In the backwash of this recession the Courts are revisiting territory familiar from previous recessions – claims against valuers and mortgagees exercising powers of sale.
Two recent decisions of Mr Justice Coulson have put down markers for how claims against valuers are likely to be viewed in the current litigation round.
The Cases
Valuers
In Webb Resolutions Ltd v E.Surv Ltd [2012] EWHC 3653 (TCC) the claim concerned the mortgage valuation of two properties: a “buy to let” flat in a large block and a detached house which was being re-mortgaged. The valuation was made using an electronic “tick box” form. The mortgagees’ Guidance provided that no additional information was to be provided and the RICS Appraisal and Valuation Standards were incorporated. The attempt by the mortgagee to elevate its requirement for a “prudent” valuation into a more onerous burden than a standard valuation failed. “Prudence” was one of the tests against which the duty of a professional was to be measured. Nothing other than a standard valuation was required. However, if the valuer could not discharge his contractual or tortious obligations to the mortgagee without addressing further issues, then they had to address those issues, regardless of the guidance, as anything else would be a failure to comply with their obligations
On that basis and the admission by the valuer that he would expect his valuation to be accurate within 5 per cent, these being standard properties with many available comparables, the valuation was found to have been negligent.
In Blemain Finance Ltd v E.Surv Ltd [2012] EWHC 3654 (TCC) the position was different. This was a second mortgage of a one-off property of unusual design and the court held that the margin on either side of the correct valuation was ten per cent. Although the court had considered in Webb that the correct approach was to focus on the negligent valuation rather than the valuer’s methodology, here the valuation report and the disclosed notes contained virtually no evidence as to how the valuation had been arrived at save that the valuer’s notes showed that the figure had come from the prospective borrowers! In reality the valuer had been trying to match the owner’s valuation which was bad practice and prima facie evidence of negligence. The expert evidence showed the valuer’s valuation to be far above any acceptable valuation. All the valuer’s evidence had been directed to showing that the property was worth significantly less than the valuation he had given and arguing for a large margin in relation to an unusual property.
In both cases the valuer made claims of contributory negligence against the mortgagees. The allegations were fairly typical assertions of “imprudent lending”. In each case, but for the negligent valuations the mortgagees would not have made the loans. The test to be applied was that laid down in Merivale Moore Plc v Strutt & Parker [1999] Lloyd’s Rep. P.N. 734. In each case the standard was that of the reasonably competent lender of that type and the burden of proof was on those asserting the contributory negligence and, consequently, it was the valuers who needed to prove that the losses were caused in whole or in part by the lenders’ poor practices .
So in Webb lending by large lenders of large sums on a self-certified basis, relying on intermediaries, and placing complete faith in computerised tick-box forms, was a potential recipe for disaster. However, such lending was common in 2004-07, and it was impossible to say that the decision to lend money in respect of the flat was irrational, illogical or negligent. The owner of the second property, the house, however, was plainly in financial difficulty and mortgagees were obliged to consider that loan very carefully. There was no supporting evidence of income and the mortgagees had been negligent. The parties were equally at fault and the correct deduction for contributory negligence in respect of the house was 50 per cent.
In Blemain there was no evidence to show that a reasonably competent second charge lender would have acted differently.
Mortgagees
In Kayrul Meah v GE Money Home Finance Ltd [2013] EWHC 20 (Ch) a mortgagee had adopted some very unusual strategies to sell a property with development potential, including initially advertising it for significantly less than it was sensibly worth in order to generate interest. In addition, it had failed to mention the property’s development potential in its advertising. The Claimant relied on an expert’s assessment that the property had a true market value of £325,000 when it was sold. He argued that the mortgagee had breached its duty to take reasonable precautions to obtain that true market value, and sought an order that the mortgagee account to him for the £103,500 difference between the property’s true market value and the amount that it was actually sold for.
Whilst the court had serious misgivings about the eccentric way in which the property and been marketed it concluded that, on the evidence, there had been no breach of duty by the mortgagees. There was no evidence to establish that the price obtained for the property was less than the best price reasonably achievable. The market value of a property was the price which a willing purchaser was prepared to pay to a willing vendor after the property had been exposed to the market for a reasonable period of time. It followed that, in the instant case, the property’s market value when the contracts of sale were exchanged was the sum actually agreed to be paid, namely £221,500. It was possible that a developer such as the actual purchaser in the instant case could have made similar calculations to M’s expert and concluded that the property was potentially worth to it as much as £325,000. However, unless a bidding war developed between two or more developers who had made similar calculations, such a sum could not be said to represent the best price reasonably achievable for the property at that time, and did not represent its true market value.
Conclusions
None of these decisions are particularly surprising on their facts, but they do raise some practical issues:
Related link: Profile of Richard Perkoff
