Valuation – Negligence – Causation – Claimant providing mortgage in reliance on valuation by defendant surveyor – Claimant repossessing property and selling at considerable loss – Whether defendant negligently over-valuing property – Whether defendant’s negligence causing claimant’s loss – Claim dismissed
The developers of a newly built block of relatively low-value long-leased residential flats in a block located on the River Thames waterfront between Woolwich and Thamesmead wished to sell the flats as a whole apparently because of an over-supply of similar flats in the area and provided incentives to attract a buyer for the entire block. B devised a scheme whereby he was able to purchase the flats at a discount without the funds to buy them and then to sell them on to third parties at a significant personal profit to himself. The relevant events occurred in 2005 and 2006 when the property market was still buoyant, house prices were still rising and mortgages were still relatively easy to obtain.
In September 2006, the claimant mortgage provider advanced just over £250,000 to a third party borrower who was buying a flat in the development. The loan was advanced after the defendant practice of chartered surveyors provided the claimant with a report and mortgage valuation in August 2006 which had advised that the current open market value of the flat was £275,000. The claimant advanced 90% of that advised value on completion. The borrower never occupied the flat and, after he defaulted on the loan, the claimant repossessed it, having obtained a possession order in September 2007.
In January 2008, the claimant sold the flat at a considerable loss and was advised that the open market value had been negligently over-stated by the defendant. The claimant brought an action for damages contending that, had the defendant provided a reasonable valuation, it would not have advanced the money to the borrower. It therefore based its claim on the difference between the value of the flat as advised and the purported based on non-negligent advise and sought damages totalling approximately £99,000.
Held: The claim was dismissed.
(1) Since the valuer in this case was concerned with a mortgage valuation for a lender, his valuation was required to be undertaken in compliance with two inter-related Practice Standards set out in the Red Book, PS3.2. The overall objective of such a valuation was to identify a market value of the flat being valued at the date of the valuation. “Market value” was defined and explained with some care as the most probable price reasonably obtainable in the market as the best price reasonably obtainable by the seller and the most advantageous price reasonably obtainable by the buyer. Both the buyer and the seller had to be willing and the transaction being valued had to have been carried out in the market and conducted at arm’s length after proper marketing. The valuation had to be evidence-based and all the available evidence considered. The skill of the valuer was therefore to know the market, what sources of evidence of relevant market conditions were available and how to ascertain that data insofar as it was reasonably available, to assemble such available evidence and then to evaluate it using his or her knowledge, judgment, feeling and professional sixth sense.
(2) It was in the context of such a valuation that the important consideration of incentives had to be placed. Incentives had to be considered in a mortgage valuation in 2006 because of their prevalence in new build developments, particularly as the marketing of such developments was often exclusively within the hands of the developer. However, the incentives that the Red Book referred to were ones that could lawfully be offered. This gave rise to three difficulties. Firstly, obtaining knowledge of the incentive was often difficult if not impossible as part of the inevitably short trail-chasing that a particular valuer could undertake with a particular valuation. Secondly, the valuer had to decide, often a matter of some difficulty, whether the incentive was so closely linked to the quoted price as to amount, in reality, to a value reduction and, if so, what the size of the reduction should be. Thirdly, the valuer had to take account of whether a quoted value was a selling price or the price at which the property was sold and then registered and on which stamp duty was paid. Conveyancers were required by law to register the selling price so that a price which was registered which both parties did not consider or intend to be the actual price was one that was registered unlawfully.
(3) In the present case, the entire loss that the claimant had suffered arose from and was caused by a combination of: (i) the dishonest ways in which B had marketed and sold the flats; (ii) the collusive manner in which his solicitors had conducted the conveyancing; and (iii) the apparent involvement of the developer in the marketing of the flats whereby it continued to appear to be the vendor and to be actively marketing the flats when it was not and failed, in agreement with B, to provide any information to valuers save for the comparables that he selected and provided.
On the evidence, the defendant’s valuer had undertaken a valuation without reasonable skill and care but the resulting valuation would, on the balance of probabilities, have been the same had he exercised appropriate skill and care.
The scope of the defendant’s retainer was to provide a mortgage valuation in accordance with the Red Book requirements. He was not retained to provide a valuation of a flat which was not being sold on the open market and in which the most relevant comparables had been dishonestly inflated. Equally, he was not accepting liability for a negligently provided valuation when the loss being claimed for that valuation had been caused by the vendor’s and the claimant’s solicitors’ dishonesty. Finally, and conclusively, the entire loss incurred by the claimant was overwhelmingly caused by those parties and was not caused by any negligence of the valuer.
Nicholas J Bard (instructed by Salans) appeared for the claimant; Jennifer Jones (instructed by Browne Jacobson LLP) appeared for the defendant.
Eileen O’Grady, barrister
