UK: Valuer Not Liable To Developer

Last Updated: 20 March 2015
Article by Armel Elaudais

In Freemont (Denbigh) Ltd v Knight Frank LLP [2014] EWHC 3347 (Ch) the Court reaffirmed the well-established principle that a valuer does not owe a duty of care to an investor where he is instructed to produce a report for one purpose but his report is relied on by the investor for other purposes.

Facts

In 2006, Knight Frank was instructed by Freemont to provide a valuation report in support of a loan application to fund a redevelopment. The site was valued at GBP 17- 18.7 million depending on planning permission. Freemont saw this valuation as the minimum price it should accept when selling the site and therefore rejected subsequent offers it received from developers both in the region of GBP 11 million. In the event, the site was not redeveloped and fell into disrepair to the extent that it was regarded as worthless by Freemont by the time proceedings were brought. Freemont claimed that Knight Frank had been negligent and overvalued the site and sought damages for loss of profit in respect of the rejected offers and, alternatively, loss of a chance to sell the site.

Decision

The Judge had no doubt that a retainer existed between Freemont and Knight Frank but found that, under the terms of that retainer, Knight Frank was simply required to provide a valuation report for secured lending purposes. This created a contractual duty of care. The Judge, however, rejected the evidence which Freemont sought to put forward to argue that there was also an express or implied term that the report would also be relied upon by Freemont when forming development plans for the site. In fact, he went as far as to conclude that such evidence had been fabricated.

The Court accepted that in addition to the contractual duty, Knight Frank also owed Freemont a duty of care in tort. However, it held that there was no basis for extending the duty of care in tort beyond the contractual duty and commented that "it would be remarkable if the duty of care owed by Knight Frank in tort were more extensive than their contractual duty of care".

It followed that whilst Freemont could rely on Knight Frank's report for the purpose of obtaining funding, it could not claim for losses arising from its investments decisions made in reliance on the report.

Comments

This decision will obviously be welcomed by surveyors. It shows that the Court will look at the purpose behind a valuation report and will not hold surveyors liable for investment losses where the report was provided for secured lending purposes and the surveyor did not know that the investor/developer would rely on it when selling the land.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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