Negligence — Building society valuation — Whether building society contributorily negligent in failing to inquire into ability of borrowers to repay — Whether any reduction in damages due to contributory negligence — Whether interest on damages runs from date of loan
On July 17 1989 B, a partner of the
defendant firm of valuers, valued a dwelling-house in Putney, London, at
£325,000 for mortgage purposes. The plaintiff accepted a ‘non-status’
application from the borrowers for a loan in which the borrowers self-certified
their financial circumstances. Under such an application no inquiries were made
as to the borrowers’ ability to service the loan, but the loan to value ratio
could not exceed 75%. In reliance on the defendants’ valuation the plaintiff
building society lent £243,750 to the borrowers who granted a mortgage as
security for the loan. After the borrowers fell into arrears, the property was
sold in July 1992 for £145,000. The building society contended the property was
worth £250,000 at the date of the valuation. The defendants alleged that the
plaintiff was contributorily negligent in not making inquiries as to the
borrowers’ ability to repay the loan.
the date of the valuation a valuer, exercising reasonable skill and care,
should have been aware that the prevailing market conditions were difficult.
The defendants’ valuer should have been aware of a decline in the market. The
appropriate margin of valuation error was 12% either side of the correct
valuation. Having regard to the market and the comparables, the correct
valuation should have been £250,000, and the highest non-negligent valuation
would have been £284,000. The defendants were negligent. The plaintiff was
entitled to recover as damages the difference between the defendants’ valuation
and the correct valuation under South Australia Asset Management Corporation
v York Montague Ltd [1996] 2 EGLR 93. The plaintiff was contributorily
negligent in accepting a non-status loan application which was self-certified;
the loan to value ratio of 75% was insufficient. However no reduction should be
made from the damages. Only such negligence as contributed to the damages which
resulted from the negligent valuation, such as negligence in realising the
security, will lead to a reduction. Interest was payable on the damages from
the date when the loss crystallised, the date the property was sold, at the
LIBOR rate; it did not run from the date of the valuation.
The following cases are referred to in
this report.
Alliance & Leicester Building Society
v Wheeler
unreported January 23 1997
Banque Bruxelles Lambert SA v Eagle Star Insurance Co
Ltd [1995] QB 375; [1995] 2 WLR 607; [1995] 2 All ER 769; [1995] 1 EGLR
129; [1995] 12 EG 144, CA
Birmingham Midshires Mortgage Services Ltd
v Parry
[1996] PNLR 494
Interallianz Finanz AG v Independent Insurance Co
Ltd [1997] EGCS 91
Platform Home Loans Ltd v Oyston Shipways Ltd
[1996] 2 EGLR 110; [1996] 49 EG 112
Saif Ali v Sydney Mitchell & Co [1980]
AC 198; [1978] 3 WLR 849; [1978] 3 All ER 1033, HL
Singer & Friedlander Ltd v John D Wood & Co
[1977] 2 EGLR 84; [1977] EGD 569; (1977) 243 EG 212 & 295
South Australia Asset Management
Corporation v
York Montague Ltd [1997] AC 191; [1996] 3 WLR 87; [1996] 3 All ER 365;
[1996] 2 EGLR 93; [1996] 27 EG 125, HL
This was a claim by the plaintiff,
Coventry Building Society, for damages for negligence against the defendants,
William Martin & Partners.
Mark Anderson (instructed by the Wood
Glaister Partnership) appeared for the plaintiff; Andrew Nicol (instructed by
Reynolds Porter Chamberlain) represented the defendants.
Giving judgment, MOSES J said: The
plaintiff claims damages against the defendants on the grounds of a negligent
valuation of property at 243 Upper Richmond Road, Putney. On July 17 1989
Robert Bird, a partner in the defendants, valued that property in the sum of
£325,000. In reliance on that valuation, the plaintiff lent £243,750 to Mr and
Mrs Pedersen, who granted as security a mortgage of that property. After the
Pedersens had fallen into arrears, possession was obtained on July 19 1991. On
July 6 1992 the property was sold
at the time of valuation.
Four issues are in dispute:
(a) whether the defendants were negligent
in their valuation of the property;
(b) whether the plaintiff was guilty of
contributory negligence in advancing a loan without adequate inquiry into the
ability of the borrowers to pay interest on the sum advanced;
(c) whether, if the plaintiff was guilty
of contributory negligence, any damage falls to be reduced as a result of that
contributory negligence;
(d) whether, if the plaintiff is
successful, it is entitled to interest running from the date of the loan rather
than the date when the security was realised and, if so, the appropriate rate
of interest.
Property at 243 Upper Richmond Road
The house is situated on the south side
of Upper Richmond Road. It extends from basement level at the front to a
third-floor storey at the rear. From the outside it presents the typical
appearance of a Victorian town house built around 1885. It is at the end of a
terrace, separated from the road by a front garden, with a small rear garden
and garage. There is a basement front room and store partially beneath the
front entrance path and porch. On the ground floor there is an entrance hall
and lobby, and main reception room with separate lavatory and hand basin. To
the rear of the ground floor is an L-shaped dining room. On the first-floor
internal structural partitions have been removed, leaving a large room with an
open plan layout occupying the majority of the first-floor area. It is lit by
windows on both sides. On the second floor there are two small bedrooms, two
bathrooms, and a dressing-room area containing wardrobes beneath the staircase
and a sauna. On the third floor a master bedroom has been built into the roof
space. French doors lead to a small balcony facing south. There is a spiral
staircase between the ground and first floor. Although there is no plan of the
house, I have been assisted by a number of photographs.
Valuation
Mr Robert Bird is a professional
Associate of the Royal Institution of Chartered Surveyors. He has been in
private practice since 1983. He is experienced in surveying residential
properties and preparing valuation reports for mortgage purposes. He says he
has a particularly good knowledge of Putney. Mr Bird was required to provide a
value at which he believed the property would sell in the open market as at the
date of inspection, allowing for reasonable time to find a buyer in the
prevailing market conditions: see Guidance Notes for Valuers, published
by the RICS. He visited the house with a trainee and made a few notes on a
single sheet of paper. They recorded, among other matters, that the
accommodation included three bedrooms and was close to the High Street. There
is a reference to repairs which would cost £11,600 and a valuation is given of
£335,000 to £340,000, less repairs, giving the figure of £323,400. Market value
is shown at £325,000. The mortgage valuation on the form provided by the
plaintiff was filled in by the trainee but signed by Mr Bird. It records that
the house is situated on a main through route and essential repairs were required
to the roof at a cost of £4,500; damp-proofing to the ground floor £3,400; and
tanking to the basement area of £3,500. The mathematics seem to have gone awry
by £200, but that is not material.
Mr Bird said in evidence that he had
consulted two local estate agents for five to 10 minutes; there were no
specific comparables. The note confirms that such consultation did take place.
He stated that the value of the property after repairs would be £345,000. It is
worth noting at this stage that he made no comments in the space reserved for
general comments on this form. He accepted that, with hindsight, it would have
been better had he done so. He told me that he later found out that a similar
house in a different style was sold for £375,000 at the time. In the absence of
any further details such information was not of great assistance. His view was
that the inspection preceded the crash and occurred in the latter days of the
housing boom.
Valuations by the experts
Two experts were called to assist as to
whether Mr Bird’s valuation of £325,000 was so erroneous that no reasonably
well-informed and competent member of the profession of valuer could have made
it.
Mr David Graves frics, on behalf of the plaintiff, is a partner in a firm of
chartered surveyors, JC Francis & Partners Ltd, whose Putney offices are to
be found in the same road as the property in issue. He had the advantage of
having undertaken residential valuations in Putney for the last 14 years. His
opinion was that the true value of the property on July 17 1989 was £250,000.
His essential criticism of Mr Bird’s valuation was that it failed to take
account of the property’s poor location. He described the Upper Richmond Road
as a busy main road, with a steady stream of traffic outside, particularly
during rush hours. He also took the view that the unusual layout, particularly
on the first floor, where, as I have recalled internal partitions had been
removed, should have been taken into account. A five-bedroom house rather than
a three-bedroom house would have been more desirable. He accepted that the
layout would be attractive to some purchasers and that the roof terrace and the
fact that the house was at the end of a terrace were positive features.
Mr Simon Levy frics, on behalf of the defendants, is the principal in a
practice of chartered surveyors in an office some 16 miles from Putney, but he
is familiar and experienced in valuing properties in that area. He described
Upper Richmond Road as a reasonably busy thoroughfare but took the view that Mr
Graves’ characterisation of the road was exaggerated. He did not think it was
particularly busy outside rush hours. The house was set back from the road and
insulated with triple glazing. Mr Levy examined the property in June 1994 for
one and a half hours. By the time of his visit the basement was being used as a
fourth bedroom. He noted that Mr Bird had understated the total floor area,
which was 247m2, and not 192m2. On the basis of the lower
figure Mr Bird had over-estimated insurance reinstatement value, but it was
accurate on the basis of the correct figure for the total floor area. His
assessment of the value in July 1989 was £312,000, and after essential repairs,
£325,000. Thus he concluded that the valuation by Mr Bird was reasonable,
although slightly overstated.
The surveyors differed as to the effect
the layout, particularly on the first floor, would have had on the valuation.
Mr Graves thought its unusual design would adversely affect its value. Mr
Fuller, a local estate agent was familiar with the property when it was
occupied by the Pedersens. He had been attracted by its layout and described
the house as ‘magnificent’. He had valued it in July 1991 at £200,000, when he
described the design as ‘very individual’. He drew attention to the small size
of the garden, a feature to which Mr Graves referred, and to the internal
structural alterations which might lead a purchaser to recommend an engineer’s
report. That the effect of the internal design was a matter of subjective
impression and taste is demonstrated by the contrasting views of another valuer
from Barnard Marcus, who visited the house one day later, in July 1991. He
thought the property very badly arranged, that it had been ruined, and that it
would appeal only to a few purchasers. I am of the view that the internal
layout was a feature which, while attractive to some, would have reduced the
number of those interested in buying the house, particularly in a depressed
market.
Market conditions at the time of the
inspection are of importance in reaching a conclusion as to an appropriate
valuation. The experts differed in their assessment as to when the property
recession hit Putney. Mr Graves thought that during 1989 the residential
housing market was in decline. Few properties of the type and size of the house
in issue were sold. He drew attention to a fall in value of one of Mr Levy’s
comparables at 91 Howards Lane from £298,000 in December 1988 by about £25,000
within a few months. Both experts agreed that the market was stagnant, but Mr
Levy thought it was on a plateau and it was not (by July 1989) known whether
the market would fall or not. Both also agreed that, because of market
conditions, it was difficult to make an accurate valuation, particularly
because valuations of comparable property would not be available, and a valuer
would be forced to consider valuations in healthier times. This, Mr Levy said,
would give rise to a tendency slightly to overvalue the premises. I note that
in the same passage in his written evidence he refers to the presence of a
declining market (para 10.03) and that earlier in his evidence he speaks of
‘the property recession during the period concerned’ (para 3.06).
In my judgment, attempting, as I must, to
eschew the gift of hindsight, the property recession had started to affect the
housing market by the date of inspection in July 1989. On this point I prefer
the evidence of Mr Graves. Mr Levy’s references to the recession in his written
evidence support that conclusion. A valuer, exercising reasonable skill and
care, should, in my view, have been aware that the prevailing market conditions
were difficult and exercised caution by avoiding optimistic valuations at that
time. Disadvantages in the property would, in a declining market, have a
significant adverse impact upon the value.
It is a truth universally accepted that
pinpoint accuracy in the valuation of property cannot be achieved, nor
reasonably expected by those who act upon such valuations. A permissible margin
of error must be allowed: see Watkins J in Singer & Friedlander Ltd
v John D Wood & Co [1977] 2 EGLR 84 at p86. In this case, Mr Graves
considered that 10% either way was the maximum. Mr Levy was of the opinion that
the margin should be 12%. In the light of the difficulty in obtaining
comparables, and the stagnation of the market, I think a reasonable margin of
error is 12%.
Notwithstanding the difficulty, both
experts relied upon three comparables each. In my view, comparables proffered
by the experts were not of great assistance. They differed in size and location
and, as the experts accepted, the difficult market conditions at the time makes
assessment of their value at that time less reliable. The price they actually
fetch would be a guide, if they were comparable in size, location, appearance
and condition, but only if the market conditions were comparable. To the
limited extent that they helped, I draw attention to a property at 74 Hazlewood
Road. This was sold in April 1989 at £365,000. Mr Levy thought this was a good
comparable, although seven bedrooms were, he thought unnecessary. Mr Graves had
valued this house himself. I accept his evidence that it was significantly
superior in accommodation and location. In my judgment, the closest comparable
was 91 Howards Lane, upon which Mr Levy relied to support his conclusion. This
was similar in size but, says Mr Levy, in need of very substantial repair and
refurbishment. It was, as I have already recalled, sold in December 1988 for
£298,000. Mr Levy relied upon information from another local estate agent, Mr Fuller,
but had not himself inspected these premises. Mr Graves had, however, valued
the premises in August 1988. The house was, he said, in need of redecoration,
modernisation and general overhaul, but was in good demand. He valued it in
August 1988 at £295,000. I accept his evidence that the location was superior
and that its condition was not as bad as described in Mr Levy’s schedule. I
agree that it provides some support for Mr Graves’ valuation of the subject
property, bearing in mind it was sold when the market was more buoyant.
The final factor taken into account in
assessing the quality of Mr Bird’s valuation was the price of £145,000 for
which the property was disposed in July 1992. Both parties relied upon that
fact in support of their rival contentions. Both Mr Graves and Mr Fuller, a
local estate agent responsible for the final sale, agreed that the value is
likely to have dropped by up to 30% between July 1989 and July 1992. I accept
that figure as a rough guide. Moreover, the condition of the property
deteriorated dramatically once the borrowers had left in July 1991. Mr Fuller
estimated that the cost of restoring the house to its former condition would
have been up to £40,000. I accept that figure, rather than the estimate of Mr
Levy at £50,000. In my view, Mr Levy’s assessment of the value of the property
at the time of realisation at £17,000 was too high. Mr Fuller, after all, was
responsible for the sale in July 1992 and was able to compare its condition to
its state in 1989 when he had seen the property on several occasions. There was
no dispute but that the value in July 1992 had been further depressed by reason
of its poor condition, and the need to undertake restoration which would deter
wouldbe purchasers, particularly in a depressed market. This further reduction
was estimated at £10,000.
Conclusions as to valuation
A valuer is not required to don the
mantle of Elijah, he is required to provide an estimate of the price which the
property might reasonably be expected to reach on the open market at the time
of the inspection. He is not liable for an error of judgment, unless the error
was such as no reasonably well-informed and competent valuer could have made:
see Lord Diplock in Saif Ali v Sydney Mitchell & Co [1980] AC
198 at p220. It is for those reasons that a valuer’s judgment cannot be said to
fall below the standard of care to be expected of a reasonably competent and
well-informed valuer provided his valuation falls within the permissible margin
of error: see Singer & Friedlander Ltd. I have already found that
that margin in this case was 12% either side of the figure which I conclude was
the correct figure at the time of the valuation.
I have no doubt that normally Mr Bird is
a careful, competent and thorough surveyor. But, in my judgment, in this case
he fell into error and gave a valuation which was too high. Further, in my
judgment, that figure of £325,000 before essential repairs, fell outside the
permissible margin of error and was not a figure which a reasonably
well-informed and competent valuer could have given. He failed to give proper
weight to what I have found to be an undesirable location by a busy road.
Moreover, he did not give adequate consideration to the unusual internal design
which limited the bedroom accommodation and would have deterred many
purchasers, particularly in the prevailing market conditions. These conditions,
as I have found already, were poor. I believe that Mr Bird should have
appreciated that the market was in a decline and should have given more significance
to that factor. He should not, in the light of the state of the market, have
provided a figure which, even on Mr Levy’s view, was slightly on the high side.
His report made no mention of the unusual internal design and, although it
referred to the road as a main through route, it drew no attention to the heavy
traffic to be expected.
Having regard to its location and the
unusual design, which would have limited its attraction to purchasers and the
limited assistance of the comparables, I prefer the evidence of Mr Graves to
that of Mr Levy. The small size of the garden is balanced by the advantage of a
garage. Mr Graves was more familiar with the area than Mr Levy, and I found him
a more impressive witness. I accept his evidence that a correct valuation would
have been, at the time of the inspection in July 1989, £250,000. That means
that the highest figure a reasonably competent and well-informed valuer might
have given would have been £284,090.90, applying a margin of error of 12%. I
reject the argument advanced on behalf of the defendants that there should be
some added figure to represent the difficulties in the market and the
difficulties of valuation at the time. I have allowed for that in that margin
of error of 12%.
The process of calculating backwards from
the figure which the property finally fetched in July 1992 must not be
undertaken as a mechanical exercise. It is fraught with danger because the
effect of each event which caused a diminution in value since July 1989 cannot
be measured with any precision. If such an approach is adopted, £145,000 is the
starting figure, allowance is made for work costing £40,000 and £10,000 for the
effect of that work. To the figure of £195,000 there should be added 30% to
cater for the decline of the market. The resulting figure is £278,571. This
figure provides some limited confirmation that Mr Graves’ figure is correct,
since it falls within the margin of error calculated from his figure. But it
falls outside the permissible margin of error, if one assumes that the figure
of £325,000 is correct. I should re-emphasise that this process provides only
limited support for my conclusion and is not the basis upon which I have
reached it.
Accordingly, I find that the defendant
was negligent in providing a valuation of £325,000.
Damages flowing from that negligence
It is accepted that the damages which the
plaintiff is entitled to recover is the difference between the defendants’
valuation and the correct valuation in accordance with the principles
enunciated in South Australia Asset Management Corporation v York
Montague Ltd [1997] AC 191*. That figure is £75,000.
*Editor’s note: Also reported at [1996] 2
EGLR 93
Contributory negligence
Originally two allegations of
contributory negligence were made. It was alleged that the plaintiff was guilty
of contributory negligence in the process by which it realised the security,
and negligent in making the advance. I can deal shortly with the first
allegation in relation to the realisation of security, since that was not
pursued in the final submissions on behalf of the defendants. The borrowers
fell into arrears within two months of the advance. On September 18 1990
possession was obtained but arrears were cleared. The plaintiff allowed further
time and for that, in my judgment, it is not to be criticised. However, further
arrears accrued and possession was accordingly obtained on July 19 1991. Highly
regarded experts, PHH Asset Management, were retained to manage the sale of the
property. Two valuations were obtained from local estate agents: Barnard Marcus
valued the property at £180,000, and Mr Fuller valued the property at £200,000.
The plaintiff’s property sales supervisor, Pat Wright, advised that the
property should be put on the market at Mr Fuller’s suggested asking price of
£215,000. Mr Fuller said the sale was vigorously pursued in an ever falling
market. An offer was received in August 1991 in the sum of £190,000; this was
revised to £170,000. Meanwhile, the asking price was progressively lowered to
£189,950. The proposed purchaser who had offered £170,000 in February 1992
withdrew in May. A further purchaser offered originally £150,000, increasing it
to £155,000. On June 4 1992 the local authority served an enforcement notice in
relation to the structure of the property, but apparently that related to a
structure in existence throughout. This caused the purchaser to reduce his
offer to £145,000. On Mr Fuller’s strong advice, that offer was accepted and
the sale was completed on July 6 1992 at £145,000. Since the allegations in
relation to the realisation of security were, in my judgment rightly, not
pursued, I need not deal with this aspect of the matter further.
The advance
The borrowers had made what has been
described as a ‘non-status’ application. This meant that the plaintiff accepted
the borrowers’ own certification of income and made no inquiries of their
financial status beyond a credit reference search. Their application dated June
19 1989 stated that they intended to use the advance to repay an existing
mortgage of £150,000 and to repay other personal borrowings. The borrowers
believed the property to be worth £390,000. They asked for a loan of £250,000.
Their application was submitted to the Commercial Union Life Assurance Co Ltd.
The application was accompanied by the
defendants’ valuation, a UAPT reference report, which showed three other
inquiries, and a letter from Mr Pedersen stating that he was an independent
development and investment consultant earning in excess of £90,000.
At the time of the loan, and for a period
of approximately nine months, the plaintiff had a policy of advancing loans in
response to a non-status application, but only on the basis of a higher than
normal interest and on the basis that the proposed advance would not exceed 75%
of the mortgage valuation. In those circumstances, it did not apply any
additional criteria to assess the borrowers’ personal covenant. The valuation
of the property was of paramount importance. As a result of the valuation of
£325,000 by the defendant, it was only prepared to advance £243,750, and not
the £250,000 as requested. Thus, the loan was made without any scrutiny of the
purposes for which the application was made and without any credit reference
other than that from UAPT. Mr Ritchley, the plaintiff’s deputy chief executive,
approved the offer. Solicitors were instructed to complete the transaction, and
reported on September 6 1989 that the Yorkshire Bank held a charge over the
property but was content that that should be postponed to the plaintiff’s
mortgage. Since the plaintiff’s mortgage would have priority, no further
investigation in relation to the Yorkshire Bank’s charge was undertaken. Mr
Ritchley took comfort from the fact that the bank was prepared to postpone its
charge to the plaintiff’s mortgage.
The crux of the defendants’ allegation is
that the plaintiff was negligent in failing to assess the worth of the
borrowers’ covenant by accepting the borrowers’ self-certification at its face
value. In particular, it is alleged that the plaintiff should have required a
breakdown of the borrowers’ outstanding debts, particularly since the amount it
was prepared to lend was less than apparently required to meet those outstanding
debts. It was further alleged that Yorkshire Bank’s charge should have been
investigated, and inquiries should have been made to find out why further
searches as to credit worthiness had been undertaken by other financial
institutions.
In my judgment, these particular
allegations derive from the main allegation that the acceptance of
self-certification was itself negligent. If self-certification was not
negligent and the cushion provided by the reduction of the loan to 75% of the
security was sufficient, then it is not surprising that the plaintiff failed to
make any further inquiries. I do not think that such a failure was negligent,
unless it can be shown that the acceptance of self-certification with a cushion
was itself negligent.
Mr John Bridge on behalf of the
plaintiff, and Mr Michael Crawford on behalf of the defendants, gave expert
evidence as to the prudence of permitting self-certification. As Mr Ritchley
told me, the plaintiff, like many other high street lenders, sought to compete
against, for example, secondary banks, by offering loans without proof of the
borrower’s ability and willingness to repay the loan. They relied upon the
underlying security and a restricted loan to value cushion. Mr Bridge listed 37
lenders who adopted a similar approach, some with a lower loan to value ratio.
Mr Crawford stressed the wisdom of a more traditional approach whereby the
primary source of repayment should be the borrower and realisation of the
security only a matter of last resort. He referred to the regulatory framework
in which building societies operate, which requires them, inter alia, to
satisfy criteria of prudent management. He also drew attention to guidance
given by the Building Society Commission in The Mortgage Book, although
it should be noted that at no time did the commission warn against policies of
accepting non-status loans. He found support in the plaintiff’s own lending
policy. It is clear that that policy was intended to apply in relation to loans
other than non-status loans.
The issue is whether the plaintiff failed
to take reasonable care to protect its own interests. The standard of care is
the same as that which applies to the defendants, as expressed by Lord Diplock
in Saif Ali (qv supra; see also Phillips J in Banque Bruxelles
Lambert SA v Eagle Star Insurance Co Ltd [1995] 2 All ER 769*, at
p821).
*Editor’s note: Also reported at [1995] 1
EGLR 129
It must be rare that an institution is
found guilty of negligence, if it has adopted a practice common among its
competitors. The fact that such a practice is common provides powerful evidence
that it has not fallen below the standard of a reasonably competent financial
institution at the time. However, in my judgment, the plaintiff did fall below
that standard in accepting a non-status loan which, in the particular case, was
self-certification. In my view, that cushion of 75% loan to value ratio was
insufficient to justify such acceptance. I prefer the evidence of Mr Crawford
that a prudent lender must be satisfied that the borrower is honest and
trustworthy and has the ability to pay. True it is that he may at times have
over-emphasised the extent to which such a lender should be satisfied. But,
having seen him, I do not think that that undermines the thrust of his evidence
that to rely merely upon self-certification and a cushion of 75% disregarded
the
the borrower.
It is clear that the policy of accepting
self-certification was commonly adopted as a commercial decision in order to
compete in the market. It may be commercially sensible to take a risk, but it
by no means follows that that commercial decision is prudent: see Sir John
Vinelott in Birmingham Midshires Mortgage Services Ltd v Parry
[1996] PNLR 494, at p518C-G.
I conclude that the plaintiff failed to
take reasonable care to protect its own interests.
Do the damages fall to be reduced by
reason of contributory negligence?
In the light of my finding that the
plaintiff was at fault, the question arises whether the damages should be
reduced to the extent I think is just and equitable. Had I thought that they
should be reduced, I would have decided that they should be reduced by a
percentage of 20%. The plaintiff’s damages should, however, only be reduced to
the extent that its negligence contributed to those damages: see Phillips J in Banque
Bruxelles at p820. This proposition is, in my judgment, supported by the
wording of the Law Reform (Contributory Negligence) Act 1945. Subsection (1)
has a dual effect. First, it provides that contributory negligence shall not
defeat a claim where a person suffers damage as the result partly of his own
fault. Second, it provides merely for the reduction of the damages to the
extent it describes.
South Australia decides that, in a case where
there is a duty to provide information the kind of damage the plaintiff can
recover is that which is the consequence of the incorrect information. Such a
case is to be distinguished from a duty to provide advice. It seems to me to
follow, therefore, that it is only such negligence as contributed to the
damages which resulted from the negligent valuation which will lead to a
reduction. This case affords an illustration of the distinction. If the
plaintiff had been negligent in realising the security by, for example, failing
to sell it at an appropriate time or at a price which was negligently
ascertained, such negligence would have been causative of the kind of damage
which it is entitled to recover.
For the reasons I have given, I prefer
the decision of Thomas J in Interallianz Finanz AG v Independent
Insurance Co Ltd* and the conclusion reached by Carnwath J in Alliance
& Leicester Building Society v Wheeler unreported January 23
1997 which adopts a different but compelling approach. I decline to follow
Jacob J in Platform Home Loans Ltd v Oyston Shipways Ltd
unreported July 29 1996† and deny any suggestion that that is attributable to
the date upon which that judgment was given. In those circumstances, no
reduction falls to be made.
*Editor’s note: Also reported at [1997]
EGCS 91
†Editor’s note: Also reported at [1996] 2
EGLR 110
Interest
The damage suffered by the plaintiff was
the diminution in the value of the security; it was not damage suffered by
reason of the decision to make the loan. Once the type of damage is identified,
that is damage flowing from wrong information and not from wrong advice, it
seems to me to follow that interest should run from the date that loss
crystallised, in other words when it was felt, and not from the date of the
loan. I heard evidence from Mr Stobbs that money used to fund new loans within
the plaintiff was obtained from the wholesale money market. In those
circumstances, in my judgment, the appropriate rate is LIBOR.
Conclusions
1. The defendants were negligent in
providing a valuation of £325,000;
2. The damages which resulted were
£75,000, being the difference between the valuation and the correct valuation
of £250,000;
3. The plaintiff failed to take
reasonable care to protect its own interests, but that does not lead to any
reduction in its damages;
4. Interest runs from the date of
realisation at the LIBOR rate.
I am grateful to both counsel for the
conspicuous skill with which this case was argued. I regret that I have been
compelled to find that Mr Bird was negligent, but I am confident that his
negligent valuation was an isolated incident, which should be no reflection on
the skill he generally exercises in a difficult field.
