Third party negligently overvaluing appellant’s property — Respondent bank loaning money to appellant on that basis — Respondent proceeding against third party — Appellant assigning his rights of action against third party to respondent — Respondent covenanting to pay appellant proportion of damages recovered — Dispute as to correct proportion of damages — Appeal allowed in part
The respondent bank advanced money to the appellant for the purchase and development of a site, based upon a series of valuation reports prepared by a third party firm of surveyors in 1989, 1991 and 1993. Two of the reports were sent directly to the respondent but the 1991 report was sent to the appellant.
The claimant had provided the site as security to the respondent but the site was subsequently made subject to a compulsory purchase order. In 1996, the Lands Tribunal assessed the compensation payable for the compulsory acquisition and the money was paid to the respondent. It was substantially less than the monies advanced by the respondent, which meant that the respondent was left with an unsecured claim against the appellant, who was allegedly unable to pay.
The respondent commenced proceedings against the third party firm of surveyors, and wrote to the appellant suggesting that if he made an equitable assignment of his rights and remedies in respect of the valuation report, it would not proceed against him. Moreover, as consideration for the assignment, the respondent covenanted to pay the appellant 30% of the net recoveries on damages “arising out of or in connection with any claim which the Bank might bring against [the third party] by reference to the Report”. The respondent and the third party successfully mediated the claim, and the third party made a payment in excess of £1m. The appellant commenced proceedings to recover, inter alia, 30% of this sum.
At first instance, the master gave summary judgment that the appellant was correct to read the respondent’s letter as offering him one-third of the entire settlement monies, less costs. However, he found that such an arrangement was so inconsistent with commercial common sense that, taken in context, the letter was to be construed as meaning that the appellant was entitled only to 30% of the part of the award that was properly attributable to the 1991 report, that is, the report that was sent to him, rather than the other two reports that were sent directly to the respondent. Additionally, since it was impossible to determine what proportion of the settlement money had been awarded in respect of the 1991 report, it was necessary to hold an inquiry into the matter. The appellant appealed.
Held: The appeal was allowed in part.
The term “arising out of or in connection with” was a “belt and braces” approach to drafting, and a narrow construction was to be discouraged. In any event, on its true construction, the offer letter was referring only to damages that were attributable to the report sent to the appellant. As a matter of principle, the appellant’s claim was counter to both the language used in the relevant part of the letter and to commercial common sense, taking into account the terms of the letter and the circumstances in which it had been written. It was very unlikely that the parties could have envisaged that the respondent would have borne all the costs and risks of the action on the basis of all three reports, thereby giving the appellant a “free ride”, when in fact it could have vested a perfectly valid claim on the basis of the two reports that were sent to it directly.
The inquiry as to the apportionment issue would represent potentially expensive and complex satellite litigation, and, in this instance, was unnecessary. On an ordinary reading, the order agreed between the respondent and the third party did not discriminate between the relative importance of any of the reports. An equal apportionment was appropriate since no other apportionment could be easily, sensibly or confidently made. The appellant was thus awarded 30% of the apportionment given to the second report, that is, 30% of one-third or 10%, minus the appropriate costs.
Robert Hantusch (instructed by Teacher Stern Selby) appeared for the appellant; Vernon Flynn (instructed by Reed Smith Warner Cranston) appeared for the respondent.
Vivienne Lane, barrister
