Freemont (Denbigh) Ltd v Knight Frank LLP [2014] All ER (D) 165 (Oct)

On 14 October 2014 Stephen Smith QC sitting as a Deputy High Court Judge in the Chancery Division handed down judgment on five preliminary issues concerning a multi-million pound dispute over an allegedly negligent valuation of a development site.

HELD, although a valuer owes concurrent duties in contract and tort to a developer, the developer's claim for loss of profit or loss of chance of a subsequent sale, were outwith the scope of the valuer’s duty. 

The Facts 

The Defendant valuer Knight Frank LLP (“KF”) had been instructed to value a plot of land, approximately 17 acres in size, on the outskirts of Denbigh, North Wales. The landowner was seeking finance to develop the land.

The valuation report was prepared for the purpose of supporting the landowner’s application for finance from the proposed lender. The valuer was aware of this purpose. The valuation was subsequently relied upon by the Claimant, Freemont (Denbigh) Limited (“Freemont”), as a minimum price to accept when selling the land.

A number of offers to purchase the land were made to Freemont. These fell below KF’s minimum valuation and so were rejected. The failure to obtain an offer in excess of the minimum valuation caused a delay in the sale of the land and as a result, the land fell into disrepair and significantly reduced in value.

Loss claimed

Freemont claimed that it suffered loss of profit (by not accepting one of the developer's offers) and claimed damages for the same, together with damages for all subsequent marketing costs and costs of future disposal of the Development (giving credit for any future sale). Further or alternatively, Freemont claimed that it had suffered the loss of a chance to sell the Development. 

The Decision 

Stephen Smith QC gave judgment on five preliminary issues directed by Master Price on 12 August 2013The common law position on the duty of care owed by a valuer was summarised as follows:

  1. 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 may also be owed to the same party);
  2. The duty of care in tort is likely to be limited to the purposes for which the report was prepared;
  3. 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 
    1. The valuer knows that his report is likely to be shown to the purchaser, and 
    2. The purchaser intends to use the premises for his own residential purposes, and not let them, and
    3. 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. 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.

Of the above four propositions, the first three were well-settled. The fourth however, could not be regarded as settled before the Court of Appeal’s decision in Scullion v Bank of Scotland plc [2011] 1 WLR 3212. In Scullion, Lord Neuberger MR held that a valuer acting for a lender did not owe a duty of care to a borrower where the loan was for a buy-to-let investment property.

Applying the reasoning of Lord Neuberger in Scullion, Stephen Smith QC held that questions regarding the valuation of the land for sale purposes were “tricky” and he rejected Freemont’s contention that KF knew or ought reasonably to have known that it would rely on the report when considering whether to sell the land in the future. In this instance therefore, the duty of care extended only to the provision of a report for the purposes of securing finance. KF had not negligently valued the land at such a low figure that Freemont had been unable to obtain the financing it had negotiated (paragraph 148).

This case is welcome news for valuers and their insurers and shows that the Court will look to the purpose behind the valuation report and that reliance upon the report will be limited to the purpose of the valuation report.