Negligence — Valuation report — Whether defendant chartered surveyors negligent in preparation of valuation and report in misunderstanding and misdescribing construction of house
purchase of Fuaim-na-Mara, Fyrish Road, Findhorn, the plaintiffs requested the
defendants to provide a valuation and report — The report valued the property
for security purposes at £34,000 and described the method of construction as
‘concrete block built, harled’ — In fact the property was of a non-traditional
construction known as precast reinforced concrete (‘PRC’) — The type of
construction is generally known as a Dorran, the walls of which are constructed
of a series of thin concrete panels bolted together — When, in 1984, the
pursuers instructed estate agents to sell the property, they were informed that
it was of a Dorran construction and there would be difficulty in selling it —
For two years the pursuers tried to sell — The pursuers sought reparation for
alleged professional negligence, claiming damages of £18,000
awarded — The construction of the property was an essential element in the
valuation and the defendants fell below the acceptable standard in failing to
note that the house was one of PRC construction — The failure to identify the
type of house was an act of negligence — On the evidence the diminished values
of PRC houses were well recognised by the date of the report in 1982 and such
houses were fetching materially lower prices than those of traditional
construction — Further, there was evidence that by 1982 some building
societies, surveyors and principal local estate agencies were not entirely
happy about Dorran houses — Had the defendants recognised that the plaintiffs’
house was a Dorran type, they would have valued it in the region of £25,000 —
The plaintiffs were not entitled to claim compensation by way of a solatium
for the worry and distress experienced when they tried to sell their home
because it would not be competent to make such an award under a joint
conclusion
The following
cases are referred to in this report.
Maynard v West Midlands Regional Health Authority [1984] 1 WLR 634;
[1985] 1 All ER 635, HL
Phillips v Grampian Health Board Unreported, April 12 1991
Skirt
‘n’ Slack Centre of London Ltd v Brydon
unreported, March 17 1986
This was a
claim by Bryan Peach and Susan Ann Stewart Peach for reparation for alleged
professional negligence arising out of a valuation report prepared by the
defendants, Iain G Chalmers & Co.
Miss Leeona
Dorrian (instructed by Drummond Miller, WS) appeared on behalf of the
plaintiffs, Mr and Mrs Peach; Mr Robert Dunlop QC (instructed by Ferguson
Simpson & Marwick) appeared on behalf of the defendants.
Giving his
opinion, LORD CAPLAN said: The pursuers are Mr and Mrs Bryan Peach and
they now reside at Inverness where they have a modest retail jewellery
business. The defenders are Iain G Chalmers & Co and their partners. They
carry on business as chartered surveyors at Forres. The action is one for
reparation for alleged professional negligence arising out of a valuation
prepared by the defenders for the pursuers’ bankers, Clydesdale Bank, on May 18
1982. The pursuers sue for damages stated at the sum of £18,000.
Mr and Mrs
Peach each gave evidence. They seemed honest and reasonably reliable witnesses
and I was quite happy to accept their account of the background circumstances
of this case. In May 1982 Mr Peach had his business in Forres and he and his
wife were interested in purchasing a house at Findhorn. At the time the
pursuers were each about 24 years old. Having viewed a house known as
Fuaim-na-Mara, Fyrish Road, Findhorn, they decided to explore the possibility
of purchasing it. Mr Peach had a long-standing connection with the Clydesdale
Bank at Inverness and he inquired there about the possibility of raising a loan
to purchase the house. He was referred to the Forres branch of that bank. The
local manager at Forres suggested that a valuation of the property be obtained
for mortgage purposes and put Mr Peach in touch with the defenders. Mr John
Mackay [FRICS], one of the defenders’ partners and a chartered surveyor, then
inspected the relevant property and prepared a valuation and report which is No
30 of process. It seems that Mr Peach directly instructed the defenders to
prepare the report. He certainly paid for it but the defenders may have
regarded the Clydesdale Bank as their clients, for they had standing
arrangements to provide the bank with reports and valuations for lending
purposes. In any event, in the said report, which is dated May 18 1982 and is
signed by Mr Mackay, the defenders valued the property for security purposes on
the completion of certain specified retention items as being £34,000. In the
report there is a section (11) for the surveyors’ comments on the main walls
and in that section the method of construction is described as ‘concrete block
built, harled’.
There is no
dispute that the surveyor who prepared the report had misunderstood and
misdescribed the construction of the house. The house was of a non-traditional
construction of a type known as PRC (precast reinforced concrete). Stone,
brick, timber-frame and concrete-block houses are generally regarded by lenders
as being of a traditional construction so that if the construction of the
pursuers’ prospective house had been properly identified by the defenders it
would not have fallen into that category. PRC methods of construction were
evolved after the war and although used mainly for public housing were also
used in private housing. There are perhaps about 20 systems of PRC housing and
they differ in their construction and design. The house I am concerned with was
probably precisely identified as a Speyroc house but for practical purposes it
is known as a Dorran type of construction, that is to say the walls were
constructed of a series of thin concrete panels bolted together with metal
bolts.
When the
defenders’ report was received by the Clydesdale Bank, the manager had a
meeting with the pursuers and indicated to them that the report was in
favourable terms. He informed the pursuers that the value of the house for
lending purposes was as stated in the report, namely £34,000. Mr and Mrs Peach
had no reason to suspect that there was anything exceptional about the
construction of the house. A copy of the defenders’ report was sent to the
pursuers’
light of the valuation the pursuers originally thought of offering the
valuation figure but were informed that the seller would not accept less than
£35,000. They accordingly decided to offer that amount. Missives were concluded
on May 26 1982 and the transaction was thereafter settled. The pursuers had
limited capital and were understandably concerned about buying a house which
would represent a secure investment for them. If they had appreciated that the
house had an unusual construction they may not have bought it at all and they
certainly would not have paid £35,000 for it if the valuation had been
materially less than that figure. If the pursuers had bought a house that was
valued at less than £34,000 for security purposes, they would not have had
sufficient funds to buy the house for £35,000 because they would not have been
granted a sufficient loan. Indeed, because of their restricted capital the
pursuers under their own hand required to carry out some of the improvement
work on the house which the bank as lenders requested.
In 1984 the
pursuers transferred their business from Forres to Elgin and required for
travel convenience to move to the latter town. They instructed Cluny Estate
Agents, Forres, to place their house on the market. When Mr Harold Beck [CDip
AF] of that agency first viewed the pursuers’ house he immediately recognised
that it was a Dorran type of construction and he advised the pursuers that the
building societies were hesitant to offer full loans on that type of house and
for that reason the pursuers could have difficulty in selling it. After
attempting to sell the house for a short period the pursuers thought that any
problem affecting the value of the house would soon pass over and they did not
press on with the sale at that time. However, about 1986 the pursuers moved
their business to Inverness and it then became important to sell their house at
Findhorn because of the difficulty of commuting between Findhorn and Inverness.
In any event, at that time the pursuers required to realise some capital to pay
off certain business debts. They therefore reintroduced their home to the
market. However, at that time lending institutions were not prepared to offer
loans on PRC houses. It was by then well established that some of the houses of
that type could cause serious problems. Apart from questions of moisture
retention and condensation the bolts in a Dorran house were thought to be
capable of rusting and eventually causing structural difficulty unless
expensive restoration work were completed. In any event the pursuers could not
sell their home. They tried for two years to sell it. They leased their house
and after a period when they stayed in a caravan they moved to another house in
Inverness which they acquired with money loaned to them by Mrs Peach’s parents.
The difficulty in selling the house caused the pursuers considerable
inconvenience and worry. Mrs Peach had two young children to cope with and was
worst affected. Mr Peach was also affected and required to have tranquillisers
prescribed. The pursuers also had trouble with tenants who took their Findhorn
home on lease.
In their
condescendence of fault the pursuers aver that the defenders had a duty to
exercise the degree of professional skill, care and diligence to be expected
from a competent chartered surveyor acting in the ordinary exercise of
professional duties. It is alleged that the defenders knew that their report
would be communicated by the bank to the pursuers and that the terms of the
report would be critical to the pursuers’ decision whether to offer for the
subjects and at what price. They, therefore, had a duty to bring to the
attention of the bank all information which could affect the value of the
subjects and in particular all features likely to affect the purchasers’
decision whether to buy the subjects. Thus the defenders had a duty to take
reasonable care to ensure that the report accurately described the construction
of the property and its value.
I did not
understand the defenders’ senior counsel to contest that the defenders had
duties in the terms stated. It was clear from all the evidence that the construction
of a property is a matter which can affect value. Even Mr Iain Leighton
[FRICS], the defenders’ chartered surveyor witness, accepted in his evidence
that the fact that a house was of a non-traditional type of construction would
in 1982 have justified some reduction in value albeit that he considered the
effect on value was less than the pursuers’ experts claimed would be the case.
Moreover, the defenders’ senior counsel did not contest that the defenders
should have anticipated that the pursuers were likely to be influenced by the
report and that the defenders owed a duty to the pursuers to exercise a
reasonable degree of professional skill in the preparation of the report. Thus,
in my view, there is no doubt that the defenders had a duty to identify the
type of construction of the house being valued with accuracy in so far as a
reasonably competent surveyor showing reasonable care could have identified
that construction in the course of a valuation and survey of the type he was
instructed to carry out. On the evidence the defenders’ failure to identify
that the house was of a non-traditional construction seems remarkable. The
windows of the house were flush with the outside and this in itself was a
pointer to the fact that the house might be of non-traditional construction. A
glance at the window recesses would have revealed that the walls of the house
were too thin for traditional construction and that they were consistent only
with a PRC construction. Mr Beck, who was an estate agent and not a surveyor,
said that when he first visited the house he identified it as a Dorran-type
house before he even got out of the car. None of the chartered surveyors who
visited the house had any difficulty in immediately identifying it as a
Dorran-type house. Mr Mackay, who carried out the survey and valuation for the
defenders, never gave evidence. There was no evidence as to how it came about
that he was mistaken as to the type of construction of the house. Given that
construction is an essential element in valuation, I have no difficulty in
holding that Mr Mackay fell below the acceptable standards of his profession
when he failed to note that the house was one of PRC construction and when he
misdescribed it as being of concrete block construction. I therefore am
prepared to hold that Mr Mackay’s failure to identify the type of house he was
valuing was an act of negligence.
The defenders
argue that, even if Mr Mackay failed to identify the type of house he was
valuing, it made no practical difference because at the time Dorran-type houses
did not have a materially reduced value in relation to equivalent homes of the
traditional type. The house bought at Findhorn by the pursuers was favourably
located and even had some exceptional features such as a swimming pool. There
is little dispute that if the house had been of traditional construction the
value which the defenders placed on it in 1982, namely £34,000, would at that
time have been a fair value. However, in their pleadings the pursuers allege
that in 1982 the house was worth materially less than the last-mentioned figure
and this is said to have been because at the time banks and building societies
were disinclined to lend on Dorran-type properties. The defenders in effect
deny that in 1982 lending institutions were refusing or reluctant to lend on
Dorran-type houses or that they had at that date a diminished value when
compared with equivalent traditional houses.
A fair amount
of time at the proof was occupied in exploring at what stage in the past
Dorran-type housing became recognised by the lending institutions as being an
undesirable security and when the problems in obtaining loans for such houses
became generally known to surveyors. There is little doubt that by 1984
Dorran-type houses were recognised as presenting possible construction problems
and many lending institutions were refusing to lend on them at all or,
alternatively, were lending on very restricted terms. About 1980, problems with
PRC houses were certainly widely acknowledged among surveyors, particularly as
regards a type of construction known as Airey houses. In June 1981 an article
appeared in the Chartered Surveyor highlighting problems with the Airey
type of construction (‘Inspect your Aireys’, p 706). About the same time it was
recognised that ‘Orlit’ types of PRC housing were giving rise to problems. In
February 1983 the Minister of Housing made a statement to the House of Commons
concerning Government aid for owners of certain types of PRC housing and also
reported that he had asked the Building Research Establishment to look at other
types of PRC housing. In April 1984 the Housing Defects Bill was published and
at the same time the minister asked the Building Research Establishment to look
at other specific types of PRC housing including Dorran housing. But, whatever
knowledge and reservations surveyors generally may have had prior to April 1984
about Dorran-type houses, the ministerial action at that time appears to have
aggravated the situation.
Certainly some
lenders who had earlier been happy to lend on the security of Dorran houses
were no longer prepared to do so. This no doubt explains why the pursuers
experienced difficulty when they tried to sell their Findhorn house in 1984 and
later in 1986.
However, at
the end of the day the question is what value the pursuers’ Findhorn house had
in 1982 and how that relates to the value placed on it by the defenders in
their report. The pursuers led two chartered surveyors who spoke to valuation,
namely Mr John Albiston [ARICS] of D M Hall & Son, chartered surveyors,
Inverness, and Mr Dennis Thomson of Kean-Kennedy & Partners, chartered
surveyors, Elgin. The defenders’ expert on valuation was Mr Iain
these witnesses are experienced chartered surveyors. Mr Albiston said that it
was recognised in the profession that a reasonably competent valuation report
should not deviate by materially more than 10% from the true value of the
property.
There was no
evidence seriously contrary to this and I accept that a reasonably competent
valuation should be within about 10% of the property’s actual value. Mr
Albiston had been in practice since 1978 and in 1982 he had been practising in
Aberdeenshire. He claimed that from the time he began practice it was well
known that certain lenders were placing restrictions on PRC houses and that
this resulted in a diminution of the value of such houses by 20% to 25%. He
valued the pursuers’ house in 1982 at £22,000.
This valuation
was based on 1984 values appropriately reduced. However, he acknowledged that
Mr Thomson would have an advantage over him in respect of 1982 values because
of the fact that at that time Mr Thomson was practising locally in the Findhorn
area.
Mr Thomson was
the most experienced of the valuers who gave evidence. He, too, was quite
certain that the diminished value of PRC houses (including the Dorran type) was
well recognised by 1982. Mr Thomson’s firm has a very substantial business in
the Moray area. He had first seen the pursuers’ house in 1984, when he
recognised it right away as being a Dorran-type house. As from about 1979 he
would have referred such a house back to the lending agent for special
consideration because of its construction. Mr Thomson said that it was
difficult to get precise comparables for the pursuers’ house in 1982 but that
at that time Dorran-type houses were selling for between £19,000 and £25,000.
Because the pursuers’ home was a pleasant example of its type and in a good
location he would have valued it at the upper end of the scale, namely at
£25,000.
The third
valuer, namely the defenders’ witness Mr Leighton, is in practice throughout
the Highland region including Findhorn. He first saw the pursuers’ property in
1988. He claimed any concern about PRC housing was confined to Airey- and
Orlit-type houses until about 1983 when the Minister of Housing made his
announcement. Until then surveyors and lenders were not concerned about Dorran
houses. He accepted that such houses would have been valued at about 10% less
than equivalent traditionally built houses simply because they were not of the
traditional type. He placed a value on the pursuers’ house in 1982 of
£32,000/£33,000. This value was based on comparable valuations although he
accepted that 80% of his comparables were not Dorran houses.
It is perhaps
unfortunate that none of the valuation experts produced much documentary
evidence to support some of the significant views that were expressed. Thus,
for example, none of the witnesses produced specific information on comparable
transactions to which they may have referred. Neither Mr Albiston nor Mr
Thomson produced published material to vouch that prior to 1983 there was
concern about PRC types of construction other than Airey and Orlit. Certainly
the defenders produced published material to vouch that about 1983 there were
developments in the general appreciation of problems affecting PRC housing but
this does not in itself establish that the housing market was not taking note
of the PRC question at an earlier date. Indeed it is perfectly feasible that
the intervention of the Minister of Housing was prompted by concerns which had
pre-existed for some time.
Senior counsel
for the defenders founded mainly on Maynard v West Midlands Regional
Health Authority [1984] 1 WLR 634 and contended that it was sufficient for
his purposes if experts differed.
I was also
referred to two unreported Scottish cases in the Outer House, namely Skirt
‘n’ Slack Centre of London Ltd v Brydon (March 17 1986) and Phillips
v Grampian Health Board (April 12 1991). If there is a divided body of
expert opinion as to how the property should have been valued then it cannot be
said that the defenders have been negligent in arriving at a value which is
supported by a body of competent valuers. The defenders’ valuation is within
10% of the value attributed to the property by Mr Leighton. However, I do not
regard any of the cases that I was cited as precluding the rejection of one
strand of expert opinion if grounds exist for so doing. I think the defenders’
argument gets trapped in a logical dilemma. Their valuation is said to be
acceptable as it is within 10% of Mr Leighton’s valuation. Thus the defenders
appear to accept that valuations should not diverge by more than about 10%.
However, Mr Leighton’s valuation and Mr Thomson’s valuation differ by
substantially more than 10%. Therefore, both valuations cannot be valid. The
basic question is what value would a reasonably competent valuer have placed on
the pursuers’ property in 1982? However,
the answer to that question is not merely a matter of professional opinion,
since a retrospective valuation must bear a relationship to fact.
According to
Mr Thomson, Dorran-type houses were in 1982 fetching materially lower prices on
the local market than equivalent houses of a traditional construction. Mr
Leighton disputes that fact. In particular he disputes that in 1982 Dorran-type
houses were fetching lower values, although he personally would have reduced
the value of any non-traditional house by about 10%.
I have
concluded that on the question of 1982 values there are grounds for preferring
the views of Mr Thomson to those of Mr Leighton. Mr Thomson is a locally based
valuer dealing with a considerable amount of work in the Moray area and this
also applied in 1982. He first inspected the pursuers’ home in 1984 and thus
applied his mind to the problem of valuing the house when much closer to the
state of the 1982 market. Mr Leighton saw the house for the first time only in
1988.
Mr Thomson’s
view that 1982 market conditions placed lower values on Dorran-type houses is
borne out by Mr Albiston, who noticed a similar phenomenon in Aberdeenshire.
Both Mr Albiston and Mr Thomson were quite certain that the market began to be
careful about Dorran-type houses by the end of the 1970s. This is borne out by
the important evidence of Mr Beck.
Mr Beck was a
local estate agent and obviously had a large share of the local business. Mr
Peach said that he placed the sale of his Findhorn house in the hands of Mr
Beck’s agency because that agency seemed to handle nearly all the houses in the
Findhorn area. Mr Beck had no doubt that from about 1978 onwards selling agents
were being careful of all PRC-constructed properties. He was familiar with the
attitude of lending institutions and his estate agency acted as agents for
three major building societies. By 1982 not only some building societies but
some solicitors would question a Dorran type of property. He said that when in
1984 he was informed by the pursuers that in 1982 their house had been valued
at £34,000 he was surprised. A busy estate agent would be familiar with values
in the housing market which were relatively recent. The pursuers also confirm
the evidence that there existed significant negative reaction to Dorran-type
houses prior to 1982 because before they bought their Findhorn house they had
explored the possibility of buying a house which had been recognised as being
of Dorran construction. At that time they had been advised by Alliance Building
Society not only that it might not be a desirable long-term investment but also
that they would be able to borrow only on restricted terms.
If some
building societies, some surveyors and the principal local estate agency were
not entirely happy about Dorran houses by 1982, then it is not difficult to
accept the views of Mr Albiston and Mr Thomson that these houses would have
attracted a lesser value than traditionally constructed houses. Certainly Mr
Brighton, who was a retired Scottish-area surveyor for Nationwide Building
Society, indicated that his society were not placing lending restrictions on
Dorran-type houses until 1984. I have no doubt that he is right about this, but
it would not take a total embargo on mortgages to affect the market. Indeed,
even in 1986 when it was recognised by all the witnesses that the value of
Dorran-type houses had diminished because of lending restrictions it was
acknowledged that certain societies (Halifax Building Society) were continuing
to lend on Dorran houses.
I can accept
that if a number of societies begin to show reservations about a type of house
then this could affect market values. A certain number of potential buyers will
be deterred. Mr Brighton indicated that his local managers had not brought
problems about Dorran houses to his attention. However, he was not speaking
about value. His local offices may have been lending freely on Dorran houses on
the basis of surveyors’ values, but that is not to say that local valuers were
not valuing such houses at a lower figure than would have been the case with
traditional houses.
Mr Leighton
was first brought into this case some considerable time after 1982, namely
1988. He had not in any event been particularly concentrating on the local
Moray market in 1982 and I think that he may be mistaken when he claims that at
that time the fact that a house was of Dorran type would not have had any
particular effect on its value. Only a small proportion of the comparable sales
he referred to were Dorran-type houses and his comparables were not available
for consideration. It is difficult to reconcile Mr Leighton’s evidence with,
for example, the fact that prior to 1982 Alliance Building Society for one were
advising potential purchasers to be careful about Dorran-type houses. If there
were some resistance to Dorran-type houses in the Findhorn area in 1982, then
doubtless this would have affected market values and it is difficult to see how
a reasonably competent local valuer could have escaped knowing this. After all,
a valuation is an exercise in placing a market value on the house and this
would have to take account of the actual market conditions at the time.
The defenders
themselves are, of course, local surveyors in relation to Findhorn, but I do
not know how Mr Mackay would have valued a Dorran-type house in 1982, since he
did not recognise the construction of the pursuers’ house and furthermore he
did not give evidence.
Senior counsel
for the defenders urged me to consider as a relevant fact the circumstance that
the party who sold the house to the pursuers placed an asking price of £35,000
on it. I have no idea how such a figure was arrived at by the seller and it
would be speculative to take the seller’s asking price as being a measure of
the true market value of the house. The house had been built in 1976 and for
all I know the seller may have been trying to recover the cost to him of the
house or he may have had some other reason for asking the price he did. He
achieved the price of £35,000 because the defenders valued it at just short of
that figure.
Thus, I have
concluded that Dorran-type houses bore a value in 1982 which was materially
less than the equivalent traditionally built house. Mr Thomson valued such a
house as the pursuers had at £25,000 and this fits in reasonably well with Mr
Albiston’s evidence that such houses were generally fetching 20% to 25% less
than traditional homes. I think that if Mr Mackay had recognised that the
pursuers’ house was a Dorran-type house he would have taken account of the
current local market values for such a house and valued it in the region of
£25,000. To fail to recognise that the house was a Dorran type of construction
and to value it as a traditional house at £34,000 was, in my view, an act of
negligence.
The position
therefore is that the pursuers bought for £35,000 a house which they believed
to have had a value of £34,000. This belief was engendered by the defenders’
report. However, at the time the house had a true value of £25,000 and, as a
result of the defenders’ negligence, the pursuers lost £9,000. The defenders’
senior counsel did not contest the contention of the pursuers’ counsel to the
effect that if the property had been negligently valued the pursuers had lost
the difference between what should have been the actual value of the property
purchased and the incorrect elevated value in the valuation which led to a
higher price being offered.
The pursuers
also claim compensation by way of solatium for the worry and distress
experienced when they tried to sell their home. I have no doubt that difficulty
in selling the home caused the pursuers upset but I am unable to attribute this
to fault on the part of the defenders. The pursuers certainly bought a house
having a lesser value than what they expected, but they will be compensated for
that. I am not told at what price they exposed their house for sale. For all I
know they had difficulty in selling the house because they did not take account
of its true reduced value. They may have tried to recover their original
outlay. Indeed, I was not told at what price the house was sold for eventually.
In any event I do not consider that it would be competent to award the pursuers
solatium under a joint conclusion. If the pursuers are entitled to solatium
I would have to assess it for each pursuer and this would require separate
conclusions. To illustrate my point, I got the impression that Mrs Peach was
more fundamentally disturbed by the problems involved in selling the Findhorn
house than her husband.
I shall
therefore sustain the pursuers’ first plea-in-law and award damages at the sum
of £9,000. On that sum I shall allow interest from July 20 1982 until April 4
1983 at the rate of 10% pa, from April 5 1983 to August 15 1985 at the rate of
12% pa and from August 15 1985 until payment at the rate of 15% pa. Because of
the defenders’ negligence the pursuers have had reduced capital since the date
when the house was bought.
Pursuers’
first plea-in-law sustained; damages of £9,000 awarded.
