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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Smith v Eric S Bush (A Firm) [1990] UKHL 1 (20 April 1989) URL: http://www.bailii.org/uk/cases/UKHL/1990/1.html Cite as: [1990] UKHL 1, [1990] 1 AC 831 |
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Parliamentary
Archives,
HL/PO/JU/18/249
Smith (Respondent)
v.
Eric S. Bush (a firm)
(Appellants)
JUDGMENT
Die Jovis 20° Aprilis 1989
Upon Report from the Appellate Committee to
whom was
referred the Cause Smith against Eric S. Bush (a firm),
That
the Committee had heard Counsel on Monday the 6th, Tuesday
the
7th, Wednesday the 8th, Thursday the 9th, Monday the
13th,
Tuesday the 14th, Wednesday the 15th and Thursday the
16th
days of February last, upon the Petition and Appeal of Eric
S.
Bush (a firm) of 2A Upper King Street, Norwich, praying
that
the matter of the Order set forth in the Schedule
thereto,
namely an Order of Her Majesty's Court of Appeal of the
13th
day of March 1987, might be reviewed before Her Majesty
the
Queen in Her Court of Parliament and that the said Order
might
be reversed, varied or altered or that the Petitioners
might
have such other relief in the premises as to Her Majesty
the
Queen in Her Court of Parliament might seem meet; as upon
the
case of Jean Patricia Smith lodged in answer to the
said
Appeal; and due consideration had this day of what was
offered
on either side in this Cause:
It is Ordered and Adjudged, by
the Lords Spiritual and
Temporal in the Court of Parliament of Her
Majesty the Queen
assembled, That the said Order of Her Majesty's
Court of
Appeal (Civil Division) of the 13th day of March
1987
complained of in the said Appeal be, and the same is
hereby,
Affirmed and that the said Petition and Appeal be,
and the
same is hereby, dismissed this House: And it is
further
Ordered, That the Appellants do pay or cause to be
paid to the
said Respondent the Costs incurred by her in respect
of the
said Appeal, the amount thereof to be certified by the
Clerk
of the Parliaments if not agreed between the parties.
Cler: Parliamentor:
Judgment: 20.4.89
HOUSE OF LORDS
SMITH (A.P.)
(RESPONDENT)
v.
ERIC S. BUSH (A FIRM)
(APPELLANTS)
HARRIS
(A.P.) AND ANOTHER (A.P.)
(APPELLANTS)
v.
WYRE FOREST DISTRICT COUNCIL AND ANOTHER
(RESPONDENTS)
Lord Keith
of Kinkel
Lord Brandon of Oakbrook
Lord Templeman
Lord
Griffiths
Lord Jauncey of Tullichettle
LORD KEITH OF KINKEL
My Lords,
My Lords, I have had the
opportunity of considering in draft
the speeches to be delivered
by my noble and learned friends Lord
Templeman, Lord Griffiths and
Lord Jauncey of Tullichettle. I
agree with them, and for the
reasons they give would allow the
appeal in Harris v. Wyre
Forest District Council and dismiss that
in Smith v. Eric
S. Bush.
LORD BRANDON OF OAKBROOK
My Lords,
For the reasons set out in the
speeches to be delivered by
my noble and learned friends, Lord
Templeman, Lord Griffiths and
Lord Jauncey of Tullichettle, I
would allow the appeal in Harris v.
Wyre Forest District
Council and dismiss the appeal in Smith v.
Eric. S. Bush (a
firm).
- 1 -
LORD TEMPLEMAN
My Lords,
These appeals involve
consideration of three questions. The
first question is whether a
valuer instructed by a building society
or other mortgagee to
value a house, knowing that his valuation
will probably be relied
upon by the prospective purchaser and
mortgagor of the house, owes
to the purchaser in tort a duty to
exercise reasonable skill and
care in carrying out the valuation
unless the valuer disclaims
liability. If so, the second question is
whether a disclaimer of
liability by or on behalf of the valuer is a
notice which purports
to exclude liability for negligence within the
Unfair Contract
Terms Act 1977 and is therefore ineffective unless
it satisfies
the requirement of reasonableness. If so, the third
question is
whether, in the absence of special circumstances, it is
fair and
reasonable for the valuer to rely on the notice excluding
liability.
In Harris v. Wyre Forest
District Council, [1988] Q.B. 835
the first appeal now under
consideration, Mr. and Mrs. Harris
wished to purchase 74, George
Street, Kidderminster, and needed a
mortgage. They applied to the
council. By section 43 of the
Housing (Financial Provisions) Act
1958 (as amended by section 37
of the Local Government Act 1974),
the council were authorised to
advance money to any persons for
the purpose of acquiring a
house, provided that:
"(2) . . . the local
authority . . . shall satisfy themselves
that the house ... to be
acquired is ... or will be made
in all respects fit for human
habitation. . . 3(e) The advance
shall not be made except after a
valuation duly made on
behalf of the local authority ..."
Mr. and Mrs. Harris signed the
application form supplied by
the council and that form contained
the following declaration and
notice:
"I/We enclose herewith
valuation fee and administration fee
£22. I/We understand
that this fee is not returnable even if
the council do not
eventually make an advance and that the
valuation is confidential
and is intended soley for the
benefit of Wyre Forest District
Council in determining what
advance, if any, may be made on the
security and that no
responsibility whatsoever is implied or
accepted by the
council for the value or condition of the property
by reason
of such inspection and report. (You are advised for
your
own protection to instruct your own surveyor/architect
to
inspect the property). I/We agree that the valuation report
is
the property of the council and that I/we cannot require
its
production."
The council decided to carry out
their own valuation and for that
purpose instructed their
employee, the second respondent, Mr. Lee.
After receiving Mr.
Lee's valuation, the council made a written
offer to advance
£8,505 to Mr. and Mrs. Harris to be secured on a
mortgage of
the house and subject to their undertaking to carry
out within 12
months the works detailed in the schedule to the
offer. The
schedule was in these terms:
- 2 -
"Essential repairs
"1. Obtain report for
district council from Midlands
Electricity Board regarding
electrics and carry out
any recommendations. 2. Make good mortar
fillets to
extension."
Mr. and Mrs. Harris assumed from
the council's offer that, as was
the case, the house had been
valued at £8,505 at the least, and
that the valuer had not
found serious defects and they therefore
accepted the offer and
entered into a contract to purchase the
house for £9,000.
Three years later, Mr. and Mrs. Harris
discovered that the house
was defective; one builder quoted
£13,000 to carry out work
to make the house safe. Another
builder refused to tender for the
work which he regarded as
impractical and unsafe. The damages
suffered by Mr. and Mrs.
Smith, including interest up to the date
of trial, were agreed at
£12,000. The trial judge was
satisfied that Mr. Lee did not
exercise reasonable skill and care
and that the council, as his
employer, were vicariously liable for
Mr. Lee's failure and he
therefore ordered the council to pay
£12,000. The Court of
Appeal allowed the appeal of the
council on the grounds that by
the notice contained in the
application form signed by Mr. and
Mrs. Harris the council had
avoided incurring liability. Mr. and
Mrs. Harris now appeal.
In Smith v. Eric S. Bush (a
firm) [1988] Q.B. 743, the
second appeal now under
consideration, Mrs. Smith wished to
purchase 242, Silver Road,
Norwich, and needed a mortgage. She
applied to the Abbey National
Building Society. By section 25 of
the Building Societies Act
1962, now section 13 of the Building
Societies Act 1986, the Abbey
National was bound to obtain "a
written report prepared and
signed by a competent and prudent
person who is experienced in the
matters relevant to the
determination of the value" of the
house, dealing with the value of
the house and with any matter
likely to affect the value of the
house. Mrs. Smith paid to the
Abbey National an inspection fee
of £36.89 and signed the
application form which contained the
following declaration and
notice:
"I accept that the society
will provide me with a copy of
the report and mortgage valuation
which the society will
obtain in relation to this application. I
understand that the
society is not the agent of the surveyor or
firm of
surveyors and that I am making no agreement with
the
surveyor or firm of surveyors. I understand that neither
the
society nor the surveyor or the firm of surveyors
will
warrant, represent or give any assurance to me that
the
statements, conclusions and opinions expressed or implied
in
the report and mortgage evaluation will be accurate or
valid
and the surveyor's report will be supplied without
any
acceptance of responsibility on their part to me."
The Abbey National instructed the
appellant firm, Eric S.
Bush, to carry out the valuation. The
appellants valued the house
at £16,500 and the report
contained the following paragraph:
- 3 -
"11. Repairs recommended as a
condition of mortgage: No
essential repairs are required. We noted
a number of items
of disrepair in the building which we have taken
into
account in our valuation, but which are not considered to
be
essential for mortgage purposes."
'
A copy of the report was
supplied to Mrs. Smith by the Abbey
National.
In reliance on the report, Mrs.
Smith accepted an advance
of £3,500 from the Abbey National
and entered into a contract to
purchase the house for £18,000.
Eighteen months later, bricks
from the chimneys collapsed and fell
through the roof into the loft
and the main bedroom and ceilings
on the first floor. The
collapse was due to the fact that two
chimney breasts had been
removed from the first floor, leaving the
chimney breasts in the
loft and the chimneys unsupported. Mr.
Cannell, who carried out
the inspection for the appellants and was
a chartered surveyor
had observed the removal of the first floor
chimney breasts but
had not checked to see that the chimneys above
were adequately
supported.
The trial judge was satisfied that
Mr. Cannell had not
exercised reasonable skill and care, that the
appellants were
liable for his negligence to Mrs. Smith and
awarded her £4,379.97
damages including interest. The judge
ignored the notice contained
in the application and signed by Mrs.
Smith whereby the Abbey
National disclaimed liability on the part
of the appellant firm.
The Court of Appeal (Dillon and Glidewell
L.JJ. and Sir Edward
Eveleigh) held that the disclaimer was not
fair and reasonable and
was ineffective under the Unfair Contract
Terms Act 1977; they
accordingly affirmed the award of damages
made by the judge.
The appellants now appeal.
As I have indicated therefore, the
three questions involved
in these appeals are, firstly, whether
the council's valuer was
liable to Mr. and Mrs. Harris in
negligence and whether the
appellants were liable to Mrs. Smith in
negligence; secondly,
whether, if negligence applies, the notices
excluding liability fall
within the ambit of the Unfair Contract
Terms Act 1977, and,
thirdly, whether it is fair and reasonable
for the valuers to rely on
the notices.
Section 1(1) of the Act of 1977
defines "negligence" as the
breach:
"(a) of any
obligation, arising from the express or implied
terms of a
contract, to take reasonable care or
exercise reasonable skill in
the performance of the
contract;
"(b) of any common law
duty to take reasonable care or
exercise reasonable skill ..."
Section 2 of the Act provides that:
"(1) A person cannot by
reference to any contract term or
to a notice . . . exclude or
restrict his liability for death or
personal injury resulting from
negligence.
- 4 -
"(2) In the case of other
loss or damage, a person cannot so
exclude or restrict his
liability for negligence except in so
far as the term or notice
satisfies the requirement of
reasonableness."
The common law imposes on a person
who contracts to
carry out an operation an obligation to exercise
reasonable skill
and care. A plumber who mends a burst pipe is
liable for his
incompetence or negligence whether or not he has
been expressly
required to be careful. The law implies a term in
the contract
which requires the plumber to exercise reasonable
skill and care in
his calling. The common law also imposes on a
person who carries
out an operation an obligation to exercise
reasonable skill and care
where there is no contract. Where the
relationship between the
operator and a person who suffers injury
or damage is sufficiently
proximate and where the operator should
have foreseen that
carelessness on his part might cause harm to
the injured person,
the operator is liable in the tort of
negligence.
Manufacturers and providers of
services and others seek to
protect themselves against liability
for negligence by imposing
terms in contracts or by giving notice
that they will not accept
liability in contract in tort. Consumers
who have need of
manufactured articles and services are not in a
position to bargain.
The Unfair Contract Terms Act 1977 prohibits
any person
excluding or restricting liability for death or
personal injury
resulting from negligence. The Act also contains a
prohibition
against the exclusion or restriction of liability for
negligence which
results in loss or damage unless the terms of
exclusion or the
notice of exclusion satisfies the requirements of
reasonableness.
These two appeals are based on
allegations of negligence in
circumstances which are akin to
contract. Mr. and Mrs. Harris
paid £22 to the council for a
valuation. The council employed,
and therefore paid, Mr. Lee, for
whose services as a valuer the
council are vicariously liable.
Mrs. Smith paid £36.89 to the
Abbey National for a report
and valuation and the Abbey National
paid the appellants for the
report and valuation. In each case the
valuer knew or ought to
have known that the purchaser would only
contract to purchase the
house if the valuation was satisfactory
and that the purchaser
might suffer injury or damage or both if
the valuer did not
exercise reasonable skill and care. In these
circumstances I would
expect the law to impose on the valuer a
duty owed to the
purchaser to exercise reasonable skill and care in
carrying out
the valuation.
In Cann v. Willson (1888)
39 Ch.D. 39, approved by this
House in Hedley Byrne & Co.
Ltd. v. Heller & Partners Ltd. [1964]
A.C. 465, a valuer
instructed by a mortgagor sent his report to
the mortgagee who
made an advance in reliance on the valuation.
The valuer was held
liable in the tort of negligence to the
mortgagee for failing to
carry out the valuation with reasonable
care and skill.
A valuer who values property as a
security for a mortgage
is liable either in contract or in tort to
the mortgagee for any
failure on the part of the valuer to
exercise reasonable skill and
care in the valuation. The valuer is
liable in contract if he
receives instructions from and is paid by
the mortgagee. The
- 5 -
valuer is liable in tort if he
receives instructions from and is paid
by the mortgagor but knows
that the valuation is for the purpose
of a mortgage and will be
relied upon by the mortgagee.
In Odder v. Westbourne Park
Building Society (1955) 165
E.G. 261, a purchaser paid a
survey fee to a building society, the
survey was carried out by
the chairman of the building society and
in the result the
purchaser purchased the house for £4,000 with
the help of an
advance of £3,000. There were serious defects and
the house
was unsaleable. There was a disclaimer of liability for
negligence
for the survey in the mortgage offer but Harman J.
held that the
disclaimer:
"did no more than to state
what the legal position would be
even if it were not there but it
did emphasise the matter
and took much of the sting out of the
plaintiff's allegation,
which was to the effect that once the
building society had
had a survey made and were willing to lend
money,
everything was all right and that she would not
have
entered on the transaction if they had not kept silent
about
the defects or been negligent in not discovering them.
In
view of the warning in the proposal form that grievance, if
it
were one, lost any of its justification."
Since 1955 a good deal of water
has passed under the
negligence bridge.
In Candler v. Crane, Christmas
& Co. [1951] 2 K.B. 164, the
accountants of a company
showed their draft accounts to and
discussed them with an investor
who, in reliance on the accounts,
subscribed for shares in the
company. Denning L.J., whose
dissenting judgment was subsequently
approved in the Hedley Byrne
case [1964] A.C. 465, found
that the accountants owed a duty to
the investor to exercise
reasonable skill and care in preparing the
draft accounts. Denning
L.J. said, at p. 176:
"If the matter were free from
authority, I should have said
that they clearly did owe a duty of
care to him. They
were professional accountants who prepared and
put before
him these accounts, knowing that he was going to be
guided
by them in making an investment in the company. On the
face
of those accounts he did make the investment, whereas
if the
accounts had been carefully prepared, he would not
have made the
investment at all. The result is that he has
lost his money."
Denning L.J., at p. 178-179 rejected the argument that:
"a duty to take care can only
arise where the result of a
failure to take care will cause
physical damage to persons
or property. ... I can understand that
in some cases of
financial loss there may not be a sufficiently
proximate
relationship to give rise to a duty of care; but, if
once the
duty exists, I cannot think that liability depends on
the
nature of the damage."
The duty of professional men "is
not merely a duty to use
care in their reports. They have also a
duty to use care in their
work which results in their reports."
(p. 179). The duty of an
- 6 -
accountant is owed "to any
third person to whom they themselves
show the accounts, or to whom
they know their employer is going
to show the accounts, so as to
induce him to invest money or take
some other action on them. But
I do not think the duty can be
extended still further so as to
include strangers of whom they
have heard nothing and to whom
their employer, without their
knowledge, may choose to show their
accounts." (pp. 180-181).
"The test of proximity in
these cases is: did the accountants know
that the accounts were
required for submission to the plaintiff and
use by him?" (p.
181).
Subject to the effect of any
disclaimer of liability, these
considerations appear to apply to
the valuers in the present
appeals.
In the Hedley Byrne case
[1964] A.C. 465, a bank which
supplied a reference for a customer
was held to owe a duty of
care to a stranger who relied on the
reference but the bank
escaped liability because in the reference
the bank expressly
disclaimed liability. Lord Reid said, at p.
486:
"A reasonable man, knowing
that he was being trusted or
that his skill and judgment were
being relied on, would, I
think, have three courses open to him.
He could keep silent
or decline to give the information or advice
sought; or he
could give an answer with a clear qualification that
he
accepted no responsibility for it or that it was given
without
that reflection or inquiry which a careful answer
would require;
or he could simply answer without any such
qualification. If he
chooses to adopt the last course he
must, I think, be held to have
accepted some responsibility
for his answer being given carefully,
or to have accepted a
relationship with the inquirer which
requires him to exercise
such care as the circumstances require."
Lord Devlin, at p. 515 rejected
the argument that the
maker of a careless statement is only under
a duty to be careful
if the duty, which is contractual or
fiduciary or, arises from the
relationship of proximity, causes
physical damage to the person or
property of the plaintiff. Lord
Devlin also said, at pp. 528-529
that:
"the categories of special
relationships which may give rise
to a duty to take care in word
as well as in deed are not
limited to contractual relationships or
to relationships of
fiduciary duty, but include also relationships
which . . . are
'equivalent to contract,' that is, where there is
an
assumption of responsibility in circumstances in which, but
for
the absence of consideration, there would be a
contract."
In the present appeals, the
relationship between the valuer
and the purchaser is "akin to
contract." The valuer knows that
the consideration which he
receives derives from the purchaser and
is passed on by the
mortgagee, and the valuer also knows that the
valuation will
determine whether or not the purchaser buys the
house.
- 7 -
In Ministry of Housing and
Local Government v. Sharp [1970]
2 Q.B. 223, the local
authority was held liable to the Ministry
because of the failure
of an employee of the authority to exercise
reasonable skill and
care in searching for entries in the local land
charges register.
The search certificate prepared by the clerk
negligently failed to
record a charge of £1828 11s.5d. in favour of
the Ministry.
Lord Denning M.R., at p. 268 rejected the
argument:
"that a duty to use due care
(where there was no contract)
only arose when there was
a voluntary assumption of
responsibility . . . Lord Reid
in Hedley Byrne's case [1964]
A.C. 465, 487 and ...
Lord Devlin, at p. 529 ... used
those words because of the
special circumstances of that
case (where the bank disclaimed
responsibility). But they
did not in any way mean to limit
the general principle. In
my opinion the duty to use due care
in a statement arises,
not from any voluntary assumption
of responsibility, but
from the fact that the person making it
knows, or ought to
know, that others, being his neighbours in this
regard, would
act on the face of the statement being accurate."
Salmon L.J. said, at p. 279:
"I do not accept that, in all
cases, the obligation to take
reasonable care necessarily depends
on the voluntary
assumption of responsibility. Even if it did, I
am far from
satisfied that the council did not voluntarily
assume
responsibility in the present case. On the contrary,
it
seems to me that they certainly chose to undertake the
duty
of searching the register and preparing the certificate.
There was
nothing to compel them to discharge this duty
through their
servant."
In the present proceedings by Mr.
and Mrs. Harris, the
council accepted the application form and the
valuation fee and
chose to conduct their duty of valuing the house
through Mr. Lee.
In the case of Mrs. Smith the appellant first
accepted the
valuation fee derived from Mrs. Smith and undertook
the duty of
preparing a report which they knew would be shown to
and relied
upon by Mrs. Smith.
Mr. Ashworth on behalf of the
council relied on the decision
of the Court of Appeal of Northern
Ireland in Curran v. Northern
Ireland Co-ownership Housing
Association Ltd.) (1986) 8 N.I.J.B. 1.
On a preliminary issue
the court held that a mortgagee of a house
owed no duty of care to
the purchaser in respect of a valuation.
The purchaser's action
against the valuer remains to be
determined. Gibson L.J., at p.
14, said that in the Hedley Byrne
type of case:
"there must be an assumption
of responsibility in
circumstances in which, but for the absence
of
consideration, there would be a contract. Responsibility
can
only attach if the defendant's actions implied a
voluntary
undertaking to assume responsibility."
I agree that by obtaining and
disclosing a valuation, a mortgagee
does not assume
responsibility to the purchaser for that valuation.
- 8 -
But in my opinion the valuer
assumes responsibility to both
mortgagee and purchaser by agreeing
to carry out a valuation for
mortgage purposes knowing that the
valuation fee has been paid by
the purchaser and knowing that the
valuation will probably be
relied upon by the purchaser in order
to decide whether or not to
enter into a contract to purchase the
house. The valuer can
escape the responsibility to exercise
reasonable skill and care by
an express exclusion clause, provided
the exclusion clause does not
fall foul of the Unfair Contract
Terms Act 1977. The Court of
Appeal also decided in Curran's
case that a local authority which
provides a house-owner with a
grant to carry out works of
extension to his house might owe a
duty of care to a subsequent
purchaser of the house to ensure that
the works of extension are
carried in a manner free from defect;
this House reversed the
Court of Appeal on this point [1987] 1
A.C. 718 but the speech of
my noble and learned friend, Lord
Bridge of Harwich, dealt with
the ambit of Anns v. Merton
London Borough Council [1978] A.C.
728, and not with the duty
of care which arises when the
proximity between tortfeasor and
victim is akin to contract.
It was submitted by Mr. Ashworth,
on behalf of the council,
that the valuation was prepared in
fulfilment of the statutory duty
imposed on the council by section
43 of the Housing (Financial
Provisions) Act 1958. Similarly the
valuation obtained by the
Abbey National was essential to enable
them to fulfil their
statutory duty imposed by the Building
Societies Act 1962. But in
Candler v. Crane, Christmas &
Co. [1951] 2 K.B. 164, the draft
accounts were prepared for
the company which was compelled by
statute to produce accounts.
In the present appeals, the
statutory duty of the council to
value the house did not in my
opinion prevent the council coming
under a contractual or tortious
duty to Mr. and Mrs. Harris who
were cognisant of the valuation
and relied on the valuation. The
contractual duty of a valuer to
value a house for the Abbey
National did not prevent the valuer
coming under a tortious duty
to Mrs. Smith who was furnished with
a report of the valuer and
relied on the report.
In general I am of the opinion
that in the absence of a
disclaimer of liability the valuer who
values a house for the
purpose of a mortgage, knowing that the
mortgagee will rely and
the mortgagor will probably rely on the
valuation, knowing that
the purchaser mortgagor has in effect paid
for the valuation, is
under a duty to exercise reasonable skill
and care and that duty is
owed to both parties to the mortgage for
which the valuation is
made. Indeed, in both the appeals now under
consideration the
existence of such a dual duty is tacitly
accepted and acknowledged
because notices excluding liability for
breach of the duty owed to
the purchaser were drafted by the
mortgagee and imposed on the
purchaser. In these circumstances it
is necessary to consider the
second question which arises in these
appeals, namely, whether the
disclaimers of liability are notices
which fall within the Unfair
Contract Terms Act 1977.
In Harris v. Wyre Forest
District Council [1988] Q.B. 835,
the Court of Appeal (Kerr
and Nourse L.JJ. and Caufield J.)
accepted an argument that the
Act of 1977 did not apply because
the council by their express
disclaimer refused to obtain a
- 9 -
valuation save on terms that the
valuer would not be under any
obligation to Mr. and Mrs. Harris to
take reasonable care or
exercise reasonable skill. The council did
not exclude liability for
negligence but excluded negligence so
that the valuer and the
council never came under a duty of care to
Mr. and Mrs. Harris
and could not be guilty of negligence. This
construction would not
give effect to the manifest intention of
the Act but would
emasculate the Act. The construction would
provide no control
over standard form exclusion clauses which
individual members of
the public are obliged to accept. A party to
a contract or a
tortfeasor could opt out of the Act of 1977 by
declining in the
words of Nourse L.J., at p. 845, to recognise
"their own
answerability to the plaintiff." Caulfield J.
said, at p. 850, that
the Act "can only be relevant where
there is on the facts a
potential liability." But no one
intends to commit a tort and
therefore any notice which excludes
liability is a notice which
excludes a potential liability. Kerr
L.J., at p. 853, sought to
confine the Act to "situations
where the existence of a duty of
care is not open to doubt"
or where there is "an inescapable duty
of care." I can
find nothing in the Act of 1977 or in the general
law to identify
or support this distinction. In the result the Court
of Appeal
held that the Act does not apply to "negligent
misstatements
where a disclaimer has prevented a duty of care
from coming into
existence;" per Nourse L.J., at p. 848. My
Lords this
confuses the valuer's report with the work which the
valuer
carries out in order to make his report. The valuer owed a
duty to
exercise reasonable skill and care in his inspection and
valuation.
If he had been careful in his work, he would not have
made a
"negligent misstatement" in his report.
Section 11(3) of the Act of 1977
provides that in considering
whether it is fair and reasonable to
allow reliance on a notice
which excludes liability in tort,
account must be taken of:
"all the circumstances
obtaining when the liability arose or
(but for the notice) would
have arisen."
Section 13(1) of the Act prevents
the exclusion of any right
or remedy and (to that extent) section
2 also prevents the
exclusion of liability:
"by reference to ...
notices which exclude . . . the
relevant obligation or
duty."
Nourse L.J. dismissed section
11(3) as "peripheral" and made no
comment on section
13(1). In my opinion both these provisions
support the view that
the Act of 1977 requires that all exclusion
notices which would in
common law provide a defence to an action
for negligence must
satisfy the requirement of reasonableness.
The answer to the second question
involved in these appeals
is that the disclaimer of liability made
by the council on its own
behalf in the Harris case and by
the Abbey National on behalf of
the appellants in the Smith
case, constitute notices which fall
within the Unfair Contract
Terms Act 1977 and must satisfy the
requirement of reasonableness.
The third question is whether in
relation to each exclusion
clause it is, in the words of section
11(3) of the Act of 1977:
- 10 -
"fair and reasonable to allow
reliance on it, having regard
to all the circumstances obtaining
when the liability arose
or (but for the notice) would have
arisen."
The liability of the council for
the breach by Mr. Lee of his
duty of care to Mr. and Mrs. Harris
arose as soon as Mr. and Mrs.
Harris, in reliance on the valuation
of £8,505, bought the house
for £9,000. The liability
of the appellants for the breach of their
duty of care to Mrs.
Smith in their valuation arose as soon as
Mrs. Smith, on reliance
of the valuation of £16,500, bought the
house for £18,000.
The damages will include the difference
between the market value
of the house on the day when it was
purchased and the purchase
price which was in fact paid by the
purchaser in reliance on the
valuation.
Both the present appeals involve
typical house purchases. In
considering whether the exclusion
clause may be relied upon in
each case, the general pattern of
house purchases and the extent
of the work and liability accepted
by the valuer must be borne in
mind.
Each year one million houses may
be bought and sold.
Apart from exceptional cases the procedure is
always the same.
The vendor and the purchaser agree a price but
the purchaser
cannot enter into a contract unless and until a
mortgagee,
typically a building society, offers to advance the
whole or part of
the purchase price. A mortgage of 80 per cent, or
more of the
purchase price is not unusual. Thus, if the vendor and
the
purchaser agree a price of £50,000 and the purchaser can
find
£10,000, the purchaser then applies to a building
society for a loan
of £40,000. The purchaser pays the
building society a valuation
fee and the building society
instructs a valuer who is paid by the
building society. If the
valuer reports to the building society that
the house is good
security for £40,000, the building society offers
to advance
£40,000 and the purchaser contracts to purchase the
house
for £50,000. The purchaser, who is offered £40,000 on
the
security of the house, rightly assumes that a qualified valuer
has
valued the house at not less than £40,000.
At the date when the purchaser
pays the valuation fee, the
date when the valuation is made and at
the date when the
purchaser is offered an advance, the sale may
never take, place.
The amount offered by way of advance may not be
enough, the
purchaser may change his mind, or the vendor may
increase his
price and sell elsewhere. For many reasons a sale may
go off,
and in that case, the purchaser has paid his valuation fee
without
result and must pay a second valuation fee when he finds
another
house and goes through the same procedure. The building
society
which is anxious to attract borrowers and the purchaser
who has
no money to waste on valuation fees, do not encourage or
pay for
detailed surveys. Moreover, the vendor may not be willing
to
suffer the inconvenience of a detailed survey on behalf of
a
purchaser who has not contracted to purchase and may
exploit
minor items of disrepair disclosed by a detailed survey in
order to
obtain a reduction in the price.
The valuer is and, in my opinion,
must be a professional
person, typically a chartered surveyor in
general practice, who, by
training and experience and exercising
reasonable skill and care,
- 11 -
will recognise defects and be able
to assess value. The valuer will
value the house after taking into
consideration major defects which
are, or ought to be obvious to
him, in the course of a visual
inspection of so much of the
exterior and interior of the house as
may be accessible to him
without undue difficulty. This appears
to be the position as
agreed between experts in the decided cases
which have been
discussed in the course of the present appeal. In
Roberts v. J.
Hampson & Co. [1988] 2 E.G.L.R. 181, Ian Kennedy
J., after
hearing expert evidence, came to the following
conclusions
concerning a valuation commissioned by the Halifax
Building
Society. I have no doubt the case is of general
application. The
judge, referring to the Halifax Building Society
valuation, as
described in the literature and as described by expert
evidence,
said, at p. 185:
"It is a valuation and not a
survey, but any valuation is
necessarily governed by condition.
The inspection is, of
necessity, a limited one. Both the expert
surveyors who
gave evidence before me agreed that with a house of
this
size they would allow about half-an-hour for their
inspection
on site. That time does not admit of moving furniture,
or
of lifting carpets, especially where they are nailed down.
In
my judgment, it must be accepted that where a
surveyor
undertakes a scheme valuation it is understood that he
is
making a limited appraisal only. It is, however, an
appraisal
by a skilled professional man. It is inherent in any
standard
fee work that some cases will colloquially be 'winners'
and
others 'losers,' from the professional man's point of
view.
The fact that in an individual case he may need to spend
two
or three times as long as he would have expected, or
as the fee
structure would have contemplated, is something
which he must
accept. His duty to take reasonable care in
providing a valuation
remains the root of his obligation. In
an extreme case ... a
surveyor might refuse to value on
the agreed fee basis, though any
surveyor who too often
refused to take the rough with the smooth
would not
improve his reputation. If, in a particular case, the
proper
valuation of a £19,000 house needs two hours' work,
that is
what the surveyor must devote to it. The second aspect
of
the problem concerns moving furniture and lifting carpets.
Here
again, as it seems to me, the position that the law
adopts is
simple. If a surveyor misses a defect because its
signs are
hidden, that is a risk that his client must accept.
But if there
is specific ground for suspicion and the trail of
suspicion leads
behind furniture or under carpets, the
surveyor must take
reasonable steps to follow the trail until
he has all the
information which it is reasonable for him to
have before making
his valuation."
In his reference to "a scheme
valuation" the judge was alluding to
the practice of charging
scale fees to purchasers and paying scale
fees to valuers.
The valuer will not be liable
merely because his valuation
may prove to be in excess of the
amount which the purchaser
might realise on a sale of the house.
The valuer will only be
liable if other qualified valuers, who
cannot be expected to be
harsh on their fellow professionals,
consider that, taking into
consideration the nature of the work
for which the valuer is paid
- 12 -
and the object of that work,
nevertheless he has been guilty of an
error which an average
valuer, in the same circumstances, would
not have made and as a
result of that error, the house was worth
materially less than the
amount of the valuation upon which the
mortgagee and the purchaser
both relied. The valuer accepts the
liability to the building
society which can insist on the valuer
accepting liability. The
building society seeks to exclude the
liability of the valuer to
the purchaser who is not in a position to
insist on anything. The
duty of care which the valuer owes to the
building society is
exactly the same as the duty of care which he
owes to the
purchaser. The valuer is more willing to accept the
liability to
the building society than to the purchaser because it is
the
purchaser who is vulnerable. If the valuation is worthless
the
building society can still insist that the purchaser shall
repay the
advance and interest. So, in practice, the damages which
the
valuer may be called upon to pay to the building society and
the
chances of the valuer being expected to pay, are less than
the
corresponding liability to the purchaser. But this does not
make it
more reasonable for the valuer to be able to rely on an
exclusion
clause which is an example of a standard form exemption
clause
operating in favour of the supplier of services and against
the
individual consumer.
Mr. Hague, who has great
experience in this field, urged on
behalf of the valuers in this
appeal and on behalf of valuers
generally, that it is fair and
reasonable for a valuer to rely on an
exclusion clause,
particularly an exclusion clause which is set forth
so plainly in
building society literature. The principal reasons
urged by Mr.
Hague are as follows:
(1) The exclusion clause is
clear and understandable
and reiterated and is
forcefully drawn to the attention of
the purchaser.
The purchaser's solicitors
should reinforce the
warning and should urge the purchaser to
appreciate that he
cannot rely on a mortgage valuation and
should obtain and
pay for his own survey.
If valuers cannot disclaim
liability they will be
faced by more claims from
purchasers some of which will
be unmeritorious but difficult
and expensive to resist.
A valuer will become more
cautious, take more
time and produce more gloomy
reports which will make
house transactions more difficult.
If a duty of care cannot be
disclaimed the cost of
negligence insurance for valuers
and therefore the cost of
valuation fees to the public will
be increased.
Mr. Hague also submitted that
there was no contract
between a valuer and a purchaser and that,
so far as the
purchaser was concerned, the valuation was
"gratuitous," and the
valuer should not be forced to
accept a liability he was unwilling
to undertake. My Lords, all
these submissions are, in my view,
inconsistent with the ambit and
thrust of the Act of 1977. The
valuer is a professional man who
offers his services for reward.
He is paid for those services. The
valuer knows that 90 per cent.
- 13 -
of purchasers in fact rely on a
mortgage valuation and do not
commission their own survey. There
is great pressure on a
purchaser to rely on the mortgage
valuation. Many purchasers
cannot afford a second valuation. If a
purchaser obtains a second
valuation the sale may go off and then
both valuation fees will be
wasted. Moreover, he knows that
mortgagees, such as building
societies and the council, in the
present case, are trustworthy and
that they appoint careful and
competent valuers and he trusts the
professional man so appointed.
Finally, the valuer knows full well
that failure on his part to
exercise reasonable skill and care may
be disastrous to the
purchaser. If, in reliance on a valuation, the
purchaser contracts
to buy for £50,000 a house valued and
mortgaged for £40,000
but, in fact worth nothing and needing
thousands more to be spent
on it, the purchaser stands to lose his
home and to remain in debt
to the building society for up to
£40,000.
In Yianni v. Edwin Evans &
Sons [1982] 1 Q.B. 438, Mr. and
Mrs. Yianni decided that if
the Halifax Building Society would
agree to advance £12,000,
they would buy a house for £15,000,
otherwise they would let
the house go as they had no money apart
from £3,000. The
house was valued by a valuer on behalf of the
Halifax at £12,000,
an advance of this amount was offered and
accepted and the house
was bought and mortgaged. Mr. and Mrs.
Yianni then discovered that
the house needed repairs amounting to
£18,000. Park J., at
p. 445, found on evidence largely derived
from the chief surveyor
to the Abbey National, that the proportion
of purchasers who have
an independent survey is less than 15 per
cent.; that purchasers
rely on the building society valuation;
purchasers trust the
building societies; each purchaser knows that
he has paid a fee
for someone on behalf of the society to look at
the house.
"the intending mortgagor
feels that the building society,
whom he trusts, must employ for
the valuation and survey
competent qualified surveyors; and, if
the building society
acts upon its surveyor's report, then there
can be no good
reason why he should not also himself act upon it.
The
consequence is that if, after inspection by the
building
society's surveyor, an offer to make an advance is
made,
the applicant assumes that the building society has
satisfied
itself that the house is valuable enough to provide
suitable
security for a loan and decides to proceed by accepting
the
society's offer. So, if Mr. Yianni had had an
independent
survey, he would have been exceptional in the
experience of
the building societies and of those employed to
carry out
surveys and valuations for them."
Park J., following the Hedley
Byrne case [1964] A.C. 465,
concluded at pp. 454-455, that a
duty of care by the valuers to
Mr. and Mrs. Yianni would arise if
the valuers knew that their
valuation:
"in so far as it stated that
the property provided adequate
security for an advance of £12,000,
would be passed on to
the plaintiffs, who, notwithstanding the
building society's
literature and the service of the notice under
section 30 of
the Building Societies Act 1962, in the
defendants'
reasonable contemplation would place reliance upon
its
- 14 -
correctness in making their
decision to buy the house and
mortgage it to the building society.
. . . These defendants
are surveyors and valuers. It is their
profession and
occupation to survey and make valuations of houses
and
other property. They make reports about the condition
of
property they have surveyed. Their duty is not merely to
use
care in their reports, they have also a duty to use care
in their
work which results in their reports ....
Accordingly, the building
society's offer of £12,000, when
passed on to the
plaintiffs, confirmed to them that 1,
Seymour Road was
sufficiently valuable to cause the building
society to advance on
its security 80 per cent, of the
purchase price. Since that was
also the building society's
view the plaintiffs' belief was not
unreasonable."
In Yianni's case [1982]
Q.B. 438, there was no exclusion of
liability on behalf of the
valuer. The evidence and the findings of
Park J., which I have set
out, support the view that it is unfair
and unreasonable for a
valuer to rely on an exclusion clause
directed against a purchaser
in the circumstances of the present
appeals.
Mr. Hague referred to a new Abbey
National proposal
resulting from a consideration of Yianni's
case. The purchaser is
offered the choice between a valuation
without liability on the
valuer and a report which, as Mr. Hague
agreed, did not involve
any more work for the valuer but accepted
that the valuer was
under a duty to exercise reasonable skill and
care. The fee
charged for the report as compared with the fee
charged for the
valuation represents an increase of £100 for
a house worth
£20,000, and £150 for a house worth
£100,000, and £200 for a
house worth £200,000.
On a million houses, this would represent
increases of income to
be divided between valuers, insurers and
building societies, of
about £150m. It is hardly surprising that few
purchasers
have chosen the report instead of the valuation. Any
increase in
fees, alleged to be justified by the decision of this
House in
these appeals, will no doubt be monitored by the
appropriate
authorities.
It is open to Parliament to
provide that members of ail
professions or members of one
profession providing services in the
normal course of the exercise
of their profession for reward shall
be entitled to exclude or
limit their liability for failure to
exercise reasonable skill and
care. In the absence of any such
provision valuers are not, in my
opinion, entitled to rely on a
general exclusion of the common law
duty of care owed to
purchasers of houses by valuers to exercise
reasonable skill and
care in valuing houses for mortgage purposes.
In the Green Paper "Conveyancing
by Authorised
Practitioners" see Cmnd. 572, the Government
propose to allow
building societies, banks and other authorised
practitioners to
provide conveyancing services to the public by
employed
professional lawyers. The Green Paper includes the
following
relevant passages:
"3.10 There will inevitably
be claims of financial loss
arising out of the provision of
conveyancing services. A bad
mistake can result in a purchaser
acquiring a property which
- 15 -
is worth considerably less than he
paid for it - because, for
example, the conveyancer overlooked a
restriction on use or
the planning of a new motorway. The
practitioner will be
required to have adequate professional
indemnity insurance
or other appropriate arrangements to meet such
claims."
Annex paragraph 12:
"An authorised practitioner
must not contractually limit its
liability for damage suffered by
the client as a result of
negligence on its part."
The Government thus recognises the
need to preserve the
duty of a professional lawyer to exercise
reasonable skill and care
so that the purchaser of a house may not
be disastrously affected
by a defect of title or an encumbrance.
In the same way, it
seems to me there is need to preserve the duty
of a professional
valuer to exercise reasonable skill and care so
that a purchaser of
a house may not be disastrously affected by a
defect in the
structure of the house.
The public are exhorted to
purchase their homes and cannot
find houses to rent. A typical
London suburban house, constructed
in the 1930s for less than
£1,000 is now bought for more than
£150,000 with money
largely borrowed at high rates of interest
and repayable over a
period of a quarter of a century. In these
circumstances it is not
fair and reasonable for building societies
and valuers to agree
together to impose on purchasers the risk of
loss arising as a
result of incompetence or carelessness on the part
of valuers. I
agree with the speech of my noble and learned
friend, Lord
Griffiths, and with his warning that different
considerations may
apply where homes are not concerned.
In the instant case of Harris
v. Wyre Forest District
Council, I would allow the appeal of
Mrs. and Mrs. Harris, restore
the order of the trial judge and
order the costs of Mr. and Mrs.
Harris to be borne by the council.
In the case of Smith v. Eric S.
Bush, I would dismiss the
appeal with costs.
LORD GRIFFITHS
My Lords,
These appeals were heard together
because they both raise
the same two problems. The first is
whether the law places a
duty of care upon a professional valuer
of real property which he
owes to the purchaser of the property
although he has been
instructed to value the property by a
prospective mortgagee and
not by the purchaser. The second problem
concerns the
construction and application of the Unfair Contract
Terms Act
1977.
Smith v. Eric S. Bush (a firm)
I shall deal with this appeal
first because its facts are
similar to hundreds of thousands of
house purchases that take
- 16 -
place every year. It concerns the
purchase of a house at the
lower end of the market with the
assistance of finance provided
by a building society. The
purchaser applies for finance to the
building society. The
building society is required by statute to
obtain a valuation of
the property before it advances any money
(see section 13 of the
Building Societies Act 1986). This
requirement is to protect the
depositors who entrust their savings
to the building society. The
building society therefore requires the
purchaser to pay a
valuation fee to cover or, at least, to defray
the cost of
obtaining a valuation. This is a modest sum and
certainly much
less than the cost of a full structural survey, in
the present
case it was £36.89. If the purchaser pays the
valuation fee,
the building society instructs a valuer who inspects
the property
and prepares a report for the building society giving
his
valuation of the property. The inspection carried out is a
visual
one designed to reveal any obvious defects in the property
which
must be taken into account when comparing the value of
the
property with other similar properties in the neighbourhood. If
the
valuation shows that the property provides adequate security
for
the loan, the building society will lend the. money necessary
for
the purchaser to go ahead, but prior to its repeal by the
Building
Societies Act 1986 would send to the purchaser a
statutory notice
pursuant to section 30 of the Building Societies
Act 1962 to make
clear that by making the loan it did not
warrant that the purchase
price of the property was reasonable.
The building society may either
instruct an independent firm
of surveyors to make the valuation or
use one of its own
employees. In the present case, the building
society instructed the
appellants, an independent firm of
surveyors. I will consider
whether it makes any difference if an
"in-house" valuer is
instructed when I come to deal with
the other appeal. The
building society may or may not send a copy
of the valuer's report
to the purchaser. In this case the building
society was the Abbey
National and they did send a copy of the
report to the purchaser,
Mrs. Smith. I understand that this is now
common practice among
building societies. The report, however,
contained in red lettering
and in the clearest terms a disclaimer
of liability for the accuracy
of the report covering both the
building society and the valuer.
Again, I understand that it is
common practice for other building
societies to incorporate such a
disclaimer of liability.
Mrs. Smith did not obtain a
structural survey of the
property. She relied upon the valuer's
report to reveal any
obvious serious defects in the house she was
purchasing. It is
common ground that she was behaving in the same
way as the
vast majority of purchasers of modest houses. They do
not go to
the expense of obtaining their own structural survey,
they rely on
the valuation to reveal any obvious serious defects
and take a
chance that there are no hidden defects that might be
revealed by
a more detailed structural survey.
The valuer's report said "the
property has been modernised
to a fair standard ... no essential
repairs are required" and it
valued the property at £16,500.
If reasonable skill and care had
been employed when the inspection
took place, it would have
revealed that as a result of removing
the chimney breasts in the
rooms the chimneys had been left
dangerously unsupported.
Unaware of this defect and relying on the
valuer's report, Mrs,
- 17 -
Smith bought the house for £18,000
with the assistance of a loan
of £3,500 from the building
society.
After she had been living in the
house for about 18 months,
one of the chimney flues collapsed and
crashed through the
bedroom ceiling and floor causing damage for
which Mrs. Smith
was awarded £4,379.97 against the surveyors
who had carried out
the valuation.
Mr. Hague, on behalf of the
surveyors, conceded that on the
facts of this case the surveyors
owed a duty of care to Mrs.
Smith unless they were protected by
the disclaimer of liability.
He made this concession, he said,
because the surveyors knew that
their report was going to be shown
to Mrs. Smith and that Mrs.
Smith would, in all probability, rely
upon it, which two factors
would create the necessary proximity to
found the duty of care.
He submitted, however, that if the
surveyor did not know that his
report would be shown to the
purchaser, no duty of care would
arise and that the decision in
Yianni v. Edwin Evans & Sons [1982]
Q.B. 438 was
wrongly decided. I shall defer consideration of this
question to
the second appeal for it does not arise on the facts of
the
present case. Suffice it to say, for the moment, that on the
facts
of the present case it is my view that the concession made
by Mr.
Hague is correct.
At common law, whether the duty to
exercise reasonable
care and skill is founded in contract or tort,
a party is as a
general rule free, by the use of appropriate
wording, to exclude
liability for negligence in discharge of the
duty. The disclaimer of
liability in the present case is prominent
and clearly worded and
on the authority of Hedley Byrne &
Co. Ltd. v. Heller & Partners
Ltd. [1964] A.C. 465,
in so far as the common law is concerned
effective to exclude the
surveyors' liability for negligence. The
question then is whether
the Unfair Contract Terms Act 1977 bites
upon such a disclaimer.
In my view it does.
The Court of Appeal, however,
accepted an argument based
upon the definition of negligence
contained in section 1(1) of the
Act of 1977 which provides:
"For the purposes of this
part of this Act, 'negligence'
means the breach - (a) of
any obligation, arising from the
express or implied terms of a
contract, to take reasonable
care or exercise reasonable skill in
the performance of the
contract; (b) of any common law duty
to take reasonable
care or exercise reasonable skill (but not any
stricter duty);
(c) of the common duty of care imposed by
the Occupiers'
Liability Act 1957 or the Occupiers' Liability Act
(Northern
Ireland) 1957."
They held that, as the disclaimer
of liability would at common law
have prevented any duty to take
reasonable care arising between
the parties, the Act had no
application. In my view this
construction fails to give due weight
to the provisions of two
further sections of the Act. Section
11(3) provides:
"In relation to a notice (not
being a notice having
contractual effect), the requirement of
reasonableness under
this Act is that it should be fair and
reasonable to allow
- 18 -
reliance on it, having regard to
all the circumstances
obtaining when the liability arose or (but
for the notice)
would have arisen."
And section 13(1):
"To the extent that this part
of this Act prevents the
exclusion or restriction of any liability
it also prevents - (a)
making the liability or its
enforcement subject to restrictive
or onerous conditions; (b)
excluding or restricting any right
or remedy in respect of the
liability, or subjecting a person
to any prejudice in consequence
of his purusing any such
right or remedy; (c) excluding or
restricting rules of
evidence or procedure; and (to that extent)
sections 2 and 5
to 7 also prevent excluding or restricting
liability by
reference to terms and notices which exclude or
restrict the
relevant obligation or duty."
I read these provisions as
introducing a "but for" test in relation
to the notice
excluding liability. They indicate that the existence
of the
common law duty to take reasonable care, referred to in
section
1(1)(b), is to be judged by considering whether it would
exist
"but for" the notice excluding liability. The result of
taking
the notice into account when assessing the existence of a
duty of
care would result in removing all liability for negligent
mis-
statements from the protection of the Act. It is permissible
to
have regard to the second report of the Law Commission
on
Exemption Clauses (Law. Com. No. 69) which is the genesis of
the
Unfair Contract Terms Act 1977 as an aid to the construction
of
the Act. Paragraph 127 of that report reads:
"Our recommendations in this
part of the report are
intended to apply to exclusions of
liability for negligence
where the liability is incurred in the
course of a person's
business. We consider that they should apply
even in cases
where the person seeking to rely on the exemption
clause
was under no legal obligation (such as a
contractual
obligation) to carry out the activities. This means
that, for
example, conditions attached to a licence to enter on
to
land, and disclaimers of liability made where information
or
advice is given, should be subject to control . . . . "
I have no reason to think that
Parliament did not intend to follow
this advice and the wording of
the Act is, in my opinion, apt to
give effect to that intention.
This view of the construction of the
Act is also supported by the
judgment of Slade L.J. in Phillips
Products Ltd. v. Hyland
(Note) [1987] 1 W.L.R. 659, when he
rejected a similar
argument in relation to the construction of a
contractual term
excluding negligence.
Finally, the question is whether
the exclusion of liability
contained in the disclaimer satisfies
the requirement of
reasonableness provided by section 2(2) of the
Act of 1977. The
meaning of reasonableness and the burden of proof
are both dealt
with in section 11(3) which provides:
"In relation to a notice (not
being a notice having
contractual effect), the requirement of
reasonableness under
this Act is that it should be fair and
reasonable to allow
- 19 -
reliance on it, having regard to
all the circumstances
obtaining when the liability arose or (but
for the notice)
would have arisen."
It is clear, then, that the burden
is upon the surveyor to establish
that in all the circumstances it
is fair and reasonable that he
should be allowed to rely upon his
disclaimer of liability.
I believe that it is impossible to
draw up an exhaustive list
of the factors that must be taken into
account when a judge is
faced with this very difficult decision.
Nevertheless, the following
matters should, in my view, always be
considered.
Were the parties of equal
bargaining power. If the court
is dealing with a
one-off situation between parties of equal
bargaining
power the requirement of reasonableness would be more
easily
discharged than in a case such as the present where
the
disclaimer is imposed upon the purchaser who has
no effective
power to object.
In the case of advice
would it have been reasonably
practicable to obtain the
advice from an alternative source taking
into account
considerations of costs and time. In the present case
it is
urged on behalf of the surveyor that it would have been easy
for
the purchaser to have obtained his own report on the condition
of
the house, to which the purchaser replies, that he would then
be
required to pay twice for the same advice and that
people
buying at the bottom end of the market, many of whom
will be
young first-time buyers, are likely to be
under considerable
financial pressure without the money
to go paying twice for the
same service.
How difficult is the task
being undertaken for which
liability is being
excluded. When a very difficult or dangerous
undertaking
is involved there may be a high risk of failure which
would
certainly be a pointer towards the reasonableness
of
excluding liability as a condition of doing the work. A
valuation,
on the other hand, should present no
difficulty if the work is
undertaken with reasonable
skill and care. It is only defects which
are observable by
a careful visual examination that have to be
taken
into account and I cannot see that it places
any
unreasonable burden on the valuer to require
him to accept
responsibility for the fairly elementary
degree of skill and care
involved in observing,
following-up and reporting on such defects.
Surely it is
work at the lower end of the surveyor's field
of
professional expertise.
4. What are the practical
consequences of the decision on
the question of reasonableness.
This must involve the sums of
money potentially at stake and the
ability of the parties to bear
the loss involved, which, in its
turn, raises the question of
insurance. There was once a time when
it was considered
improper even to mention the possible existence
of insurance cover
in a lawsuit. But those days are long past.
Everyone knows that
all prudent, professional men carry insurance,
and the availability
and cost of insurance must be a relevant
factor when considering
which of two parties should be required to
bear the risk of a loss.
We are dealing in this case with a loss
which will be limited to
the value of a modest house and against
which it can be expected
- 20 -
that the surveyor will be insured.
Bearing the loss will be unlikely
to cause significant hardship if
it has to be borne by the surveyor
but it is, on the other hand,
quite possible that it will be a
financial catastrophe for the
purchaser who may be left with a
valueless house and no money to
buy another. If the law in these
circumstances denies the surveyor
the right to exclude his liability,
it may result in a few more
claims but I do not think so poorly of
the surveyor's profession
as to believe that the floodgates will be
opened. There may be
some increase in surveyors' insurance
premiums which will be
passed on to the public, but I cannot think
that it will be
anything approaching the figures involved in the
difference
between the Abbey National's offer of a valuation
without
liability and a valuation with liability discussed in the
speech
of my noble and learned friend, Lord Templeman. The
result of
denying a surveyor, in the circumstances of this case, the
right
to exclude liability, will result in distributing the risk of
his
negligence among all house purchasers through an increase in
his
fees to cover insurance, rather than allowing the whole of the
risk
to fall upon the one unfortunate purchaser.
I would not, however, wish it to
be thought that I would
consider it unreasonable for professional
men in all circumstances
to seek to exclude or limit their
liability for negligence.
Sometimes breathtaking sums of money may
turn on professional
advice against which it would be impossible
for the adviser to
obtain adequate insurance cover and which would
ruin him if he
were to be held personally liable. In these
circumstances it may
indeed be reasonable to give the advice upon
a basis of no liability
or possibly of liability limited to the
extent of the adviser's
insurance cover.
In addition to the foregoing four
factors, which will always
have to be considered, there is in this
case the additional feature
that the surveyor is only employed in
the first place because the
purchaser wishes to buy the house and
the purchaser in fact
provides or contributes to the surveyor's
fees. No one has argued
that if the purchaser had employed and
paid the surveyor himself,
it would have been reasonable for the
surveyor to exclude liability
for negligence, and the present
situation is not far removed from
that of a direct contract
between the surveyor and the purchaser.
The evaluation of the
foregoing matters leads me to the clear
conclusion that it would
not be fair and reasonable for the
surveyor to be permitted to
exclude liability in the circumstances
of this case. I would
therefore dismiss this appeal.
It must, however, be remembered
that this is a decision in
respect of a dwelling house of modest
value in which it is widely
recognised by surveyors that
purchasers are in fact relying on their
care and skill. It will
obviously be of general application in
broadly similar
circumstances. But I expressly reserve my position
in respect of
valuations of quite different types of property for
mortgage
purposes, such as industrial property, large blocks of
flats or
very expensive houses. In such cases it may well be that
the
general expectation of the behaviour of the purchaser is
quite
different. With very large sums of money at stake prudence
would
seem to demand that the purchaser obtain his own
structural
survey to guide him in his purchase and, in such
circumstances
with very much larger sums of money at stake, it may
be
reasonable for the surveyors valuing on behalf of those who
are
- 21 -
providing the finance either to
exclude or limit their liability to
the purchaser.
Harris and Another v. Wyre Forest District Council and Another
The Housing (Financial Provisions)
Act 1958 (as amended by
the Local Government Act 1974) gave power
to local authorities to
lend money for house purchase. Section 43
of the Act of 1958
provided, inter alia, that before making the
loan the local
authority had to satisfy themselves that the house
was, or would
after repair, be fit for human habitation. The local
authority
were also required to secure the loan by way of a
mortgage on
the property and only to make the loan after they had
obtained a
valuation of the property made on their behalf.
The appellants, Mr. and Mrs.
Harris, two young first-time
buyers, applied to the first
respondents, Wyre Forest District
Council, for a loan to enable
them to purchase a small old house
in Kidderminster. The asking
price of the house was £9,450. Mr.
and Mrs. Harris completed
an application form to the council
seeking a loan of £8,950.
The application form contained the
following paragraphs:
"To be read carefully and
signed personally by all applicants
"I/we enclose herewith
valuation fee & administration fee
£22.00. I/we
understand that this fee is not returnable even
if the council do
not eventually make an advance and that
the valuation is
confidential and is intended solely for the
information of Wyre
Forest District Council in determining
what advance, if any, may
be made on the security and that
no responsibility whatsoever is
implied or accepted by the
council for the value or condition of
the property by reason
of such inspection and report. (You are
advised for your
own protection to instruct your own
surveyor/architect to
inspect the property). "I/we agree that
the valuation report
is the property of the council and that I/we
cannot require
its production."
When the council had received
their application and their
cheque for £22, they instructed
the second respondent, Mr. Lee, a
valuation surveyor in the
council's employment, to inspect and
value the house. Mr. Lee
inspected the house and prepared a
report in which he valued the
property at the asking price of
£9,450 and under the head
"Essential Repairs" he entered "Obtain
report for
district council from M.E.B. [Midland Electricity Board]
regarding
electrics and carry out any recommendations" and "Make
good
mortar fillets to extension." We were told that the entry
in
respect of the electrical installation is one that is standard
in all
councils' reports and it would seem the only other
essential repair
was a minor matter relating to mortar fillets in
the extension.
No other defects of any sort were noted on the
report.
This report was not shown to Mr.
and Mrs. Harris, but
having received the report, the council made
them an offer of a
loan of £8,505 secured by a mortgage on
the property on condition
that they undertook to carry out the
electrical work and the
repair of the mortar fillets in the
extension as recommended by
the valuer to the satisfaction of the
council. The Harrises
accepted the offer and bought the house for
£9,000.
- 22 -
Unfortunately, Mr. Lee had failed
to report that the house
had suffered from serious settlement
which required inspection by
a structural engineer. When the
Harrises tried to sell the house
three years later, the
prospective purchaser also applied to the
council for a loan and
Mr. Lee was again sent to inspect the
house. On this occasion he
reported the settlement and
recommended that a structural
engineer's report should be obtained
before any loan was made. In
due course, a structural engineer's
report revealed that the house
was in a dangerous and unstable
condition and that the cost of
repairs would be many thousands of
pounds. In fact, damages,
subject to liability, were agreed at
£12,000. Obviously, had
Mr. Lee reported in his first report in
the same terms as he did
in his second report, the Harrises would
never have bought the
house. The judge held that Mr. Lee was
negligent in the making of
his first report and there is no appeal
from that finding of fact.
For the reasons that I have
already given, the disclaimer of
liability must be disregarded
when considering whether the council
or Mr. Lee owed any duty of
care to Mr. and Mrs. Harris. Mr.
Ashworth has submitted that they
did not because there was no
voluntary assumption of
responsibility on their part in respect of
Mr. Lee's inspection
and report. He submits that Yianni v. Edwin
Evans & Sons
[1982] Q.B. 438 was wrongly decided. That case was
the first of a
number of decisions, at first instance, in which
surveyors
instructed by mortgagees have been held liable to
purchasers for
negligent valuations. The facts were that the
plaintiffs, who
wished to buy a house at a price of £15,000,
applied to a
building society for a mortgage. The building society
engaged a
firm of valuers to value the property for which the
plaintiffs had
to pay. There was no disclaimer of liability
although the mortgage
application form advised the plaintiffs to
obtain an independent
survey. They did not do so because of the
cost involved. The
surveyors valued the property at £15,000 and
assessed it as
suitable for maximum lending. The building society
offered the
plaintiffs a maximum loan of £12,000 with which they
purchased
the property. There was serious damage to the house
caused by
subsidence which should have been discovered by the
surveyors at
the time of their inspection and it was admitted that
the
surveyors had been negligent.
In that case there was no
disclaimer of liability and the
valuer's report was not shown to
the purchaser. Ignoring the
disclaimer of liability, the facts are
virtually indistinguishable from
the present case unless it can be
said that the fact that Mr. Lee
was an in-house valuer can make a
difference when considering the
existence of his duty of care to
the purchaser. Park J. said, at p.
454:
"... I conclude that, in this
case, the duty of care would
arise if, on the evidence, I am
satisfied that the defendants
knew that their valuation of 1,
Seymour Road, in so far as
it stated that the property provided
adequate security for an
advance of £12,000, would be passed
on to the plaintiffs,
who ... in the defendants' reasonable
contemplation would
place reliance upon its correctness in making
their decision
to buy the house and mortgage it to the building
society."
- 23 -
Finding both these conditions
satisfied, Park J. held the surveyors
to be liable.
Mr. Ashworth drew attention to the
doubts expressed about
the correctness of this decision by Kerr
L.J., in the course of his
judgment in the Court of Appeal, and
submitted, on the authority
of Hedley Byrne & Co. Ltd. v.
Heller & Partners Ltd. [1964] A.C.
465 that it was
essential to found liability for a negligent mis-
statement that
there had been "a voluntary assumption of
responsibility"
on the part of the person giving the advice. I do
not accept this
submission and I do not think that voluntary
assumption of
responsibility is a helpful or realistic test for
liability. It is
true that reference is made in a number of the
speeches in Hedley
Byrne to the assumption of responsibility as a
test of
liability but it must be remembered that those speeches
were made
in the context of a case in which the central issue was
whether a
duty of care could arise when there had been an
express disclaimer
of responsibility for the accuracy of the advice.
Obviously, if an
adviser expressly assumes responsibility for his
advice, a duty of
care will arise, but such is extremely unlikely in
the ordinary
course of events. The House of Lords approved a
duty of care being
imposed on the facts in Cann v. Willson (1888)
39 Ch.D. 39
and in Candler v. Crane, Christmas & Co. [1951] 2
K.B.
164. But if the surveyor in Cann v. Willson or the
accountant
in Candler v. Crane, Christmas & Co. had actually
been
asked if he was voluntarily assuming responsibility for his
advice
to the mortgagee or the purchaser of the shares, I have
little
doubt he would have replied, "Certainly not. My
responsibility
is limited to the person who employs me." The
phrase
"assumption of responsibility" can only have any
real
meaning if it is understood as referring to the circumstances
in
which the law will deem the maker of the statement to
have
assumed responsibility to the person who acts upon the
advice.
In Ministry of Housing and
Local Government v. Sharp [1970]
2 Q.B. 223, both Lord Denning
M.R. and Salmon L.J. rejected the
argument that a voluntary
assumption of responsibility was the sole
criterion for imposing a
duty of care for the negligent preparation
of a search certificate
in the local land charges register.
The essential distinction between
the present case and the
situation being considered in Hedley
Byrne [1964] A.C. 465 and in
the two earlier cases, is that in
those cases the advice was being
given with the intention of
persuading the recipient to act upon it.
In the present case, the
purpose of providing the report is to
advise the mortgagee but it
is given in circumstances in which it
is highly probable that the
purchaser will in fact act on its
contents, although that was not
the primary purpose of the report.
I have had considerable doubts
whether it is wise to increase the
scope of the duty for negligent
advice beyond the person directly
intended by the giver of the
advice to act upon it to those whom
he knows may do so. Certainly
in the field of the law of
mortgagor and mortgagee there is
authority that points in the
other direction. In Odder v.
Westbourne Park Building Society
(1955) 165 E.G. 261, Harman
J. held that a building society owed
no duty of care to purchasers
in respect of the valuation report
for mortgage purposes prepared
by the chairman of the society.
From the tenor of the short report
it appears that Harman J.
regarded it as unthinkable that a
mortgagee could owe a duty of
- 24 -
care to the mortgagor in respect
of any action taken by the
mortgagee for the purpose of appraising
the value of the property.
In Curran v. Northern Ireland
Co-ownership Housing Association
Ltd. (1986) 8 N.I.J.B. 1, the
Court of Appeal in Northern Ireland
held that the Northern Ireland
Housing Executive, which had lent
money on mortgage pursuant to
powers contained in the Housing
Act (Northern Ireland) 1971, owed
no duty of care to their
mortgagor in respect of the valuation of
the property. The claim
against the executive had been struck out
by the judge on the
ground that the pleadings disclosed no cause
of action. For the
purpose of the appeal, the following facts were
assumed, that (1)
the executive had instructed an independent
valuer to prepare a
valuation of the property; (2) the valuation
had been negligently
prepared; (3) the executive had
negligently instructed an
incompetent valuer; (4) the valuer's
report would not be shown to
the purchaser; (5) the purchaser knew
that the executive would not
lend money without a valuation to
justify the loan; (6) the
executive knew that the purchaser would
assume that the valuation
showed that the property was worth at
least as much as the figure
which the executive was willing to
advance on mortgage, and that
the purchaser would rely on the
valuation to that extent. Gibson
L.J. based his judgment on the
absence of any acceptance of
responsibility on the part of the
executive. In the course of his
judgment he said, at p. 14:
"Responsibility can only
attach if the defendant's act
implied a voluntary undertaking to
assume responsibility.
Were it otherwise a person who offered to
an expert any
object for sale, making it clear that he was unaware
of its
value and that he was relying on the other to pay a
proper
price, could sue the other should he later discover that
he
had not received the full value even though the purchaser
had
made no representation that he was doing any more
than look after
his own interests. Nor can any class of
persons who to the
knowledge of another habitually fail to
take precautions for their
own protection in a business
relationship cast upon another
without his consent an
obligation to exercise care for their
protection in such
transaction so as to protect them from their
own lack of
ordinary business prudence. Generally, a mortgage
contract
in itself imports no obligation on the part of a
mortgagee
to use care in protecting the interests of a mortgagor.
. . .
Gibson L.J. said, at p. 21:
"But in so far as the facts
of this case are clearly within
the area of contemplation in the
Hedley Byrne case, I have
no doubt that the condition
precedent to liability is that the
executive should have indicated
to the plaintiffs, or so acted
as to mislead them into believing,
that the executive was
accepting responsibility for its opinion."
Commenting on Yianni v. Edwin
Evans & Sons [1982] Q.B.
438, Kerr L.J. in his judgment in
the Court of Appeal in the
present case [1988] Q.B. 835, 851-852,
said:
"But its inherent
jurisprudential weakness in any ordinary
situation is clear.
Suppose that A approaches B with a
request for a loan to be
secured on a property or chattel -
- 25 -
such as a painting - which A is
proposing to acquire. A
knows that for the purpose of considering
whether or not to
make the requested loan, and of its amount, B is
bound to
make some assessment of the value of the security which
is
offered, possibly on the basis of some expert inspection
and
formal valuation. Then assume that B knows that in
all
probability A will not have had any independent advice
or
valuation and is also unlikely to commission anything of
the
kind as a check on B's valuation. B also knows, of
course,
that any figure which he may then put forward to A by
way
of a proposed loan on the basis of the offered security
will
necessarily be seen to reflect B's estimate of the
minimum
value of the offered security. Suppose that A then
accepts
B's offer and acquires the property or chattel with
the
assistance of B's loan and in reliance - at least in part -
on
B's willingness to advance the amount of the loan as
an
indication of the value of the property or chattel. Given
those
facts and no more, I do not think that B can properly
be regarded
as having assumed, or as being subjected to,
any duty of care
towards A in his valuation of the security.
Even in the absence of
any disclaimer of responsibility I do
not think that the
principles stated in Hedley Byrne & Co.
Ltd. v. Heller &
Partners Ltd. [1964] A.C. 465 support the
contrary conclusion.
B has not been asked for advice or
information but merely for a
loan. His valuation was
carried out for his own commercial
purposes. If it was
done carelessly, with the result that the
valuation and loan
were excessive, I do not think that A can have