Surveyor's negligence and recoverable damages

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If a surveyor is negligent when producing a property report, what loss can be recovered?

Liability: The general rule and the SAAMCO cap

The general rule is that a professional will be liable for the foreseeable consequences of his negligence, provided the consequences are within the scope of the duty of care. This general rule is subject to the leading case of South Australia Asset Management Corpn v York Montague Ltd and Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1996] UKHL 10 (SAAMCO), which held that a surveyor who merely provides information (as opposed to advice) has his liability for damages limited to the difference between the purchase price of the property and a competent valuation. This means that a claimant will usually be unable to claim for associated costs of his purchase of the property, such as losses attributable to a fall in the property market (see for example Capita Alternative Fund Services (Guernsey) Ltd and another v Drivers Jonas (A Firm) [2011] EWHC 2336 (Comm)).

When the cap does not apply

The SAAMCO cap does not apply when a surveyor goes further than merely providing an inaccurate valuation, and advises a client on a course of action to take. If the surveyor is negligent in that advice, he will be responsible for all the foreseeable loss which is a consequence of the client adopting that advised course of action.

So when will a surveyor be deemed as having gone further than a mere provision of information? In the commonwealth case of Kenny & Good Pty Ltd v MGICA (1992) Ltd [2000] Lloyd’s Rep PN 25, the High Court of Australia held that the defendant surveyors were liable for the full financial consequences of the drop in the market’s value. For surveyors, this case serves as a stark reminder of the importance of clarifying the terms of the valuation, since this will form the basis of the scope of duty and consequently the basis for damages assessment.

In this case, the defendant surveyors valued a residential property for a bank, and stated in the valuation that the bank, the mortgagee and MGICA (the claimant mortgage insurer) would all be able to rely on and use the report. The surveyors overvalued the property, and stated in the valuation that the property was “suitable security for investment of trust funds to the extent of 65% of our valuation for a term of 3-5 years”. Based on this advice, a loan was made to the property owner. The property owner then defaulted, and the property was sold at a great loss; partly because it was originally overvalued and partly because of a considerable drop in the market. MGCIA, as indemnifiers, brought a claim against the surveyors for the difference between the amount loaned and the amount realised on sale, rather than the difference between the negligent valuation and a competent valuation as would usually be the case.

The court held that the terms of the instructions constituted more than the mere provision of information, since the surveyors were effectively advising that the transaction could be entered into. As such, the surveyors were found liable for the losses that ensued from the fall in the market.

Such 'advisory' cases are, however, likely to be rare. Another example is Carter v TG Baynes (1998), although it relates to solicitors rather than surveyors. In this case, the solicitors failed to notice restrictive covenants over the site which the claimant planned to purchase, and advised him to proceed with the transaction. They were found liable for all of the claimant's losses.

Value of loss: Diminution in value

The general rule for measuring damages in respect of negligent property surveys is the diminution in value of the property between what a competent surveyor's estimate would have been and the negligent valuation. However, in the case of Patel and Anor v Hooper & Jackson 1998 it was held that there were special features which entitled the claimants to additional damages.

In Patel, the house turned out to be uninhabitable except at a prohibitive cost to the claimants. Applying Philips v Ward [1956] 1 All ER 874 (in which it was said that a purchaser was entitled to damages for the reasonable costs of extricating himself from the purchase) the court held that since the claimants had acted reasonably in not putting the house up for sale by auction, they could recover the costs of their alternative accommodation until such time as they were able to sell the house and acquire another in its place. The court held that the claimants were each entitled to a further award of £2,000 general damages.

Time at which diminution in value loss will be assessed

As a general rule, damages are assessed in contract and tort cases at the date of breach. In certain circumstances, however, the court may hold that damages should be assessed by reference to another date, if that date better puts the claimant in the position he would have been in had the wrong not occurred.

For example, in Charlton and another v Northern Structural Services Ltd [2008] EWHC 66 (TCC) the relevant breach occurred in 2000 (when the claimants relied on the defendant's negligence) yet 2007 values were used to reach the diminution in value figure. In reaching his view, HHJ Thornton QC stated:

'There is nothing inherently wrong in principle in valuing a diminution in value loss at a later date than the date of breach. The guiding principles are that the based date of the valuation must be one which is reasonable, is one which gives rise to a loss which is directly linked to the breach, is one which results from no break in the causal chain and is one which does not arise and is not attributable to any failure to mitigate'.

However, the decision in this case to use the 2007 date was fact specific. The defendant did not present any retrospective evidence, which meant that even if the judge had agreed that 2000 values should be used he was unable to do so. It could be said, therefore, that it was through lack of alternative option that the court in this case deemed it reasonable and fair for diminution to be valued using the latter 2007 date.

Summary

Unless the surveyor took on an advisory role (i.e. more than merely providing information), and unless special circumstances apply as in Kenny or Charlton, loss is likely to be assessed as the diminution in value between what the surveyor negligently valued the property at, and the true value that the purchaser would have paid for the property at the time but for the negligent report. Defendant surveyors can help avoid a Kenny or Charlton result by ensuring they clearly define what they are providing, and by presenting retrospective surveyors' evidence should the matter progress to trial.