Smith v Eric S Bush (A Firm) [1990] UKHL 1 (20 April 1989)

Mrs Smith purchased a house relying on a mortgage valuation report prepared for the building society, which negligently failed to identify serious structural defects. The surveyors sought to rely on a disclaimer of liability. The House of Lords held that surveyors owe a duty of care to purchasers who they know will rely on valuations, and that such disclaimers were ineffective under the Unfair Contract Terms Act 1977.

Facts

Mrs Smith applied to the Abbey National Building Society for a mortgage to purchase a house for £18,000. She paid a valuation fee of £36.89 to the building society, which instructed the appellant firm, Eric S Bush, to carry out a valuation. The surveyor, Mr Cannell, prepared a report valuing the property at £16,500 and stated that no essential repairs were required. The building society sent a copy of the report to Mrs Smith, which contained a disclaimer of liability on behalf of both the building society and the valuer.

Mrs Smith relied on the report and did not obtain an independent survey. Approximately 18 months after purchase, chimney flues collapsed through the bedroom ceiling. The collapse was caused by the removal of chimney breasts on the first floor, leaving the chimneys unsupported. Mr Cannell had observed the removal but failed to check whether the chimneys were adequately supported. The trial judge found Mr Cannell negligent.

Issues

First Issue

Whether a valuer instructed by a building society to value a house owes a duty of care in tort to the purchaser, knowing that the valuation will probably be relied upon by the purchaser.

Second Issue

Whether a disclaimer of liability by or on behalf of the valuer falls within the scope of the Unfair Contract Terms Act 1977.

Third Issue

Whether, in the absence of special circumstances, it was fair and reasonable for the valuer to rely on the notice excluding liability.

Judgment

The House of Lords unanimously dismissed the appeal of Eric S Bush, affirming the Court of Appeal’s decision that the surveyors were liable to Mrs Smith.

Duty of Care

Lord Templeman held that a valuer who values a house for mortgage purposes, knowing that the mortgagee will rely and the mortgagor will probably rely on the valuation, and knowing that the purchaser has in effect paid for the valuation, owes a duty to exercise reasonable skill and care to both parties. Lord Griffiths stated that the necessary proximity arose from the surveyor’s knowledge that the overwhelming probability was that the purchaser would rely upon his valuation, coupled with the fact that the surveyor only obtains the work because the purchaser is willing to pay his fee.

Application of the Unfair Contract Terms Act 1977

The House of Lords held that the disclaimers fell within the ambit of the Act. Section 13(1) of the Act prevents excluding liability by reference to notices which exclude or restrict the relevant obligation or duty. Lord Griffiths held that the Act introduced a ‘but for’ test, meaning the existence of the duty of care should be judged by considering whether it would exist ‘but for’ the notice excluding liability. Lord Jauncey stated that the words in section 13(1) are unambiguous and entirely appropriate to cover a disclaimer which prevents a duty coming into existence.

Reasonableness

The House of Lords held that it was not fair and reasonable for the valuers to rely on the disclaimer. Lord Griffiths identified relevant factors including: (1) the parties were not of equal bargaining power; (2) it would be difficult for the purchaser to obtain alternative advice given cost considerations; (3) the valuation task was not particularly difficult; and (4) the practical consequences would fall disproportionately on the purchaser who might lose their home, whereas surveyors could insure against such claims.

Lord Templeman noted that 90 per cent of purchasers rely on mortgage valuations and do not commission their own surveys, and that valuers are professional persons who offer their services for reward and can be expected to carry insurance.

Implications

This case established important principles regarding professional liability and the limits of exclusion clauses. It confirmed that professional valuers owe a duty of care to those they know will rely on their valuations, even without direct contractual relationships. The decision significantly limited the ability of professionals to exclude liability for negligence through standard form disclaimers, particularly in consumer transactions involving modest houses. Lord Griffiths expressly reserved the position regarding valuations of more expensive or commercial properties, where different considerations might apply.

Verdict: Appeal dismissed. The surveyors were liable in negligence to Mrs Smith. The disclaimers of liability did not satisfy the requirement of reasonableness under the Unfair Contract Terms Act 1977 and were therefore ineffective.

Source: Smith v Eric S Bush (A Firm) [1990] UKHL 1 (20 April 1989)