Bank monitoring surveyors: when are they negligent?

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A recent case* discusses the extent to which a bank's monitoring surveyor can be held negligent, and in this case, rejected all allegations of negligence.

As we reported in January in our blog on Lloyds v McBains Cooper, a bank monitoring surveyor is often appointed to report on progress of a construction project on which the bank has loaned money.

In Lloyds, the court held that the surveyor was liable to some extent but that the bank had failed to mitigate its loss; therefore, some of the damages were reduced to account for contributory negligence.

Background

In the latest case, the Bank of Ireland had issued proceedings against its monitoring surveyor, Watts Group Plc, for alleged negligence in relation to a large property development. The bank had agreed to lend £1.4m towards the development. Watts was engaged to monitor the building cost estimates and prepare an initial appraisal report.

The Bank claimed that this report was negligent, as if properly prepared, the bank would not have allowed its borrower to draw down on the £1.4m loan. Shortly after, the borrower became insolvent and building work ceased. Despite the property being sold, the bank suffered a loss of £750,000.

Decision

The court decided against the Bank and rejected all allegations of negligence against Watts, as follows:

1. Alleged failure to advise that the proposed scheme differed from the planning permission granted: the court was not satisfied that Watts had received the relevant documentation before it completed its report.
2. Alleged failure to note that the proposed construction period was too short: the borrower's timescale for completing the works was not sufficiently over-optimistic that Watts was negligent in failing to identify it; accordingly, Watts was not negligent in this regard.
3. Alleged negligence in accepting the borrower's cash flow information: the Court decided that the borrower's cash flow analysis was a reasonable reflection of the amounts required to complete the works.
4. Alleged negligence in relation to the endorsement of the borrower's estimated cost figure: the bank's expert could not show that the surveyor's actions fell below the relevant standard required. The surveyor had undertaken a sense check and used several comparables to assess the costs figure. Accordingly, the court held that the estimate was reasonable.

In addition, the Court held that even if negligence had been established, there would still be no damages awarded as:

1. The case failed on causation; and
2. The claimed loss was not recoverable as the role of the surveyor amounted to providing information rather than advice.

Even if recoverable, the damages would have been reduced by 75% due to the bank's contributory negligence.

Implications

This case demonstrates that claims against bank monitoring surveyors are far from clear cut and that many hurdles are needed to be overcome in order to succeed in such a claim.

This blog post was written by Gemma Wilson. For further information, please contact:

Gemma Wilson, associate, Construction

T: 0161 836 7884

E: Gemma.Wilson@gateleyplc.com

* Bank of Ireland v. Watts Group Plc (2017)