“I called earlier and left a message. I’ve contacted Andrew Pirrie and his view was that this work would be additional to the work he is already doing and that we should charge you separately (albeit that administratively it is probably easiest to set it up as an extension to his engagement). We think it sounds like approximately£25,000 of work depending on the exact scope to which my colleague, Conrad Williams is giving some thought. We would propose that these fees would not (unlike Andrew’s disposal mandate) be contingent on the sale of the companies …”. ii) On2nd March 2005 at 15.12, Mr Williams emailed Ms Montague more formally entitled “Valuation of the RBIL portfolio” saying (C2/249): “Further to Paul’s email of earlier today I set out below the suggested scope of work for the valuation of the RBIL portfolio to assist you in your discussions with Barclays. I have also commented on the team who we would propose to use …”
“the preliminary analysis is based on Net Present Value (“NPV”) analysis of the latest project financial models supplied to us by Ryhurst …” ii) In the Indicative Valuation section:- a) “We are currently seeing a lot of secondary market activity with strong competition for quality assets”. b) “Particular care is needed in the choice of discount rates as there are a number of factors need to be considered. These include: - Nature of the assets – projects which include demand or residual value risk are generally considered more risky than basic availability style accommodation projects, and hence, discount rates for such projects are often higher. - Stage of development/ asset performance – where portfolios include a large number of non-operational assets and/or assets that are performing below expectation, discount rates are usually higher to reflect the increased risk. - Nature of Investment – the investments being sold in many asset portfolio sales are the full equity interests (i.e. both subordinated debt and equity). We have not seen the RBIL shareholder agreement, but assuming the subordinated debt holder has rights senior to those of pure equity (as you would often expect) the discount rate would usually be higher to reflect the increased risk of payments to the equity holder being eroded. - Equity risks – we understand that within the RBIL portfolio, in many cases, lifecycle risk is passed down through the sub-contracts and, as a result, the equity exposure is arguably lower than is the norm. This would suggest a lower discount rate is applicable. - Return profile – most, if not all, of the principal secondary market investors want a smooth profile of returns. Where equity flows are highly variable year on year, some investors will not be interested at all; those that are, are likely to materially increase their discount rate”. c) “We would suggest that, at the current time, a mid market discount rate for an equity portfolio sale is approximately 10%, assuming: - Most of the assets are performing well; - Most assets are accommodation assets with availability style payment mechanisms; - Most assets are operational; and - Both the pure equity and subordinated debt interests are being sold together”. d) “In this case we believe the “blended” discount rate for Ryhurst’s interest would be materially higher than 10% as: - the two largest projects – Avon Wilts and Lymington – that together represent approximately 60% of the portfolio will not become operational until December 2006; - All projects except Bexley have subordinated debt that (we believe) is serviced before pure equity. The resulting equity value is much smaller than the subordinated debt value. The subordinated debt is already owned by Barclays. - The equity value in the portfolio is very back-ended. Dividend payments in 7 out of the 10 projects are not forecast to start until 2015 or later. …” e) The Base Case Valuation provided as follows:- i) “The table below sets out a Base Case portfolio valuation, applying different discount rates to each project. These values are gross of potential transaction costs:” ii) “In summary, we have used: - 10% for Bexley, which has no subordinated debt and is operational; - 12% for Black Country, which is operational and has some subordinated debt – but around equity value accounts for 75% of the total equity and subordinated debt value; - 14% for Redbridge, which like Black Country is operational but the equity proportion of value is lower at approximately 50%; and - 18% for the remaining projects, all of which have low equity proportions of value and some of which are non operational”. f) “Project Discount Rate (%) NPV £’000”
“we are comparing apples and pears”
“A formal valuation is unlikely to be cost-effective since a true market value will emerge from the competitive tender process and our fees as set out in Appendix 2 do not include this”. vii) Appendix 2 contained a description of the fees and expenses payable making it clear that “our fee will be fully contingent on the successful disposal of the Businesses”
“Reliance on drafts– you shall not place reliance on draft reports, conclusions or advice, whether oral or written, issued by us as the same may be subject to further work, revision and other factors which may mean that such drafts are substantially different from any final report or advice issued”. ii) Paragraph 3.1: “Provision of information and assistance – our performance of the Services is dependent upon you providing us with such information and assistance as we may reasonably require from you from time to time”. iii) Paragraph 3.2: “Information from outside the Engagement – We shall not be deemed to have knowledge of information from previous engagements for the purposes of the provision of the Services, except to the extent specified in the Letter of Engagement. If you intend us, or any other [PwC] Entity to use any information already made available to another team within PwC … as part of another engagement, you should inform us of this in writing and provide such information to us”. iv) Paragraph 7.1: “Limitation of our liability”:- a) Paragraph 7.1.1: “We will use reasonable skill and care in the provision of the Services”. b) Paragraph 7.1.2: “We will accept liability without limit for (i) death or personal injury …(ii) any fraudulent pre-contractual misrepresentations …; and (iii) any other liability which by law we cannot exclude or limit. This does not in any way confer greater rights than you would otherwise have by law”. c) Paragraph 7.1.3: “If you are an intermediate customer, or a private customer who has been reclassified as an intermediate customer, nothing in this paragraph 7 or elsewhere in these terms will exclude or restrict any liability or duty we may have to you under theFinancial Services and Markets Act 2000 (“FSMA”) or the rules of the FSA when supplying you with services which constitute mainstream regulated activities (as defined in the FSA Handbook)”. d) Paragraph 7.1.4: “Our liability to pay damages for all losses, including consequential damages, economic loss or failure to realise anticipated profits, savings or other benefits, incurred by you as a direct result of breach of contract or negligence or any other tort by us or any other PwC Entity in connection with or arising out of the Engagement or any addition or variation thereto shall be limited to that proportion only of your actual loss which was directly caused by us or any other PwC Entity and, subject to paragraph 7.1.2, our liability shall in no circumstances exceed in the aggregate the amount specified in the Letter of Engagement (“the Limit”)”. e) Paragraph 7.1.5 provided that: “where there is more than one Addressee, the limit of liability specified in paragraph 7.1.4 above will have to be allocated between Addressees. It is agreed that such allocation will be entirely a matter for the Addressees who will be under no obligation to inform us of it …” v) Paragraph 7.4: “Commencement of legal proceedings – you accept and acknowledge that any legal proceedings arising from or in connection with the Engagement (or any variation or addition thereto) must be commenced within 2 years from the date when you became aware of or ought to have become aware of the facts which give rise to our alleged liability and in any event not later than 4 years after any alleged breach of contract or act of negligence or commission of any other tort”
“In an action for negligence against an expert, it is not enough to show that another expert would have given a different answer. Valuation is not an exact science; it involves questions of judgment on which experts may differ without forfeiting their claim to professional competence. The fact that a judge may think one approach better than another is therefore irrelevant... The issue is not whether the expert's valuation was right, in the sense of being the figure which a judge after hearing the evidence would determine. It is whether he has acted in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession: see Bolam v. Friern Hospital Management Committee [1957] 1 W.L.R. 582 at p. 587, a well-known citation” 41. This is in line with the general principle that a professional does not warrant a result. He agrees only to use reasonable skill and care in forming his opinion or giving his advice. In other words it is the process that must be examined rather than simply the end result. That is not to say that the end result is irrelevant. First, the end result may be very far from opinions given by other experts, or may be falsified by some empirical outcome, with the result that one must infer that something has gone wrong with the process. Second, a professional may have a duty, as part of the process, to stand back and look at the end result in the round to see if it accords with his instinctive feel. 42. In Lion Nathan Ltd v. C-C Bottlers Ltd [1996] 1 W.L.R. 1438 Lord Hoffmann, giving the advice of the Privy Council, said: “As has been said, a forecast is always the forecaster's estimate of the most probable outcome, the mean figure within the range of foreseeable deviation. The judge appears to have assumed that if a figure would have been within the range of foreseeable deviation from the mean of a properly prepared forecast, it must follow that it would have been proper to put that figure forward as the mean. This proposition has only to be stated to be seen to be fallacious. There is no connection between the range of foreseeable deviation in a given forecast and the question of whether the forecast was properly prepared. Whether a forecast was negligent or not depends upon whether reasonable care was taken in preparing it. It is impossible to say in the abstract that a forecast of a given figure “would not have been negligent.”
“Before I come to the facts of the individual cases, I must notice an argument advanced by the defendants concerning the calculation of damages. They say that the damage falling within the scope of the duty should not be the loss which flows from the valuation having been in excess of the true value but should be limited to the excess over the highest valuation which would not have been negligent. This seems to me to confuse the standard of care with the question of the damage which falls within the scope of the duty. The valuer is not liable unless he is negligent. In deciding whether or not he has been negligent, the court must bear in mind that valuation is seldom an exact science and that within a band of figures valuers may differ without one of them being negligent. But once the valuer has been found to have been negligent, the loss for which he is responsible is that which has been caused by the valuation being wrong. For this purpose the court must form a view as to what a correct valuation would have been. This means the figure which it considers most likely that a reasonable valuer, using the information available at the relevant date, would have put forward as the amount which the property was most likely to fetch if sold upon the open market. While it is true that there would have been a range of figures which the reasonable valuer might have put forward, the figure most likely to have been put forward would have been the mean figure of that range. There is no basis for calculating damages upon the basis that it would have been a figure at one or other extreme of the range. Either of these would have been less likely than the mean: see Lion Nathan Ltd. v. C. C. Bottlers Ltd., The Times,16 May 1996 .” 45. Although Lord Hoffmann recognises that within a band of figures valuers may differ without one of them being negligent, it does not seem to me that he was saying that the only way to establish negligence or breach of contract is to prove that the valuer's particular figure falls outside that band. If that is what he meant, his reference to the Lion Nathan case would surely have been qualified. … 47. However, there is a line of authority which focuses on the final figure, rather than the process by which the valuer reached the final figure. That line of authority begins with Singer & Friedlander v. John D Wood & Co[1977] 2 EGLR 84 . In that case Watkins J said: “The valuation of land by trained, competent and careful professional men is a task which rarely, if ever, admits of precise conclusion. Often beyond certain well-founded facts so many imponderables confront the valuer that he is obliged to proceed on the basis of assumptions. Therefore he cannot be faulted for achieving a result which does not admit of some degree of error. Thus, two able and experienced men, each confronted with the same task, might come to different conclusions without anyone being justified in saying that either of them has lacked competence and reasonable care, still less integrity, in doing his work. The permissible margin of error is said by Mr Dean, and agreed by Mr Ross, to be generally 10 per cent either side of a figure which can be said to be the right figure, i.e. so I am informed, not a figure which later, with hindsight, proves to be right, but which at the time of valuation is the figure which a competent, careful and experienced valuer arrives at after making all the necessary inquiries and paying proper regard to the then state of the market. In exceptional circumstances the permissible margin, they say, could be extended to about 15 per cent, or a little more, either way. Any valuation falling outside what I shall call the “bracket” brings into question the competence of the valuer and the sort of care he gave to the task of valuation.” 48. This is, I think, the first mention, in a reported case, of the “margin of error”
“Pinpoint accuracy in the result is not, therefore, to be expected by he who requests the valuation. There is, as I have said a permissible margin of error, the “bracket” as I have called it. What can properly be expected from a competent valuer using reasonable skill and care is that his valuation falls within this bracket.” 49. This passage does, in my opinion, concentrate on the final figure rather than the process. Moreover, it uses the margin of error in another way, namely to provide the valuer with a defence to a claim of negligence if his figure falls within the bracket, no matter how he arrived at his figure. 50. In Mount Banking Corporation Ltd v. Brian Cooper & Co [19921 2 EGLR 142 the plaintiff submitted that where the final valuation figure is within the Bolam principle, an acceptable figure, albeit towards the top end, but where none the less the valuer has erred materially in reaching that figure, the plaintiff can succeed in his claim because of those negligent errors, even though the total valuation figure was not negligent. Mr Robin Stewart QC, sitting as a deputy judge of the Queen's Bench Division, rejected that submission. He said: “If the valuation that has been reached cannot be impugned as a total, then, however, erroneous the method or its application by which the valuation has been reached, no loss has been sustained, because, within the Bolam principle, it was a proper valuation.” 51. Plainly this passage focuses on the end result rather than the process by which the valuer reached the end result. In reaching his conclusion on the facts, Mr Stewart said: “I conclude, therefore, on this section, that though there was a fault in the process of calculation, none the less a proper and acceptable process could properly have resulted in no, or no perceptible, difference to the end valuation; that is to say that the figure in fact reached by Mr Cohen was acceptable on the Bolam principle.” 52. In Craneheath Securities v. York Montague Ltd[1996] 1 EGLR 130 at 132 Balcombe LJ (with whom Otton and Aldous LJJ agreed) said: “Since Craneheath did not establish that the figure of£5.25m was wrong, then I agree with Mr Stow that Craneheath's action must fail. It would not be enough for Craneheath to show that there have been errors at some stage of the valuation unless they can also show that the final valuation was wrong. If authority be needed for so self-evident a proposition, it can be found in Mount Banking Corporation Ltd v. Brian Cooper & Co[1992] 2 EGLR 142 at pp. 144-5, 149.” 53. These are the passages from Mr Stewart QC's judgment that I have just quoted, and in my view are direct approval of his approach by the Court of Appeal. In the same case Otton LJ said: “In the light of this the plaintiffs faced a formidable task in discharging their burden of proving that the figure of£1.1 m as an assessment of current turnover was erroneous. Without such a finding there could be no finding of negligence.” … 58. I come now to Merivale Moore plc v. Strutt & Parker[1999] 2 EGLR 171 . I find this a difficult case. This was a case in which the valuer was instructed to prepare an appraisal of a proposed purchase. The property was to be acquired for development. The valuer prepared an appraisal which attempted to value the completed investment, in order for the purchaser to decide whether a purchase at the asking price would be a sensible transaction. In order to prepare the valuation, the valuer had to estimate the cost of the development, the rent at which the completed development could be let, and the yield to be applied to that rent in order to arrive at a capital value of the completed development. The task was made more difficult by the fact that the interest on offer was a lease with an unexpired term of 46 years. The valuer took as his starting point a rent for the principal areas of£60 per square foot, and adopted a yield of 7.5 per cent. The trial judge found that taking a rent of£60 per square foot was negligent. He also found that although a yield of 7.5 per cent was ‘too low’ it was not, in itself, negligent. He made an express finding to that effect. However, he found that the yield should have been qualified by a warning about its reliability. The failure to append a qualification was negligent. The valuer appealed to the Court of Appeal. That court, by a majority, reversed the judge's finding of negligence on the question of the rental value. However, the valuer's appeal was dismissed, on the ground that the judge's finding that the yield should have been qualified was one which was open to him. The result of the appeal, therefore, was that although the valuer had adopted a rental value which was not negligent, and a yield which was, in itself, not negligent, he was still liable in negligence because of the failure to qualify the yield with a warning. Simply looking at the result, one might have thought that this was a case in which the process, rather than the end result in figures, was all-important. However, examination of the judgment of Buxton LJ shows that this may not be so. 59. Buxton LJ began by explaining the structure of the trial judge's inquiry. He said at page 173: “In order to determine whether the advice contained in the 12 June assessment was negligent, that is to say, whether the figures set out in the assessment were negligently stated, it was necessary, or if not necessary almost inevitable, that the court should form a view as to what was the correct or true value of the property; that is what would have been the correct figures to include in the assessment. That step has to be taken because a necessary step in determining whether a particular valuation was negligent is to consider the extent to which the valuation diverged from what would have been a correct valuation, and the reasons for that divergence.” 60. This passage suggests, first, that there is a “correct or true value” of a property, rather than simply a “bracket” and, second, that the court must decide that true value before embarking on the question whether the impugned valuation was negligent. In deciding that question the court must consider both the extent of the divergence from the true value, and the reasons for the divergence. Absent empirical proof of the “true value” of a property on a given day (e.g. an open market sale of that property on that day), the “true” value must mean the figure at which the court values the property, having heard expert evidence. However, if the acid test of liability is whether the impugned end result falls outside a bracket, it is not clear why the court must decide what the “true” value of the property was, rather than simply deciding the bracket. Buxton LJ then reviewed the evidence given to the trial judge. Before coming to his own conclusions, he set out “some indication of the guidance to be obtained from recent authority as to the correct approach to a complaint of negligence against a valuer.” 61. At 176 Buxton LJ said: “It has frequently been observed that the process of valuation does not admit of precise conclusions, and thus that the conclusions of competent and careful valuers may differ, perhaps by a substantial margin, without one of them being negligent: see for instance the often quoted judgment of Watkins J in Singer & Friedlander Ltd v. John D Wood & Co[1977] 2 EGLR 84 at p. 85G; and the House of Lords in Banque Bruxelles Lambert S.A. v. Eagle Star Insurance Co Ltd [1977] A.C. 191 at p 221 F-G. That has led to the courts adopting a particular approach to claims of negligence on the part of valuers. In the general run of actions for negligence against professional men: “it is not enough to show that another expert would have given a different answer. the issue is ... whether [the defendant] has acted in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession”: Zubaida v. Hargreaves[1995] 1 EGLR 127 at p 128 A-B per Hoffmann LJ, citing the very well-known passage in Bolam v. Friern Hospital Management Committee[1957] 1 WLR 582 at p 587 However, where the complaint relates to the figures included in a valuation, there is an earlier stage that the court must be taken through before the need arises to address considerations of the Bolam type. Because the valuer cannot be faulted in any event for achieving a result that does not admit of some degree of error, the first question is whether the valuation, as a figure, falls outside the range permitted to a non-negligent valuer. As Watkin J put it in Singer & Friedlander at p 86A: “There is, as I have said, a permissible margin of error, the “bracket” as I have called it. What can properly be expected from a competent valuer using reasonable skill and care is that his valuation falls within the bracket.”
“Where, as in the present case, criticism is addressed to factors such as rental value and yield which bear proportionately on the ultimately assigned value, the issues of the permissible range and of negligence are on any view inseparably linked. The value estimated results from the estimated rental values and yields. Where there is some discrete error, like that postulated in Lion Nathan Ltd v. C-C Bottlers [1996] 1 W.L.R. 1438, it may be appropriate to examine more closely the nature of the valuer's engagement. Is it simply to produce an end result and to do so within the range of “reasonable foreseeable deviation?”