Santander (as successors to the rights and claims of Girobank) raised a court action for breach of contract against Allied Surveyors Scotland Plc on 20 November 2008 in relation to losses suffered following an allegedly negligent valuation carried out by Allied.
The following facts were agreed between the parties:
- Girobank instructed Allied to carry out a valuation of Fishlike Ltd's interest in a restaurant in Aberdeen on 2 October 2001;
- Allied produced a valuation on 10 October 2001 valuing the Estimated Realisation Price of Fishlike's leasehold interest at £300,000;
- The true valuation of the estimated realisation price of Fishlike's interest in the property as at October 2001 and October 2002 was in fact £75,000;
- Girobank offered Fishlike a £300,000 loan based on, amongst other things, the Allied valuation;
- A security was granted by Fishlike in favour of Girobank over the leasehold interest;
- Between November 2001 and July 2005 Fishlike paid the monthly instalments due by them in terms of the loan;
- Fishlike ceased trading and the winding up of the company commenced on 5 August 2005.
It was argued on behalf of Santander that the claim was not time barred because no loss had been suffered by them until the borrower defaulted on their loan repayments in August 2005.
On the contrary, Allied submitted that the loss was suffered and the cause of action arose when the report was prepared by Allied in October 2001. The proper valuation of the property as at 10 October 2001 was £75,000. The loss was suffered the moment Girobank lent money for a property worth far less than they had been advised it was worth when they made the decision to lend. The trading performance of Fishlike prior to October 2001 had been extremely poor and the proper value of all of the rights which Girobank had against Fishlike as at October 2001 was a maximum of £125,000. Given that the financial standing of Fishlike was very perilous in 2001, the loss clearly arose at the time the loan was made.
Case dismissed. The judge agreed with the argument presented on behalf of Allied that loss was suffered when the report was prepared in October 2001. She ruled that the claim had been extinguished by the 5 year "short negative prescription" prior to the court action being raised in November 2008. In reaching that decision, significant weight was given to the evidence led on behalf of Allied that Fishlike was in a parlous financial state both prior and subsequent to October 2001 and, accordingly, the lender could only rely on its security over Fishlike's leasehold interest, the true value of which, as at October 2001, was £75,000.
This case turned on its own particular facts. However, it serves as a timely reminder to would-be claimants of the need to seek early legal advice to avoid losing the right to pursue an action due to the passage of time.