Valuation – Deceit – Damages – Claimant seeking damages for deceit against defendant in respect of rental valuations – Whether claimant establishing mental element required in tort of deceit – Whether claimant entitled to rely on original valuations – Claim allowed in part
Between December 2004 and June 2005, a surveyor employed by the defendant provided valuation reports for 64 properties which were mostly two-bedroom new-build flats located at a new marina development at Macquarie Quay, Sovereign Harbour, Eastbourne. In respect of all 64 properties, the surveyor gave rental valuations of between £1,300 and £1,540 pcm. The opinion of both valuation experts separately instructed by the claimant and the defendant was that the overall range of retrospective rental valuations was in fact between £600 and £750 pcm. That valuation was subsequently admitted by the defendant.
On 19 July 2005, the defendant sent an email to the claimant stating that it was concerned that the original rental valuations had been overstated and asking for the opportunity to review its advice before any further lending decisions were made. On 25 August 2005, the defendant provided revised rentals in respect of 21 properties which were on average only 50% of the valuations originally provided.
The claimant claimed that it had advanced monies between May and December 2005 to borrowers in reliance on the original valuations. It contended that the loans would not have been made if it had known the true rental valuations. The claimant said that it had lost more than £3.3 million as a result of lending against the security of 41 of the flats. It contended that it could recover that sum by way of damages for deceit. There was no allegation of negligence or other breach of duty.
Held: The claim was allowed in part.
(1) The test for dishonesty in dishonest assistance cases had no application in assessing honest belief in a deceit case. A statement honestly believed to be true, however implausible, was not capable of amounting to fraud. It was not enough for the representor to assert in evidence that he honestly believed the truth of his representation. The court had to assess the credibility of that evidence in the context in which it was given before accepting what the representor said at face value. If the evidence was incredible, the necessary mental state would be established. The burden of proof was on the claimant to establish that the surveyor was fraudulent on the balance of probabilities: Derry v Peek (1889) 14 App Cas 337, Royal Brunei Airlines v Tan [1995] 2 AC 378, Kriti Palm [2006] EWCA Civ 1601 and Dadourian Group International v Simmons [2009] 1 Lloyd’s Rep 601 considered.
In the absence of an admission, the case against the defendant was based on inference. On the evidence, the court was satisfied on the balance of probabilities that the surveyor had no honest belief in the £1,540 rental figure in the valuations. The surveyor was at the very least reckless in the sense that he did not care whether it was true or false. Accordingly, he had the mental element required in the tort of deceit in respect of the valuations which were the subject of the claim.
(2) It was not a defence to an action for deceit that the person to whom the representation was made might with reasonable diligence have discovered that it was untrue. The relevant date when reliance/inducement had to be established was the date of completion of the loan. The claimant might well have relied on the rental valuation when they made the mortgage offer. However it was common ground that the offer could be withdrawn at any time up to completion and accordingly that was the relevant date. The crucial question was whether the correspondence between 19 July and 25 August 2005 had the effect of withdrawing or modifying the representations made by the surveyor so that they did not inure to the date of completion. Each case depended on its own facts. However, the burden of establishing a correction or withdrawal rested on the person making the correction which had to be sufficiently clear in all the circumstances of the case. Where, as here, the correction was made in written documents the court was required to consider the meaning which was reasonably (i.e. objectively) conveyed to the representee by the documents. That test had to be applied in the context of the particular facts of the case. Thus, the court applied an objective test, but took into account all the factual matrix of the particular transaction, including the particular features of the person to whom the statement was made. It was also relevant that the claimant was a high volume commercial lender acting under tight timetables. It was common ground that negligence on the part of the claimant did not prevent the claimant from being induced by the original deceitful representations: Redgrave v Hurd (1881) 20 ChD 1, Arnison v Smith (1889) 41 ChD 348, Briess v Woolley [1954] AC 333, Abu Dhabi Investment Company v H Clarkson [2007] EWHC 1267 and Cramaso LLP v Ogilvie-Grant [2014] AC 1093; [2014] PLSCS 49 considered.
On the evidence, in respect of 39 of the 41 properties, the claimant had relied on the original valuations in making the loans. As regards the other two properties, those valuations did not have a continuing effect and could not have induced the claimant to make the loans or given rise to a remedy in damages.
Paul Lowenstein QC and Charlotte Eborall (instructed by Walker Morris LLP) appeared for the claimant; Michael Douglas QC (instructed by DAC Beachcroft LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read transcript: Mortgage Express v Countrywide Surveyors
