Negligence — Mortgage valuation — Whether valuation negligent — Whether valuer made valuation fraudulently — Whether defendants liable for fall in property values
In February
1990 the residential owners of 4 The Courtyard, Holt, Wimborne, Dorset, a barn
conversion, applied to the plaintiffs to borrow £196,000 by way of a remortgage
of the property. The defendant firm of valuers provided a valuation dated
February 21 1990 to the plaintiff lenders in the sum of £245,000. The
defendants confirmed the valuation on May 23 1990. The loan of £196,000 was
made on June 1 1990. The borrowers failed to make repayments, the plaintiffs
took possession and sold the property for £100,000 on June 30 1992. The
plaintiffs claimed damages from the defendants alleging that the valuation and
its confirmation were negligent and/or in breach of contract, that the
valuations were false and the defendants knew them to be false or were reckless
in not caring whether they were true or false. The parties agreed that at a
subtrial a number of preliminary questions should be determined.
June 6 1989 with other adjoining properties and valued the property for a
different lender. He did not, contrary to his evidence, revisit the property in
February 1990. On the evidence a proper valuation of the property in February
1990 by an ordinary competent valuer was £180,000, but the highest
non-negligent valuation was £200,000. Accordingly, the valuation of £245,000
was negligent. However, the defendants had not colluded with the borrowers and
had not been fraudulent in producing the valuation. The case was a
non-transaction one, the plaintiffs relying on the valuation to make the
advance. The risk of a fall in property values was not a risk in respect of
which the plaintiffs placed reliance on the defendants’ valuation.
The following
cases are referred to in this report.
Akerhielm v De Mare [1959] AC 789; [1959] 3 WLR 108; [1959] 3 All ER
485
Banque
Bruxelles Lambert SA v Eagle Star Insurance Co
Ltd [1994] 2 EGLR 108; [1994] 31 EG 68 and 32 EG 89
Baxter v F W Gapp & Co Ltd [1938] 4 All ER 457; [1939] 2 KB
271; [1939] 2 All ER 752; (1939) 55 TLR 739, CA
Bolam v Friern Hospital Management Committee [1957] 1 WLR 582;
[1957] 2 All ER 118
Derry v Peek (1889) 14 App Cas 337
Galoo Ltd v Bright Grahame Murray (a firm) unreported, December 21,
1993, CA
Grea Real
Property Investments Ltd v Williams [1979]
EGD 131; (1979) 250 EG 651, [1979] 1 EGLR 121
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
Mount
Banking Corporation Ltd v Brian Cooper & Co
[1992] 2 EGLR 142; [1992] 35 EG 123
Nyckeln
Finance Co Ltd v Stumpbrook Continuation Ltd
[1994] 2 EGLR 143; [1994] 33 EG 93
Private
Bank & Trust Co Ltd v S (UK) Ltd [1993]
1 EGLR 144; [1993] 09 EG 112
Swingcastle
Ltd v Alastair Gibson (a firm) [1990] 1 WLR
1223; [1990] 3 All ER 463; [1990] 2 EGLR 149; [1990] 34 EG 49, CA; [1991] 2 AC
223; [1991] 2 WLR 1091; [1991] 1 EGLR 157; [1991] 17 EG 83, HL
United
Bank of Kuwait v Prudential Property Services
Ltd [1994] 2 EGLR 100; [1994] 30 EG 103
This was a
hearing of a subtrial in a claim for damages by the plaintiffs, BNP Mortgages
Ltd, against the defendants, Goadsby & Harding Ltd, arising out of a
valuation for mortgage purposes.
Nigel Jones
and Michelle Stevens-Hoare (instructed by Eversheds Phillips & Buck, of
Cardiff) appeared for the plaintiffs; Fiona Sinclair (instructed by Davies
Arnold & Cooper) represented the defendants.
Giving
judgment, JUDGE JAMES FOX-ANDREWS QC said: This action arises out of a
report and valuation of residential property, 4 The Courtyard, Holt, near
Wimborne, East Dorset, which the defendants gave on February 21 1990. By their
original writ and statement of claim the plaintiffs, BNP Mortgages Ltd, claimed
damages on the grounds that the valuation had been negligently given. It was
the plaintiffs’ case that on June 1 1990 they advanced £196,000 in reliance on
that valuation.
At the
commencement of trial the plaintiffs with leave amended their statement of
claim to allege that additionally they advanced these moneys on two
representations. The first was that by their valuation on February 21 1990 the
defendants represented that the property was valued at £245,000 and implicitly
represented that such was the general belief of the maker of the valuation — a
Mr Robert Fairbairn [FSVA], their employee.
The second was
that by a letter dated May 23 1990 the defendants expressly confirmed that
valuation and impliedly represented that nothing had come to their attention
since February 21 1990 that would call such valuation into question.
It is the
plaintiffs’ alternative case that each representation was false and was made
fraudulently in that the defendants knew that it was false or recklessly did
not care whether it was true or false.
The parties
have agreed that there should be a subtrial limited to questions as to whether
the plaintiffs have established negligence and/or fraudulent misrepresentation.
Certain issues for my determination have been agreed, to which I shall refer
shortly. Certain facts have also been agreed, to which I also refer.
The amendment
necessitates a consideration not merely of the particular residential market in
February 1990, but of the defendants’ association with the property and its
owners and former owners between early June 1989 and May 23 1990.
The issues I
have to determine are:
1. Was the
valuation provided by Mr Fairbairn, of the defendants, dated February 21 1990
and/or the confirmation provided by the defendants’ letter dated May 23 1990
negligent and/or in breach of contract?
1A. Did the
valuation and the letter of May 23 1990 include the representations set out in
para 10A.6 of the amended statement of claim?
1B. If the
answer to 1A above is yes, were the representations false and did the
defendants know them to be false or were the defendants reckless in not caring
whether they were true or false?
2. If the
answer to 1 and/or 1B above is yes, what was the value of the property as at
February 21 1990?
3. Given the
value of the property as at February 21 1990 would the plaintiffs have made any
loan at all to the borrowers?
4. If the
answer is yes, what sum would the plaintiffs have lent to the borrowers?
5. Did the
plaintiffs rely on the valuation and/or the letter of confirmation provided by
Mr Fairbairn of the defendants in deciding to make the advance of £196,000 to
the borrowers on May 13 1990?
5A. If the
answer to 5 is yes, did the plaintiffs rely on the representations or any of
them in deciding to make the advance to the borrowers of £196,000 on May 30
1990?
6. Can the
plaintiffs recover that part of their loss which is represented by the
reduction in the value of the property between the date of the valuation,
namely February 21 1990, or, in the alternative, the date of the advance,
namely May 30 1990 and the date of the sale of the property on June 30 1992?
The agreed
facts are:
1. The
defendants were appointed to the plaintiffs’ panel of authorised surveyors on
November 7 1989, as evidenced by letters dated November 1 and 7 1989 passing
between the plaintiffs and the defendants.
2. If the
valuation dated February 21 1990 was provided to the plaintiffs pursuant to a
contract between the plaintiffs and the defendants it was an implied term that
the defendants would inspect the property, prepare the report and valuation
thereon and advise the plaintiffs as to the property’s suitability as security
for a loan with reasonable skill and care.
3. If the
valuation and/or confirmation letter was not provided pursuant to a contract,
the defendants owed the plaintiffs a duty of care to inspect the property,
prepare the report and valuation thereon and advise the plaintiffs as to the
property’s suitability as security for a loan with reasonable skill and care.
4. In February
1990 the borrowers applied to the plaintiffs for a remortgage in respect of the
property in the sum of £196,000 by submission of the application form at trial
bundle 3 pp 74 to 79.
5. The loan
made to the borrowers on June 1 1990 was £196,000.
6. The sum of
£182,114.75 was necessary to secure the discharge of the existing first charge
to Halifax Building Society on the property on June 1 1990.
7. The
borrowers failed to make any payments in respect of the mortgage on the
property from October 3 1990 and the plaintiffs took possession of the property
on August 21 1991.
8. On June 30
1992 the plaintiffs, as mortgagees in possession, sold the property for
£100,000.
The defendants
are a company of residential, commercial estate agents, surveyors, valuers and
auctioneers. They had 15 offices in Dorset, west Hampshire and Wiltshire.
Mr Fairbairn
had been in the property business for some 14 years. Prior to 1986 he had been
primarily concerned with valuation of commercial and licensed premises. In
April 1986 he took up employment with the defendants and at all times material
to this action worked from their office at 37-43 St Peter’s Road, Bournemouth.
From that time onwards he carried out a large number of valuations a year,
almost all of residential premises.
In 1989 he
became a Fellow of the Incorporated Society of Valuers and Auctioneers. Some
two years after the matters complained of, he became an associate director of
the defendants.
As part of his
employment it was Mr Fairbairn’s task to persuade lending institutions such as
banks, building societies, insurance companies and companies such as the
plaintiffs to appoint the plaintiffs to their valuation panels.
On May 2 1989
the defendants by Mr Fairbairn applied to the plaintiffs to be put on their
panel of valuers for the Bournemouth/Salisbury area. On June 13 the plaintiffs
invited the defendants to answer a questionnaire which they emphasised should
be signed and stamped. The completed questionnaire was returned on June 16
signed but not stamped, but was annexed to a letter duly headed with the
defendants’ name.
On November 1
1989 the defendants/Mr Fairbairn were invited to join the plaintiffs’ valuers’
panel. The defendants were sent little in the way of documentation. What they
were sent were a stock of report forms, a copy of the plaintiffs’ scale of fees
and a list of the plaintiffs’ expectation of panel surveyors. I shall refer
more fully to the report forms later in this judgment.
The list of
expectation of panel surveyors is at p185 and is in fact headed ‘Valuers Panel
— Appointment’.
The quality of
documents coming before the court is usually so good these days that it comes
as a surprise to find a number of potentially important documents in this case
of such low quality. P85 would appear to be the first of two or more pages. The
first para of clause 8 reads:
That the
report when completed bears your firm’s stamp and the valuer is clearly
identified . . .
(Emphasis
supplied.)
I am unable to
read the remaining clauses on p85, but I assume they have no relevance.
The plaintiffs
had produced a residential mortgage credit manual (Oct 89 revision) (P 1/48), a
general instruction to solicitors (1989 ed) (P 49/51) and Mortgage
Conditions (1st ed) (P 52/60). It is not suggested that the defendants were
provided with copies of these.
In an
application form dated February 9 1990 made to the plaintiffs Mr and Mrs Liddle
stated that they had lived at 4 The Courtyard for one year and indicated that
previously they had lived in Bournemouth. They stated they occupied the house
as owners and that they had an outstanding mortgage of £165,000 and that there
was no outstanding second mortgage.
Precisely what
figure they gave in the original application for the amount of loan required is
not clear, but an amended figure of £196,000 appears in the form. They stated
that they had purchased in March 1989 for a sum of £165,000. It appeared from
the evidence that they had purchased from a company called Apple Developments
Ltd (Apple) owned or controlled by them. It is not possible to tell what figure
they originally estimated the property to be worth, but an amended figure of
£245,000 appears in the application form.
It is not
suggested that the plaintiffs provided a copy of this application form to the
defendants at any material time.
Mr Jackson of
the plaintiffs says that this was a remortgage application to enable business
development based on self-certification with a 3% deferred interest scheme for
the first three years. Under this scheme interest was calculated at 3% below
the application rate, with any interest chargeable but not collected, capitalised
at monthly intervals for the first three years.
He says that
the maximum advance the plaintiffs would consider would be one of £250,000 or
80% of the valuation of a property, whichever was less. I am satisfied that the
defendants were aware of this limitation. It is clear from the facts of this
case that in practice the plaintiffs were prepared to lend a little more for
contingency matters. Mr Jackson says that the self-certification basis of the
loan meant that the plaintiffs were entirely reliant on the adequacy of the
security for repayment. He said:
My
understanding was that the margin was there to cover any amount of deferment or
default by the applicant, and consequential loss.
When asked
whether there was any element in the 20% discount to cover against the risk of
a fall in the value of the security between the date of valuation and the date
of advance he said ‘No’.
It is now
necessary to go back in time. Some time prior to June 6 1989 the defendants had
been instructed by other lenders — Hill Samuel plc — to value a portfolio of
properties comprising 1, 2, 3 and 4 The Courtyard, Holt, Sheep House Farm,
Witchampton, and 1 and 2 The Coach House, Packham House, Fordingbridge. The
original instructions were to prepare current market valuations of the properties
along with forced sale valuations. The defendants were told that one of the
Courtyard properties was occupied and three were unoccupied.
In the event
the defendants said that their instructions were varied and they were required
to give forced-sale valuations with an indication of the likely open market
asking prices. This is what the defendants did in fact and there is no evidence
that this was regarded by Hill Samuel as a breach of their instructions.
Mr Fairbairn
has given evidence on the inspection he carried out on June 6 1989. He noted
that outside unit 3, The Courtyard, Fox & Co had erected a ‘Sold’ board.
Measurements that he took on June 6 appear at pp 218, 220, 221 and 222
respectively for the four Courtyard dwellings. He says that Mr Liddle took him
round all the premises. He says that the development of the four units was
complete. He said that there were some furnishings in no 4. He says he was
unaware of Mr Liddle’s occupation of any of the units and that he had no
knowledge of a relationship between Mr Liddle and Apple.
The
defendants’ valuation letter of June 13 1989 addressed to Hill Samuel, which
ran to some 10 pages together with appendices for
The letter did
not indicate which unit was occupied. It did not state that 4 The Courtyard had
recently been sold to Mr and Mrs Liddle and of course it did not mention the
price which the Liddles had paid for the property.
In their
valuation and advice on open market letter to the defendants they stated they
had not inspected the title deeds, but understood that the properties were
freehold and would be offered with entire vacant possession. They did not state
the basis of their understanding as regards no 4.
Somewhat
surprisingly they stated in the letter:
We do,
however, give an indication of what was considered to be the likely open market
value as an appendix.
Of course they
did nothing of the kind. Again it is to be noted that on June 13 1989 in his
report to his directors, Mr Fairbairn stated that the ‘purpose of valuation’
was ‘forced sale value and value in open market’. This latter of course was
inaccurate. The date of the report to the directors again is significant. The
purpose of the report is to give warning that on the basis of instructions
received there may be a valuation in excess of £1,000,000. Yet the
report was given at the same time as a valuation in excess of £1,000,000 was
being sent out.
The evidence
satisfies me that an open market asking price is likely to be substantially
higher than the open market value.
The expert
evidence satisfies me that in the absence of special circumstances the best
evidence of value is that of a recent sale.
It is a matter
of strong adverse comment that although he had been told that one unit was
occupied he did not investigate this fully. As will be indicated later in this
judgment Mr Fairbairn ascertained that Fox & Co were the selling agents for
1, 2 and 3 The Courtyard. The fact that no 4 was not for sale should have at
least opened up lines of inquiry. Since Mr/Mrs Liddle had purchased property in
March 1989 with a £165,000 mortgage it is hardly likely that Mr Liddle would
not have informed him of the fact if asked.
I should read
part of the defendants’ letter of June 13 to Hill Samuel plc:
FORCED
SALES VALUATIONS
In accordance
with your instructions, we, have inspected the above described properties,
being units 1 to 4 The Courtyard, Holt; Sheep House Farm, Witchampton: The
Coach House, Packham House, Fordingbridge with a view to advising you of our
opinion of their value if offered for sale in the open market.
In arriving
at our opinions of value, we have assumed, for forced sale purposes, that a
purchaser is to be found ready and able to enter into a binding contract within
3 calendar months or shortly thereafter . . .
In arriving
at our opinions of value, we have taken into account the current depressed
state of the residential market with a large number of properties being offered
for sale but few ready, willing and able purchasers.
Whilst we
have taken into account that each of these properties is highly
individualistic, and almost unique, the type of purchaser who is likely to be
found would equally be prepared to consider the purchaser of many of the other
character properties available within the general area ranging from both
converted and purpose-built Courtyard developments to two former farms, country
and forest cottages. We have taken into account both the number of such
properties being offered to the market, the general level of asking prices and
particularly, the general level of prices actually being achieved on sale.
In accordance
with our above report and assumptions, we are of the opinion that the current
values of the freehold interests of the above described properties for forced
sale purposes would be fairly represented by the following sums:
1. The Courtyard, Holt
£165,000
2. The Courtyard, Holt
£205,000
3. The Courtyard, Holt
£200,000
4. The Courtyard, Holt
£285,000
Sheep House Farm, Witchampton
£265,000
1. The Coach House, Packham House,
Fordingbridge
£220,000
2. The Coach House, Packham House,
Fordingbridge
£200,000.
–In
parenthesis I should indicate that the separate values total £1,540,000 —
If all the
above properties could be offered for sale with vacant possession on the open
market, we are of the opinion that for forced sale purposes, their total value
is in the sum of:– £1,540,000 . . .
The
properties are, as noted, of a somewhat unique design and layout, and, as such,
they appeal to specific purchasers who are generally few in number but, when
found, often readily purchase property. As a result, this type of property, is
normally placed upon the open market at a somewhat higher and, indeed,
approximate asking price and offers are considered as received. In the light of
current depressed market conditions, we consider that such asking prices should
be kept within a reasonable range of our above reported values if a reasonable
prospect of an early sale is to be expected, and the attached Appendix VI is
our suggestion for open market asking prices in current market conditions and
should not, in any way be regarded as the values which can necessarily be
achieved although, should the properties be carefully marketed and the right
purchaser be located, they should, equally, not be considered to be unrealistic
values . . .
The missing
words are illegible.
The suggested
open market asking prices in respect of the four Holt properties were:
1. £170,000; 2.
£210,000; 3. £220,000; 4. £315,000.
These
forced-sale valuations and asking prices were given in the context of a
statement in the letter of June 13 ‘very depressed market currently being experienced
and the general uniqueness of the individual properties’.
The evidence
did not satisfactorily establish what, if any, comparables had been considered
in the context ‘the general level of prices actually being received on sale’.
Particulars of one property — Pavilion Barn — had been added to the Hill Samuel
instruction sheet. The information came from Mr Henry, who was the defendants’
manager at Fordingbridge of their prestige and country homes department. It had
just been sold for £220,000. Except for the note I had no further relevant
information on the property.
As regards The
Courtyard, nos 1, 2 and 3 were in the hands of selling agents Fox & Co and
Savill & Co. The defendants obtained from Fox & Co the asking prices.
Mr Fairbairn says it was the view of himself and Mr Henry that the asking
prices were ‘too conservative’. It is clear that in reaching his forced-sale
valuations and asking prices that Mr Fairbairn relied extensively on the input
of Mr Henry, who did not give evidence.
In June 1989
Mr Fairbairn wrote out certain information about these properties. Columns 1
and 2 were the joint forced-sale valuations of each of the four Courtyard
properties. Column 3 was Mr Henry’s valuation. Column 4 was Fox & Co’s
asking prices.
I have brought
together into one document, which I annex to this judgment, all relevant
information regarding these four properties.
Column 1 is
the property. Column 2 is Mr Henry’s forced-sale valuation. Column 3 is the
joint Henry/Fairbairn forced-sale valuation. Column 4 is Fox & Co’s asking
price. Column 5 is the forced-sale valuation given by the defendants in the
June 13 1989 report. Column 6 is the asking price appearing in their report of
June 13 1989. Column 7 is the open market value of no 4 given to the plaintiffs
by the defendants on February 21 1990. Column 8 is the ultimate date and
sale/selling price.
I am satisfied
on the evidence that the fact that this was a portfolio valuation did not in
any way affect the individual valuations.
Mr Fairbairn
says that in late November 1989 he was contacted by Mr Liddle suggesting that
he might receive instructions to carry out a valuation of ‘the relevant
properties’ which Apple were considering financing. It would appear that Mr
Liddle had made an informal approach to Cheltenham & Gloucester Building
Society. Nothing came of this.
In
circumstances which are not clear Mr Fairbairn entered in his diary an
appointment to inspect the Courtyard properties on December 2. There is an
entry for that date ‘9.50 Apple Development. The Courtyard, Holt’. The entry
has been crossed out and there appears below the entry the words ‘1.12.89
2.45pm’. Mr Fairbairn says that at 12.10pm on December 1 the defendants had a
telephone call from a Mr Vincent of Skandia Life, a lending institution, saying
that Skandia were not instructing the defendants. At 3.20pm Mr Fairbairn was
told that Mr Liddle had stated he was asking the defendants to value the
properties. Skandia stated that they were not instructing the defendants and
were concerned to know what was the defendants’ involvement with Mr Liddle. Mr
Fairbairn says he told Skandia that, apart from the June 1989 valuation, he had
had no involvement with Mr Liddle. He says that at 3.48pm on December 1 he
telephoned Mr Liddle and left a message that Skandia had told him not to
proceed. He made and retained notes of these conversations. That relating to
his conversation with Mr Vincent demonstrates well, if such was required, the
importance lenders attach to the need that the valuer and borrowers should be
unconnected.
On January 5
1990 Mr Liddle telephoned Mr Fairbairn when he was out. Later that day Mr
Fairbairn tried twice to contact Mr Liddle, but without success. There must
have been some further communication because an entry was made in Mr Fairbairn’s
diary for January 12 — ‘9.30 4 The Courtyard, Holt Val’. There is no tick
against the entry. Mr Fairbairn says that this indicates he did not keep the
appointment.
On January 29
there appears an entry in his diary — ‘11.00 Mark Liddle re Development at
Witchampton’. The rest of the day was kept free. This relates to Sheep House
Farm, Witchampton. There is no tick against the entry. In his oral evidence Mr
Fairbairn says that Mr Liddle came to the office. However, in his written
statement he made no mention of this. He merely referred to a telephone call
with Mr Long of Provincial Bank. A note of an extensive conversation with Mr
Long appears at 2/30W.
On February 2
Scottish Life, an intermediary of the plaintiffs, approached the defendants, no
doubt because they had been told that the defendants were on the plaintiffs’
valuation panel. Scottish asked for a valuation of no 4 to be done on the
plaintiffs’ report form for which a fee of £100 (inclusive of VAT) was agreed.
On February 7 there appears in the copy of the diary a very indistinct entry
‘9.30 Courtyard valuation’. It has no tick against it. Mr Fairbairn says he did
visit the premises on February 7 and was with Mr Liddle for about half an hour.
He dealt with the visit in paras 17-20 of his statement of January 20.
A vital
question which I shall have to consider later is whether in fact Mr Fairbairn
did visit the premises on this occasion. There is no contemporaneous note by Mr
Fairbairn of this visit. At para 26 of his statement of February 16 1994 Mr
Fairbairn said:
The day after
my 7th February 1990 valuation, 8th February 1990, Mr Liddle arrived at my
office by appointment to speak to me about the Sheep House Farm,
Witchampton.
(Emphasis
supplied.)
There is no
diary entry for this appointment. That there was such a meeting is prima
facie borne out by a note of the meeting at 3/198. It may appear odd that
this matter had not been discussed the previous day if they had in fact met at
4 The Courtyard.
On February 12
1990 Mr Fairbairn wrote two letters to Mr Liddle in respect of Sheep House
Farm. It is immaterial whether or not the letters were sent. Mr Fairbairn says
that before writing the letters he had a made a cursory inspection of the
property. I reject that evidence. In his written statement Mr Fairbairn never
suggested such a visit. The diary contains no relevant entry. The report and
valuation does not suggest that there was a further visit. In the report he
makes clear that he is doing no more than reviewing his previous valuation.
In his report
he said:
In arriving at
my opinion of value I have taken into account that the property market has been
generally depressed over the last 18 months.
There are a
large number of large properties being offered to the market and accordingly a
reasonably lengthy sales period is to be expected in order to locate the right
purchaser.
He gave an
open market value of £200,000. There is nothing in the report to suggest that
as regards the property itself there was any difference from that which existed
in June 1989. In June 1989 he had valued the premises on a forced-sale
valuation at £265,000 with an asking open market price of £300,000. Witchampton
is about 3 miles north-west of The Courtyard.
As regards 4
The Courtyard, in para 21 of his statement of January 20 1994 he says:
After the
inspection I returned to the office and I suspect that I dictated my report
that day, although it may have been dictated a day or two afterwards. When I
formed an opinion in relation to the value of the property I had in mind the prices
being suggested by Messrs Fox & Co of Wimborne for the other three
associated properties . . .
I shall return
to consider the remainder of this paragraph.
It became
apparent in the course of the evidence that Mr Fairbairn did not go back to Fox
& Co in February 1990. Mr Fairbairn in his statement says that he decided
on a valuation on the basis of Fox & Co, on a comparable Dairy Cottage,
Sopley, near Ringwood, and a conversation with a colleague, whom he did not
name in his statement, who agreed that his valuation was a reasonable one. He
did not mention the fact that he had done the valuation of Dairy Cottage.
One surprising
feature is the time-lapse between the alleged visit on February 7 and the date
of the report, namely February 21. The report itself contains a certain amount
of information, but is in a very succinct form. The plaintiffs do not and could
not complain of the sparseness of the information that was given because that
is all they were seeking.
The completion
of the plaintiffs’ form, once the necessary investigation had been made, would
have taken very much less time than, for example, the preparation for the
report of June 13 made a week after the inspection.
Mr Fairbairn
says that he dictated the contents of the plaintiffs’ form. The whole document
apart from its certification box had less than 50 words and a handful of
figures added to it. The rest was dealt with by appropriate crosses. I would
have thought it would have been much easier to have completed it in longhand
and then had it typed up. But Mr Fairbairn was not cross-examined as to this
and I therefore accept Mr Fairbairn’s statement.
In para 23 of
his statement made on January 20 1994 he said: ‘In the circumstances I decided
on a value of £245,000 and signed the valuation on 21st February 1990
accordingly.’
The last limb
of that sentence is untrue. He was in Switzerland on February 21. He had signed
the form in blank before setting off on February 16 on holiday.
I find the
evidence strongly indicates that Mr Fairbairn did not visit 4 The Courtyard
between receiving instructions on February 2 and the sending out of the report
on February 21. In so far as he describes matters relating to no 4 in paras
17-20 of his statement, I am satisfied that he is recording his recollection of
what occurred on June 6 1989. There is no contemporaneous evidence that
supports a visit on February 7. I am satisfied that in February 1990 Mr
Fairbairn knew the relationship between Mr Liddle and Apple. If he had visited
the premises it is inconceivable that he would not have noticed that Fox &
Co’s notice outside no 3 had come down, but that the premises were unoccupied.
The reason why it is inconceivable is that as a comparable a sale of no 3 would
have been of outstanding importance.
And there is
internal evidence in para 20 of Mr Fairbairn’s statement of January 20 1994
that he is referring to events in June 1989 and not February 1990. One of the
boxes to be completed was cesspit/septic tank. He merely put a cross in the box
and did not strike out either. However, in his report of June 13 1989 he had
stated that
statement relating to the alleged February 7 visit.
Mr Liddle
advised me that the area of land around the property, fronting open farmland,
formed part of the garden and that the drainage was to a septic tank system. He
made no mention of the fact that the rear garden was in fact designated farmland
and furthermore, it has become apparent that the drainage is not to a septic
tank, but to a cesspit.
Such a
statement is relevant to the June 1989 valuation, but of no relevance to the
February 21 valuation.
The strong
likelihood is that no 4 was in the occupation of Mr and Mrs Liddle in June 1989
and that what he describes in paras 17 and 18 in his statement is, I find, a
description of what he then saw.
Mr Fairbairn’s
holiday coincided with what for many institutional lenders was a dramatic
increase in the interest rates charged by them. It was dramatic because it was
a high point that had not been touched in living memory. For example, on
February 22 Cheltenharn & Gloucester Building Society had increased their
rate from 14.5% to 15.4%. In the words of Mr Fairbairn:
The effect of
this increase had on the market was to effectively dispel the optimism of the
previous 2 or 3 months that there would be a fall in interest rates in the
spring which would result in the recovery of the property market.
On March 17
1990 Mr Bealey of Hill Samuel telephoned Mr Fairbairn in relation to Mr Mark
Liddle and the four Courtyard properties. He asked for an ‘off the record’
figure of their sale prospects. A note of that conversation appears at 3/197
and was no doubt what sparked the application to amend the statement of claim.
I should read
the note:
25% down since
last year in general terms.
These are
specialist properties really [a] second house market and that market is
virtually non-existent.
JB suggested
that we might be looking 30-35% down. I said probably 30%.
Mr Fairbairn
in his statement of February 16 1994 sought to distinguish between what he said
and what Mr Bealey said. But I am satisfied that the only difference between
them was Mr Bealey’s 30% to 35% drop and Mr Fairbairn’s 30% drop.
There was a
further note on this sheet of paper in Mr Fairbairn’s handwriting in which he
calculated that the effect of a 30% reduction on the forced-sale figures he had
given in June 1989 would be, namely, unit 1 £115,000, unit 2 £143,500, unit 3
£140,000 and unit 4 £285,000.
Mr Fairbairn
in his evidence stated that these figures had been added at a later stage and
were not given to Mr Bealey. Whether they were or not is immaterial. If they
were added at a later stage it is difficult to envisage circumstances where
they would be added more than minutes after the telephone conversation had
taken place.
On March 5 the
plaintiffs made an offer of a home loan to Mr and Mrs Liddle. Clause 8 of this
offer provided:
Valuers are
to confirm the reason for the apparent increase of value of the property by 33%
since purchase in March 1989.
On May 3 1990
Mr Liddle’s solicitors, Daltons of 8-8A Carlton Place, Southampton, wrote to
the plaintiffs stating that condition 8 had been complied with.
No evidence
has been called to establish that this requirement at that time was brought to
the defendants’ notice.
But the matter
did not end there because at 2.50pm on May 22 a Mr Frood of Daltons left a
message for Mr Fairbairn. I should read the message:
[the
plaintiffs] are demanding confirmation of values before they will release any
money. They understand that we have lost our file so please could we do another
letter confirming the value and fax it to Daltons tomorrow.
Coincidentally,
before Mr Fairbairn acted on this request, Mr Liddle at 3.30pm came to the
office. He did not see Mr Fairbairn, but he left a message for him which I
should read:
I told him
that Dalton had phoned asking me to send a letter confirming the value. He asked
if he would mention in the letter that he bought it cheap (£165,000) because he
bought it from own company.
Otherwise he
is quite happy. He is anxious that it be faxed tomorrow morning.
On May 23 1990
Mr Fairbairn on behalf of the defendants wrote to Daltons in these terms:
We understand
that you have a copy of our report addressed to BNP Mortgages Ltd dated 21st
February 1990.
We would
confirm our valuation contained therein as £245,000, as at the date of our
report.
We understand
that the property was purchased at a lower figure but this was from one of Mr
Liddle’s related companies and this figure does not necessarily reflect the
open market value.
The letter was
subsequently passed by Daltons to the plaintiffs. I am satisfied that it was in
reliance on the valuation of February 21 and this letter that the plaintiffs
lent £196,000 to Mr and Mrs Liddle.
Mr Fairbairn
explains that he understood the message from Dalton to be a requirement for
confirmation of the authenticity of the original valuation as opposed to a
confirmation of the continued validity of the valuation. He pointed out that by
oversight the original valuation of the defendants lacked the defendants’
stamp, although the presence of such a stamp was one of the plaintiffs’
conditions. He says that he did not intend in the language he used for the
plaintiffs to understand that it was his opinion that the value of the property
at May 23 1990 was the same as it had been on February 21 1990.
It is perhaps
not surprising that in the circumstances the plaintiffs make the serious
allegations that they do. It is for me to determine whether they are well
founded.
As regards the
letter of May 23 1990 its interpretation is an objective one considered only in
the light of the request to which it is an answer. In so far as it is relied
upon as distinct representation apart from what was in the valuation of
February 21, it is, the pleading shows, dependant on a court being satisfied
that the defendants were impliedly representing that nothing had come to their
attention since February 21 1990 that would call such valuation into question.
I do not find
that there is such an implied representation. It may be that if between the
date of a valuation and its subsequent confirmation there is a significant
change in value, some valuers would express an opinion in general terms to that
effect. But I am not satisfied that there would be any such duty. Certainly it
is not to be expected that a valuer would give a fresh valuation unless
specifically instructed.
If I was wrong
in my construction of the letter then I find that the letter is ambiguous.
Since Mr Fairbairn did not intend to make the alleged representation, then in
the light of the decision in Akerhielm v De Mare [1959] AC 789
there can be no finding of representation.
As regards the
law relating to the charge of fraudulent misrepresentation in respect of the
valuation on February 21 1990 it is succinctly stated by Lord Herschell in Derry
v Peek (1889) 14 App Cas 337 at p374:
First, in
order to sustain an action of deceit, there must be proof of fraud and nothing
else will suffice. Secondly, fraud is proved when it is shown that a false
representation has been made (i) knowingly, (ii) without belief in its truth,
or (iii) recklessly, careless whether it is true or false. Although I have
treated the second and third as distinct cases, I think, the third is but an
instance of the second for one who makes a statement under such
circumstances can have no real belief in the truth of what he states. To
prevent a false statement being fraudulent, there must I think always be an
honest belief in its truth.
(Emphasis
supplied.)
The onus of
course rests on the plaintiffs. They must establish not only that the statement
was false but also that Mr Fairbairn could have had no real belief in what he
stated. This is important as is illustrated by part of the speech of Lord
Hershall at p361 in that case:
And it is
surely conceivable that a man may believe what he states is the fact, although
he may be so wanting in care that the court may think that there were no
sufficient grounds to warrant his belief.
The duty in
tort or contract is the same.
Liability is
to be deduced on a combination of principles contained in Hedley Byrne &
Co Ltd v Heller & Partners Ltd [1964] AC 465 and Bolam v Friern
Hospital Management Committee [1957] 1 WLR 582 at p586, where McNair J
said:
Where you get
a situation which involves the use of some special skill or competence, the
test as to whether there has been negligence . . . is: the standard of the ordinary
skilled man exercising and professing to have that special skill. A man need
not possess the highest expert skill; it is well established that it is
sufficient if he exercises the ordinary skill of an ordinary competent man
exercising that particular art.
It is against
that background that I turn first to consider whether the plaintiffs have
established that the defendants were negligent in giving a valuation of
£245,000 in February 1990.
I have no
doubt that it was incompetent for Mr Fairbairn to have had any regard in
February 1990 to Fox & Co’s June 1989 asking prices. In his statement of
February 16 1994 he says that he was of the belief that units 3 and 4 had been
sold. He should in February 1990 have ascertained the facts, if he did not already
know them, which in the event he did in his letter of May 23 about no 4. As
regards no 3 it is a serious indictment of Mr Fairbairn that if he did believe
that it had been sold he took no steps to ascertain the selling price. He would
then have discovered that it had not in fact been sold. It is a serious
indictment of Mr Fairbairn that he took no steps to ascertain the then asking
price of units 1 and 2. The very fact that they had not been sold and that the
‘sale’ had gone off should at once have prompted him to appreciate that, far
from Fox & Co’s June 1989 figures being too conservative, the fact that the
properties were still not sold eight months on pointed at least to the
probability that by February 1990 the asking prices might be significantly too
large.
Mr Fairbairn
says he relied on the sale price of Dairy Cottage, Sopley. Somewhat
surprisingly, discovery of his report had not been given. On February 22 1994
in the course of the trial the report dated January 29 1990 was produced based
on an inspection on January 25 1990.
As to the
experts’ evidence on the value of 4 The Courtyard, Mr Peter May [BSc ARICS],
the plaintiffs’ independent valuer, considered it had an open market valuation
of £150,000 on February 21 1990. Mr Robert Brownridge [FRICS], the defendants’
independent valuer, stated in the course of his evidence that the highest
valuation at which a competent valuer could have arrived in February 1990 was
£212,500.
In order to
determine where a competent valuer’s open market valuation would fall within
these parameters it is necessary to consider a number of matters. It is
necessary, inter alia, to consider what happened to the residential
housing market in the relevant area (namely about 10 miles from 4 The
Courtyard) from early 1989 to February/May 1990 for a number of reasons. If a
comparable is based on a sale before or after February 1990 it is necessary to
establish the difference in market conditions so that adjustment of the price
for the purposes of comparison can be made. A good indication of the principles
underlying valuations is to be found in the judgment of Forbes J in Grea
Real Property Investments Ltd v Williams (1979) 250 EG 651 at p653,
[1979] 1 EGLR 121 where he said:
It is a
fundamental aspect of valuation that it proceeds by analogy. The valuer
isolates those characteristics of the object to be valued which in his view
affects the value and then seeks another of known or ascertainable value
presenting some or all of these characteristics with which he may compare the
object he is valuing. Where no directly comparable object exists, the valuer
must make allowances of one kind or another interpolating or extrapolating from
his given data. The less closely analogous the object chosen for a comparison
the greater the allowances which have to be made and the greater the
opportunity for error.
An open market
valuation is the best price at which the sale of an interest in the property
might reasonably be expected to be obtained for that interest.
The proper
assumptions are set out in Mr May’s report, namely:
1. A willing
seller.
2. A
reasonable price in which to negotiate a sale taking into account the nature of
the property and the state of the market.
3. That the
property will be fully exposed to the open market.
4. That values
will remain static during that period.
5. That no
account is taken of a higher price that might be paid by a purchaser with a
special interest.
Those
concerned with the property market as distinct from buyers would understandably
show a confidence for the future which does not always prove to be well
founded. That is not to criticise the industry. The well-being of the country
depends on a healthy property market which, in turn, depends in large measure
on confidence.
Lay buyers do
not necessarily share the same optimism as those concerned in the task of
marketing properties. It is very important that the valuer, in order to
discharge his task properly, makes sure that he does not allow his view to be
over-coloured by the industry’s optimism.
As indicated,
a primary tool for determining open market valuation is a comparison with other
similar sales. The closer in time of the sale of a comparable property the more
assistance the sale price of that other property will be. The more adjustments
that have to be made for a difference in time or nature or location of property
the more skill is required to ensure that the adjustments are sound. A
secondary tool is the comparison of square footage after necessary adjustments
have been made.
I found Mr May
to be a reliable witness. This is not a criticism of Mr Brownridge by contrast.
Mr Brownridge was clearly a sound man. But it was noticeable that after his
cross-examination there were not all that many respects in which he differed
from the views expressed by Mr May. Where there were conflicts in most respects
I preferred the evidence of Mr May.
No 4 The
Courtyard is fully described in the various reports and photographs before me
and I need not repeat the descriptions here. I do not find the misdescription
of a bedroom of any relevance. As indicated previously, I am satisfied that in
his statement Mr Fairbairn was there describing what he had seen in June 1989
and not in February 1990.
I accept Mr
May’s opinion in para 7.4 of his report:
The Courtyard
development has been completed to a relatively medium speculative standard of
finish using only ‘contract type’ fixtures and fittings. In my opinion this was
inconsistent with targeted markets and prices being sought by the developers
when offering for sale the properties.
I accept his
statement that the kitchen was inferior and that there was only a single
garage. I further accept his statement that:
Barn
extensions are known to be a compromise in layout and facilities that they
offer, and as a result, they tend to appeal to a limited market.
I am satisfied
that 4 The Courtyard was mostly likely to appeal as a second home. I am further
satisfied that the second home market in the locality was even more depressed
than the first home market at the relevant time.
I accept Mr
May’s evidence that, although Holt is a pleasant village, it was not so
strongly sought after as many villages such as Hinton Martell and Witchampton.
I am satisfied that the relevant market conditions were substantially as stated
by Mr May in his report.
I am satisfied
that there was a fall of approximately 3 1/2% per month in values of houses in
the relevant locality between early June 1989 and February 1990, that is to say
approximately 28%. Between early February 1989 and June 1989 there had been a
fall of approximately 5%.
I am satisfied
that between February 1989 and February 1990 the lower-priced house in the
area, where it reflected lesser accommodation, was more attractive than higher
prices reflecting greater accommodation.
Had there been
no increase in interest rates in late February 1990 it is difficult to judge
whether values would have remained static over the coming six months. The
February 1990 increase does not appear to have had a dramatic downward effect
on prices.
In his report
Mr Fairbairn described: (1) the area housing growth as slow; (2) residential
values as stable; and (3) under the question ‘Demand or Lack of Demand’ he
expressed the view that the estimated resale time was six months. As regards
the comparable evidence the only comparable on which Mr Fairbairn says he
relied (apart from the June 1989 asking prices of Fox & Co for units 1, 2
and 3) was Dairy Cottage to which I have referred.
In his report
of January 29 1990 on this property Mr Fairbairn stated that he measured externally
the approximate area of the dwelling, which he found to be 1,050 sq ft. It is
now agreed by the independent valuers that the internal measurement was
1,120 sq ft.
In his
evidence Mr Fairbairn stated that the selling price was £122,000 and that in
February 1990 this equated to £116 per sq ft. He said that if that rate was
applied to 4 The Courtyard it produced a valuation of £265,000. Mr Brownridge
said somewhat obliquely of this property in his report ‘which was understood to
equate to £116 per square foot’.
He accepted
that the calculations could no longer stand. But at best Dairy Cottage was a
secondary comparable as the experts agreed since it required substantial
adjustments. It was 10 miles from 4 The Courtyard. In his valuation report Mr
Fairbairn stated:
This
development has proved to be generally popular, being located in the heart of
this small sought after, rural village and being a generally attractive
conversion retaining many of the original features of the farm buildings. The
properties, in this development generally command prices in excess of the
prevailing market level. Although the purchase price is substantially in excess
of that which could be commanded by properties offering a similar size of
accommodation it is not considered unreasonable.
It is clear
that Mr Fairbairn knew that the ‘subject to contract’ price was £122,000 which
is what he valued the property at.
A photograph
of Dairy Cottage was put in. I have no doubt to many buyers it would have been regarded
as very attractive. It is certainly very different from no 4. Dairy Cottage
only had two bedrooms. In cross-examination Mr Fairbairn said that the value of
property generally in the area offering similar accommodation to Dairy Cottage
at that time would have been between £70,000 and £80,000. Mr Fairbairn had not
relied in making his valuation upon any comparables, but that was because he
was in the unusual position of knowing what price had been agreed between a
willing seller and a willing buyer. It transpired that Mr Fairbairn was acting
both for the Abbey National and the proposing purchaser.
Mr May stated
that Dairy Cottage was detached unlike no 4, it was of a good quality
conversion, in good condition, in a good position and developed to a much
higher standard than no 4. Mr Brownridge did not essentially disagree. I should
read a passage from Mr Brownridge’s report:
The other
main comparable relates to Dairy Cottage . . . photographs have been made
available of this particular property which was understood to equate to an
average of £116 per square foot. This would be a reasonable approach to use in
formulating a valuation where there are limited market comparables.
However Dairy
Cottage at Sopley is of a somewhat more attractive configuration and from the
photographic evidence given would certainly be of a greater appeal. It also
equates to a lower value which would have given it a wider market-base . . .
It is felt,
however, that in spite of this correct method of obtaining a direct comparable
consideration was not taken of the overall market appeal which was apparent in
Dairy Cottage. It must be said that the Courtyard development at Holt is
somewhat bland and does not have instant market appeal or market attraction . .
.
In spite of
the utilization of this method of valuation it is considered that some further
small discount should have been allowed for the lower market appeal . . .
The agreed
square footage of number 4 is 2,109. To justify a price of £245,000 it would
mean a figure of £116 per sq ft. Dairy Cottage with 1,120 sq ft and a selling
price of £122,000 comes out at £112 per sq ft (not, I think, the £109 Mr Brownridge
spoke of). The evidence satisfies me that as a rough and ready comparable the
Dairy Cottage price must be discounted by some 20%, say £22 per sq ft, which at
£90 per sq ft would give a valuation of £168,720 for no 4.
It was, I
find, not the act of a competent valuer to have sought to equate the selling
price of Dairy Cottage with the value at no 4 without making a substantial
reduction for the difference in the quality of the properties and the lower
selling price of Dairy Cottage because it had less accommodation.
As regards the
Stable, Langton Long, comparable I am satisfied that there were significant
differences between these properties and no 4 The Courtyard. In a number of
respects the Stable development was to a significantly higher standard and it
could reasonably be regarded as a prestigious development. On the other hand
there were a number of disadvantages such as the layout, garage proximity,
garden facilities and the like.
In the event I
find that only no 10 should be regarded as a reliable comparable after
adjustments. This sold for £170,000 in September 1989. The layout was unusual:
three bedrooms and two bathrooms were on the ground floor and a kitchen,
utility room and sitting-room were on the first floor. It had a balcony and bridge
arrangement connecting an upper private garden to the first-floor
accommodation. The garden was three or four times larger than that at no 4.
There were certain restrictive conditions. For example, children were not
allowed. I have reached the conclusion that after the necessary adjustments for
the difference between the properties an open market valuation of no 4 in
September 1989 based upon the sale price of no 10 would have been approximately
£200,000.
As regards 5
Old Manor Farm, Hinton Martell, this was a mid- terraced barn conversion
carried out in 1986. Again the accommodation was inverted with the kitchen and
lounge/dining room at first-floor level to take advantage of the attractive
southerly view. At ground floor there was a master bedroom with an en-suite
shower-room with two further double bedrooms and family bathroom. Mr May
considered that this was a better-quality conversion in a more sought-after
village. It had sold in January 1989 for £130,000. It was Mr May’s view in
February 1990 that it was worth £100,000.
The next
property relied upon by Mr May is the Stable Barn, Witchampton. This was
detached accommodation. I am satisfied that it was of a distinctly higher
quality conversion than that of no 4. On the first floor there were four bedrooms
all with dormer windows. One bedroom was with an en-suite bathroom. One bedroom
was with an en-suite shower-room. There was a bathroom for the other two
bedrooms. It had 0.33-acre plot and was in Witchampton, which is a sought-after
village with local shops and first school.
It had a Grade
II listing. It was marketed on January 21 1990 at £235,000. It only finally
found a buyer in July 1991 at a figure of £165,000. I do not derive assistance
from Elm Wood, Gussage All Saints, Tresco, Row Hill, near Holt; 6 Silverwood,
Cranford Magna, 11 Stroud Close, Cole Hill, New House, Trumpeter’s Court,
Wimborne or Pear Tree Cottage, Cole Hill. In each of these properties the
situation, nature, age, layout of the premises required too many adjustments to
be reliable; for example, Pear Tree Cottage which might otherwise have been a
comparable was ruled out by the fact that it had a 1.25-acre paddock.
Nothing in the
evidence satisfies me that either the plaintiffs or defendants were expecting a
bracket of valuation. The evidence satisfies
February 21 1990 was £180,000.
But it is
clear from decisions such as Mount Banking Corporation Ltd v Brian
Cooper & Co [1992] 2 EGLR 142 and Private Bank & Trust Co Ltd
v S (UK) Ltd [1993] 1 EGLR 144 that no negligence can be established
until the valuation exceeds a proper reasonable margin of error.
Mr May
considered that the margin of error permissible was £10,000. Mr Fairbairn
thought 10%. Mr Brownridge considered 10% to 15%. I find that the permissible
margin of error would be approximately 10%. The highest non-negligent valuation
was therefore just about £200,000.
I am satisfied
that no reasonably competent valuer could have given a value of £245,000. The
margin of error was significantly beyond the permissible limit of divergence
which might account for differences of opinion.
That leaves,
therefore, the difficult question as to whether the plaintiffs have established
their serious charge of fraud in respect of the misrepresentation as to value
contained in the February 21 1990 report.
I am of course
in no way concerned with the manner in which Mr Fairbairn ordinarily carries
out valuations. The fact that he has carried out so many valuations and that
this is the only occasion in which proceedings have been taken in respect of a
valuation done by him suggests that ordinarily he acts with competence and
skill.
A serious
charge of collusion with Mr Liddle has been made. On analysis of the evidence
before me it is clear that whatever suspicions the plaintiffs may harbour, the
evidence in support of it does not exist. I have been assisted in that
conclusion by the valuation he gave Mr Liddle on February 12 1990 in respect of
Sheep House Farm, Witchampton, to which I have referred and in which he valued
the property at £100,000 less than he had eight months previously, ie one-third
less. If he was colluding with Mr Liddle in respect of no 4 The Courtyard it is
difficult to see why he would not also be colluding with him in respect of
Sheep House Farm.
A question
arises as to whether Mr Fairbairn could have honestly believed the valuation of
£245,000 in the light of my finding that he did not fact revisit the property
after his instructions of February 2.
I had the
advantage of seeing Mr Fairbairn under sustained but fair cross-examination. I
concluded that, while he was prepared to make statements which were not true in
order to exculpate himself from a charge of negligence, the plaintiffs have not
satisfied me that at the time he had no honest belief in giving the figure that
he did. Why he acted in the way he did, which may well be out of character,
will not be known. A possibility is the approach of his holiday. There are a
number of ‘keep free’ entries in the diary at about this time. But of course I
make no finding about that. The fact that he cut many corners, eg failing to
visit the site, failing to ascertain the sale position of units 3 and 4, the
failure to ascertain from Fox & Co the then asking prices for the unsold
units and the fact that almost contemporaneously he was accurately reflecting
the depressed state of the market in the Sheep House Farm valuation are all
factors from which a dishonest belief could be determined. Indeed as a paper
exercise it may be that I would have made such a finding. But the overwhelming
impression I had of him in the witness box was of a man who had no intention of
acting dishonestly, but who did unfortunately show unusual negligence.
I am satisfied
that Mr and Mrs Liddle would not have been interested in a loan transaction if
the value of the property had been found at £180,000; 80% of that figure would
have been substantially less than the moneys outstanding to Halifax Building
Society and this takes no account of a second mortgage which Hill Samuel had
over the property.
In so far as
it may be material as a matter of law I hold that this is a non-transaction
case.
Before I turn
to reach a conclusion of question 6, I should give my answers formally to the
issues I have to determine.
Question 1:
Yes.
Question 1A:
The valuation did but the letter of May 23 1990 did not include the
representations set out in para 10A.6 of the amended statement of claim.
Question 1B: In
respect of the valuation the representation was false, but the defendants did
not know it to be false nor were the defendants reckless in not caring whether
it was true or false.
Question 2: The
value of the property as at February 21 1990 was £180,000.
Question 3: No.
Question 4:
Nil.
Question 5: The
plaintiffs relied on the valuation in deciding to make the advance of £196,000
to the borrowers on June 1 1990.
Question 5A:
The plaintiffs relied on the representation contained in the valuation in
deciding to make the advance to the borrowers.
I turn,
therefore, to consider the last issue, which I should restate: can the
plaintiffs recover that part of their loss which is represented by the
reduction in the value of the property between the date of the valuation,
namely February 21 1990 or, in the alternative, the date of advance, namely May
30 1990, and the date of the sale of the property on June 30 1992?
The question
is a narrow one, but raises difficult questions of law. I accept those parts of
Mr Jackson’s evidence to which I have made earlier reference. Mr Jackson was
the person, of the plaintiffs, who I am satisfied was induced to recommend the
plaintiffs to make the advance they did.
I am satisfied
that in principle the plaintiffs had decided to make a loan to Mr and Mrs
Liddle and they looked to the defendants only for guidance as to the amount of
the loan. I am satisfied that the plaintiffs relied exclusively on the property
to provide the source of repayment of the loan — whether as a result of a sale
of the property or the use of the property as security to refinance the loan. I
am satisfied that the risk of fall in the property market was not a risk in
respect of which the plaintiffs placed reliance on the defendants’
|
The Property |
Mr Henry’s forced sale valuation 6/89 |
Joint Fairbairn Henry/ forced sale val 6/89 |
Fox & Co’s asking price |
Forced sale valuation report 13/6/89 |
Open market asking price 13/6/89 |
Valuation given to plaintiffs 21/2/90 |
|
Ultimate date/ selling price |
|
No |
165,000 |
165,000 |
165,000 |
165,000 |
170,000 |
|
6/93 |
79,000 |
|
No |
215,000 |
205,000 |
199,000 |
205,000 |
210,000 |
|
3/92 |
85,000 |
|
No |
222,000 |
200,000 |
189,000 |
200,000 |
220,000 |
|
4/92 |
83,000 |
|
No |
285,000 |
285,000 |
|
285,000 |
315,000 |
245,000 |
6/93 |
100,000 |
valuation. I am satisfied that although the plaintiffs would have
been content to loan 80% plus a little in respect of a valuation below £245,000
Mr and Mrs Liddle would not have been interested because of the amount of the
outstanding loans as previously indicated.
In the course
of the trial I was asked to consider the transcript judgments of Phillips J in Banque
Bruxelles Lambert SA v Eagle Star Insurance Co Ltd given on December
21 1993*, of Gage J in United Bank of Kuwait v Prudential Property
Services Ltd given on December 10 1993† , and of the Court of Appeal in Galoo
Ltd v Bright Grahame Murray (a firm) given, I think, in December
1993. After the parties had made their submissions my attention was also drawn
to the judgment of Judge Fawcus, sitting as a judge of the Queen’s Bench
Division on March 11 1994, in Nyckeln Finance Co Ltd v Stumpbrook
Continuation Ltd‡ .
*Editor’s
note: Reported at [1994] 2 EGLR 108.
† Editor’s
note: Also reported at [1994] 2 EGLR 100.
‡ Editor’s note: Also reported at [1994] 2 EGLR
143.
I did not
invite the parties to make further submissions on the last of these judgments
because I had already provisionally reached a conclusion on this issue 6 and
that judgment did not cause me to change my mind. None of these four judgments
was, so far as I know, in a corrected form and it may be that some alterations
will be made to one or more of them. I do not believe that there is likely to
be any significant change.
The important
earlier decisions including Baxter v F W Gapp & Co Ltd [1939]
2 KB 271 were exhaustively considered in some of these transcripts. It would be
prolix to cover this ground again and consider in detail the various relevant
decisions. Prima facie, Baxter v Gapp was overruled only in a
part not relevant to the present issue. It may be that the balance of the
decision was not regarded with much enthusiasm by the House of Lords in Swingcastle
Ltd v Alastair Gibson (a firm) [1991] 2 AC 223*, but I approach this
matter on the basis that it was not overruled save on the question of
contractual interest. But whereas in many cases a court would be slow to
distinguish a longstanding authority, in this case it is somewhat easier to do
so. I find the reasoning of Phillips J on the issue I have to decide powerful.
The plaintiffs did not look to the defendants for advice as to the likely
movement of the property market in the coming months. In so far as the
plaintiffs asked for some view as to the existing state of the market and
received an answer, in the form I am not satisfied that the answer affected
their judgment in any way.
*Editor’s
note: Also reported at [1991] 1 EGLR 157.
I have reached
the conclusion that the answer to this issue is ‘No’.