As the dust starts to settle on the judgments of 2015, we take a look back at some of the claims that made it to the courtroom floor, the decisions that followed and the lessons that may be learnt by surveyors and their insurers.
Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd (2015)
In November 2011 the defendant valued a partly constructed residential development site for £3.25m in its existing condition and for £4.9m fully completed. In reliance, the claimant lender granted a new loan facility to the owner of the site for approximately £3m. In doing so, the claimant agreed with the borrower that approximately £2.5m of the new facility would be used to fully discharge an existing facility, granted in reliance on a previous valuation by the Defendant in February 2011. In due course the borrower defaulted on the new loan and LPA receivers were appointed to realise the value of the site. The claimant alleged the true values of the site were £2.25m and £3.7m respectively and that had it known this, the new facility would not have been granted.
In response the defendant applied for summary judgment, asserting that any loss arising as result of the redemption of the earlier facility could not have been caused by its November valuation.
The court found that the “but for” test for causation was not displaced by the decision in Preferred Mortgages v Bradford & Bingley Estate Agents (2002), which itself provided that any claim arising in relation to the valuation relied upon in granting the first facility was lost upon that facility being redeemed. Accordingly and on the claim as pleaded, any loss attributable to the existing indebtedness was not caused by the defendant’s assumed negligence.
It appears from this decision that the defendant has escaped liability in relation to the pre-existing facility not only as a result of its November 2011 valuation but also, potentially, in relation to its valuation in February 2011. However, in granting summary judgment the court recognised that, in principle, it would have been open to the claimant to seek as part of its existing claim, ‘the value’ of a claim for any loss caused by the February 2011 valuation.
The judgment is due to be appealed; the appeal hearing is listed to begin on either 20 or 21 April 2016.
Mohammed Sagir v E.Surv Ltd (2015)
The claimant was the co-owner of three flats in Manchester’s Great North Tower, which he purchased in December 2006 with his co-investor Samsul Alam. In 2008, and allegedly with a view to purchasing Mr Alam’s interest in each of the flats, the claimant instructed the defendant to provide a valuation for each flat. The claimant alleged each valuation was negligent and that he had consequently paid approximately £195,000 too much to Mr Alam.
At trial the defendant accepted that each of its valuations fell outside the margin for error but denied that it had caused any loss to the claimant This was on the basis that, amongst other matters, there had been no such agreement between the claimant and Mr Alam and no corresponding payments from the claimant to Mr Alam.
No evidence having been called by the defendant, the court was required to make a factual determination based on the evidence of the claimant and Mr Alam. In doing so, the court noted that while the burden of proof rested with the claimant and the material relevant to the existence of an agreement should have been readily accessible by the claimant, many of the background facts either contradicted the existence of an agreement or did not clearly evidence its existence. Therefore, the claim failed.
Although a fact sensitive decision, it reminds us of the critical role causation can and should play when seeking to defeat a claim for damages for negligence. It is also a reminder, if one were needed, that where the burden of proof rests entirely with the claimant, it may not be necessary or desirable as a defendant to adduce witness evidence at trial.
Edward Astle & Others v CBRE Ltd & Others (2015)
The claimants were investors in a Jersey-based Trust, which acquired six sites for development. In 2006, the claimants borrowed c.£114m from Bank of Scotland in order to fund the venture. The borrowing was secured against the sites which CBRE had collectively valued, on the instruction of Bank of Scotland, at c.£145m. CBRE's valuation had also been summarised in an information memorandum allegedly relied upon by the claimants when deciding to invest in the Trust. In 2010, following the collapse in property values in 2008, the development was cancelled. The claimants were unable to re-finance their loans and lost the entirety of their c.£27m investment. The claimants issued proceedings against CBRE (amongst others), alleging that but for its over-valuation, the claimants would never have invested.
In response and relying on SAAMCo principles, CBRE asserted that the losses sustained by the claimants were not attributable to any inaccuracy in its valuation and therefore fell outside the scope of its duty of care. It applied for summary judgment of the claim.
While recognising that there was considerable force in CBRE’s defence, the court considered it arguable that where valuation information was provided to an investor for the purposes of making a decision to lend, the duty is ‘qualitatively different’ from the scope of duty owed where the valuation was provided to a lender for security purposes. This was because, arguably, the deficient information went not just to pure value but also to the viability of the transaction as a whole. Accordingly, the application was dismissed.
Although this case has received limited attention to date, both its value and the novel application of SAAMCo principles in an investment context mean that it may yet produce an insightful judgment that sparks wider-interest. For that reason, it is one to watch. A trial date has not yet been listed.
Titan Europe 2006-3 Plc v Colliers International UK Plc (In liquidation) (2015)
In 2005 and acting on the instructions of Credit Swiss, the defendant valued a large commercial property in Germany at €135m. In turn, Credit Swiss advanced €110m to the owner of the property, Valbonne, by way of a secured loan which it then sold to the claimant pursuant to a process of securitisation whereby a number of loans were packaged together and a number of ‘Noteholders’ became the ultimate beneficiaries of the loan and the securities supporting them. In due course, Valbonne defaulted on its loan and the property was disposed of for €22.5m.
At first instance, Mr Justice Blair held that the true value of the property was €103m, to which a 15% margin of error should apply. Accordingly, he found that the defendant had been negligent. In addition he found that the claimant was entitled to sue for damages, which he assessed at €32m euros. The defendant appealed against both findings.
On the issue of negligence, the Court of Appeal regarded it as ‘inconceivable’ that the correct value of the property could be as low as €103m in circumstances where the judge had concluded that a valuation below €100m would carry no credibility and that a 15% bracket should apply. It also observed that the judge had ignored ‘the most cogent evidence’, being a sale of the share capital in Valbonne only 6 months earlier for €127.1m. It went on to find that the true value of the property was in fact €118.3m which meant, applying a 15% bracket, that Colliers had not been negligent.
On the issue of Valbonne’s standing and commenting obiter dicta, the Court considered the position of the Noteholders did not prevent Titan suffering a loss, its relationship with the Noteholders being analogous to that of a company and its shareholders.
This is a decision with mixed implications for valuers: on the one hand it is encouraging that the Court of Appeal was prepared to depart from the inferential conclusions as to value made at first instance; on the other its endorsement of the claimant’s standing has the potential to widen a valuer’s scope of duty and in turn its exposure to claims. An application to the Supreme Court for permission to appeal was lodged in November 2015, but at the time of writing the court had not yet dealt with the papers.
Albeit on a lesser scale than in previous years, it appears that the effects of the global financial crisis, and the property market crash that followed, have continued to be felt by valuers and their professional indemnity insurers during 2015. However, there is reason to be upbeat. Not only have a number of claims been successfully defended but, as the six year anniversary for pre-crash valuations has now passed, it would seem reasonable to expect, all things remaining equal, there to be a more benign claims environment in 2016. We shall see!