Cheshire Building Society v Dunlop Haywards (DHL) Ltd & Ors

Summary judgment may be appropriate in a fraud or deceit claim where the evidence, including documentary and expert evidence, leaves the defendant with no realistic prospect of establishing an innocent explanation. The court must nevertheless exercise particular caution because oral evidence may undermine an apparently overwhelming case. Dishonesty may be inferred from the cumulative effect of extreme overvaluation, unexplained departures from known facts, implausible assumptions, and the absence of a substantive defence. A defendant’s failure to participate or provide assistance does not itself determine the claim, but may be material where the surrounding evidence is compelling. The heightened civil standard requires the court to be satisfied of dishonesty, but not certain beyond reasonable doubt.

Cheshire Building Society advanced £11.5 million to Goldgrade Properties Ltd, secured on commercial property in Birmingham. The advances relied on valuations prepared by Dunlop Haywards, through its director Ian McGarry, which valued the property at £16 million with the benefit of proposed leases and at £10.5 million with vacant possession.

The proposed leases were bogus, the true vacant-possession value was about £1.3–£1.5 million, and Goldgrade defaulted. Cheshire Building Society claimed damages in deceit against Dunlop Haywards. Dunlop Haywards brought a related indemnity claim in deceit against McGarry. The applications for summary judgment were heard together. McGarry did not serve a defence and did not appear on the first day of the hearing.

The central issues were whether there was a realistic prospect of establishing that McGarry had been merely negligent rather than dishonest, and whether any compelling reason required a trial.

1. Summary judgment. The applications were suitable for determination summarily. The claimant had to show that the defendant had no realistic prospect of successfully defending the deceit claim and that there was no other compelling reason for a trial. Particular caution was required because allegations of dishonesty may be affected by oral testimony. That caution did not require a trial where the evidence was effectively unchallenged, the expert evidence was substantially common ground, and no coherent defence was advanced.
2. Deceit. The elements were a clearly identifiable representation, a representation of fact, falsity, dishonesty involving conscious knowledge of falsity, an intention that the statement be relied on, and actual reliance. The heightened civil standard applied, but certainty was unnecessary.
3. Dishonesty. The cumulative evidence made an innocent explanation unrealistic. McGarry was an experienced and qualified surveyor. He valued property worth approximately £1.3–£1.5 million at £10.5 million, despite being alerted to the original purchase price. He gave inconsistent and implausible explanations for substantial rental disparities. He failed to address the unsigned leases, their unusually onerous terms, the excessive rents, and the disparity between rent and rateable value. The valuations were therefore only consistent with dishonesty, not mere negligence or incompetence.
4. The earlier summary judgment decision in the Nationwide Building Society proceedings demonstrated that summary judgment could be appropriate in a similar valuation-fraud case and that the absence of McGarry was not a bar. It also provided relevant evidence of the similarity and propensity of the conduct alleged.
5. Cheshire Building Society and, by way of indemnity, Dunlop Haywards were entitled to summary judgment in deceit, with damages to be assessed. An interim payment of £10 million was ordered.