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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Lloyds Bank Plc v. Pearce [1999] EWHC Ch 217 (7th July, 1999) URL: http://www.bailii.org/ew/cases/EWHC/Ch/1999/217.html Cite as: [1999] EWHC Ch 217

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Lloyds Bank Plc v. Pearce [1999] EWHC Ch 217 (7th July, 1999)

BEFORE: THE HON. MR JUSTICE EVANS-LOMBE

1. In this action the claimant, Lloyds Bank Plc, to which I will refer as "The Bank", seeks damages for professional negligence against two firms of solicitors, Burd Pearse ("BP") the First Defendants and Crosse & Crosse ("CC"), the second defendants. The claim arises out of the purchase by Sharland Developments Ltd ("SDL") on the 31st March 1989of a vacant building plot at Marley Road in Exmouth, Devon, ("the plot") and the subsequent transfer of the plot on the 23rd December 1992 by SDL to its principle shareholders Mr & Mrs Sharland. The 1989 purchase of the plot was funded by the Bank which took a first legal charge over the plot as security. The Bank's claim arises from the fact, which is not in issue, that neither CC (who acted both for SDL and the Bank in the 1989 purchase) nor BP (who acted for Mr & Mrs Sharland and the Bank on the transfer in 1992) reported to the Bank that the plot was subject to restrictive covenants which limited the area upon which buildings could be constructed and so diminished its value as security. The Bank seeks to recover its loses arising from the two transactions which it estimates at rather less than £200,000.
2. The background facts which are not materially in issue may be summarised as follows: in 1989 the Sharlands had a well established property development business which they were conducting through the medium of a company SDL. They also had a building contracting business which they were conducting through a partnership between them. The property market in the South West had seen in the years leading up to 1989 a substantial increase in values. By 1989 the rate of growth of values for property generally, and vacant building plots in particular, had ceased to grow at the pace which had ruled in 1988. There had been no detectable fall in values. SDL's bankers were the Bank with which SDL had a fairly well established relationship. The Sharlands were guarantors of SDL's indebtedness to the Bank. The company was looking for a building site to develop and found a building plot at Myrtle Row in Exmouth which it wished to purchase with the assistance of finance from the Bank.
3. CC were instructed by the company to act for it in the purchase of the Myrtle Row property. On the 24^th January 1989 CC were also instructed by the Bank to act for it in the same transaction under which the Bank was to receive a charge securing it's advance by a letter of that date of which the material terms were:-
4. "We should be obliged if you would furnish the Bank with a report stating whether the mortgagor has a good and marketable unencumbered title, carry out all necessary searches and usual enquiries and report whether they disclose any matters which could affect the value or saleability of the property".
5. CC accepted those instructions.
6. In early February 1989 the vendor withdrew from the proposed sale of the Myrtle Row property but SDL was able to find an alternative which was the Plot which it agreed to purchase for £105,000. Contracts for the purchase of the Plot were exchanged on the 1^st March. The partner at CC having the conduct of the matter was a Mr Boyne, who gave evidence. An attendance note of CC dated the 7^th March records:-
7. "PB [Mr Boyne] telephoning Lloyds Bank speaking to Derek Lamb's secretary to establish requirements in respect of the substitution of the Haven [the Plot] for Myrtle Row. Suggested that I simply write to modify our undertaking so that this relates to the plot adjoining the Haven and giving a report on title and that I use the documentation that I already have, namely the mortgage form 395 and company resolution in respect of the new plot. ..."
8. In cross examination Mr Boyne accepted that in acting for the Bank in the proposed transaction to buy the Plot CC were instructed in the terms of the letter of the 24^th January.
9. On the 15^th March 1989 CC wrote to the Bank with relation to the proposed transaction as follows:-
10. "In the circumstances it was agreed that this firms undertaking dated the 30^th January 1989 relating to .... Myrtle Row (the purchase of which has fallen through) be amended and regarded as now relating to the purchase of the building plot adjoining the Haven and we confirm that the said undertaking should be regarded as being so amended.
11. We confirm that we have investigated the title to the said building plot and we confirm that upon completion we consider that Sharland Developments Ltd will obtain a good and marketable title to the same. ..."
12. The purchase was completed on the 31^st March and I will hereafter refer to it as "the 1989 Transaction". The Bank funded the entire purchase price and the costs of the transaction except for the deposit, a total advance of £96,983.75p and took a first charge over the Plot as security. That charge was in the form of a mortgage in the Bank's standard form whereby the mortgagor entered into an all sums due covenant in favour of the Bank. It is plain that in making the advance the Bank relied on CC's report on title and in the absence of knowledge of the restrictive covenants which I will now describe and which CC, either in the report or otherwise had failed to report to them.
13. As a result of two earlier conveyances of the land comprising the Plot in 1934 and 1944 that land was subject to restrictive covenants which limited construction to a strip of land between a line running along the line of Marley Road 40 feet away from it, roughly parallel to it and a line approximately 100 feet further into the site away from Marley Road. These lines appear on a plan of the site appearing as appendix 9 to the defendant's valuation expert's report. That plan is an appendix to this judgment. On that plan the line 40 feet away from Marley Road appears marked in brown and that further into the site a dotted line marked in yellow. These are covenants which were not referred to in CC's report on title. The conveyance of the 31^st March 1989 to SDL imposed a further restrictive covenant on the Plot prohibiting the construction of a building beyond a line running approximately 35 feet further into the site away from Marley Road from the brown line. That line appears on the plan as a dotted line marked in green. It follows that the combined effect of all the covenants imposed on the land comprising the Plot was to restrict building to a narrow strip between the green and brown lines approximately 35 feet wide crossing the Plot at its narrowest point.
14. Thereafter the Plot was left undeveloped by the company. By late 1992 the property market had reversed and SDL was in financial difficulties as a result of which the Bank instituted reviews of its relationship with the Sharlands. In October 1992 at the suggestion of the Sharland's accountant it was agreed between the Bank and the Sharlands that their business should be reorganised so that SDL should be wound up and all its assets and liabilities transferred to the Sharland partnership. It was anticipated that by so doing the Sharlands would achieve tax advantages. As part of this reorganisation SDL was to transfer the Plot to the Sharlands and the Sharlands would execute a fresh, all sums due, charge in favour of the Bank securing their indebtedness. For the purposes of this transaction BP were instructed to act both for the Sharlands and for the Bank.
15. The Bank instructed BP by letter dated the 16^th November 1992 the material parts of which read as follows:-
16. "We presently hold a report on title of Sharland Developments Ltd and I should be grateful if you would update this to confirm that the mortgagors [The Sharlands] have a good and marketable unencumbered title. We do not require you to undertake local searches in this regard. Once we have received your confirmation of the title of Mr & Mrs Sharland and that they have signed our mortgage form we shall be pleased to forward our form 53 in respect of the charge given by Sharland Developments Ltd."
17. BP accepted those instructions and forwarded, duly signed, the Bank's standard form of solicitors undertaking by letter dated the 20^th November.
18. The Plot was transferred by SDL to Mr & Mrs Sharland by registered transfer of the 23^rd December the transfer included a covenant by the transferees "by way of indemnity only to observe and perform the covenants set out in entry No 1 and entry No 3 of the charges register of the above title ... ." Those entries on the charges register record the restrictive covenants in the 1944 and 1989 conveyances; those in respect of the 1944 conveyance including the building line restrictions which I have summarised above. The transfer showed a consideration payable by the Sharlands to SDL of £80,000. In fact no money passed since the Sharlands were undertaking indebtedness of the company exceeding that amount. I will hereafter refer to this transaction as "the 1992 transaction".
19. It will be noted that this transfer took effect before BP had provided the Bank with the report on title that the Bank had requested. On the16th February 1993 the Bank by a Mr Pain an employee at the Plymouth Regional Securities Centre of the Bank and who gave evidence, wrote to BP as follows:-
20. "I acknowledge safe receipt of the charge certificate, title No DN62084. The Land Registry have made two errors in the charge certificate and I have returned this to them directly for amendment. I notice that my colleague's letter to you dated the 16^th November 1992 requested that you confirm that Mr & Mrs Sharland have a good marketable and unencumbered title to the property. In this regard I should be grateful if you would advise me whether the implications of the Insolvency Act 1986, particularly in relation to transactions at undervalue, has been considered. Obviously this is an important consideration which may affect the Bank's security... ."
21. After a further exchange of correspondence in which BP gave as their opinion that because the Plot was transferred for a consideration of £80,000 there had been no transfer at an undervalue, BP wrote to the Bank on the 1^st March as follows:-
22. "We thank you for your letter of the 23^rd February. We are pleased to confirm that Mr & Mrs Sharland have a good marketable and unencumbered title to the property save for the existence of the mortgage in favour of Lloyds Bank."
23. In evidence were extracts from the Banks internal rules for the guidance of its officers dealing with advances of money secured by charges over land. Rule 3.1.2 provides:-
24. "3.1.2 When an advance is being made contemporaneously with the acquisition of property which is to be mortgaged to the Bank, the solicitor or licensed conveyancer acting for the mortgagor may be asked to provide a report on title. Form S11A must always be used to request such reports [a copy of such a form was in evidence]
25. However a report on title is not necessary:
26. For registered land in the circumstances set out in Land 3.3.2..."
27. The relevant rule referred to as "Land 3" applied to registered land and at 3.2.2 provided:-
28. "3.2.2 If the land certificate after being made up to date contains no entries or restrictions, no notice of bankruptcy petitions or cautions, in the proprietorship register, and no entries of encumbrances in the charges register, a solicitors report on title may be dispensed with except in the case of:-
29. Undeveloped land were development is contemplated... ."
30. Rule 3.2.2 (1) therefore, required that the Bank receive a solicitors report on title in respect of any charge over the plot being "undeveloped land where development was contemplated". Nonetheless the Bank appears to have had a practice whereby senior officials at the Bank were empowered to waive the provisions of the rules.
31. Notwithstanding that Mr Pain was the author of the letter to BP asking for a report on title which had been returned on the 1^st March, on the17th March he wrote a letter to the Bank's local commercial department with reference to the Sharlands as follows:-
32. "The charge certificate relating to the aforementioned property has now been returned to this office by HMLR. The original lead sheet indicated that the manager-in-charge of the security centre could examine the charge certificate in accordance with land 3.3.2. Unfortunately, this property would appear to be land which is intended for development and therefore this rule cannot be observed. I should be grateful, therefore, if you would give consideration to waiving the requirement of a report on title and local search. If however, you require a local search and report on title to be undertaken then please advise me accordingly."
33. Written in hand at the bottom of the letter were the words "I am happy to waive rule land 3.3.2 on the above property" followed by the signature of Mr J.R.Mackie a senior manager at the Bank's Devon commercial services department. Mr Mackie gave evidence. Under cross examination Mr Pain said that he would not have written this letter if he had seen BP's letter of the 1^st March.
34. On the 24^th November Mr Pain wrote a further letter to the Commercial Services Department with relation to the Sharlands as follows:-
35. "I have recently reviewed this outstanding file and I notice that in April this year I asked for a waiver of SRB Rules Land 1.3.1 and Land 2.3 for this property. I should be grateful if you would kindly provide the waiver so that the security can be completed."
36. Mr Mackie replied on the 1^st December repeating his previous waiver. Mr Pain accepted that BP's letter of the 1^st March cannot have been on the file when he dictated his letter. The Bank's securities register recording the charge of the 23^rd December 1992 also shows that the rules requiring a solicitors report on title had been waived. It is apparent, therefore, that BP's letter of the 1^st March had not come to the notice of the Bank's officers dealing with the Bank's relationship with the Sharlands at least by early December 1993 when this entry on the register was made. The date emerges from an internal letter of Mr Pain of the 6^th December 1993 forwarding a copy of the register. Indeed there was no evidence either oral or written indicating that the Bank at any stage took any notice of RB's letter of the 1^st March 1992.
37. In April of 1993 conditional planning permission was obtained for the construction of a house on the property and full planning permission followed on the 3^rd August 1994. Notwithstanding this the Sharlands decided to sell the property to a Mr Best in March 1995 who had bid £66,500 for it. During the course of this transaction it became apparent for the first time that the combination of the two covenants which I have set out might adversely affect the manner in which the property could be developed by restricting to a narrow strip the part of it upon which a house could be built. It was Mr Sharland's evidence that this was the first occasion that he became aware of the 1934/44 restrictive covenants. As a result Mr Best withdrew from the negotiations to purchase. The Bank were informed of these restrictions at a meeting with Mr Sharland on the 7^th July 1995. A letter from Mr Quine an assistant manager at the Commercial Services department to the Regional Securities Centre referring to the Sharlands says:-
38. "The above property was transferred into the partnership name from the old limited company in December 1992. Following the proposed recent sale of the Plot, it is apparent that there is a restrictive covenant which was not picked up on the conveyance.... ."
39. On the 25^th August 1995 the Bank instructed fresh solicitors to investigate a claim against CC and BP and their writ in these proceedings was issued on the 17^th July 1996. The Bank sold the Plot as mortgagees on the 3^rd February 1998 for £32,000.
40. On the 6^th August 1997 the Sharlands entered into a voluntary arrangement with their creditors.
41. I will deal first with the Bank's claim against CC.
42. Mr Boyne admitted that CC were instructed to act for the Bank in the 1989 transaction in the terms of the Bank's letter to CC of the 24^th January 1989 relating to the proposed purchase of the property at Myrtle Road. In the light of the other correspondence in evidence this admission was inevitable. That letter required CC to "carry out all necessary searches and usual enquiries and report whether they disclose any matters which could affect the value or saleability of the property." It would seem from internal minutes of CC in evidence that CC were aware of the existence of the 1934/44 restrictive covenants affecting the Plot. In any event any competent search of the title of the Plot would have revealed them. Those restrictive covenants were, either by themselves or in combination with further covenants which the vendor of the Plot was proposing to impose as a condition of the sale, plainly capable of affecting the value and saleability of the Plot. It follows that CC by failing to disclose to the Bank the existence of the 1934/44 restrictive covenants, were in breach of the express terms of their retainer contained in the letter of 24^th January. That failure constituted an actionable breach of contractual duty. The contrary was hardly argued.
43. It was contended on behalf of CC, nonetheless, that CC's breach of duty caused no loss to the Bank. This contention was put forward on the basis that CC's instructions were confined to the 1989 transaction. As a result of the 1992 transaction the Plot was sold by SDL to the Sharlands for £80,000. The Bank's own expert valuer valued the Plot free from the 1934/44 restrictive covenants at £72,500. No relevant party was aware of the existence of those restrictive covenants at the time the 1992 transaction was completed. It follows that the Plot was realised at a price which exceeded the Bank's estimate of its value in 1992 free of restrictive covenants by £7,500. That the realisation of the value of the Plot resulting from the 1992 transaction did not produce sufficient to repay the Bank its advance was caused by the decline in property values over the intervening years between the two transactions and was in no way caused by CC's breach of duty.
44. It seems to me that this contention fails because the 1992 transaction is not to be treated as a realisation by the Bank of the security which it obtained as a result of the 1989 transaction. The 1992 transaction was cash neutral so far as the Bank was concerned. In effect the 1992 transaction simply resulted in a transfer of the property from SDL to the Sharlands with the Sharlands undertaking direct responsibility to repay SDL's indebtedness to the Bank which they were already under an indirect obligation to repay as guarantors. The total indebtedness of SDL and the Sharlands to the Bank, prior to the completion of the 1992 transaction, was in no way reduced as a result of it.
45. It was then contended that any cause of action for damages flowing from CC's breach of duty to the Bank was barred by limitation six years having more than elapsed since CC's defective report on title of the 15^th March 1989 and the issue of the Bank's writ on the17th July 1996.
46. The relevant principles for determining whether or not the Bank's cause of action for damages resulting from CC's defective report on title had accrued are now to be found set out in the decision of the House of Lords in Nykredit plc v Edward Erdman Group Ltd 1997 1 WLR p1627 and in particular in the speech of Lord Nicholls between pages 1631 and 1633. The Bank's cause of action in contract accrued at the date of the act complained of, namely, the date that the Bank received CC's defective report on title shortly after the 15^th March 1989. However CC owed to the Bank parallel duties in tort to exercise proper skill and care when advising the Bank, to those arising under the contract comprised in CC's retainer from the Bank see Henderson v Merrett Syndicates 1995 1AC 145 per Lord Goff at page 178. The Bank's cause of action in tort arose only when the Bank suffered damage resulting from CC's breach of duty. Notwithstanding that the Bank would not have made the 1989 advance to SDL had CC's report on title disclosed the restrictive covenants, it did not follow that the Bank would suffer damage as a result of making the advance. The Bank's security, notwithstanding the existence of the restrictive covenants, might in the end prove sufficient to repay the debt, alternatively, SDL's covenant to repay or the covenants of the Sharlands as guarantors of SDL's debt might be sufficient to repay the amount advanced when demanded. Only when the Court can be satisfied that the sources to which a lender can look to obtain repayment of its advance will prove deficient will the Court find that the lenders cause of action against his incompetent adviser accrues in respect of negligently defective advice leading to the making of the loan.
47. The burden of pleading and proving a limitation defence is placed on the party seeking to advance it, in this case, CC. In my judgment CC have not discharged that burden. No attempt was made on behalf of CC to put before me a comprehensive estimate of the value from time to time of the sources to which the Bank could look for repayment of its 1989 advance. Whereas it may well have been the case that the value of the Plot declined after March 1989 this was not the sole asset of SDL. Internal documents produced by the Bank show that in 1992 SDL owned other building plots. Those documents also show that the Sharlands owned property and shares which were charged to the Bank or which would otherwise would have been available to the Bank for repayment of the amount advanced. There is no evidence that at any material time either SDL or the Sharlands defaulted in making any repayments due to the Bank.
48. Even if it could be established that the Bank had suffered loss in the sense that the sources available for repayment of its advance were deficient at a time before the 17^th July 1990 it seems to me that the Bank would have been entitled to rely on section 14a of the Limitation Act 1980 so as to postpone the date at which its cause of action accrued for the purposes of limitation to a date within three years of the issue of its writ.
49. It is the Bank's contention that, for the purposes of section 14a it only acquired knowledge of the restrictive covenants and thus of the negligence of CC on the 7^th July 1995 the date of a meeting between the Bank and Mr Sharland when the Bank were informed of the problem. The relevant provisions of section 14a are as follows:-
50. "14a (5) For the purposes of this section, the starting date for reckoning the period of limitation under sub section (4)(b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.
51. In sub section 5 above "knowledge required for bringing an action for damages in respect of the relevant damage" means knowledge both – of the material facts about the damage in respect of which damages are claimed; and of the other facts relevant to the current action mentioned in sub section (8) below.
52. For the purposes of sub section (6)(a) above the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy judgment. ...
53. For the purposes of this section a persons knowledge includes knowledge which he might reasonably have expected to acquire –
54. from facts observable or ascertainable by him; or
55. from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;
56. but a person shall not be taken by virtue of this sub section to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.
57. It was submitted on behalf of CC that because the Bank, as part of both the 1989 transaction and the 1992 transaction, were passed copies of the Land Certificate relating to the Plot in which appeared references to the restrictive covenants in question they were from that moment on "constructive notice" of CC's negligence and that that negligence had caused them damage.
58. It does not seem to me that there is any basis for fixing the Bank with constructive knowledge of the difficulties arising from the restrictive covenants at a date before the 7^th July 1995. I accept the defendants submission that the relevant knowledge must be that the sources to which the Bank could look for payment of their debt, including the realisation of the Plot, were insufficient to repay that debt. Before the 7^th July there was no reason why the Bank should have checked the documents of title of the Plot and thereafter have sought advice on the effect of the restrictive covenants disclosed on the Plot's value. I accept that only when they were told that the solicitor to the Plot's proposed purchaser had raised the point were the presence of the restrictive covenants and their potential impact on the value of the Plot born in upon the Bank. The Bank's instructions to BP to investigate the Sharland's title to the plot are irrelevant to this question since it is the Bank's knowledge which is in issue and BP did not discover the problem until April 1995. The Bank are not to be fixed with constructive knowledge of facts which solicitors instructed by them might have discovered but did not.
59. I turn to consider the quantum of damages recoverable by the Bank from CC.
60. Mr Sharland gave evidence. It was his evidence that had he known of the existence of the restrictive covenants at the time that he was considering purchasing the Plot he would not have proceeded with the 1989 transaction. This was because the combined effect of the 1934/44 restrictive covenants with that imposed by the vendors in the 1989 transaction so restricted the area of land available for building that he could not have constructed upon it a house of the size and quality that he intended. I accept Mr Sharland's evidence on this point. It does not seem to me to be affected by the fact that the ultimate purchaser of the Plot has been able to construct upon it a house with floor area not significantly less than that intended by Mr Sharland, though with a radically different layout, after negotiating a partial variation of the building line imposed by the restrictive covenant in the1989 transaction without additional cost. A Mr Lamb gave evidence on behalf of the Bank. At the material time he was the area director for North and East Devon of the Bank. At paragraph 8 of his witness statement he says this:-
61. "I have been informed by the Bank's solicitors ... that in 1985 it was discovered that the property was subject to a restrictive covenant which restricted the ability to build on the property. Bearing in mind the proposed project on the property, had the Bank been aware that it had been subject to a restrictive covenant it simply would not have been interested in being involved in lending on the property. Similarly from my discussions with Mr Sharland at the time of the purchase and my knowledge of his business I believe that had he been aware of the restrictive covenant, he would not have entertained proceeding with the proposed transaction. I am confident that if the solicitors had acted properly in this matter this is a transaction that simply would not have proceeded and Lloyds Bank would not have suffered the losses it subsequently went on to experience."
62. I accept Mr Lamb's evidence on this point. It coincides with that of Mr Sharland.
63. I was referred to the decision of the House of Lords in South Australia Asset Management Corporation v York Montague & ors 1997 AP p 191 and to the speech of Lord Hoffman in particular the passage at page 214 of the report where he is recorded as saying:-
64. "I think that one can to some extent generalise the principle upon which this response depends. It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong."
65. In Bristol & West Building Society v Fancy & Jackson 1997 4AER p582 at page 619 Mr Justice Chadwick as he then was analysed the decision of the House of Lords in that case and the other recent authorities dealing with the assessment of the damage recoverable by lenders in property loans arising from the fact that as a result of negligent advice they were unaware of the true value of the security upon which the advance was being made. I gratefully adopt his analysis of those authorities which primarily concern negligent valuations given to lenders by valuers. At page 621, of the report he considers the position where the negligent advice is given by a solicitor as follows:-
66. "Where a loan is made on the basis of an incorrect and negligent valuation it is not difficult to find an answer to the question "what are the consequences of the valuation being wrong" by comparing the position as it was represented to be with the position as it actually was; and subtracting one valuation from the other. The position is, I think, potentially more complex where the negligence is that of a solicitor. The information provided (or which ought to be provided) by a solicitor carrying out his retainer in a domestic mortgage transaction goes beyond the question of value; although it may well be relevant to value. The information may go simply to title; in which case it may affect value directly or it may affect the marketability of the property. The information may go to price; in which case it may affect value. The information may go to the borrowers intentions in relation to conditions in the offer of advance; in which case it may have no effect at all on the loss actually suffered by the lender... but although the test may be more difficult to apply in cases against solicitors, it is necessary to attempt to do so; that is to say, to answer the question "what are the consequences of the information provided by the solicitor being wrong or incomplete" by comparing the position as it was represented to be with the position as it actually was."
67. The judge then dealt with the facts of the Fancy & Jackson case and concluded that the negligence found in that case had no effect on the position of the lender in that transaction because it actually obtained the valid security over the property which it was seeking and accordingly suffered no damage. He then continued:-
68. "The position is different in the case of Steggles v Palmer. I have held that the defendants were in breach of duty in failing to notify the society that the transaction was by way of sub-sale; in failing to notify the society that they could not confirm that the borrower was to pay the balance of the purchase monies from his own resources; and in breach of duty in failing to tell the society that they were also acting for the vendor. I have also held that if the society had known of those matters it would not have made the advance. But that is not, in my view, because the society would have been unwilling to lend what it did lend on the security of that property. In deciding how much to lend on the security of the property the society was relying on its own valuation; there was no evidence that that valuation was wrong, or that it would have been affected by knowledge of the sub-sale or the relationship between vendor and purchaser. The reason why the society would not have made the advance is, in my view, because the society would have been unwilling to lend to that borrower in order to fund the purchase from that vendor. If the society had known what it should have known, it would have decided that Mr Whittaker was a borrower to whom it did not wish to lend. In those circumstances it seems to me fair and in accordance with Lord Hoffman's test, that the defendant should be responsible for the consequences of the society not being in a position to take a decision which it would have taken if the defendants had done what they should have done. That is to say, the defendant should be responsible for the loss suffered by the society as a result of lending to Mr Whittaker. That, subject to questions of mitigation and contributory negligence is the whole loss arising from the advance."
69. It seems to me that similar considerations apply to the present case. I have held that CC were in breach of duty in not drawing the Bank's attention to the 1934/44 restrictive covenants. I have held that in making its advance in the 1989 transaction the Bank relied on CC's defective report on title. Accepting the evidence of Mr Lamb and Mr Sharland as I do I held that had the Bank (and Mr Sharland) known of the 1934/44 restrictive covenants they would not have made the advance which they made in1989 on the security of the Plot. That is not because the presence of the covenants undermined their assumptions of the value of the property so that there was insufficient security to justify the advance being sought, though that may have been a contributory factor. Rather it was because they would have known or would shortly have been told that Mr Sharland did not wish to proceed with the purchase. In these circumstances, in my judgment, subject to questions of mitigation and contributory negligence, the Bank is entitled to recover its whole loss arising from the advance.
70. I turn to consider the Bank's claim against BP.
71. In my judgment this claim fails for five main reasons. The first reason is that the Bank's retainer of BP contained in its letter of the 16^th November 1992 when read with subsequent correspondence passing between the Bank and BP did not require BP to investigate SDL's title but simply to confirm that SDL had validly transferred such title as it held to the Plot to the Sharlands so that they could charge that interest to the Bank. In particular BP was asked to confirm that such a transfer would not be liable to be set aside in the insolvent liquidation of SDL. See per Lord Justice Peter Gibson in National Home Loans v Giffin Couch & Archer 1998 1WLR p207 at page 213. BP were being instructed by a well established and experienced mortgage lender and were entitled to construe the document evidencing their retainer narrowly. Alternatively, the instruction to "update" an existing report on the title being transferred by SDL to "the mortgagors" i.e. the Sharlands was sufficiently ambiguous to permit BP, bonafide, to construe it as having that effect see Miles v Haslehurst & Co 1996 12CC p83 at page 87.
72. The second reason is the Bank cannot have relied on BP's report on title of the 1^st March 1993 in order to complete the transfer of the Plot from SDL to the Sharlands on the 23^rd December 1992.
73. The third reason is that, even if BP were under a duty to make searches from which they should have reported the existence of the 1934/44 restrictive covenants prior to completion of the transfer, it does not follow, and in my view it has not been established by the Bank, that notwithstanding the evidence of it's witnesses, the Bank would not have proceeded to complete the transfer after receiving information of the existence of the restrictive covenants. There was no reason for the Bank not to proceed with the transfer. The 1992 transaction was neutral so far as the Bank was concerned. No additional monies were being actually advanced by the Bank to either SDL or the Sharlands. The transaction was to improve the tax position of the Sharlands which would, presumably, have helped them in meeting their obligations to the Bank. By the time of the 1992 transaction the Bank was committed and had made its advance on the basis of security of doubtful value.
74. As to the fourth reason I have held that the Bank's claim against CC is not statute barred and that the Bank did not complete the 1992 transaction in reliance on BP's report on title of the Plot. It follows that the only damage capable of being suffered by the Bank as a result of any breach of duty flowing from BP's failure to notify the Bank of the restrictive covenants in BP's report on title is the cost to the Bank of continuing to finance the advance to the Sharlands on the assumption that if the Bank had received notification of the restrictive covenants they would instantly have called in the loan and realised their security. In the light of the Bank's internal correspondence surrounding the obtaining of BP's report on title which I have earlier set out, it does not seem to me that the Bank have established that their delay in realising their security was connected with that report on title which seems to have been completely disregarded by those responsible for the Bank's relationship with the Sharlands.
75. The fifth reason is that I have found that, not only is the Bank's claim against CC not statute barred but it has also succeeded to enable the Bank to recover its whole loss resulting from making the advance pursuant to the 1989 transaction. There is no claim to contribution by CC against BP.
76. I return to the Bank's claim against CC for the purpose of dealing with CC's contention if it is being pursued that any damages payable by CC to the Bank should be reduced as a result of the Bank's contributory negligence or failure to mitigate its loss. This is pleaded at paragraph 7 (5) to (8) of the re-amended defence of CC. It is pleaded that the Bank was guilty of contributory negligence or of failing to mitigate its loss as a result of:-
77. Its failure to obtain an independent valuation of the Plot before making the advance in March 1989 and accepting the Plot as security for that advance and/or at any stage after March 1989 with the result that it continued to accept the Plot as security for the indebtedness of SDL and the Sharlands thereafter and did not take steps to realise it during a period in which the value of the Plot diminished.
78. The plaintiffs reliance on the allegedly incompetent advice of BP.
79. Failing to obtain a release from the restrictive covenants, presumably, before realising their security.
80. These contentions were not supported by either written or oral submissions. In any event it seems to me that they are without foundation. It does not seem to me to have been negligent of the Bank, when it had a price of £105,000 for the Plot negotiated at arms length to rely on, not to incur the additional expense of obtaining an independent valuation. I cannot see that the failure to obtain an independent valuation thereafter can, without more, be categorised as negligent. I have held that the first defendants were not negligent in their dealing with the Bank. I can see no reason why the Bank should be considered negligent in not attempting to obtain a release of the covenants prior to the realisation of its security.
81. In the result the Bank's claim against CC succeeds. The Bank is entitled to recover damages from CC on the basis pleaded in paragraph 8.1 and appendix 1 to the re-amended statement of claim. The Bank's claim against BP fails.