In the case of Toombs v Bridging Loans Limited [2014] EWHC 4566 (QB) HHJ Seymour QC a valuer was successful, on appeal, in an application for summary judgment on the basis that the lender’s claim was statute barred. The lender was unable to show that the value of the property and the borrower’s covenant exceeded the debt owed to the lender at the time the loan advance was made. Limitation had passed in respect of the lender’s claim for professional negligence.

Background

The valuer provided a valuation of a property in the sum of £750,000. The lender made a bridging loan of £502,500 to the borrower which was repayable in full after 6 months. The borrower defaulted on the loan and the property was sold in possession. The lender suffered a loss on sale. It was alleged that the correct value of the property at the time of the transaction was £450,000.

Limitation under Nykredit

The judgment in Nykredit v Erdman [1997] 1 WLR 1627 established that the cause of action for lender claims against professionals arose for limitation purposes on the date at which the debt owed to the lender exceeded the value of the property combined with the value of the covenant of the borrower.

Limitation under s14A Limitation Act 1980

S14A provides a secondary limitation period for negligence claims which runs for three years from the earliest date upon which the claimant had both the knowledge required for bringing an action for damages, and a right to bring such an action.

First instance decision

The lender had issued its claim beyond six years from the date of the loan advance. It was forced to argue that its claim was not statute barred because of Nykredit and/or s14A.

It was agreed that any claim for breach of contract was statute barred.

The Court at first instance dismissed the valuer’s application on the basis that no evidence had been adduced about the value of the borrower’s covenant. The judge considered that he was therefore unable to decide whether the lender could realistically defeat the limitation arguments.

Appeal decision

On appeal, the Court considered that the burden to prove limitation lay with the lender and that as they had not provided any evidence of the Borrower’s ability to make repayments, and that the borrower had not made any repayments at all (albeit with the first repayment only due six months after the loan), Nykredit did not apply.

Furthermore, the lender had sent a preliminary notice of claim and letter of claim to the valuers which showed that it did have knowledge to bring a claim more than three years before the claim was issued.

The valuer’s appeal was upheld.

Comment

This serves as a useful reminder for lenders in respect of limitation and the application of the principles in Nykredit. It shows that if lenders are unable to issue a claim, or agree a standstill, within the primary limitation period they should be prepared to support their claims in respect of the value of the borrower’s covenant.