Law report: Damages reduced for contributory negligence

5 March 1999 Platform Home Loans Ltd v Oyston Shipways Ltd and others House of Lords (Lord Lloyd of Berwick, Lord Cooke of Thorndon, Lord Hope of Craighead, Lord Hobhouse of Woodborough and Lord Millett) 18 February 1999

WHERE A lender, in an action for negligent overvaluation against a valuer, was found to be contributorily negligent, the reduction in his damages under section 1(1) of the Law Reform (Contributory Negligence) Act 1945 should be made to the amount of his loss before the application of the principle in South Australia Asset Management Corp v York Montague Ltd, United Bank of Kuwait plc v Prudential Property Services Ltd, Nykredit Mortgage Bank plc v Edward Erdman Group plc [1996] 3 All ER 365 (SAAMCO).

The House of Lords allowed the appeal of the plaintiff lender against the decision of the Court of Appeal, which had reduced the award of damages made in its claim for professional negligence against the defendant valuers.

The plaintiff proposed to offer to a Mr Hussain a non-status loan of pounds 1,050,000 by way of remortgage on his home, being 70 per cent of pounds 1.5m which he claimed to be the value of the property. The plaintiff obtained two independent valuations of the property from the defendants, each of whom valued the property at pounds 1.5m.

Mr Hussain defaulted on the repayments and the plaintiff obtained possession of the property. It subsequently exercised its power of sale, obtaining only pounds 435,000. The plaintiff commenced proceedings against the defendants, alleging that they had negligently overvalued the property.

The judge found that the overvaluation had amounted to pounds 500,000. He arrived at a figure of pounds 611,748.51 as the plaintiff's basic loss. He then made a finding of 20 per cent contributory negligence for the plaintiff's imprudence in making a non-status loan of 70 per cent of the value of the security, and awarded the plaintiff pounds 489,398.81.

The defendants appealed, and the plaintiff cross-appealed. The Court of Appeal allowed the appeal, holding that, applying the SAAMCO principles, the amount which the plaintiffs could recover was only pounds 500,000, being the difference between the amount of the valuation and the true value of the property. Having deducted 20 per cent for contributory negligence from that figure, the plaintiffs would be awarded pounds 400,000. The plaintiffs appealed.

Nicholas Patten QC and Andrew Walker (Rosling King) for the plaintiffs; Simon Berry QC (Williams Davies Meltzer) for the first defendants and (Dibb Lupton Alsop, Birmingham) for the second defendants.

Lord Hobhouse said that the subject of the SAAMCO case was the question whether a lender could recover his loss in full from a negligent valuer where that loss might be attributable not only to the original negligence of the valuer but also to a subsequent fall in market values.

In applying the SAAMCO principle, the first step was to establish what was the lender's basic loss. The second step was to see whether that basic loss exceeded the amount of the overvaluation and, if it did, the lender's right of recovery was limited to the extent of the overvaluation.

The court was required by section 1(1) of the 1945 Act to form a view as to what it thought just and equitable having regard to the plaintiff's share in the responsibility for the damage and to reduce the plaintiff's recoverable damages accordingly. In the present case it would not be just and equitable that the plaintiff's recoverable damages should be reduced to pounds 400,000 on account of contributory negligence which was already fully taken into account by reducing them to pounds 489,000.

Just as Lord Hoffmann had, in SAAMCO, formulated a general principle which was easy to apply in all save exceptional cases, so also would the right answer on the application of section 1(1) be arrived at by applying the traditional percentage reduction to the lender's basic loss before making any further deduction on account of the SAAMCO principle.

Kate O'Hanlon,

Barrister