Hope Capital Limited v Alexander Reece Thomson LLP

A valuer’s duty is ordinarily confined to the risk that the valuation is wrong. The fact that the valuation was critical and caused a lender to enter a transaction does not make the valuer responsible for every foreseeable consequence of the transaction. The court must identify the purpose of the valuation and the risk against which the duty was assumed.

In a no-transaction case, loss is assessed by comparing the claimant’s actual position with the position absent the transaction, then limiting recovery to loss within the scope of duty. A counterfactual is only a tool and may be unhelpful. Loss caused by the borrower’s unlawful conduct, difficulties in realising security and a subsequent market collapse was outside the valuer’s duty. The claim was therefore dismissed because the lender suffered no actionable loss.

Hope Capital lent £2,215,440 to St Anselm Heritage Properties Ltd, secured on the leasehold interest in Cedar House. Alexander Reece Thomson LLP admitted that its valuation of the property at £4 million was negligent. Hope contended that it would not have made the loan had it received a competent valuation and claimed capital loss, contractual interest and lost profits.

The court determined the property’s true open market value and 180-day value, considered the appropriate valuation tolerance, and examined causation, the scope of the valuer’s duty, recoverable loss, contributory negligence and mitigation. The central issue was whether the later fall in the security’s value, caused by the borrower’s conduct, the second section 146 notice, delay and COVID-19, fell within the scope of the valuer’s duty.

1. Valuation and tolerance. The true open market value was £2.75 million and the proper 180-day value was £2.475 million. A valuation tolerance must be assessed factually rather than mechanically. For this unusual property, the appropriate bracket was plus or minus 15%, although the £4 million valuation was outside even a 20% bracket.
2. Interest and lost profits. Contractual interest or lost profits may exceptionally be recoverable in a no-transaction case where the lender proves limited funds, unsatisfied demand and a sufficiently specific alternative lending opportunity. Generic evidence was insufficient. Hope’s reconstructed spreadsheets, oral evidence and profitability evidence did not establish those matters.
3. Scope of duty. Applying SAAMCO, BPE Solicitors v Hughes Holland, Meadows v Khan and Manchester Building Society v Grant Thornton UK LLP, the court focused on the purpose of the valuation and the risk the duty was intended to guard against. A valuer ordinarily assumes responsibility for the current value of the security, not for the borrower’s creditworthiness, exit strategy, compliance with lease obligations, future works or market movements.
4. The valuation was critical to the decision, but that did not extend the duty to the whole transaction. No evidence showed any clear agreement that ART assumed responsibility for all lending risks. The lender’s own criteria showed that matters beyond valuation were relevant to its decision.
5. Actionable loss. At default, the security’s proper 180-day value exceeded the capital advanced. The reduction to the eventual sale price resulted from the borrower’s unlawful works and the second section 146 notice, delay in regularising the position and the COVID-19 market collapse. Those matters were outside the scope of ART’s duty. By analogy with Charles B Lawrence & Associates v Intercommercial Bank Ltd, the actionable loss was nil. A counterfactual based on the negligent £4 million valuation was unhelpful because it ignored the duty nexus.
6. Contributory negligence was immaterial to the result. If required, Hope would have been 50% contributorily negligent because it lent without a viable exit strategy, despite serious concerns about the borrower, and failed to monitor the works.
7. The claim was dismissed.