Negligence — Duty of care — Disclaimer of liability — Mortgage valuation — Appeal from decision of Schiemann J in favour of houseowners — Review of authorities — Although Court of Appeal unanimous in allowing appeal, leave given to appeal to House of Lords in view of importance of issues — (As the House has itself given leave to appeal in the case of Smith v Eric S Bush, it seems likely that most aspects of liability in respect of negligent mortgage valuations will be thoroughly explored) — The present decision of the Court of Appeal is of particular importance in relation to disclaimer — Among cases discussed was Yianni v Edwin Evans & Sons, but no final opinion was expressed upon it, although there was a reference to ‘its inherent jurisprudential weakness in any ordinary situation’ — The present appeal was by the local authority and its staff valuer against the judgment of Schiemann J for £12,000, the judge having found the local authority both vicariously liable for the negligence of the valuer and primarily liable for offering a loan and mortgage
appeal, in the course of which a considerable amount of case law was reviewed,
two questions were argued, namely, whether the appellants owed a duty of care
to the respondents, and whether the appellants’ disclaimer was effective or was
invalidated by the Unfair Contract Terms Act 1977 — In fact the two questions
were found to be intimately connected and the disclaimer, which had been
dismissed by Schiemann J, was held to be of fundamental importance in deciding
whether the appellants owed such a duty of care — By the terms of the mortgage
application and acceptance no responsibility was assumed by the appellants for
the value or condition of the property by reason of the inspection and report —
Applying the principle of Hedley Byrne & Co Ltd v Heller & Partners Ltd,
the result was that the appellants never came under a duty of care to the
respondents — A disclaimer is not merely a possible answer to a duty of care
which already exists; it may prevent a duty of care from arising — The court
distinguished the case of Yianni v Edwin Evans & Sons by treating it as a
case where there was no disclaimer
the Unfair Contract Terms Act 1977, it can only apply where a duty of care has
been established — If, as here, a notice of disclaimer has prevented the duty
of care from coming into existence, there is nothing on which section 2 of the
Act can bite — Appeal allowed
The following
cases are referred to in this report.
Anns v Merton London Borough Council [1978] AC 728; [1977] 2 WLR
1024; [1977] 2 All ER 492; [1977] EGD 604; (1977) 243 EG 523 & 591, HL
Candler v Crane, Christmas & Co [1951] 2 KB 164; [1951] 1 All ER
426, CA
Curran v Northern Ireland Co-ownership Housing Association Ltd [1985]
8 NIJB 22, Carswell J; April 28 1986, CA, NI, unreported; [1987] 2 WLR 1043;
[1987] 2 All ER 13, HL
Donoghue v Stevenson [1932] AC 562, HL
Hedley
Byrne & Co Ltd v Heller & Partners Ltd [1964]
AC 465; [1963] 3 WLR 101; [1963] 2 All ER 575; [1963] 1 Lloyd’s Rep 485, HL
Ministry
of Housing and Local Government v Sharp [1970]
2 QB 223; [1970] 2 WLR 802; [1970] 1 All ER 1009; (1970) 68 LGR 187; 21
P&CR 166; [1970] EGD 139; 213 EG 1145, CA
Odder v Westbourne Park Building Society (1955) 165 EG 261
Smith v Eric S Bush (a firm) [1987] 3 WLR 889; [1987] 3 All ER 179;
[1987] 1 EGLR 157; (1987) 282 EG 326, CA
Stevenson
v Nationwide Building Society [1984] EGD
934; (1984) 272 EG 663
Ward v McMaster, Louth CC and Nicholas Hardy & Co Ltd [1985]
IR 29; [1986] ILRM 43
Westlake v Bracknell District Council [1987] 1 EGLR 161; (1987) 282 EG
868
Yianni v Edwin Evans & Sons [1982] QB 438; [1981] 3 WLR 843;
[1981] 3 All ER 592; [1981] EGD 803; (1981) 259 EG 969
Yuen
Kun Yeu v Attorney-General of Hong Kong
[1987] 3 WLR 776; [1987] 2 All ER 705, PC
This was an
appeal by Wyre Forest District Council and Trevor James Lee, a valuer on the
staff of the council, against the decision of Schiemann J (reported at [1987] 1
EGLR 231), in favour of Adam Charles Harris and his wife, Kim Harris,
plaintiffs in an action alleging negligence on the part of the council and Mr
Lee in relation to a mortgage offered to the plaintiffs for the purchase of a
house at 74 George Street, Kidderminster. Mr and Mrs Harris are the respondents
to the present appeal.
Piers Ashworth
QC and Nicholas Worsley (instructed by Lawrence Graham, agents for Rowleys
& Blewitts, of Birmingham) appeared on behalf of the appellants; R L
Johnson QC, Malcolm Stitcher and Bruce Speller (instructed by Thursfield &
Adams, of Kidderminster) represented the respondents.
Giving the
first judgment at the invitation of Kerr LJ, NOURSE LJ said: This is another in
the line of recent cases in negligence where the question for decision has been
whether a duty of care is owed to someone to whom it was formerly assumed that
no duty was owed. Here it is a house purchaser who, in reliance on a valuation
made without due care by an officer of a local authority advancing money on
mortgage under the Housing Acts, proceeds with his purchase and suffers damage
in consequence. In Odder v Westbourne Park Building Society (1955)
165 EG 261, a comparable action against a building society was described by
Harman J as unheard of. But it is said that decisions subsequent to Hedley
Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, in
particular Yianni v Edwin Evans & Sons [1982] QB 438, have
now established that the action will lie. That was the view of Schiemann J, who
decided this case in favour of the purchasers. The local authority and their
surveyor, who was also made a party to the action, have now appealed to this
court. It must be emphasised at the outset that this is a case where the local
authority expressly disclaimed liability to the purchasers in respect of the
valuation.
The material
facts, most of which I take from the necessarily longer statement of the
learned judge, are these. In 1978 the plaintiffs, Mr and Mrs Harris, then a
young couple who were thinking of getting married, were looking in
Kidderminster for a house costing less than £10,000. They were looking at
Victorian terraced houses. They knew that they would have to obtain a mortgage
for nearly all of the purchase price. They came to the conclusion that the most
suitable source of finance was the first defendants, the Wyre Forest District
Council, who at that time, like many other local authorities and with the
encouragement of successive governments, had a policy of making loans to
intending purchasers of older, small residential properties, on the security of
which banks and building societies were in general unwilling to lend. The
details of the council’s scheme were set out in a document which was available
to interested parties, but the judge found that the plaintiffs never saw it and
that no steps were taken by the council to bring it to the attention of
potential mortgagors.
Eventually the
plaintiffs decided that they would like to purchase 74 George Street,
Kidderminster, which was for sale at a price of £9,450. The selling agent, who
evidently had a supply of the council’s standard mortgage application forms,
filled in one of them with the plaintiffs’ help, indicating that they were
prepared to contribute £500. That form was signed by the plaintiffs on August
23 1978. Immediately above their signatures appeared these words:
TO BE READ
CAREFULLY AND SIGNED BY ALL APPLICANTS.
I/WE enclose
herewith the Valuation Fee & Administration Fee £22.
I/WE
understand that this fee is not returnable even if the Council do not
eventually make an advance and that the Valuation is confidential and is
intended solely for the information of Wyre Forest District Council in
determining what advance, if any, may be made on the security and that no
responsibility whatsoever is implied or accepted by the Council for the value
or condition of the property by reason of such inspection and report.
(You are
advised for your own protection to instruct your own Surveyor/Architect to
inspect the property.)
I/WE agree
that the Valuation Report is the property of the Council and that
I/WE cannot
require its production.
The judge
found that neither of the plaintiffs read those words, although they did
enclose the fee of £22 with the application form. Nobody suggested to the
plaintiffs that they should have their own survey done. They themselves did not
think of it, although they knew
been somewhere between £75 and £100. The plaintiffs themselves did not make any
inspection of the outside of the house.
In due course
the council arranged for the second defendant, Mr Lee, to inspect and value the
property. He was employed by the council as a valuation surveyor. He was not a
building surveyor. He inspected the property on September 8 and subsequently
prepared his report, which was dated September 13. He valued the house at the
asking price of £9,450 and recommended a loan of 90% of the valuation for a
maximum period of 25 years. Under the heading ‘Essential Repairs’ he wrote:
Obtain report
for District Council from MEB regarding electrics and carry out any recommendations.
Make good mortar fillets to extension.
The judge held
that it was implicit in Mr Lee’s report that structural repairs were not in his
view essential. He also found that Mr Lee knew that his report would not be
forwarded to the plaintiffs but that they would be told the amount of any loan
and of any repairs which he regarded as being essential. Mr Lee also knew that
the typical applicant was a first-time buyer of modest means.
By September
25 the vendors had agreed to a reduced price of £9,000. Two days later the
council wrote to the plaintiffs and told them that they were prepared to make
an advance of £8,505 repayable over a period of 25 years, subject to a number
of conditions, one of which was that the plaintiffs should sign an undertaking
on completion ‘to carry out within 12 months therefrom the work detailed
overleaf’. Overleaf appeared the following:
ESSENTIAL
REPAIRS (1) Obtain report for District Council from Midland Electricity Board
regarding electrics and carry out any recommendations. (2) Make good mortar
fillets to extension.
Completion duly
took place on November 23 1978, when the plaintiffs signed an undertaking in
the form required.
Three years
later, in November 1981, the plaintiffs put 74 George Street on the market. In
April 1982 some prospective purchasers applied to the council for a similar
loan in respect of the property. Mr Lee made a further inspection and valued it
at £13,750. But because of a problem with settlement at the next-door property
which had been experienced in February 1981 he recommended that the whole of
the proposed loan should be retained until a structural survey report by an
independent architect or structural engineer had been obtained and any
recommended work carried out. A structural survey was duly obtained and it
became clear that the cost of the recommended works would run into many
thousands of pounds. That meant that the council were unable to lend money on
the security of the property and that in consequence it was unsaleable. In June
1982 the plaintiffs instructed their own building surveyor, who reported that
the building was unsaleable and required considerable underpinning and other
works. His report was sent to the council who prepared a specification, which
included, but went beyond, the plaintiffs’ surveyor’s suggestions. One
contractor who was approached was not prepared to tender, since he regarded the
proposed work as impractical and unsafe. Another quoted over £13,000 to carry
out the necessary works. Formal application was made for a repair grant, but
the council had no surplus funds. The house was taken off the market in July
1982 and the plaintiffs have continued to live there ever since. The writ in
the action was issued on September 16 1983.
The claim made
in the reamended statement of claim can for present purposes be summarised as
follows: (1) In carrying out his inspection and valuation in 1978 Mr Lee owed a
duty of care to the plaintiffs; (2) the inspection and valuation were carried
out carelessly by Mr Lee, for whose negligence the council is vicariously
liable; (3) Mr Lee and the council, or one of them, carelessly misrepresented
in the valuation report that the property was worth more than the amount of the
loan requested by the plaintiffs; (4) the mortgage offer made to the plaintiffs
by the council was made in the light of and in reliance upon the valuation
report and in the knowledge that the plaintiffs might also rely on it; and (5)
the plaintiffs did rely on the report and thereby suffered damage. By their
defence the defendants deny that they were negligent. They further deny that
the plaintiffs placed any reliance upon the inspection or valuation. So far as
necessary they rely on the disclaimer contained in the mortgage application
form of August 23 1978. By their reply the plaintiffs contend that the
disclaimer is ineffective to exclude liability for negligence and, so far as is
necessary, they rely on section 2 of the Unfair Contract Terms Act 1977.
The council’s
statutory power to advance money on the security of the property (see below)
could be exercised only if they had satisfied themselves that it was, or would
be made, in all respects fit for human habitation. Schiemann J found that the
house was not fit for human habitation at the material time. I do not think
that that finding can affect the outcome of this case. The judge also found
that Mr Lee’s valuation of the property was made without due care. The
defendants’ appeal against those two findings has not been pursued. Moreover,
they accept that the plaintiffs did rely on the valuation and have suffered
damage in consequence. The two questions which have been argued on this appeal
are, first, whether the defendants or one of them owed a duty of care to the
plaintiffs and, second, whether the disclaimer, if it is otherwise effective to
exclude liability for negligence, is invalidated by section 2 of the 1977 Act.
I turn first
to the alleged duty of care. In 1978 the council’s power to advance money on
the security of the property was contained in section 43 of the Housing (Financial
Provisions) Act 1958. It is the primary submission of Mr Ashworth, for the
defendants, that the terms of that section, which provides, among other things,
for a valuation to be obtained and acted upon by the local authority, show that
the sole purpose of those provisions is to protect the local authority’s funds
and thus their ratepayers. It is not their purpose, or part of their purpose,
to protect prospective mortgagors. But that submission, although undoubtedly
correct, does not solve the problem, because it is still possible for a local
authority to put themselves into a position where they come under a duty of
care to a prospective mortgagor. To take an extreme and improbable example,
they might offer to make their valuation available to him for the express
purpose of helping him to decide whether the price was right. Whether they have
come under such a duty or not depends on the facts of the individual case.
There are now at least two authorities where, on facts comparable with those of
the present case, it has been held that a duty of care was owed to a
prospective mortgagor.
The convenient
course is to go straight to the decision of Park J in Yianni v Edwin
Evans & Sons. There are a number of significant differences between
that case and this. First, the mortgagee was a building society and not a local
authority. Second, the valuation was not made by an employee of the building
society but by an independent firm of valuers and surveyors instructed by them.
Third and most important, although the plaintiffs acknowledged receipt of (a) a
notice excluding the building society’s statutory warranty under section 30 of
the Building Societies Act 1962 that the purchase price was reasonable and (b)
an explanatory booklet containing a paragraph to much the same effect as the
mortgage application form in the present case, no disclaimer of liability was
made by or on behalf of the valuers. Fourth, no doubt as a consequence of that,
the plaintiffs sued the valuers and not the building society. There was also
unchallenged independent evidence from the chief surveyor to the Abbey National
Building Society to the effect that for some six years or so over 90% of
applicants for a building society mortgage had relied upon the building
society’s valuation, as represented by the society’s offer of an advance, as a
statement that the house in question was worth at least that sum and, further,
that applicants seeking to buy houses at the lower end of the property market
did not read building society literature or, if they did, ignored the advice to
have an independent survey and also the terms of the statutory notice; see
[1982] QB 438 at pp 444H to 445H, 447D-F and 455F-H. It is important to note
that counsel for the defendants accepted that the defendants did not make any
disclaimer of responsibility; see [1982] QB at p 440E.
On those facts
Park J held that the valuers owed a duty of care to the prospective mortgagors.
The essence of his decision is expressed at [1982] QB at p 454C-D where, after
reading at length from the dissenting judgment of Denning LJ in Candler v
Crane, Christmas & Co [1951] 2 KB 164 and from the speeches in the
House of Lords in Hedley Byrne & Co Ltd v Heller & Partners
Ltd and also a wellknown passage from the speech of Lord Wilberforce in Anns
v Merton London Borough Council [1978] AC 728 at p 751, he said:
Accordingly
guided by the passages in the judgment of Denning LJ in Candlers case
and in the speeches in the House of Lords cases, I conclude that, in this case,
the duty of care would arise if, on the evidence, I am satisfied that the
defendants knew that their valuation of 1 Seymour Road, in so far as it stated
that the property provided adequate security for an advance of £12,000 would be
passed on to the plaintiffs, who, notwithstanding the building society’s
literature and the service of the notice under section 30 of the Building
Societies Act 1962, in the defendants’ reasonable contemplation
house and mortgage it to the building society.
Mr Ashworth
submitted that Yianni v Edwin Evans & Sons was wrongly
decided. Alternatively, he submitted that it is distinguishable, principally by
reason of the disclaimer of liability contained in the mortgage application
form of August 23 1978. The correctness or incorrectness of these submissions
can be judged only after it is seen how the facts of the present case stand in
relation to existing principles of law.
It is not, I
think, suggested that the defendants owed a duty to the plaintiffs to make a
valuation of 74 George Street. What is said is that, being under a duty to
others to make a valuation which they knew would necessarily come to the
knowledge of the plaintiffs, the defendants owed to them a duty to make it with
due care. In negative form, the duty was not carelessly to misstate the value
of the property to the plaintiffs. As I have said, it is now accepted that the
valuation was carelessly made; in other words that there was a breach of the
duty, if one was owed. It is also accepted that the plaintiffs relied on the
valuation and have suffered damage in consequence. The only question therefore
is whether a duty was owed.
This question
must be answered by an application of established principles relating to
negligent misstatement, which, being only one instance of the negligent acts
and omissions of which the law takes account, depends on there being the
necessary proximity between the maker and the recipient of the statement. It is
here that difficulty is most often caused, sometimes because the statement
lacks the necessary gravity of purpose or occasion and at others because it is
available to a wider class of recipients than those towards whom a duty could with
justice be constructed. In attempting to resolve one or other of these
difficulties in the case before him, more than one eminent judge has based his
decision on a more general statement of what is required to constitute the
necessary proximity. Thus in Hedley Byrne & Co Ltd v Heller &
Partners Ltd itself Lord Pearce said [1964] AC 465 at p 539:
Was there
such a special relationship in the present case as to impose on the defendants
a duty of care to the plaintiffs as the undisclosed principals for whom the
National Provincial Bank was making the inquiry? The answer to that question depends on the
circumstances of the transaction. If, for instance, they disclosed a casual
social approach to the inquiry, no such special relationship or duty of care
would be assumed (see Fish v Kelly). To import such a duty the
representation must normally, I think, concern a business or professional
transaction whose nature makes clear the gravity of the inquiry and the
importance and influence attached to the answer.
That, I
respectfully think, is a valuable statement because, in dealing with the first
and perhaps less familiar kind of difficulty, it highlights a requirement which
is common to all those cases where the necessary proximity has been found. The
circumstances must be such that the maker of the statement ought reasonably to
recognise both the importance which will be attached to it by the recipient and
his own answerability to the recipient in making it. In Hedley Byrne &
Co Ltd v Heller & Partners Ltd itself and in other cases this
requirement has been expressed as a voluntary assumption of responsibility or
the like, but it has been held that in some circumstances the liability can
extend to a case where the maker of the statement is under a duty to make it: see
Ministry of Housing and Local Government v Sharp [1970] 2 QB 223.
I would
therefore frame the essential question which we have to decide in these terms:
were the circumstances such that the defendants ought reasonably to have
recognised both the importance which would be attached to Mr Lee’s valuation by
the plaintiffs and their own answerability to them in making it? By now it will be obvious that that question
cannot be answered without considering the terms and effect of the disclaimer
contained in the mortgage application form of August 23 1978. So far as
material, that form, which was signed by the plaintiffs, (1) expressed an
understanding on the part of the plaintiffs that the valuation was confidential
and intended solely for the information of the council and that no
responsibility whatsoever was implied or accepted by the council for the value
or condition of the property by reason of the inspection and report; (2)
contained advice to the plaintiffs, for their own protection, to instruct their
own surveyor or architect to inspect the property; and (3) expressed an
agreement by the plaintiffs that the valuation report was the property of the
council and that they could not require its production.
In the court
below, Schiemann J held, first, that since the plaintiffs had signed the form
immediately below the material words they must, notwithstanding his finding
that neither of them had read them, be treated as if they had. Mr Johnson, for
the plaintiffs, did not seriously seek to disturb that holding before us. Mr
Ashworth submitted that it did not affect the outcome either way. Second, the
judge held, apparently as a matter of construction, that the material words did
not relieve either of the defendants from liability and he therefore ignored
them in considering that question. He gave no reasons for that view and Mr
Johnson has not seriously sought to support it. With all due respect to the
judge, I do not think that it can be supported. In my view the material words
in the mortgage application form are directly in point and are of fundamental
importance in deciding whether the defendants owed a duty of care to the
plaintiffs.
I am prepared
to assume that, notwithstanding the terms of the disclaimer, the defendants
ought reasonably to have recognised the importance which would be attached to
Mr Lee’s valuation by the plaintiffs. That assumption would be well justified
by a commonsense assessment of the mental processes of prospective mortgagors
in this category, as evidenced by the testimony of the chief surveyor to the
Abbey National Building Society in Yianni v Edwin Evans & Sons.
But, however that may be, in my judgment it is impossible to say that the
defendants ought reasonably to have recognised their own answerability to the
plaintiffs in making the valuation. By statute they owed no duty to the
plaintiffs. By the terms of the mortgage application form it was clear that no
responsibility whatsoever was implied or accepted by them for the value or
condition of the property by reason of the inspection and report, even if they
were made without due care. There is no rule, whether of public policy or
otherwise, against the defendants’ acting in that way. Indeed, it is of the
essence of the decision in Hedley Byrne & Co Ltd v Heller &
Partners Ltd that they are at liberty to do so.
For these
reasons I am of the opinion that the defendants never came under a duty of care
to the plaintiffs. While others might frame the essential question in different
terms, I do not see that they could answer it in a different sense. Moreover,
the disclaimer was as effective in the case of Mr Lee as an individual
defendant as it was in the case of the council themselves. He at all times
acted as a servant of the council, who could only reasonably have been expected
to act through their servants. The references to the council therefore included
Mr Lee as an individual.
It follows
that Yianni v Edwin Evans & Sons, where there was no
disclaimer of liability by or on behalf of the defendants, is in my view
distinguishable from the present case. Mr Ashworth has nevertheless pressed us
to consider the correctness of that decision. I for my part do not think that
that is an inquiry on which we ought to embark. It is true that the well-known
passage from the speech of Lord Wilberforce in Anns v Merton London
Borough Council, on which it was partly based, has since undergone a
process of reassessment in a series of decisions at the highest level,
culminating in the recent decision of the Privy Council in Yuen Kun Yeu v
Attorney-General of Hong Kong [1987] 3 WLR 776. Mr Ashworth also referred
us to the judgment of the late Sir Maurice Gibson LJ in Curran v
Northern Ireland Co-Ownership Housing Association Ltd (April 28 1986 —
unreported), a contribution to the subject which repays careful study. That was
a case where, on comparable facts but with no disclaimer of liability, the
Court of Appeal in Northern Ireland held that the defendants owed no duty of
care to the plaintiffs. But Gibson LJ treated Yianni v Edwin Evans
& Sons as distinguishable and he certainly proceeded on the footing
that it was correctly decided. While that can no doubt be explained partly by
the conventions which are respected between judges sitting in different
jurisdictions, I believe that it confirms that it is undesirable, even for
appellate courts, to express a view as to the correctness of other decisions
which have in large part depended on other facts. Moreover, Yianni v
Edwin Evans & Sons has been followed in one reported decision at first
instance and perhaps in other, unreported, cases as well. The reported decision
is Westlake v Bracknell District Council (1987) 282 EG 868*.
Finally, it is clear that Yianni v Edwin Evans & Sons has led
to a wide change of practice among local authorities and building societies,
who now usually, perhaps invariably, make a disclaimer of liability in cases of
this kind. I think that we should be content to make a decision which may give
some general guidance in other cases where there is a disclaimer. We should not
seek also to deal with a different class of case whose numbers are likely to
decrease.
*Editor’s
note: Also reported at [1987] 1 EGLR 161.
Before leaving
this question, I would make three further points. First, in holding in favour
of the plaintiffs, Schiemann J relied mainly on another part of the decision in
Curran v Northern Ireland Co-Ownership Housing Association Ltd,
which has since been reversed by the House of Lords: see [1987] 2 WLR 1043.
(There was no cross-appeal by the plaintiffs in that case against the main part
of the decision above referred to.)
Second, the main thrust of Mr Johnson’s argument on this question was
that the disclaimer was, on the facts as a whole, overborne or reduced in
significance by the council’s duty, under the encouragement of successive
governments, to provide young couples like the plaintiffs with decent homes.
While I recognise the force of that argument and have very great sympathy with
the plaintiffs, I have to say that it is not for this court to deny to the
defendants a limitation of liability which the House of Lords have expressly
allowed them. It is difficult to see what more the council could have done in
order to limit their liability in the present case. Third, in Stevenson v
Nationwide Building Society (1984) 272 EG 663, another decision on
comparable facts, the late Mr John Wilmers QC, sitting as a deputy judge of the
Queen’s Bench Division, was confronted with a disclaimer in almost identical
terms to those contained in the mortgage application form in the present case.
Although it appears that it was conceded that, subject to the 1977 Act, it
constituted an effective disclaimer, the learned deputy judge, who referred to
passages in the speeches in Hedley Byrne & Co Ltd v Heller &
Partners Ltd, clearly thought that that was the correct view: see (1984)
272 EG at p 671. A similar view was taken by this court in Smith v Eric
S Bush (a firm) [1987] 3 WLR 889*, where, at p 898, Glidewell LJ said:
Mr Seabrook’s
argument is that the disclaimer did not cover liability for negligence. If that
is correct, the disclaimer did not cover anything. The plaintiff was never in a
contractual relationship with the defendants. If they were or could be liable
to her, that liability could only be in the tort of negligence — which is how
the plaintiff’s claim is framed.
I shall have to
revert briefly to both those cases later.
*Editor’s
note: Also reported at [1987] 1 EGLR 157 and (1987) 282 EG 326.
I now turn to
consider the application of the Unfair Contract Terms Act 1977, whose long
title, so far as material, is:
An Act to
impose further limits on the extent to which . . . civil liability for breach
of contract, or for negligence or other breach of duty, can be avoided by means
of contract terms and otherwise . . .
Mr Johnson
submits, first, that the Act applies to the disclaimer contained in the
mortgage application form as a notice excluding the defendants’ liability for
negligence and, second, that it is not fair and reasonable to allow reliance on
it. Mr Ashworth submits that the Act has no application to this case.
The provisions
of the Act on which these submissions primarily depend are:
Section 1(1):
For the
purposes of this Part of this Act, ‘negligence’ means the breach (a)
of obligations
in contract
(b) of any common law duty to take reasonable
care or exercise reasonable skill (but not any stricter duty); . . .
Section 2:
(1) A person cannot by reference to any contract
term or to a notice given to persons generally or to particular persons exclude
or restrict his liability for death or personal injury resulting from
negligence.
(2) In the case of other loss or damage, a person
cannot so exclude or restrict his liability for negligence except in so far as
the term or notice satisfies the requirement of reasonableness.
Section 11(3):
In relation
to a notice (not being a notice having contractual effect), the requirement of
reasonableness under this Act is 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 governing
provision in this case, being one where there is no liability for death or
personal injury resulting from negligence, is section 2(2). When adapted to the
present case, and with the definition of ‘negligence’ in section 1(1)(b) read
into it, the subsection provides that a person cannot, by reference to a notice
given to particular persons, exclude his liability for the breach of any common
law duty to take reasonable care, except in so far as the notice satisfies the
requirement of reasonableness.
Mr Ashworth
submits that when section 2(2) is spelled out in this way it is seen to apply
only where a duty of care already exists. A notice which has prevented it from
coming into existence is not one upon which the subsection bites. Mr Johnson
submits that the wording applies as naturally to the latter case as it does to
the former. He also relies on the words in section 11(3) ‘having regard to all
the circumstances obtaining when the liability arose or (but for the notice)
would have arisen’ as showing that the Act expressly contemplates the inclusion
of a case where a notice has prevented the duty from coming into existence.
This is a
short question of statutory construction of wide general importance. Only two
views are possible. Either the 1977 Act applies to all cases of negligent
misstatement where a disclaimer has prevented a duty of care from coming into
existence or it applies to none.
I have found
this question to be both difficult and uncomfortable: difficult because either
construction of section 2(2) appears to be tenable; uncomfortable because Mr
Ashworth’s argument could have been advanced, but evidently was not, by either
of the experienced counsel who represented the defendants in Stevenson v
Nationwide Building Society and Smith v Eric S Bush (a firm).
Giving it the best consideration I can, I have come to the conclusion that the argument
of Mr Ashworth represents, on balance, the more natural reading of section
2(2). The contrary argument seems to involve reading the words ‘liability for
the breach of any common law duty to take reasonable care’ as including
‘liability for the breach of what without the notice would have been a common
law duty to take reasonable care’. Moreover, the words in section 11(3) on
which Mr Johnson relies are found in a provision defining the requirement of
reasonableness and, as such, are peripheral to the governing provisions of
section 2(2).
I would
therefore hold that the 1977 Act has no application to this case. My grave
doubts about the matter are relieved by the belief that my lords may take a
more sanguine view of it than I.
I must mention
two further points. First, once Schiemann J had held that the material words in
the mortgage application form did not relieve either of the defendants from
liability, it became unnecessary for him to consider the application of the
1977 Act and he did not do so. Second, although in Smith v Eric S
Bush (a firm) this court refused leave to appeal, the Appeal Committee of
the House of Lords have now allowed a petition by the defendants for leave: see
[1987] 1 WLR 1510. We have been informed that the only question which it is at
present intended to raise on the appeal is whether the requirement of
reasonableness under section 11(3) of the 1977 Act was satisfied in that case
or not. It is not for us to express a view as to whether some other course
ought now to be taken in that case.
I would allow
this appeal and dismiss the plaintiffs’ action.
Agreeing, KERR
LJ said: This is a case in which one must have the greatest sympathy with the
plaintiffs. In his judgment, to which I turn in a moment, Schiemann J said that
Mrs Harris had ‘cried for hours’ when she saw the report of the surveyor whom
they had instructed in 1982 when they wished to sell the house. Their situation
is doubly distressing as the result of our conclusion that this appeal must be
allowed. Not only is their house virtually unsaleable, but in addition they
remain liable to the first defendants under the mortgage. We were therefore
glad to be told by counsel on behalf of the local authority, as I now put on
record, that everything within their statutory powers and discretion will be
done to assist Mr and Mrs Harris in so far as this is possible.
The judgment
of Schiemann J has been reported in [1987] 1 EGLR 231. I do not propose to
analyse it in detail, But if one considers the passages following the heading
at p 235F ‘Are either or both of the defendants in breach of any duty owed
to the plaintiffs?’ one can see that
the reasoning involves a composite consideration of what should in truth be two
separate questions. The first is whether in all the circumstances either of the
defendants owed any duty of care to the plaintiffs. Second, and only if the
first question is answered affirmatively, one comes to the question whether or
not any breach of any such duty has been established.
It seems to me
that the judgment has largely elided the first of these questions. Thus,
following this heading, the judge proceeded immediately to his conclusion that
both Mr Lee and the council had been ‘negligent’, and the subsequent passages
show that he was concerned that in the light of his findings about the
condition of the house (which have not been challenged) the council had acted ultra
vires. He pointed out that if a local authority advances money for the
purchase of a house without having satisfied itself that it is in all
respects fit for human habitation, the authority would be acting ultra vires
section 43(1) of the Housing (Financial Provisions) Act 1958. And a passage
on p 235J of the report shows that the judge was concerned whether liability
could attach to a statutory body ‘on the basis that it had negligently acted ultra
vires or had negligently impliedly represented that it was acting intra
vires‘.
But how can
the conclusion that the council had exceeded its statutory powers in making
this advance be of any relevance to determine whether or not the council had
owed an initial duty of care to the plaintiffs in valuing the property? As shown by Curran (infra) in
the House of Lords, statutory provisions such as section 43(1) are designed for
the protection of the public revenue or the general body of ratepayers. Whether
or not the defendant authority acted ultra vires section 43(1) in
the present case is therefore irrelevant to the question whether or not the
council owed a duty of care to the plaintiffs. That is the first question which
must be answered. Acts by the council which exceeded its statutory powers could
at most provide some evidence of a breach of duty, but only if the council had
been under a duty of care in the first place.
In fairness to
the judge, however, his approach to this case was clearly conditioned by the
state of the authorities as they then stood. Thus, the well-known passage in
the speech of Lord Wilberforce in Anns v Merton London Borough
Council [1978] AC 728 at p 751, to which the judge referred, had then not
yet been subjected to the further restricting analysis which is to be found in
the decision of the Privy Council in Yuen Kun Yeu v Attorney-General
of Hong Kong [1987] 3 WLR 776. Above all, however, the judge was
understandably influenced to a great extent by the second part of the decision
of the Court of Appeal of Northern Ireland in Curran v Northern
Ireland Co-Ownership Housing Association Ltd. He referred to this in
considerable detail from p 236J to p 237A. But that part of the decision went
to appeal and has since been reversed by the House of Lords in [1987] 2 WLR
1043. It must be highly doubtful whether the judge would have reached the same
conclusion if he had had the benefit of that decision.
Turning to
other more general matters, the present case shows how much has been built in
this field of litigation upon the decision of Park J in Yianni v Edwin
Evans & Sons [1982] QB 438. Schiemann J understandably relied on the
authorities stemming from that decision. In particular he relied on the
judgment of Costello J, who followed it in the High Court of Ireland in Ward
v McMaster and Others [1985] IR 29 and on the Court of Appeal of
Northern Ireland in Curran (supra). I agree with Nourse LJ that
in view of the superstructure of decided cases and changes in practice which
have followed Yianni it would not be appropriate for this court to
consider, on the very different facts of this case, whether that decision can
stand. But its inherent jurisprudential weakness in any ordinary situation is clear.
Suppose that A approaches B with a request for a loan to be secured on a
property or chattel — such as a painting — which A is proposing to acquire. A
knows that for the purpose of considering whether or not to make the requested
loan, and of its amount, B is bound to make some assessment of the value of the
security which is offered, possibly on the basis of some expert inspection and
formal valuation. Then assume that B knows that in all probability A will not
have had any independent advice or valuation and is also unlikely to commission
anything of the kind as a check on B’s valuation. B also knows, of course, that
any figure which he may then put forward to A by way of a proposed loan on the
basis of the offered security will necessarily be seen to reflect B’s estimate
of the minimum value of the offered security. Suppose that A then accepts B’s
offer and acquires the property or chattel with the assistance of B’s loan and
in reliance — at least in part — on B’s willingness to advance the amount of
the loan as an indication of the value of the property or chattel. Given those
facts and no more, I do not think that B can properly be regarded as having
assumed, or as being subjected to, any duty of care towards A in his valuation
of the security. Even in the absence of any disclaimer of responsibility I do
not think that the principles stated in Hedley Byrne & Co Ltd v
Heller & Partners Ltd [1964] AC 465 support the contrary conclusion. B
has not been asked for advice or information but merely for a loan. His
valuation was carried out for his own commercial purposes. If it was done
carelessly, with the result that the valuation and loan were excessive, I do
not think that A can have any ground for complaint. And if B made a small
service charge for investigating A’s request for a loan, I doubt whether the
position would be different; certainly not if he were also to add a disclaimer
of responsibility and a warning that A should carry out his own valuation.
It may be, but
I agree that we should not decide this general question on the present appeal,
that the particular circumstances of purchasers of houses with the assistance
of loans from building societies or local authorities are capable of leading to
a different analysis and conclusion. But be that as it may. A crucial
distinction between Yianni and the present case is that in Yianni there
were no express disclaimers of responsibility and warning to potential
purchasers to carry out their own inspection, as there were here. In my view
such disclaimer and warning must be of the utmost relevance in answering the
primary question whether or not a duty of care can properly be held to exist.
Or, more accurately in contexts such as the present, whether or not such a duty
had been assumed.
The point
where I part company with the judge’s reasoning is at p 235L of the report of
his judgment, where he dealt with what he referred to as the exemption clause.
The terms of the disclaimer and warning have been set out in full in his
judgment and again in the judgment of Nourse LJ on this appeal, and I therefore
do not repeat them. But it must be remembered that it was stated in clear terms
that (i) the valuation was solely for the benefit of the council, (ii) the
council accepted no responsibility whatever for the value or condition of the
property, and (iii) that the plaintiffs were advised to have the property
professionally inspected for their own protection. The judge expressed the view
that the terms of this provision were not effective to afford any protection to
either of the defendants in negligence, and that it did not empower the council
to make any loan which, but for this disclaimer, would be statutorily
prohibited. The latter is obviously right, and since Smith v Eric S
Bush [1987] 3 WLR 889 will evidently be considered by the House of Lords in
the near future I express no view on the first part of this statement. However,
in my view none of this matters. What matters, and where I part company with
the judge’s reasoning in any event, is in the following sentence:
In those
circumstances I propose to ignore the exemption clause when considering whether
or no liability attaches to either defendant.
With respect, I
think that this involves a confusion of thought. In order to decide the primary
question whether or not the defendant owes any duty of care to the plaintiff it
is not relevant to determine the precise legal effect of the terms of any
disclaimer or other warning, on their true construction, let alone by the
application of the Unfair Contract Terms Act 1977. Considerations of the legal
effect of any such provisions arise only if and when the existence of a duty of
care has been established. However, in determining whether or not the
circumstances warrant the inference that any such duty of care was owed by the
defendant to the plaintiff, any disclaimer of responsibility and warning
addressed by the defendant to the plaintiff may be of the greatest importance.
The correctness of this proposition is borne out by all the citations from Hedley
Byrne which Caulfield J has set out in his judgment (infra) and
which I therefore do not repeat.
Of course,
disclaimers of responsibility and warnings will be ineffective to the point of
irrelevance in situations where the existence of a duty of care is not open to
doubt. Thus, to take an absurd illustration, it would obviously be irrelevant
for a driver sued in negligence to say that he had displayed a sign on the top
of his car ‘No liability accepted for any collision — keep out of the way’. The
reason is that anyone driving a car is ipso facto subjected to an
inescapable duty of care towards other users of the highway which he
necessarily assumes by driving. And there are obviously countless examples of
activities affecting others in relation to which any purported disclaimers of
liability would be equally irrelevant. But in regard to statements, ie words as
opposed to deeds, the position is inevitably more complex. In such cases the
entirety of the statements made must be considered in order to determine
whether or not the maker should be held to have assumed, or for some reason to
be subjected to, a duty of care to the person addressed. A disclaimer of
responsibility for the accuracy of the statement, or a warning that its
reliability should be checked independently, must then be of the greatest
relevance.
In Smith v
Eric S Bush (supra) this aspect appears to have been disregarded in
the defendants’ submissions, whatever may have been the reason. The existence
of a duty of care was conceded or assumed, and the court was merely asked to
decide the effect of the Unfair Contract Terms Act 1977. In the present case,
on the other hand, the position was different, but Schiemann J nevertheless
disregarded the disclaimer and advice altogether, as shown by the passage
quoted
not the defendants were under a duty of care to the plaintiffs. For that
purpose the council’s disclaimer of responsibility and advice to have an
independent inspection must be considered together with the council’s statement
that it was willing to advance £8,505 on the property subject to a number of
essential repairs. When these statements are considered as a whole, as they
should be, then it is in my view not open to conclude that the council assumed
any responsibility for the reliability of the valuation, nor that it can for
some other reason be held to have been subject to a duty of care to the
plaintiffs.
The
contemplation of an intervening inspection qualifies the principle of Donoghue
v Stevenson [1932] AC 562, as Mr Ashworth QC rightly reminded us.
And I would not accept that the charge of £22 paid by the plaintiffs can by
itself create a duty of care in the face of the disclaimer and warning.
For these
reasons I agree with the judgments of Nourse LJ and Caulfield J that the effect
of the Unfair Contract Terms Act 1977 upon the disclaimer of responsibility and
warning is of no relevance to the present case. One never reaches that issue,
since it arises only if the existence of a duty of care and a breach of it have
first been established. Mr Ashworth rightly conceded that if the effect of the
1977 Act were relevant, then the burden of proof would be upon him under
section 11(1) and that there was no evidence which enabled him to contend that
this had been discharged. His contention, however, was that the Act had no
relevance to the primary question whether or not the defendants owed any duty
to the plaintiffs. The speeches in Hedley Byrne make it clear that in
order to answer that question the disclaimer of responsibility and warning are
part of the circumstances which have to be taken into consideration. When this
is done, it is clear that the defendants never came under any duty of care to
the plaintiffs. Mr Lee owed no duty other than as an employee of the council.
The council’s advance to the plaintiffs was ultra vires section 43(1) of
the Act of 1958, but only the ratepayers would have been entitled to complain
about that. The council assumed no duty of care to the plaintiffs not to overvalue
the property, as it made clear to the plaintiffs by the disclaimer and warning.
Accordingly, no further question arises, and I agree — despite my sympathy for
the plaintiffs — that this appeal must be allowed.
Agreeing,
CAULFIELD J said: I agree with the judgment of Nourse LJ, but as he forecast I
am more sanguine than he appears to be in his reasoning on the Unfair Contract
Terms Act.
I have reached
my conclusions by examining the position of the second defendant, who must be
the fons et origo for an assessment of the question of whether the first
defendant owed a duty of care to the plaintiff, disclaimers apart. If the first
defendant is to be liable in negligence the second defendant must be liable as
well. The notice in the valuation form to which Nourse LJ has referred made it
abundantly clear that the valuation was confidential; was intended solely for
the information of the council; that no responsibility whatsoever was implied
or accepted for the value or condition of the property and that the plaintiffs
were advised to consult their own surveyor for their own protection. On the
ratio of Hedley Byrne I do not think in these circumstances any duty of
care was assumed by the first defendant to the plaintiffs. In Hedley Byrne,
although it was held that a duty of care could arise in respect of negligent
statements giving rise to damage, the plaintiffs failed because the defendants
had not on the facts assumed the duty of care. Lord Reid said at p 483:
The most
natural requirement would be that expressly or by implication from the
circumstances the speaker or writer has undertaken some responsibility
and later, at
p 493, Lord Reid said:
. . . the
respondents never undertook any duty to exercise care in giving their replies.
Lord Morris at
p 504 said:
. . . the
bank in the present case, by the words they employed, effectively disclaimed
any assumption of a duty of care. They stated they only responded to the
inquiry on the basis that their reply was without responsibility. If the
inquirers chose to receive and act upon the reply they cannot disregard the
definite terms upon which it was given.
Lord Devlin at
p 533 said:
A man cannot
be said voluntarily to be undertaking a responsibility if at the very moment
when he is said to be accepting it he declared that he in fact is not.
Lord Pearce
said at p 540:
But in any
event they clearly prevent a special relationship from arising. They are part
of the material from which one deduces whether a duty of care and a liability
for negligence was assumed.
In my judgment
it is implicit from these quotations that a potential tortfeasor can avoid the
incidence of a duty of care and in my judgment, as Nourse LJ has explained, no
duty was assumed by the first defendant. So far I am only introducing my reason
for concluding here that the second defendant would not on these facts have
assumed a duty because I think it is implicit in Hedley Byrne that the
speaker or a writer of a statement should have the opportunity to make clear
whether he is assuming any duty as the first defendant did in this case. The
second defendant, by virtue of his position as a servant of the first
defendant, is not given any opportunity at all to decide whether or not he
wishes to assume a duty of care towards the plaintiff, so in my judgment he is
well remote from assuming any duty of care towards the plaintiff. The most
natural requirement mentioned by Lord Reid cannot possibly exist as regards the
second defendant. Accordingly, in my judgment the second defendant owed no duty
because he never assumed a duty expressly or by implication towards the
plaintiff.
In my judgment
the 1977 Act is irrelevant. The reference in both subsections of section 2 is
to liability for negligence. A person cannot be liable in the tort of
negligence unless, being under a duty of care to the plaintiff, he is negligent
in the discharge of that duty and his negligence caused damage to the
plaintiff. If a person does not owe a duty he cannot have any liability and
therefore he has no potential liability to be restricted; he does not need to
reflect on the 1977 Act. That Act, in my judgment, can only be relevant where
there is on the facts a potential liability. In my judgment the second
defendant did not have any such potential liability. I would allow the appeal.
The appeal
was allowed. No order was made as to costs. Leave to appeal to the House of
Lords was granted.
