Smith v Eric S Bush (A Firm)
House of Lords
Citations:  1 AC 831;  2 WLR 790;  2 All ER 514;  18 EG 99;  17 EG 68; (1989) 133 SJ 597;  CLY 2566.
In the first case, the claimant applied to a building society for a mortgage to purchase a house. The building society instructed the defendant surveyors to carry out an inspection and valuation of the property. The defendant’s employee noticed that the chimney breasts were removed. However, he failed to check whether this left the chimney with adequate support. Their report stated that the property did not need any essential repairs. The chimney later collapsed.
The mortgage application form contained a clause disclaiming both the building society and the defendant’s liability for the accuracy of the valuation report. The building society advised the claimant that the report was not a structural survey and that she should seek independent advice.
In the second case, the claimant applied for a mortgage from the first defendant, a local council. The first defendant provided a report on the state of the property, undertaken by the second defendant. It failed to note several structural problems which made the property unsaleable. The application form stated that the valuation was confidential and that the first defendant accepted no responsibility for the value or condition of the house based on the inspection report. They advised the claimant to get their own survey.
Both claimants relied on the reports without seeking further inspections or advice. Both paid a fee to have the reports made. The claimants sued the defendants in negligence. The defendants relied on the disclaimer in the valuation report as excluding their liability. The claimants responded that the disclaimer did not exclude their liability. In the alternative, they argued that the disclaimer was void for unreasonableness under s.2 of the Unfair Contract Terms Act 1977.
- Did the defendants owe the claimants a duty of care to protect them against economic loss?
- Were the disclaimers effective to exclude the defendants’ liability for negligent misstatement?
The House of Lords held that:
- The defendants owed the claimants a duty of care, since they were aware that the claimants would probably rely on the report without seeking an independent report.
- The disclaimers were notices purporting to exclude liability for negligence. They therefore would be void unless they complied with the requirement of reasonableness under UCTA 1977.
- The disclaimers were void for their failure to comply with the reasonableness requirement. Relevant factors included the fact that the claimants paid for the valuers services (whether or not they had a direct contract); the properties were low value; residential applicants tended to rely on these reports; and the valuers were professionals while the claimants were not.
This Case is Authority For…
Valuers owe potential mortgagors a duty of care to take reasonable steps to avoid causing economic loss, if they know or ought to have known that the mortgagor will rely on their report without seeking independent verification. The standard of care is as follows:
‘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 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.’
UCTA 1977 is designed to regulate clauses and notices which exclude liability for negligence. Lord Griffiths explained that to determine if a notice falls within the scope of the statute, the court should consider whether the defendant could be liable for negligence, and whether the clause has any impact on this.
The focus is therefore on the effect of the clause, not its wording. Lord Jauncey noted that wording the clause so that it prevents a duty of care arising in the first place does not stop the Act applying, for example.
In relation to UCTA 1977, Lord Griffiths argued that:
‘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.’