In Paratus Amc Ltd v Countrywide Surveyors Ltd  Paratus Amc Limited (Paratus) sought damages from Countrywide Surveyors Limited (Countrywide) after the borrower defaulted and the mortgaged property was sold at a loss.
Background to the valuation
In July 2004 Countrywide was instructed to value a two-bedroomed flat in York, forming part of a block. Countrywide valued the property at £185,000, and Paratus agreed to advance £166,500. After the borrower fell into arrears, Paratus obtained possession of the property, and sold it for £123,500 in September 2008.
The court found that the true value of the property at the date of valuation was £175,000. Whether Countrywide's valuation was negligent depended on whether the valuation was within the range of values that might have been given by a competent valuer exercising reasonable care and skill. Reference was made to the earlier decision in K/S Lincoln v CB Richard Ellis Hotels Ltd  where it was said:
- for a standard residential property the margin of error may be as low as plus or minus 5 per cent
- for a valuation of a one-off property the margin of error will usually be plus or minus 10 per cent
- if there are exceptional features the margin of error could be plus or minus 15 per cent or even higher
Paratus issued proceedings against Countrywide to recover the shortfall following the sale. Paratus argued that Countrywide had negligently overvalued the property because the property only had a market value of £154,000 at the time that Countrywide carried out the valuation. However, Countrywide argued that the market value of the property at the time of the valuation had been £175,000 and that its valuation of £185,000 was therefore within the acceptable margin of error for a valuation. After hearing evidence from the experts from both sides, the court assessed the appropriate margin as eight per cent based on a range of £160,000 to £190,000. The result was that, while the valuation was too high, it was not negligently so.
The court stated that the valuation method of the expert giving evidence for Countrywide, which relied upon comparable sales evidence obtained from the Land Registry for the period immediately preceding the valuation, was preferable to the method used by Paratus' expert, which relied primarily upon the application of a price per square metre to the floor area of the property. The court commented that the size of a property could be a relevant matter, but it was only one of a number of methods that might inform a valuation. The fee paid to a valuer was relatively low and set some parameters as to what could be reasonably expected of a valuer.
This was the end of the claim, but the court went on to say that, if it had found Countrywide negligent, it would have made a deduction of 60 per cent on account of Paratus' contributory negligence. The court dismissed the suggestion that a business model of 90 per cent loan to value on a self-certified basis was negligent in itself as, though high risk, it was in accordance with a significant though small section of the market at that time. The court stated: "the courts... should... be slow to hold that entire classes of transaction are imprudent for those who undertake them". However, the court went on to find contributory negligence in the way this particular mortgage had been dealt with.
What makes this case interesting is how the court assessed the margin of error for valuation of the property in question, a modern flat. The court found the acceptable margin of error in this case was eight per cent, with the result that the valuation was not negligent.
Valuation is not an exact science – to be negligent surveyors must be found not to have exercised reasonable care and skill. Ranges of values are a practical way of assessing the standard of behaviour, but the question in each case remains whether the duty has been discharged. Here, the factual circumstances showed that there had been inconsistent and unclear evidence of comparable properties and a buoyant or volatile market, which justified a higher margin.
The court also commented on the application of contributory negligence to sub-prime lending. The finding of no negligence meant the point did not need to be decided, but it is interesting that the court was not prepared to accept that the business model itself was negligent.
While each case will depend on its facts, this is a further example of how the court will approach questions of surveyors' negligence, and the likely margins of error which will be applied. The decision highlights the importance to the parties of having reliable and convincing expert evidence and, for a claimant, of ensuring its own procedures are not open to criticism. While not necessary for the decision in this case, the court's views as to negligence in high-risk lending will be relevant for other cases where the court may need to discuss the issue in more detail.
 Paratus Amc Ltd v Countrywide Surveyors Ltd  EWHC 3307
 K/S Lincoln v CB Richard Ellis Hotels Ltd  EWHC 1156