Negligent Valuations and a Drop in the Property Market: the Limits of the Expectation Loss Principle
The decision of the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd' is notable for a particular and a general reason. It clarifies an important aspect of the liability of valuers and surveyors for negligence, and, by giving new prominence to the scope of a duty in determining liability, may well have a wider impact by making the assessment of damages for breach of contract more transparent. The issue at stake can be simply stated. A lender lends money after employing a valuer to value the property put up as security. Later, the borrower defaults and the lender attempts to realise the security by selling. However, the property fails to realise the amount owed partly because the valuer negligently overvalued the property, and partly because the prices of property generally have dropped after the valuation. Is the valuer liable for the whole loss, including that part stemming from the fall in the property market? It took protracted litigation on this point before the House of Lords overturned a unanimous Court of Appeal and held the valuer only liable for the loss which is attributable to the over valuation, not for that part due to the fall in the property market. Lord Hoffmann (with whose speech all the other Law Lords agreed) likened the claim for the loss attributable to the fall in the market to that of a mountaineer who suffers a climbing accident and then sues the doctor who had negligently passed his knee fit for climbing even though the accident is in no way connected to any problem with the knee. Holding the doctor liable for the accident 'offends common sense because it makes the doctor responsible for consequences which, though in general terms foreseeable, do not appear to have a sufficient causal connection with the subject matter of the duty.'2 Achieving an outcome consistent with common sense, however, was not a straightforward matter. Lord Hoffmann relied on a limiting device the scope of the duty owed not traditionally emphasised in contract cases, and it is in the potential impact of this approach on the traditional analysis of damages issues that the more general interest of the case lies. The limits of the traditional concepts are exemplified in the approach of the Court of Appeal.