Guaranty Trust Bank Kenya Limited v NW Realite Limited [2025] KEHC 12495 (KLR)

Background 

In 2014, Guaranty Trust Bank instructed the Defendant to conduct a valuation of a Kwale property that was to be used as security for a loan.  The Defendant valued the property at an open market value of Kshs. 190,000,000.00, Mortgage Value at Kshs 150,000,000.00/ = and Forced Sale Value at Kshs. 142,500,000.00/=. Based on this valuation, the bank offered an overdraft loan of KShs. 80,000,000.00/= to its customer, Micro Mobile Limited. 

Upon default by the customer, the bank attempted to recover the loan from the property. To the bank’s dismay, the property’s value had been excessively overstated by the valuer. A subsequent independent valuation of the property, at court order, assessed the property’s market value at KShs. 50,000,000/= and the forced Sale value at Kshs. 37,500,000.00/=.  This prompted the bank to initiate this case, accusing  the defendant of negligent valuation because:

• The valuer allegedly allowed a third party to the company to sign the valuation report.
• The correct value of the property would have informed the correct loan amount extended to the customer.
• The valuer’s failure to have a sketch plan or an inspection date amounted to dereliction of duty. 

Court’s determination

• The Defendant, as a valuer, owed a duty of care to the Plaintiff to carry out the valuation in accordance with the ordinary standard of care, skill, and diligence expected of a professional valuer.
• Valuation companies can hire independent valuers provided the independent valuers are registered, licensed, and adhere to professional standards, as well as maintain credibility and compliance.
• The inclusion of the methodology that forms the basis of a valuation in the report enhances its credibility, transparency, comprehension, and justification. The failure to include the methodology used in valuation alone amounted to negligence on the part of the valuer.
• There was a direct link between the bank’s inability to recover the outstanding loan amount from the customer and the Defendant’s overvaluation of the property.
• The plaintiff bank’s failure to conduct due diligence on the property and failure to mitigate the losses early enough, either through initiating legal action against the debtor or selling the security, amounted to contributory negligence. 

Damages 

The court awarded the bank damages of (Kshs. 80 million – Kshs. 37.5 million), less 30% contribution, translating to Kshs. 29,750,000.00/= together with interests at court rate. The Judge agreed with the Defendant that valuers are liable for negligent misstatements but are not insurers against every loss suffered by a lender.

Take-aways

1. It is not enough for lenders to obtain a valuation report. A lender must conduct due diligence, including conducting, inter alia, regulatory, environmental, and market checks.
2. Valuers owe a duty of care to lenders to conduct a professional and diligent evaluation of properties.  Overvaluation or even undervaluation can attract hefty damages.

Conclusion

When one contracts another for a particular job, there is always an expectation that the contractor will diligently deliver his or her duties. The reasonable man’s test in negligence requires one to consider what a reasonable person in his or her shoes would have done, taking into account their professional expertise.  Usually, most contractors diligently deliver. Sometimes, however, like in this case, incidents of negligence arise, causing huge losses.  For lenders, this is a call to, in addition to seeking a valuation report, conduct due diligence to avoid giving huge amounts of loans for disproportionate securities. For valuers, this is a call to be professional and diligent in conducting valuations to avoid causing avoidable losses.