In Freemont (Denbigh) Ltd v Knight Frank LLP [2014] EWHC 3347 (Ch) the Court reaffirmed the well-established principle that a valuer does not owe a duty of care to an investor  where he is instructed to produce a report for one purpose but his report is relied on by the  investor for other purposes.

Facts

In 2006, Knight Frank was instructed by Freemont to provide a valuation report in support of a loan  application to fund a redevelopment. The site was valued at GBP 17- 18.7 million depending on planning permission. Freemont saw this valuation as the minimum price it  should accept when selling the site and therefore rejected subsequent offers it received from  developers both in the region of GBP 11 million. In the event, the site was not redeveloped and  fell into disrepair to the extent that it was regarded  as worthless by Freemont by the time  proceedings were brought. Freemont claimed that Knight Frank had been negligent and overvalued the  site and sought damages  for loss of profit in respect of the rejected offers and, alternatively,  loss of a chance to sell the site.

Decision

The Judge had no doubt that a retainer existed between Freemont and Knight Frank but found that,  under the terms of that retainer, Knight Frank was simply required  to provide a valuation report  for secured lending purposes. This created a contractual duty of care. The Judge, however, rejected the evidence which Freemont  sought to put forward to argue that there was also an express or implied term that the report would  also be relied upon by Freemont when forming development plans for the site. In fact, he went as  far as to conclude that such evidence had been fabricated. The Court accepted that in addition to the contractual duty, Knight Frank also owed Freemont a duty of care in tort. However, it held that there was no  basis for extending the duty of care in tort beyond the contractual duty and commented that “it  would be remarkable if the duty of care owed by Knight Frank in tort were more extensive than their  contractual duty of care”.

It followed that whilst Freemont could rely on Knight Frank’s report for the purpose of obtaining  funding, it could not claim for losses arising from its investments decisions made in reliance on  the report.

Comments

This decision will obviously be welcomed by surveyors. It shows that the Court will look at the  purpose behind a valuation report and will not hold surveyors liable for investment losses where  the report was provided for secured lending purposes and the surveyor did not know that the investor/developer would rely on it  when selling the land.