Helmsley Acceptances Ltd v Hampton

Summary judgment should not be granted where a lender’s claim arising from a negligent valuation raises genuinely arguable questions about its own loss, an implied trust of related rights of action, or the Albazero exception. A lender may arguably suffer loss when it acquires a defective secured asset, even if it later syndicates part of the loan and holds the loan and securities on trust. The exception may be available where the persons who suffered the loss have no remedy, although it cannot apply where they have an effective remedy. Disputed contractual terms, third-party duties and reliance were unsuitable for summary determination. The appeal was allowed and the matter was permitted to proceed to trial.

Helmsley Acceptances Ltd obtained a valuation before making a secured loan and subsequently syndicated most of the loan to investors. The property was later sold at a substantial shortfall after the borrower defaulted. Helmsley claimed the full loss from Lambert Smith Hampton Group Ltd, alleging breach of contract or duty in preparing the valuation.

The Mercantile Court granted summary judgment for the valuer. Helmsley appealed, having joined the syndicate members as co-claimants. The appeal concerned whether Helmsley could rely on its own acquisition of a defective asset, a trust of rights associated with the loan and securities, or the Albazero exception if the investors could not recover in their own right.

Appeal allowed. Longmore LJ held that the issues were sufficiently arguable to require a trial. Smith LJ and Briggs LJ agreed.

1. It was wrong to assume conclusively, at the summary judgment stage, that Helmsley had suffered only the net amount it ultimately retained. When Helmsley acquired the mortgage asset, it was arguably defective because the property was worth substantially less than the valuation. The subsequent assignment of parts of the loan and the declaration of trusts did not necessarily eliminate the loss initially suffered by Helmsley.
2. It was arguable that the express trust of the loan, interest and securities carried with it an implied trust of any chose in action necessary to maintain the trust fund. The trust argument was narrower than the one considered by the judge below and did not require the court to decide the broader question whether a contractual party could hold an exemption clause on trust for a non-contractual party.
3. The Albazero exception could not apply to the extent that third parties who suffered the loss had a remedy of their own. Conversely, the present application proceeded on the assumption that the investors might have no remedy. Whether the exception could operate where the valuer had effectively excluded liability to third parties was part of a developing and difficult area of law and was unsuitable for summary determination.
4. BBL v Eagle Star was distinguishable. In that case the syndicated members had become parties to the loan agreement by novation, the loss was unquestionably theirs, and they were thought likely to have their own remedy against the valuer. Those features were materially uncertain here.
5. The precise contractual terms, including the effect of the valuation report’s limitations and the competing terms of engagement, could not be resolved on summary judgment. The claims and the alternative trust and Albazero arguments were therefore allowed to proceed to trial.

• Court of Appeal (Civil Division) — [2010] EWCA Civ 356; appeal allowed and the matter permitted to proceed to trial.
• Mercantile Court — HHJ Langan granted summary judgment for the valuer, effectively limiting Helmsley’s recovery to its own loss and preventing reliance on the trust and Albazero arguments at trial.