Assessing liability in valuer negligence cases - where are we now?

The recent High Court decision in Bratt -v- Jones [1] provides a helpful reminder of how to approach the question of liability in valuer negligence cases, an area in which there is an extensive but at times inconsistent body of case law.

Background summary

Mr Jones provided a valuation of a large residential development site (the Site) of £4.075m. Mr Jones had been instructed pursuant to an option agreement between Mr Bratt and Banner Homes Limited (Banner) pursuant to which Banner had an option to purchase the Site from Mr Bratt for 90% of its market value, to be determined (if not agreed) by a third-party valuer.

Mr Bratt’s position was that the true value of the Site was actually in the region of £7.8m with a margin of error of 10% either way, i.e. between £7m and £8.6m, and that he therefore received substantially less from Banner under the option agreement and was entitled to damages accordingly. Mr Bratt’s case on liability focussed on the ‘result’, i.e. the valuation figure actually arrived at, rather than how it was arrived at, i.e. how Mr Jones allegedly fell short of the requisite standard of competence as a valuer.

Mr Jones’ position was that a competent valuation was in the region of £4.5m with a 15% margin of error i.e. between £3.825m and £5.175m. Mr Jones’ case on liability was more concerned with how the valuation was arrived at, submitting that the starting point must be the Bolam [2] test; whether the defendant has acted in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession. If Mr Jones acted reasonably competently in approaching the Valuation in a particular way, the next question is whether that methodology was applied in a reasonably competent way. If so, then regardless of the ‘result’, Mr Jones argued that he could not to be regarded as having acted negligently.

Relevant principles to establish liability

After reviewing the applicable authorities, the judge highlighted two key principles that he considered could be drawn (noting in particular two of Buxton LJ’s observations in Merivale Moore -v- Strutt & Parker [3]):

• That to establish negligence on the part of any professional, it is a fundamental requirement for a claimant to show that the professional did not act in accordance with practices regarded as acceptable by a respectable body of opinion in the relevant profession (i.e. the Bolam test); and
• It is in any event also a pre-condition of liability that the valuation in question falls outside of the ‘non-negligent’ range permitted in respect of that particular valuation (following the well-known guidance on appropriate margins of error set out in K/S Lincoln [4]).

To give effect to these two key principles, the following steps were needed:

• First, the Court must form its own view as to the ‘true’ value as at the valuation date. This must be based on the evidence and applying the professional practice standards of the time.
• The Court must then determine the appropriate margin of error. This will depend on the facts of the case and will be guided by the principles summarised in K/S Lincoln (essentially, how complex the valuation was to perform).
• If the valuation falls within the relevant margin of error, then liability cannot be established.
• If the valuation falls outside the relevant margin of error, then the valuer’s competence has been called into question, and the Court must then go on to apply the Bolam test to determine whether liability is established.

Court’s approach in this case

Valuation exercise

Following a detailed discussion of the expert evidence, the judge concluded that:

• The ‘true’ value by reference to comparables was in the region of £4,746,860 arrived at by reference to a £ per plot basis subject to certain adjustments to reflect specific characteristics of the comparables.
• Valuing the Property on a residual valuation basis as a cross check (a common valuation methodology for development sites) produced a figure of between £4.4m and £4.7m, with the judge adopting £4.55m as a mid-point.
• Since the cross-check of the residual valuation of £4.55m was broadly consistent with the comparable valuation of £4,746,860, the Judge adopted the latter figure because the experts had agreed that the primary valuation method was the comparable approach.

Margin of error

The only expert evidence on an appropriate margin of error was from Mr Buckingham, the expert appointed by Mr Jones, who supported a margin of error of 15%. The judge ultimately agreed with this, having regard to (amongst other things) the guidelines set out in K/S Lincoln (5% for residential properties, 10% for unusual residential properties and commercial properties and 15% (or potentially higher in exceptional cases) for more complex properties), the variety of issues and number of questions of judgment involved in the valuation exercise, and that the case law [5]  tends to support a higher margin for development plots with unique characteristics than for standard residential property.

On that basis, the original Valuation fell (just) within a non-negligent margin of error, being within 14.15% of the ‘correct’ valuation as determined by the Court, and Mr Bratt had failed to establish liability.

Bolam test?

It was not necessary to assess whether Mr Jones had not acted in accordance with practices regarded as acceptable by a respectable body of opinion in the profession given the margin of error was not exceeded.

Had it been necessary, however, the judge noted that he would have been bound to limit the exercise to the specific allegations of negligence pleaded in the Particulars of Claim, and in fact to one sub-paragraph as other specific allegations were of no causative significance.

Key takeaways

This case is a reminder that, even if a claimant establishes that the original valuation falls outside of the margin of error to the true valuation, it may still not be enough to establish liability. Falling outside the permissible margin of error will be highly persuasive as to liability, but it is important to carefully plead specific allegations of negligence as to why the valuation was wrong in order to meet the Bolam test.

Early and detailed engagement with a suitable valuation expert witness to understand not only what their retrospective valuation would be but also in what specific respects they consider the original valuer has not acted in accordance with the requisite standards of their profession will therefore be essential.

The decision is also another useful yardstick in a growing body of caselaw on where the permissible margin of error should lie. Our recent experience is that defendant valuers are arguing more and more for higher margins of error to apply, but such arguments are largely unsupported by both historic and more recent caselaw on the point. The guidance from K/S Lincoln appears still to hold good.

Authors: Claire Kershaw, Nick Curling, Neil Franklin

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[1] Rowland Philip Bratt -v- Nigel Lawson Jones [2024] EWHC 631 (Ch)

[2] Bolam -v- Friern Hospital Management Committee [1957] 1 WLR 582

[3] Merivale Moore Plc v Strutt & Parker [1999] Lloyd’s Rep. PN 734, at [515G] and [516F]

[4] K/S Lincoln & ors -v- CB Richard Ellis Hotels Limited [2010] EWHC 1156 (TCC)

[5] Such as Dunfermline Building Society -v- CBRE Ltd [2017] EWHC 2745 (Ch)

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.