Scope of duty questions are a recurring theme in claims against professionals. It is not enough for a claimant to say that a loss may not have occurred “but for” the defendant’s supposed error; the claimant must also show that the loss suffered is one for which the professional assumed a legal responsibility.
A High Court decision at the end of last year, Astle and others v Evans Randall and CBRE1 , looked at these arguments again, and confirmed a judicial reluctance to strike out claims on scope of duty grounds. But, it seems to us, it is a case in which the court might well have taken a more robust stance.
Scope of duty points are often difficult and fact sensitive and the court’s current approach (Equitable2 and BCCI3 ) appears to be that it should wait for the full facts to emerge at trial. On the other hand, there is something to be said for grasping the nettle early on scope of duty points: huge costs and time can be wasted on factual enquiries which prove to have been largely speculative.
This case was a summary judgment application by various defendants, to dispose of a claim brought by investors in a trust. The defendants were Evans Randall, who were said to have been responsible for ensuring that the Information Memorandum (IM) was accurate, and CBREwho had provided property valuations included within the IM which were said to have been relied upon for the purposes of the investment in the trust.
Each defendant argued that the claim should fail as the losses could not fall within the scope of the relevant duty. Each said that it was simply providing information to potential investors and there was no allegation that either was providing any advice as to whether or not to invest in the trust (the distinction drawn by Lord Hoffman in SAAMCo)4.
It was also argued that even if the information in the IM, including the valuations, had been correct, the losses would have been the same: the claimants would still have lost all of their money in any event as their security was subject to the first ranking charge of the bank which had advanced funding for the project.
Both applications failed. The judge found that it was at least arguable that the duty of Evans Randall, as “promoter” of the scene, went beyond that of providing information, but also to questions relevant to the commercial prospects for the investment more generally. That was, the court said, ultimately a factual question which required a full trial, not a surprising conclusion. CBRE had a further argument however. The approach to assessing the losses which fall within the professional’s scope of duty is generally to consider what position the claimant would have been in if the negligent advice had in fact been correct. So in this case, that would require the court to consider what position the claimants would have been in had the property valuations in the IM been correct.
As was argued by CBRE at the hearing, the claimants would have been in exactly the same position, because their security was subject to the bank’s claims. No detailed factual enquiry would be required to establish whether, once the bank’s security had been satisfied, there would have been anything left over for the claimants (and in fact evidence was produced at the hearing which demonstrated that there would not have been).
On the face of it, the court would therefore have been quite justified in allowing CBRE’s application for summary judgment on this basis.
The judge however considered that the claimants’ loss might be the difference between the true value and the negligent valuation, at the time of the incorrect valuation, regardless of whether it could be shown later that the claimants would have lost all of their investment in any event.
The judge however questioned whether that was the correct approach in this case:
“It is not obvious to me that the court is required to work out how much worse off the Claimants are than they would have been if the valuation in fact carried out had been correct by referring to what can now be seen to have occurred, without regard to the difference between valuation and true value at the transaction date.”
The alternative approach considered by the judge was that the measure of loss attributable toCBRE should be based on the difference between the true value of the properties and the negligent valuation, to be assessed at the time of the incorrect valuation, regardless of whether it could be shown later that the claimants would have lost all of their investment in any event.
While that approach may make sense in a straightforward negligent valuation case, in which a mortgage lender is owed a duty of care, it would arguably produce a quite illogical outcome on the facts of this particular case (and no doubt many others).
It was said by the claimants that the difference between the true value of the properties and the negligent valuation, at the time of valuation, was greater than the total amount invested by the claimants. On that basis, they would be able to recover the full amount of their investment, even if it could be shown later that the claimants would ultimately have lost all of their investment, irrespective of the valuation (because of the bank’s first ranking charge).
Such an approach could result in a very strange result, in which the losses deemed to fall within the scope of a defendant’s duty were higher than the losses caused, as a matter of fact, by the defendant’s negligence5 (when it should be the case that legal causation acts as a secondary filter to reduce the basic loss from a “but for” analysis).
We will wait to see whether this case reaches trial, at which point some of these issues will no doubt be explained in greater depth.
In the meantime, the key point to take away from this judgment (rightly or wrongly) is the difficulty in persuading a court to dispose of scope of duty issues at the summary stage.