Stevens and another v Barclays Mercantile Business Finance Ltd and another

Plaintiffs applying for loan to finance purchase of public house – Defendant banks commissioning report and discussing report with plaintiffs prior to advancing loan – Plaintiffs purchasing public house and going bankrupt – Whether defendants under duty to take reasonable care in relation to advice – Whether defendants made misrepresentations – Whether plaintiffs relied on misrepresentations – Plaintiffs’ claim dismissed The plaintiffs entered into a contract to purchase a public house, Oak Inn, Old Churchstoke, Montgomery, Powys. The price for the freehold, fixtures and goodwill of the business was £225,000. The plaintiffs approached the first defendant for a loan. The second defendant was a finance house specialising in the provision of business purchase loans and the first defendant administered the former’s business and acted as its agent. A report by specialist business valuers on the public house (the report) was required by the defendants. At a meeting on September 13 1989 the first defendant discussed the report with, but did not show it to, the plaintiffs prior to agreeing to advance £250,000 by way of a secured loan. The plaintiffs financed the balance of the purchase by remortgaging their house and by a loan from Ansells Brewery. The purchase was completed on October 31 1989. Subsequently there was a considerable fall in custom at the public house and the plaintiffs were unable to make the business pay or to service their loan obligations. In October 1990 they were adjudged bankrupt on their own petitions. After three years they received their discharge from bankruptcy and acquired by assignment from the trustee the right of action in relation to any claims. The plaintiffs issued proceedings and claimed that prior to the purchase and the borrowing the first defendants had made oral misrepresentations constituting negligent advice at a meeting on September 13 1989. The defendants denied that they had made any misrepresentations and that they had ever assumed any responsibility by way of tendering advice to the plaintiffs on the commercial wisdom of their acquisition. Held The plaintiffs’ claim was dismissed. 1. At the meeting of September 13 1989 the defendants had told the plaintiffs that the report was good, and since the defendants had expressed an opinion about the contents of the report they were under a duty towards the plaintiffs to exercise reasonable care in so doing. 2. In all the circumstances, it was not sufficient simply to describe the report as good, largely because the bottom line figure after servicing the loan just met the bare minimum internal requirements of the bank. Even on the report and projections, it was a high risk venture for the plaintiffs. Therefore the description of the report as good was a misrepresentation. 3. However, nothing the defendants had said had played any part in the plaintiffs’ decision to go ahead with the purchase. The plaintiffs would not have behaved differently if they had been given a copy of the report. All that the plaintiffs were interested in hearing at the meeting was whether or not the loan would be forthcoming. Alan Rawley QC and John Snider (instructed by Clarke Wilmott & Clarke, of Bridgewater) appeared for the plaintiffs; Michael Brindle QC and Sandra Corbett (instructed by Shoosmiths & Harrison, of Northampton) appeared for the defendants.