Wednesday, 11 January 2012

Significant case could hinder conveyancers on sub prime negligence claims

In a recent article entitled “Significant case helps conveyancers on sub prime negligence claims” Alexia Ward argues that the decision in the case of Paratus AMC Ltd & RMAC 2005 NS1 Plc v Countrywide Surveyors Ltd is good news for solicitors. I beg to differ.

The facts of the case are well explained in the article by Alexia. In short, the court decided against the lender in assessing the retrospective market valuation of a property a valuation method which relied upon comparable sales evidence obtained from the Land Registry for the period immediately prior to the historical valuation was to be preferred to one which primarily relied upon the application of a price per square metre to the floor area of the property.

The court’s decision itself is uncontroversial as the defendant was found not to have negligently overvalued the property; what is of interest are the judge’s ruling on the recoverability of the loss in light of the consequences of loan’s securitisation; and his comments on both the quality of GMAC's underwriting for the purposes of contributory negligence and on the market approach adopted by sub-prime lenders at the height of the property boom.

Alexia Ward comments “ The obiter dicta raised in this case suggests that courts will hold lenders to account for careless lending, even if valuations are found to be negligent. If large percentages of any damages are taken away by the courts for contributory negligence, then it may well not be financially worth taking these cases to court. More consideration to the circumstances in which the loans were approved will have to be given, before lenders decide to pursue claims against surveyors through the courts”

I would stress that this is a first instance decision and the judge's comments on contributory negligence were either fact-specific to the case or made obiter dicta, so they are not binding on any successive cases. It is also worth pointing out that the judge's view was that a “sub-prime lender” should only be measured against the standard of care expected of a lender in that market and that a LTV of 90% was not in itself negligent.

The conclusion Alexia reaches is that this case will result in “..fewer lenders making negligence claims against professionals after the issue of contributory negligence is raised”.

I tend to take the opposite view and would suggest that if one did have a persecution complex (something that conveyancers are entitled to have in the current climate) then one could argue that this decision will result in more claims against conveynacers.

If the lending industry’s confidence is knocked by this decision then instead of pursuing surveyors for their losses they will turn their attention to conveyancers. It is fascinating that two of the more recent reported cases against solicitors indicate that in relying on a breach of the CML Handbook and a claim for Breach of Trust, issues of contributory negligence disappear. Indeed, in the case of Mortgage Express v Iqbal Hafeez Solicitors (Ch) the lawyers sought to avoid a claim for breach of trust by arguing the firm was entitled to relief under s.61 of the Trustee Act which could mean that could reduce the damages as a result of the contributory negligence on the part of the lender. In this case it was held that it was not appropriate to make any deduction for contributory negligence.

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