The High Court has ordered property valuer NW Realite Limited to pay Sh29.7 million for professional negligence in land valuation services rendered to a local bank 11 years ago.
Justice Josephine Mongare ruled that NW Realite Limited had caused Guaranty Trust Bank (Kenya) Limited (GTBank Kenya) to incur a loss by overvaluing a property located in the Kiwegu area of Kwale County, which had been used to secure a Sh80 million loan.
On November 21, 2014, the bank hired NW Realite Limited to value the property and file a report to inform its decision regarding a loan sought by one of its customers.
The instruction letter specified that the valuer should advise the lender on the property’s market value, forced sale value and insurance values at the time.
Five days later, the company produced a report stating that the open market value of the property was Sh190 million, with a mortgage value of Sh150 million, and in the event of a forced sale (auction), the asset would fetch Sh142.5 million.
Relying on these findings, the bank advanced a Sh80 million loan to its customer, Micro Mobile Limited, and retained the property’s title as security.
The borrower, however, defaulted on the loan payments, triggering an auction of the property. GT Bank attempted to sell the property to recover the debt, but could not find a buyer.
A valuation ordered by the court and conducted by Crystal Valuers Limited in July 2019 put the market value at Sh50 million, with a forced sale value of Sh37.5 million.
The bank was aggrieved by these findings and sued NW Realite Ltd, alleging that it had negligently misrepresented the property’s value through exaggeration, thereby exposing it to financial loss.
“I find that the plaintiff (GT Bank) definitely relied on the valuation report to extend these facilities as the defendant (NW Realite Limited) had represented to it that it could hold security on the property and realise the same at a forced sale value of Sh142.5 million, which now turns out to be a misrepresentation borne out of the defendant’s negligence,” said the court.
The bank told the court that the valuation report contained no details such as an inspection date or sketch plan, and that the valuer had misrepresented the property as prime.
“The bank is unable to recover the outstanding loan from the customer, and even if it is to realise the security, it might not be able to recover the full amount considering the defendant overvalued the property,” said Justice Mong’are in the verdict.
“I find that there is a direct link between the plaintiff’s failure to recover the outstanding loan amount from the customer and the defendant’s overvaluation of the property that led to the plaintiff issuing facilities more than it should, which is a loss on its part,” she stated.
The bank argued that a correct report would have informed the appropriate loan amount to be advanced to the borrower.
The court also found that the valuer had failed to recognise that the property contained protected mangrove forests, which should have been factored into the valuation process.
Such ecosystems are protected by the Environmental Management and Coordination Act and the Forest Conservation and Management Act.
“The fact that the defendant (NW Realite) did not know that the mangrove forest sitting on the subject property was protected and that consultations with relevant legislation, gazette notices, or local authorities to confirm the status of such areas were needed in conducting the valuation, speaks of the defendant’s negligence,” said Justice Mong’are.
The bank asked the court to rule that the company was liable for the loss and damages totalling the outstanding loan amount of Sh106.6 million as of February 16, 2020.
Nevertheless, the court agreed with the valuation company that the bank had failed to conduct its own due diligence on the property, and had not mitigated its losses promptly enough by taking legal action against the borrower or by selling the security.
“I would agree with the defendant that it cannot bear the liability for the entire loan amount owed by the plaintiff’s customer as it could not reasonably have foreseen that the customer would fail to service its loan,” said the judge.
Further, since the bank still held the security, it was possible that it could recover part of the outstanding loan from the property’s future sale.
The court ruled that the valuation firm was partly liable for the loan balance owed by the borrower to the bank. The judge apportioned the company a liability of 30 percent.
“I find that the plaintiff (GT Bank) is entitled to damages of (Sh80 million minus Sh37.5 million) less a 30 percent contribution, which translates to Sh29.7 million,” said the judge.
She added: “This being a claim for professional negligence which has succeeded on the basis that the defendant has breached his duty of care to the plaintiff, the interest on damage should be applied at court rates from the date of assessment, as is the usual practice”.
