Machin v Adams & Ors

In a negligent-misstatement claim for economic loss, the claimant must prove reliance and detriment. Reliance is absent where the claimant’s contractual position and surrounding arrangements show that the statement could not have altered the action taken or the terms obtained. A duty to a third-party recipient depends on the adviser’s knowledge that information will be communicated and used for a particular purpose, together with a connecting thread between the adviser’s task and the recipient’s foreseeable course of action. An interim assurance, given while a final inspection and certificate were still expected, did not support reliance on the statement for an irrevocable purchase decision. The appeal was allowed and the claim dismissed.

Mrs Machin agreed to purchase The Grove from Mr and Mrs Adams for conversion into a care home. Mr Bannister, engaged by the sellers through an architectural technician, inspected the works and wrote to Mrs Adams describing the state of completion, the standard of work and the estimated cost of completion.

The purchase completed after further supplemental agreements. Mrs Machin later claimed damages from Mr Bannister for negligent misstatement, alleging that she relied on his letter when completing the purchase and negotiating a reduction in price. Preliminary issues concerning reliance and the existence of a duty of care were decided in her favour by Judge Overend, sitting as an Official Referee. Mr Bannister appealed.

1. Disposition. The appeal was allowed unanimously. Mrs Machin’s claim against Mr Bannister was dismissed.
2. Reliance and detriment. Simon Brown LJ held that the finding of reliance was impossible on the facts, and Morritt LJ agreed with his reasoning. The estimates in the letter had been overtaken by events. The remaining statement about the standard of work could not have altered the claimant’s position. She was already committed to completing the purchase, the price reduction related solely to three items transferred to her responsibility, and the available contractual and financial arrangements made it inconceivable that the letter would have changed her approach to retention. Any loss remained recoverable, if at all, against the sellers.
3. Duty of care. The Court applied the criteria stated in Caparo plc v Dickman [1990] 2 AC 605. Sir Brian Neill LJ stated that an adviser to one party is prima facie under a duty to that party alone. A third-party claimant must establish actual or inferential knowledge both that the information would be communicated to the claimant and of the purpose for which it was required. There must also be a connecting thread between the adviser’s task and the claimant’s foreseeable course of action.
4. Sir Brian Neill LJ treated Banque Bruxelles SA v Eagle Star [1997] AC 191 as instructive. The scope of the duty depends on the kind of damage against which the adviser undertook to guard. A duty to advise whether a course should be taken differs from a duty merely to supply information. In the latter case responsibility is ordinarily confined to the consequences of the information being wrong. Neill LJ also stated that his earlier analysis in McNaughton Ltd v Hicks Anderson & Co [1991] 2 QB 113 was incomplete and required reconsideration.
5. The letter was an interim letter of comfort, issued while a final inspection and certificate were still expected. It was not a document on which Mr Bannister should have anticipated that the purchaser would rely in taking an irrevocable step. Morritt LJ agreed with Neill LJ that no duty arose even without the impending final certificate. Simon Brown LJ’s contrary hypothetical view, concerning a final certificate and absence of security, was not necessary to the decision.
6. The Court refused leave to appeal to the House of Lords. The appellant was awarded the costs below; the respondent’s costs liability was adjourned pursuant to regulation 127 of the Civil Legal Aid (General) Regulations 1989, and a Section 18 order was made against the Legal Aid Board.

• Court of Appeal (Civil Division) allowed the appeal, dismissed Mrs Machin’s claim against Mr Bannister and refused leave to appeal to the House of Lords: [1995] EWCA Civ 3.
• Official Referee Judge Overend decided the preliminary issues of reliance and duty of care in Mrs Machin’s favour, leaving detriment for later determination.