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

A homebuyer relied on a negligent survey report commissioned by her mortgage lender, which contained a liability disclaimer. The House of Lords found the surveyor owed a duty of care and the disclaimer was unreasonable under the Unfair Contract Terms Act 1977.

Facts

This appeal, heard concurrently with Harris v. Wyre Forest District Council, concerned a claim in negligence. Mrs Smith, the plaintiff, applied to a building society for a mortgage to purchase a house. As part of the mortgage application, she paid a fee for a valuation of the property to be conducted by a firm of surveyors, Eric S. Bush, who were instructed by the building society. The mortgage application form and the subsequent valuation report both contained a disclaimer clause purporting to exclude liability for the accuracy of the report. The surveyor negligently failed to identify that chimney breasts had been removed without proper support. Relying on the valuation, Mrs Smith purchased the property. Subsequently, a chimney collapsed, causing significant damage. Mrs Smith sued the surveyors for negligence, claiming the loss she had suffered due to the defective report.

Issues

The House of Lords considered two primary legal issues:
1. Did the valuer, who was instructed and paid by the mortgage lender, owe a duty of care in tort to the prospective purchaser (Mrs Smith) to exercise reasonable skill and care in carrying out the valuation?
2. If such a duty of care existed, was the disclaimer of liability contained in the application form and valuation report effective in excluding the valuer’s liability for negligence, specifically considering its reasonableness under the Unfair Contract Terms Act 1977?

Judgment

The House of Lords unanimously dismissed the appeal, holding that the surveyors were liable to the purchaser. A duty of care was held to exist, and the disclaimer was deemed ineffective.

Duty of Care

The court found that there was a sufficient relationship of proximity between the surveyor and the purchaser to give rise to a duty of care. It was held to be foreseeable that the purchaser of a modest residential property would rely on the valuation provided to their mortgagee, rather than commissioning a separate, more expensive survey. Lord Templeman noted the commercial reality of the situation:

The valuer is a professional man who offers his services for reward. He is paid for the valuation. He knows that the valuation is for the benefit of the purchaser and he also knows that the purchaser will suffer if the valuation is careless. The valuer knows that the purchaser is unlikely to be able to afford a second valuation.

The court applied the principles from Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465, concluding that the valuer, by accepting instructions from the lender, implicitly assumed a responsibility to the purchaser who they knew would rely on their professional judgment.

The Unfair Contract Terms Act 1977

The central point of the judgment was the application of section 2(2) of the Unfair Contract Terms Act 1977, which states that a person cannot exclude or restrict liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness. The court held that the disclaimer was subject to this test. Lord Griffiths laid out several factors to be considered when assessing the reasonableness of such a clause in this context:

1. Were the parties of equal bargaining power?
2. In the case of advice would it have been reasonably practicable to obtain the advice from an alternative source taking into account considerations of cost and time?
3. How difficult is the task being undertaken for which liability is being excluded?
4. What are the practical consequences of the decision on the question of reasonableness?

Applying these considerations, the court concluded that the disclaimer was not reasonable. There was a clear inequality of bargaining power; the purchaser had no choice but to accept the terms to secure the mortgage. It was common practice for buyers of modest homes to rely on the lender’s survey. Furthermore, the professional surveyor was in a much better position to bear the financial risk, typically through professional indemnity insurance, than the individual homebuyer. Lord Griffiths stated clearly:

But in the case of a surveyor valuing a house of modest value for a purchaser… an exclusion of liability for negligence is not fair and reasonable… It is not a risk that the purchaser should be expected to bear. The surveyor is a professional and is, or should be, suitably insured.

Implications

The decision in Smith v Bush was a landmark ruling in the law of tort and consumer protection. It confirmed that valuers and surveyors instructed by mortgage lenders owe a duty of care to the purchasers of residential property, establishing liability for negligent valuations. Crucially, it established that standard disclaimers of liability in such contexts are likely to be deemed unreasonable under the Unfair Contract Terms Act 1977, particularly for purchases of modest, lower-value homes. The case significantly strengthens the protection for homebuyers, recognising the economic realities and unequal bargaining power inherent in such transactions. It distinguishes these situations from purely commercial contracts where parties of equal standing can more freely allocate risk.

Verdict: The appeal was dismissed. The surveyors were held liable to the purchaser, affirming the decision of the Court of Appeal.

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