pnBlawg

the professional negligence blog

A collaboration between Rebmark Legal Solutions and 1 Chancery Lane

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.

Shooting Admiral Byng

Admiral Byng was held responsible for the loss of Minorca in 1756. He was relieved of his command, court martialled and shot by a firing squad. Voltaire remarked of the decision to shoot him that it was beneficial to kill an Admiral from time to time “pour encourager les autres”. Although Hildyard J. made reference to Admiral Byng in his judgment in the case of Caliendo v Mishcon de Reya [2014] EWHC 3414 he was not prepared metaphorically to shoot the Claimant’s solicitors, DLA Piper LLP, to encourage the rest of us. DLA were 3 ½ months late in serving notice on the defendant of the existence of a CFA and an ATE policy in a professional negligence claim. They made an application for relief from sanctions at the time of service of proceedings and admitted that they had no good reason for their failure. The judge accepted the serious effect of the ATE/CFA funding arrangements but considered that what mattered for the first limb of the Denton test was the seriousness and significance of late notification. He held that the defendant had not been able to show ‘material prejudice’. This seems a slightly different test from whether or not the breach was ‘serious and significant’ - a failure to pay court fees was given as an example in Denton of a breach which is serious and significant but it cannot be said to cause ‘material prejudice’ to the other party. The judge’s application of the third limb of the Denton test (evaluation all the circumstances of the case so as to deal justly with the case) was interesting. When dealing with the impact on other court users, the judge was keen to emphasise that he was not aware of any specific detriment to court users such as in Mitchell where the adjournment of the cost budget hearing caused an adjournment and the vacating of an asbestosis claim. It is submitted that the test of the impact on other court users has always been difficult – on the one hand information of a specific detriment is rarely likely to be available outside, perhaps, the masters’ corridor but, on the other hand, without such specific detriment the courts and parties will often be merely speculating. The judge did not consider it would be just to withhold relief from sanction. Whereas Denton undoubtedly softened the Mitchell regime, judgments such as this are taking us closer still to the original relief from sanctions test which focused on the requirements of justice – too late to save some of the Admiral Byngs of the past year.

Adding a new cause of action after expiry of limitation

It is well known that a court can permit a party to amend its case to plead a new cause of action even though, had it been starting such a claim in freestanding proceedings, it may have been statute-barred. CPR 17.2 provides that the court “may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings”.   What if the parties cannot agree as to whether the limitation period for the new claim has expired or not? Such a situation can arise where there is a dispute as to a claimant’s date of knowledge. In Chandra v Brooke North [2014] TCLR 1 Jackson LJ said (at paragraphs 65-67) that there are essentially two options. The court can treat it as a “conventional amendment application”. It will not descend into factual issues seriously in dispute, but rather will consider whether the defendant has a “reasonably arguable case on limitation”. If the court refuses permission to amend the claimant can issue fresh proceedings in respect of the new claim; the defendant can plead its limitation defence and the limitation issue can be determined at trial (often as a preliminary issue).   0 0 1 346 1973 1 Chancery Lane 16 4 2315 14.0 Normal 0 false false false EN-US JA X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin; mso-ansi-language:EN-US;} On whom does the burden lie to prove or disprove the limitation defence? That was issue for the Court of Appeal in Mercer v Ballinger [2014] EWCA Civ 996. The Master of the Rolls decided that the burden was on the Claimant to prove that the Defendant did not have a reasonably arguable limitation defence. Thus he held (at paragraph 27): “The claimant is after all in effect inviting the court to make a summary determination that the defence of limitation is unavailable. If the availability of the defence of limitation depends upon the resolution of factual issues which are seriously in dispute, it cannot be determined summarily but must go to trial. Hence it can only be appropriate at the interlocutory stage to deprive a defendant of a prima facie defence of limitation if the claimant can demonstrate that the defence is not reasonably arguable.”

Mitchell bonanza!

The Law Society Gazette has reported that the Court of Appeal is due to hear three consecutive appeals on Mitchell related issues. The cases are due to be heard on 15th and 16th June and are intended to give some clarity for lawyers in what has become an unpredictable landscape The cases to be heard are Utilise TDS Limited v Davies, Decadent Vapours Ltd v Bevan & Ors A3/2014/0767 and Denton & Ors v TH White Ltd & Anr A2/2014/0126. Utilise was a case involving relief from sanctions for failure to file a cost budget in time (41 minutes late). The district judge took account of other breaches and refused to grant relief from sanctions. Although each of the breaches individually were regarded as trivial, the decision was upheld on appeal to the high court (see Utilise TDS Limited v Davies [2014] EWHC 834). The decisions in Decadent Vapours Ltd and Denton & Ors do not appear to have been reported. Mitchell heralded a new era tough case management by the courts and was followed by a great deal of uncertainty and unpredictability, extremely cautious applications to extend time and a reluctance to agree extensions of time for compliance with timetables set by rules or court orders. Some decisions subsequently have brought clarity (see for example my blog on Isaac Stoute v LTA Operations Ltd on 23rd May 2014) but others have suggested a very mixed approach and perpetuated uncertainty. Like London buses, three decisions are about to arrive at once. We wait with anticipation to see whether they bring clarity and in what direction they will take us …  

Jackson on Jackson

“It was no part of my recommendations that parties should refrain from agreeing reasonable extensions of time, which neither imperil hearing dates nor otherwise disrupt the proceedings” said Jackson L.J. in Hallam Estates Limited v Teresa Baker [2014] EWCA Civ 661. In Hallam the claimants (paying parties) asked for an extension of time for filing their points of dispute in proceedings for detailed assessment of costs. The defendant had been late in filing her bill of costs. Jackson L.J. held that they had given sensible reasons for asking for the extension and, given her own delay, the defendant could hardly object to a modest extension. Pursuant to r. 3.8(3) the court’s approval was required for such an extension but this should have been no more than a formality. In fact the judge approved it on paper without a hearing and this approach was endorsed by the Court of Appeal. Rule 3.8 is about to be amended to allow parties to agree extensions of time for up to 28 days as long as no hearing dates are imperilled. The parties have a duty to further the overriding objective (which includes allotting an appropriate share of the court’s resources to cases) and thus, according to the great man himself, agreeing reasonable extensions which don’t imperil dates or disrupt the course of litigation is not a breach of a legal representative’s duty to their client. Jackson L.J. made it clear that if an application was made for an extension of time before the expiry of the time permitted by a rule or practice direction the application remained an application for an extension of time even if time expired before the application was heard. He said that the principles governing relief from sanctions were not applicable in these circumstances. As was said in Mitchell itself, it is clearly better to make an application for an extension in advance if a deadline is likely not to be kept. Greater clarity has now been brought to the extent to which parties can agree extensions of time. A number of cases have now emphasised the need to identify whether a court sanction has actually been imposed by breach of a court order, rule or practice direction – not all breaches automatically result in a sanction and therefore it is doubtful that relief from sanctions is required in such circumstances.            

Relief From Sanctions - The Pendulum Swings

    Two decisions delivered shortly before Easter suggest a change in the direction of the Mitchell pendulum. Chartwell Estate Agents Ltd v Fergies Properties SA [2014] EWCA Civ 506 is a "must read" decision of the Court of Appeal. It concerns the failure to exchange witness statements. Both parties had failed to serve witness statements whilst a squabble about disclosure rumbled on. The judge found that the breach was not trivial and there was no "good reason" for the failure. But the trial date was not imperilled and the claim would be doomed if relief was not granted. Even though the Mitchell criteria were not satisfied the judge granted relief. The Court of Appeal upheld the decision, emphasising that the default of the defendants was a factor that took the case outside of the Mitchell "expectation" that relief would be refused. Kaneria v Kaneria [2014] EWHC 1165 is a decision of Nugee J. The judge held that Robert v Momentum Services Ltd [2003] EWCA Civ 299 remains good law and Mitchell does not apply to applications for extensions of time made before the expiry of the relevant deadline. Such an application still has to be judged against the post-Jackson overriding objective but the concern to enforce compliance with rules, practise directions and orders does not have a paramount status.      

The Determination of Consequential Issues after Trial and the Apparently Biased Judge

Who should determine any questions as to costs at the conclusion of a trial? The standard – and it seems almost always correct – answer, would be the trial judge himself. The rationale is obvious and entirely sensible – that such ancillary issues should be determined by the tribunal which heard the case from which the such issues arise. However, the Court of Appeal last week suggested that this is not the universal rule, in the volubly-named case of Mengiste & Anor v Endowment Fund For The Rehabilitation Of Tigray & Ors: subnom Re An Application For Wasted Costs: (1) Endowment Fund For The Rehabilitation Of Tigray (2) Addis Pharamaceutical Factory Plc (3) Mesfin Industrial Engineering Plc v Rylatt Chubb [2013] Ewca Civ 1003. In this case, the Appellant solicitors appealed the decision of Mr Justice Peter Smith sitting in the Chancery Division below ([2012] EWHC 2782 (Ch)) in refusing to recuse himself from hearing a stage one application for wasted costs, and making such an order against them, in favour of the Defendant’s solicitors. The Appellants submitted that the judge should have recused himself after making such findings about them without hearing evidence, without warning, and without affording them the opportunity to address the court. Additionally, it was submitted that the stage one order should not have been made as the required prima facie strong case of improper, reckless, or negligent conduct had not been satisfied. The Court of Appeal (Arden, Patten, McFarlane LJJ) allowed this appeal in part. They held that whilst the usual rule was for the judge on a substantive application to deal with consequential issues as to costs, even when he had previously made adverse findings towards a party. However, the instant case was exceptional and the judge indeed had showed apparent bias. It was held that thus, he should have recused himself from hearing the wasted costs application because his criticism of the Appellants (which was held to have been designed to ward off an application for a wasted costs order against an expert witness in the case), was made in anticipation of an application that was never in fact made. The Court of Appeal further held that the judge had expressed his criticisms in absolute terms, failing to leave room for any explanation; and that the repetition of the criticisms and their severity made them extreme and unbalanced. Consequently, the stage one cost order was set aside. As to the second ground of appeal, the Court of Appeal noted that the Appellant solicitors has admitted seriously breaching their obligations as regards the instruction of experts to give evidence. It was held also that they had failed to invite the court to ignore and disregard certain offending passages in the expert’s report, which went beyond the proper boundaries of his role and expertise. As a result, it was held that the Appellant had failed to establish that indeed no judge could have concluded that a stage one order was appropriate in the circumstances. Whilst this decision undoubtedly affords guidance to the practitioner and the litigant, it is unlikely to have much practical impact upon judicial behaviour, given the necessity for judges at first instance to identify and (at least implicitly) accept the presence of the appearance of bias in themselves. Rather, the judgments oblique effect upon such tribunals may (perhaps it is optimistic to suggest) act as a further reminder upon judges not to risk putting themselves in such a position in the first place.

CPRwatch: relief from sanctions

Does the original checklist under rule 3.9 (relief from sanctions) have any role now? That question was considered by Hildyard J in Thevarajah v Riordan (9th August 2013, unreported). The Claimant sought to strike out the Defendant’s Defence for failure to comply with an unless order in relation to disclosure. The Defendant sought relief from sanctions under CPR r. 3.9. The Defendant admitted that he had failed to give disclosure as ordered and the judge found that there were serious failings. The judge found that, although the checklist of relevant considerations under r.3.9 had been removed and replaced, they were nonetheless matters which the court needed to consider as they enabled the court to consider whether relief from sanctions was appropriate under the new r.3.9. Lest there be any doubt that he was reverting to the old ways of doing things the judge emphasised that the new r. 3.9 was not less rigorous but more so: the court should be slow under the new r.3.9 to draw the conclusion that relief from sanctions was appropriate and just. Once non-compliance with an unless order was established, what was required for relief from sanctions was a material change in circumstances (Tarn Insurance Services Ltd v Kirby [2009] EWCA Civ 19). There was no material change in circumstances inThevarajah; in fact the Defendant’s position had worsened. Further, the Defendant was unable to show he had taken reasonable steps to comply with the unless order and therefore no relief was granted. This case highlights the fact that fundamentally rule 3.9 has not changed. The most important part of the old and the new rule is the emphasis on the court considering 'all the circumstances' so as to deal with the application justly. The original checklist was cumbersome but nonetheless a helpful steer as to what circumstances might be relevant. The new checklist is much less helpful: it merely repeats what a court must already take account of under the overriding objective. A judge who only took account of the need for efficiency, proportionality and compliance with court orders would be failing to take account of all the circumstances. Judges know that they are supposed to be tougher, but ultimately what most of them consider to be just in 'all the circumstances' is unlikely to have changed despite the best efforts of Jackson L.J.

Limitation Periods and Solicitor Negligence

In the case of Susan Berney v Thomas Saul (T/A Thomas Saul & Co) [2013] EWCA Civ 640, the Court of Appeal has provided further guidance as to the date of the accrual of a cause of action in a solicitor’s negligence case.     Ms Berney (“MB”) instructed Thomas Saul & Co (“TS”) in 1999 to act for her in a personal injury claim following a road traffic accident, for which liability had been admitted.   In 2004 MB instructed new solicitors, who advised her that, given the significant delay in serving particulars, the claim was likely to be struck out. As a result of facing such significant litigation risks, MB felt obliged to settle her claim for £25,000 plus costs in November 2005.   The question for the Court of Appeal (Moses, Rimer, Gloster LJJ) was: when did MB’s cause of action accrue for the purposes of limitation.    However the Court of Appeal did not agree with this reasoning. MB submitted that limitation ran from the date her claim was settled, and thus her professional negligence claim was in time.   (a) actual damage can be understood to be any detriment, liability or loss (including contingent liabilities) capable of assessment in money terms; and   (b) a useful formulation to consider was "when was the claimant worse off financially by reason of a breach of the duty of care than he would otherwise have been?" (applying Forster v Outred & Co [1982] 1 W.L.R. 86, and Nykredit v Edward Erdman Group Ltd [1997] 1 W.L.R. 1627).   Further, it was held that it was incorrect to construe MB’s claim as one for diminution of the value of her chose in action rather than one for the loss as a result of having to settle the personal injuries claim. Although there was a litigation risk that she might not get permission to serve her particulars of claim out of time, this was extremely small. Liability had been admitted, and to strike it out would have denied her access to the court (Price v Price  [2003] EWCA Civ 888 considered). Nor was there any reason to suppose that her claim would have been limited to a particular sum. Whilst it was clear that medical evidence was continuing to be sought and that the November 2005 settlement reflected the litigation risk and costs risks, it could not be said that she had suffered actual financial loss prior to that date. Accordingly, MB’s professional negligence claim was in time.    Moses LJ, further held that it did not follow that actual damage had not been suffered earlier necessarily from the fact that there was a settlement. He held that there was a real risk that prior to the date of settlement an application to extend time for service of particulars might have been granted only on condition that MB's claim was confined to the sum originally claimed or such lesser sum based on the disclosed evidence. However, that did not affect the result on the facts of the instant case.   A (further) salutary aspect for legal professionals to note in this case comes from Sir Richard Buxton, who in granting permission to appeal to the Court of Appeal on 8 November 2012, stated: “… I also take the view that the court should tread cautiously before striking out cases that(apparently) reflect a failure of legal professional service.” This, and indeed the judgment of the Court of Appeal itself, may well be taken to suggest the affordance judicial sympathy for claimant parties in similar cases. This may well translate to a degree of lenience when it comes to calculating such limitation periods.   The judgment of Gloster LJ could also be interpreted to suggest a certain degree of criticism of the judicial treatment of MB before the courts below. Few would deny that it was no mean feat of MB to continue to prosecute her claim before the Court of Appeal despite having had her argument dismissed twice previously, before two ascending levels of judge. It is likely that the recent judgment in her case may be taken as a warning by county court judges to ensure that potential lines of argument taken by litigants-in-person are properly ventilated, especially in proceedings where draconian measures such as strike outs are sought. This of course may have a significant impact upon the nature of future litigation, if – as widely predicted – the civil courts continue to see an exponential rise in unrepresented litigants.