Negligent Valuations and a Drop in the Property Market: the Limits of the Expectation Loss Principle

Published date01 January 1998
AuthorJohn Wightman
Date01 January 1998
Negligent Valuations and a Drop in the Property Market:
the Limits of the Expectation Loss Principle
John Wightman*
The decision of the House of Lords in Banque Bruxelles Lambert SA vEagle Star
Insurance Co Ltd
is notable for a particular and a general reason. It clarifies an
important aspect of the liability of valuers and surveyors for negligence, and, by
giving new prominence to the scope of a duty in determining liability, may well
have a wider impact by making the assessment of damages for breach of contract
more transparent.
The issue at stake can be simply stated. A lender lends money after employing a
valuer to value the property put up as security. Later, the borrower defaults and the
lender attempts to realise the security by selling. However, the property fails to
realise the amount owed — partly because the valuer negligently overvalued the
property, and partly because the prices of property generally have dropped after the
valuation. Is the valuer liable for the whole loss, including that part stemming from
the fall in the property market?
It took protracted litigation on this point before the House of Lords overturned a
unanimous Court of Appeal and held the valuer only liable for the loss which is
attributable to the over valuation, not for that part due to the fall in the property
market. Lord Hoffmann (with whose speech all the other Law Lords agreed)
likened the claim for the loss attributable to the fall in the market to that of a
mountaineer who suffers a climbing accident and then sues the doctor who had
negligently passed his knee fit for climbing — even though the accident is in no
way connected to any problem with the knee. Holding the doctor liable for the
accident ‘offends common sense because it makes the doctor responsible for
consequences which, though in general terms foreseeable, do not appear to have a
sufficient causal connection with the subject matter of the duty.’
Achieving an outcome consistent with common sense, however, was not a
straightforward matter. Lord Hoffmann relied on a limiting device — the scope of
the duty owed — not traditionally emphasised in contract cases, and it is in the
potential impact of this approach on the traditional analysis of damages issues that
the more general interest of the case lies. The limits of the traditional concepts are
exemplified in the approach of the Court of Appeal.
The Modern Law Review Limited 1998 (MLR 61:1, January). Published by Blackwell Publishers,
108 Cowley Road, Oxford OX4 1JF and 350 Main Street, Malden, MA 02148, USA.
* University of Kent.
I am grateful to Nick Jackson for comments on a draft.
1 [1997] 1 AC 191; also reported as South Australia Asset Management Corporation vYork Montague
Ltd [1996] 3 All ER 365.
2ibid 214.

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