The High Court ruling in the case of Paratus AMC Ltd & RMAC 2005 NS1 Plc v Countrywide Surveyors Ltd could result in fewer lenders making negligence claims against professionals after the issue of contributory negligence is raised.
In July 2004 Mr Stockton (S) applied to remortgage a buy-to-let property in York to GMAC-RFC (which has since started trading as Paratus AMC Ltd), stating that the property value was £185,000. The mortgage application was for a value of £166,500, to be repaid over 10 years on an interest-only basis. The loan-to-value ratio of the mortgage was 90%.
GMAC-RFC instructed Countrywide to value the property and on 19 July the property was inspected. Countrywide confirmed a market valuation of £185,000. The remortgage proceeded on this valuation.
In 2007 S defaulted on his repayments and the property was repossessed by GMAC-RFC. The property was sold in September 2008 at a value of £123,500. The net proceeds of the sale were £118, 103.
GMAC-RFC sued Countrywide for negligently overvaluing the property. They argued that the property should have been valued at £154,000 in 2004. This figure was arrived at by applying a price per square metre to the floor area of the property. It was also argued that the acceptable range of value which the valuation could fall within before being negligent was 4 per cent above or below the figure.
The defence argued that the correct valuation in 2004 was £175,000 but that the valuation given by Countrywide was within the range of acceptable valuations. The defence valuation of £175,000 was arrived at by using comparable sales evidence obtained from the Land Registry for the period before the valuation. The permissible range that the defence argued for worked out at 11 per cent.
The Court held that the defence method of retrospective valuation, using Land Registry data, was the more preferable method, and so stated that the value of the property in July 2004 to be £175,000.
It was also held that the acceptable margin of error for the valuation of the property is 8 per cent. In this case this meant that the range of acceptable valuations was £160,000 to £190,000. Using these figures the valuation given by Countrywide in 2004, of £185,000, fell within the acceptable range. Accordingly it was held that the valuation by Countryside was not negligently high, and the Court found for the defendant.
However, the Judge also stated that had Countryside been negligent, then he would have also found that GMAC-RFC contributed to the negligence by not performing checks on the income of S. It was declared that as the mortgage had a high loan-to-value ratio GMAC-RFC needed to investigate and verify matters of central importance to the loan application. This would include checking the financial position of S.
Evidence raised at trial showed that S had provided misleading information relating to his income, and the Court stated GMAC-RFC would have found S unable to verify his declared income had they made proper enquiries. Had GMAC-RFC checked the details it would have been a reasonable conclusion from these that S was dishonest, and so would not have advanced the loan. It was declared that had Countrywide been found negligent a reduction of 60% of the total loss would have been made as a result of the contributory negligence by GMAC-RFC.
The obiter dicta raised in this case suggests that courts will hold lenders to account for careless lending, even if valuations are found to be negligent. If large percentages of any damages are taken away by the courts for contributory negligence, then it may well not be financially worth taking these cases to court. More consideration to the circumstances in which the loans were approved will have to be given, before lenders decide to pursue claims against surveyors through the courts.