South Australia Asset Management Corporation v York Montague Ltd etc: HL 24 Jun 1996

Limits of Damages for Negligent Valuations

Damages for negligent valuations are limited to the foreseeable consequences of advice, and do not include losses arising from a general fall in values. Valuation is seldom an exact science, and within a band of figures valuers may differ without one of them being negligent. But once the valuer has been found to have been negligent, the loss for which he is responsible is that which has been caused by the valuation being wrong. A negligent valuer is not necessarily liable for the whole of the loss in such circumstances. The correct approach has been held to be to ascertain what element of loss suffered as a result of the transaction was attributable to the inaccuracy of the information supplied by the valuer. For this purpose the valuation negligently provided is to be compared with the figure which a reasonable valuer, using the information available at the relevant time, would have put forward as its most likely open market value. Thus the valuer may escape liability for a subsequent fall in market values. The court discussed the ‘mountaineer’s knee’: ‘A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor who negligently makes a superficial examination and pronounces the knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee . . on what I have suggested is the more usual principle, the doctor is not liable. The injury has not been caused by the doctors bad advice because it would have occurred if the advice had been correct’.
Lord Hoffmann: ‘Before one can consider the principle on which one should calculate the damages to which a plaintiff is entitled as compensation for loss, it is necessary to decide for what kind of loss he is entitled to compensation . . Rules which make the wrongdoer liable for all the consequences of his wrongful conduct are exceptional and need to be justified by some special policy. Normally the law limits liability to those consequences which are attributable to that which made the act wrongful.’
Lord Hoffmann said: ‘The Court of Appeal (Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd and other appeals [1995] 2 All ER 769, [1995] QB 375) decided that in a case in which the lender would not otherwise have lent (which they called a ‘no-transaction’ case), he is entitled to recover the difference between the sum which he lent, together with a reasonable rate of interest, and the net sum which he actually got back. The valuer bears the whole risk of a transaction which, but for his negligence, would not have happened. He is therefore liable for all the loss attributable to a fall in the market. They distinguished what they called a ‘successful transaction’ case, in which the evidence shows that if the lender had been correctly advised, he would still have lent a lesser sum on the same security. In such a case, the lender can recover only the difference between what he has actually lost and what he would have lost if he had lent the lesser amount. Since the fall in the property market is a common element in both the actual and the hypothetical calculations, it does not increase the valuer’s liability.
The valuers appeal. They say that a valuer provides an estimate of the value of the property at the date of the valuation. He does not undertake the role of a prophet. It is unfair that merely because for one reason or other the lender would not otherwise have lent, the valuer should be saddled with the whole risk of the transaction, including a subsequent fall in the value of the property.

Lord Hoffmann, Lord Goff of Chieveley, Lord Jauncey of Tullichettle, Lord Slynn of Hadley, Lord Nicholls of Birkenhead
Gazette 04-Sep-1996, Times 24-Jun-1996, [1997] AC 191, [1996] PNLR 455, [1996] 27 EG 125, [1996] UKHL 10, [1996] 3 WLR 87, [1996] 3 All ER 365, [1996] 2 EGLR 93, 80 BLR 1, [1996] 5 Bank LR 211, [1996] CLC 1179, [1996] 50 Con LR 153
Bailii
England and Wales
Citing:
Appeal fromBanque Bruxelles Lambert Sa v Eagle Star Insurance Co Ltd and Others CA 24-Feb-1995
The plaintiffs were mortgagees. The defendants were valuers. The defendants negligently over-valued properties and the plaintiffs then accepted mortgages of the properties. Later the property market collapsed and the various borrowers defaulted and . .
Appeal fromCraneheath Securities v York Montague CA 1996
When testing whether a valuation was negligent, it would not be enough for the plaintiff to show that there have been errors at some stage of the valuation unless they can also show that the final valuation was wrong. would not be enough for the . .
AppliedDoyle v Olby (Ironmongers) Ltd CA 31-Jan-1969
The plaintiff had been induced by the fraudulent misrepresentation of the defendant to buy an ironmonger’s business for 4,500 pounds plus stock at a valuation of 5,000 pounds. Shortly after the purchase, he discovered the fraud and started the . .
CitedIn re the Oropesa CA 1943
Two steam vessels collided. One’s Master sent fifty of his crew in boats to the other ship and about an hour and a half after the collision decided himself to go to that ship and confer with her Master on measures to be taken. He transferred in . .
At first instanceBanque Bruxelles Lambert Sa v Eagle Star Ins Co Ltd and Others QBD 7-Mar-1994
A negligent valuer was liable for the loss arising from an overvaluation, but the valuer was not liable for that proportion of the lender’s loss on the loan which was attributable to the fall in the market after the valuation date, even though (i) . .
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An anaesthetist failed to observe an operation properly, and did not notice that a tube had become disconnected from a ventilator. The patient suffered a cardiac arrest and died, and the defendant was convicted of manslaughter, being guilty of gross . .

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Lists of cited by and citing cases may be incomplete.

Damages, Professional Negligence, Banking

Leading Case

Updated: 02 November 2021; Ref: scu.89405