Dale House Developments LTD against Brian C Ronnie and Ryden LLP (Court of Session)

Factual and Procedural Background

This case concerns a property known as Dale House on West George Street in The City. The Plaintiff was formerly the proprietor of the property, which had been a cash storage and counting facility built in 1982 and was vacant and dilapidated by 2016. The Plaintiff acquired the property in 2014 and simultaneously entered into missives to sell it to Company A, with a profit share clause dependent on the property's open market value ("OMV") as at a valuation date agreed to be 16 September 2016.

The Plaintiff and Company A could not agree on the OMV, triggering clause 16.5 of the missives, which required the appointment of an Independent Valuer to determine the OMV in accordance with RICS Valuation Professional Standards ("Red Book"). The originally appointed valuer was unable to act, and the first Defendant was nominated and accepted as the Independent Valuer. The first Defendant was a member of the second Defendant firm and acted in its course of business.

The first Defendant received submissions from the Plaintiff and Company A, including competing valuations based on different development uses: the Plaintiff proposed a mixed office/retail use valued at £9,100,000, and Company A proposed a hotel development scheme (the "Meininger scheme") valued at £2,000,000. The first Defendant produced a valuation of £3,900,000, favoring an office/retail scheme and concluding the Plaintiff was not entitled to any profit share.

Subsequently, Company A sold the property to Company B for £8,750,000, intending to develop it as a hotel with retail space. The Plaintiff brought proceedings against the Defendants for breach of contract, alleging the first Defendant failed to carry out the valuation in accordance with the Red Book and failed to exercise reasonable skill and care, resulting in an undervaluation and loss of profit share entitlement.

Legal Issues Presented

1. Whether the first Defendant, acting as Independent Valuer, breached contractual duties by failing to carry out the valuation in accordance with the RICS Valuation Professional Standards ("Red Book") and the terms of the missives.
2. Whether the first Defendant failed to exercise the reasonable skill and care expected of a suitably qualified chartered surveyor in the relevant area of practice.
3. Whether the Plaintiff suffered loss causally connected to any breach of duty by the Defendants.
4. The appropriate valuation of the property for the purpose of quantifying damages.
5. Whether the damages should be assessed on a loss of chance basis.

Arguments of the Parties

Plaintiff's Arguments

• The first Defendant failed to conduct the valuation in accordance with the Red Book and RICS Valuation Information Paper 12 ("VIP 12"), particularly by not properly cross-checking the residual valuation against comparable market evidence.
• The first Defendant neglected to consider the owner operator hotel comparables and relied solely on leasehold transactions, which understated the property's value.
• The first Defendant failed to recognize that the retail/leisure element on the ground floor had significant value, which distorted the hotel valuation.
• The first Defendant lacked the necessary expertise to value owner-operated hotel developments and should have sought specialist assistance.
• The Plaintiff relied on expert evidence from Mr Chess, a specialist hotel valuer, who valued the property at £6.3 million, significantly higher than the first Defendant's valuation.
• The Plaintiff sought damages calculated as 50% of the distributable profit lost due to undervaluation, amounting to £928,650.96 plus interest.

Defenders' Arguments

• The first Defendant owed a duty of care and acted within the standard expected of an ordinarily competent chartered surveyor with sector knowledge of development-led valuations in Glasgow focused on hotel, office, and retail sectors.
• The scope of the first Defendant's duty was limited to considering the submissions and information provided by the parties, which only included the Meininger hotel scheme; thus, no obligation existed to investigate alternative hotel schemes.
• The first Defendant properly followed normal and usual practice, including performing residual valuations and cross-checking with available market evidence, primarily leasehold transactions.
• Mr Murphy, the defenders' expert, opined that the first Defendant acted within the scope of his duty and exceeded it in some respects.
• The Plaintiff failed to prove negligence or breach of duty by the first Defendant.
• The Plaintiff's expert evidence from Mr Chess was inadmissible or irrelevant as he lacked the appropriate expertise to comment on the first Defendant's role and standard.
• The damages, if any, should be assessed on a loss of chance basis rather than as a guaranteed entitlement.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by examining the contractual terms governing the first Defendant's appointment, emphasizing clause 16.5 of the missives requiring an independent valuation in accordance with the RICS Red Book and considering all information provided by the parties. The court rejected the defenders' argument that the first Defendant's duty was restricted to the parties' submissions, finding no evidence in the appointment documents or contemporaneous communications supporting such limitation.

The court considered expert evidence from Mr Chess (Plaintiff's hotel valuation specialist) and Mr Murphy (Defenders' general surveyor) and found notable areas of agreement: the valuation involved a residual method requiring cross-checking with market evidence; an ordinarily competent valuer should not limit consideration to party submissions; and the first Defendant failed to properly cross-check the hotel residual valuation with comparable transactions and failed to account for the value of the retail/leisure element on the ground floor.

The court found the first Defendant breached his contractual and professional duties by failing to carry out the valuation with reasonable skill and care, specifically in not properly cross-checking the hotel valuation and ignoring significant market evidence, including owner operator transactions. The court rejected the defenders' contention that the first Defendant was justified in excluding owner operator comparables due to lack of evidence of demand, noting the absence of any contemporaneous judgment by the first Defendant and the fallacy of equating absence of evidence with evidence of absence.

The court also considered the standard of care, concluding the first Defendant was to be judged by the standard of a suitably qualified chartered surveyor with sector knowledge including hotel valuation, consistent with his appointment and representations. The court overruled the defenders' objection to Mr Chess' evidence, finding it relevant and admissible given the nature of the valuation task.

On causation, the court accepted that the Plaintiff suffered loss as a direct and natural result of the breach, with no substantive dispute on this point. The court accepted Mr Chess' valuation of £6.3 million as the correct market value for the property developed as a hotel by an owner operator, finding his evidence persuasive, methodical, and cautious. The court found the defenders' criticisms of Mr Chess' valuation unconvincing, particularly given the absence of expert hotel valuation evidence from the defenders.

Regarding damages, the court held that the Plaintiff's loss was to be assessed as a loss of chance, consistent with recent authority, but found no basis for discounting the Plaintiff's chance of recovering the profit share from Company A. The court applied the formula in the missives and found the Plaintiff entitled to damages of £928,650.96 plus interest.

Holding and Implications

The court's final decision was to sustain the Plaintiff's pleas-in-law and grant decree against the Defendants in the sum of £928,650.96 with interest at 8% from the date of citation until payment. The court reserved questions of expenses.

The direct effect of this decision is to hold the Defendants liable for breach of contract and negligence in the valuation of the property, resulting in damages payable to the Plaintiff. The court's analysis clarifies the scope of duty owed by an independent valuer appointed under similar contractual provisions and affirms the necessity of proper cross-checking in residual valuations, particularly in mixed-use development contexts involving hotel valuations. No new precedent was set beyond the application of established principles to the facts of this case.