The lender claimed the second valuation was negligent.
The High Court held, applying the 'but for' test, that
the defendant was only liable for the difference between the
negligent second valuation and a non-negligent valuation. It was
not liable for the loss attributable to the existing indebtedness
under the first loan at the time of the refinancing. It was liable
only for any loss caused by the additional lending.
The lender appealed arguing that the original loan had been
discharged, a new loan created and a new legal charge put in place
so rendering the defendant liable for all losses flowing from the
negligent second valuation. The defendant argued that regardless of
the structure of the transaction, the second loan was in substance
just an increase in the amount of the original loan.
By a majority, the Court of Appeal allowed the appeal. The
purpose to which the refinancing loan was put was irrelevant to the
defendant. A valuer would expect a lender, in reliance upon the
valuation, to advance funds up to its full reported value. Also
applying the 'but for' test, the defendant was liable for
any adverse consequences attributable to any negligence in the
valuation which flowed from the lender entering into the
The refinancing loan paid off the first loan and released the
defendant from liability in relation to the first valuation and
would be treated entirely independent from the first loan. The
refinancing was entered into in reliance on the second valuation.
The loss the lender suffered as a result was the amount of the
refinancing, less the borrower's covenant (which had no value)
and the true value of the security.
Things to consider
The defendant had accepted the instructions, knowing its
valuation was to be relied on in the decision whether to make the
loan and, had they wished to limit their exposure, they could have
sought to do so. It was irrelevant how the lender dealt with the
The decision gives some clarity on the approach the court should
take where there have been successive loans in reliance on
valuations undertaken by the same valuers.
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