Home Information Cases Emmet Thomas Scullion v Bank Of Scotland Plc (T/A Colleys) (2010)

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Emmet Thomas Scullion v Bank Of Scotland Plc (T/A Colleys) (2010)

Summary

Where a valuer engaged by a mortgage lender had negligently overstated both the capital value of a flat and the rental income that could be achieved from it, the purchaser was entitled to recover the difference between the price he paid for it and its true value and compensation for losses arising from his inability to let the flat for a rental providing sufficient income to cover his mortgage payments and other outgoings on the property.

Facts

The court had to determine issues of causation and quantum following its finding that the defendant firm of valuers (V) had breached duties of care that it owed to the claimant (S). S had bought a flat with a view to entering the buy-to-let market and the mortgagee (M) had engaged V to value it. V produced a valuation report giving an open market value of £353,000 and an indication that a rental of £2,000 per calendar month could be achieved. In finding that V had negligently overstated both the capital value and the expected rental income, the court had held that a careful and competent valuer would have valued the property at £300,000 and would have suggested a rental of about £1,100 per calendar month. S had agreed to pay £352,950 for the property but ultimately paid only £299,800. After completion, S discovered that the flat could not be let for the amount predicted by V or indeed the amount required to meet the mortgage payments. In due course, he let it for only £1,050 per month. Some three-and-a-half years after buying it, he sold it for £270,000. M had levied various administration charges and other fees on him after he encountered difficulties meeting the mortgage interest payments, and after the sale a significant shortfall remained due to M. S argued that he was entitled to damages to reflect the fall in value of the property between its purchase and sale since he had bought the flat on the basis of V's valuation and it had been foreseeable that if the valuation was inaccurate, he would be forced to sell; further, all of the payments and expenses which he had incurred under the mortgage and in respect of outgoings on the flat were recoverable, subject to giving credit for rents received, since he would not have bought the flat if he had been informed that the transaction would not be self-financing.

Held

(1) Although V knew or ought to have known that S would be relying on both aspects of its valuation to decide whether or not to purchase the flat, it had plainly not been engaged to advise him in general terms whether or not he should go ahead with the purchase. S therefore could not recover all losses flowing from his decision to acquire the flat and was limited to recovering those which were attributable to the two aspects in which the valuation report was wrong, namely the overstatement of the capital and rental values of the flat, South Australia Asset Management Corp v York Montague Ltd (1997) AC 191 HL and Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (Interest on Damages) (1997) 1 WLR 1627 HL followed. (2) As to the overstatement of the capital value, he was limited to recovering the difference between the price which he paid for the property and its true value. In that respect, he had suffered no loss because he paid £200 less than its true value, Watts v Morrow (1991) 1 WLR 1421 CA (Civ Div) and Patel v Hooper & Jackson (1999) 1 WLR 1792 CA (Civ Div) followed (see paras 15-21 of judgment). (3) The scope of V's duties was not limited to the scope of its duties to M. V had known that S was a buy-to-let purchaser and ought to have appreciated that the statement of attainable rental value was critical for him to ensure that when he committed himself to the mortgage payments and the normal outgoings, he could expect to receive sufficient rent to discharge those liabilities. It was also obvious that M would want to ensure that its customer could service the mortgage to ensure a profitable, performing loan. It followed that S was entitled to recover damages to compensate him for the losses caused by the fact that he was unable to let the flat for a rental that gave him sufficient income to cover his mortgage payments and the other outgoings on the property. However, such damages did not include costs not attributable to V's negligence such as legal fees, mortgage brokers' fees, stamp duty or the costs of carpets since it could be fairly assumed that it might take a little time to let the property after completion and that a purchaser would not rely on rental income to fund acquisition costs. For similar reasons, the first payment of interest to M was not recoverable although those for subsequent months were recoverable, giving credit for rent received, as they ought to have been covered by the rental. S was also entitled to recover ground rent, service charges and charges attributable to cash-flow difficulties which he would not have faced had the flat been generating the expected rental, such as direct debit rejection fees, monthly arrears administration charges and legal fees. Damages attributable to the overstatement of the expected rental income were awarded in the sum of £72,234 plus interest (paras 24-25, 29-33, 41-63, 104).

Damages assessed

Chancery Division
Richard Snowden QC
Judgment date
8 October 2010
References

​LTL 12/10/2010 : [2010] EWHC 2253 (Ch)