Surveyor – Professional negligence – Duty of care – Mortgage lender engaging defendant surveyors to carry out mortgage valuations – Lender bringing proceedings alleging valuations negligent and breach of contract – Lender assigning claims to claimant – Whether defendant breaching duty of care and negligent – Whether lender failing to mitigate loss – Whether lender being contributorily negligent – Claim allowed in part.
GMAC, the largest centralised mortgage lender in the UK, regularly used the defendant residential surveyor to carry out mortgage valuations on residential properties. GMAC commenced proceedings against the defendant alleging that two valuations of properties in Birmingham and Kent had been performed negligently or in breach of contract. It contended that, if the allegedly negligent valuations had not been made, it would not have made loans to the borrowers. GMAC were seeking damages totalling the difference between the defendant’s valuation figure and the correct valuation figure and assigned its claim to the claimant.
The defendant contended that GMAC had failed to mitigate any loss since the Birmingham borrower had been three months in arrears before possession proceedings were issued and there had been a four month period between the making of an enforceable possession order and the seeking of a warrant. GMAC should also have sought possession against the Kent borrower straight away, rather than agreeing to reduce repayments which had resulted in far greater losses. Furthermore, GMAC had been contributorily negligent in making the loans to both borrowers in the light of their financial circumstances.
Held: The claim was allowed in part.
(1) In common with other professional persons and in the absence of an express term to the contrary, the standard required of a surveyor was that of the ordinary skilled man exercising the same skill as himself. That basic duty at common law could be extended, reduced or modified by the terms of the contract between the lender and the valuer: Muldoon v Maize of Lilliput Ltd [1993] 1 EGLR 43, Lewisham Investment Partnership v Morgan [1997] 2 EGLR 150 and Sansom v Metcalfe Hambleton and Co [1998] 2 EGLR 103; [1998] 26 EG 154 referred to.
The RICS Appraisal and Valuation Standards also included the RICS mortgage valuation specification with an express warning to valuers to treat notified sale prices on new build properties with caution, because of the potentially valuable incentives which the developer might have offered in order to maintain a high sale price. It also warned that comparables available from sales and re-sales on a development might not be reliable if considered in isolation, and should be considered in the context of any available incentives which could have influenced the price paid.
(2) In the present case, there was no doubt that the defendant’s performance of the valuations had fallen below the standard to be expected of a reasonable valuer and had therefore been in breach of the requirements of the contract. The valuer had produced his valuation without inspecting the property and, despite the RICS guidance in respect of incentives, the court was not persuaded that he actually asked the sales team about incentives on the property. Further, the comparables on the Quest table showed £/square metre figures which were not necessarily based on the actual sale/purchase prices, because the Quest database included asking prices and valuations. That discrepancy had been highlighted in the defendant’s own expert’s report and had an important impact on the correct valuation figure. Both valuations had been negligent and, but for that negligence, the loans would not have been made.
(3) As regards the Birmingham valuation, it could not be said that GMAC had delayed generally in seeking to obtain possession following the borrower’s default on his mortgage, apart from a period of four months between the enforceable possession order and the warrant had been sought for which no explanation had been given and for which the defendant should not be penalised. Therefore the interest due to the claimant on the damages would exclude any interest for that period. As regards the Kent valuation, the court rejected all allegations that GMAC had failed to mitigate its loss. There had been no unwarranted delay in obtaining possession and GMAC had dealt with the borrower with all due sensitivity.
(4) The court sympathised with the basic position taken by the defendant regarding the Birmingham valuation. Lending large sums to people on a self-certified basis, relying on intermediaries and placing complete faith in computerised tick-box forms, seemed to be a potential recipe for disaster. But such lending was common at the relevant time and on the facts it was impossible to say that the decision to make the loan had been irrational, illogical or negligent. The borrower’s financial position was not such that further investigations were required and did not mean that the loan should not have been made. Accordingly, in relation to that loan, allegations of contributory negligence would be rejected.
(5) There had been contributory negligence in the case of the Kent loan as a result of a particular combination of circumstances. The LTV at 95% was unacceptably high; the remortgage loan was required to consolidate significant debts/defaults; and there was no supporting evidence of income for a loan that was not originally sought on a self-certifying basis. In dealing with that loan in the way that it did, GMAC had been negligent; it failed to look after its own interests and made a loan of £280,000 which a reasonably competent centralised lender would not have made.
(6) Accordingly, in relation to the Birmingham valuation, the defendant had been negligent, giving rise to damages calculated by reference to the difference between its valuation figure of £227,500 and the correct valuation of £204,658, ie a loss of £22,842 plus interest for the whole of the relevant period, less the four months delay. The appropriate interest rate was 2% over base. In relation to the Kent valuation, the defendant had been negligent and the actual losses suffered in consequence of that had been agreed at £51,219.24. However, the actual loss would be reduced by 50% to reflect GMAC’s contributory negligence. That resulted in a figure of £25,609.62. Interest was due at 2% over the base rate on that sum for the whole of the relevant period, there having been no failure to mitigate: Paratus AMC Ltd v Countrywide Surveyors Ltd [2011] EWHC 3307 (Ch); [2012] PLSCS 08 considered.
Peter De Verneuil Smith (instructed by Rosling King LLP) appeared for the claimant; Luke Wygas (instructed by LSL Legal Services) appeared for the defendant.
Eileen O’Grady, barrister
