Hotel — Loan secured by charge on property — RICS guidance notes — Whether valuation negligent — Valuer not shown to be negligent — Action dismissed
“Kingsdown” was a manor house in Kingsdown, Kent. Its ground floor was a restaurant and both the house and business were owned by a company (“Traylodge”). Craneheath Securities Ltd was a secondary bank. York Montague Ltd (“YM”) were chartered surveyors. In 1989 Craneheath loaned £0.55m to Traylodge, secured by a second charge on Kingsdown. There was already a first charge in favour of a bank (“KD”), which had loaned £3.15m. On May 22 1990 Craneheath loaned a further £0.1m, also subject to the second charge. On September 19 1990 joint receivers and administrators of Traylodge were appointed and on April 15 1991 a compulsory winding-up order was made. Kingsdown was eventually sold at auction on May 6 1992 for £0.475m. Craneheath lost all their money and KD most of theirs. Craneheath said that its two loans were made in reliance on a valuation of Kingsdown made by YM in the sum of £5.25m. It claimed that the valuation was negligent and sought damages totalling £1m. YM said that the valuation was not negligent (or at least not shown to be), and that even if it were, Craneheath was either wholly or partially the author of its misfortune.
Held The action failed.
1. It was common ground that YM owed Craneheath a duty of care — that was why the valuation was addressed to them. The difficulty was in assessing what amounted to negligence. In Signer & Friedlander Ltd v John D Wood & Co (1977) 243 EG 212, the court had evidence that there was a permissible margin of error of +/- 10% of a figure which could be said to be the right figure. That “margin of error” approach depended upon evidence that there was such a margin. It also seemed to depend upon some notional “right” figure though one could not ascertain that in many cases. There was no evidence in the present case which supported a permissible “margin of error” for a property such as Kingsdown.
2. In the present case the standard of valuation used was the open market going-concern valuation in accordance with RICS guidance notes even though it was for a mortgage. While the valuer ought to have exercised all proper skills in carrying out his valuation it could not be said that he should have arrived at a lower figure simply because the valuation was for mortgage purposes. The practical effect of the RICS guidelines was to put any need to take extra caution, where the property was to be a security, upon the lender not the valuer.
3. The key test was whether the valuation was that which a competent valuer, using proper skill and care, could properly have reached: see Mount Banking Corporation v Brian Cooper & Co [1992] 2 EGLR 142.
4. Where a valuation was made by means of a written report, the lender could reasonably be expected to read the report and not simply the final figure. A valuation was not a guarantee of the figure reached — a “suable document” irrespective of what further or other information the lender might have.
5. On the evidence it was not shown that the valuation in this case was negligent and it was not therefore necessary to consider the question of contributory negligence. However, where a person knew he had more information affecting the valuation than the valuer had, that person was likely to find himself at least partly at fault if he acted in reliance on the valuation without first giving the valuer that information for comment.
Jonathan Simpkiss (instructed by Allison & Humphreys) appeared for Craneheath; Richard Lynagh (instructed by Cameron Markby Hewitt) appeared for York Montague.
