The judgment in Bridging Loans Limited v Toombs is a welcome decision for valuers in supporting the adoption of a robust stance when faced with a lender’s overvaluation claim which has limitation issues. The judgement highlights the need to apply careful scrutiny as to how a claimant has pleaded and evidenced the alleged overvaluation in circumstances where the lender is looking to support a contention that the security provided was worth more than the sum lent. This decision could encourage valuers and their insurers (in the right circumstances) to consider summary judgment as a viable option.

Background

In 2006, the claimant, Bridging Loans Ltd, lent a six-month bridging loan of £502,750. The claimant had relied on a valuation of the subject residential property provided by the valuer, Toombs, at £730,000 on 2 November 2006. On 3 May 2007, the borrower defaulted on the loan repayment leading the claimant to issue a demand letter on 11 May 2007. The loan sum remained unpaid and a possession order was granted in favour of the claimant with possession given during August 2007. Subsequent difficulties selling the property caused the claimant to assert that there had been a negligent overvaluation. In particular, planning permission had only been granted for the construction of a two-storey building as opposed to a three-story building and when this was factored into the value the claimant, based on its expert evidence, contended the true value at the time of the valuation had been only £450,000

Summary Judgment

A claim form was not issued until 16 May 2016 and it was argued that the claim had been brought more than six years after the claimant’s cause of action accrued. The judge thus granted summary judgment on the basis the claim was time-barred. Following the decision in Nykredit Mortgage Bank v Edward Erdman Group Ltd (1997), the judge held damage had been suffered at the date of the demand letter on 11 May 2007. Nykredit determines the point at which a lender first sustains measurable loss requiring a comparison between ‘the plaintiff’s position had he not entered into the transaction in question and his position under the transaction’. In the case of a negligent valuation, this calls for a comparison between the amount of money lent by the claimant, which he would still have absent the loan transaction, plus interest, and the value of the rights acquired comprised of the borrower’s covenant and the true value of the overvalued property. In the subject claim the true value of the property was alleged as being £450,000. This meant the court found that the value of the security acquired under the loan was less than the £502,750 the claimant would have had if it had not lent the capital at all. The borrower’s covenant was said to hold no value.

Appeal

The claimant appealed against the summary judgment, alleging Nykredit had been misapplied. It argued that in negligent over valuation cases, the true value of the property found at trial is often somewhere between the two parties’ contended valuation figures (often with reference to expert evidence). It was therefore incorrect to say there was no real prospect of a trial judge finding the value of the security and the borrower’s covenant to be higher than the value of the loan plus interest. Dismissing the appeal the judge held the claimant had adduced no evidence to justify a higher valuation of the property or to suggest the borrower’s covenant had any value. The covenant was found to be worthless due to the borrower defaulting on the repayment obligation and the absence of any evidence to the contrary. Further, the judge rejected the argument the claimant advanced that a higher valuation figure may be found on the basis of the claimant’s argument ‘one can never know what the evidence will turn out to be at trial’. It was held to be proper to hold the claimant to the value of the property it had pleaded based on its own expert evidence and in circumstances where no evidence had been advanced to support a higher figure.

This decision will be welcomed by valuers, particularly given the limitation arguments which exist in claims being brought which have their origins in valuations and refinancing around the tail end of the financial crisis. The judgment could encourage those valuers and their insurers to adopt a robust stance (in the right circumstances) and to consider summary judgment as a viable option. Of particular note is that a court will place the emphasis on the claimant lender to support a contention that the security provided was worth more than the sum lent (see also our Law-Now on the decision in Canada Square Operations Ltd v Kinleigh Folkard & Hayward). Further, a valuer is entitled to take the pleadings at face value and a claimant will be held to these when faced with a summary judgment application. Careful scrutiny should therefore be applied to how a claimant has pleaded and evidenced the alleged overvaluation in such circumstances.

Further reading:

Bridging Loans Limited v Toombs [2017] EWCA Civ 205