Negligence — Whether defendant company negligent in the valuation of a property for a mortgagee
1989 Anthony Hirsch, a director of Zenhide Ltd, sought a loan in connection
with the acquisition and development of property at 117-119 Hartington Road,
Stockwell, London SW8 — At the time the premises consisted of an existing
office building of 3,058 sq ft and a rear yard with street access on which
there was planning permission for a single-storey office extension, this area
being of some 1,250 sq ft — Mr Hirsch wished to borrow from the plaintiffs 70%
of the valuation plus 70% of the development costs; the purchase price was said
to be £440,000 — On September 1 1989 the plaintiffs wrote to the defendant firm
instructing them to value the property; this letter crossed in the post with a
report and valuation of the property dated August 18 1989, which had earlier
been sought by the plaintiffs — The plaintiffs had sought and were entitled to
a professional valuation of four matters: the open market value of the property
as existing; the forced sale of the property as existing; the open market value
of the property refurbished and extended; and the forced sale value of the
property refurbished and extended — Mr Cohen, of the defendant firm, provided
valuations respectively as £530,000 and £477,000 for the open market and forced
sale values as existing, and £765,000 and £688,500 for the open market and
forced sale values extended and refurbished — In each case he took as the
forced sale value the relevant open market value discounted by 10% — Upon
receipt of the report, the plaintiffs agreed the loan to Mr Hirsch, with
£370,000 being advanced on September 13 1989 and two further payments being
made of £1,928.50 and £8,072.70 in October 1989 and January 1990 against
certificates for sums due on the refurbishment works — Mr Hirsch totally
defaulted on the loan and was made bankrupt on November 7 1990 — The plaintiffs
appointed a receiver in respect of the property and, following the grant of
planning permission from office to residential use, the property was sold for
£125,000 — The plaintiffs’ loss in respect of the loan was loss of principal
£248,634.13, loss of interest on that money and various expenses totalling
£23,471.95 — The plaintiffs claimed such loss as they can prove was caused by
breach of contract or negligence by the defendants
contractual duty to provide competent professional valuations of the property;
the plaintiffs, when making the loan, relied, and were entitled so to do, on
the defendants’ valuations; if the defendants had
plaintiffs would have limited their offer of lending to 70% of that valuation
plus 70% of the development costs; if the plaintiffs had so limited their offer
of lending it would, none the less, have been accepted by Mr Hirsch, at least
if the valuation was of not less than some £450,000 — Corisand Investments Ltd
v Druce & Co is no authority for the proposition that where the final
valuation figure of a valuer is within the Bolam principle (as considered in
Singer & Friedlander Ltd v John D Wood & Co) an acceptable figure,
albeit towards the top end, but where, none the less, the valuer had erred
materially in reaching that figure, the plaintiffs can succeed in their claim
because of those negligent errors although the total valuation figure was not
negligent — If the valuation that has been reached cannot be impeached as a
total, then however erroneous the method or its application by which the
valuation has been reached, no loss has been sustained because, within the Bolam
principle, it was a proper valuation — The proper approach was to avoid seeking
a mean figure between valuations and applying a margin of error, even a broad
margin of error, to that average; rather the court should assess whether, as
here, Mr Cohen’s approach was proper and what a competent approach could properly
have resulted in — If Mr Cohen’s end result was within a modest margin of that
figure, then he is not to be adjudged negligent — The court must look at the
component figures properly to be taken into account by the competent surveyor
using proper skill and care; from there it must reach a conclusion as to
whether in total the valuer complained of erred, and it must then stand back
and ask whether that is, by the standards of the profession, a margin of error
which can be tolerated or which can only sensibly be stigmatised as negligence
— Mr Cohen’s valuation of the main building, excluding the yard, was within, if
towards the top of, the acceptable bracket, the valuation was not negligent if
it was reached by a competent process within the bracket which a competent
surveyor using due skill and care could properly reach, that is to say, it was
competent within the Bolam principle — In relation to the rest of the
site, although there was a fault in the process of calculation, none the less a
proper and acceptable process could properly have resulted in no, or no
perceptible, differences to the end valuation — Mr Cohen made the right
inquiries, assessed the right information, and the appropriate calculations
that any competent valuer exercising due skill and care would have done and
gone through
The following
cases are referred to in this report.
Baxter v F W Gapp & Co Ltd [1939] 2 KB 271; [1939] 2 All ER
752; (1939) 55 TLR 739
Bolam v Friern Hospital Management Committee [1957] 1 WLR 582;
[1957] 2 All ER 118
Corisand
Investments Ltd v Druce & Co [1978] EGD
769; (1978) 248 EG 315
Hedley
Byrne & Co Ltd v Heller & Partners Ltd
[1964] AC 465; [1963] 3 WLR 101; [1963] 2 All ER 575; [1963] 1 Lloyd’s Rep 485,
HL
London
& South of England Building Society v Stone
[1983] 1 WLR 1242; [1983] 3 All ER 105; [1983] EGD 921; (1983) 267 EG 69,
[1983] 2 EGLR 131
Singer
& Friedlander Ltd v John D Wood & Co
[1977] EGD 569; (1977) 243 EG 212 & 295, [1977] 2 EGLR 84
Trade
Credits Ltd v Baillieu Knight Frank (NSW) Pty
Ltd (1988) 12 NSWLR 670
This was a
claim for damages by the plaintiffs, Mount Banking Corporation Ltd, against the
defendant firm, Brian Cooper & Co, alleging negligence and breach of
contract in the provision of a valuation for mortgage purposes.
Roger Bartlett
(instructed by Cohen & Naicker) appeared for the plaintiffs; Roger Ter Haar
QC (instructed by Cameron Markby Hewitt) represented the defendants.
Giving
judgment, MR R M STEWART QC said: I should, I think, begin this judgment
with a tribute to the help and assistance I have had from counsel. The case has
had many points of interest and I have been greatly helped by counsel. If I do
not refer to every submission they have made, it is not because I have
overlooked them but because one cannot mention every point in a case which has
lasted for five days.
1. Claim
The plaintiffs
claim damages against the defendants for negligence in the valuation of a
property at 117-119 Hartington Road, Stockwell, London SW8, in August or
September 1989.
2. Background facts
The plaintiffs
are a bank and a licensed institution under the Banking Acts.
At the times
material to this claim their business consisted mainly of lending in
property-related transactions. That included lending to property developers. Mr
Dilip Chandulal Shah, a director and the general manager of the plaintiffs,
gave evidence on their system for dealing with applications for loans. I accept
what he said. This was the procedure.
(a) No written application was required. The bank
did not advertise for business. Clients were introduced.
(b) An applicant would be interviewed by one
member of the loans committee, which consisted of Mr Shah, Mr Tucker, the chief
executive, and Mr Symons.
(c) If the interviewing member approved the
application, it went before the other members of the committee. Only if they
were unanimous would the loan be approved in principle.
(d) The maximum loan that would be made would be
70% of the open market valuation of the property as existing plus 70% of the
development costs. The applicant would be expected to fund the balance out of
his own resources.
(e) In every case where a loan had been approved
in principle the plaintiffs required a valuation of the property from one of
their panel of approved surveyors.
One firm of
surveyors on the panel at the material time was the defendant firm. They
employed Mr Andrew Norman Cohen ARICS. It is with his valuation that this case
is concerned.
3. History of the loan
The borrower
was one Anthony Hirsch, a property developer, aged 27, whose curriculum vitae
and statement of means appear in the bundle. It is all too obvious, with
hindsight, that the substantial assets which he claimed in that statement of
means was but a pack-of-cards house, wholly dependent on a booming property
market to have any worth.
Mr Hirsch was
not called to give evidence before me, but it is apparent that he was connected
with two companies, Zenhide Ltd and Lexington Newkourt Ltd. Though there is
little evidence on this, I would infer that if their corporate veils were lifted
they would be seen as the alter ego of Mr Hirsch.
In about April
1989 Mr Hirsch had met Mr Shah and got a loan in the name of Zenhide Ltd. Mr
Shah says that the introduction was by Mr Higinbotham of the defendants. That
was challenged in cross-examination but not further investigated in the
evidence. Since I accept Mr Shah as a generally honest and accurate witness, I
am inclined to accept what he says of the introduction of Mr Hirsch. But
nothing turns on that in this case. I have already referred to the documents
which came into existence in connection with this loan to Zenhide Ltd. The
plaintiffs took up a reference from Lloyds Bank plc. It may be thought that the
reference was a bit enigmatic as to Mr Hirsch’s asset value, though not as to
his bona fides. At any rate, the plaintiff bank lent £1m to Zenhide Ltd for
their development in Broomgrove Road, Stockwell, referred to in the exhibited
brochure as ‘The Stableyard’.
On August 31
1989 Mr Hirsch again went to see Mr Shah. This time it was in connection with a
possible loan on 117-119 Hartington Road, the loan at the background of this
litigation. 117-119 Hartington Road consisted, for valuation purposes, of an
existing office building of some 3,058 sq ft net and a rear yard with street
access on which there was planning permission for a single-storey office
extension. This area was some 1,250 sq ft. If fully developed, therefore, the
office area would be around 4,300 sq ft.
Mr Shah’s
interview notes appear in the bundle. I am clear that this date, August 31
1989, was the first mention to the plaintiffs of any application for such a
loan. On that occasion Mr Hirsch sought 70% of the valuation plus 70% of the
development costs. It is to be noted that the purchase price was said to be
£440,000, of which £70,000 was to be paid in cash, which would not be shown on
the contract.
Whatever may be
thought of the ethics of what was going on (and, at the least, one would infer
that there was likely to be a fraud on the Inland Revenue as to stamp duty), Mr
Shah told me that it was not unusual at the time and that he accepted that the
purchase price was, in fact, £440,000. Be that as it may, it was agreed for the
purposes of this case that the purchase price was, in fact, £440,000. I add
that that agreement was reached in the very early stages of this case. It was
not an agreement that was before the various surveyors when they made their
expert reports in the case.
Zenhide Ltd,
it is to be noted, had entered into a contract to buy 117-119 Hartington Road
on August 3 1989, when the price was expressed to be £350,000. It is further to
be noted that completion of the contract was due on August 31 1989. So Mr
Hirsch was applying to the plaintiffs for funding on the very day on which he
was due to complete.
Prior to Mr Shah’s
interview with Mr Hirsch, Mr Hirsch had contacted Mr Cohen of the defendants
directly to ask him to do a valuation of the property for the plaintiffs. This
valuation was dated August 18 1989.
It is apparent
from Mr Shah’s document that either on August 31 1989, the day of his interview
with Mr Hirsch, or on September 1 1989 he spoke to Mr Cohen. Mr Shah noted that
Mr Cohen orally gave the figure of £570,000 as the open market valuation as
existing. Mr Cohen has no recollection of that conversation but does not deny
that he may have spoken to Mr Shah. All said and done, that is nearly three
years ago now. I do not think that anything turns upon such a conversation, but
I find that it did take place as Mr Shah says.
On September 1
1989 the plaintiffs wrote a letter to the defendants formally instructing them
to value the property, but it is clear that this letter of instruction must
have crossed in the post with the report and the letter enclosing it.
Despite that
crossing in the post, there is no dispute as to what the plaintiffs sought and
were entitled to, namely a professional valuation of four matters: the open
market value of the property as existing; the forced sale value of the property
as existing; the open market value of the property refurbished and extended;
and the forced sale value of the property refurbished and extended. Mr Cohen’s
figures were respectively £530,000 and £477,000 for the open market and forced
sale values as existing and £765,000 and £688,500 for the open market and
forced sale values extended and refurbished. In each case, he took as the
forced sale value the relevant open market value discounted by 10%. There is no
criticism of this. This case is concerned, on the amended statement of claim,
solely with the allegation that the existing open market value at £530,000 was
negligent.
The
plaintiffs, having received the report from the defendants and had brief
confirmatory correspondence with them, duly agreed the loan to Mr Hirsch.
£370,000 was advanced to Mr Hirsch on September 13 1989 on account of the
purchase price. Two further payments were made of £1,928.50 and £8,072.70 in
October 1989 and January 1990 against certificates for sums due on the
refurbishment works. Allowing for incidental items, the total advanced was
£380,001.20.
The property
was conveyed to Zenhide Ltd and then transferred to Mr Hirsch and the
completion statement appears in the bundle.
I add, lest
there be any doubt on the matter, four specific findings of fact which I can
make at this stage arising out of these background matters to which I have
referred. First, the defendants were under a contractual duty to provide
competent professional valuations of the property in the four respects to which
I have referred. Second, the plaintiffs, when making the loan to Mr Hirsch,
relied on the defendants’ valuations, particularly those figures set out at
B66-67, as they were entitled so to do. Third, that if the defendants had come
up with a lower open market valuation of 117-119 Hartington Road as existing,
the plaintiffs would have limited their offer of lending to 70% of that
valuation plus 70% of the development costs. Fourth, that if the plaintiffs had
so limited their offer of lending it would, none the less, have been accepted
by Mr Hirsch, at least if the valuation was of not less than some £450,000. In
making this finding, I recognise that I have not heard any evidence from Mr
Hirsch himself. But I have already referred to the contractual date for
completion of the purchase. I infer that Mr Hirsch felt himself under pressure
to complete and this would have led him to take up whatever loan the plaintiffs
in fact offered, provided that it did not leave him too substantially out of
pocket. I add that there was a dispute between the parties, in their final
submissions, as to where the onus lay in proving that Mr Hirsch would not have
accepted a lower offer and, thus, that the plaintiffs would not have made any
loan at all had some lower valuation figure been given to them. In my judgment,
if anything turns on this, the onus lies on the plaintiffs, for it is their
allegation that they have suffered damage and their allegation that they would
not, in fact, have lent at all, on the facts of this case, had a proper
valuation been made.
4. Subsequent history
concerning Mr Hirsch and the loan
Interest was
due on the loan quarterly and the period of the loan was seven months from
draw-down date.
Mr Hirsch
moved into the property with builders, who removed the rear stores extension
and the secondary staircase and generally started to gut the building. It was
this work, started but unfinished, which had a material effect on the
subsequent difficulties of dealing with the building.
Mr Hirsch
totally defaulted on the loan: he never paid a penny. The stage payment due
under the advances on certificates for works done of £7,900.20 on January 29
1990 was, in fact, set off against interest payments due from Mr Hirsch, so
this appears in the schedule to the amended statement of claim as a repayment,
but in reality it was not.
In or about
February 1990 Mr Hirsch abandoned the works. Clearly he had run out of cash
and, by inference, credit. To cut a long story short, he was eventually adjudged
bankrupt on November 7 1990. His statement of means makes sorry reading. It
shows assets of £12,500 against liabilities in excess of £606,000. There was,
therefore, no point in the plaintiffs seeking to pursue Mr Hirsch for what they
were owed.
5. Subsequent history of the
property and the plaintiffs’ loss
This can be
taken shortly because the defence originally raised, that the plaintiffs failed
to mitigate their loss, was expressly abandoned in the light of documents
disclosed shortly before the trial commenced.
The building
was in a very sorry state when the plaintiffs put their receiver in because it
was, as I have said, partly gutted. The plaintiffs investigated in various
ways, with professional advisers, what to do with it. Not only was the state of
the building unfortunate but the timing of Mr Hirsch’s default added to the
misfortune, for in 1990 the property market entered a freefall collapse. I have
in mind what Mr John Cormie [ARICS, an expert witness for the plaintiffs] said
at C74.
Eventually, on
advice, the plaintiffs decided to apply for change of permitted user from
office to residential. On November 11 1991 the local authority gave that
permission. The property was then sold to Black Roof Housing Corporation for
£125,000. The net proceeds of sale were some £123,466.87.
The
plaintiffs’ loss is thus massive: first, the loss of principal of £248,634.13,
that is to say, the difference between what they lent to Mr Hirsch and what
they recouped from the sale of the wreckage; second, their loss of interest on
that money; and third, various expenses set out in the schedule to the
statement of claim, which are agreed as having been incurred, totalling
£23,471.95.
The
plaintiffs, of course, do not seek to make the defendants responsible for the
insolvency of Mr Hirsch or for the collapse in the property market, which at
the least probably played a part in Mr Hirsch’s downfall. The plaintiffs
contend that the defendants were negligent in their valuation and that this
negligent valuation caused the plaintiffs to lend, or to lend more than they
would have otherwise loaned upon a competent valuation. They claim such loss as
they can prove was caused by that breach of contract or negligence. The
defendants deny any breach of contract or negligence.
6. The law
I turn to the
law. I have been referred to various authorities, specifically Singer &
Friedlander Ltd v John D Wood & Co (1977) 243 EG 212, [1977] 2
EGLR 84, a decision of Watkins J; Corisand Investments Ltd v Druce
& Co (1978) 248 EG 315, a decision of Gibson J; Trade Credits Ltd
v Baillieu Knight Frank (NSW) Pty Ltd (1988) 12 NSWLR 670; and London
& South of England Building Society v Stone [1983] 1 WLR 1242*.
I have carefully considered these cases and distilled various principles from
them. If I do not cite from all of them, it is not because I have found them
unhelpful but for the like reason that I gave at the beginning of the judgment:
to avoid an overlengthy judgment. I do propose to refer briefly to Corisand
and at greater length to Singer & Friedlander.
*Editor’s
note: Also reported at (1983) 267 EG 69, [1983] 2 EGLR 131.
I have been
invited to the view — and I hope this does not put it too extremely — that the Corisand
case provides authority for this
principle*, an acceptable figure, albeit towards the top end, but where none
the less the valuer has erred materially (in the context of this case that is
put at, say, £20,000) in reaching that figure, the plaintiff can succeed in his
claim because of those negligent errors, even though the total valuation figure
was not negligent. I disagree, with respect, with this proposition: first,
because I do not think that Corisand provides any such authority and,
second, because I do not think that the proposition stands up on analysis.
*Editor’s
note: Bolam v Friern Hospital Management Committee [1957] 1 WLR 582
at p 586 where McNair J said: ‘. . . where you get a situation which invalues
the use of some special skill or competence, then the test as to whether there
has been negligence . . . in the standard of the ordinary skilled man
exercising and professing to have that special skill. A man need not possess
the highest expert skill; it is well established law that it is sufficient if
he exercises the ordinary skill of an ordinary competent man exercising that
particular art.’
The task
facing the valuer in Corisand was twofold: first, to reach an open
market valuation of the hotel as a going concern and, second, because it was a
mortgage valuation where a forced sale might arise, to strip out of that open
market figure the speculative element, as it was referred to in the judgment.
The surveyor was negligent not because his open market figure was wrong but
because he did not do the second stage of the calculation and discount or
reduce that figure. On p 319 at subpara (v) Gibson J said:
In a
valuation for mortgage purposes it is again common ground that the valuer
cannot take the open market going concern valuation. The valuer cannot, in
short, include in his valuation for this purpose any valuable part of the going
concern valuation which would not or might well not be there when the mortgagee
attempts to realise his security. It was not in dispute that from the going
concern valuation the valuer must at least exclude any sum, where appropriate,
for ‘goodwill’ and for the moveable contents. The going concern valuation, less
goodwill and contents, was referred to as a ‘bricks and mortar’ valuation.
On p 416,
subpara (vi), the learned judge said:
It was the
duty of the defendants as valuers in September 1973, in preparing a valuation
for mortgage purposes, to exclude from their valuation any apparent content
which might well not be available for sale by the mortgagee when he attempted
to realise his security. The open market price which Mr Gurrin estimated for
the Raglan Hall Hotel contained, as I have said, a large speculative content. It
was accordingly the duty of the defendants, for reasons which I have previously
set out, in preparing their valuation for mortgage purposes either not to
include that speculative content, or adequately to identify it as such for the
guidance of the lenders, and it was their duty to act thus because, as I have
also already explained, the defendants had substantial ground for knowing that
the ‘speculative content’ in their estimated open market price might well not
be readily realisable on the forced sale of this hotel over the immediately
ensuing period of time such as six to 12 months from the date of valuation. The
defendants did not discharge that duty in either way.
The learned
judge went on to consider that a discount of 20% for a valuation for mortgage
purposes was called for and that the value given, the proper open market
valuation as a going concern, was overstated by about a 20% margin for mortgage
purposes. I, therefore, do not think that Corisand is authority for the
proposition which I have described. But in logic, too, I would not accept that
proposition. If the valuation that has been reached cannot be impeached as a
total, then, however erroneous the method or its application by which the
valuation has been reached, no loss has been sustained because, within the Bolam
principle, it was a proper valuation. I do, however, accept that if and where
errors are demonstrated either in the approach or in the application of the
approach, then any judge should look carefully at whether that valuation is,
despite those errors, none the less an acceptable value within the Bolam
principle.
I now turn to Singer
& Friedlander because I consider it helpful to remind myself of various
principles which follow from the judgment of Watkins J in that case.
(i) At p 213:
The valuation
of land by trained, competent and careful professional men is a task which
rarely, if ever, admits of precise conclusion.
So there is an
acceptable margin of error.
(ii) Liability is to be deduced on a combination
of principles deduced from Hedley Byrne (the passage cited at p 213) and
Bolam’s case (the passage cited at p 217(† )). I do not propose for
present purposes to read out those passages but deem them as read. A valuer is
not to be adjudged negligent merely because others disagree with his figures
or, I add, merely because with hindsight his valuation is shown to have been
too high.
† Editor’s
note: Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.
(iii) At p 213:
What can
properly be expected from a competent valuer using reasonable skill and care is
that his valuation falls within this bracket.
I pause to
comment on this. In Singer & Friedlander the permissible margin of
error was found on the evidence to be 10%. It does not, in my judgment, follow
as a matter of law that the same percentage applies in every case. Indeed, Mr
Bartlett, counsel for the plaintiffs, in opening conceded that it might be
appropriate here to look to a higher margin, and the pleadings allow for 17.5%.
The problem
that this raises, it seems to me, is: 10% (or whatever margin may be thought
appropriate) of what? Applying the Bolam
test, the real question, in my judgment, is whether the valuation was that
which a competent valuer, using proper skill and care, could properly have
reached. This I take from the questions raised by Gibson J in Corisand.
If the valuation is too high, is it too high by such a margin as to be categorised
as negligent? The margin of error
approach is thus a useful tool, for in most straightforward cases it can
reasonably be expected, as Mr Geoffrey Castle [FRICS], the expert for the
defendants, said that competent surveyors acting with proper skill and care,
and thus acting on all relevant evidence, will come within a moderate bracket
of each other. But there is a danger in the margin of error approach, to which
I have alluded, and this was highlighted in the evidence of Mr Castle. I do not
think it proper to apply it mechanistically in any case, so as to say that any
valuation outside the consensus of the experts or, if they differ, outside
their average valuation by more than 10% is prima facie negligent.
Rather, as Mr Castle said, I think the judge must approach the question, first,
by asking where the proper valuation or bracket of valuation lies. Then, if the
defendant is more than the permitted margin outside that proper figure, the
inference of negligence should be drawn.
This is not
merely an academic matter. Take the value of an office rent in a prime location
in a stable market. It may be thought that the margin between competent
surveyors as to what the rent should properly be ought to be very small. But
where many assumptions have to be built into a property the range of acceptable
proper valuations may be quite large. An illustration of this is provided by
the discussions in the evidence of the proper valuation to be placed on the
next-door offices at 121 Hartington Road, where the capital value per sq ft
ranged from £110 to £167, each valuation being reached by a proper process by a
properly qualified valuer.
In my
judgment, therefore, I should avoid seeking a mean figure between valuations
and applying a margin of error, even a broad margin of error, to that. I should
rather assess here whether Mr Cohen’s approach was proper and what a competent
approach could properly have resulted in. If Mr Cohen’s end result was within a
modest margin of that figure, then he is not to be adjudged negligent. This, it
seems to me, is the way in which the margin of error principle is to be
applied. On the evidence of the experts here, particularly Mr Castle, I take
that acceptable margin, on my approach, as being 10%.
I return to Singer
& Friedlander.
(iv) A competent valuer must consider all relevant
factors and evidence in reaching his valuation (see the passages discussing
this on pp 213 to 214 and 217 to 218). Some of the factors in Singer &
Friedlander may have less relevance in this case, but the approach must be
the same here, as in any case of valuation. On the evidence here, among
relevant factors to be considered in this valuation were:
(a) the size, condition, tenure and location of
nos 117-119;
(b) planning permission and permitted user;
(c) the value and use of adjoining and
neighbouring premises;
(d) the value, particularly rent and capital, of
other offices in the general locality and their comparability, and any
consequent adjustments to be made when applying that information to nos
117-119;
(e) the state of the property market, which Mr
Richard Bertram [ARICS, an expert witness for the plaintiffs] described in his
letter of January 18 1991 as ‘buoyant demand for this type of B1 office
refurbishment at the time’, and he referred to ‘the underlying confidence in
the demand from owner-occupiers for these type of premises at the time’; I
accept that description as accurate;
(f) the effect of the increase in bank base rates
from 7.5% in May 1988 to 14% in August 1989; Mr Castle told me that, with
hindsight, the storm clouds should have been seen as looming over the property
market, but that most of the profession did not see them until much later in
1989. I accept that;
(g) the realism of the projected development and
its costing;
(h) it might be thought that it would be good
sense to establish what the proposed purchase price for the property was; at
least, as Mr Bertram said, it would cause the valuer to go back to reconsider
his figures as they differed markedly. Mr Cohen did not establish the price. I
do not consider that to be negligent on the evidence here. I am satisfied, on
what Mr Cormie and Mr Castle told me, that a body of competent valuers
considers it proper to make a valuation without ever knowing the proposed
purchase price. Indeed, the point has some validity, that the purchase price
may not truly reflect the open market value. A developer may see potential that
a vendor has not seen.
(v) I bear specifically in mind the warnings in
the passages cited by Watkins J at p 299 from Baxter v FW Gapp &
Co Ltd*; again I take those warnings as read for the purposes of this
judgment.
*Editor’s
note: Reported at [1939] 2 KB 271.
(vi) In summary, I have to ask myself whether it
is proved that Mr Cohen’s was a valuation which no reasonably competent valuer,
using proper skill and care, could properly have reached. If it was higher than
the sensibly acceptable figure, was it within an acceptable margin of error?
7. Criticisms of the valuation
I turn to
criticisms of the valuation. In opening the case, Mr Bartlett, counsel for the
plaintiffs, criticised the valuation as excessively high. The proper valuation,
he said, for the property overall was £365,000. Allowing for a margin of error
of a maximum of 17.5%, the outside top figure was £430,000.
Mr Bartlett
attacked Mr Cohen’s approach under four headings:
(I) The failure to take any account at all of the
price at which the property was being purchased. For the purposes of this action
the purchase price was agreed to be £440,000, as I have said. Thus Mr Cohen’s
open market valuation at £530,000 was some 20% in excess of the purchase price.
(II) The next-door property at 121 Hartington Road
was valued by Mr Cohen for offices at £127 to £144 per sq ft capital value. In
taking £147 per sq ft for 117-199 Hartington Road, he took a figure higher than
any of his figures for the adjoining property.
(III) In reaching a residual site value of the
yard, Mr Cohen took the building costs at £48,600 when the plaintiffs had
indicated to him an estimated expenditure of £100,000. Mr Cohen erred, it is
said, by taking a rent for properly refurbished offices but the capital cost of
a building extension sufficient only to produce something to the standard of a
basic warehouse or studio.
(IV) The method of valuation, aggregating the
value of the offices to the residual site valuation of the yard, was inherently
flawed. Since an owner-occupier purchasing the property might well wait a
period of time — a year, two years or three years — before carrying out any
development, the residual site value should be discounted for that period of
waiting by allowing for interest at 16% on the money tied up for that period.
8. The evidence
For the
plaintiffs, I heard evidence from (a) Mr Shah, their director and general
manager. As I have said, I generally accept his evidence, most of which is
non-controversial.
I heard also
from two expert witnesses: (b) Mr John Francis Cormie ARICS, a director of J
Trevor & Sons of 58 Grosvenor Street, W1, and (c) Mr Richard Lawrence
George Bertram ARICS, a director of Collier Stewart Newiss.
In addition,
Mr Cormie and Mr Bertram produced a joint supplementary report.
Of these two
experts, for reasons which appear hereafter, I was more impressed with Mr
Cormie than with Mr Bertram. It seemed to me that Mr Cormie was prepared to
give where he sensibly should, whereas Mr Bertram was rather more entrenched in
his view. Against both the criticism can, in my judgment, properly be made that
they reached their valuations and stigmatised the defendants’ Mr Cohen as
negligent without reference to any other properties in the general locality
except for no 121 next door. More than that, however, I formed the view that Mr
Bertram was, in a number of respects, unbending to the point of
unreasonableness and somewhat dogmatic. I have in mind his stance on the yield
to be expected from nos 117-119 where, without any evidence of comparable
buildings and in the teeth of the Investor’s Chronicle/Hillier Parker
figures, he insisted on 10% and condemned Mr Cohen’s 8.5% as negligent; on the
rent per sq ft of the offices as existing, where he went out on a limb from Mr
Cormie and Mr Castle that Mr Cohen’s figure of £12.50 was unacceptably high;
and on the residual site valuation of the yard, where he had always put a
valuation at £15,000.
As I have
said, no evidence was called from the purchaser, Mr Hirsch.
From the
defendants I heard evidence from (a) Mr Andrew Norman Cohen, the particular
valuer said to be personally negligent. From a nervous start, which is perhaps
understandable, he gathered some strength and forcefulness in his defence of
what he had done in his valuation. Whether he was right in that view, I deal
with later; and (b) Mr Geoffrey Ellis Trevor Castle FRICS, senior partner in
Dron & Wright, chartered surveyors, of St George Street, Hanover Square,
London W1. I say at once that I was impressed by the manner, demeanour and
quality of his evidence. I add that, though clearly Mr Cormie and Mr Bertram
are well qualified to give evidence as they did, Mr Castle obviously had
immensely greater experience in valuing than anyone else called in the case. In
my judgment, this, and the moderation with which he expressed his views and was
prepared to make concessions where he sensibly should, told in the quality of
his evidence.
Mr Cormie and
Mr Bertram agreed in their evidence-in-chief, as they had in their joint
supplementary report, that the correct open market valuation of 117-119
Hartington Road as at August 1989 was £365,000. It follows, they said, that Mr
Cohen’s valuation, at 45% higher, was not just excessive but negligently so.
Mr Castle gave
his opinion that Mr Cohen’s valuation was not negligent, that he considered the
correct valuation to have been of the order of £500,000 and that it followed
that Mr Cohen, at £530,000, was within a readily acceptable margin of that.
These differing views need analysis.
Mr Cormie was
called as the first of the plaintiffs’ expert witnesses and in this sense is
the main expert for the plaintiffs, for Mr Bertram was called much more
briefly, in chief, to agree in the main with Mr Cormie. In his
evidence-in-chief Mr Cormie attributed five principal reasons for saying that
Mr Cohen was negligent:
The first was
the purchase price. ‘I would always ask the purchase price,’ he said, ‘because
it is the best comparable evidence available of the open market price.’ In cross-examination, as I have already
commented, he said: ‘In a lot of cases a valuer values without knowing the
purchase price. It is not unreasonable so to do.’ I take this to amount to the position that,
though it may be sensible, in his view, to seek the purchase price — and indeed
I think there is force in that view — it is not negligent not to do so.
The second
criticism related to the building works to the original building. No allowance
was made, said Mr Cormie, for works to be done to the original building. Since
it was envisaged that the rear extension and the secondary staircase would be
demolished immediately as part of the refurbishment, allowance should be made
for the cost of complying with inevitable fire-regulation requirements. I do
not agree. The first valuation that Mr Cohen had to carry out and that
complained of in the statement of claim was of the existing open market value
of the building as it was: that is to say, without any works being done to it.
In its then state, with the secondary staircase, there is no suggestion on the
evidence that fire-regulation works would be needed. That would come into the
picture only if and when the secondary staircase was removed, that is to say,
for the post-refurbishment valuation.
The third
ground of attack related to the quotation from Elm Construction, the quotation
for works at £48,600, which Mr Cormie described as ‘open to doubt —
open-ended’, and he went on to say: ‘I would have established from my building
colleagues whether they were satisfied with it.’ He considered that, with an estimate of that
value, a building would be produced which would not provide proper office
accommodation but which should be valued as the equivalent of a warehouse or
studio. Mr Cohen, in his evidence, said that he repeatedly checked back with
his colleagues on the facts he generally was collecting and on this. As a result,
he considered that the sum was sufficient, bearing in mind that the need was
really to put a roof on existing walls and to produce an open-plan office of
reasonable quality. I add that, though Mr Castle did not think £48,600
sufficient to produce top-quality offices, he thought it was sufficient to
produce reasonable-quality offices. I further add that a distinction has to be
drawn, in my judgment, between building works sufficient to produce offices
comparable to those in nos 117-119 as existing and thus capable of commanding
the same rent (£12.50 per sq ft taken for the existing offices) and works
sufficient to produce offices comparable to the refurbished offices in the
existing building at nos 117-119 capable of commanding a higher rent of £13-15
per sq ft. The
open market value as existing, that is to say, without refurbishing the office
building. It would make sense to value the yard only on the basis that it would
be used to produce offices of the like value for an existing open market
valuation.
The fourth
criticism relates to comparables. Mr Cormie said that 112 Hartington Road, the
next-door property, was a highly relevant property to consider, even though the
fact that it had a residential flat would depress the demand and thus the value
of the offices. Mr Cohen was negligent, he considered, for not considering the
values thrown up by this property. In cross-examination Mr Cormie was taken
through Mr Cohen’s notes and accepted the obvious, that he was in the wrong: ‘I
accept now that Mr Cohen did take into account the next-door property.’ I should say here that some of Mr Cohen’s
notes are not the original manuscript jottings but copies made in fair form. I
accept his evidence that all the notes in the relevant section of bundle B were
either made contemporaneously or were copies made in a neater and fairer form
of his precise workings.
The fifth
criticism relates to the valuation. It is said that it is wrong to add to the value
of the offices the full residual site value; this would be a valid exercise
only for someone moving straight away into both parts. Few owner-occupiers
would do that. The likely market, or a substantial part of the likely market,
would come from an owner-occupier who wanted the existing building straight
away but envisaged delaying for a period of up to two or three years until he
developed the yard. Therefore, there should be a discount for that delay. This
criticism seems to me to have some substance in it and I will return to it
later when considering it in more detail.
I have already
expressed certain views on the difficulties of the concept of a margin of error
within which all reasonably competent surveyors can be expected to reach a
valuation. This is thrown up by certain comparisons between the evidence of Mr
Cormie and Mr Bertram and, indeed, in the evidence of each separately. It is
right to analyse this, for where there are, as here, wide differences, as I
shall show, then any judge should approach with a measure of caution the
submission that, on the evidence of these experts or either of them, the
valuation of Mr Cohen should be found to be far too wide of the acceptable
mark.
(I) When asked in January 1991 to produce
valuations of the open market value of 117-119 Hartington Road as existing in
August 1989, Mr Cormie valued it at £150,000 and Mr Bertram valued it at
£185,000, 23% higher than Mr Cormie.
(II) In February 1992, 13 months later, revised
figures were produced. Mr Cormie put the August 1989 value at £345,000, an
increase of 126% on his earlier figure. Mr Bertram put it at £350,000, an
increase of 89% on his earlier figure. Mr Cormie’s explanation of the
discrepancy was that in January 1991 he acted on the wrong basis as to the permitted
user. Perhaps it suffices at this stage to illustrate two points: that it is
dangerous to seek to make too much of an argument that because there is a huge
margin between one valuer and another there must be negligence, and that to
reach a competent valuation with due skill and care a valuer must have
sufficient evidence on which to work. Normally he will have to gather that
evidence himself, from his own inquiries.
(III) When asked in January 1991 to value the then
open market value of 117-119 Hartington Road Mr Cormie valued it at £40,000. Mr
Bertram valued it at £70,000, that is to say, 75% higher. That emphasises the
first point which I made a moment ago.
(IV) When asked to give a critique of Mr Cohen’s
figures (the residual value calculation of the worth of the yard) Mr Cormie
took a rent of £13.25 per sq ft. Mr Cohen had taken £13 in that calculation and
later took £12.50. Mr Bertram took £11.50. As to Mr Cohen’s final figure of
£12.50 per sq ft, Mr Cormie conceded in cross-examination that it was
reasonable. Mr Bertram would not concede that a competent surveyor could
properly take more than £11.50 per sq ft.
I have taken a
little time to highlight these differences because they illustrate the danger
of expecting too precise a figure as being ‘the right value’. Valuation is,
after all, not a precise science. They show how wide a margin there can be
between perfectly competent surveyors doing their honest best. Finally, they
serve to re-emphasise what, in my judgment, must be the right approach. A judge
must be cautious in his search for a ‘right figure’. He must look at the
component figures properly to be taken into account by the competent surveyor
using proper skill and care; from there he must reach a conclusion as to
whether in total the valuer complained of erred, and he must then stand back
and ask whether that is, by the standards of the profession, a margin of error
which can be tolerated or which can only sensibly be stigmatised as negligence.
9. Analysis of Mr Cohen’s
approach
Mr Cohen’s
notes of what he did, of the researches he made and of the calculations which
he reached appear in volume B, particularly at pp 12-40. At B39 appears the
critical valuation on which he based his report to the plaintiffs. This
received considerable attention in the evidence. It must receive more attention
from me.
B12, 13 and 14
are floor plans, precisely as a valuer should do them. B15 and B16 contain Mr
Cohen’s observations about the building, again what the competent valuer should
do. The plaintiffs make no complaint about this process. B17 and B18 contain
calculation of floor areas, producing a net office area of 3,058 sq ft. This is
the proper process to be gone through and the calculation is accepted as
accurate by both sides. B19, headed ‘Evidence re 117-119’, includes reference
to planning permission and shows that Mr Cohen was contacting other agents to
establish comparable properties. The second half of the page deals with 121
Hartington Road. As I have already commented, Mr Cormie and Mr Bertram were
critical of Mr Cohen for not taking into account no 121. Mr Cormie, who opened
up this criticism, agreed when this and other documents were pointed out to him
that Mr Cohen had taken no 121 properly into account. He agreed that Mr Cohen’s
approach was a perfectly reasonable approach. Mr Bertram remained throughout
critical of the deductions made by Mr Cohen from no 121. B20-B25 show Mr Cohen
getting evidence of other office properties to use as comparables. Mr Cormie
and Mr Bertram were critical whether these were truly comparables. They were
similarly critical of the comparables used by Mr Castle.
I comment that
Mr Castle said that, where there is no directly comparable building in the
immediate locality, the valuer must look in the general area and make
deductions from the evidence which he finds. I accept his view. It makes common
sense. Indeed, no one seems seriously, if at all, to criticise Mr Cohen’s
approach in trying to find comparables. The criticism is limited to what can
properly be deduced from the evidence which he got. I further comment that one
looks in vain in the reports of Mr Cormie and Mr Bertram for evidence of other
properties against which to test their premise, that the best evidence on which
to act is the sale price of 117-119 Hartington Road, taken in the supplementary
report as £350,000 (albeit in the course of the case it was agreed at
£440,000), and that the second-best evidence on which to act is that relating
to no 121. No 121 was always bound to be a controversial building on which to
place reliance, in my judgment, because of the flat above the offices, which
would limit its market appeal, and because some of the office space was in the
basement. Mr Castle commented, in his evidence, on the range of assumptions to
which the calculations on no 121 give rise, and the enormous range of capital
values given in the evidence, from £110 per sq ft to £167 per sq ft. In my
judgment, Mr Cormie and Mr Bertram placed undue weight on the value of no 121
as a comparable. Any valuation deduced from no 121 needed to be tested by
evidence from the market in the general area. This is a process which Mr Cohen
did at the time and it is a process which Mr Castle did before he wrote his
report. It is a process which Mr Cormie and Mr Bertram, signally in my view,
failed to do.
B26 is the
start of a number of different calculations carried out by Mr Cohen. Mr Cormie
agreed that one way, for a perfectly proper valuation, is to carry out
cross-checks from a number of different angles. That is what Mr Cohen did.
B28-B29 shows detailed calculations on rent and value of the adjoining property
at no 121. B30 produces a yield on no 121 of 8.88% on a rent of £12 per sq ft.
No one, as I understand, seriously criticises the rent of £12 per sq ft on the
offices at no 121. Certainly Mr Castle considered it reasonable. Mr Cormie and
Mr Bertram agreed that Mr Cohen’s approach of taking the basement area at
one-quarter of its floor area for valuation purposes was reasonable. As the
evidence turned out, Mr Cohen would have been justified in his initial approach
of taking it at one-tenth. Again, there can be little argument but that Mr
Cohen was doing exactly what the competent valuer ought to do, in the sense of
going through the right processes. B31-B33 set out various calculations on nos
117-119, a necessary process. B37-B38 provide more evidence of inquiries made
of local comparable buildings. So we come to the critical page, B39.
I have dwelt
at a little length thus far on the notes showing how Mr Cohen approached his valuation.
If criticism falls to be made hereafter in any of his applications of the
processes, it should be made
approached his valuation, sought evidence and prepared test calculations in
precisely the manner to be expected of a competent valuer using proper skill
and care.
10. Analysis of B39
I turn to an
analysis of B39. I have emphasised that there is no challenge which can be
sustained to Mr Cohen’s approach thus far on his valuation, nor is there any
challenge to the correctness of his approach in, first, valuing the existing
office building and then valuing the yard by the residual site method. The
criticism is of what Mr Cohen used as figures and of his failure properly or sufficiently
to discount the residual site valuation of the yard. I propose to look at these
parts in more detail.
The main
building
A. Rent
Mr Cohen took
£12.50 per sq ft for the market rent as existing. Mr Cormie took £13.23. Mr
Bertram considered that it was negligent to take any more than £11.50. Mr
Castle thought that Mr Cohen’s figure was reasonable, as did Mr Cormie, who
agreed that it was ‘not only reasonable but a figure which any competent
surveyor could reasonably have taken’. Not only am I unable to find it proved
on this evidence that it was negligent to take £12.50 but I find as a fact that
it was, as Mr Cormie agreed, reasonable and a figure which any competent
surveyor could reasonably have taken.
B. Yield
Mr Cormie and
Mr Bertram both criticised the yield taken at 8.5%. Mr Cormie’s initial
criticism was that it took no account of the yields on no 121. As I have said,
he withdrew that criticism when B30 was drawn to his attention. Mr Bertram
insisted, without budging, that the proper yield to take was 9.5%-10%. Had that
been the correct view, it would have resulted in a materially lower capital
value per sq ft and overall. In my judgment, this part of Mr Bertram’s evidence
did not reflect well on him and I found his evidence here to be unsatisfactory.
He produced no 1989 comparable properties to back up his stance. He cited the
table at C63 attached to his main report, which is a year-on-year basis on
yields from Victoria and Pimlico offices. This showed a yield of 8.87% overall
in 1989 in that location. Stockwell, in Mr Bertram’s view, must be taken at a
higher yield to reflect that property there was less desirable and thus likely
to have less rent growth. The yield is the factor which expresses the
expectation as to rent growth. The lower the yield, the higher is expected to
be the rent growth.
Mr Bertram’s
approach here was, as I have said, unsatisfactory. The tables at C63, from the
Investment Property Data bank, show, as I have said, a year-on-year position.
The question is what should properly have been taken in August 1989 when Mr
Cohen reported. I could not help but get the impression, in this part of Mr
Bertram’s evidence, that once he had given a view it was a massive task to
shift him, even where it was reasonable that he should shift. I note that in
his letter of January 1991 he had fixed on the proper yield as 10%. When
pressed on yields in cross-examination, Mr Bertram would have none of the
statistics in D5 indicating suburban London office yields in November 1988, May
1989 and November 1989 respectively as 8.7%, 8.3% and 9.6%. He tried at first
to parry them by saying that the most widely accepted figures in the profession
were those in the tables of Investor’s Chronicle/Hillier Parker. When it
was pointed out to him that the D5 tables were indeed the IC/HP tables, he
still would not be moved. Mr Castle would take a yield of 9%, but would not
criticise Mr Cohen’s yield.
In my
judgment, Mr Cohen was fully entitled, as a competent surveyor, to take 8.5% as
the yield, in conjunction with the rent he had taken. I so find, basing myself
on the effect of the researches he had carried out, as per his exhibited notes,
the yardstick of the IC/HP tables broadly accepted by and acceptable to the
profession, the concession by Mr Cormie that he could reasonably have taken
this yield in conjunction with that rent, and the evidence of Mr Castle that it
was reasonable, even though he personally would probably have taken 9%.
C. Conclusion on the
valuation of the main building excluding the yard
Mr Cohen’s
valuation comes, in round figures, to £450,000. I am satisfied that it was
within, if towards the top of, the acceptable bracket. I reach this conclusion,
first, from what I have already said; second, from Mr Cormie’s concession: ‘I
accept now that Mr Cohen did take into account the next-door property and that
the valuation of the main building at £449,526 as in B39 is reasonable’, and I
note that this figure is £85,000 higher than the figure given in
examination-in-chief by Mr Cormie as the proper value for the whole property;
third, Mr Bertram’s reluctant concession that £430,000 would be at the top end
of a competent valuation of the main building; fourth, from Mr Castle’s
evidence that £450,000 was within proper bounds for a competent valuer using proper
skill and care. If his yield of 9% were taken, rather than Mr Cohen’s yield of
8.5%, that would have resulted in a valuation at around £425,000, rather than
£450,000. In my judgment, Mr Cohen’s valuation of the main building was not
negligent. It was reached by a competent process and was within the bracket
which a competent surveyor using due skill and care could properly reach, that
is to say, it was competent on the Bolam test.
Residual
site valuation of the yard
This presents
more problems. There are, it seems to me, three aspects to consider: first,
rent and yield; second, the price taken for building works; and, third, the
discount.
I look first
at rent and yield. It seems to me that, provided that the works taken into
account at £48,600, which were works essentially of roofing over on existing
walls, would reasonably provide office accommodation of the like quality to
that in the existing building then, because the sums taken are the same as for
the main building, the rent and yield cannot be faulted. So the remaining two
questions that I have raised, whether it was the appropriate figure for the
works and whether sufficient discount was made are, in the event, the main
questions on this approach to the valuation.
The works
I have already
referred to the criticism that £48,600 would produce a basic building of
warehouse or studio quality, to quote Mr Cormie, and that the £100,000 referred
to by the plaintiff bank should have been taken. As I have said, I think that
the ‘market value existing’ required a valuation of the yard building with
sufficient works to produce offices comparable to those in the existing
building, comparable in the sense of having the like rental value. If £100,000
were taken, this would include refurbishment to the existing building, which
would result in a higher rent being achievable. I accept Mr Castle’s view here
that £48,600 was not an unreasonable figure on which to get comparable quality
to the existing office. I refer below to the interesting evidence of Mr Castle,
that the residual site value is broadly the same for works taken at £48,600
with a lower rent as for higher value works with a higher rent.
The
discount
There is, in
my judgment, substance in the criticism that the resultant product of the
residual site valuation ought to have been discounted to allow for the chance
that an owner-occupier would purchase the main building to occupy immediately
but would view the yard as something to be developed later. Mr Castle said, and
I accept, that a purchaser would probably have allowed interest over a year or
so and, therefore, the competent valuer should have made the like allowance. He
personally took two and a half years’ discounting in his illustrative
calculations. Mr Cormie took a rough discount by one-half. Mr Bertram said that
there should be a discount of the residual value to allow for interest that
would be paid on the purchase price at 16% pa for two to three years. Mr Castle
adopted a similar approach, taking the two-and-a-half-year discount at 16%,
that is to say, 40% overall discount, his two-and-a-half-year period being a
mean of Mr Bertram’s two figures.
But there is,
according to Mr Castle, a contra-entry to be made. The developer’s profits at
both stages were put in at 20% and these should be reduced by one-half. Mr
Castle’s recalculation of B39 on this basis produced a residual site value
discounted of £66,000 net of all discounts which he considered should be made.
On a recalculation of B32, where the works were taken at £100,000, he would
have allowed a higher rent of £13.50 per sq ft and, indeed, it might be thought
that this was conservative, for £15 per sq ft had been talked of for offices
refurbished to a higher standard. This was the figure put by Mr Cohen in his
valuation for the bank as one that could reasonably be achieved
post-refurbishment to a high standard, and on the evidence I do not think that
excessive. B32, as recalculated by Mr Castle on the basis of a rent of £13.50,
would produce a discounted site value of £62,000. Thus, there is a difference,
on Mr Castle’s calculations, of £20,000 to £24,000 lower on the residual site
value than Mr Cohen’s, that is, on the basis of the two-and-a-half-year
discount.
Mr Cormie’s
recalculation of B32 with a rent assumed by him of £13.25 per sq ft and a yield
of 10% produced a residual site value of £30,000. Various other calculations
have been done and some have been brought before me in submissions today. I
merely instance that if a yield of 8.5% were taken on Mr Cormie’s
recalculation, which I have already indicated is reasonable in my judgment,
then the site value increases, on his figures, to £50,000 on his basis; and, if
a rent of £15 were taken, which Mr Bertram assumed for C65, and a yield of
8.5%, then the residual site value before discounts becomes some £132,000.
Mr Bertram
would have little of such figures in his examination-in-chief. He ascribed
£15,000 to the value of the site, which happens to be the identical figure to
that which he took in his letter of February 4 1991, when he commented that he
had ‘never been able to establish the exact size of the rear extension
permitted’.
Appropriate
site value
What, then, is
the appropriate site value? In my
judgment, the process by which Mr Cohen valued the site was flawed by failing
to take into account at all that an owner-occupier might very likely not
develop straight away. Mr Cohen thought that an owner-occupier purchaser might
wish to develop straight away, but it seems to me common sense that the market
would include those who would not want to develop straight away. In my
judgment, Mr Castle’s comments are to be accepted, that Mr Cohen ought to have
allowed for interest on money tied up before work started and allowed interest
‘for a year or so’, but then there is the contra-entry that Mr Cohen allowed
double the rate of developer’s profit that was appropriate.
Where does
this take us to and does it vitiate the valuation overall? Mr Castle took two and a half years of
interest at 16% for his revamping of the figures, mid-point between Mr Bertram’s
two and three years. On that figure, Mr Cohen’s end figure was too high by
something like £20,000. But no one suggested that there is any magic in two,
two and a half or three years’ interest discounting.
I return to Mr
Castle’s words, that the likely purchaser ‘would have allowed for interest for
a year or so’ and that the valuer should have taken this into account. I agree,
as I have already said, that the valuer should. On Mr Castle’s illustrations,
the 40% discount for two and a half years is, in round figures, equivalent to a
£40,000 overall discount. Thus it follows that if the period were taken (as, in
my judgment, a properly acceptable period could be taken) of 15 to 18 months,
the difference in valuation between Mr Castle’s reworking and Mr Cohen’s actual
end figures disappears or is, at the most, some £4,000.
I conclude,
therefore, on this section, that though there was a fault in the process of
calculation, none the less a proper and acceptable process could properly have
resulted in no, or no perceptible, difference to the end valuation; that is to
say that the figure in fact reached by Mr Cohen was acceptable on the Bolam
principle.
11. Conclusions
(i) Overall where there are differences between
the experts, I prefer the evidence of Mr Castle to that of the other experts.
Where they differ, I accept Mr Castle’s.
(ii) In his approach to this valuation I am
satisfied that Mr Cohen made the right inquiries, assessed the right
information and made the appropriate calculations that any competent valuer,
exercising due skill and care, would have done and gone through.
(iii) Mr Castle told me in round figures that, in
his view, a fair overall valuation of the property was £500,000. I think that
on analysis it turns out to be a little less. If one takes the 9% yield and the
main building at nearer to £425,000 and around £65,000 for the yard, it comes
to something like £490,000. Mr Cormie ended up at a value of £450,000 being
acceptable for the main building, with a figure to be added for the yard. Mr Bertram
ended up with £445,000 for the whole property as being the top value. In my
judgment, if I had to reach a yardstick ‘right’ figure, if that is a meaningful
exercise, it would be Mr Castle’s figure of £490,000 as perhaps more accurately
calculated, or £500,000 as the round figure. It is to be noted that Mr Cormie’s
and Mr Bertram’s end figures, albeit their top figures, fall within something
around 10% below Mr Castle’s figure, while Mr Cohen’s end valuation at £530,000
falls within less than 10% above it.
(iv) Mr Cohen therefore produced a valuation which
fell within the acceptable range of figures that a competent valuer using due
skill and care would reach, even if towards the upper end of the bracket.
(v) Mr Cohen’s working figures on the residual
site value can properly be criticised because he took too high a discount for
developer’s profits, but no discount for owner-occupier’s money tied up. The
two areas do not quite cancel each other out, but the resultant figure is still
within the acceptable range. While that criticism can properly be made, it
would, in my judgment, be a nonsense to say that, because there is a flaw in
the process and in the figures, damages should be awarded, when the resultant
figure remains, as it does in my judgment, within the range which a competent
surveyor using proper skill and care and informing himself of all relevant
evidence could properly reach.
(vi) It follows therefore, in my judgment, that
this claim fails. That leaves the plaintiff bank without success in their claim
for damages. Sympathy for them with their massive loss — and massive it was
indeed — is no basis for founding liability where none rightly lies. The
massive fall in the value of 117-119 Hartington Road is to be attributed to the
freefall collapse in the property market in 1990. Their inability to recover
anything from Mr Hirsch is due to his bankruptcy, which itself is no doubt
attributable largely to the same cause.
(vii) Finally, accordingly, in my view, judgment
must be entered for the defendants.
Judgment for
the defendants.
