Merivale Moore Plc & Anor v Strutt & Parker (A Firm), Court of Appeal - Civil Division, April 22, 1999,  EWCA Civ 1239
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IN THE SUPREME COURT OF JUDICATURE QBENF 1997/1538/1COURT OF APPEAL (CIVIL DIVISION)ON APPEAL FROM THE HIGH COURT OF JUSTICEQUEEN'S BENCH DIVISION(Mr Graeme Hamilton QC,sitting as a Deputy High Court Judge) Royal Courts of Justice Strand, London WC2 Thursday, 22nd April 1999 B e f o r e : LORD JUSTICE NOURSE LORD JUSTICE BUXTON and SIR CHRISTOPHER STAUGHTON -------------------- (1) MERIVALE MOORE PLC (2) MERIVALE MOORE CONSTRUCTION LIMITED Plaintiffs/Respondents -v- STRUTT & PARKER (a firm) Defendant/Appellant -------------------- Handed Down Judgment Smith Bernal Reporting Limited 180 Fleet Street London EC4A 2HG Tel: 0171 421 4040 Fax: 0171 831 8838 (Official Shorthand Writers to the Court) -------------------- Mr P Goldsmith QC and Mr J Matthews (instructed by Messrs Barlow Lyde & Gilbert, London EC3) appeared on behalf of the Appellant Defendant.Mr R Akenhead QC and Mr M Cannon (instructed by Messrs Russell-Cooke, Potter and Chapman, London WC1) appeared on behalf of the Respondent Plaintiffs. ---------------------- J U D G M E N T (As Approved by the Court) Crown Copyright Thursday, 22nd April 1999 Lord Justice Buxton: Introduction The Plaintiff companies are members of the same group. Nothing turns on their joint presence in the action or on their corporate structure. I will refer to them together as Merivale Moore. They bring an action in negligence against the defendant firm of surveyors, valuers and estate agents, Strutt & Parker, in respect of their acting for Merivale Moore in the purchase of a property comprising 35 Portland Place London W1 and the building behind it at 5 Weymouth Mews. I will refer to both buildings together as 35 Portland Place. On 20 October 1997, in a judgment reserved after a trial extending over some ten days in June of that year, Mr Graeme Hamilton QC, sitting as a deputy judge of the Queen's Bench Division, awarded Merivale Moore damages amounting to £2,072,689. Strutt & Parker now appeal to this court. The purchase of 35 Portland Place 35 Portland Place was brought to the attention of Merivale Moore by Mr David Klein of Strutt & Parker when on or about 5 June 1989 he telephoned Mr Richard Grievson of Merivale Moore to inform him of the potential availability of 35 Portland Place as a commercial development opportunity. 35 Portland Place was a leasehold property with some 46 years of the lease unexpired, the freeholder being the Howard de Walden Estates. Merivale Moore, who described themselves in their pleadings as high quality residential and commercial property developers, had however in 1989, as the Judge found, no experience or expertise in commercial development in the West End of London, nor any expertise in valuing such developments. They wished to extend their activities as property developers into that area. Mr Klein provided Merivale Moore with plans, drawn up by an architect, for the development of 35 Portland Place for office accommodation, with some ancillary residential use. There was some dispute on the pleadings and at the trial as to the exact capacity in which Strutt & Parker were thereafter acting in this transaction, but the Judge found that there was no real dispute and certainly the evidence proved that [Strutt & Parker's] retainer included advising on rentals, yields and the value of the property as at June 1989. The terms of the retainer were underlined by Strutt & Parker's invoice dated 19 July 1989, which read To Identifying the above development and receiving your instructions to negotiate for the leasehold interest having remaining term of some 45 years. To: Advising as to rental and capital value of the lease of the completed development and negotiating a purchase price of £3,600.000. To: Fee as agreed namely 1% of the purchasing price. The price of £3.6 million had been stipulated by the vendor of the lease, and there was no indication that that price could be reduced by negotiation. The question for Merivale Moore was, therefore, whether a purchase at that price would be a good investment. That in turn depended on the rental value and residual value of 35 Portland Place once it had been developed according to the plans shown to Merivale Moore. On 12 June 1989 Mr Klein submitted to Merivale Moore a document of crucial importance in this case, which I will call the 12 June assessment. This assessment was specifically made in the context of the development plan that had been indicated to Strutt & Parker on 7 June. Without revealing all the details of the working, it set out the "rental value" of the property, that is, the annual rent flow of 35 Portland Place as developed; and converted that rental value into a capital value by the use of a figure for percentage "yield" (a concept to which I shall have to return). The yield used was 7.5%. The 12 June assessment then deducted from the assessed capital value the cost of the development project, including the datum of the £3.6 million asking price; and indicated that there would be a surplus of capital value over cost of some £1.5 million, or 15 per cent of the project cost. I will have to return to the strongly contested issues relating to the 12 June assessment, including its status in the contract between the parties; the basis on which it was put together; and whether that latter task was performed correctly and without negligence. Merivale Moore decided to purchase 35 Portland Place, at the asking price. In the events that have occurred that purchase has proved to be a disaster for Merivale Moore, one of the reasons for that being, as is alleged in this action, that the value of 35 Portland Place when purchased was substantially below that given in the 12 June assessment. The Judge recorded concessions, or made findings, about a number of elements in that purchase decision. At the trial it was conceded on behalf of Strutt & Parker that the figures in the 12 June assessment had been acted on by Merivale Moore, and also that the capital value there stated was likely to be acted on. In connexion with the decision to purchase, two further matters were raised: first, that Merivale Moore, because of their previous connexions with the Howard de Walden Estate, were hoping to secure an extension of the 45 year unexpired period of the lease, which would have altered the finances of the development; and second that Merivale Moore, as property developers themselves, were in a position to make their own assessment of a project, and not to have to rely on figures produced by Strutt & Parker. As to those two issues the Judge found as follows. As to the extension of the lease, Mr Grievson and others in Merivale Moore were more hopeful than Mr Grievson was prepared to agree to in his evidence. The Judge however made a clear finding: In my view the question of the Plaintiffs' expectations are irrelevant. It is clear the purchase was not conditional. In my judgment the Plaintiffs relied upon Mr. Klein's appraisal advising them of the rentals, the yield and the value of the property as bought. In these circumstances the fact that they hoped to do better is a red herring. [Judgment, p9]. As to Merivale Moore's own expertise the Judge held: Mr. Grievson told me, and I accept, that the Plaintiffs did not have any previous experience of commercial development in the West End of London. For this reason they relied upon the advice of the Defendant, in the person of Mr. Klein. Their past association with the Defendant had been happy. They, the Plaintiffs, did not know what would be the appropriate rental and the appropriate yield. I am quite satisfied that they were relying upon Mr. Klein to advise on these. [Judgment, p10] The Judge also found that the 12 June assessment was unqualified in its terms. Those findings are of particular importance in relation to one of the aspects in respect of which the valuation is alleged to have been negligent, that the yield figure was unqualified. What exactly that latter complaint entails is a matter to which I shall have to return. In respect of it the Judge however found that: Mr. Grievson's evidence was that he had no recollection of any qualification to, inter alia, the yield and he has no doubt he would have remembered such a qualification. I accept that this is the overwhelming probability. The Plaintiffs were a respectable, successful, development company and I do not believe that Mr. Grievson would have ignored a warning that the 7.5% carried an enhanced risk. Had there been such a warning the Plaintiffs, I find, would not have bought the property. [Judgment, p11] The Judge reiterated that finding when dealing with the evidence of Mr Dean, the Chairman of Merivale Moore, to whom Mr Grievson reported, and who made the final decision to purchase 35 Portland Place. The Judge said: Mr. Dean told me that if Mr. Grievson, when seeking his go ahead to buy the property, had told him that a Defendant had qualified the yield he would ask what was meant by qualified. If it had been explained to him that it meant that the project was not without risk he said that he would not have given his approval. I am quite satisfied that this is so. Had the Defendants qualified their advice on the 7.5% rate of yield the Plaintiffs would not have bought the property. [Judgment, p15] He summed up the point in these terms: I find that Mr. Klein did not qualify his advice on yields in any way. He did not warn that there was no established market or that his figure for the yields carried an enhanced risk as compared with figures for freehold, long leasehold and short term leasehold. He did not warn that the yield chosen was based on opinion and not on evidence. I find that the Plaintiffs relied upon Mr. Klein's appraisal both in respect of rental income and yield. If they had thought that the figure for rental income in the appraisal did not justify the purchase price, including a 15% profit, they would not have bought the property. If Mr. Klein had qualified his advice on yields in any way they would...
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