Hope for valuers? Hope Capital v Alexander Reece Thompson [2023]

In this article we review the recent decision in Hope Capital v Alexander Reece Thompson, in which the Court looked again at the approach to evaluating the scope of a valuer’s duty and recoverable losses resulting from a negligent valuation. The decision emphasises once more that, following Supreme Court decisions in 2021, it is the purpose of the opinion/advice that will define the extent of the valuer’s duty, and that in evaluating loss in these claims, a SAAMCO counter-factual approach will be considered by the courts as unhelpful in some cases.

Background

The approach of the Court in Charles B Lawrence & Associates v Intercommercial Bank Ltd [2021]

In the Hope Capital decision, the Defendant valuer’s primary case relied on the analysis in the Trinidad and Tobago Privy Council decision of Charles B Lawrence & Associates v Intercommercial Bank Ltd [2021].

As reported in our article here, in Charles B Lawrence, whilst there had been a negligent overvaluation, there was also a serious defect in title. In assessing damages, the Privy Council held that the loss suffered due to the defective title was outside of the scope of the valuer’s duty of care. The correct measure of damages was therefore the loan sum less the true value of the land as at the date of the loan, assuming there was good title (less a deduction to reflect the claimant’s contributory negligence). 

In reaching its decision, the Privy Council considered the counterfactual test set out by Lord Hoffman in South Australia Asset Management Corp v York Montague Ltd [1997] (SAAMCO) and focused also on the Supreme Court judgments in Manchester Building Society v Grant Thornton UK LLP [2021] and Meadows v Khan [2021] which emphasised that the purpose of advice or information given was central in determining the scope of the duty of care assumed by a professional adviser. The Privy Council (Lord Burrows and Lady Rose) referred to “the point made by the Supreme Court that the counterfactual is of second-order importance as regards establishing the scope of the duty and is a helpful cross-check of that scope in most but not all cases”, then concluding on this point “this is one of the cases where it is unhelpful”.

Hope Capital v Alexander Reece Thompson [2023]

The dispute in Hope Capital Limited v Alexander Reece Thomson LLP [2023] was in respect of a negligent valuation by the Defendant (the Valuer) of a 15th century Grade II listed property in Surrey. The valuation was a secured lending valuation in respect of a short term bridging loan for around £2.215 million, with a low loan to value (LTV) ratio (as was also the case in Charles Lawrence).

The Borrower had the benefit of a long leasehold interest over the property and the National Trust held the freehold interest. The Valuer valued the property at £4 million, which was a negligent overvaluation, with the true open market valuation being £2.75 million, and the 180 day valuation (the value of the property with only 180 days to advertise and sell the property) £2.475 million. This was also the 180 day true valuation as at the date of default.

The Borrower defaulted on the loan and Receivers took possession of the property in late 2018. A number of issues then arose, including a dispute with the National Trust relating to irresponsible and unauthorised renovation works by the Borrower. This led to a delay in the Receivers selling the asset, and the property was eventually sold on 2 October 2020 for £1.4 million, in a market adversely impacted by the Covid-19 pandemic. It was not disputed that it was a “no transaction” case (i.e. that the loan would not have been advanced at all had the Valuer reported a non-negligent valuation).

The Claimant claimed its loss in capital, contractual interest on the loan and loss of profits which it alleged would have been realised by use of the lost capital in other successful bridging loans. The Claimant accepted (in its claim) that pursuant to the principles laid down in SAAMCO that its recoverable loss was capped (at £2.05 million) by reference to the difference between the valuation and the true 180 day valuation. 

The Valuer accepted that it had acted in breach of duty but alleged that the total actionable loss was zero, on the basis that the 180 day value as at the date of default remained the same as it had been at the date of valuation - this exceeded the amount of the loan and no loss had therefore been caused. It argued that the cause of loss of value at date of the Borrower’s default and the sale in 2020 was the dispute between the Borrower and the National Trust and the impact of Covid – neither of which (it was alleged) fell within the scope of the Valuer’s duty.

Mr Justice Constable considered the relevant case law to determine the fact-sensitive question of whether the Valuer had assumed responsibility for the risk of the whole transaction, or just for part of it. This was with a focus on the purpose for which the advice or information was provided. 

The Court held that normally, the valuation was only one of a number of factors in the lending decision, and that cases in which a valuer is liable for all the foreseeable consequences of a commercial transaction entered into as a result of negligent advice are likely to be rare. It held that: 1) the valuation was a key part of the decision to lend but was not the only consideration (notwithstanding in a bridging loan context the importance of the valuation might be elevated); 2) the purpose of the valuation was to protect the Claimant in relation to the value of the security, and not all other foreseeable risks attendant upon entering into the transaction.

In terms of assessing loss, the Court found that: 1) the factual reason that the value of security was not realised within 180 days of the default was due to the conduct of the Borrower (ie the dispute with the National Trust); 2) had it not been for the Borrower’s conduct and the subsequent effects of Covid-19 on the market, the Claimant would not have suffered any loss of capital advanced; and 3) by analogy with the case of Charles B Lawrence, the loss caused by the breach of the Valuer’s duty was therefore nil.

Commentary

Thus, the Hope Capital case confirms the move away from the SAAMCO analysis of negligent valuation claims with more focus on the scope of duty in a particular case, based on the purpose for which the valuation was provided. This is in line with the Supreme Court decisions in Manchester Building Society and Khan.  

This will be good news for valuers and their professional indemnity insurers as it will almost always be arguable that any change in value between the valuation date and the realisation date is attributable to changes in market conditions and/or other external factors for which the valuer is not responsible. Further, the Hope Capital decision makes it clear that notwithstanding that a valuation was critical to a decision to lend, that does not necessarily mean that the valuer is liable for all of the financial consequences of that transaction, even in a “no transaction” case. This will be unwelcome news for bridging lenders.

It is also notable in Hope Capital that, had it been relevant, the Court would have applied a significant deduction for the Claimant’s contributory negligence (50%), with the Court being critical of the Claimant's disregard of the ascertainable dishonesty in the loan application and the Borrower’s lack of a clear exit strategy at the end of the term of the loan. 

Permission to appeal denied (for now)

On 8 December 2023, the Court decided the Claimant’s application for permission to appeal. The ground (of three) that is pertinent to this article contended that the Judge had erred in fact and law in concluding that the Claimant suffered no actionable loss, in relation to (a) the analysis of the scope of duty; and/or (b) the application of the scope of duty to the factual circumstances (i.e. the nexus between the scope of duty and losses claimed). 

In summary, on this point, it was held that it was not discernible from the Claimant’s draft grounds of appeal how it was said (and it was not reasonably arguable) that losses caused by the Borrower coupled with the effects of COVID were not to be regarded as losses with no proper nexus with the valuer’s scope of duty.

The application to appeal was denied – the Court held: “it is not .. reasonably arguable that the Judgment involved anything other than an orthodox view of the law post- SAAMCO applied to the facts. For related reasons, it is not reasonably arguable that it was wrong to follow the rationale of the Privy Council in Charles B Lawrence...”

Whilst the Hope Capital case is a welcome decision for valuers and a thorn in the side for bridging lenders, how deep that puncture wound might be is yet to be seen. It is expected that the Claimant will now present an application for permission to appeal to the Court of Appeal, and we will watch this proverbial space with some interest.