Swingcastle Ltd v Alastair Gibson (A Firm)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NEILL,LORD JUSTICE FARQUHARSON,SIR JOHN MEGAW |
| Judgment Date | 16 March 1990 |
| Judgment citation (vLex) | [1990] EWCA Civ J0316-6 |
| Docket Number | 90/0253 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 March 1990 |
[1990] EWCA Civ J0316-6
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE WESTMINSTER COUNTY COURT
HAVING BEEN TRANSFERRED FROM
THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(HIS HONOUR JUDGE HARRIS, Q.C.)
Royal Courts of Justice
Lord Justice Neill
Lord Justice Farquharson
and
Sir John Megaw
90/0253
MR ROGER TOULSON, Q.C., and MR ROGER STEWART, instructed by Messrs Reynolds Porter Chamberlain, appeared for the Appellant (Defendant).
MR PETER WULWIK, instructed by Messrs Brand Montague (South Harrow), appeared for the Respondent (Plaintiff).
This is an appeal by Mr Alastair Gibson, a chartered surveyor, against the order of His Honour Judge Harris, Q.C., dated 19th May 1989 in the Westminster County Court whereby judgment was entered for the plaintiff company, Swingcastle Limited, for the sum of £7, 136.41, together with interest and costs.
The appeal raises a question as to the correct measure of damages where money has been lent in reliance on the negligent valuation of property.
At the beginning of 1985 Mr and Mrs Clarke were living at 36 North Road, Audenshaw in Manchester. At that time the property was charged to a building society and also to a finance company, Cedar Holdings. Mr and Mrs Clarke wished to obtain a loan in order to repay the charges. They approached a firm of brokers, Richard Murtagh & Co. Murtagh instructed Mr Gibson to make a survey and to prepare a valuation. On 25th January 1985 Mr Gibson gave a written valuation of the property.
The valuation was addressed to "the lending principals of Richard Murtagh & Co". The valuation stated the accommodation at the property and gave other particulars, including the form of construction. Paragraph 4 (a) of the valuation was in these terms:
"Forced Sale Value for easy sale with vacant possession…£18, 000".
On 11th February 1985 Swingcastle, who carry on business as a finance company and are licensed under the Consumer Credit Act 1974, lent Mr and Mrs Clarke the sum of £10, 000. This loan was secured on the property. The loan was applied as to £1, 700 for the repayment of the moneys due to the building society, as to £6, 300 for the repayment of moneys due to Cedar Holdings and as to £2, 000 to pay the fee of the brokers.
By the agreement dated 11th February 1985 between Mr and Mrs Clarke and Swingcastle it was provided that the repayment period for the loan would be ten years, that the total interest charged would be £23, 000, that the annual percentage rate would be 36.51%, but that in the event of any default the rate would be increased to 45.619%. It was further provided that there should be 120 instalments payable of £275 each, the first payment to be made on 11th March 1985 and thereafter on the 11th day of each month.
Mr and Mrs Clarke fell into arrears with their repayments almost at once. On 11th April 1985 they failed to pay the instalment due on that date and thereafter interest became payable at the higher rate of 45.619%. On 29th June 1985 Swingcastle issued proceedings for possession and on 22nd October 1985 they obtained a suspended order for possession.
On 30th June 1986 Mr and Mrs Clarke gave up possession of the property which was then placed on the market for sale.
In February 1987 Swingcastle sold the property to a third party for £12, 000.
It is now common ground that at the date of the sale of the property in February 1987 the following sums were due from Mr and Mrs Clarke to Swingcastle:
| Unpaid principal | £9, 474.59 |
| Unpaid interest | 7, 802.92 |
| Disbursements | 344.99 |
| Interest on disbursements | 129.31 |
| Selling agents' commission | 401.35 |
| Legal costs relating to sale | 983.25 |
| Total | £19, 136.41 |
| Less | 1 2, 000.00 |
| 7, 136.41 |
It is also now common ground:
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(a) That the valuation made by Mr Gibson was made negligently.
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(b) That had Swingcastle known that the property would only realise £12, 000 on re-sale they would not have made any loan to Mr and Mrs Clarke on the security of the property. It is the policy of Swingcastle not to make loans on properties of a forced sale value of less than £15, 000.
On 4th September 1987 Swingcastle issued a writ endorsed with a statement of claim against Mr Gibson claiming damages. The statement of claim was subsequently amended, but these amendments are of no importance for the purposes of this appeal.
In due course the action was transferred to the Westminster County Court where it was tried by His Honour Judge Harris, Q.C. At the trial the sum claimed by Swingcastle was £9, 297.56. This sum included a sum of £2, 161.15 claimed by Swingcastle as redemption interest. The judge, however, disallowed the claim for redemption interest on the basis that this interest was not owing on 27th February 1987 when the property was sold. He gave judgment, however, for £7, 136.41, being the balance of the sum claimed by Swingcastle. This sum is made up in the way which I have already set out and represents the sum which was due from Mr and Mrs Clarke to Swingcastle on 27th February 1987, the date of the sale.
The judge was referred, as we were, to a number of authorities, including in particular Baxter v. F.W. Gapp & Co. Ltd. [1938] 4 All ER 457; [1939] 2 K.B. 271 CA, and London and South of England Building Society v. Stone [1983] 1 W.L.R. 1242.
In Baxter v. Gapp (supra) the defendants, a firm of estate agents, valued a property in Maidenhead for the purpose of an advance by way of mortgage. The valuation was £1, 800. The defendants advised an advance of £1, 200 upon first mortgage and subsequently advised an advance of £150 on second mortgage. After a short time, however, the mortgagor made default and in April 1937 Mr Baxter, the mortgagee, re-took possession. He had some difficulty in selling the property which was finally sold for £850. He then brought an action against the estate agents claiming damages.
At the trial before Goddard L.J., sitting as an additional judge, it was the case for Mr Baxter that had a careful valuation been made the property would have been valued at a considerably lower sum. In that event he would not have entered the first mortgage transaction. He left open the question whether he might have advanced £800 or £1, 000. The judge made no finding as to the actual value of the property, considering that it was unnecessary for him to do so, but was clearly satisfied that there had been a serious over-valuation and that Mr Baxter would not have entered into this transaction had the property been valued carefully.
Having decided the issue of liability in favour of the plaintiff, the judge turned to consider the question of damages. He came to the conclusion that the plaintiff was entitled to recover the whole loss which he had suffered as a result of entering into the transaction. He was therefore held to be entitled to recover not only the expenses which he had incurred following the repossession, namely, the expenses of abortive sales, insurance premiums paid, the builder's account for the upkeep of the property, and his expenses and disbursements in connection with the ultimate sale, but also the principal sum which he had advanced to the mortgagor and the interest which had not been paid by the mortgagor under the mortgage since the last payment in February 1986.
The defendants then appealed to the Court of Appeal where it was argued on their behalf that the damages should be limited to the difference between the valuation figure and the true value of the property at the time of the valuation. This argument was rejected, however, and the Court of Appeal approved the method of assessment adopted by Goddard L.J. At [1939] 2 K.B. 274 MacKinnon L.J. stated that "the measure of damages in such a case as the present is that which the plaintiff has lost by being led into a disastrous investment".
I come next to the decision of the Court of Appeal in London Building Society v. Stone (supra).
The facts in that case were unusual. The defendant valuer was instructed by a building society to inspect a house which the borrowers wished to purchase. The valuer recommended that the property would be a suitable security for a loan of £12, 800 repayable over 25 years. In reliance on this recommendation the building society lent £11, 880 to the borrowers, the size of the loan being limited by the policy of the building society not to lend more than 80% of the purchase price (£14, 800).
Soon after the transaction had been completed it was found that the house was subject to subsidence and that unless repairs were carried out part of the house would collapse. The borrowers approached the building society who agreed to repair the house, having warned the valuer that they proposed to take proceedings against him. The cost of the repairs, however, proved to be no less than £29, 000.
In the subsequent proceedings against the valuer the building society put forward their claim for damages in alternative ways. Their actual loss was £29, 000 because, although the borrowers had kept up their repayments under the mortgage and had repaid the original advance when the repaired house was sold, the building society had spent that sum on the repairs and had decided not to enforce the personal covenants in the mortgage to try to recover any part of this expenditure from the borrowers.
The judge decided, however, that it was unreasonable to have spent so much money on repairing the house. He assessed the damages by reference to the sum advanced (£11, 880) less a discount of £3, 000 to take account of the possibility that the building society, if they...
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