Dennard & Ors v Pricewaterhousecoopers Llp

A valuer is not liable merely because another competent valuer might have chosen a different figure. Where the valuation figure is challenged, the claimant must show both a failure to use reasonable skill and care and that the valuation fell outside the range reasonably open to a competent valuer.

A valuation within that range may still give rise to liability for a distinct loss caused by negligent advice or a discrete error. In assessing a PFI portfolio, the court may allow for the nature of the investment, construction and ramp-up risks, and the availability of refinancing gains. A loss-of-chance claim requires a real and substantial chance, followed by an assessment of its percentage value.

The Claimants held interests in a portfolio of PFI projects through Ryhurst. They sold their shares to a Barclays subsidiary for £5.5 million after PwC prepared a valuation of the portfolio. The portfolio was later sold by Barclays for substantially more.

The Claimants alleged breach of contract and negligence in the valuation, including errors in discount rates and the treatment of refinancing, sinking-fund and residual-value upsides. They also alleged that PwC had a conflict of interest and disputed the application and reasonableness of contractual limitation clauses. The central questions were whether the valuation was negligent, whether the Claimants had suffered recoverable loss, and whether the later sale provided the appropriate measure of damages.

1. Disposition. The Claimants succeeded in part. PwC was liable for breach of the valuation engagement and the Claimants were awarded £427,500 for loss of the chance of obtaining a higher price from Barclays. Their claim based on the later sale to SMIF failed.
2. The valuation work was agreed as an extension of the existing engagement. Its terms therefore applied mutatis mutandis, including the limitation of liability. The contractual wording, the parties’ commercial experience and Ms Montague’s knowledge meant that the limitation clause was sufficiently incorporated: J. Spurling Ltd v Bradshaw [1956] 1 WLR 461; Amiri Flight Authority v BAE Systems [2003] EWCA Civ 1447.
3. The Claimants were entitled to rely on the valuation through their agent. They actually and reasonably relied on it when agreeing to sell their interests.
4. Following Goldstein v Levy Gee [2003] EWHC 1574 (Ch) and the ratio of Merivale Moore plc v Strutt & Parker [1999] 2 EGLR 171, a figure-based valuation claim requires the valuation to fall outside the range reasonably open to a competent valuer. The process must also be examined where a distinct negligent error or separate loss is alleged.
5. PwC’s analysis of the projects and its use of experience rather than formal comparables or a mechanical build-up of discount rates were not, by themselves, negligent. Its principal error was excessive weighting of the pure-equity factor. A competent valuer would have used an 8% base rate, normally a 2% equity-only premium, and appropriate construction and ramp-up premiums. PwC’s overall valuation of £5.1 million fell below the reasonable range, while its £1.4 million refinancing and trapped-cash figure was itself within a reasonable range. No additional sinking-fund or residual-value upside was justified.
6. The loss-of-chance principles in Allied Maples v Simmons & Simmons [1995] 1 WLR 563 required a real and substantial chance that Barclays would have paid more, followed by assessment of the percentage chance and likely price. The chance was assessed at 75%, with a likely increased offer of £1 million. The later SMIF sale involved materially different market conditions, ownership, debt, cashflows and sale circumstances.
7. The conflict-of-interest discussion was obiter. A prospective professional benefit does not create a conflict without facts establishing a perverse incentive opposed to the client’s interests. The judge also considered, obiter, that the limitation clause would have satisfied the reasonableness requirement under the Unfair Contract Terms Act 1977.

not stated in the judgment.