Arab Bank Plc v John D. Wood Commercial Ltd ((in Liquidation)) and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mance,Lord Justice Mantell,Lord Justice Nourse |
| Judgment Date | 11 November 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J1111-7 |
| Docket Number | QBENF 1998/0465/A2 |
| Court | Court of Appeal (Civil Division) |
| Date | 11 November 1999 |
[1999] EWCA Civ J1111-7
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(The Hon Mr Justice Wright)
Royal Courts of Justice
Strand, London WC2
Lord Justice Nourse
Lord Justice Mantell
and
Lord Justice Mance
QBENF 1998/0465/A2
QBENF 1998/0986/A2
Mr John Slater QC and Mr John Wardell (instructed by Messrs Forsters, London W1) appeared on behalf of the Appellant.
Mr Justin Fenwick QC and Mr Ian Holtum (instructed by Messrs Fishburn Boxer, London WC2) appeared on behalf of the Third and Fourth Respondents.
By judgment dated 20th February 1998 Wright J. held the first defendant, John D. Wood Commercial Limited (in liquidation) ("JDW"), liable for negligent valuation advice given in mid-1989 in respect of the Lingfield industrial estate in Darlington. At the same time he dismissed similar claims against the third defendants, Weatherall Green & Smith ("WGS"), and the fourth defendant, their then senior partner, Mr Knight. Although not reflected in the formal order drawn up on 18th March 1998, he gave leave to the claimants as against JDW to apply to adduce further evidence regarding the actual proceeds of sale of the estate under contracts exchanged on 19th February 1998. By supplementary judgment dated 3rd April 1998, he agreed to admit such further evidence and as a result increased the amount of the judgment for damages against JDW to £6 million.
The claimant, Arab Bank Limited ("the Bank"), now appeals against the dismissal of its action against WGS and Mr Knight and seeks to increase the damages awarded against JDW. The Bank accepts before us that WGS and Mr Knight are not bound by the supplementary judgment dated 3rd April 1998, and submits that, if its appeal on liability succeeds, the action should be remitted to the trial judge for further consideration of quantum. By a respondents' notice, WGS and Mr Knight seek, if necessary, to uphold the judgment in their favour on additional or alternative grounds, and to raise points on contributory negligence and damages.
The Lingfield estate is a very large industrial complex built in the late 1940s for use by Messrs. Patons and Baldwins ("Patons"). It covers 93 acres and includes buildings having an internal floor area of some 1.7m sq. ft. In 1986 Patons disposed of the freehold to Brensham Properties Darlington Limited ("Brensham"). By 1989 the estate was sub-divided into 30 units, 24 occupied and 6 unoccupied. There were two main tenants. One was Patons, whose occupation was by now reduced to some 359,596 sq. ft, in respect of which they were paying £320,000 p.a. (that is, approximately 89p per square foot—"psf") under a 15 year lease dated 31st July 1986 providing for five-yearly rent reviews. The other was Rothmans, who occupied some 644,500 sq. ft, paying a total of £493,634 p.a. in 1989, subject to outstanding rent reviews. Rothmans' occupation was under three leases. The first covering 517,941 sq.ft. ran for 35 years from 10th October 1977 at a rent of about 78p psf fixed in 1982. The second covering 75,132 sq.ft. ran for 25 years from 1st August 1977 at a rent of 66p psf fixed in 1982. These two leases were subject to five-yearly rent reviews and to outstanding rent reviews dating from 1987. The third lease covering 51,352 sq.ft. ran for five years from 11th December 1987 at 76 p psf, with Rothmans having an option to renew for 20 years subject to the right to break after 10 years.
A third tenant or potential tenant was Saturn Windows, in respect of premises covering some 160,434 sq.ft. Subject to contract, Brensham and Saturn had agreed that they would enter into a 20 year lease with effect from 1st March 1989 and with provision for five-yearly rent reviews. There was to be a rent free period, after which Saturn was to pay £125,000 p.a. (c. 78 p p.s.f.). The length of the rent free period was two years, but was represented by JDW to WGS as being three years expiring on 1st March 1992. Finally, there was a large number of small, some very small tenants, yielding a total rent in mid-1989 of about £310,132 p.a.
The estate was in early 1989 sold by Brensham to a Swiss company, Hoogewerf Trust Co. S.A., for £10.5m. Hoogewerf in turn agreed to assign its right and title to the estate to Darlington Industrial Nominees Limited ("Darlington") for £12.5m. Darlington was a single purpose company owned by Mr Benzion Dunner, who operated through Dunstone Management Limited. Another of Mr Dunner's companies had an existing loan of £10.175m from the Bank. To finance the acquisition of the estate, Darlington approached the Bank through a financial intermediary, Mr Maurice Markovits. The Bank received two valuations from JDW, whose partner responsible was a Mr Anthony Browne. These valued the estate at a total of £22m. The first dated 24th May 1989 valued the estate other than the parts occupied by Rothmans at £12m, while the second dated 31st May 1989 valued the parts occupied by Rothmans at £10m. On the strength of these valuations the Bank sought facilities of £19.8m, being 90% of JDW's total valuation. The Bank's credit committee recommended such a loan for one year, renewable by mutual option for four years, on terms providing for, inter alia: (a) a blocked guarantee of £2.7m, to cover loan interest for a period of some 18 months, bearing in mind that the total annual rent being received from the estate was at the time only just over £1.1m, (b) a personal guarantee from Mr Dunner in the sum of £1m, (c) the assignment of an interest rate cap agreement and (d) the assignment of a top up mortgage indemnity guarantee ("MIG") policy to be taken out with Eagle Star on the top 20% of the loan. A further condition was "a valuation of the property satisfactory to the Bank".
On 13th June 1989 the Bank decided that it wanted a further report. This requirement had been anticipated. Mr Browne had already approached Mr Knight of WGS to ask whether he would be interested in undertaking what Mr Browne called a "franking" valuation. Mr Knight interpreted this as meaning that he was to provide an opinion on JDW's valuations, on the basis of information largely supplied by JDW. The information supplied by JDW included details of tenancies and floor areas, with some inaccuracies. Mr Knight was sent copies of JDW's reports with the valuation figures deleted, but was given the relevant figures orally. He was also sent a colour coded guide to the estate with Mr Browne's summary of the various tenancies. Mr Knight also received detailed schedules which more accurately extracted the terms of the three Rothmans leases. At Mr Knights' request, a Leeds colleague, Mr Peter Beagley, together with an assistant, Mr Naylor, undertook a superficial inspection of the estate on Friday, 16th June 1989. On that date, Mr Beagley made a very brief note, suggesting a value of £7.5m. Thereafter, Mr Naylor prepared more detailed draft valuation figures, which Mr Beagley amended. On 20th June 1989 Mr Beagley faxed to Mr Knight a draft valuation putting values of £9.53m on the parts tenanted by Rothmans and £10.56m on the rest.
Following discussion, a formal letter dated 21st June 1989 was sent by the Bank to Mr Knight. After referring to JDW's valuation at £22m and to the fact that the information to support this valuation had been made available to WGS, this continued:
"Would you please review this information and provide your opinion as to the reasonableness of the valuation within acceptable variances for this type of property."
By this time Mr Knight had, in addition to Mr Browne's valuations, his tenancy schedule, a structural and mechanical services survey dated 15th June 1989 from Lewis & Tucker and a report on title from Simmons & Simmons dated 16th June 1989. The report on title expressed strong reservations about the possibility that the landlords could not recover from tenants any major capital expenditure as well as about the legal arrangements with smaller tenants. Simmons & Simmons had been supplied with copy draft leases agreed or almost agreed with a number of such tenants, and advised that
"it was probably fair to assume that the occupiers are tenants occupying upon the terms of those agreed forms of lease, and that the freeholder might have difficulty in attempting to renegotiate those terms."
Of the Saturn lease, Simmons & Simmons said:
"Apparently this lease is agreed and has been engrossed. Apparently there remains the question of certain works to be agreed …."
The judge found that the exercise which WGS were instructed to and did undertake
"conducted as it was under considerable pressure of time, and at much less expense to the Bank than that involved in the JDW valuation, plainly in my judgment did not involve Weatheralls, as they themselves said, in conducting a full investigation and appraisal of the property such as would be appropriate for a full free-standing open market valuation. On the basis of the instructions received, Weatheralls were fully entitled, without checking themselves, to accept the factual content of Mr Browne's two reports, the report on title and the structural and mechanical services survey reports furnished by Lewis & Tucker. Thus, for example, Weatheralls could accept, without more ado, such matters as the details of floor areas, and the physical condition of the estate and its buildings as expressed in the structural and mechanical services survey reports, and matters of that kind, except in so far as queries might have arisen as a...
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