PREFERRED MORTGAGES LIMITED v BRADFORD & BINGLEY ESTATE AGENCIES LIMITED [2002] EWCA Civ 336

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE SHEFFIELD COUNTY COURT

(HIS HONOUR JUDGE MOORE)

[2002] EWCA Civ 336

Case No B2/01/1693

Venue Royal Courts of Justice, Strand, London WC2, Friday 8 March 2002

Between

PREFERRED MORTGAGES LIMITEDClaimants/Appellants

BRADFORD & BINGLEY ESTATE AGENCIES LIMITEDDefendants/Respondents

Before

Lord Justice Buxton

Lord Justice Latham

Sir Martin Nourse

MR TAGER QC and MR HUGH JACKSON (Instructed by Messrs Sprecher Grier Halberstam, London, WC1V 7JH)

appeared on behalf of the Appellants.

MR ROGER STEWART QC and MR ANDREW NICHOL (Instructed by Messrs Harrison Drury & Co, Preston PR1 2UT)

appeared on behalf of the Respondents.

Date 8 March 2002

LORD JUSTICE BUXTON:

Lord

Justice Latham will give the first judgment.

LORD JUSTICE LATHAM: This is an appeal from His Honour Judge Moore, sitting at the Sheffield County Court on 13 July 2001, when he dismissed the appellant's claim for damages for £24,000, allegedly the result of a negligent valuation of a residential property. The judge's decision was at the conclusion of the hearing of a preliminary issue which had been ordered by a district judge in terms which were somewhat uncomfortable in the sense that, unlike many preliminary issues, the preliminary issue itself did not set out a self-contained statement of assumed facts. The preliminary issue was defined in the following terms:

"Upon the following facts being admitted for the purposes only of the preliminary issue: The claimant advanced the sum of £49,500 to the borrower on or about 5 March 1997 such advance being secured by first legal charge and being made in reliance on the defendant's negligence (sic) over valuation dated 8 January 1997, it being assured (sic) that the true value of the property as at 8 January 1997 was £45,000. On 19 November 1997 the claimant made a further advance to the borrower in the sum of £7,955.67 such advance being secured by way of a charge on the property dated 19 November 1997. Prior to the making of the November 1997 advance the claimant commissioned and received a valuation from Country Wide which was dated 20 October 1997 and which valued the property at £70,000. In these circumstances the question is: Is the defendant responsible for the loss sustained by the claimant in reliance of the defendant's valuation report as alleged in the particulars of claim, the claimant having made the further advance to the borrower and the borrower having granted the charge dated 19 November 1997 whereas the defendant not so liable as pleaded in para 16 d of the defence."

[3]In addition to the facts which were asserted, or said to be assumed, in the preliminary issue, the district judge ordered that a bundle of documents should be prepared, and that skeleton arguments and evidence should be provided.

[4]Before His Honour Judge Moore the parties had prepared a bundle of documents, running to some 375 pages. There was a witness statement of Philip Edwards Hopes, the Chief Financial Officer in the employment of the appellants.

[5]The judge dealt with the matter on a consideration of both the documents and the evidence of Mr Hopes, as well as the matters set out in the preliminary issue. He concluded that the appellant's claim should be dismissed.

[6]The judge came to the conclusion that, in his judgment, the events in November 1997 had resulted in an effective re-mortgage of the property by way of a redemption of the existing mortgage and a grant of a fresh mortgage, and accordingly, it was the only transaction for which the respondent could be said to have had any duty of care either in contract or in tort. That transaction had resulted in no loss to the appellant. There was, therefore, no basis for the claim for damages which could properly be sustained. The judge ordered that the appellant's claim be dismissed at the conclusion of the preliminary issue.

[7]Mr Tager, on behalf of the appellants, submits that the judge was wrong in his conclusion in two respects. First, he submits that the judge's analysis of the facts was wrong; that, in truth, there was no effective re-mortgage which could be said to have affected the respondents' liability to the appellants by reason of the events in November 1997. In his submission, what happened in November 1997 was simply that the appellants provided a further advance to the borrower in circumstances which in no way affected the underlying effect of the valuation which had been the basis of the original loan. The consequence was simply that the respondents' liability in respect of that loan continued. It may well have been that there was a further negligent over valuation by the valuers, who provided the report in November 1997 for the purposes of the further advance, butg they were only responsible for the loss to the appellants resulting from the making that further advance.

[8]He accepts that, although on the face of it there had been a re-mortgage after apparent redemption, this was simply an internal book-keeping exercise within the appellants, necessitated, according to the evidence of Mr Hopes, by the inability of the appellants' computer system to enable them to provide second mortgages, or otherwise amend existing mortgages. Hence the only way in which a further advance could be made to an existing lender was by way of redemption and re-mortgage.

[9]Mr Tager submits that that had no practical effect on the true nature of the transactions in question. They remained, basically, the original loan secured by mortgage to which was added a further loan which in no way affected the substance of the original transaction or the liabilities of the parties under that original transaction. Accordingly, he submits that we should treat the reality of this as meaning that when, as eventually was the case, the property ultimately was sold for only £24,000, the respondents remained liable for their assumed negligent over valuation of the property.

[10]He submits that, even if he is wrong in that submission, the appellants suffered loss when they entered into the first transaction by receiving less security than they should have had for the purposes of that loan and that that loss was never made good by the events of November 1997. There was no question of any payment being made which discharged the obligation of the borrower, so that the loss which the appellants sustained was extinguished. He submits that, accordingly, the matter, again looked at as a matter of reality, could only achieve that result if there had been the payment of funds from a third party in November to discharge the borrowers' liability under the mortgage. There was not. The only way in which the mortgage could properly be said to have been redeemed was by use of the appellants' own money which did not bring to an end any liability of the respondents arising out of the original transaction. The effective cause of the continued existence of a loan to the extent of the loan originally made by the appellants, was the assumed negligent over valuation by the respondent in March 1997.

[11]Dealing with those two grounds in order, the first requires some, although I hope not too detailed, analysis of the factual history. Mr Tager starts from what I would perceive as a difficult position in this regard. He has accepted in argument that there is no way in which, after the events of November 1997, the appellants could have relied upon the terms of the original mortgage to obtain any relief against the borrower. It follows that he has accepted that the legal effect of the events of November 1997 was effectively to discharge the borrowers' liabilities under that mortgage, and to replace them with obligations under the new mortgage. One would have to find amongst the facts some startlingly clear answers that that was not to be the true consequence in relation to the responsibility of the respondents before full effect should not be given to that accepted legal consequence.

[12]The borrower, Mr Gaskin, had applied for a loan of £49,500, first to discharge an existing mortgage but, secondly, to provide him with about £17,500 by way of capital. He made his application on 16 January 1997. In accordance with the usual procedures, that application was accompanied by a valuation from the respondents, which was on the appellants' proforma valuation form; the respondents being approved valuers for the purposes of residential valuations for the appellants. The valuation was dated 8 January 1997 and was headed "Mortgage Valuation Report -This report will he used to substantiate a non-status first mortgage". The open market valuation, as indicated in the preliminary issue, was £69,000 in its then condition.

[13]On 14 February 1997 the appellants offered a mortgage, based upon the information provided by Mr Gaskin and the valuation in the sum of £49,500, for ten years at a concessionary rate of interest of 11 per cent. The document included in its terms a condition that in the event of the offer being accepted and there being an early settlement of the loan, there would be a premium payable for early redemption. Mr Gaskin accepted the offer and the transaction was completed on 6 March 1997. The mortgage was dated 5 March 1997. The mortgage contained provisions relating to early redemption in accordance with the terms of the offer. There was also a clause indicating that the mortgage was capable of being utilised to secure further advances. However, as I have already stated, it was the appellant's practice not to deal with any applications for further loans other than by accepting redemption of the existing mortgage and offering a loan in the appropriately higher sum.

[14]Mr Gaskin made his application for the further loan on 6 October 1997. On the form he applied for £9,000 "to run with the existing loan". He made his application through agents who submitted, together with the application form and the relevant financial information, the further valuation, this time from different valuers. The valuation form was in similar terms to the one submitted by the respondents. In particular, it was headed, as was the respondents', "Report of Valuation for Mortgage Purposes - This report will be used to substantiate a non-status first mortgage". The report valued the property at £70,000 in the open market and the notes or observations were to the effect that:

"It offers adequate security for mortgage purposes based on our mortgage figure."

[15]There is nothing in the papers before us or in the material before the judge to indicate the extent of the information available to those valuers as to the purposes for which the valuation was to be used other than the material in the valuation form itself.

[16]In paragraph 17 of his witness statement, Mr Hope says:

"Acting in reliance upon Countrywide's Surveyor's report, PML's underwriters approved the further advance to the borrower. Accordingly on 29 October 1997 an offer of advance in the sum of £55,654 being made up of the outstanding sum under the first loan and a further £7,999.68 was issued on the basis of a 10 year term from completion."

[17]On 23 October 1997, an internal document was raised with the appellants. It would appear as though it may have been not simply for the appellant's own purposes but for an associated company called Curzon Collections. That document set out the sum required to "redeem the mortgage". Figures were thereafter identified with the total to redeem being £47,654.32. No figures were inserted for any early redemption charge, vacating fee, administration fee or redemption statement fee. Mr Tager says that indicates that the true nature of the events thereafter was not to be a redemption. It was merely the administrative process necessary within the appellants to give effect to Mr Gaskin's request for an increased advance.

[18]The offer was made on 29 October 1997. It was expressed as:

"Amount of loan £55,654 Term of loan 10 years Concessionary rate of interest 10.6%."

[19]The term of the loan and the rate of interest were different from the term and rate of interest effective under the then existing mortgage. The documents before us make it clear that the lower rate of interest in the offer of advance was, at least in part, because Mr Gaskin had been a regular payer between March and the date of his application.

[20]On 6 November 1997 the appellants and Mr Gaskin then instructed Glenisters, a firm of solicitors. It is clear that from then on the solicitors were dealing with the matter on the basis that they were to do everything necessary to give effect to the offer, which involved redemption of the original mortgage and the grant of a new mortgage (ie the creation of a fresh charge).

[21]On 17 November 1997 Glenisters wrote to a Mr Roger Taylor at the appellants saying that they awaited a redemption statement and that once they received it they would prepare a report on title. On 18 November it was indicated that the intention was to redeem the mortgage on 19 November. The appellants had provided Glenisters with a new redemption statement of 18 November 1997 in which the amount to redeem was calculated at £47,060.94. On this occasion, added to the sums by way of capital arrears and so forth, was an administration fee of £110 and a redemption statement fee of £15. That document was used by the solicitors to draw up the report on title and an advance cheque request of 19 November which set out the completion statement, which referred to the division of the monies as including redemption of existing mortgage loans.

[22]On 19 November the appellants and Mr Gaskin entered into a mortgage which was in a new form from the mortgage which had been entered into in March and in rather different (and, it is said, more understandable) language. Thereafter the money was paid to Mr Gaskin, but he made no repayments. Ultimately, the property was sold by the appellants and realised only £24,000.

[23]Throughout all the documents to which I have so far referred, it is clear that the procedure as envisaged and as effected, was for the redemption of the original mortgage and the grant of a new mortgage. The sum in respect of the new mortgage was always identified as in the region of £55,000. The appellants refer to one document which refers to a further advance. That is an internal memorandum of the appellants dated 20 November 1997 which says:

"The following case which is a further advance completed today the 20 November 1997."

[24]In the face of those documents, and in the face of the concession which Mr Tager makes as to the effect of the events of November 1997 (certainly so far as Mr Gaskin was concerned), it seems to me to be hopeless to seek to argue that in some way the original mortgage had some continuing life after it had been redeemed on 19 November 1997.

[25]Accordingly, Mr Tager's first ground of appeal seems to me to be hopeless. He has to accept that the transaction in respect of which the respondents provided the valuation in January 1997 came to an end in November 1997 in circumstances whereby, on its face, the appellants had suffered no loss as the mortgage was fully redeemed.

[26]In determining the legal consequence, assistance can be gained from a passage in the speech of Lord Nicholls in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2)

[1997] 1 WLR 1627

at 1631:

"It is axiomatic that in assessing loss caused by the defendant's negligence the basic measure is the comparison between (a) what the plaintiff's position would have been if the defendant had fulfilled his duty of care and (b) the plaintiff's actual position. Frequently, but not always, the plaintiff would not have entered into the relevant transaction had the defendant fulfilled his duty of care and advised the plaintiff, for instance, of the true value of the property. When this is so, a professional negligence claim calls for a comparison between the plaintiff's position had he not entered into the transaction in question and his position under the transaction. .... For what, then, is the valuer liable? The valuer is liable for the adverse consequences, flowing from entering into the transaction, which are attributable to the deficiency in the valuation."

[27]This passage is wholly in accordance with the way in which Lord Hoffmann defined the scope of the duty of care owed by a valuer in circumstances such as the present in Banque Bruxells SA v Eagle Star

[1997] AC 191

[28]The question therefore is, to what extent can Mr Tager avoid what seems to be the inevitable consequences that I have identified by virtue of the second ground upon which he puts his case? He says that the effective cause of the continued liability of the respondent to the appellant, in relation to the over valuation, was not brought to an end once the re-mortgage took place in November 1997. It remained an effective cause which is all that he has to establish. It seems to me that that argument is precluded by the principle enunciated by Lord Nicholls in Nykredit .

[29]In any case such as this, the important question is, what is the scope of the duty of care undertaken by the valuer? The scope of the duty of care is determined by the transaction itself. As Lord Nicholls indicated, it is in relation to the transaction that one determines the liability of the valuer. The transaction in the present case was the mortgage which was granted on the basis of the respondent's valuation in January 1997. That transaction resulted in no loss to the appellants by reason of the fact that that mortgage, which was the consequence of the valuation, was fully redeemed. It follows that, although there might have been an inchoate liability to the appellants by the respondents as a result of the assumed negligent over valuation between March and November, once November came and that mortgage was fully redeemed, that liability ceased because that transaction had pro tanto been satisfactorily completed.

[30]For those reasons it seems to me that Mr Tager's grounds of appeal cannot succeed and I would accordingly dismiss this appeal.

SIR MARTIN NOURSE: I agree and do not wish to add anything of my own.

LORD JUSTICE BUXTON: I also agree.

Order

Appeal dismissed with costs to be subject to a detailed assessment. By agreement, the Appellants to make an interim payment on account of the costs, £12,500, (50 per cent of the Respondents' costs) to be paid within 14 days.