Valuation of business – Bank making loan as result of defendant’s valuation – Bank’s title to security found to be defective – Bank claiming damages for negligent valuation – Valuers seeking contribution from solicitors acting for bank in conveyance of security – Whether valuation negligent – Whether bank contributorily negligent
In late 1990 the plaintiff bank was contemplating a substantial loan to M and proposed to take as security a legal mortgage over a fully operational restaurant, hotel and pizzeria known as Hostaria Romana, in the Barbican area of Plymouth, owned and operated by M. The bank instructed the defendant, a firm of business appraisers, who put a value on the business on October 13 1990 of £1,250,000. On February 14 1991 the bank loaned 75% of that sum to M, who defaulted on his repayments. The third party, a firm of solicitors, acted for the bank in the conveyance of the security. The bank’s title to the security was found to be defective in that the place where the business was carried on extended to three separately registered areas of land but only one was taken into charge. That the title was defective was blamed by the bank on the defendant who sought indemnity or contribution from the third party. The security was realised and in January 1996 it was sold for £225,000. It was agreed that the property should have been sold by December 1 1993 for £260,000 when it would have cost the bank £62,500 and £10,000 to purchase the missing titles. The bank sought to recover its losses from the defendant on the grounds that it had negligently overvalued the property and had negligently misprepresented what it had valued with the result that the title was defective.
Held Judgment was given for the bank for £366,250, being £300,000 plus £66,250 exclusive of interest. The third party claim was dismissed.
1. The defendant had not shown that the third party was negligent with respect to the titles.
2. Allowing for a 20% margin of error either way because freehold properties were rare in the Barbican, the business in question was unusual and comparables were hard to come by; nevertheless the defendant’s open market valuation had been too high and outside the permissible bracket.
3. On the balance of probablilties the loan would not have proceeded had the defendant valued the business correctly. The case fell fairly within the principles set out in South Australia Asset Management Corporation v York Montague Ltd [1996] 2 EGLR 93.
4. The bank had been contributorily negligent by failing, inter alia, failing to insist upon the production of up to date accounts and bank statements. If the bank had investigated M with greater thoroughness, it would not have made the loan. There was no place for subtle distinctions in the type of contributory negligence: see also Platform Home Loans Ltd v Oyston Shipways Ltd [1996] 2 EGLR 110 per Jacob J. Accordingly, the damages recoverable by the bank in respect of that part of their loss which resulted from the defendants’ negligence fell to be reduced under section 1(1) of the Law Reform (Contributory Negligence) Act 1945 to such extent as was just and equitable having regard to the bank’s contributory negligence. That negligence was causally related to all its loss, on the basis that it was responsible for the decision to enter into the transaction. The damages to which the bank was entitled would be reduced by one-third.
Nicholas Davidson QC and John Wardle (instructed by Dibb Lupton Alsop) appeared for the plaintiffs; Augustus Ullstein QC and Jonathan Ferris (instructed by Haxstall Erskine) appeared for the defendants; Edward Bannister QC and Peter Cranfield (instructed by Barlow Lyde Gilbert) appeared for the third party.
