The Governor and Company of the Bank of Ireland v Faithful & Gould Ltd CBRE Ltd (Third Party/Part 20 Defendant)
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Edwards-Stuart |
| Judgment Date | 10 July 2014 |
| Neutral Citation | [2014] EWHC 2217 (TCC) |
| Docket Number | Case No: HT-12357 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 10 July 2014 |
[2014] EWHC 2217 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
London EC4A 1NL
Mr. Justice Edwards-Stuart
Case No: HT-12357
Sean Brannigan Esq, QC andMrs. Jennie Gillies (instructed by Watson Burton LLP) for the Defendant
Simon King Esq (instructed by Clyde & Co LLP) for the Third Party
Hearing dates: 1 st– 3 rd April 2014; 8 th and 9 th April 2014; and 13 th June 2014
Additional written submissions: 16 th May 2014; 20 th May 2014; 10 th June 2014; and 11 th June 2014
Introduction
In 2008 the Claimant ("the Bank") lost over £8 million when a developer to whom it had lent money to build a tower block in Manchester containing 130 residential apartments went into administration. It sued the Defendant ("F&G"), the project monitor that it had engaged to advise it in relation to the development. F&G joined the Third Party ("CBRE"), whom the Bank had engaged to value the property as security for its loan.
In January 2014 F&G paid the Bank £3.35 million plus costs in settlement of its claim. This is F&G's claim for contribution under the Civil Liability (Contribution) Act 1978 ("the Act") against CBRE in respect of its liability to the Bank.
F&G is a quantity surveying and project management practice. CBRE is a firm of surveyors who advise on commercial property. Both were engaged by the Bank to give advice or provide services in relation to the financing of the development, which was known as the "Sarah Tower Development". The developer of the Sarah Tower Development was a special purpose vehicle called Issa Developments Ltd ("Issa Ltd" or "the borrower"). Issa Ltd was wholly controlled by Mr. Bashir Issa, who was also undertaking other developments in Manchester at the time.
CBRE denied liability on a number of grounds. First, it said that its valuation of the gross development value ("GDV"), although (as it later accepted) not carried out with reasonable care, was within the appropriate bracket for a valuation of this sort. Second, it denied that any damage sustained by the Bank as a result of its advice was the "same damage" within the meaning of the Act as that caused to the Bank by F&G. Third, it denied that the Bank had relied on its valuation of the market value of the site and, so far as its valuation of the GDV was concerned, it contended that the loss sustained by the Bank was not a loss that fell within the scope of CBRE's duty when valuing the GDV (this is what is known as a SAAMCO defence 1).
The first defence was abandoned in the course of the trial when CBRE's expert revised his opinion about the correct value of the GDV. The second defence was rejected by me in a ruling that I gave on the third day of the trial following the opening submissions. The second part of the third defence was upheld by me in the same ruling.
So as far as primary liability is concerned, therefore, the only live issues addressed in this judgment are those of reliance and causation in relation to CBRE's valuation of the market value of the site. The other issues in this judgment concern questions of contributory negligence by the Bank and apportionment under the Act.
The facts in outline
The Bank initially lent Issa Ltd about £4.4 million in June 2005 in order to finance the purchase of the site. Prior to agreeing to make this loan the Bank had been advised by F&G, who had carried out a review of the cost information provided by Mr. Issa, and
by Drivers Jonas, who had provided a valuation of the market value of the site with the benefit of planning permission in March 2005. The amount of this valuation was £6.3 million. Initially, in December 2003, Drivers Jonas had valued the site at £6.9 million. They later revised this valuation downwards to £6.3 million and, as a result, the Bank reduced the amount that it was prepared to lend Issa Ltd to enable it to buy the site.Two months later the Bank agreed in principle to lend Issa Ltd a further £8.715 million towards the costs of the development, making £13.115 million in all. This was agreed in the light of advice already given by Drivers Jonas in the March 2005 report that the GDV of the project was £31 million. Of this sum, £28.4 million represented the estimated sales of the apartments; the balance was made up of the value of retail units on the ground floor and car parking spaces in the basement, together with other items such as the value of the ground rents.
F&G was formally appointed to carry out a development appraisal and project monitoring services by a letter dated 10 August 2005. However, although F&G produced its report in November 2005, at this stage the loan for the development costs did not go ahead.
Work on the development began in about late 2005, although at that stage it was being funded solely by Mr. Issa. Mr. Issa told the Bank that he came from a wealthy family which had steel interests in Abu Dhabi. His ability to start and carry out a substantial amount of the work without a loan must have reinforced this impression.
By the end of the year the Bank's solicitors were still chasing documents such as the deeds of appointment of the professional team from Mr. Issa's solicitors. In March 2006 the Bank asked F&G to provide an updated report. By this time F&G was checking invoices but had not started to issue monthly monitoring reports.
On 3 October 2006 CBRE was retained as the Bank's appointed valuer in place of Drivers Jonas 2. It was instructed to produce a report providing, amongst other things, an assessment of the GDV of the project and a valuation of the open market value of the site as at the date of its valuation.
The discussions for the development loan were revived in late 2006. It had been a condition of the original offer of the development loan that the Bank's appointed valuer, Drivers Jonas, would confirm its valuation of the GDV and would provide a valuation of the site once the substructure and underground car park was complete. There was also a condition that F&G would carry out a full feasibility report on the site development costs.
CBRE prepared a development appraisal and gave the Bank its figures for the valuation of the GDV and the market value of the site on 7 December 2006. For some reason it had not been instructed to carry out a valuation of the site once the substructure and car park was complete. Its assessment of the GDV was about £34 million and their valuation of the site was £8.9 million. Shortly afterwards the Bank received a copy of CBRE's development appraisal, which explained how its valuations had been arrived at.
In the light of this the Bank confirmed its earlier decision in principle to advance a further £8.715 million (including rolled up interest), making a total loan of £13.115 million in all, on 18 December 2006. On 21 December 2006 the Bank advanced £891,793 to Issa Ltd by way of a first drawdown on the facility. Many other payments followed.
Unfortunately, it all went wrong. Mr. Issa turned out to be a rogue, and Issa Ltd's contractor, BS Construction Ltd ("BSC") went into administration in May 2008. Following a demand for about £14.25 million by the Bank, Issa Ltd went into administration in July 2008. The Bank failed to recover over £8 million of the money that it had advanced to Issa Ltd towards the costs of the development.
In its claim against F&G the Bank alleged that F&G had advised it in December 2006 that Issa Ltd had provided materials for the development which were stored off-site within the UK to the value of about £4.5 million when no such materials existed, or at least not to anything like that value.
As I have already mentioned, in January 2014 F&G agreed to settle the Bank's claim for £3.35 million plus its reasonable costs. This settlement was made without any admission of liability, and at a time when F&G had already made a claim for contribution against CBRE.
In the claim against CBRE it was alleged that its valuations of the GDV and of the market value of the site (which was derived from the GDV) were negligent, with the result that the value of the Bank's security was far less than it had been led to believe. Since CBRE also owed a duty to the Bank, F&G submitted that CBRE was liable for the "same damage" within the meaning of section 1(1) of the Act as that for which F&G must be taken to have been liable (there is no dispute that it would have been liable if the facts alleged against it were true).
The procedural course of the hearing
It was apparent from the written opening submissions of the parties that CBRE was raising a threshold point that it was not liable for the "same damage" as F&G. If that contention was correct, F&G's claim for contribution under the Act would fail.
Early on during the parties' opening submissions it was proposed that I should decide this point following the conclusion of those submissions, since the relevant facts were not in dispute. I agreed to do this, but only on the basis that it could be done without undue disruption to the progress of the hearing should the issue be decided against CBRE.
Having heard the parties' submissions during the first two days of the hearing, the first witness of fact was called in the afternoon of the second day and the evidence continued for the whole of the third day. At the conclusion of the evidence of Mr Huggett, at about 12:45 pm on Thursday, 3 April 2014, I gave my ruling on the issue of principle raised by CBRE, together with other issues that had been explored in the opening submissions. This ruling was by way of a series of numbered...
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