Valuation – Valuer producing report for client bank – Report including disclaimer – Bank relying upon valuation before granting loans secured on properties valued – Bank introducing second lender and forwarding valuation retyped – Second lender closely associated with first lender – Valuer having no knowledge of second lender – Whether disclaimer effective – Whether valuer owing duty of care to unknown lender – Whether disclaimer unfair – Unfair Contracts Terms Act 1977 – Preliminary issue – Judge finding valuer owing duty of care – Court of Appeal allowing valuer’s appeal
N plc owned three shorthold interests consisting of three small supermarkets. Mr S controlled N plc and was the guarantor of loans secured on the properties. The second defendants were professional valuers. In connection with the indebtedness of N plc to the bank, the second plaintiff was instructed by its clearing bank, the first plaintiff, to value the three shortholds. The valuer performed the task on January 15 1991 sending the valuations to N plc with a disclaimer attached. In June 1991 Mr S applied on behalf of N plc for a loan from the first plaintiff. In July 1991 the first plaintiff asked the second plaintiff to participate in the loan. The loan was agreed subject to valuation. The valuation of January 15 was retyped and sent to the first plaintiff with the same disclaimer attached. The first and second plaintiffs were two separate legal entities, but were in fact closely associated and interrelated. The valuer did not know of the second plaintiff’s participation in the loan or even of its existence until service of the statement of claim. The loans were completed. Shortly after N plc went into liquidation without having made repayments. The securities were in fact valueless and the first and second plaintiffs sought to recover their loss, claiming against the first defendants, solicitors instructed by the first plaintiff to act for them in connection with the proposed secured loans, that they were negligent in researching the creditworthiness of N plc and Mr S. However, as a preliminary point to be decided under RSC Ord 14A the question was whether the second defendant, the valuer, owed to the second plaintiff any duty of care in respect of the valuation reports dated January 15 1991, the plaintiffs having alleged that the valuer owed a duty of care to any lender who might rely on the valuations in deciding whether to grant a secured loan. Three issues were raised: (1) absent an effective disclaimer, did the valuer owe a duty of care to the second plaintiff in respect of valuation reports sent to the first plaintiff; (2) would the disclaimer, if effective, negative such a duty of care; and (3) did the disclaimer notice satisfy the requirement of reasonableness under the Unfair ContractsTerms Act 1977. The judge found that the valuer owed a duty of care to the second plaintiff and the valuer appealed.
Held The appeal was allowed.
1. As the judge had found the disclaimer to be good and effective, on the basis that he was not satisfied that it was fair and reasonable, it was a hypothetical question whether a Hedley Byrne duty of care was owed to an unknown lender in the absence of such a disclaimer.
2.The effect of the disclaimer turned on its proper construction and on the facts of the instant case however close the relationship between the plaintiffs might have been; the first plaintiff, the lender, who was unknown to the valuer, was not the valuer’s client. The disclaimer notice would effectively negative any duty of care which there might have been.
3. There was a distinction to be made between transactions involving money in a commercial context, where both parties as in the instant case were able to look after themselves, and the position of an ordinary domestic householder purchasing his home who needed the statutory protection of the 1977 Act: see per Lord Griffiths in Smith v Eric S Bush (a firm) [1989] 1 EGLR 169 at p174). The court was satisfied that the disclaimer was not unfair, unreasonable, or unfaithful to the bank’s claim, and that there was no public policy objection to the disclaimer under the 1977 Act .
Rupert Jackson QC and Alison Millar (instructed by Cameron Markby Hewitt) appeared for the valuer; Roger HT Smith (instructed by Hugh Cartwright & Amin ) appeared for the second plaintiff; Michael Gadd (instructed by Ince & Co) appeared for the solicitors.