Mortgage advance made more than six years before issue of writ for negligent valuation – Limitation defence – Whether value of borrowers’ covenant sufficient to negate allegation that damage suffered at inception of mortgage – Claimant relying on section 14A of Limitation Act 1980 – Whether claimant should have been alerted to overvaluation after receiving reports from debt collection agents
On 25 June 1990 the claimant mortgage provider advanced £176,631 to a married couple (the borrowers) to assist in the purchase of a property in Parkgate, Merseyside. The advance, secured by a first charge on the property, was made in reliance on a valuation of £250,000 obtained from the defendant firm on 30 April 1990. Having fallen into arrear from the outset, the borrowers made a single payment of £2,000 on 5 October 1990. Thereafter the borrowers made sporadic payments against a background of eviction notices and possession proceedings. In June 1992 a debt collection agency engaged by the claimant reported a value of £175,000. Two further agency reports submitted over the following 12 months put the value of the property at £150,000. The property was repossessed in March 1996, the borrowers having paid a total of £104,000. In April 1996 other valuers appointed by the claimant submitted a (retrospective) valuation that put the April 1990 value at £150,000. In August 1996 the claimant sold the property for £100,000.
On 15 October 1996 the claimant issued a writ alleging that the defendant had negligently overvalued the property. The defendant asserted that the claim was statute-barred as the cause of action had accrued, if at all, no later than the date of the advance, ie more than six years before the issue of the writ. The trial of a preliminary issue was directed in order to determine whether the defendant’s assertion was correct and, if so, whether the claimant could nevertheless take advantage of the three-year extension afforded by section 14A of the Limitation Act 1980 (delayed knowledge of material facts). On the latter issue (the 14A issue) the claimant contended that the first occasion on which it could reasonably have been expected to consider proceedings against the defendant was the receipt of the retrospective valuation in April 1996.
Held: The limitation defence failed on the 14A issue.
1. The defendant’s first assertion was correct. A cause of action in tort for negligence accrued when the claimant suffered relevant damage. In the case of a negligent overvaluation no such damage was sustained so
long as the value of the security, taken together with the value of the borrower’s covenant, exceeded the amount owed by the borrower: see the speeches of Lord Nicholls and Lord Hoffmann in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1998] 1 EGLR 99. In the present case, however, the claimant had failed to show, on the balance of probabilities, that there was sufficient value in the borrowers’ covenant from the inception of the mortgage to 15 October 1990 to make up for the shortfall between the amount on loan and the true value of the property. Since the covenant was in all probability worthless from the outset, it was immaterial that some value may have been restored when the £2,000 was paid on 5 October 1990.
2. The 14A issue turned on whether, for the purpose of subsection (10), as explored in Nash v Eli Lilly & Co [1993] 1 WLR 782 and Finance for Mortgages v Farley [1996] EGCS 35, the reports obtained in 1992 and 1993 afforded material that ought to have led the claimant to a retrospective valuation. The defendant’s claim to that effect was to be rejected as the reports were no more than estimates obtained from unqualified persons for the purpose of debt collection. As such they should not have caused the claimant to question the original valuation, particularly given the state of the property market at the relevant time.
Timothy Harry (instructed by Sprecher Grier) appeared for the claimant; Andrew Neish (instructed by Park Nelson) appeared for the defendant.
Alan Cooklin, barrister
