Plaintiff obtaining valuation of property from valuer – Plaintiff entering subparticipation agreements and lending money to purchase property – Borrower defaulting – Plaintiff suffering loss – Whether valuer negligent in not taking into account prior sale of property – Judge finding valuation negligent but plaintiff 15% contributorily negligent
In 1989 the plaintiff, a Swiss Bank, lent £25.16m to Iris Properties Ltd (Iris), a subsidiary of Land and Property Company Ltd (LPT), a property company. The loan was made to enable LPT to refinance its recent purchase of the headlease of Hoskyns House, 190 Shaftsbury Avenue, London. The purchase had been made in October 1988 for £23.5m. Prior to the making of the loan the plaintiff obtained from the fourth defendant an open market valuation of the property dated April 3 1989 which valued the head leasehold at £29.6m. The loan made by the plaintiff was 85% of the valuation. The borrowers ceased to pay interest in August 1990 and a receiver was appointed. The property was sold in September 1992 for £17.25m. The plaintiff had obtained two policies of mortgage indemnity insurance. The plaintiff made claims under the insurances but the insurers declined to meet the claims.
Proceedings were commenced against the first, second and third defendants as insurers under one of the policies, and against the fourth defendant for negligent in relation to the valuation. The dispute with the insurers under both policies was compromised. It was common ground that the fourth defendant had not had regard to the marketing history or the October 1988 sale when it had made its valuation. The fourth defendant submitted that the marketing history and the purchase price had been immaterial to a proper valuation and that the valuation had not been negligent. It was contended that in any event the plaintiff had been negligent and it was further contended that the loss the plaintiff had suffered was very small because of the arrangements it had made for other banks to participate in the loan.
Held Judgment was given for the plaintiff.
1. The fourth defendant had owed a duty to make such inquires as would generally bring any recent sale or purchase transaction to its attention. If such inquiries had been made the purchase of the property in October 1988 for £23.5m would have been ascertained and with that information a reasonably competent valuation would have been £25.9m. Therefore the fourth defendant’s valuation had been negligent the plaintiff was prima facie entitled to £3.7m.
2. The plaintiff had known of the prior purchase and it should have asked LPT about the purchase price so that it could have considered any difference between that price and the valuation. Therefore a deduction of 15% was to be made for contributory negligence.
3. A loan to value ratio of 85% had been sufficient and although the plaintiff had been negligent in not taking a cash deposit to cover six months’ interest, that negligence was not relevant to the valuation and therefore no further deduction for contributory negligence was to be made.
4. The subparticipation agreements did not have to be brought into account since they had been collateral and therefore they did not have to be brought into account to reduce damages which the fourth defendant would otherwise have had to pay.
Michael Crane QC and Robert Bright (instructed by Richards Butler) appeared for the plaintiff; Michael Harvey QC and Richard Lynagh QC (instructed by Cameron McKenna) appeared for the defendants.
