Cases - South Australia Asset Management Corporation v York Montague Ltd
Record details
- Name
- South Australia Asset Management Corporation v York Montague Ltd
- Date
- [1996]; [1997]
- Citation
- 27 EG 125; 1 AC 191, HL
- Legislation
- Keywords
- Negligence in valuations and surveys
- Summary
-
The case concerned 3 joined appeals in each of which the claimant banks had instructed the defendant valuers to provide valuations of property intended as security for loans to prospective purchasers. In each case the defendants gave negligent overvaluations. The purchasers defaulted and the banks repossessed and sold the properties. Between the date at which the loans were given and the sale of the properties there had been a sharp fall in property prices. The prices achieved at sale were therefore less than the true value of the properties at the time the loans were given. It was accepted that ‘but for’ the negligent valuations the banks would not have entered into the loan transactions. A question arose as to the correct measure of damages: should it be limited to the difference between the figure arrived at in the negligent valuation and the true value at that time? Or should it also include the additional loss incurred by the fall in the property market?
After all, 'but for' the negligent valuation the banks would never have taken the properties as security and never have been exposed to that risk. The Court of Appeal held that where lenders would have entered into the loan even if they had received a non-negligent valuation, they could only claim losses which flowed from giving the loans on a false basis (most significantly the difference between the true value and the negligent valuations). In ‘no-transaction’ cases such as these, however, the valuers were liable for all losses flowing from entering into transactions which, but for the negligent valuations, the banks would not have done.
The valuers appealed to the House of Lords. Lord Hoffmann gave the lead judgment and the rest of the Court agreed. He held that the focus ought not to be on the measure of damages as such, but rather the scope of the valuer’s duty. A valuer can only be responsible for those losses which it can reasonably be said he accepted the risk of occurring; or in other words fell within his duty of care to avoid. It is necessary to look at the scope of the retainer, the purpose and to whom the information was to be provided and the surrounding circumstances. In the ordinary case the valuer does not warrant (guarantee) that his valuation is correct; neither is he under a duty to do so. He simply undertakes to exercise care and skill in its preparation and liability for the reasonably foreseeable consequences of it being inaccurate. Causation and scope of duty were also held to involve principles of policy: the apportionment of risk as between the parties had to be fair and just. In the ordinary case therefore the valuer would be liable only for the losses incurred as a result of entering into the transaction on a false basis (namely the difference between the true value and the negligent valuation), but not later incidental losses such as that incurred as a result of falling property prices.
In an ordinary valuation case the valuer does not warrant the correctness of the valuation, but undertakes to exercise care and skill in its production and assumes responsibility for limited losses incurred as a result of it being inaccurate. In cases where the scope of the retainer (either expressly or by implication) is to provide more than merely information, and in particular moves towards advice, then liability beyond that set out above might be assumed.
Surveyors must ensure that the scope of the retainer is clear and that all parties are aware of the type and extent of risk that each bears in the transaction. Note that responsibility beyond the terms of the retainer might be assumed by conduct and in particular by providing additional or more extensive services.