Scullion v Bank of Scotland Plc (t/a Colleys)

In my first judgment I held that having regard to appropriate comparables a careful and competent valuer would have valued the propeny at €300,000 with a permissible "bracket" of between €270,000 and €330,000. I also held that if he had sought information from local letting agents, a careful and competent valuer would have advised that Flat 17 could only be expected to achieve a rental of about El, 100 per calendar month. with an upper limit to the bracket of about E 1,350 pcm. I found that Colleys had acted negligently in over-stating both the capital value of the flat and the expected rental income.

Thereafter Mr. Scullion sought to sell the flat. Although he had some interest from a prospective purchaser at a price of €322,500 in August 2004, that interest fell away when it was discovered that Mr. Scullion's solicitors had not properly registered the title. In the end, Mr. Scullion managed to sell the flat in May 2006 for €270,000 and Mr. Scullion paid the mortgage lender about 260,000 on I June 2006. In my earlier judgment I stated that this left a balance outstanding to Mortgages plc of €61,932.15 as at I June 2006. In fact, a more up-to-date mortgage statement which was provided to me by Mr. Scullion after oral argument on quantum had been concluded. shows that he was refunded an early repayment charge a few days later. On this basis. the true balance outstanding from Mr. Scullion to Mortgages plc after sale of the flat was €59,795.37.

As I shall explain later in this judgment, the amounts which Mr. Scullion has paid under his mortgage have been increased by various administration charges and other fees which Mortgages plc levied on Mr. Scullion after he encountered difficulties meeting the interest payments due and in respect of the outstanding balance since June 2006. The most recent statement from Mortgages plc shows that the amount owing has been increased by the addition of numerous items of legal fees so as to amount to E 70,863.16 as at 24 May 2010.

Mr. Noble argued that Mr. Scullion was entitled to damages to reflect the two respects in which Colleys had been negligent — namely the inaccurate capital valuation and the inaccurate rental valuation.

(n his initial written submissions, Mr. Noble also suggested that Mr. Scullion should recover the valuer's fee charged by Colleys and interest which Mr. Scullion had had to pay as a result of the late completion of the purchase, but he accepted in argument that neither of those amounts were recoverable, because they were not losses caused by the deficiencies in the valuation. He also accepted that €10,000 paid under Mr. Scullion's contract with POD were not attributable to Colleys' negligence and hence were not recoverable.

Lord Hoffmann noted that the approach adopted by the Court of Appeal would offend common sense because, in his example of the doctor and the mountaineer, it would result in the doctor being responsible for consequences which- though in general terms foreseeable. did not appear to have a sufficient causal connection with the subject matter of the doctor's duty. Lord Hoffmann then summarised the general principle at page 214C-F,

In the instant case, I held in my earlier judgment that Colleys were under a duty to Mr. Scullion in tort to take care to provide an accurate valuation of the open market value and the attainable rental value of Flat 17. Though not directly engaged by Mr. Scullion. Colleys knew that Mr. Scullion was a buy-to-let purchaser and they knew or ought to have known that he would be relying upon both aspects of their valuation to decide whether or not to purchase Flat 17. Colleys knew or should have known that as with any other prospective purchaser, Mr. Scullion would be relying upon their assessment of market value to confltm that he was not paying more for Flat 17 than it was worth; and because they knew that Mr. Scullion was a buy-to-let purchaser, they knew or ought to have appreciated that he would also be relying upon their opinion as to the estimated rental value to confinn that the income which he would be able to receive from letting the flat would be sufficient to make the transaction at least self-financing. See, in these respects, paragraphs [48] [52] and [91] [92] Of my earlier judgment.

In my judgment, the SAAMCO principles mean Mr. Scullion cannot recover compensation for any fall in value of Flat 17 due to market movements in the period between purchase in October 2002 and its eventual sale in 2006. The purpose of Colleys' valuation and hence the scope of their duties did not extend to advising the mortgage lender (still less Mr. Scullion) as to the wisdom of entering into the transaction generally or the possibility that the market value of Flat 17 might fall after purchase.

In relation to the second head of loss which is attributable to the overstatement of the attainable rental value. one must recognise that Colleys knew that Mr. Scullion was a buy-to-let purchaser and hence they ought to have appreciated that the statement of attainable rental value was critical for him to ensure that when he committed himself to make periodic paytnents under the mortgage and to pay the normal outgoings of an owner/landlord of the flat, he was doing so on the basis that he could expect to receive sufficient rent to discharge those liabilities so that the transaction would be at least self-financing. The adverse consequence to which this aspect of Colleys• Valuation Report was directed was that if the rent received was insufficient, Mr. Scullion would have incurred liabilities which he would have to discharge by making good the shortfall from his own resources.

In passing I should again note that because this is a claim in tort and not in contract, Mr. Scullion cannot recover damages in effect for loss of anticipated profit based upon the difference between the rental value which Colleys advised would be achieved and that which was in fact achieved.

Whilst naturally embracing the SAAMCO limitation in relation to the negligent capital valuation) Mr. Leech QC. who appeared for Colleys. went further and submitted that on the facts of this case. Mr. Scullion should not be entitled to any damages in respect of the negligent rental valuation. or indeed any damages at all. He had two arguments in this respect.

I do not accept this submission. First, I do not necessarily think that Mr. Leech is right in his assumption that the scope of Colleys' duties to Mr. Scullion could not be wider than those which were owed to Mortgages plc. I can well envisage situations in which, for example, it was appreciated that the purposes for which reliance might be placed upon a valuation report might differ between mortgagee and mortgagor; or in which a contractual limitation was placed upon the valuer's liability to the Inortgagee which did not apply or was not communicated to the mortgagor.

As I have indicated above, as a buy-to-let purchaser, from Mr. Scullion's point of view the transaction made no sense unless it was at least self-financing. But it is obvious that Mortgages plc would also want to ensure that its customer could service the mortgage from the available rental stream. In that way it could ensure, so far as possible, that it would have a profitable. performing loan, This would minimise the risk that it might have to take enforcement action, with the potential that it might not recover the amount outstanding and that time and costs would be wasted. It might well be the case, for example, that even if the capital valuation of the property was accurate. a forced sale of the property at a later date would not realise sufficient to replay the outstanding loan. In such circumstances. I think that a statement from a reputable valuer that the likely rental which could be achieved from letting the property exceeded the mortgage payments by some margin would be of significant value to a lender.

Put another way. the fact that, say, Kings might have owed a more extensive duty to Mr. Scullion when advising whether he was obliged to, or should complete the purchase, so that when they told Mr. Scullion that he had no choice in the matter. they might have been liable for all of the consequences. does not thereby relieve Colleys from their more limited responsibility to Mr. Scullion for the negligent provision of information. As I held in paragraphs [1481 - c151] of my earlier judgment, I consider that Mr. Scullion's losses can properly be said to have been caused both by Colleys' negligence, without which the finance needed for the purchase would not have been available in the first place. as well as by Kings' failure to advise him that he could legitimately avoid completion.

With that summary of my findings on the relevant legal principles, I turn to consider the specific losses claimed by Mr. Scullion.

In relation to the overstatement of market value, although Mre Scullion would be entitled to recover the difference between the price which he paid for Flat 17 and the true value of the property, for the reasons which I have outlined above, Mr. Scullion in fact suffered no loss because he ended up paying €200 less for Flat 17 than its "tnne" value of €300,000. In addition to the pnce paid for the flat, Mr. Scullion also paid ±4.000 for carpets and a fireplace, but no-one suggested either that this was an inappropriate figure or that it was in any way affected by the Colley's valuation of the property.

As I have described, by entering into the transaction. Mr. Scullion committed himself to make periodic payments under the mortgage and to pay the normal outgoings of a landlord of the flat. In the event, the rent received was nowhere near enough to enable Mr. Scullion to discharge such liabilities and hence he ended up having to make good the sh01tfall from his own resources. I have held that Mr. Scullion is entitled to recover damages to compensate him for such losses caused by the fact that he was unable to let Flat 17 for a rental that gave him sufficient income to cover his mortgage payments and the other outgoings on the property.

Although there was some measure of agreement. a number of the items claimed in Mr. Noble's schedule were challenged by Mr. Leech. It is therefore necessary for me to deal with the schedule, which was broken down into calendar years, in some detail.

However, this amount included a large number of items which related to the purchase of Flat 17 to which I have referred above. Such amounts included fees to AIC, Affinity and Kings. the costs of the carpets and fireplace. stamp duty and various other miscellaneous fees and disbursements.

I cannot see how expenditure on such items can be regarded as attributable to the negligence of Colleys in the preparation of the Valuation Report as to achievable rental value. In the ordinary course of events. such iterns would be expected to be discharged by a purchaser from his own resources at the time of purchase.

This result is, in my view, even clearer on the particular facts of this case. Rather than being paid by Mr. Scullion from his own resources, the items to which I have referred were in fact paid out of the advance from Mortgages plc which. for reasons which I explored in the earlier judgment. was based upon an overstated purchase price of €352,950 and which amounted to €290,766.

I therefore do not see how such items could be said to be losses attributable to the overstatement of anticipated rental value achievable.

The amounts that remain are two payments of mort ^o age interest for November and December 2002, each for E 1,441.71 and payments in respect of ground rent and a gas check totalling El 21.76. It seems to me that those sums, which together amount to E3,005.18, are sums which ought to have been covered by the rental to be received from letting Flat 1 79 and that they are recoverable as damages by Mr. Scullion.

'I'he parties agreed that during 2003. Mr. Scullion was liable to pay and in fact paid some El 7,751.02 under the mortgage to Mortgages plc, together with routine service, utilities and other charges relating to the property totalling €3,380.39. Over the period Mr. Scullion received nine months rent at E 1,050 per month, totalling E9,450. The net result is that Mr. Scullion was out of pocket by some El 1,681.41.

In my judgment this sum represents the losses suffered by Mr. Scullion over this period which are attributable to the deficiency in the Valuation Report as regards the achievable rental. He is therefore entitled to recover this amount by way of damages.

The mortgage statement that is in evidence shows that during 2004 Mr. Scullion made payments of mortgage interest totalling El 8,218.74. Although it was suggested in submissions that Mr. Scullion had made more payments of a greater total amount, on closer analysis of the mortgage statement, it appears that several *payments" were in fact direct debits which were rejected.

For completeness I would add that the mortgage statement for 2004 also includes a "legal fee" of E 7,658.75 which was charged on 11 November 2004. This is plainly not a routine charge, and I suspect that it might have something to do with the problems concerning the problems surrounding the registration of the title in relation to Flat 17. In the absence of evidence connecting it to the negligence of Colleys, I exclude it from the calculation of loss.

In addition to liabilities to Mortgages plc. Mr. Scullion incurred routine costs and expenses of the ground rent, service charges, a gas check and letting fees in relation to the flat ill the total sum of E3,032.23.

rhe total amount for which Mr. Scullion became liable and which he paid in relation to routine outgoings in relation to the flat during 2004 was therefore €24,110.14 €3.032.23 €27,142.37. During the same period, Mr. Scullion received rent amounting in total to €6,450. In my judgment the amount which Mr. Scullion is entitled to recover by way of damages in respect of this period is the difference between the two figures, namely E20,692.37.

Pulling together the amounts referred to above for the periods from October 2002 to ] June 2006, Mr. Scullion is in my judgment entitled to recover damages attributable to the deficiencies in the Valuation Report as regards the anticipated rental income in the total sum of E 72,234.54.

As I have indicated. following the conclusion of oral argument. and at my request, I was provided with an up-to-date mortgage statement by Mr. Scullion. It shows that since repayment of the proceeds from sale of the flat on 1 June 2006. and conlmencing with a charge of E4,530.81 on 28 July 2006, Mortgages plc has added a substantial series of legal fees to the outstanding balance of Mr. Scullion's mort^oa^o e This has increased the amount owed by Mr. Scullion from €59,795.37 to €70,863.16 — an increase of some El 1,067.79.

In general terms, it seems vety likely that these legal fees, which are substantial. relate to the outstanding balance on Mr. Scullion's mortgage. However, as I have indicated, that sh01tfall has in part been caused by the fall in the market value of Flat 17 and in part due to the shortfall in the rentals received as against the liabilities incurred under the mortgage and in relation to the outgoings on the property, I have held that losses attributable to the fall in market value are not

In these circumstances it seems to me that it would be wrong simply to assume that the whole or even some part of these legal fees should be regarded as attributable to the deficiency in the Valuation Report as regards rental values. It would be reasonably foreseeable that Mr. Scullion would suffer loss as a consequence of having to make good the shortfall between his rental income and expenditure whilst he owned the flat, and also that he might incur charges and costs to the mortgage company in dealing with cash-flow issues caused by that shortfall over the period of ovvnership. However. it does not follow, and I am not willing simply to assume, without evidence or argument, that it would be equally foreseeable that Mr. Scullion might continue to suffer further liabilities to the mortgage company in relation to legal costs after selling the property, or that those costs can properly be regarded as attributable to the deficiencies in Colleys• Valuation Report,

Mr. Leech's argument was that as any award of damages to Mr. Scullion would be based upon his unpaid liability to Mortgages plc, if Mr. Scullion was not prepared to undertake to use his damages to pay that debt to Mortgages plc, his damages should be reduced as a consequence. Mr. Leech observed that this was important to Colleys, because if Mr. Scullion did not use the damages awarded to him to discharge his debt to Mortgages plc. then even at this very late stage, Colleys might itself face a claim from Mortgages plc in respect of its loss.

Ruxley establishes that in cases of defective performance of a contract. where damages are claimed on the basis of the cost of remedying a defect, but it is apparent that the cost of remedying the defect is out of all proportion to the benefit to be obtained, the appropriate measure of damages may be simply the diminution in value of the asset. In Ruxley, Lord Jauncey also appeared to accept the

In Ruxley and Latimer it was emphasised that these considerations related to quantification of damages and that a court is not ordinarily concerned as to what a claimant does with the damages that he is awarded: see e.g. per Lord Jauncey in Ruxlev at page 357 and per Arden LJ in Latimer at [24].

Having raised this matter with counsel. I deferred handing down my judgment in final fon•n and heard further argument on the point on 6 September. At that hearing Mr. Noble indicated that he had prepared and filed his skeleton argument in haste and that it did not accurately reflect the true position between Mr. Scullion and Mortgages plc. After taking proper instructions, Mr. Noble accepted that Mr. Scullion did have a primary liability to repay Mortgages plc but said that Mr. Scullion was seeking to dispute the amount of that liability because of a number of matters. including, for example, the charge for the costs of registering the mortgage to which I have referred above.

Having heard Mr. Noble's submissions, it appeared that the matters in dispute between Mr. Scullion and Mortgages plc do not in fact include any of the items which I have ruled are pan of the losses properly attributable to the negligence of Colleys. Mr. Leech therefore accepted that it was appropriate for me to deliver my judgment on the basis that Mr. Scullion did not dispute his liability to Mortgages plc for those liabilities which formed the basis of his award of damages against Colleys.

I asked for that position to be confinned in writing in a form satisfactory to both parties, with the result that I received a letter from Mr. Scullion's solicitors dated 5 October 2010 which stated (in a form agreed between counsel) that.

Accordingly I do not see any grounds upon which to reduce the damages payable to Mr. Scullion on this basis.

Moreover, I think that in light of the comments in Ruxley and Latimer as the normal approach of the courts, Mr. Leech was plainly correct to accept in his written submissions that Mr. Scullion could not be compelled by the Court to use his damages in a particular way. That being so, I do not think that it would be right to extract an undertaking from Ml'. Scullion under threat of reduction of his damages if such an undertaking were not given. Requiring the giving of such an undertaking in those circumstances would be tantamount to compulsion.

Mr. Leech submits that I should reduce the damages payable to Mr. Scullion on account of Mr. Scullion's own failure to take care to protect his own interests. Mr. Leech primarily relies upon Mr. Scullion's own evidence that he signed the Application Form to Mortgages plc without reading it and without checking whether the amount stated in it as the purchase price was correct: see paragraph [421 of my earlier judgment.

I accept that Mr. Scullion's attitude towards the completion of the Application Form was cavalier. However, I am far from convinced that even if he had read it and considered it more carefully, it would have made any difference. As I found in paragraph [119] of my earlier judgment. at the time Mr. Scullion signed the form, he had no more than an expectation that a discount might be forthcoming, and the Application Form did not include any place to note that a discount might potentially be available. Moreover, by the time that Mr. Scullion knew that there was to be a discount, Kings were acting for Mortgages plc and it was arguably reasonable for Mr. Scullion to assume that they would have told Mortgages plc of the reductions to the headline price stated in the contract: see paragraph [1291 of my earlier judgment.

The defence of contributory negligence is available whenever the claimant's own negligence contributes to the damage of which he complains. It is necessary, however, that the negligence on the part of the claimant must be a cause of the relevant damage So, for example, a driver who is in a collision and who suffers Injury from being thrown against the windscreen may have his damages reduced on account of his failure to wear a seat-belt. However, if he suffers injuries of a different nature, for example, bums when the collision causes an explosion, no reduction in his damages would be made because his failure to wear a seat-belt would have been irrelevant to the injuries in question: see e.g. Clerk & Lindsell on Torts (19 ^th ed.) at paragraph 3-34.

In this case, because of the SAAMCO limitations on the scope of duty assumed by Colleys, together with my findings as to the true value of Flat 17 in 2002, I have found that the only losses för which Mr. Scullion is entitled to recover damages against Colleys are those that flow from the negligent overstatement of the anticipated rental which could be obtained by letting Flat 17. But there is no suggestion that Mr. Scullion did anything to cause or contribute to those losses. He made no statement in any application form conceming the anticipated rental from Flat 7, and in contrast to the open market valuation, where Colleys placed some weight upon the notified purchase price of E 352,950 in arriving at their valuation, the anticipated rental figure of €2,000 pcm was entirely of Colleys' own making.

In these circumstances I do not think that any reduction to Mr. Scullion's damages is appropriate on account of contributory negligence.

Interest should be added to the damages that I have found payable to Mr. Scullion. The parties were agreed that simple interest should be awarded at a rate of 6% per annum. They also agreed that in order to simplify the computation of interest of the various amounts paid and received between October 2002 and June 2006, I should award interest at a rate of 3% on the net sums payable for the whole of that period, and then 6% to the date of judgment. I am entirely content to adopt that approach.

Mr. Leech accepts that Mr. Scullion has been successful and that he is entitled to an award of costs. but he says that Mr. Scullion has not been wholly successful and hence that his costs ought to be proportionately reduced. Mr. Leech points out that Mr. Scullion failed to recover any damages in respect of the capital loss on the purchase of Flat 17, with the result that the damages awarded fall far short of the amount which he claimed. Mr. Leech therefore submits that I should only award Mr. Scullion 70% of his costs.

In Multiplex Constructions_(UK) Limited v. Cleveland Bridge UK Limited (No. 7_) [2009] 1 Costs LR 55, Jackson J. reviewed a number of authorities on costs and at para. [72] derived the following principles which I gratefully adopt:

As I have said. there is no doubt (and Mr. Leech accepted) that Mr. Scullion is the successful party and that the general rule is that he is entitled to an order for payment of his costs. Moreover, if one considers the matters set out in CPR Rule 44.3(4) to determine whether a departure from the general rule is required. the first point is that Mr. Scullion did succeed in a significant part of his claim. Further, although Mr. Leech submitted that if it had not been for the capital loss claim, "We wouldn't be here", the faci is that Colleys made no offers to settle any part of Mr. Scullion's claim. In the absence of any such offers, the fact that Mr. Scullion obtained less than he claimed should not of itself lead to a conclusion that he should be denied a proportion of his costs.

As I have indicated, the main ground upon which Mr. Leech suggests that an issue-based approach should be adopted under Rule 44.3(4)(f) (which in turn would lead to a proportionate costs order in accordance with Rule 44.3(7)) is that Mr. Scullion failed to recover any damages in respect of the negligent capital valuation of Flat 17. However. I do not think that Mr. Scullion exaggerated his claim or acted unreasonably in seeking to recover damages in this regard within the meaning of Rules 44.3(5)(b)-(d). Nor did Colleys show that they had acted carefully in giving the capital valuation: I held that they acted without due care and to that extent Mr. Scullion succeeded on this issue.

rhe first reason why Mr. Scullion failed to recover substantial damages was because I found that the true market value of the flat on purchase was what Mr. Scullion paid for it. with the result that on application of the SAAMCO principles. he had no attributable capital loss. However, my finding as to the true market value of the property cannot be characterised as a success for Colleys or a defeat for Mr. Scullion, because I concluded that the true value fell mid-way between the two extremes advocated by Mr. Scullion and Colleys. The second reason that Mr. Scullion failed to recover substantial damages is that Mr. Leech won the legal argument for Colleys in relation to the application of the SAAMCO principles based upon my finding as to the true market value. However, that argument of law was relatively short and did not involve the expenditure of significant separate costs.

It is also not possible to suggest that the costs of production of the expert evidence or cross-examination of the experts at trial were limited to the issue of the capital value of Flat 17. The expert evidence also went to the steps which would have been taken by a careful valuer and the appropriate rental valuation, which were issues upon which Mr. Scullion was successful. I believe that it would be very difficult to separate out the costs which were solely referable to the issue of the true market value. Certainly I think they would be less than the 30% reduction that Mr. Leech seeks.

Mr. Leech submitted that Smith v. Bush [1990] 2 AC 605 represented a high water mark in the imposition of duties of care in tort and that he wished to contend that the culture of the mortgage market and the role of valuers had changed significantly since that case was decided, so that the principles in the case should not be extended to what he described as commercial buy-to-let purchasers in the position of Mr. Scullions Mr. Leech also submitted that in terms of the scope of any duty, a distinction could be drawn between a valuer's liability to a purchaser in respect of a capital valuation, and that in respect of a rental valuation where the valuer would have no control over rental receipts or their use. Mr. Leech suggested that these issues were of wider importance in the property market generally.

Mr. Noble opposed the grant of permission to appeal. He submitted that it was plain on the facts that Mr. Scullion was not in any sense a commercial purchaser and that Colleys plainly knew or ought to have known that he would be relying upon their expertise as professional valuers to decide whether to enter into the transaction. He also suggested that the fact that the losses caused by the deficient rental valuation might continue for a period was not a point of distinction, citing the decision in Heßley Byrne v. Heller [19641 AC 465.

In the result, I order Colleys to pay damages for negligence to Mr. Scullion in the sum of E72,234.54 together with interest on the agreed basis as outlined above. I leave it to the parties to calculate the precise amount of interest payable at the date this Judgment is handed down in final form.

However, I grant permission to Colleys to appeal on the two issues which I have identified in paragraph 97 above, and in order to protect Colleys in the event that they decide to take up the permission to appeal and are successful. I grant a stay of my orders until after the time for the filing of a notice of appeal has expired. or until after final disposal of the appeal, if an appeal is pursued

I ask counsel to agree and submit a draft order in appropriate terms.