Home Information Cases Emmet Thomas Scullion v Bank Of Scotland Plc (T/A Colleys) (2011)

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Emmet Thomas Scullion v Bank Of Scotland Plc (T/A Colleys) (2011)

Summary

The proposition established in Smith v Eric S Bush (A Firm) (1990) 1 AC 831, that the duty of care owed by a property surveyor to a mortgagee to prepare its valuation report with skill and care extended to the purchaser of the valued property, did not apply where the transaction concerned an investment in a buy-to-let property rather than an ordinary domestic householder purchasing his home. There was no inherent likelihood that a purchaser, buying property for the purpose of letting it out, would rely on a valuation provided to the mortgagee rather than obtaining his own valuation.

Facts

The appellant bank, to whom the business of a firm of property surveyors (V) had been transferred, appealed against a decision that V had owed and was in breach of a duty of care to the respondent (S) in respect of a property valuation, and against the decision ((2010) EWHC 2253 (Ch)) that V's negligence had caused S loss, entitling him to damages. S had decided to invest in the residential buy-to-let property market by buying a flat and the mortgagee had engaged V to value it. V produced a valuation report setting out its open market value and an indication of the monthly rental that could be achieved. After completion, S discovered that the flat could not be let for the amount predicted by V or the amount required to meet the mortgage payments. S sold the flat within four years but a significant shortfall remained due to the mortgagee, and S sought damages from V. The judge found that the valuation had been negligently high and that S had relied on it when deciding whether to purchase the flat. He concluded that the scope of the undoubted duty owed by V to the mortgagee to prepare its valuation report with skill and care extended to S. In reaching that decision, he relied on the reasoning in Smith v Eric S Bush (A Firm) (1990) 1 AC 831 HL that a valuer would know that the valuation fee had been paid by the purchaser, and that the valuation would probably be relied on by the purchaser in order to decide whether to purchase property. The judge later held that S was not entitled to damages for the negligently high capital value in V's valuation as he had not suffered any loss as a result, but was entitled to damages attributable to the negligently high rental value. It fell to be determined whether (i) V's valuation had played any part in S's decision to purchase the flat; (ii) V owed S a duty of care.

Held

(1) The issue whether S had relied on the valuation when deciding to proceed with his purchase of the flat was a matter of fact for the judge to determine. Since his conclusion in that respect was one that was open to him on the evidence, there was no reason to interfere with it (see paras 25, 30 of judgment). (2) The instant case was distinguishable from the situations considered in Smith since the transaction for which the valuation was obtained had not involved an ordinary domestic householder purchasing his home, but was for the purpose of an investment, Smith distinguished. In the light of that feature, it was not sufficiently clear, at least on the evidence available to the judge, that it would have been foreseeable to V that S would rely on the valuation, rather than obtaining his own advice from an estate agent or valuer. For the same reason, it was by no means clear that the relationship was one of proximity. The transaction in the instant case was, from the point of view of the purchaser, essentially commercial in nature. That coloured the issue since people who bought properties to let were, as a class, likely to be richer and more commercially astute than people who bought to occupy and could therefore be regarded as more likely to obtain, and more able to afford, an independent valuation or survey. The evidence accepted by the House of Lords in Smith was that, since approximately 90 per cent of purchasers relied on valuations provided to mortgagees when deciding whether to purchase, the overwhelming probability was that the purchaser would rely upon his valuation. At the time of that decision, however, the buy-to-let market was pretty undeveloped insofar as it involved individuals. There was no evidence to support the proposition that anything like 90 per cent of those people who bought to let at the time S had done relied only on valuations prepared by a valuer instructed by their mortgagees, rather than obtaining their own valuation. A valuer valuing a property for a prospective mortgagee for a buy-to-let purchaser would expect the purchaser, at any rate if he was prudent, to obtain his own advice on some important matters not covered in the valuation, including the ease with which the property could be let, the level of rent he could expect to get, the rent-free period he may have to allow, and other fees or terms that would need to be agreed. The only section of V's valuation which dealt with rental value was headed "Suitability for Letting", which might have been included, at least primarily, to confirm to the mortgagee that the property was suitable for the purpose for which it was being ostensibly acquired by S. There was no inherent likelihood that a purchaser, buying a flat for the purpose of letting it out, would rely on a valuation provided to the mortgagee and, accordingly, V had owed no duty of care to S (paras 46-47, 49-54, 61).

Appeal allowed

Court of Appeal
Lord Neuberger of Abbotsbury MR, Etherton LJ, Gross LJ
Judgment date
17 June 2011
References

​LTL 17/6/2011 : [2011] EWCA Civ 693