Bank requiring confirmatory valuation of industrial estate – Earlier valuation of £22m – Defendant valuing site at £19m – Whether valuation within acceptable margin of error – Whether negligence – Quantum of damages – Contributory negligence – Claim dismissed – Appeal allowed
D Ltd, a single-purpose company, wished to finance the acquisition of Lingfield Estate, a large industrial complex built in the late 1940s on the outskirts of Darlington. To finance the acquisition, D Ltd approached the claimant bank. The bank received two valuations from B, the second defendant and a partner of the first defendant, JDW, who valued the estate at £22m. On the strength of those valuations, the bank sought facilities of £19.8m, being 90% of JDW’s total valuation. The bank’s credit commerce committee recommended such a loan on conditions that included the assignment of a top-up mortgage indemnity guarantee policy (MIG) on the top 20% of the loan and a valuation of the property satisfactory to the bank. Accordingly, the bank sought a further valuation, and a letter was sent to the fourth defendant, K, of the third defendant firm, WGS, referring to JDW’s valuation at £22m and to the fact that the information to support the valuation had been made available to WGS. The letter continued: “Would you please review this information and provide your opinion as to the reasonableness of the valuation within acceptable variances for this type of property.”
In June 1989 WGS’ report was sent to the bank. The report stated that, in the time available, it had not been possible to undertake a detailed appraisal of the property, that the figure of £22m was considered full and that the figure of £19m was preferred, although it was accepted that only a marginal increase in rental values and an earlier cash flow would account for the difference. On the same day, the bank entered into a formal loan facility agreement for the advance of £17.1m, 90% of the WGS valuation.
D Ltd was unable to repay the loan and, in December 1991, the bank appointed receivers over the estate. Pursuant to a contract dated 19 February 1998, the bank sold the estate for £10.75m, and commenced proceedings claiming that the valuation advice it had received from the defendants had been negligent. The judge found that the estate’s value at the relevant time had been £16m, and, accordingly, JDW and B were liable for negligent valuation advice. However, the judge dismissed the claims against WGS and K on the basis that the valuation of £19m was not so far outside the acceptable margin of error as to be negligent. The bank appealed against the dismissal of the claims against WGS and K.
Held: The appeal was allowed.
1. A valuer in the position of WGS would have been most likely to arrive at a figure of £15m. The maximum margin of error that the judge could be taken to have had in mind was 120%, which gave £18m. Although the fact that the WGS valuation was outside the margin was not conclusive of negligence, the evidential onus to displace an inference shifted emphatically to WGS. The error in yields, lying at the core of the excess in the WGS valuation, once it was shown that the correct value was £15m, led to a finding of negligence on its part.
2.. The advice of WGS, supporting a figure of £19m, was first and foremost a precondition of the bank’s willingness to consider lending up to £17.1m, and, second, an essential element in the completion of the MIG policy of insurance up to £19m. If WGS had advised a lower figure than £19m, the bank’s lending and the MIG policy would have been limited to 90% of that figure. Accordingly, it could be concluded that the bank had relied upon the advice of WGS.
3. As a matter of principle and commercial logic, the answer to WGS’ submission that credit should be given for recoveries under the MIG policy was that, so far as the loss covered by the MIG policy was loss in respect of which the bank had claimed damages as against JDW and/or WGS, the bank’s claim, it if led to recovery before any recovery under the MIG insurance, would go to reduce the amount recoverable under the MIG insurance. If it led to recoveries after any recovery under the MIG insurance, it would be for the benefit of the insurer by virtue of its rights of subrogation: Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] 1 EGLR 129; Parry v Cleaver [1970] AC 1; and Bristol & West Building Society v May May & Merrimans [1997] 3 All ER 206 considered.
4. There were aspects of poor banking practice, which the judge had identified when considering the evidence of whether there had been any contributory negligence on the part of the bank. However, he did not appear to have addressed them or considered them significant when fixing the bank’s share of responsibility in relation to WGS. It was appropriate that the issue of contributory negligence should be reconsidered by the trial judge after he had arrived at factual findings as to the damage suffered by the bank as against WGS.
John Slater QC and John Wardell (instructed by Forsters) appeared for the claimant; Justin Fenwick QC and Ian Holtum (instructed by Fishburn Boxer) appeared for the third and fourth defendants; the first and second defendants did not appear and were not represented.
Thomas Elliott, barrister
