In Mortgage Express v. Countrywide Surveyors Ltd [2016] EWHC 1830 (Ch), a professional negligence claim, the lender claimant sought compound interest as damages in addition to interest at the court rate, on the basis that it had lost the opportunity to make alternative loans to other borrowers. The court decided, however, that the claimant had not proved this element of its loss and was only entitled to simple interest pursuant to section 35A of the Senior Courts Act 1981.

Facts

Mortgage Express (ME) had advanced monies relying on valuations provided by Countrywide Surveyors Ltd (Countrywide) in respect of 39 properties. In an earlier judgment, His Honour Judge Behrens had found Countrywide liable to ME in deceit.

In this judgment, The Judge considered how to approach the assessment of damages.

ME claimed £1.650 million as capital loss plus £1.395 million interest as damages on a compound LIBOR basis from the date of the advance to the date of the sale of the properties. It also claimed
interest of £340,850 on both the capital loss and the claim in damages pursuant to the Senior Courts Act 1981 at the LIBOR rate plus 1 per cent.

Countrywide meanwhile argued that ME was only entitled to statutory interest from the date the cause of action arose, which Countrywide said was the date of default to the date of judgment in the much lower sum of £196,732.

Judgment

Interest as damages

ME initially claimed interest as damages based on the cost of borrowing those funds, which it had advanced in respect of the properties. However, it subsequently amended its claim to seek the loss representing the amount ME would have earned if it had been able to make alternative loans. ME submitted that, had it not made the loans in respect of the 39 properties, it would have lent money to other borrowers on the same or similar terms. ME stated that, prior to the mortgage applications, it had entered into interest rate swaps to enable it to make the loans. Because of these arrangements ME would have made a return of LIBOR plus 0.5 per cent.

Countrywide argued that this element of ME's loss was "speculative and hypothetical". ME had not discharged its evidential burden to show that it had actually suffered a loss as it had produced no evidence of prospective borrowers which met its lending criteria, and which it had been unable to satisfy because it had lent the moneys in reliance on Countrywide's valuations.

Countrywide referred to the House of Lords case of Swingcastle v. Alistair Gibson (a firm) [1991] 2 AC 223, in which Neill LJ set out the following options for a lender to claim interest as damages:

  1. the cost of borrowing from third parties;
  2. interest the lender would have earned had it made other loans;
  3. interest the lender would have earned if the money was put on deposit; or
  4. a sum to represent the loss of opportunity to invest elsewhere.

Neill LJ held that lender claimants must be able to overcome the evidential burden of establishing the actual loss and he commented that this would be a difficult task.

In the present case, the judge pointed out that the evidential burden was on ME to show that it would have made alternative loans had it not lent on the 39 properties. The evidence showed, however, that ME had been able to satisfy the demand for loans. If it had been unable to do so, the judge would have expected it to have produced evidence of this. The High Court, therefore, rejected ME's claim for interest as damages as it had not managed to establish that it had lost the opportunity to make alternative loans.

Statutory interest

The Judge acknowledged that the court has discretion in relation to the rate of interest and awarded the claimant LIBOR plus 0.5 pre cent from the date of default to the date of the judgment.

Commentary

This case demonstrates that if a lender wishes to claim for the loss of an opportunity to invest in another loan it must produce evidence to show that it has been unable to satisfy loan demands from prospective borrowers which met the lending criteria. Similar difficulties are faced by lenders claiming the cost of borrowing as damages. In those cases, lenders must also produce evidence of the actual cost the lender incurred by borrowing from third parties for the particular loan advance. It will not suffice to show the average cost across the lender's business (Lloyds Bank PLC v. Parker Bullen [2000] Lloyd's Rep. P.N. 51). These cases illustrate the difficulties faced by lender claimants when seeking interest as damages. Overcoming the evidential burden for such cases remains problematic.