Platform Home Loans Ltd v. Oyston Shipways Ltd and Others

The House of Lords considered the interaction between the Law Reform (Contributory Negligence) Act 1945, section 1(1), and the limitation on a valuer's liability established in South Australia Asset Management Corporation v. York Montague Ltd. (the SAAMCO principle) and applied in Nykredit Mortgage Bank Plc v. Edward Erdman Group Ltd. (No. 2). The court held that contributory negligence by a lender must be applied to the lender's "basic loss" (the loss caused by entering into the transaction) before applying the SAAMCO limitation (the cap equal to the overvaluation), rather than applying the statutory percentage reduction to the capped recoverable damages.

Accordingly, where the basic loss is greater than the overvaluation, the court should first assess and reduce the overall loss for contributory negligence under section 1(1), and then compare the reduced basic loss with the overvaluation to determine the recoverable amount. On the facts, the House restored the trial judge's award of £489,398.81 (being 80 per cent. of the basic loss after the judge's findings), and remitted the statutory interest calculation for determination in accordance with Nykredit.

Background and parties:

• The claim was brought by Platform Home Loans Ltd (lender) against two valuers (respondents) for negligent overvaluation of property taken as security for a loan. The lender advanced £1,050,195 on a valuation of £1.5 million; the true value was found to be £1.0 million. Following default and sale the lender's basic loss was found to be approximately £611,748 after certain deductions.

Nature of the claim and relief sought:

• The lender sued in negligence seeking damages for loss occasioned by the negligent overvaluation. The respondents relied on the SAAMCO/Nykredit principle limiting a valuer's liability to loss attributable to the overvaluation. The respondents also relied on the lender's contributory negligence under section 1(1) of the Law Reform (Contributory Negligence) Act 1945, on which the trial judge found a 20% contribution.

Procedural posture:

• Judgment at first instance: Jacob J found negligent valuations, a true market value of £1m, basic loss ~£611,748 and 20% contributory negligence, and awarded damages reduced accordingly to £489,398.81. The Court of Appeal varied the award, applying the 20% reduction to the SAAMCO-limited figure (£500,000) to produce £400,000; interest calculation issues led to a remission for reconsideration in light of Nykredit. The lender appealed to the House of Lords.

Issues framed:

• 1) How should section 1(1) of the 1945 Act operate in cases where the SAAMCO principle limits a professional's liability? 2) Should contributory negligence be applied to the lender's overall/baseline loss (the "basic loss") or to the recoverable damages after applying the SAAMCO cap (the overvaluation)? 3) Consequential question as to interest calculation in light of Nykredit.

Court's reasoning and conclusions:

• The majority held the SAAMCO principle is a limit derived from the scope of the valuer's duty and is conceptually distinct from the statutory regime for contributory negligence. Section 1(1) applies where the claimant's damage is partly his own fault and partly another's; the claimant's "damage" is the basic loss sustained by entering the transaction. The court should first assess that basic loss and reduce it as just and equitable for contributory negligence. The recoverable damages are then the lesser of the contributory-negligence-adjusted basic loss and the SAAMCO limit (the overvaluation). Applying that approach on the facts, the correct award was the trial judge's figure of £489,398.81 and the matter of statutory interest was remitted for recalculation in accordance with Nykredit.

Wider context: The Lords emphasised that the SAAMCO rule is a legal principle about the scope of duty and not a factual apportionment exercise and warned against attempting undue mathematical precision when apportioning responsibility; the approach adopted is intended as a practicable rule of thumb for ordinary cases.

Appeal allowed. The House held that contributory negligence under section 1(1) of the Law Reform (Contributory Negligence) Act 1945 is to be applied to the lender's basic loss before comparing that figure with the cap established by the SAAMCO/Nykredit principle; on the facts the trial judge's assessment of damages (£489,398.81) was correct and the Court of Appeal's reduction to £400,000 was incorrect. The statutory interest computation was remitted for recalculation in accordance with Nykredit.

Trial: Jacob J (first instance) — findings of negligence, basic loss ~£611,748 and 20% contributory negligence; Court of Appeal: judgment reported at [1998] Ch. 466 (held contributory negligence reduction should be applied to the SAAMCO-limited damages, producing £400,000 and remitted interest issues); House of Lords: appeal allowed ([1999] UKHL 10).