"They can now be certain that they may recover their full loss in the event the valuation was negligent, not being restricted to the amount by which the refinance exceeds the original loan."
Banks, building societies, asset based lenders and surveyors will be affected by the decision that means lenders can recover all of their losses in the event that a valuation was negligent, and won't be restricted to the amount by which the refinance exceeds the original loan.
Rosling King acted for the liquidators of bridging lender, Tiuta International, against De Villiers Surveyors Limited in a case involving the valuation of a property development in Berkshire.
Tiuta sought to recover from De Villiers the £890,500 loss it suffered arising out of a refinance loan, claiming the valuation report significantly and negligently overvalued the property.
De Villiers argued that by the time the second loan was made to the borrower, Tiuta already faced an unavoidable loss from sums advanced under the first loan which had already been lent at the time of valuation.
In an earlier hearing, the Court ruled that Tiuta’s loss should be limited to the amount lost in ‘topping up’ the original loan (£272,700). However, the Court of Appeal has now overturned that decision.
In its judgment, The Court of Appeal held: “There is nothing unjust in holding the respondent liable in accordance with its own valuation, prepared specifically for the purposes of the second transaction. [The] second loan is entirely independent from the first loan.
"Had there not been a negligent valuation, the appellant would not have entertained the second transaction and [its] loss is the total advance of the second loan, less the [borrower’s] covenant and the true value of the security.”
"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.”
Georgina Squire, head of Dispute Resolution at Rosling King, said: “This is a resounding win for lenders on an important point of law. Lenders will welcome this decision as it settles a contentious issue in relation to how much of their loss they can recover having refinanced. They can now be certain that they may recover their full loss in the event the valuation was negligent, not being restricted to the amount by which the refinance exceeds the original loan.
“The question was should a lender recover all its loss on a refinance loan from a negligent valuer, or is the lender limited to the ‘top up’ advanced after the existing loan is redeemed, because it would have suffered the loss on the existing loan in any event? The Court of Appeal has given much-needed and welcome clarity on the issue.”
