Smith v Eric S Bush

A professional valuer instructed by a mortgagee may owe a prospective purchaser a duty of care where economic loss is foreseeable, the relationship is sufficiently proximate, and imposing the duty is just and reasonable. For a modest dwelling, proximity ordinarily exists where the valuer knows that the purchaser will probably rely on the valuation and has provided the fee.

A disclaimer which would prevent that duty arising at common law falls within the Unfair Contract Terms Act 1977. It is effective only if reliance on it is fair and reasonable. Relevant considerations include bargaining power, access to alternative advice, the difficulty of the work, insurance and the consequences of loss. A general disclaimer was unreasonable in the ordinary purchase of a modest home.

Smith v Eric S Bush concerned a purchaser who applied to a building society for a mortgage and paid an inspection fee. The society instructed the appellant surveyors to value the proposed home. They knew that their report would be shown to the purchaser and would probably influence her decision, but the application and report disclaimed responsibility.

The valuation stated that no essential repairs were required. The surveyor negligently failed to identify dangerously unsupported chimneys. The purchaser relied on the report, bought the house and later suffered damage when a chimney collapsed.

The trial judge awarded £4,379.97. The Court of Appeal, reported at [1988] Q.B. 743, held that the disclaimer was unreasonable and ineffective under the Unfair Contract Terms Act 1977. The appeal was heard with Harris v Wyre Forest District Council. The common questions concerned the valuer's duty of care, the statutory control of a disclaimer which purported to prevent that duty arising, and the reasonableness of relying on the disclaimer.

The appeal was dismissed unanimously. Lord Templeman, Lord Griffiths and Lord Jauncey delivered substantive speeches. Lord Keith and Lord Brandon agreed with their reasons. The Court of Appeal's order and the damages awarded to the purchaser were affirmed, with costs.

1. Duty of care. Per Lord Griffiths, a valuer of a modest house owes the purchaser a duty where negligent advice foreseeably risks economic loss, sufficient proximity exists, and liability is just and reasonable. Proximity arose because the surveyors knew that the purchaser would probably rely on their professional valuation and that she had provided the fee. Lord Templeman regarded the relationship as akin to contract. Lord Jauncey held that the surveyors were deemed to have assumed responsibility because they knew the report would be shown and relied upon, that an excessive valuation could cause loss, and that the purchaser had funded the fee.

2. Statutory control of the disclaimer. The prominently worded disclaimer would have been effective at common law. Sections 2(2), 11(3) and 13(1) of the Unfair Contract Terms Act 1977, however, required the court to disregard the notice when asking whether a duty would otherwise have arisen. Section 13(1) expressly extended statutory control to a notice which excluded or restricted the relevant obligation or duty. A contrary construction would permit a supplier to avoid the Act merely by drafting the notice as preventing the duty from arising.

3. Reasonableness. Per Lord Griffiths, the court should consider relative bargaining power, the practical availability and cost of alternative advice, the difficulty and risk of the work, and the practical consequences of allocating the loss, including insurance. The purchaser had no effective bargaining power, a second survey involved significant cost and delay, and the mortgage valuation required only an elementary level of professional care in identifying observable defects. The surveyor could insure and distribute the risk, whereas the loss could be catastrophic for the purchaser. The purchaser's contribution to the fee further resembled a direct retainer. The disclaimer was therefore unreasonable.

4. Scope. Lord Griffiths and Lord Jauncey confined the decision to circumstances in which reliance by an identifiable purchaser was highly probable. They reserved the position concerning expensive homes, commercial property and transactions involving very large potential losses, where exclusion or limitation might be reasonable. The duty did not extend to subsequent purchasers. In the conjoined Harris v Wyre Forest District Council appeal, the House allowed the purchasers' appeal and restored the trial judge's award.

1. House of Lords: The appeal in Smith v Eric S Bush was dismissed unanimously. The Court of Appeal's order was affirmed, with costs.
2. Court of Appeal: In [1988] Q.B. 743, the court held that the disclaimer was not fair and reasonable under the Unfair Contract Terms Act 1977 and affirmed the award of damages.
3. Trial court: The judge found that the surveyor had failed to exercise reasonable skill and care, held the appellant firm liable and awarded £4,379.97 including interest.