Duty of care and liability — Surveyors and valuers employed by building societies — Surveys made pursuant to application for further advance by existing borrowers — Allegations of negligence in preparation of reports — Complaints made to Ombudsman under statutory scheme — Ombudsman challenged on ground of having no jurisdiction — Whether complaint relating to action by building society — Whether complaint properly founded under maladministration — Declaration in favour of Ombudsman
The Halifax, Woolwich Equitable, Leeds Permanent, and Alliance & Leicester Building Societies sued the Ombudsman appointed under the Ombudsman Scheme pursuant to Schedule 12 to the Building Societies Act 1968 and others, who took no part in the purely amicable proceedings. By originating summons the judge was asked to decide whether the Ombudsman had jurisdiction under the scheme to investigate complaints over valuations made by building society employees of properties to be charged to secure further advances to existing borrowers. The question arose over complaints alleging failure to exercise the requisite degree of professional skill and care on the part of valuers or surveyors whom the building societies had employed to report on the condition or value of properties of the second to ninth defendants. While the Ombudsman claimed the jurisdiction, the plaintiffs disputed it and sought determination of construction of the statutory scheme so as to resolve the question. It was common ground that the only relevant matter of complaint was that part of Schedule 12, Part II para 3, which referred to the grant, or the refusal to grant, further advances where the complainant must have been an existing borrower at the material time. Likewise, because the complaint had to be about “action” taken by the society, the Ombudsman had no jurisdiction to investigate complaints relating to valuations made by a surveyor who was not an employee. It was also common ground that the scheme, although set up pursuant to a statutory obligation, was a private and not a public law scheme. The brochures issued by the plaintiffs showed that there were three types of valuation:
1. the basic valuation to assess the adequacy of the security (and the second to seventh defendants complained to the Ombudsman that such valuations in respect of further loans to them had been negligently carried out by the societies’ employees);
2. the home or flat buyers’ report and valuation (the subject of complaint by the eighth and ninth defendants);
3. full structural surveys, which were carried out only by employees of the Woolwich (so that the question could arise only in regard to structural surveys provided by that society).
The application form for a further advance required the borrower to state which of the three types of valuation he required and the brochure pointed out the limited scope of the first two. If the borrower opted for a basic valuation, for which he paid the lowest fee, he normally received a copy. Such valuation was required by the building society to ensure compliance with the criteria of prudent management (see section 45) and by directors to ensure compliance of their duties (see section 13). Under clauses 14, 17 and 18 of the scheme, the Ombudsman was required to investigate any complaint received from an individual borrowing member if, inter alia, the action complained of constituted a breach of the society’s obligations under the Act, unfair treatment, or maladministration. The plaintiffs’ crucial submission was that, as maladministration was the only relevant ground for complaint with respect to basic valuation, it did not cover the exercise of professional skill and judgment by an employed surveyor: see R v Local Commissioner for Administration for the North and East Area of England, ex parte Bradford Metropolitan City Council, [1979] 1 QB 287, where maladministration was accepted as connoting faulty administration or inefficient management of affairs.
Held Declaration that the Ombudsman was entitled to investigate or determine the complaints.
1. The provisions of the scheme were to be construed as a whole, so that each phrase provided part of the context for the others. In relation to the basic valuation, where the service involved the use of professional skill and judgment, it constituted “action” by the society. It was action about which the borrower could complain if the other prescribed conditions were satisfied, as the existence of such a valuation was necessary for, and made, in relation to the grant of a further advance.
2. In deciding whether a failure to exercise due skill and care in producing the basic valuation constituted maladministration, in the case of the grant of a further advance, if the borrowing member did not produce a basic valuation, then the building society had to procure one itself. If the society did choose an employee to prepare a basic valuation then the preparation of that report was as much a part of the administration of the society’s business as consideration of the assessor’s report. It followed that the failure of an employee to exercise reasonable skill and care in making his basic valuation was therefore maladministration. The meaning of the words used was too clear to permit the exclusion of negligent basic valuations by an employee of the society by a process of construction.
3. With regard to home buyers’ reports and valuations, the plaintiffs submitted that the contract was between the borrower and the valuer and the society was not contractually bound to provide a report prepared with due skill and care. However, the performance of his task by the employed valuer was under his contract of employment. If the society chose to use its own employee there was no separate contract between the valuer and the borrower. Although all the brochures were slightly different, the valuer did his work pursuant to his contract of employment and the society provided the report to the borrower pursuant to the contract between them. The provision of the report to the borrower was an action by the building society relating to the grant or refusal of an advance even if it was not — in all its details — a necessary part of the process of assessing the adequacy of the security but went beyond what was required. On the basis of the existing documentation, the question would be answered in the affirmative.
4. In an application for the grant of an advance, there was no relevant distinction between the provision of a structural survey at the request of a borrower and the provision of a home buyers’ report in the same circumstances. An analysis of the contractual relationship produced the same result and the same consequences — subject to limiting the question to the existing documentation.
Simon Berry QC and John McGhee (instructed by Church Adams Tatham & Co) appeared for the plaintiff building societies; and Timothy Lloyd QC and Katherine McQuail (instructed by Farrer & Co) appeared for the first defendant, the Ombudsman; the second to ninth defendants did not appear and were not represented.
