The claimant lender advanced a sum of £428,791 (equal to 90% of the value of the property) to borrowers by way of an interest-only mortgage in March 2006.Previous to this, the claimant had sought two valuations of the property: one in December 2005 from a surveyor (Connells Survey and Valuation Limited) at £475,000 and the other from the defendant valuer in January 2006 at £500,000.
Despite initially maintaining their mortgage payments, from February 2007 onwards the borrowers made irregular payments and arrears started to accrue. They voluntarily surrendered possession of the property the following year; in 2009, the property was eventually sold (following a failed auction) for £305,000.
In October 2013, the claimant issued a claim form claiming damages in negligence against the defendant, in relation to its valuation of January 2006 which the lender believed to provide it with adequate security.
The two main questions before the court were:
- Whether, having been issued in October 2013, the lender’s claim was brought outside of the six-year limitation period and was thus statute-barred; and
- When lending the relevant sum, whether the claimant lender had relied on the defendant valuer’s valuation of the property, rather than the first surveyor’s lower valuation.
On the first point, section 2 of the Limitation Act 1980 provides that the limitation period for tortious claims is six years from the date on which the cause of action accrued. For negligence claims, the limitation period runs from the date the damage is suffered.
In Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd  1 W.L.R. 1627, Lord Hoffman stated that the relevant loss is suffered when the lender is financially worse off because of a breach of duty of care than it would otherwise have been. In this case, whether the borrowers’ covenant appeared good and whether they duly made their mortgage interest payments were crucial points. The date when the first instalment was missed was in February 2007, and it was found that this was the point when the claimant’s cause of action in tort arose. Applying Nykredit, the action was statute-barred.
On the second point, the fact that there had been two valuations added complexity to the question of whether the claimant had relied on the defendant’s valuation alone or both valuations. The claimant called its head of credit as a witness but did not call anyone else, and specifically called no one who had been involved in the decision to grant the loan. Moreover, it was not clear why the claimant had actually obtained the second valuation from the defendant in the first instance – for example, as a matter of policy.
The court’s view was that the claimant’s argument about its reliance on the defendant’s valuation was based largely on speculation and had no real foundation. It was decided, therefore, that the claimant had failed to establish reliance.
The curiosity of this decision lies in the fact that the defendant’s alleged negligence wasn’t, in the circumstances, a triable issue. Had it not been for the delay in issuing and the previous valuation, the court could have found against the defendant, or alternatively have had to navigate through auction evidence during a housing crash in May 2009.