Jersey Unreported Judgments

[2006]JRC120

royal court

(Samedi Division)

31^st August 2006 

Before     :

H. W. B. Page Esq., Q.C., Commissioner, and Jurats Bullen, and Morgan.

 

Britannia Building Society

V

Simon Philip Milborn

Advocate A. J. D. Winchester for Britannia.

Advocate F. B. Robertson for Milborn.

judgment

 

the Commissioner:

Introduction

1.        In February 1994 the Plaintiff, Britannia Building Society, instituted proceedings in the Royal Court of Jersey against Mr. Simon Milborn, a resident of the Island of Jersey since early 1990, seeking repayment of a loan made by the Society to him in August 1989 of ₤3 million, together with interest.

2.        At the time when the loan was made, Mr. Milborn, who was then still living in England, was the owner of a commercial property known as 'The Tanneries' consisting of a number of 'units' on an industrial estate at Brockhampton Lane, Havant, in Hampshire. The purpose of the loan was primarily to enable him to purchase an adjacent set of units known as 'Tebbits', which had also been part of the old tanneries site but had been re-built in the 1970's.

3.        The loan was secured by a legal charge on the two properties in favour of Britannia, the charge over The Tanneries replacing that of the Midland Bank which had, until then, been the mortgagees of that property.

4.        Mr. Milborn defended the proceedings and counter-claimed, contending that he had been induced to enter into the loan by various misrepresentations by Britannia concerning, among other things, the value of the combined properties and the income to be derived from them and had in consequence sustained very considerable financial loss.

5.        The explanation of the long drawn-out progress of the action is recounted in the Court's 'Case Review' in July 2005 and in the recent judgment of the Court given in May this year refusing Britannia's application for a further adjournment of the trial. It is sufficient for present purposes to note some of the more important factors that have contributed to the protracted nature of the proceedings. First, between May 1996 when he was declared bankrupt in the High Court in London on the petition of the Midland Bank and October 2001 when he was discharged, Mr.Milborn was the subject of bankruptcy proceedings.  Secondly, Mr. Milborn was originally granted legal aid; that was later withdrawn and for a considerable period of time he represented himself; then, in early 2006, legal aid was restored but time was required for his new advocate to acquaint himself with the case. Thirdly, the unsatisfactory particularisation of Mr. Milborn's claim of loss and damage has been a matter of which Britannia has complained for some time - with some justification; equally troublesome, on the other hand, has been the shortcomings in Britannia's discovery; both resulted in a series of time-consuming interlocutory wrangles.

6.         In April this year the Court ordered that the trial fixed to start in early June 2006, should be confined to issues of 'liability': in effect Issues (1) to (5) as set out in paragraph 10 of the Case review of July 2005 leaving over the question of damages, should it arise, to a later stage. The trial took place over a period of six days between 6^th and 13^th June. Mr. Milborn was represented by Advocate Robertson of Bailhache Labesse and Britannia by Advocate Winchester of Jenners.

Britannia's claim

7.        As originally pleaded Britannia's claim was for ₤3 million principal and interest to date. Later this was amended to give credit for the proceeds of sale of Tebbits by Britannia, as mortgages, in March 1995 and to up-date the interest claimed, so as to give a total claim as at 3^rd November 2005 of ₤5,959,476. In December 2005, Britannia even went so far as to issue a summons (subsequently withdrawn) seeking summary judgment on its claim.

8.        On the first day of the trial, however, Britannia reluctantly acknowledged, through Mr. Winchester, that, having proved in Mr. Milborn's bankruptcy in the High Court in London, its claim was extinguished, except possibly for the purpose of set-off against any award of damages that Mr. Milborn might succeed in obtaining on his counter-claim - a point that remains for future argument. That left Mr. Milborn's counter-claim as the only live issue for trial.

Mr. Milborn's counter-claim

9.        By 1989, when the story begins, Mr. Milborn, starting from a modest background and having left school with no qualifications of any kind, had built up a considerable investment portfolio of small industrial properties and was a man of some considerable wealth.  He had started out as a one-man-band sub-contract floor-layer. In due course he had invested his savings first in small residential properties and later, from about 1982, in a series of industrial properties. His approach was very much a 'hands-on' one, buying smallish run-down properties in which bigger investors had little interest, doing much of the physical cleaning, stripping and re-furbishment work himself and only using contractors where specialist skills were required. He would then let the property and look for another one to work on.  It was not his policy to sell, but to build up a portfolio of income-producing investments with capital-appreciation potential. One such property, purchased by him in late 1986 or early 1987, was the group of industrial units known as The Tanneries (other than Units Nos.14-18), which at that time were partially fire-damaged and generally in poor repair.

10.      Funding for these investments was provided in part by loan facilities from the Midland Bank.

11.      At that time, Mr. Milborn was living near Southampton and most of his investments were in or around that area. Hall Pain & Foster ("HPF") was a local firm of estate agents, surveyors and valuers with offices in the Southampton, Portsmouth and Fareham area, whose partners included Mr. Ian Hillman FRICS, FSVA. Over a period of some years Mr. Milborn and Mr. Hillman had come to know one another well. Mr. Milborn regularly made inquiry of Mr. Hillman about possible investment opportunities and sought his advice from time on this and that. HPF also handled the letting of Mr. Milborn' properties.

12.      In 1988 HPF was one of a number of estate agents that were acquired by Britannia with a view to giving the Society an entrée into fresh lines of business. 

13.      On 22^nd May 1989 Walker Son & Packman, another firm of surveyors, wrote to Mr. J. Diaper of HPF saying that they had been instructed by clients (subsequently disclosed to be The Equitable Life Assurance Society) to offer for sale the freehold interest in five units on the Brockhampton Lane Estate at an asking-price in excess of ₤1.1 million. These, it transpired, were Units Nos. 14-18, known as 'Tebbits'.

14.      Mr. Diaper mentioned this matter to Mr. Hillman and he in turn drew the attention of Mr. Milborn to the offer, recognising that it might well be of interest to him as the units for sale were adjacent to those already owned by Mr. Milborn. Discussions ensued, a valuation by HPF was made, and - to cut the story short at this stage - Mr. Milborn ended up buying Tebbits at the end of August 1989 for ₤1,362,000 with the aid of a variable-rate loan of ₤3 million from Britannia. The greater part of the balance of the loan was used to redeem Mr. Milborn's earlier mortgage of The Tanneries to the Midland Bank. Britannia's security for the loan took the form of first legal charges over both The Tanneries and Tebbits.

15.      By mid 1990, however, Mr. Milborn was failing to keep up with interest payments on his loan from Britannia; by March 1992 Britannia had appointed receivers over the two properties; in February 1994 it launched the present proceedings in the Royal Court (Mr. Milborn having moved to Jersey in early 1990) and in March 1995 exercised its powers of sale under its legal charges, realising ₤1,470,000 for The Tanneries and Tebbits.  In May 1996 the Midland Bank, who had remained the mortgagees in respect of other properties belonging to Mr. Milborn successfully petitioned in the High Court in London for his bankruptcy, a state of affairs from which Mr. Milborn was not discharged until October 2001. We mention these events simply so as to give a brief overview of the wider picture.  How much of this subsequent history will be relevant to issues of loss and damage remains to be seen.

16.      Mr. Milborn's case was that in the period leading up to his purchase of Tebbits and taking out the loan from Britannia, employees of HPF, principally Mr. Hillman and Mr. Diaper, made certain representations that significantly influenced his decision to go ahead with the transaction but which were, in fact, ill-founded and/or gave certain warranties which were not, in the event, fulfilled. In making such statements, Mr. Milborn contended, HPF acted as the agents of Britannia.

17.      In his original pleading Mr. Milborn alleged five such points, but at trial it became clear that the heart of his case rested on three main complaints: First that he was told that the two properties, as at 5^th July 1989, would have an estimated combined value, on the open market, of ₤4 million, the explanation for this being in part that there would be significant  "marriage value" in the convergence of ownership - in other words that the combined value of the two sites would considerably exceed the aggregate of the individual values. Secondly, that with the benefit of a certain amount of re-development work and sales of the freehold of the units to individual tenants the combined sites would have an estimated market value of ₤7 million. And thirdly, that it would be possible to increase the rental-income from the combined sites to ₤500,000 within six months of the acquisition of Tebbits, which would be more than enough to service the loan from Britannia.

18.      Britannia, for its part, admitted that HPF had given a written opinion dated 5^th July 1989 valuing the combined site at ₤4 million, but did not admit that there was anything wrong with this. In any event it denied that HPF had been acting as agents for Britannia and contended that that report had been made for the benefit of Britannia, pursuant to Mr. Milborn's mortgage application, and not for Mr. Milborn's benefit. It also averred that Mr. Milborn was well aware that rentals from the two sites would not be sufficient to cover the mortgage payments due to Britannia and planned to meet the short-fall from his own resources.  For the rest they generally made no concessions and joined issue with Mr. Milborn.

The documentary evidence

19.      The written record of events was limited, the more significant documents, subsequent to the letter form Walkman Son & Packman, being as follows.

20.      On 1^st June 1989 Mr. Hillman of HPF wrote to Mr. C.J.Bonsall, the Deputy General Manager of Britannia based at its head office in Leek, Staffordshire, referring to "our recent correspondence and telephone conversations" concerning Mr. Milborn and a possible loan by Britannia in connection with a property called Winnall Close, Winchester which had been acquired by Mr. Milborn, via HPF, towards the end of the previous year and which he was hoping to develop. In the event, this loan did not proceed. But the interest of the letter lies in the following: first, in its reference to Mr. Milborn having been informed that Britannia would in principle be willing to lend up to 85% of site value and 80% of completed development value; secondly, in Mr. Hillman's request that Mr. Bonsall send him "a supply of commercial application forms as soon as possible", a matter to which we return later; and thirdly in the content of the penultimate paragraph of the letter which reads as follows:

" I am able to supply a fair amount of background information with regard to Mr. Milborn who I have acted for for over 10 years. There would be other opportunities to provide commercial mortgage finance for Mr. Milborn; particularly in respect of a fairly substantial country estate on the Meon Valley, and I have suggested to him that, once again, Britannia Building Society may be prepared to lend".

21.      On 6^th June 1989 Mr. Bonsall replied making it clear that while Britannia might be prepared to lend up to 85% of site value and development costs it would not go to 80% of completed development value and reminding Mr. Hillman that "the Society's basic advance is 70/75%".

22.      On 13^th June 1989 Mr. Hillman wrote to Walker Son & Packman with an offer on behalf of Mr. Milborn ("S.M.Investments") of ₤1,362,000 for Tebbits, subject to contract.

23.      On 26^th June 1989 Mr. Hillman wrote to Mr. Milborn enclosing copies of his correspondence with Walker Son & Packman and continuing:

"We are now preparing a valuation of The Tanneries/Brockhampton Lane, and I will submit this to Britannia with a formal mortgage application later this week.  In that connection I have been waiting for some Commercial Mortgage Application forms to arrive from Britannia, but these are not yet here, and in the circumstances I enclose an existing mortgage application form which perhaps you would be kind enough to complete as best you can, and return to me as a matter of urgency.  Whilst writing, and for the record, may I confirm that our fee in this instance will be based on 1% of the purchase price to include the necessary valuations in connection with the mortgage application".

24.      The accompanying application form was completed in manuscript, signed by Mr. Milborn and dated 26^th June 1989.  The manuscript entries appear to be in at least two and perhaps three different hands and Mr. Milborn was adamant that, apart from his signature, none of the writing was his. We doubt that his recollection is entirely right on this point, but nothing much turns on it. Of greater interest was the fact that that the form was clearly designed for a mortgage of residential, not commercial, property - which is why Mr. Hillman asked Mr. Milborn to complete it "as best you can".

25.      The next document is the formal valuation by HPF dated 5^th July 1989, unsigned but bearing the reference 'JPD' - Mr. Diaper's initials. It was headed "Valuation in respect of Units 14/18 Brockhampton Lane, and The Tanneries Industrial Estate, Brockhampton Lane, Havant in the County of Hampshire made for the benefit of Britannia Building Society and in connection with a proposed mortgage advance". The report concluded "we are of the opinion that the present day open market value of the freehold interest in the Tanneries and the adjacent units 14/18 Brockhampton Lane, subject to the various occupational leases in the region of ₤4,000,000 (FOUR MILLION POUNDS)". It added "We should mention that this Report is strictly confidential to the Britannia Building Society, and their specific applicant Mr. S.P. Milborn of S.M.Investments..."

26.      The completed application form together with HPF's valuation was forwarded to Mr. Bonsall by Mr. Hillman under cover of a letter dated 7^th July 1989. Referring to the valuation, Mr. Hillman noted "We have reflected in this report "marriage" value and future development potential". Also enclosed was a schedule of Mr. Milborn's assets, the rents receivable from his existing property investments, and a Midland Bank statement showing a deposit in Mr. Milborn's name in excess of ₤1 million. "I am advised", wrote Mr. Hillman, "that any shortfall between mortgage repayments and rents receivable in respect of the above will be met by Mr. Milborn from other investment income."  He also wrote "You [that is, Mr. Bonsall] will recall that we had agreed to grant this loan originally at an interest rate of 14.75%".

27.      A formal "OFFER OF ADVANCE" by Britannia, addressed to Mr. Milborn and dated 17^th July 1989, recorded the basic terms of the loan. Bizarrely, it showed an amount of ₤4,000,000 in a box entitled "Purchase price".

28.      The following day, 18^th July 1989, Mr. Simon Goldstraw, "Operations Manager, Commercial Lending" in Britannia's head office sent a fax to Blake Lapthorn, the solicitors acting for both Mr. Milborn and Britannia with a four-page schedule summarising the terms of each of the leases on the units in The Tanneries and Tebbits. Over the course of the ensuing week an exchange of correspondence took place between Blake Lapthorn and Mr. Goldstraw concerning certain points arising out of this schedule.

29.      On 31^st July 1989, HPF issued a fee note addressed to Mr. Milborn for ₤13,620 plus VAT for introducing Tebbits "and advising generally; advising with regard to value" of Tebbits and submitting an offer; arranging a commercial mortgage with Britannia; and "preparing a formal valuation of the entire property in the sum of ₤4M".

30.      On 2^nd August 1989, Mr. Hillman, in a letter to Mr. Milborn concerning three properties, Winnall Close (see paragraph 20 above), Brokenford Lane (another of Mr. Milborn's properties), and The Tanneries, wrote, in relation to the last:

"On the assumption that there will be 90,000 sq. ft. of accommodation available for sale to owner occupiers with vacant possession [by inserting a mezzanine floor in one of the units and thereby adding an additional 12,000 or so square feet to the existing 78,000], I am of the opinion that the total value would be in the region of ₤7.2M (Seven Million Two Hundred Thousand Pounds).  You will appreciate that the above figures reflect my opinion of projected completed development values rather than open market value as at today's date."

31.      Completion of the purchase of Tebbits, the granting of a legal charge in favour of Britannia over the two properties and the draw-down of the loan from Britannia took place in the last week of August 1989.

The witnesses

32.      Only three witnesses of fact gave evidence: Mr. Milborn himself, and - on behalf of Britannia - Mr. Simon Goldstraw and Mr. Diaper (in the latter's case by video-link from the United Kingdom).  Mr.Hillman and Mr. Bonsall had supplied witness statements sometime prior to the trial; but, in the event, the former was said to be unwilling to testify and the latter was said to be in insufficiently good health to do so.  

33.      So far as Mr. Milborn is concerned, he gave his evidence calmly and quietly, while conveying at the same time a considerable sense of grievance.  He was not, we thought, necessarily entirely reliable: in some respects either his recollection must have been at fault or he was prone to exaggeration.  But on the whole we thought him to be an honest witness.  Mr. Goldstraw, while not being wholly forthcoming in the early stages of his evidence, was in our view also largely truthful - and in the end was candidly revealing of the unhappy state of affairs within Britannia concerning this transaction.  On the application of Britannia, Mr. Diaper was permitted by the Court - not without reservation - to give evidence by video-link from Southampton. Mr. Diaper had made it clear that he was unwilling to travel to Jersey to give evidence in person, but was prepared to do so by video-link. His reasons for taking this stand appeared to us to be less than compelling; but as he was the author of the valuation report at the heart of the case, it seemed, on balance, right that he should at least be given the opportunity to defend it.  As it was, his evidence was of little value and did nothing to support Britannia's case.

34.      The only other witness was Mr.C.R.Daniells MRICS who gave evidence as an independent expert on behalf of Mr. Milborn. In the event, contrary to all expectation and the provisions of the pre-trial directions agreed by the parties as recently as April this year, Britannia offered no expert evidence to defend HPF's 5th July 1989 valuation: as the case unfolded it became clear that this was hardly surprising.

The oral evidence

35.      The essence of Mr. Milborn's evidence was as follows. In or about late May 1989 Mr. Hillman had approached him with the suggestion that he might like to bid for Tebbits, as it seemed a logical investment for him, as the owner of The Tanneries, to make. This was unusual: Mr. Hillman had never previously brought a specific investment opportunity to his attention; it had always been a question of Mr. Milborn asking Mr. Hillman whether he knew of anything.  More importantly, said Mr. Milborn, the proposition was put to him very much as a package in that HPF was now part of Britannia and had access to the necessary finance: the property, Tebbits, "came with a mortgage".

36.      On the basis of the rental income of Tebbits, which was then running at some ₤88,000 per annum, and his own rule-of-thumb multiplier of ten, Mr. Milborn guessed that he might have to pay ₤880,000 for it; but Mr. Hillman said this was "prime" property - a term with which Mr. Milborn was, he said, unfamiliar - and that it would command a price of nearer ₤1.5 million. Mr. Milborn was only able to carry out a limited external inspection of the five units comprising Tebbits. But he accepted that, as far as he was concerned, it represented a prospective investment property of a considerably higher quality than The Tanneries or anything he had previously been involved with. For a start it was a more modern building, whereas The Tanneries was a series of seven considerably older buildings of inferior construction.

37.      At some stage or other it appears to have been agreed that if Britannia was going to be providing the funds for the purchase of Tebbits, then the logical thing was for it also to take over the then-current Midland Bank mortgage - then standing at some ₤1.2 million on the Tanneries and a legal charge taken, by way of security, over the two sites. Having done his sums, Mr. Milborn said that he would need to borrow ₤3,000,000 for the transaction to be viable.

38.      In the event, the final purchase price paid by Mr. Milborn for Tebbits was less than ₤1.5million, being ₤1,362,000 (Quite how this price was arrived at was never entirely clear, but is of no significance).

39.      A copy of the written HPF valuation report of 5^th July 1989 was not, it seems, supplied to Mr. Milborn at the time, or indeed until sometime after the litigation had commenced. (A letter dated 1^st October 1992 to Britannia from Michael Voisin & Co., who were acting for Mr. Milborn at that time, requesting a copy, was met with the response that the Society "is not of a mind to provide you with a copy of this report").  But Mr. Milborn's evidence was that he was told orally by Mr. Hillman during their discussions leading up to the purchase that the combined properties were estimated by HPF to have an open market value of some ₤4million, this figure being partly attributable to an element of "marriage value".  It is improbable that the transaction would have proceeded without this figure having been conveyed to Mr. Milborn, and there is no reason to doubt his evidence on this point.

40.      The potential capital value of the two sites arose again on 2^nd August 1989.  According to Mr. Milborn, this was the day on which contracts were due to be exchanged on the purchase of Tebbits, and in the course of a meeting with his solicitor, Mr. Richard Hewitt of Blake Lapthorn, he voiced his concern that he should have some form of re-assurance that, if things did not go according to plan and rental-income proved to be insufficient to service the proposed loan, then the whole estate could be sold and might fetch as much as ₤7.2million - a figure that HPF had, he said, previously mentioned. The upshot of this was that Mr. Milborn spoke again to Mr. Hillman (and, if Mr. Milborn is correct in his recollection, also to Mr. Goldstraw) and Mr. Hillman wrote his letter of 2^nd August 1989 as set out at paragraph 30 above.

41.      The difficulty with seeking to rely on this letter as constituting an additional, distinct representation or warranty, as Mr. Milborn does, is the vagueness of its terms as regards the expenditure or the time-scale that would be required to achieve this sort of enhanced value.  But what it does do is to show Mr. Hillman offering substantial comfort to Mr. Milborn that the deal that he was embarking on was a potentially highly profitable one and, by implication, affirming HPF's earlier opinion of the estimated current value of the combined sites as some ₤4 million.

Mr. Daniells's evidence concerning the ₤4million valuation

42.      Mr. Daniells was a former employee of HPF. He had joined them as a graduate surveyor in 1986, been appointed to the board of management following HPF's acquisition by Britannia in 1988, and qualified as a Chartered Surveyor in 1989. In 1992, however, he had left them in order to set up the separate firm of Daniells Harrison, Chartered Surveyors. No point of reservation arising out of this former connection was taken by Britannia.

43.      In an earlier report for Mr. Milborn dated 18^th February 1994, Mr. Daniels had expressed his opinion that the combined open market value of The Tanneries and Tebbits as at 17^th July 1989 (the date of Britannia's formal loan offer) was in the region of ₤3,125,000.  In his more recent report in January this year and in his oral evidence before us he confirmed that this remained his view. (It was not suggested by either side that there was any difference in value between 5^th July 1989, the date of HPF's valuation report, and 17^th July 1989, the date of Britannia's formal offer.)

44.      In addressing this question, Mr. Daniells also examined a total of five valuation reports by HPF between August 1988 and October 1991 as follows:

(i) A report prepared for the Midland Bank in August 1988 concerning Mr. Milborn's portfolio of properties in which The Tanneries was valued at ₤1,800,000.

(ii) A similar report dated 24^th January 1989 in which The Tanneries was valued at ₤3,750,000.

(iii) The 5^th July 1989 report immediately in issue, which valued the combined Tanneries and Tebbits sites at ₤4,000,000.

(iv) A report dated 3^rd April 1991 which valued each of the two sites at ₤1,650,000, making a total of ₤3,300,000 (prepared for Britannia at a time when payments due on Mr. Milborn's mortgage account with Britannia were in arrears, in order to assist Britannia in deciding what course to take).

(v) A report dated 16^th October 1991 which valued The Tanneries at ₤1,767,000 and Tebbits at ₤1,192,000, giving a value of the combined sites of ₤2,959,000.

45.      Of these, the second, was based on certain special assumptions rather than an open-market valuation, and was accordingly ruled out by Mr.Daniells as offering any useful comparison.  For the rest, he took as his starting point the fact that in the July 1989 the fair value to be attached to Tebbits could reasonably taken as ₤1,362,000, that being the price actually paid by Mr. Milborn in what was (so far as one could tell) open market conditions. On the basis of HPF's valuation of the ₤4,000,000 for the combined sites, that left a figure of ₤2,638,000 as attributable to The Tanneries. The open-market values ascribed by HPF to The Tanneries appear therefore to have been, successively, as follows:

The Tanneries                                         Combined sites

August 1988                   £1,800,000                                                        -

July 1989                        £2,638,000                                          £4,000,000

April 1991                        £1,650,000                                          £3,300,000

October 1991                  £1,767,000                                           £2,959,000

46.      The burden of Mr. Daniell's evidence on this sequence of valuations by HPF was that, while he did not disagree with the values contained in the August 1988 and October 1991 reports, he was unable to find any adequate explanation for the markedly higher July 1989 values and the very considerable decline between then and 1991. He conceded that to some extent these might be explained by different situations obtaining as regards tenants and rentals. But that could not, he insisted, be the whole explanation. Nor could general market trends, particularly when one looked at HPF's own Commercial Review and Investment Bulletins covering this period (copies of which Mr. Daniells had retained from his time with HPF).  From a review of these Bulletins Mr. Daniells concluded "it can be concluded that it was the general view of those at Hall Pain & Foster that the commercial market remained strong through 1989 and into 1991 [corrected in his oral evidence to 1990], but that the market lacked confidence into 1991".

47.      It was, he pointed out, also somewhat striking that the October 1991 report made no reference to the July 1989 valuation.  This might, he suggested, have been because Mr. Reddy, the author of the October 1991 report worked from HPF's Portsmouth office, while Mr. Hillman and Mr. Diaper (the latter of whom was the author - or at least the nominal author - of the July 1989 valuation) were based in Southampton.  On the other hand, the April 1991, which was also silent on the subject of the July 1989 valuation, bore Mr. Diaper's initials.

48.      Had he been aware of it (which it seems he may not have been), Mr. Daniells would probably also have noted that Mr. Diaper was the author of a letter addressed to Mr. Goldstraw dated 4^th September 1990 enclosing a revised tenancy schedule "showing the rental increases since our report to you of 5^th July 1989" and noting that other rent reviews were due in 1991 and 1992. "Taking the above into account", he wrote, "we are of the opinion that the present day open market value is not significantly different from that expressed on our original report".  This was only six months prior to his April 1991 report.

49.      Mr. Daniells concluded as follows:

"Given this apparent consensus of opinion [as regards successive valuations other than that of July 1989, leaving aside the January 1989 report for the reasons given] and market commentary by Hall Pain & Foster Limited during the period 1989 to 1991, I cannot determine how [the July 1989 valuation] can sensibly be supported.  It does not sit within the rational parameters of any commercial valuation at that time, evidenced by subsequent valuations prepared by Hall Pain & Foster Limited. In my own opinion if the valuation was correct at ₤4,000,000 in July 1989, then, on the basis of the above market commentary, one would not expect there to be significant variation in the subsequent Hall Pain & Foster Valuations" (report paragraph 6.04).

50.      In his oral evidence Mr. Daniels expressed himself even more forcefully and was unshaken in cross-examination. He was in no doubt, he said, that the July 1989 valuation was not a fair and reasonable one; no reasonable valuer could have concluded that the value of the Tanneries had increased by well over 40% in the period between August 1988 and July 1989; the idea that the purchase of Tebbits would result in a significant element of "marriage value" attaching to ownership of both sites was simply incorrect.  He categorically rejected Mr. Winchester's suggestion that valuation for the purposes of a mortgage application involves a different approach to that for any other purpose.

51.      The fact of the matter is that Mr. Winchester had virtually no material on which he could properly challenge Mr. Daniell's conclusions.  Mr. Diaper's evidence had done nothing to explain or justify his July 1989 valuation.  No expert evidence to gainsay Mr. Daniells was going to be called on behalf of Britannia. And Britannia had, it became apparent, long-since received entirely separate professional advice that HPF's July 1989 valuation was "grossly optimistic" (to use the words of Britannia's Agenda Note for a Management Board Meeting on 29^th June 1992 at a time when Britannia were trying to decide whether to sue their former subsidiary HPF).

52.      In the final paragraph of his written report, Mr. Daniells had written:

"I anticipate that you may wish to investigate further how the figure of ₤4,000,000.....was arrived at and whether there was a link between this figure and Britannia Building Society's lending criteria of 75%, which provided you with your borrowing requirements to enable the acquisition and loan to proceed."

53.      The observation was prescient. The further the case proceeded the stronger became the inference that the figure of ₤4 million was not the product of any conventional, reasoned valuation-exercise at all but merely the grossed-up figure resulting from the amount of the loan required by Mr. Milborn according to his reckoning and the upper-end of Britannia's standard lending range of 70-75% of a property's value.  There can, we think, be little doubt about this, given Mr. Daniells' inability to discern any sound, professional basis for the figure of ₤4 million, Mr. Diaper's inability to explain how he arrived at the figure, the obvious arithmetical correlation between the two figures, and the further circumstances to which we now turn.

54.      One of the dominant themes of Mr. Milborn's evidence was that he was repeatedly encouraged by those to whom he spoke at HPF (and those at Britannia, if he is right in his recollection) to trust them, to leave everything to them to arrange, to rest assured that the proposed transaction was a good one for him as a route into a superior level of property investment.  According to him, in addition to speaking to Mr. Hillman and Mr. Diaper, he had a number conversations with Mr. Goldstraw, whom he understood to be Britannia's 'money-man' and that, among other things, Mr.Goldstraw assured him that this was a good deal for him and that Britannia was keen to replace Midland Bank as his principal lender.

55.      Mr. Goldstraw, at the time, was Operations Manager in the Commercial Lending Department, reporting to Mr. James Washington, the Controller of Commercial Lending and Mr. Bonsall, the Deputy General Manager of that department.  By the time of the trial he was a fairly senior officer within Britannia having risen to Managing Director of Britannia's Commercial Lending. He was the deponent of a number of affidavits sworn on behalf of Britannia in connection with the proceedings and was evidently one of the principal persons responsible for the management of the litigation on behalf of Britannia.  Mr.Goldstraw denied having ever had any conversation of any kind with Mr. Milborn prior to the deal being concluded. But whether it was Mr. Goldstraw with whom he spoke or someone else with whom he is confusing Mr. Goldstraw, we think it more than probable that some dialogue on the lines claimed by Mr. Milborn as outlined above did take place (as opposed to anything specific about the potential for increasing rental income - a matter to which we come shortly).

56.      By the time Mr. Goldstraw's evidence had concluded, and taking the evidence in the case as a whole, a picture of some significance had emerged as to what was going on within Britannia at this time.  In short, it appeared clear to us that in 1988 Britannia had set out to expand its potential customer base by the acquisition of a number of estate agencies such as HPF. In part at least, it is likely that the move was driven by competition with the high-street banks.  Britannia was keen to move into the field of commercial property lending and HPF was seen as a useful route for the introduction of prospective new borrowers, such introductions being encouraged almost certainly by some form of financial incentive (Mr. Goldstraw, though vague as to the detail, accepted that this would have been the case). Mr. Milborn was mentioned by Mr. Hillman to Britannia as a potential client - a man, by then of considerable wealth and an active commercial property investor: hence the references in Mr. Hillman's letter of 1^st June 1989 to Mr. Bonsall (paragraph 20 above) to "our recent correspondence and telephone conversations" concerning Mr. Milborn, and Mr. Hillman's reference to background information about and additional opportunities to provide him with commercial mortgage finance over and beyond the transaction immediately under discussion. Plainly, Mr. Milborn was seen by Britannia as a potentially desirable client; all the more so if Britannia might become his bankers of choice in place of Midland Bank.

57.      But Britannia's loan to Mr. Milborn was, in fact, one of its very first ventures into this new field and Britannia was ill-prepared for it. So much so that it did not even have appropriate mortgage application forms ready to give its agents: hence Mr. Hillman's call for such forms in his letter of 1^st June 1989 to Mr. Bonsall and his request in his letter to Mr. Milborn almost three weeks later, on 26^th June 1989, to complete a residential-property form as best he could. This lack of preparedness, however, obviously went well beyond a mere absence of appropriate forms.  Britannia was simply not ready to handle this type of transaction. Mr. Goldstraw candidly acknowledged that those concerned were out of their depth.  The venture proved to be a bad one for Britannia (as well as Mr. Milborn - on his case) and within a short time it had withdrawn from the commercial-lending market and did not re-enter it for several years. A review of HPF's 5^th July 1989 valuation and subsequent valuations by another firm of valuers, Lambert Smith Hampton, evidently concluded - as indicated earlier - that the July 1989 figure was "grossly optimistic" (the report itself was not disclosed), and at one stage Britannia debated whether to sue HPF.

58.      All this lends credence to Mr. Milborn's evidence of Britannia's eagerness to lend him the necessary funds to enable the transaction to proceed and also tends to contribute to the overwhelming inference that the amount of ₤4 million in HPF's 5^th July 1989 valuation was merely the figure that it was necessary to state as a matter of formality in order to justify the loan of ₤3 million that Mr. Milborn calculated that he needed if he was going to buy Tebbits.

59.      All in all, it is as plain as it can be that the valuation of the combined sites at ₤4 million or thereabouts as conveyed to Mr. Milborn was not one that could or can be supported on any rational grounds. In as much as it impliedly endorsed the earlier valuation, the same applies to the figure of ₤7.2 million in HPF's letter of 2^nd August 1989.

60.      It was Mr. Milborn's evidence that he had relied on HPF's advice that the transaction was a good one for him, including their stated opinion that the combined sites would have a value, as at early July 1989, of ₤4 million; and that, had he known that that valuation was not a proper one and that the true value was only of the order of ₤3,125,000 (Mr. Daniells' assessment), he would never have gone ahead with the purchase of Tebbits and the loan from Britannia. On a valuation of ₤4 million, a loan of ₤3 million represented, for him, a high level of 'gearing': his normal practice, he said, was to borrow around 50% of a property's value. To that extent the project was already more adventurous than he was accustomed to and it may well be that this explains how Mr. Hillman's letter of 2^nd August 1989 came to be written (paragraph 40 above).

61.      There is no reason to reject any of this and we have no difficulty in accepting it as plausible. It is true that Mr. Milborn had, by that time, acquired considerable experience as a property developer. But that experience was very much limited to the type of properties previously described, and Tebbits represented a significant step-up, for the first time, to the sort of commercial property that substantial institutional investors (such as The Equitable Life) would buy: "the sort of thing of which I could only dream", as he put it. He had come to respect and rely on HPF and Mr. Hillman in particular; he was guided by them as to the price he would be likely to have to pay to acquire Tebbits, and it is natural that he should also have accepted their advice as to the value of the combined sites. On the other side of the coin, HPF and Britannia plainly set out to woo Mr. Milborn and were successful in doing so. As it was, the figure of ₤4 million represented an over-valuation of 28%; and borrowing ₤3 million against property worth ₤3,125,000 would have represented a 'gearing' of 96%.

The projected rental-income

62.       Where we have difficulty in accepting Mr. Milborn's evidence, however, is in relation to his claim that he was assured by Mr. Hillman that the combined income from the two sites would be in excess of ₤500,000 within six months of completion (or "within a very short period of time" as, the somewhat attenuated claim was put in Mr. Robertson's skeleton argument on behalf of Mr. Milborn).  What he had been told by Mr. Hillman, said Mr. Milborn, was that the way in which this increase would be achieved would by HPF confronting the tenants of the various units with schedules of dilapidations and that this would act as an incentive to them to negotiate new leases, more-advantageous to Mr. Milborn, rather than carry out the repairs represented by those schedules. The problem with this, as we saw it, was in summary as follows:-

63.      The improbability of anyone in Mr. Hillman's position making such a rash promise - involving such a substantial rental-income increase in such a short period of time - when the leases were only due to expire at various dates stretching from March 1990 to December 1992 and there would be no way of enforcing any such schedule of dilapidations prior to the end of a lease.

64.      Mr. Daniels' evident inability to support this part of Mr. Milborn's case (see his letter to Bailhache Labesse dated 25^th May 2006).

65.      The absence of any immediately contemporaneous record of any such representation in July/August 1989 (unlike the ₤4 million valuation).

66.      The absence of any significant reference to the matter in  correspondence between Mr. Milborn and HPF during the six months following completion, when the process of rent re-negotiation was supposed to be being put into effect (there was, it is true, evidence of certain schedules of dilapidations prepared by HPF in November 1989, but little or nothing to show whether these were actually served on tenants and, if so with what results, or what dialogue there was between HPF and Mr. Milborn on the subject in this period).

67.      The absence of any mention of any such promise or assurance by Mr. Milborn in any of his subsequent correspondence with Britannia at a time when he was under pressure to resolve his problems with them and it would have been an obvious point to refer back to. We have in mind in particular Mr. Milborn's letters to Britannia in December 1991.  Mr. Milborn sought to explain this by saying that there were other difficulties in his life that he was having to cope with at that time and that it was understandable that he might not have mentioned this particular point, but we found this implausible: if any such clear assurance had been given back in July 1989, it would have been patently obvious by March 1990 that it was not going to be fulfilled and the most natural of points for Mr. Milborn to have taken in answer to pressure from Britannia.  By contrast, it was not until much later that Mr. Milborn received professional advice querying the original HPF valuation and unsurprising that no reference was made to this before then.

68.      That some sort of discussion would have taken place about the potential for increasing rental income from the properties is not difficult to accept: this would have been a natural and important subject for discussion. And it may well be that this included some suggestion from HPF as to the role that tenants' liabilities for dilapidations might play as a lever in negotiations in due course. But we are quite unable to accept that any representation was made in the specific terms alleged as to the extent of any rental increase (to ₤500,000 per annum) that would be achieved within six months from completion.

69.      This conclusion renders it unnecessary, for present purposes, for us to deal with a number of side-issues which occupied a certain amount of time: whether part of the balance of the Britannia loan remaining after providing for the purchase of Tebbits and paying off the Midland Bank pre-existing mortgage on The Tanneries was or was not intended to act as a 'cushion' for any shortfall of rent as against loan-payments in the first six months; whether Mr. Milborn did or did not tell HPF that he would fund any such shortfall from his own income; and whether Britannia, via Mr. Goldstraw or anyone else did or did not tell Mr. Milborn, that Britannia would make available a 'soft' loan should he get into difficulties with repayments.           

HPF as Britannia's agents; and the purpose of HPF's valuation

70.      Fundamental to Britannia's case were the contentions (i) that any statement made by HPF, including their 5^th July 1989 valuation report, was made on their own account and not as the agents of Britannia, and (ii) that that valuation was made by HPF exclusively for the benefit of Britannia and that Mr. Milborn was not and is not entitled to rely on that report. Neither is tenable.

71.      It is as plain as it can be that in the particular circumstances of this case HPF were held out to be and were in fact acting as Britannia's agents. The mere fact that following their acquisition by Britannia they were a separate, corporate entity - a subsidiary of Britannia - does not preclude the relationship being properly categorised as one of agency. As earlier indicated, the whole purpose of HPF's acquisition was that they should be a vehicle for the introduction of new business to Britannia and that is exactly what they did, on Britannia's behalf, in the case of Mr. Milborn: see in particular the earlier references to discussions between Mr. Hillman and Mr. Bonsall as to the prospect of further opportunities of lending to Mr. Milborn .  And it hardly becomes Britannia to claim otherwise when it permitted its subsidiary to describe itself on its letterhead as "Hall Pain & Foster - Britannia Estate Agents" and at the foot of its business documentation as "Appointed Representative of Britannia Building Society".

72.      The suggestion that the 5^th July 1989 report was prepared exclusively for the benefit of Britannia and cannot avail Mr. Milborn is equally unrealistic. In advancing this argument Mr. Winchester relied heavily on the standard provisions of the mortgage application form signed by Mr. Milborn contained in the section headed 'Notes' reading as follows:

" (1) The Valuer will be instructed by the Society to prepare a report to enable the Society to decide whether or not to make an advance and if so on what terms.  The fee due to the Valuer for the report will be paid by you and a copy of the report will be supplied where a property is being purchased.  (2) You should note that the Valuer's report is not a structural survey and there may be defects which would only be revealed by a more detailed inspection and building survey. It cannot therefore be assumed that the repairs or defects shown in the report (if any) are the only defects which may be present in the property.  No responsibility is accepted by the Society for either the value or condition of the property by reason of the report. Should you require a comprehensive survey [you] should make arrangements to have an independent inspection undertaken by a qualifed Surveyor."

73.               Reliance was also placed on similar standard wording in the Offer of Advance subsequently issued by Britannia, including passages in clause 10 reading

"It is important that you should not rely in any way on [the valuation report] in deciding whether to proceed with the purchase.  The Society strongly recommends that you obtain your own more detailed report on the condition and value of the property based on a fuller inspection to enable you to decide whether the property is suitable for your purposes both as an investment and as a residence. Neither the Society nor the valuer accept any responsibility to you or any other person for the contents or adequacy of the report to the Society even if the valuer has been at fault in his inspection or his report. The valuer does not warrant that the price is reasonable."

74.      The reason that none of this avails Britannia is that these provisions contemplated an idealised situation far removed from the reality of the present case: a situation in which borrower, lender and "valuer" are all neatly compartmentalised, in which the valuer is contractually bound solely to the lender, and the borrower must find his own valuer if he wants one. But here, HPF had been Mr. Milborn's property advisers long before Britannia came on the scene. Their function was no doubt in part to advise Britannia - but by no means exclusively. It must have been obvious to Britannia that Mr. Milborn would be likely to rely on the advice of HPF, and of Mr. Hillman in particular - Mr. Milborn being someone "who I have acted for for over 10 years", to quote from Mr. Hillman's letter to Mr. Bonsall of 1^st June 1989. Indeed, given the purpose of Britannia's acquisition of HPF, it can only have hoped that HPF would steer its clients in Britannia's direction with appropriately encouraging advice. And that is exactly what happened.

75.      The written (unsigned) valuation report as such is in any event not what matters, given that it appears not to have been copied to Mr. Milborn at the time.  What matters is that he was given a clear and specific oral opinion of value by the man and firm whose judgment he had long-relied on in connection with his property investments; a valuation, moreover, for which he was billed by 'Hall Pain & Foster, Britannia Estate Agents', not simply as a fee payable by the mortgagor in respect of the 'Society's valuer's report' or anything as limited as that, but in the broader context of the several matters encompassed in HPF's invoice dated 31^st July 1989 for services rendered (paragraph 29 above). The ₤4 million valuation of the combined properties was in our judgment quite plainly supplied to Mr. Milborn for his benefit and with the intention that he should rely on it.  The same goes for HPF's 2^nd August 1989 letter.

76.      The fact that the standard wordings relied on by Britannia were contained in documents that were not even appropriate to the transaction in question, documents in which the figure of ₤4 million was entered against the rubric 'Purchase Price', underlines the extent to which that wording and the circumstances of the present case are divorced from one another.

Summary

77.      The 5^th July valuation: HPF's open market valuation of the combined Tebbits and Tanneries sites at a figure of ₤4 million was one that no reasonable valuer could properly have arrived at and was seriously misleading. There was no 'marriage' or enhancement value to be derived from Mr. Milborn becoming the owner of Tebbits as well as the The Tanneries. The true open market value of the combined sites at that date was of the order of ₤3.125 million. The strong inference is that the amount of ₤4 million was not arrived at on the basis of any logical valuation exercise but merely represented the figure on the basis of which a loan of ₤3 million might ostensibly be justified by reference to Britannia's normal loan-to-value criteria of 75%, in circumstances where a business decision to lend Mr. Milborn ₤3 million had already been made.

78.      Although he did not see the written form of valuation until much later, Mr. Milborn was informed by HPF that the open market value of the combined sites was ₤4 million prior to committing himself to the purchase of Tebbits and the Britannia mortgage and was led to believe that such value lay in part at least in the enhanced value that would flow from his ownership of both sites. That 'valuation' was made and given by HPF (i) for the benefit of Mr. Milborn (as much as for the benefit of Britannia) and (ii) as the agent of Britannia, so that Britannia is liable for its misleading nature. In communicating that valuation to Mr. Milborn, HPF acted as the agents of Britannia. Mr. Milborn was entitled to, and did in fact, rely on that valuation figure in entering into the Britannia mortgage and in purchasing Tebbits. Had HPF's valuation been properly carried out Mr. Milborn would not have entered into the Britannia mortgage and would not have purchased Tebbitts.

79.      The 2^nd August letter: The letter dated 2^nd August 1989 from Mr. Hillman of HPF to Mr. Milborn giving his opinion of the prospective value of the combined sites on the assumptions there stated (i) was produced at the last moment in response to concerns on the part of Mr. Milborn as to the wisdom of the transaction; (ii) was intended by HPF to give comfort to Mr. Milborn as regards the potential long-term value of his proposed investment; (iii) is difficult to evaluate in the absence of more detailed information as to the extent and cost of the proposed development(s) referred to, but (iv) to the extent that it was based on the then-current-market valuation of ₤4 million (as it must have been, to some extent at least) it was also misleading. Had that opinion letter not been misleading, Mr. Milborn would not have entered into the Britannia mortgage and would not have purchased Tebbits.

80.      The prospect of enhancing rental-income: It is more than probable that discussions took place between Mr. Hillman and Mr. Milborn prior to Mr. Milborn committing himself to the Britannia mortgage as to the extent to which rental income, particularly in relation to the Tebbits, might be enhanced by re-negotiation with tenants ahead of the expiry of their leases and that Mr. Hillman expressed a degree of confidence or optimism that this could be achieved. But it is improbable that Mr. Hillman or anyone else said anything that amounted to a warranty or guarantee that rental income would be so enhanced by any specific amount within any specific period, let alone that such income for the two sites could be increased to ₤500,000 per annum  within six months or thereabouts of completion of acquisition of Tebbits, and we are not persuaded that anything to this effect was said.

Conclusion

81.      The valuation of the two sites at ₤4 million as conveyed to Mr. Milborn did not constitute a warranty of such value, but did constitute a pre-contractual misrepresentation inducing Mr. Milborn to enter into the Britannia mortgage, there being an implied representation that there was a fair and proper basis for that valuation when that was not the case. Alternatively, the valuation constituted a breach of a collateral contractual obligation on the part of Britannia to exercise skill and care in and about the valuation via HPF. Alternatively, the valuation constituted a breach of Britannia's common law duty of care towards Mr. Milborn. (This last cause of action is not, in our view, barred by prescription as it was not until early 1994 that Mr. Milborn had reason to know that the valuation given to him in July 1989 was seriously misleading). Britannia is, accordingly, liable in damages to Mr. Milborn on any and all of the foregoing grounds. 

82.      No cause of action against Britannia arising solely out of anything said by anyone concerning the possibility of increasing rental levels has, however, been established.

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