pnBlawg

the professional negligence blog

A collaboration between Rebmark Legal Solutions and 1 Chancery Lane

Property fraud - liability of seller's solicitor to innocent buyer

Purrunsing v A’Court & Co and House Owners Conveyancers [2016] EWHC 789 (Ch) is the latest case concerning conveyancing solicitors’ liabilities towards innocent victims of property fraud. It considers the question of the purported seller’s potential liability to an innocent purchaser and how the nature and extent of the test for relief under Section 61 of the Trustee Act 1925 interacts with the fact that the seller’s solicitor does not ordinarily owe the buyer a duty of care.     C attempted to buy a property in Wimbledon. He instructed D2. The purported seller instructed D1. Contracts were exchanged, and C duly paid the purchase price (£470,000) to his solicitors, D2, who passed the monies on to D1. D1 paid the monies into a bank account abroad, on the purported seller’s instructions.   Before C was registered as proprietor, the fraud was discovered. The purported seller could not be found and none of the purchase monies have been recovered.   All parties accepted that there had been no genuine completion of the transaction. This meant that both solicitors were liable to C for breach of trust for paying away the purchase monies without completion. However, D1 and D2 both sought relief under Section 61 of the Trustee Act 1925, contending they acted honestly and reasonably and ought fairly be excused for the breach of trust. C also sued D2 for breach of contract and negligence, which D2 denied.   D1 argued that, because it acted for the purported seller and not for C, and did not owe C a duty of care, the “reasonableness” test should be applied more favourably to D1, as D1’s liability in equity should not exceed its liability in common law.   Judge Pelling rejected this argument, on the basis that D1 was as much a trustee of the purchase monies as D2, questions of duties of care were not relevant, and there was no justification for treating D1 more favourably than D2 in this regard. However, what D1 and D2 had to do to meet the reasonableness test might be different, given their different roles.   The criticism of C’s solicitor, D2, was that it had raised Additional Enquiries of the seller to establish whether there was a link between the seller and the property. These had not been answered satisfactorily. However, D2 had failed to inform C either that these questions had been asked, or that the answers were not satisfactory. Accordingly, C was unaware of the risk of proceeding with the purchase.     The judge held that this was a breach of duty and that, by reason of it, D2 should not be granted relief under Section 61.   D1 also failed to establish entitlement to relief under Section 61:-   D1, on the judge’s findings, had not complied with the Money Laundering Regulations. D1 ought to have undertaken enhanced due diligence. It was irrelevant that these regulations did not form part of a duty owed by D1 to C. D1 knew a number of factors which ought to have caused D1 to question whether the seller was the true owner of the property. These included:     The property was unoccupied The property was unencumbered The property was of comparatively high value The Office Copy Entries contained an address for service in Cambridge which was not the address the seller provided The seller had not provided any documents linking him to the property There was an unexplained inconsistency between the seller’s responses in the Home Use Form about building works and information coming to light on a local authority search A previous sale was brought to an end by the seller when he was asked questions about his employer in circumstances when these could have been expected to be easy and quick to answer and should not cause any delay on completion. If D1 was to avoid liability, it would have to show that any departure from best or reasonable practice did not increase the risk of loss by fraud. D1 failed to carry out its money laundering obligations in accordance with reasonable practice and this contributed to the fraud. It was irrelevant that this was not a case of money laundering. D1 was required to undertake the money laundering checks. It did not comply with reasonable practice in this regard and this increased the risk of the fraud which took place.   The judge found that D1 and D2 should bear equal liability for the loss.       

Is an extension to the SAAMCO principle on the horizon?

Background Property valuation is seldom an exact science; it involves the consideration of both present factors and future contingencies.  With the property crashes of the last two decades came a wealth of litigation considering both the scope of the duty of care owed by valuers to lenders and the extent to which losses caused by negligent valuations are recoverable. One such case which those in the professional negligence field will be familiar is South Australian Asset Management Corporation v. York Montague Ltd [1996] UKHL 10. The House of Lords held, inter alia, that valuers who provide negligent valuations are only liable for the loss caused by the negligent information itself and not for any extraneous events (in the legal sphere this became known as the SAAMCO principle). Subsequent cases sought to distinguish its application, particularly where the duty was to advise rather than to inform and, earlier this month, the principle was again brought to the fore in an interesting judgment delivered in Edward Astle & Ors v CBRE Ltd and others [2015] EWHC 3189 (Ch). The case involved a Government scheme which consisted of both a trust and a partnership. The trust held freehold property and the partnership had an interest in the acquisition and development of five development sites. The Royal Bank of Scotland (“RBS”) sought expert valuations for loan security purposes and approached the Defendant companies (ERL and CBRE) in separate capacities. CBRE advised on the value of the units and freehold property. The units and loan notes were then procured and issued by ERL (the owner of the partnership and trustee company) in an information memorandum (“IM”). The IM contained a section entitled “Investment Overview” and sought to raise £37, 500,000, £25, 775, 000 of which was subsequently invested by the Claimants. Unfortunately, there was a collapse in commercial property values in 2008 and a desktop valuation carried out by CBRE noted a sharp decline in the aggregate value of the freehold and units. As such, the development centres were cancelled in 2010 and the freehold was sold. This meant that the partnership defaulted on its debt and the combined value of the properties was such that the Claimants lost all that they had invested. The Claimants brought a claim against the Defendants alleging that the valuations had been materially overstated and that their losses were attributable to the alleged overvaluation in the IM. The Defendant applied for summary judgment against the Claimants relying on the SAAMCO principle, namely that this was a case of duty to inform and therefore a claim for losses unconnected with the alleged overvaluation could not be pursued. Judgment Judge William Tower QC, sitting as High Court judge, delivered judgment on 5 November 2015. Despite accepting that the duty of the investors in this case was a duty to inform rather than to advise he nonetheless went on to hold that the Claimant had a real prospect of establishing that the loss they had suffered was attributable, at least in part, to the alleged inadequacies in the IM. In summary, the arguments presented on both sides were as follows. The Defendant argued that even if the IM has been entirely accurate, the Claimants would still have lost the totality of their investments because the cause of the loss was only attributable to the following events: commercial property values having collapsed, the project having been abandoned and the partnership refinancing having failed. The Claimants argued that whilst the SAAMCO principle applied in relation to the claims against CBRE, it did not apply to the claim against ERL.  The reason purported was that the SAAMCO case could be distinguished on its facts based on the following. Firstly, that the scope of the duty of care was different. There was no equivalence between ERL’s role and that of a valuer, SAAMCO related to a standard mortgage lender claiming against a negligent valuer whereas, in the present case, investors had acquired units or loan notes on the basis of a prospectus. In this sense ERL was not providing dispassionate objective advice as a valuer but rather it was the promoter of both a valuation and more nuanced information relating to commercial prospects. As such, ERL was also the recipient of a wide range of other benefits which were far removed from a standard fee for the provision of valuation service type scenario. Secondly, the starting point for discerning loss was different. Unlike SAAMCO, it was submitted that in the present case the court was not required to carry out a speculative analysis of what the valuation would have been had the information been accurate. Instead, it was required to assess the damages at the amount advanced less the amount recovered. The Claimant’s reasoning was that they had suffered an immediate measurable loss at the time of their investment because the units and loan notes (the asset in which they had invested) were in fact worth less than they were represented to be and that since they recovered nothing they were entitled to the full amount advanced.   Judge Tower reviewed the relevant authorities and asserted that the exercise which the court is required to carry out when considering these cases is a two-stage process: Firstly, the court must ascertain the basic loss i.e what loss did in fact occur. Secondly, the court is required to assess the maximum amount of the loss capable of falling within the duty of care, which it does by identifying the consequences which are attributable to that which made the act wrongful. Siding with the Claimants, Judge Tower agreed that it was capable of being argued at trial that the Claimants made an investment which was worthless and which they would not have made if they had been informed as to the true value of the investment. Following this, even though ERL had no duty to advise, as an information-provider on an investment rather than a lending decision, it was arguable that ERL knew that the information would be used by the Claimants and their own advisers to decide on the viability of the transaction.  Therefore the maximum loss was, at least in part, attributable to the alleged overvaluation. Comment Ultimately, this was a summary judgment application. The judge was not permitted to have a mini-trial of the issues and the threshold the Claimant had to surmount to prove that the case had a real prospect of success was a low one. It is also important to note that the judge’s decision was caveated. On the evidence before him Judge Tower decided it was quite likely that the Claimants would not be able to prove at trial that an overvaluation caused anything like as much loss as much that alleged and that a trial judge may find that his two-stage formulation is not appropriate. For all these reasons, practitioners cannot infer too much at this stage as to a possible extension of the SAAMCO principle. Nevertheless, the judgment does foreshadow a trial on the substantive issues which will raise poignant questions as to the scope of SAAMCO and one which will have potentially wide-ranging implications for practitioners (as well as valuers/investors). Most notably the door may be opened in similar cases to a third category of duty which carries a different measure of loss, one that sits between the duty to inform and the duty to advise where the tortfeasor is aware than the information will be used to decide the viability of a transactions. Looking ahead, for practitioners this could mean that the SAAMCO principle will no longer be a ‘carte blanche’ in valuation cases where the duty to inform arises and that investment contracts will need to be subjected to meticulous scrutiny. For those practising in this field, the forthcoming judgment will certainly be one to watch.    

Schubert Murphy v The Law Society

In Schubert Murphy v The Law Society [2015] P.N.L.R. 15 (QBD), Mitting J refused to strike out a claim by solicitors who alleged that it had suffered loss during a conveyancing transaction as a result of relying upon misinformation on the Law Society’s "Find a Solicitor" website. Someone calling themselves John Dobbs submitted and obtained a practising certificate to operate as a sole practitioner under the trading name of Acorn Solicitors. A Mr Khristofi decided to buy a house and instructed Schubert Murphy. The vendor was represented by Acorn Solicitors. Schubert Murphy checked the Solicitors Regulation Authority (SRA) and noted Acorn Solicitors were regulated. The Law Society’s practice note on mortgage fraud (dated 15 April 2009) urged solicitors as a matter of good practice to check their directory "Find a Solicitor" or the directory of Licensed Conveyancers if they were dealing with a firm they were unfamiliar with. During the conveyancing Acorn Solicitors gave the standard undertaking to discharge the existing mortgage out of the purchase monies paid by Mr Khristofi. Mr Khristofi moved into the house to discover the £735,000 purchase price had not been used to discharge the mortgage; Acorn Solicitors were a sham and the undertaking worthless. Mr Khristofi faced eviction proceedings by Lloyds Bank who held a first charge over the property. Mr Khristofi brought proceedings against Schubert Murphy (for negligence) which was settled. Schubert Murphy then brought proceedings against the Law Society for breach of statutory duty and/or negligent misstatement. The Law Society sought to strike out the claim on the basis it did not owe Schubert Murphy a duty of care. Mitting J refused to strike out the claim and held the matter should go to trial. The existence or not of a duty of care vested in the SRA in respect of its duties under ss. 10(1) and 10A of the Solicitors Act 1971 depended on an analysis of general factors and specific factors. Having regard to issues concerning the protection of the public a strike out was not appropriate as in theory if the Law Society was correct it called into question the security of current conveyancing practice. Furthermore that could be a factor in recognising the existence of a duty of care which coincided with the Law Society’s statutory duties when considering applications for the entry onto the Roll of Solicitors and their registration. This was because the Law Society, by encouraging members of the public to rely on its published information about who is a solicitor could be shocked to discover they had no route for recompense against a representative and regulatory body that held out a person as a solicitor on its website when in fact they were not. It is not clear from the judgment whether the Law Society’s website for its "Find a Solicitor" contained an appropriately worded disclaimer in 2010 when the fraudulent transaction occurred. It does now and includes the wording "Find a Solicitor is not intended to be the way in which the Law Society fulfils its statutory duties under the Solicitors Act 1974 to keep an official register of all solicitors available for inspection by the public" and goes on to advise viewers to inspect the official register. The Law Society contended that a body in its position and exercising a statutory duty owed no duty of care to those who may be injured economically by carelessness (relying on Yuen Kun-Yeu v Attorney General of Hong Kong [1988] A.C. 175). Mitten J held reliance on the case noted above was of little assistance as it did not establish that in no circumstances could a regulator not be responsible for economic loss. Further it was a not case where the Law Society made a representation or failed to exercise due care in an assessment of honesty or competence of "John Dobs", but instead it just entered his name on the Roll and register him as entitled to practise when if they had exercised proper care they would not have done so. Mitten J also held that in negligence claims generally there was no requirement that the act of carelessness giving rise to the claim must coincide temporally with the occurrence of harm. Furthermore in a representation case it did not matter the alleged carelessness happened at a time when the person to whom the representation was made was not personally in the contemplation of the defendant. Mitten J was concerned about the possible impact on conveyancing practise as in cases where solicitors are involved negligence can be rectified by a payment from the Solicitors Compensation Fund. However counsel for the Law Society submitted only where a solicitor gives an undertaking that fails will compensation be paid as there is no remit or obligation to make payments for failed undertakings given by people posing as a solicitor. So how does a member of the public or a solicitor obtain independent verification of the information on the "Find a Solicitor" website? The official register could be inspected and the Law Society telephoned. However the SRA will not necessarily release information about a person’s route to entry on the Roll on the basis of data protection principles. Should such a body like the Law Society be allowed to comprehensively disclaim responsibility for information when it urges the public to check the information it publishes and urges solicitors, as a matter of good practice, to also check? J Mitting gave judgment on 17 December 2014-does anyone know what is happening with this case?                

No duty owed by conveyancing solicitors to investigate the solvency of a vendor

No duty owed by conveyancing solicitors to investigate the solvency of a vendor: Karmjeet Singh Kandola v Mirza Solicitors LLP [2015] EWHC 460 (Ch) The High Court has recently dismissed a negligence claim brought against solicitors for the alleged failure to investigate the solvency of a party in the context of a property transaction.  The claimant, a businessman and owner of several buy to let properties, instructed the defendant firm in 2010 in relation to the purchase of a property.  The circumstances of the transaction were unusual, with the claimant paying the deposit of £96,000 to be held by the vendor’s solicitors as agents of the vendor (rather than as stakeholder).  Unknown to the defendant, the arrangement was intended to facilitate a loan by the claimant to the vendor.The defendant advised the claimant against proceeding in any event (on the basis that a former client of theirs had lost money in similar circumstances), although did not undertake further investigations into the vendor’s credit status.  Such searches would have revealed, prior to exchange, that a bankruptcy petition was outstanding against the vendor.  The claimant ignored the defendant’s advice and paid the deposit.  The vendor was subsequently made bankrupt and his solicitors struck off by the SRA for fraudulent missuse of client money.The key issue to be determined at trial was whether the defendant had owed a duty to (1) provide the claimant with specific advice as to the risk of a vendor becoming insolvent and (2) further investigate such risk by conducting bankruptcy and/or Land Registry priority searches on the vendor prior to exchange. HHJ David Cooke, sitting in the High Court, held that the defendant had not owed a duty in either respect: (1) The fact that the transaction had taken an unusual form did not justify the imposition of duties beyond the recommendations contained in the Law Society’s Conveyancing Handbook (which referred only to the need to advise a client as to general risks associated with the release of a deposit).  (2) The duty of a conveyancing solicitor is to “advise of the unusual risk, but not to seek to evaluate it unless specifically instructed to do so” [at 51].  Over and above this the scope of a solicitor’s duty does not include pursuing all lines of investigation that are open to him, merely those that he has been instructed to. (3) The above is particularly pertinent where, as in this case, advice is provided to a businessman with significant experience of property and/or financial transactions.  In this respect: “…the solicitor is not a guarantor of his client's subjective understanding, and will have fulfilled his duty if he gives an explanation in terms the client reasonably appears to him to be able to understand, and to have understood, even if the client later alleges that he did not in fact understand what was said” [at 47]. The judgement provides a succinct restatement of established principles. A solicitor owes a “nuanced” duty to advise on transactional risks based on an objective assessment of his client’s experience and understanding. Conveyancing practitioners in particular will be reassured to hear that, absent specific instruction, following guidance provided in the Conveyancing Handbook will usually suffice to fulfil their professional obligations.

No duty owed by a valuer for a developer’s loss of profit or loss of a chance on subsequent sale

Freemont (Denbigh) Ltd v Knight Frank LLP [2014] All ER (D) 165 (Oct)    On 14 October 2014 Stephen Smith QC sitting as a Deputy High Court Judge in the Chancery Division handed down judgment on five preliminary issues concerning a multi-million pound dispute over an allegedly negligent valuation of a development site.    HELD, although a valuer owes concurrent duties in contract and tort to a developer, the developer's claim for loss of profit or loss of chance of a subsequent sale, were outwith the scope of the valuer’s duty.    The Facts    The Defendant valuer Knight Frank LLP (“KF”) had been instructed to value a plot of land, approximately 17 acres in size, on the outskirts of Denbigh, North Wales. The landowner was seeking finance to develop the land.   The valuation report was prepared for the purpose of supporting the landowner’s application for finance from the proposed lender. The valuer was aware of this purpose. The valuation was subsequently relied upon by the Claimant, Freemont (Denbigh) Limited (“Freemont”), as a minimum price to accept when selling the land.   A number of offers to purchase the land were made to Freemont. These fell below KF’s minimum valuation and so were rejected. The failure to obtain an offer in excess of the minimum valuation caused a delay in the sale of the land and as a result, the land fell into disrepair and significantly reduced in value.   Loss claimed   Freemont claimed that it suffered loss of profit (by not accepting one of the developer's offers) and claimed damages for the same, together with damages for all subsequent marketing costs and costs of future disposal of the Development (giving credit for any future sale). Further or alternatively, Freemont claimed that it had suffered the loss of a chance to sell the Development.    The Decision    Stephen Smith QC gave judgment on five preliminary issues directed by Master Price on 12 August 2013. The common law position on the duty of care owed by a valuer was summarised as follows:   (1)   A duty of care in tort is likely to be owed to the person for whom the report was prepared (even though a contractual duty may also be owed to the same party);    (2)   The duty of care in tort is likely to be limited to the purposes for which the report was prepared;    (3)   A duty of care in tort may also be owed by a valuer valuing premises for mortgage purposes (at least if they are modestly valued residential premises), to the purchaser of those premises, if        a.     The valuer knows that his report is likely to be shown to the purchaser, and      b.    The purchaser intends to use the premises for his own residential purposes, and not let them, and      c.     The valuer knows that his report is likely to be relied upon by the purchaser for the purpose of deciding whether to purchase the premises; but    (4)   A duty of care in tort is unlikely to be owed by a valuer instructed to produce a report for a lender for security purposes, to an investor who relies on the report for other purposes.   Of the above four propositions, the first three were well-settled. The fourth however, could not be regarded as settled before the Court of Appeal’s decision in Scullion v Bank of Scotland plc [2011] 1 WLR 3212. In Scullion, Lord Neuberger MR held that a valuer acting for a lender did not owe a duty of care to a borrower where the loan was for a buy-to-let investment property.   Applying the reasoning of Lord Neuberger in Scullion, Stephen Smith QC held that questions regarding the valuation of the land for sale purposes were “tricky” and he rejected Freemont’s contention that KF knew or ought reasonably to have known that it would rely on the report when considering whether to sell the land in the future. In this instance therefore, the duty of care extended only to the provision of a report for the purposes of securing finance. KF had not negligently valued the land at such a low figure that Freemont had been unable to obtain the financing it had negotiated (paragraph 148).   This case is welcome news for valuers and their insurers and shows that the Court will look to the purpose behind the valuation report and that reliance upon the report will be limited to the purpose of the valuation report.

Newcastle International Airport Ltd v Eversheds LLP - making sense of legalese

When faced with a complex legal document (the new procedural rules, being one example), it is often tempting to skim read and shrug off any incomprehensible sections, in the hope that they are not important. Newcastle International Airport Limited v Eversheds LLP ([2013] EWCA Civ 1514) demonstrates why it pays to press ahead – in a darkened room, with a wet towel over your head if needs be. In this case, Eversheds was instructed to draft new service contracts for executive directors by the executives themselves. It was only when one of the executives died that the Airport realised the new contract entitled his estate to bonuses totalling £8m. Described in the Newcastle press as a ‘bonanza’, the Court of Appeal stated that when this issue came to light, it understandably caused “considerable consternation”. In order to recoup part of the payment, the Airport pursued a professional negligence claim against Eversheds. The Airport’s claim was dismissed at first instance. On appeal, the Court of Appeal found that the new contracts should have been accompanied by a written explanation to the Airport, in user-friendly language, of their terms and effect. Thereby ensuring that Eversheds’ client – the Airport – was provided with advice directly, and not merely through the intermediary of its executives, whose interests conflicted with that of the Airport. However, the Court held that it was unlikely that the chair of the company's remuneration committee would have read the memorandum, even if it had been provided. Consequently, the claim failed on causation grounds. Lessons Learnt Newcastle International Airport Limited v Eversheds LLP provides a number of salutary lessons. First, to non-lawyers it shows the importance of reading key legal documents and of seeking assistance in understanding their contents. To lawyers, it reminds us to draft documents in plain English, where possible. It also demonstrates how crucial it is to assess causation in light of what the witnesses’ actual conduct indicates about their likely hypothetical behaviour. In this claim, the courts’ view on causation relied heavily on a litany of documents, which the remuneration committee’s chair had not read or not read adequately.

Conflicting medical evidence: solicitors' duties in CICA claims

In Boyle v Thompsons Solicitors [2012] EWHC 36 (QB) Mr Justice Coulson considered the scope of a solicitor’s duty in resolving conflicts of expert medical evidence. The claimant (“Mrs B”) claimed damages from the defendant solicitors (“the Solicitors”) for their allegedly negligent conduct of her compensation claim to the Criminal Injuries Compensation Authority (“CICA”).   The CICA claim related to injuries sustained as a result of an assault on Mrs B by her former partner in November 2001. Mrs B applied to the CICA for compensation and in 2003 it made a final award of £5,150. This figure proved to be unacceptable to Mrs B and she instructed the Solicitors to lodge an appeal on her behalf. By the time of the appeal hearing in 2006, Mrs B had taken early retirement on medical grounds. The principal issues in the appeal became the extent to which her PTSD was permanent (which meant she could never work again) and whether the PTSD was solely due to the November 2001 assault.   The appeal was not straightforward because the medical evidence was contradictory. There was evidence from Dr T, Mrs B’s treating psychiatrist, to the effect that the PTSD was permanent and was solely caused by the November 2001 assault. However there was also evidence from an independent psychologist, M suggesting that the PTSD was not permanent and could not be solely attributed to the assault. Furthermore Mrs B had been the victim of a number of assaults, of which only the November 2001 passed the CICA threshold test and thus qualified for compensation. In addition Mrs B had a history of depression.   The CICA Panel rejected Mrs B’s appeal, deciding (amongst other matters) that the cause of Mrs B’s PTSD was multi-factorial, that the PTSD was not permanent and that it was not the cause of her retirement.     Mrs B sued the Solicitors. Notwithstanding that the Solicitors had asked M, the psychologist, to reconsider her opinions in the light of Dr T’s views, Mrs B argued in effect that they should have made further approaches to M, the psychologist, in an attempt to “beef up” her evidence in relation to the permanent nature of the PTSD and its causation.   In finding that the solicitors were not negligent, Mr Justice Coulson noted an important feature of the CICA scheme, namely that applicants were required to disclose all medical reports obtained. He considered that the solicitors had acted appropriately in asking M to reconsider her views in the light of Dr T’s evidence. It was an unrealistic criticism of the solicitors that they should have done something more about the difference in views between M and Dr T. It was not for the solicitors to “manipulate the evidence of the independent expert, particularly in a CICA claim..” where all reports had to be disclosed to the Panel. In the circumstances the solicitors did all that they reasonably could and Mrs B’s claim was dismissed.   As a postscript, the judgment also contains an useful analysis of quantum, where the underlying action concerns a CICA claim.      

Surveyors surveyed

Judgments which contain a review of the authorities are always useful to the busy practitioner.  One such is that of Coulson J. in Webb Resolutions Ltd v. E. Surv Ltd [2012] EWHC 3653 (TCC), where he discusses the law relating to surveyors’ negligence in making mortgage valuations.    The judgment also contains one or two discrete titbits worth remembering and is entertaining when dealing with the quality of the expert evidence about lending and with the Claimant’s lending policy itself, about which the judge is characteristically forthright.  Alas, I am going to deal with the less jolly matter, the law. The judge first sets out the standard of care expected of the surveyor as found in Jackson and Powell, namely, that of the ordinary skilled man exercising the same skill as himself.   “He is variously described in the cases as the ‘reasonably skilled’, ‘competent’, ‘prudent’ or ‘average’ surveyor.”  He then points out that the basic common law duty can be extended, reduced or modified by the terms of the contract between lender and valuer and goes on to examine the terms of the particular retainer.  One of the terms related to the standard of care.  The surveyor was to “observe the standard of skill, care, competence and diligence in performing its obligations which a prudent manager and supplier of property valuations and appraisals would observe practicing a profession in which it or their being employed for the purposes of this Agreement.” Did the use of the word “prudent” impose on the surveyor a higher standard of care than that demanded by the common law?  The answer was No.  Prudence was one of the yardsticks used by the common law to measure the duty of care.  Moreover, as a matter of dictionary definition it did not necessarily mean “conservative” or “erring on the side of caution”. The terms of the agreement made clear that the valuations were required for a mortgage company providing loans on the security of residential property.  So, it was argued, the valuations ought to have been arrived at on the basis of the re-sale value of the property, on the assumption that the borrowers might default.   The judge rejected that argument as being contrary to the authorities of Singer and Friedlander Ltd v. John D Wood and Co. [1977] 2 EGLR 84 and Banque Bruxelles Lambert SA v. Eagle Star Insurance Co. Limited  [1995] QB 375.  In reaching his conclusion as to value, a valuer must ignore the purpose for which the valuation is required.  It must reflect the true market value of the land at the relevant time.  In the absence of special instructions it is no part of a valuer’s duty to advise on future movement of property prices.  Here there was nothing in the agreement that would have alerted the valuer to the risk that the valuations had to be carried out on a special or unusual basis. The Claimant required the valuer to complete its valuations on electronic valuation forms, a “tick-box” process, and issued guidance notes for the purpose.  Those required: (1)    only information requested on the form to be provided, not any additional information; (2)    since it was a “tick-box” format, no additional text to be added within the body of the report; (3)    since there was no general remarks section, no additional pages of text to be supplied. “All our information requirements are met by the tick boxes provided on the form.” In respect of one particular valuation the question arose as to what the valuer should do if his obligation to take reasonable care required him to say something which could not be accommodated by the tick-boxes.  The general answer was that in such a case the valuer was to ignore the guidance notes and add words to the form or produce a covering letter.  To do anything else would be a plain breach of duty. Having dealt with those issues, Coulson J. then examined the authorities relating to negligent valuations. Methodology or result? Was the court to focus on how the valuer went about his task (the methodology) or on the consequential valuation (the result)?  How relevant was it that the valuer made a number of errors in going about his valuation if in the final analysis his valuation was reasonable?  The judge decided that one should focus on the result, the valuation itself: see Lewisham v. Morgan [1997] 2 EGLR 150; Merrivale More PLC v. Strutton Parker (a firm) [2000] PNLR 498, Goldstein v. Levy G (a firm) [2003] PNLR 35.  If the valuation was outside the reasonable margin, while not automatically rendering the valuer negligent, that highlights his methodology and provides a case to answer. Questions as to how the valuations were carried out might become relevant if the valuer alleges contributory negligence on the part of the client and the court then has to apportion blameworthiness. Margin of error It was accepted that in any negligent valuation case there is a permissible margin of error.  In cases of complex calculations for investment purposes it is usual for the bracket to be assessed by reference to each of the variable figures used in set formulae: Goldstein v. Levy G and Derek Dennard and Others v Price Waterhouse Coopers LLP [2010] EWHC 812(Ch).  In the case of residential valuation, however, it was agreed there should be just one bracket, calculated by reference to the correct valuation figure.  Coulson J., however, thought it potentially unwise to fix the bracket solely by reference to earlier authorities but they might provide some rough parameters.  He rehearsed the cases: Singer and Friedlander; Corisand v. Druce and Co. [1978] 2 EGLR 86; Legal & General Mortgage Service Ltd v. HPC Professional Services Ltd [1997] PNLR 567; Mount Banking Corporation Ltd v. Cooper and Co. [1992] 2 EGLR 142 and Arab Bank PLC v. John D Wood Commercial Limited [1998] EGCS 34; Axa Equity and Law Home Loans Limited v. Goldsack & Freeman [1994] 1 EGLR 175 and BNP Mortgages v. Barton Cook and Sams [1996] 1 EGLR 239; Paratus AMC Limited v. Countrywide Surveyors Limited [2011] EWHC 3307 (Ch) and Platform Funding Limited v. Anderson and Associates Limited [2012] EWHC 1853 (QB).  In K/S Lincoln and Others v. CB Richard Ellis Hotels Limited [2010] EWHC 1156 (TCC) he himself had summarised some of them as follows: (a) For a standard residential property, the margin of error may be as low as + or – 5%; (b) For a valuation of a one-off property, the margin of error will usually be + or – 10%;        (c) If there are exceptional features of the property in question, the margin of error could be + or – 15%, or even higher in an appropriate case. He stood by that summary and dealt with each valuation before him accordingly. Contributory negligence Again, the judge set out the relevant law.  The burden was on the surveyor to show that the client had failed to look after its own interests and that the failure caused loss: Davis Swan Motor Co. Limited v. James [1949] 2 KB 291 and Banque Bruxelles v Eagle Star Insurance at first instance [1994] EGLR 68 at 99. In general terms, the applicable standard of care was that of the reasonably competent professional or practitioner.   In this case Coulson J. had to examine the Claimant’s lending policy.  Had it done what its competitors in the market were doing?  If so, negligence was unlikely, unless its conduct was irrational or illogical: see e.g. Banques Bruxelles.  He did note Sir John Vinelott’s warning in Birmingham Midshires Mortgage Services Limited v.  Parry [1996] PNLR 494, however, that the behaviour of the market is not necessarily a reliable guide;  there might be good commercial reasons which lead businessmen to take risks.  In Paratus Judge Keyser had noted that the courts were not well-suited to assess whether the business models of entire sectors of the financial services industry were reasonable in the interests of those who undertook them.  Coulson J. decided that the standard to apply was that of the reasonably competent centralized lender, acknowledging that in applying it he should be wary of concluding that practices common in the market were in fact irrational. Having thus warned himself, he went on to say that lending large sums on a self-certified basis, relying on intermediaries and placing complete faith in computerised tick-box forms "seems to me to be a potential recipe for disaster."  But, he acknowledged, such lending was common in the years 2004-2007.  So he could not say that, in respect of one of the loans he was dealing with, the decision to lend was irrational or illogical or negligent. So one might conclude that, if enough people take enough risks enough of the time, they might in hindsight be feckless but they are not negligent.