Damages arising from negligent valuation of property – Interest on damages, costs orders and repayable damages and costs
In 1996 the House of Lords decided an issue arose concerning the measure of damages payable to lenders by valuers who negligently overvalued property provided as security for a mortgage advance: [1996] 2 EGLR 93. The defendant valuer, E, was ordered by the judge to pay damages for negligent valuation. His appeal against that decision was dismissed by the Court of Appeal: [1995] 1 EGLR 129. He appealed to the House of Lords who allowed the appeal, assessed the measure of damages payable as being limited to the amount of the overvaluation, namely £1.4m, and adjourned the question of what interest should be awarded upon the damages. Section 35A of the Supreme Court Act 1981 empowered the court to award simple interest on “all or any part of . . . damages in respect of which judgment is given . . . for all or any part of the period between the date when the cause of action arose and . . . the date of the judgment”. That raised the question of the date when the plaintiff bank’s cause of action arose. The bank claimed that its cause of action arose in March 1990, at the date of the loan transaction, when it suffered an immediate loss. The defendant valuers contended that the cause of action did not arise until the property was sold in February 1993, when the bank was visited with the consequence of the valuation being wrong.
Held Simple interest would be awarded on £1.4m, being the full allowable loss sustained by the bank by December 1990, from that date until judgment.
1. A professional negligence claim called for a comparison, the basic comparison, between the plaintiff’s position had he not entered into the transaction in question and his position under the transaction. In the case of a negligent valuation of an intended loan security, the basic comparison was between: (a) the amount of money lent by the plaintiff, which he would still have had in the absence of a loan transaction, plus interest at a proper rate; and (b) the value of rights acquired, namely the borrower’s covenant and the true value of the overvalued property. The valuer was liable for the adverse consequences, flowing from entering into the transaction, which were attributable to the deficiency in the valuation. In the present case the borrower’s covenant was worthless. The borrower had defaulted at once and the amount lent (£2.45m) at all times exceeded the true value of the property (£2.1m). Thus the cause of action arose at the time of the transaction in March 1990 and by December 1990 the bank had sustained its full allowable loss.
2. Judgment debts, including an order for payment of costs, carried interest by virtue of the Judgments Act 1838. Interest on costs ran from the date on which the order for payment was made, not from the date on which the amount of costs was quantified. The valuers had sought an order similar to the backdated order approved in Kuwait Airways Corporation v Iraqi Airways Co (No 2) [1994] 1 WLR 985. However, that case had been wrongly decided and the court had no power to order interest as asked by the valuers.
3. When ordering repayment of some of the money previously paid by the defendants to the plaintiffs as damages and costs, the House of Lords had jurisdiction to award interest on that money, since it was in effect unravelling the practical consequences of an order made by the courts below and duly carried out by the unsuccessful party.
Michael Briggs QC and David Blayney (instructed by Clifford Chance) appeared for Nykredit Mortgage Bank plc; Simon Berry QC and Jonathan Ferris (instructed by Williams Davies Meltzer) appeared for Edward Erdman Group Ltd.