Smith v Eric S Bush
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,LORD JUSTICE KERR,MR. JUSTICE CAULFIELD |
| Judgment Date | 17 December 1987 |
| Judgment citation (vLex) | [1987] EWCA Civ J1217-5 |
| Docket Number | 87/1304 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 December 1987 |
and
and
[1987] EWCA Civ J1217-5
Lord Justice Kerr
Lord Justice Nourse
and
Mr. Justice Caulfield
87/1304
1983 H. No.00894
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR. JUSTICE SCHIEMANN)
Royal Courts of Justice
MR. PIERS ASHWORTH, Q.C. and MR. NICHOLAS WORSLEY (instructed by Messrs. Lawrence Graham, Solicitors, London WC2R 1JN, agents for Messrs. Rowleys & Blewitts, Solicitors, Birmingham B4 6JA) appeared on behalf of the Defendants (Appellants).
MR. R.L. JOHNSON, Q.C, MR. MALCOLM STITCHER and MR. BRUCE SPELLER (instructed by Messrs. Thursfield & Adams, Solicitors, Kidderminster, Worcestershire DY10 2AJ) appeared on behalf of the Plaintiffs (Respondents).
This is another in the line of recent cases in negligence where the question for decision has been whether a duty of care is owed to someone to whom it was formerly assumed that no duty was owed. Here it is a house purchaser who, in reliance on a valuation made without due care by an officer of a local authority advancing money on mortgage under the Housing Acts, proceeds with his purchase and suffers damage in consequence. In Odder v. Westbourne Park Building Society, (1955) 165 Estates Gazette 261, a comparable action against a building society was described by Harman J. as unheard of. But it is said that decisions subsequent to Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., (1964) Appeal Cases 465, in particular Yianni v. Edwin Evans & Sons, (1982) Queen's Bench 438, have now established that the action will lie. That was the view of Schiemann J., who decided this case in favour of the purchasers. The local authority and their surveyor, who was also made a party to the action, have now appealed to this court. It must be emphasised at the outset that this is a case where the local authority expressly disclaimed liability to the purchasers in respect of the valuation.
The material facts, most of which I take from the necessarily longer statement of the learned judge, are these. In 1978 the plaintiffs, Mr. and Mrs. Harris, then a young couple who were thinking of getting married, were looking in Kidderminster for a house costing less than £10,000. They were looking at Victorian terraced houses. They knew that they would have to obtain a mortgage for nearly all of the purchase price. They came to the conclusion that the most suitable source of finance was the first defendants, the Wyre Forest District Council, who at that time, like many other local authorities and with the encouragement of successive governments, had a policy of making loans to intending purchasers of older, small residential properties, on the security of which banks and building societies were in general unwilling to lend. The details of the council's scheme were set out in a document which was available to interested parties, but the judge found that the plaintiffs never saw it and that no steps were taken by the council to bring it to the attention of potential mortgagors.
Eventually the plaintiffs decided that they would like to purchase No. 74 George Street, Kidderminster, which was for sale at a price of £9,450. The selling agent, who evidently had a supply of the council's standard mortgage application forms, filled in one of them with the plaintiffs' help, indicating that they were prepared to contribute £500. That form was signed by the plaintiffs on 23rd August 1978. Immediately above their signatures appeared these words:
"TO BE READ CAREFULLY AND SIGNED BY ALL APPLICANTS. I /WE enclose herewith the Valuation Fee & 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 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."
The judge found that neither of the plaintiffs read those words, although they did enclose the fee of £22 with the application form. Nobody suggested to the plaintiffs that they should have their own survey done. They themselves did not think of it, although they knew that such a thing could be arranged at a price, which the judge said would have been somewhere between £75 and £100. The plaintiffs themselves did not make any inspection of the outside of the house.
In due course the council arranged for the second defendant, Mr. Lee, to inspect and value the property. He was employed by the council as a valuation surveyor. He was not a building surveyor. He inspected the property on 8th September and subsequently prepared his report which was dated 13th September. He valued the house at the asking price of £9,450 and recommended a loan of 90% of the valuation for a maximum period of 25 years. Under the heading "Essential Repairs" he wrote:
"Obtain report for District Council from MEB regarding electrics and carry out any recommendations. Make good mortar fillets to extension."
The judge held that it was implicit in Mr. Lee's report that structural repairs were not in his view essential. He also found that Mr. Lee knew that his report would not be forwarded to the plaintiffs but that they would be told the amount of any loan and of any repairs which he regarded as being essential. Mr. Lee also knew that the typical applicant was a first time buyer of modest means.
By 25th September the vendors had agreed to a reduced price of £9,000. Two days later the council wrote to the plaintiffs and told them that they were prepared to make an advance of £8,505 repayable over a period of 25 years, subject to a number of conditions, one of which was that the plaintiffs should sign an undertaking on completion "to carry out within 12 months therefrom the work detailed overleaf". Overleaf appeared the following:
"ESSENTIAL REPAIRS (1) Obtain report for District Council from Midland Electricity Board regarding electrics and carry out any recommendations. (2) Make good mortar fillets to extension."
Completion duly took place on 23rd November 1978, when the plaintiffs signed an undertaking in the form required.
Three years later, in November 1981, the plaintiffs put No. 74 George Street on the market. In April 1982 some prospective purchasers applied to the council for a similar loan in respect of the property. Mr. Lee made a further inspection and valued it at £13,750. But because of a problem with settlement at the next-door property which had been experienced in February 1981 he recommended that the whole of the proposed loan should be retained until a structural survey report by an independant architect or structural engineer had been obtained and any recommended work carried out. A structural survey was duly obtained and it became clear that the cost of the recommended works would run into many thousands of £'s. That meant that the council were unable to lend money on the security of the property and that in consequence it was unsaleable. In June 1982 the plaintiffs instructed their own building surveyor, who reported that the building was unsaleable and required considerable underpinning and other works. His report was sent to the council who prepared a specification, which included, but went beyond, the plaintiffs' surveyor's suggestions. One contractor who was approached was not prepared to tender since he regarded the proposed work as impractical and unsafe. Another quoted over £13,000 to carry out the necessary works. Formal application was made for a repair grant, but the council had no surplus funds. The house was taken off the market in July 1982 and the plaintiffs have continued to live there ever since. The writ in the action was issued on 16th September 1983.
The claim made in the reamended statement of claim can for present purposes be summarised as follows: (1) In carrying out his inspection and valuation in 1978 Mr. Lee owed a duty of care to the plaintiffs; (2) the inspection and valuation were carried out carelessly by Mr. Lee, for whose negligence the council is vicariously liable; (3) Mr. Lee and the council, or one of them, carelessly misrepresented in the valuation report that the property was worth more than the amount of the loan requested by the plaintiffs; (4) the mortgage offer made to the plaintiffs by the council was made in the light of and in reliance upon the valuation report and in the knowledge that the plaintiffs might also rely on it; and (5) the plaintiffs did rely on the report and thereby suffered damage. By their defence the defendants deny that they were negligent. They further deny that the plaintiffs placed any reliance upon the inspection or valuation. So far as necessary they rely on the disclaimer contained in the mortgage application form of 23rd August 1978. By their reply the plaintiffs contend that the disclaimer is ineffective to exclude liability for negligence and, so far as is necessary, they rely on section 2 of the Unfair Contract Terms Act, 1977.
The council's statutory power to advance money on the security of the property (see below) could only be exercised if they had...
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