The plummet in property prices in 1990 gave rise to litigation about valuers' negligence, the applicability of which to other professionals remains the subject of debate. The key valuers case was South Australia v York Montague, and a recent decision of the TCC looked at whether the South Australia principles should set the correct measure of loss in a dispute between architects the Lobb Partnership and Aintree Racecourse.
The South Australia litigation concerned claims brought by banks that lent money on property which they lost when the market crashed. The banks sued for two types of loss.
First, losses associated with excessive valuations; second, losses resulting from the fall in the market. The House of Lords decided that only the first category of losses were recoverable, distinguishing between a duty to give information and a duty to advise on a course of action.
The valuers had only provided information - valuations - and were therefore only liable for foreseeable consequences of the information being wrong. In contrast, had they negligently advised on a course of action ('you should invest in this property'), they would have been liable for all the foreseeable loss which was a consequence of that action.
So if a defendant can prove that it was only under a duty to give information, rather than advise on a course of action, damages may be limited. The Lobb Partnership decision illustrates how the two measures can vary, and circumstances in which the South Australia principles may apply to professions other than valuers. The Lobb case came to court as an appeal on a point of law from an arbitrator. There were findings of fact by the arbitrator that the judge did not question.
Lobb agreed to design a replacement stand for Aintree next to the winning post. It was to be started after the 1997 Grand National, and to be completed in time for the 1998 race. Aintree wanted the stand to have standing capacity of at least 2,800. When built, it was many spaces short.
Aintree's complaint was that Lobb failed to point out the reduced number of standing spaces.
Had it done so, Aintree could have considered its options, including re-looking at the design and postponing construction.
The arbitrator did not find that Lobb should have warned or advised Aintree to postpone the project, or how to avoid the adverse financial consequences of being short on space. He did decide that Lobb was negligent in not telling Aintree about the lack of space, and Aintree was therefore entitled to recover damages. But how were those damages to be measured?
The arbitrator said Aintree's loss was lost revenue caused by the shortfall of standing space, and further revenue that would have been gained had Aintree gone for a complete redesign, which would probably have resulted in a larger building and thereby other 'collateral benefits'. Deducted from this amount were the additional costs of a larger building, and the benefits that were in fact gained by having the stand ready for the 1998 Grand National.
Lobb said this measure was wrong as a matter of law. It was, it said, a finding that Aintree was entitled to all the losses that 'but for' Lobb's breach would not have occurred. The judge agreed. Given the arbitrator's findings, the judge found that Lobb had given information, not advice. The South Australia principles applied to any situation where information rather than advice had been given. It followed that Aintree's damages should be limited to those which were a consequence of giving wrong information, and Aintree's decision to proceed on the understanding there were 2,800 spaces. Aintree should not recover losses based on what might have happened had advice been given.
While this decision suggests that the legal issues are not limited to valuers, the judge's decision arose from the arbitrator's findings that Lobb's duties were limited to the giving of information. It may be a rare case in which an architect is called upon to give discrete information rather than broader advice. The scope and purpose of the duty owed by the defendant must be the starting point, as a claimant can only recover if that scope and purpose was in respect of the loss suffered.