In this case, a valuer was found not to be negligent where a valuation report was relied upon for a purpose that was outside the scope of the instruction.
This issue came before the High Court as a preliminary issue: whether the Defendant valuer was liable for negligently over-valuing a piece of land. The claim was brought for loss of millions of pounds.
The Defendant valuer Knight Frank LLP (“Knight Frank”) 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 for the development of the land and required the valuation to provide to his bank.
The valuation report was prepared for the purpose of being provided to the bank in support of the loan application. This purpose was made known to the valuer. 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 on the land were received by Freemont and subsequently rejected as they fell below the level of the valuation of the land made by the Defendant. There was a delay in selling the land as all offers were below the minimum set by the valuation figure, and as a result the land fell into disrepair and significantly reduced in value.
Freemont sued Knight Frank for the alleged negligent overvaluation of the land.
It was claimed by Freemont, that, had Knight Frank’s valuation been accurate and not a negligent over-valuation, it would have accepted one of the offers which it had received and, as the land now had no value, the Claimant’s entire loss was attributable to the Defendant.
The case discussed the four tiers of common law duty of care owed by a valuer:
- 1. That 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. That the duty of care in tort is likely to be limited to the purposes for which the report was prepared;
- 3. That 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
- The valuer knows that his report is likely to be shown to the purchaser, and
- The purchaser intends to use the premises for his own residential purposes, not to let them, and
- 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
- That 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.
The Judge applied Lord Neuberger’s comments from Scullion and rejected the claimant’s assertion that the Defendant knew (or knew there was a high probability) that the Claimant would rely upon the report when considering whether to sell the land.
It was held by the High Court that the duty of care owed by Knight Frank to Freemont, extended only to producing the valuation for the bank’s consideration during the loan application process and that there was no contractual basis for allowing Freemont to rely upon the report for any other purpose. It was held that the tortious duty of care extended no further than the contractual duty of care.
This case 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.