United Kingdom House of Lords Decisions

Parliamentary Archives,
HL/PO/JU/18/249

Smith (Respondent)

v.
Eric S. Bush (a firm) (Appellants)

JUDGMENT

Die Jovis 20° Aprilis 1989

Upon Report from the Appellate Committee to whom was
referred the Cause Smith against Eric S. Bush (a firm), That
the Committee had heard Counsel on Monday the 6th, Tuesday the
7th, Wednesday the 8th, Thursday the 9th, Monday the 13th,
Tuesday the 14th, Wednesday the 15th and Thursday the 16th
days of February last, upon the Petition and Appeal of Eric S.
Bush (a firm) of 2A Upper King Street, Norwich, praying that
the matter of the Order set forth in the Schedule thereto,
namely an Order of Her Majesty's Court of Appeal of the 13th
day of March 1987, might be reviewed before Her Majesty the
Queen in Her Court of Parliament and that the said Order might
be reversed, varied or altered or that the Petitioners might
have such other relief in the premises as to Her Majesty the
Queen in Her Court of Parliament might seem meet; as upon the
case of Jean Patricia Smith lodged in answer to the said
Appeal; and due consideration had this day of what was offered
on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and
Temporal in the Court of Parliament of Her Majesty the Queen
assembled, That the said Order of Her Majesty's Court of
Appeal (Civil Division) of the 13th day of March 1987
complained of in the said Appeal be, and the same is hereby,
Affirmed and that the said Petition and Appeal be, and the
same is hereby, dismissed this House: And it is further
Ordered, That the Appellants do pay or cause to be paid to the
said Respondent the Costs incurred by her in respect of the
said Appeal, the amount thereof to be certified by the Clerk
of the Parliaments if not agreed between the parties.

Cler: Parliamentor:

Judgment: 20.4.89

HOUSE OF LORDS

SMITH (A.P.)
(RESPONDENT)

v.

ERIC S. BUSH (A FIRM)
(APPELLANTS)

HARRIS (A.P.) AND ANOTHER (A.P.)
(APPELLANTS)

v.

WYRE FOREST DISTRICT COUNCIL AND ANOTHER

(RESPONDENTS)

Lord Keith of Kinkel
Lord Brandon of Oakbrook
Lord Templeman
Lord Griffiths
Lord Jauncey of Tullichettle

LORD KEITH OF KINKEL

My Lords,

My Lords, I have had the opportunity of considering in draft
the speeches to be delivered by my noble and learned friends Lord
Templeman, Lord Griffiths and Lord Jauncey of Tullichettle. I
agree with them, and for the reasons they give would allow the
appeal in Harris v. Wyre Forest District Council and dismiss that
in Smith v. Eric S. Bush.

LORD BRANDON OF OAKBROOK

My Lords,

For the reasons set out in the speeches to be delivered by
my noble and learned friends, Lord Templeman, Lord Griffiths and
Lord Jauncey of Tullichettle, I would allow the appeal in Harris v.
Wyre Forest District Council and dismiss the appeal in Smith v.
Eric. S. Bush (a firm).

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LORD TEMPLEMAN

My Lords,

These appeals involve consideration of three questions. The
first question is whether a valuer instructed by a building society
or other mortgagee to value a house, knowing that his valuation
will probably be relied upon by the prospective purchaser and
mortgagor of the house, owes to the purchaser in tort a duty to
exercise reasonable skill and care in carrying out the valuation
unless the valuer disclaims liability. If so, the second question is
whether a disclaimer of liability by or on behalf of the valuer is a
notice which purports to exclude liability for negligence within the
Unfair Contract Terms Act 1977 and is therefore ineffective unless
it satisfies the requirement of reasonableness. If so, the third
question is whether, in the absence of special circumstances, it is
fair and reasonable for the valuer to rely on the notice excluding
liability.

In Harris v. Wyre Forest District Council, [1988] Q.B. 835
the first appeal now under consideration, Mr. and Mrs. Harris
wished to purchase 74, George Street, Kidderminster, and needed a
mortgage. They applied to the council. By section 43 of the
Housing (Financial Provisions) Act 1958 (as amended by section 37
of the Local Government Act 1974), the council were authorised to
advance money to any persons for the purpose of acquiring a
house, provided that:

"(2) . . . the local authority . . . shall satisfy themselves
that the house ... to be acquired is ... or will be made
in all respects fit for human habitation. . . 3(e) The advance
shall not be made except after a valuation duly made on
behalf of the local authority ..."

Mr. and Mrs. Harris signed the application form supplied by
the council and that form contained the following declaration and
notice:

"I/We enclose herewith valuation fee and administration fee
£22. I/We understand that this fee is not returnable even if
the council do not eventually make an advance and that the
valuation is confidential and is intended soley for the
benefit of Wyre Forest District Council in determining what
advance, if any, may be made on the security and that no
responsibility whatsoever is implied or accepted by the
council for the value or condition of the property by reason
of such inspection and report. (You are advised for your
own protection to instruct your own surveyor/architect to
inspect the property). I/We agree that the valuation report
is the property of the council and that I/we cannot require
its production."



The council decided to carry out their own valuation and for that
purpose instructed their employee, the second respondent, Mr. Lee.
After receiving Mr. Lee's valuation, the council made a written
offer to advance £8,505 to Mr. and Mrs. Harris to be secured on a
mortgage of the house and subject to their undertaking to carry
out within 12 months the works detailed in the schedule to the
offer. The schedule was in these terms:

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"Essential repairs

"1. Obtain report for district council from Midlands
Electricity Board regarding electrics and carry out
any recommendations. 2. Make good mortar fillets to
extension."

Mr. and Mrs. Harris assumed from the council's offer that, as was
the case, the house had been valued at £8,505 at the least, and
that the valuer had not found serious defects and they therefore
accepted the offer and entered into a contract to purchase the
house for £9,000. Three years later, Mr. and Mrs. Harris
discovered that the house was defective; one builder quoted
£13,000 to carry out work to make the house safe. Another
builder refused to tender for the work which he regarded as
impractical and unsafe. The damages suffered by Mr. and Mrs.
Smith, including interest up to the date of trial, were agreed at
£12,000. The trial judge was satisfied that Mr. Lee did not
exercise reasonable skill and care and that the council, as his
employer, were vicariously liable for Mr. Lee's failure and he
therefore ordered the council to pay £12,000. The Court of
Appeal allowed the appeal of the council on the grounds that by
the notice contained in the application form signed by Mr. and
Mrs. Harris the council had avoided incurring liability. Mr. and
Mrs. Harris now appeal.

In Smith v. Eric S. Bush (a firm) [1988] Q.B. 743, the
second appeal now under consideration, Mrs. Smith wished to
purchase 242, Silver Road, Norwich, and needed a mortgage. She
applied to the Abbey National Building Society. By section 25 of
the Building Societies Act 1962, now section 13 of the Building
Societies Act 1986, the Abbey National was bound to obtain "a
written report prepared and signed by a competent and prudent
person who is experienced in the matters relevant to the
determination of the value" of the house, dealing with the value of
the house and with any matter likely to affect the value of the
house. Mrs. Smith paid to the Abbey National an inspection fee
of £36.89 and signed the application form which contained the
following declaration and notice:

"I accept that the society will provide me with a copy of
the report and mortgage valuation which the society will
obtain in relation to this application. I understand that the
society is not the agent of the surveyor or firm of
surveyors and that I am making no agreement with the
surveyor or firm of surveyors. I understand that neither the
society nor the surveyor or the firm of surveyors will
warrant, represent or give any assurance to me that the
statements, conclusions and opinions expressed or implied in
the report and mortgage evaluation will be accurate or valid
and the surveyor's report will be supplied without any
acceptance of responsibility on their part to me."

The Abbey National instructed the appellant firm, Eric S.
Bush, to carry out the valuation. The appellants valued the house
at £16,500 and the report contained the following paragraph:

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"11. Repairs recommended as a condition of mortgage: No
essential repairs are required. We noted a number of items
of disrepair in the building which we have taken into
account in our valuation, but which are not considered to be
essential for mortgage purposes."

'

A copy of the report was supplied to Mrs. Smith by the Abbey
National.

In reliance on the report, Mrs. Smith accepted an advance
of £3,500 from the Abbey National and entered into a contract to
purchase the house for £18,000. Eighteen months later, bricks
from the chimneys collapsed and fell through the roof into the loft
and the main bedroom and ceilings on the first floor. The
collapse was due to the fact that two chimney breasts had been
removed from the first floor, leaving the chimney breasts in the
loft and the chimneys unsupported. Mr. Cannell, who carried out
the inspection for the appellants and was a chartered surveyor
had observed the removal of the first floor chimney breasts but
had not checked to see that the chimneys above were adequately
supported.

The trial judge was satisfied that Mr. Cannell had not
exercised reasonable skill and care, that the appellants were
liable for his negligence to Mrs. Smith and awarded her £4,379.97
damages including interest. The judge ignored the notice contained
in the application and signed by Mrs. Smith whereby the Abbey
National disclaimed liability on the part of the appellant firm.
The Court of Appeal (Dillon and Glidewell L.JJ. and Sir Edward
Eveleigh) held that the disclaimer was not fair and reasonable and
was ineffective under the Unfair Contract Terms Act 1977; they
accordingly affirmed the award of damages made by the judge.
The appellants now appeal.

As I have indicated therefore, the three questions involved
in these appeals are, firstly, whether the council's valuer was
liable to Mr. and Mrs. Harris in negligence and whether the
appellants were liable to Mrs. Smith in negligence; secondly,
whether, if negligence applies, the notices excluding liability fall
within the ambit of the Unfair Contract Terms Act 1977, and,
thirdly, whether it is fair and reasonable for the valuers to rely on
the notices.

Section 1(1) of the Act of 1977 defines "negligence" as the
breach:

"(a) of any obligation, arising from the express or implied
terms of a contract, to take reasonable care or
exercise reasonable skill in the performance of the
contract;

"(b) of any common law duty to take reasonable care or
exercise reasonable skill ..."

Section 2 of the Act provides that:

"(1) A person cannot by reference to any contract term or
to a notice . . . exclude or restrict his liability for death or
personal injury resulting from negligence.

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"(2) In the case of other loss or damage, a person cannot so
exclude or restrict his liability for negligence except in so
far as the term or notice satisfies the requirement of
reasonableness."

The common law imposes on a person who contracts to
carry out an operation an obligation to exercise reasonable skill
and care. A plumber who mends a burst pipe is liable for his
incompetence or negligence whether or not he has been expressly
required to be careful. The law implies a term in the contract
which requires the plumber to exercise reasonable skill and care in
his calling. The common law also imposes on a person who carries
out an operation an obligation to exercise reasonable skill and care
where there is no contract. Where the relationship between the
operator and a person who suffers injury or damage is sufficiently
proximate and where the operator should have foreseen that
carelessness on his part might cause harm to the injured person,
the operator is liable in the tort of negligence.

Manufacturers and providers of services and others seek to
protect themselves against liability for negligence by imposing
terms in contracts or by giving notice that they will not accept
liability in contract in tort. Consumers who have need of
manufactured articles and services are not in a position to bargain.
The Unfair Contract Terms Act 1977 prohibits any person
excluding or restricting liability for death or personal injury
resulting from negligence. The Act also contains a prohibition
against the exclusion or restriction of liability for negligence which
results in loss or damage unless the terms of exclusion or the
notice of exclusion satisfies the requirements of reasonableness.

These two appeals are based on allegations of negligence in
circumstances which are akin to contract. Mr. and Mrs. Harris
paid £22 to the council for a valuation. The council employed,
and therefore paid, Mr. Lee, for whose services as a valuer the
council are vicariously liable. Mrs. Smith paid £36.89 to the
Abbey National for a report and valuation and the Abbey National
paid the appellants for the report and valuation. In each case the
valuer knew or ought to have known that the purchaser would only
contract to purchase the house if the valuation was satisfactory
and that the purchaser might suffer injury or damage or both if
the valuer did not exercise reasonable skill and care. In these
circumstances I would expect the law to impose on the valuer a
duty owed to the purchaser to exercise reasonable skill and care in
carrying out the valuation.

In Cann v. Willson (1888) 39 Ch.D. 39, approved by this
House in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964]
A.C. 465, a valuer instructed by a mortgagor sent his report to
the mortgagee who made an advance in reliance on the valuation.
The valuer was held liable in the tort of negligence to the
mortgagee for failing to carry out the valuation with reasonable
care and skill.

A valuer who values property as a security for a mortgage
is liable either in contract or in tort to the mortgagee for any
failure on the part of the valuer to exercise reasonable skill and
care in the valuation. The valuer is liable in contract if he
receives instructions from and is paid by the mortgagee. The



- 5 -

valuer is liable in tort if he receives instructions from and is paid
by the mortgagor but knows that the valuation is for the purpose
of a mortgage and will be relied upon by the mortgagee.

In Odder v. Westbourne Park Building Society (1955) 165
E.G. 261, a purchaser paid a survey fee to a building society, the
survey was carried out by the chairman of the building society and
in the result the purchaser purchased the house for £4,000 with
the help of an advance of £3,000. There were serious defects and
the house was unsaleable. There was a disclaimer of liability for
negligence for the survey in the mortgage offer but Harman J.
held that the disclaimer:

"did no more than to state what the legal position would be
even if it were not there but it did emphasise the matter
and took much of the sting out of the plaintiff's allegation,
which was to the effect that once the building society had
had a survey made and were willing to lend money,
everything was all right and that she would not have
entered on the transaction if they had not kept silent about
the defects or been negligent in not discovering them. In
view of the warning in the proposal form that grievance, if
it were one, lost any of its justification."

Since 1955 a good deal of water has passed under the
negligence bridge.

In Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164, the
accountants of a company showed their draft accounts to and
discussed them with an investor who, in reliance on the accounts,
subscribed for shares in the company. Denning L.J., whose
dissenting judgment was subsequently approved in the Hedley Byrne
case [1964] AC 465, found that the accountants owed a duty to
the investor to exercise reasonable skill and care in preparing the
draft accounts. Denning L.J. said, at p. 176:

"If the matter were free from authority, I should have said
that they clearly did owe a duty of care to him. They
were professional accountants who prepared and put before
him these accounts, knowing that he was going to be guided
by them in making an investment in the company. On the
face of those accounts he did make the investment, whereas
if the accounts had been carefully prepared, he would not
have made the investment at all. The result is that he has
lost his money."

Denning L.J., at p. 178-179 rejected the argument that:

"a duty to take care can only arise where the result of a
failure to take care will cause physical damage to persons
or property. ... I can understand that in some cases of
financial loss there may not be a sufficiently proximate
relationship to give rise to a duty of care; but, if once the
duty exists, I cannot think that liability depends on the
nature of the damage."

The duty of professional men "is not merely a duty to use
care in their reports. They have also a duty to use care in their
work which results in their reports." (p. 179). The duty of an



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accountant is owed "to any third person to whom they themselves
show the accounts, or to whom they know their employer is going
to show the accounts, so as to induce him to invest money or take
some other action on them. But I do not think the duty can be
extended still further so as to include strangers of whom they
have heard nothing and to whom their employer, without their
knowledge, may choose to show their accounts." (pp. 180-181).
"The test of proximity in these cases is: did the accountants know
that the accounts were required for submission to the plaintiff and
use by him?" (p. 181).

Subject to the effect of any disclaimer of liability, these
considerations appear to apply to the valuers in the present
appeals.

In the Hedley Byrne case [1964] AC 465, a bank which
supplied a reference for a customer was held to owe a duty of
care to a stranger who relied on the reference but the bank
escaped liability because in the reference the bank expressly
disclaimed liability. Lord Reid said, at p. 486:

"A reasonable man, knowing that he was being trusted or
that his skill and judgment were being relied on, would, I
think, have three courses open to him. He could keep silent
or decline to give the information or advice sought; or he
could give an answer with a clear qualification that he
accepted no responsibility for it or that it was given
without that reflection or inquiry which a careful answer
would require; or he could simply answer without any such
qualification. If he chooses to adopt the last course he
must, I think, be held to have accepted some responsibility
for his answer being given carefully, or to have accepted a
relationship with the inquirer which requires him to exercise
such care as the circumstances require."

Lord Devlin, at p. 515 rejected the argument that the
maker of a careless statement is only under a duty to be careful
if the duty, which is contractual or fiduciary or, arises from the
relationship of proximity, causes physical damage to the person or
property of the plaintiff. Lord Devlin also said, at pp. 528-529
that:

"the categories of special relationships which may give rise
to a duty to take care in word as well as in deed are not
limited to contractual relationships or to relationships of
fiduciary duty, but include also relationships which . . . are
'equivalent to contract,' that is, where there is an
assumption of responsibility in circumstances in which, but
for the absence of consideration, there would be a
contract."

In the present appeals, the relationship between the valuer
and the purchaser is "akin to contract." The valuer knows that
the consideration which he receives derives from the purchaser and
is passed on by the mortgagee, and the valuer also knows that the
valuation will determine whether or not the purchaser buys the
house.

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In Ministry of Housing and Local Government v. Sharp [1970]
2 Q.B. 223, the local authority was held liable to the Ministry
because of the failure of an employee of the authority to exercise
reasonable skill and care in searching for entries in the local land
charges register. The search certificate prepared by the clerk
negligently failed to record a charge of £1828 11s.5d. in favour of
the Ministry. Lord Denning M.R., at p. 268 rejected the
argument:

"that a duty to use due care (where there was no contract)
only arose when there was a voluntary assumption of
responsibility . . . Lord Reid in Hedley Byrne's case [1964]
A.C. 465, 487 and ... Lord Devlin, at p. 529 ... used
those words because of the special circumstances of that
case (where the bank disclaimed responsibility). But they
did not in any way mean to limit the general principle. In
my opinion the duty to use due care in a statement arises,
not from any voluntary assumption of responsibility, but
from the fact that the person making it knows, or ought to
know, that others, being his neighbours in this regard, would
act on the face of the statement being accurate."

Salmon L.J. said, at p. 279:

"I do not accept that, in all cases, the obligation to take
reasonable care necessarily depends on the voluntary
assumption of responsibility. Even if it did, I am far from
satisfied that the council did not voluntarily assume
responsibility in the present case. On the contrary, it
seems to me that they certainly chose to undertake the
duty of searching the register and preparing the certificate.
There was nothing to compel them to discharge this duty
through their servant."

In the present proceedings by Mr. and Mrs. Harris, the
council accepted the application form and the valuation fee and
chose to conduct their duty of valuing the house through Mr. Lee.
In the case of Mrs. Smith the appellant first accepted the
valuation fee derived from Mrs. Smith and undertook the duty of
preparing a report which they knew would be shown to and relied
upon by Mrs. Smith.

Mr. Ashworth on behalf of the council relied on the decision
of the Court of Appeal of Northern Ireland in Curran v. Northern
Ireland Co-ownership Housing Association Ltd.) (1986) 8 N.I.J.B. 1.
On a preliminary issue the court held that a mortgagee of a house
owed no duty of care to the purchaser in respect of a valuation.
The purchaser's action against the valuer remains to be
determined. Gibson L.J., at p. 14, said that in the Hedley Byrne
type of case:

"there must be an assumption of responsibility in
circumstances in which, but for the absence of
consideration, there would be a contract. Responsibility can
only attach if the defendant's actions implied a voluntary
undertaking to assume responsibility."

I agree that by obtaining and disclosing a valuation, a mortgagee
does not assume responsibility to the purchaser for that valuation.



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But in my opinion the valuer assumes responsibility to both
mortgagee and purchaser by agreeing to carry out a valuation for
mortgage purposes knowing that the valuation fee has been paid by
the purchaser and knowing that the valuation will probably be
relied upon by the purchaser in order to decide whether or not to
enter into a contract to purchase the house. The valuer can
escape the responsibility to exercise reasonable skill and care by
an express exclusion clause, provided the exclusion clause does not
fall foul of the Unfair Contract Terms Act 1977. The Court of
Appeal also decided in Curran's case that a local authority which
provides a house-owner with a grant to carry out works of
extension to his house might owe a duty of care to a subsequent
purchaser of the house to ensure that the works of extension are
carried in a manner free from defect; this House reversed the
Court of Appeal on this point [1987] 1 A.C. 718 but the speech of
my noble and learned friend, Lord Bridge of Harwich, dealt with
the ambit of Anns v. Merton London Borough Council [1978] A.C.
728, and not with the duty of care which arises when the
proximity between tortfeasor and victim is akin to contract.

It was submitted by Mr. Ashworth, on behalf of the council,
that the valuation was prepared in fulfilment of the statutory duty
imposed on the council by section 43 of the Housing (Financial
Provisions) Act 1958. Similarly the valuation obtained by the
Abbey National was essential to enable them to fulfil their
statutory duty imposed by the Building Societies Act 1962. But in
Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164, the draft
accounts were prepared for the company which was compelled by
statute to produce accounts.

In the present appeals, the statutory duty of the council to
value the house did not in my opinion prevent the council coming
under a contractual or tortious duty to Mr. and Mrs. Harris who
were cognisant of the valuation and relied on the valuation. The
contractual duty of a valuer to value a house for the Abbey
National did not prevent the valuer coming under a tortious duty
to Mrs. Smith who was furnished with a report of the valuer and
relied on the report.

In general I am of the opinion that in the absence of a
disclaimer of liability the valuer who values a house for the
purpose of a mortgage, knowing that the mortgagee will rely and
the mortgagor will probably rely on the valuation, knowing that
the purchaser mortgagor has in effect paid for the valuation, is
under a duty to exercise reasonable skill and care and that duty is
owed to both parties to the mortgage for which the valuation is
made. Indeed, in both the appeals now under consideration the
existence of such a dual duty is tacitly accepted and acknowledged
because notices excluding liability for breach of the duty owed to
the purchaser were drafted by the mortgagee and imposed on the
purchaser. In these circumstances it is necessary to consider the
second question which arises in these appeals, namely, whether the
disclaimers of liability are notices which fall within the Unfair
Contract Terms Act 1977.

In Harris v. Wyre Forest District Council [1988] Q.B. 835,
the Court of Appeal (Kerr and Nourse L.JJ. and Caufield J.)
accepted an argument that the Act of 1977 did not apply because
the council by their express disclaimer refused to obtain a



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valuation save on terms that the valuer would not be under any
obligation to Mr. and Mrs. Harris to take reasonable care or
exercise reasonable skill. The council did not exclude liability for
negligence but excluded negligence so that the valuer and the
council never came under a duty of care to Mr. and Mrs. Harris
and could not be guilty of negligence. This construction would not
give effect to the manifest intention of the Act but would
emasculate the Act. The construction would provide no control
over standard form exclusion clauses which individual members of
the public are obliged to accept. A party to a contract or a
tortfeasor could opt out of the Act of 1977 by declining in the
words of Nourse L.J., at p. 845, to recognise "their own
answerability to the plaintiff." Caulfield J. said, at p. 850, that
the Act "can only be relevant where there is on the facts a
potential liability." But no one intends to commit a tort and
therefore any notice which excludes liability is a notice which
excludes a potential liability. Kerr L.J., at p. 853, sought to
confine the Act to "situations where the existence of a duty of
care is not open to doubt" or where there is "an inescapable duty
of care." I can find nothing in the Act of 1977 or in the general
law to identify or support this distinction. In the result the Court
of Appeal held that the Act does not apply to "negligent
misstatements where a disclaimer has prevented a duty of care
from coming into existence;" per Nourse L.J., at p. 848. My
Lords this confuses the valuer's report with the work which the
valuer carries out in order to make his report. The valuer owed a
duty to exercise reasonable skill and care in his inspection and
valuation. If he had been careful in his work, he would not have
made a "negligent misstatement" in his report.

Section 11(3) of the Act of 1977 provides that in considering
whether it is fair and reasonable to allow reliance on a notice
which excludes liability in tort, account must be taken of:

"all the circumstances obtaining when the liability arose or
(but for the notice) would have arisen."

Section 13(1) of the Act prevents the exclusion of any right
or remedy and (to that extent) section 2 also prevents the
exclusion of liability:

"by reference to ... notices which exclude . . . the
relevant obligation or duty."

Nourse L.J. dismissed section 11(3) as "peripheral" and made no
comment on section 13(1). In my opinion both these provisions
support the view that the Act of 1977 requires that all exclusion
notices which would in common law provide a defence to an action
for negligence must satisfy the requirement of reasonableness.

The answer to the second question involved in these appeals
is that the disclaimer of liability made by the council on its own
behalf in the Harris case and by the Abbey National on behalf of
the appellants in the Smith case, constitute notices which fall
within the Unfair Contract Terms Act 1977 and must satisfy the
requirement of reasonableness.

The third question is whether in relation to each exclusion
clause it is, in the words of section 11(3) of the Act of 1977:

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"fair and reasonable to allow reliance on it, having regard
to all the circumstances obtaining when the liability arose
or (but for the notice) would have arisen."

The liability of the council for the breach by Mr. Lee of his
duty of care to Mr. and Mrs. Harris arose as soon as Mr. and Mrs.
Harris, in reliance on the valuation of £8,505, bought the house
for £9,000. The liability of the appellants for the breach of their
duty of care to Mrs. Smith in their valuation arose as soon as
Mrs. Smith, on reliance of the valuation of £16,500, bought the
house for £18,000. The damages will include the difference
between the market value of the house on the day when it was
purchased and the purchase price which was in fact paid by the
purchaser in reliance on the valuation.

Both the present appeals involve typical house purchases. In
considering whether the exclusion clause may be relied upon in
each case, the general pattern of house purchases and the extent
of the work and liability accepted by the valuer must be borne in
mind.

Each year one million houses may be bought and sold.
Apart from exceptional cases the procedure is always the same.
The vendor and the purchaser agree a price but the purchaser
cannot enter into a contract unless and until a mortgagee,
typically a building society, offers to advance the whole or part of
the purchase price. A mortgage of 80 per cent, or more of the
purchase price is not unusual. Thus, if the vendor and the
purchaser agree a price of £50,000 and the purchaser can find
£10,000, the purchaser then applies to a building society for a loan
of £40,000. The purchaser pays the building society a valuation
fee and the building society instructs a valuer who is paid by the
building society. If the valuer reports to the building society that
the house is good security for £40,000, the building society offers
to advance £40,000 and the purchaser contracts to purchase the
house for £50,000. The purchaser, who is offered £40,000 on the
security of the house, rightly assumes that a qualified valuer has
valued the house at not less than £40,000.

At the date when the purchaser pays the valuation fee, the
date when the valuation is made and at the date when the
purchaser is offered an advance, the sale may never take, place.
The amount offered by way of advance may not be enough, the
purchaser may change his mind, or the vendor may increase his
price and sell elsewhere. For many reasons a sale may go off,
and in that case, the purchaser has paid his valuation fee without
result and must pay a second valuation fee when he finds another
house and goes through the same procedure. The building society
which is anxious to attract borrowers and the purchaser who has
no money to waste on valuation fees, do not encourage or pay for
detailed surveys. Moreover, the vendor may not be willing to
suffer the inconvenience of a detailed survey on behalf of a
purchaser who has not contracted to purchase and may exploit
minor items of disrepair disclosed by a detailed survey in order to
obtain a reduction in the price.

The valuer is and, in my opinion, must be a professional
person, typically a chartered surveyor in general practice, who, by
training and experience and exercising reasonable skill and care,



- 11 -

will recognise defects and be able to assess value. The valuer will
value the house after taking into consideration major defects which
are, or ought to be obvious to him, in the course of a visual
inspection of so much of the exterior and interior of the house as
may be accessible to him without undue difficulty. This appears
to be the position as agreed between experts in the decided cases
which have been discussed in the course of the present appeal. In
Roberts v. J. Hampson & Co. [1988] 2 E.G.L.R. 181, Ian Kennedy
J., after hearing expert evidence, came to the following
conclusions concerning a valuation commissioned by the Halifax
Building Society. I have no doubt the case is of general
application. The judge, referring to the Halifax Building Society
valuation, as described in the literature and as described by expert
evidence, said, at p. 185:

"It is a valuation and not a survey, but any valuation is
necessarily governed by condition. The inspection is, of
necessity, a limited one. Both the expert surveyors who
gave evidence before me agreed that with a house of this
size they would allow about half-an-hour for their inspection
on site. That time does not admit of moving furniture, or
of lifting carpets, especially where they are nailed down. In
my judgment, it must be accepted that where a surveyor
undertakes a scheme valuation it is understood that he is
making a limited appraisal only. It is, however, an appraisal
by a skilled professional man. It is inherent in any standard
fee work that some cases will colloquially be 'winners' and
others 'losers,' from the professional man's point of view.
The fact that in an individual case he may need to spend
two or three times as long as he would have expected, or
as the fee structure would have contemplated, is something
which he must accept. His duty to take reasonable care in
providing a valuation remains the root of his obligation. In
an extreme case ... a surveyor might refuse to value on
the agreed fee basis, though any surveyor who too often
refused to take the rough with the smooth would not
improve his reputation. If, in a particular case, the proper
valuation of a £19,000 house needs two hours' work, that is
what the surveyor must devote to it. The second aspect of
the problem concerns moving furniture and lifting carpets.
Here again, as it seems to me, the position that the law
adopts is simple. If a surveyor misses a defect because its
signs are hidden, that is a risk that his client must accept.
But if there is specific ground for suspicion and the trail of
suspicion leads behind furniture or under carpets, the
surveyor must take reasonable steps to follow the trail until
he has all the information which it is reasonable for him to
have before making his valuation."

In his reference to "a scheme valuation" the judge was alluding to
the practice of charging scale fees to purchasers and paying scale
fees to valuers.

The valuer will not be liable merely because his valuation
may prove to be in excess of the amount which the purchaser
might realise on a sale of the house. The valuer will only be
liable if other qualified valuers, who cannot be expected to be
harsh on their fellow professionals, consider that, taking into
consideration the nature of the work for which the valuer is paid



- 12 -

and the object of that work, nevertheless he has been guilty of an
error which an average valuer, in the same circumstances, would
not have made and as a result of that error, the house was worth
materially less than the amount of the valuation upon which the
mortgagee and the purchaser both relied. The valuer accepts the
liability to the building society which can insist on the valuer
accepting liability. The building society seeks to exclude the
liability of the valuer to the purchaser who is not in a position to
insist on anything. The duty of care which the valuer owes to the
building society is exactly the same as the duty of care which he
owes to the purchaser. The valuer is more willing to accept the
liability to the building society than to the purchaser because it is
the purchaser who is vulnerable. If the valuation is worthless the
building society can still insist that the purchaser shall repay the
advance and interest. So, in practice, the damages which the
valuer may be called upon to pay to the building society and the
chances of the valuer being expected to pay, are less than the
corresponding liability to the purchaser. But this does not make it
more reasonable for the valuer to be able to rely on an exclusion
clause which is an example of a standard form exemption clause
operating in favour of the supplier of services and against the
individual consumer.

Mr. Hague, who has great experience in this field, urged on
behalf of the valuers in this appeal and on behalf of valuers
generally, that it is fair and reasonable for a valuer to rely on an
exclusion clause, particularly an exclusion clause which is set forth
so plainly in building society literature. The principal reasons
urged by Mr. Hague are as follows:

(1) The exclusion clause is clear and understandable
and reiterated and is forcefully drawn to the attention of
the purchaser.

2. The purchaser's solicitors should reinforce the
   warning and should urge the purchaser to appreciate that he
   cannot rely on a mortgage valuation and should obtain and
   pay for his own survey.

3. If valuers cannot disclaim liability they will be
   faced by more claims from purchasers some of which will
   be unmeritorious but difficult and expensive to resist.




4. A valuer will become more cautious, take more
   time and produce more gloomy reports which will make
   house transactions more difficult.

5. If a duty of care cannot be disclaimed the cost of
   negligence insurance for valuers and therefore the cost of
   valuation fees to the public will be increased.

Mr. Hague also submitted that there was no contract
between a valuer and a purchaser and that, so far as the
purchaser was concerned, the valuation was "gratuitous," and the
valuer should not be forced to accept a liability he was unwilling
to undertake. My Lords, all these submissions are, in my view,
inconsistent with the ambit and thrust of the Act of 1977. The
valuer is a professional man who offers his services for reward.
He is paid for those services. The valuer knows that 90 per cent.



- 13 -

of purchasers in fact rely on a mortgage valuation and do not
commission their own survey. There is great pressure on a
purchaser to rely on the mortgage valuation. Many purchasers
cannot afford a second valuation. If a purchaser obtains a second
valuation the sale may go off and then both valuation fees will be
wasted. Moreover, he knows that mortgagees, such as building
societies and the council, in the present case, are trustworthy and
that they appoint careful and competent valuers and he trusts the
professional man so appointed. Finally, the valuer knows full well
that failure on his part to exercise reasonable skill and care may
be disastrous to the purchaser. If, in reliance on a valuation, the
purchaser contracts to buy for £50,000 a house valued and
mortgaged for £40,000 but, in fact worth nothing and needing
thousands more to be spent on it, the purchaser stands to lose his
home and to remain in debt to the building society for up to
£40,000.

In Yianni v. Edwin Evans & Sons [1982] 1 Q.B. 438, Mr. and
Mrs. Yianni decided that if the Halifax Building Society would
agree to advance £12,000, they would buy a house for £15,000,
otherwise they would let the house go as they had no money apart
from £3,000. The house was valued by a valuer on behalf of the
Halifax at £12,000, an advance of this amount was offered and
accepted and the house was bought and mortgaged. Mr. and Mrs.
Yianni then discovered that the house needed repairs amounting to
£18,000. Park J., at p. 445, found on evidence largely derived
from the chief surveyor to the Abbey National, that the proportion
of purchasers who have an independent survey is less than 15 per
cent.; that purchasers rely on the building society valuation;
purchasers trust the building societies; each purchaser knows that
he has paid a fee for someone on behalf of the society to look at
the house.

"the intending mortgagor feels that the building society,
whom he trusts, must employ for the valuation and survey
competent qualified surveyors; and, if the building society
acts upon its surveyor's report, then there can be no good
reason why he should not also himself act upon it. The
consequence is that if, after inspection by the building
society's surveyor, an offer to make an advance is made,
the applicant assumes that the building society has satisfied
itself that the house is valuable enough to provide suitable
security for a loan and decides to proceed by accepting the
society's offer. So, if Mr. Yianni had had an independent
survey, he would have been exceptional in the experience of
the building societies and of those employed to carry out
surveys and valuations for them."

Park J., following the Hedley Byrne case [1964] AC 465,
concluded at pp. 454-455, that a duty of care by the valuers to
Mr. and Mrs. Yianni would arise if the valuers knew that their
valuation:

"in so far as it stated that the property provided adequate
security for an advance of £12,000, would be passed on to
the plaintiffs, who, notwithstanding the building society's
literature and the service of the notice under section 30 of
the Building Societies Act 1962, in the defendants'
reasonable contemplation would place reliance upon its



- 14 -

correctness in making their decision to buy the house and
mortgage it to the building society. . . . These defendants
are surveyors and valuers. It is their profession and
occupation to survey and make valuations of houses and
other property. They make reports about the condition of
property they have surveyed. Their duty is not merely to
use care in their reports, they have also a duty to use care
in their work which results in their reports ....
Accordingly, the building society's offer of £12,000, when
passed on to the plaintiffs, confirmed to them that 1,
Seymour Road was sufficiently valuable to cause the building
society to advance on its security 80 per cent, of the
purchase price. Since that was also the building society's
view the plaintiffs' belief was not unreasonable."

In Yianni's case [1982] Q.B. 438, there was no exclusion of
liability on behalf of the valuer. The evidence and the findings of
Park J., which I have set out, support the view that it is unfair
and unreasonable for a valuer to rely on an exclusion clause
directed against a purchaser in the circumstances of the present

appeals.




Mr. Hague referred to a new Abbey National proposal
resulting from a consideration of Yianni's case. The purchaser is
offered the choice between a valuation without liability on the
valuer and a report which, as Mr. Hague agreed, did not involve
any more work for the valuer but accepted that the valuer was
under a duty to exercise reasonable skill and care. The fee
charged for the report as compared with the fee charged for the
valuation represents an increase of £100 for a house worth
£20,000, and £150 for a house worth £100,000, and £200 for a
house worth £200,000. On a million houses, this would represent
increases of income to be divided between valuers, insurers and
building societies, of about £150m. It is hardly surprising that few
purchasers have chosen the report instead of the valuation. Any
increase in fees, alleged to be justified by the decision of this
House in these appeals, will no doubt be monitored by the
appropriate authorities.

It is open to Parliament to provide that members of ail
professions or members of one profession providing services in the
normal course of the exercise of their profession for reward shall
be entitled to exclude or limit their liability for failure to
exercise reasonable skill and care. In the absence of any such
provision valuers are not, in my opinion, entitled to rely on a
general exclusion of the common law duty of care owed to
purchasers of houses by valuers to exercise reasonable skill and
care in valuing houses for mortgage purposes.

In the Green Paper "Conveyancing by Authorised
Practitioners" see Cmnd. 572, the Government propose to allow
building societies, banks and other authorised practitioners to
provide conveyancing services to the public by employed
professional lawyers. The Green Paper includes the following
relevant passages:

"3.10 There will inevitably be claims of financial loss
arising out of the provision of conveyancing services. A bad
mistake can result in a purchaser acquiring a property which



- 15 -

is worth considerably less than he paid for it - because, for
example, the conveyancer overlooked a restriction on use or
the planning of a new motorway. The practitioner will be
required to have adequate professional indemnity insurance
or other appropriate arrangements to meet such claims."

Annex paragraph 12:

"An authorised practitioner must not contractually limit its
liability for damage suffered by the client as a result of
negligence on its part."

The Government thus recognises the need to preserve the
duty of a professional lawyer to exercise reasonable skill and care
so that the purchaser of a house may not be disastrously affected
by a defect of title or an encumbrance. In the same way, it
seems to me there is need to preserve the duty of a professional
valuer to exercise reasonable skill and care so that a purchaser of
a house may not be disastrously affected by a defect in the
structure of the house.

The public are exhorted to purchase their homes and cannot
find houses to rent. A typical London suburban house, constructed
in the 1930s for less than £1,000 is now bought for more than
£150,000 with money largely borrowed at high rates of interest
and repayable over a period of a quarter of a century. In these
circumstances it is not fair and reasonable for building societies
and valuers to agree together to impose on purchasers the risk of
loss arising as a result of incompetence or carelessness on the part
of valuers. I agree with the speech of my noble and learned
friend, Lord Griffiths, and with his warning that different
considerations may apply where homes are not concerned.

In the instant case of Harris v. Wyre Forest District
Council, I would allow the appeal of Mrs. and Mrs. Harris, restore
the order of the trial judge and order the costs of Mr. and Mrs.
Harris to be borne by the council. In the case of Smith v. Eric S.
Bush, I would dismiss the appeal with costs.

LORD GRIFFITHS

My Lords,

These appeals were heard together because they both raise
the same two problems. The first is whether the law places a
duty of care upon a professional valuer of real property which he
owes to the purchaser of the property although he has been
instructed to value the property by a prospective mortgagee and
not by the purchaser. The second problem concerns the
construction and application of the Unfair Contract Terms Act
1977.

Smith v. Eric S. Bush (a firm)

I shall deal with this appeal first because its facts are
similar to hundreds of thousands of house purchases that take



- 16 -

place every year. It concerns the purchase of a house at the
lower end of the market with the assistance of finance provided
by a building society. The purchaser applies for finance to the
building society. The building society is required by statute to
obtain a valuation of the property before it advances any money
(see section 13 of the Building Societies Act 1986). This
requirement is to protect the depositors who entrust their savings
to the building society. The building society therefore requires the
purchaser to pay a valuation fee to cover or, at least, to defray
the cost of obtaining a valuation. This is a modest sum and
certainly much less than the cost of a full structural survey, in
the present case it was £36.89. If the purchaser pays the
valuation fee, the building society instructs a valuer who inspects
the property and prepares a report for the building society giving
his valuation of the property. The inspection carried out is a
visual one designed to reveal any obvious defects in the property
which must be taken into account when comparing the value of
the property with other similar properties in the neighbourhood. If
the valuation shows that the property provides adequate security
for the loan, the building society will lend the. money necessary
for the purchaser to go ahead, but prior to its repeal by the
Building Societies Act 1986 would send to the purchaser a
statutory notice pursuant to section 30 of the Building Societies
Act 1962 to make clear that by making the loan it did not
warrant that the purchase price of the property was reasonable.

The building society may either instruct an independent firm
of surveyors to make the valuation or use one of its own
employees. In the present case, the building society instructed the
appellants, an independent firm of surveyors. I will consider
whether it makes any difference if an "in-house" valuer is
instructed when I come to deal with the other appeal. The
building society may or may not send a copy of the valuer's report
to the purchaser. In this case the building society was the Abbey
National and they did send a copy of the report to the purchaser,
Mrs. Smith. I understand that this is now common practice among
building societies. The report, however, contained in red lettering
and in the clearest terms a disclaimer of liability for the accuracy
of the report covering both the building society and the valuer.
Again, I understand that it is common practice for other building
societies to incorporate such a disclaimer of liability.




Mrs. Smith did not obtain a structural survey of the
property. She relied upon the valuer's report to reveal any
obvious serious defects in the house she was purchasing. It is
common ground that she was behaving in the same way as the
vast majority of purchasers of modest houses. They do not go to
the expense of obtaining their own structural survey, they rely on
the valuation to reveal any obvious serious defects and take a
chance that there are no hidden defects that might be revealed by
a more detailed structural survey.

The valuer's report said "the property has been modernised
to a fair standard ... no essential repairs are required" and it
valued the property at £16,500. If reasonable skill and care had
been employed when the inspection took place, it would have
revealed that as a result of removing the chimney breasts in the
rooms the chimneys had been left dangerously unsupported.
Unaware of this defect and relying on the valuer's report, Mrs,



- 17 -

Smith bought the house for £18,000 with the assistance of a loan
of £3,500 from the building society.

After she had been living in the house for about 18 months,
one of the chimney flues collapsed and crashed through the
bedroom ceiling and floor causing damage for which Mrs. Smith
was awarded £4,379.97 against the surveyors who had carried out
the valuation.




Mr. Hague, on behalf of the surveyors, conceded that on the
facts of this case the surveyors owed a duty of care to Mrs.
Smith unless they were protected by the disclaimer of liability.
He made this concession, he said, because the surveyors knew that
their report was going to be shown to Mrs. Smith and that Mrs.
Smith would, in all probability, rely upon it, which two factors
would create the necessary proximity to found the duty of care.
He submitted, however, that if the surveyor did not know that his
report would be shown to the purchaser, no duty of care would
arise and that the decision in Yianni v. Edwin Evans & Sons [1982]
Q.B. 438 was wrongly decided. I shall defer consideration of this
question to the second appeal for it does not arise on the facts of
the present case. Suffice it to say, for the moment, that on the
facts of the present case it is my view that the concession made
by Mr. Hague is correct.

At common law, whether the duty to exercise reasonable
care and skill is founded in contract or tort, a party is as a
general rule free, by the use of appropriate wording, to exclude
liability for negligence in discharge of the duty. The disclaimer of
liability in the present case is prominent and clearly worded and
on the authority of Hedley Byrne & Co. Ltd. v. Heller & Partners
Ltd. [1964] AC 465, in so far as the common law is concerned
effective to exclude the surveyors' liability for negligence. The
question then is whether the Unfair Contract Terms Act 1977 bites
upon such a disclaimer. In my view it does.

The Court of Appeal, however, accepted an argument based
upon the definition of negligence contained in section 1(1) of the
Act of 1977 which provides:

"For the purposes of this part of this Act, 'negligence'
means the breach - (a) of any obligation, arising from the
express or implied terms of a contract, to take reasonable
care or exercise reasonable skill in the performance of the
contract; (b) of any common law duty to take reasonable
care or exercise reasonable skill (but not any stricter duty);
(c) of the common duty of care imposed by the Occupiers'
Liability Act 1957 or the Occupiers' Liability Act (Northern
Ireland) 1957."

They held that, as the disclaimer of liability would at common law
have prevented any duty to take reasonable care arising between
the parties, the Act had no application. In my view this
construction fails to give due weight to the provisions of two
further sections of the Act. Section 11(3) provides:

"In relation to a notice (not being a notice having
contractual effect), the requirement of reasonableness under
this Act is that it should be fair and reasonable to allow









- 18 -

reliance on it, having regard to all the circumstances
obtaining when the liability arose or (but for the notice)
would have arisen."

And section 13(1):

"To the extent that this part of this Act prevents the
exclusion or restriction of any liability it also prevents - (a)
making the liability or its enforcement subject to restrictive
or onerous conditions; (b) excluding or restricting any right
or remedy in respect of the liability, or subjecting a person
to any prejudice in consequence of his purusing any such
right or remedy; (c) excluding or restricting rules of
evidence or procedure; and (to that extent) sections 2 and 5
to 7 also prevent excluding or restricting liability by
reference to terms and notices which exclude or restrict the
relevant obligation or duty."

I read these provisions as introducing a "but for" test in relation
to the notice excluding liability. They indicate that the existence
of the common law duty to take reasonable care, referred to in
section 1(1)(b), is to be judged by considering whether it would
exist "but for" the notice excluding liability. The result of taking
the notice into account when assessing the existence of a duty of
care would result in removing all liability for negligent mis-
statements from the protection of the Act. It is permissible to
have regard to the second report of the Law Commission on
Exemption Clauses (Law. Com. No. 69) which is the genesis of the
Unfair Contract Terms Act 1977 as an aid to the construction of
the Act. Paragraph 127 of that report reads:

"Our recommendations in this part of the report are
intended to apply to exclusions of liability for negligence
where the liability is incurred in the course of a person's
business. We consider that they should apply even in cases
where the person seeking to rely on the exemption clause
was under no legal obligation (such as a contractual
obligation) to carry out the activities. This means that, for
example, conditions attached to a licence to enter on to
land, and disclaimers of liability made where information or
advice is given, should be subject to control . . . . "

I have no reason to think that Parliament did not intend to follow
this advice and the wording of the Act is, in my opinion, apt to
give effect to that intention. This view of the construction of the
Act is also supported by the judgment of Slade L.J. in Phillips
Products Ltd. v. Hyland (Note) [1987] 1 WLR 659, when he
rejected a similar argument in relation to the construction of a
contractual term excluding negligence.

Finally, the question is whether the exclusion of liability
contained in the disclaimer satisfies the requirement of
reasonableness provided by section 2(2) of the Act of 1977. The
meaning of reasonableness and the burden of proof are both dealt
with in section 11(3) which provides:

"In relation to a notice (not being a notice having
contractual effect), the requirement of reasonableness under
this Act is that it should be fair and reasonable to allow



- 19 -

reliance on it, having regard to all the circumstances
obtaining when the liability arose or (but for the notice)
would have arisen."

It is clear, then, that the burden is upon the surveyor to establish
that in all the circumstances it is fair and reasonable that he
should be allowed to rely upon his disclaimer of liability.

I believe that it is impossible to draw up an exhaustive list
of the factors that must be taken into account when a judge is
faced with this very difficult decision. Nevertheless, the following
matters should, in my view, always be considered.

1. Were the parties of equal bargaining power. If the court
   is dealing with a one-off situation between parties of equal
   bargaining power the requirement of reasonableness would be more
   easily discharged than in a case such as the present where the
   disclaimer is imposed upon the purchaser who has no effective
   power to object.

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 costs and time. In the present case
   it is urged on behalf of the surveyor that it would have been easy
   for the purchaser to have obtained his own report on the condition
   of the house, to which the purchaser replies, that he would then
   be required to pay twice for the same advice and that people
   buying at the bottom end of the market, many of whom will be
   young first-time buyers, are likely to be under considerable
   financial pressure without the money to go paying twice for the
   same service.

3. How difficult is the task being undertaken for which
   liability is being excluded. When a very difficult or dangerous
   undertaking is involved there may be a high risk of failure which
   would certainly be a pointer towards the reasonableness of
   excluding liability as a condition of doing the work. A valuation,
   on the other hand, should present no difficulty if the work is
   undertaken with reasonable skill and care. It is only defects which
   are observable by a careful visual examination that have to be
   taken into account and I cannot see that it places any
   unreasonable burden on the valuer to require him to accept
   responsibility for the fairly elementary degree of skill and care
   involved in observing, following-up and reporting on such defects.
   Surely it is work at the lower end of the surveyor's field of
   professional expertise.

4. What are the practical consequences of the decision on
the question of reasonableness. This must involve the sums of
money potentially at stake and the ability of the parties to bear
the loss involved, which, in its turn, raises the question of
insurance. There was once a time when it was considered
improper even to mention the possible existence of insurance cover
in a lawsuit. But those days are long past. Everyone knows that
all prudent, professional men carry insurance, and the availability
and cost of insurance must be a relevant factor when considering
which of two parties should be required to bear the risk of a loss.
We are dealing in this case with a loss which will be limited to
the value of a modest house and against which it can be expected



- 20 -

that the surveyor will be insured. Bearing the loss will be unlikely
to cause significant hardship if it has to be borne by the surveyor
but it is, on the other hand, quite possible that it will be a
financial catastrophe for the purchaser who may be left with a
valueless house and no money to buy another. If the law in these
circumstances denies the surveyor the right to exclude his liability,
it may result in a few more claims but I do not think so poorly of
the surveyor's profession as to believe that the floodgates will be
opened. There may be some increase in surveyors' insurance
premiums which will be passed on to the public, but I cannot think
that it will be anything approaching the figures involved in the
difference between the Abbey National's offer of a valuation
without liability and a valuation with liability discussed in the
speech of my noble and learned friend, Lord Templeman. The
result of denying a surveyor, in the circumstances of this case, the
right to exclude liability, will result in distributing the risk of his
negligence among all house purchasers through an increase in his
fees to cover insurance, rather than allowing the whole of the risk
to fall upon the one unfortunate purchaser.

I would not, however, wish it to be thought that I would
consider it unreasonable for professional men in all circumstances
to seek to exclude or limit their liability for negligence.
Sometimes breathtaking sums of money may turn on professional
advice against which it would be impossible for the adviser to
obtain adequate insurance cover and which would ruin him if he
were to be held personally liable. In these circumstances it may
indeed be reasonable to give the advice upon a basis of no liability
or possibly of liability limited to the extent of the adviser's
insurance cover.

In addition to the foregoing four factors, which will always
have to be considered, there is in this case the additional feature
that the surveyor is only employed in the first place because the
purchaser wishes to buy the house and the purchaser in fact
provides or contributes to the surveyor's fees. No one has argued
that if the purchaser had employed and paid the surveyor himself,
it would have been reasonable for the surveyor to exclude liability
for negligence, and the present situation is not far removed from
that of a direct contract between the surveyor and the purchaser.
The evaluation of the foregoing matters leads me to the clear
conclusion that it would not be fair and reasonable for the
surveyor to be permitted to exclude liability in the circumstances
of this case. I would therefore dismiss this appeal.

It must, however, be remembered that this is a decision in
respect of a dwelling house of modest value in which it is widely
recognised by surveyors that purchasers are in fact relying on their
care and skill. It will obviously be of general application in
broadly similar circumstances. But I expressly reserve my position
in respect of valuations of quite different types of property for
mortgage purposes, such as industrial property, large blocks of
flats or very expensive houses. In such cases it may well be that
the general expectation of the behaviour of the purchaser is quite
different. With very large sums of money at stake prudence would
seem to demand that the purchaser obtain his own structural
survey to guide him in his purchase and, in such circumstances
with very much larger sums of money at stake, it may be
reasonable for the surveyors valuing on behalf of those who are



- 21 -

providing the finance either to exclude or limit their liability to
the purchaser.

Harris and Another v. Wyre Forest District Council and Another

The Housing (Financial Provisions) Act 1958 (as amended by
the Local Government Act 1974) gave power to local authorities to
lend money for house purchase. Section 43 of the Act of 1958
provided, inter alia, that before making the loan the local
authority had to satisfy themselves that the house was, or would
after repair, be fit for human habitation. The local authority
were also required to secure the loan by way of a mortgage on
the property and only to make the loan after they had obtained a
valuation of the property made on their behalf.

The appellants, Mr. and Mrs. Harris, two young first-time
buyers, applied to the first respondents, Wyre Forest District
Council, for a loan to enable them to purchase a small old house
in Kidderminster. The asking price of the house was £9,450. Mr.
and Mrs. Harris completed an application form to the council
seeking a loan of £8,950. The application form contained the
following paragraphs:

"To be read carefully and signed personally by all applicants



"I/we enclose herewith valuation fee & administration fee
£22.00. I/we understand that this fee is not returnable even
if the council do not eventually make an advance and that
the valuation is confidential and is intended solely for the
information of Wyre Forest District Council in determining
what advance, if any, may be made on the security and that
no responsibility whatsoever is implied or accepted by the
council for the value or condition of the property by reason
of such inspection and report. (You are advised for your
own protection to instruct your own surveyor/architect to
inspect the property). "I/we agree that the valuation report
is the property of the council and that I/we cannot require
its production."

When the council had received their application and their
cheque for £22, they instructed the second respondent, Mr. Lee, a
valuation surveyor in the council's employment, to inspect and
value the house. Mr. Lee inspected the house and prepared a

report in which he valued the property at the asking price of
£9,450 and under the head "Essential Repairs" he entered "Obtain
report for district council from M.E.B. [Midland Electricity Board]
regarding electrics and carry out any recommendations" and "Make
good mortar fillets to extension." We were told that the entry in
respect of the electrical installation is one that is standard in all
councils' reports and it would seem the only other essential repair
was a minor matter relating to mortar fillets in the extension.
No other defects of any sort were noted on the report.

This report was not shown to Mr. and Mrs. Harris, but
having received the report, the council made them an offer of a
loan of £8,505 secured by a mortgage on the property on condition
that they undertook to carry out the electrical work and the
repair of the mortar fillets in the extension as recommended by
the valuer to the satisfaction of the council. The Harrises
accepted the offer and bought the house for £9,000.




- 22 -

Unfortunately, Mr. Lee had failed to report that the house
had suffered from serious settlement which required inspection by
a structural engineer. When the Harrises tried to sell the house
three years later, the prospective purchaser also applied to the
council for a loan and Mr. Lee was again sent to inspect the
house. On this occasion he reported the settlement and
recommended that a structural engineer's report should be obtained
before any loan was made. In due course, a structural engineer's
report revealed that the house was in a dangerous and unstable
condition and that the cost of repairs would be many thousands of
pounds. In fact, damages, subject to liability, were agreed at
£12,000. Obviously, had Mr. Lee reported in his first report in
the same terms as he did in his second report, the Harrises would
never have bought the house. The judge held that Mr. Lee was
negligent in the making of his first report and there is no appeal
from that finding of fact.

For the reasons that I have already given, the disclaimer of
liability must be disregarded when considering whether the council
or Mr. Lee owed any duty of care to Mr. and Mrs. Harris. Mr.
Ashworth has submitted that they did not because there was no
voluntary assumption of responsibility on their part in respect of
Mr. Lee's inspection and report. He submits that Yianni v. Edwin
Evans & Sons [1982] Q.B. 438 was wrongly decided. That case was
the first of a number of decisions, at first instance, in which
surveyors instructed by mortgagees have been held liable to
purchasers for negligent valuations. The facts were that the
plaintiffs, who wished to buy a house at a price of £15,000,
applied to a building society for a mortgage. The building society
engaged a firm of valuers to value the property for which the
plaintiffs had to pay. There was no disclaimer of liability
although the mortgage application form advised the plaintiffs to
obtain an independent survey. They did not do so because of the
cost involved. The surveyors valued the property at £15,000 and
assessed it as suitable for maximum lending. The building society
offered the plaintiffs a maximum loan of £12,000 with which they
purchased the property. There was serious damage to the house
caused by subsidence which should have been discovered by the
surveyors at the time of their inspection and it was admitted that
the surveyors had been negligent.




In that case there was no disclaimer of liability and the
valuer's report was not shown to the purchaser. Ignoring the
disclaimer of liability, the facts are virtually indistinguishable from
the present case unless it can be said that the fact that Mr. Lee
was an in-house valuer can make a difference when considering the
existence of his duty of care to the purchaser. Park J. said, at p.
454:

"... I conclude that, in this case, the duty of care would
arise if, on the evidence, I am satisfied that the defendants
knew that their valuation of 1, Seymour Road, in so far as
it stated that the property provided adequate security for an
advance of £12,000, would be passed on to the plaintiffs,
who ... in the defendants' reasonable contemplation would
place reliance upon its correctness in making their decision
to buy the house and mortgage it to the building society."

- 23 -

Finding both these conditions satisfied, Park J. held the surveyors
to be liable.




Mr. Ashworth drew attention to the doubts expressed about
the correctness of this decision by Kerr L.J., in the course of his
judgment in the Court of Appeal, and submitted, on the authority
of Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C.
465 that it was essential to found liability for a negligent mis-
statement that there had been "a voluntary assumption of
responsibility" on the part of the person giving the advice. I do
not accept this submission and I do not think that voluntary
assumption of responsibility is a helpful or realistic test for
liability. It is true that reference is made in a number of the
speeches in Hedley Byrne to the assumption of responsibility as a
test of liability but it must be remembered that those speeches
were made in the context of a case in which the central issue was
whether a duty of care could arise when there had been an
express disclaimer of responsibility for the accuracy of the advice.
Obviously, if an adviser expressly assumes responsibility for his
advice, a duty of care will arise, but such is extremely unlikely in
the ordinary course of events. The House of Lords approved a
duty of care being imposed on the facts in Cann v. Willson (1888)
39 ChD 39 and in Candler v. Crane, Christmas & Co. [1951] 2
K.B. 164. But if the surveyor in Cann v. Willson or the
accountant in Candler v. Crane, Christmas & Co. had actually
been asked if he was voluntarily assuming responsibility for his
advice to the mortgagee or the purchaser of the shares, I have
little doubt he would have replied, "Certainly not. My
responsibility is limited to the person who employs me." The
phrase "assumption of responsibility" can only have any real
meaning if it is understood as referring to the circumstances in
which the law will deem the maker of the statement to have
assumed responsibility to the person who acts upon the advice.

In Ministry of Housing and Local Government v. Sharp [1970]
2 Q.B. 223, both Lord Denning M.R. and Salmon L.J. rejected the
argument that a voluntary assumption of responsibility was the sole
criterion for imposing a duty of care for the negligent preparation
of a search certificate in the local land charges register.

The essential distinction between the present case and the
situation being considered in Hedley Byrne [1964] AC 465 and in
the two earlier cases, is that in those cases the advice was being
given with the intention of persuading the recipient to act upon it.
In the present case, the purpose of providing the report is to
advise the mortgagee but it is given in circumstances in which it
is highly probable that the purchaser will in fact act on its
contents, although that was not the primary purpose of the report.
I have had considerable doubts whether it is wise to increase the
scope of the duty for negligent advice beyond the person directly
intended by the giver of the advice to act upon it to those whom
he knows may do so. Certainly in the field of the law of
mortgagor and mortgagee there is authority that points in the
other direction. In Odder v. Westbourne Park Building Society
(1955) 165 E.G. 261, Harman J. held that a building society owed
no duty of care to purchasers in respect of the valuation report
for mortgage purposes prepared by the chairman of the society.
From the tenor of the short report it appears that Harman J.
regarded it as unthinkable that a mortgagee could owe a duty of



- 24 -




care to the mortgagor in respect of any action taken by the
mortgagee for the purpose of appraising the value of the property.
In Curran v. Northern Ireland Co-ownership Housing Association
Ltd. (1986) 8 N.I.J.B. 1, the Court of Appeal in Northern Ireland
held that the Northern Ireland Housing Executive, which had lent
money on mortgage pursuant to powers contained in the Housing
Act (Northern Ireland) 1971, owed no duty of care to their
mortgagor in respect of the valuation of the property. The claim
against the executive had been struck out by the judge on the
ground that the pleadings disclosed no cause of action. For the
purpose of the appeal, the following facts were assumed, that (1)
the executive had instructed an independent valuer to prepare a
valuation of the property; (2) the valuation had been negligently
prepared; (3) the executive had negligently instructed an
incompetent valuer; (4) the valuer's report would not be shown to
the purchaser; (5) the purchaser knew that the executive would not
lend money without a valuation to justify the loan; (6) the
executive knew that the purchaser would assume that the valuation
showed that the property was worth at least as much as the figure
which the executive was willing to advance on mortgage, and that
the purchaser would rely on the valuation to that extent. Gibson
L.J. based his judgment on the absence of any acceptance of
responsibility on the part of the executive. In the course of his
judgment he said, at p. 14:

"Responsibility can only attach if the defendant's act
implied a voluntary undertaking to assume responsibility.
Were it otherwise a person who offered to an expert any
object for sale, making it clear that he was unaware of its
value and that he was relying on the other to pay a proper
price, could sue the other should he later discover that he
had not received the full value even though the purchaser
had made no representation that he was doing any more
than look after his own interests. Nor can any class of
persons who to the knowledge of another habitually fail to
take precautions for their own protection in a business
relationship cast upon another without his consent an
obligation to exercise care for their protection in such
transaction so as to protect them from their own lack of
ordinary business prudence. Generally, a mortgage contract
in itself imports no obligation on the part of a mortgagee
to use care in protecting the interests of a mortgagor. . . .




Gibson L.J. said, at p. 21:

"But in so far as the facts of this case are clearly within
the area of contemplation in the Hedley Byrne case, I have
no doubt that the condition precedent to liability is that the
executive should have indicated to the plaintiffs, or so acted
as to mislead them into believing, that the executive was
accepting responsibility for its opinion."

Commenting on Yianni v. Edwin Evans & Sons [1982] Q.B.
438, Kerr L.J. in his judgment in the Court of Appeal in the
present case [1988] Q.B. 835, 851-852, said:

"But its inherent jurisprudential weakness in any ordinary
situation is clear. Suppose that A approaches B with a
request for a loan to be secured on a property or chattel -



- 25 -

such as a painting - which A is proposing to acquire. A
knows that for the purpose of considering whether or not to
make the requested loan, and of its amount, B is bound to
make some assessment of the value of the security which is
offered, possibly on the basis of some expert inspection and
formal valuation. Then assume that B knows that in all
probability A will not have had any independent advice or
valuation and is also unlikely to commission anything of the
kind as a check on B's valuation. B also knows, of course,
that any figure which he may then put forward to A by way
of a proposed loan on the basis of the offered security will
necessarily be seen to reflect B's estimate of the minimum
value of the offered security. Suppose that A then accepts
B's offer and acquires the property or chattel with the
assistance of B's loan and in reliance - at least in part - on
B's willingness to advance the amount of the loan as an
indication of the value of the property or chattel. Given
those facts and no more, I do not think that B can properly
be regarded as having assumed, or as being subjected to,
any duty of care towards A in his valuation of the security.
Even in the absence of any disclaimer of responsibility I do
not think that the principles stated in Hedley Byrne & Co.
Ltd. v. Heller & Partners Ltd. [1964] AC 465 support the
contrary conclusion. B has not been asked for advice or
information but merely for a loan. His valuation was
carried out for his own commercial purposes. If it was
done carelessly, with the result that the valuation and loan
were excessive, I do not think that A can have any ground
for complaint. And if B made a small service charge for
investigating A's request for a loan, I doubt whether the
position would be different; certainly not if he were also to
add a disclaimer of responsibility and a warning that A
should carry out his own valuation."

Kerr L.J., however, added:

"It may be, but I agree that we should not decide this
general question on the present appeal, that the particular
circumstances of purchasers of houses with the assistance of
loans from building societies or local authorities are capable
of leading to a different analysis and conclusion."

I have come to the conclusion that Yianni [1982] Q.B. 438
was correctly decided. I have already given my view that the
voluntary assumption of responsibility is unlikely to be a helpful or
realistic test in most cases. 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 his 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 the 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



- 26 -

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 per cent. 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
the advice is 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 a 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 when 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.

I accept that the mere fact of a contract between
mortgagor and mortgagee will not of itself in all cases be
sufficent to found a duty of care. But I do not accept the view
of the Court of Appeal in Curran v. Northern Ireland Co-ownership
Housing Association Ltd. (1986) 8 N.I.J.B. 1 that a mortgagee who
accepts a fee to obtain a valuation of a small house owes no duty
of care to the mortgagor in the selection of the valuer to whom
he entrusts the work. In my opinion, the mortgagee in such a
case, knowing that the mortgagor will rely upon the valuation,
owes a duty to the mortgagor to take reasonable care to employ a
reasonably competent valuer. Provided he does this the mortgagee
will not be held liable for the negligence of the independent valuer
who acts as an independent contractor.

I have already pointed out that the only real distinction
between the present case and the case of Yianni [1982] Q.B. 438,
is that the valuation was carried out by an in-house valuer. In my
opinion this can make no difference. 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.

For reasons that are essentially the same as those I
considered in the other appeal, I would hold that it is not
reasonable to allow the local authority or Mr. Lee to rely upon
the exclusion of liability. Accordingly, I would allow this appeal.

- 27 -

LORD JAUNCEY OF TULLICHETTLE

My Lords,




These two appeals raise the important issue of the extent to
which a valuer instructed by a mortgagee owes a duty of care to
a potential mortgagor whom he knows will be shown in some shape
or form the results of his valuation prior to purchasing the
property in question.

Smith v. Eric S. Bush (a firm)

(I) Mrs. Smith applied to the Abbey National Building Society
for a mortgage to enable her to purchase a house. The building
society in pursuance of its statutory duty under section 25 of the
Building Societies Act 1962 (now section 13 of the Building
Societies Act 1986) instructed the appellants, a firm of surveyors
and valuers to prepare a written report as to the value of the
house. Mrs. Smith paid to the building society a fee in respect of
this report. Mrs. Smith's application to the building society
contained a disclaimer of liability by them on behalf of the
appellants, which disclaimer she acknowledged. Thereafter the
building society sent to Mrs. Smith a copy of the report and
informed her that her application had been accepted. Both the
copy report and the letter drew attention to the fact that the
report was not to be taken as a structural survey. The report
stated that the surveyor had made the report without any
acceptance of responsibility to Mrs. Smith and the letter advised
her to obtain independent professional advice. Thereafter, without
obtaining an independent valuation, Mrs. Smith purchased the house
which later proved to be structurally defective to a material
extent. The surveyor, who was a member of the appellant firm,
was found to be negligent in failing to discover and report upon
the defect. He was at all material times aware that his report
would be shown to Mrs. Smith, that she would be likely to place
reliance upon it in deciding whether to buy the house and that his
fee derived from a payment by her to the building society.

Three questions arise, namely:-

1. Whether in the absence of the disclaimers of liability the
   appellants owed a duty to Mrs. Smith;

2. If so, whether the disclaimers fell within the ambit of the
   Unfair Contract Terms Act 1977; and

3. If they did, whether they satisfied the requirements of
   reasonableness.

Since Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.
[1964] AC 465, it has been beyond doubt that in certain
circumstances A may be liable to B in tort in respect of a
negligent statement causing economic loss to B. In considering
whether such circumstances exist in the present case I propose,
before looking at Hedley Byrne & Co. Ltd. v. Heller & Partners
Ltd. to look at two earlier cases. In Cann v. Willson (1888) 39
Ch. D. 39 an intending mortgagor, at the request of the solicitor
of an intending mortgagee, applied to a firm of valuers for a
valuation of the property in question. The valuers sent the
valuation, which subsequently turned out to be wholly inept, to the



- 28 -

mortgagee's solicitors knowing that it was required for the purpose
of an advance. When the mortgagor defaulted the property was
found to be worth far less than the valuation whereby the
mortgagee suffered loss. In an action by the mortgagees against
the valuer Chitty J. said, at p. 42:-

"In this case the document called a valuation was
sent by the defendants direct to the agents of the
plaintiff for the purpose of inducing the plaintiff and
his co-trustee to lay out the trust money on
mortgage. It seems to me that the defendants
knowingly placed themselves in that position, and in
point of law incurred a duty towards him to use
reasonable care in the preparation of the document
called a valuation."

In Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164
accountants were in the course of preparing the accounts of a
company. They were instructed to press on and complete them so
that they might be shown to the plaintiff who, they were
informed, was a potential investor. A clerk of the accountants
prepared the accounts and at the request of the company discussed
these with the plaintiff who, relying thereon, invested money in
the company. In the event the accounts gave a wholly misleading
picture of the state of the company and the plaintiff sustained
loss. In a dissenting judgment which was subsequently approved in
Medley Byrne & Co. Ltd v. Heller & Partners Ltd. [1964] A.C.
465, Denning L.J., after suggesting that professional persons such
as accountants, surveyors and valuers, might in certain
circumstances owe a duty apart from contract to use care in their
reports and in the work from which they resulted said, at pp. 180-
181:

"Secondly, to whom do these professional people owe
this duty? I will take accountants, but the same
reasoning applies to the others. They owe the duty,
of course, to their employer or client; and also I
think to any third person to whom they themselves
show the accounts, or to whom they know their
employer is going to show the accounts, so as to
induce him to invest money or take some other action
on them. But I do not think the duty can be
extended still further so as to include strangers of
whom they have heard nothing and to whom their
employer without their knowledge may choose to show
their accounts. Once the accountants have handed
their accounts to their employer they are not, as a
rule, responsible for what he does with them without
their knowledge or consent. . . The test of proximity
in these cases is: did the accountants know that the
accounts were required for submission to the plaintiff
and use by him? That appears from the case of
Langridge v. Levy [(1837) 2 M. & W. 519] as extended
by Cleasby, B. in George v. Skivington; [(1869) L.R. 5
Ex. 1, 5] and from the decision of that good judge,
Chitty, J., in Cann v. Willson, [(1888) 39 Ch. D. 39]
which is directly in point."

Denning L. J. said, at p. 183:

- 29 -

"It will be noticed that I have confined the duty to
cases where the accountant prepares his accounts and
makes his report for the guidance of the very person
in the very transaction in question. That is sufficient
for the decision of this case. I can well understand
that it would be going too far to make an accountant
liable to any person in the land who chooses to rely
on the accounts in matters of business, for that would
expose him to 'liability in an indeterminate amount
for an indeterminate time to an indeterminate class':
see Ultramares Corporation v. Touche [(1951) 255
N.Y. Rep. 170] per Cardozo, C.J."

In Hedley Byrne & Co. Ltd v. Heller & Partners Ltd. [1964]
A.C. 465, bankers who were asked about the financial stability of
one of their customers gave favourable references but stipulated
that these were "without responsibility." The plaintiffs on whose
behalf the information had been sought relied on the references
and thereby suffered loss. They sued the bank. Lord Reid said,
at p. 486:

"A reasonable man, knowing that he was being trusted
or that his skill and judgment were being relied on,
would, I think, have three courses open to him. He
could keep silent or decline to give the information
or advice sought: or he could give an answer with a
clear qualification that he accepted no responsibility
for it or that it was given without that reflection or
inquiry which a careful answer would require: or he
could simply answer without any such qualification.
If he chooses to adopt the last course he must, I
think, be held to have accepted some responsibility
for his answer being given carefully, or to have
accepted a relationship with the inquirer which
requires him to exercise such care as the
circumstances require."

Lord Reid said, at p. 487 with reference to Candler v.
Crane, Christmas & Co [1951] 2 K.B. 164: "This seems to me to
be a typical case of agreeing to assume responsibility." Lord
Morris of Borth-y-Gest said, at pp. 494-495:

"My Lords, it seems to me that if A assumes a
responsibility to B to tender him deliberate advice, there
could be a liability if the advice is negligently given. I say
'could be' because the ordinary courtesies and exchanges of
life would become impossible if it were sought to attach
legal obligation to every kindly and friendly act .... Quite
apart, however, from employment or contract there may be
circumstances in which a duty to exercise care will arise if
a service is voluntarily undertaken."

He further stated, at p. 497:

"Leaving aside cases where there is some contractual or
fudiciary relationship, there may be many situations in which
one person voluntarily or gratuitously undertakes to do
something for another person and becomes under a duty to
exercise reasonable care. I have given illustrations. But



- 30 -

apart from cases where there is some direct dealing there
may be cases where one person issues a document which
should be the result of an exercise of the skill and judgment
required by him in his calling and where he knows and
intends that its accuracy will be relied upon by another."

He further stated at pp. 502-503:

"My Lords, I consider that it follows and that it should now
be regarded as settled that if someone possessed of a
special skill undertakes, quite irrespective of contract, to
apply that skill for the assistance of another person who
relies upon such skill, a duty of care will arise. The fact
that the service is to be given by means of or by the
instrumentality of words can make no difference.
Furthermore, if in a sphere in which a person is so placed
that others could reasonably rely upon his judgment or his
skill or upon his ability to make careful inquiry, a person
takes it upon himself to give information or advice to, or
allows his information or advice to be passed on to, another
person who, as he knows or should know, will place reliance
upon it, then a duty of care will arise."

Lord Devlin, after posing the question, at p. 525 "is the
relationship between the parties in this case such that it can be
brought within a category giving rise to a special duty?" referred
to a number of cases and continued at pp. 528-529:

"I think, therefore, that there is ample authority to justify
your Lordships in saying now that the categories of special
relationships which may give rise to a duty to take care in
word as well as in deed are not limited to contractual
relationships or to relationships of fiduciary duty, but
include also relationships which in the words of Lord Shaw
in Nocton v. Lord Ashburton [(1914) AC 932, 972] are
'equivalent to contract,' that is, where there is an
assumption of responsibility in circumstances which, but for
the absence of consideration, there would be a contract.
Where there is an express undertaking, an express warranty
as distinct from mere representation, there can be little
difficulty. The difficulty arises in discerning those cases in
which the undertaking is to be implied. In this respect the
absence of consideration is not irrelevant. Payment for
information or advice is very good evidence that it is being
relied upon and that the informer or adviser knows that it
is. ... "I do not understand any of your Lordships to hold
that it is a responsibility imposed by law upon certain types
of persons or in certain sorts of situations. It is a
responsibility that is voluntarily accepted or undertaken,
either generally where a general relationship, such as that
of solicitor and client or banker and customer, is created,
or specifically in relation to a particular transaction. In the
present case the appellants were not, as in Woods v. Martins
Bank Ltd [[1959] 1 Q.B. 55] the customers or potential
customers of the bank. Responsibility can attach only to
the single act, that is, the giving of the reference, and only
if the doing of that act implied a voluntary undertaking to
assume responsibility."

Lord Devlin summarised his conclusions at p. 530:

- 31 -

"I shall therefore content myself with the proposition that
wherever there is a relationship equivalent to contract,
there is a duty of care. Such a relationship may be either
general or particular. Examples of a general relationship
are those of solicitor and client and of banker and customer
.... Where, as in the present case, what is relied on is a
particular relationship created ad hoc, it will be necessary
to examine the particular facts to see whether there is an
express or implied undertaking of responsibility. I regard
this proposition as an application of the general conception
of proximity."

There are a number of references in the speeches in Hedley
Byrne & Co. Ltd. v. Heller & Partners Ltd. to voluntary
assumption of responsibility. Although in that case the respondent
bankers gave the financial reference without payment, I do not
understand that "voluntary" was intended to be equiparated with
"gratuitous." Rather does it refer to a situation in which the
individual concerned, albeit under no obligation in law to assume
responsibility, elected so to do. This is, I think, made clear by
Lord Devlin's reference to the responsibility voluntarily undertaken
by a solicitor to his client.

Here the building society had a statutory duty under section
25 of the Building Societies Act 1962 to satisfy itself as to the
adequacy of the security of any advance to be made and for that
purpose to obtain "a written report prepared and signed by a
competent and prudent person who is experienced in the matters
relevant to the determination of the value". In pursuance of that
duty the building society instructed the appellants who, by
accepting these instructions, not only entered into contractual
relations with the building society but also came under a duty in
tort to it to exercise reasonable care in carrying out their survey
and preparing their report. To that extent they were in no
different position to that of any other professional person who has
accepted instructions to act on behalf of a client. However there
were certain other factors present which must be taken into
account. In the first place, the appellants were aware that their
report would be made available to Mrs. Smith. In the second
place they were aware that she would probably rely upon the
contents of the report in deciding whether or not to proceed with
the purchase of the house and that she would be unlikely to obtain
an independent valuation. In the third place they knew that she
had at the time of the mortgage application paid to the building
society an inspection fee which would be used to defray their fee.
In these circumstances would the appellants in the absence of
disclaimers of responsibility have owed a duty of care to Mrs.
Smith?

In each of the three cases to which I have referred there
was direct contact between the negligent provider of information
on the one hand and the plaintiff or his agent on the other. In
Cann v. Willson (1888) 39 Ch. D. 39, the sole purpose of the
valuation was to enable the intending mortgagor to obtain a
mortgage over the property value. In Candler v. Crane, Chrismas
& Co. [1951] 2 K.B. 164, although the accounts were prepared for
the benefit of the company, the discussion between the
accountants' clerk and the plaintiff was for the sole purpose of



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enabling the latter to decide whether or not to invest in the
company. Chitty J. and Denning L.J. referred to the valuation
being sent and the accounts being shown and discussed for the
purpose of inducing the plaintiff to do something. In Hedley Byrne
& Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465, the
information was provided to satisfy the inquiry made on behalf of
the plaintiff. In the present case there was no direct contact
between the appellants and Mrs. Smith and their sole purpose in
preparing their report was to enable the building society to fulfil
its statutory obligation. There are thus points of important
distinction between the facts of this case and those of the other
three. However, that does not necessarily mean that a different
result must follow. The question must always be whether the
particular facts disclose that there is a sufficiently proximate
relationship between the provider of information and the person
who has acted on that information to his detriment, such that the
former owes a duty of care to the latter.

It is tempting to say that in this case the relationship
between Mrs. Smith and the appellants was, in the words of Lord
Shaw of Dunfermline quoted by Lord Devlin in Hedley Byrne & Co.
Ltd. v. Heller & Partners Ltd., "equivalent to contract" inasmuch
as she paid for the appellants' report. However, I do not think
that Lord Devlin, when he used those words, had in mind the sort
of tripartite situation which obtained here, but rather was he
considering a situation where the provider and receiver of
information were in contact with one another either directly or
through their agents, and where, but for the lack of payment, a
contract would have existed between them. In the present case a
contract existed between the building society and the appellants
who carried out their inspection and produced their report in
pursuance of that contract. There was accordingly no room for a
contract between Mrs. Smith and the appellants. I prefer to
approach the matter by asking whether the facts disclose that the
appellants in inspecting and reporting must, but for the
disclaimers, by reason of the proximate relationship between them,
be deemed to have assumed responsibility towards Mrs. Smith as
well as to the building society who instructed them.

There can be only an affirmative answer to this question.
The four critical facts are that the appellants knew from the
outset:




1. That the report would be shown to Mrs. Smith;

2. That Mrs. Smith would probably rely on the valuation
   contained therein in deciding whether to buy the house
   without obtaining an independent valuation;

3. That if, in these circumstances, the valuation was, having
   regard to the actual condition of the house, excessive Mrs.
   Smith would be likely to suffer loss; and

(4) That she had paid to the building society a sum to
defray the appellants' fee.

In the light of this knowledge the appellants could have
declined to act for the building society, but they chose to proceed.
In these circumstances they must be taken not only to have



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assumed contractual obligations towards the building society but
delictual obligations towards Mrs. Smith, whereby they became
under a duty towards her to carry out their work with reasonable
care and skill. It is critical to this conclusion that the appellants
knew that Mrs. Smith would be likely to rely on the valuation
without obtaining independent advice. In both Candler v. Crane,
Christmas & Co. [1951] 2 K.B. 164 and Hedley Byrne & Co Ltd.
v. Heller & Partners Ltd. [1964] AC 465 the provider of the
information was the obvious and most easily available, if not the
only available, source of that information. It would not be
difficult therefore to conclude that the person who sought such
information was likely to rely upon it. In the case of an intending
mortgagor the position is very different since, financial
considerations apart, there is likely to be available to him a wide
choice of sources of information, to wit, independent valuers to
whom he can resort, in addition to the valuer acting for the
mortgagee. I would not therefore conclude that the mere fact
that a mortgagee's valuer knows that his valuation will be shown
to an intending mortgagor of itself imposes upon him a duty of
care to the mortgagor. Knowledge, actual or implied, of the
mortgagor's likely reliance upon the valuation must be brought
home to him. Such knowledge may be fairly readily implied in
relation to a potential mortgagor seeking to enter the lower end
of the housing market but non constat that such ready implication
would arise in the case of a purchase of an expensive property
whether residential or commercial. Mr. Hague for the appellants
conceded that if there had been no disclaimer they must fail. For
the reasons which I have just given I consider that this concession
was rightly made.

I would only add three further matters in relation to this
part of the case. In the first place the duty of care owed by the
appellants to Mrs. Smith resulted from the proximate relationship
between them arising in the circumstances hereinbefore described.
Such duty of care was accordingly limited to Mrs. Smith and would
not extend to "strangers" (to use the words of Denning L.J. in
Candler v. Crane Christmas & Co. [1951] 2 K.B. 164, 180) who
might subsequently derive a real interest in the house from her.
In the second place the fact that A is prepared to lend money to
B on the security of property owned by or to be acquired by him
cannot per se impose upon A any duty of care to B. Much more
is required. Were it otherwise a loan by A to B on the security
of property, real or personal, would ipso facto amount to a
warranty by A that the property was worth at least the sum lent.
In the third place the sum sought by Mrs. Smith as a mortgage
was relatively small and represented only a small proportion of the
purchase price. The house with all its defects was worth
substantially more than that sum, and had the report merely stated
that the house was adequate security for that sum, Mrs. Smith
would have had no complaint. However, the report contained a
"mortgage valuation" of the house, which valuation wholly failed to
reflect the structural defect. It is that valuation of which Mrs.
Smith is entitled to complain.

(II) The next question is whether the disclaimers by and on
behalf of the appellants fall within the ambit of the Unfair
Contracts Act 1977. In Hedley Byrne & Co. Ltd. v. Heller &
Partners Ltd. [1964] AC 465, it was held that the disclaimer of



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responsibility made by the defendant bankers when giving the
reference negatived any assumption by them of a duty of care
towards the plaintiff. If the circumstances of this case had arisen
before 1977 there can be no doubt that the disclaimers would have
been effective to negative such an assumption of responsibility.
Has the Act of 1977 altered the position? The relevant statutory
provisions are sections 2(2), 11(3) and 13(1):

"2(2). In the case of other loss or damage, a person cannot
so exclude or restrict his liability for negligence except in
so far as the term or notice satisfies the requirement of
reasonableness. . . .

"11(3) In relation to a notice (not being a notice having
contractual effect), the requirement of reasonableness under
this Act is that it should be fair and reasonable to allow
reliance on it, having regard to all the circumstances
obtaining when the liability arose or (but for the notice)
would have arisen ....

"13(1) To the extent that this Part of this Act prevents the
exclusion or restriction of any liability it also prevents - (a)
making the liability or its enforcement subject to restrictive
or onerous conditions; (b) excluding or restricting any right
or remedy in respect of the liability, or subjecting a person
to any prejudice in consequence of his pursuing any such
right or remedy; (e) excluding or restricting rules of
evidence or procedure; and (to that extent) sections 2 and 5
to 7 also prevent excluding or restricting liability by
reference to terms and notices which exclude or restrict the
relevant obligation or duty."

In the other appeal, Harris v. Wyre Forest District Council
[1988] Q.B. 835, the Court of Appeal held that the Act of 1977
did not apply. Nourse L.J. at p. 848, accepted the defendant's
argument that a notice which prevented a duty of care from
coming into existence was not one upon which section 2(2) bit.
Kerr L.J., said at p.

"For these reasons I agree with the judgments of Nourse
L.J. and Caulfield J. that the effect of the Unfair Contract
Terms Act 1977 on the disclaimer of responsibility and
warning is of no relevance to the present case. One never
reaches that issue, since it arises only if the existence of a
duty of care and a breach of it have first been established."

Mr. Ashworth in the Harris appeal supported the reasoning
of the Court of Appeal and argued that the Act only applied to a
disclaimer which operated after a breach of duty had occurred.
Mr. Hague in this appeal adopted Mr. Ashworth's argument.

My Lords, with all respect to the judges of the Court of
Appeal, I think that they have overlooked the importance of
section 13(1). The words "liability for negligence" in section 2(2)
must be read together with section 13(1) which states that the
former section prevents the exclusion of liability by notices "which
exclude or restrict the relevant obligation or duty." These words
are unambiguous and are entirely appropriate to cover a disclaimer
which prevents a duty coming into existence. It follows that the



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disclaimers here given are subject to the provisions of the Act and
will therefore only be effective if they satisfy the requirement of

reasonableness.

,(II) I have had the advantage of reading in draft the speech of
my noble and learned friend Lord Griffiths, and I gratefully adopt
his reasons for concluding that the disclaimers did not satisfy the
statutory requirement of reasonableness. I cannot usefully add
anything to what he has said upon this matter.

For the foregoing reasons I would dismiss this appeal.
Harris v. Wyre Forest District Council and Another

Mr. and Mrs. Harris, two young people who were at the
time contemplating matrimony, applied to the council for a
mortgage over a house which they wished to buy. At the time,
local authorities were empowered by section 43 (as amended) of
the Housing (Financial Provisions) Act 1958 (as amended by section
37 of the Local Government Act 1974), to advance money up to a
sum not exceeding the value of the security for house purchase.
Before making an advance the local authority was required to
satisfy itself that the house was or would be made in all respects
fit for human habitation and have a valuation made.

The Harrises submitted their application form together with
a "valuation fee and administration fee" of £22. The form
contained an acknowledgment that the council accepted no
responsibility for the value or condition of the house by reason of
the inspection report. The council instructed the second
respondent, Mr. Lee, a valuer in their employment, to inspect the
house and report. Mr. Lee valued the house at the asking price of
£9,450, recommended that the maximum loan should be 90 per
cent, of the value and under the heading of "Essential Repairs"
stated "Obtain report for district council from M.E.B. [Midland
Electricity Board] regarding electrics and carry out any
recommendations. Make good mortar fillets to extension." Mr.
Lee's report was not shown to the Harrises but they were
subsequently offered, by the council, an advance of £8,505 on
condition, inter alia, that they carried out the essential repairs
above referred to. Relying on this offer and without obtaining
other advice as to value, the Harrises bought the house.
Unfortunately there were present serious structural defects in the
house which Mr. Lee had not referred to and which materially
reduced its value. As a result of the defects the Harrises
suffered loss.

The foregoing is a summary of the relevant facts and I turn
to examine in more detail those facts which determine whether or
not Mr. Lee owed a duty of care to the Harrises. He knew that
the report would not be sent to the Harrises but that they would
be told the amount of any advance and would be told of any
repairs which he considered to be essential. He also knew that
the Harrises were likely to be first-time buyers of modest means.
There is no finding by the judge that he was aware that the
Harrises were likely to rely on his valuation in buying the house
and that they were unlikely to obtain independent advice.
However, after referring to the position of a valuer acting for a
building society, Schiemann J. in [1987] 1 E.G.L.R. 231, 236 said:

- 36 -

"Such a valuer has been held to be liable to the mortgagor
in the Yianni case and I see nothing on the grounds of
policy or in the subsequent case law which should prevent
me from following that decision."

In Yianni v. Edwin Evans & Sons [1982] 1 Q.B. 438, the
plaintiffs applied to a building society for a mortgage and paid a
fee for the statutory valuation. The building society instructed
the defendant surveyors to value the property and on receipt of
their valuation offered to the plaintiffs a loan of 80 per cent. of
the asking price of the house. The defendants' report was not
made available to the plaintiffs. The application form advised the
plaintiffs to obtain an independent survey and with the offer of
the loan the plaintiffs received a notice under section 30 of the
Building Societies Act 1962 indicating that an advance by the
building society did not imply that the purchase price was
reasonable. Consequent upon the offer, the plaintiffs bought the
house without obtaining an independent valuation. Some time
later, structural defects were discovered which the defendants
admitted that they should have found on their inspection. The
plaintiffs successfully sued the defendants for negligence.
However, the facts in that case differed in one material aspect
from those in the present in that there was there unchallenged
evidence from the chief surveyor of a very large building society
that no more than 15 per cent. of persons applying to a building
society for a mortgage instructed independent surveys. Park J.
concluded that the defendant surveyors, who had regularly carried
out valuations for the building society, were aware that their
figure of valuation would be passed on to the plaintiffs and were
aware that the plaintiffs would rely upon it when they decided to
accept the offer of the building society. In the absence of such a
specific finding of awareness in the present case I do not think
that it can necessarily be assumed that the experience of a local
authority valuation surveyor must be the same as that of an
independent surveyor regularly acting on behalf of a large building
society. The only other relevant piece of evidence in the extracts
from the transcript is the following question by the judge to Mr.
Lee and the answer thereto:

"Q. You did know that if the list of essential repairs was
passed on to the mortgagor he would take the view that
these were, in your eyes, the essential repairs?




"A. That is right . . . . "

My Lords, I have found this case very much more difficult
than that of Smith v. Eric S. Bush [1988] Q.B. 743. I do not find
it easy to infer from such findings as were made by Schiemann J.
and from the question and answer above quoted that Mr. Lee was
aware that the Harrises would be likely to buy on reliance on his
valuation without obtaining further advice. However, I understand
that your Lordships do not share this difficulty and in these
circumstances I do not feel disposed to dissent from the majority
view. I therefore conclude, albeit with hesitation, that Mr. Lee
would, but for the terms of the disclaimer in the application form,
have owed a duty of care to the Harrises. In that situation the
second and third question which I posed in the Smith v. Eric S.
Bush appeal would arise and would fall to be answered in the same
way as in that appeal. It therefore follows that this appeal should
be allowed.

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