The personal liability of valuers

Many valuers are concerned about whether or not they can be held personally liable for valuations prepared as employees. This article considers the position of an employed valuer and whether his employment or insurance can shield him or her from bankruptcy should things go badly wrong.

Can a successful action be brought against a valuer severally to the company which employed him/her? (Assuming no fraud was involved by the valuer).

The typical claims made by people suing valuers are in contract (typically for breach of an implied term to take reasonable care), in tort for negligence, or for misleading and deceptive conduct under s 52 of the Trade Practices Act or s 42 of the Fair Trading Act.

Contract
Assuming (as one would expect would be the universal practice) all contracts entered into between with customers of a valuation business would be between the company conducting the business and the customers (with none of the employed valuers being parties to such contracts, there would be no contractual claim any customer could bring against any employed valuer. That is because non-parties to an agreement cannot be sued under the law of contract. Thus there is no risk to employed valuers from claims made in contract by customers claiming losses. Other persons who are not even themselves parties to the contract with the valuation company (for example, lenders not commissioning a valuation who suffer loss by relying upon it) cannot sue the valuation company in contract, let alone an employed valuer.

Tort
A claim in negligence, being a tort claim, does not depend upon the existence of any contract between plaintiff and defendant, and thus the fact that the employed valuer will not have entered into any contract with a customer in a personal capacity is no defence.  An employee is concurrently liable with his or her employer for any torts committed by the employee during the course of employment. The employee remains concurrently liable even if the employee’s acts were carried out bona fide in the course of that employment, and even if the employer instructed the employee to carry them out. The employer’s liability is pursuant to the doctrine of vicarious liability. An employee is, however, liable only for torts personally committed by that employee, and is not vicariously liable for the torts of persons under his or her supervision.

In the typical case of an employed valuer being instructed by his employer to prepare a valuation of real estate for lending purposes and to sign it on behalf of the employer, if that valuer carried out the valuation negligently and if a lender to whom the valuation was addressed relied on it and suffered a loss, a lender suing for negligence could choose to sue just the employer (who is vicariously liable for the employed valuer’s acts), just the employee (who is personally liable for his own acts), or both employer or employee together. Whether or not the employee is party is thus a matter left to the whim of the plaintiff. Normally a plaintiff will consider that the employer has deeper pockets and more likely to have insurance and so will seek to target the employer, but as little extra effort is involved in joining the employee as well just to be on the safe side (in case there is no insurance and the corporate employer has no assets), a plaintiff might well chose to add the employee as a second defendant.

There is no direct statutory protection afforded employees against suits brought by plaintiff who are not their employers. The Employees Liability Act 1991 (NSW), however, provides some indirect protection to employees. S 3 of that Act reads as follows:

1. If an employee commits a tort for which his or her employer is also liable:

a) the employee is not liable to indemnify, or to pay any contribution to, the employer in respect of the liability incurred by the employer; and

b) the employer is liable to indemnify the employee in respect of liability incurred by the employee for the tort (unless the employee is otherwise entitled to an indemnity in respect of that liability).

2. Contribution under this section includes contribution as joint tortfeasor or otherwise.

This section protects employed valuers in two ways. Firstly it prevents the employer bringing any suit against the employed valuer to recover any part of the damages it has to pay to a plaintiff suing the employer. Secondly, if the employee is personally sued by the plaintiff and the employee has to pay damages personally, the employee can recover that amount in full from the employer, unless the employee has alternative indemnity (most likely insurance cover).

It should be noted that s 5 of the Act excludes the operation of s 3 in cases of “serious and wilful misconduct” or if the tort in question “did not occur in the course of, and did not arise out of, the employment of the employee”. This would not typically be a problem for an employed valuer, however, unless the valuer deliberately undervalued a property or proceeded to conduct a valuation without the employer’s knowledge or approval.

Misleading and Deceptive Conduct
S 75B of the Trade Practices Act and s 61 of the Fair Trading Act (often referred to as accessorial liability provisions) render a person liable for a contravention of the Acts in question if the person:

(a)  has aided, abetted, counselled or procured the contravention,
(b)  has induced, whether by threats or promises or otherwise, the contravention,
(c)  has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention, or
(d)  has conspired with others to effect the contravention.

An employed valuer who prepared a valuation for an employer that is later found to be misleading and deceptive may be found to have aided, abetted, counselled, procured, induced and have been concerned in the making of the misrepresentation by the employer, and if so will be personally liable for the contravention of s 52 of the Trade Practices Act and/or s 41 of the Fair Trading Act. In order, however, for accessorial liability to be found, it is necessary to prove that the alleged accessory had knowledge that a contravention of the relevant Act was occurring, which greatly limits the potential of a plaintiff to target an employed valuer under these provisions- unless the employed valuer had actual knowledge that the valuation was misleading and deceptive, then there would be no personal liability.

Personal statutory liability for misleading and deceptive conduct is potentially of greater concern for an employed valuer than a claim in negligence as the claim is arguably not in “tort” and hence may not be covered by s 3 of the Employees Liability Act (I have been unable to find any case deciding that question either way). As there is no relevant obligation at general law for an employer to indemnify an employee against third party claims, and as neither the Fair Trading Act nor the Trade Practice Act contain any such indemnity, unless it is a term of the valuer’s contract of employment that the employer indemnifies the valuer with respect to such a claim then the valuer may have not have the same right of recovery against the employer as exists in relation to a negligence claim.

If the company that employed the valuer/s was wound up/liquidated, could an action be brought directly against the valuer? (Assuming there was no run off cover).

In a strict legal sense, the fact that the company employing a valuer is in liquidation or deregistered is irrelevant to the bringing of a claim against the valuer. If the valuer was personally liable whilst the company was in existence and prior to being wound up, that liability will remain whatever happens to the company. If the valuer was not personally liable in the first place, the winding up or deregistration of the company will not create any personal liability that did not previously exist.

As a matter of practice, of course, if the valuation company employing the valuer who actually performed a valuation is wound up and there is no insurance company to target, a person who might otherwise have sued either the valuation company or the insurer is likely to think more seriously about naming the individual valuer as the defendant than would have been the case had there been more deep-pocketed alternative defendants.

Of even greater significance to the employed valuer, if the employing company has ceased to exit or is insolvent (and lacks insurance cover, as a claimant has a right to directly sue an insurer on risk to access the insurance monies in a case where the insured has been wound up or deregistered), then the statutory indemnity by the employer provided under s 3(2) of the Employees Liability Act becomes worthless and the employed valuer would thus be unable to recover any payout the employee had to make in a negligence suit brought against the employed valuer personally.

What comfort can employers offer to valuers who feel that their personal assets are at risk by being a valuer?

Even though in the typical case a plaintiff is likely to sue the company employing a valuer rather than personally suing an employed valuer, and even though an employed valuer has the benefit of a statutory indemnity from his or her employer under s 3(2) of the Employees Liability Act in relation to negligence claims, as seen above there are instances where an employed valuer may be personally sued (either in conjunction with the employer or as sole defendant), and there are circumstances where the statutory indemnity will prove worthless as a matter of practice. In a typical case the employed valuer will either not be sued, or will be able to recover his or her loss from the employer. In an atypical case, however, the employed valuer may be successfully sued and have no practical recourse against an insolvent employer, or be found liable for misleading and deceptive conduct and then discover that no indemnity is available. Given that the potential damages payment in a valuation suit can be in the hundreds of thousands or even millions of dollars, it is appropriate for an employed valuer to be concerned about the possibility of having to personally bear such a loss, even if such a result may be unusual in practice.

The best comfort an employed valuer can have against such a risk is to insist as a condition of employment that the employer maintains, at the employer’s expense, insurance cover which names the employed valuer personally as a person insured, and which covers the employed valuer for any suit arising out of the performance of the valuer’s duties in an amount amply sufficient to meet any claim that might be potentially brought by a customer or third party. The employed valuer should then not simply trust the employer to maintain such insurance, but should personally sight evidence that such insurance has been effected, and that the policy is being maintained from year to year. If such a policy is a “claims made and notified” policy (ie a policy which covers all claims made against a valuer within a particular 12 month period and notified to the insurer within that period), then the valuer should ensure that before any policy period expires that the insurer has been informed in writing of any claims made against the employed valuer within that insurance period, notifying the insurer him or herself in case of doubt. Even this regime would expose the employed valuer to the risk of a claim being made after he or she ceased employment with a particular employer and after the period of the existing insurance expired; such risk might best be met by the valuer taking out a personal policy for run-off cover.

Another measure that can be taken which will at least reduce the risk of an employed valuer personally paying damages without right of indemnity against the employer (by reason of the suit being for misleading and deceptive conduct) is to ensure there is an express contractual indemnity in the valuer’s contract for employment that expressly provides a full indemnity to the valuer from the employer in relation to any claim made against the employee arising out of his or her employment.

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