[2015] CSOH 157




In the cause






Pursuers:  Dean of Faculty (Wolffe QC), Brown;  Morton Fraser LLP

Defenders:  Sandison QC, Reid; CMS Cameron McKenna LLP



20 November 2015


[1]        In 2008 the Bank of Ireland (UK) plc ('the Bank') lent £2.35 million to a property development company. In return it received a first ranking security over the development subjects.

[2]        Before entering into the transaction, the Bank obtained a valuation from Knight Frank LLP (“Knight Frank”). In its survey report, Knight Frank stated that the subjects were worth at least £4.25 million.

[3]        The development has not taken place. The borrower is unable to repay the loan. The Bank states that development of the security subjects is not viable and that they are properly valued at about £170,000, being their worth for agricultural purposes.

[4]        Accordingly, the Bank has sustained a significant loss.  It is only partly mitigated by the guarantee provided by the individual behind the development proposal, as it has a limit of £250,000.

[5]        In the present action, the Bank seeks damages for alleged negligence. It claims that no reasonable surveyor could have arrived at the valuation provided by Knight Frank, because no development of the subjects was ever viable. Knight Frank defends the action both on the merits and in relation to the quantification of loss.

[6]        The case came before me to try a preliminary issue. Knight Frank has a set of standard terms. They stipulate that any contract it makes with clients to provide a survey report will be subject to English law. They also state that the English courts shall have exclusive jurisdiction in respect of any dispute that arises between the parties.

[7]        The Bank maintains that Knight Frank’s standard terms did not form part of the contract. This issue turns on when and how the contract was formed. There are two interlinked questions. Did the parties include the terms in their contract? If not, were the terms included by means of the course of dealing between them?


The Witnesses

[8]        The Bank led the evidence of three individuals: (a) Andrew Lawson, who in 2008 was an associate director in the business and corporate banking department at its Edinburgh branch; (b) Christopher McAllister, who was formerly senior manager at its Glasgow branch; and (c) Huw Jenkins, one of its directors. Knight Frank led the evidence of Harry Morton, a partner in the firm.

[9]        None of the witnesses had a distinct recollection of this transaction and they all relied on the file entries. No questions of credibility and reliability arose.



[10]      Hugh Scott formerly owned the garden grounds of Haddockston House, by Kilmacolm in Renfrewshire (“the subjects”). In 2008, he wished to develop the subjects. The proposed development comprised a hotel, sixteen timeshare units, fourteen residential plots and a golf course.

[11]      Mr Scott required finance to carry out the development. Before seeking funds, he decided to obtain a valuation of the subjects from Knight Frank. Before accepting his instructions and in accordance with its normal practice, Knight Frank asked him to sign and return a letter acknowledging that he had received and accepted its standard terms. He duly did so.

[12]      Knight Frank surveyed the property in late March 2008 and sent its report to Mr Scott. It valued the subjects with the benefit of planning permission for the proposed development at £13.65 million. Without such permission, it said they were worth £4.25 million.

[13]      In April 2008 Mr Scott approached the Edinburgh branch of the Bank. He spoke to Andy Lawson, an associate director.  Mr Scott explained his development proposal and disclosed Knight Frank’s report.  He said that he had incorporated a new company to undertake the development – Haddockston Estate Ltd (“HEL”). He indicated that, if the Bank granted his application, he wished the loan to be paid to HEL.


[14]      Mr Lawson said that the Bank always sought its own valuation, even where the borrower had a recent report: “we would always insist on the report being re-addressed to the bank.”

[15]      Shortly after the meeting, Mr Lawson sent a formal letter of instruction to Knight Frank. It replied to the Bank on 22 May 2008. Its report contained the same valuation figures as those given to Mr Scott. The report included Knight Frank’s standard terms.

[16]      It was not surprising that the Bank selected Knight Frank to carry out the valuation. Apart from its recent scrutiny of the subjects, it was on the Bank’s panel of approved surveyors.

[17]      In providing the report, however, Knight Frank departed from its normal practice. It did not ask the Bank for written confirmation in advance that the standard terms formed part of the contract.

[18]      Mr Lawson was candid in his evidence about Knight Frank’s standard terms.  He stated: (i) that he had not read them; (ii) that he might not have understood them if he had done so; and (iii) that he had assumed that someone within the Bank’s legal department had read and approved them.

[19]      Mr Lawson also stated that he did not regard the delivery of the survey report as being final.  He believed that he could query any part of the report, including the standard terms, if he wished.  In fact he did query one aspect of the report relating to the extent of the site.

[20]      In reliance upon the survey report, the Bank advanced a loan of £2.35 million to HEL. In return HEL granted a first ranking security over the subjects.  Mr Scott also provided a personal guarantee to the Bank with a maximum limit of £250,000.  HEL drew down the funds in August 2008.

[21]      Following the global financial crisis in late 2008, the Bank reappraised its assets. It was very concerned about the sharp decline in the property market. It restructured its business into a “good bank” and a “bad bank”. Because it no longer considered the proposed development of the subjects to be viable, it allocated the HEL transaction to the bad bank.

[22]      In late 2009, the Bank instructed Knight Frank to revalue the subjects on a “desktop” basis. In other words, no physical re-inspection was required. Knight Frank’s report dated 7 December again gave two valuations:  £11 million with planning permission and £3.5 million without.

[23]      The Bank has continued to keep matters under review.  It considers that there is no material prospect of HEL ever being able to make repayment. Although Mr Scott has continued to service the loan, he has repeatedly fallen into arrears. There is no live planning application and no prospect of any development on the subjects.


The standard terms

[24]      In 2008 Knight Frank’s set of standard terms and conditions was entitled “General Principles Applying to All United Kingdom Valuations Undertaken by Knight Frank”. The preamble states:

“The following General Principles apply to all valuations and appraisals undertaken by Knight Frank LLP in the UK unless it is specifically agreed otherwise in confirming instructions and so stated within the main body of the report. The General Principles themselves will normally be included as an appendix to the report but will nonetheless comprise a part of the conditions of our engagement.”


[25]      Clause 24 provides:

“English law shall apply in every respect in relation to the valuation and the agreement with the client which shall be deemed to have been made in England. In the event of a dispute arising in connection with a valuation, unless expressly agreed otherwise in writing by Knight Frank LLP, the client, and any third-party using the valuation, will submit to the jurisdiction of the English Courts only. This will apply wherever the property or the client is located or the advice is provided.”


[26]      Subsequently, Knight Frank revised its standard terms and produced a fresh document entitled “General Terms”. There is no material difference between the two sets of terms in relation to jurisdiction and choice of law.

[27]      Mr Morton stated that Knight Frank is long-established in Scotland.  Its offices have been open as follows:  Edinburgh branch (about 100 years), Glasgow (20 to 30 years) and Aberdeen (about 13 years).

[28]      Mr Morton attached a number of documents to his witness statement to demonstrate the history of transactions between the Bank and Knight Frank.  One schedule showed that between 1997 and 2009, Knight Frank and the Bank had entered into 432 transactions in the United Kingdom as a whole.  Another schedule listed 35 occasions on which Scottish branches of the Bank instructed Knight Frank to provide reports in the period from 26 January 2006 to 8 October 2008.

[29]      Four important features emerge from Mr Morton’s evidence. First (and perhaps surprisingly), this transaction appeared to be the first time that the Edinburgh branch instructed Knight Frank for a report. Second, in only three cases, including this one, did Knight Frank fail to send out a letter asking for the Bank to acknowledge that its standard terms formed part of the contract. Third, in a significant number of cases, the Bank failed to return signed duplicate letters as requested.  Fourth, the Bank never at any stage queried the standard terms.


When did the Parties conclude the Contract?

[30]      Counsel were in accord on two points: (i) the Bank’s letter of instruction dated 2 May constituted an offer; and (ii) the contract was concluded by means of conduct. They differed as to which conduct amounted to acceptance.

[31]      The Dean of Faculty submitted that Knight Frank accepted the offer when it delivered its report to the Bank. As he put it, the precise time of acceptance occurred when the valuation report fell through the letter-box at the Edinburgh branch of the Bank. From that moment onwards, it was too late to introduce new terms.

[32]      The Dean suggested that his analysis had this merit – it meant that the contract was formed by communication between parties, rather than at some unspecified point. He also contended that it was very odd in a commercial context to treat the fulfilment of an instruction (being the very purpose of the contract) as a counter-offer.

[33]      Knight Frank took the contrary position. Mr Sandison submitted that the delivery of the valuation report did indeed constitute a qualified acceptance. The Bank accepted the counter-offer when it relied upon the report.

[34]      I prefer Knight Frank’s analysis. The principles of contractual formation are well known. Lord Hodge recently summarised them in Baillie Estates Limited v Du Pont (UK) Ltd [2009] CSOH 95, paras 25-26. An objective approach must be applied to discern the parties’ intention.


[35]      In this instance Mr Lawson was the authorised officer of the Bank. It was a matter for him to decide whether to read the standard terms, or to refer them to a more senior employee or the legal department. He adopted none of these courses, yet he acknowledged that it was open to him to do so.

[36]      If the Bank had raised an issue with Knight Frank, then the contract could not have been concluded without further negotiations.

[37]      That is not what happened. It is irrelevant that Mr Lawson chose not to read the standard terms: McBryde, The Law of Contract in Scotland third edition, para 7-15.  If he had done so he would have noted that section 1.0 of the report expressly stated that it was supplied subject to the General Principles, which were appended. The contract therefore incorporated clause 24.

[38]      In my view it was not open to the Bank to “cherry pick” the document. The Bank was not entitled to accept the survey and valuation elements of the report shorn of the standard terms.

[39]      In reaching my conclusion, I take into account that all three of the Bank employees said in evidence that they were not surprised at the idea that surveyors might seek to introduce their own standard terms into any valuation agreement. I also take into account that the jurisdiction and choice of law clauses were not unusual. They did not, for example, seek to exclude liability or to oust the jurisdiction of the courts see McBryde, para.7-10.


Was there a Course of Dealing between the Parties?

[40]      If it had been necessary to do so, I would also have held that Knight Frank’s standard terms were incorporated into the contract with the Bank by means of a course of dealing.


[41]      Lord Reid of Drem set out the test in McCutcheon v MacBrayne 1964 SC (HL) 28, (at p 35):

‘If two parties have made a series of similar contracts each containing certain conditions, and then they make another without expressly referring to those conditions, it may be that those conditions ought to be implied. If the officious bystander had asked them whether they had intended to leave out the conditions this time, both must, as honest men, have said ‘Of course not.’”


[42]      As the Dean frankly accepted, Knight Frank received and dealt with several hundred instructions to provide valuation reports to the Bank in the period from 1997 to May 2008.  A much smaller but still significant number related to instructions from Scottish branches.

[43]      He submitted that it did not amount to a course of dealing for two reasons. First, this was the first instruction given by the Edinburgh branch of the Bank. Second, there was not a consistent course of dealing, because (a) Knight Frank had not on every occasion sent a duplicate letter; and (b) when it had, the Bank had not always signed and returned the duplicate letter.

[44]      I do not accept these arguments. Properly construed, in my view the instructions came from the Bank to Knight Frank. They did not come from individual managers at individual branches. One can therefore impute the knowledge of other Bank managers to Mr Lawson. If the Bank’s argument was correct, it would mean that each time a new branch was opened, it would be deemed to start without any knowledge base. To my mind that runs counter to commercial sense.

[45]      With regard to the second point, this was one of many routine transactions between the parties. In all of them, Knight Frank had referred to the standard conditions, either in the letter of engagement or the report or both. The Bank had never refused to accept those conditions. It had not even queried them.

[46]      Accordingly I conclude that an officious bystander would say that the parties did not intend to leave out the standard terms.


Two Final Points

(a) The European Dimension

[47]      The Dean pointed out that I required to take account of any relevant principles laid down by the European Court of Justice: Civil Jurisdictions and Judgments Act 1982, section 16 and paragraph 12 (4). In my view it is unnecessary to consider that jurisprudence because the Dean conceded, that if I found in favour of Knight Frank’s analysis, these considerations flew off because the answer would then suggest itself – the parties had reached agreement.


(b) The 2009 Survey Report

[48]      Counsel did not address separate arguments in respect of the 2009 transaction. They accepted that the same procedure had taken place and the same legal argument applied. I am satisfied that the same conclusion should therefore be reached.


Further procedure

[49]      I propose to sustain the Knight Frank’s first plea-in-law and hold that this court does not have jurisdiction to hear this dispute. Parties agreed that I should put this case out by order for discussion in the light of this opinion.