Scullion v Bank of Scotland Plc

 

The Message

Property valuers acting for lenders owe duties to the borrowers as well.

The Case

A buy-to-let purchaser sued the bank’s valuer for overvaluing the property for lending purposes on the basis the valuer knew he would rely on the valuation as well

In 2001, Linden Homes began constructing a block of flats in Cobham, Surrey. In 2002, Mr Scullion agreed to buy a flat there to let out and he applied to Mortgages plc for an 80% mortgage based on a purchase price of £352,950. The lender’s valuer was Andrew Collins of Colleys which is now part of Bank of Scotland plc.

The Application Form for the mortgage contained in small print a disclaimer of any liability on the part of the lender or its valuer in relation to the valuation of the property. In the Form, Mr Scullion did not draw attention to the fact that the full purchase price was not payable as there was a 15% discount and a further 10% was deferred. This meant the actual price was only about £300,000.

Mr Collins valued the property in June 2002 at £353,000, only £50 different from the price. He also valued the rental income from the flat at £2,000 per month. His valuation led to the sale proceeding but Mr Scullion was only able to let the flat for about £1,000 per week and he had to sell the flat and only received £270,000 for it in 2006. He paid the lender £260,000, leaving over £60,000 outstanding pending the result of this case.

Mr Scullion sued Colleys on the basis the flat had only been worth £250,000 when he bought it. Colleys denied any negligence and argued that they owed no duty to Mr Scullion and, in any event, he was prevented from bringing any claim because he had been party to a mortgage fraud.

The Court held that Colleys had been negligent. There was plenty of comparable evidence from the sale of other flats within the block and a similar property had been sold for £290,000 in May 2002. The Court held that Mr Collins had placed undue reliance on the notified sale price in breach of the RICS guidance notes and had not checked other sale prices. The true value of the flat was held to be £300,000 and its rental income should have been valued at £1,100 per month.
The Court then held that the duty of care owed by a valuer to a commercial buy-to-let purchaser like Mr Scullion was no different to the duty owed to someone buying a home for themselves. Mr Collins knew that it was likely that Mr Scullion would not obtain separate advice and would rely on his expertise and valuation and would suffer loss if this valuation was excessive.

The disclaimer of liability did not protect Colleys as it should have been well within their expertise to carry out a routine valuation of this sort and the disclaimer was never highlighted to Mr Scullion and it was unfair as he was liable to suffer significant loss due to their negligence whereas Colleys were insured against this risk.

The Court did not consider that Mr Scullion had acted dishonestly although the solicitors who had acted had a history of involvement in mortgage frauds and had not disclosed the true price to the lender in this case either. Other parties had been negotiating the terms of purchase on Mr Scullion’s behalf and his general conduct was inconsistent with him seeking to suppress information from the lender. If he had been party to a fraud, then any claim would have been barred as no one can benefit from a crime but, in the unusual circumstances of this case, the Court held he had not sought to conceal the discount.

However, although Mr Scullion won on all issues in relation to liability, the fact that he had only paid £300,000 for a property found to have been worth £300,000 caused him a problem in relation to recovering any damages. Colleys could not be held liable for any subsequent fall in the market which led to the property only selling for £270,000 so, in the absence of Mr Scullion having overpaid for the flat, its only liability was for the costs Mr Scullion incurred in having to service the mortgage and pay outgoings due to the shortfall in rental income. The result leaves all concerned seriously out of pocket.