A judge has rejected claims that Knight Frank should be liable to a landowner that says its allegedly negligent overvaluation of a development site caused it to reject offers, costing it millions.
Freemont (Denbigh) says that its site, which KF once valued at over £17m, has now been left worthless.
However, Deputy Judge Stephen Smith QC ruled that the 2006 valuation report prepared by KF was solely for the purposes of enabling Freemont to obtain financing for the 17 acres planned for residential development at the former North Wales Hospital site in Denbigh. He rejected claims that KF owed any duty of care in respect of subsequent reliance by Freemont on that valuation.
Called upon to decide five crucial preliminary issues in the action, the judge ruled that a contract of retainer did come into existence between Freemont and KF, but that the “critical term” of that contract was that KF would provide a valuation of the development land for the purpose of enabling Freemont to obtain the financing it required.
He rejected a suggestion by Freemont that it was also a term of the retainer that the report was to be provided for it to rely on in the future when forming its plans for the site.
He found that KF did owe Freemont a duty of care in tort in addition to its contractual duty, but that it only extended as far as the contractual duty; to provide a report for secured lending purposes.
He said: “In other words, Knight Frank were to take care to produce a report which gave a fair value for the development land so that Freemont Denbigh was able to obtain the financing it had negotiated.”
Rejecting Freemont’s claim that the common law duty of care extended further, he said: “It would be remarkable if the duty of care owed by Knight Frank in tort were more extensive than their contractual duty of care in contract.”
Freemont had claimed that the valuation was negligent and too high, causing it to reject substantial offers made by developers including Barratt Homes to purchase the land. It alleged that, as a result it lost millions of pounds of profits, or at least lost a substantial chance to obtain them, as well as incurring substantial other costs and expenses.
However, the judge ruled that heads of loss including loss of profit on a subsequent sale were not capable of falling within the scope of the duties owed by KF to Freemont.
He concluded: “Freemont Denbigh was not precluded from relying on the report for the purposes for which the report was provided, viz. To enable it to try to obtain the financial support it required. But if it did indeed rely on the report in the months and years ahead for other purposes for which the report was not provided, it is not entitled to bring a claim against Knight Frank in respect of any loss it suffered in consequence of that reliance.
“Knight Frank did not owe Freemont Denbigh a duty of care to protect it against such loss, either in contract or in tort.”
KF had denied any contract with Freemont, claiming that it intended to have such a relationship only with Lloyds Bank. Its 2006 report valued the site at £17m with the benefit of outline planning permission, and £18.7m with detailed planning consent. A predecessor to Freemont had acquired it in 2003 for £310,000 plus VAT.
However, while outline permission was granted, no detailed consent ever followed, no development has taken place and the land has not been sold, while listed buildings on it have fallen further into disrepair.
The judge said: “Such is the state of disrepair and so high are the likely costs of reinstatement that the whole site is considered by Freemont Denbigh to be worthless.”
Freemont had claimed that, but for KF’s alleged negligence, it would have accepted an offer for the site and proceeded to exchange of contracts prior to the economic downturn in 2008. The judge said that its damages claim was “said to run to many millions of pounds”.
