Mortgage — Negligent valuation — Causation — Appellant mortgage lender making advance on basis of property valuation by respondent — Appellant advancing further sum on basis of advice from different valuer — Appellant obtaining new charge to secure higher sum — Borrower defaulting — Security insufficient to discharge debt — Whether later charge breaking chain of causation between respondent’s negligence and appellant’s loss — Appeal dismissed
The appellant instructed the respondent to advise on the value of a property to be mortgaged. On the basis of the valuation, the appellant agreed to advance the sum requested, secured by a legal charge over the property. The borrower subsequently applied for a further advance. The appellant instructed another valuer, CS, which gave a valuation similar to that of the respondent. The appellant agreed to advance a further sum. The transaction was structured as a redemption of the existing mortgage and the grant of a new one for a higher sum. Correspondingly, the original charge was discharged and a new one executed.
The borrower defaulted on his repayments, and, upon the sale of the property, the proceeds were not sufficient to discharge his debt. The appellant claimed damages from the respondent for breach of contract and negligence, on the basis that it had undervalued the property.
The judge dismissed the claim after finding that the chain of causation between the respondent’s negligence and the appellant’s loss had been broken by the redemption of the first mortgage, since, at that point, the transaction, to which the respondent’s liability related, had come to an end. The judge held that any loss in relation to the later charge had been caused by reliance upon the report of CS.
On appeal, the appellant contended that: (i) the second mortgage was not a separate transaction from the first, but simply a device for advancing the additional funds; (ii) the appellant had suffered loss from taking an inadequate security in reliance upon the respondent’s negligent valuation; and (iii) despite the formal redemption of the first mortgage, there had not, in reality, been any point at which it had ceased to suffer that loss, so as to break the chain of causation between the respondent’s negligence and that loss.
Held: The appeal was dismissed.
There was no evidence that the redemption of the first mortgage had not been intended to have full legal effect. The borrower’s liabilities under it had been discharged, and there was no suggestion that, after redemption, the appellant could have relied upon the terms of the old mortgage to obtain any relief against the borrower. There had been an effective redemption of the old mortgage and a grant of a new one, and the old mortgage had no continuing life after that point.
The scope of the duty undertaken by the respondent valuer was determined by the transaction in respect of which it had been retained, and liability extended only to that transaction: Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1998] 1 EGLR 99 applied. The respondent had been retained only in relation to the first mortgage. While some inchoate liability might have existed during the life of that mortgage, as a result of the appellant holding an inadequate security, liability had come to an end when that transaction was, in effect, successfully completed upon redemption. Because the first mortgage had been fully redeemed, no loss had resulted from it.
Romie Tager QC and Hugh Jackson (instructed by Sprecher Grier Halberstam) appeared for the appellant; Roger Stewart QC and Andrew Nicol (instructed by Harrison Drury & Co, of Preston) appeared for the respondent.
Sally Dobson, barrister
