Mortgage – Valuation – Negligence – Claimant lender seeking damages against defendant for alleged negligent valuation of development site – Defendant applying for summary judgment – Whether losses being caused by second alleged negligent valuation assuming original loan redeemed – Whether “but for” test of causation applicable to particular circumstances – Application granted
The claimant lender brought an action for damages against the defendant valuer for the allegedly negligent valuation of a partly built residential development in Sunningdale. In November 2011, the defendant had valued the property at £3,250,000 in its current condition, with a gross development value (GDV) of £4,900,000 on completion of the works. In December 2011, the defendant confirmed its valuation but adjusted the current market value to £3,500,000. The claimant alleged that the true values were £3,770,000 for GDV and £2,240,000 for market value.
The defendant applied for summary judgment. It was assumed that the claimant had relied on the November valuations in agreeing with the borrower in December 2011 a new facility to advance up to £3,088,252. When that facility expired, the borrower failed to repay the loan and the claimant appointed LPA receivers to realise the value of the property. The claimant had previously advanced £2,221,768 to the borrower under an earlier facility on the basis of a valuation carried out by the defendant in February 2011 when the property was valued in its then current state at £2,300,000 with a GDV of £4,465,000. At the time when the monies under the new facility were first drawn down, the borrower was already indebted to the claimant in the total sum of £2,560,168. For the purposes of the application, the court assumed, in favour of the claimant, that the original loan and charge had been redeemed.
The defendant said it was unarguable that any loss attributable to the existing indebtedness was caused by any negligence in the November valuation since the claimant would have remained exposed to the existing indebtedness in any event. That money had been advanced on the basis of the February valuation which was not criticised as negligent. The new facility had not caused the claimant to lend that money and any alleged negligence had not caused the claimant loss. The issue arose whether, where the first valuer could not be sued because the first loan had been fully redeemed by a second loan, the whole of the monies advanced in reliance on a second valuation were potentially losses caused by the second valuer’s negligence.
Held: The application was granted.
The defendant was entitled to summary judgment. In accordance with the orthodox rules of causation of loss in valuer negligence claims, the claimant’s losses were attributable to existing indebtedness and were not caused by any alleged negligence in the November valuation. There was nothing in the decision of the Court of Appeal in Preferred Mortgages Ltd v Bradford and Bingley Estate Agencies Ltd [2002] EWCA Civ 336; [2002] PLSCS 62 to support the argument that causation should be decided on a different basis in cases such as the present. The fact that no claim lay in respect of the first valuation did not make the application of the “but for” test to the second valuation inappropriate or unfair. The claim in respect of the second valuation had to stand or fall on its own merits in accordance with established principles. All the money advanced to the borrower was treated as having been advanced under the new facility, which was made in reliance on the November valuation and the existing loan was repaid out of the new advance. The relevant comparison, for the purposes of determining factual causation, was with the position in the no-negligence world. If the defendant had valued non-negligently, so that the second loan facility had not proceeded, the claimant would have been exposed nonetheless to loss attributable to the existing indebtedness. As a matter of law, as currently pleaded, any loss attributable to the existence of the existing indebtedness had not been caused by the defendant’s assumed negligence: Nycredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1998] 1 EGLR 99 applied.
Joanna Smith QC (instructed by Rosling King LLP) appeared for the claimant; Alexander Hickey (instructed by Reed Smith LLP) appeared for the defendant.
Eileen O’Grady, barrister
Read a transcript of Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd here
