In the recent case of Rehman and Rehman v Santander UK Plc and BNP Paribas Real Estate Advisory and Property Management UK Limited the High Court was asked to consider whether a lender owed a duty of care to a borrower’s guarantors in respect of a valuation report commissioned by the lender.
The borrower was a company that operated two nursing homes. The claimants, the Rehmans, were the directors and shareholders of the borrower.
The borrower approached Santander UK Plc (Santander) to refinance its loan facilities. Santander commissioned BNP Paribas Real Estate Advisory and Property Management UK Limited (BNP) to produce a valuation report on the two nursing homes owned by the borrower. The valuation report was shared with the Rehmans. Terms were agreed for a £2 million loan which was secured on the two nursing homes. The Rehmans provided a personal guarantee and indemnity in respect of the borrower’s liabilities.
The borrower subsequently defaulted on the loan and went into liquidation. The nursing homes were sold but the proceeds of sale were insufficient to repay Santander’s loan. Santander therefore called on the personal guarantees given by the Rehmans.
The Rehmans sought to rescind the guarantee or claim damages or equitable compensation against Santander on the basis that Santander had breached an alleged duty of care to the Rehmans that they would instruct a competent valuer to value the secured assets; alleging that they had relied on the lender’s valuation report before deciding to give personal guarantees in respect of the borrower’s repayments obligations. The Rehmans also alleged that Santander had breached a duty to advise them to obtain their own independent valuation of the secured asserts before offering personal guarantees. The Rehmans sought damages from BNP in respect of its allegedly negligent valuation.
The court granted the defendants summary judgment against the claimants.
The court found that no duty of care automatically arises in circumstances where a bank provides to a potential guarantor a valuation report that the bank has produced for its own purposes. The court also held that it would be unreasonable to conclude that a bank has made a representation about the accuracy or reliability of a valuation simply because the bank has provided a copy of the valuation report to the borrower or its directors/shareholders. The court concluded that the claims against Santander had no real prospect of success.
The court rejected the claim against BNP as there was no evidence to show that BNP consented to the valuation being provided to the Rehmans and so no duty of care had arisen. The valuation report also had an express disclaimer that excluded reliance by third parties without the consent of BNP. The court held that the claim therefore had no real prospect of success.
The case offers comfort to lenders and valuers as it clarifies that there is no general duty of care owed to borrowers and guarantors in respect of valuations that the bank has commissioned for its own purposes. The judgment also serves as an important reminder to valuers to ensure that they include clauses in their report excluding third party reliance.
For guarantors and borrowers, the case illustrates the importance of obtaining independent valuations on secured assets before agreeing to offer a personal guarantee in respect of the borrowing company’s liabilities.