Louise Clark analyses a decision in which a valuer was held not responsible for losses attributable to different effective causes.
Key points
- In professional advice cases, the scope of the duty of care depends on the purpose for which the advice/information is provided
- A valuer’s responsibility is limited to its area of expertise, so rarely will a valuer be responsible for all the consequences of a transaction based on negligent advice
A claim for damages for a negligent property valuation requires a negligent valuation which caused the loss claimed. The High Court has considered such a claim in Hope Capital Ltd v Alexander Reece Thomson LLP [2023] EWHC 2389 (KB).
Background
The case concerned a valuation of Cedar House, a Grade II* listed brick and timber building on the edge of Cobham, Surrey. The property was let by the National Trust, the freehold owner, to St Anselm Heritage Properties Ltd in March 2022 for use as a hotel and restaurant. The lease was for a 99-year term on a full repairing basis.
In a report of February 2018, the defendant valued the property at £4m as security for a bridging loan of £2,215,440 by the claimant to St Anselm. Subsequently, St Anselm defaulted on the loan and receivers took possession of Cedar House in November 2018.
Shortly afterwards, the National Trust served a section 146 notice on St Anselm concerning irresponsible alterations to turn the property into a residence without listed building consent. The property was eventually sold in October 2020 for £1.4m.
The claim
Hope alleged that the ART valuation was negligent: if it had reflected the true value of the property of £2.15m, no transaction would have taken place. Hope accepted that its loss was capped by reference to the difference in value between the £4m and a non-negligent 180-day market valuation (based on a restricted sale period of 180 days) of £1.95m (South Australia Asset Management Corporation v York Montague Ltd [1996] 2 EGLR 93). Hope claimed £2.05m and interest.
ART accepted at trial that it was in breach of duty, but denied causation and loss, and alleged contributory negligence by Hope.
Valuation
The court decided that the open-market value of the property at the valuation date was £2.75m and that the 180-day valuation was 10% less at £2.475m, with a band of tolerance of 15% (K/S Lincoln and others v CB Richard Ellis Hotel Ltd [2010] EWHC 1156 (TCC); [2010] PLSCS 156). Consequently, ART’s valuation was incompetent.
There was no dispute that Hope had relied on the valuation to advance the loan and would not have made it otherwise. This was a “no transaction” case.
Interest
A lender may be entitled to interest where it can provide evidence that, but for the negligent valuation, it would have lent to a different identified borrower who would have paid full contractual interest, but whose demand for finance could not be satisfied by the lender (Swingcastle Ltd v Alastair Gibson (a firm) [1991] 1 EGLR 157). Hope’s claim for contractual interest failed because it was unable to provide evidence of potential borrowers, requests for funding or correspondence supporting such loans.
Total transaction loss
Consequently, Hope’s maximum recoverable loss was the transaction loss on capital advanced, plus the costs of extraction, less the sale proceeds and funds received. This resulted in a figure of £875,401.40 – less than the SAAMCO cap – together with statutory interest, which the court assessed at 3.5%.
The law
The question for the court was what damages are recoverable where, but for the negligence of the defendant, the claimant would not have embarked on a course of action but part or all of the loss suffered arose from risks which it was no part of the defendant’s duty to protect against.
The court reviewed the authorities including BPE Solicitors and another v Hughes-Holland [2017] UKSC 21; [2017] PLSCS 70 and Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 40; [2021] EGLR 34, from which it distilled the following principles:
1. “Advice” and “information” are not mutually exclusive categories. The question is whether the person providing the service has assumed responsibility for the risk of the whole transaction or just a part of it, which is fact-sensitive.
2. The focus must be on the purpose for which the advice or information was provided.
3. The causative potency of the information provided cannot of itself be determinative of the categorisation particularly in “no transaction” cases, but it can be relevant to the purpose.
4. It will usually be clear that a valuer’s responsibility is limited to its area of expertise and that there are separate considerations relevant to the client’s decision.
Total actionable loss
The judge decided that the case was an ordinary valuer’s negligence case. The purpose of the advice was to provide the lender with an opinion on the current market value of the property offered as security for the loan, on which it was entitled to rely. It was critical in this “no transaction” case.
However, there was no clear understanding of an extended duty or other evidence which elevated the case to the rare situation where the valuer’s duty was one which extended to protecting the lender against all the risks of the transaction.
The experts agreed that there was a lack of movement in the market between February 2018 and March 2019. The loss of value in the security – between £2.75m (or the 180-day valuation of £2.475m) and the sale price of £1.4m – was caused by a combination of service of the section 146 notice, delay in resolving it and the effects of Covid. The capital loaned was lower than either valuation so, but for these factors, the claimants would not have suffered any loss of capital. Consequently, Hope’s actionable loss was nil.
Louise Clark is a property law consultant and mediator
