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Cite as: [1990] UKHL 1, [1990] 1 AC 831

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JISCBAILII_CASE_TORT
JISCBAILII_CASE_CONTRACT

    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.

    1. 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.

    2. 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.


    1. A valuer will become more cautious, take more
      time and produce more gloomy reports which will make
      house transactions more difficult.

    2. 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.

    1. 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.

    2. 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.

    3. 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