Mortgage — Negligent valuation — Valuation report addressed to associated company of lender — Repayments ceased — Property sold by mortgagee — Sale price insufficient to cover mortgage — Action for damages — High Court holding that valuer owed duty of care to lender despite error in lender’s identity
The plaintiff was a company in the business of lending money on the security of mortgages over land. In June 1989 the owners of a property known as “Little Oaks”, Aspen Close, Cobham, Surrey, (“the mortgagors”) applied to the plaintiff for a loan on the security of the property. The defendants were valuers who valued the property at £575,000. In reliance on that valuation the plaintiff offered a loan of £402,500 on the security of a first mortgage over the property. The mortgagors paid instalments up to and including April 1990, but had paid nothing since that date. In May 1992 the property was sold by the plaintiff as mortgagee at a price of £300,000. The plaintiff brought an action for damages against the defendant. It argued that the valuation was made negligently in that, at the time of the valuation, the property was only worth £380,000 and no competent valuer would have valued it at £575,000.
Various Scotlife companies had been set up, each bearing a different number to distinguish them. Scotlife Home Loans (No 1) and (No 2) at the time of valuation acted as separate entities for administrative purposes. Each company was under the same umbrella however, and in order to decide which company should be used for which transaction, the advice of a panel was sought which had been set up for the purpose. The defendant surveyor was on the panel for Scotlife (No 1) Ltd and Scotlife (No 2) Ltd, as well as other panels. Each company had its own style of form but all in all the basic formats of each company were similar. In error the identity of the lender for purposes of the valuation report was said to be Scotlife (No 1) Ltd. The question arose whether the defendants owed a duty of care to the plaintiff despite that error. The second defendant in the main action was a solicitor who had acted for the lenders and the mortgagors but took no part in these proceedings.
Held The defendants owed a duty of care to the plaintiff.
1. The question was whether there was sufficient proximity between the plaintiff and the defendants in making the valuation to give rise to a duty of care.
2. There was no test or formula as to what constituted proximity. This was sensible as each case depended upon its own facts.
3. Before the existence and scope of any liability could be determined it was necessary first to determine for what purposes and in what circumstances the information in question was to be given, including any disclaimers: see Caparo Industries plc v Dickman [1990] 2 AC 605.
4. It was an established principle that it was not enough to found a duty of care to say that it was reasonably foreseeable that the recipient of the report would suffer a loss. It was necessary to show foreseeability, proximity and that it was just and reasonable that a duty should be imposed.
5. In the present case it was foreseeable that if the valuation was wrong the recipient would rely upon it and suffer loss. The defendant knew that the report would be relied upon and he had enough knowledge of the relationship between Scotlife (No 1) Ltd and the plaintiff to be under a duty of care to the plaintiff despite the error in the name.
David Waksman (instructed by Rosling King) appeared for the plaintiff; Roger Stewart (instructed by Kennedys) appeared for the first defendants; the second defendant did not appear and was not represented.