Mortgage Express v Countrywide Surveyors Ltd

Abbreviations

In this judgment I shall adopt the following abbreviations:

Introduction

This is a claim in deceit. Between December 2004 and 24 June 2005, Mr Driver, an employee of CWS, provided valuation reports for 64 properties which were mostly two-bedroom new-build flats located at a new marina development at Macquarie Quay, Sovereign Harbour, Eastbourne.

In respect of all 64 properties, Mr Driver gave rental valuations of between £1,300 and £1,540 pcm. The opinion of both valuation experts separately instructed by MEX and CWS is that the overall range of retrospective rental valuations was in fact between £600 and £750 pcm. This valuation is now admitted by CWS.

MEX claims that it advanced monies between May and December 2005 to borrowers in reliance on the valuations. It contends that the loans would not have been made if it had known the true rental valuations.

MEX claims that it has lost more than £3.3 million as a result of lending against the security of 41 of these flats. It contends that it can recover this sum by way of damages for deceit. There is no allegation of negligence or other breach of duty.

In July and August 2005, there was a series of emails between Mr Stones and Mr Bolton on behalf of CWS, and Mr Vaughan on behalf of MEX. Those emails are central to some of the issues in the case. It will be necessary to refer to the emails in detail later. For present purposes the position may be summarised.

On 19 July 2005 Mr Stones sent an email to Mr Vaughan in which he stated that CWS was concerned that Mr Driver’s rental valuations may have been overstated and asked to be given the opportunity to review its advice before any further lending decisions were made. On 29 July 2005 Mr Vaughan sent Mr Stones a list of 19 or 21 properties which were valued by Mr Driver and which had been submitted to MEX using the two postcodes supplied by Mr Stones. He asked for all rental amounts to be reassessed on those cases. In an email dated 4 August 2005 Mr Stones described the process as “an audit programme in progress – standard procedure with a change of Senior Staff”. On 25 August 2005 Mr Bolton sent Mr Vaughan an email which included revised desktop audits of each of the 21 properties which were contained in the Vaughan List. The revised rentals were on average only 50% of the valuations provided by Mr Driver.

In relation to the 21 properties referred to in the Vaughan List, 9 mortgages were completed before 19 July 2005, 5 completed between 19 July 2005 and 25 August 2005 and 5 completed after 25 August 2005. The remaining 2 were duplicates.

2 further mortgage transactions which were not on the Vaughan List, had completed before 19 July 2005. The remaining 43 transactions were mortgage applications made after the Vaughan List was compiled.

On 11 July 2005, CWS commenced an internal investigation into Mr Driver’s rental valuations. It will be necessary to set it out in some detail later in this judgment. On 17 July 2005, Mr Curtis prepared an internal report which concluded that the rental values for the flats “have been grossly overstated and should be no more than £700 pcm”. On 21 July 2005 Mr Simmonds prepared a further report in which he concluded that “At best [Mr Driver] has been grossly negligent but it seems almost certain that he has been fraudulent”. CWS never informed MEX of its suspicions of fraud.

These matters give rise to a number of arguments on causation and loss. CWS claims that MEX did not and/or could not rely on upon any of Mr Driver’s rental valuations after 19 July 2005. It accordingly denies that it caused MEX’s loss. MEX asserts that if CWS had informed it of its suspicions of fraud it would not have relied on any of the Driver valuations. MEX contends that it did rely upon the Driver rental valuations and that CWS accordingly caused its losses.

Losses have crystallised in respect of 41 of the 64 properties and the claim is now pursued only in respect of those 41 properties.

At the Pre Trial Review on 16 December 2015 it was ordered that the claim should be tried by way of sample. 10 claims have been chosen as such samples. They relate to Nos: 188, 168, 178, 78, 96, 234, 68, 64, 144 and 92 Macquarie Quay. They were chosen primarily to ensure that the entire file was available in respect of at least two transactions falling within the following time periods, as follows:

The parties helpfully agreed a list of issues. However the issues between the parties have narrowed and may now be summarised:

Whether MEX has established that Mr Driver had the mental element required in the tort of deceit in respect of the valuations which are the subject of the claim. If not, the claim fails. If so, it is conceded that MEX’s claim succeeds in respect of the Category A Claims.

whether the communications between 19 July 2005 and 25 August 2005 mean that MEX’s claims in respect of the Category B, C and D claims fail on the grounds that MEX did not or were not entitled to rely on the original valuations or because the communications broke the chain of causation between the valuations and any loss MEX may have suffered.

There was no detailed argument over quantum. MEX has put forward detailed figures in respect of quantum in respect of each of the 41 claims in accordance with the decision in Swingcastle v Alistair Gibson [1991] 2 AC 33. In his skeleton argument Mr Douglas QC did not appear seriously to dispute the methodology though he did raise a point about the appropriate rate of interest. Mr Lowenstein QC in turn raised the question whether MEX should be entitled to compound interest on any sum awarded. As there was no detailed argument it was agreed that this judgment would not deal with the issues of quantum and the parties would attempt to agree quantum if appropriate in the light of the judgment.

The Appendix

I have included, as an Appendix to this judgment a spreadsheet giving relevant details in respect of each of the 64 valuations which were originally the subject of this claim. The 41 remaining claims are shown coloured purple. As can be seen from the Appendix the claims remaining are divided as follows:

It will accordingly be seen that the overwhelming majority of the claims fall into Category D. They are in respect of properties which were not on the Vaughan List. The applications were received between 28 July 2005 and 21 September 2005. The loans were finally made on dates between 16 September 2005 and 16 December 2005.

Evidence

Much of the evidence is documentary. MEX called two witnesses of fact.

Mr Vaughan was the MEX employee who received the emails sent between 19 July 2005 and 25 August 2005. In 2005 he was in Lending Support reporting into the Senior Manager, Mr Callaway. His main responsibility in this role was to monitor underwriting quality across the business. His team was also involved in the regular quality checking of underwriting as well as completions. He was also responsible for managing MEX’s Valuation Panel. This involved monitoring the quality of the valuations provided by the panel valuers. It was not in dispute that Mr Vaughan was an appropriate person for Mr Stones to contact about the valuations.

Ms Dennis was a Mortgage Underwriter who has been employed in various roles by MEX since 1997. In 2005 she had authority to approve loans up to £1,000,000. She had no direct involvement with any of the loans which are the subject of these proceedings.

CWS called two witnesses of fact - Mr Driver, who is of course the subject of the allegations of deceit, and Mr Stones. In 2005 Mr Stones was the Operations Director of CWS. He was involved in the internal investigation which took place after Mr Driver left CWS on 30 June 2005. Mr Stones was the most senior of CWS’s employees who was involved in the investigation. As he explained, Mr Atter and Mr Bolton reported to him. Mr Stones sent two of the emails between 19 July and 25 August 2005 which are central to the issues in the case.

I shall consider Mr Driver’s evidence in detail later in this judgment. Neither Mr Vaughan nor Mr Stones had any detailed recollection of events between July and September 2005. Thus, this is a case where close attention has to be paid to documents.

In addition each side had the benefit of evidence from two experts – one valuation expert and one lending expert. There was substantial agreement between the valuation experts and they were not required to attend trial for the purpose of cross-examination. The lending experts’ evidence was more controversial. They were called to give evidence on the exceptional nature of the contact which was made to MEX by CWS between July 19 and August 25 2005 and the extent to which the exceptional nature should have been apparent to MEX.

Acknowledgment

It is right to acknowledge at the outset the considerable assistance I have had from those involved in preparing the case. The bundles were well thought out and easy to follow. I was provided with much of the material electronically which I find to be essential.

The openings skeletons and closing submissions were detailed and of the highest order. Cross examination was detailed and relevant. I am grateful to all concerned.

The facts

MEX is a private unlimited company registered in England and Wales. It is a wholly owned subsidiary of B&B. It was B&B’s specialist lender, and dealt with broker introduced residential lending and B&B’s investment lending (including buy to let) until it ceased lending in September 2008.

As noted above, each of the 64 loans was in respect of a newly built buy to let flat at Macquarie Quay. At that time the loan market for buy to let flats was highly competitive and MEX had installed systems to ensure a rapid turnover between the receipt of the application and the completion of the loan. MEX was in the business of making loans. Thus if the application fulfilled its criteria it would if possible make a mortgage offer.

EFS was a broker company, the shareholders of which were Keith and Alan Rumary and Anthony Light (son in law of Alan Rumary). Jukes was also run by Keith Rumary together with his partners Leona Best and Roy Higgs.

MMA is a mortgage applications packager. Brokers (including EFS and Jukes) could use the services of MMA by submitting the mortgage application form to MMA, who would obtain the valuation report on their behalf and bundle the documents together to form the mortgage application pack to be submitted to MEX.

A feature of the case is that in all of the 64 cases the valuer was not instructed by MEX. He was instructed by the broker or the packager on behalf of the proposed borrower. The valuation would be submitted to MEX if and when the broker or packager submitted the mortgage application to MEX. Thus the valuer had no control of when or if the valuation would be submitted to MEX.

Another feature is that in all cases the applications were submitted to MEX by the broker, EFS/Jukes, or by MMA.

MEX’s case is that the Rental Valuations were merely the start of a much wider dishonest scheme perpetrated by mortgage brokers, EFS and Jukes, which resulted in losses to MEX of over £40 million.

There is a detailed summary of MEX’s lending process in Ms Dennis’s witness statement. Most of this was uncontroversial. However, as some understanding of the processes is necessary to resolve the issues in the case I shall summarise it further.

The New Lending Process that operated in 2004 and 2005 was divided into distinct parts, being the Underwriting Process and the Completion Process. This was to ensure a segregation of duties requiring differing mandate authorities.

First was the ‘Decision in Principle' stage, for which MEX relied on its software to undertake an initial assessment of the application against its lending policy to ensure that the application fell within the policy criteria.

Second, the offer stage, which used the information provided in both the mortgage application form along with the valuation report and rental assessment to assess whether to make a mortgage offer and, if so, for how much. Each product had a maximum LTV which set a ceiling on how much could be loaned relative to the value of the property and a maximum loan amount based on the rental assessment. No underwriter had discretion or authority to exceed the maximum LTV or disregard the rental calculations.

Third, after the mortgage offer was despatched, and assuming no further information was submitted for review, then MEX would await a Certificate of Title from its appointed solicitor. MEX would treat receipt of an unqualified Certificate of Title as confirmation that all mortgage conditions had been met and that the Bank could release completion money to its solicitors.

There were a number of teams dealing with the underwriting of applications and each was headed up by a Senior Operations Manager. Each team had a Team Manager, a Senior New Lending Officer, an administrator and 8 to 17 NLO’s.

Equally there were a number of completion teams. Each team had a Team Manager, a Senior Operations Manager, a Senior Completions Officer, and 10 to 12 Completions Officers.

It is not necessary to refer to the Decision in Principle stage in any detail. Its purpose was to filter out at an early stage those applications that would ultimately be unsuccessful. MEX developed an electronic system called “ECROS” to create a smooth and efficient mortgage application process for brokers. ECROS allowed the broker to input customer data electronically and enabled the broker to apply for an online DIP. The ECROS system would check to ensure that the 85% LTV ratio was satisfied. It would also take account of credit reference information and other variables, applying the outcome of the internal ‘buy to let’ score card before producing a DIP. It was not mandatory for a loan application to go through the DIP stage first. A broker could simply submit a fully completed loan application for underwriting.

The process for considering the offer is set out in some detail in paragraphs 42 to 52 of Ms Dennis’s statement. The NLO would check that MEX had received all the relevant documents. These would include the mortgage application form, the valuation form and documents proving the identity and address of the borrower. The NLO would enter the relevant details on MEX’s OMIGA system. The OMIGA system would then either accept or reject the application. The NLO had power to override the decision or to refer any problems to a more senior or specialised member of the team.

In order to be acceptable the application had to satisfy MEX’s policy both in relation to LTV and affordability. As already noted the maximum LTV was 85%. The assessment of a borrower's ability to service a buy to let loan was based on the rental income of the property as assessed by the valuer rather than the borrower's income from employment. Consequently, in buy to let transactions where the security property was not yet let, the assessment of the property's rental potential had to be provided by the valuer in the rental assessment report.

In order for the loan to be made the Lending Policy stated that

With effect from January 2005 the percentage was reduced to 125% where the rate selected was a fixed rate for 5 years or more.

The completions process is set out in detail in paragraphs 53 to 58 of Ms Dennis’s statement. After the offer is sent out the next stage is the report on title. The majority of transactions proceed to completion on receipt of a clear report on title. If the solicitor reports an issue he must await further instructions from MEX. If an unqualified Certificate of Title is received the officer checks that all required information had been received and that there were no discrepancies between information contained in the Certificate of Title and information provided by the borrower/ valuer during the underwriting process. If any issue was identified, such as third party deposits, or discounts from the purchase price, then the Completions Officer would put it to the relevant solicitor and/or valuer so that they could explain it and confirm whether it affected the Bank’s interests in the property and confirm that the valuation was not affected. If the solicitor and/or valuer provided such confirmation then the transaction could proceed.

The Completions Officer required the final authority of a Senior Completions Officer who, if satisfied, would authorise the release of completion funds to the solicitor.

MEX did not directly instruct the valuers to carry out the individual mortgage valuations in any of the cases which are the subject of this dispute. Those instructions came from the broker/packager on behalf of the borrower.

MEX operated a panel of valuer firms and a broker could only instruct a valuer from the valuation panel. Furthermore there were contracts between MEX and the valuer firms and detailed procedures that had to be followed in the valuations.

Furthermore MEX employed Valuation Panel Managers to ensure that the panel was maintained and that the members complied with the qualification criteria. Any queries relating to the competence or otherwise of individual valuers were, at least initially, taken up with the Panel Managers.

SPS, which became part of the Countrywide Plc group in October 2004 was the relevant Panel Manager in respect of the Eastbourne area.

The contractual relationship under which CWS provided services to MEX was governed by a written service level agreement dated 15 October 2004.

Under clause 5(b) CWS had to “act reasonably in good faith and in accordance with generally accepted standards of good practice (if any)”. Under clause 8 CWS warranted that valuations would be carried out by appropriately experienced persons, with reasonable care and skill in accordance with MEX’s guidance notes to valuers, RICS guidance; and the ‘Red Book’ issued by RICS.

The Red Book sets out practice statements, which apply to all valuers, as well as guidance notes for particular situations (including to the valuation of buy-to-let properties). It includes a definition of market rent which it is not necessary to set out.

The Red Book deals with inspections, including the need to carry out an inspection to the extent necessary for the purposes of the valuation. The valuer must make it clear in his report if the valuation has been made without an opportunity to carry out an adequate inspection.

A valuer would normally be instructed from MEX’s valuation panel by a broker/packager making an electronic request through one of two valuation portals (either Quest or Xit2). In evidence Mr Vaughan suggested (Footnote: ¹) that there was a difference between the standard procedure in a packaged case and a broker case in that MEX instructed the valuer in a broker case. It is not in dispute that in this case many of the instructions came directly from EFS or Jukes. Neither Mr Vaughan nor Ms Dennis regarded this as unusual.

If the valuation portal was used it would identify the firm, but not the individual valuer, which was to carry out the valuation. The portal would produce a document (entitled “Record Details”) giving basic details of the valuation required including the fee, the address, and the applicant and leaving other details such as the identity of the valuer and the time of the valuation to be filled in on line by an employee of the valuer firm. The software would then produce two documents. The first was a single page document entitled “Residential Mortgage Valuation Field Sheet” which contained the specific instructions for the valuation and a number of tick boxes for the valuer to complete. Amongst other instructions it gave a turnaround time of the order of 3 days. The instructions were taken from the information that had been fed into the system. The instruction made clear that Buy to Let schemes required an additional rental opinion form.

The second document was a 4 page document entitled MVR Field Sheet which the valuer would take with him whilst inspecting and carrying out the valuations and would in effect provide a contemporaneous note of the valuation. It contained a number of boxes to be filled in by the valuer including boxes for the arrival and departure time, boxes for the nature of the accommodation, boxes to indicate the condition of various parts of the property, and boxes for the market value and rent.

After completing the inspection and filling in the MVR Field Sheet the valuer would complete and sign the standard MEX valuation report and rental assessment addendum form and submit them to the broker/packager usually electronically. They each contain a valuation certificate which gives the date of the inspection, the valuer’s signature and name. If completed electronically the valuer’s signature would be in the form of a code.

Although not obvious from the standard forms, Mr Driver confirmed in cross-examination that he knew from many of his instructions the proposed purchase price and the rental expected by the broker/packager.

In addition to providing a witness statement in these proceedings, Mr Vaughan had provided a detailed witness statement in relation to other proceedings between MEX and CWS and a firm of solicitors. In that statement he covers much of the procedural ground set out by Ms Dennis in these proceedings. In paragraphs 130 – 149 of that statement he dealt with the procedure where there were concerns.

In paragraph 141 he made it clear that it was quite common for queries to be raised some of which resulted in the withdrawal of the loan offer. If the query related to a valuation issue it would be taken up with the panel manager. In cross examination he put the matter in this way:

When asked whether he would go back to the panel manager if the valuer was part of that firm he said that he would:

However he confirmed that he would be looking for ways to resolve the query positively because MEX was in the business of lending and wanted to lend and keep relationships going if it could.

In paragraph 143 of the statement Mr Vaughan said:

“If a query raised led to more serious concerns being revealed, particularly if it was suggestive of mortgage fraud, then we would not hesitate to take action to stop the immediate transaction and any other proposed business being undertaken with the parties concerned. It was normal practice when investigating a serious query concerning a potential fraud to run a search for any other existing loans or applications in the pipeline from the same borrower to see whether they showed the same problem.”

In paragraphs 144 and 145 Mr Vaughan explained the procedure for the involvement of the fraud team and the issuing of warnings and blacklisting of brokers. In cross examination he repeated that if it was in relation to the valuation he would ask the panel managers for advice. He was asked (Footnote: ²)

A summary of each of the 64 transactions is contained in the spreadsheet which forms the Appendix (Footnote: ³) to this judgment. I shall refer to the transactions by the number which appears in the first column of the spreadsheet. Thus transaction 3 refers to the loan of £212,457 made to Curwen in respect of 188 Macquarie Quay.

Eastbourne is an established seaside resort with a large development known as Sovereign Harbour just over a mile from the centre of town. Sovereign Harbour is in two parts: North and South. Between them they contain 35,000 units of residential accommodation in the form of houses and flats. Flats predominate wherever there is a view of the sea or inland water feature.

In 2005 Sovereign Harbour South was complete but Sovereign Harbour North was in the process of development with many developers working on it.

Macquarie Quay was being built by Persimmon Homes. It comprised a series of four and five storey apartment blocks, with the ground floor being car parking. The development is attractive and apartments facing the sea not only have good views but also front onto a large beach.

There is a marked contrast between Sovereign Harbour and Eastbourne. Sovereign Harbour is like any waterside development in trying to be upmarket whereas Eastbourne is more downmarket.

The layouts of the flats in Macquarie Quay are not identical. Many have two bedrooms but some have three bedrooms. Furthermore there are a number of different configurations. The list attached to the email of 23 June 2005 which is referred to below identified at least 6 different configurations.

Only two brokers were involved in the 64 transactions – Jukes and EFS. Where the broker was Jukes the individual broker was (with 2 exceptions) Keith Rumary. The two exceptions (transactions 63 and 65) involved Mr Higgs and Leona Best.

Where the broker was EFS the individual broker was usually Alan Rumary but there are 3 transactions where the individual broker was Mr Light.

If one ignores transactions 1 and 2 all of the valuations were carried out by Mr Driver between 7 April 2005 and 24 June 2005. 39 of the valuations were carried out between 23 and 24 June 2005.

Mr Driver gave the same valuations (Capital Value - £249,950, Rental Value - £1,540 pcm) for transaction 3 and transactions 7 to 65 inclusive. In respect of transactions 4, 5 and 6 his figures were slightly lower (£239,950 and £1,480 pcm).

In many cases Mr Driver received his instructions directly from MMA, Jukes or EFS either by fax or email, but not through the portal.

Mr Driver acknowledged that in many cases he was made aware of the estimated or (in one case) required rental and capital value. Mr Driver readily acknowledged that he was aware that the proposed purchase price was £249,950 and the rental that was sought was £1,540.

The most striking of the instructions was contained in an email sent at 14.02 on 23 June 2005 from Karen Bailey to Mr Driver. The email referred to a discussion with “Roy” (it was suggested this might be Roy Higgs, a broker in Jukes, but this could not be confirmed) and sent a list of 61 properties showing the client, the retail price and the mortgage required. All but 8 of the properties showed MEX as the prospective lender. Mr Driver carried out these valuations between the time of receiving the email and 24 June 2005. 39 of the properties are within the 64 transactions that were the subject of the claim. In each and every case Mr Driver valued the properties at £249,950 with a rental valuation of £1,540.

Mr Driver left CWS as Office Manager of CWS’s Eastbourne Office on 30 June 2005. He was replaced by Mr Ramsden.

On 8 July 2005 Mr Ramsden contacted Mr Atter (CWS’s Regional Director for London and the South East), in respect of a property valued by Mr Driver where he had been asked to transcribe the valuation onto a form for another lender. Mr Ramsden felt that the valuation was overstated and that the rental income was given at £1,500 pcm as opposed to a more realistic value of £650 pcm.

Mr Atter, who was about to go on leave, contacted both Ms Taylor (CWS’s Head of Customer Relations) and Mr Curtis (a Senior Surveyor) about the situation.

On 11 July 2005 Ms Taylor sent an email to Mr Stones (CWS’s Operations Director) with a copy to Chris Shaw (CWS’s Managing Director). The email referred to the developing situation in Eastbourne and included:

On 15 July 2005 Mr Bolton (CWS’s Assistant Regional Director for London and the South East) sent an email to Ms Taylor and Mr Stones with a copy to Mr Atter. He noted that Adrian Curtis had completed his investigations and was in the process of finalising his formal report. He continued:

“On the basis of the information collected, it would seem that something like 65 properties were “inspected” by Peter Driver over two days and reports prepared just before he left the employment of [CWS]… The capital values appear strong but possibly defendable. The problem lies with the rental values which were put in at £1540 pcm whereas an analysis of comparable evidence indicates that £700 pcm is the top limit. Obviously these rentals were used to support the applications… We would however have to move quickly to establish if we can stall the lending process prior to funds being drawn down.”

The Curtis Report

The Curtis Report was dated 17 July 2005 and was addressed to Mr Atter and to Mr Bolton. It bears a date stamp of 20 July 2005. It is not clear when or whether Mr Stones saw a copy. In his witness statement (Footnote: ⁴) Mr Stones states that he does not believe he saw the report at the time. However he accepted both in his statement and in cross-examination that he had little recollection of events beyond what is contained in the documents. In his email of 15 July 2005 Mr Bolton stated that he would send a copy of the report to Mr Stones when he received it. On balance it seems to me likely that he did.

In any event the report included:

“1(iii) About a week before Peter Driver left [CWS] at the end of June, he carried out a “bulk valuation” of flats… and in particular mortgage valuations of 57 flats at Macquarie Quay and mortgage valuations of 8 flats at another development…

"8(v) I consider the rental values for the flats have been grossly overstated and should be no more than £700 pcm.

"9(ii) Sites notes are totally inadequate.

“9(iii) Rental Values of £1540 pcm in all the mortgage valuation reports are grossly overstated and should not be more than £700 pcm.

“10(i) Instructions from Jukes (UK) Financial Services commenced in 1999 and initially valuations were carried out by all surveyors in the office. Since April 2004, all valuations from Jukes have been carried out by Peter Driver with only one or two exceptions.

“10(ii) The valuations carried out for Jukes by Peter Driver include jobs out of area, with for example 14 valuations carried out at [sic] on a new site at […].

“10(v) In April 2005, rental values were being provided at the level of £1540 pcm.

“10(vii) Rental values at "over market value" go back well beyond the recent tranche of valuations to October 2004.”

The Simmonds Report

As a result of the discovery of the problem Mr Simmonds (a Quality Manager at CWS) was instructed to investigate further. Mr Simmonds prepared a further report on 21 July 2005.

The report is 4 pages long and included:

“This report is the result of further investigations carried out as a result of the discovery of the following issues in respect of Buy-To-Let valuations compiled by Peter Driver (PD)…

The rents given by PD are at a much higher level than the market can bear.

A large number of valuations (over 60) came in and were processed by PD on 23 June 2005, one week prior to his retirement on 30 June 2005 and subsequent move to Spain.

“[Reports] in Sovereign Heights [sic]

…

“In respect of [Mortgage Valuations] provided by PD, these are in the right ballpark; however, the rental values provided of £1540 are approximately double the more accurate figure of £700.

“There is clear evidence that PD has provided one set of rents for instructions in the name of Rumary provided by Jukes and another set for other applicants and other instruction sources…

“Regarding the tranches of instructions received for [lender’s name redacted in the copy of this document provided as part of the Countrywide Disclosure] and Macquarie Quay PD has provided no comparables of substance to substantiate the rents provided. There are letters from Letting Agents but their contents are effectively worthless.

“Some reports ask for a countersignature and David Atter’s name has been typed in but there is no copy report with such a signature. It is assumed that PD ignored this requirement.

“Out of Area Working

…

“PD did nine [out of area] cases, all for Jukes and always meeting the rental figures requested.

“Conclusions

…

"Based on the evidence to date there is little doubt that PD has worked in conjunction with Jukes, MMA and Rumary. Areas of concern are:

Provision of rental values far in excess of current market levels.

Possibility of duplicate valuations for more than one lender.

What else will be discovered following more detailed observations carried out without the immediacy of the work that I have had to do over the past few days.

“At best PD has been grossly negligent but it seems almost certain that he has been fraudulent.

“The further investigations should be carried out urgently and if my findings are confirmed beyond reasonable doubt then the police should be informed."

On 22 July 2005 there was an internal meeting which included Mr Stones, Ms Taylor, Mr White and Mr Simmonds. Following the meeting, at 15.58 Mr Stones sent an email to Mr Atter, with copies to Ms Taylor, Mr White and Mr Bolton which included:

At 16.41 on the same day he sent an email to Ms Taylor, Mr White and Mr Simmonds in which he outlined an action plan which included:

On 30 July 2005 Mr White sent an email to Mr Stones with copies to Mr Atter, Mr Bolton and Mr Simmonds giving an update of the situation. Ms Pickup and Mr Thompson were to attend on 1, 2 and 3 August to prepare the spreadsheet. Initially they would concentrate on what would be the most vulnerable cases, that is to say those from introducers such as Jukes. It would take longer to go through the files over the last 2 years.

Ms Pickup and Mr Thompson duly attended on 1 – 3 August 2005 and prepared the spreadsheet. The spreadsheet lists 105 Macquarie Quay entries of which 33 were part of the 64 which were included within the original claim. 19 of those 33 are included in the 41 where the loss has crystallised. It is not in fact clear when the spreadsheet was finalised. On 8 August 2005 Ms Pickup sent to Mr Cammidge and Mr White an email with a spreadsheet as an attachment. The spreadsheet was described as “the … cases identified so far”.

At 16.36 on 15 August 2005 Mr Ramsden sent an email to Mr Atter enclosing a spreadsheet of the revaluations of the properties in the Vaughan List in the following terms:

The spreadsheet was fairly detailed in that it had columns for the estimated (revised) and original valuations, and for the differences and percentage differences between the two valuations. Anyone reading it would have no difficulty in appreciating the significant differences both in real and percentage terms between the actual and estimated revised valuations.

At 17.10 on 15 August 2005 Mr Bolton forwarded the email to Mr Stones asking for a “chat to discuss tactics”. Between 15 and 16 August there was an exchange of emails between Mr Stones and Ms Taylor as to possible tactics. Mr Lowenstein QC has criticised Ms Taylor’s email for looking at the position solely from CWS’s point of view. I, however, agree with Mr Douglas QC that there was nothing improper in considering the position in that way.

On 5 September 2005 Mr Atter produced a further report which analysed the situation in detail. The report is 10 pages long. I shall not set it out in detail. After setting out the history he set an analysis of the audit reports:

He then highlighted what he described as a “clear pattern of issues that has emerged”

He then expressed his conclusions which included:

At no stage were these findings shared with MEX.

Mr Driver started his career in 1972 or 1973 as a building surveyor. He started work as a valuation surveyor in 1988 in Kent and has carried out valuations in the Eastbourne area since the late 1990s. In about 2000 he became the office manager of CWS’s Eastbourne office. He had 5 surveyors working under him. He retired on 30 June 2005 at the age of 54.

Mr Driver attended to give evidence voluntarily. He had provided a short witness statement of less than 3 pages in length. He dealt with the 64 valuations in 3 short paragraphs:

Mr Driver was cross-examined by Mr Lowenstein QC for approximately 1½ days. Throughout his cross-examination he maintained his contention in paragraph 9 that he had acted honestly. He did, however, accept with hindsight that his rental valuations had been negligent.

In his evidence in chief and at the end of his cross-examination he was asked a number of questions about documents relating to acquisitions of some 19 other mortgage transactions (Footnote: ⁵) which completed between May 2006 and September 2007. Each of those transactions involved EFS as broker. Each showed Mr Driver as the Borrower and there were a number of documents apparently signed by Mr Driver. The transactions had the hallmarks of a mortgage fraud in that many of them were described as remortgages rather than purchases. Furthermore the sums borrowed by the Borrower were (in many cases) significantly more than the purchase price with the result that substantial sums of cash (totalling more than £200,000) were paid into a bank account with Nationwide apparently in Mr Driver’s name.

In 2009 Mr Driver was arrested for conspiracy to commit mortgage fraud and interviewed at Eastbourne Police Station. He denied any involvement with the mortgage fraud and asserted his signature on the documents he was shown by the police had been forged. He asserted that he knew nothing about the 20 properties he was said to own. He has never been charged with any offence relating to the fraud. He was told in 2011 that the case against him had been dropped.

In his evidence in chief he reasserted his innocence and asserted that the signatures that appeared to be his were forgeries. However at the end of his cross-examination after Mr Lowenstein QC had asked a number of questions about a passport and a driving licence Mr Driver refused to answer further questions on the ground that he might incriminate himself. In particular he refused to answer any further questions about his passport and driving licence, any questions about the bank accounts in his name in 2006 and 2007, and about the property transactions.

I shall not lengthen this judgment by going through Mr Driver’s cross-examination in detail. Instead I shall concentrate on the areas relied upon by Mr Lowenstein QC in paragraph 99C of his closing submissions. Mr Lowenstein QC drew my attention to 6 separate areas – (1) Comparables and lack of justification, (2) the bulk valuation, (3) the mistakes on the valuation files (4) the connection with Keith Rumary (5) motive and gain and (6) the bundle 10 documents

It is not in dispute that there was readily available comparable evidence of rental valuations for flats at Macquarie Quay. Paragraph 8(iv) of the Curtis Report refers to adverts in the local free newspaper, to Aspect lettings and to a letting list from Fox & Sons all of which give letting figures of less than £700 pcm. Mr Driver was shown advertisements in the local press dated 17 June 2005 to similar effect. Mr Driver accepted that his professional rules required him to value by reference to comparables.

Mr Driver’s evidence on comparables is contained in this exchange (Footnote: ⁶):

Furthermore Mr Driver was shown 2 valuations in September 2003 and one in March 2004 where he had provided rental valuations for flats in Macquarie Quay at £800 and £900 pcm. In the 2003 valuations he had provided comparables.

As noted above in paragraph 8 of his witness statement Mr Driver sought to justify the rental valuation on 3 grounds. He was cross-examined on each of them. In relation to the rising market Mr Driver agreed that he was required to value at the valuation date so that the question of rising market is irrelevant. He also agreed that he had produced no evidence that the market was in fact rising and that the expert valuers were of opinion that rents for flats at Macquarie Quay had in fact risen very little.

He asserted that Macquarie Quay had been a “hot spot” since 2002. He had, of course given 2 much lower valuations for flats in Macquarie Quay in 2003 and 2004.

There was no evidence of comparable rents at Brighton Marina. In any event Mr Driver had earlier agreed that only comparables in Sovereign Harbour were relevant.

Mr Driver claimed that he talked to Keith Rumary who told him he was going to receive a bulk instruction for MEX and that he agreed to do the bulk instruction at a reduced fee: This was a discussion that took place face to face in Keith’s office in Bexhill. He could not explain why the bulk instruction email of 23 June 2005 said “…as per Roy…” Mr Driver agreed that the bulk valuation was a “very unusual” and “abnormal” event and that he had not seen such a bulk valuation request in his career in respect of mortgage valuations.

He attempted to justify his acceptance of the bulk valuation instruction by claiming that he had cleared the matter in a telephone call with Mr Atter.

Mr Driver’s evidence was “not all of the flats were finished. Indeed some of them had builders in them and were locked up so I looked at the plans in the sales office only.” He said that he could give 42 valuations without doing the inspections, but that he would have regard to the plans. He claimed both in written evidence and in cross-examination that he would have inspected “some but not all” of those properties.

A number of criticisms of this evidence are made in the closing submissions:

There is no reference to the telephone conversation Mr Driver claims to have had with Mr Atter in any of CWS’s documents including the Atter report. It is not referred to in Mr Driver’s witness statement.

Mr Driver agreed that the field sheet “completed” in these cases is an obvious photocopy of one page. It does not evidence whether there was an inspection or not, and even if it did, it could only evidence an inspection of one.

Mr Driver claimed that he spent two days “on site”. However email instruction was not until after 2pm on 23 June 2005. It would have taken time to put those 60+ instructions onto the system in order to create sufficient information for him to go out and value. In those circumstances it is difficult to see how he was on site on 23 June at all or managed to do proper valuations over the day and in the few hours available at all.

A number of discrepancies were put to Mr Driver during the course of his cross-examination:

Several field sheets stated an inspection date of 7 May 2005 whereas the valuation report was dated 7 June 2005 (and the instruction had not been received until 3 June 2005)

There were a number of properties where the information recorded by Mr Driver in his field sheets shows apparent inconsistencies in the times when inspections took place. These are shown in a table taken from the closing submissions:

In one property, Mr Driver “missed” a third bedroom in a property, valuing it as a two-bedroom flat.

Mr Lowenstein QC suggests that these “mistakes” were too numerous and significant to be mere mistakes, as he claimed.

There was evidence within the valuation files that Mr Driver (and only Mr Driver) was required to carry out the valuations emanating from Jukes and MMA. In his witness statement Mr Driver claimed that he carried out Jukes’ work because the forms were more complicated. However he accepted in cross examination that the MEX forms were standard. He could provide no plausible explanation as to why he was the valuer at the Eastbourne office completing virtually all instructions from Jukes from May 2003; or why nearly 400 of his 1800 cases since January 2003 were from Jukes; or why all valuations for Macquarie Quay properties were for MMA/Jukes/EFS.

In evidence he accepted that in 2003 he had purchased 30 Arequipa Reef from Keith Rumary at a discounted price of £200,000. He sold the property in 2005 at a profit of £250,000.

In cross-examination he told the court that in January 2006, some 6 months after he emigrated to Spain, Keith Rumary invited him back to England to work for him on a casual basis for about three to four days a week every two or three months. This arrangement lasted about a year. Mr Driver claimed that Rumary paid him by funding a Spanish bank card.

It was suggested to Mr Driver that his motive for providing the mortgage valuations at the figures estimated or required by Keith Rumary was either the profit he made out of the acquisition of 30 Arequipa Reef or the profits he made out of the mortgage frauds in 2006 or 2007 as evidenced by the Bundle 10 documents and the moneys passing into Mr Driver’s bank account.

As already noted Mr Driver maintained that the mortgage valuations were honestly given.

Mr Stones had a brief telephone conversation with Mr Vaughan on 18 July 2005. Neither had any independent recollection of the conversation and I agree with Mr Lowenstein QC that it would be wrong to attach any weight to it. In cross-examination Mr Stones did not seek to rely on his description of the conversation as set out in the second sentence of paragraph 15 of his witness statement.

At 15.27 on 19 July 2005 Mr Stones sent an email to Mr Vaughan in which he stated

“I refer of course to our brief telephone conversation yesterday regarding a number of valuations undertaken on behalf of Mortgage Express by an ex-employee, P D Driver FRICS previously based at our Eastbourne office. As I explained, we are concerned that rental figures given in the report may have been overstated and we would ask to be given the opportunity to review our advice before any further lending decisions are made on the properties concerned which are all located on a development known as Macquarie (sometimes incorrectly spelt as Mcquerie) Quay in Eastbourne (post code: BN23 5AW, 5AU etc.) Instructions were received from Members Mortgage Administration Ltd (of Derby), or Jukes (UK) Financial Services of Bexhill.

Should you require any further information or assistance, please do not hesitate to call…”

As this email is central to CWS’s case on reliance it is worth making a number of points both on what it does and what it does not contain.

As set out above, it is not clear whether Mr Stones had seen the Curtis report by 19 July 2005. However he had seen Ms Taylor and Mr Bolton’s emails of 11 and 15 July 2005 and thus he knew that 65 properties had been “inspected” by Mr Driver over 2 days just before he left CWS and that the rental values were more than double the figure supported by comparable evidence.

Yet the email he sent referred to none of these matters. It did not give the number of valuations, the fact that they had been carried out shortly before Mr Driver left or the extent of the overvaluations. It simply referred to possibility of overvaluation by the use of the word “may” and requested the opportunity to review the advice before lending decisions are made. On any view it understated the problem as perceived by CWS. It did not even expressly state that the valuations were unreliable and should not be relied on.

In his witness statement Mr Vaughan made a number of points about this and the subsequent emails. He accepted (paragraph 9) that he had no specific recollection of the emails. Thus he accepted that his evidence is a reconstruction with the benefit of hindsight. He expressed disappointment (paragraph 18) with the communications from Mr Stones and Mr Bolton. His usual contacts with CWS were with Mr Kettle and Mr Smith. He would have expected them to have told him in plain language if they thought there was a problem with any of CWS’s valuations. He pointed out that MEX placed a great deal of reliance on valuers to be its “eyes and ears” in relation to properties. He referred to the tight timetables under which the bank operated and in paragraph 24 of his witness statement made the point:

Mr Vaughan was cross-examined about the email at some length The cross-examination included this exchange (Footnote: ⁷):

Mr Vaughan was also asked his view of the significance of the email:

It was pointed out that it was not a routine conversation and that Mr Vaughan had escalated the matter higher. This led to the following exchange (Footnote: ⁸):

That evidence has to be contrasted with the interpretation that CWS seek to place on the email. Mr Douglas QC submitted that it terminated any representation that any of Mr Driver’s valuations which come into MEX on any property at Macquarie Quay are reliable or held out as being accurate. Mr Douglas QC referred to the request to review Mr Driver’s valuations. He submitted that it should be interpreted as if it read:

On 22 July 2005 there was a short email exchange between Mr Vaughan and Mr Stones. At 15.59 in reply to Mr Stones’ email of 19 July Mr Vaughan asked Mr Stones if he knew the customer detail of the cases.

Mr Stones replied at 16.20 the same afternoon in the following terms:

“There are a number of applicants names but the main ones appear to be [a list of 11 names followed]”

By this time Mr Stones was aware of the contents of the Simmonds Report and of the seriousness of the situation and was about to initiate the audit of all Mr Driver’s case work files since 2003. He knew that Mr Simmonds felt that it was almost certain that Mr Driver had been fraudulent. Yet he chose not to disclose any of these matters to Mr Vaughan.

In cross-examination Mr Vaughan agreed that it was not unusual for buy to let customers to have a portfolio of properties.

On 29 July 2005 Mr Vaughan sent Mr Stones an email in the following terms:

“Please find attached a copy of the report that shows all the cases which have been submitted to Mortgage Express using the two postcodes that you provided, and was valued by Mr P D Driver.

As previously stated please can you arrange for the rentals amounts to be reassessed on all 21 cases. Please can you also confirm that as far as you are concerned there was no issues with the valuation amounts that were provided?”

The Vaughan List comprised a list of 21 (Footnote: ⁹) properties giving the name of the applicant, the application number and the house number.

The email was copied to three of Mr Vaughan’s colleagues at MEX and two of his usual contacts at CWS – Mr Callaway (Senior Manager at Lending Support and Mr Vaughan’s line Manager), Mr Kettle (Usual Contact at CWS), Mr Smith (Usual Contact at CWS), Mr Scott (overall Head of New Business) and Mr Tucker (Head of Packaged New Business). It is plain therefore that Mr Vaughan had notified his superiors of the situation.

Mr Vaughan was asked what MEX’s intention was with any application pending re-evaluation. Mr Vaughan said he was sure that there must have been some discussions as to whether MEX awaited the outcome but he was not a party to the discussions.

At 20.59 on 1 August 2005 Mr Bolton sent Mr Vaughan an email. The email was copied to Mr Stones and Mr Atter. It included:

In cross-examination Mr Vaughan could not recollect whether he rang Mr Bolton or not. He agreed, however, that he did not tell Mr Bolton that he was not going to wait.

On 3 August 2005 Mr Vaughan sent an email to Mr Bolton. The email was copied to Mr Callaway and Mr Tucker. It included:

“Please could you let me know if you are looking at all of PD Drivers [sic] rental assessments or just those at Macquarie Quay? The reason for my question is that we have identified other cases that have been submitted to MX by the same broker and for the same customer and have been valued by Mr Driver?”

On 4 August 2005 Mr Bolton replied, copying in Mr Stones and Mr Atter:

“We have an audit programme in progress – standard procedure with a change of Senior Staff but if you would care to let me have a schedule of the cases you have identified I will arrange for them to be reviewed”

It was, of course, quite untrue to suggest that the audit program was standard procedure. The audit was wholly exceptional and was caused by the discoveries summarised in the Curtis and Simmonds reports. The only purpose that Mr Bolton can have had for using those words was to conceal from MEX CWS’s concerns about Mr Driver’s valuations.

Mr Vaughan could not remember whether he sent a further schedule of cases to Mr Bolton. There is no documentary evidence to suggest that he did but both sides agreed that it is possible that there were other emails which it has not been possible to find.

On 25 August 2005 Mr Bolton sent Mr Vaughan an email which included:

“Further to our recent exchange of emails I attach a schedule showing the results of the desktop audits undertaken at Sovereign Harbour, Eastbourne.

The local office has produced the schedule of estimated values on the basis of a desk-top review, backed up by a general site visits as, although the properties are not completed, the site sales office has closed.

The schedule was far simpler than the schedule which had been sent by Mr Ramsden to Mr Atter. It comprised 4 columns with headings for the house number, the applicant and the new estimated capital and rental values for each property. The majority of the rental valuations were between £675 pcm and £725 pcm though there was one property (No 70) where the rental valuation was £850 pcm.

There was sufficient information to enable MEX to cross check the figures with the original valuations but it is not clear whether the exercise was carried out..

There was no other warning. The email did not say in terms that no reliance should be placed on the original valuations. Equally it made no mention of suspected fraud on the part of Mr Driver. It did not mention any of the other valuations which CWS knew were wrong and where it suspected fraud on the part of Mr Driver.

In cross-examination Mr Vaughan agreed that the revalued capital values were within a reasonable margin of Mr Driver’s values but that the rental values were way out and that Mr Driver’s figures were badly wrong.

He agreed that, so far as the rentals were concerned, this was very serious and that he would have escalated it to Mr Tucker, Mr Callaway or Mr Scott. However he had no recollection of what decision was made.

A number of hypothetical possibilities were put to Mr Vaughan as to possible decisions that MEX might have made in the light of the figures in the schedule. Mr Vaughan accepted them as possibilities but could not say what decision had been made. He thought it unlikely that MEX would have decided to carry on with the lending on the basis that it was protected on the capital values. He could not say whether consideration was actually given to the question of whether to place a stop on the lending.

The first issue - Mr Driver’s mental element

There was little (if any) dispute between Counsel as to the mental element required. Both Mr Lowenstein QC and Mr Douglas QC referred me to the decision of the House of Lords in Derry v Peek (1889) 14 App Cas 337. I was referred to a number of passages from the speech of Lord Herschell including (at 374):

By reference to the decision in the "Kriti Palm" [2006] EWCA Civ1601 Mr Douglas QC warned me against watering down the ingredient of dishonesty into something akin to negligence.

Both Counsel agreed that the test for dishonesty in dishonest assistance cases to be found in the speech of Lord Nicholls in Royal Brunei Airlines v Tan[1995] 2 AC 378 (PC) had no application in assessing honest belief in a deceit case. A statement honestly believed to be true, however implausible it may be, is not capable of amounting to fraud.

It is not enough for the representor to assert in evidence that he honestly believed the truth of his representation. The Court must assess the credibility of that evidence in the context in which it was given before accepting what the representor says at face value. If the evidence is incredible, then the necessary mental state will be established.

In this connection Mr Lowenstein QC referred me to a further passage from the speech of Lord Herschell (at 375):

“At the same time I desire to say distinctly that when a false statement has been made the questions whether there were reasonable grounds for believing it, and what were the means of knowledge in the possession of the person making it, are most weighty matters for consideration. The ground upon which an alleged belief was founded is an important test of its reality. I can conceive of many cases where the fact that an alleged belief was destitute of all reasonable foundation would suffice of itself to convince the Court that it was not really entertained, and that the representation was a fraudulent one. So, too, although means of knowledge are, as was pointed out by Lord Blackburn, in Brownlie v Campbell 5 App Cas at p952, a very different thing from knowledge, if I thought that a person had shut his eyes to the facts, or purposely abstained from inquiring into them, I should hold that honest belief was absent, and that he was just as fraudulent as if he had knowingly stated that which was false.”

It is not in dispute that the burden of proof on this issue is on MEX. MEX must establish that Mr Driver was fraudulent in the sense set out above. It is equally not in dispute that the standard of proof is the balance of probabilities.

In this connection I was referred to well-known passages from Re H (Minors)[1996] AC 563 at 586 – 7 and of Re B (Children) (Care Proceedings: Standard of Proof) [2009] 1 AC 11. In his closing submissions Mr Lowenstein QC referred me to Dadourian Group International v Simmons & Ors[2009] 1 Lloyd’s Rep 601 where Arden LJ said

In his closing written submissions Mr Douglas QC submitted that Mr Driver was a good witness. He submitted that his evidence was credible and, given the pressure upon him, the nature of the allegations and the persistence of the questioning, courageous.

He pointed out that Mr Driver was a surveyor of 33 years experience, that there is no allegation that the capital values provided by Mr Driver were fraudulent, that he was not charged by the police in respect of the 2006/2007 fraud. He invited the court to take a realistic view as to inspections carried out (or not carried out) by Mr Driver.

In paragraph 19 and 20 he submitted:

In his oral submissions (Footnote: ¹⁰) Mr Douglas QC elaborated on some of these points and concluded (Footnote: ¹¹)

He invited me to be cautious about the Bundle 10 documents. He acknowledged that they were difficult to deal with. He pointed out that Mr Driver had always denied the signatures were his. He pointed out that Mr Driver was unrepresented, that there was no evidence that he had actually had any money out of the transactions. He submitted accordingly that I should draw no adverse inference against Mr Driver on the main Macquarie Quay transactions as a result of his exercise of privilege.

Mr Lowenstein QC’s acknowledged that in the absence of an admission the case against CWS was based on inference. However he submitted that I should draw the inference that Mr Driver was fraudulent in the sense outlined above.

MEX’s case is set out in paragraph 99 C of Mr Lowenstein QC’s closing submissions (Footnote: ¹²). Many of the points have been covered in the summary of Mr Driver’s evidence. I shall not lengthen this judgment by repeating those points.

He submitted that the evidence on comparables was of prime importance. Mr Driver knew that he was supposed to provide comparables. Comparables were readily available. On balance I ought to find that he had not looked for them. Mr Driver had in fact himself valued comparable properties in 2003 and 2004 and concluded that the rental figure then was far lower than the £1,540 rental figure provided by Mr Driver in these valuations. £1,540 was, as Mr Driver knew, the figure requested or estimated by Keith Rumary.

Mr Lowenstein QC invited me to infer that, contrary to Mr Driver’s evidence, Mr Driver did not in fact carry out any inspection or valuation of the bulk valuation flats. He simply put down the rental that Keith Rumary was seeking. This is evidenced by the numerous mistakes in the forms and the fact that only a photocopy of one page of the same internal mortgage valuation sheet was filed in respect of all of the bulk valuations. Yet Mr Driver was prepared to sign the valuation certificate that he had inspected the property.

He invited me to infer that Mr Driver’s connections with Keith Rumary were much closer than Mr Driver was suggesting. He drew my attention to the purchase of 30 Arequipa Reef, the large number of instructions from Keith Rumary; the requirement that the valuations were to be carried out by Mr Driver, the employment by Keith Rumary after he retired and the 20 transactions in 2006/2007. He submitted (paragraph 99W2) that Mr Driver had found himself in an impossible situation over his passport and that there was no rational explanation of why Keith Rumary had a copy of his passport. He submitted that that there was ample material upon which I could infer a motive for Mr Driver in supplying Keith Rumary with the rental valuations he required.

He submitted that the justifications for the rental figures put forward by Mr Driver did not stand up to any sort of analysis and the final suggestion that Mr Driver had relied on figures from the Brighton Marina was mentioned for the first time when he was giving his evidence.

He noted that Mr Simmonds had concluded that “it was almost certain that the valuations were fraudulent” and that Mr Atter could see “no reason why a competent Chartered Surveyor would value up properties on a consistent basis and ignore Company procedures unless there was some form of financial inducement”. Mr Lowenstein QC invited me to take the same view.

I regret that I did not find Mr Driver to be an honest witness. I accept, of course, that he gave evidence voluntarily. I also accept that until he refused to answer questions on the second day he answered Mr Lowenstein QC’s questions. I also accept that the events were more than 10 years ago. Even so I formed the clear impression that he was not being honest about how he carried out the valuations, the extent to which he inspected at all and the reasons he now gave to justify the figure of £1,540 as a rental figure. I was also unimpressed with the answers he gave in respect of his passport.

I am very conscious that it is not enough for me simply to find that Mr Driver was grossly negligent. Nothing less than fraud will do. However, largely for the reasons given by Mr Lowenstein QC and summarised above I am satisfied on the balance of probabilities that Mr Driver had no honest belief in the £1,540 rental figure in the valuations. It was the figure required by Keith Rumary and that was the reason for the valuation. In my view Mr Driver was at the very least reckless in the sense that he did not care whether it was true or false.

I accept that that there is no allegation of deceit in relation to the capital values. That does not deter me from my conclusion in relation rental values. If necessary I would also consider that the capital values were supplied because they were the figure required by Keith Rumary. However they were sufficiently close to the market value for them not to be false. Furthermore, as Mr Lowenstein QC pointed out, Mr Driver did provide comparables for the capital values. Thus there is a distinction between the capital and the rental values.

Accordingly I conclude that MEX succeeds on the first issue.

The Second Issue – Reliance

Both Mr Lowenstein QC and Mr Douglas QC referred me to passages from Briess v Woolley[1954] AC 333 at 353 and 358:

“The tort of fraudulent misrepresentation is not complete when the representation is made. It becomes complete when the misrepresentation – not having been corrected in the meantime – is acted upon by the representee. Damage giving rise to a claim for damages may not follow or may not result until a later date, but once the misrepresentation is acted upon by the representee, the tortious act is complete provided that the representation is false at that date…… Where there is an appreciable interval between the two dates above mentioned [i.e., date when made and date when acted upon], and the representation relates to an existing state of things, the representor is deemed to be repeating his representation at every successive moment during the interval, unless he withdraws or modifies it by timely notice to the representee in the meantime.’ I do not think the accuracy of these statements can be challenged.”

“ In any case where there is an interval between the representation and the alteration of position induced thereby, the representor is at liberty to withdraw or modify the representation at any time during such interval. Unless so withdrawn or modified, and if modified, subject only to the modification, the representation is deemed to be repeated at each successive moment during the whole of such interval and is hereinafter called “a continuing representation””.

Mr Douglas QC referred me to paragraph 20 of the judgment of Lord Reed in Cramaso LLP v. Ogilvie-Grant [2014] A.C. 1093 as to the effect in law where a misrepresentation has been withdrawn or lapsed.

“Where a misrepresentation does not have a continuing effect, for example because it is withdrawn or lapses, or because the other party discovers the true state of affairs before the contract is concluded, it cannot induce the other party to enter into the contract and therefore cannot affect its validity or give rise to a remedy in damages for any loss resulting from its conclusion. As Lord Brougham observed in Irvine v Kirkpatrick (1850) 7 Bell App 186, 237-238, in order that the misrepresentation may be of any avail whatever, it must inure to the date of the contract. If the other party discovers the truth before he signs the contract “the misrepresentation and the concealment go for just absolutely nothing”

It was common ground between the parties that Redgrave v Hurd (1881) 20 ChD 1 establishes that it is not a defence to an action for deceit that the person to whom the representation was made might with reasonable diligence have discovered that it was untrue.

It was also common ground that the relevant date when reliance/inducement had to be established was the date of completion of the loan. MEX may well have relied on the rental valuation when they made the mortgage offer. However it was common ground that the offer could be withdrawn at any time up to completion and that accordingly this was the relevant date.

The crucial question which arises is whether the correspondence between 19 July 2005 and 25 August 2005 had the effect of withdrawing or modifying the representations made by Mr Driver so that they did not inure to the date of completion.

Mr Lowenstein QC submitted that the withdrawal or modification of a misrepresentation must be clear and unambiguous. He referred me to the decision of the Court of Appeal in Arnison v Smith(1889) 41 ChD 348. In that case the Plaintiffs took debenture stock in a company in reliance upon statements in a prospectus issued by the directors that £200,000 of share capital had been subscribed, when it had in fact only been allotted in full paid-up shares to the contractor. After allotment, the directors sent to the allottees along with their share certificate a circular, which amid statements about other matters, stated the truth as to the matter misrepresented, but did not admit the misrepresentation, nor inform the allottees that they could retire and have their money returned.

There are observations in the judgments of the Court of Appeal upon which Mr Lowenstein QC relied. Thus at p 370 Lord Halsbury said:

At p 373 Lindley LJ said:

“It [the circular] does not distinctly point out that there had been a misrepresentation in the prospectus, and it contains no offer to refund. I do not say that it does not make it clear to the mind of a lawyer what the misrepresentation was, but it was not calculated to make plain business people understand that there had been a misrepresentation entitling them to a return of their money, and it does not appear that any one of them understood that they could have their money back. “

Mr Lowenstein QC also referred me to the decision of Tomlinson J in Abu Dhabi Investment Company and ors v H Clarkson and ors[2007] EWHC 1267. In that case Tomlinson J asked himself whether the documents disclosed “revealed the falsity of the earlier representations”. He held that a person with a more enquiring mind than Mr Agarwal might have asked questions which would have revealed the falsity of the representations but it could not be fairly expected that Mr Agarwal would have become so aware.

Mr Douglas QC submitted that both of these were decisions on the facts. They do not lay down any principle of law. The decision in Abu Dhabi was an example of the Redgrave v Hurd line of authority. The decision in Arnison is a decision on its facts. On its facts the wording of the circular in that case was not sufficient to displace the representations in the earlier circular.

I agree with Mr Douglas QC that each case depends on its own facts and that it is not possible to transfer observations of judges in relation to one set of facts to a case with a completely different set of facts. I also agree that Abu Dhabi was an example of the Redgrave v Hurd line of authority.

However I also agree with Mr Lowenstein QC that the burden of establishing a correction or withdrawal rests on the person making the correction and that the correction must be sufficiently clear in all the circumstances of the case.

Where, as here, the correction is made in written documents the court has to construe those documents in accordance with the well-known principles of construction:

The Court is required to consider the meaning which is reasonably (i.e. objectively) conveyed to the representee by the documents. This test must be applied in the context of the particular facts of the case. Thus, the Court applies an objective test, but takes into account all the factual matrix of the particular transaction, including the particular features of the person to whom the statement was made (i.e. Mr Vaughan). It is also relevant that MEX was a high volume commercial lender acting under tight timetables.

Before analysing the actual communications it is convenient to deal with two points. Much was made during the course of the trial of the limited nature of what Mr Stones and Mr Bolton told Mr Vaughan and of the failure by CWS to inform MEX of the number of cases, the extent of the inaccuracy and of its strong suspicion of fraud.

It is perfectly obvious that Mr Stones and Mr Bolton could have revealed far more than they did. Furthermore the email of 4 August 2005 was untrue. Although I do not have to decide the point it seems to me quite likely that CWS was in breach of its contractual duty in failing to make fuller disclosure.

However I am not trying a case of breach of contract. The question of whether CWS corrected Mr Driver’s valuations cannot in my view depend on matters which were not disclosed to Mr Vaughan. Furthermore this is not altered by the further question of whether the non disclosure was deliberate. It must follow as a matter of logic that the non-disclosure by CWS is irrelevant to the question I have to decide.

As noted above the question for me is whether the communications which actually took place are to be interpreted (applying the rules of construction summarised above) as having corrected Mr Driver’s valuations.

The second point relates to the lending experts. I shall not lengthen this judgment by setting out and analysing their evidence in detail because in the end I derived very little assistance from either of them. The experts were asked specific questions on the exceptionality of the communications. The experts agreed that the communications were highly unusual but expressed differing views as to other matters. Mr Penman’s view was that full and timely disclosure was required by CWS. For reasons that I have given this is irrelevant to the question I have to decide which relates to the communications actually made. Mr Wilson’s view was based on what MEX ought to have realised and to have done. As is clear from Redgrave v Hurd this does not assist me.

Earlier in this judgment I have set out the email in full and referred in some detail to Mr Vaughan’s evidence in cross-examination. I shall not set them out again.

As Mr Douglas QC pointed out it identifies the properties by way of address and postcode; the valuer - Mr Driver, and requests the “opportunity to review our advice before any further lending decisions are made”.

On the other hand, as pointed out by Mr Lowenstein QC it did not positively say that the properties were overvalued. It used the word “may”; it did not actually withdraw the valuations or say that they should not be relied on. It simply requested the opportunity to review. It did not specify the extent of the problem.

As noted above Mr Douglas QC submitted that it terminated any representation that Mr Driver’s valuations on Macquarie Quay were to be relied on or accurate and the request should be interpreted as an instruction not to carry out any further lending on any of the properties. In each case MEX should refer the matter back to CWS who will report back.

I cannot accept Mr Douglas QC’s submission. In my view the email falls far short of that construction. I take into account the commercial context, the fact that CWS were or were treated as the panel managers. I accept the evidence of Mr Vaughan that the email was not sufficiently clear for him to recommend a stop on the system on the basis of the limited information set out in the email.

In my view the email is not a sufficiently clear correction or modification of Mr Driver’s valuations to have the effect Mr Douglas QC contends.

By sending the Vaughan List on 29 July 2005 Mr Vaughan expressly asked for a revaluation of the rentals of the 19/21 properties. In my view he was thereby consenting to CWS’s request to be allowed to revalue the rental values in respect of those properties.

By his email dated 1 August 2005 (a Monday) Mr Bolton requested a delay of 1 week before Mr Ramsden could carry out the valuations. As Mr Vaughan did not reply to the email he impliedly consented to this request.

The email of 1 August referred to the degree of urgency and in my view impliedly thereby stated that Mr Ramsden would carry out the revaluations urgently after 8 August 2005. Alternatively it was implicit in the request that the revaluations would be carried out within a reasonable time.

In the context of the timescales in this case a reasonable time would not be more than 3 or 4 days. Thus MEX could have expected the valuations to have been given by 12 August 2005. I do not see why MEX should be expected to put on hold their lending procedures in respect of Macquarie Quay for a longer period than that in the absence of any further communication from CWS.

That conclusion is, in my view, reinforced by the email of 4 August 2005 describing the audit as “standard procedure with a change of Senior Staff”.

I have commented earlier in this judgment on what was not contained in the email. I shall not repeat those comments.

In my view a fair reading of that email is that it provided corrected capital and rental valuations for the 19/21 properties. It did not and did not purport to correct the capital and rental values in respect of any of the other properties valued by Mr Driver at Macquarie Quay.

CWS were well aware from their audit (and from the Simmonds and Curtis reports) of the number of other properties that Mr Driver had valued and that most, if not all, of these valuations were likely to end up in support of mortgage applications to MEX. The email did not refer to any of these valuations nor did it warn MEX against any further reliance on Mr Driver’s valuations at Macquarie Quay.

It may be that an astute lender ought to have appreciated from the email that all of Mr Driver’s valuations were suspect and to have placed a stop on further lending in reliance on them. It may be that it was negligent of MEX to continue lending in reliance on them. However, in the light of Redgrave v Hurd, it is common ground that negligence on the part of MEX does not prevent MEX from being induced by the original deceitful representations.

It is common ground that MEX was entitled to rely on the deceitful valuations in the 3 category A cases. The Category A claims accordingly succeed.

As can be seen from the Appendix the completion date in respect of the 4 category B cases was between 17 and 22 August 2005 (Footnote: ¹³).

For reasons given above I do not think the email of 19 July 2005 was effective to prevent MEX relying on Mr Driver’s valuations. I think that the email exchange of early August 2005 was sufficient to prevent MEX from relying on the valuations for a reasonable time to give CWS the opportunity to carry out revaluations. However that reasonable time had expired well before 17 August 2005. It follows that MEX were entitled to rely on the valuations on 17 and 22 August 2005.

I am satisfied that MEX did rely on Mr Driver’s valuations in making the loans. It follows that the Category B claims succeed.

In my view the email of 25 August 2005 did have the effect of correcting Mr Driver’s valuations in respect of the 2 category C claims. In those circumstances Mr Driver’s valuations did not have a continuing effect and therefore cannot have induced MEX to make the loans or give rise to a remedy in damages.

It follows that the Category C claims fail.

In my view none of the emails had the effect of correcting Mr Driver’s valuations in respect of the 32 category D claims. The only possible emails that might have affected the position are those of the 19 July 2005 and 25 August 2005. For reasons I have given neither of them had that effect.

It would have been perfectly simple for CWS to have warned MEX in clearer terms in order to prevent reliance on the valuations. It could have mentioned their suspicions of fraud; it could have withdrawn the valuations in clear terms. It chose to inform MEX in the very limited way outlined above. I am not satisfied that that limited information was sufficient to correct the deceitful valuations of Mr Driver.

Mr Douglas QC suggested that MEX might have decided to continue with the lending in the knowledge that rental valuations were wrong but in reliance on the capital valuations. This would have been wholly contrary to MEX’s lending policy and Mr Vaughan’s evidence in relation to it. I reject the suggestion which I regard as fanciful.

I am satisfied that MEX did in fact rely on Mr Driver’s valuations in making the loans. It is irrelevant whether or not they ought to have done.

It follows that the Category D claims succeed.