(3 min read)
A recent case sheds light on the importance of identifying the actual factors responsible for the loss suffered by the claimants; by understanding the true cause of loss, claimants can pursue their claims more effectively and ensure that they are properly compensated for their losses. This case highlights the importance of identifying the factors responsible for the loss and ensuring that the claim is properly framed to seek appropriate damages.
Determining the True Cause of Loss
In Hope Capital Limited v Alexander Reece Thomson LLP [2023] EWHC 2389 (KB) the Court examined whether the claimant was entitled to recover damages where the valuer had admitted over-valuing the property and, if so, on what basis damages should be calculated.
- The case involved a lender who had relied on a negligent valuation provided by a valuer when making a loan. The lender argued that the valuer's negligence caused them to suffer a loss, and they sought to recover interest as part of their damages.
- Hope Capital entered into a loan with a third party, secured against a Grade II listed building which had been valued by ART at c.£4m. Due to the impact of (i) the COVID-19 pandemic on the property market and (ii) unsatisfactory building works at the property, the value diminished by approximately 70%.
- Following the third party's default on the loan, Hope Capital sought to argue that had ART's valuation been accurate, it would not have entered into the transaction. The Claimant said that, consequently, it should be entitled to recover from Reece all (i) losses flowing from the negligent valuation and (ii) wider losses as a result of the loan itself.
The Court concluded that the true cause of the loss was not solely the valuer's negligence but rather a combination of factors. In this case, (i) the conduct of the borrower and (ii) the effects of the COVID-19 pandemic. These factors led to a drop in the value of the security and ultimately resulted in the sale of the property at a lower price.
The Court also concluded that even if the lender had been successful, it had failed to show that it was entitled to recover its costs of funding the loan and is a reminder to lenders that clear evidence will be needed if they are to seek such an element as part of their claim.
Understanding the Valuer's Duty
In professional negligence cases, the scope of the valuer's duty is determined by the purpose of the duty, judged objectively based on the reason why the advice or information was provided. The valuer's responsibility is generally limited to the specific area of expertise and does not extend to protecting the lender against all risks associated with the transaction. In this case, the valuer's duty was to provide an opinion on the current market value of the property offered as security for the loan.
The decision
The Court followed the Supreme Court decision in Manchester Building Society v Grant Thornton UK LLP [2021] 3 WLR 81, namely that a professional adviser's duty of care is to be determined objectively by reference to the purpose of the advice provided. In this case, that purpose was to provide Hope Capital with a professional opinion on market value, on which it was entitled to rely. However, that did not mean that the valuation was the only piece of information to support Hope Capital's decision to enter into the loan.
The Court emphasised that the true cause of the loss was the borrower's conduct and the effects of the COVID-19 pandemic, which were outside the scope of the valuer's duty of care and that this was despite the Court having established that the valuer had over valued the property.
Impact for claimants
Claimants should take the following steps:
- Gather and analyse: collect all relevant documents, correspondence, and expert opinions to support their claim. This includes valuations, loan agreements, communications with the valuer, and any other relevant records.
- Consult: seek legal advice from experienced professionals specialising in professional negligence cases to assess the strength of the claim, identify the true cause of loss, and guide claimants through the legal process.
- Frame appropriately: ensure that their claim is properly framed, taking into account the true cause of loss. This includes identifying the specific negligent acts or omissions of the professional, establishing a clear link between the negligence and the loss suffered, and seeking appropriate damages.
Next steps
Addleshaw Goddard LLP specialises in advising on and conducting professional negligence claims for lenders against solicitors, valuers and other professional advisers. If you have a query that you would like to discuss, please get in touch with one of our specialists.
