London and South of England Building Society v Stone
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE O'CONNOR,SIR DENYS BUCKLEY,LORD JUSTICE STEPHENSON |
| Judgment Date | 27 May 1983 |
| Judgment citation (vLex) | [1983] EWCA Civ J0527-5 |
| Docket Number | 83/0217 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 May 1983 |
[1983] EWCA Civ J0527-5
Lord Justice Stephenson
Lord Justice O'Connor
and
Sir Denys Buckley
83/0217
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BATH DISTRICT REGISTRY
(MR. JUSTICE RUSSELL)
Royal Courts of Justice
MR. PATRICK TWIGG (instructed by Messrs. Lawrance Messer & Co, Solicitors, London EC2R 5AB) appeared on behalf of the Plaintiffs (Appellants)
MR. JOHN SLATER and MISS JANE DAVIES (instructed by Messrs. Barlow Lyde & Gilbert, Solicitors, London EC4) appeared on behalf of the Defendant (Respondent)
This appeal raises an important question on the measure of damages in a case where a building society has lent money on mortgage in reliance upon a valuation that has been made in breach of the valuer's duty to his employer.
The facts of the case are unusual. In March 1976 Mr. Robinson, aged 42, a salesman earning £3,250 per annum, and his fiancee Mrs. Hurd, aged 37, a school teacher earning £4,000 per annum (hereafter called "the borrowers"), were negotiating for the purchase of a semi-detached house "Lane End" in Corsham, Wiltshire. They approached the appellant building society (to whom I shall refer as "the lenders") for a mortgage to finance the purchase. After the lenders had received satisfactory references a formal request for an advance of £12,800 repayable in 25 years against a purchase price of £14,850 was made by the borrowers to the lenders on 25th May 1976; on 24th May the lenders instructed the respondent, a qualified surveyor and valuer, to value the property (I shall refer to him as the valuer). The lenders have a printed form which goes to the valuer for him to complete but in part has already been filled in by the lenders. Paragraph 1.11 states that the advance required is £12,800 repayable over 25 years; paragraph 1.12 states that the agreed purchase price was £14,850; the valuer inspected the property and made his report to the lenders on 27th May. He gave the house a clean bill of health and at paragraph 14.1 stated that the gross value for mortgage was £14,850. By paragraph 15.2 the valuer certified that he had valued the property, and prepared his report in accordance with the provisions of s.25 of the Building Societies Act, 1962. Lastly, by paragraph 13.2, the valuer recommended the property as a suitable security for the advance and term requested in paragraph 1.11.
Although the borrowers and the property had been cleared for a loan of £12,800 the lenders found that they were still bound by an in-house rule not to lend more than 80% of the purchase price so they offered a loan of £11,880 which was accepted, and in due course the purchase of the property went through on that basis on 23rd September 1976. By a Legal Charge of even date the borrowers charged the house to the lenders. By Clause 1 the borrowers covenanted
"(a) to pay monthly to the society the sum stated in part 5 of the 1st schedule (or such other sum or sums as may hereafter at any time be agreed in writing by the parties hereto or may be determined by the Board of Directors of the Society ('the Board') hereunder) until the principal sum and any further advances or any re-advances that may be made to the borrower by the Society with interest thereon as hereinafter provided and all other monies payable by the borrower to the Society hereunder or by the rules shall have been repaid the first of such payments to made on the date stated in part 6 of the Schedule and subsequent payments to be made on the day in the month stated in part 7 of the 1st Schedule".
By Clause 4 of the Legal Charge the borrowers entered into further covenants with the lender including
"(d) at all times to keep any buildings on the property in good and tenantable repair to the satisfaction of the lender and to give to the lender on demand such information about and such opportunity to inspect or repair the property as it may require".
By Clause 5 it was mutually agreed and declared that
"(a) the borrower shall not let or part with possession of the property or any part thereof without the written consent of the Society first had and obtained".
(h) That if default be made by the Borrower in payment of any one or more of the said monthly payments and other payments hereby covenanted to be made or in the observance and performance of any of the Borrowers covenants or obligations herein expressed or implied or if the Borrower or the Guarantor (if any) shall become bankrupt or being a limited company shall go into liquidation other than voluntary liquidation for the purpose of reconstruction or shall have a winding up order made against it or in case the Property shall be compulsorily acquired or demolished by order of any competent authority the whole of the money payable or to become payable hereunder shall be deemed to be forthwith due and owing and the Society may without any previous notice to or concurrance by the Borrower:-
"(i) Appoint a Receiver under the statutory power and eject from the Property the Borrower his tenants and workmen and all other persons then in possession or occupation thereof
(ii) Complete any unfinished buildings and effect and carry out upon the Property any such repairs amendments alterations or additions as the Society shall consider necessary or desirable for the improvement of the Property or the security hereby created
(iii) In exercise of the statutory power sell or let all or any part of the Property.
(i) that all money paid by the Society in completing repairing, amending, altering, improving or insuring the property or in making any payments for outgoings in relation thereto or for the protection or improvement of the security hereby created shall carry interest at the rate of interest herein provided for, and shall be repayable by the borrower on demand and in the meantime shall be a charge on the property".
The borrowers moved into their new home but despite the charm of the view from the windows soon found that all was not well with their house; cracks appeared and the doors ceased to fit, the sure tell-tales that the property was subject to subsidence. The borrowers became alarmed, and called in consulting engineers who reported in September 1977 that the house was built on the site of an old quarry in the hillside which had been indifferently filled, that not only was the whole hillside gradually moving downward, but the fill in the quarry was sliding downhill, lubricated by water and taking the foundations of the house with it. They said:
"We consider that although the house is not likely to collapse within the next few months, if there is another long period of wet weather then there is every possibility of the filled material beneath the foundations slipping away and the downhill corner of the house collapsing".
They recommended underpinning, but could give no estimate of the cost until the depth of the quarry floor below the house had been ascertained. The borrowers applied to the insurance company but the insurance company would have nothing to do with the claim, for they said that this condition existed before the policy was effected and indeed they had a report from a valuer as late as February 1976 including a photograph showing a great big crack and reporting the true condition of this house.
The borrowers turned to the lenders for help and Mr. Stoughton-Harris, their managing director, who gave evidence at the trial, agreed to get an estimate for the repair of the house, and on 9th February he wrote to the valuer, warning him that he proposed to take proceedings on the grounds that the valuer's inspection of the property in May 1976 should have disclosed the evidence of the subsidence. By September 1978 the lender had received an estimate for the repair of the house in the sum of £14,000. The borrowers could not afford to pay any more than they were already paying; they were fully stretched financially. There were only two alternatives, either to repair the house or to pull it down and incur the further expense of shoring up the party wall of the other half of the semi-detached building; the lenders decided to repair the house. Unfortunately the estimate for carrying out the work proved wholly insufficient. It is unnecessary to go into any details as to what was wrong with it, but in the end it cost £29,000 to repair the house. In June 1979 Mr. Stoughton-Harris, on behalf of the lenders, wrote to the borrowers:
"I am writing to tell you that after giving the matter considerable thought I have decided not to ask you to make up any deficiency which may arise as a result of this unfortunate affair. On behalf of the Society I shall be pursuing Barry Stone for negligence, and I hope to recover the total costs which amount to approximately £20,000, but any deficiency that may arise will be paid for by the Society. In agreeing to do this I am not in any way accepting liability on behalf of the Building Society. It is a gesture of goodwill on the part of the Society for what has been a most difficult and frightening experience for you and your wife".
Following the finding of the learned judge to that effect, the valuer accepts that he was guilty of negligence in his valuation. I shall confine myself to tracing the history of the claim for damages. The particulars of damage in the statement of claim originally delivered in August 1978 read
"the value of the Plaintiff's security has been reduced. To put the property into a state...
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