Surveyors Negligence: Valuation.
In the surveyors negligence case of Capita Alternative Fund Services (Guernsey) Limited (formerly Royal & Sun Alliance Trust (Channel Islands) Limited (1) and Matrix-Securities Limited (2) v Drivers Jonas (a firm) [2011] EWHC 2336 the court had to consider whether services provided by the Defendants was an advice case where the Defendants were advising whether to proceed with the transaction or providing information which the Claimants relied on. Which one would mean a different measure of damages.Drivers Jonas were instructed by Capital in 2001 to provide a valuation of a factory outlet shopping centre to be developed at Chatham Historic Dockyard in Kent.
The surveyors compiled a report which stated that the open market value was £48,150,000 or £62,850,000 with the benefit of enterprise zone allowances.
The Claimant acquired the Lease for £62,850,000 in reliance of the surveyor’s advice.
The development was opened in 2003. It was only 60% let and proved difficult to let and for tenants to trade successfully. As the rents were turnover rents this made a significant difference to the the valuation.
It was Capitals case that the surveyor’s were not simply providing a valuation, or advice as to rent and yields, they were advising on commercial viability of the development and providing commercial investment advice. As a consequence they claimed they were entitled to recover all their losses suffered.
They calculated their losses to be £64,000,000 based on the current value of the property which was only £7,200,000 with account financing costs and profits.
The Court considered that Drivers Jonas did not have the necessary expertise to advise so should have turned down the instruction instead of charging the £500,000 fee that they did.
The judge did not accept that Capital was entitled to recover their total loss.
The Judge stated that whilst the Defendant did agree to provide commercial investment advice, this was part and parcel of providing the valuation. It was the valuation figure that was crucial in determining the price payable and the scope of duty was limited to ensuing that the valuation was accurate. Therefore the surveyor was held liable for the £18,500,000 over valuation but not any of the other losses claimed.
The Defendants brave attempt to argue that their valuation fell within a range of possible valuations failed. The court said that authorities provide permissible margins of error depending on the nature of the valuation It is for the court to determine both the competent valuation and the permissible margin of error. In this case, the court held that the competent valuation should be GBP £29.735m.
The court did not specify a margin in this case because the Defendants were so far out at 30% but did say even if allowing for the defendants plus or minus 15% they had been negligent. However, to make the Defendant liable for all losses resulting from the inaccurate information, and therefore for any further drop in value in the property after 2001, would be unfair and unreasonable unless there were some special policy justifying it, which in this case, the court did not find.
The case of Banque Bruxelles Lambert SA-v-Eagle Star Insurance Co Limited sub nom. South Australia Asset Management Corporation-v-York Montague Limited (HL) [1997] AC191 was at the centre of the analysis on this issue.
Lord Hoffman
- “The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the advisor must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong”.
If the surveyor had been asked to advise on whether the transaction should proceed then the surveyor could well have been liable for all the losses suffered as a result of the development.There has been no appeal as at todays date.
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