A new legal precedent has been set concerning professional negligence after two decisions against e.surv Limited were handed down; one of which was in favour of Blemain Finance Limited over a £3.4 million over-valuation.

Rosling King’s recent professional negligence case - brought on behalf of Blemain Finance Limited against e.surv Limited and heard before Mr Justice Coulson in the Technology and Construction arm of the High Court - is a victory for lenders.

The case involved the accuracy of a valuation provided to support a loan which was secured by a second charge on the property. 

The Judge ruled that the valuation report, on which reliance was placed to make this loan, had been negligently wrong by some £600,000 or 21.4 per cent.

Mr Justice Coulson said that Blemain would not have made the loan if the true valuation figure was known.

He added that Blemain’s conduct had not been negligent when considered against its own lending policy, or in the context of a reasonable second charge lender, and as a result the full damages were awarded with no reduction for contributory negligence or failure to mitigate.

The property in question was a modern detached house comprised of five bedrooms and located in a small private road in Putney Heath. 

It was valued by e.surv on 13 July 2007 at £3.4 million.

The borrowers applied to Blemain for a loan of £250,000 to be secured on their property.

The borrowers had originally purchased the property in September 2004 for the sum of £1.92 million and prior to the date of the valuation in question, the borrowers had remortgaged their property with Cheltenham & Gloucester.

C&G held a first charge on the property and this loan was made after a report prepared in January 2007 valued the property at £2.65 million. 

The borrowers then defaulted on their loan with Blemain and the property was sold on repossession in 2010 for the sum of £2 million. 

Blemain, as second charge holder, did not receive any sale proceeds and subsequently the lender issued a claim against e.surv for providing them with a negligent valuation report.

The borrowers had completed a Declaration of Income & Affordability and their high annual salaries were verified and certified by a chartered accountant; this was a status loan to prime borrowers.

Although the borrowers had a good credit score, had serviced their debt and had no defaults, it was the defendant’s case that the credit report showed a significant level of indebtedness and that they were funding their life with credit cards, had highly monthly credit repayments and a number of searches showed up against their names for credit. 

The Judge held that overall, the good credit servicing and the high credit score were to be regarded as a source of comfort to Blemain when making this loan.

The LTV at 73 per cent was slightly outside of Blemain’s Product Guide for a loan of this type (70 per cent), but was approved by Blemain’s Credit Committee which had the discretion within the general underwriting guide to lend outside of policy. 

The LTV allowed a cushion of equity of circa £890,000. 

This satisfied the Judge as a reasonable approach and he held that there was to be no finding of contributory negligence on this transaction.

Blemain’s case was that the true value of the property as at 13 July 2007 should have been £2.65 million which suggested the property had been overvalued by £750,000 or 28 per cent. 

Conversely, the defendant ascribed a value of £3.1 million to the property which suggested that it had been overvalued by £300,000 from the outset but that this fell within a 15 per cent tolerance, which they said was the correct margin of error for this large unique property.

The Judge was in no doubt that the valuation had been negligently performed. 

He considered that this modern designed property amidst Victorian and Edwardian properties was unusual and to some extent unique. 

He had in a related case already concluded that the margin of error for a standard residential property is 5 per cent but as this was unique in its area, he applied a 10 per cent margin of error. 

He certainly did not think anything more than that or 15 per cent could be sustained.

The Judge held the true value of the property to be £2.8 million. 

He favoured the use of contemporaneous comparable sales available before the date of the valuation. He also heavily criticised the ‘mechanistic’ use of indices which he said was exacerbated by the steeply rising market in the twelve months before July 2007 and which produced unreliable figures and lacked any use of expertise.