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Valuation – negligent valuers held not liable for losses occurring in depressed market.

The Facts

Money was loaned against the security of fixed property, negligently undervalued by professional valuers.

Borrowers defaulted, and in a depressed market, lenders made substantial losses.

In multiple actions, lenders sought to recoup their entire loss from the borrowers.


In an exemplar of the cases, Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd (unreported, but discussed by Bingham MR in the Court of Appeal), Phillips J held as follows:

“It does not seem to me that such loss [loss of market] can fairly and reasonably be considered as resulting naturally from [the valuers’] failure to report as they should have done.  Where a party is contemplating a commercial venture that involves a number of heads of risk and obtains professional advice in respect of one head of risk before embarking on the venture, I do not see why negligent advice in respect of that head of risk should in effect, make the adviser the underwriter of the entire venture.”

The Court of Appeal [Sir Thomas Bingham MR, Rose and Morritt LJJ – judgement given by Bingham MR] considered that there were five points to be decided: the duty, the loss, the cause, remoteness and policy.

In his judgement, Bingham MR referred to the test in Robinson v Harman [referring also to an unhelpful gloss by Haldane LC in British Westinghouse, Electric and Manufacturing Co Ltd v Underground Electric Railways Company of London] as an “unimpeachable statement” of principle and the necessary point of departure in considering any novel claim for damages.

Bingham MR adopted the analysis of Staughton LJ in Hayes v James and Charles Dodd,  distinguishing between the “no transaction” method and the “successful transaction” method.  The first method was to be applied where no loan would have been made on an accurate/correct valuation.  The second method applied where a smaller loan would have been made commensurate with the correct valuation.

He stated as a self-evident principle that as long as the kind of damage was foreseen, its extent was immaterial.

In short, Bingham MR found that the loss of market was foreseeable and that there were no policy considerations against awarding lenders their full loss.

A unanimous House of Lords [Goff, Jauncey, Slynn, Nicholls and Hoffmann] held that a loss of market could not be awarded as damages.

Sumption QC made the following points in argument:

  • The distinction between “successful transaction” cases and “no transaction” cases is practicably unsatisfactory, legally irrelevant and unjust in its application.
  • The starting point for any assessment of damages must be the nature of the duty broken and the risks against which the Plaintiff was entitled to be protected, so far as reasonable skill could do it.  The risk of a future fall in the value of the property generally is not a risk against which a professional valuation can protect the lender.  It is an ordinary business risk associated with the field of commercial activity in which the lender has chosen to engage, namely, lending assets of fluctuating value.  You would be exposed to that risk whether any particular valuation is right or wrong, careful or negligent.
  • The defendant is not liable for anything that was unforeseeable, that it is not to say that he is liable for everything that was foreseeable.

Lord Hoffmann, who delivered the only speech, adopted Sumption QC’s arguments.


The logical extension of Sumption QC’s argument, that damages were to be assessed at the date of breach, was somewhat scornfully rejected by Lord Hoffmann as throwing out the baby with bathwater.

Lord Hoffmann adopted two contrary positions:

a)    That loss of market was irrelevant to the lenders’ loss; and

b)    That the lenders’ loss could only be assessed by taking into account the drop in the market.

Lord Hoffman made no attempt to distinguish the orthodox and time-honoured approach to gauging the measure of damages set out by the Court of Appeal.

The answer which eluded Lord Hoffmann seems to be that the facts in the valuation cases are entirely different from those in the Robinson v Harman situation, applicable to most breaches of contract.

As spelled out by Parker J at first instance and Sumption QC in his argument, loss of market is the risk taken by the lenders, speculating on that very market.  In Robinson v Harman, the parties conducted their affairs with a mind to avoid market losses.

The facts of the valuation cases demonstrate that foreseeability is not always sufficient to determine the question of remoteness.

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Charter Party Casebook