Depending at which point of a commercial development’s chain of command you sit, you may have thought that the role of monitoring surveyor is straightforward enough. The monitoring surveyor is engaged by a party (generally a funder but also forward purchasers and tenants), and then left to get on with the job.
But, as usual, nothing is as simple as it seems. A recent case (Lloyds Bank Plc v McBains Cooper Consulting Ltd) has highlighted not only what can go wrong for a monitoring surveyor, but also the significant responsibility of the surveyor’s client.
In McBains Cooper, the judge summed up the role of a monitoring surveyor, and characterised it “… as the Bank’s eyes and ears in relation to the project”, which is a good analogy. I’m going to extend the analogy, slightly tortuously, as this implies that the bank is the brain. The brain should be responsible for drawing final conclusions from all available information, and not rely solely on its eyes and ears. If you haven’t read the case (and it’s not a quick read) you’ll see what I mean.
McBains Cooper was the monitoring surveyor for Lloyds Bank, on a development of an old bingo hall which had become a church in the mid-1990s and was being expanded. In hindsight we can see that a development starting in the second half of 2007 was already up against considerable headwinds, which were only amplified by the actions of both Lloyds and McBains Cooper.
The facts which combined to lead to the claim by Lloyds against McBains Cooper were as follows:
You can guess what happened next: the credit crunch hit, the loan was not sufficient to cover the construction costs (which had also increased) and the developer could not provide the additional funding necessary to keep going.
Lloyds recovered what it could from the developer, and sought to claim the difference from McBains Cooper of c.£1.4m, principally on the basis that McBains Cooper negligently advised that the funding was sufficient to complete the development after it was clear that it was not.
The judge found that McBains Cooper was negligent, for several reasons, in part because it expressly stated in each of its first eight monthly reports that “in our view, sufficient funds remain in the total facility at this time to complete the development”, when it was reasonably clear that there did not. McBains Cooper was under the impression that the developer had agreed to fund the shortfall, but did not state this expressly until report no. 9.
However, importantly, the judge was equally unimpressed with Lloyds and reduced its damages by a third on the basis that Lloyds:
Whilst lending conditions appear to have become far more stringent since the events leading to this case, it is clear that a funder (or forward purchaser or tenant) cannot sit back and rely entirely on the monitoring surveyor to keep an eye on costs. Equally, a monitoring surveyor needs to completely understand the terms of the loan, not rely too heavily on template reports and ensure that any assumptions it has are clarified at the outset or clearly stated in all reporting.
For further information, please contact David Weare, Partner, Fladgate LLP (firstname.lastname@example.org)