Preferred Mortgages Ltd v Bradford & Bingley Estate Agencies Ltd

A valuer’s liability for a negligent mortgage valuation is governed by the scope of the duty undertaken in relation to the transaction for which the valuation was supplied. Loss is assessed by comparing the lender’s actual position with the position it would have occupied had the valuer performed that duty.

Where the mortgage transaction supported by the valuation is fully redeemed and replaced by a legally distinct mortgage, the original transaction has caused no recoverable loss. Any inchoate liability arising from the original overvaluation therefore ceases. The lender cannot preserve that liability by characterising the redemption and replacement as an internal administrative exercise.

A mortgage lender claimed £24,000 damages from a valuer for an allegedly negligent valuation used when making a residential mortgage advance. The borrower later sought additional funds. The lender redeemed the original mortgage and granted a new mortgage, relying upon a fresh valuation by another valuer.

His Honour Judge Moore, sitting in the Sheffield County Court, determined a preliminary issue on 13 July 2001. He held that the later transaction was an effective remortgage which discharged and replaced the original mortgage. Because the original mortgage had been fully redeemed, the lender had suffered no loss from the transaction for which the respondent had valued the property, and the claim was dismissed.

The lender appealed, contending that the remortgage was merely an internal bookkeeping mechanism and that, alternatively, the loss caused by the original overvaluation had never been extinguished.

1. Appeal dismissed unanimously. Lord Justice Latham delivered the leading judgment. Sir Martin Nourse and Lord Justice Buxton agreed without adding reasons.

2. Per Lord Justice Latham, the legal effect of the later transaction was to discharge the borrower’s liabilities under the original mortgage and replace them with obligations under a new mortgage. The lender accepted that it could no longer rely upon the original mortgage against the borrower. The documentary evidence also consistently described a redemption and the grant of a fresh charge. The different principal sum, term, interest rate and mortgage form confirmed that conclusion. An isolated internal reference to a “further advance” could not preserve the original mortgage.

3. A valuer’s liability is determined by the scope of the duty undertaken in relation to the transaction for which the valuation was provided. Applying Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627, loss is assessed by comparing the claimant’s actual position with the position it would have occupied had the duty been fulfilled. The valuer is responsible for adverse consequences attributable to the valuation deficiency and flowing from entry into that transaction. This was consistent with the definition of a valuer’s duty in Banque Bruxells SA v Eagle Star [1997] AC 191.

4. The relevant transaction was the original mortgage granted in reliance upon the respondent’s valuation. That transaction caused no ultimate loss because it was fully redeemed. Although an inchoate liability may have existed between completion of the original mortgage and its redemption, the liability ceased when that transaction was satisfactorily completed. The later mortgage was a distinct transaction entered into upon a different valuation. The lender’s use of its own funds to implement the redemption did not extend the respondent’s duty to the replacement mortgage.

5. The appeal was dismissed with costs, subject to detailed assessment. The appellants were ordered, by agreement, to make an interim costs payment of £12,500 within 14 days.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The court upheld the conclusion that the original mortgage had been redeemed and that the respondent’s valuation had caused no recoverable loss.

2. Sheffield County Court: On 13 July 2001, His Honour Judge Moore determined the preliminary issue and dismissed the claim. He held that the later transaction was an effective remortgage which discharged the original mortgage, leaving no loss attributable to the respondent’s valuation.