Negligence — Duty of care — Valuation of house for insurance reinstatement purposes — Eighteen months after valuation the house was badly damaged by a fire — Plaintiff claimed that valuation of £175,000 was too low and alleged that the valuation, by a partner in a well-known firm of surveyors and valuers, was negligent — Plaintiff asserted that the proper reinstatement figure should have been £300,000 — The plaintiff received £175,000 from the insurers — In the end the action failed, not only against the valuers but also against a bank and against the plaintiff’s solicitors, who had been joined as defendants
of unusual construction, having been a conversion of a number of cottages,
together with additions — Some of the original stone walls were incorporated
and the result of a series of additions was that it was impossible to get
internally from one end of the house to the other — There had been a settlement
but no indication of any recent marked movement; eight metal ties in a steel
framework had been put in to prevent further settlement — The plaintiff wished
to obtain a loan of £30,000 on mortgage from the Royal Bank of Scotland in
order to purchase the property and the bank instructed the defendant valuers to
carry out a valuation for mortgage — It was made clear by the bank that a
structural survey was not required, but the value for insurance reinstatement
purposes was requested — The valuers reported that the proposed loan of £30,000
was amply secured and that the value for insurance reinstatement was £175,000 —
The valuers did not consider that their task was to arrive at a reinstatement
value based on reproducing as closely as possible the curious mixture of which
the existing house consisted, with some walls 3ft thick, and higgledy-piggledy
back additions, accretions to an original dating back perhaps 300 years — The
valuers had in mind repeating the size and style and general shape of the
existing building, but saw no virtue in reproducing walls 3ft thick or chimney
stacks with a mixture of cob and concrete — VAT was taken into account in
respect of professional fees, but not otherwise, as the valuation was based on
a total reconstruction — The floor area was taken as 4,250 sq ft at £40 per sq
ft, plus £5,000 for the garage — In accordance with normal practice in valuing
for reinstatement, no inquiry was made as to what particular insurance policy
would be used
mortgage report form included a disclaimer of liability — As, however, the
plaintiff did not himself see the report or know of the disclaimer, and the
defendant valuers did not expect any disclaimer to be sent to the plaintiff,
the judge ruled that it had no relevance to the defendants’ liability — Having
given this ruling, the judge dismissed the plaintiff’s cases against the bank
(second defendants) and the plaintiff’s then solicitors (third defendants), as
these cases were based on alleged failure to warn the plaintiff of the
consequences of the disclaimer
after receiving the evidence and referring to a number of authorities, Schiemann
J decided as follows: (1) There had been no breach by the defendant valuers of
the duty of care which they owed to the bank (and indeed there had been no
criticism or issue raised by the bank); (2) As there had been no such breach,
and as the plaintiff had accepted that the defendants’ duty to the plaintiff
could be no greater than their duty to the bank, it was strictly unnecessary to
decide whether the defendants owed any duty of care to the plaintiff; (3)
However, as the matter had been argued, the conclusion was that the defendants
owed no duty to the plaintiff to make an accurate reinstatement insurance
valuation — The defendants did not contemplate, and there was no reason why
they should have contemplated, that the plaintiff was relying on them to provide
him with an accurate reinstatement figure — (4) If, contrary to this view,
there was such a duty, the defendants were not in breach of it, as they were
entitled to value as they did and their figure was not a negligent one; (5) In
any case, the defendants’ valuation did not cause the plaintiff to decide not
to commission his own insurance valuation — The judge went on to consider
(although on his findings the matter was academic) what damage the plaintiff
would have suffered if the defendants’ valuation had been held to be negligent
— Action dismissed
The following
cases are referred to in this report.
Anns v Merton London Borough Council [1978] AC 728; [1977] 2 WLR
1024; [1977] 2 All ER 492; [1977] EGD 604; (1977) 243 EG 523 & 591, HL,
[1977] 2 EGLR 94
Harris v Wyre Forest District Council [1988] 2 WLR 1173; [1988] 1
All ER 691; [1988] 1 EGLR 132; [1988] 05 EG 57, CA
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
Junior Books
Ltd v Veitchi Co Ltd [1983] 1 AC 520; [1982]
3 WLR 477; [1982] 3 All ER 201, HL
McLean
Enterprises Ltd v Ecclesiastical Insurance
Office plc [1986] 2 Lloyd’s Rep 416
Yuen
Kun Yeu v Attorney-General of Hong Kong
[1987] 3 WLR 776; [1987] 2 All ER 705, PC
In this action
Elyot Beaumont sued the firm of Humberts, surveyors and valuers, in respect of
a valuation for reinstatement insurance purposes of a house known as Heastige
House at Ansty, Dorset. The Royal Bank of Scotland (second defendants) and
Michael Ambler & Co, the plaintiff’s then solicitors (third defendants),
were dismissed from the action at the close of the evidence.
Colin
Ross-Munro QC, Jervis Kay and Miss V Selvaratnam (instructed by Bernard
Sheridan & Co) appeared on behalf of the plaintiff; R Moxon-Browne
(instructed by Wansbroughs, of Bristol) represented Humberts (the first
defendants); John Peppitt QC and R Bourne (instructed by Underwood & Co)
represented the Royal Bank of Scotland (second defendants); and Nicholas
Merriman (instructed by Reynolds Porter Chamberlain) represented Michael Ambler
& Co (third defendants).
Giving
judgment, SCHIEMANN J said: In this case Mr Beaumont sues Mr David Thomas [BA
FRICS], a partner in the firm of Humberts and a surveyor and valuer, in respect
of a valuation made by the latter for reinstatement insurance purposes in
respect of a house. The valuation was made on the instructions of a bank from
which Mr Beaumont wished to obtain and did eventually obtain an advance of
£30,000. The house was bought by Mr Beaumont for £110,000 and the valuation in
respect of which he sues was a valuation of the property ‘for insurance
reinstatement purposes’ at £175,000.
Eighteen
months after the valuation was made the house was subjected to a serious fire
and was very badly damaged. Mr Beaumont submits that the insurance valuation
was negligently low and that the proper figure for reinstatement should have
been of the order of £300,000. Mr Beaumont received only about £175,000 from
the insurers. The house has not been rebuilt.
Many questions
of fact and law have been canvassed in front of me of which the main ones are:
(i) did Mr Thomas owe Mr Beaumont any duty in respect of the valuation he made
for the bank; (ii) if so, was he in breach of that duty; (iii) if so, has Mr Beaumont
suffered any damage from that breach; and (iv) if so, what damage? I am told that this is the first case in
which the nature and extent of the duty of the valuer in making a valuation for
insurance reinstatement purposes and to whom that duty is owed has been
considered by the courts.
Before attempting
to state the law, I think it prudent to set out the factual background as I
hold it to be. Let me first describe the condition of Heastige House before the
fire. Heastige House was a village house set back a little from a country road
in Dorset, built principally of brick and flint but with some original cob
walls and having a thatched roof. Originally there were perhaps three or four
cottages with a barn at one end. What was seen before the fire was a conversion
of these buildings into one, together with an addition at the south end
constructed about 25 years ago. Elements of the house possibly date back as
much as 300 years.
The cottages
originally were essentially workmen’s cottages. The exterior of those cottages
before the fire was probably much as it was in the last century. The house
divides notionally into a central part, a north wing and a south wing. The
central part has an elevation to the road which consists of a thick wall which
has settled over the centuries and is some 4 in or so out of true. The drawing
room was situated in this central part. One of its walls was the thick wall
facing the road. Parallel to this was the rear wall of the drawing-room, also a
thick original wall. Behind that rear wall were a series of back additions to the
erstwhile cottages which had been incorporated in the house. Then there were
thick cross-walls at either end of the drawing-room in which the fireplaces
were set. The fireplaces were beneath very large chimney stacks, in part old,
in part consisting of modern concrete blocks. The ceiling of the drawing-room
had been raised so as to give a more generous height. The rooms in the north
wing still have low ceilings. Above the ceiling of the drawing-room was what
has been referred to in this case as ‘the void’. It was effectively a roof
space lit by two windows on the front elevation approached from a staircase
which had been created in one of the back additions. The result of these series
of conversions was that there was no way in which one could get from one end of
the present house to the other.
Such
conversions of such buildings are not unusual in this area. One can get a good
idea of how the house looked by considering the photographs which are in
evidence and the plans which have been drawn up by architects on behalf of the
plaintiff which purport to be appropriate for a more or less accurate
reconstruction of what was there before the fire. It is quite clear that no one
at any stage in the last 300 years would have instructed an architect to
produce from ground level a house laid out and looking precisely like this but
that its shape has been determined by the exigencies of carrying out a series
of conversions over the centuries.
The windows of
the void were virtually at floor level. The main walls of most of the building
are of considerable thickness, 3 ft or more in places. They are tied from front
to back with eight metal ties in a steel framework designed to stop them
settling any more. The underlying settlement is probably of considerable age,
but there is no indication that there has been any recent marked movement. The
present house stems from the major renovation carried out in the 1960s. This
work was well done in good materials. Although the basic structures of the main
walls and the roof were before the fire (and, to an extent, still are), with
the exception of the south wing, very old, the defects of age were contained by
the substantial remedial works carried out some years ago.
The house was
listed Grade II, but I am satisfied that there are in Dorset a large number of
houses of broadly similar size and construction. It could not claim to be an
architectural gem, although there is no doubt that it was a very pleasant
house. The curtilage of the house included a garage, quite substantial walls surrounding
the totality of the property and a driveway.
I turn now to
consider the facts in regard to the relationship between Mr Thomas, the bank
and Mr Beaumont. In October of 1983 Mr Beaumont instructed Mr Thomas of
Humberts to do a structural survey of the property. Mr Thomas was not
instructed to provide either a valuation or a reinstatement valuation and did
not do so. Nor did he charge for doing so. No complaint was made by Mr Beaumont
in respect of the structural survey carried out by Humberts.
At all relevant
times Mr Beaumont thought highly of Mr Thomas and I am satisfied that, had Mr
Beaumont required an insurance reinstatement valuation, he would have asked Mr
Thomas rather than anyone else. Around the time at the end of September,
beginning of October 1983, when Mr Beaumont first applied his mind to the
desirability or necessity of having reinstatement cover, he arrived without
professional advice at the figure of £170,000. Although he was at that time
instructing Mr Thomas, he did not instruct him to do such a valuation.
The survey
report had concluded by saying that a number of matters had not been
investigated in detail, and during the remainder of that year, on the
instructions of Mr Beaumont, Humberts investigated those matters and were in
correspondence with Mr Beaumont about those and other matters but not about any
valuation. Meanwhile, Mr Beaumont was seeking to arrange a £30,000 mortgage
from the bank. On January 6 1984 contracts were exchanged.
Mr Beaumont’s
adviser, Mr Copping, an accountant, knowing that a lender in these
circumstances normally wants a survey, wrote at the end of January to Mr
Beaumont asking whom the valuer should contact to gain entrance for the purpose
of a survey. Mr Beaumont’s reply was that the house has:
been surveyed
by Humberts at a cost of £356.50. I am obviously not keen to pay for yet
another survey, and would hope that the enclosed survey information would
satisfy any party concerned.
Mr Beaumont’s
advisers thereupon forwarded the Humberts’ survey to the Royal Bank of Scotland
asking them whether they would accept that survey for valuation purposes. In
due course Mr Beaumont got a letter from Mr Copping in which the latter stated
that he had been told that the survey was satisfactory to the bank, subject to
a few minor points which the bank would raise directly with Humberts.
By the end of
February 1984 Mr Beaumont had received approval in principle for a loan from
the bank. Thereupon on February 27 Mr Beaumont wrote to Mr Thomas saying:
You may be
receiving additional minor queries from the Royal Bank of Scotland in relation
to the survey on the above property. I would indeed be grateful if you would
assist them with their inquiries.
It is quite
clear from the evidence that Mr Thomas had neither express nor implied
instructions from Mr Beaumont to carry out a valuation on his behalf.
On March 12
1984, Mr Beaumont’s family moved in. Completion had not formally taken place
because of technical reasons but, to all intents and purposes it had. On March
30 1984, Mr Beaumont filled in a proposal form for the insurance of the
property giving the value of the buildings including outbuildings to be insured
as £170,000. The bank’s instructions to Humberts are contained in a letter of
March 23 1984. The relevant parts of the letter read as follows:
The Bank has
received an application for a loan on the security of the above property. To
enable us to consider its suitability as security for a term not exceeding 25
years, please carry out an inspection and submit your valuation on the enclosed
report forms. Your inspection should be of sufficient extent to comment on the
value of the property for mortgage purposes . . . the bank does not require a
structural survey. We require you to make your inspection and have your report
in our hands within a very maximum of ten days from the date of this letter . .
. we trust that you will be able to carry out this valuation at building
society scale rates . . . While it is not our normal practice to issue copies
of survey reports to clients we assume you have no objections to this, if
our client were to request a copy. We would make it clear in these situations
that your report was prepared for mortgage purposes only and is not to be used
as a basis of arriving at a purchase price. We shall be grateful if you will
account to Mr Beaumont direct for your fee . . . We refer to your report of
October 19 1983.
The enclosed
report form is headed ‘Report and Valuation for Mortgage Purposes’, has a box
headed ‘General Description, Location and Accommodation’ and another box headed
‘Condition’; then comes a box headed ‘Valuation’. Against the printed question:
‘State whether you consider the property to form suitable security for normal
mortgage purposes for a 90% loan over a 25-year term’, Mr Thomas typed:
‘Considered an inappropriate question for this type and value of property — it
is a suitable security for a substantial loan. The loan proposed of £30,000 is
very amply secured’.
Against the
printed question: ‘Value with vacant possession in present condition’, Mr
Thomas put the figure of £11,000; this is clearly a misprint for £110,000.
Against the printed question: ‘Value for insurance reinstatement purposes’, Mr
Thomas put £175,000. He concluded his report with the observation: ‘This is a
good class of property, well fitted, well maintained and marketable.’
On April 9
1984, the bank sent Mr Beaumont a letter in standard form concluding:
We note that
you are making your own arrangements regarding house buildings insurance and
would advise that our valuer has placed a reinstatement value of £175,000 on
the property. The sum insured on the relative policy should be for at least
this figure and as we require cover to be in force prior to release of the
mortgage monies you should make the policy document available to your solicitor
as soon as possible.
Mr Beaumont’s
reaction to this news was to write a letter to his solicitor on April 11 of
which the only relevant part is: ‘Please note insurance is apparently required
at £175,000 according to Mr Lang’s letter of 9484.’ There is absolutely nothing in the
correspondence to suggest that Mr Beamont had it in mind to have an independent
valuation made for his own purposes at any time. Nor in his evidence in chief
did he suggest that this had been his intention. When cross-examined he
indicated that the figure of £170,000, at which he had arrived independently,
was ‘sufficient to carry us through to completion but . . . at that point . . .
I would . . . have had the matter referred for a proper reinstatement valuation
if I had felt that was required’.
My assessment
of the evidence is that Mr Beaumont wanted reinstatement insurance, was not
interested in paying anyone to make a reinstatement valuation or to give him
detailed advice on possible policies, assumed that £170,000 would cover the
situation, was reassured by the £175,000 valuation, but would not himself have
instructed any valuer to make an insurance reinstatement valuation even if he
had not received the bank’s letter of April 9 1984.
The bank is
content with what Mr Thomas did. It was sufficient for the bank’s purposes. The
bank did not supply Mr Thomas with the particular insurance policy which it was
proposed to use. Indeed, the bank left the choice of insurance policy to Mr
Beaumont. Although there are a number of different insurance policies on the
market differently phrased, it was the unanimous evidence of the surveyors in
front of me that they were perfectly happy to give a valuation for
reinstatement purposes to lenders such as the bank without applying their minds
to the precise wording of any particular policy. The impression I have from the
evidence is that surveyors and valuers do not read insurance policies or apply
their minds to potential problems caused by any differences in wording.
I turn now to
consider Mr Thomas’ approach to the valuations he did for the bank at the end
of March 1984. When Mr Thomas was valuing for reinstatement he did not know
what insurance policy would be used. In this, his position was, as I have
indicated, evidently typical of those valuers who value for reinstatement for
banks and building societies. He measured the interior of the building and came
to the conclusion that it had a habitable area of some 4,250 sq ft. He looked
at the building closely. He noted the details of the construction and the
extent of the property. He had regard to the general costings of renovating old
properties of this type and to building costs generally in the area. He
considered what sort of labour would be required for it and whether it was
available locally. He came to the conclusion that it was. He did not have in
mind a perfect reproduction of precisely what was there when he measured the
house.
He asked
himself, what was the sort of floor area the average person would seek to
reproduce if the house were destroyed?
He came to the conclusion that the average person would not want
precisely to reproduce the thick internal walls which were a legacy of the
methods of construction of two or three hundred years ago prevailing among
workmen.
When working
out the costs, he allowed for architects’ and quantity surveyors’ fees but not
for structural engineers’ fees. He took £40 per sq ft, which gave him a total
of £170,000. He thought of the garage and added £5,000 as being a reasonable
amount in the context of a large rebuilding programme. He did not apply his
mind to the walls surrounding the curtilage or the driveway. He looked at the
figure of £175,000, thought it high in the context of a building bought at
around £100,000, but came to the conclusion that it was right. In his
calculations he included VAT on professional fees but not in respect of
anything else. He did not seek to do more than value the cost of reinstating at
the time that he made his valuation. Any increases in costs in future years
were not matters to which he applied his mind. He had in mind that the whole
construction would broadly follow what had been done in the south wing and it
did not occur to him that anyone would attempt to reproduce the
higgledy-piggledy back additions behind the drawing-room rear wall. He felt
that if one had a clean slate and had to rebuild, one would use a more sensible
design. He had in mind repeating the size and the style and the general shape
of the existing building. He did not have in mind rebuilding chimney stacks in
a mixture of cob and concrete blocks or repeating the roof void with its low
windows and low beams.
Mr Thomas said
that because the house had come together by accident, he did not envisage a
precise rebuilding. He said he would drop the third staircase and take
advantage of the loss and that, if he were rebuilding, he would redesign parts
of it to make it more livable and more convenient. He saw no virtue in
reconstructing walls some 3 ft thick.
Mr Thomas
impressed me as a truthful witness who has lived and worked in Dorset for most,
if not all, of his working life of, I suppose, some 30 years looking after a
number of large estates, supervising the rebuilding of a number of properties
listed and unlisted, old and new, doing many valuations for mortgage purposes
for many clients including the Agricultural Mortgage Corporation, and advising
such clients. I accept that he did not have much recent insurance reinstatement
valuation experience. He gave the impression of an experienced, thoughtful,
generally competent man who was transparently honest in his evidence as he gave
it.
The exercise
which Mr Thomas did on this occasion is not criticised by his client, the bank,
but this lack of criticism is not significant since, in the context of this
litigation, there was no reason for the bank to criticise it. On the contrary,
such criticism would have been contrary to the bank’s interests. In considering
Mr Thomas’ liability for negligence, it is none the less useful to consider
whether he was in breach of his duty to the bank. It has not even been argued
that on the facts of this case his duty, if any, to Mr Beaumont could exceed in
scope that which he undoubtedly owed to the bank. The measure of damages may of
course be different, but that is not the question which I address at this point
in my judgment.
The crucial
criticism made on behalf of Mr Beaumont is that, in doing his valuation, Mr
Thomas did not seek to arrive at a figure which would replicate as closely as
possible the exact structure which he was valuing. I find as a fact, and the
point was not disputed, that Mr Thomas did not value on that basis. Was he in
breach of his duty to the bank in not valuing on the basis of precise
replication but rather doing the exercise in the manner which I have previously
described? In considering this question
I ask myself whether a careful and competent surveyor could adopt the approach
which Mr Thomas adopted, having received the request from the bank which he had
received. The bank had asked Mr Thomas to state the value for insurance
reinstatement purposes. He therefore had to address, and I find he did address,
three questions: (i) what property should be valued — just the house and garage
or also the external walls, drive, pavement and greenhouse; (ii) what is meant
by ‘value for insurance reinstatement purposes’; and (iii) what figure should
be attributed as being that value?
It is clear
that Mr Thomas was being asked for a figure to be inserted in an insurance
policy in respect of the property to be insured. There was some argument as to
whether the concept of
and garden walls. In my judgment, it clearly did and Mr Thomas should have
appreciated that fact.
I accept that
it is extremely unlikely that any peril would strike both at the house and at
the external structures. But this does not meet the point that the bank wished
to have insurance cover in respect of both the house and the external
structures. If cover was to be obtained in respect of both, then a sum in
respect of each should have been included in the global figure. I find that, in
order to achieve this, a figure of £15,000 should have been added to whatever
was the appropriate figure for the house, even accepting, as I do, that it was
legitimate to consider the likely cost of reinstating the externals in the
context of a large contract for the reinstatement of the totality of the
insured property.
It is clear
from the evidence that it is the custom of the profession to value for
reinstatement purposes without asking to see the policy which it is intended to
use. Conceptually this poses problems, since different policies have different
wording. However, judging by the evidence and submissions before me, that conceptual
problem has not heretofore troubled valuers, academic writers or the courts.
I had in
evidence before me a number of policies simply to indicate the variety of
wording. I think it would be useful if I cite some of them. Some do not help at
all. Thus, the Legal & General merely refers to reinstatement. The Royal
Insurance promises that the insured:
. . . will be
indemnified by payment, reinstatement or repair at the insurers’ discretion
but goes on to
say
No deductions
will be made in claims settlements in respect of fair wear and tear and
depreciation provided that the buildings are maintained in good repair and the
sum insured thereon represents at the time of the insured loss or damage not
less than the cost of rebuilding as new all the property covered. . .
The General
Accident policy indicates that the amount to be shown on the schedule should
be: ‘Sufficient to rebuild your home/buildings as new’.
The Abbey
National states that it will:
. . . pay the
cost incurred in rebuilding or repairing that part of the home which is lost or
damaged by an insured cause but not more than its rebuilding costs.
Having
reserved my judgment, I have since argument come across the case of McLean
Enterprises Ltd v Ecclesiastical Insurance Office plc [1986] 2
Lloyd’s Rep 416, in which there is set out a singularly badly worded policy
which the learned judge had to construe but which includes the following:
For the
purposes of the insurance under this extension ‘reinstatement’ shall mean the
carrying out of the aforementioned (sic) work namely (a) Where the property is
destroyed its replacement by similar property in a condition equal to but not
better or more extensive than its condition when new . . .
Then I had in
front of me the policy which Mr Beaumont in fact took out with the Prudential,
and further policies from the Sun Alliance and Municipal Insurance companies
which all include wordings such as ‘Reconstructing the buildings in the same
form, size, style and condition as new’.
I find it
difficult to be sure what is the result of the application of any of the above
definitions to a building such as Heastige House, which has evolved
adventitiously over the centuries from several workmen’s cottages to the
residence which it had become in 1984. What is meant by ‘rebuild as new’,
‘rebuild to its original form’, ‘rebuild in the same form, size, style and
condition as new’ etc? If I had in front
of me actions by the insured against the insurers in each case, I might have to
resolve such questions. I am by no means convinced that I would construe each
policy identically and I would not necessarily categorise as negligent a valuer
who took a different view from the one which I adopted.
I find that,
in the context of this case, the general approach of Mr Thomas was not negligent.
It may have been wrong, though I am not persuaded that it was wrong. But his
approach was neither idiosyncratic nor negligent. I have not forgotten an
answer which Mr Thomas gave in cross-examination when the wording of the
Prudential policy was put to him; namely that this was roughly what he would
understand by reinstatement. Mr Eric Wallace, a valuer called on behalf of the
defendant, described Mr Thomas’ approach as shrewd and said he would have
adopted it himself. I find Mr Wallace an honest witness and generally careful.
His qualifications are formidable — BSc, CEng, MICE, MBIM and MIConstM. For 15
years prior to 1985 he was employed by John Laing Construction Ltd, for the
last eight years of which he was regional engineer for south-west England and
south Wales, engaged in many projects of a total insured value of tens of
millions of pounds. Although I accept that he slipped up in part of his
evidence to me in relation to the runners holding some double glazing, which he
claimed were made of a material of which they were not made, I do not consider
either that he was deliberately trying to mislead me or generally seeking to
denigrate Heastige House unfairly. I am satisfied that he had an experience of
valuation for insurance purposes and of the cost of renovation. I accept his
judgment that Mr Thomas’ approach was shrewd and was not negligent.
I record in
this context that the witness called by the plaintiff on insurance valuation
practice, Mr Conway, did not appear to me to be an impressive witness. Nor was
Mr W G Verdon-Smith [MA FRICS], another surveyor called by the plaintiff,
albeit primarily to deal with other matters, of much help on this aspect,
notwithstanding his dictionary citations.
I turn now to
consider what figure should have been attributed as being the insurance
reinstatement value. There are a few preliminary points which I can get out of
the way. At the opening of the trial it was the plaintiff’s case that a careful
and competent valuer should have included in his valuation a 15% uplift by
reason of the application of VAT. This, on the figures contended for by the
plaintiff, amounted to a sum in the order of £50,000. It is common ground that
VAT is payable on professional fees and Mr Thomas told me that he had borne
that factor in mind in making his valuation. I believe him. Mr Thomas conceded
that he had made no other allowance in respect of VAT. Mr Verdon-Smith has
known and accepted at all relevant times that VAT is not imposed on a complete
rebuild. But he has asserted, as is agreed to be the case, that VAT is payable
in some circumstances where there has been a partial rebuild. Mr Conway gave
evidence that he always added on a percentage for VAT. It is now accepted on
behalf of the plaintiff that, since the valuation is to be done on the basis of
a total reconstruction and since on a total reconstruction no VAT is payable
save in respect of fees, it was not negligent of Mr Thomas to fail to include
VAT for other items in his calculations.
Another
criticism of Mr Thomas was made by Mr Verdon-Smith, namely that the total sum
insured should be large enough to take into account, first, that the peril may
not eventuate until the end of the first year of insurance cover and, second,
that the likely rebuilding period would be up to two years after the happening
of the peril. It is accepted by Mr Thomas that his approach was to ask himself,
as at the date of the valuation, for what figure he could get the building
replaced if the peril was to strike them. In my judgment, there is nothing negligent
in that approach. Many insurance policies, including the one which, as it
happens, Mr Beaumont took out, have a provision to the effect that the sum
insured on the buildings would be adjusted monthly in line with a percentage
change in the house rebuilding cost index and will continue to be adjusted
during the period of repair or reinstatement. It is to be borne in mind that
any insurance involves the paying of premiums and the higher the sum insured,
the greater the premiums which have to be met by the insured.
There was
considerable argument at the trial about measurements. The plaintiff’s
witnesses, because their approach to valuation was to achieve a precise
reproduction, criticised Mr Thomas’ measurements. Mr Thomas’ approach I have
already described and it did not involve the reproduction of the thick internal
walls or of the roof void. He worked on the basis of 4,250 sq ft of useful
floorspace. After many hours of measurement and remeasurement, the following
figures were agreed as between the plaintiff’s experts and Mr Wallace, the
defendant’s expert: internal measurements excluding void, 4,656 sq ft; internal
measurements including void, 5,160 sq ft; and external measurements, 6,100 sq
ft.
So far as the
house is concerned, Mr Thomas had in his mind the building of a house in a
similar general style, shape, materials and appearance with 4,250 sq ft of
habitable floorspace. He told me, and I so find, that for £170,000 one could
have produced a very satisfactory house of considerably greater value than the
amount which had been paid for this house. His experience led him to believe
that a figure of £40 per sq ft for this type of house was fair. This threw up a
figure of £170,000, which seemed a lot to him, so he considered the various
elements of the house that would need to be provided.
Mr Wallace, in
August or September of 1986, did an elemental cost analysis on the basis of
some 4,700-sq ft internal measurement and this threw up a figure (at September
1986 prices) of £205,061. If this is indexed back to March 1984, then this
produces a figure in the region of £170,000. Mr Wallace’s evidence was attacked
by the plaintiff on the basis that he was an unreliable witness who stated
things he did not genuinely believe and that he was inclined to play down the
quality of the house and its fittings in order to suit the case of his client.
I accept that, as I have indicated, he did, in relation to some window runners,
give evidence to the effect that those were PVC when they were probably of some
other material and that that evidence gave a worse impression of the quality of
the double-glazing than I might otherwise have gained. However, I had the
opportunity of observing him giving evidence over the equivalent of two full
days and I find him to be careful, competent and honest.
As to the
defendant’s evidence on what figure a careful and competent valuer could have
put in as the insurance value for reinstatement, this was essentially given on
the basis that what was required to be valued was a more or less exact
reproduction of the house immediately before the fire, substituting straight
walls for leaning walls and putting in foundations throughout and replacing the
old innards of the thick walls with something more modern and appropriate.
I have
indicated that I do not think Mr Thomas was obliged to follow that approach to
valuation and that he was entitled to approach the matter as he did. On that
basis, the end figure which he gave of £170,000 for the house is not, in my
judgment, a figure which could only have been arrived at through negligence. It
seems to me a reasonable one. Although I have found the figure of £5,000 for
the externals to be unreasonably low by some £10,000, I do not find Mr Thomas
to have been in breach of his duty to the bank when he filled in the box on the
form with the figure of £175,000 as the insurance reinstatement valuation.
If, contrary
to my view, Mr Thomas should have valued on the basis of exact replication such
as is proposed by the plaintiff, then I consider that his figure was
unacceptably low. On the evidence before me, I conclude that the tender put in
by Burt & Vick [builders] was genuine and not fanciful and on the basis of
that tender, but allowing for various improvements contained in the
specifications and the effects of inflation, I conclude that the March 1984
figure would have been £300,000, inclusive of fees and VAT thereon. I consider,
however, that Mr Thomas could have procured an exact replication for
significantly less than that sum. He knew builders who would have tendered for
less and there were professionals prepared to work for less than scale fees.
Bearing that in mind, I consider that even if he had, contrary to my view, been
required to value on the basis of an exact replication, he would not have been
negligent had he inserted a figure of £250,000.
I turn now to
consider the legal relationship of Humberts and the plaintiff. In view of my
finding that Mr Thomas was not in breach of his duty to the bank and in view of
the submission on behalf of the plaintiff that Mr Thomas’ duty to Mr Beaumont
was no greater than his duty to the bank, it is strictly unnecessary for me to
consider whether Mr Thomas owed any duty to Mr Beaumont and, if so, whether Mr
Beaumont suffered any damage, even assuming that there was such a duty and that
Mr Thomas was in breach of it. However, the matter having been argued and
evidence having been led, I propose to deal with those matters shortly.
Before
considering the legal principles to be applied, I ought to indicate my findings
of fact on one matter to which I have not so far referred. The bank’s
instruction letter of March 23 1984 to Humberts included, it will be
remembered, the following paragraph:
While it is
not our normal practice to issue copies of survey reports to clients, we assume
you have no objections to this if our clients were to request a copy. We would
make it clear in these situations that your report was prepared for mortgage
purposes only and is not to be used as a basis of arriving at a purchase price.
The evidence
before me satisfied me that:
1 The bank stamped the report and valuation for
mortgage purposes which Mr Thomas had filled in with a disclaimer which read:
i) This professional mortgage valuation is
supplied to the Bank by a qualified valuer . . . solely to comply with the
Bank’s audit requirements. It should not be taken as a report on the structural
condition of the property. The valuation figure does not necessarily represent
the value of the property to a purchaser/mortgagor.
ii) This is a professional report and mortgage
valuation for the Bank by its valuer who does not accept any responsibility or
give any warranty or representation that the statements, conclusions and opinions
expressed or implied in the document are accurate or valid to anyone other than
the Bank. In the event of the contents of this report being disclosed to a
third party (whether purchaser, mortgagor or whomsoever) the valuer accepts no
responsibility to that third party.
2 The bank sent this report thus stamped to Mr
Ambler, the plaintiff’s solicitor, and he received it.
3 Mr Beaumont did not receive the report or
learn about the disclaimer stamped upon it.
4 Mr Thomas did not expect the report to be sent
to Mr Beaumont or his solicitor.
5 Mr Thomas did not expect any disclaimer to be
sent to Mr Beaumont.
In those
circumstances I do not regard the disclaimer adhibited to the report as
relevant to Mr Thomas’ liability. The defendant bank has been sued by the
plaintiff on the basis that it owed the plaintiff a duty of care to indicate to
him that the valuation had been made with a disclaimer. I started to hear this
case in January 1987 and, after some evidence had been heard, the plaintiff
asked for an adjournment so that he could sue Mr Ambler, the third defendant
now, on the basis that he should have warned the plaintiff that Mr Thomas might
be protected from suit by reason of the disclaimer. I granted this request and
the case was not restored to me until January of this year. When, at the close
of evidence, I indicated that I did not regard the disclaimer adhibited to the
report as relevant to Mr Thomas’ liability, the parties agreed that I should
dismiss the plaintiff’s case against the bank and Mr Ambler.
Turning to the
legal argument, the plaintiff founded on Anns v Merton London Borough
Council [1978] AC 728 and in particular on the oft-cited passage in Lord
Wilberforce’s speech at p 751 with which at least three of the remaining
members of the Judicial Committee were in agreement:
. . . the
position has now been reached that in order to establish that a duty of care
arises in a particular situation, it is not necessary to bring the facts of
that situation within those of previous situations in which a duty of care has
been held to exist. Rather the question has to be approached in two stages.
First one has to ask whether, as between the alleged wrongdoer and the person
who has suffered damage there is a sufficient relationship of proximity or
neighbourhood such that, in the reasonable contemplation of the former,
carelessness on his part may be likely to cause damage to the latter — in which
case a prima facie duty of care arises. Secondly, if the first question is
answered affirmatively, it is necessary to consider whether there are any
considerations which ought to negative, or to reduce or limit the scope of the
duty or the class of person to whom it is owed or the damages to which a breach
of it may give rise.
This broad
approach was approved by the majority of the Judicial Committee of the House of
Lords in Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520.
Thereafter, there has been an increasing judicial tendency to stress that Lord
Wilberforce’s formulation in Anns is not to be taken as a statutory definition.
It suffices if I cite Yuen Kun Yeu v Attorney-General of Hong Kong
[1987] 3 WLR 776, a Privy Council case where some of the leading criticisms of
Lord Wilberforce’s formulation were garnered together. The passage which I have
cited was there cited and the board observed:
This passage
has been treated with some reservation in subsequent cases in the House of
Lords, in particular by Lord Keith of Kinkel in Governors of the Peabody
Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] AC 210, 240,
by Lord Brandon of Oakbrook in Leigh and Sillavan Ltd v Aliakmon
Shipping Co Ltd [1986] AC 785, 815, and by Lord Bridge of Harwich in Curran
v Northern Ireland Co-ownership Housing Association Ltd [1987] 2 WLR
1043, 1049. The speeches containing these reservations were concurred in by all
the other members of the House who were party to the decisions.
Then, a little
later on, the board observes:
Their
Lordships venture to think that the two stage test formulated by Lord
Wilberforce for determining the existence of a duty of care in negligence has
been elevated to a degree of importance greater than it merits, and greater
perhaps than its author intended. Further, the expression of the first stage of
the test carries with it a risk of misinterpretation. As Gibbs CJ pointed out
in Council of the Shire of Sutherland v Heyman (1985) 59 ALJR
564, 570, there are two possible views of what Lord Wilberforce meant. The
first view, favoured in a number of cases mentioned by Gibbs CJ, is that he
meant to test
harm. The second view, favoured by Gibbs CJ himself, is that Lord Wilberforce
meant the expression ‘proximity or neighbourhood’ to be a composite one,
importing the whole concept of necessary relationship between plaintiff and
defendant described by Lord Atkin in Donoghue v Stevenson [1932]
AC 562, 580. In their Lordships’ opinion the second view is the correct one. As
Lord Wilberforce himself observed in McLoughlin v O’Brian [1983]
AC 410, 420, it is clear that foreseeability does not of itself, and
automatically, lead to a duty of care. There are many other statements to the
same effect. The truth is that the trilogy of cases referred to by Lord
Wilberforce in Anns v Merton London Borough Council [1978] AC
728, 751, each demonstrate particular sets of circumstances, differing in
character, which were adjudged to have the effect of bringing into being a
relationship apt to give rise to a duty of care. Foreseeability of harm is a
necessary ingredient of such a relationship, but it is not the only one.
Otherwise there would be liability in negligence on the part of one who sees
another about to walk over a cliff with his head in the air, and forbears to
shout a warning.
The most
recent consideration at the time when I drafted this judgment (but I think not
now) of negligence in the context of a valuation is contained in Harris
v Wyre Forest District Council, a decision of the Court of Appeal handed
down on December 17 1987 but as yet unreported.* That was a case where a mortgagor sued a
local authority and their surveyor who had negligently ascribed an unduly high
value to a house which in truth was worth little. The plaintiff relied on that
valuation, bought the house, but when he sought to sell it again was unable to
do so at a price which was anywhere near what he had borrowed in order to pay
for it.
*Editor’s
note: Reported at [1988] 1 EGLR 132 and [1988] 05 EG 57.
The Court of
Appeal, reversing a decision of mine, held that where a disclaimer of liability
is brought to the plaintiff’s attention, there is no duty of care towards him
and that it was irrelevant that the authority was not empowered to give a loan
for more than the value of the house. The significance of that case in the
present context is that the Court of Appeal essentially went back to the
approach of the House of Lords in Hedley Byrne & Co Ltd v Heller
& Partners Ltd [1964] AC 465 and held that the surveyor was only to be
held to be under a duty to the mortgagor if the circumstances are such that the
surveyor ought reasonably to have recognised both the importance which would be
attached to the valuation by the recipient and his own answerability to the
recipient in making it — what was expressed in the Hedley Byrne case as
a voluntary assumption of responsibility.
Mr
Moxon-Browne, on behalf of the defendant, relying on this case and on various
passages set out in the Hedley Byrne case, submitted that the doctrine
of negligent misrepresentation is founded on the assumption of responsibility
by the author of the representation.
I turn now to
my conclusions. For the purposes of this judgment it will suffice if I say
that, on the facts of this case, I do not regard Mr Thomas as having been under
any duty to Mr Beaumont to make an accurate valuation. I accept that Mr Thomas
contemplated that the bank would ask Mr Beaumont to insure for a sum of
£175,000 and that Mr Beaumont would do so. I do not consider that Mr Thomas
contemplated, or should have contemplated, that Mr Beaumont was relying on him
to provide Mr Beaumont with an accurate reinstatement figure. The facts of this
case may be unusual but they clearly show that there was a business
relationship between Mr Beaumont and Mr Thomas and that when the former wanted
the latter to do something for him, he asked him. Mr Beaumont did ask Mr Thomas
to do a survey; he did not ask him to do a valuation.
The
plaintiff’s claim in essence is one based on negligent misrepresentation. The
plaintiff in such a case must prove:
1 That the defendant owed him a duty of care.
2 That the representation was made negligently
and in breach of that duty.
3 That the plaintiff has suffered damage by
reason of the making of that representation.
The proper aim
of an award of damages for negligent misrepresentation is to restore the
plaintiff to the position in which he would have been if the negligent
misrepresentation had never been made. Now in the present case the plaintiff
has not persuaded me that he would have commissioned his own insurance
valuation had one not been forthcoming via the bank. The only effect of the
intervention of Mr Thomas has been to increase to £175,000 the insurance cover
which would have obtained but for that intervention, namely £170,000. In
consequence, Mr Beaumont has, in my judgment, suffered no damage from the
making of the allegedly negligent valuation and has no right of action against
Mr Thomas.
Thus the
position we have reached is that, in my judgment, Mr Thomas owed Mr Beaumont no
duty to make an accurate reinsurance valuation. If, contrary to my view, there
was such a duty, Mr Thomas was not in breach of it because he was entitled to
value on the basis on which he did value and his figure was not a negligent
one. Further, I have held that Mr Thomas’ valuation did not operate on Mr
Beaumont’s mind so as to cause him not to commission a valuation which
otherwise he would have commissioned. If I were wrong on those points, the
question would arise whether Mr Beaumont has suffered any damage as a result
of, on this hypothesis, the negligent valuation.
The parties’
legal submissions are as follows. The plaintiff submits that, had there been no
negligence, then the minimum figure in the policy would have been (on my
findings) £250,000 and the insurers would have paid this sum uprated to allow
for inflation or, at any rate, 95% of such sum on the basis that there had been
a 95% loss. The defendant submits that immediately following the fire the
property was capable of economic repair for £193,000 for which, by reason of
inflation, the house was insured and that, had a claim for less than this sum
been put to the bank, no question of average would have arisen.
In my
judgment, Mr Thomas could have achieved a reinstatement on a replica basis of
this house for less than £190,000 after the fire and I consider that the
insurers would have met such a bill. I record in this context that I found the
Harrisses and Mr Guppy [builders] truthful and reliable, save where any of them
indicated that he was not reliable. But from the evidence before me I also
formed the view that, had the insured value been of the order of £275,000 at
the time of the fire, the insurers would have paid £250,000 on the basis of a
90% write-off and that Mr Beaumont could have substantiated such a claim before
a court. The insurers could not have insisted on the employment of men such as
Guppy and the Harrisses, who were all in a pretty small way of business. On
that basis I consider that the measure of damages would have been calculated on
the difference between £250,000 and what Mr Beaumont has received from his
insurers plus any amounts outstanding. However, in view of my earlier findings,
these points are academic.
The action
was dismissed. Costs awarded to all defendants.
