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|Judgments - Platform Home Loans Ltd. v. Oyston Shipways Ltd. and Others
Lord Hobhouse of Wood-borough Lord Millett
LORD LLOYD OF BERWICK
I have had the advantage of reading in draft the speeches prepared by my noble and learned friends, Lord Hobhouse of Woodborough and Lord Millett. For the reasons which they have given I would allow the appeal.
LORD COOKE OF THORNDON
The scheme of the Law Reform (Contributory Negligence) Act 1945 is that where damage has been caused by fault on the part of both defendant and plaintiff, the court may in its discretion apportion responsibility between them. The Act was passed to overcome the common law principle that a plaintiff who has contributed to his damage by his own fault was totally debarred from recovering damages from a defendant whose fault had also contributed. It was no part of the purpose of the Act to impose any liability on a defendant whose fault had not contributed to the plaintiff's damage. It is in these commonplaces that, as I see it, the answer to the present case is readily to be found.
Section 1(1) of the Act states its basic provision as just summarised and is complemented by section 1(2) whereby, when damages are recoverable subject to reduction by virtue of the first subsection, the court is required to find and record the total damages which would have been recoverable if the claimant had not been at fault. In full the material part of section 1(1) reads:
A relatively early and well-known authority on the Act is Drinkwater v. Kimber  2 Q.B. 281. The female plaintiff had been injured in a collision caused by the concurrent negligence of her husband and the defendant. As the law then stood the wife would not have succeeded in a negligence action against her husband, so the defendant could not recover under the Law Reform (Married Women and Tortfeasors) Act 1935 any contribution to the damages awarded against the defendant to the wife. To overcome this difficulty, by a counter claim against the husband the defendant sought contribution under the Act of 1945. It was held that the defendant could not recover under the Act of 1945, because that Act gave the defendant no claim against the husband in respect of the wife's injuries and the defendant's liability to the wife was not "damage" suffered by him within the meaning of section 1(1). Morris L.J. said at pp. 292-294 that the Act did not give the defendant a cause of action against the husband; it did not purport to create any new variety of claim; it seemed clear that the word "damage" referred to that which was suffered and for which a "claim" might be made and for which "damages" are recoverable. Both he and Singleton L.J. at pp. 294 and 290 respectively, pointed out that, if the section applied, the court would have to record the total damages which would have been recoverable by the defendant from the husband if the defendant had not been at fault. If the defendant had not been negligent the total damages recoverable would have been nil. As Morris L.J. put it, to award £135, being the contribution claimed from the husband, would have been "a strange phenomenon of contraction."
Similarly in his Joint Torts and Contributory Negligence (1951) Glanville Williams said at p. 118 that in short the word "damage" in section 1(1) "comprises any item of loss that would have been recoverable as damages at common law apart from the claimant's own fault." He repeated the proposition at p. 317.
The present case calls for the application of these familiar provisions to a claim by a lender against a valuer who has negligently overvalued the property taken as a security as a result of the valuation. The lender and the borrower agreed in September 1990 on a loan of £1,050,195 secured by a first registered charge on the property. In 1993 the borrower fell into difficulties in making repayments. The lender sold the property on 12 February 1994 for £435,000. A bankruptcy order was subsequently made against the borrower; apparently his covenant was worthless except to the extent that he had in fact made payments to the lender. After allowing for the payments made by the borrower and £40,000 for certain failures by the lender to mitigate its loss, it is accepted that the lender's overall loss in the transaction was in round figures £611,748. On the facts of this case, that is the loss proved by what Lord Nicholls of Birkenhead calls "the basic comparison": Nykredit Mortgage Bank Plc. v. Edward Erdman Group Ltd. (No. 2)  1 W.L.R. 1627, 1631H.
Although in a sense that full loss was caused by the negligent overvaluation, it is now established in English law, by the decision of your Lordships' House in South Australia Asset Management Corporation v. York Montague Ltd.  A.C. 191, confirmed and applied by the House in Nykredit (supra), that a negligent valuer is not necessarily liable for the whole of the loss in such circumstances. The correct approach has been held to be to ascertain what element of loss suffered as a result of the transaction was attributable to the inaccuracy of the information supplied by the valuer. For this purpose the valuation negligently provided is to be compared with the figure which a reasonable valuer, using the information available at the relevant time, would have put forward as its most likely open market value. Thus the valuer may escape liability for a subsequent fall in market values. Typically, as Lord Nicholls of Birkenhead says in Nykredit at p. 1632A, the valuer's liability is limited to the extent of the overvaluation.
The architect of this development of English law has been Lord Hoffmann. For an authoritative explanation of it, one can do no better than quote a substantial passage from his speech in Nykredit at pp. 1638-1639:
The decision of this House in the case known variously as South Australia Asset Management or SAAMCO has been controversial. In the Federal Court of Australia it was not followed by Lindgren J. in MGICA (1992) Ltd. v. Kenny & Good Pty Ltd. (1996) 140 A.L.R. 313, 362-374. It was criticised in a note by Professor Stapleton in (1997) 113 L.Q.R. 1. But before the Appellate Committee in the present case counsel for the lender took the position that he could not seek to persuade your Lordships to depart from it, and it is on that footing that the case must be approached.
The relevant facts as to overvaluation and contributory negligence are simple enough. The respondent valuer valued the property at £1.5m. The trial judge, Jacob J., found that the true market value at the time (which was treated as the figure at which a reasonable valuer would have arrived) was £1m. But the loan was for as much as £1,050,195, being 70 per cent. of the valuation. Further the lender had not required the borrower to answer the question in the lender's application form "Purchase price £ . If already owned, please state date of purchase: ." In fact the borrower had purchased the property two years earlier, in dilapidated condition, for £375,000. The judge found that the cumulative effect of lending as high a percentage and not insisting on being informed of the earlier purchase price was that the lender was contributorily negligent to the extent of 20 per cent. of responsibility for the damage "across the board." By that I understand him to have found that whatever damages would be recoverable otherwise by the lender from the valuer were to be reduced by 20 per cent; the appeal to your Lordships' House was argued on the basis that such was his finding.
On these facts and applying the principles already stated, the short answer to the case appears to me to be that, by English law as declared in SAAMCO and Nykredit, apart any question of contributory negligence, the valuer is not liable to the lender for the full loss of £611,748 but only for £500,000, being the difference between the negligent valuation of £1.5m. and the figure which a reasonably careful valuation would have produced, £1m. That £500,000 is the damage suffered as the result partly of the lender's fault and partly of the valuer's fault. On the recent authorities the balance of the loss, £111,748 was not suffered, even in part, as a result of the valuer's fault, because of the limited way in which this House has defined the valuer's duty of care. In other words, the balance of the loss was not "damage" within the meaning of section 1(1) of the Act of 1945 and does not fall to be apportioned. As in Drinkwater v. Kimber, this is brought out very clearly when section 1(2) is considered. If the whole £611,748 were apportionable, the court would have to record that amount as the total damages which would have been recoverable if the claimant had not been at fault. But to say as much would be flatly contrary to SAAMCO and Nykredit.
The damages to be reduced are therefore £500,000, so the amount for which it is just and equitable that the lender should have judgment is £400,000 together with appropriate interest. This is the figure arrived at by the Court of Appeal, albeit by a more complicated route including some steps with which I am unable to agree. It would not conduce to simplicity to lengthen this speech by embarking on an analysis of a line of reasoning which I am not adopting.
As to the result, regrettably I differ from my noble and learned friends, Lord Hobhouse of Woodborough and Lord Millett, whose speeches I have had the advantage of reading in draft. I hope that my reasons sufficiently appear from what I have already said. Perhaps it should be repeated, however, that in my view the "damage" referred to four times in section 1(1) of the Act of 1945 is the damage for which, but for the Act, the claimant's action would be defeated by reason of his own fault: it does not extend to damage for which his claim would be defeated by reason of a limit upon the other person's duty of care. The Act of 1945 does not enlarge the scope of a defendant's duty of care. If any anomalies or inequities be thought to arise from approaching the present case in this way, they will be attributable to the limit of a valuer's duty of care, and consequent liability, imposed by your Lordships' House in SAAMCO and Nykredit, decisions which your Lordships were not asked to reconsider on this occasion.
For these reasons I would dismiss the appeal.
LORD HOPE OF CRAIGHEAD
I have had the advantage of reading in draft the speeches which have been prepared by my noble and learned friends, Lord Hobhouse of Woodborough and Lord Millett. I agree with them, and for the reasons which they have given I also would allow the appeal.
LORD HOBHOUSE OF WOODBOROUGH
Section 1(1) of the Law Reform (Contributory Negligence) Act 1945 provides:
The question raised by this appeal concerns the application of that provision to cases of professional negligence in the context of the principles laid down by your Lordship's House in the Banque Bruxelles litigation, reported under the name South Australia Asset Management Corporation v. York Montague Ltd.  A.C. 191 (apparently known to the legal profession by the acronym SAAMCO), and Nykredit Mortgage Bank Plc. v. Edward Erdman (No. 2)  1 W.L.R. 1627.
Typically the plaintiff is a mortgage lender and the defendant is a surveyor or valuer who has advised the plaintiff upon the value of a property which is to be taken as security for a loan to a borrower. If the property has been negligently overvalued that may affect the conduct of the lender. Often, without the overvaluation, no loan would have been made to the borrower or, if there were a loan, it would have been smaller and on different terms. Later, if the borrower defaults, the property quite probably will be an inadequate security for the obligations of the borrower. The inadequacy of the security may meanwhile have been exacerbated by falls in the market. Thus the loss eventually suffered by the lender may be attributable not only to the original negligence of the valuer but also to the subsequent fall in market values. Whether this situation should qualify the right of the lender to recover his loss in full from the valuer was the subject of the SAAMCO case.
The present case injects an additional factor, contributory negligence on the part of the lender. There has been a wide divergence of judicial opinion on the significance of this point. In the present case there was a difference of opinion between the trial judge, Jacob J., and the Court of Appeal. In his judgment in the Court of Appeal (agreed to by Thorpe and Potter L.JJ.) reported at  Ch. 466, Morritt L.J. refers to the division of opinion amongst first instance judges (p. 474). Your Lordships have not been referred to those cases, some of which are not reported, as it is recognised that the answer to the present appeal must be found in a proper understanding of the speeches in the SAAMCO and Nykredit cases in conjunction with a proper application of section 1(1) of the Act of 1945.
In the Nykredit case, Lord Nicholls of Birkenhead summarised the effect of the SAAMCO decision at pp. 1631-1632:
Thus, the first step is to establish what was the basic loss of the lender. The second step is to see whether that basic loss exceeds the amount of the overvaluation and, if it does, the lender's right of recovery from the valuer is limited to the extent of the overvaluation. The issue in the present case is whether the reduction in the plaintiffs' damages on account of their contributory negligence, here as usual expressed as a percentage, should have been applied to the plaintiffs' basic loss or to their loss as limited by the application of the SAAMCO principle (Lord Nicholls's second step). It will be appreciated that in all cases where the SAAMCO principle is applicable because the plaintiffs' basic loss exceeds the amount of the defendants' overvaluation, the point is not academic and may have substantial financial consequences. In the present case Jacob J. found that there was 20 per cent. contributory negligence but held (because of the way he allocated interest) that it did not affect the outcome of the SAAMCO calculation. The Court of Appeal held that the SAAMCO calculation must be done first and the plaintiffs' recoverable damages then be reduced by a further 20 per cent.
The plaintiffs in the present action, the appellants in your Lordship's House, are Platform Home Loans Ltd. Their business was to advance money upon the mortgage of real property. In 1990, in common with a number of other lenders, they were operating a system of "non status" loans. As described by the judge, the general idea was to lend against the security of the subject property alone without making any substantial investigations into the status of the borrower. The theory was that provided one did not lend too high a proportion of the value then the loan would be recoverable out of the proceeds of sale even if the borrower defaulted. Thus, given enough of a "cushion", (i.e. a low enough loan to value ratio, "LTV"), the ability of the borrower to service the loan was not treated as significant as compared with the standard mortgage. If the borrower paid, then the lender would make his profit. If he did not, then the lender would get his money back, including interest and expenses, by repossession and sale.
In June 1990 a Mr. Hussain proposed to the plaintiffs a remortgage transaction for his home at 9 Carpenter Road, Edgbaston, Birmingham. He had exhausted the limit of what his existing mortgagees were prepared to lend him and therefore he approached the plaintiffs with a view to obtaining from them a loan of sufficient size not only to pay off his existing mortgage but leave him a worthwhile surplus on top so as to justify the new transaction. Mr. Hussain said that his property was worth £1.5m. The normal percentage which the plaintiffs were prepared to lend on a non status loan was 70 per cent. of the value of the property. A loan £1,050,000. was sufficient for this purpose and he asked the plaintiffs to lend him that sum.
It was the practice of the plaintiffs, where non status loans were proposed, to obtain independently from two valuers separate valuations of the relevant property. The defendants in the action were the two firms of valuers instructed by the plaintiffs to give them valuations. Each of the defendants valued the property at 9 Carpenter Road at £1.5m. The judge held that these valuations were negligent and that the true value of the property at the relevant time in August 1990 was £1m. only. If they had valued the property at £1m., the maximum amount which the plaintiffs would have lent to Mr. Hussain would have been £700,000. The judge found that Mr. Hussain would not have proceeded with the transaction if the plaintiffs had only been prepared to lend him £700,000. He therefore held that it was what is called a 'no transaction' case: the result of the defendants' negligence was that the plaintiffs entered into a transaction which the plaintiffs would not otherwise have entered into.
On 12 October 1990 the transaction was completed. The plaintiffs advanced to Mr. Hussain a sum totalling £1,050,195 secured by a first registered charge over the property. The liability of Mr. Hussain under the loan contract was to make periodic payments of interest. He had difficulty in making these payments and by early 1993 had fallen seriously into arrear. The plaintiffs commenced proceedings against Mr. Hussain and, having obtained possession, exercised their power of sale in February 1994. The price obtained was £435,000. The issues at the trial included factual issues of the assessment of the plaintiffs' loss. The figures which the judge found were set out in a schedule. They correspond to Lord Nicholls's basic loss. The plaintiffs had borrowed money on the market in order to finance their loan to Mr. Hussain. They therefore included in their computation the cost to them of borrowing this money and set off against it the aggregate of the interest payments which Mr. Hussain had in fact made between 1990 and 1993. On the debit side of the account, the sum of the loan made (£1,050,000) plus interest expended and costs came to £1,419, 073. On the credit side, the payments made by Mr. Hussain and the net proceeds of the sale of the property, came to £651,748. The judge, for reasons which it is not necessary to elaborate and which are not now challenged, held that the plaintiffs had failed adequately to mitigate their loss and that, if they had taken the proper steps in mitigation, their loss would have been reduced by £40,000. Accordingly he arrived at the figure of £611,748.51 to represent the plaintiffs' basic loss through having entered into the transaction. This appeal has been argued upon the basis, agreed to by both sides, that this figure is the plaintiffs' basic loss.
On the judge's finding, the overvaluation of the property by the defendants amounted to £500,000. Applying the SAAMCO principle, the plaintiffs' recoverable damages fall to be reduced to £500,000. The judge made a finding of 20 per cent. contributory negligence. The basic loss less 20 per cent. is £489,398.81, i.e. less than £500,000. But, £500,000 less 20 per cent. is £400,000. The Court of Appeal held that the plaintiffs' damages should be reduced pursuant to the Act of 1945 to £400,000. It is against that decision that the plaintiffs have appealed.
It is necessary to refer to two things which went wrong at the trial. The first was the treatment of contributory negligence by the judge. Instead of making his findings in what might be regarded as a logical order, starting with the allegations of negligence against the defendants and the question of causation, he started with the issues of contributory negligence. He found that want of reasonable care on the part of the plaintiffs was proved in two respects. The first was that Mr. Hussain had not fully filled in his application form and had failed to say how much he had purchased the property for. He had in fact purchased it two years previously in a dilapidated condition for £375,000. The judge held that plaintiffs ought to have followed up the omission and that the disclosure of the purchase price would have put them on inquiry as to the value of the property in 1990. The second aspect involved the criticism of the plaintiffs' policy of lending 70 per cent. of the value of the property. The judge found that this was an unreasonably incautious approach where high values were involved. He made no finding as to what would have been a reasonable percentage.
Thus, the judge did not make complete findings as to the seriousness of the faults of the plaintiffs nor did he make findings which identified properly their causative relevance. This deficiency is most easily appreciated in relation to the lending policy point. Suppose the judge's view was that two thirds would have been a prudent lending policy in the circumstances, the causative effect of the difference between advancing 70 per cent. and advancing two thirds would have been capable of further elucidation and could have been expressed in money terms. Instead the judge, who at this stage of his judgment had yet to consider what, if any, findings of fault he was going to make against the defendants and what findings of causation he was going to make, contented himself with saying:
The problems which this approach creates for the proper application of section 1 of the Act of 1945, if not already obvious, will become apparent from what I say later in this speech.
The second aspect where the trial went wrong was in the treatment of interest. The judge in a way which the plaintiffs did not seek to defend in the Court of Appeal or before your Lordships, engaged in an exercise of adding interest to the plaintiffs' basic loss and to the SAAMCO figure. He apparently did this for the purpose of seeing whether or not there was a SAAMCO limit applicable to the plaintiffs' claim. The result of his exercise was that there was not and he therefore arrived at a figure which corresponded to the plaintiffs' basic loss less 20 per cent (the £489,398.81 figure).
A further complication then arose with regard to the award of statutory interest. At the time that Jacob J. gave his judgment the decision in your Lordships' House in the Nykredit case had not been delivered. That decision required a different approach to the calculation of interest to that adopted by the judge. Therefore, when the case got to the Court of Appeal, it was agreed that a remission was necessary in order to correct this error. We are not concerned with that aspect on this appeal and I need say no more about it.
The Court of Appeal:
The position in the Court of Appeal was complicated by the fact that both sides appealed. Leaving on one side the interest point to which I have just referred, the plaintiffs appealed contending that, on a proper construction of the Act of 1945, the contributory negligence should have been left out of the account altogether or, if it was to be taken into account, it should have been confined to a percentage, say 5 per cent., which the plaintiffs suggested was an appropriate figure in respect of the application form point. They submitted that the lending policy point was irrelevant since it arose from matters outside the scope of the duty owed by the valuers to the plaintiffs: since the plaintiffs could only recover in respect of that part of their loss which fell within the scope of the defendants' duty of care, that is to say within the limit of the £500,000 overvaluation, the relevant damage for the purposes of section 1 of the Act of 1945 did not extend so as to make such fault on the part of the plaintiffs relevant.
A major part of the judgment of Morritt L.J. is taken up with discussing and rejecting this argument. He accepted the submission of the defendants that the use in the subsection of the word "damage" on four occasions must be distinguished from and contrasted with the reference to "damages" in that part of the subsection which provides for their reduction. Jacob J. had accepted this argument and so did Morritt L.J. It was effectively covered by a number of previous Court of Appeal decisions, in particular that in Froom v. Butcher  Q.B. 286. That case concerned the question of what reduction if any should be made to a plaintiff's damages whose injuries had been caused not only by the defendant's negligent driving but also by the failure of the plaintiff to wear a seat belt. It had been submitted that, since the defendant was not responsible for the failure of the plaintiff to wear a seat belt, the question should be looked at purely as a matter of causation not as a matter of contributory negligence. Lord Denning M.R. pointed out that the section was not drafted by reference to some incident, such as an accident or a collision, but rather by reference to the damage suffered by the plaintiff. He said, at p. 292:
Morritt L.J. also rejected the plaintiffs' submission based upon a sub-division of the plaintiffs' loss so as to purport to identify some distinct part of it which was solely caused by the plaintiffs' lending policy and not by the defendants' fault. On this argument, the "contributory negligence" (say, 15 per cent.) attributable to this part of the plaintiffs' loss would also be excluded and the corresponding reduction of the plaintiffs' SAAMCO damages likewise avoided. The difficulty with this submission was that both Lord Hoffmann and Lord Nicholls in SAAMCO and Nykredit recognised and affirmed that the whole of the plaintiffs' loss was caused by the defendants' fault. The plaintiffs' appeal was dismissed.
The reason why the Court of Appeal awarded to the plaintiffs a lower sum than that awarded by Jacob J. was that the Court of Appeal allowed the appeal of the defendants that the 20 per cent. reduction should be applied to the reduced sum of damages which the plaintiffs could recover after taking into account the SAAMCO principle. The judgment of Morritt L.J. does not separately address this point and it only emerges in a later section of his judgment, dealing primarily with the question of interest, that he considers that the sum upon which interest should be calculated is £400,000 not £500,000. He says that in order to ascertain the date from which statutory interest should be calculated in accordance with the Nykredit decision, it is necessary to ascertain "when the loss to the lender reaches the limit of the valuers liability" he continues, at p. 480:
It would appear that Morritt L.J. considered that this conclusion followed from his earlier decision upon the correct construction of the Act of 1945.
The Appeal to Your Lordships' House:
The plaintiffs have appealed. They put their case in three ways. The first is that the contributory negligence is wholly irrelevant where a limitation is being imposed under the SAAMCO principle. Secondly they submit that, if it is relevant, it should be confined to the "application form" point, to which they would give a significance of 5 per cent. at most, and that therefore their recoverable damages should be assessed at £475,000. A third way in which they put their case is that, if the whole of the contributory negligence is to be taken into account against them, the appropriate figure is the £489,398 awarded by the judge, the contributory negligence being deducted before applying the SAAMCO cap.
The first and second ways of putting their case deploy the same arguments as were fully discussed in the Court of Appeal. I consider that the Court of Appeal was right to reject them: they misconstrue the Act of 1945 and fail fully to reflect the decision of the House of Lords decision in the SAAMCO case. The point which requires consideration is their third point. For this purpose it will be necessary to look more closely at the SAAMCO principle and how it affects the application of the Act of 1945. Once this exercise has been undertaken, it will, in my judgment, provide the answer to the dispute between the parties to this appeal. The respondents to this appeal submit that the £400,000 figure should be upheld.