The Chancery Division handed down judgment on 30 September in this valuer's negligence claim. The judgment dealt with some key issues relating to: (1) aggregate value in a portfolio; (2) the appropriate methodology when valuing a trading property; (3) the relevance of an agreed sale price; and (4) contributory negligence, which will be of interest to valuers and their professional indemnity insurers.


The Defendant ("Christie") valued 3 amusement arcades in Great Yarmouth for the Claimant ("Barclays") in February 2007. The valuations were at £2,700,000 for Circus Circus and the Golden Nugget ("CCGN") and £1,500,000 for the Flamingo, giving a total value of £4,200,000.

The valuations were for the purposes of an application by Mr and Mrs Thurston to Barclays. The application was for a loan of £1,800,000 to enable Thurston UK Limited ("the Borrower") to purchase the Flamingo for £1,600,000, with the remaining £200,000 to pay for alterations to all 3 arcades to enable them to be joined together.

The loan and purchase proceeded on the basis that the overall lending to the Borrower, including existing borrowing secured against CCGN, remained within a maximum total loan to value ratio of 67% of the value of the 3 arcades. The alterations were carried out to the arcades, but by October 2010 the Borrower was in administration. In March 2011 the 3 arcades were sold for the combined sum of £1,350,000, meaning Barclays suffered a significant loss.

Allegations in relation to true value

Barclays alleged that the arcades were negligently overvalued by Christie in February 2007. The alleged true values were c£2,100,000 for CCGN (£600,000, or 29%, alleged overvaluation) and c£1,000,000 for the Flamingo (£500,000, or 50%, alleged overvaluation), so they were alleged to be outside an acceptable margin of error. Christie contended that the true values were in fact £2,500,000 for CCGN and £1,500,000 for the Flamingo, so – at a variance of only £200,000, or 5% overall – within an acceptable margin of error. The experts agreed on 15% as the appropriate margin of error.

Issues for consideration

The following key issues fell for consideration by the judge in reaching a decision about this claim:

  • Value on a separate or aggregate basis in a portfolio;
  • Correct methodology for valuing a trading property;
  • Relevance of an agreed sale price:
  • Contributory negligence.

The findings of the judge (Richard Spearman QC) on each of these key issues is summarised below.

Decision on true value and margin of error

The judge held that CCGN was worth c£2,300,000 and the Flamingo was worth c£1,200,000, and that they were worth £3,500,000 in total. This fell between the valuation figures offered by the parties' experts, based on consideration of numerous differences of opinion between the experts on the minutiae of the valuations.

The judge accepted that it was for the court to determine the issue of margin of error, but saw no reason to depart from the agreed figure of 15% for these unusual properties.

Value on a separate or aggregate basis in a portfolio

Even though the 3 arcades had been valued in two tranches (CCGN in one report and the Flamingo in the other), the judge found that it was the aggregate value that mattered the most for this portfolio lending: "I consider that it is this overall difference which matters most, because (as appears from the contemporaneous documents) Barclays was looking at the security of [all the properties] together when deciding whether to make the Treasury Loan".

There was, however, more than a 15% difference between the value of CCGN and the Flamingo both separately and on a combined basis when compared to Christie's valuations:

Property Christie Valuation Court finding on true value % deviation from true value Extent of overvaluation
CCGN 2,700,000 2,317,279.50 17% 382,720.50
Flamingo 1,500,000 1,185,738.00 27% 314,262.00
CCGN and Flamingo combined 4,200,000 3,500,000 (in round terms) 20% 700,000 (in round terms)

As such, the judge did not need to (or go on to) make a specific finding that the valuation of multiple properties should be judged on the aggregate valuation rather than each individual property.

Correct methodology for valuing a trading property

Barclays contended that a reasonably competent valuer would have carried out these trading valuations by assessing the earnings before interest, tax, depreciation and amortisation ("EBITDA") of a reasonably competent operator of the properties, then valuing based on a multiplier derived from considering the EBITDA of comparable arcade sales.

They contended that there was sufficient evidence available for Christie to carry out an EBITDA valuation, there is no evidence that other methodologies were used in the market and there was no better evidence to support a more robust valuation on another basis. These submissions were accepted by the judge on the facts of this case, and it was held that Christie were negligent to have valued by reference to turnover.

It was however acknowledged that some valuations may need to be carried out on some other basis where there is insufficient evidence to carry out an EBITDA valuation.

Agreed sale price

The Borrower had agreed to purchase the Flamingo for £1,600,000, and both parties' experts agreed that where a property has just been sold, the sale is potentially the most cogent evidence of the open market value of the property, provided the property was properly exposed to the market and marketed competently.

On the facts of this particular case though, the judge concluded that it was unsafe to regard the purchase price as strong evidence of open market value. The reasons for this were as follows:

  1. there was no evidence that the Flamingo was freely and competently marketed on the open market;
  2. the Borrower, as owner of the two neighbouring arcades, was a 'special purchaser' and was therefore likely to pay more than the market value of the Flamingo;
  3. the Borrower, and the Thurstons behind it, were experienced at running amusement arcades, but not buying and selling them; and
  4. the Thurstons were shown to have been "financial risk-takers".

The judge acknowledged that although some of these factors may not have been known to Christie, they were of relevance in this particular case in determining that it was unsafe to place weight on the Borrower's willingness to pay £1,600,000 for the Flamingo.

Contributory negligence

As regards contributory negligence, the issue which resonated with the judge was the fact that the Thurstons obtained a mortgage advance of £300,000 in 2003 for the purposes of the business of the Borrower, but instead used the money to purchase property in Spain. This was known by Barclays in 2006 when the mortgage application for £1,800,000 was made, but it was recorded that the Borrower had complied with previous conditions of sanction when this was not in fact the case.

The judge concluded that, despite a 25-year banking relationship, this black mark over the integrity of the Borrower would have caused a reasonably competent bank to refuse the loan, or at the very least it would have carried out a more robust financial evaluation of the serviceability of the loan and actual/forecast profits than Barclays in fact did, which would have caused the application to be refused.

The judge concluded that the appropriate reduction for contributory negligence in this instance was 40%. Due to the fact that Barclays overlooked the lack of integrity issue, its due diligence of the financial position of the Borrower was then subject to criticism. Without this special circumstance this would not have been the case.

It should be noted that Barclays did not disclose a lending policy for arcades, or even the lending policy for leisure and hospitality referred to by its witnesses. This was considered to be unfortunate by the judge, and he stated "I have subjected the evidence which I have heard to a degree of critical appraisal which I consider to be commensurate with the fact that it cannot be tested by reference to examination of the contents of these documents." He did however conclude (based on other contemporaneous documents and witness evidence) that the lending decision, particularly relating to the loan to value ratio, did not contravene any lending policy of Barclays.


The judge found that the valuations were negligent and that the extent of the overvaluation was £700,000. The transactional loss to Barclays was found to be £1,022,523.19 (subject to further argument about cost of funding/interest as the parties could not agree between 1 month or 3 month LIBOR).

Subject to the cost of funding/interest argument, it was held that Barclays is entitled to judgment for £613,513.92 (60% of £1,022,523.19) on the basis that transactional losses with contributory negligence deductions fall below the extent of the overvaluation in this instance.

This case offers useful guidance to valuers regarding the potential for valuations to be considered collectively where there is portfolio lending, the use of EBITDA valuation methodology to value trading properties, and reiterates that an agreed purchase price is cogent evidence of market value unless there are particular reasons why this would not be the case. It is also a welcome example of a fairly significant contributory negligence deduction for a lender overlooking a fundamental issue relating to borrower integrity.