Mortgage Agency Services Number One Ltd v Edward Symmons Llp

In a no-transaction damages claim arising from negligent property valuation, cost of funds may form part of the basic loss before any SAAMCO limitation is applied: [1997] AC 191. Whether hedging costs or break costs are recoverable cannot be decided on a strike-out or summary judgment application where the issues depend on evidence about the lender’s hedging arrangements, accounting treatment, the market for interest-rate swaps and causation. Break costs cannot be assessed in isolation from those wider matters. The novelty of a damages claim does not, by itself, defeat it.

The lender advanced money secured on two commercial properties, relying on valuations by the defendant valuer. The valuations were admitted to have been negligent, and the lender claimed the difference between its lending exposure and its recoveries, including alleged costs of funds and break costs arising from interest-rate hedging.

The High Court struck out the break-cost claims and entered summary judgment for the valuer, holding that no cost of funds was legally recoverable. The lender appealed. The central issue was whether the disputed constituents of cost of funds could properly be determined without evidence at an interlocutory stage.

Appeal allowed. The order of the Deputy Judge was set aside, and the lender was permitted to amend its particulars of claim in accordance with the drafts before the court.

1. The court recorded the parties’ agreement that it was premature to consider the limitation described as the “SAAMCO cap”: [1997] AC 191. The parties also agreed that some cost of funds could form part of the basic loss in a no-transaction case before that limitation was applied. The Court of Appeal did not determine the ultimate recoverability or amount of the claimed costs.
2. The challenge was unsuitable for strike-out or summary judgment. The valuer’s submissions were not so unarguable that they could be upheld at that stage. Resolution required evidence from the lender about how the relevant loans were hedged, how they were treated in its books, and whether the alleged costs were actually incurred.
3. The wider issues also required expert evidence about the prevalence of hedging for fixed-rate commercial-property lending, the market for interest-rate swaps and the use of that market. Break costs could not sensibly be considered separately from those issues or from the question whether an external counterparty existed.
4. The court declined to determine at the interlocutory stage whether the reasoning relied on in Swingcastle Ltd v Alastair Gibson (A Firm) was decisive. The break-cost argument might ultimately prove compelling, but it could not justify striking out the claim without considering the wider hedging evidence.
5. The novelty of claims for hedging or compound-interest costs was not, by itself, an answer to the claim. Earlier authorities showed that claims for compound interest had produced mixed outcomes: Birmingham Midshires Mortgage Services Ltd v Phillips and The Mortgage Company v Halifax (SW) Ltd.

• Court of Appeal (Civil Division): Allowed the appeal and set aside the High Court’s order.
• High Court, Chancery Division: David Donaldson QC, sitting as a Deputy Judge, struck out the break-cost claims and granted summary judgment for the valuer.