High Court Reinforces Dual Duty of Care Between Lenders and Valuers

Recent High Court guidance underscores a key lesson for lenders: valuation reports are vital but not bulletproof. Over-reliance on them can leave banks exposed to inflated security values, undisclosed regulatory or environmental issues, and unrecoverable losses once a borrower defaults.

For lenders, the stakes are high. A misleading valuation can mean advancing loans against security that is worth a fraction of the assumed value. Once a borrower defaults, the bank is left grappling with unrecoverable losses, lengthy litigation, and potential exposure to shareholders and regulators for weak risk controls. Courts are increasingly clear: while valuers must be held accountable for professional negligence, banks too bear a parallel duty to conduct their own due diligence and to mitigate loss promptly when warning signs emerge.

The recent decision in Guaranty Trust Bank Kenya Limited v NW Realite Limited illustrates this balance. It highlights not only the professional obligations of valuers but also the responsibility of lenders to embed due diligence as a core aspect of their lending processes.

Background of the Case
In 2014, Guaranty Trust Bank Kenya Limited (GT Bank) instructed NW Realite Limited to value property in Kwale County to secure an overdraft. NW Realite valued it at KES 190 million (approx. USD 1.47 million) (open market) and KES 142.5 million (approx. USD 1.1 million) (forced sale). Relying on this, GT Bank advanced KES 80 million (approx USD 619,117).

By default, a joint valuation ordered by the court put the property value at just KES 50 million (approx. USD 387,000) and KES 37.5 million (approx. USD 290,163), respectively, citing the presence of an ecologically protected mangrove forest within the property. GT Bank sued NW Realite for professional negligence.

The Court’s Decision
The Court found NW Realite negligent: the valuation report failed to disclose the methodology used and overlooked material environmental restrictions that significantly affected its worth. However, the Court also ruled GT Bank 30% contributorily negligent for relying blindly on the report, not verifying key assumptions and delaying mitigation after default.

The Court also dismissed GT Bank’s challenge to the validity of the report because it was co-signed by an external valuer, affirming that valuation firms are entitled to engage independent professionals so long as they are duly registered and act in line with professional standards. The Court awarded GT Bank KES 29.5 million (approx. USD 228,327) in damages, after adjusting for contributory negligence.

Key Takeaways for Lenders

• Validate valuations: treat reports as a starting point; stress-test assumptions and check regulatory/environmental restrictions.
• Consider a second opinion: where collateral is material or unusual, seek independent or specialist valuations.
• Document due diligence: retain records of checks done and queries raised with valuers.
• Act promptly on default: early enforcement preserves value and supports claims against negligent third parties.

This case serves as a timely reminder of shared accountability. Valuers must carry out their work with care, transparency, and skill, while lenders must treat due diligence as a non-negotiable aspect of every transaction. Together, these responsibilities create a more reliable foundation for credit decisions and protect institutions from avoidable losses.

Should you have any questions on this legal alert, please do not hesitate to contact Sonal Tejpar,  Shellomith Irungu or James Mungai. 

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Contributor
1. Rose Georgina Onyango – Associate
2. Kamundia Gitahi – Intern