Claimant in Part 20 proceedings seeking contribution from defendant valuer – Claimant sponsoring investment scheme – Whether statements attributable to defendant in scheme prospectus were misleading to investors – Whether defendant owing duty of care to investors – Whether breach of duty
The claimant, Neill Clerk (NC), was a Scottish solicitors’ firm that promoted tax efficient investment schemes. The defendant surveyor and valuer, Healey & Baker (HB), acted as property advisor to NC. In 1992 NC sponsored an enterprise zone property unit trust (EZPT) for the purchase of eight units in a development in Middlesbrough. NC prepared a prospectus, sent to potential investors, that stated at p8: “THP contracted for a consideration that… they will pay, in respect of each unit for 25 years or until that unit shall have been first let to an Institutional Tenant at at least £6.50 per sq ft… any shortfall in rental”. It went on to state: “To provide additional comfort to investors, the THP rental obligation will be supported by two cash backed guarantees… The first is a two year fixed guarantee commencing on completion – a period within which the Property Advisors expect the property to be substantially let”.
The property was purchased, but subsequent performance of the EZPT was poor. The investors brought a negligence claim against NC alleging a number of misrepresentations in the prospectus. NC admitted liability in respect of one of the four claims and agreed damages of £705,188.71. It then claimed a contribution from HB in Part 20 proceedings, under section 1 of the Civil Liability (Contribution) Act 1978, on the basis that statements attributable to HB in the prospectus, relating to the short/medium term future of the property, were misleading. By virtue of section 1(4) of the Act, the right to contribution was dependant upon whether HB was “liable in respect of the same damage” as NC. The main issues were whether HB owed a duty of care to the investors, and, if so, whether it was in breach.
Held: The defendant was liable for 25% of the damages.
1. In the light of expert evidence, HB was not in breach of its duty of care to investors solely by reason of allowing the figure of £6.50psf to have been stated in the prospectus as a realistic rental figure. However, it was not reasonable to have stated that the property was likely to be substantially let at that rental within two years, since there had been a large amount of unlet office space in the zone over a long period. What was required by HB was a reasoned analysis of why, in the current market, the space was not being let, and what the realistic prospects were for that situation to change within the timescale envisaged. HB did not subject its assumptions to any such analysis, nor did it collect the information necessary to perform such an analysis. It had nothing upon which to base its two-year prediction apart from a general hunch about when the national recession would end and what the effect would be on an enterprise zone in Middlesbrough. The statement attributed to HB on p8 was, therefore, likely to have been misleading to potential investors, and, if sued, HB would have been liable to them. NC was, therefore, prima facie entitled to seek contribution from HB.
2. In assessing the damages for which HB was liable, the correct approach in the instant case was first to apportion the responsibility in respect of the total loss and then to apply the principle in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 (the SAAMCO cap). It was just and equitable that the amount of contribution payable by HB should be 25% of the damages payable by NC to the investors. As that figure was within the SAAMCO cap, no further adjustment needed to be made under the SAAMCO principle.
Michael Brindle QC and Thomas Keith (instructed by Berrymans Lace Mawer) appeared for the claimant; Robert Moxon Browne QC and Roger Stewart (instructed by Kennedys) appeared for the defendant.
Sarah Addenbrooke, barrister