Bank of Ireland & Anor v Watts Group Plc

A monitoring surveyor’s duty is to exercise the skill and care reasonably expected of a competent monitoring surveyor in the circumstances. The duty commonly requires an overview of the developer’s figures, rather than a wholly independent reconstruction of every cost and programme assumption. A lender must prove that any breach caused the loss claimed. Where the surveyor supplied only information forming part of the lender’s wider lending decision, liability is limited to loss caused by the information being wrong, not the financial consequences of entering the transaction generally. A claim for the whole loss of a failed loan therefore fails where the lender’s own lending decisions were the real cause of the loss or where no recoverable loss is identified.

The claimants, two Bank of Ireland entities, claimed approximately £750,000 from Watts Group Plc for professional negligence in preparing an initial appraisal report concerning a residential development in York. They alleged failures concerning planning drawings, the construction programme, cash-flow information and construction costs. Watts denied breach and argued that the Bank had not relied on the report, that the alleged breaches did not cause the loss, and that the Bank’s own lending decisions were responsible. The court also considered the legal recoverability of the claimed loss and contributory negligence.

1. Liability. Watts owed a duty to exercise the skill and care expected of an ordinary monitoring surveyor of reasonable competence and experience. The court rejected the allegations concerning the programme, cash-flow and construction costs. Watts were entitled to treat the developer’s £999,099 figure as a realistic starting point, particularly because it was supported by the developer’s experience and a proposed fixed-price contract. They were not required to undertake a detailed independent stage 2 cost calculation.
2. The planning allegation failed because the Bank had not proved that Watts possessed the relevant drawings before completing the report. If the drawings had been available, Watts should have identified the discrepancy between the planning permission and the proposed six-window-stack elevation. That breach would nevertheless not have caused the loss, since the Bank would probably have proceeded and retrospective permission was later granted.
3. The Bank relied on the IAR in general terms, but none of the alleged breaches was shown to have caused the claimed loss. The programme and cash-flow allegations could not have prevented drawdown. The construction-cost allegation did not establish that the Bank would have stopped lending.
4. Applying South Australia Asset Management Corporation v York Montague Limited [1997] AC 191, Nykredit Mortgage Bank Plc v Edward Erdman (No. 2) [1997] 1 WLR 1627 and BPE Solicitors v Hughes-Holland [2017] UKSC 21, Watts supplied information forming part of the Bank’s wider lending decision. The Bank could recover only loss caused by erroneous information, not the full consequences of the transaction. No such recoverable loss was identified.
5. The true cause of the loss was the Bank’s own flawed lending decision, including disregarded lending guidelines, inadequate scrutiny of the novel project, failure to account properly for associated Modus exposure, and failure to police conditions precedent. The claim was dismissed. Any recovery, contrary to the primary findings, would have been reduced by 75% for contributory negligence.