Valuation of land for loan purposes — Overvaluation — Borrower failed to repay loan — Lender losing sum advanced — Lender claiming damages for negligence against valuer — High Court holding valuer failed to take reasonable care — Judgment for plaintiff
The plaintiff was a company carrying on a money lending business. The defendant was a firm of chartered surveyors, valuers and estate agents. The plaintiff’s claim arose from the alleged negligence by the defendant through one of its partners (“W”). It was alleged that land offered to the plaintiff as security for a loan was grossly and negligently overvalued by W. The security offered was a second charge over land near Bury St Edmonds. The borrower failed to repay the loan. The first mortgagees sold the land comprising the security in the exercise of their power of sale and, there being no surplus proceeds of sale over the amount secured by the first mortgage, the plaintiff lost the whole sum of £520,000 advanced by way of principal together with accrued interest.
Held Judgment for the plaintiff.
1. The valuer’s duty to the lender was to take reasonable care to give a reliable and informed opinion on the open market value of the land at the date of valuation: see Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] 12 EG 144.
2. It was conceded that the £2m value put on the property by W was an overvaluation by between £600,000 and £700,000. W knew that his valuation was being sought for the purposes of valuing a security being offered on a loan transaction.
3. W’s admitted errors amounted to an admission that in preparing his report he did not take reasonable care to give a reliable and informed opinion on the open market value of the land in question. The report threw up a value for the site which was more than any careful and competent valuer could have advised. A reader of the report, unaware of the errors, would be influenced as to what action to take based upon it.
4. Accordingly, in preparing and transmitting his report to the plaintiff, the defendant through W acted negligently.
5. A careful and competent valuer would not have placed a value on the site significantly greater than £250,000. Had the plaintiff received such a valuation it would not have embarked on the loan transaction with the applicant. It followed that the plaintiff was entitled to recover damages based on its loss of the total sum advanced.
6. Just because the loan was taking place at the most risky end of the lending market, there was no reason why a lender in that market should not be entitled to receive advice from an expert valuer arrived at after the exercise of proper care and skill: see HIT Finance Ltd v Lewis & Tucker Ltd [1993] 2 EGLR 231.
7. The failure to inquire into the applicant’s ability to repay the loan prior to entering into the loan transaction did not give rise to a defence of contributory negligence: see United Bank of Kuwait v Prudential Property Services Ltd [1994] 2 EGLR 100; [1995] 12 EG 144.
8. The plaintiff was entitled to recover as damages the amount actually lent together with the interest payable to the bank; to borrow that amount less any instalments of interest which it received from the borrower.
Geoffrey Zelin (instructed by Wake Smith & Co, of Sheffield) appeared for the plaintiff; Alexander Hill-Smith (instructed by Cameron Markby Hewitt) appeared for the defendant.
