Valuation of property for loan purposes — Overvaluation — Borrower failed to repay loan — Lender losing sum advanced — Lender claiming damages for negligence against valuer — Valuer admitting negligence — High Court holding borrower entitled to capital sum advanced together with interest — Damages reduced by current value of property
The plaintiff bank specialised in the provision of short-term finance at relatively high rates of interest. The plaintiffs brought an action, at the instance of joint receivers, against the defendants, a firm of valuers and estate agents for damages arising from a negligent valuation report by the defendants regarding Hatfield Manor, near Doncaster. That property was to stand as security for an advance of £750,000 by the plaintiffs to a Mr and Mrs Marsden, £250,000 of which was to be used to discharge an existing mortgage and for business purposes. The defendants placed a market value on the property at June 1 1990 of £1,525,000 with a forced sale value of £1,342,000. The sum advanced was never repaid. The property charged remained unsold but valuers appointed by the plaintiffs and the defendants agreed that its value was now only £87,500. The defendants admitted that their valuation did not meet the criteria of the reasonable skill and care of ordinary competent surveyors. The issue before the court was confined to questions of causation, contributory negligence and mitigation as well as an assessment of damages.
Held The plaintiffs’ loss was the capital sum loaned.
1. The plaintiffs placed such reliance on the defendants’ valuation that it played “a real and substantial part in inducing” the plaintiffs to make the loan: see JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 589.
2. On the balance of probabilities, in the light of the provisions of the plaintiffs’ operations manual prescribing loan to value of security ratios, had the plaintiffs been in possession of a competent valuation they would not have made the advance they did make to the Marsden.
3. This was a case to which section 1 of the Law Reform (Contributory Negligence) Act 1945 had application: see Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1994] 2 EGLR 108; United Bank of Kuwait v Prudential Property Services Ltd [1994] 2 EGLR 100; [1995] 12 EG 144.
4. Just because the loan transaction was taking place at the most risky end of the lending market there was no reason why the lender should not be entitled to receive advice from an expert valuer arrived at with proper care and skill: see HIT Finance Ltd v Lewis & Tucker Ltd [1993] 2 EGLR 231; Britannic Securities & Investments Ltd v Hirani Watson [1995] EGCS 46.
5. Had the defendants’ valuation been substantially correct the plaintiffs would have had a substantial margin of protection for their loan. The defendants must have known that the essence of the transaction was speed which, although permitting a valuation of the security, would not permit the sort of in-depth inquiries into the assets of the proposed borrower by the plaintiffs who were lending on the short-term, that a long-term financier would require.
6. The defendants had failed to make out a case for the reduction of the plaintiffs’ damages for contributory negligence: see also HIT Finance Ltd v Lewis & Tucker Ltd [1993] 2 EGLR 231.
7. The plaintiffs’ loss was the capital sum loaned out, namely £750,000, which they were entitled to recover with appropriate interest to put themselves back into the position which they would have been in but for the defendants’ breach of contract. That sum would be reduced by £87,500, being the current value of the property.
James Ramsden (instructed by Clifford Chance) appeared for the plaintiffs; Roger Stewart and Fiona Sinclair (instructed by Fishburn Boxer) appeared for the defendants.
