The recent High Court decision in Hope Capital Limited v Alexander Reece Thomson LLP ( EWHC 2389 (KB)) has clarified the scope of valuer duties, for the purpose of bridging finance, and highlighted interesting considerations surrounding losses arising from negligent valuations.
Cedar House, a Grade II listed property in Cobham, Surrey, with a history dating back to the 15th Century, was valued in February 2018 at £4,000,000 in a report by valuers Alexander Reece Thomson LLP (ART), for the purpose of securing a bridging loan. A loan, totalling £2,448,000 (including interest and fees), was advanced by Hope Capital Limited (Hope) to St Anselm Heritage Properties Limited (St Anselm) based on the valuation by ART.
St Anselm defaulted on the loan in late 2018, and Cedar House was eventually sold for £1,400,001 in 2020. Hope alleged it had lost a total of £2,527,749 in the transaction, including capital loss, contractual interest, and loss of profits.
Hope argued that ART’s valuation was negligent and had ART’s report reflected the true value of the property, they would not have granted the loan to St Anselm.
Hope claimed that because the loan was solely granted in reliance of ART’s negligent report, the losses they sustained should include both a) the difference in value between the negligent valuation and the actual value of the property; and b) the financial losses arising from entering into the loan arrangement at all. The latter is unusual, as it means that it would be possible to hold a professional advisor liable for all foreseeable consequences in a commercial transaction.
Whilst ART eventually admitted to a breach of its duty when preparing the report, they argued that the total loss should be zero, considering that the value of the security remained the same at the date of default as at the valuation date (£2,475,000), surpassing the loan amount, and therefore, no loss occurred.
They also alleged there had been contributory negligence on Hope’s part and that the value of the property had been affected by several external factors, such as the Covid-19 pandemic and various section 146 notices served following breaches of the lease.
Outcome and further comments
It was held that the purpose of the valuation was to protect Hope in relation to the value of the property, and not all other foreseeable risks upon entering into the loan.
Whilst Hope had relied upon ART’s report when entering into the loan, it does not mean that the professional valuer should be held liable for all losses arising out of the commercial transaction.
This is the case even where such a report was a persuasive reason for entering into such an arrangement, as was the case here. Therefore, ART were only held liable for the difference in value between the negligent valuation and the actual value of the property.
This case exemplifies why professional advisers should be mindful of, and consider carefully, the purpose of which they are providing advice and producing reports in such transactions.