No loss caused by negligent valuation where loss caused by fraud
In the widely reported case of Platform Funding v Anderson Associates , a valuer was found not to have been negligent in a "no transaction" case involving fraudulent behaviour because, notwithstanding that the valuation was negligent, the lender suffered no loss as a result of this negligence.
Whilst on the face of it this case is surprising given the fraud involved, it is a clear reminder that in order to succeed in a professional negligence claim a claimant must show that the negligent valuation has caused the lender or the purchaser to suffer the loss.
It is also a reminder to valuers of the importance of having comparable evidence.
This case involved the sale of a new build flat, No 25, in a development of a residential block of faults located in Thamesmeade, in 2006.
A Mr Alim Barrie, through his company Atrex Property Company Limited, bought all 84 flats in the block. Persimmon Homes, the developer, still marketed the flats but Mr Barrie negotiated the sales and informed Permission of the "sale price". In fact Mr Barrie informed Persimmon of the market price only rather than the true sale value which was significantly lower.
Flat 25 was eventually bought by Mr Darren Jikiemi. Anderson Associates Limited were the second firm of surveyors to value the property and were instructed twice by two separate lenders (one of which was Platform Funding) to value the property.
The surveyor provided a valuation of £274,995 and Platform Funding agreed to provide a mortgage on the basis on 90% loan to value ratio. Mr Jikemi subsequently defaulted on the mortgage and the property was sold in 2008 at a substantial loss.
Platform Funding brought a claim against Anderson Associates for the over-valuation of the flat.
There were various aspects to the fraudulent transaction. False information was provided both to Persimmon and to the surveyors. The solicitors firm failed to report properly to the lender and there was a falsely prepared mortgage application.
The key issue in this case concerned the enquiries made by the valuer. Anderson Associates were instructed by Platform on the lender's standard terms and conditions for a panel firm which included that the valuation must be carried out in accordance with RICS specifications.
At this time, there was an amendment to the RICS Red Book, which was designed to protect against the overvaluation of new build apartments and included that a surveyor must take into account any incentives when undertaking a new build valuation exercise.
The Red Book also indicated that there must be extensive examination of comparables.
The court held that the valuation provided to Anderson Associates did not consider whether the sale price provided by Flat 25 was adversely affected by incentives, did not seek out any new build comparables in adjacent blocks, did not seek out second hand market valuations and did not make any enquires about the selling conditions of the flats in the block.
Notwithstanding this, the court held that even if the surveyor had carried out these enquiries, his valuation may not have been any different. This was because it was impossible to ascertain in these circumstances whether there were any incentives applied in this sale, that it was a sale by a third party rather than the developer, the comparable sale prices of flats in the block would have shown a value of £274,795 and he would not have been able to establish evidence of the downward trend on values of other new build properties in the local area.
The court held that Anderson Associates could not be held liable in negligence as what had in fact caused the loss in this case was the underlying widespread fraud, the dishonest way in which the flats were sold and marketed by Mr Barrie, the shortcomings in the solicitors instructed in the transaction and the apparent involvement of Persimmon.
Causation is always the Achilles heel of any professional negligence claim and this case is no exception. However, this case is likely to be of limited assistance to professionals because of its particular facts – here the extent of the underlying fraud.
For lenders and valuers, this case is important as it emphasises the importance of undertaking all checks in accordance with RICS guidelines and other standard forms of practice. It is also a clear reminder to valuers of the importance of obtaining comparable evidence when undertaking valuations.
It is also likely that had the underlying fraud not prevented the surveyors from being able to establish the existence of any incentives, then this case could have had a very different outcome.
-  EHWC 1853