Helmsley Acceptances Ltd v Hampton

If a lender commissions a valuation report from a valuer before he makes a loan and then syndicates the loan by procuring a number of other lenders along with himself to provide the amount of the loan, and it turns out after the loan is made that the valuer is negligent and loss accrues, can the lender sue the valuer for the full amount of the loss, accounting proportionately to the syndicated members? It might be said that the answer is that the syndicated members should be joined to the proceedings, but, if the defendant valuer denies any liability directly to the members, the original question has to be faced. HHJ Langan, sitting in Leeds, has effectively held on an application for summary judgment by the valuer that the lender could only sue for that part of the loss for which he has ultimately suffered, and not the remainder. We have decided that this ought not to be decided without a trial, and so the less the court says about the facts of this case the better, since they will, or may be, in issue.

In early 2007 Mr Mike Moorhead, a director of the company Red Lion 80 Ltd (“RL80”), was negotiating with Mr Richard Couldwell, of the appellant bankers Helmsley Acceptance Ltd (“Helmsley”), for a loan on the security inter alia of a property on both the north and south sides of Irish Hill Road at Kintbury in Berkshire. It was necessary to obtain a valuation of that property, and Mr Hughes, of the respondents Lambert Smith Hampton Group Ltd (“LSH”), was awaiting formal instructions for this purpose. Mr Couldwell sent a letter of instruction to Mr Hughes on 30 January asking for a valuation of the property and saying:

“This company is in the business of granting mortgages, but it also ‘sells’ these mortgages to other interested parties. These parties assess the viability of such purchases on a number of factors, one of which is the valuation that the company has obtained.

Would you please confirm, by signing the included duplicate of this letter and returning it to us, that you have no objection to our disclosing your valuation to the potential purchasers of our mortgage and that those potential purchasers may rely on such valuation in the same way that we would.”

Mr Hughes did not in fact sign and return the duplicate letter, but got down to work and prepared his report. The formal report comprised of two pages of introductory material, nine pages describing the property and valuing it at £2.5 million or, if only nine months were available for disposal, £2.25 million and six appendices of 32 pages. On Monday 5 February 2007 Mr Hughes emailed the report to Helmsley without the appendices and posted the hard copy with the appendices, so as to arrive on Tuesday 6 February. The last two paragraphs of the body of the report above Mr Hughes’ signature read:

“LIMITATION OF LIABILITY / PUBLICATION

The Valuation Certificate/Report is provided for the stated purpose and for the sole use of the named client. It is confidential to the client and his professional advisers and the Valuer accepts no responsibility whatsoever to any other person.

Neither the whole or any part of this Valuation Report/Certificate nor any reference hereto may be included in any published documents, circular, or statement, or published in any way, without the Valuer's written approval of the form and content in which it may appear.”

Mr Couldwell alleges that on the afternoon of 5 February 2007 he telephoned Mr Hughes and had “a broad discussion about what Helmsley did with regards to syndicating the loan” and explained that “we and our investors had to be sure about the valuation.” Mr Hughes says he does not recall any such discussion. Helmsley made a formal offer of a loan of £1.25 million to RL80 on 1 March 2007. That offer was accepted and RL80 purchased the Kintbury property on 9 March 2007. That offer was accepted and RL80 purchased the Kintbury property on 9 March. Meanwhile arrangements for syndication of the loan to investors were being made. A typical deed made between Helmsley and Mr and Mrs Lamb was dated 9 March and used by the judge as the relevant example of the arrangements between Helmsley and their investors. It is called a deed of assignment of part £50,000 of a loan of £1.25 million. Mr and Mrs Lamb provided £50,000 towards the total amount of the loan, and in consideration of that payment Helmsley assigned that sum and the right to recover interest on it absolutely to Mr and Mrs Lamb. Helmsley further agreed to hold a proportionate part of the loan and the interest generated on it and the relevant securities on trust for Mr and Mrs Lamb.

The deed recited that Helmsley had instructed LSH to provide a valuation report, which was said to be attached to the deed. RL80 drew down the loan on 31 March; the date for repayment was 6 September 2007; RL80 defaulted on the loan; the property was sold for £264,069.97. There was thus a considerable shortfall said to be attributable to LSH’s breach of contract or duty. Helmsley have claimed the entire loss from LSH who have relied on the fact that, after syndication, Helmsley only lent £10,000 on their own account. They said that the rest of the loss cannot be recovered by Helmsley because it is a loss of the syndicate members. Helmsley replied 1) that their contract with LSH was made as agent on behalf of the syndicated members; or 2) that they (Helmsley) were trustees of the cause of action against LSH, which was intimately related to the securities of which they were express trustees; or 3) that they can rely on the “Albazero exception” to the general rule that a claimant can only recover his own loss, not loss suffered by others.

LSH applied for summary judgment against the claimants on the basis that none of these contentions were correct in law and HHJ Langan acceded to that application. There is now an appeal. Helmsley no longer pursue the agency argument and have joined the other members of the syndicate as co-claimants, but LSH deny any duty of care exists to them.

As matters stand, Helmsley would not be able to advance at trial the arguments about trust and the Albazero exception. The question is whether they should be entitled to advance those arguments as an alternative to the claim in tort now pursued by the syndicate members in their own right.

LSH’s position is not, in my view, an attractive one. For the purpose of their summary application the court has to assume that they have been negligent and may have caused a substantial loss. They maintain, however, that the Helmsley can recover no more than £10,000. Even that is in dispute, because LSH say that Helmsley earned a promoter’s fee of £25,000 which cancels out that loss. They say, further, that they are not liable to the syndicated members because they made no contract with them and there is no liability in tort either. The claim thus may be said, on one view of the case, to disappear down a “black hole”. But, as Rix LJ has recently said, the authorities in this area demonstrate the courts’ striving to ensure that wrongdoers do not escape from their liabilities, by reference to the general principle that a person can only recover for his own loss because of the happenstance that a cause of action lies in the hands of someone other than the person who has suffered the loss. The courts are concerned to see that justice is done between the parties (see Offer-Hoar v Larkstore [2006] 1WLR 2926, 2945(67)). This is not a promising starting point for the defendant’s application for summary judgment.

Mr Leech’s primary point for the valuers is that the investors are now all joined in the action. If they have a good cause of action to recover what he submits is their loss, there is no need for any action in the name of Helmsley. If, on the other hand, they cannot recover, whether because the court holds that there is no duty of care to syndicated members for whatever reason or because they cannot show, or are prohibited from showing, that they relied on the valuation, it would be quite wrong for Helmsley to recover what is their syndicated members loss by what he called the “the device” of holding Helmsley entitled to recover as trustee or by virtue of the Albazero exception, both of which devices only exist for the true black hole, where there is a loss which should be recoverable, but cannot be recovered by the party who suffers that loss because the law does not give him a cause of action to do so.

The argument proceeded in the court below on the assumption that Helmsley only suffered a loss of £10,000; but, as Briggs J pointed out in the course of the argument, that may be a false assumption. On the facts as I have set them out, Helmsley acquired the defective asset in that they became mortgagees of a property worth about one quarter of a million which had been professionally valued for £2.5 million. At the time they acquired that asset in March 2007 it was defective, and they, at any rate arguably, suffered the relevant loss. The fact that, at about the time they invited investors to participate, they made an assignment of part of the loan to those who participated in that loan, and constituted themselves trustees of the loan and the securities for the loan, should not, again arguably, make any difference to the proposition that they suffered that loss any more than to the proposition that a trustee of a family settlement suffers a loss to the trust estate and can sue for that loss, although the loss is ultimately suffered by the beneficiaries.

To this Mr Leech responded 1) that it had been conceded below that Helmsley had only suffered a loss of £10,000, and 2) that it was a breach of the contract between Helmsley and LSH for Helmsley to show the valuation report or reveal its contents to any investor other than Helmsley themselves. As to the first argument, I would not myself construe Helmsley’s concession as extending further than the extent to which they themselves were out of pocket. Even if it went any further than that, it is only a concession of law which can be withdrawn at any time before trial. As to the second argument, Mr Leech relied on the two clauses above the signature on the report, which I have already set out, and also, on the terms of engagement annexed to the report which had in due course arrived in the post at Helmsley’s offices. But Mr Leech had in his turn accepted below, obviously correctly, that what he called the “battle of forms point” about the precise terms of engagement could not be decided on an application for summary judgment.

That is sufficient, to my mind, to show that the claimants have an arguable claim which should be allowed to go to trial. But it seems to me also to be arguable that, even if the investors who are now joined in the action fail for any reason to recover damages in respect of what I now assume to be their loss, the loss can nevertheless be recoverable, either because Helmsley constituted themselves trustees of the securities and, by implication, the rights associated with the securities, as Rix LJ thought when giving permission to appeal, or because Helmsley can rely on the so-called Albazero exception. The judge thought that the trust argument went considerably further than the existing law and cited a passage from Chitty on Contracts on the difficulty of showing that a party to a contract can be a trustee of an exemption clause on behalf of a non-contractual party. The argument here is much narrower because it is accepted that there was a trust of the loan itself, interest on it and the securities. It does not go much further to say that it was implicit in that that the benefit of any chose in action, which exists to maintain the trust fund, should also be held in trust for those who suffered the relevant loss.

As to the Albazero exception, it is of course true that, to the extent that third parties who suffer the loss have a remedy of their own, the exception does not apply. The whole hypothesis of the present application is that the investor does not have any remedy. There is, of course, much to be said of Mr Leech’s argument that, if it is in law appropriate that there should be no remedy because, for example, the valuer has effectively disclaimed liabilities to third parties, the third party should not be able to benefit from the Albazero exception because that would be circumvent the legal position. But this is a developing and difficult area of the law and, in my view, inappropriate for summary judgment. The judgment of Phillips J in BBL v Eagle Star [1995] 2 All ER 769is distinguishable, because in that case a) the syndicated members became parties to the loan agreement by novation, and it was undoubtedly their loss that the primary bank was seeking to recover on their behalf, and b) the judge was moderately confident that they would have their own remedy against the valuer, presumably in tort. That is much more doubtful in this case. For these reasons I, for my part, would allow this appeal and allow the matter to go to trial.

I agree.

I also agree.