A recent Court of Appeal decision provides reassurance to surveyors and their insurers regarding scope of duty of care in a mortgage valuation, in particular regarding the circumstances in which a valuation surveyor should recommend a full structural survey.
Hubbard v Bank of Scotland Plc (t/a Birmingham Midshires)  EWCA Civ 648
Mrs Hubbard purchased a large house on an old quarry site in Wolverhampton (the Property) with the assistance of a loan provided by the Bank of Scotland Plc (the Bank). Prior to purchase, a surveyor employed by the Bank (the Surveyor) undertook a valuation of the Property for a fee of £715 and the valuation report was addressed to Mrs Hubbard (the Valuation Report).
The Valuation Report noted a crack in the wall of the rear bedroom. However, the Surveyor confirmed the crack to be in Category 0 (i.e. up to 0.1mm in width) and that the Property had not suffered from recent movement. Therefore, the Surveyor confirmed that no further action was required.
The Valuation Report contained guidance notes on the first two pages which stated:
"You have chosen a valuation report which is a limited inspection of the property highlighting only those items which we consider will materially affect value. It is prepared…in accordance with the RICS Mortgage Valuation Specification…Valuers cannot see through solids…Valuers will look at the outside of the property…You still have the option to request a more detailed report and we would be pleased to help you with this."
Following completion, the Property suffered from differential subsidence and underpinning works were carried out. Subsequently, Mrs Hubbard pursued a claim against the Bank to recover her losses on the basis that the Valuation Report prepared by the Surveyor (its employee) failed to:
- state that the subsidence was ongoing;
- advise Mrs Hubbard to seek specialist advice; and
- warn Mrs Hubbard that the valuation should be reduced very substantially because of cracking.
First instance decision
The judge at first instance dismissed Mrs Hubbard's claim. It was held that there was no evidence that the Property was the subject of subsidence (at the time of the Valuation Report) and therefore the Surveyor could not have been expected to predict later events. Further, the first instance judge held that the Valuation Report was accurate in what it reported and it recommended independent advice, which Mrs Hubbard did not act upon.
Mrs Hubbard appealed the first instance decision on the basis that, whether or not subsidence had taken place recently, the Surveyor was under a duty to warn of the risk of future subsidence at the Property which was sufficient to require a structural report to be recommended.
Court of Appeal decision
The Court of Appeal focussed on the limitations of the Valuation Report and found that these were "amply and clearly spelled out" and that the Surveyor was instructed to advise on matters relevant to valuation, not to provide a full structural appraisal of the Property. The Surveyor's duty was therefore held to be more limited than that of a structural surveyor who is expected to look beyond the surface. The Court identified that the Valuation Report highlighted that the Surveyor was not able or expected to do this.
The Court did not find that the Surveyor was obliged to recommend more extensive investigations by virtue of any suspicion, as the Surveyor considered that the crack was "small, old and not ongoing". Further, there was no positive expert evidence of anything, which was or should have been apparent to the Surveyor, which could suggest ongoing movement and therefore a material effect on value.
In dismissing the appeal, the Court found that it was "unrealistic" to suggest that a valuation surveyor, who sees a small long-standing crack displaying no signs of on-going movement, is negligent by failing to recommend a full structural survey. The Court said that:
"To set the duty at that level would mean that the sale of any property which displayed cracking of almost any kind would be held up pending a full structural survey. Such a conclusion would, I would have thought, not be welcome by vendors, by lenders or by borrowers."
This decision is welcome news for surveyors and their professional indemnity insurers.
Firstly, as was to be expected, the Court drew a clear distinction between the scope of duty of a surveyor preparing a mortgage valuation and a surveyor undertaking a full structural survey, recognising that a valuation surveyor's retainer is much more limited. If a valuation surveyor's retainer states that his task is limited to a visual inspection, he cannot be expected to look beyond the surface. This aspect of the decision serves as a very useful reminder to surveyors to set out clearly the scope of their retainer to ensure that their clients understand it. This case illustrates that this can have a material impact on whether a surveyor is ultimately found to have been negligent.
Secondly, a valuation surveyor is only under a duty to report on apparent defects which could have a material effect on value and is not under a duty to recommend more extensive investigations unless there is sufficient evidence. In particular, therefore, the existence of cracking did not in itself create an obligation to recommend a full structural survey, in circumstances where there were no signs of ongoing movement and the cracking had no material impact on value.