Action by building society against surveyor for negligent mortgage valuation — Surveyor had given house a clean bill of health, but soon after borrowers moved in, following purchase, serious indications of subsidence appeared — Society advanced £11,880 on surveyor’s valuation but at the date of his report the house was commercially worthless — Society spent over £29,000 on remedial works, but, as a gesture of goodwill, did not ask borrowers to make any contribution — In the litigation which ensued there has been considerable divergence of judicial opinion, both between Russell J, the trial judge, and the Court of Appeal and within the Court of Appeal itself, Stephenson and O’Connor LJJ allowing the appeal and Sir Denys Buckley dissenting, agreeing with Russell J — Some difference of approach also between Stephenson LJ and O’Connor LJ — Before the Court of Appeal there was no longer any issue as to the respondent surveyor’s liability, but only a question as to the measure of damages — In fact the only question was the narrower one as to whether Russell J was correct in deducting from the damages payable by the respondent to the society an amount (£3,000) representing an assessment of the worth of the continuing personal covenants of the borrowers — It was agreed that in principle the measure of damages was the difference between the sum advanced on the basis of the respondent’s negligent valuation and the sum which would have been advanced on a valuation made with due care and skill (which was nil) — Stephenson and O’Connor LJJ held that in the circumstances of the case Russell J had been wrong in making a deduction for the personal covenants — O’Connor LJ considered that there was no duty to mitigate loss in that way, whereas Stephenson LJ thought that in some circumstances it might be shown to be reasonable to do so (but this had not been shown in the present case) — Sir Denys Buckley, holding that Russell J had been correct, took the view that the matter did not depend upon a doctrine of mitigation but merely upon a reduction of loss by the expected performance by the covenantor of his obligations — Appeal allowed by a majority, but leave given to appeal to the House of Lords — Judgments contain an important review of authorities
This was an
appeal by London and South of England Building Society from a decision of
Russell J (reported at (1982) 261 EG 463, [1982] 1 EGLR 139) who had given
judgment against the respondent, Barrie Stone, a chartered surveyor, for a sum
of £9,133.13, together with interest, in respect of alleged breach of contract
and negligence, in relation to a building society valuation of a house called
Lane End, Kingsdown Grove, Corsham, Wiltshire. The appeal was concerned only
with the measure of damages. There was a cross-appeal by the respondent
claiming that more than £3,000 should be deducted from the loss of £11,880.
Patrick Twigg
(instructed by Lawrance Messer & Co) appeared on behalf of the appellants;
John Slater and Miss Jane Davies (instructed by Barlow Lyde & Gilbert)
represented the respondent.
Giving the
first judgment at the invitation of Stephenson LJ, O’CONNOR LJ said: This
appeal raises an important question on the measure of damages in a case where a
building society has lent money on mortgage in reliance upon a valuation that
has been made in breach of the valuer’s duty to his employer.
The facts of
the case are unusual. In March 1976 Mr Robinson, aged 42, a salesman earning
£3,250 per annum, and his fiancee, Mrs Hurd, aged 37, a school-teacher earning
£4,000 per annum (hereafter called ‘the borrowers’), were negotiating for the
purchase of a semi-detached house, ‘Lane End’ in Corsham, Wiltshire. They
approached the appellant building society (to whom I shall refer as ‘the
lenders’) for a mortgage to finance the purchase. After the lenders had
received satisfactory references a formal request for an advance of £12,800
repayable in 25 years against a purchase price of £14,850 was made by the
borrowers to the lenders on May 25 1976; on May 24 the lenders instructed the
respondent, a qualified surveyor and valuer, to value the property (I shall
refer to him as ‘the valuer’). The lenders have a printed form which goes to
the valuer for him to complete but in part has already been filled in by the
lenders. Paragraph 1.11 states that the advance required is £12,800 repayable
over 25 years; paragraph 1.12 states that the agreed purchase price was
£14,850. The valuer inspected the property and made his report to the lenders
on May 27. He gave the house a clean bill of health and at paragraph 14.1
stated that the gross value for mortgage was £14,850. By paragraph 15.2 the
valuer certified that he had valued the property, and prepared his report in
accordance with the provisions of section 25 of the Building Societies Act
1962. Lastly, by paragraph 13.2, the valuer recommended the property as a
suitable security for the advance and term requested in paragraph 1.11.
Although the
borrowers and the property had been cleared for a loan of £12,800 the lenders
found that they were still bound by an in-house rule not to lend more than 80%
of the purchase price, so they offered a loan of £11,880, which was accepted,
and in due course the purchase of the property went through on that basis on
September 23 1976. By a legal charge of even date the borrowers charged the
house to the lenders. By clause 1 the borrowers covenanted:
(a) to pay monthly to the society the sum stated
in part 5 of the 1st schedule (or such other sum or sums as may hereafter at
any time be agreed in writing by the parties hereto or may be determined by the
Board of Directors of the Society (‘the Board’) hereunder) until the principal
sum and any further advances or any re-advances that may be made to the
borrower by the Society with interest thereon as hereinafter provided and all
other monies payable by the borrower to the Society hereunder or by the rules
shall have been repaid the first of such payments to be made on the date stated
in part 6 of the schedule and subsequent payments to be made on the day in the
month stated in part 7 of the 1st schedule.
By clause 4 of
the legal charge the borrowers entered into further covenants with the lender
including:
(d) at all times to keep any buildings on the
property in good and tenantable repair to the satisfaction of the lender and to
give to the lender on demand such information about and such opportunity to
inspect or repair the property as it may require.
By clause 5 it
was mutually agreed and declared that:
(a) the borrower shall not let or part with
possession of the property or any part thereof without the written consent of
the Society first had and obtained.
. . .
(h) That if default be made by the borrower in
payment of any one or more of the said monthly payments and other payments hereby
covenanted to be made or in the observance and performance of any of the
borrower’s covenants or obligations herein expressed or implied or if the
borrower or the guarantor (if any) shall become bankrupt or being a limited
company shall go into liquidation other than voluntary liquidation for the
purpose of reconstruction or shall have a winding up order made against it or
in case the property shall be compulsorily acquired or demolished by order of
any competent authority the whole of the money payable or to become payable
hereunder shall be deemed to be forthwith due and owing and the Society may
without any previous notice to or concurrence by the borrower:
(i) Appoint a receiver under the statutory power
and eject from the property the borrower his tenants and workmen and all other
persons then in possession or occupation thereof
(ii) Complete any unfinished buildings and effect
and carry out upon the property any such repairs amendments alterations or
additions as the Society shall consider necessary or desirable for the
improvement of the property or the security hereby created
(iii) In exercise of the statutory power sell or
let all or any part of the property.
(i) that all money paid by the Society in
completing repairing, amending, altering, improving or insuring the property or
in making any payments for outgoings in relation thereto or for the protection
or improvement of the security hereby created shall carry interest at the rate
of interest herein provided for, and shall be repayable by the borrower on
demand and in the meantime shall be a charge on the property.
The borrowers
moved into their new home but, despite the charm of the view from the windows,
soon found that all was not well with their house; cracks appeared and the
doors ceased to fit, the sure tell-tales that the property was subject to
subsidence. The borrowers became alarmed and called in consulting engineers who
reported in September 1977 that the house was built on the site of an old
quarry in the hillside which had been indifferently filled, that not only was
the whole hillside gradually moving downward, but the fill in the quarry was
sliding downhill, lubricated by water and taking the foundations of the house
with it. They said:
We consider
that, although the house is not likely to collapse within the next few months,
if there is another long period of wet weather then there is every possibility
of the filled material beneath the foundations slipping away and the downhill
corner of the house collapsing.
They
recommended underpinning, but could give no estimate of the cost until the
depth of the quarry floor below the house had been ascertained. The borrowers
applied to the insurance company but the insurance company would have nothing
to do with the claim, for they said that this condition existed before the
policy was effected and indeed they had a report from a valuer as late as
February 1976 including a photograph showing a great big crack and reporting
the true condition of this house.
The borrowers
turned to the lenders for help and Mr Stoughton-Harris, their managing
director, who gave evidence at the trial, agreed to get an estimate for the
repair of the house, and on February 9 he wrote to the valuer, warning him that
he proposed to take proceedings on the grounds that the valuer’s inspection of
the property in May 1976 should have disclosed the evidence of the subsidence.
By September 1978 the lender had received an estimate for the repair of the
house in the sum of £14,000. The borrowers could not afford to pay any more
than they were already paying; they were fully stretched financially. There
were only two alternatives, either to repair the house or to pull it down and
incur the further expense of shoring up the party wall of the other half of the
semi-detached building; the lenders decided to repair the house. Unfortunately
the estimate for carrying out the work proved wholly insufficient. It is
unnecessary to go into any details as to what was wrong with it, but in the end
it cost £29,000 to repair the house. In June 1979 Mr Stoughton-Harris, on
behalf of the lenders, wrote to the borrowers:
I am writing
to tell you that after giving the matter considerable thought I have decided not
to ask you to make up any deficiency which may arise as a result of this
unfortunate affair. On behalf of the Society I shall be pursuing Barry Stone
for negligence, and I hope to recover the total costs which amount to
approximately £20,000, but any deficiency that may arise will be paid for by
the Society. In agreeing to do this I am not in any way accepting liability on
behalf of the Building Society. It is a gesture of goodwill on the part of the
Society for what has been a most difficult and frightening experience for you
and your wife.
Following the
finding of the learned judge to that effect, the valuer accepts that he was
guilty of negligence in his valuation. I shall confine myself to tracing the
history of the claim for damages. The particulars of damage in the statement of
claim originally delivered in August 1978 read:
The value of
the Plaintiff’s security has been reduced. To put the property into a state
where the Plaintiff’s security would be of such value as the Defendant reported
will cost £7,462 plus provisional sums of £2,150 in each case plus VAT.
In July 1980
the particulars were amended to read:
The value of
the Plaintiff’s security has been reduced. Had the property conformed with the
Defendant’s description and valuation the advance made by the Plaintiff as
above would have been fully secured. In order to put the property into a state
where such advance is fully secured the Plaintiff has expended the sum of
£29,909 as follows
and then
details of how the sum was made up are given.
During the
trial the particulars were further amended by adding the following paragraph:
The property
was worthless. Had the plaintiffs realised or sought to realise their security,
they would have got nothing thereby suffering a loss of £11,880 and interest thereon
which loss would not otherwise have been diminished.
The purpose of
this amendment was to put into the pleading a foundation for the submission
being made for the lenders that if the true measure of damage was the
difference between the sum lent and that which would have been lent had the
valuation been a proper one they were not required to make any reduction in the
resulting figure by reason of the personal covenants of the borrower.
The learned
judge dealt with this submission by ruling that a deduction had to be made and,
fixing the deduction at £3,000, he said:
Should I make
any discount from the figure of £11,880 claimed in the amendment? At one stage Mr Slater argued that because
the society had received this sum upon the resale of the property there had in
fact been no loss as a result of the defendant’s negligence, but that
submission was not pursued. I have to look at the situation at the date of the
report. The plaintiffs were left without any security in the house but the
society had the continuing personal covenants of the Robinsons. I bear in mind
those factors to which I have already alluded. Despite the difficulties that
would have been encountered by the Robinsons in the event of their having to
leave I think that their personal covenants must be something more than an
illusory factor. As time went on, their income rose (they are now earning
something like £15,000 per annum; their precise financial position was not
investigated in any great depth). But doing the best I can on the evidence
before me I do not think that it would have been commercial good sense on the
part of the society simply to have waived all their rights under the mortgage
deed. It would probably have been both honourable and commercial good sense for
the society not to have pursued the Robinsons to the full extent of
their contractual obligations. I do not think to have done so would have been a
necessary or reasonable mitigation of the loss and I do not think that the
plaintiffs were under any duty to do so.
Accordingly
to take account of the Robinsons’ covenants and the other facts to which I have
referred, I shall make a deduction which reduces the claim from £11,880 to
£8,880; to this must be added, by agreement, the reasonable costs incurred by
the society in investigating the matter. That sum I understand to be £253.13.
Accordingly there will be judgment for the plaintiffs in the sum of £9,133.13.
It is accepted
by the lenders that the learned judge was right in holding that the measure of
damages was the difference between the amount lent and the amount that would
have been lent upon a proper valuation. There is no dispute that the relevant
figures are £11,880 and nil. The only issue in this appeal is as to whether the
learned judge was right in deducting £3,000 from that sum.
Before I
consider that issue there is a little more history. From the beginning the
borrowers kept up their repayments due under the agreement with the lenders,
and in August 1981 they sold the house for £26,500. The whole of the original
advance was repaid at that stage, but that transaction is to be disregarded in
the present case, because in effect the lenders were being repaid with their
own money. The actual amount outstanding at the date when the debt was paid off
was £11,912. We have details of the repayments made by the borrowers down to
the end of March 1980 and these show that one payment of £127.50 was allocated
to repayment of capital; that is sufficient to raise the problem as to whether
credit must be given for it, and it would follow that if it must be given it
must also be given for any allocation to capital between March 1980 and August
1981 when the house was sold and the debt paid off.
In deciding
that some deduction had to be made for the value of
decision of Devlin J (as he then was) in Eagle Star Insurance Co Ltd v Gale
& Power (1955) 166 ESTATES GAZETTE 37. I shall have to deal with that
decision later in this judgment.
I start by
considering the nature of the agreement between a building society and a valuer
asked to value a house as security for a proposed loan of £12,800. The valuer
does not warrant the accuracy or sufficiency of his valuation; he fulfils his
part of the bargain if in making his valuation he exercises the care and skill
reasonably to be expected from a member of his profession. If a valuer fails to
exercise that skill and care in making his valuation he is in breach of his
duty and liable in damages.
Broadly
speaking, his failure will be in one of two categories. The first category is
the case where he negligently makes a wholly erroneous valuation of the
property; for example, to value building land on a negligently mistaken density
figure. The second category is where the valuer has negligently failed to
discover defects in the property; for example, the present case.
If the duty is
broken what is the damage and how is it to be assessed? The fundamental rule is that the measure of
damages is that sum of money which will put the injured party in the same
position as that in which he would have been if he had not sustained the
injury. Where the injured party is the purchaser or vendor of property who has
acted on the negligent valuation, the measure of damages is the difference in
the valuation figure and the market value of the property at the date of the
transaction; that is in cases where the valuation and purchase or sale are
reasonably contemporaneous. Perry v Sidney Phillips & Son
[1982] 1 WLR 1297 was a purchaser case; Lord Denning MR said at pp 1301-1302:
Where there
is a contract by a prospective buyer with a surveyor under which the surveyor
agrees to survey a house and make a report on it — and he makes it negligently
— and the client buys the house on the faith of the report, then the damages
are to be assessed at the time of the breach, according to the difference in
price which the buyer would have given if the report had been carefully made
from that which he in fact gave owing to the negligence of the surveyor. The surveyor
gives no warranty that there are no defects other than those in his report.
There is no question of specific performance. The contract has already been
performed, albeit negligently. The buyer is not entitled to remedy the defects
and charge the cost to the surveyor. He is only entitled to damages for the
breach of contract or for negligence. It was so decided by this court in Philips
v Ward [1956] 1 WLR 471, followed in Simple Simon Catering Ltd v Binstock
Miller & Co (1973) 117 SJ 529.
In that case
the plaintiffs submitted that the damages should be the difference between the
value of the house at the date of trial, and the value it would have had if it
had been in the condition it would have been in on the basis of the surveyor’s
report. The Court of Appeal rejected the submission.
The position
of a mortgagee who has lent money on the faith of the valuation is different.
This was recognised by Morris LJ (as he then was) in his judgment in Philips
v Ward [1956) 1 WLR 471. That was another purchaser case; the official
referee had refused to award the cost of repairs but awarded the difference
between the purchase price and the actual value of the house. Morris LJ said at
p 476:
The present
case differs from Baxter v Gapp & Co, where a negligently
given valuation caused the plaintiff to advance money on mortgage to an
unsatisfactory borrower, with the result that the plaintiff as mortgagee was
put to expense and loss. The amount of such expense and loss was in that case
the measure of the damage sustained by the plaintiff. In the present case, the
plaintiff, being mindful to purchase a property and seeking advice as to its
condition, paid £25,000 for it, which would have been its value if it had been
in the condition described by the defendant, whereas its real value in its
actual condition as it should have been described by the defendant was £21,000.
In those circumstances, it seems to me that the figure of £4,000 represented
the proper measure of the damage sustained by the plaintiff, and I see no error
of law in the approach of the official referee.
Baxter v Gapp & Co Ltd [1939] 2 KB 271 is a decision which is
binding upon us. In that case the defendant valuers valued the property at
£1,800 and reported that it was a reliable trustee security for an advance of
£1,200. In August 1935 the plaintiff advanced the £1,200 to the owner of the
property by way of first mortgage; the mortgagor paid to the plaintiff one
half-year’s interest in February 1936, but thereafter she failed to pay any
interest and abandoned the property; in April 1937 the plaintiff obtained
possession of the property. He made various abortive attempts to sell it,
including putting it up for auction, and in June 1938 he succeeded in disposing
of it at a price of £850. Goddard LJ (as he then was) tried the case at first
instance and assessed the damages at £742 16s. 7d. That figure included the
difference between the sum advanced by the plaintiff and the proceeds of the
sale of the property, the amount of the interest which the mortgagor had failed
to pay, the cost of insuring the property and of maintaining it in repair while
it was in the plaintiff’s possession, legal charges during that period,
expenses of abortive attempts to sell the property, estate agents’ commission
on the eventual sale price of the property, and legal charges in connection
with the sale. The Court of Appeal dismissed the defendant’s appeal. I must set
out the judgments in full. MacKinnon LJ said at p 273:
Goddard LJ has
assessed them on the basis that, by reason of this excessive valuation, the
plaintiff was induced to enter on this enterprise of lending money which he
would not have lent but for the valuation. As a result of lending the money he
has suffered a certain pecuniary loss — namely, the loss of his interest during
two years, the loss of his capital so far as it has not been repaid by the
price paid by Mrs Rapozo (the purchaser of the property in June 1938), and a
number of other items. The resulting figure, amounting to £742 16s 7d, Goddard
LJ has awarded the plaintiff as damages.
In principle
it seems to me that that is the right basis on which to assess the damages.
There is no clear authority on the matter. Scholes v Brook was a
similar claim against valuers for negligence. Romer J gave judgment for the
plaintiff and awarded damages. The basis on which he assessed the damages is
not clearly shown, because the report merely ends by saying: ‘His Lordship
reviewed the evidence, and, having decided that the valuation by Messrs Brook
and Dransfield was not carried out with proper care and skill, gave judgment
against them for damages’. In the Court of Appeal Lindley LJ is only reported
as saying that ‘he was therefore of opinion that the mode of estimating the
damages adopted by the judge was correct’. One can only discover the basis so
approved from a passage in the body of the report and the argument for the
appellants. In the statement of facts it says: ‘His Lordship (ie Romer J) gave
damages to the plaintiff, representing the whole loss he had sustained through
the deficiency of the security. The defendants appealed’. The report continues:
‘Haldane QC and Oswald, for the appellants, contended . . . . . . that the
measure of damages (if any) ought to be the difference between the value of the
estate as stated by the valuers and the real value at that time’. That seems to
indicate that Romer J had adopted the same basis of assessing the damages as
that employed by Goddard LJ in this case, a basis which was approved by Lindley
LJ as the proper measure of damages.
As I have
said, I think that the principle applied by Goddard LJ is right and, so far as
authority is available, that seems to confirm it.
We were
referred by Mr Heald, who argued that the damages should be limited to the
difference between the valuation figure and the true value of the property at
the time of the valuation, to a decision of the Supreme Court of Canada in Lowenburg,
Harris & Co v Wolley. That was a similar claim. The headnote
says: ‘The measure of damages in such a case is not the amount loaned with
interest, but the difference between that amount and the actual value of the
land’. In that case the mortgagee, having got into possession, was unable to
sell the property and was still in possession of it. Therefore, when the Court
said that the measure of damages was the difference between the amount lent and
the actual value of the land, supposing that the amount lent was £1,000 and the
actual value, which the mortgagee had not yet been able to ascertain, because he
had been unable to sell, was £500, he would get the difference — namely, half
of what he had lent. That, in effect, is the same basis of assessing the
damages as that adopted by Goddard LJ in this case, the only difference being
that in this case the value of the land to the plaintiff has been ascertained
by his sale to Mrs Rapozo.
That the
measure of damages in such a case as the present is that which the plaintiff
has lost by being led into a disastrous investment is shown by the fact that in
Lowenburg Harris & Co v Wolley the judge in the court below,
whose judgment was affirmed by the Court of Appeal, held that the plaintiff was
entitled to recover the whole amount of his advance, but that he should assign
to the defendants the land so that they could do what they could to realise its
value and so mitigate the loss. That would be a process which would arrive at
the same result as that which Goddard LJ rightly arrived at in the present
case.
In the
result, I think that this appeal fails, and must be dismissed with costs.
du Parcq LJ:
On the question of the measure of damages I have nothing to add. It seems to me
that we are bound by the decision of this Court in Scholes v Brook,
a decision which seems to be in accordance with principle. I agree that the appeal
should be dismissed.
MacNaghten J:
I agree that the appeal must be dismissed and that the damages were rightly
assessed by Goddard LJ.
The decision
of Goddard LJ is reported in [1938] 4 All ER 457, where he said at p 465:
I now turn to
the question of what damages the plaintiff is entitled to recover. The
plaintiff says: ‘My measure of damages is this: if you had given me careful
information, made a careful valuation, this property would have been valued at
a considerably lower sum. I should never have entered into this transaction at
all’. That is to say (I ignore the £150 for this purpose): ‘I should never have
entered into that first mortgage transaction under which I advanced £1,200.
Whether I should have entered into another transaction advancing £1,000 or
whether I should have advanced £800, I do not know,
transaction into which, but for your advice, I should never have entered.
Therefore, if I show that I have a cause of action, my damage is the damage I
have sustained through entering into this transaction’. That seems to be right,
unless, of course, some different measure has to be applied in ascertaining the
actual damage he has sustained through the negligent valuation. Therefore, I
think that one has to examine rather carefully the facts and the law with
regard to this, because this matter is a question of law, and if I am wrong on
this question of law, I can be put right in another court.
I need make no
further reference to Scholes v Brook because an examination of
the reports reveals nothing beyond the matters referred to by MacKinnon LJ in
his judgment in Baxter.
Mr Slater, for
the valuer, submits that Baxter is authority only in cases where the
borrower has defaulted, and he relies on the Eagle Star case;
alternatively that the Court of Appeal in Baxter misunderstood the
effect of the Canadian case, Lowenburg Harris & Co v Wolley
(1895) 25 SCR 51, and as MacKinnon LJ relied upon his reading of that case as
authority to support his decision we are free to say that the decision was
reached per incuriam and is not binding on us.
In Eagle
Star Insurance Co Ltd v Gale & Power (1955) 166 EG 37 the
plaintiffs advanced £3,015 on a house owned and occupied by the defendant with
a mortgage on the house as security relying upon a valuation of £3,350 by the
defendants in 1952. The defendants had failed to discover defects in the house
which as a result was worth only £1,600. It was agreed that the cost of the
repairs to put the house in the condition spoken to in the defendants’ report
was £950 in 1952, and £1,030 at the date of trial, July 1955. The report of the
judgment of Devlin J in the ESTATES GAZETTE is sparse; I quote the relevant
passages of the report in full:
Mr William
Thomas Lovett, manager of plaintiffs’ mortgage department, said their prime
security for Mr Curtis’s loan was the property he was buying and the value of
the property governed the amount of the advance. If the company had known the
true value and condition of the property, they would not have made such a large
loan. Any damages the company might recover would be used, subject to Mr
Curtis’s approval, in carrying out repairs or reducing Mr Curtis’s loan.
Mr Adelbert
Percy Curtis, a head schoolmaster, said that when he bought the property he
believed it to be perfectly sound. The house was so bad that for 18 months he
and his wife had to live in the kitchen. The insurance company had offered him
a further loan of £1,000 to put the house in good order but, in view of his
impending retirement, he could not further commit himself.
Mr Lawson,
for defendants, submitted that in assessing any damages one had to consider
what the plaintiffs would get out of the transaction with Mr Curtis, if it ran
its normal course. It was evident that Mr Curtis intended to fulfil his
obligations to the plaintiffs and the probabilities of the plaintiffs
sustaining any actual damages were very small. Counsel agreed that plaintiffs
were entitled to nominal damages for the defendants’ breach of contract.
For
plaintiffs, Mr Marnan submitted that plaintiffs were entitled to at least
sufficient damages to enable them to restore the house to the state which was
wrongly reported to them by defendants.
Giving
judgment, his lordship said that defendants, if they were competent surveyors,
ought to have seen the signs of subsidence and advised plaintiffs that this was
a property on which money should not be advanced. ‘I cannot help feeling that
this is a situation which need not have arisen at all’, continued his lordship.
‘If building societies and insurance companies were to make arrangements for
their clients to have the benefit of the surveyor’s report, for which the
clients have to pay, the clients would then have a right of action against the
surveyor. It is a situation which is a trap, though innocently set, which makes
people think that in paying for the surveyor’s report they can rely on it in
law. It is distressing to see people who have invested all their savings in
their homes being treated in this way. This is the second case of this type I
have dealt with in the past two years and I feel that there must be many more
cases where this sort of hardship goes without remedy.’
His lordship
said plaintiffs had done their best to assist Mr Curtis in his predicament and
deserved every credit. Any damages they got would be used to put the house in
good order.
The judge
said that the only way of assessing damages was to calculate what plaintiffs
would have got had they realised their securities. The fact that they had not
done this could not influence his judgment.
The two main
items of security were the house, which his lordship estimated as being worth
£1,600, and Mr Curtis’s personal covenant to repay £1,500 out of his retirement
gratuity in August 1956. Together these amounted to £3,100 without counting the
other personal covenants.
‘I cannot,
therefore, say that by any method of calculation, plaintiffs have lost any of
the money they advanced. I cannot accept defendants’ submission that this is a
case for nominal damages, and I think £100 would indemnify plaintiffs against
the possibilities of their not being able to recover their money from Mr
Curtis. Plaintiffs are also entitled to £52 10s, the cost of the surveys and
reports made on the house subsequently. There will be judgment for plaintiffs
for £152 10s.’
Mr Lawson
said defendants had paid £800 11s 11d into court, and his lordship ordered that
plaintiffs should have their costs of the action up to date of the payment in
of the money, and the balance should be paid out to defendants, who would also
have their costs after the date of payment into Court.
Baxter v Gapp was not cited and as a result, in my judgment, that
case was wrongly decided. I will assume that the legal charge contained similar
provisions to clauses 4(d) and 5(h) and (i) of the legal charge in the present
case set out earlier in this judgment.
The contract
between the Eagle Star and Mr Curtis must have contained some special term as
to the repayment of £1,500 out of his retirement gratuity, but we do not know
the terms for the repayment of the balance of the loan. In my judgment both are
irrelevant. If the Eagle Star had spent £950 on repairing the house in 1952
they would have been entitled to say that they had entered into a transaction
on the faith of the defendants’ report which they would not have entered into
had they reported the true state of affairs; and as a result they had suffered
loss in that Mr Curtis had defaulted on his obligation to keep the house in
good repair and he could not repay the whole loan forthwith so they could have
sold the house for £1,600, and recovered the balance of £1,415 from the
defendants but in mitigation of damage they had repaired the house for £950. In
my judgment it should have made no difference that the £950 had not in fact
been spent, but even if the decision could be defended on that narrow ground it
would not avail the valuer in the present case. Further I am clear that it
simply would not have been open to the defendants to assert that the Eagle Star
should have added the £950 to the mortgage of Mr Curtis and that their own
liability should have been reduced by such sum as might have been wrung out of
him.
I think that
the criticism that in Baxter v Gapp MacKinnon LJ misapprehended
the effect of the judgment of the Supreme Court in the Canadian case is well
founded. I have no doubt that this is because the headnote from that case cited
is itself misleading. In the Canadian case the mortgagee was in possession;
after the valuer had been found negligent the trial judge ordered that the
valuer repay the whole amount of the advance together with interest but that
the mortgagee should transfer the land to the valuer who could realise what he
could upon it. By a majority that decision was upheld in the British Columbia
Court of Appeal. In the Supreme Court that assessment was set aside; the Chief
Justice, giving the judgment of the majority, said:
I am of
opinion that this was not a correct disposition of the case. The effect of this
judgment would be to make the appellants not only responsible for such damages
as were caused by the negligent performance of their duty as the respondents’
agents in over valuing the mortgaged property but also for any depreciation (if
any there has been) in the actual value of the property subsequent to the loan.
It is manifest that any loss in this respect should be borne by the respondent
himself in as much as it cannot be attributed to the neglect of the appellants.
All that the appellants can possibly be liable for is the loss occasioned by
the over valuation adopted and acted on by them.
So the Supreme
Court was substituting the value of the land at the date of the loan for the
value of the land at the date of trial or at any time in between. There is no
doubt that the effect of the Lowenburg case was fairly and squarely put
to the court in Baxter v Gapp by counsel for the valuers: see the
report of the argument at p 272, and also in the full report of this extempore
judgment in [1939] 2 All ER 752 at p 753. But the whole point of the decision
in Baxter v Gapp is that the Court of Appeal rejected the
submission that damages were limited to the different between the sum loaned
and the true value of the property at the date of the transaction. It would
seem from a passage at p 463 of the report of Baxter at first instance
that the value of the house at the time of the loan was about £1,000.
I am quite
unable to say that the decision of the Court of Appeal was reached per
incuriam; and it is binding upon us.
We were
referred to two further decisions at first instance. First the case of Singer
& Friedlander v John D Wood & Co (1977) 243 ESTATES GAZETTE
212 decided by Watkins J (as he then was) in June 1977. In that case the bank
lent £1 1/2m on building land to developers against a valuation of £2m. This
was in 1972. In 1975, the developers went into liquidation with liabilities of
£50m and the bank were left with the building land then valued at £600,000.
There was evidence, which the judge accepted, that at the date of the loan the
true value was £1 1/2m. He held that the valuers were guilty of negligence, and
counsel concerned, Mr Leggat and Mr Lloyd as they then were, had agreed that
the correct measure of damages was the difference between 75% of the negligent
valuation, namely the amount loaned, and 75% of the true value, and the judge
agreed that that was the
In Corisand
Investments Ltd v Druce & Co (1978) 248 ESTATES GAZETTE 315 the
plaintiffs in 1973 advanced £60,000 on four properties together valued by the
defendants at £622,000, already charged with £375,000 to first mortgagees. The
loan was on the basis that the total borrowing on the properties should not
exceed 70% of their value. The loan was for one year with interest at 30%
payable monthly. The property boom burst, the borrowers went into liquidation,
and when the properties were realised there was not enough to pay off the first
mortgagees. The plaintiffs lost their money and interest, less £9,000 which had
been paid. The defendants had negligently over-valued one of the properties in
the sum of £55,000, and applying the 70% rule Gibson J held that if the
valuation had been in a true figure the plaintiffs would have lent £22,000, not
£60,000, so that their loss was £38,000 under this head. For some reason which
is not clear to me, the learned judge rejected the plaintiffs’ claim for
interest on that sum.
I do not think
that any help is to be derived from these property boom and collapse cases; in
each case the lender would have suffered loss on the sums which the court found
he would have lent against a proper valuation and it was appropriate to assess
that loss as the difference between the sum lent and that which would have been
lent. It is not a formula to govern all cases where money is lent on the faith
of a negligent valuation.
I return to
the facts of the present case and apply the reasoning in Baxter v Gapp
to them in the same way as I have applied that case in theory to the facts in
the Eagle Star case. The actual loss to the lenders was £29,000. The
learned judge has held that it was unreasonable to spend so much money on
repairing the house. It is not suggested that the house could have been
repaired for less than £11,800. What then is it suggested that the lenders
should have done? The learned judge did
not ask himself this question, and as a result did not answer it. Something had
to be done, for the evidence was that the house was about to fall down. The
borrowers could not afford to put the house into repair; what then should the
lenders have done? Should they have
called in the loan for breach of covenant and repossessed the property? That would have been a pointless exercise, as
the house was worthless and indeed a liability, for it either had to be
repaired or pulled down and the neighbouring premises shored up.
The truth is
that however one looks at this case the lenders have lost the whole of their
advance at the very least. This loss has been caused by the negligence of the
valuer, for it is quite certain that but for the negligent valuation the
lenders would not have embarked on the transaction at all; they would have lent
nothing. That loss has not been diminished by the small repayment of capital.
I can see no
justification for the suggestion that the lenders were under any duty to the
valuer to mitigate this loss by trying to extract money from the borrower. Let
me test the proposition in a simple way: assume that the borrower had agreed to
contribute £5,000 towards these repairs, could the valuer have claimed credit
for this or any part of this sum on the facts of this case? I am quite clear that he could not have done
so. I would allow this appeal and enter judgment for the appellants in the full
sum of £11,800.
It will be
obvious that in my judgment the respondents’ cross-appeal asking that more than
£3,000 should be deducted from the £11,800 must be dismissed.
Dissenting, SIR
DENYS BUCKLEY said: In this appeal we are concerned only with the quantum of
the damages which the plaintiff is entitled to recover. Liability is no longer
in issue. It is common ground in this court that at May 27 1976, when the
defendant reported to the plaintiff that he valued Lane End at £14,850, the
property was, on account of its physical state, commercially valueless. In
reliance on that report the plaintiff advanced £11,880 to Mr and Mrs Robinson
(the borrowers) on the security of the legal charge dated September 23 1976.
The plaintiff’s cause of action thereupon came into existence. The writ was
issued on August 12 1978, by which date the physical condition of the property
had at least partially come to light, which demonstrated the defective
character of the defendant’s valuation, and the plaintiff’s insurers had
disclaimed all liability. Experts’ estimates at that time indicated that
necessary remedial work would cost about £14,000 which might, it was thought,
render the property of a value in excess of £20,000.
Matters stood
thus at about the time of the issue of the writ, but as the remedial work
progressed the cost escalated steeply, amounting eventually to £27,187.79. It
is not in dispute that that was a reasonable sum for the necessary works, which
did no more than put the property in a condition such as was described in the
defendant’s valuation report.
The borrowers,
who had had to vacate the house during the works, returned to occupy it, but in
August 1981 the property was sold because Mr Robinson had to move for business
reasons. It fetched £26,500. Accordingly the remedial works did not mitigate
any loss occasioned to the plaintiff by the defendant’s negligent valuation,
for the cost of the works exceeded the resulting value of the property.
The plaintiff’s
loan of £11,880 to the borrowers was secured by the legal charge with interest
at 11.1% per annum and made payable by monthly payments of £121 over a term of
25 years. When the property was sold, the outstanding amount of the advance was
repaid. The borrowers, as I understand, had paid all the monthly instalments
down to that date.
Under clause
5(1) of the legal charge all the expenditure by the plaintiff upon the remedial
works was to carry interest, be repayable on demand and in the meantime be a
charge on the property. In June 1979, however, the plaintiff decided as a
gesture of goodwill not to require the borrowers to meet any of the repair
costs, and they have not done so.
How, in these
circumstances, are the damages which the plaintiff is entitled to recover
against the defendant to be assessed?
The formula for such assessment must, in my judgment, have been the same
at whatever date after accrual of the cause of action the assessment might have
been made, notwithstanding that the relevant data may have varied from time to
time. Obviously, if the assessment had been made at or shortly after the
accrual of the cause of action or the issue of the writ, there would have been
likely to be a much greater element of estimate than would be the case if it
were made at some later date when supervening facts had become known. The kind
of damage with which we are concerned is pecuniary. The primary question is:
what loss in terms of money did the plaintiff suffer in consequence of the
defendant’s tort or breach of contract?
A second question may be: to what extent has the plaintiff succeeded in
reducing that loss by taking any steps available to him to do so, or to what
extent could he have reduced that loss by taking steps which have been
available to him but which he has failed unreasonably to take? The amount recoverable by the plaintiff will
be the excess of the loss over the actual mitigation (if any) plus any
available mitigation which the plaintiff has unreasonably failed to achieve.
Any reduction of the loss which should properly find its place in the
calculation of the primary loss cannot come into the calculation a second time
in the form of mitigation.
What, then,
was the extent of the monetary loss suffered in the present case in consequence
of the defendant’s negligent valuation?
It is clear from the documentation that the defendant was aware, when he
made his valuation, that the plaintiff’s object in obtaining it was to satisfy
itself that the property would be a sufficient and satisfactory security for
repayment of an advance of up to £12,800 repayable with interest over 25 years
and secured by a mortgage of the property. It was in reliance upon the
defendant’s valuation that the plaintiff made the loan of £11,880 which was
secured by the legal charge. By that legal charge the plaintiff obtained the
following concurrent remedies for the recovery of the loan with interest: (a)
the personal covenants of the borrowers contained in clause 2(a) thereof; and
(b) the rights of enforcement of the charge contained in clause 3 thereof.
These were concurrent remedies in respect of one and the same loan liability.
If the defendant had made a proper valuation, disclosing that the property had
no commercial value, the plaintiff would have realised that it could not safely
lend any money on the security of Lane End and that the proposed charge would
be a valueless security. If the plaintiff had recovered and could recover no
part of the loan, it would have lost £11,880 in consequence of the negligent
act of the defendant. Baxter v Gapp & Co Ltd [1939] 2 KB 271;
Singer & Friedlander Ltd v John D Wood & Co (1977) 243
ESTATES GAZETTE 212, and Corisand Investments Ltd v Druce & Co (1978) 248
ESTATES GAZETTE 215, were all cases in which nothing could be recovered under
any personal covenant or guarantee. That is, in my opinion, a distinction from
the present case of fundamental importance.
The plaintiff
did in fact recover at least £127, being the amount of one instalment of
capital repaid by the borrowers in the year ended April 4 1978. I understood
the plaintiff to concede (and in my view rightly) that that sum at least should
be credited in favour of the
capital which were repaid before the mortgage was paid off.
The
obligations of the borrowers under their personal covenants remained intact,
unaffected by the defendant’s negligence. Indeed, as I understand, they were
duly performed down to the time when the loan was paid off. What impact, if
any, does the continued subsistence of the borrowers’ obligations under their
covenants have on the measure of the plaintiff’s loss?
If the
borrowers had been so amply endowed with wealth that there was no real
likelihood of their being unable to fulfil their covenants fully and punctually
or, if they failed to do so, no real likelihood of the plaintiff’s being unable
to recover in full any claim for damages for breach of covenant, the plaintiff
could not, in my opinion, have successfully asserted that it had suffered any
financial loss in consequence of the defendant’s negligence; or, since there
can be no absolute certitude about the future solvency of even a very wealthy
covenantor, the court might take the view that the plaintiff should be allowed
some moderate discount on the full amount on the borrowers’ personal
liabilities in order to compensate the plaintiff for any risk of the
plaintiff’s proving to be unable to recover whatever sums might become due from
the borrowers in full. This was the course adopted by Devlin J in Eagle Star
Insurance Co Ltd v Gale & Power (1955) 166 ESTATES GAZETTE 37,
where the learned judge took into account the value of a personal covenant by a
Mr Curtis at its full face value of £1,500 subject to a discount of £100 to
indemnify the plaintiffs against the possibility of their not being able to
recover the full sum payable under the covenant. This appears to me to be an
entirely logical and satisfactory way of approaching the problem of assessing
damages in such a case. It does not involve, in my opinion, the operation of
any doctrine of mitigation of damage by the plaintiff, for it proceeds upon the
basis that the covenantor is likely fully and punctually to discharge his
obligations without any act on the part of the plaintiff. In other words, it
does not depend upon mitigation by the plaintiff of his primary loss, but upon
a reduction in the amount of that primary loss by the expected performance by
the covenantor of his covenant. The discount is a measure of the possible risk
that the loan will not be repaid in full. The amount of the loan less the
discount is the measure of the extent to which it has been established on a
balance of probability that the loan will be repaid notwithstanding the loss of
any security in consequence of the negligence. It is part of the process
referred to by Morris LJ in Philips v Ward [1956] 1 WLR 471 at p
475 of assessing the damage which could fairly and reasonably be considered as
resulting from the failure of the defendant to report as he should have done,
that is, it is part of the process of assessing the loss to the plaintiff
resulting from the defendant’s negligence, not part of the assessment of any
mitigation which the plaintiff ought reasonably to have effected.
If this
analysis is sound, this method of valuation is, in my judgment, just as
applicable to a case in which a covenantor is not shown to be certain, or
virtually certain, to be able to discharge his covenanted liabilities in full
but is likely to do so to some extent as to a case in which he is shown to be
certain, or virtually certain, to be able to do so in full.
In the present
case the borrowers were not wealthy but there was at least a possibility,
although no certainty, that they would be able to continue to fulfil their
covenanted obligation for so long as the legal charge remained on foot, and
that they would in fact do so for at least some part of that period.
The learned
judge in his judgment proceeded upon the same lines as those adopted by Devlin
J in the Eagle Star case. He held that he must look at the situation as
at the date of the defendant’s report. In my judgment, the relevant date at
which to look is the date when the cause of action arose (that is, when the
advance was made on the faith of the report) but this substitution makes no
significant difference. In substance I think the learned judge pursued the
appropriate method of measuring the damages in the present case. Although he
was not very explicit about his method of arriving at his figure of £3,000
discount, he appears to me to have taken the appropriate circumstances into
account in doing so, and I can see no cogent reason for saying that he was
wrong in his estimate. I apprehend that the £3,000 should be regarded as
including any instalments of capital repaid before the loan was paid off out of
the proceeds of sale of the property.
For these
reasons, and with diffidence as I find myself in a minority, I would dismiss
this appeal.
Agreeing with
O’Connor LJ that the appeal should be allowed, STEPHENSON LJ said: It has been
agreed by both counsel, who have so ably and helpfully addressed us, that the
true measure of damages for the breach of a defendant surveyor’s duty to value
a property mortgaged to a plaintiff building society is the difference between
the sum the plaintiff advanced on the false valuation, which the defendant
carelessly and unskilfully put upon the property, and the sum the plaintiff
would have advanced on the true valuation, which a careful and skilful surveyor
would have put upon it. And that is the true measure of damages resulting from
the breach, whether the property should have been valued as worth something
less than the false valuation or worth nothing at all, as was this property.
The decision
of this court in Baxter v Gapp & Co Ltd [1939] 2 KB 271 binds
us, in my opinion, to hold that that difference may not always be the true
measure of the lender’s actual loss: the loss of the money advanced may be
increased by expenses and reduced by receipts. In that case the expenses allowed
by Goddard LJ and approved by this court were costs of insurance and
maintenance, legal charges and expenses of unsuccessful attempts to sell and
the ultimate sale of the mortgaged property; the receipt — which may be a guide
to the excess of the negligent valuation — was the sale price set off against
the interest and capital which the borrower had failed to pay; these factors
giving the whole loss sustained through the deficiency of the security in line
with the imperfectly reported decision of the court in Scholes v Brook
(1891) 63 LT 837 and 64 LT 674.
I would add a
reference to Crabb v Brinsley (1888) 5 TLR 14, where a special
jury awarded a mortgagee £1,500, the full amount of a second advance made on a
negligent valuation of property overvalued at £2,000 and sold for £410. The
jury found that the valuer was not negligent in valuing the property at £2,000
for a first advance of £1,500, but was negligent in so valuing it for the
further advance. The argument on damages is not reported, but presumably the
figure awarded was in accordance with the directions of Denman J.
In none of
these cases does it appear to have been considered that the lender’s loss
should be reduced by what the borrower had not paid but might be able to pay.
That is the question, and the only question, raised by this appeal and
cross-appeal. Should the judge have discounted the repayment of the £11,880
which the lender advanced on his worthless property by £3,000 or any sum for
the borrowers’ obligation to repay it with interest under their personal
covenant?
I have been
attracted by Mr Twigg’s first argument that the difference between what would
have been advanced but for the new valuation and what was advanced in reliance
on it is always recoverable without regard to the borrower, whatever he may
have paid in performance of his covenanted obligation under the mortgage deed,
or may be liable to pay, or to the value of the chance that he might pay if
called upon by the lender to do so. What has been agreed between lender and
borrower is res inter alios acta, a transaction completely collateral to
the transaction between lender and valuer, and too remote to be taken into
account in measuring the lender’s loss through the valuer’s negligent
valuation. By dismissing from consideration the borrower’s covenant to repay
the loan the court is saved from the difficult task of estimating chances and
the invidious task of penalising a lender who has refused to add to the
financial embarrassment of an innocent borrower already at loss from the negligent
valuation, and thereby to endanger the lender’s own good relations with other
potential customers and so damage the lender’s commercial reputation.
But Mr Slater
has, I think, given the answer in the special nature of the defendant’s
valuation. It was not a valuation for an unspecified purpose but for the
particular purpose of securing an advance by the plaintiff to Mr and Mrs
Robinson of £12,800, repayable over 25 years; and it was coupled with a
recommendation by the defendant that the property was a suitable security for
that advance and term, as the defendant’s report and valuation of May 27 1976
shows. Though the identity of the borrowers was of no interest or relevance to
the defendant or his duty to the plaintiff, the amount of the advance and the
length of time for repayment were. Though the mortgage deed by way of legal
charge gave the plaintiff a right to foreclose for other breaches of covenant,
the object of securing the loan by charging the property was to secure
repayment of the sum lent with interest under the covenant to repay. The
borrowers’ obligation to repay was therefore not so collateral or remote as to
be disregarded altogether in measuring the plaintiff’s loss, and although the
defendant was not a party to the mortgage, and the
which the defendant’s report and valuation and breach of duty were closely
connected, as now demonstrated by the decision of Park J in Yianni v Edwin
Evans & Sons [1982] QB 438. If, therefore, the borrowers had suddenly
found themselves in sufficient funds to repay the plaintiff’s advance, and had
repaid it in full before the defendant’s liability was established, I do not
see how the plaintiff could have recovered more than nominal damages, or
perhaps some expenses in investigating the condition of the property, because
the plaintiff would have suffered no loss in consequence of the defendant’s
breach of duty. There are, of course, cases in which the plaintiff can recover
damages from a wrongdoer for tort and breach of contract, notwithstanding that
he has been already compensated, eg by benevolence, private or public, or by
insurance (though he had paid premiums for that), and the wrongdoer cannot get
out of paying compensation himself by relying upon the uncovenanted benefit
conferred on the plaintiff by another: see Parry v Cleaver [1970]
AC 1 at p 14 per Lord Reid. But if an advance secured by the borrower’s
reliance on a false valuation of a property becomes in fact an advance which
needs no security, but is repaid without recourse to the property, then in my
judgment the valuer may be fortunate enough to be able to rely on the
borrower’s repayment in diminution of the lender’s loss and of the compensation
he is legally liable to pay for it.
There may be
circumstances in which the lender who has been repaid by the borrower some of
the principle advanced will nevertheless be entitled to be paid by the valuer
the full amount of the difference between what he would have lent and what he did
lend. However, on the assumption that it would be permissible for the valuer to
claim credit for any repayment of capital by the borrowers before action, can
he also claim credit for what the borrowers have not repaid if the lender could
have insisted on repayment in full or in part and could, if the borrowers
refused, have sued them with a reasonable prospect of some success? The judge did that in this case and, I think,
valued the borrowers’ covenant to pay, or the chances of a partially successful
recovery, by demand, or action if the demand was refused, at £3,000, or roughly
25% of the principal sum advanced. In that he was following the decision of
Devlin J in Eagle Star Insurance Co Ltd v Gale & Power [1955]
JPL 679.
With
considerable hesitation I have, however, come to the conclusion that Mr Twigg
is right in his second submission and in contending that the view of these
learned judges can be justified only if it was reasonable for the respective
plaintiffs to enforce the borrowers’ covenants to pay; for what the borrowers
might pay could only be taken into account in mitigation of the plaintiffs’
damage if the plaintiffs ought to have mitigated that loss and damage by
enforcing the borrowers’ covenants. That was, I think, the view of Russell J (though
not of Devlin J, who seems to have treated the valuer as if he were a
guarantor), and it leaves open the question, and indeed demands an answer to
the question, whether the plaintiff acted reasonably in not seeking to enforce
the borrowers’ covenant, or rather whether the defendant has proved that the
plaintiff had acted unreasonably.
For the
defendant is not merely asking the court to take account of what has actually
been paid to the plaintiff; he is requiring the plaintiff to have taken action
in claiming payment from the borrowers; and it is one thing for a wrongdoer to
claim the benefit of a benefit obtained by the wronged party under a contract
with another; it is quite another thing — and, in my judgment, a far stronger
thing — to claim the valuation of the chance of such a benefit which the
wronged party has deliberately chosen not to take. In that case it seems to me
the wrongdoer must show that the wronged party’s reasoned choice to waive his
contractual rights against the third party is unreasonable in the ordinary
course of events in the particular field of commercial business and in all the
circumstances, it may be some special, of the particular case.
What the
defendant is contending is that the plaintiff ought to have done something and
that must, in my opinion, be an assertion that they should have mitigated the
damage flowing from the worthlessness of the security. They should have had
recourse to what Devlin J regarded as another item of security than the
mortgaged property, but surely a security in a different sense not by itself
securing the loan, namely the borrowers’ contractual obligation under the first
covenant in the deed. If, as I think and the judge thought, that is only
available to the defendant as mitigation, the defendant must prove it was
reasonable and when the court has to decide that question of fact, the
plaintiff’s conduct in not taking steps to reduce the loss will not be weighed
in nice scales at the instance of the party who has occasioned the loss: see
what Lord Macmillan said of the plaintiff’s conduct in taking positive steps to
reduce his loss in Banco de Portugal v Waterlow & Sons Ltd
[1932] AC, 452, 506. I bear in mind the illustrations given in McGregor on
Damages, 14th ed, paras 234 to 241, of which Mr Twigg relies on paras 236,
238, 239 and 240; and I accept these principles as established by authority and
applicable to this case:
(1) A plaintiff need not take the risk of
starting an uncertain litigation against a third party, for which Pilkington
v Wood [1953] Ch 770 is authority: and that includes litigation which
may be reasonably certain to result in judgment for the plaintiff but there is
no certainty that the judgment will be satisfied.
(2) A plaintiff need not take steps to recover
compensation for his loss from parties who, in addition to the defendant, are
liable to him, for which The Liverpool (No 2) [1963] P 64 is authority.
There the other party was a tortfeasor, unlike the borrowers in this case; but
(3) A plaintiff need not act so as to injure
innocent persons and
(4) need not prejudice its commercial reputation.
For both (3)
and (4) the Banco de Portugal case is authority; (3) is illustrated also
by James Finlay & Co v Kwik Hoo Tong HM [1929] 1 KB 400,
where this court held that buyers were entitled to refuse to enforce their
legal rights against a sub-buyer, thereby wiping out their loss on their
contract to purchase from the defendant, but injuring their commercial
reputation.
Where, as
here, there was evidence from Mr Robinson that he was unable to provide
additional payments and, more important, credible and indeed unchallenged
evidence from the lender’s managing director, Mr Stoughton-Harris, that the
lender felt morally responsible for the loss of the borrowers’ home and that
enforcement of the covenant to pay would injure the lender’s public relations,
I find it hard to see how the defendant had proved the lender’s refusal to
enforce the covenant unreasonable. Was it unreasonable, as the judge held, to
refuse to enforce it all? Would a
prudent lender in the plaintiff’s position have enforced three-quarters of the
covenanted obligation or some part of it?
Mr Twigg has convinced me, with all the respect due to those who think
differently, that the judge’s answer was wrong and he should not have discounted
the amount now claimed by £3,000 or any amount. If a mortgagor’s unperformed
covenant to repay principal and interest is to be taken into account in
assessing a mortgagee’s primary loss through a negligent valuation, it seems to
me that there will be some discount, however small and however hard to assess,
in every case, whether or not there is any connection between the inadequacy of
the mortgaged property to secure the loan and the mortgagor’s failure to pay.
In this case I would regard the application of that view of the law to be
unfair to the plaintiff. It would be surprising if the benefit of the covenant,
‘uncovenanted’ so far as the defendant is concerned, were available to save him
from the natural consequences of his breach of duty to the plaintiff when the
plaintiff had such reasons as Mr Stoughton-Harris put forward in justification
of such honourable and understandable conduct towards the innocent Robinsons,
even though they may have a right of action against the defendant and even though
their inability to pay may have been less complete than the evidence of Mr
Robinson suggested. I can see nothing unreasonable in the plaintiffs’ waiver of
their contractual right to recover their loss from the borrowers on the
evidence and in the circumstances of this case.
Mr Slater has
not satisfied me that the plaintiffs’ total refusal to enforce the covenant was
an act of unreasonable benevolence or forgiveness, and I would accordingly
allow the appeal.
Two of the
judgments which have been handed down are in favour of allowing the appeal; the
judgment of Sir Denys Buckley which has been handed down is for dismissing it.
Accordingly, the appeal will be allowed.
The appeal
was allowed and a cross-appeal by the respondent dismissed. Damages at
£12,133.13 were substituted for the £9,133.13 awarded by Russell J. The
appellants were awarded two-thirds of the costs of the appeal and were awarded
the costs of the cross-appeal. Leave was given to appeal to the House of Lords.
