Claimant making loan on property — Defendant preparing valuations — Property contaminated with mundic — Property worthless — Defendant maintaining claimant fixed with constructive knowledge for purposes of Limitation Act 1980 — Claim dismissed
In 1989, a third party approached the claimant building society for a mortgage on a property in Cornwall. The claimant provided the mortgage on the basis of a valuation by the defendant. In 1991, a further advance was authorised, following a second valuation report prepared by the defendant, and, in 1994, it prepared a third valuation report.
In 1997, the claimant commenced proceedings for possession. A 1998 revaluation of the property for the purposes of resale revealed the presence of mundic, a contaminatory mining waste specific to areas of Cornwall: the property was consequently unmarketable.
The claimant alleged that it had suffered loss and damage as a result of its reliance upon the defendant’s surveys. The defendant contended that the claimant had been fixed with constructive knowledge of the problem in 1994, when the possibility of mundic contamination was first brought to its attention, and that, under section 14A of the Limitation Act 1980, it was therefore statute-barred from pursuing its claim. However, the claimant maintained that, although a test for mundic had been available in 1989, the defendant had withheld that information in its 1991 report, thereby deliberately concealing a fact relevant to its right of action. Consequently, it claimed, time did not run for the purposes of section 32 of the 1980 Act.
Held: The claim was dismissed.
It was apparent that, by at least 1989, the problem of mundic contamination in certain areas of Cornwall had become a cause of concern to surveyors and lending institutions, but that the situation with regard to testing was unclear. The debate about how and when to test, and the reliability of the test, was effectively terminated when the RICS introduced guidelines in 1994. The defendant had drawn the claimant’s attention to the guidelines in its 1994 report. Accordingly, as at that date, the claimant had been fixed with clear constructive knowledge of the mundic problem for the purposes of section 14A.
Although it was true that the claimant did not know for certain that the property was affected, it had not taken steps to ascertain this. The test propounded in Paragon Finance plc v Thakerar & Co [1991] 1 All ER 400 was: “How would a claimant building society have acted if it had had adequate but not unlimited staff and resources, and was motivated by a reasonable but not excessive sense of urgency?” Knowing what the claimant knew about the property in 1994 — its value, the level of borrowing, the precarious financial circumstances of the borrower, the possibility that the blockwork was suspect and the existence of a reliable test — it had not acted with due diligence. Its assertion that the defendant had deliberately concealed relevant facts, which amounted to an allegation of very serious professional misconduct, was unfounded. Even if, on the balance of probabilities, such concealment had taken place, the claimant had an onus to demonstrate that it had not discovered the fact when acting with due diligence, and it had failed to do so. The claim was therefore statute-barred.
John Virgo (instructed by Morgan Cole, of Cardiff) appeared for the claimant; Ian Holtum (instructed by SJ Cornish, of Tiverton) appeared for the defendant.
Vivienne Lane, barrister
