Scullion v Bank of Scotland Plc (t/a Colleys)

A valuer retained by a prospective mortgagee does not ordinarily owe a duty of care to a prospective purchaser merely because the purchaser may receive and rely upon the mortgage valuation. The existence of a duty depends on foreseeability, proximity, and whether it is fair, just and reasonable to impose liability.

Where the known transaction is a buy-to-let investment, the special considerations supporting a duty to an owner-occupier of a modest home do not, without further evidence, establish a sufficiently probable reliance or make liability fair, just and reasonable. A negligent valuation is not a warranty. If a duty exists, damages for negligent information are limited to the consequences of its inaccuracy.

Mr Scullion bought a flat as a buy-to-let investment with mortgage finance. Colleys prepared a buy-to-let valuation report for the proposed mortgagee. It gave a capital value and an achievable monthly rental figure. Mr Scullion received the report with his mortgage offer after contracts had been exchanged, completed the purchase, and later suffered loss when the achievable rent was substantially lower.

A Deputy High Court Judge held that Colleys owed Mr Scullion a duty of care, that he had relied on the report, and that he could recover loss caused by the negligent rental valuation. The merits decision was reported at [2010] EWHC 572 (Ch) and quantum was determined at [2010] EWHC 2253 (Ch).

Colleys appealed, principally on duty, reliance and damages. The central issue was whether the mortgagee’s valuer owed a duty of care to a purchaser acquiring the property as a buy-to-let investment.

1. Appeal allowed. The court dismissed Mr Scullion’s claim and entered judgment for Colleys. Lord Neuberger MR gave the judgment, with which Etherton and Gross LJJ agreed.

2. The court upheld the trial judge’s finding that the report played a real and substantial part in Mr Scullion’s decision to complete. The fact that he also acted on negligent legal advice did not preclude reliance. That conclusion was open to the judge on the evidence.

3. Colleys nevertheless owed Mr Scullion no duty of care. The governing inquiry required foreseeability of damage, sufficient proximity, and that it be fair, just and reasonable to impose liability. The domestic purchaser cases considered in Smith v Eric S Bush were distinguishable because the known transaction was a buy-to-let investment, not an owner-occupation purchase.

   There was no evidence that a buy-to-let purchaser was highly likely to rely solely on the mortgagee’s valuation. Such purchasers could more readily be expected to obtain independent advice, especially about rental prospects and letting risks. A mortgagee’s primary concern was the security value, whereas rental value and the practical terms of letting were particularly important to the investor. It was therefore not fair, just and reasonable to extend the domestic purchaser duty to this case.

4. The damages discussion was unnecessary to the disposition but provided guidance. If a valuer who assessed a rental value owed a duty to the purchaser, that duty would extend to the rental assessment. Damages would, however, be confined to the consequences of the rental information being inaccurate. They could not put the purchaser in the position of suffering no revenue loss at all, as though the valuation were a warranty. Periods in which the property would in any event have been unlet, and losses attributable to other causes, required allowance.

• Court of Appeal (Civil Division): appeal allowed in [2011] EWCA Civ 693; the claimant’s claim was dismissed.

• High Court, Chancery Division: the Deputy High Court Judge held that the valuer owed the purchaser a duty of care and that the report was relied upon: [2010] EWHC 572 (Ch).

• High Court, Chancery Division: damages for the negligent rental valuation were assessed at £72,234.54: [2010] EWHC 2253 (Ch).