Swingcastle Ltd v Alastair Gibson (A Firm)
| Jurisdiction | England & Wales |
| Judge | Lord Keith of Kinkel,Lord Brightman,Lord Griffiths,Lord Oliver of Aylmerton,Lord Lowry |
| Judgment Date | 18 April 1991 |
| Judgment citation (vLex) | [1991] UKHL J0418-1 |
| Date | 18 April 1991 |
| Court | House of Lords |
[1991] UKHL J0418-1
Lord Keith of Kinkel
Lord Brightman
Lord Griffiths
Lord Oliver of Aylmerton
Lord Lowry
House of Lords
My Lords,
I have had the opportunity to consider in draft the speech to be delivered by my noble and learned friend Lord Lowry. I agree with it, and for the reasons he gives would allow this appeal.
My Lords,
For the reasons given in the speech to be delivered by my noble and learned friend Lord Lowry, I also would allow this appeal.
My Lords,
I have had the opportunity of reading in draft the speech to be delivered by my noble and learned friend Lord Lowry. I agree with it and for the reasons he gives would allow this appeal.
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Lowry. I agree with it and for the reasons which he has given I, too, would allow this appeal.
My Lords,
This is an appeal by leave of your Lordships' House from an order of the Court of Appeal (Neill and Farquharson L.JJ. and Sir John Megaw) affirming a judgment for £7,136.41, together with interest and costs, given by His Honour Judge Harris D.S.C., Q.C. in an action which had been brought by the respondents, a finance company known as Swingcastle Ltd. ("the lenders"), against the appellant, who is a chartered surveyor, and remitted to the county court for trial.
The main issue in the appeal is whether a person who lends money at a high rate of interest in reliance on a negligent valuation, and who claims to have suffered loss as a result, can recover from the negligent valuer, as part of his damages, interest at the contractual rate which the lender was entitled to be paid by the borrower and which remained outstanding at the termination of the transaction between the lender and the borrower.
The facts are that at the beginning of 1985 Mr. John Clarke and Mrs. Kathleen Ann Clarke, his wife, who lived at 36, North Road, Audenshaw, Manchester, were in financial difficulties. Their home ("the property") was mortgaged and they owed £1,700 to the Leeds Permanent Building Society and £6,300 to Cedar Holdings Ltd. Being anxious to pay off these debts, they went to a firm called Richard Murtagh & Co. ("the brokers") whose business included organising finance for borrowers by putting them in touch with lenders. The brokers, having found out what Mr. and Mrs. Clarke ("the borrowers") required and what security they were offering, instructed the appellant (whom I shall call "the valuer") to survey the property and give a report, for the benefit of whoever might become the lending principals of the brokers, on its condition and its value on a forced sale with vacant possession.
The valuer placed that value at £18,000 and, relying on his valuation, the lenders on 11 February 1985 lent to the borrowers £10,000 secured by a first charge over the property. The conditions of the loan reflected the fact that the borrowers were high risk (or "non-status") borrowers, since ( a) the entire loan was used to pay the debts already mentioned of £1,700 and £6,300 and the brokers' fee which amounted to no less than £2,000; ( b) the loan was repayable by 120 monthly instalments of £275, which meant that the annual percentage rate of interest was to be 36.51 per cent. calculated in accordance with regulations made under the Consumer Credit Act 1974, with an alternative rate of 45.619 per cent. calculated in accordance with the First Schedule to the Moneylenders Act 1927; ( c) in the event that the borrowers went into arrears with the payment of interest, the lenders were entitled to add the outstanding interest to the principal sum then outstanding and charge interest on the whole at the rate of 45.619 per cent; and ( d) an extra charge of six months' interest was payable in the event of early redemption of the charge by the borrowers.
The borrowers quickly fell into arrears and, after possession proceedings, they surrendered possession of the property to the lenders on 30 June 1986. On 9 February 1987 the lenders exchanged contracts for the sale of the property to a third party for £12,000 and completion took place on 27 February 1987.
After an exchange of correspondence the lenders issued on 4 September 1987 a writ endorsed with a statement of claim against the valuer claiming damages for loss allegedly sustained by the lenders in reliance upon the valuer's negligent valuation of the property. The lenders pleaded their loss as follows:-
"13. By reason of the matters aforesaid the Plaintiffs suffered a shortfall in respect of the amount due to them under their loan to the said Mr. and Mrs. Clarke and under the security of their Legal Charge and they thereby suffered loss and damage.
Amount required to redeem the Loan as at 27th February 1987
£19,912.96
Payment to Messrs Cordingleys
401.35
Legal costs and charges of Messrs Brand Montague & Co. in connection with the possession proceedings in the Ashton-under-Lyne County Court and the subsequent sale of the property on behalf of the Plaintiffs as mortgagees in possession
983.25
£21,297.56
Less sale proceeds of property
£12,000.00
£9,297.56
14. Further the Plaintiffs are entitled to and claim interest pursuant to Section 35A of the Supreme Court Act 1981 at such rate and for such period as the Court thinks fit."
(Messrs Cordingleys were estate agents and Messrs Brand Montague & Co. were the lenders' solicitors.)
The defence denied negligence, averred that the measure of damages alleged in paragraph 13 of the statement of claim was incorrect and set out as an algebraic formula what was alleged to be the correct measure of damages.
Liability was admitted at the trial in the county court and it was further admitted that but for the valuer's negligence the lenders would not have made any loan to the borrowers. Thus the sole issue was the measure and the amount, if any, of the lenders' damages against the valuer on the basis that, if he had made a competent valuation, the lenders would not have made the loan.
About some of the figures and the way in which they should be taken into account there was no dispute. The lenders' outgoings included the loan of £10,000, the estate agents' charges of £401.35 in connection with the sale of the property and the costs of the solicitors amounting to £983.25 for the work described in the particulars. On the other side of the account the lenders had received a total sum of £1,734 from the borrowers between February 1985 and April 1986 and £12,000 from the purchasers of the property.
The disputed ingredient of the lenders' claim was the sum of £19,912.96, which gave credit for the receipt of £1,734, as mentioned above, and was described in the particulars as "Amount required to redeem the loan as at 27th February, 1987", the date of the sale of the property when the transaction between the lenders and the borrowers was deemed to be concluded. The lenders arrived at this figure, which was in itself accurate, by calculating the amount of principal and interest outstanding, having regard to the initial rate of interest of 36.51 per cent. and also the penal rate of 45.619 per cent. which they became entitled to charge when the borrowers defaulted, as I have already described. They also claimed £344.99 for "disbursements" and interest thereon of £129.31. To the total thus arrived at they added an extra charge of six months' interest which, according to the loan agreement, was to be payable by the borrowers in the event of early redemption.
The judge disallowed the last element in the claim on the ground that it was not a sum which was owing as interest on 27 February 1987. I might point out that according to condition 8 of the conditions annexed to the agreement the extra charge of interest was claimable only if the borrowers repaid the whole of the loan. In all other respects, including the charge for interest on disbursements, he allowed the claim and gave judgment for £7,136.41 with interest and costs.
The valuer's case before action brought and throughout the proceedings has consistently been that the lenders' calculation of their loss was made on the wrong basis and that the damages should have been assessed on the basis that the lenders were entitled to be placed in the position that they would have been in if they had received a competent report from the valuer and had consequently made no loan to the borrowers; more explicitly, the lenders' damages are to be calculated on the footing that they should (1) take credit for the payment of £10,000 to the borrowers, £401.35 to their estate agents and £983.25 to their solicitors and (2) give credit for £1,734 paid by the borrowers and £12,000 received on the sale of the property and also on the footing that they have for two years (or such shorter period as might be thought right to allow) been deprived of the use of the £10,000 which they would not have lent but for the negligent valuation.
In the Court of Appeal [1990] 1 W.L.R. 1223, however, this submission fared no better than it had done in the county court. Neill L.J. reviewed a number of authorities, including Baxter v. F.W. Gapp & Co. Ltd. [1938] 4 All E.R. 457; affirmed in the Court of Appeal [1939] 2 K.B. 271 and London and South of England Building Society v. Stone [1983] 1 W.L.R. 1242, both of which had been successfully relied on in the county court, and, having set out the defendant's argument at p. 1229C-G, said "I see the force of these criticisms", but, having then concluded that Baxter v. Gapp was a binding authority, was in favour of dismissing the appeal "on the short ground that this court is bound by authority and that the judge was right...
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