In a decision handed down last week, the court has provided further guidance on the limitation position for claims against surveyors.
The case of Toombs v Bridging Loans concerned a valuation provided by the appellant, Toombs, for the respondent, Bridging Loans Limited (BLL). BLL asserted that the valuation was too high and sought to bring a claim against Toombs, who applied for summary judgment on the basis that the claim was time-barred. The master refused Toombs' application, who appealed to a Judge and the appeal was successful.
There were 2 key issues before the Judge: (a) at what point did the borrower's covenant become worthless, such that the loss occurred and the cause of action accrued; and (b) when did BLL have the requisite knowledge to bring a claim against Toombs, for the purposes of section 14A of the Limitation Act.
On the first point, the borrower failed to make any repayments by the repayment date. BLL argued that no inferences could be drawn from this failure as to the value of the borrower's covenant. The Judge disagreed. Following the Nykredit case, he held that it would be wrong to assume that the borrower's covenant had any value because any failure to pay would indicate that the covenant was worthless. BLL had adduced no evidence as to the value of the borrower's covenant. At the point the borrower failed to make repayment, BLL's recovery then came to depend on the value of the underlying asset. In the circumstances, the only sensible conclusion was that the value of the covenant may not be sufficient to make up the difference between the loan advanced and the value of that asset.
As to the second point, BLL had sent initial notification of a potential claim more than 3 years before it issued proceedings. The fact that it did not seek a second opinion on value until later did not change the fact that, by the time it sent the preliminary notice, it had all the information it needed to bring a claim against Toombs. The fact that it may not have been clear about the value of the claim was insufficient reason not to issue proceedings sooner. BLL was therefore unable to rely on section 14A and the claim was dismissed.
This case demonstrates the approach the courts may take to the complex issue of when and how to value a borrower's covenant. The decision to uphold the appeal will come as welcome news to both valuers and their insurers.