In a recent case at the end of 2023, the High Court considered the scope of the duty owed by a valuer to a lender, together with whether the negligent advice provided by that valuer was the true cause of the losses suffered by that lender.

In Hope Capital Limited v Alexander Reece Thomson LLP, the lender (Hope) had instructed the valuer (ART) to provide them with a valuation of a property they were proposing to lend money on to a borrower. ART valued the property at £4 million in February 2018, against which Hope provided a short-term (6-month) bridging loan to the borrower in the sum of £2.215 million.

The borrower subsequently defaulted on his repayments and the property was taken into possession by receivers in late 2018. Due to a number of issues with the property (including some unauthorised works carried out by the borrower, which needed to be resolved with the freeholder, the National Trust) and the slow down of the market due to Covid-19, the property was not in fact sold by the receivers until October 2020, for £1.4 million.

At the trial, the Court determined that the true value of the property as at February 2018 when ART valued it, was only £2.75 million and that a 180-day valuation (being its value if there were only 180 days to advertise and sell the property) was £2.475 million.

Hope sought to claim its lost capital, contractual interest and other loss of profits which it said it would have made as they would have been able to use the capital in other loans.

ART also admitted for the first time that the valuation they had provided was negligent, as it fell outside a range of values which could be considered to be acceptable. However, they argued that Hope’s losses were nil, due to the fact that the true 180-day valuation was still higher than the amount loaned by Hope and in fact that the losses which Hope had incurred were due to the issues with the National Trust in selling the property and the downturn in the market caused by Covid-19.

Before considering the true cause of Hope’s losses in this case, the Court reaffirmed the position in relation to the scope of duty in professional negligence cases.

Following the judgment given by the Supreme Court in 2021 in the Manchester Building Society v Grant Thornton UK LLP case, the scope of the duty of care in professional negligence claims is to be determined objectively by reference to the purpose for which the advice was being given.

The Court confirmed that in valuer cases, the valuation was usually only one of a number of factors in a lender’s decision whether to advance funds or not.

In this case, ART were providing a valuation to protect Hope in relation to the value of the property. However, it was not the only information which Hope would rely upon in deciding whether or not to provide the bridging loan. Other factors would include their lending criteria, the creditworthiness of the borrower and the borrower’s 6-month strategy after the bridging loan had expired.

Whilst it was possible that the valuation could have been the sole piece of information on which Hope based their decision, the Court confirmed that there was no evidence of this and if this had been the intention, it would have likely been set out in specific instructions between Hope and ART.

The Court also reviewed Hope’s underwriting procedures and noted a number of flaws in the borrower’s application, which Hope failed to properly investigate, particularly as there was evidence of dishonesty by the borrower in his application.

Even though the valuation by ART was a key piece of information to allow Hope to make a decision whether to lend the money, it was not the sole piece of information. Whilst the valuation therefore protected Hope in relation to the value of the property, it did not protect them against other foreseeable risks which could have occurred by entering into the bridging loan.

As such, the purpose of the valuation and ART’s duty of care to Hope was limited in scope.

The Court then looked at why there had been a loss in the value of the property. On the evidence, they determined that the loss in value had been caused by a combination of the effects of Covid-19 on the property market and the problems which they had had with the property in seeking to remedy the unauthorised works carried out by the borrower and subsequent dealings with the National Trust.

In conclusion, even though ART had admitted they provided a negligent valuation, the losses which were caused to Hope were caused by a combination of Covid-19 and the borrower’s unauthorised works and which were outside the scope of ART’s duty of care. As such, Hope’s actionable loss was deemed to be nil.

The case is good news for Defendants generally as it reaffirms the position in relation to a professional’s scope of duty which it owes to the party who instructed them. For valuers in particular, it provides them with comfort that a Court will look at all the information which a lender considers before deciding whether to advance monies to a borrower and not simply the valuation provided by the valuer. Unless there are specific instructions to the contrary, the valuer is unlikely to be liable for all of the consequences of a negligent valuation, even if the lender says they would not have advanced the monies but for the valuation report.

If a claimant wishes to bring a claim against a valuer for a negligent valuation, then the above case should be considered as a Court will look at the purpose for which the valuation was provided. It is unlikely to be the only information which a lender takes into account when deciding to advance monies to a borrower. The Court will also determine whether the negligent valuation was the true cause of any loss or whether there were any other factors which have caused the claimant to suffer a loss.