Cases - (1) Governors & Co of the Bank of Ireland (2) Bank of Ireland (UK) PLC v Watts Group PLC

Record details

Name

(1) Governors & Co of the Bank of Ireland (2) Bank of Ireland (UK) PLC v Watts Group PLC

Date

[2017]

Citation

EWHC 1667 (tcc)

Legislation

• Supply of Goods and Services Act 1982
• Contracts (Rights of Third Parties) Act 1999

Keywords

Quantity surveyors – monitoring surveyor – standard of reasonable care – liability for bank’s losses

Summary

The court rejected a negligence claim by two banks against a quantity surveyor engaged to report on a borrower's cost estimates for a building development. The surveyor had not fallen below the standard to be expected of a reasonable monitoring surveyor.

The claimant banks sought damages for losses that they alleged were the result of the D’s negligence in relation to a development carried out by a developer, the majority shareholder in which was the Banks’ customer.

The banks agreed to lend £1.4 million to fund the project. They engaged Watts to provide an appraisal of the borrower's building costs estimates. The banks' case was that the appraisal was negligent, and that if it had been properly prepared, they would not have allowed the drawdown of the loan. After drawdown, the borrower's majority shareholder went into administration. The borrower entered creditors' voluntary liquidation and building work ceased. The unfinished property was sold, but the banks suffered a loss of approximately £750,000. Each party was permitted to adduce expert evidence on the issue whether the costs appraisal carried out by Watts was carried out with the necessary professional skill and care.

HELD: (1) Expert evidence - the Court made some scathingly adverse findings in relation to the banks' expert. Firstly, it was highly critical of his whole approach. Rather than considering the limited scope of D’s retainer which was to check on the calculations and figures provided, the bank’s expert had carried out a complete costs exercise from the bottom up. This was rejected as wholly unrealistic. It cost 30x what D had been paid. It was not what they had been retained to do.

Further, the Court found that the expert had been selective in his use of RICS guidance and source material and even that he had attempted to mislead the court. He had also applied the wrong test. Instead of looking to see what a reasonably competent monitoring surveyor would have done, he set out what he would have done. His approach was thoroughly unreasonable. He made no concessions at the experts' without prejudice meetings, and none in his oral evidence. Thus the Court held that he had failed to comply with the duties of an expert set out in the Ikarian Reefer (no.2) [2000] 1 WLR 603, and that his evidence was neither independent nor reliable.

Negligence – Unsurprisingly, given the above, the various allegations of negligence failed. In particular Watts’ endorsement of the borrower's estimated costs figure was not negligent. The starting point was that Watts were carrying out an overview process rather than doing the whole calculation themselves. If the borrower considered the figure to be reasonable, the starting point was that it was likely to be reasonable. The fact that the contractor was prepared to carry out the work pursuant to a fixed price contract for that sum was another reason to conclude that it was likely to be right. The evidence of the banks' expert did not show that Watts fell below the standard to be expected of a reasonable monitoring surveyor. Watts had conducted a sense check and used three comparables to assess the costs, which led them to conclude that the borrower's estimate was reasonable (paras 98-100, 103-106). 

In any event the losses claimed were not recoverable from D as a matter of law. They were engaged to provide information as to the construction costs, but that was just a part of the material that the banks would rely upon in deciding whether to allow the drawdown. Watts would only be liable in law for the financial consequences of the construction costs being wrong, and not for the financial consequences of the banks entering into the transaction, SAAMCO  [1997] AC 191 and Gabriel v Little [2017] UKSC 21 followed.  The true cause of the banks' loss was their fundamentally flawed decision to lend to the borrower. The banks had failed to follow their own lending policies and guidelines. Their lending failures were set out in paragraphs 160-176 of the judgment.