Freemont (Denbigh) Ltd v Knight Frank LLP

A valuer’s duty of care is ordinarily confined to the purpose for which the valuation report was prepared. A valuation obtained for secured lending purposes does not ordinarily protect the instructing party against losses resulting from later investment or disposal decisions. Any concurrent duty in tort will generally coincide with the contractual duty in scope. The court distinguished between reliance on a report to obtain finance and reliance on it to decide whether, when or at what price to sell development land. The latter required separate disposal and development advice and fell outside the duty owed.

Freemont (Denbigh) Ltd claimed substantial damages from Knight Frank LLP arising from a 2006 valuation of development land. The valuation was prepared in connection with a bond and secured lending facility for the development. Freemont alleged that it relied on the valuation when deciding whether to accept offers for the land and claimed loss of profit or loss of a chance of a profitable sale.

The trial concerned five preliminary issues: whether a retainer existed, its terms, the existence and scope of any common law duty of care, reliance on the report, and whether the pleaded losses fell within the relevant duties.

1. Retainer. A contract arose between the parties no later than 27 July 2006, when Knight Frank’s letter confirming the basis of the instruction was accepted by Freemont’s agent.
2. Contractual purpose. The critical term was that Knight Frank would value the development land to enable Freemont to obtain the financing required for the bond. The contract did not include an express or implied term that the valuation could be relied on for future decisions concerning the disposal or development of the land. The contemporaneous documents supported only a secured lending purpose.
3. Tortious duty. Knight Frank owed Freemont a concurrent duty of care in tort. Its scope was confined to producing a fair valuation for secured lending purposes, so that Freemont could obtain the required financial support. The duty did not extend to investment decisions about whether, when or at what price to sell the land. The principles discussed in Smith v Eric Bush [1990] 1 AC 831, Caparo Industries Plc v Dickman [1990] 2 AC 605 and Scullion v Bank of Scotland plc [2011] 1 WLR 3212 supported that conclusion.
4. Freemont was entitled to rely on the report for the purpose for which it was prepared. It was not entitled to recover losses caused by reliance on it for other purposes. The pleaded loss of profit and loss of a chance of a subsequent sale therefore fell outside the scope of the contractual and tortious duties. Questions of remoteness and foreseeability did not arise.