30 September 2011
Insurance Brief
Introduction
Welcome to this month’s issue of Insurance Brief.
In this edition, we report on the Court of Appeal’s decision that surveyors do not
owe a duty of care to buy-to-let investors when undertaking valuations for
mortgage purposes. We also report on a recent construction case concerning
agreed contractual limitation periods.
I am pleased to report that the firm achieved some very impressive rankings and
editorial in the latest edition of Legal 500, which was launched earlier this month.
One of the highlights included retaining our first-tier ranking for “London:
Insurance/Reinsurance Litigation”.
The next in our regular series of seminars will be presented by Andrew Bonwick on
Thursday 13 October. Details can be found below.
We hope you enjoy reading this month’s edition and, as always, welcome your
feedback.
Nick Williams
Head of Insurance Division
CONSTRUCTION: Limitation
Bespoke contractual limitation periods
Parties must adhere to bespoke contractual limitation periods or risk losing
their right to pursue a claim – Inframatrix Investments Ltd v Dean Construction
Ltd [25.07.11]
Dean Construction Ltd (“DCL”) applied to strike out a claim by Inframatrix
Investments Ltd (“IIL”) for damages arising out of alleged defective workmanship
conducted by DCL in November and December 2008. Snagging works were
completed in February 2009. The allegations were initially made in July and
October 2009. DCL attended the site on 31 March 2010, following which it offered
to investigate the allegations with a view to conducting remedial works if
necessary. This offer was rejected by IIL and proceedings were issued in December
2010.
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DCL counterclaimed for its outstanding fees and applied for strike out relying on
the one year limitation period in its contract with IIL in respect of claims against
the contractor.
IIL’s argument was three-fold:
1. The limitation period was not engaged, as there was no defined date for
“Practical Completion of Services” as stated in the contract and, in any event,
the alleged defects were so great that the work was not substantively complete
so as to invoke the clause.
2. If time had started to run, then proceedings were issued in time, as DCL had
effectively “last performed services” in March 2010 when it attended the site
meeting.
3. DCL had waived its rights to rely on the limitation clause due to its conduct in
the intervening period.
Decision: The Technology and Construction Court found in favour of DCL in respect
of the strike out application and held:
1. Where there is no certificate of practical completion of services, then the 12
month contractual limitation period commences after the last performance of
services by the contractor.
2. DCL last performed services for this purpose in February 2009 when it
completed the snagging works. The site visit in March 2010 and subsequent
offer were part of without prejudice negotiations to avoid litigation in
accordance with the Pre-Action Protocol and were not performance of services
under the contract.
3. The “relevant” waiver to consider in this case is waiver by estoppel (as opposed
to waiver by election). By merely involving itself in without prejudice
negotiations, DCL’s conduct did not amount to a representation that it would
not rely on the contractual limitation clause. Liability was always in dispute
and the limitation point was raised by DCL at an early stage prior to filing its
Defence.
With regard to DCL’s counterclaim, the Judge did not consider that the contractual
limitation clause operated to prevent IIL from raising the allegations of defective
workmanship by way of a set off to DCL’s claim for moneys due, notwithstanding
more than 12 months had passed since DCL had last performed services under the
contract.
Comment: This case is a timely reminder that, subject to reasonableness,
commercial parties can agree and subsequently rely on shorter contractual
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limitation periods should they wish to do so. There is no substitute for knowing the
content of your own contract.
It is also a useful lesson about when a party has waived its right to rely on a
contractual provision. In this case, it was argued that there had been waiver by
estoppel. In other words, that DCL had made statements, or acted in such a way,
that had unequivocally lead IIL to believe that DCL would not insist on the one year
limitation period in the contract, and that IIL had relied on that. IIL lost that
argument.
There is another form of waiver, waiver by election, which occurs when one party
that has alternative but inconsistent rights, chooses one of them and, in doing so,
is taken to have abandoned the other. Importantly, there is no need to show that
there has been reliance by the other party to found a waiver by election but, in
this case, there was no contractual right inconsistent with the limitation provision,
and IIL were unable to raise it in their defence to the strike out application.
For further information, contact Clair Morton-Fincham, Kennedys, 020 7667 9667
and c.morton-fincham@kennedys-law.com.
PROFESSIONAL INDEMNITY: Valuers
Valuers' duties re-defined?
Court of Appeal decides property surveyor does not owe duty of care to buy-tolet investor when carrying out valuation for mortgage purposes - Emmet
Thomas Scullion v Bank of Scotland Plc (trading as Colleys) [17.06.11]
In 2002, Mr Scullion bought a flat from a developer on a buy-to let basis. The
money for the purchase came from a specialist buy-to-let mortgage provider, who
obtained a valuation from Colleys.
Colleys over-valued both the capital value and anticipated rental income of the
flat. Mr Scullion subsequently sued Colleys for negligence and won at first instance.
The Judge held that a purchaser of a buy-to-let property was entitled to rely on
such a valuation and, accordingly, decided that Colleys owed a duty of care to Mr
Scullion. Colleys appealed.
Decision: The Court of Appeal held unanimously that the duty of care between a
valuer instructed by a lender and a prospective purchaser which was recognised by
the House of Lords in Smith v Eric S Bush [1990], did not extend to a buy-to-let
purchaser.
In reaching its decision, the Court of Appeal distinguished Smith v Eric S Bush in a
number of ways, including the following:
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
It was not just and equitable that Colleys should be liable to Mr Scullion
because the transaction was commercial in essence.

People entering into commercial transactions were more likely to be able
to afford an independent valuation; whereas, in a domestic purchase, it
was highly likely the purchaser would rely on the mortgage valuation.

There was no evidence to suggest that buy-to-let investors generally did
not obtain their own valuations.

As only limited advice was given by Colleys about the flat’s likely rental
income, one would expect a buy-to-let investor to obtain their own report
on such matters.
The message for buy-to let purchasers is clear: they should obtain their own
valuations and not rely on valuations which have been prepared for the lender.
Comment: This decision will be welcomed by valuers and their insurers, who have
already been badly hit by the downturn in the housing market.
It does though raise further questions. For instance, will this case have an impact
on domestic purchasers of properties at the top of the market, who may also be
able to afford their own valuations (the Smith decision involved purchases of
properties of relatively modest value). Alternatively, where valuers have reason to
believe that a buy-to-let purchaser would rely on their valuation because, for
example, they have had direct contact with the purchaser, will that give rise to a
duty of care that didn’t exist in this case?
It is also worth highlighting the court’s confirmation that a claimant may recover
the shortfall in rent between the rental value estimated by the valuer and the
actual rent achievable. Although that did not assist Mr Scullion, to whom the valuer
owed no duty of care, it is a principle that valuers will need to be wary of when
providing valuations that comment both on the value of the property and its rental
yield.
For further information, contact Kate Bandhu, Kennedys, 0207 667 9148 and
k.bandhu@kennedys-law.com
Kennedys is a trading name of Kennedys Law LLP. Kennedys Law LLP is a limited liability partnership
registered in England and Wales (with registered number OC353214).
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