20 June 2011
The judgment handed down by the Court of Appeal [1] on 17 June 2011 held that a valuer acting for a lender did not owe a duty of care to a borrower where the loan was for a buy-to-let investment property.
Background
The case involved a development of new residential flats. Mr Scullion, the claimant, agreed to purchase a flat and made an application for finance from a specialist buy-to-let mortgage provider, Mortgages plc. A valuer employed by Colleys (which is now part of Bank of Scotland plc) was instructed by Mortgages plc to provide a valuation report of the capital value and the anticipated rental value of the development.
After completion, Mr Scullion was only able to let the flat for half of the monthly value which Colleys had predicted. Mr Scullion made a claim against Colleys for negligence. Colleys defended the claim on various grounds, fundamentally that they did not owe Mr Scullion a duty of care.
The trial - did Colleys owe Mr Scullion a duty of care?
The findings made in Smith -v- Eric S Bush [2] were key to the trial judge’s decision. In Smith v Bush, the House of Lords found that a valuer, acting on behalf of a bank, can owe a duty of care to a borrower in instances where the transaction involves a low-end residential property and if the valuation is likely to be relied upon. However, a duty of care would not be owed in commercially-motivated transactions.
The question to determine was whether a buy-to-let investor purchasing a property using finance from a specialist buy-to-let mortgage provider was owed a duty of care.
The trial judge in Scullion concluded, amongst other things, that Colleys, “knew or ought to have known that there was a very high probability” that Mr Scullion would have received and considered a copy of their report, and that Mr Scullion would have relied upon the report when deciding whether to proceed with the transaction. Judgment was given in favour of Mr Scullion.
Colleys appealed the judgment arguing, amongst other things, that the trial judge was not correct to conclude that Colleys owed Mr Scullion a duty of care.
The Court of Appeal’s decision
The Court of Appeal overturned the High Court’s decision. In their judgment, a valuer would have likely believed that a buy-to-let purchaser would seek his own valuation advice and would not have concluded that Mr Scullion would rely upon their report.
The Court of Appeal further concluded that the fact that the transaction involved a buy-to-let meant that it was distinguishable from the type of case considered in Smith v Bush as it was “essentially commercial in nature”.
Conclusion
The Court of Appeal reversed the High Court judgment and dismissed Mr Scullion’s claim against Colleys for negligence. The Court of Appeal held that a valuer did not owe a duty of care to a third-party buy-to-let investor in a transaction. This was the case notwithstanding that the transaction involved a low-end residential property. There remains a distinction between "ordinary" purchasers of residential property and buy-to-let investors.
It remains to be seen whether an appeal will be pursued. However, the Court of Appeal’s decision will be welcome news to valuers and their insurers, allaying concerns that there could be a new wave of litigation involving buy-to-let investors against a profession which is already reeling under a wave of lender claims.
If you have a particular query or issue about the issues raised in this article, please contact:
Christopher
Stanton
christopher.stanton@hilldickinson.com
+44 (0) 151 600 8332
Melissa Worth
melissa.worth@hilldickinson.com
+44 (0) 151 600 8123
[1] [2011] EWCA 693
[2] [1989] 1 EGLR 169
