Negligence — Valuation — Whether surveyor should have verified planning assumption — Whether contributory negligence by plaintiffs in failing to send valuation to their solicitors to verify planning assumption — Whether failure to send valuation to their solicitors constituted a novus actus
request of Mr William Hancock, a director of Scotlane Ltd, Mr Appleton of the
defendant company provided a valuation dated October 14 1985 of a large
Victorian building on the outskirts of Hitchin — Scotlane Ltd bought the
property and converted it into a nursing home — In November 1985 Mr Hancock
sought a loan of £1m from the plaintiffs on the security of the property —
Following agreement between Mr Hancock and the plaintiffs’ marketing officer,
Mr Appleton provided a valuation dated January 7 1986 in the same terms as that
originally provided to Mr Hancock — It was apparant that before January 7 1986
Mr Appleton had received two documents from Mr Hancock, a planning consent for
user of the property as a nursing home and another document entitled ‘Schedule’
— The latter document recites the change of use to a residential nursing home
and, in addition, conversion of a garage and stable-block to additional
accommodation, community hall and 30 units of warden-assisted flats and
bungalows — In his valuation Mr Appleton stated that he had made verbal
planning inquiries but had not undertaken any official searches and for the
purpose of his valuation he had assumed that consents were in existence for the
additional nursing-home facilities in the stable-block and that consent had
also been given for the sheltered housing — There was, in fact, no such
planning consent for sheltered housing — The plaintiffs’ contention was that Mr
Appleton was negligent in not verifying the planning register or stating in his
report that the existence and terms of the consents needed to be verified
was given for the defendants — Mr Appleton was not negligent in failing to
state in his report that there was a need for verification of the planning
consents — The valuation, being provided for a financial institution, did not
have to warn of the need for verification contrary to the Royal Institution of
Chartered Surveyors Guidance Notes —
guidance notes are not to be regarded as a statute — Mere failure to comply
with the guidance notes does not necessarily constitute negligence — The
omission by Mr Appleton to state the source of his information regarding the 30
units of sheltered accommodation did not amount to negligence and had no
causative effect — On the plaintiffs’ concession that they were negligent in
not sending the valuation to their solicitors, had the defendants been found
negligent, contributory negligence by the plaintiffs would have been assessed
at 80% — The defendants’ contention that the plaintiffs’ failure to send the
valuation to their solicitors constituted a novus actus was rejected
The following
cases are referred to in this report.
Knightley v Johns [1982] 1 WLR 349; [1982] 1 All ER 851; [1982] RTR
182, CA
McKew v Holland & Hannen & Cubitts (Scotland) Ltd [1969] 3
All ER 1261, HL
The
plaintiffs, PK Finans International (UK) Ltd, claimed damages against the
defendants, Andrew Downs & Co Ltd, of 7 Trebeck Street, London W1, in
respect of a valuation dated January 7 1986 provided by Mr Andrew Appleton
ARICS in respect of a property on the outskirts of Hitchin.
Michael Nield
(instructed by Herbert Smith) appeared for the plaintiffs; Martin Fodder
(instructed by Reynolds Porter Chamberlain) represented the defendants.
Giving
judgment, SIR MICHAEL OGDEN QC said: The defendants are a firm of
surveyors and valuers. The plaintiffs allege negligence by Mr Appleton, of the
defendants, in respect of a valuation of a freehold property upon which the
plaintiffs advanced a loan of £1m. Unfortunately, Mr Appleton died a short
while go.
The plaintiff
company is part of a group of companies of which the parent company is one of
the largest banks in Sweden. It has now ceased trading but it is important to
note that at the material time it was a licensed deposit taker, and this was
stated on the company’s writing paper.
The property
in question lies on the outskirts of Hitchin. It is a large Victorian building,
originally built as a private house but subsequently converted to other uses.
Shortly before the events which give rise to this action, the property was
bought by Scotlane Ltd, which proceeded to convert it into a nursing home
called Foxholes Nursing Home and later Ambleside Nursing Home.
Scotlane was a
company of which a Mr William Hancock was a director and one of the principal
shareholders. Both parties to this action have asserted that Mr Hancock acted fraudulently
in the events which I have to consider. He was not called as a witness and
therefore I confine myself to saying of him that there are strong indications
that the assertion of fraud made against him is correct.
Mr Appleton
had previously carried out several valuations for Mr Hancock when, towards the
end of 1985, he was asked by Mr Hancock to make a valuation of the property in
question, the conversion of which was within about 12 weeks of completion.
From a
solicitor’s attendance note of a meeting with Mr Appleton, in which the
solicitors were taking notes for the purposes of this action, which note was
admitted under the Civil Evidence Act 1968, it is plain that Hancock wanted a
valuation done urgently, and this may be the reason why the original valuation
was a fairly short one.
Mr Appleton
inspected the property and his valuation is dated October 14 1985.
On November 20
1985, Mr Hancock was introduced to Mr Swain, who was a marketing officer
employed by the plaintiffs. Mr Hancock wanted to borrow £1m on the security of
the property. Mr Swain duly recommended the loan to the plaintiffs’ credit
committee in a memorandum dated December 3.
Planning
consent had been obtained for the use of the premises as a private nursing
home. I accept Mr Swain’s evidence that, in discussion with Mr Hancock, the
latter either said specifically or plainly implied that there was planning
consent for sheltered housing to be built on the property; there was, in fact,
no such planning consent.
On December
27, Mr Swain wrote to Mr Hancock saying that the matter had been considered by
the credit committee, which required an independent valuation. Mr Swain in
evidence recollected being given a copy of the October report, but said that he
could not remember when this happened. However, in his statement, which
constituted his evidence-in-chief, he said that he had seen or received it
before he wrote his memorandum of December 3.
The credit
committee required a further report, for two reasons: first, it wanted a report
addressed to itself, since the October report contained the customary
disclaimer for responsibility to a third party; and, second, the October report
did not contain a forced-sale value.
The terms of a
letter from Mr Hancock to Mr Swain, dated January 2 1986, point to the
probability that the two men had agreed that Mr Appleton could simply send the
October valuation, redated, addressed to the bank but containing a forced-sale
value. Certainly, when Mr Swain received it, he must have realised that he was
looking at what was, for all practical purposes, the same valuation, save that
the period of time to completion of the conversion had been altered from 12
weeks to four.
The valuation
is dated January 7 but failed to contain a forced-sale value. Mr Swain
telephoned Mr Appleton, following which the latter wrote a letter dated January
9, in rather enthusiastic terms, and returned the valuation amended to include
a forced-sale value but still dated January 7.
The attendance
note (to which I have already referred) makes no reference to what, if
anything, Mr Hancock told Mr Appleton about planning consents. From that part
of it which deals with a telephone conversation with the local planning
authority, it is plain that Mr Appleton was asking about planning permissions, in
the plural, and because of a reference to ‘number of units’, and to sheltered
accommodation in particular. He would have asked those questions only if Mr
Hancock had told him about it or provided documentary information about it.
I should
interpolate at this point that it is obvious that a number of letters and other
documents, which Mr Appleton must have had in his possession, have been lost or
mislaid, which makes ascertainment of some dates very difficult. However, I am
satisfied that before January 7, Mr Appleton received two documents from Mr
Hancock, one being a copy of the planning consent for user as a nursing home
and the other (which was attached to the first) being a document entitled
‘Schedule’. That document refers to the date of consent by the planning
authority as being February 7 1985 and it recites the change of use to a
residential nursing home and, in addition, conversion of garage and
stable-block to additional accommodation, community hall and 30 units of
warden-assisted flats and bungalows. The consent also covers a lodge building
for use within the approved purpose.
Any
experienced surveyor would appreciate at once, and I have no doubt that Mr
Appleton, as an experienced surveyor, did so, that this document is not a
planning consent and must be a precis or summary prepared by someone, that
person almost certainly being Mr Hancock.
At one stage,
the plaintiffs suggested that its existence should have made Mr Appleton
suspicious. I got the impression that that was not persisted in, certainly not
in the final speech on behalf of the plaintiffs. In any event, I do not
consider that this is so. A valuer does not work upon the assumption that his
client is being fraudulent and, in any event, Mr Appleton knew that the
existence and terms of the consent would have to be verified. I suspect that
this document simply contained what Mr Hancock had already told Mr Appleton,
just as he told Mr Swain.
In para 2 of
the valuation of January 7, Mr Appleton said:
We have made
verbal planning enquiries but have not undertaken any official searches and for
the purpose of this valuation we have assumed that full planning consents were
obtained for the development of the property as a nursing home, that consents
are also in existence for additional nursing home facilities in a stable-block
and that consent has been given for sheltered housing on plot number 426.
There is no
reason to doubt that what he recounts is his understanding of what he was told
on the telephone when speaking to someone in the local planning authority and
there is no evidence that he was negligent in the questions he asked. The
plaintiffs asserted that Mr Appleton should not have made oral inquiries at
all, but this is unsustainable in view of the terms of para 7 of guidance note
6 of the
that Mr Appleton must have assumed, as the expert witnesses agree he was
entitled to assume, that verification would take place later.
*Editor’s
note: RICS Guidance Notes of the Valuation of Assets — 2nd ed, The verification of information
supplied to or adopted by a Valuer. Para 7 is reproduced below:
Town Planning
The Valuer
should state if he has made written or oral enquiries of planning authorities
as to zoning and possible presence of any adverse planning proposals. The
Valuer should state if he has inspected the statutory register and the
information noted; he should also give details of planning consents made
avail;able to him and note any conditions which adversely affect value.
The question
of verification is at the heart of this case, since the plaintiffs now concede
that Mr Appleton’s valuation figures cannot be impugned as valuations, based
upon the supposed existence of all the consents mentioned.
Both expert
witnesses are surveyors of high standing and probity, but I consider that the
plaintiffs’ expert, Mr Colin Jennings [ARICS], tended to assert much higher
duties on the part of a valuer than is justified. For example, at the
commencement of his cross-examination, he said that the RICS guidelines were
the valuer’s ‘bible’ and that if Mr Appleton conformed to the guidelines he was
not to be criticised. However, later, when saying that Mr Appleton ought to
have inspected the local planning authority register, he said: ‘Mr Appleton
acted in accordance with the guide note, if looking to the letter of the guide
note, but I consider that he was negligent in not doing more — namely
inspecting the planning register’. I reject the contention that he should have
inspected the planning register. What he did, in my view, as I have already
said, was in accordance with the guide notes — namely making an oral inquiry. I
mention the point now, only because it constitutes one of several examples of
pieces of evidence which caused me to prefer the evidence of the defendants’
expert, Mr Desmond Hampton [FRICS], who, in any event, I regarded as a very
impressive and reliable witness. In all respects in which their evidence
conflicts, I accept that given by Mr Hampton.
I turn now to
consider the terms of the report itself and in particular para 2. There is
general agreement that, read fairly, it says that Mr Appleton made oral
inquiries of the local planning authority and, based upon what he had been told
during those inquiries, for the purpose of the valuation he assumed that there
existed the consent specified, but he added the important proviso that no
official searches had been undertaken. The plaintiffs’ key contention is that
Mr Appleton was negligent in not going on to say that the existence and terms
of those consents needed to be verified. I reject this allegation.
I start by
saying that, in my view, it was reasonable for Mr Appleton to assume the
accuracy of what he had been told on the telephone, although, as both parties
agree, some misunderstanding of some kind must have occurred, there being no
evidence upon which I could begin to contemplate making a finding of negligence
against Mr Appleton on that account.
In
cross-examination, Mr Jennings said this, with which Mr Hampton agreed: ‘Mr
Appleton, having made the assumption about planning, would expect his report to
be passed to solicitors, who would verify the accuracy of the assumption’.
Unfortunately, the plaintiffs did not pass on the report to their solicitors.
Mr Beak, who handled this matter at the plaintiffs’ solicitors’ firm, said that
had he received the report he would, as a matter of course, have investigated
to verify the consents, as indeed he did, in respect of the nursing home
consent. I accept Mr Beak’s evidence.
The RICS
guidance note no 6, para 2.6, says as follows:
Subject to
these matters the valuer should (in most if not all cases) make it clear that
information on which the valuation/report is based needs to be verified by the
client’s or other interested parties’ legal advisers, before the valuation or
the report is issued.
Mr Jennings’
attitude was that in all cases the need for verification should be stated for
fear that the client was a negligent client who did not know the basic
principles and procedures which ought to be followed.
Mr Hampton, in
giving evidence on this point, made the following observation:
You are
dealing with a professional member. It is like teaching your grandmother to
suck eggs. Most of my clients would be rather insulted if I told them of the
need for verification. It is a different case if you are dealing with a man
from the street. Different standards are appropriate for different clients. Mr
Appleton knew that the plaintiffs were a financial institution and would assume
that they knew what they were about. One is assuming reasonably competent
skills of a money-lending client. I would say what I have checked or not
checked and what I have assumed. I would not say that it needed to be verified.
I accept Mr
Hampton’s evidence, which is, if I may say so, full of good sound common sense.
This was not a valuation for a man in the street, it was for a financial
institution which was a licensed deposit taker.
Mr Appleton
was not told the size of the proposed loan, but obviously he would appreciate
that it could be (as indeed it was) a loan of £1m. No sensible person who
thought about it for a moment, still less any sensible financial institution,
would contemplate making a large loan without verifying the existence and
indeed the terms for planning consents, since they affected the valuation
figure.
The guidance
note makes it plain that it is not necessary in all cases, as Mr Jennings
contends, to state the need for verification. In my view, therefore, there is
no substance in this allegation against Mr Appleton whatsoever. He was not
negligent in failing to add that since he had not conducted a search, this
needed to be done. That was obviously the case and what happened here was a
failure on the plaintiffs’ part to do what it should have done, namely to pass
the report to their solicitors.
During Mr
Swain’s evidence I got the clear impression that the plaintiffs’ procedures
left much to be desired, in that there appeared to be uncertainty about who
should process matters and there also being an absence of a recognised
procedure for doing so; such procedure should have stated precisely what should
have been done, which would have included sending the valuation to the
company’s solicitors. As I have said, I reject this allegation completely.
A subsidiary
complaint about the valuation was that reference to ’30 units of sheltered
accommodation’ did not state the source of the information, namely Mr Hancock.
This is a valid complaint in that while it did not matter when the October
report was being made to Mr Hancock, when the plaintiffs became the clients,
guidance note 6, para 6.1 requires that sources of information should be
stated. However, Mr Nield, who appeared for the plaintiffs, was wholly unable
to explain what difference it would have made if Mr Appleton had inserted in
the report that the source of the information was Mr Hancock. Such evidence as
there is (namely Mr Swain’s) indicates that it would have made no difference
whatsoever. Certainly there was no evidence that it would have made any
difference.
I must add
that, of course, these guidance notes are not to be regarded as a statute. I
suspect that they are as much for the protection of surveyors as anything else,
in that they set out various recommendations which, if followed, it is hoped
will protect the surveyor from the unpleasantness of being sued. In any event,
mere failure to comply with the guidance notes does not necessarily constitute
negligence. I am not prepared to find Mr Appleton guilty of negligence because
of this omission and in any event, as I have said, the omission had no
causative effect.
By an
amendment made at the commencement of the trial, three further allegations are
made.
First, that
the defendants failed to state clearly whether the valuation included the value
of furnishings and fittings and to state the amount of such value. This
allegation was torpedoed in evidence by Mr Swain. From what he said, it was
quite plain that he understood the position perfectly clearly, as indeed I
would have expected anyone in the plaintiffs’ position to have done. As to the
need to state the amount of the value, this was unsupported by evidence and in
any event, in my view, in the context of a property valued at £1.5m, the value
of fittings and furnishings is not a matter of consequence, and I reject the
allegation.
Second, that
the defendants failed to warn the plaintiffs that an ordinary mortgage would
not give security over furnishings and all fittings. Again Mr Swain, in effect,
said that he did not need to be warned; of course he knew the position. In my
view, Mr Appleton was entitled to believe that any financial institution would
know this absolutely elementary fact and I reject that allegation.
The third
allegation related to the forced-sale valuation and was not pursued.
Consequently, all the plaintiffs’ allegations fail, but I consider that I
should express views on other issues in case of an appeal.
It is conceded
that the plaintiffs were negligent in not sending the valuation to their
solicitors. Had I found the defendants negligent, I
damages to be paid by the defendants as 20%.
I reject the
defendants’ contention that there is no evidence for reliance by the plaintiffs
on the fact that there was said to be consent in respect of sheltered housing.
The very existence of that consent affected the value of the property. The
plaintiffs would have lent only fractionally over 70% of the valuation figure
and therefore the valuation figure was relied upon by the plaintiffs for that
purpose.
I reject the
defendants’ contention that the plaintiffs’ failure to send the valuation to
their solicitors constituted a novus actus.
I was referred
to two cases, McKew v Holland & Hannen & Cubitts (Scotland)
Ltd [1969] 3 All ER 1621, at p 1623E, and Knightley v Johns
[1982] 1 WLR 349, in particular the judgment of Stephenson LJ at p 366. On p
367 he said:
The answer to
this difficult question must be dictated by common sense rather than logic on
the facts and circumstances of each case.
I respectfully
agree. It is very much a matter of first impression, but, in my view, the
circumstances of this case go nowhere near being something which constitutes a novus
actus when the plaintiffs failed to pass on the report to their solicitors.
One does not have to have, of course, the two acts which are effected to cause
the damage occurring at the same point of time. This is an absolutely typical
case, if I had found negligence on the part of the defendants, in which there
was both negligence and contributory negligence. However, for the reasons given
already, there must be judgment for the defendants.
Judgment for
the defendants with costs.
