Does the scope of professional advisors' duty of care cover responsibility for any or all of the consequences following their advice?

Introduction 

On 27 September 2023, in Hope Capital v Alexander Reece Thompson, the High Court dismissed a lender's claim against a valuer for the negligent valuation of property offered as a security asset for a loan, and found that following the borrower's default, the lender had not suffered actionable loss despite the valuer's negligent overvaluation of the security asset.  This article will look at the decision in this case and how it may impact lenders, valuers and other professional advisors, together with their professional indemnity insurers going forward. 

The case

In 2018, the defendant, Alexander Reece Thomson LLP, a property firm (the Valuer), valued a Grade II listed property, Cedar House (the Property), at £4 million, on the understanding that a notice from the National Trust requiring remedial works had been complied with. This was in fact a negligent overvaluation of the Property, since the real open market valuation of it was £2.75 million. The claimant, a bridging finance company called Hope Capital Limited (the Lender), relied on and used the £4 million valuation from the Valuer to provide a loan to St Anselm Heritage Properties Limited (the Borrower), with the loan secured against the Property.  An individual, Mr Pieri, held a long lease over the Property and the National Trust were the freehold owner of the Property. The Borrower defaulted on the loan later that year, and receivers were appointed to take possession of the Property. However, the sale of the Property did not take place until October 2020, with the sale price being at a much lower value (of £1.4 million) than the valuation due to:

• the effects of Covid-19 on the property market
• a breach of lease dispute between the Borrower and the National Trust in relation to unauthorised renovation works carried out by the Borrower.

As a result, the Lender:

• brought a claim against the Valuer for negligent valuation
• stated that they would not have entered into the transaction if the Valuer had not been negligent in overvaluing the Property
• claimed for its total losses.

The Valuer accepted it had acted in breach of duty as it had been negligent in its valuation but denied the existence of the required causation and loss and alleged contributory negligence, stating that the actionable loss was nil.

This article explores the reasoning behind the court's dismissal of the Lender's claim.

Did the scope of the Valuer's Duty cover responsibility for any or all the losses after providing their valuation? 

Even if the court agreed that the Lender would not have entered into the transaction if it had not received a negligent valuation, the Court found that it was pivotal to look at the scope of the professional advisor's duty of care, by reference to the specific purpose for which the advice was given. This means the court looked at whether the Valuer assumed responsibility in giving its advice to protect the Lender from risks for the whole transaction or not. This reasoning aligns with the Supreme Court's decision in Manchester Building Society v Grant Thornton UK LLP [2021]. In Hope Capital v Alexander Reece Thompson, the court could not find evidence that the Valuer's duty should extend to protect the lender from all of the risks of entering into the transaction nor for the whole transaction.

The court found that the Lender’s losses and the loss in the value of the security, were caused by various commercial risks, which fall outside the scope of duty of the Valuer, namely: 

• the delay in resolving the dispute between the Borrower and the National Trust, caused by the imposition of a second s.146 Notice of the Law of Property Act 1925 served by the National Trust due to unapproved remedial work undertaken by Mr Pieri; and
• the negative effects of Covid-19 on the property market in 2020.

Consequently, the court dismissed the Lender's claim, and found that the Lender did not suffer actionable loss despite the Valuer's negligent valuation. In December 2023, an appeal application was also rejected, further reaffirming the High Court's decision.

Why is this decision important?

From a commercial perspective, the key takeaways from this case that lawyers should consider when advising clients about to enter into a transaction after relying on the advice of a professional advisor, are as follows:

• It reinforced the fact, that valuers, professional advisors and professional indemnity insurers are not liable for all of the consequences of a transaction, when a party relies on their advice to enter into a transaction.  This is good news for valuers, professional advisors and professional indemnity insurers!
• This also means professional advisors, after providing their advice, are not automatically responsible for any changes as a result of changes in the market that they are not responsible for.
• Lenders should instead look at the purpose for which the advice was provided and the scope of duty of their valuers or professional advisors' instructions. Unless previously discussed and agreed with by their professional advisors, lenders should not assume professional advisors take responsibility for all consequences deriving from their advice, particularly when they were instructed to simply provide an initial advice or an opinion.  Such advice should not be relied on to enter into a transaction or to make a business decision unless the valuer or professional advisor's scope of duty was extended to cover taking responsibility for any or all consequences following their advice. 

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Banking and Finance team.