London 8th June 2017 – In the recent case of Bridging Loans Limited v Toombs  EWCA Civ 205, the Court of Appeal provided useful guidance for practitioners on the award of summary judgment on limitation grounds in professional negligence claims. Georgina Squire, partner at solicitors Rosling King, looks at this case and discusses the main points that practitioners should take on board when faced with a similar case.
In Bridging Loans Limited v Toombs, a bridging lender (the “Lender”) provided a 6-month term loan to its borrower to fund the development of a property. The loan was advanced in reliance on a valuation of the property of £730,000 dated November 2006. The borrower failed to repay the loan by its due date, 3 May 2007, and the Lender subsequently issued a formal demand requiring payment of the loan, plus interest, by 27 May 2007. When the loan was not still not repaid, the Lender took possession of the property. On 16 May 2013 proceedings were issued against the valuer (the “Valuer”) , on the basis that the property had been negligently overvalued. The Valuer then applied for summary judgment and strike out on the basis that the claim was time barred and although the application was refused at first instance, this was overturned on appeal and the Court granted summary judgment on the basis that the Lender’s claim was indeed time barred. The Court determined that, once a defendant had put before the Court material to show that there was a defence of limitation, it was for the claimant to demonstrate to the Court that the defence of limitation may not succeed. In this case, the Lender had not adduced any evidence as to the covenant strength of the borrower, or its financial circumstances at any moment in time, and thus, had not satisfied this test.
On appealing to the Court of Appeal, the Lender put forward the argument that t the Court may not agree with its expert valuation evidence at trial and may instead find that the true value of the property fell somewhere in between the parties’ positions. Until expert evidence had been tested at trial, the true value of the property was, in practical terms, something of a moving target. Therefore, it was not possible to know whether the value of the property was sufficient to ‘bridge the gap’ for the purposes of Nykredit until trial and summary judgement was consequently inappropriate. The Court of Appeal rejected this argument as an “impossible proposition” stating that it was necessary to consider the matter on the basis of the evidence and the pleadings placed before it. The Court and the Valuer were therefore entitled to take the Lender’s pleadings at face value. On the face of the Lender’s pleadings, the property was worth less than the outstanding debt at all times and the Lender had not adduced any evidence to show that the true value of the property may have been any higher than the figures pleaded. The application for summary judgment was therefore granted.
Following this decision, parties to litigation should be conscious of the importance of obtaining information regarding the strength of a borrower’s covenant at an early stage, in order to assess the limitation position. Limitation may now be more likely to be challenged by a summary judgment application if such information cannot be obtained at an interlocutory stage. In addition, should information regarding the borrower’s covenant be likely to be difficult to obtain, parties should consider obtaining retrospective valuations of the property at key milestones along the chronology of the case, to assist assessing limitation on a Nykredit basis. Parties should also bear the potential limitation arguments in mind when preparing pleadings, since the Court is likely to hold the parties to these pleadings, if faced with an application for summary judgment on limitation grounds. Claimants should ensure that care is taken to strike the fine balance between establishing a case in negligence, whilst avoiding opening up limitation arguments, if this can be avoided. In certain circumstances, it may be wise to plead a range of valuation figures, to address any potential arguments on limitation.
Finally, parties should give consideration to agreeing Standstill Agreements at an early stage, to avoid arguments on limitation as far as possible.
About Rosling King
RK LLP is a UK-based law firm specialising in serving the needs of financial institutions and private equity, real estate and construction clients. www.rkllp.com