Third party proceedings arising out of admittedly negligent valuations — Dispute between defendants in action (valuers) and third party (solicitors) as to the proportion in which damages due to plaintiff building society should be shared — Defendants had settled plaintiffs’ claim by payment of £35,000 — Valuations of two flats made by defendants resulted in loss to plaintiffs when borrowers defaulted and mortgaged properties had to be sold — Third party found to have committed a number of breaches of duty towards plaintiffs including failure to make proper disclosure of matters
The only issue
in the present proceedings was the apportionment of responsibility, and
consequently of damages, between House & Son, surveyors, estate agents and
valuers practising in Bournemouth, defendants in an action brought by the
Anglia Hastings & Thanet Building Society, and Wetheralls, solicitors, of
Bournemouth and Poole, the third party in the proceedings. The action arose out
of valuations made by the defendants for the plaintiff building society of two
flats, nos 2 and 3, at 15 Alton Road, Parkstone, Poole, Dorset.
J Hicks QC and
J Storey (instructed by Reynolds, Porter, Chamberlain & Co) appeared on
behalf of the defendants in the action brought by the Anglia Hastings &
Thanet Building Society; P Langan (instructed by Barlow, Lyde & Gilbert)
represented the third party.
Giving
judgment, BINGHAM J said: These proceedings concern two flats, numbered 2 and
3, at 15 Alton Road, Parkstone, Poole, in Dorset. Flat 2 was sold to a Mr Simon
on a long lease at a price of £20,000, there being a mortgage advance of
£16,000 made by the plaintiffs, the Anglia Hastings & Thanet Building
Society. That mortgage advance of £16,000 amounted to 80 per cent of the
purchase price. Flat 3 was sold on a long lease to a Mr Benson at a price of
£25,000, the plaintiffs’ mortgage advance in this case being £20,000, again 80
per cent of the purchase price. Both purchasers defaulted on their mortgage
payments. The plaintiff building society enforced their security and in doing
so suffered a substantial loss because they were unable to sell the flats save
at very much lower prices than the prices at which they had been bought and it
turned out that the buyers had little or no means. The plaintiffs’ loss was
£35,000 or perhaps a little more.
As a result of
this transaction, the plaintiffs sued the defendants, a firm of estate agents
and valuers practising in Bournemouth. Those valuers had been instructed to
value the flats on behalf of the plaintiffs and they gave valuations in line
with the sale prices that I have mentioned, that is, £20,000 for Flat 2 and
£25,000 for Flat 3. The plaintiffs had advanced their 80 per cent mortgages in
reliance on those valuations and this was an important feature of the story
because, of course, in accordance with the ordinary practice, the plaintiffs
regarded the property against which they were advancing money as the prime
element in their security. Accordingly, the plaintiffs’ allegation against the
defendants in the original action was that the valuations which the defendants
had made had been negligent in the sense that they had not been within the
reasonable bracket within which reasonable and careful valuers may vary.
The plaintiffs
further contended that they had relied on these valuations in making their
advances and had suffered loss as a result.
The defendants
have acknowledged the truth of these complaints and have accordingly settled
the plaintiffs’ claim and paid to them the sum of £35,000. The defendant
valuers have acknowledged that they were negligent and they have not sought to
defend the claim or mitigate their responsibility so far as the plaintiffs’
claim is concerned.
But the
defendants do say that they were not the only party whose negligence and breach
of duty contributed to the plaintiffs’ loss. They blame a firm of solicitors
practising in Poole, the third party in this action, who they say were also at
fault. It is this complaint which has been pursued in these third party
proceedings which are the proceedings effectively before the court at this
stage.
The third
party, for their part, acknowledge that they were in some respects in breach of
their duty to the plaintiffs. They acknowledge that they are liable to make
some contribution to the defendants towards the settlement which the defendants
have made with the plaintiffs and they acknowledge that the settlement which
the plaintiffs have made was reasonable both as to the fact of making it at all
and as to the amount in which the settlement was effected. But the third party
says that the bulk of the responsibility for the plaintiffs’ loss should lie
with the defendants whose valuations were, on the evidence of the defendants’
own independent witness, ‘wildly wrong’. The defendants, contrarily, say that
the bulk of the responsibility should lie with the third party.
The issue
before me is as to the proportion in which the payment to the plaintiffs should
be shared between the defendants and the third party. This issue involves the
recapitulation of a little history. I should, however, say one thing at the
outset. The principal of the third party firm of solicitors dealing with the
matter throughout has been a Mr P de V Wetherall. He did not give evidence in
these proceedings before me and indeed no evidence was called on behalf of the
third party. The story as to what happened was therefore very largely to be
derived from the documents. The defendants themselves were involved in the
transaction for a brief and limited period and they have no knowledge in detail
of what went on save to the extent that they were involved in making the
valuations and save to the extent that light is thrown on what went on by the
evidence of the building society, one of whose representatives, Mr Britten, did
give evidence on the plaintiffs’ behalf, but the documents leave quite a lot
unexplained and as to much of this the defendants cannot, for the reasons that
I have given, help very much.
In this
situation, I am, I think, obliged to draw such inferences as seem proper from
the documents. In doing so, there is undoubtedly a risk that I may draw
conclusions which may be unfair to Mr Wetherall. This is a risk which
necessarily flows from his quite legitimate decision not to give evidence in
the proceedings.
The case
concerns, as I have said, two purchasers, a Mr Simon and a Mr Benson. Before
they came on the scene, Mr Wetherall had certainly had some involvement with
these two flats and the building in which they were situated. The extent and
nature of Mr Wetherall’s involvement is not entirely clear, but it does seem
that at some stage he was the director of a development company which was
seeking to pull down the old house which was on the site and redevelop the site
with a block of modern flats.
The documents
show that by a deed dated November 14 1972 the property was conveyed by one Mr
Robinson as owner to Mr Wetherall and a Mr Isaac, apparently, so far as the
face of the document goes, for a payment of £35,000, receipt of which was
acknowledged by Mr Robinson.
On the same
date, it would appear that a mortgage was entered into between Mr Wetherall and
Mr Isaac as mortgagors and a firm called G R Dawes & Co as mortgagees.
Under this, on the face of it, Mr Wetherall and Mr Isaac made themselves liable
to the mortgagees as borrowers.
In 1974 there
was a further deed reconveying the property from Mr Wetherall and Mr Isaac to
Mr Robinson. This deed acknowledged that the funds for the initial purchase,
that is the sum of £35,000, had been advanced by Mr Robinson for the purchase
and that the borrowing which had been entered into had been on his behalf. None
the less, even following this transaction, Mr Wetherall and Mr Isaac remained
as nominal owners of the property and still, on the face of it, remained
debtors to G R Dawes & Co.
The papers
before me show, or appear to show, that Mr Wetherall had, over a period, been
receiving management fees and expenses in respect of this property; had been
receiving costs; had been the addressee of invoices relating to planning and
building matters relating to the property, and had, on December 16 1974, been
repaid the sum of £1,000 which he had apparently spent on building work again
relating to the property.
It therefore
appears that Mr Wetherall was heavily involved, certainly as a nominee and
possibly as more, in dealings with this property. He had been remunerated for
his efforts. He had made himself prima facie liable to the mortgagees,
although, of course, he was entitled to be indemnified by the true owner, but
it would appear that he at least had some indirect interest in the owner being
in a position to pay off the outstanding debt to the mortgagees, which would,
of course, relieve Mr Wetherall of any liability. Mr Wetherall’s right of
indemnity was the more valuable if the flats could be sold off advantageously.
Mr Simon makes
his first appearance in the papers on September 2 1974. How he was introduced
to Mr Wetherall and how he became a client remains shrouded in mystery, but he
apparently presented
addresses 73 Carterhatch Lane. He was interested in buying Flat 2 at this
property and on October 2 1974 a draft contract was sent to him by Mr Wetherall
acting for the nominal vendors. In the covering letter enclosing that draft
contract, reference was made to a deposit of £5,000 to be paid on exchange of
contracts in the ordinary way.
A little after
this, on October 18 1974, the first mention of the second purchaser, Mr Benson,
appears. He is a somewhat shadowy figure. So far as the papers show, he never
at any stage appeared in person. Mr Wetherall never apparently met him. He
never wrote any letter and never, as one gathers, ever spoke to Mr Wetherall on
the telephone. It appears that Mr Simon, the first purchaser, always operated
and spoke on behalf of Mr Benson and the facts are the more curious in that the
address apparently given on behalf of Mr Benson was the same address as that
previously given on behalf of Mr Simon, namely, 73 Carterhatch Lane. Mr Benson
was said to be a very successful executive and one gathers from the papers no
adequate explanation for his apparent inability to conduct his own affairs. He
was clearly not, as the papers show, an infant. It is not suggested that he was
of unsound mind or lacked mental capacity in any respect and one is left with
the gravest doubt as to whether he ever existed at all. Had evidence been given
on behalf of the third party, it would have been interesting to hear whether Mr
Wetherall thinks now, or ever thought, that Mr Benson did exist. That is
something that one cannot resolve.
However, Mr
Benson, as I say, appeared by proxy on the scene on about October 18 and was
reported to be anxious to buy Flat 3 at a price of £25,000.
On October 25,
letters were written by Mr Wetherall to both Mr Simon and Mr Benson referring
to these proposed purchases. In the letter to Mr Simon, reference was made to
the need for a building society mortgage to be made to Mr Simon to enable him
to make the purchase and also to an insurance company ‘top-up’ to raise the
funds necessary. In the letter to Mr Benson it was mentioned that a substantial
building society mortgage advance would be needed and an insurance company to
provide a second mortgage. These letters are of importance because they clearly
reflect Mr Wetherall’s understanding that even on the assumption that a
building society mortgage would be obtained, Mr Simon and Mr Benson would need
assistance to provide the balance of the purchase price.
In each case,
the contracts of sale of the leasehold interests in the flats were exchanged in
about the middle of November 1974, at which time no financial arrangements for
the purchase had been made and it is of significance to observe that no deposit
on exchange of contracts was paid by either prospective purchaser, although
some efforts to obtain such deposits were made by Mr Wetherall.
The obtaining
of a building society mortgage was not a mere formality because the sums which
it was sought to borrow on behalf of both these purchasers were above the
standard limit of building society loans at that time. To obtain the 80 per
cent advances which were sought, it was apparently then necessary to be rather
a special customer of a building society. Such a special customer might either
be a big or long-standing investor with the building society or might be
somebody or some institution or firm which the building society regarded as a
useful contact which should be encouraged by being given preferential treatment.
There was
operated by the plaintiffs at this time a procedure known as a ‘special
advance’ procedure for dealing with cases of this kind. The first step in
obtaining a mortgage according to this procedure was to submit a special form
known as form ‘A’ or a special advance inquiry form. In respect of both Mr
Simon and Mr Benson this form was completed on November 4 1974 and sent off to
the plaintiffs on the 21st of that month. The forms were prepared under the
auspices of the third party for both Mr Simon and Mr Benson and contained
details of their occupations, potential referees — they both gave banks and
accountants — and nominated the third party as introducing agents. Mr Benson’s
address was given in the form again as 73 Carterhatch Lane. These forms were,
as I say, sent off on November 21 1974 and special advance approval was given
by the plaintiffs first in the case of Mr Benson and then subsequently in that
of Mr Simon.
The next step
was to submit in respect of each prospective purchaser a mortgage application
form and a personal information form. These forms again were completed under
the supervision of the third party solicitors. It is adequate to take as an
example the form filled in in respect of Mr Simon. That contained, among other
details, the following: The question was asked: ‘Are you paying legal costs,
stamp duty, etc, from your own resources?’ and the answer was given, ‘Yes’.
There was a space where the name and address of the applicant’s solicitors were
to be given and that information nominated the third party and gave their
professional address. There was a space for bank references, and then a further
question was asked: ‘Will it be necessary for you to borrow by way of second
mortgage or otherwise in order to complete the purchase?’ and the answer was
given, ‘No’. At the end of the form, there was a declaration signed by the
applicant that the information given was correct.
Mr Benson’s
form, so far as material for present purposes, was identical both so far as the
questions and the answers were concerned.
The personal
information form contained this question in both forms: ‘What sums of money are
you providing without the assistance of anyone else towards the price and legal
costs, etc of purchasing this property?’
Mr Simon gave the answer ‘£4,000’ and Mr Benson ‘£5,000’ and in each
case they signed it.
So far as Mr
Simon was concerned, he was certainly charged by the third party for completing
these documents so far as possible and, although in Mr Benson’s case the
documents are less complete, it seems probable that he was charged also.
I pause to
emphasise that at this stage the third party knew that Mr Simon and Mr Benson
were not funding from their own resources the balance of the purchase price,
the need for a second mortgage of some kind having been clearly understood from
an early date, and it is further clear that the third party knew that no
deposit had been paid.
These forms
were sent to the building society and meanwhile the defendant valuers, on
January 28 1975, valued the property. The sums of their valuations I have
already mentioned: £20,000 for Flat 2, £25,000 for Flat 3, and these are, of
course, the valuations which are complained of as having been made negligently.
The building
society checked the references which had been given by Mr Simon and Mr Benson.
They had both, by a striking coincidence, given the reference of the same
certified accountants from whom eventually, but not without some delay,
satisfactory references were obtained. The building society had extreme difficulty
in obtaining bank references, particularly in the case of Mr Benson but also to
a lesser extent in the case of Mr Simon, and when received these references
were essentially worthless. That, however, did not put the building society
off. They were satisfied with the references which they had obtained from the
accountants and no doubt they also relied on the security which they would hold
in the form of the properties themselves. One is bound to comment that some
part, albeit a very minor part, of responsibility for what happened would
appear to rest with the building society for the rather casual way in which it
treated the inadequate bank references provided by two men both claiming to be
successful executives.
Mr Simon’s
application proceeded rather more quickly than Mr Benson’s. On February 14 1975
his application for a mortgage advance of £16,000 was approved and the third
party were appointed by the building society to be their solicitors. This was
because they were thought by the building society to be Mr Simon’s solicitors
acting in the conveyance. On February 26 1975, Mr Wetherall and Mr Isaac
granted a 99-year lease of Flat 2 to Mr Simon and a legal charge was executed
in favour of the building society.
At a later
date Mr Simon executed a second mortgage in favour of Mr Wetherall and Mr Isaac
in the sum of £5,000. The date of execution of that mortgage is not entirely
clear and it is a matter of some doubt whether the date that the document
bears, namely, February 26 1975, is in fact the date when the document was
executed. What is, however, clear is that notice of that second mortgage was
not given to the building society until February 9
Bank in Winchester and at one stage Mr Wetherall was concerned at the apparent
freedom with which Mr Simon was drawing cheques on that account.
Mr Benson’s
mortgage application was approved on April 1 1975. Again the third party were
appointed solicitors and the lease was granted and the legal charge in favour
of the building society executed on April 21 1975. A second mortgage with G R
Dawes & Co was entered into by Mr Benson on May 7 1975, notice to the
building society being given on January 12 1976. This was not apparently for the
full balance of the purchase price outstanding and it remains unclear, at least
to me, how that sum was paid or indeed if it was paid at all.
The purchasers
very soon fell into default in meeting their mortgage repayments. Mr Benson
effectively paid nothing and Mr Simon paid very little. Mr Simon scarcely
occupied the property which he was buying and so far as the evidence shows, Mr
Benson did not occupy it at all.
I need not, I
think, consider the remaining history in any detail, since there is no issue as
to the extent of the building society’s loss, or, as I say, as to the propriety
of the settlement made.
I therefore
turn to the amended third party notice in order to draw attention to the
breaches of duty which the defendants allege against the third party. The first
which it is necessary to consider is in paragraph 9(b) in which it is alleged:
If, which is
denied, Mr Simon was acting in the proposed purchases for himself and Mr Benson
or if each of them was acting for himself in his own proposed purchase and you
were not therefore the applicants’ solicitors, you were guilty of
misrepresentation by stating on the application for advance form that you were
the applicants’ solicitors.
It is, I
think, true that the third party put themselves forward as Mr Simon’s and Mr
Benson’s solicitors acting on the purchase, which they were not, and to that
extent there was a misstatement by the third party. It is not, however, I
think, very material in the present history. It is true that special advances
were made only to favoured customers and to that extent the purchasers’
approach through the third party was no doubt helpful to them in enhancing
their chances of obtaining an advance, but if the building society were anxious
to cultivate the third party as a possible contact and source of business, they
would, I think, have been anxious to cultivate them whether as solicitors
acting on behalf of these two prospective purchasers or merely as introducing
agents.
The next
breach relied on comes in paragraph 16(a) of the amended third party notice
where it is alleged that
The
plaintiffs’ damage, if any, has been contributed to by your own failure to act
with reasonable care and skill as introducing agents and/or in accordance with
your fiduciary duties and/or with reasonable care as solicitors and/or by your
misrepresentation in that (a) in acting for the vendors and Mr Simon and Mr
Benson and the plaintiffs in the circumstances set out above there was a
conflict of interest which you should have resolved by advising the plaintiffs
to instruct other solicitors.
This, I think,
is not a very crucial complaint. The third party did disclose some involvement
as vendors. It is not unusual for solicitors to act for purchasers and also for
the building society. Indeed, it is the standard practice and if the building
society had understood that the third party were involved as vendors and
solicitors for the vendors, it is not clear that the building society would
have been very much concerned, particularly if the third party’s involvement as
vendors had been in a nominal capacity. I do not therefore think that that
advances the matter very far.
The next
complaint, also in paragraph 16, is in (b)(ii) where it is said
You failed to
make any or any adequate enquiries to establish the bona fides of Mr Simon
and/or Mr Benson. Such enquiries should or could have included (ii) a request
to see or speak to Mr Benson in person particularly where Mr Simon, purporting
to act on his behalf, gave a common reference (Mr McGrath) and both claimed to
be employed by the same company (Flag Pack Ltd).
It is, I
think, right that the third party were put on inquiry so far as Mr Benson was
concerned and, as the building society’s solicitors, they were, I feel, under a
duty to communicate those doubts to the building society.
The next
complaint is in 16(c)(ii):
You failed to
disclose to the plaintiffs . . . that you knew from conversations with Mr Simon
and his secretary on or about September 25 to 27 1974 that Mr Simon, if he had
ever been a barrister or a practising barrister, was no longer such.
In my view,
the reference to being a barrister in Mr Simon’s case was to a qualification
and not an occupation and I do not myself think that any significant point arises
on whether he was a practising barrister or not, since I think it was plain
throughout that he was not, even if, which I doubt, it very much matters.
So far as the
complaint in 16(c)(iii) is concerned, the complaint there is that
You failed to
disclose to the plaintiffs . . . that the answer to the questions quoted in
paragraphs
it should be
10 and 11 of the amended third party notice
in the
application and personal forms of Mr Simon and Mr Benson were not the truth.
This complaint
was, I think, effectively conceded on behalf of the third party.
The next
complaint that
You failed to
disclose to the plaintiffs that Mr Simon and Mr Benson were proposing to take
second mortgages to provide the balance of the agreed purchase price
was conceded as
being a breach of duty by the third party.
The next
complaint was that
You failed to
disclose to the plaintiffs that you were acting as solicitors for the second
mortgagees.
That is, I
think, a justified accusation, but it was essentially the existence of the
second mortgage and the second mortgagees that was important rather than the
fact that the solicitors were acting for them.
The remaining
complaints contained in paragraphs 16(c)(vi) to (viii) are conceded as having
been a breach of duty. These complaints are that ‘You failed to disclose to the
plaintiffs (vi) until on or shortly before December 22 1975 that Mr Benson had
taken out a second mortgage as in paragraph 12 above; (vii) until on or about
February 9 1976 that Mr Simon had taken out a second mortgage as in paragraph
12 above’, and ‘(viii) that neither Mr Simon nor Mr Benson had paid the
contractual deposit or any part thereof’.
Those,
therefore, are the breaches of duty complained of and the question of
contribution as between these two parties falls to be considered under section
6(i)(c) and section 6(2) of the Law Reform (Married Women and Tortfeasors) Act
1935. Section 6(2) provides that
In any
proceedings for contribution under this section the amount of the contribution
recoverable from any person shall be such as may be found by the court to be
just and equitable having regard to the extent of that person’s responsibility
for the damage.
It is common
ground between the parties in this case that, in approaching the task
prescribed by that subsection, I should take into account causation and
culpability and all other factors relevant to arriving at a result which is
just and equitable.
Dealing with
the defendants, that is the estate agents and valuers, first, it is clear that
their breach of duty to the plaintiffs was causative of damage. Had the
defendants performed their duty, the building society probably would not have
entered into this transaction at all. If the building society had entered into
the transaction, its loss would have been smaller because the advance which it
would have made would have been smaller. It is possible, although unlikely,
that if a careful valuation had been given, a mortgage advance would
nonetheless have been made but at a lower level. If it had, then there would
have been some loss to the building society because the purchasers would, I
think, on the evidence, still have defaulted.
The defendants
must, in my judgment, be held to be seriously culpable for two main reasons:
first, because the valuation was, in
Harvey Murphy of Bournemouth], the expert witness called on the valuation
question, ‘wildly wrong’, Mr Harvey going on to say, ‘I just can’t understand
how the defendants gave those figures’, and, secondly, because the defendants’
negligence related to what the building society relied on as its prime
security, namely, the property itself. On the other hand, the default of the
defendants was an act of pure misjudgment in the course of a relatively brief
involvement in this transaction. There was in their case no question of putting
themselves in a position where their interest and their duty conflicted.
So far as the
third party is concerned, again their breach of duty was certainly causative of
damage to the plaintiffs, because I am satisfied that if proper disclosures had
been made, this deal would certainly never have been entered into by the
building society. The building society at the time had plenty of borrowers. If
it had not lent to these borrowers, it would have had no difficulty in finding
others and the situation was one in which they had no incentive at all to take
risks in search of business.
So far as
culpability is concerned, it is relevant, in my judgment, that the third party
were involved in this matter over a period of months and were at fault and
committed breaches in a number of respects. Those breaches, in my judgment,
could not and would not have been committed if the third party had maintained a
proper professional distance from their client, Mr Robinson, and from this
whole transaction. It is not established, and I am certainly not entitled to
infer, that either Mr Wetherall or Mr Isaac were directly participating in the
proceeds of the sale to Mr Simon and Mr Benson. It is, however, clear that the
third party were very closely concerned with Mr Robinson and with this property
over a period of some years. It was certainly beneficial to Mr Robinson if the
transactions could be completed at these prices and it was indirectly beneficial
to the third party because the proceeds of sale would enable Mr Robinson to
discharge their obligations to the mortgagees.
For these and
other reasons, I conclude that the third party were so anxious that the sale
should go through — and without substantial mortgage advances they would not —
that they were either oblivious to or disregarded what I feel bound to regard
as their obvious duty to the building society. In either event, I think that
their share of blame for the ensuing fiasco is the major one.
Mr Langan, for
the third party, has advanced the third party’s case very concisely, very
economically and very well, but, despite his arguments, I conclude that the
bulk of the blame for this damage should be attributable to the third party and
the proper percentages, in my judgment, are 30 per cent of the responsibility
to be apportioned to the defendants and the balance of 70 per cent to the third
party.
The third
party were ordered to contribute 70 per cent of £35,000, namely, £24,500, with
interest at 12 1/2 per cent from the date when the sum of £35,000 was paid to
the plaintiffs.
