South Australia Asset Management Corp v York Montague Ltd

The House considered the extent of a valuer's liability for a negligent overvaluation provided to a lender. The court held that the valuer's duty is a duty to take reasonable care in providing information as to the open market value at the date of valuation and that the scope of that duty is limited to losses which are the consequence of the information being wrong. The Court rejected the Court of Appeal's approach that, where the lender would not have made the loan but for the negligent valuation, the valuer must bear the whole risk of subsequent market falls. The House distinguished duties to provide information from duties to advise on whether to undertake a course of action and reiterated that causation and the scope of duty determine recoverable loss. Where liability in tort (or contract) is established, damages are the loss attributable to the inaccuracy of the valuation — typically the difference between the negligent valuation and the valuation which a reasonable valuer would have produced — subject to the usual causation and mitigation principles. The House applied these principles to the three consolidated appeals, dismissing the appeal in South Australia Asset Management Corp v York Montague Ltd and allowing the appeals in United Bank of Kuwait Plc v Prudential Property Services Ltd and Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd to reduce damages to losses attributable to the overvaluation.

This case comprises three consolidated appeals concerning negligent valuations provided by professional valuers to lenders. In each matter the lender advanced funds in reliance upon a valuation which the trial judges found to have been negligently overstated. The lenders argued that, because they would not have entered into the loans if properly advised, the valuers should bear the whole loss, including losses arising from a subsequent fall in the property market. The Court of Appeal had adopted a "no-transaction" principle entitling such lenders to recover the full difference between the amount advanced (with interest) and the net recovery.

The House considered:

• the nature of the valuer's duty — an implied contractual duty and concurrent duty in tort to exercise reasonable care and skill in providing an estimate of open market value at the valuation date;
• the scope of that duty — limited to losses that are consequences of the information being wrong rather than all losses that would not have occurred but for the lender entering the transaction;
• the correct measure of damages — the loss attributable to the inaccuracy of the valuation, usually the difference between the valuation given and the valuation a reasonable valuer would have produced, not automatically the entire loss sustained by the lender because the transaction occurred.

The House rejected the Court of Appeal's rule that in "no-transaction" cases the valuer bears the whole market risk. It explained the distinction between a duty to provide information (liability for consequences of information being wrong) and a duty to advise as to the advisability of a course of action (liability for foreseeable consequences of that course). The court applied causation principles, noted exceptions such as fraud (not applicable here), and addressed subsidiary doctrines including mitigation and assessment date issues. The House then applied these principles to the three appeals: (i) South Australia Asset Management Corp v York Montague Ltd — the trial judge's award was upheld and the appeal dismissed because the whole loss was attributable to the valuation error on the facts; (ii) United Bank of Kuwait Plc v Prudential Property Services Ltd — the appeal was allowed and damages were reduced to the difference between the negligent valuation and the correct valuation; (iii) Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd — the appeal was allowed and damages were substituted to reflect the loss attributable to the overvaluation.

This was an appellate decision addressing three consolidated appeals. The House held that a valuer who negligently provides an over-valuation is liable only for losses that are the consequence of the valuation being wrong, not for all losses which would not have occurred but for the loan having been made. Applying that principle: in South Australia Asset Management Corp v York Montague Ltd the appeal was dismissed because on the facts the whole loss fell within the scope of the valuer's duty; in United Bank of Kuwait Plc v Prudential Property Services Ltd the appeal was allowed and damages reduced to the loss attributable to the overvaluation (the difference between the valuation and the correct value); in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd the appeal was allowed and damages substituted to reflect the loss caused by the overvaluation. The Court rejected the Court of Appeal's "no-transaction" rule that a valuer must bear all market risk where the lender would not otherwise have advanced the funds.

Appeal to the House of Lords from the Court of Appeal decision (reported at Banque Bruxelles Lambert S.A. v. Eagle Star Insurance Co. Ltd. [1995] Q.B. 375). The House heard three consolidated appeals arising from trial judgments (reported at first instance in the trial judges' reasons as described in the opinion) and delivered its decision on 20 June 1996 as [1996] UKHL 10.