Cases - Capita Alternative Fund Services (Guernsey) Ltd, Matrix-Securities Ltd v Drivas Jonas

Record details

Name
Capita Alternative Fund Services (Guernsey) Ltd, Matrix-Securities Ltd v Drivas Jonas
Date
[2011]
Citation
EWHC 2336 (Comm)
Legislation
Keywords
Negligence in valuations and surveys
Summary

The first claimant, ‘C’ and the second claimant, ‘M’ were engaged together in an investment project, namely the purchase of property and land known as ‘Dockside’ in Medway, Kent with a view to developing it into a factory outlet (that is, discount) shopping centre. The claimants engaged the defendant (chartered surveyors and property consultants) ‘D’ to value Dockside and provide advice about the investment. Dockside had the benefit of enterprise zone allowances (i.e. it was subject to certain planning and tax advantages designed to encourage development in deprived areas). Taking these into account, D valued Dockside at £62.85m. In reliance upon that valuation the claimants purchased the lease of Dockside for £62.85m. The site was developed but turned out to be a commercial failure. The claimants argued that D was retained to:

(i) value Dockside;

(ii) advise as to the commercial viability of the project;

(iii) conduct due diligence on other parties to the transaction;

(iv) conduct negotiations with the vendors of Dockside; and

(v) inform them of any inaccuracies or other pertinent matters as they arose.

The claimants alleged that D was negligent in all those respects and that if the valuation had been conducted properly and correct advice given, they would never had purchased Dockside. D argued that it agreed to provide a valuation but took on a rather more limited role as to investment advice, which was in fact a role primarily performed by M - an experienced investment company. D also argued that the investment project was highly speculative and that the claimants had assumed the risk of things going wrong. D further argued that it was not in any event negligent.

The judge started by looking at the scope of the duty owed by D in contract. There was no written contract or letter setting out the role of D. However, the communications between the parties and the supporting documentation, including the report actually produced, indicated that the agreement included the provision of advice and all other matters as pleaded by the claimants. The contractual duty went beyond that of the ‘ordinary valuation’ cases. It would not be sufficient to merely look at comparable properties and general market trends. The valuation in this case depended heavily on assessing likely future revenue streams from tenant shops wishing to pitch up at the new outlet. This required consideration of likely customer numbers, and leisure, catering and other ancillary services. This was commercial investment advice which involved, in essence, asking whether the project would be a success.

Given the complex contractual relationship between the claimants and D and various other relevant parties, there was a dispute as to concurrent liability in tort. The judge held that the close proximity of the parties and the reliance as between them on the services provided by D meant that there was also a duty of care in tort broadly co-extensive with that under the contact.

As to the standard of care owed, D was expected to operate with the degree of care and skill as would a reasonably competent professional in its position. On the facts it was held that D was negligent in failing to carry out a full retail performance analysis, including a customer spend analysis, which was universal practice in the profession. That led to a failure to properly assess rental income which, together with other significant quantitative and qualitative failures, adversely affected D’s valuation.

Next the judge considered the permissible range of valuations and whether D’s fell within it. The correct value of Dockside at the time was around £44.8m. D’s valuation fell way outside of the permissible bracket and was therefore negligent. D lacked the experience and expertise to carry out the job. However, the standard of care expected would not be lowered to take this into account. If one offers services then one is assumed to have the ability to carry them out properly. As to the inherent risk in the investment, it is one thing to argue that the claimants assumed some risk and quite another to say that they accepted D’s negligence.

The claimants relied on the investment advice of D and, if that had been accurate, would not have made the investment. However, the purpose of the investment advice was in order to provide a valuation; the 2 roles were subsumed into one. The correct approach to damages therefore was that set out in SAAMCo. The claimants could not therefore claim for all losses incurred as a result of entering into the contract, but only the consequences of doing so on the basis of a wrong valuation. Damages were thus awarded on the basis of the difference between the valuation given (£62.85m) and the true value at that time (£44.8m).

This case:

  • sets out the difficult line between valuations and advice;
  • confirms that the standard of care will not be altered to take into account inexperience or lack of expertise; and
  • gives guidance as to the approach to damages for negligent advice when coupled within investment advice.

Valuers must ensure that the scope of the retainer is set out clearly before reporting and should only provide investment advice if willing and able to do so competently. Although the investment advice in this case was held to have been subsumed with the valuation, there is a danger that in providing such advice the valuer will be held liable for all of the consequences of entering into an investment that the client would not otherwise have done.