Hope Capital Ltd (“Hope”) were a short-term lender, who lent to an individual. They requested that Alexander Reece Thomson (“ART”) prepared a property valuation, which would assist in their decision to provide the loan to the borrower. The property was valued at £4 million. After conducting all of the necessary due diligence, Hope granted a bridging loan for £2.2 million. 

The borrower later defaulted under that loan and receivers took possession of the property, which was eventually sold for £1.4 million in 2020. Despite the valuation being £4 million, it was later found that the true open market value was likely to be at least £1 million less than this. The reason for disparity between ART’s valuation and the open market value proved to be a contentious issue between the parties. Shortly after the loan was made, the borrower began undertaking works to the property without obtaining listed building consent and Landlord approval. A section 146 notice was served by the landlord, requiring reinstatement back to the original condition or the lease would be forfeited. To prevent the loss of their security, Hope was required to fund this work themselves meaning by the time the sale occurred, the Covid-19 pandemic had hugely impacted the value of properties on the market. These factors, ART argued, collectively resulted in the decrease in value of the property. 

The lender brought a claim against ART alleging that the valuation was negligent and that given the crucial nature of the valuation to the lender’s decision, ART was liable for the whole of the lender’s loss on the loan. ART accepted that it had been negligent and in breach of its duty, having overstated the value in its valuation such that the true value fell outside the margin which a reasonable competent value should have fallen. However, ART denied causation and loss as the true value of the Property still exceeded that of the loan at the date of the default and the sale price was impacted by intervening matters.

The question in this case was whether ART, in providing the service, had assumed responsibility for the financial risk of the whole transaction or just risk flowing from the valuation. The Court repeated the usual rule that a valuer would usually supply only one part of the material on which its client would base the lending decision – the current market value. While the Court acknowledged that Hope was entitled to rely on the valuation, the lender would also have to consider a number of other factors for which ART would have had no responsibility. Although it was possible for a lender to rely more extensively on a valuation than the usual limited purpose for a valuation, this was unlikely without direct instructions making that clear. ART’s valuation was therefore not considered as the only reason Hope had decided to lend. 

Hope would have been assessing the worth of the property as at the date of the valuation, not forecasting a projected worth. There is always the risk that the value may go down and that is a risk for the lender to decide to take. 

The Court found that Hope had suffered no actionable loss despite the negligent valuation of the property. They found that to the extent that there was any loss suffered by the lender, it was a consequence of the inherent risk of a commercial transaction and not as a result of the overvaluation, which was the only risk ART could be held responsible for.

The Court’s decision reinforces the principle that a third-party professional adviser’s duty is limited by the purpose for which it is providing information and the adviser is not usually liable for all the financial consequences of the lender’s decision. Lenders should therefore be mindful that relying too heavily on valuations that have been produced in the ordinary course of business could lead to negative financial consequences, with no possibility of financial recourse even if the valuation has been negligently produced.