Valuation for mortgage lending — Whether valuers liable for damages reflecting fall in property market — House of Lords holding that valuers not so liable
The three appeals raised a common question of principle, viz the question of a valuer’s liability where a lender received a negligent overvaluation of property as security for a loan. There were two common features in the cases: (1) if the lender had known the true value of the property he would not have lent; (2) the fall in the property market after the valuation date greatly increased the loss which the lender suffered. The Court of Appeal decided that in a case in which the lender would not otherwise have lent (called a “no-transaction” case), he was entitled to recover the difference between the sum which he lent and the net sum which he actually got back. The valuer bore the whole risk of a transaction which, but for negligence, would not have happened, including all the loss attributable to the market fall: [1995] 1 EGLR 129. The valuers appealed.
Held Orders accordingly.
1. Much of the discussion assumed that the cases were about the correct measure of damages for the loss which the lender suffered. The Court of Appeal began its judgment on the principle, described as “the necessary point of departure”, that where an injury was to be compensated by damages, the damages should be as near as possible the sum which would put the plaintiff in the position in which he would have been if he had not been injured.
2. That was the wrong place to begin. Before considering the principle on which to calculate the damages to which a plaintiff was entitled as compensation for loss, it was necessary to decide for what kind of loss he was entitled to compensation. The loss for which the valuer was liable had to precede any consideration of the measure of damages.
3. A duty of care such as the valuer owed did not exist in the abstract. A plaintiff had to show that the duty was owed to him and that it was a duty in respect of the kind of loss which he suffered.
4. As a general principle, a person who was under a duty to take reasonable care to provide information on which someone else would decide upon a course of action was, if negligent, not generally regarded as responsible for all the consequences of that course of action. He was responsible only for the consequences of the information being wrong. A duty of care which imposed upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct was not fair and reasonable.
5. In South Australia Asset Management Corporation the whole loss suffered was within the scope of the defendant’s duty and the appeal was dismissed. In the other two cases the appeals were allowed with damages to reflect the difference between the defendants’ valuation and the properties’ true value as at valuation date.
Jonathan Sumption QC and Marion Egan (instructed by Rowe & Maw) appeared for the appellants, York Montague Ltd; Mark Hapgood QC and Charles Douthwaite (instructed by Alsop Wilkinson) appeared for the respondents, South Australian Asset Management Corporation.
Ronald Walker QC and Vincent Moran (instructed by Cameron Markby Hewitt) appeared for the appellants, Prudential Property Services Ltd; Roger Toulson QC and Daniel Pierce-Higgins (instructed by Clifford Chance) appeared for the respondents, United Bank of Kuwait plc. Michael DeNavarro QC and Jonathan Ferris (instructed by Williams Davies Meltzer) appeared for the appellants, Edward Erdman Group Ltd; Michael Briggs QC and David Blayney (instructed by Clifford Chance) appeared for the respondents, Nykredit Mortgage Bank plc.