Negligence — Claim against estate agent fails — Curious case in which a letter, the subject of the action, appeared on the face of it to be an independent valuation of a property but turned out to be a ‘tactically jaundiced letter’ or ‘spoof’, part of a plan to which the complainant was a party — Appeal from a decision by Mr Francis Ferris QC, sitting as a deputy High Court judge — The property in question consisted of old factory buildings, some more modern ones and some undeveloped land, all situated in Muswell Hill, with planning permission for construction of new factories and the possibility of permission for residential development — The property was in the hands of the liquidator of a family company following personal disputes — The appellant (plaintiff below), a member of the family, agreed to purchase the property from the liquidator for £640,000 — Later, in circumstances which are relevant to the present litigation, he withdrew from this bargain and made a fresh offer of £400,000 — The liquidator refused this offer and shortly afterwards sold the property to someone else for £730,000
appellant’s revised offer of £400,000 followed upon a letter to him from the
respondent estate agent (defendant below) in which the latter said that he had
been able to do more research as to costs of remedial work and into market
conditions, had reappraised the property, and as a result considered that ‘a
realistic value for your purposes in the long term is £400,000’ — The appellant
claimed that he had relied on this letter, had been misled thereby as to the
true value of the property, and had consequently suffered damage by losing a
favourable purchase — In the action which the appellant brought in the High
Court, however, the judge accepted the respondent’s evidence that the letter
was never intended as a genuine independent valuation, that it was known to the
appellant to be sent as a bargaining counter in negotiations with the
liquidator, that the appellant did not rely on it, and that when the plan
misfired the appellant decided to turn round and blame the respondent — The
judge dismissed the claim
Mustill LJ observed that the respondent’s letter taken by itself seemed to
support the appellant’s case, but the letter had to be considered in the
context of the contemporary events and documents — The judge below had held on
the evidence that, behind the appearance in the letter of a straightforward
valuation, a concerted plan was afoot, to which the appellant was a party, to
disparage the property — Despite criticisms made by the appellant, there was
nothing to justify the Court of Appeal in overriding the assessment made by the
judge — Appeal dismissed
No cases are
referred to in this report.
This was an
appeal by the plaintiff, Sam Tenenbaum, from a decision of Mr Francis Ferris
QC, sitting as a deputy High Court judge, dismissing the plaintiff’s claim
alleging negligence against the defendant (present respondent), Douglas V
Garrod, an estate agent and valuer.
Victor Levene
(instructed by Derrick & Co) appeared on behalf of the appellant; William
Crowther QC and Roger Hetherington (instructed by Berrymans) appeared for the
respondent.
Giving
judgment, MUSTILL LJ said: This appeal stems from an action brought in the
Chancery Division by Mr Sam Tenenbaum against Mr Douglas Garrod. The trial of
the action took place before Mr Francis Ferris QC, sitting as a deputy judge of
the High Court. The learned deputy judge dismissed the claim and the plaintiff
now appeals.
In brief, the
claim arose as follows. A family company was in the course of liquidation after
the breakdown of personal relations between the two principal shareholders, the
plaintiff and his brother Leslie. The liquidator was Mr Bernard Phillips. An
important asset of the company was a property in Muswell Hill, North London,
consisting of some old factory buildings, others that were more modern, and
some undeveloped land. Planning permission was in existence for the demolition
of the old buildings and the construction of new factories. There was as yet no
planning permission which would enable the site to be developed for residential
accommodation, but given the locality, this must have been envisaged as being,
at the very least, a real possibility. The premises had been unoccupied for
some time. Their condition was mediocre and was steadily deteriorating owing to
vandalism and neglect.
The liquidator
was minded to give first refusal to each of the brothers, if they wished to buy
these premises, and the plaintiff was minded to avail himself of this, since he
wished to use the factory for his own industrial interests.
During
November 1982 it was agreed between the liquidator and the plaintiff that he
would purchase the property for the sum of £640,000. Later, he had a change of
heart and decided that he had agreed to pay too much. Accordingly, he resolved
to withdraw from the bargain and make a new offer at a lower price. With this
in mind he enlisted the help of the defendant, an estate agent and valuer, who
had acquired a considerable knowledge of the property since the time when the
company had acquired it some years previously. In due course the defendant
wrote to the plaintiff the letter around which the present litigation revolves.
It was dated February 1 1983, and since it is so important, I must set it out
in full:
Dear Mr
Tenenbaum,
Sydney
Road, Muswell Hill
Following our
discussion and, as requested, I set out below my general appraisal of the above
property.
Firstly,
since my letter to you of January 17 I have been able to research more details
of the costings of remedial work. If you are going to achieve a reasonable
standard of occupation on these buildings, you are going to face a commitment
of at least £60,000.
On the
overall value aspects, I have to advise you that the industrial letting and
development market is at a very low level of activity. I accept that from an
owner/occupier’s point of view you will not face the problems of letting the
buildings at Muswell Hill in an unfavourable market but, by the same token, I
must counsel you to consider what other purchasing opportunities might be
available to your company at this present time.
Similarly,
the long term value of the development land at the rear is achievable but, with
industrial funding out of favour with the funding institutions, the recoupment
value must be looked at as ‘long-term’ or based on pre-let tenancies to
acceptable covenants.
I have
re-appraised Muswell Hill in the light of your intention to occupy and use the
buildings. Taking into account the present condition of the premises and the
market conditions prevailing, I consider that a realistic value for your
purposes in the long term is £400,000.
I am aware
that this figure is lower than previous estimates but you may like to consider
other proposals by way of comparable value for money and opportunity.
At the request
of the plaintiff, copies of this letter were sent to Green David Conway &
Co (hereafter ‘Greens’), the plaintiff’s solicitors, and to the plaintiff’s
bankers. The defendant did not send a copy to the liquidator, and although it
was accepted at the trial that the plaintiff or his solicitor might have been
expected to do so, this did not in fact happen.
On February 7
1983 Mr D J Green, the partner in Greens who was dealing with the matter, made
an offer to the liquidator to buy the Muswell Hill property for the sum of
£400,000. The offer was refused, and three months later the liquidator effected
a sale to another buyer at a price of £730,000. The plaintiff now complains
that the letter of February 1 misled him into believing that the property was
worth less than its true value, with the result that he pitched his revised
offer too low and lost the chance to offer rather more and buy the property at
a favourable price.
On the face of
it, the plaintiff’s case seems promising. The letter bears, to my eyes at
least, the appearance of an independent valuation — as indeed it was described
in a subsequent letter from Mr Green to the liquidator. The revised offer by
the plaintiff corresponded with the figure included in the letter. It is common
ground that if that figure really did represent an expression of the
defendant’s opinion as to value of the property, it was too low. The fact that
the plaintiff, who had not pleased the liquidator by going back on his original
bargain, now came forward with a figure which was much too low, undeniably
caused the liquidator to lose patience and look for a better offer. The
plaintiff did not himself make a better offer and thereby lost the bargain.
The
defendant’s answer to this claim is simple. He says that whatever the letter
might have said, it was never intended to express an independent valuation or
to be treated by the plaintiff as containing any such valuation; and, moreover,
that the plaintiff knew this very well and never placed any reliance on it. The
letter was merely designed as a bargaining counter in the projected
negotiations with the liquidator. If the plaintiff’s tactics misfired, this was
not due to any professional negligence on the part of the defendant.
In the course
of his judgment, the learned deputy judge found, as a fact, that the plaintiff
did not rely on the letter as a valuation and therefore dismissed the claim.
The plaintiff contends that this finding is unsustainable. In addition, there
has been put forward on his behalf a somewhat modified version of his case,
namely, that the letter at least contained within it some implicit advice on
what would be a sensible offer to put forward as an opening shot in the
negotiations and that, since the result of putting forward a figure as low as
£400,000 was to cause him to lose the bargain altogether, the plaintiff is
liable on this ground, if not on the other. For my part I do not find it
possible to entertain an appeal on this alternative ground. It was not pleaded;
it was not developed at the trial, as far as I can see, and the judge has made
none of the necessary findings upon it. We must, in my opinion, limit ourselves
to the question whether the judge was justified, on the evidence before him, in
finding that the plaintiff did not regard the letter as containing an
independent opinion by the defendant as to the true value of the property.
As Mr Levene
rightly emphasised in the course of his thorough argument on behalf of the
plaintiff, the letter of February 1 cannot properly be understood in isolation
from its context, and in particular in isolation from the contemporary documents.
I must therefore give an account of these in some little detail.
The history
may be taken up in May 1982, shortly after the grant of planning permission for
factory development. At the request of the plaintiff, acting for the family
company (which was still in being), the defendant attributed to the site a
gross value of £952,000 which, after deduction of a possible tax liability and
interest charges, was said to yield a net value of £650,000. Some months later
the defendant provided for Mr Leslie Tenenbaum, acting independently of the
plaintiff, a valuation of the same site at a figure of £540,000, net of the
cost of improvement. On being asked for a price on ‘the optimistic approach’,
the defendant furnished a figure of £750,000.
The next
development was a contest of sealed offers by the Tenenbaum brothers to the
liquidator for the purchase of the property. Greens offered £640,000 on behalf
of the plaintiff, subject to contract, and on November 16 1982 Mr Phillips
wrote accepting this offer. Not long afterwards, however, the plaintiff began
to have second thoughts. He wondered whether he might have offered too much,
given the deteriorating state of the premises and the general weakening of the
market, and a meeting took place on December 1 1982 between himself and the
defendant. It is plain enough that the purpose of this meeting was to develop a
strategy for procuring a reduction in the price already agreed, by presenting
to the liquidator a depressing picture of the condition of the property. Accordingly,
on December 20 the defendant prepared an outline report on the work which
needed to be done on the premises. Significantly, when he sent this to the
plaintiff, the defendant wrote:
I would
suggest we all ignore my report, and that it is dated after Christmas . . .
the purpose
plainly being to wait until after the premises had suffered further
dilapidations which were to be anticipated over the holiday period before
approaching the liquidator.
Early in the
New Year there was a further meeting between the plaintiff and the defendant,
in the course of which they inspected various other factory premises. There was
a conflict of evidence about the purpose of this inspection. The plaintiff said
that the defendant had told him that he was paying too much for the Muswell
Hill premises and that he was taken on a tour to prove the defendant’s point.
For his part, Mr Garrod stated that he had simply been suggesting a number of
available properties which Mr Tenenbaum might care to consider. According to
the plaintiff, he had become concerned by the opinions expressed to him and had
asked the defendant (who had stated a figure of £400,000) to provide Mr Green
with a report which he could submit to the liquidator. I will return to the
defendant’s version of the proposal at a later stage.
Whatever the
truth of this, it is clear that some concerted plan was afoot, since on January
17 1983 the defendant sent to Mr Green a manuscript report on the property,
under cover of a note to the effect that ‘if we can agree the tactics’ he would
deliver it to the plaintiff. The report set out elaborate details of defects
and of the steps which would have to be taken if the plaintiff cared to occupy
the property. Various round figures were given for aspects of the work, and the
defendant concluded by saying that he would be happy to appraise and evaluate
the entire project for the plaintiff, having regard to current circumstances.
When the
manuscript had been typed up, the defendant sent it to Mr Green, reporting that
he had been instructed to inspect the premises with a view to early occupation
by the plaintiff, and enclosing a copy of his letter to the plaintiff, which of
course Mr Green had already seen. The defendant went on to say that he had
meanwhile received instructions to carry out a more detailed inspection and
obtain a cost for the remedial works. In conclusion, the defendant said:
Having regard
to the timing of the purpose of this property, I feel that I should appraise
you of the situation and recommend a copy of my letter is sent to the vendor’s
solicitors
–as had of
course been intended all along. A copy was indeed so sent. At this time the
completion of the agreed sale was hanging fire, because Greens were persisting
in calling for answers to inquiries on sale: a rather futile exercise, as the
liquidator pointed out, since the plaintiff had a much longer acquaintance with
the property than he did.
By the end of
the month the liquidator was showing signs of impatience, and was calling for
an early completion. Mr Green therefore wrote to the defendant on January 28
asking for a discussion and informing the defendant that ‘Sam’ (viz the
plaintiff) ‘wishes to have your advice as to the offer now to be put in’. He
also spoke to the defendant by telephone.
On February 1
which, as it will be recalled, was the date of the letter around which this
dispute revolves, the defendant brought into existence a document in manuscript
headed ‘Net appraisal on Muswell Hill’. This contained some fairly rough
estimates, based on
and for the land of £80,000. This document emerged only on discovery and was
not sent to the plaintiff or Mr Green. There followed the letter of February 1
from the defendant to the plaintiff, which I have already set out in full and
which was copied to Mr Green and to Barclays Bank, who were the plaintiff’s
bankers.
I have already
stated that the crucial letter was not forwarded by Mr Green to the liquidator,
contrary to what must have been planned. Perhaps the terms were not quite what
were wanted. At all events, there was a conversation between the plaintiff and
Mr Green on February 3, in the course of which it was agreed that the latter
would contact the defendant with a view (to quote Mr Green’s attendance note)
to agreeing
the terms of a letter from Douglas Garrod to my firm which could then be
utilised to submit to the liquidator justifying our offer of £400,000.
This
conversation must have led to a further communication between Mr Green and the
defendant, for we find that on February 4 the defendant wrote to Mr Green a
letter which began as follows:
Sydney
Road, Muswell Hill
Following a
meeting today with our mutual client, Mr Tenenbaum, I am writing to advise you
of the materially changed circumstances relating to the purchase of the above
property. Having regard to our own detailed report and appraisal to Mr
Tenenbaum, he has instructed us to advise you that he can only continue with
the purchase of this property at the figure of £400,000 for the freehold
interest subject to contract.
Accordingly,
please could you convey these revised terms to the vendor and apologise for
this late re-appraisal of the property.
Blandly, on
February 7, Greens wrote thanking the defendant for his letter and saying that
they could do no more than send a copy of his letter to the liquidator. This
they did on the same day, stating that ‘in the light of this letter’ they were
instructed to make a revised offer of £400,000. They explained that the
plaintiff had, since the earlier offer, ‘properly been able to have an
independent valuation and assessment of the property’ and also to consider the
dilapidations and state of repair.
This offer to
buy the property for £240,000 less than had previously been agreed got very
short shrift. A clear and wholly understandable note of asperity made itself
felt in the liquidator’s communications. He said that he would place the
property on the market and hold the plaintiff liable for any shortfall, and he
then went ahead to obtain an independent valuation which proved to be in a
figure of £680,000. This set the plaintiff and his advisers into a flurry of
activity. Greens said that the liquidator was under a duty to obtain the best
available price, which of course he was already doing. Also, they sent a
curious telex to the liquidator to the effect that ‘under no circumstances
should you treat any subject to contract offer made by this firm on behalf of
our client as a warranty or indication of value by our client or any professional
adviser’.
A sharp
dispute arose, and was pressed for some time, about whether the plaintiff had
been bound by his original offer of £640,000. Under cover of this, the
plaintiff obtained a valuation of the property for residential development, if
planning consent could be obtained, rather than for industrial use for the
plaintiff himself. This led the plaintiff to try to keep open his position with
the liquidator, but it was too late and the liquidator exchanged contracts with
a third party on April 6 1983 at a price of £730,000.
The
plaintiff’s plan had completely misfired. Not only had he failed to buy the
property at a discount of three-eighths of the price which he had first agreed,
but he had also failed to buy it at all for that agreed price, which in
retrospect had come to seem a bargain. The plaintiff therefore looked for
someone to blame for this debacle, and the choice fell on the defendant. Hence
the present action, the theory of which was that if the defendant had not given
him such an erroneous valuation, he would not have made a revised offer which
was so extremely low that it lost him the transaction altogether.
When the
matter came to trial, there was no evidence from Mr Green, which was a pity,
since he could have illuminated several aspects of the transaction and might
have been called on to answer a number of pointed questions. The matter,
therefore, came down to a contest of credibility. Unfortunately for Mr
Tenenbaum, he lost this contest at the trial, the learned judge finding that:
I have
considerable reservations about Mr Tenenbaum’s evidence and I feel unable to
accept it where it conflicts with what Mr Garrod said or with what appears from
the documents.
The
difficulties which a finding of this kind faces any appellant need no
elaboration. Mr Levene has faced up to those boldly and realistically,
accepting that he can find no argument on his client’s evidence. He relies
solely on the evidence of the defendant and on the documents to show that what
his client says must be true: namely, that the crucial letter was meant by both
parties to be a valuation on which he could rely. Implicit in this argument is
the further proposition that if the appellant told the truth on this point, he
is also to be believed in another essential element of his cause of action,
namely, that he did in fact rely on the letter when deciding how to handle his
approach to the liquidator.
I believe that
the strength of this argument may be tested by asking three questions. First,
what does the letter of February 1 1983 appear to mean? Second, what are the inherent probabilities
that the relationship between the parties took the shape alleged by the
plaintiff? Third, do the documents, read
as a whole, show that the plaintiff’s story must be true?
As to the
first question, it seems to me quite plain that if the letter had been read by
someone not in the know, it would have been understood as a valuation and
nothing else: and indeed, if the defendant had been the recipient of a suit by
a third party, such as the bank to whom the letter was copied, or indeed by the
liquidator himself had the original proposal to send another copy to him been
carried through, the defendant would have had some very awkward questions to
answer. The letter began with a reference to the researching of more details on
the costing of remedial work. It went on to ‘advise’ the plaintiff that the
industrial letting and development market was at a very low level. The writer
went on to say that he had ‘re-appraised’ the property in the light of his
intention to occupy and use the buildings and concluded: ‘. . . I consider that
a realistic value for your purposes in the long term is £400,000.’ The words seem to me quite clear. They are,
moreover, reflected in the defendant’s letter to Mr Green of February 4, in
which he referred to ‘our own detailed report and appraisal to Mr Tenenbaum’
and to his opportunity of ‘reviewing this property for Mr S Tenenbaum’.
I read this
correspondence, as any outsider to whom it was copied must surely also have
read it, as an indication that the writer had taken a fresh look at the
property in relation to the depreciation in the condition of the buildings, the
decline in the market and the plaintiff’s newly expressed resolve to occupy the
land for his own industrial purposes rather than acquire it for its development
value.
The
defendant’s case is, of course, that even if the letter did say what I have
suggested, it said something which he did not truly mean and that the plaintiff
knew it. This brings one to the probabilities. Could a professional man write a
valuation, ostensibly for his client, with the intention that a third party
would rely upon it and his client would not?
At first sight
it seems hard to give any affirmative answer. Nevertheless, this is the answer
which the defendant himself gave, and he made no bones about it. He frankly
accepted that there had been insufficient change in the market, even allowing
for the plaintiff’s idea of occupying the property himself, to justify a
valuation as low as £400,000. But this was never the point. The idea was to
open the negotiations at the lowest level which he could justify, making as
much as he possibly could out of the dilapidations. He wrote, so he explained,
a ‘tactically jaundiced letter’. The letter was, in the defendant’s own
language, a ‘spoof’. However, ‘it would not be presented (to the liquidator) as
a spoof and that is why it is written in such a formal fashion’.
Now, this is
quite a remarkable explanation of the letter, and if it had been presented
against rather than by the defendant, one would in fairness have been bound to
think twice before accepting it, given the shadow which it inevitably casts on
the defendant’s professional objectivity. But if the defendant is prepared to
put it forward himself, there is no a priori objection to accepting it,
while recognising of course that if it is accepted, the defendant is freed from
what, if the plaintiff’s case on damages were to be upheld in full, would be
quite a sizeable liability for negligence. Moreover, the defendant’s account
does have this much support from internal evidence, that the letter begins with
a statement that the defendant had been able, since January 17, to research
more details on the costings of remedial works, whereas both parties knew very
well that no such research had taken place.
I now turn to
the indications furnished by the contemporary documents, already summarised, on
which the plaintiff has necessarily laid so much stress. A number of points are
taken on his behalf. First, it was asked why the defendant should have gone to
the trouble of producing the private manuscript ‘net assessment’ on the
same day as the letter, if the figure of £400,000 was simply window-dressing, a
number plucked out of the air as an opening shot in negotiations. To this the
defendant replies that he had to produce, not a wholly arbitrary figure, but
one which he would be able to justify if challenged, and that it was prudent to
work out his response in advance.
Next, the
plaintiff asks how the defendant could have been prepared to send a ‘spoof’
figure to the plaintiff’s bankers and how the plaintiff could sensibly have
asked him to do so. The defendant simply replies that this is what he was told
to do and points out that no documents passing between the plaintiff and his
bank have been disclosed which might shed light on the question.
Next, the
plaintiff relies on the fact that the two parties were spending time on looking
at other premises. Why do so, if they were not engaged in finding out the true
value of the Muswell Hill property?
Here, the answers seem clear enough. It would be useful in any
negotiations with the liquidator to be able to point out any comparables at a
suitably low price, and in any event a fall-back position in the shape of some
other premises would be needed by the plaintiff for his manufacturing business
if the liquidator pressed for a price which the plaintiff and the defendant
genuinely believed to be too high.
Finally, the
plaintiff draws attention to the fact that after the rejection of his offer —
an offer which, on the defendant’s case, he knew to be less than the property
was really worth — he did not immediately come back with a more realistic offer
or even consult the defendant as to the right tactics to be adopted. Instead he
had no communication at all with the defendant for about one month. This is
indeed a curious feature of the history, but it is equally curious even if the
plaintiff’s account is correct, since if he had really believed that £400,000
was the right figure, one would have expected him to get in touch with the
defendant at once, when his offer at the recommended figure was so summarily
rejected, particularly when he learned not long later that the liquidator’s valuers
had arrived at a figure as much as 60% higher than the one which the defendant
had proposed.
Thus it can be
seen that the plaintiff’s arguments on the history of events are not
unanswerable. Moreover, the defendant has some points of his own to make. The
documents of December 1982 and January 1983 convey unmistakably that some plan
was afoot between the plaintiff, Mr Green and the defendant. The letters of
January 17 and February 4 were acknowledged to have been written for tactical
purposes, and it would be odd if, in the middle of all this, the defendant were
to write an arm’s length letter to his client which was nevertheless intended
to be sent to the liquidator. The suggestion that the crucial letter was also
written for ulterior reasons is, to my mind, strongly reinforced by Greens’
telex of February 18, which looks very much like an attempt to retrieve what
the writer realised might be an awkward situation if documents which purported
to intimate an independent valuation were treated as meaning what they said.
Also, it is by no means without significance that the letter which Mr Green
thought it prudent to forward as an ‘independent value and assessment’ was the
very guarded document of February 4, not the letter on which the plaintiff’s
claim is now founded.
Finally, the
marked disparity between the new valuation and those which had been given
before would surely have aroused comment if the new valuation had really been
what it purported to be, even given the deterioration in the market and in the
property itself, and the emphasis in the letter on a purchase for the
plaintiff’s own use. Moreover, although the plaintiff did not know about the
valuations which the defendant had made for his brother at the time, it
scarcely seems likely that the defendant himself could really have arrived at
such a greatly reduced figure simply by scratching a few rough figures on paper
for the purposes of his net assessment.
In these
circumstances, although Mr Levene had some points to make on the history of
events, and made them cogently, I would not for my part regard them as anywhere
near conclusive in his client’s favour. The story advanced by the defendant may
have a strange ring, but it sits well enough with the contemporary documents.
The learned judge recognised the difficulties and yet believed it. I can see
nothing in the material placed before this court which would justify us in
overriding his assessment of the two witnesses and would therefore dismiss the
appeal.
MANN LJ and
SIR DENYS BUCKLEY agreed and did not add anything.
The appeal
was dismissed with costs.