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What is this week's blog about?
In this week’s blog, we take a look at caselaw relating to a valuer’s duty of care. In future blogs, we will look at other areas of valuation caselaw, such as the margin of acceptable error.
Always remember that claims are a complex area. Legal advice should always be sought if in doubt or in the event of a claim.
This blog is, therefore, essential reading for all candidates pursuing Valuation as a technical competency, irrespective of your pathway.
What is a duty of care?
Valuers owe a duty of care towards their clients, both in contract and in tort (for negligence). They may also owe a duty of care towards third parties, in certain circumstances.
In a claim (for breach of contract or negligence), the Court will ask whether the ‘valuation given was one that no reasonable valuer in the actual valuer’s position could have given’ (RICS).
A claim for breach of contract can only be brought by a party to the contract, i.e. the client. However, if the valuer expressly accepts a duty of care (or is assumed to have done so) then they may also be liable to third parties (who were not party to the valuation contract or Terms of Engagement).
What caselaw is relevant?
There is a myriad of caselaw of relevance to valuers. However, in this blog we will take a look at five cases of particular relevance to RICS APC and AssocRICS candidates.
What happened in Smith v Bush (1990) and Harris v Wyre Forest District Council (1989)?
These cases date to the 1980s and were linked. They established the well-known precedent that a mortgage valuer owes a duty of care to the purchaser of the subject property. This requires the valuer to act with reasonable skill and care, which cannot be mitigated through the use of a disclaimer.
In these cases, the House of Lords considered three issues:
Was there a duty of care owed to the purchaser of the mortgaged property?
Did the Unfair Contract Terms Act 1977 apply to the disclaimers?
Were the disclaimers fair and reasonable?
In both cases, a duty of care was upheld, even though in the Harris case the purchaser had not viewed the valuation report.
Furthermore, disclaimers seeking to remove third party liability were deemed ineffective. This was because it was not fair and reasonable to apply them in the circumstances (rather than them being defective per se).
The precedent set was that there was an implied duty of care towards the purchaser, particularly at the lower end of the housing market. The House of Lords, however, did reserve the position for higher value or specialist properties, such as blocks of flats and high end houses.
What happened in Scullion v Bank of Scotland (2011)?
In this case, the Court of Appeal set new precedent in relation to the duty of care owed to a buy to let investor who relied on a mortgage valuation. This was not a purchase for owner occupation, which was a defining factor in this case.
The Court of Appeal held this position despite the purchaser being a first-time buy to let investor and not an experienced or full-time investor. The basis of the decision was that a buy to let investor was more likely to take, and be able to afford, independent valuation advice.
The RICS published a full statement on the case online (click here).
What happened in Freemont (Denbigh) Ltd v Knight Frank LLP (2014)?
This case related to a secured lending valuation for redevelopment of commercial land.
The High Court upheld the precent set in the Scullion case and confirmed that no duty of care was owed to the borrower.
Furthermore, a duty of care was prevented from arising because the surveyor’s Terms of Engagement and report confirmed the limited scope of reliance and purpose of the valuation.
What happened in Hubbard v Bank of Scotland Plc (2014)?
In this case, the surveyor’s mortgage valuation noted historic cracking to the wall of a residential house. A full structural survey was not recommended.
The property was subsequently purchased and suffered from subsidence, leading to a negligence claim from the borrower against the surveyor.
The Court of Appeal held that no duty of care existed towards the borrower under these circumstances. This is because the borrower could not establish that they had relied upon the valuation and disclosed they had not actually read the valuation report.
Secondly, it was held that the surveyor’s duty to recommend further investigations was only required where hidden defects were suspected (based on RICS guidance at the time).
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Stay tuned for our next blog post to help build a better you.
N.b. Nothing in this article constitutes legal, professional or financial advice.