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Lessons to be learned from the case of an undervalued house

legal matters

I don't know about you, but I am bored with adjudication.Perhaps the novelty is also wearing off with disputing parties, since the number of adjudicator appointments has tailed off recently.

This may be because parties realise that adjudication is not particularly cheap. On the contrary, if you have to do a lot of work on a claim in a very short time, it can be rather expensive.

Nor is it particularly reliable. Many adjudicators reach the right answer, although not necessarily for the right reasons. But some don't - and then there is the cost and uncertainty of enforcing or challenging the decision in the courts. Even when they do get it right, that is not necessarily the end of it. More litigation or arbitration may follow, with more cost and uncertainty. So if the punters were thinking that perhaps they'd be better off just skipping the adjudication phase altogether and moving straight into arbitration or court proceedings, who could blame them?

Against this background I was presented with the choice of writing about a recent Court of Appeal decision on adjudication, or sharing with you an interesting judgment concerning a matter close to all our hearts - estate agents.There is, of course, no contest.

JD Wood & Co v Knatchbull (judgment 16.12.02) concerned the Honourable Michael Knatchbull's allegation against the claimant estate agents that it had undervalued his Notting Hill mews house. The Claimants valued 1 Horbury Mews in June 2001 and marketed the property for £1.5 million.Knatchbull accepted an offer for the asking price and contracts were exchanged on August 22. Unbeknown to both parties, 4 Horbury Mews was on the market at the same time for £1.95 million.

The first the Claimants knew of this was when the agents for number 4 asked them if they wanted to pass on any disappointed purchasers.

The first Knatchbull knew was when he saw the property advertised, the day after he had exchanged contracts and the same day the vendors accepted an offer for number 4 of £1.8 million. Knatchbull had been a visitor to number 4 and did not accept that there should have been a difference of £0.45 million in asking price.

As the judge put it, 'the defendant's reaction to this intelligence was both immediate and angry'.

He complained that the claimants had undervalued his house, that he would not have sold for £1.5m had he known of the difference in asking prices and that the claimants had deprived him of the chance to obtain a higher price. It was therefore, a 'loss of a chance' case.

The judge found that agents owe vendors duties in contract and tort and that those duties continue until completion. He observed that while there may be tensions in the relationship, ultimately the vendor is the principal in charge.

He found that an agent's advice as to the asking price is not a valuation, but that an agent should still give reasonably competent advice, because failure to do so could cause losses.

Both parties instructed experts from other leading agencies, who explored the ups and downs of the market around September 11, the value of comparable properties within the mews and extolled the virtues of numbers 1 and 4. The judge also heard from a would-be purchaser whom he found 'a delightful lady' but concluded she was 'rather choosy' since she had up to £2.2 million, had inspected 'zillions' of properties over two years and had still yet to move.

Ultimately Knatchbull conceded that number 4 was 'nicer, but not by that much'. The judge agreed. He found that number 1 was worth £1.7m but that nevertheless the claimants' valuation was not negligent. The claimants did, however, learn that next door was on the market for nearly £500,000 more. This was 'a significant event that might influence the principal's instructions'. Failure to pass that information on to the defendant was a breach of duty. Knatchbull's losses were assessed as his chances of selling for £1.7m, which were put at 66 per cent, and ultimately valued by the judge at £120,000.

The parallels between this case and other agency contracts such as between employer and architect are sufficient to underline the need to pass on information that may have financial consequences to the principal.

Next week, back to adjudication.

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