The Court of Appeal, on 2 May, handed down its decision in the case of Bratt v Jones, in respect of which DAC Beachcroft acted on behalf of the successful Defendant/Respondent valuer, Mr Jones. The judgement provides clarification as to what the test for breach of duty is in a valuers' negligence case, as well as outlining some obiter dicta thoughts about how the test might be addressed further by the Supreme Court in a suitable case. Although the law had seemed fairly settled, the Claimant in this case was contending that there was more to be read in those authorities than had previously been detected, and that no specific findings as to what a valuer had done wrong – beyond reach the ‘wrong’ valuation figure – was necessary to establish liability. Neither the trial Judge nor the Court of Appeal had any doubt that this was wrong. The parties had – rightly – proceeded on the basis that there was a precondition to liability that the valuation had to fall outside a reasonable bracket. The Court of Appeal found that this was correct by reference to existing Court of Appeal authority, but did take the opportunity to set out some thoughts as to whether this was an approach which ought to withstand scrutiny from the Supreme Court.
Background
Mr Bratt, the Claimant, owned a site in Oxfordshire which had planning consent for 82 houses across around 10 acres. In June 2013, a developer who had the option to purchase the site exercised its option, the parties could not agree a price, and the Defendant was instructed to value the site in an independent expert determination.
The Defendant, Mr Jones, carried out a valuation and assessed the market value of the site at £4.075million. The resulting purchase price was £3,529,500 which reflected 90% of the market value, less various deductibles. Mr Jones' exercise included residual and comparable valuations. In undertaking the comparable assessment, he identified a site which he considered so similar that he placed exclusive reliance on it. The Defendant elected to rely on this method as the basis of his valuation of the site as being £4.075million. He determined that the residual valuation (of £3.634m) supported this calculation (albeit unbeknown to Mr Jones at that time, the residual valuation contained an error which would have otherwise valued the site at around £4.6million).
Mr Bratt commenced a claim on the basis that Mr Jones had negligently undervalued the site, alleging that the site was worth around £8million. This claim was supported by expert evidence although, unusually, that expert evidence did not include an opinion as to the reasonable range of opinions which could have existed.
The expert evidence obtained on behalf of the Defendant expressed the view that a reasonably competent assessment would have resulted in a market value within a +/- 15% range of £4.2million.
The Law
One of the points in dispute was how the Court should find breach of duty on behalf of a valuer.
The Claimant argued that, if a valuation is found to fall outside of what the Court considers to be a reasonable margin of error, then that is prima facie evidence of negligence and a claimant does not have to take any further steps and does not have to plead or demonstrate the methodological reasons why the valuation was not reasonably competent. The Claimant contended that at this stage the ‘evidential burden’ then falls to the defendant valuer who must demonstrate they were not negligent.
The Claimant relied in particular on the cases of Merivale Moore[1] and Legal & General[2], as authority that the focus of the enquiry should be exclusively on the end result, rather than the process followed by the valuer. While the Claimant accepted that there may be cases where the valuer escapes a finding of negligence even where its valuation falls outside a reasonable margin – if a defendant can satisfy the evidential burden upon it to demonstrate that it had not acted negligently in the circumstances of the case – the Claimant argued that this would be a rare case and that the onus was on the Defendant to show that it fell within this exceptional category.
The Defendant however submitted that, while the cases showed that a precondition to liability was that the valuation fell outside a reasonable margin, the underlying requirement for liability must always be the Bolam principle, namely a finding that the Defendant acted in an identifiable manner in a way which no reasonably competent valuer could have done. In this way, the Defendant submitted, valuers cases are no different to any other professional negligence case, and a claimant must always plead and prove that the professional has failed to act in accordance with the practices of a reasonably competent professional of the same profession.
At trial the Defendant was at pains to emphasise that, in anything other than the most straightforward cases, the Court will - in order to arrive at its own ‘true’ valuation of the property - need to carry out a detailed consideration of the approach and steps taken by the valuer, which will by necessity include an assessment of whether such approach and each of the steps were reasonably competent. The assessment of what is considered to be reasonably competent will often reflect a range of approaches, on the basis that valuation is an art not a science and bearing in mind that not every competent valuer will adopt the same approach as well as the fact that not every error will amount to a breach of duty. As such, a non-negligent range will encompass every result that could be arrived at by a reasonably competent valuer.
In essence, the Defendant's position was that a valuer cannot be found liable unless the Court finds that (i) some aspect of the valuation was carried out in a manner which was not reasonably competent and (ii) the valuation falls outside a reasonable bracket, looking at all the evidence available.
Finding at trial
The first instance Judge dismissed the claim.
He essentially agreed with the Defendant's analysis of the law and, having reviewed the various authorities, distilled two main principles:
- A finding of negligence can only be made if the valuer failed the Bolam test, namely to reach the standards of a reasonably competent professional in that field;
- But it is a precondition of liability that the valuation falls outside an acceptable bracket.
The Judge found that the Court's task was to form its own view as to the correct value and then identify an appropriate margin of error. Should the original valuation fall within the margin, there is no negligence. Should it fall outside the margin then the Court must examine whether the valuer has failed the Bolam test.
The Judge made it clear that, ultimately, the question of negligence could not be decided solely by whether the valuation fell outside a reasonable margin of error but by reference to whether the valuer acted "in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession."
The Court emphasised that, in complex valuations, an assessment of the 'true' value will often require considering what a reasonably competent approach would be to each step of the calculation. If the valuer is able to show that the steps they took would be considered acceptable by their professional peers, negligence cannot be established.
There will often be some differences between how different valuers approach a valuation and there can often be more than one single accepted practice in respect of the issues that arise. Where there are a range of approaches that the profession would generally accept as being reasonably competent, this should be reflected in the Court's assessment of the reasonably competent range.
In the present case, the Judge found the Defendant to have acted competently in his reliance upon one comparable site and in assessing the comparable evidence by reference to how a hypothetical purchaser would have approached its valuation of the land, market value being a question of what the market would pay for it. The Judge found that the Defendant's approach in this case reflected the exercise which was likely to have be taken by the hypothetical purchaser and therefore was likely to lead to an accurate assessment ("or thereabouts") of the true market value of the site.
The Judge considered each stage of the valuation process and concluded that the most likely market value of the site was £4,746,860, which placed the Defendant's valuation within an acceptable margin, of up to 15%. As such, there was no need for the Judge to go on to assess the Defendant's practices as compared to a respectable body of his peers any further, and the claim was dismissed.
The Claimant appealed on the basis of 4 grounds including 2 relating to the Judge's approach in law.
The appeal
The appeal was dismissed in full by the Court of Appeal.
In respect of the 2 grounds of the law, the Claimant argued that:
- The Judge applied the wrong legal test to determine liability, the correct approach being that if the valuation falls outside the margin, it is determinative of liability unless the valuer can prove they were not negligent.
- The Judge was wrong to approach the assessment of the margin as a matter of fact to be determined by reference to expert evidence; it was a question of law for the Court to assess and should have been 10%.
The Court rejected both of these arguments, making it clear that: "whilst a valuation outside the acceptable bracket is an indication that something may have gone wrong, a claim in negligence or breach of contract against a valuer cannot succeed unless the court is satisfied that the valuer has failed to exercise due and proper professional skill, care and diligence in undertaking the valuation"[3].
The Court did not disagree with or disapprove of the trial Judge’s approach in any respect.
The Court confirmed that the first question, in accordance with Merivale Moore, is whether the valuation falls outside a reasonable margin of error and if so, the second question is that of the valuer's competence (ie the Bolam test). In respect of this second question, the Court made it clear that the legal burden of proving negligence was not, as the Claimant had argued, reversed (it being unhelpful to refer to an 'evidential' burden in respect of this issue) and that the burden of proving negligence rests at all times on a claimant.
On this basis, in circumstances where the Defendant's valuation was found to have fallen within an appropriate margin of error, the trial Judge was correct in finding that there was therefore no requirement to consider the Bolam test. But if there had been a finding that the valuation was outside of a reasonable margin of error, there would have had to have been a clear finding as to what the valuer had done negligently wrong. The Court did not disagree with the trial Judge’s finding that only pleaded allegations of negligence could be considered in this respect.
The Court further noted, obiter, the apparent 'logical fallacy' whereby a valuer could be found to have breached the Bolam test but not be liable so long as their valuation falls within an appropriate bracket. (This was not the ‘logical fallacy’ which had been the subject of submissions at the hearing – that related to the proposition that a valuation could be outside the reasonable margin of error even if every stage of the valuation had been carried out competently). The Court looked at the cases of SAAMCO[4] and Lion Nathan[5] in which Lord Hoffman placed the focus of any assessment of liability on whether reasonable care had been taken by the valuer, rather than the end result. The Court noted that Lord Hoffmann appeared to depart from the notion that a non-negligent range or bracket is at all relevant to the question of whether the valuer took reasonable care and skill, and questioned whether these passages were consistent with a pre-condition that a valuation be outside of a reasonable margin of error overall before any finding of liability can be made against a valuer.
In respect of how the margin of error is to be calculated, the Court also agreed with the Defendant that this was clearly a question of fact to be determined by the Court on the basis of the evidence before it.
In circumstances where (i) the Claimant did not adduce any evidence at trial from his expert in respect of the margin, (ii) the Defendant's expert opined that the margin could have been up to 20% but given the availability of the comparable considered it to be 15% and (iii) all the other evidence as to reasonableness of a margin was considered, the Judge was correct in his evaluation and was entitled to reach the conclusion he did as to a reasonable margin of error.
In terms of the remaining grounds, the Court gave them short shrift, finding that the Judge had a clear evidential basis on which to make his findings of fact.
Commentary
The appeal judgement is an affirmation of what had been perceived within the profession as the orthodoxy within this area of law, albeit with an obiter sting in the tail, which provides cause for speculation as to whether the law may change in due course should a suitable case find its way to the Supreme Court.
The good news for valuers (and their insurers) is that the case emphasises the need for a claimant to both plead and prove the specific respects in which it is alleged that a valuer has conducted a valuation in a manner which no reasonably competent valuer could have done. It also reaffirms that a claimant’s evidence must address the reasonable margin for error which exists in respect of the particular valuation, as the margin of error is a question of fact in each case.
The primacy of the Bolam principle has been emphasised, and defendant valuers can rest easy in the knowledge that they will only be found to have acted negligently where the Court has found that something specific they did in respect of their approach to the valuation in question was outside the bounds of reasonable professional competence. There will not be any findings that a valuer was negligent simply because a Judge comes to a different view about the ‘true’ overall valuation figure. And, for now at least, there remains the additional protection for valuers that even if a methodological mistake has been made which has distorted the overall valuation number provided, they will not be found liable for damages unless the overall valuation number provided falls outside of a reasonably competent range for that valuation number.
It was in respect of this latter point that the Court of Appeal in Bratt v Jones indicated some difficulty with the law. As set out above, the Court pointed out that the precondition to liability which has been established in valuers’ favour - i.e. that the overall valuation has to be outside of a reasonably competent overall valuation number before any liability can be found- appeared inconsistent with the dicta of Lord Hoffmann in a number of cases, and a fairly clear indication was given that the Court did not see any compelling reason in the higher authorities as to why this precondition should be imposed.
This point was not however fully argued, and should this point ever find its way to the Supreme Court, we would suggest that its determination would depend upon what view the Supreme Court took about the scope of the valuer’s duty, and whether the duty was to provide a reasonably competent overall valuation, or was to exercise reasonable care and skill to avoid error in the valuation report. There are potentially strong arguments both ways on that (and indeed that question might be viewed as one that is fact-specific to the individual valuation; perhaps valuers will have an eye on this when setting out the scope of their duty in retainer letters going forward), but it is all for another day; for now, the law remains that there is a pre-condition to liability in valuers’ cases that the overall valuation must be outside of a reasonably competent range.
It appears that consideration of this issue by the Supreme Court will require an appropriate case in which (i) the claimant has pleaded out a case that, on the specific facts, there was a duty the scope of which makes an overall bracket for error inappropriate; (ii) the defendant has pleaded a response to the claimant’s case on the scope of the duty; (iii) there is a proper investigation of the matter at trial and findings made by the trial judge as to the scope of duty arising on the specific facts. In Bratt v Jones, for example, the Defendant was retained to provide a valuation number to be inserted into the payment formula of an option agreement– not an account of how the number had been calculated. This would, we suggest, be a paradigmatic case where the bracket precondition approach to liability is appropriate. This will all be teased out in future cases. For now, the law remains relatively straightforward: there is a pre-condition to liability in valuers’ cases that the overall valuation must be outside of a reasonably competent range.
Whilst the Court’s obiter dictum on the bracket approach might be seen as something of a surprise, there was, we suggest, no real surprise in the Court of Appeal dismissing without hesitation the proposition that the burden of proof is in any way on the defendant valuer when it comes to the question of breach of duty – the affirmation that the burden of proof on this issue remains at all times and in all ways upon the claimant is a welcome one. The dicta in the existing cases which could be read as suggesting otherwise were unhelpful and will no longer cause any confusion on this point.
Nor were there any surprises in respect of how to fix the margin of error. The Claimant's arguments on this point appeared to stem from the fact that he had failed to plead any position or adduce any evidence in respect of it. It was however always clear on the authorities that the margin of error was a question of fact for the Court in each individual case.
In conclusion, the Court of Appeal has reaffirmed and clarified the orthodox position in respect of the law of valuer's negligence, but has also handed out a tantalising suggestion as to where any future debate about this area of law may be focused.
DAC Beachcroft LLP acted for Mr Jones, with counsel Scott Allen of 4 New Square Chambers. Scott was led by Graham Chapman KC in the appeal.
This article was jointly written by Polly McBride (DAC Beachcroft) and Scott Allen (4 New Square Chambers).
[1] [2000] PNLR 35
