· Employees may be held personally
responsible for their own negligence
· An employer’s bankruptcy may remove
professional indemnity insurance cover
Individual surveyors
or valuers are seldom sued for negligence, except where they are in practice on
their own. A claimant will normally take action against the firm that employs
the allegedly negligent individual or of which he or she is a director or
partner. Indeed, this approach is so prevalent that, until recently, the courts
had not been called upon to decide whether an individual employee could be
personally liable to a client or third party, or whether it was the firm alone
that could be sued. However, that has now changed with the Court of Appeal’s
decision in Merrett v Babb [2001] EGCS 24, a ruling that makes
uncomfortable reading for the property professions.
The facts of Merrett
are mundane. In 1992 the claimant wished to buy a house and duly applied to
Bradford & Bingley Building Society for a mortgage. The building society
instructed a local firm of surveyors, Clive Walker Associates, to carry out a
mortgage valuation. This instruction was passed on to the defendant, a
qualified surveyor, who was employed by the firm as the manager of one of its
branches. He inspected the property and produced a report valuing it at the
proposed purchase price, while drawing attention to a number of essential
repairs. The report was signed by the defendant. It contained his name and
qualifications, as well as the name and address of his firm and the usual
certificate to the effect that: ‘I am not disqualified under section 13 of the
Building Societies Act 1986 from making this report’.
Unfortunately, the
defendant’s inspection was negligent, in that he failed to notice, and report
on, settlement cracks between the original building and a later extension.
When this failure
came to light, the purchaser began proceedings for negligence, and the obvious
target was Clive Walker Associates. However, the sole principal of that firm,
the eponymous Clive Walker, had been made bankrupt, and, worse, his trustee in
bankruptcy had cancelled the firm’s professional indemnity insurance policy
without arranging run-off cover. The purchaser’s reaction was hardly surprising
— she sued the defendant personally. The county court judge upheld the claim,
and awarded damages of £14,500 (the difference between what the purchaser had
paid for the property and its true worth). The defendant appealed against this
decision. He argued that while his firm might have owed the purchaser a duty of
care, he himself did not.
In dismissing the appeal
(by a 2-1 majority), thereby condemning the defendant to pay the damages out of
his own pocket, the Court of Appeal was influenced by the well-known House of
Lords decision in Smith v Eric S Bush; Harris v Wyre
Forest District Council [1989] 17 EG 68 and 18 EG 99. This had confirmed
that, although instructed by the lender, a mortgage valuer also owes a duty of
care to the purchaser. Harris had concerned a local authority mortgage
that had been granted after an inspection of the property by a staff valuer.
The House of Lords had clearly rejected the argument that the valuer’s only
duty was to his employer. As Lord Griffiths said:
The valuer is
discharging the duties of a professional man whether he is employed by the
mortgagee or acting on his own account or is employed by a firm of independent
surveyors. The essence of the case against him is that he as a professional man
realised that the purchaser was relying upon him to exercise proper skill and
judgment in his profession and that it was reasonable and fair that the
purchaser should do so. Mr Lee was in breach of his duty of care to the
Harrises and the local authority, as his employers, are vicariously liable for
that negligence.
In Merrett,
both the trial judge and the majority of the Court of Appeal regarded this
passage as conclusive. As May LJ saw it, what Lord Griffiths meant was that the
purchaser was relying upon the professional person carrying out the valuation,
rather than upon the firm with whom he or she had had no contact. Wilson J was
even more direct, suggesting that, if asked upon whom he or she was placing
reliance, a purchaser would answer: ‘Upon whichever valuer wrote that report’.
If the purchaser were then told that the valuer had written it as an employee
of another qualified valuer, he or she would merely add: ‘So what?’. Both
judges also agreed that if liability depended upon showing that the valuer had
‘assumed responsibility’ for his work, this could easily be done; he had, after
all, signed the report in his own name, citing his qualifications.
This all seems
convincing, but two points are worth making. First, in Harris, the House
of Lords was faced with a compelling argument: that the local authority, as
mortgage lender, would not owe a duty of care to advise the borrower as to the
wisdom of the purchase. It was to sidestep this argument that their lordships
concentrated upon the individual valuer, ruling that he owed a duty of care and
that the local authority was therefore liable as employer.
The second point
concerns company directors. It would seem that where a company is in the
business of giving advice, a director who actually gives the advice will not
owe a duty of care unless it can be shown that he or she has had direct
communication with the claimant and has clearly assumed personal responsibility
(Williams v Natural Life Health Foods Ltd [1998] 2 All ER 577).
Perversely, post-Merrett, it appears easier to find such an assumption
of personal responsibility in the case of an employee than of a director of a
‘one-man’ company.
Practitioners will
no doubt wish to identify with Aldous LJ, the sole dissenter in Merrett.
However, the majority decision still represents the law, which is worrying news
indeed for employed valuers everywhere.
