Negligence – Surveyor – Valuation – Defendant surveyor valuing property for purpose of further advance by claimant to borrower – Borrower defaulting and property sold – Proceeds of sale insufficient to pay both original loan and further advance – Claim against defendant for negligent valuation – Application of principles of appropriation – Whether claimant appropriating sale proceeds to repay further advance – Whether cause of action existing against defendant in such circumstances – Claim dismissed
In 2004, the defendant surveyor valued a residential property for the claimant lender in connection with a mortgage loan of £93,400. In 2005, the claimant made a further advance of £19,492 to the borrower based on a new valuation from the defendant, valuing the property at £135,000. The borrower defaulted on repayments. The claimant took possession of the property in 2007 and sold it in December 2009 for £87,000, which left a shortfall after the funds were applied to the outstanding loan accounts.
In July 2010, the claimant brought an action against the defendant for damages for negligent valuation. The claim related only to the 2005 valuation for the further advance. The defendant contended that the claimant had suffered no loss in that regard, and therefore had no cause of action, since the further advance had been repaid in full. It relied on the claimant’s own documents and schedules, sent to it in the context of the proceedings, which indicated that the net proceeds of sale had first been used to repay the further advance in full and had then been applied to reduce the main 2004 loan; the defendant submitted that once the sale proceeds had been appropriated to the outstanding debts in that way, the claimant could not change its mind.
The claimant contended that: (i) the documentation in question resulted from a mechanical exercise effected by its computer system as a matter of internal record-keeping, such that no deliberate act of appropriation had occurred until December 2010, when an employee of the claimant manually overrode the system to show the original loan as being extinguished and a shortfall on the further advance; (ii) any purported appropriation was not effective until it was communicated to the debtor, which had not occurred; and (iii) even if the sale proceeds had been appropriated to pay off the further advance in full, the claimant had suffered loss on the ground that the security for its total lending was, contrary to the defendant’s advice, insufficient to cover the further advance.
A preliminary issue was tried as to whether, assuming the defendant to have been negligent as alleged, the claimant had any cause of action against it.
Held: The claim was dismissed.
(1) The proceeds of sale of the property had been appropriated to the repayment of the account for the 2005 advance. Carrying the payment to the account for the 2005 advance was prima facie sufficient to make the relevant appropriation: Deeley v Lloyds Bank Ltd [1912] AC 756 applied. It was irrelevant that the claimant’s computer system had performed automatically the apparent appropriation. Setting up the computer system in that way had involved a human decision as to how the claimant intended to appropriate any payments that it received in such circumstances. Moreover, the correspondence showed that the claimant had considered the entries made by the computer system as recording its intention regarding the allocation of payments received, and had thereby ratified the allocation made by the system.
(2) Communication of the appropriation to the debtor was not absolutely necessary to complete an appropriation by the creditor, although it was likely to be the way in which it communicated its “final answer” on that issue. The true test might be the creditor would do something from which it could be sufficiently inferred that it had in fact made the relevant election to appropriate: Simson v Ingham [1823] 2 B&C 65 and Cory Bros & Co Ltd v Owners of the Turkish Steamship Mecca, The Mecca [1897] AC 286 considered. Even if communication was a general requirement, it did not have to be to the debtor, but could be made to some other party that had an interest in the appropriation. Such a communication evidenced an election by the creditor as to how it intended its right to operate. In the instant case, the defendant had an interest in how the payments were appropriated. The schedules sent to it were intended to operate as the claimant’s statement of its position with regard to the defendant and were sufficient to make final the relevant appropriation. Since, by its act of appropriation, the claimant had treated itself as having recovered the debt under the further advance, it had eliminated any loss on that account and suffered no damage under it.
(3) The extent of liability for negligent valuation depended on the scope of the relevant transaction. A valuer was not liable for matters that were not caused by the lender entering into the particular transaction on the basis of wrong information. The claimant’s alleged loss recorded against the main loan account did not give rise to liability since, in making the 2005 valuation, the defendant owed no duty of care with regard to protecting the claimant from loss on the earlier loan. On a rigorous determination of what had happened, in fact and in consequential legal effect, the loss on the main account did not flow directly from the 2005 loan, as a consequence of entering into it, but had been caused by the claimant in electing to treat that further advance as paid. That was not an act carried out in reliance on the defendant’s assumed negligent valuation. It followed that the claimant’s particulars of claim disclosed no reasonable cause of action: South Australia Asset Management Corporation v York Montague Ltd [1996] 2 EGLR 93; [196] 27 EG 125 and Preferred Mortgages Ltd v Bradford & Bingley Estate Agencies Ltd [2002] EWCA Civ 336; [2002] PNLR 35 applied; Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1998] 1 EGLR 99; [1998] 05 EG 150 distinguished.
Robert Christie (instructed by Slater Rhodes, of Yeovil) appeared for the claimant; Thomas Grant (instructed by Beachcroft LLP, of Leeds) appeared for the defendant.
Sally Dobson, barrister
