High Court clarifies test for valuers' liability in Bratt v Jones

Bratt v Jones[1]  involved the purchase by a home-building company of a residential development site in Oxfordshire from the Claimant, Mr Bratt. The relevant contract granted an option for the home-building company to buy the site, following the grant of planning permission, at 90% of its market valuation. The contract provided that if the buyer and seller did not agree a valuation, then it would be determined by an expert third-party valuer. The Defendant in this case, Mr Jones, was an experienced professional valuer who was jointly instructed to value the site by the parties to the contract. As part of that process, the buyer and seller instructed separate valuers to make submissions to Mr Jones about the estimated market value of the site. The seller's valuer put forward a market valuation of £8 million, which drew heavily on evidence of comparable transactions, whereas the buyer's valuer put forward a market valuation of £1.8 million, which was largely based on an assessment of the development project's residual value (broadly, the developed value of the site minus the development costs).  Subsequently, Mr Jones prepared his own valuation by reference to both valuation approaches and determined the market price of the site to be £4.1 million; approximately £800,000 lower than the halfway point between the two positions.

The Claimant strongly disagreed with the result of the valuation, contending that it under-valued the site by millions of pounds, and he alleged that Mr Jones had acted negligently in reaching that valuation. The Claimant sought £3.5 million in damages, representing the difference in the purchase price that would have been paid if the valuer had not been negligent, as alleged, minus certain agreed costs.

The Claimant argued that that the "correct" market value of the site was at least £7.8 million and, given that the Defendant's valuation fell well below that figure (or any reasonable margin or bracket that may be applied to it), the Defendant had been negligent and was liable to pay damages. Although the Claimant pointed to some errors that the Defendant was alleged to have made in reaching his valuation, the Claimant's case focused heavily on the result of the valuation exercise, rather than on how the result was reached. On the Claimant's case, a finding by the Court that the Defendant's valuation fell outside of a reasonable margin of the correct valuation was sufficient to establish negligence, without the need for any further consideration of whether the Defendant's conduct (i.e. the valuation process undertaken by the valuer) fell below the requisite standard of skill and care applying the Bolam test.

By contrast, the Defendant contended that the starting point for the Court's assessment of liability was the Bolam test and that it is not enough to show simply that another expert would have given a different answer. Rather, the Court needs to assess "whether the defendant has acted in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession". The Defendant submitted that it was necessary for the Court to first determine the reasonable competence of his methodology before determining the "correct" market valuation and considering whether the Defendant's own valuation fell within a reasonable margin either side of the "correct" market valuation. The Defendant submitted that he had always acted in accordance with practices which ought to be regarded as acceptable by a respectable body of opinion in his profession, and that he had applied his methodology in a competent way. Accordingly, despite the difference between his valuation and that of the Claimant's experts, he had not acted negligently. The Defendant admitted to making a double-counting error relating to enhancements within his valuation but said that it was not negligent as it was a mistake any valuer could have made.

The case came down to the question of whether, in the context of claims alleging negligence on the part of valuers, the focus of the Court's enquiry should be on the result or conclusion of the impugned valuation rather than on the process by which the valuer arrived at his valuation, which raised the question of the extent to which it is necessary to consider whether the valuer’s actions fell below the requisite standard of skill and care applying the Bolam test. The Court asked: Is it necessary for a valuer to be shown to have acted below the standards of his profession in some way before liability can be found? and answered in the affirmative.

In confirming that (a) a determination that the valuation fell outside of the relevant bracket and (b) the valuer's conduct fell below the requisite standard in the valuation are both necessary elements, the Court sought to explain differences of approach in prior cases by reference to the facts of those cases. The Court explained that different analytical approaches may have been adopted in those cases depending on whether the defendant effectively said, "I may have been negligent but it does not matter because the valuation was within the appropriate bracket", as compared to a defendant who said "whatever the appropriate bracket is, I have not acted negligently".

The Court accepted that the proper legal enquiry was that set out by Dove J in Barclays Bank Plc v TBS & V Ltd [2016] EWHC 2948 (QB) at [64], in summary:

1. The court must form its own view, based on the evidence and its own evaluation, of the correct value as at the valuation date;

2. The court must then consider by reference to the facts of the case what the appropriate margin of error should be, in order to determine the bracket within which a non-negligent valuation would have fallen. The margin of error will usually be plus or minus 10%, but if there are exceptional features of the property in question, the margin of error could be plus or minus 15%, or even higher in an appropriate case;

3. If the impugned valuation is within the relevant margin of error of the court's valuation, then it is within the bracket of potential non-negligent valuations and negligence would not have been established;

4. If the valuation is beyond the margin of error in relation to the court's valuation and therefore outside the bracket, then the valuer's competence and the care used in his or her valuation is called into question. The court will examine at this stage the question of whether in reaching a valuation outside the bracket the valuer has acted "in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession", i.e. the Bolam test. 

The Court also explained that whilst in many instances the court may adopt an analytical framework that follows the four stages set down in Barclays Bank (above), in some cases the court may take an alternative approach, under which it adopts a more analytical approach to the determination of the margin of error that applies to the "correct" valuation. Under this approach the court will consider the valuation process adopted by the valuer, by reference to the scope of reasonable professional opinion as applied to each of the steps involved in the valuation process. The court would only find the valuer to have acted negligently if one or more of the steps taken as part of the valuation process fell outside the envelope of what was regarded as acceptable by a respectable body of opinion within the profession and the margin of error around the "correct" valuation would be considered and set accordingly. In instances where the court utilises this "alternative approach", it is not necessary to then go on to the fourth stage of analysis on the Barclays Bank approach because Bolam considerations would already have been taken into account in the determination of the margin of error.

The Court adopted the Barclays Bank approach on the basis that it was better suited to the facts of this case, finding:

1. The Court preferred the expert evidence put forward by the Defendant's expert and found that the "correct" value of the site at the valuation date was £4.7 million (as compared to the Defendant's £4.1 million). 

2. The appropriate margin was between plus or minus 10-15%, which reflected certain unique characteristics of the development plot and the wide range of valuation opinions and questions of judgment required in this valuation exercise.

3. The impugned valuation fell within approximately 14% of the Court's own valuation, i.e. within the bracket of potential non-negligent valuations such that negligence was not established.

4. Nevertheless, the Court found that the Defendant had failed to make provision for the recovery through the purchase price of the cost of enhancements and that the admitted double-counting error further demonstrated a failure to have "got to grips" with the question of enhancements. The Court stated that had the valuation fallen outside of the appropriate bracket, the correct measure of damages for the negligent conduct identified in relation to enhancements would have been approximately £500,000.

The decision in this case provides additional clarity on the proper application of the test for negligence in the context of claims alleging valuer's negligence, against the backdrop of prior decisions which the Court considered difficult to reconcile. The Court in this case was at pains to rationalise the different approaches taken to the analysis of valuer negligence claims in the past, emphasising the unique facts of each case and the way the parties' cases had been formulated. The judgment in this case also affirms that the Bolam test remains a necessary consideration before valuers' professional liability in negligence can be established, consistent with other cases involving allegations of professional negligence.

The case also underlines the importance of claimants ensuring alignment between their pleaded case, legal submissions and topics addressed by their expert in his or her evidence. It can be inferred that the Claimant's case may have been fortified (although it was unlikely to have changed the result) if the Claimant had ensured greater alignment between these parts of his case. For instance, the Court considered only the pleaded allegations of negligence and noted that certain of the errors or failings allegedly committed by the Defendant that were identified in the Claimant's expert evidence or referred to in legal submissions had not been pleaded. Furthermore, the only expert evidence before the Court on the important issue of the appropriate margin to apply to the valuation in this case was that put forward by the Defendant's expert, which the Court accepted, in the absence of equivalent expert evidence on behalf of the Claimant.