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The bookie, the valuer and the duty of care

Being negligent and causing damage or loss to another is something we all worry about. We are all human and we all make mistakes from time to time.

Most of us are well insured against the consequences of our own negligence, whether driving a motor vehicle or advising a client or even in relation to what happens in our own homes.

Of course, not every mistake we make amounts to negligence at law. But what does the law understand negligence to mean and when does the law impose a liability on a person for his or her negligence?

Negligence is the civil law wrong which imposes liability on a person for the consequences of his or her failure to take reasonable care to avoid causing foreseeable harm to another.

Put baldly like that, it is clear that some limits to the concept are necessary so that we are not all responsible to an infinite extent for what we do or fail to do, so the law has developed an approach which limits the extent of responsibility.

Generally speaking, we are responsible only if we are under a duty of care recognised by the law and we are in breach of that duty and the damage or loss caused to the other person was a reasonably foreseeable consequence of the breach of duty.

The first question, then, is, was the person being blamed for the damage under a duty of care? Usually there is little difficulty with that question. For instance, we all know that we owe a duty to other road users to drive our own car with due care and attention but new situations are always arising and with them the question of whether, in the circum-stances, the proposed defendant was under a duty of care towards the claimant.

Thus, in the recent case of Calvert v. William Hill Credit Ltd, a pathologically compulsive gambler sued a bookmaker because the bookmaker did not refuse to take bets from the gambler who lost a great deal of money as a result.

There had been an informal agreement between the gambler and the bookmaker under which the bookmaker would refuse to take any bets from the gambler for a period of six months. But, despite the agreement, the bookmaker continued to take bets from the gambler who incurred considerable losses.

Most of us are well insured against the consequences of our own negligence, whether driving a motor vehicle or advising a client or even
in relation to what happens in our own homes

The court refused to recognise a general common law duty of care owed by a bookmaker to a person known or suspected of being a compulsive gambler and requiring the bookmaker to refuse to accept bets from such a person – even though there was a foreseeable risk of harm to the gambler.

Once a duty of care is established in the circumstances of the case, it is generally a straight-forward matter to decide if there was a breach of the duty or not.

If there was a breach of duty, the next question is whether the loss or damage complained of was caused by the breach.

Again, usually the answer is clear. Thus, in a motor accident case, the physical damage to the claimant’s vehicle by the collision will have been caused by the defendant’s lack of care which resulted in a collision.

But not all consequences will have been caused by the breach of duty. Thus, following a fall in the property market in the early 1990s, there was much litigation arising from negligent valuations of property.

A typical case would involve a lender, which was considering lending money secured on property. The lender would instruct a valuer to report on the market value of the property offered as security so as to establish whether there was a safe margin in the deal for the lender. The valuer negligently over-valued the property. Thus, when the borrower defaulted, the lender was unable to recoup his losses by repossession and sale of the property. Furthermore, the losses were exacerbated by the fall in the property market.

The lender would then sue the valuer. In some cases, the lender would say that had the valuer valued the property correctly, the lender would not have lent and so would not have sustained any loss. In other words, the lender was saying that all its losses were caused by the valuer’s negligent valuation.

There was no doubt that the valuer owed a duty of care to the lender to provide a correct valuation and that he was in breach of that duty. The important question was whether he was responsible for not only the difference between the correct valuation and the negligent valuation but also for the losses from the fall in the market generally.

The House of Lords decided in the leading case of South Australia Asset Management Corporation v York Mont-ague Ltd in 1997 that the valuer was responsible only for the difference in values.

Lord Hoffmann said that the extent of the valuer’s liability was determined by the scope of his duty of care. The valuer’s duty was to provide a correct valuation. If he was in breach of that duty, he was responsible for the consequences of failing to provide such a valuation.

Lord Hoffmann went on to say: “The valuation tells the lender how much, at current values, he is likely to recover if he has to resort to his security. This enables him to decide what margin, if any, an advance of a given amount will allow for a fall in the market and any other of the contingencies which may happen. The valuer will know that if he overestimates the value of the property, the lender’s margin for all these purposes will be corres-pondingly less.”

Thus, the extent of the valuer’s duty of care and of his liability for a breach of that duty was limited to the difference between the true value and the over-valuation. The valuer was not liable for the amount by which the lender’s losses were increased by the fall in the property market.

In the gambler’s case referred to above, the question of causation arose. The Court of Appeal agreed with the trial judge that the bookmaker did not assume responsibility to prevent the gambler from gambling. There was a limited duty – to honour the agreement and not to accept bets from him.

But even if the bookmaker had satisfied its duty of care, the trial judge decided, not surprisingly, that the gambler would inevitably have taken his business elsewhere and suffered the same losses.

In other words, the losses for which the gambler sued, would have been suffered whether or not the book-maker had satisfied its duty of care. It followed that the losses were not caused by the breach of duty.

The trial judge said: “It would in my opinion fly in the face of common sense and be a travesty of justice if a problem gambler were able to attribute liability for his financial ruin to a particular bookmaker with whom he had made the relevant losses due to their failure to exclude him at his request, if he would, had he been excluded by that bookmaker, probably have ruined himself by betting with one or more of that bookmaker’s competitors.”

That is a decision with which most people would agree.

Peter Hamilton is a barrister specialising in financial services at 4 Pump Court

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There is one comment at the moment, we would love to hear your opinion too.

  1. But when the FSA is exposed as having failed (catastrophically) in its duty of care, Hector Sants describes it merely as having ” taken our eye off the ball” (and that was under the last bloke, before I took over).

    What he really meant, though, was that the FSA didn’t merely take its eye off the ball. It deliberately looked the other way because (according to Adair Turner) it was so instructed by the Treasury.

    So who, in this instance, is the guilty party?

    Is it the government of the day for having instructed the FSA basically not to do its job as far as the banks were concerned?

    Or is it the FSA for not having stood up to the government and (in accordance with Hector Sants’ claim on national television that the FSA is independent of government) declared that it [the FSA] was not prepared to accept instructions to exempt a large and critically important sector of the financial services sector from the rules and regulations to which everyone else is subject?

    Or is the situation, really, that in spite of the myth of independence peddled by Sants and his cronies at Canary Wharf, the FSA is, in fact, an instrument of government and the only way in which it is independent is its power to extort from the industry as much money as it wants without being accountable to anyone?

    What do you think Peter?

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