| Date | 24 November 1999 |
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| Judgment | Merivale Moore Plc -v- Strutt & Parker, C.A. 22 April 1999 |
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| The Issue | Professional negligence in the context of property valuation. |
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| Implication |
Whilst it is necessary to establish errors or inaccuracies in the work of a professional person this does not, without more, prove negligence. Negligence also involves a failure to act in accordance with accepted professional practices. |
printIt is a basic principle of law that a professional person can give wrong advice without being negligent and thus liable for the consequences of that advice. The case of Merivale Moore -v- Strutt & Parker, which concerned a surveyor's valuation of commercial property provides a useful illustration of the law in this area. Merivale Moore were residential and commercial property developers who intended to extend their activities into the West End of London where they had no prior experience or expertise in commercial development. A property at 35 Portland Place was brought to their attention by Strutt & Parker as a property with development potential. The property was unusual in that it was a leasehold property with only 46 years of the lease unexpired. Strutt & Parker provided Merivale Moore with plans drawn up by an architect for the development of the property into office accommodation with some ancillary residential use. They were further retained to give advice on rentals, yields and the value of the property. A price of £3.6 million had been stipulated by the vendor of the lease and there was no indication that that price could be reduced by negotiation. The question for Merivale Moore was, therefore, whether a purchase at that price would be a good investment. That in turn depended on the rental value and residual value of the property once it had been developed according to the plans shown to them. An assessment was made by Strutt & Parker. That assessment set out a rental value for the property and converted that rental value into a capital value for the property by the use of a figure for percentage yield of 7.5%. The assessment went on to show that taking into account the £3.6 million asking price and the development costs, the capital value showed a surplus amounting to some 15% of the project costs. On the strength of this assessment of viability Merivale Moore decided to purchase 35 Portland Place at the asking price. In the event that purchase proved to be a disaster for Merivale Moore and proceedings were commenced against Strutt & Parker in which it was alleged that the value of the property when purchased was substantially lower than the assessment given. In the High Court the judge agreed with Merivale Moore and awarded it a figure in excess of £2 million as damages, based upon the difference between the true value of the property as found by him, and the value represented in the Strutt & Parker assessment. The judge's finding of negligence was based upon two strands; the assessed rental value and the percentage yield. Firstly, in respect of the rental value, the judge was required to form a view as to the correct or true rental value for the property. In other words, it was necessary to consider the extent to which the valuation diverged from what would have been a correct valuation, and the reasons for that divergence, to determine whether the valuation in question was negligent. Strutt & Parker had valued the principal space at £60 per sq.ft. On evidence put before him the judge concluded that a proper valuation would have been £55 per sq.ft. Larger discrepancies were found in respect of the basement areas and residential areas with the overall effect that, in the opinion of the judge, the purchase price ought properly to have been of the order of £3 million. The judge concluded that this difference was unacceptable and amounted to negligent advice. In the Court of Appeal Lord Justice Buxton criticised this approach. He referred to the House of Lords in the 1997 case between Banque Lambert -v- Eagle Star where it was stated: "In the general run of actions for negligence against professional men, it is not enough to show that another expert would have given a different answer. The issue is whether the defendant has acted in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession". Accordingly, it was for the plaintiff to show that the valuation fell outside an acceptable range or "bracket". Having discharged this evidential burden it would then be for the defendant to show that notwithstanding that the valuation was outside the range within which careful and competent valuers may reasonably differ, the defendant had nonetheless exercised the degree of care and skill which was appropriate in the circumstances. The percentage yield advised by Strutt & Parker was also considered. The role of the yield figure is to insert into the valuation the appropriate level of risk as to the marketability of the property. Whilst experts conceded that a yield of 7.5% was too low, this would not have been negligent advice if accompanied by an appropriate warning, caution or qualification. The property was for a 46 year lease for which there was no established market. Taking into account the general market conditions the judge concluded that it was negligent not to have given qualifications in respect of the yield applied in the development appraisal. The Court of Appeal agreed with this finding. The qualifications would have had the effect not merely as a warning that the advice should be approached with caution, but in effect a warning that the whole basis of the valuation could not be vouched for. On the evidence available to the judge it was virtually inescapable that the omission of the qualifications was negligent. It was that negligence that caused the purchase of 35 Portland Place to go ahead. Despite the criticisms of the approach of the judge in the High Court with regard to rental levels, the appeal was therefore dismissed.
CJ-9945
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