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Capita Alternative Fund Services (Guernsey) & Matrix Services v Drivers Jonas

15 December 2011

In the case of Capita Alternative Fund Services (Guernsey) Ltd & Matrix Services Limited v Drivers Jonas (A Firm) [2011] EWHC 2336, the court considered a substantial and complex professional negligence case.

The case of Capita v Drivers Jonas is a high-value and complex professional negligence action where, in reliance on a negligent valuation report, an off-shore Guernsey unit trust purchased on behalf of individual investors a long leasehold interest of a factory outlet centre, which subsequently proved to be worth much less than originally envisaged. As a consequence of its negligent valuation, the High Court ordered Drivers Jonas to pay Capita damages of £18.05m (excluding interest), being the amount by which Capita had overpaid for its interest. An appeal was heard in May 2012 and judgment is expected in November.

What does it mean?

This is one of the first cases in which professional negligence issues have been considered in the context of a complex investment structure. It should therefore be of particular interest in situations where a recipient of allegedly negligent advice relating to a valuation or investment scheme is a trust or other investment structure acting on behalf of investors. In such situations, the relevant ingredients of a professional negligence action can be particularly difficult to make out, with issues frequently arising on duty, causation (reliance) and loss. The case is also a useful reminder of the necessary ingredients that make up a valuers negligence action, and the High Court carries out a useful review of the key authorities and principles.

What happened?

The case concerns the purchase of a Grade II* listed building at Chatham Historic Dockyard, Medway, North Kent, which was to be developed into a factory outlet shopping centre (FOC) (Dockside) at which goods would be sold at a discount to the High Street. A key feature of an FOC is its lease structure, under which the rent comprises a base rent and a turnover rent. The success of the retail tenants therefore largely determines the success of the FOC.

The structure of the purchase was such that Capita Alternative Fund Services (Capita) would be the trustee of The Matrix Chatham Martime Trust (the Trust), a structured investment vehicle in the form of an Enterprise Zone Property Unit Trust (EZPUT), which Matrix Securities Limited (Matrix) would sponsor, promote and manage. The EZPUT structure allowed individuals to invest in this commercial property development by purchasing units with a minimum value of £5,000. In exchange for committing their capital to the project for a minimum of seven years, they would receive tax relief in the form of capital allowances for qualifying capital expenditure.

In April 2001, Drivers Jonas (the Defendant) produced a valuation report addressed to both Capita and Matrix in which it valued the site at £62.85m (with the benefit of tax allowances). The exact terms of the instruction were the subject of debate as there was no written retainer.

On the back of the valuation report Matrix successfully marketed the investment scheme by means of an Information Memorandum. 480 individual investors subscribed for units in the Trust, although for tax reasons, it was subsequently moved to Guernsey. Capita then acquired the site. Dockside opened in 2003 at a 60% let rate. However, it stalled when it was approximately 80% let in 2004. As a result, the net rents received were considerably lower than those anticipated by the Defendant, and the site was valued in 2010 at just over £7m. Capita sued the Defendant for all losses resulting from the allegedly negligent valuation and Matrix applied for an indemnity against any investors claims.

What did the Parties say?

The Claimants argued that the Defendant had breached its duty of care owed to them both in contract and tort by negligently valuing Dockside in several respects. In particular, it did not possess the requisite expertise to value an FOC scheme. As a corollary, the Defendant had failed to understand nor effectively analyse the likely consumer spend at the FOC by means of a "CACI" report. This was one of the main factors that had led to rent estimates (and therefore yields) being grossly overstated in the Defendant’s report.

The Claimants also argued that the Defendant’s advice had gone beyond advising on mere “valuation” advice and had extended into "investment" advice, in other words advising on whether or not to proceed with the transaction at all. This, they said, importantly meant that on the question of quantum they could claim all losses that flowed from the transaction (rather than just those losses that resulted from the valuation having been wrong, which would be a far lower amount).

The Defendant rejected the Claimants' position. They did not owe Capita a duty of care and any cause of action lay with the ultimate investors. If a duty was owed, the investment was a speculative venture driven by the goal of tax relief, the risks of which the Claimants were fully aware. In addition, there were various external factors that resulted in the project being far less profitable than they had believed at the outset, and therefore the drop in value was not attributable to their actions. If, which the Defendant denied, the Claimants were entitled to any damages, these should be limited to the amount by which they had overpaid for the site. Finally, the Defendant also contended that any damages due to Capita (which it denied) should be reduced by the amount of tax relief that would be enjoyed by the investors by virtue of the capital allowances relief.

What did the Court say?

The judgment was lengthy and covered complex areas of valuation together with legal principles of duty, breach, causation and quantum, in order to establish legal responsibility and damages.

Duty of Care

With regards to establishing a duty of care, the court agreed with the Claimants holding that the Defendant owed a concurrent duty in both contract and tort to both the Claimants. The valuation report had been addressed to the Claimants and considered the acquisition of Dockside, which was eventually carried out by Capita. Therefore even though there was no express retainer, on the basis that the Defendant had, in fact, provided advice and a valuation report to the Claimants, the duties of care asserted were made out. In addition, the court held that as the Defendant had held itself out as being competent to perform the appraisal, assessment and valuation of an undeveloped FOC for EZPUT purposes, this would be the relevant standard by which the court would assess whether the duty had been breached.


As for breach, the Claimants contended, and the court agreed, that the Defendant had breached its duty in several ways. First, it was not sufficiently skilled to be able to advise on a transaction of this nature (and particularly the question of valuing the reversion at the end of Year 7) and therefore had breached its duty at the outset by having taken on the instructions. Secondly, it had failed to obtain a full retail analysis report, which would have been standard market practice for an investment of this nature. Thirdly, it had failed to bring to the Claimants’ attention high-risk areas vis-à-vis the site attracting consumers from its catchment area, including the insufficient access, various letting conditions contained in the planning permission, disadvantages in the design, together with the listed building status.

Permissible Range

The Defendant tried to argue that notwithstanding any breach of duty in the preparation of their advice, their valuation fell within a range of possible competent valuations. In this respect the court noted that the case authorities accept that valuation is an art and not a science, and therefore tend to allow a permissible margin of error that will be wider or narrower depending on the nature of the valuation. It is for the court to determine both the competent valuation and the permissible margin of error. The court did not consider it appropriate in this case to apply a single margin of error for the whole valuation amount. Instead, it considered each of the three components of the valuation separately and determined appropriate margins of error for each. To the first component in the valuation (a fixed rent for the first seven years), the High Court applied a +/-1% margin of error. To the second element (a top-up rent element for the first seven years), the Court applied a +/-10% margin of error. To the value of the reversion at the end of Year 7, the Court applied a +/-20% margin.


With regards to loss, Capita had sought to recover all losses it suffered as a result of having acquired Dockside whereas the Defendant argued that its liability should be limited to the amount by which its valuation had exceeded the court’s assessment of valuation as at April 2001. On this point the court agreed with the Defendant, holding that Capita was entitled to £18.05m being the difference between what it paid for Dockside (£62.85m) and what it would have paid had the Defendant’s advice been correct (£44.8m). The court said that it could not distinguish between providing valuation advice and providing advice as to the commercial viability of the scheme, which in this case were inextricably linked. However, to make the Defendant liable for all losses resulting from the inaccurate information, and therefore for any further drop in value in the property after 2001, would be unfair and unreasonable unless there were some special policy justifying it, which in this case, the court did not find. The Court did not, however, agree that the damages should be reduced by the amount that the individual investors stood to gain from the tax relief: they were separate from the trust, which was the claimant in this action.

What does this mean?

This case is a useful reminder that thorough consideration will need to be given to each of the ingredients in any professional negligence claim whether in the position of claimant or defendant. It is also of particular interest where the recipient of the advice is an investment vehicle, as particular issues may arise.

For further information, please contact Beverley Vara at