Capita Alternative Fund Services (Guernsey) Ltd & Anor v Drivers Jonas (A Firm)

A professional adviser retained to value and assess a speculative commercial property investment must exercise the skill and care of an ordinarily competent adviser with the expertise which the retainer requires. For a new factory outlet centre, competent valuation necessarily required a proper assessment of likely consumer spend, tenant demand, competition, location, design, incentives and operating risks.

A valuation is negligent only if it falls outside the permissible range for a reasonably competent valuer, although negligent advice given independently of the valuation may also found liability. Where the adviser’s duty is principally to provide a valuation, damages are ordinarily limited to the loss caused by the valuation being wrong, rather than subsequent losses which would have occurred even if the valuation had been accurate.

The claim arose from Capita’s acquisition, as trustee of an investment vehicle promoted by Matrix, of a long leasehold interest in a proposed factory outlet centre at Chatham Dockyard. Drivers Jonas had introduced and advised on the transaction, negotiated its terms, assessed its commercial prospects and provided valuations with and without Enterprise Zone allowances.

The centre substantially underperformed. The claimants alleged that the defendants lacked relevant expertise, failed to undertake adequate consumer-spend analysis and materially overvalued the property. The central issues were the scope of the retainer, breach, causation, the proper measure of damages, Capita’s standing, limitation and Matrix’s claim for an indemnity.

1. Retainer and duty. The defendants were retained by both claimants to provide open-market valuations, commercial investment advice, due diligence and negotiation services. Their duties included assessing rental income, consumer and tenant attractiveness, market trends, location, site suitability, competition and the factors affecting the success of a new factory outlet centre. They also had to correct inaccurate advice when identified and exercise the skill and care of an ordinarily competent valuer and commercial property investment adviser.
2. Standard of care. The appropriate standard was judged at the time of the advice and was not reduced by the defendants’ limited experience. A firm holding itself out as competent to advise on factory outlet centres and Enterprise Zone investments had to meet the standard of an adviser possessing that competence.
3. Breach. The defendants lacked the necessary expertise and should have declined to act, obtained suitable expertise or advised that it be obtained. They failed to undertake or commission a competent full retail performance analysis. Their research was inadequate, relied excessively on the developer’s selling agent, failed to balance adverse market information and insufficiently considered competition, incentives, marketing costs, the developer’s experience, access, design, listed-building constraints and operating costs.
4. Valuation range. The permissible range had to be assessed by reference to each component of the valuation, not mechanically by applying one overall percentage. The defendants’ valuations of £48.15 million without allowances and £62.85 million with allowances were materially outside the competent ranges. The competent figures were approximately £34.375 million and £44.8 million respectively.
5. Causation and standing. The defendants’ advice played a real and substantial part in inducing the transaction. Capita had standing because it acquired the interest and suffered the loss, irrespective of the precise status of its trusteeship. Capita was not legally obliged to complete a transaction materially inconsistent with the Information Memorandum.
6. Damages and other relief. Applying the information-versus-advice distinction in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191, Capita’s recoverable loss was the overpayment caused by the inaccurate valuation, namely £18.05 million. The subsequent decline in value was not recoverable on that basis. Matrix was refused a blanket indemnity because any future claims were hypothetical and insufficiently defined.
7. The limitation claims failed. The Standstill Agreement preserved claims relating to the defendants’ work both in relation to the Report and Valuation and more generally.