Hope Capital Limited v Alexander Reece Thomson LLP: Lessons for Valuers

The recent judgment handed down in September 2023 of Hope Capital Limited v Alexander Reece Thomson LLP [2023] EWHC 2389 (KB) provides a useful overview of the scope of a valuer’s duty, particularly in the context of valuations for the purpose of bridging finance, and some key considerations for determining loss.

Background

The valuer was instructed by Hope to provide a valuation on a Grade II listed Hall in Surrey. The Hall was valued at £4m and, following default by the borrower, was sold at auction for £1.4m.  Hope argued the valuer should be responsible for the entirety of its losses, including contractual interest the borrower should have paid and additional profits which would have been produced had the loan not been provided, along with the cost of the remedial works (totalling £3.9m of losses). Hope alleged that the true value was £1.95m and that any loss should be capped by reference to the difference between this valuation and the £4m valuation i.e. that any loss would be capped at £2.05m.  The valuer admitted breach but asserted that the true value was, in fact, £3.175m. The valuer argued that the majority of these losses fell outside the scope of its duty because they were caused by the borrower and/or the unprecedented collapse of the market.

Scope of Duty

The Judge considered Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 and Meadows v Khan [2021] UKSC 2. In these cases, the Courts found that the distinction between "advice" and "information" was too rigid a test (being the test set out in SAAMCO) and should only really be used as a cross-check; a strict application risked a valuer being held responsible for loss caused by a third party. The Supreme Court’s judgment in Manchester Building Society held that the scope of the duty is governed by the purpose of that advice. Simply put, the question is what risk was the professional’s advice aimed at guarding against (this is to be judged on an objective basis). In Meadows v Khan, the main consideration of the Supreme Court was the nexus test; “is there a sufficient nexus between a particular element of the harm for which the claimant seeks damages and the subject matter of the defendant’s duty of care?”

Causation and Loss

When considering the losses of Hope, the Judge emphasised the importance of (i) the valuer’s role (to value the property); and, (ii) the lenders’ role in making a prudent lending decision. The judgment also restated the fundamental position, per Swingcastle v Alistair Gibson [1991], that it is not the role of the valuer to protect against “all other foreseeable risks attendant upon entering into the transaction”. The Judge rejected the argument the valuation was the only “green light” for a bridging finance lender when deciding whether to lend to a borrower. A lender’s own role must also be considered in relation to its own lending criteria and the identification of appropriate exit routes for which loans should be repaid. The Judge was critical of Hope ignoring red flags of the borrower who, ultimately, could not be trusted to deal with the Hall.

Taking all of the above, and considering the Trinadad and Tobago case of Charles B Lawrence & Associates v Intercommercial Bank Ltd [2021], the Judge accepted the valuer’s position on loss which required the court to deduct the value of the land at a specific point in time from the loan, as a means of limiting the losses suffered by Hope to those which fell within the scope of the valuers duty. The Judge ultimately found that, although the valuer was negligent, Hope suffered no actionable loss and dismissed the claim. The Judge did consider the position had it had to follow the Claimant’s assessment of loss, it stated that they would have found that the lender was 50% contributorily negligent. This is a significant and novel finding for bridging financiers, where it has been long argued that, given the short nature of bridging lending, the valuation is of utmost importance compared to the lending process.

Conclusion

The value of the security will often be advanced as being the most important factor in a lender’s decision making. This case is an important reminder that it is a high bar for a lender, and bridging financiers, to demonstrate that it is the valuation itself that is the only factor when it makes its decision to lend and that the courts will take into account the lender’s lending criteria, exit strategy and external factors when considering the full scope of losses a valuer may be liable for.