INTRODUCTION
- The Claimant carries on a business which specialises in providing mortgages to people whose circumstances would not normally be acceptable to standard High Street lenders (such as Banks and Building Societies). It made a loan to a Mr Pierre Wilson secured on a dwellinghouse known as The Old Methodist Chapel, Walpole Cross Keys, near King's Lynn, Norfolk ("the Property"). Before making that loan the Claimant commissioned a Report and Valuation ("the Report") from the Defendant. The Report was prepared on the Defendant's behalf by a Mr Garfoot. Mr Pierre Wilson defaulted on his loan from the Claimant. The Claimant took the Property into possession and then sold it at a loss, as mortgagee. The Claimant now seeks to recover damages from the Defendant, alleging that the Report was negligently prepared in breach of the duties which the Defendant owed to the Claimant both in contract and in tort.
- As will be apparent below, the above summary hardly does justice to some of the unusual features of this case. In particular:-
(1) This case, as a matter of common ground, proceeded upon the basis that Mr Pierre Wilson perpetrated a mortgage fraud on the Claimant;
(2) The case as presented for the Claimant at trial bore only a passing resemblance to the Claimant's case as set out in its Particulars of Claim. In particular, at trial, it was conceded by the Claimant that whilst the Property lacked electricity, water and foul drainage at the date when the Report was made, Mr Garfoot cannot be blamed for not appreciating these facts. Accordingly, when assessing whether Mr Garfoot was negligent in making the Report, the case proceeded, by common ground, on the basis that what had to be considered was the valuation not of the Property in the state in which it actually was at the date of the Report but, rather, on the assumption that it did, indeed, have electricity and water services and, also, foul drainage;
(3) The manner in which the Claimant has sought to establish Mr Garfoot's negligence is somewhat unusual. Mr Garfoot's methodology in arriving at the valuation contained in the Report is clear not merely from the terms of the Report and the Field Notes which he produced prior to making that Report but, also, from the terms of his Witness Statement. The Claimant has not sought, directly, to deconstruct or attack that methodology. Rather, the Claimant has relied upon a valuation from its Expert of the Property (in its deemed state as at the date of the Report) and suggests that the disparity between that valuation and Mr Garfoot's valuation is, of itself, enough to establish negligence. Further, the Claimant has referred to certain other valuations obtained by it after it recovered possession of the Property and, indeed, to the ultimate sale price of the Property. The Claimant has then sought, either independently to justify negligence or to justify its Expert's view of the true valuation as at the date of the Report, to proceed by de-valuing the later valuations and sale price (so as to reflect increases in house prices which had occurred over the period and certain other factors). I will have much to say about these means of seeking to establish negligence, below.
- I must, at this early stage, point out that I have heard nothing whatsoever from either Mr Pierre Wilson or Mr Strickland (if he exists). The assumption that there was a mortgage fraud, therefore, is one made only by the parties to this Action. I adopt that assumption for the purposes of this Judgment, because it was common ground. However, outside the confines of this Action, I make no findings whatsoever that there was, indeed, any such mortgage fraud.
THE BASIC FACTS
- Walpole Cross Keys ("Walpole") is a village lying some 6 miles to the West of King's Lynn. It is by-passed by the A17 Trunk Road. It lies to the west of the River Ouse. Again it was common ground that, in the past, the market for houses was less strong to the west than to the east of the River Ouse. There was some debate, on the evidence, as to the extent to which this continues to persist.
- The Property is, as its name implies, an Old Methodist Chapel constructed in 1911. It has been converted to a residential dwelling. The evidence would appear to suggest that an old gentleman, a Mr Ruddy, lived there for many years, in circumstances of some considerable squalor. There was no electricity, lighting was by way of paraffin lamp, water was drawn from a small well and the only foul sewage was a vault directly under the floorboards of the Property.
- A Mr Peter Wilson purchased the Property for £15,000 on the 6th November 1991 (in all probability from the estate of Mr Ruddy who had died). Clearly Mr Peter Wilson's intent was to re-furbish the Property and sell it for profit. He appears, for whatever reason, to have been singularly unsuccessful in this endeavour and, in due course, he was made bankrupt. On the 21st January 1997 the Property was transferred by the Official Receiver, acting for Mr Peter Wilson, to a Mr Paul Strickland of 9 Flowers Mews, Archway, London at the price of £18,500.
- It is quite clear that, thereafter, refurbishment work to the Property continued. On 27th October 1998 a Mr Pierre Wilson, also of 9 Flowers Mews, London submitted an Application Form to the Claimant for a loan of £58,500. At, or about, this time someone (I use the word advisedly) instructed Mr Rimmer, a local estate agent with Black Horse Agencies, to visit the Property and market the same for sale. Mr Rimmer produced Sales Particulars which had coloured photographs of the outside, and inside, of the Property. Fortunately, the Particulars of Sale have been retained and have proved invaluable in ascertaining what the Property looked like at the time when Mr Garfoot came to inspect it. Mr Rimmer, who I say immediately was a most impressive witness, recommended that the Property be marketed at the price £65,000 which, in his evidence to me, he described as realistic. The photographs on the Sales Particulars were, in fact, taken by Mr Rimmer when he inspected the Property on the 16th October 1998. He described the Property as looking very smart and as having been attractively, and imaginatively, converted. I should, perhaps, add at this stage that Mr Rimmer had been an estate agent in the King's Lynn area since 1978 and was, clearly, highly experienced. Mr Rimmer goes on to say, in his Witness Statement, that he believed that the "someone" whom he met at the Property was a Mr Strickland. However, on the 3rd November 1998 his firm was informed by a Mr Wilson that he (Mr Wilson) was interested in purchasing, having viewed the Property without any appointment. Mr Wilson claimed to have seen a "For Sale" board at the Property when the seller just happened to be in the front garden. Thereafter, Mr Rimmer found it virtually impossible to make any form of contract either with Mr Wilson or Mr Strickland until on the 26th April 1999 Mr Strickland rang his firm to withdraw the Property from the market. Several people, Mr Rimmer said, had wished to view the Property whilst his firm was marketing the same but he was never able to arrange access with Mr Strickland. Following repossession of the Property Mr Rimmer did, indeed, visit the same again to prepare a Property Report. At that stage, he found the Property to be in an extremely poor external/internal condition, emptied of all contents of any value and suffering from damp. In the intervening period between his two visits he described the Property as having been effectively, in his opinion, "trashed".
- Matters were presented to the Claimant by Mr Pierre Wilson as a bona fide purchase by him of the Property from Mr Strickland at the sum of £65,000 (the precise amount of the purchase price did, indeed, vary from time to time but nothing, I think, ultimately turns on this). On the 4th November 1998 the Claimant instructed the Defendant to value the Property, informing the Defendant that the Purchase Price or Estimated Value was £65,000 and that the Advance required was £55,250. There was nothing, whatsoever, at this stage that would have put either the Claimant or the Defendant on notice that this was a potential mortgage fraud.
- Mr Garfoot visited the Property on 5th November 1998 and produced detailed Field Notes. He produced the required Report itself on the 6th November 1998, on the Claimant's standard form. I shall turn to the contents of the Report in greater detail below but, at this stage, I need simply point out Mr Garfoot made the following valuations. He gave the open market valuation of the Property in its then present condition as £64,000. He gave the open market valuation of the Property after essential repairs in the sum of £65,000. The reason for the difference between these two figures is that Mr Garfoot had identified evidence of rising damp. He recommended obtaining a specialist inspection report and the carrying of all recommended work. Mr Garfoot's estimate of the costs of this was £1,000. In fact, that was a remarkably accurate estimate because a Report was obtained from Rentokil which identified the costs of remedying the rising damp at £878 plus VAT. Mr Garfoot identified the Estimated Restricted Realisation Price (to achieve completion of sale in 60 days) at £50,000.
- What Mr Garfoot did not know (and the Claimant now accepts that the Defendant cannot be liable for the fact that Mr Garfoot failed to ascertain these facts) was that however attractive the Property looked it had neither electricity, water nor foul drainage. But the reality of the position was, as is quite clear not merely from the evidence of Mr Garfoot but also from the evidence of Mr Rimmer and the photographs which he then took, that the Property had been carefully presented to Mr Garfoot (and for that matter Mr Rimmer) to look as attractive as possible.
- On 4th December 1998 the Claimant offered to lend Mr Pierre Wilson £56,432, with a retention of £1,000 to cover the rising damp. That retention was never released (and the rising damp works, presumably, never effected by Mr Pierre Wilson). So the actual advance offered was £55,432. Mr Pierre Wilson instructed Solicitors (Woolf Simmonds of London) to act for him on his purchase. Woolf Simmonds acted, also, for the Claimant. Contacts were exchanged with completion taking place, simultaneously, on the 10th December 1998, the purchase price being given in the Transfer as £65,000.
- Although the advance was £55,432, various fees were deducted therefrom and, also, the sum of £1,182 as the Premium for a Payment Protection Plan. The Payment Protective Plan was, soon after completion, cancelled by Mr Pierre Wilson and the whole of the Premium refunded and credited by the Claimant to the mortgage account (thereby reducing the same accordingly). The balance of the mortgage advance (£52,283.25) was sent by Woolf Simmonds to the Vendor's Solicitors, and utilised by them to redeem an earlier mortgage over the Property in the sum of £41,351.43. The Completion Statement shows that Mr Pierre Wilson claimed, and the Vendor had accepted, that he had paid a deposit of £10,000 directly to the Vendor. Further, the Vendor gave him an allowance of £1,000 against the purchase price of £65,000 for early exchange and completion. The net effect of all this was that there was a small balance due to the Vendor on completion which, as far as I can see, was paid by Mr Pierre Wilson to Woolf Simmonds and then forwarded to the Vendor's Solicitors. It is quite clear from the correspondence that the Claimant regarded the opening balance on Mr Pierre Wilson's mortgage account as being the sum of £55,432. It is also of the essence of the Defendant's case, on contributory negligence, that Woolf Simmonds never informed the Claimant that there had been deposit of £10,000 paid directly by Mr Pierre Wilson to the Vendor, nor that there had been suggested adjustments, from time to time, in the ultimate purchase price. I gather that litigation is in place between the Claimant and Woolf Simmonds over this transaction and it is probably best that I say no more than this, namely that issues of contributory negligence, for the purposes of the present case, have to be dealt with on the basis of the Defendant's express case (namely that the Claimant knew nothing of these matters).
- All the above suggests strongly that this was merely a re-financing exercise by Mr Wilson (be he Peter or Pierre) and that if Mr Strickland existed at all, he was but a bare nominee for Mr Wilson. However, I need make no express finding to that effect, not having heard from Mr Wilson or Mr Strickland, granted the basis upon which each of the Claimant and the Defendant have chosen to present this case to me. Equally, it would seem to be the case that the transaction would never have occurred if the loan made to Mr Pierre Wilson had not been sufficient to discharge the earlier charge of £41,351 and produce a reasonable benefit (by way of capital sum) in addition.
- Mr Wilson's mortgage account benefited from the refund of the £1,182 single Premium for the Payment Protection Insurance and from certain payments made by Mr Wilson under the mortgage until July 1999. On that date Mr Wilson ceased making monthly instalments. Possession proceedings were issued on the 6th April 2000 (when the arrears amounted to £4,520 odd). The Claimant recovered possession of the Property on the 26th September 2000.
- Now it is important to realise what state the Property was in when possession was recovered. It may well be that Mr Wilson had hoped to use the money he had borrowed from the Claimant to continue with re-refurbishment of the Property. If he did continue with re-furbishment, it was a disaster. The Property remained without mains electricity or water, and without any form of foul drainage. A Mr Parker of the Claimant produced a Property Inspection Report, at or about this time, which helpfully identifies a number of matters. The original sewer-vault under the floorboards had been discovered and this required substantial work to seal and make safe. Various fittings had been removed from the bathroom (either by Mr Wilson or a disgruntled tradesman who had not been paid by him) and various kitchen units had either been removed or damaged. There was substantial damp with green mould (it would seem that a skylight had been left open for a number of months). In essence, I am certain from the evidence before me that Mr Rimmer is right when he described the Property as having been "trashed".
- Various valuations were obtained, at this time, and the Claimant seeks to de-value these backwards to the date of the Report. One (and by no means the only) fundamental difficulty with this is that the Property, at the time of these valuations in late 2000, bore no resemblance, whatsoever, to the Property in the state in which it was deemed to be for the purposes of Mr Garfoot's Report.
- In any event, the Claimant decided that the Property had to be repaired, and improved, to make it saleable. In total, including project management fees, the Claimant spent some £26,071 effecting such repairs and improvements. The cost of those repairs and improvements was funded by Title Insurance of which the Claimant had the benefit. The cost of those repairs and improvements is an item which the Claimant seeks to recover as damages, without adequately breaking the same down into:
(1) that part which was necessary to bring the Property into the condition in which it was deemed to be in at the date of the Report (i.e septic tank and electricity and mains water connections);
(2) pure improvements; and
(3) other items.
If I understand the Claimant's case correctly on this point it is that having made the loan to Mr Wilson the expenditure of these sums was necessary to enable it to sell the Property as mortgagee in possession and so the whole of the cost of these repairs is part of it "actual" loss to be the subject matter, subsequently, of the SAAMCO Cap (I appreciate that it is wrong, strictly speaking, to talk of a "cap" but I use that phrase, at this stage, for the sake of brevity).
- Following completion of these works the Property was marketed for sale at the price of £61,995. A sale was negotiated at £59,995, with contracts being exchanged, with simultaneous completion, on 20th May 2002. Again, the Claimant seeks to de-value, backwards, the sale price obtained in May 2002 (for the Property's state, the Claimant says, was better then than that in which it was deemed to have been at the time of Mr Garfoot's Report) so as to justify its allegations of negligence.
DE-VALUATION
- I deal with this question at this stage. Even if there were merits in the de-valuation arguments they would require clear, and cogent, evidence as to the amounts by which house prices had risen in Walpole and its immediate locality in the relevant periods between November 1998 and May 2002 so as to ascertain the appropriate percentage figure to apply as de-valuer. That evidence was, quite simply, entirely lacking before me. The best that Mr Crawford, on behalf of the Claimant, could do was to refer to the Nationwide Index for House Prices. But that applied to the whole of East Anglia (Norfolk, Suffolk and Cambridgeshire). It is self-evident that the average trend over such a large area might be wholly inapposite for the specific trend in and around Walpole. It is true that, in cross-examination, Mr Crawford put to the Defendant's Expert, Mr Russen, the postulate that in the relevant period (November 1998 to May 2002) house prices had increased in and around Walpole by some 40%. But the only evidence to support that question was the Nationwide Index – flawed for the very reasons I have indicated. It certainly was not verified by any other evidence called on behalf of the Claimant. Whilst Mr Russen, whom I say immediately I found to be a most impressive witness, was initially disposed to accept that postulate he then went on to say that he had not researched the point and before confirming it he would wish to study background material and comprables to confirm that it was correct. In re-examination Mr Russen said that his acceptance of the 40% figure should be regarded, absent any research, as "somewhat flaky". There was no reason, granted the nature of the Claimant's evidence, why Mr Russen should have researched this particular point before he came to give his evidence. I do not regard his initial concession, therefore, as in any way compelling. Nor does that initial concession assist me, at all, as to what occurred in the period between November 1998 and the various valuations obtained in 2000. And, in any event, the limited concession has to be seen in the context of what Mr Russen was actually saying. As Mr Crawford was asking him questions based on later valuations, and the sale price, de-valued to 1998 Mr Russen was protesting that this was not the way to approach the issue. Indeed, graphically, he told Mr Crawford that Mr Crawford's approach was contrary to everything he (Mr Russen) had ever learnt as a surveyor. Further, and as a separate point, the de-valuation process (even if valid) would have been extraordinary difficult to achieve granted the changed state of the Property on re-possession in 2000 and its changed state, again, following effecting of the works of repairs and improvements. And a further important point arises. The Property was a re-possession. It was common ground that there would be some degree of re-possession blight, Mr Russen indicating that it could, on appropriate occasions, but as much as 30%. So the de-valuing exercise would have to factor in, as well, re-possession blight.
- I agree, entirely, with Mr Russen's protestations about Mr Crawford's approach. As a matter of simple logic, it seems astounding to fix a value at an earlier date by de-valuing from a later valuation. To say that this involves the misuse of hindsight (and of matters which, ex hypothesi, were not available to the valuer at the time of the original valuation) is, again, self-evident. This whole de-valuation process involves not the ascertainment of a historic truth (the true valuation of the Property as at the date of the Report on the basis of information then available) but carries with it, so far as it seeks to identify the true value of the Property at the date of the Report, the clear possibility, indeed in all likelihood probability, of creating a figment of retrospective historical imagination.
- I would not, therefore, have required the benefit of authority to have found this de-valuation approach unhelpful and non-probative. But decided authority only goes to underline the points I made above. One of my prime functions is to ascertain the true, median, value of the Property as at the date of the Report. As Lord Hoffmann said in Banque Bruxelles Lambert SA v. Eagle Star Insurance Co Limited [1997] A.C.191 at 221-222:
".. the court must form a view as to what a correct valuation would have been. This means the figure which is considers most likely that a reasonable valuer, using the information available at the relevant date, would have put forward as the amount which the property was most likely to fetch if sold upon the open market. While it is true that there would have been a range of figure which a reasonable valuer might have put forward, the figure most likely to have been put forward would have been the mean figure of that range. There is no basis for calculating damages upon the basis that it would have been a figure at one or other extreme of the range. Either of these would have been less likely than the mean.."
The underlining, above, is mine. The words I have underlined emphasise that the retrospective valuation must be based on information available at the relevant date.
- In any event, I was referred by Mr Grant, for the Defendant, to the decision of His Honour Judge Esyr Lewis Q.C. in Halifax Mortgage Services Limited v. Simpson (1999) 64 Con.L.R.117. At page 133, and starting with the passage in the speech of Lord Hoffman in Banque Bruxelles to which I have referred above, the Judge indicated that a valuer considering an earlier valuation by another should put himself, as far as possible, in the position of that other valuer at the time of the earlier valuation. Indeed, this is, in fact, the advice given to valuers making retrospective valuations in the RICS Guidance Notes at para 1.19.4. The Judge, therefore, considered that the valuer was not entitled to "verify" his retrospective valuation by reference to prices obtained for similar properties after the date of the subject valuation. Nor was the valuer entitled to use such subsequent information to help him "determine the true value of the property at the date of the subject valuation." So to act plainly involved the misapplication of hindsight.
- Even if I were wrong in law on anything I have said in this Section, above, as a simple question of fact (for the reasons given above and below) I found the de-valuation exercise which Mr Crawford urged me to engage in as unhelpful and non-probative.
THE REPORT
- Before turning, specifically, to liability I must describe, in greater detail, some of the comments Mr Garfoot made in the Report. I must also describe, in some greater detail, his methodology as set out in his Witness Statement.
- As to the Report the following important points emerge:-
(1) The plot size is described as being "small" with an approximate external area (excluding outbuildings) of 93 square metres. It is expressly recorded that there is no Central Heating. The tenure is described as freehold;
(2) The Property is described as having water heating, water, private drainage and electricity;
(3) The structure is described as "good" and so, too, are internal and external decoration;
(4) The locality is described as being "fair" with demand, also, being "fair";
(5) Question 13(b) ("Is the Property a normal standard single-family dwelling?") is answered "yes" but that answer was clearly qualified by the answer to question 14 ("General Observations"). Mr Garfoot said this: -
"The property is a former chapel which has been converted to a residential dwelling. The layout of the accommodation and the site is somewhat unusual, there is a school at the rear and it is understood that the foul drainage arrangements are shared with this property. The unusual nature of the property and its location could limit saleability…. There is evidence of some previously structural movement with tie bars having been inserted to the main walls. However, this does not appear to be significant or continuing. Inspection of the external roof surface was very limited";
(6) In answer to question 16 ("Is the Property visibly affected by subsidence, heave, landslip or flood?"), Mr Garfoot said this:
"Yes. Evidence of previous movement and tie bars as noted above. The rear lobby which has been added in recent years has settled away from the property slightly";
(7) Finally, in answer to question 18(a) ("Is the Property mortgageable through conventional sources?") Mr Garfoot answered "Yes". Is has not been suggested, before me, that, on the basis of the Property in its deemed condition, this Answer was incorrect.
- In his Witness Statement Mr Garfoot identifies his methodology. He points out that on his inspection of the Property it was fully furnished and occupied. He met someone at the Property whom he believed to be the Vendor. He was informed by the Vendor that the various Services were as described in his Report. As I have indicated, the Claimant now accepts that Mr Garfoot cannot be blamed for accepting these assurances from the Vendor. He points out that he prepared the Report in accordance with the RICS Specification for Residential Mortgage Valuations (in particular paragraph 7.1 and 7.2 thereof). As I have already indicated he produced detailed Field Notes of his inspection. He points out that in accordance with the Claimant's requirement that a minimum of 3 comprables should be recorded on file, and notwithstanding the difficulties of obtaining direct comprables for a property such as the Property, he eventually identified three potential comprables. He also, thereafter, discovered a further comprable, High Road, Guyhirn. He adjusted all the comprables, in manner set out in paragraph 17 of his Witness Statement, to allow for differences from the subject property, giving him ultimate figures of £60,000 for all his comprables (save Hungate Road, Emneth which he believed would support a valuation of £65,000 for the subject property).
- Mr Garfoot's evidence to me was that the Vendor showed him a valuation of the Property from Colleys, produced in July 1996, which valued the Property at £55,000. Unfortunately, no copy of that Valuation is now available but it is clearly referred to in Mr Garfoot's Field Notes. Mr Garfoot's evidence is that he used the Colleys' valuation, uplifted to take account of his experience of property price inflation, as a cross-check. Uplifting that valuation by his perception of the rise in property values since 1996 (some 15%) this would have given a valuation of the Property, in November 1998, of £63,000. It was not suggested to Mr Garfoot, in cross-examination, that he did not, indeed, see this valuation. What was, however, suggested was that this might not have been a valuation at all but, rather, nothing more than Sales, or Marketing, Particulars which would have proved nothing. Mr Garfoot was, however, adamant that what he had seen from Colleys was, indeed, a Mortgage Valuation Report, or something of that nature, which he thought had probably been provided for the Halifax. He was certain that it was not Sales or Marketing Particulars and, in any event, his evidence was that Colleys are Valuers not Estate Agents. (No evidence was advanced to me, on behalf of the Claimant, that Colleys were, indeed, Estate Agents). I can see no reason, whatsoever, why I should not accept Mr Garfoot's evidence on these points.
- Mr Garfoot's evidence was that he reached his figures of £65,000 (or £64,000 with retention) primarily because there was a purchase price of £65,000. That purchase price seemed to him to be well within "tolerance" or "the bracket" and as this was a somewhat unique property, and difficult to value, he regarded a purchase price, negotiated in the market place, as sufficient to justify any excess of his ultimate valuation over his adjusted comprable.
LIABILITY
- I start with the following point. It was common ground between Mr Landles (the Claimant's Expert) and Mr Russen (the Defendant's Expert) that this was in many ways a unique property, difficult to value and one where there were no direct comprables. According this was a case where the "tolerance" or "bracket" was wide, and all were agreed that a figure of 15% for the "tolerance" or "bracket" was justified. Indeed, in his evidence, Mr Russen went further and suggested, following further thought, that so unique was the Property, and so difficult was it to find direct comprables, that 20% could be justified as a figure. But this was something of an afterthought, in the witness box, and I am not prepared to accept it. In my judgment, the appropriate "tolerance" or "bracket" is 15%.
- I also start my consideration of Liability with the following basic propositions:-
(1) Mr Garfoot's methodology, as described by him (and it was never suggested that he did not engage in the methodology which he described), was careful and competent. As I have said, he produced detailed Field Notes and justified his ultimate valuation in manner as described in his Witness Statement. Never did the Claimant attack, in any meaningful way, his basic methodology. This does not, of course, mean that he was not necessarily negligent (he could, for example, have taken the wrong comprables, mis-adjusted the comprables or simply got entirely the wrong result at the end of the day). But it is not an auspious start, from the Claimant's point of view, that it cannot point to any basic flaw in Mr Garfoot's methodology;
(2) Mr Garfoot's Valuation, in the Report, was clearly justified, and justifiable, in the light of two pieces of extrinsic evidence. First, the Colleys' Valuation (unless, of course, Mr Garfoot had misadjusted the same by misidentifying price inflation since the date of the Colleys' Valuation. Such a postulate was not, however, put to him in cross-examination). Secondly, Mr Rimmer's evidence, which I accept, was that he thought the Property could command an asking price of £65,000 which he thought to be realistic. I accept that Mr Rimmer was not acting as a valuer but he was a highly experienced Estate Agent, practicing in the locality, and I see no reason, whatsoever, not to take his evidence into account.
- I turn, next, to the Expert Evidence. Mr Landles, in his Report, indicated that his opinion of the value of the Property, as at the 6 November 1998, was £25,000 (without mains water and electricity and with no drainage system) and £30,000 on the assumption that mains water and electricity were available and that there was a satisfactory independent drainage system. Subsequently, and in cross-examination, he indicated that that figure of £30,000 might be too low and, in re-examination, uplifted it to £35,000. Conversely, Mr Russen's expert evidence was that the value of the Property on 6th November 1998 was £59,000 (with services and drainage) and £50,000 (without services or drainage).
- I must say something about each of Mr Landles and Mr Russen as witnesses. Both were experienced Chartered Surveyors (Mr Landles being a Member of the RICS and Mr Russen being a Fellow of the RICS). Both had good experience of the locality, albeit that Mr Landles has ceased effecting Mortgage Valuations in approximately 2000 or 2001 and, before that time, had effected only some 40 to 50 per annum. Conversely, Mr Russen had effected, and continued to effect, some 600 Mortgage Valuations per annum. However, I see little benefit in comparing, and assessing, their respective experiences and qualifications. Both were plainly competent professional men who did their best to assist the Court. The simple fact was that they had very different views on the question posed to them and I must choose between those views. I wish to stress, especially as Mr Landles and Mr Russen practice in an area where they frequently come into contact with one another and where local reputations matter, that I consider that Mr Landles gave his evidence honestly, competently, and professionally. I say this because Mr Grant cross-examined Mr Landles in an aggressive manner and made closing submissions about Mr Landles, and his suitability as an Expert, which I think were unjustified and, indeed, on the facts of this case ill-judged. I have not the slightest doubt that Mr Landles bona fide held the views he expressed to me in his evidence and that he was doing his best to assist me. It is no adverse reflection, whatsoever, on his basic competence and integrity, that not merely has he failed to persuade me that he is correct but, on the contrary, I have formed the clearest possible view that he is, in fact, wrong. There is no shame, whatsoever, in this. Judges are frequently told by Higher Courts that they, too, have got it wrong.
- I, therefore, now turn to Mr Landles' evidence to analyse the same. Six particular features motivated his mind. Various of these features can be quickly dispensed with:-
(1) Damp penetration – for reasons already indicated, I have not the slightest doubt but that the damp problem increased, very substantially, after Mr Wilson "purchased" the Property. I find no reason, whatsoever, to suppose that the damp problem at the time of Mr Garfoot's inspection was any worse than the one he identified. The Rentokil Report was prepared, the problem could be rectified at modest cost, and £1,000 retention was taken from the mortgage advance. Mr Garfoot reduced his valuation accordingly and in a sum in which, I think, was more than adequate to deal with this issue;
(2) Mr Landles identified outward bowing in the right hand flank wall and, also, movement in the porch. But he accepted, in cross-examination, that the movement was historic, not ongoing, and this did not, in my judgment, have any material effect on valuation;
(3) Mr Landles identified that the roof appeared to be original and was showing signs of requiring a general overhaul and possible re-roofing. There was no underfelting. It was noticeable that the rafters were out of line, and corrective works or additional bracing might be required. But Mr Landles accepted, in cross-examination, that the Property did not require re-roofing and it is noticeable that when the Claimant came to repair the Property, it found it unnecessary to effect any major works to the roof (or for that matter any major works in respect of the bowing and the roof porch);
(4) There were some other points referred during the course of evidence. Undoubtedly, at the time of Mr Garfoot's inspection, the spiral staircase did not have a protective handrail and Mr Garfoot overlooked this fact. The remedial costs were minimal (no more than some £135) and could have had no substantive effect on valuation. Secondly, and more importantly, the evidence was that when the Claimant re-took possession of the Property, the headroom clearance at the top of the spiral staircase was wholly inadequate. That I accept, but I equally accept the evidence of Mr Garfoot and Mr Rimmer that that problem had not been there when they inspected in 1998. I accept, therefore, Mr Russen's explanation that the low headroom clearance must have been as the result of certain recent alterations to the first floor joist levels effected by Mr Wilson following his "purchase".
- That leaves two further points made by Mr Landles which seem to me have greater merit. First, Mr Landles pointed out that at some time prior to November 1998 the front façade of the Property had been removed thereby altering its appearance. It was his essential point that the original façade would have added much character to the Property and its removal, therefore, made the Property substantially less attractive to the type of market which would have been interested in purchasing an old chapel. Mr Landles made great play of this point but the evidence, as a whole, indicated that, perhaps, he had made too much of it. Certainly, in his closing submissions, Mr Crawford on behalf of the Claimant was prepared to concede that, perhaps, too much had been made of the façade issue. Nevertheless, Mr Crawford's submission was that the façade issue was still a relevant factor. With that I agree. But its causative effects need to be examined. None of the other valuers who came, subsequently, to value the Property made specific reference to the removal of the original façade. They all valued what they saw. Equally, I think that each of Mr Garfoot and Mr Russen valued what they saw and whilst not specifically referring to the removal of the façade, self-evidently valued what they must have seen (that is a property without its original façade). So, really, it seems to me that Mr Landles' point comes to this. That everyone else, when valuing the Property, should not merely have valued what they saw but, then, applied a discount to that valuation because the original façade had been removed and, so, in a specialist market for old converted chapels some discount off the prima facie valuation should be applied because that specialist market would find this particular property less attractive than other old converted chapels. The amount of discount was never, actually, identified by Mr Landles. I find that proposition unjustifiable, on the evidence before me. It was not established that there was a specialist market to which the Property could be, and could only be, sold (i.e those looking only for old converted chapels or something similar). So it seems to me that all the other valuers were entitled to value what they saw (i.e the Property without the façade) on the basis of the general market. I accept that Mr Landles honestly believed that the Property was less attractive, to him subjectively, because of the absence of the original façade. I cannot accept, on the evidence before me, that it was less attractive to the market as a whole. To the extent that the façade of the Property was less attractive than it would have been had it retained its original façade, that was a factor which each of Mr Garfoot and Mr Russen (indeed all other valuers) took into account, in my view, in valuing what they saw.
- The other point made by Mr Landles was that whilst the Property had a parking space, there was no dropped kerb. Therefore it was necessary to drive over the kerb to gain vehicular access to the Property. Estimates varied as to what the costs of installing a dropped kerb might be. Mr Landles made the valid point that the Highway Authority would have to be involved and would require authorised contractors to effect the work to a high standard. Accordingly, the costs could be as much as £3,500. Mr Russen thought that the costs of installing a dropped kerb would be no more than £1,000. I am inclined to think that, on this point, Mr Landles is somewhat more correct in his estimation of costs than Mr Russen. I say this because I doubt whether Mr Russen has fully factored into the equation the necessity for Highways Authority involvement (which might well result in the basic costs of a dropped kerb being increased). But the actual costs of installing a dropped kerb are not, necessarily, the same thing as the amount by which the absence of a dropped kerb would affect valuation. As Mr Russen correctly pointed out this is a rural area, where absence of a dropped kerb might not matter as much as it would in a town or a city. And, to illustrate this point, Mr Russen had visited the Property very recently and discovered that a dropped kerb had still not been installed there. So the purchasers of the Property, or their successors, had been quite content to continue to gain vehicular access to the Property without a dropped kerb. Doing the best I can (and there are no quotations for installation of a dropped kerb before me) I think that the adverse affect on valuation of the absence of a dropped kerb would be no more than, say, £1,000.
- At the end of his evidence Mr Landles made a telling comment. He said he still could not get away from the sale price obtained in 2002 of, effectively, £60,000. I think that Mr Landles' whole approach to valuation was, effectively, from the wrong end of the telescope. It was subsequent events, de-valued accordingly, which caused him to reach his low basic valuation of the Property in November 1998. That is why he held so strongly to the views he expressed and to such a low valuation. But the intrinsic problems in his low valuation were reflected by the small disparity which he gave between the value of the Property in its actual state (£25,000) and its value in the state it should be deemed to have been in (with mains water and electricity and private drainage) - £30,000. Cross-examined on this he was forced, ultimately, to accept that this small disparity in valuation did not adequately reflect the costs of installing mains water and electricity and private drainage or the profit element of any developer (Mr Landles' perception was that the Property in its actual state would have been primarily attractive to a developer). That was why he was forced to uplift his valuation of the Property, in its deemed state, in November 1998 to £35,000. The change of £5,000 is a substantial departure from a basic valuation of £30,000 and, rather like the thirteenth stroke of the clock, casts doubt on the substantive validity of his whole valuation.
- Nor was I impressed, overall, with Mr Landles' use of comprables. A vast number of comprables were referred to by him, in different groups, many relating to sales occurring after the date of the 1998 Valuation. It was extremely difficult to discern any coherent pattern from those comprables, save to give some indication of what could be obtained in various parts of the King's Lynn area for what money. But this broad approach to comprables carries with it clear dangers. Mr Russen (unlike Mr Landles) had actually visited his (Mr Russen's) most important comprables on the Sunday before he gave evidence to me (on the Monday). Taking one comprable, Fen Road, Magdalen, the Particulars of Sale undoubtedly show an aesthetically attractive property. But Mr Russen said, and I accept, that when this property is actually visited it can be seen that there is a highly unattractive flat roofed extension, spoiling the aesthetic appearance from the road, (which - not surprisingly - does not feature in the picture on the Particulars of Sale with the Estate Agents having taken their picture from the most favourable angle). This just illustrates the dangers of a broad, scattergun, approach without analysing, closely, each relevant comprables.
- Put simply, Mr Landles has wholly failed to persuade me that the Property had any value as low as £30,000, or £35,000, in November 1998. On the contrary, on the basis of the evidence I have identified above, my clear view is that it had, at that date, a value very substantially higher than either £30,000 or £35.000.
- If matters were to end there, my Judgment would be that, on the evidence presented by the Claimant, the Claimant had wholly failed to establish breach of duty by Mr Garfoot in the Report. But matters do not end there because I have heard the evidence of Mr Russen and I accept that his retrospective valuation (of £59,000 in November 1998) is right, or broadly right. When I say broadly right, I make some deduction for the absence of the dropped kerb and some deduction for the possibility that Mr Russen might not have been, exactly, at the middle point of "the tolerance bracket". On the evidence before me, I find that the true value of the Property, in its deemed state, in November 1998 was £57,000.
- Why do I reach these conclusions, especially as to Mr Russen's evidence? My decision is, of course, affected by all the factors to which I refer above but, in addition, I found Mr Russen to be a most impressive, and careful, witness, His methodology appeared to me to be entirely justifiable, and adequately comprable based. If he had a fault, it would be that he did not, finally, adjust fully his final conclusion, based on comprables, for "feel". That is why (as well as the dropped kerb issue) I think it appropriate to make some small deduction from his valuation of £59,000. As an indication of the care with which Mr Russen approached this matter he had, as I have said, visited various of the more important properties on the Sunday, before he gave his evidence on the Monday. He was, therefore, able to respond to cross-examination about various of the properties with the unassailable answer that he had examined the same, albeit from the outside, and could therefore confirm what he was saying. Mr Russen's valuation was in accord with the earlier Colleys' valuation, and the evidence of Mr Rimmer. Of course, Colleys' and Mr Rimmer could be entirely mistaken but taking the Colleys' valuation together with Mr Rimmer's evidence and experience and Mr Russen's evidence, I do not believe that they were.
- Accordingly, I fix the "true" value – namely the value of the Property at the median point of the tolerance bracket – as £57,000 in November 1998. This means that Mr Garfoot's Valuation, in the Report, is high (£65,000) but granted the agreed tolerance of 15% it is still, just, within the tolerance bracket. Accordingly, on the basis of decided authorities (primarily the decision of Judge Langan Q.C. in Legal & General Mortgage Services v. HPC Professional Services [1997] PNLR 567 and the decision of the Court of Appeal in Merivale Moore v. Strutt & Parker [2000] PNLR 498) I cannot see how the Report was negligent, or in breach of contractual duty, in reaching its valuation within the accepted tolerance bracket. Even had Mr Garfoot's valuation lain just outside the tolerance bracket (as, for example, it could have done if, say, I had fixed the true value at £55,000) I would still have remained unpersuaded (to use the words of Judge Langan Q.C.) that Mr Garfoot had failed to exercise the degree of care, skill and competence which was appropriate in the circumstances. I accept that it would have been for the Defendant, if the Valuation had been outside the bracket, to have satisfied me that such care, skill and competence had been utilised but, on the facts and the evidence as presented to me, I would have been so satisfied. The Claimant's case, effectively, depended upon Mr Landles' Valuation (at a very low figure) being accepted. And, as I have indicated, I think Mr Landles was wrong.
- Accordingly, the Claimant fails to establish any cause of action, either in contract or tort, against the Defendant in respect of the Report.
OTHER ISSUES
- Granted the conclusions which I have reached it is not necessary for me to address quantum. However, lest the matter were to proceed further, I should deal, albeit briefly, with other matters canvassed before me which involve issues of fact, or mixed fact and law. I do not think it is necessary for me to deal with matters which are purely matters of law. Thus, by way of example, it is not necessary for me to address the question as to what effect on ascertaining the Claimant's actual loss would be had by the fact that the repairs to the Property were funded by Title Insurance held the Claimant.
- On quantum, there are a number of points:-
(1) I accept Mr Grant's submission, on behalf of the Defendant, that the Claimant could not recover as part of its actual loss interest on the mortgage loan by way of damages. I would, therefore, have confined the Claimant to simple interest under Section 35A of the Supreme Court Act 1981. I would have decided that such interest should start to run from the date on which Mr Wilson first defaulted and I would have awarded an interest rate of 1% over LIBOR (since the Claimant's evidence – paragraph 9 of the Witness Statement of Mr Ridley – was that this was what it had cost the Claimant to provide the mortgage funds advanced to Mr Wilson). In reaching this conclusion, I would have adopted the analysis of the law most helpfully set out by Mr Walter Aylen Q.C., sitting as a Judge of the Technology and Construction Court, in another action between the Claimant and the Defendant over an entirely different property. The Judgment in that Action (HT-02-93) was delivered on the 9th January 2003. Mr Aylen Q.C. addressed the question of whether Interest could be awarded as damages in paragraphs 81 to 85 of that Judgment. I can find no reason, whatsoever, to depart from the view of the law there expressed;
(2) I should record that Mr Crawford conceded that Mr Grant was right in the submissions he made in paragraph 24(1) of his Closing Submissions (to the effect that the Claimant had to give credit, against its actual loss, for the difference between (a) the contractual interest which Mr Wilson had actually paid to the Claimant (on the few instalment payments he made) at the rate of LIBOR plus 2.5% and (b) the cost to the Claimant of, itself, borrowing the mortgage funds (LIBOR plus 1%). Mr Grant also suggests (paragraph 24(2)) the Claimant's actual losses should be further reduced by the High Loan to Value fee of £325 which it charged and the Application Fee of £395. Now these sums were effectively lent by the Claimant to Mr Wilson and then retained out of the mortgage advance. Mr Wilson was liable for both to the Claimant. My view is that, had these sums not been loaned to Mr Wilson as part of the mortgage advance, they would have been paid by Mr Wilson to the Claimant in order to enable the transaction to proceed (they were, after all, comparatively small sums and, on the agreed basis on which this case has proceeded, it would seem more likely than not that Mr Wilson met the Solicitor's fees of both himself and Mr Strickland). These sums, therefore, were loaned, in my judgment, to Mr Wilson on the basis of the Valuation. I do not see why they would not have been recoverable. Equally, had I found there to be liability in this case, I would have allowed Mr Crawford to amend the Particulars of Claim by adding by way of actual loss the costs which the Claimant incurred in obtaining possession of the Property (apparently £618.51 plus VAT) and the costs, so far as not already included in the Mortgage Account and, hence, so far as not already pleaded, of obtaining valuations following recovery of possession of the Property;
(3) Mr Crawford submitted, that if I were to reject Mr Landles' evidence as to the valuation but, nevertheless, find the Defendant liable, there would have be an enquiry as to damages. That must be correct, especially granted the issues which are likely to arise over the extent to which, if at all, the costs of repair and improvement to the Property form part of the Claimant's actual loss;
(4) I have engaged in the heresy, above, of referring to the"SAAMCO Cap". I must, briefly, seek repentance by indicating that, in law, there is no such "Cap". Rather, damages have to be calculated in the manner, broadly, summarised in paragraph 9-160 of Jackson & Powell on Professional Negligence 5th Edition 2002. But the practical results of applying that calculation is, normally, that there will be a "Cap" at the amount of the overvaluation. I therefore refer to the "SAAMCO Cap" for the sake of brevity.
- That leaves three issues namely:
(1) Causation;
(2) No transaction;
(3) Contributory negligence.
CAUSATION
- Mr Grant's submission was that, had the Report been negligent, the sole cause of the Claimant's loss was the failure of Woolf Simmonds in not drawing to the Claimant's attention knowledge in its possession (in particular the direct deposit and the varying purchase price) which indicated that this transaction had all the hallmarks of a mortgage fraud. I fundamentally disagree. As there is litigation between the Claimant and Woolf Simmonds I say as little as possible on this subject but, if Woolf Simmonds were in breach of contract or duty owed in tort to the Claimant, it seems to me that the Claimant's loss would have been caused by the activities of each, and both, of the Defendant and Woolf Simmonds.
NO TRANSACTION
- To the extent that this might, possibly, be relevant my clear view is that this is a "No Transaction" case. Ex hypothesi, for there to be liability, a true value of the Property, at its median point in the tolerance bracket, had to be below, approximately, £56,000. From that there had to be a retention of £1,000 for the rising damp. I am satisfied that the Claimant would not have lent more than 85% of that valuation of £55,000 (£46,750). But Mr Wilson needed £41,351 odd to discharge the earlier charge. Granted incidental costs payable by Mr Wilson, I am satisfied that he would not have entered into this transaction, on the basis that it is put before me by both sides, if the total sum he was to receive from the Claimant was only £46,750. For that reason, alone, this was a No Transaction case. Nor am I persuaded that the Claimant, itself, having received a Valuation so far below the suggested Purchase Price would, necessarily, have entered into a lesser transaction with Mr Wilson.
CONTRIBUTORY NEGLIGENCE
-
(1) The first head of contributory negligence identified by Mr Grant, on behalf of the Defendant, is failure to identify this transaction as a mortgage fraud on the basis of information actually within the Claimant's own knowledge. Now it is true that, with the benefit of 20/20 hindsight, it is possible to identify certain features of Mr Wilson's application for the mortgage loan which cause suspicion. But that is very much with the benefit of 20/20 hindsight. At the end of the day, the Claimant obtained much information about Mr Wilson (including, in particular, a copy of his passport (in the name Pierre Wilson), his P60 and a reference from his supposed Employer). I am wholly unpersuaded that the Claimant was contributorily negligent in failing to identify this as a case of mortgage fraud;
(2) The second argument advanced by Mr Grant is that Woolf Simmonds certainly were in possession of information which ought to have identified this transaction as a mortgage fraud (in particular the direct deposit and varying purchase price). Mr Grant says that this knowledge should be imputed to the Claimant under the principles set out in Strover v. Harrington [1988] Ch.390 and Halifax Mortgage Services v. Stepsky [1996] Ch.207. Quite simply, Mr Grant either misunderstands, or misapplies, the principles which appear from these cases and I can see no justification, whatsoever, for holding the Claimant contributorily negligent for something it never knew;
(3) The final point made by Mr Grant has more force. He says that this was a case of negligent lending, in the sense that the Claimant lent 85% on Mr Garfoot's Valuation (the figures are capable of being "played with" so that the percentage can become as high as 87%). Now, of course, the Claimant's Basic Lending Manual (which is before me) did allow for lending up to 85% of Valuation. I did not understand Mr Grant to be mounting a direct attack on the Claimant's Lending Procedures and, if he were so doing, I would not have entertained the same without detailed Expert Evidence as to how those Lending Policies had been formulated and, indeed, as to how they had functioned with the experience of time. I note that Mr Aylen Q.C. adopted a similar approach in his Judgment to which I have referred above. But, on the specific facts of this case, it seems to me that there is some force in Mr Grant's contention in the sense that Mr Garfoot did, indeed, in the Report indicate that the Property was "somewhat unusual" and, more importantly, that "the unusual nature of the Property and its location could limit saleability". In my Judgment (and granted the effective worthlessness of Mr Wilson's covenant) there was an element of negligent lending here in going as high as 85% or 87%. Accordingly, I hold that there was contributory negligence to this limited extent, namely that I think that the Claimant was, on the specific facts of this case, contributorily negligent in lending over 80% of Mr Garfoot's Valuation. Accordingly, had it been relevant, I would have ordered that the Claimant, itself, should bear its losses attributable to that part of its loan which exceeded 80% of Mr Garfoot's valuation. The contributory negligence would, of course, have impacted on the total of actual losses, not on the loss after application of any "SAAMCO Cap" (see Platform Home Loans Limited v. Oyston Shipways Limited [2002] 2A.C.190).
