Borrower defaulting on mortgage loan – Lender recovering substantial damages against surveyor for negligent valuation – Valuer claiming contribution from borrower under Civil Liability Act 1978 – Whether Act applicable – Whether valuer assisted by doctrine of subrogation
In February 1992 the claimant firm of surveyors, having been engaged by Midland Bank plc (Midland), carried out a revaluation of a development property in Rugby (the property). It reported a value of £500,000 in its existing condition and a value of between £600,000 and £750,000 when developed. In May 1992 Midland, relying on that revaluation, made a loan to the defendants of £634,000 on the security of the property. In July 1995, following a default by the defendants, Midland instituted proceedings against the claimant claiming that the property had been negligently overvalued. In October 1996 Midland sold the property as mortgagee in possession for £250,000. In August 1997 Midland formally demanded £503,000 from the defendants, who made no payment. No proceedings were instituted by Midland against the defendants. In November 1997 Midland reached a compromise with the claimant, pursuant to which the claimant paid £400,000 in full and final settlement of the Midland claim.
In November 1998 the claimant brought proceedings against the defendants claiming contribution under the Civil Liability (Contribution) Act 1978. The defendants disputed the applicability of the Act on the grounds that: (i) if they were liable for damage suffered by Midland, such damage was not, as required by section 1(1) of the Act, “the same damage” as that in respect of which the claimant was liable; (ii) they had not, in any event, incurred liability for “damage” within the meaning of the Act, as Midland was not a person who, in the language of section 6(1) of the Act, was “entitled to recover compensation” from the defendants.
Held: No claim lay against the defendants.
1. To hold that the damage resulting from the negligent valuation was the same as the loss arising out of the non-payment of the money owed would lead to the conclusion that a lender in Midland’s position could not sue the borrower without giving credit for any part of the sum received from the valuer. Such a conclusion would be wrong. In deciding upon a settlement figure with the valuer, the lender would necessarily evaluate its rights against the borrower. Nor could the money received from the valuer be equated with a surplus payable to a borrower in cases where the security had been sold for an amount exceeding that which was due to the lender.
2. The defendants had correctly submitted that, on any natural interpretation, the words “entitled to recover compensation” did not include the recovery of a debt. Nor was any contrary authority to be found in Friends’ Provident Life Office v Hillier Parker May & Rowden [1995] 4 All ER 260 (CA), as the liability of the contributing party in that case did not arise out of a debt, but out of a restitutionary claim in quasi-contract for money had and received.
3. The claimant could not resort to the doctrine of subrogation as the defendants, still liable to Midland, could not be said to have been unjustly enriched as a result of the payment made to Midland by the claimant
Jonathan Seitler (instructed by Hammond Suddards) appeared for the claimant; David Fisher (instructed by Simpson & Co, of Rugby) appeared for the defendants.
Alan Cooklin, barrister