Negligence — Valuation for mortgage — Liability of building society for valuation carried out by ‘in-house’ valuer — Preliminary issue confined to the question of liability — Scope of valuer’s duty of care — Effect of section 30 of Building Societies Act 1962 — Effect of disclaimer in mortgage documents — Unfair Contract Terms Act 1977 — Valuer should have attached importance to indications of structural
couple with three young children, wished to purchase a house with more
accommodation than their existing home and with some land on which they could
keep horses — Their income was modest, money was tight, and the only way to
achieve their ambition was to buy a house which was low priced because of the
need for renovation and modernisation — The husband, a self-employed jobbing
builder, could turn his hand to repairs and improvements but was not an expert
— The plaintiffs offered £45,000 for the subject property plus one-half of an
adjoining paddock — They had sold their existing home for £33,000 and required
to raise the balance of £12,000 by a loan on mortgage — They applied to the
defendant building society for the necessary loan, which was forthcoming
subject to a building society valuation — The plaintiffs did not wish to obtain
an independent structural survey and valuation
society arranged for the mortgage valuation to be carried out by one of its
staff valuers — When the valuation was carried out in 1981 the valuer had
worked as such for about seven years and had been employed by the society since
1976 — The fee for the valuation was paid by the plaintiffs — There was no
doubt, in view of the authorities, that the defendants owed a duty of care to
the plaintiffs in relation to the valuation and were liable for any failure of
care on the part of their employee — As to the nature of the duty, the judge,
repeating the words of Lord Templeman in his speech in Smith v Eric S Bush,
said that the valuer’s duty was to value the house after taking into
consideration major defects which are, or ought to be, obvious to him in the
course of a visual inspection of so much of the exterior and interior of the
house as may be accessible to him without undue difficulty — His duty was not
to carry out a structural survey, but, although his inspection was more
limited, it required the exercise of the skill of a reasonably competent professional
valuer — Tested by that standard, and in the light of the evidence given by
experts on both sides, the judge decided that the staff valuer, and
consequently the defendants as his employers, failed to satisfy the duty of
care — It should have been evident to him from such indications as the visible
stepped fractures, from the existence of the clay subsoil with shallow
foundations and from the oak trees growing at a distance less than their own
height from the house, that there was a risk of subsidence causing continual
structural movement — He did not attach sufficient importance to the signs —
The advice to the purchasers should have been that no mortgage advance could
properly be made on the property unless and until a full investigation had been
carried out into the causes of the structural movement and the remedial action
required — If such advice had been given the likelihood was that the mortgage
advance and the purchase would not have proceeded — Unfortunately, this advice
was not given — The loan and the purchase of the house went ahead in reliance
on a negligent valuation — In the following years further cracking and movement
took place and eventually the present proceedings were instituted
to deciding the issue of negligence the judge had to deal with other
submissions — He rejected a suggestion that section 30 of the Building
Societies Act 1962 enabled a notice to be given excluding any duty of care to a
mortgage applicant in relation to the condition or value of the property to be
taken as security — He held that section 30 was not concerned with negligence
in valuation; it merely created an excludable warranty that the purchase price
was reasonable — Another submission was concerned with disclaimer of liability
— Various documents relating to the mortgage, ie the application form, the
offer of advance and the copy of the valuation report, contained an extensive
disclaimer of any liability on the part of the building society and its valuer
— On the face of it, the breadth of the wording constituted a clear and
effective repudiation of liability — However, the position was affected by
section 11(3) of the Unfair Contract Terms Act 1977 — This subsection provided
that it must be fair and reasonable to allow reliance on such a notice, having
regard to all the circumstances obtaining when the liability arose or (but for
the notice) would have arisen — The burden of proof was on the surveyor or
valuer to establish that in all the circumstances it was fair and reasonable
that he should be allowed to rely on the disclaimer — In Smith v Eric S Bush Lord
Griffiths had given some helpful guidance as to the matters to be considered in
relation to section 11(3) — Applying that guidance and taking account also of
some special factors in the present case, the judge decided that he was not
satisfied that it would be fair and reasonable to allow the defendants to rely
on the disclaimer in the documents
was therefore in favour of the plaintiffs on the issue of liability; the issue
as to quantum of damages to be relisted in due course
The following case is referred to in this
report.
Smith v Eric S Bush (a firm) [1990] 1
AC 831; [1989] 2 WLR 790; [1989] 2 All ER 514; [1989] 1 EGLR 169; [1989] 17 EG
68 & 18 EG 99, HL
In this action the plaintiffs, Mr and Mrs
Beaton, claimed damages for negligence in relation to a mortgage valuation
against the defendants, then the Nationwide Building Society, now the
Nationwide Anglia Building Society. The property concerned was a four-bedroomed
bungalow called ‘Avondale’ in Soake Road, Denmead, Hampshire. It had been
ordered by a consent order that the defendants’ liability should be tried as a
preliminary issue.
Malcolm Stitcher (instructed by Coffin
Mew & Clover, of Portsmouth) appeared on behalf of the plaintiffs; Simon
Berry QC (instructed by Church Adams Tatham & Co) represented the
defendants.
Giving judgment, MR NEIL BUTTERFIELD
QC said: In this action the plaintiffs, Mr and Mrs Beaton, claim damages
for negligence on the part of the defendant building society. By a consent
order dated March 17 1987 it was ordered that the question or issue of the
liability of the defendant to the plaintiffs in this action be tried as a
preliminary issue before the question or issue of damages. That order has
created some difficulties in identifying the boundaries of the issues which
must be determined. I shall endeavour not to venture beyond the question of
liability, to which issue this judgment is addressed.
In 1981 the plaintiffs were living with
their three young children, then aged three, seven and nine, in a house at 3
Maylands Road, Bedhampton. They had purchased that property in 1973; it had
three bedrooms and no land. By 1981 the plaintiffs owned two horses, which they
kept in a rented field. They decided to move from 3 Maylands Road. They wanted
a property with some land on which they could keep their horses and which
provided larger accommodation for their growing family.
At this time Mr Beaton was a
self-employed jobbing builder in a small way of business. He had been working
as such for only a few months. He had previously been employed as a TV
installation engineer and a double-glazing fitter. He had also undertaken
moderately ambitious home improvements. He obviously had a reasonable working
knowledge of the basics of the building trade but was not an expert in it or
even particularly knowledgeable or experienced. The plaintiffs’ income from Mr
Beaton’s building work was modest. Money was extremely tight. The only way the
plaintiffs could achieve their ambition was to buy a property which required
renovation and modernisation, work which Mr Beaton proposed to undertake
himself.
The plaintiffs
first looked at a house in West Sussex, but could not find a buyer for their
own home at the time. Then their attention turned to Bent Farmhouse, Hambledon.
That property, a semi-detached house, was offered for sale with three acres of
land. It was, as appears from the sale particulars and the surveyor’s report
obtained upon it, in a dilapidated and run-down condition. That did
not deter the plaintiffs. They decided that they wished to proceed with the
purchase, and instructed solicitors, Edmonds & Bullen, to act for them.
Throughout the events thereafter the plaintiffs continued to instruct and be
advised by these solicitors. They dealt principally, if not exclusively, with
Mr Brumwell, a legal executive.
The purchase price of Bent Farmhouse was
£45,000. The plaintiffs had an equity in 3 Maylands Road of about £33,000.
They wished to borrow the balance of the
purchase price, £12,000, by way of mortgage. To this end they applied for a
mortgage to the Nationwide Building Society, now the Nationwide Anglia Building
Society, the defendant in this action. Mr Beaton completed a personal
information form on February 10 1981. The particulars given apparently
satisfied the defendant that the plaintiffs’ income was sufficient to support a
mortgage of the amount sought. Mr Beaton further submitted an application for a
mortgage advance in the sum of £12,000 secured on Bent Farmhouse.
The defendant, having received the
mortgage application from the plaintiffs, caused the property to be valued, as
was their duty under section 25 of the Building Societies Act 1962. The
evidence in relation to this valuation is sparse. However, it seems that the
surveyor engaged by the building society valued the property at the price
agreed by the plaintiffs; that no copy of the valuation was given to the
plaintiffs; and that the surveyor noted several aspects of the condition of the
property that required remedial works. From an attendance note of Mr Brumwell
dated February 20 1981 it appears that the building society advised the
plaintiffs’ solicitors that the plaintiffs should have a structural survey and
valuation carried out on Bent Farmhouse. This advice was passed to Mr Beaton by
Mr Brumwell on February 23 1981 in a telephone call, the record of which reads:
Pointed out that both we and the Building
Society had advised him to have a structural survey and valuation of Bent Farm
— he said he had looked at (it) himself and was satisfied to rely on that.
Mr Beaton told me that he could not
recall why this advice had been given or any conversation about the advice. He
got the impression the advice was a formality, something that a solicitor might
say as a matter of routine. I do not accept this explanation. In my judgment,
it was made perfectly plain to Mr Beaton that it would be sensible and prudent
for him to obtain an independent survey and valuation. The reason Mr Beaton
chose to reject this advice was, as he told me himself, that he simply could
not afford the additional cost. Had he been in a better financial position he
might well have accepted the advice. As it was, he relied on his own assessment
of the condition of the property coupled with the fact that the building
society were prepared to advance him the amount he required.
In the event the purchase by the
plaintiffs of Bent Farmhouse did not proceed. There were problems over
boundaries and antagonism with sitting tenants who were to stay living in the
other part of the farmhouse. The plaintiffs decided to withdraw.
In the meantime the plaintiffs had found
a purchaser for their Mayfield Road house. That transaction proceeded towards
exchange of contracts and completion.
On the same day that the plaintiffs
advised their solicitor they did not wish to proceed further with Bent
Farmhouse they happened upon ‘Avondale’, a four-bedroomed bungalow in Soake
Road, Denmead. It was the purest chance that they did so. They took a wrong turning
while out together in their car and saw a ‘For Sale’ sign outside the property.
They immediately recognised the potential of the property. It was in a run-down
and neglected condition but was offered for sale with an adjoining paddock of 2
acres. It was in an area which was convenient for the needs of the plaintiffs’
family and it seemed exactly what they had been seeking.
The plaintiffs contacted the estate
agents handling the sale, Hughes Ellard, of Havant. Shortly thereafter, they
inspected the property, first with Mr Ellard of that firm and later with Mr
Hughes. What they saw confirmed their original impression that the property was
exactly what they wanted.
Mr Ellard gave evidence before me to the
effect that during his visit to the property with the plaintiffs he would have
told them that it would be advisable for them to obtain a structural survey. In
cross-examination, however, he accepted that he had no actual recollection of
what he had said. He was, he told me, relying on his general practice and was
plainly uncertain in his mind as to what had been said. Mr Beaton recalls that
Mr Ellard merely explained that he did not know much about Avondale and
suggested that any detailed enquiries should be made of Mr Hughes. He denied
that Mr Ellard had suggested a structural survey. In my judgment, the
recollection of Mr Beaton is to be preferred to that of Mr Ellard. I find that
no advice was given by Mr Ellard to Mr Beaton to the effect that the plaintiffs
should have a structural survey of the bungalow.
Mr Hughes, on the other hand, had
considerable knowledge about the property, having lived next door to Avondale
until 1975 and thereafter remaining on friendly terms with the former owner, Mr
Page. Mr Page had died in late 1980 and his death had occasioned the sale of
the bungalow by his executors. There is no dispute between the parties that
upon the occasion of the visit to Avondale by the plaintiffs with Mr Hughes
there was a discussion about the property. There is, however, an important
difference in recollection about what was said.
Mr Beaton says that he and Mr Hughes were
discussing some zigzag cracking which was apparent on the external brickwork.
Mr Hughes told Mr Beaton that there had been a history of ground movement in
the north-west corner of the bungalow, which had been underpinned.
Mr Hughes’ recollection is rather
different. He told me that he advised Mr Beaton that the property had a history
of structural movement and pointed out a number of signs of movement to the
existing brickwork, in particular step fractures on the left-hand front and
flank walls. This structural movement had occurred in about 1976 and the
repairs were effected shortly thereafter but Mr Hughes did not suggest that he
explained this detail to Mr Beaton. Mr Hughes recalls telling Mr Beaton simply
that Mr Page had effected some form of repair but added that there was no
guarantee as to the validity of the repair. He does not remember describing the
repair work as ‘underpinning’ and finds it difficult to accept that he would
have used such a word.
In resolving this difference in
recollection I have in mind both the fact that Mr Hughes was not asked to
recall the conversation until 1987, six years later, and the general impression
he made upon me. I am quite satisfied that the sense of what Mr Hughes conveyed
to Mr Beaton was that there had been underpinning to part of the property to
rectify a structural defect at that point. Had he not done so it is really
impossible to discern how Mr Beaton could have spoken of such work both to Mr
Butcher, who later inspected the property in order to provide a report on damp
and woodworm, and to Mr Brumwell, who records mention of underpinning in an
attendance note dated February 19 1982.
Further, while I accept that Mr Hughes
was being generally non-committal about the effectiveness of the repair work
done, I do not accept that he conveyed to Mr Beaton any reason for anxiety or
particular caution in proceeding further in the proposed purchase. Mr Hughes
plainly did not wish or intend to mislead Mr Beaton, but neither did he wish to
discourage unduly an obviously enthusiastic purchaser.
The plaintiffs offered to purchase
Avondale in the sum of £45,000. The offer price included the purchase of one
half of a two-acre paddock adjoining the property. The offer was made and
accepted subject to contract. By this time the plaintiffs’ house at 3 Maylands
Road had been sold, leaving the plaintiffs with a capital sum of £33,000 but
without a home. They moved in with Mrs Beaton’s mother, where the conditions
were inevitably cramped and unsatisfactory.
On April 29 1981 the plaintiffs made a
further application for a mortgage advance to the defendants, again in the sum
of £12,000, to be secured on Avondale. They were informed that the application
would be granted in principle, subject to the building society valuation. On
May 1 1981 Mrs Beaton informed her solicitors that the plaintiffs did not
require their own survey and valuation.
In pursuance of their duty under section
25 of the Building Societies Act 1962 the defendant caused the property to be
valued. The task of effecting the valuation was given to Mr Michael Land
[FRICS], a staff surveyor employed by the defendant. In 1981 Mr Land had been
employed as a surveyor for about seven years in total and since 1976 had worked
for the defendant building society. He was thus reasonably experienced in his
work by the date of his valuation of Avondale. I am satisfied, having seen Mr
Land give evidence, that he had the degree of skill as a surveyor required of him.
By his training and experience and exercising skill and care Mr Land was
capable of recognising defects and was able to assess value.
It is submitted that Mr Land owed a duty
of care in carrying out his mortgage valuation to the plaintiffs as mortgage applicants.
The general position is now clearly established. A duty of care is owed by the
adviser to those who act on his advice if it is foreseeable that if the
advice is negligent the recipient is likely to suffer damage; that there is a
sufficiently proximate relationship between the parties; and that it is just
and reasonable to impose the liability.
In the case of a surveyor valuing a small
house for a building society the application of these three criteria leads to
the conclusion that he owes a duty of care to the mortgage applicant. If the
valuation is negligent and is relied upon, damage in the form of economic loss
to the purchaser is obviously foreseeable. The necessary proximity arises from
the surveyor’s knowledge that the overwhelming probability is that the
purchaser will rely upon this valuation and the fact that the surveyor obtains
his work only because the purchaser is willing to pay his fee. It is just and
reasonable that the duty should be imposed, because the advice is given in a
professional as opposed to a social context and liability for breach of the
duty will be limited both as to its extent and amount: see Smith v Eric
S Bush [1989] 2 WLR 790 at p 816*.
*Editor’s note: Also reported at [1989] 1
EGLR 169 at p 177.
The defendant accepts the generality of
the position but submits that where the valuation required under section 25 is
carried out by an employee of the building society and the appropriate section
30 notice is given, the effect of section 30 of the Building Societies Act 1962
is to exclude any duty of care to the mortgage applicant in relation to the
condition or value of the property to be taken as security. Section 30
provides:
Where a building society makes to a member
an advance for the purpose of its being used in defraying the purchase price of
freehold or leasehold estate, the society shall be deemed to warrant to the
member that the purchase price is reasonable, unless, before any contract
requiring the member to repay the advance is entered into, the society gives to
the member a notice in writing in the prescribed form stating that the making
of the advance implies no such warranty.
In my judgment, the submission by the
defendant is not well founded. The wording of section 30 is not appropriate for
a statutory exclusion of a duty of care. If the words were interpreted as
contended for by the defendant there would be an artificial and wholly
inappropriate distinction between the position of a local authority and its
employed valuers, independent valuers used by building societies when required,
and, on the other hand, the valuer employed by a building society. Further, the
section is not concerned with negligence in inspection and valuation: it simply
creates an excludable statutory warranty that the purchase price is reasonable.
The plaintiffs do not rely on such a
warranty. They rely upon:
(i) an inspection by a
person required to be qualified and competent
(ii) a disclosed report
(iii) express statements as to
the condition of the property and its value
(iv) actual carelessness
The plaintiffs submit that if those
matters are proved a notice given under the provisions of section 30 does not
exclude the liability of the defendant. I agree and I am reinforced in my view
by certain parts of the speeches of Lord Griffiths and Lord Jauncey in Smith
v Eric S Bush (supra) at pp 807, 816 and 823. In my judgment, the duty
of care there set out is expressed to be, and is intended to be expressed to be,
of general application unaffected by section 30. Accordingly, I find that Mr
Land as a surveyor owed to the plaintiffs a duty of care in and about his
inspection and report of Avondale.
Mr Land carried out his inspection on May
8 1981. His usual practice, which he followed on this occasion, was to inspect
the property externally and internally, make brief contemporaneous trigger
notes and subsequently write up his report at his office. Avondale was the
fifth property he inspected on May 8. There is a total difference in
recollection between Mr Beaton and Mr Land about the events of that day. Mr
Beaton told me that he was present when Mr Land carried out his inspection and
gave me a wealth of detail about what had happened. In particular, he said that
he discussed the state of the exterior of the bungalow and the presence of
cracking in the brickwork; Mr Beaton says that he told Mr Land about the
underpinning, the existence of which had been disclosed to him by Mr Hughes.
Mr Land says quite simply that Mr Beaton
was not present at all. Even if he is wrong about this, says Mr Land, he was
certainly not told of any underpinning. Had he been given that information, he
says, and I accept, that his subsequent report would have been worded in wholly
different terms.
Having seen both Mr Beaton and Mr Land
give evidence I am satisfied on the balance of probabilities that Mr Beaton was
not present on the occasion of Mr Land’s inspection on May 8 1981. I do not
consider that Mr Beaton was trying to mislead me in his evidence. Mr Land made
a number of visits to the property, to which I shall refer later, and in my
judgment these later visits coupled with Mr Beaton’s undoubted concern and
anxiety about the plight in which he now finds himself have led him to confuse
matters in his own mind. I think that he genuinely believes he was present on
May 8, but I think that he is wrong in that belief. It follows that Mr Land was
not told that any part of the property had been underpinned at the time he
conducted his inspection. It is common ground that the fact of underpinning
could not have been discovered from a building society valuation inspection. In
the light of my finding the whole of Mr Beaton’s evidence becomes suspect and
where there is a conflict between him and other witnesses I have taken fully
into account my finding on this issue when resolving such differences.
I turn to the detail of Mr Land’s
inspection of May 8 1981. Avondale is a detached L-shaped bungalow built in
about 1927. It is constructed of brick under an asbestos slate roof. The
original mortar used was relatively soft lime mortar. The subsoil upon which
the property is built is clay. The foundations are shallow, being only an
average depth of about 16 ins. At the front of the property are two mature oak trees.
One oak tree is about 21 ft from the north-west corner of the bungalow and is
about 40 ft in height. The second oak tree is about 27 ft from the south-west
corner and stands about 47 ft high. The oak trees are still growing, albeit
slowly, and are between 80 and 100 years in age. It is clear that the trees
were well established before the property was built. It is common ground that
all the matters which I have recited were factors of which Mr Land was aware in
general terms at the time of his inspection. This was the property upon which
the plaintiffs wished to obtain a mortgage.
As I have said, it was the practice of Mr
Land to make contemporaneous notes of his inspections. The relevant part of his
note relating to Avondale reads:
External brickwork — some repointing
required — a lot. Some horizontal fractures — possible wall tie damage — and
some unstable brickwork to flank wall. Several old stepped fractures made good.
Entrance hall — deflection — general comment.
Mr Land drew a rough sketch of the
property showing the external dimensions and recording the presence of the two
oak trees, though not their distance from the bungalow or their height. He
valued Avondale at £40,000, recommended a retention of £2,000 for remedial
works and assessed the property as class 2 for mortgage purposes; that is a
house which was satisfactory as to construction, condition and amenities but
which was not in the highest category.
In evidence Mr Land sought to cast his
mind back nine years to the inspection he had carried out and added that he did
not notice any serious distortion of doorways or window frames, though he did
see some internal plaster cracking which did not appear to correspond with the
external brickwork cracks. He recalled that the pointing was generally poor,
that there were some light stepped fractures and horizontal fractures of the
brickwork and also that there were some areas where very poor repointing had
been carried out.
Within two or three days of his
inspection Mr Land completed his report. By this time the defendant’s
procedures had changed and Mr Land knew that a copy of his valuation report
would be provided to the plaintiffs as applicants. The report comprised a
series of numbered items which were completed by the valuer together with a space
for general comments. At item 3 the form required the valuer to give his
opinion as to whether the property had suffered from structural movement. To
that question Mr Land answered ‘Yes.’
The next question asked whether the risk of further movement was one
which the building society could accept. Again Mr Land answered ‘Yes.’ Finally on this topic Mr Land opined that
there was no evidence of subsidence or landslip in the immediate vicinity.
In his general remarks Mr Land set out
the basis for his recommendation for a retention of £2,000, which related to
damp-proofing, timber treatment, rain-water goods and repointing. He continued:
In addition to this the following points
should be made to the applicants . . . The structural movement referred to
relates to several fractures visible externally to the mortar pointing. These
would appear to be many years old and are not, in my opinion of a continuing or
serious nature. Subject to repointing being carried out, no further action need
be taken. In this context I consider it important that proper soakaways are
constructed, if not already provided to the rain water down pipes.
A copy of this report was supplied to the
plaintiffs. Mr Beaton says that he was reassured by its contents. He says that
he would not have touched the property had he been advised that there was a
risk of further structural movement of a continuing or serious nature. While he
was prepared to undertake general refurbishment and improvement of Avondale he
was not competent to carry out the highly-skilled work required to rectify
structural instability and had no money to spare to have such work carried out
by others.
In my judgment, Mr Beaton relied upon the
report and its contents at least to the extent that the building society was
prepared to advance money against the security of the property; that the value
of the property was £40,000; and that such evidence of structural movement
related to events many years before, which was not of a continuing or serious
nature. In deciding to purchase, the plaintiffs undoubtedly relied in part upon
their own assessment of the property, but the report was a significant and
important factor which influenced them in their decision to proceed. I do not
lose sight of the fact that the plaintiffs were living in difficult
circumstances, obviously were keen to purchase and had indicated an intention
to proceed before seeing the report. Nor do I ignore the reduction in valuation
from the agreed purchase price of £45,000 to £40,000. However, the plaintiffs
had withdrawn from the Bent Farmhouse purchase when difficulties arose and the
valuation by the building society expressly excluded the value of the paddock.
I am quite satisfied that had the report by Mr Land disclosed a real and
significant risk of further structural movement the plaintiffs would have
withdrawn from the purchase.
That being so, I have to determine
whether the plaintiffs have proved on the balance of probabilities that Mr Land
was negligent in reaching the conclusions which he expressed in his report.
In discharging his duties in his
inspection of Avondale, and reporting on that inspection, Mr Land was required
to value the property after taking into consideration major defects which were,
or ought to have been, obvious to him in the course of a visual inspection of
so much of the exterior and interior of the bungalow as were accessible to him
without undue difficulty. His inspection was not, nor do I approach it as if it
should have been, a structural survey. His inspection was limited, but it was a
limited inspection made by a skilled professional man.
The standard of care required of Mr Land
was that of the ordinary skilled man exercising the same skill as himself. The
degree of skill required to be exercised can be described as the abilities of a
reasonably skilled, competent building society surveyor. It is against that
standard that his conduct must be judged.
In determining this issue I first reach
findings on the condition of the property as at the date of the inspection by
Mr Land. I am assisted in this regard by a report provided by W D Stone
Associates, consulting civil structural and service engineers dated February 23
1982 and prepared by Mr Martin King. The author of the report did not give
evidence before me. The report was obtained following further structural
movement of the property which took place in late 1981 and early 1982. It is
accepted by the parties that the report accurately records the condition of the
property at that time, that is to say 10 months after Mr Land conducted his
valuation.
Mr King records the presence of a number
of zigzag cracks following the line of the soft mortar pointing which had been
repointed. The photographs show that the repointing of such cracks was
immediately and obviously distinguishable from the original pointing and indeed
Mr Land expressly referred to these areas in his contemporaneous notes, though
not in his report. The importance of zigzag cracking of this nature — more
elegantly known as stepped fractures — is that it is a strong indication of
structural movement. On the front elevation there were five step fractures
which had been made good, on the north elevation four such fractures, on the
rear elevation two further such fractures and on the south elevation yet two
more step fractures made good. The repointed step fractures were of differing
lengths and were not connected one with another. I find that they were all
present in their repointed state when Mr Land inspected.
In addition, there were a number of
stepped fractures in the brickwork which had not been repointed. Mr Land
accepts that some fractures of this type were present. By February 1982 there
were about 10 unrepaired step fractures and most of the repointed cracks had
opened up again. The precise number and size of the unrepaired fractures in May
1981 is difficult to determine. Mr Hughes told me that when he took Mr Beaton
round Avondale in April 1981 there was general cracking of the brickwork
visible, probably 10 or more separate cracks, but I bear in mind that his
recollection is poor and in any event the width and length of each crack was
not measured at this time. I am satisfied, however, that a substantial part of
that which was apparent in February 1982, and certainly the greater and more
serious part, was present in May 1981. I am further satisfied that there was
extensive internal cracking of wall and ceiling plaster.
What, then, should the ordinary competent
building society surveyor carrying out a building society valuation have
concluded from the presence at the time of his valuation in 1981 of relatively
extensive repointed step cracking and further unrepaired cracking of the nature
and extent which I find was present in this property? Mr Land concluded that those findings pointed
to structural movement in the past which was many years old and did not
consider there was continuing structural movement. The risk of such further
movement was one which the defendant could accept. The plaintiffs contend that
this conclusion is not one which any reasonably competent building society
valuer exercising the proper degree of skill could have reached; they contend
that the findings were negligently made and that they have suffered loss and
damage thereby. The defendant contends that the conclusion reached by Mr Land
was a reasonable one in all the circumstances and that Mr Land was not
negligent. The defendant further emphasises that if, contrary to the contention
advanced, the conclusion of Mr Land was wrong there is a distinction between a
reasonable, although in retrospect mistaken, opinion on the one hand and a
negligent opinion on the other hand. I have that distinction clearly in mind.
Both parties have retained the services
of highly qualified and experienced chartered surveyors to assist me in
resolving this dispute. Mr Maurice Beale [FRICS] gave evidence on behalf of the
plaintiffs and Dr Edwards gave evidence on behalf of the defendant. Both
experts have vast experience in dealing with a wide range of defective
buildings and have undertaken structural surveys and mortgage valuations
throughout their professional lives. There is nothing to choose between them in
terms of general expertise but there is an irreconcilable difference of opinion
between them.
It is the opinion of Dr Edwards on behalf
of the defendant that the cracking evident in May 1981 was of a minor nature,
of considerable age and indicated slight structural movement in the building of
long standing. He did not consider that the presence of the oak trees had had
any very significant effect on the structural movement. He told me that the
shallow foundations of Avondale, by their nature, gave rise to minor structural
movement from time to time, especially following drought conditions such as
those in 1975 and 1976 and that this structural movement is normally manifested
by minor cracking in brickwork which should then be repaired by repointing. He
considered that the stepped cracking was of little more than cosmetic
importance and did not accept in any sense that such cracking was indicative of
instability in the structure of the property. He concluded that the report of
Mr Land was a reasonable and proper assessment of the situation which
adequately discharged both the duty and standard of care owed by him. In
particular, Dr Edwards says that there was no reason why Mr Land should have
reached any other conclusion than he did and certainly should not have
recommended any further investigation. I have not rehearsed the full detail of
Dr Edwards’ reports and evidence but I have considered with care all the points
he made.
Mr Beale, on the other hand, concluded
that there were three factors present at the site of Avondale which created a
situation in which there was a substantial risk of subsidence as a result of
movement in the foundations and substructure. Those three factors were the clay
subsoil, the shallow foundations and the presence of the two oak trees close to
the property. These three factors, he opined, produced a high risk of
subsidence. He further says that where there are a significant number of
stepped fractures of the brickwork, some of which run into the substructure, in
a property subject to the risk factors he describes any competent building
society valuer would recognise those signs as a good indication that the
building is moving or has moved. This conclusion should have been reinforced by
the presence of internal plaster cracking which in parts corresponded with the
exterior cracking of the brickwork. It was further his opinion that in the
light of the risk factors together with the presence, as I find there was, of a
substantial number of repointed and unrepaired step fracture cracks and some
corresponding internal plaster cracking, any competent building society valuer
exercising a reasonable level of care and skill would have concluded that the
risk of future subsidence
until a further investigation had been made on the causes of structural
movement and recommended remedial works had been carried out. Mr Beale
considers that any competent building society valuer would have assessed
Avondale as class 4 for mortgage purposes, namely a house which was not
suitable for a building society mortgage.
As I have said, there was an
irreconcilable clash of opinion between the two surveyors and I am in the
unhappy position of having to form a judgment as to which opinion I prefer. I
watched them closely as they gave evidence in the witness box. I considered the
extent to which the views they have been expressing in their written opinions
were supported when they came to give evidence, particularly when they were
cross-examined, and I also did my best to assess the degree to which their
professional opinions were soundly based on reasoned argument and supported by
other external evidence available to them such as Building Research
Establishment documents. I further looked for a detached objectivity of the
reasoning and opinion in their evidence.
I also examined the position in the light
of the revised BRE Digest 251. This was not published and available until after
the evidence and speeches. It was supplied by agreement. Its contents do not
affect my conclusions on liability, but they might affect quantum.
In the light of all these matters, I have
examined with the greatest possible care the evidence and opinions of each
surveyor and I have weighed and taken into account to the extent that I
consider proper the criticisms which have been made of each surveyor in
counsel’s closing submissions. I have come to the clear conclusion that the
evidence and opinions of Mr Beale are to be preferred to those of Dr Edwards
where there is any significant difference of opinion between them.
Mr Land says that he was aware both of
the risk factors described by Mr Beale and of the cracking to which I have
referred. I do not accept that he attached sufficient importance to those
matters in reaching his conclusions, and I further consider that Dr Edwards
sought to dismiss these matters too lightly. Mr Land did not mention the
presence of the oak trees in his report. It is true that he drew them on the
rough sketch of the bungalow he made in his notebook, but his initial
explanation to me for so doing was simply so that he might be helped to
identify the property and position at a later date. In his written proof, though
not in evidence, Mr Land referred to the presence of the oak trees as a
‘theoretical hazard’. In an internal memorandum written by Mr Land on March 8
1982 after further structural movement had taken place at Avondale and the
report from Stones had been supplied to him in which the probable cause of
subsidence was said to be the trees, he wrote:
The trees mentioned were obviously taken
into account but I did not feel there was any particular danger to the
property, having regard to the location of the trees. I would add that the oak,
to my knowledge, is not regarded from the point of view of root spread, as a
dangerous specimen.
Mr Land accepts that he was aware in 1981
from his training, his experience and comment in various professional journals
that certain trees on clay subsoil close to buildings constitute a potential
danger. The general nature of the risk is that the tree roots draw water from
the subsoil thus causing the subsoil to contract or shrink excessively,
creating the risk of subsidence under the foundations with consequential
structural damage to the building. The risk is greater with certain species of
trees. One of the high-risk categories is oak. The rule of thumb of which, I am
satisfied, any competent building society valuer should have been aware in 1981
is to the effect that there is a risk of subsidence causing structural movement
where an oak tree is growing at a distance less than its own height from the
building under consideration.
In the case of Avondale there were two
oak trees, both well within the danger zone; in addition the property was
built, to the knowledge of Mr Land, on a clay subsoil with shallow foundations.
I am driven to the clear conclusion that Mr Land did not, on this occasion,
take those factors properly into account when assessing the significance of the
repointed and unrepaired stepped fractures which were present.
Further, I note that Mr Land described
the unrepaired stepped fractures as ‘many years old’. Perhaps his report is not
felicitously phrased at this point. The fact is, however, that both Mr Land and
Dr Edwards accept that the appearance of the fractures entitled Mr Land to
conclude only that they were at least one or two years old. Nothing further
could be learnt from the appearance of them. There were, of course, a number of
repaired stepped fractures in addition. I find it difficult to understand how
in those circumstances Mr Land could properly conclude that any structural
movement was not of a continuing nature. If some stepped fractures had been repointed,
why not the others? One obvious
possibility was that they post dated the repointing and might have been no
older than one or two years. There was nothing to justify the exclusion of such
a possibility and with the risk factors present in cumulative form there were
substantial pointers that structural movement might be continuing. An opinion
that structural movement was not continuing might in the event have been
correct, but the evidence facing Mr Land in May 1981, had he examined it with a
seeing eye, pointed, in my judgment, to quite the contrary conclusion.
In all the circumstances and taking into
consideration the matters urged upon me, I find that an ordinary competent
building society valuer inspecting Avondale in the course of a building society
valuation in 1981 would have concluded that there was not only evidence of past
structural movement but also a substantial and significant risk of future
structural movement of sufficient seriousness that no mortgage advance could
properly be made upon the property unless and until a full investigation had
been prepared on the causes of the structural movement and any remedial works
to prevent further movement had been carried out. In my judgment, had Mr Land
given proper weight to the cumulative effect of the factors present, that is
the conclusion which he would and should have reached. It follows that Mr Land
was negligent in and about his inspection and report and I so hold.
In the event the report of Mr Land was
favourable. The mortgage of £12,000 subject to retention was granted. The
plaintiffs effected most of the remedial works required of them by the
defendant. On June 20 1981 Mr Land reinspected the property and approved the
release of the retained balance of £2,000. On July 2 1981 the full mortgage
advance was released to the plaintiffs and their purchase of Avondale was
completed.
In late 1981 Mr Beaton noticed some
further cracking to the bungalow and found that the front door was sticking. He
was not unduly concerned at that time and merely trimmed the door. In February
1982 late at night Mr Beaton experienced a sensation which he described as the
bungalow giving a slight sigh. It was, he said, more a feeling than anything
else. The next morning the front door was jammed and he had to force it open
from the outside; in addition a new crack had appeared in the bedroom at the
corner of which Mr Beaton had been told underpinning had been effected. There
is a dispute as to when it was that Mr Beaton noticed further settlement. I
regard the dispute as of no significance on the issue of liability but I
conclude that in substance Mr Beaton’s recollection is correct.
Mr Beaton reported the further structural
movement to the building society. Mr Land attended to inspect the property. He
concluded that there was evidence of further movement which had not been there
in 1981. Mr Land further says, and I accept, that it was on this occasion that
Mr Beaton told him of underpinning in part of the foundations. There followed
an unsuccessful attempt to claim against the plaintiffs’ insurers, in the
course of which the report of Stones was obtained. The insurance claim was
ultimately rejected because of the existence of subsidence before the further
movement in 1982.
However, it should be noted that by 1982
most of the repointed stepped fractures had cracked again. When Mr Beale and Dr
Edwards first inspected the property in 1983 and 1984 there was evidence of
further widening of the cracks recorded in 1982 and some slight fresh cracking.
Thereafter no further structural movement of any significance occurred until
1990 when, following the dry summer of 1989, there was, according to Mr Beale,
significant further cracking both externally and internally indicating
continuing instability of the bungalow. The detail of the new structural
movement is set out in his report dated March 15 1990 and the accompanying
photographs. One stepped fracture had reached the foundations, close to which
there was a crack in the foundations themselves. Dr Edwards does not agree that
there has been any further movement of consequence and was unable to see the
foundation crack which Mr Beale says he found. Having heard both witnesses and
considered all the photographs I prefer the evidence of Mr Beale on this issue
as well. In my judgment, Dr Edwards has attempted to minimise what are in fact
clear pointers that the bungalow is continuing to suffer from structural
movement and distress and will continue to deteriorate unless remedial action
is taken.
It is submitted on behalf of the
defendant that Mr Land, their servant or agent for whom it is accepted they are
vicariously liable, was not negligent in May 1981. For the reasons already
given I conclude that this submission fails. Mr Land did not have sufficient
regard to those factors which should have resulted in his recommending the
rejection of the application for a mortgage advance. The plaintiffs submit that
once I have reached this finding I should not go on to consider what the
consequences would have been had Mr Land advised the defendant that the risk of
further structural movement and the seriousness of that risk could only be
evaluated after further investigation. The defendant submits that this is
unrealistic and that I should examine the probabilities of what would have
happened so far as the evidence permits me so to do. I accept the defendant’s
submissions on this point and accordingly proceed further. The broad thrust of
the defendant’s submissions is that even if Mr Land was negligent, that
negligence made no difference to the progress of the plaintiffs’ purchase. I
therefore consider the consequences of my finding that a competent building
society surveyor would have advised his employers not to make any advance
without further investigation.
I accept that the plaintiffs were extremely
keen to acquire Avondale and thus were likely to follow the advice, had it been
given, to investigate further the risk of future structural movement. The costs
of such investigation would have fallen on the plaintiffs; they were very short
of money; but I find that they would none the less have found the necessary
funds.
Dr Edwards says that such further
investigation would have identified the underpinning to the north-west corner
of the building. I was told by Mr Land what the building society would have
done had they learned of the existence of underpinning. They would, he said,
have made extensive inquiries into the situation. They would obtain details of
the underpinning, preferably the original report by the surveyor or engineer
who was overseeing the work, the scheme of underpinning, the extent of
underpinning actually carried out, and the final survey certificate which they
would issue plus as much other information as was available.
In my judgment, the attitude of a
structural surveyor acting for the plaintiffs would have been no less rigorous.
Such inquiries would have lead quickly to W D Stone, who advised Mr Page on
subsidence in 1977. The report then prepared, dated May 9 1977, before any work
was carried out, reads in part:
Settlement has occurred at both front
corners which line up with the two oak trees and the crack patterns to both
gable walls, mainly at the corners, show an outward movement of the brickwork.
The cause of the settlement is desiccation of the sub-soil by the adjacent trees.
Internally corresponding crack patterns
are present.
The report sets out the remedial works
required, which were both extensive and expensive. The initial inspection of
the underpinning in fact effected would at once reveal that only a small
fraction of the recommended works were ever undertaken. It is probable that
further inquiries would have led to Mr Hughes, the estate agent who first told
Mr Beaton about the underpinning. Mr Hughes would have told the surveyors, as
he told me, that when the 1977 structural problems occurred, Mr Page, whom he
had known as a neighbour, was seriously underinsured. Mr Page sought the help
of Mr Hughes, who negotiated an ex gratia payment of £400, which was
wholly insufficient to carry out any lasting work. As Mr Hughes put it to me:
Mr Page accepted the payment. Both he and
his wife were elderly. They had no one to leave their bungalow to and they
resolved to spend the money as wisely as possible to try and lengthen the life
of the property. They did some work to rectify the subsidence, but not much.
I should perhaps make clear that Mr
Hughes does not suggest he told Mr Beaton these details at the time of showing
him round Avondale in 1981.
By 1981 the structural movement had
developed and worsened. I am quite satisfied that any competent investigation
of structural movement at that time would have discovered the fact that about
four years earlier there had been serious structural movement which had not
been properly rectified and that further movement had subsequently taken place.
The building society would not have made a mortgage advance in the light of
this information, nor would a surveyor retained by the plaintiffs to report on
the property have concluded other than that there was a continuing risk of
significant structural movement.
In my judgment, had Mr Land advised the
defendant that the risk of further movement was not acceptable in the absence
of further investigation and had that investigation taken place, no mortgage
advance would have been made.
I turn finally to the issue of
disclaimer. The defendant submits that any liability which might otherwise
arise is excluded by printed words which appear on the mortgage application
form, the offer of advance and the copy of the valuation report provided to the
plaintiffs. The words relied on are set out in extenso in para 11 of the
reamended defence. They include the following:
No responsibility is implied or accepted
by the Society or its Valuer for either the value or condition of the property
by reason of the Inspection and Report. The Society does not undertake to give
advice as to the value or condition of the property and accepts no liability
for any such advice that may be given. The inspection carried out by the
Society’s valuer was not a structural survey and there may be defects which
such a survey would reveal.
The plaintiffs accept that they read the
words relied on. In my judgment, the words do on their face constitute a valid
and effective disclaimer. That finding, however, is subject to the provisions
of the Unfair Contract Terms Act 1977.
The disclaimers relied on are not
contract terms but are rather notices within the meaning of section 11(3) of
the 1977 Act. The relevant question, accordingly, is whether the notice
satisfies the criterion of reasonableness under the Act, being that ‘it should
be fair and reasonable to allow reliance on it, having regard to all the
circumstances obtaining when the liability arose or (but for the notice) would
have arisen’. The onus of showing that the disclaimer is fair and reasonable is
on the defendant. I must decide whether the defendant satisfies me that it is
fair and reasonable for the building society to disclaim responsibility in the
particular circumstances of this case. I have to have regard to all the
circumstances obtaining when liability arose or (but for the notice) would have
arisen, which must be the time when the report was either made or communicated
to the plaintiffs.
I am assisted in resolving this issue by
the recent decision of Smith v Eric S Bush (supra). The speech of
Lord Griffiths sets out a number of matters which, he says, should always be
considered where this question falls to be determined. I have indeed done so in
this case. I remind myself that I am here dealing with a dwelling-house of
modest value where, as Mr Land frankly conceded, he recognised that the
plaintiffs might well rely on his care and skill in deciding whether to proceed
with their purchase. The defendant recognises that the considerations outlined
by Lord Griffiths would in general be determined against the building society.
It is, however, submitted that there are two specific matters which make it
fair and reasonable for the defendant to rely on the disclaimers.
First, it is said that the plaintiffs
were advised to have a structural survey carried out, certainly by their own
solicitors and perhaps by Mr Ellard. I have already concluded that Mr Ellard
did not so advise them. However, they were certainly advised to have a
structural survey of Bent Farmhouse and equally made a positive decision not to
have a survey on Avondale. The statistics show that only 10% to 15% of all
purchasers of modest dwelling-houses trouble to obtain their own valuation and
survey. The conduct of the plaintiffs in not having a structural survey was
thus to be anticipated. Further, the report of Mr Land went much further than
simply approving the application for a mortgage at a stated valuation. The
terms of the report stressed that certain matters should be brought to the
attention of the applicants: some of those matters adversely affected the
property and required remedial work; others, including the critical question of
structural movement, were positively reassuring. Why, it is argued on behalf of
the plaintiffs, should they go to the trouble and expense of paying for another
report? In my judgment, the very terms
of the report make it unfair and unreasonable to permit the defendant to rely
on disclaimers on this ground.
The second ground relied on by the
defendant relates to the fact that Mr Beaton had been told by Mr Hughes that
the property had been partially underpinned. It is submitted that if Mr Beaton
knew about the underpinning he could not have been relying on the valuation; on
the contrary, it is submitted, far from relying on the valuation he would have
given a sigh of relief that the underpinning had not been discovered by Mr
Land. In the alternative, it is said, if Mr Beaton knew that the valuation had
been prepared on a false or incomplete basis and did rely on it with that
knowledge it would be fair and reasonable to allow the defendant to rely on the
disclaimers.
If I had concluded that Mr Hughes had
made it plain to Mr Beaton that there was cause for anxiety about the underpinning
work, there would be force in the defendant’s submission. I do not so find. As
far
structural soundness of the property rather than the reverse. In hindsight Mr
Beaton may think it of great importance that he should have told Mr Land about
the matter. In May 1981 I am satisfied he did not, and in particular he did not
deliberately conceal the presence of underpinning. Thus, the factual basis for
the defendant’s submission is not established.
In all the circumstances of this case and
after taking into consideration the factors mentioned in this judgment and
other less central features to which I have been referred by both parties I am
not satisfied that it would be fair and reasonable to allow the defendant to
rely on the disclaimers.
I accordingly find for the plaintiffs on
the issue of liability. The matter will be re-listed in due course for a
further hearing on the issue of quantum unless, of course, the parties can come
to terms. I do not reserve the matter to myself.
On the question of costs by agreement in
the light of my finding on liability I make an order that the defendant pay the
costs of the plaintiffs including costs reserved with liberty to apply. I
further order that there be legal aid taxation of the plaintiffs’ costs.
