Barclays Bank Plc v TBS & v Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Dove |
| Judgment Date | 18 November 2016 |
| Neutral Citation | [2016] EWHC 2948 (QB) |
| Docket Number | Case No: HQ14X05007 |
| Court | Queen's Bench Division |
| Date | 18 November 2016 |
[2016] EWHC 2948 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
(handed down at Liverpool Crown Court)
Mr Justice Dove
Case No: HQ14X05007
Nicola Rushton (instructed by TLT LLP) for the Claimant
Thomas Grant QC (instructed by Clyde & Co LLP) for the Defendant
Hearing dates: 17 th– 28 th October 2016
Judgment Approved
Introduction
Manor House in Lynmouth is a Grade II listed building which historically was probably a gentleman's residence accompanied by ancillary supporting outbuildings for staff and stabling. It is owned by Lynton and Lynmouth Town Council and let out by them for commercial use. Since the 1980s it was let as a 17 bed care home. By the time of the events with which this action is concerned the property had been marketed for about three years. The owner, Mrs Lovell, was by then in her mid-70's and widowed and wished to sell the care home as a going concern and retire. The marketing of the property commenced about mid 2004, and the offer was accompanied with a new 40 year lease for care home use.
The essence of this case is as follows. The claimant was approached by a Mr and Mrs Watson who wished to borrow money in order to buy the care home. The claimant instructed the defendant to value the property, and following receipt of a valuation by the defendant of £350,000 the claimant loaned money in order to enable Mr and Mrs Watson to acquire the premises. The business then failed over the course of several years and in the end in 2011 Mr and Mrs Watson left the property and the claimant, having taken professional advice, concluded that the only sensible course was to forfeit the lease. The claimant claims the total loss which has occurred as a result of their lending. The claimant claims that that loss resulted from the defendant's negligent valuation of the property. The defendant denies negligence and contends that the valuation which was given was one which fell within an appropriate margin of error, bearing in mind the complexities of valuing this property which are alluded to below. The defendant also raises subsidiary issues in relation to whether or not liability arises in any event. It is contended that the claimant was, by virtue of an offer letter which was sent prior to the receipt of the defendant's valuation, liable to lend the money to the purchasers, and that therefore the valuation caused no loss. They also submit that any liability they might have based upon the valuation which they provided was overtaken by a restructuring of the loan to the purchaser undertaken in 2008. Allegations of contributory negligence are also raised by the defendant against the claimant.
I should state at the outset that I am extremely grateful for the excellent and thoughtfully prepared submissions of counsel for both parties, namely Ms Nicola Rushton on behalf of the claimant and Mr Thomas Grant QC on behalf of the defendant. I would also wish to place on record my thanks to their legal teams who provided well-structured papers for the trial and ensured that the hearing ran smoothly.
The structure of this judgment is as follows. Firstly, the facts surrounding the claim are set out, before secondly rehearsing the expert evidence which each party called. It is convenient to then consider the law in relation to whether the valuation was negligent followed by my assessment of that question on the evidence before me. Finally the judgment turns to the further matters raised by the defendant in this case.
The facts
On 1 st June 2007 the claimant's employee Mrs Maries, who was a Relationship Manager at the claimant's branch in Stoney Stratford, received an enquiry from a mortgage broker in relation to a potential lending opportunity. The enquiry related to two borrowers, Mr and Mrs Watson, who needed to borrow £250,000 for the purchase of the Manor House care home at an agreed price of £350,000. The mortgage enquiry was accompanied by accounts for the Manor House care home for the years ended 30 th April 2003, 30 th April 2004 and 30 th April 2005. Sales particulars in relation to the Manor House care home were also provided. Subsequent to this, Mrs Maries received a CV for Mr Watson to support the application. That CV stated that Mr Watson was 66 years old, and described himself as having professional management skills having worked for many years in the construction industry.
The internal credit management system operated by the claimant was called Zeus. On 21 st June 2007 Mrs Maries created a Zeus credit application which was submitted through the bank's computer system to their credit team in Cambridge. She described the proposal for the lend in the following terms:
"Established 17 bed Nursing Home in Devon, in a Grade 2 Listed Manor House set in Exmoor Park. Accommodation also includes separate staff quarters, which has planning permission for a further 8 beds, and also a 2 Bed Owners cottage adjoining this. Watson will carry out a lot of the work himself and costs to convert will be minimal. Existing owners have run for 20 years, and are now selling up to retire.
Property is leasehold, and Lease has just been renewed for 40 years, with the removal of the Bankruptcy clause. A full Taylor's Business valuation has been carried out, at £360,000.
The Watson's have sold their house in Milton Keynes, and will move down to Devon. Their daughter, who works in residential care homes locally, was to become Manager, but has now decided not to relocate. There is a longstanding employee, assisting the current Manager, who is fully qualified and has applied to be registered by the Local Authority. This will retain links with the Local Authority even under the change of ownership. All the existing staff will remain."
The maximum loan to value ratio contemplated for the lend, in accordance with the claimant's lending criteria, was 70%, and it was envisaged that the lend would be undertaken by means of a Barclays Commercial Mortgage with a loan period of 15 years and a capital repayment holiday of 12 months. Mrs Maries concluded in the Zeus document that the serviceability of the loan was comfortable based upon the trading figures for the existing business with which she had been provided. The lending was to be secured by means of a charge over Manor House. There were additional special conditions to be imposed on the lending which included key person cover for the manager of the home (for the amount and the term of the loan) and the provision of information about monthly occupancy levels so as to demonstrate a minimum occupancy of 90% for the first 12 months.
Within the broker's application there had been mention of a pre-existing valuation by the defendant. This was no doubt relied upon in the broker's enquiry so as to demonstrate that there was sufficient value in the asset being purchased to support the loan requested. On 13 th July 2007 Mrs Maries' assistant emailed the credit manager who was considering whether or not to sanction the loan. The assistant enquired as to whether a re-addressed valuation dated 4 th September 2006 would be acceptable. It appears that the defendant had agreed to re-address the valuation for £100 plus VAT but stated that a fee of £750 plus VAT would be incurred if there had to be a re-inspection of the property and a re-valuation. The reply from the credit manager was that the claimant would not accept re-addressed valuations and therefore a reinstruction of the valuer was required. It appears from the email sent by Mrs Maries' assistant that by 13 th July 2007 the lending had been sanctioned in principle by the credit manager.
A little later on, on the 18 th July 2007, Mr Hayton, a director of the defendant, wrote an email confirming advice which he had given in relation to the proposed Manor House lending on the telephone. The advice which he gave was couched in the following terms:
"Further to our conversation I can confirm as follows.
If the Manor House were to cease to trade for any reason there is a significant risk that the current registration would be lost. If this were to happen, it is possible that the local office of the Commission on Social Care inspection would require the home to meet the standards for a first time registration, if it were to be re-registered. This would almost certainly reduce the registration, relative to the current registration and may even make it impractical to re-open as a care home.
The property is leased at a market rent and therefore with the above in mind, it is very difficult to see how we could attribute any significant value to the lease in the event that the home ceased to be operational."
On 1 st August 2007 Mrs Maries emailed Mr Hayton. Having noted that the defendant would still be awaiting the claimant's email of instruction to undertake the valuation which would take a few days to come through, she told him to take her email as an instruction to carry out a re-valuation of Manor House as soon as possible. On 3 rd August 2007 Mr Babb, a surveyor employed by the defendant, inspected the property for the purpose of the fresh valuation. On 7 th August 2007 an electronic instruction form, known as XIT2, was sent by the claimant to the defendant in respect of the valuation. On 8 th August 2007 the defendant replied accepting the instruction to value Manor House and stating that the instruction would be carried out on their standard terms and conditions. These terms and conditions included the following:
"15.9 The property market is constantly changing and is susceptible to many external factors which can affect business confidence and property values. If any reliance is to be placed upon the Valuation following any changes which could affect business confidence and property...
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