Professional negligence claims against surveyors and valuers arising out of property transactions frequently end up as tri-partite disputes. As a consequence one of the key issues is often that of contribution between the defendants, together with possible contributory negligence on the part of the claimant. The outcome of these issues can have a very significant impact on the amount ultimately awarded or paid by way of settlement when primary negligence is established. Over the last 18 months or so a number of cases have looked at questions of contributory negligence and contribution in the context of valuation claims and, in this update, we analyse the Court’s approach to this important issue.
Contributory negligence by claimant lender
In Webb Resolutions Ltd v E.Surv Ltd (2012) the Technology and Construction Court (“TCC”) considered whether there had been contributory negligence by a sub-prime lender and rejected arguments that the standard to be applied was that of the reasonable centralised sub-prime lender, finding that the appropriate standard was the reasonably competent centralised lender. However, the TCC noted that the Court should be wary of concluding that practices that were logical or common amongst centralised lenders at the time were in fact illogical or irrational.
The TCC held that although a sub-prime lender’s business model may be risky, such models were commonplace and it was against that background that contributory negligence had to be judged. As a consequence, it found that there had been contributory negligence in respect of one of the valuations, the lender’s behaviour having been in line with market practice in terms of loan-to-value, self-certification and borrower defaults in relation to one property, but not the other.
In Blemain Finance Ltd v E.Surv Ltd (2012) the question for the TCC was whether there had been contributory negligence by a second lender, which had recovered nothing under its charge after the property had been repossessed and sold. The appropriate standard was that of a reasonably competent second charge lender and the TCC held that as this was a prime loan, rather than a sub-prime self-certified mortgage, and the borrowers were high earners, with an equity cushion, contributory negligence had not been made out. Even though the borrowers had substantial debts, the defendant valuer could not show that a reasonable lender would not have lent.
Redstone Mortgages Ltd v Countrywide Surveyors Ltd (2013) was a typical piece of sub-prime lending in relation to a residential property. The judge was critical of the valuer’s approach to comparables and the upwards revision of the valuation to support the advance, and held that while the lender’s underwriting could have been better, it was not sufficiently imprudent, in the context of sub-prime lending in the first half of 2007, as to be categorised as negligent.
The same outcome had been reached the previous month in Mortgage Title Resolutions Ltd v J & E Shepherd Chartered Surveyors (2013), where the court refused to stigmatise the lender’s policies as “negligent by their very nature”. The lender’s business model, although risky, could not be regarded as negligent because it had made appropriate credit checks, verified the existence of the borrower’s business and queried his absence from the electoral roll.
These cases show that the Courts in England and Wales are increasingly unwilling to find that lenders have been guilty of contributory negligence, especially based on their sub-prime lending models. Out of the four cases considered above, the defendant valuers registered only one success and that was only partial.
Across the water in Ireland and Northern Ireland, however, the Courts can be seen to be taking a much more robust approach. It will be interesting to see if that approach begins to take hold on this side of the Irish Sea.
In KBC Bank Ireland plc v BCM Hanby Wallace (2013), the defendant was a firm of solicitors to which applied principles of contributory negligence and contribution similar to those in England & Wales. The defendant had been engaged by the claimant bank to complete loan transactions secured by mortgages, but instead of obtaining the security on completion the defendant closed the transactions on the basis of solicitors’ undertakings, which were not honoured. The borrowers then defaulted on their repayments.
The Supreme Court of Ireland overturned the judge’s conclusion that the sole proximate cause of the loss was that the funds were released by the defendants. Under s.34 Civil Liability Act 1961 (Ireland) there can be more than one cause of the loss, and the fact that the bank had been careless in its appraisal of the borrowers (having been presented with a number of facts which should have aroused suspicion as to their true financial worth and reliability), was held also to have been a potential cause of the loss. The question of whether there had, in fact, been contributory negligence and, if so, the extent of the Claimant’s contribution to its own loss, was sent back to the High Court of Ireland for determination.
Aurora Leasing Ltd v Colliers International Belfast Ltd (2013) concerned the valuation of a substantial residential property in Belfast. The Northern Ireland High Court found that the lender had been induced to make its loan on the back of a negligent valuation. The borrower subsequently defaulted and went into liquidation. The personal guarantors were declared bankrupt and the property was sold. There was nothing left from the proceeds to meet the lender’s (second) charge.
The Court held that the lender had acted imprudently, and ought to have made further inquiries as to the borrowers’ circumstances, and followed up on warning signs arising from their failure to disclose certain information. It held that the claimant had not taken all the measures open to a reasonably prudent lender and the Court made a finding of 20% contributory negligence.
Contribution between defendants
Finally, we look at the question of apportionment of liability between two negligent defendants under the Civil Liability (Contribution) Act 1978. This commonly arises between surveyors and solicitors in valuation cases. A very recent example is the High Court case of E.Surv Ltd v Goldsmith Williams Solicitors (2014).
E.Surv had paid damages to a mortgage lender in settlement of a valuation claim and subsequently sought a substantial contribution from the lender’s solicitors, arguing that they had failed to advise that the borrower had been registered as proprietor of the property for less than six months and that the price he had paid for it, as disclosed on the office copy entries, was significantly less than the surveyors’ valuation as contained in the mortgage offer.
The solicitors were ordered to make a contribution of 50%. The solicitors had sought to argue that the Bowerman duty (the general duty on a solicitor to report to a lender information material to the valuation of the proposed security or some other ingredient of the lending decision) had been ousted by the Council of Mortgage Lenders’ Handbook, which did not specifically require solicitors to report the previous purchase price. But this argument was rejected: the requirement in the Handbook for solicitors to inform lenders about anything they “should reasonably expect us to consider important in deciding whether or not to lend to the borrower” covered the previous purchase price and was a reflection of the Bowerman duty.
The English Courts have taken an increasingly strict approach to contributory negligence in lender claims, making allowances for the standards and common practice of sub-prime lenders at a time of high levels of lending, even if those standards and practices seem neither safe nor logical in retrospect.
By contrast, recent decisions of the Northern Irish and Irish courts demonstrate a greater willingness to find contributory negligence on similar facts. Perhaps the deeper, and longer, recession in Ireland has led its courts to be more willing to cast a critical eye on lending practices.
In the meantime, the principles applicable to contribution between surveyors and solicitors continue to be applied in the traditional manner in the numerous cases in which they arise.
Contributory negligence and contribution therefore remain important considerations for surveyors/valuers and solicitors when responding to professional negligence claims and in recoveries between them.