Negligence – Valuer – Duty of care – Defendant preparing valuation report in respect of development land for financing or secured lending purposes – Claimant seeking damages against defendant alleging negligent valuation – Preliminary issues arising — Whether defendant owing common law duty of care to claimant – Whether duty being limited to purposes for which report prepared — Preliminary issues determined in favour of defendant
The claimant company owned 17 acres of development land which formed part of a larger 80 acre plot on the outskirts of Denbigh, North Wales. Prior to its purchase, the claimant’s predecessor had entered into negotiations with the local planning authority with a view to the grant of planning permission in respect of the development land. The council resolved to grant outline planning permission subject to a satisfactory agreement imposing appropriate planning obligations pursuant to section 106 of the Town and Country Planning Act 1990.
One of the terms of the proposed section 106 agreement was a requirement for the claimant, as successor in title, to provide a bond to secure its agreement to deposit around £5 million into an account in the name of the council to finance works to listed buildings on the site. Before agreeing to provide the bond, the bank required a valuation of the site. The defendant valuer valued the land at £17 million with the benefit of outline planning permission and £18.7 million with detailed planning consent. Following provision of the report, the bond was provided for the three year duration of the outline planning permission. Detailed planning consent was never obtained, no development took place and the site had not been sold.
The claimant brought proceedings against the defendant claiming that the valuation had been negligent and too high, causing the claimant to reject substantial offers made by developers to purchase the land. It said that, as a result it had lost the chance to obtain millions of pounds of profits, as well as incurring substantial other costs and expenses. The defendant resisted the action and the court was asked to rule on five preliminary issues.
The questions for the court were: (i) whether a contract of retainer came into existence between the claimant and the defendant in relation to the valuation; (ii) if so, what were the terms of the contract; (iii) whether the defendant owed a common law duty of care to exercise reasonable skill and care in the valuation and preparation of the valuation report; (iv) whether the claimant was precluded from relying on the valuation report; and (v) whether the loss of profit and other expenses claimed was too remote or unforeseeable to be recoverable under any obligation or duty found to be owed by the defendant.
Held: Preliminary issues determined in favour of defendant.
(1) A duty of care in tort was likely to be owned to the person for whom the report was prepared, even though a contractual duty of care might also be owed to the same party. Moreover, the duty was likely to be limited to the purposes for which the report was prepared. A duty of care in tort might also be owed by a valuer valuing premises for mortgage purposes, at least if they were modestly valued residential premises, to the purchaser of those premises if (i) the valuer knew that his report was likely to be shown to the purchaser; (ii) the purchaser intended to use the premises for his own residential purposes, not to let them; and (iii) the valuer knew that his report was likely to be relied upon by the purchaser for the purpose of deciding whether to purchase the premises. However, a duty of care in tort was unlikely to be owed by a valuer instructed to produce a report for a lender for security purposes, to an investor who relied on the report for other purposes. On the evidence in the present case, in relation to the defendant’s valuation of the property and the preparation of its valuation report, a contract of retainer came into existence between the defendant and the claimant: Smith v Eric Bush; Harris v Wyre Forest District Council [1990] 1 AC 831, Caparo Industries plc v Dickman [1990] 2 AC 605, South Australia Management Corporation v York Montague Ltd [1996] 2 EGLR 93 and Scullion v Bank of Scotland plc [2011] 3 EGLR 69 considered.
(2) The critical term of the contract was that the defendant would provide a valuation of the development land for the purpose of enabling the claimant to obtain the financing which it required, i.e., a report for financing or secured lending purposes. There was no basis for the submission that the contract contained an express term to the effect that the report was to be provided for the claimant to rely upon in the future when forming its plans for the development land, I reject the suggestion. Nor was there any basis for a submission that that is what the parties must have intended so that the contract contained an implied term to that effect: there was no support in any of the contemporaneous documentation for the suggestion and all the unchallenged contemporaneous documentation spoke of a report prepared only for secured lending purposes.
(3) The defendant owed the claimant a common law duty of care to exercise reasonable skill and care in the valuation of the property and the preparation and provision of the report but that duty extended only to the provision of a report for secured lending purposes. It would be remarkable if the duty of care owed by the defendant in tort were more extensive than its contractual duty of care and there was no warrant for any extension of the duty in this case.
(4) The claimant was not precluded from relying on the valuation report for the purposes for which it was provided, i.e. to enable it to try to obtain the financial support it required. However, if it relied on the report in the months or years ahead, for other purposes for which the report was not provided, it was not entitled to bring a claim against the defendant in respect of any loss suffered in consequence of that reliance. The defendant did not owe the claimant duty of care to protect it against such loss, either in contract or tort.
(5) The heads of loss claimed, including loss of profit on a subsequent sale alternatively the loss of a chance of a subsequent sale at a profit, did not fall within the scope of the duties owed by the defendant to the claimant. Questions of remoteness or foreseeability therefore did not arise.
James Hall (instructed by Moore Blatch LLP) appeared for the claimant; Jamie Smith (instructed by Mayer Brown International LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click to read transcript:Freemont (Denbigh) Ltd v Knight Frank LLP
