Mortgage – Valuation – Misrepresentation – Defendant’s representative valuing property in excess of actual value – Claimant agreeing mortgage in reliance upon defendant’s valuation – Mortgagor defaulting on loan – Claimant seeking damages in deceit – Defendant admitting negligence but denying fraud – Defendant seeking indemnity against individual valuer – Whether defendant liable in damages – Whether claimant and defendant entitled to summary judgment – Claims allowed
In February 2005, the claimant made a loan of £10.5m to G to fund the purchase of a property at a price of £14.5m. Following the purchase, the property was to be occupied by three business tenants under new leases at favourable rental rates.
The claimant instructed the first defendant to value the property. One of its directors (M) valued the property at £16m with the benefit of the new leases and at £10.5m with vacant possession. In April 2005, in reliance upon that valuation, the claimant advanced £10.5m to G, with a further advance of £1m in September against the security of the property, having received confirmation that the earlier valuation figure still applied.
The claimant subsequently discovered that it had been the victim of a mortgage fraud; the proposed new leases were bogus and the true vacant possession value was approximately £1.5m. G defaulted on the loan. The claimant suffered a substantial loss and brought action for damages in deceit, or alternatively, negligence and/or breach of contract against the first defendant and the solicitor that acted on its behalf in respect of both advances (the second defendant).
The first defendant served a defence admitting negligence and breach of contract but alleging that the claimant had been contributorily negligent. With regard to the deceit claim, the first defendant did not admit that M had acted fraudulently. The claimant applied for summary judgment against the first defendant together with an order for an interim payment, providing various witness statements and an expert’s report. Thereafter, the first defendant issued separate proceedings against M, asserting that he had acted fraudulently as alleged by the claimant, but without prejudice to the non-admissions in its defence. No defence was served in those proceedings and the first defendant issued its own application for summary judgment. The applications were heard concurrently; the hearing did not deal with the claim against the second defendant.
Held: The claims were allowed.
The claimant and the first defendant were both entitled to summary judgment with damages to be assessed.
Given M’s involvement, the two claims stood or fell together. The burden was on the claimant in both actions to establish that the first defendant had no real prospect of successfully defending the claim in deceit; and that there was no other compelling reason why the case should go to trial. The need for caution was greater given the nature of the cause of action: Celandor Productions Ltd v Melville [2004] EWHC 2362, Three Rivers District Council v Bank of England (No 3) [2001] UKHL 16, Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2006] EWCA Civ 661; [2007] FSR 3 and Wrexham Associated Football Club Ltd (in administration) v Crucialmove Ltd [2006] EWCA Civ 237 applied.
In order to establish the tort of deceit, a heightened burden of proof was required: see Hornal v Neuberger Products Ltd [1957] 1 QB 247. The first defendant had to have made a clearly identifiable false representation of fact, which had been made dishonestly in that the representor had conscious knowledge that its statement was false. The statement had to have been intended to be, and in fact had been, relied upon: Derry v Peek (1889) 14 App Cas 337, Angusv Clifford [1891] 2 Ch 449 and AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti Palm) [2006] EWCA Civ 1601; [2007] 1 All ER (Comm) 667 applied.
In the present case, the first defendant had failed vigorously to deny the allegations of fraud but had merely made no admission. M had not filed any defence. The expert’s report had not been challenged in any material respect. It was common ground that the discrepancy between the true value and that provided by M was significant and that the rental levels adopted far exceeded the market value. In all the circumstances, the features of the valuation were consistent with dishonesty and summary judgment was appropriate as was an interim payment award of £10m: Nationwide Building Society v Dunlop Haywards Ltd [2007] EWHC 1374 (Comm); [2007] PLSCS 181 considered.
Sue Carr QC and Ben Elkington (instructed by Addleshaw Goddard) appeared for the claimant; Roger Stewart QC and Ben Patten (instructed by Berrymans Lace Mawer) appeared for the defendant.
Eileen O’Grady, barrister
