Contribution – Borrower defaulting on mortgage loan – Lender recovering substantial damages from surveyor for negligent valuation – Valuer claiming contribution from borrower under section 1(1) of Civil Liability Act 1978 – Whether valuer’s claim “in respect of the same debt” – Judge dismissing claim – Appeal dismissed
The defendants were the shareholders and directors of a company which, in 1989, acquired a property in Bilton Road, Rugby, for development purposes. In February 1990 the claimant firm of surveyors valued the property for Alliance & Leicester Building Society (the lender) in the sum of £650,000 with planning permission, and £890,000 when developed. In March 1990 the lender, in reliance on that valuation, lent the company £489,000 on the security of the property. The defendants provided unlimited guarantees to the lender.
In February 1992 the claimant revalued the property for the lender in the sum of £500,000 in its existing condition, or between £600,000 and £750,000 when developed. In May 1992 the lender, relying on that revaluation, made a loan to the defendants of £634,000 on the security of the property. Part of the sum advanced was used to discharge the defendants’ liabilities under the 1990 charge. In July 1995, following a default by the defendants, the lender instituted proceedings against the claimant, claiming that the property had been negligently overvalued. In October 1996 the lender sold the property as mortgagee in possession for £250,000. In August 1997 the lender formally demanded £503,000 from the defendants, who made no payment, but no proceedings were instituted by the lender against them. In November 1997 the lender reached a compromise with the claimant, pursuant to which the claimant paid £400,000 in full and final settlement of the lender’s claim.
In November 1998 the claimant brought proceedings against the defendants claiming contribution under the Civil Liability (Contribution) Act 1978. By section 1(i) of the Act “any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage”. The defendants contended that the Act was not applicable as the claimant’s liability to the lender had not been in respect of “the same damage” for which the defendants might be liable. The judge dismissed the claim, holding that the damage resulting from the negligent valuation was not the same as the loss arising out of the non-payment of the money owed by the defendants.
Held: The appeal was dismissed.
1. Where two parties, A and B, were said to be liable to C in respect of the same damages sustained by C, and C had a right of action of some sort against A and B in respect of the damage, it was appropriate to ask two questions to see whether the 1978 Act applied: (i) if A paid to C some of the money in satisfaction of A’s liability to C, would the sum operate to reduce ipso facto B’s liability to C; and (ii) if B paid some of money in satisfaction of account of B’s liability to C, would that operate to reduce A’s liability to C. If the answer to both those questions was affirmative, then the 1978 Act applied.
2. For the purposes of the Act, the claimant was liable to the lender in respect of the damages suffered by the lender. The claimant was liable for damages on the ground that the lender had granted a loan on the security of a property which it would not have granted if the property had not been negligently valued. The claimant was entitled to recover a contribution from other persons liable in respect of the same damage. The defendants, however, were liable to the lender for the failure to pay money that they had covenanted to pay under the mortgage. That was not the same damage and, accordingly, the judge had been right to conclude that the Act did not apply to the claim.
Jonathan Seitler (instructed by Hammond Suddards) appeared for the claimant; David Fisher (instructed by Simpson & Co, of Rugby) appeared for the defendants.
Thomas Elliott, barrister
