Is there a recent court decision finding lenders negligent?

Three non bank lenders recently sued a valuer for negligence in its valuation of properties being offered as security for a proposed loan. The claim came about because the valuer valued the proposed secured property at $3.6 million, in circumstances where the market value was in fact approximately $1.75 million. The primary judge found that the valuer was indeed negligent. However, he also found that the lenders themselves were negligent and reduced the claim by 25%.

In what may well be another nail in the coffin of asset-based lending, in an unanimous judgment, the Full Court of the Federal Court in South Australia confirmed (Valcorp Australia Pty Ltd v Angas Securities Limited [2012] FCAFC 22) that although the valuer was negligent in its valuation, the lenders were also negligent on the basis that they failed to carry out proper inquiries about the proposed borrower's ability to service the proposed loan.

The valuer (Valcorp) argued on appeal that if the Lenders had made proper inquiries about the proposed borrower's financial position, the loans would not have been made. In those circumstances, the lenders were 100% responsible for the loss. The Full Court decided that the lenders and the valuer were equally responsible, and reduced the claim by 50% on the basis of contributory negligence.

The decision highlights the growing judicial trend to frown on asset-based lending, leaning to a policy requirement that lenders take appropriate steps to ensure that their loans will be serviceable.