Case No: QBENF 99/0554/A2
 
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM DEPUTY JUDGE MARRIOTT QC 
(QUEEN’S BENCH DIVISION)

Royal Courts of Justice
Strand, London, WC2A 2LL

Friday, 28 January 2000

B e f o r e :

LORD JUSTICE HENRY
LORD JUSTICE ROBERT WALKER
and 
MR JUSTICE SCOTT BAKER

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	DnB MORTGAGES		Appellant	
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	BULLOCK & LEES	Respondent	

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040,  Fax No:  0171 831 8838
Official Shorthand Writers to the Court)
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Derek Wood QC and Mr M Dight (instructed by  Eversheds for the Appellant)
Mr A Cooper (instructed by  Hartfields for the Respondent)

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Judgment
As Approved by the Court

Crown Copyright ©

Friday, 28 January 2000

JUDGMENT

Lord Justice Robert Walker:
	Introductory
	The appellant DnB Mortgages Ltd (“DNB”) is a mortgage lender.  It sued the respondents Bullock & Lees (“the surveyors”), a firm of chartered surveyors, for damages for negligence in overvaluing a house for the purposes of a remortgage effected in 1990.  The surveyors pleaded that the action was statute-barred.  A preliminary issue was directed and was heard by Mr Marriott QC sitting as a deputy judge of the Queen’s Bench Division.  On 27 April 1999 the deputy judge gave judgment in favour of the surveyors.  DNB appeals to this court with the permission of the deputy judge.  The issues on the appeal are whether the deputy judge misdirected himself as to the test for determining when DNB’s cause of action accrued, and whether he erred in two of his findings of fact.  Mr Derek Wood QC (who did not appear below, but in this court appeared for DNB with Mr Marc Dight, who did appear below) has sought to raise a new point which was not argued below and does not appear in the notice of appeal or in Mr Dight’s written skeleton argument.

	The facts

	Most of the facts are not in dispute.  The mortgagors, Mr and Mrs Fitzgerald, had since 1988 owned a freehold house at 19 Wesley Road, Kingsworthy, a village near Winchester.  The house had been built in 1987 and was part of a new development.  It had been bought with a mortgage loan of about £113,000 from Confederated Life Mortgage Services and in January 1989 Mr and Mrs Fitzgerald granted a second charge to Homestead Finance to secure a loan of about £23,000.  Mr Fitzgerald was at that time employed as a producer by Sky Television plc (or one of its subsidiaries) at an annual salary of about £40,000.  Mrs Fitzgerald was not in paid employment.  

	In August 1989 the Fitzgeralds, acting through mortgage brokers, applied to DNB, (under its then name of BB Mortgage Trust Ltd), for a remortgage advance of £136,000 in order to clear both existing charges.  The remortgage was to be effected in conjunction with a low-start endowment policy to be issued by Scottish Life Assurance.  The surveyors were instructed to value the house.  In a written report dated 22 August 1989 they valued it at £170,000.  The two valuation experts who gave evidence before the deputy judge agreed that that valuation was excessive and that the correct figure would have been £145,000.

	The remortgage was to be a status mortgage, that is a mortgage granted after DNB had made its own enquiries as to the mortgagor’s financial standing.  Its practice at that time was to advance a maximum of 80 per cent of the value of the security under a status mortgage, as against 65 per cent for a self-certified (or non-status) mortgage.  DNB and Scottish Life between them put in hand searches and enquiries addressed to the existing chargees and Mr Fitzgerald’s employer.  They obtained satisfactory responses.  
	In October 1989 DNB made a remortgage offer.  On 5 December 1989 the Fitzgeralds’ solicitor informed DNB that his clients had decided not to proceed with the transaction.  It is not clear what their reasons were, and by the end of January 1990 they were again wishing to proceed.  But the delay caused by the status enquiries and the Fitzgeralds’ changes of mind can be seen, with hindsight, as significant, because it is now notorious that by the end of 1989 the housing market had peaked and was going into a steep decline.

	At the beginning of February 1990 DNB made a second remortgage offer and the remortgage for £136,000 was completed on 5 February 1990.  No new valuation was obtained.  In addition to the basic advance of £136,000 the Fitzgeralds’ mortgage account was debited with various items such as insurance premiums with the result that the debit balance at the end of February 1990 was about £138,500.  

	In the meantime Mr Fitzgerald had, unknown to DNB, ceased to be employed within the Sky Television group.  There is no clear evidence as to the circumstances in which his employment came to an end.  He had become self-employed and his new business venture did not prosper (but again, there is no clear or detailed evidence as to the circumstances in which it failed).  On 15 March 1990 the Fitzgeralds granted a second charge to Nationwide.  The Fitzgeralds continued to pay the requisite monthly instalments to DNB until the end of January 1991, when the first default occurred.  About £144,500 was then due under the mortgage.  Some payments were made between January and June 1991, but many direct debits were unpaid and recharged to the account.  No payment was made to DNB after June 1991.  On 3 February 1992 Mr Fitzgerald was adjudicated bankrupt on his own petition.  His statement of affairs valued the house at £140,000 with a shortfall to the secured creditors (DNB £161,000, Nationwide £12,500) of £33,500.  It disclosed other unsecured creditors (mostly banks and credit card companies) to the extent of at least £45,000.  DNB took possession of the house in October 1992 and sold it in January 1993 for £100,000.

	DNB’s writ was not issued until 8 May 1996.  By then any claim founded in contract was clearly statute-barred and the live issue was as to the date of accrual of a cause of action founded in tort.  Since damage is an essential ingredient of the cause of action in tort, the issue could be restated as whether DNB had suffered actionable loss before 8 May 1990, six years before the issue of the writ.  At that date the total sum due to DNB under the mortgage was £140,080.  The Fitzgeralds were still making the requisite monthly payments under the mortgage, but anyone with a full knowledge of their financial circumstances might have come to the conclusion that they were getting into serious difficulties.  There was evidence on this point from two experts on credit, Mr Denman on behalf of DNB and Mr Challinor on behalf of the surveyors. 

	Although the valuation experts (Mr Gaskell FRICS on behalf of DNB and Mr Clark ARICS on behalf of the surveyors) agreed that the house should have been valued at £145,000 in August 1989, they did not agree as to its value on 8 May 1990.  They were not asked about its value on 5 February 1990 and the deputy judge made no finding on that point (which is a serious difficulty in Mr Wood’s way in seeking to raise a new point on appeal).  DNB’s expert put its value on 8 May 1990 at £140,000.  The surveyors’ expert put it at £130,000.  The deputy judge preferred the latter figure.  He also found on the balance of probabilities that the value of Mr Fitzgerald’s personal covenant, as at 8 May 1990, could not have been as much as £10,000.  Those are the findings of fact which DNB has challenged (and on the second of which the surveyors have put in a respondent’s notice).  First, however, it is necessary to address the questions of legal principle.  

	The background to Nykredit (No 2)

	In this court, as before the deputy judge, counsel’s submissions have centred on the decision of the House of Lords in Nykredit Mortgage Bank v Edward Erdman Group (No 2) [1997] 1 WLR 1627 (“Nykredit (No 2)”).  But before any detailed consideration of the speeches of Lord Nicholls and Lord Hoffmann (with which the rest of their lordships agreed) it is necessary to put that case in context.  The dramatic rise and fall of the property market before and after 1989 led to many claims for professional negligence against valuers, and drew attention to problems (on which there was some, but not much, earlier authority) as to the principles on which damages should be assessed in such cases.

	In Hayes v James & Charles Dodd [1990] 2 AER 815 (not a valuation case, but a case decided in 1988 about solicitors’ negligent advice as to a right of way) Staughton LJ (at pp 818-9) drew a distinction, for the purposes of assessing damages, between what he termed the ‘no-transaction’ case and the ‘successful-transaction’ case.  That distinction was widely adopted for some years (see in particular the judgment of this court in the Banque Bruxelles group of cases, given in February 1995: [1996] QB 375 at pp.404-5 and 409-12; [1995] 2 AER 769 at pp.840-1 and 845-8).  But in June 1996 it was decisively rejected on the appeal to the House of Lords in the same group of cases, reported as South Australia Asset Management Corporation v York Montague [1997] AC 191 (“Saamco”).  Lord Hoffmann (with whom the rest of their lordships agreed) said (at p.218),
"Every transaction induced by a negligent valuation is a “no-transaction” case in the sense that ex hypothesi the transaction which actually happened would not have happened.  A “successful transaction” in the sense in which that expression is used by the Court of Appeal (meaning a disastrous transaction which would have been somewhat less disastrous if the lender had known the true value of the property) is only the most common example of a case in which the court finds that, on the balance of probability, some other transaction would have happened instead.  The distinction is not based on any principle and should in my view be abandoned."

The central issue in each of these cases was the extent of the liability of a negligent valuer in a falling market, and the essence of the decision, as summarised by Lord Hoffmann in Nykredit (No 2) [1997] 1 WLR 1627, 1638, is that 
"the valuer is responsible only for the consequences of the lender having too little security."

It will be necessary to return to Saamco but that will serve as a brief introduction.

	Nykredit (No 2) 

	Nykredit (No 2) was heard by the House of Lords during 1997 because the issue of interest on damages had been adjourned.  The effect of the earlier decision was that Nykredit, the mortgage lender, was entitled to damages of £1.4m (being the difference between the negligent valuation of £3.5m and the true historic value, as agreed by the parties, of £2.1m) recoverable from Edward Erdman, the valuers.  Nykredit had advanced £2.45m for a commercial development in March 1990, so that its lending was inadequately secured from the start.  The borrower’s covenant was worthless.  The House of Lords had no difficulty in concluding that Nykredit’s cause of action arose at the time of the transaction in March 1990, although (for reasons mentioned in the report at p.1637) interest was awarded only from December 1990, when the loss reached £1.4m.

	So in Nykredit (No 2) the House of Lords was not concerned with any issue arising on the Limitation Act 1980.  But as Lord Nicholls observed (at p.1630) that is the context in which problems as to the date of accrual of a cause of action usually arise.  Both Lord Nicholls (at pp.1630 and 1633) and Lord Hoffmann (at p.1638) left no doubt as to their awareness of the implications of the decision for the purposes of the Limitation Act.

	The deputy judge quoted extensively from the speeches of Lord Nicholls and Lord Hoffmann.  Both speeches call for full and careful attention and there is an obvious danger in selective ‘soundbites’.  But it is right to set out what Lord Nicholls (at p.1631) termed ‘the basic comparison’:
"Thus, typically in the case of a negligent valuation of an intended loan security, the basic comparison called for is between (a) the amount of money lent by the plaintiff, which he would still have had in the absence of the loan transaction, plus interest at a proper rate, and (b) the value of the rights acquired, namely the borrower’s covenant and the true value of the overvalued property."

Lord Nicholls also said (at p.1632)
"The basic comparison gives rise to issues of fact.  The moment at which the comparison first reveals a loss will depend on the facts of each case.  Such difficulties as there may be are evidential and practical difficulties, not difficulties in principle."

After rejecting submissions directed to fixing the date of the first loss at the realisation of the security, or at the first act of default, Lord Nicholls added (at p.1633)
"I recognise that in practice the basic comparison may well not reveal a loss so long as the borrower’s covenant is performing satisfactorily.  For this reason there is little risk of a lender finding his action statute-barred before he needs to resort to the deficient security.  But it would be unwise to elevate this practical consideration into a rigid proposition of law."

Lord Hoffmann said (at pp.1638-9),
"Proof of loss attributable to a breach of the relevant duty of care is an essential element in a cause of action for the tort of negligence.  Given that there has been negligence, the cause of action will therefore arise when the plaintiff has suffered loss in respect of which the duty was owed.  It follows that in the present case such loss will be suffered when the lender can show that he is worse off than he would have been if the security had been worth the sum advised by the valuer.  The comparison is between the lender’s actual position and what it would have been if the valuation had been correct.

	There may be cases in which it is possible to demonstrate that such loss is suffered immediately upon the loan being made.  The lender may be able to show that the rights which he has acquired as lender are worth less in the open market than they would have been if the security had not been overvalued.  But I think that this would be difficult to prove in a case in which the lender’s personal covenant still appears good and interest payments are being duly made.  On the other hand, loss will easily be demonstrable if the borrower has defaulted, so that the lender’s recovery has become dependent upon the realisation of his security and that security is inadequate.  On the other hand, I do not accept Mr Berry’s submission that no loss can be shown until the security has actually been realised.  Relevant loss is suffered when the lender is financially worse off by reason of a breach of the duty of care than he would otherwise have been.  This is, I think, in accordance with the decisions of the Court of Appeal in UBAF Ltd v European American Banking Corporation [1984] QB 713 and First National Commercial Bank Plc v Humberts [1995] 2 All E R 673.”

	The issues on this appeal
	The oral arguments presented to this court by Mr Wood have, as already noted, differed significantly from those relied on below and those outlined in the notice of appeal and Mr Dight’s written skeleton argument.  Mr Wood sought to put forward a new and radical argument based on Saamco; and while not formally conceding the point, he addressed no oral argument to the contention that the deputy judge erred in preferring Mr Clark’s figure of £130,000 to Mr Gaskell’s figure of £140,000 for the value of the house at 8 May 1990.  Mr Wood did not abandon, but did not vigorously press, the argument that the deputy judge erred as to the burden of proof of when the cause of action arose. 

	Mr Wood was right not to press the point as to the valuation of the security at 8 May 1990.  The deputy judge gave convincing reasons for preferring Mr Clark’s figure, both by reference to national and local indices of house prices and by reference to comparables (which, in the case of a newly-built estate of similar houses, were likely to be more than usually reliable). There is no reason to disturb the finding of the deputy judge who saw and heard the two valuers.

	That leaves essentially three issues: the burden of proof, the value of the mortgagor’s personal covenant and (if this court permits it to be taken as a new point) the Saamco point on the falling market.  The most convenient course is to take those three issues in that order.

	The burden of proof

	The evidential and practical difficulties thrown up by this case show the importance of the burden of proof as to the date of accrual of the claimant’s cause of action.  As to that, the deputy judge said,
"The authorities are clear that the burden of establishing that the date of loss falls within the six-year period lies upon the claimants.  Once the claimants have so proved, the burden passes to the defendants to show that the apparent accrual of a cause of action is misleading, and that in reality the cause of action accrued at an earlier date"

That rather baffling passage is explained by the authority to which the deputy judge then referred, Cartledge v Jopling [1963] AC 758.  That was a claim by several steel dressers who were suffering from pneumoconiosis attributable to defective ventilation in a factory.  Many of them had worked in the factory since the 1930’s but in most cases they did not become aware of their condition until mobile X-ray units came into general use in about 1950.  The writs had been issued on 1 October 1956.  That was the context in which Lord Pearce, after referring to what the Court of Appeal had said about the burden of proof ([1962] 1 QB 189, 202, 208) said (at p.784)
"I agree that when a defendant raises the Statute of Limitations the initial onus is on the plaintiff to prove that his cause of action accrued within the statutory period.  When, however, the plaintiff has proved an accrual of damage within the six years (for instance, the diagnosis by X-ray in 1953 of hitherto unsuspected pneumoconiosis) the burden passes to the defendants to show that the apparent accrual of a cause of action is misleading and that in reality the cause of action accrued at an earlier date."

That principle was followed and applied by this court, in the circumstances of a claim for negligent overvaluation, in First National Commercial Bank v Humberts [1995] 2 AER 673, 678. 

	In the present case the undisputed facts that Mr Fitzgerald obtained a status mortgage and managed to pay the requisite monthly instalments until January 1991 were sufficient to raise a rebuttable presumption that the mortgagor’s covenant was good until then; in other words, to indicate an apparent accrual of DNB’s cause of action within the limitation period.  It was then for the surveyors to adduce evidence to show that that apparent accrual within the six-year period was misleading.  The deputy judge was therefore wrong to treat the burden as being, without qualification, on DNB.  But he concluded that even if he were wrong on that point, the surveyors had discharged the burden of proving loss before 8 May 1990.  He reached that conclusion on the basis that at that date the mortgage debt was £140,080, the house was worth £130,000, and the value of the covenant (on the balance of probabilities) could not be as much as £10,000.  The value of the covenant is the next issue which must be addressed.

	The value of the covenant

	In some areas of financial or commercial activity there is nothing surprising in the notion that it is possible to assess the worth of a covenant to pay money.  The value of the tenant’s covenant is a commonplace in the valuation of a reversion to property let on a long lease, and credit ratings (as well as interest rates and redemption yields) influence the market in corporate bonds.  But in these areas the valuer or the investor is normally concerned with a general appreciation of credit-worthiness rather than any attempt at precise valuation.  The value of a mortgagor’s covenant, for the purpose of assessing damages for negligent overvaluation, seems to have been considered only rarely, notably by Devlin J in Eagle Star Insurance v Gale & Power (1955) 166 EG 37 and by this court (on very unusual facts) in London and South of England BS v Stone [1983] 1 WLR 1242 (see especially the dissenting judgment of Sir Denys Buckley at pp 1259-60).

	Nykredit (No 2) makes clear that the ‘basic comparison’ described in the speech of Lord Nicholls requires (see p.1631) the valuation of
"the rights acquired, namely the borrower’s covenant and the true value of the overvalued property."

But it is not entirely clear how the borrower’s covenant is to be valued.  It was unnecessary for the House of Lords to go into the point, since Nykredit’s borrower was a single-asset company and was in default from the inception of the transaction.  In their speeches both Lord Nicholls and Lord Hoffmann show some inclination to treat the various mortgages as marketable securities to be valued on an open market basis.  Lord Hoffmann referred in terms (at p.1639, in a passage already cited) to the open market, and Lord Nicholls (at p.1633) referred with approval to a submission made by counsel about a prospective buyer inspecting the loan book of a commercial lender.  (Mr Denman’s evidence was that a prospective buyer of a loan book would not attempt to evaluate every covenant and would be concerned only with non-performing loans disclosed in any sample.)

	However Lord Nicholls and Lord Hoffmann both pointed out that no loss may be apparent so long as a covenant is performing satisfactorily: see at pp.1633 and 1639 respectively, in passages already cited.  In Saamco itself Lord Hoffmann made the same point more vividly ([1997] AC at p.220, in a paraphrase of leading counsel’s argument which Lord Hoffmann was however accepting on this particular point),
"The court was not obliged to take the borrower to be the prosperous tycoon which everyone thought him to be at the date of the valuation but could have regard to the fact that he had afterwards been shown to be a fraudulent bankrupt."

(It is not of course suggested that Mr Fitzgerald was fraudulent in this case, although he has been criticised for filling in a MIRAS form on 12 February 1990 indicating that he was still employed in the Sky Television group.)

	There is therefore some degree of tension, in Nykredit (No 2), between the approach of valuing the mortgagor’s covenant as part of a bundle of rights comprised in a marketable security (and to be valued as the market would have valued it at the time, without hindsight) and the approach of valuing it on fundamentals (that it, on the objective evidence, available when the case is heard, of the true state of affairs at the valuation date).  In Nykredit (No 2) either approach led to the same result.  In this case the two approaches might lead to different results.  So far as they would lead to different results, I consider that the mortgagor’s covenant had to be valued on the evidence available to the deputy judge, restricted though it was, as to the true facts.  Apart from Mr Denman’s passing reference to what a hypothetical purchaser of DNB’s mortgage book might have done, the deputy judge had no evidence on which to found an ‘open market’ valuation; and the requisite valuation is of Mr Fitzgerald’s covenant on its own, not as a tiny component of an entire loan book.  Moreover an enquiry into the true facts is in line with the conclusion which the House of Lords reluctantly reached in Cartledge v Jopling, that the steel dressers’ causes of action had accrued when they were first affected by the insidious disease, even though no one knew about it.  Since then the Latent Damage Act 1986 has redressed that injustice, and (as Lord Nicholls noted in Nykredit (No 2) at p.1633G) s.14A of the Limitation Act 1980 would generally be available where the loss on the basic comparison was revealed only at a late stage.  It is also in line with Lord Nicholls’ general observation (at p.1633D) that 
"within the bounds of sense and reasonableness the policy of the law should be to advance, rather than retard, the accrual of a cause of action."

	The deputy judge extracted from Nykredit (No 2) the conclusion that 
"in practice the basic comparison may well not reveal a loss so long as the borrower’s covenant is performing satisfactorily.  It must therefore be a question of fact in each case at what stage the basic comparison shows a loss."

Here he was doing his best to follow the guidance given by the House of Lords and it is reasonably clear, from the way in which he proceeded, that he was enquiring into the actual facts of the particular case, rather than attempting an ‘open market’ approach.

	The deputy judge had written reports from, and saw and heard, the two experts as to credit.  Their brief agreed statement recorded that
"It was agreed that any assessment of the value of the borrowers’ covenant must be based on available evidence relating to the financial circumstances of the borrowers.

Based upon the evidence seen, it was not possible to attribute any specific value to the borrowers’ covenant as at the material time.

Not agreed: It was possible to say that the covenant had some unspecific value at the material time."

The overall effect of this agreed statement is obscure.  It seems to reflect very different approaches in that Mr Denman (called for DNB) was extrapolating forward from the situation when the remortgage when granted, when DNB was satisfied as to Mr Fitzgerald’s status (and did not know that he had ceased to be employed in the Sky Television group); whereas Mr Challinor (called for the surveyors) was extrapolating back from Mr Fitzgerald’s statement of affairs filed after his bankruptcy and showing total unsecured liabilities of over £87,000 (or over £97,000 if the house were valued not at £140,000 but at £130,000).  Apart from the house Mr Fitzgerald’s other assets appear to have had little value.

	The deputy judge said that he agreed with Mr Denman that the personal covenant must have had some value, since whatever Mr Fitzgerald’s financial circumstances, he continued to pay the monthly instalments for almost a year after the remortgage.  Apart from that the deputy judge did not comment on the evidence of the credit experts.  But he must have had the statement of affairs in mind, since he had earlier in his judgment referred to the unsecured debts of £45,000 as at Mr Fitzgerald’s bankruptcy.  He had also referred to the second charge which was granted to Nationwide in March 1990.  It would have been helpful if the deputy judge had made plain that it was on that evidence, together with Mr Fitzgerald’s lack of salaried employment after January 1990, that he based his conclusion that it was most improbable that the value of the covenant, at 8 May 1990, exceeded £10,000 (which amounted to a finding, on the balance of probabilities, that it was less than £10,000).  Nevertheless the deputy judge’s conclusion was justified by the evidence before him.  In the circumstances it is not necessary to consider whether the judge should (as the respondent’s notice suggests) have gone further and made a positive finding that the covenant had no value.  

	The ‘falling market’ point

	The new point which Mr Wood sought to raise was that the deputy judge’s approach was inconsistent with the fundamental principle which the House of Lords had enunciated in Saamco, and recognised in Nykredit (No 2).  Mr Wood drew particular attention to what Lord Nicholls said near the beginning of his speech in Nykredit (No 2) (at p.1630, after a reference to Forster v Outred & Co [1982] 1 WLR 86, 94)
"... the loss must be relevant loss.  To constitute actual damage for the purpose of constituting a tort, the loss sustained must be loss falling within the measure of damage applicable to the wrong in question."

Similarly Lord Hoffmann said (at p.1638),
"In order to establish a cause of action in negligence he must show that his loss is attributable to the overvaluation, that is, that he is worse off than he would have been if it had been correct."

	The point raised by Mr Wood is an important and difficult one, and it is regrettable that it was not raised sooner.  The result has been that this court has been deprived of any findings and reasoning of the deputy judge on the point, and neither the court nor Mr Cooper knew that it was to be taken until the beginning of the oral argument.  The difficulty was increased because the time estimate for the hearing of the appeal was already looking very short.

	The principles on which an appellate court should decide an application to raise a new point have been stated as follows (in relation to an appeal to the House of Lords, but in terms which also apply to an appeal to this court) by Lord Watson in Connecticut Five Insurance v Kavanagh [1892] AC 473, 480,
"When a question of law is raised for the first time in a court of last resort, upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is not only competent but expedient, in the interests of justice, to entertain the plea.  The expediency of adopting that course may be doubted, when the plea cannot be disposed of without deciding nice questions of fact, in considering which the court of ultimate review is placed in a much less advantageous position than the courts below.  But their Lordships have no hesitation in holding that the course ought not, in any case, to be followed, unless the court is satisfied that the evidence upon which they are asked to decide establishes beyond doubt that the facts, if fully investigated, would have supported the new plea."

		In order to explain his new point graphically Mr Wood produced a simple but striking diagram, with the value of the house (in thousands of pounds) on the vertical axis and the lapse of time (in years) on the horizontal axis.  Straight lines (one showing a uniformly rising value for the house, and the other horizontal to indicate a constant value of £145,000) showed two hypothetical states of affairs, and a third irregular line (dipping fairly steeply, then flattening out and then rising back to £145,000 after about 4½ years) gave at least a rough indication of the actual market value of the house during the period after the overvaluation and remortgage.  Over these lines was plotted a dotted line indicating the amount from time to time due under the remortgage.  The diagram was intended to demonstrate that if the deputy judge had followed the principle enunciated in Saamco and recognised (in particular, by the reference to relevant loss) in Nykredit (No 2), DNB would be seen not to have suffered any relevant loss (and so not to have had a cause of action) until some time in 1992 at the earliest.

	The time available at the hearing did not allow a full discussion of this diagram, but it appears to me to be open to criticism on two grounds, the first of which must be decisive in the appeal.  The first ground of objection is that it did not take account of the significant lapse of time (about 5½ months) between the date of the valuation by the surveyors and the date when DNB relied on the valuation by making the remortgage advance.  By that time (as Mr Wood accepted) the true value of the house was almost certainly less than £145,000 (and it is rather surprising that the surveyors’ defence did not rely on this point to plead contributory negligence).  Had the overvaluation been more exorbitant (as in Saamco itself, where the security was valued at £15m, was actually worth £5m, and was sold for £2.5m) the difference in value might have been insignificant.  But in this case the tolerances are relatively narrow and the absence of any finding as to the true value of the house on 5 February 1990 becomes significant.  On a straight-line apportionment between £145,000 on 22 August 1989 and £130,000 on 8 May 1990, the value on 5 February 1990 would have been only marginally over £135,000, and less than the debit balance of about £138,500 due under the remortgage at the end of February 1990.  So this is not a case in which the court can be satisfied (in Lord Watson’s words) that the evidence established beyond doubt that the facts, if fully investigated, would be found to support the new point.

	On that ground alone I would not allow DNB to raise this new point on appeal.  But I would add, although conscious that the court has not heard full argument, that Mr Wood’s diagram seems open to the further objection that it does not include any depiction either of the amount of the overvaluation, or of the value of the mortgagor’s covenant.  The former is a constant, the latter is a variable (illustrated by Lord Hoffmann’s example of the bankrupt tycoon).  The basic comparison called for by Nykredit (No 2) as the means of ascertaining relevant loss is therefore more aptly illustrated by two parallel horizontal lines (representing the original overvaluation and the original true value) and a third line (which may not be horizontal) depicting the amount (if any) by which the value of the mortgagor’s covenant increases the value of the security.  When it demonstrably fails to fill the gap, the mortgage lender suffers a loss and has a cause of action, unless there has been in the meantime either a rise in the true market value of the security, or a reduction in the amount due under the mortgage, so as to prevent any loss.  That is probably an over-simplification but it seems closer to the general effect of Saamco and Nykredit (No 2).

	For these reasons I would dismiss this appeal.

Mr Justice Scott Baker:
	I agree.

Lord Justice Henry:
	I also agree.

Order:  Appeal dismissed with costs; cross-appeal no order as to costs; application for permission to appeal to the House of Lords refused.  

(Order does not form part of approved judgment).