In Platform Funding Limited v Anderson Associates 2012 the High Court ruled that a valuer was not liable for the losses suffered by a lender as a result of an alleged negligent over-valuation even though the valuer’s approach had been flawed and the valuation had been carried out without reasonable skill and care. This was because the true market value was difficult to ascertain and the operative loss had been caused by the concealment of incentives by the vendor in collaboration with the solicitors carrying out the conveyancing.
The early 2000s saw a phenomenal increase in property prices particularly in new high rise developments. The values being attributed to properties seemed to be over-optimistic with new flats in particular being over-valued. This over-valuation often occurred due to various forms of discounts and incentives which were not always picked up or sought out by valuers. Valuers were also not confining their use of comparables to other new sales in the same development.
In 2006 when the property market was still buoyant, Platform Funding Limited, a sub-prime mortgage lender, advanced just over £250,000 to a borrower who was buying a flat within a high rise development. The loan was advanced by Platform on the basis of a valuation report provided to it by the defendant valuer. The flat was ultimately repossessed by Platform and sold at a considerable loss. A claim was then bought by Platform against the valuers for losses arising as a result of the alleged over-valuation.
It transpired that the flat had been part of a fraudulent scheme. The true seller was not the builder but a sub-seller. The sub-seller had bulk purchased 84 flats in the development from the builder at a value significantly below the market price. Those properties were then sold on to purchasers, found by the sub-seller, at prices significantly above the market price. This was achieved using sub-prime mortgages with the assistance of valuations provided by valuers who were misled into providing over-valuations using erroneously over-valued comparable data manufactured by the sub-seller and presented by the builder’s on-site sales team. The solicitors instructed by the purchaser and Platform were also involved in the scheme acting in collusion with the sub-seller.
The valuation carried out by the defendant took place just six weeks after the amendments had been made to the professional guidelines for real estate valuers (the “Red Book”) which stipulated that when valuing a new build all relevant incentives had to be fully taken into account and a holistic approach to the valuation exercise had to be adopted. Further, there had to be extensive use of comparables. Those comparables had to be considered in the context of any incentives affecting the purchase price, the market in the area, prices realised for similar new property on other developments, the second-hand market and other information considered relevant by the valuer.
In the light of the available evidence, the Court concluded that the defendant’s valuation had been undertaken without reasonable skill and care. The valuer had not considered incentives, had not sought out any new build comparables from the second hand market or from adjacent blocks. No other enquiries about the selling conditions had been made. However, the Court held that the evidence demonstrated that, even if those steps been taken, they would not have provided the valuer with any further evidence that his valuation was too high.
The Court said that there was no way that the valuer could have established that the purchase was subject to inducements or cash-backs or was subject to a sub-sale arrangement. The builder still appeared to be the vendor of the flats because it was still marketing them. The sub-seller had given instructions that, save for the comparables that he had selected and provided, no information was to be given to valuers by the builder’s sales team. This meant that the defendant would not have obtained any details even if he had asked for them. Internet sites and estate agents were unlikely to have any evidence of comparable second hand sales and it was not reasonable to fault the defendant for not being aware of inducements in other blocks or a general unsubstantiated opinion that inducements were being offered.
Ascertaining the market value of the flat using the definition that is set out in the Red Book would have involved the defendant undertaking a detailed inquiry of a kind that was not within the scope of the instructions. There was no readily available way of ascertaining the market value of the flat at the time of the valuation. Therefore, the defendant had reached the same valuation figure as a reasonably careful valuer.
When considering the cause of Platform’s loss the Court held that this had been caused in its entirety by (1) the dishonesty of the sub-seller in the way in which he marketed and sold the flat; (2) the collusion of the solicitors conducting the conveyancing: The firm was instructed to act jointly for the purchaser and Platform but, in reality, was acting solely as agent for the sub-seller. Their particular shortcomings included a failure to disclose to Platform the existence of the back to back sales, the uplift and the failure to undertake any conveyancing on Platform’s behalf; and (3) the apparent involvement of the builders in the marketing of the flats and the misleading comparables they provided to the valuer on the sub-seller’s instructions.
This decision will be of interest to lenders who are bringing professional negligence claims against a party who has not been engaged in fraud but where there has been fraudulent activity by at least one of the other parties involved in the purchase of the property. In this case, the Court absolved the valuer of responsibility because it found that the entirety of Platform’s loss had been caused by the dishonesty of others. However, valuers may not be so fortunate in all situations involving fraud. It seems that had the valuer been able to ascertain the true market value of the flat, using available comparables in accordance with the requirements of the Red Book it would have been found to have, at least, contributed to Platform’s loss.