Mr RICHARD SNOWDEN QC:
Introduction
1. This is a claim for negligence which is brought by the purchaser of a flat in a buy-to-let transaction against the surveyors instructed by the mortgage lender.
2. The case is unusual because the surveyors contend that the claimant fraudulently overstated the purchase price for the property in his application to the mortgage lender. However, they also contend that their valuation of the property at that overstated price was not negligent. The claimant says that he did not act fraudulently, and that he is entitled to claim against the defendant for negligently overvaluing the property.
3. The case concerns a development of new residential flats by a company known as Linden Homes South-East Limited (“Linden Homes”). In 2001 Linden Homes began the construction of a new three-storey building containing 18 residential flats and underground car-parking at
4. In 2002 the Claimant (“Mr. Scullion”) agreed to buy Flat 17, which was a two-bedroom front-facing flat on the second floor of the block with a gross external floor area of about 91 square metres. Mr. Scullion intended to let it out and to use the rents received to meet the payments on the loan which he obtained to finance the purchase.
5. Mr. Scullion made his application for the finance to acquire Flat 17 from a specialist buy-to-let mortgage provider in the group headed by Mortgages plc. Although various different group companies seem to have been involved in the application and provision of funds I shall refer to all such companies simply as “Mortgages plc”. Mr. Scullion’s application form stated that the purchase price/estimated value was £352,950 and that he was applying for an 80% mortgage of £283,000.
6. A well-known property surveying and valuation business, which traded under the name “Colleys”, was instructed to provide a valuation report for Mortgages plc of the capital value of Flat 17 and the anticipated level of rental that could be achieved. The surveyor responsible for the valuation was Mr. Andrew Collins (“Mr. Collins”). At the time, Colleys was part of the Halifax plc group. Bank of Scotland plc was substituted for Halifax plc as the defendant in these proceedings following the transfer of the undertaking of Halifax plc to Bank of Scotland plc with effect from 17 September 2007. For simplicity, I shall simply refer to the Defendant as “Colleys”.
7. Mr. Collins assessed the open market value of Flat 17 as being the price that he thought Mr. Scullion was going to pay for the flat, namely £353,000, and the rental that it might achieve as £2,000 per calendar month (“pcm”). A rental at that level would have been sufficient to service the monthly mortgage payments of about £1,440 pan.
8. However, when contracts came to be exchanged, Linden Homes gave the purchaser a “gifted deposit” of 15% of the purchase price, and payment of a further 10% of the purchase price was deferred for one year. On completion, therefore, only £264,712.50 was due with a further payment of £35,295 due in one year, giving a total consideration of only £300,007.50.
9. After completion, Mr. Scullion was only able to let Flat 17 for about one-half of the monthly rental which Colleys had predicted. He raised the finance to pay a substantial proportion of the deferred payment in 2003 in final settlement of his liability to Linden Homes. Mr. Scullion then put the flat on the market. Although an expression of interest was received at £322,500 in 2004, that sale fell through and the property was eventually sold in May 2006 for only £270,000.
10. Although Colleys produced their report for the mortgage lender, Mr. Scullion contends that Colleys owed him a duty of care and that they negligently overvalued Flat 17 and the rental value which it could achieve. Mr. Scullion claims that at the time he bought Flat 17, it was only worth about £250,000. He claims the losses which he suffered on his investment as damages.
11. Colleys deny liability on a number of grounds. First they deny that they owed any duty of care to Mr. Scullion (either because no duty arose or because it had been excluded by a disclaimer in the mortgage application form). Secondly, Colleys contend that Mr. Scullion made fraudulent representations as to the price to the mortgage lender and that they are therefore entitled to raise the defence of ex turpi causa to defeat his claim. Thirdly, Colleys deny that Mr. Scullion actually relied upon their valuation. Fourthly Colleys deny that their valuation of Flat 17 was in fact negligent. And finally Colleys dispute the quantum of the losses claimed by Mr. Scullion and raise the issue of contributory negligence.
Background
12. The factual background to the case is complex and the history of the parties’ involvement with the development at
13. Colleys’ contact with
14. Mr. Noble, who appeared for Mr. Scullion, suggested that when Mr. Collins subsequently valued Flat 17 in connection with the proposed purchase by Mr. Scullion he would have felt under some pressure to ensure that his valuation was consistent with his earlier appraisal. Mr. Collins response was not an outright denial, but an assertion that the figures in his appraisal would have been subject to the caveat that the market might change and that they would have to be supported by actual sales and a final inspection.
15. Mr. Noble also sought to establish that Mr. Collins might have been influenced by the knowledge that Bank of Scotland, which at the time had announced it was to merge with Halifax plc, was financing the development by Linden Homes. Mr. Noble produced a company search showing that at the relevant time Bank of Scotland acted as security trustee on behalf of a number of lenders and held a fixed and floating charge over the entire undertaking, property and assets of Linden Homes. Whilst the document is consistent with Bank of Scotland being a financier of the
16. In any event, Mr. Collins’ evidence was that he was not aware that Bank of Scotland was financing the development or that it had any direct interest in the prices obtained for the sale of flats at
17. Whatever the true position as to the appraisal and the financing of Linden Homes, I do not think that the evidence establishes Mr. Noble’s contentions or justifies me in rejecting Mr. Collins’ evidence on this point. Accordingly, I proceed on the basis that when Mr. Collins was instructed to value some of the flats at Fieldgate Court in 2002, he did so without any predisposition to arrive at any particular result and unaffected by any concern for the commercial interests of Bank of Scotland.
18. Mr. Scullion first heard of
19. Although Turning Point’s business was organising seminars, it did have contacts with a number of firms in the property market. At the seminar Mr. Scullion was introduced to a Ms. Moira Lynch from a firm of mortgage brokers called JR Residential & Commercial Mortgages Limited (“JR Residential”) and a Mr. Kieran Connolly of a company called Quick Sell Estates Ltd. (“Quick Sell”), who said that his business was locating properties for investment purposes.
20. In about April 2002 Mr. Churchill and Ms. Dowling incorporated a second company called Portfolios of Distinction Limited (“POD”) in order to offer services finding properties for investment purposes for its clients, in return for payment of a fee. At some point Mr. Connolly and Quick Sell were recruited to assist in this enterprise.
21. The precise basis of the relationship between Mr. Connolly and POD is unclear, but some impression of the operations of Turning Point, POD and Quick Sell can be gathered from the judgment in Re Portfolios of Distinction [2006] 2 BCLC 261. In 2005, following an investigation, the Secretary of State for Trade and Industry presented winding-up petitions in the public interest against Turning Point and POD. The thrust of the allegations made by the Secretary of State was that the businesses of Turning Point and POD were fraudulent in that they obtained fees from clients in return for false and misleading promises to procure substantial property portfolios for their clients. In the event, although the Judge held that criticisms could be made of the material produced by POD, he did not consider that these were sufficiently significant to justify the sanction of winding up and the petitions were dismissed.
22. The development at
23. In Mr. Scullion’s case the involvement of POD became apparent when Mr. Connolly sent him details of the development at
24. Ms. Lynch of JR Residential was also involved: at the end of May 2002 she gave instructions to Colleys to produce valuations of ten of the flats at
25. Prior to visiting
26. Mr. Collins visited
27. The sales representative also marked with a cross eight flats which she said had been sold. Three of these were the flats which Mr. Collins’ colleague had previously valued (Flats 2, 7 and 15). The sales representative annotated the brochure with what she said were actual sale prices for three of the other flats, namely Flat 3 (£365,000), Flat 4 (£375,000), and Flat 6 (£370,000). Mr. Collins’ evidence was that he accepted what he was told as to the sale prices at face value. Mr. Collins did not inquire as to the sale prices for the remaining two flats that had been sold (Flats 9 and 11).
28. Also on 7 June 2002 Mr. Connolly took Mr. Scullion to see Mr. Churchill of POD at his home in
29. Mr. Scullion was persuaded and agreed to become a client of POD at the meeting. He signed a contract with POD and made a down-payment of £10,000 towards POD’s fee. Mr. Scullion’s first contract with POD was replaced by a second contract which was signed on 15 July 2002 and contained the following terms:
“1. Portfolios of Distinction agrees to acquire on behalf of the client a mixed property portfolio of value in excess of 1 (one) million pounds within the 12 month period of contract date, covering the
2. The client agrees to pay the fee of £24,950.00 + VAT to Portfolios of Distinction
4. It is a stipulation that the client must use Portfolios of Distinction as property management agents and each property acquired will require a separate agreement to be signed (Agreement attached herewith).
5. The Company will propose each purchase to the client with a full appraisal sheet showing purchase costs and expected rental returns.
6. The client may withhold consent to purchase any property which Portfolios of Distinction advises upon. Continued withholding of consent to purchase will deem this contract to be fulfilled by Portfolios of Distinction.
7. All properties purchased on behalf of clients will be on a *deposit free basis. Each property will incur approximately 3.5%-6% purchase costs, which will include search and acquisition fees for Portfolios of Distinction
*Some up-market properties may require a 5% deposit to be paid. In addition some properties acquired for clients will come with equity on the day of completion thereby balancing overall acquisition costs.”
30. After the meeting with Mr. Churchill on 7 June 2002, Mr. Scullion heard nothing more about the flat at
31. At Mr. Connolly’s request, Mr. Scullion then rang Ms. Lynch of JR Residential and she sent him some forms which included a mortgage application form for a loan from BOS. Mr. Scullion completed the application and returned it to her. Mr. Scullion also gave evidence that at this time he sent money to JR Residential to pay for a valuation of the property which he was planning to buy at
32. On 20 June 2002 Mr. Collins issued his valuation reports of the flats which he had been asked by JR Residential to value for BOS. The valuation reports were in the form of a letter addressed to BOS and followed the same template. They all contained a disclaimer of liability to any third party. Mr. Collins’ valuations were in each case within £50 of the asking price quoted to him by Linden Homes’ sales representative. In the case of Flat 17, Mr. Collins had been told that the asking price was £352,950 and his valuation report (“the BOS Valuation”) assessed the open market value of the property as £353,000. Mr. Collins assessed the achievable rental of Flat 17 as £2,000 pcm.
33. ‘The BOS Valuation of Flat 17 stated that in arriving at the valuation, six comparable sales had been used. ‘These were all sales of other flats within
i) Flat 2, two bedroom ground floor flat with a gross external area of 89 square metres, sold for £320,000.
ii) Flat 3, two bedroom ground floor flat with a gross external area of 101 square metres, sold for £365,000.
iii) Flat 4, two bedroom first floor flat with a gross external area of 106 square metres, sold for £375,000.
iv) Flat 6, two bedroom first floor flat with a gross external area of 98 square metres, sold for £390,000.
v) Flat 15, two bedroom first floor flat with a gross external area of 90 square metres, sold for £305,000.
vi) Flat 7, two bedroom second floor flat with a gross external area of 91 square metres, sold for £315,000.
It should be noted that the BOS Valuation gave the sale price for Flat 6 as £390,000 rather than the figure of £370,000 which the sales representative of Linden Homes had given to Mr. Collins. In evidence Mr. Collins confirmed that he had been told that the sale price for Flat 6 was £370,000. He said that the figure of £390,000 was a typographical error.
34. The BOS Valuation also stated that in arriving at the rental value achievable, three comparables had been used. These were as follows:-
i) Warbeck House, Old Avenue, Weybridge — 3 bedroom first floor flat. £2,250 pcm.
ii) Jacaranda House, Weybridge — 3 bedroom second floor flat. £2,300 pcm.
iii) Carrigshaun, Old Avenue, Weybridge — 3 bedroom first floor flat. £2,500 pcm.
35. Although Mr. Scullion’s first witness statement suggested that he had seen the BOS Valuation at the time, I think that it became clear during his cross-examination that he had not seen that document. Mr. Scullion recalled having seen a valuation report or reports in a different format which he described as “tick-box” rather than in the letter format of the BOS Valuation. Mr. Scullion’s unfamiliarity with the BOS Valuation is also consistent with the fact that his initial interest was not in Flat 17 but in another flat; and also because Mr. Scullion never in fact received a mortgage offer from BOS that might have been accompanied by a copy of the report. Mr. Scullion understood that BOS was unwilling to provide him with a loan because was not himself an owner/occupier but was living in rented accommodation, and possibly also because of concerns over the finances of his business.
36. In early July 2002, Mr. Scullion was contacted by Mr. Connolly who told him that the delays with obtaining a mortgage from BOS had meant that he had lost the original flat at
37. Mr. Scullion’s oral evidence was that Mr. Connolly told him that the price for this second flat would be about £350,000 and that 10% of the price would be deferred for a year as previously envisaged. Mr. Scullion said that Mr. Connolly had also told him that he would have to pay a deposit of 5% of the price from his own savings, and that POD was trying to negotiate a discount of up to 10% of the total price with Linden Homes. In evidence, Mr. Scullion said that he was unclear about precisely how POD were seeking to obtain a discount or pass that on to him, that Mr. Connolly never clearly explained how the discount would work, and that he never gave any precise figures.
38. During July and August 2002, Mr. Collins was asked to “retype” his valuation of Flat 17 on a number of occasions. A “retype” instruction is usually given where a surveyor has valued the property for one mortgage company, and then the purchaser seeks an offer from a second mortgage company which is prepared to rely upon the inspection and report originally carried out for the first company. As its name suggests, the “retype” simply involves the details from the first report being retyped into the form required by the second mortgage company. The fee charged by the surveyor for a “retype” is correspondingly lower than for the first valuation.
39. According to the dates of the documents, Mr. Collins’ first retype was a “Buy to Let Report and Valuation” for Mortgages plc dated 10 July 2002 which named Mr. Scullion as the buyer of Flat 17. ‘The same assessments of £353,000 for the open market value and £2,000 pcm for the rental obtainable were given as in the BOS Valuation. However, unlike the BOS Valuation which had included six comparables, the Mortgages plc form referred only to three sales at
40. Mr. Collins’ second retype was on a Preferred Mortgages plc form on 16 August 2002 in response to a request from JR Residential of the previous day which named Mr. Scullion as the proposed buyer and stated that he was buying to let for investment purposes. The same open market value and rental value were given and the retype form referred to the same three comparables as the earlier retype.
41. On 28 August 2002, Mr. Scullion was contacted by Ms. Dowling of POD who told him that POD was changing mortgage brokers from JR Residential to a Mr. Vince Garvin (“Mr. Garvin”) of Affinity Mortgage & Loan (“Affinity”) and that it was changing solicitors to Messrs. Kings of Hitchin (“Kings”). Ms. Dowling asked Mr. Scullion to contact Mr. Garvin immediately. This Mr. Scullion did, with the result that Mr. Garvin came to see him personally at home the next day with an application form for a “Bond to Let” mortgage which was a product designed for buy-to-let purchasers (“the Application Form”).
42. Mr. Scullion’s evidence was that Mr. Garvin seemed to be in quite a hurry to get the Application Form completed. In his oral evidence Mr. Scullion said that he did not know why, but in his written statement he indicated that he was aware that there was some urgency if POD was not to lose the discount negotiated with Linden Homes. Mr. Scullion said that Mr. Garvin had pre-completed some details and that he sat across a table and filled in the rest of the form from information which Mr. Scullion gave him. Mr. Scullion said that he signed the Application Form without reading it and that he did not check whether the information that Mr. Garvin had put into the form was accurate or not. After Mr. Scullion had signed the form, Mr. Garvin faxed the Application Form from Mr. Scullion’s fax machine and apparently got a positive response back (it is not clear who from) stating that the mortgage had been approved in principle.
43. Mr. Leech, who appeared for Colleys, suggested that there were several statements in the Application Form which were untrue. First, under Mr. Scullion’s address and in the box entitled “Current residential status”
44. Secondly, in the box entitled “Purchase price/Estimated Value” a figure of £352,950 was given and the “Total loan required” was given as £282,360. Mr. Leech says that this statement of the purchase price was untrue, because it failed to disclose that Mr. Scullion anticipated that he would be getting a discount. Mr. Scullion’s evidence was that he did not provide those numbers, that Mr. Garvin must have got them from POD, and that at the time he (Mr. Scullion) did not know for sure whether a discount would be obtained by POD, or if so, for how much.
45. Mr. Leech also drew attention to the fact that in response to the question on the form “Have you ever been refused a mortgage on this or any other property to be mortgaged or have you any other mortgage applications pending with any other lender(s)?” the box marked “No” was ticked. Mr. Leech pointed out to Mr. Scullion that his earlier application to BOS had been unsuccessful. Mr. Scullion’s response was that he did not think that he had actually been refused a mortgage, but rather that BOS had not made him an offer of a mortgage.
46. On the last page of the Application Form, occupying half of the page and ending immediately above the place for signature, there were 23 numbered clauses purporting to be statements by the applicant and commencing with the words “I/We declare and undertake”. They were in very small type and only just legible on the photocopy with which I was provided. They included the following,
“1. Information given in this application is a true and complete statement….
2. I/We authorise the Lender to instruct a qualified valuer to carry out a valuation of the property upon receipt of this application at my/our cost. I/We understand that payment of a valuation fee will not bind the Lender to grant any advance.
….
5. Neither the Lender nor qualified valuers who are to be instructed are under any liability either on the basis of negligence or any other basis whatsoever to me/us as purchasers in respect of the value or the state or condition of the property.
The inspection of the property will be carried out on behalf of the Lender and will not include a detailed survey of the structure unless specifically requested. I/We understand that the lender are not the agents of the valuers and that I/we understand the Lender nor the valuer will warrant, represent or give any assurance to me/us that the statements conclusions and opinions expressed or implied in the report and mortgage valuation are accurate or valid and that the report will be supplied without any acceptance of responsibility on their part to me/us.”
Mr. Scullion’s evidence was that he did not read these declarations and undertakings before signing the Application Form. However, when he was asked to read them whilst giving evidence, Mr. Scullion accepted that he understood what they meant.
47. At some point after he had signed it, Mr. Scullion was sent a copy of the Application
Form by Mr. Garvin. When he saw it, Mr. Scullion noticed that he had been misdescribed as the owner of the property at which he was living. Mr. Scullion contacted Mr. Garvin to point this out and to give him details of his landlord and monthly rental payments. Mr. Garvin told Mr. Scullion that this would not affect the offer that he would be receiving. It appears that Mr. Garvin must have contacted Mortgages plc with this information, because the copy of the application form which was in the possession of Mortgages plc had been amended to include the information given to Mr. Garvin by Mr. Scullion.
48. On 29 August 2002, having obtained Mr. Scullion’s Application Form, Mr. Garvin contacted Mr. Collins by telephone and then sent him a written request and payment for what he described as “retypes” for Mortgages plc of four valuations of Flats 6, 8, 16 and 17 at Fieldgate Court. The written request listed the purchasers and purchase prices for each property, together with the “rental coverage” which was the minimum rent required to fulfil the requirements of the mortgage lender so as to exceed by a margin the mortgage instalments. Two of the flats mentioned are of particular importance:
i) In relation to Flat 6, the prospective purchaser was given as Mr. Tom Hunter who was the principal of “Acquisition Investment Consulting” and was associated with POD. The purchase price was given as £378,950 and the rental coverage was £1,750 pcm.
ii) In relation to Flat 17, the prospective purchaser was given as Mr. Scullion, the purchase price was given as £352,950 and the rental coverage was £1,600 pcm.
49. At the beginning of September 2002 Mr. Collins signed valuations as requested on a
form provided by Mortgages plc. The valuation report in relation to Flat 17 (“the Valuation Report”) identified Mr. Scullion as the applicant for the mortgage. The date of inspection of Flat 17 was given as 7 June 2002 and, as before, the open market value was assessed at £353,000 and the rental value was assessed at £2,000 pcm.
50. In the Valuation Report, Mr. Collins relied upon three comparables. As before, these were Flats 2, 4 and
51. The Valuation Report was signed by Mr. Collins and a colleague and dated 3 September 2002. In the signature box, headed “Declaration to the company”, Colleys gave a number of printed confirmations to Mortgages plc. These included an acknowledgement that Mortgages plc would not be liable for any fees or disbursements in connection with the Report, and that Colleys would be looking to the person giving the instructions for payment of their fees. The Valuation Report also included an express acknowledgement of a duty of care to Mortgages plc in relation to the report but did not seek to exclude a duty of care or liability to any other person who might be given a copy of the report.
52. Mr. Collin’s evidence was that although he would not have expected the BOS Valuation to be shown to any borrower, he would have expected the Valuation Report to be shown to the proposed borrower. As I have indicated, that borrower had been identified to Mr. Collins as Mr. Scullion.
53. On 3 September 2002 contracts were conditionally exchanged for the sale and purchase of Flat 17 by solicitors acting for Linden Homes and by Kings. In the contract, the purchaser was identified as POD/Turning Point. The purchase price was stated to be £352,950 plus £4,000 for carpets and fireplace. However, the contract also contained two clauses which were added by a rider and which provided as follows:
“25. The sale to the Purchaser shall include the following provided that the exchange of contracts take place by the exchange deadline notified to the Purchaser’s solicitors separately: a 15% gifted deposit.
26. The Purchaser will on completion enter into a delayed payment agreement with the Seller and will secure the sums due under that agreement by the grant of a charge in favour of the Seller in the sum of 10% of the purchase price plus £4000.”
54. As I have already indicated at the start of this judgment, although the headline purchase price specified in the contract was £352,950, the reality was that as a result of the “gifted deposit” of 15%, the total consideration payable for Flat 17 was only £300,007.50.
55. The contract stated that the completion date was to be 30 September 2002, but there was a further condition which provided that the agreement for sale was to be conditional upon the purchaser obtaining a mortgage offer for not less than £283,000 by 13 September 2002, stating that,
“If the Purchaser shall not have received an offer of mortgage by 13 September 2002 this Agreement shall determine absolutely forthwith and any deposit paid by the Purchaser to the Vendor shall be refunded to the Purchaser without interest.”
56. Mr. Scullion’s evidence was that he was unaware of this exchange of contracts and that he did not see the contract.
57. On 16 September 2002, after contracts had been exchanged, Mortgages plc sent Mr. Scullion a mortgage offer (“the Mortgage Offer”). The Mortgage Offer gave the purchase price for Flat 17 as £352,950 and the gross amount of the loan to be provided as £290,766. A copy of the Valuation Report was sent to Mr. Scullion together with the Mortgage Offer.
58. The Mortgage Offer included a term relating to “rental cover” that was in obscure language but which was explained to me as meaning that the estimated achievable rental income as shown in the valuer’s report had to be at least 110% of the mortgage payments due. The Mortgage Offer also included a clause providing for what was described as a “6% penalty”, namely a requirement that Mr. Scullion should pay a fee equal to 6% of the capital balance being repaid if he sought to repay any part of the advance within the first three years.
59. Mr. Scullion’s evidence was that when he saw the Mortgage Offer he was concerned that the inclusion of the 6% penalty would inhibit him from re-mortgaging the property after a year in order to fund payment of the deferred element of the purchase price. Mr. Scullion said that he thought that this would mean that the transaction was not financially viable and that he raised this with Mr. Garvin and Mr. Connolly. ‘They apparently told him that it would still be possible to complete the purchase and get the money for the deferred payment elsewhere.
60. At about this time, on 24 September 2002 Kings sent Mr. Scullion the first legal charge to be executed in favour of Mortgages plc. On 25 September 2002 they also sent him the second legal charge to be executed in favour of Linden Homes to secure payment of the deferred part of the purchase price. Mr. Scullion’s evidence was that he telephoned Mr. Paynter at Kings and told him that there was a problem because of the 6% penalty clause in the Mortgage Offer. According to Mr. Scullion, Mr. Paynter told him that it was too late to back out because contracts had been exchanged, that he was legally bound to complete, and that the date for completion had been set. Mr. Scullion’s evidence was that Mr. Paynter said that if he did not complete he could be sued for breach of contract or specific performance by Linden Homes.
61. Mr. Scullion’s evidence was that he was unhappy with this position and so he telephoned Mortgages plc to explain the problem to them and to ask them to waive the 6% penalty clause in the Mortgage Offer. He produced his copy of the Mortgage Offer annotated with the numbers of various offices of Mortgages plc which he said he had contacted. However, Mortgages plc would not agree to waive the clause. Mr. Scullion’s evidence was that given the advice which Kings had given him, he decided that he had to complete the purchase and so he executed the mortgage and other documents which he had been sent.
62. In cross-examination, Mr. Leech pointed out to Mr. Scullion that the advice he had received from Mr. Paynter at Kings was wrong, not least because the late receipt of the Mortgage Offer meant that Mr. Scullion could have claimed that the contract had been determined according to its terms. Mr. Scullion’s evidence was that he was not told this.
63. Mr. Leech also pointed to a letter written in 2006 by Mr. Scullion’s solicitors to insurers acting for Kings which stated that if Mr. Scullion had been made aware of the 6% penalty clause before exchange of contracts he would not have gone ahead. In his evidence, Mr. Scullion said that if he had been given accurate advice as to his position by Mr. Paynter, he would not have gone ahead to completion as he did. However, Mr. Scullion said that this did not necessarily mean that he would have abandoned the transaction. He said that he would have asked for more time and would have tried to negotiate the removal of the 6% penalty clause in the Mortgage Offer.
64. Completion of the sale and purchase had been delayed by Mr. Scullion’s efforts to get Mortgages plc to waive the 6% penalty clause and his late return of documents. Completion eventually took place on 10 October 2002 when Mortgages plc transferred the sum of £280,834.84 to Kings’ client account to complete the purchase. On the same date, Kings wrote to Mr. Scullion confirming that completion had taken place and enclosing two completion statements. These showed that the contractual purchase price for Flat 17 was £352,950, but that because Mr. Scullion had been given a “gifted allowance” of 15% of the purchase price (£52,942.50) and 10% of the purchase price (£35,295.00) was deferred, the total amount which Mr. Scullion had been required to pay to Linden Homes to complete the purchase was £264,712.50.
65. The statement credited Mr. Scullion with having paid a deposit on exchange of contracts of £900. The completion statements also showed that the costs and disbursements relating to the purchase had all been paid out of the mortgage advance of £290,766. ‘This left a cheque due to Mr. Scullion of £156.59.
66. Mr. Scullion’s evidence was that receipt of these completion statements was the first time that he appreciated that the amount of the discount that he was to receive on the purchase price was in fact 15% and that as a consequence he did not need to find any money to add to the loan from Mortgages plc to complete the purchase. He said that he had been prepared to pay 5% of the price of £350,000 (namely £17,500) from his savings to complete the purchase. He reiterated that his main concern in the conversations which he had with Mr. Paynter at Kings was the 6% penalty clause. This is an aspect of Mr. Scullion’s evidence to which I shall return below.
67. Although Mr. Scullion had not had to use any of his own money to complete the purchase, it is apparent that he was dissatisfied by a number of aspects of the completion statements which he received from Kings. Contemporaneous documents show that he pursued POD and Kings for an explanation of the statements by telephone, and Kings eventually responded to him by letter on 20 December 2002. Among other things, Mr. Scullion complained that he had paid a deposit of £1,000 but had only been credited with payment of £900. To that, Kings responded that someone had paid £900 to Linden Homes by way of a deposit, and that Mr. Scullion would have to take the matter up with the person to whom he had paid the £1,000.
68. Following completion, Mr. Scullion also remained unhappy about the 6% penalty clause which was contained in the terms of his mortgage with Mortgages plc. His evidence was that he contacted Mortgages plc again and in February 2003 he wrote to them to complain and to ask for the clause to be waived. Mr. Scullion’s letter to Mortgages plc was consistent with his evidence as to how he had understood the position, namely that he had only found out about the clause after exchange of contracts had taken place “and therefore was legally bound to complete the transaction”. Mr Scullion complained of the lack of advice from Mr. Garvin and Kings and asked Mortgages plc to remove the clause and replace it with a clause providing for only one month’s interest penalty. Mortgages plc again rejected Mr. Scullion’s request.
69. After completion, Mr. Scullion looked to POD to find him a tenant for Flat 17. However, he had not paid the full £25,000 fee to POD and they chased him for the balance and various “finders’ fees” that they contended were due. By January 2003, no tenants had been found for the property by POD and so Mr. Scullion took matters into his own hands and instructed letting agents in Cobham. Mr. Scullion’s evidence was that the letting agents told him that there was no prospect of obtaining a rent of anything like the £2,000 pcm that Colleys had estimated. Mr. Scullion said that he was told that the property would be unlikely to produce a rent of more than £1,100 pcm. Mr. Scullion eventually found a tenant for Flat 17 in April 2003 at a rent of £1,050 pcm.
70. In February 2004 Mr. Scullion paid Linden Homes £15,000 towards his liability for the deferred 10% of the purchase price. Linden Homes pursued recovery of the balance in April 2004 and Mr. Scullion finally settled with them for a further payment of £17,500, being £32,500 in all.
71. Mr. Scullion’s tenant left after a year, and in the Spring of 2004 Mr. Scullion decided to put Flat 17 on the market for sale at a price of £329,500. In August 2004 he had an offer of £322,500 and solicitors were instructed. However, it was discovered that Kings had failed to attend properly to registration of the property and the proposed sale was delayed whilst a new firm of solicitors instructed by Mr. Scullion sought to rectify the problem. They succeeded in having Flat 17 registered in Mr. Scullion’s name by early November 2004, but unfortunately the potential purchasers of the property had by then withdrawn, citing the delay as a reason why they had lost interest.
72. Mr. Scullion finally succeeded in selling Flat 17 in May 2006 for £270,000. He paid Mortgages plc £260,032.07 leaving a balance on his account as at 1 June 2006 of £61,932.15. I was told that this sum is still outstanding and that Mortgages plc is awaiting the outcome of this case before deciding how to proceed.
73. At the start of the trial, Mr. Noble produced a schedule showing how the amount claimed by Mr. Scullion is calculated. Mr. Scullion claims damages for the loss on his investment. He bases this upon the £290,766 borrowed from Mortgages plc, to which he adds the deposit of £1,000 and the further £32,500 deferred payment which he made to Linden Homes. From those amounts, Mr. Scullion deducts the £156.59 which he received from Kings and what he claims was the value of Flat 17 when purchased, namely £250,000. ‘That gives a net claim of £74,109.41. To that net figure, Mr. Scullion adds the difference between his outgoings in relation to the property and his income by way of rental from the property, amounting to a further £147,318.02. Mr. Scullion’s total claim is therefore £221,427.43 plus interest and costs.
Did Colleys owe a duty of care to Mr. Scullion?
74. Having set out the essential facts, I turn first to the question of whether Colleys owed a duty of care to Mr. Scullion. Any discussion of the question of whether a valuer owes a duty of care to a purchaser of property must begin with the decision of the House of Lords in Smith v. Bush [1990] 2 AC 605. The House of Lords heard two appeals together: Smith v. Bush involved a claim against a firm of surveyors by the purchaser of a small house at the lower end of the market with the assistance of finance provided by a building society. Harris v. Wyre Forest DC involved a claim against a local council which had made a loan for the purchase of a house in respect of the negligence of the council’s in-house surveyor.
75. In Smith v. Bush the prospective purchaser had paid a modest fee to the building society which had instructed an independent firm of surveyors to inspect the property and provide a valuation. The mortgage application form contained an acknowledgement by the purchaser of a disclaimer of responsibility by the building society on behalf of itself and the surveyors, and the copy of the valuation report itself which was sent to the purchaser also contained a disclaimer of liability. The purchaser who did not obtain her own structural survey but relied upon the valuation report to reveal any obvious defects with the property.
76. Affirming the earlier decision of Park J. in Yianni v. Edwin Evans [1982] QB 438, the House of Lords held that the surveyors in such a case owed a duty of care to the purchaser, that the Unfair Contract Terms Act 1977 applied to the disclaimers, and that it was not fair and reasonable for the surveyors to rely upon the disclaimers to exclude liability.
77. On the issue of whether a duty of care arose, Lord Templeman regarded the circumstances of the case as akin to contract. He stated,
“These two appeals are based on allegations of negligence in circumstances which are akin to contract. Mr. and Mrs. Harris paid £22 to the council for a valuation. The council employed, and therefore paid, Mr. Lee, for whose services as a valuer the council are vicariously liable. Mrs. Smith paid £36.89 to the Abbey National for a report and valuation and the Abbey National paid the appellants for the report and valuation. In each case the valuer knew or ought to have known that the purchaser would only contract to purchase the house if the valuation was satisfactory and that the purchaser might suffer injury or damage or both if the valuer did not exercise reasonable skill and care. In these circumstances I would expect the law to impose on the valuer a duty owed to the purchaser to exercise reasonable skill and care in carrying out the valuation.”
and later,
“In general I am of the opinion that in the absence of a disclaimer of liability the valuer who values a house for the purpose of a mortgage, knowing that the mortgagee will rely and the mortgagor will probably rely on the valuation, knowing that the purchaser mortgagor has in effect paid for the valuation, is under a duty to exercise reasonable skill and care and that duty is owed to both parties to the mortgage for which the valuation is made.”
78. Lord Griffiths observed that “voluntary assumption of responsibility is unlikely to be a helpful or realistic test in most cases” and continued,
“I therefore return to the question in what circumstances should the law deem those who give advice to have assumed responsibility to the person who acts upon the advice or, in other words, in what circumstances should a duty of care be owed by the adviser to those who act upon his advice? I would answer – only if it is foreseeable that if the advice is negligent the recipient is likely to suffer damage, that there is a sufficiently proximate relationship between the parties and that it is just and reasonable to impose the liability. In the case of a surveyor valuing a small house for a building society or local authority, the application of these three criteria leads to the conclusion that he owes a duty of care to the purchaser. If the valuation is negligent and is relied upon damage in the form of economic loss to the purchaser is obviously foreseeable. The necessary proximity arises from the surveyor’s knowledge that the overwhelming probability is that the purchaser will rely upon his valuation, the evidence was that surveyors knew that approximately 90 per cent. of purchasers did so, and the fact that the surveyor only obtains the work because the purchaser is willing to pay his fee. It is just and reasonable that the duty should be imposed for the advice is given in a professional as opposed to a social context and liability for breach of the duty will be limited both as to its extent and amount. The extent of the liability is limited to the purchaser of the house – I would not extend it to subsequent purchasers. The amount of the liability cannot be very great because it relates to a modest house. There is no question here of creating a liability of indeterminate amount to an indeterminate class. I would certainly wish to stress that in cases where the advice has not been given for the specific purpose of the recipient acting upon it, it should only be in cases when the adviser knows that there is a high degree of probability that some other identifiable person will act upon the advice that a duty of care should be imposed. It would impose an intolerable burden upon those who give advice in a professional or commercial context if they were to owe a duty not only to those to whom they give the advice but to any other person who might choose to act upon it.”
79. Lord Jauncey took a similar line. He said,
“The question must always be whether the particular facts disclose that there is a sufficiently proximate relationship between the provider of information and the person who has acted on that information to his detriment, such that the former owes a duty of care to the latter.
It is tempting to say that in this case the relationship between Mrs. Smith and the appellants was, in the words of Lord Shaw of Dunfermline quoted by Lord Devlin in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., ‘equivalent to contract’ inasmuch as she paid for the appellants’ report. However, I do not think that Lord Devlin, when he used those words, had in mind the sort of tripartite situation which obtained here, but rather was he considering a situation where the provider and receiver of information were in contact with one another either directly or through their agents, and where, but for the lack of payment, a contract would have existed between them. In the present case a contract existed between the building society and the appellants who carried out their inspection and produced their report in pursuance of that contract. There was accordingly no room for a contract between Mrs. Smith and the appellants. I prefer to approach the matter by asking whether the facts disclose that the appellants in inspecting and reporting must, but for the disclaimers, by reason of the proximate relationship between them, be deemed to have assumed responsibility towards Mrs. Smith as well as to the building society who instructed them.
There can be only an affirmative answer to this question. The four critical facts are that the appellants knew from the outset: (1) that the report would be shown to Mrs. Smith; (2) that Mrs. Smith would probably rely on the valuation contained therein in deciding whether to buy the house without obtaining an independent valuation; (3) that if, in these circumstances, the valuation was, having regard to the actual condition of the house, excessive, Mrs. Smith would be likely to suffer loss; and (4) that she had paid to the building society a sum to defray the appellants’ fee.
In the light of this knowledge the appellants could have declined to act for the building society, but they chose to proceed. In these circumstances they must be taken not only to have assumed contractual obligations towards the building society but delictual obligations towards Mrs. Smith, whereby they became under a duty towards her to carry out their work with reasonable care and skill. It is critical to this conclusion that the appellants knew that Mrs. Smith would be likely to rely on the valuation without obtaining independent advice.”
80. Both Lord Griffiths and Lord Jauncey were careful to indicate the limits of the principle that they were setting out. Lord Jauncey stated,
“I would not … conclude that the mere fact that a mortgagee’s valuer knows that his valuation will be shown to an intending mortgagor of itself imposes upon him a duty of care to the mortgagor. Knowledge, actual or implied, of the mortgagor’s likely reliance upon the valuation must be brought home to him. Such knowledge may be fairly readily implied in relation to a potential mortgagor seeking to enter the lower end of the housing market but non constat that such ready implication would arise in the case of a purchase of an expensive property whether residential or commercial.”
Lord Griffiths observed,
“It must, however, be remembered that this is a decision in respect of a dwelling house of modest value in which it is widely recognised by surveyors that purchasers are in fact relying on their care and skill. It will obviously be of general application in broadly similar circumstances. But I expressly reserve my position in respect of valuations of quite different types of property for mortgage purposes, such as industrial property, large blocks of flats or very expensive houses. In such cases it may well be that the general expectation of the behaviour of the purchaser is quite different. With very large sums of money at stake prudence would seem to demand that the purchaser obtain his own structural survey to guide him in his purchase and, in such circumstances with very much larger sums of money at stake, it may be reasonable for the surveyors valuing on behalf of those who are providing the finance either to exclude or limit their liability to the purchaser.”
81. The place of Smith v. Bush in the law of negligence in cases of economic loss was subsequently considered at some length by May LJ in Merrett v. Babb [2001] QB 1174. May LJ traced the development of the law through the cases of Caparo Industries v. Dickman [1990] 2 AC 605, Henderson v. Merrett Syndicates 
[1995] 2 AC 145, Williams v. Natural Life Health Foods Ltd [1998] 1 WLR 830, and Phelps v. Hillingdon LBC [2001] 2 AC 619. May LJ concluded, at [41] — [42],
“41. It is necessary to draw together relevant threads of the authorities to which I have referred. During the last twenty years or more, intense and repeated attempts have been made to refine a comprehensive test, shortly expressed, to define circumstances in which a person owes a duty of care to another, breach of which causing loss will give rise to a claim for damages. If the damage is physical damage directly inflicted, there is rarely a problem. If the damage is what has been characterised as foreseeable economic loss, there may be a problem – the more so if what causes the loss is the giving of advice or the providing of information. In such cases especially — but, I think, in every case — reliance is an intrinsically necessary ingredient which appears in every formulation of a test. Beyond that, two strands of consideration emerged. These may for convenience be called the Caparo strand and the
42. In my view, Smith v. Bush fully accords with the analysis in my previous paragraph. Lord Griffiths essentially adopted a Caparo test. His disinclination for a test of assumption of responsibility was affected by the inclusion in it of the word “voluntary”. His phraseology at pp 862E and 864H, and that of Lord Jauncey at p 871E, are very close to that of Lord Slynn in Phelp’s case [2000] 3 WLR 776, 791. But even if Smith v. Bush might not be regarded as in the main stream — see, for example, Lord Steyn in Williams at page 837 that it was “decided on its special facts” — it nevertheless stands unmodified as defining circumstances in which the law recognises that there is a duty of care. “Coherence must sometimes yield to practical justice”.”
82. Smith v. Bush therefore still stands as the leading case on the duties and liabilities of valuers to purchasers of property. However, it must be recognised that it has its limits. The subsequent Scottish case of Wilson v. DM Hall & Sons [2005] PNLR 375 is an illustration of those limits. The pursuer was a property developer with considerable experience in a wide range of projects including refurbishing Port Stanley hospital in the Falkland Islands and refurbishing pubs, clubs and hotels in the
83. In these circumstances, Lady Paton held that the surveyor instructed by the bank did not owe a duty of care to the developer. Lady Paton stated,
“143. In the present case, the pursuer presented himself as a businessman of some experience, a property developer, undertaking a commercial development for profit. He was assisted in the project by reputable professionals such as Harley Haddow, engineers, and Norman Gray and Partners, architects. With the help of Corporate Capital Limited, he approached a commercial lending bank, whose main business comprised loans for residential developments, residential investments, the letting of flats, commercial developments, and commercial investments, but not loans to home-buyers. The pursuer’s project was accordingly entirely commercial.
144. In such a context, pricing and marketing strategy was on the evidence considered by all involved to be very much a matter for the property developer in consultation with his own professionals. The evidence of Mr Williams, Mr Dalby, and Mr Nisbet, made it clear that a property developer in the pursuer’s position was expected to have taken his own valuation, marketing and sales advice from his own advisers, and to have worked out a sales price and marketing strategy. A commercial surveyor inspecting and valuing the property in order to ascertain whether it was suitable for security for a commercial bank’s loan purposes would not, on the evidence, expect the property developer to base his sales price and marketing strategy on the valuation carried out for the bank.”
84. The essence of Mr. Leech’s submissions for Colleys was that the instant case has more in common with Wilson v. DM Hall & Sons than it does with Smith v. Bush. Mr. Leech contends that Colleys should not be taken to have assumed responsibility to Mr. Scullion to guard against the loss for which he now claims damages. Mr. Leech submitted that there is no reported case in which Smith v. Bush has been relied upon to extend the duties of care of a valuer to a buy-to-let purchaser, and he contended that in buying to let, Mr. Scullion was engaged in a commercial investment. He observed that Mr. Scullion had engaged POD to act as his agents to conduct what Mr. Leech described as a “professional property speculation scheme”, and he suggested that in these circumstances it would have been reasonable to expect Mr. Scullion rely on POD and independent valuers instructed by them rather than on Colleys. Mr. Leech also drew attention to the fact that finance was not sought from a standard residential mortgage lender, and he suggested that the purposes for which Mr. Scullion claimed to have relied upon the valuation report by Colleys went well beyond the normal reliance placed upon a valuation report by the purchaser in a standard residential transaction of the type contemplated in Smith v. Bush.
85. I do not accept Mr. Leech’s submissions. In Smith v. Bush, the crucial facts leading to the imposition of a duty of care were that the purchase was of a low-end residential property and the valuer knew or ought to have known that there was a very high probability that his report would be shown to the prospective purchaser who had in effect paid the fee for the survey and would be relying upon the report in deciding whether to buy the property. It was therefore obvious that if the valuation was excessive, the purchaser would be likely to suffer loss, and it was just and reasonable to impose a duty of care because the valuer was acting in a professional capacity and any liability would be limited because of the modest nature of the property. In my judgment, the same factors were no less present in the instant case.
86. The individual flats at
87. Mr. Collins was a professional valuer who knew that it was highly likely that the Valuation Report that he was preparing would be shown to Mr. Scullion. He also knew that it was Affinity who had paid Colleys’ fees in circumstances in which it could be assumed that Affinity would be in funds or would seek reimbursement from Mr. Scullion.
88. Mr. Collins knew nothing about Mr. Scullion to distinguish him from any other member of the public. Mr. Scullion was essentially a self-employed builder running a small company maintaining other people’s property. He was in reality no different from many other members of the public who became involved in buying properties to let as an investment vehicle, hoping to make good returns on a rising property market. Mr. Scullion was in no sense a professional property developer of the type illustrated by the pursuer in Wilson v. DM Hall & Sons.
89. Although Mr. Leech now seeks to rely upon the role of POD as agents for Mr. Scullion, Mr. Collins’ evidence was that he had not heard of POD and knew nothing about the relationships between POD, the mortgage brokers and any of the prospective purchasers of the flats at
90. It is the case that the agreement which Mr. Scullion had signed with POD provided for him to pay a substantial fee to POD and for POD to provide him with “a full appraisal sheet showing purchase costs and expected rental returns” in respect of all properties which POD proposed to Mr. Scullion. However, there was nothing in the terms upon which Mr. Scullion engaged POD to suggest that POD would be arranging for an independent valuation of any property that they submitted for his consideration.
91. Whilst recognizing that each case may turn on its own facts, I also do not think that as a general proposition a buy-to-let transaction is very different from the ordinary residential house purchase which was in issue in Smith v. Bush. In common with the purchaser who is buying his own house, the buy-to-let purchaser requires that the valuer’s assessment of the open market value of the property will be sufficient to satisfy the lender that the property is good security for the amount of the loan. If anything, the decision to purchase a modest residential property in a buy-to-let transaction is more likely to be dependent upon the accuracy of the figures in the valuation report, rather than less. In the ordinary residential purchase, the purchaser will make his own judgment of whether his income and resources are sufficient to enable him to make the payments due under the mortgage. In contrast, the buy-to-let purchase depends upon the anticipated rental value given in the report being accurate and exceeding by a sufficient margin the periodic payments which will be due under the mortgage so that, as an investment, the transaction will at least be self-financing. It is probably also the case that because a buy-to-let purchase is an investment, the buyer will be more concerned with the numbers in the valuation report, and less concerned with any aesthetic features of the property which might be of personal interest to a buyer who is intending to live in the property himself
92. Finally, a valuer must appreciate that if the open market valuation for a buy-to-let purchase is excessive, then just as with a conventional residential purchase, the purchaser will suffer loss by having paid too much for the property which he has bought. Additionally, if the rental valuation is excessive, the buy-to-let purchaser will suffer further loss because he will not have sufficient rental income to service the mortgage as planned.
Disclaimer of liability for negligence
93. I next turn to the issue of the effectiveness of the “disclaimer” clauses in the Application Form. It will be recalled that Mr. Scullion signed a form which contained a declaration by him that,
“5. Neither the Lender nor qualified valuers who are to be instructed are under any liability either on the basis of negligence or any other basis whatsoever to me/us as purchasers in respect of the value or the state or condition of the property.
The inspection of the property will be carried out on behalf of the Lender and will not include a detailed survey of the structure unless specifically requested. I/We understand that the lender are not the agents of the valuers and that I/we understand the Lender nor the valuer will warrant, represent or give any assurance to me/us that the statements conclusions and opinions expressed or implied in the report and mortgage valuation are accurate or valid and that the report will be supplied without any acceptance of responsibility on their part to me/us.”
94. In Smith v. Bush the application form signed by the purchaser included an acknowledgement to the effect that the surveyors’ report would be supplied to the purchaser without any acceptance of responsibility by the surveyor to the purchaser: see per Lord Templeman [1990] 1 AC 831 at 842-3. The valuation report itself also apparently contained “in red lettering and in the clearest terms a disclaimer of liability for the accuracy of the report covering both the building society and the valuer”: see per Lord Griffiths [1990] 1 AC 831 at 855.
95. The House of Lords held that although such disclaimers would have been effective at common law under the principles in Hedlev Byrne v. Heller [1964] AC 465, they failed to satisfy the requirement of reasonableness in section 2(2) of the Unfair Contract Terms Act 1977, because the surveyor could not discharge the burden of showing that it was fair and reasonable in all the circumstances to allow him to rely upon such exclusion clauses.
96. It is apparent from the speeches in the House of Lords that many of the same factors that are relevant to the issue of whether it was just and reasonable to impose a duty of care are also relevant to the question of whether it would be fair and reasonable to allow a valuer to rely upon an exclusion clause.
97. In particular, Lord Griffiths said that whilst it was not possible to draw up an exhaustive list, the following factors ought to be considered, namely (i) were the parties of equal bargaining power; (ii) would it have been reasonably practicable to obtain the advice from an alternative source taking into account costs and time; (iii) the degree of difficulty of the task for which liability is being excluded; and (iv) what are the practical consequences — in particular what sums of money are at stake, and whether the parties are able to bear the loss or obtain insurance.
98. In the instant case, the only disclaimers upon which Colleys seek to rely are those in small print in the Application Form. There were no disclaimers in the Valuation Report itself. On the evidence I do not think that those disclaimers were brought to the attention of Mr. Scullion by Mr. Garvin and they were certainly not as prominent as the very obvious disclaimers in Smith v. Bush.
99. Moreover, having regard to the type of factors mentioned by Lord Griffiths in Smith v. Bush, I do not in any event think that Colleys have discharged the burden of showing that it would be fair and reasonable for them to rely upon the disclaimer clauses in the circumstances of this case. This was a valuation of a small domestic property of relatively low value which was provided by Colleys in return for a fee. Colleys must be taken to have known that Mr. Scullion would be relying upon their professional expertise, and as I have indicated, there was no evidence that anyone expected him to obtain a valuation from an alternative source. ‘The consequences for Mr. Scullion of an erroneous valuation would be significant: whereas for Colleys it was a routine task which was well within their normal expertise, it was not particularly difficult, and it was a job for which they could be expected to carry insurance. The inclusion of the disclaimer was also not the result of any bargain: it was simply imposed by Mortgages plc in their standard form so that if Mr. Scullion wanted to apply for a mortgage, he had no option but to do so on the terms provided.
Ex turpi causa
100. Mr. Leech submitted that the Application Form contained a number of inaccuracies, the main one being the misstatement of the purchase price for Flat 17. He says that the form erroneously stated that the purchase price was £352,950 when Mr. Scullion knew that there would be a significant discount to that figure. Mr. Leech says that Mr. Scullion signed the Application Form knowing that it contained such a misstatement or that he deliberately turned a blind eye to the possibility that this was so.
101. Mr. Leech submitted that if I am satisfied that Mr. Scullion deliberately misled Mortgages plc in this way, that fraudulent conduct would be so intimately connected to his claim against Colleys that the Court should refuse to permit him to make his claim by reason of the principle encapsulated in the Latin maxim ex turpi causa non oritur actio.
102. The ex turpi causa principle was recently considered by the House of Lords in Gray v. Thames Trains Limited [2009] 1 AC 1339 and in Stone & Rolls Ltd v. Moore Stephens [2009] 1 AC 1391. In Gray, Lord Hoffmann indicated that the maxim “expresses not so much a principle as a policy…not based upon a single justification but on a group of reasons, which vary in different situations”. The relevant policy is that described by Lord Mansfield CJ in Holinan v. Johnson (1775) 1 Cowp. 341 at 343, namely that “No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act”. In its simplest variant, that policy manifests itself in a rule that the court will not enforce a contract which is contrary to statute or entered into with the intention of committing an illegal act. The instant case concerns a second variant, which was also in issue in Stone & Rolls, namely that the court will not assist a claimant to claim compensation in respect of the adverse consequences of his own wrongdoing: see e.g. per Lord Phillips at [26].
103. As the speeches in Stone & Rolls illustrate, the precise parameters of the ex turpi causa policy are not clear. However, a number of points do seem settled. First, the defence can apply to claims in tort: see Clunis v
104. It is also apparent that the ex turpi causa defence will not succeed unless there is a very close connection between the claimant’s misconduct and the claim which he makes. There is, however, some divergence on the authorities as to precisely how close that connection must be.
105. In relation to a case in which the claimant seeks to enforce collateral property rights acquired under an illegal contract, the majority of the House of Lords in Tinsley v Milligan [1994] 1 A.C. 340 held that a claimant would be entitled to recover unless he was forced of necessity to plead or rely upon the illegality in order to advance his claim: see per Lord Browne-Wilkinson at pages 376-377.
106. A similar “reliance” test was applied to tort claims by the Court of Appeal in Clunis v. Camden and Islington Health Authority [1998] QB 978. In delivering the judgment of the Court in Clunis, Beldam LJ said, at 987C,
“But whether a claim brought is founded in contract or in tort, public policy only requires the court to deny its assistance to a plaintiff seeking to enforce a cause of action if he was implicated in the illegality and in putting forward his case he seeks to rely upon the illegal acts.”
107. However, in Cross v. Kirby, [2000] Court of Appeal Transcript 321, Beldam LJ did not accept that strict satisfaction of any “reliance” test was necessary before the ex turpi causa principle could be invoked. He said,
“I do not believe that there is any general principle that the claimant must either plead, give evidence of or rely on his own illegality for the principle to apply. Such a technical approach is entirely absent from Lord Mansfield’s exposition of the principle. I would, however, accept that for the principle to operate the claim made by the claimant must arise out of criminal or illegal conduct on his part. In this context “arise out of’ clearly denotes a causal connection with the conduct…In my view the principle applies when the claimant’s claim is so closely connected or inextricably bound up with his own criminal or illegal conduct that the court could not permit him to recover without appearing to condone that conduct.”
Judge LJ concluded,
“In my judgment, where the claimant is behaving unlawfully, or criminally, on the occasion when his cause of action in tort arises, his claim is not liable to be defeated ex tuipi causa unless it is also established that the facts which give rise to it are inextricably linked with his criminal conduct. I have deliberately expressed myself in language which goes well beyond questions of causation in the general sense.”
108. These observations were referred to by Peter Gibson and Mance LJJ in Hall v. Woolston Hall Leisure [2001] 1 WLR 225. Mance LJ said, at [79],
“While the underlying test therefore remains one of public policy, the test evolved in this court for its application in a tortious context thus requires an inextricable link between the facts giving rise to the claim and the illegality, before any question arises of the court refusing relief on the grounds of illegality. In practice, as is evident, it requires quite extreme circumstances before the test will exclude a tort claim.”
109. In Hewison v.
“To my mind the authorities support that approach. They seem to me to support the proposition that where a claimant has to rely upon his or her own unlawful act in order to establish the whole or part of his or her claim the claim will fail either wholly or in part. …”
110. Against that background, Mr. Leech submits that if I were to find that Mr. Scullion was complicit in a mortgage fraud, then the test for ex turpi causa is satisfied, because Mr. Scullion necessarily has to rely upon making his mortgage application in order to establish the existence of a duty of care owed to him by Colleys. Mr. Noble disputes that and contends that Mr. Scullion does not have to rely upon his application to make his claim.
111. I accept Mr. Leech’s submissions as to the potential availability of the ex turpi cause defence in this case. Mr. Scullion’s case depends upon showing that Colleys owed him a duty of care in carrying out the valuation for Mortgages plc because there was a sufficient proximity between them and him. He can only establish that proximity by alleging that he was the applicant for the mortgage and so Colleys could foresee that he would be relying upon their valuation. Moreover the losses claimed by Mr. Scullion as an essential part of his tort claim are not based upon the difference between the value of the property which he bought and the value ascribed to it in the Valuation Report. Instead, Mr. Scullion’s claim is based upon the amount which he borrowed from Mortgages plc. As Mr. Scullion’s claim is a tort claim which depends upon proof of loss and the starting point of his claim for loss is the loan which he obtained from Mortgages plc, it seems to me that Mr. Scullion’s application to Mortgages plc is inextricably linked to his claim.
112. Alternatively, putting matters in the broader terms adopted by Beldam LJ in Cross v. Kirby, if I were to find that Mr. Scullion deliberately misled Mortgages plc into making a loan to him, I do not think that I could then permit Mr. Scullion to recover losses based upon his liability for that loan without appearing to condone the way in which he had obtained it.
113. The critical issue is therefore whether I consider that Colleys have established that Mr. Scullion deliberately misled Mortgages plc.
114. Mr. Scullion gave evidence in support of his claim. He signed two witness statements. The first was dated 14 December 2008. In it he set out his dealings with POD and
115. Mr. Scullion’s first witness statement then recounted the fact that he had asked Mr. Garvin to corrected the misdescription of himself in the Application Form as an “owner” and continued,
“60. I knew that POD had agreed with the developers Linden Homes to buy the remainder of the block of the unsold 19 flats…
61. I understood that a substantial discount had been agreed with POD and that the plots would be purchased as and when POD themselves found buyers.
62. I was aware there was some urgency in POD completing the matter if they were not to lose the discount negotiated with Linden Homes.
63. It had been further agreed there would be a deferred payment of around 10% of the purchase price that was to be repayable after the first year. I had been told by POD however, that this would be no problem as the valuations of the property were such that in a year’s time it would be possible to remortgage and raise the extra funds needed to make the deferred payment in this way.”
116. Mr. Scullion’s second witness statement was dated 30 March 2009. It followed an amendment to the Defence which alleged that Mr. Scullion had been involved in a fraud upon Mortgages plc. In responding to that allegation, Mr. Scullion introduced for the first time the suggestion that his initial contact with Mr. Connolly had concerned a flat other than Flat 17. Mr. Scullion also stated that Mr. Connolly had told him that POD was negotiating for a discount in the region of 10% but that he could not be precise about the figure, and that he still expected to pay about 5% of the purchase price from his own savings. Mr. Scullion’s second witness statement said that he did not see the contract exchanged between Linden Homes and POD, and that it was not until after completion when he received the completion statements from Kings on 10 October 2002 that he became aware that he was in fact to receive a 15% gifted deposit.
117. Mr. Scullion also gave oral evidence at trial. I should record that for the most part he struck me as a candid and straightforward witness. Certainly, his evidence in the witness box as to the origins and early stages of his dealings with POD, Mr. Connolly and Mr. Garvin seemed entirely credible. POD and its associates were engaged on a scheme to attract members of the public like Mr. Scullion who would pay high fees for their services and were promised the opportunity to buy properties for little or no capital outlay. The materials I have recounted are entirely consistent with POD and its associates making all the running in negotiations with Linden Homes on the basis that POD could procure purchasers for the remaining flats and would also be able to arrange for them to receive suitable mortgage offers so as to assure Linden Homes of the speedy disposal of the remaining flats in the development.
118. The evidence which Mr. Scullion gave about his contacts with Mr. Connolly, JR Residential and Mr. Garvin was also entirely consistent with that state of affairs, and it seems entirely plausible that when Mr. Scullion came to sign the Application Form he did so very much in reliance upon Mr. Garvin to have completed it accurately and to handle its submission to the mortgage provider.
119. I also accept that beyond an expectation that some discount would be forthcoming, when Mr. Scullion signed the Application Form, he had not been involved in any discussions with Linden Homes concerning a discount, he did not know what stage had been reached in those negotiations between POD and Linden Homes, and he had no assurance that a discount would be achieved. In these circumstances, and given that there was no place on the form for any potential discount to be noted, even if Mr. Scullion had given close attention to the figures inserted into the form by Mr. Garvin, I do not think that his failure to note that a discount might be available could be regarded as misleading, still less fraudulent.
120. My conclusion that Mr. Scullion was not intent upon defrauding Mortgages plc from the start is also supported by the way in which he sought to correct his misdescription as an “owner” in the form — knowing that this was the very issue which had caused him a problem with BOS. Mr. Scullion’s intervention resulted in the correction of the form which was subsequently found in the files of Mortgages plc and it seems to me that this is a powerful pointer to the fact that he was acting honestly and conscientiously.
121. For completeness I should add that I do not think that Mr. Scullion deliberately procured or was even conscious that the Application Form contained a misstatement regarding his previous mortgage application to BOS. If he had been aware of such a statement, I see no reason why he would not have procured that it was corrected at the same time as he asked Mr. Garvin to correct the point regarding his status as an “owner”.
122. The conclusion that POD was very much masterminding the process of negotiations and exchange of contracts with Linden Homes, and that Mr. Scullion was kept at arm’s length is also consistent with the fact that contracts were exchanged in relation to Flat 17 in the names of POD and Linden Homes by Kings and without Mr. Scullion’s knowledge or authorization. In my judgment it also explains why some of Mr. Scullion’s evidence about his understanding of the nature of the discount he was to receive was vague: although Mr. Leech sought to criticize Mr. Scullion for being evasive at this point in his evidence, I did not get the impression that Mr. Scullion was being deliberately obtuse.
123. However, where I have had greater hesitation in accepting Mr. Scullion’s evidence is in relation to his assertion that he was unaware of precisely what discount he was to receive from the stated contract price of £352,950 until after he had accepted the Mortgage Offer, and indeed until after completion had occurred.
124. It will be recalled that Mr. Scullion’s evidence was that when he received his Mortgage Offer, he was concerned about the presence of the 6% penalty clause and its implications for the financial viability of the investment. Mr. Scullion says that he contacted Mr. Paynter at Kings and discussed the problem. Although Mr. Scullion might well have been primarily concerned as to the effect of the 6% penalty clause a year after completion, it would at that stage have been entirely logical and reasonable for him to wish to understand all the financial implications of the transaction, including in particular how much cash he would need to find at completion. Moreover, by that stage, Mr. Paynter also ought to have been aware of the terms of the contracts that had been exchanged, including the provision as to the 15% gifted deposit and the amount of money that would need to be found at completion.
125. Against that background it was entirely reasonable for Mr. Leech to put to Mr. Scullion that his evidence that he only became aware of the 15% gifted deposit after completion was not true. In response Mr. Scullion adhered to his evidence. But this point was the foundation for Mr. Leech’s submission that even if Mr. Scullion had not intended to perpetrate a fraud upon Mortgages plc from the start, he must have been aware before he accepted the Mortgage Offer that the price he was going to be paying was less than had been represented to Mortgages plc in the Application Form (and indeed less than the price stated in the Mortgage Offer itself).
126. Against the points made by Mr. Leech, there are a number of features of the evidence which suggest that Mr. Scullion was not a knowing participant in a scheme to defraud Mortgages plc by overstating the purchase price for Flat 17.
127. The first is that in order for any such scheme to work, it must necessarily have involved the active participation of the solicitor at Kings who was acting in the transaction both for the purchaser and for Mortgages plc (or at least the fraudsters must have depended on the incompetence of that solicitor). Kings obviously owed a duty of care to Mortgages plc, and specifically, the applicable clause 5.9 of the 2002 Council of Mortgage Lenders Handbook imposed the following obligation upon them:
“You must ask the borrower how the balance of the purchase price is being provided. If you become aware that the borrower is not providing the balance of the purchase price from his own funds and/or is proposing to give a second charge over the property, you must report this to us if the borrower agrees (see part 2) failing which you must return our instructions and explain that you are unable to continue to act for us as there is a conflict of interest.”
128. It must follow that Kings were duty bound to report any proposed discount to the stated purchase price to Mortgages plc. It was, however, not suggested to Mr. Scullion that he conspired with Kings to conceal the true consideration to be paid for Flat 17 from Mortgages plc, or that he was aware that Kings were acting improperly in failing to make such disclosure to Mortgages plc. Indeed, such a suggestion would not sit well with the subsequent correspondence between Mr. Scullion and Kings in which he complained about various aspects of the completion statements which he had received, or with the complaints which Mr. Scullion subsequently made to third
parties (including insurers) about the conduct of Kings which were plainly designed to focus close attention on their part in this transaction.
129. Moreover, in the absence of any suggestion that there was a conspiracy between them, or that Mr. Scullion knew that Kings would not be fulfilling their duty to Mortgages plc, the point can be made that Mr. Scullion would have been entitled to assume that Kings would be looking after the interests of Mortgages plc and that they would have told Mortgages plc about the discount to the headline price stated in the contract if it was appropriate to do so. In such circumstances, if Kings did nothing, it can be said that a simple failure on Mr. Scullion’s part to contact Mortgages plc and to correct the statement in the Application Form could not be regarded as dishonest.
130. But in fact Mr. Scullion did contact Mortgages plc at this time regarding the 6% penalty clause. Mr. Scullion’s evidence was that he spoke to Mortgages plc before completion to try to get them to remove the penalty clause in the Mortgage Offer. That evidence was not challenged. If Mr. Scullion had been involved in a deliberate overstatement of the price for Flat 17, stirring things up with Mortgages plc over the supposed inequity of their penalty clause and inviting scrutiny by them of the economics of the proposed transaction would have been a bizarre thing to do. The same point can be made in relation to Mr. Scullion’s continued communications with Mortgages plc after completion.
131. A similar point can be made in relation to the contents of Mr. Scullion’s witness statements in these proceedings. Up to the time when Mr. Scullion served his first witness statement, there had been no allegation from Colleys that he had been involved in any fraud upon Mortgages plc relating to overstatement of the purchase price. As such, it was unnecessary for Mr. Scullion to make the comment in paragaph 61 of his statement (which I have set out above) concerning his knowledge of the discount from Linden Homes. And if Mr. Scullion had been consciously involved in a mortgage fraud on Mortgages plc relating to concealment of the discount, volunteering that comment in his evidence was a very strange thing for him to have done.
132. The final point which suggests that it might not be right to make a finding of fraud or dishonesty against Mr. Scullion is that it would be unsafe to make assumptions about what Mr. Paynter must have known of the arrangements concerning completion of the purchase of Flat 17, and from that to make assumptions of what he might have told Mr. Scullion.
133. Mr. Paynter was one of two partners of Kings. The other was Mr. Andrew Kenedler. In March 2006 Mr. Paynter and Mr. Kenedler were both found guilty of serious disciplinary offences and were struck off the Roll of Solicitors and fined respectively. The proceedings followed the intervention of the Law Society into the practice of Kings in November 2004.
134. One of the allegations which both partners of Kings faced was as follows:-
“The [Forensic Investigation Officer of the Law Society] identified 27 property transactions in which Kings acted for a purchaser and a mortgage lender where the purchase price actually paid was substantially lower than the purchase price notified to the lender and contained in the contract and transfer documents. In all but four cases the amount advanced by the lender exceeded the actual purchase price and the only money to pass on completion was the mortgage advance. In none of the cases was the lender informed of the fact that the actual purchase price was lower than that anticipated by the lender.”
135. In his defence, among other things, Mr. Paynter gave evidence that conveyancing was not really his field, but that it had been undertaken under his supervision by a number of people including one Peter Hastings. It would seem that Mr. Hastings was a solicitor who had been suspended pending a disciplinary hearing at which he was subsequently struck off. Mr. Paynter’s submissions continued,
“[Mr. Hastings] gave lectures in “buy to rent” schemes…Mr. Hastings did introduce much work to the firm from the work generated by his lectures. He became part of various syndicates, typically a mortgage broker, a property finder and himself….”
136. So far as relevant to this case, the suggestion which was made by Mr. Scullion in his evidence was that he has since discovered that it was mainly Mr. Hastings who was actually dealing with the purchase of Flat 17 and POD rather than Mr. Paynter. That suggestion is consistent with the fact that when solicitors instructed by Mortgages plc sought to clarify whether the formalities in relation to the security for their lending had been complied with, Mr. Paynter wrote to Mr. Hastings on 1 June 2004 for his comments.
137. Quite apart from this evidence, the record of the findings of the Disciplinary Tribunal is a catalogue of impropriety, mismanagement and incompetence by the partners of Kings. There are grounds to support the view that Mr. Paynter may simply not have been properly informed of what was going on under his supposed supervision in relation to Flat 17, and as a consequence, in the same way as he did not inform Mr. Scullion of the right to terminate the contract, may also not have informed him of the terms of the gifted deposit.
138. I remind myself that allegations of fraud are serious allegations that, although only requiring proof on the civil standard of a balance of probabilities, nevertheless require cogent evidence to establish what is alleged. As Lord Nicholls explained in Re H and others [1996] AC 563 at 586,
“The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. … Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.
Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established.”
139. On that basis, whilst I see the undoubted force in Mr. Leech’s submissions, I do not think that the evidence is sufficiently cogent to establish fraud on Mr. Scullion’s part. In particular, in the very unusual circumstances of this case I would not be at all confident in concluding that Mr. Paynter must have known that the arrangements for completion did not require Mr. Scullion to find any money because of the gifted deposit: still less would I feel confident in concluding that he must have told Mr. Scullion of that. Moreover, in circumstances in which there is no evidence that Mr. Scullion was in league with POD or Kings, and given his conduct in making allegations against Kings and contacting Mortgages plc to complain about the terms of the Mortgage Offer, I do not think that a case of dishonest conduct has been made out on clear evidence.
140. In conclusion I do not think that Colleys have established that Mr. Scullion is debarred by the doctrine of ex turpi causa from pursuing his claim against them.
Reliance
141. Mr. Leech contends that even if a duty of care was owed by Colleys, Mr. Scullion cannot succeed because he did not, in fact, rely upon the Valuation Report.
142. Mr. Leech first submits that there is no reliable evidence that Mr. Scullion saw any valuation produced by Colleys other than the Valuation Report. I have already indicated that I accept that submission. Mr. Leech also submits that there is no reliable evidence that Mr. Scullion saw the Valuation Report at any time before he received the Mortgage Offer to which it was attached. I also think that submission is correct.
143. However, Mr. Scullion’s interest in buying Flat 17 was always predicated upon obtaining a mortgage to do so, and his evidence was that he always understood that it was a necessary precondition to receipt of a mortgage offer that a valuation report would be received from a valuer instructed by the lender which gave values satisfactory to the mortgage lender. I accept Mr. Scullion’s evidence that it was essential to him that the property was worth the value which that mortgagee’s valuer placed upon it and that it would generate the level of rentals which the valuer advised could be obtained. There was therefore never any question of Mr. Scullion deciding to enter into the transaction before he had received his mortgage offer or before the receipt of a satisfactory valuation report.
144. Although contracts had been exchanged before Mr. Scullion had his Mortgage Offer, the evidence is that Mr. Scullion had not authorized that step and he was not the contracting party. As I have indicated, the exchange seems to have been prompted by POD without reference to him. Moreover, whether or not Mr. Scullion would have been bound by the contract so exchanged which named POD rather than him, the failure to comply with presence of the clause relating to the receipt of a mortgage offer meant that he was not bound to complete in any event. Hence Mr. Scullion in fact saw the Valuation Report before he made the decision to complete the purchase of Flat 17.
145. In my judgment there is, therefore, nothing in the points made by Mr. Leech about when Mr. Scullion saw the Valuation Report. But Mr. Leech also submits that when Mr. Scullion decided to proceed to completion of the purchase of Flat 17, he did not do so in reliance on the Valuation Report. Mr. Leech submits that Mr. Scullion decided to complete the purchase only because Kings wrongly told him that he was legally bound to complete.
146. At first instance in Banque Bruxelles Lambert v. Eagle Star [1995] 2 All ER 769 at 793h-794d, Phillips J. appears to have accepted a submission that to succeed, a claimant must show that a negligent valuation played a “real and substantial part” in inducing him to enter into the transaction which caused him loss. In the case, Phillips J. held that it was fatal to the claim for negligent valuation against a second valuer that the claimant had already decided to enter into the transaction on the basis of an earlier valuation. He decided that the second valuation “played no part in inducing [the claimant] to enter into the transaction”. The editors of Jackson & Powell on Professional Liability (6111 ed.) suggest at para. 10-122 that the same result would apply if a claimant entered into the transaction even though he did not believe that the valuation which he had been given was accurate.
147. When Banque Bruxelles reached the House of Lords (reported as South Australia Asset Management v. York Montague Limited [1997] AC 191) the case turned upon issues of the proper measure of damages for a surveyor’s negligence and the point accepted by Phillips J. was not directly relevant. Instead, the speech of Lord Hoffmann (with whom the other members of the House of Lords agreed) decided that the extent of liability for negligent misstatement depended upon the issue of causation, and that a negligent provider of information was only liable for the foreseeable consequences of his information being wrong: see [1997] AC 191 at 213C-215E.
148. As the commentary in Jackson & Powell makes clear, in a case of alleged negligent provision of information, the issue which is often termed an issue of “reliance” is really a question of causation. It will usually only be possible to say that a breach of duty by the provision of inaccurate information is causally connected to a loss if the claimant was induced in some way to act as he did by the wrongful information.
149. Unlike the examples of non-reliance/lack of a causal connection liability to which I have referred above, Mr. Scullion did not decide to go ahead with the purchase of Flat 17 on the basis of a different valuation than the Valuation Report. Nor did he think that Colleys’ Valuation Report was inaccurate but decided to go ahead nonetheless. At all relevant times, Mr. Scullion knew that the proposed purchase would only be funded by Mortgages plc if, and would only make commercial sense for him if, the valuation of the property showed that it was good security for the loan and that it would generate sufficient rental income to pay the mortgage instalments.
150. In these circumstances, I consider that the fact that Mr. Scullion may have been negligently advised by Kings about his obligation to complete the purchase did not mean that Colleys’ earlier actions had no continuing influence on his decision to proceed. Mr. Scullion’s decision to accept the Mortgage Offer and to proceed to completion, rather than to refuse to complete and take his chances in litigation with Linden Homes, was only available to him because Colleys had produced the Valuation Report which had led to the Mortgage Offer being made. Mr. Scullion’s evidence was that the problem with the transaction was the 6% penalty clause which he sought to have removed and replaced, but apart from that, if the mortgage company was satisfied by the valuations it received that Flat 17 had the requisite open market value and that it could bring in sufficient rentals to service the mortgage, he thought that the transaction remained an attractive investment proposition.
151. In summary, I take the view that any losses which Mr. Scullion suffered as a result of accepting the Mortgage Offer and completing the purchase of Flat 17 were caused both by Colleys’ actions in issuing the Valuation Report which led to the finance for the purchase being available in the first place, as well as by Kings’ failure to advise him that he might legitimately be able to avoid completion. I think that this result is consistent with the commentary in Jackson & Powell at paragraph 10-125, referring to the dictum of Edward Bartley-Jones QC in Preferred Mortgages v. Countrywide Surveyors Limited [2006] PNLR 9.
Were Colleys Negligent?
152. The correct approach to be taken by a court to an allegation of negligence against a surveyor who is engaged to place a value on a piece of land is not entirely free from doubt. There are two lines of authority. The first line of cases focuses on the result. These cases require the court to determine the “right” value which should have been placed upon the property by a careful and competent valuer; to determine whether the figure actually given by the valuer in the case falls outside a foreseeable margin of reasonable deviation from that “true” figure (the so-called “bracket”); and only if the value does fall outside the “bracket”, then to consider whether the reason for that deviation was a departure by the valuer from the practices which are regarded as acceptable by a respectable body of opinion in his profession. The second line of cases concentrates on the process rather than the result. Such cases suggest that if the valuer departs from the acceptable practices of his profession in relation to an element of his valuation, he may be liable for negligence irrespective of whether the result at which he arrives still falls within the “bracket”.
153. The basis of the first approach is illustrated by the dictum of Watkins J. in Singer & Friedlander v. John D Wood & Co [1977] 2 EGLR 84 at 85G:
“The valuation of land by trained, competent and careful professional men is a task which rarely, if ever, admits of precise conclusion. Often beyond certain well-founded facts so many imponderables confront the valuer that he is obliged to proceed on the basis of assumptions. Therefore he cannot be faulted for achieving a result which does not admit of some degree of error. Thus, two able and experienced men, each confronted with the same task, might come to different conclusions without anyone being justified in saying that either of them has lacked competence and reasonable care, still less integrity, in doing his work. The permissible margin of error is said by Mr Dean, and agreed by Mr Ross, to be generally 10 per cent either side of a figure which can be said to be the right figure, i.e. so I am informed, not a figure which later, with hindsight, proves to be right, but which at the time of valuation is the figure which a competent, careful and experienced valuer arrives at after making all the necessary inquiries and paying proper regard to the then state of the market. In exceptional circumstances the permissible margin, they say, could be extended to about 15 per cent, or a little more, either way. Any valuation falling outside what I shall call the “bracket” brings into question the competence of the valuer and the sort of care he gave to the task of valuation.”
154. This approach was followed by the Court of Appeal in Merivale Moore v. Strutt & Parker [1999] 2 EGLR 171. A valuer was instructed to value a property which was to be acquired as an investment on the basis that it was to be developed. He prepared an appraisal which attempted to state the cost of the development, the rent at which the completed development could be let, and the yield to be applied to that rent in order to arrive at a capital value of the completed development in order that the prospective purchaser could assess whether a purchase at the proposed price was sensible. Buxton LJ summarised the law at page 176,
“It has frequently been observed that the process of valuation does not admit of precise conclusions, and thus that the conclusions of competent and careful valuers may differ, perhaps by a substantial margin, without one of them being negligent: see for instance the often quoted judgment of Watkins J in Singer & Friedlander Ltd v John D Wood [1977] 2 EGLR 84 at p85G; and the House of Lords in the Banque Lambert case, [1997] AC 191 at p221F-G. That has led to the courts adopting a particular approach to claims of negligence on the part of valuers.
In the general run of actions for negligence against professional men it is not enough to show that another expert would have given a different answer…the issue…is whether [the defendant] has acted in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession: Zubaida v Hargreaves [1995] 1 EGLR 127 at p128A-B per Hoffmann LJ, citing the very well-known passage in Bolam v Friern Hospital Management Committee [1957] 1 WLR 582 at p587.
However, where the complaint relates to the figures included in a valuation, there is an earlier stage that the court must be taken through before the need arises to address considerations of the Bolam type. Because the valuer cannot be faulted in any event for achieving a result that does not admit of some degree of error, the first question is whether the valuation, as a figure, falls outside the range permitted to a non-negligent valuer….
A valuation that falls outside the permissible margin of error calls into question the valuer’s competence and the care with which he carried out his task. But not only if, but only if, the valuation falls outside that permissible margin does that enquiry arise. That is what I take to have been the view of Balcombe LJ, with whom the remainder of the members of this court agreed, in Craneheath Securities v
“It would not be enough for Craneheath to show that there have been errors at some stage of the valuation unless they can also show that the final valuation was wrong.”
As it was put by His Honour Judge Langan QC in Legal & General Mortgage Services v HPC Professional Services [1997] PNLR 567 at p574F, in an analysis that I have found helpful, once it is shown that the valuation falls outside the “bracket” the plaintiff will by that stage have discharged an evidential burden. It will be for the defendant to show that, notwithstanding that the valuation is outside the range within which careful and competent valuers may reasonably differ, he nonetheless exercised the degree of care and skill which was appropriate in the circumstances.
Various further considerations follow. First, the “bracket” is not to be determined in a mechanistic way, divorced from the facts of the instant case. We were shown a list of figures giving either the bracket determined, or the percentage divergence from the true value found nonetheless not to have been negligent, in a series of recent cases. I did not find that of assistance, save as a graphic reminder that it is not enough for a plaintiff simply to show that the valuation was different from the true value. Second, if it is shown even at the first stage that the valuer did adopt an unprofessional practice or approach, then that may be taken into account in considering whether his valuation contained an unacceptable degree of error. I think that that is what is meant by Mr Robin Stewart QC in his judgment in Mount Banking Corporation v Cooper [1992] 2 EGLR 142 at p145D. Third, where the valuation is shown to be outside the acceptable limit, that may be a strong indication that negligence has in fact occurred. That is said in
55. Earlier in his judgment, at page 173, Buxton LJ had also indicated how a trial judge ought to go about his task:
“In order to determine whether the advice contained in the 12 June assessment was negligent, that is to say, whether the figures set out in the assessment were negligently stated, it was necessary, or if not necessary almost inevitable, that the court should form a view as to what was the correct or true value of the property; that is what would have been the correct figures to include in the assessment. That step has to be taken because a necessary step in determining whether a particular valuation was negligent is to consider the extent to which the valuation diverged from what would have been a correct valuation, and the reasons for that divergence.”
156. The second approach can be seen in the advice of the Privy Council in Lion Nathan Ltd v. C-C Bottlers Ltd [1996] 1 W.L.R. 1438 which was given by Lord Hoffmann. He said, at 1445B-H
“As has been said, a forecast is always the forecaster’s estimate of the most probable outcome, the mean figure within the range of foreseeable deviation. The judge appears to have assumed that if a figure would have been within the range of foreseeable deviation from the mean of a properly prepared forecast, it must follow that it would have been proper to put that figure forward as the mean. ‘This proposition has only to be stated to be seen to be fallacious. There is no connection between the range of foreseeable deviation in a given forecast and the question of whether the forecast was properly prepared. Whether a forecast was negligent or not depends upon whether reasonable care was taken in preparing it. It is impossible to say in the abstract that a forecast of a given figure “would not have been negligent.” It might have been or it might not have been, depending upon how it was done. Assume, for example, that the vendor had forecast $1.25m and that the limits of foreseeable deviation would have been regarded as $50,000 either way. Assume that the forecast was unexceptionable in every respect but one: there had been a careless double counting of sales which, if noticed, would have reduced the estimate by $25,000. To that extent, the estimate has not been made with reasonable care. If on account of some compensating deviation the outcome is $1.25m. or more, the purchaser will have suffered no loss and the vendor will incur no liability. But if the outcome is less than $1.25m., their Lordships think that the purchaser is entitled to say that if the estimate had been made with reasonable care, the figure put forward by the vendor as the mean and upon which he relied in fixing the price, would have been $25,000 lower. To this extent, he has suffered loss by reason of the breach of warranty. It is nothing to the point that the outcome is still within what would have been predicted as the limits of foreseeable deviation. His complaint is that the whole range of possible outcomes would have been stated as $25,000 lower. The purchaser has accepted the risk of any deviation attributable to factors which were unforeseeable, unknown or incalculable at the time of the forecast. He has accepted the risk of such deviation whether its true extent would have been foreseeable at the time of the forecast or not. But he has not accepted the risk of any deviation which is attributable to lack of proper care in the preparation of the forecast. The only tolerable forecast is one which, on its facts, was prepared with reasonable care.”
157. In
158. In relation to Buxton LJ’s observations in Merivale Moore on the role of the trial judge, Lewison J. noted, at para [60],
“This passage suggests, first, that there is a “correct or true value” of a property, rather than simply a “bracket” and, second, that the court must decide that true value before embarking on the question whether the impugned valuation was negligent. In deciding that question the court must consider both the extent of the divergence from the true value, and the reasons for the divergence. Absent empirical proof of the “true value” of a property on a given day (e.g. an open market sale of that property on that day), the “true” value must mean the figure at which the court values the property, having heard expert evidence. However, if the acid test of liability is whether the impugned end result falls outside a bracket, it is not clear why the court must decide what the “true” value of the property was, rather than simply deciding the bracket.”
159. Lewison J. also plainly thought that as a result of observations of Mance LJ in the Arab Bank case, it remains arguable that if the valuer’s engagement was to do more than merely produce a result within the range of reasonably foreseeable deviation, then the court ought to apply the approach displayed in Lion Nathan. However, in a case where a valuer is simply employed to place a figure upon a property, Lewison J. concluded that he was bound by the approach set out in Merivale Moore to which I have referred.
160. In this case, both sides invited me to adopt the Merivale Moore approach. Accordingly, I proceed upon the basis that it is a necessary pre-condition for any finding of negligence in this case that I should find that the open market value or the rental value given by Colleys for Flat 17 fell outside “the bracket” — i.e. outside the permissible margin either side of the “right” open market and rental figures which a competent and careful valuer ought to have arrived at in respect of Flat 17 after making all the necessary inquiries and paying proper regard to the then state of the market.
161. Both counsel also agreed that I should not use hindsight at the final stage of the inquiry in determining whether the way in which Mr. Collins arrived at his valuation was in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession in accordance with accepted professional standards.
162. However, Mr. Noble submitted to me that I could additionally use hindsight to determine the “true” or “right” value of Flat 17 at the first stage of my inquiry. Mr. Noble particularly urged me to do so given the evidence as to the substantially lower rental actually obtained for Flat 17, together with the low sale price eventually achieved in what was a rising property market between 2002 and 2006. The use of hindsight and events after 2002 also featured strongly in the expert evidence of Mr. Randall, who was called by Mr. Scullion.
163. In my view, given in particular the observations of Watkins J. in Singer & Friedlander v. John D Wood & Co and the comments of Buxton LJ as to the approach of a trial judge in Merivale Moore to which I have referred above, I do not think that the “hindsight” approach is appropriate. Those judgments both suggest that the “right” value to be determined by the court is the value which the court, after hearing expert evidence, considers would have been placed upon the property at the time of valuation by a competent, careful and experienced valuer after making all the necessary inquiries and paying proper regard to the then state of the market. The application of the bracket then reflects the fact that property valuation is not an exact science and that there could foreseeably be a reasonable deviation between valuers either side of that figure.
The “right” open market value of Flat 17
164. The expert surveyors and valuers in this case are a very substantial distance apart. Mr. Randall was of the view that the open market value of Flat 17 in September 2002 was only £250,000. Mr. Smith, who was called by Colleys, was of the opinion that the open market value of Flat 17 in June 2002 was £330,000, and that the figure of £353,000 which Mr. Collins placed upon the property “would be considered realistic”.
165. In seeking to ascertain the “right” value of Flat 17, both experts agreed that it would be appropriate to have some regard (though they differed on how much and with what adjustments) to completed sales at arm’s length of flats within
166. In particular, Mr. Smith suggested that a careful and competent valuer would have been satisfied by the six comparables from within
167. Before examining the comparables which were available at the time of the Valuation Report and resolving those issues as to how they might have been used, I should first say a little more about the different features of the flats at
168. So far as comparisons between flats on different floors of the development are concerned, it was common ground between the experts that the impact of the road noise and activity outside the front of the building would decrease and security would increase as one moved from the ground floor to the first floor. Plainly the view from and light in the flats would also improve. As such it is obvious that flats at the front on the first floor would be more valuable than the equivalent flats underneath them.
169. However, although the flats on the second floor at the front of the building would be further away still from the road noise and have slightly improved views and light, all second floor flats suffered from internal intrusion from mansard (pitched) roof slopes which lowered the ceiling height in some part of the rooms and would therefore limit the use to which the floor and wall-space under the sloping roof could be put. Although Mr. Smith sought to suggest that these sloping ceilings “provided character” to the second floor flats, from the photographs which I have seen I think that this was an over-optimistic assessment. In my judgment Mr. Randall was more realistic in his opinion that most purchasers or tenants would look upon this feature unfavourably.
170. Accordingly, whilst it is not easy to make any generalization about the comparison between flats on the ground floor and the second floor of the building, in my judgment the flats on the second floor of the building would be less attractive and hence less valuable than flats of equivalent size and position on the first floor of the building.
171. I therefore turn to consider the comparables which, by reason of completed sales or at very least exchanged contracts, were available to Mr. Collins at the time he prepared his valuation of Flat 17 in June 2002 and which formed the basis of his retype Valuation Report of 3 September 2002. Initially I do so on the simple basis that they represented genuine sales, and without making any allowance for the possibility that the “headline” figures might not have been reduced to take into account any incentives.
172. Flat
173. Flat 3 was a ground floor flat which faced to the front of
174. As I have indicated, there were pros and cons of a ground floor flat as against a second floor flat, but the main feature in favour of Flat 3 was its size. Even without further discount for the sloping roofs of Flat 17, Flat 3 was significantly larger than Flat 17 and had a kitchen that was wholly separate from the other rooms in the property. Both experts thought that Flat 3 was more valuable than Flat 17, and in my judgment Mr. Randall was right in his view that the size of Flat 3 made it significantly more valuable than Flat 17.
175. Flat 4 was a first floor flat to the rear of the building, immediately above Flat 2. It had a balcony leading off its living room and overlooking the garden, and, with that feature, was larger than Flat 17. Mr. Collins was told by the sales representative that Flat 4 had sold for £375,000 and it was one of Mr. Collins’ comparables. That figure was incorrect: in fact, the sale of Flat 4 completed in early May 2002 for £335,000. It can be said with some confidence that due to its rear facing location, its position on the first floor and its significantly larger size (including balcony), Flat 4 was plainly a more valuable property than Flat 17.
176. As I have said earlier, Flat 6 was sold to Mr. Hunter, but contracts had not been exchanged and the sale price had not been finalized at the time that the Valuation Report of Flat 17 was prepared. For that reason alone it was not a reliable comparable. There were, however, also other reasons why Flat 6 should not have been used by Mr. Collins as a comparable. I shall return to those later in this judgment. For now, I simply note that in any event Flat 6 was a front-facing flat on the first floor that was markedly larger than Flat 17. In my judgment it was therefore significantly more valuable than Flat 17.
177. Flat 7 was a flat of almost identical size to Flat 17, and, like Flat 17, was located on the second floor of
178. Flat 9 is a significant property. It was of almost identical size to Flat 17, and like Flat 17, was located at the front and on the second floor of
179. Flat 11 was also a property marked on the sales brochure with a cross, signifying that it had been sold at the time that Mr. Collins was performing his valuation of Flat 17. Again, however, its price was not volunteered and Mr. Collins did not ask. Flat 11 had been sold in May 2002 for a headline price of £299,950. It was smaller than Flat 17, and one of its bedrooms suffered from being a triangular shape. It was, however, quieter and not affected by sloping roofs because it was on the ground floor to the rear. One further advantage of the flat was that it had its own patio, formed by the space between the building and the curved ramp down to the underground car parking space. However, the experts did not agree whether this was a significant attraction or not: Mr. Randall thought that the ramp was well shielded and that the patio gave Flat 11 better amenity value than Flat 17, whilst Mr. Smith thought that the proximity of the ramp spoilt the aspect of the flat. Whilst I do think that Flat 11 would have been a valid comparable for Flat 17 I find it difficult to resolve these differences between the experts.
180. The final comparable that I should mention at this stage is Flat 15. This was directly above Flat 11 on the first floor to the rear. If one included its balcony, it was of a very similar size to Flat 17, but like Flat 11 it had a triangular second bedroom. In its favour it benefitted from its location at the rear of the building and it did not have the sloping ceilings of the second floor. Flat 15 was sold for £305,000 and its sale completed in July 2002. I think it a reasonable assumption that contracts had been exchanged when Mr. Collins produced his valuation in June 2002 and on that basis the experts agreed that it was a suitable comparable, subject to adjustments, for Flat 17. Again, however, I find it difficult to reach a clear conclusion as to whether it was more or less valuable than Flat 17, and I do not think the experts were at one on this.
181. I next consider the extent to which a competent valuer would have had regard to the “notified sale price” of Flat 17. The relevant RICS guidance warns valuers against placing “undue reliance on the notified sale price”. In my judgment this was a case in which that warning was particularly apposite.
182. The evidential value of the notified sale price as a guide to the open market value must depend upon the circumstances in which that price has been arrived at. I can well see that a notified sale price which is the result of competitive bidding or arms’ length negotiations between a vendor and a prospective purchaser or purchasers may carry some weight. In such a case, it might be that, as Mr. Collins said in evidence, the starting point for a valuation was the purchase price negotiated between two parties.
183. But the situation regarding Flat 17 at
184. Later in this judgment I will consider whether the circumstances in which Mr. Collins received instructions simultaneously from JR Residential to value ten flats at
185. I should also consider whether there was a possibility of discounts having been given in relation to the headline sale prices of the properties that Mr. Collins used as his comparables. If this was so and if discoverable by a careful and competent valuer, it would serve to reduce the “right” value of Flat 17.
186. Whilst Mr. Leech candidly accepted that there was evidence of price manipulation in relation to the subsequent sales of flats, he submitted that there was no or no reliable evidence of widespread discounting in connection with the earlier sales. The only evidence that the properties used as comparables might have been subject to discounts was evidence given by Mr. Randall, who said that he had spoken to the owner of Flat 11 who had volunteered that he had actually only paid £285,000 for his property, rather than the headline figure of £299,950.
187. In these circumstances I do not think that it would be right for me to discount the recorded sales prices for the comparables at
188. Having considered the factors at play in respect of the comparables and asking prices at
“The valuation of brand new property being sold by a developer should be approached in the same manner as any other valuation the subject of the Annex to PS9. It is the property as new which is to be valued, but comparable evidence can be drawn from both sales and resales on the development. Where there has been a satisfactory number of recent sales of adjacent similar properties as the property being valued, this evidence is likely to be of greater importance. However, where the Valuer is not satisfied that this situation exists, greater emphasis can be placed on prices realized for new property in comparable new developments and within the second hand market.”
189. On the assumption that a valuer took sufficient care to be satisfied as to the accuracy and integrity of his information, I cannot say that a reasonable valuer acting in accordance with the RICS guidelines should have been dissatisfied with the available evidence of sales of other flats in
190. In that regard, although Mr. Randall sought to draw comparisons with information which he had obtained from Land Registry records of two other sales of flats in different developments in Cobham in February 2002, together with sales of flats in two other developments in 2003 and 2006, I think that Mr. Leech was correct to point out that this evidence depended upon the use of hindsight. The facility to search Land Registry records used by Mr. Randall was not available to Mr. Collins in 2002 and the other sales from 2003 and 2006 referred to by Mr. Randall plainly post-dated the valuation of Flat 17 in 2002.
191. Taking all these points into account, I consider that a reasonably competent and careful valuer who restricted himself to the comparables available within
192. In conclusion on this issue I would add that the value of £300,000 to which I have referred above gains some support from the fact that it is the price which Mr. Scullion actually agreed to pay for Flat 17 – an amount which it can be presumed represented the product of a commercial negotiation between Linden Homes and POD.
193. As a check, (and recognizing that it involves the use of hindsight) I also think that when one takes into account the general rise in property prices between 2002 and 2004, a figure of £300,000 is consistent with Mr. Scullion’s asking price and the offer which he received for Flat 17 in 2004.
194. Although it might be suggested that the figure of £300,000 looks high given that Mr. Scullion ultimately sold the flat for only £270,000 in 2006, I think that several factors suggested by the experts may have been at work by then to reduce the price actually obtained (and certainly that was the evidence of Mr. Smith). The first was that by 2006 the flats in Fieldgate Court could no longer command a “new build” premium (which the evidence indicated could be as high as 15%); the second is that Fieldgate Court was no longer the only new build development of flats in Cobham and so would have lost some scarcity value by reason of the increase in supply of similar properties; the third is that whilst prices had generally continued to rise, the figures I have seen suggest that the property market was not quite as buoyant by 2006 as it had been in 2002; and the fourth is that the property had been on the market for some time.
The “bracket”
195. Mr. Randall suggested that a deviation of 5% either side of the “right” value of Flat 17 would have been reasonable, whereas Mr. Smith was of the view that a greater deviation would have been permissible, namely the “normal” bracket of 10% either side which was referred to by Watkins J. in Singer & Friedlander.
196. I think that there is some force in the point that because there were a number of comparable flats of identical standard of build, finish and fittings in
197. However, I do not think I need to decide this point, for the simple reason that even on the basis that the normal bracket of 10% either side is applied to the figure of £300,000, so that the bracket would extend from £270,000 to £330,000, Mr. Collins’ valuation of £353,000 lies far outside the acceptable range of deviation.
198. In conclusion, I have no doubt that Mr. Collins’ valuation of Flat 17 at £353,000 exceeded by some margin the maximum value which any competent and careful valuer could have ascribed to the property.
The Bolam test
199. That conclusion requires me to consider the next question: did Mr. Collins overstate the value of Flat 17 because he acted other than competently and in accordance with the practices regarded as acceptable in his profession?
200. There are a number of points which lead me to conclude that the answer to this question must be “yes”.
201. I accept Mr. Randall’s evidence that if a valuer follows the RICS guidance to which I have referred above and intends to rely solely upon comparables from within a development, he ought to take care to ensure that he obtains a full range of comparables and that his information is as reliable as possible. In that regard, I consider that the failure by Mr. Collins to ascertain the sale values of Flats 9 and 11 is inexplicable. As I have indicated, when Mr. Collins visited
202. In the case of Flat 9 Mr. Collins’ failure to inform himself of the sale price is particularly remarkable. Of all the flats in the block, it was obvious that Flat 9 was the closest comparable to Flat 17. It was of the same size, it was located on the same floor and it had the same front-facing outlook as Flat 17. Whatever the merits of having six other comparables might have been, for the purposes of the valuation of Flat 17, Flat 9 represented the single most important comparable, and yet Mr. Collins did not ask for its sale price. There is no reason to suppose that, if Mr. Collins had asked, he would not have been told the true position — or that he could not simply have found out the price from Churchods. The simple fact is that Mr. Collins’ failure to inform himself of the sale price of Flat 9 meant that he was deprived of a critical comparable that was far more relevant to the valuation of Flat 17 than any of the other comparables which he then deployed.
203. Having failed to ascertain the most relevant comparable, Mr. Collin’s use of the comparables which he had obtained was illogical. Of the six potential comparables which Mr. Collins listed in the BOS Valuation, three were flats which were of approximately the same size as Flat 17 (Flats 2, 7 and 15) and three were flats which were substantially larger (Flats 3, 4 and 6). If regard is had to the similarly sized flats, the sales prices were between £305,000 and £320,000; the larger flats ostensibly had sale prices of between £365,000 and £390,000.
204. It is not apparent how Mr. Collins arrived at his various valuations from the six comparables listed in the BOS Valuation. He listed the same comparables without differentiation for each of the flats which he valued. However, when Mr. Collins came to select three comparables in the subsequent Valuation Report for Flat 17, he chose only one similarly sized flat and two of the larger flats. No explanation was offered as to why in making this selection, Mr. Collins disregarded Flat 7, the only similarly sized flat on the same floor as Flat 17, and instead thought fit to select the two much larger flats on the first floor which had the highest sale prices of all the comparables which he listed.
205. Moreover, as I have indicated, Mr. Collins’ choice of the two larger flats in the Valuation Report meant that he had in fact selected two inaccurate comparables. Flat 4 had sold for £335,000 and not £375,000; and Flat 6 had not been sold at all. The problem was compounded by Mr. Collins’ misstatement of the price for Flat 6 as £390,000 instead of £370,000, which was the figure which Mr. Collins had been given by the sales representative. Both errors in relation to Flat 6 were matters of which Mr. Collins should have been aware when he prepared his Valuation Report in September 2002 for the reasons I have given above.
206. Further, when one considers that Mr. Collins’ valuation of Flat 17 was the very specific figure of £353,000 (i.e. within £50 of the asking price he had been given by Linden Homes and the proposed sale price given by Mr. Garvin rather than, say, a round £350,000 or £355,000), I infer that Mr. Collins placed too much weight upon the notified price that he had been given rather than assessing critically the value of the property by having regard to the characteristics of the property and making appropriate adjustments to the sales prices of comparable properties.
207. I have already indicated that little weight should have been attached to the headline price notified to Mr. Collins because it was not the product of any market process. However, it was also particularly inappropriate in this case because of the discount to the stated price which Linden Homes were prepared to give to a purchaser.
208. The experts weed that the possibility of incentives such as discounts from the asking price being available in new developments was a recognised phenomenon in 2002. ‘That much was apparent from the RICS guidance note 3.4.8 which, after warning against placing undue reliance upon the notified sale price continued,
“If the valuer is aware that any payment or personal incentive is to be available to the prospective purchaser if he purchases the particular property, possibly within a prescribed period, the valuer should consider whether it has an effect upon the weight which should be attached to the notified sale price as evidence of open market value. Evidence of other transactions which have taken place reflect the mortgage market, with any incentives available generally.”
209. Although the experts agreed that discounts and incentives were a recognized phenomenon, they differed on the question of the extent to which, in 2002, a valuer of properties in
210. In my judgment, in the circumstances which were known to Mr. Collins in this case, a competent valuer would not simply have accepted the price given to him at face value for Flat 17, but would have made inquiries to check that no discounts were to be given. It must be recalled that Mr. Collins was first asked to produce a valuation of Flat 17 as one of a batch of ten valuations requested by JR Residential. It was obvious that these simultaneous instructions were not a coincidence. To any competent valuer, this would have signified the involvement of a third party interested in acquiring, or coordinating the acquisition of a substantial number of the remaining properties in the building. Such a third party would be in a strong position to seek and to obtain a discount on the asking price from the developer.
211. Mr. Noble put this point to Mr. Collins in cross-examination and suggested that he must have been “suspicious” when he received a large number of simultaneous instructions, and must have thought that they were the product of some concerted effort by POD to get buyers in for
212. I have no reason to believe that Mr. Collins was aware of the identity of POD at the time when he was first asked to value Flat 17, and I also think that Mr. Noble put it too high when suggesting that the multiple instructions from JR Residential were “suspicious”. But, whether or not Mr. Collins thought so at the time, I think that he was right that such multiple instructions were out of the ordinary for the reasons I have given. I think that they necessitated further inquiries of the developer if (contrary to the points I have made above) the valuer was proposing to give any weight either to the asking prices for the flats or to any proposed sale price as an indicator of their true value.
213. In his closing submissions, Mr. Noble suggested that for the reasons I have summarised, Mr. Collins did not give any real independent thought to what he was doing and that he was unduly “compliant” in producing valuations that supported the asking or purchase prices that were notified to him. I think that these criticisms were well-founded for the reasons that I have given.
214. I also think that Mr. Collins’ general approach at the time is well illustrated by two further matters upon which Mr. Noble placed much reliance.
215. The first relates to Flat 6 which, as it will be recalled, was one of Mr. Collins’ comparables for Flat 17. In early September, Mr. Collins had produced a valuation of Flat 6 at what he had been told in Mr. Garvin’s letter of 29 August 2002 was an agreed sale price of £378,950. That valuation used three comparables: a first floor flat at £275,000, a ground floor flat at £320,000 and a ground floor flat at £365,000. Assuming that the figure of £275,000 was a typographical error for £375,000, which was what Mr. Collins (mistakenly) thought was the price for Flat 4, these would appear to correspond to Flats 4, 2 and 3 respectively.
216. In mid-September 2002 Mr. Garvin contacted Linden Homes and obtained a letter from them dated 17 September 2002 which stated,
“Please accept this letter as confirmation that Plot 6 at [
Quite why Linden Homes should have made the reference to previous valuations of Flat 6 was not explained.
217. Mr. Garvin then faxed that letter to Mr. Collins at Colleys on 18 September 2002 stating,
“Please see attached fax from Linden Homes re my mistake on figures. Plot 6 agreed sale/purchase price is £389,950 and not as I had stated £378,950.
Obviously the ‘undervaluation’ has placed myself, Tom Hunter and
Please call me upon your return to discuss.”
218. On 26 September 2002 Mr. Collins received a fax from an underwriter at The Mortgage Packaging Centre (“MPC”) which appears to have been acting as an intermediary for the application to Mortgages plc. That fax referred to an earlier conversation with Mr. Collins and asked for a fax giving the reason for the increase in his valuation of Flat 6. The fax suggested that Mr. Collins might say something along the lines of,
“I valued at the property at £379,000 thinking that this was the purchase price agreed, however this was not right and upon reflection of the current marketability of properties in the area the figure of £389,950 is a more realistic open market value figure. This figure is backed by my comparable evidence.”
219. However, Mr. Collins did not adopt that wording. He sent back a letter which omitted the suggestion that he had reflected upon the current marketability of properties in the area and which ascribed the change simply to an alteration in the agreed purchase price. His letter stated,
“I confirm that the initial valuation of £379,000 was on the basis that this was the purchase price agreed, however, this was not the case, the figure was an error and in fact the agreed purchase price was £389,950. This valuation is in line with sales of similar flats within [
220. That wording did not, however, satisfy MPC, because on 2 October 2002 they sent a copy of the fax from Mr. Collins back to Mr. Garvin with some suggested further changes to the wording. On 7 October 2002 Mr. Garvin forwarded the suggested revised wording to Mr. Collins under cover of a fax which said,
“Please see attached letter on preferred wording for Mortgages plc. Hopefully you will be able to assist and we can put this matter to bed.”
221. Mr. Collins evidently did feel able to assist, because on 9 October 2002 he sent a revised letter to MPC which adopted the wording suggested to him and stated,
“I valued the above property at £379,000 thinking that this was the purchase price agreed, however this was not correct. Based upon the current marketability of properties in the area the figure of £389,950 is a more realistic open market figure. This figure is backed by comparable evidence of sales within the block.”
222. Mr. Collins then produced a retype of the valuation of Flat 6 at the new figure of £389,950. He used the same comparables as on the valuation which he had previously signed on 4 September 2002 (including the comparable for Flat 4 which was still listed at the (doubly) erroneous figure of £275,000). Mr Collins and a colleague both signed the new valuation next to a printed date for their signatures of 4 September 2002. In his evidence, Mr. Collins accepted that this report had in fact not been signed before October 2002.
223. In cross-examination, Mr. Collins said that he did not see a problem with being asked to provide the revised wording and valuation at Mr. Garvin’s request. He maintained that it reflected new information about the intended purchase price and that it was common for there to be price changes at the end of a build. He also said that the new valuation appeared to be within the acceptable “bracket”, that it had support from comparables (though he did not explain which those were), and that he was content that the wording of the letters that he signed reflected what had happened.
224. As Mr. Noble pointed out, this evidence was somewhat different from Mr. Collin’s second witness statement. That statement had been signed at a time when Mr. Collins was aware that the point was being taken that his valuations had been influenced by Mr. Garvin. In it, Mr. Collins had said,
“…the original valuation of Flat 6 was carried out by Richard Saks for [BOS] and he valued that property at £375,000. I myself carried out a second valuation of [Flat 6] on 4 September 2002 i.e. before receiving the letters dated 17 September 2002 and 18 September 2002 when I reached a valuation of £390,000….1 cannot explain which valuations had been seen by Mr. Garvin at the time of his letter, but I would have had no difficulty in providing a valuation at £390,000, because I had already placed a valuation of £390,000 on Flat 6.”
225. Whilst I accept that this sequence of events took place after the Valuation Report for Flat 17 had been signed, neither expert thought that the way in which the “agreed” price notified to Mr. Collins had changed from £378,950 to £389,950 was normal. Mr. Randall was heavily critical of Mr. Collins’ response to the requests from Mr. Garvin; and Mr. Smith also said that he would not have been “particularly happy” being asked to adjust his valuation in this way. For my part I think that Mr. Collins’ second witness statement was not accurate, and it was an attempt to deflect justified criticism of his compliant behaviour in relation to the valuation of Flat 6. I also do not think that Mr. Collins’ oral evidence which sought to pass off what had occurred as routine and justifiable was candid or credible.
226. The second matter raised by Mr. Noble concerned Mr. Collins’ rental valuation of Flat 14. This was one of the flats which JR Residential had requested be valued: it was bought by Turning Point in September 2002.
227. Mr. Collins produced a valuation of Flat 14 which was dated 20 June 2002. That valuation gave an open market value of £379,000 and an estimated open market rental of £2,200 pcm.
228. However, Mr. Collins was shown a copy of a fax transmission sheet addressed personally to him from Ms. Lynch at JR Residential which was dated 25 June 2002 and which bore a Colleys received stamp of 26 June 2002. In that fax, JR Residential stated that in relation to Flat 14,
“..we feel that the rental assessment shown on the report is on the low side as the rental re apartment 10 — a lower valued apartment is £200 pcm higher, also the rental re [Flat 19] a value of only £1,000 less than [Flat 14] you have again shown the rental at £2,200 pcm.
Mr. Collins, also attached is a letter from an independent letting agent confirming his rental figures for the property.
In light of the above we politely request that the rental figure be increased re [Flat 14] to at least that shown on [Flats 10 and 19].”
229. In cross-examination Mr. Collins said that he could not recall ever having seen this fax. He said that the only report he could recall in relation to Flat 14 was dated 20 June 2002 and that it had an estimated rent of £2,200 per month. He said he could not recall ever having produced a second report or a retype of his report in relation to Flat 14 and that there was only one date shown for his valuation report on Colleys’ system. Mr. Collins could not explain the fax from JR Residential and when asked whether he had retyped his original report with an increased rental, he restated that there was only one report shown on the system.
230. Again, I did not find Mr. Collins’ explanation of this fax credible. The fax from JR Residential was directly addressed to him and it bears a Colleys’ received date stamp. Mr. Collins did not offer any explanation of why it would not have come to his attention in the ordinary course of business. The message it carries is clear: prior to 25 June 2002, Mr. Collins had prepared a report in relation to Flat 14 which gave an expected rental value of £2,000 pcm, which JR Residential were questioning because he had ascribed a higher rental value of £2,200 pcm to two other flats (10 and 19).
231. If there was only ever one report prepared by Mr. Collins which was dated 20 June 2002 and which already gave a rental value for Flat 14 of £2,200 pcm, the fax from JR Residential, and the attempts to persuade Mr. Collins to reconsider his valuation, were wholly misconceived. Had that been the case I have no doubt that Mr. Collins would have replied and said so, and that he would have remembered the incident.
232. In my view, the only rationale explanation is that Mr. Collins had given an earlier rental valuation in respect of Flat 14 at £2,000 pcm and that he subsequently changed it at the request of JR Residential, retyping his earlier valuation and giving it the same date as the earlier valuation in the same way as he subsequently did with the admitted retype of the valuation of Flat 6.
233. In summary I conclude that Mr. Collins’ open market valuation of Flat 17 was substantially overstated, outside the permissible margin of error, and the result of a failure to act in accordance with the standards of care and competence to be expected of his profession. In my judgment Mr. Collins adopted a compliant and uncritical approach and placed far too much reliance upon the figure which he was given as the developer’s asking price and subsequently as the intended sale price of the property.
The anticipated rental value of Flat 17
234. Although less time was devoted to this subject at trial, both experts agreed that in a buy-to-let transaction, the estimated rental values were as important as the open market values.
235. The problem that faced any valuer seeking to estimate the achievable rental of flats at
236. In these circumstances, Mr. Randall’s evidence was that a competent valuer would have made inquiries of the local letting agents in Cobham who would have had information available as to what was letting and what was not, who would have had a feel for the market, and who could have given some specific guidance. I do not think that Mr. Smith seriously disputed that this course of action would have been appropriate, and I accept that a careful valuer would have made such inquiries.
237. In this respect, however, the difficulty at trial was that the passage of time and a lack of assistance from local letting agents, meant that neither expert had managed to find any contemporaneous evidence as to lets in Cobham in 2002. The only indirect evidence, which was unchallenged, was that when Mr. Scullion consulted letting agents in Cobham in early 2003, he was told that he could not expect to let Flat 17 for anything like the £2,000 which Colleys had predicted, and that he could only expect to let the flat for a little over half that figure. Although that advice plainly post-dated the valuation of Flat 17 by Mr. Collins, there is no reason to suppose that the same advice would not have been offered to Mr. Collins some months earlier if he had inquired.
238. In the absence of evidence of actual lettings, Mr. Smith pointed to two lists of anticipated rentals for
239. Apart from the fact that both of these valuers were in Weybridge rather than Cobham, the difficulty with this evidence is that I have no idea of what might have prompted these lists to be prepared or the basis upon which the figures were arrived at. There was no evidence to put them into context and the most that can be discerned from the letters is that they appear to be indicative values produced as part of some business activity between the agents and Linden Homes. Mr. Randall suggested that they might have been prepared on the basis of capital values provided by Linden Homes, which, if they reflected the asking prices for the flats, would have led to overstated rental figures.
240. Faced with a lack of new-build comparables in Cobham, Mr. Collins did not seek the advice of any local letting agent. Instead, his evidence was that he contacted letting agents in Weybridge seeking details of flats in modern or recently refurbished three-storey buildings with secure car parking.
241. As already indicated, Mr. Collins obtained evidence of three lettings of flats in buildings in Weybridge and referred them in his BOS Valuations. Mr. Randall criticized Mr. Collins’ use of these properties as comparables on the basis that they were of a radically different quality and size and in a far more attractive and convenient location than the flats at
242. The flats in Weybridge to which Mr. Collins referred as comparables were exclusive larger properties with three bedrooms and additional features and facilities such as balconies and extra storage rooms. The experts generally also agreed that they had been finished to a higher standard than
243. On balance, it seems to me that I should prefer the evidence of the reaction of the local letting agents in Cobham when actually consulted by Mr. Scullion as a guide to what they might have told a reasonable valuer in 2002. I think that there is too great a risk that the values given to Linden Homes were driven by factors unrelated to the actual rental which such flats might realistically be capable of commanding in the marketplace. And I think that the three properties selected by Mr. Collins were not true comparables: their rentals ought therefore to have been adjusted downwards by a very significant amount.
244. On that basis, I conclude that if he had consulted local agents, a reasonable and careful valuer would have concluded that Flat 17 would be capable of being let for about £1,100 pcm. Recognizing, however, that a broader margin of error of about 20% would be appropriate in such a case given the lack of direct comparables, I could conceive of a valuer reasonably believing that a rental of up to about £1,350 pcm might have been achievable. However, I do not think that a rental value of £2,000 pcm was remotely realistic.
245. In my judgment, therefore, consistently with the overstatement of the open market value of Flat 17, the achievable rental figure that Mr. Collins gave in his reports for Flat 17 was far in excess of the maximum figure which, even allowing for reasonable deviation and differences of opinion, any careful valuer should have ascribed to the property.
246. In my view, for the reasons that I have given, that overstatement was the result of Mr. Collins’ failure to make the inquiries of local agents that he ought to have made, and his adoption of comparables which were obviously of a much higher quality and in a better location than
Quantum
247. It follows that I find that Mr. Scullion’s claim in negligence against Colleys succeeds on the issue of liability. I therefore now turn to the question of quantum.
248. I have already set out the basis of Mr. Scullion’s claim. However, neither of the parties made any detailed submissions to me on the appropriateness of the method of calculation which was employed.
249. In particular, in his written submissions, Mr. Leech drew attention to what he described as the traditional “Swingcastle” principles of computing recoverable loss suffered as a result of a negligent mortgage valuation: see Swingcastle v. Gibson [1991] 2 AC 223. But Swingcastle was a claim for negligent valuation by a mortgage lender, not by a borrower, and I have some difficulty seeing how the principles apply.
250. Moreover, whilst Mr. Leech criticised Mr. Noble’s schedule for having deducted the alleged value of the property (£250,000) and not the price which it achieved on resale (£270,000), I am not sure why that should logically have been so.
251. My understanding is that in a case of negligent valuation for a purchaser, the proper measure of damages is usually said to be the overpayment for the property purchased by reason of the negligent valuation: see Jackson & Powell (op. cit) at para 10-131. However, in the instant case, on the basis of my findings as to the “right” value of Flat 17, Mr. Scullion in fact ended up getting Flat 17 for a very slight discount (including a deferral of part of the consideration) or about what a careful valuer would have said that it was worth at the time he bought it.
252. It does appear to be the case that by reason among other things of Kings’ negligence, Mr. Scullion was unable to sell the property until 2006, by which time it realised less than its new value in 2002. But I am far from convinced that this means that Mr. Scullion can recover the fall in the market value of the property in this action against Colleys.
253. It may well be that the real loss suffered by Mr. Scullion as a result of the negligent valuation by Colleys lies in the monies which he was forced to spend to service the mortgage and meet outgoings on the flat by reason of the shortfall in the rentals predicted by Colleys. In that regard, Mr. Leech’s written submissions indicated that the schedule produced by Mr. Noble was “broadly accepted” but he said that he wished to have the opportunity to check it against the evidence produced.
254. In these circumstances, I think that the appropriate thing to do is for me to direct that following the handing down of this judgment, Counsel should seek to agree a figure for a basic award of damages that reflects the findings that I have made, together with a draft order. If issues cannot be agreed, I can resolve them, together with questions of costs and any ancillary matters, at a hearing to be fixed for the convenience of Counsel.
255. At that hearing I would also intend to rule, if asked to do so, on the question of contributory negligence. It seems to me that in principle this defence may be available to reduce any award of damages to which Mr. Scullion is otherwise entitled if I were to think that he was in some part the author of his own loss because of a failure to exercise due care and attention in the conduct of his own affairs.
256. However, the submissions that I received at trial on this issue necessarily took polarised positions and were not based on the findings of fact that I have made. Mr. Leech may well wish to revise the written submissions which he made on this point in light of the judgment: Mr. Noble’s written submissions dealt with the point with the utmost brevity and he may wish to supplement them.
257. Accordingly, if, in light of this judgment Mr. Leech wishes to pursue his arguments on contributory negligence, then I direct that he should be at liberty to do so provided that he serves a written skeleton argument on the point, 5 working days before the hearing to which I have referred, with Mr. Noble to respond in writing 2 working days before the hearing.