Smith v Eric S Bush

Facts

Mrs Smith bought a house with a mortgage from a building society. The society instructed a valuer, Eric S Bush, to inspect and value the property, and Mrs Smith paid the fee for the report. The report contained a disclaimer of responsibility. The valuer did not notice that chimney breasts had been removed, and the chimney later collapsed through the bedroom ceiling. In the linked appeal, Harris v Wyre Forest District Council, a council valuer similarly valued a house for a mortgage lender and the buyer claimed against the council.

History

The purchasers had succeeded in the Court of Appeal in both cases, and the valuers appealed to the House of Lords.

Issue

Whether a valuer instructed by a lender owes a duty of care to a purchaser of a modest house who relies on the valuation, and whether a disclaimer of liability is effective given the Unfair Contract Terms Act 1977.

Held

Appeals dismissed. The valuers owed a duty of care to the purchasers and the disclaimers were subject to the statutory reasonableness test, which they failed in respect of modest residential property.

Ratio

• A valuer instructed by a mortgage lender owes a duty of care to a purchaser of a modest house where the valuer knows that the purchaser will probably rely on the valuation without independent advice and the purchaser does so.
• A disclaimer of liability for negligent misstatement is a notice that attempts to exclude liability and is subject to the reasonableness requirement in the Unfair Contract Terms Act 1977, and for an ordinary house purchase such a disclaimer is not fair and reasonable.

The judgments

Key reasoning

• The purpose of the valuation is known to the valuer, the buyer for a modest house will normally rely on it, and the valuer knows that the buyer will do so, so the relationship is close enough to give rise to a duty.
• A person who negligently undertakes a service that the lender and the buyer rely on cannot avoid the Act by including a disclaimer, and the reasonableness inquiry looks at the bargaining position, the ease and cost of alternative advice and the insurance position.
• Since the buyer cannot sensibly obtain a separate survey for a modest house and valuers are insured, it is fair that the valuer bear the loss.

Obiter

• Different considerations may apply to the valuation of high-value or commercial property, where the purchaser can be expected to take independent advice.

Where it fits in the module

For FHS Tort, Smith v Bush is a starred case on negligent statements and the provision of services. It tests the tension between assumption of responsibility and the Caparo approach, and between voluntary undertakings and imposed duties, and shows how statute interacts with common law duties of care. Students should compare it with Hedley Byrne, Caparo Industries v Dickman and White v Jones.

Criticisms

• The duty was imposed although the valuer assumed no responsibility to the buyer and was engaged by the lender, so the case shows assumption of responsibility being used as a fiction rather than a real test.
• The reasonableness analysis depends on factors such as insurance availability, which makes the outcome depend on the market for insurance, not on fault.
• The distinction between modest and expensive houses is vague and leaves the scope of the duty unclear.