Precis (521) Plc v William M Mercer Ltd

In a professional-negligence claim for pure economic loss, a duty of care depends on whether the defendant objectively assumed responsibility to the claimant. The court examines all relevant circumstances, focusing primarily on exchanges between the parties. A professional’s subjective belief is not decisive.

A confidentiality agreement between the claimant and a third party, unknown to the defendant and unrelated to the alleged assumption of responsibility, cannot determine that issue. The permitted-use restrictions in the professional report may nevertheless prevent reliance for a different purpose. Under section 2(1)(a) of the Contracts (Rights of Third Parties) Act 1999, assent to a contractual term is not subject to a requirement that it be communicated before the relevant conduct. Failure to obtain advised independent expert advice may justify a finding of contributory negligence.

Mercer prepared an actuarial valuation report for a pension scheme. The report understated the scheme deficit. During due diligence for Glen Dimplex’s proposed acquisition of Stoves Group plc, the report and related information were supplied to the prospective purchaser, Precis, through the parties’ advisers.

Precis claimed damages for professional negligence, alleging that it relied on the report when fixing its offer price. Mercer denied any duty of care, relied on an exclusion clause in a confidentiality agreement under the Contracts (Rights of Third Parties) Act 1999, and alleged contributory negligence. The High Court dismissed the claim but found reliance and contributory negligence. Mercer cross-appealed on reliance. The central issues were assumption of responsibility, the exclusion clause, statutory assent, reliance and contributory negligence.

1. Disposition. The Court of Appeal unanimously dismissed both the appeal and the cross-appeal.
2. Duty of care. The governing question was whether Mercer had objectively assumed responsibility to Precis for the accuracy of the actuarial information. The court examined the relationship, the circumstances in which the information had been created and communicated, its permitted purpose, the role of other advisers and the surrounding opportunity for disclaimers. The approach was consistent with Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, Williams v Natural Life [1998] 1 WLR 830 and Bank of Credit and Commerce International (Overseas) Ltd v Price Waterhouse [1998] PNLR 564.
3. Mercer had supplied historic information assembled for Stoves. It had no pre-existing relationship with Precis, was not told the precise transaction or intended use, did not communicate directly with Precis, expected the recipient to have advisers, and provided information whose stated permitted purpose did not include fixing an acquisition price. The supply of the report during due diligence therefore did not amount to an assumption of responsibility.
4. The confidentiality agreement was not relevant to whether Mercer had assumed responsibility because Mercer did not know of it and it did not form the basis of the alleged duty. However, the information was confidential because availability to a limited class of third parties did not make it generally available. Under section 2(1)(a) of the Contracts (Rights of Third Parties) Act 1999, the statute contained no temporal restriction on communicating assent. Mercer could therefore assent after the relevant conduct, and the later deed of variation could not prevent Mercer relying on the exclusion clause.
5. Reliance. The judge was entitled to find that Precis had relied in part on the stated deficit. The absence of a contemporaneous document and weaknesses in the evidence did not justify overturning that finding. An appellate court should not disturb a trial judge’s credibility-based conclusion unless it is clearly wrong: Assicurazioni Generali SpA v Arab Insurance Group [2003] 1 WLR 577.
6. Contributory negligence. If Mercer had owed a duty, Precis’s failure to obtain independent actuarial advice despite advice to do so amounted to contributory negligence. The computational nature of the error and the commercial reasons for not obtaining advice did not prevent that conclusion. A 25 per cent deduction was modest.
7. Arden LJ added that, if an assumption of responsibility had been established, no separate fair, just and reasonable inquiry would have been required. In any event, liability would not have been fair, just or reasonable on these facts.

1. Court of Appeal (Civil Division): On 15 February 2005, dismissed both Precis’s appeal and Mercer’s cross-appeal. [2005] EWCA Civ 114
2. High Court of Justice, Chancery Division: His Honour Judge Behrens, sitting as a Deputy Judge, dismissed Precis’s professional-negligence claim by order dated 5 April 2004.