Company purchasing hotel – Plaintiff financing purchase of hotel’s leases – Company financing purchase of hotel’s chattels – Plaintiff instructing defendant to carry out valuation – Plaintiff granting underlease to company – Company running into financial difficulties – Plaintiff selling leases for loss – Whether defendant instructed to value hotel’s leases only or hotel as going concern – Plaintiff’s claim dismissed
In 1989 the Londonderry Hotel was held under four leases which were vested in Trust House Forte ("THF"). The Brent Walker Group ("BW") agreed to purchase three of the leases for £42m and the hotel’s chattels for £1.5m. The plaintiff agreed to finance the deal by taking over the purchase contract and granting to BW an underlease subject to the hotel being valued. Insurers agreed to insure the plaintiff against loss should the value of the leases fall if the valuation was satisfactory. Accordingly the plaintiff wrote to the defendant requesting a valuation of the property "for sale on the open market basis assuming [BW] remain the operator" and a valuation of the property with vacant possession. Subsequently a second letter was sent to clarify the first which stated that the valuation was to be "on an open market basis without reference to the terms of the lease contemplated between [BW] and [the plaintiff]". BW sent to the defendant their five-year revenue projections for the hotel. After three draft reports, a final report was sent containing a valuation of "42m. The plaintiff took over BW liability’s to acquire the leases and they were duly assigned.
Subsequently BW ran into financial difficulties and was unable to meet its liabilities under the lease. The plaintiff sold the three leases for a substantial loss. The plaintiff issued proceedings and alleged that it had been unable to recover the whole of its loss from its insurers because it had been discovered that the £42m evaluation had not been based on the value of the leases but on the hotel as a going concern. The plaintiff issued proceedings and contended that the defendant had been negligent for not valuing the three leases as instructed and, in the alternative, for not seeking clarification of its instructions.
Held The plaintiff’s claim was dismissed.
1. The natural meaning of the two letters was that a valuation was to be carried out on the hotel as a going concern on the open market. The second letter instructing the defendant to value the hotel without reference to the underlease had not shown that a valuation of the three leases had been required because it had meant that the terms of the underlease were to be disregarded.
2. It had not been incumbent on the defendant to go through the BW projections in such detail that it would have been put on notice by the inclusion of the £2.5m expenditure that it was BW not the plaintiff who was acquiring the chattels.
3. The defendant had not been under a duty to inquire as to how the leases were to work in relation to chattels and therefore had not been under a duty to seek further clarification of the instructions. It had been entitled to assume that if any further assistance had been required it would duly be instructed.
4. In any event the valuation, the draft reports and the surrounding circumstances had made clear to the plaintiff that the report had been made on the assumption that the hotel had been valued as a going concern.
Hazel Williamson QC and Nicholas Peacock (instructed by Theodore Goddard) appeared for the plaintiff; John Slater QC and Nicholas Dugdale (instructed by Kennedys) appeared for the defendant.