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The recent Court of Appeal decision in the case of Scullion v Bank of Scotland  EWCA Civ 693, reversing the first instance decision, has clarified the law relating to duties of care owed by surveyors engaged by a lender to provide a valuation for a buy to let property.
Mr Scullion, a plasterer and builder by trade, took over a small property management and maintenance company. He decided to invest some of the money, which he had accumulated in his private pension fund, in the residential buy‑to‑let market.
He attended a seminar on the subject and met a Ms Lynch (a mortgage broker) and a Mr Connoly, whose business was in locating investment properties. Mr Connoly introduced Mr Scullion to an investment opportunity (a block of flats) in Cobham, in Surrey. Mr Scullion paid Mr Connoly £1,000 deposit on an unspecified flat. In May 2002, Ms Lynch, the mortgage broker connected to Mr Connoly, instructed Colleys (a firm of valuers) to value ten of the flats. These instructions were given on behalf of a division of Bank of Scotland, which specialised in buy‑to‑let mortgages.
Mr Scullion completed a mortgage application form and returned it to the mortgage broker, together with a cheque which included a sum to pay for a valuation of the relevant flat for the benefit of the proposed mortgagee. Mr Scullion said in evidence that it did not occur to him to obtain his own valuation – so far as he was concerned the purpose of the valuation was to satisfy the mortgage company of the value of the flat and that the rent would be sufficient to meet payments on the mortgage.
Colleys then sent their valuation reports on the ten flats. The reports were each in a form of a letter addressed to the bank with a disclaimer of liability to any third party.
In relation to Mr Scullion’s flat the valuation report stated that the capital value was £353,000 and that the achievable rental was £2,000 pcm. In June 2002 Mr Scullion was told that the flat he was interested in had ceased to be available. Mr Scullion submitted another mortgage application for another flat which again included a fee for a valuation to be carried out, which also included a disclaimer.
The valuation report valued the flat at £353,000 and the rental income at £2,000 pcm. The factual detail of the purchase is not straightforward, but part of the price was a “gifted deposit” of 15%; there was also a provision whereby 10% of the purchase price was deferred. In fact, Mr Scullion was unwittingly part of a mortgage fraud and the total consideration was in reality £300,000. Mr Scullion received a mortgage offer of £290,000. The effect of these arrangements was that Mr Scullion did not have to put any substantial amount of his money into the purchase.
Subsequently, the agents failed to let the flat and Mr Scullion tried to let the flat himself. Local agents found him a tenant but he only achieved £1,050 pcm. The tenant vacated after a year. Ongoing mortgage repayments were £1,440. In 2006 the flat was sold for £250,000 and Mr Scullion brought a claim in damages against the firm of surveyors, alleging that they had negligently overvalued the property.
Colleys denied liability and argued first that they did not owe Mr Scullion a duty of care, and secondly that any duty had been discharged by the disclaimer in the mortgage application.
The judge, Richard Snowden QC, found that Colleys did owe a duty of care. His decision rested on the House of Lords’ reasoning in Smith v Eric S Bush  AC 831. The House of Lords had held there, in the context of the purchase of two relatively modest houses bought as residences, and where the purchaser had reimbursed the lender the report fee, that a duty was owed by the valuer to the purchaser.
Court of Appeal
However, when the matter came before the Court of Appeal in June this year, they overturned the judge’s finding on liability. The relevant judgment was given by the Master of the Rolls, Lord Neuberger. He found that the facts of Scullion were distinguishable from Smith v Bush and that it was not sufficiently clear that it would have been foreseeable to the valuers that Mr Scullion would rely on the report, rather than obtain his own advice.
This distinction was based on four grounds, which all stemmed from the fact that the purchase was of a residential property for investment purposes, not for the purchaser’s residence. The four grounds were that:
Based on these grounds, the Court of Appeal concluded that there was no inherent likelihood that a purchaser buying a flat for the purposes of letting it out would rely on a valuation report provided to the lender.
While this decision does not rule out such claims being brought (as the particular facts of a case may lead to a court concluding that a duty of care was owed) borrowers must not assume that they can rely on a report prepared by a lender. Indeed, if they wish to protect their own position on valuation, they will need to obtain their own valuation report.