Valuer negligence

The Court of Appeal has recently handed down its judgment in the case of Bratt v Jones, concerning the test for establishing liability in the context of an allegedly negligent property valuation.

Dismissing the Claimant/Appellant’s appeal, the Court of Appeal firmly endorsed the approach and findings of the High Court (see our article on that earlier decision here), which found that for the Claimant to establish negligence; the contested valuation had to fall outside the margin of error and the methodology had to be negligent.  

The Court of Appeal did however note what was referred to as the "logical fallacy” of this ‘pre-condition’ approach, suggesting that the two stage approach to liability may be considered by the Supreme Court.  

Below we summarise the key points from the Court of Appeal’s judgment and what these mean for parties engaged in similar disputes.

The legal test to determine liability

The first and most significant challenge to the High Court decision was that the judge applied the wrong legal test to determine liability.  The Appellant contended that it was enough for a claimant to show that the valuation fell outside the permissible margin of error, following which the burden would then shift onto a defendant to prove that it was not negligent. 

The Court of Appeal had little hesitation in concluding that this submission was not sustainable on the law as it stands.  The Court of Appeal decision in Merivale Moore had held that a claimant in a valuer's liability case must prove both (i) that the valuation was outside the acceptable bracket of values, as determined by the court, and (ii) that the valuer breached their Bolam duty, i.e. that one or more of the steps in the valuation methodology had not been in accordance with the practices regarded as acceptable by a respectable body of opinion within his profession.  Both the High Court and the Court of Appeal in the present case were bound by Merivale Moore, and this disposed of what the Court of Appeal described as the “evidential burden argument”. 

The Court of Appeal noted, however, that it had heard argument on behalf of the parties in relation to the “logical fallacy” of this ‘pre-condition’ approach, namely that a negligence claim might fail even if the valuers were in breach of their Bolam duty, if their valuation fell within the acceptable bracket as determined by the court. The Court of Appeal noted two issues with the pre-condition approach, the correctness of which “can only be determined (in another case in which it arises directly) by the Supreme Court”. 

First the Court of Appeal noted two passages in judgments of Lord Hoffmann seeming to affirm that the “basic requirement” for a claimant is to show negligence and rejecting any suggestion that a valuer’s only duty is to arrive at a figure within the relevant margin of error. 

Second the Court of Appeal cast doubt on one apparent justification for the pre-condition approach, namely that a claimant will not have suffered loss unless the valuation was outside the relevant margin of error.  It noted that “a large spectrum of factual situations” arise in valuation cases and that it was “impossible to hold that a claimant could never succeed in obtaining damages for breach of duty against a careless valuer whose valuation fell within the bracket”; indeed, that was precisely the case in Merivale Moore (where the valuer failed to give a particular warning). 

Determination of the bracket

The Appellant’s second ground of appeal was that the judge erred in treating the determination of the bracket as a question of fact to be determined on the basis of expert evidence, and that this is a question of law for the court. 

It was further argued that the margin of error adopted by the judge, of up to 15%, was unjustified, on the basis that the property was unexceptional, and distinguishing the instant case from Dunfermline, which also adopted a margin of 15%, but where no comparables at all were available to the valuer.

The Court of Appeal examined the genesis and terms of the well-known passage in K/S Lincoln, concluding that, when read as a whole, it was “apparent that [Coulson J] was not purporting to set out any principles of law for the determination of the bracket”.  The principles were set out in general and imprecise terms; “That kind of phraseology would not have been employed in setting a legal test”. 

The Court of Appeal had little hesitation in concluding that the judge had carried out “an entirely appropriate evaluation of the evidence, including the only available expert evidence”, namely that adduced by the valuer, which had expressly rejected the suggestions that the site was unexceptional, and that a 10% bracket was appropriate in this case.

Comment

The future

The judgment (delivered unanimously by Master of the Rolls Sir Geoffrey Vos, Lord Justice Baker and Lord Justice Snowden) gives a clear indication that the “logical fallacy” of the pre-condition approach should be reviewed by the Supreme Court in an appropriate case. This would be positive for lenders as the focus would be on the valuer’s negligence not whether the the valuation figure itself is broadly ‘right’. That said, the margin of error will retain an important role in such cases; whether a valuer is within or without the margin of error will be highly influential in determining whether the valuer has been negligent.

Practical points

The relevant margin of error on liability, and an expert valuer’s view on it, is key to the likely success of a claim. In this case, the difference between the valuer being successful or not was 0.85%. It is also not enough only to show that a valuer is outside the margin of error; you need to show how the valuer has been negligent. It is therefore important that there is:

• early and meaningful engagement with an expert at the outset of the potential dispute;

• testing of the expert’s views and clarifying (in addition to their opinion of the ‘true’ value):

  • the precise respects in which it may be alleged that the valuer failed to discharge the Bolam duty; and

  • the expert’s detailed views on the appropriate margin of error; and

• full pleadings and/or expert evidence adduced to the Court on all these matters.

We are market leading experts in professional negligence and would be delighted to discuss the impact of this appeal decision with you; please do contact Neil Franklin or Nick Curling on the details below.