![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
Permitted consequent losses
Feb. 18th, 2009 05:14 pmhttp://www.bailii.org/ew/cases/EWHC/Comm/2009/254.html
http://www.bailii.org/ew/cases/EWHC/Comm/2008/51.html
So, a crooked valuer declares a building to be worth eleven million pounds; on this evidence, the Cheshire Building Society lends X (with a 0.75% fee) ten and a half million pounds to buy it, followed by another million. X default after repaying £497,000; the building turns out to be worth £625,000. Other bits of reporting make it fairly clear that the crooked valuer convinced X to take out the loan; what's not altogether clear is who X paid the £10,500,000 to.
What can CBS recover? First: the £11,413,750 that they lent (minus the 625,000 current value of the property).
Then, the £2,411,429 interest that the loans that would otherwise have been made with the money would have accumulated over the time since the fraud. OK.
Then, the £50,701 pay that the staff investigating the fraud got. Fine.
When the fraud was reported, people started taking money out of CBS; £15.7 million more was taken out in the months after the fraud was discovered than in the same two months in the previous and following year. CBS was awarded the £11,514 extra interest that they'd had to pay to borrow £15.7 million on the wholesale market rather than from individual retail depositors, and a further £23,028 for the assumed reticence of retail depositors over the six following months. Hmm.
CBS had to renegotiate a 'back-stop facility' which cost them fees of £108k, of which they were allowed to reclaim £74k.
What I don't quite understand is the next part: CBS didn't borrow £15.7 million on the wholesale market, because as a building society they were already at their 40% borrowing limit and weren't allowed to. Which means they were unable to lend what appears to have been £143 million against those deposits, which means they missed out on £7,557,000 that they would have made in profit on those loans, at 0.5% average annual profit margin and for the expected 4.7-year duration of an average CBS mortgage. The judge allowed CBS to recover that £7,557,000!
Moreover, to attract additional funding CBS offered a 12-month bond at 5.11% 'rather than the 5% they were planning'; people bought £108.5 million of this bond, and the extra interest cost CBS £119,366. Startlingly, the judge allowed CBS to claim that, too!
This seems to be a glorious example of judicially approved counting of unhatched chickens; I would be wary of assuming an annual 0.5% profit on £143 million in mortgages made in 2006.
It then emerges that the crooked valuer hasn't any money and the losses have to be borne by his solicitor, at which point everything other than the initial advance and the lost interest on alternate advances is removed from the judgement.
http://www.bailii.org/ew/cases/EWHC/Comm/2008/51.html
So, a crooked valuer declares a building to be worth eleven million pounds; on this evidence, the Cheshire Building Society lends X (with a 0.75% fee) ten and a half million pounds to buy it, followed by another million. X default after repaying £497,000; the building turns out to be worth £625,000. Other bits of reporting make it fairly clear that the crooked valuer convinced X to take out the loan; what's not altogether clear is who X paid the £10,500,000 to.
What can CBS recover? First: the £11,413,750 that they lent (minus the 625,000 current value of the property).
Then, the £2,411,429 interest that the loans that would otherwise have been made with the money would have accumulated over the time since the fraud. OK.
Then, the £50,701 pay that the staff investigating the fraud got. Fine.
When the fraud was reported, people started taking money out of CBS; £15.7 million more was taken out in the months after the fraud was discovered than in the same two months in the previous and following year. CBS was awarded the £11,514 extra interest that they'd had to pay to borrow £15.7 million on the wholesale market rather than from individual retail depositors, and a further £23,028 for the assumed reticence of retail depositors over the six following months. Hmm.
CBS had to renegotiate a 'back-stop facility' which cost them fees of £108k, of which they were allowed to reclaim £74k.
What I don't quite understand is the next part: CBS didn't borrow £15.7 million on the wholesale market, because as a building society they were already at their 40% borrowing limit and weren't allowed to. Which means they were unable to lend what appears to have been £143 million against those deposits, which means they missed out on £7,557,000 that they would have made in profit on those loans, at 0.5% average annual profit margin and for the expected 4.7-year duration of an average CBS mortgage. The judge allowed CBS to recover that £7,557,000!
Moreover, to attract additional funding CBS offered a 12-month bond at 5.11% 'rather than the 5% they were planning'; people bought £108.5 million of this bond, and the extra interest cost CBS £119,366. Startlingly, the judge allowed CBS to claim that, too!
This seems to be a glorious example of judicially approved counting of unhatched chickens; I would be wary of assuming an annual 0.5% profit on £143 million in mortgages made in 2006.
It then emerges that the crooked valuer hasn't any money and the losses have to be borne by his solicitor, at which point everything other than the initial advance and the lost interest on alternate advances is removed from the judgement.
