Lender succeeds in valuer’s professional negligence case – Last week saw the publication of the judgment of Aurora Leasing Limited -v- Colliers International Belfast Ltd, which was delivered by the Commercial Court in August 2013. The case attracted significant media attention at the time of hearing primarily due to the large sums of money involved and is arguably the most high profile valuer’s professional negligence case of recent times.
The facts of the case were widely reported in the press at the time of the hearing. In August 2008 the defendant, Colliers, was engaged by the plaintiff lender, Aurora Leasing, to provide a valuation in respect of substantial premises at Shaw’s Bridge in Belfast. The defendant valued the property at £5 million. The lender, on foot of the valuation, advanced the sum of £901,000.00 in May 2009. The property already had a first mortgage secured against it for a loan of approximately £2 million. The borrower was a company and the loan was secured against land belonging to a Mr & Mrs C. Shortly after completion the borrower defaulted on the loan. In December 2009 the lender obtained an independent valuation which found the value of the property then to be £2.25 – 2.5 million.
In light of the mortgagor’s existing borrowing this created concern. Prior to the loan the lender had raised various queries with the valuer regarding the updated valuation – the valuation was confirmed as being £5 million.
At hearing, expert evidence was advanced on behalf of both the plaintiff and the defendant regarding the valuation at April 2009. The Judge concluded that the correct April 2009 valuation was in the order of £3 million to £3.75 million. The Judge therefore concluded that there was significant overvaluation which equated to a breach of the defendant’s duty to the plaintiff both in contract and tort.
The Judge then considered the loss to be recovered on foot of the breach of duty. Firstly he confirmed that the valuer could reasonably expect that a loss would arise to the plaintiff if the valuer failed to exercise reasonable skill and care and so loss was properly recoverable.
The Judge considered each aspect of the loss in turn. He considered the loan to value which the plaintiff had used essentially as their “comfort or cushion” when advancing the large loan. There was a loan to value of 58%. The extent of the overvaluation was £1.25 – £2 million. The Judge was satisfied that had the Plaintiff been aware of the true valuation that it would not have advanced this loan at all as it would have been uneconomic for them. The loss recoverable was therefore the amount of the Plaintiff’s loan less any payments made to the account.
The Judge rejected the plaintiff’s claim for contractual interest but did allow the Plaintiff to recover interest on their loss. Here, in the absence of any evidence regarding the cost of funding, he awarded interest at the rate of 5% from the date of the loan to the date of the Judgement.
The plaintiff was awarded the costs (approximately £20,000) that they had incurred in attempting to recover monies on foot of the security (they had obtained judgement and Mr and Mrs C were adjudicated bankrupt). In terms of deductions the judge ruled that the payments in respect of both capital and interest made in respect of the loan since the date of its inception were proper deductions.
It was argued by the defendant that the plaintiff had been negligent in advancing the monies without proper enquiry as to the circumstances of the borrowers.
The defendant presented an expert witness who provided evidence in respect of risk analysis. The expert advised the Court that three key principles ought to be considered when lending, namely, character, capability and collateral. The expert explained to the court that this was a high risk loan due to the large amount and the high value of the property together with the lack of credit search, mortgage history and confirmation of proof of income. Overall, the Judge considered that the lender had relied on the cushion of the loan to value in this case rather than conducting proper enquiries. The Judge also considered that this was not a market in which the Plaintiff was particularly involved, it being only its second secured loan.
The Judge considered that the Plaintiff ought to have made further enquiries as to the circumstances of Mr and Mrs C and therefore assessed contributory negligence on the part of the lender (thereby reducing the award) at 20%.
Two additional matters are raised in this Judgement regarding expert evidence. One is that the experts gave evidence concurrently. This is a practice that the Judge would like to encourage with appropriate training for experts. Each expert gave his/her evidence together with the Judge, and then Counsel, asking questions of each of them. This, in the Judge’s view, allowed the experts to discuss their differences at the same stage of the court proceedings which was more beneficial for the court.
The Court further suggested that it may be time for expert witnesses to be accredited but in no way criticised the experts in the present case. There was some further discussion as to whether the expert evidence of an estate agent could be given the same weight as that of a surveyor but in this case the Court was content with the estate agent expert’s evidence.
This decision sets out clearly the Court’s approach in terms of considering the loss in valuers’ negligence cases which is of assistance to lenders. It confirms the approach when considering arguments of contributory negligence in such cases. Many lenders have books of loans with typical loan to value of 90% and this is confirmed as not being negligent. Lenders ought owever to expect some reduction where their underwriting paperwork is not up to scratch. In all cases it is important to have a good team of expert witnesses and counsel. At Robert G Sinclair & Co we have a dedicated professional negligence team to deal with all lender queries regarding valuers’ negligence cases. We enlist only the very best expert witnesses and counsel to ensure the best result for our clients.
If you have any enquiries regarding this area please contact our Professional Negligence department or Valerie Gibson directly 02890268479 email@example.com