Contributory Negligence by LENDERS. Irrespective of information provided to Lenders and if needing further assessment, Lenders must inquire further. Lender cannot solely rely on the value of the asset for serviceability.
This case offers explanation why banks refuse to provide copies of valuation reports and why that issue was raised so often in the Impairment of Customer Loans Inquiry...
How can a valuer deceive the lender if the lender fiddles with valuation reports after obtained
Lenders instructing valuers how to value distressed properties!
Automated valuation systems are lender tools to strip equity!
Australia: Valcorp Australia Pty Ltd V Angas Securities Limited (NO 2) [2012] FCAFC 22 - contributory negligence by lenders
Last Updated: 22 June 2012
Article by Lindsay Joyce and James Morse
DLA Piper Australia
Snapshot
A lender has had its level of contributory negligence increased on appeal, from 25% to 50%.
Facts
As previously reported on pages 188 and 189 of the September 2011 edition of this journal, this case arose from a loan transaction whereby the lender lent $2.8 million to borrowers secured by a mortgage. This loan was in reliance upon a valuation by a valuer, who valued the property at $3.6 million. The borrowers defaulted and were unable to repay the loan, so the lenders sued the valuer.
At first instance (Angas Securities Ltd & Ors v Valcorp Australia Pty Ltd [2011] FCA 190), the court found that the valuation was negligent and the valuer had misled and deceived the lender.
This was because the valuer had placed greater reliance on sales that were not 'comparable'.
However, the lender was also found guilty of contributory negligence, assessed at 25%.
The finding of contributory negligence was based upon the lender's failure to undertake certain serviceability enquiries of the borrowers, prior to granting the loan.
On appeal, the valuer submitted that it could not be said that its negligence reflected a substantially greater degree of departure from the conduct of a reasonably competent valuer than did the negligence of the lender reflect a departure from the conduct of a reasonably prudent lender.
Although the valuer initially submitted that the court should find that the lender was liable for 100% of its loss (on the basis that the primary judge found that "had the [serviceability] enquiries been made the loan would not have been made"), this was not accepted............
This case brings into sharp focus the need for lenders to bear in mind that
1. If the lender has procedures in place to assess serviceability, they must adequately adhere to them
2. If the information provided to the lender by the borrower flags the need for further inquiries, they must inquire further
3. A lender cannot solely rely on value of the asset for serviceability, it must form its own substantiated opinion.