lender has caused or contributed directly to the overvaluation, a deduction to take account of the lender's contributory fault). This is explained by Lord Millett at 213-215:

"It is necessary to recapitulate what this House has laid down in relation to the assessment of damages in cases of the present kind. Two calculations are required. The first is a calculation of the loss incurred by the lender as a result of having entered into the transaction. This is an exercise in causation. The main component in the calculation is the difference between the amount of the loan and the amount realised by enforcing the security.

The second calculation has nothing to do with questions of causation: see Nykredit at p. 1638 per Lord Hoffmann. It is designed to ascertain the maximum amount of loss capable of falling within the valuer's duty of care. The resulting figure is the difference between the negligent valuation and the true value of the property at the date of valuation. The recoverable damages are limited to the lesser of the amounts produced by the two calculations.

It is to be observed that neither amount is an element or component of the other. Either may be the greater, for they are the results of completely different calculations. In mathematical terms, they bear the same relationship to each other as a-b does to c-d. The figure produced by the second calculation is simply the amount of the overvaluation. It is not the loss or any part of it, and cannot be equated with the amount of the loss sustained by the lender in consequence of the overvaluation. The two are the same only in a case where the lender has advanced 100 per cent. of valuation.

Section 1(1) of the Law Reform (Contributory Negligence) Act 1945 applies "where any person suffers damage as the result partly of his own fault and partly of the fault of another". The appellant submits that, as a result of the respondents' negligent overvaluation, it suffered damage of £500,000, and that it is inappropriate to reduce the damages in order to reflect fault on its part which played no part in their breach of duty.

Now if the premise were correct, viz. that the £500,000 represented all or any part of the damage suffered by the appellant, then the conclusion would follow. But, as I have already pointed out, it is not correct. The £500,000 is merely the amount of the overvaluation. The damage which the appellant suffered as a result of the transaction which they entered into in consequence of the overvaluation is not £500,000 but £611,748. This is the damage referred to in section 1(1). This damage was due to the insufficiency of the security. The sufficiency of any security, however, depends on a combination of two factors: the value of the security and the amount of the advance. If the respondents had given a lower valuation, or if the appellant had lent a lower proportion of valuation, then in either case the appellant's loss would have been less. Accordingly, the loss of £611,748 which the appellant suffered was partly as a result of its own fault and partly of the fault of the respondents within the meaning of section 1(1) of the Act.

…

Where the lender's negligence has caused or contributed directly to the overvaluation, then it may be appropriate to apply the reduction to the amount of the overvaluation as well to the overall loss. Where, however, the lender's imprudence was partly responsible for the overall loss but did not cause or contribute to the overvaluation, it is the overall loss alone which should be reduced, possibly but not necessarily leading to a consequential reduction in the damages. When the consequences of the lender's imprudence cannot be calculated, the judge will have to do the best he can to assess the parties' respective contributions. But the court should not speculate when it can calculate."

The correct value of the FECs

The correct approach for the Court

59. In her closing submissions, Ms Mirchandani identified the primary task for the Court as one of considering and choosing what it believes to be the true market value of each of CCGN and the Flamingo in its existing use and present condition as a fully-equipped operational entity, having regard to trading potential as at 8 February 2007. She submitted that it is open to the Court to adopt one of two approaches to carrying out this task. First, to agree with the views of one or other of the parties' expert valuers; or, second, to choose some intermediate (or other) valuation. She submitted that the Court should not attempt the second option because it is fraught with difficulty in this case.
60. Ms Rushton submitted that the task for the Court, with the assistance of the expert evidence and also the factual evidence, is to reach a view as to (a) the true value of each Arcade as at 8 February 2007 and (b) whether Christie's valuations were negligently prepared. To consider simply whether to prefer one expert over the other is not the correct approach. The Court should make a judgment as to the expert witnesses, the weight to be placed on different aspects of their evidence and the assistance to be derived from it, and then reach its own conclusion as to the true value and whether negligence is established. In any case where the appropriate approach to valuation is a multiplicand/multiplier one (as opposed to applying straight comparables) this will involve the Court assessing the multiplicand and multiplier, and doing a calculation. Moreover, there is no particular difficulty about following that approach in this case.
61. I agree with Ms Rushton's submissions. I intend to follow the approach she suggests.

RICS guidance

62. Two publications which assumed importance in the course of these proceedings are the RICS Appraisal and Valuation Standards ("the Red Book") and the RICS Guidance Note 1 concerning Specialised Trading Property Valuations and Goodwill ("GN1"). It is common ground between the parties that GN1 is directly applicable to the valuations in this case. At paragraph 7 of their joint statement, the expert valuers state: "The Experts are agreed that they would typically expect the Arcades to be valued by reference to EBITDA but that in accordance with RICS Guidance on Comparable Evidence, other suitable methodologies or combinations thereof can be used if there is evidence that they are used in the market or if there is better available evidence which might support a more robust valuation on such other basis. The Experts are agreed that a valuer should seek to obtain the best evidence available and weight it accordingly." This agreement of the expert valuers reflects the language of paragraph 4.4 of GN1.
63. I agree with Ms Mirchandani that the word "typically" indicates that valuation on an EBITDA basis is not the only basis upon which properties such as FECs can properly be valued. However, I also agree with Ms Rushton that the language of the agreed statement of the valuation experts indicates that there are relatively limited circumstances in which it would be appropriate to depart from the EBITDA basis.
64. Paragraph 4.5 of GN1 states: "The task of the valuer is to assess the fair maintainable level of trade [hereafter, for short, "FMT"] and future profitability that can be achieved by a Reasonably Efficient Operator of the business upon which a potential purchaser would be likely to place an offer". The concept of a Reasonably Efficient Operator ("REO") is explained by paragraph 4.6 of GN1, which defines it as "a market based concept whereby a potential purchaser, and thus the valuer, estimates the maintainable level of trade and future profitability that can be achieved by a competent operator of the business conducted on the premises acting in an efficient manner". Paragraph 4.8 states: "When valuing properties by reference to trading potential, the valuer will need to compare trading profitability with similar types and styles of operation".
65. Ms Mirchandani places reliance on the statement in paragraph 1.2 that GN1 "does not concern itself with methodology, which will vary depending upon the trading property". However, I agree with Ms Rushton that there are clear and repeated indications in GN1 that, in general, valuation of properties such as FECs in accordance with GN1 will involve assessing the profitability that can be achieved by a REO.
66. I also agree with Ms Rushton that this makes commercial sense, because the true value of such properties lies in their ability to generate profits for their owners.

The valuation experts

67. Barclays' expert valuer was Colin White MRICS. Christie's was Jeremy Berridge FRICS. The main points of agreement and disagreement between them appear from their amended joint statement dated 27 April 2016. It is convenient to consider those points in turn and to then set out my reasoning and conclusions with regard to them.
68. Before doing so, however, I must address the criticisms which Ms Mirchandani made of Mr White and his evidence. These were many and extensive, and occupied several pages of Ms Mirchandani's closing submissions. A number of them were re-iterated or expanded in Ms Mirchandani's reply submissions. They were, in summary, as follows.
69. Under the heading "General standing and reliability of Mr White as an expert", Ms Mirchandani submitted:

(1) Mr White represented his valuations and reports prepared for the proceedings as his own work by stating (paragraph 4.1 of his report): "I have been assisted in the research and collation of information for the preparation of this Report by Simon Hooper MSc MRICS who is an Associate Director at Lambert Smith Hampton in their Valuation Division and he has worked under my supervision." This representation was inaccurate. Mr White's 2016 report, and his earlier reports, were more properly characterised as the work of Mr Hooper, who provided Mr White with drafts of the reports and the valuation calculations they contained, which Mr White adopted. It emerged in cross-examination that Mr White had not looked for any comparables himself; all that work had been done by Mr Hooper.

(2) By the declaration in his report, Mr White confirmed that the report complies with the requirements of the RICS Practice Statement: Surveyors acting as Expert Witnesses (4^th Edition).This provides: "You must…State if any other individual or party has carried out any examination, measurement, test, experiment or survey that you have used for your expert witness report; their relevant experience, knowledge, expertise and qualifications; the nature, extent and methodology of the activity; and whether or not the work was carried out under your supervision. Explain any implication on the evidence." In the circumstances, this declaration was inaccurate. This constituted "a significant failure in candour by Mr White."

(3) Mr Hooper was not available to be cross examined as to his work, although it is clear that Mr White was heavily reliant on that work, as indicated by his failure to detect Mr Hooper's errors in relation to the George St comparable. The Court is left with a compromised expert witness, who delegated far too much to Mr Hooper, and whose evidence, as a result, should be accorded less weight if it is not corroborated by other independent or factual evidence.

(4) No doubt because much of the work was not done by him, Mr White could not clearly state the sources of information and documents that he produced (e.g. the reports produced by Edward Symmons ("ES") from 2004/2005 concerning George St). Mr White had little idea of which sources Mr Hooper had investigated or utilised, or of the information and documents which Mr Hooper had presented to him, and he could not even state whether or not it was Mr Hooper who found or provided the information.

(5) Mr White failed to comply with the following aspect of the RICS guidance for expert witnesses: "During the course of your enquiries you may be made aware that other documents exist which might be of relevance but which might not be available. In such circumstances, where applicable, you may need to consider taking further action to secure the necessary factual information."

(6) Mr White failed to carry out adequate enquiries of the resources available to him. For example, the Flamingo 2005 sales brochure contained an extract of an ES valuation report dating from 2002, but Mr White did not ask Mr Hooper, who presented this brochure to him, if he could obtain the complete ES 2002 report. Mr White would have had access to this report in his department at ES up to at least until September 2014 when he left to set up his own business. The revelation of these matters, and taking into account that Mr White would probably have supervised Mr Hooper for this 2002 valuation of the Flamingo, is directly contradictory to the assertion in paragraph 3.1 of Mr White's statement that he "initially" dealt with the Arcades in February 2010.

(7) Mr White did not consider the significance of the George St valuations conducted by ES in 2004/2005, although he was content to rely on Mr Hooper's research which led to him relying on the 2005 sale transaction of that property as his other comparable for the purposes of the present claim. Mr White admitted he had not asked Mr Hooper about these reports before the details of the George St comparable were questioned by Mr Berridge, although he could have done so. Mr White accepted he could have got hold of these reports earlier, and that he did not know if in fact Mr Hooper had referred to or relied upon them. The significance of those reports, and the information contained in them, and the need to produce them, should have been obvious to both Mr White and Mr Hooper.

(8) As a result of this attitude, the Court cannot be convinced that Mr White and Mr Hooper have properly searched for or provided all the relevant information that would have been available to them, so as to be able to confirm (as Mr White nevertheless does by his expert's declaration) that: "…all facts which I regard as being relevant to the opinions which I have expressed and that attention had been drawn to any matter which would affect the validity of those opinions". For example, the Court may be very interested to know what comparables were used by ES for the Flamingo in their 2002 report – since this pre-dated both of the transactions that Mr White relied upon as his comparables. The comparables used in 2002 may well have been properties that passed through subsequent transactions as well. None of that information is available because Mr White did not trouble himself to consider this point or to enquire. However, it is highly likely (and Mr White admitted in evidence) that the George St 2002 transaction was used as a comparable.

(9) Highly pertinent relevant factual information only became available late in the day, when Mr Berridge raised queries over information provided by Mr White relating to the George St comparable. As a result, the two valuation reports of the George St arcade and nightclub, carried out by Mr Hooper in late 2004 and early 2005, emerged, both of which contained significant and contemporaneous information about this comparable (which is a comparable which had been introduced and relied upon by Mr White since at least 2011).

(10) Mr White appeared to have little familiarity with the content of his own reports. For example, he failed to remember his statement in his letter to FRP dated 29 September 2011 that the Christie valuations had been conducted "probably at the peak of the market" in 2007. Indeed, he gave reasons in evidence for his disagreement with this statement, then stated he did not know the answer.

(11) Mr White has no further professional qualifications beyond MRICS. By contrast, Mr Berridge is not only FRICS, but also a former member of the Panel of the President of the RICS (from which he retired for health reasons in 2013). The status of FRICS is a significant one, as the materials produced by the RICS for would-be applicants indicates. It is defined as "An honoured class of membership awarded on the basis of individual achievement within the profession." Mr White initially suggested that FRICS did not mean much, but when shown the requirements he accepted that this was not the case. Ms Mirchandani submitted that this reflected how far removed from the "RICS valuer" side of the profession Mr White has become as his career has progressed towards his present position – namely that of a sales agent, operating a business focussed on sale transactions and not Red Book valuations for secured lending purposes.

(12) Mr White's past contacts (such as Henry Moreton companies) are very significant providers of business to his new company, CJ White Associates Limited. He also lists Barclays as a client.

(13) Mr White claimed, in his CV attached to his Part 35 report dated 31 March 2016, that he personally carried out (i.e. "Colin carried out") numerous bank valuations for Stade Developments, one of the Henry Moreton companies, and listed George St as an example. This was not true in the sense that Mr White had not been the signing valuer for the valuations. He conceded in evidence that he meant that ES had carried out the valuations, but he claimed that he was responsible for "signing off reports". This was again not true for the reports on George St dated 1 December 2004 and 8 February 2005, both of which were signed off by Mr Hooper. Ms Mirchandani submitted that, at best, Mr White is reported as having supervised Mr Hooper, but he did not review the reports relating to the George St, and he did not recall the valuations, even when he relied upon the 2005 George St sale transaction as a comparable, such that "One has to question what level of engagement Mr White ever had in the 'supervision' of Mr Hooper."

70. Under the heading "Evidence of expertise as a 'Red Book' valuer", Ms Mirchandani submitted:

(1) Christie was engaged to provide a 'Red Book' valuation, which is the only kind of valuation which requires use of the REO/FMT rubric. In contrast to Mr Berridge, Mr White is no longer registered with RICS as a 'Registered Valuer', and he could not now take on such an instruction as Christie undertook in 2007. His current business does not even offer a valuation service. He is focussed on sale appraisals for transactions.

(2) Generally speaking, Mr White did not sign off the historical valuation reports prepared by Mr Hooper, but merely supervised Mr Hooper. The same modus operandi applied to the valuation evidence eventually provided relating to the George St comparable. When questioned about his claim with regard to these valuations that he had "carried them out", he said that this was how he had worked with Mr Hooper on every valuation that Mr Hooper had been involved with, for perhaps 20 years. This is a further indication of how little Mr White appreciated what the role of an expert witness entails.

(3) Mr White adopted only one approach to this retrospective valuation and carried out no cross checks of his resulting values. The use of cross checks is an almost invariant practice for a competent valuer.

(4) Mr White did not appreciate the significance of the 'impairment review' which had been carried out by the accountants of the 2005 purchaser.

71. Under the heading "Prior involvement/conflicts", Ms Mirchandani submitted:

(1) Although Mr White reported that he initially dealt with the Arcades in February 2010, he later stated that thought he had probably been involved in the ES valuation from 2002. He either did not remember or did not consider this relevant, yet he attached the Flamingo sale brochure, which contained an extract of the report from the ES 2002 valuation to his report.

(2) Mr White had a prior involvement as the advisor to the administrators, FRP. His role was to assist to maximise FRP's recovery. That was a very different role from acting as an expert witness in these proceedings. It is questionable whether Mr White appreciated the difference since he cited large chunks of his previous advisory letter to FRP dated 29 September 2011 within his expert's report, and appended that letter to the report. The fact that Mr White mixed his advisory report with his expert witness report suggests strongly that he did not himself demarcate the different roles he was playing.

(3) Having given a low value estimation of £1-£1.1m to Barclays when he was instructed on the sale in 2010/2011, and having been proved very wrong on that estimation: (a) by reference to the level of offers made which ranged up to £2.6m; and (b) by the eventual sale price being £250,000 above the higher level he had estimated, (which would be more than a negligent margin of error, at c.23%) Mr White showed that his tendency was to undervalue the Arcades.

(4) The papers disclosed during the course of trial from Mr White's files (retained by the practice which had taken over his former employer ES, namely Lambert Smith Hampton), also indicated that Mr White had known the administrators, FRP, had been content for Barclays not be told that the value of the Arcades was likely to be higher than Mr White had thought once marketing had commenced, in order to "manage [Barclays'] expectations", thereby ensuring any sum recovered above this low estimation would look like a "good result".

(5) By reason of these prior involvements and his different role as agent for FRP, Mr White had what has been termed a 'self-review bias' and a 'self-interest conflict'. Having been engaged by Barclays to advise on value and strategy for selling the Arcades following default by the Borrower, Mr White was hampered from giving a truly independent view, when appointed by Barclays as expert valuer, as to the Arcades' true retrospective value. He could not do otherwise than pitch the value of the Arcades at a low level. Mr White was also conflicted by his own reputational interest, against re-visiting his valuation opinions when it came to these proceedings (and he knew Mr Berridge's views indicated a significantly higher value) in a way that another valuer approaching this case as an expert witness would not have been.

72. Under the heading "Inconsistencies", Ms Mirchandani submitted:

(1) Mr White criticised Christie for the comparables information it had obtained. In evidence, he stated that there were very limited transactions, and few transactions in this market place, and this caused difficulties in this case and made valuing in this area quite difficult. However, he concluded by stating that there were "excellent comparables, more than in most cases." At the same time as criticising Christie, Mr White relied heavily on the same 2005 Flamingo transaction which Christie reported as 'Great Yarmouth', and only one other transaction, the George St 2005 transaction. His approach is confused.

(2) Mr White accepted "absolutely" that comparable transactions were needed in order to form a view as to the appropriate multiplier and agreed that when doing a Red Book valuation the valuer would " do everything you could to research the market and get the evidence you can". Yet he backtracked into claiming that the valuer would have a 'feel or understanding' of the type of multiplier for a particular market, or would use comparables from different leisure sectors if there was less evidence available, an approach he had not himself adopted or suggested prior to commencing cross examination. When asked again whether you needed comparables to get to a multiplier, he agreed.

(3) The problem for Mr White is that the number of comparables obtained by Christie was indeed exceptional, and the quality of those comparables was high. However, Barclays' case rests on there having been adequate information from the comparables to carry out an EBITDA-multiplier valuation, and this is the one aspect in which the comparables were lacking, but not for any fault or negligence by Christie. Mr White agreed that valuers (such as Kevin Marsh at Savills – to whom Ms Chauhan went to obtain information about comparables) would have given accurate information to the degree they were able to do so, but the question was over the accuracy of the information those valuers had in the first place. This is not something Christie can be blamed for – the quality of the information supplied by Savills is not likely to have been improved from what was stated to Ms Chauhan. Mr White's stance that it depends on the questions asked is not really credible when one considers both parties to the conversation were valuers, and the conversation yielded the level of detail about a number of transactions as shown in Mr Marsh's email dated 12 February 2007.

(4) As Mr White said: "sometimes there is less evidence than others and sometimes you have to take a view". However, his suggestions as to what a valuer should do in this situation, by looking to other sectors or relying on "a feel or understanding of what type of multipliers apply to a particular market", were clearly wrong, and 'second thoughts' that had not been advocated by him previously.

(5) The George St, Hastings comparable was introduced by Mr White. It was relied upon him throughout his involvement since at least about February 2010, and was referred to by him in letters he wrote in 2011 and 2013 letters, as well as his 2013 and 2016 reports. The comparable was thoroughly discredited by the investigations carried out by Mr Berridge. This led Mr White to admit that he had mistakenly confused the 2002 and 2005 George St sale transactions, and described the source of the information as "the vendor", when in fact it was the same entity as the purchaser, which meant that the information related to the 2002 transaction.

(6) A further error made by Mr White (and Mr Hooper) which Mr White admitted was "significant" was in transposing the EBITDA figure of c. £200,000 from the 2002 sale transaction and representing this as being for the 2005 sale transaction, in Mr White's list of comparables and information about them at Appendix 6 of his report. As the ES reports for George St dated 1 December 2004 and 8 February 2005 demonstrated, the EBITDA had been calculated in those reports at c.£215,000 and £317,000, and the £200,000 figure came from the 2002 transaction, which was used as a comparable.

(7) Mr Berridge's investigations prompted Mr White, for the first time, to disclose the two valuation reports produced by ES (dated 1 December 2004 and 8 February 2005) concerning this property where he had apparently supervised Mr Hooper's valuations (but not signed off either report himself). The strong inference is that, but for Mr Berridge's diligence, these reports would never have emerged and been available to the Court in its investigation of the true market value of the Arcades. Critically, this means that Mr White's incorrect representation of the EBITDA at £200,000 would have remained unknown and uncorrected. The same applies to Mr White's arbitrary treatment of the nightclub as having a value of £600,000. This was not how ES valued the George St property in 2004/2005. Curiously Mr White indicated that the source of his workings (an investment methodology – capitalisation of rent of £52,000 at 8.5%) was the reported capitalisation yield indicated by ES of 9%. As Mr White states that he had not had reference to these ES reports until around 26 May 2016, this can only be a co-incidence or a mis-understanding by Mr White. Clearly, he did not select 8.5% because ES had reported an alternative valuation basis using an investment yield of 9%. That was not the way ES approached the valuation in any event.

(8) "The whole episode concerning the George St comparable is an unedifying example of why Mr White was wholly unsuited to the role of expert witness. Given his heavy reliance on the George St comparable, it was incumbent upon him to fully investigate the transaction. Instead, he simply delegated the work to Mr Hooper, and Mr Hooper made at least two significant errors in his work, both of which went undetected by Mr White. Christie and the Court cannot know what other errors their combined work contains. All that can be said is that these errors do not indicate the workmanship of a competent expert witness."

73. In answer to these points, Ms Rushton submitted as follows:

(1) Mr White said in evidence that Mr Hooper, his former colleague at ES, had been substantially involved in the preparation of his expert reports, and that he had always worked very closely with Mr Hooper on such matters. There is nothing inappropriate or improper in an expert valuer working with a colleague to prepare an expert report, and Mr White stands by the contents of his reports as setting out his opinions.

(2) While the nature of the work Mr Hooper had done and the implications overall was not set out in detail, the fact he was significantly involved in the work on Mr White's report was clearly stated in paragraph 4.1 of the report.

(3) Mr White has a very particular specialism in valuing Adult Gaming Centres ("AGCs") and FECs. It is his evidence that he has considered and valued well in excess of 107 of these types of properties. In contrast, Mr Berridge has never valued an AGC and has valued few if any FECs in the past 10 years. While Mr White's MRICS qualification is less than Mr Berridge's FRICS, and he has less court experience than Mr Berridge, he brings a much greater specialist knowledge of valuing amusement arcades to this case, as compared to Mr Berridge. This knowledge and experience should be given proper weight. Such knowledge and experience is always the bedrock of an expert witness's expertise as such.

(4) Mr White was a registered RICS valuer carrying out Red Book valuations during his time at ES, and when his work as an expert in this matter commenced. Since setting up his own business in November 2014, he has stopped being a registered valuer, although he remains a MRICS, because he is no longer carrying out sufficient Red Book valuations and this is not a necessary part of his new business. This does not invalidate or diminish his evidence as an expert, the strength of which is based especially on his experience of the arcade valuation industry.

(5) There is no evidence whatever that Mr White's involvement in the resale of the arcades in 2010 (when he advised the administrators) has in any way influenced his retrospective valuations of them as an expert.

(6) Mr White had an opportunity to inspect the whole of the properties in 2010, including the residential accommodation, which Mr Berridge did not.

74. There is substance in a number of the points made by Ms Mirchandani. However, I consider that they contain an element of repetition, that some are better than others, and that she sought to make more of them than was justified. In particular, the points to which, as explained below, I have attached weight mean that Barclays cannot readily complain of those instances where I have preferred the evidence of Mr Berridge to that of Mr White. At the same time, in my judgment they do not mean that I should approach the issues between them on the basis that there is some presumption in favour of Mr Berridge's evidence and approach. This is notwithstanding that Ms Mirchandani submitted, and I accept, that Mr Berridge had striven to adopt a REO/FMT approach throughout, and that he had shown greater consistency in this regard than Mr White.
75. It would have been far better if Mr White had spelled out the extent to which he was reliant on the work of Mr Hooper, as I believe Ms Rushton implicitly acknowledged in her closing submissions. The extent of that reliance was considerable, and in my judgment it does tend to dilute Mr White's claims to experience and expertise. Further, because he relied on Mr Hooper's work to the extent that he did, Mr White was not as familiar with some of the underlying material as he otherwise would have been. In the circumstances of the present proceedings, this caused Mr White to make mistakes about that material, and to fail to appreciate the extent to which there were or there might be available further relevant documents which he had neither considered nor provided as part of his evidence, perhaps most noticeably in relation to the George St comparable.
76. I am also surprised that Barclays chose Mr White as its valuation expert in light of his previous involvement in the sale of the Arcades by the administrators. This, in my view, gave rise to an obvious risk of lack of impartiality and conflict of interests. Ms Mirchandani is overstating the position when she claims "He could not do otherwise than pitch the value of the Arcades at a low level". Put shortly, however, there was a clear risk that his valuation of the Arcades for purposes of the present case would be influenced, at least subconsciously, by the valuation which he had placed on them in the past. Because it would lead to a suggestion of inconsistency if Mr White was now to value the Arcades in a way that was out of line with his previous estimate of value, there was a clear and obvious danger that he would not approach his current task with a completely open mind, but would instead be inclined (whether he was conscious of this or not) to express views which accorded with his previous advice to the administrators.
77. However, I do not consider that Mr White was "proved very wrong" in his original estimate of value by the eventual sale price which was achieved by the administrators, or that this estimate "showed that his tendency was to undervalue the Arcades". The contemporary suggestion, shown by the papers to have been known to Mr White, that the Arcades might achieve a higher sale price than he had estimated supports the conclusion that Mr White realised that his estimate might prove to be too pessimistic.
78. To the extent that it was suggested that it was wrong of Mr White to go along with FRP not flagging up this prospect to Barclays at the time, I acquit him of that charge. Some professional advisers incline to expressing a view which is towards the cautious or gloomy end of the spectrum, possibly taking into account that in those circumstances a particular result is more likely to be viewed favourably by the client than it would be if a more optimistic view had been expressed. Others take a contrary approach. Provided the advice is honest, neither approach gives rise to legitimate grounds for criticism.
79. Those are the points which weigh most with me. At the end of the day, the criticisms levelled against Mr White did not cause me to doubt his integrity or the reliability of his evidence overall. This is especially so because I have sought, so far as possible, to decide which expert evidence I prefer on the basis of what appears to me to be logical and reasonable and to accord best with objective evidence or criteria, rather than on the basis of the demeanour of the witnesses or claims by them which are uncorroborated. I have had regard to inconsistencies in the evidence of Mr White in the same way as with any other witness, and I have taken into account other points made by Ms Mirchandani in specific contexts, for example in deciding the weight to be accorded to George St.

The upper floor accommodation

80. Mr White and Mr Berridge agree that upper floor residential accommodation is generally treated as ancillary to the ground floor trading area and that it would have a relatively low value being useful for the owner, staff, storage or letting accommodation but usually retained as part of the whole as a secondary income stream or amenity area. They also agreed that a fair value for the residential accommodation above CCGN is £125,000 and that the value of the accommodation above the Flamingo lies between £100,000 and £175,000. It seems that they valued the flats at CCGN on the basis that they were saleable and would have had value as rental income generators.
81. Mr White inspected the accommodation in 2010, and his evidence was that the layout did not appear to have been changed since the time of Christie's valuation in 2007. Mr White's lower opinion of value in respect of the Flamingo is due to the fact that flat 2 is accessed through flat 1 or across the flat roof, making access awkward and having a negative effect on the market value for both flats due to access issues and privacy. Overall, the accommodation would not find a market if converted to self-contained flats, and its only use was therefore as ancillary to the arcade, which depressed its capital value. The Flamingo report itself stated that: "All rooms on the second floor are currently used for storage and are not suitable for residential accommodation".
82. Mr Berridge considers that the accommodation above the Flamingo is significantly larger and more imposing than that over CCGN and that this should properly be reflected in a higher valuation than that applied to the accommodation over CCGN.
83. In answer to Mr White's points, Ms Mirchandani submitted that (a) the flat roof could be accessed by a staircase up from the street, (b) there were two doors to the upstairs accommodation, which suggests that both parts could be accessed from the flat roof, (c) in any event, access to the first floor would enable access to be gained to the second floor, because an external staircase could be built between the two floors, and (d) as a matter of consistency, the accommodation should be valued on the same basis as applied to that above CCGN, and the access issues did not warrant a different approach.
84. I preferred Mr White's evidence on this issue overall. In particular, I consider that the access issues do warrant a different approach to that applicable to the accommodation above CCGN. I find that the correct value of the accommodation above the Flamingo was £100,000 in 2007.

The range in this case

85. Mr White and Mr Berridge agree that the permissible margin of error in this case is 15%. While I accept that it is for the Court to determine this issue, and that the point must not be approached mechanistically, I see no reason to depart from this consensus.

The correct approach to valuing the FECs

86. With regard to their agreement (set out above) that they would typically expect the Arcades to be valued by reference to EBITDA, Mr White considers that in the present case "there is good relevant detailed and comparable evidence and therefore this approach is correct". He states that he has never employed a valuation method other than EBITDA capitalisation save as a quick sense check, that when researching comparable transactions in the market reference is virtually never made to turnover or turnover multiples and the focus is on EBITDA multiples, and that because FECs do not all perform to the same profit margins it is dangerous to rely upon a multiple of turnover approach. Mr Berridge states that his concern about the EBITDA methodology is that, although robust in theory, it requires good robust evidence to support it which is not always available.
87. It seems to me that the tenor of this evidence is that if it is reasonably practicable to perform a valuation of the FECs in the present case that is based on a multiplier of EBITDA, then that will produce the correct valuation. The fact that it is possible to perform such a valuation now does not mean that Christie was negligent in not adopting that methodology in 2007. For example, in spite of exercising reasonable care with regard to the choice of methodology which it adopted, Christie may not have had sufficient evidence available to adopt the EBITDA methodology. Indeed, this is the basis upon which Mr Berridge expresses concern about use of that methodology in practice. However, if Christie did in fact have (in Mr Berridge's words) "good robust evidence" to support an EBITDA-based valuation, then that not only means that such evidence exists but also strongly suggests that Christie ought to have adopted that methodology. If such evidence is available, in accordance with the agreed statement of the expert valuers, the only reasons for not using an EBITDA-based valuation are (a) if there is evidence that other methodologies are used in the market or (b) if there is better available evidence which might support a more robust valuation on some other basis.
88. In advancing a turnover multiplier basis of valuation in his report dated 1 April 2016, Mr Berridge states at paragraph 8.4:

"This is a very direct approach which reflects the usual position that evidence of turnover is significantly more readily available in the market than detailed evidence of business accounts. Turnover is the key determinant of value because profit expressed as EBITDA is a product of the estimation of REO/FMT turnover which is always the starting point in any valuation of a trading property. Operators can apply a "rule of thumb" percentage profit to turnover in order estimate likely EBITDA and from that, they can then calculate a provisional value for the business."

89. In my judgment, in spite of the assertion that "turnover is the key determinant of value", this evidence recognises that what counts for purposes of assessing the value of a business is not turnover but is instead EBITDA. The point that is being made is that evidence of turnover is often more readily available than detailed accounting evidence. In those circumstances, the argument that is being put forward is that it is possible to arrive at an estimation of EBITDA, and, thus, a basis for valuing the business, by applying to turnover a "rule of thumb" profit percentage (which is stated at paragraph 7.51 of the report to be that "for this type of leisure asset … operators expect to achieve an average 50% net profit margin"). This suggests that provided sufficient EBITDA evidence is available, it will be appropriate to base a valuation on EBITDA rather than turnover, although, as the report suggests elsewhere, it may also be appropriate to use other information, such as sales prices actually achieved on a full-marketing arm's length basis, as a cross-check of the correct valuation. The "rule of thumb" approach seems to me to be of doubtful reliability in any event. Common sense suggests that net profit margins will vary, perhaps significantly, from case to case, having regard to matters such as fixed overhead costs and economies of scale if for no other reasons. Relying on a "rule of thumb" that net profits are 50% of turnover is a crude way of estimating the profitability of a particular business, and may yield misleading results.
90. Barclays submits that (i) sufficient evidence is available now and was available to Christie in 2007 to enable an EBITDA-based valuation to be carried out, (ii) there is no evidence that other methodologies are or were at any material time used in the market, and (iii) there is no better evidence available now, and was no better evidence available to Christie in 2007, to support a more robust valuation on some other basis.
91. I accept those submissions. In large part, my reasons appear from what is said elsewhere in this judgment. In addition, so far as concerns the issue of whether other methodologies are (or were at any material time) used in the market, Mr White's evidence is that they are not (and were not), and Mr Berridge was unable to point to any guidance which recommended an alternative methodology, and, in particular, one which supported a multiplier of turnover approach. In the round, I consider that the evidence does not establish that other methodologies are (or were) used in the market as a substitute for, or in preference to, an EBITDA-multiplier basis of valuation, although, pragmatically, some valuations might need to be carried out on some other basis in those cases where insufficient evidence was available to make a valuation on that basis.
92. It follows that, in my judgment, the correct valuation of CCGN and the Flamingo will be reached by adopting an EBITDA-based valuation. However, that still leaves two matters for determination. First, what is the correct multiplier? Second, what is the correct multiplicand? There were many points of disagreement regarding these matters.

The 2005 sale of the Flamingo

93. Mr White and Mr Berridge agree that the actual sale evidence concerning the Flamingo is likely to be the best evidence of value but disagree on the level of weight to be placed on the two sales in 2005 and 2007.
94. In Mr White's opinion the 2005 sale of the Flamingo is "by far the best evidence available" because "Both the vendor and the purchaser at the time were experienced in the gaming sector and paid market price based on EBITDA following a marketing exercise. Furthermore, it was valued by GVA [Grimley] for lending purposes in 2004 which supported the purchase price."
95. Mr Berridge's principal issue with this sale is that "the vendor had regularly achieved turnovers in the region of £750,000 per annum whereas the 2005 purchaser only managed to achieve turnovers in the region of £475,000 per annum which is the level agreed by the Experts as representing [FMT] as at the valuation date in 2007." In his view: "This makes the devaluation of the sale inherently unreliable as with hindsight, the 2005 Purchaser may not have realised that the level of trade as achieved by the vendor was unachievable in his hands and had he known that turnover would reduce to a maintainable level of £475,000, I cannot assume that would he have paid £2.1m for it."
96. Mr Berridge further states: "I am also influenced by the evidence of a formal Impairment review undertaken by the 2005 purchaser which resulted in a substantial write off of goodwill which is evidence that the purchaser may have overpaid for the asset."
97. The implication of the points made by Mr Berridge is that GVA Grimley's valuation, and the 2005 sale price, did not reflect the FMT and future profitability that could be achieved by a REO. On the evidence I have heard, I accept that this is so: the 2005 vendor appears to have run the business in an unusually effective manner. It follows, in my view, that, as Mr Berridge suggests, the 2005 purchaser would not readily have paid so much if he had realised that he would not be able to run the business so effectively. Instead, it seems likely that the purchaser would have sought to pay a price which reflected the level of FMT, which is the level that the experts agree he in fact achieved.
98. However, I am unable to see how these points assist Christie. On the face of it, absent some positive change of trading circumstances in the intervening period, the lower the valuation that ought to have been placed on the business in 2005 in accordance with GN1, the lower the valuation that ought to have been placed on it by Christie in 2007.
99. The fact that, with hindsight, the 2005 price does not appear to have been based on a REO valuation does not mean that the devaluation of that sale is inherently unreliable. All it means is that, when seeking to determine what assistance can be gained from the 2005 sale price when assessing the correct value in 2007, it is necessary to bear in mind that the 2005 sale price did not reflect what was achievable by a REO. Accordingly, the disparity between that sale price and a 2007 valuation based on what was achievable by a REO is likely to be greater. The points of real importance are (a) whether the appropriate multiplicand is EBITDA or turnover and (b) what is the appropriate multiplier? If the level of the 2005 sale price could be said to provide grounds for questioning the methodology adopted by GVA Grimley, then that would render it of doubtful reliability. On proper analysis, however, such criticism as may be made of that valuation is not that GVA Grimley adopted the wrong type of multiplicand or the wrong multiplier, but rather that, on all the evidence which is now available, it would appear that it was not appropriate for GVA Grimley to use the actual multiplicand which it used in order to arrive at a valuation based on the FMT and future profitability that could be achieved by a REO. I nevertheless agree with Ms Rushton that it is more likely than not that GVA Grimley was seeking to arrive at a Red Book valuation. This accords with the context on which its valuation was produced, namely prospective lending (by, I believe, RBS) to assist the 2005 purchaser to buy the Flamingo.
100. Ms Mirchandani submitted that there is no evidence that the 2005 purchaser took account of EBITDA when making the purchase. On the evidence that is now available, however, I consider that it is more likely than not that he did, and on the basis set out in the GVA Grimley report. As discussed above, the evidence of both experts acknowledges the importance of EBITDA in attributing value to any FEC, although Mr Berridge suggests that this can frequently only be done by applying a "rule of thumb" to the only information that is available in many cases, namely information that relates to turnover. I agree with the thrust of Ms Rushton's closing submissions:

"… there was an actual arm's length sale at £2.1m and not merely a valuation by GVA Grimley … logically [the 2005 purchaser] must have treated the £2.1m sale price as representing a multiple of profit which was actually achievable by a REO. No rational person would pay a sale price which they actually believed was inflated by personal goodwill or by overtrading and which they would never be able to reproduce. Therefore the ratio between the sale price and the EBITDA of £365,000 will devalue to a typical multiplier, even if ultimately it transpires that there was overtrading or personal goodwill, at which point there will be a proportionate correction to both multiplicand and capital value. So long as the EBITDA and sale price are perceived to represent a REO, a sale may happen, the ratio will hold true, and for the purposes of deriving an EBITDA multiplier, it is only the ratio that matters."

101. Barclays' case - to the effect that if the EBITDA achievable by a REO of the Flamingo was about 50% of the EBITDA achieved by the 2005 vendor, then (assuming that no external factors had arisen in the intervening period which could be expected to affect the profitability of the business under the management of a REO) a valuation in 2007 which accorded with GN1 could be expected to produce a value for the Flamingo which is about 50% of the 2005 price - was put to Ms Chauhan in cross-examination. Ms Chauhan declined to accept that such a straight-line approach would be appropriate when seeking to arrive at the correct value in 2007. In my judgment, however, she was unable to provide any convincing explanation as to why this should not be so.
102. Ms Mirchandani submitted that it would be wrong to apply an approach which reduced the value of the Flamingo directly in line with a reduction in profits, because the evidence shows that the Flamingo had a vacant possession or "bricks and mortar" value of £700,000, and this residual value would be unaffected by a fall in profits. I accept that, as a matter of logic, the real property would mean that the Flamingo would still have some value even if the business was not making any profits at all, although it is a matter of speculation whether and to what extent that value could be unlocked by a sale if the business could not be traded at a profit. However, in accordance with GN1, and, as I understand it, the views of both experts – although they differ as to the correct multiplicand and many other matters, such as the extent to which a prospective sale price is a good indicator of value - FECs are valued according to trading potential. When they change hands as trading entities, profitability will generally dictate price.
103. In my view, the logic of Barclays' case clearly outweighs anything that Christie has presented to the contrary. For the reasons set out above – namely, in short, that none of the points made by Mr Berridge prevent the 2005 sale of the Flamingo from being a good comparable for purposes of deriving an EBITDA multiplier – I agree with Mr White that this sale is the best evidence for those purposes.

Old Town Amusements, 39-41, George Street, Hastings

104. This was one of the comparables used by Christie. Mr White and Mr Berridge agreed that this was a freehold and business which were purchased by Stade Developments (Hastings) Limited from Foxspan Limited and Tivoli Leisure Limited respectively for a total sum of £1.65m in February 2005, and that the upper parts were let as a nightclub at £52,000 per annum. The experts were unable to agree its weight as a comparable.
105. The details of their respective stances changed in the light of developments, including the provision of additional documents, which occurred during the course of the trial. These matters formed part of the grounds on which Ms Mirchandani made criticisms of Mr White and his evidence, and I have already summarised them above in that context. The stances summarised below are derived from the experts' revised joint statement.
106. Mr White considers that the detail for this comparable is good for the following reasons. The source was the purchaser and the transaction took place in 2005. The arcade address, tenure, turnover, and EBITDA are known, it is in a similar size town and the property trades as an FEC with upper parts similar to the Arcades. The nightclub was sublet at £52,000 per annum and was known to be trading profitably. An investment value for the upper floor can reasonably be assumed to be £600,000 (a figure Mr White arrived at based on an investment yield of 8.5%), similar to estimating the value of the residential accommodation above the Arcades, and an estimate of EBITDA multiple can be made of 3.95. Alternatively, the overall income including the rent can be added together making £317,500. On this basis the sale price represents a multiple of 5.2, which is consistent with the market at the time. Given the level of detail for this property, Mr White places significant weight on this transaction to support what he regards as the prime comparable of the 2005 sale of the Flamingo.
107. Mr Berridge explains that following further disclosure and a supplementary expert of Mr White (dated 3 June 2016), he was provided with two documents prepared by Mr Hooper of ES: a valuation report dated 1 December 2004, which valued the ground floor occupational interest; and a side letter dated 8 February 2005, which valued the freehold interest at £1.7m. Mr Berridge extracts the following from these documents. They record that the freehold value was based upon an EBITDA of £265,000 plus a rent receivable of £52,000 pa, and this equates to an overall multiplier of 5.35. EBITDA as a percentage of turnover was adopted by ES at 48.4% and ES reported an average range of 45-55%. Based upon the methodology adopted by ES the £1.7m figure devalues as between nightclub and arcade to: nightclub at £278,200, and arcade at £1,417,750. ES also report that the arcade required refurbishment and that the buyer intended to refurbish between November 2004 and January 2005 and had made its bid on this basis upon a post refurbishment EBITDA estimated by the buyer at £327,000 (i.e. 52% of turnover). Mr Berridge considers that this evidence supports his opinion of EBITDA as a percentage of turnover. However, he continues: "… I do not place significant weight upon the overall multiplier adopted as I now know that the arcade required refurbishment and that the night club covenant was very poor. My underlying concern about the comparability of this property to the subject Arcades remains in that this is a dual use property which incorporated a high risk significant rental stream and the subject properties are principally arcades which did not require refurbishment with ancillary accommodation over only which offered a materially more secure income stream. For these reasons I do not consider Hastings to be a good comparable."
108. The multiplier of 5.2 extracted by Mr White relates to the sale price of £1.65m, while that of 5.35 extracted Mr Berridge relates to the ES valuation figure of £1.7m (although the multiplier which was extracted by Mr Hooper in that regard was 5.25, not 5.35).
109. I am not convinced that this debate advanced the case of either side very far. I accept the points made by Mr White about the level of information which is available concerning George Street, and I am inclined to accept that, in general terms, an arm's length sale of an FEC in Hastings in 2005 is capable of providing a good comparable for purposes of the present case. At the same time, I consider that the nightclub and the condition of George Street are complicating features, and I can see force in the points that Mr Berridge makes to the effect that they dilute its reliability as a comparable. At the end of the day, I believe that all that can safely be taken away from a consideration of all the evidence relating to George Street is that it provides some evidence that (a) an EBITDA multiplier above 5 is appropriate for purposes of the present case and (b) it is not unreasonable to assume a profit figure of around 50% for FECs like the Arcades.

The 2005 impairment review

110. Mr Berridge's other point, concerning the formal impairment review which was undertaken by the 2005 purchaser, in fact has two aspects. First, it supports the conclusion that the purchaser paid too much for the Flamingo. Viewed from the perspective of the effectiveness with which the purchaser was able to operate the business, I accept that this is so, and I have already addressed the implications of that conclusion for purposes of calculating the correct value in 2007. Second, it may be good evidence of the value of the Flamingo under the management of a REO, as opposed to the (apparently) unusually effective management of the 2005 vendor.
111. On the face of it, and in keeping with the Red Book Practice Statement for Valuations for Financial Statements and IAS 36 Impairment of Assets, to which Mr Berridge made reference, the accountants who carried out this review would have sought to make an accurate assessment of the amount of the write-down. This featured as a write-off of goodwill in the sum of £648,406 in the accounts of the 2005 purchaser for the 9 months from February 2005 to September 2005. Deducting that sum from the 2005 sale price of £2.1m indicates an accounts valuation of just over £1.45m for the Flamingo.
112. However, I heard no evidence from these accountants, and I was not provided with any effective means of testing their reasoning and the validity of their approach. In these circumstances, I do not consider that it is safe to place weight on their review figures.

The 2007 sale price of the Flamingo

113. There was a difference between the parties as to the significance of the sale price of £1.6m agreed between the 2007 vendor and the Borrower. Both parties relied on the judgment of Phillips J in Banque Bruxelles Lambert v Eagle Star [1995] 2 All ER 769 at 789 (cited with approval by the Court of Appeal in Titan Europe 2006-3 Plc v Colliers International UK Plc [2015] EWCA Civ 1083, [2016] PNLR 7 at [11]):

"Valuing a property that has just been sold

Where the sale of a property has just been agreed, it might be thought that there is little scope for the valuer's art; that the value is demonstrated by the sale price. But this will only be so if the property has been freely and competently marketed on the open market. The possibility will always exist that a seller may for one reason or another not have achieved the full market value of his property, or that a buyer may have been prevailed on to agree to pay more that the market value of the property. For these reasons a bank that is requested to advance money for the purchase of a property on the security of the property to be purchased will normally require a valuation of the property in question.

All the experts were agreed that where a property has just been sold, the sale is potentially the most cogent evidence of the open market value of that property. Provided that the property was properly exposed to the market and competently marketed, the market price will demonstrate the market value. The experts were also agreed that the fact that the property has just been sold does not relieve the valuer of the need to consider comparables. The conclusion that the valuer draws from comparables will be part of the material upon which he bases his valuation. If the comparables suggest a value that differs significantly from the sale price agreed, the valuer has to consider all the evidence in order to decide why the discrepancy exists."

114. At paragraphs 11.9 and 11.10 of his report dated 1 April 2016, Mr Berridge states that he believes that the 2007 sale of the Flamingo was an arm's length transaction which probably reflected the fact that this arcade was of more value to the Borrower than the market generally, and that while the Borrower may have outbid the market to achieve the purchase and while the Borrower was the most likely purchaser nevertheless it would have only bid sufficient to better any other party's bid. At paragraph 13.1 he states: "I do therefore place significant weight on the 2007 sale of the Flamingo as being an arm's length transaction between parties with knowledge of the arcade market and I also consider that it is supported by the earlier 2005 sale outcome. In my opinion both sales support the Christie valuation figure for the Flamingo of £1,500,000."
115. In the amended joint statement of the valuation experts dated 27 April 2016, Mr White states that there is no evidence that the Flamingo was widely marketed prior to sale in 2007, and that because Mr Thurston was a "special purchaser" it would be dangerous to place any significant weight on this sale as a comparable. He further states: "It was the job of the valuer to make sure that their valuation reflected the market value, not the agreed purchase price offered by the adjoining owner. I have had a number of occasions where I have done a valuation which has been significantly lower than the agreed price, often resulting in a renegotiation between the parties to reflect the valuation reported."
116. Mr Berridge's position is that there is no evidence that the Flamingo was not properly exposed to the market. He considers that the sale was at a market level subject to the proviso that because the Borrower had a particular interest in purchasing it would have outbid the market. Mr Berridge has allowed a £100,000 overbid, whereas Mr White's approach leads to the conclusion that the Borrower overpaid by £600,000 which Mr Berridge "cannot accept because there was no reason or need for an overbid at this level and it equates to an over payment by 60% which is very substantial." Mr Berridge continues: "I consider the 2007 sale to have substantially more weight than the 2005 sale because it is evidence of actual market value at the valuation date at a Fair Maintainable level of turnover whereas the 2005 sale was predicated upon a turnover very substantially in excess of that which is agreed between the Experts as fairly maintainable in 2007. The actual sale date also precedes the relevant valuation date by two years. The 2005 sale is not truly comparable because it was predicated upon a much higher level of turnover."
117. The language used by Mr Berridge falls short of asserting that, in the words of Phillips J, the Flamingo was "freely and competently marketed on the open market" in 2007, and there is no evidence that it was. Moreover, both experts recognise that in this particular case there is good reason to believe that, again in the words of Phillips J, "[the] buyer may have been prevailed on to agree to pay more that the market value of the property", although they disagree about the likely extent of any overpayment.
118. In these circumstances, even if the sale of the Flamingo to the Borrower had been completed at the time when Christie prepared the Flamingo report, it would be unsafe to regard the sale price as cogent evidence of the open market value of the property.
119. In fact, the sale had not been completed at that time, and there is an element of circularity in the reliance placed by Christie and Mr Berridge on the price of £1.6m at which it went ahead in support of Christie's valuation of £1.5m, because this valuation probably facilitated a sale at that price. A lower valuation may well have impeded such a sale, and, as Mr White suggests from experience, have led to a sale at a lower price.
120. There are a number of matters to bear in mind when assessing the extent to which the Borrower might have agreed to pay more than the true market value for the Flamingo:

(1) First, it is clear from the documents relating to the history of borrowing that the Thurstons knew the price at which the Flamingo had been marketed in 2005, and that they viewed the asking price in 2007 as "far more realistic" in the context that it represented a significant reduction in comparison to the price asked in 2005.

(2) Second, however, there is no evidence that the Thurstons made a comparison between what they knew of the trading results achieved by the 2005 vendor and those achieved by the 2005 purchaser in the years following the 2005 sale and that they then went on to assess the 2007 asking price from that perspective.

(3) Third, the Thurstons' established commercial acumen (such as it was) lay in operating arcades, but they were not experienced in buying and selling them.

(4) Fourth, both sides made repeated references throughout the trial to these being "cash businesses" and "family businesses". It is reasonable to infer that the Thurstons viewed the purchase of the Flamingo in that light. In other words, they may have seen opportunities for extracting cash or putting wider family members on the payroll which would make the acquisition of the business of the Flamingo attractive to them, but which would not form part of its true open market value.

(5) Fifth, it is acknowledged by both sides that the Flamingo had a special attraction for the Thurstons. Without hearing evidence from them there is no way of knowing the extent of the premium which they may have been prepared to pay to ensure that it was sold to them in 2007. I agree that, if they had been competing against other bidders in the open market, logically all they would need to do is to offer sufficient to trump those bidders. However, there is no evidence that this is how the sale price was fixed. Another possibility is that the 2005 vendor thought of them first, and they were more concerned with preventing a bidding war with other prospective buyers than with haggling with the vendor over his asking price.

(6) Finally, I consider that a clear picture emerges from the documents relating to the history of borrowing. The Thurstons were financial risk-takers who were fairly remorselessly focussed on business expansion and no doubt (as they hoped) increasing their wealth, and who overreached themselves financially. In part, this was a product of the times, when the boom during which the 2007 purchase of the Flamingo took place was followed by the jolt to the financial system which occurred in 2008 and then by the collapse of many businesses which followed, to say nothing of factors which adversely affected the gaming industry in particular. However, many businesses survived those turbulent times. The fact remains that the Thurstons' business model was one which ultimately proved to be unsound. It would be in line for them to have slipped up when paying £1.6m for the Flamingo.

121. I do not suggest that these factors, or at least of all them, were known, or should have been known, to Christie in 2007. However, they are known now, and they are all relevant in deciding now what weight should be placed on the fact that the Borrower was willing to pay £1.6m in 2007 to buy the Flamingo from the 2005 purchaser. In my view, separately and cumulatively, they suggest that it is unsafe to place weight on it.
122. In light of that conclusion, it is unnecessary to deal with a number of further criticisms which were made by Ms Rushton of Mr Berridge's evidence on this topic. It is fair to say, however, that his final resting place concerning the weight to be attached to the 2007 sale price was rather more tentative than some of the language of his reports.

The correct multiplier for the Flamingo

123. Ms Chauhan applied a multiplier of 5 when she carried out an EBITDA calculation in the Valuation Working Paper ("VWP") that she prepared in respect of the Flamingo. It was put to her in cross-examination that this multiplier of 5 was derived from the GVA Grimley report. However, Ms Chauhan said "I think it would have been more so on the basis of the comparables that we would have attained at the time of the valuation … we would have had regard to the current comparable evidence as opposed to the GVA valuation … it sat within the range of multipliers that we had on file … in terms of what we felt was right, it was the ultimate number we came up with." On that evidence, Christie must have had materials – other than the GVA Grimley report - which enabled Christie to come to the view that a multiplier of 5 would be appropriate to apply to an EBITDA calculation in respect of the Flamingo. That evidence therefore provides grounds for saying that it would be right to apply a multiplier of 5 in this context.
124. Barclays does not suggest that the appropriate multiplier in the case of the Flamingo is 5, but argues instead for a multiplier of 5.75, which is more favourable to Christie in the context of the present claim. This is based on the 2005 sale price of £2.1m, and the fact that the EBITDA for the year ended 28 February 2004 was £365,000 on a turnover of £788,000. This represents a multiplier of 5.75 if no separate account is taken of the residential accommodation. If Mr White's figure of £100,000 was deducted for the residential accommodation, that would lead to a multiplier of 5.48 for the remaining £2m. If Mr Berridge's figure of £175,000 was deducted for the residential accommodation, that would lead to a multiplier of 5.28 for the remaining £1,925,000.
125. Mr Berridge suggested that the correct multiplier in this instance is 6. At paragraph 7.51 of his report, he stated: "In this case, the general "rule of thumb" for this type of leisure asset is that operators expect to achieve an average 50% net profit margin and expect to sell at an EBITDA multiplier of 6." However, the evidence before me does not support this. On the contrary, it reveals that quite a wide range of multipliers were applied to different FECs at different times. This is so even if one includes the ES valuation report dated 4 February 2010, where Ms Mirchandani contends that both properties were valued for Barclays and the multiplier of 6 was adopted (although Ms Rushton contends that this is not a relevant comparable, because the market in 2010 was very different from 2007, and, moreover, that neither expert has suggested it is).
126. Faced with a choice between Barclays' case that I should adopt a multiplier of 5.75 based on the 2005 sale price of the Flamingo and Mr Berridge's stance, I prefer the former. As it happens, that figure of 5.75 is almost exactly half-way between the multiplier of 5.48 which I consider is properly to be extracted from the 2005 sale of the Flamingo having regard to the EBITDA of the business and Mr Berridge's figure of 6.

The correct multiplier for CCGN

127. In my view, there is no reason to apply a different multiplier in relation to CCGN. Mr White suggests that the appropriate multiplier for CCGN is 5.5. His foundation for this suggestion is that one would expect the multiplier for the Flamingo to be a bit higher because the drop in turnover would encourage a buyer to pay a higher price on the basis that there would be scope for improvement in the business. However, it seems to me that is only one possibility. As far as I can see, a buyer might just as easily be inclined to pay less on the basis that that the fall in turnover suggests an increased risk that the business will continue to decline. Moreover, Mr White has derived his multiplier of 5.75 for the Flamingo from its 2005 sale, which took place when its turnover was not depressed. It seems to me inconsistent to suggest that when the same multiplier applies in 2007 it does so on the basis that there is factored in the prospect of an improvement in turnover. I am also unpersuaded by Mr Berridge's suggested multiplier of 6, for the reasons given above. I find that the correct multiplier in respect of CCGN is 5.75.

The correct multiplicands

128. There were many elements of the EBITDA calculations on which the experts were unable to reach agreement. Some of the differences between them were very modest. It is an unenviable task for the Court to have to adjudicate on all these matters. Mr Berridge summarised the differences between Mr White and him in the following table:

Row No	Expense Type	CW Flamingo	JMB Flamingo	Diff	CW Circus	JMB Circus	Diff
1	Turnover	475,000	475,000	0	850,000	850,000	0
2	Prizes	35,000	35,000	0	65,000	65,000	0
3	Gross Profit	440,000	440,000	0	785,000	785,000	0
	Less
4	Promotion	18,043	3,500	14,543	8,500	5,000	3,500
5	Security & Carriage	3,750	0	3,750	7,500	0	7,500
6	Wages & NI	100,000	71,250	28,750	127,500	127,500	0
7	Machine Repairs	17,500	18,100	-600	37,364	32,800	4,564
8	General	6,550	2,500	4,050	2,936	3,750	-814
9	Telephone	1,663	1,500	163	5,289	2,500	2,789
10	Post & Stationery	1,250	1,500	-250	2,990	2,250	740
11	Motor & Travel	2,250	2,250	0	3,000	3,000	0
12	Gaming Licences	41,393	41,393	0	60,431	60,431	0
13	Cleaning	4,750	0	4,750	8,500	0	8,500
14	Accountancy	4,750	3,750	1,000	5,000	5,000	0
15	Legal & Prof	2,000	1,750	250	2,125	2,500	-375
16	Computer	1,500	0	1,500	2,500	0	2,500
17	Advertising	1,500	0	1,500	2,125	0	2,125
18	Rent & Rates	27,793	27,792	1	59,500	58,412	1,088
19	Insurance	10,371	10,370	1	21,339	21,339	0
20	Light & Heat	20,000	15,000	5,000	30,000	26,500	3,500
21	Building Reps	19,000	15,000	4,000	34,000	26,500	7,500
22	Bank Charges	1,425	1,500	-75	2,550	2,250	300
23	Total Expenses	285,488	217,155	68,333	423,149	379,732	43,417
24	EBITDA	154,512	217,155	68,333	361,851	405,268	43,417
25	EBITDA Mult	5.83	6.1	0.28	5.46	5.86	0.4
26	Value	900,000	1,325,000	425,000	1,975,000	2,375,000	400,000
27	EBITDA % T/O	32.5%	45.7%	13.2%	42.6%	47.7%	5.1%
28	Resi Value	100,000	175,000	75,000	125,000	125,000	0
29	Tot EBITDA Value	1,000,000	1,500,000	500,000	2,100,000	2,500,000	400,000
30	T/O Multiplier	n/a	3.16	n/a	n/a	2.94	n/a
31	T/O Mult Value	n/a	1,500,000	n/a	n/a	2,500,000	n/a

a. Wages

129. The experts agreed that the appropriate wages figure for CCGN is £127,500. However, they disagreed about the appropriate figure for the Flamingo. Mr White suggested a figure of £100,000, whereas Mr Berridge suggested one of £71,250.
130. Barclays contended as follows:

(1) The actual figure for wages for the preceding year under the ownership of the 2007 vendor was £134,363 for the year to September 2006, and the 2005 figure would annualise (from a 7 months' figure of £73,533) to around £126,000. These figures were higher than the figures under the 2005 vendor, in spite of the fact that turnover had reduced after the 2005 sale. Further, both experts accepted that recorded wages figures in a family-run business could sometimes be over-stated because of the inclusion of family members.

(2) Accordingly, some reduction from the 2007 vendor's figures is appropriate.

(3) There is no basis for reducing the wages level below £100,000. On the contrary, none of the various operators of the Flamingo, over many years and through good and poor trading conditions, were ever able to operate that arcade with wages under £100,000.

(4) Even when making assessments for a REO, it cannot be right to move too far away from the actual staffing levels needed to operate the particular arcade, on the ground. The 2005 vendor is recorded as having employed 8 full time staff in addition to his own involvement, and Mr Berridge calculates that 8 floor staff would cost £12,000 each pa, which makes a total of £96,000. Mr Berridge says that the cost of a manager on top would be £16,000, making a total of £112,000. In addition to this there would, in fact, be employer's national insurance costs.

(5) When Mr Berridge comes to do the actual calculation for the Flamingo, he puts aside these matters and instead applies a flat percentage of 15%, saying that this would be the equivalent of only 6 full time staff. This ignores the evidence from the 2005 vendor as to the actual staff levels as well as ignoring the costs of the manager. It must be wrong to slash the wages figure by almost 50%, simply because that is the result of the application of a standardised 15% rule of thumb.

(6) As the Flamingo had suffered from a substantial fall in turnover, this would have increased costs (including wages) as a proportion of turnover and reduced profit. It is not right to assume that a REO would have been able to reduce costs by the same proportion as the reduction in turnover, and to have no regard to the actual numbers of staff needed to operate that arcade. A certain number of staff was always needed to operate the Flamingo.

(7) In this regard, James Shorthouse of Christie (who was very experienced in valuing arcades) advised Ms Chauhan to change her wages figures from flat 15% percentages and advised instead that "Christie & Co's adopted wages figures should be in line with both owners previous trading accounts". Barclays submits that it is an independent indication of appropriate practice.

(8) Mr Berridge is wrong to deduct the cost of the manager from the wages bill, although a manager would have been needed to manage the staff. It is wrong to assume that a REO would always be an owner operator who would take on that function themselves, and nor is this supported by the evidence. In this industry, businesses were run by various types of operator, and more professional operators (like the 2005 vendor) would have engaged a manager. In fact, Ms Chauhan's site visit notes record that the Thurstons employed managers at CCGN. To exclude the cost of an essential member of staff when undertaking an objective, REO-based EBITDA assessment, on the basis that in some smaller family run operations, but not others, the owner might take on that role, would introduce an unwarranted inconsistency into the valuation. Mr Berridge allowed his greater experience of pubs (where such an arrangement would be common) to influence his analysis. Mr White's far greater industry experience should be given due weight in this area.

131. Christie made some points which applied not only to wages but also more generally:

(1) The operators of both CCGN and the Flamingo were family operators, and their approach to accounts is likely to have reflected a "deduct everything possible" approach. The likelihood is that a REO would have fewer expenses to deduct from gross profit than is reflected the actual accounts for these businesses. For example, the overwhelming likelihood is that the expense in respect of wages, as stated in the actual accounts, will have been exaggerated and not reflect the actual expenditure on employment costs.

(2) A valid cross check is to constantly take into consideration that CCGN is approximately twice the size of the Flamingo. The expenses should be roughly in the same proportion.

(3) Since these two arcades are immediately adjacent to one another, and at least as a starting point, a rule which applies to one should be consistently applied to the other. For example, Mr White accepts (and Mr Berridge agrees) that wages costs are usually based around 15-16% of turnover for this sector. Mr White adopts 15% for CCGN, but he adopts 21% for the Flamingo, which reflects an inconsistent approach.

(4) Mr Berridge put the matter this way in paragraph 17.6 of his supplemental report:

"It is not in dispute that [CCGN] has a significantly greater trading area and has a much higher REO/FMT of £850,000 than Flamingo (£475,000). Whilst each individual expenditure head will not exactly arithmetically reflect this differential, I consider that as a general cross check each individual expense for [CCGN] might be expected to be higher than for Flamingo by an amount which can be expected to bear some relationship to the level of turnover which is 79% higher. [CCGN] also has 328 machines which is the primary income source whereas the smaller Flamingo has 181 machines and again [CCGN] has 55% more machines. This measure can be applied as a "rule of thumb" test on each area of disagreement when undertaking this cross check."

132. With regard to wages in particular, Christie made the following additional points:

(1) When implementing a REO/FMT approach in respect of the Flamingo, and bearing in mind his acceptance that wages are "very variable" in this sector, Mr White ought not have arrived at a wages figure of £100,000 by averaging the previous years' figures, and deducting 25% to reflect the drop in turnover. He should have used the industry sector benchmark of 15-16% of turnover, especially bearing in mind his use of 15% of turnover for CCGN.

(2) The earlier years of accounts form an unreliable basis of assessment, having regard to the likelihood of a "family element" leading to exaggeration in the actual accounts. Mr White did not pay proper regard to the inexplicably high winter season wages costs (which do not reflect the seasonality of the Flamingo's business), or the fact that the highest turnover months did not have equally high wage costs. Such discrepancies in the accounts, particularly in respect of wages costs, suggest levels of deductions which do not reflect actual costs incurred.

(3) The trading period in question reflected a large drop in turnover after the Flamingo had been performing better under the management of the 2005 vendor. This is a further matter which should have caused Mr White to question whether it was wise to base his REO/FMT figure for wages on these years of accounts.

(4) As a result, the level of wages for the Flamingo is disproportionately high when compared with CCGN. One would expect more like a two-thirds' figure for wages for the Flamingo in comparison to CCGN, i.e. a cost of £85,000.

133. It is common ground that a substantial reduction of the claimed wages costs of the 2007 vendor is appropriate, and both Counsel appear to accept that it would be wrong to assume that wages remain a constant proportion of turnover regardless of the level of turnover. Beyond that, on the one hand I agree with Barclays that, adopting a REO/FMT basis of assessment, and because a REO would not necessarily be an owner operator, it would be wrong to exclude the cost of a manager from the wages bill for the Flamingo. On the other hand, I agree with Christie that, on the face of it, and bearing in mind the relative size of the two FECs, it would be surprising if the appropriate wages figure for the Flamingo was only £27,500 less than the agreed figure of £127,500 for CCGN. For these reasons, I consider that the correct wages figure for the Flamingo is £90,000.

b. Promotions

134. Promotions are additional prize offerings, designed to attract more customers. They are different from advertising.
135. According to Mr White, the amount spent on promotions is on average around 1% across the industry, which points to a figure of £8,500 for CCGN. Barclays' case was that this figure also accords with the historic levels of expenditure on promotion at CCGN (as recorded in the various accounts), which varied between about £3,500 and about £8,700 when adjusted for inflation, and which included the actual expenditure of £8,517 which is recorded as having been incurred in 2007.
136. According to Mr Berridge, an appropriate amount for promotions for CCGN is £5,000. Christie's case is that this accords with the figure of £4,839 shown in the accounts of the Borrower for 2006. This differs from Barclays' figure of £8,480 for 2006, which I believe is wrong. Christie's further contends that, if Mr White's figure for promotions of £8,500 is added, as Mr White contends that it should be, to the additional sum £2,125 in respect of advertising, the budget comes to over £10,000, when on Christie's case the level spent by reference to the actual accounts is never more than £7,000.
137. Based on Barclays' figures, the average expenditure on promotions at CCGN over the years 2001-2007 was about £6,300. It would be slightly lower if the correct in figure respect of 2006 is £4,839, and not Barclays' figure. The sums went up and down over the years, and there is no obvious rising or falling trend. I consider it reasonable to bear in mind the 1% "rule of thumb" suggested by Mr White, but that it is wrong to apply this mechanistically and divorced from the actual expenditure of the Borrower (which is not, as I understand it, suggested by either side to be other than a REO for these purposes). In my view, the right figure for promotions for CCGN is £6,500.
138. Turning to the Flamingo, Barclays accept that the amount being spent on promotions, at just over £18,000, was significantly higher than the industry average. While Barclays also accepts that it is unclear why this figure was so high, it was suggested that because the turnover of the Flamingo had fallen substantially an operator would be likely to be trying to boost turnover by offering additional promotions. Mr White's approach was that because Ms Chauhan had failed to explore the reasons for this high level of expenditure the explanation for it was unknown. In these circumstances, Mr White was reluctant to reduce the promotions figure, as he considered that it would then be necessary to factor in an effect on turnover, which would be difficult to do. Ms Rushton submitted that, against this background, it is reasonable to leave the promotions figure at the level of the actual expenses.
139. Mr Berridge suggested a figure of £3,500 for promotions for the Flamingo. Ms Mirchandani submitted that Mr White's approaches to CCGN and the Flamingo are inconsistent. In one case, he applies a "rule of thumb" which is divorced from actual expenditure as shown in the accounts, and in the other case he adopts actual expenditure although it is "unusually high" and, on his evidence, reflects the Flamingo "having to promote considerably".
140. In my view, there is an inconsistency in Mr White's position. What matters is the level of expenditure of a REO, and it cannot safely be assumed that actual expenditure on any outgoing which is unusually high is such as would be incurred by a REO. Nor is it right to assume that an increase in promotions will result in an increase in turnover (although that is no doubt what the operator hopes for and intends), and, conversely, that a reduction in the sums spent on promotions will result in a fall in turnover for which an allowance requires to be made. I consider that, in this instance, it is right to take Mr Berridge's suggested figure for promotions for the Flamingo of £3,500.

c. Building and general maintenance

141. Barclays submits that this head of expense is likely to vary considerably from one year to the next, with the result that the actual costs for one or two years may not be a reliable guide. Therefore, when assessing a REO's costs, it is sensible to apply a more general average, which takes account of the evidence of costs in previous years and the valuer's experience of the industry. Mr White did this and applied an average figure of 4%. Accordingly, his evidence and figures – which are £34,000 for CCGN and £19,000 for the Flamingo - should be accepted.
142. Mr Berridge argues for expenditure of £26,500 for CCGN and £15,000 for the Flamingo. He points out that (as is also true in respect of "heat and light") both he and Mr White have declined to follow actual costs incurred, on the basis that they are unreliable, that they have adopted approaches which are relatively consistent, and that both of them have produced best estimates although Mr White's figures are higher.
143. Although this is a large head of expenditure, it is possible to deal with it quite briefly. I consider that Barclays has the better part of this particular argument, and I propose to accept Mr White's figures in respect of this head of expenditure for both Arcades.

d. Security and carriage, cleaning, computers, advertising

144. Barclays' case concerning these items has two main limbs: first, that Mr White's evidence should be accepted because he has particular authority and knowledge of the industry; second, that his evidence accords with what would be expected in any event.
145. Mr White added these four heads of cost to the EBITDA calculation, although they did not appear in the accounts for the Borrower or the 2007 vendor of the Flamingo, because he considers (rightly) that they were all costs a REO would normally expect to incur as a matter of course in running an arcade.
146. Barclays contends that cleaning is a cost which plainly would be incurred somewhere. If there is no separate item for it in the accounts, the most likely reason is that it has been included in the actual wages figure. However, if the actual wages figure has been limited to a REO figure that only includes the arcade staff, as Barclays suggests has happened above, then the cleaning costs must be accounted for separately if they are not to be omitted altogether. Mr White argues for cleaning costs of £8,500 for CCGN and £4,750 for the Flamingo.
147. Similarly, so far as concerns security and carriage costs, Barclays contends the costs of securely transporting large amounts of cash is a normal expense of a cash arcade business. Mr White's evidence is that, based on his experience, the normal and prudent course would be to use a secure courier. If it is not in the actual accounts, this is most probably because it has been subsumed in the actual wages costs. However, Barclays submits it will have been excluded from the REO wages figure discussed above, such that it needs to be accounted for separately. Mr White argues for security and carriage costs of £7,500 for CCGN and £3,750 for the Flamingo.
148. As to computer costs, Mr White considers that this is a normal cost of internal book keeping, ordering and maintenance of accounts. The sums he allows are modest (£2,500 for CCGN and £1,500 for the Flamingo), and Barclays submits that they would clearly be an ordinary business expense for operating businesses such as the Arcades.
149. So far as concerns advertising costs, Mr White's evidence is that a (relatively small) sum for advertising (i.e. £2,125 for CCGN and £1,500 for the Flamingo) would be a normal business expense in the industry and so should be included in the EBITDA calculation for the Arcades.
150. Mr Berridge disputes all four of these heads of expenditure on the basis that they do not form a separate head of expenditure in the accounts of either the Borrower or the 2007 vendor. He therefore contends either that there is no evidence that they are costs which would be incurred at these Arcades or alternatively that they are already subsumed into another head of expenditure. In either case he considers that there is no justification for the inclusion of any of these heads of expenditure at any level. With regard to advertising, he makes the additional argument that this has already been included under promotions, and that to include a further item for it would involve double counting.
151. As stated above in the context of promotions, what matters is the level of expenditure of a REO. It does not follow from the lack of actual expenditure on any outgoing by the Borrower or the 2007 vendor that no such expenditure would be incurred by a REO. I am not persuaded that these four heads of expenditure are subsumed under other heads. In addition, I consider that Mr Berridge is wrong to say that advertising is included in promotion. For these reasons, I reject Mr Berridge's approach to these heads of expenditure. At the same time, I am sceptical about aspects of Mr White's evidence as well. I am not satisfied that a REO of either Arcade would spend much, if anything, on carriage and security (as opposed to simply walking takings to the nearest bank), I think it more likely than not that a REO of such premises would have cleaning undertaken by existing staff, and I think Mr White's suggested costs of computers are extravagant.
152. I propose to take a relatively broad brush approach to these heads of expenditure, and to allow, in respect of all of them, £10,000 for CCGN and £6,500 for the Flamingo.

e. Rent and rates

153. Both Mr Berridge and Mr White have adopted the actual costs incurred in respect of the Flamingo. Mr Berridge has done the same for CCGN, but in this instance Mr White has added an uplift of £1,088. Mr Berridge contends that this is unjustified and reflects inconsistency. I prefer Mr Berridge's stance, and I propose to disallow this £1,088.

f. Accountancy

154. It is common ground that this expense would be incurred. The experts agreed a sum of £5,000 in respect of CCGN. In respect of the Flamingo, Mr White argued for £4,750 and Mr Berridge argued for £3,750. In her closing submissions, Ms Rushton suggested that the Court should take the average of the two experts' figures, and fix this item at £4,250. That seems to me a reasonable resolution of this issue, and I propose to adopt it. It is a pity that the experts felt unable to reach a compromise along similar lines.

g. Other items

155. That observation applies to the other points of difference which are summarised in the table which Mr Berridge produced. So far as concerns these items, I have little concrete foundation, either on the basis of the evidence or the submissions of the parties, for preferring the figure advanced by one expert in preference to that advanced by the other. In all the circumstances, I regard it as disproportionate to lengthen this judgment further by attempting to decide the rights and wrongs of whether, for example, telephone charges for a REO of the Flamingo should be £1,663 or £1,500 – especially as in some instances Mr Berridge's proposed expenditures are higher (by amounts such as £250 or £75) than those proposed by Mr White. I therefore propose to split the difference between the experts on all these remaining heads in respect of both Arcades.
156. This is the course that Ms Rushton invited me to follow in her closing submissions. Ms Mirchandani invited me to accept Mr Berridge's evidence on all these heads, and she submitted, further that (a) the Court must make take a view on each figure presented for each head of expense by each expert, (b) if the Court does not accept any figure, it must be able to state the reasons for rejecting that figure, (c) if the Court adopts the other figure, it must be able to state the reasons for accepting that figure, (d) if the Court considers a third figure to be correct, again the reasoning must be given, (e) the reasons given must be drawn from the evidence in the case, and in some instances this may be sparse, (f) it is only acceptable for the Court to adopt a broad brush or averaging approach if it has no reasonable alternative, and even then (i) the figure reached should be considered 'in the round' and with regard to the rest of the expenses heads, and (ii) by comparison between the Arcades (taking account of their different sizes), and (iii) necessarily on the basis that the Court should stand back and assess the general sense of its conclusions against the context of the rest of the valuation evidence.
157. In the event, I consider that the evidence and the submissions do not provide any clear or reliable basis for deciding on a fully reasoned basis which figure is appropriate on all these remaining heads of expenditure. Also, I am satisfied that the overall conclusion to which I have come does make sense both as between the two Arcades and in the context of the valuation evidence as a whole. However, I am concerned that the approach adopted by Christie to this litigation, as reflected in these submissions, pays no or no sufficient regard to considerations of proportionality and the overriding objective. This includes deploying the scarce resources of the Court appropriately as between different litigants and different proceedings, and devoting appropriate amounts of Court and judicial time to different issues. I consider that 8 days of Court time and the extensive additional amount of judicial time that it has taken to consider and address the issues that are addressed in a fully reasoned manner in this judgment has more than used up the allocation of these resources which is appropriate to this dispute.

h. Overall EBITDA for the Flamingo

158. The agreed gross profit figure for the Flamingo is £440,000. From that, in accordance with my findings above, there fall to be deducted (a) £90,000 in respect of wages, (b) £3,500 in respect of promotions, (c) £19,000 in respect of building and general maintenance, (d) £6,500 in respect of security and carriage, computers, cleaning and advertising, (e) £27,793 in respect of rent and rates, and (f) £4,250 in respect of accountancy. In addition, there fall to be deducted (i) the figures agreed by the experts on all the heads on which they were able to agree and (ii) the mid-point figure between the two experts in respect of all the other heads. On my arithmetic, item (i) amounts to (a) £2,250 in respect of motor and travel expenses, plus (b) £41,393 in respect of gaming licences, plus (c) £10,371 in respect of insurance; and item (ii) amounts to (a) £17,800 in respect of machine repairs, plus (b) £4,525 in respect of general items, (c) £1,581.50 in respect of telephone, (d) £1,375 in respect of post and stationary, (e) £1,875 in respect of legal and professional services, (f) £17,500 in respect of light and heat, and (g) £1,462.50 in respect of bank charges. The grand total to be deducted amounts to £251,176. I therefore hold that the correct EBITDA for the Flamingo is £440,000-£251,176 = £188,824.
159. I note that this represents 39.75% of turnover, which is below the band of 45%-55% of turnover which is mentioned in the papers (e.g. in the ES report dated 1 December 2004 relating to George St) as being what one might expect of other FECs. However, it is unsurprising that expenditure should form a higher percentage of turnover, and that EBITDA should form a lower percentage, for a business with a depressed turnover.

i. Overall EBITDA for CCGN

160. The agreed gross profit figure for CCGN is £785,000. From that, in accordance with my findings above, there fall to be deducted (a) £6,500 in respect of promotions, (b) £34,000 in respect of building and general maintenance, (c) £10,000 in respect of security and carriage, computers, cleaning and advertising, and (d) £58,412 in respect of rent and rates. In addition, there fall to be deducted (i) the figures agreed by the experts on all the heads on which they were able to agree and (ii) the mid-point figure between the two experts in respect of all the other heads. On my arithmetic, item (i) amounts to (a) £127,500 in respect of wages, (b) £5,000 in respect of accountancy, (c) £3,000 in respect of motor and travel expenses, (c) £60,431 in respect of gaming licences, plus (d) £21,339 in respect of insurance; and item (ii) amounts to (a) £35,082 in respect of machine repairs, (b) £3,343 in respect of general items, (c) £3,894.50 in respect of telephone, (d) £2,270 in respect of post and stationary, (e) £2,312.50 in respect of legal and professional services, (f) £28,250 in respect of light and heat, and (g) £2,400 in respect of bank charges. The grand total to be deducted amounts to £403,734. I therefore hold that the correct EBITDA for CCGN is £785,000-£403,734 = £381,266.
161. I note that this represents 48.57% of turnover. This is within the band of 45%-55% of turnover which, according to some of the papers, one might expect of such a FEC.

j. Correct value of the Flamingo

162. Applying a multiplier of 5.75 to the EBITDA for the Flamingo, and adding on £100,000 in respect of the upstairs accommodation, its correct value was £1,185,738. This represents more than a 15% difference from Christie's valuation of £1.5m.

k. Correct value of CCGN

163. Applying a multiplier of 5.75 to the EBITDA for CCGN, and adding on £125,000 in respect of the upstairs accommodation, its correct value was £2,317,279.50. This represents (slightly) more than a 15% difference from Christie's valuation of £2.7m.

l. Correct value of the Flamingo and CCGN together

164. The correct value of the Flamingo and CCGN together was £3,503,017.50. The difference between this sum and the Christie's valuations of both FECs of £4.2m is £696,982.50. That means that there is a difference of almost exactly 20% between the correct value and the Christie's valuations. Moreover, I consider that it is this overall difference which matters most, because (as appears from the contemporary documents) Barclays was looking at the security of both FECs together when deciding whether to make the Treasury Loan. In accordance with the way that the case has been argued before me, I have worked through all the elements of the EBITDA calculation in respect of both FECs. However, the case law recognises that the process of valuation does not admit of precise conclusions. Further, until refinements were introduced in the course of the trial both sides advanced their respective cases as to the correct valuation of these FECs by reference to figures which were expressed in round terms (i.e. £2.1m, £1m, £2.5, and £1.5m). I therefore propose to round up this difference to £700,000 for purposes of the discussion which follows in the remainder of this judgment. That is same as saying that the correct value of both Arcades can be rounded down to £3.5m.

Was Christie's approach negligent?

165. Having decided those issues in that way, the next step is to consider whether it was nevertheless open to Christie, without stepping outside the bounds of what a reasonably competent valuer might do, to depart from the EBITDA basis of valuation in this case.
166. Ms Chauhan's witness statement dated 29 January 2016 contains the following evidence:

(1) In collating comparables, Ms Chauhan first referred to Christie's database and made enquiries internally, and she then made enquiries externally, including from Savills and (she considers likely) other agents and surveyors named in her notes.

(2) Ms Chauhan entered the information which she had collated into Christie's model prepared for the valuation of public houses, which was then adapted to the valuation of the FECs, for example by adding or removing cells in the Excel sheet, for example. No model specifically relating to FECs was available.

(3) So far as concerns the basis of valuation, Ms Chauhan does not recall the details. However, she "would have discussed the relative merits of both approaches internally, with Karl [Hines] and the checkers", and "the decision ultimately to adopt the multiple of turnover approach was because the most up-to-date market evidence at the time was based on a multiple of turnover". A contemporary document records that "Our MV's have been calculated by applying a multiple to turnover as opposed to ANP [i.e. Adjusted Net Profits]. This has also been the case following the handful of comps we received from Savills."

(4) In accordance with their normal methods of working, Ms Chauhan collated, and discussed with Mr Hines, all of the available information. She then prepared a working draft of the VWPs and the reports, which she would have provided to Mr Hines for his review. Ms Chauhan and Mr Hines would discuss all aspects of such valuations together, and she would then incorporate any comments or amendments into the working draft that he told her were necessary.

(5) In accordance with Christie's rigorous process of peer review, any valuation figures reached would be circulated to two other valuers ("checkers") for checking. On 15 February 2007, Ms Chauhan sent an email to the proposed checkers, Jon Patrick and Nick Broadbent, incorporating the VWPs which gave the valuation opinions reached of £2.7m for CCGN and £1.5m for the Flamingo, together with a brief synopsis of the instruction behind the valuation. The Market Value of the Flamingo was initially stated in the valuation model to be £1.275m, but, as the manuscript amendment shows, it was increased to £1.5m before being circulated to the checkers. This increased valuation was the resulted of applying a multiplier against turnover, rather than profit, and then adding £150,000 for the residential accommodation. As matters transpired, James Shorthouse and Lawrence Telford stepped in as checkers and reviewed the underlying figures, their input was incorporated in the draft valuations, and both of them approved the valuations before they were issued.

(6) Further, to the best of Ms Chauhan's recollection, following the checkers' review of the underlying figures, and after making amendments in line with their comments, both Mr Hines and Tim Gooding, who was in charge of the Ipswich office, read through the reports and provided their comments before they were issued on 27 February 2007.

(7) Christie's file contains an extract from the valuation of the Flamingo prepared by GVA Grimley in 2004, and "we would have reviewed this extract, [but] we would not have been unduly led by its conclusions and we would have formed our own conclusions as to value."

(8) Christie "ultimately adopted the multiple of turnover approach following discussions between the four valuers involved in the valuation and by having regard to the available comparable evidence and market sentiment at the time." The level at which Christie set the multiplier in this instance was also dictated by the available comparable evidence. That evidence, and, in particular, the email from Mr Marsh of Savills indicated, as at February 2007, "a general strengthening in the market from the 2005 turnover multipliers."

(9) Christie "valued the residential accommodation on the basis of the available comparable evidence, subject to the appropriate deductions to reflect its condition, amenities and situation above the Arcades. Ms Chauhan's email to Mr Patrick and Mr Broadbent dated 15 February 2007 confirms that "…some comps from local estate agents have been consulted, and discounted primarily on the basis for being situated above the arcades."

(10) Further: "While aware of the proposed purchase price, we were not influenced by it in reaching the final valuation. Similarly, we did not give the GVA report any undue consideration".

167. The evidence of Mr Hines was to similar effect. His witness statement dated 29 January 2016 contains the following evidence:

(1) "When preparing the valuations, I was assisted by Bela Chauhan, who had joined Christie in late 2006, as a valuer and graduate surveyor."

(2) "Although I did not inspect the Arcades myself, her notes appear adequately to document the nature and condition of the Arcades at the time. I cross-checked her observations with the photographs taken during the site inspection, and discussed them with her before the valuation was finalised. I noticed no issues when I reviewed her work; the nature and condition of the Arcades were in keeping with our expectations for properties of that size, age and type … The condition of the residential accommodation was considered to be good, and in keeping with our expectations for such seafront properties positioned, as they were, above amusement arcades."

(3) "When valuing a business of this type, it was normal practice to consider both the profits method and a multiple of turnover approach. In this instance, however, the approach we adopted was ultimately dictated by the comparables we could find, as these only provided details of turnover and sale price level; there was no sufficiently detailed analysis of the overheads and level of EBITDA available for the comparables … Adopting the multiple of turnover approach was therefore logical, as it allowed like-for-like comparisons to be made at sale price level as a multiple of turnover.

(4) "By doing this, we eliminated the risk and uncertainty associated with estimating the true level of profitability of a business. Owners and vendors are often unwilling to disclose accurate and detailed accounting information, choosing to keep sensitive information (such as that regarding running costs and so on) private. The turnover figures provided by an operator are, therefore, usually considered to be more accurate than any EBITDA evidence, since the accuracy of the associated costs can be more easily challenged."

168. In its valuation reports, Christie relied on 8 comparables. However, Ms Mirchandani accepted that two of these related to the same sale of the Flamingo in 2005, albeit the sale price was described as £2m in one instance and as £2.25m in another. The oldest in time related to the sale of premises in Hemsby, Norfolk in 2003, at a turnover multiplier of 1 and an EBITDA multiplier of 4.4. The next oldest in time related to sales of arcades in London, Poole, Paignton and Newton Abbott, at turnover multipliers of 1.8, 3.9 and 2.8 and EBITDA multipliers of 3.1, 7, and 4.7. The remaining four comparables relate to sales in 2005. The two items relating to the sale of the Flamingo in 2005 are said to have turnover multipliers of 2.2 and 2.5, and sales of arcades in Weymouth and Poole have multipliers of 2.89 and 3.57. No EBITDA multipliers are given for any of these 2005 comparables. On this footing, Christie submits that the information available to it in respect of multiplier turnovers was significantly greater, and more up to date, than the information available to it in respect of EBITDA multipliers. Christie further submits that Barclays cannot show, as it submits that Barclays must do, that no reasonably competent valuer would have failed to obtain more comparables evidence.
169. In fact, this summary is imperfect, because two of Christie's comparables related to the sale of the Flamingo in 2005. If Christie had appreciated this, Christie would have realised that they could not both be reliable. As it happens, neither of them was reliable, because the true sale price of the Flamingo in 2005 was neither £2m nor £2.25m, but was instead £2.1m. To my mind, as these comparables were provided to Ms Chauhan by Mr Marsh of Savills, this casts doubt on the quality and the reliability of the information provided by Mr Marsh. Furthermore, because these two comparables in fact related to a single transaction (i.e. the 2005 sale of the Flamingo), an EBITDA multiplier for this transaction was in fact available to Christie. Accordingly, EBITDA multipliers were available to Christie for 6/8 (and truly 5/7) of the comparables it used.
170. Further, according to paragraph 11.2 of Mr Berridge's report dated 1 April 2016, the 2003 comparable used by Christie pre-dates its valuation by too wide a margin to enable any material weight to be placed upon it and, further, is not comparable in terms of location; and the arcades in London are not good comparables on grounds of tenure and location. On that basis, and recognising that two of Christie's comparables involved duplication and related to the 2005 sale of the Flamingo, the helpful comparables deployed by Christie were 5 in all. In respect of those 5 comparables Christie (a) had EBITDA multipliers of 4.7 and 7 for the arcades in Paignton and Poole, (b) could have worked out an EBITDA multiplier for the 2005 sale of the Flamingo and (c) had turnover multipliers for all 5, which ranged from 2.80 to 3.90. Even viewing the comparables which Christie referred to in its reports in isolation, I am not persuaded that this justifies the claim that Christie had significantly better information available to it in relation to turnover multipliers than it had in relation to EBITDA multipliers.
171. A complicating feature of these comparables is that Christie did not realise that two of them related to the Flamingo, and, further, (a) that they were both inaccurate, and (b) that the EBITDA multiplier which Christie was able to work out in relation to the 2005 sale of the Flamingo was a multiplier which related to two of these comparables. The reason for this is that Christie obtained the information concerning these comparables from Mr Marsh of Savills. It is unclear whether the fact Mr Marsh had provided (inaccurate) information concerning the Flamingo twice would have emerged if Ms Chauhan had asked him for further details. However, in placing the reliance that it did on Mr Marsh's email when its contents were either not capable of being checked for accuracy or when Christie chose not to make any independent check on them, it seems to me that Christie's method of gathering information about comparables was flawed.
172. Ms Mirchandani submitted that Christie was entitled to assume that, in accordance with usual practice, a MRICS valuer like Mr Marsh would provide it with helpful and reliable information, and that Christie exercised reasonable skill and care in relying on the information provided by Mr Marsh. In my view, however, as between Christie and Barclays, it would be wrong to place on Barclays the risk that reliance on that email would result in a valuation that was based on information which was inaccurate, or the significance of which (i.e. that it related to the Flamingo) was not appreciated. On the contrary, I consider that risk should be borne by Christie. If necessary, I would hold that, on the facts of this particular case, Christie did not act with reasonable skill and care in relying on the contents of that email in the manner and to the extent that it did, when it was either unable to check or chose not to check that its contents were accurate.
173. Barclays' contends that, contrary to Christie's case, no reasonably competent valuer in the position of Christie should have adopted an approach based on a turnover multiplier in preference to one based on an EBITDA multiplier, for the following main reasons:

(1) The terms of the guidance in GN1, of which Christie was or should have been aware. In fact, Ms Chauhan confirmed in evidence that she had a general awareness of the Red Book and of GN1.

(2) So far as concerns the EBITDA multiplicand, ample evidence was available to Christie in relation to the turnover and expenses for both FECs. For CCGN, Ms Chauhan had figures for two previous years plus projections to the end of year from Wilshers. I would add that, if further financial information concerning CCGN was needed for purposes of providing a valuation to Barclays in connection with the Borrower's application for the Treasury Loan, there is no reason to doubt that this could have been sought and obtained from the Borrower. In respect of the Flamingo, Ms Chauhan had received recent turnover and expenses from the vendor's accountants Bache Brown, including the full year figures for the year ending 2006 and figures for 7 months in respect of the year ending 2005. I would add that figures for earlier years were contained in the extract from the GVA Grimley valuation report dated 17 November 2004, and I do not consider that Christie had any reason to believe that these figures were undependable. Ms Chauhan also had projections produced by the Borrower.

(3) So far as concerns appropriate EBITDA multipliers, the following information was available to Christie:

i. First, the trading information for the Flamingo in the GVA Grimley valuation extract, which included both the net profit for the 3 years from 2002 to 2004 and the information that Mr Farrow at GVA Grimley had valued the Flamingo at £2m in November 2004, applying a multiplier of 5. Although Ms Chauhan said in cross-examination that she could not recall if the sale of the Flamingo for £2m in 2005 was an arm's length sale, Barclays submits, and I agree, that on the evidence it clearly was. I would add that, as Christie relied on this sale (and, mistakenly, twice) for purposes of calculating a turnover multiplier, it seems to me that it is difficult for Christie to say that it would not have been appropriate for it to rely on this sale for purposes of calculating an EBITDA multiplier. Ms Chauhan accepted in cross-examination that she could have used these figures to derive an EBITDA multiplier for the Flamingo in 2005.

ii. Second, 4 of the 8 comparables cited in Christie's valuation reports included profit multipliers. This is true, although I consider that what is of greater relevance is that Christie had profit multipliers for 3 of the 5 comparables which, on proper analysis, were most helpful and relevant.

iii. Third, Ms Chauhan stated in cross-examination that the information that she obtained from Savills (Mr Marsh) was not limited to turnover and price but in some cases included more detailed information. Barclays submits that Ms Chauhan does not appear properly to have investigated these matters or made further enquiries as she could have done, because she did not realise that her information included the Flamingo twice. I have already addressed this last point in paragraph 171 above.

iv. Fourth, another valuer at Christie had prepared a detailed Valuation Working Paper ("VWP") based on an EBITDA multiplier concerning an arcade in Hornsea less than a year earlier on 3 April 2006, which gave a multiplier of 4.75. Ms Chauhan had noted this as a potential comparable. Mr Hines said in evidence that he and she would have seen other VWPs on other arcades as well (although none were disclosed by Christie in these proceedings) and, later, that Christie used its own internal valuations and sales evidence as one of its sources of information for comparables. Barclays submits that this VWP was therefore available to Christie as one of the sources of comparables that it accepted and used.

(4) It is clear that Ms Chauhan could have carried out EBITDA-based valuations for both FECs because this is what she in fact did in a VWP that she prepared in respect of the Flamingo. While this VWP calculation was carried out inappropriately, because Ms Chauhan applied a flat percentage of 50% to turnover to determine EBITDA and ignored the accounts information, it is clear that she had the necessary accounts information (and even inserted some of it) to do this.

(5) There are no grounds for concluding that it was reasonable for Christie to use another methodology – specifically, one based on a turnover multiplier – on the basis that other methodologies were used in the market. I have already dealt with this point in paragraph 91 above.

174. I would add to these points that, as discussed above, Ms Chauhan applied a multiplier of 5 when she carried out an EBITDA calculation in the VWP that she prepared in respect of the Flamingo. Ultimately, this VWP was not used by Christie in preparing the Flamingo report. Further, I agree with Barclays that this VWP was flawed in a number of respects. Nevertheless, there is no reason to question Ms Chauhan's evidence that Christie had materials which enabled it to reach a conclusion as to the right multiplier to apply to an EBITDA calculation in respect of the Flamingo.
175. I accept those submissions. Accordingly, I find that Christie was negligent in not adopting an approach based on an EBITDA multiplier in the circumstances of this case.
176. That conclusion makes it strictly unnecessary to determine a number of other matters upon which Ms Rushton placed reliance. Ms Rushton submitted that:

(1) It was surprising that Ms Chauhan claimed to remember so little about these two valuations, which should have been memorable because she carried them out early in her career and because they related to FECs. Ms Rushton further submitted that Mr Hines' evidence that the decision to use a turnover multiple was dictated by lack of available detail enabling an EBITDA multiplier to be used was demonstrably untenable.

(2) There are only two possible explanations for the decision of Ms Chauhan and Mr Hines to use a turnover multiplier, namely (i) that their valuations were sloppy and muddled, and (ii) that they rejected an EBITDA multiplier approach because it produced a result for the Flamingo which was surprisingly low in comparison to the provisionally agreed sale price of £1.6m; that they then opted for an alternative (and cruder) method because that would produce a result closer to the sale price; and that, having adopted that approach for the Flamingo, the need for consistency constrained them to adopt it for CCGN also.

(3) Of these two alternatives, the second explanation is the more credible. Ms Rushton listed a number of features of the evidence which she said supported this inference. These included that both the CCGN report and the Flamingo report contain text and information which only make sense if an EBITDA multiplier approach to valuation is being used, which is both misleading and consistent with a change of approach as the valuation and reporting exercise progressed.

(4) Ms Rushton made a number of points about the poor standard of Christie's work, ranging from sketchiness and inadequacy of Ms Chauhan's site notes, to: the misleading impression conveyed by the reports that they involved an EBITDA multiplier basis of valuation, the "double-counting" of the Flamingo as a comparable, muddled or inaccurate figures in the reports, failure to refer to matters such as the likely impact of the smoking ban, and the failure to appreciate that Christie had valued and inspected the Flamingo in 1999, leading to the erroneous statement that Christie had no previous knowledge of it.

(5) Finally, based on the limited documentary evidence of his involvement, Ms Rushton submitted that Mr Hines had not been involved in the material work to the extent that he and Ms Chauhan alleged.

177. I have already rejected any suggestion that there was insufficient material available to Christie to enable an EBITDA multiplier basis of valuation to be carried out. I also consider that for at least some of the time Christie was working towards producing valuations on that basis: in particular, that accords with some of the language in its reports. Further, I consider it likely that Christie felt more comfortable with arriving at a valuation for the Flamingo which was not far off the asking price of £1.6m than one which was very different to that asking price. In addition, I have little doubt that, having decided on a turnover multiplier basis of valuation for one report, Christie was motivated to adopt the same approach for the other report as a matter of consistency.
178. However, I am not persuaded that Christie realised that sufficient material was available to it to carry out an EBITDA multiplier basis of valuation and then deliberately chose to reject that approach in favour of another approach in order to get their valuation of the Flamingo up to a level similar to the asking price of £1.6m.
179. I also do not consider that Ms Chauhan or Mr Hines set out to mislead Barclays, or indeed the Christie's checkers, as to the basis of valuation which they had adopted, although parts of the reports and some of the communications with the checkers and with Mr Townsend of Barclays when he raised questions on 2 February 2010 give the impression (wrongly) that their valuations utilised information relating to EBITDA.
180. I believe Mr Hines was involved in the work to the extent that he and Ms Chauhan claimed, and I accept their evidence that the fact that they worked in close proximity meant that Mr Hines' involvement would not necessarily leave any substantial paper trail, and, in particular, that there would be no need for emails to pass between them.
181. However, none of that means that Christie acted with reasonable skill and care, in particular in considering comparables. On the contrary, I think that Christie did a poor job of researching and analysing comparables, and placed too much reliance on the efforts of Ms Chauhan, who in particular placed too much reliance on the email from Mr Marsh. These were some of the main causes why Christie failed to appreciate that it had no good reason for not carrying out the valuations on an EBITDA multiplier basis.
182. While Ms Chauhan's notes were not very detailed, this does not necessarily reflect poor working practice on her part: some people see less need to commit matters to writing than others.
183. Moreover, neither any deficiencies in these notes nor any muddled or inaccurate figures which may have found their way into the valuation reports caused any loss to Barclays.

Causation

184. Ms Mirchandani submitted that the starting point is to ask (a) whether Barclays' alleged reliance was real, in the sense that its personnel read and relied upon the content of the Christie reports, and (b) whether that reliance was reasonable in the context of the proposed lending decision. She suggested negative answers to these questions.
185. Ms Mirchandani submitted that while Barclays may have referred to the valuations as a matter of form to comply with its LTV requirements, nevertheless its reliance was not real or reasonable unless it actually considered the assumptions on which the Christie valuations were based. Christie's valuations explained that they were based on a number of assumptions, one of which was that there was no other secured lending. However, although this was clearly wrong, it was not questioned by Barclays after it had received and read the Christie reports. Other assumptions made by Christie included that: (a) the information provided was correct, (b) current trade was maintainable with the existing equipment and trade inventory, and (c) current market and normal trading conditions prevailed. These were matters which affected value, and, thus, Barclays' level of comfort for its lending. However, Barclays did not revert to Christie and ask for its views on value without these assumptions. Ms Mirchandani submitted that a prudent lender, actively and substantively relying on the Christie reports would have queried these matters. The fact that Barclays did not do so demonstrated that it had not relied on the reports, or had not done so reasonably.
186. I reject these submissions. Whether or not the lending was secured did not affect the value of the FECs. Whether Barclays did not notice that Christie was mistaken in this regard, or did notice but did not revert to Christie to point out the mistake, either way that does not establish that Barclays did not rely upon the valuations or that Barclays' reliance was unreasonable. The remaining assumptions made by Christie were unexceptionable, and, I suspect, in more or less standard form. Mr Dembicki's evidence, which I accept, was that he understood the basis on which the reports were made. Again, the fact that Barclays did not revert to Christie to ask for alternative valuations which were not based on these assumptions does not establish either that Barclays did not rely upon the valuations or that Barclays' reliance was unreasonable.
187. Indeed, I consider that there is an air of unreality about the suggestion that a prudent lender which was truly relying on these reports would have queried the assumptions made by Christie. For example, it seems to me that querying the assumption that current market and normal trading conditions would prevail would lead to almost endless possibilities as to what might be substituted for that assumption, and what effect that would have on value. It would not assist unless there was some reason to believe that market and trading conditions were likely to change in a material way, in which case it would be reasonable to expect Christie to have based its valuations on that alternative premise in the first place. It is not unreasonable for a lender to rely on a valuation without questioning the assumptions made by a valuer and/or reverting to the valuer to test the effect on value of different assumptions, unless, perhaps, the assumptions are clearly unreasonable, which is not alleged by Christie in this case.
188. Next, Ms Mirchandani submitted that Christie's terms and conditions were incorporated into the contract to provide the valuation reports. This was on the basis that these terms and conditions were included in the reports, and that Mr Dembicki did not raise any issue with Christie over their acceptability. I am sceptical about the suggestion that, having accepted Barclays' instructions and produced the reports which entitled Christie to be paid for its work, Christie could make that contract subject to a series of written terms and conditions by incorporating the same in the tendered reports. Even if, contrary to the foregoing, Barclays can be said to have accepted those terms and conditions by not voicing objection to them and/or by paying Christie's fees, I am unable to see how they are of assistance to Christie. The relevant Conditions state, in short, and so far as material to the present case, that Christie has been provided with various information by Barclays and the Borrower and (perhaps) the 2007 vendor, has relied on that information and has assumed it to be correct, and can take no responsibility "for any mis-statement, omission or misrepresentation made to it". That wording is not apt to exclude liability for Christie's own negligence, or to produce the result that Barclays cannot be heard to say that it reasonably relied on Christie's reports.
189. Ms Mirchandani's third main submission on causation was that Barclays clearly had other options for proceeding with a loan to the Borrower, at a lesser level or on different terms to the Treasury Loan. For example, the lending could have been limited to the Flamingo purchase price of £1.6m.
190. Re-working Ms Mirchandani's submissions in light of my finding that the true value of the Arcades was, in round terms, £3.5m, and on the basis that the applicable LTV was limited to 67%, the arithmetic relating to the permissible total borrowing is as follows: £3.5m x 67% = £2.345m; £2.345m - £903,000 (i.e. the total amount of pre-existing borrowing) = £1,442,000. Assuming, as Christie invites me to do based on the oral evidence of Mr Sturt, that the LTV was not rigidly limited to 67% and that Mr Cox could have gone up an LTV of 70%, the arithmetic relating to the permissible total borrowing is as follows: £3.5m x 70% = £2.45m; £2.45m - £903,000 = £1,547,000.
191. Ms Mirchandani submits that the Thurstons could and would have made up the difference between these sums and the £1.6m they required to purchase the Flamingo, further or alternatively the £1.8m they required to complete that purchase and carry out works of alteration. Depending on which LTV figure is taken, and whether the difference is measured in relation to £1.6m or £1.8m, the Thurstons would have needed to find either (a) £1.6m - £1.442m = £158,000; or (b) £1.6m - £1.547m = £53,000; or (c) £1.8m - £1.422m = £378,000; or (d) £1.8m - £1.547m = £253,000.
192. In support of the argument that the Thurstons could and would have made up whatever shortfall was left following a lending decision by Barclays, Ms Mirchandani submitted that (i) there is no evidence that the Thurstons could not have afforded to make up the shortfall in February 2007, (ii) there is good evidence that they could have done so, and (iii) there is no evidence that they would not have done so. In support of step (ii) in this argument, Ms Mirchandani relied on three contentions. First, "If [Barclays] had no expectation that they could manage to find cash, it would not have accepted a proposed cash injection from the Thurstons in June 2010 of £180,000, at a time when they were far more strapped financially than in 2007". Second that the Vantis report dated 10 February 2010 "demonstrates that Mrs Thurston was able to [inject], and had injected, funds of £423,000 into the Thurston Group, and together with the Thurstons' pension fund, a total of £537,000 had been injected in the 17 months up to September 2009 (a period of recession)". Third, Barclays relied upon their personal guarantees, and this reflects the fact that they had other assets which could have been mortgaged.
193. Accordingly, Ms Mirchandani submits that the alternative loan would still have gone ahead, with the result that Barclays' measure of loss is the difference between the loss resulting from the loan that it did in fact make, and the loss which would have resulted from the loan that it would have made in the circumstances postulated above.
194. Ms Rushton submitted that it is plain that Barclays would not have made any loan at all if it had received non-negligent valuations, and that I should so find, for the following principal reasons:

(1) This was the clear evidence of both Mr Dembicki and Mr Sturt (essentially in the passages from their witness statements which I have quoted above) and Ms Rushton submitted that it was not effectively challenged.

(2) The Treasury Loan was requested and required for the specific purpose of purchasing the Flamingo and carrying out the building works necessary to combine it with CCGN. It entailed an equity release against CCGN as well as a charge over the Flamingo.

(3) On any view, the amount of the loan was at the limit of the available security, and the conditions imposed by Mr Cox showed that it was regarded as such. There is no good evidence that Barclays would have agreed to lend to the Borrower at an LTV of 70%, and the Court should reject Christie's arguments to this effect.

(4) There is no evidence that the Borrower or the Thurstons would have been able (or willing) to make up the capital deficit from their own resources, and there would have been no purpose to making any loan at all if the Flamingo was not going to be purchased. If they had available capital in 2007 to put towards the purchase price, they would not have needed to apply for a loan to cover the full £1.8m. The fact that the Thurstons put in further money during the two years after February 2007 to try to keep the business afloat is not good evidence on which the Court can properly rely to make any finding that they would have been willing and able to put in substantial capital in February 2007. At least £250,000 and probably a further £200,000 of this money which was later put into the business came from Mrs Thurston selling two investment properties at 14 and 16 Osborne Road which she regarded as held for her children. This money would not have been available in 2007 to put towards a purchase of the Flamingo, even if Mrs Thurston had been willing to do this, and there is every reason to think she would not.

(5) The Borrower needed to convert the Flamingo and join it to CCGN to make the anticipated savings in overheads, so it needed the additional £200,000 advance.

(6) If a non-negligent valuation of the Flamingo had been received, it is extremely unlikely that the Thurstons and the Borrower would have wished to proceed with a purchase at a price of £1.6m, but it is also unlikely that the 2007 vendor would have agreed a lower price given the loss he had already sustained since 2005. By far the most likely outcome is that neither party would have wished to proceed.

Discussion of Christie's third argument

195. This is a serious point. Further, my determination of it is not made any easier by the consideration that the evidence of Mr Dembicki and Mr Sturt (which I accept) was given on the basis of a different premise (namely, that the correct combined value of the Arcades was £3.1m) than I have found to be correct (namely, that it was £3.5m).
196. There is one aspect of the evidence, to which no reference has been made in closing submissions, which made a strong impression on me. It arose when Barclays' lending expert, Mr Bloomfield, was being cross-examined by Ms Mirchandani about part of his report. This was to the effect that Barclays would not have decided to lend a lesser sum to the Thurstons than they wanted to borrow, because Barclays would have been concerned that they could go to another bank and borrow the full amount, and Barclays would not have wanted to take the risk of losing their custom because, historically, they were good customers out of whom Barclays had made good money. Mr Bloomfield was asked whether, paying regard to the Thurstons' overall financial position, including the level of their indebtedness to Barclays, and their need to obtain the necessary borrowing quickly in order to get ready to run the Flamingo by the time of the next high season, that caused him to change his view as to the risk that the Thurstons might have left the bank. He replied that it did not cause him to change his view. He continued: "Yes, in 2007, we were in the middle of the subprime boom, banks were lending money to people without even checking if they had a pulse: just give them the money."
197. I accept that evidence, and I consider that it is right to approach the arguments about causation with it well in mind.
198. A little later, Mr Bloomfield was asked: "So do you accept that if the bank hadn't been willing to lend them the whole of the purchase price, they could have made up a portion of the purchase price themselves?" He answered: "Well, it's possible, it's just pure speculation, I've no idea." I agree with those observations as well.
199. I find as follows:

(1) The Thurstons, and, thus the Borrower, would not have been interested in purchasing the Flamingo unless they had also been able to carry out the alterations to enable it and CCGN to be operated together. Accordingly, the relevant sum for purposes of the present discussion is £1.8m, not £1.6m.

(2) Barclays did not have any set internal guidance concerning LTVs for these particular businesses. However, Mr Dembicki and Mr Cox would not readily have exceeded the two-thirds (67%) limit which they discussed and which is reflected in the contemporary documents. That was at or above the upper end of the LTVs which applied to other businesses in the leisure sector, and I consider that individual bank employees would be likely to feel strongly constrained by Barclays' general approach to LTVs. However, in light of Mr Bloomfield's evidence, an answer given by Mr Sturt, and the generally expansive approach to lending to the Thurstons' companies shown in the contemporary documents, there is a real prospect that Barclays would have been willing to agree a slight increase in the LTV to 70% to enable the purchase of the Flamingo to proceed. Now that this point has been raised, I consider that Barclays bears the burden of proving on the balance of probabilities that no such increase would have been agreed. I do not consider that it has discharged that burden. Accordingly, the relevant LTV is 70%.

(3) On that footing, the shortfall between the sum which Barclays would have been willing to lend and the sum required by the Borrower is £253,000.

(4) I do not consider that there is any reliable evidence that the Borrower or the Thurstons would have been able or willing in 2007 to inject the amount of this shortfall (or indeed any significant capital sum) in order to enable the transaction to proceed. Based on what is recorded in the contemporary documents, they appear to me to have been extended to their financial limits. Whether and to what extent Mrs Thurston had further available assets which she would have been able and willing to use to make up the shortfall is a matter of speculation. I agree with Barclays that no safe inference as to what could and would have happened in 2007 can be drawn from events in later years, when different circumstances applied.

(5) However, the point which I find most telling, and, indeed, determinative, is the last point made by Ms Rushton. If a non-negligent valuation of the Flamingo had been received, it would have shown that the value of the Flamingo was substantially less than the asking price of £1.6m. On my findings, the value was more than £400,000 below that asking price. In these circumstances, I consider that the overwhelming probability is that the proposed purchase would have been called off, the need for the proposed borrowing would have evaporated, and no loan would have been made. On the one hand, the Thurstons would not have wanted to pay 33.3% more than the valuation placed upon the Flamingo by Christie. On the other hand, there is no evidence that the 2007 vendor (having paid £2.1m in 2005) would or might have been prepared to reduce the asking price to such a level as would make the purchase attractive for the Borrower. It is one thing for the Thurstons to have been willing to pay a premium of £100,000 to acquire the Flamingo when an independent valuation showed that it was worth £1.5m, quite another for them to pay the much larger premium which would have flowed from an asking price of £1.6m and an accurate valuation of £1.185m.

200. For all these reasons, I consider that Barclays' case on causation is made out. Barclays relied on the Christie's valuations, it did so reasonably, and it would not have loaned the amount of the Treasury Loan, or any lesser amount, if they had not been negligent.

The measure of loss

Would Barclays have suffered loss in any event?

201. In the present case, at the time of the Treasury Loan, Barclays' pre-existing lending to the Borrower amounted to £903,000 in total, made up of (i) a £200,000 overdraft limit on the Borrower's account, (ii) the 2003 Mortgage of £303,000, and (iii) the 2007 Loan of £400,000. Part of the proceeds of sale of the Arcades in 2011 was used to discharge that pre-existing lending. Ms Rushton submitted that a logical starting point is to consider whether Barclays would have suffered loss on its pre-existing lending in any event. Barclays contends that this question should be answered in the negative, and for that for this reason it does not have to give credit for the part of the proceeds of sale which was used to discharge what remained of the pre-existing lending.
202. This total lending of £903,000 was secured by a legal charge over CCGN, which I have held to have a value of over £2.3m. Barclays also had an unlimited guarantee of the Borrower's liabilities from Mr Thurston, which it contends would in all probability have been replaced by a limited guarantee from Mr and Mrs Thurston in consequence of a general review of Barclays' policies concerning personal guarantees which was carried out in 2009. In the events which happened, Barclays recovered £125,000 gross and £121,679.00 net from these guarantees, and it submits that it would have recovered at least that amount, and possibly more, if the Treasury Loan had not been made and the Flamingo had not been purchased, on the basis that the Thurstons would have had more assets in that eventuality. Barclays further submits that the £303,000 mortgage would probably have been reduced by the receipt of the proceeds of sale of property in Spain in the sum of £233,000 in any event. Finally, the 2007 Loan of £400,000 was reduced by regular payments of capital and interest to just over £269,000, and Barclays submits this would have happened anyway, if the Treasury Loan had not been made.
203. If nothing more had happened to reduce the £903,000 lending than the partial repayment of the 2007 Loan, the total lending would have gone down to about £772,015. The experts have agreed that the proportion of the sale price of £1.35m achieved by the administrators in 2011 which is attributable to CCGN is £885,000. Allowing for deduction of costs, the equivalent sum receivable by Barclays was £766,000. Adding to this sum the £125,000 which was guaranteed, the total security would have been at least £791,000, which is more than enough to secure lending of £772,015. Thus Barclays would not have suffered any losses on pre-existing lending. This leaves out of account the realisation of the Spanish property, which is less clear.
204. Save that Ms Mirchandani adds on £10,000 (in my view, wrongly) in respect of a credit card facility, I do not understand her to quarrel with this analysis. Accordingly, Christie accepts that Barclays was adequately secured on the pre-existing lending. This is the basis of the concession that the sum of £269,000 should be deducted from the sums recovered on the sale of the Arcades. However, Christie opposes further deductions. I consider the parties' rival cases concerning further deductions below.

Transactional loss

205. The first stage of the analysis is to ascertain Barclays' transactional loss, i.e. to compare (a) Barclays' outlay plus its cost of funds since lending with (b) the amount recovered as a result of the enforcement of its security rights.

Barclays' outlay

206. As Ms Rushton points out, when considering the amount of Barclays' outlay, there are three complicating factors in the present case:

(1) First, although the advance was £1.9m, this had been increased from the £1.8m for which the Borrower had originally applied because Barclays wanted the Borrower's "hardcore" overdraft reduced from £200,000 to £100,000.

(2) Second, the Borrower needed to pay the deposit of £160,000 in respect of the purchase of the Flamingo before the advance was due to be made. On 15 March 2007, Barclays permitted the Borrower to increase its overdraft temporarily by £160,000 to £360,000, and this payment was made on 16 March. This £160,000 was repaid from the £1.9m advance on 20 March 2007 (as had been intended).

(3) Third, the £1.9m advance was paid into a current account which was £347,314.84 overdrawn. All of this borrowing was within the temporary authorised limit of £360,000. It arose from £160,000 being paid out in respect of the deposit payment and £187,314.84 borrowing within the £200,000 overdraft limit. At the end of 20 March 2007, the current account was in credit. However, the £1.8m was advanced for the purposes of paying £1.6m to buy the Flamingo and a further £200,000 for building works. It was not advanced to reduce the Borrower's overdraft.

207. As to the first complicating factor, Barclays' case is that the overdraft facility of £200,000 which was in place in March 2007 was pre-existing lending, and that insofar as the sale proceeds of the Arcades were used to discharge the overdraft, the Barclays does not have to give credit for them, to the extent of the pre-existing facility.
208. Barclays further contends that, because £100,000 of this pre-existing facility was replaced by part of the Treasury Loan, the matter can be approached in two ways: (a) by treating the advance as £1.9m but as substituting for £100,000 of the pre-existing overdraft facility, which is then reduced to £100,000 for the purposes of ignoring the part of the sale proceeds which is used to pay off pre-existing lending, or (b) by treating the net advance as being £1.8m but then leaving the pre-existing overdraft facility as it was before the advance was made, that is at £200,000. As a matter of arithmetic, and assuming that the £200,000 overdraft facility should be treated as pre-existing lending for purposes of deciding how much of the sale proceeds should be ignored when assessing the level of Barclays' recovery, these approaches lead to the same result.
209. However, Barclays accepts that if the £200,000 overdraft facility falls to be ignored in assessing the amount of the pre-existing lending which was discharged from the sale proceeds, then the advance should be treated as being £1.8m (because £100,000 of the sum of £1.9m that was in fact advanced was a substitution for £100,000 of that facility).
210. As to the second complicating factor, Barclays argues that:

(1) Strictly speaking, two advances were made in reliance on the valuations: £160,000 by way of an extension to the overdraft on 16 March 2007 and £1.9m by way of the advance on 20 March 07. However, these were not cumulative. The £1.9m was intended to replace and repay the £160,000 increase in the overdraft.

(2) Accordingly, Barclays does not make its claim based on a total advance of £2,060,000, but only on the loan advance of £1.9m.

(3) Barclays cannot be treated as having received the benefit of repayment of £160,000 of the overdraft when this was repaid using the Treasury Loan, unless one treats the total advance as having been £2,060,000. Similarly, Barclays cannot be treated as having received the benefit of repayment of the £347,314.84 overdraft to the extent that this included repayment of the £160,000 which was advanced (and used) to pay the deposit due in respect of the Flamingo.

(4) The most straightforward approach is to treat the advance as £1.9m, and as not needing to give credit for the £160,000 part of the overdraft.

211. As to the third complicating factor, Barclays argues that:

(1) The £1.9m advance was paid into an overdrawn current account. Putting aside the £160,000 used for the deposit, the remainder of the overdraft was £187,314.84 as at the start of 20 March 2007.

(2) When assessing the amount of loss Barclays has suffered, an overdraft facility should be analysed in the same way as any other form of lending. Where an advance is paid into an overdrawn account, it should not be treated as having repaid the overdraft, and Barclays should not be treated as having received the benefit of it, unless either (a) the overdraft was over its limit and the advance has brought it under its limit or (b) the limit has been reduced and so the overdraft has been partially repaid.

(3) It is wrong to treat an advance as discharging the overdraft on a current account if in reality it is simply being paid through an overdrawn account, with the overdraft facility remaining unchanged. Ms Rushton sought to illustrate this argument by an example, which I would simplify as follows: if a customer has an overdraft facility of £1m which is at its limit and the terms of which remain unchanged, and the customer then obtains an advance of a further £1m from the bank to purchase an asset, and that advance is paid in to the overdrawn account on one day and then paid out the next day to the seller of the asset, the bank has not in truth recovered any part of the £1m advance.

(4) In the present case, the advance was more than was needed just to pay the sale price on the Flamingo and reduce the overdraft by £100,000, because it included sums intended to be used to alter the arcades. Consequently, at the time when the advance was paid to the Borrower and the completion monies were paid to the solicitors for the 2007 seller there was a credit balance on the Borrower's current account. However, this does not mean that the Bank had received the benefit of the balance, because that sum was still available to be drawn by the Borrower.

(5) Further, it is not correct to treat the overdraft as repaid when the advance is made and then subsequently re-advanced when the overdraft facility is utilised again. Again, this is because the facility has remained in place. The loan which was made by Barclays in reliance on the valuation is the advance, not the subsequent utilising of an overdraft facility which was in place before and after the advance.

(6) Therefore, the Court should ignore the fact that the £1.9m advance was paid into an overdrawn current account which was within its facility. The only point of relevance is that there was a pre-existing overdraft facility of £200,000 and that after the advance was made that facility was reduced to £100,000.

212. With regard to the amount of Barclays' outlay, Christies argues that:

(1) The advance should be treated as £1.8m, not £1.9m, because it is only £1.8m which reflects the additional lending arising from the Treasury Loan. The additional £100,000 either (a) was not a sum actually loaned by Barclays or (b) was lending which was outside the scope of the valuer's duty because it was not an adverse consequence attributable to the deficiency in the valuation.

(2) In fact, Barclays received back more than £100,000 of the £1.9m advance.

(3) Because the overdraft was cleared by the Borrower's receipt of the advance, Barclays received back either £347,314.84 (the amount of the overdraft) or £187,314.84 (the amount of the overdraft which was not attributable to the £160,000 deposit payable in respect of the purchase).

(4) Accordingly, the true amount of the advance was either £1,552,685 or £1,712,685.

213. I agree with Barclays' submissions on all these matters, and I reject Christie's submissions to the contrary. Accordingly, I hold that, for purposes of the present case: (a) the amount of Barclays' outlay was £1.9m, but (b) for purposes of assessing which part of the recovery which Barclays made as a result of the sale of the Arcades falls to be ignored on the basis that it was used to pay off pre-existing lending, the pre-existing overdraft facility should be treated as one of £100,000.

Barclays' cost of funds since lending

214. As damages, Barclays claims interest on its net losses, at 3 month LIBOR compounded. Ms Rushton submits that although this claim is denied in the Re-Re-Amended Defence, it appears to be accepted in principle in the Updated Counter Schedule of Loss annexed to Ms Mirchandani's closing submissions.
215. Barclays submits that, although it has not led evidence as to its actual costs of funding, the Court can take notice of the fact that it is a commercial banking institution and that its costs of funds will accordingly be in line with LIBOR rates (and no more). While the interest on the Treasury Loan itself was calculated by reference to base rate plus a margin, Barclays, as a commercial banking institution, will have borrowed by reference to LIBOR. Barclays therefore invites me to adopt the same approach as was adopted in Canada Square Operations Ltd v Kinleigh Folkard & Hayward [2016] PNLR 3 at [68] and award costs of funding interest at LIBOR without hearing evidence from Barclays as to its actual costs of funding.
216. Barclays' claim for LIBOR interest totals £264,161.75. This sum is claimed instead of any statutory interest under section 35A of the Senior Courts Act 1981. If no award is made in respect of LIBOR interest, Barclays claims interest pursuant to statute instead. I was not provided with any details of a claim for interest on that alternative basis.
217. The claim for £264,161.75 is said to be based on a calculation which factors in all sums credited. The relevant calculation is set out in a Schedule annexed to Ms Rushton's closing submissions. Against the advance of £1.9m, there is a credit for sums amounting in total to £1,141,638.56, producing a net sum of £758,361.44 on which (if my understanding is correct) interest is claimed at LIBOR compounded with monthly rests. The total credit of £1,141,638.56 comprises the following sums. First, £1.1m proceeds of sale received on 17 March 2011 less (a) the sum of £269,012.96 mentioned above which was credited against the Borrower's 2007 Loan account and (b) the first £100,000 of the sums credited to the Borrower's current account, producing a net sum of £730,987.04. Second, the balance of sale proceeds of £30,000 and £38,572.52 which were credited to loan accounts set up in the name of the Borrower on 11 October 2011 and 23 April 2012 respectively. Third, the net proceeds of enforcement of the Thurstons' guarantee, in the sum of £121,679.00. Fourth, mortgage repayments in the total sum of £220,400 which were made from the current account until 18 December 2008, after which date the current account remained more than £100,000 overdrawn.
218. Elements of this calculation are disputed by Christie, and I now turn to them.

Barclays' claims not to have to give credit for sums in addition to the agreed £269,012.96

219. Barclays submits that the first £100,000 of the overdraft on the current account should be treated in the same way as the sum of £269,012.96 which was used to clear off the balance of the 2007 Loan. Part of Barclays' pre-existing lending to the Borrower was an overdraft facility of £200,000 which was also secured against CCGN, and which was being utilised. This was factored in by Barclays when it made its LTV calculations. This overdraft was reduced to £100,000 when the advance was made, as discussed above. When the security came to be sold, the overdraft was still outstanding and had increased well beyond its former £100,000 limit (even allowing for the effect of the break payment which was subsequently the subject of the compensation payment in the sum of £439,608.72 mentioned by Ms Balchin). Part of the proceeds of sale was used to discharge that overdraft. Barclays seeks to treat £100,000 as set off against the overdraft, because (on the basis that the advance is treated as £1.9m) that was the reduced limit of the pre-existing overdraft lending, and contends that it is not required to give credit for this £100,000 for purposes of the present claim against Christie.
220. Barclays' case in respect of mortgage repayments which were made from the current account after 18 December 2008 is as follows:

(1) Barclays accepts that, in general, credit should be given for capital and interest payments made by the Borrower against the Treasury Loan.

(2) In the present case, interest was debited directly, on a quarterly basis, from the current account. The Borrower had an extended capital repayment holiday, and a large number of the payments in respect of capital which were made from the current account to the Treasury Loan account, were in the event, reversed.

(3) Where payments have been made from an overdrawn account which is also held with Barclays, and that overdrawn account is not redeemed (either by borrower payment or proceeds of security), then in reality no loan payments have actually been made at all. Credit should not have to be given for such phantom payments.

(4) In the present case, Barclays has accepted that it should give credit against the advance for all of the proceeds of sale apart from those applied to the 2007 Loan and the first £100,000 of the overdraft. The remaining proceeds have been treated as set off against the Treasury Loan.

(5) In these circumstances, Barclays cannot be treated as having recovered the rest of the overdraft from the Borrower. In truth, it has received no benefit from debits in respect of interest made from the current account after the date when the overdraft permanently exceeded £100,000. Similarly, it has not received any benefit from the two capital payments credited to the Treasury Loan account in 2010, since they were matched by increases to the overdraft.

(6) Barclays should not therefore have to give credit for interest or capital payments made from the current account after 18 December 2008, after which that account was always more than £100,000 overdrawn.

(7) Barclays gives credit for interest payments in the total sum of £220,440 which were debited from the current account prior to 18 December 2008. This is presumably because, as the overdraft remained at or below £100,000 in spite of these payments, they were made using funds that were injected by the Borrower.

(8) Mr Dembicki states the total of the repayments which were not returned unpaid or refunded was £289,337.03. The amount for which Barclays is not giving credit, because the debits were made after 18 December 2008, is therefore £68,937.03.

221. Christie's case is that both of these claimed deductions are wrong in principle, and that the cut off of credit for mortgage repayments made by the Borrower after 18 December 2008 when the current account was more than £100,000 overdrawn is arbitrary, for the following principal reasons:

(1) By these means Barclays is seeking to make the valuer liable for all the consequences that flow from the Treasury Loan transaction, which is wrong in law. A valuer in Christie's position is only liable for the deficiency in the security property which is the subject of the transaction entered into. The valuer is not liable, neither is it to be held responsible, for the lender's course of lending. Collateral borrowing arrangements such as this £100,000 limit to the Borrower's overdraft is part of the wider 'course of lending' and this claim is therefore an attempt to infringe the principle that the valuer is not liable for consequences which would have arisen even if the advice had been correct.

(2) Barclays would have proposed this collateral arrangement even if the valuation advice had been correct. It cannot therefore be visited upon the valuer.

(3) Barclays has simultaneously claimed that the making of the Treasury Loan was not indicative of contributory negligence involving lax and inappropriate lending by Barclays, because it claims that the Borrower was actually able to maintain interest repayments. This was a point taken repeatedly by its lending expert, Mr Bloomfield. For Barclays to claim, at the same time, that because such payments were made from an overdrawn account, in reality no such payments have actually been made and so it need not give credit for them, is totally inconsistent with this stance. Barclays, quite simply, seeks to 'have its cake and eat it'. Full credit should be given for the mortgage repayments made.

Discussion of the amounts for which Barclays does not need to give credit

222. So far as concerns the balance on the current account, on the premise that the advance is treated as being £1.9m, the "top" £100,000 of the pre-existing overdraft was discharged using the advance in March 2007. That leaves only the "bottom" £100,000 which, potentially, should be treated as repaid from the sale proceeds. I do not consider that Christie's submissions really address Barclays' case that this ought to be treated in the same way as the £269,012.96. In my judgment, that case is correct.
223. It would make no difference if the advance was treated as £1.8m. That would mean that the overdraft should be treated as standing at £200,000, which Barclays would contend, rightly in my view, should be treated in the same way as the £269,012.96 (because it represented pre-existing lending which Barclays would have been able to recover by realising the security that it had in the event that it had not made the Treasury Loan, as it did, in reliance on Christie's negligent valuation reports).
224. Barclays' case concerning the mortgage repayments is based on the premise that interest and capital payments which were debited to an overdrawn account which was also held with Barclays represent payments that Barclays did not in fact receive. They did not reduce the extent of the Borrower's indebtedness to Barclays, but merely transferred the amount of debt from one account to another. If that premise is correct, I do not consider it right to say that by not giving credit for those payments Barclays is seeking to make Christie liable for its wider course of lending to the Borrower. On that premise, Barclays is simply saying that no credit is due for money that was not, in fact, paid by the Borrower to Barclays. Christie's point that this argument sits ill with Barclays' claim that the Borrower was able to maintain interest payments has some force. However, it does not address that premise head on, or explain why it is incorrect.
225. For these reasons, I consider that Barclays' case is right with regard to both these sums.

Barclays' recovery

226. As set out above, Barclays calculates that its total recovery for which it must give credit to Christie is £1,141,638.56. I have considered the elements of that calculation which are disputed by Christie, and I have rejected Christie's arguments in that regard.

Conclusion on transactional loss

227. Accordingly, the premises on which Barclays bases its claim for cost of funding since lending are made out.
228. However, Ms Mirchandani challenges both the cost of funding claimed by Barclays (£264,161.74) and Barclays' alternative claim for interest, on the following grounds:

(1) Christie has put in issue Barclays' cost of funding, and Barclays therefore bears the burden of proving its cost of funding. Where Barclays is unwilling or unable to produce evidence to show its actual cost of funding, the burden falls on it to persuade the Court that it is entitled to claim interest by reference to LIBOR as reflecting a "proper rate of interest" for being deprived of the advance for the relevant period.

(2) Barclays has merely sought to argue for an interest rate equal to the LIBOR rate. Although Barclays has chosen the 3 month rate, there are many potentially applicable LIBOR rates.

(3) If Barclays overcomes the "proper rate of interest" hurdle, the Court is invited to apply the LIBOR rate as contended for by Christie, namely the 1 month rate, which has been used in Christie's Updated Counter Schedule of Loss, and results in a lower level of interest recovery. There is no good reason for Barclays' claim to the 3 month rate to be preferred over the 1 month rate, and none whatsoever has been offered.

(4) Barclays proffers no justification or authority to support its alternative claim for statutory interest under section 35A of the Senior Courts Act 1981. It should be rejected unless the Court is persuaded it meets the stipulated "proper rate of interest" derived from Swingcastle Ltd v Alistair Gibson (a Firm) [1991] 2 AC 223.

229. It seems to me that Ms Mirchandani's closing submissions effectively acknowledge that LIBOR represents the proper basis for calculating this head of claim, because, as the above summary makes clear, she has used LIBOR in Christie's Updated Counter Schedule of Loss. It therefore appears to me that the real dispute is whether the 1 month rate or the 3 month rate is correct. I do not consider that I have the material necessary to enable me to decide that issue. Further, Christie has taken the point that the Court ought not to proceed on the basis of an assumption where evidence of actual cost of funding could and should be adduced. At the same time, I am in little doubt that an award for cost of funding will be appropriate at the end of the day. I am surprised at the suggestion that, if an award based on LIBOR is not appropriate, there is no basis for an award of statutory interest – subject to being disallowed on grounds of delay and so forth, such an award is routine, and, moreover, is generally based on assumptions as to the typical cost of being kept out of money for a claimant who has the characteristics of the claimant who is before the Court, and without requiring evidence of actual costs.
230. In these circumstances, I propose to afford Barclays the opportunity to adduce further evidence concerning this aspect of its claim and Christie the opportunity to challenge it. Only the outcome of that exercise will show whether it is proportionate having regard to whatever difference there may be between the result of applying different rates.
231. Barclays' quantification of actual loss must therefore await the outcome of that exercise. If it vindicates Barclays' approach, however, in accordance with the other findings that I have made Barclays' claim for the total sum of £1,022,523.19 is correct.

Contributory negligence

Relevant principles

232. There was broad agreement between the parties about the following matters:

(1) The issue of contributory negligence falls to be considered after the Court has assessed the actual loss. In this regard, section 1(1) of the Law Reform (Contributory Negligence Act) 1945 ("the Act") provides that: "Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage". Section 1(2) of the Act provides that the Court shall find and record the figure for the total damages before applying any reduction.

(2) The burden of proof in respect of allegations of contributory negligence is on the defendant and the standard to be applied is that of the reasonably competent bank: Webb Resolutions Ltd v E.Surv Ltd [2012] EWHC 3653 (TCC); [2013] PNLR 15 at [69-70].

(3) The Court should be wary of concluding that practices which were common or logical among high street banks like Barclays at the relevant time in February 2007 were in fact illogical or irrational: Webb at [75]. As with the test for primary findings of contributory negligence, if a practice was accepted by a significant section of the banking market at the relevant time, it should not be held to fail to meet the standard of a reasonably competent bank unless plainly illogical.

(4) Further, section 1(1) of the Act requires that any failures should have had a causative connection with the loss suffered. Allegations of default which did not cause or contribute to the loss complained of are irrelevant. By definition, the Court is only concerned with allegations which if proved would have caused a different outcome for Barclays, and in particular affected its lending decision.

(5) Where a Court has found that the claimant has failed to meet the standard of reasonable competence and that it has suffered damage as a result of both its own failures and the defendant's negligence, it is then required to make a percentage apportionment between the claimant and the defendant. The percentage reduction of the damages is that which the Court considers just and equitable in all the circumstances, having regard to both relative blameworthiness and causative potency.

Christie's case

233. Ms Mirchandani summarised Christie's case on contributory negligence under four headings, as follows:

(1) No lending policy. Barclays had, and had produced, no lending policy for arcades, although its witnesses claim that it had a policy at least for the hospitality and leisure sector business. It is therefore not possible to demonstrate whether or not Barclays' lending was within the scope of its then applicable lending policy.

(2) Lax and/or inappropriate lending. Barclays adopted a lax approach to its investigation of the Borrower and the Thurstons, which meant that it entirely failed to appreciate the very significant 'character risk' which it undertook when deciding to lend £1.9m to the Borrower in the form of the Treasury Loan.

(3) Failure to carry out adequate financial analysis. Barclays failed to carry out adequate 'due diligence' of the financial position of the Borrower, and signally failed to establish that the Treasury Loan was affordable to the Borrower.

(4) Incentives. This is not claimed as 'direct' contributory negligence. However, Barclays' bonus structure for Relationship Managers (RM) such as Mr Dembicki is not conducive to an approach to lending which is prudent. If the RM stands to gain a bonus related to how much business he generates, and where selling interest hedge products brings with it a large fee to Barclays, there is a clear conflict between his personal interest and the interests of Barclays in terms of the quality of the lending decision made. This conflict would be likely to operate via a lack of proper diligence in financial analysis, or via an overly optimistic or lax attitude to the overall lending decision. The present case bears signs of this.

234. Ms Mirchandani developed her submissions in respect of "No lending policy" by complaining that, where Christie bears the burden of proof of showing that Barclays' lending was imprudent and amounted to contributory negligence, it was both unsatisfactory and unfair for Barclays to have failed to locate or disclose the applicable lending policy, or even a more general policy applicable to trading businesses, and, moreover, in the face of its own witnesses' oral evidence that such policies existed. It is unfair for Christie to bear the effects of the fact that it is not possible properly to assess Barclays' lending in this case without the applicable formal written policy against which such lending should be tested. Accordingly, the Court should adopt a stringent and sceptical approach to Barclays' claims as to its applicable lending policy and to assertions that it made this loan within the scope of that policy, and should adopt a sympathetic approach to Christie's position on this aspect of contributory negligence.
235. Ms Mirchandani further relied on the following specific aspects of the evidence:

(1) Mr Dembicki said that he had not seen a general lending policy and there was no lending policy for arcades or even for trading businesses. He re-visited this position overnight to state that he assumed there was some generic guidance for business lending at the time, such as he had found existed now, but still confirmed he did not recall looking at any such guidance in 2007. Despite this, he also asserted that the upper limit for LTV was 65% for a trading business in the hospitality and leisure sector.

(2) It was the evidence of Mr Sturt that (a) lending against arcades was identified as a "high risk" sector, and (b) as it was higher risk, it was sensible to adopt a more prudent or cautious level of lending.

(3) Barclays produced a May 2007 risk review which indicated what its lending guidelines would have been in 2007 for sub-£10m lending. Mr Sturt's evidence was that there will have been a pre-existing document which has not been disclosed (despite Barclays asserting that none existed).

(4) Mr Sturt also said that (a) the maximum "metrics" or parameters for lending in the sector concerning the Borrower would have been 60% LTV for an established operator and interest cover of 2.5 times, and (b) if a credit sanctioner wanted to go higher than this level of LTV: "They need to have good reason why they are doing that", but (c) Mr Dembicki and Mr Cox may have referred to an LTV at 67% because this was the lending policy at the time, or simply because they discussed the matter between themselves.

(5) Mr Dembicki referred to a 'rule of thumb' of around 70%, with slightly less for trading businesses.

236. Ms Mirchandani submitted that (adopting Mr Sturt's evidence) the Treasury Loan at an LTV of 64.4% was some 4.4% beyond the maximum allowed LTV, and that no good reason has been given for this level of lending. The Borrower was not a suitable candidate for the maximum LTV due to: the risky nature of its business; the lack of monthly management accounts; the lack of financial acumen which Barclays should have realised; the poor history of debt management in terms of running hard core overdrafts against non-trading company accounts; and the very significant 'black mark' against the Thurstons' integrity for their mis-use of the 2003 Mortgage monies.
237. Developing her argument in respect of "Lax and/or inappropriate lending", Ms Mirchandani submitted that:

(1) Barclays failed adequately to appreciate the 'character risk' that the Thurstons represented, given their mis-use (admitted by Barclays on the pleadings) of the 2003 Mortgage monies for the purchase of residential property in Spain.

(2) The RM-Sanctioner set up meant that the RM would effectively recommend the proposal by reason of his merely submitting it for sanction. This meant the RM would be interested to put forward the 'best case' for the Borrower's application, with the RM being interested in a positive outcome for his own personal feedback position and his own standing with the sanction department, as well as the positive effect on his bonus for increasing Barclays' business.

(3) Mr Dembicki lacked appropriate experience: he was a relatively new RM, having only started in that role in November 2005. He took over as RM for the Thurstons, who were long-standing customers of Barclays, and ones he would have wanted to keep happy, in January 2006, when he had just three months' experience, with no proper 'handover' from the previous RM, Mr Humphreys. The Thurstons were his only experience of arcade operators, and Mr Dembicki failed properly to question the Thurstons' use of company money and bank facilities for personal benefit.

(4) Mr Dembicki failed properly to investigate the value of assets which were nevertheless referred to and relied upon by Barclays for recourse, although not actually charged to Barclays.

(5) According to Mr Sturt, there needed to be a minimum of 1.5 times PBIT to the annual capital and interest repayments. With a PBIT of £311,000 and an estimated capital and interest annual repayment of £200,000, this could not be met. Further, Mr Sturt would have expected the other debt servicing to have been included in this calculation, and would have expected a trading level that supported an interest cover of 2.5 to 3 times for the purposes of the borrower's covenant.

(6) Mr Dembicki admitted that he did not carry out any debt serviceability or interest cover calculation. Repayment required both businesses (CCGN and the Flamingo) to generate profit at a quite substantial level, and Mr Dembicki was relying on cost savings from joining the Arcades as well as rental income from the flats, and no more capital expenditure. He agreed that the Treasury Loan would not have been affordable without the capital repayments holiday he was proposing.

(7) Mr Dembicki knew from December 2006 that the Thurstons had mis-used the 2003 Mortgage monies, but he stated in his December 2006 and his January 2007 Zeus applications that the borrower had "Complied" with previous conditions of sanction, presenting this in a way which was 'economical with the truth' about the Thurstons' mis-use of those monies.

(8) Mr Sturt said that had this mis-use of the 2003 Mortgage monies been known, it would have put a question mark over the Borrower's integrity, and would lead to a refusal for a "very full lend" such as this loan application at £1.9m.

(9) Further, Mr Sturt, as the Hypothetical Sanctioner would have expected to be told by the RM about this mis-use and would not expect the RM's Zeus applications to not state anything and be in his own words 'economical with the truth'.

(10) Mr Dembicki indicated in oral evidence that there may have been an element of wanting to get the deal done quickly in order to permit the Thurstons to open for the spring season. However, it was not suggested that this would justify less financial analysis.

238. Expanding "Failure to carry out adequate financial analysis", Ms Mirchandani submitted:

(1) Barclays had no formal guidance for its RMs as to what "financial analysis" meant, and no set criteria for what was needed to go into Zeus reports.

(2) Mr Dembicki failed adequately to analyse the Thurston Group's financial position and whether their applications for facilities and the reasons for needing them indicated a lack of discipline in the management of the company, or that the Borrower could not afford to pay off its debt.

(3) The records apparently submitted by Mr Dembicki as Zeus reports are not clear as to what previous information was already on the system, and what was added by him.

(4) It was a failure not to obtain management accounts, despite the seasonality of the business, and instead accepting annual, consolidated accounts or indications.

(5) Mr Dembicki knew that the Thurstons relied heavily on their accountants, Wilshers.

(6) Barclays failed to consider the need for a report from an accountant, or certified forecasts, and relied excessively on its own review of the Borrower's account behaviour. However, Barclays could not demonstrate that review because it has not disclosed the required electronic records. In the absence of any monthly management accounts Barclays had to fall back on its review of the conduct of bank accounts by the Borrower. That should have been rejected as a valid or adequate source for financial analysis, given the cash nature of the business, or rejected due to the unsatisfactory conduct of apparently non-trading companies (Circus Leisure Limited and Golden Nugget (Great Yarmouth) Limited) running up substantial overdrafts and hard core borrowing not being cleared in the course of the high season months.

(7) Barclays failed to ask the Borrower's accountant the basis of assumptions that underlay the forecasted figures for either the existing business or the 'target business' (the Flamingo). It is clear that it should have done. As Mr Sturt put it: "No set of assumptions is worth their weight in salt without understanding the underlying assumptions."

(8) The forecasted figures of £150-200,000 profit from CCGN should have been questioned. Mr Dembicki did not do this. As Mr Sturt put it: "..we have never seen that level of profitability recorded before for this business."

(9) Barclays' RM did not properly complete the Zeus application (dated 26 January 2007) on the basis of which the Treasury Loan was sanctioned. Mr Sturt confirmed that the information provided was inadequate.

(10) Mr Sturt considered that the Thurstons' bank account conduct and history indicated a lack of financial acumen since they were "active spenders" who were not structuring their debt correctly. He described the Borrower as "a largely financially unaware business".

239. Ms Mirchandani further submitted:

(1) This was commercial lending which was high quantum and 'highly geared' (i.e. the borrowing level was high relative to the assets held). Barclays was tripling its level of lending. Barclays loaned at a level beyond its own lending policy. Barclays did so (a) ignoring a significant blemish against this customer's record in terms of integrity; (b) relying on a profits forecast which indicated a level of business never seen before, and without raising any queries about this; (c) without an adequate level of information being provided to the sanctioner; and (d) without apparently carrying out any formal serviceability calculation or assessment.

(2) Of the three tenets or principles of good banking, "Character, Capacity and Collateral", Barclays signally failed in the adequacy of its assessment on the first two. There can be no question that had these matters been properly considered, the Treasury Loan would not have gone ahead, either at all, or at the level and on the terms it did. The question mark over the integrity would have had a decisive effect for both Mr Sturt, as the Hypothetical Sanctioner, and despite Mr Bloomfield's extraordinary oral evidence to the contrary, also for Mr Bloomfield who reported (at paragraph 16.14.3 of his report): "… if there were doubts over the integrity of the Thurstons the facilities would not have been provided."

240. Christie contends that this indicates a high level of contributory negligence, at least 50%. Ms Mirchandani relied on the second case in Webb Resolutions Ltd v E-Surv Ltd [2013] PNLR 15, where, she submitted, the level of contributory negligence found was 50% and arose by reason of (i) a very high LTV; (ii) lending on a self-certified basis; (iii) failing to obtain confirmation from an accountant about the borrower's earnings; and (iv) failing to take into account substantial credit card defaults. She submitted that, while the facts of that case are not precisely on 'all fours', this decision of Coulson J is a very close match for Barclays' failings in the present case.
241. In reply to Barclays' closing submissions, Ms Mirchandani submitted that it is impermissible for the Bank to assert that "Mr Cox can be taken to have [carried out a servicing calculation]" based on Mr Sturt's evidence that it would be his expectation that Mr Cox would have done such a calculation. If Mr Cox had done this calculation, this would (or should) have been recorded somewhere, either in his response to the loan application dated 29 January 2007 or in his working papers. No such documentation has been disclosed. Ms Mirchandani made detailed submissions concerning Christie's attempts to pursue disclosure of documents created by Mr Cox or relating to his involvement in the material events. She submitted that in circumstances where Mr Cox has not been called as a witness, and where Barclays does not have any documentary evidence that a serviceability calculation had been carried out, the Court should conclude either (a) that no serviceability calculation was in fact carried out or (b) that, since it cannot be scrutinised, it cannot be relied upon to demonstrate that Barclays carried out a competent or adequate serviceability calculation. This is an aspect of considering the borrower's 'Capacity', and the failure to carry out such a step, or the failure to do so in a demonstrably competent manner, means that contributory negligence in this respect has been proved against Barclays.
242. In her reply submissions, Ms Mirchandani further contended:

(1) Barclays chose to call evidence from Mr Sturt as the Hypothetical Sanctioner, instead of the actual sanctioner, Mr Cox. It should not be allowed to disavow Mr Sturt's evidence to the effect that, had Mr Dembicki been wholly open and honest about the Thurstons' mis-use of the 2003 mortgage monies, the Treasury Loan would not have happened.

(2) There is no contemporaneous evidence that Barclays was "proceeding on the basis that the Borrower was required to reduce the LTV to 57% within 12 months". This is supposition, and is not credible given that Barclays did not couch this requirement for repayment in 12 months in strong or prescriptive terms, but rather indicated that it was to be repaid when the properties in Spain were sold.

(3) Although Barclays contends for a reduction of 15-25% for contributory negligence, the cases that it relies on demonstrate why its contributory negligence in this case warrants considerably more than this deduction.

(4) First, this was not merely a case of the bank failing to carry out diligent enquiries. In this case, Barclays positively had evidence of the Thurstons' dishonesty, in their mis-use of the 2003 Mortgage monies, but the RM failed to pass this information to the sanctioner. Had this information been passed on, the Treasury Loan would not have been made.

(5) Second, Barclays failed to carry out any, or any competent, investigation of the affordability of the proposed loan in the form of a serviceability calculation. This was so signal a failure, that even Barclays' expert lending witness Mr Bloomfield accepted this fell below the standard required.

(6) The case of Nationwide Building Society v JR Jones resulted in a finding of 40% contributory negligence for the lender's failings, which included an 'over-credulous approach' to the accounts information and inadequate enquiries of the borrower who was a fraudster. Barclays here adopted a similarly over credulous approach to the Thurstons and their claims but also failed to pass on internally what information it did have about their prior mis-use of bank monies, and, in addition, failed to conduct a proper assessment of the affordability of the loan. The degree of contributory negligence in this case is therefore higher.

(7) Contrary to Barclays' stance, the present case is comparable to Paratus v Countrywide Surveyors [2011] EWHC 3307 (Ch); [2012] PNLR 12, or is an example of worse contributory negligence. In Paratus, the lender was criticised for failing to conduct enquiries which would have shown the borrower to be dishonest. Barclays did not fail to conduct enquiries: rather, it failed to pass on clearly the information about the Borrower's prior conduct, which information it held within its Zeus recording system, and instead passed on information which was described as "economical with the truth at best" by Mr Sturt.

(8) In the context of considering the quality of the lending decision, and what level of contributory negligence pertained, the Court should have regard to the principles of good banking applied by Barclays' own expert, Mr Bloomfield. Of the three "Cs" – "Character, Capacity and Collateral" - the value of the security property goes only to Collateral. Barclays' failings were in Character (failing to take any account of the previous mis-use of the mortgage monies) and Capacity (failing to carry out any adequate affordability assessment). The causally potent step was Barclays' decision to lend, and given the circumstances in which that decision came to be made, was much more significant in terms of blameworthiness than any negligence on the part of Christie.

Barclays' case

243. Ms Rushton submitted as follows.
244. First, the relevant allegations by Christie are those set out in the original joint statement of the lender experts Mr Bloomfield and Mr Bryant at paragraphs (1) to (12). The main allegations are:

(1) Whether Mr Dembicki's and/or Mr Cox's analysis of the financial information met the standard of a reasonably competent lender.

(2) Whether Mr Dembicki and/or Mr Cox should have concluded that the loan repayments were not adequately serviceable.

(3) Whether the LTV of 64% was higher than a reasonably competent lender making this type of loan in February 2007 would have allowed.

(4) Whether a reasonably competent lender would have made a loan at this level or at all in February 2007, in all the circumstances.

245. Second, where Christie has made allegations that Barclays failed to act reasonably competently by failing to obtain more financial information, these are only relevant if that information would or should have made a difference to Barclays' decisions if it had been received at that time.
246. Third, Barclays relies on the evidence of its expert Mr Bloomfield, in particular in the following respects:

(1) The loan satisfied a servicing ratio of 1:1.5. Even if Mr Dembicki did not carry out a servicing calculation at the time in February 2007, Mr Cox can be taken to have done so. This ratio was in line with the practice of high street lenders at that time, and the Court should not therefore conclude that such a practice failed to meet the standard of reasonable competence.

(2) An LTV of 64.4% was a satisfactory risk in relation to a valuation of a trading property owned by a well-established business. It was not out of line with the general approach to LTV taken by high street banks at that time for this type of lending.

(3) Barclays had a good understanding of the Borrower and a significant amount of financial information because it had been a customer for so many years. It was therefore reasonable for Barclays to rely on the information which it had, rather than seeking any further information or third party professional advice.

(4) Barclays acted reasonably competently in not delaying the decision on the loan application until the final accounts for the year ending February 2006 had been received. The year end accounts for the years to February 2005 had been uploaded to Barclays' database (Lending Adviser) and Mr Dembicki spoke to the Borrower's accountant's Wilshers, who provided him with figures. There would have been a degree of urgency because this was a purchase and it is submitted it was reasonable for Mr Dembicki to rely on figures provided by the Borrower's accountants rather than refusing to proceed with the application until the 2006 accounts were finalised.

(5) This was a loan which, in all the circumstances, it was reasonable for Barclays to make.

247. Fourth, to the extent that Mr Sturt said in evidence that there were aspects to this loan application that raised concern and might have led him to refuse the application if it had come before him, this does not mean that another sanctioner within the team could not reasonably have come to a different view, as Mr Cox did.
248. Fifth, although the LTV was 64%, this included the amount of the 2004 mortgage. Mr Cox proceeded on the basis that the overall lending should be reduced by £300,000 within 12 months by the sale of the properties in Spain, and a condition was included in the Treasury Loan to this effect. Barclays was therefore proceeding on the basis that the Borrower was required to reduce the LTV to 57% (based on £2,403,000/£4,200,000) within 12 months. It was not practical to require the Borrower to sell the properties in Spain and clear the 2004 mortgage before the purchase of the Flamingo could proceed, but it is submitted that it was made clear to the Thurstons that this was what they were required to do. Those properties were indeed put on the market by the Thurstons and sold, and the 2004 mortgage was reduced by £273,000. Although this was not until dates in September and December 2009 because of difficulties in selling the properties, the debt was therefore reduced as anticipated, even if not eliminated.
249. Sixth, Mr Sturt's evidence was that any LTV guidelines were not hard and fast rules but that the credit sanctioner had a degree of discretion. Where it was anticipated that there would be a significant reduction in the debt within about 12 months, then it is submitted it would not be unreasonable to permit a slightly higher LTV.
250. Seventh, Christie has relied on the fact that the Thurstons used the 2004 advance to buy property in their personal name in Spain and not for the Borrower's business, as being evidence of untrustworthiness. While Mr Sturt agreed that this was a factor which was relevant to the integrity of the Borrower, Mr Bloomfield is absolutely right when he says that this must be seen in the context of a 25 year banking relationship where the Borrower had a previous history of maintaining payment. Ultimately, this was a commercial relationship and it was not unreasonable for the Bank to choose to make a further loan to the Borrower, even taking into account how the 2003 Mortgage monies had been used. It was not unreasonable to treat it as a matter which the Borrower was required to correct by repaying the 2003 Mortgage monies from selling the property in Spain, rather than being a bar to any further lending.
251. Eighth, Mr Bloomfield as an expert is able to speak to the whole of a typical high street bank's relationship with its customer. Mr Dembicki and Mr Sturt each gave evidence from their particular perspectives on that relationship, of RM and credit sanctioner respectively, those roles being separated and balanced within Barclays' commercial structure. As Mr Bloomfield said in evidence, this influences Mr Sturt's perspective.
252. Ninth, if, contrary to Barclays' submissions, the Court concludes that the lending decision in this case was not one which would have been made by a reasonably competent high street lender at that time in February 2007, then Barclays submits as follows, so far as a percentage reduction is concerned:

(1) The appropriate reduction would be in the region of 15 to 25% and not more than this. This would be consistent with other authorities in this field.

(2) The authorities indicate that where it has been found that a bank should have taken more steps to investigate a borrower's income and history, and would not have lent or would have lent a lower sum if it had done, then reductions for contributory negligence have been of this order. For example:

i. In Halifax Mortgage Services Ltd. v Robert Holmes & Co (Official Transcript (QBD, 10 February 1997), [1997] Lexis citation 2766) the borrower had given only one year's figures as to his income as a developer, and the bank should also have considered the fact he was not on the electoral roll, there was evidence of credit enquiries and evidence of an undisclosed charge against his property. If accounts had been called for these would probably have raised enquiries such that the loan would not have proceeded, and the borrower in fact defaulted within 5 months. The reduction made for contributory negligence in the claim against the negligent valuer was 25%.

ii. In UCB Bank v David J Pinder [1998] PNLR 398 the lender failed to ask for up to date accounts and the judge doubted any such accounts would have been carefully considered if they had been provided. No relevant bank statements were obtained and there was a failure to ensure there was an overdraft facility to provide working capital. There was a poor assessment of the borrower's creditworthiness. However, much the greater causative potency lay with the over-valuation. There was a reduction of one third for contributory negligence. The facts there were somewhat more serious than in the present case.

(3) In contrast, those cases where reductions have been made at a higher level, in the region of 40 to 60%, are ones where the default by the bank was on any view far more serious than in the present case. For example:

i. In Nationwide Building Society v JR Jones (case 6 within a group of 14 claims reported together in Nationwide Building Society v Balmer Radmore and related actions [1999] All ER (D) 95) the bank was dealing with an application for a large loan from a borrower who was relying on accounts and projected accounts to support his ability to service the loan. The Court found there was confusion within the bank as to who should consider the merits of the application; an over-credulous approach was taken to accounts information which should have been treated as suspect and the bank failed to carry out adequate searches and interview the borrower (who was in fact a fraudster). The Court apportioned 40% contributory negligence to the bank in a claim against the solicitor who negligently failed to submit appropriate reports to the bank. The bank's defaults in that case were on any view plainly more serious than in here.

ii. In Webb (see [156]-[170]) there was an unacceptable combination of circumstances: the LTV of 95% was too high, the borrower had a history of defaults and there was no supporting evidence of income. The Court held that the lender had failed to look after their own interests and was equally to blame with the valuer, so a reduction of 50% was made. Again, this is not comparable and is a much more serious a default than is alleged in the present case.

iii. In Paratus v Countrywide Surveyors Ltd [2011] EWHC 3307 (Ch); [2012] PNLR 12 (see [78]-[83]) the lender failed to carry out any proper checks into the borrower's income, despite the borrower making inconsistent statements about his income, and in breach of its own guidelines. If it had, it would probably have discovered he was dishonest. The Court held that if liability had been established, it would have applied a reduction for contributory negligence of 60%. Again, this is an example of a bank failing to carry out basic checks which would have revealed a dishonest borrower to whom it would not have lent, and is not comparable to the present case.

(4) On any analysis, this cannot be said to have been a loan which was plainly contrary to applicable principles or practice. The 25 year customer relationship is and was a very relevant factor: the fact that the Bank acted reasonably in giving great weight to this is supported by the fact that the relationship continued and the Borrower did seek to maintain payment, until 2010. Similarly, an LTV of 64% cannot be said to be an obviously excessive LTV for a trading property of an established business, especially where there is an expectation that this will be reduced in the relatively short term.

(5) This was not a case where it would not have been reasonably competent to make any loan to the Borrower. The issue is whether the amount lent was somewhat too high when all the circumstances, including LTV and serviceability, were taken into account. This again is in contrast to the Webb and Paratus cases, where no loan should have been made at all.

(6) On any view, the over-valuation of the security is a much more significant factor, both in terms of blameworthiness and causative potency. Although a lesser loan would not have been made because it would not have met the Borrower's needs, it is submitted the Bank would not have been at fault in making one. Therefore the causative potency is much less.

253. In her reply submissions, Ms Rushton submitted:

(1) There is no evidence whatever on which the Court could properly find that the Bank's decision (through Mr Dembicki and Mr Cox) to lend to the Borrower was influenced in any way by the annual bonus scheme relating to RMs. This is not a proper allegation of contributory negligence and has not been previously raised.

(2) The Court should accept Mr Dembicki's evidence that he believed there was generic guidance relating to a trading businesses in the hospitality and leisure sector, with an upper LTV limit of 65%. The Treasury Loan proceeded at 64%.

Discussion

254. Of the four headline arguments advanced by Ms Mirchandani, I consider that the issue of "Incentives" can be put to one side at the outset. Ms Mirchandani did not contend that this was a "direct" allegation of contributory negligence, and I agree with Ms Rushton that, properly analysed, it is not an allegation of contributory negligence at all. Having heard the evidence of all the witnesses, and especially Mr Dembicki, I am in any event wholly unpersuaded that Barclays' system of bonuses in general in 2007, or the application of that system to those involved in processing the lending decision in the present case in particular, had or even had any tendency to have any material impact on the care or thoroughness or integrity with which any such decision was approached.
255. I am also not satisfied that the lending decision in the present case contravened any lending policy of Barclays. The picture which emerged from the evidence is that although there was no lending policy specific to FECs, there was a lending policy for leisure and hospitality sectors, which included an upper LTV limit of 65%. It also seems likely that there was generic guidance for business lending in 2007, although I see no reason to believe that this would have contained anything more germane to the lending decision in the present case that was contained in the lending policy for leisure and hospitality sectors. It is unfortunate that these documents have not been disclosed, and I have subjected the evidence which I have heard to a degree of critical appraisal which I consider to be commensurate with the fact that it cannot be tested by reference to examination of the contents of those documents. However, I consider it more likely than not that the LTV figure of two-thirds (67%) which is mentioned in the contemporary documents was derived from a policy which was applicable at the time to lending decisions of this type. Whatever the attractions of the Thurstons as customers to Barclays, and whatever personal inclinations Mr Dembicki and Mr Cox may have had to see that the application for the Treasury Loan resulted in a positive credit sanctioning decision, I do not consider that they would have lit upon a LTV of 67% which was idiosyncratic or which contravened Barclays' applicable lending policy at the time.
256. Mr Dembicki alluded to the possibility that policies or at least practices concerning LTVs were not written down, and Mr Sturt referred to a sector in respect of which, to his recollection, a LTV of 67% was applicable. It appears from his evidence that Mr Dembicki himself reached his LTV figure of 67% by making a very broad assessment of the value of the security as £4m (attributing a value £3m to CCGN as asserted by the Thurstons and a value of only £1m to the Flamingo, although he knew that the asking price was £1.6m) and by working off a total lending requirement of £2.7m (£903,000 plus £1.8m). As he could easily have attributed a higher value to the Flamingo in that context, and come to a higher value for the security and a lower LTV figure, it seems to me more likely than not that he worked towards a LTV figure of 67% because that was a figure which was conventional or did not "push the envelope". When comparing the testimony of the witnesses with what the contemporary documents show, one has to bear in mind that they are giving evidence about events which happened 9 years ago.
257. Mr Dembicki did not carry out a serviceability calculation, and I do not consider that it can safely be inferred that Mr Cox did so, in the absence of any evidence from Mr Cox or any document which supports the contention that he did so (although I accept that such a calculation would not necessarily be evidenced by a document which would be retained Mr Cox, and, thus remain available to be disclosed by Barclays). In addition, I consider that Barclays could and should have probed the Borrower's finances and proposals more effectively than it did, in particular the optimistic forecast concerning CCGN's profitability. However, the Thurstons and the Borrower were long standing customers of Barclays, and, as Mr Bloomfield pointed out, this meant that Barclays had a lot of financial information concerning the businesses and the ability of the Borrower and the Thurstons to manage borrowing without having to ask for input from professional advisers or seek up to date management accounts. In the absence of any special circumstance, I do not feel able to conclude that no reasonably competent bank would have acted as Barclays did so far as concerns carrying out financial analysis and making the lending decision about the Treasury Loan that was made in the present case.
258. In my judgment, however, there was a peculiar feature in the present case, which was known to Barclays, which was objectively highly significant, and to which Barclays ought to have responded very differently from the way in which it did respond. That is that the Thurstons had not used the £300,000 which was the subject of the 2003 Mortgage for the purposes for which the monies had expressly been advanced, namely the business of the Borrower, but had instead used it to buy property in Spain. In my view, it is inescapable that this involved dishonesty on their part. I did not understand Ms Rushton to contend to the contrary. Either they dishonestly misrepresented to Barclays the reason why the loan of £300,000 was wanted in the first place, or they dishonestly diverted the money after it had been received from Barclays, in breach of their fiduciary duties as directors of the Borrower, and to the detriment of the Borrower, and the detriment of creditors of the Borrower. The statement that the loan was "in the interests of and for the benefit of the Company", which Barclays required the Thurstons to make, was either untrue when made or later ceased to be true due to their actions.
259. Mr Dembicki does not appear to have attached great significance to these events, because he recorded in the Zeus form dated 11 December 2006 that the Thurstons' assets "include property in Spain worth £420k with £40k mtge plus a further Spanish property worth £900k which is unencumbered but we did lend £300k by way of comm. Mtge to Thurston UK Ltd which assisted with purchase. This property is currently being marketed, with sale proceeds to be used to clear the £300k comm. Mtge"; and in the same form he stated "Complied" under "Compliance with previous conditions of sanction". Mr Dembicki was wrong to treat the Thurstons' conduct in that way: it was very serious, and, on the face of it, dishonest, and he should have viewed it in that light.
260. As set out in greater detail above, the like text was replicated in the Zeus form dated 26 January 2007 which Mr Dembicki completed in relation to the application for the Treasury Loan. If my understanding of the evidence is correct, this form would have been sent to Mr Cox as part of the sanctioning process. If that is right, the comments made above apply to Mr Cox as well. The fact that Mr Cox appreciated the history is consistent with the terms of the Special Condition of sanction which he imposed on 29 January 2007, namely: "A reduction in company borrowing of £300k is to be achieved within 12 months of initial loan drawdown from sale of property in Spain". That suggests to my mind that he regarded the money to be repatriated as 'company money'.
261. In fact, it would appear from the Zeus form completed by Mr Townsend on 27 January 2010 that the Thurstons did not have property in Spain of the value that they represented to Mr Dembicki. Specifically, the £900,000 Spanish property was "actually a development property secured by a nominal deposit and subject to future development finance". It is uncertain whether this would have emerged earlier if Barclays had pressed the Thurstons as to exactly what had become of the diverted 2003 Mortgage monies and had either required them to remit the same to the Borrower or had exercised the right to require immediate repayment of those monies which Barclays had in the event that the Borrower had "misrepresented any information which you have provided to us in connection with the loan". It seems to me, however, that it probably would have emerged before Barclays progressed the Treasury Loan if Barclays had acted in that way, in which case Barclays would have had further grounds for concern. The property in Spain (to £300,000 worth of which the Borrower would appear to have had a proprietary claim, even if the legal title vested in the Thurstons) was not formally taken into account by Barclays as security for its lending. However, the Zeus form dated 27 January 2010 records that it was seen as providing "comfort … in personal assets". If the truth had emerged, that comfort would have evaporated.
262. It was Mr Sturt's evidence that what the Thurstons had done in saying that the £300,000 was for business purposes and then using it buy property in Spain was an "untruth", and that in those circumstances Mr Dembicki ought not to have completed the Zeus forms in that way that he did, and, specifically, stated in them that the Thurstons had "Complied" with previous conditions of sanction. He also said that, from the point of view of a credit sanctioner, the evidence about what the Thurstons had done was relevant to the Borrower's trustworthiness, placed a question mark over integrity, would not go in favour of a borrowing request involving "a very full lend in terms of leverage against income and asset value", and would be quite significant and might lead to the refusal of a £1.9m loan "at the level of leverage sought".
263. At paragraph 6.14.3 of his report, under the heading "More Certified Data", Barclays' lending expert, Mr Bloomfield stated: "In the circumstances, a reasonably competent lender might have asked for a certified statement [i.e. of assets and liabilities, not income] if there were doubts over the integrity of the customer, however, if there were doubts over the integrity of the Thurstons the facilities would not have been provided." However, Mr Bloomfield's oral evidence was to a different effect.
264. When asked how much of a black mark the history of dealings with the £300,000 would be, Mr Bloomfield said "I think it's a very close run thing, and each analyst and credit sanctioner would come to his own view on this. It would probably have been my view to have overlooked the, you know, obviously misuse of the money. I don't condone that and I certainly don't applaud it. But I look at this loan all the time and say: Never mind, can I make money out of these people? And the answer is: yes, I can. I look at the characteristics of the loan, and they are sufficient for me to overlook what is unquestionably a poor attitude, a lack of integrity, whatever else you want to call it."
265. When asked about the meaning of paragraph 6.14.3 of his report in light of that oral evidence, Mr Bloomfield said: "I think it was more about payment record. Creditworthiness, I look at the three Cs of lending, sir: character, capacity, collateral. There are other ones, CAMPARI and all sorts of fancy things. But character, capacity and collateral. This is all about character. Now, they had a poor character insofar as they had misused money, but they had a good character in terms of paying money over to the bank, banking with the bank, and they were considered by Dembicki to be - I think his words were "The accounts were conducted fairly well". So in terms of integrity, I should perhaps have chosen a different word and used "creditworthiness", because I take the view that the good characteristics which the Thurstons displayed to the bank got to the point where the bank accepted the risk of their previous misconduct".
266. The word that Mr Bloomfield used in his report and in his initial answer quoted above is "integrity". "Integrity" is not the same as having the "good characteristic" of banking with Barclays and making prompt payments to Barclays, which is what he later suggested he had meant by the use of the word. I did not regard this part of Mr Bloomfield's oral evidence as satisfactory. In any event, taking it at face value, it seems to be saying that it was acceptable and indeed commercially sensible for Barclays to overlook an obvious misuse of a substantial sum of money by a customer that was lent by Barclays for one purpose and used by the customer for another purpose in a way that manifested lack of integrity, provided that Barclays considered it could still make money out of its relationship with the customer. That would seem to me a truly regrettable attitude for Barclays to have adopted. Moreover, if Barclays chose to adopt such an attitude and to lend £1.9m to such a customer without concern, that is something that the Court ought not to ignore in the present context, on the basis that by acting in this way Barclays failed to look after its own interests if for no other reason.
267. In my judgment, if Barclays had responded as any reasonably competent bank to the history concerning the 2003 Mortgage monies, the Borrower's application for the Treasury Loan would not have been successful and the Treasury Loan would not have been made. At the very least, an appropriate response by Barclays would or should have resulted in a much closer scrutiny of the finances, proposals and projections of the Borrower and the Thurstons than in fact took place. At that stage any reasonable bank in the position of Barclays could be expected to rely less on its historic relationship with these customers and more on serviceability calculations, up to date and/or professionally endorsed evidence of actual and forecast business profits, and stress-testing of the workability of a LTV of 67% on a loan of £1.9m, in a manner which I do not consider that Barclays would have been negligent not to pursue in the absence of the disturbing history concerning the £300,000. Accordingly, in my judgment, the lack of integrity affects the reasonableness of Barclays proceeding to make the advance that it did, applying the parameters that it did, and on the basis of the attitude to lending that it had and the level of financial analysis that it carried out. What would have been reasonable without knowledge of dishonesty was not reasonable with that knowledge.
268. On this alternative basis, also, causation would be made out. I am not persuaded that, in the absence of knowledge of dishonesty, if Barclays had taken further steps such as Ms Mirchandani submits it ought to have taken, any further information which it elicited and considered would or should have resulted in a different outcome to its lending decision. However, I consider that, taking proper account of the remarkable unreliability shown by the dealings with the £300,000, a more penetrating evaluation of the Borrower's application for further borrowing (which was at or near the LTV limit which Barclays could reasonably have approved, and which stretched the financial capacity of the businesses as much as the Treasury Loan did) was appropriate, and should and would have caused any reasonably competent bank to refuse the application.
269. At the same time, in the events which happened, the over-valuation of the security was also a significant factor, both in terms of blameworthiness and causative potency.
270. I have had careful regard to all the cases to which I have been referred, to the arguments of Ms Mirchandani and Ms Rushton as to where, in terms of blameworthiness and causative potency, the conduct of Barclays summarised above stands in relation to the factors which were taken into account by the Court on the different facts of those cases, and to the reductions for contributory negligence which were made in those cases. I consider that neither side in the present case comes out of this saga very well. I consider that Barclays' contribution is plainly more than the 15%-25% bracket suggested by Ms Rushton, but, on balance, less than the 50% figure argued by Ms Mirchandani. I consider that it is below that indicated or applied in the Paratus and Webb cases, and is comparable to that found in the Nationwide Building Society case. I hold that the appropriate reduction in the present case is one of 40%.

Conclusion

271. In summary, I hold that:

(1) The correct way of valuing the Arcades is on an EBITDA basis of valuation.

(2) Applying that basis of valuation, in 2007 CCGN was worth £2,317,279.50 and the Flamingo was worth £1,185,738. In round terms, they were together worth £3.5m.

(3) The permissible margin of error, or range, in the present case is 15%.

(4) There is more than a 15% difference between the true value of the Arcades, both separately and cumulatively, and Christie's valuations of £1.5m for the Flamingo, £2.7m for CCGN, and £4.2m for the two Arcades.

(5) In not adopting an EBITDA basis of valuation, on the facts of this case Christie acted as no reasonably competent valuer would have done and was negligent.

(6) The extent of the overvaluation was, in round terms, £700,000.

(7) Subject to further argument about the cost of funds since lending, alternatively statutory interest, Barclays' transactional loss is £1,022,523.19.

(8) Barclays contributed to that loss by its own negligence.

(9) The appropriate deduction to take account of Barclays' contributory negligence is 40%.

(10) Accordingly, subject to further argument to the extent mentioned in (7) above, Barclays is entitled to judgment for 60% of £1,022,523.19.

272. I ask Counsel to agree an order which reflects these rulings. I will hear submissions on any points which are disputed, and on any other issues such as costs and permission to appeal, either when judgment is handed down, or at some other convenient date.