In January 2012, we posted an article to the website entitled "Current Trends in negligence claims against valuers".

The year conveniently ended with two further notable and interesting High Court judgments on valuer negligence where two key issues were considered – the applicable margin of error and contributory negligence by lenders in the market conditions that prevailed in 2006/2007. 

Both cases, heard separately by the same judge, Mr Justice Coulson, were brought by lenders against the same defendant valuers and concerned valuations of residential property: Webb Resolutions Limited –v- E.Surv Limited [2012] EWHC 3653 (TCC) and Blemain Finance Limited –v- E.Surv Limited [2012] EWHC 3654 (TCC).

Margin of error

In both cases, the overvaluations, as decided by the judge, were so high and in excess of the defendants’ experts’ own stated margins, that they were held negligent without the need to first decide an appropriate margin of error. Nevertheless, the judge did consider this issue in each case.

In the Webb Resolutions case, involving valuations of a near completed flat in a new development in central Birmingham and a modestly valued house in Kent, support was given by the judge to the guidance provided in K/S Lincoln and Others –v- CB Richard Ellis Hotels Limited [2010] EWHC 1156 (TCC), holding that the margin of error in these cases, involving standard residential property, was 5%.   In the opinion of Mr Justice Coulson, there were no remarkable features of either property or lack of sufficient comparables, to justify a higher margin.

In the Blemain Finance case, where the property valued was a large, high value detached house in Putney Heath, the margin of error was held to be 10%, given the property’s distinctive features.  This too is consistent with the guidance provided in the K/S Lincoln case.

Despite considering the question of margin of error, the judgments have provided little additional guidance in this area and it remains difficult to predict the margin of error that will apply in cases where the residential property is anything but ‘bog standard’

Contributory negligence

The two judgments confirm that, although lending practices in the mid 2000s would be highly criticised in today’s market, cases from that era will not automatically lead to a finding of contributory negligence unless the lending decisions were irrational or illogical and contrary to the standard of a reasonable lender acting in the same market at the time. 

This can be seen in the present cases, where preferring the evidence of the claimants’ lending expert, the judge only found contributory negligence by the lender in the Webb Resolutions case and only as regards lending against one of the properties, the house in Kent.

In that case, the lender was held to be contributory negligent due to a combination of factors:

1. for allowing a remortgage at an extremely high LTV of 95% (very few other centralised lenders were doing this at the time);
2. for treating the borrower’s application as self certified, when it was not expressly made on that basis, and thus for failing to verify the borrower’s income; and
3. for failing (particularly when the stated purpose of the loan was debt consolidation) to pick up on the financial difficulties of the borrower (who gave missed or misleading responses on the application form whereas the Experian report revealed that there was an outstanding CCJ in the sum of nearly £1,000 and two credit card defaults totalling nearly £18,000).

The judge held that, in dealing with the application in the way it did, the lender was negligent and made a loan which a reasonably competent lender in the centralised lending market would not have made.

The judge, remarking that a 90% deduction in an earlier case was too high and preferring the more realistic 60% deduction made in the recent Paratus AMC case, decided that the lender and the defendant valuer were equally at fault and thus the right deduction for contributory negligence in this case was 50%.

These cases illustrate that each case will be decided on its own facts and the courts will be reluctant to find a lender negligent if its practices were in line with the market at the time.  However, in specific cases, if contributory negligence is found (due to strong factual evidence and concrete expert evidence), a significant reduction might be made, depending on the extent to which the lender contributed to its own losses.

Other issues

Other interesting issues were considered in these cases, such as the extent of the valuer’s obligations and failure to mitigate on the part of the lender but amplification of these issues is beyond the scope of this article.

Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.

 

For further information, please contact Catherine Connolley at or Helen Waller at