Having been in business for the last 37 years or so, I must say that you have been the most professionally run firm of solicitors I've ever experienced.
Professional negligence solicitor, Emma Slade, looks a recent court decision (July 2016) concerning a negligent valuation report.
The Court of Appeal case of Tiuta International Ltd (in Liqudation) –v- De Villiers Surveyors Ltd is relatively fact specific but its ramifications could have a huge impact on both the lending and valuing industry.
In this case, Tiuta (T) was asked to provide a loan on a property development. It asked De Villiers (D) to provide a valuation of the property which it did. Based on the valuation, the loan was made and secured on the property.
Later that year, the property developer approached T again as it wished to increase the loan facility by approximately £272,200. Again, D provided a valuation with almost identical figures to the first. However, rather than give the property developer a top-up loan, T entered into an entirely new mortgage facility, redeeming the original mortgage.
The development failed and on sale of the security, there was a shortfall on the mortgage by nearly £890,500.
T brought proceedings against D for the entire shortfall, claiming that the second valuation had been negligent. D applied for the claim to be dismissed (summary judgment) on the basis that, if their second valuation was indeed negligent, then because the original mortgage had been redeemed, D could not be liable for any loss attributable to the first valuation, only loss attributable to the second valuation. As the second valuation was only used to provide the developer an additional £272,200, that is all D could be held liable for.
The lower court agreed with D, saying that as the original loan was in place in any event, the second valuation could not have any impact on that first loan.
T appealed and the Court of Appeal overturned the decision.
Although there had been previous case law which supported D’s arguments, the Court of Appeal felt that the test had been misapplied. It was entirely irrelevant, they thought, that the second loan was to be used to redeem the first. Why should D be let off the hook with their first (negligent) valuation simply because of the way T had decided to restructure the new loan? Putting it differently, if T had used a different valuer for the second valuation, that valuer would have been held liable for the entire loss, not just the top up. Specifically, the Court of Appeal said: “it could be said to be inherently unfair that…. a negligent valuer could use an attack on the legitimate working practices and systems of the appellant as a means of escaping part of the consequences of his or her negligence.”
This is an interesting and useful case for lenders as since 2002, lenders have had to be careful how they set up their loan facilities to ensure that any subsequent shortfall of security is not expunged by the redeeming of their loan. For valuers, it is not so good and they are going to have to take care to add caveats to their valuations if their valuations are to be used to redeem existing loans. Personally, I find the decision to be a logical conclusion. A valuer is being asked to provide their expertise in determining the level of security a property can provide and cannot see how or why the purpose of the valuation should affect the valuer’s conclusions.
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