Judges rule Court of Session does not have jurisdiction to hear bank’s negligence claim against surveyors

Lord Woolman
Lord Woolman

A bank which raised an action for damages against a firm of surveyors over its valuation of a property after lending more than £2 million to a developer who was unable to repay the loan has been told that the Court of Session does not have jurisdiction to hear the dispute.

A judge ruled that the contract between the bank and the surveyors it instructed to value the property for the purposes of the loan was concluded when the bank relied on the surveyor’s report, and that the bank had therefore accepted the standard terms, which stated that the contract was governed by English law and the English courts had sole jurisdiction in the event of any dispute between the parties.

Lord Woolman heard that in 2008 the Bank of Ireland (UK) plc lent £2.35m to a property development company in return for a first ranking security over the development subjects, the garden grounds of Haddockston House in Renfrewshire.

The proposed development, which was to be undertaken by Haddockston Estate Ltd (HEL), comprised a hotel, 16 timeshare units, 14 residential plots and a golf course.

Before entering into the transaction, the bank obtained a valuation from Knight Frank LLP, whose survey report that the subjects were worth at least £4.25m.

However, as a result of the global financial crisis in late 2008 the bank reappraised its assets following the sharp decline in the property market and HEL’s proposed development stalled, with no prospect of the borrower being able to repay the loan.

The bank considered that the proposed development of the subjects - now valued at about £170,000, being their worth for agricultural purposes - was not viable.

Accordingly, the bank sustained a significant loss which was only partly mitigated by the £250,000 guarantee provided the individual behind the development.

The bank raised an action for damages for alleged “negligence”, claiming that “no reasonable surveyor” could have arrived at the valuation provided by Knight Frank, because no development of the subjects was ever viable.

Knight Frank defended the action both on the merits and on the quantification of loss, but the case came before Lord Woolman to try a preliminary issue.

Knight Frank’s standard terms and general principles stipulated that any contract it makes to provide a survey report will be “subject to English law” and that the English courts shall have “exclusive jurisdiction” in any dispute arising with the client.

But the bank maintained that Knight Frank’s standard terms did not form part of the contract.

This issue turned on when and how the contract was formed. There were two interlinked questions: Did the parties include the terms in their contract?; If not, were the terms included by means of the course of dealing between them?

Counsel were in agreement that the bank’s letter of instruction dated 2 May constituted an offer, and that the contract was concluded by means of conduct, but the differed as to which conduct amounted to acceptance of the offer.

On behalf of the bank it was submitted that Knight Frank accepted the offer when it delivered its report to the bank, stating that the acceptance occurred when the valuation report “fell through the letter-box” at the Edinburgh branch of the bank.

However, Knight Frank submitted submitted that the delivery of the valuation report constituted a qualified acceptance and that the bank accepted the counter-offer when it relied upon the report.

The judge preferred Knight Frank’s analysis, stating that the principles of contractual formation were “well known”.

“An objective approach must be applied to discern the parties’ intention,” Lord Woolman said.

The judge concluded that the choice of law clause was incorporated in the contract and observed that Andrew Lawson - an associate director in the business and corporate banking department at the bank’s Edinburgh branch - was the authorised officer and he chose not to read the standard terms, or to refer them to a more senior employee or the legal department.

In a written judgment, Lord Woolman said: “If the bank had raised an issue with Knight Frank, then the contract could not have been concluded without further negotiations. That is not what happened.

“It is irrelevant that Mr Lawson chose not to read the standard terms. If he had done so he would have noted that … he report expressly stated that it was supplied subject to the general principles, which were appended.

“In my view it was not open to the bank to ‘cherry pick’ the document. The bank was not entitled to accept the survey and valuation elements of the report shorn of the standard terms.”

If it had been necessary to do so, the judge would also have held that Knight Frank’s standard terms were incorporated into the contract by means of a “course of dealing”, as this was “one of many routine transactions between the parties”.

Lord Woolman added: “In all of them, Knight Frank had referred to the standard conditions, either in the letter of engagement or the report or both. The bank had never refused to accept those conditions. It had not even queried them. Accordingly I conclude that an officious bystander would say that the parties did not intend to leave out the standard terms.”

The case was put out by order for further discussion in light of the opinion.

© Scottish Legal News Ltd 2021

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