Scullion vs Bank of Scotland
The decision in Scullion v Bank of Scotland plc (trading as Colleys)
- Is very welcome at a time when the surveying profession is already under attack from lender claims. The first instance decision extended the scope of a valuer’s duty, paving the way for disappointed amateur (non-professional) investors to seek to recover shortfalls on a property from the valuer. Buy-to-let investors were prevalent and were very active in the property market in the ‘noughties’ prior to the credit crunch. From 1999 to 2006, the number of residential mortgages grew from 60,000 – with a value of i?? 3. 6bn – to 940,000 and worth?
- In light of this growth in the market and the high likeliness that many will have suffered losses following the downturn, the first instance decision of Scullion could potentially have given rise to a plethora of claims. Duty of care The issue in question in Scullion was whether a land valuer providing a report to mortgagee had a duty of care towards mortgagor and whether he was liable for negligent misstatement to him. Duty of care has been defined widely and has even tried to encompass people other than professionals implying that professionals have a higher degree of liability.
Partners Ltd3 had a view that liability need not be confined to statements made or advice given in the exercise of a profession involving the giving of such advice but also to ‘all those relationships where it is plain that the party seeking information or advice was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to do that, and where the other gave the information or advice when he knew or ought to have known that the inquirer was relying on him. ‘
Lord Jauncey of Tullichettle in Smith v Eric S Bush4 summed it up by suggesting that a key aspect of liability would be ‘knowledge, actual or implied, of [a] mortgagor’s likely reliance upon the valuation must be brought home to him [the valuer]. ‘ The latest authority on this matter Caparo Industries Plc. Respondents v Dickman and Others Appellants5 provided a threefold test with the requirements for Mr. Scullion to establish reasonable foreseeability of damage, a sufficient proximity between him and Colleys and that it be “just, fair and reasonable” to impose on Colleys, a duty of care to him.
The question was whether Colleys appreciated that Mr Scullion would rely on the report when deciding to purchase the Flat and whether Colleys had knowledge of that. The distinguishing factor was that Mr Scullion was purchasing the Flat as an investment. Lord Neuberger MR stated: “… in the light of this feature… it is not sufficiently clear that it would have been foreseeable to [Colleys] that Mr Scullion would rely upon the Report, rather than obtain his own advice from an estate agent or valuer.
I also consider, effectively for the same reasons, that it is by no means clear that the relationship was one of proximity. However that may be, I am of the view that Mr Scullion’s case should fail on the ground that it is not just and equitable that Colleys should be liable to him for any damages he suffered as a result of their negligence in assessing the rental value of the Flat when preparing and submitting the Report to Mortgages. ” Lord Neuberger MR’s reasons for this conclusion were that6: The transaction was essentially commercial in nature.
People who buy to let can be regarded as more likely to obtain, and more able to afford, an independent valuation or survey. Further, commercial purchasers of low to middle value properties, such as those buying to let, can properly be regarded as less deserving of protection by the common law against the risk of negligence than those buying to occupy as their residence. In Yianni v Edwin Evans & Sons7, where liability was established, Park J concluded that “the defendant surveyor… were aware that their…
Valuation would be passed on to the [purchasers] and were aware that [they] would rely upon it”. Evidence accepted by the House of Lords in Smith was that “surveyors knew that approximately 90% of customers” relied on valuations provided to lenders when deciding whether to purchase. There was no evidence to support the proposition that anything like 90% of those who bought to let in 2002 relied only on valuations prepared by a valuer instructed by their mortgagees, rather than obtaining their own valuation and that the valuers were or ought to be aware of their reliance.
Further reasons given were that any valuer would appreciate that a purchaser buying a property to let is at least just as interested in its rental value as in its capital value. A valuer valuing a property for the prospective lender of a buy-to-let purchaser would expect a prudent purchaser to obtain his own advice on important matters not covered in the report, relating to rental return.
For these reasons, the Court of Appeal unanimously held that there was no “inherent likelihood that a purchaser, buying a property for the purposes of letting it out, would rely on a valuation report prepared for the lender”, rather than obtaining his own valuation advice on the rental and capital values of the Flat. Liability of professionals The majority of professionals are aware that the provision of negligent advice or a negligent misstatement may expose them to liability. However, such professionals may not be aware of the extent of their potential liability.
After Scullion land valuers will only be liable to third-parties for valuation of owner-occupation properties and not buy-to-let purchasers. It raises several doubts about how efficient and careful should professionals be in giving advice. Should their level of advice depend on who has asked them to give valuation? It would give rise to double standards and such ruling would be further said to be lenient on professionals who are supposed to have a high degree of skill and expertise in their work.
The judge’s finding in Scullion as regards to the surveyor’s valuation was that the surveyor had taken account of inappropriate comparables and had even excluded from his consideration, a two-bedroom flat on the same floor of the development. The valuation was, as a result, found to have substantially exceeded the maximum that could have been attributed to a similar property by a competent surveyor. If the test were to be applied as mentioned by Lord Templeman in Smith with regard to the performance of the average skilled valuer it may be argued that the valuers failed to perform up to the standard.
On the other hand, the fact that the property was being bought as an investment makes the buy-to-let buyer responsible for making a prudent decision on the substantial investment. A mortgagee asks for valuation of a property to be sure that the proceeds from the sale of the property will recover its loaned money. In this case Scullion is an investor and as known, it is the investor’s job to ensure that his investment will make a good return which will cover his expenses and give a good profit.
The buying of this particular property turned out to be a bad investment by Scullion and he seems to be blaming the surveyor and claiming damages from him to make up for his lost money. It was his job to manage the risk and look for an independent valuation. If he could pay 25000 to POD then he could have paid for an independent valuation. However, it is argued that Scullion was not from the people who had multiple properties but rather he only had one buy-to-let property and thus it is fair to assume that he would be relying on the land valuer.
Lord Neuberger stated that “the only evidence of any possible relevance we were taken to suggests that a little over 40% of buy-to-let owners own only one or two properties, but that would indicate that the great majority of purchases in that market are by people who own more than two properties”8. The question here is whether a percentage of 40 is a high enough percentage to make land valuers liable. Such arguments lead to the question as to what extent should the court be regulating the profession of surveyors when they happen to have guidelines from the RICS Residential.
