Speshal Investments Ltd v Corby Kane Howard Partnership Ltd (t/a HBSV)

A lender relying on a negligent valuation must prove actual reliance in the relevant sense. It is insufficient to show merely that the loan would not have been made without the valuation; the lender must have believed the valuation to be reliable. The reasonableness of that reliance ordinarily concerns contributory negligence, rather than the existence or breach of the valuer’s duty of care, unless the issue concerns the scope of the relationship or an exclusion clause. A lender may be contributorily negligent where it fails critically to investigate a substantial disparity between the valuation, the purchase price and other available valuations. The appropriate reduction depends on the significance of that failure and the valuer’s own responsibility.

The claimant made a short-term bridging loan of £1.9 million to Cheyne Lodge Investment Limited, secured on four commercial properties and directors’ guarantees. It relied on valuations prepared by the defendant valuers on an estimated restricted realisation price basis. Cheyne defaulted, the properties were sold for substantially less than the loan, and the defendants conceded that their valuations were unsupported and that the claimant’s loss, before any reduction, was £1.38 million.

The issues were whether the claimant relied on the valuations in the legally relevant sense, whether that reliance was reasonable, and whether the claimant’s conduct amounted to contributory negligence.

1. Liability. The defendants owed the claimant a duty of care, and did not rely on the valuation-report caveats to exclude liability. The relevant inquiry was first whether the claimant actually relied on the valuations, believing them to be reliable, and then whether contributory negligence had been established.
2. The claimant’s principal officers relied on the reports in making the advance. The court rejected the defendants’ contention that the reports had merely been used to justify a lending decision already made. The absence of direct evidence from the claimant’s ultimate owner did not alter that conclusion.
3. The principle identified in BBL SA v Eagle Star Insurance Company Limited [1995] 2 All E.R. 769 was accepted: reliance requires more than proof that the loan would not have been made without the valuation. The lender must have believed the valuation to be reliable. The approach had been accepted, without definitive determination, in Cavendish Funding v Henry Spencer [1998] PNLR 122.
4. The claimant was contributorily negligent in failing critically to analyse the substantial disparities between the defendants’ valuations, the purchase prices and the earlier Harrison valuations. A prudent lender should have recognised a serious possibility that its own valuer was unreliable and considered withdrawing, obtaining an independent valuation, requiring the defendants to revisit their calculations, imposing a loan-to-purchase-price limit, and making further inquiries.
5. The other allegations of contributory negligence were rejected. The directors’ guarantees had a useful personal-commitment function, and direct inquiries of NatWest were a counsel of perfection rather than a necessary precaution.
6. Damages were reduced by 20 per cent. The defendants’ valuations were egregiously wrong, so a substantial part of the prima facie loss remained their responsibility.