This recent decision looks at the issue of causation as a defence to a lender professional negligence claim.
In reliance upon a valuation report provided by Mr Omotosho of Anderson & Associates, Platform Funding Limited (“Plartform”) made a loan advance in September 2006 of £250,960.78 to Mr Jikiemi to purchase a newly built flat located in Thamesmead. The valuation report advised that the current open market value of the flat was £275,000. The only comparables used by Mr Omotosho when arriving at the valuation figure were the sale prices of 3 similar flats located in the same development, the details of which had been provided by the sales staff at the development.
Mr Omotosho was to led to believe that the sales data was provided directly from the developer, when in fact the figures were provided by a third party, Mr Barry of Atrex Housing. Unbeknown to Mr Omotosho, Atrex Housing bought the flats from the developer and sold them on for a profit on the same day. The comparable sale data provided was based on the final inflated sub sale price, rather than the actual price at which the properties were sold by the developer.
Mr Jikiemi defaulted on the mortgage, and Platform subsequently repossessed and sold the flat at a considerable loss. Platform commenced proceedings against Anderson & Associates for negligently overvaluing the property.
Whilst the Judge held that the valuation had been conducted without reasonable skill and care, as a competent valuer would have considered the availability of incentives, comparables from both adjacent developments and from second hand sales in the market, and the general selling conditions in the area, the claim failed on two grounds.
Firstly, the Judge was of the view that the valuation would, on the balance of probabilities, have been the same had the valuer exercised the appropriate skill and care. The Court was persuaded that had further steps been taken by the valuer, he would not have obtained any evidence that the valuation was too high.
Secondly, the Court held that the entire loss incurred by Platform was caused by the dishonest way the properties had been marketed and sold by Mr Barry and Atrex Housing, and the collusive manner in which the seller’s solicitor conducted the conveyancing.
This case highlights how in certain circumstances, lenders may face barriers to successful recoveries against negligent professionals if they cannot show that the negligent advice caused their loss. However, it does not appear to be too far reaching as the facts in this case appear to have heavily influenced the judge and seem to have been quite extreme. There had been a criminal trial arising from the mortgage fraud which underpinned this transaction. The scale of that fraud and the evidence from the criminal trial provided the Court with a vast amount of information relating to the dishonest marketing and sale of the flats, evidence which does not usually exist in most over-valuation claims. Further, the collusive nature of the mortgage fraud and the intricacies of the circumstances surrounding it are case specific.
As some further reassurance to lenders, the Court in its conclusion dismissed allegations of contributory negligence against Platform, and held that the evidence failed to demonstrate that the sub-prime underwriting was conducted without reasonable skill and care.
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