Duty-bounded: Lender and valuer defeat customer’s attempt to extend legal dutiesPrint publication
Andrew Beck looks at a recent case which will be welcomed by both lenders and valuers for its clarification of the duties owed to customers in a commercial loan context.
In what is a relatively common scenario involving corporate borrowing, the lender in Rehman v Santander  agreed to provide a refinanced loan facility to the customer subject to an acceptable valuation of the assets being charged and the provision of director/shareholder personal guarantees. The lender instructed the valuer to provide a valuation report (the report). The guarantees were completed; the report (which stated that it was private and confidential and could not be relied on by a third party without the valuer’s consent) showed a figure in excess of the lender’s underwriting threshold; and the £2 million loan was advanced. When the company defaulted and the lender sought repayment under the guarantees, the customer decided that attack was the best form of defence. Instead of paying up, the customer sued the lender and the valuer, alleging that:
- the lender was in breach of a duty of care to ensure that the valuation was undertaken by a competent valuer;
- by sending a copy of the report to the customer the lender had impliedly represented that the report was a true and fair estimate of the value of the assets; that the assets provided adequate security; and the customer could rely on it without obtaining its own valuation;
- the lender was in breach of fiduciary duty to advise the customer to obtain its own valuation; and
- the valuer owed to the customer, and had breached, a duty of care to provide an accurate valuation.
Court refused to extend boundaries of lender/valuer duties
Summarily dismissing the customer’s claim and allowing the lender’s counterclaim for repayment under the guarantees, the High Court held:
- The transaction in this case was a commercial one which did not impose a duty of care on the lender. The mere fact that the lender had provided a copy of the report to the customer did not suffice to impose a duty when one did not otherwise exist.
- It would be unreasonable to conclude that simply by sending a copy of the report to the customer and then advancing funds, the lender had somehow made any representation as to the accuracy or reliability of the report.
- The fact that the customer had a long-standing relationship with the lender and trusted it did not suffice to convert the bank/customer relationship into a fiduciary relationship. This was not a fiduciary relationship and so there was no breach of fiduciary duty.
- There was no evidence that the valuer knew that the lender would disclose the report to the customer, nor that the customer would be likely to rely on the report. In accordance with the leading authorities of Smith v Bush and Scullion v Bank of Scotland t/a Colleys , the valuer owed no duty to the customer. (Furthermore, the report contained disclaimers which were effective to negate any duty to non-clients.)
The various decisions in the Rehman v Santander case will be welcomed by both lenders and valuers, as they clearly demonstrate that the courts are unwilling to extend existing boundaries of lender and valuer duties – especially in a commercial loan context.
For lenders, the decisions also highlight the value of a report being addressed only to it; and for valuers they highlight the importance of clear and effective disclaimers.
The case is also interesting because it is a good example of the court disposing of a case quickly and cost-effectively via the summary judgment process. That is always a good tactic to consider where it appears from an early stage that a party has no real prospect of succeeding and there is no other reason why the matter should be disposed of at a full trial.
 Rehman & Anor v Santander UK PLC (1) and BNP Paribas Real Estate Advisory & Property Management UK Ltd  EWHC 748 (QB)
  1 A.C. 831 and  EWCA Civ 693