Following quick on the heels of the case of Barclays v Christie & Co which provided a number of useful lessons for lenders a High Court judgment handed down on Friday in the case of Barclays v TBS & V Ltd has provided welcome clarification in relation to a causation argument commonly made by defendants based on the case of Preferred Mortgages v Bradford
In August 2007, Barclays advanced a loan to a Mr and Mrs Watson to assist with their purchase of a residential care home. It was a term of the loan that there would be a capital repayment holiday for the first year but interest was to otherwise be serviced. When making the loan, the bank relied on a valuation report from a valuation firm called Taylors.
Unfortunately, the borrowers failed to make the first three quarterly interest payments such that, by March 2008, an overdraft had been created on their current account. After considering its options, Barclays decided to restructure the facilities by increasing the loan amount to cover the overdrawn amount.
In affecting this restructuring, the Bank issued a new facility letter stating that its purpose was to refinance the existing lending and include a condition that upon drawdown of the loan the existing loan account would be repaid. On drawdown, the existing loan account was indeed repaid and the account closed and a new loan account opened. Barclays' all monies legal charge remained on the property throughout.
Several years later, the borrowers defaulted and the bank suffered a significant loss, which it sought to recover from the valuer on the basis of an allegedly negligent valuation report.
Whilst denying negligence, the valuer also argued that, because of the restructuring of the original loan, the chain of causation back to its valuation report was broken. In this regard, it relied on the case of Preferred Mortgages v Bradford & Bingley.
In the Preferred Mortgages case, when it came to dealing with the borrower's request for an increased loan, the lender commissioned a new valuation, redeemed the existing mortgage and replaced it with a brand new charge securing the new loan. The court held that the remortgage was a new transaction such that the previous transaction had been brought to an end. As a result, the court held there was no loss suffered which could be attributed to the original valuer.
The Defendant sought to argue that the restructuring exercise carried out by Barclays, and in particular the closing of one loan account and the opening of a new loan account, amounted to a new transaction. This was argued to have extinguished any liability they might otherwise have had.
The High Court rejected the Defendant's argument. The key issue distinguishing this from the scenario in Preferred Mortgages was that the all monies charge had not been redeemed. The scope of duty owed by the valuer remained extant notwithstanding the internal accounting adjustments that Barclays had carried out to give effect to the restructure. In other words, as the original charge remained in place, this was not a case of a new transaction bringing the original transaction to a close.
The decision, albeit an obiter one (because the Court held the valuer's valuation was not negligent as it fell within a reasonable margin of error) is welcome for lenders.
The scenario encountered by Barclays is relatively common in any secured lending situation, where loans are often varied or restructured for a variety of reasons. Defendants have argued that restructuring by lenders in the form carried out by Barclays provides a causation defence based on the reasoning in Preferred Mortgages. The clarification by this latest decision will, therefore, considerably reduce defendants' ability to run such an argument.
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