Skipton Building Society v Stott
| Jurisdiction | England & Wales |
| Judge | Lord Justice Evans,LORD JUSTICE Potter,MR JUSTICE ALLIOTT,LORD JUSTICE EVANS,LORD JUSTICE POTTER |
| Judgment Date | 10 December 1999 |
| Neutral Citation | [1999] EWCA Civ J1210-11 |
| Judgment citation (vLex) | [1999] EWCA Civ J1210-27 |
| Docket Number | Case No: CCRTF 1988/1622 |
| Court | Court of Appeal (Civil Division) |
| Date | 10 December 1999 |
[1999] EWCA Civ J1210-11
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BURNLEY COUNTY
COURT (Mr Recorder Duggan)
Lord Justice Evans
Lord Justice Potter and
Mr Justice Alliott
Case No: CCRTF 1988/1622
MR M. MULHOLLAND (instructed by Farleys, Blackburn BB1 7AQ) appeared on behalf of the Appellant.
MR PAUL BROOK (instructed by Walker Foster, Skipton BD23 1AA) appeared on behalf of the Respondent.
Friday, 10 December 1999
1.This appeal is by the second defendant in the action, John Stott, against the Order made by Mr Recorder Duggan in the Burnley County Court on 4 December 1998. The judgment was in favour of the Claimants, Skipton Building Society, whom I shall call "The Society", in the sum of £14,930.58. That was £2,500 less than the Society claimed.
2.The issue raised by the appeal is the what rights the lender of money secured by a property mortgage has against a guarantor of the loan, when the lender has exercised his right to sell the property as mortgagee.
3.The property in question was a leasehold interest in commercial premises known as Plot 2, Tarran Industrial Estate, Town Way, Morton, Wirrall. The premises are a purpose-built single-storey warehouse including office accommodation with a total gross internal area of about 6,800 square feet. The interest was acquired by D K Precision Engineering Co. Ltd. ("the Company") in May 1991 and it was charged in favour of the Society in the sum of £130,000 by a Legal Charge dated 28 May 1991. The appellant and his co-defendant Kenneth Bratley were directors of the company. Each signed a Deed of Guarantee on the same day in respect of the Company's loan.
4.By November 1994 the company was in financial difficulties. Receivers were appointed by the Society on 22 November 1994. They continued to operate the company at the premises for a period of 28 days while they attempted to sell the business as a going concern. Selling agents were appointed for that purpose. The attempt was unsuccessful and the business was closed. Meanwhile, the occupiers of adjoining property revealed their interest in acquiring the additional space. On 9 December 1994 they offered the Receiver £120,000 for the Company's interest. A valuation was obtained by the Receiver and the offer was refused. Soon afterwards, on 12 January 1995 the offer was increased to £122,500 and was made to the Society, which obtained a report from an independent chartered surveyor, Mr Grainger, and accepted the offer on 24 January 1995. By that date the outstanding debt which the directors guaranteed, including interest, was £132,430.
5.The sale was not completed until 12 April 1995. After deducting expenses of £4,751.25, which did not include an agent's commission because no agent was appointed, the net proceeds of sale were £118,001.49. The sum due under the mortgage had increased to £135,432.07. This left a balance of £17,430.58 which the Society claimed from the appellant in this action. The Summons was issued in the Skipton County Court on 24 January 1996.
7.The dispute centres on whether the Society obtained the full market value for the property.
The judgment
8.The judge heard evidence from expert witnesses and was assisted by counsel who are experienced in this field. His findings of fact are not challenged, although Mr Brook counsel for the Society submits that to some extent the findings are inconsistent with each other. The judge began as follows:-
"It is important for me to understand a number of concepts of valuation. Firstly, there is the concept of an open market value. An open market value is the value which property can be expected to achieve if it is properly marketed for a reasonable period of time. That concept is to be contrasted with a forced sale valuation which is the price which property can be expected to achieve if it is marketed for a restricted period of time, of necessity a period less than a reasonable period of time.
The concept of a forced sale valuation also incorporates an additional element of discount below the open market value because if a purchaser is able to discover that property has to be sold that in itself has the consequence of depressing the offer which he is prepared to make. The purchaser, knowing that the seller must sell, is in a good negotiating position and therefore is likely to reduce the figure which he is prepared to offer for the property.
There was agreement between the surveyors that in the circumstances of this case a forced sale valuation represented 85% of an open market evaluation. An additional concept of valuation has to be grasped and that is that the value of property can be increased by the involvement of a 'special interest' buyer. So, for example, if a neighbour has a particular interest in acquiring property adjacent to his own he may be prepared to pay more to acquire that property than an outsider may be prepared to do."
9.The judge then records that counsel had narrowed the issue to the question "whether the building society had complied with an implied term in the contract of guarantee. That implied term reflects the statutory duty of the building society under schedule 4 paragraph 1(1)(a) of the Building Societies Act in 1986. …The issue becomes whether the building society have "taken reasonable care to ensure that the price at which the land is sold is the best price that can reasonably be obtained"".
10.He then found that there were two potentially valid criticisms made of the Society -
".. firstly, that they did not advertise, that they did not wait for further interest ; secondly, that they did not properly take on board the fact that the value was affected by the presence of a 'special interest' buyer. I take those two matters together and apply the appropriate test as to whether or not the building society had taken reasonable care to ensure that the price at which the land is sold [was] the best price that [could] reasonably be obtained."
Having considered the evidence of the Society's Arrears Manager, Mr Taylor, who made a number of damaging admissions (judgment p.9) but who also identified a number of factors which he had to take into account (page 11), and of the expert witnesses, the judge found that Mr Grainger, who approved the sale at £122,500, had made no more than " a mechanical forced sale valuation" and he and the Society between them (page 11E) failed "to take reasonable care to ensure that the price at which the land was sold was the best price that could reasonably be obtained" (page 13H). They were negligent in two ways: they did not seek further interest by placing the property on the market and they failed to take account of the purchaser's "special interest" when deciding to accept their offer. It is implicit in these findings that the Society could reasonably have sought other offers, with or without the use of agents, at least until April 1995 when the property was in fact sold.
11.Next the judge asked himself "whether by exposing the property to the market in this way the building society would have obtained any more for the sale". He found -
"In my judgment, there was a real chance, if advertising had taken place, that someone else would have entered the market place. If they did there was real prospect that Bimark would be prepared to increase their offer …. but I do find that there is no certainty that further attempts at marketing would have met with success. Indeed even expressed to the appropriate civil standard success has not been proved on the balance of probabilities.
What has been proved to my satisfaction on the balance of probabilities is that there was a chance of succeeding in procuring a better price and a chance not so nebulous that the building society were entitled to ignore it ; a real chance of success."
He then proceeded to consider the nature and extent of that real chance of success. He concluded -
"….there was lost a real chance of success to which I ascribe the valuation of £2,500. That is a figure which represents the discounted value of the increased price which might have been achieved, discounted to reflect the fact that there is a lack of certainty that the increased net price would have been achieved."
12.In my judgment, for reasons which I shall give below, this venture into assessing a figure to represent the value to the defendant of the lost chance to achieve a better price was misguided and wrong in law. The evidence enabled the judge to assess what the market value was, and that figure would correspond with the price that could be expected to be achieved, given exposure to the market for a reasonable time. The question, what the figure was, was an issue of historic fact which had to be established on the evidence by whichever party had the burden of proof. There was no question as to a future uncertain event which required the Court to assess the value of the loss of a chance (see Allied Maples Ltd v. Simmons & Simmons [1995] 1 W.L.R. 1602).
13.In my view, therefore, it was unfortunate that the judge embarked on this inquiry, but I should add that he was encouraged to do so both counsel, neither of whom challenged the "loss of chance" approach in their Skeleton Arguments for the appeal. The judge explained with engaging frankess that he had no experience in this branch of the law and he expressed his indebtedness to counsel for their guidance. He commented that neither party had sought to have the transaction transferred to a specialist court. I would have...
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