Smith v Eric S Bush [1990] 1 AC 831; 1989 2 WLR 790; [1989] 2 All ER 514; [1990] UKHL 1

KEY POINTS

• Negligence and duty of care are fundamental concepts in legal contexts, particularly in professions like surveying.

  • When a surveyor undertakes a valuation and survey on behalf of the mortgagee for mortgage purposes, they owe a duty of care to various parties involved in the transaction.

  • The primary question arises as to whom this duty of care is owed.

• When the valuer negligently fails to discover defects during the valuation and survey process, it raises issues regarding liability.

  • Legal questions emerge if the mortgage application form and report include a disclaimer attempting to exclude the valuer's liability to the mortgagor.

  • The central concern revolves around whether the liability for negligence can be validly excluded through such disclaimers.

• The mortgagor's entitlement to damages is scrutinised. Despite a disclaimer, the question remains whether the mortgagor can still seek damages for any losses incurred due to the valuer's negligence.

• The interplay of these legal principles involves carefully examining the Unfair Contract Terms Act and its provisions.

FACTS

• In the first case, Jean Patricia Smith ("Plaintiff") sought a mortgage from a building society to purchase a house.

  • The society engaged Eric S. Bush ("Defendants"), a surveying and valuing firm, to inspect the property and assess its value visually.

  • The Defendants' valuer, responsible for the inspection, failed to identify structural issues, specifically the inadequate support of chimneys that led to a subsequent collapse.

  • Despite a disclaimer in the mortgage application form and valuation report, the Plaintiff, relying on the report and foregoing an independent survey, purchased the house.

• The Plaintiff sued the Defendants for negligence, contesting the efficacy of the disclaimer.

  • The judge ruled in favour of the Plaintiff, a decision upheld by the Court of Appeal.

• In the second case Adam Charles Harris and Kim Harris ["Plaintiffs") applied to a council for a mortgage to buy a house.

  • The council's mortgage application form included a disclaimer stating that the valuation report was confidential and solely for the council's benefit, with no responsibility accepted for the property's value or condition.

  • The Plaintiffs were advised to obtain their survey. The council, through its employed valuer (the second Defendant), recommended the mortgage with minor repairs.

  • The Plaintiffs were offered the mortgage, but three years later, when attempting to sell the property, structural issues emerged during a subsequent inspection.

• The Plaintiffs claimed damages for the valuer's negligence as an agent of the council.

  • The judge ruled in favour of the Plaintiffs, but the Court of Appeal allowed an appeal by the Defendants.

JUDGEMENT

• In both cases, the judgment held that a valuer, engaged by a prospective mortgagee for property valuation, owed a duty of care to the mortgagor.

  • This duty required reasonable skill and care, especially if the mortgagor was likely to rely on the valuation without an independent survey.

  • The judgment stated that unless the valuer explicitly disclaimed liability, such a duty was presumed.

• The judgment further noted that a valuer's disclaimer of liability, treated as an attempt to exclude negligence under the Unfair Contract Terms Act 1977, was ineffective without meeting the reasonableness requirement.

• Given the professional nature of the valuer's role and engagement circumstances, it was deemed unfair and unreasonable to allow reliance on a disclaimer to absolve the valuer of liability for the valuation's accuracy.

• In the first case, the Defendants' appeal was dismissed, upholding the Plaintiff's judgment.

• In the second case, the Plaintiffs' appeal was allowed, reversing the original decision in favour of the Plaintiffs.

COMMENTARY

• Legal principles in negligence and duty of care, particularly in surveying professions. When surveyors conduct valuations for mortgages, questions arise about their duty of care recipients, especially when negligence leads to overlooked defects.

  • The Unfair Contract Terms Act 1977, notably sections 2(2), 11(3), and 13(1), is used in scrutinising the mortgagor's entitlement to damages in the presence of disclaimers.

• Both cases assert that a valuer's duty of care to a mortgagor remains, especially when relying on valuations without an independent survey.

• Disclaimers, unless reasonable, are deemed ineffective, emphasising the unfairness of relying on them to absolve valuers of liability. The judgments prioritize mortgagor protection over broad attempts to disclaim liability for valuation accuracy.

ORIGINAL ANALYSIS

• Plaintiff had a contract with Defendant for Defendant to value his house. Defendant inserted a clause that he would not be liable for his actions in the course of his work.

• Defendant incorrectly valued the house, causing Plaintiff loss.

• HL ruled that Defendant had a duty of care to Plaintiff and the disclaimer of liability was ineffective due to UCTA and did not shield Defendant from liability. 

Lord Templeman

• In this case, following Lord Devlin’s guidelines in Hedly Byrne, this is a case “akin to contract”. He follows the same lines as Lord Reid in Hedley since the valuer knows his advice will be relied on by the parties and can only escape tortious duty to use reasonable skill by a VALID term excluding it.  

Lord Griffiths

• Conditions when the surveyor here can be held to have a duty in tort:

If the valuation is negligent, and is relied upon, damage in the form of economic loss to the purchaser is obviously foreseeable. The necessary proximity arises from the surveyor's knowledge that the overwhelming probability is that the purchaser will rely upon his valuation…and the fact that the surveyor only obtains the work because the purchaser is willing to pay his fee. It is just and reasonable that the duty should be imposed for the advice is given in a professional as opposed to a social context and liability for breach of the duty will be limited both as to its extent and amount.

• Liability is limited to the Defendant and not subsequent buyers.

• He said the use of the concept of “assumption of responsibility” was “unlikely to be a helpful or realistic test in most cases”. 

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