Mortgage valuations — Fraud — Whether valuers vicariously liable in deceit for fraudulent valuations of an unqualified employee
L was employed
by H, a firm of valuers. In respect of eight transactions in which the
plaintiffs were variously involved as lenders, the lending institution received
a loan application from a prospective purchaser of an hotel. That application
stated a price which was falsely inflated and backed by a fraudulent valuation
obtained by the institutions direct or by the prospective purchaser from an
unqualified employee of a reputable firm of valuers. The valuation was
apparently jointly signed by both that employee and by a qualified chartered
surveyor. The valuations were addressed or assigned to the lending
institutions. The same firm of solicitors were instructed to act for the
institutions and borrowers. The institution, acting on the valuation report and
a report on title from S, a clerk in the solicitors’ firm, made an offer of a
substantial loan. The amount of the advance was transferred to the solicitors.
Part was used to pay the true purchase price to the vendor, who in each case
agreed to a subsale through a puppet company; the balance was available for
distribution to the participants in the scheme. The loan was secured by a
mortgage on the hotel. Most of the hotels have been sold; the proceeds and
value of the security are insufficient to repay the loans. Alliance &
Leicester claimed repayment of the loans of £15.343m and damages against the
defendant firm of valuers for deceit in excess of £23m. Mercantile Credit
claimed repayment of loans of £1.9m and damages for deceit in excess of £4m.
The defendants to the four actions included L and H as well as the partners to
the firm of solicitors and S. Other defendants to one or more of the actions
included the borrowers and intermediate companies. In the present actions, L
made no admissions, H admitted that the valuations were fraudulent, but denied
vicarious liability for the fraud committed by L without its authority and
outside the course of his employment; even if the valuations were within L’s
authority, the making of the loans was not the effective cause of the
plaintiffs’ losses. The firm of solicitors submitted to judgment, but S did not
consent to judgment.
assessed. In the course of his employment by H, L did not have actual authority
to make valuations of hotels for a lending institution. He was personally
liable for deceit in making fraudulent representations in relation to the
valuations of the eight hotels. H were unaware that L had produced fraudulent
valuations, but held out to the plaintiffs that L had authority to value
hotels. L acted within his ostensible authority and H held out to third
parties, including the plaintiffs, that L had such ostensible authority by
allowing him to gain and occupy a position in the firm which, in his dealing
with third parties he was able to extend without restriction his activities as
a landbuyer and providing valuations for lending institutions. H permitted L to
gain and occupy that position in consequence of its failure to monitor or curb
his activities or to require him to report on his activities on a regular basis
or to place more clearly defined express limits on his activities and
authority. The loss suffered by the plaintiffs was in consequence of their
reliance on the valuations which L had ostensible authority to provide to them
as valuations done jointly with a qualified surveyor. The plaintiffs had no
notice of any lack of authority on the part of L.
The following
cases are referred to in this report.
Armagas
Ltd v Mundogas SA [1986] AC 717; [1986] 2
WLR 1063; [1986] 2 All ER 385, HL
Egyptian
International Foreign Trade Co v Soplex
Wholesale Supplies Ltd [1985] 2 Lloyd’s Rep 36, CA
First
Energy (UK) Ltd v Hungarian International Bank
Ltd [1993] 2 Lloyd’s Rep 194, CA
Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549; [1967] 2 WLR 1408; [1967] 3
All ER 98, CA
Kooragang
Investments Pty Ltd v Richardson & Wrench
Ltd [1982] AC 462; [1981] 3 WLR 493; [1981] 3 All ER 65
Lloyd v Grace Smith & Co [1912] AC 176
Morris v Martin (CW) & Sons Ltd [1966] 1 QB 716; [1965] 3 WLR
276, [1965] 2 All ER 725, CA
Uxbridge
Permanent Benefit Society v Pickard [1939] 2
KB 248
This was a
hearing of four actions, brought by the plaintiffs. Alliance & Leicester
Building Society and Mercantile Credit Co Ltd, to determine the liability of
two defendants, James Lancaster and Hamptons Residential, for mortgage
valuations.
Charles Purle
QC and Christopher Russell (instructed by Mackenzie Mills) appeared for
Alliance & Leicester Building Society and Mercantile Credit Co Ltd: Simon
Berry QC and James Behrens (instructed by Broughton Ross) represented Kenneth
Robson, a defendant to the first action; John Slater QC and Dominic Dowley
(instructed by Davies Arnold Cooper) represented Hamptons Residential; John
Cherryman QC (instructed by Wright Son & Pepper) represented the partners
of WP Duckney & Co; the remaining defendants appeared in person.
Giving
judgment, MUMMERY J said: The central question in this litigation is
whether a firm of estate agents, valuers, surveyors and auctioneers, Hamptons
Residential (‘Hamptons’), is vicariously liable
In 1988 and 1989 he provided fraudulent valuations of eight hotels for mortgage
purposes, six to Alliance & Leicester Building Society (‘the society’) and
two to a lending institution, Mercantile Credit Co Ltd (‘Mercantile Credit’).
1. Litigation
The litigation
looks complex. Four actions, involving five plaintiffs and 20 defendants, were
listed for hearing together. Multiple sets of 100 lever-arch files of documents
crowded the court. During the course of the trial, which lasted from April 20
1993 to July 29 1993, 40 witnesses gave evidence.
The burden of
a case of this length carries a risk that the detail and deluge of documents
and of oral evidence, coupled with the distractions of hard fought
interlocutory applications on pleadings, evidence and procedure, may obscure
the crucial issues of fact and law. The main features of this litigation are
conspicuous. Mortgage frauds have been committed on a massive scale. The
society is the principal victim. It claims in excess of £25m against individual
and corporate borrowers, a broker, a firm of solicitors, a landbuyer and the
firm of chartered surveyors and estate agents who employed the landbuyer. The
claims are made in three actions: no 193, which has been treated as the lead
action; nos 1041 and 1043.
The other
victim is Mercantile Credit, a co-plaintiff of the society in action no 193 and
the sole plaintiff in the fourth action no 7925. Mercantile Credit’s claim is
in excess of £4m. Other co-plaintiffs — Barclays Bank plc, the Bank of Scotland
and Midland Bank plc — have not, for a variety of reasons, pursued their claims
at trial. In some cases they have already obtained judgment. In others the
lending institution has been content to rely solely on its security.
The principal
defendants in all four actions are the same: the landbuyer, Mr Lancaster, who
admits nothing, and his former employer Hamptons, which admits the fraud of Mr
Lancaster, but denies vicarious liability for his wrongdoing.
2. ‘The swindle’
The swindle
was simple. It was perpetrated eight times in as many months.
The details
differed from case to case, but in essence the scheme in each case was the
same. The lending institution received a loan application form from a
prospective purchaser of an hotel. The application form stated a purchase
price, usually of several million pounds. The price was falsely inflated and
backed by a fraudulent valuation of the property obtained either by the institutions
direct or by the prospective purchaser from an unqualified employee of a
reputable firm. The valuation was apparently jointly signed by both that
employee and by a qualified chartered surveyor. The lending institution
requested that valuations obtained by the prospective purchaser be addressed or
assigned to it. It also gave instructions, to act on its behalf in the loan and
mortgage, to the same firm of solicitors retained by the borrower in the
purchase and mortgage transaction. A clerk in the firm of solicitors made a
written report to the lending institution on title to the property. The lending
institution, acting on the valuation and the report on title, made an offer of
a substantial loan to be secured on the relevant hotel. The offer was accepted
by the borrower with alacrity. The amount of the advance was transferred into
the name of the firm of solicitors. It used part of the advance to pay the true
purchase price to the vendor of the hotel. To give credence to the falsely
inflated purchase price, as stated in the loan application form, the borrower,
with the assistance of the clerk in the firm of solicitors, arranged that in
the first instance the vendor of the hotel should agree to sell it not directly
to the borrower, but through a puppet company, owned and controlled by the
borrower and represented by the same solicitors. The puppet company entered
into an agreement to subsell to the borrower at a falsely inflated price. The
amount of the sum advanced by the lending institution substantially exceeded
the sum actually needed to pay the true purchase price. The surplus was
available for distribution among the participants in the scheme.
The loan made
by the lending institution was secured by a legal mortgage granted by the
borrower over the hotel. It was not long before defaults occurred in payments
due under the mortgage. The fraud was discovered. The police seized documents.
Arrests and charges were made. These proceedings were started. Urgent
applications were made for the appointment of receivers. Most of the hotels
have been sold. The proceeds of sale and the value of the security are
insufficient to repay the sums due to the lending institutions.
The society
claims that it was deceived into lending a total of £15,343,400 on the security
of six hotels. It claims repayment. It also claims damages for deceit in excess
of £23m, taking into account arrears, payments and expenses.
Mercantile
Credit lent a total of £1.9m on the security of two hotels. It claims damages
for deceit in excess of £4m.
Criminal
charges heard at Winchester Crown Court in 1992 resulted in convictions of some
of the individual defendants to these proceedings on charges of procuring the
execution of valuable securities by deception contrary to section 20(2) Theft
Act 1968. The convictions have been pleaded against the relevant defendants.
The correctness of those convictions has not been challenged.
3. Hotels
Many documents
record the detail of transactions affecting the eight hotels. It is necessary
to identify the hotels at an early stage in order to clarify the issues and
explain the evidence.
During the
first four months of 1989 the society was persuaded to lend very large sums on
the security of six hotels:
Action no
193
(1) Kistor Hotel, Torquay
(2) Russell Hotel, Harrogate
(3) Webbington Hotel, Axbridge
(4) Yarborough Hotel, Grimsby
Action no
1043
(5) Regency Hotel, Leicester
Action no
1041
(6) Haseley House Hotel, Haseley
Mercantile
Credit was persuaded in the summer 1988 to lend large sums on the security of two
hotels in Clacton-on-Sea, the Royal Hotel and Grand Hotel.
Early in 1989
Mercantile Credit agreed to release its security over the Grand Hotel and to
make a further advance on the security of the Royal Hotel and a third Clacton
hotel, the Esplanade Hotel. An ‘all monies’ charge was also granted to
Mercantile Credit over the Esplanade Hotel.
4. Defendants
Who is
potentially liable to the society and Mercantile Credit for involvement in the
transactions affecting the eight hotels?
(1) Mr Lancaster
He is a
defendant in all four actions. He is an unqualified person formerly employed in
the land department of Hamptons. For each hotel he prepared and signed a report
and valuation on the hotel. He also forged the signature of a qualified valuer
to the valuations. The reports were typed on Hamptons’ notepaper and used in
connection with the applications for loan to the society and Mercantile Credit.
On April 16 1992 he was convicted at Winchester Crown Court on charges under
section 20(2) of the Theft Act 1968 in respect of four hotels — Webbington,
Yarborough, Regency and Haseley House. He was sentenced to 15 months
imprisonment. He served defences in these proceedings, save in action no 7925.
He attended court on the first day of the trial. He stated that his legal aid
had been revoked and that he was unable to conduct his own defence. He did not,
however, consent to judgment against him. He also attended court on a subpoena
by the society and Mercantile Credit, but later failed to attend court to give
evidence when he was directed to do so. A warrant was issued for his arrest. He
could not be found before the plaintiffs’
any oral evidence in his own defence or on subpoena.
(2) Hamptons
This defendant
is a private unlimited company carrying on the business of chartered surveyors,
estate agents and auctioneers. Up to April 30 1989 Hamptons and its predecessor
in business. Giddy & Giddy, was the employer of Mr Lancaster. It has been
represented at the trial by leading counsel, Mr John Slater QC. It resists the
claims of vicarious liability for the fraud which it admits was committed by Mr
Lancaster, though without its authority and outside the course of his
employment.
(3) Kenneth Robson
He is an
insurance broker alleged to have arranged and submitted the loan application
forms and valuations for four hotels — Kistor, Russell. Webbington and
Yarborough — and to have received payments from moneys advanced on the security
of them. He appeared by leading counsel. Mr Simon Berry QC, in action no 193.
He contests the allegation that he participated in a fraudulent enterprise in
relation to those hotels. During the trial an order was made by consent that
the issue of liability as between, on the one hand, the plaintiffs, and, on the
other hand, Mr Lancaster and Hamptons, should be determined before action no
193 proceeded further against him. The case against him was, therefore, adjourned
until after judgment on liability in the claim against Hamptons and Mr
Lancaster. Several outstanding inter-party disputes remain to be resolved by
agreement or by judicial decision.
(4) William Duckney, Mark Duckney and Kulvinder
Dhaliwal
They are partners
in a firm of solicitors, WP Duckney & Co, practising in Southall. They
acted as solicitors for the society, for the borrowers and for companies
controlled or owned by the borrowers. They are sued as vicariously liable for
the fraudulent acts of a clerk employed by the firm. Mr Saldanha. On the first
day of the trial they appeared by leading counsel, Mr John Cherryman QC. He
stated that his clients submitted to judgment on the question of liability and
there should be, reserved to a later date, questions of the assessment of
damages, liability for costs, contribution and interim payment, with liberty to
apply.
(5) Mr Saldanha
He was the
clerk employed in the firm of WP Duckney & Co. He handled the legal side of
the transactions, such as the contracts of sale and the report on title for the
lending institutions in relation to six hotels — Kistor, Russell, Webbington,
Yarborough, Regency and Haseley House. He is a defendant in actions nos 193,
1041 and 1043. On February 3 1992 he pleaded guilty in Winchester Crown Court
to charges under section 20(2) of the 1968 Act. He was sentenced to two-years
imprisonment. He attended the first day of the trial and stated that he did not
consent to judgment, but was not in a position to conduct his defence in
person.
(6) Mr Kumar and Mr Panchal
They are both
defendants in action no 193. They were accountants involved in some of the
transactions as borrowers. They owned or controlled companies which were: (a)
borrowers; or (b) were used as puppet companies in the artificial transactions
devised to inflate the purchase price of the relevant hotel or (c) were
recipients of moneys obtained from the lending institutions by fraud. They were
both convicted at Winchester Crown Court of procuring the execution of valuable
securities by deception in the case of the Kistor, Russell, Webbington and
Yarborough hotels. Mr Panchal pleaded guilty on February 3 1992. Mr Kumar was
convicted on April 15 1992. They both attended the first day of the trial in
person and consented to judgment against them.
(7) Edgestop Ltd
This is a
private company owned or controlled by Mr Kumar and Mr Panchal. It carried on
business as an hotelier. It is a defendant in action no 193. It was an
applicant for loans and was involved in the acquisition of the Kistor, Russell,
Webbington, Yarborough, Royal and Grand hotels. Since December 1989 Edgestop
has been in court receivership. It has not served a defence and was not
represented at the trial.
(8) Tournay Ltd
This is a
Jersey company, owned or controlled by Mr Kumar and Mr Panchal. It is a
defendant in actions nos 193 and 1043. It was used as original purchaser of
hotels from the vendors. It then entered into agreements to subsell to Edgestop
at the falsely inflated prices stated by the borrowers in the loan application
forms submitted to the lending institutions. No defence was served by Tournay
and it was not represented at the trial.
(9) Alfaro Investments Ltd
Alfaro is an
Isle of Man company connected with Mr Lancaster and used in the transactions
concerning the Yarborough and Webbington hotels in a similar fashion to the use
of Tournay for other hotels. No defence was served by Alfaro and it was not
represented at the trial.
(10) Malvern Securities Ltd
This is
another Isle of Man company alleged to have received some of the money advanced
by the lending institutions. It has not served a defence and was not
represented at the trial. It has been dissolved.
(11) Gisal Properties Ltd
Mr Kumar and
Mr Panchal owned or controlled this British Virgin Island company used as an
intermediary in the purchase of the Regency Hotel. It has not served a defence
and was not represented at the trial.
(12) Mr Dhanoa and Mr Lidher
They are
defendants in action no 1041. They were borrowers in respect of the Regency
Hotel. Mr Dhanoa served a short defence, but was not represented at the trial
and did not attend in person. On March 15 1992 he was convicted of an offence
of procuring the execution of a valuable security by deception in relation to
the Regency Hotel and sentenced to six months imprisonment.
Mr Lidher
served a defence. He attended the first day of the trial in person and stated
that he did not consent to judgment.
(13) Jasvinder Takhar (otherwise known as Harjit
Samra or Singh) and Miss Superna Sethi
They are both
defendants in action no 1043. They are the alleged borrowers in respect of
Haseley House Hotel. Mr Takhar (otherwise Samra or Singh) served a defence and
attended court at the first day of the trial. He was not represented and did
not consent to judgment. He was convicted under the name Harjit Singh on April
15 1992 of procuring the execution of a valuable security by deception in
relation to Haseley House Hotel. He was sentenced to 12-months imprisonment.
Miss Sethi was not charged with any offence in connection with the loan on the
security of Haseley House Hotel. She did not serve a defence, but was
represented at the trial by counsel. Mr Kavanagh, who applied for leave to
serve a defence, a counterclaim and a witness statement out of time. She wished
to deny that she was a party to, or had any knowledge of, any fraud on the
society. She denied any intention of purchasing Haseley House Hotel or
knowledge of the purchase of it by Tournay or knowledge of the falsity or
fraudulent nature of the statements made in the loan application form. Despite
the opposition of the society I granted leave for her to serve a defence and
witness statement out of time. The proceedings against her were adjourned to be
dealt with after the determination of the issue of liability of Mr Lancaster
and Hamptons.
(14) Other defendants
Other
defendants named in the pleadings are no longer active in the litigation.
Proceedings against Bank of Credit & Commerce International SA in action no
193 have been discontinued. A claim for negligence in action no 7925 against
the Derek Brodie Organisation in respect of valuation of the Royal and Grand
hotels has been
later.
5. Claims
In this part
of the trial I am asked to deal only with the issues of law and fact relating
to the liability of Mr Lancaster and Hamptons. The case of the society and
Mercantile Credit against each of them is shortly as follows:
(1) Mr Lancaster
It is alleged
that he, in collaboration with others, procured loans from the lenders by fraud
and, in particular, that each valuation of the relevant hotel made by Mr
Lancaster was false and made fraudulently by him in that:
(i) The figure stated in the valuation did not
represent his honest opinion as to the true value of the hotels; and
(ii) The valuation was not, as represented by him
to the lending institution, a joint valuation of himself and a qualified
chartered surveyor. On the contrary, the signatures of R Sloan ARICS and V
Evans FRICS on valuation documents were forgeries. He is, therefore, liable in
damages for deceit.
(2) Hamptons
It is not
alleged that Hamptons or any one in that organisation, other than Mr Lancaster,
was involved in a common enterprise to procure loans by fraud. The case against
Hamptons is that it is vicariously liable for the acts of Mr Lancaster since:
(i) it was his employer at the material time; and
(ii) Mr Lancaster acted within the scope of his
express, implied or ostensible authority.
Claims in the
pleadings for negligence against both Mr Lancaster and Hamptons were not
pursued at trial.
In support of
their case that Mr Lancaster acted within the scope of his actual or ostensible
authority the plaintiffs plead that he had authority to value commercial
properties of all types, size and value, including hotels, for clients,
including lending institutions. The authority stems from the terms of his
original engagement and from the carrying out of his duties, which included
valuations of commercial properties for Hamptons’ clients, including lenders. A
considerable time has been taken up with the details of particular
transactions, (in addition to the eight hotels), relied upon as evidence of the
scope of Mr Lancaster’s authority. An alternative case on ostensible authority
is pleaded. The case is that Hamptons by its conduct represented that Mr
Lancaster had authority to value hotels on its behalf and that it was
reasonable for the lending institutions to rely upon that representation. The
representation rests on the conduct of Hamptons ‘in placing Mr Lancaster, or
permitting him to be, in a position of authority to value commercial
properties, including hotels, on behalf of its clients, including lending
institutions’.
6. Outline of defence
The density of
the detail of the eight hotel transactions and the numerous other transactions
potentially relevant to the issue of Mr Lancaster’s scope of authority makes it
desirable to state briefly the salient features of Hamptons’ defence. Hamptons
denies vicarious liability for Mr Lancaster’s fraud on two main grounds:
(1) Mr Lancaster acted outside the scope of his
authority in valuing hotels for lending institutions for mortgage purposes; and
(2) even if such valuations were within the scope
of his authority, the making of those valuations was not the effective cause of
the loss of which the lending institutions complain.
The main
features of these defences are as follows:
(1) Mr Lancaster was not qualified either as a
surveyor or as a valuer.
(2) Mr Lancaster was employed in the organisation
as the landbuyer in the land department and was concerned mainly with
assembling sites for residential development. That included making appraisals
of land for proposed residential development and of buildings for conversion
for residential use.
(3) Neither the land department, in general, nor
Mr Lancaster as a landbuyer, in particular, were authorised to deal with
commercial development or with commercial property, except to comment on the potential
of such property for residential development. His position as a landbuyer in
the land department did not give him any authority to value hotels for mortgage
purposes.
(4) Mr Lancaster was not authorised by Hamptons,
either expressly or by implication from his position, or from his other
activities, to do any of the following things and was not represented by
Hamptons to have authority to do them:
(i) To carry out surveys or valuations of hotels.
(ii) To carry out surveys or valuations of any property
for mortgage lending purposes or for building societies or for the society.
(iii) To forge or obtain signatures from qualified
persons, ie Mr Sloan or Mr Evans.
(iv) To represent that Mr Sloan or Mr Evans had
prepared or signed the valuations for mortgage advance forms or the identity
sketch plans of the society.
(v) To represent that Mr Sloan and Mr Evans were
members of Hamptons staff or in any way authorised to act or sign on behalf of
Hamptons.
(vi) To obtain counter signatures from non-Hamptons
staff in connection with reports and valuations for mortgage advances.
(vii) To use Hamptons’ stationery, report forms or
report covers for any purposes other than those for which he was employed.
(viii) To receive moneys on behalf of Hamptons.
(5) Mr Lancaster knew that he was not qualified
to produce valuations for lending institutions on his own. He therefore forged
the signatures of persons who were, or appeared to be, qualified as valuers.
(6) Hamptons was unaware of the activities of Mr
Lancaster conducted by him outside the scope of his authority. It never
permitted him to value, or consented to his valuation of, hotels for lending
institutions. Indeed, it was the understanding of other members of the firm
that it was not acceptable industry practice for an unqualified person to carry
out a valuation for a lending institution. The general understanding in the
industry was that only qualified and experienced persons could value property for
lending institutions and it was, therefore, unlikely that a firm of surveyors
would authorise an unqualified person such as Mr Lancaster to carry out the
valuation of property for mortgage purposes.
(7) The lending institutions are estopped from
alleging that they relied on Mr Lancaster’s ostensible authority to value for
them by reason of their knowledge of Mr Lancaster’s lack of professional
qualifications as a surveyor or valuer. That put them on inquiry as to the
nature and extent of Mr Lancaster’s authority from Hamptons.
(8) It is essential to identify precisely the act
claimed to have caused the loss of the lending institutions and ask: was he
authorised to do that particular act?
Hamptons submits that the effective cause of the loss suffered by the
lending institutions was not their reliance on Mr Lancaster’s fraudulent
valuations, but their reliance on the forgery by Mr Lancaster of the signatures
of qualified valuers as acting jointly with him. Mr Lancaster was not
authorised to do that. In other words, even if Mr Lancaster was authorised to
express an opinion on valuation for mortgage purposes, he was not authorised to
represent to lending institutions that he had carried out the valuation jointly
with a qualified surveyor or to represent the opinion on value as that of the
surveyor. The lending institutions acted in misguided reliance on Mr
Lancaster’s representations that the valuations were those of a qualified
surveyor. That alone was the cause of their loss. Mr Lancaster is liable to the
plaintiffs for such false representations. Hamptons, however, is not liable,
because Mr Lancaster was not authorised to make those representations. He could
not by his own false representations give himself an authority he did not have.
B. General
background conditions
1. Statutory provisions
The society is
a building society whose activities were subject to the provisions of the
Building Societies Act 1962 until that Act was replaced by the Building
Societies Act 1986. There were general provisions in section 25 of the 1962 Act
dealing with the valuation of security to be taken in respect of advances made
by a building society. The provisions now in force are contained in section 13
of the 1986 Act. Those provisions form part of the circumstances in which the
society made loans on the security of the six hotels.
Section 25 of
the 1962 Act provided:
(1) It shall be the duty of every director of a
building society to satisfy himself that the arrangements made for assessing
the adequacy of the security to be taken in respect of advances to be made by
the society are such as may reasonably be expected to ensure that —
(a) The adequacy of any security to be so taken
will be assessed either by the directors of the society or by a director or
other officer of the society who is competent to make the assessment, and
(b) There will be made available to every person
who has to assess the adequacy of any security to be so taken an appropriate
report as to the value of any freehold or leasehold estate comprised in the
security and as to any matter likely to affect the value thereof.
(2) In paragraph (b) of the preceding
subsection the reference to an appropriate report, in relation to any freehold
or leasehold estate, is a reference to a written report prepared and signed by
a competent and prudent person who —
(a) is experienced in the matters relevant to the
determination of the value of the estate, and
(b) is for the purposes of that paragraph not
disqualified by virtue of the following provisions of this section for reporting
on that estate.
Subsections
(3) and (4) contained provisions for the disqualification for reporting
purposes of a person who was a director or the manager or secretary of a
building society.
Subsection (5)
disqualified persons to whom the building society had made or undertaken to
make a payment for introducing to the society an applicant for an advance.
Subsection (6)
provided that:
Where an
advance is to be made by a building society following a disposition of a
freehold or leasehold estate which is comprised in security to be taken for the
advance, any person having a financial interest in the disposition of that
freehold or leasehold estate, and any person receiving a commission or gift for
introducing the parties to the transaction involving that disposition, shall
for the purposes of paragraph (b) of subsection (1) of this section be
disqualified for reporting on that estate.
Those
provisions were in force when Mr Lancaster was engaged to be a landbuyer in the
land department of Giddy & Giddy, the predecessor firm of Hamptons, on
April 30 1985.
In 1986 those
provisions were replaced by section 13 of the 1986 Act, which provides:
(1) It shall be the duty of every director of a
building society to satisfy himself that the arrangements made for assessing
the adequacy of the security for any advance to be fully secured on land on
which is to be made by the society are such as may reasonably be expected to
ensure that —
(a) an assessment will be made on the occasion of
each advance whether or not any previous assessment was made with a view to
further advances or re-advances;
(b) Each assessment will be made by a person
holding office in or employed by the society who is competent to make the
assessment and is not disqualified under this section from making it;
(c) Each person making the assessment will have
furnished to him a written report on the value of the land and any factors
likely materially to affect its value made by a person who is competent to
value, and is not disqualified under this section from making a report on, the
land in question:
but the
arrangements need not require each report to be made with a view to a
particular assessment so long as it is adequate for the purpose of making the
assessment.
(2) In relation to any land which is to secure an
advance, the following persons are disqualified from making a report on its
value, that is to say . . .
The following
paras (a) and (b) disqualify directors and other officers or
employees of the society, as well as persons to whom the society has made or
undertaken to make payment for introduction.
Para (c)
provides:
where the
advance is to be made following a disposition of the land, any person having a
financial interest in the disposition of the land and any director, other
officer or employee of his or of an associated employer, and
(d) where the advance is to be made following a
disposition of the land, any person receiving a commission for introducing the
parties to the transaction involving the disposition and any director, other
officer or employee of his.
(3) In relation to any land which is to secure an
advance where the advance is to be made following a disposition of the land,
the following persons are disqualified from making an assessment of the
security or authorising the making of the advance, that is to say —
(a) any person, other than the building society
making the advance, having a financial interest in the disposition of the land
and any director, other officer or employee of his or of an associated
employer, and
(b) any person receiving a commission for
introducing the parties to the transaction involving the disposition and any
director, other officer or employee of his.
Other
provisions in section 13 deal with the commission of an offence by a person who
does certain acts while being disqualified from doing so. The remaining
provisions concern the interpretation of the expressions ‘associated employer’
and ‘commission’.
Against the
background of those provisions, practices and procedures were developed by
building societies and by the firms of chartered surveyors and estate agents
who dealt with them concerning the valuation of property on which an advance by
a building society was to be secured. I shall deal later with the procedures
and practices envolved by building societies and firms of chartered surveyors
and estate agents in general, and by the society, Hamptons and its predecessor
firm, in particular.
2. State
of the market
The state of
the market in 1988 and 1989 forms part of the background affecting the eight
hotels. The state of the market then was very different from what it is now.
That difference helps to explain why those involved acted as they did. It also
explains in part the extent of the losses the society and Mercantile Credit
have suffered.
(1) General market conditions 1988-89
The
residential and commercial property was extremely active: it was a time of
demand exceeding supply, dramatic rises in property prices, low interest rates,
changing lending criteria and entry into the lending market of many new
institutions, such as secondary lenders.
(2) Lending institutions
The lending
market became very competitive. The pressure of work created by competition
placed considerable demands on both lenders and their advisors to work as
quickly as possible. The majority of building societies took advantage of
increased powers under the 1986 Act to extend their lending activities into the
commercial property market. They had to evolve new procedures and practices.
They had to comply with the statutory requirements, in particular section 13 of
the 1986 Act.
(3) ‘Property profession’
Considerable
changes occurred in surveying and estate agency in response to the hyperactive
market. There was keen competition between firms for good qualified staff. The
acquisition of estate agency businesses, especially those engaged in
residential work, increased. Some major chains of surveyors and estate agents
were created by acquisitions and merger with consequent changes in firm names, sometimes
causing confusion to clients and the public. Internal reorganisation of firms
into new regional, divisional and departmental frameworks took place. The rapid
change and increased size of firms created problems in management, supervision
and communication.
(4) Land departments
Surveyors and
estate agents responded to the active market by establishing land departments
to take over some work previously done by house builders and developers. The
main purpose of a land department is to make a profit for the firm by
identifying, buying and selling land and development opportunities,
particularly residential property, and to introduce and retain the potentially
lucrative business of selling newly completed houses and flats in residential
developments. This kind of work required an ability to identify potential
development opportunities, assemble residential developments sites, deal with
planning and similar matters, negotiate and advise on agreements and options,
secure land for development and generally to be acquainted with the market and
become involved with developers and others in it.
The scope of
activity of a land department varies from firm to firm. The activity might in
some firms include the handling of hotel property. It might also involve consideration
of development for commercial, as well as residential, uses. A land department
might be difficult to manage because of the nature of the staff employed. Their
eagerness to drum up business might not be matched by professional skills and
their work often required them to be away from the office to deal with urgent
matters. There might be conflicts of interest arising in a land department.
C. Hotels
1. Grand Hotel and Royal
Hotel, Clacton-on-Sea, Essex
The Grand
Hotel was owned by David Toms. The Royal Hotel was owned by Arganbrook Ltd, a
company owned or controlled by Mr Toms. Arganbrook was a subsidiary of another
company of Mr Toms, Yashmak Ltd, which traded as both the Royal and Grand
hotels. Mr Toms first met Mr Lancaster in the summer of 1986. In 1987 Mr Toms
became interested in a project in Antigua described later in this judgment. Mr
Toms needed to raise money for that project. With that in view, he obtained a
valuation of the Royal Hotel from Mr Lancaster on July 7 1987. The open market
value was stated to be £1.75m. Mr Toms gave evidence that, in his dealings with
Mr Lancaster concerning the Royal Hotel, he believed that Mr Lancaster had the
full authority of his firm, Giddy & Giddy, to value the Royal Hotel. He
paid Mr Lancaster in cash for the valuation.
That valuation
became useful to Mr Toms, when early in 1988, Mr Kumar and Mr Panchal expressed
interest in purchasing the Royal Hotel and Grand Hotel through one of their
companies, Brightvale Services Ltd. Mr Toms showed them Mr Lancaster’s valuation.
They said they wanted an up to date valuation. Mr Toms accordingly requested Mr
Lancaster to prepare one. Mr Kumar and Mr Panchal wanted the valuation to be
addressed to their company so that it could be used to raise finance. Mr Toms
arranged for Mr Lancaster to meet them at the Royal Hotel.
On the
instructions of Brightvale Services Ltd two reports and valuations, both dated
February 16 1988, were prepared by Mr Lancaster. They were typed on the
notepaper of Giddy & Giddy with the logo offering ‘The all round property
service’ from 22 different offices, mainly in the Thames Valley area, including
Cookham and Maidenhead. The notepaper referred to ‘specialist departments:
commercial, residential, letting, financial services, land, country homes, riverside
homes’. There was also printed on the notepaper the names of nine directors,
four associate directors and 15 associates. The managing director, Mr Michael
Padfield, was an FRICS, as was one of the associates, Mr Peter Inch. One of the
associate directors was an ARICS. The last name on the list of associates was T
Lancaster AIBA.
Each of the
two reports bore Mr Lancaster’s reference ‘TL’. Each report is signed ‘Giddy
& Giddy’ in Mr Lancaster’s writing.
The current
open market capital value of the freehold interest in the Royal Hotel was
stated to be £2.2m and in the case of the Grand Hotel, £575,000.
Each report
concluded
This report
which is confidential to the client, and it may be disclosed to other
professional advisors assisting the client, but the client shall not disclose
this report to any other person.
Various
unnumbered invoices were submitted by Mr Lancaster to Arganbrook (they were
produced by Mr Lancaster on discovery).
(1) May 5 1988 for £1,352.55 for the costs of
advertising and collating brochures ‘& valuations’ (added in manuscript).
The invoice was sent under cover of a letter dated June 9 1988, referring to
‘accounts for our consultancy fees in respect of the sale of the Royal Hotel’.
(2) June 16 1988 for £115,000 for ‘Various reports
and Valuations’ to the Royal Hotel and for introducing a purchaser.
Mr Lancaster
later submitted an invoice to Mr Toms for £80,000 for work on the Antigua
project and the Royal Hotel, £20,000 being attributable to the Royal Hotel. Mr
Toms refused to pay the £20,000 as he said he agreed with Mr Panchal that he
should pay it. On June 16 Mr Lancaster sent Mr Kumar an invoice for £21,000 for
the valuation of the Royal and Grand hotels. Mr Panchal refused to pay the fee.
There is a dispute about how this matter was ultimately resolved following a
meeting in July 1988 referred to later in this judgment.
At about the
end of February or early March a meeting took place between Mr Kumar, Mr
Panchal and an account executive, Mr David Phillips, of the Luton office of
Barclays Mercantile Business Finance Ltd, acting on behalf of Mercantile Credit
in dealing with credit applications. The introduction was effected through a Mr
Kevin Newbury, of FNW Finance Brokers, a firm of mortgage brokers. The purpose
of the meeting was to discuss the raising of finance for the proposed purchase
of the Royal and Grand hotels by Brightvale.
On April 21
1988 Mr Phillips wrote to Messrs Kumar and Panchal of Brightvale Services Ltd
about the meeting. He stated his understanding from the meeting that the
contract price was to be £2.6m, although a more accurate valuation on a going
concern basis would be in the order of £3.1m. He stated that his company was
interested in being given the opportunity to consider assisting with a facility
of £1.9m, but that, before submitting an application,
Our senior
underwriters will require a ‘Brodie business survey to be undertaken on the two
hotels’ to obtain further information about the value of the goodwill and an
appraisal as to the profit of the business.
In May 1988
Brodies, a firm of business valuers, produced a report and valuation on the
Royal and Grand hotels ‘for the lending principal of FNW Finance Brokers’. It
was stated that the owner was Mr D Toms and that the proposed borrowers were
Messrs Panchal and Kumar. Brodies stated their belief that the figure being
paid for the freehold of both properties and the business was between £2.5m and
£2.7m, a figure which they would regard as acceptable, for they projected an
overall value of £3.1m. They put the freehold interest of the Royal at a value
of £2.2m and of the Grand at £300,000.
On May 11 1988
a company called Edgestop Ltd was incorporated with the object, inter alia,
of carrying on the business of hotel proprietors.
On May 20 1988
Mr Phillips completed a ‘BFD area recommendation form’ recommending a loan of
£1.9m to a company called Accurate Investments Ltd, whose directors were Messrs
Panchal & Kumar. The form stated that the loan was to be in respect of the
two hotels ‘Cost £2.6 million — value £3.1 million’. In his recommendation he
referred to the ‘excellent calibre of the applicants — in a strong position to
manage the subject business on a day to day basis’, ‘to the high level of
BRICKS & MORTAR SECURITY’ and ‘to adequate repayment ability’. He also
stated, after referring to the contract price of £2.6m and the true valuation
of £3.1m, that ‘a plot of land in Antigua is changing hands in lieu of the
difference in purchase price’.
The details
shown on another Mercantile Credit internal document identified the address of
Accurate Investments as the same as that of Brightvale and the vendor as Mr
Toms selling at £2.62m, with a customer stake of £720,000 in addition to the
Mercantile Credit loan of £1.9m. The proposed loan was recommended by Mr Phillips
on May 20, by Mr Taylor, the manager, on the same day and by the area director,
Mr Handley, on May 25 1988.
The initial
offer of an advance of £1.9m by Mercantile Credit was made on June 8 in a
letter sent by Mr Taylor, of Barclays Mercantile, to Accurate Investments Ltd,
which had by then changed its name to Bournegate Investments Ltd. The offer
letter contained various conditions. The conditions relating to security
contained in para 4 referred not only to a first legal charge over the two hotels,
together with an assignment of good will, but also to other matters, including:
(a) We require confirmation from your
solicitors, prior to completion, of the purchase price of £2,600,000 and of
your cash injection of £720,000, without recourse to further borrowing . . .
(b) We will require confirmation that a plot of
land in Antigua is transferring from the ownership of our applicants to that of
Mr Toms.
The condition
in para 5 concerned valuation and was in these terms:
the business
(and property where considered necessary) must be valued by our nominated
valuers and you must bear the cost of this valuation(s). The report(s) must be
addressed to us and, in our opinion, be entirely satisfactory in all respects.
The ‘other
condition’ contained in para 8 included
(b) We will require confirmation from Giddy &
Giddy that we may use their report on the subject premises for our own mortgage
purposes . . .
(c) We will require confirmation from Brodies
that we may use their report for our mortgage purposes.
Mrs Redmond,
of Barclays Mercantile, Luton branch, had already written to Giddy & Giddy
on May 27 seeking confirmation that the report dated February 16 on the Royal
Hotel might be addressed to them for mortgage purposes. The confirmation
requested was given in a letter from Giddy & Giddy dated June 10 1988
bearing two signatures ‘T Lancaster AIBA and V Evans FRICS’.
There was no
‘V Evans FRICS’ on the notepaper of Giddy & Giddy. Mr Evans had been, but
was no longer, a member of that firm.
As a result of
an oversight, no letter similar to that of May 27 was sent to Giddy & Giddy
and no confirmation was given in respect of the report of the Grand Hotel. Also
on June 10, pursuant to a request in the Barclays Mercantile letter of May 27,
a valuation of the Royal Hotel for property and insurance purposes was given in
the sum of £4,608,360. It was signed ‘Hamptons Giddy & Giddy’. The
insurance valuation was accompanied by a Hamptons letter dated June 13. That
confirmed the assignment of the valuation of February 16 1988 ‘in respect of
the Royal Hotel on behalf of Accurate Investments Limited (Kumar & Panchal)
to your goodselves, Barclays Mercantile (Business Finance) Limited’.
At about the
same time Mr Phillips notified the head office of Barclays Mercantile that
Edgestop should now be substituted as borrower for Bournegate Investments Ltd.
In consequence, a fresh offer letter was sent on June 14 1988 by Mr Taylor to
‘Messrs Panchal & Kumar Edgestop Limited’. The letter contained the same
conditions as the earlier offer letter sent to Bournegate Investments Ltd.
On June 20 the
offer was accepted by Edgestop. On June 30 Ryan & Co, solicitors for
Edgestop, wrote to the solicitors acting for Mercantile Credit, Speechly
Bircham, confirming they had been advised by their clients that ‘as ancillary
to the purchase of the Royal and Grand hotels the parcel of land in Antigua has
already been passed to Mr David Toms in respect of his development in Antigua’.
The evidence of Mr Toms was that neither he nor any of his companies ever
received any transfer of land in Antigua from Edgestop, Mr Kumar or Mr Panchal.
The same
letter also gave confirmation that £720,000 was available to pay the balance of
the purchase price.
All was now
ready for completion of the sale of the hotels. Unknown, however, to Barclays
Mercantile and Mercantile Credit the agreements for the sale of the hotels were
not concluded directly between the vendors, Arganbrook Ltd and Mr Toms, and
Edgestop. The documents show that on July 1 1988 agreements were made interposing
Tournay Ltd, a Jersey company not mentioned at any time in the negotiations for
the loan with Barclays Mercantile. On July 1 agreements were made whereby
Tournay agreed to purchase the Royal Hotel from Arganbrook and the Grand Hotel
from Mr Toms at a total price of £1,476,000. An agreement was also made under
which Tournay would sell both hotels to Edgestop for a total price of £2.6m. A
deposit of £720,000 was stated to have been paid by Edgestop.
On July 6 two
further documents were executed: first, a conveyance of the hotels by
Arganbrook and Mr Toms to Edgestop, the subpurchaser, on the direction of
Tournay, the original purchaser. £2.2m was paid by Edgestop for the Royal
Hotel. Second, a legal charge was granted over the hotels by Edgestop to Mercantile
Credit to secure the advance of £1.9m, repayable by 60 monthly instalments of
£20,909. Clause 4.3 of the legal charge provided that the whole loan should
become due if payments were not made within 14 days of the due date.
The appearance
of Tournay on the conveyancing scene naturally prompts a question as to its
role. Tournay is a Jersey company owned and controlled by Panchal & Kumar.
Its directors were nominees, a Mr D V Willis and a Mr I S Willis. Formalities
concerning Tournay were handled by a company services organisation — Sefta
Financial Services and Sefta Secretaries, acting through Joyce Carry.
She was
informed that funds were held for Tournay by Panchal & Kumar, including a
deposit of £720,000 received from the purchaser Edgestop.
On July 4 1988,
that is between contract and completion, Joyce Carry sent to Ryan & Co,
solicitors acting for Edgestop, for onward transmission to the solicitors
acting for Tournay (Hartfield & Co), minutes of a Tournay board meeting,
held in Sark. According to the resolution two members of Hartfield & Co, Mr
Benchizza and Mr Brian Hartfield, were authorised to affix the seal and sign as
authorised against the seal on the conveyances between Arganbrook and Tournay
and Edgestop and the conveyances between Mr Toms, Tournay and Edgestop. On the
same day a letter was sent by Hartfield & Co to Ryan & Co, solicitors
for Edgestop, confirming that Tournay had received £720,000 ‘directly from your
client’. Prior to completion on July 5 Hartfield & Co confirmed to Ryan
& Co, in answer to requisitions on title (which were sent on to Speechly
Bircham), that the purchase price was £2.6m and that the borrower was providing
at least £720,000 towards the purchase price from his own cash resources.
On July 6
Joyce Carry wrote on Tournay notepaper to Hartfield & Co authorising the
company secretary of Edgestop, a Miss Paranjit Gurlata, to collect a cheque
payable to Jardine Investments regarding the purchase and the sale of the
hotels.
Mr Toms gave
evidence that he did not know how Messrs Kumar & Panchal obtained funds for
the purchase of the hotels. He also gave evidence about a money problem which
arose at the completion when it took place at the offices of Mr Alastair
Porter. Kumar & Panchal were short of the necessary funds for completion.
After some discussion about reducing the price, Mr Toms refused to agree to
that, but did agree to lend the sum of £76,755 to Kumar & Panchal to enable
completion to take place.
Subsequently
in November 1988 Edgestop took a conveyance of another hotel in Clacton, the
Esplanade Hotel. That featured in reorganised security arrangements in January
1989. On January 19 1989 Mercantile Credit executed a deed of release freeing
the Grand Hotel from the legal charge of July 6 1988. On the same day Mercantile
Credit advanced a further £75,000 to Edgestop. Legal charges were executed by
Edgestop in favour of Mercantile Credit, securing the advance of £75,000 on the
Royal Hotel and Esplanade Hotel and securing all moneys on the Esplanade Hotel.
Court receivers were appointed on December 2 1989.
2. Kistor
Hotel, Belgrave Road, Torquay
On January 20
1989 Mr Kumar wrote on behalf of Edgestop Ltd to Mr Robson about arranging
funds of £2.3m for the purchase of the Kistor Hotel. He agreed to pay him an
arrangement fee of 1% on the arrangement of the loan, subject to certain
conditions, including the payment of the fee on the successful transfer of
funds to Edgestop and the completion of the hotel to Edgestop. On January 27 Mr
Robson wrote to a Mr R J Davies, a solicitor in the firm of Hepherd
Winstanley & Pugh (HWP), informing him that Mr Saldanha, of WP Duckney, was
acting as solicitor for Edgestop. He asked him to ensure that the arrangement
fee would be paid to HWP by WP Duckney & Co on his behalf. He added ‘I
don’t trust Mr Kumar’. In the meantime, on January 24, Alyson Harper, of the
Southampton branch of the society, sent a note to Mrs Sheila Winnard, of the
commercial lending department, attaching a loan application in respect of
Kistor Hotel. The note stated that they would like the offer by February 2, if
contracts were to be exchanged on February 6. It was noted that a fee of £4,125
was agreed and that fee was to be charged by the valuer to the society.
The loan
application form of that date was largely filled in in Mr Robson’s writing. He
arranged and submitted the loan application form to the society. The form was
signed by Mr Kumar and by Mr Saldanha as Mr Panchal’s attorney. Mr Panchal had
given a general power of attorney to Mr Saldanha on December 23 1988. Mr
Saldanha was also named in the form as the applicant’s solicitor.
The
application was for a loan of £2.3m repayable over 25 years to be secured on
and used in the purchase of the Kistor Hotel for £3.3m, £3m was payable for the
freehold and £0.3m for the goodwill. It was stated that £1m was to be provided
towards the purchase price by the applicants from their own money. The form
referred to a surveyor’s report for details of accommodation and also to
occupancy by Edgestop under a 21-year lease at an annual rent of £350,000 with
provision for three-year rent reviews. On January 31 a written report and
valuation was prepared on the society’s instruction to Mr Lancaster at 47
Cordwallis Road, Maidenhead, on the notepaper of the Marlow office of Hamptons
Giddy & Giddy. The property was valued at £3m on the open market. The
report was signed in the name of Hamptons.
Also on that
date the society’s form of valuation for mortgage advance was completed and
signed in relation to Mr Kumar and Mr Panchal’s loan application. The form
stated a valuation of £3m. It appears to be signed by a Mr R Sloan ARICS and J
Lancaster AIBA, for and on behalf, of Hamptons. It was stated in the form, that
in the event of queries, contact should be made with Mr Lancaster. The report
also stated
Please accept
our authorization and assignment of our written report to your good selves.
I am not
disqualified under section 13 of the Building Societies Act 1986 from making
this report.
On February 3
1989 the society made a written offer of advance to Kumar & Panchal of
£2.3m repayable over 25 years for the purchase of the hotel for £3m. The loan
was to be secured on the property. Deductions were to be made from the advance
for a guarantee premium of £10,000 and an administration charge of £4,125. The
conditions of the advance referred to the letting of the whole property to
Edgestop on a full repairing or insuring lease at a rental of £350,000 for a
term of 21 years, subject to reviews every three years to the open market
rental value.
At the same
time instructions to act for the society were given to Mr Saldanha, who was
also acting for Kumar & Panchal and their companies.
On February 9
1989 Kumar & Panchal signed a form accepting the offer. Two contracts for
sale had been made the day before. The first was a contract for the sale of the
property by Kistor Hotels Ltd to Tournay Jersey Ltd. The purchase price was
stated to be £2.1m, apportioned as to £1.6m for the premises, £300,000 for
goodwill and £200,000 for trade fittings, equipment and assets. The contractual
date for completion was March 6. A second contract was made on the same day by
Tournay, the original purchaser, with Kumar & Panchal as subpurchasers. In
that contract the purchase price was £2.8m, apportioned as to £2.3m for the premises,
£300,000 for goodwill and £200,000 for fixtures and fittings. A deposit of
£50,000 was to be paid by the subpurchaser to the original purchaser. This
contract was signed by a Mr A E Gibson, on behalf of Tournay. He had been
nominated to do that by Kumar & Panchal to Joyce Carry.
Also on
February 8 Mr Saldanha responded to a letter dated February 3, which he had
received from HWP writing on behalf of Mr Robson. They had asked for Mr
Saldanha’s firm’s personal undertaking to forward a cheque payable to HWP for
the amount due in respect of the arrangement fee. HWP enclosed a letter of
authority signed by Mr Robson addressed to WP Duckney & Co authorising that
firm to remit those moneys to HWP. In his reply of February 8 Mr Saldanha
stated that he had received authority from his clients to pay the arrangement
fee to HWP on completion of the purchase of Kistor Hotel. He undertook to
forward to HWP by cheque payable to that firm the amount of the arrangement fee
from the net funds in his hands. Completion was stated to be on March 6.
On February 17
Mr Saldanha made his report on title to the society. His report contained
details of the proposed 21-year lease to Edgestop from March 1 1989. On
February 20 the report on title was signed on behalf of the society by Mrs
Winnard, ‘OK to issue cheque’. On February 24 instructions were given to the
advance department of the society regarding cheque details for the payment of
the sum of £2,290,000 to WP Duckney. A cheque was issued on March 2.
On March 6
completion took place as agreed. WP Duckney paid the sum of £2,059,000 to the
solicitors for Kistor Hotel Ltd. Kistor Hotel was transferred into the name of
Kumar & Panchal, who granted a lease of the hotel to Edgestop for a term of
21 years at an annual rent of £350,000. Kistor Hotel Ltd made an assignment of
the goodwill of the hotel to Edgestop, as subpurchaser, for £300,000. The
assignment was signed by Lim & Gibson, on behalf of Tournay, and by Mrs
Gurlata and Mr Panchal, on behalf of Edgestop. A legal charge over the property
was granted to the society.
The sum of
£30,680.84 was paid to Mr Robson’s bank account on the instructions of HWP out
of the sum of £32,000 received by them. £23,000 was commission paid in respect
of Kistor Hotel and £9,000 in respect of Haseley House Hotel, less a deduction
of £1,316.16 due from Mr Robson to HWP for fees.
There were two
completion statements dated March 6 1989. One showed a gross advance of £2.3m
by the society and the purchase price of £2.1m with the deduction of £23,000 to
Mr Robson. Another completion statement showed that the purchase price on the
sale by Tournay to Edgestop was £2.8m. According to that completion statement,
Edgestop should have paid £625,595.63.
On October 8
1989 Mr Saldanha wrote to Joy Carry of Sefta Financial Services Ltd, in Jersey.
He enclosed copies of contracts made by Tournay and Edgestop, including the
contract for the sale of Kistor Hotel. He asked for authorisation of Angela
Gibson and Edward Lim to be signatories, for and on behalf of Tournay, commencing
in mid-January. He also requested the dissolution of Tournay as soon as
possible. He said that he expected to be put in funds ‘by my clients’ within
the next week to cover all additional costs that may be incurred.
3. Haseley
House Hotel, Hatton, Warwickshire
On February 9
1989 an application form for a loan from the society was completed, in part by
Mr Robson who had introduced the application to the society. The application
was made by Mr Samra, using the name of Jasvinder Takhar and Miss Superna Sethi,
for a secured loan of £1.8m repayable over 25 years to purchase Haseley House
Hotel for £2.5m. £2.25m was apportioned to the premises, £100,000 to goodwill
and £150,000 for fixtures and fittings. According to the form £700,000 of the
applicants’ own money was to be provided towards the purchase price. The
details of the property were stated to be in a valuer’s report and the
applicants’ solicitor was named as Mr Saldanha.
On February 10
the application was referred by Alyson Harper in the Southampton office to Mrs
Sheila Winnard in the commercial lending department of the society. A note from
her stated that Hamptons had done a valuation, a copy of which was to follow.
She asked whether this could be used again and, if so, confirm an arrangement
fee of £3,125.
On February 14
1989 the society sent instructions to Mr Lancaster at his home address in
Bracknell to inspect and report on Haseley
amount of advance requested was £1.8m. Mrs Winnard spoke on the telephone to Mr
Lancaster. He agreed to do a valuation for the society for a minimal cost. Mrs
Winnard noted that he had recently done another large hotel for the society on
the same basis. Mr Lancaster asked her to send the valuation form, which she
agreed to do.
Mrs Winnard
also spoke on the phone to Mr Robson who informed her that he had interviewed
the applicants. He assured her that they were ‘mature and business like’. This
was confirmed to Mrs Winnard by Alyson Harper, who had also spoken to the
applicants.
On February 16
Alyson Harper informed Mrs Winnard on the telephone that a company was being
set up to run the hotel. The directors were to be Mr Takhar and Miss Sethi. The
application was still to be in the name of those individuals.
A tax of the
valuation dated February 15 on the note paper of Hamptons Giddy & Giddy,
Marlow office, was received by Mrs Winnard from ‘NTD Fine Art’. The covering
letter was signed ‘T Lancaster — Hamptons’. The open market value of the hotel
was stated to be £2.45m. On February 16 one of the society’s forms of valuation
for mortgage advance was signed and dated. On that form the property was valued
at ‘£2.25m’. The form appeared to be signed ‘for and on behalf of Hamptons’ by
‘R Sloan ARICS and T Lancaster AIBA’. The form contained a certificate pursuant
to section 13 of the Building Societies Act 1986. An identical sketch plan was
also apparently signed by Mr Sloan and dated February 16 1989.
Those forms
were sent by Mr Lancaster to Mrs Winnard on that day signed ‘Hamptons’. The
report sent clarified the valuation figure as £2.45m ‘business value’ and
‘£2.25m open market value’.
On February 21
two agreements were entered into. The first was an agreement for sale by the
owners of the hotel, David Brown, Alice Andrews and Haseley House Hotel Ltd, to
Tournay Ltd for £1.45m. That was apportioned £850,000 to the hotel, £350,000 to
Glebe Cottage, £150,000 for fixtures and £100,000 for goodwill. A second
agreement for sale was made by Tournay, as original purchaser, to Mr Takhar and
Miss Sethi as subpurchasers at a price of £2.5m, apportioned £2.25m for the
freehold, £100,000 for fixtures and £150,000 goodwill. That agreement was
signed by Miss Gibson on behalf of Tournay.
Also on
February 21 the society made an offer of an advance of £1.8m to Mr Takhar and
Miss Sethi, repayable over 25 years, subject to deduction of £11,250 guarantee
premium. The advance was for the purchase of the hotel and detached cottage
£2.25m. By the offer form the society instructed WP Duckney to act as its
solicitors. That firm was also acting as solicitors for the applicants.
On February 22
the offer was accepted by the applicants, who had already exchanged contracts
for purchase. On February 24 Mr Saldanha made a written report on title to the
society. According to his report a 21-year lease with full repairing and
insuring covenants was to be granted to Exjass Ltd with rent reviews every
three years. It was stated that March 3 was to be the completion date. On
January 24 Mrs Winnard signed the forms stating ‘OK to issue cheque’ and
instructions and cheque details were given to the advance department of the
society for payment of £1,788,750. That was the sum received by WP Duckney
& Co from the society on March 1.
On March 6
completion took place. The vendors executed a transfer to Mr Takhar and Miss
Sethi, the subpurchasers, for £2.25m. The sum of £1,445,500 was transferred by
WP Duckney to the solicitors acting for the vendors, Mander Handley, £9,000 was
also released to Mr Robson’s solicitors (HWP) in respect of his fee. The
transfer to Takhar and Sethi was executed by Lim & Gibson, on behalf of
Tournay, the original purchaser. The subpurchasers paid £1.2m to the vendors
and £1,050,000 to Tournay as original purchasers. There was also an assignment
by the vendors to a company, Baron Hotels Ltd, of the goodwill for £150,000.
Tournay, as original purchaser, was also a party to that assignment. Lim and
Gibson again signed on behalf of Tournay.
A legal charge
over the hotel was executed by Mr Takhar and Miss Sethi in favour of the
society.
4.
Webbington Hotel, Loxton, Axbridge, Somerset
(This was part
of a joint venture with the Yarborough Hotel.)
On March 1
1989 Kumar & Panchal signed a loan application form requesting a loan from
the society to Edgestop of £4.975m for the purchase of Webbington Hotel at a
price of £6.3m, apportioned as to £5.85m for the premises and £450,000 for
goodwill. The application form referred to a report for accommodation and other
details. Mr Saldanha was named as the applicants’ solicitors. On the same day
an Isle of Man company, Alfaro Investments Ltd, sent a letter signed by one of
its directors, Mr Zehender, to a firm of London solicitors, Beauvoisin &
Burgess. The letter instructed that firm to act in the subsale of Webbington
Hotel and Yarborough Hotel. The purchase price of the Webbington was stated to
be £3.9m and the sale price £4.25m. The letter asked the solicitors to write to
Berwald Young & Co, of Harrow, who were acting as solicitors for ‘our partners.
Malvern Securities Limited’ and to ‘confirm that you will remit to them two
thirds of the net profit upon completion’.
On March 3 Mr
Saldanha and Mr Lancaster talked on the telephone about the purchase of the
Webbington Hotel for £3.75m and its sale for £4.25m. A note referred to
subpurchasers ‘Kamlesh Panchal, Indian and Alpharo — 10m – all will be
revealed’.
On March 16
the society’s identity sketch plan and also a form of valuation for mortgage
advance was completed and signed. It referred to a ‘report attached’. The value
of the hotel was stated to be £5.85m. The form appeared to be signed on behalf
of Hamptons, Maidenhead office, by R Sloan ARICS and J Lancaster AIBA. The
attached report was typed on Hamptons notepaper with the address of the Maidenhead
office. The bricks and mortar valuation (exclusive of goodwill and stock) was
stated to be £5.85m. The report was simply signed ‘Hamptons’ at the end.
On March 23 Mr
Robson, who had arranged and submitted the loan application form and valuation
to the society, wrote to Mrs Winnard at the commercial lending department, in
Hove, enclosing the valuation report stating that the applicants were ‘looking
to borrow £4.4m on a valuation of £5.85m (74.8%). Purchase price is £6.3m’.
Also on March
23 Alfaro’s solicitors, Beauvoisin & Burgess, wrote to the solicitors for
Malvern Securities, Berwald Young & Co, confirming that they were acting on
the purchase and sale of Webbington Hotel and they were to account to them for
two-thirds of the net profit on completion of the two transactions.
A number of
agreements were made on April 14 1989.
(1) The vendor of Webbington, Mendip Conference
Centre Ltd, agreed to sell the northern part of the hotel to Alfaro for £1.95m,
completion to take place on May 12. The deposit was stated to be £12,500 and
the contract was signed on behalf of Alfaro by Beauvoisin & Burgess.
(2) Webbington Ltd agreed to sell the southern
part of Webbington Hotel to Alfaro for £1.95m.
(3) Alfaro agreed to sell to Tournay the whole
hotel for £4.2m, the deposit being £25,000. Tournay’s solicitors were stated to
be Mr Saldanha of WP Duckney.
(4) Tournay agreed to a subsale of the whole
hotel to Edgestop for £6.125m, apportioned as to £5.85m for the freehold and
£275,000 for fixtures and fittings. Miss Gibson signed the agreement on behalf
of Tournay.
On April 19
the society made an offer to advance to Edgestop £5,028,575 towards the
purchase price of £5.85m. That offer was accepted by Kumar & Panchal on
April 24.
On April 28 Mr
Lancaster wrote to Mr Beauvoisin confirming that Alfaro’s directors were
discussing the completion of Webbington Hotel with Mr Panchal ‘due to the
vendor’s desire to withdraw’. He instructed Mr Beauvoisin not to discuss the
subsale with the vendors and asked him to arrange for ‘an Alfaro seal’.
On May 5 Mr
Saldanha made a report on title to the society, as instructed by it. In his
report the borrower was named as Edgestop
May 12.
On May 9 Mr
Saldanha sent a fax to Joy Carry in Jersey asking her to liquidate Tournay and
form two new companies. On the same date a letter was written by Mr Panchal on
behalf of Edgestop to Mr Saldanha about the completion of the Yarborough and
Webbington hotels. He asked him to transfer £200,000 into the ‘M Panchal Trust
Account for distribution as I will instruct when I come to see you on 12 May’.
On May 10 Mrs Winnard, of the society’s commercial lending department,
indicated that it was ‘OK to issue cheque’. On the next day a revised offer of
advance was made by the society to Edgestop for £5.5m for the purchase of
Webbington Hotel for £5.85m. That was subject to a deduction of £52,854 for the
guarantee insurance premium. On May 12 the society transferred £4,947,116 to WP
Duckney in connection with the Webbington purchase. WP Duckney then paid
£3.875m to the solicitors acting for the vendors, Bartlett & Co, and
£300,000 to the solicitors for Alfaro. That sum was then divided between Alfaro
and Malvern Securities Ltd. £200,000 was also paid to the M Panchal Trust and,
on May 15, Mr Robson received £25,000.
Completion
took place on May 12. The transfer of Webbington Hotel was made by Webbington
Ltd and Mendip Conference Centre Ltd to Edgestop, the second subpurchaser, for
£4,225,000. Alfaro, the original subpurchaser, had agreed to buy for £3.625m
and then agreed to sell to the first subpurchaser, Tournay Ltd for £3.925m. The
transfer was signed on behalf of Alfaro by Mr Zahender and on behalf of Tournay
by Lim & Gibson. On the same day an assignment of goodwill was made by the
vendors to Edgestop for £1. Edgestop executed a legal charge over Webbington
Hotel in favour of the society. According to the completion statement for the
sale by Tournay to Edgestop, the price of the hotel was £6.125m and Edgestop
was to pay £1,295,028.81. There is no evidence that that sum was ever paid by
Edgestop.
Also on May 12
Mark Duckney of WP Duckney & Co instructed Midland Bank, in Southall, to
withdraw £38,500 from the client premium deposit account and hand it to Mr
Saldanha for return to the offices of WP Duckney. That sum was to cover cash to
be paid to Mr Robson in respect of the introduction of both the Webbington and
Yarborough hotels. £20,000 in cash was paid to Mr Robson.
On May 15 Mark
Duckney gave authority to Midland Bank, Southall, to make transfers from that
account, being £60,000 to K Panchal, £100,500 and another £200,000 to Edgestop
and a sum of £40,683.51 to Mr B D Mahal.
On the same
day Mr Beauvoisin wrote to Mr Zehender of Alfaro in the Isle of Man, confirming
that completion had taken place, subject to Alfaro sealing two enclosed Land
Registry Transfers, one for Webbington Hotel, the other for Yarborough Hotel.
He confirmed that he was holding £400,000, two-thirds of which, after expenses,
was to be accounted for to Berwald Young as instructed.
On May 16 Mark
Duckney wrote to Midland Bank regarding Webbington Hotel and M Panchal Trust
asking the bank to debit the client premium deposit account and pay £12,000 in
cash to Mr Saldanha for return to the firm’s offices.
On May 19 Mr
Zehender wrote, on behalf of Alfaro, to Mr Beauvoisin asking him to arrange to
forward the full proceeds in the sum of £400,000 to bankers — First American
Banque A Luxembourg. Alfaro undertook to arrange for £300,000 to be
retransmitted to them. The remittance instructions were to accept the funds to
the account of Alfaro held to the order of Egon Zahender.
On June 3 Mr
Zahender wrote again to Mr Beauvoisin stating that he had arranged for funds of
£266,000 to be transferred to them, with irrevocable instructions to remit the
sum of £246,000 to Berwald Young.
On June 9
Beauvoisin & Burgess wrote to Berwald Young, the solicitors for Malvern
Securities, confirming completion, sending them a copy of the letter of June 3
and giving them an undertaking to pay £246,000, subject to funds being received
by them from Luxembourg.
On July 4 a
cheque for £115,000 was made out in favour of Beauvoisin & Burgess, drawn
on the account with Financial & General Bank plc of a company called
Residential & Commercial Agencies Ltd, a company owned or controlled by Mr
Lancaster and Mr Hook, a business associate.
On July 5
Beauvoisin & Burgess wrote to Berwald Young stating their belief that a
£146,000 had already been paid to their clients and that they were in a
position, subject to clearance ‘of our clients cheque which is being specially
presented today, to pay you the sum of £100,000 which they believed sufficient
to discharge the undertaking’. On the same day another cheque for £115,000 was
drawn in favour of Beauvoisin & Burgess, signed and drawn on the account of
Kevin Hook with Financial & General Bank plc. On July 6 Midland Bank
informed Beauvoisin & Burgess that the Residential & Commercial Agency
cheque for £115,000 had been refused by the bank upon which it was drawn. On
July 11 Beauvoisin & Burgess asked Financial & General Bank to make an
immediate payment of £100,000 to the names and numbered account of Berwald
Young debiting it to Beauvoisin & Burgess account.
Later in the
year on September 18 Edgestop executed a legal charge, fixed and floating of
Webbington Hotel in favour of the society to secure the sum of £5m.
5.
Yarborough Hotel, Grimsby, South Humberside
The report and
valuation on this hotel is dated April 10 1989. It was typed on Hamptons headed
notepaper (Maidenhead office) and was signed ‘Hamptons’. The bricks and mortar
valuation of the hotel was stated to be £3.2m. The society’s form of valuation
for mortgage advance was completed and signed the same date. It bore two
signatures, apparently those of V Evans FRICS and J Lancaster AIBA. The firm
name and address is given as Hamptons, 11 Queen Street, Maidenhead.
Mr Robson
submitted the loan application form dated April 13 in the name of Edgestop and
signed by Messrs Kumar and Panchal. The application was for a loan of £2.7m
repayable over 20 years to purchase Yarborough Hotel for £3.8m. It was stated
that the sum of £1.1m was to be provided out of the applicant’s own money
towards the purchase price. The solicitors for the applicants were WP Duckney.
The loan was
recommended by Sally Harris in the society’s commercial lending department and
approved by Mr Heryet.
On April 14
three contracts were made.
(1) An agreement by Yarborough Business Centre
Ltd, the vendor, to sell the hotel to Alfaro Investments Ltd for £2m.
(2) A contract by Alfaro, the first purchaser, to
sell the hotel to Tournay for £2.1m.
(3) A contract by the second purchaser, Tournay,
to sell the hotel to the third purchaser, Edgestop, for £3.36m, apportioned as
to £3.2m freehold, £159,999 fixtures and fittings and £1 goodwill. WP Duckney
& Co acted for the applicants, for the society and for Tournay. A Miss
Gibson signed the documents on behalf of Tournay.
On May 11 the
society made a written offer of advance of £2,729,900 to Edgestop, a deduction
being made for a guarantee premium of £29,900. On May 11 Mr Saldanha made a
report on the title of the hotel and on May 12 a cheque for £2,699,970 was sent
by the society to WP Duckney. Out of that sum WP Duckney paid a £100,000 to the
solicitors for Alfaro, Beauvoisin & Burgess, £1,975,000 to the solicitors
for the vendors, Bartlett & Co, and £13,500 commission to Mr Robson. On
completion on May 12 the hotel was transferred into the name of Edgestop.
Alfaro joined in the transfer as original purchaser and Tournay as first
subpurchaser. There was a separate assignment of goodwill by the vendor to
Edgestop. Edgestop executed a legal mortgage over the hotel in favour of the
society on May 12 1989.
Later in
the year on September 18 Edgestop executed a legal mortgage over the property
in favour of the society to secure £2,729,900 on the property, fixtures and
fittings, goodwill, book debts and other debts and a floating charge on all the
undertaking and assets of Edgestop.
6 Russell Hotel, Valley Drive, Harrogate,
Yorkshire
On or about
March 3 1989 a loan application form was signed by Messrs Kumar and Panchal for
a loan of £1.5m for the purchase of Russell Hotel for £2m plus £300,000 for
goodwill, the applicants providing £800,000 out of their own funds towards the
purchase price. The form referred to a report for accommodation and other
details. Mr Saldanha was named as the solicitor for the applicants. The report
and valuation dated March 15 1989 was provided on the notepaper of Hamptons
Giddy & Giddy (Maidenhead office) and signed Hamptons. The bricks and
mortar valuation was stated to be £1.875m. Mr Robson arranged for the
submission of the application form and valuation. Also dated March 15 was a
completed valuation for mortgage advance form of the society, apparently signed
by R Sloan ARICS and J Lancaster AIBA. The firm’s name is given as Hamptons
(Maidenhead office). The form refers to the full report and to the value of
£1.875m. An identity sketch plan also appears to have been signed by Mr Sloan.
On March 23 a
written offer of advance was made by the society to Kumar & Panchal of
£1.5m repayable over 25 years, less the sum of £9.375 guarantee insurance. WP
Duckney & Co were instructed to act as solicitors for the society.
On the same
date two contracts were made:
(1) A contract for the sale by Hodgson Hotels Ltd
of the hotel to Tournay for £1.2m, plus a sum for stock, apportioned as to
£700,000 for the property, £150,000 for the chattels and £350,000 for goodwill.
(2) A contract for sale was made by Tourney, the
original purchaser, to Kumar & Panchal as subpurchasers for £2.5m,
apportioned as to £2m for the freehold, £150,000 for fixtures and fittings and
£350,000 for goodwill and business. Miss Gibson signed on behalf of Tournay for
whom WP Duckney & Co acted as solicitors.
On March 28
Kumar & Panchal accepted the offer. Mr Saldanha made his written report on
title to the society on April 5. He stated that the proposed date for
completion was April 14 and that the borrowers were Kumar & Panchal. On
April 10 the society decided that all was in order for the issue of a cheque
and on April 14 the sum of £1,490,625 was transferred to WP Duckney, that is
the £1.5m advance less the deduction for guarantee premium of £9,375.
Completion
then took place. Hodgson Hotels transferred the hotel to Kumar & Panchal as
subpurchasers at the price of £1.5m. £800,000 was paid to Tournay as
subpurchaser and £700,000 to the vendor. The transfer was signed by Lim &
Gibson, on behalf of Tournay. Kumar & Panchal then granted a legal mortgage
dated April 14 1989 over the hotel to the society to secure the sum of £1.5m.
On April 17 WP
Duckney paid the sum of £10,000 in cash to Mr Robson out of the client account
of Edgestop.
Later in the
year, on September 18 Edgestop granted a legal mortgage of its leasehold
interest in Russell Hotel to the society to secure the sum of £1.5m.
7 Regency Hotel, 360 London Road, Stoneygate,
Leicester
On April 5
1989 a loan application form was submitted to the society. It was signed by Mr
Dhanoa and Mr Lidher. The application was for a loan of £1.5m repayable over 25
years for the purchase of Regency Hotel for £2.1m. The applicants were to
provide £600,000 of their own money towards the purchase price. The application
form referred to a survey report and named Mr Saldanha, as solicitor for the
applicants. A report and valuation dated April 27 was produced in support of
the application, typed on Hamptons notepaper (Arlington Street, London SW1).
The full report did not give a bricks and mortar valuation of the hotel. A
valuation for mortgage advance form dated April 27 stated the value of £1.8m.
That form bore signatures apparently of V Evans FRICS MRIP and T Lancaster
AIBA. The name and address of the firm was stated to be Hamptons, 6 Arlington
Street. An unusual feature of the form is that it bore double signatures. There
were signatures in the space provided in the form. That contains photocopies of
the two signatures. There are two further signatures in ink or biro written at
the bottom of the form. There is also an identity sketch plan of the same date
which bears the sole signature, apparently of Mr Evans.
On May 12 1989
two contracts were made:
(1) The contract for sale by Breakacre Ltd, the
vendor, for the sale of the hotel to Gisal Properties Ltd, a British Virgin
Islands company owned or controlled by Kumar & Panchal. The sale price was
£1.35m.
(2) A contract of the sale of the hotel by Gisal
Properties Ltd to Mr Dhanoa and Mr Lidher, as subpurchasers, for £2.1m,
apportioned as to £1.8m for the freehold, £125,000 for fixtures and fittings
and £175,000 for goodwill.
On May 26 the
society made an offer of a loan of £1,514,400 and instructed Mr Saldanha to act
as the society’s solicitor. A report on title was made by him to the society on
May 26 and on the same day the society confirmed that all was in order for the
issue of a cheque. The offer of the advance was accepted on the same day. A
cheque for £1,499,970 (after deduction of £14,400 for guarantee insurance
premium) was sent as advance money to WP Duckney. Completion took place. WP
Duckney & Co paid the sum of £1,259,601 to Breakacre Ltd, £2,500 cash
commission to Mr Panchal and £40,393.75 to the solicitors for Breakacre. A cash
commission payment of £10,000 appears to have been made to Mr Robson on May 31.
The hotel was transferred by the vendors to Dhanoa and Lidher.
D. Mr
Lancaster, Giddy & Giddy and Hamptons
1. The firm
Mr Lancaster
joined the firm of Giddy & Giddy as a landbuyer on May 7 1985. Giddy &
Giddy was an old established firm dating from 1874. It carried on a practice of
surveyors and estate agents based in Maidenhead at 10-13 Queen Street. Over 90%
of the work was concerned with residential property. The sole principal of the
firm was Mr Michael Padfield, who had joined in 1965 as a trainee negotiator
and later qualified as an FRICS and FSVA. He was sole principal from 1984 until
the end of November 1986. He had associates, who included Mr Broom and Mr
Haynes.
At the
beginning of December 1986, a partnership was formed with a view to an
impending sale of the practice. From December 1 1986 Mr Padfield became senior
partner and he remained so until April 1 1987. By that time he had 11 partners,
including Mr Broom and Mr Haynes. Mr Padfield’s responsibility was to oversee
the management of the firm. It had 23 offices, over 120 employees and an annual
turnover of about £4m.
On April 1
1987 Giddy & Giddy was taken over by Abaco Investments plc. Abaco acquired
other firms of estate agents and surveyors, including Hamptons, Messenger May
Baverstock and Pocock & Lear. Mr Padfield became the managing director of
Giddy & Giddy Ltd, a wholly owned subsidiary of Abaco. He moved from the Maidenhead
office to the Cookham office.
On March 1
1988 the business of Giddy & Giddy was transferred to a private unlimited
company, Hamptons, which carried on the business, formerly carried on by Giddy
& Giddy, under the new name of Hamptons Giddy & Giddy.
On May 1 1988
Mr Padfield ceased to be the managing director and was replaced by his fellow
director, Mr Broom who took over at the Maidenhead office. Mr Broom had joined
Giddy & Giddy in 1976 as a negotiator in the Maidenhead office. He became a
partner in November 1986 and a director of Giddy & Giddy on April 1 1987.
From May 1988 until his departure in April 1989 Mr Lancaster was responsible,
in his capacity as landbuyer, to Mr Broom.
The later
history of Hamptons was that in September 1990 it was acquired by the Bristol
& West Building Society. Hamptons had grown fast by acquiring groups of
estate agents, so that in time it had 120 offices in southern England.
2.
Organisation
Giddy &
Giddy had a separate commercial department run by John Williams, from offices in
Maidenhead and Slough. The department had its own logo for use on report forms
and other stationery. When the commercial departments of the various firms were
acquired by Abaco they were amalgamated to carry on business under the name of
Lambert Smith Hamptons until about December 1990.
Before early
1988 Giddy & Giddy did not employ qualified surveyors. Any valuation work
required to be done was put in the
basis. Valuation instructions for residential properties received from building
societies were carried out for Giddy & Giddy by a semi-retired former
employee, Brian Weston FRICS FSVA, and by Fennymore Hepple & Co. The
valuations were typed and sent out under Giddy & Giddy’s letterhead. They
were countersigned by Mr Padfield, for Giddy & Giddy, without his having
carried out inspection of the property.
Valuation
arrangements changed in early 1988 when a survey and professional department
was set up to undertake surveys and valuations for lenders and others. Mr Simon
Lloyd Davies FRICS, a former equity partner in Messenger May Baverstock, was
put in charge and Mr Nicholas Jacks ARICS, also previously employed by
Messenger May Baverstock, worked under him in the Maidenhead office from about
April 1988. He performed residential valuations. After the arrival of Mr Jacks
the use of consultants ceased. If Mr Jacks for some reason was not available to
do a valuation, another surveyor employed by Hamptons would be instructed to
carry out a valuation for a building society. Instructions by building
societies to carry out valuations were usually given in writing direct to the
department at the Maidenhead office. In common with most other estate agents,
Hamptons’ policy was that valuations for lending institutions should be
individually signed by a member of the Royal Institution of Chartered Surveyors
or of the Institution of Authorised Valuers, giving the qualifications of the
valuer concerned. It was not the practice for valuations of unqualified persons
to be countersigned by qualified persons. Fees for valuation work were dealt
with through the central accounts department. Before the autumn of 1987 the
procedure was that a draft debit note with the details of the work was
submitted to the accounts department which issued and submitted an invoice to
the client. After autumn 1987 invoices were submitted direct by those carrying
out the valuations to the client, with a copy sent to the central accounts
department. Fees were paid direct to the accounts department. Copy invoices for
fees were looked at on a weekly basis by Mr Broom and also from time to time by
Mr Padfield.
3.
Engagement of Mr Lancaster
From 1984
until the spring of 1985 Mr Vic Evans was employed by Giddy & Giddy to
build up a land department at the Maidenhead branch, by locating sites for
residential development and marketing them on behalf of clients. Mr Evans left
Giddy & Giddy early in 1985. On April 23 1985 Mr Lancaster applied, by
letter from his home in Bracknell, from which he had been working, to take the
place of Mr Evans in the land department. Mr Evans had told him that he was
shortly leaving Giddy & Giddy. Mr Lancaster inquired whether Mr Padfield
was considering an application ‘for the position of Land Manager’. Mr Lancaster
claimed to have acted as an independent landbuyer and as residential and
commercial consultant for new building for the past three years. He stated that
he acted for, and been retained by, many of national developers in the Thames
Valley and in and around London. He said that, if Mr Padfield wished to discuss
the matter with him, he would provide ‘in depth background’ and a CV. Mr
Lancaster was not qualified. He did not claim to be qualified either as a
surveyor or a valuer. His only qualification was Associate of the Institute of
Business Agents (AIBA), a membership not recognised in the industry as a
qualification to make valuations. Mr Lancaster was at that time just over 40
years old and was married with two children. He had been educated at Worth Abbey.
Mr Padfield
signed a letter engaging Mr Lancaster on April 29 1985. Mr Lancaster was
appointed landbuyer from May 7 1985 on agreed terms and conditions. He was to
be paid on a commission basis with a guarantee minimum figure of £1,500,
payable four-weekly in arrears. Commission was to be 10% of all fees and
commissions paid to Giddy & Giddy for land acquisitions and sales dealt
with by him. He was also to be paid a commission of 10% of the commissions paid
to Giddy & Giddy, on the sale of any new property sold by Giddy &
Giddy, following the introduction of land by him. Fees earned for planning
applications, drawings and plans would be credited to him. Mr Lancaster would
be entitled to a firm’s car. Normal office hours were specified, plus Saturday
morning work.
Neither the
letter of application nor the letter of appointment referred expressly to any
limitation of Mr Lancaster’s previous experience or his future activities to
residential property. No mention is made in the letter of engagement about valuations
or appraisals of property. In May 1985 Mr Lancaster began to work for Giddy
& Giddy in the land department of the firm at 11/13 Queen Street,
Maidenhead. Towards the end of 1985 the land department and Mr Lancaster moved
to an office in Thistle Cottage, Lower Road, Cookham. Mr Lancaster was joined
soon after by Mr Haynes, a long-serving member of the firm with considerable
experience of estate agency work. Mr Haynes was more concerned with the
administrative and management side. Both Mr Lancaster and Mr Haynes were under
the supervision of Mr Padfield. Supervision took the form of informal
discussions with Mr Padfield from time to time. There were no written reporting
procedures. Mr Lancaster was frequently out of the office. He concentrated on
developing contacts and marketing assembled sites, largely residential. His
conditions of engagements were varied. In December 1986 Mr Padfield informed Mr
Lancaster that his guaranteed minimum salary would be increased as from April 1
1987 to £20,000. He was also paid a bonus of £2,000 at the beginning of 1987.
As from April 1 1987 he was made an ‘associate’ of the firm. He never became a
partner in Giddy & Giddy, or a director or an associate director of Giddy
& Giddy Ltd, or of Hamptons. From early 1988 he ceased to be called an
associate.
In May 1988 Mr
Lancaster and the land department moved from the Cookham office to an office in
Marlow. He became subject to the supervision of Mr Broom, in the Maidenhead
office. The land department was renamed ‘Hamptons Residential Developments’ on
the notepaper.
During 1987
and 1988 Mr Lancaster spent a considerable amount of his time in Antigua
developing a project described later. About 50% of his work load was in Antigua
in 1987. He spent almost all of his time there in 1988. While he was busy on
the project in Antigua the domestic residential property market collapsed in
about August 1988.
On his return
from Antigua early in 1989 Mr Lancaster was transferred from the Marlow office
to the offices in Queen Street, Maidenhead. Mr Robin Nichols was appointed by
Mr Broom to work in the land department in the Marlow office. It was not until
about the end of February 1989 that Mr Lancaster actually moved into the
Maidenhead office where he was treated as the manager of the residential
developments department. He remained there until the end of April 1989 when he
resigned. He left Hamptons Giddy & Giddy to set up his own business which
traded from an address in The Broadway, Maidenhead, under the name Residential
& Commercial Agencies Ltd. Mr Lancaster removed papers and files concerning
his work with Hamptons. Initially the letter heading of his new firm claimed
that it was ‘In association with Hamptons International’. Hamptons did not have
the association claimed by Mr Lancaster and, after protest from Hamptons’
solicitors in August 1989, that claim was removed from the notepaper.
He remained in
contact with members of Hamptons. For example, in the summer of 1989, at Mr
Lancaster’s request, Mr Jacks signed a valuation of land at Bray. The letter of
valuation had been prepared by and signed by Mr Lancaster. Mr Jacks appears to
have thought that Mr Lancaster was still employed by Hamptons at that time and
had no reason to doubt Mr Lancaster’s integrity. Mr Jacks, who was very busy at
that time, soon came to appreciate that he made a mistake in countersigning the
valuation.
In the months
following Mr Lancaster’s departure, more and more came to light about his
activities. It appeared that he had been dealing with matters from his home address
and had given his home phone number to clients. Although Hamptons had its own
facsimile apparatus at Maidenhead and Marlow, Mr Lancaster had used an outside
fax to communicate with the building societies. He dealt with inquiries direct,
which should have been channelled through the office. He received fee payments
direct. Most important of all, it was
valuations for lending institutions and building societies in respect of a
number of hotels.
E. Actual
authority
The society’s
case is that Mr Lancaster had express or implied actual authority from Giddy
& Giddy and Hamptons to value commercial properties of all types, sizes and
value, including hotels, for clients, including lending institutions.
Such authority
is alleged to have arisen from: (1) the terms of his original engagement on
April 29 1985, which remained unaltered after Hamptons acquired Giddy &
Giddy; and (2) the fact that the carrying out of his duties habitually included
valuation of commercial properties contained in long, detailed reports for
Giddy & Giddy and Hamptons, who submitted invoices to the clients for Mr
Lancaster’s services in respect of those reports and valuations.
In view of
these contentions, it is necessary to examine Mr Lancaster’s activities from
May 1985 onwards in order to see what reports and valuations he in fact made
and to examine the circumstances in which he made them.
Hamptons accepts
that in 15 cases Mr Lancaster acted within the scope of his authority. It
submits that those cases show the limits to be drawn between those activities
of Mr Lancaster which are within his authority and those which are outside the
scope of his authority as a landbuyer.
On the other
hand, the society relies on the 15 cases of admitted authority to support its
case both on express or implied actual authority and on ostensible authority.
It will, therefore, be necessary to examine in some detail Mr Lancaster’s
activities in connection with each of these properties. It is convenient to do
this chronologically.
1. May
1985 — Westwinds, Carnation Nurseries Site, Bracknell, Berkshire
Between May
1985 and March 1989 Mr Lancaster gave advice to Mr Ian Gale on planning aspects
and potential residential development of land within the Bracknell new
development area. Mr Lancaster’s correspondence on this site was on land
department notepaper using the address at Cookham or Maidenhead. He described
himself as ‘land manager’. He gave general advice on planning permission and
the likely costs of development. He expressed a view in correspondence on the
estimated worth of the site, but he gave no formal valuation. He conducted
negotiations with prospective developers in relation to an option agreement. A
sale was ultimately concluded with Ideal Homes and commission on that sale was
paid to Giddy & Giddy in March 1989, amounting to £11,741 (including VAT).
2 August 1985 — The Paddock, Chandler’s Lane,
Yateley, Surrey
This property
was a substantial late Victorian house. Between August 1985 and May 1988 Mr
Lancaster advised the trustees of JL Armstrong in relation to planning
permission and other matters associated with the property, which was situated
in a residential zone. Instructions came from a firm of solicitors in
Weybridge, Guillaume & Sons, to Giddy & Giddy’s Camberley office, who
referred it to the Maidenhead office. On April 1 1986 Mr Lancaster provided a
valuation of the property on land department notepaper from the Cookham office.
The instructions were for a valuation of the freehold on the open market as at
December 3 1985. That was the base date for capital gains tax purposes. He gave
a valuation of £250,000. There was no existing planning permission on the property.
The trustees were anxious to obtain planning permission for the residential
development of The Paddock. Mr Lancaster inspected the property, but there was
no structural survey and his valuation did not take into account the potential
development value. On December 31 1987 the solicitors gave instructions to
Giddy & Giddy’s land department at Cookham to update the valuation of April
1986. On January 14 1988 Mr Lancaster produced an amended valuation in which it
was stated that the value of the property, as at November 30 1985, was
£375,000, which took into account the suitability of the property for
residential development. The amended valuation was required for capital gains
tax purposes in negotiations between the solicitors and the district valuer.
A fee of £975
was charged for the valuation. Fees were also charged for the submission of
drawings for planning permission in connection with instructions given to
obtain outline planning permission. Giddy & Giddy later received
substantial commission on the sale of the property to Costain in 1988.
Mr Padfield
and Mr Broom gave evidence that Mr Lancaster’s work on this property was in the
nature of an authorised ‘appraisal’ and was the type of work that Mr Lancaster
was employed to carry out. Mr Haynes also gave evidence that he knew of Mr
Lancaster’s involvement and that valuations for probate and capital gains tax
purposes were occasionally done by unqualified persons.
3. August
1985 — Land off Ray Mill Road East, Maidenhead, Berkshire
On August 9
1985 Mr Lancaster made a valuation report on this freehold property in the name
of Giddy & Giddy for Mr P Prior of Summerleaze Gravel Co Ltd. A fee of
£172.50 (including VAT) for his report and valuation was charged and sent to
the accounts department of the Maidenhead office of Giddy & Giddy.
The property
consisted of 2.87 acres of land. Mr Lancaster’s valuation was not for mortgage
purposes, but was for probate purposes. He gave an open market valuation as at
March 31 1982. In his view, the open market value with the benefit of planning
permission for residential development for two sites on the land totalled
£482,500.
On January 24
1986 Mr Lancaster made a further valuation, this time of 2 Cranford Farm
Cottages, with grazing land at Ray Mill Road East. He valued the cottages’ land
at £14,000. The fee for his work was paid as before.
On January 2
1987 Mr Lancaster made an open market valuation of the 2.87 acres for the
trustees of the RS Prior settlement. The valuation was as at April 6 1965
(£4,810 without planning permission) and was provided for capital gains tax
purposes. The valuation was given pursuant to instructions addressed to Mr
Lancaster at the Cookham office on November 14 1986. The valuations were on
Giddy & Giddy ‘Land Department’ notepaper.
Mr Broom, Mr
Padfield and Mr Haynes regarded these activities of Mr Lancaster as ‘authorised
appraisals’ of the type Mr Lancaster was employed to do. Mr Broom accepted that
there may be fine line between the valuation and an ‘appraisal’. An appraisal
was more an assessment of opportunities, whereas a valuation depended on a
secondary purpose, though there were cases where an appraisal could include a
valuation.
4. August
1985 — Blackamoor Lane, Maidenhead, Berkshire
On August 29
1985 Mr Lancaster made a report on this land for Mr R McManus, of Hydebuild Co
Ltd. The valuation was signed in his name, followed both by the initials IABA
and FPCS (Fellow of the Property Consultancy Society). The valuation, on Giddy
& Giddy notepaper, was £200,000 for phase 1 residential planning permission
and £1m for phase 2. Mr Padfield gave evidence that Mr McManus was trying to
get planning permission. Mr Padfield asked Mr Lancaster to do work for which
Giddy & Giddy submitted an invoice. Mr Padfield said in evidence that the
firm would not normally charge a fee in these circumstances. He would hope to
obtain commission on a subsequent sale of the property. Mr Padfield regarded
this as an instance of an ‘authorised appraisal’.
5. October
1985 — Hills Place, Blackpond Lane, Farnham Common, Berkshire
This property
was a substantial old country house with 3 acres of formal gardens. It was
owned by Mr SW Knott, who died on September 19 1985.
On October 9
1985 Mr Broom made a valuation report for the executors of Mr SW Knott. The
property was valued as at September 19 for probate purposes. Instructions had
been sent to Mr Padfield at the Maidenhead office on September 27 1985 by the
solicitors acting for the executors, Turner Kenneth Brown.
aspects. They worked jointly on the production of the report. Mr Lancaster
investigated the planning permission. He inspected the property and drafted
part of the report which dealt with planning matters. A separate brief report on
December 6 1985 regarding the condition of the property (brickwork, roofs and
so on) by Mr Weston FSVA was produced at Mr Broom’s request. Mr Broom discussed
the matter with him and Mr Lancaster. It is accepted by Hamptons that this was
not an appraisal or guide to the sale price. The valuation of the property at
£235,000 was for a specific purpose relevant to the correct calculation of
capital transfer tax upon Mr Knott’s death.
6.
November 1985 — Queen’s Hotel site, Cliftonville
This site was
owned by Ivydene Properties Ltd. On November 11 1985 Mr Lancaster valued the
3.5-acre site for Ivydene Properties. He put an existing market value on the
site with planning permission at £3.56m. The valuation was addressed to a Mr
Denis Barclay on land department notepaper from the Cookham office. Mr Haynes
had visited the site with Mr Lancaster. It was formerly the site of an hotel
which had been demolished. The proposal was there should be planning permission
for 76 two-bedroom apartments, intending to be retirement flats, and six town
houses. Mr Haynes’ evidence was that he thought that the instructions were for
the appraisal of land with the benefit of planning permission.
7. April
1986 — 8/9 Frampton Close, Woodley, Berkshire
On April 7
1986 Mr Lancaster gave advice to a client of Giddy & Giddy, Mr M Akram, in
relation to planning permission for the residential development of a building
plot on this site. Mr Haynes was aware of Mr Lancaster’s involvement and a fee
was paid to Giddy & Giddy for Mr Lancaster’s work.
8. May
1986 — Skindles Hotel, Maidenhead, Berkshire
This was a
23-room hotel with river frontage and an open area at the side. At that time
the hotel was in poor condition. In May 1986 Mr Lancaster, on the instructions
of the City solicitors, Simmons & Simmons, gave an informal valuation on
the market value of the hotel with a potential redevelopment site.
His views were
contained in a short letter which contained ‘an overview’ of the value after
discussion of the matter with someone, not in Hamptons, who was experienced in
the hotel market. Mr Haynes knew of Mr Lancaster’s involvement in the matter.
In June 1986 a fee of £138 was paid to Giddy & Giddy’s accounts department.
The property was sold about 18 months later for £5.7m, with the benefit of
planning permission for an extension of up to 80 bedrooms.
The society
relies on this as an instance of Mr Lancaster’s involvement in the valuation of
hotel property.
9. May
1986 — Tucktonia, Stour Road, Christchurch, Hampshire
From about May
1986 onwards Mr Lancaster was engaged, in his capacity as land manager at
Cookham, in arranging a transaction concerning the residential development of
this land. It does not appear that he gave any valuation. No lending was
involved. There is little evidence relating to this property save that in July
1986 the vendors of the property were A M K Investments Ltd, of Guernsey, a
company possibly connected with Mr Toms, whose solicitors were Alastair Porter
& Co, of Lincoln’s Inn Fields. The proposed purchaser was Costain Homes
(Southern) Ltd.
Mr Padfield’s
evidence was that Mr Lancaster’s involvement in this project was in the type of
work that he was employed to undertake for Giddy & Giddy.
10. July 1986
— Building Plot, The Lodge, Altwood Bailey, Maidenhead
In July 1986
Mr Lancaster was involved in giving advice to a client of Giddy & Giddy, Mr
H Nightingale, in connection with the obtaining of planning permission for a
residential development of this land. A fee was paid to Giddy & Giddy.
11.
January 1987 — Land at Redhill, Surrey
On January 22
1987 Mr Lancaster was involved with a client of Giddy & Giddy, AI Ltd, in
connection with the residential development of this land. A commission on the
sale of the land to Highcross Ltd, Newbury, amounting to £7,475, was paid to
Giddy & Giddy. Mr Haynes was aware of Mr Lancaster’s involvement in this
land.
12. March
1987 — Former Station House, Woodburn Green
In March 1987
Mr Lancaster made a report on the development of this residential land to TW
Stuckberry & Sons. A fee of £115 was paid to Giddy & Giddy for the
report. Mr Haynes was aware of Mr Lancaster’s involvement.
13.
October 1987 — 69 Skimped Hill
In October
1987 a fee was paid in respect of Mr Lancaster’s services for Mr and Mrs Sucias
in connection with the residential development of this land. Mr Haynes was
aware of Mr Lancaster’s involvement.
14.
January 1987 onwards — Antigua Lawries Bay Project
Mr Lancaster
was heavily involved in a development project at Lawries Bay, Antigua,
throughout 1987 and 1988. Mr Padfield was aware of Mr Lancaster’s involvement
in the project and of the fact that it occupied much of his time. Mr Padfield
gave evidence that he was aware that Mr Lancaster had been engaged by the owner
of the property to assist in a development of a holiday complex; and that this
would involve appraisals of the value of land, but he was not aware of any
valuations made by Mr Lancaster for lending institutions. As Mr Lancaster spent
much of his time on the development project in Antigua, it is important to see
what he was in fact doing and how much Giddy & Giddy and Hamptons knew of
his activities.
Mr Lancaster’s
activities in 1987 were summarised in a report, which he made for Mr Padfield
on January 4 1988.
In January
1987 Mr Lancaster received instructions from Western Development Corporation
Ltd, whose principal shareholder was Mr David Toms, to identify land owned in
Antigua and to report on its development potential for a tourist resort consisting
of a 250-bedroom hotel, 342 residential units and an 18-hole golf course. In
March 1987 Mr Lancaster was instructed by the same company in connection with a
land dispute with the Government of Antigua & Barbuda and give evidence in
legal proceedings concerned with that dispute. In June 1987 Mr Lancaster was
instructed to obtain planning permission on the site for a tourist resort.
Planning permission was granted in August 1987. In September 1987 Mr Lancaster
was instructed to negotiate a settlement of the land dispute and to set up a
professional team in the United Kingdom to proceed with the development. The
land dispute was settled in October 1987. The settlement involved the setting
up of a joint company with the Government of Antigua holding a 25% share and
development on a further 60 acres was negotiated. In December 1987 the
appropriate transfers were completed and in 1988 advertising started in
relation to the development. During that period Mr Lancaster earned fees of
£65,000 in connection with the land dispute and £20,000 in connection with
negotiations for the additional land.
Mr Lancaster’s
activities continued in 1988. His instructions included arrangements to act as
selling agent for a further fee of £100,000 before the development commenced and
to assist in the raising of development funding in the sum of about £30m. It
was anticipated that there would be sales over a five-year period in excess of
£100m, yielding fees in excess of £3m. The proposal was that Mr Lancaster would
undertake the project management of the development and would act on behalf of
Mr Toms in the development of a further area of some 150 acres in Jamaica.
Meanwhile,
there were various developments at the English end. On January 5 1988 Mr
Padfield wrote to Mr Perks at Hamptons, Arlington Street office, and sent him a
copy of Mr Lancaster’s report. He estimated that about 50% of Mr Lancaster’s
time in 1987 had been taken up with the Antigua project. Mr Padfield suggested
that it would be sensible for Hamptons International to take control of the
situation and to meet Mr Lancaster who might be replaced by a new land or new
homes person at Giddy & Giddy. A meeting took place on January 25 between
Mr Lancaster, Mr Perks and Caroline Scaramanga to discuss the Antigua project.
On February 3 a memorandum was sent by Caroline Scaramanga to discuss the
Antigua project. On February 3 a memorandum was
points about the project. A further meeting was arranged for February 25.
On March 31
1988 an invoice was sent to Western Development Corporation for a fee of
£65,000 for negotiations, planning permission, reports, discussions and
appraisals. In view of a dispute, which later occurred about the payment of the
sum, this invoice is of some importance.
On April 25
1988 a meeting took place at Hamptons to discuss, among other things, the
outstanding sum due from Western Developments and a decision was taken that Mr
Perks should meet Mr Toms to arrange for that money to be paid. There were also
discussions about the funding of the project. On May 24 a further meeting took
place between Mr Toms, Mr Perks, Mr Lancaster and Miss Scaramanga. Mr Perks
brought up the question of the outstanding fee of £65,000 due to Giddy & Giddy
for work carried out to date. It was stated that Hamptons was not prepared to
support the project until the outstanding fee of £65,000 was paid. Mr Toms
insisted that the sum should be paid from the offshore company. Further
discussions took place about the fee. On June 13 Mr Lancaster sent a copy of
the memorandum to Mr Broom. He said that he found the earlier discussions about
the fees embarrassing and was placed in an invidious position. Mr Toms was not
in a position to pay the sum in the United Kingdom from personal resources as a
link between himself and an offshore company would have to be declared. The
offshore company was not in funds. A draft letter was prepared on Astra
Holdings notepaper addressed to Hamptons Giddy & Giddy, at Marlow, for the
attention of Mr Lancaster confirming instructions to act as project
co-ordinator and selling agent: confirming the fees of £65,000 for the past
year; and stating arrangements to receive the fees to date giving an
undertaking to pay £35,000 as a sign of good faith. On June 17 Mr Lancaster
sent a memorandum to Mr Broom referring to the draft letter, which had been
approved by Mr Toms and Astra. Terms were agreed to fund fees and professional
work out of a private sale in the United Kingdom. The internal accounts were to
show the outstanding accounts from Western Development Corporation/Astra; they
were to be considered as fully paid or written off. In July 1988 Mr Lancaster
and Mr Broom contacted Mr Alastair Porter several times about payment of the
outstanding fees before the valuation was completed. Mr Porter was the senior
partner in a firm of solicitors, Alastair Porter & Co. His clients included
Mr Toms and his company Arganbrook Ltd. Mr Porter acted in the conveyance of
the Royal and Grand hotels, Clacton-on-Sea, to Tournay. His firm also acted on
the acquisition of land at Lawries Bay, Antigua, which was purchased from
Western Development Corporation Ltd by another company, of which Mr Porter and
Mr Toms were directors, Astra Holdings Ltd.
Mr Toms was interested
in a number of companies, including Arganbrook Ltd and Astra Holdings. He had
commissioned Mr Lancaster to report on the feasibility of developing the Rooms
Estate, at Lawries Bay, to value the site and to deal with the dispute about
the ownership of land there, which was resolved in January 1988. Mr Toms had
been provided with a background report by Mr Lancaster and, by the summer of
1988, was anxious to receive too a full report, including valuations. Mr Toms,
had however, informed Mr Porter that he was unhappy about Mr Lancaster’s
conduct and the quality of the work done by him to support of expenses paid by
Astra Holdings. As Hamptons was pressing for payment before further work was
done by Mr Lancaster on Lawries Estate, a meeting was arranged at the end of
July at the offices of Mr Porter’s firm, at that time located at 1 Lincoln’s
Inn Fields.
The meeting
was attended by Mr Toms and Mr Porter and by Mr Broom and a colleague from
Hamptons. It is not in dispute that Mr Broom left the meeting with a cheque
drawn on Arganbrook Ltd and signed by Mr Toms for the sum of £74,750.
Subsequently Hamptons sent to Mr Porter’s offices a receipted invoice dated
July 28 1988 and a letter from Mr Broom addressed to Mr Toms dated August 1
1988.
Hamptons
invoice is headed ‘Land Rooms Estate, Antigua’. It sets out the following
items:
March 1988 to
general advice, recommendations and reporting relating to sale of Royal Hotel,
Marine Parade, Clacton-on-Sea.
Advice and
reports relating to various overseas projects and hotels Selling fee for Royal
Hotel
|
Fee as agreed |
£65,000 |
|
VAT at 15% |
£9,750 |
|
Total |
£74,750 |
The letter from Mr Broom from Mr Toms is headed ‘Re: Royal Hotel,
Marine Parade, Clacton-on-Sea‘:
I was very
pleased to meet you and Alastair Porter last week and I am writing to confirm
receipt of your cheque totalling £74,750 in settlement of our work carried out
to date in respect of the Royal Hotel, Manne Parade, Clacton-on-Sea.
I have asked
my accounts department to forward a receipted invoice which you should have
already received. I confirm that this fee is in settlement of all previously
submitted accounts relating to overseas work on your Antigua project,
specifically relating to our account number 2470 Astra Holdings Limited.
I am shortly
discussing with Graham Clark the possible involvement of Hamptons Giddy &
Giddy as well as using the benefit of Hamptons International and once Tim
Lancaster has discussed marketing recommendations with me. I shall contact you
to arrange a meeting.
The invoice no
2470 is the one that was submitted earlier in the year by Hamptons Giddy &
Giddy to Western Development, in Antigua, for the sum of £65,000. That invoice
was headed ‘land at Rooms Estate, Antigua’ and lists a number of matters of
professional services provided in negotiating the High Court case in Antigua,
negotiating with the Government in respect of additional land purchase, dealing
with planning permission, preparing and providing a full appraisal for the
whole project and so on.
There is a
conflict of oral evidence about what was said at the meeting. Mr Tom’s evidence
was that, well before he went to the meeting, he was critical of Mr Lancaster’s
work on the Antigua project, but he was persuaded at the meeting to waive his
doubts as a result of support given to him by Mr Broom and his colleague to Mr
Lancaster. Mr Toms wanted a site valuation which had not been provided in the
reports so far made by Mr Lancaster. He needed that valuation to raise project
finance. He considered that a Hamptons’ valuation report would be reliable as
to the actual value of the site. It could be used for that purpose. He was, for
these reasons, anxious to have a full report, including valuation. It was on
that basis that he made immediate payment of the sum of £74,750 to Hamptons.
Mr Porter’s
evidence was that Mr Broom and his colleagues stressed to Mr Lancaster’s
abilities. They expressed confidence in him for the work he had done in Antigua
and made it clear that they intended that Mr Lancaster would be preparing the
report needed by Mr Toms to raise development finance on the Rooms Estate, a
report which would include a valuation based on the proposed commercial
development. Mr Porter said they talked of him as a trusted colleague, that
they intended to make him an associate partner or partner in Hamptons and that
they were possibly going to open a Caribbean office with Mr Lancaster in
charge. According to Mr Porter it was made clear to him at the meeting that,
although the invoice referred to a ‘selling fee’ for the Royal Hotel
(erroneously, because Giddy & Giddy had not found the buyers), Mr Broom and
his colleague were fully aware that Mr Lancaster had prepared valuation for the
Royal and Grand hotels. They did not express surprise when Mr Toms proposed
that the figure for the settlement of the outstanding issues should not include
those valuations by Mr Lancaster. The agreed figure of £65,000 plus VAT,
included in part £2,000 to cover Mr Lancaster’s Giddy & Giddy valuations of
the two hotels.
In my
judgment, neither Mr Toms nor Mr Porter’s evidence of this meeting can be
relied upon. Both were closely cross-examined by Mr Slater on behalf of
Hamptons. I was left with the strong impression after cross-examination that it
was not safe to rely on the recollection
Mr Broom. His evidence was that the invoice which Hamptons submitted to
Arganbrook dated July 28 1988 no JD 0010 in the sum of £74,750 (£65,000 + VAT)
was not for work done by Mr Lancaster concerning Royal Hotel, but was for his
work on the Antigua project. The purpose of the meeting with Mr Toms and Mr
Porter was to obtain payment for the considerable amount of work which Mr
Lancaster had done on the Antigua project. Mr Haynes went with him and they had
with them an invoice dated March 31 1988 for £65,000. That invoice was
addressed to Western Developments Corporation and accurately set out the
services for which the invoice was raised. At the meeting Mr Porter asked Mr
Broom to replace that invoice with an invoice addressed to Arganbrook, the
company owned by Mr Toms, which would have sufficient money to pay the fee
after the sale of the hotel. Mr Broom was asked to alter the wording of the
invoice. He made pencil notes on the front and back of the invoice of the new
wording suggested which referred to advice and reports of the Royal Hotel. He
discussed this later with the chief executive of Hamptons, Mr Graham Clark.
They decided it was a legitimate means of Hamptons getting the money
reinvoicing another company, so long as the VAT element was shown. Hamptons
therefore produced a new invoice of the form requested. This had to include VAT
because it was no longer addressed to an overseas company. Mr Toms had given
the cheque at the meeting. Mr Broom read the letter of August 1 confirming
receipt of the money and receipted the invoice. He was unaware of the other
invoice dated June 16 1988 submitted to Accurate Investments or of an invoice of
the same date submitted to Arganbrook. There is no record of these invoices.
The invoices are irregular because there is no invoice number and the correct
address for remittance was obliterated and replaced with an instruction to
remit to 5 West Street, Maidenhead. No payment for those invoices was received
by Hamptons.
After the
meeting Mr Lancaster went to Antigua, where he incurred further expenses by Mr
Toms. Those expenses related not only to surveys and soil tests, but also to
personal expenses for hotels, as well as for drink and gambling.
On October 31
1988 a report was produced on behalf of Hamptons International relating to the
Lawries Bay project. It contained a valuation of the resort in the sum of
£16.5m. Although the report was dated October 31 1988 it was not received by Mr
Toms until December 1988. Mr Toms wished to submit the report to Standard
Chartered Bank with a view to obtaining finance for development. He claimed
that it had been withheld for several months by Mr Lancaster during which time
Mr Lancaster had been advising Mr Toms to accept an offer of £12m from a
company called Caribbean Leisure, which Mr Toms suspected was in some way
connected with Mr Lancaster. The report which Mr Toms received on the Lawries
Bay project was stated to be prepared by Hamptons International for Astra
Holdings. It was stated to be the work of Tim Lancaster of Hamptons Residential
Developments, previously an associate partner of Giddy & Giddy. The report
referred to Mr Lancaster’s qualifications in estate management and his previous
work as a consultant to major developers such as Wimpey and Costain plc. The
valuation of £16.5m as October 31 1988 was stated to be on the basis of a green
field site with valid planning consent for residential development and golf
course.
During 1990 Mr
Toms was still looking for finance for the development or for a buyer for the
project. He was advised by one of the banks approached by him that the
valuation of £16.5m was out of date. He said that he needed an up to date
valuation from Hamptons. A meeting was arranged between him, Alastair Porter
and Bru Pearce, of Hamptons International, to discuss an up to date valuation.
Mr Toms asked for Hamptons to provide one without further payment. Hamptons
were only prepared to produce one on further payment. Mr Pearce asked Mr Toms
to sign an indemnity to cover the past position, but he refused.
F. Property
valuations — disputed authority
Mr Lancaster
was involved in the valuation of many other properties during the period of his
employment from the end of April 1985 until the end of April 1989. Hamptons
disputes Mr Lancaster’s authority to make those valuations. As with the case of
those properties in which there is no dispute about Mr Lancaster’s authority,
it is convenient to deal with the ‘unauthorised’ valuations in chronological
order.
1.
December 23 1985 — Walstone House, 42 Botley Road, Hedge End, Southampton
On December 23
1985 Mr Lancaster provided a valuation of Walstone House for Mr J Copplestone,
of Walstone Holdings Ltd. The property in question was formerly a two-storey
residential building for which planning permission to convert to form a single
office building was granted. The conversion had been completed early in 1985.
Mr Lancaster placed a market value of £196,000 on the building.
The society
relies on this as an instance of a valuation by Mr Lancaster of a commercial
building. Instructions were passed to Mr Lancaster, at Cookham, in the land
department from Maidenhead. Fees amounting to £132.25 were invoiced from the
Maidenhead office to Walstone Holdings Ltd in March 1986.
Mr Padfield
gave evidence that he was not aware of this valuation. It is argued on behalf
of Hamptons that it was beyond the scope of Mr Lancaster’s authority.
2. April
1986 — Land at site of Queen’s Hotel, Cliftonville
In 1986 the
Mount Credit Corporation (now known as Mount Banking Corporation) made three
commercial loans on two connected companies in reliance on valuations of
properties made on its instructions by Giddy & Giddy. The two connected
companies were Ivydene Properties Ltd (whose chairman was Mr Denis Barclay) and
H Plan Manufacturing Ltd (whose chairman was Mr Tom Dunn). The lending officer
with Mount Credit Corporation, who dealt with the loan application, was Mr Sean
O’Neill. The first property was the Queen’s Hotel site. It was a freehold site
of about 3.5 acres formerly occupied by a hotel, now demolished. It was
proposed that it should be used for residential development.
On March 13
1986 a loan application by Ivydene was approved by the credit committee of
Mount Credit Corporation. An offer of a loan of £500,000 was made, subject to a
valuation, of the site showing that the amount of the advance did not exceed
70% of the valuation for mortgage purposes. The agreed purchase price of the
site was £500,000 with a sale on at £830,000 on a delayed completion.
On March 18
1986 the Mount Credit Corporation instructed Giddy & Giddy, at the Cookham
office, under Mr Lancaster’s reference, to prepare a report and valuation of
the site giving open market values and mortgage values. Evidence was given that
Mount Credit Corporation was prepared to use Giddy & Giddy as they were a
well known firm of surveyors and valuers. Mr Lancaster had already reported on
this property for Ivydene Properties in November 1985 giving an overall
valuation of £3.56m. There is no dispute that that report made by Mr Lancaster
was within the scope of his authority.
The Giddy
& Giddy report, given pursuant to Mount Credit’s instructions, was dated
April 8 1986. It was typed on paper by a typist at the Maidenhead office. At
that time Mr Lancaster was based in the Cookham office. The report was under Mr
Lancaster’s reference ‘TL’ and was signed in the firm’s name on paper, which
bore the Queen Street, Maidenhead, address of Giddy & Giddy. The mortgage
value was stated to be £750,000. Mount Credit found this valuation
satisfactory. The report and valuation fee for Mr Lancaster’s work was invoiced
by Giddy & Giddy on April 8 1986 and paid by Ivydene Ltd, as applicant for
the loan to whom the invoice had been passed by Mount Credit to Giddy &
Giddy. The amount of the fee was £2,817.50. It was the usual practice for loan
applicants to pay the valuation fee. The payment of the fee was recorded in the
ledgers of Giddy & Giddy under the heading ‘Re Queen’s hotel’. The client
was named as Mount Credit Corporation.
Hamptons’ case
on this valuation is that it was an instance of Mr Lancaster acting
fraudulently. He deceived the lenders and Giddy &
Alfaro Investments owned or controlled by him. He did not refer the matter to
Mr Padfield when the instructions were received. Mr Padfield was not aware of
the instructions or the project. In accordance with the practice of Giddy &
Giddy Mr Lancaster should have referred instructions to Mr Padfield. Mr
Padfield gave evidence that he would not have countersigned the valuation,
which was in respect of a property outside Giddy & Giddy’s area and stated
a relatively high value. Mr Padfield did, however, accept that he occasionally
looked at the ledgers kept in the accounts department and that he knew that
Mount Credit was a lending institution.
Mr Haynes was
aware of Mr Lancaster’s involvement in the Queen’s Hotel site project. He gave
evidence that he knew that Mr Lancaster had done work for Mount Credit. He had
seen that from the invoices. He knew that Mr Lancaster was dealing with the
site, that the project involved a commercial element and that H Plan and Mr
Barclay were involved. He had visited the site with Mr Lancaster. He had seen
that the hotel was demolished and knew that the proposal was to build
retirement flats on the site. He was not, however, aware that the reports had
been produced as valuations for lending institutions. He did not know that
Mount Credit was a lending institution. As far as he was concerned Mr Lancaster
was dealing with the site for the owners. He was not comfortable with the
matter and began to be concerned about indemnity insurance. He therefore spoke
to Mr Padfield about it.
3. July
1986 — Land at Wardsdown Nurseries, Flimwell, East Sussex
This property
consisted of a site of 7.5 acres and was the subject of application for a loan
by H Plan Manufacturing Co Ltd to Mount Credit Corporation.
On July 2 1986
the credit committee of the Mount Credit Corporation approved an application
for a loan of £600,000. An offer was made on July 4 1986 to H Plan, subject to
an independent valuation of the site showing that the amount of the advance did
not exceed 70% of the valuation for mortgage purposes. On July 16 1986 Mount
Credit Corporation instructed Giddy & Giddy, at the Maidenhead office,
without naming any particular individual, to carry out a valuation on its
behalf as to both open market, forced sale value and a figure for mortgage
purposes. Mount Credit regarded Giddy & Giddy as a well known firm of
surveyors and valuers. The purchase price was stated to be £950,000. Although
the instructions were addressed to the Maidenhead office, the valuation was
provided by Mr Lancaster operating from the Cookham office. The Giddy &
Giddy valuation was dated July 21 1986. It was typed on Giddy & Giddy notepaper
bearing the office address at Queen Street, Maidenhead. It contained Mr
Lancaster’s reference. The valuation was typed by Mr Padfield’s secretary, Anne
Gunner, and was signed in the name of Giddy & Giddy. The mortgage value of
the property was stated to be £1.43m and the open market value £1.68m. This was
acceptable for Mount Credit’s purposes. Giddy & Giddy rendered an invoice
and the account for the sum of £5,347.50 was, in accordance with the normal
practice of Mount Credit, paid by the loan applicants, H Plan. Payment was
entered in Giddy & Giddy’s ledger.
In September
1986 an invoice was submitted by Giddy & Giddy to H Plan for a valuation of
the property for PK Finance International VIC Ltd. The fee paid was £1,207.50.
On October 20 1986 an additional loan of £500,000 was made to H Plan,
syndicated with Bench Mark Trust Ltd who were happy with the Giddy & Giddy
valuation dated July 21 1986, which had been sent to them. Giddy & Giddy
authorised disclosure of the report to Bench Mark Trust by a letter dated October
6 1986 sent from the Cookham office under Mr Lancaster’s reference.
On March 18
1987 there was a further valuation by Mr Lancaster of a site adjacent to
Wardsdown Nurseries. It was a mortgage valuation provided for Mount Credit and
was typed on Cookham land department notepaper. The open market valuation
stated to be £610,000 and the mortgage valuation £518,000. On June 6 1987 a
valuation was provided by another firm, Monckton & Co, to Bench Mark Trust
Ltd. A copy of that report was provided to Mr Lancaster who commented in detail
upon it in a letter from Cookham to Mount Credit dated July 17 1987.
Hamptons’ case
in relation to these valuations by Mr Lancaster is, as with Queen’s Hotel site,
that Mr Lancaster was engaged in defrauding Giddy & Giddy. He had a
conflict of interest. This site was introduced by Alfaro Investments. A fee was
paid to that company.
Mr Padfield’s
comments in relation to this property are the same as on the Queen’s Hotel
site. Mr Haynes was aware of Mr Lancaster’s involvement in the development of
the site which had previously been used as a nursery. As far as he was
concerned Mr Lancaster was assisting in the obtaining of planning permission
for the site which was later sold for a sum in excess of £1m. His evidence was
that he was not aware of Mr Lancaster’s valuations of the property for a
lending institution. He could not recall seeing a report. He thought that Mr
Lancaster had been dealing with the project prior to joining Giddy & Giddy.
4. October
1986 — Land at Dal Road Industrial Estate, Luton
In October
1986 Norwich Union Life Assurance Society dealt with an application for
mortgage advance for £2m made by a firm of brokers (Seymour Adelaide & Co
Ltd) acting on behalf of H Plan Manufacturing Co Ltd. The brokers contacted the
Norwich Union about their client’s dissatisfaction with the valuation of
property at Dal Road, Luton, made by Connells on the instructions of Norwich
Union. The property in question consisted of units D, E, F and G at the
industrial estate in Dal Road. Mr Jim Lowe, the broker’s representative, asked
Norwich Union to obtain a second opinion on valuation from Giddy & Giddy.
Norwich Union
agreed to do this, provided that the valuation was done for them and was on the
same basis as the valuation by Connells, that is for mortgage purposes.
On October 13
1986 instructions were given to Giddy & Giddy Instructions were addressed
to Mr Lancaster personally, not to the firm. The brokers had provided the name
of Mr Lancaster of the ‘Land and Valuation Department’ at Giddy & Giddy
Cookham office.
A copy of a
report and valuation was received at Norwich Union’s offices by fax from Giddy
& Giddy, Maidenhead office, on October 17 1986. The report bore Mr
Lancaster’s reference and was signed in the name of the firm. The valuation was
stated to be £2,978m for mortgage purposes. Some queries were raised with Mr
Lancaster, on the telephone, relating to fire insurance cover and to a schedule
of tenancies.
A hard copy of
the report and valuation was received by Norwich Union from Mr Lancaster on
October 20. The report was in fact addressed to H Plan, Mr Barclay’s company,
not to Norwich Union. An invoice for a fee of £2,875 was sent to H Plan, not to
Norwich Union.
The evidence
of Mr Padfield was that he was not aware of this report and valuation. It was a
valuation produced for lending purposes and was a valuation of commercial
buildings. The instructions should either have been passed to the commercial
department of Giddy & Giddy, or should have been returned.
Mr Haynes gave
evidence that he thought the valuation was for the owner of the property, who
was a client of Mr Lancaster before he joined Giddy & Giddy. He was unaware
of the involvement of Norwich Union or that the report had been produced for
mortgage purposes. He thought that Mr Lancaster was appraising development
potential. He was concerned that it involved a commercial building.
The fee for
the report was received by Mr Lancaster personally from Mr Barclay.
5.
November 1986 — Buckingham Town Hall
On November 6
1986 Mr Lancaster, operating from the land department at Cookham, prepared a
valuation of Buckingham Town Hall for Prime Commercial Mortgages Ltd, of
Bournemouth, on instructions contained in a letter dated October 27 1986
addressed to Mr Lancaster at the Giddy & Giddy, Cookham office. He valued
this property, which had potential for commercial development, at £285,000 for
mortgage purposes. The report and covering letter were
completion. The report and covering letter simply stated the address of the
firm of Giddy & Giddy, chartered surveyors, land department, Cookham.
An invoice
dated November 7 1986 was sent by Giddy & Giddy to Prime Commercial
Mortgages for fees of £603.75 (including VAT) for the valuation report for
‘mortgage purposes’. Payment was made and, in the account books kept by Mr
Norwell at the Maidenhead office, the name of Prime Commercial Mortgages was
entered in the ledger.
Evidence was
given by Mr Padfield that it was outside the scope of Mr Lancaster’s authority
to make a valuation of a commercial property for lending purposes. This was a
former office building. Mr Padfield was not aware of Mr Lancaster’s involvement
in this property or his valuation of it, though Mr Lancaster had written a memo
to him on May 13 1987 about the property and how it might provide an
opportunity for a small estate agency office. Mr Padfield informed Mr Lancaster
that he was not interested.
Mr Haynes was
aware that this was a development with commercial possibilities, though he
could not recall seeing Mr Lancaster’s report or the valuation form from Prime
Commercial Mortgages.
6.
December 1986 — Land at Hill’s Place, Guildford Road, Horsham, Sussex
On December 12
1986 West of England Building Society (Bideford) instructed Giddy & Giddy
to carry out a formal mortgage valuation of this site, which was to be
purchased for a proposed residential development of flats by Highcross Ltd.
West of England Building Society enclosed with their instructions printed
‘Notes for Valuer’. A valuation had already been requested from Mr Lancaster by
Highcross on December 10 1986. West of England Building Society instructed
Giddy & Giddy, because they regarded them as a reputable firm. Instructions
were addressed for the attention of Mr Lancaster at the Cookham office.
On December 16
a valuation, dated December 15, giving a mortgage valuation of £1.492m, was
sent from the Cookham office to West of England Building Society. It was signed
in the name of Giddy & Giddy by Mr Lancaster. The valuation was typed on
Giddy & Giddy, Cookham office notepaper with Mr Lancaster’s reference. No
individual name or qualifications were stated at the end of the report. It was
Mr Lancaster’s first valuation for a building society.
An invoice was
sent from the Maidenhead office on May 16 1987 and was paid by the society on
behalf of the borrowers on May 22 1987. The payment of £4,025 was entered in
the ledgers of Giddy & Giddy. In cross-examination Mr Padfield agreed that
the ledger entry clearly showed dealing between Giddy & Giddy’s land
department and a building society and that the fees must have been for a
valuation. It was not, however, a matter which was brought at once to his
attention, even though he occasionally read the ledgers kept by the accounts
department.
Mr Padfield’s
evidence was that he could not remember this development. Mr Broom was not
aware of it, Mr Haynes was not aware that the society commissioned a report or
that Mr Lancaster had carried out a mortgage valuation. If he had been aware of
it, he would have referred the matter to Mr Padfield. Giddy & Giddy had not
received any instructions from this building society previously. He learnt that
Highcross had asked Mr Lancaster to carry out a valuation to be sent to the
society. It was Mr Padfield’s view that the instructions must have been
addressed to Mr Lancaster personally, otherwise the matter would have been
passed to the Maidenhead office to be dealt with there.
There are some
surprising features of this property. It is surprising that the building
society accepted the valuation when it was not signed by someone who appeared
to be qualified as a chartered surveyor. Further, the valuation was of a
property outside the geographical area of Giddy & Giddy.
7. January
1987 — FR Bailey Amusements Ltd — portfolio valuation
On January 19
1987 Mr Lancaster made a report and valuation of properties owned by Mr FR
Bailey, his family, FR Bailey Amusements Ltd and associated companies. The
properties included freehold and leasehold premises and an amusement arcade and
park in Clacton. The report was produced ‘for funding purposes’ and was sent to
Mountnessing Life and Pension Consultants Ltd under cover of a letter dated
January 19 1987. A further report dated January 21 1987 was sent to Mr Bailey
on January 26. It purported to be a joint report of ‘T Lancaster FPCS AIBA and
R Sloan FRICS’ on a portfolio of properties. Mr Sloan was stated to be of
‘Sloan & Co, 2 Spring Street, London W2, consultants and valuers on hotel
and leisure industries’. Mortgage values were given in the report.
The reports on
land department notepaper did not contain any addressee, but stated they were
required for funding purposes. Mortgage values were given of 10 properties.
Hamptons submits
that this was an unauthorised report, being a valuation of a business made for
lenders. Mr Padfield and Mr Broom gave evidence that they were unaware of this
project. Mr Lancaster had no authority to value businesses or buildings or to
value for lending institutions. Further, he had no authority to instruct an
outside surveyor, such as Mr Sloan, or to prepare such a report in conjunction
with a person outside the firm. It was not a land department matter.
Mr Haynes,
however, knew that Mr Lancaster was doing a valuation of a portfolio for the
Bailey family, a contact made through Mr Toms. Mr Haynes did not question Mr
Lancaster’s expertise in relation to the valuation of the portfolio, though he
was under the impression that it was for internal purposes. He did not know
that the report was signed by Mr Sloan and does not remember seeing the report.
He did not know that it was produced for funding purposes or that it was
submitted to any one other than the owners. He thought it was a ‘business
appraisal’.
The ledgers of
Giddy & Giddy show that a fee of £5,750 was paid in respect of this report.
8. July
1987 — Studio Master House, Alcock Works, Chaul End Lane, Luton
In July 1987
Recording Studio Design Ltd, a former current account customer of Credit
Lyonnaise Bank, Nederland, applied to Credit Lyonnaise to increase its
overdraft facility. A first charge on a property at Alcock Works, Luton, was
offered. The bank requested a valuation of the property, which was used for
light industrial purposes. The building was later called Studio Master House.
A valuation
dated July 21 1987 was provided. It was typed on Giddy & Giddy paper and
addressed to the bank. It bore the address of the Cookham office and Mr
Lancaster’s reference. An open market value of £550,000 was stated. The report
included comments on the structural state of the building. The application for
increase in the overdraft facility was refused.
A further
unaddressed valuation dated October 13 1987 was sent to the brokers, Seymour
Adelaide (Mr Lowe), from the land department at Cookham. It was signed in the
name of Giddy & Giddy. A view was expressed that the property provided
adequate mortgage security. A copy of the report was sent to Mr Wilson of
Studio Recording Design Ltd.
On November 19
1987 Norwich General Trust Ltd wrote to Giddy & Giddy at Cookham (the
letter was not addressed to Mr Lancaster personally) requesting a formal
valuation of the property for the purpose of commercial mortgage valuation. A
report was sent by Mr Lancaster under cover of a letter from Cookham dated
November 26 1987. Mr Lancaster wrote a further letter on December 11 1987
confirming various points as to the date of valuation and the progress of works
on the site. He confirmed that a loan of £357,000 was more than adequately
secured on the property. A fee of £1,150 was invoiced. In the invoice the
client was stated to be Paul Dobson.
Mr Padfield
and Mr Broom gave evidence that this was not the type of property that Mr
Lancaster was employed to appraise or value and it was outside Giddy &
Giddy’s normal working area. It was industrial premises outside Giddy &
Giddy’s area and the valuation was for a lending institution.
Mr Haynes gave
evidence that he could not recall seeing the report either on the Alcock Works
or on Studio Master House. All he knew was that Mr Lancaster was doing a
valuation of premises in Luton for Mr Paul Dobson.
9. October
1987 — Hanslope Lodge (later called Hatton Court Hotel) Buckinghamshire
Hatton Court
Hotel, Hanslope, Buckinghamshire, was owned by a company owned or controlled by
Mr Paul Dobson.
In May 1987
Property Lending Trust plc received an application for a mortgage advance from
a representative of a firm of brokers, Seymour Adelaide & Co Ltd, acting on
behalf of Mr Paul Dobson. The advance was intended to be secured upon the
security of the property known as Hanslope Lodge. Nothing further happened,
following a request for more information, until October 1987 when the broker’s
representative, Mr Lowe, informed Property Lending Trust that Mr Dobson wished
to proceed with his application for an advance. The application, which was
placed before the credit committee, including an unaddressed report and
valuation on Giddy & Giddy notepaper (Cookham office) signed in the firm’s
name under Mr Lancaster’s reference. It appears that it was dated October 8
1987 and was intended for mortgage purposes. Hanslope Lodge in its existing
condition was valued at £475,000 on the open market.
The senior
loan manager, Mr Ian Townsend, regarded Giddy & Giddy as a well respected
established firm. The fact that the valuation was not addressed to Property
Lending Trust or to anyone else by name was not regarded by Mr Townsend as
unusual. He gave evidence that borrowers at that time were using the same
valuations to support applications to a number of different lenders.
On October 28
1987 Property Lending Trust made an offer to lend £180,000 on condition that
the valuation from Giddy & Giddy should be addressed to Property Lending
Trust, that £150,000 of that sum should be released against approved
architect’s and surveyor’s certificates and that £30,000 should be held on
deposit. On the same date Giddy & Giddy was instructed by letter to that
firm to address the valuation to the Property Lending Trust and to update it to
include the mortgage valuation. Giddy & Giddy was sent conditions to be
followed, a form of valuation for property insurance purposes and the Property
Lending Trust’s guidance notes for valuers. They required the report to bear the
signature of a partner of the firm carrying out the valuation who should also
be a qualified member of the Royal Institution of Chartered Surveyors. In a
letter dated November 2 1987 from Giddy & Giddy’s Cookham office under Mr
Lancaster’s reference it was stated that the report was signed by a senior
partner, a member of the RICS. It was signed in the corporate name. The report
was addressed to the Property Lending Trust and dated November 2 1987.
Individual pages were dated October 8 1987. The mortgage value was added in the
sum of £542,000.
A second
letter dated November 4 1987 was received by Property Lending Trust on the same
day as the earlier letter (November 5), purporting to correct an error in the
earlier letter, which stated that the signatory of the valuation report was a
senior partner who was also a member of the RICS. The second letter, signed by
Mr Lancaster, stated that the signature was that of an associate of the
company, not by the senior partner, and that Giddy & Giddy’s indemnity policy
covered the report. Property Lending Trust were satisfied with this and did not
take up the offer to return the valuation report for countersignature by a
senior director.
There was
regular contact between Mr Townsend of Property Lending Trust. Mr Dobson and Mr
Dobson’s accountant, Chris Wilson, as to the purpose of the loan, which was to
finance the completion of refurbishment work to the property. Inquiries were
made about progress with the works. In relation to one inquiry a building
surveyor, Mr Michael Waples of Leighton Buzzard, in his capacity as surveyor to
the property, stated that certain work had been carried out subsequent to the
valuation of Giddy & Giddy dated October 8 1987 and confirmed that the
value of the works carried out was in excess of £150,000. Mr Townsend informed
Mr Wilson that he could not rely on Mr Waples’ valuation, as he was not
professionally qualified and he wished a stage payment valuation to be obtained
from Giddy & Giddy.
On January 26
1988 a letter was sent by Giddy & Giddy (land department, Cookham office)
under Mr Lancaster’s reference, signed in the name of the firm. The letter
contained a valuation of an additional building known as The Cottage, which was
not contained in the earlier valuation. The cottage was valued at £85,000. The
letter confirmed that a sum in excess of £150,000 had been expended and advised
release to Mr Dobson of the advance of £150,000 held by Property Lending Trust.
They were happy to release the funds on the basis of that valuation.
Mr Padfield
gave evidence that this valuation was outside Mr Lancaster’s authority. The
valuation was given to a lending institution on the basis of the redevelopment
of the property as an hotel. That was a specialist area. Mr Haynes gave
evidence that he was aware in October 1987 that Mr Lancaster was preparing a
report on the development potential of Hanslope Lodge for the owner and that he
produced a further report on the property after the development work was
finished. He did not appreciate that the property was an hotel or that the
valuation reports were assigned to lending institutions.
There were
further dealings in relation to Hatton Court Hotel in 1988 and 1989.
In 1988 Mr
Dobson’s accountant, Mr Chris Wilson, recommended Mr Lancaster of Giddy &
Giddy when Mr Dobson inquired about the valuation of the hotel to secure a
mortgage. Mr Dobson contacted Mr Lancaster at Giddy & Giddy at his
Maidenhead office. A valuation intended to be used for mortgage purposes was
prepared for Mr Dobson and dated May 20 1988. It was typed on Hamptons Giddy
& Giddy notepaper (Marlow office) under Mr Lancaster’s reference and signed
in the firm’s name. A valuation as an hotel on the open market of £1.2m was
given. There was also a valuation of Garden Cottage, as at May 16 1988, put at
£125,000. An invoice for fees was rendered on May 27 covering valuations of
Hanslope Lodge, Garden Cottage, another property called Gatehouse Cottage and a
further property of Mr Dobson called Britcastle Antiques Emporium, Bedford. The
fees were in the sum of £1,150. The account of Britcastle Ltd, trading as
Hatton Court, were not paid until June 1989, after another fee note had been
submitted on June 22 following a reminder from Mr Lancaster and a letter from
Mr Broom on June 5. The fees were paid to the accounts department of Hamptons
Giddy & Giddy.
Towards the
end of 1988 Mr Dobson considered remortgaging Hatton Court Hotel in order to
finance a renovation programme. Mr Lancaster suggested a meeting with a Mr Ken
Robson, of KNR, to discuss the preparation of a financial package, including an
updated valuation, to put to a lending institution. A commission fee of 1% was
agreed and that would cover the valuation fee. After inspection took place Mr
Lancaster made another valuation of Hatton Court Hotel on February 21 1989. He
valued it at £2.2m on a bricks and mortar basis. That report and valuation was
on Hamptons Giddy & Giddy headed notepaper (Queen Street, Maidenhead). It
was signed in the name of the firm.
On March 2
1989 Mr Dobson made an application to the society for a commercial loan. The
application was submitted to the Southampton office for a loan of £1,950,000.
The application referred to the Hamptons Giddy & Giddy report dated
February 21 1989, assigned by Hamptons Giddy & Giddy on March 1 1989 to the
society by a letter signed in the name of Hamptons. A valuation for mortgage
advance form dated March 10 1989 was submitted in respect of Hatton Court Hotel
stating the value to be £2,813,800. It purported to be signed by R Sloan FRICS
and J Lancaster AIBA for and on behalf of Hamptons. The application was dealt
with by Mrs Winnard for the society.
On March 14
1989 instructions were given by Mrs Winnard, on behalf of the society, to
Hamptons Giddy & Giddy (Queen Street, Maidenhead) to inspect and report on
Hatton Court Hotel, at Hanslope, regarding a request for advance of £1.95m on
the security of the hotel, stables and Gatehouse cottage.
On June 20
1989 Mr Dobson signed an application form seeking a further advance on the
property of £393,000.
10.
January 1989 — Praslin Resort, Dennery, St Lucia
On January 19
1989 a report was sought for Lanark Properties Ltd, Bristol, on this property.
In the event, no final report was sent. An unsigned draft was prepared
reporting and valuing the project which consisted of a proposal for a
400-bedroom hotel, villas and golf course. The open market value of the
property, with vacant possession and outline planning permission, was stated to
be £2.25m. The report was no more than a short appraisal by Mr Lancaster and Mr
Hook, stating that the property was suitable for bank funding purposes. The
instructions were cancelled by Lanark Properties Ltd on January 23 1989.
Mr Broom gave
evidence that he was unaware of this project and never saw the report or gave
any permission for Mr Lancaster to be involved in it. No fees were invoiced or
received by Giddy & Giddy in this project.
11.
February 1989 — 20 Dunraven Street, London WI
20 Dunraven
Street is a large six-storey terraced residential property in Mayfair. On
February 15 1989 a Mr Zandi signed an application form for a loan from the
society of £2.34m to finance the purchase of the property at the price of £3m.
He would provide £1.2m from his own money towards the purchase price. The loan
was to be repayable over 15 years and was to include an estimated £800,000 for
the cost of alterations, improvements and repairs to the property. Mr Saldanha
acted as solicitor for Mr Zandi.
A report and
valuation typed on the notepaper of Hamptons Giddy & Giddy (Queen Street,
Maidenhead) was provided for the society. It was dated February 27 1989. The
bricks and mortar valuation of the property, with the benefit of planning
permission to convert it into residential flats, was stated to be £3.3m. That
report and an appendix to it dealing with rental values of three maisonettes,
signed ‘Hamptons’ and dated March 29 1989, were attached to a valuation for
mortgage advance, also giving the value as £3.3m. The two signatures on the
society’s form were stated to be those of R Sloan ARICS and J Lancaster ASIBI.
The firm name and address was given as Hamptons, 6 Arlington Street, London
SW1. Two telephone numbers were given, neither of which were Arlington Street
phone numbers. An identity sketch plan was similarly signed and dated March 29.
The forms and the appendix were sent by Mr Lancaster with a covering letter
signed by him on the same date from the address in Arlington Street. It was
sent to Mrs Winnard of the commercial new lending department at the Hove office
of the society.
On April 3 Mrs
Winnard replied to Mr Lancaster at 6 Arlington Street, observing that the
valuation was with vacant possession. As the property was to be finally let,
the society required a valuation on a protected tenancy basis at a market rent.
It appeared that it was Mr Zandi’s intention to refurbish the property, convert
it into four flats and let them out on assured shorthold tenancies.
Following a
reply from Mr Lancaster, at Maidenhead, on April 4 1989 Mrs Winnard recommended
the loan on April 10. That was approved. An offer of an advance was made on
April 11 in the sum of £2.34m. The society instructed Mr Saldanha of WP Duckney
& Co to act as solicitor. The mortgage deed was executed by Mr Zandi in
favour of the society on April 17. The actual amount advanced, less a
guaranteed premium of £1,500, was £2,338,470.
Work began.
Interim certificates were submitted. Mr Zandi made an application for a further
advance of £1.2m to finance the conversion of the property into flats. On May
18, that is after Mr Lancaster left Hamptons, Mr Lancaster wrote a letter to
the society at the Hove office. He wrote from an address at 2 The Broadway,
Maidenhead. In the letter Mr Lancaster stated that he had resigned from
Hamptons with effect May 1, but he would be operating, in liaison with Hamptons
International, through that office for sales in the Caribbean. He suggested
that for continuity and reporting on 20 Dunraven Street, the society might wish
to use Mr Evans and himself to continue to reinspect on their behalf.
Instructions were to be sent to that address. No liability would be attached to
Hamptons Residential plc nor would indemnity insurance be in force. He asked
for instructions on that basis.
None were
given because, according to the society’s evidence, that letter was never received.
On May 24 1989
Mr Lancaster was instructed by Sally Harris, from the society’s office, to
produce a revaluation report following a request for a further advance. On June
5 a valuation report was produced bearing two signatures, stated to be those of
Mr Evans FRICS and Mr Lancaster. The form also stated ‘Partner’ and gave the
firm name as ‘Hamptons’, with no address.
On June 7 1989
an offer of a further advance of £1.2m was made by Miss Harris on behalf of the
society to Mr Zandi and was accepted by him on June 18.
On July 10
1989 the society instructed Mr Lancaster at the address at 21 The Broadway,
Maidenhead, to produce a reinspection report on the property, as parts of the
refurbishment had been completed. A reinspection report was produced on July 14
1989 with signatures and details as before. It stated the value of the
property, in its present condition, to be £3.4m and to be £5.2m when the
recommended repairs were completed.
There was a
further reinspection report dated July 26 1989 and another report of that date
produced with signatures and details as before, save that the value of the
property in its present condition was stated to be £3.65m. The report was faxed
to Sally Harris from the office at 21 Broadway, via ‘FTD Fine Art’.
12. March
1989 — PLA Kennels, Botley Road, Bishops Waltham, Hampshire
This property
consisted of greyhound racing kennels and a single residence. On March 3 Mr
Lancaster, on the instructions of a Mr John Copplestone, provided a valuation
for Barclays Bank, Southampton. The report was typed on Maidenhead office
notepaper of Hamptons Giddy & Giddy. It was signed by Mr Lancaster, who
inspected the property, and purported to be countersigned by R Sloan ARICS. Mr
Lancaster claimed experience in the appraisal and valuation of boarding
kennels. The mortgage value of the residence was stated to be £225,000 and of
the business £162,000, making a total of £387,000. Open market values were also
given.
On July 16
1990, long after Mr Lancaster left the firm of Hamptons, Mr Broom received a
request for an updated valuation. He was unable to trace the files. On July 23
1990 he declined to accept instructions for revaluation as the valuation
requested was ‘of a specialist nature’.
13. March
1989 — Skew Bridge Country Club, Rushden, Northants
On March 10
1989 a bricks and mortar valuation of this property, on the basis of vacant
possession, was provided to the society’s, commercial lending division, Hove.
It purported to be signed by Mr R Sloan, as well as Mr Lancaster, and was typed
as from the Maidenhead office of Hamptons. The open market bricks and mortar
valuation was given as £2.57m and the value of the business with the benefit of
planning permission at £3m.
14. March
1989 — 23A Trevor Place, Knightsbridge, London SW1
On March 31
1989 Mr Lancaster wrote to Mrs Winnard at the society enclosing a valuation
form for this freehold property. The covering letter was typed on Arlington
Street paper of Hamptons, although the phone number given was not of that
office. The applicant was originally named as Mr Zandi, but that was changed to
Mr Mottaghian, as noted in a letter from the Maidenhead office, under Mr
Lancaster’s reference dated April 4 1989. The application was for an advance
for £260,000. The permitted use of the property was for a restaurant/sandwich
bar, though it was stated to be suitable for redevelopment. The valuation given
was £360,000. The two signatures were stated to be those of Mr Lancaster ARICS
and Mr Sloan AIBA (sic). The firm’s name and address was stated to be Hamptons,
6 Arlington Street.
An identity
sketch plan was similarly signed and dated. It appeared from the information
provided in the application form that the
dated March 29 1989.
Mr Broom’s
evidence was that this valuation by Mr Lancaster was outside the scope of his
authority. It was a valuation of a commercial property made for a lending
institution.
15 April 1989 — Overmead Hotel, Daddyhole Road,
Torquay
On April 24
1989 a valuation of this hotel was provided under the signature of Hamptons.
The valuation was in the sum of £2.6m and was stated to be signed by Mr Evans
and Mr Lancaster. The address of Hamptons was given as 6 Arlington Street. An
identity sketch plan dated April 24 1989 was stated to be signed by Mr Evans.
The valuation
related to an application made on April 14 1989 by Kumar & Panchal, on
behalf of Edgestop, as part of the refinancing package for a £5.5m loan on the
security of a number of hotels including the Royal, Esplanade and Roseland
Hotel, Torquay, which was stated to be of a total value of £8.1m. In the
valuation of April 24 the Royal Hotel was stated to be valued at £3.2m,
Esplanade at £2.6m and the Roseland Hotel at £1.3m. The society received the
refinancing proposal on about May 5 and discussions took place later in May.
Evidence was
given by Mr Broom that this valuation was outside the authority of Mr
Lancaster. It was a valuation of business properties for lending institutions
for refinancing purposes (there was a first charge to the Bank of Scotland). Mr
Broom and Mr Haynes gave evidence that they were unaware of the valuation.
16 April
1989 — Roseland Hotel, Warren Road, Torquay
This hotel was
included in the valuation of April 24 1989 in support of a refinancing
application made to the society. It was valued at £1.3m and was included in the
documentation described above concerning Overmead Hotel. This property was
subject to a first charge to Lombard North Central.
17 April 1989 — Shillingford Bridge Hotel,
Wallingford, Oxon
This hotel
features prominently in similar fact evidence relied upon by the society.
Although the events concerning this property began in April 1989 most of the
significant events occurred after Mr Lancaster ceased to be employed by
Hamptons.
Shillingford
Bridge Hotel was owned by a company called Valley Inns Ltd. On April 27 1989 Mr
Lancaster prepared a report on the bricks and mortar value of the hotel. The
property was valued at £6.5m. The report signed ‘Hamptons’ was addressed to Mr
Panchal, Brightvale Services Ltd. It was typed on Hamptons Residential paper
with a covering letter from the Maidenhead office, 11/13 Queen Street, with the
phone number. The covering letter had typed on it ‘Please reply to Broadway
House, 21 Broadway, Maidenhead’ with phone and fax numbers. The valuation was
made for use in support of an application by Edgestop Ltd to Yorkshire Building
Society, Southampton branch, for a loan for the purchase of the hotel.
By a mortgage
application form dated July 21 1989, signed by Mr Panchal on its behalf,
Edgestop applied to Yorkshire Building Society for a loan of £4.525m payable
over 20 years for the purchase of the hotel for £7.1m, that hotel having a
bricks and mortar valuation of £6.5m, Mr Saldanha was named as the solicitor
for Edgestop. The introduction to Yorkshire Building Society was made through
the Southampton district office of Sun Alliance (Mr Robson). Personal
information supplied in support of the application stated that Mr Kumar was
also a director of Edgestop, that Edgestop carried on business as an ‘hotel
group’: and that Mr Panchal’s gross income was £50,000 and Mr Kumar’s was
£120,000.
On August 3
1989 a bank reference was supplied to Yorkshire Building Society by Barclays
Bank (Clacton branch) stating that Edgestop was ‘a private limited company
whose directors were respectful and trustworthy. Good for normal business
arrangements’. The application for a loan of £4.525m was processed by the
district manager. Mr Aston, on August 4 1989. He noted on his check list that
the applicants had experience of running similar establishments and ‘can
therefore be recommended’ and that ‘introductory source here had substantial
previous dealings with the directors of the company’ and, in respect of
valuations, ‘Hamptons — agreed acceptable’. The package presented to Mr Aston
included outline details for the purchase of the hotel, accounting information,
information about Edgestop and the bricks and mortar valuation dated April 27
1989. There was also submitted to Mr Aston on August 4 the same valuation
signed ‘Hamptons’ and dated August 1. It was submitted under cover of a letter
addressed to the society ‘For the attention of DR Aston Esq’.
The letter
stated that the report was made on the society’s instructions, that the fees
would be paid direct by the applicants and that contact about queries should be
made with Mr Lancaster ‘on our new number listed above’. The letter was on
printed Hamptons paper (11/13 Queen Street, Maidenhead), but the phone and fax
numbers were obliterated. Instead, there was typed in the following words
‘Please reply to: Survey and Valuation office, 42 Queen Street, Maidenhead’.
The new phone and fax numbers typed in were the same as those given for 21 The
Broadway. The covering letter also stated:
This report
has been prepared by one of our professional offices as noted above and is
signed in the corporate name of the company in compliance with our Professional
Indemnity Policy which we confirm is held in the sum of £20m.
The letter
bore Mr Lancaster’s reference. Mr Aston gave evidence about the practice of his
society regarding valuations. The practice was always to request an up to date
valuation from a firm on the society’s panel. In this case the society was
asked to reply on Hamptons’ valuation of April 27 1989. Hamptons was not on the
society’s panel. Mr Aston therefore referred the request to head office and
discussed the matter with Mr Graham Hobson, the society’s chief valuation
officer. He gave consent for Hamptons to be used, subject to compliance with
the society’s practice that written confirmation of the valuation should be
given, along with details of the firm’s professional indemnity insurance.
After all the
materials supplied were submitted to head office, with the branch manager’s
check list, the matter was considered by the commercial lending department,
which declined the application for a loan after submitting the application to
the board of directors, as the loan requested exceeded £200,000. The
application was declined in the light of the accounting details submitted. The
evidence shows that a number of other persons were involved in dealings with
and valuations of the hotel.
Valley Inns,
the owner of the hotel, entered into an agreement on June 11 1989 to sell the
hotel to a British Virgin Islands company. Gisal Properties Ltd, for a total of
£4.25m, including business, plant, equipment and other assets.
On the same
day an agreement was made by Gisal Properties Ltd to sell the hotel, goodwill
and assets to Edgestop, as subpurchaser, for a total of £7.1m, £50,000 to be
paid on the execution of the agreement and £2,825,000 on completion. Another
agreement under the same date between the same parties, signed by Mr Saldanha,
as agent and solicitor for Edgestop, stated the total purchase price to be
£5.190m (£5.1m for the freehold). Completion was initially proposed for July
14, but was postponed to July 31 1989 for the transfer of the property at the
price of £7.1m payable as to £4,135,000 by Edgestop to Valley Inns, and
£2,965,000 by Edgestop to Gisal Properties. WP Duckney acted as solicitors for
Edgestop, and Mercers, for the vendors. The vendors’ solicitors served a notice
to complete on Gisal Properties care of WP Duckney on July 31 1989. The notice
expired on August 14 1989. Completion did not take place. Mr Panchal
unsuccessfully tried to raise money from other sources, including Hill Samuel,
who were willing in principle to grant a 15-year term loan of £5m to assist
with the acquisition of the hotel contracted to be purchased for £7.1m, and
First Mortgage Corporation Ltd. Humber Clyde Finance, the Danish Mortgage
Credit Association, Tiphook Associated Finance Ltd and Leamington Spa Building
Society. While attempts were being made to raise finance, Mercers, on behalf of
the vendors, threatened to start proceedings. A meeting took place between Mr
Panchal and representatives of Valley Inns in September. An extension of 25
days
purchasers for breach of contract was settled.
It is also
relevant to note in relation to this hotel the evidence given by Mr North FRICS
who had, since January 1989, been responsible for Hamptons Giddy & Giddy’s
land department. On about July 27 or 28 1989 he was contacted by Mr Haynes in
respect of Mr Lancaster’s request to him to countersign Mr Lancaster’s
valuations as a Fellow of the Royal Institution of Chartered Surveyors. Mr
North was shown the valuations. He had never met Mr Lancaster. He regarded
hotels as a specialist area. He was not prepared to countersign valuations
without an inspection. He contacted two members of Hamptons Chilterns office
who agreed to assist. An inspection of the hotel took place on July 31. Mr
Lancaster was present. Mr North made a rough appraisal of the value of the
hotel at two-thirds of the figure given by Mr Lancaster. Mr North had a further
meeting with his two colleagues on August 2 1989. As they all shared doubts
about the valuation they decided not to verify Mr Lancaster’s valuation. Mr
North never made a formal valuation. He charged a nominal fee of a £150 for out
of pocket expenses. On August 4 1989 Mr Lancaster, in his capacity as a
director of residential and commercial agencies, at 21 The Broadway, Maidenhead,
wrote to Mr North thanking him for his consideration of the hotel for valuation
and confirming the decision not to proceed to a formal valuation.
18. April
1989 — Wherry Hotel, Oulton Broad, Lowestoft
A valuation of
this property signed ‘Hamptons’ was dated April 30 1989, as was an identity
sketch plan stated to be signed by Mr Evans. On the same date a loan
application was made to the society by Mr Naizi, Mr Mellick and Mr Husain.
There was also submitted to the society a valuation for mortgage advance form
stated to be signed by Mr Evans and Mr Lancaster. The bricks and mortar
valuation on the open market was stated to be £3.3m. It was recommended as
sound mortgage security. The address of the firm was given Hamptons, 6
Arlington Street, London SW1.
On May 19 1989
Mr Lancaster sent the reports to the society’s commercial lending department
(Mrs Winnard) concerning the application which had come to him via Mr Robson.
The letter was typed on Hamptons’ Arlington Street notepaper. The bricks and
mortar valuation, together with business and goodwill was stated to be in
excess of £3.6m.
G. Cases of
the society and Mercantile Credit compared
The
submissions of the society and Mercantile Credit on each issue are essentially
the same. There are two factual differences in the cases, though for reasons
explained later, neither difference affects the liability of Mr Lancaster or
Hamptons.
(1) Assignment point
(1) The society’s case is based on reliance on
valuations submitted to it by Mr Lancaster direct. Mercantile Credit’s case is
based on valuations originally prepared by Mr Lancaster for clients. The
reports later assigned to, and relied on by, Mercantile Credit.
(2) Mercantile Credit is not a building society.
It is not, therefore, subject to the statutory requirements of the 1986 Act as
to the form, content and signature of valuations.
It was
submitted on behalf of Hamptons that the differences were significant. In
particular, Mercantile Credit did not establish there was an assignment to the
valuation of Grand Hotel, Clacton-on-Sea, and Mercantile Credit was not
entitled to rely on the original valuations which contained the usual
disclaimer.
The answer to
those points is that the reports were in fact submitted by Mr Lancaster to
Mercantile Credit with the knowledge that they should be relied upon and
Mercantile Credit did in fact rely on those valuations.
H. Personal
liability of Mr Lancaster
In my
judgment, Mr Lancaster is personally liable in deceit both to Mercantile Credit
and the society.
1.
Mercantile Credit
Mercantile
Credit is the plaintiff in action no 7925. As Mr Lancaster has not served a
defence in that action, he is deemed to admit the allegations of deceit made
against him in the statement of claim. Under RSC Ord 18 r13(1):
Any
allegation of fact made by a party in his pleadings is deemed to be admitted by
the opposite party unless it is traversed by that party in his pleading . . .
2. The society
Four of the
hotels were the subject of criminal charges against Mr Lancaster: the
Webbington, Yarborough, Haseley House and Regency hotels. Mr Lancaster was
convicted. The convictions have been pleaded in the statement of claim in
accordance with RSC Ord 18 r7A. In his pleading Mr Lancaster has not denied the
pleading against him or its relevance or alleged that the convictions were
erroneous: see RSC Ord 18 r7A(3).
The evidence
in this case shows that Mr Lancaster was well aware of the true price of the
properties, of the uplift in prices and of the dishonesty in the valuations
submitted by him to the society.
As regards the
Kistor and Russell hotels, Mr Lancaster was charged with offences relating to
them, but was acquitted. The evidence adduced in this trial establishes deceit
on the part of Mr Lancaster.
(1) The expert evidence shows that the hotels
were valued far in excess of their true value.
(2) Mr Lancaster forged the signature of Raymond
Sloan in the case of Kistor Hotel; and forged the signature of Richard Sloan in
the case of the Russell, Haseley House and Webbington hotels. The signature of
Mr Evans in the case of Royal Hotel was forged by him. None of the supposed
signatories have been called to give evidence. Evidence has been adduced to
show that no valuer by the name of Richard Sloan even exists.
(3) Mr Lancaster’s dishonesty in the valuation of
the hotels for lending institutions for mortgage purposes is reinforced by
similar fact evidence. That includes not only those hotels for which Mr
Lancaster was convicted and those in which he is deemed to admit deceit, but
also other hotels, such as Shillingford Bridge Hotel, on which he submitted a
valuation to Yorkshire Building Society after he left Hamptons’ employment.
I. Liability
of Hamptons — general
The claim by
the society and Mercantile Credit against Hamptons is quite simply that
Hamptons’ is vicariously liable for the deceit of Mr Lancaster. Hamptons’
response is to accept that the valuations were the product of Mr Lancaster’s
deceit, and to assert that it is not vicariously liable because the acts of Mr
Lancaster were outside the scope of his actual or ostensible authority. Issues
arise on the scope of Mr Lancaster’s actual authority (express or implied);
whether he had actual or ostensible authority; to value for mortgage purposes;
whether the society and Mercantile Credit had notice of Mr Lancaster’s want of
authority; and whether there was, in any event, reliance by the society and
Mercantile Credit on the valuations for which Hamptons are alleged to be
vicariously liable.
J. The Law
1. General
Innocent
people have been injured by Mr Lancaster’s fraud. The crucial question is who
should ultimately bear the loss: his former employers or his victims? It is difficult for a court to convince an
innocent party in litigation that he should foot the bill for another person’s
dishonesty. The general approach of the court to this question is, as stated by
Lord Shaw in Lloyd v Grace Smith & Co [1912] AC 176 at p740,
I look upon
it as a familiar doctrine, as well as a safe general rule, and one making for
security instead of uncertainty and insecurity in mercantile dealings, that the
loss occasioned by the fault of a third person in such circumstances ought to
fall upon the one of the two parties who clothed that
fraud
More recently
Lord Wilberforce observed, in the context of an employer’s vicarious liability
for the negligent act of an employee, that the tendency of the cases had been
progressive ‘toward more liberal protection of third parties’. Kooragang
Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462 at
pp471H-472A.
Even more
recently Lord Keith has commented on vicarious liability for an employee’s
fraud: Armagas Ltd v Mundogas SA [1986] AC 717 at p780B.
Dishonest
conduct perpetrated with no intention of benefiting the employer but solely
with that of procuring a personal gain or advantage to the employee is
governed, in the field of vicarious liability, by a set of principles and a
line of authority of particular application.
The line of
authority includes two important cases Lloyd v Grace, Smith & Co (supra)
(in which the House of Lords held that a solicitor was liable for
fraudulent conduct of his managing clerk in dealing with a client’s conveyancing
affairs) and Uxbridge Permanent Benefit Society v Pickard [1939]
2 KB 248 (in which the Court of Appeal held that a solicitor was liable for the
fraud of his managing clerk who, while in charge of a branch office at the
firm, induced a building society to advance money on security of forged title
deeds).
I shall refer
later to two further cases heavily relied on by Hamptons since it was held in
each case that an employer was not vicariously liable for the wrongful act of
an employee. The two cases are Kooragang Investments Pty Ltd v Richardson
& Wrench Ltd (supra) (in which an employer was held not
vicariously liable to a third party for a negligent valuation of an employee)
and the Armagas case (supra) (in which an employer was held not to be
vicariously liable to a third party for the deceit of an employee).
2. Legal
principles
The principles
which may be derived from the line of authority referred to by Lord Keith can
be summarised as follows:
(1) An employer is not vicariously liable for the
fraud of his employee merely by reason of having provided him with employment
which gives him the opportunity to behave dishonestly: Morris v CW
Martin & Sons Ltd [1966] 1 QB 716 at pp727F, 737D and 741B-C.
(2) An innocent employer is, however, liable to
the same extent as if it were his own fraud to a third party who suffers damage
as a result of fraud committed by an employee acting ‘in the course of his
employment’ or ‘within the scope of his actual or ostensible authority’. There
is no difference in the meaning of those two expressions in this context. I
shall refer in this judgment to acts as either within or outside the scope of
Mr Lancaster’s authority as employee.
(3) The fraudulent acts of an employee are within
the scope of his authority if they are acts of a class or kind authorised by
the employer, even though performed by the employee in a dishonest manner: for
example, by forging documents or by doing acts solely to benefit himself and to
further his own interests.
(4) The employer is liable, even if the third
party defrauded by the employee was not a client or customer of the employer.
(5) The doctrine of apparent or ostensible
authority is prominent in this line of authority. I shall refer in his judgment
to the doctrine as being one of ostensible authority, although some judges and
some text book writers prefer the term ‘apparent authority’. Actual and
ostensible authority often coincide. But, even if a dishonest employee is
acting outside the scope of his actual authority (express or implied), the
employer is liable to a third party injured by the dishonesty, if he has held
out the employee as having an authority he did not actually have. Ostensible
authority has been described in some cases as a form of estoppel, involving
both a representation of authority by the employer and reliance on that
representation by a third party, so as to preclude the employer from denying
that the employee had the authority he was represented to have. In general, it
is a doctrine which aims to protect ‘the reasonable expectations of honest
men’: First Energy (UK) Ltd v Hungarian International Bank Ltd*
(Court of Appeal transcript February 24 1993). And The Raffaello† [1985] 2 Lloyd’s Rep 36 and p41.
*Editor’s
note: Reported at [1993] 2 Lloyd’s Rep 194.
† Editor’s
note: Egyptian International Foreign Trade Co v Soplex Wholesale
Supplies Ltd
(6) In a case of ostensible authority an employer
is liable to a third person for the dishonesty of his employee if: (a) by his
words or conduct the employer has represented or held out the employee as
having authority to act; (b) so as to induce in the third person dealing with
the employee the reasonable belief that the acts of the employee are within the
scope of his authority; and (c) the third person has accordingly altered his
position by acting in reliance on that representation or holding out of the
employee’s authority, for example, by entering into transactions.
(7) The essential question on the scope of an
employee’s authority generally is whether his activities are, or are represented
by his employer to be, ‘part of his job’?
The scope of an employee’s actual or ostensible authority is one of
fact. For example, actual authority may be implied from the conduct of the
parties in all the circumstances of the case: Bowstead on Agency (15th
ed) at pp118 and 119. In some cases it may only be necessary to look at the
position to which the employee has been appointed and to determine the
authority usually held by an employee held in that position. In other cases the
inquiry goes wider; for example, where the employee is initially given express
authority which is later enlarged by the employer’s acquiescence in the
employee’s assumption of further powers. In the case of ostensible authority it
may be necessary to examine an employer’s whole course of conduct in the
circumstances of the case in order to see whether there was a representation to
the third parties as to the scope of the employee’s authority: see The
Raffaello (supra). The representation may be made by the employer’s
conduct in placing his employee in a position in his business where his
employee can hold himself out as having authority. If the employer acquiesces
in the employee’s activities, then the employer may in effect make, or cause to
be made, a representation that his employee has more authority than he actually
has: see Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at p593C
to D.
(8) It is possible, though in practice rare, for
an employer, by his words or conduct, to clothe his employee with ostensible
authority to communicate to third parties that he has, or has obtained,
authority to do the act, even though he does not have actual authority to do
it. But an employer is not liable to third parties solely by reason of a
false representation made by the employee himself that he has the employer’s
authority to do the act in question. An employee cannot confer authority on
himself. A third party cannot fix the employer with vicarious liability by
acting in ‘misguided reliance’ on the employee’s own representation. In all
cases of ostensible authority there must be some representation or holding out
by the employer.
(9) The cases emphasise the dual requirement of:
(a) representation by the employer to the third party; and (b) reliance by the
third party on the representation. There is no relevant reliance if the third
party knows or, in all circumstances of the case, must be taken to know that
the employee does not have the relevant actual authority and is acting outside
the scope of his authority. For example, the third party may know of a
limitation on the employee’s authority. He is thereby put on inquiry as to
whether the employee is authorised to do what he is doing.
3.
Kooragang case (supra)
The Judicial
Committee of the Privy Council upheld a decision that the employer was not
liable to the plaintiff who had advanced (and later lost) money in reliance on
a valuation negligently made by an employed valuer for a group of companies,
which were formerly clients of the employer. The valuation was made on the
employer’s notepaper and signed in the employer’s name. However, the employer
had expressly instructed the employee not to make any more valuations for that
particular client. The employee acted in breach of
instructions to obtain advances from the plaintiff. The employer neither
requested nor received any fee for the valuation work done by the employee. It
was held that the employee had acted outside the scope of his authority. It was
not possible to infer authority from the fact that the employee had been
authorised by the employer to carry out other valuations for clients.
Lord
Wilberforce delivered the opinion of the Judicial Committee. Hamptons relies on
the opinion in support of its contention that it is not vicariously liable for
Mr Lancaster’s fraud. In my view, the case does not help Hamptons.
(1) An important feature of the Kooragang
case is that there was no question of ostensible authority or holding out of
the employee by the employer. The plaintiff had no dealing with the employee
valuer and did not know of his existence or rely on his authority as a valuer.
As Lord Wilberforce said at p471G-H ‘the issue is one of actual authority, or
nothing’.
(2) Although valuation was a class of act which
the employee could perform on behalf of his employer, the Judicial Committee
held that it did not follow that the employer should assume responsibility for any
valuation made by the employee unconnected with the employer’s business and in
the sole interests of the employee. Lord Wilberforce said at p475 E-C that, to
make an employer liable on that basis, would be to:
strain the
doctrine of the vicarious responsibility beyond the breaking point and in
effect introduce into the law of agency a new principle equivalent to one
strict liability.
He rejected
the ‘extreme proposition’ that:
so long as a
servant is doing the acts of the same kind as those which it was within his
authority to do, the master is liable and that he is not entitled to show that
in fact the servant had no authority to do them.
Lord
Wilberforce added that: see p473
It remains
true to say that, whatever exception or qualification may be introduced, the
underlying principle remains that a servant, even while performing acts of the class
which he was authorised, and employed to do, may so clearly depart from the
scope of his employment that his master will not allow for his wrongful acts.
(3) The Judicial Committee held that the
defendant employer was not vicariously liable because the trial judge had
rightly held that the employee had no authority to make the valuations in
question. There was in fact a total departure from the course of scope of his
employment without the employer’s knowledge. The employee disregarded
instructions given to him by making valuations for a group of companies who
were no longer clients of the employer. He used the premises and staff of the
group of companies. He obtained no payment for the employer. The unauthorised
use of his employer’s stationery did not make the employer liable.
4. Armagas
case
This, the most
recent and authoritative case on ostensible authority and vicarious liability
for an employee in deceit, was extensively cited in argument and heavily relied
on by Hamptons.
The House of
Lords held that the defendant employers were not liable in damages for
fraudulent representations made by their vice president and chartering manager
in entering into a three-year charter party with minimum monthly hire payments.
The representation was that the vice president had his employer’s express
authority to enter into the agreement with the plaintiffs, who had purchased a
ship from the employers on the basis of a charter back for three years. The
vice president entered into the agreement without the knowledge and actual
authority of his employers, who believed that the charter was for 12 months
only under a separate document. The House of Lords rejected the contention that
the vice president had ostensible authority to communicate to the plaintiffs
that he had express authority to enter into the three year charter party. He
acted outside the scope of his ostensible authority. The defendant employers
were not bound by the contract and were not vicariously liable to the
plaintiffs in deceit. The main speech was given by Lord Keith. The following
points in his speech are relevant to the present case.
(1) It is important to note that the plaintiff’s
counsel accepted that the employee did not have actual authority or ostensible general
authority to enter into a contract of such an onerous character. The
plaintiff’s case was that the employee had ostensible specific authority
to enter into the particular contract, a situation which Lord Keith thought
would be ‘very rare and unusual’: see p777C.
(2) The speech contains helpful statement of the
doctrine of ostensible authority at p777A-C. Ostensible authority comes about
where the principal, by words or conduct, represented that the agent has the
requisite actual authority, and the party dealing with the agent entered into a
contract with him in reliance on that representation. The principal in those
circumstances is estopped from denying that actual authority existed. In the
commonly encountered case, the ostensible authority is general in character,
arising when the principal has placed the agent in a position which, in the
outside world, is generally regarded as carrying authority to enter into
transactions of the kind in question. Ostensible general authority may also
arise where the agent has had a course of dealing with a particular contractor
and the principal has acquiesced in the course of dealing and honoured
transactions arising out of it. Ostensible general authority can, however,
never arise where the contractor knows that the agent’s authority is limited so
as to exclude entering into transactions of the type in question, and so cannot
have relied on any contrary representation by the principal.
(3) The position in that case was that the
contractor knew that the agent had no general authority to enter into
the charter party. Hence, the contention that he had specific ostensible
authority, in the position to which he had been appointed, to represent he had
his employer’s approval to enter into the transaction. The employee had falsely
represented that he had obtained his employer’s specific authority and that he
was empowered to conclude charter party. But, as Lord Keith stated at p778A, no
such representation by the employee could help the plaintiffs, because what was
required was a relevant representation by the employers as the
employee’s authority. No such representation could be found from the
circumstances of the employee’s appointment as vice-president and chartering
manager or from the fact that he had some general authority to enter into
charter parties.
(4) Lord Keith’s speech contains two further
passages which are helpful on the question of vicarious liability for an
employee’s deceit [at p781E]:
The essential
feature for creating liability in the employer is that the party contracting
with the fraudulent servant should have altered his position to his detriment
in reliance on the belief that the servant’s activities were within his
authority, or, to put it another way, were part of his job, this belief having
been induced by the master’s representations by way of words or conduct.
Lord Keith
summarised the essence of the employer’s liability as being: see p782E
reliance by
the injured party on actual or ostensible authority
At the end of
Lord Keith’s speech, after a review of the relevant authorities, there is a
passage which formed a recurring theme in Hamptons’ legal arguments in opening
and closing speeches. Lord Keith said [p782H]:
At the end of
the day the question is whether the circumstances under which a servant has
made the fraudulent misrepresentation which has caused loss to an innocent
party contracting with him are such as to make it just for the employer to bear
the loss. Such circumstances exist where the employer by words or conduct has
induced the injured party to believe that the servant was acting in the lawful
course of the employer’s business. They do not exist where such belief,
although it is present, has been brought about through misguided reliance on
the servant himself, when the servant is not authorised to do what he is
purporting to do, when what he is purporting to do is not within the class of
acts that an employee in his position is usually authorised to do, and when the
employer has done nothing to represent that he is authorised to do it.
The last sentence
encapsulates Hamptons’ contention that, in the circumstances of this case, it
is not just that it should bear the loss flowing from Mr Lancaster’s fraud.
K. Actual
authority
In my
judgment, Mr Lancaster was not acting within the scope of his actual authority,
express or implied, in relation to the valuation of the eight hotels for
mortgage purposes. On this point, I accept the submissions of Hamptons, subject
to the qualifications and comments, which I mention in dealing with the
individual submissions.
1. Hamptons case
(1) General
Hamptons
prefaced its detailed submissions on actual authority by a number of general
points.
(a) Mr Lancaster’s conduct between May 1988 and
April 1989 bore no resemblance to the job which he was supposed to be doing at
Hamptons. He should have been finalising the Antigua project and attending to
ongoing matters for existing clients. Instead, it now appears that he engaged
in 25 bricks and mortar valuations, mainly for lending institutions, in respect
of which he forged the signatures of an FRICS or ARICS from various addresses,
in an attempt to persuade the society to lend money. This submission states the
matter in too extreme terms, Mr Lancaster had gone beyond the scope of his
duties as a landbuyer soon after he was appointed.
(b) Mr Lancaster was a fraudster and a liar, who
was prepared to do what ever was necessary to achieve dishonest ends. This was
illustrated not only by his conduct while he was employed by Hamptons, but also
by his actions after his employment ceased; for example, when he falsely
claimed an association with Hamptons, both generally and in relation to
specific matters, such as Shillingford Bridge Hotel and his participation in a
dishonest refinancing package towards the end of his employment.
(c) Mr Lancaster knew at all material times that:
(i) he was not professionally qualified to value hotels or other properties;
(ii) only a Hamptons’ qualified person would be an acceptable valuer for a
lending institution; (iii) he did not have, and never would obtain, Hamptons’
authority to do that kind of work; (iv) he was not actually authorised to act
on Hamptons’ behalf as a valuer of hotel premises for mortgage purposes or to
assign valuation reports of that nature.
(d) There is a fundamental distinction both in
theory and practice, between: (i) an appraisal for an owner, developer or
purchaser; and (ii) a mortgage valuation. The distinction is to be seen in the
source of the instructions, the purpose of the exercise, fees charged, the
qualifications required, insurance cover, reputation in the market place and
conflicts of interest. Ability and authority to produce appraisals of property
do not give rise to either actual or ostensible authority to provide mortgage
valuations. This submission is, however, subject to the comment that whether
something is an appraisal or a valuation is a question of fact and degree, not
just of nomenclature.
(2) Detailed submissions
With these
general points in mind I now turn to detailed submissions made by Hamptons on
the issue of actual authority. Hamptons submitted that Mr Lancaster did not
have actual authority to value hotels for lenders for mortgage purposes. I
agree. The submissions were developed in the following way.
(a) Since at least the mid-80s and at all times
relevant to these proceedings it was the practice of reputable lenders to
require bricks and mortar valuations to be carried out by qualified persons.
This practice was well known to firms of chartered surveyors. Reputable firms
did not authorise unqualified persons to do mortgage valuations. The recurrent
theme in the submissions of Mr Slater, on behalf of Hamptons, was that ‘only a
FRICS will do’. The oral and documentary evidence established this as a general
practice at the relevant time. Qualified persons were either members of the
Royal Institution of Chartered Surveyors or the Incorporated Society of Valuers
and Auctioneers. They were usually, but not necessarily, included on a panel of
the relevant lender. I accept that as a general proposition. The evidence shows
that there were exceptions to the general practice. I accept the evidence given
Mr Bru Pearce, a former employee of Hamptons, who is still in dispute with them
about matters not relevant to these proceedings. He is an unqualified person but,
while in the employment of Hamptons International, he did valuations for
lenders, not just appraisals. There is evidence that Mr Lancaster did
valuations for certain lenders. The crucial question is whether he had actual
or ostensible authority to do so.
(b) At Giddy & Giddy and Hamptons mortgage
valuations for building societies were carried out by qualified persons: for
example, Mr Weston FSVA and Fennymore Hepple, where structural surveys were
involved. There was no general practice of a qualified person signing or
countersigning valuation reports undertaken by unqualified persons, though it
was accepted that an unqualified person might play a part in producing the
valuation report. The evidence was that Mr Broom, who is not a chartered
surveyor, has never done a mortgage valuation for a building society or a
lending institution or countersigned one. He would have passed the matter over
to a surveyor. In the time of Giddy & Giddy it would have to be Mr
Padfield, Mr Weston or Fennymore Hepple or, in Hamptons’ time, a chartered
surveyor within the group. An unqualified person was, in particular, in no
position to deal with structural matters that might arise on a survey. I accept
the evidence that, as a general rule, this was the practice at Giddy & Giddy
and at Hamptons. The surveyor himself had to play a part in valuing the
property. He would normally inspect the site and prepare and sign the report.
An unqualified person who visited the site might assist in the preparation of a
report, but would not normally make or sign the valuation. It was the practice
for a qualified person to go out and look at the property himself and not make
the report jointly with an unqualified person. There were exceptions to the
general practice: the crucial question is whether the exceptions which occurred
were authorised or not.
(c) The system at Giddy & Giddy was that
instructions for mortgage valuations were, in general, passed through Mr
Padfield at the Maidenhead office to outside qualified persons, such as Mr
Weston and Fennymore Hepple, to make structural surveys, usually of residential
properties and not normally for lending institutions. The system at Hamptons
was that instructions for mortgage valuations were passed to the survey and
professional department. It was asserted that, as Mr Lancaster was not a
qualified person and not a member of the survey and professional department, he
was only authorised to act on behalf of Hamptons in a valuation, if he worked
with an experienced and appropriately qualified person in making the valuation.
(d) Giddy & Giddy carried out a very small
amount of commercial work. It did not undertake mortgage valuations of
commercial property or of hotels which were regarded as a highly specialised
area. It did not value businesses. After the merger with Hamptons the
commercial work was mainly done by Lambert Smith Hamptons. Valuations of a
hotel would normally be done by a specialist in the survey and professional
division who had appropriate experience. It was emphasised on behalf of Hamptons
that most of the work of Giddy & Giddy was in the residential area and that
all of the properties which have been valued in this case were hotels.
(e) Mr Lancaster was employed by Mr Padfield as a
landbuyer. His function was to find residential opportunities with the object
of securing commissions for Giddy & Giddy on eventual sales. It was not
part of his job to carry out mortgage valuations of any type of property. A
landbuyer would normally be disqualified for doing so, because of a potential
conflict of interest. I accept the evidence that Mr Lancaster was initially
engaged as a landbuyer to deal with land and new homes, in which area he was
regarded as competent and trustworthy. It was not normally part of the job of a
land buyer to carry out full and formal valuations, let alone mortgage
valuations of hotels or other properties. The evidence shows, however, that
soon after his appointment Mr Lancaster was doing various things with the
authority of Giddy & Giddy which a land buyer would not normally do, eg
valuations for capital gains tax and probate purposes. He had authority to do
other things, such as the work on the Antigua project, which
originally engaged by Mr Padfield. He was never expressly told that he could
not make valuations of properties or hotels. Hamptons’ evidence was that it was
thought sufficient to tell him what he could do, without spelling out what he
could not do.
(f) Mr Lancaster was not authorised nor expected
to become involved in commercial developments or properties. He was engaged to
deal with residential property, not commercial property, such as hotels. Giddy
& Giddy already had a small commercial department. Mr Lancaster was not
engaged in that department. He was employed to deal with land development and
new homes. It was, however, known to Mr Haynes that Mr Lancaster was doing
commercial work. He was not comfortable about it. He became concerned, in particular,
about the terms of the firm’s indemnity cover. He referred the matter of Mr
Lancaster’s involvement in valuations of commercial properties, including
buildings, to Mr Padfield. His understanding was that Mr Padfield thought it
was alright for Mr Lancaster to carry out open market valuations of buildings,
as well as land, in the name of Giddy & Giddy; but the subject of
valuations of hotels was not raised by Mr Haynes with Mr Padfield.
(g) From 1987 onwards Mr Lancaster was intended
and believed by Giddy & Giddy and Hamptons, to be, for the greater part of
his time, involved in the Antigua project. The Antigua project was a special
situation, which Mr Padfield had authorised Mr Lancaster to handle. When not
involved in that project, Mr Lancaster was expected to continue to involve
himself in domestic residential developments from the land department. Mr Broom
gave evidence of his understanding that Mr Lancaster was progressing work in
the Antigua project to a stage where either the site could be sold or
developed. He was doing that work, even when in the UK. It took up between 70%
and 90% of his time.
(h) The only person at Giddy & Giddy and
Hamptons who was in a position to authorise Mr Lancaster to carry out
valuations for mortgage purposes were Mr Padfield, until May 1988, and Mr Broom
thereafter. Mr Haynes and Mr Nowell of the accounts department did not have
such authority. Mr Padfield, who was Mr Lancaster’s boss before Mr Broom took
over in May 1988, gave evidence that Mr Haynes, though a senior and trusted
colleague, was in no position to control or authorise the scope of Mr
Lancaster’s work. Mr Haynes was senior to Mr Lancaster in service. He worked
together with him as a team. His duty was to report to Mr Padfield and, later,
Mr Broom anything untoward which occurred in the land department. Mr Lancaster
was more entrepreneurial, more ‘out and about’. Mr Lancaster reported direct to
Mr Padfield, though Mr Padfield did not monitor his work on a day to day basis
or appoint anyone else to monitor his work. After Mr Broom took over Mr
Padfield’s position in May 1988 only he had control over, and power to
authorise, the scope of Mr Lancaster’s activities. It was Mr Lancaster’s duty
to report to him. As for Mr Haynes, the evidence was clear that Mr Lancaster
had more experience than Mr Haynes in the activities of the land department.
Though senior in years at Giddy & Giddy, Mr Haynes was not, and did not,
regard himself as Mr Lancaster’s boss. Mr Lancaster did not regard Mr Haynes as
his boss. Both of them reported to Mr Padfield. The position was not affected
by Mr Haynes later becoming a partner and associate director of Giddy &
Giddy. As for Mr Nowell of the accounts department, he had no power to
authorise Mr Lancaster to make mortgage valuations. He became a partner,
associate director and company secretary of Giddy & Giddy, but his work was
confined to the accounts department until a financial controller was brought in
in 1988 and Mr Nowell was made redundant.
(i) Mr Lancaster had no qualifications relevant
to the carrying out of mortgage valuations. He had no experience in valuing
hotels for mortgage purposes (or, indeed, for any other purposes). No one at
Giddy & Giddy or Hamptons believed that he had the necessary qualification
or the requisite experience. Mr Lancaster’s only ‘qualification’ was the AIBA,
which no one was familiar with. The only relevant qualification was as
chartered surveyor or valuer. Those qualifications were necessary, even when no
full structural survey was required for valuation purposes. There was no
evidence that Mr Lancaster had relevant experience in the valuation of
property, let alone structural matters. The only relevant expertise of Mr
Lancaster of which Giddy & Giddy was aware was in respect of land and new
homes. Mr Lancaster never even claimed to Giddy & Giddy that he had
experience or expertise in the valuation of hotels as going concerns. The only
instance that Mr Haynes remembered regarding hotels was Mr Lancaster’s
involvement in the valuation of Skindles Hotel. Even in connection with Antigua
the valuation excluded the hotel site. Mr Lancaster relied on other site
consultants in connection with the hotel aspect of the proposed development.
(j) Mr Padfield, Mr Broom and Mr Haynes were not
aware that Mr Lancaster had carried mortgage valuations of property for lending
institutions. Mr Padfield gave evidence that he did not know of the valuation
of Royal Hotel, Clacton-on-Sea, for Mr Toms. He would have stopped him if he
had learnt about it. It was outside his authority. He had no qualifications to
make the valuation. He did not know of Mr Lancaster’s other valuations for
lending institutions nor did Mr Broom or Mr Haynes. Mr Lloyd Davies did not
even know Mr Lancaster at the relevant time. As regards the meeting which tool:
place in Mr Porter’s offices in July 1987, it was not established by the
evidence that Mr Broom knew that Mr Lancaster had made a valuation for or had
assigned a valuation to a lending institution. The invoice produced after the
meeting did not refer to a valuation for that purpose. It referred to a
‘selling fee’. I prefer the evidence of Mr Broom about that meeting to the
evidence given by Mr Toms and Mr Porter. Mr Broom attended the meeting to deal
with outstanding fees in relation to work in Antigua, not in respect of work
done by Mr Lancaster on Royal Hotel, Clacton-on-Sea. The evidence of Mr Porter
and Mr Toms was less reliable than that given by Mr Broom.
(k) Mr Lancaster was not expressly or impliedly
authorised to carry out bricks and mortar valuations either of hotels as going
concerns or of other properties. It was not part of his job or part of the work
of the land department. It was not what he was employed to do, whether acting
alone or jointly with others. The evidence was that such valuations should have
been referred to specialist hotel surveyors and valuers. While I accept that
this was the case in relation to the valuation of hotels for mortgage purposes
for lending institutions, there was evidence that Mr Lancaster had authority to
value properties, including buildings, for other purposes, including capital
gains tax and probate purposes.
(l) Mr Lancaster knew that, in order to have the
requisite status, all reports and assignments had to be carried out by a
qualified person. Any findings of fact about Giddy & Giddy’s knowledge or
acquiesence in Mr Lancaster’s activities are therefore irrelevant to the issue
of express or implied actual authority. Mr Lancaster knew that it was necessary
for each valuation and, in the case of Mercantile Credit, each assignment
letter to be signed by a qualified surveyor. He knew that he alone was not
authorised to carry out the valuations in question. He did so secretly. He
pocketed the fees. He forged the signatures of qualified persons in the case of
Mr Sloan and Mr Evans, because he knew that no lending institution would accept
a valuation signed by him alone.
(m) Mr Lancaster was not expressly or impliedly
authorised to represent to a lender that a qualified person had carried out
such a valuation or a fortiori so to represent in respect of persons who
were not employed by Hamptons. There was no evidence of Mr Lancaster being
expressly or impliedly authorised to make such a representation. Even if he was
authorised to express his own opinion to a lender as to the value of the
property, he was not thereby authorised to represent that another person had
valued the property at the same figure.
2. Submissions of the society
and Mercantile Credit
(1) General
The society
and Mercantile Credit submitted that Mr Lancaster had actual authority, express
or implied, to value hotels for mortgage purposes. In the case of the society
his actual authority extended to the preparation of valuations with assistance
of, or to obtaining the
Mercantile Credit his actual authority extended to the assignment to Mercantile
Credit of valuations prepared by him for clients earlier while he was still
employed by Giddy & Giddy. It is the case of both the society and
Mercantile Credit that Mr Lancaster had actual authority to sign valuation
reports in the corporate name of Giddy & Giddy and Hamptons.
In my
judgment, the society and Mercantile Credit have not established on the
evidence that Mr Lancaster did have actual authority to value hotels for
mortgage purposes. I shall set out and comment on the submissions in support of
that proposition in some detail, particularly as the submissions refer to
evidence which is also relevant to the alternative argument of ostensible
authority.
The society’s
case is that, although there is no evidence that Mr Lancaster was ever given express
authority to value hotels for lenders, there is ample evidence that he had implied
actual authority to do so. Mr Lancaster was employed in a job in the land
department which included making valuations, in the course of developing his
department and contacts and acting as an entrepreneur. He was not told that
there were any limits on what type of property he could value or for what type
of client he could do valuations. No one checked up on what he was doing.
In those
circumstances he was impliedly authorised by his employers to value property of
all types for all kinds of clients. His employers had turned him loose on the
public with that authority. They cannot escape liability for wrongs committed
by him in the course of doing what he was employed to do.
(2) Detailed submissions
This general
picture was filled out by more detailed points about Mr Lancaster’s position in
Giddy & Giddy and later in Hamptons Giddy & Giddy. Mr Lancaster did,
and properly could, undertake work, including valuation work, outside the
limits of his original terms of engagement and outside the limits of his
authority, as pleaded by Hamptons in this action. The following particular
points were made on the evidence. In my view, most of the points are more
relevant to ostensible than actual authority.
(a) Hamptons was content for him to do whatever
valuations he was able to do, provided there was no perceived lack of insurance
cover.
(b) Mr Lancaster was essentially an entrepreneur
who was left to his own devices to develop the land department by getting what
work he could and fostering contacts as profitably as he could for the firm and
as he thought fit in the light of changing circumstances.
(c) He was paid on a commission basis, which
would encourage him to expand his activities and would discourage him from
passing work over to others.
(d) He had direct contact and dealings with
clients of Hamptons. It was left to him to tell the clients what he could and
could not undertake and as to the genuiness and the authority of any other
signatures obtained by him.
(e) If the clients required the involvement or
signatures of fully qualified men. Mr Lancaster could obtain those services on
his own initiative. This submission and the preceding submissions from (a)
onwards state the position too widely. He did not have actual authority to
value hotels for mortgage purposes.
(f) Despite the fact that Mr Lancaster was expanding
the area of his operations, no express restrictions were ever placed on the
scope of his work. No checks or inquiries were made on his activities. His work
was not monitored by Mr Padfield or Mr Broom. I agree.
(g) More specifically, Mr Lancaster was never
told that he could not carry out the valuations of hotels or valuations for
lenders. Nothing was done to prevent him from doing so. I agree.
(h) Although Mr Lancaster was unqualified, it was
never a requirement of Hamptons, as distinct from a requirement of the society,
that only an FRICS or other professionally qualified man could undertake on its
behalf valuations of hotels for lenders. In my judgment, however, that was the
general practice of Hamptons.
(i) Although there was no reporting procedure. Mr
Haynes in the land department kept in touch with, and was generally aware of,
what Mr Lancaster was doing. Mr Broom regarded it as the duty of Mr Haynes to
report to him if it came to his knowledge that Mr Lancaster had stepped out of
line. The only report by Mr Haynes was one made by him to Mr Padfield that Mr
Lancaster was undertaking valuations of properties other than land. Mr Padfield
agreed to accept that situation.
(j) Another long standing employee of the firm
was Mr Nowell of the accounts department. He would have known which employees
did valuations for lenders and would have reported any untoward to Mr Broom. Mr
Nowell did not make any reports about invoices addressed to West of England
Building Society. Mount Credit Corporation or BCCI. In my view, the evidence
does not establish such knowledge on the part of Mr Nowell whose concern was
only with the accounting matters.
(k) Thus, Hamptons through Mr Padfield, Mr Broom.
Mr Haynes and Mr Nowell knew that Mr Lancaster was valuing properties, other
than land, including commercial properties and hotels and that he was doing so
for lenders. In my view, the evidence does not establish such knowledge.
In support of
these general propositions on Mr Lancaster’s actual authority the society
concentrated on three areas.
(i) The extent and limit of his actual authority,
as pleaded by Hamptons.
(ii) His terms of engagement.
(iii) The work he in fact undertook and the
knowledge of such work by Giddy & Giddy before May 1988 and by Hamptons
after May 1988.
(i) Pleaded authority
The society
submits that the pleaded limits of Mr Lancaster’s actual authority are
instructive. I agree.
On the one
hand, Hamptons admits that Mr Lancaster had actual authority, as an employee in
the land department, to act as a negotiator in relation to assembling sites for
residential development, to appraise land for its suitability for residential
development, to appraise the development potential of buildings for conversion
for residential purposes, to assemble sites for residential developments with a
view to marketing them on behalf of vendors, to acquire sites on behalf of
purchasers and to market new residential developments once construction was
underway.
He also had
authority to carry out appraisals for residential properties or sites for
residential development on behalf of vendors and prospective purchasers. This
included giving advice to vendors, and to potential purchasers, on the
likelihood of obtaining planning permission, the likely sale price and the
viability of residential development projects.
On the other
hand, according to Hamptons’ pleaded case. Mr Lancaster had no actual authority
to be involved in any commercial property or developments, save to comment on
its potential for residential development. He had no actual authority to:
survey or value hotels; to survey or value property for mortgage lending
purposes or lending institutions; to represent that either Mr Sloan or Mr Evans
was a member of Hamptons’ staff or was authorised to act or sign on behalf of
Hamptons; to obtain countersignatures or consult with non-Hamptons’ staff in
connection with reports and valuations for mortgage advances; to use Hamptons
stationery, report forms or report covers for any purposes other than those for
which he was employed.
(ii) Terms of engagement
The society
made a number of points on Mr Lancaster’s letter of engagement dated April 29
1985.
(1) Apart from the job description ‘land buyer’
there was no express demarcation of the limits of his duties and authority: in
particular, there was no reference to valuations or appraisals of any sort and
no limitation to residential property or land or, indeed, to anything else.
(2) The arrangements for his renumeration (a
guaranteed minimum figure plus commission) made it likely that he would expand
his area of work, unless prevented from doing so, rather than hand it over to
others in the firm. He was to be entitled to fees earned by him in connection
with planning applications and plans.
(3) In his letter dated April 23 1985 Mr Lancaster
applied for the job of ‘a land manager’ without limitation to residential land.
He referred to his experience as a ‘commercial consultant for new building’.
Giddy & Giddy did some commercial work, an amount in excess of £135,000 in
1985 according to Mr Padfield. It had a commercial department and there was
some overlap between that and the land department. Mr Lancaster made it clear
in his letter that he wished to expand and develop his knowledge and contacts.
(4) It is significant that, although there was no
reference in the letter of engagement to his authority to undertake valuations,
he was doing so within months of joining Giddy & Giddy. He continued
throughout the next four years to expand his area of activity without
limitation or restraint from Giddy & Giddy or Hamptons. As a reward for his
senior position he was made ‘an associate’ and the land department was renamed
‘Hamptons Residential Developments’. Mr Lancaster ultimately became the sole
representative of that department at Maidenhead.
(iii) Work undertaken and employers’ knowledge of
work
The society
made the following general submissions on the work actually undertaken by Mr
Lancaster while he was employed by Giddy & Giddy and Hamptons and on their
knowledge of such work; the individual items which have been detailed earlier
in this judgment. In my judgment, they show that Mr Lancaster extended his
activities with his employers’ acquiesence and no restrictions were placed on
him from doing so.
(1) He made valuations of land for owners
contemplating residential development (eg the land at Ray Mill Road) and
valuations of substantial residential property for owners (eg Dunraven Street,
London W1).
(2) He carried out valuations of land and
residential property for probate and capital gains tax purposes. These were all
outside the scope of Mr Lancaster’s authority as pleaded by Hamptons. It was
accepted by Mr Padfield that Mr Lancaster had authority to make such
valuations, although Mr Lloyd Davies thought that an unqualified man could not
do this (eg the valuation of the farm cottage and agricultural land at Ray Mill
Road): The Paddock, Hills Place, Farnham Common (jointly with Mr Broom with the
involvement of Mr Weston as qualified consultant). This type of valuation is
different from appraisal of market prices. They are more in the nature of a
guide for vendors or potential purchasers. Valuations for fiscal purposes are
back-dated and are produced for an important purpose with potentially serious consequences
if the valuations prove to be wrong. Mr Lloyd Davies accepted that there was no
distinction in principle between those who should undertake probate valuations
and those who should undertake valuations for vendors.
(3) Mr Lancaster made valuations of hotel
properties both for owners and for lending institutions, eg the site of Queen’s
Hotel, Cliftonville, was, to the knowledge of Mr Haynes, valued by Mr Lancaster
in the name of Giddy & Giddy for Mount Credit. But he did not know that
Mount Credit was a lending institution. Fees were paid to Giddy & Giddy and
recorded in ledgers, which identified Mount Credit as the client. Those ledgers
were looked at from time to time by Mr Padfield. Mr Padfield had been told by
Mr Haynes that Mr Lancaster was valuing properties, including commercial
properties. Mr Lancaster also valued Skindles Hotel for potential development
for a fee entered in Giddy & Giddy’s ledgers.
(4) Mr Lancaster valued commercial property, as
well as land, for lenders for mortgage purposes and signed reports in the name
of Giddy & Giddy, eg Wardsdown Nurseries for Mount Credit (a fee was paid
to Giddy & Giddy and entered in the ledger); Dal Road (an industrial unit
valued for Norwich Union Life Assurance Co Ltd); Buckingham Town Hall (for
Prime Commercial Mortgages Ltd — an invoice by Giddy & Giddy was paid and
Prime Commercial identified in Giddy & Giddy’s ledgers as the client);
Hills Place (for West of England Building Society, who paid the invoice and
were identified as clients in Giddy & Giddy’s ledger); FR Bailey Properties
(for Mountnessing Life and Pensions Consultants Ltd (fees paid); Hatton Court
Hotel (valuation for Property Lending Trust, invoiced fees were paid); Studio
Master House (warehouse with offices above valued for CL Bank Nederland, copies
sent to Norwich Union General Trust by Mr Lancaster for which fees were paid).
(5) Mr Lancaster’s work in Antigua was singled
out for special mention. Mr Broom accepted that Mr Lancaster was authorised to
undertake this project, which Mr Lancaster drummed up from his own contacts. Mr
Padfield accepted that it would not normally be undertaken by a landbuyer. The
project was left entirely to Mr Lancaster who retained outside experts, made
appraisals of the value of the land for the owner, put together the hotel
construction costs and financial summary in consultation with others. Mr Broom
read the report prepared by Mr Lancaster. The report stated that Mr Lancaster
was a former associate partner with hotel experience and Mr Broom knew that the
report was to go to Standard Chartered Bank. Mr Padfield knew from Mr
Lancaster’s memo of January 4 1987 that Hamptons’ task was to assist in the
raising of £30m development finance. Mr Broom must have realised from Mr
Lancaster’s memo to him of December 15 1988 that Standard Chartered Bank were
going to, or might, rely on the report in deciding whether or not to advance
finance. Mr Perks gave evidence that it was clear from the memo that the report
was being presented to Standard Chartered Bank for funding purposes. No steps
were taken by Mr Broom or anyone else in Hamptons to prevent that or to prevent
Mr Lancaster from submitting any other valuations to any other lenders. In the
circumstances Mr Lancaster was authorised to do the report and the valuations
with outside consultants of his choice. On this point Hamptons submitted that
use of outside consultants by Mr Lancaster in Antigua did not provide any valid
comparison for work in England. Antigua was distinct from Mr Lancaster’s other
work, which was concerned with advice on development possibilities. That was
not the same as the use of outside mortgage valuers on work of a kind which he
should never have undertaken in the first place.
(6) By way of general comment on Mr Lancaster’s
work the society submitted that between January 1 1987 and January 30 1989 Mr
Lancaster undertook 25 transactions of which only three were accepted by
Hamptons as authorised, namely the land at the Paddocks, Antigua and Westwinds
and Carnation nurseries. What, the society asks, did Hamptons think Mr
Lancaster was in fact doing during that period. Mr Broom’s evidence was that he
estimated between 70% and 90% of Mr Lancaster’s time in 1988 was spent on the
Antigua project. It was known that he had undertaken work for which invoices
were rendered. The truth is that there was no monitoring of Mr Lancaster’s
work, no regular reporting by him. He was given a free hand to drum up work and
generate fees for the firm. From January 1989 he had no permanent base and
appears to have drifted between Hamptons Giddy & Giddy’s offices at Marlow,
Maidenhead and London.
In addition to
the submission on the actual transactions, the society made submissions on six
other points on which I should briefly comment. Those points were:
(1) Land department work (other than Mr
Lancaster’s).
(2) Hamptons’ involvement of unqualified men in
valuation work.
(3) Industry practice.
(4) Hamptons’ insurance.
(5) Mr Haynes’ knowledge of Royal Hotel,
Clacton-on-Sea.
(6) Mr Broom’s knowledge of the Royal Hotel,
Clacton-on-Sea.
(1) Land department work (other than Mr
Lancaster’s)
Hamptons made
no distinction between work which Mr Lancaster was able to undertake and work
which Mr Haynes was able to undertake. The work carried out by Mr Haynes
included valuations of land adjoining to Weedswell Cottage, with no development
potential; valuation of property for capital gains tax purposes (The Mount,
Chobham road); and a valuation (107 Nine Mile Drive) paid for by BCCI and it
was entered in Giddy & Giddy’s ledger.
Mr Padfield
described this work as ‘appraisal’. He said that a valuation for lending
purposes would be more conservative. The evidence of Mr Lloyd Davies, however,
revealed that there may be no significant difference between a valuation and an
appraisal for a lending institution. Mr Padfield in fact countersigned some
appraisals carried out by Mr Haynes and submitted them to lenders. He accepted
that his signature was required if the lender was going to lend money on the
strength of it. In those circumstances it is not clear why an ‘appraisal’, as
distinct from a valuation, would require a countersignature.
(2) Unqualified personnel
(i) Mr Lancaster was authorised to make
appraisals or valuations of land. If a chartered surveyor agreed with him, if
necessary after inspection, he would sign it, so that a client of the firm
could have it readdressed to his bank. There was some evidence of a practice of
countersigning valuations carried out by unqualified men. Sometimes outside consultants
were used. For example in the case of the land at Bray. Mr Jacks, of Hamptons,
countersigned Mr Lancaster’s valuation of land for a lender. He assumed that he
was competent and made no inquiries about his competence, experience or
qualifications. The evidence was insufficient to establish actual authority to
value hotels for lenders.
(ii) Mr Lancaster was also authorised to undertake
mixed residential and commercial development work, which he might do jointly
with a qualified person for a lender and then sign the report jointly. Internal
or external consultants and specialists were available for use by Mr Lancaster.
(iii) Mr Lancaster had authority to undertake
valuations jointly with an experienced and qualified person. A report prepared
by Mr Lancaster could be assigned to a lender, if it was passed to a qualified
person, who, if necessary after inspection of the property, added his signature
to that of Mr Lancaster.
(iv) For insurance reasons the name of the firm
was required to be signed on the reports.
(v) Mr Jacks knew that Mr Lancaster had in his
possession report covers taken from Mr Jack’s office. He did not complain that
Mr Lancaster was not authorised to have them and he did not report the matter.
(vi) The distinction between what qualified
persons and unqualified persons were authorised to do is unclear. No written
instructions were given on the matter. Hamptons international division had only
unqualified men, such as Bru Pearce who undertook valuations for lenders.
Although Mr Perks said that Mr Pearce was not authorised to do that, it does
not appear that any restrictions were placed on Mr Pearce and he was not
prohibited or prevented from making such valuations.
(3) Industry practice
(i) Building societies and other lenders normally
expected that a valuation for mortgage purposes would have been made by a
person with qualifications from the Royal Institution of Chartered Surveyors or
the Society of Valuers.
(ii) The evidence shows that it was common for
lenders (other than building societies) to accept reports signed in the firm
name, without inquiring as to the individual author or his qualifications. It
was assumed that a person with the appropriate qualifications had done the
report, for example, the evidence of Mr Herod of Credit Lyonnaise Nederland: Mr
Townsend of Property Lending Trust; Mr Hull of Norwich Union Life Assurance: Mr
Martin of West of England Building Society; and Mr Aston of Yorkshire Building
Society gave evidence to this effect. The lender would look at the firm name,
not at the name of the individual. It was also normal to assume that a firm was
able to carry valuations which it appeared to be willing to undertake.
(iii) There was evidence from Mr Taylor that an
unqualified man might well be involved in the preparation of the valuation
report for mortgage purposes, such as where a large number of properties were
involved or by arrangement with a building society or if a building society did
not require it, though it normally did.
(iv) Lenders would not, however, accept reports of
an unqualified man working on his own. An unqualified man might do the legwork,
but a lender would expect that work to be checked and approved by a suitably
qualified person within the firm to see that the answer was right.
(4) Hamptons insurance
(i) The perception was that valuations of
residential and commercial properties by Mr Lancaster were covered by
insurance, save in respect of structural surveys, because he had five years
experience. The insurance covered valuations not only by qualified persons, but
also by supervised unqualified persons with five years’ experience.
(ii) In those circumstances Hamptons was content
for Mr Lancaster to do valuations, provided there was no perceived lack of
insurance cover. This was the position of Mr Haynes after his report to Mr
Padfield that Mr Lancaster was carrying out valuations of commercial
properties.
(5) Mr Haynes’ knowledge regarding Royal Hotel
It is accepted
by the society that there is no direct evidence that any one in authority at
Hamptons actually knew that Mr Lancaster had carried out the valuation of the
eight hotels, except in the case of Royal Hotel. In the case of Royal Hotel it
is contended that Mr Haynes knew that Mr Lancaster had carried out a valuation
of the hotel, which formed the subject of a report for Mr Toms; and that Mr
Broom also knew that Mr Lancaster had carried out such a valuation or, at the
very least, he knew that Mr Lancaster had done some work in relation to the
hotel and did not inquire as to what had been done. No steps were taken to
prevent Mr Lancaster from valuing hotels in the future. No inquiries were made
as to the nature of the work carried out by him in relation to the hotel in
order to check whether what he had done was something which he ought not to
have done, so as to prevent a recurrence.
Detailed
points were made in respect of Mr Haynes’ knowledge. It was emphasised that Mr
Haynes’ evidence on what he knew at the relevant time had varied from time to
time, eg. in his police statement, his evidence at the criminal trial at
Winchester, his evidence in chief and his cross-examination in the trial of
this action.
In my
judgment, Mr Haynes’ evidence on this matter cannot be safely relied on. Quite
apart from the differences in the statements made by him at various times, the
impression created by him in the witness box was that he simply could not
remember clearly what had happened. He was confused and vague.
He knew that
Mr Lancaster had prepared and submitted a report to Mr Toms in connection with Royal
Hotel. It is not clear, however, from his evidence, or from any other evidence
that he knew at that time of the valuation of the hotel, as distinct from
advice about a sale or an assessment of development potential.
Accordingly, I
do not find as a fact My Haynes knew at this time that Mr Lancaster had
prepared a valuation report of Royal Hotel. At most I find that he knew that Mr
Lancaster had made a report on the Royal Hotel for Mr Toms. He did not make any
other inquiries. He did not know what kind of report it was, whether it was a
valuation or an advice on sale.
(6) Mr Broom’s knowledge of the Royal Hotel
I find as a
fact that Mr Broom did not know that Mr Lancaster had carried out a valuation
of Royal Hotel. The most he knew was that Mr Lancaster had done some work on
it. He did not inquire further what it was.
I accept the
evidence of Mr Broom that prior to the meeting at Mr Porter’s offices in July
1988 he had no knowledge of Mr Lancaster’s involvement in the Royal Hotel. He
had not been told that there was a valuation done by Mr Lancaster. At July 1988
he was aware of the invoice (R2470). I accept his evidence that the form of the
invoice was dictated to him during the meeting. He later made amendments to it.
I do not accept the evidence of Mr Toms and Mr Porter that Mr Broom
said that the valuation of Royal Hotel had been carried out by Mr Lancaster. I
do not find either of them to be reliable in their account of the meeting in
July 1988. It is clear that Mr Broom’s main concern at the meeting was to
secure payment of outstanding fees, rather than to inquire into the precise
circumstances in which the fees were incurred.
L. Ostensible
authority
On this issue
I find in favour of the society and Mercantile Credit.
1. Hamptons’ submissions
It was
submitted on behalf of Hamptons that Mr Lancaster was not ostensibly authorised
by Giddy & Giddy nor Hamptons to carry out the valuations in question. In
his submissions Mr Slater emphasised the following points.
(1) Mr Lancaster was not at any time employed in
a position, the occupier of which would normally be authorised, or be regarded
as authorised, to carry out mortgage valuations. On the contrary, the normal
work of a landbuyer would disqualify him from undertaking mortgage valuations.
The evidence (eg that of Mr Shores) was that in the ordinary way you would not
find the land department valuing hotels as a going concern. There might be a
direct conflict of interest, eg under the 1986 Act, in cases where there is a
sale of land for development and the firm earns fees from commission on sale.
It was, however, recognised that membership of the land department did not
necessarily indicate that a person was lacking in valuation experience and
qualifications.
(2) No one at Mercantile Credit or the society
knew what Mr Lancaster’s position at Giddy & Giddy or Hamptons was. The
question of Mr Lancaster’s actual position was not considered by those who
dealt with him. What mattered most was that he worked for Giddy & Giddy or
Hamptons Giddy & Giddy, eg Mrs Winnard originally thought that he was
qualified, but discovered that he was not, when she saw the completed valuation
for mortgage advance forms for Kistor Hotel. She never inquired about his actual
position.
(3) No one at Mercantile Credit or the society
had any contact with any person at Giddy & Giddy or Hamptons apart from Mr
Lancaster. He was the only person they met or dealt with in correspondence and
on the phone.
(4) No fees were invoiced by Hamptons to any
person in connection with the valuations of any of the hotels for the society
or Mercantile Credit. They did not pay any fees for any such valuations.
(5) There was no representation by Giddy &
Giddy or Hamptons that Mr Lancaster was employed to carry out mortgage
valuations. There was no reliance on any such representation because there was
no representation to be relied on.
(6) Neither Mercantile Credit nor the society
relied on any representations by Giddy & Giddy nor Hamptons as to Mr Lancaster’s
authority. The only possible reliance was a misguided reliance on his
representation that he was authorised to carry out the valuations in question.
Mercantile Credit and the society acted in the mistaken belief that the
valuations had been carried out by a qualified surveyor or valuer in the
employment of Hamptons.
2. The
society’s submissions
Many of the
evidential points made by the society in its submissions relating to actual
authority are also relevant to its submissions of ostensible authority. They do
not require detailed repetition. The society submitted that Mr Lancaster had
ostensible authority to value hotels for lenders. In particular, I accept the
submission that the following facts should be found.
(1) Mr Padfield knew in 1987 that Mr Lancaster
had valued properties, other than land, but did not take any steps to prevent
him from doing so.
(2) Mr Broom knew that Mr Lancaster had done some
work in relation to Royal Hotel, Clacton-on-Sea, but made no inquiries as to
the nature of that work.
(3) No instructions were ever given to Mr
Lancaster as to the type of property he could or could not value or as to the
type of client for whom he could or could not carry out valuations.
(4) As respect to Mercantile Credit, Mr Lancaster
knew that his valuations of the Royal and Grand hotels were to be addressed to
Mercantile Credit and that Mercantile Credit would rely on them and that, if he
was authorised to value those hotels, he had authority to authorise Mercantile
Credit to rely on them.
3. Detailed
points
Further
detailed points were made on behalf of the society. In my judgment, a case of
ostensible authority has been made out by the society and Mercantile Credit on
the basis of these points taken together with the more detailed points made in
support of the case of actual authority.
(1) In certain instances Hamptons permitted Mr
Lancaster to act as a valuer as well as a landbuyer and thereby held him out as
having the usual authority of a valuer. If a person is employed to value
valuations as part of his job then third parties are entitled to assume that he
is of sufficient competence and experience. A valuer’s usual and, therefore,
ostensible authority, includes valuation of properties of all kinds without
limitation as to purpose. No member of the public, no borrower or lender would
be safe if required to embark on a trail of inquiry in the firm as to the
authority and competence of particular valuers or as to the authority or
competence of any person of whom that inquiry might be made.
(2) Even if Hamptons had not engaged Mr Lancaster
to act as a valuer, as well as a landbuyer, it held him out to the world at
large as having authority to do what he had done. He was held out as a ‘jack of
all trades’ in relation to property by reason of:
(a) employing him to develop his job as he
thought fit;
(b) allowing and expecting him to drum up work of
his own choosing;
(c) allowing him to value properties of all kinds
with no limit on purpose.
(3) Hamptons placed him in, and permitted him to
occupy, a position where he was able to undertake such valuations. The evidence
shows that Mr Lancaster was expected and required to develop contacts, to work
direct with clients and to work without any effective supervision or subject to
any superior to monitor or check his work. In those circumstances, Mr Lancaster
had ostensible authority to tell people what he could or could not do and to
accept and to act upon instructions as he thought fit. By its conduct Hamptons
represented to third parties that Mr Lancaster could act in this way and tell
the client what he could and could not do. A third party dealing with Mr
Lancaster would readily and reasonably assume that a firm such as Hamptons
would take proper steps to ensure that its own internal procedures were adequate.
Hamptons had put Mr Lancaster in an entrepreneurial position which would be
likely to result in expansion of his activities. But it had done nothing to
monitor, check or control him. It was reasonable for lenders, such as the
society and Mercantile Credit, to rely on representations as to his position.
(4) The only possible apparent limitation on Mr
Lancaster’s authority was his lack of recognised professional qualifications.
That did not, however, prevent Hamptons from allowing Mr Lancaster to value
property, eg for capital gains and probate purposes. It is important not to
confuse Mr Lancaster’s ostensible authority to act on behalf of Hamptons with
the requirements of the society and Mercantile Credit as to valuations by
professionally qualified persons. As regards the society and Mercantile Credit
the issue is to be judged on the basis of the facts as they appeared to them.
They believed in good faith that the valuations were joint; that they were both
authorised; and that one of them was professionally qualified. They relied on
the fact that they were, or appeared to be, employees of Hamptons.
(5) Further, as regards Mercantile Credit, Mr
Lancaster was identified as an associate on the notepaper. Mercantile Credit’s
letter of May 27 1988 was passed to Mr Lancaster for a reply in the ordinary
course of Hamptons business. It was clear from the letter that a report had
been done on Royal Hotel and what was being sought was that the report should
be addressed ‘for mortgage purposes’. There were other instances of
instructions by lenders to Giddy & Giddy being
Lending Trust and Norwich General Trust). These acts amount to holding out by
Hamptons of Mr Lancaster as the appropriately authorised person to deal with
the report and to make representations as to the authority of the makers of the
report and the assignment, including himself.
(6) The secrecy of Mr Lancaster’s activities,
which was repeatedly emphasised by Hamptons, does not, in my judgment, negative
the case of ostensible authority. Hamptons’ case is that Mr Lancaster’s
activities in relation to the eight hotels was secret and, therefore, outside
the scope of any authority, actual or ostensible. The factual case on secrecy
is exaggerated. In the case of Royal Hotel, Mr Haynes knew that Mr Lancaster
had made a report of some kind. The correspondence with Mercantile Credit on
Royal Hotel came from the Marlow office where Mr Lancaster worked alongside Mr
Haynes. The valuation of Kistor Hotel came from Cordwallis Road at a time when
Mr Lancaster, having returned from Antigua, had no permanent office. The long
report on Haseley House Hotel appears to have been typed by Sue Harris at a
time when she knew and Mr Haynes knew that Mr Lancaster was at Cordwallis Road.
The report for Russell Hotel was produced when Mr Lancaster was at Maidenhead
and worked, as he was authorised to do, with Ros Smith.
There was
nothing particularly suspicious about the fact that he gave a home address and
a home and car phone number, as well as office address phone number, or about
the fact that his reports sometimes were oddly prepared, eg with the
continuation sheets upside down. Further, the importance of the removal of Mr
Lancaster’s files when he left Hamptons is exaggerated. Mr Lancaster also took
files relating to transactions honestly conducted by him or on behalf of
Hamptons. Many files related to his contacts.
M. Reliance
and causation
Hamptons
submitted that there was no reliance by Mercantile Credit or the society on the
fraudulent valuation opinions of Mr Lancaster or on any authorised act or
authorised representation by him as to valuations by or signatures of a
qualified person. In the absence of reliance Hamptons could not be vicariously
liable. The essence of Hamptons’ submission was that the opinion of Mr
Lancaster as to valuation of the hotels was not the effective cause of the
lender’s loss and was irrelevant to Mercantile Credit and the society; because,
if the assignment and valuation documents had been signed by him alone, no
money would have been lent by them. He was not qualified and known to be
unqualified to value hotels or other property for mortgage purposes. In
particular, as far as the society was concerned, Mr Lancaster was not, and
would not be, in any event, regarded as a ‘competent valuer’ within section 13
of the 1986 Act. No loan would have been made, if the society knew that Mr
Sloan’s signature or Mr Evans’ signature were forgeries or that they were not
employed by Hamptons. Money would, however, have been lent if valuation
documents had been signed by Mr V Evans FRICS or Mr R Sloan ARICS alone. In the
circumstances, reliance was on those forged signatures, not on Mr Lancaster’s,
or his opinion on value or other representations within the scope of his
authority. In other words, reliance was on a written report on the value of the
property which was believed to have been carried out by a qualified man in the
employment of Hamptons. That belief was induced by fraudulent representations
and conduct on the part of Mr Lancaster, which were no part of his job with
Hamptons and outside his scope of his authority, actual or ostensible. No
authorised act of Mr Lancaster effectively caused the society to suffer loss.
I reject this
submission. In my judgment, the correct analysis is as follows:
(1) It is not open to Mr Lancaster to deny that
the society and Mercantile Credit relied on his fraudulent acts and
representations which induced them to make the loans and caused them to suffer
loss.
(2) If, as I have held, Hamptons by its conduct
represented to the society and Mercantile Credit that Mr Lancaster had
ostensible authority to produce in its name valuations and reports for mortgage
purposes, Hamptons is estopped by the representation from denying that Mr
Lancaster had authority and from denying that there has been reliance by those
lenders on the representation of Hamptons as to his authority. Reliance on that
representation led the lenders to accept and act on the valuations and reports
produced by Mr Lancaster. That caused them to lend the money and suffer the
loss.
N. Notice
point
I also reject
Hamptons’ submissions that Mercantile Credit and the society had notice of Mr
Lancaster’s want of authority. Hamptons submitted that both Mercantile Credit
and the society had constructive notice that Mr Lancaster was not authorised to
carry out valuations. They knew that Mr Lancaster was not qualified. They knew
that he was unlikely to be employed by or authorised by Hamptons to carry out
mortgage valuations either by himself or at all, because reputable chartered
surveyors do not authorise unqualified persons to do mortgage valuations. They
knew it was the practice of all reputable lenders to require a bricks and
mortar valuation to be carried out by a qualified person. The society and
Mercantile Credit expected the valuations to be carried out by a chartered
surveyor. The fact that Mr Lancaster was not a chartered surveyor would have
alerted them to the likelihood that he was authorised. They did not concern
themselves with his qualification AIBA or whether it was a relevant
qualification. What they looked at was the firm he worked for.
If Mercantile
Credit and the society had followed their own basic internal procedures or
guidelines they would have discovered his lack of authority and also discovered
Mr Lancaster’s fraud. They would never have lent the money. The procedures and
guidelines were there to prevent the very kind of thing which happened in this
case, eg by the use of a panel of firms and individual chartered surveyors.
Neither Hamptons. Giddy & Giddy nor Mr Lancaster were on the society’s
panel, on the lists compiled or in course of compilation by Mercantile Credit.
In my judgment, the case advanced by Hamptons on this point does not establish
notice in fact or in law. Indeed, the arguments are more relevant to the plea
of contributory negligence which has been struck out of some of the proceedings
and was not allowed, for reasons given in earlier judgment, to be made by way
of an amendment. It is, indeed, regrettable that the society and Mercantile
Credit did not follow procedures, guidelines and checks which would have been
prudent. It does not, however, follow that the Mercantile Credit and the
society had notice of Mr Lancaster’s want of authority.
I accept the
case of Mercantile Credit and the society that in their dealings with Mr
Lancaster there was nothing to give them notice of Mr Lancaster’s lack of
authority. No express notice of want of authority was given by Hamptons. The
transactions in question were routine transactions. There were not present in
them such unusual procedures or features as to give them notice of Mr
Lancaster’s want of authority. Notice on their part is not established by proof
of noncompliance on the part of the society and Mercantile Credit with their
own internal procedures.
O. Summary of
conclusions
In the course
of summarising the detailed evidence and the rival submissions, I have made
findings of fact and stated certain conclusions. It is now convenient to
collect in one place a summary of my main conclusions on the issues of
liability which arise between, on the one hand, Mr Lancaster and Hamptons and,
on the other hand, the society and Mercantile Credit.
1. The general
practice of reputable lenders, including the society and Mercantile Credit, was
to require a bricks and mortar valuation for mortgage purposes to be made by a
professionally qualified surveyor or valuer.
2. That
practice was known to:
(1) firms of chartered surveyors and valuers,
including Giddy & Giddy and Hamptons;
(2) Mr Lancaster, who was not a professionally
qualified surveyor or valuer and was known by all concerned not to be so
qualified.
3. The general
practice at Giddy & Giddy and Hamptons was that a bricks and mortar
valuation for mortgage purposes would be made and signed by a professionally
qualified surveyor or valuer.
4. As a
general rule an unqualified person, such as Mr Lancaster, in employment as a
landbuyer or land manager in the land department of a firm of chartered
surveyors and valuers, would not have actual authority to make valuations of
property for mortgage purposes.
5. In the
course of his employment as a landbuyer in the land department of Giddy &
Giddy and Hamptons, Mr Lancaster did have actual authority to do certain acts
on his own on behalf of clients of the firm in relation to land and buildings,
including the following:
(1) Appraisals of land and buildings, including
commercial buildings and hotels, for prospective vendors, purchasers and
lenders.
(2) Valuations of land and buildings for use of
clients of the firm for specific purposes, such as probate and capital gains
tax.
(3) Collaborating with a qualified surveyor or
valuer in making a valuation of land and buildings for clients of the firm,
including prospective vendors and purchasers.
(4) Making representations to third parties in
the course of the authorised activities listed above, including representations
as to his actual authority.
6. Mr
Lancaster had no actual authority and he knew that he had no actual authority
to do the following acts:
(1) To make on his own valuations of land and
buildings (including hotels) for a building society or other lender for
mortgage purposes.
(2) To assign or to address to a building society
or other lender for mortgage purposes a valuation made by him on his own for a
prospective vendor or purchaser.
(3) To make on his own valuations for mortgage
purposes of any of the eight hotels.
(4) To make representations to third parties in
relation to the unauthorised activities listed above, including representations
about his own authority.
7. Mr
Lancaster is personally liable to the society and Mercantile Credit for deceit
in the making of fraudulent representations to them that:
(1) The valuations of the eight hotels provided
to, or assigned to, them were the joint work of himself and a qualified
surveyor, or valuer named therein, when they were his own work.
(2) The valuations of the eight hotels were the
opinions of a qualified surveyor or valuer authorised by Hamptons to make such
valuations, when they were his own dishonest opinions.
(3) The signatures of the persons stated to be
qualified as a surveyor or valuer were genuine, whereas they were forgeries.
(4) He was authorised to receive fees for such
valuations on behalf of Hamptons.
8. Mr
Lancaster provided fraudulent valuations directly to the society and by
assignment to Mercantile Credit with the intention that they should rely upon
them in deciding whether or not to lend money to prospective purchasers on the
security of the properties valued.
9. The society
and Mercantile Credit:
(1) Did not know that the valuations were
fraudulent or were made in pursuance of an enterprise to defraud them.
(2) Reasonably believed that the valuations were
the genuine work of a qualified surveyor or valuer, authorised by a reputable
employer firm, and that the representations made by Mr Lancaster were
authorised and true.
(3) Relied upon the representations made by Mr
Lancaster.
(4) Were thereby induced to lend money to
prospective purchasers on the security of the properties.
10. Hamptons
was unaware that Mr Lancaster had produced fraudulent valuations of the eight
hotels for mortgage purposes and was unaware of the fraudulent representations
and activities of Mr Lancaster and others in relation to the eight hotels.
11. Hamptons
did, however, hold out to third parties, including the society and Mercantile
Credit, and represent to them, that Mr Lancaster had authority to value land
and buildings, including hotels, for mortgage purposes jointly with a qualified
surveyor or valuer. Mr Lancaster acted within the scope of his ostensible
authority by doing such acts on behalf of and in the name of Hamptons and in
making representations in relation to such acts.
12. Hamptons
held out Mr Lancaster and represented to third parties, including the society and
Mercantile Credit, that he had such ostensible authority by permitting him to
gain and occupy a position in the firm in which, in his dealing with third
parties, he was able to extend, without restraint, the scope of his activities
as a landbuyer in the land department. Those extended activities included
dealing with, and providing valuations to, lenders for mortgage purposes in the
name of the firm jointly with a qualified person.
13. Hamptons
permitted Mr Lancaster to gain and occupy that position in consequence of its
failure to: monitor; curb his activities: require him to report on his
activities to others in the firm on a regular basis; place more clearly defined
express limits on his activities and authority; take steps to prevent him from
engaging in activities now alleged to be outside the scope of his authority. In
fact, Hamptons received and retained fees in respect of activities, which it
contends were unauthorised (excluding the eight hotels).
14. The loss
suffered by the society and Mercantile Credit was in consequence of their
reliance on the valuations which Mr Lancaster had ostensible authority to
provide to them as valuations done jointly with a qualified surveyor or valuer.
15. The
society and Mercantile Credit had no notice of any lack of authority on the
part of Mr Lancaster to provide valuations jointly with a qualified surveyor or
valuer.
