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Professional negligence lawyer, Emma Slade, reviews the latest case law relating to negligent overvaluation of property by valuers and surveyors
Readers may be aware of the stinging result for professional negligence Claimants in the 2011 Court of Appeal decision of Scullion –v- Bank of Scotland. This is the case in which Mr Scullion purchased a buy-to-let property, relying on a valuation obtained for mortgage purposes and addressed to the Bank of Scotland. It was found that the property had been negligently overvalued but in a unanimous decision in the Court of Appeal, it was decided that as the valuation had been commissioned for commercial purposes, Mr Scullion could not rely on it. Permission has been granted to appeal the matter to the Supreme Court. It now looks as if it will be heard in April 2013.
This is not the only case which seems to have let negligent valuers off the hook. The recent case of Paratus AMC Ltd –v- Countrywide Surveyors Ltd also appears to be siding with valuers. In this case, Mr S wished to remortgage a property with the First Claimant (C1). His was a self-certified mortgage application, providing information as to his income and liabilities. He was also requesting a 90% mortgage plus expenses – a not inconsiderable Loan To Value (LTV) application.
C1 instructed the Defendants (D) to prepare a valuation which they duly did, reporting back to C1 that the property was worth £185,000. The mortgage application was approved and the monies released.
One of the complicating factors is that C1 then sold the beneficial interest in the mortgage to the Second Claimant (C2), although C1 retained the legal interest.
A couple of years later, Mr S defaulted on the loan, the property was repossessed and sold at a price of £123,500. C1 & C2 therefore brought proceedings against Countrywide (D) for negligent overvaluation of the property. D defended the claim arguing, amongst other things, that the assignment was not valid and that C1 had contributed to the loss by accepting Mr S’ application on face value.
The main issue that the Court dealt with was the valuation itself. It was critical of the expert valuation which had tried to value the property based on a value per square metre. The Court preferred the evidence of D’s expert which had made comparisons with local properties with the Land Registry and concluded that a better valuation would have been £175,000. Considering a ‘margin of error’, the court concluded that the original valuation of £185,000 was reasonable and so there was no professional negligence by Countrywide.
However, the Court also dealt with the other two issues, raising a third point which has proved of interest.
(1) Did the assignment prevent C1 & C2 from suing D?
D argued that, by reason of the assignment, C1 had not suffered a loss but rather C2 had and as the report had been done for C1, it did not owe a duty of care to C2. As it happens, the Court found that the assignment was invalid and that C1 would have suffered a loss if D had been found negligent. Interestingly, the Court also said that D was trying to exploit the law on a strict interpretation of the rules and “it would be a sorry state of affairs if… losses for which a negligent valuer would otherwise have been liable became irrecoverable”
(2) Did C1 contribute to the loss?
D argued that C1 contributed to the situation by failing to investigate Mr S’ financial situation. A closer look at the application for mortgage showed that Mr S’ claims of income and liabilities were dubious at best. Given this was a high LTV application, the Court felt that C1 should have made further enquiries, would have concluded the application was dishonest and not made the loan. Had D therefore been negligent, the Court would have said C1 had contributed to the loss by 60%.
(3) Was the scope of the duty of care diminished by the cost of the retainer?
Yes. This has certainly been implicit in a number of cases but in this case, the Court was unequivocal on the point, saying that where the surveyor is paid a low fee then “the fee sets some parameters to what is reasonably to be expected.”
This case has not been heard by the higher courts and is only a first instance decision but despite that, it is nevertheless important as it collates a lot of important judicial thinking into one decision. Probably the most interesting points arising from it are the second two issues – the role that the mortgagee failed to play in determining whether or not to provide the loan (they tried to argue that it was only the mortgagor’s ability to pay that was their sole concern – a point soundly rejected) and also the firm confirmation that the fee paid also determines the level of service provided.
It will be interesting to see whether any of these points are taken up by their Lordships in Scullion particularly the latter point given that the cost of the valuation in that case was only £35!