Bank of Ireland (UK) PLC -v- Brian Patterson and others practicing as Patterson Miller [2014] NIQB 140

August 14, 2015

Background

Mr Justice Weatherup recently considered the plaintiff bank’s claim which alleges negligent valuation of property by the defendant valuer on the instructions of the plaintiff lender, who relied on the valuation for the advance of funds to a third party to purchase the property valued. Mr Justice Weatherup give a preliminary ruling on the issue as to whether the Defendant’s valuation lacked reasonable care.

Facts

The defendant practised as Patterson Miller, Chartered Surveyors and commercial estate agents. In 2007, the plaintiff instructed the defendant to carry out a valuation of a development site which comprised of various commercial and residential buildings.

The plaintiff’s claim is grounded in negligence and breach of contract and includes the particulars that the defendant valued the property at £2.7m when the true value was £1.7m, failed to carry out a detailed residual development appraisal and failed to identify and analyse suitable and appropriate comparables. A residual development appraisal is an exercise for which the value of the land equates to the value of the complete units less the costs of development, to include the developers profit.

The defendant contended that the valuation of £2.7m represented the market value of the property at the date of valuation. The defendant denied that a residual development appraisal was an appropriate valuation method given the prevailing market conditions in March 2007. It was said that from mid-2006 residual appraisals of residential land became an unhelpful tool in completing valuations as normal assumptions did not fit the market place, which at that time had become saturated with speculators, investors and potential developers, due to the ready availability of finance from banks and the belief that land and property prices would continue to rise. Therefore the defendant contended that reliance upon the comparable method of valuation was reasonable. The defendant further said that as a result of the preparedness of banks to lend it made little or no difference whether a site had planning permission or a reputable planning report.

Legal Principles

Mr Justice Weatherup considered the relevant principles which were outlined in the case of Webb resolutions Limited v E. Surv Limited [2012] EWHC 3653. These were:-

1. In common with other professional persons and in the absence of an express term in the contract the standard required of a surveyor is that of the ordinary skilled man exercising the same skill as himself;

2. Prudence does not necessarily indicate caution but it does suggest some circumspection. The Royal Institute of Chartered Surveyors defines market value as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”. The use of the word prudent does not make more onerous the ordinary duty of common law because prudence is one of the tests against which the duty of a professional common law has been measured;

3. In the absence of special instructions, it is no part of a valuers duty to advise on future movements and property prices;

4. The right approach is to focus on the result, that is to say the valuation itself. It does not follow that, if a valuation was outside the reasonable margin of error, the valuer was automatically negligent however, it spotlights the way in which the original valuation was performed to provide prima facie case for the valuer to answer;

5. There is a permissible margin of error or bracket.

Judgement

Mr Justice Weatherup held that the defendant’s valuation lacked reasonable care. He further concluded that the defendant appreciated that a residual development appraisal conducted in the present case could not have supported the valuation provided.

The defendant’s valuation did not reflect the approach to be taken by a prudent buyer. A residual development appraisal would have been an appropriate check on any proposed valuation. Such an appraisal would not have supported the valuation provided by the defendant.

Finally, Mr Justice Weatherup went on to comment that to abandon residual development appraisals when speculators had entered the market with ready cash to promote purchases that would have involved development that could not then have been economic was not the exercise of reasonable care and skill in the valuation of property. Past, current and future tends in the market may bear on present values and cannot be disregarded. The irrational nature of the market cannot be disregarded. The currently uneconomic proposed development of the site cannot be disregarded. Variables such as the location of the site cannot be disregarded.

This article has been produced for general information purposes and further advice should be sought from a professional advisor.

Fergal Maguire, Associate