The Governor And Company of the Bank of Ireland v Faithful & Gould Ltd

A valuer is liable only for loss falling within the scope of the duty undertaken. In a lending case, the lender must distinguish loss caused by the valuation being wrong from loss that would have occurred even if the valuation had been correct. Reliance on a gross development value does not necessarily establish reliance on a separate residual site valuation derived from it. For contribution purposes, the relevant damage is the common damage for which both parties are legally liable, having regard to the scope of each duty. Contributory negligence is applied to the lender’s basic loss before any valuation-based limitation of the valuer’s liability.

Faithful & Gould Limited had settled the Bank’s negligence claim concerning monitoring services for a failed residential development. It sought contribution from CBRE Limited, the Bank’s valuer, under the Civil Liability (Contribution) Act 1978.

CBRE accepted that its gross development value appraisal was negligent but disputed reliance, causation, the scope of its duty and whether it was liable for the same damage as Faithful & Gould. The central issues were whether the Bank relied on CBRE’s residual valuation of the site, whether the valuation caused recoverable loss, and, alternatively, how any contribution should be assessed.

1. Claim dismissed. Faithful & Gould failed to prove that the Bank relied on CBRE’s valuation of the site when approving development funding in December 2006 or increasing the facility in February 2007.
2. Applying South Australian Asset Management Company v York Montague [1997] AC 191 and Nykredit Mortgage Bank Plc v Edward Erdman (No 2) [1997] 1 WLR 1627, the court held that a valuer is not liable for the lender’s basic loss merely because the lender would not have entered the transaction without the valuation. The lender must show loss attributable to the overvaluation, namely that it was worse off than it would have been if the valuation had been correct.
3. The court adopted the reliance test stated in Capita Alternative Fund Services v Drivers Jonas [2011] EWHC 2336 (Comm): the advice need only have played a real and substantial, though not decisive, part in inducing the transaction. Any presumption arising from obtaining professional advice was rebutted by the contemporaneous documents and the Bank’s decision to proceed before receiving CBRE’s report.
4. The gross development value and residual site valuation were separate valuations. Reliance on the former did not entail reliance on the latter. The Bank relied materially on the gross development value, but the loss caused by that valuation being wrong was outside CBRE’s duty because the Bank would have suffered the same basic loss in any event.
5. Alternatively, the court held that “same damage” under the Act means the common damage for which both advisers were legally liable, assessed by reference to the scope of their respective duties and before contractual or statutory limitations on damages. The valuation-based limit was the difference between the represented and true site values. The reduction for contributory negligence applied to the basic loss, not to that valuation-based limit, following Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190.
6. In the alternative contribution analysis, Faithful & Gould’s settlement was bona fide and reasonable. The court would have assessed its responsibility at 35 per cent and, if CBRE had been liable, would have apportioned responsibility between the parties at 55:45 in favour of Faithful & Gould. Contribution towards the Bank’s reasonable costs could also have been ordered under section 51 of the Senior Courts Act 1981 and the Act.