England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
Queens Bench Division

		Royal Courts of Justice Strand, London, WC2A 2LL
		10 July 2012

HH Judge Anthony Thornton QC:

Introduction

1. This claim was brought by a mortgage provider, Platform Funding Limited ("PFL") against an incorporated practice of Chartered Surveyors, Anderson & Associates Limited ("AA"). On 11 September 2006, PFL advanced £250,960.78 to a borrower who was buying a flat, Flat 25, Hill House ("Flat 25"), which was located in a new development on the south bank of the River Thames at Thamesmead, London. This loan was for a principal sum of £247,495 with fees of £3,465.78 being added to the loan. The loan was advanced after AA had provided PFL with a report and mortgage valuation dated 21 August 2006 that advised that the current open market value of Flat 25 was £275,000. PFL then advanced 90% of this advised value to the borrower on completion. The borrower never occupied Flat 25 and after he had defaulted on the loan, PFL repossessed it having obtained a possession order and obtained possession on 28 September 2007. In January 2008 PFL sold it at a considerable loss. PFL was advised that the open market value of Flat 25 had been negligently over-valued by AA. PFL's claim is based on its contention that had AA provided a reasonable valuation and not a negligent over-valuation, it would not have advanced any money to the borrower in this transaction. It therefore bases its claim on the difference between the value of Flat 25 as advised and the value that it contends that it would have been advised had AA given it non-negligent advice. This is, therefore, what is conventionally called a "no transaction case" and has been quantified by reference to the principles settled by the decision of the House of Lords in South Australia Asset Management Corp v York Montague Ltd.

The Trial

2. The claim brought by PFL against AA. PFL had also brought proceedings against three other surveyors in relation to valuations involving thirteen other flats at Hill House. It had also brought an extensive and detailed claim against Bluestone, the solicitors who had acted in a large number of the Hill House transactions for purchasers and PFL including the transaction involving Flat 25 that I am concerned with. That claim involved all these transactions and thirteen further transactions All these proceedings were ordered to be tried together. These other proceedings were compromised just before the trial of this claim and the terms of the compromise were confidential. AA applied at the start of the trial for an order permitting it to inspect the Tomlin orders and schedules and I ruled that these should be disclosed but that all copies should be returned to PFL's solicitors at the conclusion of the trial. No further reference was made to these other proceedings and the evidence particular to them was not referred to during the trial. There were also references to a number of other flats in Hill House which were not the subject of proceedings or relied on by the valuer experts as comparables.
3. The trial involved PFL's claim against AA and AA's contribution proceedings against Bluestone. I was informed that Bluestone has ceased to practice and that that firm's insurance cover was withdrawn in July 2011. Bluestone was a party to the contribution proceedings having been joined in the firm's name and the partners had been served with notice of the trial. They did not appear and were not represented so the contribution proceedings have been heard in their absence since AA maintains a contribution claim against Bluestone who has not served a defence. AA therefore claims judgment in default or, alternatively on the basis of the evidence adduced at this trial.
4. PFL claims £75,000 as damages, a further approximately £24,000 in lost funding costs and other sums all of which total approximately £99,000. At the trial, three factual witnesses, two valuation experts and two underwriting experts were called and a great deal of documentary evidence was adduced. This evidence included transcripts of relevant witnesses and of the judge's summing up in a criminal fraud trial held in October 2009 at the Southwark Crown Court during which seven defendants were tried for conspiracy to defraud arising out of the way that the flats at Hill House were marketed and the mortgages were applied for. All seven defendants were acquitted save for one, an accountant, who admitted knowingly providing false certificates of income in relation to five purchasers but none of them were principal participants in that marketing process and the evidence and summing up give an informative amount of detail as to what happened on site during the time when the Hill House flats were being valued and sold. I shall refer to some of that evidence in this judgment.

Background

5. This case is about the dishonest marketing of an over-supply of relatively low-value long-leased residential flats in a block forming part of a newly built development of flats located on the River Thames waterfront between Woolwich and Thamesmead. The relevant events occurred in 2005 and 2006 when the property market was still buoyant, house prices were still rising and mortgages were still relatively easy to obtain. The development is called the Pinnacle and the block is called Hill House. This is a six-storey block consisting of 84 one and two-bedroom flats that are located at the front, sides and rear of the block. Those at the front and sides have balconies and command Thames views. The block and the other block in this development to the east called Bridge House were built by Persimmon Homes (South East) Limited ("Persimmon") as the last phase of the ribbon developments along the south bank of the River Thames which had started in the Royal Arsenal in Woolwich and moved east. Within the old Royal Arsenal, which manufactured Ordnance during the Victorian era and which closed in 1967, many of the buildings were retained, conserved and converted into flats of high value. To the east of the Royal Arsenal, within West Thamesmead that forms the eastern end of Woolwich, a major new residential development was undertaken by Barratt Homes between 2002 and 2005 in Erebus Drive. This development comprised eight similar ten-storey tower blocks, each containing 57 Flats and the overall development comprised some 460 flats. Some distance further to the east, Barratt Homes went on to develop a further scheme comprising three blocks arranged in a crescent and comprising some 274 flats and a further two blocks comprising a further 70 flats. Still further to the east, Fairclough Homes developed a six-story block and, very much at the end of this string of developments, Persimmon developed the Pinnacle.
6. Within the Pinnacle, Bridge House was constructed first along with some additional affordable housing adjacent to it. Bridge House was completed in mid-2005 and in the autumn period the flats were sold. The development was a mix of private and affordable housing. The evidence suggests that Persimmon sold the privately owned flats, or certainly most of them, to a company called Walden Housing. This was a company owned by a man often known as Mr Barry but whose name is in fact Alim Barrie who is a Sierra Leonean. His name runs through this saga and it is thought that he returned to Sierra Leone in late 2006 to evade being both charged for and sued with fraud. Whilst the Bridge House Flats were still being sold, Persimmon approached Mr Barrie and offered him the flats that it was constructing in the first phase of the Hill House development. Mr Barrie ultimately bought, through another of his companies, Atrex Property Company Limited ("Atrex"), all 84 flats in Hill House in three successive contracts. Each contract only completed just before the first flat in that group was about to be sold and it is now known that, certainly with the second and third tranches, he funded the balance of the purchase price left after receipt of the mortgage loan for these flats out of the proceeds of sale that he had made previously. Once he had contracted to buy the first tranche, he took over marketing the flats from Persimmon's on-site marketing representative but she was retained in the more modest role of escorting visitors to the empty flat or flats that they wished to inspect internally. In particular, she showed any surveyor who arrived to undertake a valuation to the flat or flats that that valuer wanted to inspect. It was a notable feature of the evidence that few prospective purchasers attended to view flats in Hill House and there was no evidence that the purchaser of Flat 25, Mr Jikiemi, ever visited that flat or the site.
7. Mr Barrie informed the Persimmon representative of the price that any particular flat had sold for and she was under strict instructions from her Persimmon superiors only to provide the details of the sale price of flats to visiting valuers that Mr Barrie had provided her with for that visit. Moreover, she was instructed not to reveal any sales details or the identity or selling price of any purchaser of any flat to any visiting valuer. Mr Barrie found all the prospective buyers himself and the first that Persimmon knew of a possible purchaser was when the site sales team were telephoned with information about a valuer who was about to make a valuation site visit and the team was then provided by fax with the details of the three comparables that were to be shown to that valuer.
8. The particular flat that I am concerned with was plot 205, which became Flat 25, which is a two-bedroom flat on the third floor. This flat was valued on three occasions by surveyors on the instructions of mortgage packagers acting on behalf of prospective mortgagees. On the first occasion, Haywards Surveyors, whose name was subsequently changed to Kinleigh Folkard and Hayward ("KFH") were instructed on 24 May 2006 on behalf of Rooftop Mortgages to value plot 205 in connection with an application for a loan from a Mr Awal Mohammed. The principal of KFH, Mr Peter Coling, was subsequently instructed by PFL to advise and act as its expert in this case. Mr Brian Barker, one of KFH'S experienced valuers, visited the site on 15 June 2006, inspected Flat 25 and valued it at £199,950 having been informed that the purchase price was £274,995. The valuation report was sent off to Rooftop Mortgages on 16 June 2006.
9. On the second occasion, AA was instructed on behalf of Storm Mortgage Packaging Ltd on 30 June 2006 to value Flat 25 and AA was informed that the purchase price was £274,995 and that the prospective purchaser was Mr Darren Jikiemi. Following those instructions, AA instructed one of its self-employed surveyors, Mr Jimmy Omotosho who visited the site and inspected and then valued Flat 25 on 12 July 2006. His valuation confirmed the value at £275,000 in a report that was sent to the packagers on 13 July 2006. On the third occasion, AA was instructed on behalf of Platform Home Loans to provide a re-type of the valuation report that Mr Omotosho had previously prepared and the prospective purchaser was, again, Mr Darren Jikiemi. Flat 25 was not re-visited and the re-type report was sent off dated 21 August 2006. It followed that, again, Mr Omotosho on behalf of AA confirmed that the value was £274,995.
10. A mortgage application was then submitted to PFL by Mr Jikiemi dated 18 August 2006. Mr Jikiemi's introducing broker was the Direct Mortgage Centre of London, E3 and the packager was the Money Superstore of Ilford. The application was for a self-certified three-year fixed mortgage from LMS Home Loans ("LMS") who would be the mortgagee and who was a loan section of PFL. This application was for the maximum loan permitted by PFL, being 90% of the purchase price plus expenses. The mortgage application was checked by the underwriting department of PFL by one of its underwriters, Mr Wesley Jarvis and, following his approving the application, a mortgage offer was sent out to Mr Jikiemi by PFL on 30 August 2006 and on the same day Bluestone Partners, solicitors ("Bluestone") wrote to him acknowledging the receipt of his instructions to act for him in the transaction. This was the first occasion that Bluestone had indicated to PFL that they were Mr Jikiemi's solicitors.
11. The conveyancing process was started and completed very rapidly since Bluestone's acceptance of LMS's offer of a mortgage was sent to LMS's loans department on Thursday 31 August 2006, the firm wrote to Mr Jikiemi on Friday 1 September 2006 informing him that it had received his mortgage offer from PFL, the funds required for the purchase were transferred into Bluestone's account on 5 September 2006 and exchange of contracts and completion occurred simultaneously on 11 September 2006. PFL credited Bluestone's account on 5 September 2006 with £247,450.00 and a further £41,600.53 was credited to those solicitors from an account held by Mr Barrie which was entered in their clients' ledger as being "on account of costs". This further payment was paid to top up PFL's advance to enable completion to occur and to pay for stamp duty and solicitors' costs. Completion was by way of an assignment from Atrex of a lease for 125 years for Flat 25 that Persimmon had granted to Atrex with effect from 1 May 2006. This assigned lease in Mr Jikiemi's name was registered in the Land Registry on 7 February 2007. Mr Jikiemi never paid any instalment of his mortgage and there was no evidence that he ever moved into the flat.

The Valuation of 25 Hill House

12. AA was instructed on behalf of PFL to value Flat 25 by instructions emailed to AA on 30 June 2006. AA had been appointed to PFL's panel in April 2001 and that had the effect that whenever instructed to undertake a specific valuation, AA by complying with those instructions carried out that particular valuation in accordance with PFL's terms set out in the original letter appointing AA to its panel. These required a survey to be carried out within five working days of being instructed and a report to be prepared and returned on PFL's prescribed format. Valuations were only to be carried out on properties within ten miles of AA's offices and the prescribed fees were modest. PFL would have paid AA £265 for the first valuation and the prospective lender on that occasion would have paid a similar fee. PFL paid £50 for the second retype valuation. The instructions made it clear that the valuation was to be carried out in accordance with the RICS/ISVA specifications for the valuation and inspection of residential property for mortgage purposes. These are to be found as part of the RICS Red Book which is both prescribed for any valuation undertaken by an RICS member and is invariably used in any event.
13. One of the significant features in this case is an important amendment to the Red Book that occurred with effect from 1 June 2006, just six weeks before AA undertook the first of its two valuations on Flat 25. It is helpful to put this amendment into context. In the years before 2005, there had been a significant growth in high rise development, frequently in inner city areas that were being regenerated or being brought into active use for the first time. These developments were often associated with speedy building techniques and aggressive marketing of the entire development long before completion by the developer. The potential customer was frequently young, upwardly mobile and not particularly family orientated and frequently obtained a mortgage from a sub-prime lender. Other potential customers were those looking to invest their savings in the buy-to-let market and found flats in these developments a good place to acquire investment property for that purpose. These trends helped to accelerate the phenomenal rise in property values in the early 2000s. By 2005, many questioned the reported values of their property holdings as being unduly over-optimistic and investigations by the Council of Mortgage Lenders ("CML") identified that this was so, partly as a result of sale prices generally and flats in flat developments in particular being valued at too high a figure. This over-valuation was identified as being caused by a number of factors including:

(1) The prevalence of developers marketing new flats at one price and then offering discounts and various forms of incentive to attract buyers. These incentives could include the seller agreeing to fund the deposit, the provision of a post-sale "cash-back" or repayment of part of the purchase price, gifts of material gifts such as white goods or kitchen fit-outs to be included in the sale price, the payment of the first year's rent or similar incentives.

(2) These incentives were not always being picked up or sought out by valuers despite, in many cases, their inflationary effect on the purchase price or, which was the same thing, their not being reflected in a reduction of the purchase price.

(3) Valuers were not complying with their duty to follow the Red Book valuation guidelines, particularly by confining their use of comparables to other new sales in the same development, and conveyancers were not complying with their duty to advise lenders of all incentives included in the sale and of who had control over the money involved in the transaction.

14. This led the CML to have discussions with the Law Society and the RICS in 2005 with rapid results. This led the Law Society to assist in formulating amendments to the CML's Lenders Handbook and the RICS to amend the Red Book so as to seek to ensure that all relevant incentives were fully and properly taken into account in a new build valuation exercise. The Red Book guidelines made it clear that a holistic approach to the valuation exercise should always be adopted and that there should be an extensive use of comparables since the use of comparables had always been the bedrock of a Red Book valuation exercise. Comparables should for the future be considered in the context of any incentives which were available which could have influenced the price to be paid, the market in the area, prices realised for similar new property on other developments, the second-hand market and other information considered relevant by the valuer. These were significant changes for both valuers and conveyancers. The text of this significant and extensive amendment and the relevant text of the valuation instructions it replaced are set out in the Appendix to this judgment.
15. AA is a Chartered Surveyors' practice that operates out of offices in Horsham. It had an extensive valuation practice in South London and the South East and most of its valuations were undertaken by home-based valuers who obtained their instructions, undertook much of their research and submitted their reports via the internet. The managing director was an experienced surveyor and valuer, Mr Chris Meaney and the practice was on many of the valuation panels of established building societies and other prime and sub-prime lenders. Two of their valuers featured in this case, Mr Jimmy Omotosho who had been taken on in April 2006 and who undertook both of AA's valuations on Flat 205 and Mr Barry Johnston who was a very experienced valuer with much experience in valuing in the Thamesmead area. He had practised as a surveyor since 1969, he had worked for AA for the preceding fifteen years including the last five as a home-based surveyor. He had conducted about seventy valuations within the Thamesmead ribbon developments between 2001 and 2007.
16. Mr Omotosho did not give evidence since he had his engagement with AA terminated in September 2006 after it was discovered that he had made significant mistakes in at least eighteen of his valuations and, after working for another firm of Chartered Surveyors had returned to live and work in Nigeria. AA had appointed Mr Omotosho after he had been interviewed and had satisfied a short but penetrating internal written test. He had qualified in 1990 with a first degree in Estate Management from the University of Lagos and a postgraduate diploma in Surveying from the University of Reading in 1992 and had acquired his Membership of the RICS in 1998. Before being retained by AA, he had acquired sixteen years' practical experience in mortgage valuations and in conducting building surveys. He had not had extensive experience of valuations in the Thamesmead area but had the benefit of the experience and database that was available within AA if he wished to call upon it. He had also, like all the other AA surveyors and valuers, received an internal memo from Mr Meaney dated 12 May 2006 which had enclosed a copy of the entire Red Book revision concerned with new build valuations for mortgage purposes that took effect on 1 June 2006.
17. It is clear that Mr Omotosho had arrived at AA with unsatisfactory report writing skills and that Mr Meaney and his most senior valuer, Mr James Dalrymple, had spent many hours with him correcting his reports and giving advice and guidance as to how these should be improved. Potential shortcomings in his valuations first come to light in mid-September 2006 with a complaint about one of his valuations and this had led AA to conduct a rapid internal desktop audit of all of the 250 valuations he had carried out since he had started with AA in April 2006. This audit revealed eighteen valuations which the two experienced valuers who conducted this audit considered were, or were potentially, erroneous. These doubtful valuations were immediately reported to the lender clients concerned and the valuations were recalled and re-done by others. Of these eighteen valuations, none of which involved flats in Hill House, eight had subsequently been the subject of complaint. Six were resolved with no further action being taken, one had led to a payment being made in settlement and one was still outstanding at the date of the trial.
18. None of Mr Omotosho's seven flat valuations at Hill House had been considered dubious or erroneous. Of these, four were also revalued as retypes, one of those four being Flat 25. One of the other six valuations had been for PFL and the other five for three other different lenders. He had made four separate visits in all to Hill House in making these seven valuations. Although his other valuations were not in evidence, it was accepted that each of his Hill House valuations was undertaken in a similar fashion using three comparables taken from Hill House and provided to him on site by the Persimmon sales staff and he confirmed the notified asking price in every case.
19. Mr Johnston was the other AA valuer who featured at the trial and who had also been involved in other Hill House valuations. He gave evidence at both the trial and in the criminal trial and his evidence was carefully given and appeared to be reliable and accurate within the inevitable constraints arising from giving evidence of a few of the many valuations he had carried out in his career. He had practised as a chartered surveyor since 1969 and had been an area surveyor for AA for fifteen years, the last six as a home-based surveyor. He had worked in the Thamesmead area on a frequent basis and ascertained from AA's computer-based records that he had carried out carried out seventy valuations in the preceding six years, averaging about one a month. He had carried out a valuation on three flats at Hill House on 28 June 2006, in each case using three comparables from Hill House supplied by Mr Barrie via Persimmon's sales staff and he had confirmed the asking price in each case.
20. In summary, therefore, AA had valued ten different flats at Hill House, had used three comparables taken from other Hill House Flats in each case and had confirmed the notified asking price in each case. Flat 205 was the only flat that had produced a claim. However, that was not much of an indicator since a claim would only potentially arise, as in the case of Flat 25, once the original borrower had defaulted and the flat had been repossessed and then resold at a loss to the lender.
21. Mr Meaney sent his surveyor and valuer colleagues a memo dated 15 May 2006 with an attachment containing the text of the amendment to the Red Book concerned with the way that valuations of domestic premises for mortgage purposes should be carried out. The memo stated:

"Please find attached a copy of the recent revision to the Red Book regarding incentives on new build sales.

This tells us very little, if anything, that we did not already know or were aware of.

The suggested wording of 5.5.3 is something I know we are using already.

Clearly we must be ever vigilant with new build cases and must be absolutely satisfied that the property is worth the purchase price bearing in mind that the new build property may be worth what it is selling for irrespective of incentives. In the majority of cases, I suspect, this will not be the case."

22. Mr Johnston attended site on 29 June 2006 to carry out his inspection of the three Flats he had been instructed to value and Mr Omotosho visited on 13 July and 3, 4 and 24 August 2006 to carry out his inspection of the seven Flats he inspected and valued. During his visit on 4 August 2006, he inspected and valued four Flats, on the other occasions he inspected and valued one Flat. It followed that the two critical inspections, being Mr Johnston's on 29 June and Mr Omotosho's on 13 July were critical, being the only occasion that Mr Johnston visited and about which he gave detailed evidence, and Mr Omotosho's first visit when he valued Flat 25.
23. Mr Johnston and Mr Omotosho's visits would have been preceded by emailed instructions to AA, which were passed on to each of them, from the packager who was arranging the valuation in question for the proposed lender. In Mr Omotosho's case, Storm Mortgage Packaging Ltd emailed a letter to AA instructing a valuation report on behalf of Southern Pacific Mortgages for Flat 25 with the advice that the purchase price was £274,995. Mr Omotosho then arranged an appointment to visit Hill House, which was still fully occupied by Persimmon undertaking the remaining construction and finishing work to the block. The visit must, from the evidence of Mr Johnston in both this trial and the criminal trial and Ms Caroline Crowley in the criminal trial, have followed a very similar pattern to the visit made by Mr Johnston which he described in detail.
24. Ms Crowley was a property sales negotiator who had been employed by Persimmon for 22 years before being made redundant in September 2008. She had worked for Persimmon within the Pinnacle development at Thamesmead throughout the period that Persimmon was involved in developing the Pinnacle. She worked in a temporary office on site and, during the time that Bridge House was being constructed and marketed in 2004 - 2005, she and her colleague had acted as conventional sales agents. The Bridge House flats were, to all appearances, being marketed by Persimmon who had advertising material including brochures in its name available for distribution and its company logo was prominently displayed on flags and other advertisements on site. Ms Crowley, attired in Persimmon marketing uniform, arranged access and viewings to prospective purchasers and showed visitors around the block. When achieving a sale, she would often take a deposit, would chase up solicitors and arrange for valuation visits. Her role was generally to chase up and progress sales on behalf of Persimmon and she was paid, in addition to her basic salary, a commission for each sale that she assisted in achieving.
25. Bridge House was adjacent to Hill House and was located at the edge of the pinnacle of land on which the overall Persimmon development was constructed and at the far end of the ribbon Thamesmead developments. It was a block of 32 Flats of which 10 were allocated to affordable housing. The evidence suggested that Mr Barrie, through one of his companies called Walden Housing, acquired at a discount many if not all of the 22 Flats that were sold privately and then sold them on to third party buyers. However, Persimmon Homes and Ms Crowley and her sales colleague were actively involved in the marketing of these properties as just described but she received instructions as to how her role had changed as a result of the sub-sales to Walden Housing. On 27 June 2005, she received a memo from her manager Mr Nick Thomas. This read:

"I would like to clarify the position in respect of lender's surveyors visiting site, who are acting on behalf of the third party buyers and their mortgagees, to whom Walden Housing has sold on.

Firstly, it is the surveyor's responsibility to determine the value of a plot and therefore, no doubt, they will carry out their own competitor market research following their visit to our development in order to arrive at a price.

We are not duty bound nor have any obligation to provide a surveyor with details of any transaction between Walden Housing and a third party buyer. Also, the surveyor isn't to be provided with any details of the transaction between Persimmon and Walden Housing, as these are strictly private and confidential and do not relate to the reason he/she is visiting the site.

Assuming Walden Housing provide us with written advice (fax or letter received in the post) of the prices at which they have sold on prior to the surveyor's site visit, then you may advise the surveyor of the plot sale price. Obviously, if Walden Housing do not provide us with any written confirmation of their sales prices, prior to the surveyor's visit, then we should advise the surveyor that we do not have any details of the third party transaction.

In respect of incentives, Walden Housing don't advise us of whether these apply to any specific plot sale. It is the third party buyer's and their financial adviser's responsibility to divulge the details of the incentives, if any apply, during the mortgage application stage, Therefore, should the surveyor ask if you know of any incentives, you may respond by saying that we are not involved with the transaction to the third party and you should refer them back to the third party buyer and their financial adviser.

By adhering to the procedures described above, we are only imparting information to the surveyor which Waldon Housing has previously authorised us to use, which is not misleading the surveyor."

26. The reference to Walden Housing is a reference to Mr Barrie's company involved in the onward sales of flats that, according to the memo, Walden had acquired from Persimmon. There was no evidence of why Persimmon had sold the flats in Bridge House for private sale to Walden Housing rather than marketing them itself directly to the public. It may be that Persimmon had some inkling that the market for new build flats in the Thamesmead river front developments was turning despite the generally buoyant property market at that time. This is hinted at in a memo that Mr Thomas wrote to his colleague in Persimmon dated 24 August 2006 when discussing a dispute that Persimmon had with the freeholder of the Pinnacle site, Tilfen, who was entitled to a small percentage of Persimmon's sale prices and who was challenging the values put forward by Persimmon in 2006 as being unduly low. The memo includes this statement:

"Since the late summer 2005, surveyors haven't been valuing any apartments with river views above £250,000. Their view is that prices have been falling and they are concerned about the numbers of repossessions."

There was no other concrete evidence that surveyors generally were valuing flats with river views in the Persimmon, Barratt, Fairclough or Wilson developments at no more than £250,000 or that there significant numbers of repossessions in the relevant blocks but it is clear that by the time that Hill House was being inspected by valuers in April 2006, at least one firm of surveyors, KFH, the practice of PFL's expert Mr Coling, considered that the quoted values for all such developments, particularly Hill House, were very significantly over-valued.

27. Whatever the realistic market value of the Bridge House Flats, it was clear from the values registered at the land registry that the selling price of at least eighteen of the twenty two privately sold flats at Bridge House compared favourably with the quoted prices for Hill House and other adjacent developments. The eighteen Flats that featured in the evidence, which included a number with the same area and size as Flat 25, had completed on various dates between September and November 2005 and two apparently comparable flats to Flat 25 at Hill House were registered as having sold at a sale price of £279,995 which was close to the sale price for Flat 25.
28. Whilst the Bridge House Flats were being marketed in the summer of 2005, Persimmon was constructing the much larger adjacent Hill House block. A management decision was taken in July 2005 to attempt to market the whole block by selling all the flats to Mr Barrie. In a letter dated 12 July 2005, Mr Thomas, describing himself as the Senior Sales Manager of Persimmon, wrote to Mr Barrie and informed him that Hill House would be completed and ready for marketing and occupation between the late spring and the summer of 2006. The letter informed him that Persimmon intended to give him first refusal when Persimmon placed the flats for sale later in 2005. The letter stated:

"Following the announcement last week that London will be hosting the 2012 Olympics, we have experienced a considerable rise in the number of enquiries for property in Thamesmead, which possibly might result in an upward pressure on prices. Therefore, at this point in time, we are unable to provide an indication of Block P [i.e. Hill House]'s marketing prices.

We wish to continue our excellent working relationship, we will therefore give you first refusal when prices are released. Also, we will consider the possibility of releasing process to you slightly earlier than planned, if the plots you have previously reserved successfully legally complete on the due dates."

29. This letter was followed by an email from Mr Thomas addressed to Mr Barrie dated 28 September 2005. This offered him the first 30 Flats that would be released at Hill House at net prices that were detailed on the attached document. The email also offered the possibility of reserving the other two cores of flats at Hill House following successful exchange of contracts of the earlier core or cores. The email stated that Persimmon could show the reservation/contract prices at higher levels to take account of a maximum 5% discount, thereby netting Persimmon the prices shown in the attached document. A memo sent by Mr Thomas to a Persimmon colleague, Mr Edward Owens Persimmon's managing director, on the previous day, 27 September 2005, stated that the quoted prices given to Mr Barrie had taken account of these factors:

"Having visited both competitors' [Fairclough and Barrett Homes] marketing suites last week, it was difficult to pin down exactly what was being given away in terms of incentives, as the Sales Executives were quite evasive (especially Barratt Homes). Back in May '05 both builders were doing deals at the 15% mark or above, depending on the plot. Fairclough say they are currently only giving 15% on stock units, otherwise it's 100%. Also they admitted to a 30% to 40% fall through rate. For the purposes of settling on prices for the whole of [Hill House] I think we need to base our market research on our competitors giving 15% across the board.

My recommended prices for Mr Barry are considerably in excess of [Bridge House]'s, especially those plots at 710 sq. ft. and 797 sq. ft. The case to be put forward for the differences will be that [Hill House] doesn't have any affordable housing and has greater prestige with security gated parking spaces, 36 of which are undercroft."

30. As is clear from documents obtained from the criminal trial, Mr Barrie negotiated with Persimmon to buy all the flats in Hill House in three stages and that Mr Barrie must have started to market the flats in the early part of 2006. The first evidenced site visit of a valuer was in April 2006. It was at about that time that Ms Crowley, as she stated in her evidence given at the criminal trial, received further written instructions from Mr Thomas to supplement those she had been given in July 2005. These were to the effect that she was only to give out comparables of the price at which other flats in the block had sold for and that these prices would be provided by Mr Barrie for that purpose. Following those instructions, approved comparables that could be provided to valuers were faxed through to her by Mr Barrie from his fax number in threes to coincide with the planned visit of a valuer to value one of the Hill House flats. From then on, her role was to act as little more than someone who checked on the supply of gas and electricity to the flats and who admitted visitors. These were either prospective purchasers who were always brought to site by one of Mr Barrie's brothers by car, or valuers. Ms Crowley met Mr Barrie himself on a few occasions when he also visited the site. Ms Crowley was clear in her evidence what her instructions were and what the approach was that she always took with visiting valuers:

Q. Did you give the impression that this was a Persimmon sale that they were valuing or did you always tell them that it was …

A. Well when a surveyor comes they say what are the incentives, and I say there are no incentives, as far as I know, because it is not our client.

Q. Absolutely. So you made it plain to a valuer that this was a third party sale?

A. Yes.

Q. Is it, the way you have said it, is it a standard question that valuers ask?

A. Yes.

Q. If you had been selling it, did you, as a Persimmon person, offer incentives?

A. Well, sometimes you give carpets, or, in some cases, it might be a 5% deposit paid or a discount.

..

Q. You have told us that you were instructed by head office to only provide comparables on the Barrie Flats, if I can call them that …

A. Yes.

Q. … if you had something in black and white, in writing?

A. Yes.

Q. You have told us, as I understand it, that you received two types of black and white, handwritten?

A. Yes.

Q. Direct from Mr Barrie Enterprises?

A. Yes, [from a fax number part of which was given in evidence]

…

It was a typed list for just two or three at a time, so it would come in intermittently, lots and lots and lots. … [Mr Barrie] was supposed to have bought the blocks in one block at a time, but he wasn't doing that, so if he bought three and they had to be valued, we would get three, if he bought ten, there would be ten, so there were lots coming through.

…

Q. … But, with your experience of this area, and I do not just mean selling Flats, I mean Thamesmead itself, the prices that were being … these Flats were being retailed at was okay, was it not?

A. It was what other properties were being sold at.

Q. You knew that because you were literally on site?

A. Well, we know all the girls in the area.

Q. Is it a sort of like a sales mafia.

A. Yes."

31. Mr Johnston in his evidence confirmed that Ms Crowley had provided him with the comparables that he was to use for his valuations. The ones she had provided him with she appeared to have selected as being the most appropriate, being close to and of the same type as the ones he was to value and she provided him with the completed sales prices. He was totally unaware that these prices had been provided to her by a third party. He also stated that Ms Crowley informed him that all 84 flats had been acquired by a consortium but that he had not enquired who the consortium was or what the pricing of the bulk sale was because it would not have been made available to him and because he didn't think it was relevant since he was on site to value one flat and not the bulk purchase of flats in the block. When giving evidence in the criminal trial he also stated that he did not consider that the bulk sale of the Flats to a consortium had affected the value of the flats he was valuing since they would not have lost their first, new value that normally occurs for a second sale since that drop in value only occurs when the new flat has then been lived in whereas these flats were still unoccupied.
32. Mr Johnston also understood that Ms Crowley was negotiating arrangements herself, he was not aware that she was not actually conducting sales for anybody. Indeed, as he stated in the criminal trial, he understood from what he had heard from Ms Crowley and had observed of Persimmon's presence and advertising on site, that she and Persimmon were selling the flats as the consortium's agents. Indeed, it was clear from the evidence that Ms Crowley to all outwards appearance was conducting the same marketing operation as a Persimmon representative as she had conducted throughout her involvement with the Bridge House flats. Mr Johnston did not ask about incentives since Ms Crowley confirmed what the purchase price was and the price she gave confirmed his instructions. He stated that he had not asked since, from his experience, that information was never made available to valuers.
33. He was also asked what further enquiries he had made. He stated that he had acquired from Mouseprice, an internet site providing details of all sales recorded in the Land Registry, details of recent sales prices on three comparable properties in a closely related development undertaken by another developer in Miller Close and a large number of recorded sales in Bridge House. He attempted to find recent second hand sales on the internet and couldn't find any. He did not consider any prices in Erebus Drive, a riverside development further away from Hill House whose second-hand sales were relied on as comparables by PFL's expert, because he didn't consider that that development was comparable since they were shared-ownership blocks rather than the completely privately owned Hill House block.
34. In the criminal trial, another surveyor, Mr Martin Kennedy, gave evidence. He had practised for over twenty years and was working for chartered surveyors in Nottingham called Shepherds as a home-based valuer. He had undertaken 60 valuations at Hill House and had made several different valuations for a number of the flats he had valued. He confirmed that the sales office was run by two ladies and that he understood that the sales operation was being run by Persimmon. He too obtained all information about comparables from these two sales ladies. He stated in evidence that he had a good knowledge of what Barratt Homes was selling its flats for in nearby developments and that the prices for the flats he valued, being the prices he understood to be the selling prices, were always in line with Barratt Homes' prices.
35. The two valuation reports prepared by Mr Omotosho were almost identical, the only difference being that the retype valuation figure was £5 more at £275,000. This difference appears to have been no more than a minute adjustment in order to round up the asking price and previous valuation figure from £274,995. The first valuation provided his confirmation that the selling price equated to the current market value and both were £274,995. When Mr Omotosho became aware that he was being asked for another valuation for Flat 25 with the same prospective purchaser and asking price but different packagers and lenders, he had sought and obtained permission from the first packager to use his July 2006 valuation as a re-type for the second valuation. A re-type meant that the same valuation would be used since there was no known change of circumstances that had occurred to make it out of date. Using the same valuation, if the original lender or its agent agreed, was accepted AA policy so long as the valuation was not more than three months old and was also accepted practice amongst valuers. It has not been suggested by PFL that it was inappropriate for AA to supply PFL through the second packager a re-type valuation, namely the same valuation that AA had previously prepared for a different packager and this practice was common in the sub-prime market. The re-type valuation stated:

"This information has been transferred from another Lender's Report. We have not reinspected the subject property. The original inspection was carried out on 12^th July 2006."

It follows that AA's valuation is to be tested as at its original date of 12 July 2006 even though it was dated and provided to PFL on 21 August 2006.

36. On Saturday and Sunday 16 and 17 September 2006, AA conducted a desk top audit of all the approximately 250 properties that Mr Omotosho had valued during his brief period of working with AA. These were conducted by Mr Meaney and one of his senior valuers. The audit process had been initiated after Mr Omotosho had informed a colleague a few days earlier that he wanted to increase a rental valuation. The conversation was overheard by another valuer, Mr James Dalrymple, who immediately checked the valuation that Mr Omotosho was referring to. This led him to check a few more of the valuations and that led to the urgent audit of all his valuations. The process was undertaken by comparing each valuation with what appeared to be comparables obtained from a desk top search of the internet for advertised prices in the location of each valuation. For the Hill House valuation, the comparables that were obtained were no longer available but Mr Meaney had, for his evidence, undertaken a similar search as an indicative exercise of what had been done for the audit in mid-September 2006. Mr Meaney's search produced a list of 200 properties within a quarter of a mile of the Hill House post code with their land registry sale price and date of registration. Within that list was at least one apparently similar property, a two-bedroom flat, which had sold for £275,950 on 25 August 2005 which, albeit retrospectively, provided a good comparable for Flat 25 that was sold one year later for £274,995 and which was not located within Hill House.
37. 84 and 86 Miles Drive, which were flats that were located in a street that was close to Hill House, were two flats that Mr Omotosho had valued and which the desk top audit showed up as being two of his suspect valuations. These second-hand sales were two-bedroom flats. Mr Omotosho valued 84 Miles Drive at £245,995. This was a two-bedroom flat and he valued it on 16 August 2006 using 16, 17 and 19 Hill House as comparables. These were also two-bedroom flats that were located on the 1^st Floor at Hill House which sold for £269,998 (Flat 17) and £299,995 (Flats 16 and 19) in July 2006. The audit showed that 84 Miles Drive had originally sold when new for £161,995 in the autumn of 2004 and that its current second-hand indicative value remained the same since the increase in value over the eighteen months since it had first sold was off-set by the loss of the first sale premium. There was no complaint about Mr Omotosho's valuation made to AA but AA accepted that his valuation had been erroneous.
38. Mr Omotosho also valued 86 Miles Drive on 16 August 2006, the valuation being for £199,995 and which the audit found should have been valued at £165,846. This was a one-bedroom flat that had originally sold for £152,995 in the autumn of 2004. It is not known what comparables were used by Mr Omotosho. It seems that the lender, having arranged for an audit valuation, accepted Mr Omotosho's valuation. These two valuations do not directly affect an analysis of Mr Omotosho's valuation of flat 25.

Mr Barrie's Involvement with Hill House

39. Sources of evidence. It is possible to reach firm conclusions as to how Mr Barrie bought and sold the flats in Hill House from documents passing between Persimmon and him which were disclosed to the parties in this case, from the transcript of the evidence of three of the witnesses in the criminal trial whose transcribed evidence was provided, being Mr Johnston, Mr Kennedy and Ms Crowley, the witness statement and exhibits produced by Persimmon's in-house conveyancer for the criminal trial and the judge's summing up in the criminal trial and from Bluestone's conveyancing file for Flat 25 which was disclosed in these proceedings. The seven defendants in the criminal trial were two of Mr Barrie's brothers, the conveyancing solicitor who had acted for Atrex at two different firms in succession in relation to Hill House flats, an accountant who undertook some accountancy work for Mr Barrie, two brokers who packaged some of the applications for mortgages at Hill House for prospective purchasers who Mr Barrie introduced to them and an employee of a third such broker. A solicitor involved in some of the conveyancing on behalf of Atrex, a non-qualified employee of Bluestone involved in some of the conveyancing for some of the purchasers, also gave evidence. Relevant parts of the judge's summary of the evidence of these seven defendants and the Bluestone solicitor witness and the trial transcript of the evidence of Ms Crowley, Mr Johnston and Mr Kennedy provided a detailed insight into Mr Barrie's method of operating his dishonest scheme to buy all the flats at Hill House at a significant personal profit and without the funds to buy them in the first place and then to sell them on to third parties at a significant personal profit to himself.
40. Mr Barrie's purchase of the flats from Persimmon. The purchases of 81 of the flats at Hill House that were bought by Mr Barrie through Atrex from Persimmon all completed in the short period between 5 June 2006 and 13 September 2006. The remaining three flats completed on 25 October 2006, just before Mr Barrie's scheme was exposed and he rapidly left England for Sierra Leone, never to return. The marketing activities described by Ms Crowley for these flats appear to have started in about March 2005 but it is possible that they started a little earlier. Persimmon were clearly desperate to sell the entire block to developers, it would seem because there was an over-supply of new cheap flats in the other Thamesmead ribbon of riverside developments, particularly those being developed by Barratt Homes and Fairclough nearby were already complete and would be providing fierce competition. Persimmon therefore decided on the price they would seek for each flat on the basis of a bulk sale by reference to the average price for flats of equivalent size being sought by those two other developers and then approached Mr Barrie to buy them in bulk at those prices.
41. The initial approach was made in July 2005 but a firm proposal with a suggested price costed as just described was first made to him on 28 September 2005. Mr Barrie then negotiated lower prices for some of the flats and a higher price for a few of the more expensive ones. The agreement that he reached with Persimmon provided for exchange for the first tranche of 30 flats within 28 days of Persimmon's solicitors sending out the draft contract for those flats, for the next tranche of 24 flats for exchange within 56 days of the draft contract being sent out for those flats and for the balance of 30 flats for exchange within 84 days of that draft contract being sent out. Mr Barrie had difficulty in providing the stipulated reservation fee for the first tranche and his cheque bounced. He then appears to have paid that fee in cash in an envelope to Ms Crowley since she stated in her evidence that Mr Barrie, by arrangement with Mr Thomas of Persimmon, came to see her when she was working on a nearby site with the reservation fee for unspecified flats in an envelope. Exchange occurred on 20 March 2006 for the first tranche of flats. Mr Barrie then sought to renegotiate the price of the next tranche of flats and a revised price was agreed on about 8 May 2006. Meanwhile completion on the first tranche was due for 26 May 2006. Completion did not take place and, from that point on, exchange on the remaining flats and completion on all the flats took place on a seemingly random series of ad hoc dates with many of the flats subject to further re-negotiated prices. The documents also show that completion of the sale of the flats to Atrex occurred individually and on the same day as completion of that flat's sub-sale by Atrex to the third party purchaser.
42. On 24 August 2006, Mr Thomas sent his superior in Persimmon Mr Chris Heney an internal memorandum which outlined the attempts that he had made to find an alternative buyer for the 54 Flats that Mr Barrie had been delaying completing on but the two other investors approached were not prepared to pay Mr Barrie's prices. The memo also stated that Barratt Homes was currently marketing all their remaining two-bedroom apartments for £249,950 regardless of floor level and their sales executives were only admitting to a 5% discount but that Persimmon knew that 20% discounts and cash backs after completion had been given. Barratts were also said to have sold a number of private sale apartments for affordable housing, thus indicating that they had found the market difficult and had not achieved the prices that they had originally expected.
43. On the same day, Mr Thomas received an internal memo from two of his sales team to the effect that Mr Barrie had reported that there remained twenty four flats to complete, that lenders had arranged for audit valuations prior to completion on sixteen of those flats and that all of these flats had been down-valued. Selling details for seven of the sixteen flats referred to in his memo were evidenced in the schedule of comparables prepared for the trial. Of these, five were valued at the same price as the selling price provided by Mr Barrie and two were valued at £5,000 and £19,000 less respectively. Thus, Mr Barrie's reported down valuations must have been largely untrue sales puff. The memo also stated that monies for plot 205 (Flat 25) would be sent by Mr Barrie by 1^st September 2006. Mr Barrie secured a yet further reduction on the price of the sixteen flats on 7 September 2006 and completion then took place on all but three of the remaining flats.

Mr Barrie's means of funding Flat purchases from Persimmon.

44. It is clear from the correspondence that in the twelve-month period to September 2006 that Mr Barrie was funding the purchase of individual flats from Persimmon using the mortgage monies obtained for that or previous sales topped up with the sales receipts of other so that he had to, and did, control the flow of the completion of flats he was acquiring from Persimmon to coincide with the receipt of the sale prices of the sub-sales he was arranging for other flats. This gave rise to a complete breakdown of any normal conveyancing for both the sales to him and the sub-sales to third parties.
45. This mode of operation by Mr Barrie was clearly evidenced by the conveyancing file for Flat 25 that had been obtained from Bluestone. The completion of the sale to Mr Barrie of Flat 25 by Persimmon took place simultaneously with completion of the sub-sale to Mr Jikiemi. No deposit was taken from or paid by Mr Jikiemi. PFL paid Bluestone the sum it was advancing on mortgage. This sum was topped up by £41,000 that was paid by Mr Barrie to Bluestone. The payment from Mr Barrie was entered as a payment for costs in Bluestone's client ledger and was then repaid to Mr Barrie, save for a small sum retained as costs by Bluestone, by being added to the purchase price Bluestone paid Atrex's solicitors on behalf of Mr Jikiemi. The full sale price was therefore paid to Atrex's solicitors. They used the monies received by paying to Persimmon a sum instructed by Mr Barrie that was required for the next purchase and the balance was paid to Mr Barrie's order into an account which was not Atrex's account since it was clear from the evidence given at the criminal trial that it never opened a bank account.

Mr Barrie's flat marketing technique.

46. Mr Barrie clearly himself decided what selling price he would sell, or appear to sell, the flat at. It would appear that he used the Bridge House selling prices as comparables to fix the selling price of each flat in Hill House. It was not evidenced how he chose the Bridge House prices but these appeared to be comparable to and in line with prices being registered as the sale prices for flats in adjacent developments in mid-2005. Mr Barrie also directed what comparables would be released to each valuer when they arrived on site, he arranged for Persimmon to act, or to appear to be acting, as the company selling the flats directly to the public and it was his requirement that led Persimmon to instruct its sales team not to reveal the details of any incentive and not to reveal his identity or Atrex's identity as the initial purchaser of any flat to any visitor to the Pinnacle development. Any visit by a prospective purchaser was always accompanied by Mr Barrie or by one of his two brothers who acted as his assistants.
47. The result was that Mr Barrie had carefully arranged that any visiting valuer would obtain the impression when making a valuation visit that the marketing of the flats to the public was being undertaken by Persimmon's sales staff, being the dedicated sales team of two experienced sales negotiators who were Persimmon employees dressed in Persimmon uniforms who were apparently selling the Flats for Persimmon. This set up on site gave each valuer the erroneous impression that Persimmon was marketing the flats on the open market to willing buyers with no incentives and that the selling prices that had been achieved on comparable properties were genuine and not subject to adjustment by way of cash backs or refunds. This impression was reinforced by Ms Crowley and her colleague faithfully implementing their instructions, which had originated from Mr Barrie and had been passed onto them by Mr Thomas, that they were only to provide comparables provided by Mr Barrie, were not to mention anything about incentives since they were to have no knowledge of any incentives and were to act in a way that would best facilitate favourable valuations by lenders' valuers.
48. The only evidenced chink in this misrepresentation of the true nature of these sales occurred when Ms Crowley informed Mr Johnston that Persimmon was part of a consortium. In the criminal trial, repeated in this trial, he stated that he learnt from Ms Crowley that Persimmon was selling as the agent for a consortium but had not considered that that information had revealed any significant alteration of Persimmon's role as the vendor of first-sale new build flats. Mr Kennedy, in his evidence in the criminal trial, stated that during his sixty or more valuation visits to Hill House, during which he must have met and talked to Ms Crowley on many occasions about the flat sales there, he always had the impression that Persimmon was selling the flats directly to the public and was not aware of any sale to, or involvement of, a consortium.

Finding purchasers.

49. It is also highly significant that there was clear evidence at the trial that Atrex never had a bank account so that any payment from purchasers or mortgagees via Atrex's solicitors must have been made by cash or transfer to a third party nominated by Mr Barrie. It became clear how Mr Barrie marketed these flats in evidence given in the criminal trial by Mr Mohammed Barrie who was one of Mr Barrie's two brothers who were defendants in that trial. The judge in his summing up stated this:

"Mr Mohammed Barrie's part in it would be to find the flat buyer. He would go to Friday prayers at the Sierra Leone mosque. He met a number of other community members. Most of them knew about [Mr Barrie]:

'Some came to me, said they were interested in buying rather than renting for investment and I said in turn,

'Well, I will introduce them to [Mr Barrie]'.

But I had nothing to do with these people getting mortgages.''

He also said that sometimes there were middle men involved in bringing a purchaser onto the scene, people that he called "introducers". He was paid commission by his brother Mr Barrie but there was never any clear linking of commission payments to the sale of particular flats, albeit that he had been offered 25% of any profit for each sale he introduced. He also said that he lent Mr Barrie money, including a loan of £250,000. This loan appeared, from the judge's summary of his evidence, to have been made at the time when Mr Barrie was marketing the flats.

Funding the Flat purchasers.

50. It is clear that many of the purchasers of flats at Hill House, who had been found by Mr Barrie and his introducers, were prospective mortgagors who would traditionally have been regarded by conventional building society and bank providers of mortgages as high risk borrowers. They were mortgage applicants who were self-employed without two full trading years of accounts or with accounts showing a relatively low turnover or with an unconventional employment record, relatively low salaries, lower than conventionally acceptable credit risk or other factors that might give rise to difficulties in securing a mortgage from a conventional lender. These clients have acquired the epithet "sub-prime" and PFL was one of the larger lenders to sub-prime applicants. The great advantage to a sub-prime applicant of a sub-prime lender was that they offered a cut-price service so far as valuation and legal fees were concerned, a loan tailored to the needs of the borrower albeit often at higher rates of interest and an ability for self-employed applicants submitting self-certified applications to apply for mortgages.
51. The way in which a mortgage was obtained for Flat 25 was typical for sub-prime lending and for mortgages supplied for Hill House flats. An applicant for a mortgage from PFL first submitted, with or without the assistance of a broker, an initial application by filling in a form that could be filled in and submitted online. If that mortgage application was acceptable in principle, the applicant applied to a valuer on PFL's panel to undertake a valuation, quoting the price that he or she had accepted in principle. The valuer was contracted to provide the valuation to PFL whose client that valuer was. The valuation was submitted to the sub-prime lender or the packager but was not normally copied to the borrower. A full application form was then submitted to PFL, usually via a packager who put the application together, ensured that all the details required were included and that there were no obvious defects or disqualifying information contained in the mortgage application. PFL provided fifteen mortgages for buyers of flats at Hill House and must have received a significant number of further similar applications. It is clear that many of the flats were valued several times before an acceptable buyer completed on that flat. In the case of Flat 25, there were three such applications. Each application was to a different lender, two of the applications were from Mr Jikiemi and one from a prospective lender who did not otherwise feature in the evidence. Since the first of the two valuations initiated by Mr Jikiemi that was undertaken by Mr Brian Baker, who was one of Mr Coling's valuer colleagues at KFH, down valued Flat 25 from £279,995 to £199,995, it is likely that Mr Jikiemi, on Mr Barrie's advice, agreed to a second valuation being obtained for a different sub-prime lender from a different valuer since Flat 25 had been down-valued by slightly over 30% by the first valuer.

Mortgage brokers and solicitors.

52. Mr Barrie was also instrumental in obtaining mortgage brokers and solicitors for the prospective purchasers he or his introducers found. One such mortgage broker was a Mr Fisher, also a defendant at the criminal trial. He explained to the jury how he acted as a broker for clients introduced by Mr Barrie to arrange sub-prime mortgages which he explained were mortgages provided for those who were not good credit risks because, for example, they were self-employed people who had not been in business long enough to obtain a complete set of accounts. He also acted as a packager who worked on behalf of a lender to collate all the information being provided by the prospective borrower through a broker. His mortgage business was the Mortgage Superstore and his packaging business was called TMS. It was clear that he would pass his clients' applications onto his packaging business to process and then to submit to the lender.
53. The prospective clients were also referred to solicitors chosen by Mr Barrie and those solicitors, certainly in the case of Mr Jikiemi, never acted for the client save only in name. Those solicitors acted for Mr Jikiemi in the purchase of Flat 25 as well as for 53 other purchasers and all these completions completed in the critical twelve-week period in July, August and September 2006 when the Hill House completions with sub-buyers took place.
54. Atrex's solicitors throughout this critical period were Cowen Ross until July 2006 and then EMG Law ("EMG"), the common link between the two being a young solicitor called Mr Izuchukwu who Mr Barrie had recruited to undertake the conveyancing work for his purchase of the Hill House flats from Persimmon. The Hill House work for Atrex was introduced to Cowen Ross by Mr Izuchukwu who had first met Mr Barrie when he defended his brother on a driving charge. Mr Barrie suggested that he took on the conveyancing work for the bulk buying of flats at Hill House and Mr Izuchukwu agreed and persuaded the principle of Cowen Ross who he had just started to work for to take on the work. He worked under two partners and he had strict instructions that he was not to pay out client's [i.e. Mr Barrie's] money arising from the proceeds of sale to a third party account for any purchase until Mr Barrie had specified the beneficiary to whom the money was to be paid and he had to identify the particular property out of whose proceeds of sale the payment was being made. Mr Izuchukwu was not a signatory of cheques drawn on the clients' account so that he had to comply with these instructions by arranging for someone who was a signatory to sign the necessary cheque. Mr Izuchukwu decided to leave Cowan Ross in July 2006 and went to work as a founding partner of another firm called EMG Law, taking the Hill House Atrex work with him. The same method of dealing with funds coming into and out of the clients' account was used at EMG as had been used at Cowen Ross. The upshot of that was that Atrex never received any money, only those other accounts nominated by Mr Barrie received payments. As Mr Izuchukwu said in his evidence:

"Nobody pointed out to me that not one penny of this was going to Atrex. The instruction was not to pay out to a third party except on clear written instructions from the client and I didn't think of asking whether there was a single occasion when money actually was paid to Atrex. Now I realise about that, I would have asked but I was acting on clear instructions from senior members of the firm. I thought those instructions were correct. I acted upon them. Now with the benefit of hindsight … I would have asked why this was being done. Somebody at Cowen Ross and EMG must have realised that Atrex was not getting any money. … I agree that large sums were passed on by Cowen Ross and EMG but I thought that it was perfectly in order."

Mr Jikiemi's conveyancing.

55. Flat 25 was the 67^th flat at Hill House to complete in the Block that had a total of 84 flats in it. One other Flat completed on the same day. The conveyancing process had broken down by the time Flat 25 completed and Flat 25 completed as follows. There was a grant by Persimmon to Atrex of a long lease of Flat 25 dated 11 September 2006, a simultaneous exchange of contracts between Atrex and Mr Jikiemi and, finally, the simultaneous execution of an assignment deed of the lease from Persimmon to Mr Jikiemi. There is no evidence that there had been an exchange of contracts between Persimmon and Atrex prior to the grant of the lease and the exchanges between them prior to 11 September 2006 suggested that all the flats in Hill House by that date were exchanging and completing on the same date. No deposit was paid for Flat 25 by Mr Jikiemi and there is no evidence of a deposit being paid by Atrex for its interest in Flat 25 before the grant of the lease.
56. The documents obtained from the criminal trial process included an internal Persimmon document comprising a schedule of the completion dates and completion sums for the sale of all the flats to Atrex. The sum received for Flat 25 was £207,794.00. The price originally proposed by Persimmon in October 2005 had been £231,000 and Mr Barrie had negotiated this down to £207,575 in May 2006.

Atrex's solicitors

57. Atrex's solicitors in September 2006 were EMG and, as before, the conveyancing was undertaken by Mr Izuchukwu. Mr Izuchukwu was a defendant in the criminal trial. In his evidence, as summarised by the judge in his summing up, Mr Izuchukwu had only been admitted to the Roll in 2005 and had only had three working weeks of conveyancing experience whilst working one day a week in another firm. When he took the Hill House work with him to EMG, he persuaded Ms Obee to move with him. She was in charge of accounts and human resources since she was still qualifying as a solicitor.
58. In his evidence, Mr Izuchukwu made a number of remarkable admissions about the conveyancing process from Persimmon to Atrex. The relevant ones were these:

(1) He was aware that Atrex had no bank account.

(2) Whilst dealing with Hill House work at both Cowan Rose and EMG, he was fully aware of Mr Barrie's overriding instructions that neither firm should pay out money to a third party beneficiary unless and until the firm had received his written instructions which specified the beneficiary to whom the monies were to be paid and which property's proceeds of sale were to be used for that payment.

(3) He was unaware that the payment by a solicitor of the proceeds of sale of property held to the order of a client out of the firm's client's account to a third party was prohibited, a particularly glaring breach of the Law Society's conveyancing and money laundering guidelines given that he was aware that Atrex did not have a bank account.

(4) There was a provision in the contract between Atrex and Persimmon that Atrex was to sell on at a profit. He was also aware that a huge profit was in fact being made from the sub-sales taking place.

(5) He knew that the stamp duty that Atrex had to pay as the end buyer's stamp duty was being paid by his firm and that his firm was receiving the purchase price paid by the end buyer with no deduction for the stamp duty.

(6) He knew that there was a mismatch in the dates between the sale from Persimmon to Atrex which ought to have preceded or at least to have been simultaneous with the sale from Atrex to the end buyer. In fact, the proceeds of sale often arrived with his firm from the end buyer's solicitors before Persimmon had sold that particular flat to Atrex. The judge quoted this passage from his evidence in the summing up:

"But Persimmon and Atrex kept changing things. They made it impossible for me to keep track of it. They kept stalling on agreeing the price reductions and the same and there did come a time when I started to become concerned at the way things were being run at EMG Law."

When that happened, Bluestone told EMG Law to hold the money to order because a delay had occurred because Mr Barrie was negotiating a price reduction with Persimmon.

(7) He was unaware of the Law Society Green Card procedures that had to be applied, and which were designed, to eliminate conveyancing fraud and, hence, unaware that the defects in the conveyancing procedure that occurred in the Hill House work were serious failures to follow the Law Society's Green Card procedures.

Mr Jikiemi's solicitors.

59. Mr Jikiemi's solicitors were Bluestone. One of the prosecution's witnesses in the criminal trial was Ms Helen Jakazy who was a legal secretary at Bluestone in 2006 and who worked on the conveyancing that Bluestone did for flat purchasers at Hill House. She admitted, when pressed in cross-examination, that she had been a long-standing friend of Mr Barrie. The only evidence she gave that is relevant to this case was that Bluestone had undertaken the conveyancing for 54 of the 84 Flat purchasers. It is an inevitable inference that the introduction for each of these clients had been instigated by Mr Barrie by his contacting Bluestone and giving the firm the name and contact details of each of the clients he was introducing.
60. The conveyancing at Bluestone was undertaken by one of its two then partners, Mr Kofo Obatalu. It is not known what his relationship with Mr Barrie had been that had led Mr Barrie to select his firm and for him to act for prospective Hill House purchasers. He had learnt, from an early stage of Bluestone's involvement at Hill House, that each purchaser would purchase his or her lease from Atrex rather than from Persimmon. This is clear from a passage in a letter written by solicitors acting for valuers in response to a contribution claim that Bluestone had made having itself been sued by one of its lender clients in relation to alleged negligent conveyancing at Hill House:

"We understand that, on 22 May 2006, solicitors acting for Atrex wrote to you, enclosing a draft contract for your approval, which indicated that Ms Sesay [the prospective purchaser] would actually purchase the property from Atrex, rather than Persimmon. [The lender]'s solicitors, allege in their letter to your client of 12 June 2007 that your client failed to bring this to the attention of [the lender], despite their obligations under the Council of Mortgage Lenders' Rules."

It could have been added that this notification failure had also amounted to serious non-compliance with the Green Card conveyancing principles and the instructions of the lender under which Bluestone had been instructed. It follows that in that respect, if not in the other respects identified by the conveyancing undertaken for Mr Jikiemi, Bluestone had from the outset been in significant breach of its conveyancing obligations owed to both their lender and purchaser clients.

61. Mr Jikiemi received the letter accepting his mortgage application and offering him a 90% mortgage of £247,495 plus fees of £3,465.78, on Thursday 30 August 2006. It is likely that this letter was faxed or emailed to Mr Jikiemi. On Friday 31 August 2006, Bluestone opened a conveyancing file on Mr Jikiemi's purchase of Flat 25 and sent out a number of letters. It would seem that Mr Jikiemi had forwarded PFL's letter to Bluestone by email and that he had had no previous dealings with that firm. Indeed, there is no evidence that he ever met Mr Obatalu or any of his staff and there were no attendance notes of any telephone conversation on the conveyancing file.
62. Bluestone sent out the following letters and enclosures on 31 August and 1 September 2006 and placed them and further material documents on Mr Jikiemi's conveyancing file:

(1) A standard letter, sent by fax and post, introducing themselves as Mr Jikiemi's solicitors to LMS who was processing Mr Jikiemi's loan on behalf of PFL. The letter accepted PFL's offer on his behalf and confirmed that a signed acceptance was in the post.

(2) An acceptance form initialled by Mr Jikiemi and a second acceptance form in different terms signed by Mr Jikiemi dated 31 August 2006.

(3) Three client care and client introduction letters each dated 31 August 2008.

(4) A certificate dated 31 August 2008 stating that an unidentified member of the firm, who had not printed his or her name on the certificate as required by the certificate, had identified the client, retained documents, was able to access those documents and had received training on money laundering.

(5) A completion statement for Flat 25 dated 30 August 2008.

(6) A Certificate of Title filled in and signed by Mr Obatolu for Flat 25 dated 30 August 2010. This CoT was sent to LMS under cover of a letter dated 31 August 2006.

(7) A Bill of Costs for the conveyancing in the sum of £1,864.38 which included Bluestone's charges for £575 plus VAT for the conveyance of Flat 25.

(8) A letter to Mr Jikiemi dated 1 September 2006 informing him that the firm had received his mortgage offer and asking him to come to their offices as soon as possible with his passport, driving licence and three domestic bills.

63. It was obvious that the three client care letters were merely sent out (if they were sent out) and placed on the file for show and were a sham. By way of example, one of the letters set out in great detail the steps that the firm would take to progress and complete the conveyancing on behalf of Mr Jikiemi. These steps included his arranging for a mortgage survey and the following steps that Bluestone would undertake: local authority searches, the preparation of the draft contract, requisitions on title, enquiries and answers before contract, the receipt back of the mortgage offer, agreement on a date for completion, exchange of contracts and completion on a subsequent date. In fact, none of these steps were contemplated and the exchange and completion of Mr Jikiemi's acquisition of the lease from Atrex were all to take place on Monday 4 September 2006, the second working day after Bluestone were first instructed. The date for completion of Flat 25 on behalf of Mr Jikiemi was delayed one day due to LMS getting too short notice of completion.
64. On 5 September 2006, PFL transferred into Bluestone's client's account £247,450, the sum being borrowed by Mr Jikiemi. Bluestone had, of course, undertaken to PFL to complete on Mr Jikiemi's lease forthwith after receipt of the funds from PFL. However, it could not, of course complete since Atrex had not yet acquired title of the underlease being assigned to Mr Jikiemi since the underlease hadn't yet been granted to Atrex by Persimmon. On 6 September 2006, Mr Barrie transferred into Bluestone's clients account from one of his personal accounts, Mr Barrie t/a Onuns Properties, the sum of £41,600.53. It is clear from the Bluestone's client's ledger relating to Flat 25 that this sum was made up of a sum of £27,545 which, with the mortgage advance from PFL, provided the purchase price for Flat 25 of £274,995 set out in the contract and registered in the land registry that was due to Atrex on completion. The balance of Mr Barrie's payment, being a sum of £14,055.53, was used by Bluestone to discharge stamp duty payable on the stamping of the underlease granted to Atrex and on the assignment of that underlease from Atrex to Mr Jikiemi, Bluestone's profit costs invoiced on 30 September 2006 and a cash payment to Mr Jikiemi of £6,000. The entirety of the payment of £41,600.53 was described in the ledger erroneously and with an apparent intention to mislead as "Cash you – on account of costs".
65. Bluestone wrote to Mr Jikiemi on 6 September 2006 confirming that it had forwarded the completion monies to the vendor's solicitors and the firm transferred the sum of £274,995 to EMG Law's account to cover the purchase price due on completion. The grant of the underlease by Persimmon to Atrex then occurred on 11 September 2006 and, simultaneously, exchange of contracts occurred at 2.30 pm on 11 September 2006 and completion of the assignment took place.
66. The only evidence that Mr Jikiemi met Mr Obatolu or any other representative of the firm was a photocopy of his passport on Bluestone's file. However, the certificate of authenticity was signed by Mr Jikiemi's broker and dated 1 September 2006 and it would seem that it was the broker and not Bluestone that undertook the money laundering checks.
67. It is clear that the procedure that was followed for Flat 25 by Bluestone was a procedure evolved for many if not all of the Hill House conveyances undertaken for purchasers of flats at Hill House. In short, Bluestone received notification, apparently from Mr Barrie and not from Mr Jikiemi, of the flat number, purchase price and purchaser's name, probably by fax, and was informed when exchange and completion was to occur. In this case, that notification was sent on the day that Mr Barrie received his mortgage offer and completion was set for the third working day after notification. Furthermore, it is clear that Mr Barrie had informed Bluestone that he would fund all costs and disbursements and any shortfall between the mortgage advance and the purchase price he had himself fixed by transferring the total balancing sum needed from his personal account into Bluestone's client's account. He also instructed Bluestone to transfer the full purchase price to EMG Law. He then gave instructions to EMG Law as to how the purchase price should be disbursed. None was disbursed to Atrex since it had no bank account. Some would have been sent to Persimmon to fund another sub-sale and the balance must have been transferred into an account or accounts held to Mr Barrie's order and in pursuance of his instructions.
68. It is to be noted particularly that although Mr Barrie was paying such matters as stamp duty and legal fees and that these could be described as inducements paid to Mr Jikiemi to persuade him to buy Flat 25, he was also recycling his payment of £27,545 by paying it to Bluestone to enable that firm to pay it to EMG and for EMG to pay it back to him or to Persimmon on his instructions. This payment is, therefore, not a cash back or discount payment since it originated from Mr Barrie and was returned to him via EMG. Had it been a cash back payment, it would have originated from Mr Jikiemi and would have been returned to him after completion. This payment was, in fact, a money laundering payment that was made by Mr Barrie in order to make a sale price of £247,495 appear to have been a sale price of £274,995 before being returned to a different account held by or on behalf of Mr Barrie. Bluestone was, therefore, in error in registering the price as £274,995 and those who were involved in drawing up the contract and the assignment with that larger sum as the contract price were erroneously and dishonestly misrepresenting the contract price. It was clear from documents disclosed to the parties that the procedure that I have described for Flat 25 was followed for other flats. In other words, Mr Barrie was recycling and laundering funds in each conveyance by passing money through Bluestone and EMG back to himself.
69. What is also clear is that Bluestone was in significant breach of its obligations to PFL. It should have notified PFL that there had been back to back transfers from Persimmon to Atrex and then from Atrex to Mr Jikiemi before it received any funds from PFL. This failure to notify PFL amounted to a serious and dishonest breach of PFL's instructions, from the requirements of the applicable CML rules and of the Law Society conduct rules and the Green Card procedure. Moreover, Bluestone should not have sought payment of the sum being advanced from PFL and should not have purported to complete and send to the vendor's solicitors the purchase price prior to completion of the transaction between Persimmon and Atrex and before Atrex had acquired good title. Neither EGM Law nor Bluestone should have embarked on this sham conveyancing transaction which seriously contravened the Green and Blue Card procedures, amounted to money laundering and a deception of PFL, the land registry and all those who subsequently relied on the registered purchase price for Flat 25. It is also possible that it amounted to the deception of Mr Jikiemi.

The Hill House Flat sales – Conclusion.

70. It is clear that Mr Barrie embarked on a scheme whose aim was to acquire all 84 Flats at Hill House at prices which were significantly below the market price and to sell them to purchasers found by himself at significantly above the market price by arranging for those purchasers to apply for sub-prime mortgages with the assistance of valuations provided by valuers who would be misled into providing over-valuations using erroneously over-valued comparable data manufactured by Mr Barrie. The purchasers would not have to fund any part of the transaction cost of acquiring a Hill House flat since they would only provide whatever sum was obtained from the lender with the balance being provided by Mr Barrie.
71. Unfortunately many of the purchasers were unable to afford to keep up the mortgage and, in a falling market, were also left with significant negative equity. The various lenders must have lost significant sums and Mr Barrie appears to have returned to Sierra Leone having benefitted significantly from this dishonesty. On Flat 25, for example, he paid Persimmon £207,794, he funded the transaction costs of £14,055.53 himself and he then ended up with a net profit on that one flat of £274,995 minus £207,794 minus £14,055.53 thereby leaving him with a net profit of £53,154.47.

Valuation - Red book – evidence

Introduction.

72. The court was provided with a significant body of evidence relating to the valuation of Flat 25 and its market value. The evidence was of three kinds:

(1) Factual evidence of the valuations of Flat 25 carried out by Mr Omotosho and Mr Brian Baker of KFH and similar valuations of Flat 28 carried out by Mr Johnston.

(2) Expert evidence with associated comparable evidence provided by Mr Peter Coling of KFH on behalf of PFL and Ms Lorelie Wilson of Allen & Smith on behalf of AA.

(3) Evidence of the sale prices of many other flats in Hill House and new build and second hand sale prices in other adjacent Thamesmead blocks which were not relied on as comparables by the expert valuers but were relied on as additional evidence to support or detract from their respective opinions.

73. The evidence was unusual in two respects. Firstly, the valuer whose valuation was being impugned, Mr Omotosho, did not give evidence. As has already been referred to, Mr Omotosho was discovered by AA to have undertaken a significant number of potentially inaccurate valuations which had led to all his valuations being audited by Mr Meaney and another senior colleague in AA. Mr Omotosho's employment was then terminated and he had returned to Nigeria by the date of the trial. He was, therefore, not called to give evidence about the factual background to his valuation visits to Hill House or as to the factors he took into account in making his valuation. However, Mr Johnston had also undertaken a valuation at Hill House and he was called to give factual evidence of that valuation. The perceived shortcomings in that valuation were relied on as evidence of shortcomings in Mr Omotosho's valuation and his factual evidence of his contact with the Persimmon sales staff was also relied on as evidence of the factual situation on site that Mr Omotosho must have encountered. Thus, Mr Omotosho's valuation was to some extent being considered as one carried out in identical circumstances to Mr Johnston's valuation.
74. The second unusual feature of the evidence concerned Mr Coling's reliance on the comparable evidence of a valuation of one of his colleagues, Mr Brian Baker, that had been carried out at Hill House. Unfortunately, Mr Baker was not called as a factual witness to give evidence of the considerations that had led to his valuation even though it provided crucial comparable evidence. It gave rise to the difficulty that Mr Coling was, to some extent, supporting his opinion evidence by reference to the comparable evidence produced by a professional colleague supported by factual evidence from Mr Coling as to why Mr Baker had made the particular valuation that he had made. There was as a result an unusual elision of factual evidence about another valuer's valuation of Flat 25 and opinion evidence of the value of the same flat based on the use of that other valuation as a comparable valuation and as to the shortcomings of Mr Omotosho's valuation of the same flat.

Summary of factual evidence.

75. I have already set out the factual evidence given by Mr Johnston in both this trial and the criminal trial and by Mr Kennedy and Ms Crowley in the criminal trial and the more general situation relating to the site in July 2006 when Mr Omotosho's critical site visit on 12 July 2006, being the first of his four such visits, had been made. I will summarise my findings:

(1) All valuation visits made by Mr Omotosho, Mr Johnston and Mr Kennedy to Hill House in June, July and August 2006 were very similar and, given the large number of valuation visits made by these three valuers, it is to be inferred that all the other valuation visits made by other valuers followed a similar pattern. It follows that the experiences of the various valuers who visited Hill House, both in what they saw, in the impressions that they obtained and in what they said to and heard from Ms Crowley were very similar.

(2) The construction work was nearing completion and such site presence as there was involved the completion works to the last part of the block to be worked on and snagging and finishing off work in individual flats. Ms Crowley was the only Persimmon representative on site in this period and the only contact that any valuer had whilst on site. Although highly dissatisfied with her reduced role on site, Ms Crowley was a conscientious and loyal employee of Persimmon and she followed the instructions that she had received from her line manager Mr Thomas as to the limited role she should play and information that she should provide to the letter. This is clear from the consistent evidence given by Mr Johnston and Mr Kennedy about their respective visits, in Mr Kennedy's case he had visited Hill House on at least 60 separate occasions.

(3) The clear visual, physical and verbal impression conveyed by Ms Crowley and by Persimmon's continued marketing role on site was that the Hill House flats were being sold by Persimmon. That company was the developer and appeared to be selling the flats directly to the public. If there was another interest or a consortium involved in the marketing of the flats, this did not affect the marketing of the flats or their market value. Mr Kennedy was unaware of any other interest and stated in his evidence in the criminal trial that the seller of the flats was Persimmon and that all the Hill House sales were new build. Mr Johnston understood that the site was owned by a consortium but he reasonably understood that whatever the current situation so far as flat ownership and the selling party was concerned, it was one in which Persimmon was directly and actively involved and the flat that he was valuing was being sold as a first new build sale by Persimmon.

(4) Ms Crowley always stated, as instructed, that Persimmon was not offering any incentives of any kind and that this was stated in a way that reasonably gave the impression that none of the sales at Hill House were subject to incentives.

(5) Ms Crowley always provided three comparable valuations of three other flats at Hill House and she did not provide any other comparables. All of these comparables had been provided to her by Mr Barrie. As instructed, she held these comparables out as being selling prices that had already been achieved. The comparables were what they purported to be since they set out sales prices that had been set by Mr Barrie and which were subsequently recorded in the land registry as the sales prices that had been achieved.

(6) The prices that were provided for Hill House appeared to be comparable to, and in line with, the prices achieved at the adjacent Persimmon block at Bridge House and with the prices achieved by Barratt Homes on their three nearby developments and by Miller Homes at another nearby development called Miller Close.

Expert evidence – General.

76. The valuation evidence was carefully prepared and presented. Both experts were experienced both generally and with the Thamesmead developments and had sufficient knowledge and experience to enable each of them to express authoritative opinions about the value and valuation of Flat 25. Both agreed on the significance of the Red Book amendment that had taken effect on 1 June 2006 and that the advice or guidance provided by that amendment had to be taken into account and given effect to in any valuation exercise undertaken at Hill House on and after that date. There was also significant agreement about many of the features of this valuation. The following matters were, or appeared to be, common ground between them:

(1) This valuation exercise was being undertaken in a very localised and special market since Flat 25 was located in a block forming one of a large number of new relatively low cost blocks of flats being developed in the ribbon riverside development which was physically isolated from the surrounding area. This string of developments had been undertaken over a short space of time and had led to the creation of a saturated market. There was a clear difference between them as to whether, at that time, values had fallen sharply, as Mr Coling contended, or had stabilised or were rising more slowly than elsewhere as Ms Wilson contended.

(2) None of the developments were marketed through estate agents. Instead, all had been or were still being marketed using the developers' on-site marketing teams and in-house marketing resources.

(3) The flats in each block were similar in size and comprised one and two-bedroom flats. There were differences in pricing between flats of similar size due to differing distances from Woolwich, the varying influence of aircraft noise depending on the closeness to the City Airport flight path, the location and floor level of a particular flat within the block, the presence or absence of a river view and the extent, if at all, of the presence of affordable housing within the block in question. These differences would affect the market value of a particular flat but only by relatively small amounts.

(4) There was an inevitable new build premium attaching to the value of any new build flat of up to 15%. No clear view emerged as to what that premium might have been at any of the blocks in which second hand comparables were located.

(5) It was within reasonable margins of error for a particular value to be within 10% above or below the objectively determined market value.

(6) There were no outward and visible signs or specific data that any incentives were being offered to prospective buyers at Hill House or in other adjacent developments.

77. There was a marked disagreement as to when the saturated market had first led to a downward trend in market values. Mr Coling was of the opinion that prices were by late 2005 or early 2006 falling and that there was clear evidence at that time that this micro-market had been saturated. This evidence was principally provided by the significant number of repossessions that were taking place and by Persimmon's evident wish in the autumn of 2005 to sell on the whole Hill House development. Ms Wilson was of the opinion that the micro-market within which Hill House was situated continued to rise more slowly during 2006 and did not stabilise and then fall until after all the Hill House flats had been sold.
78. The differences between the two valuers, which explained their differences as to the market value of Flat 25, market values in the Thamesmead micro-market and as to whether Mr Omotosho's valuation had exceeded the margin of appreciation available to a valuation carried out with reasonable skill and care may be summarised as follows:

(1) Mr Coling considered that there were sufficient warning signs that the Hill House flats had been sold on to another bulk purchaser to put Mr Omotosho on enquiry as to the identity of that purchaser and as to the price or discount that he had bought the flats for. These facts would have shown that the asking price was an over-value. Ms Wilson disagreed and considered that no reduction in the asking price was appropriate so as to reflect the true market value and to eliminate the effects of any incentives that might have inflated the asking price above the market value.

(2) Mr Coling considered that, although there was no evidence of the asking price being subject to incentives which would affect the value and cause it to be revalued, it was well-known amongst valuers that incentives were available elsewhere within the Thamesmead developments. This was demonstrated by Mr Baker's valuation of Flat 25 on 16 June, only three weeks before Mr Omotosho's valuation. Mr Baker used his and KFH's local knowledge of Thamesmead which was to the effect that there was a general prevailing practice of offering inducements to prospective purchasers. In consequence, he had disregarded the asking price and the three comparables provided by Persimmon and all other new build comparables and instead based his valuation on three second hand sale comparables. Ms Wilson disagreed and considered that there was no objective evidence of any incentives being offered on Flat 25 and it was not inappropriate, and certainly not negligent, to continue to pay regard to new build sale prices and sale offers at Hill House.

(3) Mr Coling considered that, in accordance with the new provisions of the Red Book, a reasonable valuation of Flat 25 would have relied entirely on comparable second hand sales. Ms Wilson disagreed because new build prices at Hill House and elsewhere should be taken account and because it was inappropriate to give primacy to second hand sale prices particularly as there were no comparable second hand prices available to a valuer undertaking a valuation in June or July 2006.

Expert evidence – date of valuation.

79. I have already referred to the two valuations undertaken by Mr Osomotosho of Flat 25 and of his seeking and being granted permission by the packaging broker, acting as PFL's agent, to provide a retype valuation. The effect of that was that the valuation undertaken by Mr Osomotosho provided his valuation as at the date of the first valuation, 12 July 2006, even though the retype valuation was dated and provided to PFL on 21 August 2006. Neither expert suggested that what had happened was contrary to good practice nor that the consequence of that procedure, namely that Mr Omotosho's valuation should be tested as at 12 July 2006 and not as at 21 August 2006, should not follow. I therefore propose to consider the valuation by reference to a valuation and valuation date of 12 July 2006.

Expert evidence – Mr Barrie's bulk purchase.

80. Mr Coling was insistent that Mr Omotosho's valuation should have taken account of the bulk sub-sale of all the flats in Hill House to Mr Barrie. His view was that had a valuer known of the sub-sale, and in particular known of the price at which Flat 25 was sold to Mr Barrie, that valuer would have been bound to question the asking price and to fix a much lower value on the flat.
81. It might be thought that this was a formidable argument. It was supported by these considerations. The selling price to Mr Barrie was £207,575, as could be seen from the most recent of the lists of prices passing between Persimmon and Mr Barrie and dated 5 May 2006. This was a reduction or discount of 25% from the price at which Mr Jikiemi was said to have been offered the Flat for. That reduction, even allowing for a discount of about 5% which it was suggested might be a reasonable and likely discount given by a developer to a bulk buyer, could only be explained by the quoted price being excessive as a result of one or more of the following: significant incentives being offered, a sudden decline in the market or market conditions leading to Persimmon wishing to off-load the flats in a hurry or pure over-valuation of the flat.
82. However, the counter-arguments, which are based on the facts of this particular sale, show that this argument cannot be sustained. The relevant facts are these:

(1) Mr Johnston in evidence stated that Ms Crowley informed him during his site visit made on 28 June 2006 that the flats had been acquired by or sold to a consortium. In the criminal trial, he stated that his valuation at Hill House had been made in the knowledge that Persimmon had sold on to what he described as a consortium who owned the flat being valued which was, in effect being re-sold. Mr Kennedy stated in his evidence that Persimmon was the seller of the flats, a view formed from over sixty separate valuations of flats at Hill House. However, both Mr Johnston and Mr Kennedy were clear that whatever this consortium was, its presence did not affect the market value of the flats. These continued to be marketed by Persimmon, or even to be owned by Persimmon, and Persimmon's representatives were providing comparables of other flats in the block and representing those to be either market sales prices or offer prices that had been accepted.

(2) Ms Crowley's evidence and the internal Persimmon memos were both to the effect that she was not to reveal any of the prices at which flats were sold to Mr Barrie and that she was to continue to act as if Persimmon was the seller directly to the public. This demonstrates that Ms Crowley, whatever she said, did not convey the impression that a significant sub-sale had occurred and, in any case, would not have provided any information that would have revealed the sub-sale prices or even the possible level of the discount that they contained.

(3) The statement that a consortium had bought the flats, or the block, was highly ambiguous in any event. Given Persimmon's sales team's continuing presence on site, the obvious deduction a professional valuer experienced in the kind of developer/builder flat sales apparently taking place at Hill House would have made was that Persimmon was a member of the consortium or that it consisted of other companies in the Persimmon Group or that Persimmon remained actively involved in promoting sales direct to the public notwithstanding the change in the legal structure of ownership and tenancies affecting the flats. At all events, this news would not, and would reasonably have not, led to a consideration that there had been an arm's length disposal of Persimmon's interest in the block to an outside buyer of a kind which might affect the market value of the flats.

83. It follows that Mr Johnston cannot be faulted in not making enquiries about the "sale to a consortium", that AA cannot be faulted in not having an internal data base which Mr Omotosho could have consulted and in which such information as a sub-sale of flats in a Thamesmead development could have been recorded, that any enquiries he might have made would not have yielded any further information about the nature of the sale, the identity of the buyer or the price of the sale. In short, a reasonable valuer visiting Hill House was not at fault in not ascertaining the existence of a sub-sale, the identity of the sub-purchaser or the price of the sub-purchase of any of the flats at Hill House in June or July 2006.

Knowledge of inducements, discounts or incentives.

84. The evidence showed quite clearly that inducements, discounts and incentives were not publicised in the Thamesmead developments in general or in relation to the Hill House development in particular. Mr Johnston, Mr Kennedy and Ms Crowley all gave evidence to the effect that there was no way that a valuer could ascertain whether, and if so what, incentives were being offered at Hill House by the seller to the prospective buyers and the other evidence showed that the cash payments made by Mr Barrie to the individual buyers were never revealed to anyone except Bluestone and, presumably, the individual buyer concerned – although even that disclosure might not have been made by Bluestone or Mr Barrie. The evidence also showed that the developers in the adjacent developments to Hill House were equally unforthcoming. Ms Crowley knew that there were small incentives being offered on occasion from her friendly conversations with other sales persons during her lunch break without knowing any of the details but Mr Thomas of Persimmon was unable to find out what incentives, if any, Fairclough and Barrett Homes were offering and had to speculate what levels of discount were available.
85. Mr Coling and his colleagues had no direct knowledge of the existence, nature or extent of inducements being offered on the Thamesmead developments. Mr Coling stated when cross-examined that no-one in his firm had any information about incentives being offered at Hill House but the firm knew about incentives being offered on other comparable developments in Erebus Drive and Tideslea Path nearby. However, this knowledge was still very general and the only specific source of that knowledge had been provided in some feedback from a solicitor in respect of a valuation at Tideslea Park where a deposit had been returned as well as more generalised feedback from solicitors of guaranteed rentals. Mr Coling was constrained to add these comments in his evidence:

"A. We heard about guaranteed rentals and it was difficult in those days because there wasn't a culture of openness, to understand the full extent to which incentives formed part of the sales. But we knew of their availability and, of course, the market became more difficult, then the incentives increased, I think [this] is a way to summarise [it]. But coming to Hill House, no we weren't given any disclosure."

…

"Q. It sounds as though you had some quite definite knowledge about Tideslea Path then, from the solicitors?

A. Well, it was fairly sketchy. I wouldn't say it was comprehensive, but it did make us, and I suspect all valuers, somewhat suspicious of the information they were being given by on-site sales teams."

…

"Q. … I think you said your information comes from the solicitors, it doesn't come from the office sites; yes?

A. More likely to come from solicitors, post the valuation.

Q. That's why you can't really be certain about what other valuers knew because …

A. No."

86. In fairness to Mr Coling and his evidence, his colleague who valued Flat 25 had by intuition rather than by reliance on data hit the bull's eye so far as using professional judgment was concerned. That colleague was, Mr Coling stated, so concerned about the existence of incentives on Thamesmead developments that he was sure, in the way that intelligence gatherers are sure, that Flat 25 was subject to a large discount even though he had no evidence of any such discount on that flat or on the other Hill House flats. As a result, he had valued Flat 25 down from £274,995 to £199,995. This lower valuation was based entirely on three second hand sales values of flats in other developments whose resale values he considered to represent a fair reflection of Flat 25's current new build value without relying on other sources of comparable evidence such as new build values from other developments. In the absence of a wider range of comparables and other data, the proposed value was more of a hunch than a red book valuation. This hunch proved correct in the sense that Flat 25 was clearly over-valued at £274,995 but not because of incentives but because of the dishonest behaviour of Mr Barrie. At the end of the trial, the true market value of Flat 25 in early July 2006 remained a matter of some speculation even after all the comparable and valuation evidence had been considered.
87. When Mr Coling was asked why a reasonably competent valuer should have arrived at a similar conclusion, namely that there was obviously wide-ranging discounting at all Thamesmead developments such that Hill House values should be very heavily discounted, his response was to the effect that he could point to the fact that that's what his firm had successfully done as could be seen with the benefit of hindsight. In a telling concluding passage in his evidence, Mr Coling stated:

"Q. What I would like to suggest to you is that by ignoring the actual sale prices achieved, what you risked doing was in fact making the market rather than following what actually happened?

A. It is a risk, I agree.

Q. And it's a risk you fell foul of?

A. No, we didn't fall foul of it. It sounds arrogant but I think with hindsight we have been proved right to have been cautious in our approach, because all that glittered here was not gold. It was false evidence."

88. In short, although Mr Coling's colleagues, in valuing Hill House Flats, were to be congratulated in achieving satisfactory valuations at Hill House by ignoring the sales prices that were provided on site in reliance on the general feeling that they had that Thamesmead quoted prices were too high, this was a piece of professional intuition which was not evidence-based and for which, given the benefit of hindsight, they could not be faulted. However, another reasonably competent valuer who adopted a conventional Red Book valuation by giving weight to quoted values without reduction for incentives equally could not be faulted. In each case, the decision to ignore or not to ignore the assumed but not established existence of incentives at Flat 25 in July 2006 was a matter of professional judgment that could not be faulted, at least not in a way that amounted to a breach of duty.

Second hand prices.

89. The new paragraph 5.5.5 of the Red Book^[1] states that comparables from sales and re-sales on the development should be considered where available but not in isolation. They should be considered in the context of any incentives that were available that could have influenced the price paid, the market in the area, prices realised for similar new property on other developments, the second-hand market and other information considered relevant by the valuer. This was a clarification and expansion of, but not a significant difference from, the previous paragraph 5.5.3 of the Red Book^[2] but the new paragraph did emphasise, as the old had not, that all available evidence should be weighed including comparables from the second-hand market. This gives rise to two questions, should Mr Omotosho have considered the second-hand market and, if so, what weight and in what respect should second-hand comparables have been used.
90. Both valuers considered that the second-hand market should have been considered by Mr Omotosho given the holistic approach to available evidence that should be adopted in order to identify and adjust for any possible skewing of the suggested market value as a result of incentives. Ms Wilson, however, did not consider that there were any available comparables from the second-hand market that should have been considered, Mr Coling considered that not only were there a significant number of such comparables but that they were the only source of reliable evidence that should have been used.
91. Since Mr Omotosho was not available to identify his thought process in arriving at his comparables, it was not possible to show that he had not even given thought as to whether the second-hand market should be considered. However, his notes made no reference to such comparables and since good practice required him to note down all sources of evidence he had used in his notes, even if some of those matters were not referred to in the valuation report, I consider that his valuation should be approached on the basis that he failed to consider something that he should have considered, namely whether to give weight to second-hand market comparables and, if so, what comparables should be used and what weight should be given to those comparables.

Evidence of the second-hand market available on 12 July 2006.

92. Mr Coling was the principal source of second-hand market comparables that were in evidence and Ms Wilson provided one additional comparable. There was evidence as to the sources that could be resorted to in order to ascertain what second-hand comparables, if any, were available. Ultimately, it became clear that there were three sources of such evidence, at least in relation to the Thamesmead developments. The first were those that were known to the valuer or were to be found in a data base kept by the valuer or the valuer's practice. The second were those obtained from local estate agents. The third was the internet and, more specifically, internet sites providing details of flat sales, namely Mouseprice, Nethouseprice, Rightmove and Rightmove Plus (a subscription service not available to the public) and from general searches on the internet.
93. There was a general point of difference that arose between the experts with regard to the use of estate agents. Ms Wilson did not consider that such a source would have been likely to yield any suitable comparables, even if these existed. This was because estate agents, particularly in areas such as Thamesmead where they had been frozen out of the new build market, were chary of releasing details of second-hand sales in those developments to valuers involved in new build valuations. This concern was, to some extent borne out by Mr Coling's evidence. He explained that KFH invariably approached the same estate agent, Harrison Ingram for second hand Thamesmead sales data and that his comparables were obtained from his own knowledge and from KFH's records which, in turn, had relied exclusively on Harrison Ingram as their single source. It was clear that KFH had established a good professional relationship over time with this estate agent which was personal to KFH and there was no evidence that Harrison Ingram would have been prepared to gratuitously provide data from its records for other valuers. Mr Coling stated this:

"Q. ... I note that all the references you put to having obtained information from estate agents, it's all Harrison Ingram estate agents?

A. Yes, I think the reason for that is that they are the premier local estate agents. They have an office in the shopping centre, just up the road, and they tend to have the biggest share of the resale market.

Q. Is it the case that you only speak to them or is it the case that-

A. No, but at the time, they were the people who seemed to have the most sales going on. When we undertake research, given that the fees we receive are relatively modest, we are not expected to undertake exhaustive enquiries of local agents, and Harrison Ingram we have always found to be open, honest and cooperative with the information, unlike some who are less so. So we naturally gravitate to them for data in this part of the world."

94. Mr Coling also accepted that although the valuer had to follow the trail if dissatisfied with the evidence that had been obtained at the first attempt, the modest fee available for a valuation of the kind being considered in this case was inevitably limited so that the amount of time available for research for a particular valuation was relatively limited. Mr Johnston stated that he had considered possible second hand comparables by making a search of the Mouseprice site but he found that there were no suitable second-hand comparables shown on Mouseprice and was, therefore, unable to consider any for the valuations he undertook at Hill House.

Comparables relied on by Mr Coling.

95. Mr Coling relied on 8 second hand comparables at a block called Granery Mansions, 4 at a block called Tideslea Path and one at Strand Close. All these flats were resold or revalued between December 2005 and November 2006. All showed a substantial drop in value since their original sale in 2004, averaging out at around 30%. There was considerable cross-examination and disagreement between the experts as to whether these properties were or were not comparable and as to whether the price drops were indications of over-valuation of new build Hill House prices which were fixed in 2006. Of course, some second-hand prices from Hill House would have been more indicative, had these been available but the block was too new to have yielded any. Ms Wilson's principle points for the Granary Mansions Flats were that the details, as with the other second-hand comparables, were all obtained from Harrison Ingram and few of these details were to be found on the internet sites, many of them appeared to have been resales at auctions which suggested repossession sales and that such sales were not usually considered to be appropriate for use as comparables, some of the sales post-dated 12 July 2006 and Granary Mansions was not an appropriate comparable to Hill House given its distance from Hill House, its suggested high proportion of affordable homes and its not being affected by the City Airport flight path. Similar points were made about the Tideslea Path Flats.

Second-hand comparables – conclusion.

96. The debate over the appropriateness or otherwise of the Granary Mansions Flats relied on as comparables by Mr Coling had some of the hallmarks of the metaphysical debates of mediaeval scholastics. If one stood back from the detail and merely sought to identify whether there was any general trend indicated by these comparables, it was possible to discern two tendencies which had only just begun to emerge by mid-July 2006. The first was that there was a marked similarity of the value of all the flats when sold as new in 2004, if the Hill House Flat values were adjusted back to 2004 prices, and a marked dissimilarity between the second hand value of the resold flats and the new value of the Hill House flats in 2006 even after the second hand values were adjusted to add a new-sale premium. The second trend that was indicated was that the flats appeared to have come up for sale due to repossession. Both tendencies suggested that the Hill House flats were over-valued and their sale value merited further investigation.

New build comparables.

97. Ms Wilson demonstrated by taking as comparables a large number of Hill House, Bridge House and Tideslea Park Flats. All of which were the sale prices of new build two-bedroom flats, and all were selling at comparable prices to Flat 25. Mr Coling rejected all of these flats as comparables for the same reason that he had rejected all new build comparables from any of the Thamesmead developments namely that all were suspect as having been heavily influenced by financial incentives and none of them stood when compared with the evidence of values and repossessions provided by the Thamesmead second hand market.

Valuation - discussion and conclusion.

98. Since Mr Omotosho was concerned with a mortgage valuation for a lender, his valuation was required to be undertaken in compliance with two inter-related Practice Standards concerned with such valuations that are set out in the Red Book, PS3.2 entitled Market Value contained within Chapter 3 entitled Valuation Bases and Applications and UK Appendix 3.2 entitled RICS Mortgage Valuation Specification^[3]. Although there was much reference at the trial to paragraph 5.5 of Appendix 3.2 concerned with the treatment of incentives, this part of the relevant provisions had to be applied within the overall framework of a mortgage valuation provided for by the totality of these Red Book provisions. The overall objective of such a valuation was to identify a market value of the flat being valued at the date of the valuation and 'market value' was defined and explained with some care. Amongst other components of the definition were that it was the most probable price reasonably obtainable in the market as being the best price reasonably obtainable by the seller and the most advantageous price reasonably obtainable by the buyer. This estimate specifically excluded an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale, or any element of Special Value.
99. The other ingredients of market value also had to be taken into account, particularly that both buyer and seller had to be willing, and that the transaction being valued had been carried out in the market and had been conducted at arm's length after proper marketing. The valuation had to be evidence-based and all the available evidence should be considered. The skill of the valuer was therefore to know the market, to know what sources of evidence of relevant market conditions were available and how to ascertain that data insofar as it was reasonably available, to assemble such available evidence and then to evaluate it using his or her knowledge, judgment, "feeling" and professional sixth sense. Within the body of evidence that should be consulted, there was an obvious hierarchy, particularly for new build valuations of flats within a large new development. Sale prices were of greater weight than asking prices or advertised selling prices, other comparable prices within the same part of the development, within the development as a whole, within adjacent comparable developments or further afield were the first to be considered but the second hand market and other information should also be considered. The Red Book does not give guidance on how to select a property as a comparable or as to how decide what weight should be given to the value of such a property. Those are matters that also fall within the skill and judgment of the valuer. However, it is self-evident that as much detail as possible is required about the potentially comparable transaction and that the larger the number of comparables that may be consulted, the better.
100. It is in the context of such a valuation that the important consideration of incentives must be placed. Incentives were matters that had to be considered in a mortgage valuation in 2006 because of their prevalence in new build developments, particularly as the marketing of such developments was often exclusively within the hands of the developer. However, the incentives that the Red Book refers to are ones that could lawfully be offered.
101. This gave rise to three difficulties. Firstly, obtaining knowledge of the incentive was often difficult if not impossible as part of the inevitably short trail-chasing that a particular valuer could undertake with a particular valuation. Secondly, the valuer had to decide, often a matter of some difficulty, whether the incentive was so closely linked to the quoted price as to amount, in reality, to a value reduction and, if so, what the size of the reduction should be. Thirdly, the valuer had to take account of whether a quoted value was a selling price or the price at which the property was sold and then registered and on which stamp duty was paid. Conveyancers are required by law to register the selling price so that a price which is registered which both parties do not consider or intend to be the actual price is one that is registered unlawfully.
102. This distinction is of some importance. Parties, for example, who agree that the selling price will be one figure but who also agree to register a different figure for an ulterior purpose are breaking the law. It follows that a fine line may have to be drawn between a cash back or return of part of the purchase price, which is lawful, from what Mr Barrie appears to have done. In his case, he paid to himself through a circular series of payments in the conveyancing transactions part of the asking price which the purchaser never intended to pay and which the parties never intended should be paid. This was not a discount or cash back but a device to artificially ramp up the apparent sale price so as to mislead third parties as to the state of the market in flats in the Hill House development. A discount or cash back is lawful although it might well distort the apparent market value of the property, the artificial misuse of the land registration system is both unlawful and, if done dishonestly, a criminal offence.
103. A final relevant consideration is that the valuer is often working under considerable constraints so far as obtaining relevant data is concerned. When the Red Book replacement paragraph 5.5 was introduced with effect from 1 June 2006, it was clearly envisaged that a carefully conducted valuation by an appropriately knowledgeable valuer would identify the existence, nature and extent of any incentive. PS1.2, being one of the Red Book Standards in Chapter 1, Qualifications and conflicts of interest, required the valuer to have sufficient local, national and international knowledge of the particular market and the skills and understanding necessary to undertake the valuation competently. It was not suggested that Mr Omotosho or Mr Johnston or AA lacked sufficient knowledge of the local and particular market relevant to Hill House and they were required to exercise that knowledge in a tight time frame and with relatively low use of resources reflected in a lump sum fee of £265 and a requirement that the report had to be provided within five days of instruction.
104. It is small wonder therefore that the CML introduced a rule in September 2008 that required vendors to sign a form which had to be disclosed to valuers and mortgage lenders, that disclosed the details of all discounts and incentives that the vendor had offered. This reflected the near-impossible task that valuers had experienced in obtaining details of incentives and in giving effect to the new paragraph 5.5 concerned with incentives. In the case of Hill House, no valuer, including Mr Coling and other KFH valuers, had been able to obtain any details of the lawful and unlawful incentives being offered by Mr Barrie from him or from Persimmon and KFH had never ascertained, save in one case in which a solicitor had reported after the fact that a deposit had been returned, what incentives were being offered or provided on any Thamesmead development.
105. A further difficulty for Hill House valuers was in obtaining details of comparables. All the sales of new flats were handled by the developer so that local estate agents only had details of second hand sales. However, as Mr Coling explained in evidence, their experience was that only one of these could be relied on to provide any information, let alone reliable and honest information and that estate agent had supplied it with all its data about the Thamesmead second hand market. KFH was only able to rely on that estate agent as a result of its good commercial relationship with that estate agency and it is clear that other valuers, even if they had attempted to obtain such details from local estate agents, would have been unlikely to have obtained any reliable and relevant details of comparable second hand sales.

Mr Omotosho's valuation.

106. Mr Omotosho did not, so far as is known, consider whether the sale price for Flat 25 was adversely affected by incentives, did not seek out any new build comparables in adjacent blocks, did not seek out comparables from the second hand market from estate agents or from the internet and did not make any other enquiries about the selling conditions in Thamesmead developments in any of the valuations he undertook at Hill House. This finding results from a total absence of evidence of any of these steps being taken and from the evidence of his poor valuation skills. However, the evidence shows that had these steps been taken, they would not have provided Mr Omotosho with any further evidence that his valuation was too high. This was because:

(1) There was no way that he could have ascertained that either the purchase of Flat 25 or the purchaser were the subject of any inducements, cash-backs or other inducements.

(2) There was no reason why he should have asked for details about, or know about, a sub-sale of the flats in the block to a sub-buyer and he would not have obtained any details about the sub-sale had he asked for them.

(3) The available comparable sales prices of flats in adjacent newly built blocks would have shown that the asking price of Flat 25 appeared to be the market value of that flat.

(4) Had he searched the internet or appropriate internet sites for comparable second hand sales, he would have been unlikely to find any.

(5) Had he asked local estate agents for comparable second hand sales he would have been unlikely to be provided with any.

(6) He could not reasonably be faulted for not being aware of inducements in other blocks or of a general unsubstantiated opinion that inducements were being offered. He also would not have had any reasonable basis for ascertaining how to reflect any such opinions in a reduction in the asking price for Flat 25 in order to reflect its market value.

(7) He could not, however diligent he was, have assembled in July 2006 sufficient evidence of repossessions and second hand sales at Granary Mansions, Tideslea Path, Strand Close or any other Thamesmead development to have enabled him to identify the downward trend of values of new build properties. That trend, when looked at with hindsight at the trial with the benefit of a large number of second hand comparables, was one which remained debateable and subject to interpretation but it would not even have been evident to a valuer chasing the trail as part of a live 2006 valuation exercise.

107. However, Mr Omotosho did lose the chance of obtaining sufficient data to enable him to query or consider reducing the value of Flat 25 using professional judgment and a holistic approach to the entirety of the available and unavailable evidence. There was, however, no readily available way of ascertaining the market value of Flat 25 in July 2006. Mr Coling's method of relying exclusively on the second hand sale prices of three comparables was not supported by any new comparables and, in accordance with the valuation principles set out in paragraph 5.5, these prices cannot stand on their own as evidence of Flat 25's market value. The only satisfactory way of providing a realistic market value in July 2006 on the evidence adduced at the trial would have been to deduct the payment made by Mr Barrie to Bluestone from the sale price. Most of that payment does not represent a cash back payment or a discount but is instead a dishonest money laundering payment. Nonetheless the entire payment inflated the price of Flat 25 and its market value could not have exceeded £235,000, being the purchase price less Mr Barrie's payment of approximately £40,000. To ascertain the market value of Flat 25 using the definition of market value that is provided in the Red Book^[4] would have involved a detailed inquiry of a kind that was not within the scope of AA's instructions and which had not been carried out by either of the expert valuers. It is not necessary for me to reach a concluded view on this question since I am dismissing the claim in its entirety. I do not therefore propose to make a full finding as to the market value of Flat 25 in July 2006 or to go any further than I have in this paragraph.
108. Thus, Mr Omotosho's undertook a valuation without reasonable skill and care but the resulting valuation would, on the balance of probabilities, have been the same had he exercised appropriate skill and care.

Scope of Duty and Causation.

109. The entire loss that PFL suffered arose from and was caused by a combination of the following factors:

(1) The dishonest ways that Mr Barrie marketed and sold the flats as set out in this judgment.

(2) The collusive manner in which Bluestone conducted the conveyancing. The firm was instructed to act jointly for the purchaser and PFL but, in reality, was acting solely as Mr Barrie's agent and in collusion with him. Their particular shortcomings were to fail to disclose to PFL the existence of the back to back sales, the failure to undertake any conveyancing on PFL's behalf, the failure to inform PFL that Mr Barrie was funding £41,000 of the purchase price in an arrangement that would return to him at least £27,500 after completion, notifying PFL that completion was to take place and receiving the loan before the vendor had any title and then forwarding the completion monies to the vendor before completion had occurred. The conveyancing was therefore undertaken in breach of Bluestone's instructions from PFL, the Law Society's green card conveyancing procedure, the blue card and money laundering procedures and the CML's rules.

(3) The apparent involvement of Persimmon in the marketing of the flats at Hill House whereby that company continued to appear to be the vendor and to be actively marketing the flats when it was not and in failing, in agreement with Mr Barrie, to provide any information to valuers save for the comparables that he selected and provided.

Discussion and conclusion.

110. The scope of Mr Omotosho's retainer was to provide a mortgage valuation in accordance with the Red Book requirements. He was not retained to provide a valuation of a flat which was not being sold on the open market and in which the most relevant comparables had been dishonestly inflated. Equally, he was not accepting liability for a negligently provided valuation when the loss being claimed for that valuation had been caused by the vendor's and PFL's solicitors' dishonesty. Finally, and conclusively, the entire loss incurred by PFL was overwhelmingly caused by those parties and was not caused by any negligence of the valuer.

Contributory negligence.

111. AA raised as an issue that any recoverable loss that it had caused had been contributed to by PFL's contributory negligence in approving the borrower's self-certified loan application by not applying its lending criteria and in not identifying the borrower, as it should have done, as a poor lending risk that would be likely to default on the mortgage. Each party called expert underwriting evidence and AA raised a long series of alleged deficiencies in PFL's underwriting based on the report of its expert each of which was challenged by PFL's expert underwriter. Neither the points taken individually, nor all of them taken in the round, demonstrated that the sub-prime underwriting was undertaken without reasonable skill and care. Since, in any event, AA had not been negligent and had not caused any of PFL's loss, it is not necessary to further lengthen this judgment with detailed findings confirming this general finding dismissing the allegations of contributory negligence.

Contribution proceedings.

112. These had been properly served on Bluestone and that firm had been notified of the date of the trial. However, since its insurers had repudiated, no-one attended the trial on its behalf. I directed that the contribution proceedings should continue. In the light of my findings, AA is entitled to judgment against Bluestone in its contribution proceedings. This will enable it to recover any loss by way of unrecovered costs resulting from its successful defence of this claim and of having to pursue Bluestone to trial.

Overall Conclusion

113. PFL's claim fails and is dismissed. AA is entitled to judgment against Bluestone in the contribution proceedings.

HH Judge Anthony Thornton QC

Appendix – Red Book Extracts

Chapter 3 - Valuation bases and applications

PS3.2 Market Value

Valuations based on Market Value (MV) shall adopt the definition, and the conceptual framework, settled by the International Valuation Standards Committee.

Definition

'The estimated amount for which a property should exchange on the date of the valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.'

Conceptual Framework, as published in International Valuation Standard 1

3.2 The term property is used because the focus of these Standards is the valuation of property. Because these Standards encompass financial reporting, the term Asset may be substituted for general application of the definition. Each element of the definition has its own conceptual framework

3.2.1 'The estimated amount….'

Refers to a price expressed in terms of money (normally in the local currency) payable for the property in an arms-length market transaction.

Market Value is measured as the most probable price reasonably obtainable in the market at the date of valuation in keeping with the Market Value definition. It is the best price reasonably obtainable by the seller and the most advantageous price reasonably obtainable by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale, or any element of Special Value.

3.2.2 '… a property should exchange …'

Refers to the fact that the value of a property is an estimated amount rather than a predetermined or actual sale price. It is the price at which the market expects a transaction that meets all other elements of the Market Value definition should be completed on the date of valuation.

3.2.3 '… on the date of valuation…'

Requires that the estimated Market Value is time specific as of a given date. Because markets and market conditions may change, the estimated value may be incorrect or inappropriate at another time. The valuation amount will reflect the actual market state and circumstances as of the effective valuation date, not as of either a past or future date. The definition also assumes simultaneous exchange and completion of the contract for sale without any variation in price that might otherwise be made.

3.2.4 '… between a ·willing buyer …'

Refers to one who is motivated, but not compelled to buy. This buyer: is neither overeager nor determined to buy at any price, This buyer is also one who purchases in accordance with the realities of the current market and with current market expectations, rather than on an imaginary or hypothetical market which cannot be demonstrated or anticipated to exist. The assumed buyer would not pay a higher price than the market requires. The present property owner is included among those who constitute 'the market'. A valuer must not make unrealistic assumptions about market conditions or assume a level of Market Value above that which is reasonably obtainable.

3.2.5 '….. a willing seller…'

Is neither an over-eager nor a forced seller prepared: to sell at any price, nor one prepared to hold out for a price not considered reasonable in the current market. The willing seller is motivated to sell the property at... market terms for the best price attainable in the (open) market after proper marketing, whatever that price may be. The factual circumstances of the actual property owner are not; a part of this consideration because the 'willing seller' is a hypothetical owners

3.2.6 ' ... in an arm's-length transaction ...'

Is one between parties who do not have ;it particular or special relationship (for example. parent and subsidiary companies or landlord and tenant) which may make the price level uncharacteristic of the market or inflated because of an element of Special Value (defined in IVSC Standard 2, para. 3.11). The Market Value transaction is presumed to be between unrelated parties each acting independently.

3.2.7 '… after proper marketing ...'

Means that the property would be exposed to the market in the most appropriate manner to effect its disposal at the best price reasonably obtainable in accordance with the Market Value definition. The length of exposure time may vary with the market conditions, but must be sufficient to allow the property to be brought to the attention of an adequate number of potential purchasers. The exposure period occurs prior to the valuation date,

3.2.8 ' ... wherein the parties had each acted knowledgeably, prudently …'

Presumes that both the willing buyer and the willing seller are reasonably informed about the nature and characteristics of the property, its actual and potential uses and the state of the market as of the date of valuation. Each is further presumed to act for self-interest with that knowledge and prudently to seek the best price for their respective positions in the transaction. Prudence is assessed by referring to the state of the market at the date of valuation, not with benefit of hindsight at some later date. It is not necessarily imprudent for a seller to sell property in a market with falling prices at a price which is lower than previous market levels, In such cases, as is true for other purchase and sale situations in markets ·with changing prices, the prudent buyer or seller will act in accordance with the best market information available at the time.

3.2.9 '. .. and without compulsion.'

Establishes that each party is motivated to undertake the transaction. but neither is forced or unduly coerced to complete it,

3.3 Market Value is understood as the value of a property estimated without regard to costs of sale or purchase, and without offset for any associated taxes.

Commentary

1. The basis of Market Value is an internationally recognized definition. It represents the figure that would appear in a hypothetical contract of sale at the valuation date. Valuers need to ensure that in all cases the Basis of Valuation is set out dearly in both the instructions and the Report.

2. In order to apply Market Value to certain property types it may be necessary to add a statement clarifying both what is being valued and any Assumptions that are inherent in the valuation. Examples include property that is normally sold having regard to its trading potential, and Plant & Machinery, both of which are discussed below. The circumstances of the valuation may also require Special Assumptions to be made (see Appendix 2.3). However, it should be recognized that, although additional words maybe required to clarify the application of Market Value, this is not a different basis, but rather the same core basis with additional Assumptions.

3. Valuations will be required in circumstances where the definition of Market Value, as explained by the conceptual framework, does not apply. Where this is the case, it may be appropriate to add a statement qualifying the basis-for example, if there is an actual or assumed constraint that would restrict proper marketing (see PS 2.4). However, if the situation is such that the interest being valued is incapable of being disposed of in the market under any circumstances. Market Value may be an inappropriate-basis to use. …

UK Appendix 3.2

RICS mortgage valuation specification

5. The valuation

5.1 The Basis of Valuation

5.1.1 The Basis of Valuation is Market Value. This is defined as:

'The estimated amount for which a property should exchange, on the date of valuation, between a willing buyer, and a willing seller, in an arms-length transaction, after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.'

5.1.2 This definition should be applied accordance with the conceptual framework set out in the RICS Appraisal and Valuation Standards, PS3.2.

The treatment of incentives on new build residential property

Revised Red Book text

Effective From 1 June 2006

The whole of paragraph 5 is replaced, and paragraph 9.2 amended to include the following:

5.5 Treatment of incentives

5.5.1 The valuation of new build property should be approached in the same way as any other valuation. The notified sale price (or estimated value in the case of a re-mortgage) must be treated with caution. The lender may advise, or the valuer may become aware during the normal on-site enquiries, that some form of incentive is available to the prospective purchaser. Regard must be given to the effect of any incentives in the context of the overall consideration for the property. Valuers should remember that valuations for secured lending on residential property are provided to lenders to assist in the assessment of loans secured on property and that incentives may not be repeated in a resale Therefore, care must be given to the assessment of the weight that should be attached to a notified sale price as evidence of Market Value. The valuer should also have regard to any lender specific instructions that may vary from the approach outlined in the following paragraphs.

5.5.2 Developers may offer incentives on new properties, and occasionally on non new build property, in order to achieve quicker sales and give the appearance of high sale prices. Incentives may take many forms and may include: payment of legal and surveying fees; reimbursement of the deposit on signing contracts; guaranteed rents for a number of years; discounts/reductions if more than one property is acquired; purchase of the buyer's existing property; payment of the mortgage for a specified period; high level material gifts, for example, a new car; cash backs after completion, furnishings and electrical goods and so on. This list is not exhaustive.

5.5.3 The valuer will need to distinguish between incentives which are property related, but have little impact on value, and incentives which have a greater impact, to the extent that the price would be significantly lower if they were not available.

5.5.4 The valuer will have regard to incentives in arriving at the valuation on the defined basis, but will not reflect them purely as an arithmetical exercise starting with the notified sale price or a selected comparable. The valuer must exercise professional judgement in the light of all the information and evidence that is available.

5.5.5 Comparables may be available from sales and re-sales on the development, but these may not be reliable if considered in isolation. They should be considered in the context of any incentives which were available and could have influenced the price paid, the market in the area, prices realised for similar new property on other developments, the second-hand market and other information considered relevant by the valuer. Adjustments will be necessary to reflect any improvements in the design or layout of the subject property. the ease of maintenance during the early years and any other factors which may influence the decisions of purchasers.

5.5.6 Valuers should have regard to the nature of transactions on the site that may include a small number of bulk purchases and/or a larger number of individual transactions and they should weigh the comparable evidence accordingly. Valuers should also have regard to the nature of any 'discounting' on a development and assure themselves that the discounted price has not in fact become the norm.

5.5.7 Where reports may be seen and relied upon by prospective purchasers, it is recommended that the valuer considers including a statement to the following effect:

'It should be appreciated that the valuation provided is for the property as new. It may not be possible to obtain the valuation figure if the property is resold as second-hand, especially if comparable new property is on offer at the same time. '

Paragraph replaced paragraph 5.5 that had formed part of UK Appendix 3.2 prior to 1 June 2006

5.5 Treatment of incentives, fittings and estimated values in relation to new build property, second-hand property and re-mortgages

5.5.1 The valuation of new build property should be approached in the same way as any other valuation, and undue reliance should not be placed on the notified sale price (or estimated value, in the case of re-mortgage). If valuers are aware of some payment or other personal incentive is available to the prospective purchaser, possibly within a prescribed period, they should consider whether this has had an effect on the weight that should be attached to the notified sale price as evidence of Market Value. Evidence of other transactions which have taken place, with any incentives that are generally available, will provide a clearer reflection of the housing market.

5.5.2 Developers sometimes offer incentives on new properties in order to achieve quicker sales. This can also happen in non-new build situations. The valuer will have regard to incentives in arriving at the valuation on the defined basis but will not reflect them purely as an arithmetical exercise starting with the sale price or a selected comparable. The valuer will use professional judgment, in the light of all the information and evidence available.

5.5.3 Comparables for valuations on new properties can be drawn from both sales and re-sales on the development. If there has recently been a reasonable number of sales of similar new properties adjacent to the property being valued, this evidence is likely to be of greatest importance. If, however, the valuer is not satisfied that this situation exists, greater emphasis can be placed on prices realized recently for new property on comparable new developments, and from within the second-hand market. Adjustments will be necessary to reflect any improvements in the design or layout of the subject property, the ease of maintenance during the early years and other factors which may influence the decision of purchasers.

Note 1    Set out in full in the Appendix to this judgment.    [Back]

Note 2    Also set out in full in the Appendix to this judgment.    [Back]

Note 3    The relevant extracts of which are set out in the Appendix.    [Back]

Note 4    See the definition and the commentary on its constituent parts that is set out in the Appendix.    [Back]