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Limitation of actions
Limitation of actions
DNB Mortgages v. Bullock & Lees C.A. (2000) 17 EG168
This case is one of many concerning negligence over valuations of property in the late 1980s and early 1990s. In August 1989 the defendant surveyors valued a residential property for the purposes of a re-mortgage at £170,000. The purchasers only finally accepted the mortgage offer of £138,500 in February 1990. By January 1991 the mortgage was in arrears with the loan account standing at £144,500. No further payments were made by the mortgagors after June 1991. The lender took possession and sold the property in January 1993 for £100,000. On 8 May 1996 the mortgagee issued a writ against the defendants alleging negligent over-valuation.
The point at issue in this case was whether or not the lender's action was statute barred. The surveyors claimed that the limitation period had expired by May 1996 in contract and in tort since the lender's loss occurred before 8 May 1990, the commencement of the limitation period. This argument was accepted by the deputy judge at first instance who also found that the valuation was negligent: the true figure, according to the evidence of two experts, was £145,000. By May 1990 this had fallen to £130,000 at which time the mortgage debt was £140,080 and the value of the mortgagor's covenant was not more than £10,000.
The lender appealed on three grounds:
that the loss for the purposes of tort accrued after 8 May 1990 when the value of the security, that is the property and the mortgagor's covenant, fell to less than the amount outstanding on the loan;
that the Deputy Judge was wrong to hold that the burden of proof relating to the limitation period and the mortgagor's covenant fell on the appellant;
that the property market fell after 8 May 1990 and there was no loss until 1992.
On the first point the court applied the principle in Cartledge v. Jopling (1963) AC758 which was followed and applied to negligence over valuations in First National Commercial Bank plc v. Humberts (1995) 2 AllER 673 at 678. In this case the mortgagors had paid monthly instalments on the mortgage until January 1991. That was sufficient to indicate an apparent accrual of the appellant's cause of action within the limitation period. The burden of proof then passed to the defendant surveyors to show that this was not so. Thus the deputy judge was wrong to treat the burden of proof as to the date when the action accrued as being without qualification on the appellant lender.
On the second point, the valuation of the mortgagor's covenant consideration of Nykredit Mortgage Bank plc v. Edward Erdman Group (No. 2) (1998) 1 EGLR 99 indicated a degree of tension between two possible approaches: that of valuing the mortgagor's covenant as part of a bundle of rights comprised in a marketable security (valued as the market would have valued it at the time, without hindsight) and the approach of valuing it on the fundamentals, that is on the objective evidence available when the case is heard of the true state of affairs at the date of valuation. In this case the latter approach had to be adopted as there was no evidence on which to found an "open market" valuation: and the valuation required would be that of the borrower's covenant on its own, not as a small part of an entire loan book.
The third point was not raised at the original hearing. However, their Lordships dismissed it on the facts stating:
So this is not a case in which the court can be satisfied … that the evidence established beyond doubt that the facts, if fully investigated, would be found to support the new point.
However, their Lordships did draw attention to the lapse of time (five and one half months) between the date of the valuation by the surveyor and the date when the lender relied on the valuation by making the loan. They pointed out that by this time the value of the house had almost certainly fallen below £145,000. They expressed surprise that the surveyor's defence had not relied on this point to plead the defence of contributory negligence. The appeal was unanimously dismissed.
Raja v. Lloyds TSB Bank plc (2000), The Times, 16 May 2000
The claimant in this case owned properties upon which he had granted, by deed, charges in favour of the bank. The properties were repossessed and sold and the claimant alleged that the defendants had sold the properties at an undervalue. The defendants claimed that the action was statute barred; however, the claimant argued that as the claim arose from charges entered into by deed he therefore had the benefit of a 12-year limitation period by operation of S8 of the Limitation Act 1980.
His Lordship stated that an action for damages for breach of contract for services executed under seal is an action on a speciality (Aitken v. Steward Wrightson Agency (1995) 1 WLR 1281). The duty of a mortgagee on the sale of the mortgaged property is to obtain a proper price (Cuckmere Brick Co. Ltd v. Mutual Finance Ltd (1971) 1 Ch 949). The question in this case therefore was whether the duty in question arose independently of the contractual relationship.
His Lordship held that on the line of authority in China and South Sea Bank Ltd v. Tan (1990) AC 536 and Downsview Nominees Ltd v. First City Corporation (1993) AC 295 P.C and Cuckmere Brick Co. (op. cit.) the duty arose in equity and not in contract, a view which he stated was reinforced by Medforth v. Blake (1999) 3 WLR 922. The remedy available for the breach of a duty of care in equity corresponded with the remedy available for negligence at common law even though his claim could not be brought at common law. (See in re Robinson (1911) 1 Ch 503.) Thus by operation of S36 Limitation Act 1980 the court had by analogy to apply the limitation period provided for by S2 of the Act (Coulthard v. Disco-Mix Club (2000) 1 WLR 707). Thus all claims in respect of the sale of the properties were statute barred.