#6592 - Saamco - Commercial Remedies BCL

SAAMCO

Facts

In the three cases the subject of the appeals the defendants, as valuers, were required by the plaintiffs to value properties on the security of which they were considering advancing money on mortgage. In each case, the defendants considerably overvalued the property. Following the valuations, the loans were made, which they would not have been if the plaintiffs had known the true values of the properties. The borrowers subsequently defaulted, and in the meantime the property market had fallen substantially, greatly increasing the losses eventually suffered by the plaintiffs. The plaintiffs brought actions against the defendants for damages for negligence and breach of contract.

Valuer’s argument: 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.

Holding

Court must first consider the scope of duty

I think that this was the wrong place to begin. 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. A correct description of the loss for which the valuer is liable must precede any consideration of the measure of damages. For this purpose it is better to begin at the beginning and consider the lender's cause of action.

The lender sues on a contract under which the valuer, in return for a fee, undertakes to provide him with certain information…. But there is one common element which everyone accepts. In each case the valuer was required to provide an estimate of the price which the property might reasonably be expected to fetch if sold in the open market at the date of the valuation.

There is again agreement on the purpose for which the information was provided. It was to form part of the material on which the lender was to decide whether, and if so how much, he would lend. The valuation tells the lender how much, at current values, he is likely to recover if he has to resort to his security…. The valuer will know that if he overestimates the value of the property, the lender's margin for all these purposes will be correspondingly less.

Concurrent Duty in Tort

Because the valuer will appreciate that his valuation, though not the only consideration which would influence the lender, is likely to be a very important one, the law implies into the contract a term that the valuer will exercise reasonable care and skill. The relationship between the parties also gives rise to a concurrent duty in tort: see Henderson v. Merrett Syndicates Ltd. [1995] 2 A.C. 145. But the scope of the duty in tort is the same as in contract.

What is the Scope of the Duty here?

In the present case, there is no dispute that the duty was owed to the lenders. The real question in this case is the kind of loss in respect of which the duty was owed.

How is the scope of the duty determined? In the case of a statutory duty, the question is answered by deducing the purpose of the duty from the language and context of the statute: Gorris v. Scott (1874) L.R. 9 Ex. 125. In the case of tort, it will similarly depend upon the purpose of the rule imposing the duty. Most of the judgments in the Caparo case are occupied in examining the Companies Act 1985 to ascertain the purpose of the auditor's duty to take care that the statutory accounts comply with the Act. In the case of an implied contractual duty, the nature and extent of the liability is defined by the term which the law implies. As in the case of any implied term, the process is one of construction of the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and the known purpose of that valuation compel the conclusion that the contract includes a duty of care. The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that which the law regards as best giving effect to the express obligations assumed by the valuer: neither cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor extending them so as to impose on the valuer a liability greater than he could reasonably have thought he was undertaking.

What therefore should be the extent of the valuer's liability? The Court of Appeal said that he should be liable for the loss which would not have occurred if he had given the correct advice. The lender having, in reliance on the valuation, embarked upon a transaction which he would not otherwise have undertaken, the valuer should bear all the risks of that transaction, subject only to the limitation that the damage should have been within the reasonable contemplation of the parties.

There is no reason in principle why the law should not penalise wrongful conduct by shifting on to the wrongdoer the whole risk of consequences which would not have happened but for the wrongful act.

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. In the case of liability in negligence for providing inaccurate information, this would mean liability for the consequences of the information being inaccurate.

It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.

Mountaineer Example

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...