Smith v Eric S Bush (a firm) (1989)

Hedley Byrne v Heller established that a negligent statement can found liability where there is a special relationship — but the defendant there escaped because of a disclaimer. This case is where the disclaimer defence was cut down.

It matters to ordinary people more than most negligence cases. A house buyer does not usually commission a survey; the building society's valuer inspects, the buyer pays the fee through the society, and the buyer relies on the result. The House of Lords held that the valuer owes the buyer a duty in tort, and that a printed disclaimer will not save him unless it is fair and reasonable.

Lord Templeman set out the three questions in the case, and they are the cleanest structure for an answer:

"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 short: duty → is the disclaimer caught by the statute → is it reasonable.

Two appeals were heard together.

In Harris v Wyre Forest District Council [1988] QB 835, Mr and Mrs Harris wished to buy 74 George Street, Kidderminster and needed a mortgage. They applied to the council, which lent under the Housing (Financial Provisions) Act 1958. The council's valuer inspected; the purchasers were not shown the report and relied on the fact that the loan was made. The house had a serious defect.

In Smith v Eric S Bush, a building society instructed the defendant firm of surveyors to value a house for mortgage purposes. The purchaser paid the valuation fee, the report was shown to her, and it carried a disclaimer of responsibility for accuracy. She bought in reliance on it; a chimney breast later collapsed.

Appeal in Harris allowed; appeal in Smith dismissed — that is, the purchaser succeeded in both.

(1) Duty. A valuer instructed by a mortgagee who knows that the purchaser will probably rely on his valuation owes the purchaser a duty to take reasonable skill and care. The valuer knows the purchaser has paid for the valuation and, in the modest housing market, is very unlikely to commission a second survey.

(2) The disclaimer is caught by UCTA. A disclaimer is a notice that purports to exclude liability for negligence within the Unfair Contract Terms Act 1977, and so is ineffective unless it satisfies the requirement of reasonableness. This is the critical step: the disclaimer is not treated as preventing the duty from arising in the first place, but as an attempt to exclude a liability that would otherwise exist — and therefore as subject to the statutory control.

(3) Reasonableness. In the absence of special circumstances it is not fair and reasonable for a valuer of a modest house to disclaim liability to the purchaser. The factors that mattered: the inequality of bargaining power, the practical impossibility of the purchaser obtaining the service elsewhere, the fact that the purchaser had paid, the valuer's ability to insure and spread the risk, and the modest value of the property.

A professional valuer instructed by a mortgagee owes a duty of care in tort to the purchaser who he knows will rely on his valuation. A disclaimer of that liability is subject to the reasonableness requirement of the Unfair Contract Terms Act 1977, and in the ordinary case of a modest dwelling it will not be fair and reasonable.

The decision is deliberately confined to modest residential property. Their Lordships indicated that a different answer might be reached for commercial property or a large or unusual house, where the purchaser can be expected to obtain independent advice. Say this in an answer; it is the qualification examiners look for.

• Direct question: Discuss liability for negligent misstatement. Structure: Derry v Peek → Candler v Crane Christmas (Denning LJ dissenting) → Hedley Byrne v Heller → this case on the disclaimer → Caparo v Dickman on the three-stage test.
• Problem question pattern: a buyer relies on a mortgage valuation and the property proves defective. Duty owed; disclaimer tested for reasonableness; likely ineffective for an ordinary house.
• Structural tip: use Lord Templeman's three questions as the skeleton — duty, is the disclaimer caught by the statute, is it reasonable.
• In India: there is no UCTA equivalent, so the disclaimer point runs instead through the Indian Contract Act 1872 and the Consumer Protection Act, where deficiency in service by a professional is actionable. Note the difference rather than assuming the English result.