Building Societies Act 1986 — Ombudsman scheme — Whether Ombudsman has jurisdiction and duty to investigate and determine complaints in relation to valuations made by employees of a building society of properties to be charged to a society to secure further advances to an existing borrower
plaintiffs, the Halifax Building Society, the Woolwich Building Society, the
Leeds Permanent Building Society and the Alliance & Leicester Building
Society, are members of a scheme recognised by the Building Societies
Commission — The first defendant is the Ombudsman appointed under the scheme
and which he claimed gave him jurisdiction and a duty to investigate and
determine complaints in relation to valuations made by employees of a building
society of properties to be charged to a society to secure further advances to
an existing borrower from that society — The second to ninth defendants
complained to the Ombudsman that valuations were carried out negligently by the
plaintiffs — The plaintiffs denied that the Ombudsman had the jurisdiction and
duty he claimed
the Building Societies Act 1986 makes provision for the investigation of an
individual’s complaint against a society to be investigated under a scheme —
The relevant matter of complaint was the grant or refusal to grant further
advances to a borrowing member and referred to in para 3, Part II of Schedule
12 to the 1986 Act — Upon considering an application for a further advance,
each of the plaintiff societies require a borrower to state whether he wishes a
basic valuation, a house buyers’ report or a structural survey
care and skill on the part of an employee of a building society can constitute
maladministration within the meaning of Part III of Schedule 12 to the 1986 Act
and of the scheme — Accordingly, the Ombudsman was entitled to investigate and
determine complaints — (2) In the case of house or flat buyers’ reports and
valuations, the performance of an employed valuer was the performance of his
contract of employment and there was no scope for a contract by the valuer as
principal with the borrower — If a society chooses an independent valuer, then
there is a separate contract between the valuer and the borrower — If the society
chooses to use its own employee, then there is no separate contract between the
valuer and the borrower — In the latter case, but not the former, the society
is responsible if the report is not made with due care and skill by its
employee — It follows from this analysis that the provision of the report to
the borrower is an action by the building society and that if it is prepared
without appropriate skill and care the ground of the complaint, namely breach
of the society’s contractual obligation, falls to be investigated by the
Ombudsman — (3) In the case of the structural survey, there is no relevant
distinction between the provision of a structural survey at the request of a
borrower applying for a further advance and the provision of a house buyer’s
report in the same circumstances — An analysis of the contractual relationship
produces the same result and the same consequences — Declarations granted
accordingly
The following
case is referred to in this report.
R v Local Commissioner for Administration for the North and East
Area of England, ex parte Bradford Metropolitan City Council [1979] 1 QB
287
By an
originating summons the plaintiffs, the Halifax Building Society, the Woolwich
Building Society, the Leeds Permanent Building Society and the Alliance &
Leicester Building Society, sought declarations as to the jurisdiction of the
first defendant, Mr Stephen Edell, the Building Societies Ombudsman, in
relation to applications for further advances made by the second to ninth
defendant borrowers.
Simon Berry QC
and John McGhee (instructed by Church Adams Tatham & Co) appeared for the
plaintiffs; and Timothy Lloyd QC and Katherine McQuail (instructed by Farrer
& Co) represented the first defendants. The second to ninth defendants did
not appear and were not represented.
Giving
judgment, MORRITT J said: Section 83(1) of the Building Societies Act
1986 confers on an individual the right as against a building society to have
any complaint of his about action taken by the society in relation to a
prescribed matter of complaint which affects him in prescribed respects
investigated under a scheme recognised by the Building Societies Commission.
There is one such scheme known as the Ombudsman Scheme, which was recognised by
the Building Societies Commission on June 5 1987. Each of the plaintiffs is a
member of the scheme and the first defendant is the Ombudsman appointed under
it. The Ombudsman claims that the jurisdiction and duty to investigate
conferred and imposed on him by the scheme enables and requires him to
investigate and determine complaints in relation to valuations made by
employees of a building society of properties to be charged to the building
society to secure further advances to an existing borrower from that society.
The plaintiffs disagree and, by the originating summons now before me, seek the
determination of certain questions of construction of the scheme so as to
resolve the question of jurisdiction.
The brochures
issued by each of the plaintiffs show that there are three types of valuation
which may be made. There is the basic valuation required to enable the society
to assess the adequacy of the security offered pursuant to section 13 of the
Building Societies Act 1986. The second to seventh defendants have complained
to the
carried out negligently by an employee of, in the case of the second and third
defendants, the Halifax Building Society; in the case of the fourth and fifth
defendants the Woolwich Building Society and in the case of the sixth and
seventh defendants the Leeds Permanent Building Society. Such brochures also
refer to two other types of valuation or survey. The second is a home or flat
buyers’ report and valuation. The eighth and ninth defendants have complained
to the Ombudsman that such a report and valuation made by an employee of the
Alliance & Leicester Building Society was carried out negligently. The
third type of valuation and report is a full structural survey. It is accepted
that such surveys are carried out only by employees of the building society in
the case of the Woolwich Building Society, so that the question at issue can
arise only in regard to the structural surveys provided by that building
society.
None of the
second to ninth defendants appeared at the hearing but all the arguments
available to them were put by counsel for the Ombudsman. It was common ground
that the scheme, though set up pursuant to a statutory obligation, was a
private and not a public law scheme so that the procedure by way of originating
summons rather than judicial review was appropriate.
Before
considering the scheme, it is necessary to refer to various provisions in the
Building Societies Act 1986. Section 83 provides, so far as material, as
follows:
(1) An individual shall, by virtue of and in
accordance with schemes under this section, have the right, as against a
building society, to have any complaint of his about action taken by the
society in relation to a prescribed matter of complaint which affects him in
prescribed respects investigated under the scheme.
. . .
(6) Schedule 12 to this Act has effect for the
purposes of this section and, in that Schedule —
(a) Part I prescribes the matters for which
provision must be made by a scheme if it is to be a scheme which qualifies for
recognition for the purposes of this section;
(b) Part II prescribes the matters action in
relation to any of which must be subject to investigation under a scheme if it
is to qualify for recognition for the purpose of investigations in relation to
that matter; and
(c) Part III contains other requirements to
which a scheme must conform if it is to be so recognised.
Subsection (7)
enables the Building Societies Commission with the consent of the Treasury by
order to vary Part II or Part III of Schedule 12.
Subsection
(15) provides, so far as material:
In this
section, section 84, Schedule 12 and Schedule 13 . . .
‘action’
includes any failure to act, and so as regards ‘exercise’ in relation to any
power; and ‘action’, in relation to a society, includes action on its behalf by
any body associated with it;
‘prescribed’,
in relation to matters of complaint, means prescribed for the time being in Part
II of Schedule 12, and in relation to the respects in which a complainant is
affected by any action, means prescribed for the time being in Part III of that
Schedule as grounds for making action subject to investigation under the
scheme;
Section 84 provides,
so far as material:
(2) Determinations of complaints under recognised
schemes shall be made by reference to what is, in the adjudicator’s opinion,
fair in all the circumstances of the case and any direction given to a building
society or associated body by an adjudicator may (if the complainant accepts
the determination) require it or the complainant not to exercise or require the
performance of any of the contractual or other obligations or rights subsisting
between them.
(3) Subject to subsections (4) and (5) below, a
determination of the adjudicator under a recognised scheme which is, by virtue
of the complainant’s acceptance of it, binding on the building society or
associated body shall not be questioned in any court of law.
(4) Subsection (3) above does not apply where a
society or associated body is authorised by the scheme to relieve itself of its
obligation to take the steps it is directed to take or pay the compensation
awarded by the society’s undertaking an obligation to give the requisite
publicity for the reasons for not doing so and the society undertakes that
obligation.
(5) Where a determination of the adjudicator
under a recognised scheme is binding on the building society or associated
body, the adjudicator shall, at the request of the society or associated body,
state a case for the opinion of the High Court on any question of law and the
High Court may direct the adjudicator to reconsider the complaint.
Schedule 12,
Part II sets out the prescribed matters of complaint. The relevant matter is
para 3 which states:
The operation
or termination of the account of a member borrowing on a class 1 or class 2
advance and the grant or refusal to grant a borrowing member of that
description other or further class 1, or as the case may be, class 2 advances
secured on the same or different land or other facilities normally available to
borrowing member of his description.
Note: The operation or termination of the account of a borrowing member
includes any aspect of the relationship or the termination of the relationship
between the society and a borrowing member as such, including in particular the
exercise of the right of foreclosure or any other power over the land by virtue
of the mortgage.
Note: The grant of advances includes the terms on which they are granted.
Part III of
Schedule 12 is headed ‘Minimum Requirements for Recognised Schemes: Other
Provisions’. Para 1 is headed ‘Grounds of complaint‘ and states:
1 The grounds for making action by a building
society or associated body subject to investigation under the scheme must be
that the action constitutes —
(a) in the case of a building society, a breach
of the society’s obligations under this Act, the rules or any other contract,
or
(b) in the case of an associated body, a breach
of the associated body’s obligations under its rules (if any) or any contract,
or
(c) unfair treatment, or
(d) maladministration,
in relation
to the complainant and has caused him pecuniary loss or expense or
inconvenience.
Para 2 sets
out the permissible exclusions from investigation, and paras 3 to 5 set out the
functions of the adjudicator. Para 3(a), (c) and (d)
provide as follows:
A scheme
must, as regards the duties and powers attached to the investigation of
complaints under the scheme —
(a) impose on the adjudicator a duty, subject to
the provision made in pursuance of sub-paragraph (c) below, to
investigate and determine any complaint duly made;
. . .
(c) confer power on the adjudicator to advise,
mediate or act as conciliator before proceeding further with an investigation;
(d) confer power on the adjudicator to extend the
scope of his investigation to other matters related to the action complained of
. . .
Para 4
provides, so far as material:
(3) Subject to sub-paragraph (4) below, a scheme
may preclude the adjudicator, in his determination, from questioning the merits
of any decision taken by the society or associated body with reference to —
. . .
(b) the creditworthiness, for the purposes of any
advance or other service or facility, of the complainant;
but not
otherwise.
(4) Where investigation of a complaint on the
ground of maladministration involves consideration by the adjudicator of any
decision taken with reference to the creditworthiness of the complainant the
scheme must confer power on the adjudicator to direct the society or associated
body to take its decision again and reach it by proper procedures.
Pursuant to
section 85 and Schedule 14, if both the complainant and the society agree, the
adjudicator may act in relation to a complaint within section 83 as an
arbitrator with all the legal consequences that that entails.
The scheme
conforms with the provisions of the Act. It provides all the minimum
requirements and no more. It provides for the appointment of the Ombudsman to
be called the Building Societies Ombudsman as the adjudicator required by the
Act. Clauses 14, 17 and 18 provide as follows:
14. Conditions
for Investigation
The Ombudsman
shall (in accordance with and subject to the following Clauses of this Scheme)
investigate any complaint received by him from an individual if: —
(a) the complaint relates to action taken in the
United Kingdom by a building society or a body associated with it;
(b) at the time that the complaint is received
by the Ombudsman, the building society or (as the case may be) associated body
is a Participant in the scheme;
(c) the action was taken in relation to one of
the activities specified in Clause 17;
(d) the grounds of the complaint are included in
the grounds specified in Clause 18; and
(e) the complainant alleges that the action has
caused him pecuniary loss, expense or inconvenience.
. . .
17. Activities
Covered
The activities
which may be subject to investigation under this Scheme are those specified in
Part II of Schedule 12 of the 1986 Act, which are described there under the
following headings: —
— Share
Accounts
— Deposit
Accounts
—
Borrowing Members: class 1 or class 2 advances
—
Borrowers: loans by appropriate mortgage companies
—
Borrowers: mobile home loans
—
Borrowers: other loans
— Banking
services
—
Trusteeship
—
Executorship.
18. Grounds
of Complaint
The grounds of
any complaint must be that the action complained of constitutes, in relation to
the complainant: —
(a) in the case of a Participating Society, a
breach of its obligations under the 1986 Act, its rules or any other contract;
or
(b) in the case of a Participating Associate, a
breach of its obligations under its rules (if any) or any contract; or
(c) unfair treatment; or
(d) maladministration.
It is
unnecessary to refer to any other provisions of the scheme because I have
already quoted the corresponding provisions in the Act. The provisions of
clauses 14, 17 and 18 relevant to the issues before me have been helpfully set
out in para 7 of the affidavit of Mr Thomas McKeown [solicitor for the
plaintiffs] in which I have interpolated three numbers to indicate the
particular passages which were dealt with in argument. With that interpolation,
the relevant provisions read as follows:
The Ombudsman
shall . . . investigate any complaint received by him from an individual if [1]
. . . the complaint relates to action taken in the United Kingdom by a Building
Society . . . [2] in relation to . . . the grant or refusal to grant a
borrowing member . . . other or further . . . advances secured on the same or
different land provided that the grounds of complaint [are] that [3] the action
complained of constitutes in relation to the complainant: —
(a) in the case of a participating Society, a
breach of its obligations under the Act, its rules or any other contract or . .
.
(b) unfair treatment or
(c) maladministration.
Before
referring to the arguments, it is necessary to refer to other provisions of the
Act. Section 13(1) provides as follows:
It shall be
the duty of every director of a building society to satisfy himself that the
arrangements made for assessing the adequacy of the security for any advance to
be fully secured on land which is to be made by the society are such as may
reasonably be expected to ensure that —
(a) an assessment will be made on the occasion of
each advance whether or not any previous assessment was made with a view to
further advances or re-advances;
(b) each assessment will be made by a person
holding office in or employed by the society who is competent to make the
assessment and is not disqualified under this section from making it;
(c) each person making the assessment will have
furnished to him a written report on the value of the land and any factors
likely materially to affect its value made by a person who is competent to
value, and is not disqualified under this section from making a report on, the
land in question;
but the
arrangements need not require each report to be made with a view to a
particular assessment so long as it is adequate for the purpose of making the
assessment.
Section 45
sets out the criteria for the prudent management of a building society. By
subsection (3), para 4, and subsection (10) such criteria include maintenance
of the requirements of section 13.
By section 34,
a building society was authorised to provide the services described in Schedule
8. As originally enacted, paras 1, 2, 3, 8 and 14 were:
1. Money
transmission services.
2. Foreign
exchange services.
3. Making or
receiving of payments as agents.
. . .
8. Arranging
for the provision of credit, whether on behalf of the borrower or the person
providing credit, and providing services in connection with current loan
agreements to the party providing credit.
. . .
14. Surveys
and valuations of land.
Paras 1, 2, 3
and 8 corresponded to the headings and description of the matters of complaint
originally contained in Schedule 12, Part II, paras 6, 7, 8 and 9. Schedule 8
was varied by an order made in 1988. Paras 1, 4, 5 and 6 now read as follows:
1. Banking
services.
. . .
4.
Trusteeship.
5.
Executorship.
6. Land
services.
‘Land
services’ is defined as follows:
‘Land
services’ means services relating to the acquisition, management, development
or disposal of land.
When Schedule
12, Part II was amended by order in 1990, matters of complaint in paras 6, 7
and 8 corresponded to paras 1, 4 and 5 of Schedule 8 as amended. Thus, both
before and after amendment the matters of complaint in Schedule 12 embraced
some only of the services a society was authorised to provide and omitted both
surveys and valuations of land and land services.
It is common
ground between the plaintiffs and the Ombudsman that the only relevant matter
of complaint is that part of Schedule 12, Part II, para 3, which refers to the
grant or refusal to grant further advances to a borrowing member. Thus, it is
also common ground that the complainant must have been an existing borrower at
the time of the grant or refusal in question. Likewise, because the complaint
must be about action taken by the society, the Ombudsman has no jurisdiction to
investigate complaints relating to valuations made by a surveyor who is not an
employee of the society in question. Thus it is clear that the Ombudsman could,
if his arguments are right, investigate only complaints arising from negligent
valuations in the case of some lenders and some borrowers.
I propose to
consider the questions raised in respect of basic valuations first. In the case
of each plaintiff, the application form for a further advance requires the
borrower to state whether he wishes a basic valuation, a house buyers’ report
or a structural survey, the brochure having pointed out the limited scope of
the first two. If he opts for a basic valuation, for which he pays a lower fee
than for either of the other two, he will normally receive a copy. Such a
valuation is, in any event, required by the building society to ensure
compliance with the criteria of prudent management set out in section 45 and by
the directors of the building society to ensure compliance by them of the
duties imposed by section 13.
For the
plaintiffs it is submitted that the action of the employee valuer in exercising
his professional skill and judgment in providing a basic valuation for
consideration by the assessor is not action taken by the society but a service
rendered to the society by a professional man as such, even though he is also
an employee.
Second, it is
submitted for the plaintiffs that such action is not in relation to the grant
or refusal of a further advance because the making of the valuation is not part
of the administration or managerial process leading to the grant or refusal but
is only a condition precedent to the actual process of making a grant.
Third, it is
submitted that maladministration is the only relevant ground for complaint in
respect of basic valuations and that that does not comprehend the exercise of
professional skill and judgment by an employed surveyor. The plaintiffs rely on
the ordinary meaning of that word as connoting faulty administration or inefficient
or improper management of affairs as approved by Eveleigh LJ in R v Local
Commissioner for Administration for the North and East Area of England, ex
parte Bradford Metropolitan City Council [1979] 1 QB 287, at p 314, in the
context of the Local Government Act 1974.
I was referred
to a number of other Acts in which the word ‘maladministration’ is used in that
sense, namely Parliamentary Commissioner Act 1974, Local Government Act 1974,
National Health Service Act 1977 and Social Security Act 1990.
The plaintiffs
submit that if maladministration includes the provision by an employee of a
negligent valuation, then the result would be anomalous because, as is common
ground, the provision of such a report by an independent surveyor could not be
maladministration.
I will
consider each of these points in turn, though it must always be borne in mind
that the provisions of the scheme must be construed as a whole so that each
phrase provides part of the context for the others.
As a body
corporate, a building society can act only through the human agency of its
officers and employees. The performance of his contract of employment by an
employee involves the provision of services to his employer. But if such
performance involves an action within the scope of his employment affecting
persons outside the building society, then such action is by the building
society. I see no justification for concluding that if the service provided
involves the use of professional skill and judgment, the provision of such a
service to the society cannot also constitute action by the society. In my
judgment, it is plain that the provision of a basic valuation by an employee to
a building society to enable the assessment of the adequacy of the security
offered by a borrowing member for a further advance involves action taken by
the society about which the member may complain if the other prescribed
conditions are satisfied.
The next
question is whether such action is taken in relation to the grant or refusal to
grant a further loan. It was common ground that the words ‘in relation to’ are
general words linking the action to the prescribed matter of complaint. It is
apparent from section 13 that a basic valuation is necessary to the
consideration of an application for a further advance. It is quite true, as the
plaintiffs submit, that provided the person making the valuation is competent
to value, it matters not who instructed him to produce the valuation or whether
he is an employee of the building society or not. Thus, there is no obligation
on a building society itself to provide the valuation. But this consideration
seems to me to be immaterial. The existence of such a valuation is a sine
qua non to the grant of a further advance. The provision of such a
valuation is in relation to the grant of a further advance because that is its raison
d’etre. The fact that it may have been provided by the member, not the
society, and produced by an independent surveyor, not an employee of the
society, merely shows, as conceded, that it is not in those cases action taken
by the society. But this is irrelevant to the question whether it is in
relation to the grant of a further advance. In my judgment, it plainly is.
So the crucial
question is whether, if the basic valuation is produced by an employee of a building
society, any failure to exercise due care and skill can constitute
maladministration. It was common ground that this word connotes faulty
administration, inefficient or improper management of affairs. Likewise, it was
common ground that faulty administration contemplated the procedures by which
decisions are made as opposed to the merits of the decisions. This distinction
is borne out by Schedule 12, Part III, para 4(4).
To my mind,
the answer to the question depends on ascertaining in the context of the Act as
a whole what is the administration referred to. A building society is not
concerned with public or local government or the provision of a public service.
Thus, the administration referred to is not of a governmental nature and the
other legislation to which I was referred is of no assistance. It is clear from
Schedule 12, Part II, that the relevant maladministration, and hence
administration, is not the conduct of the building societies’ business as a
whole but only in those spheres of their activity falling within the prescribed
matters of complaint. Those spheres are financial and commercial. It seems to
me that the administration in question must be the procedure by which the
building societies’ business is conducted within those spheres.
In the case of
the grant of a further advance, those procedures include all the steps
necessary to assess the adequacy of the security offered for an advance. This
requires ensuring that there is a basic valuation and considering its contents.
If the borrowing member does not produce a basic valuation, then the building
society must procure one itself. Thus, in my judgment, the administration of
the society’s business in the field of making advances includes, if necessary,
obtaining a basic valuation from, if it so chooses, one of its employees. If it
chooses to get one from one of its employees, then it seems to me that the
preparation of that report by one of its employees is as much a part of the
administration of the societies’ business in the field of making advances as is
consideration of the report by the assessor required by section 13(1), para (b).
The fact that it is not an essential part of the process of granting an advance
in all cases that a basic valuation should be supplied by an employee of the society
does not mean that where the basic valuation is supplied by an employee its
provision is not part of the process of administration. It follows from this
that the failure of an employee to exercise reasonable skill and care in making
his basic valuation is faulty and, therefore, maladministration.
It is true
that this conclusion may appear anomalous in that the right conferred on a
borrowing member by section 83(1) is confined to cases where the basic
valuation is produced by an employee of the society. But anomalies are bound to
arise with any investigative scheme of limited scope. Moreover, the anomaly
arises not from the word ‘maladministration’ but from the limitation that the
complaint must be about action taken by the society. In my judgment, the
meaning of the words used is too clear to permit the exclusion of negligent
basic valuations by an employee of the society by any process of construction.
The fact that this conclusion enables the Ombudsman to investigate complaints
that a professional man has failed to use due care and skill otherwise that in
accordance with the common law is no reason for reaching a contrary conclusion
either. It is inherent in the business of lending money that a variety of
professional skills will be deployed. I see no ground for excluding the valuer
if his acts or omissions are those of the society.
Likewise, the
fact that surveys and valuations of land or land services are permissible
activities for a building society but not, as such, matters of complaint within
Schedule 12, Part II, does not mean that the provision of a basic valuation by
an employed valuer in relation to the grant of a further advance must be
excluded from the administration of granting or refusing advances. The terms
are not mutually exclusive.
In my
judgment, the Ombudsman is right. There is nothing relating to the facts of any
of the specific complaints of the second to seventh defendants which requires
separate consideration. Accordingly, I refuse to make the declaration sought by
subparas (a), (b) and (c) of para 1 of the originating summons and I will
answer the questions raised in paras (a) to (e) of para 2 in the affirmative.*
*Editor’s
note: Para 1(a) to (c) and para 2(a) to (e) of the originating summons are
reproduced below:
1. A
declaration that upon the true construction of the Scheme the First Defendant
is not entitled to investigate or determine:
(a) the complaint against the First Plaintiff
received by him from Michael Robert Allen and Christine Allen the Second and
Third Defendants respectively relating to the allegation that the Report
and Valuation for Mortgage Assessment carried out on the 9th November 1988 for
the First Plaintiff in respect of the property known as 16 St Mary’s Grove,
Newton Regis, near Tamworth was prepared negligently in that it failed to deal
properly or at all with the major structural problems at the premises which had
caused the roof to sag and the ceiling in the master bedroom to crack;
(b) the complaint against the Second Plaintiff
received by him from Jeffrey Leonard Brommage and Heather Maureen Brommage the
Fourth and Fifth Defendants respectively relating to the allegation that
the Report and Valuation for Mortgage dated the 13th September 1988 prepared
for the second Plaintiff in respect of the property known as 3 Woodland Close,
Failand, Bristol was prepared negligently in that it failed to deal properly or
at all with a major structural fault in the premises namely the floor and wall
deflections at first floor level caused by overstressing of the floor beams due
to insufficient support under the solid block walls;
(c) the complaint against the Third Plaintiff
received by him from Lawrence Frederick West and Christa West the Sixth and
Seventh Defendants respectively relating to the allegation that the Report
and Mortgage Valuation dated the 25th January 1988 prepared for the Third
Plaintiff in respect of the property known as The Winnats, Audrey Street,
Station Road, Ossett was prepared negligently in that it failed to deal
properly or at all with the extensive woodworm, dangerous wiring, rising damp
and rotten window frames at the said premises;
2. The
determination of the Court on the following question namely, upon the true
construction of the Scheme, whether and if so in what circumstances the First
Defendant is entitled to investigate and determine a complaint relating to
an allegation of failure to exercise the requisite degree of professional skill
and care on the part of a valuer or surveyor employed by the building society
against which the complaint is made in relation to a report by him on the
condition or value of any property where the report in question consists of:
(a) a written report prepared pursuant to section
13 of the Building Societies Act 1986 for a building society on the value of
land which is proposed as security for an advance to be made by the society and
on any factors likely materially to affect its value made by a person who is
competent to value and is not disqualified under section 13 aforesaid from
making a report on the land in question;
(b) a written report known as a ‘Valuers Report
and Valuation for Mortgage’ prepared for the First Plaintiff and more fully
described at pages 74-78 of the bundle referred to in the affidavit herein of
Thomas William McKeown;
(c) a written report known as a ‘Report and
Valuation for Mortgage’ prepared for the Second Plaintiff and more fully
described at pages 79-83 of the said bundle;
(d) a written report known as a ‘Report and
Mortgage Valuation’ prepared for the Third Plaintiff and more fully described
at pages 84-91 of the said bundle;
(e) a written report known as a ‘Valuation for
Mortgage Advance’ prepared for the Fourth Plaintiff and more fully described at
pages 92-99 of the said bundle; . . .
The next set
of issues relates to house or flat buyers’ reports and valuations. The
brochures issued by each of the plaintiffs encourages a borrowing member to
have such a report for his or her own protection. A higher fee is charged for
such a report and where the surveyor who carries it out is an employee of the
society, the fee is retained by the society. Where an independent surveyor is
used, he is paid by the society but the society retains part of the amount paid
by the borrowing member to cover the costs of its administration. The surveyor
conducts one inspection and provides a fuller report than is required to ensure
compliance with section 13. The report is sent to the borrowing member. Either
that report or a summary of it or a basic valuation prepared from the same
materials is used by the building society for the purposes of section 13.
As with the
basic valuation, the issues arise only where the house buyers’ report is made
by an employee of the society, for it is accepted that in other cases there is
no relevant action by the society.
In addition to
the three points on the basic valuation, namely action by the society in
relation to the grant or refusal of an advance and maladministration, one
further point arises in the case of a house or flat buyers’ report. That is
whether a report prepared by an employee valuer without due care and skill is a
breach of contract by the society so as to constitute a ground of complaint
within Schedule 12, Part III, para 1(a).
There are
variations in the literature used by each of the four plaintiffs and it is
necessary to refer to the various brochures, application forms, conditions of
employment and report forms.
In the case of
the Halifax Building Society, the brochure states in relation to valuations
generally:
We have an
extensive panel of valuers and surveyors who are well equipped to complete
these reports speedily and effectively. Please bear in mind, however, that we
cannot accept responsibility for the contents of the reports as the valuers act
independently from the Society — except in certain parts of the country where
we employ in-house valuers.
With regard to
the house buyers’ report, the borrower is informed:
The valuer
advises whether or not the price agreed for the house is realistic, taking into
account its repair and condition and the property market in general. A summary
of the report will be sent to the Society for mortgage assessment.
The conditions
of engagement of the valuer are set out indicating the nature of the service he
will perform and, so far as relevant, state:
1. The
Surveyor will advise the Client as to his opinion of the state of repair and
condition of and the value of the property specified by the Client on the
standard form of House Buyers Report and Valuation published on behalf of The
Royal Institution of Chartered Surveyors.
8 The Report is provided for the sole use of
the named Client and, where the Surveyor is so notified, his Mortgagee, and is
confidential to the Client and his professional advisers. The Surveyor accepts
responsibility to the Client alone for the stated purposes that the report will
be prepared with the skill, care and diligence reasonably to be expected of a
competent Chartered Surveyor, but accepts no responsibility whatsoever to any
person other than the Client himself. Any such person relies upon the Report at
his own risk.
In the form of
application for a mortgage the applicant is invited to state which type of
inspection he requires. The form of declaration to be signed by the applicant
includes the following:
I/we agree to
a valuer being instructed to prepare the report and valuation and I/we accept
the terms and conditions of engagement.
A six-page
report is provided to the borrower signed by the surveyor. Where he is employed
by the society, that will be indicated below the signature. A copy was
formerly, but is no longer, supplied to the society. The society always
received and still receives from the same surveyor a basic valuation containing
a summary of some but not all the matters contained in the report to the
borrower. The borrower does not receive a copy of the basic valuation.
In the case of
Woolwich Building Society the brochure states:
Who prepares
the report?
One of the
Woolwich’s surveyors, all of whom are members of the Royal Institution of
Chartered Surveyors, or The Incorporated Society of Valuers and Auctioneers, or
an approved surveyor nominated by the Society.
Under the
heading ‘What does the report cover?’, it is stated:
The full
terms and conditions upon which the Report is prepared are set out opposite
with the scale of fees charged shown separately. The Report will be used by the
Woolwich instead of the mortgage valuation report as it includes all the
information which usually appears in that report.
The relevant
conditions of engagement are:
1. The
Surveyor will advise the applicant and Woolwich Building Society (the Society)
as to his opinion of the state of repair and condition of, and the value of,
the property specified by the applicant on the standard form of Home Purchase
Report published by the Society in conjunction with the Royal Institution of
Chartered Surveyors.
. . .
7. The Report
is provided for the sole use of the named applicant and the Society and is
confidential to the applicant and his professional advisers. The Surveyor
accepts responsibility to the applicant and the Society only for the stated
purposes that the Report will be prepared with the skill, care and diligence
reasonably to be expected of a competent Chartered Surveyor, but accepts no
responsibility whatsoever to any person other than the applicant and the
Society. Any such person relies upon the Report at his own risk.
The form of
application states:
I/we request
the society to arrange for a Woolwich Home Purchase Report to be prepared and
confirm I/we have read, understand and accept the conditions of engagement. The
fee of [blank] pounds is enclosed.
As indicated
in the brochure, a copy of the whole report is supplied to the building
society. The last page contains a summary of the information required for the
purposes of section 13, though some consideration is also required of the first
page. The report is signed by the surveyor, who will indicate under his
signature whether he is an employee of the building society or an outside
valuer. Where the property in question is a flat, the society receives a
separate section 13 basic valuation as well.
In the case of
the Leeds Permanent Building Society, the brochure now in use states:
Two
alternative valuation and survey services are available to you, both of which
are primarily for your use — House Buyers Report or Structural Survey. If you
wish to obtain either of these more detailed reports we can request one from
the Surveyor or Valuer we would normally use to obtain our Report and Mortgage
Valuation.
In respect of
the house buyers’ report and valuation it is stated:
The House
Buyers Report and Valuation, without being a Structural Survey, is a report on
the state of repair and condition of the property. It contains a summary for
mortgage purposes and statistics and can be used by the Society instead of a
Report and Mortgage Valuation.
The relevant
conditions of engagement state:
1. The
surveyor, who will be a Chartered Surveyor or an Incorporated Valuer, will
advise the applicant(s) and Leeds Permanent Building Society as to his opinion
of the state of repair and condition of, and the value of, the property
specified by the applicant(s) on the standard form of Leeds Permanent/RICS
House Buyers Report and Valuation.
. . .
8. The Report
is provided for the sole use of the named Applicant(s) and Leeds Permanent
Building Society and is confidential to the Applicant(s) and his professional
advisers. The Surveyor accepts responsibility to the Applicant(s) and the Leeds
Permanent Building Society for the stated purposes and the report will be
prepared with the skill, care and diligence reasonably to be expected of a
competent Chartered Surveyor or Incorporated Valuer, but accepts no
responsibility whatsoever to any person other than the Applicant(s) and the
Leeds Permanent Building Society. Any such person relies upon the Report at his
own risk.
The report
consists of seven pages, the first six, described as the inspection report,
signed at the foot of p 6 by the surveyor with an indication whether or not he
is employed. The seventh page is described as a ‘Summary for mortgage purposes
and Statistics’ and is also signed by the surveyor with the appropriate section
13 certificate. Both the society and the borrower receive all seven pages.
In the case of
the Alliance & Leicester Building Society, the brochure states:
The Society
will be pleased to help you get a report suitable for your needs; details of
the House or Flat Buyers Reports (Option 2) and Building Survey (Option 3) are
set out overleaf. The fees for a fuller report are, of course, higher than for
the Society’s valuation report, because the surveyor will spend more time both
inspecting the property and preparing a fuller report suitable for your needs.
In relation to
option 2 it is stated:
With these
reports the Society will instruct, on your behalf, a suitably qualified
surveyor who will write to you direct with the details of the Terms and
Conditions of Engagement. The Surveyor will be responsible to you for the
stated purpose of the report.
The relevant
conditions of engagement may be either those of the Royal Institution of
Chartered Surveyors or the ISVA. The former are those I have quoted in the case
of the other building societies. The relevant condition of the latter states:
Responsibility
is accepted in the preparation of this report for the skill and diligence
reasonably to be expected of a competent surveyor and valuer but the
information it contains is for the confidential information only of the clients
for whom it is prepared and of any building society, bank or other lender to
whom written application for a mortgage advance has been made or will be made
within 28 days after the date of this report.
In the form of
application in relation to the house buyers’ report it is stated:
In choosing
this option, you authorise the society to request an appropriate surveyor to
undertake a report and valuation as described in the guidance notes for
mortgage applicants and you are satisfied and understand the conditions of
engagement.
The report
when made takes the same form as that in the case of the Leeds Permanent
Building Society. Both the society and the borrower receive a copy of all seven
pages.
For the
plaintiffs it was submitted that in each case either the only relevant contract
was between the borrower and the valuer or, if there were a contract to which
the building society was a party, its obligation was limited to instructing a
competent valuer. In neither case, it was submitted, was the society
contractually bound to provide a report prepared with due skill and care. In
each case the valuer, though employed by the society, contracted as principal
and accepted liability to the borrower. In consequence, it was submitted, the
relevant action was taken not by the society, the report was not required by
the society for its own purposes and was thus not in relation to the grant or
refusal of an advance, and a report negligently
obligations under any contract.
As conceded by
the Ombudsman, these submissions are well founded in the case of a valuer who
is not employed by the society. The forms of document in use by each of the
plaintiffs are directed primarily to cases where independent valuers are
instructed but they must also be considered against the background of a
contract of employment between the valuer and the society. In these cases the
society not only fixes and receives the fee payable for the report but retains
the fee for itself. The valuer gets his usual salary and no more. It is
entirely a matter for the society whether it selects one of its own employees
or instructs an independent firm. In the ordinary case, the borrower plays no
part in the choice and has no right to do so. As recognised by the conditions
of engagement, the report is made to the borrower and the valuer accepts
liability to him. But I do not think that these circumstances demonstrate a
contract between the valuer as principal and the borrower. The performance of
his task by the employed valuer is the performance of his contract of
employment. There is little scope and seemingly no consideration for a contract
by the valuer as principal. The conditions of engagement show that the valuer
accepts liability in tort to the borrower and the society but this has no
additional consequence where the valuer is liable to the society under his
contract of employment and the society would be vicariously liable to the
borrower for the valuer’s negligence if it were not already liable to the
borrower under a contract. In the case of Halifax Building Society the brochure
states that the society accepts responsibility for its employed valuers.
I accept the
submission for the Ombudsman. In accordance with that analysis, there is a
contract between the society and the borrower that the society will procure a
house buyers’ report either through its own employee or, at the society’s
option, through an independent valuer. If it chooses an independent valuer,
then there is a separate contract between the valuer and the borrower, the
society’s obligation being confined to using care in the selection of the
valuer. If the society chooses to use its own employee, then there is no separate
contract between the valuer and the borrower. The valuer does the work pursuant
to his contract of employment and the society provides the report to the
borrower pursuant to the contract between them. In the latter case, but not the
former, the society is responsible if the report is not made with due care and
skill by its employee.
It follows
from this analysis that the provision of the report to the borrower is an
action by the building society and that if it is prepared without appropriate
skill and care the ground of the complaint, namely breach of the society’s
contractual obligation, falls within Schedule 12, Part III, para 1(a).
Thus, it is unnecessary to consider the alternative ground of
maladministration.
But it does
not necessarily follow that the action of the society is in relation to the
grant or refusal of an advance. As all the brochures make plain, the house
buyers’ report goes beyond what is required by the society for the purposes of
section 13. The want of due skill and care may arise in respect of a matter
which finds no reflection in the summary or separate basic valuation. Thus, it
is true, as the plaintiffs submitted, that the provision of a house buyers’
report is not in all its details a necessary part of the process of assessing
the adequacy of the security.
But the phrase
‘in relation to the grant or refusal of an advance’ does not require the action
complained of to be a necessary part of the process. As a matter of ordinary
English it includes actions, which, while not strictly necessary, relate to the
grant or refusal of an advance. In the case of each of the plaintiffs, the
application form indicates that the borrower must ask for one of the three
valuations referred to. If the borrower chooses the house buyers’ report, the
work undertaken by the valuer results in both a report to the borrower and the
necessary report to the society. A single fee is paid to the society. In
reality it is all one process not susceptible of division, which is in relation
to the grant or refusal of an advance because the borrower selected that form
of report in his application for an advance and, in consequence of the
society’s decision to use its own employee, it is contractually liable for any
want of due skill or care.
Accordingly, I
refuse to make the declarations sought in para 1(d) of the originating summons
and I will answer the questions raised in para 2(f) to (j), but limited to the
documentation currently used by each of the four plaintiffs, in the
affirmative.
This leaves
the structural survey. The question arises only in the case of the Woolwich
Building Society because none of the other plaintiffs uses an employee to
produce it. In their brochure the Woolwich Building Society state:
The Woolwich
can now offer homebuyers a structural survey report. This will provide a much
more detailed examination of the structure and condition of the property being
purchased and will be carried out by one of the Woolwich’s own structural
surveyors.
The form of
application states:
I/we request
the society to arrange for a structural survey and, if appropriate, a mortgage
valuation report to be prepared and confirm that I/we have read and that I/we
understand and accept the conditions of engagement. The fee of [blank] pounds
is enclosed.
The relevant
conditions of engagement state:
1. The
Surveyor will advise the client and Woolwich Equitable Building Society (the
Society) as to his opinion of the state of repair and condition of, and the
value of, the property specified by the client on the report form published by
the Society.
. . .
15. The
report is provided for the sole use of the named client and the Society and is
confidential to the client and his professional advisers. The Surveyor accepts
responsibility to the client and the Society only for the stated purposes that
the report will be prepared with skill, care and diligence reasonably to be
expected of a competent Chartered Surveyor, but accepts no responsibility
whatsoever to any person other than the client and the Society. Any such person
relies upon the report at his own risk.
The report is
provided on a form headed ‘Woolwich Building Society: Structural Survey’. A
copy is supplied to the society. But, as the brochure makes plain, a structural
survey may be provided as part of the provision of surveying and valuation or
land services wholly unconnected with any application for the grant of an
advance. In those cases the report is not in relation to the grant or refusal
of an advance, so that even if negligently prepared it is not a matter of complaint
within Schedule 12, Part II, para 3. But where there is an application for the
grant of an advance a structural survey is one of the three forms of valuation
from which the applicant is required to choose. The same valuer will also
produce a basic valuation for the purposes of section 13. In such a case, as
the brochure states:
The fee for
the structural survey normally includes the cost of a separate mortgage
valuation report, which all mortgage applicants need to have carried out. This
report is prepared to enable the Woolwich to determine how much to lend. If you
are intending to take out a Woolwich mortgage a copy of this report will be
provided to you and will accompany our formal mortgage offer. If, however, you
are not intending to obtain a Woolwich mortgage then the fee will reflect the
fact that there will not be a need for a mortgage valuation report.
I do not see
any relevant distinction between the provision of a structural survey at the
request of a borrower applying for a further advance and the provision of a
house buyers’ report in the same circumstances. An analysis of the contractual
relationship produces the same result and the same consequences. Accordingly,
in relation to para 2(k) of the originating summons I will answer the question
in the affirmative, subject to the question being limited to the existing
documentation in use by the Woolwich and subject to the request for the
structural survey being part of an application for a further advance.
