Blemain Finance Ltd v E.Surv Ltd [2012] EWHC 3654 (TCC)

[2012] EWHC 3654 (TCC)Case No HT-11-517
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 20 December 2012
Before
THE HONOURABLE MR. JUSTICE COULSON
Between
Blemain Finance LimitedClaimantE.Surv LimitedDefendant
Mr. Peter De Verneuil Smith (instructed by Rosling King) for ClaimantMr. Luke Wygas (instructed by LSL Legal Services) for DefendantHearing Hearing dates: 11, 12 and 13 December 2012
Judgment
[1]INTRODUCTION http://www.bailii.org/ew/cases/EWCA/Civ/2011/1325.htmlIn these proceedings the claimant, Blemain Finance Limited (“Blemain”) originally made allegations of negligence against the defendant, E.Surv (“E.Surv”), arising out of four valuations which they carried out in 2006 and 2007. The claims in respect of three of those valuations have now been compromised. The remaining claim is the largest of the four, and concerns the valuation of Heath House, 3, Paddock Way, Portsmouth Road, Putney, London, SW15 3TN (“the property”).[2]The valuation was carried out by Mr McKeown of E.Surv on 13 July 2007. He valued the property in the sum of £3.4 million. It is Blemain’s case that they relied on that valuation to loan the owners of the property, Mr and Mrs Sherman, £250,000 by way of a second mortgage. The Shermans got into difficulties in repaying both the principal mortgage on the property (which was the subject of a first charge), and the second mortgage from Blemain. Eventually the property was repossessed and sold for about £2 million. As holders of the second charge, Blemain recovered nothing from the forced sale. It is agreed that, subject to all issues of liability and contributory negligence, the losses suffered by Blemain in consequence of this loan were £301,194.89.[3]One unusual feature of the trial in this case was that it took place at a time when I was working on a longer reserved judgment concerned with two other allegedly negligent allegations performed by E.Surv (Webb Resolutions Ltd v E.Surv Limited [2012] EWHC 3653 (TCC)). The legal teams on both sides were the same in each case, as were the lending experts, and there were a number of overlapping issues.[4]In those circumstances, it was agreed by the parties that the draft judgments in these two cases should be handed down at the same time. It was also agreed that I could, where appropriate, treat the judgment in the Webb case as the principal judgment and refer to it here as a way of avoiding saying the same things twice over.[2]THE RELEVANT FACTS[5]The property is a distinctive modern detached house, one of three in a small enclave in Paddock Way, in Putney Heath. It was built in about 2002/2003. Its principal features were its steel framing and floor-to-ceiling plate glass windows, together with a number of double volume gallery areas which added to the impression of light and space but were unusable from a practical point of view. It had five bedrooms, all en suite, although most of the bedrooms themselves were on the small side. Mr and Mrs Sherman were the first purchasers of the property in September 2004, when they bought it for £1,920,000.[6]In June 2007, Mr and Mrs Sherman remortgaged the property. They obtained a mortgage of £2,250,000 from Cheltenham and Gloucester and granted a first charge against the property in their favour.[7]It appears that, in early July 2007, Mr and Mrs Sherman were also seeking a second mortgage on the property. They approached a broker, Christopher Lovering, at the onlinebroker.co.uk. On their behalf he made an application to Blemain for a second mortgage. The amount required was originally stated to be £350,000.[8]In the enquiry form, dated 9 July 2007, Mr Sherman’s net monthly income was said to be £41,250. He was said to have been self-employed for 12 years. His job was described as “proprietor”. Mrs Sherman was described as a general manager with a net monthly income of £5,200. These figures were supported by an accountant’s certificate, dated 8 May 2007, which noted that Mr Sherman’s business name was ‘Paul Sherman PSA Management’. It said that the annual turnover of that business in 2006 was £579,968 and that the net profit was £495,064 (effectively 12 x £41,250). The certificate confirmed:
“We understand that the 2007 results will be equivalent to or better than previous years”
. In addition, there was a letter dated 9 July addressed to Blemain from Mr and Mrs Sherman which said that they intended to repay the balance on the secured loan via an investment vehicle.[9]The application to Blemain was accompanied by two valuations of the property. One had been carried out at an earlier date by Haywards Surveyors and Valuers, and had apparently been generated by an unrelated application by the Shermans for a mortgage. It was what is known as a “retype”, a valuation which repeats an earlier valuation (carried out for someone else) for a small fee (in this case £76.38).[10]Haywards valued the property at £3.33 million, and said that its projected market value (allowing for a sale in three months) was £3.15 million. Three comparables were given, each of which was at a figure higher than £3.33 million. The difficulties with this valuation are addressed at paragraphs 67-69 below.[11]The Haywards valuation was not sufficient for Blemain’s purposes, partly because it was a retype, and partly because Haywards were not on Blemain’s panel of approved surveyors. Accordingly, E.Surv who were panel surveyors for Blemain, were asked to carry out their own valuation.[12]The valuation was carried out on 13 July 2007 by Mr McKeown. He has since left E.Surv and did not give evidence at the trial. It appears that Mr McKeown was told at the outset that the Shermans had put a value on the property of £3.4 million; that is recorded in his site notes. He duly valued the property at £3.4 million, and stated that its projected market value (on the basis of an accelerated sale in three months) was £3 million.[13]Mr McKeown identified four comparables in his valuation report. They were 38, Roedean Crescent (with a sale price which he quoted as £3 million); 1, Roehampton Gate (sale price £3.5 million); 3, Roehampton Gate (sale price £3.75 million) and a property at Cedar Park in Wimbledon (with a sale price of £3.3 million). The first three of those comparables were identified by Mr McKeown as not being in as good a location as the property, and the final one (Cedar Park) was described as being in a similar location. All of these properties were new-build houses. They are analysed in greater detail in Section 4.3 below.[14]The evidence was that Blemain specialised in second mortgages where the amount of the loan was in the order of £30,000 or 40,000. Although they did go as high as £250,000, a loan at that sort of level was larger than usual for them. Ms Bailey, the credit director, said that because the prospective loan was at the upper end of their range, Blemain asked a firm of surveyors with whom they had a personal connection (Ord, Carmell and Kritzler, whom I shall call “Ord”), to carry out an audit valuation, just to ensure that the E.Surv valuation was correct. Ord’s audit valuation was provided on 20 July 2007. It said:
“From our enquiries with local agents it seems that the valuation figures in the report can indeed be supported by local comparables… The E.Surv valuation report measures the subject property at 5,000 square feet. On the basis that this is correct then the projected market value of £3,000,000 would seem realistic.”
The Ord audit is dealt with in greater detail in paragraphs 67 and 70 below.[15]It should be noted that one of the reasons put forward by Ord to support that view was a reference to a house at 1, Bristol Gardens, close to the property, which had sold very recently for £3.8 million. That comprised a 5,400 square foot house together with a cottage of 1,300 square feet, standing in grounds of approximately half an acre. That became an important comparable for Mr Godwin, the claimant’s expert valuer, and is addressed at paragraphs 52-58 below.[16]Also on 20 July 2007, Mr and Mrs Sherman filled out a ‘Declaration of Income and Affordability’. In that document Mr Sherman stated that his net monthly income was £41,250 and Mrs Sherman said that her net monthly income was £5,200. Again, when these figures are multiplied by 12, they give the annual net income figures for the Shermans set out in the accountant’s certificate (paragraph 8 above).[17]The Shermans’ application was then the subject of a detailed credit search. The credit search engine used was Equifax. That demonstrated that the Shermans had three other mortgages and other loans, and a large number of credit cards. Their indebtedness in respect of loans was almost £130,000 and, in respect of credit cards and the like, was another £110,000. The three mortgages on other properties were in the total sum of £686,000 odd. However, the Equifax information also showed that these accounts were being properly conducted and serviced, and that there had been no late or missed payments. The very worst that had happened was that, on one credit card account, minimum payments were missed three months in a row, but the amount was made up immediately after that. The accounts showed no arrears in payment of at least the minimum sum required.[18]In addition, the Shermans also provided to Blemain a certificate, signed by a solicitor, and dated 25 July, which confirmed how long he had known them and confirmed the explanations he had given to the Shermans about their liabilities in respect of the loan. That document identified the amount of the loan as £255,617, including fees. It described the purpose of the loan as “home improvements/overseas property investment”.[19]I have assumed that the reason why the loan had been reduced to £250,000 plus fees was that £250,000 was the maximum that Blemain would lend for a second charge. Blemain’s lending policy was that the loan to value ratio (“LTV”) should be no more than 70%, although there was a discretion that allowed them to go higher in a particular case. Of course, because Blemain were offering second mortgages, in calculating the 70% LTV, both the first and the second mortgages were taken into account. Here, Blemain saw that, on a loan of £250,000, the LTV would be around 73% and therefore outside their usual criteria. That, and the large amount of the loan, explained why, at the time, Mrs Bailey, the underwriting director, said in her letter to Ord, that “the problem is the case is very tight”.[20]Principally because of the Shermans’ high monthly earnings, Blemain’s credit committee, on which Mrs Bailey was the leading light, approved the loan on 31 July 2007. The underwriting approval form quoted the LTV as 73%. It quoted the secured debt to income ratio (“SDI”) at 28.51%, which was well within the 65% quoted in Blemain’s lending criteria.[21]Mr and Mrs Sherman serviced the loan without problems until 1 July 2008. From that time on, although some further payments were made, more arrears accrued. On 17 June 2009, Blemain obtained an order for the repossession of the property. In early 2010, Cheltenham and Gloucester took possession of the property under the first charge. The property was sold on 21 July 2010 for £2 million. In consequence, Blemain recovered nothing. As I have said, their loss of £301,194 is admitted, subject to the issues of liability and contributory negligence.[3]THE LAW RELATING TO NEGLIGENT VALUATIONS 3.1. Duty of Care/Implied Term[22]There is no dispute that E.Surv owed to Blemain a duty of care, arising at common law or by way of an implied term of their contract, to carry out the valuation to the standard to be expected of a reasonable valuer of ordinary competence and experience. 3.2. Margin[23]In working out whether or not Mr McKeown’s valuation was negligent, the court must apply a bracket or margin of error. I have summarised the position from the authorities at paragraphs 25-29 of the judgment in Webb, which would suggest a bracket of about 10% in the present case. Ultimately, the court must approach the issue of margin/bracket by reference to the evidence in the particular case under review. Here, although the joint statement records that the experts agreed a margin/bracket of 15.4%, it became apparent on investigation that neither expert was really comfortable with a percentage bracket at all.[24]On behalf of the defendant, Mr Wygas relied on a passage in the judgment of Buxton LJ in Merivale Moore PLC v Strutton Parker (a firm) [1999] Lloyd’s LR 734 at 745 in support of the proposition that, even if the valuation fell outside the reasonable bracket agreed by the experts or fixed by the court, that did not necessarily mean that the valuation was negligent. Buxton LJ said:
“Some caution at least has to be exercised in this respect, because the question must remain, in valuation as in any other professional negligence cases, whether the defendant has fallen foul of the Bolam principle. To find that his valuation fell outside the ‘bracket’ is, as held by this court in Craneheath Securities Limited v York Montague Limited[1996] 1 EGLR 130 and also, I consider, by the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co. Limited[1997] AC 191, is a necessary condition of liability, but it cannot in itself be sufficient.”
In similar vein, Mr Wygas also relied on a similar passage in the judgment of Hoffmann LJ in Zubaida v Hargreaves [1995] 09 EG 320 when he said: “The issue is not whether the expert’s valuation was right, in the sense of being a figure which a judge after hearing the evidence would determine. It is whether he has acted in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession: see Bolam v Friern Hospital Management Committee[1957] 1 WLR 582 at 587.” 3.3. Methodology versus Valuation[25]This topic follows on from the passages just cited and I have dealt with it in greater detail at paragraphs 22-24 of the Webb judgment. Mr De Verneuil Smith maintained that, to the extent that E.Surv wished to argue that a valuation outside the reasonable bracket was still not negligent, he would submit that Mr McKeown had plainly and obviously fallen below the standard to be expected in the way in which he had gone about the valuation exercise. In addition, Mr McKeown’s methodology is relevant to any consideration of comparative blameworthiness as between the parties for the purposes of contributory negligence.[4]THE VALUATION ISSUES 4.1. The Parties’ Competing Cases[26]Blemain discounts all of Mr McKeown’s comparables; instead, Mr Godwin, their expert valuer, takes three comparables (including 1, Bristol Gardens, referred to at paragraph 15 above) and adjusts two of them because they are outside the relevant date range. That originally produced a valuation for the property of £2.6 million although Mr Godwin now accepts that his figure should be increased slightly to £2.65 million.[27]E.Surv’s valuation expert, Mr Adams-Cairns, put forward a figure of £3.1 million. He arrived at that figure by applying what was called the Savills index to the original purchase price of the property (£1.92 million) for a period of 3 years to arrive at a figure of £2,950,000. He also applied the same index over a similar period to 2, Paddock Way, which gave him an index value of £3,300,000. His £3.1 million figure was therefore part way between the two.[28]Although Mr Adams-Cairns referred to three of the four comparables apparently relied on by Mr McKeown, his reports did not make plain what, if anything, he derived from them. However, a good deal of his cross examination was taken up on those matters. He did not accept Mr Godwin’s comparables in the same way as Mr Godwin did not accept his comparables.[29]In the circumstances I propose to consider, first, the way in which Mr McKeown performed the valuation (Section 4.2 below). Then I consider the comparables apparently used by Mr McKeown, particularly since three of those were also used by Mr Adams-Cairns (Section 4.3 below). I then turn to consider Mr Godwin’s comparables (Section 4.4 below). After that, I refer to Mr Adams-Cairns indexed figures for the property and its neighbour (Section 4.5 below), before going on to consider other information that may be relevant to the valuation (Section 4.6 below). At Section 4.7 below I identify the correct valuation and, at Section 4.8, the appropriate margin. There is a summary of my conclusion as to the correct valuation in Section 4.9 below. 4.2. Mr McKeown’s Valuation[30]Mr McKeown did not give evidence. Accordingly, I have had to consider his performance by reference to the contemporaneous documents, with some limited assistance from the experts, whose principal focus, notwithstanding Mr Wygas’ submission that negligence did not equate to a valuation figure outside the reasonable bracket, was to concentrate on that very topic. On the material before me, I have no doubt that Mr McKeown was negligent in performing the valuation exercise.[31]Mr McKeown’s valuation report of 13 July 2007 put forward a valuation of £3.4 million. How he arrived at that figure was entirely unexplained on the face of the report itself. He identified four comparable houses, two of which were said to have sale prices higher than £3.4 million and two of which had prices below £3.4 million. Three of the four were said to be in locations which were not as good and one (Cedar Park) which was said to be in a similar location to that of the property.[32]There are two other documents which might have provided some assistance in working out how Mr McKeown arrived at the figure of £3.4 million. First, there were his notes in a document entitled ‘Project Form’. However, these notes also give no clue of how he arrived at the figure of £3.4 million, save that it makes clear that the £3.4 million figure was provided to him by, or on behalf of, the prospective borrowers. It is not a figure which was explained by the Project Form document itself.[33]Secondly, there was Mr McKeown’s ‘Justification of Valuation’. On the face of this document, the Cedar Park house that was described as being in a similar sort of location, but was in fact in Wimbledon (a different postcode), has been dropped altogether. The other three houses referred to are 38, Roedean Crescent, and plots 1, and 3, Roehampton Gate. These are dealt with in detail in Section 4.3 below. As for methodology, I note that, in his Justification of Valuation document, Mr McKeown does not know the sizes of these three houses, which makes it difficult to see how he decided that they were comparable. Secondly, he quotes a sale price of £3 million for 38, Roedean Crescent when in fact the sale price was £2.76 million, a significant mistake which is not explained anywhere.[34]Thirdly, the mistake means that the three comparables identified by Mr McKeown offered a range of £1 million (even without it, the range was £750,000). The expert evidence in this case made plain that that was simply too wide a range. A reasonable valuer should find comparables that are much closer in price in order to identify a proper valuation figure.[35]Fourthly, although Mr McKeown’s documents say that all of these three houses were in a worse location, that observation was not borne out by the evidence. For reasons that I explain in greater detail below, I consider that these three houses may have been in a better location, and were certainly not in a worse location, than the property.[36]In essence, there was simply no justification of valuation in the document which bears that name. So even before I embark on an analysis of Mr McKeown’s comparables, and the figure he arrived at, I am in no doubt that the exercise that produced the figure of £3.4 million was negligently performed. The issue then becomes: despite that, did it produce a valuation within a reasonable bracket or margin? 4.3.

(a) Cedar Park SW19

[37]This can be dealt with shortly. Although the property was referred to by Mr McKeown as his fourth comparable, it did not feature in his ‘Justification of Valuation’ at all (see paragraph 33 above). It was not a comparable urged upon me by any of the experts. It was in Wimbledon, not Putney or Putney Heath. For all these reasons, therefore, I discount it.

(b) 38, Roedean Crescent SW15

[38]Mr McKeown’s first comparable was a new build property at 38, Roedean Crescent, SW15. Mr McKeown quoted the sale price at £3 million. His valuation report said that Roedean Crescent was not as good a location as the property. His Justification of Valuation however, noted that it was a bigger property with 7 bedrooms, 4 reception rooms and 6 bathrooms.[39]Mr Adams-Cairns said that this house provided the best comparable. I agree with that. The principal difficulty in arriving at an appropriate valuation for the property was the fact that it was a distinctively modern property in an area where the vast majority of the housing stock was Victorian, Edwardian, or inter-war. But the house at 38, Roedean Crescent was new-build and contained many of the same design features as the property, in particular the use of double volume space. Indeed, the photograph of the house at Roedean Crescent taken from the rear, with its large plate glass windows and steel framing, was very similar to the property in question. However, I do accept that, from the front, the house at Roedean Crescent was less obviously modern and was, in some respects, less attractive than the property.[40]There were, however, a whole host of reasons why, although the house at 38, Roedean Crescent was the best comparable, the appropriate comparable figure was much less than the £3 million identified by Mr McKeown. First, as already noted, Mr McKeown made a mistake about the sale price. The evidence was that 38, Roedean Crescent sold for £2.76 million on 1 June 2007. That, therefore, is the starting point for the comparison exercise.[41]The second point is that, as the evidence established, and Mr Adams-Cairns accepted, new-build houses and flats carry a premium which would not apply on resale. Such a premium would not apply to the property because that had already been lived in for over 3 years. The evidence was that a premium of about 5% was appropriate; certainly that was not a figure with which Mr Adams-Cairns could disagree. That would then reduce the comparable figure in respect of Roedean Crescent to £2,622,000.[42]Thirdly, the house at Roedean Crescent was significantly larger than the property. Mr McKeown identified the size of the property as 465 square metres, or approximately 5,000 square feet. The experts have their own figures: Mr Godwin has measured 4,765 square feet and Mr Adams-Cairns has measured 4,814 square feet. Even taking an average figure of 4,790 square feet, that is smaller than 38, Roedean Crescent, which was 493 square metres or 5,305 square feet. Furthermore, at 38, Roedean Crescent, there were more living rooms and more bedrooms and there was also a basement gym.[43]Fourthly, I find that 38, Roedean Crescent was probably in a better area than Putney Heath, and certainly not a worse one. It was very close to Richmond Park, the golf course and a number of other sports clubs. It was further away from the noisy A3, although that meant that it was further away from the centre of London and the road links in and out. Mr Adams-Cairns confirmed that, contrary to Mr McKeown’s views, 38, Roedean Crescent was not in a worse location than the property.[44]I do accept that there were some ways in which the property was superior to the house at 38, Roedean Crescent. The property was better designed and, although its bedrooms were small, the house at Roedean Crescent had one bedroom that was even smaller. I also agree, although it is a purely subjective matter, that the house at Roedean Crescent looked a bit of a mish-mash: part traditional and part modern. It was not so striking or as stylish in its design as the property.[45]In all those circumstances, I consider that, whilst the property may not have been worth less than the house at 38, Roedean Crescent, it was certainly not worth very much more. Because it had been so recently sold, and because it was a modern house of similar size, it was plainly the best comparable. It would therefore indicate a value of the property of about £2.6 million, perhaps a little more. Thus, although it was not a comparable on which he relied, it was a comparable which supported Mr Godwin’s valuation. In addition, it was put to Mr Adams-Cairns that, on this analysis, his best comparable got nowhere near supporting his view of £3.1 million. He agreed with that, and then sought to say that he had justified the £3.1 million by reference to the other two comparables in Roehampton Gate (which he admitted were not as good) relied on by Mr McKeown.

(c) 1 and 3 Roehampton Gate

[46]1, Roehampton Gate sold in April 2007 for £3.5 million. 3, Roehampton Gate sold for £3.75 million a month later. As I have said, they were both properties identified by Mr McKeown as comparables.[47]I am not at all convinced that either of these properties provided a sensible comparable. There are a number of reasons for that. First, the Right Move data suggested that the two Roehampton Gate houses were 6,000 square feet, which was considerably larger than the property. In addition, they had seven bedrooms, which was again two more than the property.[48]But the real reason why I am dubious as to their status as proper comparables is because of the nature of the houses themselves. They were identified by Mr McKeown, and subsequently by Mr Adams-Cairns, because they were new-build. But in contrast to the property, and in contrast to 38, Roedean Crescent, they were entirely traditional in appearance. They were built in that kind of Queen Anne pastiche so beloved of developers on the wealthy fringes of London. The whole point of going well over a mile away from the Putney Heath enclave in order to find comparables was because of the absence of new-build properties in that location. That justifies the inclusion of 38, Roedean Crescent, because it was a house of modern design. It does not justify having regard to properties that looked so different, both outside and in, from the property and would have appealed to prospective purchasers looking for traditional houses rather than new-build.[49]Even if one had regard to the properties in Roehampton Gate, it was not at all clear that they justified Mr Adams-Cairns’ figure of £3.1 million. During the course of his cross examination, it was put to him that, if the sale prices were not uplifted to reflect the two or three months since the properties were sold, the relevant £/per square foot figure for number 1 was £583, and for number 3 was £625. When those figures are then applied to the square footage for the properties, figures result of £2.8 million and £3 million respectively. In other words, these properties demonstrate Mr Godwin’s belief that the property was not worth more than £3 million rather than anything else.[50]I accept that there were various arguments which Mr Adams-Cairns advanced by reference to number 1 and number 3 Roehampton Gate in order to try and increase the valuation for the property. He applied an index to these sale prices, because he said they had actually been agreed in March 2007. I do not think it appropriate for sale prices which had been agreed just three months before the relevant date to be uplifted in this way: it was not for the reasonable valuer to take every possible step to increase the stated value, and there is no suggestion that it is what Mr McKeown did. In addition, whilst I accept the point that, because the property was smaller, one cannot necessarily apply pro rata a square footage rate derived from the larger houses at Roehampton Gate, the figures take no allowance of the 5% premium on new-build houses or the arguably better location of Roehampton Gate (which runs parallel to Roedean Crescent).[51]For all these reasons, therefore, I am dubious about the applicability of the properties at Roehampton Gate as comparables. I consider that, at the very most, they may indicate a valuation figure for the property of £2.8 million but they certainly do not support a higher figure. 4.4.

(a) 1, Bristol Gardens

[52]Mr Godwin had one comparable that was close in time and in location. That was 1, Bristol Gardens. He had two others, 5, Bristol Gardens and 1, Heathview, which were sales in the summer of 2006 and which therefore required adjustment/indexing.[53]I consider that 1, Bristol Gardens was a good comparable (see paragraph 15 above). This is because it was very close to the property and therefore likely to reflect the particular market relevant to Putney Heath. It was also sold just before Mr McKeown’s valuation. In his closing submissions, Mr Wygas made much of the rising property market in 2007, and I accept that, although the steep rises in the previous 12 months had begun to slow down by July 2007, Mr McKeown’s performance must be measured in the context of a thriving market. Thus he could have addressed any difficulties created by such a market by having regard to a comparable house that was very close to the property and had just been sold. He failed to do so.[54]The property was sold for £3,850,000. However, it actually consisted of two properties: the large house with a large garden, and a smaller cottage which had been built in the grounds. The selling agents, Winkworths, confirmed that the house was 5,421 square feet and that the cottage was 1,279 square feet. Although the properties had been bought by the same family, the apportionment between the two was £700,000 for the cottage, and £3.15 million for the house.[55]Although, for reasons which were never made plain, Mr Adams-Cairns did not trust that apportionment, I have to say that, from the details available to me, that sort of division (effectively 75%/25%) was a reasonable apportionment of the total square footage. I therefore consider that the £3.15 million for the house at 1, Bristol Gardens, was a figure that could properly be considered as a comparable.[56]Of course, the principal difference between the house at 1, Bristol Gardens and the property was that the house at 1, Bristol Gardens was a large Edwardian or 1920’s house in traditional style. It would therefore be unlikely to appeal to the market interested in the property. It was also much larger, with 7 bedrooms and a double fronted aspect, and a much larger garden.[57]I therefore accept that 1, Bristol Gardens was not as good a comparable as 38, Roedean Crescent. But it is still valuable because of its location and date of sale. I consider that, as a comparable, it demonstrates at the very least that the property could not have been worth £3.15 million at the time that it was being valued. Because 1, Bristol Gardens was obviously a superior house with a wider popularity, it does not support a valuation for the property in excess of about £2.8 million.[58]During his closing submissions, Mr De Verneuil Smith said that another approach to the house at 1, Bristol Gardens was to leave aside the apportionment, and rely on the overall sale price, which equated to £573 per square foot. He said that, if you took Mr Adams-Cairns’ figure for the property of 4,814 square feet, £573 per square foot produced a figure of £2.7 million. Whilst that does not change my view that, in the round, 1, Bristol Gardens probably supports a slightly higher figure by way of comparable, it does demonstrate that a figure of £2.8 million is very much in the right area.

(b) 5, Bristol Gardens and 1, Heathview

[59]The difficulty with Mr Godwin’s other two comparables is that they are older and therefore require indexing. The evidence from both experts was that valuers would avoid using indices to arrive at valuation figures if they could possibly help it, because they produced inherently unreliable results. I consider that to be a sensible view: what properties in the same location sold for in recent weeks and months is much more relevant than what properties sold for a year or more ago, even if the latter figures could be adjusted in some way. Moreover, I consider that the unreliable nature of indices was exacerbated by the steeply-rising market in the 12 months before July 2007.[60]In addition, of course, both 5, Bristol Gardens and 1, Heathview were traditional properties: again they were large inter-war family houses. Put another way, they have all the disadvantages, as comparables, of 1, Bristol Gardens, but with none of the immediacy of date. I have not therefore had regard to those comparables. 4.5. Mr Adams-Cairns’ Indexed Figures[61]As I have already noted, Mr Adams-Cairns calculated his £3.1 million by applying what was called the Savills index to the original sale price for the property of £1,920,000, which (when applied for a 3 year period) produced a figure of just under £2,950,000. He did the same exercise in relation to number 2, Paddock Way to arrive at an indexed value of £3,300,000.[62]I consider these figures to be unreliable. It was Mr Adams-Cairns’ own view that valuers dislike using indices in this way if they can avoid it. It cannot possibly be right, in my view, to use an index over a three year period to arrive at a reliable comparable.[63]There is a further difficulty in that the use of the Savills index was an entirely mechanistic approach. It produced figures which did not depend in any way upon Mr Adams-Cairns’ expertise as a valuer. In fact, the Savills index was based on the opinions of a variety of office managers for Savills across Southwest London: it was therefore based on opinion evidence, but not that of Mr Adams-Cairns. The views on which it was based could not be tested in court. In addition, the area covered by the Savills index included Fulham, Chiswick and other desirable parts of Southwest London, far from Putney Heath. Accordingly, that is another reason why any figure arrived at by using such an index is so unreliable.[64]In addition, it seemed to me that the unreliability of the Savills index was demonstrated by the evidence which showed that, if had been applied to get a valuation of the property in 2010, it would have produced a figure of £3.1 million. That was over £1 million more than the property actually sold for.[65]As Mr De Verneuil Smith was able to demonstrate, if other indices were used, such as the Land Registry index of sale prices in Wandsworth, a lower figure was produced of £2.6 million. Although Mr Adams-Cairns said that the average property price in Wandsworth was lower than for the property, which created difficulties in its application, he agreed that the Land Registry index would show the general trend of the market in the Borough.[66]It seems to me that, when taken together, the evidence demonstrated the inherent unreliability of using indices of any kind. I am not persuaded that the figure of £3.1 million for this property calculated at paragraph 12.7 of Mr Adams-Cairns’ report was a reliable guide to its value in July 2007. 4.6. Other Information[67]I have already noted that, in addition to the E.Surv valuation in the sum of £3.4 million, there were two other, apparently contemporaneous, valuations of the property which looked, on their face, to provide some corroboration for the accuracy of the defendant’s figure. One was the Haywards’ valuation in the sum of £3.33 million. The other was the Ord audit valuation, which said that, if the property was 5,000 square feet, the projected market value of £3 million “would seem realistic”. On analysis, however, there were difficulties with those two valuations which significantly diminished their evidential weight.[68]The first and most obvious problem with both contemporaneous valuations is that neither valuation expert paid any attention to them or sought to rely on them in any way. Secondly, and linked to that first point, neither expert valuer suggested that the correct value of this property was higher than £3.1 million. By analogy therefore, both experts considered that these valuations were too high.[69]Furthermore, there are particular constraints, surrounding each of these valuations, which make them unreliable. In relation to the Haywards’ valuation, it was unclear when it was done. Moreover, the three comparables identified were, on analysis, no such thing: there were two properties in Cedar Park on Wimbledon Common, which was a different postcode, and not an area which either expert said was relevant, and one on St. Simons Avenue, which was in the heart of Putney and was a large, late Victorian family house. In short, there was nothing that persuaded me that the Haywards’ valuation, for which Blemain had paid £76.38, provided a reliable guide to the true valuation of the property.[70]As for the Ord audit, that refers to one house “located around the corner from the subject property” which nobody has identified, and the house at 1, Bristol Gardens. That was a proper comparable (see paragraphs 52-58 above). However, applying the square footage from that property led Ord to support the £3 million projected market value figure rather than anything higher. In addition, when an adjustment is made for the correct square footage of the property, the figure from 1, Bristol Gardens comes down to £2.8 million (see paragraph 57 above) or £2.7 million (see paragraph 58 above).[71]Accordingly, although at first blush these two valuations appeared to provide some support for the E.Surv valuation figure, it is plain that, when they are properly considered, they do not. I assume that it was for that reason that neither expert valuer chose to rely upon them.[72]In addition, there was a third contemporaneous valuation of the property which, it might be said, undermined the E.Surv figure and provided support for a significantly lower figure. That was the valuation carried out by Mr White of Chancellors for Cheltenham and Gloucester. It should be pointed out that this valuation was carried out in January 2007 and would require some indexing or adjustment upwards. But the valuation that was provided was in the sum of £2.65 million, and Mr White’s consideration of various comparables demonstrated that his figure was certainly not an underestimate at that time.[73]There was a variety of other information in the documents which could have had a bearing on the correct figure. Some of this was explored in evidence. With one exception, it does not seem to me that it added very much. The exception was the valuation which, ironically enough, was carried out by E.Surv in July 2010, in relation to the resale value of the property following repossession. In his short report, Mr Wonnacott valued the property at £2 million and made the following observations:
“There are many areas which due to design are open space – mezzanine etc…unusual design which may not suit all tastes. The subject property is a modern infill development within its square-metre there is a large amount of space used as mezzanine areas and landing/hallways etc. It is also very much a modern design which once specification has dropped can impact on value. It is also situated slightly out of central Putney up Putney Hill.”
[74]I agree with those observations. They chime precisely with the impressions that I have formed from the other material. In the round they demonstrate that, all other things being equal, and given that a property of such modern design might have a limited market in Putney, the best comparables were always going to be those which were also of modern design. 4.7. The Correct Valuation[75]In summary, the best comparable was 38, Roedean Crescent (paragraph 38-45 above). That produces a comparable value for the property of £2.62 million, perhaps a little more. Whilst in some ways that might be regarded as a figure generous to the defendant, given that Roedean Crescent is probably in a better area and is a larger property, I accept that there were other ways in which the property was superior.[76]I consider that the only other relevant comparable was 1, Bristol Gardens which, for the reasons set out in paragraphs 57 and 58 above, would justify a valuation of about £2.7 or £2.8 million for the property. In addition, if consideration is also given to Mr White’s valuation at £2.65 million (paragraph 72 above), and an allowance is made for the rising market between January and July 2007, again a figure of around £2.8 million for the property is suggested.[77]In all the circumstances, I believe that the correct valuation for this property in July 2007 was £2.8 million. 4.8. The Appropriate Margin[78]In the joint statement, it appeared that the experts had agreed that an appropriate margin was 15%. It will be seen that, if 15% is applied to my valuation figure of £2.8 million, the upper end of the bracket is still well short of the £3.4 million arrived at by Mr McKeown. Accordingly, my views as to the margin may not matter. However, because I have formed a firm conclusion in relation to the applicable margin in this case, I should set out my reasoning briefly.[79]When the experts came to give evidence, it became plain that, in truth, neither of them were suggesting a 15% margin. In fact, both of them rather shied away from any sort of percentage margin at all. Mr Adams-Cairns even went so far as to say that the percentage was a product of the legal process, rather than a valuation matter.[80]Mr Godwin had originally agreed a margin of 15.4% because he was firmly of the view that the property could not on any view be worth more than £3 million. 15.4% was what was required to get from his original valuation figure of £2.6 million to £3 million. Because he had then increased his valuation figure to £2.65 million, he had reduced the bracket to 13.4%. In cross-examination he made it plain that, essentially, he was not really thinking in terms of percentages at all, but was operating on a valuation range with £3 million as its upper limit.[81]Mr Adams-Cairns gave very similar evidence in principle, although obviously his figures were different. He said that valuers do not talk in percentages (saying that such a concept was “legally driven”), but instead talk of a house ‘being worth somewhere between £X and £Y’.[82]He said, in relation to percentages, that he would expect two competent valuers to be within 10% of one another when trying to arrive at a correct figure. He said that any figure above that was likely to be questionable. On that analysis, therefore, it seemed to me that, to the extent that the margin could be measured by a percentage, Mr Adams-Cairns was suggesting that the right percentage was actually 10%. That was the bracket within which he would expect competent valuations to fall. There was no objective justification for increasing the percentage to 15%, and although he was asked about it, Mr Adams-Cairns was unable to provide one.[83]Furthermore, as was demonstrated here, a margin of 15% up or down would make about £1 million difference to the valuation. Mr Adams-Cairns himself described that as a “ridiculously high range”. I agree. Whilst 15% margins may be appropriate for truly one-off properties, this was not a property which, in my view, could justify a margin of more than 10% up or down. In the absence of any justification for the 15%, or any third party material to support it, I consider that the appropriate margin was 10%.[84]In those circumstances, I consider that, with the correct figure of £2.8 million, there was a 10% range either way. That would take the upper limit of the valuation of the property to £3.08 million. Although that does not quite accord with Mr Godwin’s firm view that this property could not be worth more than £3 million in July 2007, it is very close to it. 4.9. Conclusion as to Valuation[85]For the reasons set out in Sections 4.2-4.7 above, I consider that the correct valuation of this property in July 2007 was £2.8 million.[86]For the reasons set out on Section 4.8 above, I consider that the right margin was 10%.[87]Accordingly, I consider that the upper limit of the appropriate valuation in this case was £3.08 million. I find on all the evidence that Blemain would not have made this loan if they had known that the property was not worth more than £3.08 million.[88]I should make two further points by way of conclusion. First, it has been a striking feature of the evidence in this case that no witness suggested that this property was worth £3.4 million in July 2007 or, indeed, anything like it. All the defendant’s evidence has been geared towards getting to a figure of £3.1 million and then arguing for a large bracket into which the £3.4 million figure would just about fall. The mere fact that the exercise was being done in that way only strengthens my view that Mr McKeown’s valuation was prima facie negligent.[89]Secondly, I note, as recorded in paragraph 32 above, that Mr McKeown was given the £3.4 million figure at the outset. Again, like both the surveyors in the Webb case, Mr McKeown was endeavouring to reach a valuation that married up with the figure that he had been given by the prospective borrower. For the reasons set out in the judgment in Webb, I regard that as bad practice.[90]For all the reasons set out above, I conclude that E.Surv’s valuation, carried out by Mr McKeown on 13 July 2007, was negligent. The valuation of £3.4 million was one to which no reasonable valuer could have arrived at. In addition, I consider that the figure was outside the appropriate bracket because Mr McKeown had failed to approach the valuation exercise in the right way. But for that negligent valuation, Blemain would not have made this loan.[5]THE ALLEGATIONS OF CONTRIBUTORY NEGLIGENCE 5.1. The Relevant Law[91]The general law relating to allegations of contributory negligence in a case like this is dealt with at paragraphs 69 and 70 of the judgment in Webb. The law concerned with lending policy is summarized in paragraphs 71, 72 and 73 of the judgment in Webb. 5.2. The Appropriate Standard[92]Here, Mr De Verneuil Smith argued that the appropriate standard to be applied to the claimant was that of the reasonably competent second charge lender for a prime status loan. I agree that the standard is of a reasonably competent second charge lender; I do not accept that that standard ought to be further qualified. Accordingly, the standard that I apply is that of the reasonably competent second charge lender. Again, when considering and applying that test, I should be wary of concluding that practises which were commonplace amongst second charge lenders at the time were illogical or irrational. That caution comes from the judgment of Phillips J (as he then was) at first instance in Banque Bruxelles v Eagle Star Insurance [1994] EG 68, carefully reflected in the more recent judgment of Judge Keyser QC in Paratus AMC Ltd v Countrywide Surveyors Ltd[2011] EWHC 3307. 5.3. The General Evidence About Lending[93]The oral evidence called by Blemain in support of the lending policies came from Mrs Bailey, the underwriting director at Blemain, and from Mr Denman the lending expert. The evidence called by E.Surv which criticised those policies came from Mr Pitt, their lending expert.[94]I consider that Mrs Bailey was a reliable witness. Although she has been the subject of some criticism in a recent FSA report because of various decisions taken by Cheshire Mortgages, a company related to Blemain of which she was also the underwriting director, this did not seem to me to impact in any way on her evidence in this case. I do not accept Mr Wygas’ description of her as someone who did not learn from her mistakes. As for Mr Denman, although I considered him to be a fair and helpful witness, with the necessary expertise to comment on the second charge lending policies of Blemain, as I remarked in the Webb case, he repeatedly gave the borrowers – and therefore Blemain – the benefit of the doubt when considering the detail of this loan. His evidence therefore needs to be carefully analysed, point by point, before it can be accepted.[95]I have set out at paragraph 77 of my judgment in Webb my concerns regarding the unreliability of Mr Pitt’s evidence in that case. Those concerns were confirmed by his evidence here. Not only were his reports entirely unsatisfactory, for many of the same reasons as set out in the judgment in Webb, but his oral evidence was of very little probative value. He did not have the qualifications to give mortgage advice, and his expertise as a second charge lender was, by his own admission, extremely limited. Worst of all, his expertise only rarely seemed to be relevant to his evidence; instead, he preferred to argue the case generally, seeking on a number of occasions to suggest the correct interpretation to be given to the contemporaneous documents. At times, he felt like an auxiliary advocate of E.Surv’s case rather than an expert witness. Again therefore, if there was a conflict between the evidence of Mr Pitt and Mr Denman, I generally preferred Mr Denman’s evidence.[96]At paragraphs 78-86 of the judgment in Webb I make various general observations about the lending policies that were revealed in that case. The specific points made there do not arise in this case. In particular, this was not a self-certified mortgage but a prime or status mortgage, being granted on the basis of accountant’s evidence as to earnings. Furthermore, the Shermans were high-earning individuals. And, even taking into account the mortgage with the Cheltenham and Gloucester, and the £250,000 loan being considered here, there was still an equity cushion on the property in excess of £800,000. This was, therefore, at the other end of the scale to the lending in the Ali and Bradley cases, which are dealt with in Webb.[97]There is, however, one similarity. In the Webb judgment, I refer to the fact that in 2006 and 2007, lenders were falling over themselves to lend and sometimes did so in circumstances which, certainly with hindsight, looked remarkably unpromising. Something of the same was true in the present case. For such high-earning individuals, the Shermans were living a lifestyle sustained by credit cards and other debts, yet it seemed that these matters were of surprisingly little concern to Blemain when considering whether or not to make the loan. 5.4. The Over-Arching Causation Argument[98]As noted at paragraph 69 of the judgment in Webb, in order for these allegations of contributory negligence to succeed, E.Surv must show that the losses of which Blemain complain were caused by Blemain themselves. As Phillips J put it in Banque Bruxelles:
“In order to constitute contributory negligence, the plaintiff’s fault must be causative of the damage in respect of which the plaintiff claims. Fault which is not causative of the damage is irrelevant for the purposes of contributory negligence.”
In other words if, notwithstanding the criticisms that are made of Blemain’s decision to advance the loan of £250,000 to the Shermans, it could not be shown that a reasonable second charge lender would not have made that loan, the necessary ingredient of causation is not made out. Hence it became very important to see whether or not Mr Pitt was saying that no reasonable second charge lender would have made this loan if they operated a proper lending policy.[99]Mr Pitt’s principal report is extremely equivocal on this critical point. At paragraph 5.1 he said:
“In my opinion, a reasonably competent lender may have taken the decision not to lend at all, having taken into account the issues involved in this case.”
At paragraph 5.3 he said:
“In addition, on the basis of the information available to the claimant at the time, the claimant oughtnot to have completed the loan.”
And at paragraph 5.4 he said:
“The claimant’s risk assessment was unsatisfactory…the claimant should not have taken the decision to lend.” (Emphasis added each time)
[100]Accordingly, paragraph 5.1 was the only time when Mr Pitt addressed the proper test of a reasonably competent lender, and he was unable to put it any higher than “may have taken the decision not to lend”. On its own, that would not be enough. Paragraphs 5.3 and 5.4 were more helpful to E.Surv, but opaque because they did not apply the correct test.[101]It was doubtless for that reason that this important topic was addressed at the outset of Mr Pitt’s cross-examination. I do not think that anybody in court could have doubted the importance of the exchanges, which were as follows:
“Q: You say in your report that a reasonably competent lender may have taken the decision not to lend? A: Yes. Q: Has your conclusion changed? A: No. Q: So you don’t say that they would have refused to lend. You say that they might have refused to lend? A: Correct. Q: You don’t say that no reasonably competent lender would have refused the loan? A: I cannot go that far. I would have asked an awful lot more questions. Q: So you are unable to say that no reasonably competent lender would have made the loan? A: No. I would not have done it. But without knowing the lending criteria of all second charge lenders, I cannot answer that. I would have to review all of their information. Q: With that further information, depending on what it said, you would have made the loan? A: Yes. And the reverse is also true.”
Q: Has your conclusion changed? Q: You don’t say that no reasonably competent lender would have refused the loan? A: Yes. And the reverse is also true.”

Q: You don’t say that no reasonably competent lender would have refused the loan?

[102]Based on both his reports and those exchanges, it seems plain to me that, to use his own words, Mr Pitt was unable to go as far as to say that no reasonably competent lender would have made the loan to the Shermans in July 2007. In those circumstances, E.Surv cannot demonstrate that the loan should not have been made, so they cannot demonstrate that the allegations of contributory negligence caused Blemain’s loss. The contributory negligence case must therefore fail.[103]It should be stressed that this is not a semantic exercise: it goes to the substantive issue of what a reasonable second charge lender would have done in the circumstances. Moreover, the importance of Mr Pitt’s refusal to go as far as E.Surv needed him to go is highlighted by the particular nature of the contributory negligence allegations in this case. Mr Pitt’s principal complaint is that Blemain ought to have asked the Shermans many more questions. But on the evidence, nobody can say for sure what the answers to those questions might have been. Since, on Mr Pitt’s case, the decision as to whether or not to lend might have turned on the answers to those questions, the lack of certainty as to what those answers would have been only confirms his view that, on the available material, he cannot go as far as to say that no reasonable lender would have made the loan.[104]Accordingly, for the reasons set out, I have concluded that the allegations of contributory negligence must fail because, even if the individual allegations were successful, the necessary ingredient of causation has not been made out. On one view, that is the end of the contributory negligence case. However, I go on briefly to deal with the individual allegations, just in case I am wrong on the causation issue. 5.5. Allegation 1: The LTV[105]For a second charge of this kind, Blemain’s lending policy fixed a limit to the LTV (Loan to Value ratio) of 70%. However, their written lending criteria made plain that they retained a discretion to increase the LTV in appropriate cases. Mrs Bailey’s evidence was that this was a case in which the LTV of 73% was justified because of the high monthly income. She also said that, because the LTV was slightly higher than 70%, the full credit committee had to approve the specific loan.[106]In my view, it cannot be said that allowing an LTV in this case of 73% was negligent. The evidence from the Moneyfacts document showing the other lenders’ criteria at the relevant time indicated that there was at least one other second charge lender in the market at the time who would have lent £250,000 at an LTV of 75%. It was also plain that the Moneyfacts information was incomplete because of the absence of at least one well-known second charge lenders, as well as Blemain themselves. In addition, Mr Pitt accepted that because of the equity cushion in this case, an LTV of 73% was reasonable. He also separately agreed that, if Mrs Bailey’s evidence as to the exercise of Blemain’s discretion was accepted, he could not argue that, in some way, Blemain had acted unreasonably.[107]For these reasons, therefore, it seems to me that the LTV of 73% was reasonable in the circumstances of this case. 5.6. Allegation 2: The Debt Information[108]Although the individual allegations are put in a variety of ways, those concerning the debt information come down to the same essential point: Blemain should not have lent to the Shermans because the information revealed by the Equifax search demonstrated a level of indebtedness which was simply too high.[109]Dealing with the Shermans’ debt position in the round, there is a contrast between the position in respect of the property and their income, on the one hand, and their borrowings, on the other. In respect of the property, which according to E.Surv was worth £3.4 million, they had a first charge mortgage of £2.25 million. Even with the proposed loan of £250,000 by Blemain, there was an equity cushion on the property of in excess of £800,000. That would not cause any reasonable lender to be concerned about the second mortgage.[110]Furthermore, that position of comfort was supported by the evidence of their earnings. Whilst there is a point, which I will come to, as to whether the figures quoted by the accountant could properly be regarded as net income, the fact remains that both the accountant and the Shermans were saying that their joint net income was £46,450 per month. Plainly, that would have been more than sufficient for the purposes of the proposed loan.[111]However, against that comfortable equity cushion and that high monthly income, the Equifax information presented a more worrying picture in respect of borrowings and debt. It showed £240,000 odd owing on loans and credit cards, and £686,000 odd owing on three other mortgages. The credit cards were close to their limits. In addition, because 37 credit searches had been carried out in the previous year, there was at least the suggestion that the Shermans were very keen to obtain credit at this time.[112]However, it is important to give a balanced picture of this unusual credit profile. The credit score on the Equifax document was 386, in circumstances where I was told that anything over 200 was a good credit score. Moreover, the reason why their credit score was so high was explained by the fact that, although they were running large debts, the Shermans had an excellent servicing record. They had never defaulted and had never been the subject of any CCJs. Instead, in respect of credit records going back ten years or more, they had always paid in accordance with their obligations.[113]In the round therefore, whilst I agree with Mr Pitt that the credit committee should perhaps have asked themselves rather more questions about the Shermans’ over-reliance on credit card and other debt, I do not believe that the Equifax documentation was sufficient to make Blemain fundamentally question the desirability of this loan. The good credit servicing and the high credit score might be regarded as some further comfort to Blemain when they considered whether or not to make the loan. 5.7.

(a) General

[114]There was some evidence relating to the way in which a second charge lender might calculate affordability. Mrs Bailey’s evidence was clear that Blemain used a SDI calculation, representing a secure debt to income ratio. This involved comparing the income of the borrower on a monthly basis with the monthly cost of servicing the two loans on the property. She said that Blemain’s lending criteria was that, provided the monthly commitments were 65% or less of the net monthly income of the borrower, then the loan would be made.[115]Certain other lenders apparently adopted a different system, which compared the gross monthly income with all commitments, including other mortgages, credit card repayments and the like. There was some printed material from two lenders, CITI and SPPL, which suggested that they used a 40% ratio figure, although this evidence was a little unsatisfactory because there was a strong suggestion that CITI at least were sub-prime lenders, where a lower percentage would plainly be justified.

(b) SDI

[116]The SDI calculation performed by Blemain took the net incomes of Mr and Mrs Sherman and compared it with the monthly commitments on the Cheltenham and Gloucester mortgage and the proposed Blemain mortgage. This produced a percentage of 28.5%, which was well within Blemain’s stated lending criteria of 65%. That calculation was criticised in two respects. First it is said that Blemain were wrong to use the figures quoted to them as net income and should have netted down the figures that they had for tax. The second is that they should have included at least the other mortgages to which the Shermans were committed, and possibly included all other commitments as well.[117]As to the income position, I do not accept that Blemain were obliged to do any form of netting down to take into account Mr Sherman’s potential tax liabilities. The accountants had identified Mr Sherman’s net income as £495,064 per year. That translated into a net income of £41,250 per month, which was the figure on the declaration of income and affordability. It does not seem to me that Blemain were obliged to look beyond, let alone question, the accuracy of the information provided by the accountant.[118]The argument now is that, because the accountant’s certificate identified an annual turnover figure of £579,968, and a net profit figure of £495,064, it should have been plain to Blemain that the net profit was inclusive of Mr Sherman’s tax liability. But why was this so clear? Mr Pitt did no analysis at all of this point in his report and seems to have alighted on it as a result of a calculation performed by Mr Denman. There might have been good reasons why standard tax liability had either already been taken out of the turnover figure, and/or was not to be taken out of the net profits at 40% (such as the use of an overseas company vehicle as his employer).[119]The real issue here is whether, even though the accountant described the figure as Mr Sherman’s net profit, Blemain should have worked out for themselves that the certificate was wrong and that what was expressly described as net profit was in fact gross profit. I consider that such a submission is unsustainable. No reasonable second charge lender should be obliged to question or go behind the certificate provided by the accountant in this way. The error (even if that is what it was, which I do not accept) was neither obvious nor fundamental, and no criticism can be made of Blemain because they took the accountant’s certificate to mean what it said that it meant.[120]There is, I think, rather more in the criticism that Blemain should have taken into account, not only the mortgages on the property, but the other mortgages which they knew the Shermans to have. Because they represented a substantial liability, I do not consider that, without specific further information, Blemain should necessarily have assumed that these were investment mortgages which were self-funding. They certainly should not have made that assumption without at least asking about them, and there was no evidence of any such question being asked.[121]Of course, if the mortgages had been included, then there would probably have been figures on the other side of the balance sheet to indicate rental income. Of course, one cannot speculate beyond that, because there is no evidence about the properties in question. But I do consider that the monthly commitments on the other three mortgages (totalling £3,538) should have been included in the SDI calculation, which would have produced a total monthly outgoings figure of £16,780 (as opposed to £13,242). Without rental figures, that would increase the SDI to 36%. But that was still well within the 65% and would have meant that the loan would still have been made.

(c) TDI

[122]In essence, E.Surv’s argument in closing (although it was not expressly pleaded) was that Blemain should have done a TDI calculation, that is to say, a calculation that compared their total debt to income ratio. Although it appears that Blemain could have calculated a TDI ratio, Mrs Bailey’s clear evidence was that this was not a calculation which they routinely undertook. There was nothing in the evidence to say that Blemain’s policy was negligent or irrational because they concentrated on SDI, not TDI. But the TDI position is worth considering in greater detail because, in my view, it demonstrates that, even if this calculation had been done, this loan would still have been made.[123]The evidence was that, in doing a TDI calculation, the gross income was relevant, not the net income. That was how both CITI and SPPL undertook TDI calculations. On that basis, it was agreed that the gross income for the Shermans was £50,250 per month.[124]The TDI is then calculated by reference to the borrowers’ credit commitments. At one point it was suggested that this would be all outgoings, including the utility bills and the like. However, there was nothing to support such an approach and the lending criteria of both CITI and SPPL made plain that it was credit commitments and mortgages that were relevant, not other household expenses. Thus, taking the monthly outgoing for the first mortgage to Cheltenham and Gloucester and the proposed mortgage to Blemain in the sum of £13,242 per month; adding £3,142 per month for loans and other HP commitments; adding £3,367 per month in respect of credit cards and current accounts; and adding the three mortgages to which I have previously referred in the sum of £3,538 per month; this gives a total commitment of £23,289 per month. Mr Denman has calculated that, on that basis, when compared to the gross income of £50,250 per month, there was a TDI of 46.34%. It gave a net disposable income free of commitments of £26,961 per month.[125]On what basis could it be said that a TDI of 46.34% was too high? True it is that CITI and SPPL seem to have a 40% TDI criteria but, as I have already said, it is unclear whether or not this related to sub-prime lending. The additional 6.3% here could easily have been counterbalanced by the rental incomes on the investment properties. In any event, I accept Mr Denman’s point that, for high earning individuals such as the Shermans, a percentage TDI figure is of little assistance. What really matters is the net disposable income. On this basis their net disposable income was £26,961 per month which was more than sufficient to meet household expenses and the rest.[126]Accordingly, in my view, even if Blemain had undertaken a TDI calculation, they would have calculated a ratio of 46.34% without rental income, and a net disposable income of £26,961 per month. On the basis of those figures, I consider that they (and/or any reasonable second charge lender) would have made the loan to the Shermans in 2007.[127]Finally, I should say that, although Mr Wygas submitted that Blemain should have made some more inquiries into the Shermans’ stated aim of using an investment vehicle to pay off the loan (see paragraph 8 above), there was no evidence to suggest that such questions were routinely asked by second charge lenders, or that the use of an investment vehicle added any significant risk to the advisability of the loan. It was therefore irrelevant to the allegations of contributory negligence.[6]CONCLUSIONS[128]For the reasons set out in Section 4 above, I consider that the E.Surv valuation was negligent. I find that the loan was made in consequence of that negligent valuation. In those circumstances, the quantum of the damages is agreed in the sum of £301,194.89.[129]For the reasons set out in Section 5 above, I consider that the allegation of contributory negligence fails both on grounds of causation and grounds of substance: on analysis, Blemain were not negligent in making the loan to the Shermans in July 2007.[130]I would ask the parties to agree the figures for interest and draw up the necessary order. I have not dealt with any issues of costs.