Civil liability – Third-party proceedings – Contribution – Valuer fraudulently overstating value of security for loans – Claimant obtaining judgment in deceit – Solicitor accepting liability for negligence — Solicitor claiming contribution from valuer – Whether valuer liable for “same damage” – Claim allowed
In 2005, CBS made two advances of £10.5m and £1m to G on security of commercial property that G was to purchase. The first defendant property had valued the property. One of its directors (M) fraudulently overstated the value of the security, claiming that it was worth £16m, assuming that the three favourable occupational leases into which G was about to enter were completed. Without the leases, he valued the property at £10.5m. Both valuations were grossly excessive, the true value being around £1.3-1.5m.
In 2007, CBS brought proceedings, alleging fraud against the first defendant and negligence against the solicitor that had acted on behalf of CBS in respect of the two loans (the second defendant). Both defendants filed defences. The first defendant admitted breach of duty and causation, but did not admit deceit. The second defendant served a contribution notice on the first defendant. The High Court gave CBS summary judgment in deceit against the first defendant with damages to be assessed: see [2007] EWHC 1374 (Comm); [2007] PLSCS 181. The judge ordered it to make interim payments on account of damages and costs. However, the first defendant, which was then in liquidation, failed to make any payment and a winding-up order was made against it.
The claim against the second defendant progressed. CBS accepted an offer under CPR 36 of £5,585,001 and £555,000 in respect of costs and its claim against the second defendant ended. CBS obtained an order in the insolvency proceedings allowing it to continue its action against the first defendant for the final assessment of damages and an equivalent order in respect of its contribution claim against the first defendant. Since the events in question, CBS had merged with NBS, which took its place as claimant in the action.
In the proceedings to assess damages payable to the claimant, the second defendant brought a claim under CPR 20 against the first defendant for a contribution pursuant to section 1 of the Civil Liability (Contribution) Act 1978.
Held: The claim was allowed.
The claimant was entitled to recover losses flowing from its reliance upon the first defendant’s fraudulent statement as to the value of the property, including consequential losses and loss of profits, to put it in the position in which it would have been had the statement not been made. The claimant’s losses must have been caused by the fraudulent statement but they were not required to be foreseeable. The first defendant could not use the defence of contributory negligence since the action had been brought in deceit. The claimant was entitled to judgment against the first defendant for £15,464,106.
Since the second defendant had settled with the claimant, it was not necessary to decide the amount for which it would have been liable for the purposes of any judgment against it. However it was necessary to do so for the purposes of the contribution claim. Accordingly, the amount for which the second defendant would have been responsible subject to the claimant’s contributory negligence and contractual limitation was £13,200,179.
The second defendant was entitled to recover contribution from the first defendant, within section 1(1) of the 1978 Act, where it was liable in respect of the “same damage”. The amount of contribution recoverable was the sum that the court found to be just and equitable having regard to the extent of the first defendant’s responsibility for the damage in question within section 2(1).
The “same damage” in section 1(1) meant the damage suffered by another party for which both the party that sought contribution and the party from whom contribution was sought were liable. Therefore, the court had to examine the nature and extent of the defendants’ common liability when determining whether they were liable for the same damage: Royal Brompton Hospital NHS Trust v Hammond (No 3) [2002] UKHL 14; [2002] 1 WLR 1397 considered.
When assessing the damage for which parties were liable under sections 1(1) and 2(1) of the 1978 Act, the court could distinguish between one category of economic loss, such as loss that was not reasonably foreseeable and that was recoverable only because one party had behaved fraudulently, and the foreseeable loss for which both parties were liable. Accordingly, the same damages for which the defendants were responsible was the total sum of damages less the amount that was payable in respect of the first defendant’s deceit, namely £13,200,179.
Although, prima facie, that was the figure to be apportioned, it had to be reduced in accordance with section 2(3) of the 1978 Act to reflect the contributory negligence of the claimant, which would have been deducted had the case gone to trial. It was neither just nor equitable that the amount of the contribution that the second defendant ought to take should be assessed by treating the damage for which both defendants were responsible as the totality of the claimant’s loss, ignoring contributory negligence, when the only reason for ignoring it was that the claim against the first defendant was in deceit. In the circumstances, a reduction of 50% would properly reflect the claimant’s contributory negligence.
With regard to the proportion in which the two defendants should contribute, the moral blameworthiness of the first defendant and the causative potency of the fraud of its agent were greater than that of the second defendant and the relative proportions should be 80%:20%. Therefore, the second defendant was entitled to a contribution of £4,264,983 from the first defendant.
Furthermore, the second defendant was entitled to a contribution from the first defendant towards the costs that it had paid to the claimant in the same percentage since section 2 of the 1978 Act did not preclude the making of a contribution order in respect of costs.
Benjamin Elkington (instructed by Addleshaw Goddard LLP, of Manchester) appeared for the claimant; William Flenley (instructed by Barlow Lyde & Gilbert LLP) appeared for the second defendant; The first defendant did not appear and was not represented.
Eileen O’Grady, barrister
