Cases - Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2)
Record details
- Name
- Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2)
- Date
- [1998]; [1998]
- Citation
- 5 EG 150; 1 AII ER 305, HL
- Legislation
- Keywords
- Negligence in valuations and surveys - Senior Courts Act 1981, s. 35A
- Summary
-
The House of Lords held that, in a 'no transaction' case, the correct approach is to award interest at a normal commercial rate until such time as the lender's total loss, including that interest, reaches the level of the 'cap' (that is, the amount by which the property has been negligently overvalued). Once this position has been reached, the capital sum will thereafter bear simple interest in accordance with the provisions of the Senior Courts Act 1981, section 35A.
The House of Lords held that, where a mortgage lender sues a valuer for negligence, the lender's loss (and therefore the start of the basic limitation period) is suffered at the first moment that the loan is not fully secured. This will occur when the amount outstanding on the mortgage (that is, the capital debt plus whatever interest has accrued) first exceeds the value of the lender's rights (that is, the value of the security plus the value of the borrower's undertaking to repay the loan). In a case where the property has been seriously overvalued, this may be the situation as soon as the mortgage loan is made. However, this will not always be the case and, where it is not, it will be necessary to track both the amount outstanding and the value of the lender's rights, until the point is reached at which the lender is no longer fully secured.