In the recent case of Freemont (Denbigh) Ltd v. Knight Frank LLP, the High Court has rejected, as a preliminary issue, the claimant’s contention that the defendant valuer was liable for negligently over-valuing a piece of land.
The defendant had been instructed to value the land for secured lending purposes, which it did. Towards the end of the substantive limitation period, the claimant claimed that the report had also been commissioned to allow it to assess the value of the land for the purpose of a possible future sale. The claimant asserted that, had the defendant’s valuation been accurate and not a negligent over-value, it would have accepted one of the offers which it had received and, as the land now had no value, the claimant’s entire loss was attributable to the defendant.
Having analysed the documents and witness evidence closely, the judge accepted that the claimant’s evidence that the defendant knew the report was also to be relied on to value the land for an onward sale, had been produced after the event.
The judgment contains a summary of the common law duty of care owed by a valuer, namely:-
(1) that a duty of care in tort is likely to be owed to the person for whom the report was prepared (even though a contractual duty of care may also be owed to the same party);
(2) that the duty of care in tort is likely to be limited to the purposes for which the report was prepared;
(3) that a duty of care in tort may also be owed by a valuer valuing premises for mortgage purposes (at least if they are modestly valued residential premises), to the purchaser of those premises, if (i) the valuer knows that his report is likely to be shown to the purchaser, and (ii) the purchaser intends to use the premises for his own residential purposes, not to let them, and (iii) the valuer knows that his report is likely to be relied upon by the purchaser for the purpose of deciding whether to purchase the premises; but
(4) that a duty of care in tort is unlikely to be owed by a valuer instructed to produce a report for a lender for security purposes, to an investor who relies on the report for other purposes.
The judge stated that the first three propositions were well-settled. However, the fourth proposition, that a duty of care in tort is unlikely to be owed by a valuer instructed to produce a report for a lender for security purposes, to an investor who relies on the report for other purposes, could not have been viewed as being settled before the decision of the Court of Appeal in Scullion v. Bank of Scotland plc in 2011. Applying the reasoning of Lord Neuberger in paragraph 51 of Scullion, the judge stated that questions regarding the valuation of the land for sale purposes were “tricky”. He rejected the claimant’s assertion that the defendant knew (or knew there was a high probability) that the claimant would rely on the report when considering whether to sell the land.
Chris Harper is a partner and head of the dispute resolution team in Exeter. He specialises in commercial litigation and is named as a leader in his field by independent guides to the legal profession Legal 500 and Chambers. To contact Chris please call 01392 210700 or email drx@stephens-scown.co.uk.