Cases - Mortgage Express v Countrywide Surveyors LTD

Record details

Name

Mortgage Express v Countrywide Surveyors LTD

Date

[2016]

Citation

EWHC 224 (Ch)

Legislation

• Supply of Goods and Services Act 1982
• Contracts (Rights of Third Parties) Act 1999

Keywords

Fraudulent valuation – causation – mortgages

Summary

A lender claimed in fraud and/or negligence to recover its losses on buy-to-let loans advanced so it was alleged on the basis of valuations prepared by the defendant. The first issue was whether the valuations fraudulently over-valued the properties, and secondly whether the lender had indeed relied on the valuations in the light of correspondence from the defendant initially raising an issue and then correcting the valuations.

The defendant’s employee had been instructed by a developer to prepare multiple property valuations to be relied upon by the claimant in lending to purchasers. Concerns were raised internally to the defendant about the correctness of the valuations and an email sent to the lender on 19 July 2005 alerting it to the possibility that the values had been overstated. The defendant carried out revised valuations that showed the originals to have been wrong (on average the rents were some 50% less than had been projected by the employee). On 25 August the revised valuations were sent to the lender.

The defendant’s employee denied dishonesty, asserting that the rental values he had given were sustainable in a rising market for the subject development. Although he accepted that he had failed to take account of any comparables he stood by his valuations.

HELD: The proper test for the purposes of establishing deceit was as set out in AIC v ITS Testing Services [2006] EWCA Civ 1601. Gross negligence was not enough, it was necessary to prove on the balance of probabilities that the defendant did not have an honest belief in the valuation, at the very least that he had been reckless as regards the correctness of those figures, not caring if they were true or false. Applying this test the Court found that the employee had indeed been fraudulent.

The key following issue, therefore, was whether the correspondence between the parties had broken the chain of causation. In this regard the Court held that the email of 19 July had not been a sufficiently clear correction of the valuations. It was not until the email of 25 August that corrected values were provided, but even then the effect of the email was limited to those properties specifically mentioned. While it might have been negligent from that point, or indeed earlier, for the Ccaimant to continue to lend against the original valuations of the other properties that was not enough to defeat the operation of the deceit (Redgrave v Hurd (1881) 20 Ch. D. 1 followed).

Accordingly, the lender’s claims succeeded in respect of all properties save those for which revised valuations had been provided by the 25 August email, causation was unbroken in the case of all the other properties whether the sale completed before or even after that date.