- This judgment
determines three actions which were tried together before me over seven days
from 3 to 11 April 2001. In the first action the claimant Sara Frost (now
known as Sara Cameron but to whom I will refer as "Mrs Frost") sues James
Finlay Bank Ltd ("the bank"). In the second, Mrs Frost sues the former partners
in a firm of surveyors called the Scrase Hewlitt Partnership ("Scrase Hewlitt").
The third action was brought by the bank against Scrase Hewlitt. In each case
the cause of action is in tort for negligence.
- In January 1990
Mrs Frost was the owner of a long leasehold interest in a house at 7 Ingleby
Drive, Harrow on the Hill, Middlesex ("the property"). The property, then
thought to be worth some £500,000.00, was subject to two charges, one in favour
of Eagle Star to secure a loan of £50,000.00 and accrued interest and the
other in favour of Lloyds Bank to secure a loan of £60,000.00 and accrued
interest. Apart from her interest in the property and some valuable chattels
(a Rolls Royce car, jewellery, a collection of designer dresses and so forth)
she was in straitened financial circumstances. The property had been the matrimonial
home of herself and her first husband, Gerald Cameron, a successful business
man who had died on 6 February 1976 at the early age of 57. Mrs Frost was
left reasonably well provided for on his death. In March 1977 she formed a
relationship with Stanley Frost ("Stanley") whom she married in the following
year. At some point Stanley became the adoptive father to Harvey, the son
of the first marriage, who was about six years old at the time of his father's
death. It would appear that Mrs Frost's financial assets were, over the course
of time, dissipated by Stanley. Stanley was a chartered accountant by profession
but in business as an electrical wholesaler. In 1984 Stanley was made bankrupt
and received a four year sentence of imprisonment for fraud. By 1989 the couple
were living on State benefits. The property was by that time in joint names,
having been so placed in 1977 when the couple first raised money on the property
by borrowing from Eagle Star. Stanley's trustee in bankruptcy had claimed
an interest in the property but this was bought off for some £100,000.00 with
funds provided by Stanley's elderly aunt in the latter part of 1989.
- Mrs Frost had
come to the conclusion in 1989 that the property would have to be sold. She
took the view, however, having consulted local estate agents, that a much
better price would be obtained if the house were first refurbished. It had
been built as part of a new development in the early 1970s and Mrs Frost and
her first husband had been its first purchasers. It was now somewhat run-down
and neglected, and many of its fittings no longer in style.
- Against this
background Mrs Frost applied to the bank for a facility of £250,000.00 over
two years. £200,000.00 was to be drawn down to refinance the existing charges
and to pay for the refurbishment, with £50,000 being retained by the bank
to cover the interest, which would be rolled up during the term of the facility.
Relying on a report from Scrase Hewlitt that the property was worth £550,000
in its current condition for loan purposes and which also reported that "it
is not out of the question that in due course once the property market improves,
this property in tip top condition could expect to obtain a valuation approaching
£1,000,000.00", the bank agreed to grant the facility. On about 25 January
1990 Mrs Frost drew down the facility. After paying off the earlier charges
and the bank's facility fee Mrs Frost was left with some £75,-80,000.00 in
hand.
- There is controversy,
to which I shall have to return, as to how much of this money was spent by
Mrs Frost on her planned refurbishment. It is clear, however, that some works
were put in hand over the course of the following eighteen months or so. In
particular large areas of the ground floor were paved in granite (apparently
much in vogue at that time in this part of Harrow-on-the-Hill) and the kitchen
enlarged and re-equipped. By April 1991 builders employed by Mrs Frost had
begun work on the exterior. They reported to her that they had observed cracking
in the structure of the property which they believed indicated a structural
defect. This was reported to Mrs Frost's insurers, Ecclesiastical Insurance
Group plc ("EIG"), who appointed Ellis & Buckle to act as loss adjusters.
On the latter's advice Mrs Frost instructed consulting engineers to report
on the problem. The firm she chose, which was not on EIG's panel, was Burt
& Millea. They produced a preliminary report on 16 August 1991.
- In the meantime
Mrs Frost had applied for and obtained a further advance of £50,000 from the
bank principally in order to cover interest accruing on the original advance
in excess of the original facility. By January 1992 her total indebtedness
to the bank amounted to some £288,285.00.
- For the next
six and half years Mrs Frost continued to live at the property, with Stanley
and Harvey, while that debt increased. For a variety of reasons it did not
prove possible either to put in hand a programme of repair to the structural
defects or to sell the property. In early 1994 the bank formally claimed repayment
of the monies then due under its legal charge (then claimed to be £372,248.57)
and on 26 April 1994 appointed a Mr A J Miles, a chartered surveyor, to act
as a Law of Property Act receiver and manager of the property. On 28 June
1995 the bank began possession proceedings against Mrs Frost, obtaining an
order for possession on 17 November 1995. On 8 March 1996 Carnwath J ordered
that the possession order be suspended for one year. This was to enable the
necessary remedial works to be executed and the property sold and the bank's
debt (then being claimed as approaching £500,000) repaid from the proceeds.
In the meantime Mrs Frost had started (by a writ issued on 7 February 1996
and served on 4 June 1996) an action against EIG claiming damages for their
failure timeously to accept her claim under her insurance policy and to authorise
the necessary remedial works. EIG eventually (in March 1997) agreed to execute
the remedial works and Mrs Frost's action against EIG was later (on 13 October
1998) compromised on terms that EIG would complete the remedial works, and
pay her £140,000.00 damages and all her costs. By this time, however, it was
too late to be able to resist any further the possession order. Extensions
of the suspension granted by Carnwath J were obtained until June 1998 but
an application for further suspension was refused by Master Bowman on 23 October
1998. The Frosts were by then no longer in physical occupation of the property,
having moved out to permit the remedial works to be completed. The bank thereafter
took steps to market and sell the property, eventually achieving a sale in
September 1999 for £695,000.00. By that time Mrs Frost's debt to the bank
had risen (depending on the way in which interest is calculated) to either
some £800,000.00 or some £882,000.00 even after crediting the £140,000.00
received from EIG. As at the 1 April 2001 Mrs Frost's debt to the bank stood
at either £172,731.05 or £285,829.02.
- In raw and round
terms, therefore, the price which Mrs Frost has paid for borrowing £200,000.00
from the bank in 1990 is that she has lost the equity she then had in the
property and still owes the bank at least £172,731.00. Her life, ever since
the discovery of the cracks in April 1991, has been a miserable, desperate
and ultimately unsuccessful attempt to stave off complete financial disaster
and the utter extinction of her former way of life. She has had to sell off
the treasured relics of her first marriage, the Rolls, the jewellery, and
the dresses. She now lives, in very reduced circumstances, with her son. She
is still paying, by instalments, utilities bills in respect of the property.
Mrs Frost's
claims against the bank and Scrase Hewlitt
- Mrs Frost's
claim against the bank is that her losses stem from the bank having advised
or required her to insure with EIG. Prior to the grant of the bank's facility
she had been insured with Eagle Star. Her case is that had she remained insured
with Eagle Star, most if not all, of the subsequent problems which emerged
would not have arisen. She alleges that the bank was negligent in advising
or requiring her to change insurers because, at the material time, the bank
was in possession of a report from Scrase Hewlitt the contents of which made
it imprudent to change insurers. That report, which was dated 19 July 1989,
contained the following passage:
"There is evidence
of some minor movement to one side of the house with cracking to the brickwork
around the window opening. It is possible that some localised stabilisation
may be required, but we have no reason to anticipate significant problems."
It is contended
that it was manifestly dangerous to change insurers in the light of a report
containing that passage: a new insurer might seek to avoid liability altogether
for non-disclosure, or to argue that damage from subsidence was the responsibility
of the old insurer.
The principal
issues raised by this claim are therefore:
(1) Did the
bank advise or require Mrs Frost to change insurers?
(2) If so, did
the bank owe her any duty of care in so advising or requiring?
(3) If so, was
it in breach of that duty?
(4) If so, did
that breach cause any and if so what damage to Mrs Frost?
(5) Is Mrs Frost's
action against the bank statute-barred?
The bank has
a counterclaim against Mrs Frost for the sums still outstanding. As to this,
while Mrs Frost claims a general account, the principal issue is as to whether
the bank is entitled to claim interest at the default rate of 14% under the
facility letter.
- Mrs Frost's
claim against Scrase Hewlitt is founded on a conversation she alleges which
she had with Mr Cozens, the partner in Scrase Hewlitt who inspected the property
prior to making the 19 July 1989 report. In essence her claim is that she
specifically raised with Mr Cozens the possibility of subsidence and received
from him an unequivocal assurance that the property was structurally sound.
The principal issues here are:
(1) Whether
Mr Cozens did say what he is alleged to have said;
(2) If so, whether
Mr Cozens owed her any duty of care in saying what he did;
(3) If so, whether
he was negligent;
(4) If so, what
damage (if any) was caused by that negligence;
(5) Whether
the action is statute barred.
The bank's claim
against Scrase Hewlitt
- The bank's claim
against Scrase Hewlitt is based on the passage in the 19 July 1989 report
which I have quoted above. In essence the complaint is that Mr Cozens failed
negligently to appreciate the real significance of the cracking mentioned
in his report. The principal issue here is negligence, or not. There is no
limitation issue, the bank's writ having been issued on 24 January 1996 (six
years less one day from the date of drawdown under the facility).
The witnesses
- I heard oral
evidence from the following witnesses:
For Mrs Frost
(1) Mrs Frost;
(2) Mr Philip
Wilson, a property developer customer of the bank and friend of Stanley, who
introduced Mrs Frost to the bank;
(3) Harvey Frost;
(4) Natalie
Colwill, a friend of Mrs Frost;
(5) Jacqueline
Hibbert, a friend of Mrs Frost;
(6) Ossie Main,
a friend of Mrs Frost;
(7) Mr Laurence
Pitts BA (Hons), MRTPI., FRICS, a partner in Mayfords, Chartered Surveyors,
who gave expert evidence in relation to Mrs Frost's claim against Scrase Hewlitt.
For the bank
(8) Mr James
Ritchie Strachan ("Mr Strachan"), at the material time a director of the bank
with over-all responsibility for its retail operations (including commercial
lending);
(9) Mr John
Hamilton Lamond ("Mr Lamond"), who was from March 1991 onwards was employed
by the bank as a manager in its lending department with particular emphasis
on recoveries;
(10) Mr John
Mungo Ingleby ("Mr Ingleby"), who from 1988 to 1994 was the managing director
of the bank;
(11) Mr Andrew
Stuart McInroy ("Mr McInroy"), who was employed by the bank as a manager in
its lending department from 1981 to February 1991;
(12) Mr Malcolm
Macdonald ("Mr Macdonald"), who was a director of James Finlay Financial Services
Limited (JFFS) a company which was at all material times until 1991 75% and
thereafter 100% owned by the bank, and which itself had two wholly owned subsidiaries,
James Finlay (Insurance Brokers) Ltd ("JFIB") and James Finlay (Insurance
Services) Limited. In 1991 JFFS became a wholly owned subsidiary of the bank.
Mr Macdonald was also a director of JFIB which itself carried on business
under the name JFFS.
(13) Mr Miles;
(14) Mr Peter
Beckett, a surveyor and estate agent from the Harrow on the Hill area, who
gave evidence as to a visit he had paid to the property in about 1984.
(15) Mr Andrew
Geoffrey Irvine ("Mr Irvine") a partner in Collyer-Bristow, the bank's solicitors
in this action, who deposed to a conversation he had had with Mr Wilson in
September 2000 in relation to the accuracy of an affidavit sworn by Mr Wilson
on 2 February 1996 in the possession proceedings;
(16) Mr Clive
Marjoram, BSc MRICS ("Mr Marjoram"), a chartered building surveyor, who gave
expert evidence in relation to the bank's claim against Scrase Hewlitt.
For Scrase Hewlitt
(17) Robert
G Cozens, the partner in Scrase Hewlitt who visited the property in July 1989,
spoke to Mrs Frost, and made the 19 July report;
(18) Neil Miller
BSc (Hons), FRICS, IRRV, a partner in Laurence Vackar Partnership, chartered
surveyors and structural engineers, with particular expertise in valuation,
who gave expert evidence.
- The central
issues of fact raised on the pleadings relate to events which took place in
1989 and 1990 and in particular to conversations which then took place between,
principally, Mrs Frost and Mr Strachan, and Mrs Frost and Mr Cozens. Allegations
in respect of these conversations first surfaced at a much later date. The
passage of time will necessarily have dimmed memories, and dim memories have
also been, almost inevitably, sharpened and re-shaped by the process of reconstruction
and repetitive assertion which has been occasioned by the extensive litigation
which has ensued. In addition, in the case of Mrs Frost, the intervening dark
years of financial hardship and emotional stress have taken a psychological
toll. At a number of points in her evidence, she attributed her lack of recollection
to the psychological problems (depression and panic attacks) from which she
suffered and for which she was under medication. I was satisfied, however,
that her account of the relevant conversations was an honest one, in the sense
that they had not been deliberately contrived by her as a false account. Whether
it was accurate is quite another matter. Given the passage of time I have
considered it more than usually necessary to have regard to the inherent probabilities,
and the contemporary documentation, in assessing the accuracy of particular
recollections.
- A significant
omission from the list of witnesses was Stanley. He and Mrs Frost are now
divorced and she has (as has Harvey) reverted to the name of Cameron. Nevertheless
it was clear that she had relied heavily on Stanley throughout the years of
her indebtedness to the bank and in the subsequent and current litigation.
His evidence would have been particularly material on a number of questions,
in particular on how the bank's money had in fact been spent and on various
aspects of the progress of the insurance claim. He was not, however, called
as a witness despite his evident availability (he was present in court throughout
the trial). Mr Dingemans (who appeared on behalf of Mrs Frost) explained that
he could not be tendered as a witness of credit having regard to his previous
conviction.
Did the bank
advise or require Mrs Frost to change her insurers?
- Mrs Frost was
introduced to Mr Strachan by Mr Wilson who, in turn, had been alerted to her
need to raise funds for refurbishment by Stanley. The introduction took place
at a meeting on 29 June 1989 at the bank's London offices in Osnaburgh Street.
Mrs Frost's present picture of her state of mind at that time is that she
was almost crippled by anxiety as to whether her plan to borrow money and
refurbish the property before selling was sensible, but that having discussed
the proposal with Mr Strachan she was entirely reassured by him that she was
doing the right thing. She was so struck by his reassurances and the charm
of his manner towards her that she felt she could place herself entirely in
his hands. This picture wholly accords with such view as I was able to form
of her personality. She is a woman who both by nature and by nurture has been
encouraged to expect to arouse male protective instincts. The untimely end
of her first marriage, and Stanley's lamentable and disappointing shortcomings,
left her more than usually vulnerable to feelings of dependence where reassurance
came from an apparently solid source. In this case the source was a charming
mature Scottish banker, introduced to her by Mr Wilson as "Jimmy", whom she
almost immediately came to regard as her friend and saviour. Mr Strachan had
no immediate reason to suppose that he was the object of such feelings. The
proposition with which he was presented was relatively simple in banking terms,
albeit somewhat out of the usual run of the bank's lending (which was more
commercial). It was a proposal for short-term lending on the security of property
which the customer was proposing to refurbish and sell. Mrs Frost's account
that he told her that he thought her refurbishment plans sounded a good idea,
and that, if the property were as beautiful as he had been told, the bank
would be happy to lend money on it, can be accepted in general terms. Her
conviction that he also told her to lay aside all her worries and to rely
on his advice as to the benefits to be obtained from the proposed refurbishment,
to the point of constituting himself her investment adviser, did not, however,
persuade me.
- The factual
issue here on which the pleadings turn is whether at this meeting the question
of insurance was raised and, if so, whether Mr Strachan either advised or
required her to change her insurers. Mrs Frost's version of the conversation
in this respect has varied. The high watermark of her case is represented
by her witness statement in these proceedings, where she said:
"Jimmy said
he would like me to change my insurance company. I was advised by the bank
via Jimmy, to go to "his" brokers, James Finlay Financial Services
Limited. Jimmy told me I could rely on them and they would advise me as to
the best insurance company, because the bank required new insurers. I was
persuaded to obtain new insurers and, of course, I followed the advice given
to me."
In her oral
evidence under cross-examination she put it rather differently. She no longer
asserted that she had been required to change insurers. It had simply been
suggested to her that she might like to use the services of the bank's brokers,
and that she "got the feeling that it would be part of the loan". This account
came closer to that contained in a witness statement made in the EIG proceedings
on 17 September 1998 that:
"It was a condition
of the Bank's facility that they were satisfied with the buildings insurance
cover and Mr Strachan had advised me to use the Bank's insurance services
as I would get better service. I followed the advice given to me and completed
the Proposal Form from the Ecclesiastical Insurance Company."
- Mr Strachan's
original account was given in an affidavit sworn in the possession proceedings
on 21 September 1995. He then said:
"During our
discussion Mrs Frost told me that her existing insurers, Eagle Star, had refused
to continue cover on the property. I offered to put her in touch with James
Finlay Financial Services Limited which operates from the same building, but
in separate offices, as the Bank. Mrs Frost accepted my invitation and I subsequently
learned effected a policy with Ecclesiastical Insurance Group."
He was, however,
subsequently persuaded that his recollection of what he had been told of Eagle
Star's refusal to continue cover must have been a false one. His considered
position before me was that, while Eagle Star had been referred to during
the discussion, it was more likely that the reference would have been to the
loan from Eagle Star than to the insurance position. He now doubts whether
the subject of insurance was discussed at all at this meeting. He is adamant
that he neither sought to persuade or encourage her to change insurers or
to use the services of the bank or its subsidiary JFFS for that purpose.
- So far as the
formal position is concerned there is no doubt that it was not a term or condition
of the proposed lending either that the insurers should be changed or that
the services of JFFS should be employed. What the facility letter required
was that:
"The lender
shall require to be satisfied with the insurance cover of the Borrower and
will utilise the services of its Insurance Services Division in this connection...."
This was, by
1989, standard practice within the bank. The reference to "its Insurance Services
Division" was a reference to JFFS. The impression I received was that prior
to the arrival of Mr Ingleby as managing director of the bank, the banking
and insurance activities of the two parts of the Group business had been carried
on in comparative isolation from each other. His policy had been to introduce
practices designed to make the two parts of the business more aware of each
other. Whatever the purposes implicit in such a policy, I am quite satisfied
that Mr Strachan himself had a conscious and conscientious objection to making
particular insurance arrangements a condition of a loan. The bank required
to be satisfied as to the insurance, but it was otherwise entirely a matter
for the customer as to with whom the insurance was effected. Others in the
bank testified to Mr Strachan's known line on this matter.
- The procedure
in the bank in relation to the approval of loans was that an Advance Proposal
Form would be completed for submission to members of the bank's credit committee.
A copy of this form would be passed to JFFS so that it could satisfy itself
as to the insurance. It was the practice of Mr Macdonald of JFFS then to make
contact with the customer in order to check the existing insurance position.
His evidence was that:
"if the customer
did not have insurance cover or did not have a policy which met the Bank's
requirements to use the opportunity of the telephone call to ask whether the
customer wished to use the services of JFFS to effect insurance cover. I never
exerted any form of pressure on a customer to use JFFS. I did no more than
tell the customer of the help JFFS could provide."
- Mr Macdonald
did not recall making contact with Mrs Frost, but it appears certain from
the documents that he made contact either with her or her solicitors, Carlson
& Co, in the early part of August, and by 10 August 1989 was in a position
to write to the latter with a recommended quotation for £500,000 cover (the
figure advised by Scrase Hewlitt) from EIG. It is also reasonably clear that
by this time Mr Macdonald had ascertained that the existing insurance was
with Eagle Star, albeit at a lower level of cover. He enclosed a proposal
form with his letter for an insurance with EIG. Mr Macdonald then heard nothing
further about the matter until February 1990.
- The delay in
the meantime was the result of Mrs Frost having to take steps to clear the
claims of Stanley's trustee in bankruptcy and to deal with a charge on the
property enjoyed by Bank Leumi. These matters were not finalised until January
1990 by which time Mrs Frost was expressing herself as anxious to complete
the loan as soon as possible.
- By the time
of completion on 25 January 1990 nothing further had been done about insurance.
The bank's solicitors had assumed that the bank had already satisfied themselves
of the position. Mr McInroy, the manager at the bank with responsibility for
the transaction, has no independent recollection of how the situation came
about. What can be inferred from the file is that the question of an insurance
proposal form had already been chased up in mid January, when Mr Carlson had
asked to be supplied with a further copy of a proposal form for completion
by Mrs Frost. This request was only made (one can infer) because, by a letter
dated 12 January 1990, Mr McInroy's assistant (Mr Wilkinson) had written to
the bank's solicitors asking them to pursue Mr Carlson on the question of
the return of the original proposal form. The bank's solicitors replied on
16 January reporting that:
"The solicitors
acting for and on behalf of Mrs Frost have confirmed that they have contacted
their client in relation to the Proposal Form but it would assist them if
we would arrange for a further form to be sent to us so that they may if necessary
attend upon Mrs Frost personally and make sure that the matter is dealt with."
On 7 February
1990 the bank's solicitors at Mr McInroy's request now again chased Mr Carlson
on the question of insurance as a matter of urgency. Mrs Frost recalled in
her evidence being visited by Mr Carlson with a proposal form completed by
Mr Carlson, which she then signed. She said that she had on that occasion
asked Mr Carlson whether she was doing the right thing in making a proposal
to EIG and been told by him that one reputable insurer was as good as another.
It is clear from the file that, on 9 February, Mr McInroy took steps pending
receipt of the completed proposal form and its acceptance by EIG, to obtain
immediate cover by instructing Mr Macdonald accordingly. It is a reasonable
inference (and one I make) from his manuscript annotations to a letter of
that date from the bank's solicitors, that before doing so he spoke on the
telephone either to Mrs Frost or Stanley to satisfy himself that the proposal
form was to be received and that he had authority to give instructions for
the obtaining of immediate cover.
- The signed proposal
form was received by the bank under cover of a letter from the bank's solicitors
dated 15 February 1990. It was submitted by JFFS to EIG on 22 February 1990
and accepted by the latter on 1 March 1990 subject to a requirement that EIG
be permitted to carry out a "brief survey". The survey concerned took place
on 26 April 1990.
- I return to
the question of what was said about insurance at the initial meeting with
Mr Strachan. I consider it more likely than not that the question of insurance
was raised. That would accord with the initial recollections of both Mrs Frost
and Mr Strachan. It would also accord with the likelihood that there would
have been some discussion between them as to what the bank would have to do
before Mrs Frost could get the money. One requirement was that someone from
the bank would visit the property (in the event it was Mr Strachan himself
who did so and who once again impressed Mrs Frost with his charming compliments
both of herself and of her house). Another was that Malcolm Macdonald would
be in touch with her about the insurance. Given Mr Strachan's distaste for
cross-selling, I am sure that he neither encouraged or advised her to change,
or to consider changing, her insurers. It is conceivable that she herself
raised a question about insurance since she was at the time in arrears with
her premium under the Eagle Star insurance. If she did it is equally conceivable
that Mr Strachan would have told her to have a word with Malcolm Macdonald
when he made contact, and would have reassured her that he would be able to
look after the question of insurance for her. The only finding of fact which
I make is that Mr Strachan told her that the bank would have to be satisfied
as to the insurance position and that she would in due course be hearing from
the bank's brokers in the person of Mr Macdonald on the subject.
- What happened,
thereafter, was that Mrs Frost was offered the opportunity by JFFS of making
a proposal to EIG for insurance and, under the guidance of her own solicitor,
appears to have decided in principle to make such a proposal. There was nothing
inherently irrational in such a decision. At the level of cover required Mr
Macdonald's belief was that the EIG premiums would be lower than Eagle Star's
(although he did not in fact investigate this). The bank, in the course of
processing the transaction, simply assumed that the proposal was going to
be made. It never asked JFFS to advise it on the adequacy of the existing
Eagle Star policy. The correspondence between the bank's solicitors and Mr
Carlson in January and February 1990 (the contents of which have to be inferred
from the letters between the bank and its solicitors) must have read (to the
recipient) as if, by that stage, the bank was insisting that it was a term
of the facility that the proposal to EIG be completed by Mrs Frost. Neither
Mrs Frost nor Mr Carlson had any reason to quarrel with that requirement.
As Mr Carlson observed, one reputable insurer was as good as another.
- My conclusion
is that, although the bank did not advise her to change insurers, its actions
led her reasonably to believe that she was required to do so as a condition
of the facility. The route by which I have arrived at this conclusion raises
a pleading point. The "requirement" relied on by Mrs Frost in the pleadings
is alleged to have been the requirement imposed by Mr Strachan at the initial
meeting. On this point I have found against her. Mr Dingemans submitted that
this alternative route was open to him on the pleadings. I doubt that. In
the course of his closing submissions he formulated an amendment which he
sought permission, if necessary, to make to the particulars given under paragraph
16 of the re-amended Statement of Claim. That pleads negligence by the bank
in
"failing to
advise the plaintiff of the contents of the [19 July] report before the plaintiff
accepted the loan and acted in January 1990 on advice given by the defendant
at the meeting in central London in June or July 1989 particularised in paragraph
4 above to follow the recommendations of James Finlay Financial Services Limited
on a change of insurers."
The amendment
sought is to add the words "or through the defendant's requirements in correspondence
and/or on the telephone in January 1990" and to make a corresponding addition
to each of the succeeding sub-paragraphs where appropriate. This was opposed
by Mr McParland on the ground that the case had not been foreshadowed in Mrs
Frost's witness statement, that earlier notice of it might have enabled access
to Mr Carlson's files to have been achieved, that (had it been pleaded) further
information or interrogatories would have been sought, that this was a case
where the goalposts had already been moved too often in the past, and that
his whole case had been prepared on the basis that the relevant advice or
requirement had been that of Mr Strachan at the initial meeting. While finding
Mr McParland's exasperation at this late amendment entirely forgivable, I
was not persuaded by his objections. With the exception of Mr Carlson's files,
all of the evidence relevant to the point has emerged as a result of the preparation
of the case on the original pleadings. They necessarily involve an inquiry
as to the precise chain of events which led Mrs Frost to change her insurers.
I do not think that a more timeous pleading of the point would have altered
the way in which the case has in fact been prepared for trial. I would accordingly
allow the amendment.
Did the bank
owe Mrs Frost a duty of care in advising or requiring her to change insurers?
- The extent to
which a bank owes a duty of care to its customer is well settled by a number
of authorities. There is, in general, no duty of care owed by a bank to its
customer to consider the prudence of any lending to the customer or to advise
the customer of the wisdom of the project for the purpose of which the bank
is asked to lend money. As Scott LJ observed in Lloyds Bank v Cobb,
18 December 1991, unreported:
"In my judgment,
the ordinary relationship of bankers and customers does not place on the bank
any contractual or tortious duty to advise the customers on the wisdom of
commercial projects for the purpose of which the bank is asked to lend money.
If the bank is to be placed under such a duty, there must be a request from
the customer, accepted by the bank, or some arrangement between the customer
and the bank, under which the advice is to be given.
If a customer
applies to the bank for a loan for the purposes of some commercial project,
and the bank examines the details of the project for the purpose of deciding
whether or not to make the loan, the bank does not thereby assume any duty
to the customer. It conducts the examination of the project for its own prudent
purposes as lender and not for the benefit of the proposed borrower. If the
borrower chooses to draw comfort from the bank's agreement to make the loan,
that is the borrower's affair. In order to place the bank under a duty of
care to the borrower the borrower must, in my opinion, make clear to the bank
that its advice is being sought. The mere request for a loan, coupled with
the supply to the bank of the details of the commercial project for whose
purposes the loan is sought, does not suffice to make clear to the bank that
its advice is being sought."
Mr McParland
for the bank found further support for this proposition in the judgment of
Ralph Gibson J in Williams & Glyn's Bank v Barnes [1981] Com LR
205 in a passage not there reported but which can be found quoted at pages
17 to 18 of the transcript of a judgment of His Honour Judge Robert Taylor
(sitting as a Deputy Judge in the Queens Bench Division) in Verity and
Spindler v Lloyds Bank plc, 4 September 1995.
- The same is
true where the lending bank is proposing to take a mortgage on a property
and has it valued for loan purposes. The mere fact that the bank obtains a
valuation does not establish a duty of care on the bank to ensure that the
property is or has been properly valued. As Lord Jauncey observed in Smith
v Eric S Bush, Harris v Wyre Forest District Council [1980] 1 AC
831 at 872:
"The fact that
A is prepared to lend money to B on the security of property owned by or to
be acquired by him cannot per se impose upon A any duty of care to
B. Much more is required. Were it otherwise a loan by A to B on the security
of property, real or personal, would ipso facto amount to a warranty
by A that the property was worth at least the sum lent."
- On the other
hand it is equally clear that if a bank in fact assumes an advisory role in
relation to its customer, a duty of care will arise. Woods v Martins Bank
[1959] 1 QB55 provides an illustration of this principle in operation, as
does Verity and Spindler v Lloyds Bank plc to which I have referred
above.
- On the findings
of fact I have made the bank did not "advise" Mrs Frost to change insurers.
Insofar as anyone advised her in relation to the change of insurers it was
Mr Macdonald of JFFS and her solicitor Mr Carlson. A question does arise as
to the extent to which the bank assumed responsibility for the "advice" given
by Mr Macdonald. I will return to this question. It is necessary first to
examine the question whether there was any relevant assumption of responsibility
by the bank implicit in its having "required" Mrs Frost to change insurers.
In his closing submissions, Mr Dingemans put the matter in the following way:
"The authorities
relied on by the Bank are an accurate statement of law in relation to lending
- but do not, and have never, extended to the situation where there is an
advice or requirement. The relevant authorities are summarised in Verity
(pages 17-18). However, although it is not part of the ordinary business of
a bank to advise on financial transactions, if they choose to do so the Bank
will owe duties. Similarly it is not part of the ordinary business of a bank
to operate as an insurance broker (requiring or advising on change of insurers)
but if they choose to do so the Bank will owe duties to do so with reasonable
care and skill."
- The problem
with that formulation, as it seems to me, lies in its conflation of "requirement"
and "advice". If a bank is truly advising its customer to change insurers,
one can readily see that it may owe a duty of care to the customer to bring
to the customer's attention any fact known to the bank relevant to the prudence
of the proposed change. If, however, the bank simply makes it a term of the
proposed facility that the insurers are changed, I am unable to see why this
should place on the bank an obligation to consider on the customer's behalf
whether that is a prudent course for the customer to take, any more than it
is its duty to consider the wisdom of any other of the terms of the facility
from the customer's point of view. As explained in the judgment of Ralph Gibson
J in Williams & Glyn's Bank v Barnes in the passage already cited:
"When a customer
goes into a bank, such as this Plaintiff bank, and asks for a loan for a stated
purpose, the bank will know that, if the taking of the money, and the application
of it for the stated purpose, would be commercially or financially imprudent,
a borrower may be severely damaged financially thereby ... The bank may have
within its staff people with the necessary skills to evaluate the information
so obtained, and to decide upon the apparent prudence of the transaction from
the point of view of the customer and, therefore, the bank could consider
the prudence of the transaction from the customer's point of view. Lastly,
the customer in most cases would know that if the bank does consider the lending
imprudent from the bank's point of view, or from the customer's point of view,
the bank will say so because the bank will refuse to make the loan and, in
explaining its decision, is likely to explain why it regards the transaction
as ill-advised. Does this relationship impose upon a bank the duty to consider
the prudence of lending from the customer's point of view, when the bank has
not been asked, expressly or impliedly, to advise thereon; does the relationship
impose the duty to tell the customer that the borrowing, and the application
of the loan intended by the customer , are or may be imprudent, if the bank
knows or ought to know that such borrowing and application are imprudent,
and therefore may be the cause of financial loss to the customer? In my judgment,
in such circumstances, no duty in law arises upon the bank either to consider
the prudence of the lending from the customer's point of view, or to advise
with reference to it. Such a duty could arise only by contract, express or
implied, or upon the assumption of responsibility and reliance stated in Hedley
Byrne or in cases of fiduciary duty. The same answer is to be given to
the question even if the bank knows or ought to know that the borrowing and
application of the loan, as intended by the customer, are imprudent."
- So here, the
mere fact that the bank knew or ought to have known of a fact which (I assume
for this purpose) made it unwise for Mrs Frost to accept the terms of the
facility does not necessarily involve the bank in the assumption of any responsibility
for the consequences if all that it was doing was making the change of insurers
a condition of the facility. The position would, however, be different if,
in relation to its contractual requirement that the insurers be changed, the
bank agreed to act or even insisted on acting as the customer's broker in
effecting the new insurance. In those circumstances the bank would owe the
customer all the duties ordinarily owed by an insurance broker to his client;
and in the discharge of those duties I see no reason why the bank should be
entitled to erect a Chinese wall between information in its possession qua
potential lender and information coming to it as broker. The customer would
reasonably assume that all relevant information would be available to the
bank in its role as broker.
- Did the bank
in any relevant sense act as Mrs Frost's insurance broker? In formal terms
the answer is negative. The broker of the new insurance was JFIB trading as
JFFS. The facility letter, however, described JFIB as "its [i.e. the bank's]
Insurance Division". Mr Macdonald agreed in cross-examination that the point
of the policy of involving JFFS in the insurance aspects of the proposed transaction
was:
"to offer individual
clients of the bank, whether they were corporate or personal, the full facilities
of the organisation. The facility which I was offering was an insurance broking
service."
When Mrs Frost
(or Mr Carlson) was contacted by Mr Macdonald in August 1989 and invited to
use JFFS's services as broker, she was in my judgment entitled to assume that
the services being offered were services being provided by the bank, and that
all appropriate care and skill would be employed in their discharge. Accordingly,
I conclude that the bank did assume the responsibility of a broker in the
particular circumstances which developed.
Was there a
breach of the duty of care?
- On the approach
I have taken the question is whether it was a breach of an insurance broker's
duty of care and skill to accept instructions from Mrs Frost to obtain new
insurance for her from EIG with the knowledge that there was existing cracking
in the property as reported to the bank in the 19 July 1989 report. There
is, I should emphasise, no question of JFFS having itself been negligent in
this respect. Mr Macdonald was never privy to the 19 July report, that being
so far as he was concerned, confidential to the bank. The question I have
to determine is what his attitude should have been had he in fact been aware
of the report.
- In cross-examination
Mr Macdonald was taken to the report, which he had not previously seen. He
agreed that if he had been approached by a client and asked for advice in
relation to the reported cracking, he would have advised that it be reported
to the existing insurers. It was put to him that to take out a new insurance
would lead to problems with the new insurers when the client himself became
aware of the cracking. He agreed that this was possible, but adverted to the
agreement which exists between insurers as to how to deal with the problem
of subsidence claims. This was a reference to an agreement sponsored by the
Association of British Insurers in 1994 under which (subject to certain conditions)
there was agreement that the new insurer would meet the claim. Mr Macdonald
was therefore constrained to agree that in 1990, in a case where there was
existing cracking, a change of insurer might give rise to problems.
- This seems to
me no more than common sense. By the EIG policy, EIG agreed to indemnify Mrs
Frost in respect of loss or damage to the property caused by an "insured event",
and insured events included "subsidence or heave of the site on which the
buildings stand or landslip". The proposal form for the insurance included
a question (14) "Have the buildings to be insured ever suffered damage by
subsidence heave or landslip or is there evidence of any such damage in the
neighbourhood? If yes please give details?" The answer given was "Yes. One
house in Ingleby Drive suffered subsidence which was repaired. This was some
10 or more years ago. There are 12 houses in Ingleby Drive". Armed with the
19 July report, a broker acting for Mrs Frost would have been bound to draw
Mrs Frost's attention to the need to disclose its relevant content to the
insurance company to minimise any risk of the insurer subsequently seeking
to avoid the policy for material non-disclosure. Moreover, even if the view
could be taken that no such disclosure to the new insurer was necessary, there
would be an obvious risk that the new insurer might take the view that its
liability was restricted by reference to the time, either of the occurrence
of the relevant insured event or to the occurrence of the loss or damage caused
by that event. The true construction of the EIG policy so far as that is concerned
is by no means clear, as appears from an opinion of counsel (Mr Andrew Onslow)
subsequently obtained by the bank. On any interpretation of the 19 July 1989
report, some loss or damage had already been caused to the property, possibly
by an insured event which had already occurred.
- I also derived
some support from what I have described as the common sense of the matter
from the evidence of Mr Miles. He agreed that it would be foolish to change
insurers at a time when information was to hand that there was cracking at
the property and that stabilisation might be required.
Did the breach
cause any and if so what damage to Mrs Frost?
- Mrs Frost's
claim to have suffered any damage rests on the premise that, as a result of
changing her insurers from Eagle Star to EIG, she can be seen to have suffered
damage. In essence her case is that, had the property remained insured with
Eagle Star, the insurance claim would have been satisfactorily settled either
(a) within a period of about 18 months from first notification of the claim
in May 1991 (i.e. about November 1992); or (b) within a reasonable time following
receipt of a final report by the engineers Burt & Millea in September
1993 or (c) within a reasonable time after receipt of a "final report" from
Peter Kelsey & Partners in September 1995.
- Determination
of this claim involves a close examination of the detailed history of the
insurance claim and its eventual settlement. This does not lend itself readily
to compression. Some of the material which needs to be examined goes also
to the question of what Mr Cozens should have reported on in July 1989, and
where appropriate I note this also in this section of the judgment. To render
the whole intelligible, it is helpful to have a larger picture than I have
yet conveyed of the layout of the property and the location of the various
problems from which it came to be seen as suffering. It is also helpful to
have some key dates in mind.
- Key Dates:
I identify these
as:
1991
1 May 1991: Stanley
Frost reports the builders findings to JFIB
29 May 1991: Ellis
& Buckle, Loss Adjusters acting on behalf of EIG report to EIG, recommending
a reserve of £15,000.00.
August 1991: Burt
& Millea, consulting engineers instructed by Mrs Frost, make preliminary
report ("the B&M preliminary report");
1992
14 February
1992: Burt & Millea make a further report ("The B&M second report");
1993
July 1993: Burt
& Millea make a further report ("the B&M third report").
1994:
25 April 1994: WS
Atkins review the work carried out by Burt & Millea.
26 April 1994: Mr
Miles is appointed to act as LPA receiver and manager of the property.
19 May 1994: Mr
Miles obtains a desktop report from Oscar Faber Consulting Engineers Limited
27 September
1994: Peter Kelsey & Partners, consulting engineers, are appointed
jointly by Ellis & Buckle and Mr Miles.
6 November 1994: Mr
Miles reports on damage to roof of the flat.
1995
18 January 1995: EIG
refuse to renew the insurance policy.
February 1995: First
report by Peter Kelsey.
12 July 1995: Revised
report by Peter Kelsey.
28 June 1995: Bank's
action for possession.
2 November 1995: Second
report by Peter Kelsey.
1996:
7 February 1996: Mrs
Frost commences action against EIG.
10 April 1996: Peter
Kelsey produces estimate of costs for remedial work.
May 1996: Third
report by Peter Kelsey.
12 August 1996: Further
survey by Peter Kelsey.
18 November
1996: Fourth report by Peter Kelsey.
1997
11 March 1997: EIG
agree to carry out remedial works.
26 June 1997: Fifth
report of Peter Kelsey.
1998:
January 1998: The
remedial works go out to tender.
26 February
1998: Sixth report of Peter Kelsey.
30 March 1998: Remedial
works commence.
November/December
1998: Remedial works completed.
1999
8 March 1999: Sixth
report by Peter Kelsey.
21 September
1999: Property sold.
Description
of the property and its problems
- The buildings
at the property comprise, principally, the main house which fronts onto the
driveway. Also fronting on the driveway (but wholly detached from the main
house and in fact attached to the corresponding element in the neighbouring
property) is a separate garage and chauffeur's flat ("the flat"). To the rear
of the main house is a swimming pool with associated amenities. At the rear
of the main house attention needs to be focused on the southern flank wall
(which includes at ground floor level windows to the lounge and dining rooms),
the western ("rear") wall which includes a chimney stack, and the northern
flank wall (which includes the window to the kitchen/breakfast room). The
ground falls away at the rear of the property. There are retaining walls behind
the swimming pool and also between the north western corner of the flat and
the point at which the northern flank wall of the house joins the rear wall.
The cracking which Mr Cozens noted in the 19 July report was cracking on one
part (the dining room end) of the southern flank wall of the house. The cracking
which alerted the builder's attention in May 1991 was cracking on the rear
wall. Later reports identified cracking also on the northern flank wall. It
is possible that the cracks in these walls had a common cause. The flat turned
out to suffer what was almost certainly a separate problem, which in the fullness
of time led to its being demolished and re-constructed. Over the years controversy
reigned as to both as to the cause of the damage to the main house and whether
its cure lay simply in repairs to the superstructure or whether additional
support to the foundations was required. The eventual decision was that superstructure
repairs alone were required, although it appears that this final specification
was itself later varied to provide for a limited amount of underpinning.
Analysis of
the delays:
- May 1991 to
April 1994 Ellis & Buckle, the loss adjusters appointed by EIG, responded
promptly to the notification of the claim, advising Mrs Frost by letter dated
28 May 1991 that she would have to appoint a consulting engineer and that
it was likely that a period of monitoring would have to be implemented in
order to establish the overall pattern of movement. Mrs Frost decided not
to appoint an engineer from the list provided by Ellis & Buckle, but decided
instead to appoint Burt & Millea. Their August 1991 Report identified
problems in three areas: the driveway, suffering from subsidence associated
with trees (recommendation: careful pruning); the rear and flank walls of
the house, suffering from subsidence (recommendation: trial pits to be dug
to ascertain foundation soil conditions); and rear wall of the flat suffering
from horizontal water and soil pressure: (recommendation: further investigations).
It was not, however, until 4 December 1991 that Mrs Frost formally signed
a memorandum of agreement between herself and Burt & Millea. Trial holes
were excavated in December 1991. Burt & Millea's conclusions in February
1992 were (1) as to the house, that the subsidence was caused by the clay
foundation having become softened by the presence of excess water believed
to originate from either the swimming pool or leaking surface water drainage
systems (2) as to the rear wall of the flat, a similar diagnosis was made
and (3) as to the retaining wall, the possibility that it suffered from a
design defect was mooted. The report made clear that the trial pits had not
in fact been deep enough to expose the foundation soil and that further monitoring
of the rear wall of the garage ( "a minimum of six months") was likely to
be required.
- The monitoring
appears to have come to an end in May 1992 as a result of non-payment of Burt
& Millea's fees. As at May 1992 the monitoring was showing no significant
movement. Ellis & Buckle were refusing (and continued to refuse) to recommend
payment of the fees without a full break-down. JFIB pressed Ellis & Buckle
during the ensuing months on the question of the fees, eventually taking the
matter up directly with EIG and securing their assistance in resolving the
matter. By October 1992 Ellis & Buckle found themselves having to justify
their handling of the matter to EIG. In a letter to EIG dated 28 October 1992
they re-iterated their view that Burt & Millea were overcharging. They
stated their own view (supported to some extent by Burt & Millea's report)
that the damage to the garage/flat was not the result of subsidence (and was
therefore outside the policy), and stated their view that underpinning of
the house was unnecessary (there being no continuing movement). By the year
end, they were maintaining the view that the originally advised reserve of
£15,000.00 (now a balance of £10,300 after payment of fees to date) would
remain adequate, subject to review if works to the foundation should be agreed.
- Monitoring continued
during the first half of 1993 despite ongoing wrangling over Burt & Millea's
fees. This was in part due to the fact that Ellis & Buckle were now proceeding
on the footing (which was explained both to the bank, JFIB and the Frosts)
that part of the problem lay outside the insurance policy. So far as the principal
claim is concerned, my impression from the correspondence is that both EIG
and Ellis & Buckle were at this stage anxious to achieve a final resolution
of the problem but needed first to see Burt & Millea's final recommendations.
On the correspondence it appears to have been Burt & Millea who were slow
to respond. Eventually a joint meeting was held on site on 28 May 1993 attended
by Mr Brown (EIG) Mr Petrie (Ellis & Buckle), Mr Strachan, Mr Macdonald,
Mr Burt and Mr and Mrs Frost. The flavour (from Stanley's point of view) is
conveyed by his contemporary note:
"Brown said
that he could not proceed without all the necessary information and instructed
Burt to proceed with digging bore holes. Brown said that this should have
been done at the very beginning! Burt agreed but said that he was refused
permission by Petrie. Petrie said he was carrying out Brown's instructions.
Strachan said there was no point in Burt's comment and that he should now
get on with the work!"
The upshot was
that EIG agreed to pay for four bore holes at each corner of the house, drainage
testing and testing of the swimming pool pipe works. Mr Burt continued to
maintain a view that underpinning was likely to be necessary.
- Burt & Millea
produced a further report in July 1993, identifying the cause of the excess
water in a combination of natural groundwater and leaking drains. They recommended
drainage repairs, formation of holes in and a new drainage system for the
retaining walls, and corrective structural repairs.
- Ellis &
Buckle wrote to Burt & Millea on 12 August 1993 indicating that EIG were
agreeable to the latter's proposals. At this stage there seems to have been
no reservation with regard to the claim in respect of the retaining wall.
Nothing remained outstanding to be agreed save for the process of obtaining
estimates for the proposed works. Matters did not, however, proceed smoothly
forward. Burt & Millea now pointed to the fact that they were still owed
money on outstanding invoices. This was a matter which appears not to have
been focused on at the site meeting in May. It was not until 14 October that
this matter was sorted out. On that date Ellis & Buckle reported to EIG,
recommending direct payment of the invoices, and advising a revised balance
of reserve of £24,000.00. On the same day they wrote to Burt & Millea,
emphasising that they regarded the fees charged to date (in excess of £10,000.00
for purely investigative work) as excessive, and insisting that they have
a clear and acceptable proposal in relation to future fees before proceeding
further. Burt & Millea duly made such a proposal (a further £10,000) but
it was rejected as unreasonable by both Ellis & Buckle and EIG. The latter
determined, in late November 1993, that the way forward lay in the appointment
of new engineers to carry on where Burt & Millea had left off.
- Stanley was
upset at this decision. He set great store by Burt & Millea, and believed
that EIG's decision was simply part of a campaign of delaying tactics from
which Mrs Frost had already suffered. Ellis & Buckle stuck to their guns,
advising EIG that the Burt & Millea fees were unreasonably high. EIG agreed,
themselves assessing those fees as some four times the expected level (see
Mr Brown's letter of 31 January 1994). Mr Macdonald sought unsuccessfully
to broker a compromise. Mr Burt encouraged Stanley to believe that only he
could satisfactorily do the job, and insisting on his firm's copyright in
its plans and reports. In an effort to persuade EIG that the fee proposals
were reasonable Stanley sought alternative quotations. These did not yield
the fruit for which he had hoped. The first (Brian Pyle Associates) indicated
that they would be happy to do the work for 15% of the final contract sum
(EIG's stipulation), but indicated that they did not think the Burt &
Millea investigations were conclusive. The second, WS Atkins, cast some serious
doubts on the Burt & Millea diagnosis, but provided some support on the
fees question. WS Atkins opined that underpinning was likely to prove to be
the only permanent solution. All this generated much correspondence, but no
further progress on the ground.
- My conclusion
on this period is that the causes of the delay and recurrent periods of inactivity
lay largely in the scepticism of Ellis & Buckle both as to the reasonableness
of the fees being incurred by Burt & Millea and as to the quality of their
expert conclusions. It was submitted by Mr Dingemans that objections of this
kind were exactly the kind which might be expected from a new insurer facing
a substantial claim shortly after having gone on risk, and that it should
be inferred that the same problems would not have arisen had Eagle Star remained
the insurer. I do not accept that. The claimant has had the benefit of full
disclosure from EIG. There is no trace in its documentation from this period
of its having struck any such attitude. The chemistry of the delays lay somewhere
in the mixture of the personal attributes of Mr Burt and Mr Petrie (of Ellis
& Buckle), with occasional dashes of Stanley. One of the problems was
that it was not perceived at the outset by Mr Petrie as being a substantial
claim, as the original reserve makes plain. He consequently perceived Mr Burt's
charges for the purely investigative work as quite disproportionate, and his
proposed fees for supervision of the contract outrageous. The two of them
were destined to disagree. It is not necessary for me to decide who was right
(I have of course heard from neither). What I find is that the attitude of
Ellis & Buckle (and thence of EIG) was determined by a genuinely held
suspicion that Mr Burt was simply trying to milk the situation. I find no
basis for saying that EIG's attitude at this stage had been determined at
all by the fact that it had only come on risk for the first time in 1990.
The period from
the appointment of Mr Miles (April 1994 to July 1995.
- On behalf of
the Bank, Mr Miles had the same concern as Mrs Frost: to get effective repairs
done so as to enable the property to be sold. Given WS Atkins reservations
as to the Burt & Millea diagnosis, he commissioned a further report from
Oscar Faber & Partners. They confirmed the doubts over the Burt &
Millea diagnosis. Ellis & Buckle transferred their file to their specialist
subsidence unit (represented by Mr Griffith). The upshot was a site meeting
in July 1994 at which Mr Griffith's position was that the damage to the house
could be dealt with by superstructure repairs to the brickwork, and that the
damage to the flat/garage and retaining wall could be assumed to be caused
by an uninsured risk. Mr Miles demurred to both stances, believing that a
proper investigation of the foundations of the house should first be made.
- In due course
the agreed position of both Ellis & Buckle and Mr Miles was that a completely
independent engineer should be appointed if only to "neutralise" the blighting
effects of the earlier reports. This resulted, in September 1994, in the appointment
of Mr Kelsey.
- Mr Kelsey's
initial report was dated 25 October 1994 and suggested that the problem was
not subsidence, but heave. Digging of trial holes and monitoring thereafter
proceeded. Mr Miles was hoping that the property could be placed on the market
by Easter 1995. Mr Griffith was maintaining a subsidence theory, and that
only brickwork repairs to the house would be necessary. Mr Kelsey's first
full report was made on 24 February 1995. It contained trenchant criticisms
of Burt & Millea's methodology, and reached the conclusion that the damage
to the house was caused by clay heave, the result of rehydration of clay sub-soil
which had previously lost moisture to a large tree felled in 1972. As to the
garage, he concluded that only a small part of the damage had been the result
of subsidence. His recommendations as to repair work would depend on whether
subsequent movement remained below 1mm per annum. If it exceeded 3mm then
he recommended foundation remedial works. On any view he recommended further
monitoring until November 1995.
- However EIG
reverted to the question of pre-existing damage on 15 March 1995. Mr Kelsey
was asked to produce reports and answer questions relating to pre-existing
damage (which could only have been relevant only because of the date on which
EIG first came on risk). At this point we also find EIG considering the possibility
of raising a non-disclosure defence. The question of an apportionment between
Mrs Cameron and Ecclesiastical was raised. The point concerned Mr Miles who
warned of difficulties. The problems raised were such that continuing movement
was now perceived on the bank's side as helpful to the claim since it reduced
the significance of pre-inception damage.
- Mr Kelsey was
in a position to report further by 12 July 1995. At this point he re-issued
an amended version of the February 1995 report. Mr Kelsey concluded that because
"monitoring is showing a rate of uplift of about 6mm per annum which is very
unusual 23 years after the trees were felled underpinning is justified". However
substantial parts of the report were devoted to matters relating to pre-existing
damage. Mr Kelsey costed option 1 (which he had rejected as a result of monitoring)
and option 2. The costing of option 1 provided a basis from which EIG could
continue to argue about apportionment for pre-existing damage. Mr Kelsey was
not, however, then recommending continuing monitoring.
The period from
July 1995 to March 1997.
- By 5 September
1995 Mr Miles was saying that this was the "definitive report". However it
gave substance to EIG's argument about pre-existing damage and Mr Miles was
noting the point in discussions with Ellis & Buckle. On 8 September 8
1995 Mr Miles was stating that he was not going to "simply roll over" on this
point - the loss adjusters were to expect a good argument. Thereafter, throughout
the Autumn of 1995, it is clear that Ellis & Buckle and EIG were determined
to exploit the pre-existing damage arguments to reduce EIG's exposure.
- From Mrs Frost's
point of view there appeared to be substantial cause for optimism on 4 December
1995 when EIG wrote to Mrs Frost stating that it intended to accept the claim.
However, unknown to Mrs Frost, EIG intended to and thereafter did pursue substantial
points on quantum of the claim. Ellis & Buckle confirmed this to Mr Miles
on 14 December 1995.
- At a meeting
on 18 December 1995 there was again discussion of pre-existing damage but
proposals were made for some repairs. There was recorded to be a reluctance
on the part of EIG to `acknowledge the ABI agreement'. On 19 December 1995
Ellis & Buckle wrote without prejudice to Mr Miles pointing out the arguments
EIG had and offering a compromise. Ellis & Buckle then commissioned further
works from Mr Kelsey. The bank has submitted that these were simply continued
monitoring to enable the solution to be determined. In my judgment, however,
the true explanation is that Ellis & Buckle hoped that the results of
the further monitoring would assist EIG's arguments in relation to pre-existing
damage.
- The period from
December 1995 until March 1997 (when, under pressure of Mrs Frost's action
and in the light of further reports from Peter Kelsey, EIG agreed to do remedial
works) was occupied in attempts to arrive at compromise solutions, and in
awaiting the results of further monitoring by Mr Kelsey. It is significant
that this further monitoring in fact produced results which, according to
Mr Kelsey's earlier advice, might have been expected to lead to a recommendation
for underpinning. By November 1996, however, he was no longer making this
unequivocal recommendation and was being instructed to undertake yet further
monitoring in order to explore whether his earlier recommendations in relation
to the flat could be revised in a manner favourable to EIG's position.
Conclusions.
- It seems to
me that the whole of this period of delay (i.e. that from the receipt of Mr
Kelsey's July 1995 report to March 1997 a period of some 20 months) can fairly
be attributed to the fact that EIG had, and were determined to exploit, arguments
concerning pre-existing damage. Delays after March 1997 do not, however, seem
to me to be so ascribable. The fact that work on the repairs did not thereafter
commence until April 1998 and were not completed until the end of 1998 had
nothing to do with the fact that EIG had only come on risk in 1990.
- On that analysis,
but for the period of delay attributable to the change of insurers it can
be assumed that the works of repair would have been completed no later than
April 1997, i.e. some 20 months earlier than the date when they were in fact
completed. In fact there would have been a reasonably good prospect of the
works being agreed and commenced in late 1995/early 1996 and completed by
the end of 1996. I doubt whether a completion of the works in late 1996 as
opposed to April 1997 would have made much difference to the ultimate timing
of the sale of the property since I suspect that the view would have been
taken that marketing the property in the spring and summer of 1997 would,
on either hypothesis, have produced the best price.
- In those circumstances
Mrs Frost's prima facie measure of damage lies in the financial cost to her
of that period of delay between April 1997 and December 1998. Since the cost
to her lay in her continuing obligation to pay interest to the bank, the measure
has to be related to the time at which the property would have been sold had
the works been completed in April 1997 and the price it would then have achieved
and the time at which and price for which it was in fact sold in October 1999.
There will need to be an inquiry for this purpose.
- It was argued
on behalf of the bank that Mrs Frost had already been fully compensated for
any delay by her recovery of £140,000.00 against EIG. This occurred in October
1998 when EIG compromised her claim against it by agreeing to pay this sum
and her costs. This seems to have been an exceptionally good settlement to
have achieved given the difficulties in claiming damages for consequential
losses for failure to pay under an insurance policy: see The Italia Express
[1992] 2 LL Rep 281 and Sprung v Royal Insurance (UK) Limited [1997]
CLC 70. It seems to me clear that Mrs Frost must give credit for this recovery
just as she must give credit for any increase in the value of the house during
the relevant period. On the figures currently in evidence her debt to the
Bank at 29 April 1997 appears to have stood at £641,700. Her debt at 21 December
1998 (when the final tranche of the £140,000 was received) was £699,668.00.
These figures assume that the Bank was entitled to charge interest at 14%.
If that is wrong the corresponding figures at the current rate of interest
are £607,482 and £637,049. If the correct dates to take are the date of putative
sale (say July 1997 as against October 1999) the figures are (at 14%) £666,582
and £882,455 and (at the lower rates) £628,147 and £795,285. These figures
show a probability that she has suffered some loss, although its exact amount
cannot be stated in the absence of evidence as to the date at which, and price
for which, the property would have been sold had the works been completed
by the end of April 1997.
Is Mrs Frost's
action against the bank statute barred?
- The writ against
the bank was issued on 30 September 1996. Mrs Frost's cause of action against
the bank accrued at the latest on 9 February 1990 when EIG went on, and Eagle
Star came off, risk. Accordingly, in order to succeed, she has to rely either
on Section 14A or on Section 32(1) (b) of the Limitation Act 1980 on the basis
that the bank's breach of duty was "deliberate" within Section 32(2).
- Section 14A
provides, so far as material, as follows:-
"(3) An action
to which this section applies shall not be brought after the expiration of
the period applicable in accordance with subsection (4) below.
(4) That period
is either-
(a) six years
from the date on which the cause of action accrued: or
(b) three years
from the starting date as defined by subsection (5) below, if that period
expires later than the period mentioned in paragraph (a) above.
(5) For the
purposes of this section, the starting date for reckoning the period of limitation
under subsection (4) (b) above is the earliest date on which the plaintiff
or any person in whom the cause of action was vested before him first had
both the knowledge required for bringing an action for damages in respect
of the relevant damage and a right to bring such an action.
(6) In subsection
(5) above "the knowledge required for bringing an action for damages in respect
of the relevant damage" means knowledge both-
(a) of the material
facts about the damage in respect of which damages are claimed; and
(b) of the other
facts relevant to the current mentioned in subsection (8) below.
(7) For the
purposes of subsection (6)(a) above, the material facts about the damage are
such facts about the damage as would lead a reasonable person who had suffered
such damage to consider it sufficiently serious to justify his instituting
proceedings for damages against a defendant who did not dispute liability
and was able to satisfy a judgment.
(8) The other
facts referred to in subsection (6)(b) above are-
(a) that the
damage was attributable in whole or in part to the act or omission which is
alleged to constitute negligence; and
(b) the identity
of the defendant; and
(c) if it is
alleged that the act or omission was that of a person other than the defendant,
the identity of that person and the additional facts supporting the bringing
of an action against the defendant.
(9) Knowledge
that any acts or omission did or did not, as a matter of law, involve negligence
is irrelevant for the purposes of subsection (5) above.
(10) For the
purposes of this section a person's knowledge includes knowledge which he
might reasonably have been expected to acquire-
(a) from facts
observable or ascertainable by him; or
(b) from facts
ascertainable by him with the help of appropriate expert advice which it is
reasonable for him to seek;
but a person
shall not be taken by virtue of this subsection to have knowledge of a fact
ascertainable only with the help of expert advice so long as he has taken
all reasonable steps to obtain (and, where appropriate, to act on) that advice."
- Mrs Frost's
case was that she did not have the requisite knowledge until she received
the July 1989 Report from the bank on 24 January 1994. It was submitted on
behalf of the bank that she had the requisite knowledge from the moment at
which the cracking was discovered in April/May 1991. It was argued that she
should at that point have asked the bank for a copy of the report which, on
the evidence, would then have been supplied to her. While accepting that she
could have obtained a copy of the report at any time, I do not agree that
this was a step which she could reasonably have been expected to take at that
stage. At that stage she had no reason to suppose that the Bank's actions
in causing her to change insurers had caused her any damage at all. But for
the fact that the report contained matter which made it dangerous to change
insurers, that change would have been harmless. She had no reason to suspect
that she might have the cause of action which I have found she in fact had.
That is not by itself a complete answer to the bank's claim, since in ascertaining
what knowledge she might reasonably be expected to have acquired one is entitled
in my judgment to have regard to all the claims which she might reasonably
then have been considering. She subsequently made a claim against the bank
for having failed to disclose the report to her (but has since dropped that
claim); and she has of course made a claim against Scrase Hewlitt for negligent
advice as to the structural soundness of the property. In relation to the
former claim, now recognised to be unsustainable, I do not think that she
should reasonably have been expected to acquire the information. In relation
to the latter claim, if it was the case that Mr Cozens had given her an assurance
that the property "was structurally sound and not suffering from subsidence"
I think that she could reasonably have been expected to ask to see his written
report, if not when the cracking was discovered, at least after Burt &
Millea had made their preliminary report in August 1991. For reasons I give
below, however, I do not accept Mrs Frost's account that she was given any
such assurance. She had accordingly no reason to suppose that the report was
of relevance to any claim she might have. Accordingly, in my judgment she
can rely on Section 14A.
- That conclusion
renders it unnecessary for me to consider the position under Section 32 (1)(b),
as interpreted in the relevant decisions in Brocklesby v Armitage &
Guest [2001] 1 All E R 172, Liverpool Roman Catholic Archdiocese Trustees
Inc v Goldberg [2001] 1 All E R 182 and Cave v Robinson Jarvis &
Rolf [2001] EWCA CIV 245. In addition to these cases I simply record my
doubt that the decision in Brocklesby is in fact authority for the
proposition for which it was taken to stand in the Liverpool RC Archdiocese
case and for which it was conceded as standing in Cave. The source
of my doubt lies in the way in which the allegations of deliberateness and
actual knowledge were pleaded in Brocklesby.
Contributory
Negligence
- In its pleadings
the bank raised a number of matters in support of a claim that any loss or
damage suffered by Mrs Frost was caused or contributed to by her own negligence
(see paragraph 23 of the amended defence and counterclaim). In essence these
consisted of allegations that she ought not to have embarked on her refurbishment
claim without obtaining for herself a full structural survey, and that in
doing so without such a survey she was not relying on the bank. In part these
allegations were premised on a further allegation that she herself had known
in 1989 that the house had an earlier history of cracking, and was part of
a development known to have suffered from subsidence problems. On the facts
I did not think that this further allegation was made out. So far as the wider
criticisms were concerned, they might have been relevant to a plea of contributory
negligence had Mrs Frost's own claim against the bank been put on the basis
that, but for the bank's negligence, she would never have borrowed the money
in the first place. In the event it was not put on that basis. Her claim,
before me, has been limited to the loss occasioned to her by the change in
insurers.
Other causation
issues
- For the same
reason I regard as irrelevant various other matters of causation which were
canvassed. Chief among these was the question of the extent to which Mrs Frost
had in fact applied the loan from the bank in the refurbishment of the property.
Given the family's parlous financial circumstances, and their historical enjoyment
of a relatively sumptuous lifestyle, the suspicion existed that relatively
little if any of the net proceeds of the loan had gone into the property.
That suspicion was fed by a number of further facts. The whole of the facility
was drawn down immediately although it does not appear that any works were
commenced until some months later. Mrs Frost and Stanley were unable to provide
any documentary evidence of the expenditure which had allegedly been made.
The lack was explained by the fact that the builders had been paid in cash
or (inconsistently) that the relevant documents had been destroyed when the
roof of the flat had collapsed in the autumn of 1994. Their attempts to reconstruct
the pattern of expenditure had considerable doubt cast on them by Mr Miles
when he gave evidence. There is also the puzzle that Mrs Frost claimed that,
following the discovery of the cracking in April 1991, no further works were
done on the property. Yet, in the autumn of 1991 and in early 1992 she negotiated
a further loan of £60,000 from National Westminster Bank, the purpose of which
(she told me) was to help pay for the works to the property. That was not,
in fact, what National Westminster Bank was told: it was told that the money
was going into a fashion business then being started by Harvey. In evidence
before me Harvey denied that this was the case. A company owned by Harvey
was also the recipient of the balance (£10,000) of the further loan (£50,000)
she negotiated from the Bank to cover outstanding interest.
- The picture
of the family's finances at this period is further occluded by the fact that
Stanley's elderly aunt (who had facilitated the original borrowing by paying
off Stanley's trustee in bankruptcy) had died leaving Mrs Frost half her net
residue. Mrs Frost allowed this money (perhaps over £200,000) to pass to Stanley
whom she felt to be the intended recipient. It seems to have slipped through
Stanley's fingers with some rapidity: a second hand Porsche was bought for
Harvey, and much was spent on a band which Harvey was managing.
- Apart from illustrating
the general financial fecklessness of Mrs Frost and Stanley, these various
matters do not in my judgment affect Mrs Frost's present claim against the
bank. I am satisfied that a significant amount of the money initially borrowed
from the bank was spent, wisely or not, on refurbishment of the property.
The money had run out, and the works had not been completed, when the cracking
was discovered in April 1991. A different family, in different circumstances,
might have dealt differently with the money inherited from the aunt, in particular
using it to reduce the growing liabilities to the bank. I am not, however,
persuaded that the fact that Mrs Frost did not take this course breaks the
chain of causation between the bank's negligence and the loss she now claims.
The Bank's counterclaim
- Subject to her
entitlement to seek an account (which is not in issue: see Gomba Holdings
Limited v Minories (No 2) [1993] Ch 171) the only issue under this head
relates to the rate of interest charged by the bank during the period when
the loan was in default.
- The facility
letter provided for a rate of interest of 12% per annum or the bank's base
rate plus 3½% per annum (whichever was the higher): see Clause 1.5. Clause
4.6, however, provided that in the event of a demand for repayment being made
"interest will continue to accrue on the capital sum outstanding at the rate
of 2% above the rate stated in this letter of offer until repayment in full
is received by the lender". In practice, because of the downward movement
of interest during the period, the rate under Clause 1.5 became 12%, and the
rate under Clause 4.6 14% per annum.
- It is submitted
on Mrs Frost's behalf that the fixed interest rate of 14% during the period
of default should be struck down as a penalty. Reliance is placed on the fact
that general interest rates during much of the period had fallen far below
this figure. It is accepted that the same point can be made about the minimum
12% rate under the facility, but that (having agreed that rate) the penalty
argument is not available to her in respect of the 12% rate. This seems to
me illogical: by accepting the terms of the facility she agreed both rates.
- The question
of whether and in what matter the law in relation to penalties applies to
default rates of interest has recently been considered in detail by Colman
J in Lordsvale Finance plc v Bank of Zambia [1996] QB 757. His conclusion,
after an extensive review of the authorities, was that a default rate, payable
only prospectively from the date of default, would not be struck down as a
penalty, at least where that rate was only modestly higher than the previous
rate. In the present case the default rate of 14% is 1.66% higher than the
previous rate of 12%. There is no sense in my judgment in which such an increase
can be described as penal.
Mrs Frost's
claim against Scrase Hewlitt
- Mrs Frost's
account is that, when Mr Cozens had finished his inspection, she sat him down
in the kitchen over a cup of tea and then had a conversation with him which
included a discussion about the susceptibility of the property to subsidence.
Her most recent accounts of the conversation graphically depict her pointing
out of the window to a nearby house (No 4), describing to Mr Cozens the subsidence
history of that property, and seeking his reassurance as to her own. Her claim
is that she received an unequivocal assurance that the property was structurally
sound. Her witness statement also conveyed her impression that Mr Cozens was
not really supposed to have been discussing the matter with her.
- This account
was not inherently implausible. Mr Cozens was not in a position to assert
positively that the conversation had not taken place as described by Mrs Frost.
He thought, however, that it was improbable that her account was accurate:
if the conversation had covered the ground claimed for it, he would have had
no reason not to have drawn her attention to the cracking which he had noted
for the purposes of his report. Equally, if she had expressed real anxiety
about subsidence, he would have reconsidered the conclusion which he had reached
about the relative insignificance of the cracking which he had observed. So
far, however, as direct recollection was concerned, Mr Cozens only positively
disputed the evidence given by Mrs Frost and Harvey that Harvey was present
at the time of the conversation.
- In addition
to Mr Cozen's own assessment of the probabilities, other factors tell against
Mrs Frost's account. First, her assertion that the question of subsidence
was at all on her mind sits oddly with her claim (made in another context)
that she had no reason whatever to suppose that the property was susceptible
to damage from such a cause. At one point in the history of her litigation
with the bank she seems to have given her lawyers the impression that she
had raised the whole question of subsidence with Mr Strachan and received
his reassurance on the subject (see: the affidavit of Paul Joseph Alexander
Grant dated 16 November 1995 sworn in the bank's possession proceedings at
paragraph 4). This strongly suggests a state of mind all too ready to project
into the past a much more recently acquired anxiety, and then to pin the blame
on some authority figure from the past for having allayed that anxiety. Secondly,
if the alleged reassurances had been given by Mr Cozens, one might have expected
her to raise the subject in some way either when the cracking was first discovered,
or after first seeing Mr Cozens' actual report in January 1994. It is of some
significance that the initial complaints about Scrase Hewlitt (from August
1995 onwards) related to the contents of the report rather than to an alleged
conversation with Mr Cozens. Thirdly, by December 1995, when the writ against
Scrase Hewlitt was first issued, the attitude of EIG in relation to pre-inception
damage provided a strong incentive for Mrs Frost to persuade herself that
she had been reassured in 1989 that there were no structural problems with
the property.
- If one stands
back for a moment and asks what is likely to have been on Mrs Frost's mind
when she spoke to Mr Cozens in 1989, the answer is that by this time she had
made up her mind as to the merits of the refurbishment project, and wanted
to get on with it. Her anxiety at that time would have been whether any obstacle
existed to the grant of the facility which she had negotiated with the bank.
She would, accordingly, have been anxious to elicit from Mr Cozens whether
there was going to be anything in his report likely to present such an obstacle.
That fits with her recollection that Mr Cozens seemed reluctant to discuss
with her matters which were confidential to the bank (in evidence she gave
the analogy, possibly learned by her from her lawyers, of a potential insured
being examined by the insurance company's doctor). It also fits with her general
recollection that what Mr Cozens had to say did allay her anxieties.
- Taking all these
considerations into account it seems to me more likely than not that the reassuring
noises made by Mr Cozens related to the impact which his report was going
to have on the bank's decision to lend. It seems to me relatively unlikely
that they were a response to a specific question about the structural soundness
of the house, or its susceptibility to subsidence. It is still less likely,
in my judgment, that such reassurances as were given amounted to positive
advice (of a type on which Mrs Frost might reasonably rely) such as is now
alleged by Mrs Frost. Accordingly, I do not accept the basic premise of her
claim against Scrase Hewlitt. She has not satisfied me on a balance of probabilities
that her account of her conversation with Mr Cozens was accurate. I have reached
this conclusion after taking into account the limited corroboration of her
account provided by Harvey.
The Bank's claim
again Scrase Hewlitt.
- In addition
to the July 1989 report, the Bank received a further report in October 1991
from Ellis & Co (Estate Agents) Ltd ("Ellis & Co"). The Ellis &
Co report was issued in connection with the bank's decision to lend the further
£50,000.00 to Mrs Frost principally to cover interest under the original facility
(see paragraphs 6 and 67 above). That report, although made after the discovery
of the cracking by the builders in April 1991, made no reference whatsoever
to any structural problems. Ellis & Co were originally parties to the
bank's action against Scrase Hewlitt, but subsequently came to terms with
the bank.
- The bank's pleaded
case against Scrase Hewlitt was that the July report was negligently made
since:
"(1) "[it] failed
to determine, detect, consider or report that the 'minor movement' and 'cracking
to the brickwork' ... was evidence of a pattern of damage and distortion in
and to the property which could only have been the result of foundation movement,
(this being principally caused by clay heave);
(2) "[it] failed
to consider the actual cause of the pattern of damage and distortion in and
to the property when describing the property as being 'in basically sound
condition'"
(3) "[it] failed
to detect the presence of foundation movement related damage and distortion
throughout the property and its various component parts";
(4) "[it] failed
to pay any regard to the likely effect of foundation movement/subsidence related
damage to the likely correct valuation of the property";
(5) "[it] should
have advised that the condition of the property in July 1989 was either
(a) unsaleable,
without substantial works of repair being undertaken; or
(b) unsaleable,
if the works of repair had not been undertaken, without a very substantial
reduction in the sale price of the property to take account of the unrepaired
defects; or
(c) worth substantially
less than £550,000.00"."
- I have quoted
directly from the pleading served by the bank on 4 July 1996 signed by Mr
McParland. A reasonable expectation might have been that the bank was then,
and at trial would be, able to support that pleading by expert evidence. Whatever
expert evidence was then available to the bank, at trial it supported its
case only by reference to a report from Mr Marjoram dated 27 March 2001, he
having been first instructed on 19 March 2001. The ink was barely dry on his
report at the commencement of the trial.
- Mr Marjoram's
thesis concentrated on what he perceived to be an internal contradiction within
the July 1989 report. This had reported that the property was "basically in
sound condition" and that "we have no reason to anticipate significant problems",
but had, at the same time, said in relation to the observed cracking that
"some localised stabilisation may be required". If, as Scrase Hewlitt had
suggested in their pleading, this was a reference to the possible need for
underpinning, that itself implied the existence of a significant defect which
itself rendered incorrect the statement that the property was basically in
sound condition. If, on the other hand, the reference to "localised stabilisation"
was not a reference to underpinning, the report fell short in not having adverted
to the possibility that underpinning might be required.
- Mr Marjoram's
conclusion was that Scrase Hewlitt ought to have recommended further investigation
of the causes of the cracking which had been observed by Mr Cozens. He also
concluded that, given the contents of the report as it stood, the bank ought
itself to have sought clarification from Scrase Hewlitt. Mr Marjoram did not
say that in placing a value on the property (of £550,000) for loan purposes,
Mr Cozens had actually got it wrong. The closest he came to this was to say
that the need for underpinning would have implied a significant defect "which
was likely to materially affect the value of the [property]". Nor did he attempt
to say that Mr Cozens had failed to notice matters which he ought to have
noticed: in contrast to Mr Pitts (but with access to much of the same material)
he gave his professional conclusion that "[i]t is impossible to conclude with
any certainty the extent of cracking to the property in July 1989, except
than by reference to the report dated 19 July 1989, prepared by Scrase Hewlitt".
I should add that, on the whole of the evidence, that is my own conclusion.
- In my judgment
this evidence falls short of what is necessary to make out a case of negligence
against Scrase Hewlitt. It demonstrates that the report did note the only
matter then visible and did so in terms which should have alerted the bank
to the possibility of a problem. It does not demonstrate that Mr Cozens' own
conclusion that the problem was not a significant one was one which no reasonably
competent surveyor could have formed in July 1989. As to that, there is no
certainty even to this day that the cracking observed by Mr Cozens was caused
either by the subsidence hypothesised by Mr Burt or the heave hypothesised
by Mr Kelsey. Mr Miller produced an alternative theory under cross-examination
that this particular cracking (between a door and window opening) was the
result of thermal contraction and the deflection of the window lintels, the
cure for which would, at worst, have been the insertion of an expansion joint.
Even Mr Pitts, whose thesis depended on there having been much more extensive
cracking at the time than that actually observed by Mr Cozens, agreed in evidence
that a surveyor faced with just the one crack seen by Mr Cozens could legitimately
have reported in the terms which Mr Cozens used.
- Although it
is not central to my conclusions on this part of the case, the significance
in valuation terms of the cracking observed by Mr Cozens has to be seen in
the context of the significance of the cracking which manifested itself two
years later and which was much more readily perceptible as the result of foundational
movement. The potential cost of putting that right was assessed by the loss
adjusters at £15,000.00. Mr Cozens was looking at something less serious,
and doing so in the context of a house worth some £550,000 on which the owner
was proposing to spend £100,000 in works of refurbishment. I am not satisfied
that further investigation of the matter in July 1989 would have led to a
significantly different valuation conclusion or lending decision.
