The valuer’s liability for negligent valuation: toward a more principled allocation of the risk of market decline

The scope of duty of care concept developed by Lord Hoffmann in South Australia Asset Management v York Montagu (1997) AC 191 seeks to limit a valuer’s responsibility for a lender’s losses arising from his negligent valuation report. The limitation device stems from a laudable motivation. As the valuer provides only one of the considerations on which the lender relies to assess the loan proposal, it is intuitively unappealing to thrust the full loss onto the valuer. However, this limitation technique operates in a mechanical manner and does not deal with the loss attributable to the market fall in a cogent and principled manner. This article suggests that the key to a principled restriction on the valuer’s responsibility lies in identifying the kinds of risks the parties were willing to assume. The author develops two techniques - the Constructive Alternative Transaction Discount and the Constructive Actualised Risk Discount - for reducing the valuer’s extent of responsibility in a principled and cogent manner.