Estate agents — 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 at 61 Hartington Road, Chiswick, London W4, on May 12, the
plaintiff was given a copy of the sale particulars prepared by the defendants,
which referred to the area of the gardens as nearly 1 acre. The plaintiff alleged
that this area was confirmed by S, of the defendant firm, during the visit. The
plaintiff informed S 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 that the property was worth only £550,000.
defendants, made an oral misrepresentation of the area of the gardens and there
was a casual link between that misstatement and the plaintiff’s alleged loss.
The necessary ingredients of a duty of care owed by the defendants to the
plaintiff existed: (1) S was aware that the plaintiff was dispensing with a
survey and therefore the facts of the area would affect his decision to
purchase; (2) accordingly, there existed a neighbour or proximity relationship;
(3) there was a professional estate agent knowing that what he 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; (4) it was just and reasonable to impose
a duty of care; and, (5) there was foreseeability that the plaintiff might
offer more than the market value of the property. The possible availability of
an alternative remedy against the vendor would not make it less just and
reasonable that a duty should be imposed. However, on the evidence, the
purchase of the property was not at a price in excess of its market value and
therefore the plaintiff had suffered no loss.
The following
cases are referred to in this report.
Amalgamated
Investment & Property Co Ltd (in liquidation) v
Texas Commerce International Bank Ltd [1982] QB 84; [1981] 3 WLR 565;
[1981] 3 All ER 577; [1981] Com LR 236, CA
Bango v Holt (1971) 21 DLR (3d) 66
Caparo
Industries plc v Dickman [1990] 2 AC 605;
[1990] 2 WLR 358; [1990] 1 All ER 568, HL
Computastaff
Ltd v Ingledew Brown Bennison & Garrett
(1983) 268 EG 906, [1983] 2 EGLR 150
Edgington v Fitzmaurice (1885) 29 ChD 459
Gran
Gelato Ltd v Richcliff (Group) Ltd [1992] Ch
560; [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] 18 EG
89; 21 HLR 424, HL
Hedley
Byrne & Co Ltd v Heller & Partners Ltd
[1964] AC 465; [1963] 3 WLR 101; [1963] 2 All ER 575; [1963] 1 Lloyd’s Rep 485,
HL
Komarniski v Marien (1979) 100 DLR 81
McNaughton
(James) Paper Group Ltd v Hicks Anderson &
Co [1991] 2 QB 113; [1991] 2 WLR 641; [1991] 1 All ER 134, CA
Mutual
Life & Citizens’ Assurance Co Ltd v Evatt
[1971] AC 793; [1971] 2 WLR 23; [1971] 1 ALL ER 150; [1970] 2 Lloyd’s Rep 441,
PC
Richardson v Norris Smith Real Estate Ltd [1977] 1 NZLR 152
Smith v Chadwick (1884) 9 App Case 187
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
Sutherland
Shire Council v Heyman (1985) 60 ALR 1;
[1985] 59 ALJR 564; 2 Const LJ 150; (1985) 157 CLR 424
This was a
claim by the plaintiff, Edward McKim Lyell McCullagh, for damages for negligent
misstatement against the defendants, Lane Fox & Partners Ltd.
Philip Havers
(instructed by Myshcon de Reya) appeared for the plaintiff; Richard Lynagh
(instructed by Cameron Markby Hewitt) represented the defendants.
Giving
judgment, COLMAN J said: This is a claim in tort for negligent
misstatement by the defendant estate agents. It raises an issue of fundamental
importance to estate agents, namely whether the vendor’s agent owes a duty of care
to the purchaser of property in respect of negligent misstatements upon which
the purchaser relies in entering into the purchase contract. On this point
there appears to be only one previous decision of the English courts.
The plaintiff
purchased the residential property at 61 Hartington Road, Chiswick, London W4.
Exchange of contracts took place on May 14 1990. The defendants were the
vendors’ estate agents. Andrew Scott, then an associate director and now a full
director of the defendants, was the person who was handling the property and
who dealt with the plaintiff. The claim for damages for negligent misstatement
is founded on the plaintiff’s contention that he was induced to enter into the
contract by the defendants negligently misrepresenting that the house stood in
gardens of 0.91 acres, whereas in reality the area of the entire plot including
the space occupied by the house was only 0.48 acres. The plaintiff says that he
would never have been prepared to pay what he did for the property — £875,000 —
if he had known the truth about the garden area. He contends — in reliance on
expert evidence — that the true value of the property with the area accurately
described would not have been more than £550,000 and that he has therefore
suffered a loss of £325,000, which he claims as damages.
It is admitted
by the defendants that if, which they deny, there was a representation that the
area of the gardens was 0.91 acres that representation was (i) untrue, and (ii)
negligently made, the true area being 0.48 acres.
Plaintiff’s
case
On Friday May
11 1990 the plaintiff and his wife saw in the current issue of Portrait
Magazine an advertisement by the defendant estate agents of the house at 61
Hartington Road. Alongside a photograph taken of the rear garden looking
towards the house was the following description.
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 90′ river frontage.
Front and rear
gardens of nearly one acre, 90′ river frontage with potential private moorings,
12m swimming pool.
The asking
price was stated to be £850,000. The plaintiff and his wife, who lived in
Kensington, were looking for a house on the Thames and, being particularly
attracted by the riverside position and area of 1 acre, they made an
appointment with the defendants to view no 61 the following morning, Saturday
May 12, at 11.30am.
Mr McCullagh
was a relatively wealthy man, the owner of a group of companies, including a
substantial engineering company, having its head office in west London. He had
been building up his company for most of 30 years and was in every sense an
experienced businessman. He had experienced the selling and buying of houses on
three occasions since 1972.
The plaintiff
and his wife and two young children drove over to no 61 and arrived there at
11.30am on the Saturday. There they met Andrew Scott of the defendants.
According to the plaintiff, Mr Scott met them and conducted them quickly through
the house without showing them over it and out into the gardens at the rear.
The plaintiff and his wife were greatly attracted by the gardens, which ran
down to the river. There was no intervening tow path. The lower rear gardens
contained a swimming pool and were attractively laid out. The upper part of the
rear gardens included a most unusual cedar extending horizontally across a
substantial proportion of the width of the lawn and supported on struts. They
found the house unattractive. It was built in the 1920s with late additions to
both sides. Almost immediately the plaintiff and his wife came to the
conclusion that they would like to acquire the property for the purpose of
demolishing the house and building what the plaintiff described as their dream house
on the site together with a tennis court.
According to
the plaintiff, having walked to the end of the garden with Andrew Scott, they
were openly enthusiastic about the property. The plaintiff told Mr Scott that a
1-acre site on the river was unique and this was a golden opportunity to
acquire such a site. This was in the context of a conversation in which the
plaintiff mentioned his company had acquired a half- to three-quarter-acre site
on the Isle of Dogs, which they had bought for about £390,000 and was then
valued at £5m. He recalled making some flippant remark about commuting to work
down the river. When he mentioned that no 61 was a 1-acre site Mr Scott
corrected him, saying that it was in fact only 0.91 acres. The plaintiff then
told Mr Scott that they would want to demolish the house and replace it and
build a tennis court alongside the swimming pool at the lower end of the
garden. They spent what the plaintiff said was about half an hour to
three-quarters of an hour in the garden. They then went with Mr Scott to look
at the house itself, although they made it plain to him that they were not
really interested in it because they envisaged demolishing it. They found what
the plaintiff described as a rather tired 1930s house, in poor condition with insufficient
bathrooms.
According to
the plaintiff, while they were at the property, Mr Scott told them that an
offer had been made by some friends of the owners, Mr and Mrs Bonser, which was
near to the asking price. Mr Scott told them that if they wanted the property
they would therefore have to move quickly. Mrs McCullagh, the plaintiff’s wife,
substantially confirmed his account of what happened during their visit on that
Saturday morning. In the context of her saying that they would demolish the
house, she asked Mr Scott if it was listed and he
was 0.91 acres. She also recalled her husband’s reference to his company’s
property on the Isle of Dogs.
The plaintiff
and his wife left the house after that visit, determined to acquire it. What
made them so enthusiastic was that the site was nearly 1 acre on the Thames.
They believed that there was room for them to build their dream house and to
put in a tennis court, while retaining the existing swimming pool. Just as they
were leaving the house they met Mrs Bonser who asked if the defendants had
provided them with the particulars of sale. They had not been given those
particulars and she then fetched a copy and passed it over to them.
Having
discussed the matter with his wife and children, the plaintiff then moved with
great determination. That same evening he telephoned Mr Scott at home and said
that his family loved the property and wished to buy it. He asked what was the
exact position about the existing offer. Mr Scott said that the Bonsers had
agreed terms and the purchasers were going round to have tea with them on the
following day. Later that evening the plaintiff again telephoned Mr Scott and
made an offer of £850,000, the asking price. Mr Scott remarked that he did not
want his clients to fall between two stools. The plaintiff felt that the
implication of those remarks was that, in view of the fact that the vendors had
already accepted an offer, he would have to be prepared to exchange contracts
very quickly. For that reason he thereupon said that he was prepare to exchange
contracts on the Monday.
On the Sunday
morning the plaintiff contacted the vendors direct and asked if he could again
visit the house. He and his family spent another half-hour there and in the
course of that visit, feeling that he wanted to be sure of beating off
competitive bids from those whose offer the vendors had already accepted, which
he believed to be near the asking price, he then increased his offer to
£875,000. There was a further conversation with Mr Scott on that Sunday evening
in which the plaintiff repeated his offer of £875,000 and confirmed that he was
prepared to exchange contracts the next day. In the event the vendors accepted
that offer and contracts were exchanged on Monday May 14 1990.
It was the
plaintiff’s evidence that what attracted him and his family to the property was
the riverside location and the area of the ground, as confirmed by Andrew
Scott, of 0.91 acres, which the plaintiff believed to be: (i) almost unique on
the river, and (ii) spacious enough to contain his dream home, a tennis court
and the existing swimming pool. He believed that a tennis court would fit
between the swimming pool and boundary, but he did not know the dimension of a
court or the dimensions of that space. At the time when the offer was made he
did not know which area would be occupied by his dream home.
The
particulars of sale provided to the plaintiff in the course of the Saturday
visit included the following:
An exceptional
family house occupying a unique position on the River Thames, with gardens of
nearly one acre and a 90′ river frontage
Front and
rear gardens of nearly 1 acre.
Description
The property,
approached by a 90′ driveway, is a detached freehold house built in 1931 and
set in 0.92 of an acre of its own private gardens. The location on the River
Thames offers a large river frontage which could easily provide extensive
private moorings.
At the end of
the particulars of sale there appear in small but legible print the following
provisions:
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.
The
plaintiff’s evidence was that because by the time he left the property on the
Saturday morning they envisaged demolishing the house, he did not do more than
glance at the photographs and contents of the particulars of sale, but, having
some experience of moving house, he knew that estate agents’ particulars
invariably include disclaimers of liability of the kind in the defendants’
particulars.
In the course
of his evidence the plaintiff said that if, having decided to acquire the
property but before exchanging contracts, he had been told that the area was,
after all, not 0.91 of an acre but about half an acre, he would have reduced
his offer, but more probably not continued with the purchase.
Defendants’
case
Mr Scott said
in evidence that an appointment had been made on Friday May 11 for the
McCullaghs to view the property the following morning, he subsequently tried to
cancel the appointment because an offer of £810,000 made by a Mr and Mrs Land
had already been accepted by the vendors. Unfortunately, he used the wrong
telephone number and left a message for the McCullaghs on somebody else’s
answering machine. In the event he was most surprised when they arrived at no
61 the next day at 11.30am. He was just leaving. He had an appointment with
another client in Chelsea at 12.30 and he therefore aimed to take the
McCullaghs over the property as quickly as possible. In his mind he had already
accomplished a sale the previous day.
He said that
he showed them over the house before they went into the rear garden. They spent
about 10 minutes in the house. They were ‘quite positive’ in their response to
the house and ‘generally enthusiastic’.
After looking
round the house he showed them out across the terrace into the rear garden.
They went off down the garden, but he did not accompany them. He heard the
plaintiff say ‘we could fit a tennis court into there’. They spent about five
minutes in the rear garden while he stayed on or near the terrace by the house,
part of this time in conversation with Mrs Bonser. He remembered Mrs Bonser
giving them a copy of the particulars of sale on their return from the garden.
They then left. They were at the property for 20 minutes at the most. There was
no mention of any plans for demolishing the house. There was no reference to
the plaintiff’s company having a site on the Isle of Dogs. There was no
discussion of the area of the property and in particular he had no recollection
of saying that its area was 0.91 acres. He had no conversation with Mrs
McCullagh. If he had mentioned the area at all, he would have given it as 0.92
acres, which was the area that he personally had calculated (unknown to him
inaccurately) in 1989 and which was reproduced in the particulars of sale.
Mr Scott said
that the earliest references to the prospect of the house being demolished was
made by the plaintiff in the course of a telephone conversation which took
place on the morning of Monday May 14, when Mr Scott told the plaintiff for the
first time that his offer was accepted by the vendors. On that occasion the
plaintiff said to him: ‘We’re not quite sure what we’re going to do with the
place. We might even knock it down.’
Was there
an oral misrepresentation by Mr Scott?
In considering
what was said by Mr Scott to the plaintiff in the course of the visit, I have
considered not only the evidence and demeanour of Mr Scott, the plaintiff and
Mrs McCullagh, but also the contents of the transcripts of two telephone
conversations between the plaintiff and Mr Scott which the plaintiff recorded
on May 24 1990, the day the plaintiff had been told by his architect that the
site was only 0.48 acres, as well as the contents of a very detailed letter
written by the plaintiff to Mr Scott dated June 5 1990, setting out the events
from May 10 onwards and the contents of a further transcript of a telephone
conversation on June 15.
I accept the
evidence of the plaintiff and Mrs McCullagh as to Mr
likely that he said in the course of their Saturday visit that the true area
was 0.92 acres and that Mr McCullagh wrongly recollected the figure as 0.91
acres when he discussed the error with Mr Scott on May 26. That is not to say that
I find that Mr Scott has knowingly given untruthful evidence. I take the view
that he has simply forgotten the exact circumstances and details of the
conversations that he had with the plaintiff and his wife in the course of
their visit to no 61. The recollections of the plaintiff and his wife are, in
my view, more reliable. They over-estimated the amount of time they spent in
the garden, but they have certainly not, in my judgment, concocted their
evidence that Mr Scott said that the area was 0.91 acres, although 0.92 was
probably what he said.
The
plaintiff’s reliance on the misrepresentation
If the
plaintiff is to recover damages for negligent misrepresentation he must
establish that the misrepresentation caused his damage, that is to say in the
present case he must show that the misrepresentation caused him to enter into
the contract to purchase no 61. In the context of a claim in respect of
fraudulent misrepresentation it was stated by Lord Selborne LC in Smith
v Chadwick (1884) 9 App Case 187 at p190 that, in order to make good a
claim in deceit, the plaintiff must establish that the ‘fraud was an inducing
cause to the contract; for which purpose it must be material, and it must have
produced in his mind an erroneous belief influencing his conduct’. It is,
however, clearly unnecessary for the purposes of the tort of deceit that the
misrepresentation should be the only consideration which caused the representee
to act as he did. It is enough if his judgment was influenced by the
misrepresentation in addition to other considerations. This is clear from the
judgments of the Court of Appeal in Edgington v Fitzmaurice
(1885) 29 ChD 459, the famous case of the misrepresentation in a company
prospectus inviting subscriptions for debentures of the purpose to which it was
intended that the company would put the money so subscribed. There the
representee mistakenly believed that the prospectus offered a charge on the
property of the company and, but for that belief, would not have subscribed for
the debentures, but he was also shown to have relied on the misrepresentation
as to the purpose to which the money was to be put. His claim succeeded before
Denman J, whose judgment was affirmed by the Court of Appeal. Cotton LJ stated
at p480:
But it was
urged by the counsel for the appellants that the plaintiff himself stated that
he would not have taken the debentures unless he had thought they were a charge
upon the property, and that it was this mistaken notion which really induced
the plaintiff to advance his money. In my opinion this argument does not assist
the defendants if the plaintiff really acted on the statement in the
prospectus. It is true that if he had not supposed he would have a charge he
would not have taken the debentures; but if he also relied on the misstatement
in the prospectus, his loss none the less resulted from that misstatement. It
is not necessary to show that the misstatement was the sole cause of his acting
as he did. If he acted on that misstatement, though he was also influenced by
an erroneous supposition, the defendants will be still liable.
Then at p483
Bowen LJ analysed the position thus:
But such
misstatement was material if it was actively present to his mind when he
decided to advance his money. The real question is, what was the state of the
plaintiff’s mind, and if his mind was disturbed by the misstatement of the
defendants, and such disturbance was in part the cause of what he did, the mere
fact of his also making a mistake himself could make no difference.
At p485 Fry LJ
said:
. . . in my
opinion if the false statement of fact actually influenced the plaintiff, the
defendants are liable, even though the plaintiff may have been also influenced
by other motives.
In my
judgment, the same analysis of the required causal linkage between the
misrepresentation and the plaintiff representee’s loss must apply equally in
cases of negligent misrepresentation like the present case. The same test of
causation has been applied in relation to the question whether a representation
gives rise to an estoppel: see Amalgamated Investment & Property Co Ltd
(in liquidation) v Texas Commerce International Bank Ltd [1982] QB
84 per Robert Goff J at pp104-105. There is, therefore, good reason in
the interests of consistency why the test in cases of negligent misrepresentation
should be the same.
Whereas it is
unquestionably true that the plaintiff’s decision to purchase the property was
influenced by his having inspected the site, seen the layout and its
relationship to the river, as well as the immediate environment of Hartington
Road, his decision was also influenced by the statement in the advertisement in
Portrait Magazine that the area was nearly an acre and further by the
oral statement, which I have found to have been made by Andrew Scott, that the
true area was 0.92 of an acre. I accept the plaintiff’s evidence that he would
have made no offer at the level at which he did, if he had discovered on that
Saturday morning that the true area was only about half an acre. He had a
certain notion of the desirability of the very special combination of the
approximately 1-acre area and the river frontage. If the area were
substantially less than he had been told, he would not have purchased merely on
the appearance of the site. Whereas his understanding of the area originated
with the advertisement, that belief was clearly confirmed and fortified by
Andrew Scott’s oral statement of the precise measurement. It follows that the
oral misrepresentation thus made was material and influenced the plaintiff’s
decision to purchase the property. Accordingly, the plaintiff has established
the necessary causal connection between the oral misrepresentation and the
decision to purchase.
Did the
defendants owe a duty of care to the plaintiff?
Mr Philip
Havers, on behalf of the plaintiff, contends that an estate agent does owe a
duty of care to a potential purchaser notwithstanding that he is the agent
exclusively employed by the vendor. He relies in particular on a passage in the
speech of Lord Bridge in Caparo Industries plc v Dickman [1990] 2
AC 605 in which, having reviewed the leading authorities, including Smith
v Eric S Bush (a firm) [1990] 1 AC 831*, he identified the essential
factual basis for liability in tort for negligent misstatement in the following
words [at p629]:
The salient
features 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.
*Editor’s
note: Also reported at [1989] 1 EGLR 169.
He further
relies on the passage from Lord Oliver’s speech 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 enquiry, and (4) it is so acted upon by the advisee to his
detriment.
The only
English authority on the point is the decision of McNeill J in Computastaff
Ltd v Ingledew Brown Bennison & Garrett (1983) 268 EG 906,
[1983] 2 EGLR 150. The material issue in that case was whether, for the
purposes of the Civil Liability (Contribution) Act 1978, the third party estate
agents acting for the lessor would, if sued, have been liable to
misrepresented to the plaintiff’s agent the rateable value of the property.
Such liability could arise only under the tort of negligent misstatement. In
the course of his judgment McNeill J reached the conclusion that the third
party estate agent would, if sued, have been liable in negligence. His
reasoning was as follows at p911:
It is, I
think, without setting out in any citation the rationes decidendi of Hedley
Byrne, correct to say that it must be shown that the plaintiff was
reasonable in seeking the information from the third party and, if so
reasonable, reasonable in relying upon it. So much, I think, can be summarised
from the speech of Lord Reid in the report of Hedley Byrne & Co Ltd
v Heller & Partners Ltd [1964] AC 465 at p486, and the speech of
Lord Morris of Borth-y-Gest at p502 and of Lord Hodson at p514.
This is a
case in which lines of inquiry were reasonable down both channels, but neither
was of itself sufficient: neither of itself, so far as the solicitors were
concerned, discharged their obligation, for reasons that I have already said:
that is to say, in going back to Hewitt, Woollacott & Chown to question
their figure. It was also reasonable to inquire down the estate agents’
channel. The fault there, as I have indicated, is in the posing and answering
of the questions down that channel. But as between plaintiff and third party,
it is to my mind reasonable for the plaintiff to inquire, as one of the sources
of information, of the third party and reasonable to rely upon the information
that is given.
It may be, at
the end of the day, that the information achieved from source down both
channels differs, in which case the professional advisers have
responsibilities. The plaintiff is entitled reasonably to investigate down both
channels and to rely, for what it is worth, on the information which is
provided. In my view, the third party, if sued by the plaintiff, could have
been held liable under what I have, for convenience only, called the Hedley
Byrne line of authority.
Having regard
to the very substantial developments in the law of negligent misstatement since
that case was decided it is right that I should consider afresh the existence
of a duty of care and, in particular, whether those developments point towards
the imposition of such a duty on a vendor’s estate agent.
The substance
of the passages in Hedley Byrne v Heller relied upon by McNeill J
is sufficiently expressed in the speech of Lord Reid at p486:
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 answer with a clear qualification that he accepted no
responsibility for it or that it was given without that reflection or enquiry
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 enquirer which requires him to
exercise such care as the circumstances require.
Mr Havers has
also helpfully drawn my attention to three decisions of Commonwealth courts at
first instance, which had also concluded that an estate agent does owe a duty
of care to a potential purchaser, notably of the British Columbia Supreme Court
in Bango v Holt (1971) 21 DLR(3d) 66, a decision applying Hedley
Byrne v Heller, of the New Zealand Supreme Court in Richardson
v Norris Smith Real Estate Ltd [1977] 1 NZLR 152, applying the decision
of the Privy Council in Mutual Life & Citizens’ Assurance Co Ltd v Evatt
[1971] AC 793, and of the Saskatchewan Court of Queen’s Bench in Komarniski
v Marien (1979) 100 DLR 81.
Mr Havers contends
that there exists here a clear factual basis for a duty of care inasmuch as:
(i) the defendants held themselves out as a
reputable firm of competent surveyors and estate agents who could be expected
to have accurately and carefully measured any site of which they stated the
dimensions;
(ii) the purpose of the provision of information
as to the site by Andrew Scott was to encourage potential purchasers such as
the plaintiff to offer to purchase the property;
(iii) it was obvious to Andrew Scott that the
plaintiff would rely on his statement as to the area when deciding whether to
buy the property;
(iv) the information given by Andrew Scott that
the site had a particular area was presented as having been carefully
considered;
(v) accordingly, the plaintiff was reasonable in
seeking the information from the defendant and reasonable in acting upon it.
On the
evidence in this case the plaintiff has, in my judgment, established each of
(i) to (v) above. As to (iii) Mr Richard Lynagh [for the defendants] contended
that on Mr Scott’s evidence in his experience 95% of purchasers of property had
their own survey conducted before exchanging contracts and that accordingly
there was no ‘overwhelming probability’ or ‘high degree of probability’ (per
Lord Griffiths in Smith v Bush (supra), at p864) that the
plaintiff would conduct a site survey to satisfy himself of the area. I cannot
accept this submission. Whatever might have been the position on the Saturday
on the first viewing when Andrew Scott first misrepresented the area, by the
time of the telephone conversation that very evening it was apparent to him
that the plaintiff was prepared to exchange contracts on the Monday without a
survey. It must have been perfectly obvious that there would not be time for such
a survey and that in the absence of any request from the plaintiff for access
to a surveyor, none was intended. There was, therefore, a continuing
representation in circumstances, where to the knowledge of the representor, it
was obviously being relied upon as true by the plaintiff and, unless corrected
prior to exchange of contracts, which it was not, it would obviously be one of
the matters in reliance upon which the contract would be entered into.
But do these
facts, as Mr Havers contends, give rise to a duty of care and, if loss be
sustained in consequence of acting in reliance on the misrepresentation,
liability in damages for negligence?
The law of
negligent misstatement, no less than the general law of negligence, as it has
now developed, requires that three elements should be present before liability
can arise, namely foreseeability of damage, proximity or neighbourhood and that
the situation is one where it is fair, just and reasonable that the law should
impose a duty of the scope contended for upon one party for the benefit of the
other. Thus in Caparo Industries v Dickman (supra) Lord
Bridge analysed the requirements at pp617-618:
What emerges
is that, in addition to the foreseeability of damage, necessary ingredients in
any situation giving rise to a duty of care are that there should exist between
the party owing the duty and the party to whom it is owed a relationship
characterised by the law as one of ‘proximity’ or ‘neighbourhood’ and that the
situation should be one in which the Court considers it 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. But it is implicit in the passages referred
to that the concepts of proximity and fairness embodied in these additional ingredients
are not susceptible of any such precise definition as would be necessary to
give them utility as practical tests, but amount in effect to little more than
convenient labels to attach to the features of different specific situations
which, on a detailed examination of all the circumstances, the law recognises
pragmatically as giving rise to a duty of care of a given scope. Whilst
recognising, of course, the importance of the underlying general principles
common to the whole field of negligence, I think the law has now moved in the
direction of attaching greater significance to the more traditional
categorisation of distinct and recognisable situations as guides to the
existence, the scope and the limits of the varied duties of care which the law
imposes.
I do not read
that passage from the speech of Lord Bridge as suggesting that in deciding
whether in any particular factual situation a duty of care to avoid making
negligent misrepresentations was imposed, it was necessary only to consider
foreseeability of loss and proximity without considering whether it would be
just and reasonable that the law should impose such a duty. On the contrary,
the last sentence of the passage cited above strongly implies that when it is
necessary to ask whether there is to be a duty of care in a hitherto unexplored
factual situation the presence of all three ingredients must be investigated.
Certainly in Smith v Bush (supra) Lord Griffiths at pp864-865
applied all three ingredients to test the existence of a duty of care on the
building society and local authority surveyors in the
I do not read the omission of both Lord Templeman and Lord Jauncey expressly to
refer to all three ingredients as indicating any difference in approach in
principle on their part from that of Lord Griffiths. Accordingly, I reject the
submission advanced by Mr Havers, on behalf of the plaintiff, that in cases of
negligent misstatement the third ingredient that the imposition should be fair
and reasonable is unnecessary.
In my
judgment, where the court has to consider whether a duty of care not to cause
loss by negligent misstatement exists in the context of a relationship the
facts of which have not previously been analysed by the courts for this
purpose, the three ingredients of foreseeability of loss, proximity and the
justice and reasonableness of the imposition of the duty are indeed necessary.
However, the closer the factual situation of the relationship in question to
that found in other relationships which the courts have held to give rise to a
duty of care, the readier will be the courts to recognise in a case where the
requirements of foreseeability of loss and proximity have been established,
that it is just and reasonable that a duty should be imposed. It is in this way
that the law develops incrementally, as envisaged by Brennan J in the
frequently cited passage from his judgment in Sutherland Shire Council v
Heyman (1985) 157 CLR 424 at p481.
On behalf of
the plaintiff, Mr Havers relies heavily on the decision of the House of Lords
in Smith v Bush and Harris v Wyre Forest District
Council [1990] 1 AC 831*. He argues that, if the building and local
authority valuers were held liable to the mortgagor/purchaser in those cases,
so also must the estate agents in this case. In both cases the representor was
the servant or independent adviser of the other contracting party; the
mortgagee in that case and the vendors in this case. In both cases a representation
as to the characteristics of the property was made which it was highly probable
could be relied upon by the particular representee in deciding whether to enter
into the particular transaction with the employer or principal of the
representor, which must have been envisaged by the representor. Moreover, just
as in the Smith v Bush cases, the representee paid the
employer/principal a fee to cover the cost of the survey of the property, so in
this case the purchaser’s payment of the purchase price to the vendor’s
solicitors would partly be utilised for the purpose of payment of the estate
agents’ commission on the transaction.
*Editor’s
note: Also reported at [1989] 1 EGLR 169.
I am unable to
accept that there is any feature of the present case analogous to the payments
by the representees made in the Smith v Bush cases by way of
valuation fee (Mr and Mrs Harris) or survey fee (Mrs Smith). Those payments
were made pursuant to transactions between the representee and the local
authority mortgagee and the building society mortgagee respectively, which were
free-standing engagements whereby those bodies would entertain the mortgage
applications and in the course of so doing have the properties surveyed. The
fees were not paid pursuant to or in performance of the transaction induced by
the representation, but pursuant to separate transactions entered into in order
to obtain information on the very matter which became the subject of the
representation. In the present case the vendors engaged the estate agents to
market the property on their behalf in consideration of a commission payable by
reference to the sale price. The purchaser paid nothing in addition to the
consideration payable to the vendors under the transaction induced by the
representation. In particular there was no separate transaction to which the
representee was a party under which the vendors would employ the estate agents
to provide information which was then passed to the representee. The subsequent
utilisation of part of the consideration to discharge the vendor’s obligation
to the estate agents in respect of commission does not create a factual
situation materially similar to that in the Smith v Bush cases.
Accordingly,
at least one of the factual consideration, which led the House of Lords to
conclude in these cases that there was sufficient proximity and that it was
just and reasonable to impose a duty of care on the surveyors is absent from
the present case. In this connection it is helpful to consider the following
analysis of the ingredients of proximity and what was just and reasonable on
the facts in the Smith v Bush cases as identified by Lord
Griffiths in a passage from his speech at pp864-865.
I therefore
return to the question in what circumstances should the law deem those who give
advice to have assumed responsibility to the person who acts upon the advice
or, in other words, in what circumstances should a duty of care be owed by the
adviser to those who act upon the advice?
I would answer — only if it is foreseeable that if the advice is
negligent the recipient is likely to suffer damage, that there is a
sufficiently proximate relationship between the parties and that it is just and
reasonable to impose liability. In the case of a surveyor valuing a small house
for a building society or local authority the application of these three
criteria leads to the conclusion that he owes a duty of care to the purchaser.
If the valuation is negligent and is relied upon damage in the form of economic
loss to the purchaser is obviously foreseeable. The necessary proximity arises
from the surveyor’s knowledge that the overwhelming probability is that the
purchaser will rely upon his valuation, the evidence was that surveyors knew
that approximately 90% of purchasers did so, and the fact that the surveyor
only obtains the work because the purchaser is willing to pay his fee. It is
just and reasonable that the duty should be imposed for advice given in a
professional as opposed to a social context and liability for breach of the
duty will be limited both as to its extent and amount. The extent of the
liability is limited to the purchaser of the house — I would not extend it to
subsequent purchasers. The amount of the liability cannot be very great because
it relates to a modest house. There is no question here of creating liability
of indeterminate amount to an indeterminate class. I would certainly wish to
stress that in cases where the advice has not been given for the specific
purpose of the recipient acting upon it, it should only be in cases where the
adviser knows that there is a high degree of probability that some other
identifiable person will act upon the advice that a duty of care should be
imposed. It would impose an intolerable burden upon those who give advice in a
professional or commercial context if they were to owe a duty not only to those
to whom they give the advice, but to any other person who might choose to act
upon it.
Here 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.
A further
factor of considerable weight which is, in my judgment, material to the
question of whether it is in the present case fair and reasonable to impose a
duty of care is the circumstance present in this case of the plaintiff
proceeding to exchange contracts for a property for which the consideration was
£875,000, no small amount, without independent investigation of the facts
represented by the estate agents. Mr Scott’s evidence, which I accept, was that
in his experience in 95% of purchases of expensive property the purchaser
procured an independent survey before exchange of contracts. The course adopted
by the plaintiff of exchanging contracts before survey, although not unknown,
was therefore unusual. This was not, therefore, a case in which the representee
proceeded to finalise the transaction, like most representees in a similar
commercial setting, without an independent survey. He did so in the knowledge
of clause 13 of the contract which provided:
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.
The plaintiff
therefore knowingly took the risk that if the estate agents had miscalculated
the area he would have no recourse against the vendors. It was therefore his
decision to take that risk which put the defendant in the relatively unusual
position of being relied upon as the party solely responsible for the accuracy
of the information upon the basis of which the purchaser chose to commit
himself to the
existence of the defendants’ disclaimer in their particulars of sale, the
plaintiff chose to adopt a course which as a matter of common prudence the
great majority of purchasers would not have adopted.
In this
connection it is right to have regard to a passage in the judgment of Neill LJ
in James McNaughton Paper Group Ltd v Hicks Anderson & Co
[1991] 2 QB 113 at p126 where, having listed five matters which were likely to
be of importance in most cases, in reaching a decision as to whether a duty
existed, he added the following sixth matter:
(6) Reliance by the advisee
In cases
where the existence of a duty of care is in issue it is always useful to
examine the matter from the point of view of the plaintiff. As I have ventured
to say elsewhere the question ‘Who is my neighbour?’ prompts the response ‘Consider first those
who would consider you to be their neighbour.’
One should therefore consider whether and to what extent the advisee was
entitled to rely on the statement to take the action that he did take. 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. In business transactions conducted at
arms’ length it may sometimes be difficult for an advisee to prove that he was
entitled to act on a statement without taking any independent advice or to
prove that the adviser knew, actually or inferentially, that he would act
without taking such advice.
Whereas Mr Scott
certainly knew prior to exchange of contacts 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.
Mr Lynagh, in
the course of his submissions for the defendants, placed great weight on the
recent decision of Sir Donald Nicholls V-C in Gran Gelato Ltd v Richcliff
(Group) Ltd [1992] Ch 560*. In that case the defendant solicitors had acted
for the vendors of an underlease on the sale of an underlease to the plaintiff
and had made a negligent misrepresentation in response to inquiries by the
plaintiff’s solicitors about the superior leases. They failed to disclose the break
clause in the headlease. The plaintiff, being unable to sell the underlease due
to the presence of the break clause, sued the defendant solicitors for
negligent misrepresentation at common law and under the Misrepresentation Act
1967. Sir Donald Nicholls V-C concluded at pp569-571 that the defendant
solicitors owed no duty of care on the following grounds.
*Editor’s
note: Also reported at [1992] 1 EGLR 297.
(i) The purchaser received the solicitor’s
representations as made on behalf of the vendor and it was not fair and
reasonable that the representee purchaser should have a remedy against the
vendor’s solicitor as well as against the vendor;
(ii) The vendor would be liable in damages for
negligent misrepresentations made by his solicitor in the course of his
employment and it was not fair and reasonable that the solicitor should also be
liable to the purchaser. In Smith v Bush the mortgagors would not
have been able to sue anyone if they had had no remedy against the valuers
personally or their employers.
(iii) There was no good reason why in addition to
the duty which the solicitor/agent owed to his client/principal he should also
owe a duty to the third party who had already had a perfectly viable
alternative remedial course. At p571 he put his approach in these words:
. . . 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
principal, 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.
There is no
doubt that, in general, an estate agent when selling a property on behalf of
his client acts in the course of that authority when he makes a representation
about some feature of the property in question. If that representation is
inaccurate due to his negligence, then, apart from any exclusion clause in the
sale contract, the vendor will be liable for damages for such
misrepresentation. The vendor would then have a right of indemnity against the
agent. If, in such a case, the estate agent owed an independent duty of care to
the third party the latter would have a duplicate remedy to that which the law
already gave him.
Whereas I
accept that the duplication of remedy may in some cases be a consideration
material to the question whether it is just and reasonable to impose on an
agent a duty of care for negligent misrepresentation, I am unable to accept
that in general the consequence that there will be a duplication of remedy
should point away from the imposition of a duty of care on the agent.
In the first
place, the English courts have not hitherto regarded the existence of a remedy
against the employer or principal as a reason for excepting the negligent
employee or agent from liability in tort in cases not involving negligent
misstatements. Indeed, in cases outside that field, the whole doctrine of
vicarious liability depends upon proof that the servant or agent has committed
an independent tort in the course of his employment. No doubt in most
cases the injured third party sues the employer or principal because the latter
has greater substance than the servant or agent, but there may be many
commercial situations, such as that of the sale of an expensive house or of
commercial property, where the party of substance will be the agent and not the
principal. To introduce a principle into the laws of negligent misstatement
which inhibited the imposition on a servant or agent of a duty of care because
the existence of a duplicate remedy against the employer or principal did not
render it just and reasonable that such a duty should be imposed would be to
introduce into the law of negligent misstatement an anomalous policy
consideration not reflected in any other branch of the law of tort. If an
injured third party can recover damages for deceit from an employee acting in
the course of his employment who makes a fraudulent misrepresentation which
induces a contract with his employer, why as a matter of policy should not an
injured third party be entitled to recover damages for negligence from a negligent
employee or agent acting in the course of his employment who makes a negligent
misrepresentation which induces a contract?
Second, in my
judgment, there are very strong policy considerations why the law should
provide a remedy directly against a party whose personal act or default has
brought about the injury which is the basis of the third party’s remedy. If it
is the fault of the estate
should confine the third party to a remedy against the perfectly innocent
principal? There is no good reason why
he should be involved in litigation in order to attach to the party at fault a
remedial route which could sensibly and effectively and consistently with legal
principle in other areas of the law of negligence and of tort in general be
attached directly to him.
For these
reasons, with great respect to the more general remarks by 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.
Having regard
to the facts of this case, including the circumstances in which the information
was originally imparted by Mr Scott to the plaintiff, and the circumstances in
which it became known to Mr Scott that the purchase was to be concluded without
a survey, I have come to the conclusion that it would indeed be just and
reasonable to impose a duty of care on the defendants. I do not consider that
the plaintiff’s determination to exchange contracts without a survey, unusual
though it was, renders it in any way unfair to impose on the defendants, who
were fully aware of this course, a duty of care in respect of the accuracy of
what they had told him about the area of the property.
Having regard
to what I have said about the duplication of remedy argument, it is therefore
unnecessary to consider whether clause 5 of the conditions of sale by expressly
removing from the ambit of the agent’s authority any representation relating to
the property would have made it more just and reasonable that a duty of care
should be imposed on the agents. However, had I taken another view on the
duplication of remedy argument, I would have held that, in as much as this
clause was sufficiently brought to the attention of the plaintiff so as to shut
him out from any remedy against the vendors, it would have been just and
reasonable to impose a duty of care on the defendants.
Thus far I
have considered the ingredients of proximity and whether it would be just and
reasonable that a duty of care should be imposed. But before there can be a
duty of care there must be present all three ingredients, including
foreseeability of loss. In the present case, it was certainly reasonably
foreseeable to Andrew Scott that the plaintiff would rely on his representation
as one of the matters that induced him to enter into the contract. Loss would
be sustained only in consequence of reliance if the plaintiff were induced to
purchase the property for more than its true value. If all that was reasonably
foreseeable was that in reliance on the representation the plaintiff might
purchase at no more than the true value, the necessary ingredient of
foreseeability of loss would not be established. In deciding whether the
foreseeability of loss ingredient has been established in cases of negligent
misstatement, the correct approach is, in my view, to inquire whether the
representor ought to have foreseen that the representee would be induced to act
in reliance on the representation by entering into the transaction in question
and that one consequence of his so doing might well be that he sustained
economic loss. It is enough that it is reasonably foreseeable that the
representee would act on the representation and that if he were so to act there
would be a real and substantial risk of his suffering economic loss. Tested in
this way, there was, in my judgment, reasonable foreseeability at the time when
the representation was made that the plaintiff might thereafter offer more than
the true value and thereby suffer loss because he relied upon the area of the
site being greater than it truly was and the property being more valuable than
in truth it was.
Accordingly, I
conclude that the defendants did owe a duty of care to the plaintiff to avoid
making the negligent misstatement which Mr Scott did indeed make and that they
were therefore in breach of that duty by his making it.
I am unable to
accept Mr Lynagh’s submission that the disclaimer of liability in the
particulars of sale protects the defendants in the circumstances of an oral
misrepresentation made by Mr Scott. On the proper construction of clauses 1-4
of that disclaimer, they relate exclusively to the contents of the particulars
of sale. It is therefore unnecessary to consider the application of the Unfair
Contract Terms Act 1977.
Plaintiff’s
loss
The plaintiff
contends that the true value of no 61 with its half-acre site and in the tired
condition in which it was did not exceed £550,000. He relied on the evidence of
Mrs Land whose offer of £810,000 had been accepted by the vendors on the day
before the plaintiff and his family visited the property on May 12 1990. He
also relied on the expert evidence of Mr Anthony Copping Joyce, an estate agent
of 30 years’ experience and a Fellow of The Royal Institution of Chartered
Surveyors, for which body he was national spokesman on the housing market.
Mrs Land’s
recollection of the sequence of two offers which she and her husband made to
the vendor in the week before May 14 1990 differed from that of Andrew Scott,
but the differences are immaterial. Her evidence was that she and her husband
first offered £775,000 which was accepted and that subsequently, when informed
that another party had offered £875,000, she indicated that they were prepared
to increase their offer to £810,000. According to Mr Scott, it was the £810,000
offer which was accepted by the Bonsers. On this point I accept his evidence.
However, the important part of Mrs Land’s evidence is that they were prepared
to pay that price on the assumptions that: (i) the house stood in about 1 acre;
and (ii) they would have to spend about £100,000 on renovations. What led them
to offer as much as £810,000 was the area of 1 acre alongside the Thames.
Notwithstanding the fact that it was her evidence that over the years she and
her husband had looked at many houses and that she was chief executive of
Collins Publishing and her husband managing partner in Ernst & Young and
that accordingly they could both be expected, very broadly, to appreciate the
relative values of different residential property, I do not find persuasive her
evidence that had they been told that the site area was only about half an
acre, they would have been prepared to pay only £500,000. Whereas I have no
reason to doubt that this is what she genuinely believed, I do not derive much
assistance from her judgment in arriving at the true value of the property
given that it was only half an acre in area. I am not persuaded that she knew enough
about relative property values to be able to provide firm evidence of the lower
value. Her evidence merely supports the proposition that the house was
perceived by the public to be less valuable if set in half an acre than if set
in 1 acre. That is hardly a contentious issue. The crucial point is whether,
being set in half an acre, it was worth less than the plaintiff paid for it. In
my view, the evidence of the expert witnesses was more to the point and carried
greater weight.
However,
before coming to the experts, it is necessary to mention a witness called by
the defendant albeit not as an expert, whose evidence I found particularly
helpful. That was Mr William Hagon [FSVA]. He was a qualified valuer who had
worked as such in offices in Chiswick High Road for 17 years. Not only did he
work in Chiswick but he had lived in Chiswick for 18 years just about half a
mile away from no 61. He was familiar with the property, having often seen it
from the block of flats next door known as Hartington Court. He described no 61
as in one of the best locations in Chiswick and just the sort of property he
would like to own. He knew that in May 1990 the local property market was ‘very
full’, that is, prices were high, but when no 61 came on the market at £850,000
he felt that it was very reasonably priced having regard to the fact that the
‘very ordinary’ houses with which he had recently been professionally concerned
were then fetching about half a million pounds and ‘this was a very special
house’. He inspected it. He realised that a great deal would have to be spent
to refurbish and modernise it. He arranged for his builder to give a
preliminary costing. The figure was about £100,000. He was well aware, as a
valuer, that there was nothing like an acre of ground and indeed he was
attracted to the house itself, if it could be
down to the river. He offered £775,000. That represented what, having regard to
his own available resources, he was prepared to spend. He did not increase his
offer when he came to know from the defendants that others had offered more.
In my
judgment, great weight must be attached to Mr Hagon’s evidence. He was not just
an ordinary house-hunting member of the public. He knew the property in the
neighbourhood very well and he knew the relative market prices at the time.
Moreover, he was proposing to buy no 61 out of his own pocket. His aim was to
acquire it below the asking price of £850,000. It is very strongly to be inferred
that he would never have offered a price which he had believed to be above the
market value for this ‘very special house’. Indeed, his professional background
and familiarity with the neighbourhood strongly suggests, significantly, that
even with knowledge that the site area was substantially less than an acre, the
true value of no 61 in May 1990 was much more in the region of £850,000 than
£550,000.
I now turn to
the expert evidence. Much of this was, not surprisingly, directed to an
investigation of the current prices of a number of ‘comparables’, that is,
houses considered by the experts to be indicators of local market values at the
relevant time. But, before considering that evidence, it is necessary to
consider the evidence as to what was the general state of the market for
upper-priced residential property in Chiswick in May 1990. Having carefully
considered the evidence of Mr Copping Joyce, I am prepared to accept that in
those parts of London with which he was familiar, notably Islington and Bloomsbury,
there was a distinct slackening in prices at the top end of the market from a
peak in 1988. That said, however, I am unable to accept that this extended
throughout Greater London and in particular to Chiswick. Mr Keith Pierson
[ARICS], a chartered surveyor with Tyser Greenwood & Co, who was closely
familiar with property in Chiswick, called on behalf of the defendants, said
that, far from prices peaking in 1988, they continued to rise until 1990. What
happened was that the number of sales began to decline.
Mr Graham
Marks [FSVA], another expert valuer called on behalf of the defendants, who was
more familiar with the central London property market rather than with
Chiswick, did not agree that from the end of 1988 the market went into ‘severe
decline’ as claimed by Mr Copping Joyce. Although newly constructed residential
developments such as that at Chelsea Harbour had dropped steeply, the prices of
substantial residential properties at the top end of the market, such as no 61,
had not. Having considered the whole span of expert evidence on the general
state of the market, I find that in the Chiswick area prices of high-quality
properties, that is in the £500,000-£1m bracket had not begun to fall to any
discernible extent by May 1990, although the number of sales was tending to
slow down. Thereafter, they did begin to fall and by a year later they had
dropped by perhaps 7%-8%.
The evidence
of the expert witnesses on the comparables was extremely detailed and
considered the relative merits and demerits of each house put forward by
comparison with no 61. It would not be helpful to rehearse in this judgment the
often very detailed comparative analyses that were conducted by Mr Copping
Joyce, Mr Pierson and Mr Marks. There are, however, certain identifiable principles
of comparative valuation that emerged from the evidence of all three experts.
These are the following:
(i) Within any particular residential area, such
as Chiswick, there is likely to be a broad range of house prices which reflect
the characteristics of the area as a whole and the perceived desirability of
the area in the eye of the public. Thus, houses of a roughly similar style,
size and plot area in one residential area are likely to fetch roughly the same
price at any given time which may differ substantially from the price
attainable for houses of similar characteristics in a different residential
area. Chiswick was at all material times a distinctly high-priced area and
Hartington Road, Chiswick, was, if not quite as expensive as Strand on the
Green or Chiswick Mall, certainly at the upper end of the Chiswick price range.
(ii) Although in a given residential area there
may be many houses of closely similar characteristics which may be relatively
easy to value, there may be other houses with unusual or unique characteristics
which are very much less easy to value because particular purchasers may attach
a premium value to the unusual or unique characteristics in question. The
extent to which the price at any time will be affected by such characteristics
will depend on the requirements and taste of the purchasers in the market at
that time. One group of purchasers might be particularly attracted by the
chance of acquiring an elegant 18th-century residence with handsome
well-proportioned rooms, fit to receive their antique furniture, and be
inclined to attach relatively little importance to the availability of space
for a tennis court or the existence of a heated swimming pool, whereas others
might attach little or no importance to whether a house was specially noted in
Pevsner and might instead, above all else, require substantial space for living
accommodation and children’s outdoor sporting activities. That said, houses
having similar special characteristics in the same residential area are likely
to attract roughly similar prices, all other things being equal.
(iii) The closer 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. This may be
particularly so in the case of a house which combines highly unusual
characteristics with unattractive characteristics because at a particular time
a particular buyer might be prepared to pay a high premium to acquire the
unusual characteristics and be prepared to overlook or attach little importance
to the unattractive characteristics.
Against this
background the expert evidence established the following in relation to no 61.
(i) Its 90-ft of river frontage was almost
unique, a 30ft-40 ft frontage being more usual in Chiswick.
(ii) It was set well back from Hartington Road,
behind a wall, much further back than other houses in the road, and therefore
well away from the traffic flow.
(iii) It had a particularly attractive and
well-laid out mature rear garden of substantial size, which was not separated
from the river by a tow path or traffic route.
(iv) The house was detached and well-positioned in
the overall plot area so that front and rear gardens were of pleasing
proportions.
(v) The overall size of the plot represented one
of the largest gardens in Chiswick, where many of the houses, particularly in
Hartington Road, are large, Victorian semi-detached houses with very narrow
rear gardens leading down to the river.
(vi) The house was in need of substantial
refurbishment and modernisation of the kitchen and bathrooms. That would, I
find, have cost roughly £100,000 or more depending on the lavishness of the
modernisation.
(vii) Some people might regard the side wings that
had been added later as aesthetically unattractive features.
(viii) Many potential buyers would regard it as a
serious inconvenience that the only access from the front to the rear gardens
was through the house or garage, since the building spanned the entire width of
the plot.
(ix) It was overlooked on one side by a very large
four-storey block of low-value, brick and concrete flats, known as Hartington
Court, which extended from alongside about one-third of the depth of the front
garden to about 80% of the depth of the rear garden. The nearest point of this
block was only 41ft from the house. From various positions on the balconies of
the flats it was possible to look into the windows of no 61. This
characteristic seriously detracted from the degree of privacy available to
occupants of no 61. The problem could have been completely solved only by
planting a line of fully grown trees along the northern boundary of the front
and rear gardens of no 61. In so far as they were planted in the rear garden,
they would have to be lifted into it by crane over the top of no 61. The
problem of privacy in the gardens might partially have been solved by erecting
a very high trellis along the northern boundary and growing creepers up it.
Of the above
characteristics those numbered (i) to (v) were strong or very strong selling
points, whereas those numbered (vi) to (ix) were
prepared by the defendants none of the photographs shows any part of Hartington
Court.
Although I
accept Mr Copping Joyce’s point that properties of totally dissimilar
characteristics to no 61 can be used to, as he put it, set the ‘tone’ of prices
in the area, this is a more helpful indicator of the relationship of prices in
the given area with prices of similar property in other areas. It is of much
less assistance in arriving at the value differential between the properties in
question and totally dissimilar properties in the same area. For this reason I
am unable to derive much help in relation to no 61 from Mr Copping Joyce’s
comparables at Chiswick Staithe, Ibis Lane or Chiswick Quay. As for Zoffany
House, the elegant Queen Anne three-storey house on Strand on the Green, which
sold for £685,000 in June 1988, some two years before the sale of no 61, I find
this to be a poor comparable. Apart from its number of rooms and the fact that
it overlooked the river, albeit separated by a tow path, which in the summer,
on the evidence was heavily populated by tourists, it had nothing in common
with no 61. For one thing it was attached at both sides and its main garden was
only about 1,000 sq ft, a minute fraction of the size even of the rear garden
alone at no 61. Again 62 Hartington Road is a very different house from no 61,
although it is in close proximity. It had a small garden and was close to a
road junction with two fairly busy roads alongside it. It was a six-bedroomed
house with four bathrooms and therefore had plenty of living accommodation, which
had been recently refurbished, but it lacked both the vitally significant
characteristics of no 61 — river frontage and considerable plot-size with
well-laid out gardens. It fetched £465,000 on a dull market in August 1990,
having been put on the market at £610,000 at almost the same time as no 61. It
is a property which would clearly be attractive to purchasers looking for
substantial accommodation who were largely disinterested in plot size,
architectural appearance or being adjacent to the river. At least it is an
indicator of what that quantity of refurbished accommodation in Hartington Road
would fetch at the relevant time.
Comparables
which I find somewhat more helpful are the two Victorian semi-detached houses
at 29 and 35 Hartington Road, relied on by Mr Marks. Both have rear gardens
with river frontages about one-third that of no 61. The plot size of both is
about 8,000 sq ft, again little more than one-third of that of no 61. Of these
no 29 fetched £575,000 on a falling market in December 1991 and no 35 fetched
£540,000 also on a falling market in March 1991. Both would have fetched more
when the market was more buoyant in early 1990 and I find that they probably
would then have sold at slightly higher prices in the range £550,000 to
£600,000. Among Mr Copping Joyce’s working papers produced in preparing his
report is a reference to the adjacent no 59 Hartington Road. This was put on
the market early in 1991 at £690,000, the agent’s view being that it might make
£650,000 and the vendor having rejected an offer of £600,000 in March 1991.
A comparable
heavily relied upon by Mr Pierson and Mr Marks was Staveley House, which was
sold by the defendants for £835,000 in April 1993. It stood in grounds of about
three-quarters of an acre, had been built in the 1920s, was in good condition
and above all had magnificent and very secluded gardens, beautifully laid out
with lawns, pathways, mature shrubs and trees. It also had a substantial heated
conservatory and had been sold primarily on the size and quality of its
gardens. The defendants’ expert, Mr Marks, believed this to be the only true
comparable. Mr Copping Joyce did not agree. No 61 was, in his view, far less
desirable than Staveley House, notwithstanding its river frontage: it had far
less seclusion, the gardens were less attractive and it was in a far less
satisfactory state of repair and much less well fitted out. I am satisfied on
the whole of the evidence having regard to the fall in the market between then
and 1993 that in May 1990 Staveley House could have been sold for rather more
than £1m. I am also satisfied that at any given time it would have sold for
more than no 61. The differential at any one time is difficult to arrive at
except on the basis of a range. Of one thing there can be no doubt at all and
that is that at no time would it have been anything like £500,000. I would have
expected no 61 to sell for very roughly 75%-80% of the price of Staveley House
at any given time.
Taking the
evidence as a whole, I am not persuaded that Mr Copping Joyce’s valuation of no
61 in May 1990 at £550,000 can be sustained. A Victorian semi-detached house in
Hartington Road with a garden and river frontage far smaller than no 61 would
have fetched at least that. In my judgment, the value of no 61 in May 1990 lay
in the range £800,000 to £875,000, but the precise selling price within that
range would be a matter of chance depending on who was in the market at the
time and the relative importance attached by them to the attractive
characteristics of substantial, well-laid-out gardens and a big river frontage
on the one hand and the proximity of Hartington Court and the relatively tired
condition of the interior on the other hand.
Accordingly, I
conclude that the plaintiff’s purchase of no 61 at £875,000 was not at a price
in excess of its market value. It follows that he has suffered no loss by
reason of his reliance on Mr Scott’s misrepresentation as to the total area. He
paid no more than it was worth with the area that in truth it had. It is to be
observed that it is common ground that he cannot recover damages for loss of a
bargain, that is to say he cannot recover damages calculated by reference to
the difference between its value if the representation had been true and its
real value.
Conclusion
Breach of a duty
of care to avoid making negligent misstatements can give rise to a cause of
action for damages only if the representee plaintiff has suffered loss by
reason of reliance on the misstatement. That he has acted in reliance upon it
without suffering loss gives him no right action for damages. In the present
case, I have found that it has not been established that the price at which the
plaintiff purchased 61 Hartington Road was more than the true value of that
property. Accordingly, the plaintiff has failed to prove that the defendants’
breach of duty caused him any loss and it follows that he can have no cause of
action in the tort of negligence against the defendants.
I therefore
conclude that the plaintiff’s claim must be dismissed.
