Katie Bradford says valuation rulings need close scrutiny

There was much rejoicing in the property world when the House of Lords ruled on BBL damages. The message was that a negligent valuer would not be liable for losses caused by a fall in the market price of over-valued land. But the jubilation was misplaced.

Lord Hoffman gave the leading opinion in South Australia Asset Management Corporation v York Montague. First, analyse the nature of the duty to provide information for the lender to take into account in its decision-making.

The valuations in this case were merely one factor in the lending process. The measure of damages was, accordingly, the loss attributable to the inaccuracy of that information. Calculate the total loss and then ascertain whether all of that loss is attributable to the inaccuracy of the information, or whether part is due to the lender's own negligence or other intervening factors, such as a property crash.

The element attributable to an inaccurate valuation would generally be calculated by reviewing the security the lender relied on compared to the actual level of security.

Valuers must take note that this may still lead to a full recovery of losses.

Further, as now clarified in Platform Home Loans v Ovston Shipways, any reduction which is due to contributory negligence is taken from the total loss, not any discounted figure. This case also suggests that interest will be added to the resulting figure.

Where a professional advises a client what action to take, damages for negligence would still include all foreseeable losses, including those that were increased by a fall in the market.

This "advice" case may apply to solicitors and barristers but can also affect surveyors, for example, where they are given substantial discretion as to the balance of properties in an investor's portfolio.

Indeed, lenders may review their instructions to valuers to take advantage of the advice case with potentially greater recovery if anything goes wrong.

Valuers (and other professionals) will still face substantial claims with no discount for market fall. The calculation of damages depends on careful analysis of the duty of care breached by the negligent defendant.

The Law Lords remind us to go back to first principles and review the scope of the duty and the purpose of compensatory damages.