Negligence — Mortgage loan valuation — Whether defendants’ negligent valuation caused damage — Whether plaintiffs contributorily negligent
In 1990 the
plaintiff bank made a loan to Mr and Mrs M consisting of a gross advance of
£846,501 (net advance of £750,000) for six months secured by way of a first
mortgage on their house. The plaintiffs had been provided with a valuation by
the defendants of £1.525m (forced sale value of £1.342m). At the same time the
plaintiffs received a second valuation from a further firm of valuers in the
sum of £1m (£750,000 forced sale value). Following default by Mr and Mrs M the
plaintiffs obtained an order for possession of the house in April 1991. The
plaintiffs obtained a further valuation from another firm of valuers of
£150,000, which took into account the state of repair of the house and its
status as a listed Grade I building; they then suspended the warrant for
possession believing they might expose themselves to liabilities which would
exceed the value of the house. In proceedings alleging damage by reason of the
defendants’ negligent valuation, the defendants accepted liability at the trial
and that the appropriate valuation would have been in the order of £250,000.
The trial judge awarded the plaintiffs damages of £1,049,853. The defendants
appealed contending that their valuation did not cause any damage,
alternatively the plaintiffs were contributorily negligent.
was entitled to conclude that the plaintiffs had relied on the defendants’
negligent valuation and this caused the damages they suffered. However, the
plaintiffs were contributorily negligent and damages were reduced by 25%. The
failure of the plaintiffs to review the valuations in the light of their
differences was negligent. The plaintiffs did not act in the way a prudent
lender would have acted, particularly as they were selecting the higher of the
two valuations. It is reasonable to conclude that because the plaintiffs relied
upon the defendants’ valuation, which upon checking would have been reduced, at
least part of the damage was caused by their omission to check whether it was
correct.
The following
cases are referred to in this report.
Banque
Bruxelles Lambert SA v Eagle Star Insurance Co
Ltd [1995] QB 375; [1995] 2 WLR 607; [1995] 2 All ER 769; [1995] 1 EGLR
129; [1995] 12 EG 144, CA
Berg Sons
& Co Ltd v Adams [1992] BCC 661
Bristol
& West Building Society v Mothew [1997]
2 WLR 436; [1996] 4 All ER 698, CA
JEB
Fasteners Ltd v Marks Bloom & Co [1983]
1 All ER 583, CA
O’Donnell
v Reichard [1975] VR 916
This was an
appeal by Henry Spencer & Sons Ltd from a decision of Evans-Lombe J in a
claim by the plaintiff, Cavendish Funding Ltd, for damages for negligence.
Roger Stewart
(instructed by Fishburn Boxer) appeared for the appellants; Nicholas Patten QC
and James Ramsden (instructed by Clifford Chance) represented the respondents.
Giving
judgment, ALDOUS LJ said: The defendants, who at the relevant time
traded as Colley Sampson, are a firm of valuers and estate agents. They appeal
against the order of Evans-Lombe J of March 2l 1996 which ordered them to pay
to the plaintiffs £1,049,853 by way of damages and interest as compensation for
their admitted negligent valuation of a house. They contend that the judge
wrongly held that their valuation caused the loss. Alternatively, the sum
awarded was too high because the judge should have made a substantial deduction
because of the plaintiffs’ contributory negligence.
The facts have
been fully set out by the judge. I therefore can limit this part of my judgment
to those facts needed to understand the submissions made on the appeal.
The
plaintiffs, now in administrative receivership, were a secondary bank set up by
a group of primary banks. Those primary banks had agreed to provide a revolving
credit facility of £20m. The idea was that, unless the majority of the primary
banks agreed, the plaintiffs would apply all advances and drawings in financing
and refinancing the making of mortgage loans. The loans would be short term at
relatively high rates of interest and losses would be covered by pooled
insurance from the Norwich Union. It was part of the agreement for provision of
the credit that the plaintiffs would ‘ensure that each mortgage loan applies in
all material respects with the lending criteria’ and ‘ensure that the terms of
the Operations Manual are complied with in all material respects’.
The operations
manual laid down in considerable detail what had to be done, including such
things as the lending criteria to be adopted and the loan application and
provision procedures. Subsection 1.1 contained the product outline. It stated
that the product was ‘high equity, non-status, short-term’. The loan period
would be for a maximum period of six months, but, at the discretion of the
plaintiffs, could be renewed at the end of the term for a further six months.
Loans were to be secured by way of first legal charge upon properties situated
in England and Wales. An arrangement fee was to be charged with interest being
charged at 4.5% above the plaintiffs’ base rate; six months’ interest being
added to the loan and deducted from the advance with the balance to be settled
on repayment. The borrowers were defined in subsection 1.4. The maximum
acceptable ages of primary borrowers was said to be 54 for males and 49 for
females. Subsection l.5 required disclosure of details of the applicant’s
income, which were to be self-certified by the applicant. Subsection 1.11 laid
down that the maximum loan to value ratio was 75%. High value loans had to be
referred to the Norwich Union as underwriters. Subsection 1.11 required all
loans to be covered by the insurance and therefore had to be written within the
lending criteria in the insurance policy. Any loans written outside those
criteria had to have Norwich Union’s express consent. Under subsection 2.3 the
applications should be processed by the Bank of Ireland Mortgage Services Ltd
(BIMS) on behalf of the plaintiffs and in accordance with the manual. Control
was to be maintained by the plaintiffs. As stated in subsection 2.9,
applications had to be processed through a number of stages which included
obtaining valuations and appointing a solicitor from a panel. In the case of property
valued in excess of £500,000 in London or £350,000 elsewhere, two surveyors
were necessary. The purpose of the valuation reports was to establish that the
property in question complied with the plaintiffs’ lending criteria and would
form good security for the advance requested. The amount to be lent was to be
computed as a percentage of the forced sale value as opposed to the open market
value of the property. The maximum percentage advance relative to value was set
out in appendix 2 as 65% where the maximum loan amount was £800,000. Loan
amounts in excess of £800,000 were
to value.
Pursuant to
the agreed arrangements the plaintiffs held themselves out as being able to provide
loans in, for example, five days. As required, the plaintiffs used the services
of BIMS. They did what can be termed the ‘leg work’, but the important
decisions were the responsibility of the plaintiffs in this case.
Mr Dexter was
one of their directors. Thus, BIMS did the searches, obtained the required
valuations and, when appropriate, instructed a firm of solicitors selected from
the panel to carry out the legal formalities.
In May 1990 Mr
and Mrs Marsden required finance. They approached the plaintiffs using a firm
of mortgage brokers for a bridging loan. Their application was for a loan of
£750,000 secured against their house, Hatfield Manor, which is a Grade I listed
house of historical importance. Their loan application was passed to BIMS on
May 30 1990. As required in the operations manual, BIMS instructed two
surveyors to advise the plaintiffs as to the value of the house on the open
market and what the property would fetch on a forced sale in four months’ time.
Bernard Thorpe advised that the house had an open market value of £1m and would
fetch on a forced sale £750,000. The defendants concluded that it had an open
market value of £1.525m and on a forced sale would be worth £1.342m. Their
valuation was consistent with an unsigned valuation of an open market value of
£1.5m that had been supplied to only the Yorkshire Building Society.
On June 1 1990
the plaintiffs offered Mr and Mrs Marsden a gross advance of £846,501.12 which,
after deduction of interest and the arrangement fee, provided a net advance of
£750,000. The loan was to be for six months secured by way of a first mortgage
on the house. It was accepted and the paperwork was completed. The Marsdens
were unable to repay the loan and on January 28 1991 the plaintiffs’ solicitors
were instructed to take proceedings to recover the amount due. An order for
possession was obtained on April 17 1991.
On April 12
199l administrative receivers were appointed over the plaintiffs. They
instructed new solicitors, who obtained a valuation from Jackson-Stops &
Staff that the house was only worth £150,000. That figure took into account the
state of repair of the property and the obligation which fell upon the owners
to the building being listed as Grade I. Upon receiving that valuation the
receivers decided to suspend the warrant of possession, believing, rightly or
wrongly, that they could expose themselves to liabilities, which exceeded the
value of the house, arising from the obligation to keep the house secure once
possession had been obtained and from the obligation imposed by reason of its
being listed.
In 1994 the
plaintiffs commenced these proceedings alleging damage by reason of the
defendants’ negligent valuation. At first the defendants denied the valuation
was negligent, but before trial they accepted that they had been negligent and
that at the relevant time an appropriate valuation would have been in the order
of about £250,000. Even so, they resisted the plaintiffs’ claim upon the
grounds that the valuation did not cause any damage. Alternatively, they
alleged contributory negligence. Those were the matters which came before the
judge and arose on this appeal.
Causation
Mr Roger
Stewart, who appeared for the defendants, submitted that to succeed the
plaintiffs had to establish both that they had relied upon the defendants’
negligent valuation and that it was a material part of the cause of the damage.
He reminded us of a number of cases in which the courts have held that the
plaintiff had not established reliance. In Berg Sons & Co Ltd v Adams
[1992] BCC 661 the defendants were held not to be liable for the damage that
had occurred because the plaintiffs had not relied upon the certificate of the
auditors. The cause of the damage was the reckless conduct of the plaintiffs.
In Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd
[1995] 2 All ER 769* Phillips J held that the lenders had not relied on the
valuation in that they had believed that they could go ahead upon their own
conclusion as to value. The Court of Appeal in JEB Fasteners Ltd v Marks
Bloom & Co [1983] 1 All ER 583 held that, although the plaintiffs had
been aware of and had considered the relevant accounts, they had not to any
material degree affected the plaintiffs’ judgment in deciding to take over the
company. In those circumstances the judge was correct to decide that there had
been no reliance upon the accounts.
*Editor’s
note: Also reported at [1995] 1 EGLR 129
Mr Stewart
submitted that to succeed the plaintiffs had to establish that they had relied
upon the defendants’ valuation believing it to be correct. Mr Nicholas Patten
QC, who appeared for the plaintiffs, accepted that the plaintiffs had to
establish that they relied upon the defendants’ valuation and that it was
causative. But, relying on the judgment of Millett LJ in Bristol & West
Building Society v Mothew [1996] 4 All ER 698 he submitted that the
plaintiffs did not have to establish that they would not have made the loan if
the valuation had been different.
I do not
believe there is any need to delve into the intricacies of the law of causation
and therefore, for the purposes of this judgment, I accept the law as submitted
by Mr Stewart. Thus, to succeed the plaintiffs had to establish that they
relied upon the defendants’ valuation in making their decision to lend to Mr
and Mrs Marsden in the sense that they would not have gone ahead without the
defendants’ negligent advice and that, if a non-negligent valuation had been
supplied, the plaintiffs would not have made the loan. They also had to prove
that the advice was a material cause of the damage.
Having
analysed the evidence the judge concluded:
My conclusion
on the question of causation is that the plaintiffs did place such reliance on
the defendants’ valuation, so that it played ‘a real and substantial part in
inducing’ the plaintiffs to make the loan: see per Stephenson LJ in JEB
Fasteners Ltd v Marks Bloom & Co [1983] l All ER at p589. I
arrive at that conclusion as a natural inference from the unchallenged facts
that the Marsdens made application to the plaintiffs for a loan offering as
security the property, that in the process of processing the Marsdens’ loan
application the defendants were instructed to value the property, that they did
so in the terms of their valuation report of June 1, that simultaneously
Bernard Thorpe were invited to value the property in accordance with the
plaintiffs’ operations manual and that their report also dated June 1 was
transmitted to the plaintiffs who had been provided with a copy of the
Yorkshire Building Society’s document also appearing to give the property a
value similar to that given by the defendants, and finally, that an offer of
loan in the amount requested by the Marsdens was made and was drawn down on
June 4 which did not, on the defendants’ valuation, involve a substantial
departure from the prescribed loan to value ratio. In making the loan on
security the plaintiffs were plainly relying on a valuation of that security.
It seems to me to be a clear inference that in making this loan they were
relying on the defendants’ valuation possibly supported by the Yorkshire
Building Society document in preference to that of Bernard Thorpe. I further
conclude that at least on the balance of probabilities, in the light of the
provisions of the plaintiffs’ operations manual prescribing loan to the value
of security ratios that had the plaintiffs been in possession of a competent
valuation that is one at approximately the same level as the valuation given by
Jackson-Stops & Staff in July 1991 they would not have made the advance
which they made to the Marsdens. The fact that Bernard Thorpe’s valuation
appears also to have been incompetent, though to a lesser degree, does not
affect this conclusion. Nor is the conclusion affected by the fact that on
other occasions the plaintiffs appear to have made substantial loans without
any valuable security or on terms which offend against their own operations
manual. I have no evidence of the considerations which may have led the
plaintiffs to do so in those cases. It is clearly open to the plaintiffs to
vary their own internal rules where the commercial circumstances of the case in
question may make it sensible for them to do so. In the case of the Marsdens’
loan the plaintiffs also departed from the strict criteria governing the loan
to value ratios prescribed by the operations manual but there was not in the
evidence any indication that the plaintiffs would have been likely to lend to
the Marsdens substantially unsecured.
Mr Stewart
criticised the reasoning of the judge on four grounds. First, he submitted that
the judge had not paid sufficient attention to the fact that Mr Dexter had not
given evidence. He was the key witness and there was no explanation put forward
as to why he had not been called. In the circumstances Mr Stewart submitted
that the judge
adverse to and, in any case, would not have supported the plaintiffs’ case.
Further, he should not have accepted that Mr Dexter would have acted in a
sensible way. There was no evidence to show that he had not decided to make the
loan before the defendants’ valuation was received and would have done so even
if the defendants’ valuation had been correct. He submitted that the correct
approach was that advocated by the full court of the Supreme Court of Victoria
in O’Donnell v Reichard [1975] VR 916. That was a case in which
the plaintiff was claiming damages for psychiatric harm and the defendants
alleged that she was a malingerer. The plaintiff failed to call three doctors
who had examined her and the judge had instructed the jury to disregard that
fact. On appeal that instruction was challenged. Gillard J said, at p921:
Looking at
the authorities from Blatch v Archer, supra, right up to Earle‘s
case, supra, it may be accepted that the effect of a party failing to
call a witness who would be expected to be available to such a party to give
evidence for such a party and who in the circumstances would have a close
knowledge of the facts on a particular issue, would be to increase the weight
of the proofs given on such issue by the other party and reduce the value of
the proofs on such issue given by the party failing to call the witness. It
should be added that direct evidence of availability of the witness is rarely
adduced in evidence. Generally speaking, the proof that a witness is available
is a matter of inference from all the circumstances. Sometimes evidence is
given to stifle criticism by showing that a witness is not available.
Newton and
Norris JJ said, at p929:
It is
sufficient to say that in our opinion for the purposes of the present case the
law may be stated to be that where a person without explanation fails to call
as a witness a person who he might reasonably be expected to call, if that
person’s evidence would be favourable to him, then, although the jury may not
treat as evidence what they may as a matter of speculation think that that
person would have said if he had been called as a witness, nevertheless it is
open to the jury to infer that that person’s evidence would not have helped
that party’s case; if the jury draw that inference then they may properly take
it into account against the party in question for two purposes, namely:
(a) in
deciding whether to accept any particular evidence, which has in fact been
given, either for or against that party, and which relates to a matter with
respect to which the person not called as a witness could have spoken; and
(b) in
deciding whether to draw inferences of fact, which are open to them upon the
evidence which has been given, again in relation to matters with respect to
which the person not called as a witness could have spoken.
For myself, I
do not dissent from the view expressed by the judges in O’Donnell. The
court should not speculate as to what a person would or would not have said if
he had been called as a witness. It is open to the court to draw such
inferences as, on the facts before the court, are appropriate. In doing so, and
in deciding whether or not to accept evidence that was given, it is permissible
to take account of a party’s unexplained failure to call a witness who on the
face of it could have given direct evidence on the matters in question. Beyond
this, each case must depend upon its own particular facts. In the present case
the plaintiffs alleged both reliance and causation. Both were denied by the
defendants, but the only positive case pleaded by the defendants was that the
plaintiffs had relied upon the Bernard Thorpe valuation. That positive case was
not pursued and in those circumstances the judge was right not to infer that Mr
Dexter would, if he had been called to give evidence, have stated that he
relied upon the Bernard Thorpe valuation. To decide the issues of reliance and
causation the judge had to look at such evidence as there was and, taking into
account that he did not have the advantage of evidence from Mr Dexter as to
what was his attitude, he had to decide whether the plaintiffs had discharged
the onus on them. In my view, that is what the judge did.
Second, Mr
Stewart submitted that the documents before the court could not be relied on as
establishing the truth of the statements made in them and without the oral
evidence of Mr Dexter there was no sufficient evidence that he had relied on
any valuation, let alone the defendants’ valuation. It cannot be disputed, nor
was it disputed, that the documents written by Mr Dexter were not evidence of
the truth of the statements in them. However, that does not mean that they were
irrelevant. They showed how the transaction was made and the information
passing between the parties concerned with the loan. That history had to be
considered together with all the surrounding circumstances. For my part, I do
not believe that the judge’s judgment is open to criticism upon this ground. In
fact I believe he accepted Mr Stewart’s submission as correct.
Third, Mr
Stewart drew attention to the fact that Mr Dexter had not in all respects
carried out the requirements of the operations manual. First, Mr Marsden was
over 60, and second, the lower of the two valuations was not used. The first
deviation is not of great weight in this case in view of the fact that the loan
was to be repaid by long term finance which appeared to be available. The
second was reported to the Norwich Union who appeared to accept the position.
It also throws no light on whether the plaintiffs relied on the defendants’
negligent valuation.
Fourth, Mr
Stewart relied on the fact that on two occasions the plaintiffs had lent
without appropriate security to support his suggestion that Mr Dexter could
have decided to make the loan whatever the valuation. There is little evidence
before the court on these transactions, but in any case there does not appear
to be any close similarity of fact which would throw any light on what Mr
Dexter thought or might have thought. The judge cannot be criticised for not
relying upon them in his judgment.
There were
factors before the judge which could have been interpreted as pointing in the
defendants’ favour. However, the procedure in the manual was followed as the
documents show. Further, the history is only consistent with reliance and
causation.
Mr and Mrs
Marsden completed an application form for a loan of £750,000 to be secured by a
first mortgage on the property. It contained errors, but they do not appear to
me to be relevant. A day later the plaintiffs prepared a quotation for the
mortgage brokers which was based on a value of £1.5m, stated to be subject to
valuation. On the same day Mr Dexter wrote to the Norwich Union, who insured
the plaintiffs against loss stating:
Re: Client
— Marsden
I confirm
your agreement, subject to valuation of a loan for c. £846,000 on a property
valued by the client at £1.5m and for mortgage purposes by the Yorkshire
Building Society who have indicated an ‘in principle’ willingness to lend.
You have
given us approval at a loan value ratio up to 60%, ie property valuation down
to £1.41m, as above subject to valuation.
That letter
was required by the operations manual as the amount to be advanced was over
£800,000.
The
defendants’ valuation was supplied on June l 1991 as was that of Bernard
Thorpe. They must have been conveyed to Mr Dexter on that day because he wrote
to the Norwich Union on June l in these terms:
Re: Client:
Marsden
We have carried out two valuations plus we have been given a copy of
a valuation carried out for the Yorkshire Building Society, the results are as
follows:
|
Valuations |
Name |
FSV |
LMV |
|
|
Bernard Thorpe |
£750,000 |
£1m |
|
|
Colleys |
£1.342m |
£1.525m |
|
Valuation |
– |
£1.5m |
|
On this basis
the Bernard Thorpe valuation appears out of line. We therefore propose relying
on the Colleys valuation which with a loan of c. £846,000 provides for an LTV
of 63.1%.
From a
commercial viewpoint we would then approach Colleys in the first instance if
any losses result.
The exit
route appears covered as both the Yorkshire and the Bristol and West have
indicated in principle willingness to lend. You have confirmed willingness to
insure in the circumstances.
That, as Mr
Stewart pointed out, did not, in the absence of evidence from Mr Dexter, prove
the truth of what was stated. However, it forms
Norwich Union that reliance was being placed on the defendants’ valuation.
Mr Stewart
accepted that the offer which was made was calculated as 63% of the defendants’
valuation, but submitted that that did not mean that the plaintiffs relied upon
the defendants’ valuation. In theory that is right as the plaintiffs could have
decided to make the loan whatever the valuation. However, that seems inherently
unlikely as there was no evidence of any relationship between Mr Dexter and the
Marsdens and there is no evidence to suggest that this was a case where an
advance would have been made whatever the valuation, particularly when the
valuation by Colleys was grossly negligent. Most things are possible, but
courts are concerned with probabilities and in particular with the balance of
probabilities.
On the same
day, June l, Miss Lisa Daniel of BIMS, on the instructions of Mr Dexter,
completed the form to proceed with figures supplied by Mr Dexter. It indicated
that the initial underwriting was satisfactory, that a solicitor had been
instructed and the applicant advised. It stated that two valuations had been
obtained and that the loan valuation report was satisfactory so that the
solicitor should proceed with a maximum advance of £846,501.12. with an LTV of
63%.
Using
information given by Mr Dexter, Miss Daniel made the offer on June l to Mr and
Mrs Marsden. That was an offer to lend Mr and Mrs Marsden a gross advance of
just over £846,000 for six months which, with the payment of interest and the
balance of the arrangement fee, gave a net advance of £750,000. That was to be
secured by way of a first mortgage on Hatfield Manor. It was accepted that the
loan was calculated at about 63% of the forced sale valuation provided by the
defendants.
That sequence
of events and the documents show, on the balance of probabilities, reliance by
the plaintiffs on the defendants’ negligent advice and that the advice was a
significant cause of the damage. Two valuations were obtained. They differed.
As required by the operations manual the plaintiffs reported to their insurers
and told them that they were going to rely upon the valuation of the
defendants. That seems to have been accepted by the insurers. The plaintiffs
advised BIMS to go ahead on the basis of the defendants’ valuation. It seems
incredible that Mr Dexter would have made the loan without relying on a
valuation and, in particular, if he had been advised that the house was only
worth about £250,000.
The conclusion
which I have reached is, in my view, inevitable when it is realised that no
document or evidence was produced to the contrary. The judge came to the right
conclusion for the right reasons.
Contributory
negligence
Before the
judge the defendants put their case in a number of ways. On appeal they limited
their case to the allegations set out in para 20(c) of the defence. In that
paragraph it was alleged:
(i) The
Plaintiff chose to ignore the lower valuation provided by Bernard Thorpe
without making an enquiries before making the loan as to the reasons for the
difference between that valuation and the one provided by the Defendants. No
prudent lender should have adopted such a course which was directly contrary to
the Plaintiffs’ Operations Manual.
(ii) Had
prior enquiries been made of Bernard Thorpe prior to the loan being made, the
Plaintiff would or should have concluded that it should rely on the valuation
being the lower one provided to it.
That was
considered by the judge. He said:
The question
is, therefore, whether I can be satisfied that if, on the assumption that, by
reason of the marked difference between the valuations of the defendants and
Bernard Thorpe the plaintiffs were put on inquiry and ought as a result to have
reverted to their valuers for confirmation, whether they would in fact have
gone ahead and made the advance, on the further assumption that the valuers
would have reacted as they did in fact react when questioned by the plaintiffs
about their valuations. The result would have been that the plaintiffs would
have been deciding whether or not to lend £846,000 on the basis of a valuation
by Bernard Thorpe giving an open market value of £1m and a forced sale value of
£750,000 and a valuation of the defendants recently and reluctantly reduced
from £1.5m to £1.2m, which would have thrown up a forced sale value of £1.05m.
Bearing in mind that on this issue the burden of proof rests on the defendants,
in my judgment, the defendants have failed to discharge that burden even without
ascribing any weight to the Yorkshire Building Society document. On this issue
I bear in mind that the defendants elected to call no evidence and in
particular not to call their expert banking witness. It follows that, in my
judgment, the defendants have failed to make out a case for the reduction of
the plaintiffs’ damages by reason of the plaintiffs’ contributory negligence.
The judgment
does not give any reason for rejecting the defendants’ submission other than
the defendants had not discharged the onus on them. In particular, he does not
come to any conclusion as to whether a prudent lender would have taken steps to
satisfy himself that the defendants’ valuation was satisfactory.
Apportionment
of liability in a case of contributory negligence is provided for in section l
of the Law Reform (Contributory Negligence) Act 1945.
1
Apportionment of liability in case of contributory negligence
(1) Where any
person suffers damage as the result partly of his own fault and partly of the
fault of any other person or persons, a claim in respect of that damage shall
not be defeated by reason of the fault of the person suffering the damage, but
the damages recoverable in respect thereof shall be reduced to such extent as
the court thinks just and equitable having regard to the claimant’s share in
the responsibility for the damage:
Provided that
—
(a) this
subsection shall not operate to defeat any defence arising under a contract;
(b) where any
contract or enactment providing for the limitation of liability is applicable
to the claim, the amount of damages recoverable by the claimant by virtue of
this subsection shall not exceed the maximum limit so applicable.
(2) Where
damages are recoverable by any person by virtue of the foregoing subsection
subject to such reduction as is therein mentioned, the court shall find and
record the total damages which would have been recoverable if the claimant had
not been at fault.
The court’s
task is to decide whether any of the damage suffered by the plaintiffs was the
result of the plaintiffs’ fault. In this case Bernard Thorpe valued the house
at £1m which was £500,000 less than the value of the defendants. Moreover, they
deducted 25% rather than (12.5%) from the open market value in assessing the
forced sale value. Were the plaintiffs at fault in going ahead with the loan
without further inquiries?
Mr Stewart
submitted that the loan scheme being operated by the plaintiffs was based upon
the loan advanced being secured by a first mortgage on a house whose forced
sale valuation was sufficient to ensure repayment. In this case the difference
between the valuations supplied could not be accounted for by variation in
opinion. It followed that a prudent lender, if he were going to select the
higher of the two values, should have realised that further inquiries needed to
be made. If so, such a lender would have consulted the defendants, who would
have revised their figures thereby indicating that only a loan of between
£600,000 and £700,000 was justified. (This was based on figures they gave when
they were approached later in 1991.) Thus, he submitted, the plaintiffs were at
fault for lending over £800,000.
Mr Patten
submitted the plaintiffs could not be blamed for using the defendants’
valuation rather than that provided by Bernard Thorpe. Despite the difference
in the valuations the loss was caused by the defendants’ valuation, not by
anything the plaintiffs had done. It was that valuation which had been relied
on and had been the cause of the loss, not anything done by the plaintiffs.
The defendants
did not call any expert evidence. The plaintiffs’ expert, Mr Robin Bryant, did
not believe that the plaintiffs were negligent. However, he accepted that in
the absence of cover by the Norwich Union it would have been prudent to check
the valuations with the valuers. If that be right, I believe that the
defendants would, as they did subsequently, have reduced their valuation. Even
though it is now agreed that a proper valuation was no more than £250,000, the
defendants have to accept that, even if they had been asked to
did later.
In my view,
the failure to review the valuations in the light of their differences was
negligent. The plaintiffs did not act in the way a prudent lender would have
acted, particularly as they were selecting the higher of the two valuations. It
is reasonable to conclude because the plaintiffs relied upon the defendants’
valuation, which upon checking would have been reduced, at least part of the damage
was caused by their omission to check whether it was correct. What would have
happened is a matter of speculation, but I believe that the damage was due in
part to the plaintiffs’ fault and therefore it is necessary to decide by how
much it would be just and equitable to reduce the damages.
Bearing in
mind the grossly negligent advice given by the defendants and that if the
defendants had been given the chance to review their valuation their advice
would still have been grossly negligent, I believe it would be just and
equitable to reduce the damages by 25%. Therefore, I would vary the judge’s
order to that extent.
WALLER and EVANS LJJ agreed and did not add anything.
Appeal
allowed in part.
