Estate agents — Misstatement of area of property — Whether purchaser suffers loss — Whether vendor’s estate agent owes duty of care to purchaser in respect of negligent misstatement
On May 11 1990
the plaintiff and his wife saw an advertisement offering for sale a house fronting
the River Thames with gardens of nearly one acre. During a visit to the
property on May 12, S, an assistant director of the defendants, confirmed the
area of the gardens and provided the plaintiff with a copy of the sale
particulars prepared by the defendants; this referred to the property being set
in 0.92 of an acre and also contained a disclaimer of responsibility for
statements in the particulars. The plaintiff informed S that he was intending
to demolish the house and rebuild, that he was prepared to exchange contracts
on May 14 and would not be relying on a survey report. On May 14 1990 the
plaintiff exchanged contracts to purchase the property for a purchase price of
£875,000. On May 24 the plaintiff was informed by his architect that the true
area of the gardens was 0.48 acres. The plaintiff claimed that as a result of
the oral negligent misstatements of the defendants’ representative he had
suffered loss and damage because had he known that the true area of the gardens
was just under half an acre either he would not have purchased the property, or
he would have made a lower offer. He alleged the property was only worth
£425,000. In the court below Colman J held that although the defendants owed a
duty of care to the plaintiff, the latter had suffered no loss as the property
was worth £800,000 to £875,000. The plaintiff appealed.
the property was not in accordance with the evidence; the property was worth
£800,000 and therefore the plaintiff had suffered a loss of £75,000. However,
although an estate agent can owe a duty of care to a purchaser, the defendants
were not liable for this loss.
LJ: By the time of the plaintiff’s last contact
with him, S knew or ought to have known that his representation of the area of
the garden was likely to be relied on. However S also knew by that time that
the plaintiff had the particulars containing the relevant statement and the
disclaimer. The result was that the element of proximity otherwise required for
liability for a negligent statement, and the defendants’ assumption of
responsibility for the misstatement, was negatived by the disclaimer as the
plaintiff knew that the defendants were not accepting responsibility for the misstatement.
The plaintiff was not entitled to rely on the Unfair Contract Terms Act 1977 to
avoid the disclaimer. Applying Hedley Byrne & Co Ltd v Heller
& Partners Ltd [1964] AC 465 no duty of care was owed.
LJ and Sir Christopher Slade: On the particular
facts no breach of a duty of care could have been established even in the
absence of the disclaimer.
The following
cases are referred to in this report.
Anderson
(WB) & Sons Ltd v Rhodes (Liverpool) Ltd
[1967] 2 All ER 850
Banque
Financière de la Cité‚ SA v Westgate Insurance
Co Ltd, sub nom Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd
ex parte [1990] 1 QB 665; [1989] 3 WLR 25; [1989] 2 All ER 952, CA
Candler v Crane, Christmas & Co [1951] 2 KB 164; [1951] 1 All ER
426, CA
Caparo
Industries plc v Dickman [1990] 2 AC 605;
[1990] 2 WLR 358; [1990] 1 All ER 568, HL
Cemp
Properties (UK) Ltd v Dentsply Research &
Development Corporation [1989] 2 EGLR 205; [1989] 37 EG 133
Computastaff
Ltd v Ingledew Brown Bennison & Garrett
[1983] 2 EGLR 150; (1983) 268 EG 906
Davies v London and Provincial Marine Insurance Co (1878) 8 ChD 469
Donoghue v Stevenson [1932] AC 562, HL
Gran
Gelato Ltd v Richcliff (Group) Ltd [1992] Ch
560; [1992] 2 WLR 867; [1992] 1 All ER 865; [1992] 1 EGLR 297
Harris v Wyre Forest District Council [1990] 1 AC 831; [1989] 2 WLR
790; [1989] 2 All ER 514; (1989) 87 LGR 685; [1989] 1 EGLR 169; [1989] 17 EG 68
& 18 EG 99, HL
Haseldine
v C A Daw & Son Ltd [1941] 2 KB 343
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
Henderson
v Merrett Syndicates Ltd [1995] 2 AC 145;
[1994] 3 WLR 761, HL
Herchtal v Stewart & Arden [1940] 1 KB 155
Marc Rich
& Co AG v Bishop Rock Marine Co Ltd
[1995] 3 WLR 227; [1995] 3 All ER 307; [1995] 2 Lloyd’s Rep 299, HL
McNaughton
(James) Paper Group Ltd v Hicks Anderson &
Co [1991] 2 QB 113; [1991] 2 WLR 641; [1991] 1 All ER 134, CA
Midland
Bank Trust Co Ltd v Hett, Stubbs & Kemp
[1979] Ch 384; [1978] 3 WLR 167; [1978] 3 All ER 571
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
Nocton v Lord Ashburton [1914] AC 932
Punjab
National Bank v DeBoinville [1992] 1 WLR
1138; [1992] 3 All ER 104; [1992] 1 Lloyd’s Rep 7, CA
Redgrave v Hurd (1881) 20 ChD 1; [1881–5] All ER Rep 77; 57 LJ Ch 113;
45 LT 185; 30 WR 251, CA
Resolute
Maritime Inc v Nippon Kaiji Kyokai [1983] 1
WLR 857; [1983] 2 All ER 1; [1983] 1 Lloyd’s Rep 431
Smith v Eric S Bush (a firm) [1990] 1 AC 831; [1989] 2 WLR 790;
[1989] 2 All ER 514; (1989) 87 LGR 685; [1989] 1 EGLR 169; [1989] 17 EG 68
& 18 EG 99, HL
White v Jones [1995] 2 AC 207; [1995] 2 WLR 187; [1995] 1 All ER
691, HL
This was an
appeal by the plaintiff, Edward McKim Lyell McCullagh, against the decision of
Colman J who had dismissed the plaintiff’s claim for damages for negligent
misstatement against the defendants, Lane Fox & Partners: [1994] 1 EGLR 48.
Paul Morgan QC
and Anthony Tanney (instructed by Denton Hall) appeared for the plaintiff;
Rupert Jackson QC and Richard Lynagh (instructed by Cameron Markby Hewitt)
represented the defendants.
Giving the
first judgment at the invitation of Nourse LJ, Hobhouse LJ said: 61 Hartington Road, Chiswick, is a
five-bedroomed house built in the 1930s. It stands in grounds which have an
overall area of 0.48 of an acre with a 90ft west-facing frontage directly on to
the River Thames; there is no intervening tow-path or road. The property is
divided by the house which effectively runs from one side of the plot to the
other. The visitor approaching from Hartington Road crosses a relatively large
front garden before coming to the house and after passing through the house
comes to the rear garden, which leads down to the river. The rear garden is
rather less than 200ft in length. It has the remains of an old cedar tree
supported on iron posts and at the north-west corner a 12m heated swimming
pool.
In 1989 no 61
was owned by a Mr AE Bonsor who, with his wife, had lived there for a number of
years. They decided that they would like to move and took preliminary steps to
instruct Lane Fox & Partners Ltd, the well known firm of estate agents, to
act for them. Lane Fox are the defendants in this action. The person with whom
they dealt was Mr Andrew Scott, one of the assistant directors in the London
office of that firm. The matter did not progress very far in 1989 because the
Bonsors decided that it would be better to find a new home before they actually
put no 61 on the market. However, they did not withdraw their instructions
before Mr Andrew Scott had done some preparatory work for the purposes of
putting no 61 on the market. He carried out a site inspection and while he was
doing so took the relevant measurements. Unfortunately when he returned to the
office he misread his notes and recorded the overall size of the plot as being
0.92 of an acre, not 0.48. He effectively counted in the front half of the site
twice. This was an astonishing error for a professional man to make; it is
further surprising that Mr Scott, as an experienced estate agent, did not
appreciate that his figure of 0.92 of an acre must be wrong for a generally
rectangular property which had a frontage of 90ft on to the river at one end
and a frontage of no more than 75ft at the road end. Commendably, neither Lane
Fox nor Mr Scott have ever sought to dispute that this error was careless and
disclosed a want of proper professional skill and care.
The following
March, 1990, the Bonsors had found a new home out of London. They therefore
reapproached Lane Fox instructing them to act as their agents in the sale of no
61. The Bonsors wanted to sell no 61 quickly as they did not want to lose the
house they had found in the country. Also, it was appreciated that the spring
is a good time to sell a house. Therefore Lane Fox had to proceed without
delay. Advertising was booked for the end of April and Mr Scott prepared the
draft particulars and the wording of an appropriate advertisement. Although he
revisited the property he did not check his site measurements and simply reused
the figures he had noted the previous year. Consequently the advertisement
which he prepared was in the following terms:
Chiswick W4
A quite
exceptional family house occupying a unique position on the River Thames
offering extensive accommodation, private parking, gardens of nearly one acre
and a private 90ft river frontage.
Entrance
hall, drawing room, dining room, study, sitting room, play room, garden room,
kitchen/breakfast room, pantry, cloakroom, five bedrooms, three bathrooms (two
ensuite), single garage, off-street parking for five cars.
Front and
rear gardens of nearly one acre, 90ft river frontage with potential private moorings,
12m heated swimming pool.
|
£850,000 |
Sole |
Freehold |
This
advertisement was inserted under the logo and name of Lane Fox in Country
Life and a free circulation magazine called London Portrait. The
statement ‘front and rear gardens of nearly one acre’ repeated and exaggerated
the error which he had previously made in measuring the overall size of the
plot and was seriously misleading.
The
particulars were in a familiar format and illustrated with photographs. The
first page was in very similar terms to the advertisement and included the
statement ‘front and rear gardens of nearly one acre’. The text of the
particulars included a more detailed description which started:
The property,
approached by a 90ft driveway, is a detached freehold house built in 1931 and
set in 0.92 of an acre of its own private gardens.
After
describing in detail the accommodation in the house and various other features,
it described the front and rear garden including dimensions for the rear garden
which were inaccurate.
These
particulars too were ready by the end of April. They included in five
paragraphs at the end Lane Fox’s standard disclaimer:
1. These
particulars do not constitute, nor constitute any part of, an offer or
contract.
2. All
statements contained in these particulars as to this property are made without
responsibility on the part of Lane Fox or the vendors or lessors.
3. None of
the statements contained in these particulars as to this property are to be
relied on as statements of representations of fact.
4. Any
intending purchasers must satisfy themselves by inspection or otherwise as to
the correctness of each of the statements contained in these particulars.
5. The
vendors do not make or give and neither Lane Fox nor any person in their
employment has any authority to make or give any representation or warranty
whatever in relation to this property.
This
disclaimer was in terms which conformed closely to those commonly used by other
estate agents at the time.
As soon as the
advertisements appeared and the house was placed on the market, a lot of
interest was shown. Within a fortnight Lane Fox had received a number of
offers. None of these was as high as the asking price of £850,000. But one
couple, Mr and Mrs Land, had already, by May 3, offered £775,000 and by Tuesday
May 8 they had increased their offer to £810,000 saying that they wanted a
definite answer, subject to contract, by Friday the 11th. On the Friday the
Bonsors indicated, on a similar basis, that the offer was acceptable to them.
Notwithstanding this, Lane Fox were continuing to show prospective buyers round
the property and on Saturday the 12th they showed three, one of which was Mr
and Mrs McCullagh.
Mr McCullagh
is a businessman. He is the plaintiff in this action. He is relatively wealthy
and the owner of a substantial engineering company and other companies. He had
had previous experience of selling and buying houses. He had done so three
times since 1972. A day or so previously he and his wife had seen the
advertisement in the London Portrait magazine. On Friday the 11th they
rang up Lane Fox and arranged to view on the Saturday. Mr McCullagh and his
wife and two young children drove over to no 61 arriving there at about 11.30
on the Saturday morning. There they met Mr Andrew Scott and having passed
quickly through the house went out into the garden at the rear. He said in
evidence (and his evidence was substantially accepted by the judge):
We carried on
down the garden past the swimming pool, with a small sunken garden on the left,
and we got to the terrace adjacent to the river. It is immediately adjacent to
the river. There is no tow-path between the garden wall and the river which was
a great advantage. I explained to Andrew that we were particularly excited
because a one acre site on the River Thames was a unique property. There were
not too many of them around, especially domestic ones.
I explained
that my Company, Vanguard, owned a unique property on the Isle of Dogs, 1.5
acres, which we had found to be extremely valuable. Andrew then said: ‘This
site is 0.91 of an acre’. The difference did not overly worry us. I explained
that what we would like to do was to incorporate a tennis court. We had the
swimming pool. We would demolish the house and build a dream home on the site
for my family.
After they had
been in the garden for some time they returned to the house and Mr Scott
briefly showed them around the house but, as Mr McCullagh said, they were not
terribly interested in the house. They intended to demolish the house. Mr
McCullagh said in evidence that Mr Scott (again stretching a point) told them
that ‘friends of the Bonsors had put almost the asking price on the table and a
quick decision would have to be made’. Up to this point, with a further and
surprising lack of professionalism, Mr Scott had taken no steps to see
that the McCullaghs had a copy of the particulars. However, fortunately for the
defendants, as the McCullaghs were leaving the house Mrs Bonsor inquired
whether they had had the particulars and when they said that they had not she
gave them, in the presence of Mr Scott, the Lane Fox particulars of sale. The
only qualification of this account that must be made is that the judge found
that Mr McCullagh was mistaken in his belief that Mr Scott had said ‘0.91’ of
an acre and not ‘0.92’ of an acre.
The evidence
of Mrs McCullagh was that they were very excited with the opportunity of buying
a site of nearly 1 acre on which to build a house. They decided that they would
like to buy it notwithstanding that another person had already made an offer
which had been accepted. That evening they rang up Mr Scott and made an offer
of £850,000. Mr Scott remarked that he didn’t want his clients to fall between
two stools — a clear reference to the fact that another offer had been made and
accepted — and said that Mr McCullagh would have to be prepared to exchange
contracts very quickly. Mr McCullagh’s response was that he was prepared to
exchange contracts on the Monday.
The McCullaghs
visited the property again on the Sunday by arrangement with Mrs Bonsor. He was
concerned that the offer that he had made might not be enough and in a further
telephone conversation with Mr Scott on the Sunday he increased it to £875,000
again on the basis that he would exchange contracts the next day. When the
Lands were not prepared to match this figure, the Bonsors, through Mr Scott,
accepted the McCullaghs’ offer subject to contract. Contracts were exchanged at
2.45 pm on Monday May 14 and Mr McCullagh paid the deposit of £87,500.
Completion was to be on August 31.
The house was
then taken off the market and the McCullaghs started to discuss with their
architect what could be done about demolishing the existing house and building
their ‘dream house’. One of the things which the McCullaghs were keen to
include was a tennis court. Their architect advised them that there would be
considerable difficulties about fitting a tennis court in having regard to the
space already occupied by the swimming pool and the cedar tree. Furthermore the
architect advised them that the site did not have an overall size of 0.92 acres
but was in fact less than half an acre. On May 24, immediately after he had
received this advice, Mr McCullagh rang up Lane Fox and complained about the
misdescription. Thereafter, he pursued his complaints with Lane Fox, but he did
not attempt to fix any liability on the Bonsors nor did he attempt to
renegotiate his contract with them. He completed on August 31.
The contracts
which had been exchanged on Monday May 14 were in the usual form incorporating
the National Conditions of Sale (20th ed) with appropriate amendments. The
deposit was 10% of the purchase price. Clause 13 of the contract provided:
The purchaser
hereby acknowledges that the purchaser has not entered into this contract in
reliance wholly or partly upon any statement or representation whether made
orally or in writing or otherwise howsoever by or on behalf of the vendor save
for the written replies to the vendor’s solicitors to enquiries made by the
purchaser’s solicitors.
This a normal
clause commonly included in contracts for the sale of land. No relevant inquiry
had been made by the purchasers’ solicitors of the vendors’ solicitors and,
specifically, there had been no inquiry relating to the area of the plot being
sold. It was also the case that prior to exchanging contracts Mr McCullagh had
not sought any professional advice or arranged any separate check to be carried
out of the precise area of the plot. Questioned about whether this was wise and
whether or not he should have had some independent check carried out before he
exchanged contracts, Mr McCullagh replied:
Why should I
doubt Lane Fox’s word. They are Estate Surveyors. They have boasted that they
are Estate Surveyors for many years. They have a good reputation. There is no
reason why I should doubt their measurements. You keep suggesting that I should
doubt Lane Fox. Why should I doubt Lane Fox?
The judge
accepted that in deciding to buy and in exchanging contracts on the Monday, Mr
McCullagh relied upon what he had been told by Mr Scott on the Saturday.
After Mr
McCullagh had completed and become the owner of no 61, things went from bad to
worse. He discovered that to erect his ‘dream house’ on the land at no 61,
incorporating a swimming pool, would cost him more than he could afford. He did
not carry out his intention to demolish the existing house and rebuild. He did
not move in.
On January 28
1991 he issued a writ claiming damages from Lane Fox. In his statement of
claim, he pleaded that he and his wife had seen the advertisement and had met
Mr Andrew Scott at the property. He said that Andrew Scott advised them that
the size of the site was 0.91 acres and that Andrew Scott knew or ought to have
known that he would be likely to rely upon his advice as to the size of the
site in deciding whether to purchase the property. He did rely upon it in
entering into the written contract to purchase for the sum of £875,000. As a
result of the negligence of Mr Scott he had suffered damages in the sum of
£450,000 being the difference between the £875,000 which he paid and the, as he
alleged, true value of the property estimated to be £425,000. This was the only
loss he alleged.
The
defendants, by their defence, denied the duty of care and further relied upon
the disclaimer printed on the particulars. They denied that the plaintiff was
entitled to or did act in reliance upon any advice given by Andrew Scott and
they denied the damages alleged. They further alleged contributory negligence
in failing to carry out any independent investigation of the size of the plot
before the exchange of contracts. In reply the plaintiff challenged the
validity of the defendants’ disclaimer under the Unfair Contract Terms Act
1977.
At the trial
before Colman J, in December 1993, he heard evidence from both factual and
expert witnesses. The factual witnesses covered the dealings between the
parties and evidence of two other prospective purchasers who had made offers
for the property. One was Mrs Land, to whom I have already referred; she was
called by the plaintiff. Another was Mr William Hagon [fsva] who was a local estate agent, who had wanted to buy a
home for himself and his wife in the area. He, like the Lands, made an early
offer of £775,000, subject to contract. He later declined to increase his offer
when he was told by Mr Scott that others had offered more. The expert evidence
went to the question of the plaintiff’s loss and the valuation of the property
as at May 1990. The plaintiff called a Mr Antony Copping Joyce [frics]. The defendants called a Mr
Keith Pierson [arics] and a Mr
Graham Marks [fsva].
The issues
before the judge at the trial were:
(1) What, if
anything, Mr Scott had orally represented to Mr and Mrs McCullagh concerning
the overall area of the plot.
(2) Whether,
in deciding to purchase and in exchanging contracts on the Monday, Mr McCullagh
had acted in reliance upon what Mr Scott had said. This factual point was also
put in the form whether Mr McCullagh was induced to act as he did by what Mr
Scott had said or as whether Mr McCullagh’s loss (if any) was caused by any
breach of duty of the defendants.
(3) Whether in
the circumstances the defendants owed to the plaintiff a duty of care in
respect of what Mr Scott had said.
(4) What was
the effect and relevance of the defendants’ printed disclaimer and, if
relevant, whether it was valid under the Unfair Contract Terms Act 1977.
(5) What, if
any, loss and damage Mr McCullagh had suffered as a result of buying the
property at the price of £875,000.
(6) Whether Mr
McCullagh had negligently contributed to his own loss.
The judge
decided the factual issues (1) and (2) substantially in favour of the
plaintiff. On the question of law, issue (3), he held that the defendants did
owe the plaintiff a duty of care. On the fourth issue, with regard to the
disclaimer, he held, as a matter of construction, that it did not extend to any
oral representations that Mr Scott had made. Finally, having determined the
issues of liability in favour of the plaintiff, he found that the value of no
61 in May 1990 lay in the range £800,000 to £875,000 and concluded that the
plaintiff’s purchase was not at a price in excess of its market value.
Accordingly, the action
loss, judgment was entered for the defendants. He did not have to deal with the
Unfair Contract Terms Act nor with the allegation of contributory negligence
(though it is to be inferred from the tenor of his judgment that he would not
have accepted it).
The plaintiff
has appealed, submitting by an amended notice of appeal that the judge’s
finding on damages was not in accordance with the weight of the evidence and
that he should have found that the true value of the property was £800,000 and
that the plaintiff had accordingly suffered £75,000 loss. By a respondents’
notice, the defendants have sought to uphold the judgment in their favour on
the grounds that the judge should not as a matter of law have held that the
defendants owed to the plaintiff any duty of care in respect of any
representation made to him; that, in any event, the disclaimer provided them
with an answer to any such duty and the disclaimer was reasonable and therefore
valid; that the judge should as a matter of fact have found that Mr McCullagh
did not rely upon the oral representation; and, finally, that there was
contributory negligence on the part of Mr McCullagh which would reduce any
liability of the defendants towards him.
The appeal has
been argued taking first the plaintiff’s appeal, the damages point, and taking
the respondents’ notice second. It is convenient to deal with the points in the
same order in this judgment. Unless the appellant makes good his argument on
his notice of appeal, the appeal must fail and the other points will not arise.
Damages
The
judgment
The
plaintiff’s case before the judge was that the value of no 61 in May 1990 was
no more than £550,000. This case was based upon the evidence of Mr Copping
Joyce. The evidence of Mr Copping Joyce was not accepted by the judge. It was
unconvincing and inconsistent with the remainder of the evidence. The plaintiff
has not argued before us that the judge should have accepted his evidence.
Accordingly no reliance has been placed upon his evidence upon this appeal.
The evidence
upon which the judge based his finding of value was the evidence of the actual
offers which were made for the property and the expert evidence of the
defendants’ two experts, Mr Graham Marks and Mr Pierson.
Mr and Mrs
Land made offers of £775,000 and £810,000 and declined to go higher. They were
under the mistaken belief that the overall size of the property was as
described by Lane Fox — nearly one acre. They took into account the fact that
they expected to have to spend about £100,000 on renovations. The judge
accepted Mrs Land’s evidence that what led them to offer as much as £810,000
was the area of one acre alongside the Thames and that they would not have been
prepared to offer so much if they had realised that it was only half an acre.
He said that it was hardly a contentious issue that the house was perceived by
the public to be less valuable if set in half an acre than if set in an acre.
The other
factual witness was Mr Hagon. The judge attached great weight to his evidence.
He was not just an ordinary house-hunting member of the public. He was himself
an estate agent and knew the property in the neighbourhood very well. When
first he saw the advertisement he felt that £850,000 was very good value. He
went to see it. He immediately realised that it could not possibly be as large
as one acre. He nevertheless decided to make an offer. His builder told him
that he would have to spend about £100,000 refurbishing and modernising the
house. He offered £775,000 and declined to increase it when invited to do so.
The judge however treated his factual evidence as supporting the conclusion
that the value of the property was ‘much more in the region of £850,000’.
The judge did
not refer in detail to the evidence of the defendants’ experts. He accepted
their general evidence upon the state of the market at the time and their
criticism of the comparables used by Mr Copping Joyce. The judge summarised
certain general considerations including the fact that ‘the nearer to the top
end of the market a particular house may be and the more unusual its
characteristics, the more difficult it is likely to be to predict the price it
will fetch’. The judge listed the various good and bad features of no 61 in a
manner which has not been criticised. Having rejected Mr Copping Joyce’s
comparables, he placed reliance upon Staveley House, Chiswick, as a comparable.
Staveley House was sold by the defendants in 1993 for £835,000. It was in good
condition and stood in magnificent and very secluded gardens of three quarters
of an acre. He concluded that in May 1990 it would have sold for rather more
than £1m and that he would have expected no 61 to sell for very roughly 75–80%
of the price of Staveley House at any given time.
The judge
concluded, taking the evidence as a whole, that ‘the value of no 61 in May 1990
lay in the range £800,000 to £875,000’. ‘The precise selling price within that
range would be a matter of chance depending upon who was in the market at the
time and the relative importance attached by them to the attractive [and
unattractive features of the property]’. The plaintiff in paying £875,000 ‘paid
no more than it was worth with the area that in truth it had’.
Arguments
on the appeal
The plaintiff
submitted that the judge’s finding was against the weight of the evidence, in
particular, the evidence of the defendants’ own experts. The factual evidence
of the offers which were in fact made for the property certainly did not
support a higher value than £800,000. The expert witnesses put in their expert
reports in the usual way.
The report of
Mr Marks expressed his conclusions in para 13 under the heading ‘Valuation’:
Having regard
to all of the above matters referred to within this report, to my own
inspection of no 61 Hartington Road, and the various comparables, it is my
opinion that the open market value of the Freehold interest with vacant
possession as at May 1990 can be fairly and properly assessed in the sum of
£800,000.
He then refers
to various factors including comparables, plot size, accommodation, amenity,
market conditions, etc. He continued with this concluding observation:
However, I
must add that with ‘special’ owner-occupier houses it is often difficult to
precisely pinpoint the ‘additional’ or ‘premium’ value which was frequently bid
for such properties prior to the end of the eighties boom market conditions.
Thus albeit the transaction price of £875,000 seems to be very much at the top
end, it is nevertheless within 10% of what I consider represented the true open
market value at the time.
Mr Pierson
similarly concluded his report with the section headed ‘Valuation’. He said:
Having given
due consideration to all matters including the above comparables and my
extensive knowledge of the area market conditions at the relevant date I am
firmly of the opinion that the value of the property freehold with vacant
possession as at May 1990 in the open market as between a willing buyer and a
willing seller is in the sum of £800,000. However in view of the unusual and
substantial nature of the house and grounds, the state of the market at that
time and the presence of a competing buyer, I would not have been surprised if
a purchaser would have been prepared to pay a substantial premium above what I
regard to be the open market value.
The evidence
regarding Staveley House was introduced in a supplementary report by Mr Marks.
His evidence was that ‘the May 1993 price achieved of £835,000 being uplifted
to £1,045,000 to represent May 1990 value’. He stressed that such an approach
was an approximation and intended only to indicate the likely level of
difference. He concluded:
It is my
opinion that the sale of Staveley House, exchanged in May 1993 at a price of
£835,000, such sum having been obtained on the open market, properly reflects a
level of value which may be paid by a willing purchaser for a house of this
style, type and size in the Grove Park area. In my view this sale is fully
consistent with and lends further support to my original valuation of 61
Hartington Road prepared in February 1993.
The
defendants’ expert evidence was therefore that the open market value of no 61
was in May 1990 £800,000. It was further the evidence
It is
surprising that the judge did not refer to any of this evidence in his
judgment. It was inconsistent with his conclusion. It did not support an
inability to make a valuation. It did not support an open market valuation,
which is after all the best price at which the property might reasonably be
expected to be sold after being freely exposed for a reasonable period in the
open market, of over £800,000.
Before us the
defendants submitted that the concluding sentences of the respective reports
justified a different conclusion. This was not correct. Each of the experts had
been informed of the subject-matter of the action and that there were issues on
misrepresentation and reliance. They were aware that the inference might be
drawn from their valuation that Mr McCullagh must have been misled as otherwise
he could not have offered a figure as high as £875,000. It was this point which
they were meeting. They were explaining how their valuation was consistent with
Mr McCullagh’s higher offer. They are each at pains to confirm that this does
not contradict their valuation: ‘it is nevertheless within 10% of what I
consider represented the open market value at the time‘; ‘a substantial
premium above what I regard as the open market value’. (Emphasis supplied.)
The oral
evidence did not materially alter this picture. Mr Hagon said that he might
have been prepared to go up to £800,000. Mr Pierson said, when asked about what
he meant by a ‘substantial premium’:
In my opinion
I would not have been surprised for a purchaser to pay a significant premium
of, say, at least £50,000 because of the unusual nature of this property, and
the premium element it would command.
In
cross-examination he said:
My report
states a figure of £800,000 but, as indicated, I would not be surprised if
someone were prepared to pay an additional premium.
In his
evidence-in-chief Mr Marks was asked about the final part of his report and the
reference to ‘premium’ value. He answered:
… it is
indefinable. For that reason I feel particularly at this end of the market
where you are in this bracket of £750 to one million, I really think that a 10%
margin is a sensible margin. I would not like to be so dogmatic about the
value.
In
cross-examination he said:
I was
referring in fact, in that instance this morning, to the level of premium which
in my opinion a buyer might pay for a particularly special property, a
particularly outstanding property, and I think this would include Staveley
House, over and above a figure at which a valuer would otherwise reasonably
calculate the value.
These answers,
while they disclose an attempt by the defendants’ counsel and their experts to
add a gloss to their written evidence, do not suffice to alter its substance or
the overall effect of the evidence. No 61 was marketed and, on a true basis,
did not yield offers above £800,000. The factual evidence did not justify any
higher value. The comparable, Staveley House, likewise did not justify a higher
value although viewing it on its most favourable basis to the defendants, it
was not inconsistent with a marginally higher value for no 61. Finally, the
specific and clear expert evidence of the defendants’ valuers was that the open
market value of no 61 was £800,000. Their oral evidence provided no rational
basis for departing from that valuation and did not, in any event, alter the
weight of the evidence. In my judgment, the judge’s finding was not in
accordance with the evidence. The evidence was that it was possible to put a
value on this property and that that value was £800,000. That was the finding
which the judge should have made. It follows that the plaintiff proved damages
in the sum of £75,000 and, subject to liability, he was entitled to a judgment
for that sum. On the appeal, therefore, the plaintiff is entitled to succeed.
It is necessary now to consider the points raised by the respondents’ notice.
Respondents’
notice
Duty of
care — the judgment
At p11 and
following of the transcript of his judgment, Colman J carefully considered the
legal submissions and the authorities cited to him. These included Hedley
Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, Smith
v Eric S Bush (a firm) [1990] 1 AC 831*, Caparo Industries plc v Dickman
[1990] 2 AC 605, James McNaughton Paper Group Ltd v Hicks Anderson
& Co [1991] 2 QB 113, and Computastaff Ltd v Ingledew Brown
Bennison & Garrnet (1983) 268 EG 906† (McNiell J). He also referred
to certain Commonwealth authorities.
*Editor’s
note: Also reported at [1989] 1 EGLR 169.
†Editor’s
note: Also reported at [1983] 2 EGLR 150.
He applied the
triple test spelled out by Lord Bridge in Caparo at p617,
foreseeability, proximity and ‘whether it is fair, just and reasonable that the
law should impose a duty of a given scope upon the one party for the benefit of
the other’. He said*:
*Editor’s
note: See [1994] 1 EGLR 48, at p53K.
The
ingredient of proximity and the ingredient of the imposition of the duty being
just and reasonable must rest primarily, if not exclusively, on the purpose for
which the representation was made, the fact that it was made in a professional
capacity to a particular potential purchaser in relation to a particular and
identifiable transaction and the fact that to the knowledge of the representor
it was highly probable that it would be relied upon by that representee in
entering into that transaction without making his own investigation.
Having
referred to the statement of Neill LJ in the Hicks Anderson case at p126
—
It is also
necessary to consider whether he did in fact rely on the statement, whether he
did use or should have used his own judgment and whether he did seek or should
have sought independent advice.
— Colman J
continued*:
*Editor’s
note: See [1994] 1 EGLR 48, at p54C.
Whereas Mr
Scott certainly knew prior to exchange of contracts that there would be no
independent survey, it is, in my judgment, material to what is just and
reasonable that it was the plaintiff’s decision to adopt this unusual course,
which invested the representation by Mr Scott with a causal effect which it
would not normally have had.
Although the
decision of the plaintiff to dispense with a survey prior to exchanging
contracts was unusual, it was a course known to Mr Scott. His statement
confirming the area of the plot then became a matter which it would be obvious
to anybody would be one of the facts which, without further investigation, a
purchaser would have in mind so that it influenced his decision when he entered
into the contract. It is at the time when Mr Scott appreciated that there was
to be no independent survey that the question of duty and, in particular
proximity and what is just and reasonable, has to be tested. Having full regard
to the approach of Neill LJ in the passage from his judgment which I have cited
above, I have come to the conclusion that at that time there did exist the
neighbour or proximity relationship between Mr Scott and the plaintiff, which
is a necessary ingredient of duty of care. Here was a professional estate agent
knowing that what he had said about an important characteristic of the property
was material to its value and to a decision to purchase and then knowing that
the purchase was to be without independent investigation. In my judgment, that
in the circumstances of this case was sufficient to create proximity.
Colman J was
therefore deciding that Mr Scott did not owe Mr McCullagh a duty of care on the
Saturday morning when Mr Scott made the relevant statement because Mr Scott
would at that time have been entitled to take the view that his statement would
be independently checked and would not be relied upon. The judge considered
that the duty did however come into existence when, on the Saturday evening or
the Sunday, Mr McCullagh told Mr Scott that he would be exchanging contracts
without a survey. This is a difficult concept which the plaintiff has sought to
support before us on the basis of a continuing representation.
Colman J also
considered Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560*
and the argument of the defendants that there was no need for a remedy against
the estate agent as well as against his principal, the vendor. He did not
accept this argument. He said†:
*Editor’s
note: Also reported at [1992] 1 EGLR 297.
†Editor’s
note: See [1994] 1 EGLR 48, at p55A.
For these
reasons, with great respect to the more general remarks of Sir Donald Nicholls
V-C relating to negligent misstatement and without wishing in any way to
question the conclusion reached by him in relation to a solicitor acting for
his client in a conveyancing matter, I am not persuaded that even if there normally
would exist or did exist in the present case an alternative remedy against the
vendors, the availability of that remedy would make it any less just and
reasonable that a duty of care should be imposed on the defendant estate
agents.
Accordingly he
concluded that ‘the defendants did owe a duty of care to the plaintiff to avoid
making the negligent [sic] misstatement which Mr Scott did indeed make
and that they were therefore in breach of that duty by his making it’.
Arguments
on the appeal
The defendants
attacked the judge’s reasoning and conclusion on a number of levels. Most
radically, they submitted that an agent owes no duty of care to a third party
with whom his principal is dealing: the duty is the principal’s alone. In oral
argument, this submission was modified to a narrower argument that since this
transaction involved the sale of land the decision and reasoning of Sir Donald
Nicholls V-C in Gran Gelato should be applied to the case of an estate
agent as well. Then they submitted that the Bridge criteria should be applied
strictly and fully and that the present case did not satisfy the tests of
foreseeability, proximity or fairness and justice. In developing these
arguments they made submissions about the structure of the transaction and
about the reasonable expectation of intervening advice and absence of reliance.
They also criticised the judge’s acceptance of a concept of a springing duty of
care and its imposition after the event on the person who had made the
representation. They also relied upon the fact that the plaintiff had received
a copy of the particulars with the defendants’ disclaimer.
The plaintiff
founded his case upon Hedley Byrne. He submitted further that the Bridge
criteria were satisfied. He submitted that Gran Gelato should be distinguished
and that, if it could not be distinguished, it should not be followed. He
argued that the duty of care existed (and was broken) at the time the oral
statement was made and, if not then, that the judge’s conclusion that there was
a duty to correct the misstatement when Mr Scott was told that there would be
an immediate exchange was correct. The judge had been right to treat the
disclaimer as irrelevant to the oral statement.
In evaluating
these arguments and discussing the relevant principles and authorities, which
have been added to since this case was before the judge, it is desirable to
break the subject down into topics.
Hedley
Byrne
This was the
decision of the House of Lords, which overruled the majority decision in Candler
v Crane, Christmas & Co [1951] 2 KB 164, and held that a careless
misrepresentation causing financial loss can be actionable as a tort apart from
any contract or fiduciary relationship. The plaintiffs in Hedley Byrne
were a firm of advertising agents who were placing advertising for a company
called Easipower. Through their own bankers they asked for a banker’s reference
from the defendants, who were Easipower’s bankers. The defendants wrote to the
plaintiffs’ bankers a letter which gave a reference which did not reveal Easipower’s
lack of creditworthiness. The defendants headed their letter with words which
stated that the reference was given ‘without responsibility on the part of this
bank or its officials’. The plaintiffs suffered financial loss as a result of
relying upon the reference. At [1964] AC 465, at p486 Lord Reid said:
A reasonable
man, knowing that he was being trusted or that his skill and judgment were
being relied on, would, I think, have three courses open to him. He could keep
silent or decline to give the information or advice sought: or he could give an
answer with a clear qualification that he accepted no responsibility for it or
that it was given without that reflection or inquiry which a careful answer
would require: or he could simply answer without any such qualification. If he
chooses to adopt the last course he must, I think, be held to have accepted
some responsibility for his answer being given carefully, or to have accepted a
relationship with the inquirer which requires him to exercise such care as the
circumstances require.
At p502, Lord
Morris said:
My Lords, I
consider that it follows that it should now be regarded as settled that if
someone possessed of a special skill undertakes, quite irrespective of
contract, to apply that skill for the assistance of another person who relies
upon such skill, a duty of care will arise. The fact that the service is to be
given by means of or by the instrumentality of words can make no difference.
Furthermore, if in a sphere in which a person is so placed that others could
reasonably rely upon his judgment or his skill or upon his ability to make
careful inquiry, a person takes it upon himself to give information or advice
to, or allows his information or advice to be passed on to, another person who,
as he knows or should know, will place reliance upon it, then a duty of care
will arise.
At p528, Lord
Devlin said:
I think,
therefore, that there is ample authority to justify your Lordships in saying
now that the categories of special relationships which may give rise to a duty
to take care in word as well as in deed are not limited to contractual
relationships or to relationships of fiduciary duty, but include also
relationships which in the words of Lord Shaw in Nocton v Lord
Ashburton [[1914] AC 932 at p972] are ‘equivalent to contact,’ that is,
where there is an assumption of responsibility in circumstances in which, but
for the absence of consideration, there would be a contract. Where there is an
express undertaking, an express warranty as distinct from mere representation,
there can be little difficulty. The difficulty arises in discerning those cases
in which the undertaking is to be implied. In this respect the absence of
consideration is not irrelevant. Payment for information or advice is very good
evidence that it is being relied upon and that the informer or adviser knows
that it is. Where there is no consideration, it will be necessary to exercise
greater care in distinguishing between social and professional relationships
and between those which are of a contractual character and those which are not.
It may often be material to consider whether the adviser is acting purely out
of good nature or whether he is getting his reward in some indirect form. The
service that a bank performs in giving a reference is not done simply out of a
desire to assist commerce. It would discourage the customers of the bank if
their deals fell through because the bank had refused to testify to their
credit when it was good.
Their
lordships were therefore of the opinion that the critical considerations were
an (objective) appreciation that the representation would be relied upon and
the assumption of a responsibility for the representation. It was no answer to
the plaintiffs’ contention, that there was a duty of care, that there was no
contract between the plaintiffs and the defendants or that the representation
was only made indirectly, through an intermediary bank.
The reason why
the plaintiffs failed in Hedley Byrne was because of the defendants’
disclaimer of responsibility. It was argued that the words of disclaimer were
inadequate to negative a liability in negligence. Lord Reid, at p492, pointed
out that this argument was misconceived:
In the case of
a contract it is necessary to exclude liability for negligence, but in this
case the question is whether an undertaking to assume a duty to take care can
be inferred: and that is a very different matter.
I am
therefore of opinion that it is clear that the respondents never undertook any
duty to exercise care in giving their replies. The appellants cannot succeed
unless there was such a duty and therefore in my judgment this appeal must be
dismissed.
Similarly, at
p504, Lord Morris said:
… in my
judgment, the bank in the present case, by the words which they employed,
effectively disclaimed any assumption of a duty of care. They stated that 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. They cannot accept
a reply given with a stipulation and then reject the stipulation.
At p533, Lord
Devlin 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 declares that in fact he is not. The
problem of reconciling words of exemption with the existence of a duty arises
only when a party is claiming exemption from a responsibility which he has
already undertaken or which he is contracting to undertake.
Thus the
relevance of the disclaimer is to negative one of the essential elements for
the existence of the duty of care. It negatives the assumption of
responsibility for the statement. It implicitly tells the recipient of the
representation that if he chooses to rely upon it he must realise that the
maker is not accepting responsibility for the accuracy of the representation.
The disclaimer is part of the factual situation which the court has to take
into account in deciding whether or not the defendants owed a duty of care to
the plaintiff. Put another way, the question is whether the plaintiff was
entitled to treat the representation as one for which the defendants were
accepting responsibility. This is primarily a factual question.
The decision
in Hedley Byrne has inevitably formed the starting point for the
examination of the law in many subsequent authorities. In Caparo, where
the House of Lords was primarily concerned with whether there was a sufficient
connection between the maker of the statement and the person who said he had
relied on it, Lord Oliver said, at p638:
What can be
deduced from the Hedley Byrne case, therefore, is that the necessary
relationship between the maker of a statement or giver of advice (‘the
adviser’) and the recipient who acts in reliance upon it (‘the advisee’) may
typically be held to exist where (1) the advice is required for a purpose,
whether particularly specified or generally described, which is made known,
either actually or inferentially, to the adviser at the time when the advice is
given; (2) the adviser knows, either actually or inferentially, that his advice
will be communicated to the advisee, either specifically or as a member of an
ascertainable class, in order that it should be used by the advisee for that
purpose; (3) it is known either actually or inferentially, that the advice so
communicated is likely to be acted upon by the advisee for that purpose without
independent inquiry, and (4) it is so acted upon by the advisee to his
detriment. That is not, of course, to suggest that these conditions are either
conclusive or exclusive, but merely that the actual decision in the case does
not warrant any broader propositions.
In the same
case Lord Bridge said, at pp620–1:
The salient
feature of all these cases is that the defendant giving advice or information
was fully aware of the nature of the transaction which the plaintiff had in
contemplation, knew that the advice or information would be communicated to him
directly or indirectly and knew that it was very likely that the plaintiff
would rely on that advice or information in deciding whether or not to engage
in the transaction in contemplation. In these circumstances the defendant could
clearly be expected, subject always to the effect of any disclaimer of
responsibility, specifically to anticipate that the plaintiff would rely on the
advice or information given by the defendant for the very purpose for which he
did in the event rely on it. So also the plaintiff, subject again to the effect
of any disclaimer, would in that situation reasonably suppose that he was
entitled to rely on the advice or information communicated to him for the very
purpose for which he required it. The situation is entirely different where a
statement is put into more or less general circulation and may foreseeably be
relied on by strangers to the maker of the statement for any one of a variety
of different purposes which the maker of the statement has no specific reason
to anticipate.
After some
criticisms in Smith v Bush and Caparo, the importance of
the concept of assumption of responsibility in cases of negligent
misrepresentation was again recognised in Henderson v Merrett
Syndicates Ltd [1995] 2 AC 145. At p181, Lord Goff said:
In addition,
the concept provides its own explanation why there is no problem in cases of
this kind about liability for pure economic loss; for if a person assumes
responsibility to another in respect of certain services, there is no reason
why he should not be liable in damages for that other in respect of economic
loss which flows from the negligent performance of those services. It follows
that, once the case is identified as falling within the Hedley Byrne
principle, there should be no need to embark upon any further enquiry whether
it is ‘fair, just and reasonable’ to impose liability for economic loss — a
point which is, I consider, of some importance in the present case. The concept
indicates too that in some circumstances, for example where the undertaking to
furnish the relevant service is given on an informal occasion, there may be no
assumption of responsibility; and likewise that an assumption of responsibility
may be negatived by an appropriate disclaimer.
The other
members of the House agreed with the speech of Lord Goff.
In White
v Jones [1995] 2 AC 207 at p270, Lord Browne-Wilkinson also emphasised
the importance of the concept, assumption of responsibility. He expressed
himself in similar terms to those used by Lord Goff in the Henderson
case. At pp272–275 he said, inter alia:
… the crucial
element [in Hedley Byrne] was that, by choosing to answer the enquiry,
the bank had assumed to act, and thereby created the special relationship on
which the necessary duty of care was founded.
Just as in
the case of fiduciary duties, the assumption of responsibility referred to is
the defendants, assumption of responsibility for the task not the assumption of
legal liability. Even in cases of ad hoc relationships, it is the
undertaking to answer the question posed which creates the relationship. If the
responsibility for the task is assumed by the defendant he thereby creates a
special relationship between himself and the plaintiff in relation to which the
law (not the defendant) attaches a duty to carry out carefully the task so
assumed.
The Law of
England does not impose any general duty of care to avoid negligent
misstatements or to avoid causing pure economic loss even if economic damage to
the plaintiff was foreseeable. However, such a duty of care will arise if there
is a special relationship between the parties. Although the categories of cases
in which such special relationship can be held to exist are not closed, as yet
only two categories have been identified, viz, (1) where there is a
fiduciary relationship and (2) where the defendant has voluntarily answered a
question or tendered skilled advice or services in circumstances where he knows
or ought to know that an identified plaintiff will rely on his answers or
advice. In both these categories the special relationship is created by the
defendant voluntarily assuming to act in the matter by involving himself in the
plaintiff’s affairs or by choosing to speak. If he does so assume to act or
speak he is said to have assumed responsibility for carrying through the matter
he has entered upon. In the words of Lord Reid in Hedley Byrne… he has
‘accepted a relationship … which requires him to exercise such care as the
circumstances require,’ ie although the extent of the duty will vary from
category to category, some duty of care arises from the special
relationship. Such relationship can arise even though the defendant has acted
in the plaintiff’s affairs pursuant to a contract with a third party.
It is thus
clear from the more recent authorities that Hedley Byrne is still the
governing authority in cases such as the present. The elements of reasonable
foreseeability and reliance are fundamental, as is the element of assumption of
responsibility. The existence of a disclaimer is relevant to answering the
relevant questions and thus to the question whether there was a duty of care.
Agency
Before turning
to the facts of the present case, there is another fundamental point which
needs to be considered. An agent or an employee, owes a duty of care to his
principal in relation to the transaction on which he is employed, which can be
both contractual and tortious: Midland Bank Trust Co Ltd v Hett,
Stubbs & Kemp [1979] Ch 384. But, in performing his agency, he may put
himself in a position where he owes a duty of care to the person with whom he
is dealing on behalf of his principal and be liable to him as well if he makes
a careless misrepresentation or does a careless act which causes loss, damage
or injury to the third party. Where personal injury is involved, no problem
arises. An agent or employee who drives his employer’s vehicle on his
employer’s business carelessly is liable to someone who is injured as a result.
The same applies to careless acts causing property damage and can in principle
apply to acts causing financial loss. (It might be thought that Marc Rich
& Co AG v Bishop Rock Marine Co Ltd [1995] 3 WLR 227 throws
doubt upon this proposition, but this is probably not correct and no argument
to that effect has been advanced before us.)
The
established law is stated in Halsbury’s Laws vol 1(2)§ 176:
Any agent,
including a public agent, who commits a wrongful act in the course of his employment,
is personally liable to any third party who suffers loss or damage thereby,
notwithstanding that the act was expressly authorised or ratified by the
principal, unless it was thereby deprived of its wrongful character.
Indeed, in the
absence of a contract, the tortious liability of the principal to the third
party is normally a vicarious liability for the tort of his agent. The
tortious liabilities of the principal and the agent are joint and several. The
liability of the principal presupposes and is founded upon the tortious
liability of the agent to the third party; if the agent has not committed a
tort, the principal will not, without more, be liable in tort. If a person is
in a relationship to a third party which gives rise in law to a duty of care
owed to the third party, it is no answer for that person to say that he was
acting as the agent of another. If the Hedley Byrne criteria are
satisfied, the agent is liable in tort.
The point is
usually identified only in cases when, exceptionally, the principal is unable,
or unlikely to be able, to meet a judgment for the third party’s loss and the
agent will be able to do so. The agent, by reason of the fact that he is acting
as an agent, does not have a contract with the third party; the only contract
is between the third party and the principal. Since there has, ex hypothesi,
been a breach by the agent of his duty to his principal, it would be possible,
solvency apart, for the third party to recover from the principal and the
principal to recover from the actual person at fault, the agent. Where the
principal is insolvent, if the third party could not recover from the agent,
the third party would be left without a remedy and the actual wrongdoer would
be likely to escape liability unless some special arrangement were adopted
which enabled the principal’s right against the agent to be combined with the
third party’s right against the principal. On the other hand, there is no need
to have this anomalous and artificial situation if the liability of the person
actually at fault to the person who has actually suffered the loss is
recognised in accordance with general tortious theory.
From the cases
in which the point has been specifically discussed it is possible to select
three cases of particular relevance: Punjab National Bank v DeBoinville
[1992] 1 Lloyd’s Rep 7; Gran Gelato (supra); and Henderson
(supra).
In Punjab
National Bank, the plaintiff bank was the assured under, and/or assignee
of, policies which it turned out were voidable by the underwriters on the
grounds of misrepresentation and nondisclosure. The brokers, who had placed the
risks, were two firms of Lloyd’s brokers; they were limited liability
companies. The individuals who had failed to make the relevant disclosure and
who had made the misrepresentations were two individuals, Mr DeBoinville and Mr
Deere, who were at material times employees of one or other of the firms. There
was no contract between the bank and either of the individual defendants, yet
both at first instance and in the Court of Appeal it was held that they owed to
the bank a duty of care: pp17–19 and 35–37. The judgments considered the
question of principle and, specifically, the case Ministry of Housing and
Local Government v Sharp [1970] QB 223 CA, where a related point was
discussed. They conclude that the careless employees, who were the actual
individuals carrying out the transactions which gave rise to the obligation to
exercise reasonable skill and care, themselves owed a legal duty of care
towards persons who might suffer loss as a result of their carelessness. The
relevant consideration is the part they play in the transaction, not the fact
that they are the servant or agent of another; they are responsible for their
own conduct:
It is not
every employee of a firm or company providing professional services that owes a
personal duty of care to the client; it depends what he is employed to do: see
the judgment of Lord Justice Cross in Ministry of Housing and Local
Government v Sharp … But here Mr DeBoinville and Mr Deere, whether
in their employment with Wrights or with Fieldings, were evidently entrusted
with the whole or nearly the whole of the task which their employers undertook.
Mr Milligan argued that they were more remote from the bank than their
employers. On the contrary, I think that in fact their proximity was greater.
Per Staughton LJ at p37.
In Gran
Gelato the plaintiffs were the purchasers of a 10-year underlease and the
relevant defendants were the vendors’ solicitors. The solicitors had carelessly
given an incorrect answer to a precontract inquiry. The plaintiffs had as a
result suffered a serious and foreseeable financial loss which the vendors were
possibly unable to pay. Sir Donald Nicholls V-C held that the solicitors owed
to the purchasers no duty of care. He recognised, at p571, that if the vendors
became insolvent this would leave the purchasers without an effective remedy.
He was not referred to either Sharp or Punjab National Bank (by
which he was bound). His judgment starts with the recognition that the vendors
for whom the solicitors were acting owed the purchasers a duty of care and that
the solicitors were in breach of their duty of care to the vendors: p569.
He applied the
Bridge formula, including whether the existence of a duty was ‘fair, just and
reasonable’. He said there was no problem about foreseeability or the presence
of a close and direct relationship. The solicitors intended, or must be taken
to have intended, that the purchasers would rely on the accuracy of the answers
to the inquiries and that they would do so in connection with that particular
transaction. The solicitors also foresaw, or were to be taken to have foreseen,
that the solicitors might suffer financial loss if the answers were incorrect.
The purchasers relied upon the solicitors to apply their legal expertise as
solicitors when answering the inquiries. He continued (p569):
Thus far, all
the indications point towards it being just and reasonable to impose on [the
solicitors] a duty of care in favour of Gran Gelato. Indeed, all the
factors which lead to the conclusion that a duty of care was owed by [the
vendors] exist also in the case of [the solicitors]. The only material
difference is that in making the representations [the solicitors] were acting
not as principals but as agents on behalf of [the vendors]. They gave their
answers as [the vendors’] solicitors, for and on behalf of [the vendors]. Does
this make any difference?
Having
referred to the fact that in Smith v Eric S Bush (a
firm) [1990] 1 AC 831 and Resolute Maritime Inc v Nippon Kaiji
Kyokai [1983] 1 WLR 857, the liability in negligence of an agent acting
within the scope of his authority had been recognised under the Hedley Byrne
principles, he made a distinction for solicitors involved in conveyancing
transactions. He referred to the fact that Morritt J in Cemp Properties (UK)
Ltd v Dentsply Research & Development Corporation [1989] 2 EGLR
205 at p207 had observed that ‘it would be absurd if the solicitor for one
party to the transaction owed a duty of care to another party as well as to his
own client’.
The
Vice-Chancellor gave three reasons for his conclusion that ‘in normal
conveyancing transactions solicitors who are acting for a seller do not in
general owe to the would-be buyer a duty of care in answering inquiries before
contract or the like’. His three reasons were each similar. They effectively
amount to the conclusion that it would not be ‘just and reasonable’ to impose a
liability on the solicitor towards the purchaser notwithstanding that it was
the solicitor who was answering the questions and it was the solicitor’s
exercise of care and skill that was involved. The Vice-Chancellor took the view
that there were remedies against the vendor and that the law should require the
purchaser to look exclusively to the vendor (even if he was not personally at
fault and, any way, could not pay). His first reason was a simple statement
that, in a conveyancing transaction, he was ‘far from persuaded that the fair
and reasonable reaction to these facts is that there ought also to be a remedy
against the other party’s solicitor personally’: p570. His second reason was
that if the misrepresentation was made within the scope of the agent’s
authority there was a tortious remedy against the vendor. The third of his
reasons I will quote in full (p571):
Thirdly, at
the forefront of his submissions, Mr Jackson presented an argument that to
impose a duty of care on solicitors would be to expose them to conflicting
duties, with one duty owed to their clients, and another different duty owed to
the buyer. I am not persuaded that this would be so. The duty to the buyer
would be to take reasonable care to see that the answers provided
were accurate. That duty would march hand in hand with a duty to the same
effect owed by the solicitor to his own client. There would be no conflict.
Nevertheless, and although I am not impressed by this argument based on
conflict, it does seem to me that in the field of negligent misrepresentation
caution should be exercised before the law takes the step of concluding, in any
particular context, that an agent acting within the scope of his authority on
behalf of a known principle, himself owes to third parties a duty of care
independent of the duty of care he owes to his principal. There will be cases
where it is fair, just and reasonable that there should be such a duty. But, in
general, in a case where the principal himself owes a duty of care to the third
party, the existence of a further duty of care, owed by the agent to the third
party, is not necessary for the reasonable protection of the latter. Good
reason, therefore, should exist before the law imposes a duty when the agent
already owes to his principal a duty which covers the same ground and the
principal is responsible to the third party for his agent’s shortcomings. I do
not think there is good reason for such a duty in normal conveyancing
transactions.
The reasoning
of the Vice-Chancellor, unless it is confined to stating a special rule
applicable to solicitors in conveyancing transactions, is, in my judgment,
inconsistent with the ratio decidendi of Punjab National Bank and
with the general principle of tortious liability where the person doing the
relevant act is the agent of another, which the Vice-Chancellor himself
recognised in his citation of Smith v Bush and Resolute
Maritime.
With respect
to the Vice-Chancellor, when he says that ‘where the principal himself owes a
duty of care to the third party, the existence of a further duty of care, owed
by the agent to the third party is not necessary’, he appears to overlook that,
in the relevant context, the duty in tort arises from the act of the solicitor
in choosing to answer the inquiry. There is only one duty; it is the duty of
the solicitor to take reasonable care in answering. The duty in tort is both
created and broken by the solicitor. The tortious liability of the
principal is, in this context, not for what he has himself done but is a
vicarious liability for the tort of the solicitor.
There are
other situations where the basis of the principal’s liability is different.
Thus, the tortious act of the agent may have been specifically authorised by the
principal; or the agent may have been innocent and the actual fault may be that
of the principal, as for example where the misrepresentation by the agent was
the result of his having passed on information given to the agent by the
principal which the agent did not know was incorrect. In such cases there is a
direct, not an imputed, liability of the principal. Similarly, the liability of
the principal may arise under statute as, for example, under the
Misrepresentation Act 1967. In any such situation the analysis will be
different. Such considerations were discussed in, for example, Ministry of
Housing v Sharp, Punjab National Bank and in cases such as WB
Anderson & Sons Ltd v Rhodes (Liverpool) Ltd [1967] 2 All ER
850. The position under the Misrepresentation Act was analysed in Resolute
Maritime v Nippon KK and clearly was an important factor influencing
what Morritt J said in Cemp v Dentsply.
In the Dentsply
case a vendor of land had had to pay the purchaser over £150,000 under section
2(1) of the Misrepresentation Act 1967 to compensate the purchaser for having
paid a price for the land which exceeded its true value. The vendor’s
solicitors had failed to disclose to the purchaser, when answering precontract
inquiries, that there were deeds which granted neighbouring proprietors rights
to light and air. The fault was the solicitors. The relevant result was that
the purchaser had paid and the vendor had obtained too high a price for the
land; even after compensating the purchaser the vendor had not suffered a loss.
In this respect he had merely been put back into the position he would have
been in had the solicitor given the correct answers. The relevant part of
proceedings before Morritt J was a claim in third party proceedings by the
vendor (R&D) against the solicitors (DHB) to recover a contribution under
section 1(1) of the Civil Liability (Contribution) Act 1978 in respect of the
vendor’s liability to the purchase under the Misrepresentation Act:
Subject to
the following provisions of this section, any person liable in respect of any
damage suffered by another person may recover contribution from any other
person liable in respect of the same damage (whether jointly with him or
otherwise).
Morritt J said
at p207:
Thus R&D
would have to establish that DHB was liable to Cemp for the same damage. As the
disclosed agent acting within the scope of their authority, DHB could not be
liable to Cemp under the Misrepresentation Act 1967 (see Resolute Maritime
Incorporated v Nippon Kaiji Kyokai [1983] 1 WLR 857 at p861). It may
be that in some cases there are circumstances giving rise to a special
relationship between the vendor’s solicitor and the purchaser from which a
common law duty of care arises, but this was a perfectly normal conveyancing
transaction in which the vendor’s solicitors answered inquiries before contract
raised by the purchaser’s solicitors. In those circumstances it would be absurd
if the solicitor for one party to the transaction owed a duty of care to
another party as well as to his own client.
In this
situation, the obviously just result is that the liability to make good the
purchaser’s loss should ultimately be borne by the party who has been unjustly
enriched, that is to say, the vendor. But it does not follow that if, for any
reason, the vendor is unable to make good the purchaser’s loss the purchaser
should not be compensated by the person actually at fault, the solicitor or
other agent who made the misrepresentation. If the vendor and the agent are to
be treated as joint tortfeasors each liable in respect of the same damage, the
1978 Act provides a method of apportioning liability between them which is just
and equitable. If on the other hand the agent is to be treated as protected
from tortious liability, the Act will not apply; this was the result of the
decision of Morritt J. There are bound to be problems where the carelessness of
the agent causes his principal’s property to be sold at an overvalue but they
are not avoided by refusing to recognise the tortious liability of the agent
for his own fault; and there may be cases where the solicitors’ careless
misrepresentation has caused other types of loss to the purchaser which do not
carry equivalent benefits to the vendor.
The limited
scope of the decision in Gran Gelato appears to have been recognised in White
v Jones [1995] 2 AC 207 both in the Court of Appeal and in the House of
Lords. White v Jones also involved the potential liability of a
solicitor, in that case, a solicitor employed by a prospective testator who had
instructed the solicitor to prepare a will for him under which legacies were to
be left to the plaintiff. The solicitor, in breach of his duty to his employer,
delayed in the preparation of the will with the result that his employer died
without executing the will which would have left the money to the plaintiff.
Both the Court of Appeal and (by a majority) the House of Lords held that the
solicitor did owe the plaintiff a duty of care. In the Court of Appeal, in the
judgment of Sir Donald Nicholls V-C himself, and in the House of Lords, in the
speech of Lord Goff, Gran Gelato was referred to and the Vice-Chancellor
put a restricted interpretation on the scope of his earlier decision:
In general,
and always leaving reliance cases on one side, a solicitor owes a professional
duty of care to his client and no one else. He is subject to professional rules
and standards, and he owes duties to the court as one of its officers. But
within that framework it is to his client alone that he owes a duty to exercise
the standard of skill and care appropriate to his status as a solicitor. Thus,
in general, when acting for a seller of land a solicitor does not himself owe a
duty of care to the buyer: see Gran Gelato Ltd v Richcliff (Group)
Ltd.
Lord Goff
referred to what Sir Donald Nicholls V-C had said in the Court of Appeal as an
aspect of the well established general rule ‘that a solicitor acting on behalf
of his client owes a duty of care only to his client’. A solicitor owes a duty
of care to his client which arises concurrently in contract and in tort
But, when a
solicitor is performing his duties to his client, he would generally owe no
duty of care to third parties. Accordingly, as Sir Donald Nicholls V-C pointed
out in the present case, a solicitor acting for a seller of land does not generally
owe a duty of care to the buyer: see Gran Gelato Ltd v Richcliff
(Group) Ltd.
It thus
appears that there is a rule of policy which gives a solicitor a special
immunity even in a non-adversarial context such as conveyancing where, as Sir
Donald Nicholls V-C himself pointed out in Gran Gelato, there is no
conflict between the duty owed to the client
apparently to coexist with a continuing (vicarious) tortious liability of the
principal. In White v Jones it was not necessary for the House of
Lords to consider the more general question of the liability of agents and
indeed, the actual decision holding the solicitor liable is in no way
inconsistent with agents being liable for their prima facie tortious
acts. White v Jones was also the case in which Lord
Browne-Wilkinson made the statement about the ambit of Hedley Byrne
which I have already quoted.
In the Henderson
case, the Punjab National Bank case was cited in the speech of Lord Goff
with which the other members of the House all agreed. The case was concerned
with whether managing agents had a duty of care to ‘indirect’ Names, that is to
say, Names who had given authority for risks to be underwritten at Lloyd’s
which were binding on them but who were not in contractual relations with the
agents who were doing the actual underwriting. Since there was no contractual
liability, the question was whether there was a tortious liability arising out
of the careless and unskilful underwriting of the agents which had caused loss
to the plaintiff Names. The House of Lords held that the defendants did owe the
plaintiffs a duty of care. Lord Goff, as illustrated by the quotations that I
have already made from his speech, based his decision firmly upon the
principles to be found in Hedley Byrne and the concept of assumption of
responsibility. Applying that principle to managing agents at Lloyd’s, he said
(at pp181–2):
Since it has
been submitted on behalf of the managing agents that no liability should attach
to them in negligence in the present case because the only damage suffered by
the Names consists of pure economic loss, the question arises whether the
principle in Hedley Byrne is capable of applying in the case of underwriting
agents at Lloyd’s who are managing agents. Like Saville J and the Court of
Appeal, I have no difficulty in concluding that the principle is indeed capable
of such application. The principle has been expressly applied to a number of
different categories of person who perform services of a professional or
quasi-professional nature, such as bankers (in Hedley Byrne itself); solicitors
(as foreshadowed by Lord Devlin in Hedley Byrne, and as held in the leading
case of Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp, and other cases in
which that authority had been followed); surveyors and valuers (as in Smith v
Eric S Bush …); and accountants (as in Caparo Industries plc v Dickman …).
Another category of persons to whom the principle has been applied, and on
which particular reliance was placed by the Names in the courts below and in
the argument before your Lordships, is insurance brokers. As Phillips J pointed
out in Youell v Bland Welch & Co Ltd (No 2) [1990] 2 Lloyd’s Rep 431, 459,
it has been accepted, since before 1964, that an insurance broker owes a duty
of care in negligence towards his client, whether the broker is bound by
contract or not. Furthermore, in Punjab National Bank v De Boinville … it was
held by the Court of Appeal, affirming the decision of Hobhouse J, that a duty
of care was owed by an insurance broker not only to his client but also to a
specific person whom he knew was to become an assignee of the policy. For my
part I can see no reason why a duty of care should not likewise be owed by
managing agents at Lloyd’s to a Name who is a member of a syndicate under the
management of the agents … The managing agents have accepted the Names as
members of a syndicate under their management. They obviously hold themselves
out as possessing a special expertise to advise the Names on the suitability of
risks to be underwritten; and on the circumstances in which, and the extent to
which, reinsurance should be taken out and claims should be settled. The Names,
as the managing agents well knew, placed implicit reliance on that expertise,
in that they gave authority to the managing agents to bind them to contracts of
insurance and reinsurance and to the settlement of claims. I can see no escape
from the conclusion that, in these circumstances, prima facie a duty of care is
owed in tort by the managing agents to such Names. To me, it does not matter if
one proceeds by way of analogy from the categories of relationship already
recognised as falling within the principles in Hedley Byrne … or by a straight
application of the principle stated in the Hedley Byrne case itself. On either
basis the conclusion is, in my opinion, clear. Furthermore, since the duty
rests on the principle in Hedley Byrne, no problem arises from the fact that
the loss suffered by the Names is pure economic loss.
In a later
passage in his judgment (pp195–6), Lord Goff contrasted this conclusion with
the position of a building subcontractor who will normally only owe a limited
tortious duty to the employer although he is under contractual obligations to the
head contractor.
These
authorities show that the governing principle is still that in Hedley Byrne,
and that an agent can be held responsible for a careless misrepresentation as
much as his principal. In certain special situations, rules which restrict the
liability of the agent may be superimposed. One such situation is, on the basis
of Gran Gelato, a solicitor in a conveyancing transaction. The present
case concerns a prospective purchase of an estate in land but the agent
involved is the estate agent not the solicitor. The question therefore becomes
whether in this transaction the same special rule should be applied to the
estate agent in respect of a misrepresentation. The difficulty in answering
this question lies in identifying the reason, consistent with principle as
reconfirmed in Henderson and binding authority as in Punjab National
Bank, for the solicitor’s immunity. For myself, I am unable to make a
wholly confident identification but it is apparently based upon the special
role of a solicitor and grounds of policy relating to that role. Sir Donald
Nicholls V-C seems to have put it this way in what he said in the Court of
Appeal in White v Jones: it is the professional duty of
the solicitor that is owed to his client alone. It is in the activities covered
by the rules and standards of his profession and his duties to the
court as one of its officers that the restriction applies. Within that framework
and when exercising the standard of skill and care appropriate to his status
as a solicitor his duty is confined to that to his client. In any other
situation, or when it is a reliance (ie Hedley Byrne) case, the
special rule does not apply. This conclusion is the minimum which is consistent
with deciding White v Jones in favour of the plaintiff. There is
no need to discuss the further problem whether the activities of a solicitor in
a conveyancing transaction, and in answering precontract inquiries, will
invariably fall into the protected category. What is clear is that these
reasons cannot apply to an estate agent or an agent who will not be liable save
on a Hedley Byrne basis.
I therefore
approach the present case applying the principles to be derived from Hedley
Byrne as stated by Lord Goff and Lord Browne-Wilkinson without the
superimposition of any extra requirement of fairness or justice or any special
rule of policy.
Structure
of the transaction
In the present
case there was a direct relationship between Mr Scott and Mr McCullagh. Mr
Scott made the representation to Mr McCullagh: he chose to speak to him and
make a factual statement which was designed to influence the decision making
processes of Mr McCullagh. Mr Scott was holding himself out as a person who
knew the area of the land being offered for sale, presumably because he had
measured it or had supervised its measurement. He had a special knowledge which
was not available to Mr McCullagh. The relationship was a business one. Mr
Scott had a financial interest in influencing persons to buy the property and
to buy at as high a price as could be negotiated. His remuneration, as everyone
knew, was dependant upon someone agreeing to buy the land and upon the price at
which that person was willing purchase. He would be paid by way of a commission
payable out of the deposit paid by the purchaser. Indirectly, he would be paid
by the purchaser. The absence of a specific consideration moving directly from
the representee to the representor is the only thing which prevents the
relationship between them from being contractual. Thus far I see nothing in the
structure of the transaction which would negative a duty of care to be owed by
the estate agent in relation to any representation the estate agent chooses to
make to the prospective purchaser for the purpose of influencing him to buy. It
is his choice to make a representation intended to influence the representee
which amounts to the assumption of responsibility. It is foreseeable that such
a representation may be relied on since it was intended to have the effect of
influencing the prospective purchaser to buy.
The defendants
counter this conclusion with an argument which can be advanced both as a matter
of principle and by reference to the facts of this case. In the law of
negligence the concept of proximity is inconsistent with the contemplation or
expectation of an intermediate check. In Donoghue v Stevenson
[1932] AC 562 at p582, Lord Atkin referred to ‘the proximate relationship which
may be too remote where
person, may be interposed’. Thus, in product liability cases, the likelihood
that there will be an intermediate inspection or check, negatives the existence
of the duty of care: see Herchtal v Stewart & Arden [1940] 1
KB 155; Haseldine v CA Daw & Son Ltd [1941] 2 KB 343.
In a
transaction for the sale of land, it will normally be contemplated that there
will be precontract inquiries which will be used by the prospective purchaser
to obtain specific representations verifying important facts. Similarly parties
will very frequently instruct a surveyor to carry out a structural survey
before deciding to make an offer or to exchange contracts. Thus, it does not
follow that a representation, although intended to influence the representee,
will be relied upon in the relevant way without an intermediate check. It is
therefore necessary to examine further the significance of the representation
in the transaction. This is not something which is peculiar to estate agents
nor does it amount to some special principle of qualified liability for estate
agents.
The
application of this principle must depend upon the facts of the case before the
court. The facts of the present case can be broken down into five stages:
(1) At no 61,
Mr Scott tells Mr McCullagh that the area is 0.92 acres.
(2) Mr Scott
learns that the intention of Mr McCullagh is to demolish the house and rebuild.
From this it would be reasonable to infer that Mr Scott would not be troubling
with a structural survey of the house.
(3) In Mr
Scott’s presence, Mr McCullagh is given a copy of the Lane Fox particulars,
which includes the statement about the acreage and the disclaimer.
(4) Mr
McCullagh makes a subject to contract offer to Mr Scott and Mr Scott tells him
of the need for speed in view of the other offer. Mr McCullagh increases his
offer and says that he will exchange the following day. From this it would be
reasonable to infer that it would be quite likely that Mr McCullagh would not
make any further inquiries or carry out any independent check of the acreage
before committing himself contractually.
(5) In
reliance upon the statement that the area was 0.92 acres, Mr McCullagh commits
himself contractually and suffers loss.
In my
judgment, the relevant time at which to ask whether the tort of negligence has
been committed is the time at which it is said that the plaintiff has suffered
loss. Causing loss or damage is an essential part of the tort of negligence. If
by this time the requisite elements of the commission of the tort have come
into existence, it is immaterial that at some earlier time they may not all
have done so. For example, a food manufacturer may, without negligence on his
part and without being aware that it has occurred, deliver contaminated food to
a supermarket. Shortly afterwards he discovers what has happened. With this
knowledge, he can foresee that, if he does not immediately warn the
supermarket, consumers may be injured. It is easy to understand that he
consequently owes to possible consumers a duty of care to warn the supermarket.
If he does not and consumers are injured, it will be no answer for him to say
that the original manufacture of the food was not careless. The Donoghue
v Stevenson principle relates to the avoidance of injury to the
plaintiff: the duty is to take reasonable steps to protect from injury those
persons whom he can reasonably foresee may be injured by his product.
Returning to
the present case, I consider that the question whether Mr Scott owed to Mr
McCullagh a duty of care must be answered taking into account all that Mr Scott
knew and ought reasonably to have known and contemplated at the time he last
spoke to Mr McCullagh before Mr McCullagh finally relied upon what he had said on
the Saturday morning. Having made a representation, the relationship had been
established and the potential for a duty of care continued up to the time that
the representation was finally relied on. As soon as it becomes reasonably
foreseeable by him that a careless misrepresentation might cause loss to Mr
McCullagh, it was his duty to take reasonable steps to see that Mr McCullagh
was not caused loss. The law of negligence is in line with the law of contract
and other aspects of the law of tort. A representation is treated as continuing
up to the time of the making of the contract, or other reliance, with a
correlative duty on the maker to correct any misrepresentation: see Banque
Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665*; Davies
v London and Provincial Marine Insurance Co (1878) 8 ChD 469.
Accordingly, I do not accept the judge’s approach to the origin of the duty (if
any) of the defendants nor the defendants’ argument based upon the judge’s
approach.
*Editor’s
note: Sub nom Banque Financière de la Cité SA v Westgate Insurance Co
Ltd
On the Sunday,
Mr Scott knew, or ought to have known, that his representation was likely to be
relied on by Mr McCullagh. However, he also knew that Mr McCullagh had the Lane
Fox particulars which included both the relevant statement and the
disclaimer. In my judgment, the result of this is that the element of proximity
was negatived. A reasonable person, appreciating that the statement which he was
proposing to rely upon was a statement contained in the particulars and the
fact that those particulars also stated that
all
statements contained in these particulars as to this property are made without
responsibility on the part of Lane Fox …
would understand
that there was no assumption of responsibility by Lane Fox. This understanding
would be reinforced by paras 3, 4 and 5 of the disclaimer. In my judgment, the
disclaimer puts the present case on all fours with the actual decision in Hedley
Byrne as explained earlier.
The judge
avoided this conclusion by approaching the disclaimer as if it were a
contractual exclusion. On such an approach it would need to be strictly
construed and the argument was available that it did not as such cover an oral
statement. But that is not, in my judgment, the right approach. It is not an
exclusion to be construed. The right approach, as is made clear in Hedley
Byrne, is to treat the existence of the disclaimer as one of the facts
relevant to answering the question whether there had been an assumption of
responsibility by the defendants for the relevant statement. This question must
be answered objectively by reference to what a reasonable person in the
position of Mr McCullagh would have understood at the time that he finally
relied upon the representation. In this context, it is obvious that the
statement that the acreage of the property is 0.92 was a statement which was
taken from the particulars, and that the defendants were not assuming
responsibility for that statement. The mere fact that Mr Scott, when showing Mr
McCullagh around the property, gave the same information to Mr McCullagh orally
would not lead a reasonable person to conclude that the defendants were thereby
choosing to assume responsibility for the statement which they said in the
particulars they were not assuming responsibility for. The submission that such
a conclusion would be reasonable is unreal. It was not supported by any
evidence. Mr McCullagh said (surprisingly) that he had not bothered to read the
particulars but he also said that he knew that they would contain disclaimers
of the type which they in fact did. The submission was further inconsistent
with para 5 of the disclaimer. The essence of the law of negligence is the
application of objective standards of reasonableness. By those standards, it is
clear that the defendants were not assuming responsibility for the accuracy of
the statement about the acreage. The position might be different if the
representation had been about something not, or not expected to be, included in
the particulars.
The result of
this conclusion is that, having regard to the disclaimer, Mr McCullagh was not
reasonably entitled to believe that the defendants were assuming responsibility
for the relevant statement. Therefore, applying Hedley Byrne, they owed
him no duty of care in relation to its accuracy unless the Unfair Contract
Terms Act 1977 precludes the defendants from using the disclaimer.
I should,
however, add that I see a further difficulty in the way of
case — the factor which was alleged to connect the conduct of the defendants to
the loss suffered by Mr McCullagh — was Mr McCullagh’s entry into the contract
to purchase no 61. As previously stated, it was a term of that contract that:
13. The
purchaser hereby acknowledges that the purchaser has not entered into this
contract in reliance wholly or partly upon any statement or representation
whether made orally or in writing or otherwise howsoever by or on behalf of the
vendor save for the written replies of the vendor’s solicitors to enquiries
made by the purchaser’s solicitors.
Thus at the
very time at which he has to say as against the agent that he is relying on
what the agent acting for the vendor has represented, he is contracting with
the vendor that he has not relied upon that representation in entering into the
contract. The difficulties that this presents for the imposition by the law on
the agent of a duty of care to the purchaser in respect of such a statement
have not been the subject of argument before us. I would require to be
persuaded that it was open to the purchaser to adopt this inconsistent stance
as against the agent and his principal within the scope of the same transaction
and in relation to an act of the former as an agent of the latter. I would not
regard it as, to use Lord Bridge’s phrase, ‘fair, just and reasonable’.
However, for the reasons which I have already given, I do not need to enter
further into this aspect of the case and do not base my decision of this appeal
upon it.
Unfair
Contract Terms Act 1977
In view of his
other decisions, Colman J did not have to consider the effect of this Act.
Despite its title, the Act applies to more than just contractual terms. Section
2 provides:
(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
provides:
(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.
It is thus
clear, that if it would not be fair and reasonable to allow the defendants to
rely upon the disclaimer in the particulars, the disclaimer will have to be
disregarded and, for the reasons given earlier in this judgment, the
consequence would be that the defendants must be taken to have assumed
responsibility for the representation and to have owed a Hedley Byrne
duty of care to Mr McCullagh. The relevance of the Act and the ability to rely
upon a disclaimer was central to the decision of the House of Lords in Smith
v Bush and Harris v Wyre Forest District Council [1990] 1
AC 831* and is explained and elaborated in the speech of Lord Griffiths at
pp856–859.
*Editor’s
note: Also reported at [1989] 1 EGLR 169
It is for the
defendants to establish that it is fair and reasonable that they should be
allowed to rely upon the disclaimer. This was a transaction which involved a
sophisticated and experienced member of the public. Mr McCullagh had himself
given Mr Scott to understand this. Mr McCullagh had the relevant document in
his possession and was aware that it would contain a disclaimer. If, as the
judge was apparently prepared to accept, Mr McCullagh did not even trouble to
read the document, he had more than an ample opportunity to do so and to inform
himself fully of what it contained. There is no suggestion that he was in any
way misled or was in any material respect unaware of the likely, and actual,
contents of the document. He had ample opportunity to regulate his conduct
having regard to the disclaimer. He could have obtained, had he so chosen, an
independent check of the acreage. Indeed he appears to have accepted in
evidence that, even within the tight timetable which he was following, he did
have this opportunity had he wished to avail himself of it.
Further Mr
McCullagh had, and would have been assumed by all concerned to have, the
benefit of legal advice and representation. The normal structure of contracts
for the purchase of land is that the intending purchaser, before he exchanges
contracts, is able through his own solicitor to interrogate the proposed vendor
and is entitled to rely upon the answers to such inquiries as representations
which have induced the contract with all the legal consequences that flow from
that situation. The use of disclaimers to insulate the estate agent, and the
estate agent’s principals, from responsibility for representations made by
estate agents is commonplace and is the normal basis upon which house sale
transactions are carried out every day across the country. It was also normal
that there should be a term in the contract of sale such as clause 13. Mr
McCullagh had complete freedom of contract and was in a position to negotiate
on an equal footing with the vendor.
There was no
basis for saying, in the context of the present case, that it would be unfair
to Mr McCullagh to allow the defendants to rely upon the disclaimer nor that it
would be unreasonable. Indeed, since Mr McCullagh expected that the particulars
would contain a disclaimer, it would, in my judgment, be unreasonable and
unfair to the defendants to allow him to claim against the defendants as if
there had been no such disclaimer. The point would have been wholly unarguable
if Mr McCullagh had been relying upon the statement in the written document. In
my judgment, the fact that the same statement was made orally does not reduce
the fairness and reasonableness of the defendants’ reliance on the disclaimer.
In the present case, the oral comment of Mr Scott had the character of an oral
quotation of what Mr McCullagh would expect to be contained in the written
particulars and the oral statement did not in fact go beyond anything contained
in the written particulars; these considerations show clearly that reliance on
the disclaimer is both fair and reasonable.
Accordingly,
in my judgment, the position remains that the defendants did not owe to the
plaintiff the alleged duty of care and they are not liable to him. The appeal
will fall to be dismissed on this ground. The remaining points can be disposed
of shortly.
Remaining
points
Reliance
in fact
The judge
accepted Mr McCullagh’s evidence that he did in fact rely upon what Mr Scott had
told him on the Saturday morning. Mr McCullagh’s evidence was that the acreage
was a matter of importance to him and that he was strongly influenced by his
belief, derived from what Mr Scott had said, that the area of the plot was more
than 0.9 of an acre. The judge was entitled to accept this evidence. It follows
that the judge was entitled to find further that the misrepresentation had
induced Mr McCullagh to enter into the contract to buy the land for £875,000.
The judge was also entitled to find that the misrepresentation of Mr Scott was
a cause of Mr McCullagh’s loss. This is in truth the relevant conclusion as the
question is one of causation. Therefore had the duty of care been established
the criterion of causation would have been satisfied.
Contributory
negligence
Colman J did
not have to deal with this allegation; nor do I. Further, it depends upon the
hypothesis that Mr McCullagh was entitled, in entering into the contract to
purchase, to rely on what Mr Scott had said. In my judgment he was not.
However, if the hypothesis was to be accepted together with the implications
which follow from it, there would be very considerable difficulties in the way
of the defendants’ allegation that Mr McCullagh was guilty of contributory
negligence. Mr McCullagh, when questioned about the reasonableness of what he
had done, answered robustly in the terms which I have quoted earlier:
Why should I
doubt Lane Fox’s word?
Sir Donald
Nicholls V-C, in Gran Gelato at pp572–575, rejected a similar allegation
of contributory negligence. He referred to Sir George Jessel MR in Redgrave
v Hurd (1881) 20 ChD 1, at p14:
… it has been
repeatedly held that the vendor cannot be allowed to say, ‘You were not
entitled to give credit to my statement.’ It is not sufficient, therefore, to
say that the purchaser had the opportunity of investigating the real state of
the case, but did not avail himself of that opportunity.
In Nocton
v Lord Ashburton [1914] AC 932 at p962 Lord Dunedin said:
No one is
entitled to make a statement which on the face of it conveys a false impression
and then excuse himself on the ground that the person to whom he made it had
available the means of correction.
Conclusion
For the
reasons given in this judgment, which are not the same as those given by the
judge, this appeal should be dismissed and the judgment in favour of the
defendants should stand.
In agreeing, Sir Christopher
Slade said: I have had the
advantage of reading the judgment of Hobhouse LJ in draft. Subject to what is
said below, relating to the duty of care owed by Lane Fox to Mr McCullagh, I am
in entire agreement with his conclusions.
Two striking
features of this case deserve mention. First, though the particulars relating
to 61 Hartington Road prepared by Lane Fox contained a specific representation
that the property is ‘set in 0.92 of an acre of its own private gardens’, the
misrepresentation contained in the particulars has not been relied on by the
plaintiff’s counsel, either in pleading or in argument, as giving rise to a
cause of action. It was, no doubt, accepted that para 2 of the disclaimers at
the end of these particulars would provide a complete answer to any such
argument.
Second, the
plaintiff’s statement of claim in effect asserted that the alleged duty of care
owed by Mr Scott to the plaintiff arose (and was broken) at the time when,
during the plaintiff’s first visit to the property in the morning of Saturday
May 12 1990, Mr Scott informed the plaintiff that the size of the site was 0.91
acres. This, I understand, was the basis on which the plaintiff’s case was
presented in the court below.
That
submission, however, gave rise to difficulties which were appreciated by the
judge. I believe that one of the salient features of all the cases in which, in
the absence of a contractual relationship between representor and representee,
a misrepresentation has been held to give rise to a breach of duty of care in
tort, is that the defendant has known, actually or inferentially, that it was
likely the plaintiff would rely on the representation without further
independent inquiry, for the purpose for which he did rely on it: see for
example Caparo Industries plc v Dickman [1990] 2 AC 605 at
pp620H–621A per Lord Bridge and at p683D per Lord Oliver.
In the present
case, Colman J was, in my judgment, clearly right to form the view that Mr
Scott did not owe the plaintiff a duty of care on the Saturday morning when Mr
Scott made the relevant statement, if only because at that time he would have
been entitled reasonably to take the view that his statement would be
independently checked and would not be relied on.
The more
pertinent question is whether (as the judge held and was argued in the
alternative on behalf of the plaintiff in this court) the duty of care arose at
the time when Mr Scott first appreciated that the plaintiff would be exchanging
contracts without a survey.
This
conclusion imports the concept that, at that time, Mr Scott became under a duty
to correct his previous oral misstatement as to acreage, even though: (a) at
the time when he had made it he owed no duty to the plaintiff, and (b) at the
relevant later time he was still not aware that his previous statement had been
mistaken. I, for my part, find this a difficult concept. The decision in Davies
v London & Provincial Marine Insurance Co (1878) 8 ChD 469 referred
to by Hobhouse LJ is authority for the well established principle that if a
party to a contract has made a statement to the other party which he believes
to be true but which in the course of the negotiation he discovers to be false,
he is bound to correct his erroneous statement. I accept also that a failure to
speak can give rise to tortious liability in negligence under Hedley Byrne
principles, provided that there has been on the facts a voluntary assumption of
responsibility in the relevant sense, so as to give rise to a duty to speak,
and reliance on that assumption: see Banque Keyser Ullman SA v Skandia
(UK) Insurance Co Ltd [1990] 1 QB 665 at p794D. Special considerations may
apply to cases where parties are negotiating a contract uberimae fidei.
In other cases, however, I am doubtful whether a mere failure to correct an
innocent misrepresentation can give rise to liability in tort unless either:
(a) the representor assumed responsibility for its truth at the time when the
representation was originally made, or (b) the representor subsequently became
aware that it was untrue and was likely to be acted upon, before in fact it was
acted upon by the representee. No authority has been cited to us which supports
a contrary conclusion. Neither condition (a) nor condition (b) is, in my view,
satisfied in the present case.
I therefore
incline to the view that, on the particular facts of this case, no breach of
duty by Lane Fox to the plaintiff would have been established even in the
absence of the disclaimers contained in the particulars.
When the
particular facts of this case are examined, however, the disclaimers, in my
judgment, put the matter beyond doubt. The relevant oral misrepresentation made
on the Saturday morning was not even made in response to a question addressed
to Mr Scott by the plaintiff. As the judge found, the circumstances in which it
was made were as follows:
When [the
plaintiff] mentioned that No 61 was a one acre site, Mr. Scott corrected him,
saying that it was in fact only ‘0.91 acres’.
I have already
given reasons for concluding that Mr Scott assumed no responsibility to the
plaintiff for the truth of that representation at that time. The suggestion is
that he assumed responsibility for its truth later in the weekend, after the
meeting at the property had ended and Mr Scott came to realise that contracts
were to be exchanged on the Monday. But by that time the plaintiff had been
supplied with the particulars and could be reasonably expected to have read them,
even if he did not do so. I agree with Hobhouse LJ that in the light of the
disclaimers contained in them, the plaintiff, at the time when he exchanged
contracts, could not reasonably have supposed that Mr Scott, on behalf of Lane
Fox, had assumed responsibility for the accuracy of any statement of the
acreage, whether it was contained in the particulars or had been made orally.
The assumption of responsibility had been negatived by an appropriate
disclaimer: see per Lord Goff in Henderson v Merrett Syndicates
Ltd [1995] 2 AC 145 at p181. I also agree that, on the facts of this case, the
Unfair Contracts Terms Act 1977 does not have the effect of negativing the
disclaimers.
The Property
Misdescriptions Act 1991, which came into force on April 4 1993 gives additional
protection to the public by making estate agents criminally liable for
statements as to specified matters which are false or misleading to a material
degree. These specified matters include statements as to ‘accommodation,
measurement or sizes’: see Property Misdescriptions (Specified Matters) Order
1992 (SI 1992 No 2834) Schedule, para 5. The statutory defence to this offence
afforded by section 2 is one based on ‘due diligence’. Section 1(4), however,
expressly provides that no right of action in civil proceedings in respect of
any loss shall arise, by reason only of the commission of an offence under this
section. Thus, so far, Parliament has not thought it necessary to legislate so
as to impose civil liability on estate agents who, in the course of acting for
sellers of property, make misrepresentations as to its area or other
characteristics. I, for my part, do not doubt that in some circumstances civil
liability in tort can arise from such misrepresentations under the common law.
Whether or not it will do so must depend on the facts of the particular case.
While I have
some sympathy with the plaintiff, I conclude that, on the facts of the instant
case, no relevant duty of care arose and would concur in dismissing the appeal
on this ground.
Also agreeing,
Nourse LJ said: I have had
the advantage of reading in draft the judgments of Hobhouse LJ and Sir
Christopher Slade. While I would, like them, decide the damages issue in favour
of the plaintiff, I agree that the appeal fails on the ground that no duty of
care was owed to the plaintiff by Lane Fox.
On the latter
issue my approach is similar to that of Sir Christopher Slade. In particular,
for the reasons given by him, I share his inclination to the view that, on the
particular facts of this case, no breach of duty by Lane Fox to the plaintiff
would have been established even in the absence of the disclaimers contained in
the particulars. However, since the disclaimers put the matter beyond doubt, it
is unnecessary to be more positive than that. Nor, since all these cases in the
end depend on their own facts, is it desirable to decide more than it is
necessary to decide.
It was
suggested in argument that the position of an estate agent acting for a vendor
in a house sale is analogous to that of a solicitor acting for a vendor in such
a transaction, so that in general the estate agent does not himself owe a duty
of care to the purchaser; cf Gran Gelato Ltd v Richcliff (Group) Ltd
[1992] Ch 506 and the observations on that decision in White v Jones
[1995] 2 AC 207, at pp223 and 256. While recognising that there is, to some
extent, such an analogy, I am nevertheless of the opinion that it should be
approached with caution. That is because the very function of an estate agent
so acting is prone to take him out of the general and bring him under a
particular duty to a prospective purchaser, especially one who is not himself
represented by an agent in the transaction. Perhaps the lesson of this case is
that an estate agent is well advised not to act for a vendor in a house sale
without appropriate disclaimers, to which the attention of prospective
purchasers is drawn. The appeal is dismissed.
Appeal
dismissed with costs.
For a
further case on this subject see p229
