Defendant valuer engaged by X acting as agent for plaintiff lender – Defendant unaware that X so acting – Valuation report expressed to be for sole benefit of X – Whether plaintiff party to contract as undisclosed principal of X
The plaintiff company (SRF) was created to act as a lending vehicle under a scheme devised in 1988 by two “originators”, Allied Dunbar Mortgages Ltd (AD) and another company (HMC). Using funds obtained from other lending institutions, the sole function of SRF was to make advances on the terms of mortgage loans to be marketed, arranged and administered by the originators. By clause 2 of a “Broking Deed”, AD was appointed as SRF’s agent to make certain types of loan on its behalf and to “exercise all powers, rights and discretions which are necessary or incidental to such appointment”. During 1989, AD reached an agreement with the defendant whereby AD would engage surveyors in the defendant’s employ to carry out some 400 valuations per month in connection with its mortgage business. No mention was made of SRF and all correspondence from AD was on its own headed notepaper. In May 1990 a Mr and Mrs Davis (the borrowers) applied to AD for a special status loan and signed a declaration acknowledging that AD was acting as agents for SRF, who would provide the funding. Details of the property to be secured were forwarded by AD to the defendant’s surveying department who, on June 4 1990, submitted a report, addressed to AD, valuing the property at £400,000. The report concluded with an “Important Notice to the Borrower(s)” which declared, inter alia, that the report had been obtained solely for the purpose and for the benefit of AD. On November 26 1990 the sum of £270,000 was advanced on mortgage to the borrowers. In all relevant documentation SRF was identified as the lender. Following a default by the borrowers the property was sold in September 1993 for £150,000. Seeking damages for an alleged overvaluation, the plaintiff claimed that the defendant was in breach of its contractual duty to exercise due skill and care. Upon the defendant denying any contractual relationship with SRF, it fell to be determined, by way of preliminary issue, whether the plaintiff could sue on the valuation contract as the undisclosed principal of AD.
Held Judgment was given for the plaintiff.
1. As explained in Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199, an undisclosed principal may sue and be sued on a contract made by an agent on his behalf where the agent, acting within his actual authority, entered into the contract with the intention of acting on behalf of the principal, it being immaterial that the identity or even the existence of the principal may not have been disclosed. There was nothing before the court to show that AD was acting outside its actual authority or that AD was contemplating any lender other than SRF.
2. It was otherwise where the contract expressly or by implication showed the agent to be the only principal; however, a party concluding an ordinary commercial contract with such an agent was assumed to be willing to contract with an undisclosed principal unless the circumstances indicated to the contrary. The “Important Notice to Borrower(s)” did not assist the defendant, as it was addressed to the possibility of a tortious claim by a person who was not a party to the contract. Furthermore, it was clear from Siu (supra) that the fact that the contract was too personal to be capable of assignment did not of itself preclude intervention by an undisclosed principal: Collins v Associated Greyhound Racecourses Ltd [1930] 1 Ch 1 distinguished.
Gerald Rabie (instructed by the solicitor to Household Mortgage Corporation plc) appeared for the plaintiff; Jason Evans-Tovey (instructed by Kennedys) appeared for the defendant.