English Court of Appeal Clarifies Law Regarding Negligent Valuations

The English Court of Appeal has recently handed down a helpful judgment, clarifying the test for breach of duty in cases of alleged negligence by valuers. In short: (i) the valuation must fall outside a reasonable margin of error of the ‘correct’ valuation; and (ii) the valuer must have carried out the valuation in a way that no reasonably competent valuer could have done (the Bolam test).

The full judgment can be found here.

Background

The Claimant owned a large plot of land with planning consent for residential development. After a developer had exercised an option it held to purchase the site, and a valuation could not be agreed, the Defendant valuer was instructed to determine the issue. The Claimant argued that the Defendant had negligently undervalued the site, as a result of which he had suffered financial loss.

In the High Court, the Judge considered first whether the Defendant’s valuation fell within a reasonable margin of error of the ‘correct’ valuation. Having regard to the parties’ expert evidence, he found that the correct valuation was £4,746,860, and applied a margin of error of 15%, with the consequence that the Defendant’s valuation of £4,075,000 was just (by 0.85%) within a reasonable margin of error. It was therefore unnecessary for him to compare the Defendant’s approach to that of a reasonably competent professional, and the Claimant’s claim failed.

The Appeal

In addition to appealing two points regarding the Judge’s derivation of the ‘correct’ valuation, the Claimant contended that:

• The Judge had applied the wrong test to determine liability. The proper test was said to be that, if the valuation was outside a reasonable margin of error, that was determinative of liability unless the valuer could show they were not negligent, e. the claimant does not need additionally to prove that the valuation methodology was negligent.
• The Judge was wrong to approach the question of the size of the margin of error as a matter of fact to be determined on the basis of expert evidence. Expert evidence was only relevant to establishing the difficulty of the valuation in question, based on which the Judge should have decided the margin as a question of law.

The appeal was dismissed on all grounds. Thus, the law may be summarised as follows:

• The claimant must first prove that the allegedly negligent valuation fell outside the ‘correct’ valuation by a reasonable margin of error;
• Both the ‘correct’ valuation and the margin of error are questions of fact, to be determined by the Court with regard to expert evidence; and
• If the valuation was outside the margin of error, the claimant must additionally prove, with reference to the Bolam test, that the valuer’s methodology was negligent.

Obiter, the Court questioned the logic in the existing case law whereby a valuer could fail to meet the standards of a reasonably competent professional, but nevertheless avoid liability because their valuation fell within an acceptable margin of error. However, pre-existing authority meant this issue would have to be determined by the Supreme Court.

Practical Implications

This ruling underlines the importance of early engagement with experts in valuation disputes, on the full range of relevant issues. In particular, parties should not focus solely on the ‘correct’ valuation (although this is obviously crucial), and it is necessary also to test experts’ views on:

• An appropriate margin of error (noting that, had a slightly narrower margin been applied in this case, liability may have been determined differently); and
• The range of methodologies and assumptions that could reasonably be applied to the valuation in question (so that the parties, and their legal advisers, can assess the likelihood of the defendant satisfying the Bolam test).