Negligence — Mortgage valuation — Whether plaintiffs entitled to summary judgment in claim for damages for professional negligence in absence of supporting opinion as to defendant valuers’ valuation
1989 the plaintiffs, European Partners in Capital (Epic) Holdings BV, were
contemplating making a loan on the security of property at 42 Queensgate
Terrace and 66 Queensgate Mews, London SW7, in the sum of £1.92m being 80% of
the purchase price of £2.4m — The plaintiffs instructed the defendant firm of
chartered surveyors and valuers to produce a valuation of the property for the
purposes of the proposed mortgage — By a written valuation report dated August
29 1989 the defendants gave their opinion that the open market value of the property
with vacant possession was £2.4m — On September 6 1989 the plaintiffs agreed to
lend the £1.92m on the security of the property — The borrower defaulted in
payment of the interest and, after first appointing a receiver, the plaintiffs
realised the security by sale; the sale price was no more than £800,000 — In
April 1991 the plaintiffs instructed another firm of valuers, Chestertons, to
inspect the property and comment on the defendants’ report and valuation — Mr
Vivian, of Chestertons, in his written report dated April 22 1991, expresses
his disagreement with certain planning assumptions which had been stated in the
defendants’ report, recalculated the gross internal floor area of the property
as 6,800 sq ft in contrast to the defendants’ figure of 7,500 sq ft and
expressed the opinion that in August 1989 the value of the property lay between
£900,000 and £1m — Following the commencement of proceedings alleging
negligence against the defendants, the plaintiffs sought final judgment under
Ord 14 of the Rules of the Supreme Court relying upon Mr Vivian’s report — The
defendants relied upon an affidavit exhibiting a draft defence by which they
proposed to stand by the valuation of August 29 1989 and to assert that it was
permissible for competent valuers to have valued the property at £2.4m —
Following the adjournment of the summons the defendants filed an affidavit by
Mr Duncan, of W A Ellis, a firm of surveyors and valuers, in which he comments
on the defendants’ report of August 29 1989 and Mr Vivian’s report — Mr Duncan
did not in terms disagree with the conclusions expressed by Mr Vivian, nor did
he in terms support the conclusions expressed in the defendants’ report — At
the hearing of the summons the official referee gave judgment in favour of the
plaintiffs on liability with damages to be assessed — On appeal the
defendants contended they had a triable issue on the issue of professional
negligence
an expression of opinion — By the draft defence the defendants wished to
contend that their valuation was a proper and competent valuation; Mr Vivian,
on the other hand, said that the value of the property at the relevant time was
at highest £1m: these were two rival professional opinions, expressions of
judgment by professionals who had come to different conclusions — Issues of
professional opinion, which must be chosen between if liability in negligence
is to be established, will not, as a general rule, be issues suitable to be
resolved on a summary judgment application — It would be a very unusual case in
which it would be right to deny the defendants the opportunity of standing by
and contending for the competence of their valuation at trial, at which they,
or the author of the valuation report, could be cross-examined as to its
competence and correctness and at which the defendants could challenge the
correctness of the views expressed in the rival valuation report relied on by
the plaintiffs
No cases are
referred to in this report.
This was an
appeal by the defendants, Goddard & Smith, against an order for summary
judgment under Ord 14 made by Judge Wilcox QC (sitting as a deputy official
referee) on October 11 1991 in proceedings alleging negligence brought by the
plaintiffs, European Partners in Capital (Epic) Holdings BV.
Jonathan
Ferris (instructed by William Davies Meltzer) appeared for the appellant
defendants; Jonathan Acton Davis (instructed by Goodman Derrick & Co)
represented the respondent plaintiffs.
Giving
judgment, SCOTT LJ said: This is an appeal against an order for summary
judgment under Ord 14 of the Rules of the Supreme Court made by Judge Wilcox
QC, sitting as a deputy official referee on October 11 1991. The action is one
of professional negligence. The defendants, Goddard & Smith, are a firm of
surveyors and valuers. In August 1989 the plaintiffs, European Partners in
Capital (Epic) Holdings BV, were contemplating making a loan on security of
property at 42 Queensgate Terrace and 66 Queensgate Mews, London, SW7. The amount
of the proposed loan was £1.92m, being 80% of the purchase price of £2.4m to be
paid by the proposed borrower on his purchase of the property.
The plaintiffs
instructed the defendants to value the property for the purposes of the
proposed mortgage and the defendants accepted those instructions. It is of
course common ground that in accepting the instructions the defendants came
under a duty to exercise the due care and skill reasonably to be expected of
competent professional valuers. In due course the defendants issued a written
valuation report dated August 29 1989. The report referred to the purpose for
which it had been bespoken, that is to say, for the purpose of a mortgage to be
secured on the property in question. It contained comments about the current
use of the property and about some information which it was said had been
obtained from the local authority with regard to planning proposals and
regarding the use of the property. The report described the property as
comprising some 7,500 sq ft, and in conclusion expressed the opinion that the
open market value of the property with vacant possession, subject to good title
and to there being no onerous or unusual restrictions and covenants, was £2.4m.
It strikes the eye somewhat that that figure was exactly the same as the
purchase price to be paid by the proposed borrower.
On about
September 6 1989 the plaintiffs agreed to lend the £1.92m on the security of
the property, and the mortgage transaction was completed on September 12 1989
by the execution of a legal charge. The borrower defaulted in payment of the
interest required under the terms of the loan. Repayment of the loan was
demanded by the plaintiffs but was not forthcoming. So, after first appointing
a receiver, the plaintiffs realised the security by sale. The sale price was no
more than £800,000. It seems unlikely from the contents of the documents before
the court that any part of the balance of the loan or of the unpaid interest
accrued thereon will be recoverable from the borrower. So the plaintiffs are
faced with a substantial shortfall.
Contracts for
the sale were exchanged in February 1991 and the sale was completed in April
1991. So the extent of the shortfall became apparent to the plaintiffs in
February 1991. In April 1991 the plaintiffs instructed another firm of valuers
(Chestertons) to inspect the property with a view to commenting on the
defendants’ report and valuation of August 29 1989. Mr Graham Vivian [FRICS],
of Chestertons, made a written report on April 22 1991. He expressed his
disagreement with certain planning assumptions which had been expressed in the
defendants’ report, he calculated the gross internal-floor area of the property
as being about 6,800 sq ft in contrast to the defendants’ figure of 7,500 sq
ft, and he expressed the opinion that in August 1989 the value of the property
lay somewhere between £900,000 and £1 m. He said the figure of £2.4m referred
to in the defendants’ valuation report was, in his view, about two and a half
times the value of the property at the valuation date. It is to be noted,
however, that Mr Vivian did not in his report express any opinion as to whether
the valuation figure in the defendants’ report was outside the bracket that
could be expected of a competent valuer. He did not, therefore, express his
opinion as to whether the person responsible for compiling the defendants’
report had shown the standard of competence expected by the profession of
valuers of its members.
Armed with Mr
Vivian’s report, the plaintiffs commenced this action by writ and statement of
claim issued and served on May 24 1991. By summons issued on June 7 1991, but
not served until July 4, the plaintiffs sought final judgment under Ord 14. The
affidavit in support of the summons, sworn by Mr Paul Millar, set out the
history of the loan and mortgage transaction and exhibited Mr Vivian’s report.
The defendants, in seeking leave to defend, relied originally solely on an
affidavit sworn by Miss Davies, a member of the firm of solicitors acting for
the defendants. Miss Davies in para 2 of her affidavit said:
This action
will be defended (among other grounds) on the basis that the valuation was not
negligent.
She exhibited
to her affidavit a form of draft defence, indicating the contents of the
defence that the defendants would serve if leave to defend were given. In that
draft defence it is made plain by the contents of para 12 thereof that the
defendants proposed to stand by the valuation of August 29 1989 and to assert
that it was permissible for competent valuers to have valued the property at
£2.4m. Moreover, in the draft defence it is denied that the property’s actual
value at the material time was in the bracket of £900,000 to £1m spoken to by
Mr Vivian.
The summons
first came before Mr Tackaberry QC, sitting as a deputy judge. I understand
from what counsel has told us (Mr Ferris for the defendants and Mr Acton Davis
for the plaintiffs) that Mr Tackaberry indicated his opinion that in the face
of Mr Vivian’s evidence judgment under Ord 14 for liability would follow unless
some expert evidence in answer thereto were filed on behalf of the defendants.
So naturally Mr Ferris took the opportunity offered by the deputy judge of an
adjournment of the summons for the purpose of supplementing the defendants’
evidence. The adjournment was over October 11 when the matter came before Judge
Wilcox. In the intervening period the defendants filed an affidavit by a Mr
Michael Duncan, a member of W A Ellis, a firm of surveyors and valuers. Mr
Duncan’s affidavit exhibits a report made by him in which he makes some
comments both on the defendants’ report of August 29 1989 and on Mr Vivian’s
report of April 1991.
It is fair to
say that Mr Duncan’s comments are somewhat noncommittal. He does not in terms
disagree with the conclusions expressed by Mr Vivian, nor does he in terms
support the conclusions expressed in the defendants’ report. He does, however,
set out a number of comparables, which it is fair to regard as intended to
support his comment in an earlier letter he had written, exhibited to the
affidavit of Miss Davies, that ‘Mr Vivian’s valuation may be susceptible to
challenge’.
Before the
deputy official referee, when the matter was finally dealt with on October 11,
the defendants sought leave to defend on three grounds in order to: (1)
challenge the allegation of professional negligence in the making of the August
29 1989 report and valuation; (2) challenge the causative elements in the
plaintiffs’ case (ie the plaintiffs’ reliance on the defendants’ report in
making the advance of £1.92m); and (3) raise allegations of contributory
negligence. As to that, it is said that the plaintiffs made inadequate
inquiries about the ability of the proposed borrower to handle such a
substantial loan and in prudence should not have lent him such a large amount.
That is a very broad summary of the nature of the contributory negligence
point.
The official
referee gave judgment in favour of the plaintiffs on
The defendants have now appealed.
The critical
question, in my opinion, is whether the defendants have shown a triable issue
on the issue of professional negligence. As to that, the learned deputy
official referee said, having referred to and cited from the defendants’ April
29 1989 report:
There is
before me at present no evidence from the author of that report as to the basis
upon which he came to that valuation. There is before me the affidavit of Mr
Vivian of Chestertons, which, in an impressive and closely reasoned valuation,
expresses the view that the valuation at the relevant time would be no more
than £1m, putting it in round terms. It is a report which condescends to great
particularity when it comes to examining the comparables, to examining and
considering the economic climate prevailing then and would have been
foreseeable by a prudent valuer. It is a report by someone who has considerable
experience in the locality and with that type of property. His view reasoned
full is firm. It is in contradistinction to the other evidence relating to
valuation which is before me.
Mr Duncan, of
W A Ellis, in his affidavit of the September 30 1991, when issue was firmly
joined as to matters of value, found himself unable to express any view as to
valuation. He makes comments upon the report of Mr Vivian. He does not in any
detail analyse the comparables set out at para 10 of his report at p 7. I have
to be careful in the approach that I take myself to those comparables. This is,
after all is said and done, a matter that requires some expert interpretation.
None of that appears, either expressly or in my judgment implicitly, in the
report of Mr Duncan. There is a gaping void in his report and that is as to the
expression of any view, firm or arguable, as to the margins for the reasonable
judgment when it comes to valuations at the time that the defendants made their
valuation. So it appears to me, unerringly upon the evidence before me, that
when it comes to the valuation, the defendants were in breach of their duty to
the plaintiffs and were negligent.
The learned
deputy official referee then went on to consider the other points that had been
raised as potential matters of defence.
It is important,
in my opinion, to bear in mind that the negligence alleged against the
defendants relates to an expression of professional opinion. As Mr Ferris
pointed out, there are at least two types of professional negligence that may
come before the courts. One type may depend upon matters of fact which, once
established, justify a conclusion of negligence. But that is not the case with
the other category, which relates to expressions of opinion, to professional
judgments which have been made. The present case is of the latter type. The
defendants said in their August 29 1989 valuation that the market value of the
property at that time was £2.4m. They have indicated by the affidavit of Miss
Davies and the draft defence to which I have referred that they wish to contend
that that valuation was a proper and competent valuation. Mr Vivian, on the
other hand, says that the value of the property at the relevant time was at
highest £1m. These are two rival professional opinions. They are expressions of
judgment by professionals who have come to different conclusions. Mr Duncan, as
the deputy official referee observed, did not give any opinion on value
himself.
It is well
established that if a real issue of fact is present which has to be resolved in
favour of the plaintiff if liability is to be established, then the case is not
fit for summary judgment, except in the very rare instance that the issue of
fact can be resolved on affidavits. In general, issues of fact cannot be
resolved without cross-examination. Once it is apparent that an issue of fact
on which liability depends must be resolved before liability can be
established, the case in general will be one which is not suitable for summary
judgment. In the present case liability depends upon an issue of opinion. In my
judgment, issues of professional opinion, which must be chosen between if
liability in negligence is to be established, will not as a general rule be
issues suitable to be resolved on a summary judgment application. In general I
believe that Mr Acton Davis accepts that that is so. He very realistically
accepted that if, in the present case, the author of the defendants’ valuation
report or some partner in the defendant firm had gone on affidavit
unequivocally to state that he stood by the August 29 1989 valuation and
contended that it was within the realm of competence proper for a person
practising in the discipline in which he practises, the summary judgment
application could not succeed. Indeed, Mr Acton Davis indicated that, if there
had been such an affidavit, his clients would not have proceeded with the
application but would have taken directions for the future conduct of the
trial. Mr Acton Davis’ point is that in the present case there is no such
unequivocal assertion made either by the author of the August 1989 report or by
a member of the defendant firm. He says that there was nothing before the court
below, and there is nothing before this court, to gainsay the valuation opinion
of Mr Vivian. He said: ‘I am content that my case depends on the absence of an
affidavit of the defendant standing by the valuation of 29th April 1991.’
In my opinion,
to rest a summary judgment order on so narrow a basis is likely to be, and in
this case is, unsatisfactory. If it has been made clear, as the combination of
Miss Davies’ affidavit and the draft defence exhibited thereto did in my
opinion make clear, that the defendants propose to stand by and contend for the
competence of, let alone the correctness of, their expression of professional
opinion, it would be a very unusual case in which it would be right to deny
them the opportunity of so doing at trial, at which they, or the author of the
valuation report, could be cross-examined as to its competence and correctness
and at which they could challenge the correctness of the views expressed in the
rival valuation report relied on by the plaintiffs. In his judgment the deputy
official referee commented on the absence of any evidence from the author of
the defendants’ report as to the basis upon which he made his valuation. But
the report itself, as Mr Ferris pointed out, is in evidence before the court
and contains internally some indication as to the basis upon which the author
made the valuation.
I would be
content to rest my conclusion that this is not a case in which summary judgment
can be supported and is one in which leave to defend should have been given
upon the footing that it is based upon the incompetence of an expression of
professional opinion which the defendants responsible for that opinion desire to
stand by and at trial to support. I accept that there may be some cases in
which summary judgment could be given notwithstanding the desire of a
professional to stand by and justify his professional opinion. Such a case
would, in my judgment, be a rare one and I can see nothing in the present case
to take the case out of what I would regard as the general rule that would
permit a professional who desired to support his professional opinion to do so
at trial.
I would allow
this appeal and give leave to defend.
Agreeing, SIR
CHRISTOPHER SLADE said: In my judgment, if the plaintiffs are to establish
professional negligence against the defendants at the trial, they will have to
satisfy the court as to two matters, namely, first, that Goddard & Smith’s
opinion as to the value of the property given on August 29 1989 was wrong and,
second, that this opinion was one which no valuer of ordinary skill and
competence could have held.
Mr Acton
Davis, in his admirable argument, has satisfied me that at least on the basis
of the limited evidence before this court the plaintiffs do have a fair
prospect of establishing both these points at the trial. In my judgment,
however, on the basis of this limited evidence, untested as it is by
cross-examination, neither point has been established with sufficient certainty
to justify this court in deciding them against the defendants on this
application for summary judgment. Viewed as a whole, this case is, in my
judgment, plainly one which should proceed to trial. For these reasons, very
shortly stated, and the further reasons given by Scott LJ, I would concur in
allowing this appeal and in giving the defendants unconditional leave to defend
the action.
Appeal
allowed with costs in this court; costs below in cause; liberty to apply to
official referee for directions.
