Wasps Sting

Valuing recreational land can have a sting in the tail for surveyors and valuers if they fail to investigate development potential, as the recent decision in Montlake & Others (as trustees of Wasps (Rugby) Football Club) v Lambert Smith Hampton Group Limited and Nicholson Graham & Jones (May 2004) has demonstrated. Justine Williams, Bristol, explains.

In 1996 the game of rugby turned professional. Wanting to turn professional themselves, for which they required a substantial cash injection, Wasps struck a deal with Queens Park Rangers. As part of this deal, Wasps exchanged their Sudbury ground for shares in Loftus Road Plc. The Sudbury ground had been valued by the defendant valuers in March 1996 at £832,500 and was transferred at that value in July 1996.

Loftus Road Plc later obtained a valuation which put a price tag of £5.7m on the ground. In December 1999, having successfully obtained planning permission, Loftus Road Plc sold the Sudbury ground to a property developer for £11.9m.

Wasps sued the defendant valuers for negligently undervaluing the Sudbury ground at £832,500, when its true value was closer to £3.42m; for failing to make proper planning enquiries; and failing to appreciate the ground’s planning potential.

They claimed that, had they been properly advised by the defendant, they would not have transferred the Sudbury ground and would have themselves benefited from an eventual sale to a property developer.

Issues

Among the issues for the court were:

• whether the loss was within the defendant’s scope of duty;
• what Wasps would have done, had the defendant advised properly and, accordingly, how damages were to be assessed.

Scope of duty

There were conflicting views as to the purpose of the valuation. The defendant contended that it was to determine capital gains tax (CGT) liability. They asserted that, because the Loftus Road transaction had not been contemplated, no duty was owed for any loss arising from that transaction. The claimants, however, maintained that the valuation was to determine whether to incorporate the club in order then to raise finance for an AIM floatation. Because the transfer was likely to give rise to a gain, there were CGT consequences.

The judge decided that the 1996 valuation was in the context of a possible transfer of the Sudbury ground and to enable Wasps to raise finance. The defendant should have known that Wasps would rely on the valuation in order to determine a value at which to dispose of the Sudbury ground. Accordingly, the loss to Wasps of disposing of the ground for a figure less than it was worth fell within the defendant's duty.

The judge also found that the defendant had been negligent in supposing that residential planning permission would be difficult to obtain without even investigating the position. As it was, the chances of obtaining planning permission were over 50%. Wasps should have been provided with a valuation which drew attention to the planning prospects.

Loss

It was held that Wasps would not have pursued the planning opportunities eventually pursued by Loftus Road plc, had they been aware of the Sudbury ground’s true value. Instead, the judge decided that they would have sought to realise the proper worth of the ground in their agreement with Loftus Road Plc at the time of the 1996 transaction.

As such, damages were not assessed on a loss of chance basis, for the loss of chance of achieving the same outcome as was in fact achieved by Loftus Road Plc some years later. Instead, loss was assessed as the difference between the negligent valuation of £832,500 and the proper valuation of £3.25m at the time of the 1996 valuation.

Impact

Whilst not remarkable for establishing any new law, the case vividly illustrates two crucial lessons, one of widespread application to professionals, the other more specific to valuers of sports and recreational grounds.

The first is the importance for all professionals of clearly understanding not only what tasks they are being asked to carry out but also the implications and potential consequences of those tasks and what additional actions might have to be undertaken to address those consequences. In this case, the surveyors failed to recognise that contemplation of a sale of the ground, which inherently involved investigation of "its ability to be developed", was indispensably implied within an instruction to provide a valuation for CGT.

For their part, surveyors and valuers of recreational and sports grounds should be careful never to assume, which many may have been prone to do, that legal covenants or encumbrances, local planning policies or other community obstacles should necessarily block all scope for development or profitable resale. Their valuations should always include investigation and consideration of the potential for sale or development.

Professional and Financial Risks Focus is published on the basis that no liability is accepted for any errors of fact or opinion it may contain. Professional advice should always be obtained before applying the information to particular circumstances.

Beachcroft Wansbroughs
Professional & Financial Risks Focus, Issue 03, July 2004