Update: professional negligence

Valuers' duties

Following the recent property crash, claims by lenders against valuers are common place, especially in the buy-to-let arena. Whether or not the purchasers of those properties can also bring claims against the valuers instructed by the lenders (along with the effectiveness of valuers' disclaimers which precludes such claims) was an issue which was addressed by the High Court in Scullion v Bank of Scotland plc (t/a Colleys) [2011] EWCA Civ 693. This decision was appealed by the Court of Appeal on 17 June 2011.

Applying the decision in Smith v Bush [1990] 1 AC 831 (which held that a duty of care was owed by a valuer to a purchaser where a 'low-value residential property' was being purchased), Mr Richard Snowden QC held that the purchaser of a buy-to-let property was entitled to rely on the valuation produced by Colleys for the lender because:

1. the property was a small residential property where it could be assumed that the purchaser would not instruct their own valuer;

2. Colleys were professional valuers and it was 'highly likely' that their valuation would be relied on; and

3. Mr Scullion was not a professional property developer.

Accordingly, it was decided that the valuer did owe a duty of care to Mr Scullion.

Colleys appealed the decision on the grounds that there had been no reliance by Mr Scullion on the subject valuation, and therefore no duty of care arose and Mr Scullion was not entitled to damages. The Court of Appeal agreed that the valuers knew, or ought to have known, that Mr Scullion was to rely on their valuation; however, this was not enough to establish a duty of care.

Following Harris v Wyre Forest [1990] 1 AC 831 and Caparo v Dickman [1990] 2 AC 605, the Court of Appeal found that it was not clear that it was foreseeable to the valuer that Mr Scullion would rely on his valuation when making the decision to purchase the property. Nor was there a sufficient degree of proximity between Mr Scullion and the valuer, and Mr Scullion was not able to show that it was 'fair, just and reasonable', to establish a duty. Lord Neuberger MR highlighted that a duty of care could not be extended on the following bases:

1. this was a commercial transaction '“ commercial purchasers were 'less deserving' beneficiaries of the common law's protection;

2. there was no evidence to suggest that purchasers of buy-to-let properties rely on valuations in the same way that purchasers of residential properties do;

3. important factors in the decision to purchase a buy-to-let property were not covered by a standard property valuation; and

4. the lender would be primarily interested in the capital value of the property and therefore the valuer was contracted primarily to consider that issue.

The Court of Appeal held that there was no duty of care owed to Mr Scullion by the valuers. While this decision was based on the facts of the case, it is good news for valuers and their insurers who will inevitably be breathing a sigh of relief now that the High Court's decision has been overturned.

Reliance on counsel's advice

On 8 June 2011 the High Court handed down its decision in Langsam v Beachcroft LLP and others [2011] EWHC 1451 (Ch). Mr Langsam brought a claim against Beachcroft on the basis that they had been 'overly pessimistic' in their advice which resulted in Mr Langsam accepting settlement in his claim against his former accountants.

The court dismissed Mr Langsam's claim. The court held that in advising Mr Langsam Beachcroft had relied on the advice of leading counsel, which they are entitled to do. While the court found that counsel's advice was 'conservative', this was because there were many hypothetical arguments in the case which affected quantum and it was not negligent. Instead, what was to be considered was whether Mr Langsam had been given sufficient advice so that he could make an informed decision about accepting the settlement. Mr Langsam had been keen to settle the claim and had been informed of the possibility of achieving a better result at trial. In spite of this advice, Mr Langsam opted to settle the claim against his accountants before trial.

The decision considers the extent to which a solicitor may rely on advice given by leading counsel. In general, solicitors are entitled to be guided by advice from appropriate counsel if they are: specialised in the field; properly instructed; and unless that advice is 'obviously wrong' (Ridehalgh v Horsefield [1994] Ch 205).

However, a solicitor must not rely on counsel's advice blindly. He must exercise independent judgement and, in the event that counsel's advice is obviously or glaringly wrong, the solicitor has a duty to reject it (Locke v Camberwell Health Authority [1991] 2 Med LR 249 C).

Further, a solicitor or barrister may take a conservative view when advising on possible figures to settle litigation, provided that the figures are within the range of views of a reasonable and competent lawyer. The fact that another lawyer might be more bullish or positive does not make his view erroneous, let alone negligent.

Settlement without authority

In the recent case of Amalgamated Metal Corporation Plc v Wragge & Co [2011] EWHC 887 (Comm), the High Court found that Wragge & Co had negligently advised their former client, Amalgamated Metal Corporation Plc (AMC), in relation to the advance corporation tax (ACT) group litigation.

Following the ruling in Metallgesellschaft Ltd v Inland Revenue Commissioners [2001] STC 452, the European Court of Justice held that the requirement for UK companies with non-UK resident parent companies to pay ATC was unlawful and that companies that had paid should receive compensation. AMC instructed Wragge to act on its behalf in relation to the ATC group litigation which followed in the English courts.

One issue which arose concerned the calculation of compensation and interest to which claimants were entitled. On 15 April 2003 Wragge reached a settlement with HMRC on behalf of AMC which included an amount payable for simple interest. The settlement removed AMC from the ATC group litigation.

It was later decided in the case of Sempra Metals Ltd v Inland Revenue Commissioners & Anr [2008] STC (SCD) 1062, that interest due to Sempra was calculable on a compound basis. Accordingly, AMC issued proceedings against Wragge on the basis that it had not given authority to settle the issue of interest and that, but for the settlement, AMC would have received compound interest, as in the Sempra Metals case, resulting in a loss of over £7.5m.

The High Court found for the claimant. Mr Justice Steel stated that not only was there no evidence to suggest that Wragge was authorised to settle this issue on behalf of AMC, but also 'Wragge negligently failed to advise AMC as to the issues in the [group litigation order] and in particular the nature and merit of the quantum issues'.

This case highlights the importance for solicitors to obtain clear instructions from a client and to act and advise properly and in accordance with those instructions, particularly when dealing with the settlement of a dispute.

Limitation

In Lane v Cullen Solicitors [2011] EWCA Civ 547, the Court of Appeal rejected an attempt to rely on Law Society v Sephton [2006] UKHL 22, which found that the cause of action in tort was deemed to accrue when the contingent loss becomes a real loss.

The testatrix died intestate in 1997 (her will having been declared invalid for lack of proper execution). Accordingly, her estate was divided between her two brothers (L and F) and the children of her sister (H and P).

In 1998 H claimed, pursuant to the invalid will, that she had a right to the whole estate. However, H was unable to pursue this as her legal aid was revoked.

In 2001, L, as personal representative, distributed funds to himself and to F. H then issued proceedings against L and F and obtained a declaration that the whole estate was held on trust for her and pursued L for repayment of the sums distributed. L bought an action against Cullen Solicitors, which acted in the administration of the estate, arguing that he should have been warned not to distribute money, in light of H's outstanding claim.

The court of first instance held that L's claim was statute-barred because the limitation period (six years from the date that the cause of action accrues for an action in tort) commenced when the first distribution was made in 2001. L appealed to the Court of Appeal relying on Sephton to argue that his legal position only changed, and his loss became 'real', when H established her adverse rights and that the cause of action accrued at this later point and the claim was therefore within the limitation period.

The Court of Appeal dismissed the appeal. It held that before the distributions were made, L had sufficient funds available to satisfy any claims. However, after the distributions were made, L's legal position was altered for the worse in that he no longer had sufficient funds to satisfy claims of which he had notice. It was at this point that the cause of action accrued and therefore L's claim against Cullen Solicitors was time barred.

This case demonstrates the courts' reluctance to apply Sephton in a general sense and claimants should therefore be wary about relying on its principles too broadly.