The claim arose out of a large fraud involving a new development in south east London. A Mr Barrie bought all 84 flats and then made contributions to the purchase on behalf of the purchaser in each case (without the lender’s knowledge) in order to inflate the reported price. In the transaction which was the subject of this case the property was valued by the defendant at £275,000, the lender advanced £247,495 and Mr Barrie contributed £41,600 to “top up” the purchase price, and to cover solicitors’ fees and stamp duty.
Mr Barrie controlled the information regarding comparables given out to valuers, and refused to allow information regarding incentives to be disclosed.
The claim was brought against the defendant surveyors, three other surveyors who had valued flats in the development, and the conveyancing solicitors. All but the claim against the defendant were compromised before trial.
The valuer in question did not appear at the trial. The court held on the documentary evidence that he had not considered whether there were incentives, did not seek out either new build or second-hand comparables, and did not make enquiries about selling conditions in this or neighbouring developments. Unsurprisingly, the valuer was found to be in breach of duty.
More surprising is the judge’s finding that, even if these steps had been taken, the valuer would not have discovered that his valuation was too high. Clearly, any further enquiries made of those selling/marketing the property (who were involved in the fraud) would only produce evidence which supported the stated asking price. However, the judge held that the valuer would not have found comparable second-hand sales by researching on the internet or with estate agents. This is difficult to square with the fact that another valuer had valued the property at £199,950 three weeks earlier, by reference to the second-hand sales prices of three comparables. The judge found that the defendant valuer would not have had access to that information and that, in any event, the lower second-hand comparables could not stand on their own as evidence of the property’s value (in accordance with principles set out in the Red Book).
Recent lenders’ claims have seen professionals relying on causation defences to escape liability where they are in clear breach of their duties to their lender client - see our recent briefing on Godiva v Keepers Legal.
The causation defence relied on in this claim is likely to aid valuers only in limited circumstances. In the majority of negligent over-valuation cases where a valuer has failed to make necessary enquiries to verify a stated purchase price, comparables will be available which (had they been considered) would give reason to doubt the over-stated purchase price. In this case, it appears that the fraud was so wide that all comparable prices had been affected.