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Negligent misstatement and valuation: K/S Lincoln v CBRE Hotels Ltd [2010]

01 July 2010

Beverley Vara looks at a case in which despite a deficient valuation report defendant valuers escape liability for negligent misstatement and negligent valuation.

In this article (first appearing on page 15 of the 1 July 2010 issue of FM World magazine), we are also reminded of the importance of the duty to provide full evidence to the court.

This case alleged both negligent valuation and negligent misstatement against the defendants.

The Facts

There were four claimants all of whom were tax-efficient structures for private Danish investors. They invested in budget hotels. Their aim was rental rather than capital growth. All the hotel leases provided for either a base rent to be paid or, if that was exceeded, a turnover rent to be paid. Unusually however the turnover rent was drafted so that any sum by which the turnover rent had fallen below the base rent in previous quarters was added to the hurdle that the turnover rent had to exceed before turnover rent was payable. This had the obvious effect of depressing prospects for rental growth. The claimants claimed the defendants' valuation reports misled them into thinking that there would be rental growth in the medium term by negligent misstatement.

What did the Court say?

The Judge spent a considerable period of time in his judgment setting out the difficulties that he had faced because the claimants had not provided full disclosure and because he found one of their witnesses evasive in certain respects. This impression that the Judge formed certainly did not assist the claimants although in the end the Judge did find that there was a duty of care in respect of statements in the valuations imposed on the defendants.

Having said this the Judge turned to the question of reliance and noted that the claimants’ witness confirmed in cross-examination he understood the turnover rent mechanism. The Judge made an inference on the limited disclosure before him that it was inconceivable that the claimants had relied on the defendants' misstatement in circumstances where the English arm of the claimants’ operations and their solicitors had each given such clear advice as to the true position.

Turning to the allegation of negligent valuation the Judge decided, in line with existing case law, that provided the end figure reached by the valuer was within an acceptable margin of error from the “true” figure it did not matter if a mistake had been made in the methodology of how to get there.

Acceptable margins of error ranged depending on the type of property and the Judge felt that in this case the margin of error was probably slightly in excess of 10%.

In this case therefore despite the defendants admitting (and the Judge finding) that their report was deficient in a number of respects, they were not found liable to pay damages to the claimants for a variety of different legal reasons.

What does this mean?

One of the most important lessons for the claimants to take away from the case is that the duty to provide full evidence to the Court to enable the Court to make a decision is important and judges are unlikely to be impressed if you do not comply with that duty. This case is one of many being brought against property valuers at the moment and the defendants can consider themselves lucky that on the facts, they did not incur liability in this instance.

Case: K/S Lincoln & Others v CB Richard Ellis Hotels Limited [2010] EWHC1156 (2CC)