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  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.  2 EGLR 84 and Banque Bruxelles Lambert SA v. Eagle Star Insurance Co. Limited  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  2 EGLR 150; Merrivale More PLC v. Strutton Parker (a firm)  PNLR 498, Goldstein v. Levy G (a firm)  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  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.  2 EGLR 86; Legal & General Mortgage Service Ltd v. HPC Professional Services Ltd  PNLR 567; Mount Banking Corporation Ltd v. Cooper and Co.  2 EGLR 142 and Arab Bank PLC v. John D Wood Commercial Limited  EGCS 34; Axa Equity and Law Home Loans Limited v. Goldsack & Freeman  1 EGLR 175 and BNP Mortgages v. Barton Cook and Sams  1 EGLR 239; Paratus AMC Limited v. Countrywide Surveyors Limited  EWHC 3307 (Ch) and Platform Funding Limited v. Anderson and Associates Limited  EWHC 1853 (QB). In K/S Lincoln and Others v. CB Richard Ellis Hotels Limited  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.
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  2 KB 291 and Banque Bruxelles v Eagle Star Insurance at first instance  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  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.