When the property market collapsed in the 1990s, there was a corresponding rise in Lender Claims against Surveyors for losses suffered as a result of negligent valuations carried out during the "boom years". More recently, we have seen a similar boom in the property market during the first half of the last decade, before another property crash in 2007/2008. However, as yet the anticipated increase in Lender Claims against negligent Surveyors has not yet fully materialised; why is this the case?
The Clock is Ticking...
There may be a number of reasons for this, not least of which is that many Lenders are still in the process of assessing what losses (if any) they have suffered since the collapse of the property market and/or are assessing whether any losses suffered were caused by the crash itself rather than any negligent valuation.
However, time may be running out for many of these potential claims, as any professional negligence claim must be brought within 6 years of the date the damage was suffered. Whilst it might not always be clear precisely when the damage was suffered (see, for example our recent article Taking it to the limit – limitation periods in professional negligence claims), in most cases the damage will be deemed to have been suffered on the date the money was loaned by the Lender in reliance upon the negligent valuation. Accordingly, unless exceptional circumstances apply, claims arising from loans made during 2007 are likely to become time-barred during 2013.
Mortgage Lenders and Property Investors will therefore want to consider very carefully whether they have any potential claims arising from negligent valuations provided before the property crash, ahead of those potential claims expiring. Whilst each case will be different, below are some of the more common issues that may be relevant to such a potential claim.
Are there any issues relating to the Surveyor's Professional Indemnity Insurance?
As part of the process of engaging the Surveyor, the Lender may have become aware of some of the terms governing the Surveyor's terms of engagement and/or professional indemnity insurance cover. The Lender may, therefore, be aware of issues that could potentially arise in relation to, for example, purported caps on liability, the exclusion of consequential losses, and/or the late notification of potential claims.
Who actually instructed the Surveyor?
It may sound like a straightforward question, but in practice the party that instructed the Surveyor may not necessarily always be the same entity that suffered the eventual loss. For example, in a number of cases the branch/division of the Lender's group of companies that instructed the Surveyor was not the same branch/division that made the loan to the borrower. It is therefore vital to confirm that any claim is actually pursued and issued in the name of the correct claimant.
Who else might the Surveyor owe a Duty of Care to?
It has long been established that the duty of care owed by a surveyor to the Lender that has instructed him is also extended to the borrower who is purchasing the property (Smith v Bush ). However, more recently the Court of Appeal in Scullion v Bank of Scotland  confirmed that this rule did not automatically apply where the transaction related to an investment in a buy-to-let property rather than an ordinary purchase of a domestic residence. However, this decision has been appealed to the Supreme Court and is due to be heard in April 2013.
Are there any other parties who the Lender may have a claim against?
In some cases, a Lender may have a valid claim against more than one party, for example, its Surveyor and its Solicitor. In the case of Nationwide Building Society v Dunlop Haywards (DHL) Limited & Cobbetts , the Lender had a valid claim against its negligent former Solicitor as well as its fraudulent former Surveyor (see next section on fraud). The High Court in that case also provided guidance on how damages are to be apportioned between co-defendants in such a situation (in that case, the fraudulent Surveyor was held to be liable for 80% of the damages which both parties were responsible for, whereas the negligent Solicitor was only liable for 20% of the damages).
Is Fraud involved?
Allegations of fraud can certainly complicate matters. On the plus side, the recoverability of damages may be easier for the Lender (as there is no need to show that the losses suffered were foreseeable), and the fraudster is unable to put forward any defence of contributory negligence against the Lender (see next section on contributory negligence). Fraud may also serve to extend the limitation period for a claim. However, a significant potential disadvantage is that the Surveyor's professional indemnity insurance policy may be likely to exclude cover for fraudulent acts, meaning that the Lender may be left to pursue a claim against a defendant with insufficient assets to cover the potential liability.
What defences might a Surveyor attempt to raise?
Even if a Surveyor's valuation was negligent, that is not to say that it was the actual cause of any loss suffered by the Lender. Causation of loss is a very complex area of law (see, for example, our previous article Cause and Effect in Professional Negligence Claims), and for that reason the Surveyor may well argue that the losses were actually caused by reasons other than the negligent valuation (such as the property crash itself). In the July 2012 High Court case of Platform Funding Ltd v Anderson & Associates Ltd  the Surveyor was found not liable for the losses suffered by the Lender (notwithstanding that his valuation had been negligent) because the entire loss suffered by the Lender had been caused by underlying fraud perpetrated by the vendor (with the assistance of others).
A Surveyor may also attempt to allege that the Lender was itself contributively negligent if, for example, it failed to follow correct underwriting procedures, it failed to take adequate steps to verify the borrower's financial status (particularly relevant in relation to self-certification mortgages), or it failed to detect recognised fraud methodologies. These allegations are often grouped together under the umbrella term "careless lending".
Beware the Strict Time Limits
Clearly, each potential claim will depend on its own individual facts, but the issues summarised above provide an overview of the sort of questions that are likely to need to be considered. What will be relevant to all potential claims, however, is the 6-year limitation period for bringing a claim. This is a strict time limit that can only be extended in very limited circumstances, and so any Lender who even suspects that it may have a potential negligence claim against a Surveyor will want to ensure that a proper case assessment is carried out well in advance of any forthcoming limitation deadline. In many cases, this may now be a race against time.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.