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Astle and others v CBRE Ltd; Abbott and others v Evans Randall Investment Management Ltd and others; Abbott and others v CBRE Ltd; and another case  EWHC 3189 (Ch),  All ER (D) 111 (Nov)
The Chancery Division dismissed the defendants’ application for summary judgment on a claim by investors of a Jersey trust, which alleged that the defendants were liable for the loss of the entire value of their investment due to a breach of duty to take all reasonable care to ensure that facts stated in an information memorandum (IM), given to potential investors, were true and accurate. Even if the court was required to apply settled law and identify the direct consequences of the valuation being inaccurate, the claimants had real prospects of establishing that the loss they had suffered on their investment was attributable to the alleged inadequacies in the IM and, accordingly, the case should go to trial.
The claimants were investors in a scheme to acquire and develop five properties due to become regional fire control centres as part of a central government project. Under the scheme, investors acquired loan notes and units in a Jersey trust. Their interests in the rental cashflows—the properties had long leases with various public and local authority bodies—were subordinated under a ‘waterfall’ to the interests of the Bank of Scotland (the bank) who provided financing for the scheme.
The scheme was devised by Evans Randall Investment Management Ltd (ERIML) who promoted it to potential investors in an IM. CBRE provided expert property valuations for the purpose of valuing the Bank’s security—these valuations were published in the IM.
Following a series of IT disasters, central government cancelled the fire control centres project in 2010. This, together with the collapse in commercial property values in 2008, meant that the trust was unable to refinance the scheme when the bank’s loan fell for repayment in 2011. It was not contested that the claimants are unlikely to recover any of their investment.
The claimants allege against CBRE and ERIML that the properties were materially overvalued by CBRE as reproduced in the IM and that the IM contained additional minor factual inaccuracies. They also allege against ERIML only that the loan notes should have been drafted as non-qualifying corporate bonds for UK tax purposes. ERIML and CBRE each sought summary judgment and/or strike out of the claims brought against them for breach of duty to provide accurate and non-misleading information in the IM.
The case raises two issues of importance in relation to the well-known SAAMCO principle (see South Australian Asset Management Corporation v York Montague Ltd  AC 191,  3 All ER 365) which limits the scope of the damages recoverable where it applies.
The first is whether the SAAMCO principle extends to a promoter of an investment scheme—it was not disputed that it did extend to CBRE, a valuer. Since it was accepted by both parties that ERIML’s duty, if any, was limited to the provision of information, ERIML argued that SAAMCO should be applied, with the result that ERIML was liable not for all losses flowing from the transaction, but only for those incurred as a result of that information being wrong. Here ERIML submitted the claimants’ losses were caused by the cancellation of the scheme and the 2008 crash and not the inaccuracies in the IM.
The second is the application of the SAAMCO principle where it is alleged that the overvaluation made no material difference to the outcome for the claimants. This was because, contrary to the position in a standard lender/valuer case, the structure of the scheme and the waterfall meant that any security in the property always belonged to the bank—it was never the claimants’ to lose. In other words, the bank’s debt grew—for reasons unrelated to any overvaluation by the defendants—to such a level that there was nothing left of the properties for the claimants. There would still have been nothing left even if the valuations had been true—assuming for these purposes that there was an overvaluation.
As to ERIML, the court was persuaded that the claimants have a reasonable prospect of establishing that there were relevant differences between the position of ERIML as promoter of the investment scheme and the standard SAAMCO valuer. This was due to the range of information that ERIML was responsible for providing—the court characterised that information at para  as going ‘not just to black letter valuation, but to more nuanced questions relevant to the commercial prospects more generally’.
As to the application of the SAAMCO principle more generally, the court disagreed with submissions made by CBRE and ERIML that the only relevant question was ‘would the claimants have been in the same position they are in now even if the information had been correct?’ Instead, the judge held that it was arguable that the court was not required to engage in a speculative exercise assessing what would have occurred had the valuations been correct without also engaging with the question of what the actual difference in valuation was at the time the transaction was entered into. The point was an important one, and would go to trial.
The judgment has potentially important implications for the application of orthodox SAAMCO principles to claims brought against allegedly negligent valuers.
Taking his lead from the judgment of Lord Millett in Platform Home Loans v Oyston Shipways  2 AC 290, 1 All ER 833 the judge held that the SAAMCO approach required the court to approach the quantification of loss in two stages. First the court must establish the basic ‘but for’ loss that the claimant has suffered, which in a lender’s valuation case will typically be the difference between the amount invested and the amount recovered when the security is realised. Second, the court must assess the difference between the valuation and the real value at the date of the transaction—this amount is the maximum amount of loss falling within the duty of care. In essence, the judge characterised the SAAMCO principle as imposing a numerical cap limiting the recoverable damages to the amount of the over-valuation.
Here the claimants argued that the element of their loss that was attributable to the information being wrong was the difference between CBRE’s valuation and the actual value that properly construed this loss occurred on day one of the transaction and merely crystallised when the refinancing later failed. Notwithstanding CBRE’s argument that the structure of the waterfall meant that the overvaluation in practice ate only into the bank’s security and not any interest of the claimants, and that it was necessary to look at events after the transaction to see whether the loss suffered fell within the scope of responsibility assumed, the court found that the claimants had a good arguable case that they could recover their whole loss under the SAAMCO principle.
The court did observe at para  that the defendants have a good argument that a simple formula approach to the principle—measure the amount of the overvaluation and that is your cap—‘does not work very well’ in the present situation, which is in some ways closer to the situation of a lender making an advance against a second and not first charge.
The decisions on both the application and scope of the SAAMCO principle will be surprising for many who considered the principle to be reasonably fixed.
Following this decision it is no longer clear that providers of information other than those within the SAAMCOvaluer paradigm will be able to rely on the SAAMCO principle to limit their liability. It will be important to see how the court develops the characterisation of different types of information once Abbott v CBRE reaches trial.
The decision also goes to the heart of what the SAAMCO principle means and how the court is to assess which losses truly fall within the scope of a duty of care to provide information. The court here considered it reasonably arguable that the claimants could recover the full extent of their losses in this case, notwithstanding the argument that the waterfall meant that even if there had been no breach of duty their losses would still have been incurred.
The decision highlights an inherent uncertainty in the SAAMCO principle outside the simple case of a claim by a lender with a first charge or a purchaser against a valuer. Much will turn on the approach that the court takes to these points at trial.
Hannah Glover practices in all areas of chambers’ work, with a particular emphasis on commercial litigation, banking and financial services, civil fraud, company and insolvency work. As well as appearing in the High Court and county courts in her own right, Hannah has experience of being led in complex, high-value litigation and was also a lecturer in law at Pembroke College, Oxford and Wadham College, Oxford.
Interviewed by Kate Beaumont.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
First published on LexisPSL Banking & Finance. Click here for a free trial.
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