Cavendish Funding Limited v Henry Spencer & Sons Limited

In a negligent valuation claim, the claimant proves causation by showing reliance on the valuation in deciding to lend, that it would not have proceeded without the negligent advice, and that a non-negligent valuation would have prevented the loan. The valuation must be a material cause of loss. An unexplained failure to call a witness permits appropriate inferences, but not speculation about what the witness would have said. A lender selecting the higher of materially divergent valuations without checking may be contributorily negligent. Under the Law Reform (Contributory Negligence) Act 1945, damages are reduced to the extent just and equitable. The award was reduced by 25 per cent.

A secondary bank claimed damages from valuers for an admitted negligent valuation of Hatfield Manor. It had advanced £750,000 net, secured by a first mortgage, after receiving materially different valuations. The borrowers defaulted and the property realised substantially less than the advance.

Evans-Lombe J awarded £1,049,853, finding reliance and causation but rejecting contributory negligence because the defendants had not discharged the burden of proof. The defendants appealed on causation and contributory negligence. The central questions were whether the valuation caused the loss and whether the bank’s failure to investigate the discrepancy contributed to the damage.

Disposition. Lord Justice Aldous delivered the leading judgment, with Lord Justices Waller and Evans agreeing. The appeal was allowed in part. The finding on causation was upheld, but the award was reduced by 25 per cent for contributory negligence. £817,048.46 was substituted, with no order as to the costs of the appeal.

1. Causation. A claimant in a negligent valuation claim must prove reliance on the valuation in making the lending decision. This requires showing that it would not have proceeded without the negligent advice and that, if a non-negligent valuation had been supplied, it would not have made the loan. The advice must also have been a material cause of the loss. The Court upheld the inference that the bank relied on the defendants’ valuation, drawing on the loan procedure, the documents, the competing valuations and the resulting advance.
2. Evidence. The unexplained failure to call a witness who could apparently give direct evidence does not permit speculation about what that witness would have said. The court may take the omission into account when assessing existing evidence and drawing factual inferences. The approach in O’Donnell v Reichard (1975) VR 916 was applied. Documents prepared by the absent director were not evidence of the truth of their contents merely because they were prepared, but they were relevant to the transaction’s history and the information passing between the parties.
3. Contributory negligence. Under section 1 of the Law Reform (Contributory Negligence) Act 1945, the court must determine whether damage resulted partly from the claimant’s fault and, if so, make a reduction that is just and equitable having regard to the claimant’s responsibility. A prudent lender selecting the higher of materially divergent valuations should make further enquiries. The bank’s failure to do so was negligent and contributed partly to the loss. The defendants’ valuation would have remained grossly negligent even after review, making a 25 per cent reduction just and equitable.

1. Court of Appeal (Civil Division): On 24 October 1997, the appeal was allowed in part. The award was reduced by 25 per cent for contributory negligence and £817,048.46 substituted. There was no order as to appeal costs. [1997] EWCA Civ 2564
2. High Court of Justice, Chancery Division: Evans-Lombe J ordered the defendants to pay £1,049,853 on 21 March 1996, finding that the negligent valuation caused the loss and rejecting contributory negligence.