Expert — Non-speaking valuation — Determination of option price — Whether expert’s determination void — RICS valuation practice statements — Whether expert carried out task directed by option price formulation
By an agreement made between the parties on 11
February 1991 the plaintiff was granted an option to purchase a roadway at a
price to be determined by a valuer acting as an expert. The plaintiff exercised
the option on 25 January 1996, and on 15 October 1996, following extensive
representations and counter-representations from the parties’ own valuers, the
expert determined the option price at £130,000 in a non-speaking valuation. The
plaintiff’s valuer had contended that the roadway had a very small value as it
would not be required in connection with any development in the area; the
defendant’s valuer had argued that it had a ransom value of £772,000. In
November 1996 the defendant supplied the plaintiff with a copy of a deed of
grant of a right of way for all purposes in favour of land that the plaintiff
already owned. The plaintiff’s proceedings, claiming a declaration that the
valuer’s determination was a nullity and of no effect, were dismissed in the
court below. The plaintiff appealed submitting that: (1) the valuer
must have used a ransom value approach and proceeded on a wrong principle: RICS
practice statements do not allow the inclusion of the bid of a ‘special
purchaser’; and (2) the valuer had valued the wrong subject-matter because the
roadway that he had valued had limited rights over it, whereas, by reason of
the deed of grant, the plaintiff had unlimited rights of way.
dismissed. (1) RICS practice statements are not mandatory in the type of
valuation the valuer was asked to do; although they allow ‘marriage value’ and
prohibit taking into account the extra bid of a ‘special purchaser’, a clear
dividing line between the two concepts was difficult to see. In any event, one
cannot draw inferences as to the valuer’s reasoning behind a non-speaking
valuation and then seek to attack them. (2) The valuer valued what he was
required to value. Any mistake was due to the formulation in the option
agreement of the task to be undertaken by the valuer.
The following cases are
referred to in this report.
Jones v Sherwood
Computer Services plc [1992] 1 WLR 277; [1992] 2 All ER 170, CA
Northern Electric
v Addison [1997] 2 EGLR 111; [1997] 39 EG 175
Stokes v Cambridge
Corporation (1961) 13 P&CR 77; [1961] EGD 207; 180 EG 839, LT
This was an appeal by the
plaintiff, Morgan Sindall plc, from a decision of Rattee J, who had dismissed
an originating summons issued by the plaintiff seeking declaratory relief, to
which Sawston Farms (Cambs) Ltd was the defendant.
Michael Burton QC (instructed by Titmuss Sainer
Dechert) appeared for the appellant; Kim Lewison QC and Anthony Tanney
(instructed by Beachcroft Stanleys) represented the respondent.
Giving judgment, ROBERT WALKER LJ said: Sawston is a village about seven
miles south of Cambridge. It has spread out towards Cambridge, with extensive
new housing estates and a small business park on the northern perimeter of the
village. Beyond these is an area of undeveloped land known as Deal Grove
Estate. That is a misleadingly impressive name for about 14 ha of undeveloped
and uncultivated land, partly wooded and partly used as a rubbish tip; I shall
call it the Grove land. This appeal is concerned with the valuation of a
roadway leading to the Grove land. It was valued by a surveyor, acting as an
expert and not as an arbitrator, following upon the exercise by Morgan Sindall
plc (Morgan Sindall) of an option to purchase from Sawston Farms (Cambs) Ltd
(Farms).
The option was granted by a written agreement
dated 11 February 1991 between Farms and William Sindalls plc (as Morgan
Sindall was then called). It was exercised by Morgan Sindall by a written
notice dated 25 January 1996. An independent surveyor, Mr AP Harris frics, was appointed (under provisions
to which I will refer shortly) to determine the option price. On 15 October
1996 he issued a written determination fixing the option price at £130,000. It
was a non-speaking valuation. Morgan Sindall and its advisers expressed
surprise at the level of the valuation and asked for some explanation, but Mr
Harris (no doubt prudently) declined to go into the matter further.
On 28 November 1996 the solicitors acting for
Farms disclosed a copy of a deed of grant of a right of way dated 29 May 1975.
This disclosure led Morgan Sindall to issue an originating summons on 13 March
1997, to which Farms was the only defendant, seeking a declaration that Mr
Harris’ determination was a nullity and of no effect. On 11 July 1997 Rattee J
dismissed the originating summons, and Morgan Sindall appeals to this court.
That is the case in bare outline. I must fill in a
good deal of detail in order to show how the issues arise.
Some further description of the situation and
surroundings of the Grove land is necessary in order to understand the issues.
The Grove land is very roughly triangular (although with various
irregularities), the apex of the triangle pointing northwards. The eastern side
of the triangle is marked by a disused railway track, with farmland beyond. The
western side faces towards, but is not contiguous to, the road from the centre
of Sawston to Cambridge, which now carries less traffic because there is a
bypass. Between the western side of the triangle and the Cambridge road is Deal
Farm.
The base of the triangle adjoins a housing
development at its western end. At its eastern end it adjoins Dales Manor
Business Park. Here, the greatest irregularity of boundaries occurs, as the
Marley Tile factory juts out into the Grove land, while the Grove land, in
turn, has two tongues, one on either side of the factory, projecting into the
business park. A private road, about 640m long and 13m wide, runs from the end
of the outer tongue (the easternmost point of the Grove land), following a
serpentine course (with one spur) through the business park until it joins the
public highway at or near Babraham Road, Sawston. This private road, which I
shall call the roadway, is the subject-matter of the valuation dispute.
In the past the roadway has been used for access
to six separate units on the business park and also for access to North Farm,
on the other side of the old railway line. The owners of these properties
(either for freehold or long leasehold interests) have rights of way over the
roadway. So had Morgan Sindall, until its easement came to an end as a result
of its purchase of the servient tenement. Its rights stemmed from the deed of
grant dated 29 May 1975, by which Farms granted in fee simple to Ventress
Property Development Ltd (Morgan Sindall’s predecessor in title to the Grove
land, referred to in the deed as ‘the second land’) the right:
at all times hereafter by day or night to pass
and repass over and along the roadway… with or without vehicles of any
description with or without animals for all purposes connected with the use and
enjoyment of the second land.
The consideration for the grant was £1, coupled
with a covenant to contribute a fair proportion of the cost of repairs.
At the heart of Morgan Sindall’s complaint is the
fact that it learnt of this express grant only after the option had been
exercised and the option price determined. Its case is that it believed that it
had rights of way over the roadway, but only ‘for the current and previous
uses’; the wording is that used in the written counter-representations of Mr
Richard Main frics, the surveyor
acting for Morgan Sindall. Later, it discovered that it had possessed an
unlimited right of way all the time. That is said to be a crucial mistake, and
one of the two grounds on which Mr Harris’ determination should be set aside.
Quite apart from the grounds on which the case was
decided by Rattee J, I have difficulty with the submissions that Mr Michael
Burton QC, for Morgan Sindall, made on this point. A cursory reference to paras
54 and 55 of the article in Halsbury’s Laws of England (4th ed, vol 14)
on easements indicates that even an express grant in wide terms of an easement
of way has to some extent to be construed by reference to the condition of the
dominant tenement at the time of the grant; and that an easement of way created
under section 62(1) of the Law of Property Act 1925 (a more likely origin than
prescription for the right of way that Morgan Sindall supposed itself to have)
operates as if it were an express grant. I am therefore rather sceptical about
the very sharp distinction, urged on behalf of Morgan Sindall, between a
limited and an unlimited right of way. Nevertheless, that seems to have been
the approach adopted at first instance, so far as the point was explored at
all, and so I do not think it right to explore it further in this court.
The main argument in this court, as before the
judge, was concerned with the limited circumstances (Mr Burton vividly
described them as the eye of a needle) in which the court will interfere with a
valuation (and especially a non-speaking valuation) made by an expert to whom
the parties have agreed to refer a decision as to valuation. There are several
well-known cases stating the principles, most of which were cited to the court.
The best summary is perhaps in the judgment of Dillon LJ in Jones v Sherwood
Computer Services plc [1992] 1 WLR 277. The judge cited two passages from
the judgment of Dillon LJ, which bear repetition. At p284B Dillon LJ said:
The cases have been fully analysed by Sir David
Cairns in Baber v Kenwood Manufacturing Co Ltd [1978] 1 Lloyd’s
Rep175, 181-183, and by Nourse J in Burgess v Purchase & Sons
(Farms) Ltd [1983] Ch 216. The starting point for the modern statement of
the law is, in my judgment, the
the passage in the judgment of Lord Denning MR at p407:
‘It is simply the law of contract. If two persons
agree that the price of the property should be fixed by a valuer on whom they
agree, and he gives that valuation honestly and in good faith, they are bound
by it. Even if he has made a mistake they are still bound by it. The reason is
because they have agreed to be bound by it. If there were fraud or collusion,
of course, it would be very different. Fraud or collusion unravels everything.’
That statement was, as a matter of principle and
disregarding the earlier authorities, endorsed by Megaw LJ in Baber’s
case [1978] 1 Lloyd’s Rep 175, 179, and concurred in by the other members of
this court in Baber’s case. It is in line with the passage, cited by Sir
David Cairns in Baber’s case, at p181, from the judgment of Sir John
Strange MR in Belchier v Reynolds (1754) 3 Keny 87, 91:
‘Whatever be the real value is not now to be
considered, for the parties made Harris their judge on that point; they thought
proper to confide in his judgment and skill and must abide by it, unless they
could have made it plainly appear that he had been guilty of some gross fraud
or partiality.’
Geoffrey Lane LJ in Campbell v Edwards [1976]
1 WLR 403, 408 followed and applied an earlier statement by Lord Denning MR to
the same effect in Arenson v Arenson [1973] Ch 346, 363.
Both Campbell v Edwards and Baber
v Kenwood Manufacturing Co Ltd [1978] 1 Lloyd’s Rep 175 were cases
of non-speaking valuations and it is convenient to say a little at this
juncture about the distinction between speaking and non-speaking valuations or
certificates, which to my mind is not a relevant distinction. Even speaking
valuations may say much or little; they may be voluble or taciturn if not
wholly dumb. The real question is whether it is possible to say from all the
evidence which is properly before the court, and not only from the valuation or
certificate itself, what the valuer or certifier has done and why he has done
it. The less evidence there is available, the more difficult it will be for a
party to mount a challenge to the certificate.
At p287A he said:
On principle, the first step must be to see what
the parties have agreed to remit to the expert, this being, as Lord Denning MR
said in Campbell v Edwards [1976] 1 WLR 404, 407G, a matter of
contract. The next step must be to see what the nature of the mistake was, if
there is evidence to show that. If the mistake made was that the expert
departed from his instructions in a material respect — eg, if he valued the
wrong number of shares, or valued shares in the wrong company, or if, as in Jones
(M) v Jones (RR) [1971] 1 WLR 840, the expert had valued machinery
himself whereas his instructions were to an employ an expert valuer of his
choice to do that — either party would be able to say that the certificate was
not binding because the expert had not done what he was appointed to do.
In order to see what the parties agreed to ask the
expert to do in this case it is necessary to look more closely at the option
agreement dated 11 February 1991. For the consideration of £1, Farms granted
Morgan Sindall the option to purchase ‘the Property’ (as defined) at ‘the
Option Price’ (as defined), the option being exercisable by notice during the
next five years. The all-important definitions were as follows. The property
was defined in the schedule as:
all that strip of land forming or intended to form an access road to
Sindalls Deal Grove Estate shown on the plan annexed and coloured green except
and reserving to [Farms] and all others authorised by [Farms] at all such times
as the land may not form part of the highway adopted under the Highways Act a
right of way at all times and for all purposes for use in connection with the
adjoining or adjacent property of [Farms].
The option price was defined in clause 5.2 as:
such sum as represents a fair and reasonable
price for the Property at the date of the Option Notice assuming that the
Property was offered on the open market for sale by a willing seller to a
willing purchaser.
If, after service of the notice exercising the
option, the parties could not agree on the amount of the option price, the
matter was to be referred to a valuer nominated by the president of the Royal
Institution of Chartered Surveyors, to act as an expert and not as an arbitrator.
The parties could not agree and Mr Harris was appointed.
Both parties’ surveyors, Mr Main, for Morgan
Sindall, and Mr Keith Moore frics,
for Farms, then submitted to Mr Harris written representations (and, in Mr
Main’s case, counter-representations) with voluminous annexes covering town and
country planning, comparables and so on. All that material was put in evidence
before the judge (not by Morgan Sindall, which relied on a commendably brief
affidavit by Mr Keith Conway, of Titmuss Sainer Dechert, but, to my mind rather
surprisingly, by Farms).
In his representations Mr Main submitted that the
roadway was worth a peppercorn or, alternatively, had a negative value of
£10,000. He said in para 31 of his counter-representations, to which I have
already made passing reference:
If Deal Grove was redeveloped in the long term
however, it is clear that access would have to be via a relief road which will
require the acquisition of the adjoining Deal Farm owned by Mr RD January to
give access to Cambridge Road. Deal Grove would not be developed with access
via the Property and it is therefore irrelevant whether rights of way over the
Property exist in its favour over the Property or not. For the avoidance of
doubt however, the Purchaser considers that rights do exist for the current and
previous uses.
Mr Moore submitted that the roadway should be
valued at £772,000. He reached that remarkable total as the aggregate of:
|
(A) |
the area of the |
£390,075 |
|
(B) |
an assumed value of |
£161,880 |
|
(C) |
50% of the discounted |
£219,712 |
|
|
say |
£772,000 |
Mr Moore had sought to justify element (C) above
by reference to the prospect of development of all or part of the Grove land.
He referred in para 31 of his representations to ‘a potential ‘ransom strip’
situation’. That was what Mr Main was replying to in para 31 of his counter-representations.
Mr Harris’ determination was, as I have already
noted, a non-speaking valuation. But Mr Burton sought to explain Mr Harris’
oracular pronouncement. He referred the court to the well known decision of the
Lands Tribunal in Stokes v Cambridge Corporation (1961) 13
P&CR 77, in which one-third of the development value was taken (as a
principle of valuation, not law) as an appropriate test. He pointed out that
the sum of £2.712m, if discounted and then divided by three (rather than by
two), comes to approximately £146,475. That sum is, Mr Burton submitted, so
close to £130,000 that it cannot be coincidence, and it demonstrates that Mr
Harris must have proceeded on a wrong principle. He must have assumed, Mr
Burton submitted, that it was a ‘ransom strip’ situation, and so failed to
carry out his instructions to make an open market valuation as between a
willing seller and a willing purchaser. Reference was made to practice
statements issued by the RICS to its members.
I do not derive much assistance from the practice
statements, not only because their use in this type of valuation is not
mandatory but also because I find it singularly difficult to see a clear
dividing line between a valuer taking account of the release of ‘marriage
value’, which the relevant practice statement permits, and his taking account
of an extra bid from a ‘special purchaser’, which it prohibits. I can readily
accept that a notional vendor or lessor who ruthlessly exploits a purchaser’s
or tenant’s problems (as the landlord of the electricity substation tried to do
in Northern Electric v Addison [1997] 2 EGLR 111) must be
disregarded because he would not be a willing vendor or lessor.
However, the fundamental objection to this part of
Mr Burton’s case, which was not put forward before the judge, is that it is
seeking, by a process of inference, to turn a non-speaking valuation into a
reasoned valuation and then to attack the reasons. On the facts of this case
the materials on which the inference is to be based are very tenuous. Indeed,
were it not for Mr Burton’s skilful advocacy I would have said that the point
was quite unarguable. Even if the materials had been more substantial and the
process of inference less speculative, the court should, in my view, turn its
face against that sort of argument, except in wholly exceptional circumstances.
The whole point of
achieve certainty by a quick and reasonably inexpensive process. Such a
valuation is almost invariably a non-speaking valuation, with the expert’s
reasoning and calculations concealed behind the curtain. The court should give
no encouragement to any attempt to infer, from ambiguous shadows and murmurs,
what is happening behind the curtain.
I must now return to the point that was relied on
before the judge, that is the difference between the limited right of way over
the roadway that Morgan Sindall supposed itself to have until it acquired the
freehold of the roadway itself, and the unlimited right of way (assuming it to
be such) granted by the deed of 29 May 1975.
Before the judge, counsel then appearing for
Morgan Sindall argued that the roadway subject to an unlimited right of way
already enjoyed by Morgan Sindall was something different from the roadway
subject to a limited right, and that Mr Harris had therefore valued the wrong
subject-matter. The judge rejected that argument. Echoing Dillon LJ in Jones
v Sherwood Computer Services plc [1992] 1 WLR 277 at p287, he asked
himself what the parties had agreed to remit to the expert for valuation. That
was the roadway, ‘the property’ as defined in the schedule to the option
agreement. He accepted the submissions of counsel for Farms that:
there is no evidence before the court to suggest
that that is not precisely what the valuer did value. Any mistake that may have
been made was as to the attributes of the land that was being valued and not
the identity of the land. Indeed, it is perfectly plain that there is no
evidence to suggest that the valuer himself made any mistake at all. So far as
the evidence goes he valued the land in accordance with his instructions. Any
mistake that may have been made was not in the valuation but in the formulation
by the option agreement of the task which was to be undertaken by the valuer.
In my judgment, the judge was entirely correct in
accepting those submissions and dismissing the originating summons. I do feel
some measure of sympathy for Morgan Sindall because, from what I have seen of the
papers, the price fixed by Mr Harris for a stretch of roadway over which it
already had some rights, and which might not, by itself, hold the key to any
eventual development of the Grove land, seems distinctly steep. But that is
always a possible consequence of deciding to take and exercise an option in
this form.
Since this court has heard argument on the basis
of the draft amended notice of appeal and, since it is largely concerned with
possible inferences from material that was before the judge, I would grant
leave for amendment of the notice of appeal. But I would dismiss this appeal
both on the ground argued before the judge and on the new ground raised in the
amended notice.
TUCKEY and HUTCHISON LJJ
agreed and did not add anything.
Appeal dismissed.
