Lloyds TSB Bank Plc v Edward Symmons & Partners

The Claimant, a well-known bank, was, in 1998, called Lloyds Bank Plc. It is convenient to refer to the Claimant in this judgment as “Lloyds” no matter what the precise form of its name at the time of which I am speaking.

The Defendants, Messrs. Edward Symmons & Partners (“Symmons”), practise, and did in 1998, as a firm of surveyors and valuers of real property.

Mr. Stephen Skinner was an Associate with Symmons based at its Southampton office in 1998. He is now a partner in the firm. Mr. Colin Jennings was, in 1998, and remains, a partner in Symmons based at the London office of the firm.

The freehold owner of the property known as and situate at The Sanderson Centre, 15 Lees Lane, Gosport, Hampshire (“the Property”) in the summer of 1998 was a company called Salcrom Properties Ltd. (“Salcrom”). At that time Salcrom was also the freehold owner of the property known as and situate at 37-39 Southgate Street, Winchester, Hampshire (“the Winchester Property”).

Salcrom was a customer of Lloyds and from about 1990 Lloyds had advanced funds to Salcrom. From the evidence of Mr. Brian Johnson, a Senior Manager in Lloyds’s Debt Management Group, in his witness statement made for the purposes of this action and dated 12 September 2002, which was not challenged and which I accept, by 1998 the security held by Lloyds for the repayment of the sums lent to Salcrom comprised (i) an unlimited debenture; (ii) a legal charge over the freehold interest in the Property; (iii) a legal charge over the freehold interest in the Winchester Property, and (iv) charges over five life assurance policies written in respect of the lives of two of the shareholders in Salcrom, Mr. Peter George Farquhar Dibben and Mr. Russell Abrahams. The wife of Mr. Dibben was Mrs. Sylvia Elizabeth Dibben. It appears that in 1998 she and her husband were the directors of Salcrom, although Mr. Abrahams had previously been a director. The General Manager of Salcrom, who was also the Company Secretary in 1998, was Mr. Andrew Charles Smith. Mr. Smith was not a director of, or a shareholder in, Salcrom.

Towards the end of 1998, as I shall relate, Mr. Dibben, Mr. Abrahams and Mr. Smith all became involved as participants in a company called Systemsolid Ltd. (“Systemsolid”).

By about July 1998 Lloyds had become concerned as to the adequacy of the security which it held for the loan outstanding from Salcrom. It decided to commission a valuation of the Property and a valuation of the Winchester Property from Symmons.

This action is concerned with the valuation of the Property undertaken in September 1998 by Symmons for Lloyds.

Rather unusually, what is complained of on behalf of Lloyds in this action is not the customary grievance that a valuer has overvalued a security, but that Symmons, by Mr. Skinner, undervalued it. I shall come shortly to the matters of the retainer of Symmons and its performance of that retainer, but what was set out in the Particulars of Claim as the alleged breach of the retainer and what allegedly followed from the alleged breach was this:-

“Breach

11.

In breach of contract and its duty of care to the Bank, Edward Symmons failed to prepare and compile the Reports with reasonable skill and care and were negligent in that they valued the Sanderson Centre in the sum of £525,000 on an open market basis whereas its true value was £1,100,000.

Reliance

12.

In reliance on the Reports, the Bank sold the benefit of its security by transferring it’s [sic] charge in the Sanderson Centre to a buyer for the sum of £525,000 on 17 December 1998 with completion taking place on 18 December 1998.

Loss

13.

As a result of Edward Symmons’ breach of contract and negligence the Bank has suffered loss and damage in that, had Edward Symmons provided an accurate marketing report and/or true valuation of the Sanderson Centre, it would have sold the property or its security for the true value of £1,100,000. The Bank’s claim is for the difference in the actual valuation and the true valuation i.e. £575,000.”

Again rather unusually, the purchaser to which Lloyds sold the benefit of its security over the Property was Systemsolid, that is to say in effect another corporate manifestation of the persons behind Salcrom. I shall return to the possible significance of that circumstance later in this judgment.

In the Defence served on behalf of Symmons the following response to the allegations set out in paragraphs 11,12 and 13 of the Particulars of Claim was made:-

“12.

It is admitted that Edward Symmons valued the Sanderson Centre in the sum of £525,000 on open market basis, but it is denied, as alleged in Paragraph 11 of the Particulars of Claim, that it failed to prepare and compile the Reports with reasonable skill and care, or negligently, or that the true value of the Sanderson Centre was £1,100,000. In the absence of any particularisation of the respects in which it is said that Edward Symmons failed to act with reasonable skill and care and/or were negligent, Edward Symmons is presently unable further to particularise its denial of negligence.

13.

No admission is made as to the reliance alleged in paragraph 12 of the Particulars of Claim. Subject to formal proof that the Sanderson Centre was sold for the sum there alleged, and on the dates there alleged, the remainder of paragraph 12 of the Particulars of Claim is admitted.

14.

As regards paragraph 13 of the Particulars of Claim, Edward Symmons repeats its denial that it has acted in breach of contract and/or alternatively has been negligent, and accordingly it is denied that the Bank has suffered any loss and damage. Given that it is Edward Symmons’ case that its valuation was prepared with reasonable skill and care, it follows that Edward Symmons denies that the Bank would have sold, or would have been able to sell, the property or its security for a sum of £1,100,000. The Bank’s claim in the third sentence of paragraph 13 of the Particulars of Claim is noted: for the reasons already pleaded, it is denied. ”

In the light of the pleas in paragraph 14 of the Defence, one of the issues in this action is whether Lloyds would in any event have been able to sell the Property or the benefit of its security for the sum of £1,100,000 or any sum in excess of that at which the benefit of the security was sold.

Pursuant to an order which I made on 13 January 2003 there were served on 20 January 2003 what were described as “Further Particulars of the Critical Repects in which it is alleged the Defendant failed properly to value the Sanderson Centre”. In those particulars it was explained that the primary and overarching allegation against Symmons was that:-

“its valuer, Stephen Skinner, in concluding that the open market value of the property was £525,000 reached an opinion which no reasonably competent valuer exercising reasonable care and skill could have reached…”

In other words, the primary allegation was that the valuation was so low that that in itself was evidence of negligence. By inference Lloyds’s case was that no reasonably competent valuer could have valued the Property in September 1998 at less than what was asserted to have been its true value at that time, namely £1,100,000. The particulars to which I have referred did, however, proceed to set out the stages by which it was alleged that Mr. Skinner reached his allegedly incompetent conclusion. His particular failings were alleged to be these:-

“3.

Failing to assess competently the net lettable areas of the property:

3.1

He appeared to calculate value by reference to gross rather than net areas.

3.2

He ignored, overlooked or discounted vacant accommodation

3.2.1

on the ground floor amounting to 3,821 sq ft

3.2.2

on the first floor amounting to 4,740 sq ft of already divided accommodation

3.2.3

on the first floor amounting to 6,700 sq ft of partially divided space within B40

3.3

He accordingly ignored or left out of account potentially income of £56,640.

4 Overallowance for costs of services:

4.1

He allowed for figure of £240,000 to be deducted for cost of services.

4.2

A competent valuer would have allowed some £130 - £135,000.

5 Failing to allow for a greater recovery of service charge costs:

5.1

He made no allowance for recovery of the deficit in the cost of providing services

5.2

A competent valuer would have allowed for recovery of the shortfall over a period of 2 years.

6 Ignoring or discounting the level of rents already achieved in assessing potential for rents on the first and second floors:

6.1

He assessed the potential rent for the first and second floors between £0.50 and £2.00 per sq ft

6.2

He calculated the potential rent for the first floor at £1.00 per sq ft

6.3

He ignored or discounted the fact that the average rent then being paid for the first floor was £3.31 plus £0.40 service charge

6.4

A competent valuer would have concluded that the average rent for the first floor would have been no less than £3.00 per sq ft plus £1.00 per sq ft service charge

6.5

He calculated the potential rent for the second floor at £0.50 per sq ft

6.6

He ignored or discounted the fact that the average rent formerly being paid for the second floor by Hampshire Prints was £1.22 plus £0.23 service charge

6.7

A competent valuer would have concluded that the average rent for the second floor would have been no less than £1.00 per sq ft plus £0.50 service charge

7 Valuing the business of SPL [i.e. Salcrom] rather than the property:

7.1

He concluded that SPL had not been profitable

7.2

He re-worked the accounts of SPL to calculate a retained profits figure

7.3

He overemphasised the business accounts of SPL

7.4

He appeared to undertake a profits related valuation but took into account the specific operator not a normally competent operator

7.5

He conflated values for business and let property investment taking the average or mean of 2 values

7.6

A competent valuer of the Open Market Value of the property should have reported the best price which he considered the market would pay

7.7

A competent valuer should have reported the valuation of the property as a business centre not the business itself

8 Misapplying the information from a comparable property:

8.1

He took the capital value of a property at Fareham Reach to be £7 or £6.77 psf whereas from the information he had available, it was nearer £10.27 psf

9 Failing to use capital values of the property and a comparable as a check on his valuation:

9.1

The valuation he produced for the property equates to £3.65 per sq ft

9.2

The Avonside Enterprise Park at Melksham was agreed to be sold (but did not in fact complete) for a capital value of £14.09 per sq ft

9.3

A competent valuer would have questioned such a differential and reconsidered his opinion.

10 Giving wrong advice to the Bank:

10.1

He should have advised the Bank to exercise caution before agreeing to dispose of the property to its current owners

10.2

A competent valuer would have advised the Bank first to expose the property to the market.”

It was common ground that by a letter dated 14 July 1998 written on behalf of Lloyds by Mr. M.J. Curtis, Assistant Commercial Manager, Lloyds instructed Symmons to prepare, so far as is presently material, an open market valuation (“OMV”) and an open market rental valuation (“OMRV”) of each of the Property and the Winchester Property. The letter of instruction was long and detailed, following a standard form not all of the contents of which were in fact relevant. For present purposes it is enough to notice that the expressed “PURPOSE OF THE SERVICE” was “To assist in reviewing the continued suitability of the security”, that Symmons was asked to provide a marketing strategy for each property valued, and that by clause 2.1 of the letter it was instructed

“The report is to provide

2.1.1

A full description of the property, including

•

its location;

•

surroundings, and use of neighbouring properties;

•

apparent state of repair;

•

site area;

•

floor space; and

•

other relevant information.”

There was no suggestion that the valuations provided by Symmons in relation to the Winchester Property could be criticised in any respect and no claim was made on behalf of Lloyds in relation to them. The position adopted on behalf of Lloyds by Mr. Stephen Lennard, who appeared at the trial on its behalf, was that the Winchester valuations were simply irrelevant to any issue which I had to decide. I do not accept that. While the weight to be attached to it may be slight, it seems to me that Symmons and Mr. Skinner, who in fact undertook the valuations in relation to both the Property and the Winchester Property, are entitled to rely, in support of a contention that Mr. Skinner was generally competent to value property in the southern part of Hampshire, upon the fact that the accuracy of his valuations of the Winchester Property was not in dispute.

The Property was in fact, it seems, originally constructed as a wallpaper factory. The name by which it was known appears to have been by way of acknowledgement of its ancestry. By the date as at which Symmons was called upon to value the Property it had been adapted for use as a business centre. The adaptations seem to have been of a somewhat rudimentary nature. Moreover, the Property was in Gosport, which at least so far as the issues raised on behalf of Symmons in this action is concerned, was itself a factor relevant in the valuation of it. At all events, it was common ground at the trial before me that the Property was difficult to value. A further circumstance which it was contended on behalf of Symmons at the trial made the Property difficult to value was that shortly before the giving by Lloyds of the instructions to Symmons to value the Property a major tenant of the Property, Hampshire Prints (1983) Ltd. (“Hampshire Prints”) had gone into receivership and had ceased trading.

The factors to which I have referred in the preceding paragraph were alluded to by Mr. Skinner in his letter dated 27 July 1998 to Mr. Daniell by which he acknowledged the receipt of Lloyds’s instructions. What Mr. Skinner wrote was:-

“I write with regard to your letter of 14 July 1998, requesting our professional advice and services in undertaking a valuation of the above properties [that is, both the Property and the Winchester Property], to assist in reviewing the continued suitability of the security.

I would confirm that we have acted in respect of The Sanderson Centre for Salcrom Properties in advising, from a plant and machinery point of view, on the value of assets owned by Hampshire Prints, and contained on the premises at Lees Lane, Gosport in an attempt by the landlord to distrain for rent arrears.

This has been highlighted to both Salcrom Properties and Lloyds Bank, and is understood and accepted by both, and will not bar us from undertaking this work in either parties view.

Our report will be in line with your letter of instruction, and we will provide you with our opinion as to the Open Market Value, the Open Market Rental Value, and the Estimated Restricted Realisation Price on the assumption that the completion of the sale must be within six months from the date of the valuation.

I would confirm that I have already met with Andrew Smith, the manager at The Sanderson Centre, and several problems have already become apparent. Firstly, the property has been broken up into a number of individual business units to which full access will not be available for the purposes of measuring.

Secondly, I have spoken to the Local Planning Authority, who will not deal with planning issues verbally. I will have to write requesting further information and advice from them in respect of the local plan status, and proposals for not only The Sanderson Centre, but the land surrounding it. I am for instance, aware that the Light Rapid Transport proposal runs directly down the side of the building and may well substantially affect the value and our views. Unfortunately, planning authorities are notoriously slow in responding to requests for information, and I would not be surprised if they do not take two or three weeks to deal with this particular issue. In addition, as you are aware, I am also on holiday from August 4^th, returning to the office on Monday 17^th. I will use my best endeavours to complete the report as best I can in the intervening period and it may well be that one of my colleagues has to complete the report in my absence.

In the meantime, I would confirm that on the assumption that we are able to fully measure The Sanderson Centre without undue delay or problems, and obtain all necessary legal documents, we will undertake the report for a fully inclusive fee of £2,450 plus VAT.”

Mr. Roger Higgins is now a Senior Manager working in National Business Support for Lloyds in Bristol. In 1998 Mr. Higgins was a Senior Advances Manager for Business Support in the South West and Wales region of Lloyds with particular responsibilities for property related lending. In his first witness statement made for the purposes of this action, dated 29 August 2002, Mr. Higgins explained that he first became involved with the affairs of Salcrom in about July 1998 when he was concerned with the decision to commission the valuations of the Property and the Winchester Property from Symmons. Thereafter it seems that it was principally Mr. Higgins who dealt with matters in relation to the Property and Salcrom at the Lloyds end.

Just before he went on holiday in August 1998 Mr. Skinner visited the Property. Following that visit he telephoned Mr. Higgins. Mr. Higgins made a file note dated 3 August 1998 of the telephone conversation. That note included:-

“Stephen Skinner of Edward Symmons, Southampton telephoned following his visit to the Sanderson Centre at Gosport. Has particular concerns about the value of this property which he wished to highlight as his full report will not be available until he returns from holiday on Monday, 17 August.

We have no file or Relationship Profile in this office for background at present but I understand the property was valued at £2.4m in 1992. It is the former Sanderson Wallpaper factory consisting of 190,000 square feet divided into a number of letting units.

SS tells me that the building is of very low quality with poor access. There are a number of vacant units but he believes it most unlikely that tenants will ever be found. Some of the existing lettings are on informal licences. Site area 3.5 acres.

Tells me there is a 10 acre site nearby with 460,000 square feet of older style industrial buildings which has recently been acquired for £7 per square foot! The owner of this site can, therefore, afford to let at £1/£2 psf [per square foot] and make a sensible return!

SS will prepare an investment valuation based on OMRV but this will have to take into account the current short term nature of the lettings and the probability that very few further units will find tenants. Its only likely value is on an alternative use basis as a site for new commercial/warehousing where Edward Symmons believe value would be approximately £300k per acre for the 3.5 acres. However, there would be very significant demolition costs – potentially £250k! On a net basis, therefore, the valuation might be no more than £700k for the Sanderson Centre.”

Mr. Higgins himself visited the Property on 6 August 1998. He made a file note dated 10 August 1998 following that visit. That note was in these terms:-

“Along with Mike Daniell, visited the Sanderson Centre at Gosport last Thursday – ahead of the Edward Symmons valuation report which is promised for week commencing 17 August.

The majority of the property appears to be 1930s former factory accommodation divided up into a number of units. The condition of the building fabric and surrounding fencing and yard is poor. Maintenance costs must be heavy!

Many of the tenants are of an engineering/light industrial nature – also, there were many vehicle related tenants including panel beating and paint spraying.

The property is “hemmed in” on one side by residential and at the back by further industrial/commercial property.

In summary, a third rate building with third rate tenants!

We await the valuation and strategy report when a round table meeting of myself, Mike Daniell and Stephen Skinner of Edward Symmons will be appropriate to help us decide on the correct property strategy.”

In the event it was not until he wrote a letter (“the Letter”) dated 2 September 1998 to Mr. Higgins that Mr. Skinner responded relatively formally to Symmons’s instructions to value the Property. Subsequently a formal valuation report (“the Report”) dated 15 September 1998 was provided, but many of the factors identified in the Report as relevant to the valuation of the Property were first set out in the Letter. The Letter was pleaded in paragraph 7 of the Particulars of Claim and, together with the Report, was referred to in the Particulars of Claim as “the Reports”. The terms of the Letter are important in this action and it is appropriate to set out in this judgment substantially the whole of it.

The material parts of the Letter read as follows:-

“I write with regard to your letter of instruction dated 14^th July 1998 on the above mentioned property. You have requested that we provide you with professional services in undertaking a report on the property and circumstances surrounding it.

As a result of various telephone conversations that we have conducted, I am now responding to initially revised instructions prior to reporting fully to provide you with our opinion as to the marketability of the property as an investment proposition. As such this letter of advice does not purport to be a full and formal valuation of the property and is given for marketing purposes only.

GENERAL COMMENTS

The property is located within a mile of Gosport town centre and approximately 5 miles south east of Fareham, just off the main A32 linking the two conurbations. The property is situated adjacent to a predominantly high density residential area and comprises a former wallpaper manufacturing plant arranged over three floors, providing in the region of 18,020 square metres (193,950 sq ft) of mixed industrial accommodation on a relatively small site of approximately 3.6 acres. Direct access to the site is limited with the main entrance being from Lees Lane, a narrow single carriageway road, leading from the A32 to the residential suburbs. The property has a narrow frontage to Lees Lane. There is a secondary point of access to the rear of the site from Morland Road, leading directly from the A32. The A32 is the only main road leading from Fareham in the north to Gosport which in effect is isolated on a peninsula of land.

Gosport has had long and historic links with the Royal Navy and as such this has dominated the local economy until fairly recently. Unfortunately due to this high dependency Gosport is now suffering as a direct result of the peace dividend and the consequent reductions in armed forces expenditure.

There is little in the way of inherent industry in the Gosport area, with the majority of manufacturing and distribution being concentrated in the Southampton, Fareham and Portsmouth areas centred around the M27 motorway. There are one or two major employers in the area such as Polarcup and Cyanamid and there are a number of successful yachting marinas. Generally, however, the economy of the Gosport area lags behind its counterparts in the solent [sic] corridor and is seen as the poor relation to Portsmouth.

Our initial verbal discussions with Gosport Borough Council lead us to believe that the Council would object to the redevelopment of the site for any purposes other than industrial use. It is their assertion that there is insufficient “business space” available to the general market within the Gosport Borough. The vast majority of industry is of a local nature, being either self-employed people or small local companies, which are owned by people who live within the Borough. As a result the majority of enquiries tend to be of a small nature, ranging from 500 sq ft up to say 5,000 to 10,000 sq ft. At the larger end of the scale the serious enquiries tend to be few and far between.

This has to be tempered by the fact that HMS Daedalus will shortly be coming to the market as an association between Gosport Borough Council and The MOD and will be offering up to 1m sq. ft. of accommodation in various sized buildings, comprising offices, research and development and warehouse/industrial facilities. Added to which Dera in association with Hampshire Training Enterprise Council and Gosport Borough Council are offering Haslar Marine Technology Park which provides a mix of office, workshop units and land available on short term licence arrangements or new leases.

In a slightly different position and market, J Saville Gordon are offering to the market the former Thorn/Cyanamid site which is now rebranded as Fareham Reach, where there is in the region of 360,000 sq. ft. of industrial warehousing and office accommodation. This is a relatively modern facility which has undergone substantial improvement, set on a 20 acre site. Although the brochure indicates a minimum of 17,000 sq. ft. For an industrial or warehouse occupier we are of the opinion that units as small as 5,000 or 10,000 sq. ft. can be created up to a maximum area of approximately 200,000 sq. ft. Added to which there are brand new offices at the entrance to the site which can provide from 1500 to 20,000 sq. ft. of quality accommodation. Technically this property is located within the Gosport Borough but it is more closely associated with Fareham, being relatively close to Newgate Lane Industrial Estate and within 3 to 4 miles of Junction 11 of the M27.

THE SANDERSON CENTRE

I have set out the above information in order to set the scene for our advice with regard to the marketability of the Sanderson Centre as an investment. The centre offers office, workshop and storage space to companies in the Gosport area from units as small as say 50 sq. ft. to a maximum in the region of 42,000 sq. ft. which is currently occupied by Hampshire Prints. The building is currently broken up into approximately 100 different letable areas, with something in the region of 60 to 70 different tenants, the majority of whom occupy by way of a licence. However, there are four occupiers on site who occupy by way of formal leases. The licencees [sic] have the benefit of being able to enter and leave with relative ease, although we understand from Mr. Andrew Smith, the Centre Manager, that a number of the tenants have been long terms [sic] occupiers. In addition to the licence fees, the individual occupiers are also levied a service charge, which is designed to cover costs of maintaining, cleaning and running the common areas and electricity we understand is charged separately on a cost plus basis, designed to show a small overage through any financial period.

The business centre offers secretarial and accountancy services to the occupiers as well as running a central reception and telephone service.

SANDERSON CENTRE – STATE AND CONDITION

As previously mentioned, the building has been constructed over three floors and is constructed in a substantial nature of a steel frame with concrete floors. The roof coverings are, in the majority, original single skin asbestos cement panels which at best have a design life of 40 to 50 years. The roof covering is now, in our opinion, at the end of its expected design life and although it may continue to give good service in the near future, will undoubtedly require continuing and increasing maintenance, if not wholesale replacement in the very near future.

We are of no doubt that any prospective purchaser considering the property would make a substantial allowance in their bid to cover this risk. In addition to which, we noted during the course of our inspection that there is a large chimney that at some stage will require refurbishment or removal. This would prove to be a difficult exercise, given its position within the structure. We also noted at the time of our inspection that there is considerable frost damage to the brickwork and that the metal restraining straps are rusting.

There is also evidence of water penetration to the elevations, particularly at first and second floor level and in general the whole structure is in what could best be described as poor repairing and decorative order. We also noted in the accounts that little provision since 1993 has been made for expenditure by the landlord on repairs, redecorations or setting aside a sinking fund for major works to the structure in the future. Undoubtedly any prospective purchaser would make note of this from the accounts and would be foolhardy to not make provision for a rolling programme of works to the structure, as well as a provision for the roof and other major works in their consideration of the property.

In addition to which this is a post Second World War building, which until the early 1980s was used as a wallpaper printing factory. It has subsequently been utilised by a number of different companies and has been in multi-occupation. As a result there is a risk of contamination for the land and buildings, which is at this stage not quantified. Any purchaser of the property would have to undertake due diligence of environmental issues and would undoubtedly from their own point of view, or as a criteria for lending, be required to undertake at minimum, a desktop environmental study of the building and land. For the purposes of this letter we have assumed that there is no material contamination of the land and buildings. However, we would not be surprised to be informed at a later date that there was a risk or is material contamination, which would of course adversely affect the value of the property.

BUSINESS COMMENTS

From what we have been able to establish, occupancy levels of the ground floor main workshop area and the office elements, appears to be good. However, there is only limited access to the first and second floor industrial accommodation. This has, until recently, been primarily occupied by Hampshire Prints, who are now in Receivership.

The rents charged for individual units range from as low as £1.95 per square foot, to as high as £12 per square foot and we are of the opinion that there is only limited potential to increase these rents to gain more income. The potential of the site lies in the first and second floor accommodation, which is currently utilised by Hampshire Prints, and is likely will become vacant in the very near future. By his own admission, Mr. Andrew Smith, the Centre Manager, has indicated that he would expect to be able to generate in the region of £80,000 to £100,000 per year extra income from this accommodation.

We are of the opinion that in order to make the best use of this space, it would need to be broken down into smaller units, along similar lines to the ground floor. To do this requires a capital investment, and as a necessity, loss of floor space to create common areas and access ways. As a result, we are of the opinion that at rents ranging from 50p per square foot to £2 per square foot, there is in the region of £60,000 of additional income that could be generated from this accommodation if it were to be occupied in smaller units.

Whilst we have requested full audited accounts, these have not been forthcoming. We have been provided with copies of the profit and loss statements for the years 1993 to 1996 and it is upon this information, the management accounts and the current tenancy schedule that we have based our views as to the marketability of the building as an investment with the benefit of the current licence and lease arrangements. Please find attached copies of these documents for your information.

ACCOUNTING INFORMATION – COMMENTS

Over the period 1993 to 1996 it is apparent that Salcrom Properties have not, to all intents and purposes, been profitable. In 1996 a small profit of just under £40,000 was shown. However, this is tempered by the fact that the value of the building appeared to have been increased by £64,000 which is the prime reason why Salcrom were able to show a profit in this particular financial year.

We assume that over this relevant period Hampshire Prints remained in occupation and were paying rent. Income over that period ranged from £382,000 to £553,000. Consistently the figure averages at approximately £435,000 to £440,000. There are, however, some anomilies [sic] within the profit and loss statement.

For instance, in the P&L statement 1995/96 gross profit in 1995 is stated as being £411,000, whilst in the P&L statement for 1994/95 it is stated as being just under £467,000. Added to which there is a large increase in the fees receivable in 1994 to a level of almost £123,000 which accounts for the large increase in the gross profit over the previous and subsequent years. This is explained by Mr. Dibben as consultancy fees generated by himself and colleagues which were directed through Salcrom for pension fund reasons and they have nothing to do with the Business Centre.

There is, however, a general theme to the accounts such that, at the Sanderson Centre, Salcrom Properties Limited are not profitable. We previously mentioned the assumption that Hampshire Prints remained in occupation throughout this period, paying the then relevant rent. It becomes apparent upon their failure to pay that the gross income for the Centre, reduces to approximately £272,000 per annum, inclusive of service charge contributions.

MARKETABILITY AS A BUSINESS CENTRE

Taking this as a base figure and adding to it the potential income from the first and second floor, if redeveloped as smaller units and fully let, we are of the opinion that the current potential gross income for the Centre, including an estimatation [sic] of service charge income, lies in the region of say £350,000 to a maximum of say £375,000.

Utilising the profit and loss figures as a general guide, we have made the assumption that any new purchaser of the Centre would seek to reduce costs to improve profitability. However, due to the sheer size of the building, we are of the opinion that either a Centre Manager or sufficient management time would have to be costed at say £20,000 per annum in order to run it efficiently. Added to which administrative staff would be required and we have made an allowance for one and a half staff, added to which a security and maintenance person would be required for ongoing repairs and to secure the building.

We have then applied reasonable costs to the running of the Centre, but have excluded Directors emoluments, bank interest charges and pension fund contributions. In addition to which we have also made a moderate allowance for ongoing landlord repairs in the region of £20,000 per annum (further comments with regard to repairs are made elsewhere in this report).

After making reasonable allowances for costs, we are of the opinion that there is the potential to realise in the region of £150,000 net profit from the Business Centre, making the assumption that the first and second floors are fully let and income producing, However, this is not currently the case and allowances will have to be made for the costs of converting the first and second floors, as well as an allowance for void income periods. Added to which, we are of the opinion that any new purchaser would seek to redress the current repairing state of the property and more particularly would make a substantial allowance for roof repairs, if not full replacement of the roof at some point in the near future.

We have made an allowance in the region of £350,000 to £400,000 for basic repairs and to cover void rents and the remodelling of the first and second floors.

This may well prove to be an insufficient sum, given that the roof of the building is as originally constructed and is between 40 and 50 years old. It is therefore nearing the end of its economic life and is probably the most urgent part of the property that will require attention. Added to which, substantial other repairs and waterproofing could and should be undertaken to the property as parts are in a very poor state. But at this juncture we have not taken these into account as these works could form the basis of a rolling programme of works over the next five to ten years. Because of the sheer size of the building, we estimate there is in the region of 75,000 to 90,000 sq. ft. of roof covering the structure. That may well require replacement in the near future. Even making a small allowance of say £3 per square foot towards the roof costs, it is apparent that the cost of this exercise may well be considerably in excess of the allowance that we have made.

MARKETABILITY AS A “LET” PROPERTY INVESTMENT

Whilst there is the potential for some element of subsidy to the administrative staff by charging the tenants for accountancy and secretarial services, this is not a guaranteed form of alternative income. As such, a prospective purchaser may wish to do away with the Business Centre services and simply treat the property as a standing investment. This may allow a property company or individual to materially reduce the outgoing costs. However, we are of the opinion that this may result in a reduction in the occupancy levels. Some of the tenants obviously rely on the reception, secretarial and accountancy services that are provided.

We are of the opinion that there is only a limited scope to reduce the salary costs. A building of this size would require a maintenance/security person to be available on a full time basis. In addition to which a site administrator/manager would still be required on a full time basis to deal with tenancy issues, the demanding and collection of rents and the calculation, demanding and collection of service charge contributions.

In addition to which we are of the opinion that it may prove impossible to place all of the occupants on direct contracts with the Electricity Board to avoid administrative elements of charging for the private supply. The wiring and existing electrical system is private to Salcrom Properties who are the contracted supplier to the individual occupiers. Whilst we have not explored this opportunity with Southern Electricity Board, it is likely that substantial improvements in the wiring network and distribution would be required if it were to be taken over by SEB. The costs of this may prove to be prohibitive.

However, we have given consideration to the value of the property as a “let” investment to judge whether there is a material increase in the value of the property. A number of the costs remain similar. There is a saving with regard to staff, but equally there is a requirement to make an additional allowance for loss of tenants in the first instance, due to the removal of the business service element. Taking into consideration the cost savings, we are of the opinion that the net profit may increase to a level of say £150,000 to £175,000 on this basis.

COMPARABLE INVESTMENTS

We are aware that a similar Business Centre in Melksham known as the Avonside Enterprise Park was recently marketed in early 1998. This was a 78,000 sq. ft. building on ground and three upper floors, located in the centre of Melksham and opposite a new Sainsbury’s supermarket development. It was formerly a 1920’s built Unigate Dairy which is, according to the agent acting, in a very good state of repair and decoration. The buildings were 95% occupied and approximately £30,000 per annum is spent on external repairs and insurance, leaving a net income in the region of £150,000 per annum. From our investigation we believe that the units are effectively self-contained and little management time is required to run the park. Several bids were made ranging between £1.1m and £1.2m, reflecting a yield of 13%.

Although a contract was issued it was withdrawn shortly afterwards as a result of part of the site becoming vacant allowing the current owner to submit a planning application for retail use on that part of the property. According to the agents, the offers made reflected a yield in the region of 13% which also reflected the retail potential of the site. Taking this into consideration, we are of the opinion that the value of the site, ignoring the potential for retail, was in the region of 15% yield, realising an open market value in the region of £900,000.

MARKETING ADVICE

Taking into consideration the points made above, and ignoring the potential for contamination on site, we are of the opinion that if this property were offered to the market as an investment, with the benefit of the licence and lease income, and Salcrom Properties relinquishing its management to the new owner, that an asking price in the region of £700,000 to £800,000 should be sought. However, we are of the opinion that after a prospective purchaser has undertaken their due diligence enquiries with regard to the structure and state of repair of the property, the likelihood or otherwise of contamination on the site, an analysis of the company’s audited accounts and an appraisal of the potential of the site, that offers in the range of £250,000 to £600,000 may be realised. We have considered the investment on the assumption that the building is in a reasonable state of repair and redecoration and that the first and second floors are effectively occupied on a multi-tenancy basis. We have then made allowances for repairs, void rent periods and sub-division costs. These allowances may, however, prove to be inadequate and optimistic, which will of course adversely affect the price paid for the property.

We would also caution that from a Bank security point of view the building does not profer [sic] particularly good security. The building would most likely be purchased by a cash rich company or individual. If Bank lending were required, then we are of the opinion that the loan to value ratio would be kept at a low level and the bank would require full due investigative diligence by the purchaser before forwarding funds.”

Following the despatch of the Letter to Mr. Higgins a meeting took place between him, Mr. Skinner and Mr. Jennings of Symmons on 9 September 1998. Mr. Higgins did not give any account of that meeting in either his first witness statement made for the purposes of this action and dated 29 August 2002 or in a supplemental witness statement dated 10 January 2003. Mr. Skinner described what happened at the meeting in his witness statement dated 17 September 2002 in this way:-

“36.

At the meeting the advantages and disadvantages of the various options open to the bank were comprehensively discussed. I advised Roger Higgins the value of the building was to a large extent dependent on the business comprised within it, I therefore advised the bank that in my view it was sensible to value the Sanderson Centre as a business rather than a property investment.

37.

The bank’s options in terms of marketing and selling the property were in our view constrained by the nature of the local market, the instability of the business comprised within the Sanderson Centre and the Bank’s relationship with the Borrower, Salcrom Properties Limited.

38.

The business of the Sanderson Centre was essentially that of letting industrial units to local small businesses. The management of the Sanderson Centre itself faced difficulties in letting the property because of the state of repair of the building and the cost of repairing and redecorating it. Any sale of the property by the bank would need to be handled very carefully in order not to upset the licensees/Tenants who might leave if they perceived the situation as unstable thereby reducing the rental income and the value of the property.

39.

A number of options were therefore discussed with Roger Higgins at the meeting including the appointment of a receiver, redevelopment, the bank acting as a mortgagee in possession and selling the property back to the Directors. Following the meeting, Roger Higgins requested a valuation of the Business Centre and a separate Report on the alternative uses of the site within a separate Marketing Strategy Report.”

Mr. Jennings’s only involvement in the circumstances which have given rise to this action, according to his witness statement dated 18 September 2002, was to visit the Property with Mr. Skinner on 27 August 1998, to visit the properties which Mr. Skinner considered ought to be taken into account when arriving at his valuation, to discuss with Mr. Skinner prior to the meeting with Mr. Higgins the preliminary valuation which Mr. Skinner had by then undertaken, and to attend the meeting with Mr. Higgins. About the latter Mr. Jennings said in his witness statement:-

“5.

… At the meeting with Stephen Skinner and myself, Mr. Higgins wished to discuss the marketability of the property in the light of the issues raised by Stephen Skinner in his letter of 02. 09. 2002 [sic] to Mr. Higgins [which issues Mr. Jennings then summarised in his statement]

6.

At the meeting on 09. 09. 1998, Roger Higgins was clearly concerned by the content of Stephen Skinner’s letter of 02. 09. 1998 and wished to discuss it and formulate a strategy for disposing of the property at the minimum cost. We therefore had a comprehensive discussion of the value of the property, the valuation method adopted by Stephen Skinner and the problems that Lloyds Bank faced in disposing of the property. I have read Stephen Skinner’s account of the meeting with Roger Higgins and this accords with my recollection. I recall that the bank were strongly against appointing a Receiver, and were also unenthusiastic about acting as mortgagee in possession or selling the property for redevelopment.

7.

The bank was therefore considering selling the property back to the Directors if a suitable offer could be secured. Given their knowledge of the property and the business and the fact that there would be no change as far as the Tenants were concerned this was an attractive option in all the circumstances.”

I accept the evidence of Mr. Skinner and Mr. Jennings as to what occurred at their meeting with Mr. Higgins. That evidence was not really disputed.

As I have already indicated, the Report was dated 15 September 1998 and the narrative of it to a large extent reproduced the material contained in the Letter. One issue raised in the Report, at paragraph 3.07, which had not featured in the Letter was the possibility that, although described as “licences”, the terms of the agreements under which some occupiers of the Property utilised the parts which they, respectively, held might amount in law to tenancy agreements giving the occupiers security under the provisions of Landlord and Tenant Act 1954 Part II. At paragraph 3.13 of the Report Mr. Skinner recorded that the rents charged for individual units at the Property “appear to average at approximately £3.50 psf”. At paragraph 3.14 of the Report Mr. Skinner indicated that he considered that the appropriate allowance for the cost of remodelling the accommodation occupied by Hampshire Prints into smaller units and for void rents was £60,000 to £70,000. However, at paragraph 3.22 Mr. Skinner repeated the allowance indicated in the Letter of £350,000 to £400,000, which in the Letter was said to be “for basic repairs and to cover void rents and the remodelling of the first and second floors”, but this time said that it was “for basic repairs, and to cover void rents in the remodelling of the first and second floor accommodation”. The difference in wording seems to have been the result of a typographical error. Paragraphs 3.27 and 3.28 of the Report appeared under the heading “Further General Comments” and set out material which did not appear in the Letter in relation to the proposed South Hampshire Rapid Transit System and the possible availability of EU Konver funds for a redevelopment of the frontage of the Property. There then followed in the Report sections entitled, respectively, “CURRENT MARKET CONDITIONS”, “VALUATION METHODOLOGY” and “VALUATION” which I should set out.

“4.00

CURRENT MARKET CONDITIONS

4.01

In general, the commercial property market has shown considerable improvement over the last 1 – 2 years and generally, demand is currently good for freehold commercial properties and investments. Values had hardened, and in some instances improved. However, the market is still very selective and Gosport is not a favoured location for manufacturing or industrial property investment.

4.02

The market will also take account of any adverse conditions or circumstances pertinent to a property, in the level of bid put forward, particularly where income producing properties, the risks associated with the long term rental income are high or management intensive in terms of collection or the provision of services.

4.03

We are of the opinion that there will be limited demand for this property if placed on the market as an income producing business centre, and that it may take in excess of twelve months to achieve a sale, given the current income levels and state of repair and décor.

5.00

VALUATION METHODOLOGY

5.01

In arriving at the figures in this report, we have adopted the comparative method of valuation. We have taken into account evidence of similar properties and made adjustments for size, location, age and quality of accommodation.

6.00

VALUATION

6.01

We are of the opinion that the current Open Market Value of the freehold interest of the above property, as described in our report, subject to the terms of the current occupancies under licence and lease, and run as a business centre, is

£525,000

(Five Hundred & Twenty Five Thousand Pounds)

6.02

We are of the opinion that the Estimated Restricted Realisation Price of the freehold interest of the above property, as described in our report, subject to the various leases and licences, on the strict assumption that the property has to be sold within six months of the date of this report, and run as a business centre, is

£300,000

(Three Hundred Thousand Pounds)

6.03

You have asked us to pass an opinion on the Open Market Rental Value of the property in its current condition, and as described in this report. We would comment that the property is currently occupied by in the region of fifty to seventy different licensees and lessees, at rents that would appear to range from approximately a little of £1,00 psf to approximately £12.00 psf. From information supplied by Salcrom Properties, we believe that the average rent per square foot excluding the Hampshire Prints accommodation is in the region of £3.55 psf. In accordance with the current letting schedule, as provided by Salcrom Properties, the total rent receivable from current occupiers, excluding Hampshire Workspace and the Wallpaper Printing Company is in the region of

£242,300

(Two Hundred & Forty Two Thousand, Three Hundred Pounds)

per annum

6.04

For the purposes of this report, after making various allowances and assumptions with regard to the current vacant space, that the Estimated Rental Value of the whole property, exclusive of service charge income, lies in the region of

£300,000 - £325,000

(Three Hundred – Three Hundred & Twenty Five Thousand Pounds)

per annum

6.05

With regard to the existing tenancies, we are of the opinion that there is little room for rental growth in the near future.”

Section 8 of the Report set out the assumptions adopted in arriving at the valuations. Those assumptions were stated to be:-

“i)

that the property is freehold and has no onerous restrictions, covenants, or encumbrances affecting the title.

ii)

that the extent of the title is as shown on the attached Ordnance Survey Promap.

iii)

that the land and property is not materially contaminated for the purposes of this report.

iv)

that additional rent in the region of £60 – 80,000 can be generated by the remodelling and reletting of the first and second floors at rents ranging from 50p psf to £2.00 psf, exclusive of additional service charge income.

v)

that by adding the potential income to be generated to the existing income, including service charge contributions, the potential of gross income for the centre lies in the region of £350,000 to a maximum of, say, £375,000.

vi)

that treated as a business centre after making reasonable allowances for costs, a net profit in the region of £150,000 can be generated on the assumption that the property is fully let and income producing.

vii)

that the net profit may increase to as much as £175,000, if the property is treated as a let investment rather than a business centre. This however, would be tempered by the fact that a number of the tenants may well vacate due to the loss of services.

viii)

that for the purposes of this report, we have made an allowance of between £350 - 400,000 for basic repairs, to include an allowance for the major roofing works in the near future, for the costs of remodelling the first and second floors, and a small allowance for void rent income whilst reletting the accommodation.

ix)

that the property will be sold as a business centre, with the new purchaser continuing to provide central administrative telephone and maintenance services.”

As stated in those assumptions, the supposed costs of repairs, rent voids and remodelling the Hampshire Prints accommodation have not been increased by the £60,000 to £70,000 mentioned in paragraph 3.15 of the Report, thus leading me to conclude that the difference between the wording in the Letter as to that to which the sum of £350,000 to £400,000 was supposed to relate and the wording in paragraph 3.22 of the Report was the result of typographical error. However, the assumptions did seem, on their face, to have included that the whole of the Hampshire Prints accommodation would be remodelled and relet. On the face of the Report there seems also to have been some confusion as to what the “additional rent in the region of £60 – 80,000” referred to at assumption iv) which could be “generated by the remodelling and reletting of the first and second floors”, that is to say, the Hampshire Prints accommodation, would be additional to. Was it thought to be additional to the income of the Property on the basis that the rent due from Hampshire Prints was paid, or additional to the income of the Property on the basis that that rent was not paid? From paragraph 3.20 of the Report it would seem that Mr. Skinner was approaching the supposed additional rent as additional to what was being received at the date of the Report, that is to say, as additional to the income on the basis that Hampshire Prints was not paying any sum.

There were a number of attachments to the Report. Appendix II set out details of the Property, including measurements. The gross internal floor areas were calculated at a total of 18,020 square metres, or 193,965 square feet, as follows:-

“ Sq M Sq. Ft.

Main Building

Ground Floor 8,088.0 87,060

First Floor 6,436.5 69,285

Second Floor 2,753.0 29,630

Mezzanine/Gallery Offices 254.6 2,740

External Units

Rear Workshop 287.7 3,096

Covered Open-sided Loading

Area 200.0 2,153

TOTAL GROSS INTERNAL

AREA (excluding Open-sided

Store) 18,020 193,965”

There was also attached to the Report a schedule of rental income dated 22 July 1998 (“the Management Schedule”) which appeared to record details of 77 occupiers, other than Salcrom itself and the ventures apparently associated with it, Affordable Self Storage and Hampshire Workspace, of, as listed, 91 units of accommodation, apart from those occupied by Salcrom and those who seem to have been connected with it. Leaving aside Hampshire Prints and Hampshire Workspace, the total annual rent recorded as due in respect of those parts of the Property which were let was £242,309, although that total appeared at the end of a list of values which included no rental values in respect of four identified units. The total service charge contributions in respect of the units which produced the total rent of £242,309, plus one in respect of which no rent was shown, were recorded as £29,734. The total floor area of the units listed above the rent total of £242,309 in the Management Schedule was recorded as 70,141 square feet. The Hampshire Prints rent was said to total £141,475, and the applicable service charge contributions £18,990. The total area occupied by Hampshire Prints was recorded in the Management Schedule as 82,679 square feet. The total area occupied by Hampshire Workspace as recorded in the Management Schedule was 6,000 square feet. Thus the total area of the Property indicated on the Management Schedule as occupied or occupiable was 158,820 square feet.

The form in which the Management Schedule was set out was, essentially a listing of the names of the various occupiers of units of accommodation in the Property, with accompanying identification of the unit or units occupied, the size of the unit or units, and the rents and services payable. Units of accommodation were identified by the prefix “A”, if on the ground floor, by the prefix “B” if on the first floor, and by the prefix “CO” if on the second floor. The units identified as taken into account in reaching the total rent of £242,309 but in respect of which no rent was recorded were CO2, said to be occupied by Brand Clothes, A64, said to be occupied by Employment Forum, A54, said to be occupied by R J Engineering & Sons Ltd., and A40, said to be occupied by Sylvia Baker and Les Faulkner. A service charge contribution was recorded in respect of CO2.

As listed in the Management Schedule the areas within the Property which had been occupied by Hampshire were CO1 and CO2, together amounting to the whole of the second floor of the Property, some 29,700 square feet, B27 on the first floor, amounting to some 42,051 square feet, B40 on the first floor, amounting to some 6,700 square feet, and A5, A8 and A20 on the ground floor, together amounting to 2,114 square feet.

Appendix V to the Report was entitled “MARKETING STRATEGY”. That document included this passage:-

“It would normally be our advice to offer this property to the market by way of Private Treaty and to conduct a full marketing campaign, backed up with a summary of cash flow and profitability over a relevant period. Obviously, a prospective purchaser would need full access to the audited accounts. Whilst we anticipate that there will be initially be [sic] a number of enquiries with regard to the property, we feel that the number of serious bidders are [sic] likely to be limited. We are also of the opinion that it may take in excess of 12 months to arrange a sale of the property. The costs of this exercise are likely to be quite high, and given the relatively low value of the property and the effort that would be required to realise a sale, we feel that a normal percentage based commission would be inappropriate in this instance. We would expect a fee to be paid both on the disposal price with additional charges for time costs recovery.

If it is accepted that the Bank will have a substantial shortfall in the recovery of its security, given the uncertainty surrounding the actual value of the building, it may be best to enter into direct negotiations with your existing borrower to allow them time to refinance through an alternative funder, at a value that is acceptable to the Bank. This is on the assumption that there are no other forms of guarantee available to reclaim any shortfall. This would allow the quite substantial costs associated with a “forced disposal” to be avoided, and also allow the refinancing to be done privately, without drawing attention or creating concern amongst the various tenants and licensees which may adversely affect the overall position. If the Bank decides to proceed with the sale in the public forum, it would be our recommendation that the property is offered to the market by way of Private Treaty. In order to achieve this, we would recommend that a summary of financial information is prepared, clearly identifying the income and expenditure of the Centre over the last three to four years, backed up by audited accounts. We would also recommend that detailed marketing particulars are prepared with a solicitors statement in respect of the status of the various occupiers, as to whether they are lessees or licensees.”

Prior to the production of the “Further Particulars of the Critical Respects in which it is alleged the Defendant failed properly to value the Sanderson Centre” Mr. Skinner had given, in his first witness statement, dated 17 September 2002, a rather general account of how he set about valuing the Property for the purposes of the Report.

After production of the particulars to which I have referred Mr. Skinner explained how he had approached the question of valuing the Property in detail in a supplemental statement dated 4 February 2003. What he said was this:-

“2.

On my first inspection of the property, on 22^nd July 1998, I was provided with fire drawings of the ground, first and second floors. These drawings became my main guide for referencing the property. I undertook as detailed a measurement as was possible given the physical constraints of the property, in order to estimate the gross internal area of the building. My calculations of the gross internal measurements are contained within the Measurement section of my file and schedule the respective gross areas of the property, and summarise the total gross area as being 18,019.62 sq. m. (193,962 sq. ft.).

3.

In respect of those areas already occupied, I placed reliance upon the Management Schedule supplied by Mr. Smith at our first meeting, on 22^nd July 1998 (the schedule is dated accordingly).

4.

In order to assess the space previously occupied by Hampshire Prints, I undertook the following checks:

1)

For the second floor (noted on the schedule as Units CO1 and CO2), I undertook a physical measurement of the building. This is a rectangular box, measuring 65.7 metres x 41.9 metres, which gave a gross internal area of 2,752.83 sq. m. (29,631 sq. ft.). These measurements are noted on the fire drawings, and accord with the calculations on the file dated 29^th July 1998. The Management Schedule specifies an area for Units CO1, and CO2 under the heading “The Wallpaper Printing Company”, as 29,700 sq. ft. I therefore concluded that the Management Schedule was accurate to within 1%, and that it was reasonable to use the area on the Management Schedule.

2)

For Units B40 and B27, the Management Schedule specifies an area of 6,700 sq. ft and 42,051 sq. ft respectively. Accurate measurement of these units was difficult due to the internal layout, the positioning of equipment and stored materials. I undertook overall check measurements, which included three measurements of the width and a single measurement of the length of the rectangle forming Fire Zones 7, 8 and 9. This rectangle incorporated Units B30 and B22, which were not occupied by Hampshire Prints (but which do form part of the first floor); but excluded Units B11, B19, B38, B25 and B32 including the adjoining toilets, and form part of the Hampshire Prints letting.

5.

I judged from the plans that those units occupied by Hampshire Prints (B11, B19, B38, B25, B32 and toilets), and which fell outside of the rectangle, approximated to 60 – 70% of the space already included within the rectangle, represented by Units B30 and B22. My measurements for Zones 7, 8 and 9 showed a total area of 4,772.59 sq, m. (51,372 sq. ft.), whilst the Management Schedule of 22^nd July, states a total area for B27 and B40 of 48,751 sq. ft.

6.

Making the specific assumption that the aggregate areas of B22 and B30 would be somewhat larger than the units, B11, B19, B38, B25 and B32, and the toilets, I was not surprised to find that there was in the order of 2,621sq. ft. difference in the areas. The management figures were approximately 95% of my area calculations. I therefore placed (with some reasonable justification I would suggest) reliance on the areas, as specified in the Management Schedule.

7.

Having considered the property carefully on 22. 7. 98, and having conducted two further site inspections on 28.7.98 and 22.8.98, I formed the opinion that Unit B40 was too removed from the loading access and the two loading lifts. The two loading lifts had (and continue to have) physical restrictions; the main loading lift adjacent to the loading door to the rear of the property, was (and is) restricted to a total weight of 20 cwt; the second and smaller lift, was installed for the purposes of lifting a large single roll of paper. It had (and has) insufficient height for personnel use, and had (and has) a restricted cubic capacity.

8.

I was of the view that the vast majority of goods, being brought into or removed from the property, would be lifted into the first floor by the use of a fork lift truck. The goods would then be moved around the first floor, either by the use of a pallet trolley/trailer, or a further forklift truck. As such, I considered the loading arrangements were poor, and that B40 would be too far removed from loading door to be of practical use. I also considered that because there is only one major point of loading access that there might well be conflict between occupiers at the door at times of heavy use. For these reasons, I judged that Unit B40 was too removed from the loading doors to be put to viable use. I therefore discounted it from my assessment of the net floor area of the building.

9.

In considering the remainder of the first floor and the second floor accommodation, I formed the view that it would be unlikely that a single occupier would be secured for either floor, let alone a single occupier for both floors. Given the current business centre usage, I made allowances for remodelling the accommodation and the loss of approximately 33% of floor space, for the creation of access ways, fire corridors and the construction of dividing walls. Having considered the re-arrangement of the accommodation, and taking into consideration the physical difficulties of accessing both the first and the second floor, I came to the opinion that the rental value of the net first floor accommodation would be in the region of £2.00 psf.

10.

I considered that the second floor accommodation was even less attractive. The second floor had (and has) low eaves height (approximately 6’3”); with only the smaller of the two lifts providing access to the floor. There is a conveyor belt from the first and second floor, which was used by Hampshire Prints, but this was not satisfactory for the vast majority of industrial or warehousing users to move goods around. There was also an access hatch in the floor that would require the use of a fork lift truck to lift goods of any weight up into the second floor. In practice, three fork lift truck movements would be required to move a pallet of materials of any substantial weight to a remodelled unit within the second floor. I therefore placed a very low rent (£0.50p psf) on the second floor and reduced my assessment of the service charge to 50% of that which I applied to the remainder of the accommodation (£0.22½ pence psf). I was of the view that this rental represented more of a hope value to the purchaser than a realisable source of income. I recall that at the time of my inspection Gap Sails was occupying an area on the second floor, and that the second floor might have been attractive to other sail manufacturers, given the sheer size of the accommodation available.

11.

Having assessed the property to obtain the gross internal and my opinion of the net lettable area of the building, I was aware that there were several units to include those occupied on the ground floor by Hampshire Prints, which were currently vacant. Identification of these units was difficult, and I therefore made an allowance in my valuation by generous “roundings-up” which, added a sum of £12,660 of rent and service charge.

12.

Having conducted an initial meeting with Mr. Andrew Smith and several site visits, I formed the opinion that Salcrom Properties Limited (“SPL”) were aware of the shortfall in the recovery of the costs. They were incurring these costs in order to comply with their responsibilities as owner of the property, and operator of the business centre. I also gained the view, from discussing the situation with Mr. Smith, that this had been the position for a considerable period of time, and that the company had been endeavouring to raise the level of service charge, but was finding this difficult to achieve. Whilst I believe that a competent operator would endeavour to make a full cost recovery, I formed the opinion that this would be difficult, if not unachievable, at The Sanderson Centre, given the type and quality of tenant that occupied space within the building. I was of the opinion that many of the tenants were attracted to the business centre, due to its affordability, and because of the relatively relaxed nature of the occupancy document. As a result of my conclusions, I formed the opinion that a new owner of the property would in all probability, continue its use as a business centre, but would be unable to recover any extra level of service charge. I therefore valued the property on the basis of deducting the costs and liabilities of the landlord from my assessment of the gross receipts (rent and service charge), to give rise to a net rent or profit to the purchaser.

13.

In order to identify the base costs that any owner would have to incur, I read and compared the unaudited Profit & Loss Statements for 1993-1996, as supplied by Mr. Smith, and the Management Report for the period up to 31^st December 1997. This cursory analysis allowed me to consider the basic heads of cost, and also helped me to identify certain anomalies and discrepancies within the accounting figures. The anomalies were specifically identified to the Claimant in my Report, and in the marketing advice. I was concerned that should this property be offered for sale in the market by way of private treaty that, any prospective purchaser would undertake a detailed analysis of 3-5 years accounts and any discrepancies or anomalies would have had to have been sufficiently and convincingly explained. In my view, a purchaser of the property would have used the accounts as a starting guide as to the likely costs that they would incur in owning the property and running it as a business centre.

14.

Having made suitable adjustments, I valued the property, using the gross receipts as my start point, before deducting the basic heads of cost that I considered any purchaser would take into consideration. This derived a net rent (or profit) from ownership of the property. I then applied what, in my opinion, was the correct (property purchase) yield of 16.667% to the net rent to calculate the capital value of the property before my deductions for roof repairs and remodelling the Hampshire Prints first and second floor accommodation (specifically excluding B40 because I did not consider that it would be possible to let this Unit). I also made an allowance of just under six months’ rent in the calculation for voids in letting the former Hampshire Prints space. In valuation terms this would have allowed for the take up of the lettable area of the first and second floor over a one year period. The effective [sic] of factoring in a six months rent-free period would have implied that the accommodation would have let on a reasonably even basis over a twelve-month period.

15.

The provision of lettable space within unit B27 was in my view achievable by the reorganisation of certain areas of existing space to create larger units. Also the sub-division of the open plan areas was required to create units varying over a range of sizes, all at the smaller end of the scale.

16.

With regard to the second floor, having made an assumption that 33% of space would be lost, and making a provision for the already existing tenant (Gap Sails), I was of the opinion that a range of unit sizes could be created at the smaller end of the scale. I reviewed the range of rents received, according to the Management Schedule and was of the opinion that the accommodation to be offered to the market would be predominantly industrial/storage in nature. I took the view that due to access and loading difficulties, and the type of space, the accommodation would have to be offered at a rental that reflected such difficulties in order to attract tenants.

17.

Taken in isolation, a large number of the lettings on the first floor, particularly at the front of the building were office related, commanded a higher rental per square foot than the industrial accommodation at the rear of the building. I therefore assessed that the market would be prepared to pay an average of £2.00 psf for the first floor accommodation. I further assessed that the rent for the second floor would have to be very low to attract a tenant to this accommodation.

18.

I was aware of the rent previously being paid by Hampshire Prints in respect of the first and the second floor. I formed the opinion that whilst Hampshire Prints may have been paying rents of £1.99 psf, and £1.23 psf for the first and second floors respectively, this was not a good guide as to the value of the remodelled accommodation in the open market.

19.

As I have previously stated, I assessed the accounting information provided to me by SPL to gain a preliminary view as to the costs that any owner of the property would have to incur in fulfilling their role and responsibility as landlord and having undertaken this process, I assessed that there was a notional profit within the SPL account. Due to the anomalies that I was able to identify, a potential purchaser of the property could not rely upon any element of gross profit within the accounts. I specifically recommended that the Claimant should investigate the accounts in more detail. In the event that the property was offered for sale, a clarified financial statement was going to have to be offered to prospective purchasers, clearly identifying gross receipts and costs. This would afford a proper assessment of the building to be conducted by a prospective purchaser.

20.

In undertaking my valuation of the property, I formed a view of the gross receipts, taking account of both rent and my assessment of the service charge recovery. I then deducted the costs which I considered any purchaser of the property would have to incur in order to derive a net rent. To this net position, I applied a capitalisation of six times, representing 16.667%, to reflect in my estimation the risk and benefit analysis that ownership of this property would bring to the new purchaser. This assessment of the property assumed that not all of the accommodation within the building would be capable of being let. Also that because of the question of the sums which the tenants could in reality afford, the new owner would not be able to make a full service charge recovery, but would only be able to obtain a contribution from the tenants towards the costs of running the building….

23.

I did not undertake a profits related valuation, and took an assessment of the property to arrive at a net rent figure to which I applied an appropriate property based yield, to arrive at a valuation of the property. In undertaking my main valuation, I treated it as a property that would continue to be used as a business centre. As an alternative, I re-assessed the property on the basis that the management input required by the new owner would be reduced to a minimum. On this assumption, tenants would occupy, but would not be offered services. This allowed certain costs to be removed, but the majority of the costs remained unaffected. In my second assessment, staffing costs were reduced, and the telephone costs were removed. However, because of the nature of the property and the type of small business that occupied (and occupies) I was of the opinion that a reasonable proportion of the tenants may well leave the building, at the withdrawal of these services.

24.

This had to be reflected within the valuation and I made a capital adjustment of £50,000, after having taken account of gross receipts at £355,000, and deductions at £177,750. As a result of the reduction in costs, this assessment of the property arrived at a valuation of £575,000. This assessment was taken as a check to my first and main calculation. I was of the opinion that the property was run as a business centre and would remain within this use. It was unlikely that a new purchaser would treat it simply as a let investment. I therefore formed the view that the Open Market Value of the property was not fairly reflected by the higher figure, which was derived from the mathematical exercise of valuing the property as a let investment. I was however of the opinion that a prospective purchaser would be persuaded to pay a proportion of this extra value, over and above my original valuation. I therefore adjusted my first valuation to £525,000, being just under the average of the two values. This was my opinion of the best price that a purchaser in the market would be prepared to pay for this property, and was therefore its Open Market Value.”

I think that, after some initial scepticism on the part of Lloyds and its advisers, there was no real dispute that the account given by Mr. Skinner in the passages set out in the preceding paragraph as to how he had in fact gone about valuing the Property for the purposes of the Report was accurate. Lest there be any lingering doubts, I accept that account in its entirety. I was impressed by Mr. Skinner as a witness. He struck me as straightforward and careful in his evidence and I have no doubt that he was doing his best to help me on relevant issues to the limits of his recollection. In fact he was able to refresh his memory in respect of how he had gone about his valuation by reference to his working papers. A substantial volume of such papers were put in evidence. I need not refer to the bulk of them for the purposes of this judgment, but they do show, as it seems to me, that, whether or not he in fact fell into error causing his efforts to fall below the standards to be expected of a reasonably competent member of his profession, which is the real question in this action, he gave careful and detailed consideration to the valuation upon which he was engaged.

In terms of understanding how Mr. Skinner went about his valuation the important working papers are a selection called, for reasons which are obscure, but which ultimately are of no significance, “Shadow Accounts”. As transcribed by Mr. Skinner for the purposes of this action the original five pages of manuscript notes and calculations contained the following:-

“Current income £242,309 per annum plus £29,734 service charge

Potential income from second and first floors

First Floor

Vacant space approx. 42,000 sq. ft.

Assume break up into smaller work areas

By creating corridors and accessway – lose 33% overall

27,720 sq. ft. remaining

rentalise at £2.00 psf = £55,400 extra rent

+ service charge at 45p psf =£12,474

Second Floor

Very limited potential

Poor access poor ceiling height

29,700 sq. ft. of which say

2,000 sq. ft. already let

so say 27,700 sq. ft. @ say

50p psf after allowing 33% circulation space

= 18,282 sq. ft. @ 50p =9,141

+ service charge = 45p psf, but reduce, say £4,113

by 50%

add back net income £242,309

£306,890

Income gross say £310,000 per annum

+ service charge £ 29,734

+£ 16,587

£356,321

say £355,000

Service charge = 45p psf

Less cost based on current

Cost profit + loss and making assumptions

As follows

Include service charge income spent on common services

1.

management time say £20,000 per annum

either on site or off site for

a manager

2.

Girl at reception

at say £12,000 per annum

3.

Site security maintenance

man say £15,000

£47,000

add in extra ½ girl for holiday cover etc £ 6,000

+ 10% national insurance

£53,000

£58,300

Rates – General rates (voids), say £ 7,500

Insurance/General insurance, say £50,000

Electricity Charges charge at cost + basis (+) allows

For loss of wattage through private system £50,000

Common Cleaning (common areas) £ 3,000

Telephone costs £12,000

Common Parts repair £10,000

Common Parts security £ 1,000

Stationery £ 750

Sundries expenses £ 1,000

Travel/Motor expenses £10,000

Advertising £ 2,500

Bad Debts @ 5% of income £17,750

Audit £ 2,000

Accountancy £ 2,500

Depreciation, fixtures and fittings £10,000

Depreciation motor vehicles (maintenance van) £ 1,250

Comments

A.

No landlord repairs included at this stage, comprehensive allowance of £20,000 per annum for future after major repairs have been undertaken and allowed for in acquisition price.

So future repair allowances, say £20,000

B.

Emoluments for services of directors

-

add back in therefore not allowed for

-

becomes gross profit for sale

purposes – same for directors NI

C.

Pension fund – as above.

D.

Loan>< 5 years + bank interest

As above

But allow for normal bank charges, say £ 5,000

For normal account transactions

Costs = £264,500

Gross income = £355,000

Surplus Profit = £ 90,450

Make allowance, say = £100,000

Add back electricity costs = £ 50,000

£150,000

Assume building in good state of repair

and after income potential, has been realised

YP, say max 6x = 6

£900,000

Allowance for 1) repairs, say £300,000

2)

reworking of 2^nd and 1^st floors £ 30,000

3)

void period £ 30,000

£360,000

but say £400,000

Capital Value OMV/ERP, say £500,000

Less Costs at 4¾% £481,250

ERP, say £480,000

Add valuations together £480,000

+ £575,000

= £527,500

ERP/OMV say £525,000”

What one can readily see from the transcribed notes and calculations set out in the preceding paragraph is that Mr. Skinner took as the area of the first floor which he wanted to consider that indicated in the Management Schedule as the area of Unit B27. In the Management Schedule the area of Unit B40 at 6,700 square feet was recorded on the next line, so it is unlikely that he simply overlooked it. I am satisfied that he did not, and that his evidence that he made a deliberate decision to disregard it for the reasons set out in his supplemental witness statement is correct. The statements in the Letter and in the Report that his valuation assumed that the Property would be fully let were, therefore, misleading and unfortunate, but ultimately of no significance unless his valuation was vitiated by the decision to omit Unit B40. He assumed that remodelling of the space on the first floor, other than Unit B40, and on the second floor of the Property which had previously been occupied by Hampshire Prints would be necessary to create small lettable units, and that such remodelling would consume some 33% of the net area otherwise available. His calculations assumed that no increase in service charges would be made. He assessed the cost of running the Property as a business centre as some £214,500, after allowing for recharging occupiers for electricity supplied. The calculation of the cost at £214,500 included elements in respect of salaries, rates, insurance, cleaning, telephone costs, repair and security of common parts, stationery, sundries, travel expenses, advertising, bad debts, audit, accountancy, depreciation and bank charges. To his calculated net annual income from running the Property as a business centre of £150,000 he applied a Yield of 16.667%, which is a multiplier of six years. From the total thus reached, £900,000, he then in fact allowed a sum of £300,000 for immediate repairs, plus £30,000 each for the costs of remodelling the first and second floors, and for voids, which allowances he rounded up to £400,000 in total. With an allowance for purchaser’s costs and an element of rounding against his check valuation of the Property as an investment he reached his conclusion that the value of the Property was £525,000. Mr. Skinner’s notes and calculations are thus entirely consistent with his verbal account of how he undertook his valuation.

Salcrom was obviously aware that Symmons was valuing the Property. In a letter dated 12 September 1998 to Mr. Daniell of Lloyds Mr. Dibben of Salcrom wrote, so far as is presently material, as follows:-

“I have spoken with Steve Skinner of Edward Symmons about progress on the Sanderson Centre valuation. I concluded that he was likely to suggest a figure of around £950,000 today less reserve of around £475,000 for recovering the roof. I understand that also he has concerns about site contamination. I would add that I do not agree with all of his valuation tenets.

In the event that this were to be the resulting value this will mean that Salcrom’s assets are insufficient security for the Bank’s debt. To address to this we would like you to consider an alternative way forward. ”

The letter then set out a proposal the detail of which is not important.

Mr. Daniell acknowledged Mr. Dibben’s letter dated 12 September 1998 in a letter dated 16 September 1998. The material part of that letter read:-

“I am advised the Bank will be in a position to consider your comments once we have received the formal valuation report from Edward Symmons, which I understand is now imminent. I shall obviously revert to you as soon as possible.”

In a letter dated 18 September 1998 to the directors of Salcrom Mr. Daniell formally advised as to Symmons’s valuations of the Property at £525,000 and of the Winchester Property at £400,000 and called upon Salcrom to provide additional security under the loan agreement between Lloyds and Salcrom. That seems to have prompted Salcrom to make contact with a firm of chartered accountants called Brooking Knowles & Lawrence (“BKL”) which appears to specialise in corporate recovery. In a letter to Lloyds dated 25 September 1998 Mr. Carl Jackson of BKL set out a proposal which began:-

“As you may be aware I have been advising the Directors of the Company in respect of its financial position and in particular the current level of indebtedness with the Bank. The directors have, together with others, formed a consortium that will use a new company (“Newco”) which they wish to acquire the Bank’s loan and overdraft advances to the Company together with the associated securities of mortgages and debenture. I have been appointed by Newco and have been instructed to make the following proposals.

•

For the debenture and overdraft plus loan and mortgages on the two properties Newco are offering the Bank £593,790 being 95% of the ERRP advised by Edward Symmons. I believe this represents a fair price and takes into account the expenses the Bank will incur should they appoint Receivers, but nevertheless allows Newco the benefit of any realisations from Company book debts.

•

In addition Newco will pay 70% of the net proceeds from the Bailiffs Distraint on Hampshire Prints (1983) Limited equipment. This is estimated to be £20,000. Expenditure on recovery will be at Newco’s discretion.”

From a letter dated 25 September 1998 written by Mr. Jackson of BKL to Lloyds which was put in evidence, it appears that Mr. Daniell reacted to the proposal set out in Mr. Jackson’s letter dated 25 September 1998 quoted in the preceding paragraph by suggesting that Lloyds would like Newco to pay a sum nearer to Symmons’s OMV of the Property and the Winchester Property. Mr. Jackson indicated in the letter dated 25 September 1998 referred to in the first sentence of this paragraph that Newco would seek to improve its offer.

In a letter dated 29 September 1998 to Lloyds Mr. Jackson communicated an offer of £667,500. About that offer Mr. Jackson said:-

“This offer is for the same package, excluding the proceeds from the Bailiff’s distraint, and is based on:-

1.

An unconditional agreed pre-sale of 37/39 Southgate Street, Winchester for £300,000, which is believed to represent the current full value of this tenanted property.

And

2.

£367,500 for the Sanderson Centre.”

In a letter dated 30 September 1998 to Mr. Martyn Jones of Messrs. Alder King, property consultants, Mr. Higgins wrote as follows:-

“THE SANDERSON CENTRE. GOSPORT, HAMPSHIRE

As discussed on the telephone yesterday afternoon, I would welcome a brief second opinion on the valuation dated 15 September 1998 provided by Edward Symmons & Partners.

A copy is enclosed and, based on the information provided, does the opinion of value look “about right” and have all likely options and alternatives been explored.”

According to a file note dated 1 October 1998 made by Mr. Higgins and addressed to Mr. Clive Davies, a Senior Manager, Advances with Lloyds, which was put in evidence, following a discussion with Mr. Davies the previous day Mr. Higgins telephoned Mr. Jackson to tell him that the offer of £667,500 was not acceptable but that Lloyds would be interested in an offer in the sum of £925,000, calculated as £400,000 for the Winchester Property and £525,000 for the Property. In a letter dated 2 October 1998 to Lloyds Mr. Jackson reported that:-

“Further to my last letter of 29 September 1998 as requested our clients are seeking to increase their offer toward the open market valuation.

Currently they are seeking the necessary mortgage finance on the Sanderson Centre. They expect that this will be subject to the usual investigations.

My clients are aware that the Bank requires to be satisfied as to availability of funding before an offer will be accepted.”

Mr. Jones of Messrs. Alder King replied to the letter dated 30 September 1998 written to him by Mr. Higgins in a letter dated 2 October 1998 in which he said:-

“I refer to your letter and the enclosed Edward Symmons & Partners report dated 30 September 1998 in connection with the above. [that is, the Property]

In accordance with your request, this letter is intended as an informal “desk-top” second opinion of value based on the assumption the information stipulated in the report supplied is correct.

I have read through the report and given careful consideration to the content and comment as follows:

1.

The report appears to have covered the main issues as a Bank you would wish to consider in reviewing the continued suitability of the security.

2.

There is only one item in the report I would disagree with quite strongly and that is, the reference in Appendix V to a demolition cost for the building of in the region of £250,000. I discussed this point with you on the telephone and have spoken again to my building surveyors who are of the opinion this figure should be around £100,000.

3.

From a strategy viewpoint it is not clear from the report whether the Bank should sell “as is” or undertake the work to the space formerly occupied by Hampshire Prints in order to achieve £60,000-£80,000 of additional income per annum. I would suggest Edward Symmons & Partners are requested to advise on the likelihood and then the timescale of finding such licensees/tenants. Needless to say a net income stream of circa £150,000 per annum is considerably more attractive than the current net income of around £70,000 per annum. It would appear from the report the sub-division works of the order of £70,000-£80,000 only is required to achieve this additional income.

4.

There is a very large difference between the figures reported on the OMV and ERRP bases requested. From the text it would appear the OMV figure assumed a 12 month marketing period while the ERRP assumes a 6 month period.

In view of the issues raised in paragraphs 3 and 4 it would be useful if Edward Symmons & Partners confirmed the “make-up” of the two valuation figures provided together with the assumptions made.

5.

Edward Symmons & Partners discussed the service charge in some detail in the report. I think further investigation is merited to identify if savings can be made. This should include reviewing the business centre function to ascertain how much income would be lost if secretarial services etc. were not available.

I think the responses received from Edward Symmons & Partners on the above will probably assist the Bank with its deliberations on future strategy. I believe personally due to the lack of security of income a prospective purchaser would look to underpin the purchase price by site value and it may be worthwhile looking at the planning position in more detail to ensure residential redevelopment, albeit subject to possibly a 3 or even 4 year deferment, is totally ruled out.

To conclude, I believe Edward Symmons & Partners have addressed all the key issues but it would be useful for them to address the additional points raised prior to me confirming my informal opinion of value.”

In connection with its dealings with Salcrom in the latter part of 1998 and the possibility of a sale of the Property to Salcrom or a new corporate manifestation of those behind it, Lloyds instructed Messrs. Lester Aldridge to act as its solicitors. Mr. Higgins evidently sought the advice of Messrs. Lester Aldridge concerning the proposal that there should be a sale of the Property and the Winchester Property to Salcrom or a new company by a facsimile transmission sent on 30 September 1998, for in a response of the same date which was put in evidence Mr. Graham Jeffries of that firm wrote, so far as is presently material:-

“You have asked for my thoughts on the proposal put forward by George Dibben (GD) for a sale of the two properties to a company owned by him (and possibly others).

1 Subject to agreement on price, timing and proof of ability to complete, a sale back to the directors has a number of advantages over receivership:

•

Assuming GD completes the deal, it gives you certainty of outcome. I understand KPMG’s predictions are across a range of outcomes.

•

GD can take advantage of the marriage value of the Freehold and existing leasehold interests in 37/39 Southgate Street; the Bank can only sell the freehold subject to the lease to Hampshire Workspace Limited. This gives GD a competitive advantage in submitting his bid – he should be able to pay more.

•

GD may be able to overcome the lack of a right of way to the rear of 37/39 Southgate Street

•

GD will accept the title to each property without enquiry

•

There will be no need to establish the rights of the various occupiers prior to a sale and so the discount for uncertainty which would probably be applied by a market purchaser (especially with the Sanderson Centre) should not be a factor

•

Not least, the costs of receivership will be saved.”

In a letter dated 9 October 1998 to Lloyds Mr. Jackson set out an increased offer.

“For the package described in our offer of 29 September 1998 in respect of both or either of the properties the offer is.

1.

For 37/39 Southgate Street, Winchester - £300,000 representing the current full value of this property in the light of the refusal, this week, by the Winchester District Council for planning consent for parking to the rear of the property. Final offers at this figure for residential conversions have been received this week from both the owners of the property at the rear and the developers of the Peninsular Barrack. During the last two years marketing no offers have been made for either the business or the office investment.

Plus

2.

For the Sanderson Centre, 15 Lees Lane, Gosport

Either A) £460,000 on the basis of a funding offer from the Hampshire Bank. Remaining offers of Bank funding are expected next week and could enable some improvement. Our clients have submitted proposals for mortgage funding to each of three clearing and specialist banks.

Or B) £540,000 of which £390,000 will be paid within the usual contract period with the balance of £150,000 deferred for payment on or before 31 October 2004. The £150,000 payment will come from the Second Hand Endowment Policies retained in the pension scheme. This will be available after realisations made to cover the loss of the £180,000 loan to Salcrom Properties and the associated loan reduction to the Bank on the release of these securities.”

Lloyds increased the pressure on Salcrom to come up with a satisfactory offer by serving a formal demand for repayment of a sum of £1,718,230.73, plus interest of £15,142.03, upon Salcrom. The demand was made by a letter dated 12 October 1998. The letter also gave notice that Lloyds intended to exercise its powers as mortgagee of the Property and the Winchester Property by sale or otherwise.

By a letter dated 12 October 1998 to Mr. Jackson Mr. M.J. Curtis of Lloyds declined the offer contained in Mr. Jackson’s letter dated 9 October 1998. That prompted a further offer which was set out in a letter written by Mr. Jackson dated 13 October 1998. For each of the Property and the Winchester Property there was an immediate cash offer as one option and an offer of payment of a higher sum, but with payment of part of the purchase price deferred, as an alternative. The cash offers were of £325,000 for the Winchester Property and £525,000 for the Property.

Mr. Higgins sought the advice of Mr. Skinner in relation to the offers made in the letter dated 13 October 1998 written by Mr. Jackson to which I have referred. Mr. Skinner responded in a letter dated 20 October 1998. The letter was of some length and identified aspects which Mr. Skinner considered were relevant to his advice. Having done so, Mr. Skinner wrote:-

“Therefore on reflection, we are of the opinion that the aggregate offer put forward for both properties at a level of £850,000 should be given serious consideration by the Bank, subject to a strict and short time table for exchange and completion. Whilst we are confident that a sale of Winchester could be arranged within a reasonable time frame, we have severe reservations with regard to the Sanderson Centre in Gosport. Given the circumstances surrounding both properties, we would recommend that the combined offer should be accepted. With regard to Winchester, should the Bank have reservations about the purchase by Mr. N M Pugh Pension Fund, given Mr. Pugh’s capacity as solicitor to Mr.Dibben, it may be appropriate to consider some form of claw-back clause in the event of a subsequent sale of the property within a short time frame, realising a profit over the price paid by Salcrom Properties. However, this would be a matter of negotiation and we would recommend that this particular concern should not deter the Bank from proceeding with the overall offer.”

On or about 20 October 1998 Lloyds indicated that it was minded to accept the cash alternatives set out in the letter dated 13 October 1998 written by Mr. Jackson.

In order to complete any purchase of the Property Salcrom or the proposed new company needed to raise finance on the security of the Property. On the material put before me at the trial approaches were made for funds not only to Hampshire Bank, which has already been mentioned, but also to The Royal Bank of Scotland Plc (“RBS”), but also to Clydesdale Bank Plc (“Clydesdale”). Each of RBS and Clydesdale instructed a firm of valuers, Messrs. Vail Williams, to value the Property as security for a loan. Two valuation reports were prepared by Mr. Ian Froome of Messrs. Vail Williams in response to the instructions to which I have referred. The earlier in time was that for RBS and was dated 28 October 1998. The report for Clydesdale was dated 15 December 1998. In each report Mr. Froome valued the Property at £750,000. While the terms of the two reports were not identical in every respect, they were in very similar terms. For present purposes the report to RBS can be taken as representative of both reports. It included the following comments:-

“4.3

The maintenance of the property appears to be on a “when required” basis and there are a number of items which may require attention in the short to medium term. The premises would benefit from a more planned maintenance programme and we would note that the roof in particular is in poor condition and is nearing the end of its economic life…

4.6

Subject to our comments above we are of the opinion that the building retains a useful economic life of at least 15 years….

9.7

We understand that the proposed letting of 40,000 sq. ft. of the first floor to Wallpaper Printing Company Limited is to be for a rent of £81,000 per annum and that there are a number of pre-agreements for some of the remaining space. We have not had sight to any of these agreements and are therefore unable to comment further….

12.2

The cost of the services is currently charged at a rate of 45 pence per sq. ft. The total service charge income received at present stands at circa £30,000 per annum. This figure is a comparatively small amount given the size of the Centre. Previously, the 80,000 sq. ft. unit occupied by Hampshire Print paid a service charge based on 23 pence per sq. ft. and this vacancy has resulted in a loss of £18,400 per sq. ft. in terms of service charge. We would anticipate that the current cost of servicing the Centre, which includes maintenance, upkeep and repair of the external structure, common parts and provision of the reception facility including staff, to be in excess of this figure and would expect a substantially higher figure if a planned maintenance programme was undertaken. Whilst this extra cost could be recoverable through an increase in the service charge, this would increase the overall cost of occupancy to the tenants which would in turn affect the ability to attract new tenants. We have had regards to these factors in arriving at our valuation….

12.8

The Business Centre is situated on a 3.6 acre site which is zoned for industrial use. We would anticipate strong demand if the land were sold with vacant possession for redevelopment purposes. The site value therefore underpins the current investment value that we have reported.”

For the purposes of this action Messrs. Vail Williams were persuaded to part with their working papers in respect of the valuations of Mr. Froome of the Property in 1998. While it may be somewhat hazardous to seek to reconstruct simply from the working papers, without any other commentary from Mr. Froome as to what he did, how he approached the making of his valuation, it appears that at the final stage the figure of £750,000 was a rounding up of the result of a calculation of an “anticipated sustainable rental income” of £340,000 per annum, to which a yield of 33.3% was applied to reflect “risk, low s[ervice]/charge recovery & fact that run as a business, not a clear investment”, producing a total of £1,020,000, from which a deduction of £250,000 was made in respect of immediate repairs, and an allowance made for purchaser’s costs at 4.75%, thereby producing the figure of £733,425. Another note in the working papers indicated that another reason for taking such a high yield as 33.3% was that it “reflects business purchase rather than investment. The property is run as a business not as an investment”. The figure of “anticipated sustainable rental income” seems to have been based on a figure of £262,290, taken from a version dated 20 October 1998 of like data to that included in the Management Schedule as the annual rate of income then being received, inclusive of service charges - in other words, an updated figure comparable to the total of the sums of £242,309 plus £29,734 in the Management Schedule. From the figure of £262,290 a sum of £32,290 was then deducted in respect of service charges, to produce a figure of £230,000. To that figure of £230,000 was added a sum of £81,000 being the anticipated income from a letting to Wallpaper Printing Company Ltd., to produce a total of £311,000, and other sums were added in respect of vacant former Hampshire Prints space on the first and second floors, respectively of £19,656 and £9,653. The total thus reached of £340,309 was then rounded down to £340,000. Wallpaper Printing Company Ltd. seems at the end of 1998 to have been envisaged as a phoenix manifestation of Hampshire Prints. Whether or not it ever emerged from the fire, Wallpaper Printing Company Ltd. did not in the event take any space at the Property. The calculation of the figure of £340,000 included a reference to “existing small units” as vacant areas, but did not attribute any value to them. The reason for not attributing value to the “existing small units”, according to a note on the calculation sheet, was “to allow for maintainable level of voids”. The allowance of £19,656 in respect of former Hampshire Prints space on the first floor was indicated as having been calculated as 10,800 square feet which would not be taken by Wallpaper Printing Company Ltd., less 35% to allow for conversion to small units, assuming a rent of £3.50 per square foot and an occupancy level of 80%. For the second floor space the note explaining the calculation indicated that it assumed that the loss of the existing area of 29,700 square feet caused by adaptation for small units would again be 35%, that the rent receivable would be £1 per square foot, and that the level of occupancy would be 50%.

In the event Systemsolid was the actual corporate incarnation of Newco.

By an agreement in writing dated 23 October 1998 and made between (1) Lloyds as transferor (2) Salcrom and (3) Systemsolid as transferee Lloyds agreed to transfer to Systemsolid in return for a payment of £850,000 its legal charges over the Property and the Winchester Property, its debenture over Salcrom and the right to repayment of the sum then due to it from Salcrom. The date fixed for completion of the transaction was 30 November 1998. Various difficulties were encountered in the funding of the transaction and, as matters turned out, the agreement dated 23 October 1998 was subsequently varied by an agreement in writing dated 30 November 1998, so far as is presently material, so as to delay completion to 21 December 1998. It appears that completion in respect of the transfer of the legal charge over the Property to Systemsolid in fact took place on 17 or 18 December 1998.

The principal evidence relied upon on behalf of Lloyds in support of the allegations that Mr. Skinner’s valuation of the Property in the Report at the sum of £525,000 was arrived at in breach of the obligations of Symmons in contract and tort to undertake the valuation with reasonable skill and care was that of Mr. Christopher Shores. Mr. Shores is a very distinguished valuer of real property. He has over 40 years experience as a surveyor. He was formerly a director of the well-known firm of DTZ Debenham Tie Leung and is now a consultant to that firm. He prepared a report dated 10 September 2002 (“the First Shores Report”) in which he set out his views concerning what he conceived to be the issues to which this action gives rise from the perspective of a valuer. At the date at which he prepared that report, so Mr. Shores told me, and of course I accept, he had not seen the first witness statement of Mr. Skinner prepared for the purposes of this action or Mr. Skinner’s working papers. Once he had seen most of those documents, and after the usual process of discussion with the expert valuation witness instructed on behalf of Symmons, Mr. John Bannell, with a view to narrowing issues, Mr. Shores prepared a supplemental report, dated 19 December 2002 (“the Second Shores Report”). Subsequently Mr. Shores was shown a letter dated 16 December 2002 written by Mr. Andrew Smith, now of Systemsolid, but formerly of Salcrom, to Mr. Bannell. He also had discussions on the telephone with Mr. Bannell and Mr. Smith. Mr. Shores then prepared a further supplemental report, dated 13 January 2003 (“the Third Shores Report”). It is convenient to consider the various reports of Mr. Shores in turn. However, before doing so it is right to record that Mr. Shores told me, and again of course I accept, that he had not seen those working papers of Mr. Skinner which form part of the series entitled “Shadow Accounts” which I have quoted earlier in this judgment until the first day of the trial before me. It follows that his comments made until he had seen those working papers were inevitably based upon a degree of supposition as to how Mr. Skinner had in fact approached the valuation of the Property.

In Section 2(a) of the First Shores Report Mr. Shores set out a description of the Property. That description included:-

“This is an old factory building, constructed during the 1930s on the northern suburban outskirts of Gosport, on a site with an approximate area of 3.71 acres. Tenancy schedules with which I have been supplied indicate that the building had a net lettable floor area of circa. 150,000 square feet or thereabouts at the relevant date….

The accommodation is arranged predominantly at ground and first floor levels, but with a smaller area at second floor level….

The property is now effectively obsolete for its designed purpose as a single factory…

[The business centre] user has been occasioned by the splitting of the accommodation into a large number of small units which are used variously for industrial, warehouse and office purposes….

Having considered the property with a Building Surveyor colleague, Robert Eaves, in my firm’s Building Consultancy Department, I am advised that, having regard to the nature of the construction, a life expectancy in September 1998 might reasonably have been assumed to be of circa 30 years, BUT only on the assumption that there would be a major overhaul, including a replacement of roof and windows. Without such work, there was a probability that the building would more rapidly become unusable as it (or parts of it) ceased to be wind and watertight.

Since the limited future life of the property indicated the potential need for redevelopment at some stage, I commenced by considering whether such an option may have appeared an attractive alternative in September 1998.

However, my Building Surveyor colleague, Mr. Eaves, advised me that should redevelopment be considered, the costs associated with demolition of the building would have been high due to the massive nature of the floor slab. There would also be a potential requirement for remediation of past contamination, dependent upon the nature of the redevelopment proposed.

These two factors appeared to make the potential for a residential development questionable at least, even should planning permission for such a use be forthcoming.”

Mr. Shores did go on, in the First Shores Report, to consider the question of possible redevelopment of the Property as it would have appeared in September 1998. In the course of so doing he noted that:-

“Although located close to areas of residential property, The Sanderson Centre is located in an area zoned for industry, and that is its current use. Indeed, the planning authority would strongly oppose a change of use to residential because of lack of employment land in the area. Royal Navy rationalisation in the general area has led to a decrease in commercial activity in Gosport.”

Mr. Shores then indicated that he had undertaken an exercise to assess the feasibility of a scheme of redevelopment but had concluded that, “after allowing for a reasonable level of development profit on such a scheme, the residual site value was likely to be at best, nominal”. He thus had not pursued further the question of valuation of the Property by reference to possible development value.

Having stated the conclusions to which I have referred in the preceding paragraph, Mr. Shores went on in the First Shores Report:-

“In these circumstances therefore, the existing property had to be considered theoretically at least, as a wasting asset, although capable of producing a reasonable return for as long as the building could be maintained in satisfactory condition. However, expenditure in the future might reasonably have extended that useful life for a considerable period of time.

Valuation is essentially based upon the application of comparable evidence to a particular property. The valuer’s skill is in making the appropriate adjustments to the rental values and capitalising rates which he is able to ascertain in respect of other properties, to make them fit the particular attributes, merits and demerits of the subject property.

In this case the property is of an unusual nature, and usually it would be unlikely that many relevant comparables would be available upon which a valuer could reasonably rely. In practice Symmons were able to produce one relatively appropriate and directly comparable property on this occasion, which provides some very helpful evidence.”

In Section 2(c) of the First Shores Report Mr. Shores dealt with “Floor Areas, Occupations, Rentals and associated matters”. This is an important section, because Mr. Shores’s ultimate conclusion in the First Shores Report, having undertaken a valuation of his own of the Property as at September 1998, was that:-

“I am therefore drawn to the conclusion, that in adjusting the current passing income of £272,000 per annum to a potential income of £350-£375,000 per annum, Symmons omitted to add back the rental achievable from other vacant A and B Units, and the level of rent previously paid by Hampshire Prints, including only the improvement in income which they considered could be generated by remodelling the space previously occupied by that company.”

In other words, Mr. Shores did not criticise Mr. Skinner or Symmons for adopting the wrong methodology in the valuation, or suggest that the comparable property which was identified was inappropriate. Rather what Mr. Shores thought Mr. Skinner had done which was careless was, first, to leave out of account in assessing the income producing potential of the Property, some areas of the Property other than the areas occupied by Hampshire Prints which were vacant at the date of the valuation, and, second, having assessed that there was a potential for increasing the income produced from the areas occupied by Hampshire Prints by remodelling those areas for occupation as smaller units, had failed to add back the income which those areas had been producing as occupied by Hampshire Prints. The latter point, at least so far as what the Report actually said was concerned, seemed to me to be based on a misunderstanding. What the Report contemplated, as I interpret it, was not an increase in the income produced from the areas occupied by Hampshire Prints by a remodelling, but rather the replacement of an element of the income lost as a result of the receivership of Hampshire Prints through a remodelling of the space. In any event, both supposed errors depend critically upon the assumption that the demand for accommodation within a business centre in Gosport was such that any available space in the Property, after remodelling if appropriate, would be filled. Whether that was an appropriate assumption for any reasonably competent valuer valuing the Property to make was a hotly contested issue at the trial, given the location of Gosport, the nature of the local economy, and the availability of space in the better favoured locations of Fareham, Portsmouth and Southampton. In any event, the supposed errors in the valuation of the Property made by Mr. Skinner identified by Mr. Shores in the First Shores Report were essentially straightforward matters of careless oversight in undertaking calculations.

What Mr. Shores said in Section 2(c) of the First Shores Report was this:-

“Whilst the level of occupation of the building as a whole had remained remarkably high throughout the period when the three valuations had been undertaken by Mr. McClintock between 1990-1997, and at the date of the Symmons Valuation of September 1998, there had been one significantly important change by the latter date. Throughout the period of the McClintock valuations a substantial part of the available accommodation had remained let and occupied by Hampshire Prints. In September 1998, whilst this company was still in occupation, it had been placed in receivership, and was in arrears of rent and service charge. It had therefore become necessary to take account of this factor by allowing for the subdivision and reletting of this accommodation.

Unfortunately, the plans with which I have been provided are marketed [sic] “not to scale”, and do not carry any indication of scale on them. However, by plotting thereon all the lettings, and making estimates of the likely areas as best I can, I arrive at a net floor area for the A units [those on the ground floor of the Property] of approximately 50,850 sq ft (ignoring Unit A17, which has been retained as a management office). This appears to indicate a gross : net ratio of about 58.4%. However, this does not take account of the units lettered E and GO, which together amount to a further 4,686 sq ft net, and which would increase the ratio to 63.8%.

I would also point out that if the plans are consulted, there is at ground floor level a large unused area of entrance hallway at the front of the building, which results in an inordinate increase in the quantity of unused or “common” space. At first floor level this area is void, indicating perhaps why much of this accommodation at ground level has not been capable of sub-division. At first floor level, this void is not, of course, included in the floor area of that floor.

It will also be noted that a substantial part of the first floor had already been sub-divided, and this included (at least partially) Unit B40, which is one of the Hampshire Prints units.

After taking account of the let B units [those on the first floor of the Property], allocating estimated floor areas to those which were vacant, and adding to these the Hampshire Prints accommodation, I arrive at a net floor area for this floor of circa. 67,298 sq ft, which is very close to Symmons’ gross figure of 69,285 sq ft.

Having considered these matters, I have then analysed every letting in existence at the time of the valuation, and append the lists I have prepared (as Appendix 3(a) – (c)) indicating the rental per square foot each letting represents, together with the level of service charge paid. Obviously there are differences in quality and location of the various individual units, but a distinct pattern nonetheless emerges.

The ground floor A units were about 90% let, if the Hampshire Prints accommodation is treated as part of the vacant space available on this floor. The average rent per square foot overall was £3,84, with an average service charge in addition of £0.44 per sq ft. The average rent assessed on the sum of 57 individual lettings, amounted to £4.025 per sq ft.

On the first floor the B units (if the large quantity of Hampshire Prints accommodation is ignored in the first instance) were about 67% let, and were producing an average rental overall of £3.725 per sq ft, and again a service charge of £0.44 per sq ft. However, the average rent per letting amounted to £4.58 per sq ft.

The mezzanine GO accommodation was 100% let, producing an overall average rent of £3.77 per sq ft with an average £0.43 per sq ft service charge, and an average per letting of £3.81 per sq ft.

The E accommodation was also 100% let, producing an overall average £3.55 per sq ft plus an average £0.41 per sq ft service charge, and an average per letting of £3.31 per sq ft.

Thus overall the non Hampshire Prints accommodation was approximately 85% let, and was producing an average overall of £3.80 per sq ft plus £0.44 per sq ft service charge on all but the second floor. Rents actually being achieved per letting as opposed to overall, were averaging circa £4.00 per sq ft with a £0.45 per sq ft service charge, representing a willingness by incoming tenants to pay an overall figure of the order of £4.45 - £4.50 per sq ft for much of the accommodation on the ground and first floors.

I consider that in a property of this nature the most important issue would be for an owner or operator to move as swiftly as possible to a position where the fullest possible recovery of costs by way of service charge was being achieved. I have assessed an appropriate service charge for the property as being £1 per sq ft of net accommodation (see Appendix 4b). Allowing therefore for the current level of rents and service charges being received, I have made two assumptions:-

i)

That if the rents paid were held at their existing levels during the next two years, it would be possible to increase the service charge recoveries from the existing occupiers on the ground and first floors to £1 per sq ft, allowing 50% of the increases to these levels to occur in each of these years (see Appendix 4a). In the interim there would be a continuing, but decreasing, shortfall in recovery which requires to be allowed for.

ii)

In respect of units on the ground and first floors unlet at the date of valuation, and of the accommodation to be created at these levels by sub-dividing the accommodation then occupied by Hampshire Prints when it became available, I have assessed, with I believe, a reasonable degree of caution, £3.25 per sq ft on the ground floor and £3.00 per sq ft on the first floor, subject to a £1 per sq ft service charge.

Given the high proportion of occupation achieved (and maintained over several years) particularly in respect of the ground floor, I consider that 12 months is a reasonable estimate of the time necessary to achieve lettings, given the improved economic circumstances of 1998, in respect of the small amount of vacant ground floor accommodation. I have adopted 18 months for the first floor units not formerly occupied by Hampshire Prints, and 24 months for the Hampshire Prints accommodation on this floor. This allows a reasonable and orderly take-up of accommodation to be provided for.

In considering the Hampshire Prints accommodation, in regard to Unit B40, the size of this indicates that it could potentially be let as a single, or as two units. However, I have deducted 20% of floor space to allow for a wider sub-division. In respect of the larger Unit B27, I accept that, although there is some sub-division already existing here, a more radical scheme would probably be appropriate, and I have allowed a 30% net : gross deduction in this case.

As regards the second floor, there was a single relatively small letting here, representing a rental of £1.22 per sq ft and a service charge of £0.23 per sq ft. This is also the level of rent and service charge Hampshire Prints had been paying. I consider that this would be likely to be the most difficult accommodation to let, and that a full service charge recovery would be very difficult, or impossible, to negotiate. Again, I have made a 30% net : gross deduction to allow for sub-division, and have adopted a rental of £1 per sq ft and a service charge of £0.50 per sq ft. I have also allowed a 30 months void for letting this accommodation. It will be noted that the rent and service charge which I have assessed at £1.50 per sq ft in total, is close to that which has been paid in the past.

In valuing a property of this nature it is also important to make allowance for frequent relettings and possible voids, as well as for tenants who default on the rents and service charges due. To take account of this I have made a 10% per annum allowance against all income as it becomes available.

Under the terms of the most recent letting and licence agreements, there remain a number of matters for which the landlord retains financial liability. To allow for these matters, I have also provided for a 10% management cost deduction against all income as it arises.

Because of the known disrepair of the structure of the building, I have deducted a figure of £400,000 to put it into good order. These works will result in a reduced need for the sum from the management allowance necessary to be set aside by the landlord for ongoing repairs.

In this regard, I have also assessed the remaining useful life of the building (at least until further major structural works became necessary) as being 25-30 years, and have therefore capitalised the net income I have arrived at by a factor reflecting such a life span, rather than on a perpetuity basis.

In respect of the Hampshire Prints accommodation on the first and second floors, I have allowed a figure of £60,000 for the necessary works to sub-divide and refurbish the space for reletting. I have made allowance for the voids associated therewith, and for the costs associated with the letting of this and other vacant accommodation until let and income producing both in rental and service charge terms.

I have also deducted purchaser’s costs from the capital figure I have calculated, although in practice a purchaser intending to operate the property personally may well not have sought to make such a deduction. ”

Bearing in mind that the present action is a claim for damages in respect of the alleged professional negligence of Symmons in relation to the valuation of the Property, it is rather striking that in making his valuation of the Property Mr. Shores based his calculations of floor areas not on measurement or scale plans but on plans marked “Not to scale” and “making estimates of the likely areas as best I can”. That disclosure is no doubt commendably candid, but does not inspire confidence that the result is one at which no reasonably competent valuer can have failed to arrive. It is also interesting that Mr. Shores allowed rather more for repairs in his calculation than Mr. Skinner did, and a broadly equivalent sum for the costs of remodelling the Hampshire Prints accommodation. The periods allowed for letting various parts of the Property which were, or would become, vacant, were not explained and seem to have been chosen entirely arbitrarily, without any regard to the local circumstances of Gosport, although Mr. Shores acknowledged that the circumstances of Gosport in 1998 were rather particular.

In Section 2(d) of the First Shores Report Mr. Shores considered further the comparable property identified by Mr. Skinner in the Report. He repeated that he agreed that that was “in many respects …a similar property, constructed during approximately the same period”.

In Section 3 of the First Shores Report Mr. Shores set out his valuation of the Property on an OMV basis as at September 1998. His conclusion was £1,160,000. His valuation method was to apply a capitalisation factor to the anticipated income, as calculated by him, from letting units in the Property, and to deduct sums in respect of the cost of repairs to the Property, £400,000, and in respect of the cost of remodelling the Hampshire Prints accommodation, £60,000. The calculation was based on the assumption that the net lettable floor area of the Property was 130,684 square feet.

Section 4 of the First Shores Report set out what was described as an “Analysis of the Edward Symmons & Partners Report”. In the course of that analysis Mr. Shores made these comments on paragraph 3.13 of the Report:-

“This deals with rental and occupancy levels, and confirms that much of the first and second floors have “until recently been primarily occupied by Hampshire Prints”. The rents for individual units (on the ground and first floor, etc) are stated to average approximately £3.50 per sq ft. Mention is not made of the fact that an additional amount is also on average paid by way of service charge. [That was mentioned, as Mr. Shores himself noted in his comments on the paragraph, amongst other places, at paragraph 3.08]

I have demonstrated that averages were actually:-

Ground floor £3.84 per sq ft plus £0.44 per sq ft

Mezzanine £3.77 per sq ft plus £0.43 per sq ft

E Units £3.55 per sq ft plus £0.41 per sq ft

First Floor £3.725 per sq ft plus £0.44 per sq ft

Those figures indicate that an assessment of £3.50 per sq ft was low, and when allowance is made for service charge recoveries, these figures were very favourable when compared with the service charge-inclusive rates at the Melksham property.

The comment is made however, that there is no great potential for other than a limited increase in these rents. I agree with this statement in principle. The section goes on to comment that the potential lies in the first and second floor accommodation, currently used by Hampshire Prints, “and is likely to become vacant in the very near future”. I also concur with this statement.”

In commenting on paragraph 3.14 of the Report Mr. Shores noted, with emphasis, the reference to “additional” income. He plainly treated that reference as being to income additional to that payable by Hampshire Prints, for his comment was:-

“In this instance, Symmons’ assessment of the additional income which might be generated is somewhat in excess of my own. However, they do not appear to have taken account here, either of the Ground Floor accommodation in three sub-divided A units, on which Hampshire Prints were paying a market rental (£8,232.48 pa, equating to £3.89 per sq ft plus a service charge of £487.32 pa equating to £0.23 per sq ft), or the existing sub-divided vacant accommodation at ground and first floor levels.

In this section it is stated that rents ranging from 50p to £2.00 per sq ft could be generated to produce “in the region of £60-80,000 of additional income”. This takes no account of the level of rents being achieved elsewhere on the first floor and provides no breakdown of how this additional income was arrived at.”

It does not seem to have occurred to Mr. Shores that he had simply misunderstood the reference to “additional income”, even though one might have expected him to pause, having commented that “Symmons’ assessment of the additional income which might be generated is somewhat in excess of my own”, to consider quite carefully how it came about, if his understanding of what Mr. Skinner had done was correct, that his valuation was higher than that of Symmons. The point is rather compounded by Mr. Shores’s comments on paragraph 3.19 and 3.20 of the Report, which were:-

“3.19

States that due to the failure of Hampshire Prints to pay their rent, income had reduced to £272,000 pa. This figure, I have calculated, is the quantum of the rents and service charges being paid at the relevant date by all the tenants then in occupation apart from Hampshire Prints, and ignoring Units A17 and 17a, which were occupied as management offices, and by an area of 6,000 sq ft listed as “Hampshire Workspace”, which I have not identified on the plans, and have therefore discounted.

This income therefore takes no account of the vacant first and second floor units not occupied by Hampshire Prints, nor the accommodation occupied by that company. I believe that this is a very important point.

3.20

This section takes £272,000 pa “as a base” and adds the potential income from the first and second floors after redevelopment into smaller units and fully let. The rental figure on this assumption is stated to increase to £350,000 - £375,000 per annum.

In my opinion this cannot be correct. Symmons have said that £60-80,000 per annum of additional income could be produced by the works to the first and second floors, and appear merely to have added such figures to £272,000 per annum. However, prior to the departure of Hampshire Prints, income was already £430,508 per annum.

Based on my own estimates of the rent and service charges achievable from the Hampshire Prints accommodation on the ground, first and second floors, plus the potential income from the other vacant ground and first floor units, but ignoring any potential for an increase in service charges of the existing let units, the potential annual income is of the order of £486,500 per annum.

As a check, I have taken the let units on the ground and first floors, which were currently producing an income of £249,482 per annum on 58,597 sq ft. By my calculations, the net floor area of these floors after the works to the first floor Hampshire Prints accommodation had been carried out, would amount to 104,162 sq ft. The accommodation already let equates therefore to 56.25% of the total available on these two floors. Therefore if 100% let at the prevailing average passing rents, the potential income for these two floors alone must amount to £443,523 per annum. If the passing rentals for the mezzanine, E Units, Yard and potential and passing income from the second floor are added, this becomes £497,615 per annum.

It appears therefore, that in adding to the current passing income of £272,000 per annum, Symmons have added only the potential increase in income following the remodelling of the Hampshire Prints space, and have failed to allow for the replacement of the existing income from that accommodation, or for the potential income achievable from the other vacant units.

Further, there is also an additional potential income on reletting of the 6,000 sq ft allocated to Hampshire Workspace, which I have not taken into account, if this space can actually be identified.”

In his comments on paragraph 3.21 of the Report Mr. Shores indicated that he felt that the allowance made by Mr. Skinner of an amount of £200,000 per annum for the costs of running and maintaining the Property “is a considerable over estimate when the allowance for immediate capital costs are also allowed for”. Mr. Shores’s own allowance on an annual basis was £130,648. The figure of £130,648 was calculated arithmetically simply as £1 per square foot for each square foot of Mr. Shores’s assessment of the net lettable area of the Property. At Appendix 4b to the First Shores Report Mr. Shores set out an “Estimate of expenses to be taken account of in assessing service charges”. There was a note on that Appendix that “Bad debts allowed in irrecoverables 10% allowed for management”. That seemed to be a recognition that bad debts needed to be allowed for somewhere. The elements overtly included within Mr. Shores’s estimate of service charges, which as calculated came not to £130,648, but to “£93,652 Say £100,000 per annum”, were these:-

“Cleaning of common parts £3,857

Landlord’s Repairs £4,050

Common Parts Repairs £9,545

Common Parts Security £5,000

Salaries £60,000

Stationary [sic] £1,000

Sundry expenses £2,500

Telephone £3,000

Advertising £2,100

Audit £1,500

Accountancy £1,010.”

As compared with the list compiled by Mr. Skinner within the “Shadow Accounts” working papers, Mr. Shores’s list included higher amounts for salaries (£60,000 as compared with £53,000), cleaning (£3,857 as compared with £3,000), security (£5,000 as compared with £1,000), stationery (£1,000 as compared with £750) and sundry expenses (£2,500 as compared with £1,000). Mr. Shores’s allowance for advertising was slightly less than that of Mr. Skinner, £2,100 as compared with £2,500. His allowances for audit and accountancy were both rather less than those of Mr. Skinner, respectively £1,500 and £1,010, against £2,000 and £2,500. The big differences were, however, in relation to repairs, where Mr. Skinner allowed a total of £30,000 against Mr. Shores’s total of £13,595, telephone expenses, where Mr. Shores allowed £3,000 and Mr. Skinner allowed £12,000, and matters for which Mr. Shores made no allowance at all, specifically rates on void space, for which Mr. Skinner allowed £7,500, insurance, for which Mr. Skinner allowed £50,000, travel expenses, for which Mr. Skinner allowed £10,000, depreciation of fixtures and fittings, for which Mr. Skinner allowed £10,000, depreciation of a maintenance van, for which Mr. Skinner allowed £1,250, and bank charges, for which Mr. Skinner allowed £5,000. These items together total some £104,155. In addition Mr. Skinner included in his calculation an allowance for bad debts of £17,750. I asked Mr. Shores about the elements included within Mr. Skinner’s list and which, if any he criticised. He indicated that he thought that no allowance ought to have been made in respect of travel expenses or in respect of bad debts, and that the figure allowed by Mr. Skinner in respect of telephone expenses seemed extremely high. Mr. Shores offered no explanation for rounding the arithmetical total of the elements within his calculation up from £93,562 to £100,000 and then up again to £130,648. The latter figure represents a rounding up of the calculated figure by 39.64%.

Mr. Shores, in commenting in the First Shores Report on the section in the Report entitled “CURRENT MARKET CONDITIONS”, recorded that he did not dissent from the identification in paragraph 4.02 of the Report of items of risk, or from the factors mentioned in paragraph 4.03. While he noted that in paragraph 4.01 Symmons had commented upon the “status of Gosport”, he himself made no observation about that comment.

In his comments on section 5 of the Report Mr. Shores said, rather unhelpfully,

“It was stated that the comparative method of valuation had been adopted, taking account of similar properties. The only direct comparable introduced appears to have been the Melksham property, and the facts that could be derived from this appear to have been overlooked or ignored.”

What makes these observations unhelpful is, first, that no overt criticism was made of the method adopted, but one was left wondering whether there was some unspoken point. Further, having earlier in the First Shores Report indicated that the comparable identified seemed appropriate, there seemed to be some implicit suggestion that there were other, unidentified, comparables which ought to have been considered. Last, no explanation was offered of any respect in which Mr. Shores considered that some aspect of the Melksham property had been overlooked or ignored.

The comments made by Mr. Shores in the First Shores Report on the “VALUATION” section of the Report seem to me, with all respect to Mr. Shores, to come close to the nit-picking. What he said was:-

“In providing an assessment of the Open Market Rental Value, it is stated that rents “appear” to range from “approximately a little of £1.00 per sq ft (sic) to approximately £12.00 per sq ft.” I can find no lettings at £1 per sq ft, even on the second floor, and none of £12.00 per sq ft. The highest appears to be £6.70 per sq ft plus a £0.30 per sq ft service charge. The Report states that Symmons believe the average rent was in the region of £3.55 per sq ft. This differs from their earlier average figure of £3.50 per sq ft, and makes no reference to service charge elements (see their paragraph 3.13 above).”

It seems to me that the reference in the Report to a range of rents beginning at “approximately a little of £1.00 per sq ft” was fairly obviously intended to refer to a range beginning a little “over” £1 per square foot, which would be an adequate way of describing a rent of £1.22 per square foot, which Mr. Shores accepted was in fact the passing rent for the second floor of the Property. It is correct that no occupier paid a rent as high as £12 per square foot, but if that was not some sort of typographical error it would have served to inflate Symmons’s valuation, not to deflate it. The actual service charge recovery was, as Mr. Shores himself demonstrated, taken into account by Mr. Skinner in taking as a base figure in his calculations an amount of £272,000 per annum.

Mr. Shores made an interesting comment in the First Shores Report on the stated assumption in the Report that the potential gross income of the Property lay in the region of £350,000 up to a maximum of £375,000. He did not say that that assumption was absurd or ridiculous. What he said was:-

“As I have demonstrated, this is well below the previous passing level. It could only be justified if it could be shown that even after remodelling, the Hampshire Prints first and second floor space was worth considerably less than had previously been paid. The others [sic] passing rents on the first floor appear to contradict this.

It also takes no apparent account of the available vacant space on ground and first floors, which alone appears capable of generating additional income of circa £33,500 per annum plus of the order of £10,770 per annum in service charge recovery.”

There seems to me in that passage to be just a glimmer of a recognition that it might not be quite as easy or quick as Mr. Shores had assumed to replace an occupier whose contribution to the total income of the Property had been equal to something like 35.5% of the total, £149,745 out of a total of some £421,745. On any view that represents, in my judgment, a lot of space becoming available in an economically relatively unpromising area. Mr. Shores himself calculated that after remodelling the Hampshire Prints accommodation would provide some 104,162 square feet of net lettable space.

I have already set out what seems to be the crucial paragraph in the “Conclusions” section in the First Shores Report in which Mr. Shores summarises his criticisms of the valuation made by Symmons. What preceded that paragraph is not without significance. What Mr. Shores said was this:-

“Basically, Symmons have prepared their Report in the form required by the RICS, and have sought to provide advice to the lending Bank client in a proper manner.

It will have been noted that on most items, I am basically in agreement with them, and indeed, I consider that much of my own valuation has been carried out on a more conservative basis than theirs.

However, they have not made clear how they have arrived at a rental income of circa. £350,000 per annum after stating that there was potential for obtaining improved rents by remodelling part of the first floor and most of the second floor.

That this produced a lower, rather than a higher income at a time of improving economic circumstances should have caused check or comment. That this then appeared to produce a net rental income of little more than £1 per sq ft in a property already producing circa £4 per sq ft on all but the top floor should also have caused some concern.

Further, the net income which they arrived at was identical to that of a much smaller building (Melksham). Producing lower levels of income per sq ft, even after works of repair and improvement had been allowed for at the subject property.

That comparable building at Melksham indicated a capital figure of £11.50 per sq ft, which in properties of this nature is a further useful check. Symmons’ figure of £525,000, even after adding back £400,000 for the works required to improve the building, still only represented of the order of £7 per sq ft – nearly 40% lower.”

The overall flavour of the First Shores Report, as it seems to me, is that as the OMV of the Property determined by Symmons was different by a considerable order of magnitude from the valuation undertaken by Mr. Shores based on plans not to scale and doing the best he could, Symmons’s valuation must have been undertaken negligently. As the methodology could not be criticised, and the comparable taken was appropriate, there must be some other explanation for the difference between the valuations. The obvious explanation was that Mr. Skinner had left something out of his calculations, and that was the conclusion which Mr. Shores reached. If, had Mr. Skinner included within his calculations all appropriate elements, he, or any other reasonably competent valuer valuing the Property in September 1998, could only have concluded that the value of the Property was as Mr. Shores had determined, it would follow that Mr. Skinner had been negligent in his valuation. However, that is not what Mr. Shores said in terms in the First Shores Report. Mr. Shores relied quite heavily upon his perception that in the Report Symmons was saying that income additional to that which Hampshire Prints had been providing in respect of the accommodation which it had been occupying could be generated from that accommodation after remodelling, when on a fair reading that was not what Mr. Skinner had said. Mr. Shores’s assumption was that all available accommodation in the Property could be let, at least over a period, notwithstanding the amount of space which would become available on the departure of Hampshire Prints and the particular circumstances of Gosport, but he put forward no material to justify that assumption or to show that it was the only possible assumption a reasonably competent valuer valuing the Property in September 1998 could have made, beyond a rather vague reference to the general economic circumstances of the nation. He failed to identify specifically what accommodation, other than the existing accommodation occupied by Hampshire Prints in respect of the rent which Hampshire Prints should have been paying, he contended Mr. Skinner had left out of account in his calculations of the income potential of the Property.

After sight of the witness statement of Mr. Skinner prepared for the purposes of this action and a consideration of most of Mr. Skinner’s working papers, as well as a consideration of the first report of Mr. John Bannell, dated 19 September 2002, on behalf of Symmons (“the First Bannell Report”), Mr. Shores produced the Second Shores Report.

In the first section of the Second Shores Report Mr. Shores made some observations by way of introduction to what followed. At paragraph 1.2 he said:-

“I commence, however, by commenting upon the property and the skills required to undertake a valuation of it. The subject property was indeed a complex subject to value. However, it required precisely the same matters to be considered as for any let commercial property. Namely:-

i)

The amount and security of the passing income;

ii)

The potential for increasing this passing income on rent review or reletting, or by reducing the burden of irrecoverable overheads on the landlord;

iii)

The potential for obtaining additional income from any vacant accommodation, including consideration of the timescale for obtaining such further income, and the costs likely to be involved in maximising such income and minimising the time until it becomes receivable;

iv)

The condition of the property, and the costs and methods necessary for making good any wants of repair or improvement;

v)

The likely future life of the property, and any potential for alternative use now or in the future, including possible redevelopment if appropriate.

vi)

Having considered all of the above, an assessment of the yield upon capital which a purchaser would require in order to allow a capitalising factor to be arrived at. This would take account of interest rates generally available in the financial markets; the security of current and future income, and its relationship to the costs of maintaining the investment; potential for improvement in the level of net rents achievable; potential for future increments in capital values.”

In cross-examination each of Mr. Skinner, Mr. Jennings and Mr. Bannell expressed agreement with that analysis of Mr. Shores.

Mr. Shores went on a paragraphs 1.3 to 1.5 inclusive of the Second Shores Report to say this:-

“1.3

These are matters which are fundamental to a valuer’s training and experience. With a complex property, where considerable areas of floorspace are vacant, where works of repair are clearly necessary, and where the potential for significantly reducing the level of irrecoverable costs exists, as in this case, considerable care and attention to detail would be required in considering such matters.

1.4

Full and detailed analysis of current occupation, rental levels and service charge recoveries required to be undertaken, and careful assessment made of any accommodation to be relet, the works necessary to achieve this in the most efficient and profitable manner, and the potential for any improvements, would be most important.

1.5

The level of rents at which the vacant accommodation can be let, and the time likely to be required to achieve such lettings needs to be considered. The cost and timescale associated with the undertaking of necessary repairs and any desirable improvements likely to be appropriate to support existing rental levels, and which may be justified by further rents and rental growth which may be obtained, require careful scrutiny.”

Then at paragraphs 1.9 and 1.10 of the Second Shores Report Mr. Shores dealt with the question of margins of error.

“1.9

I am instructed also to advise upon the margin of error which I consider would normally be acceptable in undertaking a valuation such as this. Much here depends upon the valuer having undertaken the necessary research and analysis such as I have set out above. Normally when a commercial property is being valued where relevant comparables are available, but none are precisely similar, this requires the valuer to make value judgements, one property against another. In such cases a range of the order of 10% above or below the “correct” figure would normally be acceptable.

1.10

This however, is an unusual property, without direct comparable evidence, and required a greater degree of the valuer’s experience and intuitive faculties to be brought into play. In such circumstances I would consider the margin of error might be reasonably increased to circa 15% and possibly up to a maximum of 20% in either direction.”

In the second section of the Second Shores Report Mr. Shores considered and commented upon the witness statement of Mr. Skinner. Mr. Shores began in paragraph 2.0 by listing “the five matters on which I criticise Mr. Skinner’s Statement”. These were:-

“i)

His failure to consider and make provision in his Valuation for proper future recoveries of service charges such as a prospective purchaser would be likely to seek to make. This is a matter which Mr. Bannell and I have agreed to be appropriate when valuing a property such as this …

ii)

The extent to which Mr. Skinner appears to have become involved in trying to value the business of Salcrom, rather than to value the property as placed on the open market for sale…

iii)

His inappropriate concerns regarding the form of agreements under which most tenants occupied the property….

iv)

His lack of attention to detail and his failure adequately to analyse the units, lettings etc related to the property…

v)

His apparent comments regarding the sale of a property to which he refers in his Paragraph 30, and which appear to be at variance with the matters recorded in his Disclosed Working Papers.”

These matters are only relevant to any issue which I have to decide insofar as they impact upon the question of what OMV of the Property no reasonably competent valuer could have failed to reach. The strongest criticism which Mr. Shores expressed in the Second Shores Report of Mr. Skinner, and which, if well-founded, is obviously relevant to the issue whether his valuation was negligent, was stated at paragraph 2.1 thus:-

“…in undertaking his valuation of the property, Mr. Skinner appears to have completely overlooked or ignored a very significant amount of the floor areas on both the ground and first floors which were existing, sub-divided, and available for occupation – or could readily be made so.”

The third section of the Second Shores Report contained various comments of Mr. Shores on the disclosed working papers of Mr. Skinner. Those comments included:-

“3.5

There is then a bundle dated 29 July 1998, which represents the calculation of floor areas, apparently taken mainly with the aid of a set of plans which are appended thereto. These areas relate only to the gross floor area, and there does not appear to have been any effort to consider the net areas of the accommodation actually occupied or available.

3.6

I consider this bundle important, as these plans have the Unit numbers of all the various Units marked upon them. This [sic] it is clear that this information was available of [sic] Mr. Skinner from the start of his deliberations.

3.7

I have marked onto a set of these plans in respect of the Ground and First floors by green colour all those units which appear not to be included on the Management Schedule of 22 July 1998. I have also marked by blue verge the units previously occupied by Hampshire Prints, other than the very large Unit B27. I return to this matter below.”

The units marked in green on the plan of the ground floor of the Property attached as Appendix C1 to the Second Shores Report were, respectively, A24a, A33c, A46, A57 and A64, while the units marked in green on the plan of the first floor included in that attachment were, respectively, B3, B10, B11/B19, B24, B25, B28, B28a, B30, B32, B37, B38, B201, B202 and B203. The units verged in blue on the plans to which I have referred were A5, A8 and A20 on the ground floor plan and B40 on the first floor plan. However, what appeared at first sight to be a straightforward identification on the part of Mr. Shores of the areas within the Property which he considered Mr. Skinner had simply overlooked when undertaking his valuation was complicated by Appendix C2 to the Second Shores Report, which contained what was in the nature of a commentary on the areas identified. That commentary included:-

“A24a and A57 were in fact included with A11/A24 which had just been let to Shaw Trust.

A64 was included on the Schedule with an area of 356 sq ft, but with no rent or service charge apparently payable. This unit was subsequently included in the Shaw Trust letting at an additional rent and service charge.

A33c was vacant and the landlords advise that the floor area was 613 sq ft.

A46 was unlet and the landlords advise that the floor area was 738 sq ft.

Units A5/A8/A20 had been let to Hampshire Prints and are listed as having a joint area of 2,114 sq. ft….

Research identifies as follows:-

i)

On the Schedule Unit B31 was listed as let to Hobby Casuals, with an area of 1,884 sq ft. However, the letting to this tenant actually included Units B10, B28, B28a, B29 and B37, which with B31 together totalled 3,206 sq ft. There is therefore an additional 1,322 sq ft to be taken into account in connection with this tenant. However, it is not clear whether the rent quoted in the Schedule of £7,894 per annum related only to the 1,884 sq ft listed, or to the whole 3,206 sq ft. It is possible therefore that there may have been additional rent and service charge receivable from this tenant in respect of the further 1,322 sq ft.The rent per square foot on the Schedule is listed as £4.19 per sq ft, which does appear to relate to the lower area. There may therefore be a further rental figure of circa £5,539 per annum and £5,595 per annum in respect of service charge to be taken into account here.

ii)

Units B11/B19, B25, B32 and B38, although sub-divided individual units, were included within the areas allocated to Unit B27, and were let to Hampshire Prints. They had formed in part the Managing Director’s office and the Accounts Office….

This has the effect of reducing the size of the large open area designated as Unit B27 from 42,051 sq ft to 39,896 sq ft.

Unit B40 had been sub-divided from the main Hampshire Prints space and formed a self-contained unit.

iii)

Unit B24 was vacant and had an area of 497 sq ft.

Unit B30 was vacant and had an area of 300 sq ft.

Unit B201 was vacant and had an area of 187 sq ft.

Unit B202 was vacant and had an area of 98 sq ft.

Unit B203 was vacant and had an area of 181 sq ft.

By the date of the trial matters in relation to units not included within the Management Schedule because they were not let had moved on somewhat, because Mr. Shores and Mr. Bannell had produced a joint statement in which they recorded their agreement that the following units were not included within the Management Schedule:-

“Unit Floor Area Sq. Ft.

A9b 605

A33c 613

A46 585

A61 569

A63 550

A70a 390

B5 175

B24 497

B30 222

B201 187

B202 98

B203 181

TOTAL 4,692”

At the trial Mr. Shores agreed that Unit A63 was not in fact lettable. In a Supplemental Report dated 15 January 2003 (“the Second Bannell Report”) Mr. Bannell indicated that he agreed that Units A33c, A61, A70a, B5 and B24 were lettable in September 1998, but not the other listed units. In cross-examination Mr. Skinner accepted that he had not specifically included any of the listed units in his assessment of the value of the Property. His evidence was that he relied on the Management Schedule as being, for his purposes, a sufficiently accurate listing of the accommodation within the Property. He did not seek to cross-reference every unit to the Management Schedule, but he did appreciate that the Management Schedule contained inaccuracies.

At paragraph 3.9 of the Second Shores Report Mr. Shores referred to a document within the disclosed working papers of Mr. Skinner which seemed to explain how he had calculated the possible income of the order of £60,000 per annum which could be derived from the Hampshire Prints accommodation. What Mr. Shores concluded that Mr. Skinner had done was to allow £1 per square foot for 42,000 square feet occupied by Hampshire Prints on the first floor of the Property and £0.50 per square foot for 29,700 square feet on the second floor, to produce a total of £56,850. That figure then seemed to Mr. Shores to have been rounded up. It was on the basis of this calculation that Mr. Shores concluded that Mr. Skinner had omitted from his assessments the accommodation occupied by Hampshire Prints on the ground floor, Units A5, A8 and A20 totalling some 2,114 square feet, and Unit B40 on the first floor, amounting to some 6,700 square feet. While the total area of the CO Units on the second floor of the Property was some 29,700 square feet, Unit B27, including Units B11/B19, B25, B32 and B38 amounted to some 42,000 square feet. Thus, concluded Mr. Shores, Mr. Skinner had overlooked Unit B40 on the first floor and all the units occupied by Hampshire Prints on the ground floor. Mr. Skinner was asked in cross-examination about the document considered by Mr. Shores. He explained, and I accept, that the document in question was not relevant to his valuation. However, as I have already recorded, he did deliberately omit Unit B40 from his valuation as unlettable, and took Units A5, A8 and A20 into account not in an arithmetically precise way, but as a part of a rounding up exercise.

In section 4 of the Second Shores Report Mr. Shores commented on Mr. Skinner’s valuation. This section really set out the heart of the criticisms which Mr. Shores considered it appropriate to make of the crucial matter of the valuation of the Property at a sum of £525,000 on an OMV basis. Leaving aside Mr. Shores’s observations on the comparables considered by Mr. Skinner, what he said was:-

“4.0

Mr. Skinner adopted a gross income figure of approximately £272,000 per annum inclusive of service charge contributions as his starting point. The 22 July 1998 Management Schedule indicates a total figure of £272,913.31 per annum (rent £244,756 p.a. and service charge £28,157.31 p.a.). To that extent he was correct. However, analysis of this Schedule indicates that the totals include a number of units where no tenants’ names are listed; there are also several items of double-counting.

4.1

To this he added only £60,000 per annum in respect of the first and second floor Hampshire Prints accommodation, and from the total thereby arrived at he deducted £264,000 per annum of costs in regard to the running of the property. This is a figure twice that which Mr. Bannell and I are close to considering appropriate. This assessment is therefore, in my opinion, a gross over allowance, occasioned I believe by the incorrect use of Salcrom’s accounts.

4.2

This would provide a net income of £68,000 per annum. However, he appears to increase this to £150,000 per annum in his Report explaining that he has done this by assuming that a reduction of service costs by the landlord could produce an income of circa £150,000-£175,000 per annum.

4.3

He capitalises the lower of these figures by 6 Years’ Purchase (16.666%) to arrive at £900,000, and deducts therefrom a figure of £300,000 for immediate repairs and maintenance, and £60,000 to allow for conversion work to the first and second floor Hampshire Prints accommodation, and rental voids whilst this was achieved. This appears to leave a balance of £540,000.

4.4

In his Report he indicates that he is concerned that such a reduction in services would render the property no longer a business centre. He then states that he considers the value as a business centre to be £480,000 and as a “let industrial unit” to be £575,000. I have found no calculations to arrive at the first of these figures, whilst the latter figure appears to represent a valuation referred to as “Alternative Valuation”. He then adopts a figure of £525,000, which is slightly less than midway between the two figures. I consider this figure to be well below that which a normally competent valuer, complying with the appropriate requirements of the RICS Appraisal and Valuation Manual, should reasonably have arrived at.

4.5

However, nowhere in his calculations is any allowance made:-

i)

for a purchaser to move steadily to a greater recovery of service charge costs, which both Mr. Bannell and I consider would have been appropriate and achievable in circa two years.

ii)

In assessing a rental in regard to the first and second floor accommodation, he does not appear to have made any analysis of the level of rents already being achieved for units on the first floor, nor does he appear to have allowed for any improvement in the figure of £1 per sq ft to take account of the proposed expenditure on sub-division. Indeed, the figures adopted appear to have been pure guesswork, unsubstantiated by any proper analysis, projection or cost/benefit calculation.

iii)

Of greater importance however, he has totally overlooked all the vacant subdivided accommodation on the ground and first floors, making no provision nor allowance for the receipt of rents and service charges on the letting of any of this accommodation at any time. I consider that this indicates that he has simply overlooked this accommodation, including the units other than B27 on the first floor previously occupied by Hampshire Prints.

I consider that this represents approximately 3,821 sq ft on the ground floor, 4,740 sq ft on the first floor already sub-divided, and a further 6,700 sq ft at least partially sub-divided in Unit B40. Whilst some expenditure in completing the sub-division of the latter unit would be necessary, and some loss of net floor space would probably be occasioned in so doing, I am of the view that the quantum of potential rent and service charges thereby overlooked by Mr. Skinner potentially amounted to:-

Rent Service Charge

Ground Floor £12,418 p.a. + £3,821 p.a.

First Floor £14,220 p.a. + £4,740 p.a.

B40 space £16,080 p.a. + £5,360 p.a.

£42,718 p.a. + £13,921 p.a.

This total of potential additional income represents circa £56,640 p.a., even after allowing for works and some deferment, would have been likely to add considerably to Mr. Skinner’s figure.”

In Section 6 of the Second Shores Report Mr. Shores considered matters upon which he and Mr. Bannell continued, at that time, to disagree. One of those matters concerned net floor areas. That prompted Mr. Shores to reconsider his position. The results of that reconsideration he set out at paragraphs 6.1.7 and 6.1.8 of the Second Shores Report as follows:-

“6.1.7

The realisation that Mr. Bannell and I differed so considerably in this specific regard caused me to revisit the property and undertake further investigations with the current owner, in order to identify more exactly the situation relating to the units which did not appear within the Management Schedule of 22 July 1998, or seemed not to appear, although they were identified on the plans which Mr. Bannell, Mr. Skinner and I had been provided with. These investigations included the measuring of certain of the units to ascertain their precise floor areas.

6.1.8

The results of this further investigation have identified a number of anomalies which it is possible Mr. Bannell and I may have reached agreement upon by the date of the Hearing. Those which I am satisfied alter somewhat the floor areas I have calculated in the past from the information originally supplied to me, have required me to undertake some recasting of my valuation included in my original Statement, arriving at a revised figure of £1,019,000.”

The revised figure was some 87.84% of the original figure. To describe the revision downwards to that extent as “some recasting of my valuation” in the context of a professional negligence action does strike me as rather understating its potential significance. In fact, consequent upon agreement with Mr. Bannell of the net floor areas of the Property Mr. Shores revised his valuation down further to £1,017,000. The net floor areas agreed were:-

In paragraph 6.2.2 of the Second Shores Report Mr. Shores did analyse prices paid, or agreed to be paid, for five properties, of which three were operational business centres, in terms of a sum per square foot of net lettable space. While there was no difference between Mr. Shores and Mr. Bannell that the appropriate method of valuing the Property was by reference to the net annual income which it was considered capable of generating, to which an appropriate yield should be applied, Mr. Shores said that he considered that an analysis of sums paid on a price per square foot basis provided “a more direct and easily understood comparison”. Mr. Shores’s analysis of the particular properties considered indicated prices per square foot between a low of £9.16 and a high of £14.09. The point made was that if Mr. Skinner had analysed his valuation of the Property in this way and compared it with the properties which Mr. Shores had analysed he would have seen that his valuation was out of line with the others. Exactly where this led, I confess I did not altogether follow. None of the properties analysed by Mr. Shores were said to be in any real sense comparable with the Property. The only alleged common link was that three were business centres and the other two old factories ripe for conversion into business centres. Two of the operational business centres were in Yorkshire and only featured in this action at all because they were identified in the first of Mr. Bannell’s reports. There was no suggestion that Mr. Skinner either was, or should have been, aware of either of them at the time of his valuation of the Property. On the evidence Mr. Skinner was aware of the other three properties analysed by Mr. Shores. One was the business centre at Melksham which was mentioned in the Report. However, it was some 75 miles away from Gosport, much smaller, quite differently located and set out, and thus of limited value as a comparable, as Mr. Skinner pointed out during his evidence. The two redundant factories were nearer to Gosport. They were the former Perry factory and the former Ferguson factory. However, the prices analysed in respect of these properties were in a vacant, unused state. I was not in the end persuaded that the exercise of comparing prices analysed on a per square foot basis was either something which Mr. Skinner should have done in September 1998 or something which it was helpful to me to do now.

The bulk of the remainder of the Second Shores Report was concerned with other matters as to which Mr. Shores and Mr. Bannell had not been able, at that time, to agree in their discussions. In summary the important matters about they remained in disagreement, apart from the net floor areas of the ground and first floors of the Property were, first, as to sales of potentially comparable buildings; and second, as to the prospect of finding occupants for those parts of the Property which would become vacant on the departure of Hampshire Prints. Mr. Shores identified the latter as the main point of disagreement, and so it proved to be at the trial.

The main point made by Mr. Shores in the Third Shores Report in commenting on the letter dated 16 December 2002 written by Mr. Andrew Smith of Systemsolid to Mr. Bannell, in which Mr. Smith set out what had in fact happened in relation to the Property since September 1998 was:-

“In undertaking our valuations we [that is, both Mr. Bannell and himself] both assumed that a purchaser in the open market would offer a price for the property discounted by sums to allow immediate major repairs to be undertaken, and for the larger areas of accommodation previously occupied by Hampshire Prints to be sub-divided and offered for letting as soon as possible. Therefore the post acquisition activities of what were in practice the previous management, are not only subject to hindsight, but are to an extent irrelevant to the assumptions governing our valuations.”

I agree that what has in fact happened in respect of the Property since September 1998 is of relevance to the question whether the valuation on an OMV basis set out in the Report was arrived at negligently only insofar as what actually happened might illustrate a hypothesis upon which valuation was based. Other than in that way it seems to me that what has in fact happened is irrelevant. I need not, therefore, spend much time on the detail of the comments in the Third Shores Report.

At paragraph 5.1 of the Third Shores Report Mr. Shores did take the situation regarding Unit A64 forward a little. Having recorded that he had been told that in fact this unit was included in the letting to Shaw Trust at no additional rent or service charge in the first instance, Mr. Shores went on:-

“I was advised that Mr. Smith knew that he would be able to review the rent and service charge figures on these units the following June. This is information that I believe a valuer enquiring as to apparent anomalies on Management Schedule at the time of valuation would have been given, and for that reason I consider that it would have been appropriate to allow for an appropriate increase in rental and service charge in respect of Unit A64 after 12 months as though the unit had been vacant, and as allowed for in my valuation.”

As I have indicated, the expert witness as to matters of valuation called on behalf of Symmons was Mr. John Bannell. Like Mr. Shores, Mr. Bannell is a very distinguished valuer of real property. He is a Director of Professional Services with the well-known company Chesterton Plc and based at that company’s Southampton office. He has been in practice in Hampshire for 42 years. He prepared three reports for the purposes of this action. The first (“the First Bannell Report”) was dated 19 September 2002. I have already mentioned the Second Bannell Report. The third report (“the Third Bannell Report”) was dated 4 February 2003.

In section 3 of the First Bannell Report Mr. Bannell considered the economy and property market in Gosport. What Mr. Bannell wrote in this section was not in dispute between him and Mr. Shores and I accept it. His critical conclusions, which in my judgment were amply supported by the detailed points which he made, were:-

“3.4.4

The result has been that, with some, but few, exceptions, it has proved extremely difficult to attract economic investment to Gosport and the Borough is now reputed to have the second largest out-commuting workforce in the country. The weight of traffic is out of the Borough in the morning and back into it in the evening…

3.5.3

For commercial and industrial property and for very many years, there has been little demand for premises, in the traditional urban area of Gosport, from major occupiers and the Town has a larger than average proportion of locally based businesses. This has an adverse effect upon the comparative growth of property values and the attraction of investment.”

In paragraph 4.4 of section 4 of the First Bannell Report Mr. Bannell recorded that his instructions were:-

“to express my opinion of the Open Market Value (OMV) of the Subject Property and, for that. I also have to consider the Open Market Rental Value (OMRV).”

For the purposes of carrying out those instructions Mr. Bannell in section 5 of the First Bannell Report set out a description of the Property in terms which I think were not controversial. At paragraph 5.3.6 of the First Bannell Report Mr. Bannell indicated that, having checked and found to be accurate certain measurements made by Symmons, he adopted them, and on that basis found that the gross internal area of the Property was 18,019.82 square metres or 193,964 square feet. Taking the sizes of the individual units at the Property in September 1998 to be as set out in a management schedule dated 18 August 1998 prepared by Salcrom, he concluded that the net lettable area of the Property in September 1998 was 13,339,65 square metres or 143,588 square feet. At paragraph 6.8 of the First Bannell Report Mr. Bannell, having set out a description of the Property based on an inspection in July 2001, noted that that description was not dissimilar to that set out in the Report.

Section 10 of the First Bannell Report was concerned with the occupancy profile of the Property in August 1998. At paragraph 10.5 Mr. Bannell made the point that:-

“Hampshire Print, which occupied 82,679 sq ft, was in Liquidation and unable to meet its contractual obligations as a letter, dated 26 July 1998 confirms… It could be expected that a “face-value” occupancy level (related to lettable floorspace) of circa 99% was about to become only circa 41%. The future of the accommodation occupied by Hampshire Print was a fundamental issue for valuation.”

At paragraph 10.8 he went on:-

“The whole situation was alarming, especially in the light of the previous observations that I have made in this report – the nature and the condition of the Subject Property, the paucity of occupational demand in Gosport etc. As the Claimants, themselves, observed from their own visit to the Subject Property, this was “a third rate building with third rate tenants” and a very significant part of the profile of this distinctly vulnerable investment was about to become (if it had not done so already) extinct – leading to a reduction of the occupancy profile from 99% to 41%…”

In section 11 of the First Bannell Report Mr. Bannell set out an analysis of the occupancy of the Property and its income in September 1998. His comments included:-

“11.7

There were, in valuation terms, many apparent anomalies between the rentals and licence fees payable for similar accommodation but, taken overall and excluding debtors and the external facility let to Vodafone but including the floorspace let to Hampshire Print, the accommodation was supposed to be producing an average income (excluding service charges) of circa £2.63 per sq ft…

11.8

The service charges were, in the main, levied at £0.45 per square foot. From my own analysis, that was a wholly deficient amount. At Appendix M, I include an appraisal that I have prepared (based upon the 1996 Profit and Loss Account). This shows that, in my opinion, the true cost of the services was in the region of £136,000 and that there was an annual shortfall of circa £107,000.

11.9

By any measure, this was not a very well organised or managed Business Centre and it was decidedly vulnerable to the potential demise of one occupier.”

Appendix M to the First Bannell Report included these items as being material to the service charge account:-

“Rates 8,779

Insurance 20,179

Insurance – General 22,704

Common Cleaning 3,857

Landlord’s Repairs 4,050

Common Parts – repairs 9,545

Common Parts – security 25

Salaries 37,585

Transport costs 10,000

Telephone 11,508

Stationary 651

Sundry expenses 2,442

Advertising 2,071

Audit 1,500

Accountancy 1,010 ”

Mr. Bannell thus included within his total some £51,662 in respect of rates and insurance, elements which Mr. Shores completely omitted from his evaluation of service charges. Mr. Skinner allowed more in respect of insurance, £50,000, but less in respect of rates, £7,500. Mr. Bannell also allowed at the sum allowed by Mr. Skinner the element of travel expenses, which Mr. Bannell called “transport costs”, which Mr. Shores told me he thought was totally impermissible. Mr. Bannell allowed at almost the same level as Mr. Skinner the telephone costs which Mr. Shores stigmatised as “extremely high”. Mr. Bannell did not allow in his service charge calculation any element for bad debts, but he explained in his evidence that it had been allowed for elsewhere.

In section 12 of the First Bannell Report Mr. Bannell gave details of other converted business centres in the Portsmouth and Southampton areas. The purpose, I think, of this part of the report was to indicate that there were, in September 1998, within the general South Hampshire region, but in places better favoured economically than Gosport, alternative locations with available space in which businesses which might be potential customers for space in the Property could have found accommodation, albeit at costs higher than those which would have been likely to have been sought at the Property. The accuracy of this part of the First Bannell Report was not in dispute. In the following section of the First Bannell Report Mr. Bannell was concerned with evidence of properties comparable to the Property. He made the point that there were no truly comparable properties in Gosport. He also made the point that there had been no sales of comparable converted business centres in South Hampshire around September 1998. About rentals at the Property Mr. Bannell said this:-

“13.4.1

At the Subject Property, licence fees/rentals were averaging £3.80 per sq ft on the ground floor. £2.33 per sq ft (but for space other than Hampshire Print £3.66 per sq ft) on the first floor. £3.78 per sq ft for the “gallery” offices and £1.23 per sq ft (Hampshire Print) on the second floor. The average income from the external units was £3.55 per sq ft…

13.4.6

In my opinion, the licence fees and rentals payable at the Subject Property were, overall, at the market level. Any comparison with the much higher Licence fees payable at the Victory Centre in Portsmouth and Solent Business Centre in Southampton would not be appropriate owing to the much higher standard of their accommodation and their facilities.”

Mr. Shores agreed the accuracy of these paragraphs of the First Bannell Report.

In section 14 of the First Bannell Report Mr. Bannell dealt with the considerations to be taken into account in making a valuation of the Property. At paragraph 14.1 he said:-

“For my valuation, I need to consider the following issues:-

(a)

The core income receivable from the letting of business units at the Subject Property.

(b)

The potential effect of taking action to bring the “Service Charge Account” and “Debtors” into balance.

(c)

The prospect of re-letting the floorspace that could be anticipated to become vacant as a result of Hampshire Print being in liquidation.

(d)

The capital expenditure that would be needed.

(e)

The yield that a purchaser could be expected to require from his investment.”

Mr. Shores agreed that that was an appropriate list of issues. Mr. Bannell then proceeded in the First Bannell Report to consider each of those issues in turn.

About the core income Mr. Bannell said that he did not consider that there was any prospect of income growth beyond general inflation. He allowed 20% of core income for bad debts and voids. In relation to service charges he wrote:-

“14.5.1

I consider that a purchaser would have regarded the balancing of the Service Charge Account and the pursuit of debtors as a priority.

14.5.2

From the information that I have, I have estimated that the shortfall in the Service Charge Account was running at circa £107,000 per annum (Appendix M). Bringing the Account into balance would take time (I would estimate 2 years in the case of existing Licensees and Tenants) and there could be casualties, by way of “leavers”, as a result.”

In considering the prospect of reletting the Hampshire Prints accommodation Mr. Bannell did set out his understanding of what had actually happened at the Property. However, he also said this:-

“14.6.1

As I have previously described, neither The Victory Centre in Portsmouth nor The Solent Business Centre in Southampton have units larger than 1,100 sq ft. Both are considerably smaller than the subject property and they are bigger and much more vibrant employment centres.

14.6.2

At the Subject Property and on the main floors (excluding the external units), and, also, excluding the extreme exception of Hampshire Print, there were approximately eight units of larger size but only four units (about 5% of the units) above 2,000 sq ft (making the assumptions to which I have referred in para 11.6).

14.6.3

In my opinion, there was no realistic expectancy of re-letting anything like the whole of the first and second floor space that was about to be vacated by Hampshire Print to a single occupier or even a limited number of occupiers. Conversion to small units would have provided far more space than the market could have been expected to absorb. There were also other difficulties in that the conversion of the second floor would have been difficult, due to its very limited height and its very poor accessibility.

14.6.4

The key assessment that needed to be made was how much of this accommodation could be expected to be lettable given:-

(a)

The poor demand for space in Gosport.

(b)

The fact that it was almost entirely on the upper floors.

14.6.5

My conclusion on these points would have been that:-

(a)

There was no justification for assuming that the second floor could be relet at all. If it should be achieved, it would be a bonus that the purchaser would regard as his reward for taking the speculative risk of purchasing.

(b)

Only 50% of the first floor space occupied by Hampshire Print would be relettable. After conversion to appropriate unit sizes, I estimate that this would have provided 22,500 sq ft of lettable floor space. My assessment of the rental value of this space would have been £3.50 per sq ft.”

In paragraph 14.7 of the First Bannell Report Mr. Bannell considered recovery of the service charge account. What he said about it was:-

“14.7.1

I take as my starting point, my estimate of the true cost of providing services - £135,906 (Appendix M).

14.7.2

Including my estimate that only 22,500 sq ft net of the first and second floor space occupied by Hampshire Print would be re-lettable (after conversion), the total net lettable floor area of the property would be 87,706 sq ft.

14.7.3

Therefore, to balance the Service Charge Account, the chargeable cost should have been £1.55 per sq ft.

14.7.4

The core Service Charge income (excluding Hampshire Print) was £28,964 per annum to which would be added £17,437 per annum in both Year 1 and Year 2 from the re-letting of former Hampshire Print space (11,250 sq ft per annum @ £1.55 per sq ft = £17,437 per annum).

14.7.5

This would leave a residual shortfall of £72,068 per annum to be recovered over 2 years (£36,034 per annum).”

In paragraph 14.8 of the First Bannell Report Mr. Bannell allowed a total of £400,000 for immediate repairs to the Property, so that was a figure upon which he and Mr. Shores agreed, albeit that Mr. Bannell considered that it would fund works rather more basic than Mr. Shores thought it would. Mr. Bannell also allowed £67,000, rather more than Mr. Shores, but within the bracket of £60,000 to £70,000 taken by Mr. Skinner, for the costs of remodelling the accommodation occupied by Hampshire Prints.

The question of the yield a purchaser of the Property would be likely to have required was considered by Mr. Bannell at paragraph 14.9 of the First Bannell Report. He decided upon 15% in relation to existing, “core”, income and 20% in respect of “future income from the letting of additional units and recovery of the service charge account”. At paragraph 14.10 Mr. Bannell dealt with a valuation of the Property for alternative use as employment land. On the basis, which he considered optimistic, that such land was worth £240,000 per acre, the value of the Property, covering an area of 3.637 acres, was £872,880, which he rounded down to £872,500. To that figure he applied a deferral factor to reflect the fact that any development would not be completed for two and a half years and then allowed a sum of £163,000 in respect of the estimated cost of demolishing the existing buildings at the Property, and thus arrived at a valuation of £565,665, which he rounded down to £565,000.

In section 15 of the First Bannell Report Mr. Bannell expressed his views as to valuation methodology. He said:-

“15.1

With or without on-site management, the Subject Property comprised a property investment and I have no doubt that the investment method of valuation was appropriate, This was the method adopted by the Defendants.

15.2

In my opinion, the borrower’s accounting information (which has not been presented to me in the form of full audited accounts) was of interest only insofar as it provided some data for a review of its property management.”

In section 16 of the First Bannell Report Mr. Bannell set out his OMRV and OMV of the Property as at 15 September 1998. The OMRV was £232,000 per annum and the OMV was £560,000. He went on in section 18 of the First Bannell Report to give his assessment of the Report. The material parts of that section were in these terms:-

“18.3

In my opinion, the Defendants exercised very considerable skill and care in fulfilling the Claimants’ instructions. In this report, I have mentioned the accuracy of the Defendants’ measurements of the Subject Property. It is apparent that the Defendants kept the Claimants fully informed during the progress of the work, and the Valuation Report, itself, reflected the extent of the very detailed enquiries and investigations that the Defendants had made and how they had analysed and assessed that information to arrive at their conclusions.

18.4

The Defendants expressed their opinion of the Open Market Value of the Subject Property at £525,000. My opinion of the Open Market Value as at the Valuation Date is in the region of £560,000, 6.67% higher.

18.5

For the Subject Property (which requires a professional judgement to be made on a wide range of issues….) and the lack of comparables within the area, it would be unlikely that two competent valuers would take precisely the same view of the assembled data or reach precisely the same conclusion.

18.6

The difference between my valuation and the Defendants’ valuation is well within the range that might be expected. In my opinion, the Defendants’ Valuation Report comprised a professionally competent response to the Claimants’ instructions

18.7

I do not agree that the Open Market Value of the Subject Property was £1,100,000 or anywhere near that figure.”

In the Second Bannell Report Mr. Bannell set out, at Appendix 1a, a revised valuation of the Property in the sum of £540,000. The reason for the revision from his earlier valuation of £560,000 was agreement with Mr. Shores as to the “core”income of the Property.

At paragraph 3.7 of the Second Bannell Report Mr. Bannell explained why he had not included in his valuation the units which he and Mr. Shores had agreed were unlet at the Property in September 1998. He said:-

“There are several reasons why I have not included these units:-

(a)

It has not been possible to fully identify, and agree, the units that were unlet at the date of valuation without extensive research on the part of both myself and Mr. Shores and over a much longer period of time than would have been reasonably available to any valuer responding to the Claimants’ instructions.

(b)

It is only as a result of revisiting the property, on more than one occasion, that I (and I suspect, also, Mr. Shores) have been able to form an opinion of the potential lettability of these units. I consider that this would have been beyond the reasonable requirements of a competent valuer responding to the Claimants’ instructions.

(c)

Even if I had had the opportunity to undertake the degree of research that has informed the Joint Statement and my opinion of the unlet units, there are other factors to weigh in the balance – the paucity of demand in the marketplace in which this property is situated, alongside my opinion as to the degree of relettability of the (soon to be vacant at the date of valuation) Hampshire Print space and my allowance of 20% for bad debts and voids (when, at the same time, the void level at The Victory Centre at Portsmouth was running at 22%…”

In other words, as I understood the point, there is no purpose in trying to identify accurately every last square inch of theoretically lettable space if one feels that the available space is in excess of that for which there will ever be any demand. Ultimately this was the fundamental issue of disagreement between Mr. Shores, who took the view that it was wrong in principle for a valuer to attribute no value to theoretically lettable space, no matter what the circumstances, and Mr. Bannell, who took the view that if a valuer considered that space would not ever be lettable the logical consequence was that the space had no value. At paragraph 4.8 of the Second Bannell Report Mr. Bannell explained that he had not taken into account Units A5, A8 and A20 in his valuation for the same reasons as those set out in paragraph 3.7 of that Report.

In Section 5 of the Second Bannell Report Mr. Bannell dealt with three matters in relation to which he and Mr. Shores had not been able to reach agreement. The only one concerning which I need make any comment is yields. Mr. Bannell drew attention to passages in the current edition of the well-known work “Modern Methods of Valuation” in support of his approach of adopting a dual rate of yield. He also invited me to consider this passage on page 86 in a section dealing with yields in valuing factories and warehouses:-

“Yields will tend to be at the bottom of the range in the case of modern single-storey factories and warehouses in areas of good demand. In the case of factories and warehouses in areas of poor demand, particularly in areas suffering from general industrial decline accompanied by high unemployment levels, yields will be at the top of the range. For older buildings, which are frequently multi-storied and with low heights to eaves, the yield may be well in excess of 15%. Indeed, apart from buildings capable of conversion to small workshop units, they may even cease to be considered as investments and will change to other uses or remain vacant pending redevelopment.”

The purpose of the Third Bannell Report was to consider the valuations of the Property undertaken in 1998 by Messrs. Vail Williams. Section 4 of the Third Bannell Report contained a sensitivity analysis of the valuations of Mr. Froome. Mr. Bannell undertook three analyses. The first two were intended to demonstrate the impact upon the valuation of the Property at £750,000 of altering one of two assumptions which seemed to underlie the valuation, namely the assessment of the necessary allowance for repairs, £250,000, and the anticipated new letting to Wallpaper Printing Company Ltd. The third analysis demonstrated the effect of altering both of those assumptions. If the allowance for repairs was increased from Mr. Froome’s £250,000 to the figure of £400,000 taken by both Mr. Shores and Mr. Bannell, Mr. Froome’s valuation was reduced to £591,885. If it was assumed that the anticipated letting to Wallpaper Printing Company Ltd. at an annual rent of £81,000 did not proceed and so that income did not fall to be brought into account in assessing value, Mr. Froome’s valuation was reduced to £503,103. If both of the foregoing adjustments were made, Mr. Froome’s valuation was reduced to £359,905.

It was not in dispute that in valuation cases, as in other cases of alleged professional negligence, the basic approach to be adopted is that indicated by McNair J in giving directions to the jury in Bolam v. Friern Hospital Management Committee [1957] 2 All ER 118 at page 121C-H:-

“Before I turn to that, I must explain what in law we mean by “negligence”. In the ordinary case which does not involve any special skill, negligence in law means this: Some failure to do some act which a reasonable man in the circumstances would do, or doing some act which a reasonable man in the circumstances would not do and if that failure or doing of that act results in injury, then there is a cause of action. How do you test whether this act or failure is negligent? In an ordinary case it is generally said, that you judge that by the action of the man in the street. He is the ordinary man. In one case it has been said that you judge it by the conduct of the man on the top of a Clapham omnibus. He is the ordinary man. But where you get a situation which involves the use of some special skill or competence, then the test whether there has been negligence or not is not the test of the man on the top of a Clapham omnibus, because he has not got this special skill. The test is the standard of the ordinary skilled man exercising and professing to have that special skill. A man need not possess the highest expert skill at the risk of being found negligent. It is well-established law that it is sufficient if he exercises the ordinary skill of an ordinary competent man exercising that particular art. I do not think that I quarrel much with any of the submissions in law which have been put before you by counsel. Counsel for the plaintiff put it in this way, that in the case of a medical man negligence means failure to act in accordance with the standards of reasonably competent medical men at the time. That is a perfectly accurate statement, as long as it is remembered that there may be one or more perfectly proper standards; and if a medical man conforms with one of those proper standards then he is not negligent. Counsel for the plaintiff was also right, in my judgment, in saying that a mere personal belief that a particular technique is best is no defence unless that belief is based on reasonable grounds. That again is unexceptionable. But the emphasis which is laid by counsel for the defendants is on this aspect of negligence: he submitted to you that the real question on which you have to make up your mind on each of the three major points to be considered is whether the defendants, in acting in the way in which they did, were acting in accordance with a practice of competent respected professional opinion. Counsel for the defendants submitted that if you are satisfied that they were acting in accordance with a practice of a competent body of professional opinion, then it would be wrong for you to hold that negligence was established.”

The next question is to what is it that the test formulated by McNair J has to be applied. That question arises in the present case, as in many cases of alleged professional negligence, because a number of criticisms have been made of steps taken or not taken along the way to the production of the eventual work product. Is it enough to establish negligence that in relation to some one or more of those steps Mr. Skinner fell below the standards of a reasonably competent valuer, if indeed he did, or must any failing, to be relevant, have vitiated the entire output of his efforts? It is trite law that carelessness which does not cause damage does not in law amount to negligence. This truism is often overlooked by those who frame the allegations to be made in a professional negligence case. It is the unfortunate lot of the Court sometimes to be exposed to the temptation of supposing that some particular case of alleged professional negligence involves not so much determining whether a particular individual has caused damage by falling in some important respect below the standards of reasonably competent members of his or her profession, but rather marking his or her professional performance for technical excellence as if the litigation were some sort of sporting competition. In fact in the case of alleged negligence on the part of a valuer it is plain that it is only if the valuation which results from the valuer’s efforts is erroneous that any question can arise of the valuer being found to have been negligent. It is not enough to justify a finding of negligence that at some point along the way to arriving at a valuation within the permissible range of non-negligent valuations the valuer was guilty of some failure to meet the standards of ordinarily competent members of his or her profession. This was made clear by Buxton LJ in Merivale Moore Plc v. Strutt & Parker [2000] PNLR 498. At pages 515-516 of his judgment, in a section entitled “Negligent valuation: authority”, Buxton LJ conducted an illuminating review of the principal decisions of the courts in recent years concerning the alleged negligence of valuers. He said, so far as is presently material:-

“It has frequently been observed that the process of valuation does not admit of precise conclusions, and thus that the conclusions of competent and careful valuers may differ, perhaps by a substantial margin, without one of them being negligent: see for instance the often quoted judgment of Watkins J in Singer & Friedlander Ltd. v. John D. Wood [1977] 2 EGLR 84 at 85G; and the House of Lords in the Banque Lambert case [1997] AC 191 at 221F-G. That has led to the courts adopting a particular approach to claims of negligence on the part of valuers.

In the general run of actions for negligence against professional men

“it is not enough to show that another expert would have given a different answer … the issue … is whether [the defendant] has acted in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession: Zubaida v. Hargreaves [1995] 1 EGLR 127 at 128A-B per Hoffman LJ, citing the very well-known passage in Bolam v. Friern Hospital Management Committee [1957] 1 WLR 582 at 587.”

However, where the complaint relates to the figures included in a valuation, there is an earlier stage that the court must be taken through before the need arises to address considerations of the Bolam type. Because the valuer cannot be faulted in any event for achieving a result that does not admit of some degree of error, the first question is whether the valuation, as a figure, falls outside the range permitted to a non-negligent valuer. As Watkins J put it in Singer & Friedlander, at 86A,

“There is, as I have said, a permissible margin of error, the “bracket” as I have called it. What can properly be expected from a competent valuer using reasonable care and skill is that his valuation falls within this bracket.”

A valuation that falls outside the permissible margin of error calls into question the valuer’s competence and the care with which he carried out his task: ibid. But not only if, but only if, the valuation falls outside that permissible margin does that enquiry arise. That is what I take to have been the view of Balcombe LJ, with whom the remainder of the members of this court agreed, in Craneheath Securities v. York Montague [1996] 1 EGLR 130 at 132C, when he said:

“It would not be enough for Craneheath to show that there have been errors at some stage of the valuation unless they can also show that the final valuation was wrong”

As it was put by H.H. Judge Langan QC in Legal & General Mortgage Services v. HPC Professional Services [1997]PNLR 567 at 574F, in an analysis that I have found helpful, once it is shown that the valuation falls outside the “bracket”:

“the plaintiff will by that stage have discharged an evidential burden. It will be for the defendant to show that, notwithstanding that the valuation is outside the range within which careful and competent valuers may reasonably differ, he nonetheless exercised the degree of care and skill which was appropriate in the circumstances.”

Various further considerations follow. First, the “bracket” is not to be determined in a mechanistic way, divorced from the facts of the instant case. We were shown a list of figures giving either the bracket determined, or the percentage divergence from the true value found nonetheless not to have been negligent, in a series of recent cases. I did not find that of assistance, save as a graphic reminder that it is not enough for a plaintiff simply to show that the valuation was different from the true value. Second, if it is shown even at the first stage that the valuer did not adopt an unprofessional practice or approach, then that may be taken into account in considering whether his valuation contained an unacceptable degree of error. I think that that is what is meant by Mr. Robin Stewart QC in his judgment in Mount Banking Corp. v. Cooper [1992] 2 EGLR 142 at 145D. Third, where the valuation is shown to be outside the acceptable limit, that may be a strong indication that negligence has in fact occurred. That is said in Mount Banking at 145J. The judgment in that case was commended in general terms by Balcombe LJ in Craneheath, but it is not clear how far that commendation extended to all the specific elements in it. Some caution at least has to be exercised in this respect, because the question must remain, in valuation as in any other professional negligence cases, whether the defendant has fallen foul of the Bolam principle. To find that his valuation fell outside the “bracket” is, as held by this court in Craneheath and also, I consider, by the House of Lords in Banque Lambert, a necessary condition of liability, but it cannot in itself be sufficient.”

Thus it is clear, in my judgment, that in order to make out a case of professional negligence against a valuer a claimant must first demonstrate that the valuation in fact made fell outside whatever is the appropriate range of permissible non-negligent valuations in the particular case. If the claimant fails to do that, his claim fails. If the claimant does demonstrate that the valuation does fall outside the range of permissible non-negligent valuations, the scope of the enquiry broadens to a consideration of whether the valuer was in fact negligent. As to that enquiry, the evidential burden is on the defendant to show that he did exercise what was, in the circumstances, appropriate skill and care, which means, amongst other things, that the fact that a valuation falls outside the range of permissible non-negligent valuations must be some evidence in itself of negligence. Buxton LJ, in the passage quoted in the preceding paragraph of this judgment, seemed at one point to suggest that the fact that a valuation fell outside the range of permissible non-negligent valuations was not in itself sufficient to establish negligence. However, in the context I think that cannot mean that it would not be sufficient to establish negligence that a valuation fell outside the permissible range and no explanation as to how that could have happened without negligence was offered.

The range of valuations of the Property in the latter part of 1998 put in evidence before me is very large. At the upper end, as matters now stand, is Mr. Shores’s valuation, as finally revised, of £1,017,000. That in itself represents a substantial revision downwards from his original valuation in the First Shores Report of £1,160,000. Mr. Skinner’s valuation was £525,000. Mr. Bannell’s revised valuation is £540,000, 2.86% higher than Mr. Skinner’s. Mr. Froome’s valuations of £750,000 were not the subject of any criticism from Mr. Shores, or, indeed, from Mr. Lennard, although they were in fact some 73.75% of the final revised valuation of Mr. Shores. As Mr. Bannell demonstrated, entirely convincingly, as it seemed to me, Mr. Froome’s valuations were extremely sensitive to changes in the underlying assumptions. Simply to increase the allowance for cost of immediate repairs to a figure of £400,000, which both Mr. Shores and Mr. Bannell considered appropriate, but with different works in view, reduced Mr. Froome’s valuation to £590,000 in round terms, some 12.38% higher than that of Mr. Skinner. The other sensitivities considered by Mr. Bannell reduced Mr. Froome’s valuation to figures below that of Mr. Skinner. While it is, in my judgment, of little weight, I nonetheless notice that Mr. Jones of Messrs. Alder King, who was invited to pass comment on the Report, did not make any relevant adverse observations. It was common ground that the Property was difficult to value. Mr. Shores in the Second Shores Report indicated that in his view a permissible non-negligent range of valuation in relation to the Property in the latter part of 1998 could be 15% to 20%.

It was suggested, quite properly, by Mr. Lennard to Mr. Bannell, that his conclusion as to valuation of the Property in September 1998 was influenced by his knowledge of Mr. Skinner’s valuation. Mr. Bannell robustly rejected that suggestion, and I find that it was in fact ill-founded. While my acceptance that Mr. Bannell undertook his valuation and reached his conclusion in good faith might seem a short way to a conclusion that Mr. Skinner’s valuation, within 3% of Mr. Bannell’s revised valuation, was in the range of permissible non-negligent valuations of the Property in September 1998, I in fact reach that conclusion for the more fundamental reason that I reject the valuation of Mr. Shores. Mr. Shores’s valuation depended upon the contention that all potentially lettable space in a building such as the Property should, as a matter of principle, be valued. He then went on to value the Property on the basis that 80% of the potentially lettable space would in fact be let and then permanently occupied at rates approximating to the average passing rents in September 1998 within 2½ years. He also assumed in his valuation that it would be possible within 2 years to increase the service charges levied from an average of the order of £0.45 per square foot per annum to £1 per square foot per annum. Mr. Shores accepted that he had no real local knowledge of demand in Gosport for accommodation such as that offered at the Property. Mr. Bannell, Mr. Skinner and Mr. Froome, all of whom professed local knowledge, all recognised that there were parts of the Property which would never be fully let. That is a matter for their judgment in the light of their local knowledge of demand in Gosport, but I find on the evidence that the basic judgment is sound. The extent of the Property is simply too great for the local demand ever to fill it. Gosport just does not need so much of the type of space at the Property as there is there. The relative geographical isolation of Gosport, its relative remoteness from the M27 corridor, and the availability of other business centres with available accommodation in Portsmouth and Southampton mean, in my judgment on the evidence, that it is unlikely that occupiers would be attracted from outside Gosport. It seems to me that the judgment of Mr. Bannell and that of Mr. Skinner as to the extent to which the size of the Property meant that the market for accommodation such as it provided was oversupplied was essentially similar. Mr. Skinner discounted Unit B40 as unlettable and treated the whole of the remainder of the former Hampshire Prints space on the first floor and on the second floor as lettable after remodelling, but at rents which were considerably lower than the rents paid by other occupiers, on the first floor £2 per square foot per annum, and on the second floor £0.50 per square foot per annum. He considered that the state of the local market for accommodation was that, although it was desirable for service charges to cover the cost of provision of services, the market would not bear an increase in the overall cost of occupying accommodation at the Property. Mr. Bannell treated only half of the former Hampshire Prints space on the first floor as lettable after remodelling, but at a rent of £3.50 per square foot per annum. He did contemplate that the market would bear an increase in service charges. Mr. Lennard put to Mr. Skinner that, if one applied Mr. Bannell’s contemplated rates of rent and service charge to the areas which Mr. Skinner was contemplating could be let, that would have had a significant impact upon Mr. Skinner’s valuation. Logically the point is unanswerable as put – the answer must be affirmative. However, it seems to me that it is a false point. The low rents assumed by Mr. Skinner for larger areas than those assumed by Mr. Bannell, and the higher rents assumed by Mr. Bannell, but for much smaller areas are simply addressing the same problem in different ways. If, for ease of demonstration, one proceeds on the basis that Mr. Bannell’s assumed rates of rent are twice those assumed by Mr. Skinner, and that Mr. Skinner’s assumed areas are twice those assumed by Mr. Bannell, which is close enough to the correct position, the falsity of Mr. Lennard’s point can be demonstrated algebraically. Let Mr. Skinner’s assumed rent per square foot be £x and his assumed area to be let 2y square feet. The result of his calculation of future rent per annum is £2xy. Mr. Bannell’s assumed rent per square foot is then £2x and his assumed area to be let is y. The result of his calculation of future rent per annum is also £2xy. As I have said, each of Mr. Bannell, Mr. Skinner and Mr. Froome adopted the approach that space which they judged would never be let should not be valued. That seems to me to be just plain common sense and I accept that it was a proper professional approach to adopt. I reject the evidence of Mr. Shores that there are no circumstances in which theoretically lettable space in a property being valued on an investment basis should not be included in the calculation of value. It may be an unusual situation in which it would be appropriate to ignore space, but if the conclusion reached is that the space disregarded is incapable of being let it seems to me that the only proper course is not to include it in a calculation of value.

In his written closing submissions Mr. Lennard contended that I should not reach the conclusion as to demand in Gosport for accommodation such as that provided in the Property which I have set out in the preceding paragraph because:-

“11.

The following contemporary contra-indications to JB view on demand are significant and should be considered:-

11.1

the Sanderson Centre, excluding HP [that is, the space which had been occupied by Hampshire Prints], was 91% let

11.2

the view from Austin Adams in July 1998 … indicated “there is currently a good level of demand for industrial property coupled with a lack of supply”

11.3

the quote from Ian Power … in a newspaper article in August 1998 that availability for industrial floorspace was at a 15 year low;

11.4

the Vail Williams report in October 1998 ….referred to good demand; “we understand that the occupancy level of the centre has improved over the last five years. This would appear to be the result of increased demand for industrial accommodation” and “we would still anticipate good demand for space within the centre over the forthcoming five years” and “as witnessed by the current strong demand for the individual units…”

11.5

the Konver letter … refers to the “demand for business facilities in Gosport at present exceeds supply”.”

It does not seem to me that any of the points made by Mr. Lennard at paragraph 11 of his written closing submissions is at all persuasive.

The whole point about the insolvency of Hampshire Prints was that an enormous amount of space in the Property was about to become available. The question was whether there was any prospect of filling all, or most, of it. To that issue the level of occupancy of the space in the Property which Hampshire Prints had not occupied was not relevant at all. Indeed, the fact that 9% of the other space was not occupied was suggestive of a lack of demand, not a level of unsatisfied demand.

Messrs. Austin Adams is a firm of estate agents. The context of the comment in the letter from which the passage quoted by Mr. Lennard was taken, which letter was in fact dated 22 July 1998 and addressed to Mr. Smith of Salcrom, was a pitch for business as a letting agent for the accommodation in the Property about to be vacated by Hampshire Prints. I do not see how that can be considered a dispassionate and objective assessment of the demand in the marketplace.

Mr. Ian Power is, or was at the material time, a partner in the firm of Messrs. Austin Adams. The comment attributed to him in the 11 August 1998 edition of The Daily Echo newspaper was, “Fareham Reach has become available at a time when the availability of industrial floorspace in south Hampshire is at a 15-year low”. If, and it may be a big if, one assumes that Mr. Power’s comment was correctly reported, his expression of view related not to Gosport, but to South Hampshire as a whole. On the evidence given before me, that region includes the better favoured areas of Southampton, Fareham and Portsmouth.

The comments extracted from the report of Mr. Froome need to be viewed in the context that in fact he did omit some net space in his calculation of the value of the Property.

The so-called “Konver letter” was in fact a business plan prepared to support an application for a grant from European Union funds towards the cost of reconstructing part of the Property as what was described as a “Techno Centre”. It may be considered unlikely that it would assist the prospects of success of the application to suggest that there might be little or no demand for the accommodation which would result from the undertaking of the project in respect of which the grant was sought.

Another aspect of Mr. Shores’s approach to valuation of the Property which I found most unsatisfactory was how he dealt with service charges. His calculation of expenses to be taken into account as set out in Appendix 4b to the First Shores Report was, in my judgment, obviously incomplete. It did not include elements in respect of rates, insurance and depreciation which plainly ought to have been included, and which actually were substantial in amount. He reduced the sum allowed in respect of telephone charges below the actual cost incurred for no clear reason, simply asserting that the sum seemed to him to be very high. So be it, but if that was in fact the actual cost it was in principle, as I think Mr. Shores accepted, a proper item to include. There was then rounding of a figure calculated as £93,562 up to £130,648. Although Mr. Shores was asked about that in cross-examination, in my judgment he gave no satisfactory explanation as to why it was appropriate. The suggestion seemed to be that service charges at a level of £1 per square foot per annum was in Mr. Shores’s opinion what the market in Gosport for accommodation like that available in the Property would stand. None of this inspires confidence. In principle service charges should represent the cost of provision of services, not some means of extracting additional profit from a let building. If the figure of £93,562 was considered to be an accurate indication of the actual cost of services, rounding to the extent Mr. Shores did could not, in my judgment, be justified. In fact, because of the rather cavalier way in which the calculation had been done, it seems to me much more likely that Mr. Shores knew, or at least strongly suspected, that it made inadequate allowance, as actually it did, for items which ought to have been included which had not been and under-allowances for items which were actually included. This all looks very sloppy, and pitifully inadequate as a justification for criticising Mr. Skinner for making an excessive allowance in respect of the cost of services. The short point, so far as the relevance of his calculation of service charges to Mr. Shores’s valuation of the Property is concerned, is that I do not have any confidence that a valuer whose approach to calculation of service charges seems so manifestly deficient would have utilised any greater care in the overall valuation. That lack of confidence, coupled with Mr. Shores’s ignorance of, and thus disregard of, local circumstances in Gosport, and, as it seemed to me, a rather doctrinaire insistence on atttributing a value to any theoretically lettable space, as well as his significant downwards revision of his initial valuation, have all led me to the conclusion that Mr. Shores’s valuation at £1,017,000 is not accurate or reliable.

I am satisfied that the most reliable valuations of the Property in September 1998 are those of Mr. Skinner at £525,000 and Mr. Bannell at £540,000. The essential accuracy of those valuations is confirmed by the results of the sensitivity analyses of Mr. Froome’s valuation at £750,000 and the lack of adverse comment on Mr. Skinner’s valuation by Mr. Jones of Messrs. Alder King. For practical purposes in valuation terms there is no difference in the circumstances of the present case between the valuation of Mr. Skinner and that of Mr. Bannell. In the result, it has not been demonstrated that Mr. Skinner’s valuation fell outside the permissible range of non-negligent valuations of the Property in September 1998, and so this action fails and is dismissed.

In the circumstances it is not strictly necessary to express any view as to the detailed respects in which it was contended that Mr. Skinner had been negligent in undertaking his valuation of the Property. However, in fairness to him I should say that I am not satisfied that there in fact was any substance in any of them.

The main point taken against him was that he had overlooked or ignored lettable space which he ought to have taken into account in his valuation. That he did discount space is plain and that he failed to check the Management Schedule against the plans available to him to ensure that he had identified vacant space is also plain. No doubt in the ordinary case of a building containing space for which there was a demand, it would be vital to identify all of the potentially income producing parts of the building and to take them all into account in one’s valuation. However, once the judgment has been made that there is too much space in the particular building one is valuing, the focus of the valuation exercise inevitably shifts from the theoretical net lettable area of the building to identification of how much of it is actually likely to let. Identification of the precise extent of the excess of available space over that which is actually likely to let is a purely academic exercise of no relevance to valuation.

For the reasons which I have explained, it seems to me that Mr. Skinner’s approach to identification of the elements to be included within an evaluation of service charges was considerably more thorough than that of Mr. Shores. I find that each of the elements which Mr. Skinner included within his evaluation was a proper one to be included – Mr. Bannell included the element in respect of travel expenses to which Mr. Shores took particular exception. I find that the allowances which Mr. Skinner made in relation to each of the elements which he included within his evaluation of service charges were proper, in the sense of being allowances which an ordinarily competent valuer valuing the Property in September 1998 could have included. Most, but not all, of the allowances made for particular items by Mr. Skinner, were close to, or below, those made by either Mr. Shores or Mr. Bannell in respect of the same items.

Whether it would be possible, it undoubtedly being desirable, to increase service charge recovery at the Property is, in my judgment, quintessentially a matter for the assessment of a valuer in the light of his knowledge of the local market. That Mr. Skinner and Mr. Bannell should take different views on that individual question does not strike me as particularly unusual, and it is certainly not evidence that no reasonably competent valuer could have taken the view which Mr. Skinner did.

I find that the suggestion that Mr. Skinner valued the business of Salcrom rather than the Property is misconceived.

I find that there were no properties comparable to the Property in September 1998 in the sense that the values of those properties ought to have influenced Mr. Skinner in his valuation of the Property. I also reject the suggestion that it was necessary or appropriate for Mr. Skinner to consider the values of any properties analysed into a rate per square foot of net lettable space.

Finally I reject the suggestion that the advice given by Mr. Skinner to Lloyds as to the attractions from Lloyds’s point of view of negotiating a sale of the Property to Mr. Dibben and his associates was in any way inappropriate. Essentially the same advice was given to Lloyds by its solicitors, Messrs. Lester Aldridge, and in my judgment the advice was sensible.

In the light of my conclusion that the action fails it is not strictly necessary to consider the question of loss at all. This is perhaps just as well from the point of view of Lloyds. The issue of what loss, if any, Lloyds had sustained as a result of the alleged negligence of Symmons received but little attention at the trial. In opening Lloyds’s case, and, indeed, in closing it, Mr. Lennard asserted, blandly, that it should be assumed that, if advised as to the correct value of the Property, Lloyds would have sold it to someone at that price. He submitted that the OMV was by definition the price at which the Property could be sold. In many cases that may be so. It would be likely to be so, for example, for a residential property in a street of similar properties in an area of housing shortage. However, the Property is a very individual property in a relatively economically disadvantaged area. The valuation of it, as was common ground, was not to be approached on the basis of prices paid for similar properties in the area, but on the basis of its net income producing potential. The resultant valuation is therefore to a degree artificial, being the product of an assessment of the income producing potential to which a yield thought likely to be acceptable to an investor is applied. The valuation is thus an estimate of the price which a purchaser may be prepared to pay, not a prediction of the price at which a sale will inevitably be achieved. There may be investors who would be attracted by the opportunity to turn the Property to account, but I do not consider that one can simply assume, without evidence, that that would be so. No evidence was led of an unsatisfied demand among potential investors in business centres for properties to purchase. While both Mr. Shores and Mr. Bannell, when asked, spoke about the likely purchaser of the Property being an entrepreneur, it did appear that a purchaser could not simply treat the Property as an investment – he would have to devote effort or resources to running it, in particular by providing the services to which the existing occupiers were accustomed. The prospective purchaser would not, therefore, simply have to have surplus funds which he was interested in investing, he would have to have the interest and inclination to run the business centre. The only evidence put before me of anyone having that interest and inclination related to Systemsolid, which was in the nature of a special purchaser, being another corporate manifestation essentially of the existing operator. Thus without evidence, which was not led, of a ready market of investors in properties like the Property disposed to pay what was alleged to be the true OMV, I should not have been disposed, had it been necessary, to hold that Lloyds had proved that it had suffered any loss as a result of any negligence on the part of Symmons.

Moreover, while I have little doubt that Mr. Higgins and the other responsible officers of Lloyds would have wished to seek to minimise any loss sustained by Lloyds as a result of its security for the loans to Salcrom proving inadequate, it is far from obvious exactly what Lloyds would have done if advised that the value of the Property was some figure in excess of the valuation in fact made by Mr. Skinner. What it actually did, when it received offers from what turned out to be Systemsolid which were less than the amount of Mr. Skinner’s valuation, was to seek to move Systemsolid to the valuation figure. The attractions of a sale to Systemsolid from the point of view of Lloyds were fairly obvious. It was a keen purchaser – a bird in the hand, as it were – which removed the need for any marketing effort or expense. Furthermore, the mechanism of a sale to anyone else, possibly after a period of delay, was most likely to be through a receivership, as the Property had to be kept operational with its existing occupiers to be attractive to a purchaser. On the evidence of Mr. Higgins, which I accept on this point, it was anticipated that the cost of a receivership could be considerable. Mr. Higgins also told me, and again I accept, that it was in the interests of Lloyds to achieve a quick sale to mitigate the effects of the mounting debts of Salcrom. The evidence of Mr. Smith, when asked whether those behind Systemsolid would have paid any more than they did, was that he could not say, but he had no reason to suppose that any significant further funds were available to the shareholders to finance any increased bid. Absent a sale to Systemsolid at a higher price than that in fact agreed, what Lloyds would have been faced with was the likely need to incur receivership costs in pursuit of a sale of the Property possibly deferred for a year or more, during which time the debt of Salcrom would have been increasing. There was no immediately obvious way for Lloyds out of the circle, and on the evidence given before me what Lloyds would have done is entirely a matter of speculation. However, a real possibility would have been a quick sale at a price possibly considerably less than the valuation advised to avoid the continuing expense associated with a failure to sell. For these reasons also I should not have been disposed to find that Lloyds had demonstrated on the evidence that it had suffered any loss.

For the reasons which I have set out this action fails and is dismissed.