The Supreme Court has reinstated the High Court’s decision to award the defendant valuer (D) summary judgment in respect of a negligent valuation claim. The Supreme Court’s back to basics approach to the assessment of damages provides welcome clarification on the position where a lender has granted successive loan facilities in reliance on valuations of security by the same valuer.
The claimant (C) entered into a loan facility with W (F1) based on a valuation by D. Following a second valuation by D, C entered into a second facility with W (F2), under which the majority of the amount advanced was to refinance the indebtedness under F1, with a small amount being new money advanced for the completion of the development. The term of F2 expired with the full balance outstanding.
C alleged that D’s second valuation was negligent and, but for that negligence, the advances under F2 would not have been made. D contended that the most it could be liable for was the new money advanced under F2 and sought summary judgment on that basis. It was common ground that D was not liable in damages for advances made under F1 because it was not alleged that D’s first valuation was negligent, and F1 had been discharged by the money advanced under F2.
The Supreme Court considered the correct position to be straightforward, based on ordinary principles of the law of damages. Applying the basic measure of damages test in Nykdredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2)  UKHL 53, the court found that, if the second valuation had not been negligent, C would not have entered into F2, but it would still have entered into F1. Therefore, C would not have lost the new money advanced under F2, but would still have lost the original loans made under F1, as these would not have been discharged. As there was no allegation of negligence in respect of the first valuation, there was no basis for recovering the loans made under F1. C’s loss was limited to the new money advanced under F2.
For further advice contact Tom Warrender, Head of Commercial Property, or John Gordon Head of Commercial Litigation.