Valuation reports prepared by surveyors in better economic times may come back to bite as lenders and investors try to recover losses on commercial property now worth a fraction of the original purchase price.
Defending a case of negligent valuation is never easy for surveyors – but detailed analysis of the factors which may apply in the court’s decision were set out by Mr Justice Elder in his judgement in Capital Alternative Fund Services (Guernsey) Ltd and another v Drivers Jonas.
Capita claimed that Drivers Jonas had been negligent in valuing a factory outlet shopping centre in Chatham Historic Dockyard after the value of the investment fell from over £60 million in 2001 to around £7 million. The case was further complicated as the development was within an Enterprise Zone and investors were able to claim tax allowances which would affect its value.
As there was no written retainer between Capital and Drivers Jonas, it was up to the court to decide the extent of the parties’ agreement. Mr Justice Elder interpreted its scope widely, including investment advice on the commercial viability, attractiveness and prospects of the development as a factory outlet shopping centre as well as an agreement to conduct due diligence and acquisition negotiations.
The court found that Drivers Jonas had been negligent in both valuation and advisory process and ordered them to pay damages of £18.05 million. On appeal this figure was reduced to £11.8 million by Lord Justice Gross who accepted Drivers Jonas argument that Mr Justice Elder should have taken the tax benefits available into account when assessing damages.
“There are lots of lessons for surveyors to take from the Drivers Jonas case,” said James Burgoyne, Director, Brunel Professional Risks. “The consideration of benefits beyond the underlying asset in assessment of damages is significant, and may offer opportunities to defend surveyor’s potential exposures. Whilst the case is likely to be confined to similar factual situations, the acquisition of property through financial vehicles with taxation benefits was not uncommon. The case also illustrated the Court’s willingness to reject overly technical legal arguments raised by both claimants and defendants in favour of common-law justice.
“Once again the importance of a written retainer is underlined, with the Court’s wide-ranging consideration of Drivers Jonas’ professional duties in the absence of a more restricted appointment contract.”
An analysis of the case by lawyers Clyde & Co is available here.