Banque Bruxelles Lambert SA v Eagle Star Insurance Company Ltd
| Jurisdiction | England & Wales |
| Judge | Sir Thomas Bingham Mr,Rose,Morritt L JJ. |
| Judgment Date | 20 February 1995 |
| Date | 20 February 1995 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal.
Sir Thomas Bingham Mr, Rose and Morritt L JJ.
Michael Lyndon-Stanford QC, Mark Hapgood and Richard Morgan (instructed by Lovell White Durrant) for Eagle Star.
John D Wood was neither present nor represented.
Roger Toulson QC and Daniel Pearce-Higgins (instructed by Clifford Chance) for the United Bank of Kuwait.
Ronald Walker QC and Vincent Moran (instructed by Cameron Markby Hewitt) for Prudential Property Services.
Michael Briggs QC and David Blayney (instructed by Clifford Chance) for Nykredit.
Michael de Navarro QC and Jonathan Ferris (instructed by Williams Davies Meltzen) for Edward Erdman Group.
Romie Tager and Ingrid Newman (instructed by Eversheds Phillips & Buck, Cardiff) for BNP.
Michael Harvey QC and Simon Brown (instructed by Davies Arnold & Cooper) for Key Surveyors Nationwide.
Walter Aylen QC and Nigel Jones (instructed by Eversheds Phillips & Buck, Cardiff) for BNP.
Christopher Gibson and Fiona Sinclair (instructed by Davies Arnold & Cooper) for Goadsby & Harding.
Nicholas Patten QC and Tim Harry (instructed by Rosling King) for Mortgage Express.
Genevra Caws QC and Ben Patten (instructed by Pinsent & Co, Birmingham) for Bowerman & Partners.
The following cases were referred to in the judgment:
Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310; (1987) 5 ACLC 587.
Avco Financial Services v HolsteinUNK (1980) 109 DLR (3d) 128.
Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [199l] 2 AC 249.
Baxter v F W Gapp & Co LtdUNK [1938] 4 All ER 457; [1939] 2 KB 271, [1939] 2 All ER 752 (CA).
British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [19l2] AC 673.
Caparo Industries plc v DickmanELR [1990] 2 AC 605; [1990] BCC 164.
Corisand Investments Ltd v Druce & Co [1978] EGD 769.
County Personnel (Employment Agency) Ltd v Alan R Pulver & Co (a firm)WLR [1987] 1 WLR 916.
Duncan & Wetter Pty Ltd v Mendelson [1989] VR 386.
Eagle Star Insurance Co Ltd v Gale & Power (1955) 166 EG 37.
First National Commercial Bank plc v HumbertsUNK [1995] 2 All ER 673.
Ford v White & CoWLR [1964] 1 WLR 885.
Galoo Ltd v Bright Grahame Murray (a firm)WLR [1994] 1 WLR 1360; [1994] BCC 319.
Hayes v James & Charles Dodd (a firm)UNK [1990] 2 All ER 815.
Iron & Steel Holding & Realisation Agency v Compensation Appeal TribunalWLR [1966] 1 WLR 480.
Livingstone v Rawyards Coal CoELR (1880) 5 App Cas 25.
London & South of England Building Society v StoneWLR [1983] 1 WLR 1242.
Lowenburg, Harris & Co v Wolley (1895) 25 SCR 51.
McElroy Milne v Commercial Electronics Ltd [1993] 1 NZLR 39.
March v E & M H Stramare Pty LtdUNK (1991) 171 CLR 506.
Perry v Sidney Phillips & SonWLR [1982] 1 WLR 1297.
Philips v WardWLR [1956] 1 WLR 471.
Pilkington v WoodELR [1953] Ch 770.
Quinn v Burch Bros (Builders) LtdELR [1966] 2 QB 370.
Raylon Investment Ltd v Bear Realty Ltd (1980) 20 RPR 288.
Robinson v HarmanENR (1848) 1 Exch 850; 154 ER 363.
Royscot Trust Ltd v RogersonELR [1991] 2 QB 297.
Rumsey v Owen White & Catlin [1978] EGD 730.
Scholes v Brook (1891) 64 LT 674.
Seeway Mortgage Investment Corp v First Citizens Financial Corp (1983) 45 BCLR 87.
Singer & Friedlander Ltd v John D Wood & CoUNK (1977) 243 EG 212.
Swingcastle Ltd v Alastair Gibson (a firm)WLR [1990] 1 WLR 1223 (CA); [1991] 2 AC 223 (HL).
Trade Credits Ltd v Baillieu Knight Frank (NSW) Pty Ltd (1985) 12 NSWLR 670.
Watts v MorrowWLR [1991] 1 WLR 1421.
Yorkshire Dale Steamship Co Ltd v Minister of War TransportELR [1942] AC 691.
Damages — Negligence — Valuation of land by valuer for mortgage lender — Loan agreed with land as security on basis of valuation — Negligent overvaluation of land — Default by borrower — Security insufficient to cover full amount of loan — Measure of damages.
These were consolidated appeals raising the same issue on the measure of damages to which a lender was entitled in respect of loss suffered from a negligent overvaluation of land as security for a loan.
In each of five appeals a mortgage lender brought an action in negligence against a valuer for overvaluation of land. The valuer knew that the lender would rely on the valuation as security for a loan to a borrower. In each case if the lender had known the true value of the land no loan would have been made at all. When the borrower defaulted, the lender repossessed the property and sold it, but because of the fall in property values between the date of the loan and the sale, the sale did not recoup the amount of the loan. The sixth case was an action in negligence against a solicitor. The central question was whether the lender could recover damages for the fall in land values between the date of the loan and the sale.
Held, allowing four appeals and dismissing two:
1. In a case in which a lender would not have made any loan if he had known the true value of the land offered as security, the lender was entitled to recover his overall loss sustained on entering into the transaction, on the assumption that he had acted properly to mitigate that loss which included selling the property, less what he had recovered.
2. If there were a fall in the property market between the date of the transaction and the date of realisation, the lender was entitled to recover that element of his loss against the negligent party. Since the valuer's negligence caused the lender to enter into the transaction, which he would not otherwise have done, and because he could not escape from the transaction at will, that negligence was the effective cause of the loss which the lender suffered as a result. The market fall could not realistically be seen as a new intervening cause.
(Delivered by Bingham Mr)
The court is concerned in these cases with a very familiar, everyday transaction: the lending of money by a commercial lender to a borrower on a mortgage of real property. In such a transaction the lender looks to the borrower to repay the principal sum lent, with interest sufficient to give the lender a commercial return. Before entering into the transaction the prudent lender will take steps to satisfy himself that the borrower will be able to repay. But the lender does not rely on the borrower's payment covenant alone. He obtains additional security by taking a charge on the land itself. Before advancing money he will wish to satisfy himself that the land provides acceptable security for the loan to be made. To that end the lender will ordinarily turn to a professional valuer for his opinion on the value of the land.
In five of the cases before the court the relevant claim is a claim in negligence against a valuer. (The sixth claim is against a solicitor.) In each case the complaint is the same that the valuer negligently over-valued the land in question. In each case in which there has been a decision that complaint was upheld; in one of them that finding is challenged, but the appeal against that finding is not now before us. (A finding of negligence was also made in the solicitor's case; and there also it is challenged.)
So the question arises: to what damages is the lender entitled against the negligent valuer? The general answer given by authority is clear. If the claim is in contract it is given by Parke B in Robinson v HarmonENR(1848) 1 Exch 850 at p. 855:
“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
If the claim is in tort the answer is given by Lord Blackburn in Livingstone v Rawyards Coal Co(1880) 5 App Gas 25 at p. 39:
“I do not think there is any difference of opinion as to its being a general rule that, where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation.”
It is not suggested that for present purposes there is any practical difference between these two tests.
In British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd[19l2] AC 673 at p. 688 Viscount Haldane LC said:
“In order to come to a conclusion on the question as to damages thus raised, it is essential to bear in mind certain propositions which I think are well established. In some of the cases there are expressions as to the principles governing the measure of general damages which at first sight seem difficult to harmonize. The apparent discrepancies are, however, mainly due to the varying nature of the particular questions submitted for decision.
The quantum of damage is a question of fact, and the only guidance the law can give is to lay down general principles which afford at times but scanty assistance in dealing with particular cases. The judges who give guidance to juries in these cases have necessarily to look at their special character, and to mould, for the purposes of different kinds of claim, the expression of the general principles which apply to them, and this is apt to give rise to an appearance of ambiguity.
Subject to these observations I think that there are certain broad principles which are quite well settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed.
The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable...
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