In Freemont (Denigh) Limited v Knight Frank LLP [2014] EWHC 3347 (Ch) a developer rejected offers to purchase its land as its lender had been provided with a valuation report by the defendants which valued the property at significantly more than had been offered by the prospective purchasers. The developer alleged that it had suffered losses as a result of its reliance on the valuation report. The Court gave judgment on five preliminary issues resulting in there being no claim in negligence against the valuer.

Background

The predecessors in title of Freemont (Denigh) Limited and Freemont Limited, had acquired development land in North Wales (previously the North Wales Hospital). Freemont sought and obtained outline planning permission from the Local Authority. One of the conditions of the outline planning permission was that Freemont provide a bond to secure its agreement to deposit £5 million into an account in the name of the Local Authority in order to finance works at the site.

Freemont sought funding for the bond payment and negotiations took place with the bank. Knight Frank were commissioned to prepare a valuation report on the site. The report, which specified that it was provided for secured lending purposes, valued the site as £17 million with outline planning permission and £18.7 million with detailed planning consent.

Freemont had received some offers to purchase the site: one for £10.45 million and one for £11.1 million. These offers were made on the condition that detailed planning consent was obtained.

The purchasers refused to match Knight Frank’s valuation and Freemont did not sell the site.

Freemont later claimed that the value of the site had been entirely lost as a result of a negligent overvaluation provided by Knight Frank. Freemont claimed that in relying upon the valuation report it had suffered loss as it had rejected the earlier offers to purchase the site, and/or had suffered a loss of chance to sell the site.

The issues

The Court identified the following preliminary issues:

  1. In relation to the Defendant's valuation of the Property and the preparation of its Valuation Report dated August 2006, did a contract of retainer come into existence between the Defendant and the Claimant?
  2. If the answer to (a) is yes, what were the terms of the contract of retainer?
  3. Did the Defendant owe 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 Valuation Report?
  4. Whether, in the light of answers to (a) to (c) above and/or the content of the Valuation Report, the Claimant was precluded from relying on the Valuation Report?
  5. Are the heads of loss as pleaded in paragraphs 21(b) and 21(c) of the Particulars of Claim capable of falling within the scope of any obligation or duty held to be owed by the Defendant to the Claimant and/or are they too remote/unforeseeable to be recoverable from the Defendant?

Held

In respect of the first issue set out above, the Court held that the answer was yes, and that this was not an uncommon arrangement.

In respect of the second issue, the Court held that the critical term of the retainer was that the report had been prepared for the purpose of Freemont obtaining secured lending. The Court rejected Freemont’s submission that it had been prepared for Freemont “to rely upon in the future when forming its plans” for the site.

In respect of the third issue, the Court held that Knight Frank owed a duty of care in tort and that the extent of this duty was the same as the contractual duties owed under their retainer with Freemont.

In respect of the fourth issue, the Court held that Freemont could rely on the valuation report but only for the purposes for which the report was provided i.e. they could rely on the report to seek secured lending but not for the consideration of offers to purchase the development site.

Therefore, Freemont were unable to bring a claim for negligence against Knight Frank and the fifth preliminary issue need not be decided.

Comment

Clearly this case will be most relevant to actions between investors or developers and surveyors. It is of more general interest because it shows a continued willingness of the Court to limit the scope of surveyors’ liability.