Negligent valuations

With the property market in free fall, increasing numbers of claims against valuers are likely. Two cases in particular should give valuers cause for concern, Platform Funding Ltd v Bank of Scotland Plc [2008] EWCA Civ 930 and Merrett v Babb [2001] EWCA Civ 214

Platform Funding
Platform agreed to advance a loan to be secured on a property known as 1 Bakers Yard to a Mr Hewes. The defendants, trading as Colleys, were instructed to provide a valuation. When the surveyor went to Bakers Yard, he saw that it was divided into five plots, and on each was a house at a different stage of construction.

There were no house numbers. Mr Hewes misdirected the surveyor to a house near to completion. In fact, the property valued was 5 Bakers Yard, and 1 Bakers Yard was still substantially incomplete.

A loan was advanced to Mr Hewes, he defaulted, the property was repossessed and was eventually sold at a loss. Platform claimed their loss from the owners of Colleys, Bank of Scotland plc. Although the court accepted that a professional’s obligations are usually subject to the exercise of reasonable care and skill, it considered that this qualification should not automatically be applied to every aspect of a retainer.

Colleys had produced a report which said “I certify that the above property offered as security has been inspected by me and that the above valuation is a fair indication of the current open market valuation for mortgage purposes…” In so “certifying” the defendants were undertaking an unqualified obligation to inspect 1 Bakers Yard.

Merrett v Babb and personal liability
This is a similarly worrying decision. Here, the Court held that a surveyor, Mr Babb, who had negligently failed to identify settlement cracks between an original building and an extension, was personally liable for the loss caused by that negligent act.

Between him writing the report and the discovery of the defect, Mr Babb’s employer had been wound up and their insurance cover terminated. The purchasers were therefore unable to claim against Mr Babb’s employer or their insurers, and so pursued Mr Babb personally.

The Court held that the defendant had signed the valuation report in his personal capacity, by giving his name and professional qualifications, and so had assumed personal responsibility to the purchasers for that valuation.

What to do about it
• Take care with unqualified obligations and with words such as ‘certify’. Where practicable, have a carefully-worded retainer
• Be wary of unusual cases or circumstances
• Detailed retainers are much less likely to be held to be unqualified obligations
• Consider taking out personal liability cover
• RICS offers a Member Support Service, funded by a £15 levy on membership fees. The Service offers financial support in the event a member is not covered by an employer’s professional liability insurance.

Jane Hughes is a partner at Collyer Bristow