Skykomish Ltd v Gerald Eve LLP

A professional valuer may assume an absolute obligation for a particular aspect of its work where the contract clearly so provides. An obligation to inspect the property may therefore be absolute, while duties to identify uncertainty generally require reasonable knowledge and judgment. A valuer must give appropriate warnings about material features affecting value, including unusual rent provisions, limited comparables and reduced saleability. However, breach of a warning duty causes no loss where the claimant would have proceeded on the same overall valuation advice. A valuation is not negligent merely because a later court prefers another methodology, provided the figure fell within a reasonable range and the adopted approach was supported by evidence.

The claimant provided mezzanine finance for a purpose-built student accommodation development. It alleged that the defendant’s February 2015 valuation of the leasehold was negligent, particularly in relation to the ground-rent mechanism, saleability, valuation methodology and inspection of the property. It also alleged reliance and loss when the investment later failed.

The defendant admitted that it owed contractual and tortious duties of reasonable care and skill and that no inspection had occurred. The issues included the scope of the duties, whether the valuation was negligent, reliance, causation, novation, loss, contributory negligence and contractual exclusions and limitations.

1. Duty and inspection. The obligation to inspect was absolute and its breach was admitted. Applying Platform Funding, a professional may assume an unqualified obligation for a particular task where the contractual language and nature of the obligation justify it. The defendant also gave an absolute contractual representation that it possessed the requisite market knowledge and expertise.
2. Warnings. The obligation under VPS3 and VPGA 9 to address uncertainty was not absolute. It applied to matters of which the valuer knew, or of which a reasonable valuer would have known, and which were reasonably material. The defendant should have warned that the ground rent strongly favoured the landlord, that the valuation was sensitive and substantially opinion-led because of limited comparable evidence, and that leaseholds were less saleable than freeholds or heritables.
3. Valuation. The defendant’s 40-basis-point adjustment was inadequately explained and the capitalisation approach breached the duty of care in that respect. Nevertheless, the accepted market value of the leasehold was £15.1 million, with a reasonable range extending by 12.5%. The defendant’s figure of £16.58 million fell within that range and was not negligent. The claimant’s preferred DCF methodology was not required by the non-prescriptive RICS guidance and was itself unreliable. The defendant’s evidence-based method of valuing the unencumbered and encumbered heritable interests and deriving the leasehold value by subtraction was logically acceptable.
4. Causation and reliance. Applying Capita Alternative Fund Services, the valuation had to play a real and substantial, though not necessarily decisive, part in the claimant’s subjective decision. The claimant relied principally on the commercial opportunity, Mr Taylor and the valuation figure. The omitted warnings would have operated as caveats to an otherwise reasonable valuation and would not have caused the claimant to withdraw. The later refinancing involved a different borrower, increased exposure and an outdated valuation, so the 2015 valuation could not reasonably be relied upon in 2016.
5. Novation and loss. The 2016 DARN novated the VPSA so that Visage (Aberdeen) replaced Visage. The claimant’s claim would therefore also have failed under Preferred Mortgages. In any event, no recoverable loss was caused by the breaches.
6. Exclusions and limitation. The exclusion and limitation clauses were incorporated and reasonable under the Unfair Contract Terms Act 1977. The exclusion clause applied to indirect and consequential losses, not direct profits arising from the particular transaction.
7. Disposition. The claim was dismissed. No interest was due.