Analysis of Residential Law Cases - Case Study Example

Residential Law Sam's role as a residential surveyor owed a duty of care, separate from that owed by Southwark Council and by him to his Council, tomortgage Hazel Khan (tenant) who relied upon his valuation and report. In determining whether a duty of care existed in such circumstances, voluntary assumption of personal liability was not a test of universal application. Hazel Khan bought a residential flat in Mansion House subject to a mortgage from Southwark Council. The purchase price of the property was estimated to be 47,500 and the amount of the mortgage was 17,500. Before approving the mortgage, the Council instructed Sam to inspect the property and prepare a report on it. The Council had instructed its employee, Sam, to carry out this work. (Although not specifically mentioned in the judgment, it was assumed that Hazel Khan was expected to pay for this report in the charges made to him by the Southwark Council.) The report to be prepared by Sam should diligently disclose the presence of any settlement cracks between the flat and later extension, which might reduce the value of the flat. Any devaluation in price of flat can be claimed by Hazel Khan. Sam has to declare the current solvability status of the Southwark Council. The Council's professional indemnity insurance has to be valid at all times for any future insurance claim. The Mortgage report to be supplied to Hazel Khan must be in a form which should include all references to Southwalk Council, although Hazel knew that the report had been prepared by a hired and independent valuer. Hazel Khan has the option to rely on this report or may arrange for another independent survey of the property if he chooses to do so. Hazel Khan has the right to criticize any breached a duty of care which the Council owed him in his personal capacity. Sam should accept that Hazel would place reliance upon his report. In order to hold Hazel personally liable in anyway, Hazel had to show that he had assumed responsibility towards the report in his personal capacity. Sam has to bear allegiance that his duty was not to Hazel, but to the Council which employed him and it was on the Council alone that Hazel had relied. It was the Council that had assumed responsibility to Hazel, not he. The report should be cited similar with the case of Yianni v. Edwin Evans & Sons [1982] QB 438, where a firm of valuers and surveyors, engaged by a building society to value a property for mortgage purposes, had been held liable to the purchasers in negligence, despite the purchasers ignoring a recommendation in the mortgage application form that they arrange an independent survey. Another case to cite is in the combined cases of Smith v. Bush and Harris v. Wyre Forest District Council [1990] 1 AC 831. The only real distinction between the present case [Harris] and the case of Yianni is that the valuation was carried out by an in-house valuer. This valuer is discharging the duties of a professional man whether he is employed by the mortgagee or acting on his own account or is employed by a firm of independent surveyors. The essence of the case against him is that he as a professional man realised that the purchaser was relying on him to exercise proper skill and judgment in his profession and that it was reasonable and fair that the purchaser should do so. Sam has to owe a consistent duty of care and Hazel to rely on professional valuer just as in Yianni and Harris where the plaintiffs never even saw the valuation report. But they are to be taken to have relied on the professional skill and care of the individual person who carried it out. It is made clear that a professionally qualified person giving advice may owe a duty of care to an effective recipient of that advice in addition to the duty owed to their employers. This has to be confined strictly to those who may be termed professionally qualified people as in the case of Sam and Hazel, because it would depend on the full circumstances in which advice was given, rather than to any label appropriate to the adviser. In any event, it is not necessary to define who at the fringes might or might not be a professionally qualified person, since on any view, Sam was one. Sam has to accept a personal responsibility for his upcoming report. He has to sign it in his personal capacity and was, for the purposes of section 13 of the Building Societies Act, the person who was competent to value and was not disqualified from doing so. He thus assumed personal responsibility for it. Since he knew that his report would be relied on by Hazel Khan, the responsibility which he assumed included a responsibility to Hazel. Valuer's Negligence In the case of any possible negligence in Sam's part as the valuer of the property, this can be cited in Lloyds TSB Bank plc v. Edward Symmons & Partners (27 March 2003, TCC), the rule held that the methods by which a valuer had reached his valuation were immaterial if the valuation produced fell within the permissible non-negligent range of valuations. Lloyds TSB held a charge over a property. Whilst negotiating the assignment of the benefit of that charge to a third party, Lloyds TSB instructed Edward Symmons, a firm of valuers, to prepare an open market valuation of the property. Edward Symmons gave an OMV of 525,000. Relying on that valuation, Lloyds TSB assigned the benefit of its charge for that sum. Subsequently Lloyds TSB sued Edward Symmons for negligence, arguing that, at the time of the valuation, the property's true market value was 1.1 million. In seeking to establish negligence, Lloyds TSB alleged that, in preparing their valuation, Edward Symmons had not taken into account certain lettable areas capable of yielding an annual income of 56,000. In dismissing the claim, the Court held that there are ways to determine whether a valuer had been negligent. Returning to Sam and Hazel's case, Hazel can follow the following steps to determine Sam's negligence: 1) The Claimant must prove that the valuation fell outside the range of permissible non-negligent valuations. If he cannot do this, the claim will fail, 2) If the Claimant succeeds on issue 1, it becomes necessary to consider whether, in fact, the valuer has been negligent, 3) The fact that the valuation is outside the range of permissible non-negligent valuations provides some evidence of negligence, 4) Accordingly, once a valuation has been shown to be outside the permissible range, the burden falls on the valuer to prove that he did, in fact, exercise the appropriate level of skill and care. If the valuer is unable to give a reasonable explanation for his valuation, it is likely that negligence will be established. Having heard the expert evidence, Lloyds TSB Bank plc v. Edward Symmons & Partners (27 March 2003, TCC), the Court concluded that the most reliable figures before it were (i) the actual valuation of 525,000 and (ii) a valuation of 540,000 provided by Edward Symmons. expert witness. As the valuation complained about fell within the permissible range of non-negligent valuations, the question of whether Edward Symmons had exercised the appropriate degree of skill and care. Estate agent: Duty of care Unlike claims against valuers such as Sam, claims against the Council tend to be few and far between. It is not immediately clear why this should be the case for, in both instances, incompetent advice is likely to result in a client such as Hazel suffering a loss. In John D Wood Limited v. Knatchbull (16 December 2002, Queen's Bench Division), the Court held that an estate agent is under a duty to keep a client informed of developments whilst a property is on the market and, if in the course of events, he comes across significant information which might reasonably affect the vendor's instructions, he is under a duty to disclose that information to the vendor. Mr Knatchbull put his mews house on the market. John D Wood, the estate agents, advised him that an appropriate asking price would be 1.5million. An offer was made at the asking price, which Mr Knatchbull accepted. However, before he exchanged contracts, employees of John D Wood became aware that another property in the same mews was on the market with an asking price of 1.95 million. John D Wood did not pass that information on to Mr Knatchbull who proceeded with his sale. The neighbouring property was eventually sold for 1.8 million. John D Wood sued Mr Knatchbull for its commission. Mr Knatchbull, whilst admitting that he owed the commission, counter-claimed, alleging that John D Wood had been negligent in either its original assessment of the asking price or in subsequently failing to advise him of the asking price of the neighbouring property. Judge Heppel QC held that John D Wood had not been negligent in its original advice on the asking price. However, he held that an estate agent has a duty to exercise reasonable care when marketing a property for sale and, if in the course of so doing he becomes aware of any significant market developments that might influence his principal's instructions, he must inform the principal and to advise him accordingly. Therefore, once John D Wood became aware of the fact that a neighbouring property was on the market with a considerably higher asking price, John D Wood acted in breach of its duty of care in failing to pass that information on. While there was a distinction between an asking price and a valuation, had Mr Knatchbull known the information, the Judge was satisfied that he would not have proceeded with the sale at 1.5million. Instead, the Judge thought that he had a 66% chance of achieving a sale at around 1.7million within a period of 9 months. Damages were awarded which reflected the 66% chance of achieving the extra 200,000, with appropriate discounts for the interest earned on the 1.5 reached and the extra commission which would have been payable on the higher sale price. Case Study of Valuer's negligence In HOK Sport Limited v. Aintree Racecourse Company Limited (TCC, 12 November 2002), the Court held that the principles arising from SAAMCO on the assessment of damages do apply in an architect's negligence case. HOK was an architect engaged by Aintree Racecourse to design a new spectator stand, to be completed in time for the 1998 Grand National. The stand was completed in time but resulted in a loss of 685 standing places for spectators. Aintree argued that had HOK advised it of that loss, it would have postponed the construction until after the 1998 race and redesigned the stand to achieve the desired capacity. The dispute was referred to arbitration. The arbitrator decided that HOK had breached its duty of care to Aintree. He awarded Aintree damages representing the loss of income from the missing spectators and collateral benefits that would have arisen from the increased capacity, less the additional costs of building a bigger stand and the benefits of having the stand available for the 1998 race. HOK appealed, arguing that the arbitrator had made an error by failing to apply the principles of quantification of loss set out in SAAMCO. In particular, the arbitrator had failed to ascertain the scope of HOK's duty of care, the breach of which had caused Aintree loss. HOK also argued that the arbitrator applied the wrong causation test in determining what loss was recoverable in that he applied the but for test rather than a foreseeability test. The Judge agreed. SAAMCO arose in the context of claims against surveyors following the collapse of the property market in 1990. However, the Judge felt that the SAAMCO principles were applicable where (as here) (1) a professional is engaged to provide information for a specific transaction or project; (2) the client is to decide whether or not to proceed with that transaction/project; (3) the information is relied on by the client in the decision making process; (4) the decision whether to proceed is neither participated in by the professional nor dependent on his advice. Some lessons to be learnt The above cases potentially increases the categories of professional persons' such as Sam who may be held to owe a duty of care personally to those who rely on their services (Hazel Khan) as well as to their employers (Southwark Council). That has implications for professional indemnity insurance. Employed professionals need to be insured in their personal capacity for services they render in the service of their employer. Normally the employed professional can expect the professional indemnity policy of the employer to cover this exposure but it is always worth checking. This is particularly the case where the employment comes to an end. The previous employee needs to ensure that he/she continues to be covered by the employer's policy for cases arising during the period of the employment. Where this is not so, the previous employee may need to arrange cover individually. CASE REFERENCES [1] Yianni v. Edwin Evans & Son [1982] QB 438 [2] Smith v. Bush and Harris v. Wyre Forest District Council [1990] 1 AC 831 [3] Lloyds TSB Bank plc v Edward Symmons & Partners [2003] EWHC 346 (TCC) [4] Building Societies Act 1997 [5] John D Wood Limited v. Knatchbull (16 December 2002, Queen.s Bench Division) [6] Caparo Industries v. Dickman [1990] 2 AC 605 [7] Henderson v. Merrett Syndicates [1995] 2 AC 145 [8] Phelps v. Hillingdon Borough Council [2000] 3 WLR 776 [9] Williams v. Natural Life Health Foods [1998 1 WLR 830 [10] Standard Chartered Bank v. Pakistan National Shipping Corporation & Others (No.2) [2000] 1 Lloyd's L.R. 218 Read More