Bank loan to purchase development site — Open market valuation — Development never built — Default on loan repayments — Site sold for less than purchase price — Plaintiffs seeking damages for negligent valuation — High Court holding valuation negligent — Plaintiffs contributorily negligent — Judgment for plaintiffs
The plaintiffs lent £11m to a partnership formed to develop Fergusons Wharf in the Isle of Dogs in London’s Docklands. The intention was to build an innovative river-facing block of 422 flats, with 458 parking spaces. The loan was to be short-term to help cover the partnership’s preconstruction costs, including the acquisition of the site. The main security for repayment of the loan was a first mortgage of the site. The defendants, who were surveyors and valuers, provided a valuation, dated June 29 1990, in the sum of £15m.
The development was never built and in February 1992 the partnership defaulted in repayment of the loan. The site was sold on August 5 1994 for £2.477m. The plaintiffs quantified their loss including interest to March 20 1995 at £9,753,927.099, with interest accruing at £1,675 per day. The defendants did not challenge those figures. The plaintiffs claimed that the defendants, in giving their valuation, owed a duty of professional care and were in breach of that duty. The plaintiffs said that a proper open market valuation of the site on June 29 1990 would not have exceeded £5m and that, if they had been properly advised, they would not have made the loan or any loan.
Held Judgment for the plaintiffs.
1. The standard of care by which the defendants were to be judged was that of ordinarily skilled property valuers.
2. On the evidence, it was plain that the defendants intended the plaintiffs to rely on their report as an open market valuation. The sum of £15m was an unsupportable valuation and was negligent. The negligence caused the bank’s loss, which was foreseeable.
3. The question was whether the plaintiffs’ own fault contributed to their loss and if so to what extent.
4. Contributory negligence did not involve a breach of duty owed by a plaintiff to a defendant, but the failure by a plaintiff to use reasonable care to protect its own interests. A plaintiff’s fault must be causative of the damage in respect of which it claimed: see Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1994] 2 EGLR 108.
5. In the present case, the plaintiffs’ fault contributed to the loss because they: failed to make a sufficiently rigorous examination of the eventual report; did not rigorously reassess the risk classification of the loan; and did not give direct explicit instructions to the defendants.
6. The court had to make a broad common-sense judgment of the extent to which it was just and equitable that the damages recoverable by the bank should be reduced having regard to their share in the responsibility for the damage. The defendants’ seriously erroneous open market valuation was the major cause of the loss. It was just and equitable that the bank’s fault should reduce the damages recoverable by 25%.
7. The evidence justified the conclusion that any valuation which relied on selling prices and addressed the UK residential market in the Docklands needed to discount 1988-89 prices by at least 15% for June 1990. Not to make such a discount was unsupportable and outside the bounds of competence of an ordinarily skilled valuer. On the evidence the proper open market value of the site on June 29 1990 was £5m.
Simon Goldblatt QC and Charles Douthwaite (instructed by Alsop Wilkinson) appeared for the plaintiffs; John Slater QC and Marion Egan (instructed by Rowe & Maw) appeared for the defendants.
