Eiger Funding (PCC) Limited v Ridge And Partners LLP

A professional adviser providing information for a lending decision is responsible for losses representing the fruition of the risks against which the advice was intended to guard. An independent monitoring surveyor must exercise reasonable skill and care in assessing construction costs, costs to completion, contractual pricing and risks of cost overruns. Where the available information is inadequate, the surveyor must give a clear warning and undertake appropriate further investigation or use a prudent benchmark. A conflict arising from earlier work for the developer may be causative where it contributes to unreliable cost advice. Loss may be assessed by the court on the best available evidence; mathematical precision is unnecessary where the relevant loss is established.

Eiger Funding lent £12.9 million to finance the completion of a Liverpool development by Signature Living. Ridge and Partners, which had previously acted for Signature, provided an independent monitoring surveyor’s report before the loan was made. The report gave conflicting and inadequately supported figures for the total construction cost and cost to completion, and did not sufficiently address the contractual and relationship risks.

Eiger alleged professional negligence and advanced a no-transaction case. Ridge ultimately accepted that it owed duties in contract and tort and had breached duty in limited respects, but disputed causation, reliance, scope of duty and loss. The central issues were whether the report caused Eiger to enter the loan agreement and whether the resulting loss fell within the scope of Ridge’s duty.

1. Liability. Ridge owed Eiger duties in contract and tort to exercise reasonable skill and care in advising on the adequacy of the contract sum, risks of cost overruns, programme risks and costs to complete. The absence of a formal written retainer did not prevent contractual relations from arising where the parties objectively proceeded on that basis.
2. Breach. Report 16 was confusing and unsatisfactory. Ridge adopted unexplained figures supplied by Signature, failed to analyse the reduction from the original contract sum, omitted or inadequately explained preliminaries, contingencies and fees, and gave inconsistent costs-to-completion figures. A reasonably competent surveyor should have warned that Signature’s figures were significantly below prudent benchmarks and that substantial additional costs might be incurred. It should have obtained more granular information or used an objective benchmark such as BCIS data.
3. Relationship and conflict issues. The report’s references to a revised target cost and an agreed total cost required explanation of the different risk allocation involved and the limited value of an informal agreement between related companies. Ridge was also in a clear conflict because it had prepared the earlier cost appraisals forming the basis of the contract sum. It failed to obtain informed consent. The conflict was potentially causative because Ridge failed to identify the age and unreliability of its earlier figure.
4. Causation and reliance. Eiger and NWC relied on Report 16 in entering the Loan Agreement. The report was also relevant because an acceptable initial IMS report was a condition precedent to funding. Ridge did not establish unreasonable reliance or contributory negligence.
5. Scope of duty and loss. Applying South Australia Asset Management Corporation v York Montague Ltd, the relevant risk was entering a loan with construction costs and costs to completion that made it unduly hazardous. Under the analysis in Manchester Building Society v Grant Thornton UK LLP, the loss represented the fruition of that risk. Eiger suffered recoverable loss when the loan agreement was entered into, or alternatively could identify within its later overall loss an element attributable to the risk of substantial cost overruns. Precise reconstruction of the project’s subsequent history was unnecessary.
6. Quantum and order. On the evidence, including BCIS benchmarking, the court assessed the likely cost to complete at £5,416,200, compared with Ridge’s advice of approximately £2.9 million. Damages were therefore assessed at £2.5 million. Consequential matters were to be agreed, failing which a further hearing would be required.