The recent case of Lloyds TSB Bank Plc v Edward Symmons & Partners [2003] involved a rather unusual claim for professional negligence, in that the complaint was that the defendant chartered surveyors undervalued certain commercial premises. The claim was dismissed. It was not enough to justify a finding of negligence that the valuer, at some point along the way in arriving at a valuation that was within the range of non-negligent valuations, was guilty of some failure to meet the standards of ordinary competent members of the profession. It is only if a valuation falls outside the range of non-negligent valuations (the bracket) that an enquiry arises, and it is for the defendant to show that they did exercise appropriate skill and care.

The facts

The property in question was originally the Sandersons wallpaper factory in Gosport, Hampshire. The property had since been adapted for use as a business centre. It was common ground that for a variety of reasons the property was particularly difficult to value. As the bank’s own representative noted at a site visit prior to instructing the defendants, the property was a ‘third-rate building with third-rate tenants’. There was a lack of meaningful comparables in the locality. While at one time the links with the Royal Navy dominated the local economy, as a result of recent decreases in armed forces expenditure Gosport was now suffering. There was little demand for commercial and industrial property in the area, the Borough having, reputedly, the secondlargest ‘out-commuting’ workforce in the county. But most importantly, a major tenant of the property, Hampshire Prints (1983) Ltd, had just gone into receivership and had ceased trading.

The property was owned by a company called Salcrom Properties Ltd. Salcrom also owned another property in Winchester. Among other securities, Lloyds had the benefit of legal charges PLJ113 p16-18 13/6/03 2:28 pm Page 16 Property Law Journal 17 23 June 2003 over the property and the Winchester property. In July 1998, Lloyds was concerned as to the adequacy of its securities held for loans outstanding from Salcrom. It consequently decided to commission valuations of both properties. The defendant was instructed to provide its opinion as to the open market value (OMV), the open market rental value (OMRV) and the estimated restricted realisation price (ERRP) on the assumption that the completion of the sale must be within six months of the date of the valuation.

In the event, Lloyds sold the benefit of the legal charge in the property to Systemsolid (which was, in effect, another corporate manifestation of the persons behind Salcrom) for the sum of £525,000, the valuation determined by the defendant.

The allegations

Lloyds alleged that, in breach of its duty, the defendant valued the property at £525,000 when the true OMV was £1.1m. In reliance on that valuation, Lloyds sold the benefit of the legal charge. The loss claimed was the difference between the price that Lloyds could have sold the property for or could have sold the benefit of the legal charge for, ie £1.1 million, and the sum which it actually received for the transfer of the legal charge, ie £525,000. In a nutshell, the primary allegation was that the valuation was so low that that in itself was evidence of negligence: no reasonably competent valuer could have valued the property at the time of valuation at less than £1.1 million.

The valuations

The defendants were provided with a ‘management schedule’ recording the identity, location, area, rent and service charges paid by each of the various tenants and licensees in the property. More than half of the total lettable area of the property had been occupied by Hampshire Prints. There were other parts of the property which were also vacant. The defendants advised that those parts of the property which had been occupied by Hampshire Prints could be remodelled to provide smaller units which would be easier to let. An allowance was made for the cost of remodelling.

The claimant’s expert did not disagree with the defendants’ methodology in valuation or the choice of the (limited) comparable evidence. The complaint was that, first, in assessing the income producing potential of the property, the defendants were wrong to leave out of account areas, other than areas previously occupied by Hampshire Prints, that were empty at the time of valuation. Secondly, it was alleged that having decided that there was a potential for increasing income by the remodelling suggested, the defendants failed to add back that income to the income that had been produced by that space occupied by Hampshire Prints.

The second point was based upon an unfortunate misunderstanding by the claimant’s expert of the defendants’ report. Perhaps it was not as clear as it might have been, but on a proper reading of the defendants’ report the reference to: ‘additional rent… can be generated by the remodelling and reletting’ was not a reference to income over and above the income previously received for this area, but a reference to the replacement income which might be received after remodelling.

However, whether this second point was of any consequence depended upon the outcome of a critical issue between the parties. Was the claimant’s stance that any space in the property, including the remodelled space, would be filled, an appropriate one? Alternatively, was the defendant’s assumption one that a competent valuer could make. Namely, that given the location of Gosport, the nature of the local economy, the surplus of space elsewhere in better locations such as Fareham, Portsmouth and Southampton, that no value should be attributable to theoretically lettable space if there was no realistic prospect that it would ever in fact be let?

The judge was quite unimpressed with the quality of the claimant’s expert evidence. In particular, the judge was concerned that an expert in a professional negligence case had not measured the property or even based his report on scale plans. Having used plans which were marked ‘Not to scale’, he was ‘making estimates of the likely areas as best as [he could]’, yet one of the allegations was that the defendants had not accurately measured the lettable areas. Furthermore, the claimant’s expert had allowed periods for letting parts of the property which were or would become vacant, but was unable to justify those periods or explain his views in the light of the circumstances in Gosport, which he accepted were rather particular.

The law

There were certain errors in the defendants’ report, but the judge pointed out the truism that carelessness which does not cause damage does not in law amount to negligence:

It is the unfortunate lot of the court sometimes to be exposed to the temptation of supposing that some particular case of alleged professional negligence involves not so much determining whether a particular individual has caused damage by falling in some important respect below the standards of reasonably competent members of his or her profession, but rather marking his or her professional performance for technical excellence as if the litigation were some sort of sporting competition. In fact in the case of alleged negligence on the part of a valuer it is plain that it is only if the valuation which results from the valuer’s effort is erroneous that any question can arise of the valuer being found to have been negligent. It is not enough to justify a finding of negligence that at some point along the way to arriving at a valuation within the permissible range of non-negligent valuations the valuer was guilty of some failure to meet the standards of ordinarily competent members of his or her profession. This was made clear by Buxton LJ in Merivale Moore Plc v Strutt & Parker .

The claimant’s expert had conceded that his assumptions as to net floor areas were inaccurate. As a result he reduced his valuation from £1.1m to £1,019,000. The defendants’ valuation had been £525,000. The defendants’ expert put the value at £540,000. As it happens, these were not the only valuations before the court. Systemsolid (the ‘newco’ formed by those behind Salcrom) had approached two banks for finance to complete the purchase of the legal charge from the claimant. In turn, the two banks approached and instructed the same firm of valuers, Messrs Vail Williams. Vail Williams had put the value, in separate reports to each bank, at £750,000. Furthermore, prior to committing to the agreement for sale of the legal charge, the claimant had asked property consultants Alder King to review the defendants’ report. While nothing turned on it, the judge noted in passing that while the consultant at Alder King made certain observations and suggestions for clarification of aspects of the defendants’ report, he was of the view that the defendants had ‘addressed all the key issues’. The only area in which the Alder King consultant had noted substantial disagreement was that of demolition costs. The judge accepted the defendants’ expert’s explanation that the Vail Williams valuation was particularly sensitive to changes in underlying assumptions, such as the costs of immediately necessary repairs. Taking these into account, and applying a figure accepted by the claimant’s expert as reasonable for such works, the £750,000 could be revised down to £590,000. The claimant’s expert had accepted that the permissible non-negligent range of valuation in relation to the property was 15%-20%.

Having regard to the above, the defendants’ valuation was well within the bracket. The judge preferred the defendants’ approach, which was to attribute no value to space that would never be let:

That seems to me to be just plain common sense and I accept that it was a professional approach to adopt. I reject the evidence of [the claimant’s expert] that there are no circumstances in which theoretically lettable space in a property being valued on an investment basis should not be included in the calculation. It may be an unusual situation in which it would be appropriate to ignore space, but if the conclusion reached is that the space disregarded is incapable of being let it seems to me to be that the only proper course is not to include it in the calculation of value.

The valuation being within the permissible range of non-negligent valuations of the property in September 1998, the action failed.

Comment

It is not, however, always the case that a valuation which is within the permissible range of non-negligent valuations cannot be negligent. If the instructions are merely to produce a competent final valuation then it matters not how that figure is arrived at – it only matters that it is within the permissible range. But if the valuer is specifically asked to consider a particular aspect of the property and fails to do so, such that if they had done so their own valuation would have been different, it may be that this amounts to negligence, notwithstanding that another valuer might have arrived at precisely the same figure (see the obiter remarks of Mance LJ in Arab Bank v John D Wood [2000]). This line of argument does not appear to have been pursued in this case.

Case references

Arab Bank v John D Wood [2000] 1 WLR 857 [2000] PNLR 173

Lloyds TSB Bank Plc v Edward Symmons & Partners [2003] EWHC 346 (TCC)

Merivale Moore Plc v Strutt & Parker [2000] PNLR 498

Damian Falkowski is a barrister at 4-5 Gray’s Inn Square.  © Property Law Journal