Bank's action not time barred LAW REPORTS

First National Commercial Bank plc v Humberts.

Court of Appeal (Lord Justice Neill, Lord Justice Waite and Lord Justice Saville).

13 January 1995.

Where a claimant entered into a transaction, which through a breach of duty owed to the claimant, provided the claimant with less rights than should have been secured, the claimant's cause of action did not arise at the date of the transaction unless the transaction then and there caused the claimant quantifiable loss.

The Court of Appeal allowed an appeal by the bank from the decision of Judge David Smith QC that the bank's action against the defendant valuers was statute barred.

In July 1983 the bank agreed to make advances of £2.6m secured on land valued by the valuers in the sum of £4.4m. The borrowers were now insolvent and the security proved insufficient to recoup the amounts owed by the borrowers. The bank issued a writ against the valuers on 20 March 1990, alleging that the valuation was made negligently and if a proper valuation, which would have been £2.7m, had been made it would not have made any advance. The preliminary issue raised was whether that date was less than six years from the date when the bank's cause of action accrued.

Although the amounts recovered exceeded the amounts advanced and expended under the financing deal the bank contended it had suffered loss if losses from the profits it would have made by lending the outlay to others or the costs of borrowing the money were included. The bank submitted that up to March 1984 its outlay, plus the cost of borrowing or the notional profit that could have been obtained elsewhere, was less than the value of the security and until after March 1984 it could not show a cause of action against the valuers.

James Townend QC and Clive Newton (Stewarts) for the bank; Michael Lewer QC and David Tucker (Kennedys) for the valuers.

LORD JUSTICE SAVILLE said that a cause of action for the tort of neligence only arose when there had been a breach of duty resulting in actual, as opposed to potential or prospective loss or damage. The submission that the plaintiff sustained an actual loss in 1983, represented by the difference in value between a transaction secured on property worth £4.4m and one worth £2.7m, was incorrect. Had there been no breach of duty the bank would not have entered into the transaction at the lower valuation.

The prima facie measure of damages where the advance would not have made was the whole advance, less any recoveries made. If the lender could show that he had sustained other losses, those were also recoverable. The lender could claim lost expenditure, what he would have made on other deals or the interest that would have been earned by putting the money on deposit or the value of the loss opportunity to invest the money elsewhere. The loss allegedly sustained by the bank was of the kind legally recognised.

The advance prima facie represented the measure of loss. The first advance made by the bank was in July 1983. That did not mean, however, that the advance or any part of it was actually lost at that time. The prima facie loss did not necessarily occur when the advance was made, for when the advance was made there might be readily available means of recouping it. As at July 1983 and until after March 1984 the bank would have been unable to establish that it had lost the whole or any part of its advance, since the security exceeded the advances.

The advances themselves could not be treated as creating an actual loss sustained more than six years before the issue of the writ. The same conclusion followed with regard to the costs of borrowing or alternative lending claims.

The writ was issued within the six-year period stipulated in the Limitation Act 1980. LORD Justice Neill concurred and Lord Justice Waite agreed.

Ying Hui Tan, Barrister

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