7TH PACIFIC RIM REAL ESTATE SOCIETY CONFERENCE

This paper addresses the legal liability of valuers to mortgage lenders for professional negligence, in cases where the property market has fallen subsequent to the date of the mortgage loan. The question of whether the valuer should be responsible for the lender’s additional losses attributable to the fall in the property market has been considered by the highest courts in both the UK and Australia. In South Australia Asset Management Corporation v York Montague Ltd (1996) (also referred to as BBL), the English House of Lords laid down a principle that was intended to limit the valuer’s liability in this respect. However, that principle was apparently rejected by the High Court of Australia in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999). This paper critically analyses the cases, decided in both the UK and Australia, in which this problem has been addressed. It considers the weaknesses of the South Australia/BBL principle as demonstrated in subsequent cases concerning contributory negligence, limitation of actions and the award of interest on damages. It examines the methods of assessing damages in this context that have been put forward and demonstrates how each of these proposed methods reacts to variables in the degree of valuation error, the loan-to-value ratio adopted by the lender and the fall in the property market. The paper concludes that the South Australia/BBL principle is flawed, and suggests an alternative approach which may be acceptable to courts in both the UK and Australia. Valuers ’ liability for market losses Page