Court allows claimant to claim actual loss following negligent valuation
In a recent judgement in an interim application, (Connells Survey & Valuation Ltd v MPG Investments LLP & Anor (2012)), the court decided that actual net loss and not diminution in value (the decrease in value caused by negligence or breach of contract) should be the measure of loss in an action brought by a limited liability partnership against a property valuation company in respect of alleged negligent advice.
Connells was engaged in buying properties at prices considerably below market value and quickly disposing of them at a profit. MPG had valued a property at £310,000 which Connells had purchased at £210,000 but a second expert report revealed that the property's market value was £210,000.
The property was sold by Connells for £242,500 three years later and they subsequently brought an action for negligent advice against MPG.
Connells did not actually claim for the diminution in value but instead included a claim for loss of profit of £65,000, representing the difference between the true value of the property at the time of purchase and the lowest open market value at which Connells would have purchased the property if the advice from MPG had been correct.
MPG applied to strike out a paragraph of Connells' particulars of claim detailing their losses, arguing that Connells had not actually suffered any loss under the diminution in value rule.
However, the Court decided that Connells should be allowed to amend its particulars of claim to include a claim for the actual net loss suffered, taking into account the fact that the property had been sold on and Connells could potentially bring a claim for actual net loss suffered from buying the property.
This decision should be noted with interest by potential claimants in similar professional negligence actions, particularly those involved in the property sector who rely on expert valuations.
Normally in such cases, the correct measure of loss will be the diminution of value rather than the actual loss suffered, but in this case the court allowed Connells to amend its particulars of claim to include a claim for the actual net loss suffered.
Clearly the case turned on its facts, but the decision is important as damages awarded under the diminution in value rule are often less than the actual net loss suffered and therefore, more favourable to potential claimants.