15 Jul 2012

Scottish Professional Negligence: 'Ticking Clocks'

Scottish Professional Negligence: 'Ticking Clocks'

Santander UK Plc v. Allied Surveyors Scotland Plc could have major implications for those pursuing negligence claims, Paul McIntosh, Senior Solicitor, explains why.

Santander UK Plc v. Allied Surveyors Scotland Plc could have major implications for those pursuing negligence claims, Paul McIntosh, Senior Solicitor, explains why.

Professional negligence claims raised against surveyors for overvaluation of property are being met with arguments that the limitation period (five years in Scotland) starts with the date when the original loan was advanced.

This argument was run in the case of Santander UK Plc v. Allied Surveyors Scotland Plc. Here, the lender sued Allied Surveyors for losses incurred from lending advanced on a negligent valuation of the leasehold interest and business of Fishlike Ltd at the Esplanade in Aberdeen. After completion of the lending, it quickly became evident that the business did not perform in line with the valuation provided. In August 2005 the business ceased trading.

In terms of the Law, a claimant has five years from “the appropriate date” to claim. That date is the earliest point at which you can say someone has been negligent and that a loss has resulted.

In the Santander case, the court decided the loss occurred when the amount loaned was advanced. The Court said the valuation of the precise amount the lender had lost, which could only be determined after the business failed, was irrelevant.

It is important to note that this transaction was a commercial loan to an ongoing business. It was clear to the lender soon after the loan was advanced that the financial records of the business and ongoing performance did not match the valuations provided. The Court said that “there was ample evidence that Fishlike Limited was in a parlous financial state both prior and subsequent to October 2001”.

The issue of knowledge of the loss arising from the negligent actions of the surveyor is of critical importance. As was noted in the judgement:

“If of course, it were the case that [the lender] had proceeded for four years in ignorance of the negligent act and consequent loss they had suffered they would have a basis for praying in aid Section 11(3) of the 1973 Act. They have not done so, however, and no suggestion was made that such an argument would be available to them.”

There is an important qualification to the appropriate date. If the creditor is unaware when they suffer loss, that there has been negligence, then the appropriate date will be the date when “the creditor first became, or could with reasonable diligence have become, so aware” of the negligent action and loss. This was a commercial property case and lenders need to be careful applying it to residential transactions. On the basis of the Santander decision, the loss arises at the date that the loan is advanced. In a residential transaction the lender may have no knowledge of the negligent action or the consequent loss until after the property had been repossessed. Where a borrower is making repayments to their mortgage, the lender may have no reason to doubt the original valuation. There is a good argument that until the property is valued at repossession, the lender has no knowledge of the negligent action or loss. That would prevent the prescriptive clock starting.

Lenders need to be careful that there is no information lurking in the lending file which could’ve alerted the lender to the negligence at an earlier stage. For instance, a solicitor reporting important information after the completion of the purchase or remortgage.

One thing which you can be certain of is that the appropriate date for the start of the limitation period cannot be argued to be earlier than the date of advance. It may be sensible to protect higher value claims from any time bar arguments by raising court actions before the fifth anniversary of the date of advance, to remove any doubt.

Paul McIntosh, Senior Solicitor

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