Australia: Legal Notebook December 2013 - valuers' liability

Litigation Update (Australia)
Last Updated: 27 December 2013
Article by Lindsay Joyce and James Morse

In honour of the current Ashes cricket series (and given that, at the time of writing, there has just been a resounding victory by Australia in the First Test), we have elected to focus this edition of Legal Notebook on a decision from the High Court of England and Wales, Queen's Bench Division (Technology and Construction Court).

Although this case is not from an Australian jurisdiction (which means that care must be taken when reviewing and considering its content), the judgment still provides a good summary of the general principles that fall to be considered when assessing both primary liability of valuers and contributory negligence of lenders.


In about 2006 and 2007, GMAC RFC Limited (GMAC) was the largest centralised mortgage lender in the United Kingdom. E.Surv Limited (E.Surv) was and remains the largest residential valuer (that is, surveyor) in the United Kingdom. GMAC would regularly engage E.Surv to carry out mortgage valuations on residential properties.

GMAC alleged that some of the valuations carried out by E.Surv in 2006 and 2007 were negligent and/ or in breach of contract. GMAC assigned its claims against E.Surv to Webb Resolutions Limited (Webb), which ultimately commenced the proceedings against E.Surv.

Whilst the case initially concerned four valuations, the judgment was only concerned with two (the other two valuations having been resolved beforehand). The remaining impugned valuations were in relation to separate loans given to a Mr Ali and a Mr Bradley. We will therefore refer to those as such below.

At this point, this matter may not seem any different to various other valuation liability cases that we have previously reported on in Legal Notebook, or that you may otherwise be aware of. However, the significance of this case was neatly summarised by the Court as follows:

The individual claims are exceedingly modest. ... [T]he damages claim in respect of the Ali valuation is £24,445 plus interest, and the damages claim in respect of the Bradley valuation is £45,000 plus interest. However ... many of the issues which arise for determination in this case also arise in another 40 potential claims that Webb have against E.Surv. In addition ...Webb have in excess of 200 claims against other valuers where similar points may arise ...

The issues in relation to this case were therefore explored in detail and with considerable precision. In that light, we recommend a detailed reading of this judgment (which can be accessed at to all readers of this Journal.

The findings — generally

Determining the duty of care/ contractual obligations

Unsurprisingly, the Court was quick to find that the standard required of the relevant valuers was that of the "ordinary skilled person", also variously been described in the cases as the "reasonably skilled", "competent", "prudent", or "average" valuer.

However, given that this basic duty at common law can be, and is, often modified by the terms of the specific contract between the valuer and the lender, the Court also placed significant focus on the terms of the contract/retainer. This is discussed in more detail below.

The proper approach

There was some debate as to whether the proper approach for determining primary valuation liability was to focus on whether the valuer was negligent in:

  1. The way in which they went about their task (the methodology); or
  2. The consequential valuation (the result).

In the end, the Court considered that, as a matter of law, the right approach was to focus on the consequential valuation (the result). As the Court asked, albeit rhetorically: "[h]ow relevant is it that the valuer made a number of errors in going about his valuation if, in the final analysis (and perhaps more through luck than judgment), his valuation was reasonable?"

This issue has been considered in Australia in Adwell Holdings Pty Ltd v Mark Smith [2003] NSWCA 103, where the New South Wales Court of Appeal cast some doubt on this proposition when considering whether a valuation, which fell within an acceptable "bracket" of values, might still be negligent (per Meagher JA at [9], Mason P and Buddin J agreeing at [1] and [23] respectively).

However, the High Court of England and Wales also noted that, just because a valuation was outside the "reasonable margin" (discussed below), this did not mean that the valuer was "automatically negligent". In contrast, it merely highlighted the way in which the valuation was performed and provided a prima facie case for the valuer to answer. Furthermore, to the extent that there are any allegations of contributory negligence (or perhaps proportionate liability) that fall for consideration, questions as to the valuer's methodology and any culpability therein would be relevant. Again, this is discussed in more detail below.

The 'margin of error'

There was also discussion and debate with respect to the appropriate "margin of error" (or as others have put it, the "margin of difference", the "bracket" or the "reasonable range") that may be permissible.

The valuation experts called on behalf of Webb argued that given the relatively stock-standard nature of the subject property, the margin/ bracket/range should not be higher than plus or minus 5% on each valuation. In contrast, the valuation experts called on behalf of E.Surv maintained that the margin/bracket/ range should be plus or minus 10%. However, nothing ultimately turned on this issue as each of the valuations were found to be more than 10% above the true market value.

The findings—the Ali loan

In respect of the valuation in relation to the Ali loan, the Court was "in no doubt that [the valuer's] performance of the valuation fell below the standard to be expected of a reasonable valuer and was therefore in breach of the requirements of the [relevant contract]." The Court identified four principal reasons for this conclusion, as follows:

  1. The valuer produced the impugned valuation without inspecting the property, notwithstanding specific representations made within the valuation report that the property had in fact been inspected.
  2. Despite the guidance provided to the valuer – in the form of guidance notes from the Royal Institution of Chartered Surveyors (RICS) – in respect of incentives, the Court was not persuaded that the valuer actually asked the relevant sales team about incentives on the subject property.
  3. The comparables reviewed and considered by the valuer reflected pounds (£) per square metre figures that were not necessarily based on the actual sale/purchase prices; rather, they included and were based on asking prices and valuations.
  4. The valuer started at the relevant asking price of the subject property and "worked back in an effort to justify that figure." Put simply, the fact that he had "started at the figure he wanted to reach at the end" was "bad practice".

Overall, the Court was critical of the "slapdash nature of the valuation". However, notwithstanding the various failings with respect to methodology, the real issue was whether or not the valuer was negligent in arriving at the valuation result. For various reasons which we will not go into now, the Court was satisfied (based upon an assessment of expert evidence) that the valuation was negligent as it was more than 10% above the accurate market value of the subject property at the time.

Consideration then turned to whether GMAC was guilty of any contributory negligence. It was clear that the standard to be applied in a case such as this was that of the reasonably competent professional or practitioner, judged against the standards at the time.

Webb initially argued that the appropriate standard was that of a "reasonable centralised sub-prime lender." However, the Court did not accept this narrow approach, particularly given that not all of GMAC's lending was in the sub-prime market. On that basis, the Court found that the appropriate standard by which contributory negligence should be judged was broader; namely, that of a "reasonably competent centralised lender". This is, in our opinion, a favourable finding for valuers in a case such as this.

The Court described the "principal problem" with the loan as being that it was a "self-certified mortgage". That is, the relevant borrower (in this case, Mr Ali) simply declared what his income was and "unless there was a random check, that was regarded as enough."

The Court did not "require hindsight to see that this was a risky way to run a lending system", yet also noted that "it appears that everyone was doing it so that, in the mid-2000s, self-certified mortgages were commonplace." Furthermore, after noting the problems that self-certified mortgages have caused in recent decades, the Court also commented that "[a] lthough one is driven to conclude that those involved in the world of financial services and mortgagelending appear sadly immune to the lessons of history, it is against that background that these allegations of contributory negligence have to be judged."

In the end, notwithstanding these quite pointed remarks, the Court did not find that GMAC was negligent when issuing the loan to, and entering into, the subject mortgage with Mr Ali. The Court summarised the position as follows:

I have some sympathy with the basic position taken by E.Surv. Lending large sums to people like Mr Ali, on a self-certified basis, relying on intermediaries and placing complete faith in computerised tick-box forms, seems to me to be a potential recipe for disaster. But such lending was common in the years 2004 to 2007 and, on the facts of the Ali loan, it is impossible for me to say that the decision to lend to him was irrational or illogical or negligent. Mr Ali's financial position, as revealed by the Experian search and as plugged into the AssetWise program, was not such that further investigations were required and did not mean that the loan should not have been made. Accordingly, in relation to Mr Ali, I reject the allegations of contributory negligence.

However, the Court reached a different conclusion when considering whether GMAC was guilty of contributory negligence in issuing the loan to and entering into the subject mortgage with Mr Bradley. We therefore turn to this issue.

The findings — the Bradley loan

Like the findings in respect of the valuation in relation to the Ali loan, the Court was "in no doubt that [the valuer's] performance of the valuation [in relation to the Bradley loan] fell below the standard to be expected of a reasonable valuer and was therefore in breach of the requirements of the [relevant contract]." The Court identified three principal reasons for this conclusion, as follows:

  1. Like with the Ali loan, the valuer in relation to the Bradley loan "started at the end and then sought to justify the figure which he had been given. He knew the estimated value of the property for Mr Bradley's remortgage purposes ...[and]did not seek to value the property independently, but instead sought to justify that pre-existing figure."
  2. The valuer's methodology "was entirely awry because, having worked out a range, instead of putting forward a figure that was in the middle of that range, he then tried to justify a figure at the top end of it." The Court was very critical of this, commenting that "it is wholly unacceptable for a [valuer] to add to his own figure an uplift to reflect a margin of tolerance. No justification for that approach was offered. It is contrary to the terms of the [relevant contract] and the RICS guidance notes."
  3. The valuer failed to take into account obvious adverse factors that affected the subject property, including the presence of a railway line at the back of the property and the proximity of a large Council estate that had "a mixed reputation."

On that basis, although the Court found that the valuer was negligent in the way he went about his task (his methodology), the critical finding based upon assessment of expert evidence was that the valuation arrived at exceeded 10% above the accurate market value of the subject property and was therefore outside the reasonable "margin of error".

Consideration then again turned to allegations of contributory negligence. This time, unlike in relation to the Ali loan (outlined earlier), E.Surv was successful in demonstrating that GMAC was "guilty" of contributory negligence.

By reference to the evidence of practices and behaviour in the marketplace at the time, the Court accepted that the loan-to-value ratio applied by GMAC in the case of the Bradley loan, at 95%, was too high. On that basis, the Court considered that it was negligent for GMAC to allow Mr Bradley's application for a re-mortgage at such a loan-to-value ratio. Put simply, "a reasonable centralised lender would not have done so."

Indeed, even putting to one side the evidence regarding what was common in the marketplace at the time, the Court considered that "5% was just not enough of an equity cushion." This was particularly so, given that it was accepted that there was a reasonable margin of error around the ultimate valuation figure of at least 5%. On that basis, "Webb must accept that the property might only have been worth 95% of the stated value. In this way, the equity cushion is removed at a stroke."

Furthermore, the Court was critical that the application form completed on behalf of Mr Bradley did not state that it was a self-certified mortgage application; however, that is how it was treated. The Court noted that:

Mr Bradley stated an income figure of £75,000 but he provided no third party support for that claim, and he did not produce any accounts. Even more bizarrely, although he gave the name and contact details of his accountant, and even though the accountant was rung by GMAC, the accountant was simply asked to verify that he was Mr Bradley's accountant, and that Mr Bradley had been a self-employed scaffolder for a long period. He was not asked to verify Mr Bradley's income.

In relation to this telephone call between GMAC and Mr Bradley's accountant, the Court focused attention on an excerpt of the transcript of cross examination of Webb's lending expert on this issue:

Q: They [GMAC] could have asked what his [Mr Bradley's] last accounts were? What profit did the accounts show?
A: They could have asked those questions. The nature of the product meant that they weren't going to ask the questions. It was not the scheme.
Q: They should have asked those questions as a matter of common sense?
A: That does not come into it.

In response to this excerpt, particularly the witness' final response, the Court was quick to note that a "lending system in which common sense plays no part is, I think, a negligent lending system."

Taking all of the evidence into account, the Court concluded that, on the balance of probabilities, had "the right questions" been asked of Mr Bradley's accountant and had the necessary proof been sought, the loan would probably not have been made at all. Indeed, notwithstanding that a self-employed scaffolder could have been earning £75,000 gross a year, once an allowance was made for tax and National Insurance, and once the scale of Mr Bradley's other debts had been taken into account, the position would no doubt have been "much less good".

The Court summarised the position as follows:

The contributory negligence in the case of the Bradley loan was as a result of a particular combination of circumstances. The [loan-to-value ratio] at 95% was unacceptably high; the remortgage loan was required to consolidate significant debts/defaults; and there was no supporting evidence of income for a loan that was not originally sought on a self-certifying basis. In dealing with this loan in the way that they did, GMAC were negligent; they failed to look after their own interests and made a loan of £280,000 which a reasonably competent centralised lender would not have made.

Consideration then turned to the proper percentage deduction to reflect the contributory negligence of GMAC.

Ultimately, the Court concluded that both GMAC and E.Surv were "equally at fault" and, in those circumstances, both parties were "equally to blame". On that basis, the Court considered that "the right deduction for contributory negligence is 50%."


This case provides a helpful indication of the circumstances in which a Court may find that a lender has been guilty of contributory negligence.

Whilst it goes without saying, each and every matter will continue to be judged in accordance with (and will rise and fall on) its own facts. Consideration also needs to be paid to the appropriate jurisdiction which, for many readers of this Journal, will most likely be Australia or New Zealand, as opposed to the United Kingdom.

However, it is abundantly clear that a primary focus of any Court's enquiries, when considering allegations of contributory negligence, will be the relevant lending guidelines, policies, procedures, parameters or protocols, along with evidence of reasonable practices and behaviour in the marketplace at the relevant time. This is particularly relevant when one considers what the Court described as the "over-generous lending policies" that were in force prior to what has now become known as the Global Financial Crisis. The fact remains that the lender's acts must be "reasonable" in all of the circumstances.

In our opinion, valuers should, to the extent appropriate in the circumstances, take greater notice of the details of the specific lending transaction (such as the proposed loan-to-value ratio) so as to consider whether the valuer actually wants to accept the instruction — and the risk of providing a valuation in response to such an instruction — in the first place.

Thank you

We have been and are greatly appreciative of the interest and support that the readers of the Journal have displayed and provided to us, particularly in respect of the Legal Notebook articles that have been published throughout 2013. We wish all readers a very safe and happy Christmas and New Year, and look forward to working and engaging with you further throughout 2014.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions